Mineral Resources Limited (MIN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Mineral Resources Institutional Investor Call and Presentation for the Full Year 2021 Financial Results. I'll shortly hand over to Chris Ellison, Managing Director of Mineral Resources. Please be advised that today's call is being recorded, and the presentation contains forecasts and forward-looking information. You should carefully read the disclaimer at the back of the presentation. A copy of the presentation and a transcript of this call will be posted to Mineral Resources website under the News section at mineralresource.com that I used at the end of the Managing Director's address, there is an opportunity for institutional investors, analysts and media to verbally ask questions. [Operator Instructions] I will now hand over to Chris Ellison.

Thank you. Thanks, Rachel. Good morning, everyone. Thanks for joining us. This is the Mineral Resources full year results. I'm Chris Ellison. I'm going to be joined by our CFO, Mark Wilson, and Mike will walk you through the financial part of the business. Big year for Mineral Resources, good results we've turned out, but it's been a tough year and everyone trying to navigate and try and understand what effects this COVID virus is having on our business, and it had effects on us pretty much on a daily basis. But we've managed to get a landing. It has not been easy, but it's been outstanding. We've had some record profits, record tonnes moved a lot of dirt around. And we've got some outstanding opportunities sitting in front of us over the next 2 to 3 years that we get the challenge to be able to deliver on. I'll talk about those a little more shortly. The safety in the business has been outstanding. The caring and the culture and the well-being. We've got some amazing people in our business, and we've got a lot of good people that have been around a long time. I'm going to talk a little bit about how we're caring for our planet. And then we'll talk about where we've been over the last 12 months and where I'm taking the business moving forward. Some key highlights. We've invested heavily in the business in terms of our people, in terms of the culture, how we care about our people, how we look after them. We care about them around not just safety, but their mental well-being and their health. And that's making a lot of inroads into us getting to a better place for our people. We've had some outstanding innovations that we've developed over the last 12 months, we're able to turn those into projects. Our safety around our people has been significantly improved over the last year. And frankly, I thought we were sitting last year in terms of industry-standard, I didn't think we could get better. But our team had delivered a 30% better result on that. EBITDA, we're up 148% at $1.9 billion, $1.5 billion cash in the bank, mining services volumes are up. Iron ore shipments are up. And the lithium, it's been a tough market out there in the lithium. We've kept Mt Marion running and Mt Marion delivered almost 0.5 million tonnes of product. It's probably the only hard rock mine in the country that's been running at 100% production. On the energy front, we've increased our exploration footprint. So we're now the largest landholders in the Perth Basin. And also, we picked up a huge track of land up in the onshore Carnarvon Basin in a joint venture. Innovation, we've had some great progress. We've delivered on the 15 million tonne a year NextGen plant that's fully operational and probably running a bit ahead of our expectations. We've developed some carbon fiber screens for our crushing and processing plants and in conjunction with Kenworth, we've delivered some 320-tonne payload haul trucks. We've got 5 in operation and another 1 due shortly. But overall, it's the best year we've had to date, and that's really thanks to the dedication of an amazing team that we've got that probably the best by far management team I've had in my working career. Safety, as I said, outstanding result. You consider that we've added over 1,500 permanent people to our payroll during these times, which has been a difficult task, but to bring them on board and to be able to get them to understand our culture. We've got them involved in a lot of the training we do, which is the core of our safety. But nonetheless, we did have 1 injury during the year. We had a crushed finger. We had an immediate response to that with all of the senior management involved. We got an evacuation our Chairman of MinRes Health, Dr. Neil Fong managed the case remotely. And when I say remotely, I mean he was holidaying up in the Kimberly and he made sure that we got all of the right care wrapped around the young lady, and we managed to save a finger to have a full recovery. So a big deal in our business, something like that happening. So we've made changes across our business to make sure that we don't have a repeat of that. But our safety has been exceptional results. If you have a look at our peers, I mean we sit at the very bottom of the curve. Well-being, another big focus in the business over the last 3 years, we've really looked long and hard at the culture of the business and the well-being of our people. We can sit in out not just to bring them home safely, but we want to bring them home mentally and physically strong and fit and we want to make sure that our people understand that they are more than just employees for the business, and we want them to be with us for a long time, their entire working career. And we're doing a lot of things to try and make the work environment for our people probably in the top 20% in the country. We're developing a new head office. It's going to have state-of-the-art facilities. We're going to have Jim Wellness Center restaurant, Cafe and an amazing work environment where people are going to be able to work in good peaceful areas. They can work in collaboration. They can do a whole range of things. And then we're going to carry that out to our mine site. So new camps we develop are going to be more resort style than a camp. We're going to have bigger rooms. We're going to encourage couples to be able to work and live together on site. We're going to have Olympic size pools. We're putting in wellness centers, restaurants, cabins, cafes. We're going to have in some of the areas where we've got caps on the case, we're going to have cases as we are in our new head office. Look, some of the things that we've been doing around -- particularly around mental health. We have had a full-time psychologists on board for about a year now and making a huge difference in the business. We got 50 trained first responders through our lifeline partnership. We've got over 700 people that have completed the mental health literacy models. And we're really starting to get a different focus in our workforce and around site around mental health. We've got a great partnership with youth focus. They've got a dedicated person that looks after under 25-year-olds and they can be in direct contact with that person. The mental health training, we're trying to destigmatize people reaching out to get help, and we're making great inroads with that. We're growing the MinRes Health business. So when we move into our new facility up in Osman Park, we're going to be staffed with a medical facility. We're going to have a couple of doctors in it. We'll take care of all our people medically. We've got over 40 nurses on the payroll, and we've got a physiotherapist coming on board to help around our wellness center. So a lot of work we're doing around our people. But the people will be core to this business and they continue to deliver. Sustainability. We're developing our talent. We've got new apprentices to come on board. We do an intake every January. This year, we bought 14 on board. We've got 63 in total in the business. We've got 53 trainees. They basically come on board at entry level. Most of them have never heard of a mine site before a little seen. We try and get them into the business through dump truck operators. It's the easy entry for them. We get them on to site. We've got young people out there that start around $90,000 a year on salary. And once they're in the business, there's a whole range of things we could do to progress and throw in different career paths. That's working extremely well. Graduates. We got 14 that were brought on board recently, and they range through accounting geologists, engineers, Mets, environmental department right across the business. Our contribution to society would put about $1.3 billion spend into the WA economy. Over the last 12 months, we paid about $700 million of our favorite taxes to our beloved governments. We've increased our social contribution to over 70 different charities. And they're generally around health, well being, education, employment, family violence, a whole range of issues that we think that we have a need to contribute heavily to. Our sustainable business. We're committed to 0 emissions by 2050. And we think that we're going to bring that in much sooner than that. We've reduced our emissions intensity by 5% this year. We've developed a transition plan to low carbon future, and we want to achieve net 0 emissions. And we've outlined that in our sustainability report that will be out in October this year. Basically, look, in the short term, we're doing everything we can to reduce the burn that we have on diesel, and we're looking to replace that with a whole range of alternate clean fuels, and we're succeeding on that on a weekly basis. So I mean, we're very heavily focused on making sure that we can clean up the workplace that we're in and make sure that we're very much aware of the fact that we want to carve a neutral world. Financial performance. Good headline numbers. Return on invested capital, almost 40% this year, it shows that we are very focused on making sure that we're going to invest in something, we've got a minimum return we expect. We've averaged about -- almost 37% return over the last 3 years, revenue, up 6%. Underlying EBITDA, good delivery on that. The cash at bank, $1.5 billion. And we're putting out a second half dividend of $1.75 so $2.75 for the full year. So look, I'll just pause on that for a minute, and I'll let Mark walk you through where we've been on the financials.

