Lithium Argentina AG (LAR) Earnings Call Transcript & Summary

Thank you for standing by. My name is Jayle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lithium Argentina Third Quarter 2025 Earnings Call and Scoping Study Results. [Operator Instructions] I would now like to turn the conference over to Kelly O'Brien, Vice President, Investor Relations. You may begin.

Thank you for the introduction. I want to welcome everyone to our conference call this morning. Joining me on the call today to discuss PPG scoping study and the Q3 results is Sam Pigott, President and CEO of Lithium Argentina. We are also happy to welcome to the call Wang Xiaoshen, Chief Executive Officer of Ganfeng Group; Carlos Galli, Vice President of Growth and Innovation at Lithium Argentina; and Jason Luo, President of Ganfeng South America, to discuss the Pozuelos Pastos Grandes, or PPG consolidated project. Alex Shulga, Vice President and CFO of Lithium Argentina, will also be available for Q&A. Before we begin, I would like to cover a few items. Our third quarter 2025 earnings and the PPG scoping study results were press released earlier this morning, and the corresponding documents are available on Lithium Argentina's website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, update on the PPG development plan, the timing of our projects and market conditions may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our presentation, MD&A and news releases. I will now turn the call over to Sam Pigott.

Good morning, everyone. We have a lot to discuss today. I will start quickly with third quarter results and want to recognize the incredible work of the global team that continues to collaborate and contribute to the success of the Cauchari-Olaroz operation. The third quarter saw continued execution and the impact from our ongoing efforts to optimize our production plan, increase efficiencies in our process and make improvements designed to bring down costs long term. We remain confident in meeting our targets for 2025. While there is still work to do to complete these optimization efforts, we are very pleased with the plant's performance, where we are seeing production rates of 90% capacity sustained over extended periods of time. In October, we achieved a new record monthly production volume, reaching close to full capacity. As we look towards 2026, our goal is to continue to sustain higher production levels while also taking long-term actions to best position the business for the years to come. On the balance sheet, we were pleased to announce a new $130 million 6-year debt facility from Ganfeng. This new facility gives us added flexibility to enhance our debt profile at the corporate level while preserving shareholder value. Finally, and what matters most is that the operation continues to perform safely and reliably with a committed team driving continuous improvements. I want to pause on what's been one of the most important drivers of our progress, the strong performance at Cauchari-Olaroz, and that's our collaborative partnership. Together, Lithium Argentina and Ganfeng have built a highly successful joint venture in Argentina. With just under $1 billion in capital investment, we have established one of the largest and most efficient new lithium operations globally with a shared goal of supplying lithium chemicals to a diversified global customer base. If you look at the production profile on this slide, you can see the strength of our execution. Within 12 months following the completion of the lithium chemical plant, we were able to steadily increase production, reaching close to our targeted capacity. That reflects the quality of our resources, team and collaborative partnership with Ganfeng. With that, I would like to turn it over to Ganfeng's CEO, Wang Xiaoshen to provide his perspective on our partnership and shared vision for Argentina.

Thank you, Sam. We are proud of our 8 years partnership with Lithium Argentina and look forward to growing with PPG. The new joint venture will build on our existing relationship and new technologies to bring low-cost growth in Argentina. We continue to expand in Argentina, reflecting our confidence in its high-quality resources, experienced local workforces and improved investment framework with RIGI. We expect Cauchari-Olaroz to continue to lower costs and use new technologies to grow, while PPG will be one of the largest and lowest cost lithium operations globally. We see an important opportunity for brine where we can apply mature technologies from China to high-quality resources in Argentina to reduce costs and minimize environmental impact. Our plan in Argentina is to grow from our existing 60,000 tonnes of capacity today from Cauchari-Olaroz and Mariana to over 250,000 tonnes.

