Good morning. And welcome to the SQM Second Quarter 2023 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 this event is being recorded. I would now like to turn the conference over to Irina Axenova, Head of Investor Relations. Please go ahead.

Thank you. Good morning. Thank you for joining SQM's earnings conference call for the second quarter of 2023. This conference will be recorded and is being webcast live. Our earnings press release and presentation with a summary of the results have been uploaded to our website, where you can also find a link to the webcast. Speaking on the call today will be Ricardo Ramos, our Chief Executive Officer; and Gerardo Illanes, Chief Financial Officer. Carlos Díaz, Executive Vice President of Lithium; Felipe Smith, Commercial Vice President of Lithium; and Pablo Altimiras, Executive Vice President of Nitrates & Iodine will also be available to answer any questions. Before we begin, I would like to remind you that statements made in this conference call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product or service line growth, are considered forward-looking statements under federal securities laws. These statements are not historical facts and may be subject to changes due to new information, future developments or other factors. We assume no obligation to update these statements, except as required by law. For a complete forward-looking statement, please refer to our earnings press release and presentation. I now leave you with our Chief Executive Officer, Ricardo Ramos.

Thank you, Irina. Good afternoon, everyone, and thank you for being on the call today. Yesterday, we published our second quarter 2023 earnings report, and I would like to highlight the positive impact of significantly high sales volumes in Lithium business and continued strong performance in Iodine business seen during the quarter. Lithium business, we reported record high quarterly sales volumes, which surpassed 43,000 metric tons, driven by strong customer demand recovery and positive market outlook. We expect to deliver higher sales volumes in the second half of this year compared to the sales volumes reported to the first half of the year. Since the majority of our sales contracts are based on price indices which follow market price trends, our realized sales prices moved with the market with some lag, depending on the terms of the contracts. This commercial strategy allowed us to capture the price premiums in market last year. After first quarter pricing negative trend, we have seen some price recovery during the second quarter and expect our realized price to follow the market for the remainder of the year. We continue to see strong fundamentals behind lithium demand growth with the global EV sales showing another strong performance during the second quarter, increasing 50% year-over-year. We believe that the total EV sales growth could be close to 30% this year when compared to 2022. And the global lithium demand could increase at least 20% this year compared to the previous year. Signing the long-term agreement with Ford Motor Company and LG Energy Solution was another important milestone of the quarter. The trust our customers put in SQM's ability to successfully increase production in a sustainable way and deliver high-quality battery material make us very proud and encourage us to continue with our growth plans in Chile…

[Operator Instructions] Our first question will come from Isabella Simonato with Bank of America.

I have a couple of questions. First of all, on iodine, we saw a big increase, as you pointed out, right, on prices year-over-year. However, on your presentation, you showed that the contribution to gross profit, right, was only of $30 million, which implies, of course, a significant increase in costs as well. So, I was wondering if you could give us a little bit more color on the cost of production of iodine and how do you see that performing going forward? That would be my first question. The second question is in light of the regulatory change in Chile, right, how do you see strategically the geographies where you are producing lithium, right? And how do you see the potential of diversification going forward, considering the environment in Chile? And final, very quickly, you guys announced the dividends last night as well. If you could give us an indication of the payout for the year? Thank you.

Hello, Isabella. Pablo Altimiras speaking. Regarding to your questions about the iodine, yes, as you see, prices have been growing, explaining mainly because of lack of supply situation that we see that will continue in the year. Regarding to cost, it's true, –there have been some pressure on cost. I would say that there are several reasons, but the most important one is that, it's not any secret that in the whole mining industry we have some pressure on cost because the cost of energy, raw materials, things like that. Also, we opened our new facility, Pampa Blanca, which at the end is a small facility. That means that it has a higher marginal cost. However, with the recovery of the nitrate industry and also we hope because of all the efforts that we have been doing to improve our deals, we see that the situation will start to be under control, so we see positive results in the coming months.

