Wesfarmers Limited (WES) Earnings Call Transcript & Summary

Good morning, everyone, and welcome. Before I commence, we'd like to present an acknowledgment to country. And to do this, I'll call upon 2 of our WesCEF team members, Aboriginal Affairs Officer, Isabella Strnadica, and ERP Administration Assistant, Brittany Dalgetty. Both have contributed in their respective roles to help WesCEF offer a work environment that is safe and where people can bring their authentic selves to work. So thanks Bell and Britt.

WesCEF would like to acknowledge the traditional owners of the land on which we are meeting today, the Whadjuk Noongar people.

We acknowledge the strength of our people and our culture. We also pay respects to elders both past and present. We acknowledge their connection to their land, their courage, their resilience and their stewardship and the preservation of the land and our culture.

Thanks, Bell and Britt. So welcome to WesCEF, everyone and to our CSBP site at Kwinana, which covers about 138 hectares, if you weren't aware of that. You might have got a feel for the size of the site as you drove in, and we're looking forward to showing you our operational areas this afternoon in a bit more detail. I think we last hosted some of you in 2019. So we're going to try and make sure that we spend time on what's changed since then and what's happening from an efficiency decarbonization and growth perspective. Over the busy 2-day schedule, which starts with the presentations on our operating businesses here, we'll also have Covalent Lithium present, and there's time allocated for question-and-answer sessions as well followed by obviously the tour of the Kwinana facilities. Tomorrow morning, as you're aware, we all fly up to our Mt Holland lithium site, and we'll be able to visit the mine and the concentrator areas, which is a great way to conclude your tour of the WesCEF businesses. In terms of housekeeping, just a couple of things. Firstly, as you'd be aware, we are very safety conscious here. So given the nature of our operations, if you hear a siren sounding, please don't be alarmed and don't panic, just follow the instructions of the WesCEF staff member who you're with. Secondly, you should always stay with your nominated WesCEF staff member. Thirdly, during our plant tour, please ensure you use the handrails that are provided, but don't touch any other equipment. We've provided you with safety boots, and I hope they fit. These are a gift to you and you're welcome to keep them, hence, the tote bag for you to place your non-safety footwear in for the rest of the day. It is really very important that you wear your safety boots for the Mt Holland tour tomorrow. You will not get on the plane without them. So please remember to wear your safety boots. Speaking of Mt Holland, it's like all our sites, and it has a drug and alcohol policy. And it's unlikely you'll be breathalyzed. However, the majority of our visitors and employees are breathalyzed daily at that site and the only acceptable blood alcohol level is 0. Also on every seat, there would be in a hard hat when you came in, together with the fluro vest, gloves, hearing protection, and once we finish the tour here at CSBP, we'll come back to this room and if you can leave the hard hat, the fluro vest, the gloves that would be great, but take the boots for tomorrow. Mt Holland will provide similar fluoro jacket, hard hat and so forth tomorrow, but you must take and wear your boots. If you do not wish to keep the boots after the visit to Mt Holland, in other words, you don't want to accept the gift, we will be pleased to take them back, but you'll need to have access to your everyday shoes to change at the Perth Airport. That is when the buses take you to the airport -- take you from the airport. Finally, as I mentioned earlier, the restrooms are just down the hall. With our agenda this morning, you'll hear from each of our leaders of their respective businesses. For those who weren't available to visit us in person, we've prepared some short videos about our various businesses, and these videos can be accessed through the Wesfarmers' website. We will have a break prior to the lithium section of the presentation. So moving on to an overview. We are a unique business for a variety of reasons. Wesfarmers is a conglomerate and WesCEF is a mini conglomerate operating in a number of sectors. Despite this, there is a degree of integration between the businesses, which delivers benefits. Our businesses have strong market positions, have generally grown through organic expansion to service addressable growth markets, and have deployed capital in a timely manner to deliver shareholder value. We have strategically located assets and our technical skilled workforce across a breadth of disciplines together with strong brand management in consumer and semi-consumer sectors gives us confidence in our ability to continue to identify and prosecute new opportunities. We are very privileged at WesCEF to have a diverse and highly skilled executive leadership team. Our team consists of 12 general managers and unfortunately, to keep our presentation as short as possible, we won't be hearing from all of them here today. Those who will be speaking have their name shaded in green, if that comes out through the TV. However, everyone has had input into the presentation's content. So their respective areas are well covered. And more information with the buyers and the backgrounds are available on the WesCEF website. Also, we're very pleased to see members of the Covalent leadership team here today. And this slide shows the WesCEF employees that are seconded to the senior leadership positions in Covalent Lithium, which, of course, is our 50-50 joint venture with SQM. I think it's important to note that the key roles of CEO, Project Director and CFO, are all WesCEF employees as well as the General Manager of the refinery and also the Commercial General Manager. Later today, you will hear from Covalent CEO, Ryan Hair and the Project Director, Ross Martelli, both of whom report to the Board of Covalent. We also have a number of other WesCEF leaders and technical people who have been seconded into key areas in Covalent. We're also fortunate to have people from SQM on the project, and both sponsors provide additional support from the respective motherships as required. The Wesfarmers representatives on the Covalent Board and Management Committee are myself and Aaron Hood. Aaron is currently seconded to the role of Executive General Manager of Business Development in Wesfarmers, but prior to this role, he was WesCEF's CFO. And we're very fortunate that Aaron will be returning to WesCEF in July following the appointment of a permanent position to the General Manager Business Development role in Perth. Aaron will be joining us for Q&A section later in the day. And I should mention that on the Board are 2 SQM executives based in Chile, who represent SQM on the Board of Covalent. Our vision here at WesCEF is to grow a portfolio of leading sustainable businesses, and this vision guides our operating model. In order to achieve this vision, we have core strategies that are ingrained in our businesses, being our safety blueprint, Safe Person, Safe Process, Safe Place. Our growth objective to evolve the division through innovation and investment. Our focus on our people and culture that welcomes and celebrates all staff members from diverse backgrounds and our goal to enhance our reputation in all our business and community interactions and our strong performance. Importantly, we operate a shared services model. This provides consistency of approach, standardized reporting and also governance in such areas as IT, HR, finance and procurement. Moving on to our businesses and their positioning in their respective markets. I won't go through this in too much detail, but it does highlight that our key businesses hold leading positions in their markets. This is due to a range of competitive advantages that come from our operating excellence, strong customer relationships, generating the most value out of our assets through diligent maintenance and strong reliability, strategically located assets and as I mentioned earlier, our brand is being trusted in their respective markets. Slide 11 reflects our national footprint in Australia with operations based primarily in WA and a presence in other various states. Key locations include our manufacturing operations here in Kwinana, also the Mt Holland lithium mine and concentrator, which is about 400 kilometers to the east of Perth. The statistics in the middle of the slide give us a sense of the scale of our operations, and they exclude our joint ventures of Covalent and QNP. We have over 1,500 employees, 16 manufacturing plants, 4 major hazard facilities and over 270,000 customers across our Chemical, Energy and Fertilizers businesses. Moving on to Slide 12, which illustrates a close proximity of all our facilities in Kwinana. And the advantages this affords us is the sharing of talent and expertise across facilities. And from a retention and development perspective, many of our team have had the opportunities to build careers across multiple WesCEF businesses. Our Kwinana operations also have access to critical infrastructure such as priority port access for imports of ammonia, fertilizer and other key inputs; access to rail and also major road routes. If we focus on the right-hand side graphic, we can see that Kwinana operate -- our Kwinana operations are located in the Kwinana industrial area with access to natural gas by the Dampier-Bunbury natural gas pipeline, a key feedstock into the majority of our operations. As natural gas is a key input to many of our businesses, we wanted to explain some of the features of the WA natural gas market, and its role in our businesses. The WA gas market is decoupled from the dynamics on the East Coast market. In fact, we have some unique aspects such as the domestic gas reservation policy, which requires a reservation of domestic gas equivalent to 15% of LNG production from each LNG export project. It's traditionally supplied from the Carnarvon Basin, but increasingly, gas is being supplied from the Perth basin as well and will complement supply from the north when these projects come online. The Perth Basin developments are important as gas demand continues to grow and coal power plants are retired and the use of gas and electricity generation increases. Through an agreement with ASX-listed energy supplier Strike Energy, CSBP has secured access to 100 petajoules of gas supply from the Perth Basin, which is subject to FID upon Strike's West Erregulla project. The longer-term Strike agreement complements our existing relationships with major WA gas producers. We generally contract with these suppliers for periods of 1 to 5 years and WA natural gas has the potential to support some of the expansion projects that Alex and our business leaders will touch on shortly. Our next slide, which looks pretty busy, but it's not really; illustrates the complementary nature and synergistic nature of our businesses. Many of our purchased inputs are shared across multiple businesses and many of the products that we manufacture become inputs for further value-added processes. On this slide, we have highlighted the importance of natural gas as well as the use of ammonia as building blocks for many of our products. With that, I'll hand over to WesCEF's Chief Financial Officer, Alex Willcocks, to speak to the financials, safety and people sections of WesCEF.

Thanks, Ian. Good morning, everyone. In our first financial slide, we wanted to illustrate how capital investment into our business over the last decade has been quite concentrated with periodic major periods setting up earnings growth in future years. This is visible in the 2 major projects highlighted. Our investments in our third ammonium nitrate plant between 2012 and 2014, and most recently, our investment in the Covalent Lithium project. In between these major projects, you can see that our business has required a much lower level of capital in order to maintain operations and deliver smaller improvement projects. Referring to the chart on the right, we can see WesCEF's consistent earnings growth over the last decade as well as our return on capital during this time. By viewing the 2 charts side by side, it becomes evident that dips in ROC are short-term outcomes of our significant capital investment in growth projects. However, we also see that ROC has rebounded after these investments have been completed and the associated earnings commenced, and we expect a similar trajectory for our Covalent project. Moving to Slide 17. We can see the numerous investments and portfolio actions undertaken by the division since 2005, with those key investments highlighted with the green box. This illustrates our preparedness to invest in organic and inorganic growth and to make divestments and restructure our activities where it is in the best interest of shareholders through active portfolio management. Moving to Slide 18 and switching from our historical investments to future opportunities. This provides a view of the 5 most significant growth opportunities we're currently investigating. The progress of this pipeline ranges from those where we are preparing to consider a final investment decision, through to those that are more conceptual in nature. They also cover a range of small to medium and large investment commitments. We are currently investigating production capacity expansions in several of our businesses to service growing markets or to reduce our reliance on various inputs. We're also undertaking studies and partnering with repeatable businesses to work towards our net zero road map, which must wrap, we'll talk to you in more detail shortly. This is evidenced by our CCS study with the potential for a blue ammonia production facility. When assessing each of these opportunities, we draw on a range of key enablers that form part of WesCEF's DNA. These include a strong culture of financial discipline, deep evaluation and project execution expertise as well as a focus on the timing of projects to make sure we meet the market needs and maximize returns. More detail on each of these opportunities will be covered off in the following sections of the presentation. People have always been central to WesCEF's success. It's something we feel very strongly about, and it's why we continue to invest in our teams. As a result, we have a strong culture on building capability, both technical and behavioral to ensure we have the depth of skills and knowledge to facilitate major projects such as Covalent. With this in mind, we also invest significantly in our talent pipelines through apprenticeships, cadetships, graduates and other early career programs such as traineeships. For all our people, we always strive to provide a safe and inclusive workplace where the diversity of our teams is celebrated. Of course, helping to drive WesCEF's positive culture and role model our values are our leaders. So having in place a supportive learning and development framework has been key from supervisors on the shop floor, all the way to executive positions. And supporting the WA communities in which we operate is important to WesCEF. It supports our social license to operate, and we're conscious that many of our employees live in these communities and want to play a part in our partnerships. WesCEF and its 2 key businesses, Kleenheat and CSBP offer a range of community grants that are aimed at grassroots levels and provide that small funding boost needed to bring an initiative or a program to life. These grants are offered in regional communities where we have depots servicing our customers as well as in our local Kwinana area. We also support major Perth community festivals and activities like the Perth Fringe Festival, and the Telethon Community Cinemas, both of which have become annual events in the diaries of West Australians. And where we can, our enthusiastic team members are very keen volunteers and really become an essential component to the success of our community support. So our efforts to provide a safe workplace every day is delivered through our framework of Safe Person, Safe Process, Safe Place. We have made major improvements since 2012 as our TRIFR performance on this chart shows, and it's a trend that we aim to continue with a clear focus on 2 types of safety relevant to operations. They are occupational health and safety as well as process safety. So occupational health and safety is about protecting the workforce. So 3 measures such as selecting talented and skilled employees through good recruitment processes. Ensuring appropriate and necessary competency and training for the workforce, supporting the health and well-being of employees. Here at CSBP, we have a medical center, which among things, assists with our fitness for work through a range of assessments, which include chemical absorption, lung function, hearing as well as physical capability testing. And lastly, ergonomics and the wearing of appropriate protective equipment. The process safety is about the management of hazards and the events that potentially go beyond our boundaries affecting neighbors and the community. And we manage these risks by selecting the technology and equipment that is inherently safe, maintaining tens of thousands of pieces of equipment that are involved in our processes to ensure that they don't fail unexpectedly and having layers of protection. And by this, I mean, if one thing does go wrong, it can never trigger a major hazard event because there are layers and layers of controls, ensuring the safety of the operation. And finally, moving our focus -- moving to our focus on operating to limit our impact on the environment. Most of the areas we focus on are listed here on Slide 22, but I'll talk to some specific examples. Our operations use significant volumes of water, and we acknowledge this is a resource that is becoming increasingly precious and expensive. We're always looking for alternative options for water supply. And a great example of this is the recycled water we use from the Kwinana water recycling project. How we manage our own wastewater is another component we must consider, and later today, you'll be visiting the wetlands that we built over 15 years ago. How this works is that bacteria in the mud eats the nitrogen content in the wastewater and rather than release the wastewater into the ocean off our coast as excess nutrient, it gets released back into the environment where it -- in the atmosphere where it originally came from. In terms of our electricity use, CSBP is one of the few industrial sites in the busy Kwinana industrial area that generates most of its own electricity. So we capture excess heat from our chemical processes to generate electricity. And this has been part of our efforts since the Kwinana site was first established in 1968. Waste heat recovery systems are an integral part to the design of several of our chemical plants and so we generate more than 75% of our own electricity requirements for this site. We're also giving greater focus on capturing and reporting ESG data and we're implementing a data management platform across all of WesCEF operations to streamline and improve the reliability of the data that we report on. Thank you. And now I'll hand over to Mussaret Nagree, our General Manager of Climate Opportunities.

