Good morning, and welcome to the SQM Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kelly O'Brien, Head of Investor Relations. Please, go ahead.

Good morning. Thank you for joining SQM's earnings conference call for the nine months ended September 30, 2022. This conference call will be recorded and is being webcast live. Our earnings press release and our presentation with a summary of the results have been uploaded to our website where you can also find a link to this webcast. Speaking on the call today will be Ricardo Ramos, CEO; and Gerardo Illanes, CFO; Felipe Smith, Senior Commercial Vice President of Lithium and Pablo Altimiras, Executive Vice President of Iodine and Nitrates, will be available to answer any questions. Before we begin, let me 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 that term is defined under federal securities laws. Any forward-looking statements are estimates, reflecting the best judgment of SQM based on currently available information and involves a number of risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements, including our ability to successfully implement the sustainable development plan, risks, uncertainties and factors that could affect the accuracy of such forward-looking statements are identified in our public filings made with the United States 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 our new information, future developments or otherwise, except, as required by law. I now leave you with our Chief Executive Officer, Ricardo Ramos.

Thank you, Kelly. Good morning, and thank you for joining the call today. We are very pleased with the results we published. These results were influenced by positive market conditions in iodine and lithium, where we saw record high prices. During the first nine months of the year, lithium represented 77% of our gross profit. This success did not happen overnight. For decades, we have a belief in the lithium market and that enthusiasm has only grown in recent years. We have invested heavily in R&D and have been able to bring on more capacity faster than any other player in the world. The successful public-private alliance between SQM and CORFO has benefited both parties, as well as the neighboring communities and Chile to an unprecedented level. We look forward to keeping this momentum going in the future, formalized through our Salar Futuro announcement. This momentum has driven us to continue investing and growing our lithium production around the world. We recently announced the purchase of a plant in China, which has been overhauled to allow us to process lithium sulfate from our operations in Chile to lithium hydroxide. Yesterday, we announced that we will begin the expansion of our lithium hydroxide capacity in Chile from 40,000 metric tons to 100,000 metric tons in Chile. We have the necessary permits and look forward to completing this project by 2025. In the lithium industry, we see strong indicators relating to demand growth, particularly in China, where we are seeing that electric vehicle sales units are doubling compared to last year. While China is leading the lithium demand growth today, we also believe in the electric vehicle markets in Europe and the United States. Electric vehicle sales in the US could grow up to 60% this year compared to last year, and while starting at a lower base, these numbers are still a positive indicator of the continued momentum globally of the lithium market in the future. Given a lot of this, it seems likely that prices will remain at this historically high levels for the remainder of 2022 and into 2023. These strong growth fundamentals are incentivizing us to keep on growing beyond what we have announced in Chile and abroad. We will continue to invest in R&D, innovation and new projects and opportunities that will allow produce lithium in a cost-effective and sustainable way to meet the green energy transition of the future. While we have announced significant investment in the lithium business in the recent years, our long-term views in -- or all the business remain strong. We continue to invest in expansion projects related to iodine and nitrates as well. During the past few months, we have assigned long-term contract for both lithium and iodine, proving our commitment to our business and the mutual trust and collaboration that we have with the main players in the industries where we operate.

Operator, we can now turn it over to questions.

We will now begin the question-and-answer session [Operator Instructions] Our first question will come from Joel Jackson with BMO Capital Markets. You may now go ahead.

Hi, good morning. A couple of questions, I'll go one by one. So in lithium, there's a lot of noise this week that lithium spot prices may or may not have started to decline. Are you seeing spot prices falling? And considering your realized lag, your realized prices lagged spot by a few months, shouldn't we see your first quarter 2023 pricing being slightly higher than the levels you're getting in Q4? Thank you.

Yes. Hi, good morning. This is Felipe Smith. We are still not seeing any sign of a price trend changing right now. I mean, the information you mentioned is about futures, but at current levels, the spot price still is at the same levels. And of course, as we have mentioned before, our future contracts are all linked to market prices. So we do not expect in the first -- in the remaining of this year and the first months of next year to have a significant change in the pricing.

Okay. Let's go on with the topic. So, there also seems to be more new lithium reference prices emerging, including new journalistic assessments and new exchanges, futures price like you said. Do you expect all of this to change lithium contract and sales structures and purchasing patterns?

Well, there are some indexes that we -- that are older and more reliable. But of course, we welcome to have new indexes coming in the market. I think that will help to have more transparency. And the decision on which index we consider is, at the end, part of the discussion that we have with our customers.

You mentioned in one of your earlier answers about futures pricing. So, there's some new future prices, exchanges or references that are emerging. Are those credible futures references? Like is it credible that customers now think that lithium prices are declining later into 2023 based on these new assessments? Are they credible? Are they liquid?

