Allkem Limited (OTCPK:OROCF) Q2 2023 Earnings Conference Call January 17, 2023 6:00 PM ET
Company Participants
Martin Perez de Solay – MD, CEO & Director
Christian Barbier – Chief Sales & Marketing Officer
Christian Cortes – Chief of Staff
James Connolly – Chief Project Development Officer
Liam Franklyn – Head of Australian Operations
Conference Call Participants
Rahul Anand – Morgan Stanley
Reg Spencer – Canaccord Genuity
Alistair Harvey – JPMorgan Chase & Co.
Kate McCutcheon – Citigroup
Mitch Ryan – Jefferies
Hugo Nicolaci – Goldman Sachs
Kaan Peker – RBC
Lachlan Shaw – UBS
Ben Lyons – Jarden
Matthew Frydman – MST Financial
David Deckelbaum – Cowen
Joel Jackson – BMO Capital Markets
Glyn Lawcock – Barrenjoey
Stuart Howe – Bell Potter Securities
Operator
Good day, and welcome to the Allkem Limited December Quarterly 2022 Results Briefing. [Operator Instructions]. Finally, I would like to advise all participants that this call is being recorded. Thank you.
I’d now like to welcome Martin Perez de Solay, Managing Director and Chief Executive Officer, to begin the conference. Martin, over to you.
Martin Perez de Solay
Thank you, Paulie. Welcome, everybody, and thank you for joining us for Allkem Limited December 2022 quarterly results briefing. As usual, I will be providing an update on our business; and Christian Barbier, Chief Sales and Marketing Officer, will be providing us with a market update. Also joining us for the Q&A today is James Connolly, our Chief Project Development Officer, leading the development of our significant growth project pipeline. And we also have Liam Franklyn from Mt Cattlin; and Christian Cortes, our Deputy CFO.
Firstly, the lithium market remains robust, and we continue to navigate through global challenges and remain fully committed to deliver an execution of our growth pipeline. At our operations, we continue to produce consistent quality and product with Olaroz achieving record production of 4,253 tonnes during the quarter following excellent operational performance.
At our development and expansion projects, we have progressed construction at Sal de Vida, permitting at the James Bay project with JAC approval of the ESIA, resource extension drilling at Mt Cattlin and commissioning activities at Naraha with first production achieved during the quarter.
At all our Stage 2, we have successfully reached over 96% completion and we are now working to install some key final components that have been delayed late last year. We have commenced pre-commissioning activities, and we’ll move to full commissioning later in the March quarter with first production in the June quarter of 2023.
We continue to be in an extremely strong financial position. This quarter we generated Group revenue of US$265 million and achieved significant Group cash operating margins of 82%. Group net cash at the end of the quarter was US552 million and our teams remain focused on advancing the development of our project pipeline as we are clearly set out to triple production by 2026.
During the quarter, we have also completed a strategic deal to acquire the Maria Victoria tenement located 10 kilometers north of our Olaroz facility, while divesting our Borax operation. The acquisition complements our extensive lithium brand holdings in the region and will allow a more efficient development of the Olaroz salar.
I also want to advise shareholders that we are aware the government of Argentina has communicated its intention of removing the export tax benefits that currently apply to lithium chemical production. While the timing of implementing such a change is — on its full effect is not yet known, it is anticipated that it will result in the loss of incentives in the average of 1.5% to 4% of revenue. We will continue to monitor this and [indiscernible] with the government to minimize the impact.
Starting with sustainability, the core pillars of our business, we continue to be recognized for our leading practices and enable to increase our transparency and performance across our operations. During the quarter, we were again included in the Dow Jones Sustainability Indices based on our strong performance in recent ESG assessments.
Allkem recorded a 12-month moving average TRIFR of 1.9 at the end of the December quarter and a 12-month moving average Lost Time Injury Frequency Rate of 0.3, representing strong performance across both metrics. Unfortunately, we did incur six recordable injuries during the quarter, four at Mt Cattlin, one at Olaroz and one in the divested Borax business. Investigations have been carried out and effective corrective actions have now been implemented.
We continue to maintain regular and positive engagement within all the communities we work as our development and construction activities advance. Of particular note was the finalization of an updated easements and participation agreement with the Olaroz Chico community, which now incorporates production from Olaroz 2. At the end, the receipt of all final approvals for the expansion of the Sal de Vida project to 15,000 tonnes per annum.
Moving on to our operations, Olaroz production at the quarter reached a record of 4,253 tonnes of lithium carbonate. 66% of which was technical grade in preparation for providing feedstock for the Naraha plant. Production was up 17% from the prior corresponding period due to good brand performance from outstanding mechanical reliability and asset utilization.
