Chalice Mining Limited (C8U.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Chalice Mining Gonneville Scoping Study Teleconference and Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Alex Dorsch, Managing Director and CEO of Chalice Mining.

Thank you, and good morning, everyone. Obviously, a major milestone for Chalice today with the release of our flagship project scoping study, which as I'll take you through this short presentation, it's a new world-class green metals project here in Western Australia. So our usual cautionary statements, competent persons' disclosure, this is available to read in full on our website or on the ASX platform and I encourage you to do so. So to outline the study that we released late yesterday, we've really outlined a new long-life, low-cost, low-carbon green metals project in Western Australia. We believe the study is incredibly robust and very high quality, and it points to a very strategic and rare green metals project that has a strong potential for a western or green premium just given its location and the low carbon intensity we forecast. There's obviously not a lot of projects in the sector like this, particularly with this nickel-copper-PGE sort of mix of metals. The projects got to have world-class sustainability metrics. I mentioned the low carbon intensity, an $18 billion contribution to the WA economy, obviously substantial regional benefits, employment and sort of benefits to the local communities as well. And what the study has really reflected is an executable Tier 1 scale project. So we've modeled 2 open-pit cases. We only considered open pit at this stage. There are 2 phases really reflecting development optionality that we have with the resource in terms of cut-off grade and scale. But also, I guess, it reflects the lack of consensus in terms of price forecast around these metals, which I'll speak to later. We've got a 15 million tonne per annum case, which, as you can see there, produces 280,000 ounces of PGEs, 9,000 tonnes per annum of nickel, 10,000 tonnes per annum of copper and 800 tonnes of cobalt over 19 years. So very large long-life operation predicted there. That's using very conservative parameters and prices in the mine design of that 15 million tonne per annum case. And then given the variances we're seeing in price forecast, we've also modeled a 30 million tonne per annum case, which equates to roughly double the production levels in terms of metal output, over still the 18-year model life. And that reflects that as we scale up, obviously, the cut-off grade, we can drop and we achieve, I guess, a larger quantity of resource within the mining scenario. Both cases, as you can see, there are very significant levels of metal production over a significant length of model life. We're obviously very cognizant here as well. The resource extends well beyond those models in terms of open-pit life. There's also underground scenarios that we're continuing to do work on, which I'll spend a bit later. So suffice to say, this will be one easily the largest PGE mine in Australia. It will be one of the largest PGE operations globally. It's also likely to be one of the largest base metal operations, certainly in Western Australia. So there are significant levels of metal output and obviously critical metals that the world is in desperate need for at the moment to meet its decarbonization objectives. The returns on investment in the study has pointed to are compelling as it got a competitive cost profile, I think, most importantly. So USD 160 to USD 230 per ounce, 3E cash costs after the byproduct credits. That puts us in the second quartile. And for a long life large-scale asset, obviously, that cost curve positioning is the key point here. So we're in a very, very favorable part of the cost curve, while a part that can survive through all the cycles. The project generates $6.6 billion to $9.9 billion in total free cash after tax paid, after all capital, and the capital is paid back within a very short 2-year initial period. So again, those cash numbers ignore any exploration upside beyond, the model life and any upside in terms of resource growth beyond sort of where we sit today. So lots of upside to explore in future studies. We're still defining this resource. We're still really working out the optimal flow sheet, the optimal way to get our products to market. And I guess most importantly, that early underground option is, I guess, that's something that we're going to spend a lot of -- and have a lot of focus on in the next 6 to 12 months. . So in terms of that model outcomes, these are long-life Tier 1 type of metrics. You can see the annual production I mentioned in the top left there. The low strip ratio, in most cases, about 1.8 tonnes of waste moved for every tonne of resource processed. $1.6 billion to $2.3 billion of CapEx required at preproduction. I mentioned the second quartile cash costs and then the EBITDA free cash flow numbers you can see there. Obviously, these are significant numbers, AUD 670 million to AUD 1.1 billion EBITDA and there's not a lot of precious metal, base metal assets in the country that achieve that sort of level of cash flow and earnings. Particularly in the first 4 years, $630 million to $840 million per annum of free cash flow after tax, these are incredibly, obviously, attractive numbers. The NPV at this stage, $2.8 billion to $4.2 billion is the range. I guess it's very much an indicative measure. At this time, it doesn't include, like I said, that 0.5 million to 1.1 million tonnes of nickel equivalent contain in resource that's beyond the models. So there's quite a significant, I guess, residual value there that's not incorporated into NPV at this stage. And honestly, there's a lot of exploration upside, obviously, that's not incorporated as well. So I guess they are very much indicative measures. I guess our focus at the moment is, I guess, what is that first 4 years look like? What are the cash costs look like? And how competitive is this asset? Interestingly, IRR and payback period, both consistent with irrespective of scale, so about 26% IRR for both cases, a 2-year payback period In both cases. That is very, very compelling for an investment of this size and an operation of this size that's been scoped. In terms of translating those metal production numbers into language people can understand, the nickel ore and palladium output from this operation could be sufficient to build 330,000 battery electric vehicles -- average size battery electric vehicles, 1.8 million average size of plug-in hybrid vehicles annually or 900,000 fuel cell vehicles annually. These are substantial numbers, obviously. And that is really the key enabler here of building an operation like this is that you can generate a significant and enable significant quantity of these key decarbonization technologies. Of particular note at the moment for us, I think, is that plug-in hybrids are getting more and more attention in the space, particularly given electricity and charging constraints currently in most economies. I think plug-in hybrids have a significant role to play in the near term as well as the medium term. And this obviously -- these are obviously an area that we remain very focused on. In terms of the competitiveness of the asset, like I mentioned, second quartile in the PGE industry cost curve. So the way that the industry looks at assets is assuming its basket of PGMs the -- I