Please stand by. We're about to begin. Good everyone, and welcome to the AMG Earnings Q3 2022 conference call. Today's call is being recorded. Now I'd like to turn the call over to Michele Fischer. Please go ahead.
Welcome to AMG's third quarter 2022 earnings call. Joining me on this call are Dr. Heinz Schimmelbusch, the chairman of the Management Board and Chief Executive Officer, Mr. Jackson Dunckel, the Chief Financial Officer, and Mr. Eric Jackson, the Chief Operating Officer. AMG's third quarter 2022 earnings press release issued yesterday is on AMG's website. Today's call will begin with a review of the third quarter of 2022 business highlights by Dr. Schimmelbusch. Mr. Dunckel will comment on AMG's financial results, and Mr. Jackson will discuss operations. At the completion of Mr. Jackson's remarks, Dr. Schimmelbusch will comment on strategy and outlook. We will then open the call to take your questions. Before I pass the call to Dr. Schimmelbusch, I would like to comment on forward-looking statements. This conference call could contain forward-looking statements about AMG Advanced Metallurgical Group.
The forward-looking statements are not historical facts, but may include statements concerning AMG's plans, expectations, future revenues or performance, financing needs, plans and intentions relating to acquisitions, AMG's competitive strengths and weaknesses, reserves, financial position and future operations and developments, AMG's business strategy and the trends AMG anticipates in the industries and the political and legal environment in which it operates and other similar or different information that is not historical information. When used in this conference call the words expects, believes, anticipates, plans, may, will, should, and similar expressions, and the negatives thereof, are intended to identify forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that any predictions, forecasts, or similar projections contained by such forward-looking statements will not be achieved. These forward-looking statements speak only as of the date of this conference call.
AMG expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in AMG's expectations with regard thereto, or any changes in events, conditions, or circumstances on which any forward-looking statement is based. I will now pass the call to Dr. Heinz Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.
Thank you, Michele. AMG generated its largest quarterly EBITDA to date in the third quarter of 2022. EBITDA was $103 million, 26% higher than the previous record-setting quarterly EBITDA of $81 million in the second quarter of 2022. This outstanding result was largely driven by AMG Lithium. The continued strength in both lithium demand and our low cost position led to improved profitability in AMG Lithium in Brazil. The mission of AMG Lithium is to be the number one producer of electric vehicle battery materials in Europe by expanding production of battery-grade hydroxide and by vertically integrating its Brazilian spodumene production and pursuing further mineral resource processing. AMG has consolidated its lithium value chain under one legal entity and is currently aligning its lithium management and governance structures to further increase the long-term value of its lithium activities.
Accordingly, we are preparing a re-segmentation of AMG to be approved by the Supervisory Board in December and become effective on January 1, 2023. The new vanadium spent catalyst recycling facility in Zanesville, Ohio, which started operating October 29, 2022, is a clear manifestation of AMG's industry leadership in the recycling of hazardous refinery waste globally. We are extremely pleased about the successful startup of both the roaster and the melt shop, and we expect to ramp up to full production, which will take between three to four months. SARBV, the Shell & AMG Recycling joint venture, together with UCI, United Company for Industry in Saudi Arabia, continues to advance the first project of the so-called Supercenter in conjunction with Aramco. Plant design, optimization, site selection, and permitting activities are progressing, and the FEL3 partnering with Hatch is expected to begin later this month.
The SARBV, UCI, Aramco consortium are also developing a pipeline for projects which will conclude with the deployment of AMG's LIVA hybrid energy storage system technology. AMG's innovative LIVA battery for industrial power management applications has successfully started up at our plant in Herzberg, Germany, paving the way for several other projects under development. I would now like to pass the floor to Jackson Dunckel, AMG's Chief Financial Officer. Jackson?
Thank you, Heinz. I'll be referring to the third quarter 2022 investor presentation posted yesterday on our website. Starting on page three, this shows an overview of the financial highlights of the quarter. Revenue for the quarter increased by 36% to $425 million. This increase was mainly driven by the improved price environment relative to Q3 2021, which led to higher sales prices across all three of our segments, particularly AMG Clean Energy Materials. Q3 2022 EBITDA was $103 million, a 210% increase versus the prior year. As you can see in the lower left corner, AMG continues to sequentially increase EBITDA each quarter, which we have done since the second quarter of 2020.
