Thank you for standing by, and welcome to the Pilbara Minerals September 2022 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, 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. Dale Henderson, Managing Director and CEO. Please go ahead.
Thanks, Darcy, and hello, everyone, and welcome to Pilbara Minerals September activities quarterly call. In terms of the people we've got in the room today, we've got the usual suspects with Brian Lynn, our CFO, Alex Eastwood, our Chief Commercial Officer and General Counsel, Brad Milne, our acting COO, David Hahn, our Investor Relations Advisor, Linda Gimondo, our Corporate Affairs and Sustainability Manager, Danielle Webber, our Company Secretary, Nicholas Reed from Reed Corporate. So we've got the full team here. In terms of the call today, we'll go through the normal order of events we've done historically with some opening remarks from me, a slightly more detailed commentary from myself on ops, projects, downstream, and then I'll throw to Brian, who will infill on finance and cover off the numbers.
Back to me for a little bit on the market commentary, and then we'll move to questions at the end. Before I step into my opening remarks, I just wanted to talk about our great people at Pilbara and offer a couple of comments here because we've got a few updates in this regard. The first of which is, Brian made the decision that he's looking to transition out from Pilbara. We are underway with that process to find our new Brian. I won't be offering too many gushing remarks about Brian because he's gonna be here for a little while yet, at least another quarter. We'll save the tears of misery, of course, for the next quarterly call.
Of course, Brian's been an absolute champion and absolute pillar of the business, from the full journey to date. You know, an absolutely incredible innings, and yeah, we'll be sad when he ultimately transitions out, but he leaves the business in incredible health. Also in the people category, we made the appointment of Vince De Carolis as our new COO. Yeah, delighted that Vince is joining the team. Yeah, we had the privilege of some stellar candidates competing for that role. Vince will be joining us before the end of the year. In the same breath, I'd like to acknowledge Brad Milne, who's been our interim COO, who's been carrying essentially everything in terms of both the operations and building the projects category.
He's been carrying it all in his stride. Thank you, Brad. Keep up the hard work. We'll be continuing to load you up as we move forward. Yeah, a couple of key updates there around our people. Okay, in terms of the quarter, we've had a really strong quarter. Pricing continued to improve. Our production really going well, particularly Ngungaju. Delighted with how that went for the quarter. Big shout-out to the ops team. Costs were at the lower end of guidance. Now, all of these things have come through to a big leap up on the balance sheet by AUD 780- odd million, looking at just shy of AUD 1.4 billion on the balance sheet. That's all going well. Projects-wise, on track.
Downstream, the foot is down, and we're going as quickly as we can on those fronts with POSCO. In the milestone category, we shipped our millionth ton for the September quarter. That's pretty neat. Really positive quarter and life is good in lithium. Now just stepping into each of the areas. In terms of ops, the vital signs, safety, bit of a low light here in that we had two recordable injuries for the period. However, we did see a slight reduction on our TRIFR from the prior quarter, moving from 4.4-4.2 as a function of the larger hours that we're burning on-site.
Production-wise, a 16% increase on the prior quarter, up to 147,000 tonnes, which equates to a run rate of about 588,000 tonnes. Yeah, really delighted with that production performance. Things are going well. Sales, 138,000 tonnes, slightly up on the prior quarter as well. Cost, at the low end of guidance, and Brian will offer a bit more commentary in this regard, later on. Product grade, as we've flagged in prior quarters, we've started to edge down a little low on the product grade for the purposes of maximizing yield and delivering more lithium units to market. That's what we did for the September quarter, 5.3% lithium product out the gate.
Yes, mining continued picking up in the mining movement, about 9% increase in the prior quarter, slightly under where we wanted to be. Some impacts of COVID still, particularly at the start of the quarter, not so much at the end of the quarter, but the start of the quarter was impacted a little bit on the mining movements. We also noted that we've continued that tapering up of our owner miner fleet and our scaling back on MACA. We still have MACA in the wings, but by proportion, it's quite a small component of the mining fleet. Moving to processing recovery on plan for Pilgangoora, sort of mid to low seventies. Happy with how that's going.
As to Ngungaju, recovery's been in sort of the mid-60s%, so going well and happy with that. Lastly, in the offtake pricing, we have pricing reviews underway. No updates that we can really offer at this point, but I can assure you all that those processes are well underway and looking to progress those within the quarter we're in. Moving from ops to projects, the P680 project well underway. There's a photo in the quarterly of the earthworks. So good to get the graders out and get underway with that. As it relates to the P1000, that step up to 1 million tonnes per annum, we're on track to get the FID put to the board this quarter. Moving from projects to downstream.
The hydroxide joint- venture plant we have with our friends POSCO in South Korea, they are underway awarding long- lead items. Early works has commenced on-site, and I'm looking forward to getting over there in the coming weeks to kick the tires and see how we're going there. As it relates to midstream, the joint- venture docs are vastly matured and getting close to the finish line on that. That's good. In parallel with that, the requisite studies continue at full force. As to FID for that downstream plant, looking like that will be in the March quarter. I've had a little bit of a delay on that one, so doing everything we can to obviously accelerate that project as much as we can, though.
