Lithium Royalty Corp

TSX:LIRC

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to the Lithium Royalty Corp.'s Fourth Quarter 2024 Results Conference Call. [Operator Instructions] This call is being recorded on Tuesday, March 18, 2025.

I would now like to turn the conference call over to Jonida Zaganjori, Vice President of Investor Relations at Lithium Royalty Corp. Please go ahead.

[Jonida Zaganjori, executive]

Good morning, and welcome to Lithium Royalty Corp.'s Fourth Quarter and Annual 2024 Earnings Call.

Please note that our complete financial results will be available on our website, lithium royaltycorp.com, under the Investors tab and on SEDAR+.

This event is being webcast live. A replay of the call will be available on our website.

Joining us today are Ernie Ortiz, President and CEO of Lithium Royalty Corp.; and Dominique Barker, Chief Financial Officer at LRC. Ernie will begin with introductory remarks followed by Dominique, who will provide an overview of our financial results. After the presentations, we will transition to a Q&A session where our executive team will respond to your questions.

We would like to remind participants that today's commentary may contain forward-looking information. For more details and other important notices, please refer to our press release dated March 17, 2025, available on our website and on SEDAR+.

Please note that all figures referred to on today's call are in U.S. dollars, unless otherwise noted.

I will now turn the call over to Ernie.

[Ernie Ortiz Ortega, executive]

Thank you, Jonida, and good morning, everyone. Yesterday evening, Lithium Royalty Corp. reported fourth quarter and full Year 2024 financial results.

In the fourth quarter, revenue declined by 39% year-on-year, largely driven by the 59% decline in spodumene prices. For the full year, revenue declined by 45% year-on-year compared to the 71% decline in lithium chemical prices during the same period.

Our revenue outperformed the broader lithium price indices for both the quarter and the year due to the continued ramp-up of Sigma Lithium, which meaningfully grew volumes in 2024. Our royalty structure allowed us to navigate these challenging times better than other companies in the industry given our focus on low overhead and reduced SG&A spend. In fact, we were able to lower cash cost by 26% year-on-year in 2024, driven by our focus on cost discipline in this low price environment.

In the fourth quarter, the lithium industry continued to see challenging market conditions. Spodumene prices declined to nearly $700 per tonne in September and improved modestly into year-end 2024.

So in the beginning of 2025, prices have had a minor recovery having reached $850 to $900 per tonne. The recent price runup is encouraging, but still positions the industry for a challenging backdrop and not conducive for dramatic new increases of supply.

At these price levels, capital expenditure budgets across the industry have been meaningfully curtailed, which are likely to set the foundation for the next price cycle in the sector.

For LRC, the focus on high-grade, low-cost assets in mining [ family ] jurisdictions has proved to be the right course. And despite the volatility in the lithium market, we are witnessing strong levels of activity and progress within our portfolio. We are proud to report that Ganfeng Lithium inaugurated the Mariana Lithium project in South Argentina in mid-February. Ganfeng invested over $900 million into the project and it is now one of Atlas'   flagship low-cost conventional brine operators.

We expect cash flows from the project to ramp over the remainder of the year as the product progresses to nameplate production of 20,000 tonnes per year of lithium chloride.

Furthermore, Sigma Lithium provided 2025 and 2026 production guidance on February 24 with positive implications for LRC. Sigma expects to produce 300,000 tonnes of spodumene concentrate in 2025 and followed by 520,000 tonnes in 2026.

Importantly, Sigma commented that its Phase 2 plant is in construction with commissioning expected in the fourth quarter of 2025. Sigma also guided to cost of production of $500 per tonne in 2025, making it the second lowest cost producer of spodumene concentrate globally.

Zijin Mining's Tres Quebradas project continues to make steady progress. Zijin expects to start production at Tres Quebradas in 2025, which will further support revenue growth for LRC.

Atlas Lithium reported that its modular DMS plant, which has been fully paid for at [indiscernible] port in Brazil on March 7, 2025. The first pit and plan for Atlas were permitted in October 2024. The company continues to advance towards production in the mining-friendly jurisdiction in Brazil.

As LRC's portfolio matures, we hope to uncover the various levels of optionality that exists with our diversified portfolio of royalties. We have seen continued progress across different areas of the portfolio that all have positive ramifications for the LRC investor.

A few highlights worth sharing. At Sinova, the company plans to commence limited production late in 2025. Recall, the Horse Creek mine in British Columbia is fully permitted for which we hold an 8% royalty. Operations are likely to start at reduced rates with revenue next year.

