Standard Lithium Ltd. Q2 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the Standard Lithium Earnings Conference Call for the Six-Month Period Ended December 31, 2024. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. It is now my pleasure to turn today's call over to Salah Gamoudi, Chief Financial Officer. Sir, please go ahead.

Thank you, and welcome, everyone, to our earnings conference call. Joining me on the call today are David Park, CEO and Director; Andy Robinson, President, Director and COO; and Mike Barman, Chief Development Officer. Before we begin, I would like to note for our audience that on November 18, 2024, the Company changed its fiscal year-end from June 30 to December 31. The decision to change our fiscal year-end to a calendar year-end was to align the Company's reporting cycle with the reporting cycle of our joint venture to align with other lithium development peers and to align our reporting cycle with how we manage our business. Our MD&A reports the Company's financial results for the period from July 1, 2024, and through December 31, 2024, which we refer to as the six-month fiscal period ended December 31, 2024. Following the six-month stub period ended December 31, 2024, the Company will file an annual report for each 12-month period ended December 31 of each year, beginning with December 31, 2025. Also, as a reminder, some of the statements made during our call, including any forward expectations, company performance and timing of projects may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release, which also applies to this call. I'll now turn the call over to David.

Thank you, Salah. The past year has been transformative for Standard Lithium. It is fitting that we are here today discussing the results from the last six months of 2024 because it underscores a key theme for our company: transition and progress. Last May, we announced a significant strategic partnership with Equinor, marking a major milestone for the company that we believe confirmed the quality of our team, experience, and efforts, alongside our resource and flow sheet. Beyond validating our past, it also signaled our future direction. It was critical for Standard Lithium to accelerate its progress and secure its position in the future of critical minerals production in the U.S. We had work to do at the corporate level to enhance our staff systems and processes while keeping costs in check and ensuring operational efficiency. We made strategic hires to our team, adding essential expertise at all levels from prime processing to project execution and our Board. In collaboration with Equinor, we developed work programs for Southwest Arkansas and East Texas that have advanced our projects and prepared them for further success as we get ready to finalize the preparation of our Southwest Arkansas FEED study and subsequent DFS by mid-2025. A significant element of our DFS will be determining the royalty rate assumption, which we aim to establish with the Arkansas Oil and Gas Commission by mid-2025 as well. On the financing side, a noteworthy highlight is the status of our DOE grant. After being selected for a conditional award last September, we completed all terms and closed on the $225 million grant in January of this year. This represents a strong vote of confidence for our Southwest Arkansas project. Since our award announcement, our team has maintained consistent communication with government officials at all levels, and we are confident in our project's good standing, having garnered substantial support from local, state, and federal leaders. Additionally, at Southwest Arkansas, we have started a thorough project finance and customer offtake selection process for the project's first phase. We have engaged a highly qualified adviser with relevant recent success to lead this process. More information will be shared as we progress into 2025. Our team has also focused on securing our planned area of interest in East Texas, identifying a total area of over 185,000 acres, divided into several potential project areas. We have leased a significant part of our target area, particularly concerning our first planned project, and we anticipate publishing a maiden inferred resource report in the third quarter of this year. It is noteworthy that our East Texas assets have exhibited the highest lithium concentrations per liter of brine in our portfolio and encompass the largest area of interest in gross acres compared to any of our assets. We are eager to further clarify this asset's potential for our shareholders this year. Moving forward, our main focus for effort and capital allocation has been, and will continue to be, our highest grade, largest scale, and most productive assets in Southwest Arkansas and East Texas with our JV partner, Equinor. We will prioritize resources and activities that we believe will yield the best returns for our shareholders and support the development of a sustainable critical mineral supply chain in the United States. Therefore, while further commercial development at our 1A Project remains a possibility, the focus for the foreseeable future will be on our most economically viable resources. In collaboration with Koch Technology Solutions, we are also utilizing the demonstration plant in Union County as a crucial test and technology development center to demonstrate the derisked and commercially ready DLE technology for the first commercial project in Southwest Arkansas, as well as to continually improve our processes and flow sheet for upcoming projects. For operational highlights, I will now hand it over to Andy.