Following the receipt of the environmental permits at PPG last week and as we begin to prepare our RIGI filings for Stage 2 and PPG, we expect these growth plans to become a bigger focus for the company. Turning to PPG. We are excited to share the results of our scoping study. The project is located in Salta province in Northern Argentina and benefits from access to infrastructure, energy and local talent and is located approximately 100 kilometers from Cauchari-Olaroz. While we agreed to consolidate these 3 projects in August, the scoping study builds off approximately 3 years of collaborative partnership with Ganfeng. What makes this project especially compelling is that it combines scale, a proven partnership and technological innovation. These are essential components for successful project execution. Turning to the details of the PPG scoping study. We reiterate the project's scale and economics, which all support PPG becoming one of the most competitive lithium operations globally. The study outlines a Stage 1 LCE capacity of 50,000 tonnes per year, expanding to 150,000 tonnes per year in 3 phases. Initial capital investment is estimated at $1.1 billion and total life of mine capital is estimated at $3.3 billion. These results confirm the benefits of an integrated PPG as a scalable, low-cost, long-life operation. PPG produces a strong after-tax NPV of $8.2 billion at an 8% discount rate and an IRR of 33% based on a long-term price of $18,000 per tonne, a level well supported by long-term market fundamentals. It's important to note that even at a very conservative price estimate of $12,000 per tonne, close to market prices today, the IRR of the project is still over 20%. The lithium market continues to evolve, but one constant remains, strong sustained demand driving the need for new high-quality supply. Benchmark estimates that over the next decade, roughly 1 million tonnes of new LCE capacity will be required to meet global demand. This sustained demand supports long-term pricing levels necessary to incentivize new project development. Based on the current project pipeline, a price of approximately $18,000 per tonne of lithium carbonate would be required to achieve a 15% return for this new supply. For PPG, as with Cauchari, the combination of attractive capital intensity and low operating costs provides additional flexibility, ensuring that projects remain well positioned across a range of market scenarios. I'll now turn it over to Xiaoshen to comment further on market conditions.

At Ganfeng, we see shifts in the lithium market, driven by demand for LFP from ESS. Ganfeng's battery business is running at full capacity. We think the industry is in the early phases of ESS and believe that this could become as big as or bigger market than the EV market in the future. At Ganfeng, we are well positioned with low-cost lithium resources as well as battery production. We are the largest fully vertically integrated lithium producer and as a result, have established a long-term relationship with leading industry players across the EV battery supply chain, which gives helpful insights and competitive advantage. We have always taken a long-term view of the market. And for this reason, we have been focused on low-cost resources in Argentina.

Lithium Argentina brings more than 2 decades of experience in Argentina, advancing projects from exploration through to production. In 2024, the Argentine government implemented the RIGI program to attract long-term investment by offering a predictable and competitive fiscal framework. To date, more than $33 billion in new projects have applied under RIGI with roughly 40% already approved. For PPG, this framework represents a meaningful value driver, providing competitive incentives and importantly, greater clarity on foreign exchange regulations that are critical to securing lower-cost capital. Following the receipt of the Stage 1 environmental permit last week, we plan to formally submit our RIGI application for PPG during the first half of 2026. I'll now turn it over to Jason Luo, President of Ganfeng South America, to discuss PPG's targeted cost profile in more detail.

Thanks, Sam. Sam's comments described the competitiveness of PPG when we combine a good mine asset, processing expertise and experience in Argentina to deliver both low capital intensity and competitive operating cost. On the left, you can see the breakdown of Stage 1 capital cost. The total investment is about $1.1 billion or 50,000 tonne operation. Roughly 41% of that is tied to the process plant, including DLE. Here, we are able to build in modules of 10,000 tonnes and leverage our supply chain and expertise in China. Next, around 30% goes into wells and evaporation ponds. Here, both Ganfeng and LAR have significant experience building and operating ponds from Mariana in Salta and at the nearby Cauchari-Olaroz. Finally, 22% is for the infrastructure, power, roads and the tailing facilities. For comparison, Stage 1 at Cauchari-Olaroz was completed for just under $1 billion. So this represents a comparable scale up of an operation with similar brand and the benefits of new processing technologies to reduce the overall size of ponds and processing needs. For all 3 stages, it's estimated that the total 150,000 tonnes will require a total capital investment of approximately $3.3 billion phased over several years. On the operating cost structure, PPG is expected to be similar to where Cauchari-Olaroz is today at around $5,000 per tonne. We continue to look for ways to optimize and lower this cost further by leveraging synergies with our existing operations in Argentina, processing efficiencies and scale. What's important here is that those numbers aren't just competitive. They are based on proven operating experience, new technology, optimized ponds to plant integration and efficient reagent use. All this keeps both capital and operating costs competitive. We are maintaining flexibility across different lithium price environments. Carlos Galli, VP of Growth and Innovation from Lithium Argentina will now discuss the PPG resource.

