Good morning, good afternoon, and good evening, depending where you're dialing in from. Thank you all for dialing in to our FY 2022 financial results call. Within the room today, I have with me Brian Lynn, our CFO, Alex Eastwood, our Chief Commercial and Legal Officer, David Hahn, our Investor Relations Advisor, and Kate Bell from Read Corporate. In terms of the call today, I'll be taking you through just some broad opening commentary on the year which was. I'll then be handing to Brian, who will speak to the financial outcomes and offering some more insight there. Then to finish, I'll offer some commentary on the FY year ahead guidance and some commentary on the market. Lastly, to finish, yeah, we'll open the floor for some questions.
Starting with the opening commentary for the year we've had. It's been an absolutely transformational year for Pilbara. I refer to slide six, and the numbers frankly speak for themselves. Our revenue AUD 1.2 billion, a 577% increase on the prior year. An inaugural operating profit of AUD 561 million, EBITDA of AUD 814 million, and cash in the bank of AUD 874 million. An absolutely incredible year for the business, and long may it continue. Really, what's behind this is it shows that some of the strategies the business have had in play are now paying off.
Strategies which have been in motion for many years, delivered with discipline and have been timed well, and the fruits of that are starting to be born now in the results I just mentioned. Now I'd like to speak to sort of three parts of our strategy. You know, firstly, with our operating performance. You know, we've had a good year. A 34% increase on production from the prior year with, at 378,000 tons. Made up of, the Pilgan operation and of course the Ngungaju operation, which has been in ramp-up mode, during the financial year. As it relates to the Ngungaju operation, formerly the Altura operation, FY 2022 has really been the year where the benefits of that acquisition has been starting to be born.
Obviously, there's been the production, being able to get that production into market quickly as the market turned. In ore reserve, we did a big increase in October last year, a 54% increase in ore reserve to 163 million tons. Key benefit of that acquisition. The transaction itself, just to remind everyone, only completed in January 2021 last year. AUD 240 million. In the year just been, AUD 145 million of gross operating margin was contributed as a function of bringing that asset to life. Absolutely that Altura acquisition is bearing fruits for the business and by extension our shareholders. Delightful that management is being able to bring those benefits through to that acquisition. Moving from operating performance to expansion.
The P680 expansion project was approved by the board. The team is busy underway progressing that project. There's the P1000, which will bring our total production capacity up to 1 million tons per annum. That FID is still targeted for December this year. Looking forward to those next legs of expansion. Moving from expansion then to our other value creation mechanisms. This is essentially around chemicals participation. Well, during the year, the POSCO downstream joint venture was consummated, finalizing April 22nd. You know, that piece of work had been a long time in motion with discussions, of course, kicking off back in 2018. Well, here we are underway with POSCO for their joint venture downstream plant in South Korea. Being a 43,000-ton lithium hydroxide processing plant.
POSCO are busy underway commencing construction for that project. We look forward to the benefits of being an economic participant in that downstream plant flowing through to the business and to our shareholders. Also in the value creation chemical space was our midstream project. During the year working with Calix, we delivered the scoping study for that work. We're also successful in an AUD 20 million grant being approved to contribute towards that demonstration plant courtesy of the federal government. We progress that project as quickly as we possibly can. We like what we see. Of course, just to remind everyone, the midstream project is all about producing a value-added lithium salt.
Value added in that it concentrates the lithium up, leaves the aluminosilicate waste in the mine site, and does it in such a way to materially drop the carbon footprint. We're pretty excited about that project. It is R&D, and we're progressing that as quickly as we can. Of course, all of this was progressed during the year just been. Lastly, around strategies which have been paying off was BMX. Hard to believe, this only kicked off in the year which it has been. BMX, just to remind everyone, when we went into sort of exploring and deploying the Battery Material Exchange, being our version of eBay for battery materials. The hypothesis was, gee, we think a live marketplace will go well.
We think potentially it will extract a higher margin through providing a more efficient marketplace. Well, we will certainly prove to be correct, and that was, you know, from the first auction being in July last year, that went well. Then the seven subsequent auctions since have all gone well, extracting a material premium above the market average. We are looking forward to continuing to deploy the Battery Material Exchange in the year ahead, and with a stronger and higher production profile through the combined operation. We'll of course have some more product we can direct in that direction.
An absolutely phenomenal year, which has been through the strategies I just mentioned, the operating performance expansion, value creation and chemicals, and the results of all of the above applying through to a great set of results that we've just reported. Without further ado, and to offer a bit more detail on those financial outcomes, I'll hand over to Brian.
