Liontown Limited (LTR) Earnings Call Transcript & Summary

[Presentation]

Welcome to the Liontown at June quarterly call. [Operator Instructions] I will now hand over to Mr. Tony Ottaviano, Managing Director and Chief Executive Officer of Liontown.

We have a clear focus from a stronger position on productivity and growth in this financial year that will set us up for years to come. It's only a short 12 months ago, this call was about protecting the balance sheet and preserving cash. This quarter, we generated $137 million of net cash flow and closed with $561 million of cash in the bank, more than $0.5 billion. The strength of that financial position gives us the pivot that we need from preserving cash to now investing in growth. The first proof of that pivot is in the ground, and you can see that with the strongest development quarter that we've had to record, up 35% and that keeps our ramp up to 2.8 million tonnes per year by the end of this financial year on track and on schedule. I'll take you through the safety, the shape of that quarter and the strategy beyond the pivot, and the team will walk you through the operation and financial detail in the year ahead. And then I'll come back in the end and sum it up. So let's go to the next slide, please, [ Ethan ]? I basically summarized in my opening here these key points, these 5 key points. And the last point I do want to mention is the focus on growth and the Kathleen Valley expansion, which Ryan will touch on, is progressing on schedule and will be subject to FID at the end of this quarter. So we then move to the next slide, please. I want to start the conversation as we always do, with safety. And firstly, our TRIFR. I think we all acknowledge it's not where we want it to be, and we're applying quite a bit of focus on a day-to-day, hour-by-hour basis to improve this. We've engaged some external expertise, some former DuPont people that are the world's best in the area of safety leadership, and we've done quite an extensive survey and forensics of our safety position. And we've got the confidence now to push this forward and make some improvement. But in the area of environment, there were no material incidents in this quarter. All the monitoring was completed and in line with our approvals, and we secured with some fairly significant groundwater lease amendments to lift our water extraction rates as we plan for our expansion. Our hybrid power station delivered 71% of renewable penetration. It was down from the 85% that we had in the previous quarter, but that was largely driven by a lot lower wind resource over that period. And I also want to acknowledge our community and heritage team who kept the genuine engagement up with our traditional owners at [ dual meet ] this quarter and presenting the inaugural [ dual meet ] the buyers forum. If we can now move to the next slide, please, Ethan. Our June quarterly results, our production of 103,000 tonnes of spodumene and we sold 108,000 tonnes over the quarter with 5 parcels, and we shipped a grade of 5%. Production was up around 7% in the quarter, and we held production stable while putting record effort into development. More on that when Ryan comes to speak. Our realized price of USD 1,880 a ton on an ASX basis and benchmarking pricing held through the quarter. And we had strong volumes into firm pricing, which drove our revenue to $235 million, up 19% quarter-on-quarter. I just want to have a short word on realized price because it's worth understanding how we sell. Besides the Q lag, some of our contracts are linked to the chemical pricing, which have not had to fly-up that the spodumene index has had. But Grant will speak about that further, when he comes to talk. Our unit cost was AUD 995 a tonne, up 1% holding unit costs essentially flat in a quarter with a volatile external backdrop is a good result. The number that matters to me most is cash. We built $137 million for the quarter, and we now, as I mentioned in my opening, at $561 million in the bank. Six months ago, we were talking about protecting the balance sheet and preserving cash. Today, we're holding more than $0.5 billion in cash. And we've delivered on FY '26 guidance across every metric. And again, across a very challenging backdrop -- external backdrop. That discipline will now let us do what we need to do in FY '27. So if we just move to the next slide, please. I think it's important that we set the scene because the 12 months seems like an eternity away. Last year, at the end -- at the same point, as I've mentioned in my opening, we were preserving cash. Our net cash flow position was negative 17. We've just finished our strategic pivot where we deferred the North-West Flat ore body to FY '31. The Street was telling us that the market would only come back in the balance late calendar year '27, early calendar year '28. And through our business optimization, we had stripped out or deferred $112 million worth of cash. And a lot of that was linked to less development, some over 30,000 meters of development that over the 5 years, we've removed. Roll the clock forward for 12 months, and we've seen a significant increase in price and therefore, our net cash flow position has improved markedly. So that's given us that focus to move into growth. But we still want to maintain that financial discipline. And in this year, we've restarted some of the deferred spend that we had to make only less than 12 months ago, and we'll talk about that later. We've recommenced the commissioning of North-West Flats, and we've started a lot of rerecruiting and equipment ahead of the production growth. So I think it's important that we set the scene that this year will be a year of investment coming from a year where we had to preserve significant cash to see us through and build a strong balance sheet. Next slide, please, Ethan. I'll now turn to Ryan, who will go through the operational performance.

