Thank you for standing by, and welcome to the IGO Limited First Half FY 24 Results webcast. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Ivan Vella, Managing Director and Chief Executive Officer. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to IGO's first half FY 2024 results call. Thanks for joining us. As we just released our quarterly results a few weeks back, I don't intend on stepping back through all of our operating results again. Rather, what I wanted to do upfront in this call is focus more on the key priorities that I see in focus for 2024. And then I'll hand over to Kath, our Chief Financial Officer, who will go through some of the detail in our financials. Firstly, I want to start with safety. This is a personal value of mine and my top priority. And across IGO, as I've looked into the business, there's been some continued improvement over the last 12 months, which is encouraging, but there is still a lot of work to still do.
I've been impressed with the strong commitment to safety across IGO, but we do need to improve our execution and translate the dedication in this business into a real reduction in harm to our people. We've seen some solid progress towards reductions in our TRIFR and an uptick in our leading indicators, which is all encouraging. But just a few days ago, there was a very serious incident at one of our sites that really highlights the need for us to remain ever vigilant and continue to improve and drive safety to the forefront of our minds. On Monday evening, three contractual Link crews returning to our Forrestania camp at the end of their shift were involved in a truck rollover, and this injured all three passengers. One of them, seriously.
Our emergency response team attended, and with the assistance of other agencies, they managed the scene and assisted with the safe evacuation of two of our crew members. They were admitted to the Royal Perth Hospital for treatment and are continuing their recovery. It's a very alarming incident. As you can imagine, any vehicle rollover has potential for very, very serious injury to our people. It's a critical risk that we need to work harder at improving our controls and ultimately make sure these kind of things don't happen across our business. Through the first two months in my role, I've started to develop a greater understanding of our business, the risks and opportunities, and most importantly, get to know our people and our key partners.
Of course, it's been a very challenging period, working through a number of issues, most notably transitioning Cosmos to care and maintenance. As I noted at our quarterly, I'm very excited about the opportunity we have at IGO to play an important role in the clean energy transition, and we have an outstanding platform to be successful into the future. I spent a week on the East Coast meeting with our investors, and had the opportunity to listen to their feedback on our business and also share my early observations and intentions for our business. This was helpful so early in my tenure to get their views. And together with this, as I've looked through the business, I'm very clear we need to refresh our strategy.
We need to build on the foundations we have, but we also have some clear immediate priorities, which is where I wanted to focus my attention now. Firstly, as I've just said, safety is a clear priority and an area where there is room for improvement. I've been really impressed with the strong, caring, and people-centric culture that IGO has, but we do need to build on this further in the safety area and see it translate into a reduction in harm to our people. Second priority we're focused on is maximizing the value of our interest in Greenbushes, and we're tackling this in three key ways. Firstly, continuing to work with our partners to unlock productivity and leading operating practices to drive the most value we can from this incredible asset. There is still a lot of unlocked potential, untapped potential here.
It's something I'm very focused on. Secondly, we're focused on helping our investor community gain a better understanding and better visibility of the financial performance of Greenbushes and our TLEA joint venture. And we've, as committed, included additional detail in our financial statements released today that will help you appreciate the capital structure of TLEA. Thirdly, we are continuing to have constructive discussions with our partners about the opportunities to enhance the ways we work together, leveraging our complementary skill sets and delivering optimal value for all parties. The third priority I wanted to talk about is working with our partner, Tianqi, to deliver the continued ramp-up at the Kwinana Refinery. We acknowledge this has been a challenging process.
There's been a lot of setbacks along the way, and I'm still not able to give you certainty or clarity on the rate and pace of that ramp up this year. But there's strong dedication from both IGO and TLC to find a pathway and deliver the improved operational and financial performance of this asset. The fourth area of focus is to optimize our nickel business during what has been a very tough period for our industry. Delivering safe and stable production is key, even in the increasing challenge of our assets as they near their end of life. Driving maximum cash from our Nova and Forrestania assets is a key focus, and both operations are well placed to do this over the remaining time. The next area of focus, of course, is transitioning our Cosmos project into care and maintenance.
It was a very tough decision. And as we, as we focus on transitioning this project into care and maintenance, we're focused on two key things. First of all, managing that process with care and compassion for our people where they're impacted. And secondly, making sure we safely and carefully preserve the asset base at Cosmos to give us optionality for a restart in the future. And the last area of focus for me is, I guess, the, as we continue to support the growth in our business, we need to be maintaining a very prudent cost focus and cost discipline right through the organization. We are focused on increasing our productivity, at the same time, ensuring our corporate structure is efficient and set up to manage through the cycle.
We have a fantastic portfolio of exploration projects, which can potentially unlock new resources we need to deliver for the high demand flowing from the energy transition. But we need to work through this carefully and prioritize and focus our efforts to ensure that we maximize the chance of success while balancing our expenditure. Those are the key areas of focus that I've got through 2024. I think they set us up for for a strong future. I'll now hand over to Kath, who will walk through a brief summary of our half year financial results, and then pick up with a few more comments after that. Over to you, Kath.
