Sociedad Química y Minera de Chile (SQM) Q1 2025 Earnings Call May 28, 2025 12:00 PM ET Company Participants Isabel Bendeck - Investor RelationsRicardo Ramos - CEO & General ManagerBen Isaacson - Managing Director - Equity ResearchGerardo Illanes - VP - Services & FinanceJoel Jackson - Managing DirectorFelipe Smith - Senior Commercial VP - LithiumCarlos Díaz Ortiz - General Manager - Lithium Potassium DivisionAndres Fontannaz - Commercial Vice PresidentAlejandro Demichelis - Managing Director - Equity Resea ...

Financial Data and Key Metrics Changes - In Q1 2025, the company achieved the highest first quarter lithium sales volumes in its history, with a 20% year-on-year increase, driven by strong demand from the electric vehicle market in China and Europe [6][8] - Average realized prices for lithium in Q2 2025 are expected to be lower than in Q1 due to recent price declines [7][59] Business Line Data and Key Metrics Changes - Lithium sales volumes increased significantly, while iodine prices reached record averages amid tight supply and steady demand, particularly for X-ray contrast media applications [6][8] - Specialty Plant Nutrition (SPN) sales volumes grew healthily, with an upward trend in prices due to strong demand for potassium chloride and supply disruptions [9] - Potassium business volumes were significantly lower compared to the same period last year as part of a strategy to prioritize high lithium content brines [10] Market Data and Key Metrics Changes - The company maintains a view that global lithium demand will grow by 17% in 2025, with SQM's sales expected to grow by 15% year-on-year, although this forecast remains unchanged amid current market conditions [29][64] - The lithium market is currently oversupplied, with prices under pressure, particularly in China [71][90] Company Strategy and Development Direction - The company is focused on expanding lithium production capacity to 240,000 metric tons of lithium carbonate and 100,000 metric tons of lithium hydroxide [8] - Investment in operational efficiencies and capacity expansions is ongoing, with a commitment to sustainable high-quality growth [11] - The company is confident in its strategy and ability to generate cash flow despite current pricing pressures [17][88] Management's Comments on Operating Environment and Future Outlook - Management believes the current low price environment is unsustainable and expects prices to improve in the future [88][90] - The company is well-prepared to take advantage of market recovery due to its strong position as a low-cost producer [88][90] - There is optimism regarding long-term demand growth, particularly in the electric vehicle sector [64][90] Other Important Information - The company is advancing its seawater pipeline construction to expand iodine production capacity [8] - The dividend policy established a distribution of 30% of net income for 2025, with no interim dividends planned for the first quarter [48] Q&A Session Summary Question: Will operating cash flow be breakeven or positive per metric ton in lithium in Q2? - Management indicated they are far from breakeven costs and expect to be significantly above that in Q2 [14][15] Question: How will lower lithium prices affect capital structure and funding for future projects? - Management stated that the company has a strong balance sheet and cash generation capacity from other business lines, which will not constrain future projects [16][18] Question: What is the status of the Codelco joint venture in Chile? - Management described the situation as "noise" due to election year discussions but confirmed that the transaction is progressing as planned [20][26] Question: Will SQM's lithium sales grow by 15% this year? - Management has not updated the annual volume forecast but expects similar or slightly lower volumes in Q2 compared to Q1 [29] Question: How is SQM handling pricing dynamics in China? - Management noted that pricing mechanisms with customers are confidential and cannot provide specifics [36] Question: What is the outlook for Mt. Holland production? - Management confirmed that Mt. Holland is cash positive and ramping up as planned, despite facing higher costs during the ramp-up phase [84][97] Question: What is the company's dividend policy? - The company will distribute 30% of its net income for 2025, with no interim dividends planned for the first quarter [48]

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are estimates that reflect the best judgment of SQM management based on currently available information. Because forward-looking statements relate to the future, they involve a number of risks, uncertainties and other factors that are outside of our control and could cause actual results to differ materially from those stated in such statements, including our ability to successfully implement the Sust ...

