Thank you for standing by, and welcome to the Pilbara Minerals Half Year 2022 Results. 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, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Ken Brinsden, Managing Director and CEO. Please go ahead.
Thank you, Emily, and welcome everybody who's joined the call and to those participating on the parallel website or web host. Thanks very much for your participation this morning. Nice to be with you. I'm joined here in the Pilbara Minerals head office by Brian Lynn, our CFO, Dale Henderson, our Chief Operating Officer, Alex Eastwood, General Counsel and Chief Commercial Officer, and David Hann, our Investor Relations Specialist. Nicholas Read's here to help with some of the web-hosted questions at the end of the call. Today, we've launched our 2022 financial year first half results release and presentation materials. Between myself, Dale, and Brian, we'll be referring to the presentation release itself. You're welcome to scan along with us, and we look forward to sharing the additional information this morning.
Moving back to Pilbara and what's happened. It's been a pretty incredible start to the financial year. We're very pleased to report our inaugural profit in an environment where market conditions have obviously continued to markedly improve. Part of the story that we'll share today is the theme around that improvement continuing to this day. It's a pretty remarkable time in the market, and I'll spend a little bit of time reflecting on what that means in respect of price and the market conditions that we're experiencing today, let alone where we've come from in the first half of financial year 2022. In our slide deck, slide number five refers to a general summary. A period of consolidation for Pilbara Minerals. Further work on our Pilgan Plant to bring on the plant improvements project.
That project is construction complete, commissioning complete, and we're now in the optimization phase. Dale will refer to the combination of those works and how that reflects on our production for the balance of this, obviously, the financial year, but also the calendar year. At Ngungaju, the consolidation of the former Altura assets, bringing that asset back to life. That's a big chunk of work that's underway, with construction well progressed on the detail and the finessing around the flotation circuit. Dale will also explain some more detail about how that's unfolding. That particular project represents one of the big swing factors that we'll address perhaps in a bit more detail as we talk to the guidance for the balance of financial year 2022, but also the near-term targets for Pilgangoora production overall.
That project, in particular, creates an element of uncertainty as it relates to the balance of the production year because of when the flotation circuit comes on and how quickly the flotation circuit responds. As much as our focus is very much on the near-term production target being 580,000 spodumene concentrate tonnes in annual production capacity. Given the scale and the resource and the scale and the reserve at Pilgangoora, there is fantastic opportunities to continue to keep expanding the operations at Pilgangoora. Two near-term projects have been identified. The first step to 690,000 spodumene concentrate tonnes and a subsequent step to get us over 1 million tonnes of spodumene concentrate capacity. As I said, a huge asset. One of the very significant assets globally.
Huge expansion potential, but again, I'll just make the point, our focus and our attention very much on the first 580,000 tonnes capacity. Moving through the slide deck into slides six and seven. It's been a huge year for Pilbara in terms of additional works at site with lots and lots of construction underway. I've already mentioned the Pilgan plant improvements and the Ngungaju restart. But it's also true there's been a lot of work around our ancillary measures around the site, roadworks, padworks, waterworks, you name it. There's been a lot happening. That's translated to a lot more people around site. The great news is that hasn't resulted in any lost time injuries. We're very proud of the team's efforts in that regard because there has been a huge uplift in people.
To give you some idea, we've gone from approximately 140 people 15 months ago to peaking at over 600 people, and especially as we're going through shutdowns and the like at site. With that level of activity, inevitably you need to be very careful about safety management, and I'm pleased to say that that's exactly what the team's achieved. Slide seven, a representation of the work that's been underway in terms of production growth. It's not without its challenge, and we've been reasonably clear in our most recent public disclosure about where that challenge comes from.
A lot of it is rooted in principally access to people, which is a spinoff from the effect of the COVID-19 sort of barriers to entry to WA and the hard border. That's meant that the mining industry as a whole has been fishing from a very thin pond for people. It manifests itself in different ways, but one of the areas that's particularly painful is the rapid ramp-up in people that's required and when peak labor is required. For example, a shutdown or a breakdown. Whilst you might want 60 people for a shutdown, it wouldn't be unusual to only be able to get 30 or 40 people to arrive. Obviously, works take longer than you would like. That's part of the challenge in bringing on the additional capacity at Pilgangoora.
I can assure you, we're not alone in this challenge, and we obviously hope that with borders coming down in Western Australia, that we'll start to see some relief. Obviously also, the Pilbara team is working as hard as it can with innovative ideas that attract additional people as and when required. A big step up in production, with more to come over approximately the next four to six months. As I said, Dale will allude to that in a bit more detail. Moving on to slide eight, in summary, still a big year for Pilbara Minerals and approximately 170,000 tonnes produced and shipped in the first half. A big, big step up in revenue, and I'm gonna address price shortly.
The price dynamic is really incredible, and I'm gonna delve into a little bit more detail to describe where that's going to. The net effect of all that production, better sales prices, certainly as compared to the recent historical norm, translates to a fantastic balance sheet, very, very healthy cash flow and of course, an inaugural profit, which we're all very, very pleased about. Moving on to pricing. Making reference to slide nine. A couple of key points to be drawn here. There's what's contributed to the first half, which we believe is a fantastic result. We sold our spodumene for approximately AUD 1,300 a tonne in the first half.
We started to see some movement in pricing during the course of the calendar year last year, better reflection in price in the first half of financial year 2022. However, from our point of view, that's really just the start of the story. Because since then, pricing has continued to run very strongly. Now, there's several things that motivate that that I'm really keen to reflect on. The first is that Pilbara Minerals has done its own piece of work that relates to trying to establish the right level of price transparency to lithium raw materials, and we've done that through our Battery Material Exchange. An important piece of innovation for the industry, and arguably a very important piece that's helped translate to real and better reflection on price for lithium raw materials. Clearly, there is a very tight market today.
As a result, you want to use every tool in your playbook to reflect the real value in the raw materials that you supply. We think we've done well in that regard through the Battery Materials Exchange. That's part one. Part two is the function of the trend in price. A lot of people wanna confuse, you know, lithium raw materials with bigger pools of mineral supply, like, you know, iron ore or even arguably coal. The reality is, it's not like that. It's an industrial mineral supply chain for which people have to buy. If they're contracted in the supply chain, they have to buy. There's no alternative. The pool of available supply is nothing like what you might see in other commodities. It's nowhere near as liquid.
What that means is that people will pay what's required to access the product, and that's the function of the cycle that we are now well into. We reflect that partly as a function of the guidance that we've given for the March quarter, $2,600-$3,000 a tonne for our product, on an SC6 reference price. From our point of view, in the current half, we would say that's just the beginning because pricing is continuing to trend up.
