Thank you for standing by, and welcome to the IGO Limited 2023 September 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 webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr. Matt Dusci, Acting Chief Executive Officer. Please go ahead.
Thank you, Darcy. Good Morning, everyone, and welcome to our September quarterly operating and financial result call. Joining me on the call today is Kath Bozanic, our Chief Financial Officer. Slide 2 highlights our cautionary statement and disclaimer. Of note, all currency amounts are in Australian dollars unless noted otherwise t urning to slide 3. To begin this call this morning, I would like to note the improvement in safety performance recorded over recent quarters. We are continuing to ensure we have the right safety culture. We are focused on critical risks. We strengthen our safety systems and ensuring people have the right skills and training to do their jobs safely. Our people are our priority, and we'll continue to drive a culture that supports their safety, well-being, and engagement. I'm positive that the results we will continue to see improve include improvements in safety performance.
Turning to slide 4 and to a high-level summary of the quarterly results. Financially, we delivered another record quarter of free cash flow, principally driven by continued strong cash generation from our lithium business. This enabled us to make a final dividend payment of AUD 454 million during the quarter, while continuing to build a strong balance sheet position. Operationally, Greenbushes was a key highlight, delivering another record quarter of spodumene production and lower cash costs, while continuing to advance the numerous growth projects. Our nickel business experienced a softer quarter. We'd always expected the quarter to be lower. However, this was coupled with some operational challenges, delivering lower than expected production, which flowed through to higher cost. Our review of the Cosmos project is progressing well.
It was also pleasing to see the exploration success we had in the West Kimberley, with the discovery of massive sulfide at the Dogleg Nickel, Copper, and Cobalt prospect. On sustainability, a key highlight was IGO's membership of the United Nations Global Compact, symbolizing our commitment to responsibility and sustainable business conduct. Turning to slide 5, we'll provide an overview of our September quarterly financial results. Revenue, which I remind you, only reflects quarterly revenue from our nickel business, rose marginally to AUD 248 million. IGO's share of TLEA net profit was lower quarter-on-quarter at AUD 328 million, reflecting lower lithium prices realized in the quarter. Our underlying EBITDA result was AUD 362 million for the quarter, which is lower than the June quarter result due to lower lithium prices already mentioned.
Despite this softer earnings result, underlying free cash flow of AUD 530 million for the quarter was a record for IGO and reflects the lagging nature of dividends versus earnings within the TLEA business. Cash at the end of the quarter rose to AUD 804 million, as did our net cash position of AUD 444 million, despite paying dividend of AUD 454 million. We've seen some near-term volatility in the lithium sector, which is likely to have an impact on Greenbushes sales in the December quarter. I'll talk to this later in the slides. Turning to slide 6, where we reconcile cash quarter on quarter. As with the last quarter, the big driver was cash uplift, with a record quarterly dividend received from TLEA of AUD 578 million.
Other points to note here include the AUD 454 million in dividends paid to IGO shareholders during the quarter, AUD 98 million invested at Cosmos, which I'll discuss later, and the continued free cash generation from our nickel assets at Nova and Forrestania of AUD 88 million and AUD 30 million, respectively. Turning to slide 7, where we display the quarter-on-quarter movement in net profit after tax. As you can see, the key driver in Net PAT improvement over the quarter was the absence of the impairment recorded at the prior quarter result. You can also see the lower contribution from the Forrestania and the lithium business, offset somewhat by some favorable tax adjustment driven by accounting of TLEA's profits and dividends. Net PAT for the quarter was AUD 392 million.
Turning to slide 8, where we'll move on to a discussion on the lithium business. This is held by our joint venture interest in Tianqi Lithium Energy Australia, referred to as TLEA. Turning to slide nine. As mentioned earlier, our lithium joint venture has continued to drive strong financial returns to IGO, with record dividend flows from TLEA of AUD 578 million for the quarter, up 37% from the previous quarter. This brings the total dividends received from TLEA to above AUD 1.8 billion, which is the equivalent to the investment we made to acquire our interest in TLEA just over two years ago in 2021. IGO's share of TLEA's net profit after tax was AUD 328 million for the quarter, which was lower than the prior quarter as a result of lower lithium prices.
Turning to slide 10 and onto Greenbushes h igher feed grades and improved recoveries at Greenbushes drove 5% stronger production compared to the June quarter. Industry-leading cash production costs at $260 per ton were lower quarter-over-quarter as a result of the improved unit production and lower mining cost. The sales revenue was down this quarter due to lower realized spodumene pricing, flowing into lower EBITDA for the quarter. However, I note that the EBITDA margins continue to remain strong at over 90%. The realized spot average price for the September quarter, including both chemical and technical grade product, was $3,740 FOB, Australia per ton. This compares to $5,431 per ton received in the June quarter.