Net income to shareholders increased substantially to $68 million, yielding $2.09 of diluted earnings per share compared to a $0.02 diluted loss per share in Q3 2021. Now I'm gonna turn to review of our three segments. Let's start with AMG Clean Energy Materials, which is shown on page four of our presentation. On the top left, you can see that Q3 2022 revenue increased 79% versus Q3 2021 from $105 million to $188 million. This increase was mainly driven by higher prices in vanadium, tantalum, and lithium concentrates, as well as increased sales volumes of lithium concentrate. Sales volumes of spodumene were up due to shipping schedule variances from AMG Brazil.
This increase in Q3 2022 includes a catch up from the second quarter, as well as additional volumes that shipped in the third quarter that were planned for the fourth quarter. Gross profit before non-recurring items increased 304% compared to Q3 2021, mostly due to the improved price environment. Likewise, Q3 2022 EBITDA increased more than four-fold from $18 million to $84 million. Clean Energy Materials is the segment which is and will continue receiving the most capital investment within AMG. The quarterly CapEx shown on the bottom left of $50 million mainly reflects our investment into the Zanesville vanadium facility, but also the investment into a battery-grade lithium hydroxide plant in Bitterfeld, Germany, and the expansion of our spodumene capacity in Brazil. Turning now to page five of our presentation, which shows AMG Critical Minerals.
AMG Critical Minerals revenue increased 7% to $85 million compared to Q3 2021, driven by higher sales prices across the segment's portfolio. Gross profit before non-recurring items of $12 million was 13% higher than in Q3 2021. The higher gross profit was due to the improved pricing and was partially offset by increased raw material prices, as well as the ongoing rise in energy and shipping costs. EBITDA during the quarter was up 13% compared to Q3 2021, despite ongoing inflationary pressures. In terms of sequential development versus Q2 2022, Critical Minerals' gross profit and EBITDA each decreased $1.8 million. This is partly due to seasonality. August is a very slow month for our European businesses and is also partly due to lower prices in antimony.
As announced, AMG will place its silicon metal plant in Germany on care and maintenance effective January 1st, 2023. The overall EBITDA effect, should there be a shutdown longer than one quarter, is immaterial to AMG's overall projected 2023 results. Associated with this shutdown, AMG recorded income from the sale of an existing supply contract. This income was offset by a settlement with a major customer, resulting in a net contract settlement benefit of $46 million. This net benefit was further offset by an impairment of existing assets of $11 million. All of these items were excluded from EBITDA. The net future proceeds are also available to offset potential restructuring expenses in the future. The cost associated with retaining current employees for care and maintenance will be recorded as incurred in accordance with accounting standards. Moving on to AMG Critical Materials Technologies on page six.
Starting on the top left, you can see that Q3 2022 revenue increased by $24 million or 19% versus Q3 2021. This improvement was due to higher sales volumes of titanium alloys and higher titanium alloy and chromium metal pricing. As a result, Q3 2022 gross profit before non-recurring items increased by 23% to $25 million. This increase drove AMG Critical Materials Technologies' Q3 EBITDA to $12 million compared to $9 million in Q3 of last year. In terms of sequential development, Q3 2022 gross profit and EBITDA were lower than Q2 2022 by $2.4 million and $2.2 million , respectively. Again, August is a slow month for our European businesses, so part of this decrease is seasonal, but performance was also affected by weakening chrome pricing.
AMG Engineering signed $93 million in new orders during the third quarter of 2022, driven by strong orders of remelting, induction, and heat treatment furnaces, representing a 1.73x book-to-bill ratio. Everyone knows, order intake is a leading indicator for the future financial performance of this segment. Order backlog was $211 million as of September 30, 2022, 17% higher than the $181 million as of June 30, 2022. Turning now to page seven of the presentation. On the top left, you can see that AMG's Q3 2022 SG&A expenses were $37 million versus $34 million in Q3 2021. This variance was driven largely by higher compensation expense due to improved profitability forecasted for the year and increased professional fees associated with our strategic projects.
AMG Q3 2022 net finance costs were $14 million compared to $8 million in Q3 2021. This increase was driven by a $6 million foreign exchange loss, which in turn was driven by a non-cash intergroup related foreign exchange loss. AMG capitalized $2 million of interest costs in Q3 2022 versus $4 million in Q3 2021, driven by the interest associated with the company's tax-exempt municipal bonds supporting the vanadium expansion in Ohio. This decrease is due to a portion of the municipal bond interest costs, which are no longer being capitalized due to the ramp-up of production at our Zanesville facility. AMG recorded an income tax expense of $39 million in the third quarter of 2022, compared to $10 million in Q3 2021. This variance was mainly driven by improved financial performance and movements in the Brazilian real.
