Thank you for standing by, and welcome to the IGO Limited March 2022 quarter webcast. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. I would now like to hand the conference over to Mr. Peter Bradford, Managing Director and Chief Executive Officer. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us on the call today for a discussion of our operating and financial results for the March quarter, which we released to the market on Friday afternoon. With me on the call today is Matt Dusci, our Chief Operating Officer, who will be available during the Q&A session at the end of the call. I note that Scott Steinkrug, our CFO, is on leave and will not join us on the call today. Slides two and three highlight our cautionary statement and disclaimer and our competent persons statement. Of note, all currency amounts in the presentation today are in Australian dollars unless otherwise noted. Moving to slide four. As always, the safety and wellbeing of our people comes first.
We are therefore pleased that our focus on continuous improvement in this area has continued to result in improved lag and lead indicators as shown on the slide. Our care for people was reflected in very strong responses to the safety-related questions in our recent engagement survey, which once again also reflected high levels of engagement by our people across the business. We are proud of this outcome and the strong culture that we have co-created with our people at IGO. We are also proud of the way our people have responded to the high COVID caseload environment, which has emerged in Western Australia over the quarter. While this period has not been without its challenges, our people have demonstrated outstanding adaptability and resilience, as together we have managed increased restrictions and higher absenteeism due to the pandemic.
Pleasingly, our systems and risk management procedures have proved effective, and we have not experienced any material disruption to our operations. Moving to slide five. We are also proud of our commitment to sustainability, both in performance and transparent reporting. It was therefore great to see IGO being included in the S&P Global Sustainability Yearbook for 2022. This was IGO's second consecutive year as a member of the yearbook, which in 2022 assessed the ESG scores of over 7,500 companies globally. Of these, only the top 15% are recognized as members, and IGO was the only Australian company to be recognized in the mining and metals category in 2022. A fantastic achievement. Moving to slide six, and to some key highlights from the quarter.
Firstly, and as mentioned previously, we kept our people safe and engaged, both of which reflect the strong culture we continue to build at IGO. At Nova, strong nickel prices and consistent operational performance drove excellent financial results and margins. Similarly, strong spodumene prices and a solid quarter of production at Greenbushes resulted in a significant uplift in the financial results for the lithium joint venture. At Kwinana, trial production of the lithium hydroxide facility proceeded towards production of first battery-grade product. Together, the strong performance of our nickel and lithium businesses resulted in materially improved financial results for IGO for the quarter, highlighted by stronger margins and higher net profit after tax. Finally, post quarter end, we negotiated a revised scheme of arrangement with Western Areas and now expect to complete the transaction in June. Moving to slide seven, where we summarize our key financial results for the quarter.
Nickel and lithium realized prices were sharply higher for the quarter. In the case of lithium, this is driven by continuing strong demand from the battery sector, and for nickel was precipitated by supply concerns arising from the conflict in Ukraine. Materially higher prices have resulted in a sharp increase in group sales revenue, up 31% quarter-on-quarter to AUD 245 million and underlying EBITDA, which is up 89% to AUD 233 million. I note that the underlying EBITDA result includes IGO share of net profit after tax attributable to our investment in the lithium joint venture. Net profit after tax for the quarter increased to AUD 133 million. Of note, we made a cash payment of AUD 171 million.
A cash tax payment of AUD 171 million during the quarter, which is primarily attributable to the taxable gain on the sale of our interest in Tropicana last May. This payment drove the lower quarter-on-quarter net cash and free cash flow results. We also paid AUD 38 million in respect of our fully franked interim dividend during the quarter. We finished the quarter with a strong balance sheet with closing cash of AUD 440 million and no debt. Moving to slide eight, where we reconcile net profit after tax for the quarter. I note the contributions made by Nova and most significantly, the lithium joint venture, which contributed an additional AUD 43 million and AUD 52 million respectively to the overall net profit after tax result for the quarter.
There was also an AUD 11 million positive variance in the value of our listed investment portfolio. Moving to slide nine and a reconciliation of cash flow. As shown, stronger free cash generation at Nova partly offset fully franked dividend and income tax payments that I mentioned earlier. Moving to slide 10 for a discussion on Nova performance for the quarter. Moving to slide 11. Nova delivered a solid quarter with no material impact to operations as a result of COVID. As guided, lower planned grades resulted in marginally lower production for all metals quarter-on-quarter, resulting in nickel and copper production of 6,290 tonnes and 2,760 tonnes respectively for the quarter.