At M4E Lithium, the royalty covers one of the largest lithium land areas in Brazil. M4E signed a partnership agreement with a mining major that is allowing them to continue to explore unimpeded by the downturn in the lithium cycle. M4E expects to drill more than 25,000 meters this year and has already uncovered favorable lithium assays.

In Finland, at our Kaustinen royalty operated by Arvo Lithium, the company is embarking on a drilling campaign this year of more than 5,000 meters to follow up on positive sampling campaigns from 2024. The Kaustinen project sits near one of your few lithium chemical converting sites, providing substantial optionality to future developments.

Lastly, while our focus is to extract royalty revenue from lithium, many of our royalty agreements cover gross revenue not just from lithium, but from all metals and minerals produced from a particular property. As a result, several of our Canadian royalties are seeing increased interest for the cesium holdings, which could amount to significant optionality for our investors.

For example, cesium has been discovered in our Power Metals case property in Ontario, also at our Winsome property and our Grid Metals Donner Lake property. The most advanced of these stadium developers is Power Metals for which we hold a 2% royalty. Power Metals aims to release its preliminary economic assessment and maiden resource estimate in the second quarter of this year. Power Metals has publicly commented that it aims to start production in the third quarter of 2026.

With regards to the Triple Flag transaction, the transaction is in the final stages and we expect for it to close by the end of the quarter. As a reminder, the partial sale of our Tres Quebradas royalty to Triple Flag for $28 million allowed us to replenish our balance sheet at the cycle low, transact on an asset at an attractive valuation and rebalance our portfolio, all while highlighting significant disconnect between transaction value for lithium assets, and the market valuation of lithium stocks in the market today.

To this effect, LRC continues to evaluate purchasing shares given the compelling valuation we see for our share price. Our pipeline remains strong and continues to grow as the sector remains challenging for many operators, developers and explorers alike. In this environment, LRC is being selective of this opportunity set and we prefer to transact on opportunities that are either cash flowing or of high visibility towards near-term cash flow.

With a strong balance sheet, no debt and a robust pipeline, we are excited about the prospect of executing on our growth strategy of sourcing more of the world's best lithium royalties, all while our industry-leading portfolio continues to mature.

I will now pass to Dominique, who will discuss our financial results.

[Dominique Barker, executive]

Thank you, Ernie. Our royalty revenue this quarter was $621,000, up from $224,000 in the previous quarter and down from $1 million in the same period last year. The main reason for the decline in the year-over-year revenue is attributable to reduced output from Core's project compared to the prior year. The main reason for the revenue increase quarter-over-quarter is related to additional volumes at Sigma's Carilo project as well as a better QP adjustment as compared to last quarter.

On an annual basis, revenue for 2024 was $3 million compared to $5.5 million in 2023. The main reasons for the decline is a reduction in volume at both Fines and Mt Catlin, partially offset by better volumes at Grota do Cirilo. Pricing impacted the entire portfolio negatively, as we all know, with the price of spodumene down 76% in 2024 to $933 per tonne on average.

As expected, we've had less exposure to QP adjustments towards the end of the year.

G&A was $1.6 million in the quarter versus $2.3 million in the same period last year. Excluding noncash items, cash G&A was $1.1 million in the quarter compared to $1.5 million in the same period last year.

On an annual basis, G&A was $6.3 million in 2024 versus $8.7 million in the previous year. Excluding noncash items, cash G&A was $4.2 million in 2024 versus $5.6 million last year.

Just a reminder, we're a U.S. dollar reporter. So as the Canadian dollar has weakened, this has benefited our G&A expenses.

LRC's adjusted EBITDA was a loss of $877,000 in the quarter compared to a loss of $695,000 in the same period last year. The increase in loss is primarily due to the factors affecting revenue that I described earlier and that was partially offset by a decrease in G&A expenses during the quarter.

On an annual basis, our adjusted EBITDA was a loss of $2.5 million compared to the prior year loss of $306,000. The reasons are, as I said earlier, related to volumes at Fines and Mount Catlin as well as the low price of spodumene.

With regards to liquidity, we had $7.2 million of cash at quarter end and no debt. The partial sale of the Tres Quebradas royalty injects just under $28 million to our balance sheet. We expect additional sources of revenue in the near term, including from Ganfeng's Mariana project in Argentina, Sachin Trace Cobra per asset in Argentina and Sigma's Phase 2 expansion in Brazil. Additional catalysts this year include Atlas Lithium's continued development at Danes core lithium's finished restart study, which we expect to get and to hear from in Q2 2025 and potential positive impacts from Rio Tinto's recent acquisition of Arcadia and their ownership of the Galaxy project in Quebec and Mt Catlin in Australia, 2 assets where we hold royalties.