Thanks, Alex, and good morning, everyone. This slide gives you an overview of our net zero road map, which we launched about 12 months ago. And as you can see, we see our decarbonization journey as having 3 distinct phases. The first phase began in 2012 with the installation of secondary abatement catalysts in our nitric acid plants. And the introduction of these catalysts led to a 40% reduction in our emissions. We are now in Phase 2 of our journey, where we're seeking to reduce our emissions by a further 30% by 2030 relative to 2020 levels. And Phase 3 is the period post-2030. In fact, Phase 3 is the period post-2030, and we're doing the work now to be in a position to roll out abatement solutions at scale at the turn of the decade, and I'll go into more detail about these phases in a moment. Based on what we know today, we do expect there to be some residual emissions in 2050, and we'll need offsets for these. It's our strong preference, however, to abate our emissions rather than use offsets. We will use -- we really use offsets selectively, for example, for customer offers, such as Kleenheat's carbon neutral gas product and we might also need them for compliance reasons from time to time. But fundamentally, our position is to abate rather than offset. Across the bottom, you can see our enablers. The enablers are our ways of working that will help deliver our road map and targets. The first one is climate governance. And this is about making sure climate considerations are at the center of all decisions, and I draw the parallel to safety, where we don't make any decisions about our plants without considering the safety implications of those decisions, and we're applying that same principle to greenhouse gas emissions. And partnerships are absolutely critical, and I'll talk more about that in the context of Phase 3. And transparency. This is all about sharing our emissions data with customers and suppliers to help make better emissions decisions across our supply chains. Our actual emissions in 2020 were 955,000 tonnes, the majority of which was Scope 1. However, built into this baseline is the benefit of the abatement we've already delivered. If we hadn't invested in any avoidance or abatement measures, our emissions in 2020 would have been closer to 1.8 million tonnes. I've already mentioned, the investment we made in secondary catalysts a decade ago, and that has driven the majority of the abatement we've delivered to date. As Alex explained a moment ago, we generate most of our own electricity at this site. And in doing so, we avoided just under 100,000 tonnes of Scope 2 emissions in 2020. And lastly, we have carbon capture and utilization. Carbon dioxide is used in a number of critical applications arguably the most critical being craft beer. And we do about 45,000 to 50,000 tons of carbon utilization per annum. I will note, however, that this carbon utilization reduces our Scope 1 emissions, but it is captured in our Scope 3. And with these abatement and avoidance measures already in place, we're starting the rest of our journey from a really strong place. We're currently in Phase 2 of our decarbonization journey where our target is a 30% reduction by 2030 relative to our 2020 baseline. This builds upon the emissions reduction we've already delivered -- so please keep that in mind when you look at our targets compared to others. The way our plants work is that emissions improvements are made in step shifts when we implement abatement technology. In the short term, they are influenced by a host of factors, including plant charts, efficiency gains and performance of abatement technology. For example, abatement catalysts deteriorate over time and need to be replenished. So we encourage you to look at our emissions performance in the same way we do, which is relative to our baseline and to focus on the long-term trends. Period-on-period movements can be easily distorted by one-off factors. And this year is a really good example of that, where we're cycling the impact of a 6-week ammonia shut in the previous year. So this year's emissions will be higher than last year. The interim target is underpinned by new nitrous oxide abatement technology. You might have heard of tertiary catalysts, and we're evaluating this technology to further reduce our nitrous oxide emissions. Now assuming successful implementation of these projects also means we should stay ahead of the proposed safeguard mechanism reforms for this decade. Now that assumes the legislation passes in its current form, and it's obviously also subject to the review in 2027. And we're also looking at how we can address our residual Scope 2 emissions. Options we're assessing include renewable electricity and capturing even more excess heat to turn it into electricity. And the 30% target is based on the mix of businesses and their emissions as they were in 2020. Alex has talked about our growth opportunities and assuming these opportunities come to fruition will reassess our baseline. And finally, Scope 3. We're also looking at our Scope 3 emissions during this phase. We've now completed an estimation of all material Scope 3 categories, and the next step is to engage across our value chains to get more accurate data and to identify opportunities. Whilst Phase 3 doesn't start until 2030, we're doing the work for it now, and partnerships and collaborations are key to our Phase 3 success. And there are 2 projects in particular, I'd like to call out. The first one is with APA. APA have the Parmelia Gas pipeline, and it's one of the few pipelines that has the potential to carry 100% hydrogen. And the relevant part of the pipeline starts here in Kwinana and runs 40 kilometers further south. And together, we're investigating the feasibility of locating renewable electricity generation capacity and electrolyzers along the pipeline and transporting the green hydrogen to our site utilizing the pipeline. The other really exciting initiative is our low-carbon ammonia project with Mitsui, and there are 2 elements to this project. One is the use of ammonia as a direct fuel. We're looking at the export of low carbon ammonia to Japan, where ammonia has been co-fired with coal to reduce the emissions intensity of the stationary energy sector and ammonia is also looking really promising as a marine fuel. The second element of this project is the development for carbon capture and storage solution. This solution would be applied to the new ammonia plant we're evaluating in partnership with Mitsui and could also be a solution for our current carbon dioxide emissions from our existing plants. And let me take a moment to explain why we think carbon capture and storage is a good solution for our business. You saw earlier in Ian's chart, that natural gas is a key input to our ammonia production. From that natural gas, we extract hydrogen, and that hydrogen goes into ammonia. And it's at this hydrogen stage of production where ammonia's carbon dioxide emissions are generated. However, 2/3 of these emissions are high-purity carbon dioxide. And that's the CO2 that goes into the beer and other food and beverage applications we were talking about earlier. This high-purity CO2 is much easier to capture and store than most CO2 streams, which are typically less than 20% pure. So it's because we have this high-purity stream of CO2 that we think CCS or carbon capture and storage has good potential for our business. What I would like to emphasize, though, is that we don't think there is a black and white choice between carbon capture utilization and storage in green hydrogen. We think they're both absolutely critical in the transition. So in summary, we're on track to deliver our interim reduction target, and I'll reiterate that emissions reductions will occur in step shifts and any one period will be affected by a whole host of factors, so please focus on the long-term trend. Achievement of our 2030 target means we should avoid safeguard liability this decade, but that's subject to the legislation passing in its current form and also the review in 2027. We're working hard on Phase 3 technologies and front runners are carbon capture utilization and storage and green hydrogen. And as I said, we don't think there's a mutually exclusive choice here. Both solutions have an important role in the transition and in particular, for low carbon ammonia. And Scope 3 is front of mind. Now that we have a complete Scope 3 footprint, we're in a much better position to start working with our suppliers and customers to identify Scope 3 opportunities. And you're going to hear a lot about growth projects today, and we have 2 climate guide rails around growth. One is that new investments have to have a clear and credible path to net zero by 2050. And the second is that, we will only proceed with material product volume growth if it comes at a lower emissions intensity than our current production levels. I'll now hand over to Leigh, who'll talk to you about ammonia and ammonium nitrate.

Hello, everyone. My name is Leigh Meyers, and I'm the General Manager for Ammonia and Ammonium Nitrate. I'd first like to give you a simple overview of the processes we undertake to produce ammonia and ammonium nitrate, which I'll refer to moving forward as AN. Ammonia is made by combining nitrogen from air and hydrogen from natural gas, and this creates both carbon dioxide and ammonia. A portion of the carbon dioxide we use is sold to customers for a range of food, beverage and industrial applications. And the majority of the ammonia we manufacture is used by ourselves as a raw material in a number of chemical products. But we also do sell ammonia to the nickel producers for extraction processes. A further chemical reaction we undertake is reacting ammonia with air across the catalyst to form nitrogen dioxide. And this nitrogen dioxide is absorbed by water to form nitric acid. Most of the nitric acid is combined with ammonia to form ammonium nitrate solution, of which a portion is used as liquid fertilizer. However, the majority of the AN we produce is used to make explosive products in a solid liquid or emulsion form for the West Australian mining industry. Now just on to plant capacities. Our capacity has grown through a number of large expansions, investments, and we've also increased capacities well above nameplate through minor capital investments and engineering improvements. Our ammonia plant was commissioned in 2000, and we have a minor debottlenecking in 2004, achieved 255,000 tonnes per annum. For those that may have not heard the term debottlenecking before, it is a process of identifying specific areas or equipment that limit the flow of product, otherwise known as bottlenecks and optimizing them so that the overall plant capacity can be increased. In recent years, with low capital improvements, we've now achieved 270,000 tonnes per annum of manufactured ammonia. On to the AN side of the business, we've progressively increased AN capacity to match demand. NAAN 1 was built in 1996, NAAN 2 in 2008 and NAAN 3 in 2014. We call them NAAN plants because the nitric acid part of the facility is the majority of the plant, also is linked into AN production component of it. Although each plant is essentially the same design, we've applied our learnings and made improvements over time. So we now have 3 plants each with a capacity of 275,000 tonnes per annum, which is 37% above original design. These incremental investments and operational improvements have ensured we maintain our position as a WA leader in chemical and mining solutions. As discussed, ammonia is a key input for many of our businesses. At the moment, CSBP manufactures approximately half of its ammonia needs and imports the rest. The right-hand graph shows how CSBP has driven sustained improvements, resulting in a 20% increase in manufactured tonnes. These incremental volumes spread fixed cost delivering stronger margins. Despite the increase in ammonia production, demand has outstripped this. So we're now investigating an expansion opportunity to manufacture all of our ammonia requirements. Currently, we import approximately half of those. Regulatory approvals for the expansion are being -- currently being accessed with FID expected late calendar year '24. Lastly, global ammonia price is an essential driver of costs and revenues in our businesses. The majority of our customer contracts are based on strong long-term partnerships with large counterparties and a link to global ammonia prices. CSBP is a trusted and reliable supplier of ammonia, AN and industrial chemicals. In fact, we're the #1 supplier of AN in Western Australia. We have a history of incremental investment in engineering improvement, progressively adding AN capacity and improving output rates over time in line with customer demand. The chart to the right shows CSBP's AN production against WA mining demand, which is our largest and most important customer segment. Importantly though, given the integrated nature of our businesses, we have the ability to switch between explosive grade AN and fertilizer manufacturing depending on market conditions. Plus, we have the optionality to export product to the East Coast and overseas. Demand from fertilizers and export markets provide valuable depth and flexibility beyond core WA mining demand. Looking ahead, we have an attractive debottlenecking opportunity to satisfy increasing demand and we anticipate it will supply an additional 120,000 tonnes per annum over the next 5 years. Unsurprisingly, profitability is highly dependent on plant throughput, which is a function of both reliability and rates. In this slide, we take a closer look at nitric acid plant performance. We have an inherent advantage by having 3 nearly identical acid plants. Each year of operation, we collect 3 years' worth of operational reliability data. This enables us to learn and improve more quickly than we otherwise could. Multiple plants also provide some reassurance to customers regarding reliability of supply. Our plants are more reliable now, having reduced the number of outages by 55% since 2018. Our average nitric acid plant availability over the past 8 years has exceeded 94%, which puts us in the top quartile of global nitric acid producers. Also shown by the graph, we've increased average nitric acid plant rates across all 3 plants by 5.8%, delivering substantial value. Although the performance has been good, we're always striving to do better. This means working in partnership with our technology vendors and equipment manufacturers to maximize production over time to deliver world-class performance. In summary, we have a very proud -- we're very proud of our strong record of continuous and sustainable improvements that have led to a market-leading position. We're looking forward to the opportunity to grow the business and apply once again all that we've learned over the years in regard to safe and reliable supply of ammonia and AN. There's a lot more we can do on the debottlenecking expansion and decarbonization space, and we're excited by these opportunities. Thanks for your time, and I'll now pass on to Barney.

