Standard Lithium Ltd. (SLI) Earnings Call Transcript

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to Standard Lithium's second quarter 2026 conference call. lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a brief 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. It is now my pleasure to turn today's call over to Daniel Rosen, VP of IR and Strategy for Standard Lithium. Please go ahead.

Thank you and welcome everyone. I'm joined today by David Park, our CEO and director, Andy Robinson, President, COO and Director, Salah Ghamoudi, Chief Financial Officer, and Mike Barman, Chief Development Officer. Before we begin, I would like to start with a reminder that some of made during our call today, including any related to company performance, expectations, and timing of projects, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release, which also applies to this call. I will now turn the call over to David.

Thanks, Dan. I appreciate everyone joining us today. We had a very productive second quarter and year to date as we continue to advance the important milestones and deliverables required in order for us to move our Southwest Arkansas project to a final investment decision later this year. To begin the year, we laid out the four primary deliverables required to be completed before taking FID. Executing our key construction contracts. Completing a federal environmental review under the National Environmental Policy Act or NEPA. finalizing our customer offtake agreements, and securing project financing. During the second quarter, we fully completed the first two of these objectives while continuing to advance the remaining two. We signed our two primary construction vendor agreements, separately covering the upstream wellfield and the downstream central processing facility. And the US Department of Energy concluded its NEPA review process with a finding of no significant impact. and no additional mitigation measures or conditions put in place for us to proceed. These are very important milestones that were many months in the making. Together, they provide greater execution confidence, schedule visibility, and regulatory clarity as we prepare to move rapidly from development into construction. They also reflect the depth and quality of the work completed by our team, alongside our partner, Equinor. while strengthening our first mover advantage in the smack over. Our focus is now on finalizing the two key remaining work streams, customer offtake, and project financing. The partnership remains in advanced discussions with several prospective customers and aims to conclude all remaining offtake agreements in the third quarter, which will help to finalize the size and structure of the Southwest Arkansas project debt. Both processes are steadily progressing in parallel. Our expectations for this year remain unchanged. To approve FID and begin construction at the SWA project, resulting in first commercial production of battery quality lithium carbonate in 2029. We're also continuing to advance our broader set of opportunities in East Texas. We plan to release a preliminary economic assessment for the Franklin project in the third quarter, while continuing to improve our resource definition and expand our leasehold position across the region. With that, I'll pass it over to Andy to discuss our progress in more detail.

Thanks, David. In May, the Department of Energy issued its finding of no significant impact, or FONSI, based on the comprehensive environmental assessment prepared for the SWA project. This marked the successful conclusion of the federal government's NEPA review, which was required in connection with the $225 million DOE grant that was awarded in January 2025 to support the development of our first 22,500 ton LCE phase of the project. FONSI was the culmination of over a year of stakeholder engagement, field work and baseline environmental studies and reflects the detailed design of the project which is intended to minimize surface disturbance while enabling responsible lithium production. The process also benefited from our designation as a priority critical minerals project under the government's FAS 41 transparency program. This means that we're now effectively completing our permitting to enable taking FID and beginning construction. We also executed our two primary construction contracts for the SWA project during the second quarter. For the upstream wellfield, Smackover Lithium signed an Engineering, Procurement and Construction Management, or EPCM, agreement with Wood Group. Wood brings substantial experience managing complex, multidisciplinary projects globally across energy, energy, lithium and broader minerals. Wood will provide EPCM services for the well-filled surface facilities, pipelines and third-party interfaces as well as support for the subsurface drilling and well work that will be led by our project team, leveraging the benefit of Equinor's deep internal capabilities and know-how. For the downstream central processing facility portion of the project, we entered into an engineering procurement, construction and commissioning or EPCC agreement with SMB engineers and constructors. SMB has proven large construction expertise with 55 plus years of operation and over 90% of their EPCC projects delivered on time and under budget. They have a strong regional presence and will be supported by Hatch, who brings important experience designing and commissioning DLE lithium projects. and B scope covers the full processing chain at the central processing facility, including everything related to receipt of the brine from the wellfield, direct lithium extraction, and ultimate conversion to battery quality lithium carbonate. Both construction agreements include a limited notice to proceed that we have already been taking advantage of. It allows us to continue to progress key work in the lead up to FID, including detailed engineering, procurement planning, and vendor engagement. We'll continue to de-risk execution and optimize the construction schedule so we can transition to full notices to proceed and begin construction promptly following a positive FID. We're able to put these contracts in place as a result of the extensive project definition that had already been completed by the team through approximately 18 months of detailed front-end engineering design work that culminated in our definitive feasibility study. We believe our construction partnerships give us a highly experienced and capable execution team with the safety culture, regional footprint, and technical depth required for a project of this scale. Turning to customer offtake and project financing, these are the two key remaining deliverables before we take FID. As previously discussed, the SWA project is designed for 22,500 tons per year of battery quality lithium carbonate. And we're targeting approximately 80% of that production to be on the long-term offtake agreements. Our existing 10-year agreement with Trafigura covers 8,000 tons annually and represents over 40% of our target contracted volumes. Our partnership remains in very advanced discussions with several prospective customers and aims to finalize all remaining offtake agreements in the third quarter. We're focused on reaching agreements on the best possible terms to support our project financing efforts and are highly confident in our ability to reach a positive outcome in these important negotiations. Conclusion of these offtake efforts will help to finalize the size and structure of the SWA project debt, where due diligence and other customary underwriting processes are well underway, and this work stream continues to progress in parallel with the offtake process. Before I hand it over to Salah, I just want to touch on East Texas. We plan to release a preliminary economic assessment for the Franklin Project in the third quarter of this year. This will build on the sizeable maiden inferred resource released almost a year ago that highlighted the highest reported lithium and brine grades in North America. This PEA will provide a first look at what we believe to be a globally significant project, extremely attractive project economics and a clearer framework for the next stage of development. We believe this is the next important step in gaining recognition and more appropriate valuation for East Texas as a core part of our asset portfolio. We'll continue to work on maiden and infernal resource reports for our other potential projects in the area, all while continuing to expand our leasehold footprint in East Texas. We are quite pleased with all the progress made during the second quarter. Two of the four principal pre-FID deliverables are complete, and the remaining two are advancing well. The project remains positioned for FID and starter construction later this year. Now, I'll turn it over to Salah to discuss our financial results and project financing.

