Liontown Limited (LTR) Earnings Call Transcript & Summary

And good morning to the listeners, and a very good morning to the people listening from Western Australia. As we foreshadowed at our quarterly, we have been working to optimize our business to adapt to the low price environment that we now face with. I think it's important that we provide some context first. When we made the decision to build Kathleen Valley, we were looking into a very, very strong market. And the strategy for the company was to grow rapidly to 3 million tonnes and then shortly thereafter to 4 million tonnes. The pricing environment at that time afforded us the ability to invest upfront capital in order to move rapidly and accelerate our growth plans. The environment has changed. And as a result, that upfront capital that we needed to spend, we could not sustain at these prices. So the businesses have to adapt, and we've done that in an agile way. So it starts with the mine plan, but we've also looked at an end-to-end optimization of the business, which we're hoping to articulate today to investors and listeners. And if I start with the first slide, adapting quickly to a low price environment. The key aspects of today's discussion will focus around these 4 pillars. Clearly, the foundation stone is the revised mine plan. We're now delivering 2.8 million tonne production rate from the end of FY '27. In order to achieve that, we've reduced over that timeframe, of nearly 6 years, 38,000 meters of development in order to deliver what we need to deliver. Our forecast expected cash position -- sorry, our operating costs for that period of the second half of this year, we're providing guidance of AUD 775 to AUD 855 per dry metric tonne of 6% concentrate. And I want to stress that this is based on 6%, not 5.2% or 4.5%. This has been normalized for 6%. And this achievement has been done through this cash and business optimization that we've done. But the focus has been on cash. We've gone through our total capital and cost structures, and we've pulled out up to $100 million of savings from this optimization program. But equally as important, we've preserved future optionality, which we will talk about. Should the market change, should the conditions improve, we can pivot and move back into our expansion strategies. Next slide, please. In getting to today, again, I'd like to take the listeners back because it's important that we articulate where we've come from. All along the way, we've delivered on our commitments. From when we started in October 2022, when we started doing our clearing, we've progressively met all our milestones, and we've delivered on schedule. There is a list of our accomplishments here, but the Tjiwarl Native Title Agreement in November 2021, securing Tier 1 offtake partners in Tesla, LG and Ford. I won't go through them, but we were the first to arrange the customer-led finance to build Kathleen Valley through the Ford debt facility. Over 1,000 jobs to build Kathleen Valley plus all the other multiplier effects we've had on local businesses in this area, given the backdrop of other mines in the area of closing during this period. So we're very proud of what we've been able to deliver. And we're not putting out a refreshed DFS that's been done 3 times before or telling the market, we've just drilled another 50,000 meters in the same ore body. We've made genuine progress. And as the last point says, doing what we say we will do. Next slide, please. I'll now hand over to our Chief Operating Officer, Adam Smits, who will go through October's performance. So we did our quarterly last week, and we gave you the performance up until the end of September, but we want to give the market an update.

Okay. Thanks, Tony. As we talked through at the quarterly, we've had a very strong start to the plant ramp-up. October was no different. 91% availability in the month of October, over 200,000 tonnes milled and 25,000 tonnes of concentrate produced at an average grade of 5.4% lithium and very low iron. A key part of what we've been able to achieve is linked to that availability, which was linked to the design and the work we did with Lycopodium and others in the design phase, and that's really, really starting to show through now. To date, we've shipped over 50,000 tonnes by Geraldton, and we have another 50,000 tonnes expected to be shipped this year. So that's just around 100,000 tonnes of concentrate that we're putting out the door before Christmas. We've really, really pushed hard with the plant. We continue to push hard with the plant. The plant has so much capacity to continue to improve. Float recovery has progressively increased and float recovery equals overall plant recovery. So for the month of October, the average recovery in the float circuit was 68% the last week, with 74% and it peaked at 81%. Those are sort of numbers that a much more mature companies than ours are putting out now after many years of operation. We're doing it after 3 or 4 months of operation. We've already started some minor debottlenecking work, and that's, I guess, a differentiator or at least we see it as a differentiator for us. Yes, we've built an amazing plant, but we still see little tweaks and little room of areas for improvement. We had our first shutdown last week, which went extremely well, first reline of the SAG mill, and we've already installed some upgraded components that were identified during commissioning. So that shows how quickly we're adapting to change in how quickly we're pushing to make this thing go even better than it is already.