We're seeing that both as it relates to contracted pricing outcomes, but also what we would expect to achieve in the newly minted spot market or as per our auctions, where my sense is people would have their socks blown off in respect of the pricing that you could achieve. As I said, it's a function of there just being a critical shortage of lithium raw materials. In a funny kind of way, Pilbara Minerals is a key contributor there because what we represent is at least, while very modest, but nonetheless growth in the lithium raw material supply chain, but we're also demonstrating how hard it is to bring that supply on, and especially if it has to be brought on quickly. All of that, in our view, plays pretty well to price.
Nonetheless, we're obviously working as hard as we can to bring that additional supply on. It's demonstrative of the supply side's challenge in bringing on new capacity. I would suggest that's probably going to be reflected in many years of work from here for the industry to catch up, i.e., supply meeting demand. I hope all of that makes sense, and no doubt there'll be more questions. That represents my introductory comments. I'm going to hand to Dale and Brian now. They'll reflect on slide 10 and where we're headed with respect to guidance in the short and the medium term. Thanks. Dale, over to you first. Thank you, mate.
Thanks, Ken, and good morning, everyone, and special hello for those of you dialing in from abroad. I'll offer a few comments around our production guidance and capital before handing over to Brian to speak to cost. But probably just to start with, as Ken's really alluded to, FY 2022 is a big growth year for the company. Essentially moving from our 330,000 per annum tonne rate to 580,000 outright, being the combination of the two assets. That's, of course, a 75% increase in outright throughput and a big step up. The whole organization, of course, is very focused on managing that growth step up the curve. Yeah, it's a growth year, and we've got our challenges.
Speaking to some of those challenges, largely they're in two categories. There's some external elements and then, which are outside factors acting on the business, and then we've got, what's happening within the business. I'll speak to both those categories. The external factors, as Ken's already covered off, labor shortages remains a Western Australian challenge, and Pilbara Minerals hasn't been immune to that. We have had, at different times, a shortfall to different areas. That's really been a key impact, which has slowed us a little bit in areas. Then as we think about the forward picture, we, of course, have the COVID overhang, and we are bracing ourselves as are other businesses, as to how will that impact us.
Obviously, the combination of those two factors, we think deeply about that as we think about the outlook around production. We've taken a somewhat conservative approach around that outlook and the knowledge that those two factors have to be contended with labor and the COVID integration piece. Moving from the external factors and now moving to the internal business piece. I'll offer you some insights of how we've been going there and what we see and the outlook. Ken mentioned that there is with Ngungaju, it's a ramp-up period for us. How we're traveling there. Well, probably just to take a step back.
The Ngungaju investment case when we purchased Altura was predicated on putting some decent investment into that facility to outright lift the performance of that facility. We're absolutely in the thick of that construction phase right now, which is coming to completion in the coming weeks. At which point, we'll start to step into commissioning, then through that period of ramp up and optimization. It will be that ramp-up period, which, as with almost all operations, there is an element of uncertainty. We, of course, as a business are putting into place all of the things you'd expect and then want to see to make sure it's a successful ramp up.
There is a level of uncertainty as to how that goes, particularly as it relates to the flotation circuit. Obviously, our business has got deep experience in that space, and we were well familiar with the nuance required to eke out the improvements. There will be some challenge as we step through optimization of that facility. For us, the Ngungaju ramp-up piece is probably the key piece we think about as we think about guidance and the impact on total tonnes. As I mentioned earlier, we've taken a fairly conservative view on that contribution to the outright production guidance. Moving from the Ngungaju plant to Pilgan, largely we're comfortable about where that facility is at.
There is some optimization to come, to optimize the improvement project piece, that construction complete a couple of months ago. Largely we're happy where that facility is at. Having spoken to both Ngungaju Plant and Pilgan Plant as to mining, it's a big ramp-up year and has been a big ramp-up year, as we look to not only catch up on the waste tonnes, which are a product of the downturn cash preservation strategy we had years ago. Well, we're working through a phase now of catching up those waste tonnes and opening up our 10 km of strike, to facilitate more pits, more ore feed options to support both these two operations. Plenty of mining activity underway and on the outlook ahead, more mining activity to come.
Of course, there is that labor challenge overlay that, of course, we're working very hard to ensure that we've got the right support to ensure those tonnes keep flowing. Yeah, as I say, it's not been without its challenges in mining. In summary, those are really the key factors that have played through to our guidance. The external factors, the labor, the COVID piece, the Ngungaju commissioning ramp-up piece and that ramp up, continued ramp-up of mining. Plenty of challenge across the board. All said and done, I think the Operations team are doing well given the challenge.
A big thank you to Simon Carrall, our site GM and his team and our contracting partners who are all working very hard to step through this important growth phase of the Pilgangoora Operation. Obviously doing it safely. But I think we will get through it. We certainly see the light at the end of the tunnel and this is what's fed through to our guidance for the 340-380 for this year, the FY 2022 year. March, 75,000-90,000 tonnes. Then moving into the September quarter, from the September quarter, I should say, 560,000-580,000 tonnes. Exciting period for the company and yeah, and we're working through it. That completes my piece on guidance and capital.
At this point, I'll hand over to Brian for cost.
Right. Thanks very much, Dale. Good morning or good afternoon, everyone. Firstly, I might just quickly touch on our guidance on unit operating costs for the remainder of FY 2022, as well as a look ahead to FY 2023. Then after that, I'll give a run through of our results for the six months and some commentary around what supported the maiden profit we achieved. With respect to cost guidance for the remainder of this year, so for the second half, we have guided just for the Pilgangoora operations. We're guiding AUD 450-AUD 490 per DMT on an FOB basis, excluding royalties.
We have changed the basis of how we are reporting cost guidance. We've removed freight, and we've removed royalties just because there is so much volatility around those at the moment. We feel that's actually a better measure to be reporting against. We have deliberately not guided on costs for the Ngungaju operation for the half. Clearly, there is still the ramp-up and commissioning phase going on at the Ngungaju operation. Until that phase is actually completed and we're sort of more into a steady state operation, we feel that it's not appropriate to report on operating cost guidance.
I think the one comment I would make, though, is clearly we will be producing some tonnes, and given the pricing environment we find ourselves in, that it is likely that Ngungaju will generate an operating margin during the six months, but we're just not prepared to be definitive on what that cost guidance might be. We look forward to FY 2023. We're now guiding on a combined operation. Clearly the expectation during FY 2023 is that we'll ramp up both facilities. That's probably from the end of the September quarter. We're hopefully in the sort of 560,000-580,000 tonne annualized production rate.
