Thank you for standing by, and welcome to the Pilbara Minerals September 2021 quarterly investor conference call and webcast. All participants are in a listen-only mode. There'll be a presentation followed by a question and answer session. If you wish to ask a question via the telephone, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Ken Brinsden, Managing Director and CEO. Please go ahead.
Thank you, Bernadette, and welcome everybody, those on the Chorus Call and shareholders participating via the webcast today. Thank you very much for your participation. We're looking forward to sharing a bit more detail about what we feel has been another very, very strong quarter for Pilbara Minerals, against a backdrop of rapidly improving pricing dynamics, both at a lithium chemicals level and of course also at a spodumene level. We've been able to create, you know, lots of production, in fact, with our Pilgan plant, the original Pilbara Minerals facility, operating above nameplate capacity, combined with the strong pricing outcome, means that we're now well into a healthy operating flow environment. Looking forward to further growth in respect of the pricing outcomes themselves.
Yeah, a very, very strong quarter, but likely only just the beginning as it relates to this cycle. Demand conditions also very strong. I'll come back and speak to the effect of the market in more detail after information shared from Dale Henderson, our Chief Operating Officer, and Brian Lynn, our Chief Financial Officer. Also with us in the boardroom here, Alex Eastwood, our General Counsel and Chief Commercial Officer, and David Hann, our Investor Relations Specialist. Yeah, looking forward to sharing more detail about what it is that we've been up to, more recently or post the end of the quarter.
You'd also be familiar with the commissioning of our Pilgan plant improvement works and the restart at the Ngungaju plant, both projects now are being well underway and key contributors to the next round of growth in Pilbara Minerals' Pilgangoora production base. This week, the finalization of the POSCO downstream joint venture and offtake terms. You know, we're very happy to get to the completion of that deal or the execution of the terms, given that it had been a very long-standing relationship or a relationship that we've enjoyed, albeit taking quite a long time to get to a close. That job's now done, and we're looking forward to the effect of further vertical integration of Pilgangoora spodumene supply to the proposed plant in South Korea.
In terms of the completion of that deal, some Korean approvals, which we consider to be, you know, administrative in nature, means that we'd expect the deal to come to a close by the end of the December quarter. In the meantime, POSCO is continuing to get on with their work that facilitates the construction of the project. Some early works are already underway with major construction works to commence in the March quarter. What that means is that the POSCO Pilbara Minerals hydroxide project is one of the near-term growth elements in hydroxide chemicals production, with commissioning commencing approximately mid-2023. Yeah, relatively short-dated as it relates to future lithium chemicals expansion, and Pilbara Minerals is very, very happy to be a part of it.
I'm gonna come back a little bit later in the call. I'll talk a bit more about the state of the market and Pilbara Minerals' participation. In the meantime, I'll hand over to Dale, who'll give you an overview in the operations and projects area.
Thanks, Ken, and good afternoon, everyone. My comments will be in three parts. I'll speak to the operation firstly, then projects, and then to finish, just a quick touch on exploration and the reserve. Starting with operations, a really positive quarter for the operation, save for one recordable injury, where we had a cut to a hand. That being said, TRIFR did reduce for the quarter as a few of our late-dated injuries dropped off the formula. We're down at a TRIFR of 1.88. Good to see that trend, but yeah, of course, a shame on the injury for the quarter. From a production perspective, a big quarter, 85,000 tons of spodumene concentrate produced, 11% increase from the previous quarter.
From a mining perspective, the quarter was all about increased movement for mining. Up 35% by volume from the previous quarter. Most of that was due to an increase in waste movement, which has been part of the plan to increase strip. As we've moved out of the down cycle into this up cycle, we're doing some catch-up on waste movement. So it was roughly a 50% increase in waste movement, so that went well. We would have liked to move a bit more for the period, but nonetheless, we're happy with mining activity with ore feed being continuous to the plant. Mining generally across the industry has been a challenge for personnel, and our mining services contractors certainly have been feeling that.