Thanks, Leigh, and good afternoon, everyone. Moving to Slide 37, I'm going to take you through an overview of the sodium cyanide business, and the manufacturing process for sodium cyanide, our product offering and where we sell it, and drivers demand for sodium cyanide and finally, what we see as our competitive advantage. We've been operating for almost 35 years now and are the only producer of sodium cyanide in WA, the largest gold mining area in the second largest gold mining country in the world. We're a joint venture between CSBP and Coogee Chemicals, where CSBP is both the operating and the sales agent. We have 2 solution plants, SEP 1 and SEP 2 and 1 solids plant. SEP 1 is 35 years old whilst SEP 2 and the solids plant are each 20 to 25 years old. Now when I talk about cyanide in the presentation, I'll be talking about both cyanide solution as well as solid sodium cyanide. Whenever I give you a number, it's important you understand, that's the amount of active ingredient of actual sodium cyanide in whichever number I'm referring to. So together, SEP 1 and SEP 2, the solution plants produce over 90,000 tonnes of sodium cyanide. The solids plant produces about 45,000 tonnes, so it turns roughly half the solution that we make into solid, which matches our demand. We sell about half locally and half overseas; local being solution and overseas being solids. We have a strong belief in having contingency within the system and the right limiting step is the production of the solution. So having those plants duplicated provides great contingency for our customers. And then within the plants, we have many individual pieces of kit that are duplicated as well to give surety of supply to our customers. In terms of storage, we currently have 2,400 tonnes of solution and up to 11,000 tonnes of solids. And we believe the facility is able to be expanded by up to 35,000 tonnes per annum of solution production and a similar amount of solids production at a cost that is well below that of constructing a new plant, if you like another one of the debottlenecks that Leigh referred to. And we have FID for that expected in the second half of this calendar year. If you look at the chart on the right-hand side, you'll see that with the exception of a few years in the late 1990s, when we were building a solids plant, we've seen a gradual dependable increase in production. In fact, it's increased at an average of 2,400 tonnes per annum each year since 1991. And the expansion we have -- that we have planned, will see production increase to up to 130,000 tonnes per annum over the medium term. Moving on to Slide 38. The process for manufacturing solution is in principle, actually very similar to nitric acid. Ammonia by pipeline from CSBP is combined with gas from the Dampier to Bunbury Natural Gas Pipeline and air. So the only difference really is the fact that there's gas in the mix. These are reacted over a platinum and rhodium gauze to generate hydrogen cyanide, and you'll actually be able to see this occurring later on during the plant tour. This gas is then passed through an absorber circulating caustic soda. That produces sodium cyanide solution and water. Then moving into the solids plant, the water is removed to generate a powder, which is then compacted into briquettes that actually look in terms of size and shape, very similar to the charcoal briquettes that you might buy at Bunnings. Key purchased inputs for ammonia gas and caustic soda, where we have long-term relationships for supply for all of those. Slide 39 shows the 3 ways of manufacturing and delivering cyanide to the customer. Solution, solids to solution and box solid sodium cyanide. Now I'll take you through this in more detail on the tour later this afternoon, but the key point is that we can customize our product to meet the customers' needs. It also allows us to supply the needs of almost any mine around the world, and as demand moves between overseas and local producers, we can flex and meet our customer needs. As I mentioned, about half of our product is sold domestically, generally a solution which is 30% strength and half is export, which is solid with 98% solid sodium cyanide. Some areas around the world, notably North America and some parts of Europe, China and Russia have local supply, which does make it very difficult for us to compete. However, elsewhere, we are very competitive, and our customer base extends across South America, Africa, the Middle East into Southeastern Europe and Asia. Moving on to Slide 41, a key point of difference for us is the service element of our business relating to -- relative to competitors. Many providers can supply the product, but we take exceptional care to be selective as to whom we sell and to give them the service they need. We partner with those that are focused on the safe and efficient handling of cyanide, which is, of course, a highly toxic chemical. We ensure that the product is transported appropriately even if we ourselves are not responsible for transporting the product all the way to a mine site. We visit all mine sites to arrange safety training of transporters and the mine site operations themselves and those often include emergency response exercises both at the transporter and at the mine site. We're one of the founding signatories of the International Cyanide Management Institute in 2005 and are an active member of the International Advisory Group, which makes recommendations to the ICMI Board as to improvements in safety. And finally, we have access to tools through our involvement in the AMIRA program to assist customers to optimize their use of cyanide, ensuring customer -- our customers are as low cost and sustainable as possible. Let me move on to what drives the demand for cyanide. And largely, it comes down to gold production from mines themselves, as you may expect, and that's shown in the left-hand chart. You can see it's been steadily increasing for the last decade. The grade of ore, shown in the middle chart, has been steadily declining. And demand for cyanide is largely driven by the ore that's being processed. Now increasing gold production and declining grades multiply together to increase the amount of ore being processed, and that's what drives demand for cyanide as shown in the right-hand chart. We believe there is a healthy future for sodium cyanide should trends continue. And even if gold production slows, the declining grades will continue to increase demand for our product. Global cyanide consumption has increased by about 3% to 4% per annum since 2010, and that's equivalent to about 25,000 to 30,000 tonnes per annum. Of the 800,000 tonnes per annum or so of global demand, and I should say that excludes China, Australian demand is about 75,000 tonnes and WA is about 50,000 tonnes. Our focus is on ensuring that we meet the needs of the local industry first with the solids plant allowing us to convert capacity over and above local demand into exports. This flexibility has allowed us to grow without being dependent on one particular market. So in summary, we have over 30 years of experience without a significant safety or environmental incident. We're valued in WA as facilitating the growth of the local gold industry, and we're a value partner for Tier 1 miners overseas. We have proven market-leading production performance, which is achieved by focusing on reliability and continuous improvement and we've leveraged that production performance to underwrite successful expansions through incremental investment. And we're looking at further expansion. At the moment, we're nearing completion of an expansion study to expand by up to 35,000 tonnes per annum. So thank you for your time. And with that, I'll hand over to Tanya Rybarczyk, General Manager of Kleenheat.

Thanks, Barney, and hi, everyone. And now given most of you are visiting from the East Coast, you may not be all that familiar with Kleenheat. We're an energy provider across West Australia and the Northern Territory. And this slide highlights our geographic coverage of just WA, which is by far the bigger of the 2 markets. It also shows our market position and some characteristics of the 3 main segments of Kleenheat that we focus on; being LPG, which is liquid petroleum gas; LNG, liquid natural gas and natural gas. We also have some operations in the electricity market, within the allowed contestable market, which is limited in Western Australia to medium and large business users only. Access to the majority of the market, including selling to residential customers, is restricted to Synergy the government-owned retailer here in Western Australia. In terms of competitive position now across these gas segments, we're #1 or #2 in terms of market share. In LPG, we've held the market-leading position since Wesfarmers established Kleenheat over 65 years ago. Kleenheat is also the only current domestic-focused LPG producer in WA and has the necessary scale of storage and infrastructure to both import and export bulk LPG. And with that capability, Kleenheat produces and wholesales LPG to the whole WA wholesale market. And other than a small amount of LPG that makes its way across from South Australia by truck, we essentially supply the whole West Australian LPG market. In addition, we have the most extensive distribution network, delivering gas to end customers across the blue area on the map. In terms of the LPG market, I would characterize it as a fairly mature market. In the domestic LNG market, we are also the market leader through our EVOL LNG brand. We continue to see this though as a growth market, and I'll talk to that shortly. And in the natural gas retail market, we've accumulated a 28% share of the market since we introduced competition here in WA in 2013. In fact, this week is our 10-year anniversary. This is now a very active market as new entrants look to establish a presence and as the incumbent defends its share. Turning to the next slide. Having established an LPG market in the 1950s distributing LPG sourced from the then Kwinana BP refinery. About 30 years later, Wesfarmers commissioned the Kwinana LPG facility. And then a second processing train was added in 2000. The LPG facility processes LPG via the available gas flow from the Dampier to Bunbury Natural Gas Pipeline. It essentially extracts the available LPG products, which already exist within the feed gas, and that is made possible by the differing temperatures at which each component turns from a gaseous state to a liquid. Total maximum capacity of the 2 trains combined is around 350,000 tonnes per annum, but current production is less than that, and that's being driven by the lower LPG content in the pipeline gas that feeds our plant. We have significant storage capacity, and you can see that in the 3 semi-refrigerated tanks, and as I said before, the capability to import and export via a dedicated pipeline connected to the nearby berth. As you'd expect, the performance of our plant is a key value driver. You can see on the top left chart, that other than during statutory shutdowns, which happen every 4 years, both the availability of the plant and our recovery of the available LPGs in the gas feed has been at industry-leading levels. However, the LPG content of the feed gas coming down the pipeline to us has declined over time, as shown in the bottom left chart. And that explains why our production is below what the plant is capable of producing. That content decline is driven by the different compositions of the gas being delivered into the pipeline by the various upstream gas fields and producers in the north. In terms of price, if you look at the top right slide, our LPG sales are linked to the Saudi Contract Price, which is set monthly by Saudi Aramco. And like other energy-related commodities, it can at times be quite volatile. And finally, in WA, the gap between supply and demand has widened as the demand for auto gas has declined fairly rapidly over most of the decade. All excess supply is exported to Southeast Asia, along with the majority of the butane and condensate that our plants also produce. Turning now to our LNG business. As I said before, we go to market under our EVOL LNG brand, primarily selling to remote mining customers to their mine site for the power mine site generation requirements where we offer a competitive and lower carbon intensity alternative to diesel fuel. EVOL builds, owns, operates and maintains all the LNG storage and vaporization infrastructure at our customer sites, which enables natural gas to be supplied to the customer as if it had come down through a pipeline. Since we started in 2008, EVOL LNG has enabled emission avoidance of over 391,000 tonnes of CO2 equivalent in WA via the substitution of LNG to traditionally diesel-fired power stations. The EVOL business has established credentials in this market, which positions its -- what positions it well to leverage the growing miner sector -- mining sector here in Western Australia. In addition, LNG is already providing -- proving, sorry, with a number of our customers to be an essential part of their Net Zero road map by complementing renewables in their power generation solutions. And on our natural gas retail business, which, as I said, we established 10 years ago, we broke the monopoly in WA, giving customers their first taste of a competitive natural gas market with price and service options. This part of our business is pure retail. We have a low-cost model, leveraging our existing award-winning brand, systems, wholesale buying capability and local customer service team. It is, however, a somewhat crowded market these days with 5 retailers competing for around 750 customers in total. And in terms of electricity, I already touched on those points earlier in the presentation. And so finally, in summary, what I hope you take away from this part of the presentation is that Kleenheat has a very unique and strong market position in the WA market through its award-winning retail brands, coupled with key strategic assets. As part of WesCEF, we take our responsibility of safety and regulatory compliance very seriously and have built up a strong reputation as a safe and reliable energy provider. And finally, as Muss mentioned earlier, we are focused on opportunities to lower our impact from an emissions perspective. For Kleenheat, this is more about Scope 3 emissions. And as such, we'll be working closely with our customers on lower carbon fuel options for the future. With that, I'll hand over to Mark Scatena, General Manager of CSBP Fertilizers.

