Lithium Argentina AG(LAR)Q2 2026 法說會逐字稿

Hello everyone. Thank you for joining us and welcome to the Lithium Argentina Second Quarter 26 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 1 to raise your hand. To withdraw your question, press Star 1 again. We will now hand the conference over to Kelly O'Brien, Vice President of Investor Relations. Kelly, please go ahead.

Thank you, Kendra. I want to welcome everyone to our conference call this morning. Joining me on the call today to discuss the second quarter 26 results is Samuel Pigott, CEO of Lithium Argentina. Alexander Shulga, our CFO, will also be available for Q&A. Before we begin, I would like to cover a few items. Our second quarter 26 earnings 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, updates 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 now turn the call over to Samuel Pigott.

Thanks, Kelly, and thanks, everyone. Good morning. The second quarter was another period of strong execution at Cauchari-Olaroz, and the results reflect what the operation was designed to deliver: reliability, low-cost production, and strong cash generation. For 2026, the operation has averaged 95% of design capacity and remains firmly on track to achieve production guidance. From a cost perspective, costs remain under $6 thousand per ton, supporting robust operating margins and driving significant cash flow. Reflecting the significant improvement in Argentina and substantial cash generation, the operation has now distributed $160 million year-to-date, of which $75 million is Lithium Argentina's share. Finally, we completed two new unsecured debt facilities totaling $220 million at the JV level. This further strengthens the financial position of the operation, supporting our growth plans and providing flexibility to continue to make distributions and de-risk our balance sheet.

Turning to the financial performance at Cauchari-Olaroz: the operation delivered adjusted EBITDA of approximately $110 million in the second quarter, up 4% from the first quarter. Stronger realized prices, with prices averaging around $19.5 thousand per ton in the second quarter, and continued cost discipline supported these results, with total adjusted EBITDA now over $200 million for the first half of the year. These financial results are now translating directly into strong cash generation, supporting distributions to the JV partners, debt reductions, and providing flexibility for our next phase of growth. Looking more closely at operations: for 2026, we have averaged 95% of design capacity, demonstrating consistent and stable operations. We were pleased with the results, which included a planned shutdown during the second quarter that allowed us to focus on optimization and debottlenecking efforts.

For 2026, we are well positioned to deliver on the full-year production guidance of 35 thousand to 40 thousand tons. Going forward, our objective is to build on this consistency and support sustained production at rates even above the current 40 thousand-ton capacity. Moving to costs: year-to-date, cash operating costs have averaged around $5.6 thousand per ton. Second-quarter costs came in modestly higher due to the planned shutdown, higher energy costs, and the impact of a stronger peso. Since startup, we have brought costs down from roughly $8 thousand per ton to a consistent sub-$6 thousand level, driven by ongoing process improvements, cost reduction efforts, and the inherent advantages in the design of our brine-based operation. This low-cost position, coupled with higher average prices during the second quarter, has translated into a meaningful expansion in margins. During the second quarter, the cash operating margin reached 70%, driving strong cash generation from Cauchari-Olaroz.

This shows how EBITDA is driving free cash flow at the operational level. Starting on the left, $110 million of adjusted EBITDA generated in the second quarter translated into $141 million of free cash flow from operations. Part of this reflected a drawdown of working capital given the timing of sales made in the first quarter that were collected in the second quarter. Moving to the right, you can see where this cash went. Net debt at the joint venture level declined from $256 million to $142 million, a reduction of $114 million in a single quarter. Importantly, that deleveraging was achieved while continuing to make distributions to the JV partners. Turning to the balance sheet: we continue to strengthen our financial position with improved liquidity at both the Cauchari-Olaroz operation and the Lithium Argentina corporate level. At Cauchari-Olaroz, we closed $220 million of new unsecured debt facilities, including a $170 million three-year facility closed in early August with a variable interest rate currently under 5%.

Combined with strong cash generation, this provides additional balance sheet strength and financial flexibility to support further JV distributions and growth. At the corporate level, we ended the quarter with $100 million of cash and total liquidity of $230 million. This includes $130 million in an undrawn six-year debt facility provided by Ganfeng at SOFR plus 2.5% or around 6% today. We also received $27 million in distributions from Cauchari-Olaroz subsequent to the quarter end and expect to receive additional distributions in the second half given significant cash flow and liquidity at the operation. Looking ahead, the chart on the right illustrates the significant earnings capacity of Cauchari-Olaroz across a range of lithium price scenarios. At current lithium prices of $20 thousand per ton, we estimate 2026 adjusted EBITDA of approximately $460 million on a 100% basis. The combination of strong operating cash flow, access to attractively priced debt, and liquidity at both the joint venture and corporate level provides us with significant financial flexibility as we advance our growth plans and de-risk our balance sheet.

