Albemarle Corp (ALB) — Q1 2022 Earnings Call Transcript

All right. Thank you, and welcome, everyone, to Albemarle's First Quarter 2022 Earnings Conference Call. Our earnings were released after the close of the market yesterday, and you'll find the press release and earnings presentation posted on our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, our Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Catalyst; Netha Johnson, President, Bromine; and Eric Norris, President, Lithium. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and timing of the expansion projects may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation; that same language applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and the appendix of our earnings presentation. And now I’ll turn the call over to Kent.

Thanks, Meredith, and thank you all for joining us today. On today's call, I will highlight our results and achievements during the recent quarter. Scott will provide more details on our financial results, outlook and balance sheet. I will then close our prepared remarks with an update on our growth projects and sustainability before opening the call for questions. Albemarle's leadership positions in lithium and bromine and our team's ability to execute have enabled us to generate increasingly strong results. In the first quarter, we generated net sales of $1.1 billion, up 44% compared to the prior year. And that's excluding Fine Chemistry Services in the comparison, which we sold in June of last year. This fundamental strength allowed us to more than double our EBITDA year-over-year. The supply/demand balance remains tight in the markets we serve. This has enabled us to significantly increase our 2022 outlook based on continued pricing strength in our lithium and bromine businesses. Scott will dive into the key elements of that outlook later in today's presentation. In terms of operational highlights for the quarter, the restart of our Wodgina lithium mine in our MARBL joint venture is progressing well. First, spodumene concentrate from Train 1 is expected in May. We've agreed with our partners to accelerate the restart of Train 2, with the first spodumene concentrate from that train to follow. Together, these two trains can feed conversion assets with an annual capacity of around 70,000 tons of lithium hydroxide. Now I'll turn the call over to Scott to walk through our financials.

