Operator: Good day, everyone and welcome to today's AMG Q2 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Michele Fischer, VP of Investor Relations.

Please go ahead, ma'am.

Michele Fischer: Welcome to AMG's second quarter 2023 earnings call. Joining me on this call are Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer; Mr. Jackson Dunckel, the Chief Financial Officer; and Mr.

Eric Jackson, the Chief Operating Officer. AMG's second quarter 2023 earnings press release issued yesterday is on AMG's website. Today's call will begin with a review of the second quarter 2023 business highlights by Dr. Schimmelbusch; Mr. Dunckel will comment on AMG's financial results and Mr.

Jackson will discuss operations. At the completion of Mr. Jackson's remarks, Dr. Schimmelbusch will comment on strategy and outlook. We will then open the call to take your questions.

Before I pass the call to Dr. Schimmelbusch, I would like to expressly refer you to our statement on forward-looking statements and the meaning thereof, as we have used at all previous occasions and we will use at this earnings call and which explanatory statement has been published as part of our financial presentation and at our website and all connection with this earnings call. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Executive Officer.

Heinz Schimmelbusch: Thank you, Michele.

This is the fourth straight quarter in which AMG has exceeded $100 million of EBITDA. This 32% EBITDA increase over the second quarter in ‘22 was driven largely by our Clean Energy Material segment specifically AMG Lithium’s Brazilian operation with an EBITDA contribution of $89 million. AMG's liquidity as of June 30, '23, was $586 million with $391 million of unrestricted cash and $195 million of revolving credit availability. The company will pay an interim dividend in ’23 dividend of EUR0.40 per ordinary share on or around August 9, ‘23 to shareholders of record on August 1, ‘23. AMG Engineering signed $167 million in new orders during the second quarter of ‘23 driven by strong orders of the remelting and induction furnaces representing a 2.48 times book-to-bill ratio.

AMG's order backlog was $377 million as of June 30 ‘23, which is the highest in AMG's history, which is a 15-year history. This is largely driven by the U.S. aerospace market. Our Q2 ‘23 U.S. order intake has essentially doubled from our second quarter ‘22 U.S.

order intake. We continue to drive our lithium strategy forward and I'm pleased to announce that we have signed a mandate letter with Germany's KfW IPEX-Bank and with Citigroup to structure and arrange the financing for the construction of our proposed technical-grade lithium chemical plant in Brazil. With capital expenditure presently estimated to be close to $300 million, the financing structure is expected to cover all the funding requirements and be supported by the [Foreign Language] finance credit, I'm sorry to say, which means the government-backed program, backed by the German government for projects, which deliver critical materials into Germany. This proposed financing is a cornerstone of our lithium strategy to be the premier supplier of battery-grade lithium hydroxide in Europe. And another important step towards an independent and sustainable lithium supply chain in Europe.

In addition, the project conforms with AMG Brazil's commitment to upgrade its operations to produce a higher-value product by significantly contributing to CO2 emissions -- to the reduction of CO2 emissions by lowering total volumes shipped materially. Our expansion projects remain on track. The lithium concentrate expansion project in Brazil is progressing as planned and our hydroxide refinery in Bitterfeld, Germany is expected to start commissioning for the first 20,000-ton module in the fourth quarter of ‘23. This will be the first European hydroxide refinery. AMG is working on a variety of lithium resource projects.

Following our principles, we will only comment publicly on those as signatures have happened. We are very satisfied with our project development work, which is difficult for feeding additional modules of our hydroxide refinery complex in Bitterfeld, East Germany. The new spent catalyst recycling facility in Zanesville, Ohio is AMGs largest investment to date. It's currently turning at full capacity -- is currently running at full capacity and targeting full run rate production for the second half of '23. AMGs LIVA battery projects for industrial power management applications outlined at our Capital Markets Day are under various stages of construction.

Shell & AMG Recycling B.V. project development in the Middle East are progressing. The so-called Supercenter project in the Kingdom of Saudi Arabia is completing the FEL3 feasibility study later this year. SARBV Shell & AMG Recycling BV's activities have already led to material deliver of spent catalyst to Ohio from overseas. I will now pass the floor to Jackson Dunckel, AMG's Chief Financial Officer.

