Advanced Metallurgical Group N.V. (AMG), a global critical materials company, reported a record full-year adjusted EBITDA of $350M for 2023, despite facing a lower priced environment for its products. The company's operating cash flow saw a significant increase, and it maintained solid financials with a strong balance sheet and cash flow position. However, AMG experienced a decrease in revenue and adjusted EBITDA for its Critical Minerals segment in the fourth quarter, attributed to lower volumes of lithium and vanadium. The company is implementing cost reduction measures and continues to progress with its lithium expansion projects.
Key Takeaways
- AMG's full-year adjusted EBITDA reached a record of $350M in 2023.
- Operating cash flow increased by 33% to $223M, with a positive free cash flow of $38M.
- The company set a record for order intake at $350M.
- Expansion efforts are focused on lithium production in Brazil and a lithium hydroxide refinery in Germany.
- Technologies for vanadium energy storage and spent catalyst processing were acquired.
- The Supercenter project in Saudi Arabia aims to produce vanadium oxide from gasification ash.
- Q4 saw a decrease in revenue for Critical Minerals due to lower volumes.
- AMG ended 2023 with $323M in net debt and $345M in cash equivalents.
- Lithium and vanadium price declines affected gross margins.
- CapEx guidance for 2024 is set at $125M, with adjusted EBITDA expected to be around $130M.
- A $6 million subsidy for vanadium production is anticipated to recur annually.
Company Outlook
- AMG aims to maintain a net debt to adjusted EBITDA ratio below 2.5 times.
- The company's lithium strategy remains consistent despite market challenges.
- Updates on EBITDA ambitions and targets to be provided at the AGM in May.
- Cost reduction and efficiency programs are in progress.
Bearish Highlights
- Lithium and vanadium prices decreased, impacting gross margins.
- Revenue and adjusted EBITDA for Critical Minerals dropped in Q4 2023.
- SG&A expenses increased while net finance income decreased.
- Higher income tax expense and payments in 2023 compared to 2022.
- Cash from operating activities decreased in Q4 2023.
Bullish Highlights
- Record order intake and adjusted EBITDA in 2023.
- Strong balance sheet and cash flow position.
- Expansion projects are advancing, with increased lithium production capacity.
- Engineering segment secured high order intake in 2023.
- Spent catalyst processing facility exceeded production targets.
Misses
- CapEx guidance for 2024 reduced to $125M, lower than previous estimates.
- Review of resource development projects due to market conditions.
Q&A Highlights
- The company expects a neutral financial outlook for 2024.
- Future capacity and expansion projects are progressing as planned.
- The vanadium business unit, which includes chrome and titanium, may benefit from an aerospace upturn in 2024.
- The $6 million vanadium EBITDA is expected to be blended in quarterly.
AMG (the company ticker not provided) has demonstrated resilience in a challenging market, achieving record financial performance in 2023. The company's strategic investments and expansion projects signal a commitment to growth, even as it navigates the volatility of commodity prices. Investors and stakeholders can look forward to the upcoming AGM for further insights into the company's future ambitions and financial targets.
Full transcript - None (AMVMF) Q4 2023:
Operator: Good day, everyone. And welcome to today’s AMG Q4 and Full Year 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] Please note, this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Michele Fischer, Senior Vice President of Communications.
Michele Fischer: Welcome to AMG’s fourth quarter and full year 2023 earnings call. Thank you to everyone in Europe joining so late in the day. 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 fourth quarter and full year 2023 Earnings press release issued earlier today is on AMG’s website. Today’s call will begin with a review of the fourth 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 on our website, all in 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.
