All right. Good morning all, and welcome to the Calix FY2025 Results Webinar. My name is Christineh Grigorian, and I look after Investor Relations at Calix. We will be hearing from Phil Hodgson, Calix MD and CEO, and Darren Charles, Company CFO, shortly. Before we kick off, just a bit of housekeeping. After we have run through the results presentation, there'll be an opportunity to ask questions. To ask your question, please use the Q&A box at the top of the screen, or you can email it through to investorrelations@calix.global, and I will relay it to the group. Note that the chat box, the hands up, and reactions functions have all been disabled, and that this session is being recorded. Without further ado, please hand over to our presenters.
Excellent. Thanks very much, Christineh, and welcome all to Calix 's annual results presentation for the financial year 2025. Just looking forward, this pack is available, of course, on the ASX platform. Any time you want to go back and check it, you can download it from the ASX platform. First of all, just acknowledgement of country. We do acknowledge the First Nations people and traditional custodians of the land on which we live and work and recognize the deep and ongoing connection to the land and waters and community, and pay our respects to elders and leaders past and present, and extend that respect to all First Nations people. Just in terms of a quick introduction to Calix before we jump into the financials, for those who are less familiar with this, it's a technology, Australian homegrown technology.
It's focusing on some very large industries in terms of decarbonization. Cement and lime, iron and steel, critical minerals including lithium, alumina, and even direct air capture, and also a growing revenue water business, which we'll talk about as well. Interestingly enough, about 12% of the company is owned by staff and management and directors. A lot of that's our own money too. A very heavily invested team in the future of this company. Just moving forward to the core technology, we've simplified the diagram here. Hopefully, people can have a look at the core technology and sort of understand it. Effectively, it's a new way to heat stuff up, if you will, a new type of kiln or furnace. We have a rather large steel tube. We've already hit sort of scale for that tube. We never need to build a bigger tube.
All we do to scale from here is have multiple tubes. We heat that tube externally using whatever energy you like. It can be burning waste, biomass, fossil fuels. It can be renewable electrons. Whatever we're heating goes down the middle of the tube. It's got to be a fairly small particle size. Imagine dust or flour. Imagine dropping that dust or flour to the floor and watching it float down. That's all that happens inside our tube. We've got a red hot tube. The material is just floating down over 20- 30 seconds, and the red hot walls of the tube radiate heat into the particles, and that's how we heat stuff up. Why do it that way? When it comes to things like limestone, which is nearly half by weight CO2, trapped in the rock.
If we can heat stuff up this way, then the CO2 that comes out of that rock, as the cement and lime industries heat that limestone up at the moment, that doesn't get lost to the atmosphere. It stays inside the tube and exits as a pretty pure stream. That was the first application we started to develop in carbon capture, essentially, for the cement and lime industries. Of course, some other businesses started to emerge for us as well, sustainable processing, and some of the biggest opportunities in there include some of the biggest industries in the world as well: iron and steel, alumina, and an emerging industry, obviously, in lithium, a very important industry as well. The last feature of this technology that's becoming increasingly more important is this energy flexibility. I'll talk a bit more about that.
The fact that we can switch between fossil fuels or waste and renewable electrons is becoming an increasing part of the value proposition. Just in terms of the business itself, we've really sort of spent quite a bit of time making sure that we're focused. We have a simplified structure, and Darren will talk about the impact of that simplification and focus in terms of the cost performance of the business. We're really focused on three lines of business. One in the carbon capture space, dealing with everything to do with limestone. The second one in sustainable processing, dealing with everything to do with electrification of industrial processes, including iron and steel, alumina, lithium are the three sort of key examples there. Lastly, the magnesium part of our business, which is focused on water. We did have some biotech that we were developing there.
We decided to put that on hold so that we can really focus in terms of growing that water business in revenues and gross profit. The key message is we're simplifying our businesses. We're making sure we have the right size and cost to focus on our biggest opportunities. Those changes that we implemented during FY2025, Darren will cover in a bit more detail now. Without further ado, Darren, I'll hand over to you.
Thanks very much, Phil. Appreciate that introduction. I'll just click on to my next slide. Firstly, good morning, everyone, and thanks very much for your time, obviously, and your interest in the company and how we've gone over the last 12 months. In terms of the next few slides that I'll be presenting, essentially, there are three key messages for us to deliver: continued great revenue growth across the business, tightly managed focus cost reduction, and extending our cash runway in order to give ourselves the time to execute the strategy around funding our projects and our subsidiaries at that project and subsidiary level. That's essentially what we've been working on over the course of the last six months, and it's really pleasing to see both that continued revenue growth, tight management of costs, and that extended runway.
I'll kind of dive in now and dig into each one of those three elements in detail as I go through the next few slides. In terms of overall revenue growth, our revenue topped out just a smidge under $34 million for the year just complete. We saw great contribution and strong growth right across magnesium and LEILAC and even a little bit of revenue within a sustainable processing line of business. It's really pleasing to see good revenue contribution across all the elements. The one thing I'll add as well is when you get the opportunity to look through our financial reports, as we've published them this morning in the segment note, you can actually see the revenue and costs by line of business, both for the year just gone and also a comparative year for FY2025, FY2024 as well.