For the reasons discussed earlier, realized nickel prices for the quarter were materially higher at AUD 37,600 per tonne, up 38% quarter-on-quarter. Cash costs of AUD 1.86 per payable pound were marginally higher quarter-on-quarter, with key drivers being lower production volumes which were offset by continued high by-product credit pricing. Moving to slide 12, where on the left-hand chart we set out the last four quarters of production and cost for Nova. Importantly, and thanks to the continued focus from our site team at Nova, production remains on track to meet full year production guidance while cash costs are expected to end the year better than our guided range of AUD 2-AUD 2.40 per pound.
On the right-hand chart, I note that we built some working capital during the course of the quarter, largely due to the timing of shipments, and we expect this to unwind in the June quarter. Turning to slide 13 for a brief update on the Silver Knight development project, where early in the quarter we released an initial mineral resource estimate for Silver Knight, which was informed by historical drilling results. As part of the current work program, further infill drilling will be undertaken to inform an updated resource and reserve, as well as supporting the feasibility study into the development of Silver Knight as a secondary ore feed source for Nova. In addition, the team have identified several high priority exploration targets in close proximity to the Silver Knight deposit, which will be tested during the June quarter.
Turning now to slide 14 for an update on the lithium joint venture with Tianqi Lithium Corporation. Moving to slide 15. The lithium joint venture delivered a stronger quarter with higher realized spodumene prices, delivering stronger financial performance. The chemical grade spodumene transfer price for the quarter was $1,770 per tonne FOB, up from $592 per tonne for the six months to December 2021. I do note, however, that the average realized price for the quarter was marginally lower than this due to December spodumene shipments being booked in January and different pricing for technical-grade spodumene. The same chemical grade spodumene transfer price will apply to the June quarter.
The transfer price is then expected to reset from July 1, 2022 for the six month period July to December 2022, and this will be informed by the benchmark price for the June quarter. Using April benchmark prices as a guide, we expect the transfer price to be materially higher again for this coming six month period. IGO's share of the lithium joint venture net profit after tax for the quarter was just over AUD 60 million, up from just shy of AUD 9 million for the prior quarter. Moving to slide 16, where we illustrate the various elements that make up the lithium joint venture net profit after tax result for the quarter.
Of note is the significantly higher contribution by Greenbushes in the quarter to IGO's account of AUD 75 million, which was partially offset by IGO's share of commissioning expenditure at Kwinana of AUD 7 million and IGO's amortization costs for the lithium joint venture investment of AUD 7 million. The contribution from Kwinana is expected to increase once battery-grade lithium hydroxide is being produced at or near commercial quantities and sold into the continuing strong battery supply chain market. Moving to slide 17 for more detail on the Greenbushes mine. Quarter-on-quarter, spodumene production was higher despite a period of production downtime in February when a nearby bushfire resulted in a loss of power to the site.
No doubt we all remember the ferocity of these bushfires as reported widely in the media, the impact to people and property, and the threat that the fire posed for a number of communities in the Bridgetown Greenbushes area. We note the contribution that the Greenbushes team made to support those fighting the fire and to support the community following the fire. On a 100% basis, production for the quarter was 270,000 tons of spodumene concentrate, bringing year to date production to just shy of 800,000 tons. IGO expects the June quarter to benefit from an increased contribution from the recently commissioned tailings retreatment plant and CGP2 , both of which continue to ramp up to full production. This quarter, we have reported a cost of goods sold with and without state government royalties.
This is to provide the market with better visibility on the consistent performance by the site team with respect to their controllable costs. As shown, cost of goods sold for the quarter, excluding royalties, were AUD 235 per ton, which is in line with the prior quarter and within our full year guidance. IGO expects cost of goods sold, excluding royalties, to be within guidance for the full year. By comparison, materially higher benchmark prices upon which royalties are calculated has driven a higher cost of goods sold result, inclusive of royalties of AUD 476 per ton. The higher realized spodumene prices resulted in higher EBITDA, up nearly 250% quarter-over-quarter. Moving to slide 18, where we illustrate the installed production capacity at Greenbushes.
