Good morning, everyone. My name is Regina, and I will be your operator today. Welcome to the Sigma Lithium Second Quarter 2024 Earnings Conference Call. Today's call is being recorded and is broadcast live on Sigma's website. On the call today is Company's CEO, Ana Cabral; and Company Executive Vice President, Matthew DeYoe. We will now turn the call over to Matthew Deyoe.

Thank you, Regina, and good morning, everyone. Thank you for joining us for our second quarter 2024 earnings conference call. As Regina noted, on the call with me today is Company's CEO and Co-Chairperson, Ana Cabral. After the market closed yesterday, we published our 2Q financials, which are available both through SEC and SEDAR. Before we begin, I'd like to cover two items. First, during the presentation, you will hear certain forward-looking statements concerning our plans and expectations. We note that actual events or results could differ materially from the changes in market conditions in our operations, and additionally earnings referenced in this presentation, sorry, may exclude certain non-core and non-recurring items. Reconciliations to the most comparable IFRS financial measures and other associated disclosures, including the descriptions of adjustments, can be found in the back of the press release. With that, I will pass it over to Ana.

Hi, good morning everyone. I am very, very pleased to present you with our second quarter 2024 quarterly results. We are actually delighted that we have managed to achieve all-around operational excellence, thriving in our financial results, despite what it is a lithium price environment that we just do not control. So, what we're going to show in these results is that, we have, where we control all of our operational elements, fully managed and actually demonstrating our operational excellence. So, starting with the volumes, we further increased the cadence of volume sold to 22,000 tonnes of material shipped every 30 to 35 days. So, that means we have achieved what we call reliability as a producer, which is linked to our ability to receive favorable rates and favorable terms in export-linked credit, meaning credit lines linked to our ability to continue to maintain this export track record. Another very important point in delivering our strategy was the ability to continue to increase the sales price premium relative to our competitors. That's a key element of our strategy, and it's a result of increased commercial assertiveness. So, as we deliver cadence of volumes, and as we are rewarded by the banking system with more favorable credit linked to the export financing, we are able to continue to push -- continue to exercise commercial assertiveness, and therefore, achieve a sales price premium. So, these elements are all interlinked performance, favorable credit lines, and then price premium performance. On the cost front, on the operational front, we are just delighted to have been able to print one of the highest cash margins in the sector. Especially, when this happened against a quarterly where the backdrop of top-line resulting from lithium prices wasn't again something we control, but wasn't as favorable. So, it…

Thank you, Ana. So, in the second quarter, we reported revenues of $45.9 million on nearly 53,000 tonnes sold, which implies a CIF equivalent realized price for the quarter, about $89 -- or $894 a ton. The top-line was supported by strong cost management, which we will get into in a moment, but our FOB cash operating margins came in at about 54%, while adjusted cash EBITDA margins were closer to 30%. Production on the quarter totaled just over 49,000 tonnes. The company has spent energy -- sorry, go to the next slide here. The company has spent energy familiarizing investors with the implications of provisional price adjustments, particularly with the first few boats that shipped. We did not have any offsetting settlements. We have taken steps to harmonize our EBITDA margins to balance out this volatility. What you're seeing on the left is an allocation of EBITDA margins for our business, assuming both settled accurately without these provisional adjustments. The full breakdown of this math can be found in the appendix, but the message here is underlying margins for the business are far more stable than what the headlines would indicate. As the extreme market volatility of second half '23 slows, and we establish a regular shipping cadence, we expect these headwinds should subside and ultimately revert as we come back for a market rally. On the right side of the slide, you had seen our FOB margins, which, as we had said, balanced out against peers, with Sigma happily finding its way towards the upper end of echelon of costs. This is predicated on the hard work that I will discuss here. I'm quite pleased to be presenting the cost slide to you this morning, as the company has been able to achieve broadly our unit cash cost…