Great. Thanks, Dale, and hello everyone, and thanks for joining the call. I probably will start just by offering some high-level commentary on the financials, and then I'll move into a bit more color around the profit and loss and balance sheet outcomes for the FY 2022 year. If I can just start by referencing slide nine of the investor pack. Just to reiterate what Dale just said and recognize that the FY 2022 year has certainly been a transformational year. The results reflect, you know, not only the positive market conditions for the battery raw material industry, but also the initiatives that we undertook as a business over the last two to three years.
Some of those initiatives, Dale's already spoken about, but largely in terms of what generated margin for us in the business, it was clearly the Pilgan Plant improvements where we increased capacity of that plant. We've restarted, commissioned, and are currently ramping up the Ngungaju Plant, the old Altura asset. We also completed the POSCO transaction. All of those, you'll see, will feature in the discussions around the financial results. For the year, the company was able to deliver more tons than the previous year in a market that was buoyed by strong demand for the raw materials, and particularly, that demand was particularly strong in the second half of the year.
Those strong demand conditions obviously presented a very strong and positive pricing environment, which allowed the company to deliver around about AUD 1.2 billion of revenue, an EBITDA of just shy of AUD 815 million, and an inaugural full year profit after tax of AUD 561.8 million. On the back of the strong EBITDA results, we've closed the year with cash in the bank of AUD 591.7 million. If you include the irrevocable letters of credit for shipments that have already sailed, that balance increases to AUD 874.2 million. So a very strong cash balance and balance sheet at the end of the year. Turning to some commentary on the profit and loss.
I'm now referring to slide 11 of the deck. Again, buoyant market conditions clearly meant that we're able to sell more products at a higher price. You know, the sum of all that means that we ended up with a substantial improvement in gross margin from operations of just slightly higher than AUD 850 million for the year. It's probably worth noting that about AUD 680 million of that was actually generated in the second half of the year when we obviously saw the significant improvement in pricing conditions. We shipped about 361,000 tons of concentrate at an average realized price after adjusting for lithium units of $2,382 a ton CIF China.
In Australian dollar terms, that was AUD 3,295 a ton. With pricing as I said, significantly improving in the second half of the year, where the price for the second half in Australian dollar terms realized was AUD 4,700, compared to the first half where the price was, in Australian dollars, AUD 1,700 per dry metric ton. It's probably worth noting that the price, pricing that I've just quoted does not include some foreign exchange gains, which we include in our profit and loss due to the accounting rules. The exchange rate that we realize for revenue is based on the date of the ship sales.
Any movement between that date and when we receive the cash is recorded separately as a foreign currency gain rather than revenue. That was worth about AUD 21 million for the year. AUD 21 million of revenue that was recognized as a foreign exchange gain. In terms of just looking at the respective plants, the Pilgan plant contributed about AUD 708 million of the gross operating margin from 315,000 tons of product sold. As Dale mentioned, the Ngungaju plant contributed AUD 145 million to the gross operating margin from the sale of just shy of 46,000 tons of product sold. That's quite phenomenal when we think that really that operation was largely in startup, commissioning, and ramp-up modes during the year.
Yet, at the end of the year, it's as Dale said paid you know almost paid back half of the purchase price. That's something worth noting. The actual operations of the company you know were challenging on a number of fronts. Those you know reflected through in the costs that we achieved. This was particularly in the second half of the year. We found that the operations were impacted by COVID-19 when the borders opened in the second half of the year. Clearly we were.
Our staff and contractors were impacted by COVID-19, and that just meant that the manning levels we had across the site were lower than we would've liked, which meant that we couldn't optimize our operations and run them as efficiently as we would've wanted to. This, when we combine that with just a tight labor market and just general inflationary cost pressures, particularly around diesel fuel and ocean freight and reagents, meant our costs were higher than they had been. Pilgan Plant's cost for the year, excluding royalties and freight, was, in Australian dollar terms, AUD 555 a ton.
The higher realized selling price and the higher cost of freight meant that the cost on a CIF China basis per ton was $844 per ton. Clearly the Ngungaju operating cost, now we haven't quoted a cost per ton because it was in startup and ramp-up mode, but clearly because of that, the costs for operating Ngungaju plant were high. Expectation is that those costs will now come down to a more normalized level once that plant is fully ramped up to sort of 180,000 ton-200,000 ton nameplate capacity.
