Good afternoon, and welcome to the SQM First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Gerardo Illanes, Vice President of Finance. Please go ahead.

Thank you. Good morning, everyone, and welcome to SQM's first quarter 2018 earnings conference call. For your information, this conference call will be recorded and is being webcast live. You may access the webcast later on at our website, www.sqm.com. Joining me today, our speakers are Patricio de Solminihac, Chief Executive Officer; and Ricardo Ramos, CFO. Before we begin, let me remind you that statements in this conference concerning the company's business outlook, future economic performance, anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and product or service line growth, together with other statements that are not historical facts, are forward-looking statements as that term is defined under federal securities law. Any forward-looking statements are estimates reflecting the best judgment of SQM based on currently available information and involve a number of risk, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. Risk, uncertainties and other factors that could affect the accuracy of such forward-looking statements are identified in the public filings made with the Securities and Exchange Commission, and forward-looking statements should be considered in light of those factors. I now leave you with our Chief Executive Officer, Patricio de Solminihac, for brief comments before we move to Q&A.

Thank you. Good morning, and thank you for joining SQM's first quarter 2018 earnings conference call. Last night, we post our results for the first 3 months of the year. Our net income reached $114 million, an increase of over 10% when compared to the same period of last year. Our strong results were led by higher prices across all our business lines, which offset lower sales volume in all business lines except potassium nitrate. To highlight a few, iodine price increased compared to last year, reaching $23 per kilo. And average lithium price exceeding expectation surpassed $16.4 per kilo. Over the past 2 years, we have been selling more lithium than our nameplate capacity, pressuring our production and logistics, thus reducing inventories. As a result of this, we reported lower sales volume of lithium during the first quarter. This lower sales volume will not impact our 2018 expectation of approximately 55,000 metric tons, about 10% higher than the amount reported last year. The price pressure in the lithium market is a result of growing demand, which is expected to reach almost 260,000 metric tons this year, a 20% increase over last year. Given this and long-term lithium expectation, we announce plans to increase our lithium production in Chile from 48,000 metric ton per year, our current capacity, to 180,000 metric ton per year. This capacity is planned in 3 stages, with a total CapEx of approximately $525 million. In the past, the market has consistently underestimated lithium demand growth, and the industry has failed to grow supply accordingly. We have been a major player in the lithium market for over 20 years, and as always, remain very diligent in assessing the market and its needs. Our production and development teams have been able to expand lithium capacity in the past in a very efficient way. By executing this plan, we will have the capacity and flexibility to respond to market growth. The low CapEx per ton and our very strong financial position make this an attractive investment. In the nitrate market, we are on track to reach 1.5 million tons of capacity this year. We expect to process about 10% to 15% more caliche ore this year in Nueva Victoria as part of this major project. As the largest player in this market, about 50% market share, we will work to have the permit and engineering ready for further expand our capacity if market demands it. There are a lot of exciting things happening at SQM, and I look forward to working hard to maximize long-term value for all our stakeholders. I thank you for joining the call today, and we'll now open the line for questions.

[Operator Instructions] Our first question comes from Joel Jackson with BMO Capital Markets.

This is Fahad on for Joel. My first question, can you talk about your price expectation for Q2 and second half of this year versus the $16,400 that you realized in Q1?

Yes. Thank you, Joel. For the second quarter, we have been selling at a similar price of the first quarter, so we see the second quarter as strong as the first quarter. For the second half, it's more difficult to say. There are promises of new supply. We have not seen that much supply yet but we'll have to wait and see what happen in the second half. Most probably, we will see more pressure from new supply. But at the same time, we have seen that the demand continues to be very strong.

Okay. My next question. It seems like yourself and a lot of your competitors are adding quite a bit of supply over the next few years. And just rough math, it looks like a 2-1 in terms of how much supply is coming on versus, for every ton of demand, there's 2 tons of supply coming on. What -- are there concerns around pricing over the mid-term for lithium?

Well, as we indicated in our statement, in the past, the market has been always underestimating the demand. The demand is growing very fast. We see at least a 20% growth this year and next year and continue with a lot of investment from the OEMs in the electrical car. So we are very optimistic about the demand. And at the same time, the industry has not been able to cope with the demand. We, at the same time, saying that we have the know-how, the technology, and we are very efficient in the CapEx in order to put capacity. So our strategy right now is to put the capacity as fast as we can because the market needs the capacity now. And then, of course, having the capacity like we do in our other business line decided how much we want to produce.

