PLS Group Limited (PLS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Pilbara Minerals Half Year 2022 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Kenneth Brinsden, Managing Director and CEO. Please go ahead.

Thank you, Emily, and welcome, everybody, who's joined the call and to those participating on the parallel website or web host. Thanks very much for your participation this morning, nice to be with you. I'm joined here in the Pilbara Minerals Head Office by Brian Lynn, our CFO; Dale Henderson, our Chief Operating Officer; Alex Eastwood, General Counsel and Chief Commercial Officer; and David Hann, our Investor Relations Specialist. Nicholas Read's here to help with some of the web-hosted questions at the end of the call. Today, we've lodged our financial year -- or 2022 financial year first half results release and presentation materials. And between myself, Dale and Brian, we'll be referring to the presentation release itself. So you're welcome to scan along with us, and we look forward to sharing additional information this morning. Moving back to Pilbara and what's happened. It's been a pretty incredible start to the financial year, and we're very pleased to report our inaugural profit in an environment where market conditions have obviously continued to markedly improve. And part of the story that we'll share today is the theme around that improvement continuing to this day. It's a pretty remarkable time in the market, and I'll spend a little bit of time reflecting on what that means in respect of price and the market conditions that we're experiencing today, let alone where we've come from in the first half of financial year 2022. In our slide deck, Slide #5 refer to a general summary. So a period of consolidation for Pilbara Minerals. Further work on our Pilgan Plant to bring on the plant improvement project. That project is construction complete, conditioning complete, and we're now in the optimization phase. Dale will refer to the combination of those works and how that reflects on our production for the balance of this, obviously, the financial year but also the calendar year. And at Ngungaju, the consolidation of the former Altura assets, bringing that asset back to life. That's a big chunk of work that's underway with construction well progressed on the detail and the finessing around the flotation circuit. Dale will also explain some more detail about how that's unfolding. That particular project represents one of the big swing factors that we'll address perhaps in a bit more detail as we talk to the guidance for the balance of financial year '22, but also the near-term targets for Pilgangoora production overall. That project, in particular, creates an element of uncertainty as it relates to the balance of the production year because of when the flotation circuit comes on and how quickly the flotation circuit responds. As much as our focus is very much on the near-term production target being 580,000 spodumene concentrate tonnes in annual production capacity, given the scale and the resource and the scale and the reserve at Pilgangoora, there is fantastic opportunities to continue to keep expanding the operations at Pilgangoora. Two near-term projects have been identified, the first step to 680,000 spodumene concentrate tonnes and a subsequent step to get us over 1 million tonnes of spodumene concentrate capacity. As I said, a huge asset, one of the very significant assets globally, huge expansion potential. But again, I'll just make the point, our focus and our attention, very much on the first 580,000 tonnes of capacity. Moving through the slide deck into Slides 6 and 7. It's been a huge year for Pilbara in terms of additional works at site with lots and lots of construction underway. I've already mentioned the Pilgan Plant improvements and the Ngungaju restart. But it's also true, there's been a lot of work around our ancillary measures around the sites, roadworks, pad works, waterworks, you name it. There's been a lot happening in it. That's translated to a lot more people around the site. The great news is that, that hasn't resulted in any lost time injuries. We're very proud of the team's efforts in that regard because there has been a huge uplift in people. To give you some idea, we've gone from approximately 140 people 15 months ago to peaking at over 600 people and especially as we're going through shutdowns and the like at sites. So with that level of activity, inevitably, you need to be very careful about safety management, and I'm pleased to say that, that's exactly what the team's achieved. Slide 7, a representation of the work that's been underway in terms of production growth. It's not without a challenge, and we've been reasonably clear in our most recent public disclosure about where that challenge comes from. And a lot of it is rooted in principally access to people, which is a spin-off from the effect of the COVID-19 sort of barriers to entry to WA and the hard border. That's meant that the mining industry, as a whole, has been fishing from a very thin pond for people. And it manifests itself in different