Thanks, Ivan, and good morning, everyone. Slide 5 outlines the key financial results for the half year. Group revenue of AUD 438 million was lower when compared with the first half of financial year 2023, driven primarily by lower nickel prices and sales volumes. Underlying EBITDA generation remains strong at AUD 515 million. It includes IGO's share of profit from TLEA, which was also lower on a like-for-like basis, reflecting the lowest spodumene prices. Pleasingly, the dividend flow from TLEA and cash generation from the nickel business has driven a strong underlying free cash flow result of AUD 434 million, which is consistent with the corresponding period. As reported in the quarterly result, the balance sheet remains very solid, with AUD 276 million of cash and no drawn debt.
The board has today declared an interim dividend of AUD 0.11 per share for the half, which will be fully franked. This was determined based on the application of our capital management framework and equates to 20% of our underlying free cash flow. On slide six, we reconcile our net profit after tax for the half year. The key points to note include reduced earnings from lithium nickel businesses as a result of lower commodity prices and sales volumes, and the lower tax impacts due to the lower operating revenues and taxable profits. On slide seven, we reconcile cash for the first half. Here you can see the key inflows are dividends received from TLEA and the strong free cash flow generation from Nova and Forrestania.
Outflows include AUD 254 million of dividends paid to shareholders in respect to the final FY 2023 dividend, which included a special dividend of approximately AUD 120 million, the repayment of AUD 360 million in debt, and AUD 208 million of CapEx related to the Cosmos development. The cash balance is reduced during the half, but this is a product of the repayment of our term loan and the returns to shareholders. Before I hand back to Ivan, in summary, we've had a solid financial performance for the half, despite headwinds in the market. Our balance sheet is in an exceptional state, with liquidity of just under AUD 1 billion.
This, together with the quality of our operational assets and our confidence in the future, has enabled us to declare a dividend of AUD 0.11 per share for the half. Back to you, Ivan.
Okay, thanks, Kath. Look, just a couple of words on our lithium business guidance. As we noted at the quarterly, we've taken the opportunity to refine our guidance here for the lithium assets. Based on the reforecast from Talison on their operating capital costs for their financial year 2024 budget, we're amending the cash cost guidance, AUD 330-AUD 380, as you can see from our prior guidance, to AUD 280-AUD 330. That's largely driven by the lower production, which we discussed in our quarterly update a few weeks back. The CapEx guidance for Greenbushes remains the same, AUD 850-AUD 950. We are working to identify non-critical path projects, anything that can be deferred or tidied up.
The key takeaway really is there's no change to our commitment on CGP3. That work's continuing at pace, and the FEED is also continuing with respect to the proposed CGP4 facility. There's been no other changes to guidance for our nickel business since our update a few weeks back. Just to, I guess, put a few words in summary before we open up for Q&A. I did want to talk a bit about the post-investment and integration review that we've done on the Western Areas transaction. That was commissioned in late 2023 and conducted by an independent consultant. Very substantial review and got deeply into the background behind that transaction and the process running through that as we integrated the business and worked through the construction.
At the highest level, the reviewer acknowledged that the transaction was aligned with IGO's strategy. However, the outcome of the acquisition, we've obviously got a number of recommendations to work through. There's three key areas that I wanted to draw out. If we look at the headlines, first of all, there were clear issues around the assumptions made to support that transaction, and that is obviously evident as the transaction was completed. It was exacerbated by the rapid deterioration in nickel price, and the review has recommended a number of improvements, but the key point is making sure we have good external independent validation of that review of our assumptions. Secondly, the review identified opportunities for us to improve our overall transaction process with respect to due diligence, project gating, and risk management.
And, there's a number of improvements recommended there, focusing, I guess, about how IGO makes an assessment of downside risks. And finally, the review found the Cosmos project was challenged by IGO's acquisition during mid-construction or mid-flight. And that was compounded by a period of high capital cost inflation that we saw in the markets, worldwide, but certainly pronounced here in Western Australia. It was exacerbated by a challenging integration process that took longer than expected. And, ultimately, there's a number of recommendations there that call out IGO's need to improve and expand our capability in this area as we look forward.
The findings of this review have been confronting, but they're fair, and the board and management team have worked through them carefully and are deeply committed to ensuring those learnings are fully integrated across our business. As I mentioned, we're working through a review of our operating model and our organization structure, tied into the strategy refresh. And there's already been quite a bit of work done, for example, on our risk framework and risk management across the business over some time now. So a lot in progress, more to come, and I guess, I've, you know, firmly committed to seeing through these recommendations and making sure they're fully implemented.
In summary, look, we've faced a number of challenges in recent months, and it's certainly been, you know, a difficult period for me to come into the business. I'm learning quickly and getting a lot of support as I get into the business to understand the areas that we need to focus on. I've talked about our key priorities, and I think they're very straightforward. In concept, we need to just knuckle down and get through this work. Firstly, on safety performance, there is, you know, some good momentum, but there's plenty more to do, and that's something that we can really leverage off our unique culture. Secondly, driving value from Greenbushes is fundamental.
There's an enormous amount of opportunity to unlock there, and we'll continue to work very closely with our partners to achieve that. Dealing with Kwinana and working through the challenges to bring that ramp up online, making sure that it can deliver the expected operating and financial performance is key. Safely and carefully transitioning Cosmos into care and maintenance while supporting our people through that process. Maintaining safe and stable production at Nova and Forrestania, and maximizing the cash from those nickel operations. Despite the price environment, both are cash positive, both are delivering, and we need to continue to build on that momentum.
