Sigma Lithium Corporation (SGML) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2026 Second Quarter Earnings Conference Call. I would like to inform you that this event is being recorded. [Operator Instructions] A recording of this webcast will be available on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead.

I would like to welcome you to our second quarter 2026 earnings conference call. Joining me on the call today is Ana Cabral, Co-Chair and CEO of Sigma Lithium; and Felipe Peres, CFO of Sigma Lithium. I'd like to remind you that some of the statements made during this call, including any production guidance, expected company performance, update on mining operations, 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 and press release, which are available on the Sigma Lithium website. I will now be turning the call to Ana Cabral.

Thank you, Anna. I'm now going to introduce you to Sigma Lithium's Second Quarter of 2026 Earnings Presentation. Without further ado, I'll go to the next slide. During this quarter, we continue to deliver on execution excellence, cost control and operational resilience, driving value creation for our shareholders. Sigma is a large-scale, low-cost and traceable producer of lithium materials. We do not have a tailings dams. We do not use drinking water. We do not use hazardous chemicals. We do not use dirty energy. 100% of our energy is renewable, and we have not had an accident in over 1,100 days. At the bottom, there are 3 pictures that illustrate that. Pictures are more than a thousand words. We uphold at Sigma, the highest global mining standards. When you look at the left, you see our mining waste rock piles. We actively regenerate them planting graphs. So they are integrated into the environment. That's the highest G7 standards. When you look at other G7 countries to high standards, you can see the same waste rock pile next to the environment. And again, this is a high standard waste rock pile. We go above and beyond what others do. Some other countries have tailing dams. And again, very high standard, but we don't have any of that. That's why we believe that we can generate significant efficiency operationally because we can deliver our material and maintain traceability and sustainability. For example, we have managed to upgrade our mining operations in record time. Moreover, we have managed to achieve record recoveries in our Cleantech Industrial processing plant. On this slide, you can see the images of our waste rock piles, fully rehabilitated and regenerated with vegetation graphs. Once these piles come to their final shape of usage, that's the work we do. We do artificial germination and they become beautiful, integrated to the landscape. One can only see the are waste piles because of the terracing. In front of them, there's our beautiful new fleet. Again, a picture is a thousand words. Now without further ado, I'm going into the financial highlights of the second quarter of 2026. We've had an incredible quarter. The reliable and disciplined execution enabled us to surpass all of our targets. We delivered a very large cash flow, generating $27 million in cash from operations during the first half of the year. We also were able to generate high margins as a result of disciplined cost control. We maintained our high gross margin at 60%, and we delivered a record 47% EBITDA margin, the highest in our history. That's a result of disciplined cost control, lower costs and increased production volumes. We delivered 35,400 of lithium oxide concentrate this quarter, an increase of 52% over the first quarter. As a result, we also had another record, the highest net revenues in our history at $55 million this quarter. Again, discipline. We remain our low-cost leader, decreasing costs even further, $401 per ton block gate, $452 per ton CIF, $668 per ton all-in cash costs. That gives us tremendous resilience, an entrenched competitive advantage and an ability to be a cash machine. At current price levels, we're well into excess return territory. Due to our commercial flexibility, we were able to realize pretty good net lithium prices for SC5, which demonstrates how our clients are supportive and are fans of our high-purity product, $2,089. This page illustrates further what our low-cost stewardship does for us, delivers strong cash flow and high profitability. It is all about the costs. We increased production by 52%. Then as a result of the low cost, we are able to deliver the margins we referred to before. More importantly, the revenues of $97 million for the first half of the year. All of it enabled us to continue to repay debt in a very disciplined approach to our balance sheet. We managed to repay 25% of our debt over the last year, total debt. Over the last 2 years, we deleveraged the balance sheet in half. We repaid 43% of our total debt. We're now at probably the lowest levels of debt ever in our history. This enables us to continue to execute on our significant near-term growth strategy. By the year-end 2027, without building a second plant, we will be able to increase production capacity by almost 2x. Once we build 2 plants, we will be able to increase production capacity by 2.5x from 2027 to 830,000 tons. That capacity will be installed by the end of 2028. That's the result of 2 additional plants. We decided to embark on this growth strategy to take full advantage of our efficiency and the very favorable lithium markets. This slide illustrates further our cost leadership. This is the result of the financial discipline and precision in growth strategy and CapEx. Again, a page with numbers that are a thousand words. We delivered a decrease of double digits across the board. Plant gate and CIF costs decreased over 30%. Now all-in sustaining costs are back to normal, which were third quarter of 2025, which means that we still can decrease them a bit further than as we increase volumes and normalize