PLS Group Limited (PLS) Earnings Call Transcript & Summary

Well done. Yes, thank you. Thanks. All right. It's on the screen there, too.

It's on the screen.

Yes, brilliant. Okay. So I'm back on track. So yes, a very big year for Pilbara Minerals. And so I guess 2 key events. Tony alluded to them being really important, threshold to Pilbara Minerals to have left over. The first related to the refinancing, which we reflected a lot on in the Annual General Meeting last year. The only reason that we could refinance our facilities was because the operating platform at Pilgangoora had improved to the point where we're really well positioned with a competitive cost base and a product that was eminently saleable in the market. So that was the first of the thresholds. The second was the potential in the aggregation of the asset base at Pilgangoora. And obviously, that's something that we've had our eye on for quite some time. So of course, in the circumstance where Altura fell into receivership, we were well placed to be able to respond. And by well placed, I mean understanding the physical assets because, of course, we're neighbors. So we're mining, in essence, the same or a very similar ore body. We understand the way that it processes, and we understood the way to recover it. The last of the missing links was having the investor base back Pilbara Minerals in achieving the acquisition. Now one of the reasons why that all worked for us, and some might say worked quickly, in the circumstance where Altura fell over was because we'd already been working with financiers around the support for our business more broadly the growth of our Pilgangoora Project, the refinancing event to deal with the debt. In which case, financiers were lined up, understanding our assets, and it really didn't take much to convince them that it was a worthwhile acquisition for the aggregation of the asset base at Pilgangoora. And I'm pleased to say that, that aggregation is now well underway. And the last of the key threshold questions was the market itself. And it's a little bit embarrassing discussing it in this context, but COVID has been good for Pilbara Minerals because it's had the effect of forward demand for lithium raw materials. And the link is that as governments globally have stimulated their local economies, a lot of it has been targeted -- targeting new energy, the new energy economy. So that means decarbonizing their economies. It means the application of renewables. It means electrifying their transport fleet, and batteries are a key co-commitment to that outcome. And that has meant that demand has come forward, and it's created a pretty remarkable [Audio Gap] refinancing, operating performance, acquisition of Altura and now the market working in our favor with a global demand base that is much more material than would have been the case even just 3 or 4 years ago when it was really about China. So I feel like we're about as well placed as we could ever be. Moving on to the next slide. We have an amazing asset base now at Pilgangoora, some of which is already on show. We joined the resource base, and we've restated our resource at Pilgangoora, inclusive of the Altura acquisition. There's been a material uplift in the, now plus 300 million tonnes, and we're soon to publish a new reserve. Reserve will take into account the effect of the aggregation of the assets, the opening up of the tenement boundary that Tony referred to in his comments, and then also the effect of recent exploration programs, all of which bodes well for future growth in the reserve base at Pilgangoora. So with that, we have the opportunity to expand. And that's one of the things that I'll reflect on during our presentation materials today. And moving forward to the next slide. The change -- and Australia is a -- it's not a great place to be reflecting on this change from, because here in Australia, the truth is, we are behind the rest of the world. The rest of the world is probably moving faster as it relates to the adoption of electric vehicles and at least in part, depending on where you are in Australia, the application of renewables. Now it turns out that here in Perth, we're one of the world leaders with respect to the application of solar and especially in the domestic environment. But the rest of the world is doing a lot in renewables as well. The combination of wind farms, wind and solar, wind, solar and batteries. And all of that is now playing in the favor of significant global demand growth. So more lithium raw materials are required. And it's turning out to be quite a challenge for the industry. And that's why we're now seeing a material uplift in price. Now I'm going to come back to price and explain the market dynamic there in a little bit more detail. So big change in the growth in lithium raw materials. The demand growth is accelerating. And as it stands today, our industry is having a bit of trouble responding, at least not at the right pace, and that's leading to an acceleration in price. So moving on to the next slide. And the other thing is, when you start to drill down into the detail, the cathodes or the technology that's required to support the application of the lithium-ion batteries is resulting in this growth that is just extraordinary. It's off the charts. So on the right-hand side of the -- this particular slide, we're reflecting on the growth that's required in lithium markets between today, 2030 and 2050. And the European Commission has estimated that our market will have to grow approximately 10x over less than the next decade, and then up to about 25x by 2050. Now based on historical precedent, you'd probably say, they're still underestimating the growth that's required. The reason why I'm reflecting on that is that there's not many industries where this sort of growth happens. Not that many paths to follow. And what it speaks to is a huge amount of investment that's still required in lithium raw materials. But Pilbara Minerals has the benefit of being a first mover -- having a first-mover advantage. And as a