Jackson?

Jackson Dunckel: Thank you. Heinz. I'll be referring to the second quarter 2023 investor presentation posted yesterday on our website. Starting on page three, this shows an overview of the financial highlights of the quarter. Revenue for the quarter increased by 4% to $439 million.

Q2 ‘23 EBITDA was $107 million a 32% increase versus the prior year. This increase was primarily driven by a strong performance from our Clean Energy Materials segment and in particular driven by AMG Lithium and it's Brazil operation, which generated $89 million of EBITDA. Net income to shareholders increased substantially versus Q2 ‘22 to $43 million for the second quarter of ‘23, yielding a $1.28 of diluted earnings per share, compared to $0.91 in the same period last year. Now, I'm going to review our three segments and starting with AMG Clean Energy Materials, which is shown on page four of our presentation. On the top left, you can see that Q2 ‘23 revenues increased 30% versus Q2 ‘22 and $208 million.

This increase was driven mainly by increased sales volumes and increased prices of lithium concentrate. Q2 '23 EBITDA increased to $96 million from $58 million in the second quarter of ‘22 due to higher revenue and profitability in our lithium business, offset by lower profitability in our vanadium business, which was due to lower volumes as a result of a defective fan at our Zanesville that Eric will discuss further in his remarks. Our mine in Brazil produced a total of 29,000 dry metric tons of lithium concentrate in Q2 ‘23. The sales volume is well in excess of our average quarterly sales of 22,000 tons and was due to shipping schedule variances, which will negatively impact the third quarter. The average realized sales price was $3,633 per ton CIF China for Q2 ‘23, while the average cost per ton again CIF China was $547 per ton.

This cost per ton is higher than the first quarter of ‘23 due to lower volumes and pricing and tantalum concentrate. As discussed previously, lower tantalum revenue reduces the cost offset in calculating our net cost of spodumene production. And finally, the quarterly CapEx shown on the bottom left of $23 million mainly reflects our investment into a battery-grade lithium hydroxide plant in Bitterfeld, Germany as well as the expansion of our spodumene capacity in Brazil. Turning now to page five of our presentation, which shows critical minerals. AMG Critical minerals revenue for the quarter decreased 45% to $57 million, compared to Q2 '22 due to lower volumes across the segment, largely driven by the silicon metal plant operating one furnace during the quarter.

Q2 ‘23 EBITDA decreased 83%, compared to Q2 ‘22 to $1.5 million largely due to lower volumes across all three businesses. The lower volumes in antimony and graphite were caused by a slowdown in their end-use markets, primarily the housing, industrial, and automotive markets. In terms of silicon, we currently plan to continue running one furnace in order to satisfy outstanding customer contracts. Moving onto AMG Critical Materials Technologies on page six. Starting on the top left, you can see that Q2 ‘23 revenue increased by $13 million or 8% versus Q2 ‘22.

This improvement was driven by higher revenues in our engineering unit, as well as higher sales volumes of titanium alloys and chrome metal, partially offset by lower chrome metal pricing. EBITDA was $10 million during the quarter, compared to $14 million in Q2 ‘22. The decrease was primarily due to lower chrome prices in the second quarter of ‘23, partially offset by higher profitability in our engineering and titanium businesses. As Dr. Schimmelbusch mentioned, we had very strong order intake in Q2 with AMG Engineering signing $167 million in new orders during Q2 ‘23, representing a 2.48 times book-to-bill ratio.

Turning now to page seven of the presentation on the top left, you can see that AMG's Q2 '23 SG&A expenses were $49 million versus $37 million in Q2 ‘22. The increase was attributable to higher personnel costs, driven by increased hiring in our lithium, engineering, and LIVA businesses. It was also driven by a one-time pension expense of $6.7 million due to the restructuring of executive employee benefit plans. AMG's net finance cost in Q2 '23 was $7 million, compared to $12 million in Q2 ‘22. This variance was mainly driven by higher interest income earned, as well as foreign exchange losses in the prior period.

