Thank you for standing by, and welcome to the Albemarle Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. Followed by the number one on your telephone keypad. I would now like to hand the conference over to Georgina Fraser, UBS Resources Analyst.
Please go ahead.
Thanks Rachel. Good morning. Good evening, depending on where in the world you're joining us from. UBS welcome to the team from our to the call. We're joined by Eric Motte, President of Lithium Meredith Sandy, They Pay of IR And Ambulity, and Sharon McGee, VP, IR, Corporate Affairs.
I'm Georgina Fazler, an ADS resources analyst, and I'm joined by Glen Lawcock, Global Head of Mining, and John Roberts, US County Gold Sandler's. What a way could it be in the battery materials space? We had initially intended this call to focus on Albemarle operations in Australia, but given a response to the Tesla Battery Day, these calls are now broadened. To a wider range of topics impacting Albemar and its business. The format of the call will be opening remarks by Eric's and Q and A.
Questions will be facilitated through the operator, and you can queue for a question by pressing star 1 on your telephone. We have a large number of investors joining the call, so we ask that you limit your questions to 2, and then we'll circle back for additional questions if time permits. You can either you can also email questions through to myself, John Oglyn, and we can ask on your behalf. It's worth noting that there's no single presentation packet. It will just be Eric's comments and his answers to questions.
In true Australian style for our time. She's been joining a number of our calls recently. We will be offering a bottle of wine from Glyn Seller, the best question. Eric's going to have the responsibility of adjudicating who provided the best questions on the line. It doesn't work if you email a question, you have to register and 1.
So I'll now hand over to Eric, so he's opening comments. Thanks, Eric.
Thank you, Georgina. It'll be an interesting context for that bottle of wine. I also like to thank, Bin Lockwell and John Roberts, and UBS team for setting this up this evening here in the US and and and this in the morning, your time, the next day in Australia. For those of you who do not know me, I've been in the specialty chemical industry for for almost 30 years. I I started with Roman Haas, moved that to FMC, and I've been with Alamo for the last 3 years.
More importantly, to today's discussion, I've been in and out of the Listen listing industry now for a for a period of of about 10 years. Before we get into the Q And A, and I'm sure there's quite a bit given given what's going on in the industry and the recent events that test this battery day, I'd like to start with a few opening remarks on our strategy. At a high level, our strategy has not materially changed since our Investor Day last year despite the many changes in the external environment, over the past, well, 8, 9 months now, an interesting year in 2020. That strategy is that we will invest in and grow our lithium business. We will fund that lithium growth with cash flow flows from both bromine and catalysts as well as lithium business itself.
We'll maintain a disciplined approach to capital allocation and actively manage our portfolio to generate shareholder value, and will do this with a sustainable approach as our foundation. Lithium is our growth business, and it will be the subject of today's call, of course, By now, I'm sure most of you had the opportunity to listen to the Tesla Battery Day webcast. Are looking CTO and myself were fortunate enough be able to attend in person. I just returned yesterday from the West Coast. I thought I would share a few takeaways from this event, I'm sure you have many questions about it that we can get into here in a moment.
Tesla outlined major goals that that are all very favorable for the future of the lifting industry. The target of 3 terawatt hours by 2030 is incredibly massive. It translates to almost 3,000,000 metric tons of, lithium carbonate on on an l or LCE basis. We've not published our model out to 2030. We've only gone to 2025.
But I can say that 3 terawatt hours is more than we had in our model for that year, the the models we have internally for the entire industry. It's quite quite a target. Their near term and medium term goal to get there include a greater than 50% reduction across the battery, which will then enable and allow for a $25,000 US battery electric vehicle, which puts in reach to a very broad consumer base, a price point that can really stimulate quite a bit of demand for their cars and for lithium, and, and we're resolving a significant penetration of EVs. And they outline very clearly you know, in their strategy, and I won't get in all those details, but they're out there for you to see. But many components by which they will get to that a cost reduction, that's sort of price target for a battery electric vehicle.
And all this means that there's a much larger uptake for lithium, and they are thinking, planning as well on a much larger penetration of, of, fridge storage or battery, energy storage in conjunction with the grid that is attractive and frankly is larger than we would have had in our models as well. So it's giving us pause to rethink some of our own growth projections and potentially based upon our analytics, and judgments that we will apply, maybe even upgrade some of the forecasts we have to the for the mid and long term, we'll have to see. Achievement and even some of these objectives objectives is likely to accelerate these options and put them on the path to their target, to to test the Tesla 2030 targets. Their vision requires a lot of help and support, from their supply chain partners in many respects. And and they spoke to this, in in in the meeting, and I can tell you we weren't the only suppliers there.
Specifically, they do need a lot of lift lifting to achieve their vision. And understandably, they are pursuing all avenues to to get that lithium. And and and if you will drive the industry to produce more, As a leader, we're well positioned for that kind of situation. We have access to the lowest cost resources in the world. They're diverse in their in their in their types from Hardrock to Brian, and there are diverse new geographies, including Australia, Chile, and the US.
We're also well positioned because we're vertically integrated and we've got a lot of know how that becomes increasingly important as to the closer you get to the point of use with the customer. So experiencing extracting and converting high purity, consistent, quality, lithium. We've had a lot of experience from doing that. Perspective of the ore source or the geography we're pulling that from. So if you will, we've got a system that can handle a lot of varied inputs produce a very consistent high quality output on the other side.
