Good day and welcome to the SQM Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Kelly O'Brien. Please go ahead ma'am.

Good morning. Thank you for joining our second quarter 2020 earnings conference call. This conference call will be recorded and is being webcast live. Following this call, you will be able to access the webcast at our Web site www.sqm.com. Our earnings press release and a presentation with the summary of the results have been uploaded to our Web site, where you can also find a link to this webcast. Joining our call today as speakers are Ricardo Ramos, CEO; Gerardo Illanes, CFO; and Pablo Altimiras, Vice President of Lithium and Iodine businesses. Before we begin, we'd like to remind you that statements in this conference concerning the company’s business outlook, future economic performances, 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 the 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 risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. Risks, uncertainties and factors that could affect the accuracy of such forward-looking statements are identified in our public filings made with the U.S. Securities and Exchange Commission and in our earnings release issued last night. And these forward-looking statements should be considered in light of those factors. We assume no obligation to update such statements whether as a result of new information, future developments or otherwise except as required by laws. I now leave you with our CEO, Ricardo Ramos.

Thank you, Kelly, and good morning. Thank you for joining our earnings call today, our second quarter net income as you know reached approximately 50 million, while uncertainty continuing the markets in which we sell there were also many positive things that I would like to comment before we speak more specifically about the market. First, we published our annual statements with our sustainability report which complies a significant amount of useful information related to the sustainability of our business. This year was the first time that this report was audited and certified by the third-party. As a global company we are aware of our responsibility to protect the environment and community, when this done, the sustainability means continuous improvement, for that reason we are finalizing an ambitious plan related to the sustainability and we will release our goals in the coming months. Our team in Chile and around the world as not ceased to impress me. I credit the dedication, hard work and attention to safety and health measures to the reason we have been able to safely continue operating with no material distractions. Furthermore, we are not only been able to meet our production goals of 42,220, in some products we have been able to exceed them. As we mentioned in the earnings release last night, our leasing production levels are at all time high and we are currently producing at the rate of 170,000 metric tons per year. While we keep on working on our lithium carbonate and lithium hydroxide expansion, this production will allow us to increase our market share as planned during 2020 even as market demand is expected to be similar to levels seen last year. Looking at the numbers published last night, our net income for the second quarter reached about 50 million [indiscernible] 70 million reported during the same period last year but revenues, gross profit and net income during the second quarter were all higher than what we reported during the first quarter of the year in line with our expectations, we saw significantly high business volumes in our SPN, lithium and industrial chemical business lines when we compared to the first quarter. In the fertilizer market we saw lower potassium chloride prices in the second quarter and may continue to see price volatility during the remainder of the year. These lower prices in the potassium chloride market and the uncertainly in the short-term have directly and negatively impacted the price churning the specialty fertilizer market. On the other hand, higher prices in iodine in the first half of the year had a positive impact in our resource. I'm going to let Pablo comment in more detail about what we are currently seeing in the iodine and lithium market.

Thank you, Ricardo. As you saw in our earnings release, our revenue related to lithium fell significantly compared to the second quarter of 2019. This was related to lower prices in relative market. However, price in the business line were lower during the second quarter and as a result of weak demand seen during the first half of this year. The lower prices were partially offset by higher sales volumes reporting during the second quarter of 2020, which were approximately 50% higher than our sales volumes reported during the first quarter. We are producing at record rate accumulated inventories giving us the flexibility to continue growing our market share in the coming quarters. At the same time, the quality of our lithium products keeps on improving while our production costs keep on decreasing. Despite limited visibility and ongoing challenges taking in the short-term across all markets, we remain optimistic about lithium. During the second quarter demand in China was a slightly better than our original prediction. We also saw significant increase in the sales of electric vehicles in Europe in recent months. And everyday we see new announcements related to new developments in electric vehicles or lithium battery markets, which could boost demand in the coming years. [Indiscernible] for electric vehicles on a regulatory level on consumer level remain strong. [Indiscernible] continues in the long-term prospects on the lithium market and we continue to invest in the development of projects to ensure that maintains our leading position. In the iodine market, we saw second quarter price remained at levels similar to those reported during the first quarter of the year respect to the market demand this year will be lower than last year. We believe that our sales volumes during the second half of the year will be lower than those reported during the first half reaching under 11,000 metric tons in 2020. We have seen consumption impacted in the uses related to nylon, biocides and x-ray contrast media. However, other areas like human and animal nutrition has not been impacted. Finally, we see interesting growth opportunities related to antiseptics and sanitizers. However, the size of these segments are relatively small to compensate the decline in other areas. We are hopeful we could see robust iodine demand growth in 2021. I will now pass the call to Gerardo who will say a few words about our financial situation.