Thanks, Kent, and good morning, everyone. I'll begin on Slide 5. During the quarter, we generated net sales of $1.1 billion, a year-over-year increase of 36%, including the FCS business, which we sold in June last year. This is due primarily to increased pricing as well as higher volumes driven by strong demand from diverse end markets, especially for our lithium and bromine businesses. For the first quarter, net income attributable to Albemarle was $253 million, up $158 million from the prior year because of the strong net sales, partially offset by inflationary cost pressures. This includes the impact of natural gas prices in Europe on our catalyst business. Adjusted diluted EPS for the first quarter was $2.38. The primary adjustments to earnings were $0.07 add-back for a loss on property sales and a $0.19 add-back for tax-related items. On Slide 6, I'll walk you through our first quarter adjusted EBITDA. For the first quarter, our adjusted EBITDA was $432 million, up 107% year-over-year. The primary driver was pricing, driven by the move to index referenced variable price contracts and higher market pricing. Lithium also benefited from the sales of lower-cost inventories, including a one-time sale of spodumene stockpiled during the initial start-up of Wodgina. Bromine was also favorable year-over-year, reflecting higher pricing driven by tight market conditions and a slight uptick in volumes that was partially offset by raw material and freight inflation. Catalyst was down relative to the prior year, primarily driven by higher raw material costs and lower volumes. That was partially offset by pricing. And lastly, corporate expenses and foreign exchange were mostly flat year-over-year. Moving to Slide 7. We have meaningfully increased our 2022 outlook primarily to reflect continued strength in our lithium business. I'll discuss our lithium outlook in greater detail in just a moment. For the total company, we now expect 2022 net sales to be in the range of $5.2 billion to $5.6 billion, up about 60% to 70% versus the prior year. Adjusted EBITDA is expected to be between $1.7 billion and $2 billion, reflecting a year-over-year improvement of 120% at the midpoint of the range. This implies a total company EBITDA margin in the range of 33% to 36%. And together, this translates to updated 2022 adjusted diluted EPS guidance in the range of $9.25 to $12.25 compared to $4.04 in 2021. Additionally, we are maintaining our CapEx guidance range of $1.3 billion to $1.5 billion as we drive our lithium investments forward to meet increased customer demand. You may have noticed that we widened the range of our outlook to prudently reflect greater volatility in pricing for sales and inflation for cost of goods sold against the backdrop of a turbulent macro environment. And regarding the quarterly progression of sales and EBITDA, on our last call, we indicated that we expected Q1 to be our strongest quarter of the year, primarily due to higher pricing and sales of low-cost inventory. Given the continued strong pricing and rising volumes, we now expect our second half results to be about 55% of the total year. Turning to the next slide for more detail on our lithium outlook. Lithium's full year 2022 EBITDA is expected to be up 200% to 225% year-over-year, up from our previous outlook for growth of around 75%. We now expect our average realized selling price to be about double that of last year. This is the result of our efforts to move toward index referenced variable price contracts and a significant increase in index prices. We also have better line of sight to price in the full year. From the beginning of the year to today, indices are up between 85% and 125%. We're also assuming that our expected Q2 selling price remains at that level for the rest of the year. If current market prices remain at historically strong levels for the balance of the year, there would be upside to this guidance. There could also be additional upside if we transition additional existing contracts from fixed to variable pricing. However, if we see material declines from current market pricing or volume shortfalls, there would be downside to this guidance. There's no change to our lithium volume outlook for the year. We still expect year-over-year volume growth in the range of 20% to 30% as we bring on new conversion assets, particularly La Negra III and IV and Kemerton 1. For bromine, we are raising our full year 2022 EBITDA expectations with a year-over-year improvement of 15% to 20%. This revised guidance reflects higher pricing related to strong fire safety demand, supported by macro trends such as digitalization and electrification. We also expect higher volumes following our successful expansion last year in Jordan. For Catalysts, 2022 EBITDA is expected to be flat to down 65% year-over-year. This is below our prior outlook due to significant cost pressures primarily related to natural gas in Europe and certain raw materials and freight, partially offset by higher pricing. The large outlook range for Catalyst reflects increased volatility and lack of visibility, particularly related to the war in Ukraine. Given the extraordinary circumstances and the resulting changes in oil and gas markets, the business is aggressively seeking to pass through higher natural gas pricing to its customers. As previously discussed, we continue to expect a strategic review of the Catalyst business to be completed later this quarter. The review is intended to maximize value and position the business for success while enabling us to focus on growth. I will now turn to Slide 9 for a deeper dive on our lithium contracts and pricing. With the change in guidance, you can now see we have more exposure to changing market indices. Our segmented approach gives more flexibility to customers while still allowing Albemarle to preserve its upside and returns on our growth investments. This slide reflects the expected split of our 2022 revenues updated for current pricing. Battery-grade revenues are now expected to make up 70% to 80% of our 2022 revenues, of which 20% is expected to be from purchase orders on higher short-term pricing; about half are expected to be from contracts with variable pricing mechanisms, typically indexed reference with a 3- to 6-month lag; and the remaining 30% is from fixed-price contracts. These fixed contracts also have price opener mechanisms to change prices over time. We continue to work with these customers to transition to contracts with variable index reference pricing. These negotiations are ongoing and progressing well. If we are successful, this could provide additional upside to our current outlook for the Lithium business. Following our last earnings call, we received a lot of questions regarding our expected lithium margins, so I wanted to provide some additional color on the moving pieces on Slide 10. We expect lithium margins to improve in 2022 driven by higher pricing, partially offset by the progressive commissions we pay in Chile under our CORFO contract. Another item to consider is the impact from higher fixed costs related to the startup and ramp of our new facilities such as the Wodgina mine and our La Negra and Kemerton conversion assets, as well as the potential acquisition of the Chenzhou conversion plant. These plants are expected to more than double our lithium production. Over time, the impact of fixed costs on margins will diminish as production ramps and costs are absorbed. As a reminder, Albemarle calculates EBITDA by including joint venture equity income on an after-tax basis. This year, because of higher spodumene transfer pricing from our Greenbushes mine, this tax impact is much more meaningful than it has been in the past. This is simply a result of the line item where the tax hits our income statement. Albemarle remains fully integrated from resource to conversion. So effectively, we pay ourselves this higher spodumene pricing. On a completely pretax basis, lithium EBITDA margins are expected to be between 55% and 60% in 2022. Slide 11 highlights our expected volume ramp as our new lithium conversion facilities are completed. Last year, we converted 88,000 metric tons LCE including conversion at Silver Peak and Kings Mountain, Xinyu and Chengdu in China, and La Negra I and II in Chile. We are in the process of more than doubling conversion capacity with the expansions at La Negra and Kemerton, plus the acquisition of the Shinzo plant. We typically expect it to take about two years to ramp to full capacity at a new plant, including roughly six months for customer qualification. Tying all of this together, we expect total lithium volumes to be higher than that, including technical-grade spodumene sales of about 10,000 tons per year, tolling volumes of anywhere between 0 and 20,000 tons per year, depending on market dynamics and additional spodumene, plus any additional conversion capacity we buy or build during this period. Finally, let's turn to Slide 12 to look at our strong balance sheet and cash flow. Our 2022 revised operating cash flow guidance is $650 million at the midpoint. Relative to 2021, you can see incremental cash flow driven by the higher net income, adding back higher depreciation. This is partially offset by higher working capital related to higher sales volumes and pricing, plus higher cost of raw materials and inventories. As a reminder, working capital typically averages about 25% of net sales. Our balance sheet is in great shape with $463 million of cash and liquidity of almost $2 billion. Current net debt to adjusted EBITDA is approximately 1.9 times, and with rising EBITDA from higher pricing and volumes, we expect leverage to remain at or below our target range of 2 to 2.5 times. Our balance sheet supports the CapEx for our lithium investments to meet growing customer demand. Following our equity offering early last year, we repaid debt with the intention of relevering as needed to fund capital projects. We are actively evaluating options to do just that. We are planning to be in the debt market this quarter if market conditions are favorable. We remain committed to maintaining our investment-grade credit rating, and the debt markets provide a favorable avenue for acquiring additional capital. With that, I'll turn it back to Kent for an update on our projects on Slide 13.

