Earnings Call Transcript - SGML Q4 2025

Operator, Operator

Good morning, ladies and gentlemen. Welcome to Sigma Lithium's 2025 Fourth 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 Hartley, Vice President, Investor Relations

I'd like to welcome you to our 2025 earnings conference call. Joining me on the call today is Ana Cabral, Co-Chair and CEO of Sigma Lithium. Our earnings press release, presentation and corresponding documents are available on our website. I'd like to remind you that some of the statements made during this call, including any production guidance, expected company performance, update on mining operations, the timing of our projects and market conditions may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our presentation, MD&A and press release. Before turning the call to Ana Cabral, we will be showing you a short corporate video as we think the pictures will paint a thousand words about what's happening at Sigma.

Ana Cabral Gardner, Co-Chair and CEO

Hi, everyone. Thank you, Anna, for showing us this video of our operations. As you can all tell, we're very proud of what we built here in Vale do Jequitinhonha. Without further ado, I'll go straight into the fourth quarter 2025 earnings release presentation, which covers the full year 2025 annual financial results. We're going to make forward-looking statements, and we encourage you to read the disclaimer in our presentation, MD&A and press release. Sigma is the largest industrial mineral producer in the Americas. We've delivered operational excellence. We are a low-cost operation, and we are executing a high-growth strategy for 2026, 2027 and 2028. This is because we are a management-operated company where our interests are fully aligned with the interests of our shareholders, which are to build long-term value. Our main competitive advantage is our resilience, which comes from operational efficiency. Our efficiency is driven by the fact that management are owners of the company. More importantly, we are located in Brazil, which is a politically stable, traditional mining jurisdiction, where we have a very low-cost operating environment. On sustainability, we are 100% sustainable. We have the Quintuple Zero lithium framework, which comprises five points. We do not have tailings dams — zero. We do not use drinking water; 100% of the water is reused and recycled from sewage — zero drinking water. We use zero hazardous chemicals in our operation; the dense media separation (DMS) is a physics-based process. We use 100% clean energy — zero dirty energy. And we have had zero accidents with lost time for almost three years. A picture is a thousand words: here's a picture of our waste tailings before and after the artificial germination program. The material is blended into the landscape. It's basically stacked rock, fully geotechnically stable. We went through a sustainability initiative of planting the rock faces through artificial germination. The result is what you see now. Geotechnically safe, sustainable, blended into the landscape, which further enhances the environment. We have built the fifth largest industrial mineral lithium producing complex in the world. You can see we have a state-of-the-art industrial plant integrated with a mine. The plant is a state-of-the-art clean technology lithium processing facility where we achieved 70% recovery of the lithium, which is among the highest in the sector, and it compares favorably with processing methods that are far less sustainable. Sigma is the economic engine for developing the valley of Jequitinhonha. We lifted the valley toward prosperity. This is a key region of Minas Gerais, the second richest state in Brazil. We created 1,000 direct jobs, 11,000 indirect jobs and 21,000 beneficiaries from our social programs of microcredit and small-scale agriculture. We have granted drinking water access to 18,000 people. Eighty-five percent of our workforce is regional. Fifty percent of the economically active population has benefited from our social programs. We have renovated, created and built schools that put over 500 children into after-school or school programs. We have been instrumental in delivering 6.8% of GDP growth for the whole state of Minas Gerais. Every year we serve 3 million meals so that the new waves of people keep coming to help build this lithium valley. We have built a company to last. It's a resilient business that has thrived through lithium cycles. That's what we achieved in 2025, and that's what we will continue to deliver in 2026: large scale, low production costs and traceability. We have had zero accidents for 2.7 years. We uphold the highest health and safety standards in the world, top ranking among all companies in metals and mining. More importantly, we have demonstrated speed of execution, low CapEx to build and restructure operations, such as what we've done with mining. We are in a low-cost operating country, which supports us to achieve all of that. Now I'm going to go through the operational and financial highlights of 2025, and give you a preview of the first quarter 2026 estimate. We have had unparalleled resilience throughout the last year. We