Sigma Lithium Corp Q3 FY2025 Earnings Call

Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. There will be a replay for this call on the company's website. I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna.

I'd like to welcome you to our third-quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third-quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral.

Good morning, everyone. It's a pleasure to present Sigma Lithium's Third Quarter 2025 results from the Amazon, where COP30, the United Nations Climate Conference is taking place. Sigma is participating as part of the Brazilian delegation. We have been in high-level discussions with delegations worldwide, demonstrating how we have met every sustainability target set in 2017 when we first invested in the company. Since then, we have built the most sustainable lithium beneficiation plant globally, utilizing algorithms and AI to improve efficiency in mineral processing and increase plant recovery. Our strategy merges technology, metallurgy, and mining to enhance sustainability by maximizing output with minimal resources. Please review the disclaimers as we will be making several forward-looking statements and guidance during this presentation. We take pride in our achievements this quarter, particularly given the conditions in the lithium market. Our business resilience has grown significantly through five key initiatives. Firstly, we increased our net revenues through an optimal commercial strategy, achieving a 69% increase quarter-on-quarter and a 36% rise compared to the third quarter of last year. We've generated $31 million in cash from final price settlements throughout the year. Furthermore, we anticipate cash generation from sales of our sustainable high-purity middlings, totaling around 1 million tons. Our mining operations are also being upgraded successfully. Our plant restarted this week, and we expect our mine to resume operations in 2 to 3 weeks using equipment leased from the manufacturer. Additionally, we have maintained financial discipline, reducing our short-term trade finance debt by 43% this year despite a challenging lithium pricing environment. On this page, we highlight the financial performance of the third quarter of '25, including increased cash margins and reduced short-term debt. Revenues rose by 69% compared to the previous quarter and by 36% year-over-year, with a price increase of 33% from last quarter. This revenue growth reflects our enhanced efficiency. Our operating margin improved by 42% year-over-year, and our net margin rose 67% compared to last year. Both margins showed significant increases compared to the previous quarter. Our progress in deleveraging is evident in our reduced trade finance debt, which now stands at $33.8 million as of November 13. We also saw a 42% cash increase from the last quarter, a trend that contrasts sharply with our peers, who have reported cash burn. Our current cash position is $21 million, plus an additional $8 million in trade receivables from sales up to the third quarter of 2025. On this page, we proudly report a record of 787 consecutive days without lost time injuries, reflecting our commitment to operational excellence while continually reducing costs. Our TRFIR stands at 1.79, among the lowest globally, showing the impact of our employee engagement and safety processes, directly linked to performance improvements and cost-saving ideas from our workforce. This focus on safety fosters a cycle of improvement in both operations and costs. As we delve into our financial performance this quarter, we highlight how Sigma achieved an optimal commercial strategy that allowed us to price our materials effectively amidst market volatility. The chart shows provisional sales in red and final sales in green, illustrating our ability to secure significantly higher final prices by allowing clients to resell and settle at final prices, leading to incremental cash revenues. This success has resulted in additional cash flow, beginning with our cash position at the end of Q2, to an operations cash increase from provisional prices of $30 million, alongside trade receivables of $20 million from sales through Q3. Current trends have led to an additional $8 million increase due to rising prices, noting an overall incremental cash generation of $28 million from our optimized commercial strategy. Thus, our current cash is $21 million, with an additional $8 million from settled trades at prevailing market rates. We also have $33 million potential from the sale of middlings, which are currently valued at the Shanghai metal market at $112 per ton, leading to a significant cash boost from already produced materials. This is primarily a result of our investment in