And lastly, continuing to assess growth opportunities, you know, looking hard at our organization, its productivity and its performance, and of course, focusing on exploration, making sure that we're really set up well, managing our costs closely, pursuing the very best targets in that pipeline of activity. We have a fantastic team of people across the business, an excellent asset base, and a very strong balance sheet, and that's enabled by and driven by our purpose. I'm very excited about what IGO can achieve in the future. With that, I'll turn it back to the operator and open up the Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Please limit your follow-up questions to one per person. Your first question comes from Hugo Nicolaci with Goldman Sachs. Please go ahead.
Morning, Ivan and Kath. Thanks for the update this morning. Just one on the JV to begin with. The JVs have now set the budget for the full calendar year, 2024. We've just updated guidance for the remainder of FY 2024. Are you able to maybe talk us through what the planned CapEx looks like across the lithium assets for the full year, and particularly with regard to what you've got left to spend at CGP3 and the recently proposed site-wide ore sorting at Greenbushes? I'll come back with a second. Thanks.
Look, I mean, I can't give you a whole lot more than we've got at this point. I think we've been very transparent with the information that we have available at this point. As you've called out, the budget's not complete, and so without that being finalized, it's difficult for me to give you that certainty. I appreciate that's that doesn't really cover your question, but I just don't have final information to be able to share at that point. What we've done is given you the picture that we can for the first half of this year, and then as soon as we have more information, we'll share it.
Great. Thanks for that, Ivan. And then maybe just, coming back to your comment in the presentation around optimizing the JV structures. Can you maybe just elaborate on what you're looking to get out of any changes to the relevant JV structures and maybe what you'd have to kind of give to get any changes there?
Yeah. So I mean, my, you know, point on optimization there is around the performance of Greenbushes as an asset. It's a world-class ore body. I guess the question is, is it a world-class mining operation? I think there's a gap there, and there's an opportunity, and I think the team's been working hard at it already. At Talison, I think there's more to do, and that's an area that I'm very invested, or IGO is very invested in bringing our strengths and our capabilities to the table and working with Albemarle and TLC to support Talison in achieving or closing that gap and really optimizing that asset. In terms of the JV, it's not so much about structure, it's a bit about, you know, the three parties all have, you know, aligned interests, but also some differences.
And as we get to work more together through the cycle, obviously it's easier in a very fast rising price environment, but in a more challenged price environment, where we're trying to manage our capital program, our growth agenda, the decisions on CGP4, all of these kind of things, I think the more that we're engaging and talking and building that alignment, the better. And so that's something that I'm personally focused on, working closely with Matt, who's, you know, doing this day-to-day, to make sure that we're getting the very best from those JV relationships and that partnership. Great. Thanks for that, Ivan. I'll pass it on.
Your next question comes from Levi Spry with UBS. Please go ahead.
Good day, Ivan and Kath. Thanks, thanks for your time. So maybe just firstly on the Greenbushes cost increase, can I just confirm that that is all about volume and that the costs otherwise are unchanged? I do note in the reserve statement, maybe the strip ratio went up and there's some new unit costs mentioned there. Does it go back to 300 once the mine gets back to 1.5 million tons?
Yeah, Levi, thanks. Thanks for the question. It's obviously we're waiting on the budget, so to my earlier comments, it's hard to give you that clarity as we work it through. As you can appreciate, production volumes will, of course, affect the unit costs, and there's some amortization of fixed costs we're gonna see roll through. Equally, if we look through the profile of the mining, it's never gonna be flat either, and this is part of, you know, some of the clarity I wanna get is that longer view of how we manage and optimize those costs through time. So I can't give you any certainty on what that looks like for the back end of this year.
But, you know, I guess a very, very clear and strong focus to driving those costs as hard as we can. We'll give you more clarity once we get those budgets through.
Yeah. Okay. Thank you. Probably like to ask more about the JV, but I'll leave that till later. Just on the nickel, have we got updated CapEx for, you know, what's left at Cosmos, for till, I guess, May or the rest of the year?
Yeah, the team are working through that, and we've had some initial indications, but we're not at a point where that's finalized to be able to provide information. And therefore, we actually need to hold off on that till the next quarterly. But I can tell you there's also revenue coming in there, and that's obviously impacted by commodity prices and everything. So it's not just about outflows. We're gonna start selling that stockpile in the next month.
Okay, great. Yep. Thanks, Kath.
Good.
Thanks.
Your next question comes from Kate McCutcheon with Citi. Please go ahead.
Hi. Thanks, Ivan and Kath. We've covered a lot since you've joined. You mentioned in the call some new disclosures on granularity around TLEA provided today. Did I hear that correctly? And if so, what were they? I haven't seen the updates on Windfield since the December 2022 numbers. Thanks.
Yeah, look, I'll - Kath can dive into the details, but if you have a look through our half statements, there's quite a bit of extra information in there about the capital structure. Kath, you want me to walk through some of the headlines? Have a look at page 24.
Yeah.
Kate.
