Gerardo Illanes - Vice President of Finance and Investor Relations Patricio Solminihac - Chief Executive Officer.

Andrew McCarthy - Citi Fahad Tariq - BMO Cesar Perez-Novoa - BTG Pactual.

Good day everyone and welcome to the SQM Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Gerardo Illanes. Please go ahead..

Thank you. Good morning, everyone, and welcome to SQM’s third quarter 2016 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. Patricio Solminihac, Chief Executive Officer is joining me today as the speaker.

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 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 the public filings made with the Securities and Exchange Commission. Any forward-looking statements should be considered in light of those factors.

I will now leave you with our Chief Executive Officer, Patricio Solminihac, for brief comments before we move to Q&A..

Good morning and thank you for joining SQM third quarter 2016 earnings conference call. On Wednesday evening, we posted our results for the third quarter of 2016. We reported quarterly net income of $55.8 million, much higher than the result posted for the third quarter of last year.

Of course, it’s important to remember that last year’s third quarter results were impacted by a one-time effect related to the stopping of the mining operations of Pedro de Valdivia.

During the third quarter this year, our results were also impacted by a non-cash one-time before tax amount of approximately $33 million related to the stopping of the operation of our railway between Coya Sur and Tocopilla.

This will not have an impact on our operation, as we will continue to transfer our products using trucks as we have done since the railway was damaged in 2015. We also announced that our provisional dividend of $235 million will be paid in December of this year.

Our ability to generate substantial amount of cash was shown again in this financial statement reported on Wednesday. In this financial statement, it can be seen that the net financial debt to EBITDA ratio was reduced to 0.55, probably the lowest in our history.

The fundamentals that allow us to generate large amount of cash will continue to be strong. We will continue to be a very low cost producer in everything we do and our maintenance CapEx should remain in the neighborhood of 50% of our depreciation.

In general, the trends we have observed in recent quarters continued during the third quarter of 2016 as outlined in our press release. However, before we move to Q&A, I would like to emphasize some highlights of the quarter. We saw higher sales volume in all of our business lines, excluding industrial chemicals when compared to the last year figure.

In fact, we reported our highest quarterly volume in iodine in the last 13 quarters and our highest quantity ever in potassium business line. Unfortunately, we expected to see trade price pressures going forward in the potassium nitrate market as we saw during this third quarter.

However, we can report that demand is growing, especially in the water soluble markets. In the lithium business, price and volume exceeded expectations. We feel confident that demand growth will surpass 12% this year and believe that the market will grow 8% to 10% in the mid-term.

With demand growing 15,000 to 20,000 metric ton per year, we believe price for the remainder of this year and for the first part of next year should remain in line with prices seen during the third quarter of 2016.

In this exciting environment, we recently announced a project to more than double our lithium hydroxide capacity to 13.5000 [ph] metric tons. The total investment for this project is expected to be around $30 million and should be completed during 2017.

Also the joint venture with Latin America to develop the Caucharí-Olaroz lithium project in Argentina continues. We have progressed with engineering and design of the project, including the ideological model. We already have more than 120 people in total working in the project with around 50 coming from SQM.

And we are confident that we will begin contraction as planned during the first half of 2017. I thank you again for joining the call today, and we will now open up the lines for questions..

Thank you, sir. [Operator Instructions] And the first questioner today is Andrew McCarthy with Citi. Please go ahead..

Thanks for the question and good morning everyone. My first question was regarding the decision to increase the dividend payout ratio.

I was just wondering if you could provide some background on why that decision was taken and why capital allocation in that way, why not increase CapEx perhaps in other areas like for example Lithium just some color on that would be great. Thanks..

Thank you, Andrew.

The board decided to pay of provisional dividend of $225 million, which is higher than 50% of the net income of first nine months and the decision was taken by the board vis-a-vis on the cash position that the company has, and as I indicated in my previous work, we are in a very strong cash position and also we are continuing generating cash and we of course have presented management to the board what are our future cash generation and future cash uses.

