Earnings Call Transcript - SGML Q2 2023

Ana Cabral Gardner, CEO

Hello, everyone. Good morning. I want to welcome you to the Second Quarter Presentation for Sigma. I will quickly go through the materials. We are very proud to present our results, indicating that we are back on schedule with our financial reporting. Please read the disclaimer as we will be making several forward-looking statements. This presentation will be available on our site. We have a video to share, which truly captures our achievements. I apologize for a minor technical issue, but I want to emphasize our pride in our accomplishments. The operational video will showcase everything, demonstrating the success of our ramp-up toward our guidance of 130,000 tons for 2023. Just a reminder, this is not simply arithmetic; it requires incremental steps. In July, we were operating at 50%, then increased to 75%. We can exceed 100%, as we’ve shown. With 150,000 tons this year, we can reach 50 tons an hour. Please don’t rely on arithmetic; once we feel satisfied with the dry stacking circuit, which we do, we will accelerate our production to reach 130,000 by the end of December. Our second shipment will be significant, as we are beginning to develop what we call a zero-zero supply chain for lithium. Essentially, we will transport carbon-negative material to a top-tier processor, who produces six tons of carbon per ton. Our aim is to achieve zero carbon emissions. We’ve been diligently progressing towards the final investment decision, which we anticipate will be completed by September. As previously mentioned, there is a scenario for the development of two to three additional plants with four-line trains, which presents substantial opportunities. Soon, within a week, we will analyze our Phase 4. Our current focus is to bring as much of this sustainable material to the supply chain as possible. We are delivering consistently across all fronts, including our export efforts in partnership with Santander Brazil on the first Green ACE line for exported material. As evidenced, we have stockpiles everywhere, and we have managed working capital effectively. We ended the second quarter with C$45 million and expect to report positive operating profits in Q3. In terms of our financials, we completed Phase 1 construction within budget, with $126 million allocated toward CapEx and $8.1 million remaining for final adjustments to the plant. Our operational updates indicate solid progress, and as seen in the accompanying video, we have made substantial advancements within our processes. The operational efficiency of our plants, particularly the dry stacker, has been recognized as a benchmark for the mining industry, which is a key objective for us. We continue to introduce innovations, including our recycling processes and capacity to handle 200 tons an hour. We strive for a clean site, with a focus on separate shipments to optimize our operations effectively, and encourage all stakeholders to visit us in person. We are meeting our production ramp-up milestones, having completed our first and second shipments and moving toward our third. We plan to sequence these shipments to enhance capacity continuously. Our goal is to supply a zero-carbon product to customers, which appeals to many automakers looking for sustainable battery materials. In partnership with Chinese refiners, we are delivering responsibly sourced materials in line with market expectations. Our goal is to reach carbon neutrality, and our partners are committed to this objective. We're making steady progress, with a focus on carbon management, managing to reduce our carbon output substantially compared to industry standards. Regarding related party transactions, they are straightforward, involving a company specifically established for surface properties. This was necessary due to the speculative nature of land acquisitions in a booming lithium market. We secured a $12 million loan for this purpose, which has been approved by our Board and the TSX. This new entity holds no value as it utilizes hard collateral to ensure safety and compliance in our operations. We are also committed to expanding our capabilities, aiming for 130,000 tons in 2023 and over 530,000 tons in 2024, while exploring further growth through potential new lines. Our work to preserve existing resources continues, and we remain focused on the environmental impact of our operations. We aim to complete our current projects and have engaged with partners to support our future expansions, with the goal of commissioning new operations by July next year. We are confident in our ability to scale effectively, and achievements in September will further demonstrate our progress. We remain focused on maintaining high sustainability standards with complete transparency. Our successful track record and the quality of our management team make us proud, and we are committed to delivering value while transforming our sector responsibly. Thank you for your support, and we look forward to sharing our future successes. Yes, we are on track for yield and recovery. The plant recovery is over 70%, which is impressive. We have published global recovery figures, maintaining transparency in our communications, which account for the loss that occurs when the material enters the DMS. The global recoveries are between 62% and 65%. Plant recovery can reach up to 72%. This DMS, with the mineralization of Phase 1, functions exceptionally well not only for recovery but also for concentrating and producing coarse crystals. The competitive advantage of our product lies not just in its environmental benefits but also in its coarseness, ranging from 6.5 to 9.5 millimeters. This coarse material, which is produced in large amounts, is of high purity, low potassium, and low sodium. The significance of this is that in the filtration plant, you need to mill down to 150 microns, and having coarse material increases productivity during calcination. Consequently, clients can use less of our material, making their operations more sustainable by requiring less lithium as a raw material, as well as reduced gas and power consumption. It typically takes 7 tons of our product to produce one ton of chemical, compared to 9 to 10 tons for other products. This entire approach enhances operational efficiency and sustainability by minimizing impact, which is why we expect to achieve zero carbon chemical production very soon. So, yes, we are on target for yield and recovery. Yield, in our case, refers to the steady state of about 1.4 million tonnes of ore, from which we have delivered 270,000 tonnes of material. Considering these ratios helps us assess yield, and while we can adjust based on material grade, we are very much on target. I answered live. We cannot disclose the name of the company. We had one shipment to Yahua, who has been our environmental partner, and we are incredibly proud of partnering with Yahua. They have partnered with us to purchase three years' worth of these tailings