Sigma Lithium CEO: why Brazil beats Africa on lithium costs

Chris: Hello and welcome to "Argus Metal Movers." My name is Chris Welsh, reporter for Argus Battery Materials in London and I'm here with my colleague and lithium reporter from Sao Paulo, Pedro Consoli. Hi, Pedro.

Pedro: Hey, Chris.

Chris: Today we are incredibly fortunate to have with us the chief executive of Sigma Lithium, Anna Cabral. Sigma Lithium owns the fifth largest hard rock lithium project in the world, with mining and processing in the lithium valley of southeastern Brazil. It began commercial production in April 2023, just four years after filing a definitive feasibility study well below the hard rock average of nine years. Sigma has made headlines for its green credentials, being the second-lowest cost hard rock project in the world and for its ambitions to move further downstream. Anna herself co-founded Sigma in 2012 after a career in banking and has become one of the most high-profile women in the mining industry in high demand for media panels and interviews around the world. Anna, thank you very much for making the time to join us today.

Anna: No, it's a great pleasure to be here with you, Chris and Pedro. Thanks for inviting me. It's great to be with Argus. And I'll start with an anecdote. The first time ever I spoke publicly in a panel or in a conference, it was in Singapore in November 2017 by invitation of Argus. And at the time I talked about what was then a company that was so not known, but it was making strides in electrification called BYD. And that stunned the audience with what they were doing in electrification of buses in all of that. But just to illustrate, 2017 is like yesterday. Look at BYD today, look at us today. And again, it was Argus, the visionary organizer of events that kind of hosted me because I was an unknown in a small non-producing company called Sigma Lithium. So I just wanted to start with that and to share that with your audience.

Chris: Not at all, thank you. Not unknown anymore. I wanted to start, if I may, with shipments in June when Argus CIF [inaudible 00:02:25] spodumene prices hit a low of $607 per ton. Sigma paused shipments and then again in August before a record cargo of 59,000 tons or thereabouts last month. So beyond price, obviously, do you have any clear rules for when you hold back versus when you ship?

Anna: Well, no, we don't. But what took place this year during post-liberation day was what we call a black swan event in lithium prices or it was the COVID for metals in general. It wasn't just lithium. All metals behaved quite abnormally and even treasuries behaved abnormally post-April 2nd. And when we ended the quarter, we were struggling with agreeing on provisional prices for our last cargo and clients wanted a final price of $610. And we were very forthcoming in our quarterly earnings presentation about it. We realized that if we agreed to a final sale at final prices, not provisional, we would be crystallizing a loss of $90 per ton operationally, all-in cost. I mean, when we say all in, we include interest, we include all expenses, GNA, royalties, maintenance, capex. We wondered then if we're going to be in that position, who else is making money?

And we realized that no one would make money at those levels. So we felt quite confident in establishing that those levels wouldn't hold for long because at one point, markets need to connect with physicals. And at the physical level for lithium concentrate, no one was lowest cost than us, non-integrated. The lowest cost than us was integrated into their own chemical plant. That was Greenbushes. So clearly something was off in the markets. So we decided to hold back, not to crystallize the losses. It was a logical decision and it turned out to be a very sound decision. But again, it goes back to connecting the index with the physical and the index clearly had disconnected to the physical, which is exactly what happened late in August with the turnaround in prices that we observed.

Chris: Actually, just on that, on costs, I think one figure from the Q2 report said Sigma's costs were at about $594 per ton all-in sustaining.

Anna: All in, all in.

Chris: All in. I know incredibly low, but just two questions on that. How exposed are you, would you say, to a couple of factors? First, currency swings with the U.S. dollar, which is weakened this year against the Brazilian real. But also secondly, freight costs with longer shipping times to China than the Australian hard rock producers.

Anna: We managed quite a feat on logistics, right? So our CIF China costs, which are basically delivered in China, were $442 in the second quarter. So we've managed to organize a logistics agreement with one of the largest shipping companies in the world. We were very fortunate. We can actually have a lot of flexibility, even in the way we decide tonnage for shipping. And we're basically at $40 a ton. So that is not a lot in the big scheme of things. Door to door from [inaudible 00:06:16] to China, we spend $40 a ton to port, $10 approximately at port between storage and handling, and then $40 a ton to China. So $90 door to door, including port and warehousing costs in Brazil. So that is maximum efficiency in logistics. At [inaudible 00:06:38], we were at $350. So what we basically achieved was, at the time, in the second quarter, all the efficiency we could in China, $440-ish, right, door to door, meaning basically beginning to end.