Yes. Thanks, Tony. So on the operational highlights slide, as Tony has mentioned, development at 3,316 meters, up 35% on the prior quarter, and it's our strongest development quarter-to-date. This is the work that opens all access required for the next step up. And I'll talk about that in a short while. Underground ore mine was 356,000 tonnes at 1.4% lithium. Tonnes were lower than Q3, and that was a deliberate trade-off as we prioritize development in the quarter. Across the second half, importantly, we averaged 1.5 million tonnes per annum, and we did that through the 2 biggest development quarters that we've run to-date. In processing, 647,000 tonnes at 1.3% head grade, producing 103,000 tonnes of concentrate with the plant availability at 92%. Recovery was 63% percentage, 2 percentage up on Q3 and our strongest quarter for the year. Moving now on to the next slide. Thanks, Ethan. Development is really the story of this quarter. As I said, at just over 3,000 meters in Q4 that takes FY '26 to 9,737 meters, up 33% from the prior year. This delivers additional work fronts and a more productive and flexible level design, which I'll talk about next. Production remains on track, the 1.5 million tonne per annum average during the second half with the next step-up in underground mining rates coming from Q2 in FY '27. And moving on to the next slide, I'll give a little bit more color around where some of those development meters are going. Through FY '25 and the first half of '26, as Tony indicated, we're designed for cash preservation, minimum meters in order to reach the ore body. We've taken the opportunity now to redesign the levels for both productivity and flexibility. Three notable changes that we've highlighted on this slide. The first is dual access to the level, which is shown in orange. This separates the trucks in and out of the level, out of the decline. Drill crosscuts shown in blue, allow stope cycle activities to run concurrently. So things like loading into trucks and charging -- drilling and charging stopes can be done in parallel right next to each other, which the previous design did not allow. And thirdly, the truck loading bays, which is shown in green, are off the main traffic route and they maximize traffic flows through the level. Every extra meter here is deliberate. It lifts what a level can produce making each level more productive and increasing operational flexibility. Moving now to the plant on the next slide. Thank you. As has been the case through the year, feed mix has been a significant driver of plant performance. Underground in this quarter increased to 55% of mill feed, up from 48% in Q3. With a focus on developing the mine, we took the opportunity to bring forward the processing of lower quality open pit stockpiles. With prices where they are now converting that material into cash, is much more valuable than holding on to the stocks and it clears the way for a cleaner future blend. ROM stocks closed at 239,000 tonnes, down from 550,000 as we continue to draw down on the last of the open pit stockpile. The balance is processed by the end of the quarter with some unsorted contaminated ultrafines available when opportune through the year. From there, feed will be underground and the processing rate lifts from Q2 FY '27, in line with the mining ramp up. Now on to the recovery. Next slide, thanks. So on 1 chart, we outlined the single biggest driver of plant performance, which is contamination. Well, lithium grade and grind size both play an important role, the reason why we've spoken about the value of clean underground ore and feed mix is evident in this chart. As the lower quality open pit share of the blend comes down, recovery goes up. Q4 was our strongest of the year, as I mentioned, at 63% on a 55-45 underground open pit plans. When we run higher portions of clean underground ore, as we did for most of April, which we spoke about in the Q3 update, the plant reliably delivers 70%. The plant is performing as designed. What moves recovery is what we put into it. That said, we're always going to focus on optimization, and we'll do that through minor debottlenecking, trialing new reagents, refinement of control works and the like. Turning now on to the early expansion works. So just as a recap, we have a number of elements in the early works ahead of FID. The first is the ball mill. Second is the development of the North-West Flat, which Tony has spoken about, and particularly developing that out of the Kathleen's Corner pit. Stage 1 of the permanent mine services area, as well as some other minor works. All up, we've committed to up to $77 million ahead of FID, and we expanded $14 million in FY '26. In this quarter, we ramped up the project team, progressed detailed engineering on the ball mill, started earthworks and construction of the mine services area. And at North-West Flat, we completed grade control drilling, recommissioned the portal that was put into care and maintenance in 2024, and began infrastructure work to support the new portals. As you might have seen from the video we just played before the formal presentation, there are numerous activities underway. Kathleen Valley is an exciting place to be, and we're putting the call out to continue to build the team that underpins the expansion. Notably, the FID remains on track for the end of this quarter, as Tony had mentioned. And with that, I'll hand over to Greg.

