Calix Limited (CXL) Earnings Call Transcript & Summary

Good morning, and welcome to Calix Limited's investor webinar to discuss the company's FY '23 results. Presenting today, we have the company's CEO, [ Phil ] Hodgson and CFO, Darren Charles, and I'll be running through the presentation that was released today on the ASX. To ask a question, please submit the [indiscernible] the Q&A button at the bottom of the screen, and we'll do our best to get through as many of those as possible. I'll now hand over to Phil.

Excellent. Thanks very much, Ben, and thanks all for your attention today. We just jump into the slide we've put up on the ASX platform. First of all, just a quick introduction to Calix, for those who aren't familiar with us. Founded in 2005, it's of one core technology, we're developing multiple businesses, really targeting this area of sustainability and the transition to net zero. We've now got over 120 employees. We've invested over $120 million to develop the technology. 28 patent families now in operation and active in 7 countries across 5 continents. So we're really listed in 2018 and really starting to develop the technology into multiple areas. The core technology is essentially a new way to heat stuff up, a new type of fuel for furnace, if you like. And in a traditional fuel furnace, what you do is you put how you heat and what you're heating the same vessel. And effectively, the fuel and the rocks together in light of match. And it's been done much the same way for 5,000 to 7,000 years. What we do is we separate how you heat for module heat. And we do that in a rather large steel tube that tubes a little [indiscernible] to sort of demonstrate that. The biggest ones were built to 1.8 meters in diameter and up 32 meters high. And we heat this tube to over 1,000 degrees centigrade, and we can do that, however, we like. We can do that with fossil fuels. We're looking at using waste and biomass to burn. And also, of course, we can compete with renewable electrons much like having some toaster elements, if you like, around the outside of the tube. So we heat this tube to over 1,000 degrees centigrade and whatever we're heating goes down the middle of the tube. It needs to be a small particle size, anything less than 1/3 of a millimeter in diameter is perfect for us. And essentially, what happens is we just drop those tiny particles down the tube, and they float down over 20 to 30 seconds and the radiated heat from the red hot walls of the tube goes into those particles and that's how we heat things up. Why do it this way? Well, effectively, there's several great reasons for why to do it that way. The first starts with one of the applications we're developing in cement and lime. And with limestone, which is the core ingredient of cemented lime and is a lumpier of limestone. Nearly half the weight of this is CO2 trapped in that rock. And when we heat up, when the cemented lime industries heat up that limestone, it releases that CO2. And it is mixed with the [indiscernible] gases of the cement fuel and out the stack it goes. Now with [indiscernible], the particles of cement meal, if you like, which is mainly limestone, float down, as we've said before, gets heated by the tube. And as the CO2 comes out of those tiny particles, it's not mixed with any furnace gases. It effectively comes at the top as a pure CO2 or nearly pure CO2 stream ready for sequestration or utilization. And so what the fuel represents for the cement lime industries is the way to directly separate the CO2 that's coming out of the rock, coming out of their raw material. And that raw material CO2 is over half their global emissions. And so with the cemented lime, industries are getting 8% of global CO2 with over half coming from the rock. You can see the reason why there's interest really growing in this particular application of our core technology. The next sort of key advantage I mentioned before, renewable energy ready. Having a kiln which is energy agnostic and particularly suitable for using electrons to power up that kiln is starting to generate a whole of interest from mineral processing industries. I'll talk a little bit about the deal that we've moved through in our final investment decision with Pilbara Minerals to use the kiln to heat up spodumene and spodumene kilns for lithium extraction. And there are several other applications we're developing there such as steel and in a new development that we're working on aluminum. The last particular advantage of the technology is there's no flames and hot gases touching the particles as they fall down the tube. So we can create very highly active and pure, if you like, products. And those products are making their way and we're developing into water treatment, biotechnology and battery materials applications. And I'll touch on each of these as we run through how we've gone over the year and what our targets are moving forward in those particular industries as well. So one core technology, multiple different industries. How do we sort of prioritize and target which industries to go into. There've got to be a significant global challenge. And that's really to pick up the tailwinds that are happening around sustainability. It's going to be consistent with our purpose and values and ethos, which is about, obviously, [indiscernible] for quitters is a central sort of theme but also about decarbonization and sustainability. It's got to present a significant market share. So we're not targeting small markets. These are big problems and big problems to solve in big markets for us to target with our technology. It's