guess, on the x-axis and then the byproduct credits or any credits from nickel-copper-cobalt as well as chrome are actually netted off the cash costs. And that essentially results in, as you see there on the bottom part of the cost curve, which is an operation in Russia, that has a strong negative cash cost effectively, minus USD 1,600 per ounce effectively because of the high degree of base metal byproduct credits. But that operation has shown that it has significant operational challenges around [indiscernible] It has had experienced significant supply disruption, and I guess, more importantly, politically, that metal has a very big question mark over at the moment, just given the Russia and Ukraine conflict that's ongoing. You'll see where our cases of 15 and 30 tonne per annum cases sit right there between the [indiscernible] operations. And then what's on the right-hand side is predominantly Southern African mines and predominantly small scale underground, very, very deep and very challenging operations in South Africa. So those South African operations, as it says there, between USD 490 and USD 1,330 an ounce just to cover their cash cost. Obviously, those numbers don't include a significant amount of sustaining CapEx, development CapEx in particular, around underground mining. And so I guess that is the context here and also this is informing our long-term expectations on prices. As you can see there, 1,300 roughly is where the marginal producer sees, obviously, you add some sustaining CapEx to that. If you add a margin to that operation, you can easily foresee PGE prices going north of USD 1,500 an ounce. And so we have, I guess, assumed an appropriate long-term level in the mine designs that we've scoped and obviously acknowledging here as well that there's about 7-plus years until we're actually producing any metal. So we're not talking about producing in the current commodity price environment nor have we designed our operation in the current spot price -- commodity price environment. . So really, I guess, strategically, this is a very important asset for the western world. It's first major PGE discovery in Australia, one of the largest recent discoveries worldwide. The world is incredibly reliant on Russia, South Africa, as you've seen in the cost curve, for palladium and PGEs in general, but also becoming very reliant on Indonesia, China for nickel. And so the western world is very much gravitated to strengthen strategically significant supply chains like this. And the Australian government has committed to support the critical minerals industry. The U.S. government has also made a big statement with the Inflation Reduction Act, and that is driving a lot of interest from sort of potential strategic partners who have expressed interest in partnering with us on our asset. We are committed to building an operation here at Gonneville using principles of strong environmental stewardship. Really, this will be a unique opportunity to show that our mining operation can coexist with local communities and an environmentally sensitive area. We're not envisaging any impact on Julimar State Forest. In fact, the mining operation has been designed here deliberately to be constrained to our farmland only. We're forecasting a low carbon intensity, and we're doing all the work that you'd expect us to do around biodiversity, baseline studies and an investigation of offsets required to really ensure, like I said, this is an accepted operation in the context of its location. . The carbon intensity is forecasted to be very low. So you can see there on the modeled carbon intensity forecast for 2030. We're likely to sit around about the second quartile between 10 tonnes and 12 tonnes of CO2 equivalent per tonne of nickel equivalent produced. That is significantly lower than most of the laterite operations that are springing up at the moment in Indonesia that are doing, I guess, most of the expansion in the nickel industry today. So as customers, particularly in the electric vehicle industry, get more and more attuned to this, they are scrambling to get access to low-carbon products and Gonneville is very well positioned in that regard. . In terms of the mining scenarios, I mentioned, we've scoped a 15 million tonne per annum case and a 30 million tonne per annum case. There's a ramp-up in terms of processing throughput on each of those, initially starting with a small quantity of oxide material and then processing into a larger sulphide operation. So between 240 million and 440 million tonnes processed in both cases, sort of 18 or 19 years, a low strip ratio sits there and a feed that progresses to a depth of between 460 and 600 meters deep. So a lot of optimization work here yet to be done. It's safe to say these are scoping study sort of mine plans and mine schedules. So there's a lot of now work to be done to incorporate phasing, stockpiling, blending, but also, like I said, really work out the underground scenario, which can complement these open-pit schedules. In terms of processing, we have, I guess, a 2-part flow sheet. The first part is the oxide material is processed using a leach circuit only. And then the sulphide material goes through a copper flotation stage, a nickel flotation stage and then the residual flotation tails, also go through that same leaching process. So there's 3 products produced. The first is a copper smelter concentrate, which hosts a lot of the PGMs and that goes to a copper smelter, where we get very, very good offtake terms expected on that product. We'll scope to produce a mixed hydroxide nickel-cobalt precipitate which we're looking to off-take directly to the lithium-ion industry. And then, I guess, the precious metals that come out of the leach circuit as well as the POX circuit just a simple [indiscernible] product, which is an industry standard precious metals product. You can see that the average recoveries, I guess, over the model life there for the sulphide domains, you can see those per metal listed there. We don't any specific components of this flowsheet are particularly novel or different. These are all quite well-proven technologies individually, but we are really, I guess, hybridizing here a base metal flowsheet with an industry sort of standard precious metals flowsheet. So we believe this is obviously robust. Lots of work to be done, as I said there, in that midstream technology space around hydromet and a lot of optimization work that obviously hasn't been -- has only at a scoping study level to date. So we think there's a lot of optimization to -- and twist to be made here on this flowsheet. In terms of the production profile, it's a Tier 1 production profile. Like I mentioned, 280,000 to 470,000 ounces per annum of 3E PGEs and a significant quantity of base metals as well over that modeled life and obviously upside beyond -- well beyond that model life, given what we know today about where the mineralization extends to. In terms of the schedule, obviously completed the scoping study now. The PFS, really, we've envisaged an 18 months period. It's sort of -- through to the middle of 2025, a 12-month feasibility study and then in parallel to that, our major environmental approval. So we're starting the major environmental approvals early next year in readiness for an FID in 2026 And that would lead to a first production in 2029 as outlined there. And I should mention that this is an indicative schedule. But I guess