After accounting for corporate costs around AUD 21 million, exploration and feasibility costs about AUD 40 million, we generated an EBITDA of AUD 815 million. Accounting for depreciation and other asset write-downs of about AUD 46 million, we generated an EBITDA of just shy of AUD 770 million. Now, it's probably worth talking through a couple of significant but non-routine items that did impact the profit and loss account. The first relates to the recognition of prior year tax losses. Because we're able to generate such a good operating result for the year, we're able to recognize tax losses from prior years. That's basically meant a AUD 66.3 million dollar benefit to the bottom line, net of deferred tax balances.
On the flip side, we also recorded a non-cash cost of AUD 37.2 million, and that related to the deferred consideration on the Altura acquisition. If you remember, part of that consideration was the agreement to issue shares on a deferred basis. Those shares were issued during August and October in the year. That AUD 37.2 million really represents the movement in our share price between the first of July and the date that those shares were actually issued. After taking those into account, we achieved an inaugural profit after tax of AUD 562 million, which we think is a very good result. Turning to just the cash flows for the year. Now on to slide 12 of the pack.
Clearly the strong operational performance generated a significant improvement in the cash balance. As I said before, you know, the cash balance at the end of the year was AUD 591.7 million, which is a AUD 492 million increase over the prior year. If we include the letters of credit, the cash balance is AUD 874 million, which represents a AUD 758 million increase from the prior year. Major cash movements for the year, just shy of AUD 650 million of cash flow was generated from operating activities. Now that number does not include the impact of the letters of credit.
We spent about AUD 128 million on capital investments within the business, largely on the Pilgan plant improvements, the restart, commissioning, and ramp-up of the Ngungaju operation, and also on the capitalized waste development that we've been undertaking to ensure that we deliver the right amount of ore to the ROM. The cash flows also are reflective of a net AUD 3.6 million inflow of cash following the completion of the POSCO transaction during the year which we think was a very important transaction for us as it allows us to invest in a downstream chemical facility in a joint venture with POSCO. So the company was required to pay AUD 76 million for its 80% equity interest into that joint venture.
This was actually funded by a AUD 79.5 million convertible bond provided by POSCO. Because of that, we actually had a net inflow of AUD 3.6 million. Turning to just some comments on the balance sheet. Slide 14 of the deck. Clearly the cash generated by the business has transformed the company's balance sheet. We're in a significantly healthier position than we were 12 months ago. We've invested AUD 146 million back into the business on all the things I just spoke about. There's the waste movement being capitalized, the restart of Ngungaju and the Pilgan plant improvements. You know, as a result, we've ended up in a very healthy cash position.
If we look at the net cash position net of debt, we have a balance of AUD 432 million, and when we include the letter of credit, the net cash position is AUD 714 million. Clearly a very significant improvement in our balance sheets. Certainly, that improvement throughout the year has allowed the decisions around expansions to be made. We have now committed some of that money to the recent announcement on the expansion of the P680 project at the Pilgan Plant. The idea is to generate another 100,000 tons of spodumene concentrate from the Pilgan Plant.
As we look to the next six months, we still see that the pricing environment is strong, so we're generating further positive cash flows. We'll be looking to that as well when we think about decisions around the P1000 project later on in the year. That's all the commentary I wanted to offer on the financial results. I might hand back to Dale now.
That's great. Thanks, Brian. Much appreciated. Just to offer some comments on guidance for the year ahead. Slide 16. From a production perspective, we've detailed a range of 540,000-580,000 dry metric tons. That of course is the combination of our two processing plants essentially running at nameplate. That's as it relates to production volumes. From a unit cost perspective, we've given a range of AUD 635-700 per dry metric ton.
Also just flag that we've highlighted beyond FY 2023, we're anticipating to see some cost decreases as a function of strip ratio decreases, nameplate performance, and synergies that we're expecting to be realizing by the time we move beyond FY 2023. Moving from guidance, probably the last thing to add there is we have given some detail on capital expenditure as well on slide 16. Moving to slide 18, some general market commentary. What we see is really positive from all the indicators we have access to as a business. Starting with our customers, strong demand remains afoot from all corners. If we could produce more, they would take more. As it relates to new customers, inquiry continues thick and fast from all corners.
The most vivid example of this, of course, is our battery materials exchange auctions, which continue to be heavily contested, and long may that continue. From those data points, yeah, strong market support. Beyond that, what we see is new entrants scrambling. Some of the OEMs, who are obviously in the headlines more and more every day, scrambling to knit together their supply chain solutions. Well, of course, as one of the few operating producers in this space, we get contacted a fair bit and, as you'd expect, we have a bit of insight as to the problem they're trying to solve for here. It is fair to say, activity levels have definitely been increasing in that regard.
