Again, please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Pilbara Minerals Managing Director and CEO Dale Henderson. Please go ahead.
Thank you Maggie, and thank you and good morning everyone for joining the call. I'd like to begin by acknowledging the traditional owners on the lands in which our business operates. The Whadjuk people of the Noongar Nation here in Perth where we're undertaking a call from today, and the Nyamal and Kariyarra people where our operations are located in Pilbara. We pay our respects to the elders, past and present. I'd also like to extend my best wishes to those celebrating the new lunar year which starts today. In particular our partners in China and South Korea. Moving to Slide 2, the December quarter has been a period of solid performance for the group, delivering across each pillar of our strategy.
Joining me today to walk us through the details is Luke Bartolucci, our CFO, and Brett McFadgen, our Executive General Manager of Operations whom is calling from site today. We're also supported by the wider team who are with us in the room today. The call will run for an hour. We'll begin with a brief presentation before opening the floor for Q& A. For the remaining time as outlined by Maggie, there will be some time for questions from the webcast which we hope to address at the back end of the call. Turning now to slide three, let me begin with the reminder of our strategy. Our strategy is underpinned by a clear vision to create rapid and sustainable value for our shareholders while growing our leadership position in the lithium sector.
As many are aware, the lithium market has been dynamic, driven by rapid growth to meet strong underlying demand for lithium products. For Pilbara Minerals, this has meant balancing a disciplined approach to capital preservation during market highs while then reinvesting strategically into our operation to scale lower costs and position ourselves for inorganic growth when the right opportunities arise. FY 2025 to date has been a strong demonstration of our ability to execute on the strategy. The key highlight has been the build out of our operational base at Pilgangoora, particularly with the development of the larger lower operating cost facility. The integration of this facility is a critical focus requiring tie ins and ramp up activities. Some of this work commenced in the December quarter and will remain a key feature of the March quarter as we progress towards exiting the June quarter at nameplate capacity.
With that context in mind, let's now move to the highlights for the December quarter. Turning to slide 4. During the quarter we announced and implemented the P850 operating model which is expected to deliver a cash flow improvement of approximately AUD 200 million in FY 2025. As part of this initiative, the Ngungaju processing plant was placed into care and maintenance. I'm pleased to report that that transition was executed smoothly and efficiently by the team. Well done team. Thank you. For the December quarter, production volumes remained on track with this plan with 188,000 tonnes produced for the period. Sales volumes exceeded production totaling 204,000. Unit operating costs of AUD 621 per tonne FOB reflecting the lower mining and processing costs. However, unit costs were slightly impacted by reduced sales volumes from the prior quarter.
Revenue came in at AUD 216 million, marking a slight increase from the prior quarter supported by marginal price improvements. In terms of projects, the P1000 project reached a significant milestone with construction largely complete and tie-ins underway in the quarter. The project has progressed on budget and on schedule with wet commissioning currently in progress up on site. The acquisition of Latin Resources was also nearing completion following the approval of both the Share Scheme and Option Scheme by security holders earlier this month. Further details will be shared later in the presentation on this. Regarding the half year results, we will provide a full review alongside half year accounts. However, we have included the half on half financial comparisons which Luke will elaborate on shortly. A key highlight is the positive cash margin from operations of AUD 41 million for the half.
This demonstrates the strong cash generating capability of the business pre capital expenditure. Even at the low average realized price of AUD 688 per tonne during the half and amid high operating costs courtesy of the ramp up year, our continued focus on cost reduction remains a priority. This is a key muscle within the business and one we have trained over eight years of operating experience. Today we are confident in delivering improved unit cost performance next year as we enjoy the benefits of expanded operations processing capability courtesy of the P1000 project. Now with that for a deeper unpacking of the operations, I'll now hand to Brett for a review. Over to you, Brett.
Thank you Dale. If we move on to Slide 5 starting with safety. As you can see on Slide 5, the December quarter delivered a strong safety performance with our total recordable injury frequency rate dropping from 4.03 in the prior quarter to 3.58. Pleasingly, no recordable injuries were reported in the December quarter, which is our best quarterly performance over the last three years and something to be proud of. Our enduring focus on safety and the safety program initiatives continue to Pilgan traction, empowering employees to actively participate in creating a safe work environment. Moving on to Slide 6, the transition to the P850 operating model was successfully implemented with our Ngungaju plant moving into care and maintenance during the quarter. I am pleased to note this was done safely and with no operational disruptions.
As a result we had a solid operational quarter with production and costs in line with expectations in the mining. The moderated mining strategy in line with PA50 resulted in an achieved total material movement for the December quarter of 6.9 million tonnes, which is down on both the September quarter and same quarter in FY 2024 of 9.4 and 9.5 million tonnes respectively. I'm pleased to advise good progress was made with our ongoing transition to an owner operator mining model to realize improved operating efficiency and cost improvements. In the December quarter the group progressed the migration to owner managed drilling and blasting including the commissioning of eight new drill rigs. We look forward to the additional operational efficiencies and cost improvement this will provide. Over time in the processing. Lithium recovery exceeded internal forecasts with an average lithium recovery of 72.1%.
