Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arcadium Lithium PLC (ALTM, Financial) reported strong financial performance with an adjusted EBITDA margin of close to 40% for the quarter.
- The company achieved higher realized pricing of $17,200 per product metric ton for combined hydroxide and carbonate volumes.
- Significant additional production capacity was brought online at both Olaroz and Fenix, leading to a 25% increase in combined lithium hydroxide and carbonate sales volume in 2024.
- Arcadium Lithium PLC (ALTM) is making significant progress on cost savings, expecting to realize cost savings towards the high end of their $60 million to $80 million guidance range for 2024.
- The company is accelerating its total cost reduction initiatives, targeting to achieve $125 million per annum in cost synergies by 2027.
Negative Points
- Lithium market prices have declined, impacting the company's financial performance and leading to a cautious outlook.
- Arcadium Lithium PLC (ALTM) has decided to slow down the pace of its expansion plans by pausing investment in four current expansion projects, reducing total capital spending over the next 24 months by approximately $500 million.
- Average realized pricing was lower across most products, driven by a combination of lower market prices for lithium chemicals and changes in product and customer mix.
- The company faces challenges with the visibility of true underlying end-market demand due to greater customer and converter integration and increased activity by intermediaries.
- There is a risk of production curtailment from high-cost resources if lithium prices remain low, which could impact future supply and investment.
Q & A Highlights
Q: Paul, I appreciate the context on some of the concerns around visibility of the market and underlying demand. As you think about putting some of these projects in care, slowing down some of your CapEx, what would make you reaccelerate?
A: Paul Graves, CEO: It's hard to separate the two. If the models we use to assess whether a dollar invested is going to generate a return are dependent on the price, the price has to be high enough. Understanding market dynamics and demand patterns is crucial. Strong commitments from customers or partners bringing certainty to volumes and pricing would also help reaccelerate projects.
Q: Can you walk us through kind of ending cash at June 30 and what you think ending cash would look like at the $12/kg scenario outlook?
A: Gilberto Antoniazzi, CFO: For the second half, we expect similar CapEx spending and do not expect the same level of one-time costs faced in the first half. We will not have the same cash burn magnitude in the second half, likely $200 million to $300 million less.
Q: Should we expect a capital program next year on the order of $300 million while your volumes are still guided to expand by 25%?
A: Gilberto Antoniazzi, CFO: Yes, the biggest portion of the $500 million savings will take place in 2025. Based on the $12 price, we might even have better prices for next year above the market price today. $300 million is a relatively good number for next year's CapEx.
Q: When do you see lithium metal being a material source of commercial activity for Arcadium?
A: Paul Graves, CEO: A big chunk of our business today is lithium metal, contributing to lithium and other specialties. We are likely five to seven years away from lithium metal being a major volume in the energy storage business. It requires evolution in solid-state technologies and broader applications.
Q: Is it worth keeping Mt. Cattlin open given the current cost base and market conditions?
A: Paul Graves, CEO: Mt. Cattlin made sense to operate in Q2, but with current spodumene prices around $700 per ton, it does not make sense to operate. The question of care and maintenance is active in these market conditions, and we are considering it intensively.
Q: How do you envision financing the capital program for the rest of this year and next year?
A: Gilberto Antoniazzi, CFO: The source of funding will continue to be operating cash flow. We expect to generate more operating cash flow with increased volumes in the second half of the year and next year. We remain untapped on our $500 million credit facility and plan to be self-funded for CapEx.
Q: How soon do you anticipate re-evaluating your capital spending plans and what do you need to see to take that next step?
A: Paul Graves, CEO: We have a couple of projects with momentum that we expect to continue. For the projects on hold, we will revisit them depending on market conditions in the next 16 to 18 months. We will assess if the markets justify starting those projects as we move through 2025.
Q: How does the two-thirds ratio of hydroxide volumes covered by contracts with fixed floors change in the back half of this year and into 2025?
A: Paul Graves, CEO: The ratio will go down later this year as new volumes are not under those contracts. Next year, the ratio will be slightly lower than two-thirds but not massively lower. As the year progresses, the ratio will shift to lower contracted volumes.
Q: Can you clarify the changes in your project timelines in Argentina?
A: Paul Graves, CEO: Originally, all 25,000 tons would have come on in early 2026. Now, half will come on in early 2026 and the other half in late 2027. Instead of 25,000 tons all coming on in early 2026, it will be between 10,000 and 15,000 tons in early 2026 and the rest in late 2027.
Q: What level of disruption have you seen at Fenix and Sal de Vida this year due to weather impacts, and how much buffer have you built into the timelines?
A: Paul Graves, CEO: We've not seen any delays on construction from weather or other factors. We do put some buffers in our schedules for normal delays. Given the advanced state of our projects, I'd be surprised if we have major delays at Sal de Vida due to outside factors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
