PLS Group Limited (PLS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Pilbara Minerals December Quarterly Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Pilbara Minerals Managing Director and CEO, Dale Henderson. Please go ahead.

Thank you, Maggie, and thank you, and good morning, everyone, for joining the call. I'd like to begin by acknowledging the traditional owners on the land on which our business operates. The Whadjuk people of the Noongar Nation here in Perth, where we're undertaking our call from today, and the Nyamal and Kariyarra people where our operations are located in Pilbara. We pay our respects to their elders past and present. I'd also like to extend my best wishes to those celebrating the new learner year, which starts today, in particular, our partners in China and South Korea. Now moving to Slide 2. The December quarter has been a period of solid performance for the Group, delivering across each pillar of our strategy. Joining me today to walk us through the details of Luke Bortoli, our CFO; and Brett McFadgen, our Executive General Manager of Operations, who is calling from site today. We're also supported by the wider team who are with us in the room today. The call will run for an hour. We'll begin with a brief presentation before opening the floor for Q&A for the remaining time, as outlined by Maggie. There will be some time for questions for the webcast, which we hope to address at the back end of the call. Turning now to Slide 3. Let me begin with a reminder of our strategy. Our strategy is underpinned by a clear vision to create rapid and sustainable value for our shareholders whilst growing our leadership position in the lithium sector. As many are aware, the lithium market has been dynamic, driven by rapid growth to meet strong underlying demand for lithium products. For Pilbara Minerals, this has meant balancing a disciplined approach to capital preservation during market highs, whilst then reinvesting strategically into our operations to scale, lower costs and position ourselves for inorganic growth when the right opportunities arise. FY '25 to date has been a strong demonstration of our ability to execute on this strategy. The key highlight has been the build-out, out of our operational base at Pilgangoora particularly with the development of the larger, lower operating cost P1000 facility. The integration of this facility is a critical focus requiring tie-ins and ramp-up activities. Some of this work commenced in the December quarter and will remain a key feature of the March quarter as we progress towards exiting the June quarter at nameplate capacity. With that context in mind, let's now move to the highlights for the December quarter. Turning to Slide 4. During the quarter, we announced and implemented the P850 operating model, which is expected to deliver a cash flow improvement of approximately $200 million in FY '25, As part of this initiative, the Ngungaju processing plant was placed into care and maintenance. I'm pleased to report that, that transition was executed smoothly and efficiently by the team. Well done team. Thank you. For the December quarter, production volumes remained on track with this plan with 188,000 tonnes produced for the period. Sales volumes exceeded production totaling 204,000 and unit operating costs of $621 per tonne FOB, reflecting the lower mining and processing costs. However, unit costs were slightly impacted by reduced sales volumes from the prior quarter. Revenue came in at AUD 216 million, marking a slight increase from the prior quarter, supported by marginal price improvements. In terms of projects, the P1000 project reached a significant milestone with construction largely complete and times underway in the quarter. The project has progressed on budget and on schedule with wet commissioning currently in progress up on time. The acquisition of Latin Resources was also nearing completion, following the approval of both the share scheme and option scheme by security holders earlier this month. Further details will be shared later in the presentation on this. Regarding the half year results, we will provide a full review alongside half year accounts. However, we have included the half-on-half financial comparisons, which Luke will elaborate on shortly. A key highlight is the positive cash margin from operations of $41 million for the half. This demonstrates the strong cash generating capability of the business pre capital expenditure, even at the low average realized price of $688 per tonne during the half and a bit higher operating cost care of the ramp-up year. Our continued focus on cost reduction remains a priority. This is a key muscle within the business and one we've trained over 8 years of operating experience today. We are confident in delivering improved unit cost performance next year as we enjoy the benefits of expanded operations processing capability [ here ] of the P1000 project. Now with that, for a deeper unpacking of the operations, I'll now hand to Brett for a review. Over to you, Brett.