Thank you, Jason. What makes PPG truly unique is it's part of a connected system fed from 2 adjacent basins, Pozuelos and Pastos Grandes, each with similar geology, hydrology and brine chemistry. By combining them, we've created a single project with both grade and scale. Over the past 3 years, our teams have completed one of the most comprehensive exploration programs in the Puna region of Argentina. This combines with experience from previous owners and collaboration with Ganfeng, we have been able to take advantage of different work and methodologies, including that of the oil and gas industry, which is different from typical mining approach to Salars, and our studies incorporate the sophisticated and modern techniques. From this data, we now understand how these 2 systems evolved and why they complement each other so well. Pastos Grandes is a large deep basin that formed around 3 million years ago with substantial and drilled potential at depth and along it margins, while Pozuelos, on the other hand, is shallower and wider Salar, which has led to higher lithium grades and good brine availability. Together, these 2 systems host an exceptionally large and well-defined resource, over 15 million tonnes of measured and indicated LCE resources and additional 6.7 million inferred tonnes. Along with these works done to explore the lithium resources, Lithium Argentina and Ganfeng have deployed significant efforts to gain a unique understanding of the water system in the basin using innovative and sophisticated methodologies and techniques. This also brings confidence to the possibility of developing in a sustainable way, a large-scale production system. The key takeaway here is that PPG stands on its own as a remarkably strong geological foundation. This level of technical confidence combined with basin control positions us to move rapidly and ultimately to derisk product execution during development. This chart really puts the scale of the combined PPG project into perspective. It compares the major lithium brine resources by basins across South America, and you can see how Cauchari-Olaroz and now PPG, both compare here in green, firmly position our JV projects among the largest brine resources globally. It is also one of the few basins that has been largely consolidated. This kind of scale and brine chemistry is what underpins the strong project economics, including low operating costs and low CapEx and long-term growth potential that was highlighted earlier by Jason. It's what enables us to plan for meaningful stage development with significant expansion potential over time. It is also worth emphasizing that while Pozuelos and Pastos Grandes appear as morphologically separate basins, our upstream geological work has shown that they are remarkably similar geological histories and brine chemistry. Both were shaped by the same tectonic and hydrological processes, meaning that they effectively evolved as part of a single connected geological system. The shared origin is what makes combining the 3 projects across these 2 Salars into 1 integrated development such a logical and value-driven step, maximizing capital efficiency, enhancing scalability and derisking development on a basin-wide scale. We continue to focus on innovation and process improvement, building on the success of Cauchari-Olaroz while incorporating new technologies for further improving efficiency and sustainability. The new hybrid technology that we are advancing for PPG as well as for Cauchari Stage 2 removes the requirement for several processing components that are currently used at our Stage 1 operation. The new design maintains the core advantage of solar evaporation, but it integrates lithium solvent extraction technology to enhance recoveries, reduce water and energy use and simplify the downstream processing needs. The process of PPG will eliminate several intermediate steps from the Cauchari-Olaroz flow sheet, including liming and post-liming ponds and multiple purification stages. Instead, it introduces a series of closed-loop solvent tanks where lithium is selectively extracted and purified in a more controlled environment. This approach utilizes new DLE technology developed by Ganfeng in China that has been tested on our brine. While this processing technology for Argentina, they are mature for China and integrate well given our specific brine characteristics and hybrid approach leveraging benefits of our abundant solar radiation. In short, the proposed hybrid DLE process combines the proven benefits of evaporation where it works best with modern extraction techniques, improving efficiency, reducing environmental impact and positioning PPG as a next-generation lithium operation.