Okay, that offers a bit of a rapid- fire run through on ops, projects, and downstream. At this point, I'll hand over to Brian for an update.
Right. Thanks. Thanks, Dale, and good morning, everyone. Three months ago, I described the June quarter as transformational for the business. Well, how I describe the September quarter is a satisfying quarter in that we beat nearly all key metrics as they compare to June. If I think through the business, we had a 16% improvement in the tonnes produced. We had an increase in the number of tonnes that we shipped. We had an improved realized pricing outcome compared to June. The weaker Australian dollar actually also helped us realize a higher AUD realized price. We achieved a lower operating cost. As Dale said, that was towards the bottom end of the guidance.
Overall, when you look at back of the quarter, I think that's a very satisfying quarter that we're able to continue to improve the key metrics for the business. The positive pricing environments and stronger operational performance helped us deliver a really healthy operating margin. We had an operating margin just short AUD 740 million. This resulted in our cash balance being nearly AUD 784 million better, and stood at AUD 1.375 billion at the end of the quarter. In the past, we've also included the irrevocable letters of credit. If we include those as well, the balance is AUD 1.5 billion, which is an AUD 634 million increase compared to June.
We ended the quarter with a net cash position, so net of secured debt of AUD 1.2 billion. That clearly now supports a very, very strong balance sheet. Given the strong increase in the company's cash position and, you know, which has really happened over the last 6 or so months, the company is now turning its mind and working on establishing a capital management framework, which will include our dividend policy, and we hope to be releasing that to the market during the December quarter. Just turning to some commentary on selling price and operating margins. The strong market conditions obviously continued during the September quarter, and this really supported the company's ability to continue to deliver more lithium units into the market through the reduction in the product grade to 5.3%.
We sold just over 138,000 tonnes of spodumene concentrate. We realized a price of $4,266 per dry metric tonnes on an SC 5.3 basis, which on an SC 6 basis was just over $4,800 a tonne. This represents about a 9% improvement in what we were able to achieve for the June quarter. The average realized price in Australian dollars was actually further bolstered as a result of a depreciation in the Australian dollar compared to the US dollar. The average exchange rate for the quarter was 0.65836, and whereas the June quarter was 0.7146.
We achieved a strong operating margin on a per tonne basis, so that was about just over AUD 5,000 a tonne for the spodumene that we sold. That's basically contributed an operating margin of AUD 712 million. Now we also took advantage of market conditions and were able to sell a product which we call a middlings product. We sold about 45,000 tonnes of that and achieved a margin of just over AUD 25 million for that product. The combined Pilgangoora operation generated a total operating margin of AUD 738 million for the quarter, which is a great result. Just turning to unit operating costs.
The combined Pilgangoora operation, that's both Pilgangoora and Ngungaju, delivered a unit operating cost excluding freight and royalties of AUD 635 a ton. This is at the lower end of the guidance that we put out, which had a range of AUD 635-AUD 700 per ton. That was a very pleasing result. Including freight and royalties, the costs were in Australian dollar terms AUD 1,122 per ton. Freight costs remained elevated during the quarter, but did come down slightly compared to the June quarter. The June quarter we averaged about $76 a ton. The average for the September quarter was just shy of $60 a ton.
Royalty costs were higher on a per ton basis, and that was purely attributable to the fact that we're achieving a higher selling price. When you achieve a higher selling price, you pay higher royalties to the governments. In terms of costs, just some general commentary. I think it's fair to say that the cost pressures that we noted in the June quarter certainly remained, but I don't think they got worse. Yeah, my take on it is that I think we've probably seen the worst of the cost pressures. However, you know, costs still remain elevated. There's still labor shortages, there's still some impact of COVID-19. There's still supply chain disruptions and just general inflationary pressures that are still, you know, being experienced by the business.
Turning to our cash position now. As mentioned, our cash position at the end of the quarter was AUD 1.375 billion, so that's about a AUD 784 million increase compared to the June quarter. The major movements in the cash balance from the actual cash operating margin from the Pilgangoora was AUD 874 million. This also includes cash receipts from the June quarter due to, you know, a reduction, I guess, in the outstanding letters of credit between the September and June quarter. Some of the cash related to the June quarter LCs obviously came into the bank account during the September quarter. We spent about AUD 55 million on capital.
That was largely in relation to waste mine developments, as well as monies were also spent on the P680 project, the solar farm, and also the tailings management facilities. About AUD 11 million was paid out under the syndicated facility agreement. We made our first scheduled debt repayment, which was $5 million during the quarter. Obviously there was also an interest component there as well. The lease payments were about AUD 10 million, and then our corporate and administration costs amounted to about AUD 8 million. Cash increase of AUD 784 million with a closing cash balance of AUD 1.375 billion.
If we take into account the debt that we have on the balance sheet, which is in Australian dollar terms, about AUD 160 million, we entered the quarter in a very healthy net cash position of AUD 1.2 billion. In summary, I think, as I said, a very satisfying quarter. I think it's great that we built on what we achieved for the June quarter. We end the quarter in rude health. That's everything I wanted to go through. I might hand back to Dale Henderson now. Over to you, Dale Henderson.
