Sociedad Quimica y Minera de Chile SA 2026 Q2 Earnings Call

Good day everyone, and thank you for standing by. Welcome to the SQM second quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question, you will need to press star one one on your telephone. You will then hear a message advising your hand is raised. To withdraw the question, press star one one again. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Megan Suitor with investor relations. Please proceed. Good day, and thank you for joining SQM's earnings conference call for the second quarter of 2026.

This call is being recorded and webcast live. Our earnings press release and the accompanying results presentation are available on our website, where you can also find a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer, Mr. Gerardo Illanes, Chief Financial Officer, Mr. Carlos Díaz, CEO of Novandino, Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition Division, and Mr. Mark Fones, CEO of the International Lithium Division.

Also joining us today are members of our commercial and business intelligence teams, Mr. Felipe Smith, Commercial Vice President of Novandino, Mr. Pablo Hernández, Vice President of Strategy and Development of Novandino, Mr. Juan Pablo Bellolio, Commercial Vice President for Plant Nutrition and Specialty Products, Mr. Álvaro Araya, CFO of the International Lithium Division, Mr. Andrés Fontannaz, Commercial Vice President of the International Lithium Division, and Mr. Max Vial, Head of Studies of the International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses, and other financial items, along with expected cost synergies and product or service line growth are considered forward-looking statements under U.S. Federal Securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially.

We assume no obligation to update these statements except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos.

Thank you. Good morning, and thank you for joining us today. I am pleased to report SQM's second quarter results, which reflect a strong performance across our main business lines. I would like to start by highlighting an important milestone for our lithium operations in Chile. In July, Novandino Litio, our association with Codelco, submitted the environmental and technical documentation for the Salar Futuro project to the authorities. Salar Futuro represents the next stage in the transformation of our operations in the Salar de Atacama, subject to the required approvals. The project contemplates approximately $3 billion of investment over seven years and is designed to increase production while significantly reducing the environmental footprint of our operations. I would also like to highlight the contribution that our operations make to Chile.

During the first half of this year, SQM and its subsidiaries accrued more than $1.6 billion in payments to the Chilean government, including taxes, contribution to local governments, and payments to Corfo. Moving to the lithium market, we achieved record quarterly sales volumes of more than 84,000 metric tons of lithium carbonate equivalent from our operations in Chile through Novandino Litio and in Australia through Covalent Lithium. As anticipated in our previous earnings report, lithium prices increased during the second quarter, supported by a stronger-than-expected market demand. We now expect global lithium demand to exceed 2.1 million metric tons in 2026. We continue to expand our production capabilities in both Chile and Australia. In Chile, we expect Novandino Litio to produce between 280,000 and 290,000 metric tons of lithium carbonate equivalent this year, and to have approximately 300,000 metric tons of production capacity by next year.

In Australia, together with our partner, Wesfarmers, we recently announced the expansion of the Mt Holland mine and concentrator, which is expected to double the spodumene concentrate production capacity to approximately 350,000 metric tons per year, corresponding to SQM's shares of the project, with first production expected in 2030. These investments reflect our long-term view of the lithium market and our confidence in the fundamentals of the energy transition. Moving to iodine, we once again delivered good results, supported by robust market demand and favorable pricing. We expect demand to remain robust. Our seawater pipeline is currently in its commissioning phase and will provide additional flexibility to optimize our production and respond to market conditions. We are now producing iodine from our four different operations, and we expect total iodine production to reach approximately 15.5 thousand metric tons this year.

Turning to specialty plant nutrition, we delivered another strong quarter, supported by higher sales, prices, and volumes. We continue to expect full-year sales volumes to increase by approximately 10% compared to 2025. Market conditions have benefited from supply constraints in certain markets, and we expect this condition to gradually normalize toward the end of the year. Finally, we have updated our capital expenditure outlook. We now included 2028, and we expect approximately total capital expenditures of approximately $3 billion over the three years, 2026-2028 period. This investment is mainly focused on supporting future growth and enhancing the competitiveness of our operations through lower production costs. Overall, we are encouraged by the performance delivered during the first half of the year and remain focused on executing our growth plans and creating long-term value from our shareholders.

With that, I will turn the call, and we can go, operator, to the Q&A. Thank you. Thank you so much.

As a reminder, if you do have a question, simply press star one one to get in the queue and wait for your name to be announced. To withdraw your question, press star one one again. One moment, please. Our first question is from Joel Jackson with BMO Capital Markets. Please proceed. Hi, thank you.

I am going to ask a couple questions one by one. Can you talk about Q3 for a second? If I look at Q3 for the lithium segment, you are guiding to prices about flat. Volumes seems like about flat. Costs, I had a question about, because costs kept down low in Q2. Should we expect Q3 lithium earnings gross margin to be about the same as Q2?

Hello, Joel. This is Felipe. I will comment about the Novandino part, of course. Yes, indeed, we had a very good second quarter. We are very enthusiastic about how the market is doing. Regarding Q3, first of all, in terms of sales volume, we expect Q3 2026 to remain strong, in line with Q2. Okay? In terms of the price, I would say that the average price based on the indexes, because you know that our contracts are all based on indexes, and indexes are well-known. Based on that, we believe that the price of Q3 should be more or less in line with what we saw as the average of the first semester. But again, nobody can predict where the indexes are going. It is a very volatile market today. Still difficult to predict prices too long.

Hi, Joel. This is Carlos Díaz. Regarding you asked about the cost. Well, mainly, we have been working harder the last year in continuous efficiency and improvement process. That is together with the economy of scale of we have been increasing the production level. We have been constantly being able to make a cost improvement. But in Q3, we expect similar costs that we already got in Q2. But this year, at least 2026, it should be lower compared with last year.

Okay. Thank you for that. I want to ask about price realizations between Novandino and International Australia. I understand some of the math that works with toll and things like that, but the premium, the Chile AS, the Novandino average selling price, is really expanding. The discount, the premium of Novandino average selling price, the premium is really widening versus international. Should we expect a catch-up in Q3? Even if Novandino average selling price is about the same in Q3, should we not expect international selling price to catch up, go up and the gap to reduce?