Turning to slide 11 t he graph on the left demonstrates the continued growth and optimization that Greenbushes has delivered in recent years. Future production growth will be supported by CGP3, which is expected to be commissioned in 2025. Over the quarter, structural, concrete and bulk earthworks advanced with the completion of electrical and instrumental design and contractor mobilization occurring post-quarter end. Simultaneously, other capital work programs continued, with a focus on the tailings storage facility for mine service area, power supply and accommodation villages during the quarter. Before moving to Kwinana, I want to briefly comment on the lithium market conditions generally and the likely impact they will have on sales at Greenbushes in the December quarter.
In recent months, we witnessed softening of lithium prices, a distortion in the spodumene versus chemical price dynamic, and some supply chain congestion, especially out of China, driven by sentiment, driven buying and destocking.
IGO believes this volatility is near-term and the long-term structural dynamics, supported by strong demand and constraints on supply, will continue to play out. This volatility has had an impact on Greenbushes, in which TLEA has elected to take a lower allocation of spodumene concentrate than they are entitled to from the Greenbushes during the December quarter. This lower election reflects lower volume requirements of our partner, TLC. This will flow through as a likely deferral of sales, in which IGO expects to report approximately 25% lower sales in the December quarter from Greenbushes. Shareholders are currently working through mechanisms to manage any unmet allocated volumes, should market conditions remain challenged and requests for products are below forecast production going into CY 2024.
We are confident that guidance is not impacted as shareholders work through solutions to manage this excess volume over the short term, given recent market volatility. Moving to slide 12. We'll provide an update on Kwinana Lithium Hydroxide Refinery. At Train One, while we achieved improved production of 607 tones for the quarter, performance remained below expectation, with multiple blockages and material handling issues resulting in additional downtime to allow for remediation work. I do know that Train One did operate at nearly 40% Nameplate capacity for several consistent day runs, indicating we are progressively debottlenecking the facility. We're currently in a major shut and expected to be ramping up production as the team continues to work towards achieving 50% nameplate by the end of December. Train Two is also progressing.
This quarter, we advanced the review and confirmation of, of the front-end engineering and design contracts. FEED completion will follow in mid-calendar year 2024. Turning to slide 13, we'll move to a discussion on our nickel business. I'll start with Nova Operation on slide 14. Quarterly production was down across all metals this quarter, although a reduction in production was planned for the quarter. Nova's operational performance was challenged by production sequencing, moving towards lower grade stopping blocks, combined with several operational issues, including paste fill and nickel reconciliation. While with lower nickel production, cash cost performance was unfavorably impacted. September quarterly cash costs were $4.18 per pound, compared to $2.60 per pound in the prior quarter. Revenue and sales were also down this quarter, resulting from lower nickel prices.
It's important to note, however, that the quality of the earnings and EBITDA margins remain extremely strong at 57%.... Turning to slide 15. At Forrestania, we transitioned to campaign mill in June quarter, which, combined with the seismicity at Spotted Quoll, resulted in lower milled tons, lower feed grade, and lower production rates. As a result, cash costs were higher quarter-on-quarter at $11.64 per pound. Also impacted by the introduction of a new contract haulage rates during the quarter. Sales revenue was markedly higher at AUD 86 million, up 93% quarter-on-quarter as a result of improved trucking and road availability. This flowed through to a recovery of free cash flow generation of AUD 30 million for the quarter, compared to a cash outflow of AUD 5 million last quarter.
We are continuing to assess opportunities for optimization and cost improvements at Forrestania as the operation transitions towards end of life. Turning to slide 16 and on to Cosmos, where we continue to make solid progress on key work streams while the project review is ongoing. Notably, works during the quarter included the advancement of early commissioning activities for the processing plant, with the completion of all works expected in the coming weeks. Further, I'm pleased to say that we've commenced commissioning of the processing facility and expect first concentrate shortly. The shaft proper was completed during the quarter, with a focus on installation of shaft hoisting and loading structures over the coming quarters. Simultaneously, the headframe and winder scopes are nearing completion, with the scopes for underground crushing ore silos and on the lift on the tailings storage facility, both successfully completed during the quarter.
Capital expenditure for the quarter was AUD 106 million, with expenditure split roughly evenly between mine development and project infrastructure capital. The project review, which we announced a few months ago, is nearing completion, and we expect to update the market before the end of December. Turning to slide 17, where I'll provide a brief update on exploration activities for the quarter. Exploration activities continued across our portfolio, with several interesting developments made as we progress on our journey to discovery. Activities of note, which occurred during September quarter, include successful drilling at the West Kimberley Prospect, with massive sulfides intersected at the Dogleg nickel copper prospect. Further drilling is expected in this quarter to test additional conductors. Diamond drilling also commenced at Iron Cap Prospect at Forrestania, with two drill holes intersecting spodumene-bearing pegmatites up to 30 meters in downhole thickness.