Lithium carbonate sales were 3,131 tonnes generating record revenue of US$151 million with a gross cash margin of 90%. Excluding shipments to Naraha, third-party sales were completed at US$53,013 per tonne FOB basis, up 23% quarter-on-quarter. With regard to the expansion, by the end of December, Olaroz Stage 2 expansion have reached overall physical progress of approximately 96% completion. Olaroz operation pumps were completed and commissioned.
Lime plant 3 and 4 are now fully commissioned. Soda ash facilities are in the final stages of commissioning. The carbonation plant has reached 86% completion. Final [ph] activities in the carbonation plant are now progressing to plan. Pre-commissioning activities are underway with full commissioning activities starting later in the March quarter and progressing through the June quarter for planned startup of production.
As expected, our Mt Cattlin production during the December quarter continued to be impacted by previously noted delays in exposing the main ore body, coupled with temporary fine grain mineralization that negatively impacted processing. Mitigating actions have been successfully implemented, including mobilizing a larger mining fleet with additional mining contractor, which saw mining volumes increased by 24% on the September quarter to 2.6 million BCM.
During the quarter, 16,404 dry metric tons of spodumene concentrate was produced at a 5.3% lithium oxide grade. Production was limited by ore availability and grade related to patchy mineralization intersected at the top margin of the main ore lens. Mining is now progressing beyond this zone and the ore grade is forecasted to increase in the March and June quarters which will be a key driver of higher production for the second half of the year.
We shipped 15,702 dry metric tonnes and generated revenue of US$83 million with a gross cash margin of 72% based on cost of production and average pricing of US$5,284 per dry metric tonne CIF for spodumene concentrate of 5.3%. Additional US$32 million of revenue was generated from the sale of 53,715 dmt of low grade spodumene concentrate.
Allkem commenced a three-phase resource extension program in mid April 2022 with the aim of achieving a multiyear mine life extension. Phase 1 and 2 of drilling was completed during the quarter and results to date are generally in-line with expectations and indicate resource and reserve extension potential.
An open pit cut-back feasibility study, including a revised mineral resource and reserve estimate, scheduling, mine planning and detailed pit design is expected in the end of the March quarter. Third phase of drilling commenced this month and it is focused on the area to the South West of the current mine to test additional targets and prospects.
Moving on to our development assets, that will underpin significant growth at Allkem at Naraha, first production of lithium hydroxide was successfully achieved in late October utilizing technical grade lithium carbonate from Olaroz. The technology has been proven and utilization rates of 85% were achieved. Product quality exceeded expectations enabling approximately 200 tonnes of technical grade lithium hydroxide to be sold to third-party customers. The next production run commenced earlier this month with the next key milestone being steady state operations.
At Sal de Vida, during the month of December, the government of Catamarca issued the environmental impact approval to construct the 3rd string of ponds fully enabling the 15,000 tonnes per annum production capacity. Additionally, a resolution was issued permitting the construction of the solar farm that will provide the Sal de Vida project with a 30% renewable energy generated on site. Water easements were also authorizing — were also issued authorizing back-up sources of industrial water for the project. All permits for the Sal de Vida project are now in place.
Construction of the first two strings of ponds reached 82% completion with the first six ponds completed and filled with brine. The main brine pipeline is complete and 7 out of 9 production wells have been commissioned. Camp expansion activities and procurement for long lead items continue. Detailed engineering on the process plant has advanced and mobilization of site workshops and concrete plant is ongoing.
The EPC contract for the process plant was awarded during the quarter. Data received during the tender and award process, together with learnings from COVID and a Board review is being incorporated into the project schedule with first production estimated in mid-2024.
At James Bay, we are advancing the project on a number of fronts and in anticipation for construction commencement as soon as permits are issued. Detailed engineering continues alongside procurement activities including ordering of long lead items and equipment packages for temporary camps, primary sub-stations and process equipment. Engineering was 54% complete by the end of the quarter with engineering of the process plant package at 75%.
Hydro-Quebec early works are complete and construction crew mobilized to install the powerline to site. Material progress has been achieved in the permitting of James Bay with recent approval by the Joint Assessment Committee, the Federal government of the ESIA. Comex approval, Quebec government and CREE Nation of the ESIA, agreement of the IBA and procedural construction permitting remain in progress. Once timing for commencement of construction is known, the Company will update guidance for first production.
Positive engagement with community stakeholders continues including additional community consultations, meetings with previous stakeholders and discussions with the Eastmain community economic development branch to agree the local economic benefits. Work is ongoing with engineering contractors to evaluate opportunities to accelerate the construction schedule, including the use of prefabricated modules.