Yeah, so again, just to wrap up the financial section. I mean, we have a very comfortable liquidity position. I mean, the consistent operational performance that Matt described and we discussed regarding sales cadence and cost controls, all of what we described throughout this presentation translated into very, very tangible benefits for this company. In other words, robust access to export-linked credit. So, robust liquidity. We have a very comfortable liquidity position with the cash balance in August topping up US$99 million. Basically, when you look at this chart, if you look at the upper left chart, you can see that the short-term debt is export link -- is basically comprised of those export link trade lines, which are drawn, but are entirely sitting in our treasury. In other words, we could pay them all back today if they're all due. More importantly, and that's a key point, we have decreased the cost of these export-linked credit to [5.85%] (ph) total fixed in dollars, which is a very, very favorable rate for a company on its first year. And again, that's a sharp contrast to 15%, one-five-percent, that we were granted in our very first trade line in January 2024. This very first straight line is being retired long, long ago. But it just shows the quick evolution of our robust credit worthiness as we continue to demonstrate sales cadence and cost discipline. And that is a good segue for the following page, where we actually talk about our Phase 2 expansion and give you an update on that. First, I have to reiterate this very strong and compelling business case for Sigma to continue to push and execute on doubling its production capacity by expanding its industrial facilities in Brazil. I mean, we have a very, very privileged position…

Yeah. And to build on that a little bit, as we talk about some of the dynamicism of the industry, we don't have a slide on this in particular, but what we've seen, it's been encouraging is the flywheel effect of lower prices stimulating demand in other markets. And I think, we've seen a number of market commentators talk about the strength in energy storage the last quarter or two, and Tesla's mega pack numbers over the last 2Q results kind of reflect the improved economics of energy storage projects as prices for batteries fall and that's kind of economics, curing economics here. As it relates to what we see on more of a micro level, as Ana had mentioned early on, right, we don't control lithium prices, and the market is obviously working its way through a bit of oversupply over the last 12 months. But what we have also is a seasonality that's increasingly present in the market. What you see on the top of the slide here represents Chinese production growth of lithium chemicals. The growth, primarily, as we've discussed over time, occurs in the summer and ebbs in the winter. It's not to say that Chinese production growth is not growing year-over-year, it is, and we see that, and that's obvious in all the data points. But from a market impact perspective, we know that seasonal supply ramps in the spring and summer, at the same time when early buying pattern takes a dip and starts to then pick up later with the big pull into the Q4 EV cycle, which kind of has consistently occurred year-after-year, particularly into 4Q. So, as Ana had mentioned, being in a commercially flexible position to take advantage of these buying and selling windows is exactly where we need to be, which, as we've hit a number of times, is exactly a function of building on our cadence, establishing ourselves as a reliable and consistent supplier to the market and reaping the rewards of that over time.

Exactly. And I think just to cap this slide, if you look at the bottom slide, it's very important to highlight the volume line charts that represent what we call electric vehicles, new energy vehicles sold in China. If you look at the various colors, each color is the volume sold in any particular year. So, if you look at the bottom, we started this series in 2020, and then we go to '21, '22, all the way to now, which means a very large amount of electric cars are actually offered to the customers, offered to consumers in the same buying pattern, seasonality of combustion cars, because consumer behavior regarding cars, regarding how they're powered, hasn't changed, which means consumers like to buy cars in the fourth quarter, like consumers like to buy things in the fourth quarter. That's classic retail consumer purchasing pattern. Now, what does that mean for our industry? It means the following: The sheer volume of materials required to deliver these significant volumes of cars in one season, which is the fourth quarter season, are no longer attainable to be stocked by the participants just once a year. And this is where the spring and fall stocking cycles emerge. The fall stocking cycle is the classic stocking cycle in all metals, that's why LME happens in the midst of it, historically. But then the spring stocking cycle is emerging with a very clear pattern, as you can see in the data points mapped out and highlighted by Matt, because the industry, typically -- the supply chain participants, do not have a strong balance sheet that would allow them to just follow the EV industry into one annual restocking or stocking period. So, they distribute it throughout the year into spring and fall stocking cycles. Because…

Yeah. So, Regina, happy to move to Q&A from here.

[Operator Instructions] And our first question will come from the line of Steve Byrne with Bank of America. Please go ahead.

Yeah. Thank you. Good morning. Your Slide 9 that shows your monthly pricing year-to-date, is that US$953 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? And I appreciate your comments about the world is going to need six Sigmas for next year, just given demand growth, but there is a lot of excess inventory in China. Do you have a view that, if the industry doesn't slow operating rates, which it doesn't seem like it is, do you have a view on when this inflection might occur, if you're not seeing it yet? Is it just seasonality that will drive that? I welcome your thoughts on this.