We're working closely with our service contractor. As I say, it hasn't affected us in terms of production outcomes. Moving from mining to processing, recovery was on plan and runtime for the plant was on plan. All of that has come through, as I say, to a very positive quarter for production. Moving from operations into projects, the projects world for the business has also been very busy with a suite of projects happening across the Pilgangoora asset. Starting with the Pilgan plant, and Ken touched on this, the quarter was about bringing on the improvement projects package, as we've called it. That's a series of projects to improve the Pilgan plant.
The main one being the installation of some debottlenecking and throughput increase projects, which give another 10%-15% production capacity. That was progressed during the quarter, and we've got first concentrate from those improvement projects, which was announced just the other week on the 13th of October. During the course of the December quarter, we'll continue to ramp that up and enjoy those extra tons. That's all on target, happy about that. That's the Pilgan plant. Moving to Ngungaju, busy place at the Ngungaju plant, as we've been undertaking commissioning and restart works. That culminated in a first concentrate announcement on the 13th of October as well, for the core circuit.
We're as with the improvement projects, the Ngungaju plant, we're busy ramping that one up and looking to have that at full run rate by June next year. Other projects underway, solar farm, we announced the award of the 6 MW solar farm to Contract Power Australia. That was awarded just the other week. That's triggered a key milestone and a key commitment under our clean energy finance undertaking. That's underway, and that's another good step forward in terms of our decarbonization pathway. Lastly, in the projects category, studies are progressing for detailed engineering for our next incremental expansion for the Pilgan plant. That's being progressed and readiness for ultimately an FID decision for that incremental expansion. That completes projects.
To finish, just a quick touch on exploration, resources, and reserves. During September, we announced a new mineral resource, big increase there, up to 309 million tons, a 39% increase. Ore reserves also announced and again, another big increase there, 54% increase to 162 million tons. That was announced on the sixth of October. We're absolutely delighted to have completed that re-rate of the reserve and resource. It was a key benefit of the Altura acquisition, and one we were expecting we would realize some good benefit of amalgamating the two assets, and that certainly proved to be the case. We're delighted with those big step-ups in reserve and resource. In summary, very, very busy quarter across operations, projects, and the exploration space, but very positive. With that's a wrap from me, and I'll hand over to Brian, our CFO.
Great. Thanks. Thanks, Dale, and good afternoon, everyone. I think the overriding reflection for me on this quarter results is to think about where we were 12-15 months ago when we were receiving a price for our product, you know, below $400 a ton. For this quarter, just gone, the September quarter, we've actually now achieved an operating margin for each ton sold of in excess of $400 a ton. It is quite amazing how the market conditions have turned around and how quickly things are moving and as I think everyone is aware that prices continue to improve. For the quarter, Dale mentioned that we produced about 86,000 tons of product.
We drew down about 6,000 tons of product from inventory, and that resulted in us shipping about 91,500 tons of product. The average price achieved for the product shipped during the quarter was between $850 and $900 a ton. Now, that has, you know, that range is given because there is still some provisional pricing adjustments which are still to be determined. Between $850 and $900 in U.S. dollar a ton price received. The unit operating cost achieved for the quarter was $445 per dry metric ton.
Obviously the price, less that cost, gives us a margin in excess of $400 a ton, which is a very pleasing outcome and obviously reflective of where the market currently is. This then transpires into an improvement in our cash position. When we quote our cash position, we also quote the letters of credit that we have in place for shipments that have already left and which we can convert to cash if we chose to. At the end of September, we had AUD 137 million, that's Australian dollars, of cash balances compared to June of AUD 116 million. We've had an improvement in our overall cash position of in excess of AUD 20 million during the quarter.
That improvement is largely driven by, you know, the improvement in the cash operating margin I referred to before. There was about a AUD 48.5 million cash operating margin from a cash point of view during the quarter. That really reflected off the strong market pricing conditions as well as the fact that I think we've largely contained the costs that we are able to control. We also outlaid about AUD 15 million of cash as investments into our business, and that was largely in relation to the improvements being made to the Pilgan plants.