I think the last point that I will add on that is that as we get more and more data, we will use that data to give us information. And from that information, we'll get knowledge, and optimally, we will get performance. So Adam's team is now collecting data that's well structured, and we're putting the latest tools and advances in technology to play so that we can get even better. I move to the next slide, please. And I want to talk about business optimization. I mean we don't do an exercise like this by randomly cutting into issues and hoping for the best. This whole program, and I think the market will be patient, but we have to be patient because it has to be done systematically and with the degree of rigor and thoroughness so that we can stand by it and support it in the market. So there are 4 key value drivers. There's a mine plan, which we'll talk about in a minute. I mean the focus of the mine plan was twofold. Firstly, we wanted to prioritize the highest margin ore. We want to maximize the tonnes per vertical meter, and we wanted to go with the most efficient capital development led us to. It's important that an underground mining operation affords us this flexibility. We can go and target the areas, whereas in open pit, you have to start at the top and work your way down. There are no shortcuts. But equally important, the changes we wanted to make have to preserve mine life and resource extraction efficiency. Productivity is the next driver. As we mentioned now quarterly, we're getting over 300 meters per jumbo per month, and that is continuing. We've got dual declines. We don't have 1 decline, and we've got very short hauling cycles. Adam has already talked about the fourth generation processing plant and high-quality wear materials. And looking at our shutdown and the time between shutdown, how our wear materials were done. We've got 3 months of data, and we're starting to get a feel for how the plant is performing and where. But that's more work to be done. There's debottlenecking that we're doing in all the time, which Adam and his team and also our advisers and engineers, Lycopodium are assisting me. Reducing the input costs on a lot of our commercial arrangements were finalized during hot market conditions. Now that we're in and running, we can look at our demand for certain consumables, is there an opportunity to reduce? Do we need to buy OEM materials or can we go for a different brand that is cheaper? And then there's a lot of cost sourcing. Those 4 points are stock standard approaches to reviewing your procurement spend. And then finally, I'll turn to Jon about this later, but there's optimizing how you allocate capital and being very, very disciplined around focusing on spending sustaining capital where there's a safe issue, that's first and foremost, but then the essential activities that maintain ongoing operations. It's not needed now, let's defer. And just to give you an example of the sort of dollars we're talking about, there's up to $100 million, but a subset of that is that $9.5 million we saved by deferring the ore sorting and replacing the higher cost water borefields with lower cost commercial solutions. Next slide, please. So I'll now turn it over to Adam that will go through the mine plan changes in detail.

Thanks, Tony. I think as we've mentioned both Tony and I already today, the key driver for the mine plan revision was an enormous amount of work by Greg and his team to, I guess, optimize the mine plan. A key driver was making or chasing high-margin tonnes. Now what are high-margin tonnes? In our case, high-margin tonnes are the ones with the lowest development, the best grade and bulk, bulk tonnes, high tonnes per vertical meter. So in the upper areas of our ore body, the stopes are typically between 5,000 and maybe 15,000 tonnes in terms of -- on a stope basis. In the lower areas, they're 20,000 to 80,000 tonnes. So you can see that diving down as we are proposing to do now into the thicker, sweeter areas of the ore body earlier, gives us much, much, much higher margin tonnes. We've also adopted a much quicker mining sequence in the upper areas of Mt Mann. So you can see the little greater slots in between the pink bars in the picture to the bottom right corner. That means that the stope turnover is faster and the mining sequence is faster. We've also separated the upper and lower portions of the ore body so that with [indiscernible] so we can mine 2 areas at once. And we've dived down into that central zone, which we always plan to do, and go after it early. That -- what you're seeing in that picture there is 5.5 years of mining. There is another 5-plus years already scheduled below that, and another 3 or 4 years below that, that hasn't been scheduled, although the stopes have been defined. So A key other, I guess, part of this process is we're not killing or sterilizing any part of the ore body. This is the ultimate flexibility of what we've got as an underground proposition versus our peers that are open pit, is that we can go down and get the best ore. We don't have to top down in terms of a mining sequence. So the mining sequence, just to reemphasize focus on high-margin tonnes. We've deferred the Northwest Flats area. There's still more work to do in Northwest. That's not to say it won't come back into the mining schedule. We've got some drilling plan there to better define that. But certainly, we've gone after the Mt Mann area, which is far better defined, far thicker and with much better grades. We've lifted the average grades in the first 5 years from sort of 1.2 to north of 1.5, which makes a big difference when you're mining. Tony?