Yes. We just followed those developments. But at the end, our contracts are based on the current market indexes.

Thank you very much.

Our next question will come from P.J. Juvekar with Citi. you may now go ahead.

Yes, hi. Good morning. Question for you. You're expanding your conversion plant in Chile and as well as capacity in China. With the IRA bill, would it make sense for SQM to consider a plant in the US for conversion?

Good morning. I'm Carlos Diaz, I'm Executive Vice President of the business, Lithium. Well, as you know, we're expanding our capacity here in Chile in the lithium carbonate as lithium hydroxide. At the same time, we expect to reach a total capacity next year of lithium hydroxide of 40,000 and 180,000 in lithium carbonate. At the same time, we are expanding our -- buying a new capacity of refining and conversion in China at a total of 30,000 for next year, and the same time, working on building a new plant in Australia that will be ready in the year 2024. Additional, what we announced yesterday is to continue expanding our lithium hydroxide capacity in Chile up to reach 100,000 in the year 2025. That is our plan. And you asked about to do with something in the US. Obviously, we are studying different alternatives that could be one to put a plant in the US or another market that we know that are growing fast for the consumption of lithium for batteries. So, it's in our scope, but we're still under study.

Okay. Thank you. And then I have a question on potash. Brazil is your biggest market. Can you talk about inventories in Brazil that some people think are high? Some people think they have come down in potash. And you talked about higher prices causing some demand weakness. Given that happened in 2022, what's your outlook for 2023?

Okay. Pablo Altimiras speaking. Good morning. Well, as you know, I would say that the whole fertilizer industry has been a very unusual year, and demand is not only -- the reduction in demand is not only explained because of the price of fertilizer, [indiscernible] product. Also, there are a lot of pressure in the farmers' economies because of the cost of gas, raw materials in general, manpower, et cetera. So of course, that -- this have impact in the demand in a very important way. Brazil has not been the exception. And also in Brazil, as you know, they're starting buying a lot of product at the beginning of the year. So right now, our view is still in that country, we have a lot of inventory, and that explains the low volumes that we saw in this quarter. Regarding to what will happen, as I said before, still there are a lot of uncertainty. Of course, that we are following up what's going on with the market situation, so it's difficult to say. We see some small recoveries now, but I think that because of uncertainty, we need to wait a little bit in order to know what will happen.

So would you say that demand is weaker in 4Q? I mean, now that Brazil has just finished planting, do you think demand was weaker during the planting season?

Well, in our specific case, you see that our sales in Q3 were low. We see some recovery in our case. As I said before, because we are starting seeing some sign, as you know, that the demand is getting there. But still, it's slow because of the level of inventories.

Okay. Okay, so inventories are high. Okay. Thank you.

Our next question will come from Jacob Kim with Scotiabank. You may now go ahead.

Hi, there. This is Jacob Kim calling in for Ben Isaacson. I just had a couple of questions. Looking at the hydroxide capacity expansion in Chile, you mentioned before that it takes a while to get these expansions up and running, especially in Chile when you have to jump through so many hurdles. Can you talk about whether this is an accelerated process? And if so, has any time line been accelerated for any of your other projects like China, the Salar Futuro?

Yes. Well, we're doing as much as fast as we can. You know that we're already expanding the lithium carbonate capacity in Chile at the same time doing the same with lithium hydroxide to reach 40,000. And after that, immediately, we'll start with the new expansion announced yesterday. And for the other side, we just received the permit for doing that just a month or a couple of weeks ago, so we're just now in the moment to start with that. So, we think that we are doing as much as possible, I mean, instead of doing faster. And we have been building and increasing our capacity in the last three or four years, and we will keep doing that for the next two or three years at least.

Sounds good. And just one last question. Just in terms of the pricing contracts, I know that you've mentioned that there are some long-term pricing contracts in place, and you've talked about the pros and cons before of these long-term pricing contracts. Just in general, as they follow general market conditions, is there a strategic point in time that you identify when you would want to lock in the long-term pricing?

Yes. At the end, today, in our discussions with customers, we are referring to market indexes. We believe that this is the healthiest way to contract our product. So, definitely, locking prices is something that is out of the question for us today. We are following indexes. We believe this is the best.

Sounds good. Okay. Thank you so much.

Our next question will come from César Pérez-Novoa with BTG Pactual. You may now go ahead. César Pérez-Novoa: Thank you. Good afternoon to you all and congratulations for your strong performance. I have a group of questions here. My first one is regarding this incremental 60,000 hydroxide expansion in Chile, which certainly is a bold and confident movement and investment, considering that the contractual terms with CORFO expire in 2030. On this rationale, has there been any progress with pertinent authorities as voiced with the press? And also when considering this new investment, what CapEx should we assume in 2023? And how have your numbers have changed for the next years? On China, could it be possible to say when will this facility start contributing to SQM's numbers and possibly what -- under what economic terms? And third and finally on lithium pricing. The third quarter 2022 numbers had -- are consistently increased pricing on a quarter-on-quarter basis, and it seems that much of the first 45 days of quarter four, there has been a significant uptick in spot prices. Maybe if you could qualitatively -- I know that you don't talk about price levels but maybe qualitatively indicate price direction into 2023. And what sales mix would you attain next year or seeking to attain? Those would be my three questions, gentlemen. Thank you.