Good afternoon, everybody, and welcome. I'll just turn to Slide 52. At CSBP Fertilizers, we are privileged to participate in, support and enable a thriving Australian agricultural sector. Demand for food and fiber continues to grow, underpinned by rising global incomes and population with fertilizers essential for sustainable agricultural production. WA is the largest grain producing region in Australia, with the addressable market for fertilizers in WA growing strongly, driven by improved agronomics and genetics, changes to land use and soil amelioration. Recent competitive entry reflects the attractive and growing addressable market, and our customers are highly productive, profitable, sophisticated and growing in scale. At CSBP Fertilizers, we believe our customer proposition is compelling. We have a strong and leading market position, underpinned by strategically advantaged manufacturing and logistics capabilities, a differentiated range of products tailored to the local WA market, developed and curated through trials, research and local manufacturing, an ability to offer best nutrition advice, supply reliability and customer experience, a 100-year history of trials and research-based agronomic and nutrition science, and a long-term outlook, similar to our parent WesCEF, focused on sustainability, nutrient use efficiency and carbon emissions intensity. Our addressable market continues to grow with crop yield improvements and production volume increases, driven by improved genetics of new crop varieties, optimized fertilizer application rates, leveraging technology and agronomic advice, the repurposing of arable land and soil nutrient deficiencies and depletion requiring replenishment. To that end, we've seen compound growth rates in fertilizer use within WA exceed 4% over the past 5 years, with grain production records achieved in each of the 2 most recent growing seasons. And with a theoretical yield gap to optimize crop productivity, sitting at around 1 tonne per hectare or about 33%, improved production systems, fertilizer use efficiency and customer capability are expected to continue to support strong market growth. Now turning to Slide 54. What differentiates CSBP from our competitors is the fact that we have a highly efficient and scaled solids import capability at Kwinana, with priority port berth access, complemented by import storage and dispatch capacity in all WA port zones. We're able to leverage our relationship with CSBP Chemicals and its production of ammonia and ammonium nitrate to manufacture a number of key products locally with our granulation and super phosphate manufacturing plants including NPK compounds, superphosphate and our liquid fertilizer Flexi-N. We arrange our product assortment, complemented by locally developed and tailored products, supported by a largely direct-to-customer agronomy-focused sales team, which has formed long-term relationships with our customers. We've developed proprietary customer-facing digital tools, leveraging data and analytics to support customer nutrition planning and decision-making, including an industry accredited nutrition recommendation system, NUlogic and a geospatial data and information management system DecipherAg. We operate our own soil and plant analysis laboratory for customers, research bodies and industrial users from across Australia. And we've established a dedicated nutrition-focused sustainable agriculture team, leading our ESG pillar with a focus on emissions intensity reduction for our growers. Turning to Slide 55. Areas of renewed focus and investment for CSBP Fertilizers include our agronomic and digital development capability to deliver our strategic framework, being our 3Bs, comprising best advice, best supplier reliability and best customer and team member experience. As an example of best advice, we've recently developed a real-time in-season nitrogen status and recommendation tool for cereal crops, CSBP Detect, which applies machine-learned algorithms by an infield handheld spectrometer. Our Ag tech solutions like CSBP Detect, enable our teams to better manage nutrition planning to help customers optimize their plant nutrition and close the yield gap to improve their crop productivity and profitability. Advice such as this allows us to help grow the market. At the same time, this supports our customer relationships by improving customer loyalty and retention with the aim of growing our share of the market. Importantly, we have a long-term outlook focused on improving agronomic commercial and sustainability outcomes for our customers. Whilst fertilizer is a critical input to food production required to sustain a growing global population, fertilizer also contributes a material share of greenhouse gas emissions from food production, and we believe that fertilizer suppliers such as us, have an important role to play in decarbonizing food supply chains. Our fertilizers carbon road map, therefore, focuses on how we can contribute to reducing our customers' emissions intensity by helping them understand and measure emissions, which complements our efforts in developing and deploying solutions and in educating and advocating. In supporting our customers understand and measure emissions of fertilizer application, we've recently launched within CSBP DecipherAg, a review feature that provides full visualizations of a customer's [ panic ], being water use efficiency, nutrient use efficiency, gross margin and a carbon dioxide emissions equivalents, a balanced scorecard of sorts. The 4 views help provide a balanced assessment of how the season has gone and can also help answer questions such as where did I over or under apply nitrogen and what impact did that have on my returns and emissions. In educating and advocating, this year, we're celebrating 100 years of partnering with growers to research and develop nutrition solutions tailored to WA soil conditions, helping grow as boost yields and increase livestock profitability. Over this century of committed research, we've captured and analyzed a vast amount of data from over 3,000 trials, providing a trusted source of science-based nutrition and knowledge tools that growers in an industry can rely upon to make informed nutrient management decisions. We continue to lead the market in product innovation as we focus on developing and deploying solutions, leveraging our trials and research activity and our local product development and manufacturing capabilities. An example of this is our recently developed urea sustained product, a coated nitrogen fertilizer to minimize nitrogen losses, improved application flexibility and nutrient use efficiency and reduce the emissions intensity of crop production. Finally, as we focus on research and partnering, we are contributing as a participant partner in the zero net emissions from agriculture, Cooperative Research Center, which aims to support industry, community and government in establishing a pathway to zero net emissions from agriculture. Now turning to Slide 57. So in summary, we have a leadership position in a growing and dynamic addressable market, underpinned by difficult to replicate manufacturing and logistics capabilities and a differentiated customer proposition. We can continue to improve customer productivity and profitability whilst lowering emissions intensity through best nutrition advice, best supply reliability and best customer experience. We can further leverage our vertically integrated model in nutrient procurement, import manufacture, storage and dispatch, which supports a differentiated range of products tailored to the local market. And finally, our 100-year history of trials in our research-based agronomic and nutrition science will be further enabled with continued market-leading agronomy and further digital tool development. Thank you. I'll now hand back to Simon and Ian for Q&A.

Thanks, Mark. So we thought we'd have a Q&A session for the existing operational businesses then we'll have a break, and then we'll talk about lithium. So if we can leave any lithium questions until after the lithium presentation, that would be great. But for the existing businesses, happy to take questions. If you wouldn't mind with your questions, if you could go to one of the microphones because we are webcasting this and state your name and who you're representing and direct the question at me and I will then ask one of my colleagues to answer it if I think they're the appropriate people.

This is Lisa Deng from Goldman Sachs. Just a question on the ammonium nitrate or more the chemicals business. With ammonium nitrate prices falling, obviously, it will be beneficial to our input costs. But how long does that take, do you think, to reflect in our prices, our contract prices going forward.

Do you mean the ammonia price falling or the ammonium nitrate price falling?

The ammonia, whatever that [indiscernible] ammonia's price ...

The ammonia price, yes. So we seen the ammonia price come off. We have a price lag in our contracts. Generally, it's a 3-month price lag. So as the price falls, and we're still importing ammonia, the price we're charging our customers is 3 months old, if you like, so.

Okay. So generally a 3-month lag. And then my second question would be, as we look to expand the capacity by potentially 270 kilo tonnes. What does that do to our CapEx as well as then our cost savings to manufacture in-house?

Well, in terms of CapEx. The CapEx will be required to build the plant. There'll be ongoing sustainable CapEx, so that would increase the sustainable CapEx levels for the business overall. In terms of operating costs, we would expect to get some small synergies associated with operations, but the majority of operating costs associated with the ammonia plant are really the import costs.

Okay. So can you quantify roughly what the start-up CapEx and then the ongoing CapEx?

We haven't finalized the capital costs associated with the ammonia plant. The best I can do is perhaps direct you to other ammonia plants that are being constructed around the world, look at the capital costs that have been announced for them and pro rata based upon the size, we're talking a 270,000-tonne [ prime ] plant, so you can generally pro rata the capital costs.

And then did I understand the cost synergies are actually not very much.

They are not very large. No.

It's Michael Simotas from Jefferies. Can I just follow up on that earlier question on the ammonia price. Just so we all understand based on that 3-month lag, a falling ammonia price as it's done this calendar year, short term, that actually should be a benefit to earnings because you're saving on the input costs for your imports but still charging a 3-month old price. But then as those pricing mechanisms come through, it will actually turn to a drag for earnings. Is that the right way to think about it? Because you're effectively earning less money on the ammonia that you're producing yourself?

Yes, sort of. And I say sort of because you're correct in the first part of your statement that in the declining market price environment, we are purchasing ammonia at a lower cost than what we're selling it for because of the price lag. So that's correct. It depends where the ammonia price goes. So if the ammonia price comes down, then goes flat, then and it goes back to flat long-term averages, then the earnings from our ammonia business go back to traditional long-term earnings. Does that make sense?

Yes, but they've been somewhat elevated relative to traditional levels, right?

Certainly in the last 2 years, yes. That's correct. Yes. .

That makes sense. All right. And then just the second one, I think it was at the last Strategy Day, there was a comment that you were investigating the potential benefits from a new ERP system. Where did you get to on that?

So we have committed to implementing a new ERP system. We will be implementing that over the next 3 to 4 years. And for those that don't know, when we put the energy division together with the CSBP chemical and fertilizer division back in 2010, they were both operating on separate ERPs. And throughout the last 13 years, we've looked at trying to put 1 ERP in to generate the synergies you get from operating on 1 system but could never justify that from a cost basis. But both of those ERPs are nearing the end of their life. And so now is the time that we've decided we'll embark on a project to put 1 ERP in place and decommission the 2 ERPs that we currently have. But we'll be doing that over a very staged approach over the next 4 -- 3 to 4 years.

Shaun Cousins, UBS. Just a question on -- you spoke a little bit about your AN contracts in terms of the 3-month lag. Can you talk a bit about

Ammonia contracts.

Sorry, I mean the ammonia -- yes, just the duration of your contracts with ammonium nitrate in terms of the pricing you're clear. But just in terms of the sort of 3-year multiyear contracts that are [ coal ] when Barrick was getting up and running, I think you locked in volumes, I believe it was with Rio to effectively preempt the loss of those volumes there. So just maybe talk about where your contract duration is.

I will get perhaps Lee and Alex to answer that in a minute. But with the longer contracts that we locked in. I think it was around our AN3 project as opposed to the Barrick project, we wanted to underwrite the AN3 project. So at that stage, we locked in a longer contract with Rio. But in terms of the current contracts...

So most of the contracts are a 3- to 8-year term, and they're spread out quite evenly. So there's no steep drop-offs in contracts.

Great. And then I'm conscious that WesCEF is a conglomerate -- within a conglomerate, and there's a commerciality reason you don't tell us a lot about the earnings of chemicals, energy or fert. But if we look at broader revenue growth over recent years, where you've seen, I think, fertilizers up some 51% in the first half, 60% in fiscal '22 and chem' up some 34% and 37% in the first half '23 and fiscal '22. Should we look at fertilizer and then chemicals as having been the 2 main drivers of incremental EBT that you've seen over recent, say, the last 18 months when your division has been quite a surprise.

I might ask my CFO to answer that. But whilst she's getting to her feet, you've got to be very careful looking at the revenue line because the cost line varies so much as well. And obviously, we don't talk about the costs, the individual costs.

Yes. Absolutely. This working? You're right. We don't split out the individual earnings from each of the businesses, and that's for really good reasons for shareholders just given the insight that you can start to get when we break down to that level. What we have said though is that chemicals is kind of the largest component of the division, and that continues to be the case. Also, if you think around the underlying dynamics between our chemicals and our fertilizers business, for example, there is probably a far higher proportion of the fertilizers business that's import-based and therefore would move in a different way than a lot of the chemicals businesses that are a large amount is manufactured and underpinned by WA gas costs. Not completely. So obviously, we do import ammonia as well, but that probably gives you a feel of the different dynamics going on. We do appreciate and understand there's lots of different pieces to this division. That's why we'll try and give you as much information to help understand the different drivers. But for those commercially sensitive reasons, unfortunately, we just -- we can't go into the bits and pieces.