Another milestone I would like to highlight is the recent independent verification of the carbon footprint at Cauchari-Olaroz. The product's carbon footprint for 2025 was only 1.4 tons CO2 equivalent per ton of LCE on a Scope 1 and Scope 2 basis under the internationally recognized ISO and GHG Protocol standards. This result is supported by the fact that approximately 97% of the energy used in the production process comes from solar power. It also highlights one of the key advantages of our brine-based operation, which has a significantly lower carbon footprint than many other more energy-intensive lithium operations. Turning to our growth pipeline: we remain disciplined and are taking a phased approach, building on the strength we have demonstrated at Stage 1. At Cauchari-Olaroz, our immediate priority is finalizing the Stage 2 development plan, with the scoping study results expected around the end of the third quarter.

Following RIGI approval in the second quarter, we are advancing an early works program, including drilling additional wells, engineering, and debottlenecking the existing plant. Much of this work directly benefits the existing operation, helping push production above design capacity while also meeting the needs of the Stage 2 expansion. For Stage 2, we are working with our partner on a modular approach: a DLE facility targeting an initial capacity of 10 thousand tons per annum as the first phase of the broader 45 thousand-ton-per-annum expansion. Turning to PPG, we continue to wait for the approval of RIGI, which was submitted in Q1 26 and is expected later this year. In parallel, we have made significant progress with our partner, Ganfeng, on the financing plan for PPG, including discussions with potential minority strategic partners. Across both Stage 2 and PPG, we are advancing a phased and disciplined approach to growth that leverages our experience with Stage 1, our existing cash flow, and access to low-cost capital at the project level.

In closing, the first half of the year reflects strong execution across the business and the priorities ahead build directly on that foundation: operating safely and cost-competitively, strengthening our balance sheet, advancing our growth pipeline, and allocating capital with discipline. Finally, as we continue to broaden our investor base and improve global market visibility, we are evaluating a secondary listing on the ASX, which we believe would complement our NYSE listing and further support long-term shareholder value. Lithium Argentina is well positioned: high-quality operations, a strengthened balance sheet, and a disciplined approach to growth. We look forward to sharing further updates on our progress in the quarters ahead. And now we will open the call for questions. Thanks.

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 1 to raise your hand. To withdraw your question, press Star 1 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 is from the line of Mohamed Sidibe from National Bank. Mohamed, your line is open. Please go ahead.

Good morning, Samuel and team, and thanks for taking my question. Good to see the progress on the operating production front. From a modeling standpoint, can you help us understand how we should think about the cadence of production into Q3 and Q4? Are any maintenance or shutdowns expected, and is there any catch-up in sales given the lower sales versus production in Q2? Thank you.

On the production question, Mohamed: we do not have any planned maintenance shutdowns, so we expect production to be very strong throughout the back half of the year. On the sales, it is really a timing issue between production and when those units get translated into sales, depending on when the quarter ends and the timing of collections. You should see stronger sales through the back end of the year as well.

Your next question is from the line of Joel Jackson with BMO Capital Markets. Joel, your line is open. Please go ahead.

Hi. Good morning, everyone. Samuel, the lithium market is volatile. We've seen a strong rebound in lithium prices and then some pullback. There have been restarts from companies and projects advancing. Can you speak to your conviction and your partner's conviction in the different projects at various lithium price levels, how the market is faring, and how assumptions have changed versus six months ago? Thanks.

We have a high level of conviction in our projects. Ganfeng and Lithium Argentina view the expansion at Cauchari and PPG as two of the most attractive growth projects in the market today. That view is founded on the success we have had at Stage 1: a project we brought online for under a billion dollars that is today generating, on a 100% basis, approximately $460 million of EBITDA and is one of the lowest-cost producing assets in the world. We are approaching both projects in a disciplined manner. For PPG, we have a development plan that shows very robust economics, and we are working with Ganfeng on an appropriate financing plan, including potential minority partners to provide equity capital. Our job at Lithium Argentina is to ensure our shareholders benefit from joint control over two of the largest, highest-quality lithium assets in the world. Our view is that the market is growing in a healthy way, and these projects are among those that should be brought online and will be brought online. Stage 1 is evidence of our ability to execute and supports our conviction in continuing to grow in Argentina with Ganfeng.

