Sociedad Química y Minera de Chile S.A. ($SQM)

Good day, everyone, and thank you for standing by. Welcome to SQM First Quarter 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Megan Suitor with Investor Relations. Please proceed.

Good day, and thanks for joining SQM's earnings conference call for the first quarter of 2026. This call is being recorded and webcast live. Our earnings press release and the accompanying results presentation are available on our website where you can also find a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Pablo Altimiras, CEO and of the iodine and Plant Nutrition division, Mr. Pablo Altimiras, Vice President of Strategy and Development of Novan Dino Lifion, Mr. Andreas Fontana, Commercial Vice President of the International Lithium Division; and Mr. Max Fial, Head of Studies of the International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product or service line growth, are considered forward-looking statements under U.S. Federal Securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos.

Good day, and thank you for joining us today. We reported strong results for the first quarter of the year, reflecting a strong performance across our key business lines. The first quarter of 2026 also marked an important milestone for SQM and -- for tile, as our partnership with Codelco through Novandinolidio completed the first full quarter of operations. This partnership represents much more than a business combination. It reflects a long-term commitment to responsibly developing Salar Atacama lithium resources while creating value not only for our shareholders but also for the country and local communities. We are operating at capacity, delivering strong operational and financial results while continuing to invest in future growth and production expansion. Importantly, during the first quarter alone, Novandinolithium generated more than $530 million in contributions to the Chilean state through payments to Corp, taxes and transfers to local governments. We believe this demonstrates the scale of value this operation creates and the meaningful role it plays in supporting Chile's long-term economic development, starting our business analysis with lithium, total sales volumes in the first quarter increased by 25% year-over-year, reaching approximately 69,000 metric tons of lithium carbonate equivalent across our operations. Based on our current estimates, global lithium demand will exceed 1.9 million metric tons of lithium carbonate equivalent this year, while Mark dynamics continue to suggest a tight supply-demand balance. As a result, we have increased our lithium sales volume guidance for the year and now expect total lithium sales volumes to grow by approximately 15% compared to 2025. Given current market conditions, we also believe average realized price in the second quarter could be higher than those reported in the first quarter. In Chile, [indiscernible] delivered a solid first quarter volumes, and we expect volumes to continue increasing quarter-over-quarter. In parallel, we continue advancing in the Salar Futuro project and expect to begin the environmental permitting process in the coming months. In our International Lithium division, operations in Australia also delivered strong results. On Holland and the concentrator are operating at full capacity, while the continued advancing in the ramp-up of Guinan refinery, which is expected to be fully operational during 2027. Moving to our specialty plant nutrition business line, we're also increasing our sales guidance for the year. We now expect sales volumes to grow by approximately 10% compared to 2025 driven by reduced potassium nitrate export from China, which have created supply gaps in international markets. We believe SKM is well positioned to help provide the supply the market needs. In IO, we delivered a strong quarter, and we expect strength to continue into the second quarter. As the spot transaction prices have continued to increase, particularly in Asian markets. For the full year, we continue to expect higher end sales volume to be broadly in the line with last year as slightly higher while remaining focused on operating at maximum capacity. At Nueva Victoria, the seawater pipeline is currently under commissioning and is expected to support future production capacity growth. Overall, we continue to observe supportive market conditions across our key business lines, and we believe SQM is well positioned to continue delivering solid results and creating value for our shareholders. With that, I will now turn the call back to the operator for the Q&A. Thank you.

Thank you. [Operator Instructions] Our first question. It comes from Joel Jackson with BMO Capital Markets.

It's Evan on for Joel. Just have a couple here. So first 1 on lithium battery business movement. So does the movement over the last year make SQM feel more bullish or the same about mid-cycle pricing.

Joe, Somerondina speaking. So I'll refer to our pricing, if this helps answer your question. So in Q1 2026, our average sales price was roughly $18 per kilo, which was substantially higher than the $10 per kilo we reached in Q4 2025. And our realized prices remain mainly linked to the pricing sixes. So consequently, of course, we expect our sales prices in Q2 2026 is expected to be higher than what we had in Q1 2026. We are still in a very high volatile price scenario. So it's difficult to really prices beyond Q2.