Moving forward, we'll increasingly be able to illustrate to you the performance across each of our lines of business. We've delivered that revenue growth at good gross margin, and we're certainly very happy with how our revenue is translating into great gross profit result as well. In terms of the revenue, again, I'll just dig into it line by line and focus maybe on magnesium, which represents the largest portion of our revenue, contribution to our revenue, just almost 85% of our revenue. Again, really great revenue growth, and as you can see, it's accelerating. I think out of the back of sort of 2021, 2022, when we were a little bit disrupted around COVID and what we could do in our U.S. business, it's really pleasing to see that kind of growth now starting to translate into some solid delivered results, both in the U.S.
but also in Australia as well. We've made the point there that towards the back end of FY2025, we've secured some quite significant contracts from an Australian perspective for the magnesium business in Queensland. We're very happy with the performance of the magnesium business in growing revenues both in Australia and also in the United States as well. In the U.S., obviously, we've invested over the last couple of years in expanding our footprint, our manufacturing or production capacity, both into Texas and in Wisconsin. We're starting to see the contribution of that investment into growing revenues in the U.S. as well. In terms of what's ahead of us in FY2026, continued revenue and gross profit growth. We're in the process of expanding our production facility in Calandra.
It's a relatively small investment that we're making there, not huge dollars at all, sort of hundreds of thousands to upgrade the capacity at our Calandra facility in order to service those new contracts that we have in Southeast Queensland. A great revenue success story across magnesium. Turning attention to what we've done on the cost side as well, I want to take a little bit of time on explaining this because it might not necessarily be immediately obvious when you look at the costs in FY2024 and compare them to reported costs in FY2025. We've significantly reduced our cost base through steps that we took towards the back end of calendar year 2024 and the impact that that's flown through into 2025. You can see there that our second half cost base of $17.1 million is 23% down on what it was in the first half of FY2025.
You can't necessarily see that from when you look at the full-year numbers. We've made some really tough decisions to streamline our organization, as Phil said, around focus on kind of key markets. The steps that we've taken over the course of the last six to nine months have taken something like an accumulation of about $10 million of operating costs on an annualized basis out of the business. That won't really be seen clearly until you have a look at the FY2026 first half and FY2027 numbers. You can see quite clearly there, obviously, the change in the second half of FY2025. Like I said, we'll certainly be able to demonstrate those changes. Very difficult and challenging decisions, but ones that we've had to make to give ourselves the opportunity to pursue our strategy of funding the business and the technology development at the subsidiary level.
The other point that I'll make on this slide is hopefully it's quite clear now in terms of the heavy capital investment cycle that we've been through over the last sort of 24 months is certainly coming to an end. There will be a significant reduction in the CapEx investment over FY2026, subject to us completing those funding rounds at the subsidiary level to begin to look at things such as the Zesty Demonstration Plant and the other projects that Phil will talk to. Certainly, in terms of at headco level, our investment cycle is complete, and there will be a substantial reduction in the CapEx spend in FY2026 as well. Just in terms of the kind of final slide from me before I hand back to Phil. Again, we've got a business that's growing its revenues, strongly growing its revenues across magnesium.
It's tightly managing its costs, and it's ensuring we've got the right focus and discipline to deliver those kind of key revenue targets and the key projects that are going to help de-risk our technology and enable us to serve our customers in those really large addressable markets. We've got an extended cash runway, and we're pursuing our strategy to fund the business and those projects at the subsidiary level, and we've given ourselves the time in order to do that. Phil, I'll hand back to you now to take the next few slides forward.
Excellent. Thanks very much, Darren. Let's keep jumping forward. Despite a whole lot of area of focus around costs and growing revenues, which are fantastic, it's not just a story of cost and revenue because significant commercial milestones were achieved in FY2025 as well. We talked about lithium being one of those lines of business. Certainly, we had a bit of a pause of a lithium project that we're doing with PLS around October last year, but we're pleased we're able to announce a recommencement of that project with an additional $15 million in funding from the Western Australian Government in February 2025. That project remains on target to complete construction in the December quarter of this year and remains on budget. It's not just the opportunity, I guess, with Pilbara Minerals in the lithium market here that's interesting.
There are other opportunities here with other lithium players that are coming into the sustainable processing pipeline, which are really quite interesting. That pipeline is not just about, I guess, having a chat. That pipeline is about starting and earning some revenues and continuing sustainable processing's growth in revenues from paid studies. It's pleasing to see lithium really starting to grow in that way, not just with Pilbara , but with other opportunities that are starting to emerge. Iron and steel, obviously, post-balance date, we're very pleased to be able to announce the grant from ARENA. That has been executed. It does require match funding, which obviously we're working through the process of getting in place right now, but that was very pleasing to occur. There are several other proof points that have occurred with the Zesty technology.
We did a deep dive on Zesty with the Superpower Institute, who published a report on the green steel opportunity in Australia, joined us on that deep dive. There are details in the appendix of this pack if you want to go and have a look at that. Significant validation and significant due diligence to achieve that validation has occurred on Zesty over the course of the financial year 2025. It was great to see that manifest at last in the public recognition via this ARENA grant. I mentioned first revenues into sustainable processing. Hopefully, sustainable processing can follow in LEILAC's footsteps and start to build a nice pipeline there and a nice earning line with respect to paid studies and engineering work. Just in cement and lime as well, obviously, again, we're quite successful with some grant funding there back in July at the start of the FY2025 year.