And that technical expertise, the specialized conversion, know how we have, coupled with some of our knowledge and research we're doing in advanced energy technologies provide us the ability to really meet not only the needs of today, but with the needs of our customers and their customers in next generation materials. Bottom line, we're really excited about the future of this business, Tesla's announcement reinforce that, and we're confident that our advantages position us as an industry leader now and for many years to come. So that's a very brief up, background, of course. It may, I'm sure will spur a bunch of questions. So I'll turn it over to you Georgina and UBS team for the Q And A session.
Thank you.
Thanks, Eric.
Your telephone to ask your questions.
Eric whilst we're waiting for questions to queue, I'll kick off with one if that's okay. One question, the investors are asking us, follow-up on from Tesla announcing, you touched on briefly as well, but there was a message. Enough lithium in Nevada to convert all US cars to EV, and that was the result that could extract lithium from the clays. So we're wondering if it was that easy, we would have thought it would be done by now. So assuming Albemire's looked at this, what can you add to this?
Is it that simple, and, you know, what are the impediments to the US Lithium supply?
Yeah. So what lithium is, is an element that's in nature, right? It can be found in seawater. It can be found in soils around the world. The it is not a surprise.
It's very well known, and we've studied both the clay and the brine, resource in Nevada, not only recently, but for decades. That's that is admiral's oldest currently running operations. It goes back to the I'm remembering correctly, the 1960s. So it's it's it or even earlier. It it is, it's an area we understand well.
The challenge with, the, the, the, the geology in, in, in the, Nevada region. And that's both an area we are, which is in the Clayton Valley, more of a central part of Nevada, as well as in the north. There's some projects now in the Facker Pass in the North. Is that it is not concentrated. And and that is the strongest correlation.
The the the the size and concentration of the lithium is the strongest correlation to commercial success or economic viability that you can come up with? Right? And there's a lot of factors that drive what's successful for a project, but that is, 1st and foremost, the most important so when we look at clay concentrations and try to compare them, because clay has not commercially converted anywhere in the world today in lithium mercially. Although there are numerous projects in North America, Mexico, and and other parts of the world to look at it, but not commercially. The biggest challenge is the concentration is probably it's most similar to hard rock spodumene processing.
And so if we try to compare it on a concentration basis to that, its concentration is anywhere from 10 to 50 percent of spodumene resources today that would constitute marginal cash cost resources. Meeting. It has half or less than the concentration resources that today aren't profitable in today's depressed pricing environment. So that's 1st and foremost challenge. It's there, but to extract it, just based on looking at that concentration factor alone, is going to be, costly.
In that, you have to move much more soil. You have to process much more mass to get the same lithium output because it's so dilute. Now in aggregate, think if you look across how widespread clays are in Nevada, Elon and the and the test accrual right, in aggregate, not considering concentration, there is enough to power the US fleet. And, you know, the it's similar. You can make statement about other resources like the economic and in the ocean, and that's could power the world's fleet.
Right? But the point is that to date in in the current environment, current pricing, current technology, it's not economic. Because of its concentrations. Another aspect to consider is how one might extract it. Right?
So there's a bit of detail that that the TETRA team has given on their technology. It involves basically a solid state change, right, because you're mixing sodium chloride with, the dilute lithium in clays and hoping to accomplish an change of iron and then wash it out with water? Well, given how diluted it is, is we believe, you know, again, without knowing the details of what they're doing, if the water use could be challenging as well, could be a lot of water. So that's the status. Now test of the partner, so they need our help.
So I mean, and they need industry's help to be successful. They need the lithium. So I'm I'm not, in any way, trying to criticize that their technology might be capable of achieving overcoming some of these challenges, but those are the challenges that the technology has to overcome. And, there's some of the smartest people I've had at Tesla. So I'm I'm sure they're going to do everything they can to see if they can make a go of it, but it's gonna be very those are the challenges that they're gonna encounter.
That helped, answer the questions, Regina?
Yes. It does. Thanks, Zach.
Hi, Eric. It's Glenn Wilcock here, as well. Just one that's coming on email, we still pretty light on on the on the phones at the moment. It's a bit of a shame, but plenty on the email. Just thoughts on the market.
I mean, clearly, the Tesla data, as you said, the view on the 3 terawatt hours is probably well in excess of yours, and I guess most, commentators out there trying to forecast the market. But the short term looks very challenged. Could you just give us your thoughts on the short term market, you know, how bad is the inventory situation at the moment in visits, you're starting to see any positive signs in the short term that the inventory is now moving as well.
Yes. Sure, Glenn. So the challenge, and this is, not a lot has shifted or changed on this since August, although they're obviously things do move, and I referenced the month of August because when we had our last earnings call on on this very question subject. At that time, sort of in July August, and for what we thought would be most of the 3rd quarter, and we provided our guidance for the quarter. It felt this was going to be one of our most challenging quarters from a revenue standpoint.
And, and that was a reflection of the fact that quite a bit of stock was built up in the first half of the year on top of what were already high in the second quarter, which was finally going to start to catch up with us in the third quarter, I mean, lower sales, in the third quarter. Now with that being the case, I'm not going to get into, you know, any sort of color on on how the quarter is going versus any guidance, but I will say that an assumption in that was that we during this quarter, if we're not selling as much, that there's some drawdown beginning of those inventories. And, and we don't we don't have instantaneous data on inventory. So I can't I can't tell you what that looks like. We tend to serve cost to compare it with export data on a quarterly basis.