Hi, César. This is Gerardo. We will try to go over each of your questions. Carlos will start with the first one.

Hello, César. I will explain about -- a little bit about the hydroxide expansion in Chile. What I said as before, we have been explaining that we believe that the demand is -- will be very strong in the coming year regarding to the lithium, especially lithium hydroxide outside of China. The market, obviously, we will need more supply and we're working on that in Chile, in China and Australia. So we feel very confident that we will do our best effort to reach that capacity. We have shown in the past we have done it. And so regarding to CORFO, I don't know, Ricardo?

Thank you, Carlos. It's important to say that this hydroxide capacity increase is a very good project without even considering moving forward in the 2030 agreement we have with CORFO. It means it's a very good project itself, considering that we will be ready in 2025. But about -- you're asking about the 2030 CORFO agreement we have today, let me comment that, as you may know, we are in the process, César, we are in the process of informing the different authorities and the stakeholders to explain, I think, what we call the scope of the Salar Futuro project. So far, I'm very pleased to say that everyone agrees on the interest of developing processes and technology that aim at the objective of water balance at the Salar site. High yields is also a very good objective and maintaining an extremely low carbon footprint. At the end, what we are looking forward is deepening a sustainable productive activity in the Salar de Atacama. And we have a full agreement with everyone we have been in touch so far. We are advancing today, as we speak, at maximum speed in the work of process design and engineering technological definitions and to develop a complete environmental survey of the project. This project, as I explained before, is very complex and requires a high-level of knowledge and experience. We strongly believe that SQM, we are -- we have significant experience after 25 years in the Salar de Atacama. We have the human team, experience, the commitment and the resources to successfully face the project. We hope to complete all the necessary definitions to submit the final project to the environmental assessment, authority in Chile during the second half of 2024. It's important to consider that in Chile, complete progress is required in all the definitions of a project prior to being submitted to the environmental evaluation. That's very important in the Chilean framework. I think also it's important to consider that this project, of course, implies operation commitments that go far beyond the year 2030. So working in agreement with CORFO, is necessary prior to its presentation to the environmental authorities for evaluation. We all agree that the development of the Salar Futuro project must be carried out in a way that is positive for the second region of Chile. It has to be positive for the communities near the Salar, of course, positive for Chile and for SQM.

So regarding your question regarding your question about CapEx, we have announced our CapEx for the period 2022-2024. We expect that, that total CapEx will be approximately $3 billion, which is comprised of $1 billion of CapEx related to nitrates and iodine business, including maintenance of those operations, plus $700 million of investments in Australia, plus $1.3 billion of lithium expansions in Chile, and here, I'm including the $360 million that we announced yesterday for expansion of our lithium hydroxide capacity, regarding your China question. Carlos?

Yeah, regarding to China, we expect to start producing in the second quarter next year. We're still in the ramp-up of the factory. And so we expect in March and April something, but that is something that say, to produce next year. César Pérez-Novoa: All right. Second quarter 2023? All right. Thank you.

Yeah. And this is Felipe. For the last question, regarding the price direction, yes, we have a lot of questions. So well, we already mentioned in our press release that we believe that the price environment will remain high, for the rest of this year and the beginning of 2023. So we stick to that view. The demand remains very strong. This is -- we are very convinced because we received the feedback from our customers as well. They are all with very aggressive expansion plans. So demand will play a big factor in the price direction. And we believe that those fundamentals are there. César Pérez-Novoa: All right, Felipe. So if I can make a final conclusion here is essentially, you'll be 100% exposed to the market in 2023 on the solid conditions that -- on the strong demand that we're seeing? Is that a correct assessment, because in the third quarter, you were open 80% to the market, if I recall correctly?

Yeah, for next year, we will be almost entirely exposed to the market price, so we are very confident on that. César Pérez-Novoa: Yes. All right. Thank you everyone, and thank you for taking all of my questions.

Our next question will come from Andrew McCarthy with CrediCorp Capital. You may now go ahead.

Good day everyone. Many thanks for the call and the presentation and the Q&A session. I wanted to switch over to iodine a little bit. You had a very strong quarter in terms of price realization, about $63 a kilo. Just wondering, going towards the end of the year and into 2023, how you're seeing the supply/demand dynamics there. And are we yet reaching peak prices in that segment or not? That would be my first question. Thanks.