ways, but one of the areas that's particularly painful is the rapid ramp-up when people is required and when peak labor is required, so for example, a shutdown or a breakdown. Whilst you might want 60 people for a shutdown, it wouldn't be unusual to only be able to get 30 or 40 people to arrive. So obviously, works take longer than you would like. And that's part of the challenge in bringing on the additional capacity at Pilgangoora. I can assure you we're not alone in this challenge, and we obviously hope that with borders coming down in Western Australia that we'll start to see some relief. And obviously also, the Pilbara team is working as hard as it can with innovative ideas that attract additional people as and when required. So a big step-up in production with more to come over approximately the next 4 to 6 months. And as I said, Dale will allude to that in a bit more detail. Moving on to Slide 8. In summary, still a big year for Pilbara Minerals, and approximately 170,000 tonnes produced and shipped in the first half, a big, big step-up in revenue, and I'm going to address price shortly. The price dynamic is really incredible, and I'm going to delve into a little bit more detail to describe where that's going to. The net effect of all that production, better sales prices certainly as compared to the recent historical norm, translates to a fantastic balance sheet, very, very healthy cash flow and, of course, an inaugural profit, which we're all very, very pleased about. Moving on to pricing, making reference to Slide 9. A couple of key points to be drawn here. There's what's contributed to the first half, which we believe is a fantastic result. And we sold our spodumene for approximately $1,300 a tonne in the first half. And we started to see some movement in pricing during the course of the calendar year last year, a better reflection in price in the first half of financial year '22. However, from our point of view, that's really just the start of the story because since then, pricing has continued to run very strongly. Now there's several things that motivate that, that I'm really keen to reflect on. The first is that Pilbara Minerals has done its own piece of work that relates to trying to establish the right level of price transparency to lithium raw materials, and we've done that through Battery Materials Exchange, an important piece of innovation for the industry and arguably a very important piece that's helped translate to real and better reflection on price for lithium raw materials. Clearly, there is a very, very tight market today. And as a result, you want to use every tool in your playbook to reflect the real value in the raw materials that you supply. And we think we've done well in that regard through the Battery Materials Exchange. That's part 1. Part 2 is a function of the trend in price. And a lot of people want to confuse lithium raw materials with bigger pools of mineral supply like iron ore or even arguably coal. And the reality is it's not like that. It's an industrial mineral supply chain for which people have to buy. If they're contracted in the supply chain, they have to buy. There's no alternative. And the pool of available supply is nothing like what you might see in other commodities. It's nowhere near as liquid. What that means is that people will pay what's required to access the product, and that's the function of the cycle that we are now well into. We reflect that partly as a function of the guidance that we've given for the March quarter of USD 2,600 to USD 3,000 a tonne for our product on an SC6 reference price. But from our point of view, in the current half, we would say that's just the beginning because pricing is continuing to trend up. And we're seeing that both as it relates to contracted pricing outcomes, but also what we would expect to achieve in the newly minted spot market or as per our options, where my sense is people would have their socks blown off in respect of the pricing that you could achieve. And as I said, it's a function of there just being a critical shortage of lithium raw materials. And in a funny kind of way, Pilbara Minerals is a key contributor there because what we represent is at least -- well, very modest, but nonetheless, growth in the lithium raw material supply chain. But we're also demonstrating how hard it is to bring that supply on and especially that has to be brought on quickly. So all of that, in our view, plays pretty well to price. Nonetheless, we're obviously working as hard as we can to bring that additional supply on. But it's demonstrative of the supply side challenge in bringing on new capacity. And I would suggest that's probably going to be reflected in many, many years of work from here for the industry to catch up, i.e., supply leading demand. I hope all of that makes sense. And no doubt, there will be more questions. That represents my introductory comments. I'm going to hand to Dale and Brian now. Dale will reflect on Slide 10 and where we're headed with respect to guidance in the short and the medium term. Thanks. Dale, over to you first. Thank you, mate.