No, thanks, Brian. Satisfying indeed. In terms of market commentary, yeah, it's been a really strong market through the September quarter. We've seen appreciation and pricing essentially from all indicators. The comments I'll offer here are some macro ones and then some micro sort of comments, or as in the observations closer to home. In terms of the outwards looking, yeah, pricing's been on the up. I note that Platts latest update coming out last night shows essentially appreciation across all chemical price points, both Chinese domestic and international are sort of seeing some really sort of levels and in some cases some new highs.
Of course, outside of that, there still seems to be plenty of activity through the supply chain, whether that's OEMs, battery makers, cathode makers, all moving forward with their plans. Very, very positive. In terms of the observations closer to home, obviously the strongest indicator for us is. It has been the spot market sales that we've been having. Through the September quarter, we saw obviously three sales, starting in July around $6,200 for SC 5.5. By mid-September, that third sale was $7,000 at an SC 5.5. Now stepping into our latest two transactions which occurred in the December quarter.
We've seen that step up to as recent as yesterday 7,200 and an SC 5.5, which scaling that up to SC6 plus freight is around the AUD 8,000 mark. Moving from July to October over that three-month period we've seen essentially 17% increase in that spot sale pricing. Yeah, very strong appreciation and pricing. As to customer inquiry they continue to try and beat down the door. The phone won't stop ringing. Yeah, my phone's set to silent. And just a function of the great market we're in, and long may that continue. As to the outlook, look, we don't see anything which gives us cause for concern in the short- term.
As to the midterm, absolutely new suppliers coming. We all know that. Based on our analysis, we're not too concerned as we look at both the combination of increased supply plus increased demand. Longer term, beyond that, of course, it gets much harder to predict. Pilbara's feeling very positive where we are, given the quarter we've just had and the growth profile ahead. That completes my market commentary. To wrap up. Yeah, strong quarter across the board, pricing, production and cost at the lower end of guidance. Projects on track, downstream underway, strong lithium market. It's all looking very positive. A big thank you to our Pilbara supporters, our shareholders, in particular, those shareholders who have hung in there for the long- term.
Thank you, and I hope you're enjoying the ride. At this point, look, I'd like to welcome questions, and I'll pass back to Darcy.
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 Matthew Friedman from MST Financial. Please go ahead.
Sure. Thanks. Morning, Dale and team. I was gonna ask my first question on probably the only thing that you've called out as a negative during the quarter, which was the rate of material movement and waste stripping currently running at about 32 million tonnes per annum. Just wondering, in your view, where do you need to get to sustain, you know, the rates required for the P680? You know, when do you expect to get there, considering that you're demobilizing MACA over the current quarter? If we look further forward to P1000, you know, you've got that ability with the contractor over the next couple of months. Is there any desire or any ability to keep some additional equipment on site longer in order to de-risk the mining rates that might be required for P1000? Thanks.
Yeah, sure. Thanks, Matthew. In terms of the waste strip ratio, look, we will look to increase that modestly from where we were, but it won't be. It's nothing astronomical. It doesn't give us cause for concern. As to the long run waste strip ratio, we'll provide some guidance around that most likely as part of our P1000 FID. One of the things which is worth noting is we've got plenty of options as it relates to mining. We're in the process of opening up Eastern Pit, so we'll have essentially four different pits to draw from. Depending what the operations team wants to do as it relates to the combination of mine volume versus ore grade, well, there's actually quite a few options available to us now.
With that, the mine team are working through quite a large number of scenarios to work through what's optimal for returns for the business. Really the takeaway here is that if we were to have a volume movement issue, it doesn't give us cause for concern because there's other places we can go. It's in good health. Thanks, Matthew.
No, that's great to hear. You're building that optionality into the schedule. Thanks for that, Dale. Maybe while we're on the point of that, your grade has been tracking quite well from a mine grade perspective, you know, above reserve grade, 1.45% during the quarter. Can you give us a view on what's driving that? You know, is that down to better mining practices, I guess versus the dilution assumptions in your model? Is it just a matter of sequencing and timing? Just wondering, your thoughts on that and how we might expect that going forward.
Sorry, Matt, just to confirm, was that in relation to head grade or?
Eastern Pit grade, if I am looking at the numbers correctly, is running at 1.45% versus your reserve grade, which I think is set closer to 1.2%.
Yeah. Correct. No, got it. The head grade coming from the mine has been slightly elevated in comparison to life of mine head grades, and that's always been the case in terms of the long-term strategic mine plan, just as a function of how the ore body presents. We see those higher head grades for probably another year to two years subject to the latest rev of the strategic plan. Yeah. That's probably.
Great. Comes down to sequencing. Great.
Yeah.
Maybe just closing finally with a quick one. Just the rate of CapEx spend during the quarter, particularly the projects. You're guiding to AUD 250 million of project spend in FY23, but it looks like at most you spent maybe 10% of that during the quarter. Is that down to timing, long- lead items that you've ordered but not necessarily paid for, but expecting delivery over the course of the year or work's completed? How should we think about that spend rate relative to the guidance? Thanks.
