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

Good day, everyone, and welcome to today's AMG Q4 and Full Year 2024 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Michele Fischer. Please go ahead.

Welcome to AMG's fourth quarter 2024 earnings call. Joining me on this call are Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer; Mr. Jackson Dunckel, the Chief Financial Officer; Mr. Eric Jackson, the Chief Operating Officer; and Mr. Michael Connor, the Chief Corporate Development Officer. AMG's fourth quarter 2024 earnings press release issued yesterday is on AMG's website. Today's call will begin with a review of the fourth quarter 2024 business highlights by Dr. Schimmelbusch. Mr. Connor will comment on strategy. Mr. Dunckel will comment on AMG's financial results and Mr. Jackson will discuss operations. At the completion of Mr. Jackson's remarks, Dr. Schimmelbusch will comment on outlook. We will then open the line to take your questions. Before I pass the call to Dr. Schimmelbusch, I would like to expressly refer you to our statements on forward-looking statements and the meaning thereof, as we have used at all previous occasions and we will use at this earnings call and which explanatory statement has been published as part of our financial presentation and on our website, all in connection with this earnings call. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.

Thank you, Michele. We delivered a strong EBITDA of $168 million for the full year in '24 despite exceptionally low lithium and vanadium prices. The lithium and vanadium prices dropped 65% and 23% respectively. This is AMG's -- this of $168 million is AMG's highest EBITDA apart from the 2018 peak in vanadium prices and the 2022 and '23 peak in lithium pricing. AMG Technologies' performance was exceptionally strong in '24, with adjusted full year EBITDA of $68 million, more than double that of '23. AMG Engineering secured a record-breaking $380 million order intake during '24 and the order backlog stands at $374 million at the end of '24. The results of the year '24 illustrate the value of our portfolio where the downturn of key prices is partly compensated by strong performance by other portfolio constituents and in this case, particularly AMG Technologies. I will now hand it over to Mike to speak about our growth initiatives. Mike?

Thank you, Heinz. Regarding our transformational growth projects, our new vanadium plant in Zanesville, Ohio has operated successfully this year. And the expansion of our lithium operation in Brazil is now complete, solidifying our position as one of the lowest cost lithium concentrate producers globally. Meanwhile, Module 1 of our lithium hydroxide refinery in Bitterfeld, Germany, is progressing through commissioning and ramp up as planned. Despite temporary challenges facing the lithium industry, we are confident in our current position and remain optimistic about the opportunities arising from the evolving market dynamics. The shift towards renewable energy and electric vehicles is becoming increasingly evident. In 2024, the global EV market grew by more than 25% year-over-year, with double-digit growth in China, partially offset by slower growth in the U.S. and Europe. In 2025, this growth trend is expected to continue, driven by strong demand in China and Europe, fueled by EU CO2 emissions reduction targets. Additionally, the market for energy storage systems is experiencing rapid expansion, driven by the increasing demand for reliable renewable energy solutions, advancements in battery technologies and growing investments in grid stability. We have successfully implemented transformational growth initiatives across our critical materials portfolio, continuing to operate as a low-cost producer. Our diversified portfolio reduces the risk associated with market volatility, positioning us strategically to capitalize on the expected outcomes of the global energy transition. I will now pass the floor to Jackson Dunckel, AMG's Chief Financial Officer. Jackson?