And so now we've started to look at all the other costs, cash costs, that add to the all in, which are maintenance capex, environmental and social, what we call optional, meaning voluntary initiatives, which are a core part of what we do. I mean, we're very committed to social and environmental initiatives, which are voluntary. They're not required. Our SG&A is quite low, everybody travels coach or premium economy. We're very lean. And then financial expenses, which is interest, which is still $70 per ton. So all in, we end up at $590, roughly, which is very, very competitive. So we control what we can control, which we control our costs. And with that, we look around and we see that, I mean, we are lower than African lithium concentrate. We're lower than Nigerian. We're lower than Zimbabwe. We're lower than pretty much everyone in the lithium concentrate cost curve, except for one company, which is Greenbushes, which is integrated into its shareholder refiners. So we're in a very unique and resilient position in the cost curve because we focus so much on cost control.

Pedro: I mean, just adding up on this, you've mentioned that Brazil or Sigma is lower cost than some African spodumene producers that are universally seen as cheaper for the naked eye. What's the differential that Brazil has so you can achieve this cheaper production in comparison to Africa?

Anna: Well, I can speak for Sigma because I'm not privy of others' cost curve. But what we do is, and that's what makes it so unique, we uphold the highest safety and health standards in the industry. We've had two years without any accidents we lost time. In 12 years, we have never had a fatality, and we're very proud of it. So we're able to uphold Western health and safety standards to the maximum, right, amongst the best within metals and mining industry. At the same time, we have scale. Quite a lot of it comes out of certain jurisdictions is artisanal. So because we have such a significant industrial scale, we produce 40,000 tons of chemical per year. That's the capacity, right? But we don't do chemicals. So it's equivalent of 270,000 tons of concentrate per year. That's industrial scale. We, Sigma, gain competitiveness on industrial. Our industrial costs, because we utilize dense media separation, are 75% lower than the peers in the industry who utilize more costly processing methods. So our industrial edge, competitive edge is where we win. Mining is mining. We gain on certain regions that have artisanal mining because of scale, but all of our peers who don't have artisanal also do.

But as per Sigma, our real competitive edge is industrial innovation. We manage to achieve recoveries at plant level of up to 70%, which equal flotation recovery levels through innovation. We've innovated in various portions along that dense media separation circuit so that we got here. And that's what makes it so unique is industrial innovation. And it's starting to dawn on Brazil, for instance, that that is, to your point, Pedro, the Brazil edge, because it is possible, given that Brazil is a country that never deindustrialized. In Brazil, we have engineers, we have chemical engineers, we have the human capital that is capable of, for example, maintaining the algorithm that runs the automation, running processing engineering. We have mechanical engineers, electrical engineers, we have all of that human capital that is current, that is knowledgeable. So when you think about our personnel, 98% of Sigma's personnel on site is Brazilian. This isn't a plant run by non-Brazilians. So it is the Brazilian human capital that we tapped on, coming from all the other industries you know exist in Brazil that we use at Sigma. And that is the core of industrial innovation is having that human capital that is excited, that is enthusiastic about working in industry.

Pedro: I see. And you've been saying, you've been talking about today, about how Greenbushes, for instance, just an example, manages to have a lower cost because it's integrated to the more downstream parts of the value chain. Do you see Brazil as a country with potential to have the same kind of integration from mining to refining to battery making?

Anna: Well, look, Greenbushes' lower cost, it's not because of the integration. They're lower cost because of scale. If you think about it, they're in Australia, which is not exactly a low cost jurisdiction, but it's a very, very knowledgeable and historical mining country. It's admirable what they do in Australia. We learned every lesson by watching Australia. We simply watched them and replicated it. They're remarkable. So you think about Greenbushes in Australia being five times the size of Sigma. So they have five times more production, actually perhaps more because they keep on growing. I lost track. So essentially, that scale is what dilutes down the cost because the larger you are, basically the lower cost you are per ton, per unit. Let's pause because of this. Pause there, then I'll re-record because I'm in an airport. Fire alarm. Jesus. Just a sec.

Pedro: It's actually not going into the recording.

Anna: It's going? No?

Pedro: No. But if you can focus through a fire alarm.

Anna: I can't. I can't. No, I can't. So you deal with that and we can keep going. So basically, when you think about...So let me start the question again. So your point about Greenbushes is spot on, but for different reasons, I would say. Greenbushes is located in...So should I begin...? Cut the answer at the question and then I'll start again. Right. So, start. One, two, three, start. You made a very good observation about Greenbushes, but the reason why Greenbushes is low cost is because of its scale, it is not because of the refining integration. In other words, Greenbushes is several times larger than Sigma and is located in a high-cost environment. However, the sheer scale of the output of concentrate, when it's divided...the costs of a high cost environment, when divided by the output, which is significantly larger than Sigma, it's five times larger, yield a very, very low cost at the gate. Right?