Thanks, Ken, and good morning, everyone, and a special hello for those of you dialing in from abroad. I'll offer a few comments around our production guidance and capital before handing over to Brian to speak to cost. Before we do that, to start with, what Ken's really alluded to, FY '22 is a big growth year for the company, essentially moving from our 330,000 per hour tonne rate to 580,000 outright being the combination of the 2 assets. So that's, of course, a 75% increase in outright throughput and a big, big step-up. So the whole organization, of course, is very focused on managing that growth step up the curve. And yes, it's a growth year, and we've got our challenges. Now so speaking to some of those challenges, largely, they're in 2 categories. There's some external elements and then -- which are outside factors acting on the business, and then we've got what's happening within the business. So I'll speak to both those categories. So the external factors, as Ken's already covered off, labor shortages has remained a Western Australian challenge. And Pilbara Minerals hasn't been immune to that. And we have had, at different times, a shortfall in different areas. So that's really been a key impact, which has slowed us a little bit in areas. And then as we think about the forward picture, we, of course, have the COVID overhang, and we are bracing ourselves as our other businesses as to how will that impact us. But obviously, the combination of those 2 factors, we think deeply about that as we think about the outlook around production. So we've taken a somewhat conservative approach around that outlook and the knowledge that those 2 factors have to be contended with, labor and the COVID integration piece. So moving from the external factors and now moving to the internal business piece. I'll offer you some insights of how we've been going there and what we see and the outlook. Ken mentioned that there is -- at Ngungaju, it's a ramp-up period for us. How we're traveling there -- probably just to take a step back, the Ngungaju investment case when we purchased Altura was predicated on putting some decent investment into that facility to outright lift the performance of that facility. And we're absolutely in the thick of that construction phase right now, which is coming to completion in the coming weeks, at which point we'll start to step into commissioning, then through the period of ramp-up and optimization. So it will be that ramp-up period, which as with almost all operations, there is an element of uncertainty. We, of course, as a business are putting into place all of the things you'd expect and want to see to make sure it's a successful ramp-up. But there is a level of uncertainty as to how that goes, particularly as it relates to the flotation circuit. Obviously, our business has got deep experience in that space, and we're well familiar with the nuance required to seek out the improvement. So there will be some challenge as we step through the optimization of that facility. So for us, the Ngungaju ramp-up piece is probably the key piece we think about as we think about guidance and the impact on total tonnes. And as I mentioned earlier, we've taken a fairly conservative view on that contribution to the outright production guidance. So moving from the Ngungaju plant to Pilgan. Largely, we're comfortable about where that facility is at. There is some optimization to come to optimize the improvement project piece that we construction completed a couple of months ago. But largely, we're happy with that facility -- with that. Having spoken to both Ngungaju Plant and Pilgan Plant, as to mining, mining, it's a big ramp-up year and has been a big ramp-up year as we look to not only catch up on the waste tonnes, which are a product of the downturn cash preservation strategy we had [ years ] ago, well, we're working through a phase now of catching up those waste tonnes and opening up about 10 kilometers of strike to facilitate more pits, more ore feed options to support both of these 2 operations. So plenty of mining activity underway. And on the outlook ahead, more mining activity to come. And of course, there is that labor challenge overlay. But of course, we're working very hard to ensure that we've got the right support to ensure those tonnes keep flowing. But yes, as I say, it's not been without its challenges and mining. So in summary, those are really the key factors that have played through to our guidance. The external factors relate to the COVID piece, the Ngungaju commissioning ramp-up piece and that ramp-up -- continued ramp-up of mining. So plenty of challenge on -- across the board. But all said and done, I think the operations team are doing well given the challenge, and a big thank you to Simon Coyle, our site GM, and his team and our contracting partners who are all working very hard to step through this important growth phase of the Pilgangoora operation, obviously, doing it safely. But I think we will get through it. We -- certainly light at the end of the tunnel, and this is what's fed through to our guidance of the 340,000 to 380,000 for this year, the FY '22 year; March, 75,000 to 90,000 tonnes; and then moving into the September quarter -- from the September quarter, I should say, 560,000 to 580,000 tonnes. So an exciting period for the company, and we're working through it. So that completes my piece on guidance and capital. And at this point, I'll hand over to Brian for cost.