In today's raising rate environment -- raising -- rising rate environment, AMG continues to benefit from its low-cost, fixed-rate debt facilities and has an average interest rate charged across its two main debt instruments of 5%. AMG recorded an income tax expense of $27 million in the second quarter of '23, compared to $23 million in the same period of ‘22. This variance was mainly driven by the higher profitability of AMG Lithium at its Brazil operation, offset by U.S. tax expense and movements in the Brazilian real. The effects of the Brazilian real caused a $2 million tax benefit in the second quarter of ’23, compared to a $4 million tax expense in the same period in ‘22.

Fluctuations in the Brazilian real exchange rate impacted the valuation of the company's net deferred tax positions related to our operations in Brazil. AMG paid taxes of $35 million in the second quarter of '23, compared to tax payments of $9 million in the second quarter of ’22. The higher cash taxes in the current quarter were a result of tax payments tracking consistent upward trend in Brazil's results. Turning to page 8 of the presentation, you can see that the top -- on the top left the cash from operating activities was $60 million in Q2, '23, compared to $40 million in the same period in '22. AMG's annualized return on capital employed for the first six months of '23 was 35.7% compared to 25.5% achieved in the same period in '22.

AMG ended the quarter with $280 million of net debt, with the decrease versus year-end '22 due to higher cash balances from our strong operating cash flow. As of June 30, 2023, the company had $391 million in unrestricted cash and cash equivalents and total liquidity of $586 million. That concludes my remarks. Eric?

Eric Jackson: Thank you, Jackson. In addition to safety, our operating priorities are to maximize cash flow, increase operating efficiencies, manage price risk and deliver our strategic projects on time and on budget.

AMG Vanadium's second quarter performance was negatively impacted by the failure of two defective [Indiscernible] fans in our Zanesville facility. The root cause has been identified as a supplier design flaws. The fans have been re-engineered or replaced, spare fan rotors and motors were then purchased and are on-site or en route and operations restarted without interruption. AMG has commenced an arbitration claim seeking compensatory damages, including costs incurred and lost profits which affected AMG. As Heinz mentioned, in both Cambridge and Zanesville are now operating at full capacity and targeting to operate at full capacity for the second-half of 2023.

Additionally, the Zanesville Meltshop is showing a significant productivity improvement over the past number of weeks, slightly better due to increasing operator experience. It's also worth noting that AMG had begun to successfully extend its sourcing of Shell catalysts outside of North America. This is in many ways a product of our excellent relationship with Shell Catalysts & Technologies and the SARBV joint venture. As previously communicated, the lithium concentrate expansion project in Brazil is planning a temporary shutdown in the third quarter to integrate and complete expansion from 90,000 tons to 130,000 tons of spodumene. This will reduce -- this will result in reduced production in the third quarter.

We believe, net of co-products [Technical Difficulty] in our at or near the bottom for the global lithium concentrate costs and it's worth restating that 100% of our tantalum concentrate production is sold at market prices under the terms of our joint venture JX Nippon, Mining and Metals. AMG's lithium battery-grade lithium hydroxide refinery in Germany is under construction and commissioning the first 20,000-ton module will start in fourth quarter. In January ‘23 we announced approval for a vanadium electrolyte plant expansion at AMG Titanium in Nuremberg, Germany. The target capacity is 6,000 cubic meters of vanadium electrolyte program produced from secondary feedstocks. Construction has started and commissioning in production are expected to start at the end of the fourth quarter.

AMG Silicon operated one of four furnaces throughout the second quarter and will operate one furnace for the remainder of 2023. We will continue to review the operational parameters in Silicon business on an ongoing basis. In terms of our Critical Materials Technologies segment, AMG Engineering had an exceptional order intake in the second quarter resulting in a book-to-bill of 2.48 times as mentioned and an order backlog was $337 million as of June 30. We're also seeing similar improvement at the end markets of our aerospace-related critical materials specifically titanium aluminides, vanadium aluminum and chrome metal. We continue to focus on safety, operational improvement, risk management and successfully delivering our strategic projects on time and on budgets.

Our overriding objective in all of our businesses is to be the low-cost, high-quality and most environmentally responsible producer. I will now hand the floor to Dr. Schimmelbusch, AMG's Chief Executive Officer.

Heinz Schimmelbusch: Thank you, Eric. Given the global economic uncertainty and slowdown in China, current spot prices have caused AMG's critical material portfolio significantly below the prices we expected when we announced the initial guidance for '23 in November '22.

