Arcadium Lithium PLC

NYSE:ALTM

Earnings Call Transcript

[Operator]

Good afternoon, and welcome to the Fourth Quarter 2023 Earnings Release Conference Call for Arcadium Lithium. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer period.

I will now turn the conference over to Mr. Daniel Rosen, Investor Relations and Strategy for Arcadium Lithium. Mr. Rosen, you may begin.

[Daniel Rosen, executive]

Great. Thank you, John, and thanks to everyone for joining. Joining me today are Paul Graves, President and Chief Executive Officer; and Gilberto Antoniazzi, Chief Financial Officer. The slide presentation that accompanies our results, along with our earnings release, can be found in the Investor Relations section of our website. Prepared remarks from today's discussion will be made available after the call.

Following our prepared remarks, Paul and Gilberto will be available to address your questions. Given the number of participants on the call today, we will request a limit of one question and one follow-up per caller. We will be happy to address any additional questions after the call. Before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to, those factors identified in our Form 10-K and other filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's information.

Actual results may vary based upon these risks and uncertainties. Today's discussion will include references to various non-GAAP financial metrics. Definitions of these terms as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided on our Investor Relations website.

And with that, I'll turn the call over to Paul.

[Paul Graves, executive]

Thank you, Dan, and hello, everyone. This is the first earnings call for Arcadium Lithium following the official close of the merger between Livent and Allkem on January 4 of this year. We're excited to begin operating as Arcadium Lithium, building on the strengths of 2 highly complementary organizations with a focus on continuing to grow as one of the leading global producers of lithium chemicals. While lithium and energy storage market dynamics have been somewhat volatile since our merger announcement in May of last year, the underlying strategic meets of the transaction remain as strong as ever.

As a larger, more diversified, vertically integrated company, we're better positioned and ease of the companies alone to meet the growing needs of our customers, and we have even greater flexibility to take advantage of opportunities available to a diversified, integrated lithium chemicals producer across all market cycles.

Arcadium Lithium is growing its volumes significantly as a result of multiple years of expansionary investment. In 2024 is highlighted by an expected 40% increase in lithium carbonate and hydroxide volumes compared to 2023 as a combined company. In addition, Arcadium is expecting to realize $60 million to $80 million of total synergies and cost savings in 2024.

We will go into further detail on the major components of these cost reductions, but the savings are driven by a combination of positive developments in our initial integration efforts and from accelerating certain actions as a result of the current lithium price environment. These higher volumes and cost savings are reflected in the outlook scenarios we are providing for Arcadium Lithium's first full year, which we are providing in a different format than that provided historically by either Livent or Allkem.

The lower price environment is also leading Arcadium to slow the pace of its growth capital spending in 2024 and to extend the time lines for some of its ongoing expansion projects as we will discuss further. This reduction will not impact our ability to deliver volumes under existing customer commitments. It will provide us with an opportunity to undertake a comprehensive review of the existing expansion plans from Livent or Allkem in order to maximize the capital synergies available from our co-located projects in Argentina and Canada as well as optimize the operational flexibility of future production.

I will now turn the call to Gilberto.

[Gilberto Antoniazzi, executive]

Thank you, Paul. Turning to Slide 4. Our merger closed earlier this year following vote of approval from both Livent and Allkem shareholders. Arcadium Lithium ordinary shares are trading on the New York Stock Exchange under the ticker ALGM. In our foreign exempt listing [indiscernible] depository instruments, or CDIs, is trading on the ASX under the ticker LGM. Because the merger closed after year-end 2023, the 2023 10-K to be released by Arcadian lithium will only include the historical results of Livent operations.

At this time, we can share that for the full year 2023 Arcadium have combined revenue of approximately $2 billion and a combined consolidated cash balance of $892 million with combined cash net of that of roughly $297 million as of December 31, 2023. We expect to provide calendar year 2023 pro forma financials early in the second quarter of '24, and we released combined results for the new company beginning with the first quarter of 2024. For this reason, we will discuss the fourth quarter and full year 2023 performance for both companies on a stand-alone basis and in formats consistent with previous disclosures.

Starting on Slide 5, Livent reported fourth quarter revenue of $182 million, adjusted EBITDA of $91 million and adjusted earnings of $0.34 per diluted share. Volumes sold were roughly flat with lower average realized prices across all lithium products in addition to slightly higher costs. Despite a challenging lease-to-market environment in the fourth quarter, Livent achieved an adjusted EBITDA margin of 50%.

For the full year 2023, Livent reported revenue of $883 million, adjusted EBITDA of $503 million and $1.89 of adjusted earnings per diluted share. These were all meaningful improvement versus the prior year and record results for Livent. This was a result of higher average pricing and lower overall costs and is highlighted by full year 2023 net income growth of 21% and adjusted EBITDA increase of 37% and an improved adjusted EBITDA margins of over 10% versus 2022.

Turning to Allkem on Slide 6. On a 100% ownership basis, the Olaroz carbonate facility achieved calendar year fourth quarter total revenue of $96 million, with just under 7,000 metric tons of carbonate sold compared to production of just over 4,100 metric tons at an average realized price of $13,564 per metric ton. For the full year 2023, total revenue was $511 million, with 17,879 metric tons of carbonate sold at an average realized price of $27,788 per metric ton. Sales and production were broadly in line for the full year.

For the Mt. Cattlin spodumene operation, fourth quarter spot revenue was $46 million, with roughly 60,000 dry metric tons sold with 5.3% average grade at a 6% spodumene equivalent price of approximately $850 per dry metric ton. The realized spodumene price decline in the fourth quarter was amplified by 2 specific factors: a shift to forward-looking reference price mechanism with customers, consistent with the shift seen across the industry and the timing of shipments all occurring in the second half of the quarter when the market was particularly challenged.