Thanks, Scott. First, let's look at a few of our expansions in Asia Pacific. Albemarle was focused on expanding global lithium conversion capacity to leverage our low-cost resource base. The acquisition of the Qinzhou conversion facility is now expected to close in the second half of this year as we continue to work through regulatory approvals. We look forward to closing this transaction to bring an additional 25,000 tons of lithium to the market. The commissioning process at Kemerton 1 is progressing well. We have introduced spodumene into the process, and we expect to achieve first product by the end of the month. Kemerton II remains on track for mechanical completion later this year. At our China greenfield expansions, we have broken ground at Meishan to construct a 50,000 ton per year hydroxide conversion facility. There are also options to expand that facility. The second China greenfield project at Zhangjiagang is currently in the engineering phase, and we are looking at options to produce either carbonate or hydroxide. Importantly, with our ownership stakes at Wodgina and Greenbushes lithium mines, we already have access to low-cost spodumene to feed these conversion facilities. As I mentioned previously, the restart of the Wodgina lithium mine by our JV partner Mineral Resources is going well, and we continue to negotiate agreements to expand and restructure the MARBL joint venture. And we'll update the market when we have more information. We also have a 49% stake at Greenbushes, one of the highest quality lithium resources in the world. The Talison joint venture is ramping up CGP2 and has approved construction of CGP3, which is expected to begin later this year. In addition, construction of the tailings retreatment plant was completed during the quarter, and commissioning is progressing to plan. Our intention is to rent lithium resources in advance of conversion assets, in which case in the near term, we could be net long spodumene if so, we may elect to toll or sell spodumene. The expansions in Australia and Asia are just a portion of the globally diverse lithium projects we have defined to meet growing customer demand. We remain focused on growing our global conversion capacity to leverage our world-class resources in Australia, Chile and the United States. Our Wave 3 projects should provide Albemarle with approximately 200,000 tons of additional lithium conversion capacity, which is higher than the 150,000 tonnes that we originally planned. Additionally, we continue to progress our growth options for Wave 4, which is expected to bring an additional 75,000 to 125,000 tons of capacity. This includes continued evaluation of options to restart our Kings Mountain lithium mine and build conversion assets in North America and Europe. Our high degree of vertical integration, access to high quality, low-cost resources, years of experience bringing conversion capacity online, and a strong balance sheet provide considerable advantages for the foreseeable future. Looking now at slide 15, as you can see, Albemarle is executing a robust pipeline of projects all around the world. Our bromine business is pursuing incremental expansions in Jordan and the United States. These high return projects leverage our low-cost resources and technical know-how to support customers in growing and diverse markets like electronics, telecom, and automotive. In Chile, the Salar Yield Improvement project is progressing and is expected to allow us to increase lithium production without increasing our brine pumping rates, utilizing our proprietary technology to improve recovery, efficiency, and sustainability. We also have access to a lithium resource in Argentina called Antofalla. We anticipate restarting exploration of Antofalla later this year after securing all necessary permits. In Australia, we continue to progress steady work on Kemerton expansions to leverage greater scale and efficiency with repeatable designs. Finally, in the United States, the expansion of our Silver Peak facility in Nevada is on track to double lithium carbonate production. This is the first of several options to expand U.S. production. In Kings Mountain, North Carolina, we've begun a pre-feasibility study to evaluate restarting the mine, and at our bromine facility in Magnolia, Arkansas, we're evaluating process technologies to leverage our brines to extract lithium. This robust pipeline, coupled with our industry knowledge and strong balance sheet provides significant growth opportunities for Albemarle. Moving on to our sustainability initiatives on slide 16, creating sustainable shareholder value requires our company to continue to drive progress on our own ESG and sustainability efforts. And I'm proud of what we are achieving on that front. We will publish our 2021 corporate sustainability report on June 2. In that report, you will see strong progress in our work towards hitting our target reductions in greenhouse gas emissions and freshwater usage. Our initial Scope 3 emissions assessment and our first full lifecycle assessment for lithium products will be included. You will also see further definition of our sustainability-related targets, including diversity and inclusion. In addition to publishing our new sustainability report, we will host a webcast on June 28. I hope you will join to listen in. In that presentation, we will discuss next steps, including full CDP disclosure with TCFD goals and disclosures and third party IRMA assessments at the Salar de Atacama. As you can see, we have accomplished a great deal, and we are committed to continuing that progress. So this concludes our prepared remarks. And now we will open the call for Q&A.