production. Our all-in sustaining cost was $668 per ton in the second quarter. Again, that puts us well into excess return territory at current lithium prices. Here is an additional illustration of that. If we compare net prices, meaning price adjusted to 5% grade, we are delivering against CIF Asia approximately $1,400 per ton of cash profit. Now when you compare that with our competitors, you can see that we're almost neutral to lithium prices, almost as if we are the floor. That cost discipline, which enabled us to execute on our strategy so successfully has been now reflected into our cost guidance. We are now adjusting our updated guidance and lowering it to reflect the executed delivered all-in sustaining cash costs in the second quarter. So that comes down to $668 a tonne for the year of 2026. Therefore, we are on track to deliver on the year of 2027 guidance of $620 all-in cash cost -- total cash cost per ton as we continue to increase production volumes. This page illustrates how we have been able to deliver on some of the lowest costs in our industry, while at the same time, maintaining one of the world's best safety records for employees. Over 101,000 days have gone by and our employees go back home to their families safely. This is a result of our own employee engagement and our strict safety processes. Everyone feels that they are responsible for their safety and their colleagues' safety. Our TRIFR is 0. That's another 0, again, demonstrating our execution excellence. This next page illustrates how we've been able to achieve operational efficiency and maintain our high margins across the board. Gross margins stayed at 60%, EBITDA margins were all-time record of 47%, operating margins remained at 32%, and we maintained profitability with a positive net margin. Therefore, here it is an illustration of our debt reduction enabled by financial discipline. We repaid 25% of total debt in the last year, 43% of our total debt that significant deleveraged over the last 2 years. When it all comes together, one can see how our strong performance translates into cash and fully converts, making our operations self-sustaining and resilient. We sell everything, not only the high grade, but also our tailings, which are dry stacked. That adds quite a lot to our cash generation, as you can see on this page. We actually had in June 30, end of second quarter, a cash position that was enhanced by a sale of lithium materials or high grade. So in addition to it, we've also been able to sell current inventory of lithium materials of varying grades, mostly high grade. In other words, we are going to be 100% circular very soon and just sell everything that our plant generates. From high grade to low grade, we have a very wide spectrum of high-purity products that just increase our resilience and help us be fully sustainable. Without further ado, I'm going to start on our operational highlights and our production and capacity outlook, especially in light of the recent events. We have surpassed our high-grade lithium oxide production, and we're demonstrating significant operational efficiency. Our mining ramp-up surpassed guidance, and we delivered 35,000 tons in the second quarter '26. That was an increase of 6% over guidance. We are on track to deliver on our previous guidance. We just pushed it forward by 3 months. We are in a very good position to negotiate an agreement with the state of Minas Gerais, and we have cleared most of our main points. As a result, we're going to execute as planned, our additional fleet upgrade and deploy 75-ton trucks and 98-ton excavators to our site in order to increase haulage capacity. That's how confident we are that we're going to be able to successfully advance into primarizing our mining operation and continuing to ramp up our production. So when you look at it as a whole, a year later, the conclusion is that the increase in safety, the increase in operational efficiency fully validated the decision to primarize our mine. We have all of our operations under full control. And we are deploying haulage and ability to vasculate through the excavators that significantly increased our productivity and our capabilities to increase geometry of the mine as we will discuss further into this section. Here is a detailed discussion of our continued execution of the fleet upgrade that is going to take place in the third quarter of '26. We delivered on our first half targets, increasing the scale, the haulage capacity by 40%. So we're continuing on the upgrade by now bringing the excavators of 98 tons, replacing some of the 75-ton excavators and bringing in the 75-ton trucks to add to the fleet of 60-ton trucks. Now that the geometry is wider, we actually have more flexibility at the waste removal areas. So this is the second stage of deployment of large equipment. Larger machinery means more productivity. So it enables us to maintain our low cash cost operating position. Therefore, it increases our resilience as a company and help us navigate throughout the cycles. This slide illustrates visually how the work we've been conducting for the last couple of months of reassessing the geometry has paid off. We designed a new pit shell a new mining pit shell that enabled the company to access a large amount of high-grade spodumene ore. We construction ramps, brought in larger trucks. So we are able to unlock this larger block of material that will feed our industrial plant. The results are on the page quantified. The size of the block is 83% larger than the block we were able to access with the old design. At 1.1 million tonnes of fresh ore, we can produce 200,000 tons of lithium oxide concentrate. So all in, an 83% increase in raw material delivers almost 100% increase in oxide concentrate production. Lastly, this ore is a very high grade, 1.4% of fresh rock. This is how we are able to operate throughout the remaining months in full capacity, meaning using the