If I'm not wrong, the second part of the question is regarding the lithium diversification outside Chile. As we can -- as we have commented before, the Company is looking for opportunities of lithium outside Chile. We have a lot of expertise in lithium. We know we have knowhow. We're moving forward with our Mount Holland project. We're very proud about it. Yes, we're open for opportunities. And we don't have any specific new project announced today, but we are working very hard in order to, as we said before and we have said in the last two years, to find opportunities to do business outside Chile. What was your third question, Isabella? We don't remember.

Yes. It was just about the dividend and if there is a visibility on the payout for the year.

Hi Isabella. This is Gerardo. The Board yesterday approved an interim dividend of 30%. You know that our dividend policy is -- it was presented to the shareholders. It's on our website. And the dividend -- the interim dividend of the first quarter was 30%. The interim dividend of the second quarter was 30%. And we will continue on the rest of the year -- or the Board will continue assessing the interim dividends. And at the end, in April next year in the Annual Shareholders Meeting, a final dividend will be decided.

Our next question will come from Ben Isaacson with Scotiabank.

Three questions for me as well. Number one, on the contracts with Ford and LG, what were the reasons why you need to sign a contract? And can you give us some parameters around those contracts, pricing, volume, how long they're going to be, et cetera? That's the first question. The second question, lithium -- sorry, iodine prices are around $70 or so per kilogram. Why haven't we seen much new supply being announced? And do you expect that to change if iodine prices stay where they are? And then the final question is, I think, Ricardo, you mentioned you see EV demand growth of about 30% and lithium of 20%. Why is there a gap between those? Would you expect those over time to come together, or is this something that we should expect going forward? Thank you.

Hello, Ben. This is Felipe here. How are you?

Great.

Yes. I will comment on the contracts. We see signing long-term contracts as very positive because in a way -- I mean, we have a long-term plan of sales that involves volume, and this is a way to secure some volume in the future. And at the same time, for the customers, it's also a way to secure supply for -- in order to fulfill their plans. Okay? Now, you have to bear in mind that these contracts are finally a win-win for both parties because these are generally market confirmed contracts that will follow indexes. And on top of it, it has the advantage that basically pushes us to fulfill other achievements in terms of sustainability, quality. So, we see it as a positive driving force for us.

And how much volume are we talking about?

I'm sorry, I cannot disclose the details. We only disclose in the case of LG that it is more than 100,000 for the period 2023-2029, but that's it. We cannot comment for the rest. Sorry, Ben.

That's okay. And then next was on iodine.

Yes. Hi, Ben, Pablo Altimiras is speaking. Well, that's true. I mean, prices are in a high range today. Why we don't see supply? Well, I would say that because to produce iodine, it's not so easy. We are talking about -- in our case, it's a mining activity where you need to consider different things to get approvals, to have ready infrastructure. Actually, today, we see that a greenfield agreement project in order to be in production from the very beginning when you just starting the project can last more than five years to get complete. So, it's not so easy to deliver a new capacity. That's the reality. And that's why in SQM, we try to work in advance, be ready for the -- to build new capacity. That's what I can say.

So just on that, if it's hard to bring on new capacity, do you expect high prices to persist?

Well, again, it's a matter of supply and demand. At least in the short term, we don't see more capacity, and that's why I already mentioned it that despite of the demand today, it’s not growing, we see a lack of capacity. And that's why we expect in the whole year to see stable prices, let's say, in the high part of the group.

Great. Thank you. And then just finally on the EV versus lithium demand growth rates.

Yes. So, if I understood your question, you're asking the difference between the EV demand growth and our lithium sales growth?

Yes. Why is -- I mean you said EV demand, you expect it to grow at 30%. Lithium demand, you expect it to grow by 20%. Why is there a difference?

The difference is very easy because you know that lithium is used in different applications and -- not only EVs. I mean EV is an important one, of course, it’s the fastest-growing one and the main one, but still we are supplying -- I mean, the market needs lithium for many other things, like industrial applications, pharmaceuticals and so on. So, all these other applications do not have the same growth profile as the EVs. That's the reason.

Our next question will come from Rafael Barcellos with Banco Santander.