So we can give you an update on that at our next quarterly release in November. But it's our hope that, that what it had, what I described would happen, that we would start the attorney point with inventories peaking if you will, in that middle part of the year and starting to come down, as well as the forces I just described, I will say that another assumption built into our guidance that would affect the outlook for the industry was that you've start to see some green shoots, if you will, coming from our customer's customer, that'd be the automotive producers or battery producers. Around improvement in demand, particularly out of Europe related to the incentives being put in place in Europe, both on the supply and now because pandemic on the demand side to drive growth of electric vehicles in Europe. And, and again, I don't have visibility if you look at the big battery producers, quarterly results, in terms of how they're doing on that growth, but they guided strong growth and they haven't pulled back on that guidance. And from what I can see in the industry is probably starting to happen.
They're starting to see a pickup in sales as they forecasted. So I'm optimistic that what we thought would happen would happen, but it's all about setting ourselves up for a year in 2021 at this point. And there's still a grave amount of uncertainty around 2021. If you look at Europe, you look at UK going back into, sort of a quarantine sort of role or shutting down sort of role, that'll be, the uprising of of the virus. And so it's gonna be there are some headwinds to to look for and to watch, but I think we feel that as we go into 2021, we're looking we're still looking at a pretty steep recovery in 21.
What that means for pricing we'll have to get to, the key is going to be is getting supply, is getting inventory more in line with norms. And, and, as I said, in, in August, there's 5 month access in general in the in the channel. So it's going to take some months to get that aligned. And then, and then as we go into 2021, we'll see what that means for car market outlook. But, but it it's still it's still opaque.
But we're cautious left and it's about what's happening in Europe next year.
Okay. That's great. Thanks, Eric. I mean, Well, I guess it is obviously very much wait and see if we're not just lithium, but a lot of commodities. Rachel, I see we've got a few people lined up now on the phone, so we might take 2 or 3 from the phone and then circle back for email questions.
Your next question comes from Clark Wilkins with perpetual.
My sorry. Sorry. Good morning, Eric. Just a question around, the growth and where consolidated. So moving away from near term, where clearly the market looks a bit challenged.
Where do you bring back on capacity and also sort of look at the expansion again between the restatings like Wodgina versus brine expansions? And how do you prioritize those different in your portfolio as the demand growth, maybe it's not 3 terawatt hours or whatever, the demand growth that we end up with in 2025 or 2030.
Well, yeah. So this is Hank Clark. So to answer that question, there's a couple of components to that. What I would say is in the very near term, we plan in early 2021 to bring on, what is a small amount of capacity that we've, idled, in the US, both at SilverPeek and at King's Mountain. That is that in part is due to what I just described earlier, which is what is the recovery in demand we expect to see in 2021.
And the growth, more than recovered, the significant growth we expect coming out of, in particular, Europe, We will not ourselves next year be in a place to to sell new volume from new plants. That are coming online because they come online during the year and have a qualification period. The, the doubling of capacity in Chile carbonate capacity at La Negra. That plant does not come online for the middle of the year, and it would take the balance of the year to qualify it, typically with our customer base. Similarly, but a little later in time frame, Kemerton would come on later in the year in 2021.
And again, we will not see the result of any sales until you get into the following year. So we're in a we're in a period of time next year where We're going to be challenged to show a lot of growth on a volume basis, apart from the plant, the smaller plants we restart, and then at the bottlenecking we can do in our existing plants, and what will be a strong growth environment. But we'll have a lot of capacity that that is in play as we go into 2022. That's capacity that it is true. Otherwise, some of that would have come on earlier pre pandemic, but we've slowed it down for a variety of reasons, including managing cash flow through the crisis, and, and it is what it is at this point.
The the scheduled escape is when it will come on. Longer term beyond filling those plants, our aim is to continually see, and and it's affirmed really, yeah, the other day by by by Elon, and it continues to be affirmed by Elon's competitors in, in, in, in Germany, and the rest of Europe, that hydroxide is gonna be the platform that really drives growth, going forward. And for us, that means, further expansion of our assets, our spodumene assets spodumene conversion assets to look in hydroxide will be required such that we can further utilize the Talison ore and ultimately restart, in full the Wagener resource as well. So with those two events, you know, that, that amount of horsepower behind us, and that horsepower in terms of resource availability is really about four times our current conversion capacity. We just what we're doing now is working with our customers to strike long term contracts with them to commit that volume so we can commit to capital build plans.
We'll look at both inside and outside China for that capacity There's some good, attractive options inside of China, including potentially acquiring existing facilities inside of China and then retrofitting them. It might be a faster pack to market. But those would be activities that would come in play as you move into 22, 2324, to to set ourselves up for the growth, and maintaining our place in the marketplace and our and serving our customers' growth through 2025. That that's the best way to think through the steps we've got before us.
As an extension of that, do you think that there is a inherent cost advantage in going to hydroxide from hard rock versus from our brine production?
You know, it the answer is that all depends. For us, there isn't an inherent cost advantage. We've got the lowest cost carbonate in the world, and we've got the lowest cost spodumene in the world from Talison. You take, carbonate produced in Chile and convert it to hydroxide in a secondary step, or you take Allison or from, Australia and process it currently, we do that in China into, hydroxide, but pretty close in costs. And so what it comes down to is, is, you know, what is the relative market demand for carbonate versus hydroxide?
If there were no demand growth any longer for carbonate, which is not the case, and it was also part of what was clear from the Tesla presentation, they see iron phosphate and iron phosphate cathode and it's used in in grid storage and in entry level or lower cost cars being prevalent, not just in China, but elsewhere around the world, they still have the demand for carbonates. We don't see that happening, but if it were to happen, An alternative use for that output in Chile could be to build downstream conversion plans for hydroxide. So again, it's a it's a degree of flexibility that we have as a company playing across both product lines, and it requires obviously astute observation and monitoring of the customer base to see what our customers want and where our best growth opportunities and our most profitable opportunities are going forward.