Thank you, Dale. If we move on to Slide 5. Starting with safety. As you can see on Slide 5, the December quarter delivered a strong safety performance with our total recordable injury frequency rate dropping from 4.03 in the prior quarter to 3.58. Pleasingly, no recordable injuries were reported in the December quarter, which is our best quarterly performance over the last 3 years and something to be proud of. Our enduring focus on safety and the safety program initiatives continue to gain traction, empowering employees to actively participate in creating a safe work environment. Moving on to Slide 6. The transition to the P850 operating model was successfully implemented with our Ngungaju plant moving into care and maintenance during the quarter. I am pleased to note this was done safely and with no operational disruptions. As a result, we had a solid operational quarter with production and costs in line with expectations. In the mining, the moderated mining strategy in line with P850 resulted in an achieved total material movement for the December quarter. Of 6.9 million tonnes, which is down on both the September quarter and same quarter in FY '24 of 9.4 million and 9.5 million tonnes, respectively. I'm pleased to advise good progress was made with our ongoing transition to an owner-operator mining model to realize improved operating efficiency and cost improvement. In the December quarter, the group progressed the migration to owner-managed drilling and blasting, including the commissioning of new drill rigs. We look forward to the additional operational efficiencies and cost improvement this will provide over time. In the processing, lithium recovery exceeded internal forecasts with an average lithium recovery of 72.1%. However, in line with plan, lithium. Recovery for the Pilgan processing plant was impacted during the period due to P680 crushing and sorting ramp-up and optimization. However, these impacts were partially offset by a series of processing improvements, including further optimization of the P680 primary rejection facility. Specifically, ore sorting optimization improvement has continued to track to plan and has supported lithium recoveries exceeding target in December. On the production for the quarter of 188,214 dry metric tonnes was broadly in line with expectations, while being lower than the prior quarter of 220,000 tonnes due primarily the implementation of the P850 operating model. P680 project, including both primary rejects and the crushing and sorting continues to show positive results, which, coupled with the P1000 project will deliver an expanded production capacity, lower levels of mineral contamination and allow for the use of contaminated ore supply, not able to be utilized. Thank you, and I will now hand back to Dale.

Thanks, Brett. Moving to Slide 7. The P1000 project remains on schedule and on budget and was 95% construction complete as at the end of the quarter. Post the quarter end, a major shutdown was completed on site for the tie-in of the P1000 infrastructure. It was our largest shutdown in the history of the business and well done to all the team and our constructor and shutdown partners for their work on that successful shutdown. Commissioning is currently being undertaken following that planned shutdown in January. Outside of the P1000, the P2000 feasibility study remains on schedule with that study outcome due for completion December quarter at the end of the year. Moving to Slide 8. The downstream JV with POSCO continues to progress well. Ramp up of Train 1 continued producing 2,418 tonnes of lithium hydroxide monohydrate in the month of October. Our production certification was achieved in late November from a South Korean cell manufacturing, enabling first sales of certified product. Train 2 completed commissioning in November with the production of 404 tonnes. lithium hydroxide are produced in the quarter. So well done to the POSCO team moving forward well there. Now moving to Slide 9. The acquisition for Latin Resources progressed in the quarter with the scheme receiving shareholder approval for this month. The transaction is expected to complete on the 4th of February next week, and we aim to optimize the Salinas project development studies and progress further exploration and existing mineral resource obviously, post that acquisition. So more to come in this space post transaction completed. Now with that, I'll now hand over to Luke to take us through the financials.