For FY 2023, inclusive of Ngungaju, we are going to AUD 530-AUD 570 per DMT FOB Port Hedland excluding royalties. Now, part of those costs obviously incorporate the latter part of the ramp-up, particularly around Ngungaju. Our expectation is once we've got both of those facilities up and running and achieving nameplate capacity on a consistent basis, that those costs should come down beyond FY 2023. That's everything I wanted to discuss on guidance around operating costs. I thought we might just turn to the actual results for the half now. I'm gonna start referencing slide 14, which is really just a quick overall summary of the results.
I'll just give some further insight into some of the moving parts which drove those results. In summary, we generated the maiden profit after tax of AUD 114 million, and that was really on the back of achieving shipping of 170,000 tonnes of spodumene concentrate and receiving a substantial uplift in product pricing during the period. In fact, revenue was AUD 291 million. If you compare that to the same six-month period last year, you know, that revenue for that period was AUD 59 million. The revenue for the second half, for the June half of FY 2021 was AUD 117 million.
You can see that there's been a significant increase in revenue, largely on the back of this incredible price environment that we're experiencing at the moment. That generated an EBITDA of AUD 151 million. Again, significant improvement on the comparative period, which was AUD 3.2 million. The EBITDA then reflected in a strong cash flow from the operations. We ended the six-month period at the end of December with AUD 191 million of cash in the bank. If you include the irrevocable letters of credit for shipments completed during the December half, that increases to AUD 245 million.
As a result of a strong operating performance, the company ends the half year in a net cash position of AUD 14.8 million. This is AUD 40 million more cash than debt. The debt we're referring to there is the secured debt we have through the syndicated facility agreements. Turning to slide 15, I just thought I'd offer a little bit more detail on the profit and loss drivers. The first point to note is the margin that was generated from the Pilgan operations. This is a margin on a dry metric ton. We achieved just over AUD 1,000 per tonne of margin from the Pilgan operations.
With an average price, US dollar price of $1,250, an average cost per ton, and that cost includes royalties and includes freight, of $496. That margin of AUD 1,000, if you apply that just to the Pilgan tonnes that we sold, you end up with a gross margin of AUD 172 million. It's worth noting that, you know, the margin for the equivalent period last year was only AUD 116 a ton, and for the June half was AUD 200 a ton. There's been a, you know, a significant improvement in the margin being generated by the business, and obviously clearly on the back of a strong pricing environment.
This strong operational result supported the EBITDA of AUD 151 million. After allowing for depreciation and interest cost of AUD 6 million and a foreign currency loss of AUD 7.7 million, an underlying profit before tax for the half of 120.9 million dollars was achieved. If we then apply a 30% tax rate to that profit, we end up with an underlying profit after tax of AUD 84.2 million. There were a couple of abnormal transactions or items during the half, and both of those combined ultimately led to an increase in the statutory profit after tax of AUD 114 million.
Now those two abnormal items, the first relates to the deferred consideration that we agreed to pay as part of the Altura acquisition last year. If people recall, we agreed as part of the price we paid to issue about 65 million Pilbara shares. Those obviously get valued and get revalued from an accounting point of view until those shares are actually issued. Between the time of 30 June, the last balance date, and the date of actually issuing those shares, Pilbara Minerals share price kept going up. We had to continue to revalue the value of that deferred consideration, and the result of that is that about AUD 37 million of non-cash costs end up in the profit and loss for the half.
The other impact on the profit and loss, as a result of the improved financial conditions of the company, is that we have now been able to recognize the prior year tax losses of the group. In the past, just because of the conditions the company has been facing, we didn't have enough certainty to bring to account those prior year tax losses. Clearly, with the results achieved for this six-month period and, you know, the forward-looking pricing, there is a lot more certainty around what our taxable profits are gonna be and therefore there is a lot more confidence around recognizing those tax losses. That actually represented a credit to the profit and loss of AUD 66 million.
Turning to cash flow, now I'm referring to slide 16. The strong pricing and operating margin obviously presented itself in a much stronger operating cash flow and a higher cash balance. Cash flow from operating activities, after taking account of corporate costs and exploration costs, et cetera, was AUD 116 million for the half. We invested AUD 38 million in the business. That's largely around the restart of the Ngungaju operation, the Pilgan Plant Improvement Project that we've been completing, as well as the deferred capital waste activity that's ongoing. We also actually generated an inflow from financing activities of about AUD 40 million.
Now that's largely because we increased the syndicated debt facility we have with our bank by $20 million. That was really around helping fund the restart of the Ngungaju operation. Clearly, we've also paid some interest along the way as well under that facility. Probably while we're talking about the cash flows, it's probably worth just pointing out as well under the debt facility that the strong cash flows that we are generating is now triggering the cash sweep mechanism that exists within that facility.
We've actually shown in the balance sheet that we will be paying about AUD 25 million, in fact, it was paid during this month in February. That's an acceleration of the debt repayments on the back of the strong cash performance of the business during the December quarter. These stronger cash flows from the stronger pricing ultimately I think will lead to us accelerating the repayment of that debt as a result of this cash sweep mechanism. Turning just to some comments on the balance sheet. Slide 18. Again, just highlighting, we've had a significant increase in our cash balance.
At the end of the June year, we had AUD 99 million in the bank, and this has now increased to AUD 191 million. As I said, if we include the irrevocable letters of credit, that balance is actually AUD 245 million. The outstanding secure debt, so the debt that we owe to the bankers is AUD 176 million. That's 31 December. We have a net cash position at the end of the period of just shy of AUD 15 million. During the year, we've clearly been investing a lot of capital in the business. On an incurred basis, just under AUD 55 million has been spent on investing in the business.
There's a breakdown on that slide. As you can see is that we're obviously investing in capitalized waste development to help us on the mining front for that AUD 19 million. You know, the restart of Ngungaju plant at about AUD 19 million, and then the Pilgan Plant infrastructure improvements, about AUD 15 million. All in all, a fair bit of money being invested in the business, but all that is really to allow us to achieve that run rate of AUD 560,000-AUD 580,000 once both plants are up and running and at nameplate capacity. That's everything I wanted to go through on the results. I'd like to hand back to Ken.
Thank you, Brian. Thank you, Dale. Much appreciated, and I'm sure everyone will have some thrilling questions that'll arise as a result of the accounts, so look forward to them. To summarize, it's been a big year for Pilbara Minerals, and that's equally true on the sustainability front, where a lot of work has been undertaken to progress Pilbara Minerals down the pathway, which ultimately takes us to Net Zero. One of the more significant commitments that was made during the course of the year was the development of our first renewables power project, a really big solar farm contributing to our power supply at Pilgangoora. That's a 6 MW facility to be commissioned roughly mid-year or just a fraction after. That's one key tool that assists Pilbara down that path.