Yes, good morning. Good pricing initiatives. Given that your leverage is down substantially, it's a real advantage for you right now. Would you consider more M&A in lithium or getting into recycling? Or potentially going downstream? How would you view those options from a 60,000-foot view?

So PJ, I think we've always been looking at M&A on a regular basis; I don’t think really our view has changed. So we do want to be in recycling. We feel like we have a plan, and we're working toward being in the recycling business. We look at resources on a regular basis for acquisition, and we look at conversion assets as well. So our strategy has not changed. We may have a little more firepower now than we did in the past. But I think the strategy is fundamentally the same.

Also in Argentina, in Antofalla what are the permits or hurdles that are remaining before you proceed? And similar for Kings Mountain, what could be some environmental concerns there, which have impacted other projects in the region? Thank you.

Yes, so I'll just comment at a high level. I mean, it's all the permits that we need. I think we're closer in Argentina, and we are in Kings Mountain. But we're early in the process in North Carolina. But Eric can talk about more details there.

These are standard studies that you would conduct for any pre-feasibility work. The Antofalla site is a greenfield area that has never been mined, so we need to obtain various permits starting with environmental ones, and that process is already in progress. From there, we will move forward. Regarding Kings Mountain, this is a brownfield site, so while much of the work is already established, we still have a significant amount to do. We are also involved in groundwater and environmental testing and collaborating with the community. We engaged with them early this quarter to be part of that process. As Kent mentioned, this stage is a bit earlier, but it's also a brownfield site, so the development path will differ from that of a greenfield site like Antofalla.

Thank you.

Thanks very much. You have a very clear idea of the capacity expansions you wish to execute over the next five years. What's the trajectory of capital expenditures from $1.3 billion to $1.5 billion level?

Not sure if you mean over the next five years?

Yes, exactly right. How do you expect your capital expenditures to change over that period?

Yes, I think you're probably - we expect them to be in that range, right, over the next five-year period and going forward. I mean, it depends on what on opportunities. So resources, if we had additional resources, that would change that profile. If we were able to acquire or identify additional resources, that could change that. But I think our baseline, which we've laid out in our Investor Day is kind of capital in that range over the next five-year period.

Great. So lithium prices have really moved up. And are there limits to what cathode manufacturers or battery manufacturers can absorb? Or do you see any ceilings, or we'll just see what the market brings?

It's hard to predict the market's direction, so we need to observe what it will present. There are economic factors to consider. When assessing the total cost of a vehicle, many components contribute, and while lithium is starting to be a more significant factor, it still represents a small part of the overall expense. Our perspective is that prices are currently fluctuating; recently, they've dropped slightly, likely due to diminished demand in China from COVID-related issues. However, we're actively working on structuring our contracts. We've mentioned before that we align with market trends, whether the market is rising or falling.

Okay, great. Thank you so much.