We added note 10 in, which gives granularity about the joint venture and provides a summarized balance sheet at 100%. That's 100% of both TLEA and Greenbushes. And what you can see from that balance sheet is that, there's almost AUD 600 million worth of cash sitting within the joint venture. And there is a debt facility of $100 billion , of which it's drawn down to $875 million at the moment. And there's a little bit more information in there. The other thing that is important to note, Kate, is TLEA and Talison lodge their financial statements by the end of April, and you can drill down further when those financial statements get lodged with ASIC or Companies House in the UK.
Hopefully that helps, everybody with what the capital structure looks like.
Okay, I will go and have a look at that. That is helpful. Thank you. And then secondly, today, we've had some of your peers noting they might not bring online subsequent trains as planned, pending the market, so looking to limit production that they're putting in. So on the supply response part, at Greenbushes, what part of the volumes are take or pay? I guess I'm trying to understand if we could see more volumes come out, or if those volumes are somewhat set in stone for all of the FY.
Yeah. Kate, look, let me pick that up. The sales that we've indicated for the half, which we talked about in the quarterly, those are agreed and fixed. And of course, we're adjusting production along with inventory to try and obviously minimize the impact on Greenbushes' performance and their costs through that period. So that does give you some certainty. There's not some further adjustment there or change. We know what that looks like out to the end of the first half of this year. In terms of our forward view on new supply, so as we've said, CGP3 continues to, you know, in construction, there's no wavering or change there. There's no attempt to slow it down or adjust that. The construction team's getting on with it and delivering as planned.
The piece of work that we will have to look at, obviously, is CGP4. That FEED is underway now. Once we have the information, we can stand back and look at where it fits. But again, you know, there's no intention at this stage from any of the partners that I'm picking up to start to dial back our intentions on growth. We've got the best hard rock asset in the world, lowest costs. This is a great business. As we optimize it and grow it, we wanna make sure we take our place right there at the bottom of the cost curve. So, we'll share more on that in due course, but you know, probably I can't be more specific at this point, at this stage.
But, the key is the sales are fixed for the first half, and our continued growth with CGP3 is tracking well.
Okay, so 2H is sales at take or pay?
Correct.
Okay, thank you.
Your next question comes from Michael Di Donna with Canaccord. Please go ahead.
Hi, Ivan. Yeah, thanks for the call. Just a quick question on Kwinana. You've mentioned here that the guidance is tracking above the top end of that of that AUD 45 million. I was just wondering if you guys are planning to update that at some point before the end of the financial year, potentially the next quarterly? Or, or roughly when you think you'll be able to to determine how much you're going to spend.
Yeah. Yeah, thanks, Michael. Look, we certainly will update next quarterly if we think that guidance needs to change. At this point, all we can see, again, budgets are not finalized, hence my inability to be really specific yet. And it's a bit about the run rate of spend and the shut schedule and, you know, some of the detail around the changes they're making inside the plant there. We will give you more clarity as, you know, as soon as we can in the quarterly laying out. And I suspect obviously we'll have all the budgets through, and we'll have a full view for the rest of the year as well. We can give you more guidance at that point.
At this stage, we know that we're tracking, you know, right there on the top end, maybe a little above, and that's, I guess, what we wanted to indicate at this point.
Okay, thanks. Just previously on the call, you mentioned the Cosmos stockpile. Are you able to tell me roughly how much is the stockpile there?
About 160,000 sitting there.
Thank you. That's all for me. Cheers.
Your next question comes from Daniel Morgan with Barrenjoey.
Hi, Ivan and team. Appreciate the transparency on the JV structures, the lithium structures. Based on this, it looks like there's been a large cash build in the TLEA portion rather than at Greenbushes. It looks like dividends were paid to TLEA, but not on the JV partners. Can you just expand on this from your perspective, and what discussions you're having with Tianqi with regard to sweeping cash out of the vehicle in the future?
I'll let Kath build on this, but, Daniel, look, there is cash in both entities. And so what you're seeing is obviously us finalizing budgets, being prudent, making sure we've got a full view of the rest of the year before we continue to move that cash up. I spoke to a lot of investors and was very clear that we only want cash to flow one way in this business, from Talison up to TLEA and out to IGO. We don't really wanna have cash calls over having to go the other way. So that's the conservatism that you see coming through here.
But to be clear, there is absolutely cash sitting in both TLEA, the JV, which has 0 debt and is effectively that holding entity for the assets and the activity at Kwinana, and then more cash sitting in Talison directly. Kath, I don't know if you want to build on that.
Yeah, you're right. There's more cash sitting in TLEA than we normally would have, but there's also more cash in Greenbushes than Greenbushes would normally have. With a capital profile, with lumpy tax payments and everything, there's periods in the year in which slightly more cash gets held. So it's not... Although it's correct to say there's more cash in TLEA, it's probably a slightly higher cash balance at Greenbushes than they'd normally hold as well.
Just, just expanding on some of those last comments. Is there any big, lumpy cash tax outstanding that we should think about that was not paid at the thirty-first of December, but that that's outstanding, that has been paid or will be paid, that we should just think about with the balance sheet? Thank you.
Yeah, tax is always lumpy. It doesn't get paid in one hit. And then, and amounts get paid during the month, but until you actually finish your tax return, you actually don't know how much you're gonna pay at the end. And they'll be going through that process during this half.
