Albemarle Corporation (ALB) Earnings Call Transcript & Summary

[Presentation] Hello. My name is Meredith Bandy, and I'm the Vice President of Investor Relations and Sustainability here at Albemarle. And it's my pleasure to present to you today Albemarle's Third Annual Sustainability Day webcast. Before we get started, as a reminder, some of the statements made during this call may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our presentation materials, that same language applies to the webcast. Every year, I feel like our Sustainability Day event just gets bigger and better, and we're really excited about the lineup that we have for you today. First, Kent Masters, our CEO, is going to discuss how Albemarle is committed to building a more resilient world, including recent highlights from our sustainability programs and strategy. Second, we'll talk about how Albemarle is partnering with customers to create a more resilient value chain. Third, we'll highlight some of our community relationships around the world. Fourth, we'll cover progress on diversity and environmental targets. And finally, Kent and Scott will join me for a live Q&A. As a reminder, you can submit your questions via the chat function on the webcast at any time during the live event. And now let's go to Kent.

Welcome to Albemarle's 2023 Sustainability Day. Today, you will get a detailed look at our newly released sustainability report, including updates on our previously set goals and targets. Throughout this webcast, you will hear from global leadership across energy storage, specialties, diversity, equity and inclusion, finance and our newly formed global External Affairs Organization. Albemarle transforms essential resources into critical ingredients for a sustainable future and our products make the world more resilient by supporting the transition to a carbon-free economy. The innovative technology we develop helps make the world a healthier and safer place. In 2022, we launched MercLok, a game-changing remediation technology designed to rapidly stabilize mercury found in a range of soils and industrial waste that, if left untreated, can create an environmental and health hazard. The opportunities for our business are far ranging, enabling transformations in mobility, energy, connectivity and health. In mobility, we are enabling the electric vehicle revolution. In the energy market, we are supporting the development of stationary storage to create flexibility to integrate renewables like wind and solar into the grid as well as residential storage that makes power more resilient and cost effective. Additionally, Albemarle was awarded a $150 million grant from the United States Department of Energy as part of President Biden's Bipartisan Infrastructure Law to expand domestic manufacturing of batteries for electric vehicles. We have taken a leadership role in transparently showing how we produce our products. In 2022, our Salar de Atacama site became the first lithium mine in the world to undergo an audit by the initiative for responsible mining assurance. Albemarle was honored to become a signatory of the United Nations Global Compact CEO Water Mandate. As part of our commitment to reducing the freshwater intensity of our operations, we brought online a $100 million thermal evaporator at our La Negra facility in Chile. We've made important organizational changes to our talent acquisition and employee experience teams to meet the needs of our growing company and to strengthen our commitment to foster a diverse workforce, and equitable workplace and an inclusive culture for our employees. To be successful in reaching our goals, we must have the most talented global workforce. And to have that, we must be diverse and inclusive. During 2022, we successfully executed on our growth strategy, delivering projects on 5 continents, including lithium expansions in Chile, Australia and China, and bromine growth projects in the United States and Jordan. We also delivered record financial and operational results with net sales of $7.3 billion and adjusted EBITDA of $3.5 billion. And we remain steadfast in our commitment to being an industry leader in sustainability and making steady progress against our goals and targets as a core pillar of our strategy. Looking ahead to execute against our ambitious strategy, we will seize opportunities to innovate around new products and technologies with sustainability attributes and environmental benefits. We will also continue to work with our customers, suppliers and other business partners to find transformative solutions to create a more resilient world with people and planet in mind. We're on a journey of business and sustainability excellence, and we look forward to sharing our milestones with you in future reports.

In Kent's closing remarks, you heard him talk about how we're working with a wide variety of external stakeholders to build a more resilient world. Now let's take a deeper dive to our customers specifically. First, we're going to talk to our GBU President, Netha Johnson and Eric Norris about how they're working with their customers on sustainability. And then we'll hear directly from 2 of our customers, DSM-Frmenich and LyondellBasell. As sustainability leaders, we're proud to work together and inspire others to build a more resilient value chain. All right. Well, welcome, Eric and Netha, thank you so much for joining me today. When we think about sustainability and all the external stakeholders for Albemarle that care about sustainability, I think customers are definitely top of the list. So maybe, Netha, for you first, how is the Specialties division working with customers on sustainability?

Yes. Thanks, Meredith. We actually collaborate quite a bit with our customers on sustainability, and we collaborate to really talk about how we're moving the needle on our initiatives around sustainability. And maybe two of those I'd like to talk about is first is how we expand. We typically like to expand in sites to have better energy efficiency, and that energy efficiency is a key component to all our expansions. And another area in our initiative is new product development. We use sustainability as a key cornerstone we think about how we develop products, whether it's MercLok, which is designed for a sustainability application with the capture of mercury or ALERO, which is a polymeric flame retardant, which really moves us down the path to the holy grail for us, which is plastic recycling.