Think about expansion and your growth projects in North America, you discussed accelerating some activity at Silver Peak, growing out the Kings Mountain facility and restarting the mine there and looking at, obviously, the Magnolia Brine operations. One, is there an interest? Or should we expect Albemarle to be filing any loan applications to look for some low-cost financing with any of these projects? And then my second part with that would be do you anticipate building out conversion facilities in and around Kings Mountain, that would be sort of greater than your U.S. base resource on the upstream side?

There were a couple of questions in there. First, we would be interested in economically viable loans if they are better than what we can achieve on our own. This would help us in building out the battery supply chain in North America. We plan to establish local conversion capacity since our customers prefer local resources and conversion facilities. Regarding your question about outsized conversion relative to our local resources, we'll need to address that over time. We believe it's essential to convert local products, but we may also need to supplement these with products sourced from outside the U.S. Additionally, we want to consider recycling in this process. We aim to have both virgin lithium from resources in the U.S. and abroad, as well as recycling capacity. We envision this as an integrated facility that encompasses both functions.

I appreciate the color on that. And then just my follow-up quickly. Maybe if you could just characterize the situation, you reiterated your outlook around volumes and obviously increased the outlook around pricing. Are you seeing any impacts, I guess, from some of the shipping woes that we hear getting into China or getting product into China? Are you anticipating that and then have you experienced little friction moving spodumene concentrate into your converters in China? And how do you see that situation kind of progressing throughout the year?

We are encountering supply chain challenges similar to many other businesses, but we've managed to navigate through them effectively. While we can't claim there are no issues, we've been able to cope well. Netha or Eric, could you elaborate on the situation in relation to China and spodumene? It's important to remember that we are both an exporter and an importer. A significant part of the hydroxide we produce in China serves the domestic market, while another portion is sent to neighboring Asian countries. We are also sourcing spodumene from Australia and supporting those operations. Although we have faced some customer impacts and logistics have prevented us from meeting certain timelines, there hasn't been any significant effect on our revenues or customer contracts. Our supply chain team is actively managing various ports along the Eastern seaboard of China to facilitate the movement of our products. However, with thousands of ships waiting off the coast of China, it's a considerable challenge. The management of the COVID crisis in China has added to these difficulties, and we anticipate ongoing challenges requiring proactive management, though we have not experienced any material impact so far.

And I think for us in bromine, China, we are a net importer, so for us getting material in is the same for Eric, an extreme challenge. But we're also getting on the back end seeing containers return from China to allow us to load up our facilities in America. And in the Middle East. That's probably the bigger issue. And that's part of the macro supply chain challenge and container movement around the world. We've got a great logistics team here at Albemarle in supply chain with a brand-new leader, and we’re excited about what they’re doing to manage this difficulty. But again, no material impact; we’ve got a great team and they're managing that very well for us.

Thanks, Eric. And thanks, Kent.

Thank you. Scott, I just was wondering if you could give us a bit more color on the working capital and how it works, just given so much of the increase in guidance was price-related. So it’s just a question of receivables are going to spike for a period of time as these prices flow through? Or is there anything going on in the inventory side as well?

Yes, Vince, I think you've nailed it. So as prices go up, obviously the receivables go up; we’re generally averaging between 55 and 60 days as a total company, so you basically have two months of receivables and the impact of that. So that's a driver. The second one is on inventory rising and inflation. We’re seeing obviously our inventory costs go up as well, even though the quantities are about the same; we're actually a little bit lower from what we saw last year. So those are the two drivers. We see a little bit of benefit in the payables to offset that inventory, but that's what's going on.

Okay. And just as a follow-up. You mentioned that for some contracts that might be renegotiated midyear off of fixed to variable. Do you have a rough idea of what percentage of your mix that could be or that's at least under discussion?

Yes. So if you actually look at the chart that we put in the presentation that breaks down our revenue, those fixed contracts makeup about 30% of our battery-grade revenue. And those are the ones that are in discussions right now. So we'll see. If we’re successful, there would be additional upside to the guidance as we move this to variable pricing.

Eric, do you want to provide some additional detail there?

Yes. I would just knowing the mix of business we have, I would say it is a subset, we still have a double-digit percentage there; we could go to zero. But it could come down from 30% if we prevail.