Thank you, Ryan. So moving to Slide 14, please. We set a record in quarter 3 with operational cash flow of $55 million, and we just increased that by over 200% to $180 million for quarter 4. You can see we had a bumper quarter in terms of customer receipts with over $300 million. That was an 83% increase quarter-over-quarter and reflects both the sustained market pricing and the strong tonnes shipped out of Kathleen Valley. Production and other operating cash costs increased to $126 million. This reflects both the increase in tonnes processed and produced for planned maintenance activities during the quarter. And we also had higher royalties paid noting that there's a quarter lag between the quarter measured and the quarter paid. So in quarter 4, we paid for the royalties from quarter 3, and that had a substantial step-up in realized price compared to quarter 2. $10 million of sustaining CapEx, that was $6 million higher at quarter 3, $4 million of that increase is associated with underground capital development for Mount Mann, where a portion of that is now classified as sustaining since commercial production was declared at the start of April. $29 million of growth CapEx. This is a step-up from Q3 overlaps with what Ryan described a moment ago in terms of the expansion projects, including ball mill ramp-up in underground development including the commencement of North-West Flats in quarter 4. All of that adds up to a net cash flow of $137 million. And as Tony has said, we closed with $561 million of cash at bank. Net cash of $190 million and 21,000 tonnes of sellable product and inventory. So we are in a very strong position for the continued ramp-up and further expansion as we look towards FID at the end of this quarter. Next slide, please, Ethan. So looking at some of the other financial metrics. We had a record revenue in Q4, 19% increase to $235 million. Of course, that was also driven by the sales tonnes and sustained pricing. Realized pricing on a USD SC6 basis was 2% higher and we were 4% lower on an Aussie dollar basis per tonne sold, which was a combination of the appreciation of the Aussie dollar and a slight decrease in the average lithium grade of tonnes shipped. Unit cost of sales went up $14, so a small increase from Q3. There's a number of ups and downs in that, but simplistically, the higher diesel costs we incurred account for that change. And the all-in sustaining cost went up $63 a ton. So the higher unit cost of sales flowed into that, but it was almost entirely offset by dilution of lease payments because we had more tonnes during the quarter, which means that the increase is driven by sustaining capital. $37 of that was associated with the underground capitalized mine development costs with the portion now going into sustaining, and we also had some other mining infrastructure CapEx across some projects include paste fill, return air ventilation, electrical substations, underground columns. Please go to the next slide, please, Ethan, which is a summary of our guidance for the year. We have delivered across all the metrics, production, unit costs, all-in sustaining CapEx. $114 million across the whole year for CapEx. That excludes the $14 million that we have incurred already as part of the $77 million for early works ahead of an FID coming late this quarter. I'll now pass over to Grant, who will take you through the market outlook.