The only other thing I'd add is that the Saudi contract price, the indicated price for LPG has also been high during that period. So that is also assisted with earnings in the division.

Phil Kimber, Evans & Partners. I think Alex spoke to it, I think, with Slide 5 or 6, basically setting out the various projects that you're investigating, putting lithium to one side. Could you maybe give some broad indication of size and what upside there might be like just broad relativity.

Yes. So Alex can help me out here. But there's probably 3 different project sizes that Alex was referring to. If you put aside the small everyday continuous improvement, debottlenecks that we're doing all the time. The cyanide expansion project and probably the AN expansion project. And I should point out the AN expansion project is 3 discrete projects for the 3 discrete plants and that will take place over a 5-or-so-year period. As those plants shut down, we will debottleneck each plant during the shutdowns. And in fact, the sodium cyanide expansion is similar because it's debottlenecking existing plants, and we don't want to take the plant offline unnecessarily. So we will wait for their shutdowns, their planned shutdowns and take advantage of that time to undertake the necessary mechanical and physical changes to the plant, which will allow us to increase production. I should also add back on the AN, we'll also be looking at increasing our nitrous oxide abatement probably at the same time as we shut down those nitric acid and ammonium nitrate plants for the expansion. So there, those 2 debottlenecking expansions are about the same size, and they'd be measured in the ...

In the low hundreds.

Low hundreds of millions. So that's for the 120,000 or 3x 40,000 tonnes of ammonium nitrate and for the 35,000 or so tonnes of sodium cyanide. I'm just checking with Barney 35,000 is what we said, yes? So that's -- so they're the smaller debottleneckings. The ammonia plant, I think I already answered that question in terms of the CapEx, you need to look around at what other ammonia plants are being built. But obviously significantly more money to build a brand new plant, especially the ammonia plant, which is a more complex plant than a nitric acid or a sodium cyanide plant.

And just a second one, maybe further to Mike's question. Does it change the competitive position in the market for you when ammonia prices fall? Or has everybody got a similar setup that plays in this market. So like, for example, do you see a heap of imports now coming in because when you're manufacturing, you've got a big advantage over imports when prices are high, but that starts to get removed as those prices come back?

So most of the ammonia that we sell or that we transfer into downstream products is done so based on international pricing. Ammonia is one of those materials, which generally the international price be like fuel, the international price flows through. So be it in our sales externally, be it to our transfer pricing into our other businesses, which are consuming ammonia. They'll have -- they'll be paying an import parity equivalent price the same as their competitors around the world will be paying.

It's Tom from Barrenjoey. If I look at like the drivers of your business, like AN prices are high, Saudi CP is high. You've had a couple of good years of rainfall. It kind of begs the question, is this as good as it gets? Like you've seen a whole lot of cycles, you've been doing this a long time. How is your kind of view on where we are in the cycle across 2 different businesses?

It's certainly a good point in the cycle, Tom. Look, I can't project where global commodity prices are going to go. We're seeing ammonia come off at the moment. We're seeing Saudi CP come off a bit. Whether it's going to rain or not, I don't know. It's certainly been a good couple of years for the commodities that we manufacture and sell.

And just in terms of like the timing of investment, is it the right time to invest now, given I presume costs are pretty high across the industry. How do you kind of look at that relative to where it's been?

Yes. In terms of -- you mean capital costs? .

Yes, yes.

Yes. The challenge is after being in this -- not this role, but doing work for WesCEF for 40 years, you always think capital costs are going to come down. They never do. They go up and then they might plateau a little bit, but they continue to go up. Is it the right time to invest? We look at it more not through the lens of is it a great time to invest the capital, is in the capital costs lower or have they been flat for a while. It's more about, can we get a good return for our shareholder. If we invest now or should we wait 1 year, 2 year, 3 years based upon markets and where is it going to position us relative to the competitive nature of the market and also relative to our input costs? So there's a whole lot of variables that come into it. We would ideally love to decide to build when the capital costs have been flat for some time because it lowers the capital base. But sometimes, that also means you missed that market opportunity. And generally, the market opportunity can be greater and offset any elevated capital cost.

It's Ben Gilbert here from Jarden. Just following on from Shaun's question before on the contract side with AN3 and then with the expansion then with [ Barrick ]. How -- I know you're not going to talk on specific contracts, but they will obviously be rolling through over the next few years. How is the pricing discussion? You're typically seeing a big step up because obviously, some probably reasonable pricing you guys got to underwrite the volume in AN3.

I don't think we talk about any discussions we're having with our customers at the moment.

But in aggregate, it's presumably moving up from the supply/demand on that you're talking about.

Well, I don't think I'd like to talk about any discussions we're having with our customers in terms of pricing, specifically in a product. Remembering, of course, that a lot of our prices have feedstock flow-through price. So you have to take that into consideration as well.

So maybe then when do you think -- when based on that contract life cycle you were talking to before most of these will roll through over the next 2 years and when you sort of get a clean slate from the WA like as it sits today. Is that fair?

It won't be in the next 2 years, it will be a longer period than that for the contracts to roll through. Our existing contracts have a whole range of variables involved in pricing. And so yes, I'm really not prepared to comment on current discussions or pending discussions with customers.

Maybe then just on the cost side, I remember a few years ago when you were talking about sort of falling yields from the Dampier to Bunbury, that was having a reasonable impact on costs and margin. How are you thinking about the cost side of things and ability to continue passing that through out side of.

Sorry, I missed the question.

In terms of the cost side of things. And then with -- I think a few years ago, you were talking about sort of falling yields from the Dampier to Bunbury in terms of the gas.

That will be due to the LPG levels in the -- that's what Tanya was covering off earlier. We're seeing a reduction in the LPG levels. And so we're extracting a lower volume of LPGs in our LPG plant than what we have traditionally because of the lower levels of LPG and the plant has a capacity of only a certain amount flowing through it. So it's very dependent upon the level of the LPGs. So we're seeing a reduction in LPG. But LPG is sold on an international indicator price, the Saudi contract price. So whilst the LPG level may change, and therefore, our production volume may change, the pricing we can recover is very dependent upon the international pricing.

So you're still seeing those yields you still seeing that declining? Or are you starting to see a stabilization around that in terms of throughput of the LPG?

No, we would expect it to continue to decline in the short term as more Perth Basin gas comes on.

John Bishop also with Jarden. Just a question around the gas outlook and how the business is positioning itself for, I guess, what AMO and the industry is talking about a shortfall of supply certainly in the middle of this decade.

So I might ask Tanya to comment on that because Kleenheat generally -- Kleenheat, they generally purchase the gas for the broader division.

Hopefully, that's on yet. Obviously, the East Coast market is quite a distinct market to the West Coast market when it comes to gas supply. And you -- yes, you're referring to the recent gas statement of opportunities on the East Coast, which shows that shortfall. It was a recent one done in Western Australia as well back in December, which also shows a bit of a shortfall in the middle of the decade and then coming back into sort of a balanced market later in the decade. So we're definitely seeing that playing out and the market is somewhat tighter than it has been. You can see that in spot gas prices a few years ago, spot gas prices were around $2. It's now -- particularly we've had some gas supply disruptions with the producers up North in the last few months. which has probably elevated those spot markets in the short term, more so than the fundamentals, I suspect. So it's up around $8 at the moment. That's spot pricing, which is different again to term pricing. Most of our gas is bought on term pricing, but obviously, we've got some seasonality. So we're also in the spot market as well. So yes, definitely seeing some tightness in the middle of the decade.

I presume the term market is also rising, though. Is that fair statement given the outlook and the uncertainty of new projects.

The term market can sometimes -- it doesn't necessarily follow exactly the spot market, but. Yes.

Okay. And a more specific question. You referenced the Perth Basin contract that you've signed. Is that specifically to a field? Or is it just generic Perth Basin gas?

It's a West Erregulla.

It's specific to West Erregulla.

It's Richard Johnson from Jefferies. And can I just clarify whether your ammonia expansion has taken account of your downstream debottlenecking?

In terms of the ammonium nitrate and sodium cyanide.

Yes.

Yes, it has, but it would mean that we'd probably be fully loaded in terms of who wouldn't have any excess ammonia. If those 2 expansions go ahead and achieve FID, then we'd be very much close to balance again.

Yes, exactly. And the timing of those projects, are they all aligned?

The sodium cyanide debottlenecking and the ammonium nitrate debottlenecking will both be over the next 3 to 5, 6 years. The ammonia plant, if we take FID late '24, we're probably looking at late '27, early '28 for operations.

So you could have a short period where you're long ammonia?

It'd be a very short period.

Okay. Okay. And just on the AN book, I was just interested to get a sense of whether the average tenure of the book has changed much. I'm particularly thinking given that the take-or-pay arrangements are done or obviously rolled over.

No, I don't think the tenure has changed a great deal. I think that, as mentioned earlier, we did enter into a very long-term arrangement with Rio Tinto to underwrite the ammonium nitrate 3 project. So that -- when that is renewed, I suspect it won't be as long as the original contract, not the original, but that contract that we entered into. But otherwise, the tenures are pretty much aligned.

And then just finally, I mean, thinking about all the expansion you're doing and the ability to switch into the fertilizer market, it struck me that because of the seasonality of that business since heavily first-half calendar year dominated whether post all of this, you just move to a full import model for UAN?

Sorry, I missed that Richard.

Do you just move to a permanent import model for UAN?

Well, we do import the majority of our UAN now. I suspect this year we'll be manufacturing Mark?

Sub 100,000 tonnes.

Yes, less than 100,000 of UAN, and we normally sell, what, 350,000, 400,000. One of the benefits of being able to manufacture the UAN is we can distribute ammonium nitrate solution from our Kwinana operations to our further fertilizer operations in Geraldton and Esperance, bring urea in by ship and produce UAN at those locations at a good cost relative to putting tanks into those country operations and bringing in UAN. So there's a competitive advantage that way.

It's Adrian Lemme from Citi. Just another question on the ammonia project. Should we assume that stacks up at long-run average ammonia prices? Or are you taking a view that it's going to be higher than those levels? And then secondly, are there other like strategic reasons for doing the project aside from how the financials stack up, please?

I'll answer the second one first, and that is, no, there are no strategic reasons to do it. We'd only do it if the financials stacked up. In terms of the first question, we are looking at the long-run ammonia price. However, we also listen to what the forecasters say and what the industry is saying and try to understand whether the long-run ammonia price will continue to be the long-run ammonia price. So we'll factor that into our decision-making when we approach FID.

Sarah from [indiscernible]. I have a few questions about emissions targets.

I'm looking at Muss.

I guess, in terms of all the expansion thinking about it of emissions intensity with the decision, but their targets and disclosure are all in absolute emissions. So how should we kind of think about reconciling the 2 and in terms of safeguard mechanism liability talking about reducing the liability by 2030. Does that take into account the expansion? And when will you have a better idea about rebaselining with your emissions reduction targets?

Really good questions. And so because they're great questions, I'll get Muss to answer them.

Thanks. Quite a lot in those questions, so let's unpack them sort of one at a time. With safeguard, as you know, we've got our 20% -- 30% reduction target by 2030. That's on our portfolio of businesses as of 2020. And with that 4.9% trajectory that's sort of been that the reforms are based on, assuming we deliver that 30%, then we'll stay ahead of that until 2030. There is a review in 2027. So we'll see what that review holds. And also, of course, we don't know that the legislation will get passed in the current form as well. So we'll sort of have to see how that space plays out. With the growth projects and the emissions contribution, you saw I put up a couple of guard rails around growth. So one of those being that any new investment has to have a clear and credible path to Net Zero. And then on the volume growth projects, they have to be at a lower emissions intensity. In terms of how it will affect our targets, we will review our baseline in the event of these projects going ahead, and that might affect our percentage target as well, it depends.

It's Ross from Macquarie. We've seen a bit of volatility in prices over the last year or 2, a bit more than normal. Has that changed your cost of capital?

Cost of capital questions. Generally, we don't answer those. They're always Wesfarmers Corporate question. Sorry, Ross. Any other questions? Simon, have we got any questions from the web?