Yes, Steve, I guess I'll start. 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. I think your point, and I'll let Ana talk broadly about signs from the market, but, I mean, I think if you follow some of our comments from -- or some of the comments from our public peers, I think what you see is a situation, where a vast majority of our peers in Australia and Canada and other markets are underwater at current economics and we know that's not sustainable. It's always hard to tell when that specifically pays out from a supplier perspective, but if you can just look at some of the reported numbers that we've seen and some of the discussions we have on costs targets, particularly from traceable sources, we know that a number of players out there are a bit upside down. And I'll pass it to Ana.

Yeah, it goes back to traceability. This chart kind of says it all. I mean, you have a finite universe of producers in Australia, Canada, Brazil, Chile, Argentina that can deliver what we call traceable supply. And traceable really means a very low bar of like, human rights adherence, no child labor. We're not talking zero carbon here, right? Now, that is actually the issue, because, as you can see, there's a gap between supply and demand at these price levels. But there are players, they're selling into this gap because they seem to have the cost structure to withstand it. And based on the data of product inflow from Africa mainly, we're led to believe that this gap today with prices where they are, has been mainly filled with what we call untraceable materials. So, this industry is now at a crossroads because you will have to collectively decide what kind of materials you want to use to build their sustainable green cars. I mean, if the industry decides that it's acceptable to use materials that infringe human rights and child labor rules and basic traceability rules to build green electric cars and sustainable electric cars, and if the industry believes that as the penetration rate increases, consumers are going to accept that, well, I think we're going to go in a certain path. But our personal view is that these traceability standards are going to continue to be highly enforced, especially by industry players, and I mean across the board. Chinese battery makers, South Korean battery makers, Japanese battery makers that do deliver their materials into the top-notch supply chains, into the leading supply chains in the world. So, we believe that over time, you're going to see a movement where untraceable material either complies and becomes traceable, or it just disappears from at least the EV battery supply chain altogether.

And what fraction of global supply, Ana, would you say is untraceable? And is that happen to be higher on the cost curve?

No, that's the whole point. The untraceable material in this current environment is coming from low-cost producers. There's now -- I think, we've been seeing this quite a while in the market, but now the industry as a whole caught up with it. If you look at production inflows, 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. Again, lithium is not rare. So because lithium is everywhere, I think it puts an extra burden on automakers to enforce traceability and enforce sustainability, because, again, just like what happened to cobalt, like what happened to tantalum before, all the way to blood diamonds, the risk is to basically kill the chicken to lay the golden eggs. These consumers kind of turning, let's say, resistant towards these cars because they'll be challenging their own sustainability resulting from the, let's say, traceability of the materials that go in building those cars. And we've been very vocal about that, because this is the kind of behavior that risks the entire supply chain for all of us. And you've seen what happened to cobalt before.

Thanks. And if I can just squeeze one in?

Sure.

The technology that you've implemented to recover more lithium out of your [refined] (ph), 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?

It does, because ultimately -- I mean, it's not anything, let's say, exceptional that we've done. What we've done is the following: The dense media separation method is one that's constrained by the capacity of the concentrator, the centrifugator, which in our case is 250 tonne an hour at 100%. But the design capacity is 237 tonnes an hour. So that's a constraint. So even if I lower my lithium oxide grades, I'm still constrained by that capacity. I can only flow that tonnage of product per hour. So, this is a characteristic of my industrial plant, the Greentech plant. Now, what have we learned? We learned that the higher the quality of the pre-feed into that centrifugator, into the dense media separator, the higher our recovery. So, what we're doing is a very elaborate system of screens and pre-screening, and preparation of the feed that goes into that capacity, which, unfortunately is fixed, it can only be increased with an expansion, so that I increase recovery, so I increase yield. By feeding better material, pre-purified, pre-screened material, I am able to achieve better results in the dense media separation. That's what we're doing, and we've already gotten there. Now, we've hit the stride over 700 tonnes a day, which is something that in the past would have been called an exceptional day. Now, this is our regular days, and we're hoping to move that further upwards to even higher levels of daily production, closer to 800 tonnes a day. So, that's kind of what this depuration of the feed that goes into those centrifugators do for our production throughput for our yields.

Thanks, Steve. We'll go to the next one.

Our next question will come from the line of Joel Jackson with BMO. Please go ahead.

Good morning, Ana and Matt. Ana, thanks for your comments on Phase 2. So, a bit of a technical question. And 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 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?