All right. Thanks very much, Dale, and good morning or good afternoon, everyone. Firstly, I might just quickly touch on our guidance on unit operating costs for the remainder of FY '22 as well as a look ahead to FY '23. And then after that, I'll give a run-through of our results for the 6 months and some commentary around what supported the maiden profit we achieved. So with respect to cost guidance for the remainder of this year, so for the second half, we have guided just for the Pilgan operations, and we're guiding AUD 450 to AUD 490 per dmt on an FOB basis, excluding royalties. So we have changed the basis of how we are reporting cost guidance. We've removed freight, and we've removed royalties just because there is strong volatility around those at the moment. We feel that's actually a better measure to be reporting against. We have deliberately not guided on costs for the Ngungaju operation for the half. Clearly, there is still the ramp-up and commissioning phase going on at the Ngungaju operation. And until that phase is actually completed and we're sort of more into a steady-state operation, we feel that it's not appropriate to report operating cost guidance. I think the one comment I would make, though, is clearly, we will be producing some tonnes and given the pricing environment we find ourselves in that it isn't likely that Ngungaju will generate an operating margin during the 6 months. But we're just not prepared to be definitive on what those cost guidance might be. We look forward to FY '23. We're now guiding on a combined operation. So clearly, the expectation during FY '23 is that we will ramp up both facilities. So that's probably from the end of the September quarter. We're hopefully in the sort of 560,000 to 580,000 tonnes annualized production rate. And for FY '23, inclusive of Ngungaju, we are going to AUD 530 to AUD 570 per dmt FOB Port Hedland, excluding royalties. Now part of those costs obviously incorporate the latter part of the ramp-up, particularly around Ngungaju. And so our expectation is once we've got both of those facilities up and running and achieving nameplate capacity on a consistent basis, that -- those costs should come down beyond FY '23. So that's everything I wanted to discuss on guidance around operating costs. So I thought we might just turn to the actual results for the half now. So I'm going to start referencing Slide 14, which is really just a quick overall summary of the results. And then I'll just give some further insights into some of the moving parts which drove those results. So in summary, we generated the main profit after tax of $114 million, and that was really on the back of achieving shipping of 170,000 tonnes of spodumene concentrate and receiving a substantial uplift in product pricing during the period. In fact, revenue was $291 million. And if you compare that to the same 6-month period last year, that revenue for that period was $59 million, and the revenue for the second half or the June half of FY '21 was $117 million. So you can see that there's been a significant increase in revenue, largely on the back of this incredible price environment that we're experiencing at the moment. That generated an EBITDA of $151 million, again, a significant improvement on the comparative period, which was $3.2 million. The EBITDA is then reflected in a strong cash flow from the operations, and we ended the 6-month period at the end of December with $191 million of cash in the bank. And if you include the irrevocable letters of credit for shipments completed during the December half, that increases to $245 million. And as a result of the strong operating performance, the company ended the half year in a net cash position of $14.8 million, so $14 million more cash than debt. And the debt we're referring to there is the secured debt we have through the syndicated facility agreements. So turning to Slide 15. I just put that up for a little bit more detail on the profit and loss drivers. So the first point to note is the margin that was generated from the Pilgan operations versus the margin on a dry metric tonne. So we achieved just over $1,000 per tonne of margin from the Pilgan operations with an average price, U.S. dollar price of $1,250 at an average cost per tonne. And that cost includes royalties and inclusive rates of USD 486. So that margin of $1,000, if you apply that just to the Pilgan tonnes that we sold, you end up with a gross margin of $172 million. It's worth noting that the margin for the equivalent period last year was only $116 a tonne. And for the June half, it was $200 a tonne. So there's been a significant improvement in the margin being generated by the business and obviously clearly on the back of a strong pricing environment. So this strong operational result supported the EBITDA of $151 million. And after allowing for depreciation and interest costs of $6 million and a foreign currency loss of $7.7 million, an underlying profit before tax for the half of $129 million -- sorry, $120.9 million was achieved. If we then apply the tax rate to that profit, we end up with an underlying profit after tax of $84.2 million. Now there were a couple of abnormal transactions or items during the half, and both of those combined ultimately led to an increase in the statutory profit after tax of $114 million. Now those 2 abnormal items, the first relates to the deferred consideration that we had to or we agreed to pay as part of the Altura acquisition last year. So if people recall, we agreed as part of the price we paid to issue about 65 million Pilbara shares. And those obviously get valued and get revalued from an accounting point of view until those shares are actually issued. So between the time of 30 June, the last balance date, and the date of actually issuing those shares, Pilbara Minerals share price kept going up. We had to continue to revalue the value of that deferred consideration, and the result of that is that about $37 million of noncash costs end up in the profit and loss for the half. The other impact on the profit loss as a result of the improved financial conditions of the company that we have now been able to recognize, the prior year tax losses of the group. So in the past, just because of the conditions the company had been facing, we didn't have enough certainty to bring to account those prior year tax losses. But clearly, with the results change for this 6-month period and the look-forward pricing, there is a lot more certainty around what our taxable profits are going to be. And therefore, there is a lot more confidence around recognizing those tax losses. So that actually represented a credit to the profit and loss of $66 million. Turning to cash flow. So I'll refer to Slide 16. The strong pricing and operating margin obviously presented itself in a much stronger operating cash flow and a higher cash balance. So cash flow from operating activities after taking account of corporate costs and exploration costs, et cetera, was $116 million for the half. We invested $38 million in the business. So that's largely around the restart of the Ngungaju operations, the Pilgan Plant improvement project that we've been completing as well as the deferred capital waste activities that are ongoing. And then we also actually generated an inflow from financing activities of about $14 million. Now that's largely because we increased the syndicated debt facility we have with our bank by USD 20 million. That was really around helping fund the restart of the Ngungaju operation. And clearly, we've also paid some interest along the way as well under that facility. It's probably -- once you're talking about the cash flow, it's probably worth just pointing out as well under the debt facility that the strong cash flows that we are generating is now triggering the cash sweep mechanism that exists within that facility. So we've actually shown in the balance sheet that we will be paying about AUD 25 million. In fact, it was paid during this month in February. So that's an acceleration of the debt repayments on the back of the strong cash performance of the business during the December quarter. So these stronger cash flows from the strong pricing, ultimately, I think, will lead to us accelerating the repayment of that debt as a result of this cash sweep mechanism. Turning just to some comments on the balance sheet, so Slide 18. Again, just highlighting here, we've had a significant increase in our cash balance. At the end of June year, we had $99 million in the bank, and this has now increased to $191 million. And as I said, if we include the irrevocable letters of credit, that balance is actually $245 million. The outstanding secured debt or the debt that we owe to the bankers is $176 million at 31 December. So we have a net cash position at the end of the period of just shy of $15 million. During the year, we've clearly been investing a lot of capital in the business. So on an incurred basis, just under $55 million has been spent on investing in the business, and there's a breakdown on that slide. What you can see is that we've -- obviously, there's been capitalized waste development to help us on the mining front of about $19 million. The restart of the Ngungaju plant, about $19 million, and then the Pilgan Plant and infrastructure improvements is about $15 million. So all in all, a fair bit of money being invested in the business, but all that is really to allow us to achieve that run rate of $560,000 to $580,000 (sic) [ 560,000 to 580,000 ] once both plants are up and running and at nameplate capacity. So that's everything I wanted to go through on the results. So I'd like to hand back to Ken.