the -- it's premised on the likely permitting time frames that we've seen recently in Western Australian large greenfield projects. . And I think that from the permitting topic, I think there's a precedent there in what's been -- and was an existing operation at Boddington. The Newmont-owned asset is a very large-scale open cut gold mine operating at 40 million tonnes per annum. That -- the major approvals to expand to that throughput were gained in 2012, and that involves a significant amount of vegetation clearance as well and an associated offset package with that. So this is a very well trodden path for Western Australia. The WA government has shown a strong willingness to support critical minerals projects and large-scale mining projects because they drive significant jobs and broader socioeconomic contribution. So as you can see there Boddington job numbers on the right-hand side. We expect strong job creation from Gonneville operation, somewhere around 1,200 jobs in construction, 500 well-paid jobs in operations and a significant contribution to the state economy of approximately $18 billion, like I mentioned. Now on to the financial metrics. I guess looking at free cash generation here over the modeled life, I mentioned that the study predicts a $6.6 billion to $9.9 billion total free cash generated. Probably what's most of interest is that first sort of 4 or 5 years, we can see that between $630 million and $840 million after tax our cash flows from those years short 2-year payback period. That's really driven by the amount of high grade that we have near surface. So we're really getting access to that very early in the mine plan. And expansion and effectively a doubling of throughput in years 5 and 6. So that drives, I guess, the negative cash flow years there, but never reaching a negative net cash position. And obviously, the timing of those expansion decisions is somewhat arbitrary at this stage. And I should mention again that, obviously, 0.5 million to 1.1 million tonnes of contained nickel equivalent is going to be sitting there in resource beyond those free cash numbers. So obviously, that's an obvious thing for us to now do work on in an underground sense. The split of commodities there, about a 60-40 split between precious metals and base metals predicted. In terms of cash costs and CapEx, I mentioned the $1.6 billion to $2.3 billion preproduction capital. There is a level of phasing and optionality we have in terms of when we build each part of that processing plant in particular. So there's more investigations to happen there in the PFS. On the OpEx side, we're predicting very attractive low operating costs around $41 a tonne, $39 to $41 a tonne mine site cash costs and that really drives that very competitive low total cash cost on a per ounce basis. And you can see, obviously, there the importance of byproduct credits, which not every PGE operation obviously has access to that level of byproduct credit. . We think the valuation, and I guess the metrics of this project is very robust under a range of different macroeconomic scenarios. Obviously, we haven't designed any of our mines -- mine designs or schedules on spot prices deliberately because, obviously, we're not dealing with spot prices in 7 years' time when we're going to be producing. We believe that really this project is robust under a range of scenarios, as you can see there. The 15 million tonne per annum case is a little bit more robust, obviously, whereas, as we scale up, obviously, we become a bit more sensitive to different macroeconomic factors. The CapEx probably the biggest point to note here as well, obviously, PGE prices and OpEx are sensitive, but the CapEx is relatively insensitive in terms of NPV at this point. . So really, I guess, we've got lots of drilling to do now to continue to define the resource at depth. I mentioned the amount of sort of residual value there exist beyond those modeled life predicted in the study. I guess more importantly is what we think now is a firming option here to do some early underground mining in parallel with open-pit mining. And really, that's going to be targeting tonnes between 400 meters and 1,100 meters down. So starting an open pit concurrently with underground. And we believe that, that could be a material upside opportunity to project economics and further, I guess, increases the robustness of the project. So that's going to be the focus, like I said, of drilling activities, but also study activities in the next 6 to 12 months is really firming up how we bring that material forward in the mine schedules. Obviously, you can see there from what we've stated recently, there's material awareness anywhere from 3 to 6x the average grade of the material in pit, so that can have a huge impact on economics. There's also a number of upside opportunities to look at. I think mining is, I guess, like I mentioned in the priority at the moment, really around bringing in early underground scenario into the study. From a processing perspective, lots of optimization work to do, really around the phasing of the flowsheet and how do we tweak the configuration of flotation is really where we're going to be spending most of the effort there as well as actually understanding different parts of the deposit, how they behave and does that explain the variability in terms of metallurgical performance. From a commercial perspective, it goes without saying green western premiums on our products is something that is genuinely under consideration, and genuinely, we're getting feedback from various sides of the industry at the moment around that topic. We're obviously in the middle of a strategic partnering process to bring in technical financial capabilities. And we think the other major lever at our disposal is really that government support, not only through financial support, but also support with infrastructure, permitting and other aspects to really accelerate the project. So many upcoming catalysts coming up now. Obviously, scoping study complete. Strategic process that's well and truly underway, and obviously, regulatory approvals starting that early next year. And through the PFS, we'll really be tackling a lot of those optimizations like I mentioned. It's worth noting here that it is at a scoping study level, scoping studies don't typically give the full picture of what an asset can be. Particularly in the case of study like Gonneville, it's a very, very large resource. And so there's lots of optionality still to work through in the PFS. And then we shouldn't forget, I guess, as part of our portfolio, we've got an 8,000 square kilometer landholding surrounding our discovery that's completely unexplored. And we've got a significant program of regional exploration activities and drilling coming up over the province to test for other discovery potential in the region. So to summarize, I guess, we own 100% of a very, very unique long-life, low-cost, low-carbon project in WA scoping study, like I said, very robust. We're very happy with how it's landed. Chalice team has a track record. We've shown that we're able to discover these things and create value for shareholders. And we think there's significant upside beyond, I guess, what we've scoped in the scoping study, not only Gonneville, across the Whadjuk, West Yilgarn Province. So a lot more to do and a lot of things to look forward to there. So on that note, I will hand over to some questions.

