PLS Group Limited (PLS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Pilbara Minerals' December 2022 Quarterly Investor Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference over to Pilbara Minerals' Managing Director and CEO, Mr. Dale Henderson. Please go ahead.

Thanks very much. Hello, everyone, and welcome to the Pilbara Minerals' December quarterly activities call. I'd like to start by first acknowledging the traditional custodians on the land in which our business operates, on Perth, that's the Whadjuk Noongar people, and up north where our operation is in [ Amun ] and [ Gariara ] people. We pay our respects to their elders past, present and emerging. Moving to introductions. Our presenters today, of course, myself; we got Brian Lynn, Chief Financial Officer; Vince De Carolis, our new Chief Operating Officer, is with us; and Alex Eastwood, our Chief Commercial and Chief Legal Officer. Also in the room today supporting us is, we've got Greg Jason, Assistant CFO; Gavin Spoors, Investor Relations; and we've got Nicholas Read from Read Corporate. Thank you all for joining us today. And we're looking forward to taking you through our updates and moving to Q&A. So the outline for the call will follow the usual format. I'll give some opening remarks. I'll then hand to Vince to talk about the operations. I'll then talk -- and I'll then talk about the projects and chemicals progress that we've made. And then we'll hand to Brian for the financials. And lastly, back to myself for some comments on the market and closing comments. We'll then move to Q&A, which will be in 2 parts, the analyst call, which would be approximately 30 minutes, and then we'll move to the webcast for approximately 20 minutes, which will be moderated by Alex. So moving to Slide 2. What an amazing quarter we've had. The December quarter for '22, the best quarter to date for the operation. Step up in production tonnes to 160,000 for the quarter. Sales, 148,000, a step up on the prior quarter. the realized price for the quarter, a big step up there. And then from a unit cost perspective, a modest decrease. So great set of numbers for the quarter and big credit to the full operating team and extended business for bringing that home. Now moving to Slide 3. The strong pricing times strong volumes has equaled a strong balance sheet to the tune of $2.2 billion, being a 62% increase on the prior quarter. A big step up there as a function of, as I say, that strong volume and strong pricing. Other highlights for the quarter included the offtake price reviews we've completed as part of the normal cycle, which has resulted in some improved pricing outcomes, which take effect from effectively December pricing moving forward. The capital management framework for the business was established and deployed to market, which was inclusive of our inaugural dividend policy. In the funding category, we were successful in securing the $250 million debt facility from the Australian government to support the P680 expansion project, which -- and that funding, so it's a real curve for Pilbara, long-tenure debt, competitive terms. And importantly, it's government endorsement of our critical minerals project, which we think bodes well for the business as we look to reach outwards to the global market in the years to come. In the projects category, the Board approved the pre-FID funding for the P1000 project to the tune of $38 million to support long lead procurement and engineering. And then in the chemicals category progress in 2 joint [Audio Gap] continues there, which I'll speak to later. And then there is consummating the joint venture with Calix for our midstream demonstration project. So great to get that signed up and be locking arms with our friends and partners, Calix. Now lastly, a quick update on executive recruitment. We've been going flat out in that category, obviously, events coming on board as our new COO. It's the first cap off the rank, and welcome Vince. But our other executive roles that we're employing for are vastly progressed. And those roles being the Chief Sustainability Officer, Chief Development Officer, the new CFO, new Brian, big shoes to fill, and our new project directors. So we're flat out on an interview machine in the last couple of weeks, but we're getting there and looking forward to announcing those appointments in the weeks to come. So moving from highlights now to [Audio Gap] just a very quick introduction and speak to strategy. Pilbara is building an Australian powerhouse and lithium battery materials production. And we've got a Tier 1 asset, Tier 1 location, the Tier 1 team and it's all coming together at the perfect time. But that Tier 1 asset we've got is a massive hard rock pegmatite system, one of the largest on the globe. And it's in a Tier 1 location. Southeast of Port Hedland are the largest bulk export ports globally and of course domiciled in Western Australia, one of the best mining precincts you could hope for globally, which has all the mining and technical support you could hope for as a miner and operator. And then the Tier 1 team, we've got a fantastic development and operating terms whose skills were forged during the downturn, and they are the key ingredient, which is unlocking the value that Pilbara is creating. And most recently, of course, the ramp-up of the Ngungaju operation, which of course was the Altura operation. And we're of course deploying that expertise to scale as we step into the expansion of P680, P1000. And as I say, all of this is coming together at the perfect time, fantastic confluence of events. And Pilbara's Board is like no other to thrive in this burgeoning market. So what's our mission? Our mission is to be a leader in the production of sustainable battery materials products. Our strategy to deliver on that has 4 legs. First and foremost, it's about delivering on our commitments, making sure the operating platform is shooting the lights out. I'd like to say and I'd like to thank this quarter is case in point. Secondly, it's about achieving the full potential of the Pilgangoora operation. This is about ensuring that we, first and foremost, we're extending that resource to full extent through drilling. This massive Tier 1 asset. By the way, you'll note in Section 6 of the report that we're busy drilling further. So looking forward to seeing how that goes. But having extended the resource and it's about matching that with the right processing capacity. And of course, in the first instance, this is P680, P1000. But of course, the assumption that more growth than the asset, that would afford more growth in the production capacity. Obviously, work to be done to confirm that, but we remain optimistic. Leg 3 is about extracting more values, more value per lithium unit through our chemicals participation. And in this regard, the first cab is off the rank POSCO joint venture, with the development of a 43,000 tonne lithium hydroxide plant in South Korea. And there is our joint venture with Calix for the R&D project for the midstream project, the production of high-grade lithium salt at the mine site, but we look to do more in this category. The more we can add value per lithium unit through downstream integration, that creates more value to channel back to our shareholders. Moving down to the fourth leg of our strategy, diversifying revenue beyond the Pilgangoora operation. So that, of course, is expanding beyond our base assets. So when you roll all of that together, we think it's a strategy grounded in fundamentals of value creation trained on our [ mission ]. That's an absolute privilege. And we, Pilbara continues to have a fun time ahead as we step through these growing leaps as we expand this impressive base of what we already have. In my opinion, there is no better growth story than lithium, but you might say I am slightly biased. And with that, that sums up pretty much our strategy. So that's it at the high level. Now at this point, I will hand to Vince to offer us a bit more detail about the operation for the quarter we've just had. Over to you, Vince.