Lastly, in the market piece, of course, is the pricing. You know, what we observe through the reporting agencies is strong support, or we note the chemicals remain buoyant around AUD 70 per kilogram and above for lithium chemicals. We note that a lot of the market commentators are predicting the short term to midterm outlook to be very favorable and we tend to agree. Don't see anything to counter that in the near term. Long may that continue. That completes sort of my commentary on market related elements. Lastly, to finish, yeah, what a transformational year for the business.
It's absolutely brilliant to see the benefits of some strategies which were really born from the inception of the project and the business really starting to bear fruit. They were strategies which have been delivered with discipline and of course, timed well. What I mean by timed well is here we are quickly ramping up the Altura asset into a market screaming for lithium units with strong pricing. Very well timed, and it's a credit to all involved within the business. To that end, I'd like to acknowledge the team and the contracting partners involved in our business. It has been a tough year. Of course, everyone's contended with COVID. No one's been immune to that. It's also particularly tough when you're trying to ramp up an operation, recruit people.
There's been a lot more activities within our business, so we're just delighted to see that ramp up going well with the Ngungaju assets. Yeah, a big shout-out to the operating team and all involved within the business who've made these results happen. I also like to acknowledge our shareholders and particularly those ones who have stuck it out, who stuck with Pilbara, rode the journey, rode the downturn, and here we are on the other side of that. A particular thank you and shout out to you for having the conviction and the wherewithal to sustain that downturn and stay the journey and, yeah, delighted to see the benefits of that flowing through to the share price appreciation that Pilbara rightly deserves.
Lastly, in the thank you category, yeah, to the board, contracting partners, all the shareholders, thank you so much. It's been a great year. The business is poised like none other to capitalize on this incredible market that we're stepping into. It's just an absolute delight and long may it continue. With that, I conclude and like to hand back to Melanie for questions.
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 Mitch Ryan with Jefferies. Please go ahead.
Good morning, Dale and team. Thanks for the questions. Can you please give us any color on the grade implied in the guidance? Will it be sort of a 5.5 product?
The grade we're anticipating will be approximately around 5.5. Mitch, we have widened it slightly and in particular, through the June quarter, we had an average of approximately 5.4 as a function of ramping up the Ngungaju operation. The trend we are exploring is to move down that grade curve, purely and simply to maximize our lithium units from the operation. I think for now, 5.5 is probably a fair number to utilize in the near term.
If you did trend down that grade curve, we should expect increased tons?
Correct. Yeah, that's the mission. Yeah, maximize yield. Yeah, we would expect some tons. The actual quantum is hard to estimate. It's a function of the mineralogy and where we're at in the mine plan. It becomes a bit challenging to guide as to what that benefit will be. The broad principle of dropping down product grade and yielding more product as a function of that holds true.
If we thought of it on an LCE basis, you know, it's within a range. The LCE range could potentially increase marginally.
Correct.
Okay. Second question. Capitalized waste, you called that out inside the guidance. Can you give us any color as to sort of beyond FY 2023? Is it very specific to 2023, and then it sort of comes back to a much lower number? Or does it sit at that level beyond FY 2023?
I might speak to what the mine plan looks like physically and then offer a chance to Brian to comment on the numbers. From a mine plan perspective, the year we're in is a year of developing the pits further. What that looks like is for our southern pit, we'll be doing more waste movement and opening that up further. We're also looking to open up what we call the eastern pit, as the name sort of alludes to. It's east of where our central pit is located. We're looking to develop that. That's in the year we're in.
Post this year and into the following year, that development, those volumes will taper off and we're looking to see a step back in strip ratio. Brian, did you have some comments to make on those numbers?
Yeah. Look, I would say yes, the waste mining beyond FY 2023 is going to come down. I think for FY 2024, you know, I would expect that the number would be probably 30%-40% lower than FY 2023 based on the current mine plans that we have.
Okay. That's my two. I'll come back around. Thank you.
Thanks, Mitch.
Thank you. Your next question comes from Hayden Bairstow with Macquarie. Please go ahead.
Yeah. Morning, Dale and guys. Just a couple from me. Firstly, on capital management. Dale, sort of no mention of that. Cash flow is obviously now really strong. Just are we likely to see something at the AGM or something the board might talk about in terms of whether there'll be a policy implemented on that front? Just secondly then on CapEx, just outside of your Pilgangoora CapEx, just talk about potential spend on Calix, or is there risks of a JV further call into the POSCO JV to fund the rest of that plant as well in the next couple of years? Thanks.
