Develop Global Limited ($DVP)

Good morning, and thanks for everyone joining us on what is an amazingly big pivotal day for Develop. Today, we've announced final investment decision on 2 outstanding Australian resource projects, which will supercharge our company free cash flow. We've announced a USD 400 million funding facility and collaboration agreement with global commodities trader, Trafigura. This agreement will deliver a host of enormous benefits to Develop on several levels, both in the short and longer terms. These announcements are the combination of 3 to 4 years of extensive technical work ranging from project assessment, extensive drilling through the detailed metallurgical test work, economical and optimizational studies and what's culminated into our funding arrangements. Along the way, we've assembled a world-class mining and technical team, which ensures we have the capacity to maximize the exceptional opportunities we have created as a business. And I love my football. So in AFL terms, it's quarter time in the implementation of Develop's growth strategy. We've stuck to the game plan we announced when I recapitalized the company and began building our team and assets. We're focused on Australian projects which will deliver the metals of the future, and we have remained committed to our goal of delivering strong financial returns rather than just seeking to maximize short-term opportunities. As a result, we now have 4 key pillars in place. The Woodlawn copper and zinc project, which is humming steady-state production, going extremely well, the Sulphur Springs copper and zinc project, the Pioneer Dome Lithium project and of course, our cornerstone of our mining services division. We've been forensic in our approach to progressing these projects. We have invested heavy upfront, including extensive drilling and metallurgical work and in-mine development. This has really derisked these projects to a far greater degree than is usually the case in our industry and has made financing so much easier, which can be demonstrated in today's announcement. As we move into the second quarter, our focus now is purely on the project execution and cash flow ramp-up. And this is where I think some of the market may be pleasantly surprised. The combined annual cash flow of these 3 projects with our mining services, depending on commodity price assumptions and development timetables will be in the order of several, several hundreds of millions of dollars. So regardless of how you may choose to calculate this, it becomes clear that today's announcement sets Develop on a path for rapid substantial growth in production and cash flow. I'll now go through the final investment decisions and our agreement with Trafi in more detail. So obviously, team, this is Board approved today. We've taken on a total facility of USD 400 million in debt and warrant package that I'll outline from Trafi to fund both our projects and to refinance our existing Woodlawn facility, all on very highly favorable terms. This agreement positions Develop for substantial free cash flow generation on the back of 3 producing assets in Australia plus our mining services. Very important, this debt package comes with offtake agreements, both on our Sulphur Springs and the first year of DSO on our Pioneer Dome. And we also gave a small extension to our Woodlawn offtake. And we managed to secure, I guess, more updated end market and some very good, I guess, offtake agreements as far as payabilities and deductibilities on the new contract. So we are very grateful with Trafi in their work there, an amazing partner. As I said, they're committed to the first year of DSO offtake at Pioneer Dome, which is super important. And that offtake also includes a time and volume-linked floor price as well, protecting our investment and pricing optionality. And we're set to deliver first sales of DSO in the December quarter. And we've also entered into a binding cooperation agreement with Trafi. As we know, they're the world's largest commodity trader, second biggest in oil and gas. And we've got an agreement now that potentially enables us to partner on future opportunities, including M&A with them. So we're very, very happy with Trafi coming on the journey with us and really supporting us with this new package. And I think the warrant package on top is a real, I guess, the cream on -- cherry on top of the cake of them backing us as a business. And we expect that we'll get opportunities through Trafi and their strong deal flow and opportunities that they're involved in. And really cool. We've been on ground on country for a number of years now. We were never happy with the name of Sulphur Springs. So we've requested from the traditional owners, the Nyamal First Nations, the project will be renamed after this announcement to Yitirrti, so which in their traditional language means water soak, which is very important up in the Pilbara. So we're very happy with the traditional owners and the Nyamal people giving us the opportunity to look after their country and mine and provide benefits across all stakeholders there, including themselves. So look on to the facility. It's a pretty standard debt facility. We're tracking USD 350 million maturity 5 years. Interest rate is SOFR plus 3.5% margin. Our previous facility at Woodlawn was BBSY plus 2% margin. SOFR has actually come down, BBSY has gone back up. So our overall interest rate has only effectively gone up, I think, 0.7% on our previous facility, yet we're borrowing not AUD 100 million. It's over AUD 500 million. So really, really good position and no mandatory commodity pricing, quarterly repayments commenced 18 months after first drawdown. Obviously, the warrant package we gave to them. I think this really emphasizes, I guess, the support from Trafi. So part of the package was a USD 50 million option package at a 50% premium to