Okay, thank you very much.
Your next question comes from Lyndon Fagan with JP Morgan.
Thanks very much, and good morning. Look, I'm still trying to understand the summarized balance sheet for TLEA on page 23. If I look at the cash balance there, it's AUD 587 million, but there's financial liability of AUD 1.3 billion, which looks like there's a big net debt position. So can you help us understand, you know, with all of the JVs and everything, what the actual net debt position is, and how do we then triangulate that with future dividends? Just noting there wasn't a dividend, so I'm just trying to figure it out. Thanks.
I think you have answered your own question a little bit in that one, because there is a net debt position across the two entities. There's no net debt at TLEA, but there is a net debt in Greenbushes, and that's reflective of the capital structure that is required for a growth strategy where you're investing in a reasonable amount of capital. It doesn't necessarily easily triangulate to dividends, because as you can also see in the note underneath, there it's a revolver facility, and it is actually there until 2027. So there's quite a bit of flexibility in ups and downs on that, depending on what's required. The intent is to not hold significant or unreasonable amounts of cash at either entity and to sweep as we have historically.
Obviously in this market, where there's some headwinds, there's some prudence involved in that. I'm not sure that I can add a hell of a lot more to it than that.
No, that's all right. So we've - so it does look like we've got just under AUD 700 million net debt position within TLEA. Is there an intention to reduce that to zero or a lower level ahead of distributing a dividend to shareholders? And I guess I'm wondering what the target gearing or net debt position for this vehicle is over the longer term.
Yeah, I'll just clarify one thing. The net debt is actually sitting in Talison, which is at Greenbushes. So there's a bit of a nuance in that. And the capital structure is aligned with what you would normally expect of an entity of Greenbushes' size. It doesn't need to be repaid in order to pay dividends in any way, shape, or form.
I think, Lyndon, if I can just build on that. You know, the Talison entities carried debt for some time. This is not new. It hasn't changed materially. I think it's well aligned with the growth and the investment plans and the capital that's been put into the business. It doesn't-- and we've been paying dividends with that in the background for some time. It's not linked. We don't have a specific policy, I guess, to answer that part of your question, but there's no expectation from the, from the JV partners that we would pay that down before we pay dividends or there's any link. In fact, we see that-- we think that gearing is actually very healthy and very sensible for this entity. The key point to know, just to make sure there's no confusion, there is no debt at TLEA.
So the joint venture between IGO and TLC has zero debt in it. It has cash. That's the focus where we're, you know, obviously managing the costs of Kwinana. But all of the debt that we're talking about sits at Talison, and that's shared across the three parties, being IGO, TLC as part of the interest from TLEA, and Albemarle being the other part.
Okay. So just sorry to harp on. So there wasn't a dividend, and we had a $3,000 spodumene price. I'm still not particularly clear on why that was. And you know, I guess you said on the quarterly call that there's no sort of catch-up coming in this quarter. How do we think about a dividend in this quarter in the context of everything we've been talking about?
Well, we've been paying dividends or. Well, let's talk about a cash sweep out of Talison into TLEA, every period up until the end of the year. We haven't done that in January, and we are waiting for the budgets to finalize those decisions and then decide how we manage our cash. So I, you know, I think there's this sort of anxiety around that, and people are then rolling their minds forward and thinking there's some other thing that you're missing. There isn't. It's just a case of us not having final budgets, and that was a function of us getting our sales in production, which is a function of a very fast-falling market. So we're just giving the Talison team time to finish that plan, understand what the rest of the year looks like.
They'll plan out the whole of 2024, and then we can stand back and say, "This is the cash that we wanna retain. This is the cash that we wanna let go," with a view on the forward market, which is obviously still generally quite soft, and make sure that we don't end up with a position with our capital plan, that we do not wanna disrupt, of having to put cash back down into the business.
Okay, not sure I get it that much, but, I might leave it there. Thanks.
Okay.
Your next question comes from Rob Stein with Macquarie.
Hi, team. Just a quick question on the resource and reserve statement that was put out the other day. Had some pretty punchy price assumptions in definition of that. And I'm just wondering, one, is that how you're thinking about the business going forward in terms of those price assumptions in terms of mine planning? Or is that really just a function that you took it from Talison, it's a legacy issue that you're gonna work through, and we can expect to see some, you know, prices in that mine plan that reflects consensus or something a little bit more appropriate longer term? And I've got a follow-up. Thank you.
Yeah, I think you largely answered your question in the last part there. That's a, you know, it's a flow-through from Talison's work and doesn't necessarily reflect our, all of our internal view on the market. That said, you know, I think the value of that release might have been missed a bit in the sense of the, you know, a significant upgrade and still more, you know, still more potential there as well. Of course, we need to make sure our prices and costs are accurate for our mine planning, but that's part of that broader piece of work that I'm expecting we'll get through to look at the long-term potential of the asset and make sure we're really optimizing it.
So, but look, the second part of your question answers it. It's basically a flow up from Talison.
Yeah, okay. And so then if we're thinking then about, if you said you something around 1,500 or 1,300, the sensitivity analysis in the release showed that, there is, not a lot, but a little bit of downside to that reserve. But knowing the strip ratio really jumps from 4.7 to, I think it was 5.5, from memory, would we expect under the current pricing and spot environment, that that would come right back and that your cost base, wouldn't sort of rise in, in flow? That is the ore body able to, to handle lower prices and keep costs under control?