The restart of the Ngungaju plant as well as getting it ready for operations and also on capitalized waste development to access the ore required to increase the run rate that we wish to achieve in the short term. From a unit operating cost point of view, I mentioned that we achieved a cost of $445 a tonne or in Australian dollar terms, just over AUD 600 a ton. That compares to our guidance, which we put out in August, which was between $395 and $430 a tonne. That is obviously higher, slightly higher than the guidance, but that is largely, those higher costs are largely driven by the underlying market conditions that we are experiencing.
The effect of a higher selling price flows through into a higher royalty that we pay to the state government. That sort of represents about $12 of that cost increase. Then we're also experiencing much higher ocean freight costs at the moment. That accounts for about an additional $18 a tonne compared to what we had assumed in our guidance. That's largely around the timing and supply of suitable vessels as well as just generally much stronger demand conditions for ocean freight. Lastly, I think I'd just like to quickly touch on some updated guidance that we have provided in our quarterly.
In our guidance that we provided in August, we did mention that we would be providing an update on how much waste mining we would be capitalizing following the completion of our ore reserve, which we did during the quarter, as Dale mentioned. Having completed the ore reserve, we've now been able to establish what we believe will be the deferred waste mining costs that will be capitalized to our balance sheet. We forecast that to be in the range of between, and this is in Australian dollar terms, AUD 40 million-AUD 50 million for FY 2022. The reason that range is relatively wide is just reflective of the significant ramp up in activity that is gonna be occurring at the operations during FY 2022.
We have chosen not to change our unit operating cost forecast on the back of the change in the deferred waste mining costs. You would obviously expect that having capitalized some of those mining costs, the unit operating costs would come down. That reduction is actually we believe is gonna be offset by higher royalty costs and higher freight costs. The saving that you get from capitalizing the mining costs is largely offset by the higher royalty costs from the higher pricing and obviously the higher freight costs, which we expect will continue for the rest of the FY 2022 period. I think that's all I wanted to cover off on, so I may hand over to Ken now for further commentary on the market.
Yeah. Thanks, Brian, and thank you, Dale. Yeah. To talk a bit more about the market, which is obviously an area, you know, receiving some very, very close attention, we'll share what we can as it relates to the combination of our market intel, interaction with customers and, for that matter, renegotiation that's gone on with customers. Really an incredible quarter for the acceleration in chemicals pricing. By that, I'm principally referring to domestic pricing in China, which is the most relevant marker as it relates to spodumene sales. Within that period of time, according to Platts, exworks pricing for battery-grade carbonate went from CNY 87,000 in the beginning of the quarter to end the quarter at CNY 185,000.
A very, very strong uptick in chemicals pricing within the domestic market in China. Some of that has been reflected in international pricing as well. One of the key drivers is as a function of price discovery with respect to lithium units, and principally by that I'm referring to our BMX platform auctions, which have obviously put a rocket under the cost of lithia units, and then those costs are passed downstream to lithium chemicals players. Hence the very rapid escalation in chemicals pricing. Now we have been quite deliberate in our strategy with available offtake, not currently accounted for.
Well, sorry, not accounted for in offtake, having tons available with an emerging spot market, we saw the opportunity to create a sales environment that could be targeting the marginal buyer, and that's now being reflected in the value in the spodumene. The three auctions that we've had so far demonstrated, you know, what we would consider to be true price discovery for the value in the lithia units. Approximately $1,250 a ton for 5.5% product FOB Port Hedland. Well, leading up to the most recent auction, AUD 2,350, 5.5% basis FOB Port Hedland.
Now, we've been quite deliberate in that strategy because we want to understand the true value in the spodumene so that we can have that reflected better in offtake arrangements with our longer-standing customers. I'm pleased to say that those conversations have both been well progressed and largely achieved outcomes that we would consider to be appropriate. Whilst not yet complete with every customer, we've certainly completed them with respect to the majority. That now translates to offtake pricing based on a spot basis, you know, for this week of between about AUD 1,650 and AUD 1,800 per dry metric ton CIF China SC6 basis. That reflects a rerate in the value of the offtake, but also accommodating the appreciation in the chemicals price. There's two things happening here.
