Good day and welcome to the SQM Fourth Quarter 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. 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 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. Joining me today our speakers are Patricio Solminihac, Chief Executive Officer; and Ricardo Ramos, CFO.

Before we begin, let me remind you that statements in this conference concerning the Company’s business outlook, future economic performance, anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and product or service line growth, together with other statements that are not historical facts, are forward-looking statements as that term is defined under Federal Securities law.

Any forward-looking statements are estimates reflecting the best judgment of SQM, based on currently available information and involve a number of 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 now leave you with our Chief Executive Officer, Patricio Solminihac, for brief comments before we move to Q&A..

Thank you, Gerardo. Good morning and thank you for joining SQM 2016 earnings conference call. Last night, we posted our results for the year. Our net income reached $278.3 million, an increase of 30% when compared to the last year. For the fourth quarter of 2016, we reported earnings of over $80 million.

The main highlights of the results were reporting the highest iodine sales volume since 2012, reaching solar salts sales volume of almost 60,000 metric tons and seeing record sales volumes and record average price of lithium.

We are also patiently optimistic that price for potassium chloride may be stabilizing as we saw higher prices in the fourth quarter when compared to the third quarter of 2016. In the first few months of this year, we have seen this trend continue.

We look forward for beginning 2017 with the momentum of 2016 and will remain focused on developing our five core business lines as we see here. [Ph] We maintain our objective of expanding our reach in the potassium nitrate market given that we see the water soluble market showing healthy growth.

We’ll continue to move forward with our potassium nitrate expansion and look forward to strengthening our position as the market leader in this business. We are confident, solar salt sales volume in 2017 will exceed what’s reported in 2016. In the iodine market, the strong volume seen in 2016 may be even increased in 2017.

Our continued commitment to the lithium market and our joint venture in Argentina is. We will be completing the feasibility study and expect to break down in the coming month. We have over 100 people currently working on the project, and we expect to invest approximately $100 million this year.

We should be operating in 2019 with a cost that will be at the low end of the cost curve. We are working on more than doubling our lithium hydroxide capacity in Chile. And this project will have a total investment of about $30 million, and it should be in operation by the end of this year.

Along with our robust earning, we are also proud of the strong balance sheet with which we finished the year. During 2016, we paid approximately $400 million through dividend; at the same time, we were able to reduce our net financial debt-to-EBITDA ratio from 0.6 -- 2.6 from 0.74 and still reported over $800 million in cash and cash equivalent.

We have a great team in place. And we’d not be where we are today without the commitment of the almost 5,000 employees that we are in Chile and abroad. I look forward to 2017 and to tackle the challenges and opportunities we have set out for ourselves. I thank you for joining the call today. And I will now open up the line for questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Joel Jackson of BMO Capital Markets. Please go ahead..

Thank you. Good morning, just a couple of questions.

So, my first question, how much potash production would you expect you would have to reduce in 2017 to hold your lithium production steady? And then, should we expect the type of lithium prices we’ve seen in the second half of the year and the types of lithium costs we’ve seen for you in the second half of the year to hold in 2017, and how does that change if you’re going to shift your mix bit more to hydroxide?.

Thank you, Joel. Regarding to your first question, we do want to make sure that we are able to produce as much lithium as we can. Given the market condition, we want to supply our customer and supply their growth. So, we expect as we indicated in our press release that we will try to sell similar amount of lithium of the record sales that we have 2016.

To do that, we will produce some lesser potassium chloride in the range of 200,000 to 250,000 tons. That’s regarding your first question.

Regarding to your second question, if I understood correctly, the price of lithium, as we also indicated in our press release that we are seeing for 2017, will depend heavily on how much new supply will come to the market? We have to see those new supply really getting to the market in order to see the effects of the prices on the balance of course supply and demand.

We continue to increase our production lithium hydroxide. Our new plant of lithium hydroxide will not be ready until the end of this year. So, we will not be able to really have an important change in 2017; bigger changes will be starting 2018..