Dr. Heinz Schimmelbusch: Thank you, Michele. The strength of our lithium and vanadium businesses brought us an all-time high full year adjusted EBITDA of $350 million in 2023. We also set another record in 2023 with operating cash flow of $223 million, which was 33% higher than in 2022. These results underscore our low-cost position in both lithium and vanadium. We were $38 million free cash flow positive for the year, despite investing $169 million in capital projects, as well as acquiring a 25% stake in Zinnwald in 2023. Market conditions for all products in our Critical Materials portfolio substantially weakened as the year progressed. The lithium price decline is unprecedented. The average quarterly price of lithium carbonate decreased more than 76% versus the average of Q4 2022. Another record was set in 2023 by AMG Engineering, which had its highest ever full year order intake, $350 million. AMG’s order backlog was $295 million at the end of the year. This record level was driven by strong orders for remelting and heat treatment furnaces over the course of 2023 and our spare parts and services division during 2024. AMG, through our Critical Materials science-based solutions, contributes to CO2 reduction by enabling our customers to increase the efficiency of renewable energy production and enable energy-saving strategies. We measure the enabled contribution to CO2 reduction at our customer level via stringent third-party developed lifecycle assessments. We base this mission on the nature of the high growth environment and believe we can achieve higher financial returns and use our proprietary technologies to be at the forefront of the industrial contribution to CO2 reduction. Last year, our enabling CO2 reduction portfolio enabled 110 million tons of CO2 reduction versus 99 million in 2022. In terms of our expansion projects, our lithium concentrate plant in Brazil will temporarily stop production for the changeover period in March to the expansion of 90,000 tons to 130,000 tons. We expect to produce 93,000 tons in the full year of 2024 and will operate at the full expanded capacity rate or 130,000 tons per year in the fourth quarter of 2024. Our lithium hydroxide refinery’s first 20,000-ton module in Bitterfeld, Germany, is in advanced phases of commissioning and we expect the production qualification process to start in Q3 this year. This is the first European hydroxide refinery. AMG Vanadium’s Zanesville, Ohio, facility surpassed its target production volumes in Q4 2023. Moreover, the production from both the roasting operation and the melt shop exceeded historical averages achieved by the original AMG Vanadium operation in Cambridge, Ohio. Our innovative LIVA projects are vital for industrial power management applications accelerating the energy transition. The batteries are currently under various stages of bidding and development. One is operational, three are currently under contract and being engineered, and 20 are in bidding and development -- and 15 are in bidding and development stages. AMG LIVA has agreed to acquire the Vacuum Redox Flow Battery activities of J.M. VOITH SE & CO. KG, which has developed an advanced technology for controlling and balancing large-scale high-voltage vanadium energy storage systems. The technology complements LIVA’s vanadium systems development. Earlier this month, AMG Vanadium acquired the processing technologies and IP-related activities from Transformation Technologies Inc., TTI, a U.S. company based in Oregon. The unique thermal treatment of spent catalysts and other oil refining acids into valuable products is complementary to AMG’s spent catalyst processing technology and extensive knowhow. We will incorporate this TTI technology into our global strategic growth initiatives conducted through Shell (LON:SHEL) & AMG Recycling BV. Phase 1 of Shell-AMG Recycling BV’s Supercenter project in the Kingdom of Saudi Arabia plans to produce 8 million pounds of vanadium oxide from 7,000 metric tons of gasification ash located at a site in Jubail, Kingdom of Saudi Arabia. The FEL3 basic engineering has been submitted. The full Supercenter project will also include the processing of spent catalysts, a fresh catalyst R&D facility and a LIVA hybrid energy storage system. 