Those are both really exciting new products for us, I know. And same question for you, Eric, on energy storage.

Well, it's often and it's in EVs, it's all about the sustainable transition, the movement to clean energy. So since that's what our customers are looking for, that is what the dialogue frequently is. So it's -- the way we position ourselves is we look at ourselves as a thought leader in the space, and we back that up with how we act. We have some of the world's best resources, phenomenal processing technology and how we do things, how we engage with the community is a big part of how we operate, so we do simply is use our values to show that transparently with integrity to our customers, we invite them into our sites. It's all about using those values to speak to the engagement that they're very keen to have with us on sustainability.

Yes. And sustainability can mean a lot of things to a lot of people. But when you talk to your customers and specialties, what are the sustainable topics that they're most interested in?

Yes. I think there's 3. And if we put them in a priority order, first, we're focused on ESG first. And what I mean by that is they really want to understand that as a base component of how to reduce their carbon. Then next, they follow by, of course, the economic impacts and then the social impact areas.

Yes. And what are the social impacts that they're most concerned about, do you think?

It's surprising. They ask a lot about diversity. They want a diverse supplier. They wanted a supplier that looks like them. And so I get a lot of questions on what does your workforce look like? What does your direct staff looks like? And there's a real push for our customers to make sure we have a workforce that looks like their workforce. And that's -- and we are global, that means we got to be global as well as local.

Yes. And I think that's also so important for us to achieve the tremendous growth objectives that you both have for your businesses, too. Same question for you. Are your customers saying the same things about sustainability? Or is it a little bit different?

They're saying some of the same things, but in this space for electric vehicles, it's really about carbon and maybe even about circularity. I means with carbon, it's about how can they make sure that they are getting the lowest carbon footprint in their supply chain for their vehicle, which is delivering a carbon-free emissions profile. And frankly, it's exciting that lithium is a very small amount of the carbon that's generated in the battery -- when it's produced as it goes into the battery, but it enables a 50-fold reduction once it's put in use, so that's the value proposition. But it's got to be made at quantity and a high quality for them to be able to fulfill their business objectives. The circularity aspect is about how we can be efficient in how we do things and in the future recycle the lithium that we, today, you harvest from either brines or from hard rock resources. That's another key part of how they think about our sustainability profile.

Yes. And the recycling for us really becomes another resource that we can use for production, right?

For sure.

Absolutely. That's a big part of it. The idea here is to extract once and reprocess subsequently as the end of life battery comes. And this industry, we believe, like many others in the metals area, has a much lower carbon footprint for the recycled material than it does for the virgin material to begin with. So closing that loop with the customers and creating a sustainable supply for them, both from an environmental standpoint, but from an economic standpoint, such that they know they have it going forward is vitally important for this transition. We're talking about to clean energy.

Really interesting. So when we talk about sustainability, of course, we want to maximize opportunities, but we also want to minimize our impacts. Netha, how are you working with customers to minimize risk and impacts around sustainability?

Yes. I think it's 2 ways. When I think about risk, it's resource risk, so particularly on the water. So continuing looking at how we use water, having reuse loops for water to make sure we minimize the water use as we maximize our business and our business results. That's a key component, and that's a big deal for us because we like to be in the places we operate a good steward, a good steward of our environment, the community and the neighboring -- surrounding neighbors.

Yes. Important for Jordan and Chile, too. I know. Same question for you on energy storage.

What you said it's vitally important to Chile. We talk about areas of high water risk and Jordan and Chile are 2 of those places. And we've done a lot through investments in technology and process to remove water or increased use of recycling of water. We've recently made a significant investment in a thermal evaporator at La Negra in order to enable growth of that production in Chile at our Chile plant there without a corresponding increase in water consumption. I would say another key aspect I want you go from sort of the immediate impacts of -- from an environmental standpoint to the broader impacts in the community is how we engage with the community and how we bring those resources into our plants, provide transparency to them and then how we show that operation clearly to them so that they can have trust in it. And so we've recently become a leader in implementing and having audited our plants to the standard of the initiative for responsible mining assurance or IRMA. And that's a key standard for us that we think as a thought leader in the industry, we're setting that trend so that we can show to our customers and indeed to the industry that this is how you should operate a plant openly and visibly for all to see, and that's another key part of what our customers are looking for from a sustainability point of view.

And I think on IRMA, the interesting point is that it's multi-stakeholder, right? So it's the producers and the customers, both together on that. All right. Great. Well, thank you guys so much for your time. It was a great talking to you. And now I'm really excited that we get to hear from a few of our customers on sustainability as well.