Thanks, Dale. Starting with safety on Slide 5. We had a good quarter. A key lead indicator, safe interactions, has seen improvement on the prior quarter. And that's a key focus for us, indicating increasing engagement with our workforce. And on the back of that, our lag indicator, the total recordable injury frequency rate has also improved quarter-on-quarter, sitting at 3.5. And in the people space, we've completed our cultural survey. And pleasingly, we've commenced our graduates program with 7 inaugural participants who will hopefully someday be our future leaders. Moving on to Slide 6 and production and sales. We've had a strong quarter, as you can see in the graph, in both sales and production. In mining, we've had a consistent ore supply to the processing plants. But this hasn't been without its challenges. In the quarter, the main challenges have included some equipment availability, resource levels with the current pulp market and some mining hygiene control practices. For the quarter, we have mined a slight reduction on the prior quarter at 7.4 million tonnes. But importantly, the ore supply volumes to the processing plant has been maintained. However, suboptimal mineral feed at times has occurred, and that impacted the process in planned recoveries. Moving on to the processing plants, both Pilgan and Ngungaju have performed well, and consistent in both availabilities and throughput rates. Recoveries have also been consistent, albeit down on target and between the high 60s to the low 70s, and that's predominantly dependent on the mineral feed. Moving to Slide 7. And just to finish off on another good news story, very pleased to report that we commissioned and energized our new 6-megawatt solar plant, representing our first step in decarbonization, which looks fantastic out in the plant. With that, I'll hand back to Dale.