Great. Thank you, Aaron.
Thank you. Your next question comes from Kenneth Wang with DECAM. Please go ahead.
Hi. I've just got a question about just inventories through the supply chain and at the customer levels. How many sort of the, months of inventory or weeks of inventory you see of, LCA and also spodumene, so do your customers? Thanks. Yes.
Have really, done a recent update to that publicly. We track it. I would say as of August, middle of the beginning of August, when we had our earnings conference call, we put that at 5 plus months above normal levels and normal levels where it might be 3 months. So almost you're talking over a half year of inventory, both with and I'm adding this together, It could be in a variety of places. It could be with suppliers, the likes of us.
It could be with our customers. Either cathode companies or or or or battery companies, but that was refined lithium supply. Spodumene is a little bit more opaque to to get your hands around. There's one school of because it's all sitting on any excess largest sitting on the ground in China. There's a couple of schools of thought, one of which is in this environment.
Producers are managing their businesses for cash of this, what's going on, and they're just they're drawing down their spodumene inventories in this environment. I really it's hard to know exactly what that inventory is, but it would there's certainly some excess spodumene inventory on top of what I've just described. As I said earlier, Our expectation is in the balance in the second half of this year, given how much supply has been taken offline and a recovery in demand growth into next year, that we hopefully peaked in that regard, and that will steadily start drawing those channel inventories down. Thank you.
Thank you. Your next question comes from Maxwell Smitha with Marshall Weiss. Please go ahead.
Hey, Eric. I guess,
one general one general question for you just in of kind of the price premium that's been on top of everyone's mind that you guys have enjoyed. On the one hand, how do you balance your EV growth probably taking the lead on growth from, you know, kind of Chinese auto manufacturers.
And then on the other
hand, you kind of have your almost comment of, like, no one's really making money. So like you really have to squeeze every part of this chain to make this work for the consumer ultimately to drive that adoption. So I guess how do you balance those two things in the context, so they'll pretty healthy premium to whatever spot or, you know, what your primary competitor is earning today?
Yeah. Well, I would say a couple of things. 1, you know, we have a, you know, our cost position allows us to operate below marginal. Cash cost. So we're always going to earn even at the even where prices are today on a spot basis.
We're always going to earn healthy margins, and that's just the blessing of the cost structure we have. But that's also what makes us a good partner to our cusp versus because we can invest. And so but it's important for you to know that we have a mix of businesses, right? I mean, some of a good amount of our profitability, even if there's depressed profitability and energy storage comes from some of our other businesses like our specialty products, which aren't as competitive or sensitive they're much more derivatized lithium products, less competition. So we're getting margin contribution there.
On top of the cost benefit we have in our salts business is you sell into battery grade and technical grade applications. But even still, I mean, we have a part of our customer base. We sell into China, we sell a small amount, we sell of our total mix. We sell into, technical grade products like, ceramics and grease and those those products are they're they're they're very price sensitive. Now prices that continue to be at risk have fallen, have gone down to some of the levels you're seeing.
Reported in the market as being spot prices. As you point out, we also have contract prices. I'll tell you something that's interesting without naming companies, but I will tell you increasingly the companies that we strike deals with. And we've actually recently struck a deal. We don't name our our contracts, but a deal with a major player, largely coming into the European market, on, on the battery side, just didn't, a, a long term agreement with 1, recently that we'd agreed to.
And there's others we're in discussion with if we're preparing for the, you know, some of our contracts for 2021. Not every customer, every customer is different, but a good number of them want to make sure that we're earning an incentive margin because what they need more than anything else is lithium. If they cannot have lithium, they cannot achieve their outcomes. And and let's let's let's remember that lithium is is probably, on the battery basis, probably about 6 to 8% of the cost of the battery. And if the battery is useless without it.
Now the numbers you would have seen from Elon, and his team from Drew Elon, 2 days ago, your numbers up on what it is on a cathode basis. So if you're talking just on the the electrode component, it's closer to 25%. So it's a bigger cost structure for the cathode once you make the whole battery, the smaller driver there. And so, yes, our customers want a fair price. They want a price that they can can can some price something we want a very consistent price.
I don't wanna ride the the commodity wave, if you will, the pricing wave, but they also want a a price that allows us the incentive to expand. And that's the basis for a long term agreement right there. And and if you and and not everybody acts that way, but a surprising number of people do. And that's that's that is and I say surprising because the behavior you'd hear just generally, whereby I just want to cheap price, regards to what it means to the sustainability, the economic sustainability of a supplier like that model continue to operate and you're expanding. That's not the case.
That's really not the case from the whole industry. So if that mix of customers, the diversification of end markets, diversification, approximately, that allows us to have margin we have. Believe me, we're we're playing it to use for growth in the industry. We're spending this year 2x the, our EBITDA, on capital as a, as a GBU, not as a company, but as a GBU as a business unit within Albemarle. So it's it's a bit it's part of our strategy to support the growth of the industry.
Got it. I guess my question is just I feel like you were careful in the way you worded that. Your customers want to make sure you invest to grow, but you have historically had a very high hurdle, I think, double your cost of capital or maybe some of your customers who feel like a little bit above cost of capital will do. So I guess how do you balance those 2 and potentially reducing your own hurdles just so your customers go?