Revenue and Financial Performance - For the year ended December 31, 2024, revenues from products originating from the Salar de Atacama represented 55% of the company's consolidated revenues[54]. - Revenues for the year ended December 31, 2024, were US$4,528.8 million, with a gross profit of US$1,327.1 million and losses attributable to controlling interests of US$685.1 million[215]. - In 2024, lithium and its derivatives accounted for 49% of total revenues, while specialty plant nutrition and iodine and derivatives each contributed 21%[225]. - Specialty plant nutrients revenues increased to US$941.9 million in 2024, representing 20.8% of total revenues and a 3.1% increase from US$913.9 million in 2023[240]. - Exports accounted for 96% of the company's net revenues for the year ended December 31, 2024, exposing it to various external risks including trade barriers and exchange rate fluctuations[100]. Market and Industry Trends - Average lithium prices decreased from US$30,467 per metric ton in 2023 to US$10,936 per metric ton during the year ended December 31, 2024[58]. - The growth of the company's lithium business is dependent on the continued adoption of electric vehicles by consumers[70]. - The company's lithium business growth is highly dependent on consumer adoption of electric vehicles, which may be adversely affected by potential reductions in government subsidies and incentives[74]. - The development of new battery technologies that utilize significantly less lithium could materially impact the company's future revenues and market position[75]. - Competitors are advancing in lithium extraction technologies, which may lead to lower production costs and affect the company's pricing competitiveness[76]. Investment and Expansion Plans - The company has an investment plan for an estimated range of US$3.1 to US$3.8 billion for the years 2025-2027 to expand lithium, iodine, and nitrate operations[63]. - The company plans to increase mining capacity while protecting the environment and reducing operating costs[63]. - The company plans to expand lithium hydroxide capacity to reach 100,000 metric tons by the end of 2025[206]. - The company aims to maintain its leading position in the lithium, potassium nitrate, iodine, and thermo-solar salts markets through innovation and technological development[226]. - The company is investing in the Mt. Holland lithium project in Western Australia, with the Kwinana refinery expected to be completed by mid-2025[208]. Regulatory and Compliance Risks - The company faces potential liabilities and increased costs due to compliance with evolving labor laws in Chile and Australia, which may impact financial performance[81][82]. - Environmental regulations in Chile and Australia are becoming increasingly stringent, which could lead to higher compliance costs and operational delays[90][91]. - The company is subject to significant environmental fines, with potential penalties up to approximately $9 million per infraction in Chile[88]. - The National Lithium Strategy announced by the Chilean government in April 2023 has created uncertainty in the lithium industry, potentially affecting business performance and share value[129]. - The Chilean Congress is discussing a bill that could declare lithium mining a national interest, which may enable the expropriation of the company's lithium assets[143]. Community and Labor Relations - As of December 31, 2024, approximately 87% of the company's employees are based in Chile, with 77% represented by labor unions, exposing the company to labor-related risks[80]. - The Chilean Congress approved pension fund reforms that will gradually increase employer contributions from 1.5% to 8.5% over nine years, potentially raising labor costs[83]. - The company is exposed to risks related to community relations, which may lead to interruptions in operations and increased costs[156]. - The company signed an agreement with Codelco and the Atacameños Indigenous Organization to include the Atacameños in discussions regarding lithium extraction in the Salar de Atacama beyond 2030[154]. - The blockade by a splinter group of the Atacameños Peoples Council resulted in a shutdown of operations at the Salar de Atacama facilities for one day[154]. Environmental and Sustainability Initiatives - The company aims to become carbon neutral by 2040 and reduce water usage by 65% and brine extraction by 50% of authorized limits as part of its sustainable development plan[119]. - The company achieved IRMA 75 level certification for operations in Salar de Atacama, supporting responsible mining practices[119]. - The Port of Tocopilla obtained Responsible Care certification and EcoPorts PERS Certification, enhancing sustainability credentials[119]. - The company is committed to sustainability, focusing on responsible management of natural resources and minimizing environmental impacts[228]. - The company completed the recertification of ISO 14001 and 45001 standards at its operations in 2023[204]. Economic and Political Risks - The company faces risks related to global shipping constraints, which may adversely affect operations and product delivery[59]. - Political and economic tensions, particularly between the U.S. and China, may limit investment opportunities and adversely impact business operations[115]. - The company is exposed to political risks in Chile, particularly with upcoming general and presidential elections in November 2025, which may impact business operations[134]. - Changes in regulations regarding mining licenses could adversely affect the company's mining concessions and operations[146]. - The company is subject to risks from fluctuations in the U.S. dollar/Chilean peso exchange rate, which may affect the value of ADRs and dividends[161]. Taxation and Financial Obligations - As of December 31, 2023, the company paid a total of US$986.3 million in specific taxes on mining activities related to lithium for tax years 2012 to 2023[144]. - The company recognized a tax expense of US$1,106.2 million for the year ended December 31, 2023, reflecting potential impacts from ongoing tax claims[144]. - The effective withholding tax rate on dividends attributed to earnings in 2024 is 23.90411%[175]. - Changes in Chilean tax regulations could have adverse consequences for U.S. investors, particularly regarding capital gains tax and withholding tax on dividends[176]. Operational and Production Capacity - The company achieved a lithium carbonate production capacity of 180,000 metric tons and lithium hydroxide capacity of 30,000 metric tons in 2022[202]. - In 2023, the company expanded its lithium carbonate capacity to 210,000 metric tons, with plans to increase to 240,000 metric tons by 2026[206]. - The company plans to increase lithium carbonate production in Chile from 210,000 metric tons per year to 240,000 metric tons per year by the end of 2026 or early 2027, and expand lithium hydroxide production from 40,000 metric tons per year to 100,000 metric tons per year by 2025[208]. - Capital expenditures for 2024 totaled US$1,388.3 million, up from US$1,103.6 million in 2023 and US$905.2 million in 2022, reflecting a significant increase in investment activities[208]. - Expected capital expenditures for 2025 are approximately US$1.1 billion, with US$550 million allocated for the SQM Lithium Chile Division and US$350 million for the SQM Iodine-Plant Nutrition Division[209].

CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2024 Sociedad Química y Minera de Chile S.A. and subsidiaries In thousands of United States dollars This document includes: Consolidated Statements of Financial Position - Consolidated Statements of Income י Consolidated Statements of Comprehensive Income - Consolidated Statements of Cash Flows i Consolidated Statements of Changes in Equity - Notes to the Consolidated Financial Statements l Table of Contents -Consolidated Financial Statements | Consolidat ...

Group 1 - President Trump is initiating a Section 232 investigation to assess the effects of importing critical materials on domestic production as part of a broader national security strategy [1] - The executive order signed by President Trump aims to revitalize domestic manufacturing capabilities [1] Group 2 - Dilantha De Silva is a seasoned equity analyst with over 10 years of experience in the investment industry, focusing on small-cap stocks often overlooked by Wall Street [1] - Dilantha has contributed to various investment platforms and has been featured on major financial news outlets like CNBC and Bloomberg [1] - He is a CFA Level III candidate and an Associate Member of the Chartered Institute for Securities and Investment (CISI) [1]

Company Overview - SQM shares increased by 12.3% to close at $35.50, following a significant volume of trading, contrasting with a 26% loss over the previous four weeks [1] - The rally in SQM's stock is attributed to a rise in material stocks after President Trump announced a 90-day pause on reciprocal tariffs for most nations [1] Earnings Expectations - SQM is projected to report quarterly earnings of $0.65 per share, reflecting an 18.8% decrease year-over-year, with revenues expected to be $1.01 billion, down 7.1% from the same quarter last year [2] - The consensus EPS estimate for SQM has remained unchanged over the last 30 days, indicating that stock price movements may not sustain without trends in earnings estimate revisions [3] Industry Context - SQM is part of the Zacks Chemical - Specialty industry, which includes PPG Industries, whose stock also saw a 12.5% increase to $103.11, despite a -19.2% return over the past month [3] - PPG Industries has a consensus EPS estimate of $1.62, which is a 12.9% decline from the previous year, and it also holds a Zacks Rank of 3 (Hold) [4]

Core Insights - Sociedad Quimica y Minera de Chile S.A. (SQM) reported earnings of 42 cents per share in Q4 2024, a decline from 71 cents per share in the same quarter last year, and below the Zacks Consensus Estimate of 52 cents [1][5] - The company's total revenues for the quarter were $1,073.8 million, down approximately 18% year over year, but exceeded the Zacks Consensus Estimate of $1,010 million [2] Segment Highlights - Revenues from the Lithium and Derivatives segment decreased around 33% year over year to $532 million, despite a 13% increase in lithium sales volumes due to lower prices [3] - The Specialty Plant Nutrients (SPN) segment saw revenues of $224.6 million, up 0.4% year over year, driven by higher sales volumes but partially offset by lower prices [3] - The Iodine and Derivatives segment generated revenues of $225.6 million, up 3% from the previous year, benefiting from higher prices [4] - Revenues from the Potassium business increased approximately 30% year over year to $65.9 million, attributed to higher sales volumes [4] - The Industrial Chemicals unit recorded sales of $17.2 million, down roughly 9% year over year, due to significantly lower sales volumes despite higher prices [4] Full-Year Results - For the full year 2024, SQM reported a loss of $1.42 per share, compared to earnings of $7.05 in the previous year, with sales falling around 39% year over year to approximately $4,528.8 million [5] Financial Position - At the end of 2024, the company's cash and cash equivalents stood at $1,377.9 million, an increase of 32% year over year, while long-term debt rose to $3,600.6 million, up roughly 12% from the prior year [6] Outlook - SQM anticipates a 15% increase in sales volumes in the Lithium and Derivatives unit for 2025 compared to 2024, with projected sales of around 10,000 metric tons of LCE from the Mt. Holland operation, although average realized prices are expected to decline year over year [7] - For the SPN unit, the company expects sales volume growth in 2025, in line with or slightly above the anticipated market growth of 4-5% [7] - The Iodine and Derivatives segment is expected to see market demand stabilize with a growth forecast of around 2% in 2025, while potassium sales volumes are projected to decrease by about 50% due to lower production in the Salar de Atacama [8] - Capital expenditure for 2025 is expected to be approximately $1.1 billion [8] Stock Performance - SQM's shares have declined by 14.7% over the past year, compared to a 12.8% decline in the Zacks Fertilizers industry [10]