Thanks very much, Vince. Moving to Slide 8, a quick update on our expansion, that leg 2 of our strategy. As the P680 project civil earthworks effectively complete. Our procurement well underway. And we are maturing, and coming year, the finalization of the execution contract for that project. Obviously moving as quickly as we possibly can to bring that project to life, still targeting that September quarter ramp-up, which remains on track. But we did revise the capital estimate for the project during the quarter, which was announced last couple weeks back. That project remains at full steam, and we look forward to bring that to life in due course. As it relates to the P1000 expansion, as I mentioned in the highlights, the Board approved pre-FID funding of $38 million to support procurement and early engineering and the full FID for that expansion, we're on target to have that approved and out the door back of the current quarter, in the March quarter. So it's foot down on the expansion and we're keeping the throttle jammed wide open to make the most of this market. Moving from Slide 8 to Slide 9, just an update on the chemicals, the third leg of our strategy. As it relates to the POSCO Pilbara joint venture, the construction is absolutely underway in South Korea. You can see from the picture on the left-hand side of that slide. The team there is absolutely focused on schedule on delivery of that project. Myself and Tony Kiernan had shared the privilege and benefit of being there, in November. So it's great to get on the ground and talk to the team and see the progress. And as you can see, it's well underway. And they remain, Pilbara-POSCO remain on target for that quarter 4 ramp up of -- sorry, commissioning commencement for the first train of that plant. So excited to see that unfold in the months ahead. Moving to midstream joint venture. As I mentioned in the highlights, that agreement was finalized during the quarter for the development of the demonstration plant. And for those not familiar with the midstream projects, what this is about is doing more processing of our product at the mine site, producing a different product to market, a superior product to market, believe because for several reasons: first and foremost, a big step down in carbon energy intensity; 2, a big step up in the concentration of the lithium units; and 3, leaving behind the aluminosilicate waste at the mine site where we can readily handle that aluminosilicate waste. This is what is part of the existing spodumene product, which has to be handled by customers. So those 3 benefits for the product, we think, are material. And with all of that, obviously, that step-up in [indiscernible] concentration offers a reduction in transport volumes. There's a lot of benefits which can flow from the start if we get this right. Plus, doing some more value-add onshore we think makes good sense. So we like what we see in terms of the test work. We like what we've seen in terms of the study work. The big step we need to do is this demonstration plant, which is about deploying the unit step process at scale and validating effectively unit cost, reducing the volume, volumes of the products as we can test the market for pricing and iron out any process learning. So as much as we're excited about it, we very much put R&D on the can and others for recall where we were successful and some ground funding for this project as well. So it's an exciting project, and it has the potential to change the future of our business and that of the industry. We remain cautiously optimistic. But, as I say, it's R&D, and we're delighted to have that joint venture finalize with our friends at Calix and well done to Alex and the commercial team for getting that across the line in the quarter. Now that completes the chemicals update. And at this point, we'll move to Slide 10, and I'll hand over to Brian for the financials.