Thank you, Brian. Thank you, Dale. Much appreciated, and I'm sure everyone will have some drilling questions that will arrive as a result of the accounts. So we look forward to them. To summarize, it's been a big year for Pilbara Minerals. That's equally true on the sustainability front, where a lot of work has been undertaken to progress Pilbara Minerals down the pathway which ultimately takes us to net zero. One of the more significant commitments that was made during the course of the year was the development of our first renewables power project, a really big solar farm contributing to our power supply at Pilgangoora. That's a 6-megawatt facility to be commissioned roughly midyear or just a fraction after. That's one key tool, but it sets Pilbara down that path. The other important thing that we've developed along these lines is the life cycle assessment for emissions as it relates to the Pilgangoora operation. We've been undertaking that work through a third party to assist us in understanding where we can make our significant contributions to the reduction in the carbon footprint in our supply chain. And that has also included the work that we have underway in respect of our midstream products as well, which we think is going to be a big innovation for the industry and, in particular, representing a material step down in carbon footprint for the hard rock supply chain using alternative product mixes and the way we do that at a site level. So there are important initiatives, big year for Pilbara in the employment stakes. So we flushed out some of the more granular detail around gender diversity on Slide 12. And actually, it's good news because we've been making some big steps forward there. And we're now actually well ahead of our industry peers as it relates to the entire workforce in terms of gender diversity. It's an important tool as the industry considers responses to things like the sexual harassment inquiry and its interplay with the fly in, fly out industry, which has obviously got a lot of attention in the last 12 months. And we've been doing everything that we can to contribute to improvements for the industry as a whole and our participation in the industry discussion and commentary and for that matter, the harassment inquiry itself. We also restated our resource and reserve position. That was the first statement post aggregation of the Ngungaju asset base. That was done in September and October last year. It goes without saying, Pilgangoora is one of the very important projects globally in respect of lithium raw material supply. So I'm really proud of the team's efforts to continue to grow our presence in the industry and the supply chain as a whole and for that matter, the continued expansion of the Pilgangoora asset base. Okay. In close, whilst it has been a challenging period and will definitely continue to be a busy period through -- for Pilbara Minerals through the middle of the year, I'm very confident in the team's capacity, the team's expertise and the way they go about it. We have a very rare set of skills here at Pilbara Minerals as it relates to the hard rock supply chain. And if ever there's a team that can pull together the Pilgangoora asset base as a whole and bring on the 560,000 to 580,000 tonnes capacity, then it's the team here. Now it's not without a challenge, which we've discussed on this morning's call. I guess the point I would make there is to say we are not alone in that regard, and that's one of the reasons why pricing will likely continue to be strong. It's been the case, I think, not even just recent history, but actually the history of lithium raw material supply, that the supply side typically lags the expectation. And I genuinely believe that to be the case today. And we're just a microcosm of what's represented across the entire industry. It is very, very difficult to expand quickly. And for that very reason, I'm pretty optimistic about where price -- well, both where price is and where price goes. If you want the maximum exposure to lithium raw material price, you should be invested in Pilbara Minerals because we are one of the few globally that has the ability and the leverage against the highest price outcome. Why so? That's because we, at this time, feed the biggest raw materials -- lithium raw materials market, being principally China, where the price as a whole is very, very high. Now people want to excuse that price by saying it's the spot price, but it's a misnomer. It's not a spot price. It's a price that represents the volume-weighted trade of the world's largest lithium raw materials market. It just so happens that they renegotiate on a very regular basis. We participate in that same market, and that's why we have leverage to that high price. Most of our peers don't, and you can see that in the pricing outcome that they receive. So in summary, if you want that exposure, then you should seriously be looking at Pilbara Minerals. The last thing to address, we've also announced the CEO succession. And in dealing with that head-on, I would simply say that Pilbara Minerals is so well placed today, an incredibly healthy balance sheet, amazing cash flow from operations, which is, it would appear, likely to grow during the course of this year, creating a healthy balance sheet, lots and lots of growth options and lots and lots of product options for the company. With that as a backdrop, I think that Pilbara Minerals represents a fantastic option for those considering entering the battery raw materials sphere as a CEO. With all that as a backdrop and the fact that I've been doing the public-facing kind of CEO role through over a decade now, it represents the logical time to create that succession opportunity. And in any case, as much as some might want it, I'm not going anywhere quickly because I equally want to see a successful transition for the company. I'm really passionate about Pilbara Minerals, where it's got to, the team here and what they represent for the future of the mining industry. And for all those reasons, I'm really keen to see this upcoming succession be undertaken as smoothly and with a seamless transition as is possible. That's about it, I think. That's all I have to add. So Emily, I'm going to hand over to you, if you could take us through to calls off the chorus line. Thanks very much.