No, I don't believe there's any questions online. So for those in the room, we might take a 12-minute break. And for those online, we'll come back at 10 past 1:00. [Break]

A very exciting new part of the business. So I'm just going to make a couple of comments about Lithium. And then Ryan, the CEO of Covalent and Ross Martelli, the Project Director of Covalent will make a few more comments, and then we'll have a Q&A after that. So we now move to the Lithium section of the presentation, exciting, new exciting section. We're I'm going to talk a little bit about our lithium value proposition and also a growing lithium market. Covalent Lithium, as you're aware, is the manager appointed by a joint venture between Wesfarmers and SQM to develop and operate the Mt Holland lithium project. The joint venture affords the opportunity to leverage off each partner's unique skills, including WesCEF's local knowledge and chemical processing expertise in Western Australia and its expansive relationship with government bodies and regulators and SQM's technical experience in operating and developing lithium chemicals, including lithium hydroxide and lithium carbonate and the ability to leverage off its international trading network. So moving to Slide 61 now and it's a really good slide that shows our value proposition in the lithium business. We offer value to customers and shareholders through 3 segments: security of supply, ensuring that we offer -- security of supply, ensuring that we offer customers reliable supply from a trusted manufacturer with proven technical and chemical processing expertise based in a trusted region of the world. Secondly, the quality of product, and this is enabled by offering an integrated mine to refinery business model with a high-quality resource and reserves, coupled with a long mine life. And then finally, our ESG credentials. Our lithium product will still incorporate our Net Zero target by 2050. In addition, we have strong regulatory compliance in highly regulated markets as well as a verified source location of our lithium resource. The medium to long-term drivers -- growth drivers for the lithium market remains strong with government regulation and COVID-19 recovery stimulus projected to accelerate electric vehicle sales over the next decade. Several countries have announced the phaseout of internal combustion engines over the next 5 to 20 years, and battery improvements over the next 5 years will focus on higher energy density cathodes which require lithium hydroxide. These factors culminate in a growing lithium market, as shown in the demand outlook on the chart on the right. This is a forecast from Benchmark Minerals and whilst other brokers and analysts and manufacturers have varying demand forecasts. The vast majority are positive and grow exponentially over the next decade. Due to the technical complexities and significant lead time to develop a lithium hydroxide project, supply response time is not reacting quick enough to meet the growing demand which is driving strong spodumene concentrate and lithium hydroxide prices and puts WesCEF in a favorable position, given its Covalent Lithium project is significantly advanced. And with that, I'll hand over to Ryan Hair and Ross Martelli.

Thank you, Ian. So as Ian mentioned, Ross and I will ticktack through this presentation, which is pretty much a microcosm of our day-to-day life at the moment, building a business and delivering a couple of projects. The value of Covalent Lithium is underpinned by the Mt Holland lithium resource. The graph shows both the grade and size of the deposit compared to other hard rock lithium deposits that are in various stages of exploration, development and operation. Noting that the size of the bubble indicates the relative size of contained lithium, Mt Holland is a truly world-class resource. The grade, size, ore body geometry and relative homogeneity all support a low-cost long-life asset. Moving to the overview of the project. When construction is complete, Covalent will be a WA-based integrated producer of premium battery-grade lithium hydroxide. The mine and concentrator at Mt Holland, as Ian mentioned, roughly 400 kilos due east of Perth. We'll produce approximately 390,000 tonnes of spodumene concentrate which will be refined into 50,000 tonnes of battery-grade lithium hydroxide in Kwinana. The mine reserves will support a roughly 50-year mine life at current production rates. As we construct the facilities and build the business, we are very focused on creating a safe, respectful, diverse and inclusive workplace and demonstrating our genuine care for the environment. This extends to our strong relationship with the Mt Holland traditional owners. The Kalamaia Kalarku Kaprun people of the country of the Marlinyu and Ghoorlie trees. I will now hand over to Ross, who will provide further details on the project.

Thanks, Ryan. Just a quick project update. We've completed a significant amount of work at both Mt Holland and here at the Kwinana refinery and hopefully, we'll be able to see that both today and tomorrow during our visit. At Mt Holland, the mining team commenced mining operations back in February '22. And we've reached our first oil production in December '22. With construction commencing back in July '21, the concentrator is more than 85% complete, and you'll see that in the photo shortly. And we've already commenced commissioning at the site. With construction nearing completion and commissioning ramping up, we expect first production from the site at the end of 2023 this year. At the refinery, the Civil's work has also been completed, and we've poured over 25,000 cubic meters of concrete. And just for context, that's around about 10 Olympic-sized pools. All the critical items, long-lead items have been delivered for the project. The focus now is installing and connecting all of the equipment items. The refinery production is expected to be the first half of 2025. The key challenges that remain are really the availability of skilled labor to do the work and the current inflationary environment that we have that's affecting us and also our contractors. In relation to the capital cost of the project we've been impacted by the COVID-19, which has affected our suppliers and shipping across the world. This, in turn, has impacted engineering and also our mine contractors doing the work on site. As a result, the WA construction market is very tight and resources are very difficult to get. When reviewing what our competitors have also done going through June with their plants and their commissioning. We've also allowed for more resources, cost and time in planning to minimize the risks in commissioning the plants. Just a quick overview of the process design of each of the sites. The concentrator at Mt Holland upgrades the Lithia head grade -- So the concentrate at Mt Holland increased the Lithia head grade from 1.5% to 5.5% concentrate. The concentrator is based on well-understood mineral processing technology with a flow sheet developed following extensive test work based on samples from the Mt Holland deposit. After mining, the run of mine material is crushed and classified by size. The courser material is processed by the dense media separation, or the DMS circuit and the rejects disposed of with the waste from the pit. The final material is processed via flotation using reagents to separate the ore and waste. The rejects are pumped as a slurry via pipeline to the tailings storage facility where clarified water is recovered to be reused in the process. The concentrate from the DMS and the flotation streams are then combined at the concentrate storage shed and transported to the Kwinana refinery or prior to the refinery being ready, it's available for export sales. So this is a picture of the Mt Holland site, which you'll see tomorrow. And so just a quick overview of this. At the top of the screen, you'll see the run of mine, or ROM, as we call it, had at the top of the screen, which is where the ore is stockpiled being fed into the plant. Just below the ROM, the crushing circuit and crushed ore stockpile. On the left-hand side of the screen, the dense media separation circuit and the flotation circuit is in the center of the screen. Right next to the reagent storage, which is here to the right of the flotation. The concentrate storage shed is at the bottom left-hand side of the screen, and you'll note that the administration building laboratory and workshop and stores in the foreground. The services area above the DMS circuit contains process water, including that return -- the return water from the tailings storage facility. They're for the Kwinana refinery. The refinery has been designed to produce high-quality battery-grade lithium hydroxide with the flexibility to adjust to the evolving needs of the market. The flow sheet has been developed, leveraging SQM's process technology and knowledge and is based on extensive test work here in WA. The process starts with the calcination or heating, the spodumene, which then changes the crystal structure and allows the lithium to be leached from the spodumene. Following purification, caustic soda is added to form lithium hydroxide, which is then crystallized into the final product, which is then bagged ready for export. Two co products are actually made during the manufacturing process, the delithiated spodumene, which is currently planned to be sent back to the mine, but for which there is promising commercial applications, including as a cement additive or supplement in the cement manufacturing process. The other product is sodium sulfate, which has a number of industrial uses and for which there is also a well-established market. So later today, you'll see the -- we'll be driving through the refinery, and this is just a quick overview of what you'll see. At the left-hand bottom of the screen, you'll see the concentrate storage shed. That's the one with the big cover over it. To the right of that is the calcination and roasting, leaching and solid separation. Impurity removal and crystallization is shown as the lithium and sodium sulfate production tag. And finally, product packaging and storage at the very east of the picture. So this is a picture looking east and it's the very top of the picture. And the head office and laboratory and workshop and warehouses are located to the southeast of the site, which is labeled as a non-process buildings. Another view of the refinery is from the south, and you can see the [ Covan Sound ] on the west side, on the left-hand side, and you can see the non-process buildings a little bit clearer there and also the reagents and the utilities area. And with that, I'll hand back over to Ryan.

Great. Thanks, Ross. So our focus is on accelerating value delivery by minimizing the time for the remaining construction, commissioning and ramp-up of the concentrator to nameplate throughput and doing that obviously as quickly as possible. Our technical teams are already working on research and development initiatives that will improve operating performance and cost efficiencies once we are in production and may also assist with minimizing that ramp-up time. Spodumene operating costs are highly leveraged to the cost of labor, the usage and cost of reagents, the cost of water and power, spares and consumables. It's worth noting that beyond the pure cost of production, WA government royalties are a significant cost of additional sales. And as noted, are calculated as 5% of the spodumene concentrate price. As has been seen in other facilities, and I think previously mentioned, ramp-up of refinery facilities can be challenging. We're very focused at this point in time on, again, minimizing the time it will take to ramp the refinery up to nameplate throughput. Our technical and commercial teams are working diligently to create valuable options to market the delithiated spodumene and sodium sulfate coproducts. These options are very well progressed. Refinery operating costs will be impacted by reagent costs, predominantly sodium hydroxide and sulfuric acid, natural gas, power and water costs and labor costs. To summarize, the Mt Holland lithium resource is a globally significant hard rock lithium deposit, even with a proposed doubling of production, Mt Holland supports a circa 25-year mine life. The concentrator is based on well-understood technology and has been designed using extensive test work. The design of the refinery has also been based on extensive test work and has leveraged heavily from SQM's process knowledge. We've designed the refinery to be able to adapt to changing market needs, particularly quality. Finally, Covalent is drawing on the deep expertise of both joint venture partners while building an outstanding standalone team. With that, I will hand back to Ian.

Thanks, Ryan. Thanks, Ross. And it doesn't -- it seems longer than a month ago or just over a month ago that we announced the increase in the CapEx for the project and also the delay in the commissioning of the refinery, of course, that guidance is still very relevant today. As Alex touched on earlier, Covalent is currently undertaking a feasibility study to investigate the doubling of production capacity of the mine and the concentrator to accelerate free cash flows, capitalize on forecast demand and minimize the impact from any potential long-term market disruptions. Timing of the final investment decision for that expansion will be dependent on the outcome of the feasibility study and also regulatory approval timelines. After the refinery is commissioned, which is expected as Ross and Ryan mentioned in the first half of calendar year '25, Covalent may examine the feasibility of doubling the production capacity of the refinery. This would utilize the additional spodumene concentrate from the expanded concentrator to turn it into lithium hydroxide. In conjunction with these major growth projects, WesCEF will also evaluate the large Mt Holland tenements for any additional resources. And outside of the Mt Holland tenements, WesCEF will continue to explore and evaluate potential critical mineral resources where we deem these opportunities favorable. We're seeing strong interest from Tier 1 customers for both our spodumene concentrate and lithium hydroxide products. We're anticipating approximately 50,000 tonnes of spodumene concentrate sales volumes in the first half of calendar year '24, with the concentrator expected to reach nameplate capacity in the second half of the year. It is important to note, however, that total spodumene sales will be subject to the timing of the refinery commissioning and the stockpiling requirements associated with that as we prepare to use a spodumene as feedstock into the refinery. In regards to pricing, we are seeing fairly -- sorry, seeing early feedback that the market and the pricing model will most likely link the spodumene price to a lithium hydroxide market index with various adjustments. As the hydroxide price moves up or down, so will spodumene concentrate price. Moving to our lithium hydroxide. We are negotiating multiyear contractual arrangements with key global counterparties. Over the past few years, the global market has evolved from fixed pricing to increased adoption of market linked pricing using a variety of indices that offer improved transparency. Lastly, we do expect to retain some hydroxide production capacity to remain flexible to sell on the open spot market. And with that, I'll invite questions associated with lithium and ask Ross and Ryan to come back up because they can probably answer a lot of them and invite you to, again, just state your name and who you represent prior to asking the question. I might invite Aaron up as well given that Aaron has been so intimately involved in the lithium project. And we've always got Ric Colgan, who's the CFO of Covalent if we can't answer it.

Lisa from Goldman. Just wanted to get an update on the cost for both the spodumene production and the potential lithium hydroxide production. We updated the CapEx, but I don't think we talked a lot about the cost.

That's correct. We didn't. Going to hand over to Ryan.

