Chris, congratulations on a very successful Q1. Why don't you take it away?
Great. Thanks, Peter, and thanks everyone for joining. I'll just share my screen. How's that looking?
Good.
All right. So look, thanks everybody for joining. The intention today was focused predominantly on the Q1 results at Thunderbird. So with that, I'll step into it. Make sure I've got... Just a very brief recap. I'm assuming everyone on the call knows this, but in case they don't, we're, you know, we are focused on becoming a multi-asset mineral sands company. Obviously, currently, the core asset is Kimberley Mineral Sands, the Thunderbird mine, and very much, you know, delivering stage one. But we do continue to look at other opportunities, and probably at the end, I might just briefly touch on what's happening in Brazil and Sri Lanka. To rip right into, apologies, the Thunderbird sort of Q1.
So, yeah, probably, biggest highlight was the fact that we actually started bulk shipping in Q1, as planned at FID. Late in the quarter, we loaded our first bulk shipment of zircon, which is the picture on the top right here. So that's a Rotainer being lowered into the hold and then tipped to dump the concentrate as a bulk shipment. The top right-hand picture is the mine. That's, you know, towards the end of March, we've just about finished mining block three, about to move to mining block four. And I'll come back and talk a bit about the oversize and what we're seeing in the mine. But that's sort of where we are at the moment with mining.
And then in the bottom middle picture here is the process plant. You know, in March, you can see significant ilmenite stockpiles, a bit of zircon on the ground, and a small amount of HMC stockpile. So sort of where we were with the process plant. I guess the observation from these photos, you know, March, tail end of the wet season, there is a bit of water around, although we did not have any cyclonic events this wet season, although we did have a fair bit of rain up on site. In terms of production for the quarter, I'm starting first to talk about ore production. So the graph is the cumulative production that we had assumed at the FID, and the brown is the actuals.
So we did start in Q4, so we're a little bit ahead. We're now in line with where we said we'd be at the end of Q1, and that reflects the fact that we effectively operated constrained for most of the quarter. But we are expecting to build the cumulative production up and get, yeah, certainly at least maintain the expected ramp-up assumed at FID. The main challenges for production in the quarter related to initially in January, we had a couple of significant sort of failures. We had a tailings co-disposal pump fail, and we had a waterline failure. Now, they took a bit of time to repair, so we lost a lot of January for mine production.
And then, when we looked at the co-disposal pump, one of the observations we've had with the not just the oversize, but the relative abrasiveness of the material we've got, as much as you expect that and design for it, there's nothing quite like putting it through the plant to understand what that really means. And what we found in, in some of these situations, particularly around the pumps, that the internals actually needed to be higher specification to handle the material that they're pumping. So in the case of the co-disposal pump, we had to order new internals. They had to be delivered and installed. So we had to. That was constraining our ability to deposit tails through most of February and March. That pump was rebuilt in March and is no longer a constraint.
On the DMU itself, we had sort of two real drivers of restrictions. One was again pump-related. The nature of the seals that we used weren't appropriate for the task, and so there was a need to replace the mechanical seals with flooded seals, and that took place during the quarter. Each of the pumps was changed out over time. Those have all been changed out now, when we're seeing that the new seal type is appropriate. And then the general observation that the oversize we had and the abrasiveness of the material was perhaps, you know, more than expected when the DMU was designed and built. And so we obviously learnt a bit about that during the quarter, made modifications.
But in particular, at the very end of the March quarter, on the last DMU move, significant modifications were made to the DMU, the grizzly, the boil box, which is where the ore drops down onto the screens, the screens themselves, and the way they're bound to the DMU. And what we've observed with that is that the DMU is now much more robust and can actually handle higher throughput. So we have been progressively ramping up, and the DMU's now operating much able to operate much closer to design capacity.
So the throughput piece, we think we're now through, and we would hope that this quarter will be much closer to design throughput on the DMU than we were in the first quarter, where effectively we ran at more or less 50% capacity for most of the quarter. In terms of the oversize, that... So the way to think about the oversize is, I think I've said this before, the plant, we always knew oversize was one of our key variables, and so the DMU plant, et cetera, was designed for variable oversize, actually up to, I think, about 40-odd% at peak, but for an average of 15%. And what we've observed in the first quarter was that the average oversize we've had has been higher than the 15%.