Well, I think, yeah, that's that sensitivity chart. I don't have it in front of me right now, but it shows you the negligible impact, which, you know, gives us more and more confidence in just how good that asset is. We've talked about, obviously, this need to think through the shift to underground mining and how that fits with the surface mining and optimizing those two. It's work to do, so beyond that, I'm not sure it's helpful for me to sort of comment in any depth because we really haven't done enough of that work to give you that extra clarity. But I think as you look at the overall ore body and how we see that coming out, it's clearly not that sensitive to price because the grades are so strong.
Okay. And just quickly, the AUD 40 million acquisition of listed investments during the half, are you able to outline what they were?
They were strategic investments and, but we don't provide that to the market.
Okay. Thank you.
Your next question comes from Mitch Ryan with Jefferies.
Hi, Ivan. Thanks, and Kath, Kath, thanks for your time. Look, I appreciate your desire to improve mining operations at Greenbushes, but I'm just interested how you can genuinely affect that change, given the JV structure, and if it was sort of easy, why hasn't it been done before?
Yeah, Mitch, good, it's a good question. Let me give you an example of the work Matt's already been doing there, and something very tangible is, I mean, he sits on the board with three other board members. They, you know, have obviously got formal and structured governance to influence the business. But Matt's also there involved with the management team at Talison on a routine basis. And a tangible example of the change is the shift on mining contractor, moving from what was a local, you know, very, very small provider who'd been there for years, changing them out and putting Macmahon in, and they're just starting to ramp up, setting up the right kind of mine services and fleet strategy and so on. That's all just coming through now, but there's an example that the teams work through.
Matt's been closely involved in influencing the decision making there. That's a practical example already gone. Beyond that, you know, obviously, thinking about the, the decision or the balance between surface and underground mining is another very good example where we'll bring our capability and experience, help work through the mine planning, some of the capital program as well, and, and how that plays out. There's a couple of examples, but, I guess I want to leave you with a, with a view that it's not a case of everything have to go through a formal board meeting and a formal resolution to, to achieve anything there. There's a very close working relationship between the partners and the management team at Talison.
You know, the more we can bring our mining capability to the table, the better, to help with the optimization of that business.
Okay. So does that mean that IGO sort of bears some additional costs inside the IGO structure that, that relates to the, the JV, but it's not sort of coming through the JV's PNL?
Look, that's a good question. I mean, possibly, if I could try and quantify it, it's not material. We're talking about, you know, Matt's time, which is part of our role in managing our interest in the JV, and maybe, you know, some of our technical team's time as we go, some of our geologists supporting some of the work. But this is not, it's not a, you know, significant cost that's flowing through there. Where we do want dedicated, you know, and more material resource supplied to help with work, then we'd bring that in and make sure those costs are borne by Talison.
Thank you.
Your next question comes from Matthew Frydman with MST Financial.
Sure. Thanks. Morning, Ivan and team. I guess you've highlighted on the call and also in the updated resource and reserve statement from Greenbushes, how are you seeing some of the opportunities to, I guess, capture value out of the mine plan at Greenbushes over the medium and long term? How should we be thinking about things like, you know, moving infrastructure and developing underground and exploiting a bigger pit shell, you know, potentially at a slightly different spodumene price assumption to what was used in the resource statement? How quickly will some of these concepts and ideas, I guess, get fleshed out and fall into the mine plan? You know, when can we expect an update on these longer term studies?
Particularly, I guess, given the context around a lot of these questions around how the JV operates and I guess, optimizing the JV structure, you know, are these longer term mine plan and sort of value creation studies a priority for the JV in the current market conditions? You know, clearly, they're gonna be much more material, and more important for IGO, IGO shareholders than they are for Tianqi or Albemarle shareholders.
Yeah, look, you know, there's lots in your question. First of all, do I have a firm timeline for it all? No. I will give you that update as we get further in, but it's as I called out in my opening remarks, it's a very, very important priority for me, something that I'll be working on and focusing on personally as well, with Matt and the team.... Your comment on the other shareholders, look, I don't want to speak for them, but it's fair to say this is a very valuable asset. It's the best quality spodumene and the highest margin, from our point of view, spodumene out there. So Albemarle and TLC is equally incentivized to make this happen.
What we want to do is also make sure that we think about this asset over its life. You know, it hasn't been run, obviously, until fairly recently with that lens. It's been, you know, a fairly tactical small mining operation without that global focus. And so I think lifting that's very important. But I would say our partners are just as motivated to see all of that value flow through. Yes, it's more material for us in a technical sense, but I don't think that takes anything away from their interest and dedication to get the very best from that asset. And my sense is there's huge opportunity for us, working together and bringing the strengths of the different companies together there.
Naturally, we're the more experienced miner at the table, but that doesn't mean to say there isn't a lot of value and experience that Albemarle and TLC can also contribute. What I can do, obviously, as soon as we have a more structured way of describing that program at work and some of the examples, is we'll share that with you. Naturally, that's gonna be picked up in our strategy refresh as well, which I've said we're looking to get done in this half and share more as the results come through.