Sure. Thanks, Ian. So costs, probably the best way to answer this is to say that took pains in the presentation to describe the nature of the ore body supporting us being effectively on the low end of the cost curve from a spot kind if you think about WA spodumene concentrate production Our ore body will support us being close to the left-hand side of the cost curve. So probably the best guidance around spodumene concentrate at the moment is that there are a number of reference points for other producers at the moment, and you can effectively benchmark against those. A number of cost impacts that we'll be seeing will be felt by all because of a number of kind of common cost inputs, a number of which I mentioned on the screen between reagents, labor costs, cost of spares, consumables and the like. So that's probably the best guidance on spodumene concentrate. And in terms of hydroxide probably the best guidance I can give there is that the majority of lithium hydroxide costs are based on spodumene concentrate, so the import most of spodumene concentrate -- not necessarily the vast majority, but the majority. So again, you can probably interpret from there where the likely lithium hydroxide cost will be, particularly considering, as we've mentioned, things like sodium hydroxide, sulfuric acid are going to be large cost inputs. And obviously, they're globally traded commodity. So there will be some guidance there that you can probably take around where costs are likely to land. But outside of that, probably hard to be more specific, given we're not in production at the moment, and we're still working through some of those costs.

Okay. So just to follow up, I think the Strategy Day last year we talked about a reference cost of 5,004 per tonne, I think, for hydroxide. Are we going to be above that?

Yes is the short answer.

Okay. All right. So then relative to the reference prices that we can obviously benchmark, did you say that we would be at the lower end of it, or very similar?

We will be at the lower end on the spodumene concentrate. So you just look at spodumene consumer production, WA, there are other producers. Given the nature of the ore body should support us being at the lower end of that cost curve. So that would be a good reference. I guess, for you. And then as you quite rightly said, a lot of the other cost inputs, reference to globally traded commodities and the like.

[ Tom Hayes ] from CLSA. Just one on CapEx, understanding the increases that have come through recently. Just wondering if you can provide any clarity in terms of sort of the key baskets, whether it's coming from mining concentrator specifically the DMS or flotation circuit? Or is it a refinery driven?

Yes, Ross, you can.

It's right across the board. I mean, our biggest impact was COVID-19, and that affected engineering for a start across the globe with our suppliers and vendors supplying equipment, but also engineering here, and then the equipment suppliers as well. So mainly across the board. One of the areas that we did highlight in the CapEx was our freight road. And if you look at what the construction is for roads and that -- and civil works here in WA, it's quite a heated market, and therefore, that was quite a significant increase as well.

Okay. And maybe a second one, just you mentioned that the refinery has flexibility to sort of evolve to what the market needs. I'm just wondering what are sort of those key parameters that we should be thinking about and that flexibility that you spoke of?

In terms of the refinery, we've built in a fair bit of capacity within the existing equipment items, but also room for additional items that we've put in. So for example, if our quality spec changes, it won't be too hard for us to add in equipment to meet that specification after, obviously, we're doing some test work, et cetera.

It's Michael Simotas from Jefferies. Can you talk a little bit about the rationale for marketing spodumene concentrate ahead of the refinery being operational and why that's accretive to the value of the project? And related to that, will that be dependent on what prevailing prices are at the time, whether you do go ahead and do that or not?

Right. So that's a question for me or my WesCEF colleagues because, as you're all aware, Covalent is an operating joint venture and doesn't market the product. So why are we going to market the spodumene concentrate? Because the time between when the spodumene concentrate is available, which will be late this year, early the following year relative to when it's required at the refinery, which is the first half of FY '25 -- sorry, calendar year '25. There is a 12-month gap. And so we'd like to accelerate the cash flows that we receive associated with this investment and see the opportunity to do that. The question, would we sell it depending upon the price at this stage, we would see the price be sufficiently buoyant to allow a good return on that spodumene.

Okay. And then just a second one, is domestic demand for the byproducts of the concentrator process and the refining process big enough or are you likely to have to export that product.

So I'll answer and then I'll throw it to Ryan and Ross. But my understanding is that the sodium sulfate, which is a byproduct will be exported because the domestic demand for sodium sulfate is quite small but the demand offshore in Asia is quite large. The delithiated spodumene, we would look to either take back to the mine site or preferably use as an aggregate or cement filler, I think, so.

You're spot on, Ian. So sodium sulfate, large international market used in a lot of things like bulking agents for laundry detergent and the like. It's a well-established market relatively low value, but it's a ready-made market. The delithiated spodumene, what we call DBS is the current base plan is to transport that back to site, bearing in mind that the majority of those trucks have to go back empty anyway. So effectively, we're just kind of backhauling that product. But as we've mentioned, between SCM, which is the supplementary cementitious material, so display cement, which, by the way, has a very good green credentials attached to it because as you're probably aware, cement highly CO2 intensive. So this would be effectively a displacement for that is probably the big prize on that by using that example to your question, the market for that in WA is relatively small. So there's probably not a market to absorb all of that material. But the other options around either road base or concrete aggregate also exist and where the options I was talking about before are working with consumers with those types of products to get the product qualified for use in those industries.

UBS. [indiscernible] Two questions. Firstly, just on marketing strategy. So I understand that Tesla entered an 11,000 tonne per annum hydroxide offtake with Kidman back in 2019 at a fixed price $11,000. Just talk to that, please?

Again, Covalent won't answer that because that's not part of their role. They're an operational joint venture. The marketing is undertaken by the 2 joint venture partners separately. So SQM take their portion of the product, we take our portion of the product. I'm not going to comment on the Tesla contract and what Kidman had entered into. We're in discussions, as I said, with a number of parties about contractual arrangements going forward. And as those evolve, we will advise the market.

Understood. And then a bit of a technical one, just on progress at the mine. So can you just talk to us about grade control drilling

That's very much a Covalent question.

So grade control drilling geotechnics, the geology how is it squaring away against your understanding of the reserve and particularly as you started mining what's coming out of the pit now? How is that squaring away against your understanding of the geology.

So the reconciliations are very tightly aligned. As I mentioned in my remarks, the ore body homogeneity is probably better than perhaps what we -- certainly in my experience in other lithium deposits from what we understand. It's certainly reconciling very well with our models. So at this stage, and again, it is relatively early days. We think that the ore body is going to, as I said, support relatively easy mining, relatively easy blending, and that's obviously where a lot of the costs come from, hence, the conclusion about the ore body properties should support certainly a lower cost of mining perhaps than you might otherwise expect.

Shaun Cousins, UBS. Just a question on the decision if you were to expand at Mt Holland. Do you do both expand the mine and double the concentrator, particularly with the opportunity to effectively process other people's ore in the concentrator? How do you think about sort of being across both sides? Do you have to do the ore and the concentrator or you can just do the concentrator on its own?

So the expansion at this stage is looking at essentially a doubling or a duplication of the facility that we have or that we've almost completed building at the moment. And there's a number of reasons. Leigh was talking about in AN, the advantage of having duplicate plant. So there's a good rationale for that. In terms of the mine, as I said, the characteristics of the mine mean that it opens up quite nicely. So you didn't just mining the rate at double of that rate. The feasibility of taking raw ore from elsewhere is probably one that you wouldn't contemplate. Typically, these concentrators are built close to the mine because you -- if you think about the amount of material that you're disposing back into the pit. The economics of transporting that any distance don't really support third-party processing of the concentrator. Refinery is potentially a different story, but certainly not at the concentrator. So simple answer is we'll double the concentrator and then obviously just double the rate coming out of the mine.

That certainly the position of the shareholders Shaun. get that -- double the mine and the concentrator.

Yes. And then maybe just when you guys last came to market in the first half '21, you spoke about 196 -- sorry, 199 million tonnes of resources down to 186 million. And then your reserves have gone from 94 to 84. Is that just a function of you being in the mine and now having that ability to firm that up? I'm just curious around what the movement of that [ consisted ] that -- sorry, we're not resources analysts or sorry, I'm a lot of resource analyst. So curious around why that movement.

It's a fair question. So we did a drilling program in 2020, which refined the resources slightly. And that movement that you indicated is usually within the [ Aribas ] and what you'd normally expect for that type of campaign. In terms of the movement in the reserve from 94 to 84. After we did the drilling campaign, we did a mine plan optimization study. And in essence, what that has done has said that there's about that 10 million tonnes of what you'd call near grade material, which at this stage, we will stockpile rather than putting through the plant. When I mentioned earlier that the technical teams are working on optimization. One of the things that they're working on is the most economic way to extract the spodumene from that new grade material, which would have the impact of reclassifying some of that material back into reserves. But at this stage, we've been somewhat conservative and said that we'll stockpile it. Of course, when we talk about a 50-year mine life or a 25-year mine life under an expansion, the impact on value is fairly small.

It's Bryan Raymond, JPMorgan. Just on the hydroxide potential for delays or implications of any further delays. Obviously, some other lithium projects in WA have been struck by quite a few. What gives you guys confidence that you'd be able to deliver in line with your expectations? Is it the SQM element of the project, whether you can draw on their experience? Do you have some certainty around labor in terms of skilled labor that is hard to find, as I understand in WA? Can you give us maybe some rationale around where that confidence comes from for that fairly quick -- comparatively quick ramp-up.

Perhaps I can just say 2 things then pass over to you, Ross. I think you're right, SQM does add value because they already produce lithium hydroxide, albeit not from spodumene concentrate, but they understand the lithium production process. And then WesCEF adds value because we already operate in this part of the state in chemical processing and the refinery is a chemical processing plant. So that's the value we add. So Ross.

Yes, thanks. So hopefully, you'll be able to see the progress that we've got at the Kwinana site today when we drive around it. So our contractor has been established. As I said before, the civil's contractor is finished. So the civil's work is complete at the refinery. So it's mainly the SMP, so structural, mechanical and piping that we've got to go. So we've -- part of the rig CapEx and re-estimation of time was to look at the work to go and given that some of the delays that we sustained with equipment coming back from China or coming over from China. So we've factored all of that in, plus on top of that, we looked at from an operational perspective, trying to get all the learnings from as much as we could from the other 2 sites that have actually been commissioning and taking those learnings, looking at what is our commissioning time, how are we going to commission and factored that in as well. So we put in more resources, more planning, more vendor support for critical vendors to come over and help us when we're actually commissioning the equipment plus the construction contract that we've got will keep some of the critical key people that have actually helped build that plant for the commissioning phase as well. And we're doing the same thing at Mt Holland.

Right. And in the event that there is further delays, obviously, it's hard to say at this stage, implications for customer contracts and how that plays out in the event that there's 6, 12, 18 month delay from here.

Again, that's a question for me as opposed to the guys from Covalent. The way -- we are still negotiating customer contracts. So I can't say too much about that. But we are ensuring that there is a suitable funneling arrangement whereby the contracts don't come on foot until such time as the refinery is -- passed a certain performance measurement tests, if you like.

Okay. And just a final one for me then just on -- again for you, Ian, on pricing. Obviously, you mentioned the movement from fixed versus market-linked pricing. As I understand there's quite a few different benchmarks people can use on pricing. Have you -- and I'm sure you won't talk about individual contracts, but in general, would you expect -- is there a certain -- certain pricing index that you're looking at targeting? Or how are you thinking about structuring those contracts?

Yes. So we've been talking to prospective customers about perhaps using a blend of indices because, as I'm sure you're aware, it's still a fairly nascent or immature market. But generally, the Tier 1 customers that we're talking to, and obviously, we want to support Tier 1 customers because we think we're a Tier 1 supplier being from Western Australia. The Tier 1 customers are very receptive to having arrangements in place -- contractual arrangements in place, which can move to different indices if we believe they're not representative of the market.

[ Hayden Beste ] from Macquarie. Ryan, just on the ramp-up of the Spot project particularly. I mean -- just your confidence around that? I mean, I'm not sure why you'd go but such a hard -- we're going to be the quickest in the industry by some distance sort of standard. You don't need to be given the refineries a bit further away. And just the drivers behind what you think you can do different to Pilgangoora or Wodgina or these other mines that have taken 12 to 18 months, particularly with the float circuit to get that product quality and spec achieved in such a short timeframe?