generated cash flows across 2025 lithium volatility. Our business was built to last and to endure cycles. Four key examples: first, we signed $146 million in offtake agreements with very robust intrinsic values. Intrinsic value is the advance we receive from clients for the right to deliveries of tonnage over time. The first offtake was signed in 2025 to fund working capital: $96 million for 70,000 tonnes of deliveries throughout 2026. The second was a $50 million typical offtake prepayment signed for 40,000 tonnes a year of annual deliveries over the next three years commencing in 2026. Second, we have demonstrated that a well-executed commercial strategy can yield results even in a volatile market. We tracked seasonality and achieved $67 million in net sales in the fourth quarter of 2025 and the first quarter of 2026, a result of a sound commercial policy. We monetized lithium seasonality by receiving price adjustments in the fourth quarter, working with clients to time deliveries and final sales throughout the contract season of 2025. This resulted in the fourth-quarter revenues. More importantly, we generated cash flow from a new line of business: selling lithium fines, high-purity lithium oxide fines reprocessed through our industrial plant out of our dry stack tailings. This initiative began in 2025 and continued into 2026. Third, we deleveraged our balance sheet and repaid debt: 60% of our short-term debt was repaid and 35% of our total debt was repaid in 2025. Fourth, we upgraded and restructured our mining operations for safety, efficiency, lower cost, cadence and better delivery. We transitioned from an external contractor to full operational control, and we are poised to demonstrate those efficiency gains and cost optimizations in the coming quarters. There are pictures that show the lithium fines piles being moved to the shipping halls at the port. The sales monetized what we used to call a green premium; in reality, we created a sustainability premium — actual financial results from the investment we made in a dry stack unit for the Greentech plant. The offtake agreements single-handedly enabled our mining upgrade, long debt repayment and capacity expansions. We signed a 40,000-tonne-a-year typical offtake that will net us $50 million in a true prepayment to be closed within the next three months. That amount is equivalent to 120,000 tonnes to be delivered over the next three years. The use of proceeds will be for our growth strategy. We also signed a 70,500-tonne one-year offtake for a total of $96 million for deliveries throughout 2026; the purpose was working capital. That working capital enabled our mining upgrade and some debt repayments. In 2026 we have two more offtakes to conclude. First, we will amend our equipment lease contracts for the mining upgrade large-scale machines that have been backed by an offtake for three years — initially for 11,000 tonnes, but that number may increase depending on machinery scale secured in the second quarter. Second, we are about to close an 80,000-tonne-a-year for three years offtake that will net us $100 million in a typical prepayment and will be used to pay down a long-term shareholder loan that is currently classified as short-term debt because it matures in December 2026. That shareholder loan was given in late 2022 to help commission our plant. Replacing that debt with an offtake is a sound operational move for Sigma. This slide demonstrates how our low costs create resilience from price pressures that lithium experienced this year, especially coming from new regions with products that are sometimes not compliant or traceable, and from continual refining innovation that pushes the industry cost ceiling lower. For example, lepidolite that once sold for $20,000–$25,000 per tonne is now around $17,000–$18,000 per tonne, possibly trending toward $15,000 per tonne. Regardless, we are working below the industry cost floor. As long as we sit where we are on the cost curve, we have resilience to sign offtakes without floors and continue to deliver excess returns at current price levels. On costs, we show total cash cost, which is all-in sustaining costs plus interest. Our full year achieved all-in sustaining costs plus interest are in the same ballpark as our FY26 guidance: we provided guidance of $532 for all-in sustaining costs plus $60 for interest for 2026. On safety, we continue to bring our people home safely every day. We've never had a fatality in 13 years of operations, and we have nearly 2.7 years with zero accidents with lost time. We rank at the top of safety standards across metals and mining. We had 1,600 employees at peak; we now have 1,000 employees and still maintain that safety record — 966 consecutive days without accidents. We're very proud of this. Now the numeric operational excellence and resilience: four items of our 2025 and Q1 2026 estimated performance. First, offtakes: $96 million offfake prepayment in 2025 for working capital; $50 million typical offtake for three years and 40,000 tonnes a year, totaling 120,000 tonnes. Second, we repaid debt substantially: 60% of short-term debt and 35% of total debt, driven by cash flow generation. We