got to -- our technology has to have an exploitable competitive advantage. So our technology really has to give us a big technology moat with whatever else is around the sale of these global challenges. And of course, the other thing we've got to do is we've got to deliver scale with this solution, and we've got to do it quickly. So they are the key parameters that we use to choose which particular industries we're going to be targeting. Just on sustainability, which is really core to the company. As a company, we're providing sustainability solutions. But of course, we're also looking at our own performance with respect to sustainability. We've added some targets in there for FY '23, reaffirming our commitment to the United Nations Global Compact. We've got a new Board committee established directly associated with sustainability. And we've done our first greenhouse gas baseline assessment for our activities. And so what we're going to be doing in FY '24, we're going to be looking at our own emissions reduction road map. We're going to prioritize gender diversity at all levels of the company. Measure and reduce waste. The ambition of 100% sustainable inputs to the business by 2030. And our 2030 sustained -- 2023, sorry, sustainability report is coming out later this year, so watch this space on that one. So just in terms of highlights for the year, just go, if we have a look across -- back across the last 12 months, there's been pretty substantial progress made across all areas of the company. First of all, key achievement for us was to sign a first license agreement for our CO2 Mitigation technology in lime and cement with Heidelberg Materials. Not only was it first for us, it's a first of a kind for the industry to have a royalty-type arrangement or license-type arrangement for application of the technology in that particular area, hugely important for us. We've completed some institutional and also a share purchase plan placement across October, November last year, and Darren will talk about the strength of our balance sheet moving forward as a result of that placement. We had some funding award from ARENA for our iron and steel decarbonization project. And I'll talk a little more about that a bit further down in the presentation. With CEMEX, again, with our CO2 abatement technology for lime and cement, we announced 3 projects and progress on developing a commercial arrangement with CEMEX for the application of the technology. And also, I mentioned before, our joint venture with Pilbara Minerals in November, we formalized that and closed balance sheet post end date financial year, just in August a few weeks ago. We announced the progress of that project, past our final investment decision. So that project I'll talk a little bit about as well. So a few other little surprises, I guess, not foreseen at the start of the year. There was a green methanol project that was successful in getting some funding from ARENA and the German government start to progress the use of CO2 that's captured from, say, lime production in the production of green methanol. I will talk a bit about the importance of that when it comes to things like green shipping and green aviation. And lastly, another one that perhaps wasn't foreseen at the very start of the year, which progressed very nicely for us was designing a memorandum understanding with a company called Heirloom, Bill Gates backed direct air capture technology, and only recently some pretty significant announcements have emerged around direct air capture in the United States that are very exciting. So a year that was quite really very positive for us. We mark ourselves, of course, fairly harshly. We've got -- we set our ambitions pretty high. Across the board, we did pretty well. I think we certainly did the whole better than the past, let's call it, a credit, somewhere between a credit and a distinction. But we'll talk about our water business and the progress that's really starting to make, which is excellent. In biotech, we had quite a good progress across all areas in terms of crop protection, marine coatings, and a new biotech application, a little bit delayed in a couple of those areas, which is why we sort of marked ourselves down a bit. But even since the end of the year, some -- really into the financial year, [ sorry ], some really interesting progress there. In Advanced Batteries, also again, we mark ourselves pretty hard on our first commercial format battery, not quite being ready by the end of the year, and of course, since the end of the year, that started to come on now, and I'll talk a little bit about that. In Sustainable Processing, very good progress there. We decided not to pursue refractories just at this point in time. It's a tiny market compared to what we're focusing on in spodumene, iron and steel and now emerging in aluminum. And lastly, LEILAC, we did pretty well. We converted a full license agreement. That was [indiscernible] license agreement, we didn't quite get there on a couple of others that have been negotiated, but watch this space. And in LEILAC-2, we had a little bit of a delay in permitting there, and I'll talk a bit about that delay. But we've started to procure long lead items. And in fact, the site works have now commenced again since the end of the financial year. So overall, a pretty good result of credit, let's pull it a credit, 6, 6.5 out of 10 or so we'll give ourselves. It's a substantial progress across multiple different parts of our business. So just, I guess, on the financials, I'll hand over to Darren to have a quick chat through where we're sitting.