However, in line with plan, lithium recovery for the Pilgangoora processing plant was impacted during the period due to P680 crushing and sorting ramp up and optimization. However, these impacts were partially offset by a series of processing improvements including further optimization of the P680 primary rejection facility. Specifically all sorting optimizations. Improvement has continued to track to plan and has supported lithium recovery exceeding target i n December.
T he production for the quarter of 188,214 dry metric tonnes was broadly in line with expectation while being lower than the prior quarter of 220,000 tonnes due to primarily the implementation of the P850 operating model. P680 project including both primary rejects and the crushing and sorting continues to show positive results which coupled with the P1000 project will deliver an expanded production capacity, lower levels of mineral contamination and allow for the use of contaminated ore supply not able to be utilized. Thank you and I'll now hand back to Dale.
Thanks, Brett. Moving to Slide 7, the P1000 project remains on schedule and on budget and was 95% construction complete as at the end of the quarter. Post the quarter end, a major shutdown was completed on site for the tie-in of the P1000 infrastructure, which was the largest shutdown in the history of the business, and well done to all the team and our constructor and shutdown partners for their work on that successful shutdown. Commissioning is currently being undertaken following that planned shutdown in January. Outside of the P1000, the P2000 feasibility study remains on schedule with that study outcome due for completion December quarter at the end of the year. Moving to Slide 8, the downstream JV with POSCO continues to progress well. Ramp-up of Train 1 continued, producing 2,418 tonnes of lithium hydroxide monohydrate in the month of October.
Production certification was achieved in late November from a South Korean cell manufacturing enabling first sales of certified product. Train 2 completed commissioning in November with the production of 404 tonnes lithium hydroxide produced in the quarter. So well done to the Bosco team moving forward well there. Now moving to Slide 9, the acquisition for Latin Resources progressed in the quarter with the scheme receiving shareholder approval this month. The transaction is expected to complete on the 4th of February next week and we aim to optimize the Salinas project development studies and progress further exploration and infill existing mineral resource. Obviously post that acquisition so more to come in the space post transaction completed now. With that I'll now hand over to Luke to take us through the financials.
Thanks Dale and good morning to those on the call. Please turn to Slide 11 of the presentation for a summary of the group's key financial metrics for the December quarter. FY 2025 group revenue in the December quarter was AUD 216 million, a 3% increase on the September quarter. This was driven by a 3% increase in the average realized price partially offset by lower sales volume. The average realized price increased from $682 per tonne in the September quarter to $700 per tonne in the December quarter. Production volume of 188,000 tonnes in the December quarter was 14% lower than the prior quarter. As has been mentioned, lower production volume corresponded to the transition to the P850 operating model. This included placing Ngungaju into care and maintenance and planned downtime for the integration and ramp up of the P680 crushing and ore sorting facility.
Sales volume of 204,000 tonnes in the December quarter was 5% lower than the prior quarter, driven by lower production volume and shipment timing. Looking at unit costs, unit operating costs on an FOB basis increased marginally by 2% in the December quarter to AUD 621 per tonne. This marginal unit operating cost increase reflected a mix of reduced costs in dollar terms offset by lower sales volume due to the planned downtime for ramp up of the P680 crushing and ore sorting facility. Pleasingly, the benefits of lower costs from the P850 operating model began to accrue late in the December quarter following the decommissioning of Ngungaju in line with plan on a CIF basis. Unit operating cost was AUD 731 per tonne in the December quarter, 2% increase compared to the prior period in line with fixed costs.
Finally, the group's cash balance at 31 December was AUD 1.2 billion and remained strong. Turning to slide 12, slide 12 provides a summary of the group's key financial metrics for the H1FY 2025 period. Group revenue in H1FY 2025 was AUD 426 million, a 44% reduction on H1FY 2024, driven almost entirely by a 58% lower average realized price. The average realized price decreased from $1,645 per tonne in H1FY 2024 to $688 per tonne in H1FY 2025 and almost $1,000 decrease. Production volume of 408,000 tonnes in H1FY 2025 was approximately 88,000 tonnes, or almost 30% higher than the prior corresponding period. This was achieved through the production volume expansion enabled by the P680 project and recovery improvements across both parts. Importantly, H1FY 2025 was underpinned by a full period of operating with the P680 primary rejection facility.
