Good morning, and welcome to the SQM Fourth Quarter 2022 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 of Investor Relations. Please go ahead..

Good morning. Welcome to joining SQM's earnings conference call for the fourth quarter of 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, Chief Executive Officer; and Gerardo Illanes, Chief Financial Officer; Carlos Diaz, Executive Vice President of Lithium; Felipe Smith, Commercial Vice President of Lithium and Juan Pablo, Bellolio Commercial Vice President of Iodine will be also 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.

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 today. 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, Irina. Good morning and thank you for joining the call today. We are very pleased with the 2022 results we published last night. Leasing business contributed to almost 80% of our gross profit for the year, driven by significantly higher sales volumes and average prices.

Our long-term vision for the lithium market investments in technology, innovation and new capacity along with the risks we took and our operational success enable us to make the most of favorable market conditions since last year.

Through the public private alliance with CORFO for our total contribution $2 trillion, including corporate taxes surpassed $5 billion in 2022. We see a strong indicators of demand growth in the lithium market driven by the electric vehicle sales growth worldwide, and the investment in renewable energy that require energy storage systems.

We estimate that the total global lithium demand will reach 1.5 million metric tons by 2025 and deliver at least 20% growth in 2023. After unexpected a slowdown in demand during the Chinese New Year celebrations, electric vehicle sales have increased in recent weeks in China, while the U.S.

market electric vehicles sales are doubling when compared to last year. This growth rate should continue for the remainder of the year, with major OEMs showing an increase in their production volumes. Consequently, our sales volume during the second half of the year should be higher than compared to the first half of the year.

We will continue to invest in growing our lithium production globally. Our capital expenditure plan for the next three years includes investment in lithium iodine and Nitrates capacity expansion in Chile. Competition of the Mt. Holland project in Australia and lithium refining capacity in China.

We are also active on lithium mining exploration and we will continue looking for attractive assets worldwide. This CapEx plan also includes investment in certain activities and initiatives related to our Salar Futuro project, which technically documentation we expect to submit for evaluation to the Chilean authorities in 2024.

I would like to highlight our operations success during last year. We successfully completed a ramp up of our lithium capacity, reaching 180,000 metric tons, and finished the year with record high IRM production volume. So, over those 12,000 metric tons.

None of these schools have been possible without the continuous dedication, support and commitment of our team at SQL. Thank you..

Operator, we will now open the line for questions..

[Operator Instructions] Our first question will come from P.J. Juvekar with Citigroup. You may now go ahead..

Good morning. I think you had mentioned last quarter that for 2023, you were 100% exposed to spot price. I was wondering can you explain spot price because there is China's spot price which is dropped recently. But spot price x, China has not dropped as much. And there is another price for seaborne lithium.

So, we're wondering what price are you exposed to? And can you just talk about your pricing exposure? Thank you..

Well, I would like to commend that our sales are very well diversified a geographically by segment by product. So, you have to be careful when you look at the evolution of some of the indexes in the market. Because what we have is actually at the end is a mix of different a Geographic’s and market prices.

So, what you're seeing today in China is still very early for us to consider us as a real trend, because the level of transactions that we're seeing so far are not that much a relatively.

So, I will say that the main message is that we are going to be very well exposed to the market, whatever the direction the market takes, our sales will be mainly following the market..

Okay. Thank you. And then secondly, you mentioned that the lithium sales in China slowed in the first two months, but we certainly have picked up was a comment you made. I was wondering, can you just talk about kind of what kind of bounced back have you seen recently? There will be helpful. Thank you..

Yes. We are seeing actually indeed. First of all, generally, we are starting to see very good figures of sales of EVs. And that will definitely have an impact on the purchases of lithium. And we are now already seeing that activity increasing..

Our next question will come from Ben Isaacson with Scotiabank. You may now go ahead..

Good morning, everyone and congrats on the good results. I have three questions. I'd like to ask them one by one if that's okay. First question is on iodine. These prices are really incredible. I think it's there now much higher than they were after the Fukushima disaster 10 years ago.