I'm Andre Bos, and I'm the Chief Procurement Officer for DSM Firmenich. We at DSM Firmenich are innovators in nutrition, health and beauty, and we develop and invent and combine the essential nutrients, flavor and fragrances into end products. With Albemarle, we collaborate in our production process for the essential vitamin A and E together. And they are not just a supplier to us, they are really a partner to us, and the partner goes very deep. We are very like-minded in our way we think about sustainability, not only think about it but also how we act. So with Albemarle, we have very well, very strong projects defined where we together try to, not only try, but are reducing our footprint in our production process and in theirs, and we look how we can optimize between ourselves, many aspects of this production process. And that's about CO2 footprint reduction, extremely important. It's about water usage reduction, but it's also about recycling streams where we work together with each other. So Albemarle is really a partner who thinks likewise and that you need to truly improve all the aspects in the production process of your vitamin chain. Well, vitamins are micronutrients, which are essential for life. It's essential for us, it's essential for you. It's essential for everybody, and if you look to the micronutrient deficiency around the globe, 2 billion of people around the globe have micronutrient deficiency. So if you produce these micronutrients, you do something good for the world, so at least that is something where we contribute to. We committed to combat micronutrient deficiency especially of children. In certain areas of the world, we work together with WFP with United Nations with NGOs to fortify that food and reach the people also with better nutrients in their food. There's around 800 million people we want to reach as a company with this program to make people healthier and that they have also a good life.

At LyondellBasell, our purpose is to create solutions for everyday sustainable living, and we have a set of industry-leading sustainability goals aligned with our purpose. In terms of climate action, our sustainability goals are to reduce Scope 1 and Scope 2 greenhouse gas emissions by 42% by 2030. And additionally, reduced our Scope 3 emissions by 30% by 2030, and this is all relative to a 2020 baseline. Overall, LyondellBasell aims to reach net zero in Scope 1 and 2 greenhouse gas emissions from all of our global operations by 2050. Additionally, we have a target of procuring at least 50% of our electricity from renewable resources by 2030 and that is based on a 2020 procured level. LyondellBasell recently launched a circular and low-carbon solutions business to deliver on our ambition to produce and market at least 2 million metric tons of recycled and renewable base polymers annually by 2030. And this can come from advanced recycling, mechanical recycling or renewable bio-based feedstocks. Albemarle produces such materials that help make our product properties better. As we go through our sustainability journey, we are looking to collaborate with our suppliers to procure more sustainably sourced raw materials. Working together with Albemarle, we can create products for our customers that are better, more sustainable solutions for tomorrow, and collaborating with Albemarle helps both companies accelerate our goals to end plastic waste. Just like Albemarle, our sustainable procurement program is aiming to reduce Scope 3 emissions through cooperation with our suppliers. Both companies are engaged with EcoVadis, a global platform that provides corporate social responsibility monitoring and ratings to better understand how our suppliers measure up. Scope 3 emissions are associated with the value chain, so it's important for LyondellBasell to work in tandem with our suppliers to align on sustainability ambitions and targets. Together with Albemarle, we can combine forces to address the global challenges of plastic waste and climate change, both through company actions and value chain collaboration.

So a few moments ago, you heard from Netha and Eric about the importance of being good stewards of the community and the environment, and you also heard them talk about how we engage with communities with integrity and transparency. So that's obviously important to our customers, but it's even more important to our communities. So now let's hear from Ignacio Mehech, our Country Manager in Chile, one of our community partners in China, and Beverley East, our Country Manager in Australia. In each of these cases, by holding ourselves to high international standards, while also respecting local cultures, we can help build more resilient communities.