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 fourth quarter 2023 investor presentation, which was posted today on our website. Starting on page three, I’d like to underscore Dr. Schimmelbusch’s opening comments. Both EBITDA and operating cash flow were at all-time highs, leading to a positive free cash flow in 2023. The free cash flow chart on the bottom right also highlights the fundamental strength of our balance sheet. The Zanesville expansion was paid for with a 30-year, 5% municipal bond. As a result, in 2021, 2022 and 2023, we financed SP1 plus and Bitterfeld expansions with operating cash flows. Because of our strong performance and careful financing decisions, our unrestricted cash balance today is unchanged from the second quarter of 2021 when we issued $120 million of shares. This places AMG in a very good position as we enter into a lower priced environment. More specifically, in terms of our 2023 performance, we funded $170 million of capital expenditures, $30 million of dividends, the purchase of a 25% stake, plus a $15 million reduction in debt and kept our cash balance the same as year-end 2022. Going back a bit further in history, I’d also like to point out that the $700 million of EBITDA and the $400 million of operating cash flow we’ve generated over the past two years is mainly due to the $75 million investment we made in Brazil in 2018. This investment decision to enter a new market and produce lithium concentrate was further complemented by excellent execution. We’ve been producing at full plant capacity for multiple years at an industry low cost per ton. I’d also like to comment on the 2023 achievement of the $350 million in EBITDA versus our November guidance that we would be above $320 million. The difference is due to three items. The first is a $10 million dividend we received from one of our minority investments. The second is a change in the U.S. tax law under the Inflation Reduction Act which added $6 million to 2023’s EBITDA. And the third is due to shipping schedule variances in lithium concentrate. On the last point, we had a number of lithium concentrate shipments scheduled for the last week of the year, and not only did they all arrive, some that were scheduled in January arrived early. Given the size of these shipments, this accounted for $14 million higher EBITDA in Q4 than we were anticipating. Turning now to page four of the presentation, on the top left, you can see that revenue for the quarter decreased by 6% to $367 million. Q4 2023 adjusted EBITDA was $71 million, compared to $104 million in the same period last year. As Dr. Schimmelbusch mentioned, this decrease was primarily driven by the global decline in metals prices within our portfolio, predominantly the lithium price, which saw declines of over 70% compared to average Q4 2022 pricing. Net income attributed to shareholders for Q3 2023 declined $59 million quarter-over-quarter. This decline is partially due to a non-recurring sale of an existing energy supply contract in our Silicon business that benefited the fourth quarter of 2022. As I will detail later, this quarter’s lower net income figure is also due to higher income tax expense, a lithium inventory cost adjustment and a number of restructuring activities we took in Q4 2023, all of which are in addition to the aforementioned fall in prices compared to Q4 2022. Now I’ll review the three segments and start with AMG Clean Energy Materials, which is shown on page five of the presentation. On the top left, you can see that Q4 2023 revenues decreased 10% versus Q4 2022 to $158 million. This is driven mainly by decreased prices in both lithium carbonate and ferrovanadium, but was partially offset by higher volumes in lithium concentrate and ferrovanadium versus Q4 2022. Q4 2023 gross profit was 57% lower than Q4 2022, due mainly to lower prices, but also due to an inventory cost adjustment at our lithium -- at our German lithium hydroxide business. The business started buying raw materials in anticipation of commissioning and this material was written down to current prices at year end. As we have done in the past, this adjustment was excluded from EBITDA. Q4 2023 adjusted EBITDA decreased $56 million -- to $56 million from $80 million in the fourth quarter of 2022 due to the decline in metal prices, primarily the lithium price. Full year 2023 adjusted EBITDA was 15% higher than in 2022, though driven by largely higher -- driven largely by higher average lithium concentrate prices in 2023 versus 2022, as well as by higher production volumes due to strong operations in lithium and vanadium. We also received a $10 million dividend from an equity investment, which is included in adjusted EBITDA. And finally, the quarterly CapEx shown on the bottom left of $35 million mainly reflects