Now, what is not yet clear is the extent to which that is we just happen to be in an area of high oversize or whether, in fact, the oversize estimation there might be more oversize when you're actually mining versus what was expected from the drilling and the pre-production work. So we don't know the answer to that at the moment. What we do know is that, if we, if we assume the current oversize is maintained with the current DMU, we can run at about 75% of undersize recovery to the wet concentrator. So effectively, we can run the DMU, but we'll lose a bit of the capacity through oversize.
Now, if that turns out to be actually, if the higher oversize is structural, i.e., we believe it's everywhere in the deposit, then, the option exists then to either modify the DMU to, break down more oversize, to increase the capacity so it can handle additional oversize or even ultimately, a second DMU to boost the mining capacity to keep the process plant full. We will continue to observe the oversize and operation, and, with the dry season, we're now doing the drilling for the pre-drilling for the next year's production. We're specifically using a drilling method that should give us a better understanding of the potential for oversize.
It's relatively hard to observe in drilling, because drilling is a high-energy activity, and so it can tend to break down the particles, so you're not always... And the drill is not, you know, we're talking about quite large pieces of oversize in some cases, so it can be quite hard to identify just from drilling. So doing a lot of work on what we can learn from pre. Ultimately, as I said, if we conclude that the oversize will be structurally higher, then there are modifications that can be made to effectively ensure that we fully utilize the process plant. It is too soon to assume that that's what we need to do. We don't have enough operating experience yet, and we certainly don't know enough about what's in front of us in the ore body.
So that is, that's a big focus on working out what the reality will be longer term, and therefore, do we need to do something about it? In terms of product volume, and this is probably the slightly offsets what we've seen, with the higher oversizes, that we've actually been getting, better-than-expected recoveries to final products through the wet concentrator and the concentrate upgrade plant. So effectively, although we're presenting less or have been presenting less than design, ore, undersize ore to the wet concentrator, ultimately, we've been recovering more products from that than we'd expected.
So that's partly offsetting that, and hence the comment in the quarterly, that if we were to run as we are, fully utilizing the DMU, and the oversize didn't change, and we made no other changes to the mining unit, that sort of 75% of ore presented to the wet concentrator translates into about 85% of the products we would have expected at FID. So if nothing changes, we would run at 85%. Now, clearly, we don't need to run the process plant at 85% or for 85% long term, so we would look to make changes if that is deemed necessary, particularly if we observe that the oversize is sustained. The process plant is running well. It is able to run at nameplate when it has the feed.
As I say, the recoveries are good, and so we're generally happy with what's happening in terms of the process plant itself and recoveries through the process plant final products. I don't have a specific slide in here on price, but I'm, I'll make a couple of observations around pricing. I think, as there's... I've sort of seen, I've had the odd comment from people about price for the non-mag con being or the zircon concentrate being a little bit less than what they'd expected. I think there's a couple of key things happening there. The first comment I'd make is our plant is designed predominantly to produce an ilmenite con and a... Well, in fact, that is a primary product. We're seeing good TiO2 recovery there, which is the primary-...
a driver of value, and the non-mag con, the plant was designed to produce a product focused on, maximizing zircon recovery. And we're seeing the zircon content very consistent with what we'd expected. The reason why the price is a little bit lower than perhaps people expected, it's really two main drivers. One is the fact that we're seeing less TiO2 recovered to the, non-mag con that had been assumed, and again, that's, something we need to understand more. One of the observations I've made generally is that, the non-magnetic, TiO2 you typically get in a mineral sands deposit is, it sort of tends to go different places, and it can end up in ilmenite, it can end up in, in the non-mag con. And ultimately, light, sort of middle, quantity TiO2 can be lost to tailings as well.
So we're trying to understand that, where that TiO2 has gone. But that reduction in TiO2 is translating probably into about $50 a tonne of value for the non-mag con versus what we'd assumed at FID. And then the other pieces, there is a monazite credit in the non-mag con. It sort of runs about 1%, monazite typically was assumed. And I guess at the time, the FID, the assumption was effectively $5,000 a tonne for monazite, which was significantly less than the market price at the time. For those who follow the rare earth space, rare earth prices have come off very dramatically over the last year. And what we're seeing now is that the monazite price is, you know, under $3,000 a tonne.