The other important thing that we've developed along these lines is the life cycle assessment for emissions as it relates to the Pilgangoora operation. We've been undertaking that work through a third party to assist us in understanding where we can make our significant contributions to the reduction in the carbon footprint in our supply chain. That has also included the work that we have underway in respect of our midstream products as well, which we think is going to be a big innovation for the industry. In particular, representing a material step down in carbon footprints for the hard rock supply chain using alternate product mixes and the way we do that at a site level. They're important initiatives. Big year for Pilbara in the employment stakes.
We fleshed out some of the more granular detail around gender diversity on slide 12. Actually it's good news because we've been making some big steps forward there, and we're now actually well ahead of our industry peers as it relates to the entire workforce in terms of gender diversity. It's an important tool as the industry considers responses to things like the sexual harassment inquiry and its interplay with the fly-in fly-out industry, which has obviously caught a lot of attention in the last 12 months. We've been doing everything that we can to contribute to improvements for the industry as a whole and our participation in the industry discussion and commentary and for that matter the harassment inquiry itself.
We also restated our resource and reserve position. That was the first statement post aggregation of the Ngungaju asset base. That was done in September and October last year. It goes without saying Pilgangoora is one of the very important projects globally in respect of lithium raw material supply. Yeah, I'm really proud of the team's effort to continue to grow our presence in the industry and the supply chain as a whole. For that matter, the continued expansion of the Pilgangoora asset base. Okay. In closing, while it's you know been a challenging period and will definitely continue to be a busy period through for Pilbara Minerals through the middle of the year, I'm very confident in the team's capacity, the team's expertise and the way they go about it.
We have a very rare set of skills here at Pilbara Minerals as it relates to the hard rock supply chain. If ever there's a team that can pull together the Pilgangoora asset base as a whole and bring on the 560,000-580,000 tonnes capacity, then it's the team here. Now it's not without its challenge, which we've discussed on this morning's call. I guess the point I would make there is to say we are not alone in that regard, and that's one of the reasons why pricing will likely continue to be strong.
It's been the case, I think, not even just recent year history, but actually the history of lithium raw material supply, that the supply side typically lags the expectation and, I genuinely believe that to be the case today. We're just a microcosm of what's represented across the entire industry. It is very, very difficult to expand quickly. For that very reason, I'm pretty optimistic about where price, well, both where price is and where price goes. If you want the maximum exposure to lithium raw materials price, you should be invested in Pilbara Minerals because we are one of the few globally that has the ability and the leverage against the highest price outcome. Why so?
That's because we, at this time, feed the biggest raw materials, lithium raw materials market, being principally China, where the price as a whole is very, very high. Now, people want to excuse that price as saying it's a spot price, but it's a misnomer. It's not a spot price. It's a price that represents the volume-weighted trade of the world's largest lithium raw materials market. It just so happens that they renegotiate on a very regular basis. We participate in that same market, and that's why we have leverage to that high price. Most of our peers don't, and you can see that in the pricing outcome that they receive. In summary, if you want that exposure, then you should seriously be looking at Pilbara Minerals. The last thing to address, we've also announced the CEO succession.
In dealing with that head on, I would simply say that Pilbara Minerals is so well placed today. An incredibly healthy balance sheet, amazing cash flow from operations, which is, it would appear, likely to grow during the course of this year, creating a healthy balance sheet, lots and lots of growth options, and lots and lots of product options for the company. With that as a backdrop, I think that Pilbara Minerals represents a fantastic option for those considering entering the battery raw materials sphere as a CEO. With all that as a backdrop and the fact that I've been doing the public-facing kind of CEO role for over a decade now, it represents the logical time to create that succession opportunity.
In any case, as much as some might want it, I'm not going anywhere quickly because I equally wanna see a successful transition for the company. I'm really passionate about Pilbara Minerals, where it's got to, the team here, and what they represent for the future of the mining industry. For all those reasons, I'm really keen to see this upcoming succession be undertaken as smoothly and with as seamless transition as is possible. That's about it, I think. That's all I have to add. Emily, I'm going to hand over to you. If you could take us through to close off the conference line. Thanks very much.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Jack Gabb from BofA. Please go ahead.
Thanks. Hi, Ken, Brian, and Dale, and team. Thanks for the opportunity. Ken, congrats on your decision, which I hope isn't timed to coincide with a view when spodumene prices will peak. Listen, just a couple from me. Firstly, just on dividends, you're gonna be generating pretty good cash this half, and even with your future CapEx plans, do you have any initial thoughts on dividends at the end of this year, or does a buyback make more sense? Thanks.
Yeah. Thanks, Jack. A logical question. I think if my chairman was on the line, he'd be saying, "Well, if a mining company is in a position to pay a dividend, it should." I don't wanna put too many words in Tony's mouth. The first thing that has to be dealt is Brian's alluded to the effect of the cash sweep. That's reasonably marked, or our expectation is that's reasonably marked during the course of this year, because of the serious cash flow that's emerging from operations. Secondly, you quite rightly pointed out there is reinvestment to go back in the business, and we really like some targeted projects that would definitely be worthy of attention from a capital point of view.
A couple that come to mind, obviously the expansions themselves, that they are important and very much part of the portfolio. But also power generation, power integration, port and a couple of others come to mind that we'll probably have more to say about during the course of this year. Even so, on the assumption that there is still excess cash flow, which seems likely at this point in time, then it would be the case that dividends become a consideration, but nothing definitive yet, Jack.
Thanks, Ken. Next one is just on your sales. I think it's been about four months, I guess, since your last BMX auction. I guess, as we're waiting for some uncontracted tonnes to come through from the Altura plant. Given you've now got, I guess, a bit more visibility on those tonnes, have you fixed a date for the next auction yet? And is it still gonna happen this quarter?
Yeah, Jack, we haven't fixed a date, but my hope is that we can still run an auction this quarter, even if it's relatively small tonnes. Yeah, we're firm believers in the importance of the BMX tool in terms of flushing out, you know, transparency as to the marginal price for product. So with that as a backdrop, we are keen to continue to keep running auctions, albeit it's been tempted by the progress of the plant. But to answer your question, yes, it might just be a function of the available tonnes.
Thanks. Just one last one on costs. I guess capitalized strippings are a reasonable amount this year, and I guess we should expect that to be up probably a bit next year. But can you give us a sense on quantum of that? And then secondly, what does that look like when strip ratio drops off post FY 2023?
Yeah. The strip ratio peaks based on our current schedules at about seven to one, from memory, Dale, sort of, off that order. We haven't quite got there yet. I think so far we've peaked at about five to one. The additional cost and fleet that Dale's alluded to coming to site contributes to that outcome. When we first indicated that we were catching up on waste, we said there was about 18 months worth of work, so we've got approximately 12 months worth of work to go. The only other thing that would change that outcome is the extent to which we lock in subsequent expansion capacity, which of course has a commensurate impact on opening up more ore for the purpose of additional processing capacity.