result, being able to play to a market that is short in the raw materials and achieving a healthy price outcome. The detail inside the battery technology. Well, it's a lot about high nickel cathode materials, which is where a lot of the EVs are headed, especially those that require long range. And then in lithium iron phosphate batteries, iron, I-R-O-N. Lithium-iron phosphate batteries being a cheaper lithium-ion battery alternative, and especially for low range vehicles or heavy vehicles with low range and also energy storage that relates to renewables or -- for example, a battery pack on your house with solar on your roof. So these areas are growing at an incredible pace, measured in hundreds of percent, not just tens of percents, but hundreds of percents annually in growth. So we're at the front end of what is a pretty significant change globally, a combination of distribution of power, the way we generate the power, the way we distribute the power and the way that we store the power, and they're all key drivers to the application of the battery technology. Our next slide, thank you. And as the demand has come on, we've done our best to respond. And Dale and the site team have done a fantastic job getting the site back up to its full capacity. Actually, even to the point where today it's probably running a bit harder than the original design. And we're obviously working incredibly hard to bring back the Ngungaju Plant, the former Altura Lithium Operations, and we'll be doing that as soon as we possibly can. So that's all very, very active. I'm not going to reflect too much on results. There'll be a bit more discussion about that during the AGM. If I could go to Slide 28, which is our production or growth outlook. Keep going one more. That's it. Thank you. So here, we've laid out what we expect to happen with respect to our expansion in production capacity at Pilgangoora. And it all starts with the Pilgan facility, that's our old Pilgangoora facility, running at nameplate capacity, and including what we call the plant improvement projects. So a debottlenecking exercise for the purpose of expanding interim production at Pilgan Plant. It's taking a nameplate design from 330,000 spodumene concentrate tonnes up to 380,000 spodumene concentrate tonnes. That project is now well, well advanced. It's commissioning is imminent, in which case, we'll start to see that additional capacity kicking in during the December quarter. The team has done a great job delivering that project in light of the pressure that exists here in Western Australia at the moment in accessing project resources, people, that type of thing. So a really fantastic effort, and we're very pleased with the progress of that project. The next one, shown in green. That's the Ngungaju restart. Coming during the December quarter with a view to achieving the approximately 200,000 tonnes capacity by June next year. Now I've often been asked in respect of the restart at the Ngungaju Plant, are we confident about our ability to see that plant perform. One of the reasons why Altura struggled with their facility -- or sorry, in total, and ultimately fell into receivership was because they never got the plant to perform. But based on the team's track record at the Pilgan Plant and what we've learned there, and is now proven, we're confident in our capacity to overlay that operating regime to the Ngungaju facility. It does include a few changes as we restart that facility, but nonetheless, we're confident in being able to see the flotation plant perform there and ultimately achieve its 200,000 tonnes in relatively short order over about approximately 6 months' worth of commissioning and ramp-up. So we expect to be at 580,000 tonnes by the middle of calendar year 2022. A little bit further down the track is the next steps, and the next steps relate to coming back to considering expansion at our Pilgan Plant. And we're going to be guided by our views around how the market performs over approximately the next 12 months. It's a critical time for the industry. And today, you'd say that the market is probably wanting every single tonne it can. But in the intervening period, we're also going to be expanding our facilities in any case. So we're keen to see how the market responds as we make more production available. But in particular, how it goes over the next 12 months so that we can start to make critical decisions about the timing of the -- well, the potential in subsequent expansion at the Pilgan Plant. Suffice to say, Pilgangoora can be a huge mine over time. At 1 million tonnes per annum plus of spodumene concentrate, today, that would make it pretty close to one of the largest operations globally. Greenbushes probably comes close. So it's a significant mine and a very important mine, one that we're pleased to be looking after as we consider its expansion capacity. Moving on. Next slide. Let's talk about the market and a bit of innovation that Pilbara Minerals has deployed. So an observation that we've made of the market historically was that even though conditions were tough during the period sort of late 2018 through to mid- to late 2020, it hadn't stopped the world's push into lithium-ion-battery-making capacity. And in particular, the important role that China has played in the build-out of chemical capacity or value-added chemical capacity supporting lithium-ion battery manufacturing capacity. And a lot of new players had entered the market. And our experience was that they would come knocking on our door. Can you help us with spodumene supply? And I guess we'd say, "Well, maybe. Tell us what you're up to." And they'd lay out a plan that, in some respects, look grandiose as to where they might go with respect to expansion capacity. But actually, the truth has turned out to be something even stranger because now there is easily 25 buyers of spodumene who can -- or would like to access more spodumene that historically either not locked in offtake or -- actually, in some respects, not even considered the potential in lithium raw material supply in