Yes. Thanks, Phil, and good morning, everyone. I'm really happy to be here and present our financial results for FY '23. A year in which, again, we achieved a lot, notwithstanding marking ourselves down in a couple of spots. The company continues to kick many goals across all of the areas of the business that we're investing in applying the technology platform, too. So in terms of kind of high-level numbers, the key issue that we set out to achieve over the financial year was to continue to build our team, to build a team of talented people to help deliver against the promise of the technology and the opportunity it provides for us. As we can see on the screen, we've added over 37 people in engineering and R&D across the various different areas of business. And we're also expanding our production capability, particularly in the water business, which I'll come and talk about a little bit more in the next few slides. We've also continued to invest in various different assets that we're building. Again, U.S. production capability, which I'll touch on some facilities down at Bacchus Marsh as we flagged that the cap raise last year to improve our ability to turn around testing and things like that. Also, obviously, we've started a project. We've been working on the project with Pilbara. And as Phil mentioned, we've started long lead procurement items with LEILAC-2. So for me, pleasingly, our overall revenue result was very strong for the year, up 42% on the last financial year. And as well, at the same time, what was pleasing within the Water business, we've seen significant increase in gross margin and gross profit. So really kind of delivering on the promise that we've previously talked about in terms of identifying those customers who we can develop good service and relationships with deliver quality product and get good return on our investment on. In terms of the balance sheet at 30 June, we had close to $75 million in cash in the bank. And again, I'll talk about kind of where we're positioned on the balance sheet to move forward in the next few slides as well. So just holding in then on the P&L. As I said, a 42% increase in revenue, a very strong contribution from our Water business. We touched on at the first half results, how we were encouraged by the performance that we're seeing and growth in the U.S. and in Australia, in fact. In the U.S., our business grew over 28% in the second half compared to the same time last year. And that was even before we've been able to sort of complete and leverage some additional production capability that we're building in the U.S., in Texas and also in Wisconsin. So we're really positioned very well to kind of continue to grow that U.S. Water business. We've also obviously achieved a very significant contribution of our revenue -- top line revenue in terms of our grants and rebates. There are a lot of incentives that -- and programs that we've been able to kind of tap into and co-invest with our shareholder funds, with various governments around the world, both here in Australia with our Research and Development Tax Incentive and in Europe, obviously, with the LEILAC funding. So again, very strong revenue growth. In terms of our operating expenses and our operating results, again, we sort of set out a plan when we came to shareholders in October, November last year. With the tailwinds that we're seeing and interest that we were seeing in the technology, we really wanted to continue to build out our team, and we've certainly done that. Again, with the majority of the investment in R&D and engineering to support all of the activities that we're doing. So in terms of from where I sit, no surprises in terms of the investment and the activity and very strong and positive performance in terms of revenue growth. Just on the balance sheet then, again. Key takeout for me and as I sit here as the CFO of the company, we've got a very strong and clean balance sheet to take the business and support the business as it moves forward. We've got significant amounts of kind of cash in the balance sheet to pursue our activities. We have no debt, which is fantastic. And yes, we're really set up to pursue the activities that we've set out over the course of the next couple of years. What we've got as well is strong flexibility as various different projects and opportunities emerge to kind of identify the optimum way to fund those activities as they emerge as well. So a really strong kind of financial position for us, one that I'm very happy about and one that sets us up as we move forward. Just a final few comments from me. In terms of our operating cash flows, again, essentially, we've been investing in building our team to be able to take advantage of the platform that we're developing. There has been an increase in working capital, primarily that's associated with the timing of when we receive some of our grants. In this next couple of months period, there's some significant cash inflows associated with R&D tax incentives and things like that. But all in all, like I said, essentially, the operating cash flows will lack the operating performance that was on the previous tab. So again, nothing in terms of surprises from my perspective. In terms of our plant and equipment and our IP, what are we investing the money in. As I said, we're building 2 new production facilities in the U.S. We've seen significant growth of our existing platform -- manufacturing platform that we have there. It's given us the confidence to continue to expand East in terms of the U.S. from our Pacific Northwest base into Texas and Wisconsin, as I mentioned, and those plants will come online. We're commissioning one, I think, at the moment and another one will be ready in the next month or two. So really, really set up for continued strong growth in the U.S. As Phil mentioned before, we started procurement of long lead items for LEILAC-2, and that's included in the property, plant and equipment line there. And again, very exciting from my perspective, we've been investing in our midstream project with Pilbara Minerals. That's an unincorporated joint venture, which will be accounted for as a joint operation. And again, Phil will talk a little bit more about that, but it's essentially a production facility that will produce a lithium phosphate salt. Calix has capped its investment in that plant at $17.5 million. It's a $105 million project, but we will own 45% of that. So 45% of the revenues and expenses and the facility will be into our balance sheet and accounts as that plant is constructed. So for me, in terms of the placement that we completed and the position that we're in right now, we're really well set up for the next 2-plus years, with the current project commitments, and we've got a very strong position to keep pursuing these opportunities that the strong tailwinds that Phil will talk about [indiscernible] for us.