So, what's going to crack the market? I mean, my view is that if demand destruction kind of didn't occur at $40 and $50 and $60. And now we're at $70.

How is this market going to crack in iodine?.

Hi, Ben this is Juan Pablo. Prices are high today. I would say almost at the same level or even higher, in average done after Fukushima, but it is mainly due to a healthy demand coming from the market, I would say contrast media industry is growing more than what was the average of the iodine industry.

So, the demand is growing more than the supply pushing for prices. So, we still see that health demand coming this year. And that will be still bring pressure on prices, we see at least now, prices to be at the same level during the first half of the year compared to the end of 2022..

But do you see any new capacity announcements? I mean, why wouldn't people be rational and start taking advantage of these very high margins?.

Sorry.

Could you repeat the question?.

Given that prices are so high? Why aren't we seeing any announcements for new capacity?.

First of all, we SQM, we have announced in the past, and we keep announcing a new investment in new capacity in iodine. But you need to remember that new capacity in iodine takes a lot of time, and we're talking about material capacity or new projects will take time to get the permits and environmental conditions to go ahead.

And that's why you have to look the price today to do that investment, you need to look the price for the future. And that's obviously something not so clear..

My second question is on the SPN business.

I think one of the messages that you guys have been giving is that over the next few years, your potash volume, your potash production will start to decline? And if that's correct, then does that really limit the growth for MOP for potassium nitrate in the SPN business? And if not, then where does the growth come from in SPN?.

Hi, Ricardo Ramos speaking of course, we expect to have some reduction in the production of MOP. Because we are going to reduce the pumping of solution the brines from the Sociedad Quimica in the future every year. But we are increasing our technology and our deal.

So, there's a lot in audit that we can control in some way the reduction in total production. Anyway, the total production of MOP today is more than enough, in order to cover the production of potassium nitrate. That's why we don't foresee until the next 10 years having any issue of supplying enough voters for the production of potassium nitrate.

Of course, the sales to third parties of potash will be reduced, but we will not affect the growth of potassium nitrate from a scam..

Okay. That’s helpful. And then my very last question, maybe just to follow up on P.J.'s question on the portfolio structure of lithium. You just said that you're going to mainly follow the market. There's a debate out there that perhaps stock prices or just in general we'll start to see prices start to moderate over time.

And if that's true, why would you not add some more stability and predictability to your lithium portfolio by having a little bit more fixed prices especially if you believe that prices will trend lower and moderate closer to the cost curve over the next few years? Why would you leave yourself exposed to spot if you believe prices will fund?.

Yes, well, we have taken that decision already some time ago that we want to have our contracts following the market. I think this at the end represents the best solution for customers and suppliers.

Sometimes, I mean, we have learned the hard way in the past but sometimes when you fix prices and then market changes unexpectedly then you are in a problem and we want to avoid that..

Thank you. Very much..

Our next question will come from Corinne Blanchard with Deutsche Bank. You may now go ahead. .

Good morning, everyone. Thanks for taking my question.

The first one I want to try to understand better what you expect in terms of volume for this year for 2023 for lithium?.

Do you want to know about capacity or about sales?.

Sales..

Or both?.

Capacity is….

Yeah, well, I will speak about size, Corinne can comment about capacity, whatever. .

Let's start talking about a capacity because when the cell is going to be probably a result of our capacity. But finally, what is important to mention that we continue to focus on further expansion in Chile, where we're really reaching the capacity 180,000. And now we're moving to produce 210,000 at the end of the year.

So, we're continuing to expand in that and then the new capacity that we will have now in China and the Citroen region, we expect to produce around 20,000 metric ton there. So, in total is will be around 200,000, or product that is coming from the Salar de Gama from the Brian instruction. So, in that way, we were on track with all our projects.

So, an additional two data by the end of the year, we expect to start producing in Futuro and our Mt. Holland project in Australia. So, we're continuing to increase in our capacity, why would it have any sales when it's going to depend on the supply and demand finally, and it's not something that we could comment now.

We are preparing now for supply in the market. That is why we're recent that we're spending Chile, China and Australia..