[Foreign Language] Our relationships with communities follow the same principle that motivates all the actions we take at Albemarle, transforming essential resources into critical ingredients for various aspects of life. Community relations is one of the most important elements in building a better world. Dialogue, sustainability and social value are the keys to generating long-term relationships that allow us to approach communities with humility as equals seeking initiatives in which collaboration is key. All of our relationships with communities are based on good faith and the search for common ground. Our corporate values are what guide our behavior with others. We seek to establish long-term community relationships based on meaningful engagement, care, respect, trust, transparency, honesty, humility and good faith. Community relations are all those links, interactions and relationships established by the company and the communities surrounding its operations or areas of influence. In Albemarle, we established links with the various stakeholders in the territories to maintain fluid channels of communication, dialogue, promote collaborative work instances, preventively identify social community risks and generate contributions aimed at local development. We have a team specialized in community relations that approaches each group in a respectful and truthful manner, promoting transparent dialogue. Many years ago, we made a decision to follow our relationship model with indigenous peoples based on 3 solid pillars: sustainability, dialogue and social value. That is why in 2016, we signed a pioneering corporation sustainability and mutual benefit agreement with the 18 Atacamena Indigenous Communities of the Salar de Atacama, grouped in the Council of Atacamena Peoples, which marked a new paradigm in relations between indigenous communities and the mining industry. Its signing is the result of a process of approachment, dialogue and collaboration between the parties that began in 2012, which is inspired by the principles of ILO Convention 169 by seeking to generate formulas for the participation of the Atacamena communities in the benefits derived from lithium production in Salar de Atacama and incorporates the highest standards proposed in the United Nations declaration on the rights of indigenous people. This agreement is primarily related to sustainability of the Salar de Atacama Basin, which implies an enormous responsibility of collaborative work. And in addition, we shared 3.5% of our Chilean sales with the Council of Atacamena peoples and its 18 Communities. These amounts have been invested with self-determination in the development projects such as improved access to water, installation of photovoltaic panels, community headquarters, scholarships and other projects that have a positive impact on the quality of life of the communities. Where we routinely interact with indigenous communities, we seek to develop, implement and continually improve detailed procedures to provide company employees with practical guidance regarding committee interactions, social contributions and other related matters. We are honest and transparent in our environmental and social management and actively communicate this so that our neighboring communities understand our operations, plans and projects. We are very proud of the path that we have followed, and especially of the dialogue process we have achieved with the generation of mutual trust. We seek to establish mutually beneficial agreements with our neighboring communities, ensuring compliance with all obligations by law. Learning is constant. At the Salar de Atacama plant, we have been pioneers in being evaluated by the demanding IRMA standard, especially in informed dialogue and in the constant provision of preparation in a direct and transparent manner. We have implemented our community relations and indigenous people's policies and our human rights policy. [Presentation]

Albermale Australia is expanding rapidly, responding to customer demand for our world-class spodumene and lithium hydroxide products. These are the clean energy required to power EVs across our globe. To truly be a part of the energy transition, we must produce lithium in the most sustainable way possible every day. In Australia, Albermale has begun to think about how it can advance reconciliation with our First Nations community as we begin to draft our first reconciliation action plan. This is a significant step for our company and is one way that we will show our commitment to establishing respectful relationships and creating opportunities for First Nations people for traditional custodians of the lands and the waters on and around where we live and work. As we started planning a workforce village to support our Kemerton expansion project, we've stepped up our engagement with the local community. We understood that bringing large construction workforces to live within a residential community can cause concern, so we set out to share as much information about our proposal as possible. An initial social impact review was undertaken during our planning phase, which was then complemented with a more detailed social impact assessment that incorporated views expressed by the community. With the village now under construction, we're creating a community reference group, which will oversee construction and operations. Critical to our sustainability objectives in Australia is our plan to reduce emissions from our Kemerton lithium processing facility. As we explore new technology to improve our process, we will focus on a greater use of renewable power supply and electricity from low emissions generation. Our government approvals also require us to reduce emissions, manage our waste and water and very closely monitor the floor and vegetation surrounding the site. We're also buying bushland for conservation to offset the area that we've cleared. Protecting the environment is a key consideration as we expand operations at Kemerton. Albermale Australia is also finalizing its statewide community investment framework to complement the work commenced by the Kemerton plant, investing in the local community. Already, over 20 local organizations have been provided financial support to deliver programs, improve facilities and run events. We look forward to expanding and developing our community programs. In Australia, we're energized by the opportunity to be a long-term partner in building community in our Southwest. It's not enough to just transform essential resources into the critical ingredients that we need for our clean energy future. We must also remain committed together to building a more resilient world.

As a market leader, Albemarle has operations all over the world, so diversity is really important for us to achieve our long-term growth strategy. First, we're going to hear from Timitra Hildebrand-Jones, our Vice President of Culture. She's going to update us on the diversity targets. Then, our CFO, Scott Tozier, is going to update us on the progress towards our environmental targets and also our task force climate-related financial disclosure, also known as TCFD reporting. This is really about the progress on our commitments to build a more resilient world where people employment thrive.