the 20-day VWAP. So obviously, we have to get to $9.13 per share for them to have any of this in the money. So that really shows the support. This is a critical part of the deal. They saw the vision of the company and want to end up being shareholders of Develop. So this is a really smart way of bringing some money in at a premium and getting Trafi to be a shareholder. It really aligns our interest, not just on offtake and metal, but as a shareholder in our business vision. We gave obviously an offtake on Sulphur Springs to the copper and zinc cons, effectively about 7 years of production, which is pretty standard for that size facility. On the project itself -- our capital, we put out our capital estimate there. Total capital build, this has pretty much gone from AUD 350 million last year to AUD 450 million, and that's been really extensively done. Obviously, inflation has gone up across industry as we know. I actually do think there's a little bit of work to optimize it. I think we could probably bring that down, but we're going with a big number. We've probably got the next 4 to 6 weeks to really optimize that, in particular with GRES and the facilities that we've taken the high road and just gone for the big number, but there's a lot of optimization work, and I think we can pull that down. And really, really happy to announce that we have GR Engineering as our preferred contractor. Anyone that knows, I think GRES are one of the actual best at building both base metal and gold plants. They did our Woodlawn plant, and which is humming like we're literally sitting on record recoveries there at the moment. So they did an amazing job on Woodlawn, and this is a new build, greenfields build, and we're in the system and they're our preferred contractor, and I will talk about time line in a minute. So really, really happy to have them on, especially in this environment. As you know, I think there's about 15 companies going around quoting GR Engineering doing their work. Well, we're in the system, and we're contracted and really happy to have them on board and they'll deliver that under a fixed price system. So really excited about that. Look, just execution is a really important thing. So we've already ordered a lot of the long lead items. We did that this quarter. As I said, we've just announced GRES as our preferred contractor. They'll be mobilizing the site next quarter, and we literally will be producing first saleable concentrate in the June quarter 2028. So that's literally less than 2 years away. So amazing result. A lot of work, as you know, have already been done. We've done a lot of early works. I was up there a couple of weeks ago. It's all ready for construction. We literally have got the declines down 2.1 kilometers now, declines finished, primary vents set up. Electrical infrastructure is going as we speak. We're about 21% ahead of schedule. The development team there is smashing it and really excited we start our haul road connection as of tomorrow. So super excited about that. It 8Ks, it's not a big job, but we literally got our final sign-off about 3 weeks ago with Nyamal. So we've got those guys on site tomorrow, and we start connecting the haul road. So that's the last piece of the jigsaw puzzle there. And now just on to Pioneer Dome. So again, this is the other key component is we announced final investment decision on this. As we know, the lithium market has brought back to life. And we've done a year's worth of DSO. We're doing a pit there as we -- that's the provider. We've got about 850,000 tonnes of DSO material that we mined in under 12 months. Status of the project at the moment, we are finalizing and we'll be shortlisting an open pit contract at the end of this week and crushing and screening and logistics following thereafter. We want to be turning soil in mobilizing next month and clearing. Remember, this ore body outcrops and ore very quickly. And the idea here is to be mining this very soon and basically putting ore on ship in the December quarter. It's very capital-light, $40 million CapEx to get this up and running team. It's not often you can sit there in front of shareholders and say $40 million CapEx to generate $200 million per annum of free cash flow. So we've put a table in there of the expected pricing, assuming whatever the carbonate price is. But this is a very high-margin mine. And it's not often you can sit there and say that 2 months' worth of product and you paid back your capital. So it's super exciting. This is probably our most important project in our company right now. So it's great to get Board approval and kick this off. So that's rapidly happening as we speak. We've got our owners' team. And like I said, we're going to be turning soil there next month. So this is all happening very quickly, and we've got a time line there. So with that, as I said, we have refinanced the Woodlawn facility. It's all part of this one package now. And I will thank greatly my team, the work that's happened over the last 3 or 4 years, putting the assets together, doing all the technical derisking and the execution of predevelopment activities, amazing result. We have the management and the operational team to do that. We need workforces to do that. I'm up at Bellevue at the moment, just presented to my crews last night this morning about the next panel coming in the next 24 hours. It's amazing that we've got a team that we now can take into our Pioneer Dome mine in due course and Sulphur Springs ramp-up of the underground coming in a month. So really good to have that technical and operational team in place. We now have the money and now it's just execution. So very not quick time line, but very achievable time line. We've left a little bit of fat up our sleeve for the analysts, but we're now in full execution mode. So with that, I'll hand over to the moderator to open up for questions.