From an operations perspective, production grade and recovery rates both improved slightly versus the prior quarter. For the full year, 2023, spodumene revenue was $571 million with just under 205,000 dry metric tons sold to 5.3 average grade at a 6% spodumene equivalent price of roughly $3,100 per dry metric ton. Full year production was roughly 34,000 dry metric tons higher than volumes sold, which were carried into this year and brings our spodumene inventory to more normalized levels.

The notable decline in fourth quarter's spodumene and lithium carbonate prices was especially notable at Allkem given its practice of selling volumes largely on a market price reference basis. The resulting swings in profitability revealed the challenges of making significant [indiscernible] capital investments over multiyear periods, especially when it comes to having access to the cash needed to support these investment commitments. This will be one of the key focus areas for Arcadium as we look to implement an integrated commercial strategy that provides greater predictability while also allowing the company to take advantage of attractive market opportunities.

I will now turn the call back to Paul to provide some market commentary.

[Paul Graves, executive]

Thanks, Gilberto. On Slide 7, I'd like to provide some perspective on what we saw in the lithium market in 2023. In hindsight, the year was heavily influenced by inventory build in the energy storage supply chain. The more meaningful inventory increases were seeing downstream of lithium, most notably in battery cells. Became clear that many battery cell producers had aggressively increased production in the fourth quarter of 2022, especially in China in anticipation of elevated demand and prior to expiring subsidies.

As a result, both cell and cathode producers reduced production rates as 2023 progressed and spot lithium purchase activity beyond the base volume contracts declined significantly. This drove a sharp decline in lithium market prices starting in late Q3 and accelerating in the fourth quarter. Given the price decline as well as some negative headlines from OEMs who were perhaps overly optimistic with their earlier EV forecasts, especially in U.S. markets, the year ended with a notably bearish sentiment around lithium and energy storage.

However, taking a step back, it's important to recognize that underlying end market demand was actually very strong last year. 2023 global EV sales were up 33% for the year, approaching 14 million units on a roughly 17% penetration. China hit an all-time monthly high of around 1 million units in December, which was up 49% year-over-year and 10% month-over-month. Additionally, stationary energy storage demand continues to surprise to the upside and growth in this segment should be stronger in a lower lithium ion battery cost environment. And while incremental lithium supply did enter the market in 2023, it did not come mainly from lower cost brine expansions.

The new supply was predominantly higher cost materials in spodumene out of Africa and the halite in China. The development of these assets was incentivized by the high lithium prices seen in the last market run-up, and there's some of the first to be economically challenged in the current lower price environment. And while it is known that a number of these higher cost assets are still operating, they're doing so in a price environment that is at or even below their cash cost of production, and it remains to be seen how long they can continue to operate in this way. We also see these assets as the most challenged when it comes to expanding output further in the future.

Moving into the first half of 2024, there are a number of reasons to be optimistic about the direction of our industry. However, we, like others in our industry, need to take into account the current environment when making capital allocation decisions. We have to look at the sustainable prices needed to support multiyear investment decisions. And when there are prolonged periods of market prices that are lower than these reinvestment prices, it reduces confidence in whether expansion will, in fact, be economically viable.

We believe that prices will move higher in the future, which they need to do in order to incentivize sufficient supply expansion to meet our customers' future needs. However, it is much more challenging to manage these capital-intensive projects through such volatile price environment given the direct impact on our earnings and cash flow. When we have prices for extended periods of the levels we see today, we have to be very cautious in how we use our balance sheet to fund expansions.

It is clear that very few lithium expansion projects, including most brownfield expansions in brine make economic sense at current market prices. And the longer the prices stay near these levels, the greater the impact will be on future supply shortfalls. As we saw in 2022, this will increase the likelihood of a rapid increase in lithium prices at some point in the future, although the complexity of the global battery supply chain as both the timing and extent of such an increase difficult to predict. We are seeing a response from both existing operators and project developers alike.

Some higher cost production have started to come out of the market, and we expect this trend to continue. Additionally, we have seen more discipline being applied towards expansion projects at lower prices, challenge the return hurdles on these multiyear investments. heightened price volatility is reducing the appetite for financing development assets from sources, especially lenders, the many single-asset preproduction companies have come to rely on.

There is typically a slowdown in demand in the first few months of the year, coming off the seasonally strong fourth quarter. This year, many regional cathode and cell producers are expected to use the Lunar New Year holiday period for extended downtime, which should help to support continued destocking at the battery cell level. As far as 2024 demand is concerned, growth expectations are still strong. We're seeing a growing number of more affordable EV models entering the market.

Bloomberg NEF projects annual global battery demand to reach 1.25 terawatt hours, up 30% versus 2023. Additionally, longer-term investment commitments continue to be made downstream with additional support in North America and the U.S., driven by the Inflation Reduction Act. This is highlighted most recently by GM agreeing to a $19 billion deal to secure cathode active material supply in Tennessee and Toyota investing $1.3 billion to support its old EV plant in Kentucky, bringing its total investment commitment at the site to $10 billion.

It's also important to emphasize that reduced percentage growth rates, which will undoubtedly occur over time do not necessarily mean reduced volume demand growth with year-over-year demand for lithium chemicals in terms of total tons of lithium chemicals continuing to increase meaningfully. The long-term trajectory for electrification has not fundamentally changed, even if, as we've been saying for a while now, that growth is not necessarily linear and predictable. As long as China continues to be the predominant source of demand and the location of the bulk of the supply chain to energy storage, there will be volatility and periods of aggressive production followed by destocking.