main circuit and the reprocessing circuit because of the amount of high-grade fresh ore being delivered to the plot. This slide is basically to outline how our production expansion plans remain on track. Our forecasts were pushed forward by just 3 months. So the production forecast with only Plant 1 for the 12 months forward remains at 240,000 tonnes of high-grade lithium concentrate per year. By the end of 2027, including all circuits that the first plant has, and that includes the recirculation circuit, our production forecast is at 330,000 tonnes per year. That's a result of the plant recovery of 70% and in the main circuit and a fully working reprocessing circuit for the other material. As it comes to construction, we plan to have an installed capacity at the end of 2027 once we complete the construction of the second plant of 580,000 tonnes of high-grade lithium concentrate per year. That incorporates the first plant and its reprocessing circuit capacity. Therefore, we plan to just greenlight Plant 2 at the beginning of January. We have flexibility on how to execute our construction plants. There is a scenario where we could greenlight both plants, Plant 2 and Plant 3 at the same time at the beginning of '27 in January. But if we don't, we would build them sequentially. So by the end of 2028, we expect to have 830,000 tons of installed capacity for production. With that kind of capacity and with our current plant, the cash flow forecast, and again, we're just estimating Plant 1, which is already built, they vary just according to current price ranges estimated by Wall Street research analysts. So at the low end of the range at $1,500 per ton, we could be generating cash flows that would go from $166 million if you take into account 12 months forward or $360 million once we contemplate production during 2027. If the prices go to $2,500 per ton, we would be looking at cash flows that would be $235 million if we just stay on the production for 12 months forward, but once we deliver the 2027 production, which again can be done with just one plot, we reached $0.5 billion in cash flow. This is a direct result of our low-cost position, high margins and efficiency. In other words, we do not need a lot of volume to generate quite a substantial amount of cash. We're now going to make our final remarks and the conclusion of our second quarter 2026 earnings presentation. Sigma Lithium plans to deliver substantial returns to shareholders this year in 2026, plus because of our significant growth profile of production within the next 12 months. We plan also to significantly increase incremental industrial capacity. We're going to resume construction of Plant 2 and potentially build Plant 3 at the same time, given that we are in a very robust lithium market environment as we're going to discuss later, this is the time to build and to build in scale. More importantly, we have proven execution capabilities in a very experienced team. We have built our first plant in record time and commissioned it even faster. Just recently, we primarized and automated our entire mining operations, upgrading the fleet once and now we're upgrading it again to increase haulage capacity. All of that done while maintaining the world record in employee safety with over 1,100 days without accidents. Our operational resilience is based on these 2 pillars, this financial discipline regarding when to deploy CapEx for growth and timing is now, but more importantly, on relying and monetizing our structural low-cost advantages to convert that into cash flow, which basically sustains the company throughout all lithium markets. Our sector is going through a unique moment in growth. We are enabled by AI instead of disrupted by AR. The demand growth from battery storage is, in fact, driving lithium global growth demand. AI data centers and energy security require battery storage. Battery storage requires lithium, and therefore, lithium demand is set for a decades-long growth period. The bar charts below demonstrate that if you compare 2025 year-end demand with 2026 expected lithium demand in lithium carbonate equivalent, we have a growth of 900,000 tons of LCE. If that is translated into our product, lithium oxide, you multiply it by 8. So that is approximately 7 million tons of lithium oxide concentrate to supply this year's demand projections. If we forward that almost another decade to 2035, global demand is expected to be 5 million tons of LCE. If one was to translate that into our lithium oxide concentrate product, that will be approximately 40 million tons of production. In other words, that's multiple sides of Sigma. At that level, in other words, at 800,000 tons per year expected in 2028, which is going to be our expected production with 3 plants, we will be supplying a fraction of global expected demand, approximately 2% only. That is the scale of the growth of the sector, and that is a demonstration of how companies need to be well positioned to deliver growth with low CapEx fast, which is precisely what we plan to do by 2028. Our share price, if you look at the left, has behaving very much in line with the sector. And that is actually a very piece of good news. Again, the demand growth and the fundamentals are far too strong and raise all the short-term volatility and noise. Our company has very strong operational and financial performance fundamentals, and that is the foundation of our value. Here, our low cost and our strong cash generation are those foundations. Therefore, we're clearly positioned for a re-rating because at an expected 75,000 tons of LCE equivalent of production capacity constructed by the end of next year, we are very much in line with some of our peers, which have market caps which are double our market cap. So that is what we expect to happen over the course of the year, a significant rerating. And now we move on to the Q&A. Thank you very much for joining us today.