Further drilling will continue in the December quarter. Finally, our partners, Buxton, announced some positive drilling success at the Copper Wolf Project in Nevada, in which IGO holds an earning right for up to 70% of the project. While at an early stage, the team are encouraged by evidence of a large copper moly mineralized system at the project. Turning to slide 19, before wrapping up the call, I'll provide a brief summary of our September quarterly results. Slide 20 i n summary, we are pleased to have achieved further reduction in our TRIFR safety metrics over the quarter and continue to record sustainable improvements over the last year.
We have delivered exceptional free cash generation, with record quarterly free cash flow of AUD 530 million and record dividends received from TLEA, bringing total dividend, dividends received from TLEA to over AUD 1.8 billion. This has translated into strong cash generation and a net cash position of AUD 440 million, despite a record IGO dividend payment of AUD 554 million made during the quarter. Exceptional Greenbushes production, with a record of over 400,000 tons of spodumene concentrate produced this quarter, driving lower cash costs while continuing to focus on expansion production at Greenbushes. While we note the ongoing volatility in the lithium market, there is a likely deferral of sales by 25% for the December quarter. All shareholders are working through solutions to deal with the shortfall in elected volumes.
Nova and Forrestania had a softer quarter with some operational challenges. FY 2024 guidance remains unchanged. While at Cosmos, we have continued to progress project development. The project review is continuing, we'll update the market on its outcomes in due course. Thank you for joining the call this morning, and we'll now hand back to the operator for questions.
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. In the interest of time, we ask that participants please limit to one question and one follow-up each. Your first question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Morning, Matt and team. Thanks for the update this morning. Just one on Greenbushes in the spodumene market, please. I mean, you've highlighted that TLEA is likely to not take their full entitlement in December and project partners maybe not taking their full entitlements in March. You know, can you give us some more color on how much of that is, you know, the weaker outlook and the ramp-ups of Kwinana and Kemerton? Or is it a way for the JV to maybe force a renegotiation on that pricing mechanism because they're buying Greenbushes volumes above current spot pricing? Thanks.
Yeah, thanks, Hugo. So what we, what we talked to is, TL, I mean, TLEA has elected not to take its full entitlement for the December quarter. And as a result of that, the December, I mean, we'll see lower sales going out in the December quarter, about 25% less than production. What that means is the shareholders are working through what we do with the, the shortfall in nominations. We've remained confident that it won't actually impact any production going forward. It's just about a mechanism to deal with that shortfall volumes that we're dealing with at the moment. This is largely driven by China and the volatility that we're seeing in the market.
Right. Thanks. Maybe just to clarify on that one, then. I mean, is there anything in place that allows the JV to renegotiate that pricing mechanism so that maybe offtake volumes can increase in the H2 next year? I.e., can the pricing mechanism fall to the point where it's still economic for JV partners to be taking volumes rather than paying, you know, a 20%-40% premium to current spot spodumene prices?
Right. There is multiple mechanisms that we're working through. The easiest mechanism in the short term is just to stockpile that material. So we're working through those additional mechanisms which are within the Windfield joint venture structure to deal with that short-term volume variance.
All right. Thanks for that. I've used my questions. I'll go back in the queue. Thanks.
No problems. Thanks, Hugo.
Thank you. Your next question comes from Rahul Anand from Morgan Stanley, Australia. Please go ahead.
Yeah. Hi, team. Good morning. Thanks for the call. I will firstly, perhaps ask to follow up on the back of Hugo's question and then ask one on Nova, if that's okay. For the follow-up, just following on from that discussion, I wanted to understand, in terms of the contract volumes, how do they work? I mean, are these set at the start of every quarter, or are they set at the start of every month or every year? And I mean, what kind of flex do you have within these contracts in terms of changing the allocations like what we're seeing at the moment? I'm just trying to understand whether, you know, like Hugo was saying, it, you, you definitely need a change in the pricing formula to be forward-looking for these volumes to move.
you know, is there any sort of contractual binding term which gets you to offload these volumes? So that's the first follow-up. I'll come back with a question on Nova. Thanks.
Yeah. There's a few things there. There's different mechanisms within the Windfield joint venture. Some of that I can't talk to in detail. Essentially, at a broader level, there's multiple mechanisms along the path of when shareholders elect to take volumes. That's based on long-term plans, medium-term plans, and short-term plans. Ultimately, there's a final catch where, on a quarterly basis, there can be adjustments to volumes on elections. That's where, under that scenario, TLEA has elected not to take full volumes for the December quarter, for the December quarter.
