Lithium Argentina AG 2026 Q2 Earnings Call

I want to welcome everyone to our conference call this morning. Joining me on the call today to discuss the second quarter 2026 results is Sam Pigott, CEO of Lithium Argentina. Alex Shulga, our CFO, will also be available for Q&A. Before we begin, I would like to cover a few items. Our second quarter 2026 earnings results were released earlier this morning, and the corresponding documents are available on our website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, update on development plans, the timing of our projects, and market conditions, may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our presentation, MD&A, and news releases. I now turn the call over to Sam Pigott.

Thanks, Kelly, and thanks everyone. Good morning. The second quarter was another period of strong execution at Caucharí-Olaroz, and the results reflect what the operation was designed to deliver: reliability, low-cost production, and strong cash generation. For 2026, the operation has averaged 95% design capacity and remains firmly on track to achieve production guidance. From a cost perspective, costs remain under $6,000 per ton, supporting robust operating margins and driving significant cash flow. Reflecting the significant improvement in Argentina and substantial cash generation, the operation has now distributed $160 million year to date, of which $75 million was Lithium Argentina's share. Finally, we completed two new unsecured debt facilities totaling $220 million at the JV level. This further strengthens the financial position of the operation, supporting our growth plans and providing flexibility to continue to make distributions to de-risk our balance sheet.

Turning to the financial performance at Caucharí-Olaroz. The operation delivered adjusted EBITDA of approximately $110 million in the second quarter, up 4% from the first quarter. Stronger realized prices, with prices averaging around $19,500 per ton in the second quarter, and continued cost discipline supported these results with total adjusted EBITDA now over $200 million for the first half of the year. These financial results are now translating directly into strong cash generation, supporting distributions to the JV partners, debt reductions, and providing flexibility for our next phase of growth. Looking more closely at operations. For 2026, we've averaged 95% of design capacity, demonstrating consistent and stable operations. We were pleased with the results, which included a planned shutdown during the second quarter that allowed us to focus on optimization and debottlenecking efforts.

For 2026, we are well positioned to deliver on the full-year production guidance of 35,000 to 40,000 tons. Going forward, our objective is to build on this consistency we are seeing today and support sustained production at rates even above the current 40,000 ton capacity. Moving to costs. Year to date, cash operating costs have averaged around $5,600 per ton. Second quarter costs came in modestly higher due to planned shutdown, higher energy costs, and the impact of a stronger peso. Since startup, we have brought costs down from roughly $8,000 per ton to a consistent sub-$6,000 level, driven by ongoing process improvements, cost reduction efforts, and the inherent advantages in the design of our brine-based operation. This low-cost position, coupled with higher average prices during the second quarter, has translated into a meaningful expansion in margins.

During the second quarter, the cash operating margin reached 70%, driving strong cash generation from Caucharí Olaroz. This slide shows exactly how EBITDA is driving free cash flow at the operational level. Starting on the left, the $110 million of adjusted EBITDA generated in the second quarter translated into $141 million of free cash flow from operations. Part of this reflected a drawdown of working capital, given the timing of sales made in the first quarter that were collected in the second quarter. Moving to the right, you can see where this cash went. Net debt at the joint venture level declined from $256 million to $142 million, a reduction of $114 million in a single quarter. Importantly, that de-leveraging was achieved while continuing to make distributions to the JV partners.

Turning to the balance sheet, we continue to strengthen our financial position with improved liquidity at both Caucharí Olaroz operation and the Lithium Argentina corporate level. At Caucharí Olaroz, we closed $220 million of new unsecured debt facilities, including $170 million three-year facility closed in early August with a variable interest rate currently under 5%. Combined with strong cash generation, this provides additional balance sheet strength and financial flexibility to support further JV distributions and growth. At the corporate level, we ended the quarter with $100 million of cash and total liquidity of $230 million. This includes $130 million in an undrawn six-year debt facility provided by Ganfeng at SOFR plus 2.5%, or around 6% today.

We also received an additional $27 million in distributions from Caucharí Olaroz subsequent to the quarter end. We expect to receive additional distributions in the second half given significant cash flow and liquidity at the operation. Looking ahead, the chart on the right illustrates the significant earnings capacity of Caucharí-Olaroz across a range of lithium price scenarios. At current lithium prices of $20,000 per tonne, we estimate 2026 adjusted EBITDA of approximately $460 million on 100% basis. The combination of strong operating cash flow, access to attractively priced debt, and liquidity at both the joint venture and corporate level provides us with significant financial flexibility as we advance our growth plans and de-risk our balance sheet. Another milestone I would like to highlight is the recent independent verification of the carbon footprint at Caucharí-Olaroz.

The product carbon footprint for 2025 was only 1.4 tonnes of CO2 equivalent per tonne of LCE on a Scope 1 and Scope 2 basis under the internationally recognized ISO and GHG protocol standards. This result is supported by the fact that approximately 97% of the energy used at the production process comes from solar power. It also highlights one of the key advantages of a brine-based operation, which has a significantly lower carbon footprint than many other, more energy-intensive lithium operations. Turning to our growth pipeline, we remain disciplined and are taking a phased approach, building on the strength we've demonstrated at stage 1. At Caucharí-Olaroz, our immediate priority is finalizing the stage 2 development plan, with the scoping study results expected around the end of the third quarter.

Following RIGI approval in the second quarter, we're advancing an early works program, including drilling additional wells, engineering, and de-bottlenecking the existing plant. Much of this work directly benefits the existing operation, helping push production above design capacity while also meeting the needs of the stage 2 expansion. For stage 2, we are working with our partner on a modular approach, a DLE facility targeting an initial capacity of 10,000 tonnes per annum as the first phase of the broader 45,000 tonne per annum expansion. Turning to PPG, we continue to wait for the approval of RIGI, which was submitted in Q1 2026 and is expected later this year. In parallel, we've made significant progress with our partner Ganfeng on the financing plan for PPG, including discussions with potential minority strategic partners.

Across both stage 2 and PPG, we're advancing a phased and disciplined approach to growth that leverages our experience with stage 1, our existing cash flow, and access to low-cost capital at the project level. In closing, the first half of the year reflects strong execution across the business and the priorities ahead build directly on that foundation: operating safely and cost competitively, strengthening our balance sheet, advancing our growth pipeline, and allocating capital with discipline. Finally, as we continue to broaden our investor base and improve global market visibility, we're evaluating a secondary listing on the ASX, which we believe would complement our NYSE listing and further support long-term shareholder value. Lithium Argentina is well-positioned. High-quality operations, a strengthened balance sheet, and a disciplined approach to growth. We look forward to sharing further updates on our progress in the quarters ahead. Now we'll open the call for questions.