Earnings Transcript for SLI - Q4 Fiscal Year 2024

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Standard Lithium's Fiscal Fourth Quarter and Full-Year 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. 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 am pleased to introduce our newly appointed Director and CEO, David Park. David joins us after nearly three decades at Koch Industries, one of our key strategic partners. He began advising Standard in 2023 and has played a key role in helping to systemically de-risk our business, including with the consummation of our partnership with Equinor. David, it's great to have you on Board. I'll now turn the call over to you.

David Park: Thanks a lot for the introduction. Since joining Standard in September, it's been a pleasure to meet many of our investors, analysts, and key local stakeholders. The company has carefully navigated a complex economic environment over the last fiscal year. We are ending 2024 stronger than ever, having partnered with global energy major Equinor and with the support of cornerstone investors, including Koch Industries. While the retreat in lithium pricing from all-time highs in 2022 and broader cooling of sentiment in the electric vehicle and energy transition space has pressured the sector, we are focused on what's within our control. For us that means continuing to de-risk our business and move our world-class lithium brine projects forward. The most significant de-risking event for Standard and our shareholders occurred in Q4 with the close of a project level investment and partnership with Equinor. Equinor is a global energy major that has made a strong commitment to growing its renewables and low-carbon solutions business. We are thrilled to have them on Board. Our teams have already been working closely together over the last few months. We believe our partnership with Equinor validated the quality of our assets in Arkansas and Texas, our direct lithium extraction process and the expertise of our team. Standard clearly communicated over the past fiscal year the importance and benefit of having strong strategic partnerships and we delivered on this vision. The world-class potential of our South West Arkansas project was further validated last week with the $225 million conditional grant from the U.S. Department of Energy. This award is one of the largest ever received by Arkansas and/or a U.S. critical minerals project. It will help ensure American energy and supply chain security by breaking our reliance on China. This project is expected to add up to 300 construction jobs and 100 direct permanent jobs as well as many more indirect jobs and millions of additional dollars in community benefits to the area. Equinor and the U.S. Department of Energy carefully evaluated our assets, teams and plans over the last year as Koch did a few years before. All three determined that Standard Lithium and the Smackover is where they want to invest. Concurrent to securing a strategic partner, we work to advance and de-risk our projects. Specifically at South West Arkansas, we completed a pre-feasibility study, secured our brine production rights and purchased a 118-acre parcel of land that we expect to house the projects Central Processing Facility. We continue to refine the scope as part of the FEED and DFS work. Standard now envisions a larger project developed in two phases, producing 22,500 tons per annum each of lithium carbonate. At our Demonstration Plant in El Dorado, Arkansas, we successfully installed and commissioned the first commercial-scale DLE column in North America supplied by Koch Technology Solutions. Its performance has exceeded our expectations and design parameters to date and it was an important step in de-risking our DLE flowsheet. To good work advancing and de-risking our projects has been supported by the build out of our executive team over the last year. This included the addition of Salah Gamoudi, who has brought structure and best practices to our finance, accounting functions. He's ensuring the company is well prepared for the next phase of growth as we move forward towards development and production. Mike Barman joined as our Chief Development Officer, bringing over 20 years of experience in Investment Banking and relationships with him. He is currently focused on advancing discussions related to offtake and project financing. While market sentiment and lithium price may ebb and flow, Standard is focused on what we can control and for us that means continuing to de-risk and advance our world-class lithium brine projects. I'll now hand it over to Andy, who provide more insight on our projects and DLE process that's helping us unlock our Smackover resources in Arkansas and Texas.