So I just wanted to understand, just as a, you know, just an example here, you've obviously talking about 25% weaker volume. So is that the flex in the contract, roughly, that that's the minimum that they need to take? Or is that number being arrived at based on the demand that's existing? What happens if the demand is down by 50%? Do we see volumes come off by that much, or is there a minimum guarantee in the contract? That's what I'm trying to understand.
Yeah. There is a flex for shareholders to elect, on a quarterly basis, the volumes that they would prefer to take over that quarter.
Understood. Okay, look, just one on Nova. You've briefly talked about nickel reconciliation issues as well, contributing to the weaker performance. Have you done some work around the magnitude of the issue? Obviously, Nova's had that past where reconciliation issues at the start of mine life were seen, but then the asset was drilled out pretty much in close spacing to the end of mine life. And it would have seemed since then that this issue had been put to bed. I'm just trying to understand, is there risk here that this continues till the time this mine finishes?
Yeah, that's a good question. Like you said, we did have some reconciliation issues as we started to bear down Nova at the start. However, we addressed those. This has come out as a little bit of surprise, and the team are working through those reconciliation issues. Where we think the issue is, is at the mill side. It's something to do with how we're assaying mill feed into the mill rather than a resource, and the team are currently working through that reconciliation. Again, what I do know is, for this last quarter or this last month, we've not seen the same sort of reconciliations flowing through, so I don't think it's an enduring issue.
Okay. So just to confirm, this month, you had that issue basically being addressed and you're getting proper assays around the mill now?
Yeah, we're not seeing, we're not seeing this issue carrying forward at this point in time.
Understood. Okay, perfect. Thank you. I'll pass it on.
Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead.
Hi. Morning, Matt. On Talison, just how do you intend to manage the lower sales next quarter and potentially weaker 2H production, which you've flagged? It seems like for this quarter, production at the mine and the mill will continue as planned, and it's just the concentrate stockpiles that you're building. Is that correct? And then if 2H production is curtailed, which you've flagged, how would that perhaps work at the mining level?
Yeah, okay. Look, yeah, so how we've talked to that is what we'll do is we'll end up building volumes at Greenbushes, and that's a result of there'll be a disconnect between production and sales for the December quarter of about 25%. So if there's option, there's flex to build inventory on site to manage some of that short-term volatility that we see that we're seeing currently in the market, then we're the shareholder, giving shareholders preferences. Ultimately, there's a strong intent by all shareholders to work through other mechanisms to ensure that those volumes continue to flow without any impact to Greenbushes operations.
Yeah. Okay. So at the moment, the plan is to run the mine as, as planned?
Correct. So we'll continue, we'll continue production, continue production through this quarter, continue to build inventory and, and work through other mechanisms to ensure that we can continue to deal with volumes.
Yeah.
As you know, Greenbushes is a world-class asset, producing at $262 or $263 a ton. Product is highly sought after.
Yep.
Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Good day, Matt, and team. Thanks, thanks for the call. Yeah, so just to sort of clarify this at Greenbushes. So, is this about the repricing event, or is this partly about weaker demand?
Look, it's about getting the right mechanisms in place to ensure that those volumes continue to flow under commercial terms. And there's multiple mechanisms in there to do that.
Physically, how much can you continue to stockpile?
Good question. The Talison team is still working through that. What we do know is we're looking... We're potentially trying to look for additional storage, but we have no—there's no impact to this December quarter. We have enough capacity to take that 25% volume.
And if my memory was right, probably wrong, but I thought if TLC didn't take volumes, it was within your... You had an option to sell it to a third party. Is that still the case or not? I'll get it. My advice costs.
That was, yeah, that's still the case, and that's good. Yeah.
Okay. Okay, I'll come back. Thanks. Thanks, Matt.
Bye-bye.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Hi, Matt. Sorry to belabour the point here, but, you know, you've said multiple times there's a range of mechanisms. Can you potentially outline what that whole range of mechanisms are? Like, what are on the table here? How, what could be the spectrum that we need to start thinking about?
Yeah, it's... That's relatively difficult for me to get into that detail, into that detail of all of those mechanisms as part of that process within the Windfield joint venture. Ultimately, ultimately, the variance comes back down to, to what happens on a, on a quarterly basis, where, where shareholders, shareholders are provided with the option of finalizing volumes for on a quarter.
Okay. Thank you. I'll pass it on.
All right, Mitch.
Thank you. Your next question comes from Tim Hoff from Canaccord. Please go ahead.
Thanks very much, guys. I might switch just quickly to the Kwinana refinery. It's been underperforming, I think versus expectations of the acquisition and over the last few years. You know, at what point is a determination to be made on whether you need to write down what's been spent on this asset?