Well, because we don't we don't price on a cost plus basis, right, we, or cost plus plus margin to cover incentive. I mean, we offer to some of these customers the ability to grow with them, the ability to move product to them responsibly when they need it, even if they don't expect they're going to need it if their growth projections exceed what they thought, will be there from either some of the value propositions that we provide to those customers. And so between that, that premium that we can earn for that kind of value, coupled with the fact that the market is anchored by the marginal gas cost producers cost or not ours, that allows better margins for us. But I'd also argue it allows us to expand more aggressively, why do we have the customer commitment to meet the demand going forward as well, which again, makes us a good partner to those customers willing to strike those kinds of value propositions I just described. Got it.
All right.
I'll turn it back over and get back in line.
Okay. Thanks very much. I believe we now have a couple of questions from John Roberts in the U. S? I'll hand over to John.
Thanks. Yes. I'll I'll paraphrase this one, but Eric, the Tesla Battery Day didn't appear to announce any technology breakthroughs directly involved in lithium. But at your Investor Day, you talked about lithium metal anodes and preliferation agents or additives that's there. I think you had the ramp beginning in 2024.
So were they just beyond the horizon that Ewan or Tesla was talking about, or maybe these innovations are with other companies. I don't know, but maybe talk a little bit about that future technology that we discussed at the Investor Day. Yeah. Sure. And and I can't I mean, for confidentiality reasons, I can't tell you what Tesla, you know, there are certain things they said and certain things they didn't say, but there's, there's certainly things they're doing from an R and D and investment strategy and it's up to them to disclose that to you, right, of course, not not me.
And I'd and in some of it is material science based, I mean, you you heard some of it is form factor based for sure, and some of it is scale and skipping manufacturing steps. They all explained that, but there is innovation there that is material based. I think it's longer term for the industry and for them, they see an opportunity to get much more efficiency out of the technology they've got. They are introducing it's been a fair amount of time talking about silicon, and introducing that into the anode. You heard us talk about how silicone can be made even more effective, with addition of, lithium, what we call, prelithiation materials.
And that was one of the types of innovations we talked about. I guess I'd ask you to to read between the lines if if they're using silicon and there's technology out there that helps to become more capacity effective over time. Why wouldn't they consider it? Right? So just because they didn't talk about it, I I just don't I mean, I don't know that it hit the screen as being as big a hit as some of the other things that they're doing from a cost reduction strategy.
You know, the real, the real sort of step change is, is solid state chemistry, which probably is something that is a number of years off, probably middle of the decade before it really starts to take off. The r R and D for that has to start sooner, and I again, I can't say it. I'm also actually not as familiar with all the details that a company like Tesla might presume, but I can tell you other companies are pursuing that aggressively. You can look at the patent activity. You can look at, some of the things that are being done in consumer electronics because it's almost consumer electronics is actually a lead, a lead area for innovation because it's lower risk innovation, right, than it is in a car.
To, to play with, more energy dense materials. So now that there isn't risk in consumer products, but it's relatively less than it is in an automobile. So, so you can if you look at consumer electronics and the patent, you can see there's an awful lot of activity in this area for anybody in this space, including Tesla, it's a retooling. Right? It's a completely different technology.
So, I I mean, I think I mean, I I don't know their long range plans blow by blow, but but I I'd have to believe they and the industry have those plans I know others have those plans going forward, John. And then second question before I turn it over to the Australian team again. Vertical integration was a big theme at the Tesla Day. It's an automotive company where to forward immigrating to lithium. Would that primarily be to reduce costs, or would it be something related to technology?
I think it's it's, I I'd say neither, actually. I'd say it's sure to supply. I mean, and to me, the you should look at the way what Tesla said very carefully. I mean, they need more lithium they want local supply of lithium. They do they lead very strongly.
I mean, their mission is driven around stainability. They believe very strongly that they should take supply chains and shorten them and not move molecules around the wall over and over again. And add all kinds of carbon footprint and transportation to that endeavor. And so that's their reason. They're so fixated on North America.
Because it's a growth market for them. They're a leader in the market. There is lithium in North America may not be as concentrated, But hell, we gotta try to make a go of it. It's a test point of view because, a, we need it. There isn't gonna be enough based upon the current expansion plans and our versus our growth command.
And and be one of local. So, you know, expect them to be a catalyst to companies like Almond to start doing things more locally, potentially. I'm not I'm I'm I'm not telegraphing any corporate change yet that we're just reacting to Saturday like you are. So there is no corporate change in strategy, but there is a clear opportunity to localize supply chains and Tesla. That's everything that Tesla said.
So, it's about their forward integration announcement anybody else to do it is, is to drive investment and drive surety supply. I would say it's the primary reason. Thanks. Back last year.
Okay. Rachel, we have a couple of questions back on the phone.
Your next question comes from Todd Warren with Tribeca Investment Partners. Please go ahead.
Yeah. Good day, Garrett, Eric. Maybe just to, further explore the the point about pricing of the product. And the unique position that that you guys are in, as you as you rightly point out being bottom on the cost curve, you are a little bit in situation like, I don't know if I'd run equivalent to, you know, Saudi Arabia in in the oil. Where there is considerable market power that they enjoy.
And yet we've seen them change their behaviors with regard to how they market their product, but they've moved from a price, defense mechanism to a market shared defense mechanism, how should we think about how you guys, will position yourselves going forward, or indeed, is there a
a way you can work with
your other lithium producers to I guess, explore the sustainability and and survivability indeed, if many of these these producers who are not in a happy, a happy position as you.