Thanks, Greg. Despite, I think, what share prices in the industry would tell you, the market remains pretty robust. We're still seeing very strong lithium demand across the sector. And I think the top right-hand chart here demonstrates very clearly that we've seen an unseasonal drawdown here on carbonate inventories, which is now at a point where you've got about 89,000 tonnes of carbonate, which is just around 20 days of inventory. This is a multi-month low, and you can see a very different trajectory to last year. You will also understand in the market that while there's a lot of talk about brownfield restarts, most of those decisions have already been taken, but it takes time to actually see the product come back into the market. We've also seen some large-scale expansions decisions taken, and also some expected in the near-term. But I think most of those have very large 24-plus month build times and then a ramp-up to follow. So if you look at the chart on the right-hand side at the bottom, you can see the expected deficit. This is a fast market chart out to -- well into the middle of next decade. And that really starts this year where they expect to see around 50,000 tonnes of deficit for the overall carbonate market. New greenfield projects have an even longer time frame, typically 3 to 5 years. That requires a more robust pricing outlook than this kind of volatility that we see. Makes it very hard to make long-term decisions, particularly for small juniors who needs funding. But the fundamental demand pathway for lithium remains positive. The Middle East instability to accelerate the economic case for EVs and for energy storage. June posted another record for EV sales with over 2 million units sold globally, AI infrastructure build-out, coupled with broader energy security concerns are driving a long-term build-out of lithium battery storage capacity globally. And we've seen that the first half of the year grew 27% year-on-year which is pretty robust, and that's a benchmark number. So with that, I would say the key message is the physical market remains tight. The trajectory remains very positive for the outlook not only for this year but into many years ahead. And as a requirement, the -- well, as a result, the investment that we're making to try and grow the business to be able to supply into that is a very sensible decision. With that I'll hand back.

Thanks, Grant. Ethan, on the next slide. So as we move into FY '27, I think this is probably 1 of the more important kind of points to make given particularly how coupled our ramp-up is to the underlying ramp-up within the mine. So I wanted to provide a little bit of color and a little bit of context around the work we're doing underground and particularly where all those development meters are going. So this is obviously a fairly simplistic view as we go from our current run rate of 1.5 million to 2.8 million. We distilled it broadly down into 2 key things. One is the work areas that are open to us because that dictates the daily production rate, which then translates into annual production rate. And the second is the equipment to then access those work areas to produce. So as we have a look at the number of work areas through the course of FY '27, we're unlocking 7 new mine levels through the mine. And bearing in mind, and as we've discussed many times over the past 12 months or so, those lower levels are around 3 million to 5 million tonnes of ore per level. So highly productive levels. And each of those, at levels, have multiple work areas attached to them, which is underpinned by the level design that I went through in the earlier section. So by the end of FY '27, we are up to 14 active work areas compared to 4 at the end of FY '26. Again, that's a key enabler of going from 1.5 to 2.8 million tonnes. With those work areas, then we obviously need more equipment. So jumbo is going from 4 to 7, which again allows us to continue to expand out the mine and particularly as we access the North-West Flats. Production drills going from 4 to 7, loaders from 6 to 12 and trucks from 7 to 15. So with those initiatives, more mine levels and more equipment, we're very confident in the 2.8 million run rate by the end of FY '27. Moving on to the next slide. Giving you a pictorial here around the mine and particularly some of the activities around the for Kathleen's Corner open pit access. So we've shown in purple Mount Mann. And you can see the shape of that ore body on the right-hand side of the image, access from the Mount Mann box cut. In blue is the North-West Flats. And you can hopefully now see in this image, the reason why we're expanding the effort to access that ore body from the open pit, given where it's like -- it's location and geometry. That said, in quarter 4, we have reentered the portals in the Mount Mann boxcut that access the Southwest portion of the North-West Flats. And we've started doing some early development and some grade control drilling in that area. The focus in quarter 2 FY '27 will be to access the remainder of that ore body from open pit. We've already started early works to put in power, water, and air infrastructure in that location. So that is clearly a key focus for us in FY '27. Importantly, as I said on the last quarterly update, we will get some small number of development tonnes out of the North-West Flats as we continue to develop it out. So with that, I'll end over to Greg.

Thank you. I'll start with the guidance for unit cost in 2017. We came up $987 per tonne for the whole of FY 2026, and we're guiding to a range of $1,050 to $1,250 per tonne sold. And this reflects the investment we're making to unlock production growth from FY 2028 onwards. The 3 main drivers behind this increase, the increased mining activity is the largest driver. As we have described, we're now mining both North-West Flats and Mount Mann, and we're 100% underground in FY 2027, while we still had some open pit activities in '26. The additional labor and equipment that Ryan spoke of supports both capital and production activities, and this has a flow-on impact to unit cost of sales. The mining method for North-West Flats during the ramp-up period involves jumbo development and stripping. And this has a higher unit cost than Mount Mann that's got a combination of mining importantly includes the production stoping. So this contributes to a higher overall average cost as well. Secondly, the early mobilization. We brought people and equipment early to derisk the ramp up, which gives us the confidence in delivering the plan. These additional costs will be diluted on a per tonne basis as production ramps up. And then finally, we've got economic factors or macroeconomic factors for the inflation in key inputs such as cement for paste fill, reagents, and labor. Next slide, please, Ethan.

