AMG Critical Materials N.V. (AMG) Earnings Call Transcript & Summary

Welcome to AMG's Capital Markets Day. Today, we'll be focused on explaining AMG's lithium strategy. Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer, will begin with our overall lithium strategy. Mr. Fabiano Costa, the CEO of AMG Brazil, will explain the upstream part of AMG's lithium strategy followed by Dr. Stefan Scherer, who will explain the downstream part of AMG's lithium strategy. At the completion of Dr. Scherer's remarks, Dr. Schimmelbusch will open the call to take your questions. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.

Thank you, Michele. I want to welcome everybody to this day. This is the Capital Markets Day focused on explaining AMG's lithium strategy, I will introduce. And then Fabiano Costa will explain the upstream part of AMG's lithium strategy followed by Stefan Scherer commenting on the downstream part. Fabiano is with us since 2011, and he's the CEO of AMG Brazil. We built the lithium spodumene business in Brazil on time, on budget and on yield. Stefan Scherer joined us 2019 from Albemarle Chemical and his first mission was to build a comprehensive team of lithium industry experienced associates and to build a state-of-the-art laboratory center in Frankfurt. And now we are active in the first-type of set refinery in Germany. Here, you see that Europe is maybe the fastest growing market in the EV space. There are many of such forecasts, but they all sort of tend to have a consensus. We are offering to this market -- our main product offering to this market is lithium hydroxide, presently spodumene -- lithium hydroxide as a cathode material. And we are also active in natural gas for our anode material. The electrification megatrend we are trying to service has a compound annual growth rate 17% to 35% estimated to be 25%. Next slide. Here, you see the price development, especially focus on the latest spike here. Lithium carbonate and lithium hydroxide prices have increased by a multiple of 6 beginning -- compared to beginning of 2021. By the way, the price rise in 2017 and 2018 with price levels resulting in 17,000 per metric ton was mainly driven by supply shortages. In '21, it is a combination of very high demand, structural demand and a short supply. We expect this to be more sustainable than the earlier short-term price rise. Lithium carbonate in China is more a spot business, allowing for quick price reduction, whereas lithium hydroxide is more based on longer-term supply contracts. The reason for this is embedded in the difference in chemical properties especially shelf life. AMG sells its spodumene under long-term contracts indexed against these prices. One should be cautious with taking published spodumene price information, which contains spot sales like small-scale auctions. Next slide. The price development should be followed immediately by something commenting on cost. The cost structure. You see here, we have put together from a variety of sources. But the main takeaway here is that at the price level of 32,000 per metric ton of lithium hydroxide battery-grade, the present price level. At that level, the lithium part of the battery represents 11% of the total battery cost. So even at that very high price, it's only a smaller portion of the battery cost. And if you have a nickel manganese cobalt, about 7% lithium hydroxide are contained. And in the lithium iron phosphate, it's around 4.5% with no nickel and cobalt. This is why people like lithium iron phosphate. But one problem here is recycling for lithium iron phosphate because the recycling exceeds the cost of fresh material. Keep in mind, cobalt is better from the recycling perspective given the higher metal value. The customers of lithium hydroxide have announced expansions in Central and Eastern Europe, Scandinavia and France. We have located our lithium hydroxide refinery site with that cluster of customers in mind, it shows Bitterfeld, the center of the German Chemical Triangle [indiscernible] in Bitterfeld in East Germany in the state of Saxony-Anhalt. Our potential customers are in trucking distance short distance at least compared to established Chinese lithium hydroxide converters. The lithium hydroxide complex in Bitterfeld comprises of 5 modules with a capacity of 20,000 tons per annum for each totaling 100,000 tonnes when completed. The EU demand for lithium hydroxide is estimated in 2030 to be 600,000 tonnes. Now the AMG lithium value chain starts in the Mibra mine in Brazil. And there, we produce spodumene since 2018, 90,000 tonnes. Recently, we are expanding that to 130,000 tonnes. And later on, technical trade lithium precursor is under basic engineering presently, and I will come back to that. We deliver spodumene under long-term contracts to customers creating a base cash flow, while we are planning to build the chemical plant in Brazil, and while we are constructing a hydroxide plant to a refinery in Germany. Later on, there will be a switch where we don't convert the spodumene in outside converters, but do it in Brazil and deliver to Germany. We also presently are having a large scale production and sampling operation and small pilot plant for solid-state electrolytes, our most exciting projects. A larger demo plant is in the basic engineering phase for solid-state catalysts. Next slide. This is, again, here, we have the spodumene, on the left side, we have the 90,000 tonnes going to 130,000, spodumene that project to go from 90,000 to 130,000, we call internally spodumene one plus. We supply to converters, producing technical trade precursors, which once the lithium hydroxide module 1 in Germany is finished, will then be sent back. And of course, that hydroxide then feeds what I just mentioned about the pilot plant and later on the commercial production of solid-state catalyst. Next slide. Now in summary form, presently, AMG's lithium value changes very -- has a strong base cash flow, and that base cash flow is feeding our various projects. And that in scenario planning needs to stable or stable balanced equilibrium of cash flow production and use of cash flow. So -- and then we have, of course, thinking about module 2, 3, 4, 5 and thinking about what we have to do to feed those modules. We are thinking about how to finance those. We have separated AMG's lithium value chain into a stand-alone company under stand-alone management. And we are having 3 basic strategic alternatives, obviously. One is to keep 100% ownership to finance the growth with current funding of operating cash flow. Second, to invite complementary strategic partners for a significant minority stake, if the dilution we would experience in that is being outperformed by the cost aspect. And that is, of course, very important analysis. And third, do envisage an IPO for the lithium value chain business. I would think that latest at the Annual Meeting of shareholders in May. This we will have more to say about the status of that decision-making for future. Now I think it's Fabiano.