The price of lithium carbonate in November '22, the date of our $400 million EBITDA guidance is -- we're exceeding $400 million EBITDA has now almost halved and our other relevant portfolio prices are down in valuation of more than 25%. Therefore, we have changed our EBITDA guidance for ‘23 from growth exceeding $400 million in EBITDA to growth range between $350 million and $380 million in EBITDA. An EBITDA in this range, any EBITDA in this range represents the highest EBITDA in the history of AMG. As previously disclosed, third-quarter profitability will be negatively impacted by lower volumes associated with the spodumene expansion project. Volumes will recover in the fourth quarter as the project begins to ramp up.

Regarding our long-term guidance, we are extremely pleased with the advancement of our strategic projects. We are moving forward with our lithium concentrate expansion in Brazil. We have signed a mandate letter to fund the chemical upgrader in Brazil as mentioned and our lithium hydroxide refinery in Bitterfeld is under construction with commissioning for the first 20,000-ton module expected in the fourth quarter of '23. The transformational projects in lithiun, our newly complete ferrovanadium spent catalyst recycling facility in Ohio, and the continued ramp-up of AMG's Critical Materials Technologies segment will drive increased volumes across the clean energy material segment and confirm our confidence in our long-term guidance. Our long-term guidance, therefore remains unchanged, as an EBITDA level of less than $650 million or more in five years or less.

Operator, we would now like to open the line for questions.

Operator: Thank you. [Operator Instructions] We'll take our first question from the line of Martijn Den Drijver with ABN AMRO. Martijn

den Drijver: Yes, good morning, gentlemen. I have three questions please.

With regards to your revised guidance, can you share with us what you've baked into that as assumptions for contributions, roughly obviously, for Cambridge 2 and the scaling up of SP1 in SP1 plus. So, in other words, should we assume 50% of Cambridge 2 in Q3 and a 100% in Q4. And with regards to the scaling up of SP1 and SP1 plus, should we assume full production in Q4, which is roughly 32,500 metric tons or should it be less, assuming maybe perhaps scaling up is taking up a little bit more time. That's question one and I'll do them one by one, please.

Heinz Schimmelbusch: So we want to remind you that the process by which -- is not one case.

It's not one scenario. It is a group of scenarios that, therefore, leads to a range. And there are various assumptions discussed and run through models, and then it also leads to decision-making about the range, but it's more or less a given process. And therefore, it is very difficult to comment on the various assumptions running in the various scenarios behind those pads. But essentially, you are on the right track with that question.

Martijn

Den Drijver: Okay, so it's better to assume scaling up of Cambridge 2 towards normal EBITDA contribution in the second-half and a gradual scaling up after completion of SP1 plus during Q3 and into Q4. That would be the way to think about, okay.

Heinz Schimmelbusch: No, I would repeat. You are on the right track, but I'm not commenting on one particular scenario now. Martijn

Den Drijver: Thank you very much.

Heinz Schimmelbusch: Second question.

Operator: And we'll take our next question from the line of Stijn Demeester with ING. Please go ahead.

Stijn Demeester: Yes, good morning. I think mostly answered some questions.

But I will go now, it's three questions from my end. My first question is on vanadium. Eric had a bit of a bad line, so apologies if this has already been answered in his message, but if you deduct lithium EBITDA from the key energy materials EBITDA, we see a sharp decline from Q2 versus Q1. I think non-lithium of about $7 million in Q2 versus $14 million in Q1. So, what drove this lower result as I'm assuming Janesville didn't have a meaningful contribution in Q1 either and prices of vanadium were relatively stable quarter-over-quarter.

So, what is this, is this extra cost tied to the issues you had in Janesville or are there some other elements that we can flag? This is my first question.

Heinz Schimmelbusch: No, Stijn, you've got it. It's mainly the defective fan. So it's a loss of volume plus incremental costs.

Stijn Demeester: Okay, understood.

Then second question is on the ramp-up schedule of SP1 plus. Can you be a bit more specific on maybe what kind of weeks of downtime we could see in Q3. Because I'm assuming you would ship something at least. So yes, any sort of message you can give here on what kind of volumes we should pencil in, in the second-half and in Q3 versus Q4?