Well, look, I won't answer the question because there is no discussion with other Lincoln producers about how to work together for sure. But I will say that the way we think about about this is, is that And this is bearing out references to another question earlier is that we believe there's a segment of this market that we are we are ideally suited to serve, given our size, given our ability to invest, given our technology and our resources. That is that is willing to invest and willing to strike deals with us, for product that they need to grow their business, that creates an incentive for us to continue and invest and earn a good return for our shareholders. Obviously, they want a good price, but they the primary focus for them is on the product, having the product and having the right product, and having it in a timely way is also an industry that has had is very early in its in its evolution, has a lot of challenge bringing capital projects to time, to market on time. So, I mean, to us, we can we think we can remain a leader in this market serving that segment of the marketplace partner with, with leaders in the industry and, and and continuing good returns.
I mean, you've already seen us make a change in one regard, that, recently, and that is that we had what I would call fixed price contracts across the board for one of our customers. When the latest drop in market prices showed us that that was not a sustainable strategy, like we thought it was, for some of what, for some, in some places, it worked, but for a lot of the business, it did not. And as a consequence, you saw our margins come down. They've come down from the 40 to 30. So it's still very healthy on EBITDA basis.
But they've come down. So the the the intent for us going forward is to strike deals with a variety of customers. They may be that price may move a bit more than it has in the past, not be as fixed, But to to continue to maintain a leadership position, in the marketplace going forward, and, you know, earning those kind of margins I just described.
Okay. Okay. And maybe just, looking to the the future market again, and on a different different topic. But recyclability of, battery materials and how you guys think about that in the longer term. Do you expect to unlock it?
We think yes, so we think about it as a future lithium resource, right? Our view would be by the end of this decade that, that you could have as much, you could have between 5% 10% of the supply of lithium coming from recycled batteries that are coming off of service,
that are in circulation today.
But that being said, you still have to charge the pump. Right? I mean, ultimately, once you've penetrated all the market, you can penetrate with electric vehicles. And, and, obviously, Tesla will tell you that's a 100% of the vehicle. Once you've penetrated that and you're at sort of a steady state growth, then you should be able to achieve we believe exactly what the what happened in the industry is about 95% or ish, if you will, percent of new new batteries comes from recycled batteries.
But it's gonna take, if you go through the numbers, I mean, you know, there are 100,000,000 vehicles made a year, Tesla is targeting 20,000,000, a bad buy for themselves by 2030. And, and, and so it's, you know, it it's gonna take some time, you know, we can just run the math. I mean, we got 3 if if sorry to back up here. You got 20,000,000 vehicles in 2030, and that's 3 terawatt hours worth of capacity. That's almost 3000 tons of LCEs, right?
You gotta go six times that or, excuse me, five times that to fulfill the whole global vehicle fleet, that's new each year. So now you had, you know, a very significant number of 30,000 or so tons, a year. So, you know, it well, not 30, but 150. You've got a you've got a few It's late here in the US, and I can't do my math very effective, but the point is a very big number. So you're gonna need a lot of virgin lifting to get into the system.
It's several decades before you can get to that. Sort of vision of what what asset medicine is today, I guess, is what my wife's saying.
Thank you. Your next question comes from Trent Hamilton with Hano Capital. Please go ahead.
Yes. Thanks, Derek. Can you just maybe touch more
on, on,
along vision for, for clay extraction. And given that the Haiti and and the hole industry needs, it needs a lot more lithium and and needs it, needs it soon. Do you think that he's cracked the code, so to speak, with the clay, or do you think that that's still an aspiration?
Well, I think it's early. I think it's, it's I think it's it's still at the conceptual stage. And by early, I'm talking about the technology, because, you know, one is the technology to get to the clay and the other is the clay. We know who's licking the clay, and we know what its concentration is. The question is, can technology work?
And I think it's very early and very conceptual at this stage, and it's gonna need a lot of optimization over time. There'll be a lot of issues around permitting, water use, and the like to get it up to scale so if the technology is drivable, then then I think you're, you know, a project like this can take many many years to get to market. Right? And and, indeed, if I'm understanding Tesla correctly, that's the way they're looking at it. They're not looking at, getting all their lithium from clay and shutting off supply from everywhere else in the world in the next 5 years, they're they they need supply from the rest of the world, the next 5 years, they need it to grow rapidly.
And then that may may be able to supplement their growth towards their ultimate target in 2030. If they're successful with Clays in the long run. So that's how I tend to think of it. I mean, I think it's obviously it's important to to have perhaps more clarification for how they think about it, but I think their first mission is to see if the technology can can achieve what are the bench scale they think it can.
Okay. Thanks. I agree with, with your view. It's just interesting to note that the, your share price reaction and the other lifting producers in the last couple of days is and the bloodbath that's been insured is it's almost like the market is saying that, expansion project and others might be needed, but that's just my view.
Well, yeah, my view as well, I they would I I think, I was with test the next day, before I left, as well as others. And, I can tell you, I think everybody on the sort of the trade side of this versus the stock side of this, the industry side of this, was as surprised as you or as I was to see the impact on on the stock. Because, generally speaking, what they did do is paint a very strong, much stronger demand picture. Than anyone had ever imagined to that point. So if anything, there was a question of how in the world can the industry mobilize to meet that demand?
Instead, worried about how what I mean, this was gonna do with all of its lithium, and so they dumped all the shares. Bottom line, from my perspective, If you like the stock at the mid 90s, they'll have a buying opportunity now.
Okay. Thanks. Just one more quick question, if I can. Given the new technologies that the industry is looking at and needs to look at. Can you make any comment on what time DialX Solutions is doing with their own exchange be?
