Operator: Good day, everyone. And welcome to today's AMG Q2 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Please note that this call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Head of Communications, Michele Fischer. Please go ahead.
Michele Fischer: Welcome to AMG's second quarter 2024 earnings call. Joining me on this call are Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer; Mr. Jackson Dunckel, the Chief Financial Officer; Mr. Eric Jackson, the Chief Operating Officer; and Mr. Michael Connor, the Chief Corporate Development Officer. AMG's second quarter 2024 earnings press release issued yesterday is on AMG's website. Today's call will begin with a review of the second quarter 2024 business highlights by Dr. Schimmelbusch. Mr. Connor will comment on strategy. Mr. Dunckel will comment on AMG's financial results. And Mr. Jackson will discuss operations. At the completion of Mr. Jackson's remarks, Dr. Schimmelbusch will comment on outlook. We will then open the call to take your questions. Before I pass the call to Dr. Schimmelbusch, I would like to expressly refer you to our statement on forward-looking statements and the meaning thereof, as we have used at all previous occasions and we will use at this earnings call and which explanatory statement has been published as part of our financial presentation and on our website all in connection with this earnings call. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.
Heinz Schimmelbusch: Thank you, Michelle. The second quarter of 2024 adjusted EBITDA of $39 million reflects the success of our strategic positioning and the diversified critical materials business model, enabling us to navigate market volatility effectively. Aerospace continues to be a source of growth, with AMG Engineering securing $90 million order intake in the second quarter and a June 30th order backlog of $310 million. Additionally, AMG Chrome, AMG Graphite and AMG Antimony all performed well compared to the second quarter last year, and it is noteworthy that every operating unit at AMG was profitable in the second quarter of 2024. I now come to growth opportunities and to speak about our growth initiatives, I have the pleasure to introduce our newest management board member, Mike Connor, who was voted in our annual general meeting in May with a nearly unanimous approval for appointment. He is AMG's Chief Corporate Development Officer, managing all the AMG strategic approaches, and he will speak on corporate strategy going forward. Mike?
Michael Connor: Thank you, Heinz. The highlight of the second quarter of 2024 was our acquisition of strategic interest in Savannah Resources, which made AMG the company's largest shareholder. Savannah is the sole owner of the Barroso Lithium Project in northern Portugal, which is Europe's most significant resource of hard rocks [Technical Difficulty]. In this partnership, AMG looks to contribute its expertise in sustainable mining practices and mineral extraction technologies, bringing to the table a wealth of experience in operational efficiency and environmental stewardship. At current world price levels, AMG has been able to increase its access to lithium resources with minimal capital outlays. We believe that this collaboration marks a significant milestone in the development of the [indiscernible] lithium industry. Our strategic growth investments are progressing as planned [Technical Difficulty]. In Brazil, the expansion of our lithium concentrate plant from 90,000 tons to 130,000 tons is rampant and we expect to reach full nameplate capacity of 130,000 tons in the fourth quarter this year. In Bitterfeld, Germany, the qualification process for our lithium hydroxide refinery's first 20,000 ton module is underway. And the production batches are expected to hit in the third quarter of 2024. Both of these projects strengthen our position in the lithium market. With the successful ramp-up of our Zanesville, Ohio plant, we have not only expanded our production capacity, but also reinforced our position as a leader in the vanadium industry. Looking ahead, we remain focused on innovation and sustainability, as we believe that vanadium is positioned to play a major role in the future of renewable energy. On this note, our vanadium electrolyte plant in Nuremberg, Germany is in the final stages of completion. We expect to have nameplate capacity available by the fourth quarter of this year as part of our vertical integration into LIVA batteries. Our Vanadium business demonstrated strong volume growth, 23% in the second quarter of 2024 versus the second quarter of last year, helping to offset a 29% decline in growth. Our operations in Ohio continue to be the low cost global producer of carbonates, significantly outperforming primary mining operations. We believe the future of energy storage systems will be driven by ongoing innovation, in the increasing efficiency, reducing cost, and expanding storage capacity. Advancements in battery technology, such as solid-state batteries and flow batteries, hold promise for ever higher energy densities and longer life spans. Moreover, artificial intelligence and advanced control systems are being integrated to optimize energy storage operations to maximize grid flexibility. AMG LIVA is at the forefront of this day trend and is currently engaged in the execution of several battery projects to optimize the energy management of industrial plants and incorporate renewable energy sources. AMG LIVA recently placed into service a hybrid energy storage system with 4.5 megawatt hours of capacity, shipping wind and solar energy for our major industrial plant, enabling 80% self-sufficiency. We believe there's massive potential in this space and we are well positioned to capitalize on the rapidly growing business. I'm also pleased to report that we have significant liquidity and support our many growth opportunities. Cash on hand is $308 million. AMG has over $500 million in total liquidity. I will now pass the floor to Jackson Dunckel, AMG's Chief Financial Officer. Jackson?