are a cash machine. In Q4 2025 we generated $31 million of cash from operations; in Q3 2025 we generated $23 million — a 35% increase quarter over quarter. Third, production decreased as we restructured mining, but we generated another revenue source by reprocessing dry stack tailings into low-grade lithium fines. We accumulated inventory equivalent to 70,000 tonnes of the high-grade product over the years; we reprocessed that material into a new line of business selling high-purity lithium fines. For the full year 2025 we produced 183,000 tonnes of high-grade premium lithium oxide versus 240,000 tonnes in 2024, a 24% decrease in volume. But we generated substantial cash flow by monetizing the fines. To quantify further: we had equivalent of 70,000 tonnes of high-grade premium product in monetary value from the fines. We sold that material and generated cash. All in all, we focused on cash flow, and cash flows were delivered, enabling significant debt repayment. Regarding commercial strategy, we sell material to commercial partners on provisional prices and there is profit-sharing or final price adjustments when they resell to their clients. Last year we had a loss; this year we had a substantial gain by mapping seasonality. Contract season is after September; by timing resales mostly after October 2025 we benefited from a better pricing environment. We booked over $20 million in final price adjustments in Q3 2025 and over $14 million in Q4 2025. Those are substantial revenues and a quantification of a sound commercial strategy. On costs and margins: comparing Q4 2024 to Q4 2025 we substantially increased operating cash margin. On a full-year basis gross margins decreased due to the challenging pricing environment in 2025, but cash margins and cash flow generation came from our ability to reduce costs faster than the decrease in revenues. In the quarterly comparison between Q4 2024 and Q4 2025 we showed a 77% reduction in costs; full year 2024 to full year 2025 we saw a 21% decrease in costs. These reductions include operating costs, SG&A, ESG and others — true financial discipline. Revenues fluctuated with lithium price volatility. From Q3 to Q4, after the mining restructure, net sales decreased 41%, but the creation of the lithium fines business and mine restructuring work helped compensate that. On an annual basis revenues decreased 27% and costs decreased 21%, but we cut costs aggressively in Q4, reducing costs by 77% quarter over quarter, demonstrating financial discipline. Balance sheet optimization: despite price volatility, we deleveraged. From Q4 2024 to Q4 2025 we reduced short-term debt by 60%; from Q4 2024 to our Q1 2026 estimate we lowered it by 68%. From Q3 2025 to current we lowered debt by 49%. That's a complete restructuring in our funding approach: clients now fund part of our operation through commercial partnerships, reducing working capital needs and deleveraging the balance sheet. Cash flow generation outlook: Sigma is a cash machine because we have high margins and are built for cash flow. Our estimate for Phase 1 over the next 12 months is roughly 240,000 tonnes of production, for the year we'll deliver 200,000 tonnes. Our estimated all-in sustaining cost including interest is $592 per tonne for the next 12 months. That creates cash flows even at lower lithium prices. If lithium falls to $1,500 per tonne, we estimate roughly $158 million in free cash flow after interest for one phase. If lithium stays around $1,800–$2,000 per tonne, free cash flow could be $218 million to $266 million for one phase. As we double capacity by the end of next year, you can model synergies. We conservatively assumed only G&A and ESG optimizations and halved interest when modeling two plants; we did not factor in other operational scale gains from shared infrastructure. With conservative assumptions, doubling could yield about $600 million in free cash flow if prices stay where they are; at $1,500 per tonne we'd generate $384 million. Adding a third line (770,000 tonnes) with conservative optimizations brings all-in sustaining costs including interest down to $495 per tonne. At that level, if prices are $1,500 we could generate $581 million in free cash flow; at current prices we could generate $900 million. This shows how long-term value arises from operational efficiency and scalability. As management-operators, our interests are aligned with shareholders. Cash bridge: starting at the end of Q3 2025 we had $6 million in cash. As forecasted, we delivered cash flow: $31 million from operations primarily from final price adjustments on provisional sales. We executed CapEx for the mining upgrade and repaid $26 million in debt principal and interest. We conserved cash and burned zero cash between Q3 and Q4 2025. The new lithium fines business delivered inflows in Q1 2026: $30 million from sales of fines and $5 million from premium high-grade product. We incurred $24 million CapEx for the mining upgrade in Q1 2026 and paid another $5 million in debt principal. We increased our cash position in Q1 2026 by 100% from these activities. We expect another $14 million in cash sales from the fines business, a $50 