Right. Thanks. Thanks, Dale, and good morning, everyone. Let me just quickly give a very high-level summary of the financials for the quarter, offer some commentary around selling price, costs, cash positions and then a little bit on the capital management framework. So, in summary, I think in the June quarter, I described the June quarter as transformational for the company. I think I described the September quarter as pleasing from a financial perspective for the company. Well, I would describe the December quarter as an absolute cracker from a financial perspective for the company. The business generated very healthy operating margins. This led to an $851 million improvement in the company's cash position, and we stand with about $2.2 billion in the bank at 31 December 2022. This is really all driven on sort of the key metrics. And all key metrics were around -- were better than what we've done in the September quarter. So we had to lift in production tons. We improved our sales tons at a healthy improvement in our U.S. dollar realized price. And we also managed to lower our unit operating costs as well. We also ended the quarter with a net cash position to a net of debt of just over $2 billion. And as Dale mentioned before, we took the opportunity given the continued growing cash position to establish a capital management framework, which we disclosed to the market in November. On selling prices and operating margins, a really important outcome for the quarter was the completion of the price reviews with our customers. And this, when combined with what was an ongoing positive market it's an average selling price of USD 5,668 per tonne was achieved for the 148,000 or 149,000 tonnes of product sold at an average grade of 5.4%. The equivalent SC6 price, reference price for this product was USD 6,273 per tonne. So a fairly significant increase compared to the September price. It was about a 33% increase. The average realized price in Australian dollar terms was also bolstered compared to the September quarter because of a ensuing depreciation in Australian dollar. I think it depreciated by about 4%, which obviously helps our revenue line. So this strong pricing outcome supported obviously a very strong operating margin at the Pilgangoora operations. So we achieved a margin of about AUD 7,400 per tonne, and that's equated to about $1.1 billion of margin. In terms of operating costs. The unit operating cost that we generally refer to, one which excludes freight and royalties, and that was AUD 579 per dry metric tonne, which was a 5% improvement on the September quarter. If I think about operating costs within our business. I think operating cost continue to be elevated where they were sort of 12 months ago, and still are being impacted by labor shortages, particularly in the WA mining sector. Supply chain disruptions continue, and there is this general inflationary pressure being experienced. And obviously we continue to incur high mining costs as we invest more in the mining space, particularly in moving waste. Just thinking about the quarter, we did however get some benefits compared to the September quarter. So the lift that we had in production, which is about 10%, obviously gives us economies of scale when it comes to cost. And most of that production was actually [ bedding ] down the Ngungaju plant. So most of the extra tonnes came from the Ngungaju part, which is pleasing. We had a lot of maintenance costs during the quarter with 1 less shutdown compared to the September quarter. And we also benefited from lower diesel costs and particularly as a result of the reinstatement of the government's temporary reduction in the fuel tax credit, which equates to about $0.23 per liter. We include the freight and royalty costs in the unit cost. The December quarter had a unit operating cost of AUD 1,169 per tonne. And this was about 6% higher than the September quarter. That was really -- that increase is really driven by an increase in royalties. So with the higher selling price we achieved, we end up paying about another $130 per tonne in royalty costs. Pleasingly though, we did see a reduction in the cost of freight as pressures in the shipping markets start coming up during the December quarter. Moving to Slide 11, and just some commentary around the cash position. As I mentioned, a very healthy cash position of $2.2 billion, an increase of $851 million over the quarter. Key movements was a cash operating margin from the Pilgangoora operation. So that was about $950 million. Then about $73 million on capital, and that's across capitalized development movements, the P680 project and other sustaining and capital development projects. We paid about $10 million, a bit more than $10 million in relation to the syndicated facility agreement we have in place. So that's across both principal and interest with -- for the USD 5 million principal payment made during the quarter. And we also had about $11 million worth of payments under our various leasing arrangements. It is worth noting that with talking about the cash position, that the company has not yet commenced paying tax. So our first tax payments, we're talking about $19 million, is due in February 2023, when we actually launched our FY '22 tax return. And once that tax return is launched, we then enter into the monthly installment, the tax installment process with the ATO. So then we'll start becoming a regular taxpayer. And obviously, with that, we will start building on franking credits as well. Within the quarterly [Audio Gap] just to highlight, we have noted that we are considering our FY '23 guidance that we previously provided in August. Obviously, our key metrics are all sort of probably above guidance at the moment. So we are taking the time at the moment to review our FY '23 guidance. And we'll release an update on that when we release our half year results in late February of this year. Lastly, just some commentary on the capital management framework. As mentioned, with the growing cash position, we took the opportunity to structure a capital management framework, which we released to the market in November. And that framework is designed to firstly prioritize current operations, making sure that we maintain a strong balance sheet through all commodity cycles. We deliver on sustainability commitments and initiatives, and we pay a sustainable dividend to our shareholders. Within that capital management framework, we did disclose our overall dividend policy. And the view of the company is that we will apply that dividend policy to paying a fully franked dividend for the first time based on the FY '23 financial results. Now with the company's current strategy to grow and diversify the business, which Dale alluded to before, cash flows will also then be allocated to growth paths that we think will deliver longer-term shareholder value. So in the sort of -- in the next sort of 12 to 8 months, we will be allocating capital to obviously the P680 expansion project, the P1000 expansion project, which we'll be releasing our NFID decision on shortly. The downstream joint venture with POSCO for the chemical facility in South Korea. The midstream projects and joint at with Calix, and we will also be looking for other downstream lithium chemical opportunities. Obviously, if there continues to be excess funds beyond those requirements, then that cash will be allocated towards the debt reduction or for further returns to shareholders in the form of special dividends or share buybacks. So I think that's everything I wanted to cover off on. So I'm going to hand back to Dale then.