Thank you, Pablo. Thank you everyone for joining the call today. We have a diverse portfolio and a strong balance sheet and this coupled with our high quality assets have been key giving us operational flexibility and resilience. We are always diligently working to maintain our high competitive composition. In fact, the second quarter, our cost per ton decreased in almost all of our business lines compared to the first quarter. These savings can be reflected in our EBITDA margin, which was approximately 34% during the first six months of the year, slightly higher, the margins reported during the same period last year. We added second quarter with over $1 billion in cash and cash equivalents which will allow us to continue to invest in projects as we see. Our CapEx plan remains unchanged since March. We expect to spend approximately $350 million this year related to maintenance and growth CapEx. We believe that we should be able to accelerate our CapEx plans in 2021 and make up for any delays we have seen during 2020. Thank you. And operator, we may now go to Q&A session.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Isabella Simonato with Bank of America. Please go ahead.

My question I have two. One of them if you could provide an update about the environmental situation and discussion with a regulator in Chile, we've seen news about this matter, if you just could give us an update about that? And the second is on lithium, I mean, you guys are prioritizing market share and volumes this quarter or this year, while your prices remain pressure, right? I mean, what is the rational behind that? And how do you see this balance between market share recovery and prices beyond 2020? Thank you.

Hi, Isabella, Ricardo Ramos speaking now. As you know, we are fully committed to the protection of the environment in this [indiscernible]. Now, we are working on modifications to the compliance plan according to the comments of the environmental court. And we hope and we're sure we're going to obtain all the necessary approvals of the new plan in the coming month. That's all the detail regarding the environmental issues of the company are fully reflected in our financial statements. You can review it on the documents we filed yesterday. The second question I think is for Pablo regarding lithium? Pablo please.

Yes. Okay. Well, as you know, this year the demand is very effective because of the COVID situation. However, we are here because we will be leaving the lithium business in the long-term. So, that means that we are really committed to reach the goal that we have by 2025 which is reached sales of more than 150,000 metric tons that year. So, that means that our plans are not changing because of the situation. So that means that we want to increase our market share. We are fully committed on that, that we are producing a high regular in the plan, we are accumulating inventories, improving quality. So that is the part of the study that we are trying to -- in order to gain market share. Regarding -- we are starting applying right now during this year and we'll continue doing in the next years. Regarding to the second price, yes, I mean the demand this year is, it looks so at the end what will happen with the price will be the consequence between the supply and demand. So, we will see more pressure maybe during this year. Yes, we will see more pressure, but at the end, I would gradually increase the market share we are fully committed on that.

Our next question will come from Joel Jackson with BMO Capital. Please go ahead.

I have three questions. So I thought I would ask them one by one. So my first question is, Ricardo in your prepared remarks you talked about, I believe, or maybe Pablo but lithium quality is getting better and your production costs are going lower. So we see that your production costs dropped about $1,000 a ton in the second quarter. Can you give us some examples or some idea of exactly how the quality is improving, where is it improving and what led to lower production costs in the second quarter? Thank you.

Okay. Pablo speaking. It is important to say that when we are saying that our quality is improving, well, this is something that we are doing every time, so that means that we are continually improving the quality because customers are requesting. So something that is ongoing, and I can say that today we are producing better products, but it's not any particular we used to have any issue of that is because the demand of our customers is not direction, so it's a must that we need to look at. But the good thing as we explained in the release is that despite we are able to produce the product that the customer needs. We're also we are doing that remaining the loss -- the low costs of production. So, but my point here is that this is a continuing effort that we need to do because the lithium -- quality of the lithium products will change with the pass of the years because of the technologies that our customers will use in the different content and applications.