A t the unit cost level, u nit operating costs on an FOB basis reduced by 11% on the pcp to AUD 614 per tonne, reflecting the benefit of higher sales volumes enabled by P680 against broadly flat production costs in total dollar terms. O n a CIF basis u nit operating costs were AUD 724 per tonne in H1FY 2025, a 20% reduction on the pcp. This was driven by lower royalty costs from lower revenue and the aforementioned increase in sales volume. Turning now to slide 13, slide 13 shows a cash flow bridge for the December quarter FY 2025. As mentioned earlier, the group's ending cash balance at 31 December 2024 was AUD 1.2 billion. This represents a decline of AUD 182 million from the prior quarter. The AUD 182 million reduction in cash during the period was primarily due to capital expenditure including growth CapEx for the P1000 project, partially offset by a net tax refund of AUD 100 million.
Focusing on cash margin, our cash margin from operations, defined as receipts from customers less payments for operating costs, was negative AUD 8 million in the December quarter. Cash margin, however, was unusually impacted by the timing of cash flows. More specifically, December quarter cash margin was reduced by AUD 40 million of final price adjustments on sales made largely in the September quarter. Adjusting for this AUD 40 million impact, cash margin from operations would have been positive AUD 32 million. Looking at CapEx, total CapEx spend was AUD 222 million in the December quarter on a cash basis and AUD 149 million on an accrual basis. CapEx spend of AUD 149 million included growth CapEx related to the continued development of the P1000 expansion project of AUD 60 million, infrastructure and projects of AUD 38 million, capitalized mine development costs of AUD 40 million and sustaining CapEx of AUD 11 million.
Turning now to Slide 14. Slide 14 shows a cash flow bridge for the H1FY 2025 period. In H1FY 2025, cash declined by $455 million to $1.2 billion as at 31 December 2024. The $455 million reduction in cash during the half was primarily driven by capital expenditure spend focusing on cash margin. Our cash margin from operations, defined as receipts from customers less payments for operating costs, was positive $41 million in the half. This reflects the strong cash generation of the business pre capital expenditure even at the low average realized price of $688 per tonne for the half year period. Importantly, the final price adjustments impacting the December quarter are factored into the half year period with cash margin from operations remaining strongly positive. Turning to CapEx, total CapEx spend was $436 million on a cash basis and $358 million on an accrual basis.
CapEx spend of AUD 358 million included growth CapEx related to the completion of P680 and the continuation of the P1000 expansion project of AUD 136 million, infrastructure and projects of AUD 92 million, capitalized mine development costs of AUD 84 million and sustaining CapEx of AUD 18 million for the FY 2025 period. CapEx spend is weighted to the first half with all of the P680 and the majority of P1000 CapEx now largely spent with greenfield construction complete. I'll now hand it back to Dale.
Thank you, Luke. Moving to Slide 16 for an update on the market. The lithium market continues to take shape rapidly courtesy of technology improvements, government interventions, and energy transition drivers. 2024 was a year of many milestones for the lithium market including global lithium demand totaled over a million tonnes LCE for the first time, growing by 30% year on year. Kearney benchmark global EV sales reached more than 17 million units growing by 23% year on year or 3.4 million units on the prior year. The data courtesy of Rho Motion, EVs themselves moved through a key inflection cost point within the China market. Chinese EVs offering a more cost competitive alternative to their internal combustion engine equivalent. China's EV market penetration 2H24 increased to roughly 50% of total sales resulting in 11 million EV sales or 64% of the global EV sales.
A remarkable step up there in China as it relates to mass energy storage or demand grew by an incredible 53% year on year with 205 GWh of global storage deployments. This data care of Rho Motion. What's behind this? Well, significant disruption is underway due to these rapid advancements in technology. Every day more headlines are emerging for auto company mergers. Breakthroughs in autonomous driving, ESS, and developments in electric vertical takeoff and landing or eVTOL vehicles as they're called, to name but a few. At the core of this disruption is a technology revolution where digital intelligence and electrification are intersecting, combining, and self-reinforcing. Now to share some of the recent anecdotes in this space which illustrate this.
Jensen Huang, the CEO of Nvidia, described a key part of the future of his company is predicated on several three key growth areas for robots being agent robots, self-driving cars and humanoid robots. Now I know all of these will need batteries and I also note the distinction Jensen's made that cars are becoming robots. Also the CATL co-chairman Pan Jian spoke at the World Economic Forum recently where he recharacterized EVs as EIV with I referencing intelligence. So again, another example of this digital influence combining with electrification. Now moving to more practical example is the incredible progress BYD has been making. BYD sold over 4.25 million passenger cars last year, positioning itself as the second largest EV manufacturer globally, just behind Tesla. BYD surpassed Toyota's EV sales in the Japanese market in 2024, marking a significant milestone.
BYD officially entered the South Korean market this month, a bold move that brings it into direct competition with the domestic EV manufacturers here in South Korea. We continue to closely monitor BYD's advancements as they challenge established players in key markets worldwide. Another notable anecdote of supply chain disruption comes courtesy of CATL, the battery maker. CATL of course being one of the largest globally launched what they've called their Bedrock chassis. This is an integrated product that provides not only the battery, but the full chassis integrated and has been safety tested. Thus this change obviously changes the role of the battery maker, but further simplifies the automobile supply chain and no doubt will lead to reduced costs courtesy of CATL's manufacturing scale. We watch this with interest.