At Albemarle, we recognize that having a diverse workforce with a broad representation of backgrounds and experience helps us stay competitive and resilient. It's not enough to have a diverse workforce, we must also foster a sense of inclusion and belonging. In doing so, we can be successful in reaching our long-term growth ambitions and fulfilling our corporate purpose to build a more resilient world. I am pleased to report that in 2022, we met or exceeded all our initial DE&I targets. Building on that success, we are excited to introduce new and expanded DE&I targets for 2023. These near-term targets represent concrete next steps we are taking to achieve our ultimate ambition to establish industry-leading representation and to build a culture of engagement, inclusiveness and belonging. First, on global gender diversity. Total female representation increased by 2% to 24% in 2022. This is ahead of our prior target to increase female representation by 1%. Female representation and manufacturing also increased by 1% to 10% in 2022, in line with our prior target. We are introducing new 2023 targets to increase female representation by a further 2.5% to 26.5%, with additional emphasis placed on roles in manufacturing, engineering and mining. We are also introducing a new target to increase female representation in senior level roles from 21% to 22.5%. Next, looking at U.S. racial representation, we also exceeded our initial targets. In 2022, non-white representation in senior level roles increased by 4% to 21%, above our initial target for a 1% year-over-year increase. In 2023, we aim to continue to increase U.S. racial diversity at senior level roles from 21% to 22.5%. In alignment with our commitment to transparency, we have published our most recent EEO-1 report to our website. The EEO-1 report provides additional demographic information on our U.S. workforce. As further action toward our goals in 2022, we hired a dedicated diversity recruiter and partnered with organizations, including women and manufacturing, international women in mining, HBCU Connect, Society of Asian Scientists and Engineers, and Hiring our Heroes. Looking ahead, our focused objectives to support these targets include: talent attraction to expand external partnerships and present diverse candidate slates and interview panels. Talent development through growing our employee resource groups or Connect group engagement and building targeted learning and development programs for our diverse employees. And talent retention, including annual employee empowerment survey outreach and hybrid work environment. Our goal is to create a work environment where every employee has a sense of belonging and feels valued for their contributions to our company, where all voices and ideas are heard and where there is a shared understanding of respect for all people of all backgrounds.

Our work at Albemarle is critical for the clean energy revolution, and lithium is vital for clean transportation, renewable energy and the fight against climate change. We know that life cycle greenhouse gas emissions are significantly lower for electric vehicles than for internal combustion engines. Based on the current global electricity grid, EV life cycle emissions are roughly half that of ICE vehicles. As the global economy continues to shift towards more renewable energy, that benefit is expected to increase. On a 100% renewable grid, EVs would have 80% lower life cycle emissions than ICEs. This analysis is based on data from MIT, and we see similar results from studies at Argonne National Labs, the US EPA and the International Energy Agency. Moreover, lithium contributes a small percentage to production phase emissions of an EV, typically only about 3%, and we're working to reduce that even further. Albemarle is committed to reducing our carbon footprint across our operations and in our supply chain while meeting the automotive industry's increasing demand for lithium to enable the energy transition. Before we review progress on our environmental targets, a reminder that our 2022 targets are based on our prior business unit structure, including lithium, bromine and catalysts. Goals in next year's report will be recast for energy storage, specialties and Ketjen. Starting with our greenhouse gas targets, we are pleased to report that for our Lithium business, we are tracking well below our 2030 Scope 1 and 2 targets. This is primarily due to increased brine-based production as well as increased use of renewable energy. In the coming years, greenhouse gas intensity is expected to increase from our current levels but to remain at or below the 2030 target. And this is because we will have greater rock-based production that is offset by efficiency improvements and increased renewable energy use. Based on our product life cycle assessments, we estimate that our brine-based lithium products have a significantly lower carbon footprint than our rock-based products. In the coming years, we expect to shift towards more rock-based hydroxide production to meet demand for higher energy density batteries. And this product shift means that our 2030 greenhouse gas target requires significant reductions in our rock-based hydroxide carbon emissions through both energy efficiency and investment in technology. Bromine and Catalyst 2022 absolute emissions are on track for our 2030 target, thanks to ongoing efficiency improvements and greater use of renewable energy as well as lower catalyst production. On an intensity basis, these businesses are above target, primarily due to lower catalyst production since the global pandemic began in 2020. Greenhouse gas intensity is expected to improve as the Ketjen business executes its turnaround plan. Now let's switch gears to water. We understand that freshwater is at the core of sustainable development and is critical for socioeconomic development, energy and food production, healthy ecosystems and human survival. Responsible management of our water resources is a pillar of our sustainability strategy and part of our global license to operate. We are pleased to report that our goal to reduce the intensity of freshwater usage in Chile and in Jordan remains on track. The 2022 water intensity for Chile and Jordan was 6.7 cubic meters per met ton of product, down 3% year-on-year as improvements in Chile offset higher water intensity in Jordan. Chile's water intensity was down more than 20% year-on-year, thanks to the continued ramp-up of the thermal evaporator at our La Negra site, which helps us recycle water used in production. Jordan's water intensity increased by 5.5% year-on-year due to a product mix shift to more water-intensive products in response to market demand. With recent efficiency improvement projects, water intensity in Jordan is expected to improve in the coming years. For example, our NEBO project, which allows us to recycle waste streams into additional finished product, thereby cutting water use, reducing costs and increasing revenues. It is important to note that our measurement of freshwater use does not include brine, a mineral-based resource, which is several times saltier than the ocean. This extreme salinity makes brine unusable as a freshwater source for human consumption or agriculture. We believe that innovation is key to responsible water management, and we are committed to making the necessary capital investments to meet our freshwater goals. In last year's report, we introduced our initial Scope 3 greenhouse gas assessment. This year, we are introducing a new Scope 3 target related to purchased goods and services, to better understand our suppliers' carbon footprint. Our goal is to collect data from 90% of our suppliers by the end of next year. This initial Scope 3 goal helps set the foundation for a future Scope 3 reduction target. Carbon emissions are important, but there are others we focus on, too. To reduce emissions and to improve circularity, we are introducing a new goal to reduce 90% of our sulfur oxide or SOx emissions by 2027. At our Magnolia facility, we plan to invest $35 million to enable the conversion and potential reuse of sulfur compound byproducts. Also new in 2022, and Albemarle began to report on task force for climate-related financial disclosures, or TCFD, to provide investors and other stakeholders with more comprehensive information about the impacts of climate change on our business. Over the past year, we worked together with third-party resources and a cross-functional team of internal stakeholders to identify and quantify our most likely transition and physical risks and the areas where risk mitigation is the most important. Risk related to the transition to a lower carbon economy include carbon pricing, the loss of customers linked to climate performance and regulation of lithium-ion batteries. Risk related to physical impacts of climate change include water scarcity in Jordan and Chile, heat extremes and the impact on hydro power supplies in China and thunderstorms in the U.S. At the same time, we see strong opportunities for our business related to climate change, including the expansion of low-carbon mobility and battery recycling. As a global leader in transforming natural resources into essential ingredients for a sustainable future, Albemarle will continue to accelerate our growth and leverage our competitive advantages to provide long-term value for our stakeholders. We will also continue to work with our customers, suppliers and other partners to find transformative solutions to create a more resilient world. We're on a journey of business and sustainability excellence, and we look forward to sharing our milestones with you and the future.