My second question would be, so you have the new volume, and you're pushing out your share, and that's fine. Can you elaborate? Where are you gaining share this year? In a flat market you're gaining volume. So is this across different grades? Is this in different regions? Is this just you being very aggressive on price to win business? Give us examples of where you're winning share as granular as possible, please?

Yes. Well, as you know, we are well diversified because we supply lead fuel to the battery segment, to the industrial sector, so that means that we sell our lithium globally in different regions. Today, of course, because of what's going on with electric vehicles, close to the 80% is located in Asia. And today, China is very important for us. And we figure out that we'll be more than one-third of our sales during this year. So we are increasing a lot in China, but in Asia in general, which is where the demand for electric vehicles is. And we plan to be there and continue rolling where the demand is.

That's helpful. And then my last question is, I think it's been eight quarters in a row where we've seen EBITDA contraction, so EBITDA contraction year-over-year. Consensus is expecting you to deliver flat EBITDA in 2020. You're behind on that expectation of consensus in the first half of the year. And based on your guidance, it seems like you would expect lower earnings in the second half of 2020 versus second half -- lower earnings in the second half versus the second half of last year. So is it reasonable you have a chance to get the flat EBITDA this year or we probably do lower?

Hi, Joel. This is Gerardo. Well, you know that we are official company in the sense that says that we have five business lines that behave in completely different ways. While one business line may be going up because of supply demand or particular issues in that particular business, another one may be going down. So I think it's better to go one by one, if you want to assess how much our EBITDA is going to be for the full year. Of course, 2020 has been affected by COVID-19, not for something in particular, but the impact that it has had on economy is having an impact on the demand of iodine, is having an impact on the demand of lithium, it's having an impact also in potassium chloride, the lower cost of potassium chloride is having an impact on the prices of potassium nitrate. So, answering your question on how much the EBITDA is going to be for the year, it's a function of how each of the business lines will behave with a particular situation, so of each one.

Our next question will come from Javier Martinez with Morgan Stanley. Please go ahead.

I have a question, I don't know if it is for Pablo probably for Ricardo. We will really appreciate if you can share with us some of your intelligence and give us some color on where different inventories are today knowing the value chain and talking about SPN inventory and talking about industry inventories in different stage of the production process. Can you give us some notes on the big picture at least of whether -- when did you think that those inventories make sense? Thank you.

Okay. Thanks Javier. Well, at the beginning of the year immediately after the first quarter, we saw sound inventories in the whole chain. So that means in lithium chemicals, sorry, it probably mean lithium chemicals and also cathodes, was not the same case on EVs because the EVs companies can react quickly to the demand and productions. So, but we used to see that. However, we say before the demand in the second quarter started getting some recovery. So that means that the company started you know, selling cathodes and using more lithium chemicals. So we have been seeing some sort of reduction. Anyhow, I would say that today we still have a lot of inventory in the economy, where actually the higher cost producers are deciding not to compare the oldest economy because of the high cost that they have. And I would say that in that regard, the pressure is only better if it's coming from there. Today I would say that we saw that we are getting more orders in terms of selling lithium chemicals, lithium carbonate, lithium hydroxide. So, that means that I would say that the demand is coming regarding to a cathodes and I would say that levels of inventories in terms of cathode has been adjusted to more normal values. Same with liquid chemicals, it probably remain, still I think that is -- we have high inventories.

Our next question will come from PJ Juvekar with Citigroup. Please go ahead. Pardon me, our next question will come from Ben Isaacson with Scotiabank. Please go ahead.

Hi, this is Ziad on for Ben. Thanks for taking my question. I apologize this was asked, I got disconnected for a moment there. But I just wanted to ask a little bit more detail on those lower costs. And just the sustainability of them like by segment, if you can and the extent with which we can see that either improving moving forward, or whether it should remain that the levels we saw in the second quarter. Thank you.

