Good morning, and welcome to the SQM Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Irina Axenova, Investor Relations. Please go ahead..

Thank you, Grant. Good morning. Thank you for joining SQM's Third Quarter 2021 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 a summary of the results has been uploaded to our Web site, where you can also find a link to the webcast. Speaking on the call today will be Ricardo Ramos, Chief Executive Officer; Gerardo Illanes, Chief Financial Officer; and Pablo Altimiras, Commercial Vice President, Lithium and Iodine Business.

We will also be available to help answer any questions following the prepared remarks.

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 involve 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 U.S. Securities and Exchange Commission, and in our earnings release issued yesterday. 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 law. I now leave you with our Chief Executive Officer, Ricardo Ramos..

Thank you, Irina, and good morning and thank you for joining the call today. Our earnings during the third quarter of 2021 were significantly higher than earnings reported during the same period last year. These results were driven by considerably higher sales volumes and prices across almost all our business lines.

We continue seeing very positive market conditions in all of the markets in which we participate. Demand in lithium market is exceeding our previous expectations, the iodine market has recovered from the pandemic faster than anticipated, while we also seeing a positive trend in the fertilizer markets.

We're now expecting that the lithium market demand should grow close to 50% this year, driven by strong sales of electric vehicles in all relevant markets, especially in China and Europe.

The capacity expansions we have been working on are allowing us to grow even more than the markets, letting us reach close to 100,000 metric tons in sales volumes this year. By the middle of next year, our expansion to 180,000 metric tons should be ready, allowing us to keep on growing our sales volumes.

This accelerated lithium market growth is pressuring prices. At the same time, the contracts we signed last year are expiring. This allows us to expect another sales price higher $12,000 per metric ton during the fourth, and probably even higher during the first quarter, next year.

In the meanwhile, the iodine market demand has already reached the pre-pandemic levels. This quick recovery has had a positive impact on prices as supply has not been able to respond. We're now expecting total sales in 2021 around 12,500 metric tons, with average sales prices increasing from prices seen over last few quarters.

As we are working on expanding our iodine capacity, we expect to ramp up additional 1,000 metric tons in the beginning of 2023, followed by approximately 2,500 metric tons in 2024, all part of our earlier announced growth plan. We have seen some very interesting developments in the fertilizer markets globally.

Supply has been impacted by export restrictions and logistic. The spot prices for both potash and potassium nitrate fertilizer have reached levels not seen in more than a decade. We now expect our potassium and potassium nitrate average prices to reach almost $700 and over $1,000 per metric ton, respectively, during the fourth quarter, this year.

Considering all the positive factors, we now anticipate a record performance during the fourth quarter this year, with a significantly higher EBITDA. We remain confident in our ability to deliver future growth, while continuing to operate in a sustainable way, creating value for our customers, communities, and all our stockholders..

We now open the line for questions..

We will now begin the question-and-answer session. Our first question today comes from Joel Jackson with BMO Capital Markets. Please go ahead..

Ricardo, I'm going to ask a few questions one by one. When we look into your production for next year for lithium, you've got to 120 already , you'll get to 180 some point in next year.

What do you think will be your ability for production next year? And what do you think your level of sales? Presumably, you want to build some inventory, but what could be your maximum production or maximum sales next year? Thanks..

Okay. Hi, Joel. Ricardo Ramos speaking now. Our production, as a total production facility that we are ramp up to 180 during next year, we think it's reasonable to expect a production in the 140,000 metric tons next year.

Maybe it's going to be higher than that, but 140,000 would be my best estimates, today, of the total lithium and lithium hydroxide total production in Chile.

About sales volumes, Pablo, what's your opinion?.

Yes. Hello, Joel. Well, our idea is to continue growing according to the demand. If we consider that we're expecting a growth for the next year, the demand between 20% or 30%, we expect to grow our sales in that same percentage..

Okay. Now, I appreciate your pricing guidance. Now, when I look at October Chilean customs data, your pricing in October seems well less than $12,000. You're going to average above $12,000 you say, for the quarter.

So, I want to know if you expect to place so much more volume next year, and presumably you're now pricing volumes now for next, like you're pricing volume pricing ahead for next year. How much of your pricing -- how much of your volume in 2022 are you locking in now or we expect to lock in by Christmas, let's say.

And would you expect that pricing that any pricing you're locking in now for '22, is that all above $12,000?.

Okay. Well, you know that, today, we are in the middle of the negotiation for volumes for the next year. However, what I can say, because you already know that we have long-term contract, but before the next year we have and we need to negotiate closely to the 80% of our total sales for the next year, is open to discussions with our customers.

So, that's the percentage of the total volumes that is open for the next year..

So, right now, today, 80% of your anticipated volume next year is open.

Is that what you're saying?.

Today, for the next year, okay, 20% is already negotiated contract with our customers..