Thank you. And then I need to come back on the iodine and I'm not sure if that's what the previous question. But I think you mentioned you expect to pricing remaining strong under current law or for the next six months.

Just trying to get a greater with quarterly can you remain above the $60 per kilo already remaining 60, 68, 69 and then what do you see on the second half of the year? Thank you..

I would say you can look at our report the prices that we have been selling at the end of the year and we see prices of these are the same level for Q1 and Q2..

Okay. Thank you..

Our next question will come from Joel Jackson with BMO. You may now go ahead..

This is Joseph on for Joel. Thanks for taking my question. So, for the first question for the 30,000-ton carbon and expansion as taking capacity to 200,000 tons.

What will be the capital intensity for that? And how does that compare to the project scope of past expansions?.

Ricardo Ramos speaking. As you know, our CapEx that was informed that is $3.4 billion, if I'm not wrong for three years, includes the complete investment we have first in the United business, as you may know and also in the lithium business.

In the lithium business of course, we have important investment in order to reach the 210,000 metric tons that Carlos already explained. But also, it's important to consider and it's not only reaching the 210,000 metric tons we are significantly, we expect to significantly increase our production of lithium hydroxide capacity in Chile.

We will now be with the expansion we are finishing now 30,000, 35,000 metric tons.

But we want to be with investment in '24, '25 at the level of 100,000 metric ton, that's a huge expansion that I think is going to be very good for the company in order to have more flexibility in the lithium industry, having more opportunities to deliver our product to lithium clients. That's something very important also including our CapEx.

But of course, the 210 is also included in this $3.4 billion. Just I want to mention that they also Mt. Holland is included. And we do expect were quite positive about that where expectation that in 2024, 2025 in our prediction, we will expect the some investment in their capacity increase in Mt.

Holland, because we think that the 50,000 metric tons of Mt. Holland is just the first step. We think we strongly believe that we will reach an agreement and we will review all the data from the engineering and the geological studies that were performing today that will allow us to go forward to 100,000 metric tons or something close to.

That's why we include in our CapEx a positive expectation that it will invest in more capacity in Australia..

Okay, thanks for that.

And then secondly, so in the past six or so months since you guys announced these Salar Futuro plans, what has been the local and national government feedback on that?.

Okay. Yes, we announced Salar Futuro, we’re were really excited about the project, I think is a great, great opportunity for the company for the country, for the region for the communities.

As you know, we continue in the process of informing our different authorities in Chile and our stakeholders, and try to explain the scope of Salar Futuro project that we have been very active about that so far.

And I think very proud that everyone agrees on the interest of developing process and technology that aim to the objective of very balancing, means that it is a full agreement about that high ideals and maintaining extremely low carbon footprint, also is very important for everyone.

And we think that is the way to have a sustainable productive activity in the Salar to come in the future.

In terms of what we're doing in the company, whether that's advancing and maximum speed in the work of process design, where we're even better than expected, I think, today as we were two months ago, and the engineering technology definitions are working very hard on to develop a complete environmental survey of the project that is very, very complex to it.

The projects, as you know, is big project, it's very intensive, where, that's the reason why we're so excited. It's a very good one, but requires a high level of knowledge and experience. And SPM, we're convinced that with our 25 years of experience in Salar de Atacama.

We have the human team's experience the commitment and of course, the resources to successfully phase the project. We hope to complete all the necessary definitions to submit the final project to the environmental assessment, we hope is going to be viewed in second half of 2024. In Chile as you may know complete progress is required.

In all the definitions of the project prior to being submitted to the environmental evaluation. It's important to consider I think, at the end that this project implies operation commitment that go far beyond the year 2030.

So, working in agreement, and together with core so its necessary prior to its presentation to an environmental authority for the 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, positive for the communities, positive for Chile and positive for rescan.

Currently, everybody know and probably you know, that is a public knowledge that the government is working on defining a national lithium policy, we expect that it's going to be this national lithium policy during this year. Of course, we known for everyone and this is going to be the start point in order to move forward in Salar Futuro.