Thanks, David. As you mentioned, during the latter half of 2024, much of our effort and attention was on moving our projects from derisking towards development. For five years, we've been operating a large-scale demonstration plant in Arkansas, where we processed over 28 million gallons of actual Smackover brine produced in real-time from the formation. During the last few years, we worked with our partners at Koch Technology Solutions to develop, streamline and optimize our integrated DLE flow sheet, culminating last April in the successful commissioning and operation of a commercial-scale column at the plant. Whilst we had done some testing with our Southwest Arkansas brines, the question remained: how would our flow sheet perform continuously using our Southwest Arkansas brines? That question has now been answered. In October, we announced the signing of a license agreement to use Koch's DLE technology within our flow sheet for our Southwest Arkansas project, and we followed that up with successful field pilot testing. Starting in December, the SA project team operated an on-site 24/7 DLE field pilot through to late February. The performance of the plant surpassed our key performance metrics. Lithium recovery far exceeded the design criteria, recovering over 99% of lithium from brine produced from the IPC well located on the SWA project. At the same time, the DLE also rejected all the key contaminants as per current feed design levels. This was the final step in derisking DLE technology for Smackover brines, and we're now ready to commercialize this technology at our SWA project. In addition to the derisking of the DLE technology, we received an important byproduct from this process: large volumes of DLE product to be sent to third-party vendors for conversion to battery-quality lithium carbonate. Approximately 970 gallons of high-purity 6% to 7% lithium chloride solution were sent offsite to three separate potential lithium carbonate package equipment vendors, and these vendors are expected to produce a total of approximately 27 kilos of battery-quality lithium carbonate by May 2025. We are using those samples in the qualification process with potential offtake partners that David referred to earlier. We also commenced an extensive field program in December, consisting of the successful drilling of a new well, the Lester well, and additional well reentries within the SWA project area. This testing, in addition to collecting brine for field pilot tests, provided additional data that are critical in helping us further define our understanding of the reservoir properties. Our work there has demonstrated that the reservoir properties are better than previously assumed in the preliminary feasibility study and that lithium grade is similar to or better than previously modeled in the PFS. This field program, together with our field pilot, leaves us confident that we've now completed the necessary testing of the flow sheet in the reservoir, and we can complete all FEED work and our DFS with a general window for completion in midsummer. In East Texas, we also continue to make meaningful progress in securing a significant lease position and defining our understanding of the resource. As David mentioned, we have a total area of interest of approximately 185,000 acres. Within that area, we have identified an initial 65,000-acre position for our first potential project in East Texas centered on Franklin County. This is an area where we've already drilled three exploration boreholes and have collected brine samples demonstrating a very high-grade lithium brine resource. We've already leased a significant portion of our first project area, and we're on track to produce a maiden resource report for that project area later this year. We've been very supportive of the new brine rules approved and published by the Texas Railroad Commission, and this excellent regulatory clarity and guidance, in combination with a very high-grade brine, is why we expect East Texas to become a globally significant lithium resource. And with that, I'll turn the call over to Salah, who will speak to our financial results.