Based on the foreseeable future, we peak in waste over approximately the next 12 months.
Great. Thanks, Ken. Just one-
Sorry, Jack. Last thing was the cost. Brian alluded to the trend of which one of the key contributors is the waste strip. We see slightly elevated costs as compared to the historical norm during FY 2023, but with a view to, as the waste comes off and we finish the full integration of the Ngungaju operation costs trending down a bit more.
Okay, perfect. Just last one. There were some comments from Ganfeng's chairman that they may look to sell down at some point. Have you had any discussions with them?
Yeah. We have regular discussion with Ganfeng, whether it's as a shareholder or in respect of, you know, our customer relationship. We haven't heard any comments with respect to their stake in Pilbara Minerals, but to be fair to them, should they choose to sell, obviously they've invested very wisely at this point in time, Jack. No particular news one way or the other, but we do appreciate the relationship with Ganfeng as a whole for both the value in their shareholding but also the value as a customer.
Perfect. Thanks, Ken. I'll leave it there. Cheers.
Your next question comes from Hayden Bairstow from Macquarie. Please go ahead.
Good morning, Ken. I hope you're well. Mate, a couple of things. Just firstly on the guidance. Is there going to be a sort of split out of the Ngungaju performance in the six months? So I'm assuming it's gonna be reported all as one thing by the full year results. So how do we think about being able to compare what you put out in guidance to just Pilgan versus how it will actually perform depending on, you know, if Ngungaju doesn't come in at all, I guess it'll be easy. But if you start expensing and putting that in, how are you gonna treat all of that this six months?
Yeah. Well, Ngungaju has contributed some production because we've been running the HMS circuit. In the scheme of things, that's relatively small tonnes, approximately 5,000 tonnes a month, you know, sort of peak. Now, having said that, as the flotation circuit comes on, obviously it makes a more significant contribution. Our expectation is that by weighting at Ngungaju, we'll end up with about 60% in flotation and about 40% in HMS. That's slightly higher weighting to HMS than the Pilgan plant. I think to get to the heart of your question, in building out the balance of guidance for FY 2022, the contribution as a whole from Ngungaju is relatively small.
We obviously haven't discounted it, but nonetheless, we've made it relatively small in the guidance outlook because we're concerned about as and when the flotation responds. Dale mentioned that the construction is largely complete, so you know, we're a matter of a week or two away now from finishing that construction. We don't know exactly how the flotation is going to respond leading into the end of the year. It's kind of a sensitive time for us 'cause it's only four months away, and we really don't know how that flotation's going to respond. We've largely discounted it as it relates to contributions to guidance. That also explains Brian's commentary about dealing with production cost because from a production cost point of view, it's not gonna be making much contribution.
It's really more weighted towards the CapEx side than it is, and the ops readiness side, than it is actual production.
On shipping costs, I mean, the spot shipping rates that I can see seem to have come down a fair bit. I mean, what's your forward shipping book look like? Is there still issues with actually getting slots and boats or is it starting to ease back there?
Yeah. You pay for the availability, I think it is the way to think about it, Hayden. You can get a vessel, but it just means that it's going to be higher cost. Sometimes you get lucky. So there is quite a big range. In our current freight book, we would have been as low as about, for argument's sake, $55 a ton, but as high as $70 a ton. So it's still elevated in our view as compared to the historical norm, albeit just slightly off its peak.
Okay. On the BMX spot sales, I mean, Ngungaju was, you know, the key provider of additional volume for all of that. I mean, how do you sort of schedule any BMX sales before you can get confidence the flight plans actually work?
We are getting some production from there, firstly, but just the coarse concentrate, albeit in small tonnes. So that is the contribution that you've largely seen so far. The other thing is we still rely pretty heavily on Pilgan. Now, Pilgan, from a production point of view, I think we've got ourselves more comfortable that the new equipment's doing the job that it's supposed to be doing. So throughput's been pretty strong. What we've got to optimize, and as per Dale's comments, relates more to the combination of ore feed and recovery. We expect that Pilgan is going to ultimately outperform. Now that, you know, time will tell exactly, but in terms of what we've seen in throughput so far, we've been pretty happy with it.
It's just not the right recovery, and that's principally as a function of stability in the facility and the ore feed. Our expectation is that that's all getting sorted over about the next four months, in which case, Pilgan will be a very strong contributor to overall production for the balance of the calendar year as we bring on the Ngungaju facility.
Okay, great. [audio distortion] .
Your next question comes from Al Harvey from JP Morgan. Please go ahead.
Yeah, good day, Ken. Just trying to get my head around these, the difference in guidance from, you know, reporting FOB versus CIF. I was wondering if you could kinda step through the royalty costs based on an FOB price and then how that compares to your AUD 2,600-AUD 3,000 a tonne CIF guide that you provided at the quarterly.
Yeah, Al, because of the speed with which the price has been moving, it has the apparent effect of over-inflating the cost because of the speed with which the price is moving on a price received basis. To differentiate the two, royalties are made up of a combination of contributions. We've made reference to this in the footnotes to the guidance, but broadly speaking, it's the state royalty at 5%, native title royalties at 1%. They are applicable to all Pilgangoora tonnes. Then there is a small royalty. It's an FOB sales royalty of 5% that relates to approximately half the tonnes in the current Ngungaju inventory or the former Altura assets. That's a private royalty.
Now, when you weigh those tonnes across the entire Pilgangoora portfolio, it's relatively small, because it represents half of the Ngungaju tonnes, which in turn only represent, you know, about, I don't know, what would it be? 15% or 20% of the total tonnes. So in the scheme of things, it's a relatively small private royalty, but nonetheless, they're for some of the Ngungaju tonnes. Now they're all calculated on an FOB price received basis. Shipping costs, I alluded to that earlier. It's higher than what we would consider to be the historical norm, so elevated conditions today, for argument's sake, $60 a ton, as compared to the historical norm, which is probably more like $25 a ton.
Thanks, Ken. Just again, maybe just following up, beyond 2023, I think you previously had the target around AUD 400 a tonne CIF. But, you know, now you're talking around FOB prices, costs. Just wondering, you know, can we kinda use that as the long-term guide still, or should we rebase our estimates a bit higher?
No, we expect that the costs will be a little bit higher during FY 2023. Now that, as described by Brian, that's a function of two things. First, the effect of the elevated strip ratio. As I mentioned earlier, that peaks at about seven to one as compared to life-of-mine norm of about 4.9 to one or five to one. That contributes to cost. Then the other thing is the lasting effect of the ramping up at Ngungaju, 'cause we'll still be going through that during the first half of FY 2023. The longer-term trend should see costs returning to roughly $350 a ton.
That's where we have always expected the cost to be, albeit some catch-up, as a function of waste and for that matter, shipping in current environment.
