Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sigma Lithium Corp (SGML, Financial) achieved operational excellence, increasing the volume sold to 22,000 tonnes every 30-35 days.
- The company managed to secure favorable export-linked credit terms due to its reliable production and shipment cadence.
- Sigma Lithium Corp (SGML) achieved a sales price premium relative to competitors, demonstrating strong commercial assertiveness.
- The company posted one of the highest cash margins in the sector, indicating effective cost management.
- Sigma Lithium Corp (SGML) maintained a strong safety record with zero fatalities and accidents, enhancing its reputation in the industry.
Negative Points
- The lithium price environment remains unfavorable and beyond the company's control, impacting top-line results.
- There is a significant presence of untraceable, low-cost lithium material in the market, which could affect Sigma Lithium Corp (SGML)'s competitive position.
- The company faces ongoing legal costs and challenges related to SG&A expenses, which have not yet been fully optimized.
- The market volatility and oversupply of lithium have created headwinds, affecting the company's pricing and margins.
- The company is still perceived as undervalued in the market, trading like a pre-operational developer despite its operational achievements.
Q & A Highlights
Q: Your slide 9 that shows your monthly pricing year-to-date, is that USD953 you show in there, is that the month-to-date average for August or is that July? Much more importantly, I'm curious if you're seeing any signs of price inflection, or do you see it stabilizing down there, any signs that things could tighten?
A: The data point you see there just reflects the value for our August, which we press released the other day. It's a single data point in time. It's not meant to be the average realized price for that specific quarter. Regarding price inflection, many of our peers in Australia and Canada are underwater at current economics, which is not sustainable. We believe that over time, untraceable material will either comply and become traceable or disappear from the EV battery supply chain altogether.
Q: What fraction of global supply would you say is untraceable? And is that higher on the cost curve?
A: The untraceable material in this current environment is coming from low-cost producers. There's been a whole Sigma coming out of a single African country just now. So clearly, there isn't an industrial facility of the standards that we have delivered in that one country. So it's artisanal production of lithium. The industry will have to decide what kind of materials it wants to use to build sustainable green cars.
Q: The technology that you've implemented to recover more lithium out of your fines, is this something that you had anticipated in the past and just implemented, or was this just from your engineers figuring out a way to recover that? Does it have any impact on what you would view as your production capacity because of this?
A: It does impact our production capacity. The dense media separation method is constrained by the capacity of the concentrator. By feeding better material, pre-purified, pre-screened material, we are able to achieve better results in the dense media separation. We've hit the stride over 700 tonnes a day, and we're hoping to move that further upwards to even higher levels of daily production, closer to 800 tonnes a day.
Q: Ana, thanks for your comments on Phase 2. So a bit of a technical question. There's always a bit of dispute going on in some of the land inside where your reserve is or where the asset is for Phase 2. If you don't get some sort of agreement there, can you proceed on Phase 2? Would you have to move Phase 2 to a different part of the resource? What will give you confidence legally for the company that you can advance Phase 2 as designed on the land you want to do it on?
A: There's a massive confusion regarding land disputes. The only thing that's actually in there is an ore body that doesn't have anything to do with Phase 2. Phase 2 is to the left of the ore body and is absolutely not connected to it. So we can go about our business irrespectively of what happened there. My divorce has been declared quite a while ago, and there's been no implication to Sigma of the declaration of my divorce.
Q: You also had an SG&A target that you want to hit. It seems like the SG&A is still staying up there and there's also some legal costs you're having. Can you talk about what can you do to get the SG&A down more to what you want to get to?
A: When we brought out the SG&A guidance, it was a bit of a discussion around what we needed to sustain Phase 1 operations, but we have intention to grow. We've had to build out the commercial team. Scale is our friend at Sigma, and SG&A is a key area where we will be able to scale. We do not need to double our SG&A to double our production capacity.
Q: What would you have to see, like, would you have to see many more months of these suppressed spodumene prices before you make a decision to just really lean on SG&A, cut costs where you can and hold on to Phase 1, or Phase 2 is happening no matter what, no matter the price?
A: Phase 2 is happening no matter what. If Sigma cannot operate profitably, the whole industry is doomed. We are focusing on unit cost reduction, meaning, as we have these opportunities to drive further up our production yields, the costs are going to go down just as a result of larger volumes being sold. We are pacing the construction timetable versus racing it, which allows us to manage the construction process in line with our own liquidity capabilities.
Q: Looking at your financials for the second quarter, your capital spend was quite light. When do you expect the capital-intensive Phase 2 expansion to begin? And also, do you still intend to fund this with more shorter-term trade finance lines, or is there a plan to add more debt?
A: Typically, in these constructions, the CapEx really picks up at the very end. The long lead item bill for Phase 1 was around USD15 million. We think the long lead item built here is somewhat expanded, but it will be a bit smaller than that. The CapEx is back-loaded. We are in ongoing discussions with Brazil's development bank, BNDES, for a USD100 million credit line. We are also in active dialogue with the banking community to conduct liability management on the shareholder debt.
Q: Is there a plan to take on any more debt or you're just going to do it from the existing trade finance lines?
A: We are in ongoing discussions with Brazil's development bank, BNDES, for a USD100 million credit line. The duration is exceptionally benign, over 15 years, and rates are very favorable. We are also planning to replace the shareholder debt with commercial banking debt. We are very active in the debt markets as we speak.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