For, Sabrina and Clay? Thank you.
Yes. I'd have to go back I mean, and look at the details. I I know the name. There was a time in which I reviewed the materials. We have a team that says nothing but review with 2 teams.
One that does nothing but review resources. So every resource is out there. We've studied or been in then 2, I should say, visited. And then similarly, we have every technology company that's come out with processing either on the extraction time from the ore or on the processing side down to the chemical itself, we've engaged in NDA and looked at technology. And if interesting, we've either tried to acquire, get a license, or get some exclusive rights.
So I can't get into details where we've done that where we haven't, but that's our process. That's our practice. So YLAC is in that and is in that that field who's looked at that technology, you know, Georgina, John, I we'd I we could get more information from our technical people, if it's a Meredith, if it's interesting to to, you know, we could try to get more information on it offhand, but I I don't recall the details of it well enough to know where it racked and stacked, versus what we do today and whomever is what others do in the market. I think there are there are a variety of different ion exchange type, processes that are deployed today. Or that are looking to be deployed, some commercially, obviously, some, speculatively or, or experimental, I could say, pilot stage, so that is not a necessarily new concept.
Halilac is doing it. Again, I'd have to I I I can't recall offhand.
Thank you. Your next question comes from Charles Mann with Columbia Threadneedle. Please go ahead.
Yes. I'm just wondering if you could comment on any read through that there may be to the industry cost of capital to the juniors based upon the volatility we've seen in some of the extrapolation from the Tesla news. My anticipation is that the cost of capital given what we've seen in 2020 and what we're seeing near term is biased upwards for, a good portion of your competitors. Boy, that's that's probably there's probably a good number of people on this phone who are more expert at answering that question than myself, but based upon the reaction that I've seen today in our stock, which I would not consort in the past 2 days, really, yesterday, but I would not not have expected based upon my read of the opportunity. But that reaction being what it is, I would expect that cost of capital has gone up.
I mean, the the the the fundamentally interesting thing about this, and I don't think Tesla intended this, is or expected the reaction, that I that happened yesterday, they need both from an investment standpoint and therefore, from a capital rate standpoint, for those who don't have the benefit of 2 other businesses like we do use the cash flows to fund expansion, they need to access the capital markets. Every time some an event happens that diminishes the public values of traded stock It probably, I'm certain, increases the cost of capital for those that need to access, capital markets making it harder for them to achieve things, particularly when spot prices are are hovering at or below their future cash costs. I mean, you just you're just not gonna get the lithium supply. And we're we haven't been as vocal about this as some of our competitors have, but there have been people out there saying, look, industry, if you want the lithium, you you gotta change what's going on. There's a good number of the industry today that is focused on bottom line.
You get the lowest price they can to get an edge on their cost structure. To to to compete in what is, I know an aggressive market, and and and they haven't gotten their scale economies yet in all cases and making EDD. Some of these producers But but it's not it's not it's not gonna give them what they need longer term. The the economics have to get better. For the industry in order for the sufficient investment to be there.
And, if numbers of tests are on the phone with me now, I'm sure they would agree. They they need to see money flowing into these these companies, not retreating.
Okay. I think, we'll hand to Georgina now. I think Georgina has a couple of questions on email. Thanks.
Yeah. Thanks, Eric. Just to round out the call for today. If we could just bring the discussion back to Australia, we've got a few clients with a couple of questions that have come through with some clients. So I'll try and bring them together.
I'm trying to understand how the pieces of the puzzle fall together in WA. So we've got the large amount asset, especially on that one trying to stand, whether that would look to sales or domain to third parties, or whether that would have been used for internal, conversions with your, chemistry. And then also wanting to understand how that phased out with the other interest that you have in Western Australia in in Great Wussians, and the geographical proximity to Kenniton there. Could, could payment and actually be sent by green bushes. So if you could just give us a little bit of color, for our trading clients to to round out the call for today.
Yes, sure. On the first question, our strategy has been, and you can see it by our actions of idling Wagenai has been not to sell fodginine onto the open market. We, we, we are a company that our value gets created, yes, because we have a low cost resource, but the real value to the customer is created. And what we do, as I said earlier, is we'll closer to the point of use that that they, in which they they buy the product and use it themselves. So the actual conversion, purification, crystallization, tailoring that to meet a certain specification for, you know, a a 10 year warranty EV battery, that is our, that is our secret sauce.
So it really creates the value. That's that coupled with our cost position is how we earn the margins and the returns that a number you pointed out over the call, as you're trying to get to how sustainable those are. That's how we did it. So it does us no good to take really good resources and sell it to competitors. We're gonna try to compete against us in that regard.
So generally, We felt that, there's ample supply into the market. This is a resource that had intended to feed our plants And we we want to we'll opt not to sell that material into the marketplace for the time being. In terms of the next question, the question around how will we manage the network between the 2, but our intent ultimately is we have sufficient conversion capacity to drive both of those 2 assets. In the near term, we don't need the the the Wisenhower's consumer team is not running, so they don't venture have a conversion facility to take advantage of the raw material, as that approaches will evaluate it, you are correct in your assumption that you know, if you look at this from a supply chain basis, then maybe time for it's more efficient from a freight standpoint to sourcing Allison into to WA conversion capacity versus Wazhna. And what but there's some complexities in the joint ventures with different partners in those.
So there's some constraints in what we can do as well. So I I I think, we'll we'll we'll we'll be able to share more with you as Kevin comes on as to how we manage these resources.
Okay. Thanks for that, Eric. It sounds like we're, we'll be lining up another call in a year or so time. I think Glenn just got one last question to fish the the call out for today, and then we'll need to award that. Up on the line.