[Operator Instructions] Our first three questions comes from Joel Jackson from BMO Capital Markets. First, what was your exact production in Q2 of normal lithium concentrate and exact production in Q2 of the lower grade concentrate/fines/tailings? Two, you generated $30 million of cash flow in Q2. If the mine does not restart for the rest of Q3, what is your expected cash flow or burn? Three, what are the best and worst-case scenarios for mine restart? And when it restarts, how many months will it take Sigma to ramp it to full grade lithium concentrate production?

Joe, it's great to hear from you. Let me just do the following. Let me put the page of the presentation on the screen so that I can actually better answer your question. The entire production for the quarter was high-grade material. And we've done that so that we would highlight that the plant and the mine have gone back to fully ramped position of production of ore. So that's the first part of the question. The lower grade that we produced during second quarter wasn't sold, and it's going to be sold now. When you look at the cash flow projections, this number here, the $32 million do include the low-grade material that was produced during the second quarter, and we deliberately did not sell in order to have a clean quarter of production and sales. So that, I would say, answers the first part of your question. Then the second part of your question regarding the fact that we generated $13 million of cash flow in Q2. Well, it was more. If you look at the accounting, but then you have the net inflows given that $27 million was sold but did not convert into cash, right? How much do we expect to generate into Q3? Well, that's the exact $27 million that didn't convert into cash that was sold is going to be added to the material that was produced that was not high grade and that will be sold. So for the third quarter, just to begin with, as of today, we have approximately $60 million to receive in cash flow. That's the value in blue, $32 million and the value in dashed green. Best and worst case for mine restarts. Well, best case will be to restart next week. Worst case restart, I think it would take about 2 weeks. The dialogue is going quite well. Conversations have been very constructive. But given the nature of the notifications we received and given the fact that these are mostly false acquisitions executed by local inspectors, we are being quite strict when it comes to the terms of the agreement because we want to be cleared of any wrongdoing. It won't be just a settlement. We would like to be fully cleared given that the acquisitions are false. And as we have a significant amount of cash flow to come in into Q3, we are obviously negotiating that in a position of strictness. After all, is our reputation on the line, and we thread on reputation.

Our next three questions comes from [indiscernible] from [indiscernible]. First one, regarding the 2 offtake prepayments, the $96 million associated with the 70,500 ton 1-year agreement and the $50 million associated with the 40,000 ton per year 3-year agreement. Could you clarify how much cash Sigma has actually received from each agreement to date? And specifically, has the $50 million be used to repay debt as previously indicated? Two, regarding the temporary suspension related to the TAC negotiations, could you please clarify exactly which operations have been suspended? Is the suspension limited to mining activities? Or have both mining and processing operations been suspended? Secondly, given that a production suspension is clearly a material operational event for the company, why wasn't the market and shareholders informed immediately when the suspension occurred? Could you explain the company's reasoning behind the timing of the disclosure? Three, during the current production suspension, are you still able to process and ship lithium midlings? How much lithium midlings did the company ship in the last quarter? And how much are you planning to ship this quarter? Also, have you signed any additional sales or offtake agreements for lithium midlings?