Sure. Thanks, Hayden. As it relates to capital management, probably unlikely that we'll be guiding at the AGM, but what we've indicated to the market is certainly December or before, we will give some insight into capital management. As it relates to CapEx, what we put in the guidance there is what we're expecting. The Calix JV project will address that on its merits. As you're aware, we're already with the AUD 20 million grant funding that's slated there. We're not expecting necessarily huge contributions, certainly relative to revenues we've got for the business. As it relates to POSCO, we're not anticipating, you know, any requirements in the near term for that.
Brian, did you have anything you wanted to add?
No, no. Look, that's spot on. Certainly on POSCO, we wouldn't expect anything, and certainly in the next 12- months. Then on, you know, in the numbers that we've guided to, that includes the studies that we need to continue to undertake on the midstream project. At that point, we'll then obviously work up a FID on a demo plant, assuming, you know, that is the next step, which we think it will be. At that point, I think we'd want to guide to the market in terms of what the CapEx might be.
The rest of the funding on POSCO has been sort of set up already. That's all done to completion? You think there might be, if they can't put more debt into it, that there'd be another call next year?
Yeah. No, Hayden, at this stage, our expectation is that there won't be another call. The only thing that might cause there to be another call is if there's a big blowout in CapEx. Even with that, the way it has been set up by POSCO with the gearing there is that they have allowed for additional debt to cover any sort of CapEx increases. It would have to be quite a big capital blowout for there to be a further cash call on us. Our expectation today is that there shouldn't be another equity contribution from us.
Okay, great. I'll leave it there. Thanks, guys.
Sure.
Thank you. Your next question comes from Alistair Harvey with JPMorgan. Please go ahead.
Good day, Dale and Brian. Just a couple from me. I guess you've got the P1000 FID in December this year. I'm just trying to get a sense of how soon after that FID you could begin construction in the current environment and if you've had any concerns around that timing since beginning P680.
Yeah. Al, on that one, as it relates to construction, yeah, the insight we have has been fairly positive, as we've engaged with contracting partners around the P680. The feedback we're getting is in both cases, the P680 project and the P1000, as it relates to capital projects, they're not actually that big, compared to, you know, the major iron ore expansions, by example, you typically get in WA. Because of that, we're actually able to access a bigger pool of medium to small construction contractors who can support it. We feel as a function of the size of the project, we're in fairly good position. That being said, of course, the WA market outright is short on people.
That issue is definitely there. Of course, we'll look to mitigate that through early engagement with the market around developing those plans. Timelines for delivery for us, we worry less about securing construction personnel, and we worry more about procurement of long leads, as a function of, you know, supply chain disruptions more broadly and globally and mining generally being fairly buoyant. Of course, we'll look to mitigate those through early orders. Thanks, Al.
Yeah, thanks. Thanks, Dale. Maybe one more quick one. I guess you mentioned capital returns. Probably gonna get a sense of that by December. Will that include potential for other growth opportunities like, you know, M&A or other things like that? Or is it, will that only be around dividends and buybacks?
The full spectrum of options will get considered by the board, Al, as you'd expect. Yeah, we'll give some insight to what that looks like at the end of the year.
Thanks, Dale.
Thank you. Your next question comes from Kate McCutcheon with Citi. Please go ahead.
Hi, Dale and team.
Previously, you'd given some longer-term CIF guidance at around $340-$375, I think, U.S. Do you have a sense for where your longer-term budget costs sit now? I know you said you expected prices, costs to come down over the next little while, but where those longer-term costs might sit now.
Yeah. Great question, Kate. We watch with interest as we observe various forecasters that are grappling with this issue as to the long run pricing. What we've elected to do as a business is we've typically gravitated towards benchmark minerals outlooks in this space as a guide to, you know, what the long-term pricing looks like. Of course, we certainly take a look at all the various commentators' analysis in this space and pleased to see the trend is on the up, which we tend to agree with.
Sorry, in terms of CIF costs for Pilgangoora, I think at some stage you told the market longer term costs would be on that $350 a ton. Is that still fair to think about that asset now, or have they come up in your long-term budget?
Yeah, sorry, Kate, I was gravitating to revenue pricing stuff in mind.
Yeah.
As it relates to costs, we will look to for the long run outlook for costs. We will guide again on that, coincident with the expansions.
Okay
Given that, there'll be a reset of variables at that time. We haven't looked to restate that long run cost guidance recently.
Yeah
given the moving parts.
Kate, it's Brian here. Probably just a couple of points, though. It's very hard at the moment in the current market to get a firm handle on where costs are gonna land in the next sort of 12-24 months. The couple of moving bits I think that we can control is around the amount of waste movement. So in FY 2023, we're doing a significant amount of waste movement compared to how we see it going forward. Expectation is that we would see somewhere in the order of about AUD 100 reduction in cost per ton for the level of waste movement that we'll need to do beyond FY 2023.