At 19,255 resource extension drilling program commenced in late November to test open mineralization around the current ore body. Drilling progress was 24% at the end of the quarter and a Mineral Resource update is targeted by the end of the first half of calendar year ’23.
I will now hand over to Christian Barbier, who will provide us the sales and marketing update.
Christian Barbier
Thank you, Martin. 2022 was a pivotal year for the lithium industry with record demand and pricing seen far beyond everyone’s expectations. The main driver of this growth electric vehicles continue this breakthrough into the mainstream. We’ve global full year sales estimated to be approximately 10.5 million units, representing year-over-year growth of 56% or plus 3.7 million units.
To put this in context, the EV market grew more in the single year last year than the entire market in 2020, 2 years prior. This growth is expected to continue into 2023 despite some concerns about the lingering impact of COVID-19 and the potential for global recession. Consensus EV unit sales growth in 2023 is forecasted to be similar to 2022 at around 3.6 million to 3.7 million units with an increasing proportion of this expected to come from Europe and North America.
This is an encouraging sign as both EV and the [indiscernible] demand growth becomes more diversified and widespread and [indiscernible] government support for EV and the EV battery supply chain continues to be announced with growing calls from other regions to follow the U.S lead in announcing significant programs and incentives in order to remain competitive in a global market.
Despite some recent easing of domestic Chinese lithium spot prices from the record highs, largely due to seasonal demand, destocking and an earlier Lunar New Year, we expect demand to rebound and resume its historic annual growth trajectory following these periods. Our customers continue to request additional volumes and accelerated shipment schedules with pricing outcomes for our long-term contracts continuing to trend upwards. As a whole, we remain confident that 2023 will be another strong year for Allkem and the lithium markets.
Thank you. I will now hand back to Martin.
Martin Perez de Solay
Thank you, Christian. And I will now hand back to the operator to commence the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of Rahul Anand from Morgan Stanley. Your line is now open.
Rahul Anand
Hi, good morning all. Thanks for the opportunity. Look, firstly, congratulations, obviously a very strong production result at Olaroz. I just had some questions around the cost base, if I can, please. So we saw production rise about 30% from the previous quarter. Battery grade production is also lower at about 34%, yet costs are up about 3%. So I just wanted to get a sense of where the actual underlying costs are sitting in terms of fixed and variable components at the moment. And then second part of that cost question is around the revenue credit that you mentioned. Am I correct in understanding that that revenue credit currently sits within your cost base? And if it is cancelled by the government, then your cost base will rise by an equivalent amount.
Martin Perez de Solay
Thank you, Rahul. I will leverage on Christian. Thank you Rahul and I will leverage on Christian Cortes to answer your detailed questions. Bear in mind that with inflation in Argentina being very high and the valuation rate, we do have volatility from quarter-to-quarter in terms of the impact of peso based costs on our numbers. So 3% valuations are kind of reasonable nonetheless Christian can give you a lot more detail on those questions.
Christian Cortes
Thanks, Martin. Hi, Rahul. Rahul, I guess the key explanation is around timing. We report a carbonate performance based on what we sell. So you would have seen that we — we had a lower volume of sales in the quarter in comparison will be produced during the quarter. What you’re expecting to see I assume is a reduction, it’s likely that you’ll see that reduction when we sell the product that we produced in this quarter in the following quarter. So it’s purely coming down to timing. There is also a slight product mix that it’s pushing a little bit higher the cost of what we sold in this quarter, and that’s predominantly on more volume of battery grade product being sold in comparison to what we sold in the previous quarter. So it’s largely coming down to timing.
Now, your second question with regards to the incentive that we had benefit over the time at Olaroz, yes, the percentage has fluctuated over time and gradually it’s been reduced to the point where they’re now suggesting that will be phased out. We’re yet to understand the cut-back or the elimination of that benefits and its preliminary regulation and still yet to be enacted. Nonetheless, as we disclose now, that’s going to be somewhere between 1.5% and 4% equivalent to the unit sales price. And since it’s been a benefit associated with investing in both mining as well as in the region, we’ve taken the view that it’s an offset to the operating costs. Once we understand the details, we’ll be able to talk to exactly how does that flow through profit and loss in the future.
Rahul Anand
Just a quick follow-up, Christian. In terms of the current credit that you’re getting, are you able to put a number around it? I mean, I personally use a 3% credit in the cost base. Is that in the ballpark? Or like you said it’s been reducing over time? Or is it sitting at close to 1.5% that you’re currently getting, assuming that all of it is up for elimination?
Christian Cortes
Okay. So today we are getting 4%. It’s a combined benefit, again, between just generally exploring and investing in the region. So hence while we can’t give you a specific percentage today, but if everything was to be removed, it would be 4%.