Thanks, Ken. Just to confirm, that's 350, CIF or FOB?
Oh, sorry. Yeah, that is on a CIF basis, but it includes the what you might consider a more normal price and/or the more normal shipping rates.
Yeah. Got it. Okay, just one more from me. You've withdrawn the shipment guidance for FY 2022, but can we expect this to be roughly 10,000-20,000 tonnes lower than production guidance? That's kind of about how much lower it was on previous guidance.
Yeah. Al, it's such a fluky one, that one, because it really depends on when a vessel goes, and our vessels are typically getting bigger. If you miss a vessel, you know, a 20,000-tonne vessel at the end of a quarter or the end of a half or the end of the year, then it'll make that you know, reasonably big difference. That's one of the reasons why we sort of simply say, "Look, it's very difficult to be definitive about it." The way you're thinking about it, yeah, in the order of 10,000-20,000 tonnes less is probably not a bad estimate. We might get lucky and shipping might yet reflect production. It's just a function of when the vessels fall.
No worries. Thanks, Ken.
Your next question comes from Timothy Hoff from Canaccord. Please go ahead.
Thanks for the questions, Ken. I was wondering if you could just step us through how much tax benefit you have left and what you might expect to pay in cash tax for the rest of this year and potentially into FY 2023.
Sounds like a really good question for Brian.
We've got a tax benefit of about AUD 85 million of tax benefits still to be able to claim. The expectation is we won't be paying any tax during FY 2022. Purely as a function of the timing of when you actually submit your tax returns. The first tax will be paid during FY 2023. Well, the expectation is that most of those tax losses will be utilized during FY 2022, therefore the tax payable for FY 2023 would be at the 30% rate of the profit you're generating.
Yeah. Brilliant. Then Ken, this one's maybe for you. You set your guidance for prices on the 31st of January. Since then you've seen some significant moves higher. Was this taken into consideration, or had you been looking at prices that you had received and rolled forward? Then the Street appears to have your second half pricing at AUD 2,800 a tonne, all else being equal, for 2022. Do you have a comment for that number?
Yeah. Going back to the March quarter guidance, I think we'd already taken into account the effect of the trend in price. We get some of the benefit of that as a function of provisional versus final pricing. There is a second order effect in the March quarter, and that's the delay, you know, slight delay in shipments, as a function of production. So we missed, for argument's sake, I don't know, two to three weeks of the uplift as a function of a delay in the actual vessel being shipped. But nonetheless, you know, still okay with the range that's been described. But Tim, you've raised a really good point, and I think that was what I was trying to get to, in explanation around the price trend.
It feels to me like everybody is underestimating the effect of the price trend in the current half because there is very, very substantial moves up in lithium chemicals pricing, which is a key driver to, obviously, our offtake contract pricing. The effect of that means we get a material uplift in price received under contract. I can assure you it is much, much higher today. In fact, not that dissimilar to sort of what people are currently reporting as spot pricing because the chemicals price is running so hard. Yeah, the trend is very strong, in which case I think it's being undercalled. God knows what you would receive if you ran an auction today because the value in the spodumene contributing to a $70,000 chemicals price is enormous.
I won't go into the detail there, but suffice to say it's materially higher than what people are currently quoting as in inverted commas, a spot spodumene price.
Yeah, absolutely. I imagine your news today will be pretty devastating for a few converters out there.
Of course we're doing everything we can, mate. I mean, yeah, we wanna make sure that we look after our customers too. You know, again, I'll just make the point, this is a whole issue that the industry experiences in the environment we're in today. The combination of supply chain impacts, COVID impacts, people impacts, means the industry as a whole cannot respond as quickly as demand is rising. That's what's leading to this, you know, what might be perceived to be incredible pricing outcomes. You know, my view is if people are contracted in the supply chain, they have to buy. It doesn't matter what the price is. As a result it feels like pricing's gonna be very, very strong.
Yep. I agree. Perhaps one last question for you, Brian. With the cash sweep mechanism, does that imply an out payment in the June quarter, or is the next relevant period going to be the September quarter after the FY result?
No. That cash sweep calculation is done on a quarterly basis. We obviously, in February, we paid the cash sweep based on the December quarter. There'll be another measurement at the end of the March quarter, and then that payment, assuming there will be a payment, will be made during May. That happens every quarter.
Okay, excellent. Thank you very much. I might hand it over.
Your next question comes from Adam Baker from Global Mining Research. Please go ahead.
Morning, Ken and team. Just quick accounting one, of the AUD 53.8 million letter of credit, when do you expect that to hit the account?
That money will come in, you know, during January and February. That's really just it's just the money that is outstanding on shipments which occurred sort of in November and December. There's normally about a one to two month lag between when we actually receive that cash from customers. The important point around that is because we've got confirmed letters of credit from customers, we could actually go into the bank on the day after the ship leaves and actually cash the letter of credit in. That's why we always, you know, in my mind, I always think of those funds as being cash because, you know, it's a choice that we can make to actually go and cash, you know, go to the bank and actually cash those letters of credit.
Generally, the terms of customers paying us is sort of between one to two months after the ship has left.
Sure, that makes sense. Maybe more of a subjective question, but you've had quite a large number of new employees start over the half year, as shown in slide 12 of your slide pack. I think you said you started 196 new employees. Yeah, just wondering how you instill some good company culture given that you've had such large growth over a relatively short period of time.
Yeah, it's a fair question, Adam. I think the truth is it does represent a challenge. A lot of growth going on at Pilbara in every regard, whether it's, you know, people, mining activity, construction activity, and obviously production activity. It does represent a challenge, but the point I'd make, mate, is that we've been here before. You know, we started Pilgangoora with, you know, four employees and ended up with 200 employees. We're doing it again now as we continue to expand the activity, and it's largely the same team. It's not as though we haven't done it before. I would like to think that broadly speaking, it is a really good culture here at Pilbara Minerals, and I think most people would reflect that. We don't pretend to be perfect.
That's, you know, we're not pretending that we're that good. But nonetheless, pretty good culture and something that I think we're all proud of here at Pilbara Minerals.
Sure. Thanks, guys. I'll hand it on.
Your next question comes from Stuart McKinnon from The West Australian. Please go ahead.
Good day, Ken and team. This one's probably more for you, Ken, and it's sort of on a personal note, I guess. I was just wondering, obviously, you've signaled your departing at the end of the year. Will this spell the end of your career at executive level, mate? Or are you looking for sort of more board positions going forward? Or are you gonna just pretty much go into semi-retirement or retirement? What's the plan for Ken Brinsden post 2022?