Well, do you want to mention about the total movement, the increase in total productive movement? if we can just bring back that slide, Ethan, if we may. I think a key point here, just to underpin Greg's point around the mining activity is the increase in material move from '26 to '27 almost 100% increase, which demonstrates the increased activity that we are going to do this year, which is a pre-investment for unlocking the tonnes in '28.

Yes. Next slide, please, Ethan. So this is the CapEx slide. We're guiding to $320 million to $370 million of total CapEx. It includes the balance of the early works for KV expansion, the $77 million that was announced at the end of April, of which $14 million fell into to '26, so the balance falls into '27, but it excludes any further KV expansion CapEx that will be announced subsequent to the FID scheduled fourth September. So we've divided the CapEx into 4 categories, about $90 million to $110 million of sustaining capital to keep the operation producing at current rate and includes tailings dam lifts, underground development at a steady-state rate and, of course, capitalized plant maintenance. We've isolated out $90 million to $100 million of underground capital development to ramp up to 2.8 million tonnes per annum. This work is planned and we deliver that target by the end of June '27. So the distinction between the development in each of the categories is what does it take to get to 2.8 million tonnes? And what does it take to sustain 2.8 million tonnes? Third category is $80 million to $90 million of mine infrastructure and optimization. This is capitals deferred through the period of low pricing to preserve cash, that covers infrastructure and optimization work across both the mine and the plant, such as the mine services area, and upgrade to the paste plant and expansion of the cap. And then the last category is the balance of the $77 million for early works on the expansion. Really key point about all of this links back to our balance sheet strength. So $561 million at 30 June which means this entire program is funded from existing cash reserves, we're investing in growth from a position of strength and don't require external funding to do all of this. I'll now hand back to Tony.

Thanks, Greg. So just to wrap this up, the market guidance for 2027 is concentrate production, 390,000 to 440,000 tonnes. Again, this is in keeping with our profile for the underground mine ramp up and get to 2.8 million tonnes by 2027. But it also includes -- and this is a key point, we are entering into our expansion. And in order to enable our expansion, we're going to be doing a number of tie-ins to our plant. So this figure also includes additional shutdown time of our plant in order to finish the tie-ins from the expansion. There is a material announced there for downtime associated with that time in addition to the normal shutdown maintenance that we have planned in the course of the year. The unit cost of sales, Greg has already spoken about. And so if that's the range we are predicting. And also we're targeting. And then on the total capital expenditure, the $320 million to $370 million. Greg has already detailed that. And we wanted to give the market that detailed breakdown in order to -- because we often get asked questions around what is your steady-state sustaining capital, and I think we've given you an indication there, but also how is this capital proportion. So rather than giving you this 1 figure, we have given you that breakdown so that's our guidance for 2027. It's really -- just to emphasize, a period of investment that we're putting in after a year of fairly lean and focused and disciplined on balance sheet. So I'll go on to the last slide, please, Ethan, just to wrap it up. Look, I want to thank the team and -- for their presentation today. And let me bring it back to these 5 key things. Cash is building. Again, $137 million of net cash flow. And just to put that in perspective, that's already covered the $77 million that we have for early works and has some left over. So it's a strong position to be in with a realized price of $1,880. And this pricing supports this cash generation. We've had record development in this quarter. And again, as Ryan pointed out, we've made some significant changes to give us that flexibility and resilience, so we can deliver the 2.8 million with confidence, but also set ourselves up for the expansion, which is why we brought North-West Flats into production on the time we have. We will continue to execute our operating discipline to ramp up at 2.8 million. And you can see that through the sort of targeted increase in work fronts, but also bringing in the equipment before we actually need it so that we can bet it down and put it to work and most importantly, get the people to operate. And finally, we're progressing our growth at Kathleen Valley through the FID and expansion study, which will be delivered at quarter 1 of this financial year. But also we're working, as we said in our quarterly activities, on where we're going with Buldania. So we finished an initial scoping study and the team are going to be doing a bit of work on that in this financial year. So more to come on that. Okay. With that end, I'll now open it up to Q&A.