Thank you, Mike. I will be referring to the fourth quarter 2024 investor presentation posted yesterday on our website. Starting on Page 5 of the presentation, I'd like to underscore Heinz's comments about the strength of the EBITDA performance this quarter given the low lithium and vanadium prices. Despite these low prices, the rest of AMG's portfolio demonstrated significant strength, delivering the highest quarterly EBITDA of 2024 in the fourth quarter. As you look at the comparison to Q4 2023 EBITDA, please keep in mind that we enjoyed a $10 million dividend from an equity investment last year. Excluding that amount would show a 6% decrease in Q4 2024 EBITDA versus last year. On Page 6, you can see the price and volume movements for our key products represented by arrows, which underscore our segmental results. On Page 7, you'll see our return on capital and valuation metrics year-over-year. It's important to note that we've invested over $650 million over the last 4 years for our lithium and vanadium expansion projects, which has impacted the return on capital metrics. AMG Lithium is shown on Page 8. On the top left, you can see that Q4 '24 revenues decreased 35% versus the prior year. This decrease was driven mainly by the 44% decline in lithium market prices and was offset by a 13% increase in volume. Adjusted lithium EBITDA for the fourth quarter of 2024 came in at $6 million, down 79% from Q4 of last year due to the decline in lithium prices. AMG Vanadium is shown on Page 9. Revenue for the quarter decreased 10% compared to Q4 '23 due mainly to lower volumes of ferrovanadium, partially offset by increased sales prices and volumes in chrome metal. Q4 '24 adjusted vanadium EBITDA of $31 million increased 6% compared to Q4 '23. This was primarily driven by the higher profitability in chrome in the current quarter as well as the ongoing benefit of the production credit known as 45X for domestic manufacturing of critical materials for which AMG Vanadium qualified based on the Inflation Reduction Act of 2022. The IRS ruled that raw materials could be included for our process and this increased our annual benefit from Section 45X to approximately $20 million per year, an increase of $10 million versus the previous ruling. This annual benefit confirms that our vanadium production facilities are globally low cost and will continue to be profitable in low-price environments. AMG Technologies is shown on Page 10. Q4 '24 revenue increased 32% versus Q4 '23. This improvement was driven by higher sales prices of antimony and higher sales volumes of silicon, which is included in our sales figures, although it is excluded in EBITDA. Adjusted EBITDA of $20 million during the fourth quarter was 83% higher than the same period in 2023. The increase was primarily due to higher profitability in antimony and graphite. Page 11 of the presentation shows our main income statement items. The key change on the page is net finance costs, which was $13 million in this quarter compared to a $2 million net finance income last year. This shift is largely due to higher noncash intercompany foreign exchange gains in the prior period. Page 12 of the presentation shows our cash flow metrics. The key item on this page is the working capital days, which declined to 10 days on hand, driven by our extremely strong advanced payments coming from AMG Engineering. AMG ended the quarter with $468 million of net debt. And as of December 31, 2024, we had $294 million in unrestricted cash and $200 million available on our revolving credit facility. The resulting $494 million of total liquidity at the end of the year demonstrates our ability to fully fund all approved capital expansion projects. And on that point, we continue to expect capital expenditures to be between $75 million to $100 million for 2025. That concludes my remarks. Eric?