But we are moving as fast as we can today. We are going to be ready at the end of 2024 and we have some times in order to have a national agreement in order to move forward..

Okay, thanks for that. And then just want one more, if I may.

So, do you guys have any views on the various commentary that's been coming out of the CATL in China for the future lithium pricing?.

Yes. I will not comment about the decisions of other companies. What I can only say is that in our case, I will again emphasize that in our case, we believe that the direction of the price is totally depending on the supply demand balance. So, this is how we are structuring our contracts with the customers following markets.

And I think this is the best solution..

Our next question will come from Lucas Ferreira with JP Morgan. You may now go ahead..

Yes, thank you. My first question is about the lithium market balance. So, looking at your expectations of this, of the demand growing 20%. I can be wrong, but I think it's more of a conservative side when I look at the views of other lithium producers.

So how do you see the supply and demand balance shaping up this year? If you think that increasing liquidity like capacity in China could put this market in some sort of a surplus to share, or if you think the market remains on a deficit.

So pretty much how you see reconcile this 20% demand growth expectations with the supply, you see coming to the market? And the second question is more of a follow-up on the CapEx guidance. Because when I look at the number that you guys provided in the investor day, in September. I know this was a number for ‘22 to ‘24.

But there was a considerable increase in that number. And I believe that part of this is explained by these increasing hydroxide capacities. So, my question there is, is this increasing in hydroxide capacity, consider adding that top $700 million you gave serve as a potential CapEx for increasing in value added products.

Or if you can talk about if there was any sort of inflation in the CapEx, maybe from Australia, I guess the number I was expecting from Australia was lower. I don't know if these CapEx and also now includes already the construction of the second phase are part of that.

So, my question is just to understand how much of that was inflation? And how much of that was actually new scope, new things added to the CapEx number? Thank you..

Regardless, there's two question, I think. Let me start with the CapEx. And I will give the answer to broadly for the balance of lithium. About the CapEx, you were right, it means we were talking about ‘22 to ‘24. Now we're talking about ‘23, ’25, its different timeframe. And there are some initiatives.

First, we included in our Investor Day, most of what you can call inflation or new costs environment, I think it's not so relevant in our new estimates, I think new projects and new initiatives are the most important ones in order to affect the total CapEx for the period.

First one is it's what we remember that is nitrates iodine and lithium, most of it's not only lithium and in nitrate, we’re pushing very hard today. They developing the seawater project for the production of nitrates and iodine in the first region, we're putting more efforts than before, because we think is going to be a very good way.

First, we will allow us to replace the consumption of continental water. But second, we significantly increase our unit production capacity, because we will have more water available for our production in Victoria in the first region.

And as you know iodine is moving in the right direction in terms of healthy demand in terms of pricing, that's why having more capacity as soon as we can is very important for the company. That's why this is our project that we increase our investment in the period, and we try to push as much as we can.

Second is that we expect to have a new project that is a new nitrate, it's an ionic project, that is a one color coma, that is going to be '24, '25, most of the investment, it means most of it will be '25, that's why it's so important in terms of having an additional capacity of iodine means between both projects, we will have a significant capacity increase in iodine for the market.

That's something we were looking forward to do it. And we expect increased production capacity and high-quality potassium nitrate, so the nature because at the moment you increase iodine, at the same moment you increase nitrates that's why having capacity facilities to have high quality potassium and sodium nitrate is very, very important.

In lithium, as already mentioned, we have lithium and our new estimate of lithium Mt. Holland on Australia, that is finishing during this year and next year. The total investment in the total project I mean concentration and their refinery.

But as I mentioned before, we're very positive and we're including significantly some amount of money important amount of money about the expansion, we think we will start at the end of '24 and mainly during 2025. And again, lithium hydroxide is very, very important, as you already mentioned.

But finally, over the few years, we hope to start investing in new technologies means we are working very hard in Salar Futuro, we will put some money during this year in all the new technology but we know that some of this new technology are so good in some terms that we can recover the investment in the medium term.