Yeah, Matthew, maybe it's Brian. Maybe I can answer that one. Yeah, look, I think it's largely timing. Certainly, on the P680, you know, we're obviously making commitments, but in terms of how much we've actually had to spend is quite low because of long- lead items. The cash burn hasn't really started yet. That's definitely one item, which is the timing. The other one is, you know, I think you made reference to the fact that we are slightly behind on the material that we're moving. We have capitalized less onto the balance sheet for some of the waste being required to be moved.
Expectations that we will catch up on some of that, but probably not all of it. You know, I think in terms of the total guidance number, I don't think at this stage we're, you know, we think we need to vary it. It's gonna be sort of at the margin.
Got it. That's very helpful. Thank you for that, Brian. That's all from me.
Thanks, Matthew.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Morning, Dale Henderson, team. Thanks for your time. My first question just starts with regards to pricing negotiations that are ongoing. Obviously, you're trying to move those to reflect closer to spot. I guess, what are the quid pro quos that you have to give as part of that negotiation? Do you have to extend the terms or are there other terms and conditions that are being amended?
No, Mitch. As it relates to price reviews, they're contemplated in those agreements. It's just a case of stepping through the motions. Pilbara won't find itself in a compromised position. Alex, do you have anything you want to add on that one or?
Thanks, Al. No. Really, the offtake agreements provide for pricing review mechanisms, and those price review mechanisms are intended to ensure that the price is aligned with the prevailing market price for spodumene. It's really just as Al has said, a process you go through, and you know, it just takes time. We're partway through that process at the moment.
Thank you. My second question relates to workforce turnover. I guess you called out a very minor increase in costs as you had to pay some bonuses to improve retention or have staff retention. Can you provide any color on sort of workforce turnover that you're seeing? Are there any? Do you need to fill additional spots or do you think you've got a full roster as it currently stands?
Yeah. Turnover's been pretty good, Mitch. As it relates to gaps in the workforce, we're in good order. We're in good health in that regard. As we look outwards to you know the growing operation, we are sensitive around the need to continue to grow the team. We are taking proactive measures to make sure that we do everything we can to set ourselves up for success. What that looks like is, we've got cultural surveys underway. We've got programs around deploying some more training, and we are doing some advertising as well just to make sure the Pilbara name is out there and known to market. All of the above should make sure that the good health around turnover and low sort of gaps in the workforce continues.
Okay, great. That's my two questions. I'll pass it on. Thank you.
Thank you.
Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead.
Hi, Dale and Brian. You added more cash than the market cap coverage this quarter, so well done. Some of your peers are looking to capture chemicals pricing margins, tolling, et cetera. Can you talk through your rationale here for selling spodumene and spodumene per se? Look, I know you've got POSCO coming online, and you've got price discovery through BMX. Are the offtakes at Pilgangoora linked to reserves or is there scope to evaluate some of that downstream margin uplift?
Yeah. Thanks, Kate. Yeah, and look, sorry for the gold guys, but back in 2019, the shoe was on the other foot. Such is the commodities rollercoaster. As it relates to your question around our sort of strategy, we take the view that sort of the highest order method to create maximum value for shareholders is through integration and chemicals participation. Our relationship with POSCO through their joint- venture is really Pilbara's foray into that space. Of course, where we are today is very much a spodumene concentrate provider. I think there's some transitional options which include what we've been doing in the way of BMX sales, but also tolling, as you mentioned, is a viable avenue in this market.
Yeah, of course, we're well aware that others are deploying that and Pilbara is considering that as an option. But we see those as transitional methods. Ultimately moving towards that aim of deeper integration. Over time, I think, what we'll see Pilbara is to migrate in that direction to becoming more of an integrated producer. But these things don't happen overnight. In the case of the POSCO joint- venture that was first kicked off in early 2018. These things do take a bit of time. Hopefully that fills in the picture, Kate.
Hypothetically, would your offtakes allow you to hold any volumes attached to Pilgangoora?
We can't get into the specifics of offtakes. We do have an obvious spread of offtakes. Some of which are coming up for expiry.
Okay.
Which of course provides optionality for Pilbara.
Okay. The lowest grade, what's the feedback from your customers been on that? Does it need to be blended? Interested in any comments around that.
Yeah. We of course, as we've made these deliberate changes, engaged with our customers and to make sure that the product is acceptable and works for them. It's not a case of them needing to blend up the product or change it in any way. That is the case. Yeah, the chemical customers, if they had a magic wand, they would only receive the absolute highest grade product that makes their life just slightly more easier and slightly reduces their costs. There's certainly no issues with the grade we've been producing for our customers.
Finally, P1000 FID. Should we be expecting that this quarter, or what's the timing on that?
Yes. Yeah, this quarter.
Okay, perfect. Thank you, Dale.
Thanks, Kate.
Thank you. The next question comes from Al Harvey from JP Morgan. Please go ahead.
Yeah. Good day, Dale. Just a couple from me. First up, just with the trend down in the concentrate grades down to 5.3%. Just trying to get a feel for where that'll balance out long- term. I guess following on from that, does Pilgangoora do 1 million tonnes per annum at those lower grades or can you get a bit of a volume uplift from those better recoveries?