Hi, good morning everyone. I wanted to ask a question, and it's not just you; it's obviously the business and your peers, what you thought pricing would be in margins different look only three months ago, but into February into that quarter and Q1. Suddenly, the way your contracts are working with index pricing now, it's a lot higher pricing, it's a lot better margin; the story is really different. I want to ask what really changed, and if things could change so quickly in three months, how can you be confident pricing your base case can stay flat for the rest of the year?

We've been discussing the shift to variable price contracts for over a year now. At the start of this year, our situation remains largely unchanged from earlier. Most of the changes to our contract structure occurred at the end of last year. What has changed is prices; indices have risen and the market has tightened. The demand for electric vehicles, especially in China, has strengthened, which has driven prices up. It's a competitive market with strong demand and limited supply, creating some imbalance that has influenced pricing. Looking ahead, we have a good understanding of pricing for the second quarter and don't anticipate a significant drop. That's why we feel confident in our guidance for the remainder of the year. However, predicting future pricing is challenging as the market is still tight but has softened slightly due to reduced demand in China related to COVID issues. While EV production is mostly back online, it hasn't reached full capacity, leading to a slight slowdown in demand and a modest decrease in pricing. The future trajectory of prices is uncertain; while they could decrease, we don’t expect it to happen quickly.

Okay. If I follow up on that. So, if you are now more exposed to spot and not as much fixed, pricing moving around a lot more. How does that change how you manage the business? Because you can have a view right now, like you just said, but obviously that could change in a month or two, and that may change how you look at things: your risks, how you handle working capital, what level, how confident you are with leverage; because it seems like your business now is going to be more variable with spot price of lithium, which have surged and they're way more volatile than they were in the past. How does that change how you view the business month to month, quarter to quarter? How do you plan for it?

Yes, so our contracts, I mean, they're not all spot. So these are contracts that we have. Some are shorter-term in the variable category; some are short term with that better indexed to the market. The longer-term contracts we have are indexed to the market, but tend to have collars on them with floors and ceilings. So that takes some of that variability out. So it's an evolution of our strategy around pricing. We are more indexed to the market today than we were a year ago; definitely. And that was by design. We believe, but we're confident in the volume growth and then pricing will move up and down. But we have a very good cost position with the resource base that we have. We still think that we can invest capital to grow for this business and have confidence in that.

Thanks. Good morning, everyone. Congrats on renegotiating the contracts. Question on volumes. You're raising your Wodgina production goals for this year, and yet your overall volumes are about the same for this year. Could you kind of explain what's going on with your volume assumptions in lithium?

Good morning, Alex, and thanks for your kind words. The volumes that we have guided to are 20% to 30% above last year's numbers about 88,000. That’s described to you in the chart on page 11. We had already contemplated in our guidance that some form of Wodgina 1 would be used to support that volume growth. Wodgina 2 coming on is to follow the strategy that Kent indicated of having an excess of resource capacity to conversion growth. And we will look; potentially there could be some possible upsides if that goes smoothly, but it won't come until the second half of this year. There's some possibilities to toll or sell that as we indicated during our prepared remarks. So that would be certainly an access to the 20% to 30% that was the range of our internal production.

Okay, understood. Thanks a lot. And the second question on pricing. I mean, you indicate three to six months lag effect for half of your battery-grade revenues. So, if we take the second quarter, for example, your expectation for second quarter pricing, and then we assume that these indices kind of stay flat where they are today. Does that imply that third quarter price and perhaps fourth quarter price go up sequentially? Would that be right logic given these lags?

Yes, given the lags, we only can see, as Kent said, clearly out three months because of the nature of these lags. But if market prices stay where they are, yes, there's upside. Very clear, there's upside. I think we said in our guidance that has to be a material decline in market prices. What we've seen in the past couple of weeks in China does not represent a material decline. So there has to be much more significant decline before that would have a downward impact on our guidance.

Good morning, everyone. So questions on MinRes MARBL joint venture? One, have they paid you for the 10% stake yet? Two, who controls the decision to run Wodgina? And at what pace? Is that MinRes that you? Is that a joint decision? And then when you move to 50-50, is that going to establish after tax accounting for that business as well?

So they have not paid us for anything, and it's a concept, and we're negotiating that at the moment. So we're operating at a 60-40 structure that we had previously. We're under discussions, and I would say negotiations around expanding that JV which and that expansion would move it to be 50-50 at Wodgina. But we've got to conclude all of that. None of that will change until we conclude the discussions and get the final document.