Your next question is from the line of Anthony Taglieri with Canaccord. Anthony, your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions. On operating costs: last quarter you guided to a full-year operating cost in that mid-$5 thousand-per-ton range. There were some cost pressures this quarter, such as energy. Is that recurring for the rest of the year, or was it more one-time for this quarter? How should we think about operating costs for the rest of the year?

In Q2 we had the planned shutdown, which resulted in a few hundred tons less production and meant we operated at roughly 93% capacity, which impacts unit costs. In terms of structural changes to our cost profile, we do not see anything material. There was a small impact from energy costs and a stronger peso, but the mid-$5 thousand per ton range is still how we are tracking through the rest of the year. Looking into next year and beyond, as we continue to debottleneck and push the plant to 40 thousand tons and above, there is room for costs to come down further. We're very pleased with how the operation is running. The quarter-over-quarter noise from a modest cost increase is overshadowed by a business with 70% operating margins that generated $141 million of free cash flow from operations. Our teams at Minera Exar are performing at a world-class level.

Your next question is from the line of Corinne Blanchard with Deutsche Bank. Corinne, your line is open. Please go ahead.

Hi. Good morning. Can you talk about the timing for Stage 2? I thought the scoping or pre-feasibility study was expected by midyear, so is there a slight delay? What caused it, and what can we expect over the next 6 to 12 months for Stage 2?

I would not characterize it as slipped. We had expected midyear, and we are aligning with Ganfeng to ensure what we present before the end of Q3 is something we can execute on immediately. The report will include more detail on the early works we are engaging in now to accelerate the expansion in a phased approach starting with 10 thousand tons. We and Ganfeng are keen to get moving. The RIGI approval allows much of the early works spending to apply to the first $80 million of required spend in the first two years. I think you will be pleased with the report and the market will be impressed.

Your next question is from the line of Ben Isaacson with Scotiabank. Ben, your line is open. You may now go ahead.

Thank you and good morning. Samuel, can you talk about the debottlenecking opportunity at Stage 1? What exactly is being debottlenecked, how much does it cost, how long will this take, and what are the next bottlenecks, if any, that can keep Stage 1 surpassing original nameplate capacity?

The debottlenecking effort is based on operational experience and allows us to push major parts of the plant beyond 40 thousand tons. For example, the carbonation section can handle more than the original nameplate, so we have to go further upstream. One example is adding a few additional wells to provide more brine to push through the plant. A typical well costs around $2.5 million, and we are talking about potentially needing two or three of those over the next 6 to 8 months. It is relatively low-cost, low-hanging fruit that can add 2 to 3 thousand tons of production, which is well worth doing. We are engaging in these early works now, so you will see modest capex over the next 6 to 10 months and the results should flow through into 2027 and 2028.

Your final question is from the line of Ishan Jain with HSBC. Ishan, your line is open. Please go ahead.

Good morning. I have a question around PPG. You have been looking for a partner or offtake agreement for project financing. Is there any progress on that front, or are you looking to secure a partner before moving forward with the project?

We have made a lot of progress on that front. A major milestone will be the RIGI approval for PPG, which derisks the investment for a third party. We expect to have that by the end of the year; it was submitted in Q1 26. Dialogue with the authorities has been positive, and that approval will be a key milestone for the process.

Another question is from the line of MacMurray Whale with ATB Cormark. MacMurray, your line is open. Please go ahead.

Hi. Good morning. Samuel, regarding the DLE for Stage 2: does that require additional capex into the pond infrastructure, or can you bring 10 thousand tons per year online largely using the ponds and infrastructure built for Stage 1? Relative to time to get that up and running, it seems a relatively modest capex to begin with for Stage 2. Also, in terms of distributions, assuming pricing stays roughly where it is now, do you expect distributions from Minera Exar back to Lithium Argentina to be at similar levels to the first half, or are there other large debt payments at the Minera Exar level that would reduce distributions?

The DLE approach is attractive because it is relatively capital-efficient and allows us to leverage much of the existing pond structure and infrastructure from Stage 1. We will provide more detail in the development plan, but it is an attractive, lower-capex route to additional tons. Regarding distributions: Minera Exar has about $100 million of liquidity, so if prices remain where they are, we expect distributions to be similar to the first half, and potentially higher. Thanks.

This concludes our Q&A. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.