So, the types of lithium realized prices that you’ve realized here, so the prices and costs for lithium that you realized in the second half of the year, are those reasonable numbers to use for the first half of 2017 for cost and prices?.

Regarding costs, we continue to work hard in order to improve our costs. We are optimistic that given that in 2017 we pushed a lot our lithium plant, of course marginal costs were a little bit higher, as you can see it in the third and fourth quarter. But now, I think we can really improve some our lithium costs, marginally.

Regarding the prices, what we have seen in the first quarter is similar. We have not seen any effect. For the second quarter, we have to still wait and see..

Okay. And just my last question. If I look at your guidance, it seems to imply that you believe that the premium, the NOP over potash premium is going to compress across 2017 from what you see in your business.

Is that true? And what are some of the factors regarding NOP premium compression?.

NOP release specialty doesn’t move exactly how the MOP moves as has been showed in the history. Given the very strong drop in the price that we have seen in the last two years in the MOP and that has been much, much less in the NOP. We think that there was some space for the NOP to decrease some of the price like it was this year.

But everything will depend again on the supply and demand. We have to see how they supply. We are very optimistic and we are doing a lot of marketing work to continue supporting the growth, especially in water soluble product for NOP. So, maybe we can see some slight decrease. But again, it will depend on the supply and demand situation..

Our next question comes from Ben Isaacson of Scotiabank. Please go ahead..

It’s Oliver on for Ben. Thanks for taking my question. It seems that many companies that use lithium are in the market for assets in order to get themselves longer term supply security. I am just wondering if there’s been any conversations regarding longer term lithium contracts that would let you lock in the current prices.

And I guess if there is a desire on your end, or on the people you supply lithium to, to do that or if you prefer to stay closer to the spot market?.

Well, thank you, Ben. We have been in the first place very clear to the market that we are very committed to the lithium industry.

We are an important player and we see that as a company that there is a great opportunity now to continue growing, and not only an opportunity for the company but also responsibility in order to supply and be able to give more volumes to this growing industry.

Now, how we can do that, and I understand your question, we prefer to concentrate in the production and being in the supply of the chemical lithium products, as we have been saying. We like to support our customers and assure them the volumes. And that’s the way we do the contract with them with -- we assure the volume.

And we see what the market price will be. With some customer we agree on quarterly prices with other in six months and with small quantity of customers in a year contract depending on each of the situation. We of course have analyzed different options, but of course, we will not comment on them until they are in reality.

For now, we continue with our strategy on being in the kind of yearly spot market..

Makes sense, thanks for the color. One more on lithium, if I may. Your lithium neighbor in Argentina or Orocobre has had several problems along the way leading to product quality and ramp-up delays.

And given the close proximity of your project, could you discuss how you will mitigate these hurdles and if there is any brand specific issues that have be overcome before you start selling?.

Well, one of our strengths as a company is our technical capabilities and experience. We have been producing and working with brands for 20 years. Brands that of course changed today. The brands that we work today and produce lithium are completely different from the ones that we started working 20 years ago and even 10 years ago or five years ago.

So, we do have a lot of experience, first from the hydrological situation of this a lot; and second, from a process point of view. So, we feel very comfortable that we have the knowledge and the know-how to handle. That’s in the first place.

In the second place, we have to recognize that each seller is different, is different in the hydrological situation, is different in the chemical composition and is different also in the weather conditions.

We feel that we have study in deep the situation of our project together with lithium manufacturing [ph] in country; we have spent a lot of time and money developing the project.

So, we feel comfortable that our experience and our study of the situation will allow us to do the investment and to get in the right time and control the budget, and produce the amount of product that we are indicating..

Our next question comes from Lucas Ferreira of J.P. Morgan. Please go ahead..

Hi. Good afternoon, gentlemen. I have two specific questions on fourth quarter numbers. The first one is on lithium sales volumes, which were pretty strong.

I wonder if you have more details behind it, and if it was a simple destocking or you had a strong production throughout the quarter, especially considering now that this 14,500 tons number is even above your theoretical and nameplate capacity.