I think the other area which we're sort of expecting will eventually come down is around ocean freight, but it's just hard to tell. You know, right at the moment, you know, ocean freight is somewhere between $50 and $65. You know, if you look back in history, it's sort of been more around about the $20-$30 mark. We expect that to come back. I think those two things, yeah, will change the dial compared to what we've forecast for FY 2023. You know, which is just hard to see where sort of all the other costs are gonna go right at the moment, just given the inflationary pressure.
Yeah, that's helpful. Dale, I know you are itching for a pricing question. You haven't given us pricing expectations for the coming quarter. Usually you do. What's driving that? Can you remind me when your next BMX auction is scheduled? Some color on what you're hearing about inventories in the market, because spodumene prices have come up a bit recently.
Sure. As it relates to the next BMX auction, that's likely to be next month, and we'll likely look to run those auctions probably on a monthly basis for the next while, depending how we go. As to pricing, as I mentioned earlier around the market commentary, we're not seeing anything to disrupt the current levels. We watch with interest as everyone else does.
Yeah. Okay.
Thanks, Kate.
Thank you. Your next question comes from David Radclyffe with Global Mining Research. Please go ahead.
Oh, hi. Good morning, everyone. I just had a follow-up question on the mine plan and material movement. Just trying to understand, you know, what the net number of tons you anticipate moving is in FY 2023, and what sort of capacity you actually have to move tons?
Yeah, sure. Thanks, David. As it relates to capacity, we have been ramping up an owner-operator fleet, utilizing SMS and MBS. MBS for drilling. We have the required fleet to execute the mine plan. We have had our challenges around, at different points in time around manning that fleet, and not so much around truck drivers, but at different points in time, key skills around excavators or dozer operators of late, which of course we're targeting and resolving. We're not anticipating to have any issues around delivering those mine plan movements.
Should we think of FY 2023 as representing, you know, fully catching up on those waste tons or, you know, is there more maybe to come in FY 2024? At current prices margins, is there any sort of thought to sort of extra stripping for P1000 or just to get ahead in the good times?
Yeah, there's definitely some thought about the P1000 stripping readiness, but largely that's built into the plan, David. What we have in the mine plan is essentially more movement for this year and stepping down next year. Of course it's always subject to change and depending, yeah, we'll as and when we update the block models depending what maximizes economic returns. There's always potential that we of course change that mine plan, but the outlook at this stage is, yeah, more movement this year and then stepping down a little bit next year.
Okay. Yeah, maybe if I can, as just a follow-up. Yeah, with two plants running, you're guiding to sustaining capital around that sort of AUD 35 million level or just under. There's sort of a lot going on on site, and you've got the inflation impact. By the time sort of P680 is in and the new circuit's up and it's all running, where do you sort of see that sustaining capital hopefully settling out to?
David, it's Brian Lynn. Look, I think my expectation is that, you know, once we've done P680, it's not gonna add a significant amount to sustaining capital. It'll increase a little bit. I think that level that we've guided to for FY23, you know, it'll probably be increased by, you know, in the order of 10%, to capture P680 as well. That's sort of our expectation.
All right, Brian, thanks. I'll pass it on.
Thank you. Your next question comes from David Feng with China International Capital. Please go ahead.
Oh, hi. Good day. This is David from CICC. My first question would be, we've seen that the gross profit margin of Ngungaju was slightly lower than Pilgan, and that's mainly due to ramp up of production. Would you expect this difference to be eliminated in FY 2023, given that the ramp up of Ngungaju is almost finished?
Yes. David, absolutely. Ngungaju was higher cost, being in a ramp-up year. Once both operations are at nameplate, we would anticipate that the Ngungaju operation is slightly higher cost as a function of doesn't have quite the scale that the Pilgan operation does, or quite the number of levers, at least not yet, to fully optimize recoveries to the maximum. That being said, it shouldn't be a long distance off the operating costs of Pilgan.
Yeah. Just to add to that, David, you know, so for FY 2023, Ngungaju contributed about 46,000 tons of product sold. So clearly, you know, that largely happened in the second half of the year. Clearly, you know, expectation is that we'll reach nameplate capacity during the September quarter. You know, the sales are gonna be significantly higher than the 40,000 tons-46,000 tons that were sold during FY 2022.
Thank you, Dale and Brian. I've got another quick question on income tax. Based on the latest evaluation on unutilized tax loss carryforward, will we have any guidance on the effective tax rate for FY 2023?