Okay. And my final question. Can you give some more color on the production rates for lithium in 2018, '19 and 2020? I know the capacity additions but how much production will actually be realized in those years?

For this year, we -- as I say, we expect to sell 55,000 tons but end the year with a total capacity of 70,000. For next year, we plan to advance in our new project that we increase the capacity from 100,000 to 120,000 so that will be ready by the end or beginning of the following year. So we will be able to produce, if we want, next year in the range of the total year around 80,000 tons. And regarding 2020, I mean, we don't have any view yet on how much we'll produce. We want to have the capacity in 2020. We will start the year with 120,000 of capacity but we will decide how much we will produce depending on what is going on in the market at that time.

And our next question comes from Ben Isaacson with Scotiabank.

It's Oliver on for Ben. So just wondering what changed from last quarter for you to lock in the additional Phase 2 and 3 capacity. Is that a reflection of better demand expectations? Or is that simply that the project economics make sense in a lot of pricing scenarios?

The most important change in the short term is that we are able now to do the second phase, 220,000 instead of 100,000 that we announced before. And the main reason is engineering that we realize from the final engineering of that project that we could do it in a very efficient way. So that's why instead of going to 100,000, we decided to go to 120,000 immediately. So it was because of optimization of the project. And then we announced that we will start working in the next phase that we did not announce before, which is going to 180,000.

Right. And one more question, if I may. Your Q1 lithium and potash volumes were very low. And I know you mentioned that the lithium inventories were down and possibly close to 0. But was there also seasonal impact on evaporation rates? Or why did you not hit closer to 12,000 metric tons, which your capacity indicates is doable, even without the inventories?

The most important thing is that we continue to believe that we will sell that in the year, 55,000. And the reason of not being able to sell what we expected in the first quarter is because of some delays and especially handling the logistics and having very, very low inventories. Any change can affect you but will not affect the year. So it's only a problem of moving from the quarter.

And our next question is from Isabella Simonato with Bank of America Merrill Lynch.

I have 2 questions. First of all, if you could elaborate a little bit on the potash outlook for volumes. If this reduction is expected only for this year or this should be more of a reasonable level for 2019 onwards. That would be my first question. The second one is regarding lithium. You signed, in Australia together with your JV, a contract with Tesla to supply lithium hydroxide. If you could give us an idea of where pricing level for that contract is, if it's comparable to market prices or not. And finally, just a quick question on suppliers line on the balance sheet. There was a big increase quarter-over-quarter in terms of days. So if you could just give us a little bit more color the reason for that.

Okay. Thank you, Isabella. Regarding potash, we expect to sell this year less than 1 million tons. So have some on the impact of what we did before. Not that much. And the rest will be impacted next year, that we expect to be in the range of 900,000 tons in that range. So that is the potash situation. Regarding the lithium in Australia and the announcement of Kidman of an agreement with Tesla. This is not done by us, not like the [indiscernible]. It is done by our partner on the volume that is allocated to them. And we don't know any additional detail of what was published. And the last question, I'm sorry, I did not understood the question.

On your balance sheet, the suppliers, the payables line significantly increased versus last quarter. If there's any specific reason for that or just normal seasonality.

Yes. That correspond to the dividend that was necessary to have the allocation to be paid afterward.

Our next question comes from Chris Terry with Deutsche Bank.

A few questions from me. Just in terms of that price that was realized in the first quarter, a significant jump on the end of last year. Can you just remind us when the hydroxide expansion, the 13,000 tons, when that's due? And whether there was any mix effect, I guess, in the product achieved over this half or whether it's really just reflecting the underlying demand trends within the lithium market? That's my first question.

Regarding the expansion of lithium hydroxide, we are expanding, as we informed, from 6,000 tons to 13,500 tons. And we expect to have ready this expansion by the end of this year. So we are not getting yet any effect on that new production. So the price that you saw the first quarter and the increase vis-à-vis what we had in the fourth quarter of last year is a reflection of the tight demand and supply situation during this quarter.