Thank you, Jackson. Lithium and vanadium prices weakened quarter-over-quarter. However, due to our low-cost position in both segments, AMG Lithium and AMG Vanadium both delivered positive EBITDA in the fourth quarter 2024. And AMG Technologies reported exceptional results driven by our market-leading position in our engineering business and very strong results in our diversified mineral operations. Our Brazil lithium operation delivered more than 33,000 metric tons CIF China of lithium concentrate in the fourth quarter. The average realized sales price was $680 per metric ton and the average cost of production was $290 per metric ton against CIF China. The low cost of production for the quarter was driven by higher lithium concentrate production, the weaker Brazilian real versus the U.S. dollar and ongoing high tantalum sales volumes. Production consistently increased during the quarter as our lithium concentrate expansion moved up to full expanded capacity. During 2024, a total of 88,966 metric tons of lithium concentrates were sold and the average realized sales price was $854 per metric ton CIF China. The average cost per ton for the year was $458 per metric ton CIF China compared to $475 for 2023. Although, we experienced quarterly volatility in our cost of -- cost per ton, the annual figures represent our long-term target. AMG Vanadium's Zanesville and Cambridge spent catalyst processing facilities lead the industry in terms of cost structure and environmental performance. Our vanadium results were, however, negatively impacted by ferrovanadium prices being lower by 23% quarter-over-quarter. Vanadium results were also negatively impacted by lower-than-normalized run rate volumes due to delivery timing and lower prices for our co-product, ferronickel-molybdenum. It's worth noting, however, that the relevant ferrovanadium index price has increased by more than 7% since year-end. AMG Titanium's master alloys production, mainly vanadium aluminum, was on a stable production level, both in Q4 and during 2024 overall. Both of our plants, Newcastle in the United States and Nuremberg in Germany are preparing to deliver higher volumes supporting the ramp-ups at Boeing and Airbus. In our Technologies segment, AMG Engineering signed $77 million in new orders during the quarter and $380 million during 2024. The record high full year order intake was driven by very strong orders for re-melting and induction furnaces. And as mentioned, we have an order backlog of $374 million as of the end of the year. Our other operating units under the AMG Technologies umbrella, especially antimony, also performed extremely well in the quarter and made a significant contribution to the $9 million quarter-over-quarter increase in AMG Technologies EBITDA. The increase in electricity prices to between EUR 90 and EUR 100 per megawatt hour has forced AMG Silicon to cease operations in the first quarter of 2025. Maintenance work is currently underway as we implement a temporary shutdown. We plan to begin operating one furnace again in the second quarter of the year. We anticipate maintaining a stable head count in 2025 as our expansion projects in Germany and Brazil are at or near completion. Our overriding operational objectives are to be the lowest cost, highest quality and most environmentally responsible producer of all of our products. This enables us to deliver strong financial performance even in the trough of the commodity cycle as many of our direct competitors report significant losses. I would now like to pass the floor to Dr. Schimmelbusch.

Thank you, Eric. I'm pleased to report that 2025 is off to a strong start. This particularly strong performance across our portfolio, including our antimony, chrome, tantalum, vanadium aluminum and engineering businesses. Therefore, we increased our adjusted EBITDA outlook from $130 million or more in '25 to $150 million or more in '25. We are presently updating our 5-year forecast, which we traditionally issue at the Annual General Meeting. Operator, we would now like to open the line for questions.

[Operator Instructions] And our first question comes from Stijn Demeester of ING.

My questions, I have a couple and we'll ask them one by one, if that's okay for you. The first one is on the 45X impact on vanadium's EBITDA in Q4. Can you quantify the absolute amount of this 45X credit and specify whether there is a retroactive element in this amount?

Yes. So as you know, we are very pleased that the IRS decided to include raw materials in the calculation of total cost. So it is 10% of total costs. And I think we are guiding you to assume that that $20 million of lower cost is going forward in our numbers.

Understood. Understood. Maybe additional question here. Is there -- so the increased benefit due to the IRS ruling, is that driving part of the guidance uplift from the $130 million to the $150 million for 2025? Or was that already taken into account in November?

That was already taken into account in November. We weren't certain of the total quantum, but we knew it would approximately the $20 million.

Understood. Understood. Now maybe the underlying concern is that 45X gets revoked. What is your message here on that concern?

I don't think we want to comment on that. There are no indications at the moment that there's any change, but we are not in the government.

Understood. And maybe further on vanadium, can you a bit clarify to the market your market position in the U.S. market? Is it still the case that you're the sole U.S.-based domestic producer in a market that is largely dependent on imports? And as such, are you hopeful that the recently announced tariffs are potentially a key benefit from your -- for your business going forward?

Yes. Yes, all the way. We are the sole producer of ferrovanadium in the United States. United States is a net importer. So the rest of the ferrovanadium consumption in the United States is imported. And that gives us, of course, a very interesting position competitively. And we don't see any reason to believe that that will change. And if tariffs occur, they occur and will benefit us.

Understood. Do you believe that it's already visible in the recent price recovery that you see in the U.S. market and also decoupling from international markets for vanadium prices?

We look very carefully, but we don't see it when you say visible.

Understood. Understood. Then maybe switching back to lithium and Bitterfeld. Can you maybe give further color on the commissioning process and also how the qualification process is evolving?