The effective tax rate going forward is gonna be about 30%. The effective tax rate for FY 2022 was, I think, 22.5%. You know, that was driven by being able to recognize those prior year tax losses. Going forward, the expectation is it'll be about 30%.
Okay. Cool. Fantastic. I'll pass it on. Thank you.
Thanks, David.
Thank you. Your next question comes from Glyn Lawcock with Barrenjoey. Please go ahead.
Good morning, Dale. Dale, could you talk a little bit more to the Pilgan offtake? If I look at the June quarter, you probably got around about 6% of the hydroxide price, which feels a bit low relative to what some of your peers are pricing. Just could you help me understand when you could next renegotiate that Pilgan offtake?
Yeah. Good day, Glyn. Yeah, as it relates to offtake pricing negotiations, we have those provisions in our contracts with our offtake partners. Of course we exercise those when due and ready. Yeah, we've done that in the past, and we'll continue to do that. That's probably about as much as we could offer there. Unless, Alex, you have any you wanted to add there?
Yeah. Thanks, Dale. Yeah, all our offtakes have price review mechanisms in them. They, each one's slightly different, but we essentially have the ability to do that on a quarterly and half-yearly basis. We look to be doing that, you know, in the course of this year.
Okay. I guess I'm just trying to comprehend, like at 4,000 tons-4,500 tons for your spodumene out of Pilgan, it feels like we're giving it away relative to what we should be. That's all. Just curious, you know, will we see that change? You know, sounds like later this year or not this year at all?
I think later would be a good assumption, but as to the gap of offtake versus spot, that's not lost on us, I can assure you.
Yeah.
Yeah.
And then-
They're fixed in volume, not price. Price is actually floating based on the carbonate and hydroxide prices as well. You will get scenarios where those prices go, they are actually floating the price.
I appreciate they're linked to hydroxide, just feels like the current linkage is underselling what you should be getting for it. Can I just switch to the Ngungaju plant then? I think, Dale, you said you'd be doing another BMX auction next month. When it's running, it'll be doing 15,000 tons per month. Do you envisage putting the full 15,000 on BMX or still holding it at the 5,000 and then, you know, like, how would you sell the other remaining if it doesn't all go through the BMX? Is it gonna be against a particular index? I mean, if you sell it against BMI, feels like you're giving it away again if you use that index. Thanks.
Yeah, it's an open question, Glyn Lawcock, but where you're going with it in terms of the attractiveness of the spot market is obviously a good way to go, and although we haven't made a decision, it would make good sense to apportion a lot of the product in that direction to realize maximum benefit.
Okay, thanks.
Thank you. Your next question comes from Alistair Harvey with JP Morgan. Please go ahead.
I just wanted to follow up on Kate's question before, around inventory levels that you're seeing. Are you able to kinda give us any extra color there on, you know, where you're seeing, inventory build up, through the supply chain, particularly over there in China?
Yeah. Al, the insight we have, and through our discussions with customers, there isn't buildup, to our knowledge, and if anything, you know, there remains idle capacity for conversion. We don't have anything. We don't see anything in terms of inventory buildup from our perspective.
No worries. Thanks. Thanks, Dale.
Thank you. Your next question comes from Matthew Friedman with MST Financial. Please go ahead.
Sure. Thanks. Morning, Dale and team. I have been having a few call problems, so apologies if I did miss some of these questions. I wanted to ask on exploration, you didn't really call this out directly in your guidance. Can you give us a sense of your drilling and resource definition budget for FY 2023, and also the expected timing of your next resources update? And is that update likely to be driven by new geological data and drilling data or potentially just, you know, desktop pit optimization or price and cost assumptions or is it gonna be both? Yeah, just some context around what that next resource update is likely to look like. Thanks.
Yeah. Thanks, Matt. Yeah, we will do the normal ore reserves update later this year. We will be, as part of that, reconsidering all of the normal modifying factors as standard process when we do those ore reserve updates. To the question of exploration budget, we have some very modest expenditure in mind for the year ahead. However, we are reconsidering that at this point in time. Yeah, we will disclose in due course. Yeah, we are considering lifting the activity levels.
Great. In that update later this year, can you remind us what your current, I guess, reserve price assumption long run is for spodumene and you know, is that one of the modifying factors you'll be considering?
Yeah. Will be one of the modifying factors we'll consider. That will be detailed as part of the modifying factors as we did in the last ore reserve update last year. We will do that, of course, in the upcoming one. As to what level, yeah, we haven't made a determination on that. Historically, we have used the various forecasting agencies as a guide. Historically, we have used Benchmark as a guide, and historically in the last ore reserves as a guide pricing.