Thanks, Dale, and good morning to those on the call. Please turn to Slide 11 of the presentation for a summary of the group's key financial metrics for the December quarter FY '25. Group revenue in the December quarter was $216 million, a 3% increase on the September quarter. This was driven by a 3% increase in the average realized price, partially offset by lower sales volume. The average realized price increased from USD 682 per tonne in the September quarter to USD 700 per tonne in the December quarter. Production volume of 188,000 tonnes in the December quarter was 14% lower than the prior quarter. As has been mentioned, lower production volume corresponded to the transition to the P850 operating model. This included placing over into care and maintenance and planned downtime for the integration and ramp-up of the P680 crushing and ore sorting facility. Sales volume of 204,000 tonnes in the December quarter was 5% lower than the prior quarter, driven by lower production volume and shipment timing. Looking at unit costs. Unit operating costs on an FOB basis increased marginally by 2% in the December quarter to $621 per tonne. This marginal unit operating cost increase reflected a mix of reduced costs in dollar terms, offset by lower sales volume due to the planned downtime for a ramp-up of the P680 crushing and ore sorting facility. Pleasingly, the benefits of lower costs from the P850 operating model began to accrue late in the December quarter following the decommissioning of Nunggaju in line with plan. On a CIF basis, unit operating cost was $731 per tonne in the December quarter, a 2% increase compared to the prior period, in line with fall costs. Finally, the group's cash balance at 31 December was $1.2 billion and remained strong. Turning to Slide 12. Slide 12 provides a summary of the group's key financial metrics for the H1 FY '25 period. Group revenue in H1 FY '25 was $426 million, a 44% reduction on H1 FY '24, driven almost entirely by a 58% lower average realized price. The average realized price decreased in USD 1,645 per tonne in H1 FY '24 to USD 688 per tonne in H1 FY '25 and almost $1,000 decrease. Production volume of 408,000 tonnes in H1 FY '25 was approximately 88,000 tonnes or almost 30% higher than the prior corresponding period. This was achieved through the production volume expansion enabled by the P680 project and recovery improvements across both parts. Importantly, H1 FY '25 was underpinned by a full period of operating with the P680 primary rejection facility. At the unit cost level, unit operating costs on an FOB basis reduced by 11% on the PCP to $614 per tonne reflecting the benefit of higher sales volumes enabled by P680 against broadly flat production costs in total dollar terms. On a CIF basis, unit operating costs were $724 per tonne in H1 FY '25, a 20% reduction on the PCP. This was driven by lower royalty costs from lower revenue and the aforementioned increase in sales volume. Turning now to Slide 13. Slide 13 shows the cash flow bridge for the December quarter FY '25. As mentioned earlier, the group's ending cash balance at 31 December 2024 was $1.2 billion. This represents a decline of $182 million from the prior quarter. The $182 million reduction in cash during the period was primarily due to capital expenditure, including growth CapEx to the P1000 project, partially offset by a net tax refund of $100 million. Focusing on cash margin. Our cash margin from operations defined as receipts from customers less payments for operating costs was negative $8 million in the quarter. December quarter cash margin, however, was unusually impacted by the timing of cash flows. More specifically, December quarter cash margin was reduced by $40 million of final price adjustments of sales paid largely in the September quarter. Adjusting for this $40 million impact to cash margin from operations would have been positive $32 million. Looking at CapEx. Total CapEx spend was $222 million in the December quarter on a cash basis and $149 million on an accrual basis. CapEx spend of $149 million included growth CapEx related to the continued development of the P1000 expansion project of $60 million, infrastructure and projects of $38 million, capitalized mine development costs of $40 million and sustaining CapEx of $11 million. Turning now to Slide 14. Slide 14 shows the cash flow bridge for the H1 FY '25 period. In H1 FY '25, cash declined by $455 million to $1.2 billion as at 31 December 2024. The $455 million reduction in cash during the half was primarily driven by capital expenditure spend. Focusing on cash margin. Our cash margin from operations defined as receipts from customers less payments for operating costs, was positive $41 million in the half. This reflects the strong cash generation of the business pre capital expenditure, even at the low average realized price of USD 688 per tonne for the half year period. Importantly, the final price adjustments impacting the December quarter effect into the half year period, with cash margin from operations remaining strongly positive. Turning to CapEx. Total CapEx spend was $436 million on a cash basis and $358 million on an accrual basis. CapEx spend of $358 million included growth CapEx related to the completion of P680 and the continuation of the P1000 expansion project of $136 million, infrastructure and projects of $92 million, capitalized mine development costs of $84 million and sustaining CapEx of $18 million. For the FY '25 period, CapEx spend is weighted to the first half with all of the P680 and the majority of P1000 CapEx now largely spent with greenfield construction complete. I'll now hand it back to Dale.