million typical offtake prepayment poised to close by the end of Q2, and about $32 million as the first installment of the $96 million offtake signed in 2025. We closed Q1 2026 with $12 million in cash and have significant cash coming in Q2 2026. Operational restructuring of mining operations: we took control of the mine to build long-term value. We had to ensure the mine could deliver the cadence needed for capacity expansions. We are a fully integrated industrial mining operation with proprietary clean-tech producing clean lithium. The plant benefits from fresh rock; the plant can also reprocess dry stack materials. To double or triple capacity we need mines to operate at full cadence so the dense media separators can achieve 70% recovery. We implemented automation in industrial operations: software, sensors, algorithms, anomaly detection and correction recommendations — self-learning metallurgy and mineralogy. This is a picture of our fully automated control room. The mine was using many small inefficient pieces of equipment at one point: 48 small 40-ton trucks were trafficking. We widened geometry, performed interim stripping to open additional mine fronts and used larger equipment to increase efficiency. While doing this in Q4, the Greentech plant continued to operate and reprocessed dry stack tailings with superior recovery to create cash flow. We expect recoveries to return closer to 70% as fresh rock feed resumes. We deployed the same software to mining: fast mining implementation for mine planning, fuel control, fatigue automatic detection, cost-control apps on mobile devices, loading and blasting simulations for optimal results and minimum vibrations. We own production control and mine planning. We hired a third-party driller for blasting and manage contractors with our in-house mining team. This gives us confidence to deploy larger equipment and optimize blasting for safety, geometry and efficient ore recovery. Expansion: we are resuming construction of Plant 2 this year, doubling industrial capacity for high-grade premium lithium oxide. With Plant 2 we will move from the 240,000 tonnes we guided toward 520,000 tonnes installed capacity. There's potential to build two and three sequentially. CapEx is efficient: roughly $80 million to conclude the second plant and $100 million to build a third plant, $180 million to take production from 240,000 t/y to 770,000 t/y. This is one of the most efficient CapEx ratios in the industry. We run the fifth largest industrial mineral complex and are the largest lithium mineral producer in the Americas, currently the eighth ranked producer globally. Doubling and tripling will move us up the rankings and is expected to lead to valuation re-rating because peers with larger production have higher valuations; we are currently valued like a nonproducing company, so the effect is material. On Plant 2: we decided in late 2024/early 2025 to accelerate construction. Because of price volatility in 2024–2025 we delayed some activities, but we are almost there: civil foundations are nearly complete. What remains is ordering equipment and assembling, which can be done rapidly — in the first plant we ordered and assembled equipment in under 12 months. This is a fully licensed construction and operation. Sigma is well positioned to deliver substantial returns to shareholders in 2026. Phase 2 will yield 520,000 tonnes and position us for a re-rating. As we increase nameplate production, we expect disproportionate increases in cash flow because of our high margins and operational resilience. We will continue to update the market. Highlights and strategy: we delivered operational discipline in 2025: we deleveraged and repaid debt, increased operating cash margins, built a new line of revenue selling lithium fines from dry stack tailings, increased mineral reserves by 40% which shows long mine life, strengthened commercial strategy by capturing seasonality, and closed almost $150 million in offtakes. For 2026 we will resume steady-state production from mining operations, close financially on the offtake transactions signed, close two more offtakes, receive the development bank disbursement for Phase 2 funding already spent, discuss Phase 3 financing with several banks, repay $100 million of shareholder debt funded by an offtake in negotiation (80,000 t/y for 3 years), and plan to commission Greentech Plant 2 by the end of 2026. With that, I close the presentation for the full year 2025. We crossed the Rubicon of one of the most volatile lithium environments this industry has seen. We're entering 2026 awash in significant cash generation from operational efficiency. We did this without raising capital and without disruption in operations. We're entering 2026 in a strengthened position with resilience quantified, revenues earned through a different product line, production cadence resumed at the end of Q1 and roughly $48 million in quarterly revenues as we start 2026. All of this was achieved organically through disciplined cash generation. We're very proud of our team and want to thank our clients and stakeholders who helped us cross 2025 and enter 2026 in this strengthened position.