dry stacking and the Greentech plant's recycling and reprocessing efforts. Our cash position has enabled us to reduce short-term trade finance by 60% year-to-date as of November, demonstrating significant progress amid a tough year for lithium markets. This cash increase alongside the reduced short-term debt is a commendable achievement in such challenging financial circumstances. As for our debt maturity profile, it has become more favorable, with only $10 million remaining to be paid down, plus $100 million due next December related to shareholder debt that has significantly supported our operations and upgrades. We are in a robust debt position. We demonstrate on this page our commitment to sustainability and responsible lithium production. We have upheld the highest ethical sourcing standards throughout the pricing cycle, ensuring our resilience even amid slight production dips. Our cost structure remains competitive; we intend to stay at the forefront of the non-integrated lithium oxide concentrate market in Africa. This page shows that our lower production levels in September did not significantly impact our overall cost position, aligning our guidance for all-in sustaining costs. By incorporating various expenses, we anticipate lowering our all-in sustaining cost to $560 in 2026 based solely on production from the first plant, while rising cash costs will stabilize as we return to full production. We remain unrivaled in our low-cost positioning. This slide presents our planned offtake agreements for the year, derived from our competitive pricing as a responsible producer. We have tailored agreements to meet the diverse needs of our clients. This year, we are discussing three types of agreements: a three-month rolling offtake at market prices, a small long-term offtake of 20,000 tons for three years to fund mining equipment upgrades, and a conventional offtake being negotiated with a European trading company to support our expansion plans. For 2026, we have an additional 120,000 tons yet to be contracted in offtakes. We aim to secure conventional agreements with a regular end user to repay long-term shareholder debt, and further agreements with trading companies to support our growth strategy. We expect to announce three offtakes this year and two more next year. This page outlines our production and cost guidance for 2026 and 2027, with cash flow projected to rise alongside improvements in operational efficiency. With Plant 1, we aim for an all-in sustaining cost of $560 per tonne, which at current prices would yield $132 million in free cash flow. Following the completion of Plant 2, our production is projected to reach 550,000 tonnes by 2027, potentially lowering costs to approximately $500 per tonne and generating around $270 million in free cash flow at today’s price levels. This page illustrates how maintaining our status as the lowest cost producer allows us to reap substantial returns as lithium prices rise. Our Greentech Plant's upgrades were completed without delays, but mining operations require further enhancement. To recap, we integrate mining and production operations, and through the past nine months, we've recorded an 11% productivity increase. However, recent production declines were tied to the demobilization of our mining equipment provider. Moving forward, we've mastered efficient processing technology, achieving a 70% recovery rate and continuous improvements in 2025, which we plan to complement with mining upgrades. Our plant has restarted, and we aim to reach full operational capacity of 300,000 tons of lithium oxide concentrate by 2026. Our past production rates align with our mining strategy, ensuring we maintain ore grade consistency and position ourselves to resume mining operations swiftly. With necessary upgrades, production capabilities are expected to evolve, targeting 73,000 tonnes for Q1 2026. As the most sustainable large-scale producer, we receive substantial support from clients to pursue our expansion goals. We aim to reach 80,000 tons of lithium carbonate equivalent upon completing our Phase 2 expansion, increasing production to 120,000 tons by simply adding a third line, with the necessary infrastructure already in place. This financial backing underscores our role within the global lithium supply chain. In conclusion, we will continue executing our strategic plan for 2025 by finalizing offtake agreements, enhancing financial strength, monetizing existing lithium products, upgrading mining operations, partnering with clients for effective commercial strategies, and extending supplier terms to secure working capital. Thank you for this opportunity to present our third quarter earnings, and I now invite questions for our Q&A session.