So Glenn, do you want to close this out?
All right. Thanks Georgina. Eric, these are just a couple of quick ones on email, hopefully. Some clarification in the fact that you're actually at Tesla Day, the $25,000 vehicle, I mean, it your understanding that the battery will be LFP or will it be NMC? And just your question here, just a technical question, is there much lithium intensity difference between LFP and the NMC battery as well?
Thanks. That's the first one.
Yeah. I don't know the answer to the question, to be honest with you. It's a very good question. And I'm not sure. I mean, I'm not sure what the range is for that $25,000 vehicle.
So I I'm not sure what the battery technology would be in it. But it's possible that it's either once a shorter range, a bunch of long range. I mean, they tend to drive down costs on an MCDO point where they they they get pretty economic there. I I just don't know the answer to that question. Be honest with you.
What was the second part of the question, Clint? Sorry.
Yes. Sorry. The second part was just simply, is there much lift in intensity difference find LFP and in
Oh, it's an absolute intensity. There's certainly some. There's some chemistry, but it's not significant. You know, all of the chemistries that are used today tend to be in that sort of 0.8to0.85. Maybe 0.78.79to.85 range of of of kilograms and within the kilowatt hours of of of battery power.
And they do range because they they they there are some differences offhand. I cannot remember whether LFP is a it's higher than MC or not, but if it is, it's only by, a a couple of a 5% or 2. Right? So it's not materially different.
Clarification, which it's a bit confusing down here in Australia. Obviously Australia is very big on the hard rock side. Your other business is obviously brine in Latin America. Is there actually any difference between the 2 as they go through the chain to the cathode manufacturer? Does it matter whether the originates from Hard Rock or Brian, or is it just simply economics that the battery manufacturer focuses on?
The battery manufacturer just focuses on, well, in the past, the battery manufacturer just focuses on the the qualification of the product. You know, the price point of which they're they've agreed to and qualifying the product. Generally speaking, I'm gonna come back to that in a second. And, again, that speaks to what I told you earlier. I mean, our ability to make the same product out the other side, regardless of whether it comes one route or the other, is our strength.
That's part of, again, it's part of what we do well, as a company. That's starting to change, though. Because certain companies are starting to look at where your product is from a geography standpoint and where and what your sustainability profile looks like by product. And sometimes it's their perception, their perceptions around those, some of it's based on facts and sometimes not about whether it's sustainable plays into this. So as an example, many companies want, large companies want with a 100% of their supply in one country.
And so they like, for risk mitigation reasons, the diversity of that And that means at one line base and the other rock base, so be it. They get the diversification because they're getting the same quality product at the other side. And then similarly with sustainability, we're starting to see more people looking at, do I like the story and sustainability of of how the Brian is made, Brian passed this versus the hard rock process. There are different. There are different factors that go in that play into those production right, whether it's chemical use, energy use, water use, or waste generation or emissions generate, they all play into that.
They have different profiles. And some we start to see or starting to see that become more important. But, to date, it's it's really been more about from these other factors I just described.
Okay. So just to be clear, I mean, the economics, I mean, obviously, Brian goes to carbonate into hydroxide normally in spodumene straight to hydroxide. So, you know, there's nothing We
we price the same to the customer. We price, we price on value to the customer, irrespective of the cost structure of how we make it. It's priced the same to the customer. But that's obviously a differential,
but you know what their structure is, obviously.
Yeah. I'm sorry. I don't know whether you broke up or I broke up there. Could you say that again?
Sorry. I was just saying it's true to, I guess, your economics for other players will be a difference, perhaps?
I suppose. Yeah. I mean, I I I mean, again, most other players only have one source, right, not don't have a diverse source like we did. So, they're they're not necessarily making that choice.
No worries. Okay, Eric. Thanks very much. I'll just hand back to Georgina for closing remarks as well. Appreciate it.
Okay, great.
Thanks, Eric. It's been great to you and it's a late night over there. If you could just indulge us and, wanting to know if you want if there's a stand out question, that we can award that bundled line to, and then we'll let you go and enjoy the rest of your evening.
I'm going to be honest with you. When you're the only one answering questions for now, you start losing track of which question was the best question pretty quickly because focused on answering the questions. If we could I suggest 1 or 2 things. Either you guys choose or you send me the list of the questions so I go back and look over again decide offline. How about that?
I'd like
to hear that. We'll just
pull this out of
Meredith is a share Meredith is a Sharon who probably took them too. Yeah. Meredith, it is probably, that's an excellent point. You're you're a much better judge because you you you you do this more often than I do. And you were listening.
So
Yeah. I mean, you know, one of the they were all it's hard to pick between the question because there's certainly a lot of really great questions this evening. One note that I think we don't get as often is just how do we how does Alamo think about using our cost position and how do we differentiate to decide the strategy that we take? And that was from Rebecca. I I'm not sure if I got the name correct, Todd Warren,
Yes. They tried and said that. Okay.
That's great. Great job. Happy time.
That I'll call about Great. We'll follow-up with, with Todd, and he can have a free reign of of green cell. So I'm sure that'll make you his Friday. Thank you, to the team from Albemar, Eric, at at notice for joining the call for late over there this afternoon, giving us your time and and color on the market. Greatly appreciate others.
And and thanks for John Roberts at US Chemicals Analyst for paying that up. We'll send around a rate site. And if there's any other questions that our clients have, please feel free to reach out a fringe on or or myself. And and that's a wrap. Thank you very much, everyone.