Financial Data and Key Metrics Changes - The company achieved revenues slightly exceeding $4.5 billion for the full year of 2024, with a gross profit of approximately $1.3 billion [9] - Net income for 2024 was impacted by a one-time charge of approximately $1.1 billion related to a tax dispute [9] Business Line Data and Key Metrics Changes - Lithium sales volumes reached nearly 205,000 metric tons in 2024, including almost 4,000 metric tons from Mt. Holland [10] - In Q4 2024, record sales volumes surpassed 58,000 metric tons of lithium carbonate equivalent [11] - Iodine achieved record volumes and strong price growth, particularly in X-ray contrast media applications [12] - Fertilizers market has stabilized, recovering from past challenges [13] Market Data and Key Metrics Changes - The lithium market grew around 25% in 2024, driven by electric vehicle demand, particularly in China [10] - Demand for lithium is expected to grow approximately 17% in 2025, with stable prices anticipated [11] - The iodine market is expected to see continued demand growth, albeit at a slower pace [12] Company Strategy and Development Direction - The company plans to invest over $1.6 billion in 2024, with approximately $750 million allocated for lithium capacity expansion in 2025 [14] - Investments will also include close to $350 million in caliche operations to increase production capacity [14] - The company remains committed to expanding its core business and leveraging its strong financial position for future opportunities [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the lithium market due to strong demand growth, despite price fluctuations [32][35] - The company is closely monitoring capital requirements and maintaining a strong balance sheet to support future investments [24] - Management noted that the iodine business is a key component of the portfolio, with plans for capacity expansion [28] Other Important Information - The company expects to produce 230,000 metric tons of lithium in 2025, with ongoing capacity expansion efforts [42] - Maintenance CapEx across all divisions is estimated to be around $250 million to $280 million per year [60] Q&A Session Summary Question: Potash production guidance and future plans - Management confirmed that potash production is down due to a focus on lithium production, with a possibility of being a net buyer in the future [18] Question: Capital requirements and raising capital - Management indicated that while there may be a gap in funding capital requirements, they are not planning to raise capital at this moment but are monitoring the situation [24] Question: Iodine business potential and spin-off possibilities - Management stated that the iodine business is significant and they are not planning to spin it off, focusing instead on expanding capacity [28] Question: Lithium market outlook and production capabilities - Management highlighted strong demand growth for lithium, with expectations to reach 230,000 metric tons in 2025 [42] Question: Codelco joint venture updates - Management reported no significant obstacles in meeting conditions for the joint venture with Codelco, expecting fulfillment in the second half of the year [47] Question: CapEx breakdown and maintenance CapEx - Management provided a breakdown of 2025 CapEx, estimating total CapEx between $3.1 billion to $3.8 billion over the next three years [51] Question: High costs in Q4 and future expectations - Management explained that higher costs in Q4 were due to one-time expenditures and that similar costs are expected for 2025 [91]

Core Viewpoint - Sociedad Química y Minera de Chile (NYSE: SQM) shares are trading near 5-year lows primarily due to declining revenue linked to the decreasing spot price of lithium, which constitutes a significant portion of their earnings [1] Company Summary - SQM is experiencing a decline in revenue, which is heavily influenced by the falling spot price of lithium [1] - The company holds a large market share in the lithium sector, which is critical to its earnings [1] Industry Context - The lithium market is currently facing downward pressure on prices, impacting companies like SQM that rely on lithium for a substantial part of their revenue [1]