That concludes our prepared remarks, and now we'll start with a live Q&A. As a reminder, you can ask a question using the chat function on the webcast at any time. I'm here today with Kent and Scott to answer your questions. And before we begin, I just want to mention that we did have a new announcement today. Kent, and maybe you want to talk to us a little bit about what that was and what it means for Albemarle.

Okay. Thanks, Meredith. Today, IRMA, the initiative for responsible mining assurance announced that Albemarle earned an IRMA 50 rating in an independent third-party assessment at our Salar de Atacama plant. We are proud to be the first lithium producer and only the third mine in the world to complete the audit and have our report published by IRMA. While we achieved an IRMA 50 score, we ultimately met 70% of over 400 rigorous IRMA requirements at the Salar. This is just one of our many sustainable commitments and efforts in Chile and our sites around the globe. And I'd like to give a sincere thank you and congratulations to the entire team for this milestone achievement.

All right. That is great news. So thank you for that. So our first question from the chat comes from John Roberts from Credit Suisse. And John asked, how does your expected North Carolina -- North America lithium production compare and sustainability with the Australian rock-based production?

So let me -- I'll start with that, maybe Scott will add a little. I would say, I mean, it will be similar, so rock to hydroxide in both locations. So if we're using Australian rock converted in Australia versus Kings Mountain converted in North America, it will be similar. And the difference is probably will be where you sell the product. So if you're selling it in North America, there'll be less carbon associated with transporting product from our facilities here versus bringing it from Australia.

Yes. And I think it's also important to recognize that as the grid changes in terms of renewable power that's going to change the footprint as well. I think, right now, it looks like maybe South Carolina is a little bit ahead of Australia, but that's going to change.

Yes. That's a great point. One question that we get from a -- I'm sorry. One question that we get from a lot of investors is around sort of the cost. As we're moving towards these sustainability goals, what types of incremental cost are we seeing in terms of technology or capital, that sort of thing?

So again, I'll start. A lot of the projects that we do from a sustainability standpoint have a financial return, not all of them, but the majority of the projects. So obviously, you take the low-hanging fruit first, and majority of projects that we're doing have a good return. There are a few that don't, but we make commitments around that. The thermal evaporator in Chile is an example of that. They -- sometimes they're the bigger projects, but the majority of them have good returns. And I think as we move forward in time, as we take on more sustainability projects that probably declined a little bit, but we'll see. Maybe we find other opportunities.

Yes. I think one interesting thing about the industry that we're playing in is that energy is both a big contributor to carbon output, but it's also a big contributor to cost. And so when you focus on cost reduction in the plant, a lot of times, that becomes an energy or carbon-based project as a result. In fact, if you look at the capital that we're spending this year, it's about $150 -- just over $150 million. A lot of that is energy-related. The other one, I think that I really appreciate is that the teams do a lot around circularity within the plants, so taking waste streams and recycling those. So for example, what we're doing in Magnolia with the SOx project is really about capturing that sulfur and then be able to turn that into a product that at least you can sell at cost, if not for profit ultimately.