So recently, you published a press release commenting about the cash offer to acquire the control of Azure Minerals right, that you submitted in early July. So, my question is really about your capital allocation strategy. I mean, should we see the cash offer to Azure as a particular case, especially because SQM is already one of its main shareholders, or should we expect SQM to remain active in these type of M&A initiatives? And my second question is about the national lithium policy in Chile. Could you please give us an update on how conversations are evolving with Chilean authorities? I understand that discussions are still ongoing, but any update here could be helpful to us. Thank you.

Yes. Ricardo Ramos speaking. First about Azure, we published, if I'm not wrong, yesterday -- the day before yesterday, complete press release about that. I think we have nothing else to add is -- as we said before, it's a junior company in Australia. They have, among others, lithium projects in Western Australia, where we have, as you may know, our Mount Holland project. We today control close to 20% of Azure. We are the largest shareholder. And we had these confidential negotiations that are now public. And of course, we publish all the information available to the market about this negotiation. We have nothing else to comment about this one. Remember that the press release was yesterday or the day before, and you can be sure that as soon as we have information that according to the regulation we need to submit to the public, we will do it. And that's the most important issue that I want to say about Azure. About the other question regarding the conversation with Codelco, as we originally said, these conversations are confidential. Both sides, we decided to do it on very strong confidential basis. Our intention, as you may know, is to announce to the market as soon as we reach an agreement or the negotiations are terminated. Any announcement will be made at the time and in the manner considering in the current regulation. That's for sure, considering the nature of the conversations. Anyway, what can I add is that the negotiations are being carried out in good faith. We continue to work very hard and with the support of expert advisers in the matters that are discussed, that's for sure. And as SQM, we expect that if we reach an agreement, this agreement should be positive for the country, Antofagasta region, the communities and of course, for the two companies.

Our next question will come from Joel Jackson with BMO Capital Markets.

Hi. I have a few questions. I'll ask them one by one. Can we talk about volume in lithium? So 180,000, 190,000 tons this year, how much is coming out of carbonate Atacama, how much is coming from conversion of lithium sulfate in China? And then in 2024, when we think about you ramping to 210,000 by the end of the year, then the tons that you're going to do in conversion in China, that's incremental to that 210,000, correct? Up to 210,000? Carlos Díaz: Hello Joel, this is Carlos Díaz. As explained in the release, our current production is between 180,000, 190,000 metric tons between both location amid Chile and China. And as you know, the production in China is from lithium hydroxide coming from lithium sulfate. It’s been produced in Chile, and we expect to produce this year around 50,000 metric ton, which if you convert to lithium hydroxide going to be like 25,000 of those. And an idea is to convert that in our plan in Sichuan and to do some probably with third-party producer. So combination of both production is going to be around 180,000, 190,000 metric tons this year.

So when you're trying to produce 210,000 tons of carbonate by the end of 2024, did you add 25,000 of hydroxide or is there some cannibalization? Carlos Díaz: Yes. What we're going to produce in China is going to be incremental compared with what we're going to produce in Chile, in spite of both are coming from Salar de Atacama.

That was clear, but we've had some questions on it. Okay. If I talk about lithium, lithium prices right now and -- is it fair to say that your Q3 average selling price will have to be higher than Q2? Just looking at what spot prices did across the second quarter into now and the lag. So, is it -- makes sense that Q3 average price would be higher than Q2?

Yes. Well, as we have explained, we have most of our contracts today following indexes. So, I mean, it's very transparent. Everybody can follow those indexes. We have seen that since middle of June this year, some negative trend in the Chinese index and later on, followed by also the outside China indexes. So -- but at the same time, we have different lags in the way we adjust our contracts, the way we follow the indexes. So all in all, I hope that we can have a relatively similar price in Q3 compared to Q2.

Okay. That's helpful. So, my last question is, we're seeing conversion margin start to come down if you look at spodumene price in 3,500 something, plus-minus range. Does that concern you? Do you need spodumene prices go lower? And as spodumene prices go maybe lower, does that impact maybe any of your desires to pick up some spodumene more resources to projects into the parts of the world?