The effects of the Brazilian real caused a $2 million deferred tax benefit in the third quarter of 2022, compared to an $8 million tax expense in Q3 2021. Movements in the Brazilian real exchange rate impact the valuation of the company's net deferred tax positions related to our operations in Brazil. AMG paid taxes of $10 million in Q3 2022 compared to $4 million in Q3 2021. Turning to page eight of the presentation, you can see on the top left that cash from operating activities was $75 million in the third quarter of 2022 compared to $18 million in the same period in 2021. This increase in operating cash flow was due to higher profitability and continued focus on maintaining low working capital levels despite a rising price environment.
AMG's return on capital employed for the first nine months of 2022 was 29.5%, more than double the 10.4% achieved in the first nine months of 2021 due to substantially higher profitability as of September 30th, 2022. AMG ended the quarter with $368 million of net debt, with the increase versus year end due to the significant investment in growth initiatives. In this rising rate environment, it is important to reiterate that a majority of the company's outstanding debt facilities are either fixed rate facilities or fixed due to interest rate swaps for the next several years. As such, AMG has an average interest charge across its two main debt instruments of 5%. Our advantageous long-term fixed borrowing, combined with substantial operating cash flow generation, is a key competitive advantage.
AMG's low cost interest rates allow the company to continue to invest in transformational strategic projects while maintaining a strong balance sheet. I would also like to note our current equity attributable to shareholders has increased 56% to $418 million since year-end 2021, another key sign of our balance sheet strength. As of September 30, 2022, AMG had $306 million of unrestricted cash and total liquidity of $489 million. On page 14 in the appendix, you can see the development of the spot lithium carbonate price versus the spot spodumene price. I would like to remind everyone that we have a three- to four-month revenue recognition lag in our contracts, so Q2 2022 pricing was realized in Q3 2022.
I would also like to remind everyone that our price is tied to the Asian Metal market spot lithium carbonate price and not to the spodumene price. As you can see on page 12, the spot price of battery-grade lithium carbonate is now over $78,000, up 10% from the average price during Q3 2022. That concludes my remarks. Eric?
Thank you, Jackson. AMG's operations continued to perform exceptionally well during the third quarter of 2022, especially in the context of a volatile and challenging global market. Market prices for many of our products weakened sequentially during the third quarter. A representative example is ferrovanadium, where the average index price in North America fell from $30.50 in the second quarter 2022 to $23.07 in the third quarter. Today's spot price is $19.20. However, prices in Europe and China, which led to global weakness, have stabilized and, in fact, increased slightly in the latest reporting period. We do benefit, however, from being the environmental and technological leader and a low-cost producer in most, if not all, of our businesses, and we're very cognizant of price risk management. That brings me to AMG Vanadium.
Our spent catalyst processing expansion in Zanesville, Ohio, started operations on October 29th and has produced its first full run from spent catalyst to commercial-grade ferrovanadium. We expect that ramp up to full capacity will take three to four months. We will manage this appropriately also in the context of the overall market. Therefore, our 2023 production volumes will be somewhat back-end weighted. The notable exception to this general price weakness is lithium, where the accelerating global transition to electric vehicles is driving strong demand and higher pricing for reliable, high quality lithium units. Our spodumene production in Brazil continues to operate at full capacity. We believe that net of co-product credits, we are very near the bottom end of the global spodumene cost curve.
Additionally, our SP1+ project to increase spodumene production from 90,000 tons per annum to 130,000 tons per annum is proceeding on schedule, and we fully expect to be operational at the 130,000-ton level in the second half of 2023. AMG Lithium's battery-grade lithium hydroxide refinery in Germany is under construction, and commissioning of the first 20,000-ton module will start in the fourth quarter of 2023. We have negotiated a strategic tolling contract for our own spodumene production, as well as third-party spodumene sources to produce and supply technical grade hydroxide to our refinery in Bitterfeld, Germany.