That $15 million grant, some of that is coming into the company now. Match funding will be required for when the heavy lifting's starting on that particular project there, which will be next year towards the end of this financial year. Certainly, at the moment, we're doing some cowork with match funding and continuing to develop that project past its prefront engineering design. It was one of our commercial milestones for last year. Interestingly as well, we've completed an upgrade of the LEILAC-1 facility. The tube is electric ready. To demonstrate that hybrid operation, switching between different fuels, we've done some work at LEILAC-1. We've also done some test runs there with Heidelberg cement on some more proof points on the technology, testing out the new tube, and those test runs went excellently.
With LEILAC as well, paid studies and engineering work continues to grow in terms of the overall revenue number. Significant, I guess, commercial progress despite the fact that, you know, obviously, there's a lot of focus around costs and priorities, but in these very large potential markets, some great progress being made. Just in terms of what we're looking at, obviously, Darren's covered revenue. We're happy to put a stamp on it and say we're going to target continued revenue growth. We're going to have contributions from all of our lines of business to that revenue. We're going to significantly, we expect a significant reduction in group CapEx. We're going to continue, obviously, to manage our costs quite closely in an ongoing sense and pursue equity or funding into subsidiaries, much the same as we did with the LEILAC Group and Carbon Direct in 2021.
We're going to continue to focus on getting funding into the subsidiaries via project financing or equity into a sum. The runway that Darren talked about is really about giving us plenty of chance to do that. With respect to our specific projects, what are we aiming to do? We're aiming to complete the construction, obviously, the lithium midstream demonstration plant with PLS . We're going to continue to move through and get the financing, targeting to get the financing together for the Zesty Demonstration Plant to match that ARENA funding. Work is progressing on the project, but the heavy lifting stage when we start construction will need to find that match funding for ARENA.
We're going to continue to pursue the permitting and funding of the LEILAC Tube Plant, and I'll talk a bit about that in a sec, and complete the front-end engineering and design for Project Zesty, which is our South Australian lime project. All the project slate is up on this slide. In the back of the pack, we've got the blue slides, if you like, that we sort of summarize all of our projects in. We still don't have line of sight yet on permitting for LEILAC-2. It's still ghost month in Europe, unfortunately, where not a lot happens. We've just got a bit of a question mark on the permitting and when LEILAC-2 permitting might be able to start that project to proceed. We've commenced site works, but we can't commence construction until that permitting is clear.
Obviously, we're also looking for matched for some funding with respect to LEILAC-2 as part of the joint venture with Heidelberg Materials to build that facility. We also still don't have line of sight on the DOE funding. If you recall, the DOE grants that we announced back in February, I think, or late January, were reassessed and are being reassessed by the Trump administration. We're not clear yet. They said end of summer. I think it's sort of almost end of summer in the U.S. We don't have a line of sight yet to those grants. A couple of little question marks there. Other than that, our other projects continue to target the timelines as previously updated. Moving through very quickly on areas such as headwinds and also tailwinds. Obviously, it's been a tough couple of years in the cleantech space.
There's clearly been a bit of a slowdown or pause in perception around decarbonization. That's largely, I guess, led by sentiment around the U.S. and the administration there. I would like to point out that Europe has continued to double down on its acceleration goals. Areas such as Germany, for example, a $5 billion fund, $100 billion of that fund allocated towards climate and economic transformation. They're putting up to their parliament onshore CCUS, which a few years ago would have been inconceivable. There's a lot of progress in the U.S. that's really a tailwind for us there. Even in the U.S., there's an enhanced 45Q, the big, beautiful, great bill that Trump introduced. There's an enhanced 45Q, which means there's enhanced incentive with respect to capture of CO2.
Even in the U.S., despite the sort of sentiment, there's still a lot of tailwind behind CO2 capture in industrial processes like cement and lime. Obviously, in Australia and Asia, a continuation of the current government has been very positive for continuity in the programs that had been announced prior to the current term of the government. Lastly, in Asia, China has extended its ETS to heavy industries such as steel and cement. A lot of the other countries in the Asia-Pac region, India, Japan, Malaysia, Indonesia, Thailand, Vietnam, they're introducing regulatory frameworks. U.S.A. in everything, it's 5% of steel and cement production. The rest of the world is certainly moving ahead on decarbonization. There are some headwinds, but there's also some pretty strong tailwinds in other parts of the world.
Just quickly summarizing before we move to some questions, as we've said, the financial highlights, which Darren covered, increased revenues, cost base reduced, cash runway extended. 18 months cash runway again declared. We're focusing on lithium-ion steels, cement, and lime in terms of our commercialization milestones, obviously growing our revenues and gross profit in the magnesium lines of business, but some significant commercial milestones achieved despite the focus on getting some costs out of the business and those sorts of things. That should not be looked aside lightly. We're going to continue to progress, de-risk, and commercialize the technology out of the team that we've got here. It's a very focused team now around these themes. In terms of the outlook for 2026 then, we are calling further revenue growth in magnesium. We're confident of that. We're going to see the cost savings take effect.