Thanks, Brian, and a cracking quarter. And given that we've just completed the finance section probably just allow me just to thank Brian for what an amazing journey it was. For those who don't know, Brian signaled his intent to transition from Pilbara after an incredible 6 years and what a jourey to -- and you just heard it there talking about the steps we are taking for this business around dividends, the cash flow, which is being generated. And Brian has been the CFO, has stewarded that journey from a finance perspective from the [indiscernible] and clearly the other side of the globe to raise the first financing, the $100 million Nordic bond. And here we are today, ASX 50 company with strong cash flows, an amazing future. So, Brian well done to you, mate, and congratulations on a stellar chapter. You'll be definitely missed. And but we thank you for the amazing work on behalf of the Board or the team. And I will also just say Brian continues to support us in a bit of a part-time basis. So we're still going to be twisting his arm to help us out. So he's not going sitting completely. But thank you, Brian. And now just moving to the market update. So in this space, look, I thought it'd just be worthwhile to just offer Pilbara's view of the market. And look, there's nothing particularly surprising in what I'm going to step through here. There's plenty of commentators in the space, but we did want to offer our perspective of what we see unfolding and hopefully provide some confidence and assurance to those listening who are trying to make sense of some of the divergent opinions out there. So firstly, we'd start with the fundamentals with lithium remain incredibly positive. The world is absolutely converting in terms of the renewable energy transition. And as it relates to the EV subset being the key demand subset for lithium at this point in time it continues to pick up pace and it's absolutely moved from a China story to a global story. And that rate of change has been through -- increased through the likes of the Inflation Reduction Act and the U.S. government policies, so on and so forth. So the long-term shift seems well fueled as a structural shift well underway. That being said, in the near-term horizon and particularly when we look back the last 2 months, there has been some pullback. We've seen a 15% reduction in chemicals pricing from those highs in November. But when we say 15%, that's coming off a high $80 mark down to sort of a high $70 mark. And then when you start to ask yourself, well, what drove that? Well, largely Chinese-centric. It was the COVID unlocking, going from the zero-COVID policy to -- the gates were lifted. And that coupled with the EV subsidies being removed and put back. Plus, we're getting into Chinese New Year. So some of those things have equated to approximately a 15% reduction. As my suggestion I put to you is, 15% reduction of those highs is not that bad. We've got very healthy pricing. And had I been asked 6 months ago for a prediction around China pulling up the gates, going from a zero COVID policy to fully letting COVID integrate into the society. To be honest, I think the impact has been pretty modest, all things considered, would be my personal view. But where does the market hit? Well, that's the big question. Now from our perspective, the insight we can offer is we are positive about the outlook. And the reason we're positive is, first and foremost, as demand indicators and demand remains strong. As we look to supply, we of course keep a close eye on the emerging supply and the various analysts and commentators in this space. And what gives us a lot of comfort is bringing supply to market is incredibly hard. We know that because we've done it. And it will not be easy. It is not straightforward. It does not matter which raw materials, lithium suppliers that you're dealing with, whether it be brines, hard rock or clay. They're all difficult, they're all bespoke, and it's not a capital [indiscernible], but it does not guarantee speed. So when we start to consider supply versus demand, as we look forward, we feel we're in a good position. And we'll see how we go. Granted there is uncertainty in the market, but the long-term theme shift remains positive. And, yes, unfortunately, or fortunately, it is the establishment of a new industry and we're seeing lithium has been a little bit volatile. But what I would put to you is if you want to participate in Lithium, place to go would be with a large operator who knows what it's doing, has got a base of expansion and has got other means to grow further downstream, and that's exactly what Pilbara offers. So we think we're incredibly well-placed and we're positive about the outlook for the market. And we look forward to continue to grow our business until there is demand, so. So moving now from the market, just a final couple of comments, great quarter, cracking quarter as Brian characterized it, strong pricing, strong production, cost base where we are heading in the right direction, flying through the roof, very strong balance sheet, projects on track, integral projects underway, all into a strong lithium market albeit recently tempered by the COVID changes in China. So fantastic quarter. Thank you to all our shareholders. And particularly those long-standing shareholders who support us during the downturn, we've not forgotten you. And we'll now move to questions. So I'll pass it back to the moderator.

[Operator Instructions] Your first question comes from Thomas Hays from CLSA.

Congratulations on great quarter. And Brian, congratulations on your contribution to the company. Just looking at your production on annualized rate, you've got about 580 on a 6% basis, which is about a 12% improvement, I calculate. Understanding the seasonality in the Pilbara region. I'm just wondering if you can talk through how seasonality will affect your production going forward and what the remaining 2 quarters will look like. Should we expect them to hold at these levels?

Yes, Thomas, thanks for your question. As it relates to guidance, we will be updating our guidance in the half year. So we'll provide some detail on that one there.

And then just a second follow-up. Just focusing on those questions around the debt facility provides extra flexibility to expand and diversify further down the material supply chain. I'm just thinking about what that means in terms of regional exploration and M&A that could be on the cards. Do you see further downward pressure on price as an opportunity to acquire people in the region, given some of the negative macro news.

So Thomas, as it relates to that leg for our strategy around diversification on the Pilgangoora asset, it's fair to say we're very early in that thinking. And you would have noted in terms of the executive appointments, I noted recruiting a Chief Development Officer. You could read into what that means. But it's fair to say, yes, we don't have a layman's view to form a point of view, I should say, on the where to next. But of course we're starting to progress a lot of the homework around what that looks like. But you'd have to say Pilbara has a couple of advantages others don't. Of course, we have got a very healthy business, first and foremost. Secondly, we like to think we've honed some very valuable skills in the space of hard rock lithium processing. And we have a spread of very important strategic relationships in the space. So that combination is highly valuable and very useful of looking to expand into another asset or operation. But as I said, no decisions at this stage. Brian, did you have anything to add.

And just a quick one just on the BMX strategy. You've sold 25,000 tonnes this quarter up from 15,000. I'm just wondering if you could provide any commentary on sort of how many tonnes you expect to sell in the quarters to come.