Thank you, Andy. For the second quarter ended June 30th, 2026, we reported a net loss of 3.1 million as compared to a net loss of 5 million for the quarter ended June 30th, 2025. When comparing the quarter ended June 30th, 2026 to the quarter ended June 30th, 2025, GNA increased by 0.7 million while demonstration plant costs increased by 0.3 million. The higher G&A is primarily driven by growth in employee headcount and activity to support the advancement of our portfolio projects, including preparation of a final investment decision at SWA, partially offset by cost savings and certain audit, legal and consulting expenses. The demo plant increase was driven by higher personnel and supply costs associated with ongoing R&D activities to help support training of future operators at SWA, potential future improvements to our process flow sheet, along with other maintenance and site improvement work. do at the demo plant has been a real differentiator for us through all phases of our project development. Additionally, we incurred a non-cash foreign exchange gain of $2.7 million during the quarter. This FX gain was due to having significantly higher average U.S. dollar cash balances as a result of our $130 million follow-on offering in October of last year, as well as fluctuations in exchange rates between U.S. and Canadian dollars. and the resultant non-cash accounting impact on those cash balances held by one of our Canadian dollar functional currency entities. Below operating expenses, we recorded a slightly higher investment loss from joint ventures of $1.5 million for the quarter versus $1.3 million in the prior period. This increase reflects expanded operational activity at the Smackover Lithium partnership level in connection with commercial and financing initiatives, as well as increased corporate and administrative support as project development activities progress towards FID at SWA. And we continue expansion of our leasehold footprint, resource and economic definition activities We also recognized approximately $800,000 in additional interest income period over period, driven primarily by higher average cash balances. Moving on to the balance sheet, we ended the quarter with strong cash and working capital positions of $137.3 million and $137.1 million respectively. We remain focused on maintaining a strong liquidity position in addition to disciplined capital allocation and cost management. Standard Lithium made JV capital contributions of $9.4 million during the second quarter, of which $5.5 million and $3.9 million went towards SWA and East Texas, respectively. This brings total year-to-date JV capital contributions to $27.2 million. For Southwest Arkansas, the contributions allow us to continue to advance key project milestones and technical and engineering workstreams ahead of FID. For East Texas, the contribution is primarily to continue advancing resource and economic definition, expanding our leasehold footprint, and preparing a preliminary economic assessment for the Franklin project with further reports across our portfolio to follow. Securing an attractive and comprehensive project finance package is critical for a final investment decision at SWA. The approximate $1.5 billion of base project CapEx per our DFS, in addition to potential cost overrun facilities, reserve accounts, or other incremental capital requirements, expected to be financed by a combination of senior secured project debt, our $225 million grant from the DOE, potential further alternative non-dilutive funding sources, as well as respective funding contributions from Standard Lithium and Ecrard. The joint venture is targeting approximately 1.1 billion total in senior secured limited recourse project debt, supported by three leading major export credit agencies. The Export-Import Bank of the United States, Export Development Canada, and Export Finance Norway, along with a strong syndicate of commercial banks. The equity contribution required by Standard Lithium will be supported by the proceeds from our equity raise last year. Any cost over on facilities, contingencies, minimum working capital balances, or reserve accounts over and above base project CapEx requirements remain subject to negotiation with the lenders, with quantums to be determined. While we await the conclusion of our remaining commercial offtake agreements, which will play a significant role in determining the ultimate size and structure of the SWA project debt, we continue to progress important project financing work in the interim around due diligence, structuring and documentation, credit and other approvals, that we are in a position to reach financial close and draw down shortly thereafter. In other words, the offtake process has not and will not hold up advancement of the project financing work stream. We are in the advanced stages of diligence on this effort, and we remain on our targeted timelines. With that, I will now turn it back over to David for closing remarks.