Construction of the tailings retreatment plant was successfully completed in the quarter and commenced commissioning and ramp up. Maiden production in the quarter was just over 15,000 tons of spodumene concentrate. We expect the tailings retreatment plant to ramp up toward full capacity over the coming quarters, resulting in total nominal production capacity at Greenbushes, increasing to 1.55 million tons per annum. At CGP1 , higher feed grade and improved recovery performance generated a stronger result. The Greenbushes team have also made considerable improvements in recoveries at CGP2 , which it continues to ramp up to full production. Turning to slide 19. Following completion of Front-End Engineering Design studies or FEED study by Lycopodium during the quarter, the joint venture approved the construction of CGP3 , the third chemical grade plant.
Based on the FEED study, CGP3 construction is expected to be completed by early 2025 at a remaining capital expenditure estimated at AUD 507 million. However, with continuing cost pressures in the construction sector in Western Australia, IGO expects that this could potentially be in the range of AUD 500 million-AUD 550 million. Once commissioned and ramped up, CGP 3 is expected to increase nominal production capacity at Greenbushes by an additional 520,000 tons per annum by early 2025. Moving to slide 20. At the Kwinana Lithium Hydroxide Refinery, trial production is continuing. The Kwinana team, along with a high level of assistance and support from Tianqi engineers from China, have made solid progress towards the production of first battery-grade lithium hydroxide.
IGO's observation is that the team are very close to delivering battery-grade quality product and that there are no fatal flaws that would prohibit this from happening. In parallel, the Kwinana team have progressed various work streams towards a commitment to the recommencement of the construction of Train Two. This decision is expected sometime during the second half of the calendar year. Moving to slide 21 and a brief summary of some select exploration activity for the quarter. Moving to slide 22. In the near Nova environment and excluding the work being done at Silver Knight, which I discussed earlier, our primary focus has been on the Chimera target. Chimera remains prospective for large scale nickel, copper, cobalt sulfide accumulation and despite recent testing of an EM conductor not bearing fruit, the majority of the interpreted extent of the anomaly remains to be tested.
This will be our focus in coming quarters, in addition to further testing of the Elara and Orion targets. Elsewhere on the Fraser Range, the team will be testing multiple targets over the coming quarter as set out on the slide. Moving to slide 23, and to a brief update on the proposed acquisition of Western Areas. Moving to slide 24. As announced in December 2021, IGO and Western Areas agreed to a scheme of arrangement whereby IGO was to acquire Western Areas for AUD 3.36 cash per share. As a result of significant nickel market volatility, following the announcement of the initial scheme, IGO and Western Areas agreed to increase the scheme consideration to AUD 3.87 per share.
We note that the independent expert has concluded that the scheme consideration of AUD 3.87 is not fair, but reasonable, and is therefore on balance in the best interest of scheme shareholders. We also note that the Western Areas board of directors have recommended the scheme to Western Areas shareholders on the basis that the IGO offer is within the board's own view of value on a risk-adjusted basis. Following review by ASIC and the first court hearing, the scheme booklet is in the process of being mailed to Western Areas shareholders, and we expect that subject to Western Areas shareholder approval at the scheme meeting scheduled for the first of June, that the scheme will complete on the twentieth of June 2022. The transaction rationale and structure remains the same, and IGO is funding the transaction via new debt facilities and existing cash reserves.
Moving to slide 25, and a short summary of today's presentation before we move to Q&A. Moving to slide 26. IGO has delivered another safe and strong quarterly result. In large part, this is attributable to our people who have shown great resilience and flexibility in managing COVID, resulting in no material impact from COVID to our operations. Our people remain highly engaged, motivated, and proud to work at IGO. Nova has continued to deliver with higher nickel prices, driving improved margins and free cash flow. Our investment in the lithium joint venture also benefited from materially higher prices, resulting in sufficient cash flow to fully fund planned expansions and return a dividend to IGO in the near term. At Greenbushes, the production rate continues to increase, the tailings retreatment plant is in ramp up, and we have committed to the construction of CGP3.
At Kwinana, we continue to commission Train 1 towards first battery-grade lithium hydroxide production, and we expect to commit to the recommencement of construction of Train 2 later this year. Subject to shareholder and other approvals, the Western Areas transaction is now expected to complete in June. This transaction is on strategy, will expand our nickel portfolio, and is expected to provide a pathway to future production of battery-grade nickel sulfate. Finally, we have continued to deliver strong financial performance with higher net profit after tax of AUD 133 million for the quarter, while also maintaining a strong balance sheet with AUD 440 million net cash. Thank you for joining us on the call this morning. We'll now hand back to the operator for questions. Thank you, operator.
Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. We will be addressing questions via the teleconference first, and if time allows us, we will address some of the questions received via the webcast. Your first question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi, Peter and Tim. First question, can you just help me understand what is the dominant driver of the lower price at Greenbushes than the $1,770 price? Is it technical grade price, or is it the lag that you highlighted just now on the call from December? Thank you.
Yeah. Thanks, Dan. I don't have the exact split with me at the moment. You know, a portion is attributable to that shipment, which was expected to go out late December, but actually went out late January, so therefore was booked at the old pricing, but included in our revenue for the March quarter. Then some is due to the marginally lower technical grade pricing this quarter relative to chemical grade pricing. Customarily, in the past, we've seen that, you know, there's a premium paid for technical grade and in time we expect that to revert.
What is the outlook just on that technical grade price? What is the outlook in the near term for that? Are you able to argue for and receive a price commensurate with the battery grade or chemical grade product? Thank you.
There's much less of a market for the technical grade than there is the chemical grade and therefore much less transparency on pricing. Ultimately, it's all the pricing is driven by the existing contracts that Greenbushes stakeholders have with the off-takers of that technical grade product. Of course, you know, over time, if we continue to see persistent chemical grade prices relative to technical grade prices, then there would be a motivation in our mind at IGO to potentially discontinue production of chemical grade spodumene concentrate in the future. Technical grade spodumene concentrate in the future.
Okay, thank you. You sold less than produced at Greenbushes in this quarter. Does that unwind the following quarter or is it a working capital build as the business scales?
It's a working capital build and similar to what you see at Nova, that sort of waxes and wanes from one quarter to the next. Over the course, you know, everything levels out.
Okay. Last question, just the tailings retreatment plant. It ran pretty well in March at about 60% of capacity. You know, when do you think that might be at 100%? During this quarter? Thank you.
We've allowed throughput for a couple of quarters for that to hit its straps. That provides time to bed the plant down, get the system for extracting the tailings from the tailings dam and into the plant working well, get the plant working well, and to get the crew trained up to the same level of competence as what we've historically seen on the technical grade plant and CGP1.
As you can imagine, with the significant ramp up of expansion at Greenbushes, with CGP2 commencing commissioning last year and TRP commencing commissioning this year, some of the skilled resources are being spread thin and there's a training element over the next quarter, couple of quarters to bring the overall crew up to the same level.
Thank you very much, Peter. Cheers.
Thank you. Your next question comes from Matt Greene from Credit Suisse. Please go ahead.
Hi. Good morning, Peter and Matt. Just to follow on to Dan's question there. Peter, just the chemical grade pricing. I guess you're restructuring that contract in September this year. How are your discussions going there with your JV partners? When are we gonna see any sort of changes potentially to the structuring around the technical grade?
First off with the transfer pricing formula for the chemical grade, we would see those happening in the coming months. To date, there's been no formal process on that. Then on the technical grade, that pricing structure is based on orders that the two offtakers, Tianqi and Albemarle make. Or sorry, TLEA and Albemarle make for the technical grade product, based on the contracts that they have with their customers. That sort of dialogue between the buyer and the seller sets the price. There's no benchmark price that's referred to for the purposes of setting the technical grade price.
Okay. That's helpful. Thank you. Just on costs. Look, congratulations on the unit costs at both Nova. My question is just on Greenbushes, on the site cost, so ignoring the royalties there. Just trying to understand how you achieved this. I mean, you know, material moved is up about 25% quarter-on-quarter. Spot sales were down slightly. You know, we've been hearing from everyone just how much consumables have increased. Can you just provide a little bit more context as to what you're seeing there at Greenbushes on the cost front?
Sorry. Matt here. Largely that cost will drive with production ramp up. You'll see greater efficiencies coming out of that operation, hence why inflationary pressures are not necessarily seen at Greenbushes compared to other operations.
Yeah. Over the medium term, we will see a build in mining material movements, and on a cost per ton basis that could provide some upward pressure.