Elevated energy costs, especially in Europe, led to significant increases in gas and electricity costs in the quarter for our critical minerals segment, with total energy costs being $5 million higher than in the third quarter of 2021. In most cases, we were able to pass these price increases on to our customers. However, as announced, effective January 1, 2023, AMG will place its silicon metal plant in Germany on care and maintenance due to high power prices. We will review this decision on a quarterly basis. The overall impact, as Jackson mentioned, is not material to AMG's projected 2023 results. I also want to comment on our aerospace related activities as we see continued improvement.
AMG Engineering had very strong order intake in the third quarter, which has continued into the early days of the fourth quarter, and our aerospace-related titanium materials business is seeing significantly increased order flow for the full year 2023. This is also partly driven by our strategic decision to purchase a production facility for titanium alloys in New Castle, Pennsylvania a few years ago. We continue to focus on safety, operational improvement, risk management, and delivering our strategic projects on time and on budget. With the overriding objectives to be the low-cost and most environmentally responsible producer in all of our businesses. I will now pass the floor to Dr. Heinz Schimmelbusch, AMG's chief executive officer.
Thank you, Eric. Before I come to the outlook for 2022 and 2023, let me describe our current strategic positioning from the perspective of recent years. Prior to COVID, it was apparent that two outstanding market opportunities had emerged among AMG's portfolio in critical materials and related technologies. One, growing our position in the booming aerospace engine market with its need for game-changing technologies designed to deliver a superior CO2 efficiency profile. Here, AMG's strategic position was enhanced by its market leading technologies in turbine blade coatings and in specialty alloys with superior strengths and weight ratios. To capitalize, two, capitalizing on a clear first mover advantage in the emerging market for electricity storage systems is a twofold growth strategy. First, exploiting and expanding AMG's resource position in lithium. Second, expanding our market leading vanadium recycling technology in North America and globally.
Given the multiple growth platforms within AMG, we decided the best path forward was to take our aerospace engine activities public and invest heavily into lithium and vanadium. COVID interrupted the aerospace separation, but we continued our focus on energy storage in a newly formed segment called Clean Energy Materials. In addition, I should note that the increased order intake at AMG Engineering is a key leading indicator that the aerospace engine market for our products is now returning to its pre-COVID dynamics. The strategic target in vanadium was to cement our position as the world's largest recycler of vanadium-containing refinery waste by building a second $325 million recycling facility in Ohio. The construction of our Zanesville spent catalyst recycling plant established a truly closed-loop circular economy for the sector in North America and beyond.
This investment attracted Shell Catalysts and Technologies, the world's premier producer of fresh refinery catalysts, and we formed Shell & AMG Recycling B.V. to address the global market for circular refinery catalyst solutions. The Aramco joint venture in Saudi Arabia, known as Supercenter, is a result of our cooperation with Shell. The strategic target in lithium was twofold. First, the extraction of lithium in addition to tantalum at the Mibra mine in Brazil, both from lithium tailings and from fresh ore. Second, the construction of an electric vehicle battery materials value chain in Europe. We started to build this value chain by first hiring a superior team of lithium industry experts. Next, we began building a modularized battery-grade lithium hydroxide plant located nearby the cluster of battery cell gigafactories in Eastern Europe.
Now we are continuing to build out our value chain by simultaneously developing additional lithium resource projects based on our technical mining and conversion expertise, and at the same time building additional hydroxide refinery modules in Germany. Importantly, as I noted at the outset, both strategic initiatives in the global vanadium lithium industries are expected to benefit from first mover advantages, which will accrue significant strategic benefits as we move forward. Given the strong performance to date and the visibility into year-end, AMG is increasing its EBITDA guidance for the full year of 2022 to $320 million or higher from a previous range of between $280 million-$300 million.
Important parameters for 2023 guidance are first and foremost the startup of the expanded production of our lithium concentrate in Brazil in the second half of 2023, the market conditions primarily in lithium, and the ramp-up of the Zanesville refinery to full production. In view of this, AMG's EBITDA guidance for 2023 is to exceed EUR 400 million. It is important to note that since the increase of spodumene production will occur in the latter half of the year, 2023 EBITDA development will be somewhat back-ended. Let me remind everyone of the guidance we gave at the 2019 AGM. Namely, that AMG, and I quote, "AMG expects to deliver an EBITDA level of EUR 350 million or more in five years or less," unquote. With our new guidance, we are significantly exceeding this five-year commitment.
Operator, we would now like to open the line for questions.