Thank you, Ziad for your question. Well, there are several factors that of course affect our cost. One that is quite relevant is the exchange rate with the Chilean peso. The Chilean peso has depreciated when compared to last year is, of course helping us on our course to give you an idea, approximately 400 million or 500 million of our total expenses per year are in Chilean pesos. So that is a quite a relevant part of the savings. And also NIE this year has been lower than it was last year. But also, we have been improving in all our efficient lines to make sure that we can keep on producing as Pablo was saying before with higher quality but also with lower costs. Remember that the current lithium carbonate plant was under ramp up over the beginning of last year while now is a significantly more mature stage and of course, that is helping us to not only improve quality but also be able to reduce costs. And there is another variable that you have to keep in mind, which is the fact that we produce the five products or the five business line come from two different network resources. So there are several common expenses that are allocated based on the IFRS rules in different businesses that may have certain changes in the cost in one business line that are somewhat compensated in another one. So that's basically the situation about cost in the company.

Excellent. Thank you. And if I can just add one follow-up just on the iodine business. Just if you have any visibility on how the third quarter has gone, I believe last public comments from you guys that there was weakness specifically because of the medical application. So if there's any -- does that have any visibility on Q3 so far?

Yes, sure. Well, as we said in the release, we expect that our sales in the third quarter or fourth quarter will be less than the first semester. And that's why we believe that finally this year the demand will be lower. So we expect, less save. And as you say, well, is because when we say impact with the virus, Corona COVID-19. We believe that it's a temporary shock for the demand. Today, for example, in x-ray contrast media people is not going to the hospital to take the exams. So they're postponing the use. We have some inventories in that applications, but, as we said, so we believe that the demand will be lower in the second semester, anyhow, in next year, because we don't see any fundamental change in the supply and demand of this market, we believe that finally the market will recover by 2021.

Our next question will come from PJ Juvekar with Citigroup. Please go ahead.

My question is, you talked about sort of pursuing this inventory and volume or price strategy? How much inventory of lithium carbonate do you have on hand? You can describe that in number of months. And one of your competitors who reported recently was complaining about high levels of inventory in China and Australia. So I was wondering if you can sort of give us an idea about where the inventories are globally?

Okay. So we explained before we are producing at record level this year, so that means that we were -- increase our inventories. We feel out of the inventories will grow approximately 20,000 metric tons of LCA this year, so we'll have more inventory by the end of the year. Regarding to the high levels of inventory in China and Asia, well, I explained before we need to define a clearly what do we mean with inventories because one thing is to have inventories regarding to lithium chemicals and the other thing is raw materials to produce a lithium chemical, for example [indiscernible]. So as I told you before, because of the pressure on prices, what we have been seeing right now it's that high cost producers that compare [indiscernible] to lithium chemicals are postponing the decision to produce. So, which is -- well, I would say an opportunity for lithium chemical producers that has low cost, but that is a little bit the situation.

Okay, thank you. And my second question is about your market share, you gained market share, partly also because your competitors turn down their minds. So if you assume that demand comes back next year and competitors also bring their plans back on what do you expect will happen to market share? Thank you.

Well, as I explained before, we have a clear goal for 2025. So that means that no matter what's happening with the supply, we need to grow more than the demand and we are so aligned to that goal that, okay is our competitor decided to take some decisions, we will have the product, we will have the quality. Also we have that multitude that you know that we are a very low cost producer. So, we will use our competitive advantage in order to accomplish the goal that we have by 2025.

Our next question will come from Chris Terry with Deutsche Bank. Please go ahead.

Couple of questions to me. I just wanted in terms of 2020 considerably you've done 21000 tons of products a year-to-date and last year you did 45,000. Should we expect that you just beat last year or could you be quite a bit above that and just trying to get a sense of your latest thoughts on sales? Thank you.

Well, yes. As you said last year, our sales were 45,000 metric tons per year. And this year, we expect to sell more than that. We will increase our market share.

Okay, thank you. And then, just in terms of the 70,000 tons you have today. Can you comment on the amount of hydroxide you expect for the year?