Turning to Slide 9. Arcadium Lithium will be growing its sales volume significantly in 2024 as a result of multiple years of expansionary investments. We are expecting to increase our combined lithium carbonate and hydroxide delivered to customers by roughly 40% in 2024 at a 52,000 metric tons at the midpoint on an LCE basis. With respect to lithium carbonate, this is the result of the ramp-up of expansions of Fenix, which is our existing operation at the Salar del Hombre Muerto, and at Olaroz, both in Argentina.

At Fenix, the 10,000 metric ton Phase 1A expansion is complete, and the production ramp-up process is well underway. We expect to achieve production of up to 7,500 metric tons in 2024 from this expansion and to finish the year at run rate operating volumes. This means we will have total nameplate capacity of 28,000 metric tons per year of Fenix. I will address the status of the Phase 1B additional 10,000 metric ton expansion shortly. For Olaroz, we are in the process of ramping up a 25,000 metric ton Stage 2 expansion, where construction was completed in late 2023.

As a conventional PON-based process, this ramp-up will take longer than Fenix's DLE-based production. We expect to produce up to 40% of capacity or 10,000 metric tons of carbonate from Stage 2 and expect to reach run rate production by the end of 2025. This will bring total stated capacity at all rose to over 40,000 metric tons. Arcadium will also benefit from the completion of multiple hydroxide production lines, which is carbonate from Argentina's feedstock.

We expect to deliver commercial volumes in 2024 from a 5,000 metric ton expansion at our U.S.-based operations in Bessemer City, North Carolina, bringing our total U.S. hydroxide capacity to 15,000 metric tons. Additionally, at the end of 2023, we completed a 50,000 metric ton unit at a new location in the province of Zhejiang in China, which will go through qualification and ramp up in 2024. This brings our total hydroxide capacity in China to 30,000 metric tons.

Turning to our spodumene operations at Mt. Cattlin in Western Australia, we are expecting 2024 production to be lower versus calendar year 2023. This is a result of pursuing a reduced mining and production plan as part of cost optimization efforts in light of the current low price environment in spodumene.

I will now turn the call back to Gilberto to discuss our full year 2024 outlook.

[Gilberto Antoniazzi, executive]

Thanks, Paul. On Slide 10, you can see our volume growth in 2024 translate into sales volume expectations by major products. Combined hydroxide and carbonate sales, we expect to increase our volume sold by a range of 12,000 to 17,000 metric tons or around 40% higher than 2023 on an LCE basis at the midpoint.

Most of the incremental carbonate sales are expected to come from Olaroz Stage 2 production, while the additional hydroxide sales will be fed from the Fenix expansion. Within lithium hydroxide, we have opted to enter into multiyear agreements with a select group of core customers or roughly 2/3 of our total product volumes. These agreements have firm volume commitments and a variety of pricing mechanisms, including some fixed prices for 2024 only as well as stores and feelings over the life of the agreements. The subset of our volumes will help to reduce overall volatility by limiting potential downside or upside on our total revenue.

As of today, the remaining portion of hydroxide volumes as well as our lithium carbonate sales are expected to be under shorter-term pricing structures typically set on a monthly basis that move with the agreed market references. We are expecting flat volumes in the specialty business, which is comprised mainly of butyllithium and high lithium metal. Pricing is based on customer relationships, typically spending many years and is negotiated monthly or quarterly, taking into account movements in the broader lead to market.

Lastly, our spodumene concentrate sales out of Mount Cattlin today are largely being sold directly to China at prevailing market prices. Because of the lack of longer-term commitments, particularly given the limited remaining mine life today, we can be more flexible with respect to production plans as demonstrated this year.

On Slide 11, we have provided some other modeling considerations. We will address SG&A and capital spending shortly. Depreciation and amortization is expected to be higher than what has been seen historically. This is a result of 2024 being the first year of production for multiple expansion assets. And therefore, when capitalized spending will begin to depreciate.

The adjusted tax rate for 2024 is expected to be between historical levels of the 2 stand-alone businesses and will be an important point of focus as we further integrate our brain model as a global business. The provider range is wider than we would expect moving forward in order to reflect the earlier stage of this work. Lastly, our higher estimated fully diluted shares outstanding of $1.15 billion is a function of the merger exchange ratios and is inclusive of $67.7 million of assumed dilution on the company's convertible notes outstanding.

On Slide 12, we provide an update on the expected synergy and cost reductions for Arcadium Lithium. In 2024, the company is expecting to realize a combined $60 million to $80 million total cost savings. These benefits will be driven by a combination of lower SG&A expenses and reduced cost of production.

Within SG&A, savings will come predominantly from headcount reduction, the elimination of overlapping services and lower T&E and third-party consultants. For cost of sales, we have identified a number of ways to drive efficiencies from immediate to longer term across all major aspects of production for all multiple potential assets globally. This includes lower input costs in key procuring items, streamlining our manufacturing footprint, particularly at closely located operating sites and improving our global supply chain network.

We expect to continue to drive efficiency for a number of years going forward. Our expectations for 2024 cost savings are higher than they were at the time our merger announced. Some of this has been brought forward by the changing conditions in our markets. But we also see more opportunities from our initial integration work than what we expected at the time of the merger announced and there are a number of immediate cost reductions available. Longer term, we remain confident in the school of synergies previously outlined, and we will look to accelerate and grow them wherever possible. I will now pass the call back to Paul to discuss the outlook scenarios.