Chemicals pricing is increasing, so naturally that would increase the value in the spodumene. However, more importantly, we are now achieving a bigger slice of the pie in the chemical value via the value for sales in our spodumene under offtake. That does represent a pretty material change for Pilbara Minerals as compared to the historical norm. To be clear, offtake currently pricing in the range of AUD 1,650-AUD 1,800 per ton. The other point I'd make in respect to spodumene price, Pilbara Minerals achieved a very, very healthy price for its spodumene in the September quarter. We believe ultra-competitive and likely beyond the pricing achieved via our peers.
Yeah, we're very happy with that outcome, and as Brian's quite rightly pointed out, that translates to some very healthy operating cash flow, with an expectation that that's gonna be materially higher during the December quarter as a function of what we're achieving in respect of offtake pricing, and for that matter, what we might yet achieve in further spot sales should we undertake any during the December quarter. In summary, quite an unusual period of time in the market, but I feel like Pilbara Minerals has achieved as good an outcome as you could hope for, and I would argue well beyond people's expectations as to what's going on with respect to offtake pricing.
I would like to think that that's going to result in, you know, it's gonna be reflected well, in terms of Pilbara Minerals' performance for pricing in these next periods. Right. I think that represents the market summary. Inevitably, there'll be further questions, I would imagine. Bernadette, why don't I hand to you to open up the call for questions? Thank you.
Your first question comes from Al Harvey of J.P. Morgan. Please go ahead.
G'day, Ken and the rest of you guys. I think just first up, Dale, I think you mentioned that you're doing an updated plan on the Pilgangoora expansions. Just wondering, what kind of work's been done here. Is it kind of just refreshing the previous stage two and stage three studies? And what's the kind of expected timing for when we could get those releases? And how long is it till we get an FID there? And is 1 million tons per annum still the target?
Yeah, sure, Al. No problem. Yeah, firstly, 1 million tons and above is still what we have in mind in terms of the total aggregate production achievable from the two operations. The studies that I mentioned are essentially a refresh for the phased expansion for the Pilgan plant. We are intensely focused around that first phase, which adds another approximately 100,000 tons of spodumene concentrate production. We see that really as being the next cab off the rank, given that we've done improvement projects, we've got the Ngungaju plant starting. That next piece would be that first phase expansion for Pilgan. The timing.
We're doing some more detailed engineering around that first step right now, and we're anticipating to mature that to a conclusion probably very early next year. About that time, you know, the board and management will obviously be circling the appropriateness or not to move forward with an investment decision. That's where the focus is right now. In parallel with that, there's another stream around the next step being t he phase II of the Pilgan expansion, and that's really the final leap, taking us up to that 1 million ton per annum plus.
That would follow later. We're firm around pursuing an incremental expansion. We think that that's a prudent strategy to deploy, given the history in the market. Does that answer your question, Al?
Yeah. That's perfect. Thanks. Thanks, Al. If I can just get another one in. I was wondering if you guys could just clarify a few things with the call option to increase your stake at the Pilbara JV to 30%. I just wanna make sure you can boost up to that extra 12%, as long as you exercise the call option before battery grade spec is reached. If that's the case, you only pay 12% of the AUD 650 million-AUD 750 million of CapEx for the project. Is that correct? Is there anything that would lead you to wait a little bit longer and subsequently pay fair value?
I think your understanding is correct there, Al. The mechanism you described frames the decision for Pilbara Minerals. I think logic would dictate that that's the path you would typically follow. The only other circumstance that we were trying to protect was that if the project became difficult or we're exposed to significant cost overruns, then we wouldn't necessarily have to exercise straight away. That was really an insurance clause. I think the primary methodology and what you'd logically expect to happen is what you described. That we buy in at cost in the period leading up to and including the effect of the plant itself being certified.
