PLS Group Limited (PLS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Pilbara Minerals P2000 PFS Outcomes Conference Call. [Operator Instructions] Please note, Pilbara Minerals will be only taking one question per person with one related follow-up question permitted. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pilbara Minerals Managing Director and CEO, Dale Henderson. Please go ahead.

Thank you, Maggie, and good morning, everyone. Thank you all for joining. I'd like to start by acknowledging the traditional owners on the land on which we are making this call from today in Melbourne, the Wurundjeri people. I'd also like to acknowledge the Whadjak people in the Noongar nation in Perth where our West Perth offices are located, and also the Nyamal and Kariyarra People in the Pilbara where our operation is located. We pay our respects to their elders, past and present. I'm joined on the call today by a number of the team. The speakers will be myself and Paul Laybourne, our Project Director, who has been stewarding the study we announced this morning. And I would add he's dialing in from the Pilbara today. I should also add that Paul takes carriage of whole projects of Pilbara Minerals, including the P680, P1000 and midstream projects. For the call today, it's a short call, we've got 30 minutes assigned to step through the accompanying slides. Please read these in conjunction with the more detailed ASX release for the PFS. I will aim to speak for approximately 20 minutes with the remaining time for questions that maybe [ mentioned ]. So what's the call about? Well, today, we released to the market an exciting set of PFS results for the next leg of expansion at our mine site at Pilgangoora, the P2000 project. Now there's a lot more study work to be completed before we can consider an FID. However, we thought it would be worthwhile to have a brief call to talk through, firstly, the significance of these study outcomes and secondly, how we see this highly accretive project being progressed, noting that the current sentiment for the market is frankly not the best in the last couple of weeks. Now let me start by saying we will only expand when those expansion makes sense for our shareholders and partners, of course, taking into consideration the market outlook at the time. Pilbara Minerals growth strategy to date has been one of phased and incremental step-ups with the market. We will continue to follow this philosophy. I would also add to the next step of the project requires a deeper level of study, which will be timed for the December quarter next year, and any FID decision needs to follow that study outcome. So that's more than a year away, which is, frankly, an eternity in the lithium industry. This study has generated an exciting accretive extension for the Pilgangoora asset, a large step up in production capacity, low unit operating costs and building off the performing asset base of Pilgangoora operated by a performing team with more than 6 years of demonstrated operating experience. It's a great outcome. Now moving to Slide 3 to touch on a few of the highlights you can see here. Now the PFS has delivered some strong set of outcomes, both in physical and financial outcomes. As it relates to the physicals, you can see this prospective extension lifts production capacity to more than 2 million tonnes per annum in the first 6 years of operation and an average of 1.9 million tonnes for the first 10 years. In both cases, those volumes are referring to a 5.2% product, consistent with what we're producing from the mine at the moment. As it relates to mine life, a change in mine life from 34 years to 23. And as it relates to the financial outcomes generated from this study, an incremental NPV of $2.6 billion, incremental IRR of 55%, unit operating costs in the range of $550 to $650 per tonne on the FOB. And I'd also add that the valuation is based on the long run pricing of USD 1,500 per tonnes real. Now we have included the sensitivity for prices in the announcement given the large impact that, that has on the valuation. And we've also utilized benchmarks price forecast as one of the key industry forecasters. And you'll see from that forecast an NPV benefit of $5.4 billion is actually generated. So a large step-up care of are therefore the higher-priced forecast that they're anticipating. Now this is an incremental valuation benefits we've demonstrated here. Incremental and that we've competed against the base operation and quantified the incremental benefit of this next leg of expansion. And of course, all of these details are found in the full release that we've shared. As I mentioned a moment ago, the next steps is really that next detailed level of study, which is due in the December quarter next year. So that was -- those are the highlights. Stepping through to Slide 5, a quick overview there of Pilgangoora and Pilbara Minerals, which I'm sure most will be familiar with. Stepping forward from there to our strategy slide on Slide 6. Our vision for the business is to be a leader in the provision of sustainable battery materials products. We have 4 plans to that strategy, which are listed off a priority order there. Today's announcement speaks to the second one, growing to achieve the full potential of the Pilgangoora operation. I'd like to think this study does exactly that. Moving now to Slide 7. We thought it would be worthwhile to do a quick reminder of our resource and the significant scale that our resource has. What you see here is the hard-rock universe and the green bubbles relate to the Pilgangoora asset. And what we're showing is that the journey over time of the Pilgangoora asset from 2017 to '21 to 2023. Now that '23 resource upgrade translated to a reserve upgrade that occurred in August last year. And since that reserve upgrade, we've stepped forward with this study. Now that reserve upgrade was a 35% lift to 214 million tonnes. And here we are with the study outcome building off that reserve. Now moving to Slide 8. So as the resource has grown, the production capacity at the mine has grown as well and lockstep with the market. Now I'd like to highlight that this growth has been staged and incremental, taking care with each investment step to maintain a strong balance sheet whilst investing prudently to position the business for the benefit of upward price movements. We have laid each stepping stone deliberately and forward of ourselves and then step forward with conviction when that timing made sense for the business and for our shareholders. The development path for the P2000 will follow the same disciplined approach. And it's worth adding the history of discipline and growth steps is also accompanied by discipline and execution. And in this vein, it has been great to see this reputation of disciplined execution continue to accrue of on-time and on-budget delivery of our project expansions, most notably the P680 and P1000 project, which continues to track on time and on budget. So great to see this happening, and it's a credit to Paul and his team, in particular, working closely with the operating team and the full team of Pilbara Minerals to be -- continue to deliver on this great reputation that we've been accruing for ourselves. And with that, I'll now hand to Paul who can step through the P2000 project and the PFS outcome. So over to you, Paul.