[Operator Instructions] Our first question will come from Levi Spry with UBS.

Thanks for the call and the update. So I guess just on the next steps, can you talk a little bit more specifically about the optimization process as it relates to the mine plan and the potential for some of these high grade that could be brought forward, I guess, from the underground? How closely have you looked at it so far? What sort of scope? And I guess, timelines on, can we sort of think about that?

Thanks, Levi. I guess we've focused most of our work I guess, because of the resource, it starts at surface. So I guess we'd probably envisage that the open-pit phase really does satisfy the payback period in a simple open cut mining sense. We've got the benefit of a lot of high grade, very close to surface that really sort of drives really nice returns in the initial years. I think what could really make a difference, like I said, is that even a small amount of underground material blending that with open-pit material can drive and actually affect the economics quite significantly in the open pit is our view, just given the grade that we're seeing at depth from what we've drilled to date. We haven't looked at any underground mine scenarios in detail yet I guess, because primarily, we wanted to get the initial few years of open cut, right? I think there's obviously lots of work to do to scope that out in detail. But what we do see is probably the likelihood of being an underground operation commencing at the northern end of the deposit and really, I guess, chasing some of the material that's -- at the northern end of farmland as we go -- as it goes deeper and then sort of blending that material with the open-pit material over time. Exactly when we will have results of that is not clear at this stage, but we are doing a lot more drilling. As we've outlined, we're going to be really scoping out at a broad level. I guess the quantity of sort of that underground resource, if you like, that we're going to be targeting, that should take sort of the -- that should be in the next 6 months and then we'll be looking into doing some economics sort of in about -- in the next 12 months. You've got a high-level economists trying to work out, I guess, what impact that has on the open-pit economics. So yes, so there's -- the drilling is really driving the schedule there for now. But we are looking at -- I guess there is already quite a lot of high-grade material outside the pit shells, particularly in that northern end. So I guess we're starting the optimization works and starting to do some underground investigations on that.

Our next question will come from Al Harvey with JPMorgan.

Alex, just want to get some clarification on the price assumptions. Obviously, the economic prices and ForEx use a fair bit higher than the long-term mine design assumptions, utilizing the pit optimization. So just wondering if you could take us through the differences here whether you think the pit optimization prices maybe reflect something closer to a breakeven price required for the project and how we think about the sum of NPV sensitivities to metal prices and ForEx as a collective?