In fact, it's heading back to sort of more long-term sort of pricing in the mid-$2,000s. So the monazite credit is more like $25 a tonne versus $50. Those two effects are adding up to about $75 a tonne, which is the bulk of the variation in price versus what might have been expected. We expect current prices to be maintained for this quarter. There's not a lot happening with zircon price in China at the moment. It's moving around a little bit, but we're not seeing a lot of... We're not expecting to see those prices change significantly. In terms of mag con, which we're now shipping, that was a fixed-price contract based on the % TiO2, and we're producing sort of as-expected quality.
So we expect, on average, over the first five years to get $123 a tonne FOB, and that looks like about what we'll be getting. So we certainly expect, as expected, pricing for our mag con. In terms of sort of cash flow and so on, there's always a question for companies in ramp-up. For stage one, the way to think about this is, we had, I think, still had about $20-odd million of available cash and facilities in the joint venture at the end of March. The expectation is that that's something that should be sufficient to get us through. But as always, you know, these are tight months for any project.
We're operating at or near our, whether you wanna think of it as minimum cash or maximum debt draw. And therefore, if you had, for example, delays in shipments or something unexpected happened, then you can dip below that. We would not expect that there would be a... If to the extent there was a requirement for support from the shareholders for working capital purposes, that that would be something we could fund from our existing cash reserves. We said, given that any any shortfall would be a 50/50 obligation between ourselves and Yansteel, we, we don't anticipate needing to make a payment or to make any payments, and if they were contributions, if they were, we would expect them to be certainly within our capacity to pay them from, from current cash balance.
To recap on what that cash balance looks like, we had about AUD 20 million in our accounts at the end of March. That's Sheffield, separate from the joint venture. We are looking at continuing to have our sort of AUD 2 million a year of corporate cost. We will be paying this quarter the final option payment for the Brazil project. Of the AUD 2.5 million, we'd contributed AUD 1 million. The remaining AUD 1.5 million is now due because with the drilling and the PFS actually using a bit of cash there, that payment will be made this quarter. And then, if we think about the potential for exercise of option there, I think we talked about it in the quarterly.
The rate of approvals and understanding the full suite of approvals required for the project in Brazil have meant that ourselves and our partner have concluded that the stage two is likely to take longer than we would have anticipated, and therefore, the rate of cash burn is likely to be lower. So our current expectation is that the $5 million that would be due on the exercise of the option, which would be late in the third quarter, early fourth quarter of this calendar year, is likely to be sufficient funding for that project through to the end of 2025. So we don't see the balance of the potential $12.5 million, the other $7.5 million, being required before the end of next year. With Capital Metals, we've bought the shares.
We have an option to buy another 4% for AUD 1.5 million. That runs for a year. It's an option. We're under no obligation to exercise that. We are in discussions with Capital Metals about a potential to become involved with the project at, at the, to become directly involved in that project. That is likely to be, a relatively modest upfront or near-term cost while that project is progressed to a potential FID. So again, and that is a contingent. We're not. There's no obligation on us to do that. So all in all, we're looking at about AUD 5.5 million of firm, cash commitments between now and the end of next year, which would leave us, about, what is it?
AUD 14.5 million of cash available for either contingent commitments or other purposes, including for support of KMS, if it was necessary. So we still feel comfortable that we have sufficient cash on hand to both support KMS, if that was required, and undertake our planned activities. So I think I've covered off most of what I wanted to cover off. Probably just a couple of comments on... So I've talked about South Atlantic and Sri Lanka as sort of the cash implications, but for the project in Brazil, we are substantially through a drilling program there. We've almost finished drilling at Retiro, and we'll be drilling at Bujaru soon.
The PFS is well underway, and so there's an expectation that in the third quarter, we should have a resource on the two main deposits, plus working towards completing the PFS. We had IBAMA, who's the national environmental regulator, on site last week for a visit, and that approval is now progressing. But like most places, these things take time, and I think it's unlikely that the LI would be approved much before the sort of fourth quarter of this year. In terms of Brazil, Brazil, Sri Lanka, we haven't really spoken about this project much before. We've taken an interest in CMET, because we see this as a very high-grade potentially low-capital opportunity. It's got very good product quality. Sri Lankan products are generally well-regarded.
When I say high grade, it truly is, you know, a very, very high-grade deposit with good quality minerals in it, and it lends itself to a relatively low capital, small scale, but high margin, development opportunity, which is what we like about it. And we're continuing to look at what our next step should be there, if any. And I'll stop there and take questions.