Operator, Operator

Our first question comes from Fortune Era.

Fortune Era, Analyst

The company has indicated a production target of 520 kt in 2027. Does this imply that Plant 2 is expected to reach full capacity by the end of 2026? More specifically, when do you currently expect Plant 2 to begin commissioning? And how long do you expect the ramp-up to full capacity to take?

Ana Cabral Gardner, Co-Chair and CEO

We are going to have another presentation on plant construction, but we'll tell you what we're planning to do now. As shown in the slide previously, what stands between us and new production is essentially ordering equipment, assembling equipment and commissioning the plant. Using the timetable from the previous plant, this can be done in under a year. We plan to order equipment in the summer after the close of the second quarter. The offtake we just signed will be the main driver for us to deposit and prepay the equipment needed to build Plant 2. We believe it will take between 8 to 12 months to build and commission that line. So Plant 2 will be fully commissioned early 2027. As a result, the guidance for 2027 is guidance for installed production capacity rather than guaranteed production; we will update the market as commissioning unfolds. We are almost there with three-fifths of the timetable accomplished in construction of Plant 2. What remains is purchasing, building and commissioning, which we can do rapidly.

Operator, Operator

A follow-up question.

Fortune Era, Analyst

In the guidance section titled cash flow forecast at various realized lithium prices, could you please clarify whether the price assumptions of $1,500 and $1,700 refer to Sigma's expected average realized selling price for its concentrate or the benchmark SC6 China FOB price? For Sigma's concentrate grade of approximately 5.2% to 5.5% lithium oxide, what is the typical realized price as a percentage of the SC6 benchmark price?

Ana Cabral Gardner, Co-Chair and CEO

We are using adjusted prices rather than gross prices. When considering nameplate price we reference Shanghai Metals Market (SMM). We typically ship a 5.2–5.3% lithium oxide grade product, and the adjustment is done by dividing that oxide level by SC6 in older contracts; in newer contracts we divide by 5.5%. The results are broadly the same. So the prices in that table are net prices. As you know, gross nameplate prices reached $2,400 recently, so $1,800 and $1,500 are well below current nameplate levels at SMM.

Operator, Operator

Our next question comes from Lamartine Gomes.

Lamartine Gomes, Analyst

Question for Ana Cabral: Can you give us your directional sense of how much each plus USD 10 per barrel increase in oil prices impacts the demand for lithium?