So as you can see from these brief examples, much change is underway and all of this change are growth markets, which of course the lithium market serves as a key subset. So moving to pricing, the lithium market has been rebalancing following the highs of calendar year 2020 and 2021 following recent supply curtailments over the past year across the industry. We note that spodumene concentrate pricing has lifted off the lows of $750 per tonne that we saw in October last year and now moving into the range of between mid-$850s to low $900s. Pilbara Minerals continues to see inbound interest from downstream industry participants both in relation to near term offtake and long term opportunities surrounding expansion optionality that Pilbara holds.
While volatility is expected to continue as the industry continues to take shape, we remain focused on the incredibly strong long-term fundamentals this exciting market presents for our shareholders and all our stakeholders connected with the business. Now, before we move to questions, I'd like to leave you with a few closing remarks. FY 2025 sets the stage for a stronger operational platform with increased scale and improved processing capability as we integrate both the P680 and P1000 projects. As noted earlier, ramp up years naturally impact runtime and lithium recoveries as new circuits are integrated. These factors have been carefully considered and accounted for in our guidance. The December quarter that we've just walked through represents another solid operating performance quarter, delivering in line with our plan for the year being this ramp up year.
Now looking ahead to FY 2026, we're excited to showcase the improvements in unit cost outcomes driven by the enhanced scale and efficiency of our expanded processing capabilities. Now the group remains focused on executing on our strategy, navigating through these cycles while strengthening our leadership position in lithium. This is anchored by our ongoing improvements in long term cost performance, maintaining a strong balance sheet and our disciplined market aligned approach to capacity growth. Thank you for your time and attention today. We remain confident in our strategy and our ability to adapt and thrive in this evolving market. Now with that I'll hand back to Maggie to proceed to Q& A. Thank you very much Maggie.
Thank you Dale. To ask a question, please press star 11 on your telephone and stand by while we compile the Q&A roster. Our first question comes from Levi Spry from UBS. Please go ahead.
Yeah, good morning Dale and team. Thanks, thanks for your time and Happy New Year. Maybe just to push a little further on the market, there was reports that SQM had realized $920 on a recent auction. Can you talk to how real that price is and give us a bit more insight into what you're seeing currently?
Yeah. Good day, Levi, and Happy New Year. As it relates to the market, it's obviously always really hard to understand the supply, demand, balance. We do think that that's tightened as it relates to spot sales being above the average and specifically the SQM advantages. I don't have any particular insight but it doesn't surprise me that on a spot basis they would realize a premium and it does obviously signal a potential tightening in the market. So we'll wait and see to see how things evolve. In contrast to our realized pricing, we've been focused on our offtake delivery. So based on the production volumes from site, it's all largely committed under offtake. So our long dated offtake is of course tied to the average market references as compared to the smaller volume spot sales. So yeah, that's sort of the landscape at this moment in time. Levi.
Yeah, thanks Dale. And the chemical price hasn't really done much as of yet but just thinking about the optionality you now have within your portfolio, particularly with Salinas also in there. Can you talk us through how you're thinking about stepping through t hose projects? You know, so the P850 becoming a P1000 again with the Ngungaju coming back on, how you think about weighing up Latin versus the P2000 with the study out later this year?
Yeah, thanks Luke. Yeah, the key word is options there. So at our disposal we've now got a suite of capacity options which you sort of listed off there. We've got of course the Ngungaju operation which could be brought back to life fairly rapidly we think within sort of a four month period. And then we've got the larger growth plans relating to Salinas and P2000 of the Pilgangoora asset. In terms of how we're thinking about it. Well, it's all market dependent. Now if it was to eventuate that there's a rapid price rise, well obviously we can respond to that quickly. Via the Ngungaju facility, that would be an obvious lever to pull if things are more muted. Well, we'd probably continue with the current operating platform. So that would be probably the two bookends in parallel.
What we need to do is progress the studies for both the P2000 and the Salinas Project. So we will push those along in due course and progress those to maturity. And ultimately there's obviously a longer lead in time with each of those growth steps. And we like the idea of preparing those and being ready to bring them to market as the market is ready for it and as the market grows. So that would be sort of at a high level, the way we think about those capacity increases. Levi.
Thank you. Thanks, Dale. Thanks for your time.
Thank you.
Thank you. Just a moment for our next question, please. Next we have Kaan Peker from RBC. Please go ahead with your question.