Excellent. Thanks very much, Darren. And just taking on Darren's [ theme ] about the tailwinds and why we're making all this investment in people. It's really a snapshot here just across a few jurisdictions across Europe, U.S. and Australia, we've seen dramatic change in policies and commitments not only from a political perspective, but also from the corporate perspective over the course of the last 2 years. And all of these are really fueling a decarbonization effort that our technology is very well placed to take advantage of. I won't go through any of these in detail, this pack is available through the ASX platform. But you can see there just as a snapshot across 3 jurisdictions, what is happening. And even here in Australia, where 2 years ago, not a whole lot was happening. We're starting to see real, I guess, pace of change here in terms of decarbonization, and the way industry is starting to react is refreshing. And so again, we're very well placed even here in Australia, whereas our focus previously had mainly been in Europe and the States. We're certainly focusing on some interesting projects here in Australia as well now. Just moving through then each of the lines of business. LEILAC is our name for Low Emissions Intensity Lime And Cement. That's the CO2 captured for lime and cement. I mentioned before, it's lot of cement or sort of 8% of global CO2 emissions. But there's some real drivers to decarbonizing that industry. We talk a little bit about jurisdictions and some of the policies that are coming in place. In Europe, the penalty for a meeting a ton of CO2 is you're going to go on market and buy permit, that's exceeded EUR 100 per tonne recently. And so that penalty, if you like, is really driving the cement and lime companies there to look at their decarbonization efforts. And in the U.S., the recent introduction of the inflation reduction saw the tax incentive increased to USD 85 a tonne for carbon capture and sequestration. And so these tailwinds, I guess, from a policy perspective, are really driving a lot of the behaviors we're seeing from industry, but not only that, the industries themselves, their stakeholders, their shareholders are also demanding plans for net zero. And that, of course, is also driving across the globe, not just where there is policy jurisdiction, across the global decarbonization efforts by these major companies. Just in terms of our solution, where are we at, we have built in 2019, the first pilot project there, that's 25,000-tonne per annum separation capacity unit at Heidelberg cement facility in Belgium. That's the second largest operating facility in the world in terms of CO2 separation today on a cement plant. In fact, the largest outside of China. So already at scale, even though we call it pilot. LEILAC-2, which is a [indiscernible] version of that module targeting 100,000 tonnes per annum of CO2 separation at Heidelberg cement facility in Hanover in Germany. I'll talk a bit about where we're at on that particular project. But that will be our module. And then from that module, we will then scale to what we call LEILAC-3, which is getting up to sort of 20 or 25 tubes -- of those tubes that are focused on the CO2 separation there. And you can see along the bottom there, the industry partners that we're working with there, none of which are minor players by any sense of the imagination. [indiscernible] by the way, announced overnight, environmental approval for the setup of the CO2 sequestration hub in Europe, the largest in Europe. So partner on our project there and a very important player in ultimately what's going to be happening with the CO2. There's, I guess, a full-scale vision of what our LEILAC-3 facility will look like on a cement plant to give everyone a sense of how big an opportunity this is. We need to build 2 of these a week between now and 2050 to mitigate the CO2 emissions from the cement and lime industries. So that's how big an issue it is for them and how big an opportunity is for us. Key highlights during the year. I talked a bit about the Heidelberg license agreement that was executed. It's a royalty or license type mechanism. Very important for us to establish this because that establishes our business model in this area. There's a royalty floor, there's a variable component and a cap. We can't disclose exactly what they are, but you can mean in terms of typical royalty rates. We're in that typical range, low being sort of 2% higher being 10%. So we're probably somewhere in the middle here of the value of a tonne of CO2, so with 1.4 billion tonnes of CO2 to be mitigated potentially using our technology and royalties of those sorts of multiples of euros, you can start to get a sense of what the license total addressable market that we're looking at here with the technology, which is substantial. Just in terms of other areas, again, we announced the methanol -- green methanol project in South Australia during the year. That one there, we're working with a number of companies [indiscernible] and ARENA and the German government tipping in some money there, too. Why green methanol? If you take green hydrogen, combine that with CO2 to make methanol. Methanol is one of those things that is being targeted to decarbonize shipping and potentially aviation. You can take the methanol and convert that into a synthetic aviation fuel and that's [indiscernible] technology today. So it's not as if this is a huge technical advancements that still need to take place. So this particular project here, which will be in South Australia is quite exciting. To give you an idea of how things quickly are moving -- how quickly things are moving in the shipping space. Musk recently announced that their next 25 vessels will be dual fuel, including methanol. So methanol is really starting to come to the floor in terms of the green shipping solution. So a very exciting project there for us. And the last advance during the year was the announcement of this Memorandum of Understanding with Heirloom, Bill Gates backed Direct Air Capture technology. Direct Air Capture is capturing CO2 