Earnings Transcript for SLI - Q1 Fiscal Year 2025

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Standard Lithium's Fiscal First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. It is now my pleasure to turn today's call over to Salah Gamoudi, Chief Financial Officer. Sir, please go ahead.

Salah Gamoudi: Thank you, and welcome everyone to our fiscal first quarter earnings conference call. Joining me on the call today are David Park, CEO and Director; Andy Robinson, President, Director, and COO; and Mike Barman, Chief Development Officer. As a reminder, some of the statements made during our call, including any forward expectations, company performance, and timing of projects may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release, which also applies to this call. I'll now turn the call over to David.

David Park: Thanks, Salah, and thanks to everyone for joining us on the call today. If you are new to the Standard Lithium story, welcome. You've joined us at an exciting time for the company as we evolve from a developer to a producer and deliver a low-cost, environmentally-friendly domestic source of lithium to meet the needs of the global energy transition. Today marks just over 60 days of me in the seat as CEO of Standard. In my many meetings with shareholders, analysts, and members of the local community in Arkansas, I've often been asked what tempted me to forego retirement and join the Standard team. And my answer is simple. It's a great story where the reality meets the rhetoric. I truly believe we have the right resource in the right place, which we've matched with the right technology, and that we've selected the right partners. The team says what they're going to do. As an example, we said we would secure government funding for our project, and we did that. We also said we'd find a strategic partner to help execute our project, and we did that. Receiving the $225 million conditional grant from the DOE validated the world-class potential of the South West Arkansas project. And our partnership with Equinor further validated the quality of our SMACOVER asset, as well as the efficacy of our direct lithium extraction process and the expertise of our team. What I found most attractive about Standard Lithium was knowing the people and knowing that this was a group of humble, intellectually honest, hardworking, and transparent people that were focused on driving shareholder value. In 2025, we plan on doing just that. We have a handful of milestones expected to be coming in the calendar year, which I'll leave to Andy to address here shortly. Now is the time for us to prioritize, focus, and execute and bring production online for our shareholders. I'll now turn it over to Andy to discuss the next steps we're taking to continue to derisk our business and move our world-class lithium brine projects forward. Andy, over to you.

Andy Robinson: Thanks, David. As you mentioned, we're focused on advancing and derisking our largest and highest-grade projects within the SMACOVER formation. Our landmark agreement with Koch Technology Solutions was a key derisking event for our project. Subsequent to quarter-end, we entered into a license agreement to deploy KTS's Li-Pro LSS technology at our South West Arkansas project. As part of the agreement, we have exclusive use of LSS technology in the SMACOVER and a performance guarantee from Koch, ensuring lithium recoveries of at least 95%. As we mentioned before, the key to unlocking our world-class lithium resources in the SMACOVER is successful commercial execution of our DLE process. And the only way to know if your flowsheet actually works is to operate it continuously for long periods of time with large volumes of brine pumped directly from your resource. And we're doing exactly that at our demonstration plant in Arkansas. The LSS process has been run for nearly 10,000 operational cycles at our demo plant, with recent commercial-scale results exceeding expectations. Lithium recoveries have consistently exceeded 95%, and the rejection of impurities has been truly excellent. Koch's LSS technology and its integration into our flowsheet is proven and now guaranteed to work. The commercial-scale DLE column at the demo plant is identical to those currently being integrated into the engineering design for the SWA project. We've got field activities now underway for the SWA project, both for additional definition of the quality of the resource, as well as project-specific process testing, and we look forward to sharing news on those programs in the near future. The Standard and Equinor project team continues to work towards completion of the FEED studies while executing on several parallel workstreams. Completion of FEED will be a major milestone for the project. We're currently aiming to wrap up all those studies by mid-2025, with a feasibility study to follow soon after. Turning to East Texas. We continue to be excited by the potential there, with our most recent drill results yielding lithium concentrations up to 806 milligrams per liter and an average concentration of 644 milligrams per liter. A team is currently working in East Texas to confirm and expand our understanding of this globally significant resource, which includes reentering and sampling our existing wells and drilling one new well within our growing land position. We're working on a maiden resource report for a portion of our holdings in East Texas, and we hope to be able to deliver that within the next calendar year. And with that, I'll turn the call over to Salah, who will speak to our quarterly results. Salah?