Those cost savings taking effect in lime and the revenue growth that we're confident in calling out and the significantly reduced CapEx is what gives us confidence to give an 18-month runway statement at this point in time. In terms of the focus on continuing to achieve those commercial milestones, especially LEILAC and sustainable processing via paid studies. They're the focus for FY2026. I'll pause there, Christineh, and I'm happy to take some questions.
Great. Thank you, Phil. I might just get you to flick over to the next slide. That's all right. Just a reminder that we've got plenty of time now for questions. Just a reminder that if you'd like to submit them, you can do so using the Q&A box, or you can email them through to investorrelations@calix.global. We're starting to get a few through. I will kick off with what we've got here on the box. The first one is, can you talk about how marketing for the lithium midstream product is going? Is there a potential for there to be revenue in the June 2026 quarter?
Yeah. Probably a couple of questions in there. I'll try and break them down. First of all, in terms of marketing for the product or, if you like, demand for the product, I think when we first announced a lithium phosphate product as being the product from the lithium midstream project with PLS , not too many people have heard of it. Lithium phosphate is different from lithium carbonate and lithium hydroxide. They're sort of the two most common battery-grade materials or chemicals that are being made at the moment. Lithium phosphate, we felt, was an easier product to make at a mine site and concentrate up the lithium. You take costs out of the supply chain and leave waste at the mine site. The other thing is that phosphate or lithium iron phosphate is one of the fastest growing battery chemistries and still is in China.
We felt the phosphate part of the lithium phosphate salt was a neat solution to that. We're only seeing increased interest in specifically lithium phosphate. Obviously, we can't talk about commercial discussions that are in confidence right now, but we believe we've chosen the right product here. Easier to make in a mine, concentrates up the lithium, and a growing demand for it in the marketplace. In terms of the project itself, you'll see in the sort of blue slide packs towards the appendices, the startup of the lithium facility with Pilbara would love to do it as soon as possible. Market conditions will dictate that, however. At the moment, lithium is seeing a bit of a recovery. It certainly isn't back up to historical averages. We sort of need it to be there to start that project in anger.
Obviously, we'll have a look at what we do with respect to commissioning and testing. To start that project in anger, we need lithium prices back to roughly their longer-term averages. Who knows? That could happen quickly. It could happen a bit more slowly. We'll have to wait and see how the market unfolds there.
Thanks. Next one is, revenue in LEILAC looked lower in the second half than first half. Was there less engineering work required in the June half?
Yeah, Phil, maybe I'll answer that. I think as we announced in, well, I guess firstly, let's go back to January. In terms of the LEILAC pipeline, we were sort of sitting there in January, you know, very happy with the progress that we'd made in terms of the pipeline and the opportunities that we'd secured. Again, LEILAC and its partners in the U.S. were awarded two $1.5 million U.S. dollar grants to kind of progress engineering and feasibility work in the U.S. on those projects. That would have contributed, you know, probably $2 million- $3 million in additional revenue to LEILAC over the following sort of 6- 12 months, including some revenue in the first half. As Phil mentioned, when the administration changed, obviously, the DOE kind of put those projects through a review process. That review process is continuing.
We were very happy with the way LEILAC was progressing. We were very happy to have received that additional funding or those additional grant awards. Things were paused. In, I think, May or June, we made the decision, given that that pause had extended sort of three or four months that it was indicated to us that it would take. As Phil mentioned earlier, now the latest is the end of summer. We took the decision to essentially, you know, review the resourcing within LEILAC and make further changes to our cost base to ensure that the revenue that we were generating within LEILAC is more closely aligned with the costs that we're incurring within LEILAC. In terms of the second half, I think we had flagged that some of our revenue that we were hoping to secure was essentially put on pause.
We responded on the cost side of the business. In terms of, yeah, the kind of first half, second half split with LEILAC, it was significantly impacted by that decision by the Trump administration to put those projects on pause. We've responded in the right way in terms of, you know, tightly managing and controlling the costs and focusing the LEILAC resourcing on those paid studies that they do have in hand. I think that probably hopefully addresses the question, Christineh.
Great. Thank you. Next question is, can you provide more detail on the permitting delay for the LEILAC Tube Plant? Is it now pushing the critical path back?
Yeah, I wish I could. These things just seem to take longer, of course, than we hope or expect sometimes. Certainly, August, there was very little interaction with the authorities. Once Europe goes on summer, it's very difficult to continue to progress things forward. Unfortunately, we don't have line of sight at this point. Permitting is a critical path for the project. The heavy lifting, obviously, part of the project is going to rely on some funding, and we're targeting to get our funding in place and progress that through this financial year, by the end of this financial year, commencing EPCM. At the moment, permitting is the critical path. We'll update the market as and when we can there. It's just that we don't have a line of sight at the moment, and we felt we needed to update the market that we don't have that line of sight.
Okay. All right. I've received a couple in advance, so I'll get to those. In the past, you used to share a project pipeline. Why don't you include this anymore, and how is it looking now?