Thank you, Dr. Schimmelbusch. We can go to next slide. Please for those who doesn't know the famous Mibra mine in Brazil, the mine site, it's located in the Southeast region of Brazil, in a very blasting position for a mine. We are sitting in the middle of the triangle that is the most important economic triangle in Brazil between the cities of São Paulo, Rio de Janeiro and Belo Horizonte. The mine sits approximately 250 kilometers from the 2 main ports of Brazil, which is the Port of Santos and Port of Rio de Janeiro. The mine is an open pit mine. It has been in operation since 1945, essentially mining pegmatite, which for those geologists in the call, it's the famous range of pegmatite in Brazil. As I said, simple open pit mine with truck and shovel hauling process. The mining process is then feeding high-density concentrator where at the beginning of the mine was producing tin. Nowadays, the main focus is producing Tantalum. The tailings of this initial production turns into the feed for the spodumene concentrator which is up and running since May 2018. This is again relatively simple [Technical Difficulty] mining process, [Technical Difficulty] comminution and concentration by flotation. And of course, the mine being blessing with all these minerals, we have a cost structure allocation, which give us the differential of being a low-cost producer for all of these minerals. The estimate life of mine at this moment considered that we have some amount of tailings from previous operations prior to 2018 startup of the spodumene plant give a life of mine planning nowadays of somewhere between 17 and 18 years. We can go to next slide, please. Obviously, following the AMG Group, the AMG Mibra mine is very, very committed to the ESG. Our main products, they will be fostering the transition, the energy transition with the futures of energy, storage materials. There's a business plan that includes obviously CO2 reduction emissions as one area of interesting/concern. We have recently updated all of our structured tailings dam protocols and that has been satisfied, several demands around the world, including the charge of mining safety initiative. The mine has been recently certified on the ISO 14001. We have a very committed programs to develop social initiatives around the mine, especially in the communities around us. It is -- we are very proud of the programs that develop the community people to be able to work for us. We have increased the number of people from the communities working from us in the last decade in almost 300%. So we came from -- in 2011 from only about 55 people working for Mibra. And nowadays, we have nearly 220 people, which is essentially 70% of our population -- of our workforce something that we are also very proud. As of November 30th, the Mibra mine has completed 1,000 days without a lost time incident, a lost time event, which consider the hazards of a mining operation is quite impressive achievement. Finally, we follow -- we strictly enforced the protocols of the AMG Group, which is quite strictly itself. And on top of that, we have also been certified in Quality Management System, 9001. As I said before, the environmental management system is certifying 14001, and the occupational health and safety management systems also certified on 45001. We can go next slide, please. So this is just a picture of the special day we have celebrated back in November 30. This sign as of today is showing 1,042 days and our journey towards the 0 accident goes continue. We can go next. On the development of the lithium concentrator, it dates back from development and research since early 2011, when we start to do some lab tests, we move from lab test to pilot plant. And it was a very comprehensive R&D project until 2016 when we start doing the engineering and all the most detailed futures of the projects, which envisage the plant to be constructed in starting up in May 2018. I'm quite glad to say that we have reached that schedule pretty much on time. The plant has started in May [Technical Difficulty]. We build that on planned CapEx, but it was on budget. We have [Technical Difficulty] and that's what have expanded. And we are also glad that the plant nowadays is up and running at the parameters that will envisage during the design and project phases. So all these structures in terms of processing parameters has given us the operating cost that we target since day 1 in this project. We can go next, please. So as Dr. Schimmelbusch mentioned in the introduction of this presentation, we are expanding on our production right now, and I'm going to talk in a little bit in more details in a bit. But we're going to move from 90,000 tonnes per year to 130,000 tonnes. This 90,000 tonnes of spodumene concentrate, it sold out. At the moment, we have 2 customers in China that takes respective 60,000 tonne per year and 30,000 tonnes, and the expansion as is already also sold out from '24 to '28, all the expansion, the 40,000 tonnes. I have to mention that once we finish these 2 initial long-term supply agreements, we are planning to use our own spodumene to be converted in Brazil into a technical grade leading precursor that will be supplied to the refinery in Germany that comes in a bit in this presentation. We can go next, please. So talking a little bit more [Technical Difficulty] of the expansion nowadays, as I was mentioned before, we are increasing the capacity in about 45% from 90,000 per year to 130,000. This very minimal technical risk in that since this expansion is focused essentially on the debottleneck certain parts of the processing plant nowadays plus enlarging current processing steps. So there will be very few new processing technologies implemented. And we believe this will speed the ramp-up very much compared to what we've seen at the ramp-up of the plant itself. So we expect that start up will happen in the first quarter of 2023. And in that year, we will likely achieve nominal capacity for the new production volumes at spodumene plant 1. We can go next, please. This -- it gives the status of the current technical grade leading precursor project. We are at this moment, doing the basic engineer, this basic engineer should be finishing by the end of this quarter and all things be equal in this project, we expecting to start up a technical grade leading precursor to produce something around 165,000 tonnes LCE, which we matched pretty much with our production capabilities of spodumene, and we will feed the refinery plant at 85% to 90% in Germany. We can go next. So just to summarize this section of this presentation. We believe that we are very well positioned to help develop and commercialize of leaching deposits globally. We have a proven operational experience. We've been producing that since May 2018 with very success, I would say, meeting all design and project parameters for this plant. So that comes with derisking project developments, and we do have downstream value chain expertise in terms of commercial area, project financing. So we believe that we are very much well positioned to develop projects similar to us elsewhere in this world. I think that covers my section. I will pass the floor now to Dr. Scherer.