[Operator Instructions] Your first question today comes from Hayden Bairstow with Argonaut.

I just wanted to understand the CapEx increase at Sulphur Springs. Is that -- normally these things come with a change in time line or a change in scope and you're doing things a bit faster. Can you just talk a bit more about what you're doing there? And I mean you sort of said there's a bit of fat in the system. But should we assume this thing comes on a bit earlier? Or is there a faster ramp-up now you're getting ahead of yourself on development or anything?

Good question. Obviously, there's a combination of things. We've got a pretty -- very extensive processing metallurgical team. There's some lessons we learned from Woodlawn as well, commissioning and ramping that up that we factored into this. So there's a bit of change of scope. Obviously, there's a fair bit of inflation escalation like we see that in mining services far out [indiscernible]. So there's a bit of inflation, flights and accommodation are very expensive up in that neck of the woods. Camp costs, that's one thing that has really escalated like talk to anyone building or expanding camps, which most of the industry are doing. So that's escalation, obviously getting the flow sheet right and fine-tuning that. So there's like -- there's no one magical bullet there, it's like a mixture and spread across the inflation change of scope and making sure that we've got everything there for execution, and we're not overpromising and underdelivering. So -- but I do think, as I said earlier on the call, I think that's our worst-case scenario. I do think the next 4 to 6 weeks, we can optimize that quite extensively because there's some stuff we can do ourselves and scope that we can, definitely, but we're just taking sort of the high road and factor in all over and above. But I think there's an optimization piece where we can bring some of this back in.

Okay. Perfect. And just on Pioneer Dome, just you've obviously given the base case of that initial pit. Is the second phase of that project a cutback of the pit? Or would you go underground if the prices are still good and you can keep it going? Is that -- would that be the ultimate plan here? Or would it be to stop and build your own plant or something to start producing spot?

Look, look, very good question. So we're only committing to Stage 1 at the moment. Let's just say budgets are getting done behind the scenes as well. And look, we are talking to the open pit contractors of doing a box cut alongside the pit shell. And that if we commit to that, we're literally doing that month 3 and we'll be starting a portal month 4. So that is probably going to be in the budget. It's not in here right now. But yes, we are definitely doing a lot of planning and scheduling and design work and execution exercise of looking at not having a gap between the open pit and the underground. If we do Stage 2 [indiscernible] is underground, it won't be a cutback of the pit. We do have like this amount in the pit. We do have a small depletion zone and then we go into the underground ore body. So we wouldn't cut back the pit, we would go underground. And to give you a little bit of context, I think from the box cut, we've only got 700 meters of decline and then we're into the ore body from an underground sense. So it probably gives you a little bit of an idea it can go pretty quickly from one to the other.

Your next question comes from Joseph House with Bell Potter Securities.

First of all, congratulations on the FID outcomes for Sulphur Springs and Pioneer Dome. Just a few questions from me. So firstly, is there any further color you can provide on the strategic collaboration with Trafi? What could this agreement entail for Develop?