And that's an exciting new goal that we have on the SOx. So we have a question from an internal audience member, so we got a question from Landon Fox at Albemarle. What important steps is Albemarle taking to broaden the scope of recruitment to achieve DE&I goals?

Yes. So I think we've made -- we brought on a diversity recruiter, specifically focused on diversity as one of those, and probably the biggest thing we do is we insist on diverse slates for all the roles. So it's kind of -- we like to say best player play, so we pick the best candidate always, but we make sure we have diverse slates.

And we're also building on our university relations. So the outreach into the universities has increased over the last 3 years significantly, so I think that's starting to show a benefit as well.

That's great. So the next question comes from Matt DeYoe at Bank of America. What progress has Albemarle made on recycling technologies in the new U.S. Flex plant?

So we're doing a lot of work on recycling. So it's still some years out, but there's a lot of work being done on material, particularly just coming out of battery facilities at the moment, waste material as they start up facilities, so we've done a lot of work. I mean, it's similar to DLE that we're doing a lot of the process technology in recycling, the process technology is very similar to our conversion facilities. So we've -- as we develop that process technology, it applies to recycling and now we're applying it into multiple areas, so there's a lot of work. There's still time to go exactly what that footprint will look like. Richburg will be the first time we do a facility focused on recycling from building it from scratch, but we're doing a lot of work from a pilot perspective today.

Yes. And you heard a little bit in the videos about work with customers and recycling definitely plays into that as well. Another question that I know we get a lot, to be honest, we haven't gotten it down the chat yet, and I'm very surprised, so I'll ask it. Is -- can you tell us a little bit about how the new lithium strategy in Chile is impacting your operations? And maybe also how sustainability is impacting the operations in Chile as well.

So from a Chile perspective, so they made their lithium announcement, we weren't surprised. We were expecting that to come out. The way it got taken up in the press was a little bit of a surprise, but we were expecting their national lithium policy. And we've had a lot of conversations with the administration since they've taken over, and they've gone out of their way to assure us that our contracts are valid and that like historically that Chile will respect the rule of law. So our contract -- our mineral rights contract runs to 2043, and we're very comfortable with that. That said, we'll have opportunities to work with the new administration. They want to expand lithium in Chile and they want to participate in that. So that's an opportunity for Albemarle to partner with the government and additional mineral rights and grow lithium production in Chile.

A couple of other things. Just from a sustainability perspective is that there's a big focus, as you heard on the video on water usage, so the investment in the thermal evaporator is all about not using more freshwater. We are investing in a solar array to support one of our by-product plants. And so I think that's an important one and continue to work with the government and the local people to support the community outreach there. In fact, 3% of our sales out of Chile go to the indigenous peoples, and those projects have been very, very successful for us.

Yes. And Ann Gurkin from Davenport asked sort of a similar question. You had a sustainability around water, especially figure into the current conversations with Chile and the government renegotiation contracts. And I think what I'm hearing from you all is that we're talking with them all the time and we talk with them about sustainability all the time, but the current contracts are still in place. Is that the right way to think about it?

Yes. So we're not really having conversations about the existing contracts, but we're having conversations about technology. So DLE is an important technology around water savings in the Salar or brine pumping, which is a concern for the government. So we spent a lot of time not just in Salar brine, but all the brine we have access to with DLE technology, our own technology, but also working with partners and commercially available technology to find out what those solutions could be. We've also just -- we're in the commissioning process for the Salar yield improvement project in Chile, which gives us an efficiency improvement. So for the same brine that we pump, we can recover more lithium and the combination of Salar yield project and DLE potentially has a lot of benefit, so we can arbitrage between the sustainability benefits and lithium production there. So those are some of the exciting things that we're looking at. We've not made a full commitment about what we will do exactly in the Salar or how we'll work with the government there, but our goal would be to expand lithium production in Chile.

And there could potentially be aspects for DLE and other areas as well, right, around Magnolia or other.

I mean everywhere there's brine. DLE -- some aspect of DLE will be applicable, and that's when we're spending so much effort kind of fundamental research and understanding the market around that.

And one of the challenges with DLE is it requires freshwater. Of course, Chile is short of that. So we have an MOU to -- with a company in Chile that will desalinate seawater and be able to pipe that into the area so that we could use that. So that -- hopefully, that will turn out to be a positive step and it opens the door for DLE.