Thanks, Tony. [Operator Instructions]. Our first question comes from Hugo Nicolaci from Goldman Sachs.

Obviously, congrats on another ramp-up year and things progressing well. Look, firstly, on the underground development, you've previously given that sort of ramp-up outlook profile. So maybe can you just give us some comments on the magnitude of ore step-up you flagged in the second quarter? And then the 2.8 million run rate target by the end of '27, how much of that is from Mount Mann versus some of the North-West Flat development material?

That's a good question, Hugo. I'll hand it over to Ryan.

Yes. Thanks, Hugo. So I think the simplest way to think about this and consistent with what we said in Q3 is that Q1 of FY '27 will be at around about that 1.5 million tonne run rate. And then from the end of Q1 to the end of Q4, if you draw a straight line, that's kind of broadly speaking, the ramp up through the course of the year. In terms of your question around North-West Flats, it's pretty minor in the scheme of things. It's kind of less than 5% of the overall total. And so it's pretty much incidental to the development that we're going to build out the North-West Flats. Did that answer the question?

Yes, that's helpful. And then maybe just turning to recovery. Good to see the clean ore recovery sort of averaging 70%, which I think it's what you guys targeted sort of 15, 18 months ago. If I go back, can you just talk us through what you assumed in your '27 guidance in terms of ore mix and recovery? Is 70% now the right number given that you're basically down to sort of mine material?

So I think probably a couple of points there, Hugo. The first is that through Q1 FY '27, we're still processing an amount of open pit, which is kind of what I flagged there. And broadly speaking, you'd say that it's going to have a similar recovery outcome. It's the same broad segment, if you like, in Q1. As we get into Q2 and beyond, then we do have obviously clean underground ore, and we would still target in that order of the 70%. But what I'd say is that recovery is an outcome of a whole range of other decisions. And at the end of the day, what we're going to target is producing on-spec material and maximizing that and recovery would be an outcome of them. So I think what we're targeting, as I said, is still to maximize that recovery when we can. But Q1, as I said, will be pretty much a follow-on of Q4 of this year.

Next question comes from Austin Yun from Macquarie.

Just a question on the growth plant. So looking at the plantation, I just noted that the 4 million tonne number hasn't been referenced at all. I'm just keen to understand if there has been any change in your thinking? I know that earlier this year, you talked about stage expansion. So just kind of understand how to listen about the growth plan beyond the 2 8 million.

It's a good question, Austin. I get told by my Company Secretary that I'm not allowed to mention the number until we publish a DFS. So -- but I wouldn't worry about that number too much, Austin. It's broadly in line with that where we previously have mentioned.

Okay. Cool. Understood. Just 1 quick follow-up. I understand the company -- sorry. Just a quick follow-up if it's okay. Just on the -- I can see that the company is pivoting in terms of thinking on development meters. What is the right level of sort of a steady state given meters that are going to fit into your sustaining CapEx?

Yes. So Austin, from a total dollar number point of view, as Greg called out there, the $90 million to $110 million is the kind of the dollar number. Obviously, some of that is associated with plant infrastructure, but a bulk of that is going to be developed meters. So you can probably back calculate from that, the kind of rough number of development leaders, but it's obviously substantially lower than the total meters we're doing over this year, which is very much around an investment in opening North-West Flats and continuing to open up Mount Mann.

Our next question comes from Jacob Li from Barrenjoey.

Just a follow-up on the previous question on recovery, if I can push you a bit further. Just going to the next couple of years, what sort of level of recovery do you think you can achieve with -- for underground for the previous PFS was a couple of years ago, we're targeting high -- mid- to high 70s. Do you still think that's the internal target? What sort of levers can you sort of pull going forward?