Rahul Anand
So this is the federal and the [indiscernible] credit right, combined?
Christian Cortes
That’s right. Yes. The Federal and the [indiscernible] credit. And I mean, it’s effectively removing 4% of your margin from your profit before tax.
Rahul Anand
Got you. Perfect. Okay. And quickly my second question is on James Bay. Obviously, the ESIA is awaited there. I just wanted to understand from the time since you did the initial study, have has there been a change in terms of the requirements around environmental controls, et cetera? That was a feasibility level study that you did in 2021. Have you seen a change on the ground? What kind of scope change can we expect for this to be approved? Thanks.
Martin Perez de Solay
We haven’t seen a significant change in the approval that was issued by JAC, some updated of some studies that want to get the baseline, but no significant changes in the scope from what we submitted on discussing 2021 when we started the submission of information. It is just that it takes tremendous bureaucracy in Canada to get this approvals through and we’ve been through, I think we covered this in previous call doesn’t make sense. But we’ve been impacted by an engineer strike that delayed all of the analysis and process by several postponements on Comex meetings and else, but fortunately, it’s all coming to an end. We’re very close to completing this. This [indiscernible] process that they have, and I think that the JAC approval is a very good news, meaning that the federal government is really committed to support the project. Now we’re in the final stages of the approval at the provincial level, this Comex, it’s a joint provincial and CREE Nation body [indiscernible] final approval and after that we secure the permits, which are issued at the provincial level. Permits have already been prepared and pre-submitted nonetheless until the final approval is issued. Focus on the permits will not be guaranteed.
Rahul Anand
Okay. And just a quick follow-up. In terms of the hydropower availability, is a potential conversion facility at site or close to site also something that you’re considering?
Martin Perez de Solay
We are looking at several options for downstream facilities, maximizing the availability of renewable energy and minimizing the carbon footprint on the transportation of the product. And that is — James is analyzing a variety of options as he’s putting together the pre-feasibility study. James, can you comment a bit on this in more detail?
James Connolly
Yes. Rahul, good question. I don’t think James Bay the site itself lends itself well to a downstream conversion facility at this time. But we are conducting citing studies around multiple sites in North America to evaluate what is best, and we have to be mindful of what we need there, good power, good access to LNG or natural gas and good logistics. So those citing will come. We’ll contemplate that. But we’re not looking to disturb James Bay site at this time.
Rahul Anand
Understood. Okay. Thanks a lot.
Martin Perez de Solay
Rahul — yes, no, sorry, I was just to complement that the head of the power line that’s being conducted to site enables us to be between 45% to 50% of total energy consumption from the site. So this line wouldn’t be enough for our commercial facilities, not yet enough for the full consumption of the site.
Rahul Anand
Okay, understood. Thanks for that color. I’ll pass it on.
Operator
Your next question comes from the line of Reg Spencer from Canaccord. Your line is open.
Reg Spencer
Thanks. Good morning, Martin and everyone was pushing is on Sal de Vida. You’ve put through or advise us all of a likely 6 months delay on your prior guidance to first production. You mentioned COVID and some learnings that is made you make that revision. But what have you learned specifically that has led to that online revision? Is there anything specific to the assets, specific to the design or the project or the build to the permitting that forced you to push that timeline at 6 months?
Martin Perez de Solay
Good morning, Reg and thank you for your question, I have to tell you that there are no specifics engineering is processing engineering is complete. And James can comment to you on the detail progress of the engineering of the project. But the learning is that the whole supply chain of major equipment was significantly disrupted after COVID. We faced a lot of transportation issues, and we’re just impacted by late arrival of some equipment in Olaroz not long ago. So we are factoring in all of that. And we have a thorough discussion with the Board trying to you — to have clear expectations set aligned with what we can deliver and ensure that we meet what we are committed to. So factoring in all the things inside to be able to get this all done by the end of this year, the team will work with that objective but [indiscernible] to be able to complete everything when we factor in recent experiences.
Reg Spencer
Understood, understood. Shooting over to James Bay, very interested to see how the exploration drilling goes. There your resources, 40 million tonnes, it’s open in pretty much every direction. What effect on the James Bay project design and or production scale might we expect if you are able to deliver a dramatic increase in that resource at James Bay? Could you increase production easily and with relatively little capital above the 330,000 tonnes in your feasibility study?
Martin Perez de Solay
A couple of things. Additional production will have to be approved in terms of ESIA [indiscernible], so the project is as of today short-term. It’s frozen at its capacity and that’s what we will do, but provides tremendous advantage to increase production capacity, because we will leverage on fixed costs and existing base facilities. So it’s a loss for that, that we can do not only in terms of life extension, but also production capacity increase, provided that we go through all the procedural approvals that we have to so. At this point in time don’t want to factor in any additional production. We want to get everything approved as we have and get the project up and running and incorporate decreased production once get everything done, focus now it’s been full time on accelerating the rate of the project and an increase in the resource.