[Paul Graves, executive]

Thank you, Gilberto. On Slide 13, we are providing a framework to understand how changes in market prices may impact the financial performance of Arcadium Lithium in 2024. Arcadium Lithium's current business mix makes it extremely difficult for us to give earnings guidance and what Livent traditionally did since so much of the outcome is now dependent on where market prices go during the year.

We also recognize that simply multiplying volumes by market price does not work for Arcadium Lithium given the nature of our multiyear contracts and the impact our other specialties business has on our performance. For this reason, we have shown 2 scenarios using lithium market price assumptions that are consistent with how our peers have presented recently, namely $15 per kilo and $25 per kilo on an LCE basis. We keep constant the midpoint of expected sales volumes, synergy and cost savings and SG&A for 2024, while overlaying existing commercial agreements as applicable.

These scenarios should not be interpreted as a forecast by Arcadium Lithium as the likely range of 2024 lithium prices, which they absolutely are not. They were selected solely to allow investors to assess our potential earnings at a range of prices. With that said, you will see that even in a lower case where Arcadium Lithium achieves a $15 per kilo average price per LCE on its market-based volumes. Arcadium Lithium's business remains highly resilient, supported by our quality and low-cost production assets, while offering significant upside should a price rebound, in fact, take place.

Moving to Slide 14. Arcadium Lithium expects to spend $450 million to $625 million in growth capital spending in 2024 with an additional $100 million to $125 million of maintenance capital spending. For growth spending, this is lower than what Livent separately projected last year. We are still investing with conviction in the superior quality of our asset portfolio and believe we have a pipeline of attractive growth projects that is unmatched in our industry.

However, in this lower lithium pricing environment, our cash flow generation and returns on capital investment are quite different, and we must adjust our pace of spending accordingly in order to maintain financial discipline. While we do not believe today's price environment is representative of long-term prices, we have to run the business based on the conditions we are in today, and that means being far more cautious with our spending while this environment persists.

As we previously discussed, one of the major benefits of the merger between Livent and Allkem is the opportunity to optimize and derisk projects that have natural overlaps. And by slowing capital spending, we believe we will be better off longer term. Over the next few quarters, we will focus on accelerating the work needed to drive capital efficiencies and ultimately lower our overall capital spending across the expansions in both Argentina and Quebec. Additionally, we expect to improve the future operating flexibility of these closely located assets, supporting our focus on strengthening a globally integrated production network.

The expansion projects in our portfolio in closest proximity to each other are the Fenix and Sal de Vida projects at the same Salar del Hombre Muerto in Argentina, located within 10 kilometers of each other. And the James Bay and Nemaska Lithium projects in Quebec, Canada, with the Whabouchi mine located roughly 100 kilometers from James Bay.

We expect to deploy $225 million to $325 million of growth capital into Argentina in 2024. This is lower than what would have been spent to bring the Phase 1B 10,000 metric ton carbonate expansion of Fenix online by the second half of 2024 and to achieve first production of Sal de Vida in 2025. Based on what we know today, we expect this to delay production from these projects by up to 9 months.

We expect to deploy $225 million to $300 million of capital in Canada in 2024, which will primarily be going towards construction of the Nemaska Lithium hydroxide facility being developed at Becancour. James Bay permit approvals have been received, and the resource definition and engineering has been well progressed. However, we want to take the time to explore potential development efficiencies and future operational flexibility with Whabouchi, given our expectations for both to be vertically integrated with downstream lithium chemical production over time.

Any potential delay of Whabouchi should not impact the expected timeline for Becancour hydroxide production, which was not expected to require feedstock until 2026. With that said, it means we would like to sell minimal merchant spodumene volumes compared to our prior expectations. We are focused on the optimization and rephasing of our expansions over the next few months and intend to provide to investors a comprehensive plan for Arcadium Lithium later this year.

Additionally, we would like to introduce new sustainability targets for the business, building on the strong profiles of the 2 legacy companies and our shared commitment to responsible growth. While this is a difficult and unpredictable period in which to go through the integration process, the long-term strategic merits of the transaction have not changed, and we believe will ultimately be proven out over time and to whatever future market cycles we go through.

I'll now turn the call back to Dan for questions.

[Daniel Rosen, executive]

Great. Thanks, Paul. John, you may now begin the Q&A session.

[Operator]

[Operator Instructions] Your first question comes from the line of Steve Richardson from Evercore ISI.

[Stephen Richardson, analyst]

In the script in terms of going to 130 relative to 205 last year, and you mentioned kind of optimization of costs, obviously, high fixed cost mining asset. Could you just talk about that evaluation and why an even lower number wasn't the right answer considering the remaining mine life and the nature of the asset?

[Paul Graves, executive]

Sure, Steve. We missed the first 10 seconds. I think you're talking about Cattlin. So I think I think the gist of what you asked. Look, Matalan is an interesting mine. It's very much towards the end of its mine life. It's in a phase today that is, frankly, hugely benefiting from historical investment in the mine plan. Essentially, if you go back and look at the data, it went through a period of very low production as it was a very unproductive team.

And today, it's kind of a productive team. And in fact, while the remaining life of mine average cost of production is reasonably high on any cost curve. Today, that's not the case, and it's actually able to produce a pretty low marginal cost of production. Now it's not sustainable forever. And at some point, a decision will have to be made as to whether to reinvest in that might essentially stripping to get to the next phase of low-cost, highly productive ore body. Frankly, we slowed it down in order to give ourselves time to see how the market develops.

I think we all know that this is in mine that if a decision is ever made to stop it before it features end of mine of life, it's unlikely to restart again. And so we're very sensitive to that. We're not in the business of running assets at a negative operating margin. We don't expect that to be the case this year. There is an optimal production level, and we've taken the production down.