Okay, okay. And then I have a couple more, but staying on hydroxide. When you think about the expansion to 180,000 tons that you've outlined, do you have additional plans on what could be in hydroxide in Chile specifically?

We don't have yet that specifics but we do have approval to go to the next expansions in hydroxide up to 32,000 tons. That is already approved. So we need to decide when we wanted to do it and at what timing.

Okay, okay. And then just leading on from one of the earlier questions around the difference between when you did the last quarterly and talked about 100,000 tons and now going to 180,000 tons. I understand you took time to do more feasibility work and do the optimization but is there anything else that changed over that period? Have you signed agreements with other people? Has the Tianqi news on the state made any difference? Is there anything else that gives you more comfort around those numbers? And then what would you be -- I know you haven't given guidance on 2020-plus. But presumably, you would only get to that actual run rate in around 2022 or 2023 from a time line perspective. Is that reasonable?

Well, as I indicated in the previous question, what the change that we did on what we announced previously, the main change was that instead of getting the second stage to 100,000, we will do it to 120,000. And the reason being that this is the most logical expansion size from engineering and cost point of view of CapEx. And then we this time announced the following expansion, which we have not announced before, which is going from 120,000, 60,000 additional capacity, to 180,000. So that is the same. And this, of course, is in line of what we see that the market is growing and our cost position to be and being able to have the capacity to respond to this demand on time.

Okay. Okay, sure. And maybe just coming at it from the other way, just related to the Corfo agreement and then just the general pond dynamics. You've obviously got very low capital intensity versus your peers but how much theoretically do you still -- now that you've done more work on it, could you go above 180,000 long term or is that -- do you think that it starts to cap out at about that rate? I'm just -- I know I'm thinking a long term ahead here but just trying to get another data point on how you're thinking about it.

We have not analyzed in detail that yet. But according to the agreement with Corfo, we can go over 180,000. And according also the characteristic of our resources that we also can go over 180,000. But we have not defined what phase and when we are thinking on that.

And our next question comes from Lucas Ferreira with JPMorgan.

Patricio, my question is a follow-up on Isabella's. We've been seeing some of the major leasing players announcing long-term supply contracts with major battery producers, so I was wondering in your case if you -- especially if you have questions about the sustainability of these price levels in the second half, if it would make sense for SQM to fix a longer-term supply contracts or contracts that give you a bit more visibility on the prices and on supply. If that's the case, have you considered doing that, especially with your new expansion projects? And then my second question, I'm so sorry to insist on this announcement of Phase 3, but it was very clear to us in the press release of the fourth quarter and also in your speech during the conference call that you were adopting a sort of a disciplined message saying that you want to just maintain your market share stable as opposed to increase considerably the share, probably trying to push those high-cost guys out of the market. So just wondering if that changed at all from last quarter to now, or it's just announcing Phase 3 since the take up of months after the Corfo deal so you're now ready to announce Phase 3. So wondering if something changed regarding your kind of supply strategy going forward.

Thank you, Lucas. Regarding your first question, the main change on you saying that it's happening in the market, I will say is that the OEMs in the case of vehicles are trying to participate, understand better the market and trying to be a participant on this, which was not the case in the small electronic appliance and was not the case at the beginning. So of course, given our participation in the market, we also have been discussing with most of the OEMs on how we should relate in the future regarding long-term commitment, regarding the way that we can supply and commit that supply. There is not yet in conclusions that but that is something that is being discussed. And we, of course, are participating in that. We don't have any visibility more than what I just said on what the price could change in the second half of this year. The only thing is that we continue to see a dying market. We continue to see our customers asking for more product. And we are now starting to talk about what will be the supply for the second half of the year, which, in our case, will be more. And also, what level of price will start to be negotiated. Regarding our Phase 3, I would say that we are very consistent in the sense that we want to have the capacity. It doesn't mean that we will operate at that capacity. In the past, the industry has been -- has a very bad track record. And there was a lot of more demand than everybody expected and a lot of less supply than everybody expected. Many projects did not work. Many projects took longer than expected. So we don't -- we think that we'll have the responsibility and also the opportunity as a company to be the one to supply more. But the only way to take that is to have the capacity. That's why we're putting the capacity. We continue to have the same view that I described in the press release at the end of last year and in our conference call last night. So we don't have any change in the strategy. The only thing that we are now giving more visibility of how we are developing our plans.