Thanks, Chris, and good morning. It's a pleasure to be here with you this morning to walk you through the FY '21 financial results. As I've done in previous years, I'll focus my comments on the underlying performance of the business. This year, we have continued to improve our disclosure. You'll find a reconciliation of our underlying earnings to our net earnings in the segment note to our financial statements. That note reports that over the course of the year, we've generated unrealized gains of approximately $230 million pretax on our investment book, unrealized FX gains of about $52 million and impairments of about $46 million, 10 of which were taken in the second half. We've also, for the first time, provide you additional information on mining services tonnages, actual tonnages to assist. Overall, I'd characterize this as another year of strong operating performance by the business. We're benefiting from the significant investment we've made in recent years to support the development of our mining services core capability, which runs deeply through the business. And we're using that capability to leverage into new opportunities in the commodity space. Starting with the P&L. As Chris said, record profitability for us, both at an EBITDA and an NPAT level, very strong results across the business. The only part of the business that hasn't contributed strongly to the result is the lithium commodities business. Chris touched on this in his opening remarks. The volumes out of lithium were extremely strong. We shipped 23% more year-on-year, but the pricing remains soft through the course of the year. And it's really only since the end of the year that we've started to see that lithium price start to move. In terms of volumes through the whole business, they've been consistently strong in terms of growth, whether it be in iron ore shipments, lithium shipments, mining services, volumes growth of 20%, strong growth activity through the business. Mining services margins have remained stable and strong through the year, a solid performance from that segment. Commodities margins have improved, as a result of stronger commodities prices. We have started to see -- particularly in the second half, cost pressures emerge through the business, and we expect those cost pressures to remain with us for a short period yet. As a result of the -- and following the strong financial performance through the year, the Board has resolved to declare a fully franked final dividend of $1.75 per share. That takes the total payment over the course of the year to $2.75 fully franked, as I said, record payment, and that's about a 47% payout ratio on underlying NPAT. The next slide attempts to describe the path of the year in terms of our EBITDA performance. And yes, we have grown underlying EBITDA by $1.1 billion, which is a substantial result. What this slide shows is that leaving aside the performance of the commodities prices and the associated impacts of royalties and so on, the underlying business has performed very strongly. We've seen 18% growth year-on-year across our operations on a like-for-like basis. In terms of our cash flow, on the next slide, we've seen very strong cash performance out of our core operations this year. We've had a very strong working capital performance means that our operating cash has been very strong at well over $1.9 billion. We have invested heavily in the year with CapEx at $745 million, and I'll talk to that in the next slide a bit more detail. Over the course of the year, we did make the final payment of $333 million on the tax on Wodgina gain as previously foreshadowed. So over the course of the year, we've spent over $900 million on taxes and dividends. In terms of the CapEx, we did guide earlier this year to $600 million number for the full year. We've come up a bit higher than that. We've had some additional mining services opportunities that we've invested in. We've also started to spend on Ashburton and on oil and gas. So we've landed the year at $745 million guidance next year is a little bit below that. As Chris said, we have also invested during the year in the new head office and that we see that as a critical component of the offering for the business going forward. In terms of the balance sheet, cash, as Chris said, finished at just over $1.5 billion cash despite a significant year of investment and tax payments and so on. We have seen receivables and payables grow consistent with the growth in the business, as you would expect. But I think 1 of the really interesting things for me is that whilst we've been able to deliver substantial growth in the business, and we've held our inventories pretty much there or thereabouts. And so the working capital position has been extremely strong against the backdrop of a very -- a business that's growing at a significant rate. There's a fair bit of commentary on the rest of that slide, so I won't go through all those points. But I will note, though, in summary, whilst the business -- whilst the balance sheet has grown significantly over the year, it's in a very, very strong position to support the growth opportunities that are in front of us. Next slide takes you through a waterfall movement of net debt over the year. We finished the year net cash to $180 million. When you adjust the opening position for certain events that relate to prior years such as the Wodgina tax payment, we really started the year on a net debt basis of '20. So looking at a $300 million movement, positive over the course of the year. Before I hand back to Chris, I just want to take a moment to go through a few more slides, show you a little bit about the history of the performance of the business over the last 5 years. For the last 5 years, we've grown earnings strongly. We've done this by broadening the offering of our mining services business, developing those capabilities further, engaging with external clients and leveraging into new commodity opportunities for the business. We've been able to grow the business significantly over the last 5 years. The balance sheet size has doubled. We've done that without raising any equity and we've been able to maintain conservative gearing on the balance sheet through that period. The consequence of that is that we have improved diversification, increased scale of operations and businesses in a far more robust position. We're now generating more predictable cash flows and earnings through the business. In terms of our free cash flow generation, we do believe, and we've said this consistently, the return on invested capital is the right measure for us to be focusing on. This industry is capital intensive, projects do span a number of years. It is important that we retain capital discipline. We do focus on an after-tax measure of 20% at project level. We do that with the aim of delivering at least 12% at a corporate level. That discipline approach has seen us generate about $1.4 billion in cumulative free cash flow over the last 5 years. Finally, in terms of performance since listing, you can see on the left, our return on invested capital outcomes over the 15 years since the business listed both on an actual annual basis and on a rolling 4-year basis to show the cycles. What that discipline focus on ROIC has done, it's helped us deliver significant growth in cash flow, operating cash flow through that, even over the last 10 years, we've delivered that $6 billion of free cash flow through the operations. That's allowed us both to strengthen the balance sheet through retaining earnings but also to pay out dividends, and the dividends have grown at an average of about 29% per annum over that period. The end result of all of that is that the business is extremely well placed with a strong balance sheet to leverage into the significant opportunities that we have in front of us going forward. On that point, I'll hand back to Chris. Thank you.