directly from the air. And in this case, with the Heirloom technology, they're using what's called calcium looping. So the calcium goes through [indiscernible] LEILAC technology [ off ] into Heirloom's equipment. And in that equipment, it absorbs the CO2, turns it back in the limestone and then it cycles back through our equipment again. Pretty exciting project. And just in the last few weeks, Project Cyprus of which Heirloom is a part, was 1 of 2 hubs for Direct Air Capture aims to USD 1.2 billion in support under the U.S. Department of Energy's Direct Air Capture program. So this particular MOU outlines a royalty as well. In this case, USD 3 per tonne of CO2 captured through our technology. So it's a light capital touch high-margin royalty type business model we're pursuing here. And we're targeting 1 billion tonnes of capture by 2035, now hugely ambitious. If I get 10 or even 100 of [indiscernible] there, it still represents substantial opportunity for us. So very pleased with that particular project. Lastly, just in terms of the pipeline within the LEILAC Group, we've got 76 projects now in that pipeline. So that pipeline is really built over the course of the last 2 years. And within those projects, we've started to see some movement down the pipeline, 2 projects in the feed, including Tarmac. We've got 3 new projects that we can talk about with CEMEX, [indiscernible] we're continuing to work with on a facility here in Australia. And LEILAC-2, obviously, as well, which is in [indiscernible] construction now. So demolition has started on the [indiscernible] there. We had a bit of a hold up. We had some back taking up residents in this disused tower that needed to be demolished. That delayed the permitting somewhat. So that will push us back a little bit on our commissioning into 2025. But that demolition has now started and the long lead item procurement is now on the way. So I like to moving, albeit a little bit frustrating in terms of the permitting delays. Just moving through to Sustainable Processing. We mentioned before the project with Pilbara Minerals, that has now passed its final investment decision. We're targeting that one to start construction this financial year and targeting the first production of lithium salts moving into financial year -- next financial year. So let's call it early calendar year, '25. The CapEx has moved up a little bit on there, not surprisingly, given the inflationary impacts that have run through the economy. However, we've kept our capital commitment, as Darren mentioned, at $17.5 million. And so effectively, our free carry has increased in that project. So we still have 45% equity in that project. It's targeting 3,000 tonnes of lithium phosphate salt. Street value today, just to the lithium and that's sold is about USD 85 million. So a significant project for us, a demonstration project, but still of small commercial consequence. And the lithium phosphate salt in and of itself obviously has some quite some utility in terms of its lower carbon footprint, provided we can make it with renewable electrons, but also in terms of the way lithium ion phosphate salts are really increasing in the auto industry. And so the ability to deliver 2 molecules effectively for the price of one, we think will -- and we're certainly getting very strong indication, which is fed in the FID decision. That particular new type of phosphate salt product is going to be of high interest to the battery industry. Just in terms of [indiscernible] steel, key thing here, we were targeting to complete an ore program over the course of the last 3 months of the last financial year, just the last quarter. We've extended that ore program given the demand coming in. We're now testing iron ore from just about every iron ore producer in Australia and at least 1 offshore and the offshore interest is starting to increase as well. So we've expanded our program and we'll be running that ore testing program over the course of this quarter and next quarter. This particular project has supported nearly $1 million in ARENA grant funding. Target here is to put together a 30,000 tonne per annum demonstration facility, front-end engineering design and then look at where and how we build that as a first of the [ iron ] demonstration facility. The key advantage of our technology here, same core technology. But the key advantage is that we minimize green hydrogen use in making green iron, which is the most expensive part. It's a highly exciting project for us, a lot of interest coming in and an extended ore program is what we'll be focusing on in the first half of this financial year. Just under Advanced Batteries, really targeting here to make some interesting manganese-based materials. And also we're starting to look at iron-based materials. Again, it's unique properties of our kiln without contaminating these materials and maximizing surface area and targeting the crystal structures we want, that's our competitive advantage. We're a little slow in getting our first commercial format together. We missed our target, as I mentioned, by the end of the last financial year, however, that commercial format pack is now ready and has started cycle testing, and it is demonstrating great performance in terms of high power. We still need to work through the cycle performance, but the high-power performance is definitely there. And so obviously, there's some areas that we're starting to look at is where high power is really an advantage and power tools and these sorts of things could be quite an interesting area to look at this first material that we've produced. We're also looking at lithium ion phosphate, as I mentioned before, and also adding a little bit of [indiscernible] to increase the energy density. So our battery program is progressing well, albeit a little delayed on the commercial format cell, but that cell is now being constructed and is undergoing recycling testing. Just on the biotech side of the business, this particular area, I still see is highly prospective for us. If you have a look down the market trends on the right-hand