Thank you, Andy. For the three months ended December 31, 2024, we reported a net loss of $24.7 million. The net loss during the three-month period ended December 31, 2024, was primarily driven by an impairment of our California assets. Over the last six months, the Company has put a lot of effort into assessing our future plans. After careful consideration, we have determined that our investments are best suited to be directed towards our highest grade and highest potential return projects in Southwest Arkansas and East Texas. As such, we are no longer budgeting for any material future capital expenditures towards our California properties or further project development at this time. Instead, we are choosing to focus the organization on our best assets. As a result of this decision, the Company has reduced the carrying value of the California properties to zero, resulting in a $19.7 million impairment expense. Now focusing on our operational results: When comparing the quarters ended December 31, 2024, to June 30, 2024, G&A is down to approximately $2.7 million from $6.8 million, demonstration plan expenses are down from approximately $2 million down to $0.8 million, and management and director fees are down from $1 million down to $0.4 million, totaling a near $6 million reduction in quarter-over-quarter burn rate regarding these three-line items. These reductions in corporate overhead and operating expenses are due to several factors: one, strong focus on cost discipline; two, improved and streamlined processes; three, outsourcing of required but less strategic and technical corporate positions, such as accounts payable and cash management; four, reduced advisory fees; and five, the ability to cost share resources between Standard Lithium and our joint venture partners. Moving on to our balance sheet, we closed 2024 with a working capital balance of approximately $27.5 million and cash of approximately $31.2 million. Given the structure of our Equinor transaction, the development plans of East Texas and Southwest Arkansas are being solely funded up to a total spend of $20 million and $40 million, respectively. With our cost management strategy showing signs of strength, our JV is still operating within their Equinor sole-funded commitment and additional financial flexibility available through our aftermarket offering program. We exit 2024 with confidence that we have sufficient liquidity to meet our near-term commitments, obligations, and project milestones. However, we do expect that the sole funding of our projects by Equinor will run out over the next quarter, and therefore, the Company will be required to start making capital contributions to the SWA and East Texas projects at that time. As David mentioned, we have commenced and are moving forward on a process of securing customer offtake agreements and project debt financing for the first stage of our Southwest Arkansas project with an adviser with a record of success. We look forward to sharing more on the development of these processes as we move forward into 2025 and accomplish key milestones. Now, I will pass it back to David for some closing remarks.

Thanks, Salah. Since the closing of our partnership with Equinor last May, we've been hard at work to transition the Company from derisking to development. Our work program at Southwest Arkansas completed the derisking of our DLE technology and further refined our understanding of the resource, both of which we expect to underpin our FEED study and DFS, bringing us one step closer to FID. Our efforts in East Texas to expand our footprint bring us ever closer to a maiden resource report expected this summer. And at the corporate level, we continue to focus on cost management and operational efficiency while adding deep talent and expertise across all levels. Despite the continued uncertainty around pricing and demand in our sector, we'll continue to advance the development of our assets with conviction, maintaining a hyper-focus on our most productive resources. We believe the Smackover region is a globally significant resource, and we look forward to working with our partners to unlock that potential. Thank you. Operator, back to you.

Our first question today will come from Gregory Jones from BMO Capital Markets. Please proceed; your line is open.

I had a question regarding last week's announcement by the U.S. administration where they issued an executive order on increasing American mineral production. You mentioned, including streamlining the permitting process and potentially accelerating things like private and public capital investment. Do you have any early views on whether there could be potential benefits to Standard Lithium from this announcement?

Thanks, Greg. Sure, we have obviously read the executive order a few times, backwards and forwards. We've spent a lot of time over the last number of months since the new administration has come in D.C. We actually have our team in D.C. again next week. I would tell you that overall, our reading of the executive order is quite positive. If anything, it should help facilitate and speed up regulatory approval of projects like ours, and it may open up avenues for additional sources of funding. Other than that, it's a little premature to give any specificity on how it may help.

Our next question comes from Joseph Reagor from ROTH Capital Partners. Please go ahead. Your line is open.

Keep me to the Trump question. But I guess another one on the royalty structure in Arkansas, when do you guys expect to have a final outcome there?

Sure. I'll take that one first. Since last November, we've been actively involved in a dialogue with the Arkansas government, with the Arkansas oil and gas commissioners, with both staff and commissioners actively engaged in a dialogue with all the regional stakeholders. I'm quite confident we're going to get a positive outcome with respect to the Arkansas royalty by the end of the second quarter of this year.