Hi, Dale, Luke and Brett. Happy New Year. Two questions. One, the first one's on the negotiated offtake agreements. Maybe if you can give us an understanding of what proportion of sales volumes they impact. Pardon me. And how do they better align with market pricing? Are they still based off Chinese chemical prices? And do they have offtakes tied to longer provisional pricing? I'll follow up with a second one. Thanks.
Yeah. G'day, Kaan. So, as it relates to the two offtakes we have referenced in the quarterly activities report, one is the completion of an offtake which came to an end there, and as part of coming to an end, that retires that offtake, inclusive of the pricing formulas which were intrinsic to that pricing formula, had come a bit out of step with the market. So happy to see that one come to conclusion. The other offtake referenced there is a renewal and we took the opportunity to, as you would expect, to reset that appropriately in alignment with our other offtakes. So where we stand today is the full suite of offtakes are in close alignment at this point in time in terms of what we believe is the ability to achieve the market pricing for spodumene. So we're happy about that.
To the question of what proportion did those offtakes speak to? As of last year, it'd be something less than 20% for last year. Moving forward, it's a different makeup of customer volumes which we haven't disclosed. Probably as much as I can speak to there without getting into contract specifics. As it relates to provisional pricing, we've got, broadly speaking, the same approach across each of those offtake agreements. The product is priced provisionally based on typically sort of a one month, up to two months, look back and then it's settled in the future. Typically M +1, typically. There is some variation around that. Hopefully that helps. Kaan.
Y eah, sure, thank you. Also, Train 1 and Train 2 with the POSCO JV appear to be doing well and obviously ramping up. However, there was a comment in the quarterly about further funding for the JV due to depressed prices. Can you maybe give a ballpark estimate on current ramp up expectations and pricing?
Yeah, Carlot. Firstly, as you say, the PPLS team are doing a great job not only with the ramp up, but pre that with construction. So we're really happy to see the progress they're making bringing those trains to life, the certification progress they're making, the quality. There's a lot to like about the progress there and well done to them and all of the detailed preparation work they've put into creating the success we've seen thus far. But yes, we're only partway through the journey and as spoken to in the quarterly, Train two is very much in the thick of it as to the reference around funding, we're not in any sort of position to understand if there is a need there. The POSCO team, the JV team is working through the potential forecasts and outlooks, et cetera, et cetera.
Depending what happens with the market, of course, that flows through to the bottom line and obviously that's ultimately going to be a key factor as to if there's a funding need or not. Now importantly, Pilbara is an 18% equity participant, so we're very much a minority participant in that joint venture. If there were to be a capital requirement, well, obviously we're quite a small percentage of that at 18%. That's the lay of the land there. Kaan.
Sure. Thank you, I'll pass it on. I appreciate it.
Thank you.
Thank you. Our next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead with your question.
Morning, Dale and team. Happy New Year and thanks for the update. I just wanted to firstly follow on from Kaan's question there on the POSCO JV and the commentary around needing to tip capital into that. If I go back to your proportional reporting of where that balance sheet for the JV was at in June, it looks like that JV should be able to reasonably fund itself for the immediate future. So you're able to maybe talk to what the remaining capital spend needs are for Train two, or maybe how the operating cost outlook has shifted or maybe how big the discount on uncertified material is that you're expecting to get that would drive you needing to potentially tip into that JV.
Yeah, sure. G'day, Hugo. Firstly, yes, the JV is in good financial standing, as you've highlighted. That's correct. As to our ability to provide any sort of expectation around future needs, unfortunately, no, we're not in a position to that at this moment in time. The POSCO team is deep into forecasting and budgets at the moment and we'll of course be party to that when they've progressed their thinking and once that's done, we'll be in a more informed position to look at the outlook, but as you've sort of stated, we're in good financial health there at this moment in time.
Got it. I might follow that one up later then. But then, second question also, just kind of following up from Cairns, can you just on the realizing pricing phase? Can you firstly just confirm that the auction cargo you agreed last March, that was slated for the December quarter, did kind of improve that realized pricing in the quarter? And then to the point around the offtake pricing changes, how does that shift your overall portfolio exposure now? I think historically we'd kind of talk to 2/3 to spodumene, one third to chemicals with a preference for hydroxide. Does that now move more to sort of 75% weighted spodumene pricing or how should we start to think about that now going forward?
Yeah, there's a few questions buried in that one, Hugo. Thanks. As it relates to the spot, so by proportion, that was pretty small and yeah, I can't recall what we realized there, but it doesn't really move the average as a function of smaller volume. As to the makeup of the portfolio in general terms across the offtake suite, they're all weighted to spodumene price at this moment in time.
But importantly, I would stress that a key foundational principle across all of our offtakes is that the pricing mechanism will realize the underlying value for the spodumene concentrate. Now, if that means to achieve that aim, we have to evolve, review and evolve those pricing mechanisms, potentially swinging back to chemical references or other references, well, that is contemplated and historically that's what we've done. As we've seen dislocations emerge between the different headline references. Just would like to highlight that. At this slice of time, we've aligned by weight of proportion to spodumene concentrate. Does that answer your question?