Jackson Dunckel : Thank you, Mike. I'll be referring to the second quarter 2024 investor presentation posted yesterday on our website. Starting on page 5 of the presentation, I'd like to reiterate Heinz's comments about the strength of the EBITDA performance this quarter. With very low lithium and vanadium prices, the rest of AMG's portfolio demonstrated significant strength and delivered excellent results. Net loss attributable to shareholders for Q2 2024 was $11 million, but this was strongly affected by our strategic project costs, which represent the ongoing investment into our battery grade lithium hydroxide business and our LIVA battery growth plans. Combined with an inventory cost adjustment and restructuring charge, these three items accounted for a $14 million earning deduction. Moving on to page 6, you can see the price and volume movements for our main key products represented by arrows, which I'll go into in more detail as we review the segmental slides. On page 7, you'll notice that we've added a new slide displaying our leverage and valuation figures for the current quarter as compared to year-end 2023. It's important to note that we've invested $650 million over the last four years for our lithium and vanadium expansion projects, which has impacted the return on capital metrics displayed here. Nevertheless, we have significant liquidity to support our future growth opportunities. Now I'm going to review our three segments and I'll start with AMG Lithium, which is shown on page 8 of the presentation. On the top left, you can see that Q2 2024 revenues decreased 71% versus Q2 2023. This decrease was driven by a 59% decline in lithium prices as well as by lower lithium concentrate volumes which are impacted by the ongoing ramp of our spodumene expansion currently underway. Q2 2024 gross profit decreased to $4 million from $90 million in the second quarter of 2023 due mainly to the aforementioned decline in lithium prices. EBITDA for the second quarter 2024 came in at $2 million. The quarterly CapEx, shown on the bottom left, of $16 million was driven by our two expansion projects in Bitterfeld, Germany, and Brazil. Turning now to page 9 of our presentation, which shows the AMG Vanadium segment. AMG Vanadium's revenue for the quarter decreased 7% to $168 million compared to Q2 2023. Due to lower sales prices across the segment, which were partially offset by increased volumes in vanadium and chrome metal. Q2 2024 gross profit increased by 15% compared to Q2 2023, due mainly to the higher sales volumes in vanadium and chrome metal. Q2 2024 adjusted EBITDA increased 27% compared to Q2 2023 to $20 million due to increased volumes in vanadium and chrome metal as well as the ongoing benefit of Section 45X production credit for which AMG Vanadium has qualified. This benefit is currently running at $10 million annually, but we continue to discuss with our advisors as the IRS finalizes the regulations. Given the uncertainty, we are aiming for conservatism around our estimates. Moving on to AMG Technologies on page 10, starting on the top left, you can see that Q2 2024 revenue increased by $33 million or 26% versus Q2 2023. This improvement was driven by strong revenues in our engineering unit as well as higher sales volumes of silicon, graphite, and antimony and higher sales prices of antimony. Adjusted EBITDA of $18 million during the quarter was more than three times the $5 million in the prior year. The increase was primarily due to higher profitability in our engineering business, as well as strong performances from our graphite and antimony units. AMG Silicon began operating two of its four furnaces in March of 2024. As we plan to run two of four furnaces for the remainder of the year, the results of AMG Silicon remain excluded from EBITDA. Turning now to page 11 of the presentation, on the top left, you can see the AMG's Q2 2024 SG&A expenses were $45 million versus $49 million in Q2 2023. The decrease was largely attributable to a one-time pension expense related to employee benefit plans in Q2 2023, partially offset by the increase in headcount in our lithium, engineering, and LIVA business. AMG's net finance cost in Q2 2024 of $8 million was 3% higher than in Q2 2023. AMG recorded an income tax expense of $11 million in the second quarter of 2024 compared to $27 million in the second quarter of 2023. This variance was mainly due to lower profitability in the current quarter, but also due to a $7 million increased deferred tax expense related to the depreciation of the Brazilian reais versus the US dollar. Fluctuations in the Brazilian reais exchange rate impact the valuation of the company's deferred tax positions in Brazil. AMG paid taxes of $4 million in Q2 2024 compared to tax payments of $35 million in Q2 2023. The reduced cash payments in the current period were largely a result of the decrease in profitability year-over-year. Turning to page 12 of the presentation, you can see on the top left, the cash used in operating activities was $9 million in Q2 2024 compared to cash from operating activities of $60 million in the same period of 2023. This was due to lower profitability in the current quarter, as well as ongoing working capital investment into our lithium businesses. AMG ended the quarter with $453 million of net debt, and as of June 30th, 2024, we had $308 million in unrestricted cash and $200 million available on revolving credit. As such, we had $508 million of total liquidity at the end of the quarter. That concludes my remarks. Eric?
Eric Jackson: Thank you, Jackson. Although falling prices for lithium and vanadium products negatively impacted our financial performance in the quarter, all operating units are performing on or better than planned. We continued our cost reduction and efficiency programs in the second quarter. And as Mike mentioned, the execution of our strategic growth projects remain on schedule. Our Brazil lithium operation delivered 17,092 metric tons of lithium concentrate in the second quarter. The average realized sales price was $891 per ton, except China. And the average cost was $543 per ton, except China. Both total production volumes and the net cost of production better than planned and underscore the strong execution and low cost position of our lithium concentrate operation in Brazil. Our lithium concentrate plant expansion from 90,000 tons to 130,000 tons ramp is ramping up and we expect to produce at 110,000 ton annualized capacity in the third quarter and at full 130,000 ton annualized capacity in the fourth quarter. AMG Lithium's battery-grade lithium hydroxide refinery's first 20,000 ton module in Germany is on schedule. The plant will set new industry standards on quality management, safety, and product handling for lithium hydroxide. We have completed commissioning of the utilities, the fully automatic warehouse, and the feedstock product transportation system and we're in the process of cold commissioning. We expect to ship production batches in the third quarter of 2024. AMG Vanadium's operations in Ohio continue to perform exceptionally well and exceeded target production volumes in the first half of 2024. The production from the roasting operation achieved record high production in June. Our operational and financial performance continues to exceed the performance of our publicly listed competitors, as today's market prices are below many of their operating costs. It's important to note that the EBITDA of our Vanadium segment increased by 27% in the second quarter of 2024 over the prior-year period, while at the same time ferrovanadium prices fell 29%. This is indicative of our team's operational focus and further validates the value and economics of our recycling business model. In May 2024, AMG Titanium signed a multi-year contract extension with SAFRAN to supply titanium aluminides for production in the CFM International LEAP engine. AMG's titanium aluminide materials are used to produce low-pressure turbine blades for the LEAP engine used in the single-aisle aircraft. Titanium aluminide blades are resistant to temperatures in excess of 750 degrees Celsius and reduce the mass and weight of the blades, contributing to the improved performance in reducing fuel consumption by 15% compared to prior engine models. AMG Titanium has supplied titanium aluminide to SAFRAN since 2014 for the LEAP engines in the Boeing 737 MAX and the Airbus A320 Thales. AMG titanium was able to leverage synergies with ALD Vacuum Technologies, our engineering business, to jointly develop the technology and equipment to produce this. In terms of our technology segment, AMG Engineering signed $90 million in new orders during the quarter, driven by strong orders for re-melt and turbine blade coating processes. As mentioned, we have an order backlog of $310 million at the end of the quarter, driven by the strong aerospace market. Our other operating units under the AMG Technologies umbrella, Antimony and Graphite, also performed exceptionally well in the quarter and made a significant contribution to the $12.4 million quarter-over-quarter increase in AMG Technologies EBITDA. I am repetitive when I say this, but throughout our organization, our overriding operational objectives are to be the low cost, highest quality, and most environmentally responsible producer of our products. I would now like to pass it forward to Dr. Schimmelbusch, AMG's Chief Executive Officer.