We could, of course, take it much lower, but it does become much less efficient once we get lower down line. So today, at least that's what we've optimized for. We reserve the right to revisit it either to ramp back up production if prices recover or if prices do fall further than look like they're not going to recover any further, then we'll revisit again what the right plan is for Mt. Cattlin.

[Stephen Richardson, analyst]

I wonder if just as a follow-up, we could talk a little bit about this optimization around sales volumes. Slide 10 is really helpful in terms of breaking out the nature of your contracts and your expected volumes. One, from a contracting philosophy, do you envision moving, for example, more of those new carbonate volumes towards the type of multi-year agreements that you have in the hydroxide business and more of which you had legacy live in over time? And is that something that needs to wait for a better market environment to happen or is that something that you're actively working with your customers?

And then just if I could sneak in one more. If you could just talk about your confidence on your floors and exercising those floors in your contracts with your customers because it's one question we do get from investors from time to time.

[Paul Graves, executive]

Yes. Look, I think there's always going to be a confidence in the close question. I have very, very high confidence in as far a whole bunch of reasons. And I'm seeing no sign at all of the flows being under special in today's market environment. In terms of where we go going forward, look, I think it's an interesting question. What we're seeing is actually quite an expected evolution of contract in structures. And for 2 years, at least now, what we've seen within Livent is a desire on the power of customers who are contracting for hydroxide to have more product flexibility. And what we expect to happen and what we do see happening today are hydroxide-based contracts that also allow customers to have similar terms around carbonate.

My own view has been for a while that I don't lithium carbonate lends itself on its own to the same contract structures for a bunch of reasons. But when done in conjunction with the long-term higher size lithium hydroxide contract, it does make sense. And so what we would expect to do is to see more of the carbonate that we produce from Fenix today, at least go into the hydroxide network just as it would have done before.

And then to have that supported by contracts that allow a degree a portion of lease of that contract to be met in lithium carbonate terms. So there's a lot of compensations to why customers are moving there. And clearly, part of this is the battery technologies, greater mid-nickel and LFP adoption by the automotive customers. The desire to contract in that way with sensible flows with ceilings, probably just as strong, if not stronger today than it was a year or 2 ago.

And frankly, the conversations that are happening are not at different flows and see today than they were a year or 2 ago. I think one thing that we found is that most of the customers that we've engaged with them and maybe are self-selecting a little here, tend to have a longer-term view of the market. And so they are more comfortable making longer-term commitments based on what they consider to be the fundamentals over the cycles of lithium pricing. And just as nobody thought $60 was the right price, nobody gives $10 the right price either.

[Operator]

Your next question comes from the line of Glyn from Barrenjoey.

[Glyn Lawcock, analyst]

Paul, I can just ask a little bit about if you could put some more color around what you're thinking with Canada and the 2 spodumene operations. So are you talking from a physical perspective that you can maybe combine them more physically or is just how you're thinking about that?

[Paul Graves, executive]

Multiple areas. I think as you know, Nemaska Lithium is not 100% owned by Arcadium. So we have a partner to take into account. But we both agree that it makes as much sense as possible to optimize how we develop an integrated model. And so there's a longer-term question of what are the benefits of having 2 feeds into a single hydroxide plan, a consistency of feed, the reliability of feed. And so we're certainly looking in the longer term about what can we do with Whabouchi mine and the James Bay mine such that we're taking concentrate from both of those and feeding them in the most efficient manner possible into the ultimate downstream hydroxide footprint. That's a longer-term engineering challenging question for us. I think in the short term, there's some relatively basic stuff, to be honest.

I don't think there's going to be attempts to physically integrate 2 mines that are that far apart. But I think it is important that we standardize where we can, the way that we think about mining. Something as simple as a mining fleet and making sure that we're not being inefficient with who we contract with, how we think about optimizing staff. I mean there's a pretty remote part of the world.

So how we think about support services as well. I'm not suggesting for one moment that the synergies or the savings there are in the same magnitude that they're likely to be in Argentina with selling in Sal de Vida but thoughtful and efficient with where we go. We're in a sort of an unusual place and I think it's probably fair to say that Whabouchi is better permitted, further advanced in some areas, but not as well engineered, and James Bay is very well engineered. It's absolutely ready to go. But we don't have all the permits there yet. So we have 2 different resources at different stages of development. And so it's just a fantastic opportunity to sit down and trying to optimize what the development plans are for both of those clients.

[Glyn Lawcock, analyst]

And then just a follow-up just to the last question, you talked about contracting, etc., but just when I look at the guidance for volume for '24, you talked about scaling back carbonate, what about the carbonate hydroxide business? You've got Olaroz, which should be, I would have thought ramping up faster. Is there some flex in those numbers that you've given us for '24 if prices recover or is that the maximum you think you can achieve this year? Just wondering if you'd like to throttle back anything on the chemical side.

[Paul Graves, executive]

No, we're absolutely not swapping back on the chemical side. Look, I think it's going to be a learning process for everybody, particularly. The pump based systems are not as easy and quick to ramp up because I think many people seem to think they are. Olaroz itself has a bunch of process changes it needs to make or at least some on maintenance issues that it needs to make in order to continue to manage out for historical output.

I think it's also important to understand that the outlook of all of those in 2023 was absolutely not representative likely of what Olaroz is able to do in the future. Two important reasons for that, one of which is it shows and quite rightly so to maximize technical grade production. The market in 2023 from a pricing perspective, didn't really differentiate between the 2. And by doing that, the capabilities go up meaningfully. Looking into today, when you do the same math, premium, the battery carbonate will get or is getting or we're not technical grade product doesn't justify that decision.

