Lithium Argentina AG (LAR) Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the Lithium Argentina Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I 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 2026 results is Sam Pigott, CEO of Lithium Argentina. Alex Shulga, our CFO, will also be available for Q&A. Before we begin, I would like to cover a few items. Our second quarter 2026 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, update on development plans, the timing of our projects, the 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 Sam 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% design capacity and remains firmly on track to achieve production guidance. From a cost perspective, costs remain under $6,000 per tonne. 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 was Lithium Argentina share. Finally, we completed 2 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 to derisk 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 $19,500 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've 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 35,000 to 40,000 tonnes. Going forward, our objective is to build on this consistency we are seeing today and support sustained production at rates even above the current 40,000 tonne capacity. Moving to costs. Year-to-date, cash operating costs have averaged around $5,600 per tonne. Second quarter costs came in modestly higher due to planned shutdown, higher energy costs and the impact of a stronger peso. Since startup, we brought costs down from roughly $8,000 per ton to a consistent sub-$6,000 level, driven by ongoing process improvements, cost reduction efforts and the inherent advantages in the design of our brine-based operations. 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 slide shows exactly how EBITDA is driving free cash flow at the operational level. Starting on the left, the $110 million of adjusted EBITDA generated in the second quarter translated into a $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, and 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 Cauchari-Olaroz operation and the lithium Argentina corporate level. At Cauchari-Olaroz, we closed $220 million of new unsecured debt facilities, including $170 million 3-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 6-year debt facility provided by Ganfeng at SOFR plus 2.5% or around 6% today. We also received an additional $27 million in distributions from Qatari older as 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 prices of $20,000 per tonne 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 derisk our balance sheet. Another milestone I'd 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 of 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 use of the production process comes from solar power. It also highlights 1 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've 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 rig approval in the second quarter, we're 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 10,000 tonnes per annum as the first phase of the broader 45,000 tonn per annum expansion. Turning to PPG. We continue to wait for the approval of Riggi, which was submitted in Q1 2026 and and is expected later this year. In parallel, we've made significant progress with our partner, Ganfeng on the financing plans for PPG, including discussions with potential minority strategic partners. Across both Stage 2 and PPG, we're 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 built 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're 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'll open the call for questions. Thanks.

[Operator Instructions] Your first question from the line of Mohamad Sidibe from National Bank.

Good progress on the operating production front. Just maybe from a modeling standpoint, can you help us understand how we should think about the cadence of production into Q3 and Q4? Any maintenance or shutdown expected and as well as any catch-up in sales given the lower sales versus production in Q2.

On the production question, we don't have any planned maintenance shutdowns. So we expect production to be very strong throughout the back half of the year. On the sales, it's really a timing issue between production when those get translated into sales and depending on when the quarter ends kind of cuts it off. So I think you'll 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.

Sam, obviously, Lithia markets volatile, the best of times, we've seen a quite strong rebound lithium prices, now things have come down. We had seen some restarts, some companies. We've seen companies like yourself in Ganfeng talking about advancing projects. Can you speak to your conviction and your partner's conviction in your different projects here at different lithium price levels, how the market is faring, how assumptions have changed versus 6 months ago?

I mean we have a huge dramatic infection in our projects. And again, think in LAR view, the expansion at Qatari and PPG is 2 of the most attractive growth projects in the market today. That view is largely founded on the success we've had at Stage I. It's a project that we brought online for under $1 billion. Today, it's generating 100% basis, like $460 million EBITDA. It's one of the lowest cost producing assets in the world. So there couldn't be more conviction in our suite of assets. And I think the way we're approaching both is in a disciplined manner. So we talked a lot about kind of PPG. Obviously, we have a development plan out on that, that shows the economics really very robust projects, but we also talked about working with Ganfeng on our appropriate financing plan, including a potential minority partner to provide the equity capital. So I mean, our job here at LAR is really to ensure that our shareholders benefit from what we have, which is joint control over 2 of the largest, highest-quality lithium assets in the world. Our view is the market is growing in a fairly healthy way. And these projects are definitely kind of at the top of the list in terms of projects that should be brought online and will be brought online. And I think stage 1 is just evidence of our ability to execute and lens to the conviction and continuing to grow in Argentina with Ganfeng.

Your next question from the line of Anthony Taglieri with Canaccord.

Maybe just on operating costs. So last quarter, we would have talked about sort of full year operating costs in that mid $5,000 per ton range. Obviously, there are some cost pressures this quarter, energy costs, that sort of thing. Like is this going to be sort of recurring for the rest of the year? Or is it sort of more onetime for this quarter? Like how should we think about operating costs for the rest of the year?

Yes. I mean Q2, obviously, we had a planned shutdown, which resulted in I guess, a few hundred tonnes less production, so operated at 93% operating capacity. That does have an impact on our costs. In terms of like structural changes to our cost profile, we don't see anything. There was a small impact kind of shared equally between just kind of energy costs globally as well as a stronger peso. But I think that mid $5,000 per tonne is still kind of how we're tracking through the rest of the year. I think into next year and the years after, the view is as we kind of continue to debottleneck, push the plant to 40 or above there's room for those costs that to come down even further. So I mean, we're we couldn't be happier with how the operation is running. It is pretty remarkable. And I think the noise quarter-over-quarter in terms of an 8% increase in costs in a quarter, we have planned maintenance shutdown, I think is overshadowing the fact that this is a business with 70% operating margins, which generated $141 million of free cash flow from operations. I mean, we couldn't be more pleased with how how the operations go ahead and how our teams at Exar are performing just really kind of world-class.

Your next question is from the line of Corinne Blanchard with Deutsche Bank.

Maybe the timing for Stage 2. So I think 1 of the studio on a prefeasibility study also is now expected in of. I think you did stated for like midyear. So just maybe wondering if there's a slight delay and if that's the case, what caused it? And just in Linae,what can we expect over the next 6 to 12 months of Stage 2?