Sure. If you'd like to ask a question, simply press the star key followed by the digit one on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one at this time. We'll pause for a moment. Again, it's star one if you would like to ask a question or make a comment. We'll pause for a moment.
There's no question. Good.
It appears there are no questions at this time. I'll turn the call back over to our presenters for any additional or closing comments.
Well, since there are no questions, it might be that we have answered all the questions by presenting our various viewpoints on financials and operations and on outlook.
We just had a few questions queue up, if we can take those.
Oh, very welcome.
Okay. We'll first hear from Olivier Ken of Quaero.
Yes. Good afternoon. Thank you very much for the call. The question is, if I understand well, you increased your the five years commitment in terms of EBITDA, but I missed the number.
Well, our commitment is our guidance for 2023 is 400 or higher. I just reminded you.
Mm-hmm.
That five years ago we gave a commitment, and we exceeded that commitment. You know, we added that sentence because it increases our credibility of long-term commitments.
Okay. A quick follow-up, if I may. Coming back to the Bitterfeld plan, the German plan for hydroxide. For next year, you contract spodumene. I mean, going forward with the start of the hydroxide production in Brazil, if we take, let's say a two-year view, would you be self-sufficient in terms of hydroxide?
Well, essentially, with flexibility around the peripheries of this statement, the destination is to be a self-sufficient value chain starting in Brazil and ending at the Bitterfeld battery-grade hydroxide facility in Germany, module 1. That's the start.
Module 1 is ready? Okay.
Well, as I said, we start the commissioning of that plant in 2023, second half. Now, that is the beginning. Then the strategy involves the development using our technical expertise and certain other skills and long-term contract capabilities to develop additional resources projects, which is underway, in order to feed additional modules in Germany. That is sort of an interrelated, on the left, resource projects, on the right, additional modules. That seems to be a very efficient model because the response to our activities in assisting resource projects, it seems to be welcome in many ways. That's the strategy. Now, the strategy takes a detour of course, because our vertical integration, building a carbonate plant in Brazil, turning spodumene into carbonate at the mine site, will take time.
In the interim, the commissioning of the plant in Germany will precede that. Therefore, we have arranged for conversion agreements, which turn the spodumene of Brazil into upgraded products such as technical grade hydroxide, and delivering those upgraded products to feed the first module in Germany.
Okay. Yeah, clear. Thank you. May I ask a last question? Sorry.
Sure.
The German factory will start next year. Since that, I mean, now we've got the IRA in the U.S. I'm just wondering, especially as you're producing spodumene and you're gonna produce LiOH in Brazil, would it make sense to think about building capacity in the U.S. benefiting from any funding in the U.S.?
If I understand you correctly, you ask whether it would make sense to build a hydroxide facility in the U.S. Is that your question?
Yes.
To support-
That's the question.
Because of the inflation too.
In terms of the Inflation Reduction Act.
Elon Musk has announced a battery-grade lithium hydroxide facility in, I think, Texas recently, which seems to be the same strategy. He wants to be apparently the first mover of battery-grade lithium hydroxide refineries in the U.S. as we are. We actually used the same language when we announced our battery-grade lithium hydroxide facility in Europe two years ago. Since he announced that, and since our appetite to compete with Mr. Musk is limited, we presently don't have an active project, but never say never.
Okay. Yeah, clear. Thank you very much, and congratulations on all of it.
Got it. Thanks.
Next, we'll go to Stijn Demeester of ING.
Yes. Good afternoon. Thank you for taking my questions. Three, if I may, and I'll ask them one by one, if that's okay. First one is, on the realized spodumene price in Q3, in relation to spot market prices of close to $5,000 per metric ton, can you comment on where your realized price is versus the market prices? And are there initiatives underway to potentially renegotiate pricing agreements with your off-takers to bring that realized price closer to the market price? Or are you just happy with the current arrangement? That's my first question.
Well, we have long-term contracts. Our prices are indexed, as has been explained by Mr. Dunkel. We are very satisfied with our price formulas, also in relation to the present market.
Okay. Understood. Secondly, on the tolling agreement for a lithium hydroxide facility, how should I understand this? Is it your counterparty charging a fixed fee for processing your own and third-party concentrate into technical grade carbonate, or is it more a variable pricing mechanism based on the market price? Yeah, how should we see the order of magnitude of that tolling fee?