Okay. And also, how does plan to deploy windfall free cash flow this year driven by the higher lithium prices and higher earnings in the past, you've done special dividends, should the market expect this again. .

This is Gerardo. Gerardo speaking. Yes, we finished the first quarter with higher cash and cash equivalent than what we had at the end of last year. Mainly because of higher prices of lithium, higher prices of iodine, higher prices of nitrates. But you have to consider that right after that, we pay dividends, 50% of the net income of last year. We also have to make payments to Corfu and other payments that are tax-related payments and others. We are constantly assessing opportunities to distribute dividends. In the past, we have done that. But at this quarter, we have not taken any decision so far.

Next question comes from Ben Isaacson with Scotiabank. .

Thank you very much, and good afternoon, everyone. I just have 3 questions. The first one is on the SPN business. You are -- you have announced an increase in your guidance for 10% growth in volume versus about 2% to 3% before. And you've talked about really taking share away from China and Asian markets. Can you just provide some color as to what's going on in China that's causing them to focus more on their domestic market? And how sustainable do you think this is?

Pablo Timir speaking. Yes, that's right. We pretend to increase our volumes in 10%, as you said. This is more related with increasing potassium nitric sales. As you know, by the end of March, China suspends the export of potassium nitrate abroad. So that means that allow us to go to market where we normally are not going. That open an opportunity to put more volume in the market, and that explains mainly our growth. regarding what's going on in China, well, it's difficult to say. In China also, you see that today is not the only restriction in that product, but as naturally, you have other products that are restricted. So it's now easy to see what we'll have in the future. However, in the meantime, we have the opportunity, we are well prepared because we have the capacity, the installed capacity, inventories and our supply chain worldwide ready if the market needs more production.

Great. And my next question is on iodine. -- we've had elevated prices for quite some time. And if we go back, I can't remember how long it was maybe 12 years ago, I can't remember. But when prices were at this level again at this level, it didn't last that long, and we saw supply coming to market, and then we saw prices dropping. Gives you the confidence, and I know supply is coming to market slowly, but what gives you the confidence that we won't see an acceleration in supply of iodine over the next 2 or 3 years that will disrupt this pricing environment.

Well, I would say that, first of all, I mean, if you try to compare the market today with was what the market tend 12 years ago, is too much high. I think that it's not so easy to compare. The market is much higher than before. Also, the participation of the different applications has changed. I mean, today, you have a more, for example, much more importance of ex contrast media that didn't happen before. So today, let's say that you have some changes in the market. Also, what we have seen is that the marginal projects are not there. But when they arrive, normally, there are higher cost than before. So that also puts some pressure in the price structure, let's say, and today, well, we are confident because the matter of supply and demand. In Q1, we saw a very strong demand. We believe that the market growth in Q1 more than 3%. So that's sustained that we believe that this year, the market will grow 3%, sorry. And in the meantime that happen and the supply is not there, we believe that, well, everything is there to remain at this level of prices.

And then my final question is on Solar Futuro. Can you just remind us what the CapEx spend looks like and the timing of the outflow. And the real question is to do with inflation. whether it's the impact of what's happened in -- with respect to the Iran war or whether it's tariffs or whether it's general inflation, we're seeing CapEx for projects on the world increase. So can you talk about what impact on inflation is going to have on the SalarFutero project and how that could impact returns?

Ricardo Ramos speaking. As you may know, we expect to file the environmental study of Salar Futero in the next few months, probably before the end of third quarter. And we are assessing now what is going to be the total investment. And our first estimate is in the range of $30 billion investment in Salor Futero. You are right in terms that there is a lot of uncertainty in the world in terms of cost, in terms of the pricing of raw material and everything. We don't have a full understanding of how long it will take to solve these issues that we are facing today, especially because the world -- but yes, inflation is an issue, but inflation also is affecting the price of our different commodities. That's why if the total investment is affected by inflation and it will be -- of course, pricing of the different products that we sell worldwide like IoT and lithium, everything will be affected by flation. It means we'll increase accordingly. That's why we do not expect that the project will be affected in terms of the return the ability of the project. I think it's going to be an extremely good project. We are very, very proud of the new technology that we will implement. We are doing things very good in the Saradaacom as we speak. We're moving as far as we can. And of course, the environmental study, environmental review, a project like that takes some time. We think that during the year 2029, we will have the final approval. That's what we expect. And we will start investment -- we will start investment in the Salar Futero to Duro project during 2030. Everything is according to our original plan with Codelco. I think that we're just a little better in the plan because we have been working very hard together. I think everything is moving in the right direction.