Yes, so I mean, counting. Some of this depends on how those negotiate. With a 50-50 joint venture, there are some complex accounting rules around control that we'll have to go through and evaluate once those agreements are there. So there are two potential options there. One is that it is a consolidated joint venture on our books with minority; similar to what we do with JBC, or with no control, and it'll just run through equity income, which would then create that tax impact that you asked about. So more to come on that; all depends on how the negotiations and the final contract come out.

That's helpful. And then what are the assumptions for second half 2022, spodumene internal transfers? If I were looking at sizing that impact, is it still 1770? Or have you moved that up?

No, no, that's moved up. It's almost doubled from that. So I think it's, Eric, do you have that?

It will double.

It's based on a formula that we've agreed to with the JV; it has agreed to with the authorities in Australia for tax and royalty purposes. And then it's based upon a lagging basis of how spodumene prices in the market and several different indices have fared. So based on that, what you see spodumene prices rising with, certainly would be soft prices as well, that we talked about earlier, that average price is probably going on the order of double where it's been.

Hi, this is Harris Fine on for Chris; thanks for taking my question. So your competitors have been discussing that there has been a noticeable step change in your customer’s willingness to enter into contracts and more of an acknowledgment that the world will be short lithium in the coming years. So I was wondering if you could give your perspective on that based on what you're seeing. I know it's early, but how that implies for the setup for 2023 pricing; is it reasonable to expect that you would be able to maintain these levels?

So, Harris this is Eric, I'll start and maybe others will add. So the market there is certainly a very big concern about security supply with the rapid commitment and the significant commitment that automotive manufacturers are making towards EVs and the excitement that brings with it. There's a concern as well that whether the industry can spool up quickly enough to meet that demand. In one regard, that might be why the spot price is so high; it's just a fundamental concern in that regard. And that's leading to long-term partnership discussions; unfortunately, that falls squarely in the strategy we've had for years now, which is picking the right partners and partnering with them long-term, leveraging our world-class resources, and our ability to execute well to give them comfort that we're the right partner for them to ease that concern around security of supply. Price is, as we've discussed at length in this call, is a function of what happens with the market indices, for a large measure of our revenue currently 6% of our battery revenues are going to be impacted by that; it is, and that's going to be what the market does. There will be structures we take on with these sorts of partners. As Ken earlier said, we'll probably be index-based and have some coloring on either side of them. A long-term commitment from these customers to buy from us to supply where that price is going to be a function of the market. So hard to call that right now.

Got it. And piggybacking off that, in the past, you've been looking at sort of a 40% long-term EBITDA margin bogey for lithium and 1Q looks like a little bit of an anomaly. But given the current price setup that you're seeing, is there any meaningful change to your long-term, normalized margin outlook? It's a bit higher in 2022. If you could also talk about helping us come up with a framework for quantifying how startup costs are going to play into that over the next few years, that would be really helpful?

Yes, so I would say that our long-term view as we laid out last year in our investor day was in the mid-40s for the lithium business at mid-cycle pricing, and I would say that our view really hasn't changed at this point in time. We'll continue to evaluate that; just as we need to, as we better understand the long-term pricing outlooks. Of course, as you mentioned, our plant startups do have an impact on that. It's bigger today because we're doubling our capacity versus as you go forward in time, the next increment is going to be a smaller and smaller percentage and eventually just be part of our normal operating activities.

First off, I guess, just wanted to go back to the pricing discussion. So, we have had some majors announce new capacity announcements, I think, in your space and some others, as you know, that would kind of potentially signal some confidence that we are in a new price regime. You've also taken up your guidance for the full year. I'm just curious what you think the new level of, say, peak to trough pricing, and lithium is, as you move into '23. I mean, do you think you can build off of this space that you're at right now?

So we're not going to call lithium pricing going forward. Part of what we've done is we've structured our contracts so we move with the market, and we've given ourselves a little bit of stability; that's been part of our plan for some time. It gives our customers visibility of what the price is relative to the market; they have the same visibility going forward as we do and as you do, so it's difficult for us to say where it goes in '23. We think the market is tight. When we look at the demand from EVs and demand on lithium, what we see as capacity coming onto the market is tight for years. For at least through our planning period, which I would call five years, we see it being pretty tight. Now, there'll be periods where there's some oversupply, but the growth in the market catches up very quickly. So we think the market is tight, but we're not going to call lithium prices for '23.