And IGO has done a fairly good job in publishing Greenbushes' [inaudible 00:15:40] costs. So the scale is the key, which leads us to what we do best at Sigma, which is industrial scale at lithium oxide concentrate level. That's what we know how to do. And we do it extremely well. Because if you think that after Greenbushes there's Sigma, and we are in Brazil, which is not a traditional lithium jurisdiction by any means, in a way, at scale, it demonstrates how innovative we've had been to achieve that industrial competitiveness. Right? So is competitiveness at lithium oxide concentrate reduction? That's what we do best. And we need to focus in environments such as what we're living through now, which are still the trough of lithium prices that are very, let's say, volatile based on what we saw in second quarter. Companies need to focus on what they do best, which is where they achieve core competitive advantages. So in our case it's to industrialize lithium oxide concentrate. And we do it with a state of the art technology that we adapted, we innovated. Globally, no one does it using green, clean technologies like we do. I mean, no tailing dams, no use of toxic chemicals, no use of drinking water. That's quite remarkable.

Chris: I think all the more, given that Sigma is only founded in 2012 as well, I just wanted to come back to prices. I think Sigma said in May in its first quarter earnings that 100% of production for the year was uncommitted. So no fixed offtakes, some spot, some formula pricing at 9% of the LME price for lithium oxide. Is that still true? And does it pose any risks to not have volumes committed like that?

Anna: Well, it doesn't because, as you can tell, the market lacks physical lithium concentrate units. So when you think about...Just to give an example, the lithium concentrate is priced off a chemical index. The chemical index trades a day, sometimes a third of global annual demand. So it's a market that's not connected to physicals. So when you think about what we do, which is the lithium oxide concentrate, we're in a very good position because at the price, we can sell everything we produce. And as I said, what took place in the second quarter was black swan. At $6.30 per ton of concentrate, pretty much the entire industry was deep in losses. Even us were losing $90 all in cash considered.

So I think the strategy changed, but for different reasons. The strategy changed because we're looking at lowering our interest-per-ton cost, which is, again, my focus on what I control, which is all in cash costs and striking off dates, especially with certain counterparties in Asia who enjoy a low cost of capital, is a very benign manner to lower our overall financing costs because when you strike an offtake, you receive a prepayment. If you're a producer and you agree to deliver quantities for a number of years, you actually receive a prepayment for it for the privilege of committing that production given that the market always seeks physicals because, ultimately, it all boils down to putting physical concentrate into a refinery. So we're in a very viable position to strike off takes because, one, we're the lowest cost producer. So going through the black swan of the second quarter, it's clear to the industry that we can survive given that we have all in at $5.90. So we're fine. Then two, we reach the pace of production that allows us to fulfill offtake obligations. And then three, we're here to stay. We're building a business. We're building to last.

And we have calculated these offtakes and we have agreed on principle in these offtakes during the end of the first quarter, beginning of the second, which means that the price implied on the prepayment is quite low. It's not the final price, but that's sort of the protection barrier for the client. So these are very benign arrangements for the client and we don't plan to change it because we don't need more proceeds than what we have showcased. If I actually committed all of my units today, not even 240,000 tons, for instance, I could achieve...If I did, I could achieve approximately $300 million U.S. in prepayments. And we plan to go at it basically because it's a good form of essentially lower interest rate costs. And I think, yeah, to add to that, in Asia, interest rates are SOFR plus half or SOFR plus 1%. SOFR plus 50 basis points, SOFR plus 100 basis points. That's quite benign, quite low. We don't enjoy those in the West anywhere.

Chris: I think it's a really good point. I think even in the chemicals business, even in the battery-making business, we've seen companies trying to boil the ocean, like Northvolt trying to set up R&D and batteries of all different chemistries before they've scaled up. So the decision to delay is probably a smart one. Just finally, I don't want to keep you...

Anna: Thank you. No, we focus on what we do well. We focus on what we do extremely well. And that's a competitive advantage. We call it permanent competitive advantage. And in the down market, that's what companies...It's strategy, right? Strategy basics, right? Focusing on what you do better than others extremely well, and stick to it. And that's resilience. That's corporate resilience.