Yes. Sure, Al. I guess -- the first point is, I guess, we're designing a sort of a 20-year -- circa 20-year operation for prices in -- that are not sort of today's prices. We're designing something for an operation starting in about 7 years' time. So we're obviously trying to understand that those long-term dynamics as best as possible. We've used IME, an independent group in terms of the economic modeling we've done, and that's got, I guess, we take the best and most robust supply-demand model in particular in the PGE and nickel-cobalt space. So we've gone with an independent group's long-term forecast, but they do differ as you picked up to the mine design premise. And I guess the mine design premise, we want to be more conservative because, obviously, the operation needs to survive inevitable commodity cycle. So if you look at the 15 million tonne per annum case input assumptions into the mine design, they are significantly lower than spot prices. So we believe there is a robust project there that survives even lower prices than what we're seeing today. But as we know, these prices cycle and trying to predict them, particularly in the context of PGEs, nickel, cobalt, et cetera, these are very hard to predict metal because the demand-supply situation is quite honestly transforming and likely to transform even further as energy transition really sort of comes to bear. So we've framed, I guess, those mine design assumptions are with that lens that we want the project to be robust under those -- under that sort of the troughs of the commodity price cycles. And then I think the other part is that if you look at the PGE cost curve, you find it -- well, we find it incredibly hard to believe a lower PGE price environment than what we're seeing today. Our view is that today, in spot terms, we're really on the margins of knocking out a significant amount of that South African PGE supply, given that they need USD 1,300 to just cover their cash costs. That obviously doesn't allow for covering their sustaining CapEx, their development CapEx and actual margin to keep them in business. So I think our view is that it has to be much higher than USD 1,300 long term because, otherwise, you're implying a significant shrinkage in the market and we're just not seeing that in the demand outlook for these metals as the world needs more plug-in hybrids. And as hybrids become a very meaningful part of the mix -- the vehicle mix, that requires even more PGEs, which more than offset the loss of PGE demand through pure battery electric vehicles. So I think it's a much more nuanced forecast that a lot of predictions that we've seen in the market. Like I said, we've looked at IME, their supply-demand models and particularly in relation to their assumptions around recycling and how significant recycling is and we've taken their model rather than the other competing view in the market, which I think informs the vast majority of all other long-term supply demand forecast for PGEs.

Okay. Maybe one just back to the operation. So looking at the recoveries there and backing out the implied float recoveries, they look good for palladium and copper, but still look challenged for nickel and platinum. So just trying to think through those grade sequencing opportunities. I suppose I'd probably expect that number to start a bit higher, but the nickel equivalent grade profile looks relatively flat. So I'm just wondering kind of what kind of sensitivity there is to the nickel float recoveries by treating high-grade feed material within high nickel content?

Yes. Look, absolutely, it is sensitive. And look, the higher-grade nickel blocks get a much higher recovery than what we're stating in terms of life of mine average. So there is a curve to the recovery versus grade relationship, particularly for nickel and cobalt. Nickel and cobalt recoveries are typically right on par with each other. So yes, look, there's more work to do there to understand what's causing the variability, what's causing a lower nickel recovery from some domains versus higher recovery from other domains. So that will feed into the scheduling. Obviously, once we've done that PFS, we will have, I guess, much more better geo-met sort of domain -- domain by domain understanding of the deposit. And yes, that could result in, I guess, an uplift of the nickel and cobalt recoveries by doing that. So I think the other point is to note that the -- I guess the copper and PGEs, we're not really having the same challenges with. We're getting very good robust recoveries of copper, palladium, platinum, gold, the nickel and cobalt and definitely in the area that we need to do some more work on from a geo-met perspective. I don't know Mike, whether you have anything to add to that.

You're right. I mean the high-grade nickel is still recovering high. And some of it is mineralogically controlled, nickel with sulphide, and we're buying in those high-grade zones of the deposit. They've been getting quite a high proportion of nickel and nickel sulphide. There are some of the lower recoveries, of course, simply through metrological association of nickel in silicas. But as I said, we're still working through a number of opportunities there because if we can look at to try and improve that silica nickel recovery. And again, it brings into -- in this whole underground opportunity as well with a higher grade that depth, certainly brings back into high recoveries.

Our next question will come from Jon Bishop with Jarden Group.

Just to follow on from Al's questioning just around the price assumptions. With your OpEx and CapEx numbers, have you sort of inflated those accordingly as well? Obviously, picking commodity prices are hard and understand your views out there in supply and demand. But like-for-like, have you sort of inflated your OpEx and your CapEx assumptions?

Yes. Thanks, Jon. Look, in short, yes, we are at 2023 current estimates. So any estimates that we received through the course of 2022, we have inflated to reflect the higher degree of cost inflation through the sector. So yes, we do believe the OpEx and CapEx estimates are robust. They are in real 2023 dollars. So I think safe to say, I think the worst of the cost inflation through the industry is behind us, which was related to COVID, but as well as other factors. I think what we're seeing is probably our escalation in Western Australia is a tiny fraction of the escalation that South Africa and Russia is saying no. So I guess that frames, we can't think about these things in isolation, obviously. So our view is that there's a lot of upward pressure on the cash costs of those South African operations in particular because they have such operational challenges in the stability in their power grid, political challenges and from Russia and South Africa are becoming much more politically aligned. So I think the cost inflation charge for WA is real. I think, like I said, the worst I think is behind us. We're seeing sort of costs sort of steady out to a degree now across the sector. I think we're confident in our OpEx and CapEx numbers. But obviously, it is a scoping study. So I should mention that as with all scoping studies, we're plus or minus 30% sort of typical level of accuracy.