Okay. I'll just run you through what the business has been up to over the last 12 months and then we'll get into where we're heading to over the next 1 to 3 years. So anyone that's new to the MinRes business, we have a reasonably unique business model. We started life as a mining services organization. We've had that in our DNA ever since, and we work hard to keep that. But over the years, we've grown into a range of different commodities where we've been able to do joint ventures, famines in some cases, we've taken over businesses that have got good commodities sitting inside them. We've been able to develop them in a fairly unique way. We can get them up and running reasonably quickly so that we make sure we catch the cycles in the market. And we can turn those projects into reasonably long-term operations. So we're predominantly WA-based all of our commodities are WA based. We've got good infrastructure and supply chains up and down the coast. We're in Western Australia by good fortune. I mean, it's 1 of the probably the best mining regions in the world. There's a high level of social acceptability by people that live in WA for the mining industry to be able to operate the way it does. We're very politically stable, and we've got a very savvy government that understands our WA is best positioned to generate the revenues that it does. And we're also very close to our trading partners, in particular, our biggest trading partner in China, who Western Australia very much baggage that relationship, and we're working hard to make sure that we can grow it. We're addressing our carbon footprint. We're looking at all different fuel types, whether it be from the sun or from batteries and we're trying to make sure that we're up there with any new technology that comes out. We want to reduce our carbon footprint, and we're working as hard as anyone is to do that. The business is generally made up of 3 pillars. So we've got the mining services, which is our foundation. We've got the commodities and then we run what we call our innovation and new technology. And that over the last 20 or so years has enabled us to be the leading crushing and mining services organization in Australia. And in fact, we rate in the world in terms of our capability and the amount of rock we crush. So a good solid business. In terms of mining services, we've got a huge workforce that have been with us, most of them have been with us for a long time, and that in itself is the culture and the reason why we're so good at what we do is we've got so many very, very good people. The iron ore, we've got 3 operating mines in the Pilbara, on down in the Yilgarn. The lithium, we've got 1 up north and the Pilbara again and JV with Albemarle from the U.S. That's a 60-40 JV with Albemarle with 60. We call that Albemarle JV because it owns not just the Wodgina mine, but it also owns the Kemerton hydroxide facility that's currently under construction and due for completion late this year. In terms of energy, we're the largest acreage holder in the Perth Basin. We have a huge amount of land up there. We're actually drilling our first hole, and we've also got a large tracker and offshore, the Carnarvon Basin near on. And innovation, as I said, we've got a lot of proprietary technology inside the business, and we benefit through our crushing and processing hubs. We're in carbon fiber, transport systems to make sure we've got long-term low-cost supply chains, which is critical to get our product to the coast. And we've been a market leader in mining services for over 20 years. And we've got a lot of energy in that space, and we're just getting started with that. There's some great opportunities ahead of us. The Mining Services performance over the last year. It's been exceptionally strong. We've grown by about 20%. It bounces around a little bit the growth in the mining services, but some halves jump up by 30% or 40%, but we seem to sit at an average of better than 20% over the last couple of decades, and that's probably only going to get better as we go forward over the next 3 years because we've got some incredibly good long-term mining services contracts that we've got locked away. We've -- over the last 12 months, we've had 3 new contracts we've entered into. We've got 5 that were renewed and our customer retention in our Mining Services business is always extremely high. And that's simply based on the value that we can return to our clients in terms of performance and cost. We run 26 operating plants around the country. We've got 17 open pits operating. In our Construction division, we recommissioned the Carina mining iron ore hub, and we're using that to get more tonnes out of the hill game. One manner, it was designed, construct to commission all in the space of 5 months. So first store 5 months after we put the first shovel in the ground, and that started at a 5 million tonne run rate. We got 20 cranes and a couple of hundred people down at Kemerton, supporting Albemarle with the construction. And in the Ashburton, we're finalizing the design and trying to finalize all the approvals in order so that we can get that started shortly. And they're designed and constructed the Parker range down in the Yilgarn that's due to come online next month. In the energy space, we've put down almost $700,000 of seismic was completed, and we've got our first big drill rig on-site, and we're over a kilometer down in that hole at the moment, had a bit of disruption with COVID getting people across borders. But they'll get that down over the next 3 or 4 weeks. And energy guys are also installing a 2.1 meg solar power station up at our new Wonmunna site, and that's something that we're going to be continuously doing right across our sites. We'll be adding that clean cove energy wherever we can, which is most