Over the course of 3 distinct phases, we expect PPG to become one of the largest lithium operations globally. We are taking a disciplined staged approach, starting with 50,000 tonnes per year in Phase 1 and ultimately expanding to 150,000 tonnes of lithium carbonate equivalent as Phase 2 and 3 come online. Each phase will build on the next, capitalizing on the synergies of the Salars and original projects to achieve significant scale with a target of lowering unit costs and optimizing capital efficiency. The processing plant for all 3 phases is designed to be built at Pozuelos, leveraging shared infrastructure. The first phase will use brine from Pozuelos, which is slightly higher grade and advanced in terms of both production wells and permitting. The following phases will bring in concentrated brine from the larger Pastos Grandes resource as well as water necessary to support our larger scale plants. Together, by consolidating and integrating the 3 projects, this provides significant synergies and allow us to optimize for much larger and efficient production scale. As we transition towards execution, our focus is on maintaining a disciplined path towards construction, leveraging our learning from Cauchari-Olaroz and Mariana. We are very pleased to have received environmental approval for Stage 1 of PPG on Friday. This is a critical milestone that require a rigorous 14-month review and proves that the PPG project meets the highest environmental and social standards required in Argentina. We engaged early with provincial regulators in Salta and communities on PPG, ensuring that our studies and designs and new technology meet or exceed both Argentina and international standards. All of those steps put us in a strong position to be able to start Stage 1 construction in the second half of 2026 and allow us to achieve first production before 2030.

Thanks, Jason. As we wrap up, we're excited to begin sharing more details and increasing our focus on long-term growth. This does not change our near-term priorities, disciplined execution at Stage 1 and prudent management of our balance sheet. But as we advance our RIGI filings, we see this as a critical step in outlining Lithium Argentina and Ganfeng's shared vision and long-term value proposition in Argentina. On PPG, with the receipt of environmental approvals, we will now work closely to further optimize our plans, derisk our execution strategy and finalize an updated hydrogeological model, integrating resources across both basins. In parallel, Lithium Argentina and Ganfeng are advancing a coordinated financing strategy designed to support the next phase of growth. As we move forward, we'll maintain the same disciplined approach, prioritizing shareholder value, prudent capital allocation and strong alignment between partners. This is a pivotal moment for our company. It marks the beginning of a new chapter of disciplined growth built on the same focus, collaboration and execution that delivered success at Cauchari-Olaroz.

[Operator Instructions] Your first question comes from the line of Joel Jackson of BMO Capital Markets.

I had a question about PPG. So the capital intensity, $22,000 a tonne CapEx is very low. It's like half the capital intensity when you look at public project estimates out of other projects in Argentina, let's say, Rio Tinto Rincon or stuff in the States. I was wondering why is the capital intensity half the CapEx of other greenfield brine projects? And Xiaoshen how would you compare the economics of this project, PPG versus Mariana?

Thanks for the question, Joel. Maybe I'll start and then pass it over to Xiaoshen. So yes, the CapEx intensity is much lower than recent examples of chemical processing outside of China. I think part of the explanation here is driven by the quality of the resource. So the first phase of Pozuelos is benefiting from considerably higher grades upwards of high 500 milligrams per liter lithium. So most similar to Cauchari-Olaroz. The CapEx also reflects the use of new processing technologies, which Xiaoshen can elaborate on, including SX-based DLE, which is designed and built in modular units, engineered and constructed in China with the support, obviously, of Ganfeng. So this technology is designed to help reduce pond footprint and simplify purification requirements. So I think those are the 2 major drivers towards the CapEx intensity. But Xiaoshen, maybe you can elaborate on that and then also share your experience with Mariana and Cauchari.

Yes. Thank you, Sam. Yes, you're right. Actually, if you look at our projects in everywhere in the world, actually, we have a relatively lower CapEx density compared with other Western companies projects. So that's because of the Ganfeng. We have our own in-house engineering teams, and we have in-house process. So that's probably one of the reasons. And also, we have built 2 projects in Argentina, which is not an easy place. We have lots of challenges, especially you don't have the existing human resources for the lithium projects in the region. So we are bringing some of the talent from China and together with our local teams successfully. And to your question about comparison between Mariana and the PPG, I would say PPG has higher concentration of the lithium. Mariana has lower, but Mariana has a much higher pumping rate. So each one has their own advantage. And so both projects are good projects.