Our terms of course are subject to non-disclosure agreements. I have to be very careful. Even if I didn't have non-disclosure agreements, I would be hesitant to issue to the market how we do business via press conferences or analyst conference. Let me mention that the lithium industry is characterized by a myriad of contracts where resource owners and producers of primary products convert their products into upgraded products such as technical hydroxide and battery-grade hydroxide. Then it goes on to conversions into battery-grade materials, hydroxide, and then it goes on to the cathode producers. We have, like everybody else, a cascade of conversions which are linked by conversion agreements on each step.
Fortunately, those since the whole industry is working that way, there are many references where when you negotiate these conversion terms, you can refer to market prices. The whole thing is dominated by a relationship to the index. We are hesitant or never do sell at fixed prices. We want to be in the market on all sides related to indexes. Finally, my final remark is, in this value chain where we are doing our conversion structures, everybody is winning.
Yeah. Understood. The reason I'm asking is that as we're moving closer to commissioning of the first hydroxide module, you've never really given guidance to the market on what the profitability of module 1 could sort of entail. How should we think of normalized profitability of module 1, for example, for a year of full production in 2024?
I'm gladly giving that question to the Chief Financial Officer.
Um-
He will be very happy.
Yeah, no, very happy. As we've discussed in the past, it is an upgrader plant, right? Effectively, ignoring the backward integration that Dr. Schimmelbusch has just been discussing, on a normalized basis, we're able to go out and buy technical-grade hydroxide and sell it as battery-grade hydroxide and enjoy the spread. That spread varies over time. At its low, it's $3,000. Currently, it's more than $10,000, which gives you an extraordinarily wide range of potential EBITDAs from $60 million-$200 million. Unfortunately, I have to leave you with that. It will really depend upon the structure of our backward integration and the market at the time. The important part is that spread always exists. The plant will always be profitable. It's just a question of how profitable.
Understood. That's very helpful. Final question, if I may, that's on the guidance for 2023, $400 million or more. I know that you typically are conservative at this stage, but can I have a stab at the level of conservatism you're assuming with regards to lithium prices? Would your assumption for 2023 be up, flat or down versus 2022 averages?
I lost you. What was the question?
On the 2023 assumption on lithium prices baked into $400 million lower threshold, would your assumption on the lithium price for 2023 be up, down or flat versus the average price that you realized in 2022?
We are conservative people, but you know, as I have explained innumerable other times, I really don't like guidance statements. We are doing very careful planning. Of course we restrict our optimism in such plannings. We are safe. The idea to increase prices in guidance statements is a bad idea. The question is-
Under-
How do we assess the market? There are many conversations preceding that, asking other industry participants, which are our customers and our conversion partners and their views and so on. Then we always, you know, in all that we are doing, we sort of try to have a little bit of a contingency somewhere. You know, that's the difference from you to me, because you have a model, and I would think that it's you don't have a contingency. You're, it's a model. We are, you know, we are practical. We also have a model, but we our model contains always in every way, not in prices alone, but also in quantities and in unforeseen events.
That's why we are able to do a guidance.
Understood. Thank you very much, very much. These were my questions, and congratulations with these very strong results.
Thank you very much. It's good to hear.
Next, we'll hear from Martijn den Drijver of ABN AMRO.
Yes. Good morning. Good afternoon, gentlemen. I wanna come back to the tolling agreement, if you allow me. Would it be possible for you to say, how many trains you could cover, modules you could cover with the existing tolling agreement currently in place? Just to give us a bit of a sense. Is it one train, two trains, or even more than that? That would be question one.
I would say 1+.
What does one + mean? More than one.
No, like, it means that it's not two, you know? It's not two. It's a little more than one. Comfortably one.
Okay. You also mentioned that you're looking for a third-party spodumene because the tolling agreement will or could also take into account third-party spodumene. How near are you to sourcing such third-party partner? Is that something that-
We are constantly in the market for various aspects in order to sharpen our awareness of availabilities of opportunities. That's normal for companies like us that we are testing markets. There's no large scale contract to be reported. It's a testing activity.
Okay. When we think about these types of activities or developments, it will be more in Latin America.
Globally. It's globally.
Globally. Okay. With regards to the German lithium hydroxide plant. You've given us in the past updates on what level of capacity has been sold, for lack of a better word, via MOUs or even offtake agreements. Can you update us on train one and perhaps train two? With regards to train two, will that be technical grade coming out of the refiner, the processing industry, so China basically, or will that also include the possibility to handle recycled material?