places we are lucky that we've got lots of months of Sunshine in WA. And MinRes Marine, which is a new part of the business, headed up by Jeff Weber. He's done an amazing job. He's pulled together, finalized the design on a new concept of the transshipment. It's going to be able to pick up 20,000 tonnes and about 5.5 meters of water and take the ore out to Capesize carriers. And we'll be able to load those. It will, in fact, be our lowest cost port operation in WA once we get that into operation. Our long-term mining services, a couple of charts and there is late to see. The Mining Services business, as we say, it average is a bit over 20% a year over the last 3 years, it's averaged 30%. The margins are always strong. They're consistent through the cycles. They don't move around too much. Regardless of commodity prices, and they've got very good predictable long-term annuity streams. So a very good part of our business. Commodities performance, the numbers are all there to look at costs and tonnes that we have. We had a lot of disruption with COVID trying to move people across borders and people getting locked out. But the upside of that is that our WA government has been very strong and making sure that WA is safe and all the mine sites have stayed open. We've had no mine sites in WA closed through COVID, which has turned out to be a powerhouse for Australia. So we come in at the bottom end of guidance. But as I said, we've never been through a virus site this before. So we're learning to manage it now. We're learning to live with it. Iron ore costs are up slightly due to increased costs we've got wrapped around trying to keep them to operate under these conditions. And we've got some short-term increase in our strip ratio, which will probably disappear by about the end of the calendar year. The yield on hub, we've got that bedded down well. Mine planning is running well, and it's basically sitting in a steady state. We're slowly replacing all the big inland haulage fleet down there with our new 320 tonne road trains, and we're pretty much running at capacity through the Esperance port. And we've got some material going through back through the Carnarvon port where we used to export the Carina. Lithium prices are increasing out there in the market. We still see demand. It's a little bit rubbery, but because there's much less product in the market than there was 2.5 to 3 years ago, obviously, the supply demand is moving reasonably quickly over the last sort of 6 to 9 months. But we just got to wait and see where we head with that, if we turn too much supply on, we may end up in a -- not a good spot, but our friends at Albemarle very focused on where that's sitting. But the outlook, certainly for lithium is looking extremely robust, and it's going to be a significant contributor to our business over the next decade or so to come. Mt Marion, it's been running well. Exports are up on the prior year. We've improved the yields. We've lowered the cost slightly. So Marion's running well. Future direction where the business is heading going forward. We've got lots of opportunities out there. We've developed. Some of them have been working on for a number of years and they take time to come to fruition. I mean, the average job in our business probably takes about 3 years from when we first spot it when we can actually get it on the ground, and it can take longer, 4 or 5 years. So we've always got a long pipeline of projects that we're looking at, and they're always at different stages. So the core of where we're going, future opportunities in the mining services, there are a lot of opportunities with the big Tier 1 miners that we work with. And we're not just out there turning up as a mining services contractor. When we turn up, we turn up probably the best processing and crushing equipment in the country, certainly very innovative, low-cost. We can get to site we've got, without a doubt, we've got the best workforce in terms of safety and the culture and the way they go about things you get things done, they're very consistent at the top end of the market, on production and mining and crushing processing. And our supply chain, very similar. We've got 2 big supply chains that run through the Pilbara and down here in the south. And there's a combination of big off-highway trucks, trains and on highway road trains, we are without doubt the biggest colliers in the world when it comes to number of trucks on the road and off-highway and tonnes moved with rubber. So there's probably a couple of good opportunities we're looking at putting to bed externally. And then over the next 3 years, the mining services part of the business is going to be adding some next end crushing plants through Ashburton and then later through the Southwest Creek hub. They'll be adding at least 145 of these big jumbo road trains in the Ashburton. And I'll also be owning and operating those 4 trends shippers that will run around the clock, and all of those guys will be delivering about 30 million tonnes a year of production. And we can see a bit of daylight where we can squeeze that a bit beyond. Southwest Creek hub, it's probably going to come to light in the next month or 2. The government's decision, they've obviously been held up on that a little bit because they've been fairly full on managing COVID and a whole range of other issues and keeping our safe state. But we expect some announcement on that not too far down the track. And if we can get that moving, then we'll be -- the Mining Services business will own the life of mine, mine gate to FOB ships at the logistics supply chain part of that, that will be there some big opportunities sitting in there for the mining services. Commodities, the iron ore. We are going to put first ore and ship out of the Parker range in September, Mt