support of their chemical capacity. So after lots of discussion at Pilbara Minerals, we were thinking about how we could access this market. If there's more buyers and they don't have supply, how can we create competitive channels for access to our spodumene as and when it's available? And this gets to the heart of what we saw in the opportunity about the Altura Lithium Operations acquisition. Because the capacity is being bought out of receivership, there was no offtake in place. In which case, you could buy the asset, sit on it, wait for the market to turn around and then sell the product to the open market rather than making it available in offtake. And it's turned out to be, I'm pleased to say, so far, a very effective strategy. We've now run 2 very competitive auctions, both of which have created record precedent in spodumene markets. And based on our observations as to where the industry is headed, it's reasonable to expect that, that competitive tension is going to be there for a while yet. So we're very pleased with the outcome so far, albeit early days. And the net effect of it, moving on to the next slide, has been to win more margin for the spodumene. Because of the competitive tension to access the raw materials, the industry downstream is giving more margin to the miner. So if I could just get you to step through to the next slide. The net effect of this is to create -- people might perceive it to be a little bit unusual outcomes in respect of the options, but from our point of view, logical outcomes. Because the chemical conversion industry is so desperate to secure a lithium raw material supply, they are prepared to give away their margin to the miner to access the raw material, and it's creating some pretty incredible pricing outcomes. Just bear in mind, the previous high watermark from late 2017 was approximately USD 950 a tonne delivered to China. In the last 2 weeks, we sold a cargo for -- the equivalent of approximately USD 2,500 a tonne. So there's your evidence to indicate that there is a major shortage in the China market, and Pilbara Minerals is incredibly well placed to access that opportunity. New production and expanded production coming from the Ngungaju Plant available in the competitive marketplace via our BMX sales platform. It's a really amazing initiative and one that I feel is going to work well for the company into the future, including as we grow. It's perversely creating -- if I can move on to the next slide, thank you. It's creating a push in international lithium markets. It's now the reverse of where the market was historically. Spodumene pricing achieving very high prices is now forcing lithium chemicals higher all the way around the world, but especially in China. To the point where today, they're also now looking like they're going to break historical records. In fact, I think that might have already happened. The previous high watermark for lithium chemicals in China was about USD 24,500 -- the equivalent USD 24,500 a tonne, and I think it's probably getting close to cracking USD 25,000 a tonne today. So we're moving back into record territory. It's an amazing outcome and happened in a relatively short period of time. Where do we go in the future? We believe in leveraging Pilgangoora's resource base into additional value-added products. And what we would like to do is sell multiple products into multiple markets. So today, it's all about spodumene principally going to China. A little bit goes into South Korea, and our expectation is more will go there over time. But we'd also like to sell value-added chemicals, a midstream product, something that represents a value-added spodumene, again, selling for a higher price and creating a more -- a cleaner solution in the supply chain. Something that has a much lower carbon footprint, and we're working very closely with Calix here in Australia to see that happen. And then, of course, there's the potential in downstream chemicals. So fully value-added lithium chemicals. In this case, the example we'd highlight is the relationship with POSCO, where we expect over time to be producing lithium hydroxide in partnership with them going to high-end lithium iron batteries, and especially for the emerging Korean market, who are the next big mover after China in respect to battery-making capacity. So there's big opportunities for Pilgangoora yet, and the team is working really hard on achieving these aims in the relatively short term. Moving on to the next slide. We have the potential in a joint venture with Calix to build out our midstream product strategy. So that's value adding the spodumene at Pilgangoora itself into a new lithium salt -- or sorry, a value-added lithium salt, that's not a fine chemical. And the advantage in doing that is lesser CapEx, lesser technical inputs to achieve a very fine or high-grade chemical. But perhaps most important of all, materially lowering the carbon footprint in the supply chain, which we know is such an important part of, for example, getting into the European market or getting into the U.S. market over time, where we know they're going to become, if not already, major consumers of lithium raw materials and value-added lithium products. So that's an important part of our future as well. Well, in summary, thank you, everyone, for your participation today. I'll open up the -- to questions shortly. But a big vote of thanks to the team at Pilbara Minerals. The executives work incredibly hard. Thank you to Alex, Dale and Brian for all the efforts that's gone into continuing to put Pilbara Minerals at the head of the queue, and to balance the team at Pilbara Minerals that are making a great Australian company. Thank you to Tony and the Board. Yes, amazing to be working with such a fully integrated Board and management team. I really do appreciate everybody's inputs. Fantastic. And on that note, for those that are online, I encourage you to fire away with your questions now. We'll come to Alex shortly. But are there any questions from the floor here in the room at The Melbourne Hotel?