Yes, sure. Well, I mean, the 70,000 is the capacity that we have for the lithium carbonate production in [indiscernible] today our capacity 13.5000 metric tons per year. And as Ricardo explained in the release, we are investing in a new line of sight of hydroxide. So next year we'll reach 20,000. Just to clarify, it is important to remember that to produce our lithium hydroxide we use lithium carbonate as a raw material. So that's something that you need to consider when you figure out the calculation for the capacity for both products.

Okay. My last one just on Mt Holland. When can we expect the next update on the project? Thank you.

Yes. We are working hard with our partners in our Mt. Holland project. I would say that we have been progressing very well and according to the plan, but as we anticipated before we expect to release more news next year in Q1.

Our next question will come from César Pérez-Novo with BTG Pactual. Please go ahead. César Pérez-Novo: Good morning, gentlemen, and congratulations for your second quarter results. This comes back essentially to an earlier question. You just mentioned that your carbonate production for 2020 will be roughly 70,000 metric tons implying that you will hold over 20,000 metric ton of inventory as we go into 2021. I mean, this shows a high confidence in industry demand in the years ahead, fueled by a car maker demand and industry recovery of course. And my question here relates on what demand growth parameters are you seeing, what this may mean for lithium prices next year, I believe that you mentioned lower prices in the second half and growing market share, this something that may exert pressures in the medium term as or are you seeing actually supply [gaps] [ph] lithium chemicals as competition step backs and projects globally get postponed?

Yes, okay. Well, first of all, I mean, as we said before, we are fully committed with the lithium business in the long-term, we believe in the fundamentals. We still believe that by 2025, the demand will be more than 800,000 metric tons of LCA per year. So we believe in the long-term growth, that's for sure. We are so committed as you say, we are producing more volumes and also we are investing also in our capacity and we pretend to reach more capacity by the end of next year. So that means that we are really committed on any change regarding to the fundamentals of the business. Of course, in this year demand was very effective because of the COVID situation. So that means that next year the demand will be subject to what happened with the situation. But anyhow, we expect a recovery on that. Today, it's so early to say how we read the growth for the next year, I think that we need more information to make a more clear number. However, as I said before, we are committed with the role and long-term goal. So that we need to increase our market share and that means that we need to increase our sales and we need to grow our sales more than this month. And that's what we're trying to do. If that will put some pressure on prices could be everything will depend on the demand and supply. You know that the price will be the result of the supply and demand, but it will not change the plans that we have in order to increase our market share. César Pérez-Novo: All right. Thank you very clear. And finally for me, expansion, what level of progress has been attained construction wise for the hydroxide and carbonate plant and any decision between the new carbon and expansion and the existing 70,000 metric ton line in terms of a product segment?

César, Ricardo speaking. We are working on the project, as you know, and we have some issues regarding the COVID situation in terms of we review some of the non-essential activities at facilities that was a requirement from the health authorities. That's why some of the project was in some way delayed. That's why the CapEx for this year is going to be lower than originally expected. But we expect that we will recover the time and we will recover some activities during next year. That's why we maintain to have some startup of the new facility at the end of next year, but we're working fine. We have everything ready. We're working. Yes. The only situation as I explained you before is that we need to reduce non-essential activities at our facilities in order to be according our return now -- protocols regarding the COVID situation, by the way we're working fine on the project.

Our next question will come from Sebastian Ramirez with Banchile. Please go ahead.

Congrats on the results. Just things for my side will be the first in relation to a cash cost. You were referring to that area in that but it's very impressive what you did in lithium on the second quarter, so you can -- what should be -- if this level should be the normalized level going forward. The second question is regarding iodine, that you're now delivering products under your nameplate capacity, so should we think that you're building inventories there as well? How do you think that that replenishing should go within the year? That's for my side.

This is Ricardo speaking. Regarding the comp that you ask, we were projected that the current cost situation that we have should continue going forward. And of course, we continue working on improving our composition in every single business life. Now, of course, keep in mind that we did our cost structure in the lithium business life, we could the -- lease payments that will make [indiscernible] which are a fraction of the price and the lower the price, the lower the lease payment of the asset is driving the -- in the tables of the contract that are disclosed on our financial statements. Now, regarding your iodine question, Pablo, please.