And just a reminder that Rio Tinto acquisition of Arcadian closed on March 6.

Finally, our financial statements and MD&A will be posted on our website and on SEDAR tomorrow when we expect to close Tres Quebradas.

I will now pass it back to Ernie for closing remarks.

[Ernie Ortiz Ortega, executive]

Thank you, Dominique. I will now provide an overview of the lithium market. Lithium demand grew by approximately 30% in 2024, marking the first year in which demand was in excess of 1 million tonnes. Demand was led by the continued adoption of electric vehicles in China, which grew by over 30% year-on-year and for which EV penetration is now approximately 50% of all passenger vehicle sales.

The other major bright possibility in sector was in energy storage. Energy storage now makes up roughly 20% of global lithium demand as energy storage sales surged by 63% year-on-year in 2024. This demand surge is being led by continued cost declines for batteries, improved battery architecture and economies of scale as energy storage systems continue to gain critical mass.

As we look ahead, we are optimistic that the combined effects of supply discipline, continued market growth and exponential growth in energy storage orders will balance the market. Even after the recent lepidolite mine restart in China, [indiscernible] by curtailments amount to approximately 12% of global supply.

Meanwhile, lithium market forecast as just another strong year of demand that should help reduce inventories and place upward pressure to prices. Specifically, Bloomberg New Energy Finance's forecast for EV sales to grow by 30% in 2025. This would mark the first year that EV sales growth accelerates since 2020.

Within energy storage forecast are quite varied, highlighting the opaque and fast-growing nature of this end market. Forecast range from as low as 20% to as high 100% for 2025. Row Motion reports that global energy storage grid deployment surged by 94% in January, helping set the tone for growth possibilities for this year.

Similarly, European EV sales have served at the start of 2025. European EV registrations declined by 2% in 2024. With on a year-to-date basis for this year, U.K. sales have increased by 42%, German sales have increased by 41%, Italy by 71% and Spain by 55%. The availability of cheaper EVs has broadened and European governments are looking at incentivizing EVs once more.

Our recent sell-side analysis showed that there are over 25 EV models set to be introduced in 2025 in Europe, followed by more than 28 in 2026 and more than 30 in 2027. This confirms our view that electrification is set to continue at a strong pace in the years ahead.

In summary, we are now 28 months past the last peak in pricing with prices now having declined by 87% from that peak. In the last few quarters, we've seen supply copayments of roughly 12% of global supply, while CapEx budgets have been drastically reduced. At the same time, demand growth has remained robust and could accelerate in 2025 for the first time in several years. We believe energy storage is enjoying exponential demand growth, which could help rebalance the market sooner rather than later.

With this backdrop, LRC is incredibly well positioned for any market environment. We currently have 3 operating mines in our portfolio and expect additional products to enter into production in '25 and '26. The mines in our portfolio that are nearest to production are all at the low end of the cost curve, helping to support strong revenue growth in the back half of this year and into 2026.

Our low-cost royalty business model should allow for significant operating leverage from both the substantial volume growth projected by our operators, but also to any new lithium price cycle.

We are also encouraged by the strong and growing pipeline at our disposal that should allow us to invest domestically for the benefit of our shareholders. Ultimately, we believe we are at a cycle low. We have cash to deploy attractive economics. We hold no debt. Demand is forecast to accelerate and our portfolio continues to mature and improve. We remain committed to growing shareholder value and will continue to manage the business for the long term while appropriately managing risks in the short term.

With that, I will now pass it to Jonida for Q&A.

[Jonida Zaganjori, executive]

Thank you, Ernie. Operator, we're now ready to answer questions. Can we please open up the line for Q&A?

[Operator]

[Operator Instructions] Your first question is from Patrick Cunningham from Citigroup.

[Patrick Cunningham, analyst]

Can you help us get a sense of the timing and sort of magnitude for royalty income growth this year? It seems like new assets likely not start ramping until the second half. I mean, would you attribute this to any sort of operational ramp issues? Or is this more of the current pricing environment?

And if these current price levels hold, should we expect -- still expect sort of modest royalty income growth this year given the ramp at Sigma?

