Hello, everyone. Thank you for joining us, and welcome to the Lithium Argentina third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Kelly O'Brien, Vice President of Investor Relations. Kelly, please go ahead.
Thank you for the introduction. I want to welcome everyone to our earnings call this morning. Joining me on the call today to discuss the third quarter 2026 results is Sam Pigott, CEO of Lithium Argentina. Alex Shulga, our CFO, will be available for Q&A. Before we begin, I would like to cover a few items. Our third quarter 2026 earning results were released earlier this morning, and the corresponding documents are available on our website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, update on development plans, the timing of our projects, and market conditions, may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our presentation, MD&A, and news releases. I will now turn the call over to Sam Pigott.
Thank you, and good morning, everyone. Our third quarter results show Cauchari-Olaroz operating as a consistent cash-generating asset, which gives us the flexibility to make growth decisions on our own timetable. This is particularly important in a cyclical industry like lithium. We've always believed that the real test of an operation isn't how it performs when lithium prices are high, it's how it performs when market conditions are less favorable. The third quarter was another good demonstration of that resilience. Cauchari-Olaroz continues to operate at approximately 95% of design capacity, with competitive operating costs under $6,000 per ton and a cash operating margin of 67%. Year-to-date production of 28,490 tons keeps us on track to reach midpoint of our full-year guidance of 35,000-40,000 tons.
During the quarter, the operation generated approximately $92 million in free cash flow from operations and distributed $100 million to the joint venture partners, bringing distributions to approximately $230 million year-to-date, which allowed us to take significant steps to strengthen our corporate balance sheet. These results reflect the operating platform we have established and the financial discipline that continues to guide our business. This quarter's financial results highlight the underlying strength of Cauchari-Olaroz. Realized lithium prices declined by approximately 10% quarter-over-quarter, but this did not translate into weaker financial performance. Sales volumes increased by 18%, helping drive revenue to $184 million, up 6% from the previous quarter. At the same time, cash operating costs declined slightly to approximately $5,800 per ton. As a result, adjusted EBITDA increased to $113 million compared with $110 million in the second quarter, despite the softer pricing environment. That's important.
We're operating a business where consistent production, cost discipline, and strong execution can help offset movements in lithium prices. With 67% cash operating margin during the quarter, we continue to demonstrate the resilience of our operating model. We dig into that profitability a bit more on this slide. While lithium prices are an important factor in the profitability of the business, operating cash costs are more within our control. We have maintained C1 operating costs below $6,000 per ton in every quarter of 2026, averaging approximately $5,700 per ton year-to-date. That's a significant achievement, particularly given the inflationary and currency pressures, including higher energy costs globally and stronger local currency in Argentina. Near-term market sentiment remains cautious, and views on the timing of a recovery are divided.
We're maintaining financial flexibility and advancing our growth in phases, with investment decisions based on project economics rather than assuming a near-term price recovery. More importantly, the strength of the operation and low operating costs give us a competitive position across the lithium price cycle. Even at lithium prices of $10,000 a ton, our operating model indicates EBITDA margins of around 30%, subject to underlying assumptions. This reinforces the point we've made consistently. We don't need to rely on higher lithium prices to have a viable cash-generating business. That combination of consistent production and low operating costs continues to translate into substantial cash generation. The operation generated $95 million in operating cash flow during the quarter, with $92 million in free cash flow from operations.
As you can see in the waterfall, net debt increased only modestly from $142 million to $171 million, even as the operation distributed $100 million to its joint venture partners during the quarter. In July, the joint venture secured a $170 million three-year syndicated facility, with another $50 million two-year facility closed in June, primarily to replace existing debt and extend the maturity profile at a lower interest rate. This leaves a very manageable debt position at the asset level, even in lower pricing environments. At Lithium Argentina, we've been equally focused on strengthening our financial position. On the corporate balance sheet, we made significant progress recently. In September, we closed a $180 million strategic investment from Ganfeng through a six-year unsecured convertible debenture, carrying a 4% coupon and a conversion price of $12.50 per share.
Together with our existing cash, this investment enabled us to repurchase $200 million of our January 2027 convertible notes in October at an attractive price. That leaves approximately $59 million outstanding, which we intend to repay at maturity in January from over $100 million in cash on hand. These transactions reflect our continued focus on proactively managing risks and maintaining financial flexibility while avoiding unnecessary and expensive equity dilution for our shareholders. Turning to our growth pipeline, during the quarter, we published a scoping study for Stage 2, outlining a 45,000-ton expansion, which would more than double total production capacity to approximately 85,000 tons per year. What makes this opportunity particularly attractive is that we're expanding an established operation with existing infrastructure, operating experience, and a substantial resource base.