Brilliant. Thank you, Bruce. We'll just dive straight in. We've got a few come in via email, and then there's also a few come in through the Q&A. As a reminder to those on here, please feel free to submit some questions, and we'll try and get through to them. Just on shipments, Bruce, could you just give us a bit of an update? Obviously, you've achieved first bulk shipments around a month ago. How's the schedule looking? Are we now expecting consistent bulk shipments moving forward?
Yes, we are. That's a combination of got to make the product to ship it. We've generally been shipping the zircon concentrate, not quite hand-to-mouth, but we focused on zircon concentrate, it's the high-value product. So we were shipping that in bags. We did our first bulk shipment with that. So we would certainly be expecting to be able to make a shipment, at least one shipment of zircon each month going forward. And in terms of sulfate ilmenite concentrate to Yansteel, we've made the first shipment. We again would anticipate depending on production levels, but effectively, on average, we look over a year at about two shipments a month of that concentrate. Now we're still in ramp-up.
We're building to that, but I think we would certainly be looking to hitting near those levels by the end of this quarter. We have some stock, so we can also ship out of stock. I think it's probably notable that Broome is a port that has. It's been a relatively underutilized port, but it does have cruise ships in particular, and in the dry season, you get more cruise ships. So one of the challenges, and particularly in the peak of the dry season, is scheduling vessels in and around the cruise ships. Small vessels can share the berth. Larger vessels can't.
So there's a bit more sort of complexity around the timing of shipments in the peak of the dry season, really July and August. It's something that's manageable, but it does mean that we don't have quite as an easy run on shipping as we would in the shoulder and wet season. So that's something we've got to deal with. We don't see that as... It can cause a shipment to move by a few days. But overall, we generally should have enough windows in a month to be able to load sort of 3 vessels, 2 ilmenite and 1 zircon vessel a month, is sort of how we think about our regular shipping.
Okay, brilliant. One of the questions here from Roger Casello is more around the cost-effective engineering. Obviously, given the overburden, you're losing around 25% due to the overburden. Is there a cost-effective way to reduce the burden on the DMU? Obviously, you mentioned potentially even adding a second DMU. What would that look like in terms of cost, and would it increase operating costs much?
Look, I think we're a long way from knowing the answer to that question. I think, the range of possible outcomes on the oversize are actually, the average oversize is not as high as we're seeing, and therefore, the problem is manageable with the current system. That, I'd say, is... That's the best possible outcome we could see. At the other extreme, you conclude that you don't need- what you need is... Well, if we wanted to duplicate the DMU, which considering we're talking about a 25% loss of effective capacity, not 50%, you wouldn't do. A duplication is a circa AUD 20 million type of exercise.
It wouldn't dramatically change the unit operating cost, because effectively the fixed cost would spread over. I wouldn't see that. It wouldn't have a big operating cost benefit, impact. It would be more about the capital required to do that. There's clearly some intermediate cases which are further modifications to the current DMU to handle the oversize, and that could be, you know, changes to the screening, potentially even scrubbing, for example, to break a bit more of the overburden, of the oversize down. One of the exercises we'll do is to understand that oversize. The assumption has always been that oversize is either low mineral content or the mineral content would be low value.
We need to validate that, because if that's true, the objective is to continue to get rid of it. That would imply certain modifications that are designed to handle that. If it turns out that there is more valuable material in there, the other alternative is to consider modifications to actually recover a bit more of that to undersize. So I think there are a number of solutions there, but I would think about this as a AUD 20 million problem, not a AUD 100 million problem. It's, it's, it's, it's of that scale. If, if capital investment is required, it's not a, it's not a significant. The way I would put it is, I'd rather have an undersized mining plant than an undersized process plant, because that is a big-ticket item to fix.
We know that at the end of the day, duplication of the mining plant would work. It would have that kind of cost.
Okay, perfect. One of the questions that's come in through email, in which quarter are you anticipating operational profitability at the moment?
Depends how you measure it. I would expect from, on a pure P&L, well, on a revenue over cost perspective, I would expect the current quarter is close to being profit, the current quarter being the June quarter. However, from a pure cash perspective, we are still building working capital. We are still in ramp-up, and we're also transitioning from some of our early shipments we did on a prepayment basis. It was something our clients were happy to do as a way of supporting a new operation. We are transitioning all our sales to Letter of Credit, which means they move on to payment terms. So even with the prepayment, there was some deferral.
So what we find in the current quarter is there is also some working capital build as we transition from prepayment to post-payment, particularly for zircon concentrate. So I think this quarter will be sort of, I would like to think operating cash flow breakeven. We're probably operating profit positive, and we get through that working capital build, and then, you know, I would expect Q3 to be cashflow, clearly cash flow positive at the operating level.