Okay. That's helpful. Just lastly from me, on the hydroxide plant, not much color there, but I appreciate, Peter, you said no fatal flaws, but what is challenging the timeline there? Just hoping you can provide a little bit more color there.
It's like I would describe it as we're like 97% there, and we know we can make battery-grade product because we are making it. The reality is we are getting some marginal contamination in the drying and packaging stage. We're just working through some mechanical changes there to stop that contamination. We would expect to be able to bag battery-grade product as well as make it at the crystallizer.
Thank you.
One thing to appreciate here is the very high levels of purity and with contamination, you know, for instance, from the likes of magnetics, we're talking about a quality benchmark which is 100 parts per billion. T he level of contamination that's required to tip that over to the wrong side of the performance metric is not very much.
Yeah. We know that we produce that battery grade in the circuit prior to the drying circuit. That's where the introduction of iron is coming into the circuit.
Thank you. Your next question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Morning, Pete. Good morning, Matt. Just to reiterate, great on costs, given the inflationary pressure of the West, and also nice to have a tailwind. Pete, just to the JV and cash flow, you indicated in your commentary that you're expecting returns in the second half of this calendar year. Could you just remind us of the process and structure of sweeps and dividend payments for both Greenbushes and also the hydroxide plant eventually?
Yeah, sure. In April, Greenbushes moved to a monthly sweep of dividend to the shareholders. That from an IGO perspective is Greenbushes' dividend going up to TLEA on a monthly basis. We would expect that at an IGO level, we would see a dividend flow from TLEA most likely in the early September quarter. Although contractually under the shareholders' agreement at TLEA, we are expecting quarterly dividend flow, with a monthly dividend flow from Greenbushes, there could be good logic for Tianqi and IGO to consider a monthly dividend from TLEA up to the shareholders.
Okay. Thinking ahead, with the refinery, is that the S-curve process when you do start printing cash there?
Say that again, Pete.
With the refinery.
Say that again, Pete.
When you do start generating a profit and delivering product from the hydroxide plant, what's the sweep arrangements for cash there?
Exactly the same. You know, when we think about Kwinana holistically, you know, it's we say it's 100% embedded in TLEA, so we would see it as just part of that TLEA dividend structure.
Okay. To the hydroxide plant, Peter, you just said you're at 97% of the process to get there. When you do achieve a product and start shipping product which is commercial, do you just then have to go through a qualification for that product? Is that another step or?
There's a period of qualification with each of the offtakers, and variably that's between four and six months. Once they finish their qualification, we're then obligated to deliver into the contracts. Until that point where we're delivering into contracts, we would expect there would be product available to sell into the spot market.
How should we think about the financial contribution from hydroxide over the next 1 quarter, 2 quarters, 3 quarters? Will there be any reasonable income coming through?
It'll be higher than the March quarter.
That's not hard.
You know, it's in commissioning and trial production, Peter. It's too early for us to give guidance at this stage. Because the risk is that, you know, we could be wrong to either the upside or the downside. We would prefer to just hunker down, get the work done, deliver what we're saying we'll do, and then the financial results and the cash flow would be an outcome of that.
Thank you, Pete.
Thank you. Your next question comes from Timothy Hoff from Canaccord. Please go ahead.
Hi, Pete and team. Hey, I was just wandering around the Chemical Grade Plant 3. Can you take us through the two and a half year timeframe? It just seems like that's a fairly long development schedule for a brownfields operation. Can you perhaps take us through what that capital profile might look like over that period?
Yeah, sure. The overall capital profile is similar to what you would expect for this sort of project. You know, there's effectively an S-curve of cash flow, and the peak cash flow point or cash outflow point from recollection, and I'm shooting from the hip here, Tim, and is about the midpoint of the project.
Roger.
Just in terms of that timeframe. From a timing point of view, we have built some cushion in there recognizing the fact that we are in an overheated construction market here in Western Australia and that the people you need to do work may not be available the instant you need them. There's some cushion provided in the estimate from that, but we fully expect that we'll take up all of the construction time that we've allowed for through to early 2025.
Just in terms of, I guess the Western Areas acquisition, you've got your debt facility there that's going to be used to finance that, and you've got AUD 400 million of additional capacity. Do you anticipate drawing any of that additional AUD 400 million?
The AUD 400 million revolver that we have at the moment will be replaced effectively by the new term facility and revolver. Going forward, you know, the full debt facilities will be that AUD 900 million.