Yeah. Well, thanks for asking the question, Stuart. The first thing I'd say is a lot of people have asked me is my health okay? I can assure you my health is okay, mate. I don't feel like I'm about to keel over. No, my decision is really a reflection of well, a couple of things. A couple of points I would make. The first is the one that I alluded to earlier in the call. You know, 10 years in the sort of public-facing, sort of front-facing Managing Director's role, some of it during turbulent times, means that it's taxing. My first objective is, well, other than continuing to grow production at Pilgangoora in the short term, is to then have a break. That's part one.
My family might like to spend a bit more time with me too, Stuart, I guess. Second thing is that for Pilbara itself, you know, I don't think that there's ever been a better time for somebody to see the attraction in taking over at Pilbara Minerals. That's because there's this phenomenal change underway, in mining generally, of which Pilbara Minerals is a sort of key representation, and that's the emergence of battery raw materials as a really important part of the mining sector.
I'll bet you that there's candidates out there who are thinking, "How do I become a part of it?" I just feel like Pilbara Minerals is probably about as well placed as it's ever going to be to solicit the pool of available candidates that can take the company to the next level. That's another factor sort of in my consideration. As to what's done next, well, there's no zero commitments, Stuart, other than to have a break. I'm still really passionate about the mining sector as a whole, but in particular battery raw materials. I don't have any objectives in the short to medium term. Time for a break.
Great. Thanks, Ken. Thanks for your honesty, mate. Appreciate it, and well done.
Your next question comes from Glyn Lawcock from Barrenjoey. Please go ahead.
Oh, hi, Ken. Just a quick one. Just if you could make some comments around the quality of the product you're now putting into the market. You know, how does it compare to the benchmark 6% grade?
If anything, if the market's as tight as you say, are we seeing any penalties now for not selling 6% and sort of, if you could quantify what that is? Then just to follow up, I didn't quite hear Brian's answer to Timothy Hoff's question. Is there any other off-balance-sheet tax losses that can come to bear? I didn't quite hear the answer. Thanks.
Yeah, deal with that one first, I think, Brian. Yeah.
Hi, Glyn. Look. No, there's no other tax losses which have not been booked on the balance sheet. Look, there are some capital losses, but we're not gonna book those 'cause it's very hard for a mining company to get the benefit of capital losses. In terms of revenue tax losses, we have brought all of those to account.
Thanks.
Glyn, on the question of product quality, it's a good line of inquiry, and it's fair to say that in the current market there, you know, in effect or broadly speaking, everything references the SC6 product no matter what's delivered. That's a function of just outright demand for lithium units. The best example I could give you is to point to, you know, our last BMX auction. The BMX auction was deliberately selling a 5.5% product. We, you know, we specifically targeted that product grade, and the price achieved obviously well outstripped any of the prior contract pricing. It's indicative of a market that is going to buy lithium units no matter what the price reference, if you like.
From our point of view, in terms of overall production, we reference SC6 in our contractual arrangements with customers. However, we have had reason historically to sell them, you know, what was available. For example, from commissioning periods and the like, and I think in probably by far the majority of the cases it still references an SC6 price, so it's just a lithia adjustment.
Ken, when you get to say 580,000 tonnes before you expand again and again, what would it be? What would be the average grade of that product when you sell it? And what is the sort of discount per tonne, you know, per 0.1% at the moment?
Yeah. Well, it would be in the range of 5.5%-6% because we'd likely deliberately target 5.5% or in fact potentially even lower for spot sales. Contractual sales would typically look to reference the SC6 price. The combination of the two is therefore going to land between 5.5 and 6. My view is for the foreseeable future in that range, you would not see a discount. It would just be lithia adjustment. There would be no discount.
Okay. Appreciate it. Thanks.
Your next question comes from Tim Elliott from Regal. Please go ahead.
Yeah. Hi, Ken. I don't have a question. I just wanted one minute to pay tribute to what you've achieved as CEO, because I think it offers lessons for the whole Australian mining industry. A lot of CEOs talk about value over volume, but you actually walked the walk. You didn't push excessive tonnes into an oversupplied market at low prices that didn't reward shareholders for all the risks we take when we build our own mines. Your M&A was countercyclical and synergistic, which is all too rare. You know, your BMX innovation to daylight, you know, customers very high willingness to pay for lithium. It's been transformational for the industry and I think reset expectations of what lithium prices will be whenever markets are tight.
I hope the rest of the mining industry has paid attention to what you've done because it's delivered exceptional returns for shareholders. Well done, Ken. Thanks a lot and great job.
Oh, good on you, Tim. Thanks. Really appreciate the feedback.
Cheers.
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 comes from Alex Wallis from Polymer Capital. Please go ahead.
Hi, Ken and team. I'll echo Tim's sentiments there. Congrats on a great tenure at Pilbara Minerals.
Thanks, Alex. Much appreciated.
Questions for me is just on Guangyuan. There's a little bit of an update in the full half yearly today, but I was just wondering how that's tracking. I think you need to make a decision on it by the middle of 2022. If construction is running a bit behind, you know, is late 2023 still a realistic target? Has there been any adjustment to CapEx expectations for that project?
Yeah. Good on you, Alex. Yeah, we've been remiss. I didn't address that in our commentary, so thanks for asking the question. Yeah, the POSCO deal from our point of view continues to progress. What was outstanding as of late last year was for the final budget presentation and the equivalent of FIRB in Korea for the closure of the joint venture terms. Our expectation is that all progresses during the current quarter and that remains our expectation. We're still discussing the detail in respect of the budget. The FIRB box has been ticked as I recall. No particular issue there in terms of the progress of the JV and we'll have more to say about that in the coming four to five weeks.
As for the project itself, well, POSCO have continued to beaver away, Alex. They have started site works and they have indicated to us as part of our ongoing engagement with them that they will start the major construction works in the latter part of March. From our point of view, they're sort of full steam ahead. For that matter, the current schedules still show commissioning from the second half of 2023. No new news in terms of progress, just the fact that the closing items in respect of the joint venture can be completed in about the next four weeks.
Just to follow up to that, do they have a separate project team or project management team running Guangyuan to what they have in Argentina? It just seems like a lot for that business unit. Notwithstanding it's a conglomerate behemoth, but it seems a lot for that business unit to take on, given we've heard in the past they've drifted off of personnel and capital.
Yeah. No, they've definitely got a lot going on, Alex. In fact, that division runs a lot of other battery raw material activities. The cobalt joint venture with Huayou and there's a nickel sulfate pilot plant in the same complex. Yeah, they're doing a lot, but well-resourced. In fact, they have continued to man up, Alex. That's what we've observed in our engagement with them. The team continues to grow. The joint venture will house about 250 employees from memory. Yeah. Alex is nodding there and they're well down that path now.