Sure. Thanks, Ivan. Can I ask a follow-up then? You called out the technical report that Albemarle published, you know, very proximally to the updated resource and reserve and some of the... You contrasted some of the differences between the work that Talison did and the technical report that Albemarle published. In the absence of any of that other sort of long-term thinking and planning from Talison, should we be taking that Albemarle technical report as, I guess, a conservative base case for how the JV views the operation? And, you know, again, I guess it kind of plays into some of these questions around how the JV operates from a technical and an operational perspective.
You know, does IGO agree with and, you know, are you aligned with the sort of view that's presented in that technical report?
Yeah, I'm not sure that's necessarily the way I'd be looking at it. I mean, they're very different contexts and different regulatory frameworks that they're being run against. So, I mean, you can make your judgment how you want to assess that. I think you'll find, you know, Albemarle's working in a, you know, in a different environment with that. My sense is that the release that we put out, which is based on Talison's work, is the foundation. It's got a huge fact base, very thoughtful piece of work. Of course, there are a few of the dollar assumptions, price and costs that we need to work through in the work we just talked about.
I'd probably leave it with you to then draw off all that detail and then apply your own assumptions to roll that forward. We'll update it as we can, but I'm not sure that trying to reconcile or pick the eyes out of the two is necessarily helpful.
Got it. Thanks, Ivan.
Your next question comes from Kaan Peker with RBC.
Hi, Ivan and Kath. Two questions. One was, so following up on Lyndon's one, but thanks for the additional information on the JV. I suppose according to the current capital spend, and assuming spot, does the JV generate cash over the second half of FY 2024? And is that why the lithium JV has held back cash in the last quarter? I've got a follow-up.
Just to clarify, the question is about the generation of cash in the second half-
Yeah.
-in Greenbushes? Yeah, Greenbushes, Greenbushes is an extremely strong operation, and it does generate cash under just about any pricing mechanism, given looking at our cash costs. Obviously, there's some capital that gets spent through that period and, that, that, but the cash that's being generated covers the capital that we've got there. And some.
Okay. And then with the inclusion of Kwinana, obviously, does that sort of tip that balance into a negative cash or a negative cash balance?
We're not anticipating that, but obviously we're waiting for the budget-
Yeah
... to come through, and Greenbushes is generating a lot of cash, and the capital spend at Kwinana is pretty small.
Yeah. And, you know, look, we've just seen our first sale from Kwinana, which is good. Small volume, but that's starting. We thought that might be only Q2 this year when it would get going, but they've got the first chunk away, which is great. You know, and there's, I think, 3,000 tons of hydroxide sitting at Kwinana. While they've still obviously got a lot of work to do in the ramp up, they are still producing, I think, the percentage of battery-grade hydroxide they produce. So the chemistry is working. I think we're in the sort of 98% type territory. So, all of that is still cash that's gonna come in as well. Yes, it's a depressed market, but it's still 3,000 tons that helps cover their costs as they roll forward as well.
Uh, that's-
I think the takeaway is that, look, yes, we have got demands on our cash generation from those assets, but we don't expect that that's gonna result in a negative cash position in either entity.
... Sure. And the second one's on Kwinana. On the cost, so we, you know, we see the EBITDA that's printed. How much of that cost is related to inventory movement? So, i.e., non-cash that's been coming through.
Most of the EBITDA is actually net realizable value adjustments on inventory. Because the spodumene price and the hydroxide price has been dropping, and both are held at Kwinana. As you as you mark to market that at the end of each period, you have to write, write it down. So the majority of the EBITDA that you're seeing is actually the net realizable value adjustment on inventory.
So that's non-cash?
Non-cash. But remember, the cash portion goes into inventory, so it's a little bit opaque in the way and the way you can see it in there. So that was cash in the quarter and in the previous half, but it's just NRV through the EBITDA.
Cool. That's very helpful. Thank you.
Your next question comes from David Radclyffe of Global Mining Research.
Oh, hi, good morning, Ivan and team. My question was on the comments you made on exploration. So I was wondering if you could expand on those, because it sounds like the large spend is maintained, and also the focus remains on the EV sort of commodity suite that you've been looking at. So how... Just wondering, how does the current nickel price and industry shut-ins maybe change priorities within that spend? And then following up on those comments you made about the trying to improve the rate of success, how can you do that? And I guess, how do you start to get a return on what has been quite a large black hole for cash flow for a number of years?
Yeah, thanks, David. Look, first, let me first of all touch on commodities. The vast majority of the money is going into copper-related exploration. Some lithium, very little relative in nickel, just in proportion. Second of all, I don't want you to go away with the view that we're not looking at the expenditure of exploration. We are, and we will. We'll do that in a thoughtful way. I don't want to knee jerk, but clearly, we need to make sure that's set at the right level and that we've got a focus in the areas where we've got the most confidence of a material discovery.
I've been sitting through, in fact, I've got more briefings today than I did last week in detail with the copper team looking at their work, and I'm very impressed with the methodology, with the technical approach, the capability of that team and where they're at in the process. My probably biggest frustration is, of course, always time. And that's a bit about us, you know, checking that we're not running on too many open fronts. That's probably, you know, a subtle way of putting where I'm gonna focus my energy. I think we need to make sure that we're picking the areas that we're most confident with and focusing our resources there so that we can convert, and rather than running a lot of other parallel fronts.