And with that information, the board has decided to pay that provisional dividend..

Okay, thanks a lot. And just one follow-up question. You mentioned that as regards to our lithium prices, expectations are that they should remain roughly similar in the fourth quarter and early next year versus what you source at a $12,000 per ton in the third quarter.

I was just wondering if you had a view looking a bit further out into the second half of 2017 and afterwards, what your feelings were on where lithium prices might go..

Thank you, Andrew. Basically, we are very confident on the demand side, on the lithium. We have seen that all the reaction on the electrical cords is going the way we expected. So we are seeing that around 10% growth in the demand will be there, which is one side of the equation of course. And the second is the supply.

The track record of the industry, not SQM has not been that good, projects has been delayed, and projects has not accomplished what they have been announcing in the past.

However, they are now projecting line to be producing more, so our expectation today is that next year we will start to see more supply from the two projects in Australia and then also we are seeing that some of the actual producer will produce some more.

So that’s why we're saying that the pressure on the demand will be satisfied with new supply next year. So, we're saying that at least we will not see pressure for higher prices next year, and if the price should go down or not and how much this is something that we’ll have to wait and see..

Very clear. Thanks a lot..

Our next questioner today is Fahad Tariq from BMO. Please go ahead sir.

Hi this is Fahad on for Joe. Just a quick question on the lithium side, just looking at the lithium revenue and gross profit information in the release, on our math it looks like lithium costs were quite high, perhaps the highest they have ever been, can you comment on why that might be and how to think about lithium costs going forward? Thanks..

Thank you Fahad. Basically, we did have a situation in the third quarter, which is a special distribution cost that was hired.

This is not something that will be repeated, and on the other hand, the other thing that really increased the cost as also being the royalty, which is related of course to the price, so that is also affecting the cost and if we keep on the higher price, of course the royalty that we pay to go for will be higher..

Okay great. Sorry, I might have missed that.

Did you say distribution costs were higher, like one-time distribution - can you give a little more color on what you mean by that?.

Yes, we had additional costs that we had in the distribution costs worldwide, and this is something special that we don't expect to be repeated further..

Okay great. And just of quick follow-up on iodine, you mentioned this year you’re hoping to exceed 9,600 tons, what’s the thinking for next year's volume. I know the goal is to try to get 30% market share again, so maybe any color you have or thoughts on 2017 volumes would be greatly appreciated? Thanks..

Well we're seeing that our strategy is working, we have been gaining market share, we grew, well our volumes in the third quarter were very good and if you compare the volume of the year-to-date in higher than -- is 8% higher than that the year before, and also the market is not growing that much of course, it’s growing between 2% to 3%.

So, we’re gaining market share for sure, and we expect that that will continue next year. We are seeing that the price is eroding, but of course the rate is much less now. We don't see important erosion in the last time. So, our - answering directly your question we see our volume next year should continue to increase..

Great, thank you..

[Operator Instructions] And the next questioner today is Cesar Perez-Novoa from BTG Pactual. Please go ahead..

Yes, good afternoon. In terms of capital expenditures, what figure should we model in 2017 and 2018 considering the numerous amounts of projects that you have on board. Thank you..

Thank you. Basically, first we have to remember that our maintenance CapEx is between 100 million to $120 million which is less than 50% of our depreciation. So that will continue on that level we think. I have to say that we have not presented yet our budget for CapEx next year to the board. We will do that soon.

But basically we are thinking on the $30 million next year investment in the lithium hydroxide that we already announced, we expect going forward in the project in Argentina to spend close to $100 million next year from our part, and then also regarding the nitrate expansion that we also commented that should be next year also in a range of $30 million..

Alright, that's good enough. Thank you..

[Operator Instructions] It looks like we have no further questions, so this will conclude our question-and-answer session. I would now like to turn the conference back over to Gerardo Illanes for any closing remarks..

Thank you all very much for joining us today, and we hope to have you with us in the next conference call. Goodbye..

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