Our next question comes from Roberto Browne with Morgan Stanley.

I have 2 actually. The first one is on the production cost. I just wanted to understand where it is today and if it's expected to change as you deliver new capacity. And also, with the new royalties, just wanted to understand when you're going to start paying the new royalties related to the agreement signed with Corfo in January. And my other question, I was just trying to understand how much you can increase your lithium capacity without extracting more brine in Atacama.

Well regarding -- thank you, Roberto. Regarding your first question, we expect that our cost will continue to be in the same range. We don't see higher cost and we don't see also that we will be able to lower the cost significantly because of size, because of the way we are doing the expansion. So we'll be in the same level of cost that we have today. The only change that is important when you look at our cost in our financial statement is that we reflect the royalty that we pay in the cost line. So if we pay more royalty, then we have to increase that cost. Regarding the Corfo new royalty scheme, as we indicated in our press release, that become effective the 10th of April. 10th of April onward, we'll start paying according to the detailed scheme that we described in our press release at that time. We do not need to increase our bumping rate in order to produce everything that we have in our plan -- in our expansion plans. So we don't plan to increase any -- or will not require any permit to increase our brine extraction.

And just a quick follow-up. Do you have any idea, considering the amount of brine you currently extract and the technology you have, what would be the limitation also? And I'm not thinking about the short term but more on the long term, just to think how further you can go without any environmental discussions there.

With our active technology and some technology that we already developed, we believe that we can produce as much as the permits that we have with Corfo allow us, without increasing the brine extraction, which is much more than the 180,000.

Our next question comes from Pedro Pereira with Santander.

I couldn't help to notice that SPN cash costs have increased substantially. According to my calcs, it increased around 9% year-over-year. And I would like to know the reason behind this increase if you should be so kind, please.

Yes. The increase in costs in SPN, if you compare with the previous quarter of last year, is at 4% and is reflected mainly because of the mix. Remember that in SPN, we have quite different products that are averaged out. So the reason is not an increase in cost. It's basically the mix of the products.

And regarding full year sales for the segment, do you expect to still be benefiting from the Haifa stoppage? And how much do you expect to sell this year?

Well, we already had to supply more and we respond to the market needs last year when our competitor has their supply problem. And this first quarter, again, you saw the important increase in volumes. We expect to continue in these levels for the rest of the year, so have an important increase this year as compared with last year in total.

And our next question comes from Alexander Varschavsky with LarrainVial. Alexander Varschavsky Páez: My question is related with your commercial strategy. Some of your competitors are more focused on securing prices rather -- through medium-term contracts rather than taking advantage of the very high short-term prices we are facing now. And given that you're selling at much higher prices than your competitors, can we assume that your contracts are shorter in tenure? If I'm correct, could you please elaborate on this commercial strategy, taking into account that the new Corfo royalty scheme will be starting next quarter and a lot of the extra revenues will go to this payments to Corfo? Could it be better to secure prices, given this uncertainty, rather than decrease, given that there's an expectation of decreasing prices starting in the second half?

We have a long-term relationship with our customers, and we have been always working with them in order to assure them the volumes that they need. We have done contracts that assure volume for a year, in some cases, a little bit more than a year. And in other cases only 2 quarters, but we have been also negotiating price every quarter, and in some cases, every half year. It depends on each of the customers. We like to assure volumes but we don't like to prefix the prices. The prices have been too volatile, so it's -- we discuss it with the customers and we don't feel that it's fair and it's not good to find prices that will be too different than the final market price. And the next strategy also, as following your question, is that we have been discussing with the OEMs in the case of vehicles to try to see how we can structure longer-term contract. But this is our things under development. Alexander Varschavsky Páez: Okay. And I have a next quick question regarding iodine prices. Well, this quarter, we see a huge increase in prices. And I want to know what could we expect for the next quarters.

We feel very comfortable with the market share that we recover. We are already in the 35% market share. We also feel comfortable with the margins that we're getting this new level of prices. And the price at the end will be, of course, the balance between supply and demand. We are seeing some of our competitors increasing a little bit their supply. So we'll have to wait and see what happens in the next rest of the year.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Gerardo Illanes for any closing remarks.

Thank you very much for joining us today on this call, and we hope to have you with us in our next conference call. Goodbye, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.