[Foreign Language], Fabiano. So let's move to the downstream aspect of our business now. As Heinz mentioned already at the beginning of the presentation, our first module here in Germany is designed for a 20,000 metric ton of lithium hydroxide battery-grade production. And the plant is located in Bitterfeld, that's in the Eastern part of Germany, and it is embedded in a chemical arc, which has a big advantage of having available a broad range of services and infrastructure, just to mention a few like electricity, wastewater, roads and so on. We own enough land there and we are having the structures in place to support up to a total of 5 modules, each of them having a target capacity of 20,000 metric tons hydroxide or whatever lithium chemical it might be at the end of the day. When you look down on the execution time line here. You can see that the construction of module number 1 is about to commence in a couple of weeks from now, having a targeted commissioning in Q2 of next year 2023. We then expect the production to start up and producing commercial quantities sometime in Q3 2023. Let's move to the next slide, Michele. So let's talk now for a couple of minutes about product offtake, which is important, of course. By now, we have covered up to 90% of our production capacity through executed MOUs or LOIs with 3 big customers. The numbers you can see here in the drawing on the left. Two of these customers are European based. The third one is based in Asia. But important to mention that all the material under these arrangements will be delivered within Europe. So it will not be shipped around the globe. In this context, in my view, it is worth mentioning that lithium hydroxide for battery applications is neither a commodity nor a simple chemical, which is sold to an agreed specification. It's definitely not this. It is a performance material or chemical. This means that the material has to perform and work in customers' processes and applications, even more important, up to battery cell level at least. So in other words, producing such a material requires always a strong state-of-the-art quality management regime, similar to what's known to good manufacturing practice in the pharma industry. Just to mention a couple of things here. Of course, you need a series of ISO certifications like the 9000 series, the 14000 and ideally also the 17025, which is dealing with quality control. You need to go through extensive and detailed process and system audits with external auditors but also with your customers. And you have to agree on very rigid change control procedures, et cetera, et cetera, here. And last but not least, and very important in this regard is, you need a formal final approval and go to ship by your customer. And you can only get this once you are in production and fully approved. Move on to the next slide. So coming to feedstock. Our refinery in Bitterfeld is designed to handle different types of feed, which at the end, always comes down to lower-grade lithium hydroxide solution, with a defined specification for chemical impurities and other parameters. Going back to the previous slide, also here, it is important to mention that the proper quality management system is required from the beginning on in order to allow handling such different feed. This will offer a big advantage in our view to a classical one-stop production. As you have many of them, today in China, starting with the lithium ore concentrate and ending with a battery-grade hydroxide. By having this refinery concept, we believe that we are providing the highest feed flexibility for such a plant. Now we can foresee 4 major possible sources for feed. Number one, of course, and most sustainable in terms of transport and CO2 emissions is our mine in Brazil. And as Fabiano mentioned just before, converting our spodumene there into a lithium precursor for the refinery in Germany. Number 2 is purchasing lower-grade precursors on the market. This, for example, also includes out-of-spec lithium hydroxide sitting in European warehouses at cathode paste producers, waiting in worst case for being shipped back to Asian producers along with all sorts of complications you can think about doing this. And finally, for our growth strategy and further modules, we are already in close discussions with numerous lithium projects and established producers. Here, we are preferably looking for partners in Europe. But of course, we are looking also in Brazil and other areas where it makes sense for such projects to cooperate with. And last but not least, it's quite often in the press, also feed coming from recycling activities is, for sure, a possibility to get fed into our refinery. But being realistic, we don't see any significant volumes available for us or others before 2030 or even later to kick in. Okay. Next slide. Let's move now to our more strategic downstream development targets. We want to use the advantage of having a high-quality and low-cost lithium hydroxide in-house at AMG to also develop further downstream into higher-value lithium materials. So that's nothing thrilling. But now why solid-state lithium batteries. We believe, as many others in the industry do, that's solid-state offers many advantages over classical lithium-ion technology. Just to mention some of them here, like significantly faster charging of your EV, it's showing increased safety and less fires and it should provide a longer lifetime of the battery. And at the final stage of the development, one should see a higher energy density, resulting in a higher driving range. So potentially, this is a quickly growing market because it provides many, many positives to the actually car driver at the end. In our brand new laboratories here in Frankfurt, we have a team of people nursed with solid-state technology milk and focusing on developing sulfur-based materials for peer companies in the solid-state arena. We are intensively exchanging samples and improving material properties via an intensive dialogue with those customers. By the way, I want to mention here that my guys in the labs have filed already a couple of patents around our processes in this area. Our customers are further telling us to start their commercialization of solid-state batteries by 2025. And this, together with having just a few players around supplying the market with sulfur-based materials and having access to low-cost lithium makes us pushing on getting samples out and planning to build as the next important investment of 100 metric ton demo plant. Michele next slide, please. As you can see on this slide here, this time line shows we are currently operating a kilo range pilot equipment in Frankfurt. And we have just completed the feasibility study for this, just mentioned 100 metric ton demo plant. And this plant will be able to produce both sulfur-based precursors for solid electrolytes and solid electrolyte itself. Our final target, of course, depending on final market needs, et cetera, is to start producing with that demo plant by the end of 2024. Overall, we believe that we are well underway here to serve our customers' needs and to support them with high-quality materials. That's it from my side and I guess the next slide is for you again Heinz. Thank you very much.