Yeah. Good day, Al Harvey. Good question. As to the long-term strategy around product grade, that's an open question. The ability we have through the operation is to vary product grade up and down as a function of customer requirements. In the current market, where the market is screaming for every lithium unit possible, we've of course gone and taken those steps to maximize those lithium units through dropping the grade. That makes good sense in the current market. Will it always be that way? We obviously don't know. If we do need to vary that grade, product grade up, we can. That's just to your first question.
To your second question around the sizing of the P1000 on 1 million tonnes per annum, that is sized on an SC6 product grade. You're correct, in where you're going there around is there upside based on slightly lower product grade. The answer is yes.
Great. Thanks. Thanks, Dale. Maybe just even thinking beyond that, I know you guys used to talk about or you scoped up the what you used to call the stage three, which would have taken Pilgangoora to 1.2 million tonnes. So add that to Ngungaju, it's 1.4. Beyond the P1000, do you think another expansion like that comes into play or is it a bit early to comment?
Yeah, it's a bit early to comment on that one, Al. As to the exploring that concept, yeah, we've definitely been turning our mind to that. As you know, we've got a you know incredibly huge natural resource there, further enlarged with the Altura acquisition. The more we drill, the more we find. Yeah, I think in the full course of time we'll look to go larger. We need to do the work to support that decision, the drilling, the more scoping studies, et cetera. We like the idea of going larger.
Thanks, Dale. Maybe just the final one on the Calix JV. Looking for, was it FID March next year? Just wanted to get a sense of, you know, how you guys are thinking about the market for lithium phosphate salts. I noticed in Calix's recent presentation, they thought it might get priced around 85% of the lithium carbonate number. I was just wondering if there was any science around that or if it's just a share of lithium type equivalent.
Yeah, sure. The FID for the demo plant, just to clarify, would be March quarter. Depending how we go, I'd like that to be in the earlier part of the quarter versus March. As to the product appetite and pricing, we are engaging with buyers at the moment with some samples. That will be quite important in the way that that guides us both around the process design as it relates to product quality plus pricing. As to the indicative numbers that Calix have provided you'll have to chat to them about that one. No worries. Thanks, Dale.
Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Good day, Dale and team. Thanks for the call. Maybe a question tying in a few of those last ones. The update on the capital management policy, including prospects of a dividend, can you talk us through some of the considerations there that might be going into fleshing that out a little bit and maybe Brian can just close in on, you know, the implications for franking as well?
Yeah, sure, Levi Spry. I'll keep with the party line here, and that we'll get this one book done before Christmas. We are trying to get it out the door as soon as we can 'cause it's not lost on us that the returns are going well, and the market's looking for guidance as to our capital management policy. Yeah, we're working as quickly as we can to form our view, and we'll get that out the door as soon as we can. Yeah, Brian Lynn.
Yeah, Levi. Look, you know, obviously, we're generating a fair bit of cash and, you know, expectation is pricing, you know, is gonna stay strong, so therefore, you know, we'd expect that cash flow to continue. It is fairly important that we find a good balance between, you know, what we return to shareholders, but also, you know, what we try and use to grow the company. Clearly we've got a couple things coming up. You know, we've got P1000, and we've got the demo plant. You know, we need to think about how we're gonna fund those. We need to give some thought in terms of, you know, whether there are other sort of growth opportunities out there.
What we might need to you know retain in terms of cash to allow us to give you know to have the best opportunity to do the best job for shareholders. You know, we're sort of considering all of those things at the moment. You know, in terms of the timing of the dividends, you know, franking credits you know won't be generated until we start paying tax. We start paying tax in February next year. You know, that's a sort of you know it's hard to see us paying if we're gonna pay a dividend before June.
It seems to me to be an obvious thing that we tie it in with the full-year results that we announce in June or in July or August. Then the other thing, just to be aware of, under the existing debt facility that we have is that we are slightly restricted on when we can pay dividend there as well. However, that restriction gets lifted at the end of December, so that sort of goes away. Yeah, but as Dale said, you know, we're working on this fairly quickly. It's a question that gets raised by a lot of interested parties. I think it's something that we do need to give some color on. We're trying, you know, we'll try and get that out as soon as we can.
Excellent. Thanks. Thanks, guys. Just another question on, I guess, price implications. Is there any prospect of recutting your mine plans and reserves at a considerably higher price, in the short to medium term? What would be the implications to that? Would it be Pilgangoora 1.2 million tonne brownfield plant?
Yeah, good question, Levi Spry. We haven't gone there yet, but we are wrestling with that question. Yeah, as you'd expect if your long-run product pricing is much higher, it does materially change how you think about the reserve. At this stage, we haven't ventured in that direction yet. I think it's important to note that it must be obvious that there is a wide variation in opinions on what is the long-run pricing for the market.
Yep.
So it's not-
When you work it out, let me know. Yep.
Will do. Likewise.
Roger. Thanks, guys. See ya.
Thank you. Your next question comes from Glyn Lawcock from Barrenjoey. Please go ahead.
Good morning, Dale. I was just wondering if you could help me understand the production side rather than the sales side. What was the product grade produced in the quarter just gone to get the volume?
5.3.
In line with the sales product?
Yeah.