Heinz Schimmelbusch: You will appreciate that changeover from one flow sheet, which is a 90,000-tonne flow sheet, to another flowsheet, which is a 130,000-tonne flow sheet while minimizing the shutdown of the change -- implied by the changeover is an extremely challenging environment. It is very well planned and will be executed.

But there is, of course, certain uncertainties associated with this trait make us very hesitant to comment on the details here. The third quarter will be, therefore, reduced as our -- and that will be compensated in our assumptions of working compensated in the fourth quarter. If respectfully, I might remark the details of the borderline between the third quarter and the fourth quarter in this changeover process is meaningless as regard to value when you consider the entry side of the year, it is very difficult to detail answer the quarter like here to discuss the quarter and also regarding shipments and the changeover implications.

Stijn Demeester: Okay, understood. My final question then, it's on the timing of the guidance downgrade and I'm basically puzzled why you waited until Q2 as Chinese lithium prices have already recovered since end of April.

So, I would say the uncertainty on prices was higher at Q1 than it currently is at Q2. So I'm a bit puzzled here in your thinking and yes on why you didn't sort of caution at Q1 and waited until now [Multiple Speakers] have already cleared up.

Heinz Schimmelbusch: Yes. You'll hear from me from eagerness to answer that we don't wait with changing our guidance. We have a continuous process of monitoring the assumptions of our guidance.

And I don't know how many days ago, but there was accumulation of news as regard to listing price forecasts, et cetera, in China and the quantities involved, which led us to review our guidance and we expand through the process, which I had mentioned earlier led to this range, which is a little bit lower than the previous guidance. So my main point is we didn't wait. Of course, in this continuous process of the revisions of guidances, the fourth quarter stands out because we, of course, know that there will be a public event, and therefore, the intensity of scrutinizing the assumptions of such guidance is increasing prior to the quarter. So my comments here to your statement is mainly on your growth waiting, we don't wait.

Stijn Demeester: Okay.

Maybe if you allow me, one follow-up, what explains the difference in volumes of tantalum versus lithium per quarter as I am assuming since you have these offtakes?

Heinz Schimmelbusch: So as regards to qualities, these -- as an executive and as a shareholder, I'm very at the comfort of the fact that 100% of the quantities produced by the clean energy materials sector are sold under long-term contracts, 100% are sold on long-term contracts. Therefore, whether you have a shipment in the boundary of one quarter to the other or months or it's completely meaningless. It's very rare to analyze the company where 100% of the sales -- the quantities behind the sales are secured by long-term contracts.

Stijn Demeester: I understand that, but I'm simply asking why tantalum volumes and lithium volumes don't track comparatively so that they are co-produced.

Jackson Dunckel: That's due to shipments, Stijn.

So the tantalum shipments make their way from Brazil to Germany. The lithium shipments make their way from Brazil to China. In both cases, we recognize the revenue when they land, and our ability to control when they land and how many shipments go per quarter is difficult. So that -- it's a constant production, but what we're reporting is sales, right?

Stijn Demeester: Okay, understood, thanks.

Operator: And we'll take a follow-up question from the line of Martin Den Drijver with ABN AMRO.

Please go ahead. Martijn

Den Drijver: Yes. Thank you, operator. One question left. Thanks, Heinz.

On the FID of the Brazil conversion plant. I didn't quite catch what Eric said. Is the plan still to have that plant fully completed, constructed at the end of 2025, and commercially in operation in 2026? And is the CapEx still estimated to be $250 million? Thank you.

Heinz Schimmelbusch: No, we are expecting a final investment decision of the carbonate plant. I think that's what you are talking about later this year.

And that is estimated to be below $300 million both in the investment more or less fully financed by the special financing structure, which I have commented on. And so for us to talk about the startup when the investment decision is expected to be later this year is a little premature. Martijn

Den Drijver: I understand that. However, is the construction time unchanged then? Would that be roughly two years?

Heinz Schimmelbusch: Yes. Martijn

Den Drijver: Okay.

Thank you very much, gentlemen.

Operator: [Operator Instructions] And we'll take our next question from the line of Richard Hatch with Berenberg. Please go ahead.