Okay. And then following up from that, and by the way to Cauchari-Olaroz as well, I believe at some point in 2026, you're going to test this hybrid Pond plus DLE system with a small plant at Cauchari-Olaroz, I think it's 2026. And can you talk about as you progress PPG here, will you wait for results on that pilot or demo plant at Cauchari-Olaroz to learn what it looks like in Argentine brine before you move out PPG, so you get more refined estimates for PPG and see how effects Cauchari-Olaroz as well?

I don't think we have to wait. We don't need to wait. Sorry, sorry, Sam. Go ahead, please.

No, I was just going to -- I was going to say the demo plant is obviously a really important derisking step for this new technology being incorporated into our production process, both at Stage 2 and PPG. But clearly, we expect this to be done in a way that will integrate with the broader construction time line. But Xiaoshen, maybe go ahead and you can share on the confidence Ganfeng has in this technology and what's been done in China.

Yes. We have projects -- commercial projects in China using this DLE technologies already. many times test on the PPG brine. So we think PPG brine, we don't have to wait until the final results from the Cauchari project, the DLE project. Maybe, Jason, you have anything to add?

Yes, Justin, just as you said, it's a proven technology. And so we don't have to wait for the demonstration plant from Cauchari. And actually, this is a hybrid. This is a hybrid process combined with ponds and the salt extraction. So the salt extraction process is proven in China in commercial scale and also like actually it's more simplified process. And I will say like technically, it's like even like a simpler and straightforward. So yes, we are going to just like go ahead to like start the construction once like we have the permitting, financing and other things ready on Cauchari -- on PPG project.

Your next question comes from the line of Katie Lachapelle of Canaccord Genuity.

First off, congrats on the release of the scoping study and the environmental approval. I was just wondering if you could provide a more detailed overview of the permitting of the asset, what additional permits, if any, are required? And then maybe with having Jason on the call, I'd love to hear his vision about the progression of the PPG project and how you guys balance priorities going forward in PPG versus Cauchari-Olaroz Phase 2?

Thanks, Katie. Maybe I'll take the second part of that question and turn it over to Jason to comment on permitting. I think from a sequencing perspective, the fact is both these projects [Technical Difficulty] market needs, low cost, being driven forward by a proven operating team in Argentina. And so for both, we're advancing similar RIGI application time lines, which is the first half of next year. From a development standpoint, we expect these projects to be broadly comparable, each with distinct advantages. So for PPG, obviously, it's further ahead. The permit was secured last Friday. and it also benefits from very significant historical investments that Ganfeng has carried out on well fields infrastructure and then further benefits from the advantages of Pozuelos being considerably higher grade. I'd say for Exar, we're obviously also advancing a RIGI application. We expect to have a development plan similar to that for PPG first half of next year. And we'll provide more visibility on the sequencing into 2026. But as a general statement, we're confident both assets provide meaningful flexibility and optionality to both Lithium Argentina and Ganfeng. The how and the when of this growth is underpinned by responsibility to our shareholders and maximizing shareholder value. So maybe, Jason, answering the first part of the question, which was related to permitting and what else is required to push ahead with the PPG project.

Yes, Sam, yes, for starting construction of PPG, of course, the most important in Salta province is to obtain the approval of the DIA, which is the environmental permit. And as Sam said, we obtained that approval last Friday. And we submit the DIA application in September 2024, and it takes us like 14 months to work through the technical approval and environmental approval and also the community consultation and finally, public hearing. So 14 months, you can see it's like a record like fast approval procedure, and we have achieved compared with other peers in this region. So we can see this project is technically sound and well received and supported by the local government and the communities. So looking forward, what else like what other permits do we need? Actually, with this, we can start the construction immediately. But there are two more things important we need to obtain. One is, as Sam said, we need like to apply for the RIGI, and we are working on that. We started the communication with the national government already. So the RIGI application will be submitted in Q1 next year, and we anticipate it won't take long to be approved, maybe a few months by estimation. That is one thing. With that, we can start the construction of the project. And one more thing is like we need like also to obtain the water permit. And so that's like we are already working on the water balance, and we just need to drill more water wells. And because this salt extraction process, will require much less water consumption. So we don't see it a problem compared with other process, the water consumption is the lowest. So that's like two more things we need for PPG project on the permit side.