If I look at. Is that as low as you plan to take it then, do you think? I'm just trying to reconcile what feels like lower grade now with an unchanged production guidance for the year of 540-580 when the September quarter was annualizing just over 580. If you hold this grade or drop it lower, I'm just trying to understand what was the guidance based on then. Thanks.
To the first part about where do we take our product grade ultimately, and will we go lower? We haven't made a decision on that. Obviously, we continue to engage closely with our customers on that one. As you'd expect, we're commercially driven to lower that grade, but within the limits customer can accept. The trend continues to be down and obviously, we're obviously observing what our competitors are doing in this space. As to the prior guidance for product grade, I think we had that on a five-point
5.7.
Yeah, 5.7.
It was a range, and the range was to sort of recognize a potential product grade of between, I think, 5.4-5.7.
Okay. The base of the top of the range is almost where you're producing at now. Okay. Can I just ask then a little bit on I know you're still in the midst of negotiations on your offtake, but just trying to understand, are you trying to get off the linkage for hydroxide? Can you actually make that big a change, or is it just changing the percentage? Because I understand most of the Pilbara plant actually goes out at a percent of hydroxide rather than a link to, like, an index on spodumene. Are you trying to change the actual terms or just the percentage of the hydroxide link? Thanks.
Well, the specifics around that really depend on the offtake agreement in question there and the customer in question. I can't really get into that. It's fair to say all variables can be revisited.
It's unlikely to impact the December quarter earnings. When could this take effect from as if, you know, assuming you get a favorable outcome in towards what you want?
Yeah. You're right, Glyn. It's likely more flowing through into the March quarter results.
Okay.
The other thing to add here is that, based on obviously the market movement we've had, I wouldn't be surprised if there's more reviews in March quarter the way things have been going. It's been a perpetual movement as a function of the market moving.
Just looking at Ngungaju, I mean, obviously you told us you only did 87%, you know, into legacy's PLS offtake agreements. Now that you're doing like you've done 2 auctions in 2 weeks, you know, 3 auctions a month is pretty much the capacity of the Ngungaju complex. Is that suggesting now that looking forward, at least the Ngungaju tons are all gonna be going out at either BMX price or an index now?
We still have some legacy contracts to fulfill, Glyn, which will be finished up for the end of this quarter, December quarter. From January onwards, the sort of 200,000 tonnes from Ngungaju is basically unencumbered and available for sales pathways such that Pilbara Minerals teams appropriate.
Is your best guide if you do an auction that's a spot every other ton that you produce and sell this quarter is going out into legacy?
Sorry, say that again.
Sorry. If I look at your auctions this quarter, is the best guide to sort of say all your spot, all your auctions are the spot tonnes and every other ton produced this quarter is going out into legacy?
We haven't guided what proportion for this quarter will go to the spot market. Needless to say, we do have some legacy contracts to fulfill. The Ngungaju tonnes, for example, for December quarter aren't all going to spot. That's as much as I can guide you on.
Okay. That's great. If I could just squeeze one last one in. Well done on the costs. Is that something we should expect to continue then, if you hold this volume or is there something you capitalized a few more costs in the quarter if I look at the rest of the year? Thanks.
Yeah, we're not looking to revisit guidance yet, as it relate to costs. We'll see how this quarter goes.
Yeah, Glyn, it's Brian. Look, we certainly didn't capitalize additional costs and therefore, you know, we've got a lower cost. I think generally, your lower cost is a function of the Ngungaju plants coming on and actually probably performing better than we anticipated for this quarter. Clearly, that sort of slight drop in product grade actually obviously helps your unit cost as well. You know, I wouldn't expect costs to go up. I'm quite confident that, you know, we might actually get a slightly better cost performance going ahead, but you know, we're not ready to sort of make that decision yet. We just wanna see how things go over the next quarter or so just to understand those costs. It's, you know, we're fairly comfortable with how we're performing on a cost basis.
All right. I appreciate all the color. Thanks very much.
Thanks, Glyn.
Thank you. Your next question comes from Ben Lyons from Jarden. Please go ahead.
Yeah, good day, Dale and Brian. Massive quarter, guys. Well done. That said, I know you continue to call out your TMM being a bit below your overall aspirations, but looking at the stats over the past two quarters, you've still mined about a million times more ore than you've actually processed. That's sitting on the ROM pad at, call it 1.45% at the moment. Two-part question. Firstly, how much ore do you want sitting on the pad to give you maximum comfort ahead of the plant expansions coming in? And then secondly, obviously there's a clear market for low-lithium products at the moment or off-spec products. You know, the middling's product that you sold during the quarter was lower grade than your ex-pit mine grade. I guess the second part of the question is-
Once you've got comfort on the ROM pad, and I acknowledge that the overall strategy of the business is to pursue further integration. Clearly the market can't be this strong forever. Would you consider putting some DSO into the market once you've got sufficient ore sitting on the ROM pad? Thanks.
Yeah. Thanks, Ben. Yeah, as it relates to ROM, yeah, we've definitely been building that out for a couple of reasons. One, it's good to have those stocks available. The other point is as it relates to blending strategies, depending on the sequencing from the mine, there is times when different grade bins are required, so that sort of folds into the volume movement. As it relates to our appetite to do DSO or other types of low-grade products, we wouldn't rule it out, but it's unlikely given the essentially the margin and the logistics efforts involved. It's the lowest order of value creation.