Okay. Well, as you said, we are very proud about the results of this quarter for the iodine business. I would say that is the matter of because the demand has been there, especially explained because of the media and other applications. But also it's just to say that we have been able to increase our sales because also we have been able to produce more iodine than in the last year, because some improvements in our operations. And as you know, we have been investing to expand our capacity of iodine. So my point is that we have been able to deliver the iodine that our customers needs. Regarding to the next year, well, always is difficult to say. Everything will depend, as you said, regarding demand and supply. Regarding the demand, we see some uncertainty because of the situation in Europe that could affect some applications, but still we have some way to run to see finally what happened. So that's one point. And regarding to the supply, well, today, we have not seen more supply coming. Next year, we know that some new capacity could arrive, but still we need to see finally that happen. Anyhow, we are also investing in order to have more capacity. If the market needs more iodine, we believe that we will be able to deliver that iodine to the market.

Great. Thanks very much. And just going back to lithium, we have been seeing recently some up and down customs data in terms of -- especially around volumes and prices in China. Just wondering if you could share your thoughts on that, whether that -- some of that's maybe onetime effects or mix effects in certain months or anything there that you're saying that you'd be a bit more concerned about? Thanks very much.

Hi, Andrew, this is Gerardo. Yeah, there is a lot of information that comes from customers that shows our exports to the different markets. But that's not only the information, since there are price adjustments and things like that, that are not necessarily being reflected on those numbers. So taking strong conclusions out of these figures may be a mistake. And also, there is another thing to keep in consideration that we export product from Chile to, in most of the cases, to our own subsidiaries, where later on, the product is being sold to the market, so we keep inventories in our subsidiaries. So the fact that one particular quarter, the volumes were significantly higher or lower than the previous quarter doesn't necessarily mean that we're going to sell significantly more or less during the next quarter. We are projecting that for this year, the total volumes of lithium sold will be more than 150,000 tons. And that, of course, includes product that is going to be sold from Chile and also product that is being sold from our commercial offices.

Okay. Thanks, Gerardo

Our next question will come from Chris Kapsch with Loop Capital Markets. You may now go ahead.

Yes, hi, thank you. Sort of a follow-up on a prior question but I wanted to flesh it out a bit. So I'm attending a big battery materials industry conference currently, and there's a lot of discussion at the conference about the Inflation Reduction Act, or IRA, which obviously provides support or stimulus for EV adoption in the US. So as I understand, the production of battery materials or processing of materials in Chile would qualify under the structure of the IRA because of the status of Chile as a free trade partner. So was just wondering, could you just confirm your -- the status there in terms of your footprint? And two, because of this free trade partner status and presumed qualification within this IRA, just curious, has there been a step-up in SQM's commercial engagement with potential downstream partners in the US as a result of this bill's passage and its future growth implications in the US?

Yes. Well, this is Carlos Diaz. We understand, yes, we -- our product will qualify for that as Chile have a free trade agreement with the United States. But this is something that I have to be shaky about our customer.

Yes. I'm just curious if it is -- there's so much enthusiasm around the implications. I'm just wondering if you're seeing that in your commercial engagement. And is this some -- is this legislation, did it help influence the underwriting of your hydroxide expansion intentions that you just announced, or is it just completely independent investment decision? Thank you.

Yes. We have now a signed contract with the customer, the data [ph]. Those are customers that have developed a project in the United States, and obviously, they will need our product that is coming from Chile. What I said before because they understand that we have -- we would qualify as a product coming from the country with the free trade agreement with the United States.

Thank you.

Our next question will come from Santhosh Seshadri with HSBC. You may now go ahead.

Hi, good morning. Thanks for taking up my questions My first question is, do you see any potential demand normalization in China, following the phasing out of EV subsidies by the end of this year? And secondly, is it possible to quantify the inventory demand that is necessary to support the new battery and capital plans that are coming online and are ramping up production? And when those demand will start to peak? Thank you. Kelly O’Brien: Sam, could you just report -- could you just repeat the first question? I think we may have missed that a little bit.

Yes, I'm just wondering if there are any signs of normalization of lithium demand in China, given that China is phasing off the EV subsidies by the end of this year. So there is a lot of prebuying happening of EV.

Yes. Hello. Felipe, again. We are waiting for more official information from the Chinese government about the subsidies as of next year. However, we can also comment, we believe that the Chinese market has shown very strong growth and some more maturity, meaning that probably the demand has a good momentum now. And we do not see a strong impact because of the subsidy ending. On the contrary, we believe that there is a good momentum. And potentially, the Chinese government will announce something that will help the demand.

Thank you.

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

Thank you, operator, and thank you, everyone, for joining. We hope you all have a great day. Thanks.

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