Yes, yes. No, that's fine. I just wanted to be clear that it wasn't -- you haven't inflated for 7 years' time when the project is due to kind of commence commissioning. It's just inflated for 2023. Is that right?

That's right. So everything is related to 2023 real terms.

Okay, cool. Look, just another one, and I'm not a metallurgist as you well know. So to give the ignorance of the question, but I was just having a look at your last met test work release, which is admittedly 2 years old -- or more than 2 years old, February 2021. You did do some low-grade domain test work there, which was similar to the average life of mine head grades. Those low-grade composite recovery factors though were sort of below what you've assumed in your life of mine a little bit below for the nickel, but certainly much lower than the copper. What's changed in the test work between then and now, which has given you greater confidence in your recovery factors?

Mike here Jon. So since that date, there's been a lot more test work done. We've obviously done a bit more optimization in the laboratory. We looked at different things like grind size. We've done a little bit of work on the flotation recovery. We looked at the hybrid side of things as well. So there's just been some, I guess, I will call it, natural metallurgical testwork development that's actually goes to a higher level, the one you probably saw back then and sizing the [indiscernible]

And maybe just to add to that, Jon, I guess that yes, the algorithms that they're informing on a block-by-block basis. The recovery for each metal is calculated on block-by-block, those recovery grade algorithms are informed by about 30 locked cycle tests now. On the flotation side, about 300 sort of batch scale sort of tests now as well. So we think those algorithms are robust. But yes, look, there's more work to be done in the domain to try and understand is there parts of the deposit that you better recovery or worse recovery. And at this stage, we're just averaging out through the data points.

Your next question will come from Mitch Ryan with Jefferies.

My first one is just clarifying the profile of CapEx spend. So my understanding of -- my reading is that 1.6 gets you -- for example, you think the 15 million tonnes as an example, that $1.6 billion of CapEx gets you to sort of the 7.5 million tonne per annum throughput, and then there's a further $1.1 billion to get you to the 15 million tonnes. Can you just sort of give me some color on that spend of the $1.1 billion, when does that commence? And how does the spend profile look like?

Yes. Thanks, Mitch. Yes, you did right, the $1.6 billion pre-production is to build out the 7.5 million tonne per annum throughput. That also assumes you've built all the parts of the flowsheet at that time. So there is a little bit of option analysis we need to do as to whether all of those components are built upfront or whether some of them are phased over time. With the expansion CapEx basically comes in, in years 5 and 6 such that basically, we've assumed effectively a separate identical module of processing that's added to the initial train. So that's why, I guess, we get a $1.1 billion expansion CapEx that's assumed in those later years in addition to the $1.6 billion. Exactly when those expansions happen, obviously, they're quite arbitrary decisions at this point because you're not making an investment decision on that expansion today and nor are we making any investment decisions today, but we're trying to, I guess, guide to the fact that the resource does warrant expansions of throughput over time. So I think it's really now for the PFS to work out exactly where those optimum timings are and exactly what pieces of the flowsheet are built at one time.

Perfect. My second question just relates to the payabilities you've assumed in the MHP obviously, as we sort of said with commodity estimates, et cetera, it's quite hard for 7 years out. But you've used a 90% payability. My understanding is that MHP payability is sort of running at 55% to 60% currently. What are you sort of seeing in the medium to long term that's giving you confidence to use that 90% payability number?

Yes. So the first part is most MHP from laterite operations is around the sort of 20% to 30% nickel content, and we're looking at producing an MHP, which is going to be sort of between 40% and 50% nickel content, obviously, completely different sustainability metrics to our product as well. So that's driven, I guess, through the initial discussions with potential customers, I view that it's more like 90% payability long term for our product, which is higher grade irrespective of where it comes from. But then secondly, I guess, here that there's a fairly immature understanding of that market at the moment. I guess, the Chinese participants well and truly dominate that market. So there's a bit of a backwardation happening from the sulphide market. And then there's -- I guess, people are trying to estimate what sort of upgrade cost is involved from getting from MHP to the sulphide product. . So there's quite a lot of, I guess, unknowns in that equation at this point. We are taking the long-term view that, I guess, that ultimate conversion cost is around about 10% of the effective nickel in MHP, so around about a $2,000 to $3,000 a tonne upgrade cost. And so that's where those prices should level out. But again, I think the other question mark is LME the right benchmark for nickel. And I think what we're hearing from potential customers is that probably not -- it's not the LME and nor is it the Shanghai nickel sulphide exchange because of the just the levels of Chinese dominance of the Shanghai market and just the complete lack of liquidity on the London market. So yes, I guess, they will have their own view about what the right assumption is for those metals, but safe to say there's a lot of moving parts in that equation.

Our next question will come from Richard Knights with Barrenjoey.

First one, just around the initial development side and your environmental approvals. Just wondering if you're going to be submitting your documents on the basis of an initial 7.5 million tonne throughput operation? Or if there's scope for a larger operation to be submitted?