Okay.
To answer your question, we won't be drawing down any of the existing AUD 400 million revolver because that will disappear.
Okay. Perhaps finally, can you remind us what the offtake agreements are at Kwinana, with that material? Just noting there was a few questions put to Tianqi around its supply chain and whether it had connections into Russian military supply chains, of which they said they weren't connected. I guess it just highlights some of the opaqueness in dealing with their global partners.
Yeah, sure. You know, we've got four contracted off-takers for Train 1. Three of those are South Korean companies, and one is a European company, Northvolt. I don't believe there's any connectivity back to Russia through any of those.
Fantastic. Thank you very much.
All of those off-takers are listed on our prior presentations of ours.
Thank you.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Good morning, Peter and team. My first question is with regards to Kwinana. Obviously, as you said, Train 1's at 97% and it didn't quite meet its guidance of first production in the March quarter. I guess I just wanted to understand how we should be thinking about the ramp-up profile beyond that. I know you said you're very close to producing first battery-grade hydroxide, but what does the ramp-up profile look like? And is there anything that you're seeing currently that is changing how you're thinking about that?
Like, through this period, we've been able to flex various parts of the plant, because we do have some storage capacity between stages. We know, for example, you know, we recently ran a calciner at pretty much full capacity in the last run, and through that filled up the storage bin between the circuits. We've been doing a similar thing through the dissolution and impurity removal stages. All of these we are testing. The expectation would be that, you know, once we deliver the battery-grade product, we'll. The very next milestone will be continuous operation at about 50% of the capacity, and then which we'll expect to hit quite quickly and then to move up beyond that, progressively.
Thank you. My second question relates to, obviously, you've given us an update on CGP 3, but do you have a current thinking on the timing of CGP 4? Is there an ability to accelerate that, I guess, given the quantum of build time that you've outlined as part of that?
Yeah, certainly. At this stage, you know, I would characterize it as that it's on the plan, it's permitted, but we have not got a mapped out board process to approve CGP4. T hat will be something that we'll start to backfill in the coming quarters. The aim continues to be to have that completed by 2027. We would expect a commitment to that project sometime during the CGP3 build.
Okay. Thank you. That's it for me.
Thanks, Mitch.
Thank you. Your next question comes from Kaan Peker from Royal Bank of Canada. Please go ahead.
Hi, Peter and Matt and team. First question is on realized price, sort of circling back to Dan's question. At Greenbushes, how much of the sales were booked under last quarter's pricing? I mean, in terms of thousand tons or percentage, do you have an idea?
Yeah. I don't have that at my fingertips. If Scott was here, he would likely have it available. From an overall financial performance point of view, you know, the split between the technical grade and the price for the and the amount of material sold at the previous benchmark price doesn't really change, you know, the outcome for the quarter. That's ah.
If we go with that logic, if technical grade is similar pricing to chemical, it suggests that, you know, 10%-15% of this quarter's sales were done on the previous quarter's pricing is that.
Yeah. I just don't have the number in front of me at the moment. Quite happy to circle back with you on that. I don't think it moves the dial from a value realization perspective going forward.
Sure. Yeah, it's just probably providing more transparency around the pricing. Yeah.
Yeah.
My second question.
I think you know like if you're looking for transparency on the technical grade pricing, I think the June quarter results would have less noise. You know there'd only be the one moving part, and people would be able to back calculate what the technical grade price is with the June quarter results. I'm not at liberty to talk to the contracted price for that technical grade product. That's privileged to Albemarle and TLEA.
Yeah. Understood. Thank you. The second one is again, on cost control. Great job at Nova. I mean, if you back out by-product credits, still, mining and processing costs, you know, they really haven't escalated much. Maybe if you can provide some clarity around that'd be great. Thanks.
Yeah. Look, I can talk to that. What we see is some of our continuous improvements still come through. For example, this quarter, we're shifting shutdown intervals from 10 weeks to 12 weeks. Some of those initiatives that we continue to push through the business ensure that we can keep a handle on costs and ultimately come in close to where we expected at the start of the financial year. It doesn't mean there's not cost pressures. You know, over the course of the last 24 months, we've seen fuel go from AUD 0.73 a liter to AUD 1.32 per liter today. We've seen freight costs for our concentrate from a road transport point of view increase by circa 15%.