In the market where everyone has to work hard to find, build labor and the equipment required, approvals required, port logistics, there's a lot involved to take that undertaking. In contrast, we're far more focused on accelerating our expansion. The sooner we can do that, the sooner we can bring forward higher graded tonnes and potentially tonnes which can be diverted onto other BMX or other channels which realize a strong margin.
Great. Thanks, Dale.
Thanks, Ben.
Thank you. There are no further phone questions at this time. I'll now hand over to Nicholas Reed for webcast questions.
Thanks, Darcy. Hi, everyone. We've got over 260 people on the webcast and lots of questions, so I'll rip through them as quickly as we can. I'll just skip over the dividend questions. There's a lot of them here, but I think that's been adequately dealt with. So the first question here is from Robert Congdon. It's a two-part question. He says, "How long do you think before you will ramp up to 1 million tonnes per annum?" And the second part is, "Can you sell more tonnes via the BMX market?
Thanks, Robert. As to the timing for the ramp-up of the P1000, we haven't guided on that. That guidance will come as part of the FID decision, which should be this quarter. We'll provide that guidance there. If I was to guess, I think it will take approximately 18 months from FID, approximately. As I say, we'll give some guidance as part of the FID decision. To the second part, BMX. As it relates to available tonnes, BMX is a pathway that we can use. As to earlier questions, we did talk about other avenues such as tolling. That's a possibility as well, which Pilbara is considering.
Thanks, Dale. Next question from Doug Brazier: Is the crusher sorter owned by the company now in operation?
The new integrated crushing ore sorter will be owned by and operated by the company. It's not here yet. It's under design and procurement. It'll take a little while to get that one delivered and built and operational. We've guided that we'll be ramping that up December quarter next year.
Great. Thanks for that. The next question is from Jon Bishop. He says, "The 1.2% material sold equates to $2,500 on an SC6 basis. Can you please outline where this material is otherwise penalized, i.e. the pro rata relationship between grade and benchmark price does not hold for this material?
Yeah. Good day, Jon. No, this one's a difficult one to answer, in that there's no real market out there in terms of this type of product. It's not a case of having specific penalties per mineral type or that type of thing. This was a sale to a specific customer, and it was a negotiated outcome. That's as complex as it gets with that one.
Thanks, Dale. Quick one for Brian from Lester Doig: Has income tax been paid in the quarter? I think you did answer that.
Yeah. Thanks for the question, Lester. Look, no income tax has not yet paid. So the tax to be paid for the FY 2022 year is made in February next year. Then we fall into what is essentially a monthly installment tax payment after that.
Thanks, Brian. The next one from Lynn Bui: How will production from the Ngungaju plant be sold?
Good question, Lynn. That's an open question. Among the avenues, BMX, tolling or working with our existing customers.
Thanks, Dale. Next question from Derek Fryer. He says, "Contract pricing seems to be only increasing very slowly, especially compared to BMX. When do you see this improving in the light of the very high spot prices currently being seen?
Sure. I think, Derek, the gap is not lost on us. We're addressing that through the price review process that we have underway, and we have detailed in the quarterly. As those resets occur, that will then flow through into subsequent quarters. Yep.
Next question is from Scott Anderson. He says, "What is the expected cost reduction that will be realized once the 6-megawatt solar farm is commissioned?
Yeah, good question, Scott. I can't remember off the top of my head. We're shaking our heads around here. Sorry, mate. We don't have that one to hand. It does provide a cost reduction. We like the idea of continuing to expand off that base in years to come.
Okay. A related one from Craig Morris. Following successful completion of the current solar installation, are there plans to expand the solar array and/or look at energy storage? And are there any plans for the electrification or otherwise of the mining fleet?
Yeah, thanks, Craig. So at the high level, absolutely. We have a long-range strategy to drive carbon energy down and out from our operation, as does everyone. Further, it relates to increased solar and other renewables harvesting methods. Yes, we'll continue to do that in the years to come. Does that extend to batteries? We like the idea of that, but we need to do the work to understand if and when we deploy that. To the mine electrification, as Craig's.
Thanks, Dale. A tricky one here for Brian from John Tan. He says he plugged the numbers into his spreadsheet, and he only seems to be heading for a full-year EPS of better than AUD 0.90, barring unforeseen circumstances. Is this number wildly optimistic?
John, we don't tend to put guidance out at that level. We've obviously guided on production numbers and cost numbers and really it's up to the investment community to make up its own mind as to what that means from a profitability point of view. It's not something we tend to guide on.
Thanks, Brian. The next one's from Joshua Hay. He says, "If the strategy continues to drop product grades, where is the commensurate lift in volume guidance? Otherwise, no offset on lower price and could imply an issue with delivering an SC6 product and recoveries.
Yeah. The commensurate yield uplift, Joshua, is a function of the mineralogy, therefore a function of the mine plan. That does vary. We will provide more guidance in due time as to the yield benefits for the lower product grade.