Thank you, Luke. Moving to Slide 16 for an update on the market. The lithium market continues to take shape rapidly care of technology improvements, government interventions and energy transition drivers. 2024 was a year of many milestones for the lithium market, including global lithium demand to total over 1 million tonnes LCE for the first time growing by 30% year-on-year care of Benchmark. Global EV sales reached more than 17 million units, growing by 23% year-on-year or 3.4 million units on the prior year, the DataCare promotion. EVs themselves move through a key inflection in cost point within the China market. China EV is offering a more cost-competitive alternative to the internal combustion engine equivalent. The Chinese EV market penetration in the second half of '24 increased to roughly 50% of total sales, resulting in 11 million EV sales of 64% of the global EV sales, so a remarkable step-up there in China. As it relates to mass energy storage or ESS demand grew by an incredible 53% year-on-year with 205 gigawatt hour of global storage deployments. This data have grown much. What's behind this? Well, significant disruption is underway due to these rapid advancements in technology. Every day, more headlines are emerging for auto company mergers, breakthroughs and autonomous driving, ESS and developments and electric vertical takeoff and landing, or eVTOL vehicles, as it's called, to name but a few. At the core of this disruption is a technology revolution where digital intelligence and electrification are intersecting, combining and are self-reinforcing. And to share some of the recent anecdotes in the space, which illustrate this, Jensen Huang, the CEO of NVIDIA described a key part of the future of this company is predicated on several 3 key growth areas for robots being agent robots, self-driving cars and humanoid robots. Now I know all of these will need batteries. And I also note the distinction Jensen's made that cars are becoming robots. Also, the CATL Co-Chairman, Pan Jian, I spoke at the World Economic Forum recently where he recharacterized EVs as EIV with I referencing intelligence. So again, another example of this digital influence combining with electrification. Now moving to more practical example is the incredible progress BYD has been making. BYD sold over 4.25 million passenger cars last year, positioning itself as the second largest EV manufacturer globally just behind Tesla. BYD surpassed Toyota's EV sales and the Japanese market in '24, marking a significant milestone and BYD officially entered the South Korean market this month. a bold move that brings it into direct competition with the domestic e-manufacturers in South Korea. So we continue to closely monitor BYDs advancements as it challenges established players in key markets worldwide. Another notable anecdote of supply chain disruption comes care of CATL. The battery maker CATL, of course, being one of the largest globally launched what they called their bedrock chassis. This is an integrated product that provides not only the battery, but the full chassis integrated and it's been safety tested. Thus, this change obviously changes the role of the battery maker but further simplifies the Automobile supply chain, and no doubt will lead to reduced cost care of CATL's manufacturing scale. So we watch this with interest. So as you can see from these brief examples, much change is underway, and all of this change are growth markets, which, of course, the lithium market serves as a key subset. So moving to pricing. The lithium market has been rebalancing following the highs of calendar year '20 and '21. Following our recent supply curtailments over the past year across the industry, we note that spodumene concentrate pricing has lift off the lows of USD 750 per tonne that we saw in October last year. And now moving into the range of between mid-850s to low 900s. Pilbara Minerals continues to see inbound interest from downstream industry participants, both in relation to near-term offtake and long-term opportunities surrounding expansion optionality that Pilbara holds. Now while volatility is expected to continue as the industry continues to take shape, we remain focused on the incredibly strong long-term fundamentals. This exciting market presents for our shareholders and all our stakeholders connected with the business. Now before we move to questions, I'd like to leave you with a few closing remarks. FY '25 sets the stage for a stronger operational platform with increased scale and improved processing capability as we integrate both the P680 and P1000 projects. As noted earlier, ramp-up years naturally impact run time and lithium recoveries as new circuits are integrated. These factors have been carefully considered and accounted for in our guidance. The December quarter that we've just walked through represents another solid operating performance quarter delivering in line with our plan for the year and this ramp-up year. Now looking ahead to FY '26. We're excited to showcase the improvements in unit cost outcomes driven by the enhanced scale and efficiency of our expanded processing capabilities. Now the group remains focused on executing on our strategy, navigating through these cycles while strengthening our leadership position in lithium. This is anchored by our ongoing improvements in long-term cost performance maintaining a strong balance sheet and our disciplined market-aligned approach to capacity growth. Thank you for your time and attention today. We remain confident in our strategy and our ability to adapt in this and thrive in this evolving market. Now with that, I'll hand back to Maggie to proceed to Q&A. Thank you very much. Maggie?