Richardson Next, the Utah hub Iron Valley will continue forward, but at a reduced rate, Wonmunna is ramping up from 5 million to 10 million tonnes over the next few months. And Lambs Creek, we think we'll have that online by about the end of next calendar year. So that's our Utah hub and good mine planning wrapped around that. We know where we're going with it. The Ashburton hub 30 million tonne operation, incremental parts of it have already started. It's approved by the Board, but subject to us landing the final approval. So the port approvals drew out imminently, and we've got a little part of the corridor for the off-highway road to get approved. So we're aiming for feet on the ground up there in about September. And we're looking for first ore coming out of the -- in the first half of '23. And it will be at the back end of that first half, a great project. And then Southwest Creek look it's basically awaiting the government to announce what the channel and port allocations are for the inner harbor. We're hoping to be successful on that. And if we are on both those projects, we'll be making announcements probably between now and the AGM, but the AGM will be able to give you an authority color about where they're at and where they're heading. Commodities on the lithium, look, the Mt Marion will continue as it has over the last 12 months that we'll do that again this year. Wodgina status quo remains that we're in care take and mode up there. And at the appropriate time, that will start, that will come back online. We are focused at the moment on Kemerton, we're looking to have construction on Train 1 complete by the end of the year and sufficient product coming out of that so we can get it out and let the customers test it. Train 2, as Albemarle announced last week is about 3 months later because the labor has come off that to make sure we deliver on Train 1. But generally speaking, under the conditions that have prevailed over the last year, they've done extremely well to get that plant where it is. So our focus on lithium over the next 3 years from a MinRes point of view, is we want to try and make sure that all our spot gets converted to hydroxide. So we've been working on that for the last 6 months, and we hope to have some developments on that over the next couple of months. Innovation, look, we've spoke about that. We've developed some great pieces of kits and equipment. I mean generally speaking, the transshippers and the big road trains, they allow us to be able to deliver commodities that are in regions previously stranded because no supply chain. There's no rail. There's no ports. So they're allowing us to be able to get into regions right around the country and be able to deliver product onto a ship at a very, very low cost, which means that there'll be sustainable projects through all of the cycles. So trucks NextGen, lots and lots of development going to happen around those over the next 2.5 to 3 years. So finally, I think we're getting towards the end guidance we'd give you some tonnes. We'll give you an understanding roughly what the costs are. We think certainly the mining services region is going to grow, and we give you a peg in the sand on the CapEx. That CapEx is probably changeable, obviously, if we -- when the approvals come through. And we get a grounding on Ashburton. We'll be coming back to the market and we'll give you full details around where we're heading on that and what the costs look like. And that will probably crank up our CapEx once we get moving on that without a doubt. So closing comments. It's been a tough year in some ways, but it's been a great year for the business. I mean the business has developed extremely well. The business is running well. We've got an amazing management team sitting in the business. It's been frustrating in some areas, the government have been really working hard to keep our safe state, approvals are a little slower than we'd like, but they're working through that. And we're getting them out slowly. So held the projects up a little bit, but not too much. We've got a lot ahead of us. We've got contracts coming through over the next 12 months. We've got 2 -- without doubt 2 major iron ore projects that will be starting up. But this COVID and this latest wave that we've had running around the world and through the East Coast is very disruptive to the business. It's going to continue to be disruptive. It disrupts our supply chain. It makes sourcing people and getting them to our projects difficult but we're learning to live with that. But look, there's huge opportunity out there, and we'll do what we always do. We've got a very strong board. They've been very focused. We've had a few of our board members that haven't been able to get over here. From time to time, we've got one. We've got is sitting over in Hong Kong, she can't get into the country, but incredibly supportive. They've been on the screen. They helped us get through the year. And the management team led by Brownie, Paul Brown, Mike Gray, Mark, looking after the money, a whole lot of amazing people that sort of sit under them. And I mean, that's the heart and soul of this business and that's what drives the bottom line. It's driving an incredible future. So look, thanks to all of our people in MinRes that have delivered this year. And we expect to have a very successful year going forward. And finally, look, thanks also to the McGowan and government that without a doubt, made this state probably the best state in the world to live in. And financially, we're were robust, but we're also healthy fit and we can get out and about, and we can still enjoy life. So that pretty much wraps up the presentation. And Mark will come back up and join me and if you've got any questions, we'll do our best to give you an answer.