And I think that the investment that are included until 2025 may allow us to further increase our production capacity in lithium, that's something we're working now. But of course, using new technology goes in the right direction in order to have a better outcome in the lithium production.

That's why we have a significant investment in these new technologies mainly in the year '24, '25?.

With respect to your question about the demand growth. Well, I wish at the beginning of the year, we expect the slowdown in demand due to do the Chinese New Year.

And now we're seeing that a b seller hub now pick up on at a similar pace that we have at the end of last year, so and I mentioned, Felipe mentioned before, we recently knew the one of the leader carmaker now announcing all was double is they say that they production they have this most compatible with last year.

So, we're really confident that they remind will grow more than 20%, probably in a range of 25 or something like that. And what would you say at the beginning where we're preparing for that, adding more capacity from Chile and China and Australia. And regarding to the production, the lithium coming from [indiscernible].

We really don't have actually any information about the extra capacity and less than the how how's the quality or the sustainability of that production. So, we really, we don't -- we cannot comment too much about that..

Perfect. Thank you very much..

Our next question will come from Javier Martinez, with Morgan. You may now go ahead. .

Sorry guys, my questions were already taken. Thank you..

Our next question will come from Cesar Perez-Novoa, with BTG Pactual. You may now go ahead. .

Good afternoon, everyone. And congratulations for the results. Two questions here. On production targets for 2023. You already mentioned sales volume of around 200,000 metric tons of which China would account for roughly 10%.

Is the volume sent for tolling in the Sichuan refinery in China going to pay the same royalty scheme as carbon produce in Chile? And my second question goes back to the CapEx program.

Essentially, how would this be financed and with this figure, contemplate additional possible partnerships or earnings like your recent agreement with a Sichuan mineral site? If I heard correctly, Ricardo mentioned some sort of additional exploration and looking for potential projects at the beginning of the presentation? Thank you..

Okay, regarding to the lithium production what I mentioned at the beginning that our targets to where our capacity this year or it's going to be 180,000 as a little totally in Chile religion [indiscernible] originally today will have a capacity of 20,000 to 30,000 in China and at the end of the year, the spodumene production in Australia.

So, in today's around 200,000 - 210,000 as capacity. How much is going to sell it's going to depend on the supply and demand balance. So, we're not saying that we're going to sell in that trend. You were just saying that we will have the capacity ready for supply into the market.

And regarding to the China production well, the plan now is continue to produce according to the plan and we'll be ready soon to study the commission and start product producing. And respect to the royalty is the same agreement they produce according to the lithium hydroxide royalty, not lithium carbon according to, it's already agreed with Golf..

So, regarding the investments that we have and the financial of CapEx. The financial institution of the company will not be baited today. As you can see, December of this year last year, our total cash and cash equivalents was higher than the total financial interest-bearing debt. It means that the company is positive in terms of debt.

That's very unusual and we're more than prepared for future projects. Of course, the most important way of financing the company is being very careful in the dividend policy so far, we don't need to be very strong.

To reduce the dividend policy as you may know, it has been 80% concerning the profits of 2022 and 80% dividend policy means that we will retain significant amount of money internally in the company. If you can see that we have no debt, not only not that we have excess of cash plus the retention of the net income.

We do not foresee any issue in order to finance our CapEx. Yes, and the other point regarding potential M&A, potential new projects, potential geology studies, we're working very hard on it on daily basis.

It's not easy and the best project sometimes it's the one that you don't get into, you need to be very careful not to use -- not to be very, to run after projects, we need to be clear that if we get into a new project or if we get into a new M&A, it will be good for the company, it will be good for then the return on assets.

That's why we need to be very careful, but we are working very hard. I cannot promise you that we will be surprised or not. But I can promise you that we are working very hard in order to look alternatives where we can create money, we'll create a return on our investment..

Absolutely. Fair enough, Ricardo. Thank you..

This concludes our question-and-answer session. I'd like to turn the call back over to Irina Axenova for any closing remarks..

Thank you everyone for joining our call today and we look forward to having our next call. Have a great afternoon everyone. Bye..

The conference has now concluded. Thank you for attending todays presentation. You may now disconnect..