[Operator Instructions] Our first question comes from Levi Spry from UBS.

Dale and team, happy new year. I mean just to push a little further on the market. There was reports that SQM had realized $920 on a recent auction. Can you talk to how real that price is and give us a bit more insight into what you're seeing currently?

Yes, Levi, happy new year. Yes, as it relates to the market, it's always really hard to understand the supply demand balance. We do think that that's tightened. As it relates to spot sales being above the average and specifically the SQM advantage. I don't have any particular insight, but it doesn't surprise me that on a spot basis, they would realize a premium and it does obviously signal a potential tightening in the market. So we'll wait and see to see how things evolve. In contrast to our realized pricing, we've been focused on our offtake delivery. So based on the production volumes from site, it's all largely committed under offtake. So our long-dated offtakes of course, tied to the average market references as compared to the smaller volume spot sales. So yes, that's sort of the landscape at this moment in time, Levi.

And note the chemical price hasn't really done much as of yet. But just thinking about the optionality you now have within your portfolio, particularly with Salinas also in there. Can you talk us through how you're thinking about stepping through those projects? So now P850 becoming a P1000 again with the Ngungaju coming back on how you think about weighing up Latin versus the P2000 with study outline this year?

Yes. Thanks, levi. Yes, the key word is options there. So at our disposal, we've now got a suite of capacity options, which you sort of listed off there. We've got, of course, the Ngungaju operation, which could be brought back to life fairly rapidly. We think within sort of a 4-month period. And then we've got the larger growth plans relating to Salinas and P2000 of the Pilgangoora asset. In terms of how we're thinking about it, well, it's all market-dependent. Now if it was to eventuate that there's a rapid price rise. Well, obviously, we can respond to that quickly, care of the Ngungaju facility. It would make -- that would be an obvious lever to pull. If things are more moved, well, we'll probably continue with the current operating platform. So that would be probably the 2 bookends. In parallel, what we need to do is progress these studies for both the P2000 and the Salinas project. So we will push those along in due course and progress those to maturity. And ultimately, there's obviously a longer lead in time with each of those growth gets. And we like the idea of preparing those and being ready to bring them to market as the market is ready for it and as the market grows. So that would be sort of at a high level, the way we think about those capacity increases, Levi.

Next, we have Kaan Peker from RBC.

Dale, Luke and Brett, Two questions. One, the first one is on the negotiated offtake agreements. Maybe if you can give us an understanding on what proportion of sales volumes they impact. And how do they better align with market pricing? Are they still based off Chinese chemical prices? And do they have offtakes tied to longer provisional pricing? I'll follow up with a second one please.

Yes, Kaan. So as it relates to the 2 offtakes we have referenced in the quarterly activities report One is the completion of an offtake, which came to an end there. And as part of coming to an end, that retires the that offtake inclusive of the pricing formulas, which were intrinsic to that, that pricing formula was headcount a bit out of step with the market. So happy to see that one come to conclusion. The other offtake referenced there is a renewal and we took the opportunity to, as you would expect, to reset that appropriately in alignment with our other offtakes. So where we stand today is the full suite of offtakes are in close alignment at this point in time. in terms of what we believe is the ability to achieve the market pricing spodumene, so we're happy about that. So the question of what proportion did those offtakes speak to Well, as of last year, it would be something less than 20% for last year. But moving forward, it's a different makeup of customer volumes, which we haven't disclosed. So it's probably as much as I can speak to there without getting into the contract specifics. As it relates to provisional pricing. We've got, broadly speaking, the same approach across each of those offtake agreements. The product is priced provisionally based on typically sort of a 1 month up to 2 months look back, and then it's settled in the future. Typically, plus 1 typically. So there is some variation around that. Hopefully that helps, Kaan.