Thanks, Ken. I'll line up again, please.
Go now.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Hayden Bairstow of Macquarie. Please go ahead.
Yeah. Hi, Ken. Just a couple of questions from me. Firstly, just on the discussions around the pricing outlook. I mean, obviously, one of your offtake partners has effectively agreed a similar sort of high number with Allkem from Mount Cattlin. Just keen to understand what those discussions are about. Are you looking at changing to direct links of the domestic prices for carbonate hydroxide in China or you know individuals or more reflecting on what you're getting on the BMX platform? Is that sort of the discussions are ongoing, and I presume given that that you know Mount Cattlin sort of been sorted, that there's different discussions with different offtake partners. Is that sort of how to think about it?
Yeah, they all differ at least a little bit, but not that much, as it relates to each customer's position in offtake. The negotiation really, what it reflects is a change in the relative value in the spodumene contributing to the value in the chemical. That's the way to think about it. The effect of that uplift, at least in the current cycle, is a double whammy because chemicals pricing is going up and therefore spodumene would have been going up anyway. Now there's the combination of achieving a larger slice of the pie. To your question about the price reference, it is mostly about Chinese domestic production, and the effect of the ex works price, as compared to international pricing.
That really is a dominant price reference or index as it relates to the relativity to spodumene. That's typically where the customers gravitate to. The link to BMX, because there's not, you know, in the eyes of the market, not sufficient volume being priced against that auction outcome. There's no one that's prepared to peg you know the value in the spodumene in offtake to that price. From our point of view, it was always about just getting reasonable discovery for the value in a marginal ton, and then having at least that part of that reflected in the value in the offtake.
I'm pleased to say that that's largely what's happened, and the customers have been accommodating, because the alternative is worse for them now. The idea that there may not be supply, that's a big issue, and that leads to a reasonably pragmatic discussion about realizing the value in the spodumene. So all in all, we'd say a reasonably fair outcome. It represents a new norm for the value in the spodumene in the market under offtake.
Okay, great. On that price range you're talking about, that's just for this quarter or are you sort of looking at some stuff or volume over the rest of the financial year?
No, we were thinking about that really being a reflection of this quarter, at least based on what we know today. Pricing is still under these revised terms, is still provisional, with the settlement on final pricing to be determined. That's why, you know, there's a range there to indicate the value in the spodumene. Obviously, we don't know what's going to happen with respect to chemicals from here, but nonetheless, we think that's a reasonable reflection of what can be achieved, you know, under offtake in the current quarter.
Okay, great. Just a final one on the cost guidance. Not changed yet, but do we just assume that if you do end up with a AUD 1,700-AUD 1,800 price, that cost guidance will have to be pushed up just on the royalty?
Yeah, exactly. No. Yep. No. While there's very high pricing outcomes, of course, that's gonna be reflected through the royalty streams that we pay. And yeah, it's becoming material in light of where the price is getting to.
Okay, great. Thanks, Ken.
Thank you. Your next question comes from Harsh Bhadia of Citi. Please go ahead.
Hi, Ken and team. Thanks for the opportunity. Just one quick one from my side. The 5.5% grade, I believe for auction sale, if it makes sense, because it gives you more sort of recovery range. What it would look like with the POSCO offtake agreement, that 315,000 tons. Is there any target grade for those materials as well down the line? Thanks.
Yeah, good question, Harsh. You're right in your thinking about us targeting 5.5% for the purpose of the BMX auctions. We're working on the premise that it's the lithium units that are being valued, not necessarily the absolute concentrate grade, in which case we can take advantage of, you know, lower cost, higher recoveries at a lower concentrate grade. We're pleased to see that effect playing out as we would have expected, I guess, as we've run the BMX auctions. In fact, arguably over time, you know, we might even go lower, you know, and that might very well be justified, as a function of price versus cost and recovery. Time will tell. We haven't made any decisions there at the moment.