our investment into a battery-grade lithium hydroxide plant in Bitterfeld, Germany, as well as the expansion of our lithium concentrate capacity in Brazil. Turning now to page six of our presentation, which shows Critical Minerals. AMG Critical Minerals revenue for the quarter decreased 21% to $55 million compared to Q4 2022 due to lower volumes largely driven by the silicon metal plant operating one furnace during the quarter. Q4 2023 gross profit was sequentially lower than Q3 2023 due to an acid impairment and a restructuring charge at our graphite business, totaling together $8 million. Q4 2023 adjusted EBITDA decreased 88% compared to Q4 2022 to $2 million, largely driven by the shutdown of the silicon metal plant, which benefited in Q4 2022 from the sale of low cost energy contracts. As noted in prior quarters, the lower volumes in antimony and graphite were caused by a slowdown in their end-use markets, primarily in the housing, industrial and automotive markets. In terms of silicon, we currently plan to run two furnaces for the remainder of this year. Moving on to AMG Critical Materials Technologies on page seven, starting on the top left, you can see that Q4 2023 revenue increased by $10 million or 7% versus Q4 2022. This improvement was driven by strong revenues in our engineering unit, as well as higher sales volumes of chrome metal and higher sales prices of titanium alloys partially offset by lower chrome metal pricing. Q4 2023 gross profit was impacted by a restructuring and asset impairment charge at our titanium business, which together totaled $4 million. Adjusted EBITDA was $14 million during the quarter, compared to $10 million in Q4 2022. This increase was primarily due to higher profitability in our engineering and titanium businesses, partially offset by lower chrome margins driven by the continued sequential decline in chrome price in the current quarter. Turning now to page eight of the presentation, on the top left, you can see that AMG’s Q4 2023 SG&A expenses were $46 million versus $37 million in Q4 2022. The variance was attributable to increased hiring at our German Lithium business at AMG LIVA and at AMG Engineering due to the increased order backlog. AMG’s net finance income in Q4 2023 was $2 million, compared to $4 million in Q4 2022. The decrease in income was mainly driven by lower capitalization of interest expense now that the Zanesville plant is fully operational. In today’s raising rate -- rising rate environment, AMG continues to benefit from its low cost fixed rate debt facilities and has an average interest rate charge across its two main debt instruments of 5%. AMG recorded an income tax expense of $95 million in 2023, compared to $84 million in 2022. This variance was mainly driven by negative movements in the Brazilian real last year compared to 2022, but also driven by non-cash deferred tax expenses related to the de-recognition of certain tax assets that were associated with interest expense carry-forwards in our U.S. business, as well as loss carry-forwards in our German business. AMG paid taxes of $103 million in 2023, compared to tax payments of $42 million in 2022. This higher payment in 2023 was due mainly to the timing lag related to Brazil’s strong performance in late 2022 through Q2 2023. Turning to page nine of the presentation, you can see on the top left that cash from operating activities was $45 million in Q4 2023, compared to $57 million in the same period in 2022, due to lower profitability in the current quarter, offset by strong operating cash flows from our Silicon and Critical Materials Technologies businesses. AMG’s annualized return on capital employed for 2023 was 26.3%, compared to 30.8% achieved in 2022. AMG ended the quarter with $323 million of net debt, a reduction of $7 million from 2022. Excluding the municipal bond due in 2047, our balance sheet would reflect zero net debt. As of December 31, 2023, the company had $345 million in cash equivalents and total liquidity of $540 million. As mentioned before, AMG has no interest rate risk since our debt portfolio is fixed at 5%, at least until 2026. Our strong liquidity supports the current level of the capital expenditures and AMG management remains committed to maintaining a net debt to adjusted EBITDA ratio of below 2.5 times. And finally, we’ve included the 2023 results by quarter under our new segmentation in the press release. We’ve also put the 2022 figures on our website so that you can compare the two years. That concludes my remarks. Eric?