Ana Cabral Gardner, Co-Chair and CEO

I don't have that elasticity number on hand, and I am not an oil expert. What I can say is that roughly 15% to almost 20% of our fossil fuel use is diesel that powers trucks in our operations. In Brazil, every liter of diesel mandatorily contains 15% biodiesel, and that percentage is set to increase. That policy makes us about 20% less impacted by diesel price increases than many other countries, because of Brazil's longstanding biofuels program established during the last oil crisis for energy security. Also, our national oil company uses a diesel compensation account that can act as a shock absorber during oil price spikes, so diesel cost increases don't pass immediately to consumers. That said, the exact relationship between a $10 per barrel oil price change and lithium demand is not a metric I can provide today.

Operator, Operator

Our next question comes from Robert Cook.

Robert Cook, Analyst

Please detail the timing of Phase 2 and 3 to completion — both by 2028. Anything more specific?

Ana Cabral Gardner, Co-Chair and CEO

On Phase 2, we plan to order equipment by the summer, funded by the growth offtake we signed (the $50 million prepayment). After ordering, the remaining steps are assembly and commissioning. In the previous plant build we had 1,000 people on site for assembly and completed that in eight months using accelerated procurement techniques, air freight and additional shifts where necessary. If we apply an accelerated timetable, we might spend an incremental $7 million for extra manpower, extra shifts and expedited freight, and we could have the plant built by Q1 2027 assuming we start in the summer. The advantage of replicating a plant design we already operate is that commissioning time can be significantly cut and we can reach target recoveries faster, rather than starting at lower recoveries and climbing. We are confident Plant 2 will be ready in the first half of next year, but we will keep the market updated; there is a distinction between installed capacity and actual production dependent on commissioning. On Plant 3, we have active dialogues with development banks and other financiers for appropriate development financing. Building Plants 2 and 3 together was part of our DFS in December 2022 — we invested in infrastructure sized for three lines (water, sewage treatment, power substation). That infrastructure remains and gives us construction synergies. We are in discussions about development financing for Plant 3, and those financing options have not been scarce. So building Plant 3 is feasible and part of our strategic plan, but we will provide more specific updates as financing arrangements progress.

Operator, Operator

Our next question comes from David Feng with CICC.

David Feng, Analyst

Can we have some color on how Sigma would mitigate any potential fluctuations in fuel costs and power costs? What percentage does diesel costs account for in your cash cost or AISC?

Ana Cabral Gardner, Co-Chair and CEO

I don't have the exact percentage by heart, but I can address power and diesel qualitatively. Power has essentially zero volatility impact for us: our power is fixed at about $0.02 per kilowatt-hour under a five-year agreement sourced from hydroelectricity, with the agreement set to expire in about 2.5 years, so power cost is fixed and renewable. Diesel is more complex. Because of the mandated biodiesel blend in Brazil, diesel effectively has a lower exposure to global crude price spikes — we are about 20% less impacted. Also, the state-owned oil company uses a diesel compensation account to smooth shocks, which delays immediate passthrough to consumers. We will revert with the precise percentage of diesel in our cash cost and AISC after the call.

Operator, Operator

This concludes the question-and-answer section. I am returning to our CEO, Ana Cabral, for her final remarks.

Ana Cabral Gardner, Co-Chair and CEO

I want to thank everyone for your trust. We worked through 2025 — one of the most volatile years in lithium — delivering resilience, operational excellence and executing to plan. We started 2026 on a strong note because of what we learned in 2025 about becoming more resilient. This collective effort of our management team and employees in Vale do Jequitinhonha — working like racing horses, focusing on our lane and target — is why we achieved these results. On behalf of our management-operated shareholders and employees who are shareholders, we want to thank all outside shareholders. Our interests are fully aligned; there isn't another company in the sector that is management-owned and management-operated with employees as shareholders in the same way. We're in this together. Thank you for staying as our shareholders; we crossed 2025 and are well positioned to deliver a strong 2026.

Operator, Operator

Thank you. Thus, we conclude the fourth quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website, www.sigmalithiumresources.com. You can disconnect now.