I'll talk broadly about operating performance, and I'll hand across to Kath to talk about how you consider any, right, any asset valuations. You are right. I mean, it has underperformed. What's important to note is that we've still got a program of work to lift that performance, and what we're dealing with is small capital items as we work through some of the rectifications. What the biggest constraint has been is time. It has; it's pushed out time. We're not pushing out any sort of major capital expenditure programs. We're currently in a shut at the moment. We'll come out of that shut early in November.
We'll continue to ramp up, and with the team remains confident we'll reach 50% of nameplate by the end of this calendar year as we work through, continue to build up nameplate through the next calendar year.
Kath, do you want to make a comment on?
Yeah, so, obviously testing happens or testing for triggers happens, and then testing of impairments and rights happens at each half. It was done at June, obviously, because that went into our full year results, and the team will retest at December. At this point in time, they've not advised us that there's any indications at this point.
Okay, excellent. And if I might just stay on refining quickly and indulge in another question. You know, what is IGO's competitive advantage when it comes to establishing a nickel refinery in Western Australia?
Our competitive advantage there is that, one, we'll have feed. Two, we'll have the right partners around us. Three, we have the process in terms of the technology on the process. Ultimately, to reach a financial investment decision on that, we'll all have to feel comfortable that the returns are there and that we've significantly de-risked it from both the capital ramp up and commissioning.
Excellent. Thank you. Will be interesting to see how it goes with the capital pressures we're seeing.
Yep.
I'll pass it on.
Thank you. Your next question comes from Kaan Peker from RBC. Please go ahead.
Hi, Matt and Kath. Just on Kwinana, following on with Tim's question, but, what's the likelihood that there'll be a pause on train one if the December fixes don't work? And are there implications for train two? i.e., will it be paused as well? Thanks.
Yeah. Okay, implications on train one if we don't get to 50, I'd ultimately would have to reassess what we're doing, as part of that continued rectification program. I don't actually see... You know, I'm still seeing it's likely that we'll get to that 50%, so we really haven't, haven't really addressed that if it doesn't. There's a couple of things that will go into the October shut that we have to get right. Some major piece, there's mainly associated with the sodium sulfate, which is the waste stream. At the moment, we've got a pro- the waste stream is a bottleneck, therefore we can't push the lithium hydroxide, which is including its installation of a secondary centrifuge. At this point, we're really remaining confident on that 50%.
In terms of train two, we continue to work through the front-end engineering and design. What we state very clearly is we won't make a capital decision until we are completed all the front-end engineering design and feel that we've got the right engineering solutions in place for train two to both, reach nameplate and ultimately ensure that the commissioning time is significantly less than what we've seen on train one.
Sure, thanks. And my second one is on the nickel assets, including, I suppose, downstream. But, given where nickel sulphate prices or premiums are and the nickel price, what's the likelihood of proceeding with the downstream processing? And just wondering what, you know, if all options are on the table for Cosmos and Forrestania, such as care and maintenance.
Yeah. So on nickel sulphate premiums per se, yeah, we understand that nickel sulphate premiums are trading at a discount in some markets. In other markets, they're still attracting a premium. We have made the conscientious decision that we're not going down the sulphate route. We're going—and that's part of that partnership in terms of elimination of the step, driving cost advantage, or driving improvements in recoveries by going straight to a pCAM. We see nickel sulphate as just another nickel intermediate in this battery supply chain route, and producing some intermediates in these battery supply chain routes is potentially a higher risk. In terms of Cosmos, you know, we remain committed to Cosmos.
In terms of the value, it's unlikely that we'll see any care and maintenance, but we'll come out with our reset plan in December. Forrestania still makes a good margin. We've got to ensure that we really drive costs as we continue to work through the rest of the life of mine plan.
Sure. Thanks, Matt. I'll, I'll circle back. Thanks.
Thank you. Your next question comes from Matthew Frydman from MST Financial. Please go ahead.
Sure. Thanks. Morning, Matt and Cass. And apologies, because I'm gonna take it back to Greenbushes. But clearly, one of the motivating factors behind not electing to take the full allocation was the price. So firstly, can you talk us through, I guess, what would need to happen from here if the JV did decide to change the pricing mechanism? It's obviously happened before, but remind us of how often these shareholder meetings occur, where these sorts of issues are discussed, and I guess what the potential timing from there could potentially be.
and then secondly, I guess purely from an IGO perspective, because I understand you can't necessarily talk to what the JV as a whole might want, but would IGO like to see the mechanism change to something maybe that's closer to spot or, or even forward-looking pricing rather than backward-looking? You know, would you prefer to keep the status quo, or, or are you largely indifferent, given that Greenbushes is, as you say, the lowest cost producer in the market?