Reg Spencer
Okay. No, that’s excellent. Lastly, shooting down to Argentina, you guys are undertaking studies on the potential for an upside purification facility and let’s just call it DLA to make things simple on site. Are you able to say how things are progressing with those? And can we still expect results of that study work as the previous guidance?
Martin Perez de Solay
Yes, James is conducting also, let him answer your question.
James Connolly
Yes, good question. We’re making good progress on the studies. Obviously, we’ll speak about the expansions initially at Olaroz. We are a conventional evaporation shop, per se. Great experience on that with the carbonation process. We do at the moment have several studies that are looking at maximizing that capacity. We’ve made really good progress with those, our process development group has. And we’re in the final phases of technology selection on that site, and looking forward to take one or two of those technologies to piloting. At the same time, our studies around the geohydrology and brine management, [indiscernible] brine as well as brine extraction are advancing well, and we’re looking to issue these results as soon as they’re ready as our previous guidance. So we’re nothing down and getting the work done. And as soon as we know, you’ll know.
Reg Spencer
Excellent. Thank you guys. I will pass it on.
Martin Perez de Solay
Reg, just to complete your question I think the potential expansion agenda is huge in terms of what we have seen and the potential extension for the ore buddy. I’m not focusing on speeding it up immediately, because the focus now with simple agenda project on stream, but the potential up there is quite significant.
Reg Spencer
Yes, so it’s my turn, I guess that’s where I was going at. I presume, given the time it’s taken to permit the project as it’s currently designed, would — not necessarily. Actually, he’s a [indiscernible] quick — very, very quick follow-up question. Once the project is up and running would [indiscernible] or supplementary approval to add incremental capacity be faster than a greenfield approval scenario, like what you’re facing at the minute?
Martin Perez de Solay
Definitely. That’s why I want to get it up and running and then expand it. But that’s your tactics more than a strategy to strategies to increase production capacity on the potential at James Bay have.
Reg Spencer
Fabulous. Thank you my time. Thank you, everybody.
Operator
Your next question comes from the line of Al Harvey from JPMorgan. Your line is open.
Alistair Harvey
Good day, Martin and team. Just wanting to get a bit of an update on the Olaroz resource review. Obviously got Maria Victoria to come in, but I guess the resources are already pretty large there at Olaroz. Just wanting to get an update on what modifying factors you might be looking at there. How we think about subsequent stages. Maybe even beyond Stage 3, how you think the ultimate size and scale of Olaroz could shape up?
Martin Perez de Solay
It is a good question. Yes, the potential of your resource is huge. This study will come with two main impacts. One is the addition of Maya Victoria, as you mentioned, the second one is a bit more of definition based on the drilling that have happened for Stage 2. And some day I’m [indiscernible] that we’ve also completed to be more definition to the reserves. So you should see not only improving total reserves, but also in categories. It is important to highlight the potential of the Olaroz space and, as you say, difficult to tell you today what would be the maximum capacity. It’s a 100 year base resource that that we’re talking there, and we have an opportunity to continue to grow. And if we maintain our development strategy in good relationships with local authorities, local communities, is a significant focus on ESG as we currently do. I wouldn’t say it’s an endless resource because there’s not such a thing that’s an endless resource, but it’s several stages of development and lots and lots of years of production capacity at [indiscernible]. The quality of the brine
and the availability is huge.
Alistair Harvey
And just a quick follow-up there, Martin. What is the limiting factor is at — spice for evaporation ponds? Is that kind of what we cap it out at this point prior to any DLS technology
James Connolly
At this point it is — there’s not enough a state for operation factor for all of the production capacity of the basin. So that’s why we are looking into habit technologies that will enable us to maximize the productivity from not only from the pump brine minimizing impact on non-[indiscernible] but also maximizing the potential of operation for [indiscernible]. So that is — those are the studies that I think somebody else was referring to before that James is conducting for all levels.
James Connolly
Yes, sure. Thanks. Thanks for that clarification. And just to Mt Cattlin, obviously, still seeing a few issues with fine grained material and few differences in the broader geology there. I know you’ve done some work on it, or distribution and the fine grained mineral size on the pegmatite boundaries as though you’d kind of reviewed the drilling and were mainly through this. I was just wondering if any more work has been done on that, how you’re thinking about the mine plan over the next couple of months where you’re expecting to hit more of this fine grained material. And I guess just on top of that, the broader resource update for the open pit and study how will that sequencing with potential underground there and other expansions at [indiscernible]?