Heinz Schimmelbusch : Thank you, Eric. AMG Lithium B.V., the parent of all of AMG's lithium activities, will commission the first European lithium refinery on September 18, 2024 at the site in Bitterfeld in Saxony-Anhalt. AMG Lithium will produce lithium hydroxide battery grade with an annual capacity of 20,000 tons per year, enough for the batteries of around 500,000 electric cars. With the refinery, we are making a decisive contribution to securing the supply of the critical raw material for the industry in Germany and Europe. The establishment of our own complete lithium value chain also contributes to the European Critical Materials Act and offers greater independence for our materials and critical materials. The development of the battery industry in Europe is in full swing, despite the many discussions surrounding e-mobility. Lithium hydroxide is one of the most important critical materials and we are ready for the ramp up with this lithium refinery. In addition to the reliable supply of lithium we source particularly well, we score particularly well on our technological expertise. Our team has a large number of years of experience in the production of battery-grade lithium salts of the highest quality. Now, looking ahead, we remain focused on our lithium projects and anticipate improved market conditions. We expect our adjusted EBITDA to exceed $130 million for 2024. Operator, we would now like to open up for questions.
Operator: [Operator Instructions]. We will take our first question from Ephrem Ravi with Citigroup.
Ephrem Ravi: A few questions, firstly, Savannah's scoping study estimated a CapEx for the project of about $280 million and they have also said you can offtake up to 90 kilotons per annum for 10 years if you provide them with a funding solution. Given the market cap of around $100 million, isn't buying out Savannah preferable to providing the funding for another $45,000 offtake. And again, just if you can give us a context why we just kind of took an 18% stake and not a bigger chunk of the company.
Heinz Schimmelbusch: Talking about the financing of Savannah is a little early because the project is under development. But let me mention one particular item. We are operating in Germany and we have an off-take agreement with Savannah. And all of that leads ultimately to a project financing which is a major element of it, is the German government institution which provides government guaranteed long-term financing for critical material import contracts. And that's a significant synergy between Savannah and AMG.
Ephrem Ravi: Also on your new term loan of $100 million, you've said that you will use it for lithium resource development. Just to clarify that it means upstream resource development rather than downstream processing capacity if I'm interpreting it correctly.
Heinz Schimmelbusch: Yes. Correct.
Ephrem Ravi: And last one. As you ramp up to 130,000 tons of lithium concentrate, could you give us an indication if you're expecting any improvement in unit cost at Nidra [ph] (00:22:35)?
Heinz Schimmelbusch: Eric?
Eric Jackson: Minor improvement. Minor improvement, actually. And of course, the Brazilian reais has weakened recently. That may also help us on the reduction of our costs.
Heinz Schimmelbusch: And just be reminded that our cost is 550 deliver [ph] China, which is a very, very low mark.
Operator: [Operator Instructions]. We will take our next question from Tom van Ravenhorst with ABN AMRO.
Tom van Ravenhorst: One question from my side. I saw the strong operational performance in the vanadium sector and I was planning if you can give any guidance on the margins going forward, if this is sustainable.