And so they'll be absolutely running the purification circuits more to get more back grade material, but that we raised the plan has an unfortunate consequence of that process flow sheet. I think the second factor that benefited them last year, one of the benefits is while constructing all of those to, they were able to take some of the brine concentrated from the Phase 2 funds and feed it into the Phase 1 operations.

So again, they had a white yield, they had better output. Again, you can't do that when you bring all of those 2 online. So the best estimates we have today is that we'll get about 14% of all of those 2 expansion volumes productive in the calendar year. We'll obviously be operating at a higher rate than that by the end of the year, but we're still very much in that early roundup phase. No, there's no stuffing back happen with regard to carbonate production in Argentina.

[Operator]

Next question comes from the line of Joel Jackson from BMO.

[Joel Jackson, analyst]

Let me ask a couple of questions one by one. Just a short-term question first. So you've given some sensitivity to earnings, like you said, around the hydroxide price, was this much for that most across the year? Obviously, you've already locked in product for several months. How much visibility do you have in your order book right now? So how much have you priced through March through April? Maybe give us a sense of how much are we locked in?

[Paul Graves, executive]

It really depends on where we're looking. I think the majority -- certainly all the multiyear agreement hydroxide is done for the full year. These are take-or-pay. They're very clear, well scheduled well-planned volumes. So all of that, we have very good visibility on the timing of it. And clearly, I don't know what the price on some of it is because some of it is still starts from variability to it around floors and ceilings.

So there's certainly opportunities for upside on some of that volume. On the uncommitted volumes, again, reasonable visibility. We go into the qualification process. When we do that, we tend to have a pretty good conversation with the company we're qualifying as to what their demand plans are. So again, we have pretty good visibility on that volume. The lithium carbonate, and that's a little bit more complicated. It's a business that has largely been sold on a month-to-month basis.

I have no doubt that the demand is there. It is primarily a technical-grade product. It is not typically going into or not directly into battery applications. And so the technical grade market in a pure sense is smaller and growing slower and the customers out there that are able to take that material and upgrade it are also relatively small, but we do have some pretty good commitments from some of those customers.

Allkem has quite long relationships with customers in that space and so we have some visibility. Again, market pricing is the big question. It's less about whether the volume is placed. It's much more about the pricing. On the other specialties, I'm sure you know they're largely constant sold out in.

So we know that material is going out the door. We know who it's going to, and the pricing in that industry tends to as I said, it's bilaterally negotiated but largely negotiated after the pricing of lithium metal, which is most of the feedstock, which itself tends to be driven by lithium carbonate pricing. So again, volumes, we have a lot of visibility to. And by the way, that is the margins too, because of the way we price it. But we have a little less clarity as to what the pricing is going to be.

[Joel Jackson, analyst]

Then my second question is going to be also on visibility, but different, little open question. So can you comment, one, it seems like there's a lot of blurriness right now in China. People are all over industry relying on maybe 1 or 2 suppliers of inventory data, other data, everyone's making decisions and plans and thoughts on what seems to be a bulliness of data. So that's coming on that. And then how about all the different pricing indices that we're seeing now contracts based on this indices, it's fragmenting these indices, there's not a lot of liquidity on these indices figures have changed. Now, how do we navigate that?

[Paul Graves, executive]

Yes. Look, I think it's the most opaque I've ever seen it in the decade or more that have been in this industry in various forms. I think there's a bunch of reasons for that. I think some of it is the supply chains have gotten much more complicated than some of the bigger customers that we have, they're shifting between different battery technologies. They're thinking differently about, particularly about manufacturing locations.

We see this typically with a major customer, we're qualified into multiple capital producers. And we see movement. We see the OEMs directing us into different places, different directions as their supplies change. I think the lepidolite and the African DSO-type product semi DSL has not made it any easier either because I think a lot of that material is going into a somewhat more captive supply chain. And so visibility to where it goes, who's using it whether it's even operating and operating rate is incredibly difficult today, and we'll see very definitive statements or observations come out from one very credible observer and maybe 12 hours later, a very credible observer counter that with the opposite view.

It's incredibly opaque. And I think the indices reflect that. We've got 2 types of indices but we've got the price reporting agencies and then we have these attempts to build some kind of exchange traded or derivative-based contracts. And I think the latter are incredibly immature.

We've certainly not seen a very successful physical delivery, even though it's in small volumes on those contracts because of particularly product quality in the material that's been sat there under those contracts has been a lower-grade material that people struggle to use. And so I think that's caused them some issues in those derivatives. And it's still an incredibly small incredible thin market. I have sympathy for you all because it's tough enough for us to see what's going on out there. And comment to you, I'm not hiding from you a whole bunch of sensitive information that I have. It's just hard to get information out of China right now.

[Operator]

Your next question comes from the line of Kate McCutcheon from Citi.

[Kate McCutcheon, analyst]

Realized pricing for December seems to be much lower than peers have reported. And I realize Cattlin is not a big part of your business, but $850 a tonne on an SC6 basis. Peers are reporting 1,300. And if I look at Olaroz realized pricing for December is about 3,000 below the expat indices that I'm looking at, is there scope to do better with those contracts or is it down to timing of shipments? Because I guess, typically, Allkem would have realized the top end of spodumene pricing versus peers, for example, and better than spot at Olaroz. So interested in what's changed there?

[Paul Graves, executive]

Yes. Look, as you know, that was a pre close. That was Allkem. So I have to go back and figure it out or I have had to go back and figure that out myself. But you're absolutely right. Compared to Allkem's historical performance, I think it's fair to say Q4 wasn't necessarily with the strongest performance in either of those 2 areas. I think in the spot concentrate, it's a relatively small shipment volume and I think for a whole bunch of reasons.