Yes. So Richard, thanks for the question. The scope will be, I guess, the maximum footprint of the operation and a maximum tonnage that's processed. So the regulator doesn't really need to know what are these steps at which you take to get to an ultimate throughput potential. So we will go for a referral for the full 30 million tonne per annum ultimate throughput. But like I've said, there's lots of intermediate steps there that we will refine over time. The other part is that, yes, so this study is, I guess, the press and forms the basis of that mine proposal that we'll be making the referral on but there is -- I guess, our key point is the boundaries of the operation will be driven by our Chalice-owned farmland. So we're not scoping anything beyond our existing footprint of farmland that we own.

Got it. That makes sense. Just another one. Perhaps this one probably more directed towards Mike. Just in terms of the processing of flotation sales, you mentioned in the study that it's only profitable if palladium prices advance $1,450 an ounce. Can you just give us an indication as to what the impact on palladium recoveries is if you didn't include that step?

Yes. Thanks, Richard. So we think of the total palladium coming into the process, we've got an overall recovery of around, I think, 60- to 70-odd percent recovery. About 15% of that is from the float tails leach. And it's actually [indiscernible] that for us. We're looking at that. We've actually looked at recovery, we've assumed around 70%, but we're actually doing some more work on that as well in terms of the leaching recovery itself. And so I don't know if that's answered your question.

Yes. So I mean, I suppose it's quite difficult to be drawn on specific numbers, but can you give us some sort of an indication of recovery ranges?

So the recovery range we're looking at for -- in the leaching circuit is around 75% for palladium. I think that is the document [indiscernible] the oxide circuit. And then in the sulphide flotation tail, it's around 50% recovery of palladium in that component. So that's 50% of the flotation tail.

Right, right, right. Okay. Great.

I think, Richard, the other factor to obviously bring up there is the fact the oxide material is getting processed by that same leach circuit. So there's a bit of interplay between -- you obviously have to strip that -- you have to mine that oxide material anyway. So it drives you to build a leach circuit for that. And if you've already some CapEx building that, then it makes sense to probably process the flotation tails using the same equipment. So I guess there's a more detailed analysis that's going to happen through the PFS to fine-tune that. But yes, the level of test work and maturity in the test work on the flotation tails is significantly lower than what we are understanding on the flotation performance is. So we do need to do more tests there to work out. Is it 50%? Is it 75%? Or is it in that sort of range and bring it bit more precise?

Our next question will be a follow-up from Al Harvey with JPMorgan.

Alex, just a follow-up on recovery. So I just wanted to confirm the Stage 1 and 2 pit designs. I assume they take out the oxide and the higher-grade sulphide core. But yes, not really seeing that nickel equivalent grade. So I would have thought it might have been a bit of a bump given the high-grade cores about 0.2% nickel versus the resource at 0.16. I'm just trying to get a sense, is there any sensitivity on the recoveries at that grade of material? Or do you really need a much bigger uplift in the nickel grade to get those recoveries higher? And maybe kind of how you're thinking about -- you mentioned the underground material could be 6 or 7x higher. Does that potentially make a much more of a difference to that float recovery level for nickel?

Yes. It's a good point, Al. If you look at our feed schedules into the plant, you do see particularly that sort of first 4 years does have a significantly higher nickel equivalent feed grade. And -- but you're getting multiple impacts there, you are processing the oxide material in that first 4 years, but you're also taking some of the highest-grade material from that sort of startup pit Stage 1 area out of the sulphide. So I guess at this point, we haven't really tried to optimize schedules to any degree yet. We've sort of just assumed a fairly sort of logical sort of stages of mine design. It's just probably not -- there's not a lot of value in trying to optimize that before we understand better and it gets more accuracy on the inputs. . So that's why we make such a point about these mine schedules being unoptimized because, yes, there's potential lots of ways we can improve the head grade at the beginning of the operation, not only from that high-grade underground material forward, but just actually scheduling this slightly differently. So yes, that's just the nature of, I guess, a big deposit like we've got. There is going to be, obviously, views on cutoff grade and how it optimizes ahead of the FID, but then actually when we're in operations, that will be quite real-time due on cutoff grade and optimizing according to prevailing economic conditions over time. So that really is what differentiates this from sort of the more stock standard, smaller, higher-grade operation is that here, you've got a lot more flexibility in terms of cutoff grade over time, which you're able to get from sort of Tier 1 type assets in the space. So it's hard to value that obviously today and nor have we tried to value that. I put that way.

Sure. And maybe just one final one. Just trying to get a sense of what it might cost to deliver the PFS in the final feasibility study in conjunction with drilling out that underground portion of the resource a bit further, just relative to current cash burn levels?

Yes. I'll answer that. Yes. So our current cash burn level is around $5 million a month. In terms of our annual budget, that's sort of in the order of $60 million. So a significant -- the majority of that is still that underground drilling, but it's also our other exploration activity, which includes along the Julimar Complex as well as more regionally. In terms of actually the scope for the PFS and the budget to that, we're sort of looking at around sort of that $10 million to $15 million range. So that budget basically remains fully funded right up until we released our PFS in early 2025.