Perfect. Just going back onto the oversize, something that you have mentioned in the past is ripping and running the dozers over it.
Yeah.
Have you started doing that already? Is that, is that seeming to improve, the-
Yeah, I mean, we've- as always with these things, we haven't been doing nothing. The team have tried a few different things. So in fact, the team have changed the way we... It seems pretty trivial, but in terms of the direction in which you do the ripping and then the direction of the push, and it turns out that it's better to push effectively, instead of pushing across the face and then down, you work straight down the face. And what that does, it means you're cutting through all the layers of the ore. That seems to give us more consistent feed, and it did give us more consistency in the oversize and it sort of did shift the oversize around a bit.
So we think we've got a better way to do that, but we're probably at the optimal way of mining now for where we are in terms of oversize, and it's really a matter of working out if that is representative of the deposit overall or whether we just happen to be. I hate to use the term unlucky, but it is true that we could have been unlucky, that we happened to be in an area of high oversize where we started. I think I do get a question sometimes about, "Well, you should see this from drilling," or whatever. The drilling's on about a 250-meter spacing. So, you know, these big holes don't have very many drill holes in them. You can miss a lot between 250 meters.
Our deposit's quite homogeneous from a mineralization perspective, so you don't need the drilling for that. It's very consistent, and drilling isn't necessarily the best, well, certainly, depending on the method of drilling, doesn't necessarily give you the best understanding of what's happening with oversize. So it's all about can we improve our understanding of the sort of the geotechnical things, the oversize and the hardness, both in terms of overburden stripping, so we have a better understanding of what's coming next for our waste mining, and then oversize, so that we either know what's coming and it's okay, or we can identify what modifications we should make to handle that higher oversize.
Yeah. Oh, this is quite an interesting question: Has there been any feedback from the vendors as to the quality of the product?
Yeah. So we've now made the initial bag shipments, followed up with bulk. Generally, the product is as expected, so we're realizing the prices we expected. We've always identified... I think everyone should be aware that when we had an MSP, it had a HAL circuit in it, a hot acid leach, and the hot acid leach basically is designed to remove iron contamination and iron staining from zircon. Now, very few processes in China have one of those. So what happens is they process material, process this material, and they recover most of it as standard. And then they blend that. They'll get a bit of premium, they'll blend it here and there. So the quality of the material is pretty good from the zircon perspective.
It has higher iron, as expected, unless you do the hot acid leach. So that's something that some processors may choose to do in the future. But effectively, the product is. We didn't expect to be shipping a product that was predominantly premium, and lo and behold, they're not receiving a product that's predominantly premium. So that's as, sort of as expected. So the customers are continuing to take the material. We've sort of adjusted price a little bit as we've gone along to reflect the quality, but there's been no... You know, it is largely as expected.
Okay. One of the questions is: What is the relationship or ratio between cash costs, so $ MT, and cash costs $ per ton produced?
Sorry, Pete, what was that? I didn't quite follow that one.
So, the question is: What is the relationship or ratio between cash costs, and then in brackets, $M2, close bracket, and cash costs $ per tonne produced?
Oh, I don't know if I really understand the question.
Okay. All right, we'll move on to another one.
Look, on cash costs, what I'd say is second quarter of production, running well below full throughput, costs pretty certainly. Unit cost's pretty meaningless at this stage. We're building our understanding of where we are, but you can take no, there's no real insight into the cost structure from the first quarter's figures. There were just not enough throughput to be able to meaningfully comment on that.
Okay. Can you just talk a little bit about sort of planned equipment and contracted labor availability during the quarter, and how that's set to continue?
Yeah. Certainly for ourselves, we continue to be a low-turnover operation as, as the operator. Our employees, we are predominantly West Kimberley-based, which helps. We do have some turnover. It would be weird to have none, but we don't have the high turnover that's often, often, associated with FIFO. Our contractors, can, particularly, the mining contractors. You know, it is still a battle to, to attract and retain staff. And a big- I mean, it's not, it hasn't impacted our ability to operate, but it is a constant exercise. And, and there again, the focus is on trying to increase the local component of the workforce because that, that...