In terms of that first question, I can't really get into that detail. All I can say is the shareholders negotiation, negotiating, negotiating the outcomes, to deal with the short-term variance and volume uptake. There's a strong intent by all shareholders to ensure that their production is, continues as of this world-class asset, as it's an important part of their feedstock into their integrated businesses. And there's other mechanisms in there. Now, talking to an IGO perspective, and this is IGO perspective, this is my perspective is, which is easier to talk to. Ultimately, ultimately, as this market builds out, you know, we, we're looking through what is it the best way to ensure price transparency? And the industry as a whole has to work through that. We're immature t his industry is immature. We're seeing a lot of volatility.
As the industry builds out alternate supply chains, especially outside of China, we'll see less and less volatility. But ultimately, ultimately, as an industry, we'll need pricing mechanisms to ensure tran, that has the greatest price transparency on a, on a spot basis. And we're happy to explore some of that in due course, with consideration of multiple things associated with the joint venture.
Okay. Got it, Matt. Do you think, do you think a structure exists currently to support that? Or, you know, is that longer dated? Would, would that require, Matt, in your view, or you think that the current price reporting agencies, you know, are sufficient, but maybe just the mechanism needs to change?
You may, the pricing, agencies is there's variance between the agencies. There's variance associated with the lag on that. There's a variance in terms of understanding the volumes that are going through those pricing agencies. So it's not, it's not perfect by any means.
Got it. Thanks for your views there. Much appreciated.
Thank you. Your next question comes from Daniel Morgan, from Barrenjoey. Please go ahead.
Hi, Matt and Tim, and sorry to bring it back to the Greenbushes pricing mechanism, but if we take a step back, lithium demand is gonna be up, call it 30% year-on-year this year, and Greenbushes will be responsible for adding, you know, probably 10% volume to the market. So, you know, the market is growing faster than what you're adding into it. And, the newer volume is higher cost than Greenbushes. Doesn't it make no sense for Greenbushes to take the foot off the gas on volume expansions, particularly when operations are humming so well, as outlined in the quarter in terms of volume?
I think you nailed it in terms of the shareholders' point of views collectively.
Okay, thank you very much. And then my second question is on Kwinana. What is it happening there, like behind the scenes that, you know, you're across and your team is across, that gives you confidence that this thing is gonna come together and actually work? Like, what are some of the qualitative issues?
Yes. So like I was down Kwinana last week, as part of the review of the shut. We got some team capacity down there in terms of reviewing. We're also bringing in ensuring that we have the right expertise by a number of groups of consultants helping us work through that. Like I said, you know, it's about a program of work as we continue to do some of the rectification on the shut. We remain confident we'll get to that 50% in December, and then longer term, we'll continue to look at ramping that up. Has it been challenged? You know, I think these are complex refinery settings.
There they do have a level of complexity associated with train one. That's being compounded because of poor engineering from day one.
Is it worth just shutting the whole thing down and doing complete rectifications for a period of time? Where, you know, it just seems like you have these maintenance shuts that come in, and you try to tie in these improvements and then, you know, we haven't seen huge improvements in volume. Like, is it worth taking it down for a period of time and, you know, really working on all the rectifications or what am I missing?
Yeah, and that has been one of some of the discussions that we have been having. However, we're working through that program of work as we work through, and we'll continue to do this to this October shut. We'll get to that 50%, and then we'll look through what we need to do to get to the next step up of production at Kwinana.
Okay. Thank you so much, Matt and Kath.
Thank you. Your next question comes from Jon Bishop, from Jarden. Please go ahead.
Good morning. Thanks for taking my questions. Just again on the pricing side of things for Greenbushes. I guess the one question that doesn't seem to reconcile with your commentary around potentially having to dial back production is clearly the EBITDA margin. And if you've got third-party rights to look at selling the unallocated offtake, why wouldn't you guys be looking at you know, a BMX auction style and achieving the headline benchmark prices, which are still, you know, $1,900 a ton at the moment and give you a pretty healthy margin at sort of 80%-85%?
Yeah, I think, John, because one of these mechanisms are part of the conversations with shareholders at the moment. At the moment, we don't have to trigger that because we've got stockpiling capacity at Greenbushes. But there is multiple mechanisms in place or can be put in place to ensure that we continue to drive production at Greenbushes.
But surely dollars today are better than stockpiling for what appears to be potentially a softer outlook in the short term?
Potentially just from an IGO perspective, but you have to take in consideration of all the other shareholders' perspectives as well.
Okay. And just on that, are you able to sort of give some color as to Albemarle's view, view here? Because, I mean, corporately, they've obviously taken a potentially longer-term view on outlook for spodumene prices and lithium markets in general in some of their corporate behaviors. What, what, what's their sort of attitude in these joint venture discussions around stockpiling?
Yeah, so John, you know my answer to this one, so, you know, unfortunately, I can't talk to what Albemarle's views are. I'm happy to talk about what my views are or IGO's.