Yes, sure. And also Train 1 and Train 2, with the POSCO JV appeared to be doing well and obviously ramping up. However, there was a comment in the quarterly about further funding for the JV due to depressed prices. Can you maybe give a ballpark estimate on current ramp-up expectations and pricing?

Yes. Carlo. So if you -- firstly, as you say, the PLS team are doing a great job, not only with the ramp-up, but pre that with construction. So we're really happy to see the progress they're making, bringing those trains to live. The certification progress they're making, the quality. There's a lot to like about the progress there and well done to them. And all of the detailed preparation work they put into creating the success we've seen thus far. But yes, we're only partway through the journey, and as spoken to in the quarterly, Train 2 is very much in the thick of it. As to the reference around funding, we're not in any sort of position to understand if there is a need there. The POSCO team, the JV team is working through the potential forecast and outlook, et cetera, et cetera. And depending what happens with the market, of course, that flows through to the bottom line. And obviously, that's ultimately going to be a key factor as to if there's a funding need or not. Now importantly, Pilbara is an 18% equity participants. So we're very much a minority participant in the joint venture. So if there were to be a capital requirement. Well, obviously, we're quite a small percentage of that at 18%. So that's the lay of the land there, Kaan.

Our next question comes from Hugo Nicolaci from Goldman Sachs.

Dale and team, just wanted to firstly follow on from Kaan's question there on the POSCO JV and the commentary around needing to tap capital into that. If I go back to your proportional reporting of where that balance sheet for the JV was at in June, it looks like that JV should be able to reasonably fund itself for the immediate future. So are you able to maybe talk to what the remaining capital spend needs are for Train 2 or maybe how the operating cost outlook has shifted or maybe how big the discount on uncertified material is that you're expecting to get that would drive your needing to potentially took into that JV?

Yes, sure Hugo. Firstly, yes, the JVs and good financial standing, as you've highlighted, that's correct. As to our ability to provide any sort of expectation around our future needs. Unfortunately, no, we're not in a position to that at this moment in time. The POSCO team is deep into forecasting and budgets at the moment, and we'll, of course, be party to that when they progress their thinking. And once that's done, we'll be in a more informed position to look at the outlook. But as you sort of stated, we're in good financial health there at this moment in time.

Got it. My follow on later then. But then second question also, just kind of following on from Kaan's. Can you just -- on the realizing pricing fees, can you first just confirm that the auction cargo you agreed last March that was slated for the December quarter, kind of improve that realized pricing in the quarter? And then to the point around the offtake pricing changes. How does that shift your overall portfolio exposure now? I think historically, we've kind of talked to 2/3 to spodumene 1/3 to chemicals with the preference hydroxide. Does that now move more to sort of 75% weighted to spot pricing? Or how should we start to think about that now going forward?

Yes. There's a few questions buried in that one, Hugo. Thanks. As it relates to the spot sale, by proportion, that was pretty small. And yes, I can't recall what we realized there, but it doesn't really move the average as a function of smaller volume. As to the makeup of the portfolio in general terms across the offtake suite, they're all weighted to spodumene PRAs for this moment in time. But importantly, I would stress that a key foundational principle across all of our offtakes is that the pricing mechanism will realize the underlying value for spodumene concentrate. Now if that means to achieve that aim, we have to evolve those review and evolve those pricing mechanisms potentially swinging back to chemical references or other references, well, that is contemplated. And historically, that's what we've done as we've seen dislocations emerge between the different headline references. So I just would like to highlight that. But at this slice of time, we've aligned by weight of proportion to spodumene PRAs. Does that answer your question?

Yes. I guess just in terms of what that weighting is, do we think about that being kind of more than 2/3 weighted though overall now?