Thank you, Adam. The only other point that I would add on this picture is the area circled in that dashed line. That's the area that we've -- that provides the future optionality for expansion. We bypass that area to go down to the higher-margin product. But if the market changes, we can quickly move into this area and mine it, which was the initial intent when we were going for volume and accelerated growth. So if we go to the next slide, which is the FY '25 guidance. In our quarterly update last week, we mentioned that we will provide the market with as much transparency as we can. We have followed what we believe is best practice in terms of how the costs are reported. We have given the market our unit operating costs but also our all-in sustaining costs. And the definitions of what's in and out is included in there. So the all-in sustaining cost includes our royalties as well, and we've made assumptions around price and FX for those royalties. So we believe we have, for this second half of the year, a very competitive cost structure that will see us moving into the future. Another point to note here is, the first half of the financial year, we're in ramp up. And we're also finishing the project and starting to ramp up. There is a lot of noise in those numbers. There's a lot of accounting treatments that come in and out, which made those results very difficult to unpick. So we gave a far cleaner perspective in the second half for the market to understand. Our full year FY '25 guidance for production is between 260,000 to 295,000 dry metric tonnes of SC6 concentrate. Can you go to the next slide, please, [ Josh ]?. So we've given you guidance for FY '25. We'd like to now give you some directional perspective in the next few years. So we'll go through each one of these areas. But the key point here is the objective of the revised mine plan is to optimize the outcomes through the key drivers that I've previously outlined. It gives us an optionality and value through the market cycles. So it starts with the mine and mine life. So I'll just ask Adam just to go through these points.

So as noted earlier, the key driver for the mine plan revision was high-margin tonnes. So we've chased high-margin tonnes. We didn't want to sterilize or have any material impact on what we didn't touch. So we can always go back and take it later. That's a key driver for the mine schedule. And we wanted to retain that optionality so we could go back and we could mine out of sequence, if you like, again, another advantage of the underground mine. In terms of plant performance, obviously, the plant was designed for 3 to expand for 4. We're targeting now 2.8 to the end of financial year '27, and up to 530,000 tonnes of concentrate all within the realms of what the plant was designed for. So there's no change there. And in terms of grade, current grade, about 1.2, peaking at about 1.5 to 1.6 by the end of the sort of 5.5-year period that we've laid out, all within the realms of what we have with basically no upgrades to the plant. All that's happening at the moment is minor tweaks to further optimize what we've already bought.

On the cost of production, we will provide FY '26 guidance in 7 months' time in the normal course of business once we give the market the results of our full year. But we also want to note that the FY '26 will be impacted by the fact that we're moving from open pit to underground. So in that transition period, it will impact our cost structure and also our concentrate production. The final bullet is, if we move over to the capital investment piece, I'll ask Jon to walk us through this.

Yes. Thank you, Tony. In relation to capital investment, and more specifically, our sustaining capital spend, we do expect that to trend lower across FY '26 to '30. And that's one of the key drivers there is that lower underground development spend that we've spoken about, that's 38,000 meters, that's obviously a significant cost savings there. Looking at the second bullet point, in relation to our Kathleen Valley project spend, as we mentioned on the quarterly call, we expect that to come to an end very shortly. We're just dealing with the tail end of the cash outflow associated with that, but that will be completed very shortly. And probably a key point to note is, there is no additional planned growth CapEx beyond FY '25. All of our CapEx will be recorded in our sustaining CapEx number. Having said that, I'll return back to Tony.