[Ernie Ortiz Ortega, executive]

Sure, I can start and Dominique can chime in afterwards. So with regards to the timing, so if you look at portfolio what's transpired in our portfolio, in 2023, Sigma, for example, started producing in April 2023, but their first shipment didn't happen until July 2023 and we got paid quarterly. So our first actual royalty receipt from them let's call it, after that third quarter in the October-November time frame. So there is that natural mismatch and lag between production and shipments that we're just mindful of and we want everyone to be mindful of that time gap that naturally transpires.

The other thing to keep in mind is also as these assets ramp, they're not going to hit nameplate kind of day 1 or day 2. They are complex systems, and it does take time to ramp up to full production. So I think we're also waiting for some of the guidance from our operators themselves. But we are comforted that Mariana now is inaugurated and they're on the right track. And similarly, with our other assets, whether it's Tres Quebradas or some of the other ones that we mentioned, they are still with the plans to start production in 2025. They would still be subject to that natural lag between production and shipments.

But I think the key catalyst for us is getting those assets into production because, as we know, once they're in production, they can work out and optimize, get costs lower and just continue to ramp up faster. And the fact that they're all kind of at the low end of the cost curve does position us well to have kind of reduced risk of delays, which can still happen, but at least they're at the right side of the cost curve.

[Patrick Cunningham, analyst]

Got it. Super helpful. And then on that note, on just some of the supply data points you mentioned, 12% of global supply last couple of quarters. You mentioned -- you cited Albemarle is talking about 25% of global resource, not economic.

I mean, what is your sense of where the marginal cost sits? And if we do start to see some price action based on some of those positive demand indicators, how much slack supply is there that's relatively elastic that can respond if the price does move relatively quickly here?

[Ernie Ortiz Ortega, executive]

Sure. So our estimates and referencing other kind of figures that we're seeing, roughly around 12% of global supply is currently under carrier maintenance. If you look at the public commentary from the companies that own some of these assets, they've alluded that it would take approximately 4 to 6 months to ramp up those assets back into production. At the same time, they've also alluded to that they would want to see a sustained pricing environment. It's not simply just watching prices move up quickly and -- but they want to see that being sustained before they make that decision to move forward to bring those assets online.

So I would say that 12% is probably a good reference point for what could come back online. But -- at the same time, you do have these powerful forces of demand at work where now that energy storage is 20% of the market, and as I alluded to, there's some demand estimates out there that suggest it could be up as high as much as 100%, which that's still to be determined. It's still early in the year to make those prognostications on our behalf.

But if that doesn't materialize, then we are likely going to be needing some of those assets in the future. And I would point and within your question, but we have seen majors reduced CapEx considerably such that greenfield investments for '26 and '27 are now quite limited. So to the event that we do have a surge in demand, there's going to be a bit of a catch-up in '26 and '27 just given the lack of investment that we've seen in the last 2 years.

[Operator]

Your next question is from David Deckelbaum from TD Cowen.

[David Deckelbaum, analyst]

I was hoping just to follow up post the 3Q partial monetization. How do you all think about your portfolio and looking to monetize portions of royalties sort of vis-a-vis where your stock price is? I mean, you've alluded to very attractive valuation for your own shares, but being at the bottom of the cycle now.

And how do you think about trying to monetize some things that otherwise attractive valuations relative to NAV versus where your shares are right now? Is that something that we should expect in '25? Or was this more of a one-off opportunity?

[Ernie Ortiz Ortega, executive]

Sure. So ultimately, we're a promotional group is looking to maximize shareholder value. So to the extent that there are offers on the table where there's a dramatic disconnect between kind of the public market valuation and an overall transaction valuation, then that's something that we would certainly consider. So I wouldn't say it's a one-off, but at the same time, one can never predict these types of things.

But we are looking to maximize shareholder value. And we think we did that also with our Tres Quebradas transaction, where it was at a substantial premium to what that embedded value was relative to the public market. We also point to the Rio Tinto transaction with Arcadia, which was a 90% premium to the public market.

So in the event that there were other potential transactions like that where we have a substantial premium that would be that we take it up to the Board and then have an appropriate discussion. But ultimately, we're there to maximize shareholder value. Right now, we've been doing it mostly through acquiring new royalties and using our know-how to uncover fantastic acquisitions. But in the event that there is a situation where we can do it through other names, we'd be willing to explore that and we take it over to the Board for discussion.

[David Deckelbaum, analyst]

Appreciate that. And maybe if you have the details available, with Horse Creek representing a fairly large royalty, I know the revenue potential isn't necessarily enormous, but it sounds like there's some guidance around perhaps bringing on the plant at lower than anticipated volume levels. I don't know if I misinterpreted that comment, but can you give some guidance on just what the current thought process is around capacity production as they look to produce perhaps by the end of the year into.