Salah Gamoudi: Thank you, Andy. Before I dive into the numbers, I would like to highlight that the figures I'm sharing with you today are in U.S. dollars. Effective at the start of our fiscal first quarter, we have converted our reporting currency from Canadian dollars to U.S. dollars. We have decided to make this conversion in reporting currency as our projects are located in the United States, and therefore, most of the underlying transactions, assets, and liabilities that support our financial statements occur or are held in U.S. dollars. As well, some of our most significant U.S.-focused lithium exploration and production peers report in U.S. dollars, and therefore, this change should provide greater ease of comparability for our investors. For our first quarter ended September 30, 2024, we reported a net loss of $4.8 million, or $0.03 per basic share. This compares to a net loss in the first quarter of 2023 of $7.3 million, or $0.04 per basic share. The reduction in our net loss was primarily driven by meaningful reductions in expenses from our demonstration plant as a result of the great work our operations team has done to reduce reliance on reagents, improve efficiencies through changes in our flowsheet, bringing our personnel in-house versus outsourcing, and reduce testing applications as we honed in on the use of LSS technology for DLE. We believe these improvements at the demonstration plant will pay dividends on our commercial projects. G&A was reduced by approximately $0.2 million, despite increasing back-office activities and a larger executive team to support moving forward towards FID on South West Arkansas, as well as expanding and further defining our resources in East Texas. This relatively flat G&A profile is both a result of back-office cost sharing via our joint venture, and by our approach to smart outsourcing, select hiring of key back-office leaders in accounting, finance, internal audit, and engineering roles, better and more efficient processes, and strong attention to cost management. You'll notice a meaningful reduction in share-based compensation expenses of approximately $1.1 million. This is primarily driven by changes in our compensation structures for both management and personnel that are built for the long-term, with longer-term vesting schedules of equity-based compensation that best align our teams with our investors for long-term value creation. Moving on to capital sources. We ended the quarter with a very healthy working capital balance of approximately $24.7 million and $28.9 million in cash. Cash outflows during the quarter were primarily driven by the aforementioned cash-based expense items on our income statement, in addition to approximately $2.4 million in payments made on previously accrued expenses, deriving primarily from legal and advisory fees associated with our joint venture transaction with Equinor, in addition to fees paid associated with the co-development of our DLE technology that we plan to use at Stage 1 of our South West Arkansas project. As David mentioned at the beginning of the call, we are focused on securing the necessary funding to advance our projects in the coming months and plan to do so in a way that best minimizes our cost of capital. For us, this means pursuing funding via

David Park: Thanks, Salah. While uncertainty regarding lithium demand, price direction, and the pace of recovery continues to weigh on our sector, we're focused on what's within our control. For us, that means continuing to derisk and advance our portfolio of projects. In the first quarter, we did what we said we were going to do and secured a $225 million conditional grant from the U.S. Department of Energy for the South West Arkansas project. The grant was one of the largest of its kind awarded to a U.S. critical minerals project. Now it's time for us to prioritize, focus, and execute. We look forward to working with Equinor to advance South West Arkansas through DFS and FEED and concurrently progress East Texas, where we see the potential to develop what could be one of the best lithium resources in the world. We have a team that's focused on building long-term value for our shareholders, and we plan to do so by continuing to deliver on our commitments and prioritizing our lowest cost of capital options to finance the next phase of our company's growth. Thank you. Operator, back to you.

Operator: Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from the line of Greg Jones with BMO Capital Markets. Please go ahead.

Greg Jones: Hi, good afternoon, David and team. Thanks for taking my question. Just in regards to the Arkansas royalty process, what do you envision the next steps to be towards a final outcome there? And at what point does the lack of clarity start impacting the good work that your team is doing on advancing projects and investigating the financings and the overall project schedule?

David Park: Thanks, Greg. Obviously, we're somewhat disappointed that the application wasn't approved on November 5. However, we understand the complexity of the decision for the Commissioners, and we remain confident that we'll get a satisfactory answer or a satisfactory resolution by midyear. And assuming we're able to do so, that should not have an impact on our project schedule.

Gregory Jones: Great, thank you. And with respect to the DOE award, can you maybe provide a little bit of color on how you envision the next steps on that, and what might be required to get everything fully contracted and closed?

David Park: Sure. I'll just say that getting the DOE grant finalized is a high priority for both the DOE staff, as well as the SLI, the Standard Lithium team. Both sides are motivated to get it done by year end. We are engaged in a regular dialog with the DOE. And to date, we have found no surprises or constraints to getting this done. And we remain confident that we should be able to be final before mid-January.

Gregory Jones: Okay, thank you. I'll turn it back to the queue.

Operator: Your next question comes from the line of Joseph Reagor with ROTH Capital. Please go ahead.

Joseph Reagor: Hey David and team, thanks for taking the questions. Greg hit on both the topics I wanted to touch on, but maybe a little follow-on to those. On the royalty structure for Arkansas, do you guys have a sense of why they rejected the initial one? The reporting around it suggested it might be related to not having financial documents. I'm assuming that's not from you guys, but maybe from other companies.

Andy Robinson: Joe, it's Andy here. I think a lot of the reasons were echoed in the Commissioners' closing remarks at the hearing, Joe. I think they were looking for a little bit more clarity on benchmarking against other jurisdictions around the globe where lithium products are produced. I think there was a little bit more clarity required on, yes, some of the background information for some of the projects. So it was a little bit searching for some additional information. But I think if you've followed the hearings, Joe, you would have noticed that the Commissioners closed out by giving a pretty good steer for the direction of the royalty. I think that was very helpful for all of the co-applicants who were part of that submission. And so we're taking our cues from that and restructuring and thinking about what the next steps are. But I think we got a very good steer from the Commissioners as to the overall direction and magnitude.