You could make that assumption, yes.

Got it. And then just lastly, if I could squeeze one in for Luke. Just are you able to comment on I will just clarify the amount of debt you repaid in the quarter and I guess what your closing debt balances post drawing the new facility to repay the old debt piece?

Yes. Thanks for the question, Hugo. So the debt balance currently is approximately $375 million. The debt refinance was approximately $370 million.

Got it. And so that's repaid, all debts? You don't have any government loans or anything still in there that you've kept?

No. The previous project sale, government and corporate loan facilities have been fully repaid and the $375 million of debt on the balance sheet today has been drawn down from the new RCF facility. So it was a refinancing of the previous debt.

Next, we have Rahul Anand not from Morgan Stanley.

Look, I just wanted to touch upon firstly, in terms of the future growth options. I think various questions kind of talked about several of them. But if you were to think about your future options now and you do see the markets start to improve? Is it fair that you're going to be focused more on perhaps the Pilbara first followed by the Latin Resource? And then also in terms of the POSCO plant, obviously going quite well there. Can you remind us, is it the call option expiry? Is that in 2026? And in terms of your payable sums there, that would be basically cost plus inflation. Is that right? It would be good to get some clarity on that. That's the first one.

Yes. Thanks, Rahul. Yes, as it relates to the growth options, both the Salinas project and the Pilgangoora expansion are 2 very different growth prospects given that we think just likely there's probably different approval time lines will emerge, certainly a different scale of capital requirement between the 2 and the commensurate tonnage, which flows from each of those is obviously quite different. So yes, they are quite different expansion options to weigh up. And potentially, depending where we ultimately take respective developments, how we think through the interconnected supply chain solution is a key factor us, whether that's offtake or whether it's a strategic partner, all of the above is yet to be thought through. But as we think about that integrated supply chain solution, depending on that counterparty, there are certain preferences for certain geographic locations. So that's another factor which will ultimately need to go into the poll as we weigh up timing as we progress each of those. So yes, it's not so much a simplistic sort of commercial evaluation cases. There's quite a few factors to think through on that one. But just to stress in all cases, we will not be bringing any growth into market if we do not think the market is ready for it. However, we like the idea of preparing for that situation, given we think the underlying growth is very impressive. As it relates to the POSCO joint venture question, yes, we have time to -- for that call option for Pilbara first window we have relates to the certification of the 2 trains, and that is some way off in the distance. As to the quantum, that is based on our proportion of equity plus a small escalation factor, which is something in the order of 3%, 3.6% per annum. So we have option A as we can elect to do in that first window. And we have a second option B, which is post that window, there is another window that we can lent to step up post those certification if we make the decision that we wanted to take more time to evaluate. So yes, we've got a few different pathways that we can choose.

Next question comes from Jonathan Sharp from CLSA.

Dale and team, so it sounds like you're a little bit more positive for prices in FY '25. I'm just interested in your thoughts. How are you thinking about capital allocation moving forward. Has anything changed there? And should investors expect a more aggressive approach in dividends or M&A? Or is it still your focus on organic growth?

Jonathan, yes, as it relates to capital allocation, no change in our outlook although in terms of the outlook for the market, look, it's great that we've seen a small price increase from the December quarter. However, it's a small increase, and we're not long into it. And fundamentally, there is a level of uncertainty in the market. So it's too early to take any view of market correction. So with that in mind, no change to the way we think about balance sheet management. We're very focused on balance sheet strength. This is about preserving capital, if you can preserving cash everywhere we can and continuing to drive cost out of the operating growth everywhere we can. So more of the same in that regard.

Just to add to that. The focus really remains for FY '25 bedding down the P850 operating model and the cash flow improvement that will result from that model. So no change to our capital investment approach over FY '25.

Okay. Great. And just another question, just with continued investment from others in lower-cost South American brine projects? How do you see Pilbara's hard rock spodumene strategy? And how do you see yourself competing in potentially a lower price environment over the next period if it does stay low?