Well, we have some forecast of supply and demand. So, we do have new supply coming. We need more new supply coming actually to supply the growing demand. And we are, let's say, considering these aspects in our forecast. So, we do believe that there will be indeed more supply. And this is good. We need it.

And you're not worried about conversion margins now being quite small, considering where spodumene prices are?

Yes. I wouldn't -- I could not confirm that information, Joel, honestly.

Our next question will come from Corinne Blanchard with Deutsche Bank.

I want to go back on the China refinery and the timing of the production. So, this has been delayed by a few months. Could you just walk us through like maybe some of the difficulties that you have been facing then? And then, if there is anything you can share in terms of expectation into 2024 for the cadence and the volume coming from China? Carlos Díaz: Hello Corinne, this is Carlos Díaz. Yes, we have some delay in China because we have been focusing more in to get the best yield in our conversion plant in China. You know it's a new process. They're starting for the lithium sulfate from the Salar de Atacama to [indiscernible] site. But we expect that the commissioning is already done, and we expect to start producing in the coming months and to be full production next year.

Sorry. I was on mute. So next year, you expect to be at full capacity if everything goes right? Carlos Díaz: Yes. The idea is to produce in our plant around 25,000 metric tons as lithium hydroxide and probably to do some more tolling with third parties.

Okay. And then maybe two quick follow-ups. The first one, can you give us an update on Mount Holland? Is it still on track? I think you mentioned 2024 you would be selling some volume -- agreement as well. And the other question would be given where the spot price and pricing are falling down again, is there a point where you would maybe consider holding products and selling into the market, or are we not there yet? Thank you. Carlos Díaz: Yes. Well, our idea is to start -- the project Mount Holland has advanced well and according to the priority format and time line. We expect first product from the concentrator plant by the last quarter of this year. So then for the refinery, we expect to start producing middle of '25, but we expect to start producing at full capacity as soon as we can. And that could be at the end of this year, early next year. So nothing regarding with the price. We just feel confident that we're going to produce a full capacity as soon as we can.

Our next question will from Lucas Ferreira of JPMorgan.

So my question is about the ramp-up to 210,000 in Salar de Atacama. Correct me if I'm wrong, but I had the view that these could be done faster than the end of 2024. And so, if I'm right, are you seeing any bottlenecks in both the Carmen plant or in terms of yields and extraction there in Salar de Atacama? Are you kind of considering maybe slowing down that depending on the market demand? And so how you see the pace of growth towards 210,000? And then my second question is regarding the SPN market. So, if you have any views on prices going forward. We started to see sort of a rebound in fertilizer prices, depending on the type of fertilizers. But in the case of SPN, if you see already sort of a bottom for prices, you should have any expectation for prices in the second half of the year? Thank you. Carlos Díaz: Okay. Regarding your first question, Lucas, we are fully working to expand our capacity in Chile and to reach as soon as possible the 210,000. We're focusing in different areas, I mean improving our quality to getting the best product for the market, increasing the yields in order to get more production with less resources. We're on the schedule on that, and we expect to have the capacity next year. At the same time, we are working to expand our capacity on lithium hydroxide, and we expect to run the full line in the last quarter of this year and immediately start to expanding the capacity in order to reaching the 100,000 metric tons as we have been planned for the year '25, '26.

Okay. Pablo Altimiras speaking. Well, regarding to the SPN questions, well, you know that the first semester, the demand has been lower than what happened last year at the same period. The reason is because uncertainty, high prices of fertilizers and also some weather difficult conditions in some markets. We expect the demand will start growing in the second half of the year. So we will see more demand. So that means that we should be able to increase our volumes. However, regarding to prices, we see that we will continue start seeing some price decrease that also will help also to the sales increase and demand increase. But we expect to start seeing some decrease on prices.

That concludes our question-and-answer session. I would like to turn the conference back over to Irina Axenova for any closing remarks.

Thank you for joining our call today. And we're looking forward to having you on our next call. Have a great day, everyone. Bye.

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