Well, the last first, of course, most of the recycling technologies and innumerable recycling technologies under development and the very fragmented market of the recycling industry hasn't yet stabilized. We are very cautious in involving ourselves in that market as a recycler. Although we are normally very, very keen on circular economy. We need to see where this is going. Most of these technologies lead to certain materials which need a refinery at the end, so it will be automatically increasing our optionality as regard to feeding modules. That's number one. We announced a first agreement with a Korean world-leading Korean cathode producer, legally binding agreement. It's our first legally binding sales contract.
Mm-hmm
... of 5,000 tons or more. That is in conjunction with several MOUs, which are arrangements of a lesser degree of legally binding nature.
Mm-hmm.
If I add all those up, I think the module 1 is taken care of. We are thinking about making offtake structures here, moving towards the commissioning of the plant, where then the qualification process is starting as the industry operates. We have a variety of conversations with large buyers of a battery-grade hydroxide for module 2. We also have conversations about assigning a module to one particular large buyer, and which is very logical because one of the key aspects everybody knows, but let me say it despite everybody knows it.
The operational vicinity between a spodumene producer and a producer of battery-grade hydroxide is a key element of success of cost reduction and quality optimization between those two plants. I don't mean operational vicinity only in the sense of geography. I mean also in the sense of technology interchange. That is an ongoing development in a very broad way as we have a very large technical team and central laboratories in Frankfurt, at which locations those conversations take place.
Clear. Moving on. With regards to Cambridge 2, this is a question from Mr. Jackson. There's a bit of a delay it seems in the full contributions from Cambridge 2. What specifically has caused that? Did it have, or does it have an impact on the assumed EBITDA contributions, which you mentioned in an earlier call, which were around EUR 40 million-EUR 50 million in EBITDA?
There hasn't been a delay in the Cambridge 2 investment. It's actually right on financial plan on costs, which is actually very surprising, I think, in the environment we've been through for the last few years. There is naturally a startup period. I believe what I've said in the past is we hope to be able to operate at full capacity by year-end. I wouldn't be too far off of that, in my opinion.
With regards to the EBITDA expectation for-
On EBITDA, I mean, our this business has been historically exceptionally profitable for us. There is some volatility in vanadium prices, I mentioned that. Processing fees continue to go up dramatically. I think, as we come out to the next number of quarters, we'll give you a little more guidance on those numbers.
Okay. The 40-50 was, is now a relatively conservative estimate. Do I read that right?
You read that correctly.
Given the processing fees are going up.
We don't disagree. You know, always remember what Mr. Jackson said. It's very important. It's the fees, because recycling activities have three, in this particular case, has four cash flow sources, vanadium, molybdenum, nickel, and of course, fees. It's the reverse order as regard to order of magnitude.
Got it. Got it. My final question is on the sale of that supply chain contract in Critical Minerals. Did you get the cash in already in Q3, or will you receive that over time?
Jackson, please.
No. As we clearly said in the statement, we received a net income benefit, but those future net proceeds will be available to cover any increased costs. We will be getting them over time.
What type of timeframe should we be thinking of?
One year.
One year. Since it's a net amount that you use in the press release, what is the actual cash amount that you're getting in?
I can't disclose that, obviously. I can't disclose that because it's subject to a non-disclosure agreement with our major customer.
Got it. All right. Thank you very much, gentlemen.
Next, we'll hear from Oliver Grewcock of Berenberg.
Hi. Thank you. Just two from me, please. What ramp-up timeline should we expect for the first hydroxide module? Under the re-segmentation and consolidation of AMG Lithium, do you think you'll provide more granular operational financial details for the lithium business at all, please? Thank you.
Typically, our hydroxide facilities of that nature have a ramp-up period which consists of qualifications and back and forth with the actual customer of three to six months. I would assume that this is six months. If you do a model.
Then in terms of future disclosure, that is precisely what we're debating as we speak. You know, we understand the disclosures that are available for other mining operations. We're gonna take all of that into consideration. It's safe to say there will be more disclosure. Exactly what that disclosure will be is yet to be finalized.
Understood. Thank you.
Next we hear from Alan Spence of Jefferies.