Eric Jackson: I believe it's sustainable. The vanadium segment includes our vanadium operations in Germany as well as Ohio and chrome businesses. And as we mentioned, our vanadium recycling business model is exceptionally strong. Our production costs are, as we mentioned, lower than our competition. Other than any one-time adjustments, I think the profitability is sustainable.
Heinz Schimmelbusch: You refer maybe in particular to the vanadium business. And our vanadium business is, contrary to the primary vanadium mining business, is benefiting from fees which we collect for recycling, for extracting vanadium and other metals from the spent catalysts which we use as feed material. And the metals extracted are vanadium, but also molybdenum nickel. So we have three metals in a way. The fourth income stream is cash. So we, in a way, have negative mining costs in a sloppy definition. So that is an intrinsic competitive advantage vis-à-vis primary mines, which I think is very important in phases of low vanadium prices. So that's, I think, a reason for the stability of our vanadium business. So we are still increasing production. And [indiscernible] receive fees to do what we do.
Operator: We will take our next question from Jesus Molinos with ING.
Jesus Molinos: First question, what's driving the strong earnings recovery in engineering? And do you see this improvement as sustainable?
Heinz Schimmelbusch: Engineering is benefiting from a strong demand of high performance steel related furnace generations. And that, in our interpretation, is a function of growth in that sector, aerospace related. And also, in renewed capacity drives. So the plants globally, the plants in high-performance steel-related furnaces are pretty old and they are undergoing renewal, renewing, both in America and in China. And that is, I think, the beginning of a longer-term development, which benefits us as we have very high market shares in the furnaces related to that material, high performance steel. Now the other trend in this business is that every year, the percentage of secondary raw material in all of our customers' plants is increasing. Remelting, recycling, perfection of the use of re-melt and re-scrap, scrap melting, and that is a trend which is ongoing and won't stop in the foreseeable future, to the contrary.
Jesus Molinos: In your public statement, you mentioned that you anticipate improved market conditions. Is this tied to lithium? And can you provide some context as pricing still seems very subdued?
Heinz Schimmelbusch: I think it's a wide ranging comment. If you look at the cost curve of, for example, lithium, then there are, at the present prices, there's a certain significant percentage of producers which are below cash costs, operating below cash costs, prices below cash costs. Now you can have predictions of how long that is sustainable, but it is reasonable to assume that there will be a reduction of capacity. We secondly believe that the demand, as I mentioned, as against more pessimistic statements moves to be globally rather stable. Meaning, the growth rates are rather stable. And if those two things meet, then it is reasonable to expect the price correction. Now the prices are of course artificially, in our interpretation, discounted because of particular raw materials in China called [indiscernible], which are high cost mines, high cost and high environmentally cumbersome mines, which are operated as vertically integration of parts of the Chinese production. So that is, I think, also not necessarily sustainable. That's lithium. Vanadium, two of the western – and I think there are not more, the two of the western primary producers are operating below cash costs, so prices below cash costs. And that is, of course, an unsustainable situation. So as prices are low, and in our interpretation, partly artificially low, given the strategic orientation of some of these industries, this will correct itself.
Jesus Molinos: My last question is, what is your view on the current new battery supply chain where some players are backtracking on their EV growth plan or switching to LFP over NMC?
Heinz Schimmelbusch: Well, we believe, when we analyze the demand statistics, there is not much of a change. When you look from the forward line to 2030, there are only minor corrections – insignificant corrections of the estimated total demand of e-cars in 2030 vis-a-vis now. So the demand seems to be rather resilient. And so, that's all we can say. We have our statistics analysis, and that is the result. So we believe that the demand will be developing rather strong.
Operator: [Operator Instructions]. And it does appear that we have no further questions at this time. I'll turn the call back over to Michelle Fisher for any closing remarks.
Michele Fischer : This concludes our second quarter 2024 earnings call. Thank you everyone for joining.
Operator: Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.
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