Joel, I think there's a massive confusion on your end here regarding land disputes. What we are -- the only thing that's actually in there, it's essentially an ore body that doesn't have anything to do with Phase 2, that sits between Phase 2 and Phase 3, that's independent of those two phases, and that has nothing to do with Sigma. So, 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. Now, what's the most important thing is that, that area is actually controlled by me. So, I have 51% of that area. It's a Brazilian Corporation. So, even if that were to become an issue, I would obviously resolve it favorably to Sigma. So, it's a non-issue. So going back to it, essentially what we are doing is just proceeding with our plants business as usual. I mean, we got [Barreiro] (ph), which is Phase 2 giant ore body, which can be accessed by all sides. The mining concession belongs to Sigma. The overground belongs to a company that's affiliated to Sigma. So, it's business as usual -- proceeding business as usual. You might be referring to the noise my, let's say, former husband try to make to create that sort of misunderstanding. But it's great that you raised this point, because it's an opportunity for me to clear it out for all of the participants in this conference. That noise has nothing to do with Sigma. In fact, I have great news for everyone in attendance. My divorce has been declared quite a while ago, and as you can all see, I'm still here, Sigma is still here. There's been no implication to Sigma of the declaration of my divorce, the split of the assets and business as usual for all of us. So, it was just, as Shakespeare says Much Ado About Nothing, but it's understandable in a divorce when one of the parties is less wealthy than the other one.

Okay, so my next question, [indiscernible]. Thanks for the answer. You also -- it's really great in the cost target. I think you absolutely hit them, mid '24 as you said you would earlier this year, so that's great. Now you also had an SG&A target that you want to hit. And obviously, when you have a downturn in pricing, you want to get lean and tight. 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?

Joel, I'll take this one, right? And part of this is, it's hard. 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 obviously, we have intention to grow. And so, what we've been building is a, operationally and commercially, sophisticated organization to give us the platform to double capacity and to triple capacity, right? As we talk about things like internalizing our commercial capabilities, and -- I mean, let's just use that as an example, right? We've had to build out the commercial team. In the grand scheme of things, I think you can see the implications on the reduction to our sales expense on the income statement and what that means for real dollar savings, but it also means some creeping costs on the back end. But look, scale is our friend at Sigma, and SG&A is a key area where we will be able to scale, because we do not need to double our SG&A to double our production capacity. So, we're kind of caught in a little bit of this framework of a growth company and trying to also be the right size for when that situation arises. But again, things like SG&A, that on a per tonne basis will not get fully cut in half. It'll get pretty close as we grow and that's part of the leverage in the operating model that we really are looking forward to.

So, Ana -- and thank you for that, Matt. Ana, can I just follow up on that one more and I'll pass the baton. So, I understand wanting to not give up on the growth. Obviously, we all know what's happening in spodumene markets right now and the lithium markets right now. What, Ana, 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 an SG&A, cut cost where you can and hold on to Phase 1, or Phase 2 is happening no matter what, no matter the price?

Well, no, Phase 2 is happening no matter what. I think this slide that you see here illustrates that well. In other words, if Sigma cannot operate profitably, I think the whole industry is doomed, right? Because we're sitting to the right of green bushes on top of Pilbara in terms of our low cost. So, there's not a whole lot more that we can do. We're going to continue to strive for lowering costs, but now 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. But when you go back to the project, the Phase 2 project per se, I mean, we got the liquidity to do it. And when you look at the capital efficiency of that project, it's essentially unquestionable that we have to go ahead with it. I mean, just recapping the slide, there's absolutely nothing out there that's as efficient as throwing a second line and going with it. If you add the gains that we would have by fixed cost dilution to it, which we typically don't, but just doing SG&A dilution, because it's a pretty obvious one, it becomes then a complete no brainer, which we don't add to our analysis, but it's there, and we all know it's there. You don't need two Anas, two Matts, two of the, what we call, fixed infrastructure to do what we need to do with two lines, right? So, as Matt was saying, scale is our friend. What we're doing, though, and you raise an excellent point, Joel, on discipline, we're pacing it. In other words, when we did the first project, and you remember that very well, we were…

[Operator Instructions] And your next question comes from the line of Andrei Kroupnik with Drakewood. Please go ahead.

Hi, Ana. Just a follow up on what you were just discussing with Joel. So, looking at your financials for the second quarter, your capital spend was quite light. So, when do you expect the capital-intensive Phase 2 expansion to begin? And also, do you still keep on intending funding this with sort of more shorter-term trade finance lines, or is there a plan to add more debt?