The scoping study highlights compelling economics with an after-tax NPV of $3.1 billion, an IRR of 28.5% on a 100% basis, at a lithium carbonate price of $18,000 per ton, with estimated operating costs of approximately $5,000 per ton and initial capital of about $1 billion. The characteristics of the brine resource provide flexibility in the process and technology, allowing us to make decisions that will maximize shareholder value. We also outlined plans to accelerate an initial 10,000 ton of the expansion through a modular DLE approach, targeting production in 2028, subject to permits and approvals. This modular approach allows us to add capacity incrementally, gain valuable operating experience with the technology, and retain flexibility. We intend to leverage our current permits through amendments and additional approvals, which we believe can help expedite development of this initial phase.
We believe Stage 2 represents a highly competitive, flexible expansion opportunity with a clear pathway to incremental production. Turning to PPG, we closed the joint venture with Ganfeng, bringing together three adjacent projects under a single development platform, with Ganfeng holding 67% and Lithium Argentina 33%. PPG has planned production capacity of 150,000 tons per year, estimated operating costs of approximately $5,000 per ton, and an after-tax NPV of $8.1 billion on a 100% basis at $18,000 per ton, based on scoping study published last year. While we've highlighted these metrics before, they're worth reinforcing given our strategic interest in what is designed to be the largest lithium operation under development in Argentina. Between Lithium Argentina and Ganfeng, approximately $1.8 billion has already been invested across the three projects, which gives the joint venture a strong foundation.
With an operating asset and two leading development projects, there is significant underlying value in our portfolio. On an attributable basis, Stage 2 and PPG represent approximately $4.1 billion in combined project NPV for LAR's interests, based on our latest scoping studies. This is in addition to the value of our interest in Stage 1 operation, which generated approximately $350 million in adjusted EBITDA over the last 12 months. Near-term market sentiment remains cautious. We're maintaining financial flexibility and advancing our growth in phases, with investment decisions based on project economics rather than on timing and near-term price recovery. As we look ahead, our focus is on converting this underlying asset value into shareholder value through continued execution and de-risking efforts. At Cauchari-Olaroz, that means maintaining strong operating performance and cash generation while advancing Stage 2 through engineering, permitting, and the accelerated initial 10,000-ton module.
At PPG, we expect to receive RIGI approval by year-end, an important milestone as we continue advancing engineering, permitting, and financing discussions to position the project for development. Each of these milestones represents an opportunity to reduce risk and increase the value of our interests without necessarily committing significant capital upfront. In fact, future investment decisions for both Stage 2 and PPG require Lithium Argentina's approval and will be done carefully based on the best interests of our shareholders. Ultimately, we are in a strong position with a profitable operating asset, growth options, and the financial flexibility to advance them responsibly. Our priority remains creating shareholder value through responsible management of some of the best lithium assets globally. We will now open the call for questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Joel, your line is now open. Please go ahead.
Hey, good morning, Sam and team. I'll ask a few questions one by one. Just short term, if I look at your Q4 or Q4 for Cauchari, should we expect sales volume lower, the same? It looks like you drew down a lot of inventory in Q3. Then if I take your exact verbatim guidance, reaching the midpoint of 35,000-40,000 tons, that would imply about 9,000 tons of production, the lowest of the year. Can you just sort of elaborate on some of that?
Sure. Hi, Joel. I'll start with the second question. I think we would be expecting to produce over 9,000 tons in Q4. I think we've consistently been at 95% operating capacity, so I think that likely continues through Q4. Given where we sit year to date, that seems very likely the case. So the midpoint was kind of a rough estimate, likely going to be higher than that.
The second question about sales tracking similar to 10,500 tons. Yeah, I mean, it largely depends on timing of shipments. Q3, the shipments were up just because we were trying to make up for some, not delays, but some timing mismatch from Q2. So we really, I think, did a good job in getting product through the port and to the end market. So it really kind of depends on timing of shipments. I would expect it to be in and around the same levels as Q3.
Okay, then a much different question. You started off this call, Sam, talking about, you have the luxury and the flexibility to make growth decisions on your own timetable because of the consistency we're seeing out of Cauchari. Obviously, we've seen the lithium market fall off a lot the last few months, everyone knows that. But as you think about some of the investments that you want to make and you've been talking about for the last several quarters, what is kind of the minimum spend you think you've got to do here with your partner for Stage 2 for the DLE 10,000-ton unit? If you and your partner disagree on the market here and what should be next from an investment perspective, what other options would you have in terms of asset sales, share buybacks?
Sure. Well, I think for the 10,000-ton plan specifically, it's something that we're still working through with Ganfeng. Our focus is on really de-risking that from a permitting and approval perspective. We're continuing to finalize engineering. We're going to have more definition and details for you guys early next year on the 10,000-ton modular plan. There's no kind of minimum commitment. Any material spend, any decision to move ahead on FID requires joint approval. I think there are a number of different scenarios. I mean, I can tell all the audience on this call, absolutely, we're never anywhere near this price thinking of diluting shareholders. That's totally off the table.