[Operator Instructions] Your first question comes from Jack Gabb from BofA.

Ken, congrats on your decision, which I hope isn't time to coincide with the view when spodumene prices will peak. Listen, just a couple for me. So firstly, just on dividends. You're going to be generating pretty good cash this half and even with your future CapEx plans. Do you have any initial thoughts on dividends at the end of this year? Or does the buyback make more sense?

Yes. Thanks, Jack. A logical question. I think if my Chairman was on the line, he'd be saying, "Well, if the mining company is in a position to pay a dividend, it should." So I don't want to put too many words in Tony's mouth. The first thing that has to be dealt is Brian has alluded to the effect of the cash sweep. That's reasonably marked -- or our expectation is that's reasonably marked during the course of this year because of the serious cash flow that's emerging from operations. Secondly, you quite rightly pointed out, there is reinvestment to go back in the business. And we really like some targeted projects that would definitely be worthy of attention from a capital point of view. A couple that come to mind, obviously, the expansions themselves, that they are important and very much part of the portfolio. But also, power generation, power integration ports and a couple of others come to mind that we'll probably have more to say about during the course of this year. Even so, the assumption that there is still excess cash flow, which seems likely at this point in time, then it would be the case that dividends become a consideration, but nothing definitive yet, Jack.

And then next one is just on your sales. I think it's been about 4 months, I guess, since your last BMX auction, I guess, as we're waiting for some uncontracted tonnes to come through from the Altura plant. Given you've now got, I guess, a bit more visibility on those tonnes, have you fixed a date for the next auction yet? And is it still going to happen this quarter?

Yes. Jack, we haven't fixed the date, but my hope is that we can still run an auction this quarter even if it's relatively small tonnes. Yes, we're firm believers in the importance of the BMX tool in terms of flushing out transparency as to the marginal price for product. So with that as a backdrop, we are keen to continue to keep running auctions, albeit it's been tempered by the progress of the plants. But to answer your question, yes, it might just be a function of the available tonnes.

And just one last one on costs. I guess capitalized stripping is a reasonable amount this year, and I guess we should expect that to be up probably a bit next year. But can you give us a sense on quantum of that? And then secondly, what does that look like when strip rates drop off post FY '23?

Yes. The strip ratio peaks based on our current schedules at about 7:1 from memory, Dale, sort of that order. We haven't quite got there yet. I think so far, we've peaked at about 5:1. So the additional cost and fleet that Dale alluded to coming to site contributes to that outcome. When we first indicated that we were catching up on waste, we said there was about 18 months' worth of work. So we've got approximately 12 months' worth of work to go. And then the only other thing that would change that outcome is the extent with which we lock in subsequent expansion capacity, which, of course, has a commensurate impact on opening up more ore for the purpose of additional processing capacity. But based on the foreseeable future, we peak in waste over approximately the next 12 months. Yes. Sorry, Jack. Yes, last thing was the cost. Brian alluded to the trend, of which one of the key contributors is the waste strip. So we see slightly elevated costs as compared to the historical norm during FY '23 but with a view to, as the waste comes off and we finish the full integration of the Ngungaju operation, costs trending down a bit more.

Okay. Perfect. And then just last one. There were some comments from Ganfeng's Chairman that they may look to sell down at some point. Have you had any discussions with them?

Yes. We have a regular discussion with Ganfeng, whether it's as a shareholder or in respect of our customer relationship. We haven't heard any comments with respect to their stake in Pilbara Minerals. But to be fair to them, should they choose to sell, obviously, they've done -- they've invested very wisely at this point in time, Jack. So no, no particular news one way or the other, but we do appreciate the relationship with Ganfeng as a whole for both the value in the shareholding but also the value as a customer.

Your next question comes from Hayden Bairstow from Macquarie.

A couple of things. Just firstly, on the guidance. Is there going to be a sort of split out of the Ngungaju performance in the 6 months? So am I -- presuming this is going to be reported all as one thing by the full year results. So how do we think about being able to compare what you put out in guidance to just Pilgan versus how you actually performed, depending on if Ngungaju doesn't come in at all, I guess it would be easy? But if you start expensing and putting that in, how is that going to -- how are you going to treat all of that in 6 months?

Yes. Well, Ngungaju has contributed some production because we've been running the HMS circuit. But in the scheme of things, that's relatively small tonnes, approximately 5,000 tonnes a month sort of peak. Now having said that, as the flotation circuit comes on, obviously, it makes a more significant contribution. And our expectation is that by waiting at Ngungaju, we'll end up with about 60% in flotation and about 40% in HMS. That's slightly higher weighting to HMS than the Pilgan Plant. But in building out the -- I think to get to the heart of your question, in building out the balance of guidance for FY '22, the contribution as a whole from Ngungaju is relatively small. We obviously haven't discounted it. But nonetheless, we've made it relatively small in the guidance outlook because we're concerned about as and when that flotation responds. Dale has mentioned that the construction is largely complete. So we're a matter of a week or 2 away now from finishing that construction. But we don't know exactly how the flotation is going to respond leading into the end of the year. It's kind of a sensitive time for us because it's only 4 months away, and we really don't know how that flotation is going to respond. So we've largely discounted it as it relates to contributions to guidance. And that also explains Brian's commentary about dealing with production cost because from a production cost point of view, it's not going to be making much contribution. It's really more weighted towards the CapEx side than it is -- and the ops readiness side than it is actual production.