Andy Robinson: Thanks, David. As you mentioned, we are focused on advancing and de-risking our largest and highest-grade projects within the Smackover Formation. Over the last fiscal year, we executed two drilling programs that yielded the highest ever reported lithium brine grades in North America. The potential in East Texas continues to excite us and we are strategically expanding our land position in the areas that have the highest quality resource and the best quality rock. Our exploration results in East Texas delivered lithium concentrations up to 806 milligrams per liter and an average concentration of 644 milligrams per liter as well as meaningful concentrations of potash and bromine. These grades are unparalleled anywhere other than like a handful of projects in Chile and Argentina. Over the coming next few quarters, we plan to reenter and re-sample three existing wells within our growing land position. We are doing this to confirm and expand our understanding of the existing resource and to assist our efforts in producing a maiden resource report just for a portion of our land holdings in East Texas. We also expect to be drilling one new well in the region to advance our understanding of the potential resources there when all this work is being done in close partnership with the Equinor team. At the South West Arkansas project, our PFS reports at a resource of 1.8 million tons of lithium carbonate equivalent with an average lithium concentration of 437 milligrams per liter across the approximately 30,000-acre total project area. Our understanding of the resource potential of the South West Arkansas project has matured over the last year. We've now fully integrated all the findings from last year's PFS drilling and we are completing additional resource evaluation work during the next couple of quarters. The improved quality of the reservoir combined with a higher-grade resource means that we've been able with the assistance of our design team to contemplate an increased overall production of up to 45,000 tons per year of lithium carbonate. We anticipate completing this larger project in two phases of 22,500 tons per year each. The recent $225 million grant awarded by the U.S. Department of Energy to the Standard Lithium and Equinor joint venture for the South West Arkansas project is reflective of this larger project scope. And also based on feedback from potential customers, we have shifted our focus from hydroxide to carbonate and the current FEED design work is based on a flowsheet that will produce a battery quality lithium carbonate product. The Standard Lithium and Equinor project team continues to work through all the necessary design and development work that's required to get the FEED study completed. The recent announcement of the DOE grant adds another level of support to the project. The combined team will be working on several parallel and complimentary work streams over the next few quarters, including unitization, the royalty process, offtake and project financing negotiations, vendor and contractor evaluations as well as additional technical refinement of the project. So we've got a very busy phase for the JV team. We will be working as diligently as possible to move the project towards the final investment decision. The key to unlocking all of our globally significant lithium resources in East Texas and South West Arkansas is successful execution of a direct lithium extraction process. I've said it before, the only way to know if your flowsheet works is to operate it continuously for long periods of time with large volumes of brine that's pumped directly from your resource into your flowsheet. And that's why we continued to spend time and money to operate our demonstration plan. We have been running this plant in Arkansas for the last four years, and in April it became home to the only truly commercial-scale and DLE column in operation in North America. We successfully commissioned the column in partnership with Koch Technology Solutions. Our partnership with Koch has been fundamental in building a shared understanding of how DLE works with Smackover brines. To date, we've processed over 21 million gallons of brine through our demo plant and we've run over 9500 cycles with the Koch Technology. Performance to date for the commercial column has exceeded expectations with lithium recoveries consistently exceeding 95% and the rejection of impurities being greater than 99%. This is a technology that's now been proven to work. And with that, I'll turn the call over to Salah, who will speak to our quarterly and fiscal year results.

Salah Gamoudi: Thank you, Andy. For our fourth quarter and full-year ended June 30, 2024, we reported a rare event for a pre-revenue development company. In that we had net income before taxes of $212.8 million and $182.5 million respectively, or $0.97 and $0.83 per basic share. This compares to net losses in both the fourth quarter and full-year 2023. Net income from the quarter was primarily driven by gains recognized related to the minority interest we sold in our South West Arkansas and East Texas projects to Equinor. For the formation of the joint venture with Equinor, we retained a 55% interest in both the South West Arkansas and East Texas projects and sold a 45% interest to Equinor in each of the projects in exchange for growth and net consideration of US$160 million and US$133 million respectively. Further, our balance sheet was strengthened by our Equinor partnership, which provided an immediate US$30 million cash payment to us at transaction close and a commitment by Equinor to sole fund both the South West Arkansas and East Texas projects up to US$40 million and US$20 million respectively post-close. We ended the year with a working capital balance of approximately C$40 million. As we have mentioned on previous calls, we are committed to advancing and de-risking our projects while minimizing our cost of capital. For us, this means pursuing funding via one, strategic partnerships; two, offtake and potential customer financing; three, low-cost project debt; and four, other forms of financing such as grants and parent company level equity financing. We told you we'd secure a strategic partnership and we did that. We told you that we'd perceive government grants and we have been conditionally approved for one of the largest grant awards to be awarded for a domestic critical minerals project from the DOE. We are now pursuing customer offtake agreements and the requisite project level debt to help us take steps forward in finalizing capital formation at South West Arkansas and as well, we are ensuring the company has the required liquidity to keep increasing our leasehold footprint in East Texas. With that, I'll turn the call back over to David for closing remarks.

David Park: Thanks, Salah. At Standard, we are focused on what's within our control. For us that means continuing to de-risk and advance our portfolio projects. In 2024, we did what we said we were going to do and secured a strategic partnership with Equinor while delivering key project milestones and globally significant drilling results from our Smackover assets. 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. The key to developing long-term value for our shareholders is delivering on our commitments. And for us, that means advancing our projects in a timely fashion within budget. As Salah mentioned, we will continue to prioritize our lowest cost of capital options to finance the next phase of our company's growth and we are confident that with the support of Equinor and Koch, we will build a world-class U.S.-based sustainable lithium business. Thank you. Operator, back to you.