Yeah, it wouldn't be too much different from the last time we shared it. We've got 86 projects in the pipeline. I think we had 82 at the last. We're covering nearly 45% of global cement and lime production with that pipeline in terms of the companies that are in there with specific projects that we're working on. It's more, I think, important to show progress down the pipeline, and that's manifest through the paid study work. As the pipeline starts to progress, and we can talk about it, which we're able to during the year with Mississippi Lime, or MLC, and of course, with Titan as well with their Roanoke Cement facility, and other projects that we're developing through there, obviously, Heidelberg Materials, et cetera. Those particular aspects of the pipeline are the more important ones now. The pipeline's grown a bit since last time.
The key thing is how fast we progress things down it now. That's what we're going to be focusing on and talking about.
Okay. On a similar subject, please provide an update on patent and IP protection expectations and dates for the main product lines.
Oh, that's a good question. I don't have to hand exactly what dates are coming through when. Sometimes it enters a phase of approvals through different jurisdictions, and it takes different timelines for a patent family. Pursuing a patent in China, for example, may take a different time than pursuing a patent through the European Union and each of the members of the Union or in the U.S. The patent list, if you like, is quite a complex question to answer in quite a short time. The key patent for the cement and lime industry, for example, the LEILAC patent, and there's several sort of layers to that patent as well, they've made their way through a lot of the major jurisdictions. Zesty's a little younger, the iron and steel, and it's entering its public phase right now. It's probably about two years behind the LEILAC patent.
The core patent itself, which was first submitted in about 2006, updated again in 2016, and we've continued to update that patent. We continue to enrich and bring, I guess, with the latest advances in the technology, broaden the core patent as well. It's a fairly rich question to try and answer in a very short space of time. We've got our patents progressing nicely through the different jurisdictions.
Thanks, Phil. I've got a series of questions on green iron. On capital access from North Asian partners, would overseas steelmakers who combine equity placement and off-take be viewed favorably?
Yes, absolutely. I think there's examples of some of those who are operating in that space. It's not just Asia as well. There's steel and iron ore companies more broadly that have venture arms, if you like. Those sorts of strategic investors are attractive with respect to progressing, if you like, an equity raise into a Zesty special purpose vehicle. Absolutely, they're on the radar.
Okay. Has a conversion note from AustralianSuper been considered to raise equity on the green steel?
I don't think so. It's not something that we've necessarily discussed. I mean, obviously, Australia Super's our largest shareholder. Really, the focus with what we're doing with Zesty is similar to LEILAC. We have a special purpose vehicle that we'll look to raise funds into from strategics and impact funds. Impact funds are typically those venture capital arms and earlier stage investments that typically don't like investing in the public space. The strategy that we followed with LEILAC is exactly the same strategy that we're looking at with respect to Zesty.
Would a trilateral JV, such as an Australian iron ore company and a Chinese or Korean steel company, work?
Absolutely. If you look at some of the successful subsidiary or capital projects that have been put together, I guess, overseas, they involve iron ore players, steel players, end-user customers, supply chain participants. All of that is desirable, if you like, if you're looking to put a good consortium together to continue to develop a technology. All of that is on the cards.
Okay. Moving on to lithium, a few questions there as well. Are other spodumene ores being tested besides PLS ore?
Yes.
Okay. Short answer. Are spodumene ores from Brazil and Canada compatible?
It's not necessarily by geography. It all depends on the geology. There'll be types of ores that'll crush down beautifully for ours. There are others that'll crush down into larger particle sizes as part of a beneficiation process. There may not be nearly as much fines or any fines that are more for our process. If those particular ore bodies were to be processed, you need to look at some milling, if you like, to be suitable for our technology. It's very much geology-driven, not geography-driven.
Okay. This is a little bit geology and geography together. Can Chinese leopard delight be used with this technology?
That's a good question. I'll put up a hand and say we haven't tested any Chinese ores yet. It'll be a bit of both geology and geography there, so to be determined.
Okay. Last one of the lithium series. How is the lithium midstream product interest received internationally? Scope 2 emissions and carbon border taxes come into play. How can this be used as a springboard for the company to generate revenues through JVs or licenses?
Yeah. This is a bit of a, if I sort of hark back to the discussion I had or the answer I gave around the lithium phosphate salt, absolutely, it's gaining a lot of traction and interest. Obviously, we'd love to say more, but we can't just at this point. One of the areas of attraction and interest, apart from the utility of the phosphate part of the salt, is the fact that if you can use a renewable energy at a mine site, and believe it or not, renewable energy may be the cheapest form of energy at a mine site. Energy is typically very expensive to get to a mine site. You can produce A, a lower cost, and B, a lower carbon product.
As soon as you can produce a lower carbon product, and it also has lower carbon in the transport chain to the chemical converter, you have a product that is, I guess, in terms of carbon footprint, lower. One of the key threats here is that as carbon has a price, and you've already seen Europe start to do this, look at carbon border adjustment mechanisms to stop high carbon products being dumped where you've specified lower carbon production processes. Australia is actually talking about a carbon border adjustment mechanism. As those come into play, lower carbon products will naturally have an advantage. The other thing is with respect to lithium sources, the two main sources are hard rock, such as spodumene, and salars, such as coming from South America. At the moment, salars have a lower carbon footprint than spodumene-derived lithium.
That's because of the calcination step or the heating up step required in spodumene. As soon as you can shift that spodumene and conversion into a renewable energy conversion, you can turn the tables back on the salars in terms of carbon footprint. It's a very important step, if you like, for spodumene and those hard rock-derived lithium sources to be able to look at lower carbon options if they're going to compete in the world with these carbon border adjustment mechanisms.