They tend to be stickier and more committed to, to being in the business, in that business, because it's not, it's not just a FIFO call about where I go on my next shift. So we, we are, like everyone in the industry, you do see pressure. What I would say is we're starting to see, perhaps not so much at the operator level, but we are starting to see, availability of some of the more senior positions as the impact of some of the closures on mines in WA are impacting. And, and we are starting to see sort of candidates come through for, you know, senior-level roles who, who, who, you know...
So I think we're at the start of seeing some softening in the tightness of the labor market in Western Australia.
Okay, we've had a question come in around offtakes. Can you just talk about stage 1 product offtake? How much of it's been insured up?
I mean, nothing's changed there. We had 100% of the ilmenite concentrate is committed to Yansteel, so that's as it was. We have 75% of the zircon concentrate at nameplate capacity committed across three processors in China. So at the moment, effectively, we are producing at a level where that's all we need. We continue to work to send small parcels to other potential buyers. There is interest from others in buying that product. We have interest from some of our existing customers to buy the balance of the 25%. But as it stands today, still 100% on sulfate ilmenite, 75% contracted for five years on the non-mag concentrate. I just...
In terms of a naming convention, we non-mag, mag con, paramag, customers found it confusing. We now refer to them as zircon concentrate, ilmenite concentrate, and leucoxene concentrate, 'cause those are products that our customers recognize. So it may take me a while to learn to call them that, but that's – if I call that zircon concentrate, I'm talking about non-mag.
Perfect. At the start of the presentation, you stated production throughput expected to be at least in line with FID assumptions, which the author of this question says implies full production rates in the final quarter of 2024. But the quarterly states that full throughput expected by the end of this current quarter in June, which is currently more likely.
I think it's this in terms of full throughput on the DMU. That feels more like the current quarter. The undersize piece means that so where I think we'll be. My gut feel is by the end of the current quarter, we'll be running at close to our full nameplate mining rate. And then the question about the extent to which we're running the process plant flat out is about the recovery or the undersize. So the way I would think about it is by the end of the current quarter, we should be at up the top of the S-curve in terms of mining, definitely.
In terms of final product, somewhere around that 85% level, maybe a little bit higher, maybe a little bit lower, and then really working on what do we have to do to get from 85%-100%. That's quite a normal situation for ramp-up. We have a very specific thing we're focused on here around the oversize. Absent the oversize, I think we would be ahead of the original forecast of the end of Q- in the end of this calendar year at full nameplate capacity.
I know you have touched on this, but one of the main questions that have come through by email and also on the chat is, how consistent is this oversize throughout the full ore body? I know you've said that obviously you're doing more drilling, and it's hard to tell at the moment, but I guess, anecdotally or even based on your own assumptions.
Yeah, look, we, as I've said, we always knew it was variable, so it was gonna vary between, yeah, I think even zero up to about 40%, depending on where you were in the deposit. So the whole idea was, even more actually, so that the idea was, the DMU was sized, so in the areas of high oversize, it would... You could, you could handle that. However, it was never intended that you ran at that full production continuously, and so, so it would balance out over time. I think if we knew the answer to that question, we'd also—we'd know what we were gonna do next.
We did not expect to see the average we're seeing here, and what we don't know is the extent to which that is because the average over the ore body is higher, or whether, as I say. And the drill coverage, we've actually been mining under stockpiles, so we've even some of our pre-mining drilling, we haven't had the increased coverage. So I think it's just too early to answer that question. But it was never assumed to be consistent. It was expected to be variable, depending on where we were in the ore body.
When's the next time that the DMU will be moved, and you'll be testing out a new area of the ore body?
I mean, we, because of the way the DMU moves, you don't—you're moving into the next area, so different area of the ore body. It's the next block, and the extent... We don't, we're not jumping somewhere else to see what's over there. The DMU moves about one every 4-6 weeks, you move the DMU. And so we are looking at a DMU move as is imminent, the next DMU move.
One of the questions is, that you mentioned sulfate grade ilmenite. Do you mine or produce chloride-grade ilmenite? And what is the percentage of total output?
The ilmenite concentrate, the ilmenite that's recovered from... When our partner roasts it and separates it out, if you remove all of the titanomagnetite , you end up with an ilmenite that's about 55% TiO2. They're unlikely to do that. They're probably more likely to target 50 or 51, but doesn't matter. That ilmenite, if you look at its composition, is sulfate ilmenite. It's not chloride ilmenite. So if you were to process that ilmenite, it would all recover as sulfate. To the extent that there is higher—I mean, the way to think about this is, you have a continuum of ilmenite from, I don't know, somewhere in the 40s to the high 80s, and you'll have all of it. And it's where does it go?