on a six-month revolver, allowing either party to change this arrangement every six months. They were the first company in this initiative, and I understand they supply a number of the large electric vehicle manufacturers worldwide. They have been acquiring this high-quality material. In fact, they should receive carbon credits for their efforts, as they upcycle waste into lithium. It's similar to creating shirts from plastic bottles that would otherwise be discarded. Instead of being stored in a tailings dam, Yahua is repurposing it. We plan to develop more partnerships like this, but Yahua deserves recognition; it is a state-owned company in China with a commendable vision for recycling materials by purchasing and upcycling our byproducts. It's effective and beneficial for the environment. We did measure the carbon footprint, and we were pioneers in conducting a life cycle analysis back in 2018 and 2019 when it was not a common practice. I even gained a nickname during that time, and now everyone acknowledges its importance as the industry has shifted in that direction. What we are planning to do now is calculate our life cycle analysis operationally, especially since we have reached a steady state in our operations. This analysis will likely improve because we were not initially planning to sell the tailings or engage in many of the activities we eventually undertook. We aim to publish our life cycle analysis based on our operations. As for the question of the spodumene price at which selling tailings is no longer profitable, I can share an example from Joe at AMG in Brazil. During the down cycle, they were selling their tailings to the ceramic industry for between $100 and $200 per tonne. This highlights that our tailings can be a valuable income source, particularly from the quartz, which is of high quality and sought after for premium ceramic flooring. Five of the top global premium ceramic floor producers are located in Brazil. While we currently focus on lithium, the ceramic industry is also a significant opportunity here. Right now we sell for the lithium, but the ceramic industry is right here. So we answered that. So, the price of the second shipment? It's the same kind of metric; it is a value grab on hydroxide. So, we are like at 9% of hydroxide. So it's been incredible that we've been able to achieve this value grab. Obviously, I don't have a crystal ball on hydroxide prices. So, we float with the market. What we do, we grab value. We know our percentage grab out of the downstream. But we float with the whole industry, and that's a key thing. So, good question. Difference in underground projects? Well, it's all the difference in the world. Again, an underground mine uses fresh water. It needs to pump fresh water out and it cannibalizes the fresh water off that you can basically drink, right? So, we are using open pit mine of profitability also. So, you have essentially a much more profitable operation in terms of cost to mine when you run an open pit; easy to mine, minus a pan, basically, like ours. We have just done resources and reserves for open pit portions of our deposits. There's underground potential, but we just don't go there. Again, especially in regions like ours, which are semi-areas where water is at a premium, we don't want to be seen by the community as going after their water. So, we use a sewage-grade water from the Jequitinhonha. We stay open pit and that's what we believe in, and that's what we do. When there’s fresh water in the middle of our pits, like in Phase 1, we actually preserve it. We prioritize freshwater over ore. Regarding consolidation with other projects in the region, we absolutely do not consider it. We believe in developing the downstream in Brazil, and we do not want to be a monopoly. We support serious projects that do not harm the environment. It is essential for everyone to ask about environmental assets and whether the area is permissible for drilling. We think it is important to have more companies like Sigma. The world needs many Sigmas; there are already some doing important work. However, being Sigma is not just about drilling extensively and causing harm while cutting costs at the environment's expense. That is not our identity. Our success comes from our commitment to our values and mission. It is crucial to us. Being Sigma means more than just being a neighbor. We want to clarify this because some neighbors are creating significant environmental issues, while we quietly and steadfastly take on the blame. In Brazil, as we say. But I think you folks should do due diligence. But we want more Sigmas here. Why? Downstream. Downstream is coming to Brazil fast and furious. The midstream of the supply chain can be built and will be built here sustainably, zero, again, zero tailings, zero carbon, the same thing. We're building a house by the foundation. When others were talking about downstream back when it was down cycle just for the sake of it, we didn't say anything, because we're building our house, foundation by foundation, to scale. We're going to be at a scale of probably, expectedly, 1 million tons, which we end up with four lines. And at that point, we can carve out a bit for our downstream business and do just a basic chemistry. We're not going to have the audacity of doing something China does better than anyone, or the United States does better than anyone with Albemarle, Livent, Ganfeng, Tianqi, all the leaders of the industry or Yahua; we don't have that audacity. These guys do best. We are going to supply basic chemicals to them, right? We're going to supply Triple Zero technical-grade carbonate or lithium sulfate so that we enable potentially zero carbon chemicals at the end. So, we are humble. We are intellectually honest about what we can do best. And we can be best in the world and what we don't have the specialty to do. It is a different industry. Specialty chemistry is a different industry. So where do we stop, in basic chemistry? Calcination, lithification, that's about it, right? So where are we going with this? So I think we're good, guys. So essentially, we answered quite a number of questions. We're running out of time. We have a very special guest today here on site that I'm also hosting. You can always be in touch via our IR, we can give you all the details, they're quite open. I really, really want to thank you for your time, for listening to us and for your trust, for your trust. I mean the trust that we would get to this moment, right? We're just accelerating the plant, delivering the material and really changing an entire sector around us and globally as well, which fills us with humility and pride. We have a huge sense of responsibility. I mean we're going to keep on doing it. Keep on doing it the best that we can. And we all work relentlessly, as I said, I'm on site today. I was in the Amazon on the weekend. We're really working as hard as we can, and we are executing to the team as planned, as promised. So thank you very much.