Eric Jackson: Thank you, Jackson. The unprecedented fall in lithium and vanadium prices resulted in substantially lower gross margins in the fourth quarter of 2023. Additionally, although, we aggressively manage inventories, these falling prices compressed margins on existing inventories as they worked their way through to sales and revenue recognition. It also -- it should also be noted, however, that our number of days in inventory compares very favorably to all of our relevant competitors and peers. I also want to note that many of our competitors are reporting significant losses in this depressed market, while all of our major project -- products continued to be profitable even at these lower prices. Our ongoing cost reduction and efficiency programs, which we initiated about nine months ago, will reduce our headcount by approximately 200 full-time employees, but will ultimately be offset by the hiring associated with the ramp-up of our expansions in Germany and Brazil, as well as the growth in our Engineering business in LIVA. Therefore, we expect overall staffing in 2024 to be approximately unchanged from 2023. The spent catalyst processing facility in Zanesville exceeded our target production volumes in the fourth quarter of 2024. Production from both the roasting operation and the melt shop exceeded historical averages achieved by our Cambridge, Ohio operation, and is producing today at higher levels than Cambridge. AMG Vanadium qualifies for Section 45X of the U.S. Inflation Reduction Act, which provides a production credit for domestic manufacturing of Critical Materials. Based on preliminary regulations as issued by the IRS, we expect to receive a subsidy of approximately $6 million for full year 2023 and similar amounts ongoing. Our Brazil lithium operation delivered 30,000 metric tons of lithium concentrate in the fourth quarter of 2023. The average realized sales price was $1,943 per ton CIF China and the average cost per ton CIF China was $498. On a full year basis, we produced at full capacity and delivered 95,000 metric tons of lithium concentrate at an average realized sales price of $3,160 per ton CIF China, an increase from the prior year. The average cost per ton for 2023 was $475 per ton CIF China. In Brazil, our lithium concentrate plant will temporarily shut down for the changeover period to facilitate the expansion from 90,000 tons to 130,000 tons. We expect to produce approximately 93,000 tons for the full year of 2024 and will operate at full expanded capacity during the fourth quarter of 2024. In 2024, we anticipate the cost per ton of production will rise somewhat due to unobserved costs during the ramp-up period, as well as lower relative tantalum sales prices and volumes offsetting spodumene production. We believe net of co-product credits, we are and will continue to be at or near the bottom of the global lithium concentrate cost curve. AMG Lithium’s battery-grade lithium hydroxide refinery in Germany is in advanced stages of commissioning for the first 20,000-ton module. The qualification process is planned to start with our customers in the third quarter of 2024. Our global vanadium team in Ohio and Germany has developed, engineered and installed process technology at AMG Titanium in Nuremberg to produce vanadium oxides from roasted spent catalysts. This process technology further diversifies our ability to accept a variety of vanadium bearing materials to support our vanadium electrolyte expansion. The process is commissioned and processing material from our existing spent catalyst sources. The vanadium electrolyte plant is under construction. The facility will process vanadium oxides into vanadium electrolyte. The target capacity is 6,000 cubic meters of vanadium electrolyte, the equivalent of approximately 100 megawatt hours, which will serve the electrical storage market as a vertical integration into our LIVA batteries. We expect to reach nameplate capacity by the second half of this year. AMG Silicon operated one of four furnaces in the fourth quarter and will operate two furnaces from March 24th through the year end. We expect this operation to be solidly cash flow positive for the year. In terms of our Critical Materials Technology segment, AMG Engineering signed a record high of $350 million in new orders in 2023. This order intake level was driven by strong orders, as mentioned by Heinz, of remelting and heat treatment furnaces, representing a 1.27 book-to-bill ratio. We had an order backlog of $295 million as of the end of the year. We continue to see improvement in the end markets of our aerospace related products, specifically titanium aluminides and titanium master alloys. Our overriding objective continues to be to be the lowest cost, highest quality, most environmentally responsible producer of our products, ensuring strong cash flow and profitability even at these cyclical low prices. I would now like to pass the floor to Dr. Schimmelbusch, AMG’s Chief Executive Officer.