Got it. Thanks, Dale. Second question on BMX auctions, and you touched on the frequency that you expect to be able to achieve with a little bit more product coming through the system. Can you remind us of the current state or the current thinking around the timing of construction and ramp up at Gwangyang, and I guess at what point you'll need to actually start sending spodumene over for that?
Sure. The Gwangyang, the downstream plant to be constructed in Gwangyang is essentially underway. The co-commissioning of that, as guided by POSCO, is expected to be late next year, potentially early the year after, into 2024, subject to progress. Is that okay, Matt?
I lost you there, Dale. Sorry, that's late next calendar year?
Yeah, late next calendar year.
Yeah.
Could be earlier.
Yeah. Do you expect that will affect your ability or, I guess the frequency that you'd like to run BMX auctions at?
Well, that will be subject to the timing of the next leg of expansion and where we move to there. We should have some freeboard tons. And then of course, there'll be obviously further optimization for the plant, but we expect. The other piece to add would be around the ramp-up timing of that plant at POSCO. They won't need all of their full tonnage at full ramp-up rate from commencement, given that there's a graduated ramp-up profile. The sum of those three things, the P680 timing, the POSCO ramp-up and further optimization will sum through to additional tonnage which could be made available for the BMX.
Got it. Okay, thanks for that, Dale. Maybe just lastly, quickly, and following up on the questions around material movement, can you give us a sense of how you actually flex those costs down from an owner-operator perspective once you've, you know, done the catch-up or once you've moved the waste that you see you need to over FY 2023 and maybe into FY 2024? How do you actually take that cost out of the fleet? Is it from the fleet naturally transitioning from, you know, moving more waste to moving more ore? Or do you actually need to actively flex down the numbers and the fleet capacity over time to take that cost back out?
Both those things will happen, Matt. The fleet will always be sized to really match the mine plan in terms of outright equipment and personnel. We are expecting to over and above that improve productivities through essentially just good practice in mining. We're expecting to have some key benefits from owner operator mining being more continuity and retention of key staff. We're looking to add some of the very sensible productivity tracking equipment to our fleet, et cetera, all to come in time, which will of course play through to cost reductions. All of the above to be done.
Great. Okay, thanks for your details, Dale.
No worries. Thanks, Matt.
Thank you. There are no further phone questions at this time. I'll now hand back to Mr. Henderson.
Okay. Thank you very much for that, Melanie. We'll now go to webcast questions through Kate.
We have had a load of webcast questions come through, the vast majority of which are in regards to dividends, which I think will be more fully covered in the capital update later in the year. One question was with regards to the loans the company has, are there any restrictions in relation to those loans on the company paying dividends?
Yeah. We have a secured finance facility with a number of banks. That facility currently does not. That is, the security is held at the project level around the assets at Pilgangoora. We are actually restricted from paying money from the subsidiary company through to the parent company via that facility agreement until December of this year. At the end of December this year, we'll be able to stream money up into the parent entity, and at that point in time, we would therefore have cash available to be able to pay a dividend. Also we'd need to recognize at that point we haven't yet paid any tax, so we'd also need to think through what that means in terms of a franked versus an unfranked dividend.
Thanks, Brian. Matthew Jones has asked, could you please confirm progress towards carbon neutral status and anticipated timing?
Yeah, sure. Thanks, Matthew. No, we've done some work on carbon reduction pathway, which yeah charts that long run path. The key focus in the near term has been around getting on with some of the key carbon reduction projects which should help move the dial. First cab off the rank there, of course, is a 6-megawatt solar, which we're deep into construction of that. In fact, there's some updated photos in the presentation which went out this morning showing that that's well progressed. We're looking forward to getting that turned on. The other key project, of course, is the midstream project where we think that will provide some material step down and carbon reduction for the industry. Really tackling those Scope 3 emissions.
Those are the two key projects we're pouring the majority of the effort into at this time.
Thanks, Dale. Finally, Mark Buntzen has asked, "Is there any news on your replacement as chief operating officer?
Yeah. Thanks, Mark. Yeah, no, we're deep into finding a new Dale to replace what role I had. Yeah, pleased to report, yeah, there's some strong interest and some very competent persons putting their hand up for it. I think we're definitely gonna get an upgrade from the previous incumbent and looking forward to making that appointment in due course.
Thanks, Dale. I think that covers all of the webcast questions, so I'll just hand back to you for final comments.
Yeah, great. Thanks, Kate. Yeah, thank you to everyone who joined the call. An absolute cracking set of financial results. A very busy year and positive outlook ahead, and look forward to updating next quarter. Thank you all for dialing in.