Yes. As stated, the qualification process is a very sophisticated, timed, very clearly timed process with sending of larger and larger samples from interim production to be then feedbacked as regard to qualification. So it's a process which is a traditional, very disciplined sequence and we are in that sequence and we have no indication whatsoever that we will not reach our target as stated.

Understood. And commissioning is complete?

Well, the commissioning is a stepwise process. Each production step is commissioning in a certain sequence. And as I said, that's all in plan. It's in no deviation from plan.

Understood. What is your current message on -- to reassure investors on the profitability of Bitterfeld in the current low price environment?

Well, the profitability of a refinery is dependent on the spread, on the difference between the materials you input and the materials you output, yes. And this spread is dependent on the prices of the various products on the various stages of production. And we see no difference to our planned factor right now. We planned on this -- spread is fairly average. We are benefiting from the fact that we have feed into the refinery, which is distressed feed from other refineries and that is a low-cost material, which might benefit us. But that's a question of when those materials are available, but it's a good upside for us.

Understood. That's reassuring. Now final question, if I may. What price assumption has changed versus November that impacted '25 guidance, in particular to antimony? In November, you were not banking on the current prices to sustain. Actually, in Q1, we've seen further price increases for antimony. So is that partly driving the guidance upgrade? Or is it more a general strength of the business?

Yes, we are pleased to say that antimony is more and more becoming our core business, yes. And we are very much in favor of this market and the business and the performance. And we, of course, have put this in consideration when we put the upgrade of our guidance. We have said it is, however, a more broad event, which led to the guidance. We are also a good performance in other sectors in the other mineral businesses and in vanadium aluminum, for example, and in engineering. So it's not one dimensional.

Okay, understood. That's it for me and congratulations, Eric, on your retirement, if I may.

Thank you.

Our next question comes from Frank Claassen, an investor.

Frank Claassen of Degroof Petercam. Two questions. I'll ask them one by one. Just to be clear on your outlook, how much did you bake in for Bitterfeld? Is that no contribution at all or some contribution on EBITDA?

Zero.

Okay. That's clear. And then coming back on the vanadium business, it was indeed quite a strong performance Q4 despite the low vanadium prices. Well, you mentioned, of course, the Section 45X. Is it fair to assume on the $20 million annually that it was roughly $5 million in Q4? Is that the way -- line of thinking? Or was it more for -- bigger in Q4, the 45X?

Well, we guided to $10 million in June and now we're guiding to $20 million. So obviously, there was a rule change, which meant we captured more value. But going forward, it is $5 million a quarter, you're correct.

Okay. I see. And you also mentioned the chrome business. Can you elaborate on this? Is this sustainable? Or was it a one-off, the chrome business?

No. Chrome is a very steady business, a very profitable and steady business. Chrome metal is -- just to comment on the market. Chrome metal is geared towards the aerospace market, to the aerospace engine market as chrome metal is an unsubstitutable element of high-performance steel, which is the basic material for turbine blades as an example. And therefore, our highway, so to speak, sales highways from U.K. where we produce to the U.S., where the aerospace engine producers are clustered, these are very stable relationships. It's very solid margins and has a big future, because the aerospace industry is expanding and the high quality -- though the highest vacuum gas, higher quality chrome metal is an increasing ingredient in the high-performance steel industry. So that's a growth. It's a moderate growth, but a steady growth. And we are planning to implement a production of chrome metal in the United States, which would be the first such production in the United States. Presently, the United States is 100% importer. And as we all know, domestic value chains are valuable around the world and we follow that trend. And it is very fortunate that our acquisition a few years ago of facilities in Pittsburgh have room for -- or have a very good infrastructure for that expansion so that this is not a greenfield situation. So it's all systems are green in chrome metal.

Our next question comes from Ephrem Ravi of Citigroup.

A few questions, so I'll take them one by one as well. Firstly, can I just clarify that all your feedstock in terms of spent catalysts for your plants come domestically from the U.S.? Or is there something that comes from Canada or other countries? Or is it 100% local supply chain?