Dr. Heinz Schimmelbusch: Thank you, Eric. AMG’s two main lithium expansion projects are heading towards completion. Our lithium concentrate expansion project from 90,000 tons to 130,000 tons in Brazil and module 1 of our lithium hydroxide refinery in Germany. We are reviewing our resource development projects and all other expansion activities in light of the present market conditions. Regarding 2024, from the lithium concentrate and lithium carbonate market price highs in November 2022 of $6,110 per ton and $84,062 per ton, prices have each declined by 84%. On November 8, 2023, we indicated an adjusted EBITDA for 2024 of approximately $200 million excluding any profitability from our Bitterfeld lithium hydroxide refinery and utilizing contemporary pricing. Since then, market prices for spodumene and lithium carbonate have declined 50% and 39%, respectively. Utilizing today’s price levels, lithium profitability will be $60 million lower and vanadium profitability will be $10 million lower, therefore AMG’s 2024 adjusted EBITDA will be approximately $130 million at present price levels. Our analysis of the long-term supply and demand trends in lithium gives us confidence that the present low prices are unsustainable. Operator, we would now like to open the line for questions.
Operator: [Operator Instructions] We will take our first question from Stijn Demeester of ING.
Stijn Demeester: Yes. Good afternoon and thanks for taking my questions. I have a couple and we will ask them one by one if that is okay. The first one is on the CapEx guidance of $125 million in 2024. If I am right, the previous guidance was $175 million to $200 million. So what explains this lower number? Are you now excluding spending on the technical-grade facility in Brazil this year?
Jackson Dunckel: Correct.
Stijn Demeester: Or are there other elements?
Jackson Dunckel: No. You got it. It excludes the technical-grade plant.
Stijn Demeester: Okay. And in light of that, I am intrigued by the statement that you put in the press release and also was repeated by Dr. Schimmelbusch just now that you are reviewing the resource development projects and all other expansion activities in light of the present market conditions. Could you elaborate what this could lead to? Are you effectively putting the lithium strategy into question given recent events in the market?
Dr. Heinz Schimmelbusch: No. The lithium strategy is unchanged. In particular, as regards to the project -- lithium project in Brazil, the lithium chemical plant. The lithium chemical plant in Brazil has a full-fledged feasibility study definition, FEL3. But we have changed the site from Mibra to a site at a Harbour [ph] in Brazil for several reasons. It is risk management reasons. We want to have that plant able to receive supplies of spodumene in addition to spodumene from our mine in Mibra from other sources in Brazil and that is a critical risk reduction move, and therefore, the feasibility work has to be amended. As each of -- then, of course, an FEL3 feasibility study is highly dependent on the site. That site also has advantages as regard it is located at a tax-free zone which enables the site to receive equipment from overseas without import taxes. So that major project is unchanged except that we are amending this due to the site change. The other projects are essentially unchanged except that we have increased our scrutinizing analysis on the question of low cost. We -- our benchmark is our own low cost production in Brazil and we do not want to dilute that. So each of the resource projects we are working on is being reviewed whether it meets that standard another time. We have reviewed that before, but now we are pinpointing this to this benchmark and are sort of more selective than we have been before.
Stijn Demeester: And does that have implications for Zinnwald and Lagoa or…
Dr. Heinz Schimmelbusch: That is not an indication for a specific project. It is just a general principle. But while you are mentioning Lagoa, Lagoa we are in a drilling program indicating the fact that this is a staged development. As regards to Zinnwald, we are confident that Zinnwald is meeting the standards which we have just outlined. However, it is a complex project and we will announce things happening there by listening to the announcement of Zinnwald PLC in London.
Stijn Demeester: Okay. Understood. Another question I have is on the phrasing of the guidance for the refinery. At Q3, you were more detailed or more specific with regards to the 7,000 tons of battery-grade lithium that you are expecting to produce in 2024. You do not repeat that statement. I also noticed that the qualification process has shifted from 2Q to -- Q2 to 3Q to the third quarter now. So does that imply that you are no longer banking to produce these 7,000 tons of volumes even though they were not included in the…
Eric Jackson: Yeah. No. I think -- well, I think, there is a good probability that we will produce close to 7,000 tons. The qualification process is not fully under our control. We -- it is really three steps. We match and agree specifications with individual customers. We send them lab samples from different batches. We have completed that with all of our customers. But then we need to reach stable commercial-scale production and send them large, between 9-ton and 20-ton shipments that they run through their process, their cathode material production and then it goes through the cell manufacturer. So we are very confident of the project and generally very much on schedule, but it is a long process in reaching the end customer.