Yes, sure. Well, regarding the iodine production and the inventories, well, today we are producing in a normal rates. And as you know, we are coming from low level of inventories. So, today of course, that demand will be reduced during the year. So, that means that we will use that situation in order to recover our inventories, which is something that we want because in the past we used to have low levels and this is not the way how we can -- we would like to work. For us it's important to have inventories to be there for our customers. So, we'll use this situation to recover inventories and to be ready once the demand will be there again.

That's perfect, very clear. And if I may add something very quickly in regards to this solar salts, you said that it would give the leverage 60k tons of that and the remainder of the 150 that are planned for the year should be assigning in equal parts during the rest of the year or will be more tilt towards third Q, any news new projects on that side that would be helpful to hear from that.

Hi. Ricardo Ramos speaking. We expect to as you may, as you know, we expect to sell this year solar salts business close to 160,000 metric tons and most of the sales will be in the third quarter, some remaining sales in the fourth quarter, but third quarter will be higher than fourth quarter. As you know this is a long-term agreement in order to supply solar salts it means we will continue to sell during next year to the same clients 2021-22. And we are really close to two new agreements in solar salt business in the short-term. I expect to have some news during the next quarters in order to inform you that we close new deals in the long-term agreements of the solar salt. There is a lot of activity in this business sector in Europe and different areas of the world. That's why we're very positive about having some new agreements in the near future.

Our next question will come from Leopoldo Silva with LarrainVial. Please go ahead.

I have several questions and I would like to have them -- to make them one at a time. So my first question is regarding iodine. I would like to ask you, could you tell us what is special about this business that despite having a weak demand, as you have said, and weak demand for the second half of the year, are you able to sustain a fairly good $35 per kilo price? It doesn't have to do with the product mix. And also what could make it correct downwards? Also, I would appreciate if you could help us understand why are you stocking so much iodine abroad as your customs -- as Chilean customs data shows you shipped 50% more than what you produced. I mean, you sold during the quarter.

Okay, sure. Well, as I said before we see that price level for the second semester of the year will be similar to the first semester. What is behind there is what I already said that we are not seeing any fundamental change in this business. I mean, we don't have new supply, the remaining has been affected because of the specific situation of the virus. But as I said before, we expect that the remaining will be recovered there. You'll see any important -- new supply of an industry. Actually, if you see the supply of the iodine from 2014, it has not increased, so that's why so finally the price equilibrium between supply and demand. So that's why we see and that's what's going on regarding to the price. Regarding to your second question. Well, the study that we have is to remain inventories close to our customers is what we do normally, well, this because of COVID situation, we increased a little bit, the freight of product in order to be there just in case but any other thing that that behind is normally what we do we -- it's part of our strategy to build inventories close to our customers.

Okay. Second question is regarding lithium. So correct me if I'm wrong, I understand that among the products that you sell from the seller to a cost allocated on a revenue basis, that means potassium, industrial chemical some parts of SPN. So my question is, given that you've started shipping stronger industrial chemical volumes and will continue to do so as you said, should we expect to see reduced cash cost as we as -- like we saw this quarter for the coming years. And also here, I would like to -- if you could give some color on how much of the cost reduction on this quarter can be attributed to this, what I just said or and maybe what can be attributed to higher run rate efficiencies -- organic efficiencies, overhaul of the plant. And also if you could just give a glimpse of the depreciation per ton that was quite high this quarter. Thanks.

That was quite a long question. Let me try to help you on this. Well, yes, we're selling solar salts. Higher solar salts of course are positive news, but they have no relation with the cost of lithium, the lower cost of lithium, as explained before are a fraction of improvements in the plant. Remember that if these was a plant that started production at the end of 2018, it was on -- basically -- fine tuning 2019. And now it's at full production with higher quality and better costs. So that is what is happening there. On top of that we have a weaker Chilean Peso, we have lower cost of revenue and on top of that we have lower royalty to [indiscernible] because of the lower prices that we're seeing. Those are the main factors of the lower costs that we are currently reporting in lithium.

This concludes our question-and-answer session. I would like to turn the conference back over to Kelly O'Brien for any closing remarks. Please go ahead.

Thank you for joining everyone. We hope to see you again in our earnings call in November.

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