It went out really late in the quarter and in the month and particularly as they also shifted maybe from earlier in the year where they were shipping on an immediate pricing basis or even a lagging pricing basis to an Nplus1 pricing basis. I think that also accentuated in a falling price environment as it will do. I think the challenge with [ Olarz ] first of all was just a significant increase in volumes that they were trying to ship.

You'll notice that they sold significantly more in that quarter than in any others. Again, why they made the decision to do that is again valid at the time, but history can be a harsh judge, holding volumes back just into a falling price environment doesn't moderate the hindsight. And I think there's also this question of technical grade. I think as the market weakens, and we've seen this before, technical-grade product is less in demand.

In a tight environment, customers will take any carbonate and they'll just live with the lower quality, but in a market where there's less demand, more supply whichever than then the discount the technical rate tracks just goes up and goes up quite significantly and can create some pretty meaningful short-term disconnect. So I think that was also part of the challenge that happened in Q4 as well.

[Kate McCutcheon, analyst]

And then in Argentina, you called out reducing some of that CapEx spend in pace, and you started a 9-month delay there. So should we think about Sal de Vida pushing back there? And what are the drivers? Is it just maintaining cash or is there some more issues that project had delayed out to delay in CapEx spend revisions time and time again. So just wanting to understand that and how we think about the timing now.

[Paul Graves, executive]

It's not a project-related decision so much. I think it is 2 things. I think one of them is clearly like at this pricing level where the market is today, we're not going to leverage ourselves and put the balance sheet at risk. And so all projects you'll notice of had to take a step back and say, is there a different way to deliver the conserved spending without negatively impacting the success of the project or creating a capital increase that's not acceptable to us in this environment.

So Sal de Vida is no different based on Phase 1B at MDA or those are 2 Canadian projects in that regard. It also creates an opportunity for an Sal de Vida and Fenix really are close to each other. And we do share, frankly, we do even compete for above-ground infrastructure and above-ground resources, whether that's contractors, people, energy, water, you name it, there's an opportunity there to optimize across those 2 to improve the way in which we deliver those projects.

Our first glance suggests to us that actually we may even be able to reduce the total capital cost across those 2 projects by taking this moment to take a look at where those efficiencies possibly could be. And it certainly helps that we can optimize labor. Labor is a big resource constraint there. So our suppliers and contractors, so optimizing across those 2 quite likely to lead to some cost savings. But yes, it will lead to 6 to 9-month delays across those 2 projects.

[Operator]

Your next question come from the line of Chris Kapsch from Loop Capital Markets.

[Christopher Kapsch, analyst]

So my first question is a follow-up really to the opaqueness discussion. Because also what's been opaque has just been the nature and the magnitude of the destocking activity in China. And I'm just wondering about visibility you have around that. I'm asking because it seems like that the gigafactories, for example, are operating at very low rates in China overall. And that's probably one of the dynamics that's dragging on pricing, the underutilized gigafactories perhaps factories that shouldn't have been capitalized and thought they were going to supply EV companies that maybe shouldn't have been capitalized. So I'm just wondering, is that feeding into your commercial discussions, and what's the visibility you have into that de-stocking working its course?

[Paul Graves, executive]

Yes. Look, we don't have a huge amount of visibility. I frankly would have expected to see some more announcements of Tier 2 or Tier 3 battery cell manufacturers closing down rather than not even just going on hiatus, but actually closing down, and we haven't seen a lot of that yet. Now. It's probably a little early still. We see this every time at this time of the year because of the Lunar New Year impact and effect.

So we'll be looking at over the next month or 2 to see whether we do start to see some buildup. I know there was some commentary from some Australian sporting guys about maybe inquiry levels are going up. And so maybe we're going to start seeing a pickup again in demand. But we don't see it today. I would say when it comes to contract discussions, it's less of an impact to us because we're not really supplying into that chain.

A piece of the market absolutely impacts the market price that we're all exposed to, but it's not really where Arcadium has been spending its time thinking about customer contracting and embedding ourselves into those supply chains. And that may be another reason why it's just not quite as visible to us as we would like it to be.

[Christopher Kapsch, analyst]

And then the follow-up was on the discussion around the evolution of your commercial strategy. I'm just curious about what tenants as you evolve the strategy, what tenants are important to you? And you also had said that customers are showing a preference for flexibility around hydroxy versus carbonate. I'm wondering if that should be interpreted as momentum around LFP more globally or is that too much an extrapolation?

[Paul Graves, executive]

No, look, I think there's a couple of things going on today. I think one of the obvious things that we see more and more is an IRA focus and where do we supply and source IRA qualified material, whether that's carbonate or hydroxide. And as I'm sure you know on hydroxide, we're reasonably well placed there on carbonate, Argentina today is not technically IRA qualified carbonate and is upgraded into hydroxide. So I think much of the commercial strategy remains taking our asset portfolio and lining it up most closely or as closely as we can with the customers that make the most sense to us. I missed the first part of what you said, Chris, you're asking about.

[Christopher Kapsch, analyst]

Well, in your formal comments, you talked about evolving your commercial strategy and coming up with an integrated one for the combined company. And I'm just wondering what you perceive as important in terms of the tenants and also, I guess, what you think your customers are going to perceive as important as you partner with them.

[Paul Graves, executive]

Look, well, I think for us at least, it's finding the customers the value what we do, making sure we can produce the quality materials they demand. And that's a really important question. One thing that I don't think is going to be an option if you consume a commercial strategy, the way we do is to be indifferent as to the quality of the material that you make. So we have to produce usable qualified material and has less of a challenge in hydroxide, but is probably going to take a bit more time and effort in the carbonate space.