Our next question is from the line of Corinne Blanchard with Deutsche Bank.

Can you talk about the lithium volume outlook raise. You're now targeting 15% up year-over-year, which would bring you almost close to the 300-kiloton -- can you first talk about the cadence? Are we seeing that increase already starting in 2Q? Or is it more like a second half of the year story? And then is it come in those volumes, are they coming from a production? Or is it also you maybe offloading some of your inventory.

Pablo Hernandez speaking. So we're expecting strong sales volumes in Q2 2026, we hope to surpass the sales volume of Q1 2025 by more than 10%, hitting a record volume for any past calendar quarter. We continue maximizing our volume as we have consistently done over the years. following our decision to operate at full capacity and expanding it in line with the anticipated market growth. So ensuring we're always prepared to meet our customers' needs -- and aligned with that strategy, we feel confident that we will successfully allocate in the market. The additional production that we expect to achieve this year, which is going to be over 270,000 metric tons coming from came -- so there is significant appetite for lithium units in the market.

I wanted to go -- so 2 questions here, maybe spodumene price in Montara. I think if you compare the some of your peers, I think you have got a much lower price. Can you comment maybe of the driver and the why here? And how do you view that for the rest of the year? And then quick -- another question. I want to go back on the capital allocation. I know, Gerardo, you mentioned you're not going to -- you haven't yet decided if it's going to be special dividends. If it's not a special dividends, what are you going to do with the cash?

[indiscernible] From International lithium speaking. Regarding your question on spot price, well, the difference between our realized price for concentrate and the quarterly average of some of the indexes is mainly explained by 2 factors. First, you have the market volatility during the last few months. You -- for example, December, you saw prices at around $1,300 that in March was more than $2,000 so the realized price for any given producer depends on the timing of the negotiations and the shipments within that price cycle. And second, polony shipments are not continuous or evenly distributed month-to-month. So when you combine a strong price recovery with the lumpy nature of the shipments, you can see some difference between the reported realized prices and the quarter average of some of the market benchmarks. So from a commercial standpoint, we remain comfortable with our position as we continue to optimize both the timing and flexibility between exposing and downstream hydroxide sales.

Hi Corinne, this is Gerardo. Regarding your question about the capital allocation, I think that there are a few things that have to be considered. First, given what Pablo just mentioned about higher volume sales from Sadara -- and with these price levels, our payments to Corfo, the government of Chile and local communities will be higher than last year and probably higher than the first quarter in the upcoming quarters. So we will have a lot of need for cash to basically comply with these obligations. Second, we have a high CapEx program. We are expanding capacity in Chile. We're working on initiatives in the in operations as well as in the international leasing division. And of course, we have a dividend policy that considers payments of dividends at the year-end. Well, it's approved in the shareholders' meeting and is paid right after, but in the past, we have made interim dividend payments when we have seen the opportunity to do so. And of course, this year, we are assessing that. This is just the first quarter of the year. And the Board will recombine and we'll discuss about opportunities. And if appropriate, interim dividends will be paid. Otherwise, we will see a final dividend paid at the end of the fiscal year.

One moment for our next question. It comes from Isabella Simonato with Bank of America.

Here my question. I have two -- just if you could give a little bit more details about taxes paid in the quarter. So effective tax rate was higher than what you usually have. So you can provide a little bit more details about what -- why that happened in the quarter? And second, back to the SQM business, right? As you said, you are more optimistic about sales and share gains in pricing of fertilizers in general have definitely been attained right, given the war. So if you can comment also on how do you see prices evolving throughout the quarter -- throughout the year would be helpful. Thank you.