Yes. And just to help the market understand how we've categorized the various forms of capital. We have put a definition slide as an appendix to this presentation so that you can clearly see how we've apportioned the capital in the various categories. So if we go to the next slide, please. Just to wrap up then, in summary, it starts with the high-quality asset, which we've got in Kathleen Valley. I mean, we can only do what we can do with such a great asset that's afforded us the ability to be flexible. We're well positioned on the cost curve. We've given you guidance for the second half of this financial year. And we believe that guidance is competitive against our peers and below the spot price. We've delivered -- this track record of delivery, I cannot stress this more. Now we've delivered a greenfields project in just 19 months. We've got what we believe is an industry-leading process and plant. We've got both open pit and underground going, and we've built a hybrid power station solution with all [indiscernible] infrastructure with our partner, Zenith. Now we will continue to do things in a rigorous and systematic way and deliver on our promises. And given what we've gone through, and we believe we've got genuine IP in this area. Now looking forward, there isn't projects on the drawing board or shovel-ready. There is going to be a gap for projects to come on for the foreseeable future. We've optimized all the value drivers. We've had early success in our ramp-up performance as we continue to go steady state, but we will look to debottleneck the plant to get further upside. And we're using every tool at our disposal in order to get that ramp up as efficient and effective as we can. As I mentioned, we're using technology such as AI. We've revised our mine plan and designed it to target high-margin products, a high-margin ore and reduce development and fixed costs. We've optimized the processing plant to deliver 2.8 million tonnes, but 530,000 tonnes of SC6 at an average from FY '28 to '30. The important point here to note is, we can satisfy all our customer obligations with the current mine plan design. We've done up to $100 million of savings to be captured with a disciplined ongoing in capital cost management to ensure that we continue to manage our unit operating costs and all-in sustaining costs to trend lower after FY '26 and finally, we're adjusting our supply volumes to meet the current market and maximize cash margins over this -- over volume. We are focused on cash. Finally, Liontown remains responsive and committed to doing what we say, we will do. And as I reiterated already in this presentation, our optionality is being retained, we'll revisit what we need to do should the market conditions improve. And we will pivot and therefore, change the mine plan accordingly, which will mean there will be different sets of costs and requirements as a result of that. We need to demonstrate that we're agile and willing to adapt. So that brings our presentation to an end, and I'm happy to open the floor to Q&A.

[Operator Instructions] Our first question today comes from Kate McCutcheon from Citi.

Just help me think about the mine plan. So your underground reserves are running at 1.3%. You've noted the new mine plan prioritizes grade is up 1.2%. So you haven't given us a great shelf for that profile on Slide 9. So what does that mine grade look like then to deliver you 1.5% of the process grade by FY '30, if you can sort of talk through that profile, that would be great?

Yes. So I think if I'm understanding your question correctly, the first couple of years is between 1.2% and 1.3%. Year 3 is 1.3% to 1.4%. Year 4, 1.4% to 1.5%. In the next 2 years, about 1.55% in broad terms at a run rate [indiscernible].

And that's where it sits laterally in the mine? That's just where it sits specially in the mine, like...

Correct, correct. Yes.

We're just going to that area, and that presents itself, we're mining it through.

Exactly. Some of those stopes are higher and some of those are lower, but that's the average grade for the year.

Got it. And then you've essentially given us an updated life-of-mine plan at 2030, but you haven't given us expected operating costs today past the next 6 months. There's been a lot that's changed since you last disclosed life mine cost. How do we think about that profile? Your comments indicate FY '26 will be higher versus FY '25 and then it trends down to FY '30.

Yes, that's the guidance we've provided. I think there's a couple of points to make here, Kate. We're only 3 months into production. And the need -- we've provided in the market what I believe is a first around providing guidance while we're still in ramp-up. The second thing is the focus that we've done on this work is [Technical Difficulty] Sorry, we lost audio there. I'm not sure, Kate how much you heard of my response to your question. Can you come back?

Sorry, Tony, I heard 0.

Okay. It was strategically timed, Kate. So there's a couple of points that I'd like to make again. Firstly, we provided guidance for the second half of this financial year. And from what we can see in the benchmarking we've seen is it's not done often where a company provides guidance while they're ramping up. So we felt that we're on a first step by providing you at least guidance for the second half of this financial year. The second bit is we made a lot of -- we've provided a lot of focus on the fact that this is for the next 5 to 6 years, the work that we've done. The team has not finished the life of mine optimization. We prioritize the first 5.5 years in order to get a sense as to where the cost could go. And in parallel, but at a slower cadence, we also started the life of mine optimization, which will include how we bring in Northwest Flats because we're doing some drilling in that area to see whether there is another way of coming into that ore body through the open pit, for example. So because we haven't finished the life of mine, it was hard to give you a life of mine cost structure.

Okay. And so will there be an update when that work is done, Tony?

We'll see.

Our next question today comes from Adam Baker from Macquarie.

Tony, and thanks for providing the guidance color after you've got the real-time operating data. Just wondering on the cost given that they're given on an SC6 basis, should we use this as a read into what the quality of concentrate you're aiming to produce? And if not, should we expect these costs to be normalized to SC 5.2% or 5.3% basis?