Your next question comes from the line of Ben Isaacson of Scotiabank.

I have a few quick ones, if that's okay. So the first question is the overall CapEx for PPG is $3.3 billion for all 3 phases, exactly 1/3 of that for the first phase. I would have thought there would be some economies of scale and Phase 1 would be a little more expensive and 2 and 3 would be a little lower. Can you just talk about that?

Thanks, Ben. Yes, the CapEx for the entire project in each phase represents the benefits of scale, but the brine characteristics do change over time. So the CapEx for Phase 1 does incorporate infrastructure expenditures that will extend across all 3 phases. But as you go to Phase 2 and Phase 3, which will be sourcing brine from Pastos Grandes, it comes at a lower concentration. And therefore, the number of wells and the size of the ponds increase. So there is a bit of a trade-off there, and that explains the... Sorry, the second point is on the SX plant itself. This is done in like a modular unit, so you don't see the same kind of economies of scale you would see in other projects.

That's helpful. Moving on, for Cauchari, I believe GEMSA has what, an 8.5% interest. What is the likelihood that Salta would somehow require some stake? And is there a negotiation on that? And how should we think about the dilution impact of that?

Maybe, Jason, if you want to take that one.

Yes, Sam. So yes, we know, Salta province, like they have no intention at all to negotiate a stake. And we don't -- we didn't even touch that point, and we didn't like -- we have a good communication with the provincial government. And we didn't see the provincial government of Salta wanted to bring that up to any recent projects or like mining projects in Salta so far.

Great. And then if I can just switch quickly to Q3. So your cash costs were just a touch higher, about 3% higher to about $6,300. Production was a couple of hundred tonnes lower. Can you just talk about was the reason -- had production been stable? Would the cash costs have been flat? Why did the cash cost increase? And why did production take a little dip down?

Yes. I mean the two are very much related. So we had slightly lower 200 tonnes less production than Q2. So that does increase the unit costs. I think from a production standpoint, we're still making optimization changes. These are small, but from a month-to-month basis, do increase some variability. I'd say the optimization efforts that we've made in Q3 -- or sorry, Q2 have delivered. So 3 in the last 4 months, we've been operating above 90% capacity. And obviously, when we're pushing volumes up, we see the kind of a relation to costs coming down. So on the cost side, yes, slightly higher than Q2 due to -- largely due to the slightly less volume, but we're seeing costs continue to trend down.

Great. And if I can just throw one last one in there. So just back to the PPG project. Can you just talk about, Sam, how do you envision minimizing equity dilution risk for large shareholders in terms of the capital structure and funding your 1/3 portion of Phase 1 of PPG?

Yes. I would highlight that Lithium Argentina has a pretty strong track record of executing strategic and disciplined financing. And so if you look at, for example, how we funded the $1 billion investment into Stage 1, we did this thoughtfully. We leverage partnerships, offtakes, project-level debt to minimize shareholder dilution. We're certainly going to take the same disciplined approach here as we advance our growth plans. One of the differences today, obviously, is we're doing so from a much stronger position, having successfully brought on Stage 1 into operation, having Argentina's RIGI investment framework, a more mature lithium market. And more specifically at PPG, under our agreement to consolidate these 3 PPG assets, Ganfeng and LAR have committed to working together to secure third-party capital to finance Stage 1 development costs. We'll do this by leveraging Ganfeng's global customer relations and access to low-cost financing. So we're obviously going to be very responsible in terms of how we do this. We see a tremendous amount of value in the projects that we have, and we'll be very disciplined and careful to ensure that shareholders are rewarded and avoid dilution.