Yeah, no.
Yeah.
Fair enough. Okay. Beg your pardon?
Good try.
Okay, and then just to round out, quite clearly, the inference to take from all of this is there's not gonna be an obvious interruption to timelines on CGP4 and FID therein?
No interruptions to any growth plans.
Okay, thanks.
Thank you. Your next question comes from Matt Chalmers from BofA Securities. Please go ahead.
Good day, Matt and Kath. Thanks for the call. So look, just one, a brief one from my side. I know it's been covered in, in a lot of detail. It's just around... You know, we mentioned that, you know, the, the production or the, the volume requirements coming from, from TLC is lower going into the, the coming quarters. I just wanted to know, potentially from a different angle, if, if the same could be said from the volumes, being requested by Albemarle, or was that... Is it, is it - are you just really, you know, focusing on TLEA and, and TLC's requirements?
Yeah, I have to. So what I can say on that one is, in the December quarter, you know, the volume variance that we're talking about in the December quarter is associated with TLEA.
Got it. Okay, thank you.
Thank you. Your next question comes from Robert Stein from CLSA. Please go ahead.
Hi, guys, sorry. Just a quick one on, I guess, the risk to IGO shareholders going forward, in the context of your quite big partner's ability to withhold supply and manage the price in that respect. You say there's no interruptions to growth plans, but if the growth plans do sort of go ahead in terms of the capital portion of those, what's the risk going ahead on sort of volume nominations from those increased volumes if demand is weaker? And maybe to put it another way, what sort of rights do you have to be able to ensure that the volumes are effectively taken up?
Yeah. I guess to answer that question, I'll just take a step backwards a little bit in terms of what we are from all shareholders' perspective, is that this is a real near-term blip or volatility. There's no... Even from a medium and longer term, is all shareholders are anticipating that there's still gonna be strong demand, fundamentally strong demand, and there's challenging in bringing production, and there's such a disconnect between the demand and supply, that everything we do at Greenbushes should be continued. And you also have to remember, it is also in context, that Greenbushes is the world's best hard rock spodumene mine, producing at $260 a ton, and making significant free cash margins for all shareholders from that operation.
There's under any scenario, even if you're looking under different shareholders' perspectives, capital investment in terms of growth at Greenbushes still remains a major priority for all of them.
Sure, but if you're buying it obviously at a price much higher than spot, then, you know, that cost economics doesn't, you know, particularly hold up in terms of the purchaser and the downstream partner. But then also, if you've got larger volumes elsewhere,
Yep.
You know, growing operations and the like, there's a supply management angle that needs to play out. So I'm sort of interested in how much sway you have in a downside scenario to be able to influence an outcome.
Yeah. And again, we're looking at very short term. So we're looking at, you know, our pricing mechanisms are three-month, quarter, the prior quarter to the current quarter. So we are dealing with a short term, you know, a short term. If the pricing benchmarks are right, and they do catch up to current... Then we're just looking at a quarter, a quarter where we're looking at lag . So we're not dealing with fundamental long-term challenges, we're just dealing with a short-term, short-term challenge in terms of this shortfall of nominations associated with the December quarter, and short-term variance associated with some volatility in the market.
Okay. Thank you very much.
Thank you. Your next question is a webcast question from Pete Tingling. Are there any penalties for your JV partners from electing to take less than their allocated production from Greenbushes?
Yeah, I don't-- I won't get into that whole process. Fair to say that they just have that quarterly right to adjust their volumes.
Thank you. Your next question is a follow-up from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Hi, Matt. Two questions from me, but, and again, sort of belabor the point on the pricing. Look, I appreciate you can't talk on behalf of the other shareholders in the lithium JV, so maybe from an IGO perspective, you know, what level of inventory are you seeing for lithium chemicals in China at the moment that might limit spot spodumene demand? And what demand would you expect for spot spodumene volumes if the JV agreed to sell the excess volumes into the current market? Thanks.
Yeah. Okay, so I, I'll talk to an IGO perspective. Well, from our perspective, again, we, we're looking at the short term, short-term volatility, and the short-term volatility is largely China-centric, largely driven, largely driven by, sentiment-driven buying and de-stocking that happens in China. It can be cyclical, it can actually just be, sentiment driven. Fundamentally, demand is strong out of China. What we're dealing with is short-term, short-term, volatility.
From an IGO-
Yeah. Sorry?
Sorry, Hugo.
Yeah. Sorry, what was the second part of that question, Hugo?
Oh, just, you know, if you were to sell spot spodumene volumes, today, what level of demand you'd expect into the Q4 ? I guess just noting that one of your peers last week highlighted they expected that demand to be strong into the end of the year.
Yeah, I... The demand, I still expect demand to be strong. It's just about what mechanism you, you would use.