I think when we come out with the 10,000-ton detail, it'll be pretty clear that at spot price or below spot price from the cash flow generated from Cauchari next year, along with the fact that the joint venture level has approximately 1x debt to EBITDA at current spot prices, that this 10,000 ton will easily be financed with project cash. Beyond that, I think Ganfeng and us have worked together closely over a long, long time. Even in the last short little while, being able to bring in additional debt at the project level at very attractive terms. I think in the press release, we reiterated that we had brought in a $170 million three-year facility at SOFR plus 1%, an additional $50 million two years. So there's a lot of capital to support this. It's 10,000-ton modular.
I mean, the reason why we're approaching it this way is we recognize that the market may not support a massive 45,000-ton plant, so we want to be very cautious in how we approach this and do it in the best interest of shareholders.
Okay, thanks a lot.
Thanks, Joel.
Your next question comes from the line of Ben Isaacson with Scotiabank. Ben, your line is now open. Please go ahead.
Thank you very much, and good morning, everyone. Sam, just two questions from me. The first one is your cash cost. It improved to about $5,800 from $5,900. Your operating rate was where it should be. In Q1, you achieved $5,400. So my question is, the difference between what you were able to achieve in Q1, how much of that is temporary, higher energy, higher logistics? When those costs normalize, can you get back to $5,400? What's the target given inflationary events over the last several months? Thanks.
Yeah, I mean, you are right to point out, and we alluded to this in our press release, that energy costs, even though this is a relatively low energy-intensive project, given that we use conventional pond and evaporation systems, with direct energy costs well below 10%, there is an impact. There is also an impact from indirect costs, logistics, transport of reagents. That was felt throughout Q2, Q3. In addition to which, there has been pressure in the Argentinian peso, so inflation has been running quite a bit above devaluation. So labor costs, for example, when translated into U.S. dollars, there has been inflation there as well. I mean, certainly if these things correct back to lower levels, we would expect that to translate through to lower costs.
But yeah, I mean, I think we feel very comfortable with where our costs are, what we have been able to achieve in a pretty unusual time in the energy complex globally.
Great, thanks. My follow-up question is, just would love to hear your thoughts on this debate about where demand growth goes next year, particularly related to energy storage. The bulls seem to think that high production is just, there is just a natural time lag towards installations, and the bears believe, and you can see in pricing what they believe, that there needs to be a big inventory drawdown. So now, the debate in the market is that incremental production will be greater than incremental demand next year. Where do you stand on that, and what are you looking at in terms of the key drivers?
I mean, probably not fully in one camp or the other. I think we recognize that the ESS growth that has transpired in, largely in China, but really a global phenomenon over the last 12 months, naturally leads to certain bottlenecks around installations. I mean, China has a lot of experience producing cells for EVs, and the translation of that into larger format packs for ESS is pretty well known. Further downstream integration, it is relatively new at this scale, so certainly there are bottlenecks. I think there have been some policy changes in China, namely around operating fees being charged on ESS projects that want to connect to the state grid, weighing on IRRs of some of those projects.
I have heard that a number of provinces in China have modified those in recognition that the intent of this policy change is not to strangle or necessarily slow down ESS installations, but rather to improve the financial conditions of the state grid. I think there is a bit of wait and see, I would say, in terms of which side wins out. It is probably somewhere in the middle. But, what we are hearing from Ganfeng is that demand is still very strong. Unfortunately, we are taking a bit of a wait-and-see approach here to see how demand materializes for 2027. Then just on the physical market and some of our larger peers in the industry, as I commented last week, we are seeing the same thing. I think it is reported in most analyst and consultancies numbers.
The physical market seems to be fairly tight from an inventory perspective. But with GFEX seemingly down every day, I think buyers are hesitant to step into the market. So, it is one of these factors of being in the lithium trade where it is very volatile and buying patterns are largely concentrated in China when the price is falling, it oftentimes overshoots, similar in the other direction. So, maybe an unsatisfactory answer, Ben, but I think we are just taking a wait and see, and I think our view is kind of appreciate what the bears are saying, appreciate what the bulls are saying, but we are going to wait for the data to actually guide us.
That is great. Every comment helps. I appreciate it.
Your next question comes from the line of Craig Hutchison with TD Cowen. Craig, your line is now open. Please go ahead.
Hey. Good morning, guys, and great to see the free cash flow generation in the quarters. Just maybe a bit of a macro question follow-on for me as well. Just what are you guys seeing in terms of demand for your product specifically? What kind of discount rate are you guys starting to get versus what the benchmark on your product?