Joseph Reagor: Okay, fair enough. And then on that second topic of the DOE grant, do you guys have an expectation of what the structure and timing of that might look like, assuming you can finalize by year end? When would the cash be available to you? Would it be a repayable grant or a free grant, those types of things? Or is that what you're negotiating now?

David Park: Why don't I hand that one over to Mike Barman?

Mike Barman: Hi, it is -- what we've been given now is a conditional award. We're working through the terms and conditions now with the officials over in DOE and MESC. But it is a grant that doesn't require repayment, if that's what the question was.

Joseph Reagor: Okay. Yes, that's good. And then if for some reason it doesn't get finalized by year end, how long do you guys have into the new year before the regime changeover in our country would impact the DOE's ability to finalize things?

David Park: I think as a practical matter, if it's not resolved by Inauguration Day, it would likely take a couple of quarters for new people to be in their seats and to get to the final answer.

Joseph Reagor: Okay. So hopefully, by year end, but if not, it's not the end of the world.

David Park: Correct.

Joseph Reagor: All right. Thanks. I'll turn it over.

Operator: Your next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Jeffrey Robertson: Thank you. Good afternoon. Exxon has signed two memorandum of understanding for offtake agreements for lithium from its Arkansas project. Can you just provide an update on where SLI is with potential offtake customers discussions? And can you add any color around the type of structure that you all would like to see for your project? And then lastly, on that, is part of those negotiations tied to the royalty discussion for the state?

David Park: So, first off, we have been engaged in a long informal dialog with a number of potential off-takers for the project. However, we are about to be kicking off a more formal process to have a more structured dialog with multiple off-takers at the same time. We initiated some discussions just last week with a number of them at the Benchmark Lithium Conference. But go forward, our goal is to put in place firm offtake agreements that would then support a project finance process. So I don't know, Andy, if you have anything else to add there?

Andy Robinson: No, I think, Jeff, I would say we've been very disciplined over the last few years. I think lots of potential offtake contracts have been available and have been discussed. We always wanted to be very straightforward and put those offtake contracts in place at the right time and with the right structure, to David's point, that they were deeply supportive of then the project finance process. We wanted to make sure the two are very closely married together because those working together are the things that are going to get us towards FID.

David Park: In other words, you should expect us to be announcing offtake agreements when they are binding agreements as opposed to non-binding agreements.

Jeffrey Robertson: And can I follow-up? I think you said you have one exploration well planned for East Texas. Can you share when you think that well will -- when you think you might have results from that well to factor into your maiden study work you're doing?

Andy Robinson: Yes, sure. Actually, the maiden studies are likely going to be based around the resource areas that we have leased where we've actually already drilled some wells, Jeff. So there is going to be some reentry and resampling of those wells during the first-half of 2025. And the data from that reentry resampling work will be fed into those resource statements. The additional well is more exploratory in nature. This is in East Texas, and that's in another area that we're currently leasing and expanding significantly.

Jeffrey Robertson: Thank you.

Operator: Your next question comes from the line of Noel Parks with Tuohy Brothers. Please go ahead.

Noel Parks: Hi, good afternoon. Just had a couple. One thing I was just thinking about on more of a macro level, there are signs that maybe lithium has been close to bottoming out. And we had seen -- in the broader cleantech universe, we've seen some companies have good customer news or good project news and had pretty impressive runs of their stock and so forth. So if we assume that looking out a year from now, that we're in a better place pricing wise than we are now, just thinking, are there practical implications and just thinking what they might be if you do wind up looking at a much better price environment in the future? I'm thinking either implications for your CapEx or implications for more on the overhead or your ability to maybe do development on the projects more simultaneously. Just any thoughts about if things get better from here.

David Park: Well, assuming things get better, which we expect they will, we would expect there to be more investor interest in our projects, and as a result, make future capital raises for projects -- it would facilitate future capital raises. Don't expect it would impact the capital cost of our projects or our cost structure.

Noel Parks: Okay, okay, good enough. And I was just thinking, talking about your discussions with off-takers, and you've been having structured discussions for quite some time. As you go through negotiation with them, I'm wondering what their thinking is on price, whether they're very preoccupied with trying to protect themselves from future pricing volatility, or if they're more concerned with logistics and maybe, I guess, like service level guarantees and so forth, and not so worried about what market pricing looks like down the road?

David Park: Yes. I think one of the things that's happened is the offtake community is very interested in the quality of the project and the probability that the project will actually happen. So key things like quality of your partners, the provenness of your technology, the competitive advantage or your competitive cost structure are all things that matter a great deal to them. And I believe we've differentiated ourselves from others on those fronts.

Noel Parks: Great. That's it for me. Thanks a lot.

Operator: This concludes our Q&A and today's conference call. Thank you for joining. You may now disconnect.