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

Sorry if I missed it, but could you talk about what would be the IRR like the return if you were to be using market price and the $18,000 per kilo per tonne? And maybe if you can talk also about the rationale of using the $18,000 given where the market is trading at.

So yes, the sensitivities around that at today's -- well, at $12,000 per tonne, I think we're close to that today in the spot market in China. The project would have a 20 -- over 20% IRR. I think the rationale for choosing 18 is, one, it's aligned with third-party forecast and Street consensus. And it seems to be a level that would seem to be required to incentivize enough production over the next decade. So it's a price level at which would result in a 15% IRR for kind of the last marginal project contributing to that 1 million tonnes. But seeing that we have Xiaoshen on the line, maybe I can turn it over to you, Xiaoshen, and just comment on the use of $18,000 per tonne as a long-term price and how that squares with how you're seeing the market today and how you're seeing the lithium market evolving over the next 5 to 10 years. I know it's a difficult question, but I think you're pretty well positioned to provide some perspective.

Yes. Thank you, Sam. Yes. I think if you look at it from the demand side and also the supply side, the demand side is still a very strong growth and not only the EV, but also the energy storage. This is what we see probably in the future, even bigger than EV demand for lithium. So that's one thing from demand side. From the supply side, we see lots of uncertainty for those projects on the pipeline. And we know the lead time for develop those projects takes quite longer time. I also talked to some of the people from in Chile to get the environmental permits for new project at least it takes 5 years. So that's the reason we think $18,000 is, I think, is reasonable for long-term pricing. Even today is still tough. But if you look at China today, the price has been increased 6%, 7% already for the lithium carbonate. So that's -- we believe $18,000 is reasonable. If you also consider there is other companies, new projects on the pipeline in -- for instance, in Australia and for some other projects in the U.S. or Canada, all those projects, we believe that they probably will require much even higher price to incentive them to build those projects.

Maybe if I can ask a second one, just more on the quarter. What about an update on the material quality? So I know that you still have that discount for like purity removal. Can you just talk again what the expectations are in terms of timing to come to like a battery grade here?

Yes. I mean this year was about operating stability. So we're very pleased with what we're seeing at the plant. There has been some gradual improvement in the quality of the product. And based on the current pricing and reprocessing arrangement we have with Ganfeng, the reprocessing costs are quite low. I think longer term, looking out to back end of '26, '27, Ganfeng and LAR are very much aligned in the ability to be able to supply global customers directly. So obviously, that would mean that we would need to deliver battery-grade product. So it's still in the vision. We're not there yet, but we're making gradual improvements towards that goal.

Your next question comes from the line of David Deckelbaum of TD Cowen.

Congrats to everyone. I was curious just with the PPG phase development approach. It looks like every phase is between 4 and 5 years apart from each other. Is that flow sheet constrained? Or is that theoretically market and finance constrained? How are you thinking about the timing of Phases 1, 2 and 3? And it doesn't seem like necessarily there's a change in the assumptions around cadence of bringing projects online post permitting.

Thanks for the question. No, I think it is theoretical and finance constrained. But Jason, feel free to provide your view.

Yes. Yes, Sam, you made a very good point. And just add a few more is technically, we think it's like we have one team continue to work on one project, finish it and bring the line and check everything, ramp it up and then we move to Phase 2. That's like more -- let's say, it's more like smooth. So that's just one thing. Another thing is like each phase -- for each phase, Phase 2, Phase 3, we also need like to obtain the construction permit and the provincial government would like to see we construct the Phase 1 first and then move to Phase 2 and then Phase 3.

Appreciate that. And then, Xiaoshen, if I could ask you a question. You remarked earlier that perhaps you could see that we're in the early stages of ESS, but you think it could be larger than the EV market. Could you provide some more color around that? When do you think that the market is going to see this grand inflection on demand for energy storage, particularly on the lithium side? Is that something that you anticipate in the next decade? Or is that something that you think is going to be more impactful sooner?