I'll jump off mute. Okay. Thank you, Phil. You have highlighted that grant funding for Zesty and Zeta is subject to match funding being secured. The Zeta announcement was in July 2024, but a year later, Calix has not secured the matched funding. Is this funding needed for the feed study you have in your priorities for FY2026?
Actually, it's not needed for the FEED study. We've got, if you like, in kind, which is recognized. That's the cost of our engineers and these sorts of things who are working on these projects that's getting matched by the Zesty funding currently. We're getting the revenue benefit, if you like, of some grant funding, depending upon the stage milestones of the way that funding is rolled out. The heavy lifting is when we need the matched funding. Once we move past the FEED, if we go past financial or final investment decision and into construction and procurement, that's when we need the matched funding. We've got plenty of time. That's not to say we're not doing nothing. Obviously, we're having a look at different ways to fund how Zesty progresses, including project financing or via the LEILAC sort of Series B that we've talked about.
We've got plenty of time to do that. At the moment, we're enjoying the benefit of grant work coming in for our in-kind contribution to continue to develop that project.
Okay. Connected with this, why should we believe that Calix can achieve matched funding in the next 12 months for Zesty, given it's three times as large as Zeta?
Yeah, it's a good question because obviously, the capital markets have been pretty tough for the last couple of years. Cleantech, especially, has been tough, not only obviously in the public markets for companies such as us, but also in the private space. Our firm belief is that this won't last forever. There is perception around with respect to the pace of decarbonization, especially with the new administration in the U.S., and we can understand that perception. From what we've seen and what I've talked about with respect to tailwinds emerging and continuing to strengthen in areas such as Europe and Asia, we believe that the markets will swing back again. We haven't been sitting still while we've been waiting. As we've outlined in our commercial milestones during today's presentation, we'll continue to progress the projects and the technology forward.
We'll continue to de-risk the technology and tick some commercial milestones and get some pretty good third-party verification of the way that the technology is progressing and its potential, especially iron and steel, especially recently for that as well. There are two things that are happening that are sort of dictating timing here. We need the markets to approve of it. We're seeing some green shoots. We're seeing a couple of earlier stage deals being done in the cleantech space. We're not sitting still. The de-risking and the commercial milestones we're ticking off continues to make the investments more attractive. We've deliberately given ourselves 18 months runway. We feel that that's pretty good in terms of creating the opportunities to get funding into the project and/or subsidiary level, which is the core strategy for the company.
On that, one of those latest comments, I've got a text through. Can you confirm how you define cash runway when you say runway?
Yeah, I'll let Darren answer that one.
Yeah, I guess what we mean in terms of cash runway is that we've got a current amount of working capital, and we've got revenues that are growing, and we've got costs that are coming down, and we've got CapEx that is coming down. What we've got is kind of clear visibility that we've got sufficient time, the runway, in order to execute that strategy that Phil talked about in terms of getting the funding into the subsidiaries to take those projects forward. Right now, we've got a growing and successful magnesium business that's doing pretty well, both in terms of revenue generation, gross profit generation, and even earning its own, you know, paying its way in terms of its contribution. We feel very strongly that we've got a very compelling technology with LEILAC, competitively positioned very strongly.
We feel very strongly that we've got a very competitive technology in terms of iron and steel decarbonization as well. Clearly, we've made solid progress as well with the midstream application of the technology in partnership with Pilbara Minerals. We think it's worth our while continuing to invest in taking those technologies forward and securing the funding to go to the next stage in terms of from pilot to commercial demonstration to full commercialization of those technologies. We think those technologies and those markets represent compelling opportunity for our company and for us all as shareholders. As Phil said, we're all shareholders in the business. We want to give ourselves as much time as we can to basically, you know, make those strategies, bring those strategies to life. An alternative strategy, which is just to, you know, operate a very successful magnesium business, just minimizes the upside for the company.
That's what we mean in terms of the runway, giving ourselves the opportunity to essentially take what we think is a very competitive technology in iron and steel decarbonization and a very compelling technology in cement and lime decarbonization and, you know, translate it into significant value for our shareholders. I think that's what we're talking about when we talk about runway. Every day we look at our revenue and we look at our growth in revenue, and every day we look at our costs. Also, at the same time, we're continuing to make progress along those other strategies. The runway is just giving us the time to execute that strategy.
Okay. Thanks, Darren. Next question is, we have been hearing for a very long while about raising funds at subsidiary level but without tangible progress. Can you talk to the capital market dynamics you are experiencing?
Yeah, I think I sort of answered this one a bit earlier, Christineh. Certainly, as very briefly, capital markets have been very tough, especially in the cleantech space. Many indices showing nothing, you know, from 2021, it's just been a steady decline. The last financial year is probably the lowest in cleantech investments since 2020, around that time. It's a tough market. There are green shoots. I've talked about some Series A's and B's that we've seen start to go into decarbonization technologies just in the last few months, which is good. That's a good sign. Of course, the other thing, as I mentioned, is the other dynamic here is we continue to de-risk and commercially progress the technology. A combination of both of those is only going to keep increasing the chance that we move with respect to that particular strategy.