side, these don't get quite the same airtime as decarbonization, but they will. In terms of antimicrobial resistance and a rise in that, I think that sort of area will start to get a hold of focus as this decade closes out. We have a unique product here in a high surface area magnesium oxide material, we make again with our core technology. And in agriculture, marine and in biotech -- specific biotech areas there, such as the battery applications, we're really starting to get some great results and make some good progress. In agriculture, we're collaborating with a cooperative. We're in our second year of extended fuel trials like not just a tiny plot. These are hundreds of factors of application. And really, they would -- the corporates looking at the replacement of a [indiscernible] so that's progressing well. Marine Coatings, this is replacing all as much as possible of copper that sits on the bottom of boats that ultimately peels off and falls in the sea with pretty poisonous material. Some great results there. We're working with 2 coating companies, and they're starting what they call their dynamic tests on that. And lastly, antimicrobial resistance, a little late getting this one through the clinical trial stage, which is where we wanted to get to last year. But the part that we're playing in the CRC SAAFE and SAAFE is the solving antimicrobial resistance in agribusiness, food and environment. So it's a rather long acronym. But when they're starting to use our magnesium oxide materials to focus on large stock health management, that's quite exciting area there that the product is now moving into as well under a structured research program with all of the SAAFE CRC participants. So a lot happening on the biotech front. And lastly, in Water, as Darren mentioned, I think Water itself has had a great year, and we're very pleased with what's happening in the U.S. as far as growth is concerned, really starting to see the growth stalled a little bit, I guess, during the COVID era. But now that that's over, we're moving through much more efficiently now to establish those new production centers just -- we've already seeded sales in Texas, and that plant has been commissioning now. Huge opportunity there. And the Wisconsin plant is also under construction targeting before the end of this year for completion there to expand there as well. So the U.S. really starting to organically grow very nicely for us. And so I'm very pleased with what's happening in the Water business. Just in terms of what we want to do to prioritize next financial year, or should I say this financial year, the electrification of industrial processing and the unavoidable CO2 emission capture part of our business continues to be a major focus. There's no doubt there's enormous opportunities opening up there. The pipeline, as you saw and the like, is building as it is in sustainable processing covering [indiscernible] spodumene and lithium production and also now alumina is emerging as an area there, too. We're going to be combining our Water & Biotech business into Magnesia. Magnesia is the source, if you like, of all of the activity in that line of business -- in those 2 lines of business. So we're going to combine into one to simplify our overall business. And we're going to continue to look at our battery materials as well as great progress we've made there in terms of getting this first commercial format cell and is a couple of very prospective chemistries following on behind. So just in terms of our KPIs for the coming year, CO2 capture there. We've got to get line 2 moving as quick as possible. So we want to get all of that permitting and the civil works complete on that site and construction commenced. And so hopefully, if the bat move safely out of that tower that's being the most, we'll get that are all underway. We're going to continue to move those projects down the pipeline, plenty in the pipeline. It's all about movement this year. And lastly, a green methanol consortia project. We want to get the basis of design on that. Just in terms of sustainable processing, we want to get the construction started, of course, on the project with Pilbara Minerals. And with respect to our iron and steel application called "ZESTY", we want to complete that front-end engineering design, leading to a financial investment decision to move ahead and build that particular demonstration facility. And that will also be contingent upon and be informed by this expanded ore program that I talked about earlier, which we're now going to extend over most of the rest of this calendar year given the interest in the demand that's come in. And in Alumina, I'll talk a bit more about this as we move through the year. We have started to look at what the application of the technology in refining aluminum trihydroxide or aluminum hydrate down to alumina, a very potentially significant application for us. And so that one there, we're putting a bit of upfront investment into. Advanced Batteries, we'll get that commercial format cell tested and cycle now. And so that's a key KPI for us. We're going to complete the front-end engineering design or a capital production facility. And we're going to look at these other new chemistries that we've started to develop and how we can put that into, again, a commercial format to fully test out the cycling capability there. Lastly, Magnesia, Water and Biotech continue down their pathways. So very pleased with both of those businesses and the progress they're making under the one banner of Magnesia. But also, we're adding their magnesium metal, a highly critical material in aerospace, [indiscernible] Defense, but requiring significant decarbonization. So some opportunities that we're seeing in magnesium metal. We're going to have a look at what our technology can do to help decarbonize magnesium metal and that will be a basis of design for a plant that we're targeting this year. So that sort of summarizes all the things we're going after this year and hopefully summarizes the year that's just gone as well. Happy to answer any questions, Ben.