Yes, probably will be sooner. But even for the EV, today, people only focus on the passenger cars, but actually in China, not only the passenger cars, but all kind of transportation now is becoming electrified or going to be electrified in the next several years. If you look at the heavy-duty trucks, this year, the electrical heavy-duty trucks grows more than 100% compared with the same time last year. So we know -- of course, energy storage will have a higher -- much higher growth rate. But even for the motive batteries is also growing. And in China, the next several years later will be also another new demand for the boat, for the vessels will be also electrified. So it will be -- so it's difficult to predict which year energy storage will be take over the demand, but we see probably within 10 years, we believe that will come.

Your next question comes from the line of Mohamed Sidibe of National Bank.

Congrats on a good scoping study here. Just a question in terms of timing. I guess you're targeting construction by the second half of 2026. Are there anything on the detailed engineering front that we should be thinking about that are on the critical path that would further derisk that $1.1 billion CapEx over the next, call it, 6 to 12 months?

Thanks for the question. Maybe I'll turn this one over to Jason.

Yes. So a few factors are very critical on the construction time line. And one is like the engineering. And right now, like we pretty much finished all the detailed engineering for the pond and well field area. So that has like we will have all the drawings by end of this year. So -- and meanwhile, we are working on the process -- detailed process, the internal in-house engineering team is working on that, and we will have that ready early next year. So you will see like on the engineering side, we are good. And also like another important is like the DIA, the construction permit, the environmental permit, we already have it last week. And the next 2 factors, one is like financing, hopefully like we will have it the first half next year and also RIGI, as we discussed, and we will -- we may have that approval by Q2 -- end of Q2 or early Q3 next year. Then with all those like key points, key milestones, we are ready to start. And that's why we see we're going to start the construction in second half next year.

Great. And then maybe a question for both Sam and Wang here. Just in terms of the sequencing of projects, how should we think about Cauchari-Olaroz Stage 2, maybe Mariana Stage 2 and PPG Stage 1 in terms of sequencing of projects? Could this be undertaken at the same time? Or it's more of a phasing approach for each of them, one coming after the other?

Sure. I'll answer first, but won't comment on Mariana. That's a Ganfeng 100% owned project. Yes. I mean for Exar Stage 2, Cauchari overall Stage 2, the plan right now is to prepare a RIGI application and a development plan to align with that RIGI application, which will be submitted in the first half of 2026. I think, obviously, coming back to one of the questions earlier about just how we're going to finance this, it's important to note that for PPG, we're both looking at third-party capital. Likewise, for Stage 2, I think there are different set of circumstances around options to finance that given that we have an existing operation for Stage 1. But underlining it all is like the how and the when of growing this, we're going to be extremely responsible for our shareholders. So that's from a financing perspective. From a team's perspective, I mean, Jason down in Salta, he's built up an incredible team who have just completed Mariana, and it's a separate team to Exar. So I think from a personnel standpoint, we do have a good chance of advancing them in parallel. But obviously, we're going to be able to share a lot more early next year around our -- defining our development plan for Exar and be able to share a lot more in terms of visibility on specific sequencing steps for both projects. I don't know if, Jason, you want to share on Mariana. I think there was a question about Stage 2.

Yes. Right now, Mariana is still working on the ramp-up stage for the Stage 1 -- and it's going good. It's been good. And regarding Stage 2, the first thing we want to share is like Mariana recently, we just updated the resource estimation and the resource increased from $8 million to $13 million, up for more than 60%. And we still have a big potential in the deeper horizon because like we didn't drill deep enough. Right now, most of the wells just reached to 350 meters. And actually, we can drill like much deeper. And Mariana is unique because the pumping rate is very big. So the resource is not a bottleneck for Mariana. So yes, indeed, we are planning for the expansion Phase 2 and Phase 3, and we plan to put a package and apply for RIGI, we will present that early next year. And then we will look at the market condition and also like the construction progress of other projects such as PPG and Cauchari. And then we will analyze and finally decide what will be the time line for the expansion of Stage 2 and Stage 3 with Mariana.

Thank you. With no further questions, this concludes our Q&A session. We thank you for your participation. This concludes today's conference call. You may now disconnect.