Chris: Yeah, for sure. Just finally...I don't want to keep you for too much longer. I just wonder what other external factors you see as sort of either a threat or an opportunity. I know you've spoken about green premiums and you think that Sigma doesn't...there are no green premiums and Sigma isn't planning on relying on any, but perhaps legislation could change that for the better. On the other hand, permitting risks perhaps in Brazil could slow the build out of the second plant, which could affect things for the worse. Do you see either any of these two or other factors as being, sort of, critical markers for Sigma's success in the coming years for better or worse?

Anna: No, I think actually Brazil is a fantastic jurisdiction and I've been very outspoken about it. People don't realize how great Brazil is on what we call legal certainty. And that doesn't mean it's easy. It means it's strict, you raise the bar, and you have to adhere to super Western standards for health, safety, environmental. And if you don't, the country's super strict as we've seen others having their licenses revoked and all of that. But it isn't because of the countries, just because they didn't adhere to the high standards. And that's something that comes with the history Brazil has had in mining. So we adhere to those standards.

Phase two is fully permitted. So we have an environmental permit to phase two. So that's not an issue at all. We're actually working on the one aspect of phase two that could actually irrevocably delay us, which is our mine. So we're working on mine geometry to de-risk an eventual commissioning of phase two, meaning we're now enlarging mine geometry in order to be able to feed a potential second plant with the same ore. Remember we don't sell ore, we sell an oxide, but to produce that oxide and decrease the commissioning time and commissioning risks, recovery rampups and in all of those, we're sticking to the same raw material. If we feed plant two with the same raw material that we feed plant one, we're going to perhaps achieve similar recoveries. And if we don't, it's easier to fix because it's going to be mechanical, it's processing versus chemical dense, media related, because the mineralogy is the same and the algorithm has learned how to adjust density for that mineralogy. The plant is digital, right? So there's a [00:24:44] that's industrial automation that learned that mine

Having said that, I think your second part of the question, what do I worry about? Costs always, right? One, another point that people don't focus as much is why do I worry about costs? Because if you look at what has happened in the last few years, why have prices dropped so sharply? First, we call processing innovation in lipidolite. So that has lowered the ceiling. Lipidolite is a ceiling. And today is what? $15,000 a ton for chemicals. And that's low. When he started, he was assumed to be $20,000, $25,000. So if you cannot live within those parameters, when the price has reached that level, lipidolite is turned on, right? So it comes as a ceiling. Then the other thing I worry about, and I've been very vocal about it, is traceability. And I think going back to your point, I do not hope, I would love to have a green premium, but I do not hope for it.

But what I see happening already is a traceability concern. And for example, the largest battery maker in the world, CATL, adhere to our map, which is traceability of origin, which is remarkable. Remarkable. So when you think about the battery-maker industry adhering to those standards, because of the car makers, the consumers requiring to know where do the materials come from? Are they coming from illegal mining? Women and children without helmets? I'm a woman. I go to my mine, I wear a helmet. I wear protection. I wear equipment. I leave my kids at school, right? So we have lots of women in our mines, but they're protected. They don't die. They have safety. So I think that's what we call traceability. That's what we call standards. And everyone is adhering to traceability.

So it's a bit like what happened in Cobalt, which at the time I spoke at Argus was exactly the topic. One needed to establish those parameters so that the industry could evolve. And these parameters in lithium are set in motion. The industry itself has adjusted, given that electrification is inevitable, right? And so I'm very proud of our clients adhering to traceability. We benefited from it. We're low cost. We have incredible sustainability credentials. And that's what I think has to be. I was very explicit when I said it. I mean, if the energy transition is going to go to a place where women and children have to mine battery materials unprotected, might as well stay with oil and gas. I don't think this could be the future of humanity. It's not right. So what we got in oil and gas has standards. Going into artisanal illegal mining is not a way to go in the energy transition. I think that's quite obvious. And so I don't worry about it anymore. I used to worry about it quite a lot. But I think the industry has finally gotten into a pattern of let's raise the bar. Let's honor the energy transition with adequate methods of production for materials.

Chris: Quite right. I think we're seeing that with cobalt at the moment with the export ban and now quotas come into play, that volatility really just making life difficult for end users. We better leave it there. If you would like full access to Argus prices and reporting on the full suite of battery materials, do head to argusmedia.com. But for now, Anna, thank you very much for your time today. Much appreciated.

Anna: No, thank for having me. Thank you for having me. It's an honor to be here. It's such a nice circle. When I think about the first time I spoke with Argus ever, there were many times in between, and now I mean, it's great. Thank you for having me. It's a real pleasure. Thank you, Pedro. Thank you, Chris.

Pedro: Thank you very much.

Chris: We better get you on again soon. Thank you very much.

Anna: Thank you.