Understood. And then I guess, we haven't really asked about bromine yet. So maybe I'll just ask quickly there. Maybe you can just provide a couple more details on your thoughts there. Do you expect continued price upward momentum there, and what's the outlook, I guess from a demand standpoint?

Yes, Arun, in terms of pricing, I think we should see pretty stable pricing. We're pretty fortunate that the applications and digitalization, electrification continue to grow, and that those applications are growing slightly faster than supply can come onto the market. So similar to what we saw in our Investor Day last fall, we expect this market to be fundamentally undersupplied for the next five years or our planning period. So we're adding capacity, and we expect pricing to stay relatively strong for the foreseeable future.

Good morning to all. Just two questions. First, hydroxide versus carbonate? And how do you decide on where to make the investment on the two? And then geopolitical risk, just as you invested in countries; there was a headline out yesterday about Mexico nationalizing their lithium resource, but as you look to Argentina making that investment in Chile, we get a lot of questions about that. So how do you think about that going forward? And thanks, guys.

Ben, this is Eric; I can take the hydroxide and myself or Kent can address the geopolitical response. So first, on hydroxide versus carbonate. The prior question was about the trend towards long-term partnerships and security supply. One of the benefits of the customer partnership approach is to leverage their commitment to us in making a commitment firmly to the product form that they wish. There's also, and this does relate to the geopolitical risk side of things, a discussion around where they want it. An increasing concern and a desire to have localization of supply. So we leverage the commitments we're trying to get with these contracts, always got some risk to narrow down those two issues, the product risk and the regional risk for the two. As an added comment, we currently are seeing that maybe carbonate is or LSP chemistries are about maybe 20% to 25% of the market; that's our current view, and we continue to monitor that carefully.

Yes, I would say, I mean, it's important for us, given the locations where we operate; we look at it kind of at a macro level by country, and we look at it particularly; we get deeper and deeper as we make a new investment. But we monitor that. A lot happening in Chile, as you know, we talked about on these calls before. In Argentina, as we make investments there, we'll have to make sure that we're looking at those risks and monitoring that. Australia is less of an issue; China's another area that we have to focus on, and we need to make sure we have our risk assessments but we monitor those. We try and combine it with active government relations to ensure that we're doing the right thing in the country so we're seen as a good actor and that we're bringing value to them as well that others can't necessarily bring. So that's a big part of how we feel that we mitigate the risk in some of those geographies.

Thanks so much, guys. Can you talk a little bit about the potential for incremental customer deposits or customer-funded CapEx? You guys are spending a ton of money to grow capacity, and then just worrying about some of the alternative strategies for financing?

Yes, Colin, I think it's a good question. I think, given the environment that we're in, and the concern around supply from our customers, we're exploring all sorts of options, partnership-type of options, like Eric talked about pre-payments; there's a variety of different things there. I think the key for us is to ensure that those types of agreements are giving us incremental return versus what we could do on our own. So clearly, our strong balance sheet and strong support from investors give us plenty of capacity to build and do it on our own. But if we can get incremental returns, we’ll take a look at it.

Okay, and then just given the expertise that you guys have around cathode materials and formulation, I'm wondering about your willingness or interest in additional vertical integration. Obviously, you don't want to compete with your customers, but it seems like you guys have enough expertise that you could do some real work in that space?

Yes. So, I mean, look, we look at the different options, but we’re from, we look at it from a material standpoint; our interest in batteries and cathodes is to make sure that we're producing and developing the right chemistry that go into our customer’s processes. So we're not looking to be in the cathode business, but we're looking to be an excellent supplier to those cathode makers and the OEMs that have a vested interest in the battery and the cathode technology.

Yes, and to elaborate, part of this involves a deep understanding of the application, but also not integrating directly into it. Additionally, as we explore other advanced lithium forms, we will consider how we want to engage and still be a significant player, but we need to define the materials we are supplying. In the realm of solid-state chemistries, there are various ways we can participate, and we are actively collaborating with partners and customers to shape the future in that area.

All right. Thank you, Terrence. Thank you all again for your participation on our call today. Our success in 2021 combined with the momentum we are experiencing in '22 strongly positions us for profitable growth. I'm confident in our team's ability to drive value for all of our stakeholders by accelerating our growth in a sustainable way and to lead by example. Thank you and thanks for joining us.