We've seen concentrate shipping costs increase by circa 60%. There are lots of cost pressures. The job that Matt and the team at Nova are doing to corral those with productivity improvements and cost reductions in other areas is just an outstanding job.
Yeah. Yeah, definitely agree. I'll sneak a third one if that's okay. Just in with Kwinana post-accreditation, just wondering what the offtake contracts look like. I mean, fixed volume or variable price. Is there sort of time periods? Any sort of
Yeah, each of the contracts has a different nature. Excuse me. It's not COVID. I did do a RAT test this morning. Each of the contracts is different, and each uses a different benchmark price as a reference point for pricing, and each of them are refreshed to benchmark at least one time per year.
Cool. Thank you very much. Talk soon.
Thank you. Your next question comes from Lyndon Fagan from JP Morgan. Please go ahead.
Thanks very much. Just back on the technical grade product, how often does that contract reset? Is it a six-monthly contract or is it something else?
It's done on an order basis, and it's approximately every six months.
Should we expect a similar pricing period from a modeling perspective over a six-month period, similar to how we think about chemical grade?
Yeah. I would say if you're modeling something then you know, June quarter will be unchanged, and then there would be a reset based on those contract negotiations for the second half of the calendar year.
You mentioned technical sold at a discount to chemical this period. How long would that likely persist?
It's like in the technical grade, it's all about supply and demand of the material. The price of it will respond over time. Customarily, the technical grade does sell for a higher price than the chemical grade, and that's been our observation for past periods prior to the March quarter.
Have you got a rule of thumb on how we should think about that from a modeling point of view over time? Is it a 20% premium? Is it something different?
No. We're not in a position to speculate on that, Lyndon.
Okay. Another bit of admin. You're reporting a free on board realized price. Can I confirm that all of your sales are done on a free on board basis or are there some CFR sales?
I'd have to come back to you on that, Lyndon.
Right. Okay. Just a final one, I guess. I mean, it was a pretty busy period from an M&A point of view. You almost bought a copper mine off Glencore and obviously a big bump in the Western Areas bid. I mean, maybe just from a high level perspective, can you maybe give us an update of your vision around how you'd like this portfolio to look? I guess what I'm getting at is there's a lot of cash flow coming through from the lithium joint venture over the coming years. How should the market expect that to be distributed versus reinvested into building a bigger company?
Yeah, sure. Like, you know, we routinely talk about our aspiration, which is to grow a company that is globally relevant in the clean energy metal space. We routinely talk about a diversified portfolio of clean energy metals, which would include lithium, nickel, copper, cobalt. We currently produce all of those from through the lithium joint venture and from Nova. We talk about our aspiration to be connected to customers through both upstream mining operations and downstream processing operations to produce finished products ready for use by end users in the battery supply chain. That's the strategic framework there.
At the same time, we recognize, you know, the needs of shareholders and the discipline that's demonstrated with regular cash returns to shareholders. From a capital allocation perspective, we have a balanced approach with an amount of free cash flow generation, which is returned to shareholders as cash returns. At the same time, a continuing investment in exploration to find the mines of the future and third, to invest in continuing growth of the business, whether it be through expansion activities of the existing assets like we're doing at Greenbushes and Kwinana, or whether it be M&A to bring new assets into the business.
Great. Just a final one. Again, on costs, fantastic results. I think one of the only companies to report lower costs quarter-on-quarter. Again, I just don't quite understand the explanation at Greenbushes. Given how much more material movement there was versus last quarter, how was it that there was actually a lower unit cost?
You got marginally higher production on a dollar per ton produced basis, that has some impact. Other than that, the costs are relatively static quarter-over-quarter.
Okay, thanks very much.
Thank you. Your next question comes from Justine Rigel from UBS. Please go ahead.
Good day. That might actually be me. It's Levi here. Good day, Peter. Good morning.
Yeah. Hi, Levi.
I might come back to you on the average realized spodumene price later on. Just at Tianqi, can you just talk us through the, I guess, the iron in the lithium hydroxide? How long you've been working on getting that out? Have the, I guess, specs of those four customers changed over time? Do they have different specs? Like, are you producing the same product for all of them?