Yes. You saw that -- Thank you. Stefan, the -- You saw that slide before. That's our situation. And we have focused on taking all these assets in the value chain into under 1 corporate roof with kind of a cool CEO structure between Fabiano and Stefan and a very dedicated cost strategy monitored intensely by the management Board of AMG. And I said that the option to find opportunities and to finance them, maybe if is attractive by outside equity, these option is being on the analysis with the time line to finish that analysis before or maybe considerably before the Annual Meeting in May. With that said, please we are prepared to whatever question you have to try to answer that.

Our first question comes from Mr. [ Glesser ]. And the question is, could you give an update of the progress with the LIVA battery?

Yes, the LIVA battery, lithium, vanadium or LIVA battery, we for company. For that, we acquired certain proprietary software packages into that. We -- under construction with in-house capabilities, we asked oil an engineering company, and we selected one project think about 3-megawatt size of an industrial plant battery, which is dedicated to reduce the energy cost of the plant where it is installed. And that's where lithium comes in because the vanadium part of the battery is the low-cost part of the battery and the lithium part can handle fast discharge. And so we combined the 2, and that's where the software comes in. We believe we can be in operation in the second quarter this year in our own plant. We have decided to go the battery route, the energy storage route vis-à-vis the alternatives and the alternative would be to lower the electricity cost spent by in-house diesel engine power plant of the same size. And we decided against that because after all, we are a company dedicated to reduce CO2. So it would -- in our sustainability, but not look very convincing when you suddenly start doing [indiscernible] diesel, which brings me to the market. We are building this plant as a demonstration plant. The second demonstration plant is under engineering in the United States. It will be somewhat larger. And in order to -- then in order, we have the demo plant, means we are then in demonstration mode and we can market the LIVA battery concept in competition to spend by diesel engine power plants worldwide. The market for that is very large.

Our next question comes from Howard Klein. Where will you source the spodumene technical grade precursor for expansion beyond 20,000 tonnes hydroxide?