Well, of course, it's a North American situation where we service practically all North American refineries when they have spent catalysts and that includes Canada. And as you know, the sequence is that we take possession of such materials at our facility and we receive fees. So the material incoming is valued very low because it is fee-oriented. So we -- if your question indirectly relates to -- if you try to trap me into a statement about sanctions, then you missed the point because that material -- the value of that material crossing the border is practically sealed. And the percentage of 0 and 0 also, you noted that.

Yes. And again, just on a macro point as well. I mean, there's been lots of metals that has been now put on the -- like the restricted list or license list in China, including tantalum, obviously, then tungsten as well. Are you kind of well positioned to kind of take advantage of the price spikes on this? For tungsten, I suppose it's an input for you, but tantalum you mine. So it's a bit complex from an outsider view.

So in general, we are a critical materials company and we are based on an extensive literally 100-year know-how how to get those materials from complicated sources into our processing plant. That's a general remark. We know how to get those materials. So we are relatively secure in our supplies, irrespective of what's happening in political circumstances. So in tungsten, we have no relation to tungsten. We have a relation to tungsten indirectly because we are very active in all the ingredients of high-performance steel and tungsten is an ingredient in high-performance steel, but we don't produce tungsten and we don't -- we are not involved in the tungsten business. In tantalum, we are a heavy producer of conflict-free tantalum. In Brazil, we meet all available and thinkable environmental standards. And of course, you have been informed about the turbulences in Africa, in Congo and in where the borders change and the tantalum production is rather volatile. So we are a steady producer. We actually benefit from the strength of the tantalum market right now and we expand our production. You have seen that our production is -- our production in lithium is rising now at a plateau of 130,000, but it might -- that Eric mentioned that we sold 33 million in the last quarter. So times 4, that's more than -- so that's all good. And now we expand the tantalum extraction part of the process in Brazil. So we are increasingly -- an increasingly important part of the global tantalum world. 100% of our production in tantalum is sold to a joint venture partner located in Japan.

Just on the financials, firstly, the 1.1x book-to-bill in the Technologies business, is that specifically for the old AMG Engineering kind of vacuum furnace business? Or is that includes...

Yes, it's 1.27.

Okay, sorry.

1.27. And it is for Engineering, our global world-leading furnace business, which is solidifying its leadership continuously.

Okay. So that's an Engineering number, not a overall Technologies number. And then lastly, the $75 million to $100 million CapEx, that broadly takes you down to maintenance CapEx, that's the kind of level you were back in 2017 and 2018. If like there are price spikes in the U.S. and it makes sense to -- or there are incentives to build new plants there, would that kind of constrain you from kind of this whole CapEx guidance? Would that kind of constrain you from that process? Or subject to change?

Our maintenance [indiscernible] level is much lower and it is below $50 million, significantly below $50 million really. So it's not -- nothing to do with [Technical Difficulty]. So we are now at the end of a CapEx-intensive cycle, so to speak. However -- and we are spending our time in preparing new investments, especially in lithium and of course, also in vanadium in Saudi Arabia, among other things. So we are spending our time in preparing those projects. In Saudi Arabia, it's now close to project financing. And therefore, the begin of heavy construction is now visible. So there, we don't wait. And there will be announcements on that matter as days go by.

[Operator Instructions] And our next question comes from Martijn den Drijver of ABN AMRO.

I still have a few left. The first one is for Eric on the tantalum. Is it the case that you will get to that targeted nameplate capacity already in the first half? Or will it take a little bit longer to get to that? What was it, 370,000 pounds? Question one.

You're talking about our expansion of tantalum production. Is that what you're questioning?

Correct.

No, we -- our expansion of tantalum production will be by the end of the year 2025. And that has actually always been our target. Our tantalum production today, however, I don't think we give numbers out, but is substantially higher than we have because of improved recovery of part of the implementation of the expansion is better than it has historically been. You also noticed tantalum prices have improved. And as Heinz mentioned and you see in our net spodumene cost, it's very, very beneficial to our Brazilian operations.