Okay. That's good to hear. And then I just kind of want to ask on the LANXESS project. It sounds like your view there is one day, it will probably still happen, but for today, it wouldn't be your first choice and probably not the second choice, and your partner there is not necessarily as keen to get it done as Equinor is at the other assets? Is that a fair way of summing it up?

I think overall, it's a fair way of summarizing it, and then I'll turn it to Andy in a second to add to my comments. We are really focused at this point in time on developing our best resources. We have our highest-grade lithium in Southwest Arkansas and in East Texas. We have well-funded partners that are eager to see us develop those projects. So, we're very focused on executing those and delivering them for the benefit of shareholders as soon as possible. LANXESS 1A, the assets there are still a critically important portion of our portfolio. We'll continue to operate it as a demonstration unit, and at some point in time, if we have an option to go back and pursue that asset. Andy, do you have any additional comments to add to that?

Yes. The only other thing really, I'd say, Joe, is that with the formation of the JV with Equinor, we've got those project teams up and running. We're determined to move Standard Lithium and the JV from development through to FID, into construction and into operation. And we're really just making sure the teams are fully focused. As ever, clearly, you're aware of the general market backdrop; we need to make every dollar count. And so, the team is just fully focused on the first project, the one that we're going to bring to commercialization the soonest, and all of our efforts from the development and engineering team are on that Southwest Arkansas first phase project, which is really just the pure focus of the team right now.

Our next question comes from Jeffrey Robertson from Water Tower Research. Please go ahead. Your line is open.

With respect to the offtake agreements. Can you talk at all about how wide of a net you're casting with potential customers?

We began this year with a broad search, identifying around 40 potential counterparties. Currently, we are aiming to produce lithium carbonate rather than hydroxide, which has narrowed our options slightly. We quickly reduced the initial list to about half during our data reviews. Now, we are in detailed discussions with several key players. We initially cast a wide net, but we are now concentrating on those prospects that offer the best chance of achieving a successful outcome for our needs.

Do you feel like you're in almost a competitive race to get to FID with Southwest Arkansas to lock up some of these potential customers and also financing providers?

Well, I think it's important for our shareholders that we execute in a timely manner and we get cash flow sooner rather than later. I do not believe we're in a race with others at this point in time to try and secure offtake. What we are finding is that there is robust demand for lithium carbonate in the 2028 and beyond timeframe. That matches up quite well with our plans.

And lastly, if I may, how much of the learnings from Southwest Arkansas and the demonstration plant do you think you'll be able to take to East Texas to maybe advance those projects on a quicker timeline than what you've been in Southwest Arkansas?

Sure. I'll turn that one over to Andy to answer.

Yes, sure. Thanks, Jeff. I mean, look, the way that we see this playing out over the next few years, Jeff, is that we are looking with this first project in Southwest Arkansas to develop the key relationships with vendors and partners relating to the construction of the project. And as much as we can, we hope to repeat those into the next phase of projects, both the second phase at Southwest Arkansas as well as the potential that we see in East Texas. So yes, we definitely hope to build the institutional knowledge within ourselves, within Equinor, within the JV team, with our vendors, with our construction and equipment supply partners to allow us to streamline, make the scale up and rolling out of the technology solutions in East Texas quicker, cheaper, and easier, basically. So definitely seeking to find ways to be able to replicate the technology and the flow sheet and the project development in a more timely, lower-cost manner as we kind of work through the very high-quality resource that we have to play with.

Our last question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.

I just had a few. I was wondering about East Texas and your leasing there. I'm just wondering what are some of the components of the lead that I assume you have over others who may have become aware of the play once you guys went public with it. Just in terms of data and so forth. Kind of what do you have that you think gives you an advantage in identifying the target acreage?

Andy, I'll hand that one over to you.