[indiscernible] Thank you very much for [indiscernible]. Thank you for -- hi, I missed it, but what is the cost of producing a tonne of spodumene?

Yes. okay. So the question for those online is, what is the cost of producing a tonne of spodumene? Now there's probably 3 phases that I would like to describe. There is the phase that we've been through where we had moderated production. We slowed down our mining activity. We slowed down our plant production, and we ran at less than full speed. Costs were approximately USD 350 to about USD 400 a tonne. In our most recent guidance for FY '22, we've guided to costs just a bit higher than that, approximately USD 390 to about USD 430 a tonne, principally driven by additional waste movements in mining. And that represents a catch-up from the slower period when we weren't running the mine at full speed, and we weren't moving the waste. However, the good news is that once we get through that hump, we expect our cost base to migrate back down towards approximately USD 350 a tonne. That's a landed cost in China.

[indiscernible].

Well, it's been pretty incredible today for those tonnes that are sold into the spot market. Offtake pricing is less than spot pricing. I think I can safely say that. Although -- albeit we have an expectation that there will be improvement as the chemical price continue to appreciate, which is obviously what's happening today. [ Kevin ]?

Hey, [ it's Kevin ]. Just wondering on the BMX, what percentage of the overall sales is [ represented ]? Is that representative of total [indiscernible]?

Yes. Yes. No, really good question. That's from Kevin, Australian Shareholders Association. What proportion of our production is represented by spot sales? Now today, it's not much because we're still waiting for the restart at the Ngungaju operation, which is where the tonnes come from for the BMX sales platform. But on the assumption that our ramp-up occurs as planned between now and June next year, we'll have taken the sales on the spot platform to approximately 200,000 tonnes of 580,000 tonnes. So let's say, broadly speaking, that represents about 30% of our sales. Any other questions from the floor?

Yes, congratulations on the [ detailed presentation today ]. From what you all said, there is the overall forces of supply and demand, which affects mining which will lead to a certain fixed window before a supplier responds. [indiscernible] but aren't you being too conservative in not adopting [ plans ] to expand earlier?