Yes. Thomas, look, the BMX platform has of course gone really well for us. We have not provided any guidance as to what proportion of production tonnes we will deploy on it. And the reason is we want to retain that flexibility. We of course consider all the different avenues to market, which include, A, BMX's spot sales; B, tolling is a possibility; and C, working with their existing customers. So all of the above remains available to us. But yes, no guidance on that one.

The next question comes from Hugo Nicolaci from Goldman Sachs.

And again, I echo Tom's comments. Brian, great work on what you've done so far with the company. 2 for me, please, if I could. Just firstly, on your time in Korea, Dale, I was just keen to better understand how the downstream was kind of progressing on the ground there and what key milestones we should kind of expect as we move towards commissioning at the end of this year? And then secondly, just kind of following up a little bit on Tom's question around the M&A piece. To what extent do you need -- would you look at kind of domestic versus offshore in terms of future downstream opportunities? And how important is partnering versus being a sole operator?

Thanks, Huge. Yes, in terms of downstream, milestones, well, for the POSCO joint venture, the key one is that commissioning commencement in the December quarter for train 1. The train 2 is the commissioning commencement in the following year. So those are probably the key ones to watch for. And as that project moves for the workhorse, be providing a deeper level of insight as to progress and the next set of milestones. Moving to your second question on M&A. To what extent do we value domestic versus offshore. Well, yes, look, obviously, our backyard is the best place you could go in terms of we know the area well. As to offshore, we -- there's many options out there. But one of the things we're very sensitive to is our offering to the market being a Tier 1 asset and a Tier 1 location. We considered very deeply our next step around making sure we didn't dilute that offering. But I can't give you a steer as to one over the other. But in the months to come we'll provide a bit more insight into how we think about M&A and that leg 4 of our strategy.

The next question comes from Levi Spry from UBS.

Just if I could ask another question on the guidance. Can you talk through exactly what is driving the stronger performance? Maybe you can talk to the current mining and processing capacity across both the plants before you add the 100,000 tonnes from the December quarter.

Yes, Levi, I'll offer a view here, and then Vince might want to fill. Yes, what's was guiding the -- and Happy New Year to you too, mate. In terms of the stronger performance, I'll put it down to just rhythm and routine coming together in both the mining and processing. That being said, for the quarter, the mining had its challenges, which Vince offered some insight to. And what we see, it frankly is more of an optimization opportunity to come, which Vince and the team are very, very focused on. And we look forward to moving further up the curve in due course, which of course that's what our operating team is tasked to. Anything you wanted to? I think that cuts it down [indiscernible].

I think…

Right. Thanks, Levi.

The next question comes from Al Harvey from JPMorgan.

I don't want to labor the point too much, but just on that guidance, I guess it is under review with the financial result that was a very strong first half. So what are the key moving parts that kind of concern you, that's not giving you the confidence to come out a bit earlier with an updated guidance. It looks like that will go up towards the top end of the range or even beyond. Are you thinking more changes in grade profile, catch-up in plant maintenance? Just trying to get a sense of those key levers there.

Yes. Thanks, Al. Look, I think there's been a couple of things which occupy our mind in the space. One is about optimization of the mine plan. We've been busy recutting many different versions of that to maximize our production. That's one element, which of course then sort of feeds into a plant optimization piece. The other bit which is probably worth noting is the season we've had has not been too bad in the way of cyclones and wet weather which has been in the Maine, very, very mild, which has been nice. And frankly, I think this has actually helped a little bit more than we were expecting for the production outcomes we've had. That's been an overlay. And yes, we're obviously computing our guidance as we speak. And the half years will be here before you know it. We're targeting late February for those. So that's not too long away.

Yes, we'll be patient. Just another one on pricing. So it was a solid price in the quarter, not much guidance for next quarter. And I do note your announcement before Chrissie on those successful renegotiations. But in those renegotiations, was there any major changes in contract mechanics? And I'm wondering if you could comment on any benefit from lags with respect to spot prices, which, as you mentioned, have rolled over. Yes, are you able to indicate roughly where the price might sit today if you ran the numbers?

Yes, Al, sorry, we don't -- we've never given guidance on pricing, first and foremost. As to what were those changes and the formulas, unfortunately we can't give you any insight there either, so sorry about that.

That's all right. And just finally, saw a bit of CapEx inflation at Pilgangoora. One of your peers has just announced an upward revision. I was just wondering if you could give us any sense of how the POSCO hydroxide plant is going with respect to planned budget?