Stijn Demeester: Yeah. That is understood. The final one for me before I go back into the queue is on the IRA subsidy, the $6 million. Am I assuming right that this is tied to the vanadium production since that is the U.S. production of Critical Materials?
Jackson Dunckel: Correct. Correct.
Stijn Demeester: Okay. Understood. And then, should we see this as a one-off or do you think this will be a recurring subsidy as long as…
Jackson Dunckel: It is…
Stijn Demeester: … the production.
Jackson Dunckel: Yeah. A couple of notes on that. One, it does not have a termination point for Critical Materials, so it is evergreen. It will occur forever unless and it is based on an act of Congress, so it would require a new law from Congress to cancel it. And it is important to note that it obviously improves our total cost position, because it is effectively a reduction of our cost of goods sold in ferrovanadium.
Stijn Demeester: Understood. And is the $6 million then, because you mentioned in the press release that, it is an approximation, is that tied to the full production of vanadium or could it even be higher than the $6 million run rate?
Jackson Dunckel: No. The reg-- look, the regulations say that they want to give a tax credit for 10% of the production cost of a plant. But then they went through a series of exemptions. And so the $6 million is the most conservative interpretation of those exemptions and we are discussing with the IRS the other exemptions which may cause it to go up, but that is the uncertainty. It is not an uncertainty of production. It is simply an uncertainty of how the law will be enacted with the IRS.
Stijn Demeester: Okay. Okay. Thanks. That is helpful. That is it for me for now.
Operator: We will take our next question from Richard Hatch with Berenberg.
Richard Hatch: Thanks very much for the call. And so just to 100% clarify on that, you’re guiding us to put in a $6 million per annum subsidy into our models for vanadium sort of into perpetuity at this point, is that correct?
Jackson Dunckel: Correct.
Richard Hatch: Cool. Okay. And then just to clarify again just on the precursor plan, if that is the delta on the CapEx versus previous guidance, when should we start modeling in the spend? Does it slip into 2025?
Jackson Dunckel: For the technical-grade Brazil plant?
Dr. Heinz Schimmelbusch: Yes.
Richard Hatch: Yeah.
Jackson Dunckel: Yeah. I think that is it.
Richard Hatch: Okay. Understood. And then the acquisitions that you announced previously, just to clarify, do we need to start -- what kind of cash impact, if any, do we need to put into our numbers for 2024?
Dr. Heinz Schimmelbusch: Immaterial.
Jackson Dunckel: Pretty much immaterial, yeah.
Richard Hatch: Immaterial. Okay. Cool. And then just the dividend that you received on EBITDA, which gave you that nice $10 million bump, is that -- how should we think about that? Is that something that creeps in at some point or is that more of a one-off?
Jackson Dunckel: That was a one-off. That was a one-off. It is cash, however.
Richard Hatch: Okay. And -- okay. And that’s received now, right?
Jackson Dunckel: Yeah. Correct.
Richard Hatch: Okay. Cool. And then, sorry, I’ve just got a couple more smalls. Just on the -- you mentioned about the benefit of the inventory that slipped into Q4, which basically has helped your costs, and therefore, created a bit of a benefit there. Is there a back -- is there a rollback of that? Is there a negative impact of that into Q1?
Jackson Dunckel: Sorry, which business unit?
Richard Hatch: It was in, it was, sorry, Clean -- it was on Clean Energy Materials. Just -- you mentioned the $15 -- was it $15 million, $14 million?
Jackson Dunckel: Oh! The $15 million inventory cost adjustment?
Richard Hatch: Yeah. Yeah. Yeah.
Jackson Dunckel: The $15 million inventory cost adjustment.
Dr. Heinz Schimmelbusch: I think you’re referring to the additional shipment in the fourth quarter. Is that what you’re referring to?
Richard Hatch: So that’s purely topline, doesn’t -- there’s no -- that’s purely topline. There’s nothing to do with costs.