Our first question comes from Bavida from Bloomberg. Thank you for the details on the cash balance. Based on Page 9, is the current cash balance USD 29 million plus USD 33 million, or just USD 29 million?

No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant.

Our next question comes from Leanne Crozier. What is the region of lithium middlings from the process circuits? What is their Li20 grade even as a range?

Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in the current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne.

Our next question comes from Armando Wolfrid. Could you please provide some more info on the $100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2?

Absolutely. We're going to rely on our suppliers and credit clients as we have been for several advancements we've been pursuing, including mining upgrades. There are various ways to disburse the BNDES loan. However, as we mentioned earlier, we were waiting for a quarter of stability in lithium prices due to the volatile pricing environment we've faced this year. We were among the few companies to generate cash this year, while our peers were primarily burning cash. Consequently, our Board decided to wait for a quarter of stability to greenlight the purchase of equipment. This could happen as soon as January or late January, given the currently strong price environment. We'll continue to utilize the same structures we've been using, which include large customer balance sheet support to facilitate disbursement.

Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please.

Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least one quarter of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably greenlight equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and filed that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility.

Our next question comes from Habbou. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase?

Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third.

Ms. Ana, your connection dropped again. If you can repeat...

Okay. So resuming, what we are doing is basically spot on. The reason for the upgrade of the mine aligns with your question. We understand the plant's capabilities; it can produce 300,000 tonnes of lithium oxide concentrate annually if properly supplied with fresh rock. By upgrading the plant, reassessing the mine plan, and moving more material, we are increasing product availability for the strong lithium price environment we anticipate in 2026. We took advantage of the subdued price conditions in the third quarter to make this decision, which was well-timed. As we move into 2026, we will already have enhanced quarterly production of 73,000 tonnes.

Our next question comes from Benson Chen. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays? Could you not utilize some credit lines to speed up the expansion and avoid delays?

Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients.

Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm how much production Sigma had at the mine in Q4 so far and the current amount of spodumene inventory.

We are planning to provide guidance for both the fourth and first quarters together. We have already issued our first-quarter guidance and will soon release the fourth-quarter guidance alongside our remobilization plan. The total cost to upgrade our mining operations is $25 million, fully covered by our clients. Now, we need to finalize the mobilization curve for our large tonnage equipment, which may be two to 2.5 times what we currently have. Depending on the mobilization curve, which will be announced soon, we may have an unexpected outcome for the fourth quarter. We will provide the fourth-quarter guidance once we complete the mobilization curve for the large tonnage equipment provided directly by the manufacturer. Additionally, it's important to note that the $25 million will not be paid in one lump sum. Instead, it will be paid in manageable installments over two to three years at low rates, specifically SOFR plus just under 1%. This arrangement is supported by our clients, reflecting our vital role in global downstream supply chains.

Our next question comes from Ricardo Fernandes. Are your volume contracts based on spot price or negotiated? How much lag is there between spot and realized prices?

Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do, though, is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation.

Our next question comes from Shiva Kumar. Are you getting any premium at all for the green lithium compared to the market price?

No, unfortunately not. I'm here at COP30, and that's been one of the frustrations. However, the advantage lies in commercial power, as global supply chains are being rearranged. We have similar battery makers supplying carmakers globally, both in the West and the East. There is significant emphasis on traceability, sustainability, and health and safety. Essentially, we have a brand that protects us from any concerns. It is quite straightforward to recognize the Quintuple Zero advantage, which gives us a commercial edge that is reflected in our offerings so far. We can negotiate provisional agreements when we think it is sensible to do so and rely on our clients' balance sheets for support in mining upgrades, among other things. Unfortunately, there is no green premium, and we do not anticipate there will be one anytime soon. Hopefully, it could happen, but that is still years away. What exists instead is a green commercial advantage.

Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in Q4 '25? And what would your inventory management strategy if lithium price continues to rise?

Yes. Thank you, David. We'll sell it all down. I mean, at current prices, the plan is to basically monetize everything we have, including what we call in China middlings, right? And we have high-purity middlings with an intact, we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which just shows that the current strategy is to monetize all the lithium we currently have.

Our next question comes from John Christian. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide showed $20 million debt paid down in the 4Q so far? Where did that approximately $35 million come from in the past 6 weeks?

Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially two different costs of logistics. These products are zero cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit.

Our next question comes from Olin Chen. Could you please clarify the expected lithium concentrate production volume for the fourth quarter of 2025 based on your current operational plans and the ramp-up schedule?

Yes, we haven't reached that point yet. I previously answered a similar question. We provided guidance for the first quarter of 2026. Once we finish the mobilization curve regarding the large equipment that will be available to us, which could range from 60-tonne trucks to 95-tonne trucks, we will see a significant increase from the smaller trucks we were using. A 75-ton truck can carry twice as much material as a 40-tonne truck, and a 60-tonne truck can carry 50% more. Trucks weighing 95 to 120 tonnes can transport three times more material with the same access size. The costs are similar because they all use diesel and require one driver instead of four for the same amount of equipment. This means we will reduce the workforce involved and maintain similar diesel consumption, resulting in a structural decrease in operational costs. We plan to share detailed guidance once we finalize the mobilization schedule for the equipment, which is currently underway. I was in China for two weeks and just returned a day and a half ago. We are making significant progress on that front, and we appreciate the support from manufacturers and clients as we contribute to three global supply chains—Europe, Asia, and China.

Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana.

Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world.

Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.