No. Thank you for the questions. And this is a very good question. Typically, in these constructions, the CapEx really picks up at the very end. And you can see by the previous project, right? You have a bulk at the beginning, which relates to deposits or prepayments of long lead items. Earthworks is quite inexpensive. The total earthworks cost is US$8.9 million to US$9 million and that's basically it. And so, you're basically paying for earthworks, paying for that engineering, and then you're depositing towards equipment. In our case, we caught a break for our Quintuple Zero unique and -- unique levels of sustainability excellence. Most global manufacturing equipment want to work with us. So, what does that mean? We no longer -- well, and obviously now we have credit. We are a company that has revenues and delivers cash flow. So, the credit worthiness, plus our super special Greentech plant and our green credentials attracted some of the largest global OEM parts manufacturers to work with us on this project. So, we're no longer required to deposit -- not to prepay for long lead items, which is something we had to do in Phase 1. Some of the long lead items had to be fully paid before they even began construction in their respective supplier manufacturing lines. So, we're saving some money there. So, the long lead item bill for Phase 1 was around US$15 million. And we think the long lead item built here is somewhat expanded, but it will be a bit smaller than that. So, as you can see, long lead items and earthworks are the two main elements of cost of this project, probably throughout -- if you look at the project execution plan, as I see here, throughout third quarter, fourth quarter, we're just going to have the bigger numbers hitting us on the first quarter as equipment starts getting delivered and then you have to fully pay for the equipment. So, it's kind of a back-loaded CapEx, as you can see. And we put on the screen the full CapEx so that you can see the comparison, too. And you can also see Joel's point, you see the construction acceleration plan that was the race portion of it, which we eliminated, it's US$20 million. So, this time is the pace, meaning we don't have that acceleration plan in place. It's there, it's quoted, but we're not going to need to trigger it because we're just pacing it. We're in no rush to sell cheap lithium, let's just put it that way.

And so, the second part, is there a plan to take on any more debt or you're just going to do it from the existing trade finance lines?

No, sorry, I didn't answer that. We are in ongoing discussions with -- well, we announced it actually. We are in ongoing discussions with Brazil's development bank, BNDES. BNDES is embarked in a very successful new industrialization drive in Brazil. We are part of that. It's centered on green industry, green producers, on generation of industrial jobs. Just to put in perspective, Sigma just created an entire territory in the poorest region of the country. We have about 13,000 direct and indirect jobs there, 1,500 direct jobs. So, we are top of the line on the new industrialization development plan of Brazil and we're bound to -- we applied for a US$100 -- US$100 million credit line with BNDES, which is going incredibly well, because we sit within that framework of industrial policy. So that would be the primary source of funding. The duration is exceptionally benign, because it's development bank credit. So, it's longer than 15 years. So, it's a spread-out duration. Rates also are very favorable. Today that line would have rates of about 8% in local currency, which are even lower than our current dollar-denominated rates. So, that will be our primary source of Phase 2 funding. And then, in parallel, what we are also doing, just to show how active we've been on managing our capital structure for the current environment, if you look at our liquidity slide, you can see that we got long-term shareholder debt, which was debt that was generously given to us by our shareholders when we were still pre-operational, right? So, this debt has restrictive covenants. It has a higher rate. So, we're also in active dialogue with the banking community to conduct liability management on that debt, where we're planning to replace that debt. Even though it's benign, it's maturing in 2026, and it was given to us by our shareholder, we're planning to replace that debt with commercial banking debt as well. So, we're very active in the debt markets as we speak at the moment. Development bank debt, duration of over 15 years for the actual cornerstone centerpiece of building the plant, and a commercial bank debt for, amongst other things, conduct liability management on the shareholder debt.

That will conclude our Q&A session. I'll hand the call back over to Matt.

Thank you, Regina. And with that, we're going to close the call. I appreciate everybody's time this morning and tuning in. And we will see you on the conference circuit over the coming weeks and months.

Thank you. Thank you for the trust. Thank you for sticking with us. I mean, what we want to close with is the best is yet to come. And you can see, we've been joined by a very prominent neighbor. So, it's now just me saying that Brazil is really one of the most fantastic jurisdictions for industrial lithium production in the world. And we're hoping that all of you, our shareholders, will continue to benefit from that tremendously over the next couple of years.

That will conclude today's call. You may now disconnect.