We have addressed that in the presentation. We are in context and in negotiations with a number of resource projects, which find us to be a very complementary partner. In one case, we are waiting a signature under such a concept. This is a European project where we are already in the status of collecting MOU, which has the size of ultimately of one module. There are other projects. So by the time we are in production, we believe we will have a concept for the feeding of the second module in place.

The next question comes from Frank Claassen. Could you give a rough indication how big the investments are to build the demo plant for the solid-state batteries?

That is between $20 million and $30 million.

The next question comes from [ Arnaud ]. Is AMG currently talking to potential external minority shareholders? And is there an interest in this option?

Well, the most interesting thoughtful answer to that is that we -- one of the customers on our priority list has recently approached us whether he could have an exclusive module. So he wants the joint venture module in order to do the technical interface between the production of battery-grade hydroxide and the feed specification of this cathode -- specific cathode plant. That's very interesting. It validates -- this negotiation validates what we are doing, what the basic concept of our battery-grade lithium hydroxide plant in Germany is of [ battery finally ]. Now as regard to the larger question, of course, we have been approached by interested parties. We are in talks because otherwise, we cannot evaluate the economic -- the potential economic benefits in association with potential other benefits. Because of course, it is encouraging to think about partners which are beyond -- which are industrial, which not only would contribute financial resources, but expertise and other complementary elements. So in other words, we are not talking to private equity.

Our next question comes from Krishan at Citi. Are you able to discuss your cost position for the mine with spodumene production in 2021 in the context of your target of $250 per tonne?

Well, I think, Fabiano, you should answer that. But from my side, we are below $250. But Fabiano, say something.

Yes. Thank you, Dr. Schimmelbusch, and thanks for the question. And yes, you're absolutely right, Dr. Schimmelbusch, we are below the target at the moment. I wouldn't treat this number as a fixed number, but mostly a range. And I would say the range is plus/minus 10% on the $220 level. In Brazil, inflation has been quite unusual over the last year, and that's why I'm talking about the range. The several components of the cost that's highly depending on inflation here, and 2021 was an unusual year for inflation. So I would say, yes, below the $250 level, about $220 during 2021 and plus/minus 10%, depending on the level of inflation. By the way, we are projecting similar situation through 2022. And if the inflation is kindly to us, I would say that we're going to be closer to $200 more than $250.

Our next question comes from Stijn Demeester at ING. Can you discuss the potential returns of the discussed downstream projects in Germany and Brazil?

Jackson, I think that's something for you.

Thanks, Heinz. So as you know, Stijn, we look at a variety of prices and scenarios in calculating our returns. And the returns that we currently see for those 2 projects are extremely good and will likely result in a positive decision to -- in particular to pursue the technical grade plant in Brazil. And as we've said in the past, our target EBITDA to -- run rate EBITDA to CapEx formula is always less than 5x. And I can affirm that in both of those cases, we are below that number.

The next question is also from ING. And it's, can you elaborate on the MOUs for Germany and the contract structure, the duration and pricing?

The corporate structure is varying. It's just the, in principle, long-term contracts. And there are different structures in different -- as per different customers, but we are not going to go in detail to go through the term sheet here because that is highly competitive.

And the last question from ING. There is an increasing focus on carbon footprint of battery materials. How is AMG positioned, for example, via the use of renewable energy resources? What initiatives could reduce the carbon footprint?

Well, first of all, the energy storage factor is critical, and it's highly underestimated by [ politics ], but it's critical for the increase of the capacity utilization of the renewable energy. To give you an example -- and the initiatives are innumerable. But there are examples for that. Germany has an average capacity utilization of the solar industry a little above 10%, which is still good. And part of that is lack of storage capacity facing the intermittencies of those renewables. So storage is essential. We are facing the storage area in 3 -- theoretically in 3 materials plus graphite. So it's lithium, vanadium, tantalum, for the capacitor part of the storage, and graphite for the anode part of the battery. But as regard to vanadium, we are focused on stationary batteries. We are a low-cost producer, 100% circular in vanadium. We are having a big project on enlarging our presence in the vanadium oxide market. Part of that leads then also to the LIVA battery. But the samples are innumerable, for example, when you want to produce clean hydrogen from solar. And you have to shut down because of there's no sun at night. You need a battery. So we are talking about the vertical integration of our battery systems, storage systems with hydrogen producers. So the examples are very manifold. But right now, in order to focus, LIVA is very much in the forefront of this. And in vanadium, it is the pure vanadium stationary battery.

The next question comes from [ Faisal ] with Jefferies. If you were to consider a listing, do you have any preferences for where the listing might be? And the second question is considering that the life is about 17 years of the mine, are there any plans to grow your resource space via M&A or organic exploration for new mines?