We've been happy with 5.5 and on the face of it, that looks like a good solution for the market. We're obviously achieving some very healthy pricing outcomes. With respect to offtake is priced against a six reference. We're delivering cargoes, you know, on average, sort of in, you know, you could say in the range of, for argument's sake, 5.8-6.1, depending on, you know, the sections of ore that we're in and/or the customer that we're dealing with. You know, there's lots of variables that sit there, but basically, they're priced on an SC6 basis. We'll continue to do so. That would be the same for the purpose of future deliveries to POSCO. Unless we chose to negotiate with customers about modifying the grade there.
Broadly speaking, we think that there might yet be opportunity in, you know, reconsidering deliveries to customers because, you know, just the SC6 re-reference is really, it's a function of history. That's because that's what Greenbushes did, you know, for the last 20 years. It doesn't necessarily mean it's the right answer for the industry. We are of a view that there is opportunities to consider lots of different things in the market that might very well create a more efficient supply chain. Anyway, as it stands today, offtake referencing SC6, BMX referencing 5.5, but they could be subject to change depending on the opportunity that we see in the market.
Yeah, that's very comprehensive. Thanks for that. Just while we are on this, grade, that midstream product, I mean, it wouldn't matter like what's the starting point for that product like, a higher grade product, like, how your plant is run in terms of initial output, 5% or 6%? I mean, does it matter in that case as well?
Look, Harsh, good question. The short answer is no. The grade doesn't matter as much for the midstream product. What you've touched on is actually what we think may prove to be one of the key benefits of the midstream strategy. The combination of process steps we're bringing together enables a lower grade product in feed while still achieving the upgrade to a high quality lithium salt. Yeah. Short answer is it's not as affected by grade. Yeah, I'll pause there.
Yeah. No, got it. Thanks, Dale. That's it from my side. I'll pass it on.
Thanks, Harsh.
Thank you. Your next question comes from Glyn Lawcock of Barrenjoey. Please go ahead.
Hi, Ken. Just two questions. Firstly, just on the new price reviews or contracts you've got. I mean, how long are they set for? I mean, obviously we've had a dramatic change in the market and you've managed to reset. If the market changes again for whatever reason, I mean, are these locked in or do you have periodic reviews that we can change them again if something happens? When you answer that as well, I just note, if you say chemicals prices are, call it AUD 28,000 a ton ex works, give or take. You know, if you look at the price you quoted for spodumene, that would suggest like a 50% margin for the chemicals producer. Is that how we think about it? You know, this has been set such that there's a margin for the chemical guy.
The second question is more just on the ops and FIFO, the jab rule that comes in end of the year as well. Does that pose a risk to the workforce as well with the jab rule? Do you have a sense of where your workforce is? 'Cause, I mean, it's unlikely we'll get to 100% of, you know, everyone jabbed. You know, some people will just not want it. Does that bring a risk into the business in the new year? Thanks.
Yeah. Good on you, Glyn. Welcome back, mate. With respect to price review, yeah, it works both ways. For the same reason we were able to open up a price review, customers in theory can do the same thing. What we've sought to achieve is to redress a balance that we would argue wasn't necessarily there historically when there was very, very few buyers of chemicals in China. It's all to do with, you know, I think you've quite rightly said, the share of the available margin. The logic in the pegging spodumene value to the value in the lithium chemicals was that you, in effect, build up the relative cost base, the cost of mining on a lithium carbonate equivalent basis, the cost of chemical conversion.
Determine a raw cost base for a chemical per ton, inclusive of the material cost. Compare that to the price outcome and then subdivide the margin to distribute it back to the respective parties. In the example that we've described through recent negotiations over the last three or four months, we've sought to ensure that the value in the spodumene attracts more of the available margin. Without it going to the point where it has the effect of how would you say it. Not damaging the market, but otherwise creating another imbalance that you know extracts either too much value at a spodumene level or too little value at a spodumene level.
It's a delicate sort of balancing act, but one that we hope becomes a bit more normal in the market as compared to the historical norm. Yeah, there's so few suppliers that can create margin, you know, merchant tons of spodumene in the market today, that we've been able to sort of, you know, force the hand of the chemical conversion industry to attract more margin to the miner. We'd like to think that that represents, you know, redressing an imbalance historically.