Richard Hatch: Thanks. Yes, good morning.

Thank you very much for the call and just a couple of questions. The first question is just on your long-term EBITDA guidance of over $650 million. Can you just clarify whether that assumes an increase in lithium prices or lithium prices staying stable or decrease? Can you just give us some color on how much of that $650 million is based on price?

Heinz Schimmelbusch: Present prices.

Richard Hatch: Say again.

Heinz Schimmelbusch: Present prices.

Richard Hatch: Reference prices, okay.

Eric Jackson: At present, no significant increase in present prices.

Richard Hatch: Okay. But consensus assumes that prices materially reduce over the next sort of three to five years, does that -- or do you hold the price flat?

Heinz Schimmelbusch: I don't know on which consensus you are talking about. We assume present prices.

Richard Hatch: Okay. So no adjustment in prices, just holding flat. Okay, right. Thank you. And then just on your costs on the Clean Energy Materials side of $547 a tonne.

Can you just help me out a little bit just in terms of how to think about that, how much of the tantalum byproduct credit do you get against that? So what was the cost if I stripped out tantalum?

Heinz Schimmelbusch: Jackson?

Jackson Dunckel: Yes. We don't disclose that. I just rather talk about -- I mean what we're trying to do is we're trying to enable you to compare our delivered cost to China versus some of our competitors in Australia, which compares extremely well. The Tantalum co-product credit is a little higher than our competitors, but it's not significantly higher. So I think that the net number is a good number for comparison purposes.

Richard Hatch: Yes. Is there any issue -- if I look at Q1, the Q1 number was $338 a tonne, I think if my model is correct? So $338 to $547 is a bit of a hike, right? And if we're trying to model the business accurately, then any kind of steer on how much of a credit that would be helpful.

Jackson Dunckel: We'd rather guide you to $500 a ton, which we've been pretty consistent on average over the year.

Richard Hatch: Okay, alright. Thank you.

Heinz Schimmelbusch: One component in this calculation of yours, of course, that in the past, the tantalum portion was sold under annual contracts. And it's now long-term secured.

Richard Hatch: Okay. Thank you. And then, sorry, forgive me if I've missed this.

Just on the volume impact in the third quarter or as you tie in the increase in the lithium concentrate, are you able to give us any kind of steer on how much that's going to be impacted, please?

Jackson Dunckel: No, not really, because it depends upon the start-up timing. It's pretty easy to see that we were 6,500 tons, roughly above normal run rate sales in Q2. And then we have the start-up. So being able to say, as Dr. Schimmelbusch said before, splitting Q3 versus Q4 with a plant start-up and the shipping schedule is quite hard.

Richard Hatch: Okay. How do you have a plan as to how long your ramp is going to take or how long the plant is down for, or anything like that?

Jackson Dunckel: We already discussed that. It's going to take a while to ramp. It will be shut for a certain amount of time. But those details, we don't think, are really necessary for modeling.

We're more focused on delivering 130,000 tons in 2024.

Richard Hatch: Okay, thanks very much for your time. Cheers.

Jackson Dunckel: Yes. I appreciate it.

Operator: And we have a follow-up question from the line of Stijn Demeester with ING. Please go ahead.

Stijn Demeester: Yes, thanks. Thanks. A follow-up on engineering order book, which was created quite positively, I would say.

Can you sort of comment on when you expect this to materialize, in what time frame, and how perhaps ‘24 sorts of profitability should look like because there is some kind of demand from the aerospace, which would bode well for that business?

Heinz Schimmelbusch: But the aerospace demand is very strong, as stated, and the order intake is dominated by contracts, which are having an execution time of around one year. So that's ranging from less than one year to more than one year. But the average is one year or a little lower. So that might be for your model and input. The visibility of our '24 earnings is, of course, very high in that engineering sector.

And we believe that the order intake will continue to guide.

Stijn Demeester: Okay, that's helpful. Thank you.

Operator: And it appears that we have no further questions at this time. I'll now turn the program back over to Ms.

Fischer for any additional or closing remarks.

Michele Fischer: Thank you, everyone. This concludes our second quarter earnings call.

Operator: Thank you. This concludes today's call.

Thank you for your participation, and you may now disconnect.