It's gonna need some time to work through. I don't wanna just, as I said, jump in and knee jerk, but please be clear that we are gonna look hard at the cost there. Just holding flat doesn't feel like the right thing to do with me, but I wanna make sure that's done with some focus. You know, I talked about the commodities. We're already, I think, well focused in copper. Clearly, that would be very attractive should we make a material discovery there. But lithium is the other area that we've also got some really interesting prospects that we're working through, and naturally, that fits well with our strategy and our battery materials focus.
Okay, brilliant. Thanks. That was very helpful. I'll pass it on.
Your next question comes from Kate McCutcheon with Citi.
Oh, hi, Ivan. Just timing on the budget for the lithium business that you said you're currently working through with the JV. When can the market expect an update on that in terms of timing, please?
Kate, I, I haven't got the exact date of when they'll finalize it all and get through all the board and approvals. But look, I think let's just focus on the next quarterly. We'll make sure we've got a full update there and give you the information. If there's any, obviously, if there's anything particularly material or relevant, then we'll update in an interim basis, but I'd expect that the quarterly is when we'll be able to share the rest of that.
Okay. Thank you. And I just wanted to ask around the nickel business. So the government's announced some incentives around royalty relief. They seem to be repayable. Are there any comments on what's being put forward and what you would like to see you could talk to?
Well, look, I think we've heard from the Western Australian government they're offering some relief on the royalties, but obviously, you know, we pay it back down the track as the price moves again. Of course, that's you know well received and naturally takes some pressure off the business. That said, our business, our two assets are cash positive, and we'll continue to work them hard to make sure we're getting the very best from them, so it improves our situation. It's a little different from some of the distress that other assets are in around Western Australia, and I feel for those businesses. Obviously, we're going through that with Cosmos, and it's very painful.
But, beyond that, look, we'll wait and see what the federal government does with regard to any production tax credit or otherwise. I think the bigger issue, of course, is how this plays out for the whole industry, and you know, BHP's been sharing the work they're doing to look at the future of Nickel West, and that's challenging and obviously has a important set of relevance for the whole industry, with their assets under review.
Thank you, Ivan. Your next question comes from Lyndon Fagan with JP Morgan.
Thanks for the follow-up. Ivan, I know it's early days, but in terms of your strategy refresh, I'm just wondering if you can share some of the considerations. It looks like in three years there won't be any operated assets, and on one hand, IGO could transition to a dividend holding company. On the other hand, there could be some exploration success or some M&A to try and bring in another operated asset, which would involve a set of criteria, et cetera. So I'm, I'm wondering how you weigh those two options up, and, and just some of your initial thoughts on the vision would be helpful. Thanks.
Yeah. Thanks, Lyndon. It's a bit early to give you too much. I mean, probably the key parameter, which, you know, it's a very high watermark, challenging threshold to reach, but I think it's a good problem to have, and that is capital returns from Greenbushes are amazing, and that kind of sets the tone for the way we should be looking at our business. The last thing we wanna do is dilute that with something that just doesn't make sense. We also need to be clear that if we are gonna move into another business at some point, that we are the right owners for that. And I know that's easy to say, but we really need to think hard about how that fits and what we bring to it.
There's still a lot of work ahead to get through that thinking. For me, I—I'm not—I don't feel that time pressure or any rush about, you know, where we are, what, where we're at with our operating assets. I think what we've got to do is make sure we're getting the very best from what we've got, demonstrate our credibility with, our exploration and corporate capability, the two nickel mines we're operating, and the role that we have in the JV. And on the back of that, then find the right path to, to deliver further returns, as I said, using Greenbushes as a bit of a benchmark to test ourselves against, which is, of course, a very, very hard challenge, but I think the right one to have.
I guess just to follow that up, I mean, if IGO were to not become a holding company, then I guess M&A is required, most likely. How do investors get any confidence in an M&A strategy after the Western Areas deal was essentially written off completely?
Yeah, of course. I mean-
What sort of measures?
Yeah, so I mean, obviously, I'm working through the actions that came out of that review. I think it's also important to stand back and look at the history of IGO. I mean, this was clearly a bad transaction that, you know, has destroyed some shareholder value. But there's a number prior to that have been extremely good, and we just spent a lot of time talking about the partnership with TLC and TLEA, which is an enormously value-accretive transaction. And there's several, I won't go through the history, you know, you know them better than me, prior to that. So, we're only as good as our last decision, and we appreciate that.
We've got to take accountability and make sure those changes are made through the business, and we give you the confidence that we've really learned those lessons. That's my work. I'm dedicated to it. I think as we go through the strategy refresh, it'll also give me a chance to then articulate the way I see the business and where we can play and where we can drive that value, and obviously on the back of that, look for the support to you know... And I don't wanna preempt either, you know, it's sort of jumping, or we must do M&A. I don't think that we should draw that conclusion. I think we just need to go through and do this work, knowing that Greenbushes, as a foundation piece, is a fantastic investment.
It's delivering high capital returns. It gives us a clear benchmark to work against, and if we do anything beyond that, we need to keep that in mind, that we're not diluting that value.
Thanks.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.