[Operator Instructions] Your first question comes from Jack Gabb from Bank of America.

First question is just on the Services division. I think you saw in your first half results call, volume growth over the next 3 years will be about 30% per annum excluding Ashburton. And just curious whether that 30% growth can still stand longer term? Obviously, I've seen the guidance for this year.

No, look, that's going to be a mixture of what we call our contracts with our Tier 1 customers and also with at least 1, probably 2 joint ventures that we'll be working through.

Okay. So 30% is realistic or not for the next couple of years?

Look, quite frankly, where we're going to land, I would say, 2.5 to 3 years moving forward, the entire MinRes business will double, and that will be in terms of long-term mining services contracts we'll have with based-out external and joint venture partners and commodities. Commodities will be stronger than that.

Perfect. And my next question is just on iron ore. I guess you said that the Board has approved the Ashburton project. Just clarity on the CapEx of the $69 million, you'll give us the full sort of CapEx and OpEx breakdown post receipt of the permits. And I guess we're expecting that what in the next -- this month essentially because you just start working in September, is that right?

Yes. So the CapEx that we've got there at the moment, that's just for incremental design and some CapEx on a few long lead items where we're putting deposits down. But we really can't get going in earnest until we get those 2 approvals that I mentioned, and we expect them to come through, look, in the next 2 to 4 weeks. So once that happens, the project will be a go, and then we'll certainly be publishing the capital spend on it and the timing.

Great. Sounds like it's going to be a busy quarter. I'll pass it on.

Yes, I think there's going to be -- look, there'll be quite a bit of news flow over the next 3 months coming out of us.

Your next question is from Hayden Bairstow from Macquarie.

Just a couple for me. Just on the lithium side of things. I know Albemarle said the other day, the spot strategy hasn't changed either, but just interested to see you any discussions with Ganfeng. Obviously, Pilbara pushing these much higher spot sales on pretty low volumes, where do you see a potential shift in how spot -- spodumene is price versus carbonate and hydroxide and whether that would ultimately change a bit of the shift in the strategy going just pure downstream in those spot sales on spodumene? And just then the second 1 on Ashburton, just keen to understand the structure of that with this Red Hill acquisition. Is that likely to be brought into the initial production scenario or you still stick with sort of Bungaroo South as the base fee for the first few years?

Well, look, firstly, on the lithium, Hayden. I think going forward, our strategy is going to be that we want to make sure that we pick up the downstreaming margin. So we're really focused on making sure that we can build our own hydroxide plants to own them and operate them. And that will be done, obviously, in joint venture with both our partners. So we're not in a rush to open up Wodgina and then just go sell rock into the market because it would be very short term. And we're not really comfortable that the market can support that type of supply coming into it at the moment. And then what's the second question?

Ashburton.

Ashburton.

Yes. On Bungaroo versus Red Hill.