Yes. Yes. Now look, they're both logical questions here, and I agree -- I broadly agree with the premise that you're suggesting. So 2 parts to the question. The first relates to the laws of supply and demand. If pricing is very high, then of course, supply will respond. And yes, of course, we understand that. The good news is that there is limited capacity between now and approximately the end of next year before there will be any material spodumene supply other than what we bring to market in the spodumene category. Now [indiscernible] it's possible that they're in more supply. In fact, the South America's continuing investment and expansion. I would simply make the point that historically, they've particularly disappointed and they haven't been as successful in expanding as much as they might have said they would. So we're reasonably optimistic that pricing will still be strong for the foreseeable future. In the medium and the long term, our response is much more sophisticated, hence the discussion about multiple products for multiple markets. That's really the future for Pilgangoora, selling higher value products in emerging spodumene. And in particular, diversifying our sale so that we can participate in lots of different markets, Europe and the U.S. and North Asia, ex China being key examples. They're all very important markets in places where we would like to play over time. To do it, you need probably, it's something that looks more like a value-added product. So that's the benefit in the midstream and downstream product strategy. The second part to your question? It's just escaped me.

The timing for expansion.

Expansion. Sorry, of course yes. Okay. So yes, the potential in being a bit too conservative. Well, I'd like to think that we're hedging our bets. We are continuing with projects that support the expansion capacity, but without actually having triggered it. In which case, today, we're running about as hard and as fast as we can with decisions yet to be made about what we do next in expansion capacity. The last point I'd make here is that the first steps beyond those already committed. So plant improvement projects and the Ngungaju restart is a relatively quick one, and a relatively cheap one to continue to expand capacity. So that's not a bad place to start. Yes. all right, Alex, anything on the inter web?

Thanks, Ken. I'm feeling a bit redundant today. There's no questions online.

I find that hard to believe.

But -- actually, I've just been told there is one who has just come through, so here we go. This is from a shareholder. How often is the bidding done on the BMX platform?

Okay. Another good question. Yes. So how often is the bidding done on the BMX platform? Well, in the very short term, it's subject to what capacity we can spring free, albeit, with Ngungaju expansion capacity coming soon. Once we're in much more -- something that looks a lot more like regular business at Ngungaju, we'd be expecting auctions approximately every 2 to 3 weeks. Now at the moment, we've been trying to run them as frequently as we can, albeit with lesser capacity. So we've been running them approximately 4 or 5 weeks apart, but they should get more frequent over time. Sorry, here we go.

[indiscernible] you mentioned another [indiscernible].

Yes. The participation in the BMX platform is dominated by Chinese interests, albeit the good news from our point of view is that, by far, the majority of them are users of spodumene. So there's very little in the way of traders' participation or traders' interest, they are end users and those that appear the most aggressive in their buying behavior to secure a spodumene. So why China? Well, China, by far, has the majority of the chemical conversion capacity that can handle the spodumene. We sell some spodumene into South Korea, but that relates to relatively small facilities that are owned by POSCO as part of the development of their larger-scale projects. So they run a demonstration plant that we support with our spodumene. In the medium term, it's not unreasonable to expect that there will be more chemical conversion capacity built around the world, and there's plenty of moves afoot to make that happen sooner rather than later. All right. Any other questions? Okay.

Okay. We have one more question online here, Ken. Any approaches from [ OMAs ] or big battery players to take equity positions in WA spodumene plays to secure long-term raw material positions?

Yes. Well, it's fair to say that there's interest across the board. I'm also pleased to say that I think the car manufacturers have got more interested over time. An observation I would make about their behavior historically is they've been very weak, with a couple of notable exceptions, but very weak in understanding the upstream part of the supply chain. And in particular, by the time you get to a mine, which might sound strange, and to be honest, it is a bit strange to me, given their reliance on the raw material supply base. But I think it's fair to say it's been relatively weak historically, albeit improving over time. Without specific reference to Pilgangoora or Pilbara Minerals, in a circumstance where people are going to have to pay more and more for either spodumene and/or lithium chemicals, it's not unreasonable to expect them to get more interested in what's happening upstream that I have to pay more money. I think that's a logical conclusion to draw. All right.

We're all done, I think.

Done. Okay. Thank you, ladies and gentlemen. I think we're done for the meeting, Tony. Yes? So thank you, everyone, for your participation. Really appreciate you making the time to come and join us in the room, and thanks to those joining online. If there's any more questions, please don't hesitate to follow up via the website and/or our shareholder e-mail address. Thank you.