We're not sitting still and doing nothing and waiting. Obviously, we're pretty heavily engaged in both of those specific sort of opportunities there into LEILAC and into Zesty. It takes time. No one's saying that it's certainly taking longer than anyone would have thought sort of even two years or 18 months ago. Deals are taking longer. Investors are much pickier. We believe as we continue to de-risk and commercialize the tech, that would become a much more compelling value proposition for those funds as and when the market turns.
Okay. Next question is on Heirloom. If we're able to provide any insights with respect to the new administration, imagine U.S., where are they in respect to Project Cypress? Has it stalled, paused, or is it still receiving funding?
Yeah, it's basically part of the pause. When we made the announcements with respect to the DOE review that was taking place, certainly Heirloom was part of that. We're still waiting to hear the outcome of that. That's part of the same bucket that's all being looked at there. Certainly a pause.
Okay. Another one for AustralianSuper under the microscope. AustralianSuper backed Syrah in the graphite space. Can we expect similar support in adverse market conditions as a plan B?
I can't talk about AustralianSuper and what they would likely do, Christineh. I'll have to leave that question to the speculation of those out there, unfortunately.
That's right. There was a question. Can you please expand on paid study? That's in respect to when it was mentioned when describing the feasibility projects with cement and lime groups.
Phil, why don't I talk about that?
Yeah.
Kind of linked to essentially the revenues. I think essentially what we're talking about there is having customers and prospects pay for us to do work for them to essentially develop projects. What I mean by that is that if a customer has an idea that they want to look at an opportunity to decarbonize a particular cement operation or an iron and steel operation, they'll come forward. As Phil mentioned, we've got a pipeline of engagement with these customers, and they'll ask us to do some work for them. I think what we're saying is that's fine. You need to pay for us to do that work for you. I think, as I said before, we've got growing confidence in the technology and its ability to offer the lowest cost solutions in these spaces for decarbonization or electrification or all sorts of different value propositions that the technology represents.
We are seeking in these engagements with our customers, we're saying that's fine. We're happy to do that work for you, but you need to pay us. You need to pay us to do that work to cover the costs. Essentially, that's where both LEILAC and sustainable processing is generating its revenues from. It's generating its revenue from paid feasibility work and paid testing work at Bacchus Marsh as well. We've obviously got these testing facilities at Bacchus Marsh where customers will send us some material and pay us to test the material and write reports for them. That's essentially what we mean in terms of paid studies for in sustainable processing and in LEILAC.
All right. Thanks, Darren. Next question is, the PLS project is due to begin commissioning in December. Is that still on track considering the very small increase in lithium prices recently? What is the upside to earnings from this project?
Yes. Certainly what we're saying is completion of construction remains on track for the December quarter. With respect to commissioning and operation, that very much depends upon lithium pricing. Depending on what happens in the market, we might decide to complete construction, which remains on time and on budget as previously advised for the December quarter, and hold for the market conditions to improve. It'd be silly to run the unit at a loss, so it'll be go button ready effectively for when market conditions improve again. As I mentioned before, that could happen quickly. It's a very volatile market, or it may take a little bit of time. Obviously, we want to get the project into go button ready. That's the target.
Okay. The second part of that question was, once the PLS JV is operational, what is the revenue cost model from Calix's perspective?
Oh, yeah. Calix is 45% member, if you like, of the joint venture with PLS is 55%. That effectively means that 45% of costs, 45% of cash generated, et cetera, is to Calix. It's a very simple revenue cost model. Obviously, with respect to running the facility and those sorts of things, we've talked before about historical average spodumene, historical average lithium carbonate equivalent, and therefore, historical average chemical margins we'd expect to be the market conditions before we run the plan in anger. Hopefully, that answers the question around the cost revenue model.
Phil, I might just add a little bit of comment there as well. Obviously, that's in relation to the operations of the midstream commercial demonstration plant. More broadly, in terms of our relationship with Pilbara Minerals, as we move beyond commercial demonstration plant into commercialization of the technology, it's not our intention to invest in plant and operate that plant. It's our absolute intention to operate a capital-like model across all of our lines of business. We invested in the commercial demonstration plant just to get it up and moving. The idea is once the technology is proven at that scale, that what Calix receives is a percentage of the royalties associated with licensing the technology and utilization of the technology across the industry.
The commercial demonstration is an important milestone for us, but the much larger opportunity for Calix is licensing the technology to the industry to produce low carbon products and not putting any more capital into the development in that application, but earning royalties down the track from licenses associated with people, you know, other Pilbara as well as other industry participants getting access to that technology. Obviously, that's the ultimate medium to longer-term goal. That model is a light touch royalty stream kind of business model for us.
Okay. Thanks, Darren. There's just a handful of other questions, and just conscious of time, I'll shoot through them. On Zesty, will you build the demonstration plant on site at one of the major steel companies? If not, how will Calix ensure it is tied into the value chain of Australian steel production?
I guess it is sort of a site A, site B, site C that we're progressing. All of those sites are in Australia. All of them take into account various factors, such as the availability of renewable electrons, availability of hydrogen, land, utilities, and obviously, iron ore in and iron out. All of those factors come into play, if you like, with respect to where to locate a facility. It is a demonstration facility. It'd be great to see the facility continue to grow as others invest and want to have capacity in green iron generation. This is our only planned sort of heavy lifting part of the CapEx piece. It'll be a licensed model from then on.