Okay, thanks. Final one from me, just to follow up sort of to Jack's question earlier. There's been a lot of speculation around about CATL facing sanctions in the U.S. I know they've refuted it, and it could be very misplaced, but was wondering about your current relationship with them and their equity investment in the company, if you have any transparency on potential intentions there.
Well, we really enjoy the relationship with CATL and their affiliates, even TNE. They have been both very good shareholders and very good customers. We would have nothing but good things to say about the interplay between Pilbara Minerals, CATL, and Pilbara Minerals, even TNE. From our point of view, very, very solid. As to their relations globally, my observation would be very much they have ambitions in that direction. The Erfurt plant is being commissioned, I believe, very soon, like within the next couple of months. They've come a long way there. As far as I'm aware, they did have ambitions in respect of factories in the U.S. Yeah, I'm not familiar with any particular concern, and I certainly don't see that in our relationship with CATL.
Great. Thanks though, Ken.
Good one, Alex.
That concludes our telephone questions.
Yeah. Emily, I'm gonna hand over to Nicholas Read, who's been looking at the questions online. Nicholas, if you can help us out there. Thank you.
Thanks very much, Ken. Hello, everyone. I'll quickly run through. We've got four or five questions online, so we'll go straight to them. The first question here is from James, from Gilchrist & Co. He asks, and this is a question relating to the midstream strategy, I think: Is it a given that the lithium salts will be accepted by all converters downstream, i.e., their plants haven't been designed to process the spodumene concentrate they would normally expect to receive?
Okay, thanks for your question, James. Yeah, the products that we are targeting wouldn't naturally be delivered to the classic chemical conversion industry. In fact, our objective in developing that project is to target different subsets of the market. Once the lithia levels are enriched, so you've converted the spodumene into a lithium salt, the higher lithia credit means it can penetrate other markets because you don't any longer have to go through the chemical conversion industry, at least in its current form. In fact, it's a different model, a different product targeting a different subset of the industry, but in particular a global footprint. You know, the key markets that come to mind for that product are Europe and the U.S.
Now, having said all that, it is possible that the chemical conversion industry can take the product. It just bypasses, for example, the first half of their facility, and would be considered more like a classic product for purification as compared to raw converted spodumene. My answer is a little bit complex. It's not targeting the chemical conversion market, but that doesn't mean it couldn't go there. It's just a different model to the historical norm. Hope that makes sense, James.
Thanks, Ken. The next question here is from Steve, from MRC Building Services. It's a question about your contracts portfolio. So he's just asked if you could confirm for shareholders that there are no legacy contracts at the historic pricing levels of 18 months ago, so everything's been switched to new pricing. Also, he asks if you can comment on whether the company is targeting sales contracts outside of China to grow its portfolio in other past portfolio.
Okay. Confirming that our contractual pricing outcomes have been renegotiated with each customer. The benefit of achieving that work last year was to get a different price relativity to the chemicals price. In fact, from a pricing point of view for Pilbara Minerals, two things happened in the first half of FY 2022. The first is that relative to the chemicals price, we achieved a better value for the spodumene, but of course also during that period and since, the chemical price itself has appreciated substantially. All of that speaks to you know very good spodumene pricing outcomes for Pilbara relative to the chemicals price. With respect to targeting other markets, a little bit like that first question from James.
It is true that we of course receive inquiry for spodumene from international markets, i.e., markets beyond China, but in particular, you know, Europe has been probably at the fore. But our preference is to recut the supply chain with different products that are value-added. The benefit in that is we believe multifaceted. Firstly, Pilgangoora achieves a higher relativity in the value of spodumene in the ground. Secondly, it's a materially lower carbon footprint in the supply chain once you've gone to that value-added product. And thirdly, it avoids customers having to deal with a whole heap of waste that they don't want in their backyard. For all those reasons, we think it's a worthy pursuit and we continue to chip away at those projects.
Thanks, Ken. Next question is from Trent Hamilton, from Paradice Capital. His first question is, all going well, what month would you expect to be at the 560,000-580,000 tonne per hour run rate?
Well, as per the commentary in our presentation materials, we expect to achieve that run rate during the September quarter.
The second question was, assuming spot prices are maintained at current levels, how long would it take for your realized price to reach this level?
I'm not sure I understood that question, Nick. Okay, yeah. Well, the trend is very strong. It's difficult to be definitive about that. The spot price from Platts and Fastmarkets respectively is AUD 4,500 and AUD 3,750 from memory. Currently, it's fair to say that contractual pricing outcomes would be approaching at least the lower end of those levels currently. Because, yeah, it's amazing how fast and hard the chemicals price has run, which is the key reference to our spodumene price. Last point to be made there, we get the benefit of provisional and final pricing, which gives us a better match between the final price achieved for spodumene and the chemicals price of the day.
There is still some lag. Typically that would be approximately one month, one to two months, depending on the customer. We don't quite get there at exactly the same pace, but nonetheless, we get there within one or two months.
Thanks, Ken. A couple more to go. One from YJ Lee from Arcane Capital in Singapore. He's just said, not sure if I missed it, but is there a timeline on the Pilgan Plant 30,000-50,000 tonne per hour capacity improvement?
Well, as per our commentary, that project is well and truly construction complete, commissioning complete, and we're now in the optimization phase. We've been pretty happy with what we've seen in the throughput capacity through that Pilgan Plant Improvement Project. We're just in that optimization phase as it relates to recovery and the ore feed that matches maximum recovery. I think soon, you know, a matter of months to have realized that capacity.
Thanks, Ken. One last one from Stephen Tonkin. He's got a couple of questions. One is, does our fleet or contractor have any diesel hedging in place as a cost mitigation measure?
Yeah, good question. The answer is no. In effect, the cost of diesel for the mining fleet is passed on by rise and fall to Pilbara Minerals. We don't have any hedging in place. In effect, we're exposed to whatever volatility emerges there. It doesn't represent the whole cost of mining, obviously. Some exposure, but it doesn't feel like it's a huge level of exposure.
The second part of his question was just about engagement with your workforce. What strategies or protocols you have in place in terms of retention and motivation for the workforce bonuses, et cetera?
Oh, yeah. We're really conscious of how we look after the entire workforce, right from you know, senior executives down. It's really valuable, the intellectual property that the company has collected over the years, and therefore retention, you know, represents a you know, a key tool to maintain that intellectual property. We do use some financial instruments to achieve that aim. Short-term incentives, long-term incentives, and under certain circumstances, bonuses. Which we hope are valued by our employees. Broadly speaking, that's the feedback.
That's it for the online questions. Back to you, Ken.
Okay. Thank you, Nick. Thanks to those that have submitted the questions. Amelia, I think that just about is a wrap.
That does conclude our conference for today. Thank you for participating. You may now disconnect.
Thanks, ladies and gentlemen, for your participation, and talk to you next time.