Yes, sure. Thanks, Noel. I mean, I think one of the key things is that we know where we want to be now. We started working in East Texas over three years ago now. We've built up a very keen understanding of how the Smackover Formation works, given our experience working with LANXESS on the producing assets. And then, given all of the exploration work that we've done in the Southwest Arkansas project area, all of the thousands of miles of 2D seismic that we've looked at, all of the well logs, all of the actual testing work that we've done, we've been able to apply that sort of institutional knowledge within ourselves and now also with Equinor to understand really which parts of the Smackover Formation make sense for us. Where are the good areas to be leasing? Where do we see the potential for both good grade and good rock properties, good production characteristics, etc.? So, that's probably one of the key advantages, if you like, is that we've spent a lot of time understanding the reservoir characteristics in and around East Texas, and then focusing our leasing efforts there. It's been a very strategic, very focused effort in the region. Clearly, East Texas is a very large area, and the Smackover Formation is very extensive in the region. So, strategic and focused in the areas has been key to securing large valuable packages of leases for future development.

Great. I'm curious about what distinguishes the areas. Is it the topography, sub-surface characteristics, potential faulting issues in the region, or just the availability of leases that allow for larger areas instead of having to pursue smaller parcels? Are any of these factors particularly important in supporting your efforts?

Yes. I mean, we're sort of looking for the areas where we think production is more predictable. I think that's one of the great benefits that we've had is from working on the LANXESS properties over the years, understanding what types of deposits within the Smackover give the best producibility. We're looking for those analogous types of sections of the formation in East Texas. That was principally done through looking at historical and previous 2D seismic. There has been a huge amount of 2D seismic run across the Smackover over the years, and we have been able to analyze that, looking for the good areas, tying that in with well data where there is well data. Additionally, we've drilled three exploration wells in the Smackover in these key areas, and those all validated our conceptual model, which clarified for us that we knew what we were looking for, and we were leasing it correctly. It was part of, I think, also going public with telling the investor community where our first project is going to be located in and around Franklin County. It was important to start to get some ground truth out there.

Great. And I just wanted to ask a bit about the regulatory environment in Washington and so forth. You mentioned you’re in communication with officials at all levels. I just wondered, on the federal level, given the particular folks that you'd be interacting with, has there been a wholesale turnover there or relative stability of the people you're talking with, like a whole new crowd or maybe thinking maybe on the technical side, maybe a lot of sort of the same people?

Sure. I'll take that. As you know, in January, we finalized a grant from the DOE. There was obviously some uncertainty and questions some people had regarding how the new administration would look at grants made by the previous administration. I would say that they spent a little bit of time reviewing the grants. We’re talking to the same people we were talking to before. We're maintaining a dialogue with the DOE, as well as all local, state, and federal leadership. We have invoiced them and submitted our first invoice to collect on the grant, and they have paid us. As far as all discussions in D.C., what we're seeing is an administration that is incredibly supportive of domestic critical minerals production and is being constructive in helping us move these projects forward on a fast basis.

Our last question will come from Jeffrey Robertson from Water Tower Research. Please go ahead. Your line is open.

Thank you, Andy. Going back to you, in your prepared remarks, you mentioned that some of the work you've done at Southwest Arkansas points to better reservoir quality and that better lithium concentration than you might have previously thought. I'm sure this is something that's going through the DFS work, but can you talk at all at this point about what impact on cost that might have?

I think that will come out in the conclusion of the FEED study and the DFS, Jeff. All I would say is that it's very helpful in very simple terms. We can probably reduce initially the number of production wells that will be required relative to what was previously modeled in the PFS, just because the reservoir characteristics are improved. Similarly, we're focusing the project in two phases. The first phase of the project is principally the southern half of our lease package in and around the Southwest Arkansas project, and we're seeing slightly improved lithium grades, so that also helps in terms of the grade coming into the front of the plant. These are all just helpful tailwinds when we're going through the design and the final CapEx and OpEx for the project. I mean, it's rare that you refine a project and it gets better. It's a very pleasant position to be in, where we're seeing the rock property as being better than previously assumed and the grade being slightly higher than previously assumed. These are all great considerations as we move to wrap up the engineering phase of the project.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.