Dr. Heinz Schimmelbusch: No costs.
Jackson Dunckel: Yeah. That’s purely lithium concentrate shipments from Brazil, while the lower cost market or the inventory cost adjustment was related to battery-grade or technical-grade lithium hydroxide in Germany, two different products.
Richard Hatch: Okay. Cool. And does that cause any kind of impact into Q1 2024 if you’re -- in terms of accounting, like, that cost rollback or not? No.
Jackson Dunckel: No.
Richard Hatch: Okay. Cool. And then, sorry, and the last one is just on the working cap. I think there was about a $30 million release in Q4, from what I can see, versus Q3 to Q4, which took you to about $60 million.
Jackson Dunckel: Correct.
Richard Hatch: What’s the -- is -- I guess is that an element of those shipments slipping into Q4? Is there any build that you’d steer us to for 2024 or are we -- is it 2024 expected to be neutral? Thanks.
Jackson Dunckel: No. It’s expected to be neutral. I mean, if you look at our days on hand for inventory, they went from 100 to 91. So that’s a clear release of -- that’s just good working capital management and we would expect that we wouldn’t expect to see another draw.
Richard Hatch: Yeah. Okay. Helpful. Thank you very much.
Operator: We will take our next question from Martin Den Drijver with ABN AMRO (AS:ABNd).
Martin Den Drijver: Yes. Good afternoon, gentlemen. Thank you for taking my questions. I have two. With regards to reviewing the capacity projects, expansion projects and development projects, you’ve basically said that everything, perhaps, with a slightly different timeframe, is moving along. It’s still in the planning. Are you going to update the markets about your longer term EBITDA ambition, in five years or less, at your AGM or is that something that is not in the planning today?
Dr. Heinz Schimmelbusch: No. That’s -- we do that routinely and there nothing has changed with that routine.
Martin Den Drijver: Okay. So is that then -- should I then also see that you will update the markets on that $650 million that was the previous target or are you now saying that…
Dr. Heinz Schimmelbusch: We normally do that in the context of the General Annual Meeting.
Jackson Dunckel: In May. You’re correct.
Dr. Heinz Schimmelbusch: In May.
Martin Den Drijver: All right. Got it. And my second question relates to specifically vanadium. You’ve now split it out in the new reporting structure, vanadium Q4 EBITDA $29.5 million. Would it be just as simple to take that $6 million out to get to some sort of an underlying EBITDA? And if that is true, if that is correct, is that a run rate that we can use going forward, apart from the price effect of ferrovanadium? Because you’ve also said that Q4 would be impacted still by some inventory revaluation on the Middle Eastern spend catalyst. That would be helpful to understand the profitability there?
Jackson Dunckel: Well, let’s first talk about what’s in AMG Vanadium, right? Because it includes chrome and titanium, right? So you have…
Martin Den Drijver: Yeah.
Jackson Dunckel: … other business units in there. Both chrome and titanium should benefit from an aerospace upturn in 2024. So -- and taking the $6 million out, yeah, that’s fine for a go forward, but recognize that the $6 million has to -- oh, sorry, we’ll get to that. Recognize that the $6 million has to be blended in then every quarter, right, because it’s ongoing, right? And then finally, don’t forget there’s a $10 million J.M. dividend in that $29 million number.
Martin Den Drijver: Oh! That’s included in that number as well. Okay. Got it.
Jackson Dunckel: Yeah.
Martin Den Drijver: Yeah. No. All my other questions have been answered. Thank you.
Dr. Heinz Schimmelbusch: You’re welcome.
Operator: It appears that we have no further questions at this time.
Dr. Heinz Schimmelbusch: Michele?
Operator: This does conclude today’s program. Thank you for your participation. You may disconnect…
Dr. Heinz Schimmelbusch: Thanks, everyone.
Operator: …at any time.
Jackson Dunckel: Thank you.
Michele Fischer: Thank you.
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