Operator: Thank you. We will now open the line for questions. [Operator Instructions] Our first question comes from Greg Jones with BMO Capital Markets. Please go ahead.

Max Yerrill: Good afternoon. This is Max Yerrill on for Greg Jones from BMO. Regarding the larger scale project plan for South West Arkansas, could you provide some color on the proposed plan to produce lithium carbonate rather than a hydroxide that was outlined in the PFS?

Andy Robinson: Hey, Max, it's Andy Robinson here. Yes, I mean that was principally based on feedback from the offtake community. So discussions over the last year informally the general guidance was very much towards a preference for a carbonate product in the timeline that we're sort of contemplating for commercial production. So in the late 2027, 2028 period for initial production, the feedback was very much for a carbonate product. And so that really informed the switch in the flowsheet.

Max Yerrill: Got it. Thank you. That's helpful. And for the DOE award, assuming that final negotiations are successful, could a potential administration change in the U.S. put the receipt of the award at risk at all?

David Park: This is David Park. Yes. Theoretically – well, first the award, the money for the DOE grant has been allocated by the U.S. government. So if the terms and conditions are not finalized prior to a change in administration, there is a theoretic possibility that it could be at risk. However, we've been told by the DOE as recently as today that they're driving to completion of these grants by the end of December.

Max Yerrill: Okay. Got it. Thank you. That's very helpful. That's all from me for today. I'll turn it back over to the queue. Thanks, guys.

Operator: Our next question comes from Noel Parks with Tuohy Brothers. Please go ahead.

Noel Parks: Hello. Good afternoon.

David Park: Good afternoon.

Noel Parks: I just had a couple. I wanted to run by you. Just interested in the collaboration with the Equinor team, sort of in practical terms, how does that work? You mentioned that you're going to be reentering and resampling existing wells and doing a new well. And I'm assuming there's data generated from that. So just interested in kind of how the mechanics and how they might weigh in on based on the results you get how you might proceed?

Andy Robinson: Hey, Noel, it's Andy Robinson here. I mean what we've formed Noel is effectively a true joint venture. So the projects run on an integrated project management team basis. And so for example, for the South West Arkansas project, there is a project team which is made up of a series of Standard Lithium and then Equinor personnel as well working together in an integrated manner. The strengths that Equinor bring are, yes, very much on the subsurface side, so bringing a lot of drilling, reservoir engineering, well completions, pumping, fluids processing type information Noel and experience as well as then some of the important aspects relating to health, safety, social environment and then sort of wider project execution and large scale project management discipline and processes. So truly sort of an integrated approach the teams are communicating on an hourly basis as the projects are progressing. And yes, there is a very deep and wide collaboration and sort of joint use and production of the data. Is that kind of – does that give you an idea now?

Noel Parks: Certainly. That's great. And regarding the additional sampling and drilling you're going to do, can you just sort of maybe characterize what it is you're looking to identify from the incremental data?

Andy Robinson: Yes. Sure. I mean for South West Arkansas, we are looking to do some fill-in, to do some really confirmatory drilling there to make sure that the inputs for the final commercial production model i.e. that the true reservoir production model have been sufficiently ground [truth], stress tested and that the appropriate conservatism is built into our production modeling work, which will incorporate the data from the forthcoming resampling and drilling work. So really it's confirmatory with a view to them then developing the commercial production model. In East Texas, it's a little more, obviously a little more exploratory there. So we're seeking to gain sort of greater geographic definition as we continue to expand our leasing footprint in the region. We're going to be stepping out with drilling some of – some new areas that we've been leasing. And really we're looking there for rock properties. So we're looking to take call to do permeability testing, et cetera, as well as obviously take brine samples for geochemical analysis to get a view for grade. And then one of the things that you sort of will see announced not immediately Noel, but certainly during sort of the first half of 2025 because we'll then start to do some initial process testing on the brines from East Texas. So that during the calendar year 2025, we're guiding towards putting out a maiden resource statement as soon as we can, likely sort of middle of the year, and then hopefully not too long thereafter, we can start to think about a preliminary economic assessment as well. So we can start to put in place some of that sort of hydromet treatment work and we can start to talk about project economics, that kind of thing.

Noel Parks: Great. And then just a last one, you mentioned that – of course, you have successfully commissioned the column and the demonstration project with the Koch Technology. And just curious is the license process of that already in place? I hadn't really thought before to ask about is that complete and fully priced or anything, or is that something still to be done or is it to be negotiated?

Andy Robinson: That is a process which is currently coming to closure now. So it's been a license process which we are hoping to complete in the very near future. Obviously we've been working together on the technology in a very significant and collaborative way. So that's something we hope to conclude very quickly.

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

Operator: We have no further questions at this time. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.