Yes. Thank you, Phil and Darren. Just a reminder, if you'd like to ask a question, please do so by the Q&A button at the bottom of the screen, right. The first question, can you please provide some color on the spodumene pricing mechanism with Pilbara Minerals. This is considering that the midstream project could be fed entirely from run-of-mine [indiscernible] that cannot be used in conventional kilns, what discount pricing may be applied to the offtake, what you mean price bed into the plan?

Yes. So on that one there, the transfer price, if you like, between Pilbara Minerals and us is commercial in confidence, but suffice to say they do get paid fair value for the spodumene fines. The fact that those -- if those spodumene fines are very low in lithium or too fine to be fed in any film, then obviously, they're very, very low value. So we're going to be undertaking a whole series of tests to determine what actual concentration, what particle size is best suited for the midstream sold facility. But suffice to say, actual final grade of that and size of that to this going into the plant is going to be subject to that testing as we undertake that in early '25.

Thank you, Phil. Also, what are the difficulties in going beyond 98% lithium phosphate purity with the midstream and achieving battery-grade products.

Yes. So the aim with the midstream plant is not necessarily to target what we call battery grade. The whole idea and the word midstream is about the fact that what you're doing is transporting a lithium ion and a phosphate ion, if you like, to a battery materials producer. They've got quite some capability to further refine that material to what we then call battery-grade materials. And so the interest, if you like, from those players is -- was critical in terms of us coming to a final investment decision on that particular project. And suffice to say, we were highly encouraged by the interest shown by those battery materials companies. So to be clear, we're not targeting battery-grade material ex the mine site. And I would only add those who are, it's not an easy thing to do. And so we feel that a midstream project and a midstream solution for a mine site is actually the optimum solution, which is why we ran.

Thank you, Phil. Can you please provide any efforts to drive down the CapEx of Calix Kiln technology. Given your modular design, are there any discussions with specialized plant for builders or fabricators that may help drive down the upfront cost of construction and the time to build your kilns.

Look, absolutely. If you have a look at how many tubes we need, how many shell casings, how many modules we may need as we decarbonize industry, there is a huge opportunity to drive the cost down. We are -- of course, we are talking to multiple different fabricators, manufacturers, engineering firms, et cetera. One thing I will say is, certainly, if we have a look at [indiscernible] for example, part of the royalty regime benefits us in terms of the royalty payment as the costs come down. So mass -- if you like, mass manufacturing techniques are absolutely in our sights to get the cost down for these facilities. The other thing is if you have a look at the Heidelberg cement agreement, for example, that one there because it's a pure license arrangement, what we like about that and what made it, I guess, a win-win with Heidelberg Materials is they can use their procurement muscle to drive down the cost of our technology. We don't mind who makes the tube, who makes the structure. And so that agreement is great because we can use others procurement muscle to drive down the cost of our technology, which only improves obviously its techno-economics. So yes, very, very much at front of mind as to how we continue to do that, and there's huge opportunity to do so given the potential application of the technology across all these different areas. And as I say, it's the same one core technology. How many tubes will we need, how many furnace casings, all of those things will help drive down the cost of the technology substantially.

Thank you, Phil. Next question. So other income rose year-on-year primarily due to your R&D incentive income. Would it be right to assume that that's in relation to income from the EU Horizon program, the LEILAC-2. And there's [indiscernible] bit to that question, but answer that one first.