Our next question will be a follow-up from Jon Bishop with Jarden Group.

Just around the discount rate that you've assumed. It's obviously lower than probably prevailing discount rates for similar mining projects. Can you just go through what the justification was? And do we infer that you're confident of getting low-cost government debt as part of your funding mix?

Yes. I think, Jon, we've taken into account, I guess, the uniqueness of the asset, but there are -- there have been other studies with similar size sort of base metal operations in Western Australia that have used the exact same discount rate. And so there is an assumption there that, yes, we will have access to very favorable low-cost debt sources. But at this stage, I mean, the only metric that discount rate is applicable to is, obviously, the NPV. And I guess we're really probably not -- we're not flagging really too much emphasis on NPV at this stage just because there's so much more optimization, so much more resource and value to incorporate in that. So yes -- so I guess, it's an indicative feel for -- based on the advice we've had around financing solutions, but it is a dynamic space at the moment, certainly in exactly how or -- how the various funding solutions come into play, obviously, as a number of years before we finalize that.

Yes. No, that's fair. I mean it's probably unfair, but I'll ask anyway, what sort of sensitivity analysis have you done on the discount rate? Does it sort of swing massively if you use the old nominal 10%, for example?

We got nominal works out for us at about 8.5%. Just to be clear, so we're using 6.5% real. So yes, so we -- I mean, yes, it will swing the sensitivity, of course, on NPV. But again, for a long life asset, I don't think people -- and particularly industry players and larger investors will pay too much attention to that at this stage.

Yes, but -- and I probably would add that the swing is small in comparison to the swing that we've seen on that sensitivity analysis for the pricing and the OpEx. So it more sits around the sort of the FX, CapEx sort of range of swing.

Yes. Okay. That's great. Look, just one final one. Your flowsheet individually is obviously not new technology at all, but you've touched on the fact that in combination, it's -- you're probably blazing the trail a little bit. Can you give some color as to the sort of benchmarking used to determine those CapEx figures?

Yes, sure. Mike here, Jon. So we use a mining engineering firm in the same curve as the basis for doing a lot of our capital estimation. We used a second engineering firm associated with one of the technology providers on the hydromet to give us a capital estimation for that. So we put a little more contingency around that number. So they're all based on '22 original pricing with a 5% escalation of the '22 going into '23, so we got the estimate price.

Our next question will come from Adrian Prendergast with Morgans Financial.

A few of my questions have been asked. I guess another one just the 30 million tonne case and just how you -- I guess it's early stage, and as you say, it's unoptimized. How are you feeling about that in terms of preference for the way forward for the project? Obviously, individual project movements get stronger, the smaller you make the project and the reverse can be true, the biggest how you go. But just in terms of the life of such a big resource and your preference between the 15 and eventual 30?

Yes, it's a good point, Adrian. I think that we've got some time, the reality is before we make an investment decision to narrow down, I guess, what is the right size to start with. I guess there's a degree of influence that a potential partner could have on the project as well in terms of ability to fund. So we're keeping our options open as you would tell. I think that, ultimately, our view is just given the resource size here, we ultimately get to those sort of throughput levels and the resource definitely justifies that. But the resource is still getting defined as well. We've done 3 years of drilling that. There's probably another 10 years of drilling to go. So it's very hard, as you know, to -- when you make a discovery like a Boddington or Acadia sort of size, it's very hard to see how big it ultimately can get for when you're only 3 years in. So I think that's the -- which need to factor that into the equation. So we are trying to scope some bookings, if you like. But there are other scenarios where we start a little bit smaller or ultimately get a lot bigger. And that's just a reality of sort of scoping study level of analysis.

Our final question will come from Mitch Ryan with Jefferies.

Just wondering, you called out again in the release that you're undergoing a formal strategic partner process. Any color or updates on that? And does this sort of enable that to proceed?

Yes. So obviously, it's not much more than we could say I've learned what we've said publicly. We've got a lot of interest from all sides of the industry, large mining house, the trading houses, the downstream players, the automakers as well. So obviously, that IRA compliant. IRA compliant material is driving a lot of interest in the offtake for our product and potential financing solutions that come associated with offtake of products. We obviously still are going in that process. So we'll keep the market informed as best we can. But safe to say there's a lot of interest, and it's a very broad level of interest at this point. Okay. I think that's the last of the questions, but thank you again for everyone for joining. Just to close out, I think we do have a very unique project here and one that doesn't have a lot of peers in the space. And what study that we've outlined really outlines its strength and its uniqueness around its long life. It's very low-cost profile, very competitive cost profile and the low carbon intensity of the products that we will produce. And so I guess to close on the industry really needs to expand dramatically in all of these green metals to satisfy the world's decarbonization objectives. And this is, I guess, a prime opportunity for the industry to do so. And I've seen Chalice is very much excited to progress the asset through the next phase of studies and get into the permitting process. So thank you, everyone, for joining.

That does conclude our conference for today. Thank you for participating. You may now disconnect.