Yeah, I guess. Just in terms of what that weighting is, do we think about that being kind of more than 2/3 weighted, though, overall?
Now you could make that assumption. Yep.
G ot it. And then just lastly, if I could squeeze one in for Luke, just. Are you able to comment on or just clarify the amount of debt you repaid in the quarter, and I guess what your closing debt balance is post drawing the new facility to repay the old debt piece?
Yeah, thanks for the question, Hugo. So the debt balance currently is approximately AUD 375 million. The debt refinance was approximately AUD 370 million.
Got it. And so that's repaid all debts. You don't have any government loans or anything still on there that you've kept?
No. The previous project style government and corporate loan facilities have been fully repaid and the $375 million of debt on the balance sheet today has been drawn down from the new RCF facility. So it was a refinancing of the previous debt.
Got it. That's helpful. Thanks team. I'll pass it on.
Thank you. Just a moment for our next question. Next we have Rahul Anand from Morgan Stanley. Please go ahead.
Hi team, good morning. Thanks for the call. Look, I just wanted to touch upon firstly in terms of the future growth options. I think various questions have kind of talked about several of them. But if you were to think about your future options now and you do see the market start to improve, is it fair that you're going to be focused more on perhaps the Pilbara first followed by the Latin Resources and then also in terms of the POSCO plant, obviously going quite well there. Can you remind us, is the call option expiry? Is that in 2026 and in terms of your payable terms there, that would be basically cost plus i nflation, is that right? B e good to get some clarity on that. That's the first one. Thanks.
Yeah, thanks Rahul. As it relates to the growth options, both the Salinas project and the Pilgangoora expansion are two very different growth prospects. Given that we think it's likely there's probably different approval timelines will emerge. Certainly different scale of capital requirement between the two and the commensurate tonnage which flows from each of those is obviously quite different. So yeah, they're quite different expansion options to weigh up. And potentially depending where we ultimately take prospective developments, how we think through the interconnected supply chain solution is a key factor. Whether that's offtake or whether it's a strategic partner. All of the above is yet to be thought through. But as we think about that integrated supply chain solution, depending on that counterparty there are certain preferences for certain geographic locations. So that's another factor which will ultimately need to go into the pot.
As we weigh up timing as we progress each of those, so yeah, it's not so much a simplistic sort of commercial evaluation case. There's quite a few factors to think through on that one. But just to stress in all cases we will not be bringing any growth into market if we do not think the market is ready for it. However, we like the idea of preparing for that situation given we think the underlying growth is very impressive. As it relates to the POSCO joint venture question. Yeah, we have time for that call option for Pilbara.
First window we have relates to the certification of the two trains and that is some way off in the distance as to the quantum. That is based on our proportion of equity plus a small escalation factor which is something in the order of 3.6% per annum. Thanks, John. So we have option A, as we can elect to do in that first window and we have a second option B which is post that window. There is another window that we can elect to step up post those certifications if we make the decision that we wanted to take more time to evaluate. So, yeah, we've got a few different pathways that we can choose.
Thanks, Rahul, to that answer.
Thank you. I'll move on for the next question. Next question comes from Jonathan Sharp from CLSA. Please go ahead with your question.
Yeah. Morning, Dale and team. Thanks for taking my questions. So it sounds like you're a little bit more positive for prices in FY 2025. I'm just interested in your thoughts. How are you thinking about capital allocation moving forward? Has anything changed there? Should investors expect a more aggressive approach in dividends or M&A, or is it still your focus on organic growth?
Jonathan, as it relates to capital allocation, no change in our outlook, although in terms of the outlook for the market, look, it's great that we've seen a small price increase from the December quarter. However, it's a small increase and we're not long into it. And fundamentally there's a level of uncertainty in the market, so it's too early to take any view of market direction. So with that in mind, no change to the way we think about balance sheet management. We're very focused on balance sheet strength. So this is about preserving capital if you really can, preserving cash everywhere we can, and continuing to drive cost out of the operating base everywhere we can. So more of the same in that regard.
Just to add to that, the focus really remains FY 2025, bedding down the P850 operating model and the cash flow improvement that will result from that model. So no change to our capital investment approach over FY 2025. Okay, great. And just another question just with continued investment from others in lower cost South American brine projects, how do you see Pilbara's hard rock spodumene strategy and how do you see yourself competing in potentially a lower price environment over the next period if it does stay lower?
Yeah, no change in the way we think about that area, Jonathan. So we've always sort of taken the view that the left hand side of the cost curve sits the best assets, which is inclusive of the best brine assets and the best hard rock assets. And the work we've done and certainly where we're heading with our asset and our processing capability, we're comfortable about directionally where that takes us. So no change to that outlook. And yes, we know the enthusiasm around some of the brines. So we'll watch that with interest as we watch the other areas of the market development with interest. The other thing I'd probably just add is, and the major brine producers can attest to this, a bit like hard rock, producing low cost brine is not easy. I think the cost curve in that space with some of these new brines. There's plenty to play out there in time would be my suggestion.