Yes. Thank you, Dale. Good morning, everyone. I'm returning from site at the moment. So hopefully, everyone can hear me clearly on the line. The philosophy of the overall study was solving for the most value-accretive options by maximizing the lithium recoveries at the lowest unit cost. How we achieve this was leveraging the 7-plus years of deep in-house know-how across our geology, mining, processing and now project delivery experience that has been accrued across the business. What is flawed from this work in the first instance is that we maximize a consistent and reliable or reclaim from the mine and that we match this increase through the mine output to a new and more expensive processing capability. The new process and capability is optimized to complement the 2 existing facilities that are currently Pilgan and Ngungaju. If I can just direct you to the slide where it gives you an overview of the general arrangement, we've shown the current expansion work of P680, P1000 and the existing plan that is shaded in dock to the top right-hand side of the slide. And you can see that we've mapped out the footprint of the P2000, which is effectively a new train all the way from new crusher through the crushing system or sorting facility, leveraging from the good work that's been developed on our ore sorting P680 development through the cost stockpile and into a flotation and process and circuit, where again, we're able to leverage on the operational knowledge that we've created through the existing plant and also our new expansive technology that we've built in the P680 and soon to be P1000. I think it's important that we know this is a PFS, which I highlights the accuracy to the capital estimates within industry standards minus 20%, plus 30%. Refinement of technical information will form part of the next stage of the study, and that will flow into financial analysis. We've used and leveraged from the experience of our expansions on foot P680 and P1000, and we've used this to assist with the accuracy of the capital estimates. Now moving to Slide 11. This is a production profile we've mapped out as part of the study. And as you can see, and as Dale mentioned, at a 5.2% product grade, this will produce in excess of 2 million tonnes per annum for the first 6 years of the operation and a 10-year average of 1.9 million tonnes. The straight dotted line on the graph denotes the 10-year average. This large increase in volumes provides the strong step-up in value, which has been mentioned throughout the study and also previously by Dale on the call. Moving to the next slide. Just some high points. There's been a lot of work going into the study, but just calling out some of the high points of the study. So the life of mine is now 23 years, assuming that there's no further resource growth and that drilling program will continue. We have a capital cost estimate of AUD 1.2 billion. And we note that this capital intensity per produced tonnes compares favorably to other projects based on our assessment of the information available. There is a reduction in operating cost to range between $550 and $650 a tonne FOB. Again, noting that this is a PFS level estimate, which will be further refined in the next stage of the study. Strong NPV incremental outcomes demonstrated a benefit of circa $2.6 billion relevant to the current operation. This benefit is highly leveraged to the pricing, and we'll take you through that further on in the presentation. Based on these inputs, a payback period of 3 years is noted in the ASX release. And to this end, we've provided some further sensitivities to the NPV. If we can just turn to the next slide, please. The PFS has used the long-term ST6 price of USD 1,500 a ton, which is in line with the market consensus from 11 analysts, including Benchmark Minerals for FY '27 onwards. The graph does show an increase in average long-term price, left to right, and corresponding incremental NPV change. However, as we all know, we've experienced pricing is not flat and is likely to fluctuate in cycles. So as such, and as Dale mentioned previously, we've included the price curve produced by Benchmark Minerals for a comparator that generated an incremental NPV of $5.4 billion in an attempt to highlight the potential value that can emerge for shareholders during rise in prices, which even if they are on a temporary basis. Apologies for the background noise. I'm very close to mike side. I'd also like to highlight the upward movement in the Benchmark Minerals, which aligns with the time and for when we could potentially bring this additional production to the market. We will, however, always consider the market outlook for closer at the time of the FID, which is currently planned at the end of the calendar year, December quarter. Just moving to the next slide, please. There is a much more deal projects they'll schedule that accompanies the study, but we have tried to map it out in a more higher level to be able to present. So the people lever of the feasibility study is the next stage of the process, and that will continue on until December quarter next year. FID will be considered post the completion of the FS as Dale has mentioned previously, it will be around what the economic conditions of the market are at the time and also any further finance during the feasibility study stage. With that, I'll hand back to Dale.