Martin Perez de Solay
Yes, but listen, a lot of work is being done. I was on Monday at site with Liam and the team and tattling on person [indiscernible] reviewing the — how the exploration programs going. And I let Liam comment on what he’s doing and how he sees it, but a lot of work is being put behind this asset. Liam?
Liam Franklyn
Yes, absolutely, Martin. So in terms of the first query around the mineralization, we’re certainly into a more favorable part of the ore body now as expected, and that’s already demonstrated in the performance out the back end of the plant. So we’re feeling very positive about the position we’re out in the mining sequence now. Cattlin was always going to be a game of two halves this financial year. So certainly exposing that first lens of the ore body and some of the challenges in the opening [indiscernible] we’ve experienced, and now we’re going to, I guess, a better part of the ore body. And we will be for the next foreseeable future, certainly for the remainder of the financial year.
In terms of the MRA, the drilling programs completed. And really, it’s just analyzing the results and looking to release that this quarter. That then feeds into the information required for an appropriate mining study, which will then lead to that, that next phase of growth, or loss of mine extension to Mt Cattlin, which were just going through the motions of putting that through the phases now. There’s always potential for there to be a natural tipping point to underground, and we’re putting it through the right level of study now unlikely to be in this next stage of mining, but that remains to be seen.
Alistair Harvey
Great. Thanks for that. And might just sneak one more and just following up on the James Bay construction schedule. I know you said could be expedited with prefab modules. Is — we’re still seeing tightness in supply chains for the kind of long lead items or do you think that really could be brought forward maybe even ordered relatively soon and speed things up quite substantially?
Martin Perez de Solay
We are already working on the long lead items and we replaced all the — for some of these equipment engines they particularly large crushing and that stuff that took us longer. We are progressing with the installation of the power line from Hydro Quebec and everything that could be done before hitting the ground. It’s being done analyzing of using precast concrete structures is also being incorporated into the engineering in order to minimize the impact of winter period. It is very difficult to give an exact timing because it depends on whether you initiate operations in winter or whether you initiate operations in summer, you would do — you would use a different strategy to maximize in order to minimize the timing of a project. So all of those things are being incorporated. And we hope we’re in the final stages of development, getting permitting. And once we get all that we know exactly what, what’s the best alternative to speed up the delivery of the project.
Alistair Harvey
Right. Thanks, Martin and team.
Operator
Your next question comes from the line of Kate McCutcheon from Citi. Your line is open.
Kate McCutcheon
Hi, good morning, Martin and team. Perhaps a question for Liam on [indiscernible]. Can you give us an indication of the grades that you’ve been milling at, please? I guess last quarter, you said you expected to mill at a 900,000 tonne per annum run rate, the current [indiscernible], so just working through the math, I guess for the guidance that you’ve retained, please.
Liam Franklyn
Sure. I think the number you’re referring to might be BCM as opposed to run rate through the plant. The mining volumes were very favorable for the quarter. So record BCM throughout the quarter with at least one month over the 900,000 mark to get that 2.6 million for the quarter that was really favorable. In terms of the grades, we’ve got a range of grades that have been in the lowering leading into the plant this quarter. And that’s certainly looking more favorable in line with traditional norms going into the next half.
Kate McCutcheon
Okay. No more granularity there? I mean, I guess you just have to have two cracking coming quarters to hit back [indiscernible]?
Liam Franklyn
That’s right. And look, everything we’re seeing with our great control program is indicating that we should see the half that we expect to see. We’ve certainly seen it in the past. However, we continue to get more definition with that grade control drilling going forward.
Kate McCutcheon
Okay, cool, because I think I’m on prior calls, you might have given us great guidance of 0.93, 0.94. Is that still there?
Liam Franklyn
I have to apologize, I wasn’t privy to previous quarterly calls. That would probably be more for full year guidance.
Christian Cortes
Yes, indeed, it was, yes.
Kate McCutcheon
Okay. Okay, cool. I work with that. And then secondly just moving to Olaroz through, a good production number. You mentioned some positive factors contributing to that earlier mostly. And should we expect that to continue into the coming quarter? Or was there a lot of positive environmental or weather factors driving that evaporation last quarter? And then if I can just tack another one here the difference in production and sales at Olaroz? Is that just timing given you produced a lot in December and with the holidays? So should we expect a similar lag going forward? I guess I’m just trying to work out if sales will be more mix quarter and having normalized.