Ken, maybe before you touch my second question then. When you look at it, I understand the index. You'd like to see an index. You do the auction, but it's not liquid. But those big prices, do you feel those big prices for the recent two auctions have helped push the chemical price up perhaps a little bit too high to AUD 28,000? Cause, you know, that, if you look at where you think spodumene is, it's AUD 1,700, call it. You know, a 50% margin is what you're giving away to the converter at AUD 28,000. So is it? What I'm trying to understand, what do you think is leading? Do you think you've pushed the chemical price up through those auctions or do you think the chemical price that we're seeing in China is actually real?
It's a natural position for the chemical conversion industry in China to want to take the cost and pass it on. I guess there's a question mark as to how long industry downstream is prepared to accept that cost being passed on. That's not the answer. I don't think that's really the answer to the question that you're asking, because at some point in time, I feel that at least in the current cycle where there is insufficient raw material supply, the margin of the chemical conversion industry will become constrained. Now we would like to think that as a raw material supplier, there's not many other places they can go, in which case, you know, we'll, our margin will still be okay, we'll still be healthy.
Yeah. Okay.
The second question.
Just on the ops.
Ops versus jabs. The situation here is that it's absolute now. There's a mandate, no one can entertain fly in, fly out without having vaccinated personnel. That's our obligation as much as it's the individual's obligation. In effect, if they're not jabbed, they're not gonna be on a plane here in W.A. Our current take on where the workforce is at is that we see that impact being very minor, i.e., there is not that many people that will choose not to be vaccinated. The bigger issue is the borders being open for the industry such that more personnel are available in total for the workforce. Dale, in terms of controls, there's rapid antigen testing, that type of thing to help us when, you know, when it finally gets here.
Yeah, no, we've. As to the business risk aspect, then, we're feeling fairly comfortable at this stage. As Ken said, it's a mandate. Everyone has to move in this direction. We're deploying all of the controls to support that transition. We've engaged deeply with the full workforce and operation to sort of support them in the process. Through that, we're obviously helping people get comfortable with the need to get these vaccine jabs. Although it's anecdotal, we've had sort of good progress in that regard. All said and done, we're not too concerned as we step into that period of required vaccines for the operation.
Okay. Sorry, Ken, to harp on it, maybe just go back to the first question, just so I'm clear. I should be watching the chemical price ex-works. There's a formulaic approach to deriving your spodumene outcome. That gives me the bulk of your volume, and then you'll be doing some spot sales on the BMX platform. Is that how I should think about it?
Pretty much, yeah. 30%-40% of our sales by the middle of next year will be under either different arrangements or on spot via the BMX platform. As it stands today, it's not that big a number because we're still ramping up the equivalent capacity for Ngungaju, which is, you know, in virtual terms, where the extra capacity comes from that's not already in offtake.
The tons that are under this revised contract, I should be watching the chemical price and just believing there's a formulaic approach to get back to your spodumene price from that.
Yes, mate. Yeah, we've been pretty clear about that. The bit that's changed is that the proportion of the value reporting.
Okay. Yep.
To the spodumene is higher. Yeah.
Yep. Okay, perfect. Thank you.
All right, mate.
Thank you. Your next question is a follow-up by Al Harvey. Please go ahead.
Yeah, thanks, guys. Just wanted to get your view on how you're seeing the relative dynamic between carbonate and hydroxide and battery chemistry. Just whether or not the POSCO downstream facility will have any ability to switch to carbonate if LFP battery keep gaining more share over NCM batteries.
Yeah. Al, good question. The answer is yes. It's a relatively simple carbonation process that you know twists the hydroxide back to carbonate. In fact, you'll find virtually all new plants being built for chemical conversion capacity are direct hydroxide routes for that reason. It's a cheaper path to hydroxide and a very low cost twist at the end at the facility to get it into a you know healthy battery-grade carbonate state. You know that cost is measured in you know a couple of hundred bucks a ton as compared to the conversion the other way, from carbonate to hydroxide, which depending on the technology and the grade is probably a couple of thousand bucks a ton.