Now, our higher TiO2 ilmenites are reporting to the, they're reporting to the non-mag fraction, so that becomes the low end of leucoxene is the high end of chloride ilmenite. So to the extent that we have 60%, 70%, 80% TiO2 material, that's going with the non-mag. It's not recovered to the sulfate ilmenite concentrate.
Perfect. Any updates on the sacred object, and the exclusive, and the exclusions?
Yeah
... upfront?
Yes and no. It's still there. The buffer zone is still in place. There has been a visit with the traditional owners to inspect the object, along with anthropologists, and to look in the general area, but there has been no decision made about the extent to which that, what the final status of that object will be.
... Okay, perfect. One of the questions from anonymous is, obviously the share price has continued to languish, despite major milestones being achieved recently. Obviously you've reached production, you've got shipping underway, you've got cash flow, et cetera. Do you receive any investor/institutional feedback regarding the main reasons for investment resistance, given the apparent or substantial value proposition?
Look, I think it's kind of interesting. You get the feedback from existing holders is, you know, they're talking about institutional-type holders. They, they've got their position. They can't meaningfully change that in the market. They're not sellers. You know, they might be buyers if they could get enough. Then you have, you know, we do continue to do a lot of marketing, particularly looking to new investors. We've typically targeted smaller, like family offices, smaller institutional or new areas, because one of the challenges with a low liquidity stock is for a lot of institutions, whether they like it or not, they can't. They don't see it as a position they can- they can't get a meaningful position in it.
So I think there is a bit of a standoff there between you've got people who like the story and aren't particularly interested in selling at these levels, and you've got people who like the story, but can't buy enough at these levels. I think, you know, it's- I mean, I continue to remind everyone that flat is a massive outperformance against most of our peers. It's quite tough to fight a falling market and the fact that we've held our own is probably a little bit of a testimony to the fact that we have delivered quite a lot. The other comment is, and I think you see it with ourselves, I mean, startups aren't easy.
You know, I get a little bit frustrated with people that talk about, "Oh, you've built it, so it's de-risked." And it's like, "No. No, it's not." You know? You've got... These are very complex systems. They take a lot of getting them to work the right way, and I think that gets underestimated sometimes. Now, when you have the backdrop of peer companies that have actually had disastrous startups, I think there is also a healthy degree of skepticism that says, "Okay, but I want to see that you aren't having those problems." And, you know, we would say, we aren't, and our first quarter, we had some very specific issues we understand. We would expect the second quarter, we will see stronger volumes, and people will build that confidence.
But it feels like we're in a, you call it a show-me world. "Don't tell me it's okay, show me it's okay." And, you know, we're not there yet. We have another quarter to demonstrate production, particularly the DMU, so it makes it clear that our main issue, our remaining issue is the oversize. It's always good to be dealing with one, not five issues, from a production perspective, and then ultimately, I'm starting to demonstrate the ability to build cash at the operating level, which, you know, maybe that's a Q3-type exercise. So I do think this is going, unfortunately for people, there isn't a sugar here. It's gonna be, you know, every quarter we're gonna make progress, and people are gonna form a view on where we are on our journey from that progress.
I would remind everyone we are pretty much where we said we would be. You know, we've not... We're producing at about the level we had expected. Now, we're probably a little bit behind on sales because getting up and running through the port has proved, you know, it's just, again, it's a complex system, getting up and running. So that's what we need to do. We need to be regularly making shipments now.
Good. Can you just talk a little bit about reconciliation, and a bit about the 13.6% THM grade mined?
Again, I think, look, overall, with the exception of the oversize, we're very comfortable. So there's probably two areas where there is a delta between what we had expected, and that is oversize and the recovery of TiO2 to the non-mag con. That's it. Everything else, nothing to see here. I think largely as expected, and I think, again, there's no... You know, whether the issue is not whether the grade is 13.6 versus 13.8 or 14, the issue is whether you're presenting, if I present 1,000 tonnes an hour to the DMU, whether I get, you know... whether I get 1,000 tonnes an hour from the DMU to the wet concentrator or whether I get 800 tonnes an hour, that swamps everything else.
So the overall reconciliation is as expected, or slightly better in the case of the recovery of valuable material to our final products. So with no concerns about, grade reconciliations or anything like that.