Yes. Okay. And then on shipping costs, I mean, the spot shipping rates that I can see seemed to have come down a fair bit. I mean, what's your forward shipping book look like? Are there still issues of actually getting slots in boats? Or is it starting to ease back then?

Yes. You pay for the availability, I think, is the way to think about it, Hayden. You can get a vessel or a boat. It just means that it's going to be higher cost. Sometimes you get lucky. So there is quite a big range. In our current freight book, we would have been as low as about, for argument's sake, USD 55 a tonne but as high as USD 70 a tonne. So it's still elevated in our view as compared to the historical norm, albeit just slightly off at peak.

Okay. And then on the BMX spot sales, I mean, Ngungaju was the key provider of additional volume for all of that. I mean, what -- how do you sort of schedule any BMX sales before you could get confidence the float plants actually work?

Yes. We have -- well, we are getting some production from there, firstly, Hayden, but just the coarse concentrate, albeit in small tonnes. So that is the contribution that you've largely seen so far. The other thing is we still rely pretty heavily on Pilgan. Now Pilgan, from a production point of view, I think we've got ourselves more comfortable that the new equipment's doing the job that it's supposed to be doing. So throughput has been pretty strong. What we've got to optimize, and as per Dale's comments, relates more to the combination of ore feed and recovery. We expect that Pilgan is going to ultimately outperform. Now that -- time will tell exactly. But in terms of what we've seen in throughput so far, we've been pretty happy with it. It's just not the right recovery, and that's principally as a function of stability in the facility and the ore feed. So our expectation is that, that's all getting sorted over about the next 4 months, in which case, Pilgan will be a very strong contributor to overall production for the balance of the calendar year as we bring on the Ngungaju facility.

Your next question comes from Al Harvey from JPMorgan.

Ken, just trying to get my head around the difference in guidance from reporting FOB versus CIF sales. I was wondering if you could kind of step through the royalty costs based on an FOB price and then how that compares to your $2,600 to $3,000 a tonne CIF guide that you provide at the quarterly?

Yes. Yes, Al. So because of the speed with which the price has been moving, it has the apparent effect of overinflating the cost because of the speed with which the price is moving on a price-received basis. So to differentiate the 2, royalties are made up of a combination of contributions. We've made reference to this in the footnotes to the guidance. But broadly speaking, it's the state royalty at 5%, native title royalties at 1%. They are applicable to all Pilgangoora tonnes. Then there is a small royalty that relates to -- it's an FOB sales royalty of 5% that relates to approximately half the tonnes in the current Ngungaju inventory or the former Altura assets. That's a private royalty. Now when you weight those tonnes across the entire Pilgangoora portfolio, it's relatively small because it represents half of the Ngungaju tonnes, which in turn only represent about, I don't know, what would it be, 15% or 20% of the total tonnes. So in the scheme of things, it's a relatively small private royalty, but nonetheless, there for some of the Ngungaju tonnes. Now they're all calculated on an FOB price-received basis. Shipping costs, I alluded to that earlier. It's higher than what we would consider to be the historical norm. So elevated conditions today, for argument's sake, USD 60 a tonne, as compared to the historical norm, which is probably more like USD 25 per tonne.

And just, again, maybe just following up beyond 2023, I think you previously had the target around $400 a tonne CIF. But now you're talking around FOB prices -- costs. Just wondering, can we kind of use that as the long-term guide still? Or should we rebase our estimates a bit higher?

Yes. No, we expect that the costs will be a little bit higher during FY '23. Now that -- as described by Brian, that's a function of 2 things. Firstly, the effect of the elevated strip ratio. So as I mentioned earlier, that peaks at about 7:1 as compared to life of mine norm of about 4.9:1 or 5:1. So that contributes to cost. And then the other thing is the effect of -- the last of the effect of the ramping up at Ngungaju because we'll still be going through that during the first half of FY '23. The longer-term trend should see costs returning to roughly USD 350 a tonne. That's where we have always expected the cost to be, albeit some catch-up as a function of waste and, for that matter, shipping in the current environment.

So just to confirm, that's $350 CIF or FOB?

Sorry, yes, that is on a CIF basis. But it includes the -- what you might consider a more normal price and/or the more normal shipping rates.

Yes. Got it. Okay. Just one more for me. You've withdrawn the shipment guidance for FY '22. But can we expect this to be roughly 10,000 to 20,000 tonnes lower than production guidance? That's kind of about how much lower it was on previous guidance.