Yes. Thanks, Joseph, and I appreciate the support and the question. So yes, look, it's like in any business. I try to stick with people I know, trust and respect. And I was just saying to one of the young engineers here this morning, [indiscernible], mining is easy, people make it hard, and I just -- I look at how to run a resource company and you just use the same ingredients and follow the same recipe and you bake the same cake. And if you deviate from that, good luck. So that's all I've done in my career, and I think it's worked pretty well so far. So when you got the right ingredients, tracking really back to us when no one wanted to know us on Woodlawn. And it's a 3-stage concentrator, as you know, it's complex, but that's humming. And they could have burned us early on into piece, and they didn't. Support us, took all the con, paid us all the money and never look backwards. So to have that support from there, and we've nurtured that relationship. And don't get me wrong, we didn't have to sell our soul on this. It was a win-win for everyone. We got really good offtake terms. I think we've got really, really good debt terms, very covenant light, as you can see when you get in the detail of the document. So we've built that relationship up and we've got that trust on both sides from the top down, amazing support from Jeremy, Richard, Gonzalo. And even put a quote in the ASX release. I didn't -- wasn't expecting a big fella to quote in the ASX, but that just shows you the level of engagement that we've got with them and the support and Scott Biffin and the team, like they want to see us grow. They see that we can be the base metal champion on the ASX. So that's quarter 2. I'm blowing the whistle on quarter 1 after this call, but like it just gives you a bit of an indication that they want us to see us grow our business beyond what we're doing. They know we've got the team and the capability. They give us the balance sheet support on that. And their access to projects and intel, domestic and abroad, there's no better flow of metal or projects intel than their database. So that's very strategic for us. They want to see us to continue to grow. So it's really cool that this was their idea as well, too, by the way. And they put their money where their mouth is, they want to back us and ultimately be a shareholder at a premium. So I think that's a really good indication.

Understood. And maybe just shifting focus to Sulphur Springs. I can see the estimated costs are up modestly versus the last DFS outcome. Is there OpEx inflation across any -- just across the C1 cost categories? Or is there a specific category that's seeing more inflation?

No. Obviously, CapEx is like I already explained with Hayden. But no, the OpEx is really good, like because obviously, a big chunk of our OpEx is mining services is the underground component. And we know that backwards. We're doing that every day of the week. So no, there's been very little inflation in that other than the obvious things that people are doing, the drill cons are up a bit with tungsten price and poly, but everything is pretty good there. And the processing, we know that backwards because we're doing that at Woodlawn. So, like touchwood, that was one of the pleasing things was the OpEx was pretty consistent between DFS and FID.

Great. And just lastly, on the DSO pricing that you've quoted in the update, I think it was like $339 per tonne average for Stage 1. Is that consensus pricing? Or are you looking at forward rate? Or what's kind of informing that average price?

Yes. We sort of -- we've got a formula. It's a pretty complex formula, but it really goes on the carbonate price in China, whatever the carbonate price sits in. And so there's 2 elements. There's the grade of lithium that you -- DSO that you're giving. It's the recoveries that you get through the converter and the concentrator. And we have a really cool system. We've got a floating recovery there. So we've got metallurgical accounting with Trafi open books. So we're really comfortable with that. So we don't have to lock in a low recovery, and we're not locking in a high recovery where you get one shipment away and no one wants your product. So we actually get what the true recoveries and they're setting up where they've got an independent circuit that's just going to process our material. So not blending with others, so we know that. There's recoveries line and then obviously, it's the carbonate price as well. So you mix all them up, whatever the carbonate price is and grade and recovery gives you that. So we sort of put ourselves in about the midrange of what we think there, subject to carbonate price. So -- and that's been fluctuating as you know.

Congrats again.

Thanks. It's very profitable little operation and very simple to execute.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Beament for closing remarks.

Yes. Thanks, moderator. And look, thanks again for everyone on the phone. I know analysts that cover us have been great support and our shareholders that are listening. Thank you very much. This is an amazing close out of the first quarter. It's 4 years of heavy lifting by the team. And now all we have to do is execute. But I'm really, really confident we're done. We've got the team to do that. And again, I thank my team and thank Trafi Europe for the support. Super excited about this, now means for the business and where we go to next. So with that, thanks all, and have a great day.