Right..

And the 80% is still open to conditions that we are -- that we need to discuss with our customers..

Okay, and I appreciate that. And we can all see spot pricing from different Chinese and Asian benchmarks, be it $20,000 on carbon, $20,000 , $25,000.

Are those real prices that you can achieve at scale in the market for 2022 or is the answer it's much less than $25,000, but it's much more than $12,000? Like help us understand how real some of those prices are we see in the 20s for real volume, real ?.

You know that always is a question regarding prices. But what we need to remember is that depending on what you negotiate with your customers, it means shorter contracts, larger contracts, depending on the quality of the product, if it goes to battery applications, industrial applications, then you have different prices.

What I comment today is that because of huge demand in lithium and lack of supply the spot prices is too very high. But it doesn't mean value will see these kind of prices for the average price, because, again, it's depending on the conditions that we negotiate with each customer..

Thank you very much..

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

Good morning. Thank you for taking my questions. Hope everyone is doing well. I'll ask a few questions, one by one, if that's okay. I guess the first question is just to extend off of Joel's question. You talked about 20% of 2022 volume is negotiated already, and 80% is open.

Can you just talk about the shape of that 80%? How much of that 80% should be contracted by the end of this year? And how do those contracts get renegotiated in each of the next four or five quarters? Are they all calendar 2022 contracts that will be negotiated before January 1, or is it on a kind of continuous basis, some are short-term, some are long-term? Can you just give some more color in terms of when we expect that 80% to be contracted?.

Okay, well, it is a difficult question because we are under negotiation. know that when you are selling this amount of lithium we need to secure that amount. Butt at the end, also, it's up to each -- I mean, every customers. Some customer -- I mean, the rest of the 80% then will be a combination of closed short contracts.

And, for sure, something that we are looking for if we are able to sign good projects. We are also thinking to sign long-term contracts. And, normally, when you sign a long-term contract, the negotiation process is longer than when you negotiate a short-term contract. So, at the end, everything will depend how fast we can do that with our customers.

So, today, cannot really give you exact number of how much of those contracts will be -- we will make. Anyhow, we are very close to the end of the year, so, for sure, that I expect that by the end of the year, at least the first quarter should be really negotiating with our customers..

Will 100% be finished by the end of Q1?.

I cannot say 100%..

But most of it should be finished by the end of Q1, is that right, I mean just based on the timing of the previous contracts and when they expire? Is that fair to say?.

Well, again, I mean, it depends, market, but for sure, because of the period of the year that we have today. By the end of the year, we should have important percentage already negotiated for Q1..

Okay, that's helpful. Thank you for that. Next question is on iodine. You guys have tried different strategies over the years, sometimes volume, sometimes price, with mix success on the price side, and the volume side has been very successful. Now, we're getting about $35 or that's the direction that we're going per kilogram.

And if I remember correctly, that's kind of the point in which you start the see the economics look attractive for marginal producers in Chile to come online.

Is that what you want? Do you want to see higher prices or is that getting a little bit dangerous, that you could see new capacity coming on? Can you run us through what that debate looks like, and what your opinion is?.

Okay, well, you know that, I mean in the industry, we need to consider different things. So, one of any is demand, you know that this year the recovery of the demand will be higher than expected close to 12%, then we need to consider the onset of the supply. So, at the end everything will depend of the behavior of the players in the supply side.

In that regard, what we have seen is we have not seen enough response of the supplier in order to be able to supply all the demand that is today in the market. So, price is a result of the supply and demand. And everything will depend around how the different players react with the supply plans in order to accomplish the demand that we have..

Just two more quick ones for me, when you look at each of your business segments, can you talk about costs of production, whether it's Iodine, or NOP or potash, or whatever it may be, and how that's been impacted by inflation, cost inflation of raw materials of labor, of energy? Are you seeing that already or is that something that we should expect and be modeling for over the next few quarters?.

Ben, Ricardo Ramos speaking. If you review our numbers during the first two quarters of this year, you see cost is slightly higher during third quarter compared to the previous quarters.

I think that costs today are affected by the exchange rate, for example , are affected by the increased costs of raw materials, a significant increase in costs of raw materials on our production process.

The additional costs of the energy as you may know, contractors of course, the contractors we have they reflected exchange rate, increased cost of raw material, the energy and everything plus we have to make sure costs in the last 18 months related to the COVID-19 pandemic that affected somewhere our costs.

I think it’s already reflected some of it, yes, it will be some additional cost if the situation of the raw materials and energy continue during the next few quarters, yes, we think that we're doing is the right thing in order to increase productivity to increase the yields of our process in order to control the cost allocation.

But so far, we are seeing every single producer in the world this increased cost that is been affecting our production in the last two or three quarters..