Yes, sure, Al. So, so far so good schedule and budget for the POSCO joint venture. But I'll just add, it is early days in terms of the progress of the project. As you can see from that photo, things are underway, but the lion's share of the build is yet to come. We will of course keep the market informed as that progresses. But again, nothing of concern at this point.

The next question comes from Matthew Frydman from MST Financial.

I just wanted to carry on from Al's question on pricing. And forgive me if the answer isn't as brief this time around again. But as you said, clearly, the chemical pricing has fallen by maybe 15% since you made that announcement in late December. So I guess, how do we think about how that realized price that you quoted, $6,300 a tonne, how does that move proportionately relative to those reference prices or to those benchmarks? I mean is there anything that you referenced in those major off-take contracts that means that your realized price shouldn't move proportionately to what we can see on chemicals pricing?

Yes. Thanks, Matthew. The price reviews that we announced during the quarter gives you a bit of a feeling for the relative change. I appreciate that it's not. We haven't given insight into the mechanics and the reason, there isn't, because we can't. But as to if there's some additional factor which would take it out of whack of the prevailing pricing, the answer is no. The intent of all the formulas is it follows the market movement and making sure that the Pilbara's shareholders are receiving the appropriate value as that market hits and ebbs and flows. So there's no sort of lithium factor integrated in there.

Got it. I appreciate there's commercial sensitivity. So thanks for the additional color there, Dale. Secondly, again, on the FY '23 guidance, but more on the CapEx guidance, I guess particularly the amount that you've spent in the first half versus what you previously quoted as full year guidance. I suppose the question is, obviously the run rate in the first half was a lot lower than what was -- what you might imply by guidance. Were you always expecting such a large second half skew in the spend rate when you set that capital budget? Or do you now need to rethink, I guess, CapEx guidance as well as potentially production guidance? And then I suppose maybe to partly answer the question, is it really just a question of timing of the cash outflows? Or is there anything else going on there in terms of that spend rate?

Yes, sure. I'll offer a view. Brian might want to add in this space. Firstly, it was always going to be skewed to the right, just as a function of the timing of the build. That's first and foremost. Has there have been sub-elements of drift to the right? Yes. But nothing untoward. Brian, did you have anything you wanted to add there?

Yes, yes. Look, Matthew, that's right. In terms of the P680 project, I think most of the first half was about doing engineering works and those sorts, which take time. It don't actually consume a lot of cost. It's once we get into the real build, which is what's about to happen now is when we start really incurring those costs. So put aside the P680 projects in terms of all the other capital items, I think we're largely in the line with where we thought we'd be, probably maybe a little bit behind, but not significantly different. And my expectation is that whatever the gap is for the first half, we'll make up in the second half. So a lot of it is around the timing of the P680 spend.

Okay. That's great. And then thirdly, maybe just quickly, can I ask on concentrate inventory at the end of December. You've been producing more than you've been selling for, I guess, probably 4 of the last 5 quarters. Is that just a natural consequence of that ramp-up in production and more of a timing question? Or are there any logistics constraints or anything else that's driving that inventory build?

Yes, thanks, the inventory build anything untoward at the moment. As to logistics bottlenecks, everything's been going okay, load out through the port has its moments, of course. But yes, nothing which gives us cause for concern.

Matthew, sorry, it's Brian. Just one other point on that. It's probably worth noting. There was one cargo at the end of the quarter which was mainly guided in the December quarter, in the month of December, right at the end. But due to sort of ports, the way the vessels line up a port, a bit of congestion. That particular cargo, which is I think it was about 15,000 tonnes fell into the first couple of days of January. So if we -- if that cargo had actually left the port, then clearly our stocks, our sales and our production would have been fairly similar. So it's really just around timing.

The next question comes from Austin Yun from Macquarie.

Congratulations on the strong quarter. Just 2 questions from me, if I may. The first one is just around the deferred stripping. At the start of the year, financial year, you indicated that you are doing some catch-up on that. Just wondering how that is going. I just want to have some high-level color on the pre-strip profile for the next 12 months. I'll come back with the second one.

Austin, thanks for your question. The high-level stripping has typically been around a 5:1 ratio for the year end. That being said, we have during the course of the year, reworked our mine plans a few times. And with the objective of opening up more options. So we're deep into that. So there has been some shifts to the mine plan, which, of course, plays through to strip ratios.

Okay. Good. So does that mean that the strip ratio will come down? And also just a follow-up, do you need to build some mine or inventory just ahead of the P680 commissioning, which is around like the September quarter this year?