Thanks Salah. We saw real tangible results in the second quarter as we converted multiple years of technical, environmental and engineering work into the completion of pre-construction milestones. We concluded the Federal Environmental Review under NEPA with a FONSI and a clear green light to proceed. We selected and contracted with key construction partners who will lead us confidently through project execution. and we continue to steadily advance the commercial and financing processes as the two final primary deliverables required before taking FID. Our team, together with Equinor and our advisors, remains focused on completing the remaining work with discipline and on terms that support the long-term value of the project. Our expectation remains to approve FID and begin construction at Southwest Arkansas later this year. first commercial production targeted for 2029. You should expect to hear frequently from us in the coming months as we conclude all remaining work and progress against our timelines. Standard Lithium continues to be extremely well positioned, poised for growth with a portfolio of high quality and scalable assets, including in East Texas, to be a leading domestic critical minerals producer in the United States. Thank you again for joining us today. Operator, I'll turn it back to you.

We will now begin the 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 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. stand by while we compile the Q&A roster. Your first question comes from the line of Max Yarrow with BMO Capital Markets. Your line is now open. Please go ahead.

Hey, guys. Thanks for taking my question. On the debt financing piece, is there any color you can share on which parts of the due diligence the lenders are working through and maybe which parts have been completed and how this is tracking maybe relative to your expectations?.

Thanks, Max. First, I'll say there are a number of work streams that the export credit agencies are pursuing in parallel. So technical diligence, including site visits, environmental due diligence, financial due diligence, insurance-related due diligence, financial due diligence, There are multiple work streams that have been pursued in parallel. I think there continues to be Q&A along all of them. However, no material red flags have been raised. No material concerns have been raised. So diligence continues to be made. We should be coming near the end of that diligence period. But that diligence then supports commercial negotiations around specific terms and conditions. And some of those negotiations are happening in parallel as well. Thanks, David. That's helpful, Culler. I'll turn it back.

Your next question comes from the line of Theo Gensibu with Raymond James. Your line is now open. Please go ahead.

Yes, great. Thanks for taking my call today, guys. the off take you reiterated the expectation to finalize them by 3Q and you've indicated that you have a pretty good sense of the counterparties and volumes durations and pricing mechanisms but can you just help us understand what the remaining gating items are today and are they like primarily you know commercial terms final credit approvals or documentation or something else.

Sure, great question. I'll first restate that we have the utmost confidence that we'll be able to bring offtake agreements to the table and announce prior to the end of the quarter. We – they may take the form of one additional offtake agreement or potentially two. The, I would say the agreements are, there have been heavily negotiated in parallel. So there are multiple parties we are talking to at this point in time, but that gives us a lot of confidence that at, by the end of the quarter, we will have offtake announcements that we can tell you are FID-able. And yes, I think that's probably the best I can do in answering your questions without getting into too much confidential detail on the nature of those discussions.

OK, yes, no, that's great. Great color on that. So appreciate that. Okay, and then just looking at the both construction contracts are in place with the limited notices to proceed. Can you give us a sense of what work is like actively advancing pre-FID and like how much schedule benefit that could provide that those could provide once you issue the full notices to proceed?.

Andy, can you take that one? Yes, sure. Hey, Theo. Yes, I mean, the work that's happening right now from the two contractors, whether it's SMB and Hatch on the CPF contract, which is an EPCC contract, or Wood on the EPCM for the well field, the work that's going on right now is, like, full confirmation of the feed design, the design assumptions, integrating that into a full holistic schedule. We're going with key deliverables, key milestones set up internally so that we have a fully integrated schedule between the two main contractor groups and obviously us as the owners. So that's one of the first items. Second is detailed design on key components of the work. Third, which is really important, is kind of vendor outreach. fact checking some of the key vendor packages which might which might sit on the critical path. For the project, talking to some of the key vendors, getting ground truth in some of the design assumptions, et cetera, and really just getting a feel for who the actual vendor packages are going to go out to. once we take full FNTP for the contractors. So we're doing all of this work basically, to ensure that the schedule which has been agreed in the two sets of contracts in the EPCC and the EPCM makes sense, they can adhere to, and that the vendors who are going to form a key part of the delivery are fully up to speed of kind of expected vendor package delivery dates, etc. So it's It really is kind of a holistic exercise right now, Theo, to make sure that we're on top of cost, on top of schedule, and that the full kind of project execution team is getting familiar. The working groups are getting set up. All the kickoff meetings are being helped. And yes, the full integrated delivery team is getting fully up to speed.

speed suction. I hope that's helpful. No, that's great. And yes, definitely look forward to seeing that roll out. So appreciate your time today and I'll hand it back.