Martin Perez de Solay
Helping with the production, I will let Christian answer the — Christian Barbier give you an update on the sale. On the production, clearly this quarter is from a climatic perspective is a very good quarter because we enjoy high winds and good temperatures. As you know we are going through spring and the high radiation because it’s a low cloudy in a quarter. So typically there’s a significant improvement in brine concentration due to climatic factors, that we do have prime volatility through the year and that impacts positively on the past quarter.
Nonetheless, the performance was quite significant compared to other quarters and what I want to focus on the things that enable that increased performance which is basically plant availability and plant recovery and throughput has improved significantly. The team has proven its ability to continue to improve from previous quarters and you see at Olaroz you have seen a significant trend of improvement in production and quality over the last 3 years continuously, which is something that will stay in there. And it’s not a function of the climate. So it’s a basket of both. Yes, it’s a support from a good season. Typically this quarters is highest. But when you compare it with previous quarters — you get previous comparable quarters, you get to see the operational improvement that has gone through in Olaroz and we’ll continue to be there. Christian Barbier can help you with the discussion between production and sales. He’s more up to speed with that.
Kate McCutcheon
Okay, thank you. Thanks, Christian.
Christian Barbier
Yes. Thanks, Martin and thank you for your question, Kate. Actually, as you hinted in your question, the answer is a timing difference mostly. So we had a high-level of production during the quarter, but we did not have the possibility before the end of the year in a busy Christmas period to ship [indiscernible]. But these will be invoiced during the first quarter. There’s an additional factor, which is that we have allowed for a little bit of buffer inventory in order to ensure that we have the quantities necessary to respond to Naraha to the startup of our plants in Japan, the hydroxide that’s in Naraha. So again, this is a timing difference.
Kate McCutcheon
Okay. So there’ll be some, we will see some of those December numbers go into March quarter and then moving forward, production will look more similar to sales as long as we don’t have any of these big movements before end of month?
Christian Barbier
Absolutely.
Kate McCutcheon
Okay. Thank you for the color.
Operator
Thank you. [Operator Instructions] Your next question comes from the line of Mitch Ryan from Jefferies. Your line is open.
Mitch Ryan
This question is a derivative of Kate’s question. So can you just quantify the amount of inventory built at Naraha to date and then how much further there’s got to go? I guess I’m just trying to quantify that lag effect and how long it will — how many quarters it will impact sales? Obviously it washes out over time, but if you could quantify that, that’d be appreciated.
Martin Perez de Solay
I don’t have any information with me, but any of the Christian’s can you — do you have the detail? Christian Barbier or Cortes?
Christian Barbier
Yes. Mitch, good morning. Thanks for your question. Look, yes, I’m not sure how much inventory there is in total in Naraha. We have carbonate sailing from Argentina to Japan. And we have an inventory on sites as well as we have enough site inventory in Japan. We don’t consolidate and Christian Cortes can give more color. We don’t consolidate all the details of the Naraha counting. As far as Olaroz is concerned, I think you can see from our figures — from memory, we have about 1,800 tonnes of inventory at the end of December, and that’s why there is — that’s why we said there are some quantities that were not invoiced in December and that are being invoiced in January and that includes also the buffer for additional quicker ramp up in Naraha.
Mitch Ryan
Sorry, I’m just trying to, I guess, trying [indiscernible] my head around how much of those are delayed shipments versus how much of that is earmarked for Naraha?
Christian Cortes
I can jump in and provide a bit more detail as I have inventory numbers in front of me. So look, there’s probably three things that occurred at this — at the end of this period. Firstly, we had some rollover issues with volumes of products on the carbonate side that amounted to about 400 tonnes that we just couldn’t get there with the shipments and therefore they’ll be accounted for. In January, in addition to that your question specifically around Naraha, the planning between Olaroz and Naraha is for them to have approximately 2 months of stock at site.
And as Christian alluded to, you have to effectively keep that shipment flowing through on a monthly basis to replace that stock that has been utilized. There’s about a 2-month delay between us getting the report and that that carbonate arriving to Naraha, so that will give you some perspective around that logistic side of things. And the last effect that is worthwhile flagging is ultimately the planning of commissioning with Naraha is quite agile, and therefore we’re continuously speaking to them to understand what their needs are. And yes, ultimately, this is something that when you look at balance sheet date or when you look at 31 December would have an element of anomaly as to what we believe it will be business as usual once the plant is commissioned and its operating adequately.
Mitch Ryan
Thank you. I really appreciate the color.
Operator
Your next question comes from the line of Hugo Nicolaci from Goldman Sachs. Your line is open.
Hugo Nicolaci
Hi, Martin and team. Thanks for the update. I guess just following on from Al’s question just around the Olaroz resource, appreciate you still working through acquisition at Maria Victoria, but I was wondering if you’d give us an update on how the groundwater modeling for the reserve is going and should we expect an update around the same time [indiscernible]? Thanks.