Thanks, Dale. I've got a long one here from Robert Clark. He's asked how you're thinking about financial risk and opportunity from here, given that you have such a rapidly expanding balance sheet. Is the opportunity risk of projects, such as the midstream project, more attractive to pursue with your reduced financial risks and changing opportunity environment, including market factors such as the Inflation Reduction Act? Is your intention for a 3,000 ton per annum lithium salts ambitious enough? And do you have any immediate plans to expand this beyond the flotation fines, i.e. process additional fines product?
Sure. No, good question, Robert. The way we think about midstream is everything which has occurred with midstream to date has been very positive in terms of scoping studies, test work, et cetera. What we haven't done yet is test the concepts at scale. As with any R&D project, you can have scale issues. The way we think about it is the best thing we can do is to accelerate the delivery of that demonstration plant, such that we can iron out, learn and iron out any learnings that might flow from that and validate the technology at scale and validate unit cost, plus you're producing enough product that we can really test the market. The appetite to skip that step really isn't there because that would.
Look, I think that presents both risk, in that, there might be some learnings that we're not aware of, and also it might prevent us from the opportunity of doing a more optimized design, at scale. As I say, the best thing we can do is just accelerate that demonstration plan, step through those learnings, and then we can turn our minds to going to scale.
Thanks, Dale. Next question from Anthony Barich of S&P. He says, "Other lithium producers have noted the continuing supply chain crisis, mainly shipping, impacting both the transport of products and materials to build new projects. Are you also seeing these impacts?
Hi, Anthony. Yes. There's definitely been long- lead items becoming longer lead items, unfortunately. Pilbara's not immune to that. We of course, we're aware of that. As we've contemplated P680 and P1000, we've been getting on with getting those orders done as rapidly as we can to mitigate those risks. Yeah, we are seeing supply chain challenges globally as are others.
Thanks, Dale. Just on a sort of related issue, David Noonan asks, "As capacity ramps up, are there dispatch or shipping bottlenecks ahead, including seasonal weather?
Yeah. Hi, David. Yeah, every wet season presents some challenges. Yeah, we're heading into cyclone season. We have mitigations which help in that we have additional storage at our, what we call our Ridgefield storage facilities, which is adjacent to the port offloads. We use that as a inventory holding area. That helps. Yeah, when cyclones come through, they cause a bit of havoc in terms of product moisture requirements, that type of thing. As I say, we have built some buffer into the system to mitigate that out.
Okay. Thanks, Dale. Nearly there. Two more to go. Derek Fryer says, "Well done, except with contract prices. I don't understand your underperformance in this area versus peers. Can you please give us a comment?
Thanks, Derek. Look, it's in the hands of the price review process. Look, I just remind everyone that pricing has appreciated very, very rapidly. I made mention earlier in the call about the 17% lift in spot pricing. So we've seen quite rapid escalation. As to the price review process, it's progressed as rapidly as it can, as it's provided for within those contracts. So it's probably key point. The other key point is to say that, you know, we note that we'd done a round of these price reviews some time back, and Pilbara was applauded because we were ahead of our counterparts. Our counterparts have subsequently redone it. Now we're behind that, so we're not being applauded. Look, the merry-go-round will probably continue as we work in lockstep to chase the market pricing.
Thanks, Dale. The last question here from Adrian Corbell. Apart from congratulating everyone on a great quarter, he says, "What is the expectation for frequency of sales and tonnage on the BMX platform now that the Ngungaju plant is at nameplate capacity?
Yes. Hi, Adrian. In terms of available tonnage for Altura pathways to market from sort of January onwards, the Ngungaju tonnes are essentially unspoken for, so approximately 300,000 tonnes. As to what proportion of that gets to BMX, we've not guided around that, and we are keeping our options open whether that relates to BMX, tolling or working with customers.
Thanks, Dale. Sorry, one last one that's snuck in here from Shannon Sinha. Can we confirm that Pilgangoora has been producing at 5.3%? Or is this a mix between Pilgangoora and Ngungaju? If a mix, what grade is Ngungaju producing at?
Sure. Hi, Shannon. The way we think about the operation is we've got one operation and two processing plants. Both facilities are used to produce product to meet spec. As to what product grade does each plant produce, that's actually a function of optimizing recovery for a particular mineralogy, which is a function of what comes from the mine. That varies over time. Each of the plants have different strengths. Part of the operating team's challenges and what they work on is optimizing the strengths of those respective plants as a function of the different mineral properties coming from the ore body. It's not a simple case of giving one answer of product grade per plant. Hopefully, that gives you a bit of insight there, Shannon.
The second part of Shannon's question was, is the 360-380 guidance at Pilgangoora for 5.3%-5.7% or for 6% product?
Yes. Yep. It was 5.7.
5.7.
5.7.
Excellent. Thanks very much everyone for your questions. I'll hand back to Dale.
No, thanks very much, Nicholas. Thanks all to those who have dialed in today. Appreciate all of the great questions. We feel that the September quarter has been a great quarter for production volumes, cost and pricing. That's all played through to a really strong balance sheet and looking forward to many quarters like this to come, all going well. Thank you for your time today and look forward to future updates. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.