Thanks, good afternoon, and good morning, guys. I've got a few probably for Jackson, and I'll take them one at a time. In terms of the projects that will be commissioned next year, do you see any risk in terms of CapEx increase, just given the broader inflation we've seen in the market? Or are you happy with the contingencies built in those budgets and the nature of the contracts?
We're actually pretty happy. We did experience higher costs as we were out finalizing in Bitterfeld and in Brazil, but those have been more or less locked down.
I mean, the biggest statement as a response here is that the largest project ever built in AMG, namely Zanesville, or sometimes in this conversation referred to as Cambridge 2, was planned at $325 million and came in at $325 million.
Yeah. I got it. The higher sales volumes benefiting Clean Energy Materials. Was that a material impact at the EBITDA level? Do you have a rough estimate of what that contributed?
It was a material impact. You know, unfortunately, the sales volumes go back and forth quite a bit. It depends on the shipping schedule, and we don't realize the revenue until the ship lands. The ship could land on October 1st, or it could land on September 30th, and that creates quite a bit of volatility. As we said, for the third quarter, we had both delayed from Q2 shipments and advanced from Q4 shipments.
Yeah.
Quantifying it is difficult to do.
Okay. Thank you. Just the last one for me, just on working capital. The increase in Q3, do you have a sense how much of that was price as opposed to volume driven? Moving into the fourth quarter, at least from a seasonal perspective, should we be thinking about a release, or do you think there's another investment likely?
Price volume both were mixed. It's hard to kind of pick that apart. Fourth quarter, we would not expect a release.
Okay. Thank you very much, guys.
Thank you.
Our next question comes from Philip Ngotho of Tower.
Hi. Good afternoon. It's Philip Ngotho from Tower. I just have one last question, and it's related to the lithium business. There's a lot of market commentary that points to the fact that you trade at significant discount to peers and particularly lithium peers. I guess this new segmentation in combination with potential additional disclosure is a good first step to potentially crystallize the value of the business there. I was wondering a bit more longer term, to what extent do you believe the lithium business should still be part of a larger materials portfolio as it is now within AMG?
Is there a case for the lithium business to really be more standalone or potential spin-off given that we're seeing some also IPOs in the lithium space recently?
Let me answer with facts. We have, in Q3, over 70% of the EBITDA comes from lithium. I remind you that is the same order of magnitude as Albemarle. Albemarle, however, is being listed as a lithium company. It's just something to note. Secondly, we have been now grouping all our lithium assets of the whole lithium value chain. Whatever is lithium in AMG is now operating in a corporate umbrella called AMG Lithium B.V. in Amsterdam. That includes a full management team and a corporate governance structure, which informally is operating right now, but formally will be operating beginning of the year. That management structure is a superior, very presentable team. Thirdly, starting January 1, as mentioned, we will report under a new segment structure, slightly adjusted segment structure.
This slight adjustment includes that lithium will be visible as regards its segmental results very clearly. Those steps increase the optionality in any direction.
Okay, thanks.
Maarten Verbeek of The IDEA! .
Good afternoon. It's Maarten Verbeek of The IDEA. First question on the hydroxide facilities in Germany, is it possible to speed up those investments that you bring them forward, that they would be operational earlier than planned?
That is a function of our success in identifying, developing, and bringing on stream additional resources. Because those investment decisions are, of course, guided by feed availability on a contractual basis. Otherwise, it would be unwise to build a refinery and be short. We have extensive efforts to bring forward those developments. They are, as I said, extensive operations. We have not only an exploration team, very effective operations exploration team. We have project development activities. Our successful project development in Brazil is very shining, we can point to it, and we have a large team. We have over 30 engineers on standby in an engineering project development company in Brazil available for assisting project developments in other resource developments which need such an assistance.
We are able to offer long-term contracts to projects which need project financing, which need long-term contracts because of the module development. We are very happy to occasionally be able to be supported by the German government, which has a very elaborate facility to enable imports under long-term contracts for critical materials with favorable rate long-term subordinated debt agreements. All of this is happening, and depending on the success of that, we are ready to go to start a second module or a third module. It all depends on that development. We are determined to be successful in this resource development. We believe we will.
Thank you very much.
As it appears there are no further questions at this time. I'll turn the call back over to our presenters for any additional or closing comments.
Thank you everyone for joining today's call. This concludes our Q3 earnings call.
That does conclude today's conference. Thank you all for your participation. You may now disconnect.