Yep, I agree with that and thank you. I'll leave it there.
Thank you.
Thank you. Our next question comes from Kate McCutcheon from Citi. Thank you. Hi.
Morning Dale and Luke. Good to see pricing improve versus benchmark and peers. So when the P1000 was FID, you gave us an expectation of how to think about operating costs. We've got economies of scale but now you've got transition through that owner operated fleet. The power solution, I guess. How do we think about medium term operating costs or when can we expect to get an update? Either some quantitative or qualitative comments.
Good question, Kate. We'll have to come back to you on an update on when we plan to update that longer term outlook. And you're correct that the last time we did a longer dated outlook on unit cost was that P1000 FID. Probably the full year results are the next time we can give a better outlook for you on unit costs. Yeah, look forward to that.
Perfect, thank you. And then a quick one for Luke just heading into the financials. Are there any one-offs to think about with Latin? And secondly, would it be fair to think about a modest tax shield there from D&A with that acquisition as well?
So yes, there will be one-off costs that are associated with Latin, which we're still working through as part of a holistic budget process. So those one-off costs will include, for example, transaction costs for the acquisition and we will work through that and then update the market when there's clarity on it. Just to sort of clarify, we haven't actually formally acquired the asset yet, so there hasn't been a lot of dialogue between the two companies in respect of how we would consider operating that business, what our plan is versus their existing plans, et cetera, et cetera. Does that help that?
Yes. So there'll be nothing to impact this half essentially.
Not the half that we're reporting on? No, not H1, FY 2025.
Yep. Thanks, Luke.
Thank you. Just a moment for our next question, please. Next we have Glyn Lawcock from Barrenjoey, please go ahead.
Morning, Dale. Look, I just want to talk a little bit about cash flow and the transition to owner operator model for both your mining fleet and drill and blast. How are you approaching that? Are you purchasing the gear or are you leasing it? I'm just trying to understand where the cash is. Whether that AUD 80 million lease expense or cash out the door flow in 2024 fiscal year is going to step up as a result. Thanks.
Thanks for the question, Glyn. So it's a combination of purchased equipment and leased equipment and we would expect that our annual lease costs to increase over the next several years as we continue to transition to an owner operator mining model.
AUD 80 million. I mean, that's sitting outside of what you call is your cash margin. You make that lease of AUD 80 million last fiscal year. So, are we thinking that steps up to what, double or 50% increase? I mean, that's quite a material amount of cash that's excluded from any all-in sustaining cost guidance or cost guidance that you provide.
Yeah, we're not providing guidance on t he FY 2026 period in respect of really any item on the P& L or the cash flow statement. But there will be an increase. If you think logically that we're going to expand our owner operator mining model, we'll provide more clarity around what the next year looks like at the full year 25 results presentation.
I appreciate that, but what about when y ou gave the guidance for 2025? You gave everything CapEx OpEx production for 2025. What's the sort of lease cash outflow for 2025 a t least?
F or this period it will be around about a 20% increase on the prior period.
It's about $20 million bucks. So call it $100 million for the year, give or take .
Yeah.
All right, that's great. Thanks very much.
Thanks Glyn.
Thank you. Our next question comes from Robert Stein from Macquarie. Please go ahead.
Hi, Dale and team. Quick one on recoveries. Notice they went down in the quarter. Some of that is due to tie- in impacts, I'm sure. Can you just give us an indication of how material that was? And we expect the recovery to trend after those one off impacts have been absorbed because Ngungaju went offline, obviously, and that would have had a dilutive impact to recoveries.
Yeah, G'day, Rob. Yeah, it's a good one for Brett to speak to. Brett, if you're online, why don't you mic up and speak to that?
Yeah, thanks, Dale. Thanks, Rob, for the question. Yeah, the recoveries, they were, although lower than the prior quarter, they were in line with plan mainly around the impacts from our ore sorting tie-ins and then the ramp up and commissioning of the ore sorters, which went actually reasonably pretty well and we were quite pleased with them. So the recoveries did take a hit. But as we expected and called out, you know, previously with those P680 tie-ins, it was pleasing to see that the December month came back to, you know, mid-70s. So definitely, you know, definitely the tie-ins and the integration of the circuits is the big call out there. We'll see that a little bit in this March quarter as well.
As we've said, you know, this year is an integration year and we're commissioning the P1000 again. We'll have some stop starts, we'll bring equipment in and the stability is a huge impact on the recovery, so we'll see them probably in line with the previous quarter, and then the June quarter is when we're planning to hit our stride with the P1000 and have everything settled down as we move into FY 2026.