Yes. No, in fact, it's not. It's primarily associated with incentives that we get in here in Australia. So essentially, I flagged that we've made a significant investment in our people and our engineering and R&D capability. So we've been able to take advantage of incentives that the Australian government has provided for our activity in those areas. So in fact, LEILAC is -- I think it's -- and again, it's in the annual report. It's certainly less than 15% or 20% of the amount of other income that we've reported this year.

Thank you, Darren. And just adding to that. So an extension to that question, are you able to provide some guidance on R&D in [indiscernible] for '24? Will they be higher or lower than FY Q3.

Look, it's -- I mean in terms of where we are as a business, we typically don't provide guidance in terms of specifics around revenues and expenses and things like that. But what I can say is that, we've been very fortunate to be well connected and well engaged with governments, both domestically and internationally, and we've been well supported with what we've been doing through grants and rebates here in Australia or in Europe, and we're increasingly looking to the U.S. as well. In terms of our R&D and our engineering, it's a fine balance between continuing to invest to take advantage of the technology platform and go after the opportunities that we believe represent significant future value for shareholders, and making sure we've got access to grants and research rebates, et cetera, to help fund them. So fair to say we've got significant grants already secured around things like LEILAC-2. And as Phil mentioned, there are some other things like the HyGATE project and ARENA, we actually haven't drawn down on the ARENA grant yet [indiscernible] -- so -- and we -- as I said, we continue to be well supported and have a good working relationship. So at this point, like I said, I'm very comfortable with the balance sheet, with the access to capital that we have to kind of pursue the opportunities that we've got in front of us. And it's fair to say, as we said, we continue to be very well supported by the various government incentives that are kind of in the areas in which we've got people

Thank you, Darren. To the best of your ability, are you able to provide any color on your progress with CEMEX regarding the pending commercial agreement? And if you're progressing discussions with any other potential commercial partners for your LEILAC technology.

Yes. We certainly are, and I can't provide any more color than that, unfortunately. One of the things you'll notice about our KPIs, we -- I think we've done ourselves a bit of a disservice setting a certain number of agreements to move from this particular phase to that particular phase. I don't think that, that serves us in the best interest when it comes to negotiating those agreements. And so we're not going to put those out in terms of the time line. We need to get the best outcome for Calix and its shareholders. And so the commercial arrangements were not going to rush to get something done for the sake of ticking a box. But having said that, all -- there's several commercial discussions happening right now, obviously, and we'll update the market as when we can on sustained progress on those.

Thank you, Phil. Is lithium to be produced by Pilbara plant or Pilbara plant going to provide a nanoactive lithium? And if so, is it likely to sell at a premium?

No, we're not targeting [indiscernible] with this particular area. We're using the unique properties of the kiln to maximize recovery of the lithium. So when we break open, if you like, when we heat up those fine particles with spodumene, we're breaking open that ore. And the contributive control there is all about limiting the melting of other materials that covers up the cracks that you've made as you broke it open. So the particular aspect of the technology that's of advantage there, apart from the fact that you can heat the kiln renewably is the fact that we have very fine temperature control to limit that melting. So no, we're not targeting nano activities. What we are targeting is utility. So what we're targeting there is the molecule of lithium and a molecule phosphate are both of value to a potential battery producer, especially as lithium ion phosphate becomes and is the fastest-growing EV battery chemistry today. And so the ability to provide 2 molecules in the one, that cuts down the carbon footprint, obviously, in transport costs and all these sorts of things. There where we see potential upside in terms of value of lithium content. We haven't relied or quoted anything about that with respect to the potential revenue that we might see from that particular plant. We're hopeful we can get value upside. But until we actually secure that, we won't obviously be claiming that just at this point.

Thank you, Phil. That concludes the Q&A segment. We'll get back to those individuals whose questions we didn't have time to answer. So I'll throw it back to you, Phil, for closing remarks.

Thanks, everyone, for your time again this morning. Obviously, quite an exciting year in the past with quite a few advances across the multiple parts of our business. This particular year, we're going to start to see some real traction on the ground in terms of physical things being built. Obviously, there's the Pilbara Minerals project. There's the LEILAC-2 project. Hopefully, we can start to move quickly to close out formally around the opportunities in Direct Air Capture and the green methanol opportunity. So quite an exciting year coming up with respect to steel [indiscernible] and actual projects starting to appear. So really looking forward to that and going to be a very exciting year commercially for us as well. So thanks, everyone, again for your time, your interest and your support in Calix.