Yes, Austin, there will be a little bit additional ore inventory, but nothing material in that regard.

Got it. The second question is around the price negotiation. Just in terms of the frequency, I don't know if there's any comment or when you're going to have the next major discussion with your key offtake is.

Yes, we don't, sorry, guide on that one either, Austin, given that each of the review mechanisms are unique to those offtake agreements. But we can say that the semi-frequent, I guess you could say, the more than an annual review.

The next question is from Glyn Lawcock from Barrenjoey.

Just on the December quarter gone, is it possible to provide us with the head grade, the recovery and the product grade from the plant in the quarter?

No, we haven't disclosed those, Glyn.

Okay. You're not prepared to. Do you expect any major changes from the December quarter into the March quarter and the June quarter of the next 3…

Yes [indiscernible].

Okay. I'll try and push a little bit more on the pricing. You actually did give guidance in your results or the announcement on the 21st of December. You said you'd get $6,300 when applying current pricing reference data. Now that reference data has fallen 15%, if prices, if those reference data don't move, would you still get $6,300?

Well, pricing reference data at that time that match that would be, was in that guidance. That would be the way to think about it. We don't guide on price, the obvious reason that the market moves, and we cannot offer more detailed information into those because they're commercially sensitive.

I think the other key point there is that the market data using the pricing is current to the relative time of the shipment. Yes, pricing is provisionally priced and then a final price. So whatever at that time of the shipments are it's going to be the market data that you need.

Yes, I think as well.

I appreciate that. So I appreciate that. So I guess I'm just asking is when you made that comment, current pricing reference data, were those pricing data above where we're currently seeing the reference beta today then?

Yes, Glyn, I think the answer to that is yes. I mean the idea of those pricing formulas is to try and work off hydroxide and carbonate price and sort of reference through to a spodumene concentrate price. So clearly, if your reference price is to a hydroxide or carbon price and those prices are moving then our price moves. That's the way to think about it.

Yes. So there [indiscernible].

Yes, perfect. Yes, so you wouldn't get $6,300 if the current pricing reference data stays where it is, that's all I'm making sure I'm clear on.

Yes. That's correct.

And Dale, just a final question. What's your thinking behind waiting till August 23 for the maiden dividend? I mean by then you're probably going to add close to $4 billion plus of cash in the bank, it would appear. You are paying tax as of, I think, you said February, I think, on the call. Why wait? I mean you could prepay some tax and pay a dividend and announce a dividend in February. So just why the wait?

Yes, no, good question, Glyn. We are certainly thinking about that one. That's an active discussion internally.

The next question comes from Anthony Barich from S&P Global.

I'm just interested in your comment earlier about bringing supply to market is really difficult. I'm looking for some color there. I mean, is it just the usual shipping issues which every commodity has been plagued with for the last year or whatever or a year or more? Or is there more to that that's specific to lithium?

Yes. Thanks, Anthony. My comment was more directed at the latter in that lithium and let me give you the hard rock given so there we'll [indiscernible]. The lithium hard rock as a natural resource has a lot of nuance which is unique to that resource. So then the challenge becomes matching a bespoke process path to that natural variation in the ore body. And then that challenge is just further compounded by the fact that the nature of hard rock material is challenging in terms of hygiene control. So the mine practice around that require a lot of effort, a lot of accuracy. The ore body knowledge and management, a lot of effort and accuracy, which is a learned process over time. And then into the processing plant, it's a learned process and an optimization process which commences once that project is actually built and operating. So it's quite a journey of test work and then operating practice in operation to really optimize all of that. And then in addition to that, then you've got just the more practical elements that you just mentioned about being an operator in a competitive environment, the logistics challenges and so to forth. So yes, my comment was, as I said, more directed around the nuance of the mineral concentration for hard rock. So what we envisage is for the new operators, they have to go through that learning journey. And it's very hard to shortcut that.

So that's not something that's amended anytime soon then or -- but it is all, sounds like it's all within your control though?

Yes. Yes. No, it is, but it takes time, and it takes grassroots test work, flow sheet, modeling, deep understanding, lots and lots of field test work its -- and if you look back at our historic journey, the -- where we are today is the product of years of work and effort in this space. And as I say, there's no real shortcuts. Is it in your control? Yes, but there's a lot of effort, which is, as I say, hard to shortcut or accelerate.

The next question comes from David Zhang from China International Capital Corporation.

My first question is, maybe have the production volume breakdown by Pilgan and Ngungaju during the quarter. And another question from is Ngungaju's volume, is this still on track now or part of its volume is already secured by some offtakers?