And I think the second piece of what that does, I think you've always heard historically, from a live perspective, we've always wanted to have be closest to the customers that are leading the charge and have the best insights. And that remains the case because the shift between technologies between high nickel and mid-nickel hydroxide and carbonate, but it's pretty significant. We certainly see a lot more LFP adoption for sure. And I think while LFP adoption is limited.

So there's no doubt that the cost of an LFP battery package has fallen below $100 a kilo and that's a bit of a holy grail frankly, for the OEMs that are trying to drive low-cost vehicles, bring the price of the EV down. And if you're going to work with your customers, they're going to need carbonate to service that market.

So our strategy continues to evolve. No doubt, it's more complicated. There's no doubt that having the right partners that are willing to really sit down with you and share their road maps is even more important, particularly if we're going to invest in improving the quality of the material. It's not going to be a strategy that's going to be quick to evolve or quick to change. Though it takes time to do this as a combined company.

[Operator]

Your next question comes from the line of Rob Stein from Macquarie.

[Robert Stein, analyst]

Just 2 quick ones for me. The roughly 10 kt cut of spod from Mt. Cattlin, just on that one, would it not be better to sell that asset or to explore sales of that asset to existing Australian spodumene producers that may see value upside into the future, given that's obviously a key lever you're pulling to manage supply? And then secondly, just on the EBITDA sensitivities that you've provided, my rough math has prices of about $10,000 a ton of LCA, that being EBITDA breakeven. Is that roughly aligned with your thinking? Just trying to get some bookings on the numbers that you've provided for guidance.

[Paul Graves, executive]

Outlook scenarios, not guidance. But when you say $10,000 are you saying that your projection for the year is $10,000 a tonne or you asking me that today's market is $10,000 a ton?

[Robert Stein, analyst]

No. Basically, what I'm asking is if I use your guidance and I believe you'll extrapolate at about 10,000 break even. And I just want to understand from a bookend point of view, whether that's right.

[Paul Graves, executive]

Yes. Look, it's a difficult one to answer because our portfolio is not linear, which is why we did this. I think if it was linear, we wouldn't have to do it. But what will happen is that a big chunk of our volume as flows to it. So once we get to when the market price falls to 10, a big chunk of our revenue didn't move because the flows are above 10. The second piece of it is how it flows through to a specialties business, which, as I'm sure you know, is a much, much higher price per LCE than the rest of the business.

It's a little bit harder to predict as well. If you will flow through, but again, not on a linear basis. That is the hardest question to answer is in a price environment where price goes that low. I don't know how big the discount for technical-grade carbonate will be. I just don't know. And so that's the variable in there.

There's no doubt a $10 a kilo. If the market sits at $10 a kilo a long period of time, clearly, all bets are off as to what we do with regard to capital projects, etc., because of those kind of pricing, the EBITDA of the business and the cash flow generation of the business is severely impaired relative to the numbers we've put in there. So currently, it doesn't really matter to me at least whether that number is $9, $8 or $11. When you enter that kind of sustained price environment, it's a completely different strategy for the organization.

[Robert Stein, analyst]

And then sorry, just to follow up on the spodumene business.

[Paul Graves, executive]

Yes, if you're asking should we sell Mt. Cattlin, Mt. Cattlin's got, I don't know, a years life left, if we run it flat out, 3 years if you are willing to invest a decent amount of money on stripping further, maybe further if you're willing to take the risk of going underground. I don't know how attractive an asset that is to a potential buyer. We've been merged for less than 2 months. So as you can imagine, that's not been a particularly high focus for us. But I don't know whether that bioexists, frankly. Mt. Cattlin, again, with only 2 or 3 years lifeless never going to be a core part of the long-term strategy of our [indiscernible]. But that doesn't mean that it is an important asset for the next 2 or 3 years to sell.

[Operator]

Your last question comes from the line of Aleksey Yefremov from KeyBanc Capital Markets.

[Ryan Weis, analyst]

This is Ryan on for Aleksey. Just 2 quick ones from me. I wanted to ask you, there's some recent reports of some operations in China, seeing some environmental inspections, which may cause some shutdowns. I'm not sure. I don't know if you've seen or heard of those reports and what your opinions on that would be. And then secondly, if you could just run us through what the ramp of the new 15 kt hydroxide facility in China would look like and when that might reach full run rate.

[Paul Graves, executive]

Sure. Look, it's an annual event now or maybe more frequent than annual events, but that there are some locations that are subject to environmental inspections that don't go so well and they're shut down for a period of time. I've heard the same reports. I've also heard the complete opposite. This is one of my comments earlier about 12 hours later, somebody equally credible come down so as the opposite. So I don't know. Time will tell.

I have heard and I have seen some very credible reports and commentary and news that there are certainly some converters that are going to be closed down for longer periods of time than normal, 3, 4, 5 months, not necessarily for environmental purposes, there simply because of the economics that they face, typically they're not integrated. I think in terms of our new facility ramping up, the question is qualification. It's not the plant itself.

The plant is already demonstrated that it can run and produce full way and produce material that we're highly confident will get qualified, that the qualification process though can still take anywhere from 3 to 9 months. And so it really depends upon how quickly our customers and their supply chain works its way through that qualification process.

[Operator]

This concludes our Q&A. I will now turn the call over back to Mr. Daniel Rosen for closing remarks.

[Daniel Rosen, executive]

That's all the time we have for the call today, but we will be available following the call to address any additional questions that you may have.

[Operator]

This concludes the Arcadium Lithium Fourth Quarter 2023 Earnings Release Conference Call. You may now disconnect. Thank you.