Yes. No, look, at the moment, I mean, our focus is basically on Bungaroo South and Wodgina. That's what all our planning is wrapped around, going down the path with the Red Hill, I mean, look, it's simply an opportunity. We're, obviously, we want to gather as many tonnes in the region as we can for the long term. But that the offer we got on the table, it's obviously waiting on shareholder approval. So before we get ahead of ourselves, we'll just wait and see what the shareholders think of our offer.

Your next question comes from Harsh Bardia from Citi.

Maybe first 1 is for Mark on the balance sheet. Net cash position of 280. I mean I know 200 will be allocated to Red Hill acquisition. Beyond that, is there a target for net debt? Or is it like keeping further drive for the development of iron ore hubs?

If I think I've heard the question correctly, I think the question is, is there a target for net debt going forward based on what we have in front of us.

Yes.

So the answer is we expect we'll move into net debt over the course of this next year off the back of the expected development of those iron ore opportunities, but we haven't put a public target out in terms of what that number will get to.

And just a clarification. FY '22 Mining Services volume guidance, like 15% to 20%, does it include or it assumes anything for Wodgina or Ashburton project.

No, no, there's nothing in there for those.

Your next question comes from Lyndon Fagan from JPMorgan.

Just in regards to your FY '22 in ore guidance, I can see that Yilgarn is going to be 100% fine. And so I'm wondering whether there's any opportunity to get some lump product in the mix in FY '22 -- sorry, FY '23 and beyond. I'm wondering if you can give us a feel for Utah Point as well as noting that the lump portion has gone down there as well. And then the next question is just on Ashburton. I'm still struggling with the time frame that you guys are targeting. So it looks like if you're going for 2023 first half ramp-up Ashburton is going to be built in 18 months, basically. So without sort of material CapEx approvals right now, I just feel a bit optimistic, and I'm wondering if you can share a bit more color on the time frame that you're targeting for that project?

Yes. Look, firstly, the Yilgarn will remain on fines. The logistics down there in the supply chain. If we run all fines, it allows us to get quite a bit more out in terms of tonnage rather than trying to run 2 products. And when we first opened the mine, in fact, we were probably running close to 4, and it was just really inhibiting our ability to be able to get them on ships, get tonnes on ships. And look, up north, we're sort of hitting mainly in the same direction. And we're just probably stepping away from Lamb, again, really around the supply chain. And when we start moving lots of tonnes, we got limited space at the port. So yes, and then time frame around the build on the Ashburton. I hear what you say. I don't think anyone predicted that we were going to build and turn on 1 manner in 5 months. And I'm guessing that you were struggling -- yes, I can understand that, but that's just what we do. I mean, we're going to turn Ashburton and probably first store coming out around June of '23.

Your next question comes from Matthew Frydman from Goldman Sachs.

A couple of questions. Firstly, I guess, the capital guidance you've given across the commodities business, $140 million in growth capital for FY '22. I'm guessing part of that is maybe the expansion of Wonmunna. You also mentioned replacing the haulage fleet in Yilgarn. Was there any other key projects you wanted to highlight in that bucket? And also sustaining capital, up about $70 million gain across the commodities business year-on-year. Just wondering if there's any key drivers in that, that you'd like to call out?

So the -- the answer to the first question is we're also looking to open up other areas up in Utah around Lamb Creek, for example, over the next 12 to 18 months. So that's a key part of the strategy going up there. We also have some spend in market development spend, drilling and so on around Marillana, Ophthalmia. So that's up in that part of the world. In terms of the sustaining, what we're doing is we're actually trying to upgrade the depth and capability through the commodity business. So we are actually investing more heavily in areas like camps and so on, key infrastructure, which probably suffered from a little bit of underspent in the past. So there is a heavy component of that going forward as well.

Yes, got it. And then, I guess, second question on, I guess, the ramp-up of Kemerton and how that's going to impact the P&L this year. Just wondering when do you expect to see an earnings contribution from Kemerton. And whether you could maybe give us some more -- some more color or some more detail on, I guess, how you're expecting to set your step realized pricing on those hydroxide sales, how you're expecting to pass through your feedstock cost. And I know, obviously, that Albemarle in their earnings call talked about the potential for spodumene swaps at Mt Marion to, I guess, effectively feed your equity component of feed. Just wondering if you could just give a bit of a breakdown on how that might work, when you guys expect to receive I guess, Kemerton, as a post commercial production from Albemarle and when that you expect that handover to occur and how that breakdown could occur in terms of supplying pledge.