Yeah, very simple twist at the end of a current generation chemical conversion plant. As to the battery chemistry debate, honestly, for most foreseeable chemical price outcomes, you can be ambivalent about whether you source spodumene or whether you've sourced brine, for the purpose of carbonate supply or hydroxide supply. It's not really relevant until you start to get a very low chemical price that penetrates the respective margins of chemical conversion capacity and mining capacity as compared to brines. We don't really feel like we have to take a view about the success of any one of those battery technology groups, LFP or high nickel battery chemistries.
Thanks, Ken. Just one final one. Any update on the Calix midstream, R&D work?
Yeah, the engineering's well advanced there, and we're not too far away from reporting the first round of outcomes. Keep your ear to the ground there, Al.
Will do. Thanks, Ken.
Thank you. There are no further phone questions at this time. I'll now hand back for webcast questions.
Thank you, Bernadette. Yeah, the line is open for the purpose of the webcast for those to make an inquiry. We have a couple of questions, and we'll get Nick to relay them. Thank you.
Thanks, Ken. Good afternoon, everyone. We have three or four webcast questions. We have touched on a few of these issues, so we'll be able to move through these fairly quickly. Firstly, Trent Barnett from Euroz Hartleys asks, "Should we be assuming spodumene prices of AUD 1,650-AUD 1,800 for the March quarter if downstream prices don't move from current levels?
Yes. Very straightforward.
Okay, great. We had a question about the Calix situation, which I think you've covered off on. Stephen Ineson asks, "Is the BMX platform just for Pilbara? Or is there scope to auction product from other companies?
Yeah, that's a worthy discussion topic, for which at least at this point in time, it's unresolved. You know, we had always thought that a platform that ultimately penetrates deeper volumes in the market that is more spodumene or more lithium price points are established via a platform creates greater price transparency. For example, today, you know, one of the critiques of the BMX platform might be that it's only the very margins of the market, and it's just one price, and it doesn't represent any volume. Well, you know, we would argue perhaps something slightly different as a function of what we see in the bidding itself and the number of bidders that are prepared to go deep into the auction.
Those things we think are important tools that are available to Pilbara in understanding the market as an auction progresses. By the way, we would say, generally say that's been very healthy and has been healthy competition to discover the price. From our point of view, we'd say that's a great big tick in the box. For others to enter the platform, I think the answer is maybe, but unresolved as at this point in time.
Thanks, Ken. A couple of questions from David Noonan. One is of the impact of current spot prices on your pricing outlook, which I think you've well and truly covered. The second question was what formula is proposed for sales to the POSCO JV at market for that committed offtake?
Well, the formulas envisaged in the relationship with POSCO are not that dissimilar to the formulas that otherwise exist with our offtake, existing offtake customers. It's a connection between the value in the chemical as compared to the value in the spodumene. The logic there is similar, and it's intended to discover a market price so that it represents the value in the spodumene ton for a longer-dated offtake relationship. Yeah, I don't think there's any reason to be concerned about it not being anything other than a market price. There's no kind of reference to discounts. There's no reference to premiums. It's just the market price, and that's sold at arm's length to the joint venture.
Thanks, Ken. A question just in from Mark Buckton, who says, you've said you've progressed well with negotiating offtakers. However, not all have yet renegotiated. What percentages are yet to renegotiate too high?
The majority are agreed and executed in terms of variations under the offtake arrangements.
I think that just about covers it, Ken. I'll hand back to you.
Okay. Thank you, Nick. Thank you, Bernadette. I think we're all done here. Thanks everyone for your participation today, whether it was on the Chorus line or the webcast. Much appreciated. David and the team stand ready if there's any following inquiry to digesting the quarterly report. Thanks everyone for your participation today, and we'll look forward to speaking again soon. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.