Yes. The next question is from Christopher Parkinson from Mizuho. He asked if we could talk a little bit about sustainable lithium operations, how that comes up in customer conversations and also how IRMA plays into that?

So let me start, and we'll come back to that. But I think you heard in Eric's comment. So particularly with the OEMs, there's a lot of conversation around sustainable production. IRMA is the standard. Most of the OEMs have moved to driven originally by the European OEMs, so there's a lot of conversation about how we produce lithium, the steps that we go to make sure as possible, as ultimately, our customers, the OEMs value proposition to their customer is about cleaner energy. So they want to make sure all the materials that go into that vehicle come from a sustainable perspective as well.

Yes. Just again, I think there's other aspects that they're focused on, too. So community relations is important. Human rights is going to be important. So as we look at the supply chain, obviously, the lithium industry is still very new and those supply chains are developing. So we're going to get -- continue to focus on how to make them as sustainable as possible from the start as opposed to having to go back and retrofit over time.

Yes. And so let me just add back on that. So sustainability is a key part of our strategy around our overall strategy, but particularly for energy storage and the EV market. So it's fundamental from our customer standpoint, and it's built right into our strategy.

I'm going to add one more thing. Just as our commitment to this, we're looking at with the Kings Mountain Mine as we start to reopen that actually using the IRMA framework from day 1 to try to get to IRMA 100 when we launch that. Now whether that's a very high standard to get there, but just the build to start from 0 and able to build it, it's easier to do it that way than trying to go back in and fix something later.

Good point. A question that we often get from investors is around the science-based targets. And is that something that Albemarle would ever think about doing as having SBT goals?

Yes, I'll take that one. So I think our challenge with science-based targets are twofold. One is the growth that we have makes it very, very challenging with today's technologies to get to net zero ultimately. And so as a result, we've said that we'll focus on intensity as an important part of our focus. I think the second part of it is we need, as a globe and as a global community to produce lithium in order to meet the globe's requirements and the globe's ambitions for net zero because the lithium that we're producing going into the batteries is saving a significant amount of carbon. So the carbon that we're producing as a supplier, if I just took 1 kilogram of carbon that we're producing and you look at that in use over time, it saves about 50, maybe even more than 50 kilograms of carbon per year when it's actually in use in a vehicle, so we're really an enabler for this clean energy transition.

Yes. So we want to continue to produce the lithium the world requires for clean transportation and to combat climate change, while at the same time, minimizing our own carbon footprint. So we'll continue to work with SBT. For example, our goals for specialties and for Ketjen are SBT aligned. Also, in order to have an SBTi goal, you would need to have a Scope 3 goal, which is obviously already in progress. And then we're also working towards what the commitment to net zero 2050 would look like in building out that road map, so lots of work going on in that area. Maybe as a last question, how does sustainability inform our growth strategy and maybe specifically the M&A strategy as well?

So that's an interesting question. So I mean, as I said before, though, we've built sustainability into our core strategy. So whenever we're looking to do anything, we're thinking about it. So it's an element of that, but it could be -- so an example, some of the process technology we look at would be from a kind of a sustainability footprint, so DLE as an example. We talked about that. So we're looking -- we're doing our own development work around DLE, but we're also looking at potentially acquiring technology out there that would have a footprint, the Salar yield, project I discussed about in Salar de Atacama. That's a sustainable footprint, so we're able to produce more lithium with the same amount of brine or the same amount of lithium with less brine either way you look at it. So I think it's built into our strategy, and we consider it kind of every time that we do something. It's not always the trump card, but it's always considered.

Yes. I think when we're looking at M&A targets specifically, one of the things that we'll do is we'll go through a sustainability assessment. That includes the carbon footprint. What does it take to transport that product, what is the equipment standard that they have? What is their energy usage and what's available over time? Community engagement, so indigenous peoples and making sure that they've got good programs in place. So it becomes a screening tool for us as well as part of our due diligence process that we go through to make sure that we understand the target.

Yes, that would -- come back. So I'm getting better at this adding on to your comments. But we look at the opportunities like synergies, right? So it would be their sustainability opportunities. If they're not doing some of those things, and we know that we can bring that it's a synergy like -- from a sustainability perspective, so we look at all of those opportunities.

All right. Well, thank you so much for joining us, and thank everyone for their questions. That's all the time we have for Q&A today. I'll turn it back to Kent for closing remarks.

All right. Thank you, Meredith and Scott, and thank you all for joining us today. We hope this year's Sustainability Day has given you a deeper understanding of the role Albemarle plays in creating a more resilient world. As an industry leader, Albemarle enables the transition to clean energy and clean transportation. We are partnering with our customers, communities and other stakeholders to improve the sustainability of our business and create enduring value. We recognize the responsibility we have and look forward to updating you on our journey to creating a more resilient world. Thank you.