The spec hasn't changed. You know, we've been working towards that spec for some time. The little bit of contamination that we are getting in that very final stage, in some of the early commissioning and trial production work we're doing, that was masked as we were flushing some of that contamination from other parts of the circuit out. It was only at the point where we'd cleaned up everything else that we'd realized that there was that last residual bit of recontamination in the drying and bagging phase. There's been a focus on that over the last probably three, four weeks. four weeks, I'd say.
Yeah. There's two elements to that in terms of both introduction of iron into the circuit somewhere in that drying/bagging phase, but also in terms of throughput as well. As we ramp up throughput through that circuit, we'll look at reducing that level of iron in that component of the circuit. Along with that, we're looking at some slight engineering change, changing some of the screw feeders, et cetera, from 300 series to 400 series stainless steel. We'll be able to better remove the iron through magnetic separation.
Okay. Yeah. Thanks for the great detail. Maybe changing a bit of the kit out to higher quality and magnets is still the removal method, is it? The only removal just for the layman?
Yeah.
Yep.
It's about increasing throughput as a dilution, and then also about changing out some of that kit so that we can actually remove the impurities that are introduced.
Yeah. Cool. Okay. Thank you. Changing pace a little bit back to Silver Knight. I don't think we've really talked about that at all in Nova. C an you just talk through the next steps there when, you know, what the timelines look like, when it could be going through the plant and when you can really test the. It looks like you're drilling some of those nearby targets this quarter, but when you test the deeps. Production
Yeah.
The deeps. Yep. Thanks.
In terms of timeline, majority of the technical work will get done by the end of this calendar year. Currently, we're doing the resource drilling. We've got all the met samples in process as well at the moment. That will just be in the blend that will feed into Nova.
Critical path of the environmental permitting, expectation is to have that environmental permit done by mid-calendar year next year. In terms of drilling, first phase of drilling is really focused on resource extensions at Silver Knight. We'll go into resource definitions and then start to drill test some of those targets through the quarter, including some of those deeper targets.
Mining, realistically, is it a two to three year job?
Yeah. Production profile will largely be dictated by blend feed going into Nova. What we're working through now is the Nova life of mine as well to find out the optimal feed and blend scenario for Silver Knight.
Okay, cool. Thanks, Matt. Thanks, Peter.
Thanks, everyone.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question is a follow-up from Peter O'Connor from Shaw and Partners. Please go ahead
Just circling back to Lyndon's question, which is fascinating about where you're headed from a corporate perspective. You're clearly opportunistic, which is great, and your discipline is also noted. If we're trying to think about what piques your interest and makes you go to a data room, why did Cobar come up? Why not MATSA, Sierra Gorda? I guess they have some bigger. Is there a logic or some sort of commonality with Cobar right off that you may look at? I'm just trying to understand what gets this flag going in your corporate team and makes you do due diligence.
Yeah, sure. Good question, Peter. We haven't said that what assets we may or may not have looked at. G enerally, most of the assets we do look at, you know, that's kept confidential. It's only because there was a leak of information to around Cobar that, you know, the market was generally aware of the fact that we were looking at it.
We routinely look at all types of assets across that space, nickel, cobalt, lithium, copper, in Australia and globally, with a focus on assets that, you know, where we see potential for mine lives in excess of 10 years or longer, and where we see the ability to, or the optionality to turn those assets into assets that are in the bottom half of the cost curve.
Can I just segue back to Nova? The plant that's been talked about on previous calls, the middles or the, sorry to say mental blank, the sulfate plant. You've mentioned in your prepared remarks about Western Areas steering you back in that direction. Could you just join the dots up there and explain how that would work and the timeline and what we should expect?
Yeah, sure. This is a program of work that we will commit to as, you know, once the Western Areas transaction is completed. In readiness or in preparation for that, you know, we are assembling the team and putting in place all of the processes that, you know, we'll need to start that work. I expect that by the time we get to September quarter reporting, we'll be talking about, you know, some of that early stage activity around the nickel sulfate project.
Thanks, Pete. Thanks, Matt.
Thank you. There are no further questions from the phone line, and there are no further questions registered via the webcast. I'd now like to hand the conference back over to Mr. Bradford for closing remarks.
Yeah, great. Thanks, ladies. Thanks, everyone. Once again, we appreciate your participation throughout the presentation and the QA, Q&A session, and your continuing support for what we're doing at, here at IGO. Stay safe and have a great day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.