[Ernie Ortiz Ortega, executive]

Sure. Well, I think the ultimate nameplate capacity has not changed, but as they start going through the initial start and commencement of production, they want to start at a more reduced rates to prove out the systems and make sure they can optimize the operation.

So I would say for the initial kind of the start, I would say it's probably in the tens of thousands of tonnes that you should consider. But the ultimate nameplate capacity and the potential to grow into the permitted capacity over the long term, that hasn't changed. It's just -- this is just the initial start, which we're excited about and to make sure they can optimize the plant going forward.

[Operator]

[Operator Instructions] And your next question is from Mohamed Sidibe from National Bank.

[Mohamed Sidibe, analyst]

Just first follow-up, I guess, on Horse Creek and just if you could maybe give us a little bit more color around where the market is and where maybe prices are. So that we maybe in terms of modeling see where the revenue could shake out to 2026?

[Ernie Ortiz Ortega, executive]

Sure. So Mohamed, I think some of that we can likely follow up off-line. One of the things with the [indiscernible] , bilaterally negotiated pricing. So -- and Sinova is a private company. So we can check directly with the company to see what they could potentially disclose or allow us to disclose, but I think that would be better off not in a public forum, but we can definitely provide additional guidance with regards to that.

[Mohamed Sidibe, analyst]

Absolutely. And then just following the close of the sale of the Tres Quebradas partial sale of the royalty, what are you thinking around royalty acquisitions? And what are your senses of the market right now? Are you seeing maybe an increased amount of opportunities or just no changes since last quarter?

[Ernie Ortiz Ortega, executive]

So we are seeing a greater velocity in our pipeline. It has been strong, but it's probably gotten stronger. There's been a few kind of industry conferences in the last month or 2 that has been pretty active for us. So we've had a lot more inbounds recently as well.

So it's been very productive on the business development front. And fortunately now, we will have cash to deploy, given the sale of [indiscernible] at closing very shortly. As I mentioned in the prepared remarks, our priority currently is to look at cash flowing opportunities or near-term cash flow. And there are several opportunities that we're in conversations with and trying to get over the line.

As we've alluded to before, with cash flow loyalties, there are several funding options as well, which can include additional debt potential co-investments with selected partners also introducing milestones that could reduce the initial cash outlay. So there's a lot of flexibility and given that the market is where it is, it is a buyer's market so we have a certain amount of leverage. And now of course, we want to -- that's why we say we want to make it a win-win transaction for both parties. But we are seeing attractive valuations and we are seeing a pretty robust pipeline. And fortunately, we are seeing a good amount of cash flowing opportunities. So hopefully, we can transact on some of those this year and going into '26.

[Operator]

[Operator Instructions] And your next question is from Shannon Gill from Cormark Securities.

[Shannon Gill, analyst]

I just wanted to follow up on the 3Q production startup this year. I don't know if you have any more specific guidance on the start of scheduled production.

And just a follow-up on that. I believe in previous calls, you mentioned that Zijin was waiting for more favorable market conditions to start up 3Q. And when you were on site in November, did Zijin mention that the current price environment was likely enough to get them to turn the asset on? Or were there some other sort of market catalysts that encourage this change in production start for the year?

[Ernie Ortiz Ortega, executive]

Sure. So their communication to us and also publicly in their public disclosure is on site for a 2025 startup. They do have asset-specific initiatives that should improve their cost structure and cost position.

A key point is that they are finalizing building a solar plant at the chemical plant, which should be done in the next few months, and that should reduce their power cost by a very substantial amount, which should improve the overall position of the assets kind of irrespective of the price environment.

At the same time, given it's a high-grade conventional PON system, we do think it's a low-cost orebody from the get-go.

So I think that's probably the guidance that we can provide. They communicated to us that 2025 is still the latest plan to bring into operation. But I'd also point out that there's mismatch between production and shipments that you should be mindful of. And as we get more information from Zijin and as they disclose more, we'll happily provide additional information.

[Operator]

There are no further questions at this time. I will now pass it back to you, Jonida, for the closing remarks.

[Jonida Zaganjori, executive]

Thank you to everyone who joined us today. This concludes our annual 2024 results conference call and webcast. We expect to release our first quarter 2025 results after market close on May 1, 2025, with the conference call held on the same day at 5:00 p.m. Eastern Standard.

Thank you for your interest in Lithium Royalty Corp., and goodbye.

[Operator]

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.