To start with the second question, there is a very intensive exploration program ongoing in Brazil. It is also ongoing beyond Brazil. We have formed -- not recently, very long ago, we have formed an extensive exploration strategy. So we are very confident that, that will lead to longer life of our resource or larger size of our resource base, and we will come back to the markets as this solidifies. As regards to venues, if number 3 on the summary slide becomes reality, it is logical to prioritize 2 locations in a competitive way. The one is Amsterdam. We are feeling very well in Amsterdam. We know the drill in Amsterdam. We have the right lawyers, the right bankers, the right infrastructure. We have a very dedicated investor base. And then, of course, Frankfurt. Germany is in -- all of Germany, the industrial base of Germany is in a transition phase from one automotive where you -- a value chain to another one. And so that is a very intensive discussion in the whole industrial base of Germany. So the backlog for a lithium IPO in Frankfurt, I think, is self-explanatory. And so there is Amsterdam and Frankfurt. We are dedicated to that European ideas for venues.

Our next question comes from [indiscernible]. To complete the lithium value chain, how much does AMG still have to invest and if AMG would be willing to allocate amounts to building blocks? That would be very much appreciated?

Yes, this is a very complex question. I would say that the base case scenario consists of 2 modules, so module 1 and module 2. It consists of the Brazilian plant to produce precursors, and it consists of the ASSB, which is the solid-state battery strategy. When you put this together and when you look at the cash flow generation of the spodumene operation, including the highly profitable expansion plant, because the expansion from 90,000 to 130,000 tonnes is very financially attractive, because there is a cost cutting so that not only we increase our production, but also we reduce our cost base because of the way we increase this, Fabiano has mentioned, the debottlenecking, yes. So that means cash flow, including all those plants and the equity portion of the Brazilian plant, leads to a balance. That wouldn't -- that plant doesn't need any outside equity. The outside equity comes in modules 3, 4, 5. It comes in acquiring resources, resources in many ways in cooperative ways, but also in joint ventures. And here, we see very attractive project. And that has triggered our evaluation of third-party equity strategy.

Our next question comes from [ Hendrik ]. The spin-out, is that only the Brazilian entity or also including the technical and chemical plant in Germany?

It includes the whole value -- our presence in the value chain. And presently, this is done through corporate entities. So our value chain is incorporated in corporate entities, which are now being transferred to one holding company, which is then owning all our assets. We only have to do a few [ batch ] optimizations here in order to pinpoint the location of that entity. And that entity will have 2 co-CEOs. They're sitting on this table here -- on this panel here, upstream and downstream. And it will have the AMG management board as Board. So we are approaching a situation where we simulate how to act as a separate company, not only statistically, but all the way to the balance sheet and total financial statements structure. So it's a serious preparation of a spin-out. We see -- the main reason, if we say 100%, it's also very beneficial because it's a totally dedicated lithium strategy. And the -- and it logically implies that we will separate then the energy storage segment, Clean Energy Materials, which is presently lithium and vanadium, into lithium and vanadium, which increases the transparency of our company vis-à-vis the investors.

Our next question comes from [ Gunther Lowe ]. You must be in talks with banks regarding a potential IPO. Can you give us an idea of how high the banks estimate this business?

No.

The next question comes from Howard Klein. Your $120 million CapEx for the hydroxide in Germany seems low, considering others like Northvolt have suggested a $700 million for a similar plan. How is your CapEx so low?

I think the mistake is the word similar. I think I don't know what's the definition of the Northvolt. I don't want to comment on other people. We have a very thorough calculation, and this very thorough calculation is based on engineering offers. For example, we have a very prominent engineering company for the digitalization part, the most important part of the refinery. And all of that is done in a professional engineering way. After all, we are an engineering company. And so that's what it is. How other people define what they're doing, I don't know. Actually I'm very busy to analyze that.

Our next question comes from Krishan at Citi. At current spodumene prices and your cost below $250 a tonne, is it fair to assume that your lithium business alone is running at spot EBITDA run rate of $80 million to $90 million or maybe $100 million annually?

Well, first of all, let me say that Fabiano said $220 plus/minus 10%, not below $200. That's one. Two, of course, we have to ship that thing to China. Yes, there's some logistics cost involved. But if I was a model, I started my life in doing such models. And if I was -- I have a certain understanding for what you just said. It's not far off.

Our next question comes from [ Paul ]...

Am I allowed to say that? Stefan, was I allowed to say that?

Yes. I mean it's -- you could look at it, [ Christian ] and saying $100 million of EBITDA. If you divide that by 90,000 tonnes, that would be "EBITDA" per tonne number of $1,100, which given current spot mean prices in our costs seems eminently achievable.

Our next question comes from [ Paul Webley ]. Heinz, do you want to go ahead?

No, no. Please ask the question.