Isabella, Pablo speaking. Regarding the taxes that we pay, it's important to consider or to keep in consideration that within the tax line, of course, we have the corporate income tax that we pay in Chile, which is 27%, along with the taxes that we pay abroad, which, of course, it varies by decision, but we can say that an average is something around 30%. But on top of that, we pay a mining tax in Chile. And this mining tax is basically a function of the profitability of the business. the higher the profitability of the business, the higher the bracket you fall in basically that profitability is considered or is calculated based on the total revenues you get on the exports of products from Chile. And the cost that we have on those products, excluding the payments that we make to. So with the higher prices of lithium that we saw during the first quarter, the profitability of the lithium business went up. And because of that, the lithium mining tax that was paid during the first quarter of this year or not paid by accrued during the first quarter of this year -- is higher than what it was in the past.

Speaking. Well, regarding to your question, we are optimistic regarding to the price trends in our specialty fertilisers business, -- the reason is what we already explained. I mean today, we have some lack of supply because of the China situation. But on top of that, the environment because of the word is affecting our raw materials or other fertilizers that are related with our potassium nitrate business. One example is the price of potassium sulfate, it is growing and because of that, today, support the potassium nitrate price trend. So we are optimistic, and we believe that the price will continue increasing in the next quarters.

And Gerardo, can you give us a ballpark about how can we think about Main Texas, the rate? I know there was something between 8% to 10%. Just wanted to double check.

Well, -- of course, I mean, all of this is public information that you can find how this is exactly calculated on public records. But the mining tax goes between 0% to 14% -- and currently, based on the profitability of the business is in between 11% and 12%. Out of the profit that we get on the lithium business, excluding the corpo payments.

Our next question comes from Emerson Viera with Goldman Sachs.

I have 2 questions on Matalan. The first one, just trying to understand here when you guys expect to carry on with expansion given that we saw the news that the expense was recently approved by regulators. So just, I mean, on timing for auto expansion? And what is the win cost that the operation is running right now?

Emerson, for the question. Andres Fontannaz speaking. So regarding the expansion, we continue executing the plan and expect to present the Man Holland expansion for the Board's review and decision early Q3 in '26. Regarding permitting, that's progressing well, and it's currently under a public review period. At this stage, we do not have access to see if any appeals have been launched. But once the pus period officially closes, this is at midnight on May 28, we will request confirmation of whether any appeals were submitted. In parallel, you know that we remain focused on sustaining full capacity operations at the existing mine and concentrator. Regarding cost, we do not comment on the specific costs for that operation.

Okay. Can you can you share with us what would be, I mean, ballpark CapEx for the expansion? I know -- I mean, abilities are ongoing, but any number here could be very helpful. .

Yes. Regarding the CapEx, we are working it. It will be presented for the Board. As commented previously, for next year, we are planning to -- or what is considered for next year is 200 million is only for 2027. And that is the SQM share for that. .

[Operator Instructions] Our next question is from Duratomic with Lara Bial. .

I have 2 of them. The first one is on cash cost, excluding the depreciation and core payments, -- we saw a significant improvement in lithium and also a weaker performance in iodine. And my question is, what should we expect for the rest of 2026? And perhaps moving to my second question, in previous conference calls, you mentioned that the BES application accounts for around 20% of the total demand of lithium and what would you say is this best share so far in 2026?

So regarding the cash cost or operating cost in about no as a consequence of continued efficiency and improvement processes, together with the economies of scale of our increased production levels, we have indeed consistently been able to make cost improvements and we expect the 2026 cost to be lower than the 1 we had in 2025. And this is, of course, aligned with our production strategy of increasing production at low cost. Maxwell speaking.

Regarding the best participation in the demand of the market. for lithium, we expect something around 30% for BSS overall demand.

Regarding your question about the IMCs. Well, first of all, I would remark that the increase is not too much. But there are some explanation for that. The first 1 is that where we are producing quite bit volume. Remember that we pretend this year to produce more than 15,000 metros of iodine. That means that we are using some marginal facilities that they have higher cost. Second, well, we are in the ramp-up of Marialena. So that means that we have some specific costs related to the ramp-up -- and third, that we cannot forget is that because of the situation of the word, because of some raw materials, mainly fuel, which is very important for our mining activity, it's been increased. So those are the resource. However, as always, we are working in different initiatives to control the cost increase.

Thank you so much. And ladies and gentlemen, this will conclude our Q&A session and conference for today. We want to thank everyone for participating. You may now disconnect.