So, similar as it has been all year, kind of a mid-single-digit discount to the lithium carbonate battery price, China ex-VAT, so kind of a blend of different price reporting agencies. That has not changed. So, under our offtake agreements, we sell at market price. Of course, market price in the offtake refers to battery quality. We are producing to technical grade, so we have this price adjustment, which is mid-single digits from the battery-grade price in China.
I guess I will not see that change, I guess?
No.
Sorry.
No. I mean, we are not seeing a change from Ganfeng. Very eager to take all the product they can get, so.
Okay. I just want to ask a question on the Stage 2 expansion. The operating costs you guys have of $5,000 is obviously a bit below what you guys are operating at now. Can you speak to why you think that cost will go down? Is it a function of just higher capacity and you're just kind of spreading out larger amount of production over the fixed costs, and whether it's tied to the choice to go to DLE?
Most of the cost savings are associated with incorporating DLE technology into the Stage 2 expansion, which reduces our reagent consumption considerably. Liming, it's not a huge cost, but it all adds up. Liming will be removed from the process. The DLE technology components, they produce a cleaner lithium chloride, which further downstream requires fewer purification steps and fewer reagents. That's probably the big driver. The second one is the total recoveries improve quite a bit with the incorporation of this new DLE technology. Those are the two main drivers. It's less about lowering overall kind of fixed costs against the higher volume. It's more about improving the variable costs of reagents and the higher recoveries through the plant.
Okay. Maybe just one last quick one for me. Just in terms of the approval process from both Argentina and China, any kind of thoughts and timing around that? Thanks.
Certainly, I think the view on Argentina is a bit clearer. We have a great relationship with the authorities. We've been approved for the RIGI. They've been very supportive of this modular approach. They want to see investment flow in ASAP, so I would suspect that could take place before the end of the year. On the technology export permit in China, Ganfeng is obviously leading those conversations, as it should be. That's a bit less clear. I would have to sense that early next year is probably when we'd expect to get approval, if it's forthcoming.
All right. Thanks so much.
Yep.
Your next question comes from the line of Corinne Blanchard with Deutsche Bank. Corinne, your line is now open. Please go ahead.
Hey, good morning. Thank you for the call. Thank you for taking my question. Actually, I think most of them have already been answered. Maybe just high level, I know you already got a question on the lithium market view, but kind of wanted to go back on the lithium pricing. I think I was a little surprised to see the 3Q in the $17 a kilo. We were expecting for it to be more like around $19 a kilo. Can you just talk maybe about the key take and put there, and then how should we think about pricing going into 4Q and into next year? Thank you.
Sure. I mean, pricing, again, we take market price. I think in a quarter where prices are so volatile, a lot of it depends on the cadence of shipments. If we just so happen to ship more in the back half and caught the downward slope of the price trend, that could be a factor. But we take the lithium battery grade price from a blend of different price reporting agencies and apply a mid-single-digit discount, and that's how we arrive at a realized price. So it may be if those numbers aren't exactly square, we can work with it offline to try and figure it out. It's probably around timing, particularly how the price has been. Then for Q4, I mean, we do sell at the spot kind of on a 20-day delay.
For Q4, we'll have caught a month of pricing from basically from September, and the rest of it through the end of the year. Pricing is certainly coming down with the market.
Great. Thank you.
Your final question comes from the line of Katie Lachapelle with Canaccord Genuity. Katie, your line is now open. Please go ahead.
Hey, Sam and team. Most of my questions have already been asked, just one follow-up question for me. In the prepared remarks, you guys noted that Lithium Argentina and Ganfeng continue to evaluate different project financing options for PPG, and you noted that that could include a potential offtake or a sale of a minority stake in the project. Can you provide us with any more incremental detail there, like what percentage stake you'd be willing to let go of, how those discussions are advancing, and when we could maybe get more detail on PPG?
Yeah, I mean, I think for PPG, I mean, in October, we finalized the consolidation of that project, which is obviously a pretty important milestone in terms of advancing discussions with financing partners and potential strategic minority partners. We are still pushing ahead with the RIGI, which we expect to be approved by the end of the year. So those are kind of key risk catalysts. We are still working with Ganfeng. We are pretty advanced in certain discussions around potentially bringing in a minority or doing an offtake. I would say despite the market over the last six months deteriorating quite rapidly, I think the view is these projects still remain highly attractive to strategic investors that want to participate in kind of the first quartile of the cost curve.
We haven't seen. The reaction in the private market versus the reaction in the public market is very different from what we're seeing and going through. But I think for investors, I mean, I think the important kind of milestone to watch out for is the approval of the RIGI. Beyond that, I mean, the plan for PPG is, of course, to develop it when we can bring in external capital. The view is there's still a lot of interest globally in projects like these, but the RIGI is obviously a pretty important de-risking milestone.
Perfect. Thanks, guys. That's all for me.
Thanks, Katie.
We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.