Perfect. One of the questions was, in light of potential restrictions in place, delivering funds into Brazil, have you had any issues delivering funds into Brazil from South-
I'm not aware of any issues when the money's requested, we pay it. I'm not aware of any capital or currency controls in and out of Brazil, so no.
Perfect. Why don't we talk a little bit about the zircon price and sort of the outlook for that, if you don't mind, Bruce?
Yeah. Look, I think, and there's been a fair bit of commentary from other companies, particularly Iluka, that I think what we saw was the softness in the second half of 2023, and there was an expectation that the first half of this year would be pretty tough as well. And actually, there was restocking in China, and that there was buying in January ahead of Chinese New Year, which is unusual. And I think people had suddenly realized that and the way to think about it is, it particularly impacted premium zircon, because the Chinese buy a lot of concentrates, and those concentrates, they recover a lot more standard and sub-premium type grades.
And then you had, particularly Iluka and Tronox saying, "We're not gonna produce..." You know, they're not producing as much, not seeing the sales. They disproportionately remove premium, 'cause they, they make final product. So what you had was an exaggerated tightening of premium in China, and I think some customers suddenly realized that the premium wasn't gonna be there. And so that sort of- they, they were buying ahead, and that, and that sort of stopped prices going down, particularly for premium, and even ticked up a little bit. It has probably widened the spread between premium and standard a little bit, in China in particular. It feels like, it feels like that's where we probably are for the first, certainly for the first half of the year. I, I think, you know, TZMI went from saying in December that, FY20...
Sorry, calendar year 2024 would see a surplus in zircon. By February, they were calling it as balanced because of the adjustments to production that were made by major players. So it feels like it'll be a pretty balanced market this year, absent some surprise on either the supply or the demand side. So it's not obvious what's gonna suddenly drive prices up, but also down. So, unfortunately, it probably feels a bit boring at the moment. We're probably looking at these prices around these levels, certainly through this year, would be my best guess at the moment.
And we're probably seeing a little bit more, you're still seeing the volatility in monazite, which is probably gonna find a floor again soon, because, you know, rare earth prices are back at, or monazite prices themselves are back at sort of long-run levels, and so we've definitely seen that peak and fall off. It's not a big component of value for us, but still, you know, $25, you know, $25 is still a decent chunk of change out of a, on a, you know, $700-$800 a ton commodity. You'd prefer to have the extra 25 than not.
Agreed. Bruce, why don't you just talk us through as much as you can do, looking further forward? Why don't you talk us through sort of the next quarter upcoming, what... this time, in three months' time, when we do another one of these quarterly updates, what, I guess, would you like to be able to say?
I mean, look, certainly from a production perspective, we would expect to end the quarter at close to the full... You know, we'd be running full throughput on the DMU. You know, seeing all the material we can make there going through the products that we're now making regular shipments. And that we're, you know, we're clearly at or near that bottom of the pit. We're so having to call it maximum depth or minimum cash position. That's sort of where I think we'll be this quarter. I think this quarter's gonna be more about proving the production capacity is there, subject to this oversize question. So, you know, are we at 85% of final products? Is it a little bit above or a little bit below that?
That's what we would like to think we can prove this quarter. And then, you know, building into the following quarter, that you know, strong, you know, positive operating cash flows, 'cause we'll have- we'll be through the working capital build. You know, we should be making regular shipments, and that would be, you know, that would be the sort of things I'd be looking for over the next couple of quarters.
Amazing. And before we wrap up, any final thoughts at all, Bruce?
No. Look, I appreciate people's time to listen in. You know, startups are, they are frustrating. You get data points once a quarter. You know, we're not gonna provide blow-by-blow commentary. It doesn't help because it creates noise. I think, you know, we're on a journey. We're pretty comfortable with where we are. I think, you know, there is a particular... I think there's one particular issue to focus on, and we're focused on that. But until we understand that, we're not gonna panic and rush off and do something about it. We are... Remind everyone again, we've just finished the first full quarter of production, and we weren't running at full production for a quarter. We're on that journey, and, you know, we've got...
You know, we're gonna be in the ramp-up for a little while. You know, we're gonna get close to full production, but then the optimization piece always takes a bit of time.
Perfect. And for those of you who would like to rewatch aspects of this, we are recording. It will be on the Sheffield Resources YouTube channel. And as always, feel free to reach out via the website if you have any other questions. Bruce, thank you for your time.
Cheers. Thanks, Peter. Thanks, everyone.