And my second question on the industrial chemicals business, which also came pretty solid, especially in the fourth quarter compared to the second and third quarters. I wonder if you could give you us bit more details on this business and your outlook for 2017 if you expect to have similar volumes and profitability this year. Thank you..

Thank you very much, Lucas. First, regarding lithium sales, yes, you’re right. We have a very strong sales of 14,000 tons in the fourth quarter, which is higher than the main capacity. We did sell some inventory. That’ why we are thinking that our total sales in 2017 should be in the range of the 50,000 tons and not 14 multiplied by 4.

And we also were able to recover some of the product that we have accumulated over the years. So that’s why we were able to sell that amount of product.

Regarding the industrial chemicals, you have to remember, the industrial chemical basically, there are two main businesses, one is the traditional industrial chemical which is potassium nitrate and sodium nitrate for the industry and then the solar salt. The key here is solar salt.

We were able to keep important volume of solar salt in the fourth quarter but totally in the year close to 60,000 tons. And we have contacts and we already are in the production program to be able to sale more than that, close to 70,000 or 75,000 tons of solar salts during 2017..

Our next question comes from David Wang of Morningstar. Please go ahead..

Good morning. Thanks for taking my question.

Patricio, I was wondering for lithium, can you discuss the sales mix in 2016, how it was broken out between carbonate hydroxide?.

David, thank you. We do not disclose that, given our strategy and the small size of the market. The only thing that I can tell you is that basically 2016, we increased much more the amount of lithium hydroxide than lithium carbonate, and we were operating our lithium hydroxide plant almost at capacity..

Great. And then, if I might follow-up. Were there any spot market sales done at much higher level pricing that you’ve previously conducted and in 2016, any update on negotiations of CORFO..

Okay. Regarding sales, we have our customer base. We negotiate, as I indicated before, volumes, and then we try to follow the market price.

There was in 2016, a special situation in China that we also took the opportunity to sell some higher small sales -- higher spot prices, but that was not important; average price shows what we are doing into the market. And regarding CORFO, basically we are in the first arbitration process that is in the stage of the expert report.

And then, basically, if you remember, we have two other arbitrations that the arbitrator was named the same arbitrator of the first process. And now the arbitrator decided that they put together the three processes. So, we are right now in that.

We expect that this should advance during this year and there is a possibility that we end up by the end of the year or could also have a possibility of going forward, beginning of next year..

Our next question comes from Antonio Barreto of Itaú. Please go ahead..

Hi. Good afternoon. Thanks for the question. My question is about the potash line. We can see from the data here in Brazil that imports were up almost 40% in the fourth quarter. And at least when we talk to industry experts here in the country, we expect it to stabilize. So, my question is about your sales mix of potash in the fourth quarter.

How much do you think you sold to Brazil? And what was the average price premium between the granular and the FOB Vancouver, just so as to get an idea of how to think of your average premium over the market prices?.

Thank you, Antonio. Traditionally, in the past, we do have an important premium in the sales of granular product into Brazil spot sales, if you compare it with the contract price, especially into China. But that premium has been narrowing a lot. So, right now, it’s not that important.

Effectively, we continue to sell an important percentage of our sales of granular sales into Brazil. We have a very good customer base that we continue to serve. And we have seen at the end of the last quarter, last year, 2016, some small recovery in the price and that also seen a small recovery beginning of this year.

What will happen with that price and including the premium will depend on the negotiation on the contract with China that we expect that this should be in the next weeks or months..

Okay, thanks. And if you could just comment on your average tax rate from what we can see was a bit higher in this quarter about 39%. So, anything on that would help us..

Okay. Regarding the effective tax rate, effectively in 2015 was 28% and went up to 32%. Basically this is because first, tax rate in Chile went up from 22.5% to 24% and the other differences are the different taxes that we pay around the world. And of course, it’s also related to the deferred tax system..

This concludes our question-and-answer session. I would like to turn the conference back over to Gerardo Illanes for any closing remarks..

Thank you. Thank you all very much for joining us today. And we hope to have you with us in the next conference call. Good bye, everyone..

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