Thanks for that color, that was really helpful. And then just a question on unit costs. I 'm just picking up where others, w e've sort of talked to. We're seeing Ngungaju obviously come offline. There would have been a whole host of one-off costs associated with that. Can you give us an indication of how material they were or what the quantum of those one-off costs were and whether they hit your C1?
I could start here, Brett, and then you can add any detail you think is useful. So we are still incurring those one-off costs. I can't give you an aggregate figure today, but just to give you sort of indication of the buckets of those costs, there are ongoing demobilization costs for both equipment and also for service providers. There are redundancy costs, there are other costs related to putting NLO into a position to be able to restart fairly quickly. We will have a sort of better sense for the aggregate one-off costs by the end of this month. It's worth noting that we announced the P850 operating model with the September quarterly, but we really only implemented that model late in the quarter. So it's only really sort of less than eight weeks since we started to implement that model. So it's still coming together. Anything you wanted to add, Brett?
No, I think you covered it well. Look, you know, and the bonus out of some of the unhidden costs that we didn't see with the recruitment as we moved our talented workforce across to g ain from Ngungaju, but they covered it well.
Thank you.
Thanks Rob.
Thank you. Just a moment for our next question, please. Next we have Matthew Frydman from MST Financial. Please go ahead.
Sure, thanks. Morning Dale and team. I've just got a really quick one potentially for Luke. Just wondering why the decision to draw down on the revolving credit facility at all? I mean why not just use your cash balance to repay the old facilities and let the RCF just sit there potentially avoiding some interest, expenses and establishment fees, et cetera? Was there sort of a use it or lose it provision there or is there anything else we should be thinking about there in terms of your balance sheet and that decision? Thanks.
Yeah, thank you. That is a good question. So the decision was made that given that we put the new facility in place and that facility was at significantly improved terms both across insurance covenants but also pricing, that we would utilize that facility and maintain a higher cash balance for liquidity. We think that our business with the size of its market capitalization and the size of its assets, that holding a small amount of debt is probably appropriate in terms of net impact relative to where we were under the previous government-led loan facilities. We have actually a net improvement in our interest as a consequence of it being priced at materially better terms.
Okay, thanks Luke.
Thank you. We will now go to the web questions and I'll pass myself to James.
Okay, thank you. We have a few questions online. The first question is regarding supply and demand dynamics and noting our charts today on slide 16. One comment is regarding potentially, I guess, a leveling out of the demand deficit, sorry, the supply deficit in 2030. Darren, could you comment on what you think is going to be happening over the next five years and past that point?
Yeah, great question. I think that's the one everyone struggles with is what is the growth rate and demand of these new markets, that's incredibly hard to predict, particularly given the disruption that I mentioned as part of the script earlier, but also the fact that some of the demand cases are whole new areas, in particular for example the low altitude economy being drones and carriers of even people, that's a whole new subset of potential growth which doesn't exist today, so trying to forecast that is incredibly difficult, and this is part of the reason that we rely on the people like Benchmark where we've quoted the data in terms of their outlook, where they've done some deeper levels of analysis trying to understand where the future might be heading. Really tough to predict where we might be even two years, let alone five years, let alone 10 years and beyond.
Okay, Dale, the next question is, can you please give an update on the midstream project and any future thoughts on possible EVs and battery chemicals?
Okay, good on that one. So as it relates to midstream, just to go back in time, we took the decision last quarter to pause the project for the purpose of cash preservation given the low priced environment we found ourselves in. So we took that decision together with our joint venture partner, Calix. And importantly as part of that pause we referenced that our joint venture with Calix, we were open to recommencement of that project subject to either market improvement or support from the government. Fast forward to January. We were successful in receiving a level of grant funding support care of the Western Australian Government which we announced via a media release the other day. So incredibly grateful to the WA government, the Cook Government for that award. So that's AUD 15 million additional grant funding. Where we're at is now considering that. So the respective boards, both Calix and Pilbara Minerals are considering that and we look forward to updating on where we take that project and we will update most likely as part of the next quarterly update.
Sorry, the second part was any threats to EVs you can foresee?
I think the EV freight train is off and running and it's just a question of different adoption rates in different markets. Care of enabling infrastructure principally. I think the China market has been a very live demonstration of that sort of disruption and change underway, and given what appears to be the superior product being the EV, it's naturally being picked up more given its cost point, the intelligence that comes with that new product type, et cetera, et cetera. So it seems, almost seems inevitable that there's nothing really standing in its way. It's just a question of growing pains to move and grow in different markets, so there's no obvious threat from what I can see. Okay. Thank you very much for those webcast questions and thank you all for dialing in today. As we said at the start, December quarter, a really solid quarterly performance across the board and what has been, what is, a challenging ramp up year, so incredibly well managed by the team. We look forward to updating again in the future. Thank you all for your time.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.