So in terms of Kemerton, Albemarle has stated that they're targeting to have completion towards the end of the half this year, end of this calendar year, that will enable them to generate samples of products, samples of hydroxide that then need to go to their customer base for qualification. That process can take between 3 to 6 months. So when we put our budgets together internally, we've assumed no contribution, as you can see in the guidance slide for Kemerton over this current new financial year. There may be minor immaterial sales, but won't contribute. In terms of the question of speed and spot and swaps and where the product is coming from and where it's going to and so on. We've been consistent in our messaging for some time now that our focus is on downstreaming of this spot. We see opportunity to do that at Kemerton, but we also see opportunity to do that offshore where the capital intensity is considerably lower. We do have the ability to direct our share of the Mt Marion feed. That is something that is open to us going forward. Historically, the relationship with Ganfeng worked well, but we're keeping our options open with respect to that feed. It may form part of other options for us possibly overseas.

Sure. Thanks, Mark. And just quickly before I come back with more questions while we're on Kemerton. Obviously, again, Albemarle talked to the cost pressures and the capital budgetary pressures they're experiencing, as Chris mentioned. Just can you just remind us, I guess, what your CapEx exposure is at Kemerton, if any? And when -- what you're expecting Albemarle capitalize versus, I guess, what they will hand over to you? And it sounds like that probably might be until FY '23.

So we have no exposure to Albemarle's cost outcomes on Kemerton. When we did the deal some time ago, we drew the line in the sand and the cost was the cost. So we have no exposure going forward.

The next question is from Rahul Anand from Morgan Stanley.

First 1 is around costs, especially at the iron ore division. Just wanted to talk around in Valley at around $100 a tonne and then also Yilgarn moving up a bit. How should we think about this is this a new cost base for the business? Do you think this continues into the future? And I guess how should we think about the growth aspirations as well from that perspective in terms of the operating and capital cost for Ashburton given where the market is in terms of labor and inflation. I'll come back with the second question.

I think, look, those we're under some cost pressures with COVID around labor and a range of other things that have come along. We've also had an awful lot of wet weather over in the side of the country over the last few months. But they are relatively -- Iron Valley is a relatively high-cost operation. It always has been. And we've always had a red flag out there with that. When we get to the Ashburton, it's a very different cost structure down there. I will be moving more tonnes, but the nature of what we can do between site and the supply chain, those big road trains. They're probably in terms of per tonne-kilometer, less than half our haulage costs up in the Pilbara. So we'll be -- and we won't be in the very bottom of the cost quartile, but will be down there.

Just further to what Chris says. In relation to Utah and specifically Iron Valley, bear in mind that we operate that mine through a mine gate sales arrangement with the PCI. And so the royalties on that project have gone up significantly as the iron ore price has moved. So you would expect those costs to come down as the iron ore price comes off.

Not just 1 follow-up to that one. I mean, in terms of the trucking solution for Ashburton, does that remain to be the choice? Or is there any other choice, Chris, in terms of the carbon intensity, and I know you were looking at an electric solution as well previously. Any movements on that before I ask my second question, please.

Yes. I mean we're looking at different fuel sources to put in those trucks as everybody is. I mean we've got the mining fleet and the trucks we're going to consider going forward. But look, there's an opportunity to be able to take the next step with them towards gas. We haven't got anything final on that. But they are -- they're a low-cost solution. And even if we run trains, I mean, the trains were running down in the South, I mean, they all run on diesel. So part of our challenge is to be able to get out of diesel, and that's something we -- I mean the whole industry is working extremely hard on.

Got you. Okay. And the second question is around Wodgina. Just wanted to get an update from me on the conversion side. Obviously, Albemarle talked about trying to find a conversion opportunity in China by the purchasing a plant or building one. Do you have any updates? How are your conversations going there? Have you thought of timelines? Obviously, a big project admittedly, but still, I mean, you can bring up -- bring the project on in terms of 3 phases as well in terms of 250 at a time. So is there an opportunity for you to perhaps do that in steps? And is there any update in terms of your conversation?

No. Look, when Albemarle able to secure hydroxide by either 1 way or the other, that will give us a timeline. It's going to take us -- I'm going to guess, it's a good 6 months to be able to crank Wodgina up again to get the right people on it. The right equipment, I mean, all of the things that we need to turn that on are in short supply, but we'll have ample warning on it. But no, look, it's just solely dependent on whether they can -- or when not whether, but when -- they can bring hydroxide online in China.

Our next question is a written question, committed by Brad Thompson from the Australian Financial Review. He asked Albemarle on its results call last week seem to suggest that it might not restart Wodgina until it acquires downstream processing capacity in China, what is the MinRes understanding on the Wodgina restart? And is it dependent on Albemarle acquiring downstream capacity? And do you have a workforce capacity in WA for a brief start?

Yes. Look, on the first side, yes, it is. Quite clearly. I mean, Wodgina restart once Albemarle are in a position to be able to convert the spot to hydroxide. And secondly, yes, we can put the workforce together again and to be able to bring Wodgina back online, a lot of the key people that were at Wodgina through the previous commissioning is still sitting inside the business. So we've got a lot of people spread over a lot of sites, so we can pull a very good crude back together again to make that work.

And further to that, Wodgina is a fantastic project. People want to be there. It's got great facilities and it's going to deliver a great product when a goods going.