Great, and then very last question if I may, last quarter, you said that Lithium demand was looking like it was going to be up 40% and next year was you were thinking around 20%. Now you're saying Lithium demand is going to be up 50% this year and that makes sense.

But the question is, is that 50%, is that taking away some of the demand are we seeing some demand acceleration getting pulled from 2022? Or do you think 2022 will still be ’20 or potentially even stronger? And then maybe as a follow-up, how do you think ’25 will look, are we still looking like it'll exceed a 1 million tons or could it be a little bit higher?.

Okay, then, first of all, we need to remember that it's important the way for when we are starting 2020; we know that the demand was lower because of the crisis. So that explains why we have this big growth this year. And we are going from 40% to 50% the growth what we have seen with electric vehicles, it's been very good and very positive.

Actually, today our forecast is total sales in the year stage will be between $6.3 million or $6.6 million, which is bigger than one expected that kind of thing. And the other thing, because we need to consider that some part of the recent electric demand today is for the cash that we produce next year.

Also we have a more positive view from the role of the next year when I said to you between 20% or 30% that we will get a little bit bigger than the view that we have before. So, we have some very positive outcome, at least in the short term. Regarding 2025, we have different scenarios.

Our basic scenario is $1 million in terms of MCA which is bigger to some indications that we gave a month ago. Honestly, we are working on of course that we are following up the market and potentially we could see great results, but today we remain to build $1 million..

Thank you very much..

Our next question comes from with Bank of America. Please go ahead..

Good morning everyone. Thank you for taking my questions. There are two questions, actually.

The first one on the Iodine business, if you could share some of the impacts of the fire that took place in one of your plants, and what was the impact in terms of costs during this quarter? And the second question on the fertilizer business, if you could share me in terms of the pricing that we are seeing on the marketplace and what do you expect going forward for the next year? Thank you..

Hi it is Ricardo Ramos speaking, first of all the fire we had in our facilities in the North three months ago, I think the impact in production was not more than 40 tons because most of the production works due to COVID and the next month, finally about the costs yes we had some additional costs probably in the range of $200,000.

That arrangement means improvement of the facility replacements of facilities improve in replacement of equipment, some in the $200,000, $250,000 total cost involving the fire. That's why it was not so relevant.

We had taken all the measures that this kind of situation not happen again, it's a very important, it's a significant issue for us having a fire in facility that that's why we really detail the situation and now we're better very prepared for these kinds of situations.

About the fertilizers, it's difficult to give you an outlook after the fourth quarter, we know that fourth quarter during -- it is very unusual, price levels that we are observing price levels that had not been recorded in previous years.

As I mentioned, you were reaching $700 per ton in the Potash close to $1,000 in the potassium nitrate, I do not have a long-term view is important today, it is important to consider that the potash industry, we are relatively small in current prices that we are observed that we have today reflect I think that temporary supply and demand situation, one good news in my opinion is that the demand of the potash industry remains very strong.

That is also stated with a better price of agriculture products. On the other hand, these logistical difficulties of shipments push the prices up, it is very difficult for us to predict prices for next year. Definitely, prices for fourth quarter are going to be very strong. The situation is very difficult to predict in the long-term.

Anyway, it's important to consider that the case of potassium nitrate is different from the case of potassium chloride. All the specialty fertilizers are less volatile. However, although with less volatility they follow in some way the chain of potash prices..

Thank you, very clear..

Our next question comes from Corinne Blanchard with Deutsche Bank. Please go ahead..

Hey, good morning, everyone.

Most of my questions had been answered but I have got two probably two follow-up questions, the first one on potassium and so you've raised 2021 volume guidance to close to 900 kilo ton which imply a significant catch up in 4Q, if you could just comment on that catch up for 4Q and also how should we be thinking in terms of volume for 2022 given the market condition do you do still expect volume to decrease and would you expect maybe volume to stick close to 800 or 900 for next year?.

Hey, Corinne, Ricardo Ramos speaking. Of course, due to the fact that the prices are extremely good in that, our price is very unique price environment. Today we are doing our best in order to increase the volumes during fourth quarter, we're using some inventories in order to increase the volume during the fourth quarter.

That's why probably if you put the numbers together fourth quarter total volumes is close to 300,000 metric tons, that is very strong number, we expect to deliver during one quarter just even lower probably depending the achievements, they sometimes you have a delay of one or two achievements from fourth quarter to first quarter, you don’t know yet because it will be decided at the end of the month depending the conditions of the port.

But anyway, it's going to be a really strong quarter because the price condition we try to push everything forward. About next year, I don't have now a forecast of volume in potash.

Remember that we have our total production in the solar and we use of -- some of the potash, most of the potash in the production of potash and nitrate either for fertilizer or solar source business.

That's why depending what's going to be our strategy in specialty fertilizer and solar source next year and the total production from the solar Atacama at the end you have -- at the end, the remaining is going to be the potash we will sell to the market.