Thanks very much, Paul for taking us through that. And also thank you to Paul and the broader project team, the operating team and the full business, all the great people of Pilbara Minerals have contributed to what is a fantastic PFS outcome. And as I mentioned in my opening, this is an exciting accretive extension to the Pilgangoora asset. It's a large step up in production capacity with low unit cost of production and it's building off a performing asset base, a care of a strong operating team with more than 6 years of demonstrated operating experience. All of that's folding into what you see today. But as Paul mentioned, this is PFS, next level of feasibility study to come, which is due December quarter next year. This extension unlocks more value and can be timed appropriately with the market that Pilbara is choosing. And of course, it leads to those benefits of potentially more downstream integration, more offtake, et cetera, et cetera, which, of course, the business will consider over time. With that, that completes our walk-through of the slides. We'll move to questions. For any questions we do not get to on the call today, please reach out to James Fuller, who will be more than happy to take those. And with that, I'll hand back to Maggie for Q&A.

[Operator Instructions] Our first question comes from Mitch Ryan of Jefferies.

Just relates to the strip ratio, you said ore reserve pits would sustain mining rates of 110 million tonnes per annum, which would deliver greater than 10 million tonnes of ore feed. The reserve strip to 7.6%, this implies sort of a 10:1 strip ratio. Just if you could provide any color or commentary on what's driving that?

Continue from you. The strip ratio is fairly consistent between the 2 mine plans with an uptick late in the mine life based on the latest mine plan. So the averages can clear pretty relative in the first couple of years. But of course...

Yes. So the earlier years are at 7.6% or below. And then in the later years, it steps up towards that 10:1.

Correct. That's why I understand it.

Our next question comes from Hugo Nicolaci of Goldman Sachs.

I just want to squeeze in a quick clarification just because I think a few people are probably asking the same question. To clarify, the P2000, is that at a 5.2% product grade rather than the 5.7% to P1000? And then the second clarification, does the $1.2 billion include any CapEx to develop the mine to support that ongoing rate? And then I'll come back with a question.

Thanks for your questions. For the first question, yes, the product grade is 5.2%, consistent with what we have been targeting and producing it from the mine site. So the study is built around that. And just to expand, that's all about maximizing recoveries and production for the lowest unit cost and maximizing for revenues. As it relates to capital allowance for mining, the strip is -- capitalized strip is not included in that estimate. And Luke, do you want to offer any other comment -- on those allowances for mining?

Yes. The estimated construction costs, which Paul speak to in more detail than me, includes the planned construction costs and some costs for the construction of tailings facilities. It doesn't include any mining processing or other operational costs.

So what do you think you need to spend on the mine to actually support this expansion?

We haven't provided that detail but it is included in the NPV calculation.

And then just around -- Dale, you touched on the 5.2% supporting recoveries, but just going through the footnotes, it says your whole of ore floats targeting a recovery of 67.5%, which I would have thought given Ngungaju's kind of around 68% and Pilgan's targeting 75%, that would have been maybe slightly higher. Would you just comment on what's driving that recovery rate? Is it lower grade areas with higher impurities or just the lack of ore sorting for the expanded capacity? Just any color there?