Yes. Al, it's such a fluky one, that one, because it really depends on when a vessel goes, and our vessels are typically getting bigger. So if you miss a vessel, a 20,000 tonne vessel at the end of a quarter or the end of a half or the end of the year, then it will make that reasonably big difference. That's one of the reasons why we sort of simply say, look, it's very difficult to be definitive about it. But the way you're thinking about it, yes, in the order of 10,000 to 20,000 tonnes less is probably not a bad estimate. But we might get lucky and shipping might yet reflect production. It's just a function of when the vessels follow.

Your next question comes from Timothy Hoff from Canaccord.

Ken, I was wondering if you could just step us through how much tax benefit you have left and what you might expect to pay in cash tax for the rest of this year and potentially into FY '23?

Seems like a really good question for Brian.

Yes. We've got -- there's a tax factor of about $85 million of tax benefit still to be able to claim. Expectation is -- well, we won't be paying any tax during FY '22, purely as a function of the timing of when you actually submit your tax returns. So deferred tax that we paid during FY '23, and the expectation is that most of that tax -- those tax losses will be utilized during FY '22. So therefore, the tax payable for FY '23 will be at the 30% rate of the profit you're generating.

Yes. And then Ken, just one maybe for you. You set your guidance for prices on the 31st of Jan. But since then, you've seen some significant moves higher. Was this taken into consideration? Or had you been looking at prices that you had received and rolled forward? And then the Street appears to have your second half pricing at $2,800 a tonne. All else being equal for 2022, do you have a comment for that number?

Yes. Going back to March quarter guidance, so I think we'd already taken into account the effect of the trend in price. We get some of the benefit of that as a function of provisional versus final pricing. There is a second order effect in the March quarter, and that's the delay -- slight delay in shipments as a function of production. So we missed, for argument's sake, I don't know, 2 to 3 weeks of the uplift as a function of the delay in the actual vessel being shipped. But nonetheless, still okay with the range that's been described. But Tim, you had raised a really good point. And I think that was what I was trying to get to in explanation around the price trend. It feels to me like everybody is underestimating the effect of the price trend in the current half because there is very, very substantial moves up in lithium chemicals pricing, which is a key driver to obviously our offtake contract pricing. And the effect of that means we get a material uplift in price received under contract. And I can assure you, it is much, much higher today. In fact, it's not that dissimilar to sort of what people are currently reporting as spot pricing because the chemicals price is running so hard. So yes, the trend is very strong, in which case I think it's being undercalled. God knows what you would receive if you ran an option today because the value in the spodumene contributing to a USD 70,000 chemicals price is enormous. I won't go into the detail there, but suffice to say, it's materially higher than what people are currently quoting as "spot" spodumene price.

Yes. Absolutely. And I imagine your news today will be pretty devastating for a few converters out there.

Look, of course, we're doing everything we can, mate. I mean, yes, we want to make sure that we look after our customers, too. But again, I'll just make the point. This is the whole issue that the industry experiences in the environment we're in today. The combination of supply chain impacts, COVID impacts, people impacts means the industry, as a whole, cannot work as strongly and quickly as demand is rising. And that's what's leading to this in what might be perceived to be incredible pricing outcomes. But my view is if people are contracted in the supply chain, they have to buy it. It doesn't matter what the price is. And as a result, it feels like pricing is going to be very, very strong.

Yes. I agree. I agree. And perhaps one last question for you, Brian. With the cash sweep mechanism, does that imply an outpayment in the June quarter? Or is the next relevant period going to be for September quarter after the FY result?

No. That cash sweep calculation is done on a quarterly basis. So we -- obviously, in February, we paid the cash sweep based on the December quarter. There will be another measurement at the end of the March quarter. And then that payment, should -- there will be a payment, would be made during May. And so that happens every quarter.

Your next question comes from Adam Baker from Global Mining Research.

Just on the -- just a quick accounting one, the -- call it, the $53.8 million letter of credit. When do you expect that to hit the accounts?

Look, that money will come in during January and February. So that's really just -- it's just the money that is outstanding on shipments, which occurred sort of in November and December. So there's normally about a 1- to 2-month lag between when we actually receive that cash from customers. But the important point around that is because we've got concerned letters of credit from customers, we could actually go into the bank the day after the ship leaves and actually cash the letter of credit in. So that's why we -- in my mind, I always think of those funds as being cash because it's a choice that we can make to actually go and cash -- go to the bank and actually cash those letters of credit. But generally, the terms of customers paying us is sort of between 1 to 2 months after the ship has left.

Sure. That makes sense. Maybe more of a subjective question, but you've had quite a large number of new employees start over the half year, as shown in Slide 12 of your slide deck. I think you said you started 196 new employees. Just wondering how you instill some good company culture given that you've had such large growth over a relatively short period of time.