Anyway, as you may know, we are reducing our commitment from the company to reduce the planting of solutions at. The most important reduction will be in 2022 as compared to 2021. 2023, 2024 and 2025 we will have a small reductions every year, but the most important one is going to be next year.

Probably total production of potash Atacama will be between 100,000 and 150,000 tons lower. It means from a total level close to 1.25 million tons. We will move to 1.1 million tons probably production for next year.

If you move forward, probably reductions because the reduction in planting will be in the range of 40,000 metric tons per year, but the first year is an important one is the 150. 100 and 150, we don't know yet exactly. We're improving a lot of the deals at level. That's why we expect it's going to be closer to 100,000 reduction.

Most of it, of course, will be reflected in the potash industry because our first priority is to supply the potash for our nitrates and solar -- production of nitrate and solar source business. .

All right, thank you. And just to come back maybe a little bit on recent pricing what's your expectations to going forward and maybe 2022, but maybe even beyond that that time in term of considering maybe using a little bit of contract like short-term, a little bit of long-term, and maybe switching to some sales on potash.

Do you consider maybe switching at some point to a more hybrid model for pricing like some of your peers are doing that, or do you rather stick more to contract and of take agreement for most of the volume?.

Okay. Well, regarding to the expectation of crisis for the next year, we see a strong demand as we already said. However, that the price supply and demand, so everything also will depend on the reaction of the supply. We know that there are other projects under development. So everything at the end will depend on how the supply can react to the demand.

Anyhow we are really positive on the demand side, but we need to see what can happen within the next year, but we should expect a positive trend. Regarding to the strategy of contracts and mixes and it's something that we have said before, we are open to consider different alternative with our customers to our customers the solutions that they need.

In the past we have announced a lot of agreements, we are under discussions of different contract with our customers, but at the end what we are looking for always is to have good contracts for both sides. So we are open finally to have a mixed strategy between short and long-term contracts..

Okay. Thank you. That's helpful.

And then the last one, if you -- do you have any update on the contract -- like any update for the Mt Holland project in Australia?.

Yes. Well, as you know, at the end of the year, we announced that finally we met the decision. So from there, we are doing a good progress. We have started the early construction stage in both sites, that means the refinery site, where will be the mine and concentrated plan, and so far so good, according to the plan. So, everything is going well..

Right. Thank you. That's it for me..

Our last question today will come from Cesar Perez-Novoa with BTG Pactual. Please go ahead..

Yes. Good morning or afternoon to everyone. Some of my questions have already been answered. Perhaps I have a week connectivity here, but my questions would be what supply conditions does SQM see in the lithium market in general for next year, considering that new volume will come on stream for several producers, including yourself.

Second, I am fully aware management provides no pricing outlook, however, most lithium benchmarks are hovering around two times SQM's indicated fourth quarter price.

The question being in terms of direction where would your realized priced be or if that should come closer to that already embedded in the spot market considering that if I heard correctly 80% of your contracts are yet to be closed possibly in the first quarter of next year, any qualitative assessment there would be greatly appreciated.

Hello?.

Okay. Yes. Okay, Cesar, it is Pablo speaking. Regarding to your question about conditions in lithium market, as I said before, we are really positive about that. As I told you, we see a growth for the next year between 20% and 30% and that is mainly explain for the electric vehicles penetration.

As I said before, the sales of electric vehicles for the year we expect that they will be between 6.3 million and 6.6 million. For the next year, we see that that number will be close to 9 million. So we see that demand in electric vehicles will continue to grow. So we are really positive about the market. And we don't have any thoughts about that.

We see a strong fundamental of the lithium demand. And regarding to the new supply, well, I think that it's good to see that new projects are coming in the sense in order to be able to supply this amount, this huge amount of demand is good for the industry.

So, we expect that the important players will continue with expansion plan that they also have announced like us. So that's what we see. And finally, regarding to the prices, it's really, again, it's really difficult to lose any forecast about that because you see that the market is moving so fast.

It changed so fast that any price prediction I would say that is difficult to do. What we are going to do is to try again to secure volumes with our customers, negotiating good conditions from each party in order to secure a long-term offer to our customers..

All right. Thank you very much.

And if I may squeeze one more question there maybe you answered this before, but have you given any CapEx guidance for 2022?.

Yes. Since if I'm not wrong, the CapEx for next year 30% -- we didn't update CapEx in the last 30 days. So, 60 days, you're saying forecast we had at the beginning of the year. And if I'm not wrong, it's close to $500 million gross for 2022 and remember CapEx for full-year that was previously announced..

All right. Thank you Ricardo, and thank you, everyone. Pablo, thank you..

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Irina Axenova, Investor Relations for any closing remarks..

Thank you for joining us today and we look forward to having you in our next call. Have a great day, everyone. Good luck..

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