Yes, fair question, Hayden. So -- I'm glad you mentioned the difference between the DMS and float. So ramping up the DMS is usually pretty quick. And when you're seeing through the detail of what the others have done, that ramp-up profile for DMS typically is in months, not 12 to 18, for example. So very confident on the DMS side. As you've quite rightly pointed out, floats is more challenging. As I've mentioned, the ore body, we think, will support good recovery through flotation. As I said, it is quite homogenous. The grade typically tends to be a little better than some of the others who have had some of those challenges. And we've also leveraged pretty heavily, as I said, from both SQM, but also others who have commissioned these types of plants to take all of that into account. And bearing in mind that the overall from start of commissioning through ramp-up is in that order of what you've spoken about. So we will get to first product later this calendar year as we said, but then we've allowed ourselves a reasonable amount of time to get up to full capacity. And as you probably appreciate, you get a reasonably quick ramp up to some percentage, and then it takes a long time to finally get to that end nameplate. So we're very confident we'll get a level of healthy recovery, although it may take some time to get that last few percent, for example.

So you'll sell DMS produced spot in the initial phase. So it won't actually be the product that goes into the refinery that you sell into the spot market I assume till you've got that float circuit working.

No, we -- what I'm saying is I think the DMS will naturally be pretty quick, and the floats will be the limiting rate, but the intent is to sell effectively that end product of combined floats and DMS at spot con.

Okay. And the second question is probably for both of you, but on the hydroxide plant, I mean, I assume this stuff is being kept out of China, and that's where your customers will be. In terms of qualification period, I mean it's generally 6 to 9 months before anyone will actually accept it. So how are you thinking about that and potentially to sell the product in the interim on an unqualified basis as you get this going? Or is it more about keeping those customers purely access to the material and hence, you'll have to just the ramp-up will be as slow as the qualification process takes?

So you're referring to the hydroxide or the spot.

Hydroxide.

Hydroxide. Yes. So generally, there's a 6-month, give or take, qualification period. We're aware of that in the contracts that we've been negotiating that's fairly clear. In the interim, so if the plant comes up and we've got lots of hydroxide, which we hope would happen, in the interim, then we'd probably look at selling it on the spot market or selling it to those Tier 1 customers we're negotiating with, but with an unqualified and it might need to be reprocessed somewhere before they're comfortable with it. So that's further down the track. That's still at least 18 months away.

It's Jon Bishop from Jarden here. Again, just regarding the concentrate discussion earlier. You talked about sort of roughly a 12 months timeframe to get up to -- I assume it's a volume throughput nameplate. Is that correct?

Yes.

In terms of your expectations of concentrate grade itself produced and the recovery factors, have you sort of provided any guidance as to what the target and timelines are for those?

So we put on the slide earlier that Ross went through 5.5% is the spot [ code ] grain that we're targeting from a head grade of 1.5. In terms of recovery, I'm not sure what we've released publicly. So -- but again, the equivalent to what you'd see in other plants.

Okay. So within that 12 months, you're expected to produce a 5.5% concentrate?

Yes, the broad strategy with commissioning typically with these types of plants is to get to a grade as quickly as possible at the sacrifice of both throughput and recovery, get your throughput through and then work on recovery to your target. So that's the typical strategy. So it's one that we'll look to follow.

Okay. And then just to take that product over to your hydroxide facility, assuming that ramps up smoothly per timeline. Is there any sort of consideration around variation of that concentrate grade being presented to the hydroxide facility and how you're going to manage that in the event that does occur?

So I think obviously, one of the things that we're conscious of is that there are varying both grades of spot con as well as allowable levels of impurities when you talk about this is a traded product, if you like. What we've done is looked at across the whole value chain, and this is where we think we have a natural advantage is that we will have a tightly integrated, fully integrated mine to lithium hydroxide facility. So what we will do over time invariably is look at where do we get best bang for buck in terms of adjustments we need to make through the value chain to deliver most value. So if that means that the concentrate grade changes one way or the other, then we'll do that. If it means that we have to make adjustments in the refinery. Again, we'll do that per Ross's explanation earlier. So at this stage, our best hypothesis is that 5.5 into the refinery, delivers most value to shareholders. And again, we'll see what the market tells us. And then as we understand the ore body, the concentrator process and the refinery process better over time we'll continue to modify as needed.

Okay. And forgive my ignorance. One quick one. Is the hydroxide facility, I presume it's a continuous flow sheet. It's not the batch style.

Matt Frydman from MST Financial. Maybe just carrying on from Jon's final question there. Just wondering if there's anything, I guess, fundamentally different in the refinery flow sheet versus your peers in Kwinana and [indiscernible] and you talked about some of the learnings you've incorporated. Anything in that flow sheet that you've changed to kind of respond to some of those challenges that others have had?

Yes, I'll have a go at that. I think the [indiscernible] flow sheet's more of a batch. I think that was where the question came from. So our flow sheet is more of a continuous flow sheet. So what we've tried to do there is make sure that between the unit operations, we've got sufficient [ allege or ] tank space, et cetera, to allow us to operate it continuously because that gives you the better result, we believe. And the other learnings that we've taken from the other plants or at least from the vendors that supply equipment into some of those plants is obviously they've learned. So they've modified their equipment. So for example, in the calcination system -- they've taken any of those learnings where they had problems and incorporated them into our design. So they are the sorts of things we did. The other thing that we did was in our design made sure that our design capacities had space to move so that we weren't restricted. So we can go up or down and modify the plant that way.

We've heard about materials handling systems, which haven't been fit for purpose, dryers that aren't suitable to create the correct quality of material. Are those issues that you guys have faced or that we might see as we tour around the plant?

I'm sure we'll face some. I'm not suggesting for a minute that we're not going to have any commissioning problems. If we said that would be we were lying. So I'm sure we'll have some. But what we try to do with the design of the plant is actually building sufficient capacity and flexibility so that it actually allows us to -- for example, if we had a problem, we might have to run at a lower rate for a while. So until we actually get that bottleneck, I think Leigh explained bottlenecks pretty good. So we'll work out what that bottleneck or issue is. And then I think we've shown and our history shows that we're pretty good at fixing problems and then get going again.

Got it. And then maybe just on the capital intensity of future expansion. So we think about -- if we think about the mine, the concentrator and the refinery, maybe just in general terms you would assume that those future expansions would come at a lower capital intensity than the sort of stage 1 of those projects. Can you talk about where you expect to realize the benefits from a magnitude perspective?

I think -- I'll try to start and then hand it to you. I think what we have seen is the significant increase in capital, and there was a question earlier about the timing of when we invest in capital at this site and other sites, significant increase in capital costs recently. They will be offset to an extent by the infrastructures already in place. We haven't, to date, looked hard at what the relative capital would be for the existing project versus the potential expansions. I don't know whether you want to add anything on that?

With this capital project at the concentrate list, so we had worse than nothing. We actually had an old gold mine that we had to pull down. So there was that cost. We also had to build a pipeline, which we won't have to build. We might have to do some modifications to. We also had to build an airstrip to fly people in and out, village, et cetera. So we'll have to obviously upgrade some of those amenities, but -- so all of those costs won't be duplicated. So generally, you'll find that it will be lower CapEx because you won't have to completely duplicate. But as Ian sort of pointed out, the capital cost only goes one way.

Just a quick one on the -- sorry, Luke Smith from AustralianSuper. Sodium sulfate maybe a question for WesCEF. Could you look at converting that to caustic?

Probably not because the process to convert to caustic is quite complex, and I'm not sure that it would be cost effective to do that here in Western Australia relative to purchasing caustic on the open market. It's certainly something we'd probably look at. But at this stage, it is [ covert ] -- as opposed to the lithium, the sodium sulfate is covalence responsibility to dispose of. That's not to say if we did decide to convert it to caustic, we wouldn't buy it from Covalent.

Yes, that's where I was going.

I'd do a good deal...

Ryan wants to do a deal.

And just secondly on -- sorry, last question. Why do you call it a coproduct and not a byproduct?

I would say it's anonymous -- you make it at the same time, so byproduct -- coproducts, same word pretty effectively.

I think because sodium sulfate is a product that people make, they might make it by a different route, but it is a product that has a beneficial application. And so it is a co-product as opposed to something that comes out that doesn't have any value -- semantics, perhaps.

Yes. I know, just in mining terms, generally, if you produce copper and zinc, the zinc might be a byproduct and...

Yes. We're a chemical company.

It's Ross from Macquarie. Can I just talk about longer-term pricing assumptions. If you look at the spot price of lithium and you assume it holds, then every lithium stock in the world is incredibly underpriced and every [indiscernible] should be invested in acquiring lithium sites. So how do you think about the spot price of lithium versus the longer-term assumption and how you allocate capital around this business?

So I suppose there's -- I will invite Aaron as the Executive General Manager, Business Development actually to talk about that. But there's 2 aspects to that. Firstly, from a Mt Holland or Covalent project, it's not so much about what we think the price is going to be because we know that if we forecast the price, it will be wrong. If Macquarie forecasts the price, it will be wrong. The price will be what it will be and it will go up and down and around and around various times. So for the Covalent business, it's where it sits on the cost curve because we do have a view that demand will be sufficient to require higher operating costs mines and lithium hydroxide plants to come on, which means if we're down the lower end of the cost curve, there is a reasonable margin to be made. In terms of further investments, well, as you know, Wesfarmers doesn't speculate on any of its investment opportunities until they come to fruition. So sorry, I can't talk about that.

My last then about pricing. Within about a hour's drive from here, the bulk of the world's lithium is produced, right? You could all meet up in the pub on a Friday night and agree price. Why isn't there a coordinated approach to pricing?

Well, first of all, we don't do that in any of our other businesses.

But your other business...

I wouldn't be allowed to do that. But...

Well, I don't know if you -- but it's a different -- it's a global product sold to offshore. It doesn't fall into...

And you'll looking at, obviously, the potash, Canpotex potash cartel -- offshore marketing arrangements from Canada, Apologies for the use of that word. Look, it's something that at some stage, we might investigate, but I suspect that notwithstanding the amount of lithium hydroxide that is going to be produced in Australia. If you look down the track, Australia will be one of many, many countries producing lithium hydroxide.

Okay. So then can we talk about global oversupply/undersupply of lithium and how it plays out the next few years? If as your chart suggests, we're going to be in undersupply for the next 5, 6 years, why are you locking in contracts now? Why don't you just wait until the [ Brill Pinch Point ] hits and then put the contract out there?

Well, we're locking in contracts now because we want to make sure just the same as we have throughout all of our investments in the past, we want to make sure we're underwriting the capital we're investing. So given that those contracts will probably reflect the market price, we believe provide that our costs are in a good position, we will be sufficiently able to make good cash flows from the product.

Sorry -- just to add to that, Ross, good question. I just want to be clear it implies that we're locking the price the way you asked that question, that is -- that is not the [indiscernible].

So I think that's it. Thanks, Ross and Ryan. I just wanted to close with some key points that I'd like you to take away from our presentation today. Personally, I'd like to say for a whole range of reasons, but this one in particular, that I was 20 years younger. The reason is that the opportunities that are presented to WesCEF over the next few years are greater than any that I've witnessed in my 40 years with the organization. And I'm not sure that I'm going to be in WesCEF to see them all come to fruition. But our younger people are certainly very excited about the opportunities in front of this division. We've got some key growth projects in our traditional businesses, ammonia, ammonium nitrate and sodium cyanide. We have a strong decarbonization commitment, which may lead to new opportunities as well. We have the expansion of the mine and the concentrator which may lead to additional downstream investment in terms of refining capacity. And we have an M&A mindset and greenfield geological capacity, which could add to the opportunities. And probably most importantly, we have a culture of deploying shareholder capital to deliver returns, and have continuously improving our operations to deliver increased returns not just to our shareholders but also to all stakeholders, including our employees, our customers and the community. So as we prepare for our tour, just a reminder, we'll be coming back here to this room. You can leave your shoes and your tote bags here and also anything else that you may not wish to take with you. I would ask you to pay attention to your WesCEF chaperones on the tour and only use your hands on the handrail. We don't want you inadvertently pushing a button and tripping one of our plants or having a safety incident probably more importantly. I would point out that in both the ammonia AN area and the sodium cyanide area, we're going to be entering a region known as an intrinsically safe region. So what that means is that you can't take any electrical devices. So mobile phones, Apple watches or other brand watches, hearing aids like mine not allowed. You can take them off and leave them on the bus when we get off the bus. But, sorry, -- car keys, thank you. Anything with a battery or whatever in it. So you can either leave them in the room here because this will be secure or leave them on the bus when we get off the bus and visit those areas. If you're having a problem with the safety gear and the safety gear is the vest, the hat, the glasses and...