Yes. And then just coming back to that -- the chrome business. Forgive me, Dr. Schimmelbusch, but I think you mentioned it's moving from the U.K. to the U.S. where there's the cluster of aerospace engine manufacturers. I wasn't quite clear. If the Trump administration issues duties, import duties, wouldn't that impact that business? Or have I misunderstood?

Yes, several, I think several misunderstanding. First of all, we don't move a plant from U.K. to -- we have a very beautiful plant in the U.K. And in addition to that, we are building a facility in the United States. Secondly, I never heard about a initiative to do an import duty for chrome. I'm always skeptical about import duties in general, because I have an economics background. But a country which is 100% importing a particular material is unlikely to impose an import duty.

Clear. And then my third question, the strategic projects expense in 2024 amounted to $27 million, which is a significant amount, but understandable. Would you be able to help us understand what level of strategic project expense we should take into account for 2025, maybe a range?

It's a good question. The problem that we have in answering it is exactly when we have Bitterfeld commercial production. So when that happens, we switch -- they switch from strategic project expense to cost of goods sold, right? So that will have a dramatic effect on the numbers since they form -- Bitterfeld forms the majority of that strategic project expense. So guidance is a little -- frankly, it's a little hard. It should go down, I will tell you and it should go down significantly. When and how much, it's hard for me to say.

Clear. I understand. And then my final question again for Dr. Schimmelbusch. Any update on the engineering and your thinking about the Brazilian conversion plans? Any update on discussions or developments in Portugal or Zinnwald in Germany?

You want me to update you on those projects?

If there is an update to be given, if not, then that's the answer too.

No, no. We continue to prepare a conversion plant in Brazil to convert spodumene into technical grade chemicals for the feed of Germany, replacing the detour recently happening in form of conversion agreements with Chinese partners. That is a very active procedure. And we also are very active in Portugal as a partner for Savannah, as a supporting partner of Savannah. That support is based on an equity participation on offtake agreements and on project financing arrangements, which we do for the company. And in Zinnwald, we are in discussion with, of course, with management and seeking the optimal production route for the very prospective resource there. We are not in a rush of spending money right now. We are focused because we want to have clarity about the turnaround of the lithium price like everybody else. So we are focused on perfecting our preparation for investment decisions and high-end feasibility studies, high end, I mean FEL3 kind of feasibility studies and getting ready to invest when the turn becomes more solidly visible, which we believe will at latest be in '26.

Clear, clear. And then one final one for Jackson, if I may. On the Shell & AMG project in Saudi Arabia, once that project gets FID-ed, there may be an equity injection required by AMG. Is that going to be a material amount? Should we take that -- is that included possibly in the CapEx guidance? How should we think about that?

It's not a material amount because we're 1/3 of what we would hope to be 20% to 30% of the total CapEx. So you go through those numbers and you come up with a relatively small investment by ourselves.

I just want to add something here because to avoid misunderstandings. What we are preparing right now is an investment in a Phase 1 of our Saudi Arabian concept. Phase 1 is the translation of the extraction of vanadium in form of V205 or vanadium oxide from the chase and calcification ash, which is one of the richest resource -- vanadium resources in the world or maybe the richest resource in the world. And that is vanadium oxide and the project guides into the production of vanadium electrolytes for batteries, for vanadium batteries. And one of these batteries is already under construction in Saudi Arabia. So it's -- when Jackson is talking about the project, it is the first phase. And by the way, all of that is Phase 1 to other phases, which are contemplating the recycling of spent catalysts at the later stage from refineries in Saudi Arabia, but we are presently busy in Phase 1.

And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.

Thank you, everyone, for joining the call. This concludes AMG's Fourth Quarter 2024 Earnings Call.

Thank you. This does conclude today's AMG Q4 and Full Year 2024 Earnings Conference Call. Thank you for your participation. You may disconnect at any time.