How do you see demand for lithium-based stationary batteries develop relative to vanadium-based stationary batteries in the next 5 to 10 years?

That's an interesting question. The vanadium battery is very competitive or the less competitive depending on the swap price, vanadium price, you enter the theme of competition. The vanadium price, for example right now is on a 10-year average, but it shows sometimes signs of life. For example, in 2018, it went up 5x. And one unfortunate battery company got -- was caught short in that moment because they didn't have -- they didn't cover their vanadium needs and built the battery, and then they had to cover in a bear squeeze market. So it is a question of vanadium price. And therefore, it is highly important to see that in context of long-term pricing strategies. We have vanadium price base, which is lower cost than any mine. So we are -- because we are [indiscernible], and we get fees in order to take waste. And that is in a way a negative component of mining costs. A mine doesn't get a fee for taking the waste. So we can evaluate long-term strategies by saying if we, for a portion of our vanadium production, provide long-term price security in a competitive vanadium price area, in an area which makes the vanadium battery competitive, and if that then integratively, has an incremental cash flow because the earnings of the vanadium battery at that price exceeds the earnings forgiven in order to secure the low price option or a fixed price option, then that is a legitimate strategy, and we are determined to enter that market.

Our next question is from [ Bram ]. How is the market reacting on the rising cost of lithium? Is this a concern to the automotive market?

I have -- not I, we have developed, as I said earlier, this cost structure in which we showed the battery, what is a battery cost. And at present, 32,000 tonne price of hydroxide, it's 11% of the battery. The lithium portion of the battery is 11% of the total battery cost. So I think it is -- it counteracts in a small way the otherwise development -- happening development in lowering battery costs, but in a small way. So of course, it's of concern, but I think it's not in any way concerning. There are certain facts, and the facts are that there is no substitute for lithium as regard to e-class batteries. So that's what it is.

Our next question comes from Mr. [ Martijn ]. Considering the recent shift in demand towards LFP batteries, do you still fully commit to the refinery of lithium hydroxide?

I want this question, please, Stefan, it's yours.

Yes. I'd try to answer it shortly and keep it simple. So LFP is, as Heinz mentioned at the very beginning of today's call, is a relatively low-cost material for cathode paste. And of course, this helps to bring down the cost of the battery. The only issue with LFP is you have a low driving range. So it might be working in cars -- in city cars where you have to drive short distances. On the other hand, which is the shadow side of this, you have issues in find a competitive way to do recycling, because it's only low amount of lithium contained, iron and phosphate is worth 0, I would say. So we still believe that the high nickel cathode materials will play a role, at least in the markets in Europe and the U.S. And also, it's not set that in the new generation of LFPs under development, it will be used, for example, lithium carbonate. I know of LFP materials which use hydroxide also as lithium precursor. So yes, we firmly believe that we are still on the right track in going into hydroxide.

Our next question comes from [indiscernible]. In your base case lithium value chain as you discussed earlier, at what kind of run rate EBITDA and revenue should we think about?

There was a previous question, which Jackson has elaborately answered. I think the question was from somebody from Citibank about the run rate. That answer was based on 90,000 tonnes, not on 130,000 tonnes. So if you make the calculation, then I think that should drive through to the right area.

The next question comes from [ Mark ], an ESG analyst at ABN. Did you do a GHG life cycle analysis of the battery-grade lithium you produce, taking into account mining and processing? What quantity of energy is needed to produce 1 tonne of lithium?

Yes, a very comprehensive value chain analysis is underway. We have an in-house version, which I don't want to quote. We have to do an out-house certification. But to give you one element here, the CO2 load of the switch, the CO2 load is reduced radically when switching from converting outside Brazil into converting inside Brazil of spodumene into precursor material and delivering to Germany. There's I think 80,000 tonne per year reduction of CO2 footprint with that switch based on the production level. And the financial benefit is $16 million at present prices. I don't know exactly the prices, but it's about $16 million. And when you apply the cost reduction of $16 million to a multiple -- an EBITDA multiple of 10 to 15 as used in lithium industry multiples, then you have a very high number, and that number exceeds the investment cost of the chemical plant in Brazil.

The next question comes from [ Faisal ] with Jefferies. If I may just ask with reference to Krishan's question, is the $250 per tonne cost inclusive of shipping costs? Or is it just the cash cost, operating cost to which we would add shipping costs?

It is the second. So it is -- and by the way, it's $220 plus/minus 10%, yes. So it excludes the logistic costs in present terms to China.

Our next question comes from [ Paul ]. Do you expect most of AMG's vanadium production to eventually end up in vanadium stationary batteries instead of steel production and other end uses?