What's interesting for us is to see the Superpower Institute's report on the green steel potential for Australia and the way they look at and analyze the different parts of Australia with respect to where to locate, if you like, a green iron industry. It could be Queensland and Gladstone. It could be South Australia in the Gulf area, Pilbara. There are some pretty obvious choices there. One of the things that was quite interesting to us is the fact that a flexible green iron production unit, in terms especially of its energy utilization, the ability to suck electrons down when they're cheap and not suck them down when they're not. The ability to switch on and off within minutes is one of the things that they see as a key advantage.
Location of a facility where we can really take advantage of that feature of our technology to produce the lowest cost green iron is also another factor that plays into our thinking there. A few different options. All will be in all those options in Australia. I'll just be clear about that. There are some pretty obvious places that we're looking at, especially if you consider the Superpower Institute report.
Great. There was a related question as well. With China being a leader in natural resources and well-positioned for the Zesty technology, are you in conversation with Chinese steelmakers?
Yeah, that's interesting. China, obviously, let's put a thumb in the air and say roughly 50% of world steel production, obviously a hugely important market for our iron ore producers here in Australia. The other thing is that China's growing renewables and cheap renewables supply. China is one of those areas that is a high potential for the application of Zesty technology. The other thing, of course, is I mentioned before that China's introducing an emissions trading scheme. We don't walk lightly into China. A lot of the people we're dealing with here in Australia, some of the largest iron ore producers in the world, have a lot of experience in China. Rather than just walk into China ourselves, a partnership type approach is probably one of the best ways to have a look at the Chinese opportunity.
Okay. Thanks, Phil. We've got time for one more question, and it's a financials one for you, Darren. You talk about operating cost-based reductions being one of the levers for extending the cash runway. How should I go about thinking about the cost base for FY2026? Do I start in the second half of 2025 and take off the $2 million of annualized cost savings achieved after the balance date? Will there be one-off costs in FY2026 associated with these reductions?
Yeah, I think that's probably a good start. It's not just take the second half cost base and double it. As we've said, we've essentially implemented further changes after, you know, as we announced in sort of May, June, and early into July. There's not really any material one-off costs that will come in in terms of those changes in FY2026. In terms of what's ahead of us, like I said, is take what the second half was, deduct some of the changes that were made late in the year, and you've kind of got a current annualized cost base. That's essentially where we're starting the year.
It sort of allows us to kind of pursue the opportunities that we talked about, both in terms of growing revenues within the magnesium business and servicing those projects that we're actively kind of progressing that we talked about in terms of our project timeline slides. Obviously, the work to progress on funding at the subsidiary level as well.
Okay. The second part of that last question was about revenue growth, which you just touched on with magnesium. If there's anything further you want to say in terms of visibility at the moment for the revenue growth, if you believe product and services revenues can grow by a similar amount as it has in FY2025.
Yeah. Again, I think we tried best not to provide sort of forecasts, but I think what we can say, just because I think we've got elements of our business that are growing from a very low base. In terms of forecasting growth rate, that somewhat can be challenging. Likewise, we kind of found ourselves coming across things like decision of the Biden administration to award U.S. grants and then decision of the Trump administration to put those projects on pause. That's some of the dynamics that we're kind of faced with. However, what I will say is if you have a look at that magnesium line of business, hopefully, we've got a track record there of growing that business. We're very pleased with how that business is performing.
Some of those projects that we've talked about in Australia have only really come across our slate, really in the last quarter of last year. Those projects, I guess, more customers, new customers, and new contracts. I think that gives us a lot of confidence in terms of the performance of the magnesium business. What we're focusing on in LEILAC, like I said, is essentially making sure our costs do not outstrip and outrun our revenue-generating opportunities. That's the key focus there. We do have opportunities in the pipeline. We are progressing those. We're working on paid studies right now. That's a key focus in LEILAC, making sure our costs are the right size to match the opportunity they're working on in terms of revenue. They're very, very pleased with the revenue progress. As Phil said, we're targeting continued revenue growth and continued growth in gross profit.
That's our main focus for the year, as well as tightly managing our costs.
Great. That's actually all the time we have for questions, and we came to the end of our questions. I'll hand over to yourself, Phil, if you have any closing remarks.
Excellent. Thanks, Christineh. Thanks very much, everyone, for your attention with respect to our annual results presentation. The slide pack, et cetera, is up on the ASX platform. Just reiterating our focus, it's absolute right-sized costs continuing forward. It's absolutely growing revenue. As we're specifically looking at the magnesium business, we're confident in terms of talking about growing revenues there and obviously increasing the paid study proportion of those revenues as far as sustainable processing and our LEILAC business is concerned. Maintaining that cash runway from today for another 18 months is important as well to give us the best chance to affect the strategy with respect to getting equity and/or project financing to advance those specific projects.
With all of that and continuing to move our technology forward with commercial milestones, it's going to be quite an exciting FY2026, especially as hopefully, fingers crossed, we start to get a bit more realism around where tailwinds are actually at with respect to decarbonization and the opportunities that that will bring. Looking forward to FY2026, and thank you again very much for your attention.