All right. Thanks, Sam. I think we'll park that one up for now. Maybe just another clarification on Kwinana. Good to see that some of that product's now qualified and being sold. But can you maybe just give us a bit more color into the issues outside of the waste being a bottleneck? You know, is it issues with conveyors, dryers, pumps, pipes? You know, any color there that you can provide in terms of the train one issues would be great. And then secondly, you know, any additional information around why the train two feed contractor and completion has slipped another quarter? Thanks.
Yeah. Okay, so let's. In terms of current constraints, some of the current constraints to get to that 50% are being rectified as we speak in the October shut. But that includes some relining of, realignment of the belts in the dryer. That includes putting a heat exchanger on some of the circuit at the back end. That includes the additional centrifuge on the Glauber's salt, sodium sulphate. Includes additional, some pump changes. We're also looking at the filter presses for the waste. So there are just additional smaller things that we've got, we do to get to that 50%. That list continue. Once we get to the 50%, we'll find out where the next constraints are, and we have an understanding of those constraints already, and we'll continue to do some rectification.
But it's not like a major piece of equipment, so it's not like we have to change X. It's not... You know, the major pieces of equipment are performing well, and we don't think that they will be the constraints. It's these additional, material handling circuits and some of these smaller pieces of engineering equipment that are a part of this rectification process.
Great. And then just on the train two feed contractor being pushed back a quarter and the resulting feed completion slipping into mid-next year?
Yeah, it's just taking us a little bit longer to ensure that we have the right contractor or consultancy engineering house on board, and they have the right teams in place. So sourcing that right team, making sure that team's available to do that work is what some of that lag time is. What we've made very clear is that we will do the study, we'll have the right teams in place, we'll have the right consultancy engineering houses in place, and we'll also have the right contract structures in place, even if it does take us a little bit longer.
Thanks, Matt.
Thank you. Your next question is a follow-up from Levi Spry from UBS. Please go ahead.
Good day. Yeah, thanks for taking all the questions. Maybe a sneaky one on Cosmos. So the spending was still pretty elevated there. What's the update on the rate and spend, I guess, the guidance there? I know you've said the big update comes later this month, but what can we expect in terms of outflows this quarter, or?
I'll hand to Kat for that one.
Yeah, we were due to actually be spending quite a bit more this quarter, so that's actually down from what was the original plan as we've been reviewing things. Therefore, I think that you could easily estimate that the spend is similar or marginally less the next quarter, as we continue to review things and reset the project to achieve our optimal outcome.
Okay. Thanks, Cass. And just one more on Greenbushes. So what, what's the timing of the next steps? So, agreeing on the mechanism and the volumes, like, do we-- So at the end of the quarter, like, how do we think about, you know, whether you can sell some of your own third-party material next quarter to prevent even greater stockpiles building?
We'd expect to be reporting the quarterly, next quarter.
Okay, not till then. Okay. Thank you.
Thank you. Your next question comes from Mitch Ryan, from Jefferies. Please go ahead.
Mitch? Do you have a question, Mitch? Easiest question of the day.
Thank you. Your next question comes from Kaan Peker from RBC. Please go ahead.
Thanks for taking my follow-up, Matt and Cass there. Maybe just following up on Levi's question. Can we just get a bit more understanding around that process? So, I assume that when the allocation is finalized for the quarter, and if there's a shortfall, then the shareholders can bid for that allocation or the allocated volume, and then you can sell on that additional volume at spot. Is that how it works?
Look, there's a-- It's part of a conversation and a discussion happening with shareholders to deal with that, that shortfall. And where that shortfall goes, whether it goes, go back to a shareholder or goes to market or how we deal with those short-term volumes. We're dealing with a short, you know, this is a near-term challenge, so the idea is that the shareholders are working through all that at the moment.
Okay, but there's nothing further you can sort of discuss on the process of that?
No. So, you mean, it's a conversation, it's a discussion. I mean, what I can say is the shareholders are working through to deal with, to ensure that Greenbushes continues to operate and generate free, a significant free cash flow margin for all shareholders, and also important product for their integrated businesses.
Sure. Thanks. And just the last one. On the TLEA dividend for this quarter, was some of that due to the Essential transaction? You know, I think a couple of quarters ago, the dividend was less 'cause there was some capital being allocated for that transaction. Obviously, that didn't go ahead. Is that dividend part of it or-
Yeah.
Dividend?
There is a small portion of that, that is that. There was money held back for essential, and that flowed through this quarter.
Sure. Okay, pass on. Thanks.
Thank you. Unfortunately, we have run out of time for today's webcast. I'll now hand the conference back to Mr. Dusci for closing remarks.
Okay. Thanks, and thank you everyone for joining the call.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.