No, we are sold out in vanadium -- ferrovanadium for steel production for years. So we don't have any idea to convert ferrovanadium into vanadium oxide. We are sold out. And this is a very profitable business, and it's a very stable business. We are the sole producer of vanadium -- ferrovanadium in the United States, 100%. The rest has to import. So our -- it's always good to produce. In the book of rules of commodities, it says produce in a region which is a net importer. So that's ferrovanadium. We also produce vanadium oxide. And we also produce electrolytes. That is fairly small, and it's happening in Germany. We are presently expanding that plant substantially. That plant is taking gasification ash as a feedstock. Because when you gasify heavy fuel, then the vanadium ends up in the gasification ash. And we take, under long-term contracts, gasification ash from gasifiers and extract the vanadium into vanadium oxide. That's a new way of sourcing the vanadium battery material in 100% circular. So we add to the circularity of spent catalysts into ferrovanadium. We add now a second stream, namely, we take vanadium content in gasification ash and we turn it into vanadium oxide. For that, you need a different technology, which we have proprietary -- which we own in a proprietary way. And that is a hydrometallurgical conversion from this one feedstock into V2O5, vanadium oxide and then later into electrolyte for batteries. We have a very large project in this area, which we are not commenting on, but might comment on rather shortly. And we are developing the market for that. It is interesting to note that there are regions with very large conditions as regard to vanadium batteries in the Middle East, for example. And such things are only realistic if we have a domestic relatively large source of gasification ash.

Our next question comes from Howard Klein. What exactly is the technical-grade precursor you are making in Brazil? Is it lithium sulfate? And what is the CapEx for the chemical plant in Brazil?

Fabiano?

Yes, thanks for the question. We are still in trade-off phase of the project. There's a trend to be a carbonate, a technical-grade carbonate, but this is not 100% decided yet. And having said that, in this phase of the project, a ballpark number, it's around $200 million investment here.

That was implied in my answer of the $16 million cost reduction combined with a multiple of 10 to 15.

And it looks like our last question at the moment is from Mr. [ Kuster ]. Who is your engineering partner with the crystallization process in the battery-grade lithium hydroxide manufacturing process in Germany?

It's a leading engineering company in Germany, trust me.

One last question just popped up, Dr. Schimmelbusch. It's from Krishan at Citi. Is the top of almost every aspect of AMG Lithium business dynamics, which is a great attribute and he brings as the group CEO. Having said that, how much time is he able to allocate to other businesses, so the value creation here is not left on autopilot?

We are workaholic at AMG, and we are able to do multitasking. I'm personally trained to do many things. And how to -- I'm actually feeling more comfortable in larger entities than in smaller entities. And that's why we want to turn AMG into a larger entity. But the question is an interesting one because -- the first thing which we did -- and I think it's a very good thing to answer that as the last question. When we started to develop the idea many moons ago to mine, first, the tailings and then original ore and extract lithium in Brazil, the first thing which we did, we built a very large management team around Fabiano, hiring the leading senior engineers from the engineering companies, by the way, on a permanent basis and building engineering capacity. Long before, the project, it was very costly, but it was a very good [ move ], because we recognized that even negotiating with engineering companies providing the process technology for the spodumene production, we needed to have that know-how, intensive know-how. So we built that team. Today, that team is existing and ready to service junior mining project for example, because we are long in those capabilities. And that is a very important statement. That's upstream. Downstream, when we started to develop how to enter the service of this upcoming huge market of nearby cracking distance hydroxide in Germany, we were lucky enough to be able to hire -- to ask Stefan Scherer from Albemarle and Chemetall to join us. And he then -- his first target -- and that was very important, I mentioned it earlier. We now have a large team over 20 highly industry expertise, lithium industry expertise, people on all levels of a flow sheet, of a technical flow sheet. So who -- people who have the [indiscernible] in the lithium downstream area. And that -- in order to attract them, frankly, we needed to build this big laboratory center in Frankfurt because these PhDs and highly -- they only feel well if you have a laboratory next door. And so we did that. And that was the best thing we could do because now we have a residence in this industry, with people who the customer knows. Extremely important part of, for example, an audit later on of are these people, experienced people, do they know -- because the lithium industry is a complicated industry. The lithium technology is a complicated technology. And Chemetall in the -- in which I was CEO of the parent company one day, by the way. And Chemetall was the absolute technology leader in the lithium industry since 1922. It was actually the first company who produced lithium salts in the world. So we have -- we are blessed by having a very large sophisticated and motivated team with industry expertise. So don't you worry, we built capacity -- management capacity long before we built project. I think Michele, since that was such an important question and I tried to answer it, let be that the last question. And let me, on behalf of the speakers here, let me please thank you for this -- attending the Capital Markets Day. And let me thank you also for the very -- I think very good questions, which you have asked. Thank you very much.