Martin Perez de Solay
That resources is coming with not only the inclusion of the property at Maria Victoria, but it’s based on an updated groundwater model that James is working through with the team. James, you can give more color on that.
James Connolly
Yes, we’re in the final phases of that static model, so that the hydrogeologic model is essentially finished and we’re going through our final internal review phases and approvals. And then after that, we will be looking at a dynamic model, which to a previous callers question goes to that productive capacity. So really good update to this resource model, or the key benefits that my team spoke about, improved drilling, more drilling, more information as well as bigger area extensions are all going to positively impact both on volumes as well as classification and we look forward to bring to that that to you as soon as we can.
Hugo Nicolaci
Thanks.
Operator
Your next question comes from the line of Kaan Peker from RBC. Your line is open.
Kaan Peker
Thanks and good morning, Martin and team. I’ll be quick — one question just. Wondering if it’s appropriate to assume that delays the first production to Sal de Vida possibly changed by, will that result in additional development costs being incurred? If so, can you maybe share quantum, if not maybe an expected update on CapEx when that’s coming? Thanks.
Martin Perez de Solay
We review the CapEx item for the projects in the case of Sal de Vida, where we feel comfortable with where we are now James has looked at that and can give you more detail on that in the case of James Bay. Once we get approvals and we recast final timing for the project and first production, we’ll see whether there’s an impact in cost. Please bear in mind that lots of things, lots of costs for projects have already been locked in. Because we’ve been working placing all those and developing works. So significant amount of costs on both sides have already been logged in, I said that. James, you can get more color on both.
James Connolly
Yes. In terms of cost guidance, with the EPC contract award we do not see material change to our guidance at the moment. We’re quite happy with the costs. It is scheduled that we reevaluating based on the construction schedule proposed. There are opportunities for us to improve that schedule. We will be working with our EPC contractor to see how reasonable those are. But at the moment, we’re going to — we felt its prudent to update the market that December was not going to be realistic and we will look forward to bring better guidance at a closer range so that we can keep you informed.
Kaan Peker
Sure. Thanks.
Operator
Your next question comes from the line of Lachlan Shaw from UBS. Your line is open.
Lachlan Shaw
Yes, good morning, Martin and team. Thanks very much for the call. Well done in the quarter. Just a question on pricing. So the [indiscernible] assume the technical to battery grade discount you’re seeing for carbonate is around 25,000, 30,000 tonne level at the moment. That if not, what sort of discount you’re seeing for technical grade in the markets? And then last part of the question, do you think that discount widens as we see more supply of technical grade carbonate come into the market Ag an electrical thing project that could [indiscernible]? Thank you.
Martin Perez de Solay
Thank you very much for the question, Lachlan. I will ask Christian Barbier to give you more color on that.
Christian Barbier
Yes. Thanks, Martin. Good morning, Lachlan. Look the — on the face of it, I would say that the discount that you’re stating is higher than what we see in the market, we don’t really communicate on the spreads between technical and battery grade carbonates, because it depends on a range of factors. It depends on the exact spec of the product and there are different specifications. It depends also on the type of contract that we have. So we have some large contracts in one and in the other products. And obviously, that also affects the pricing as well as the type of formula that you have, which means that not all prices are have the same spreads in a given quarter.
Now having said this and to your question about where you think — where we think that prices will go in the future. Look, the demand that we perceive in the market at the moment remains quite sustained. And beyond the relative weakness on the Chinese market ahead of Chinese New Year, which has been I think well documented over the last few weeks, underlying demand remains strong. And as I mentioned in my opening presentation, the EV update is expected to continue.
At the same time, the level of inventories in the supply chain remains quite low in the upstream part of the business and it seems with converters and cathode produces the inventory level in battery and at OEM is a little bit higher. But as you probably have seen since the beginning of January, EV sales have started to pick up again very strongly in China. And we do expect that demand overall in the supply chain in terms of volume will continue to or will resume to a significant level of growth for the rest of the period. And after Chinese New Year this should be apparent.
And as a consequence, demand for both carbonates and for hydroxide is expected to be sustained. We also are mindful that a number of projects are experiencing startup delays. So again, it’s a long answer to your question, Lachlan, but we don’t see any reason for the carbonate price from Latin America to have any weakness compared to battery grade or to hydroxide.
Lachlan Shaw
Okay, great. And just last part was the spread that battery technical grade spread given the entrance of new supply just that stable or do you think that how do you think that spread might move notwithstanding you’ve described the overall environment
Martin Perez de Solay
Look, that [indiscernible] really to one part depends on the converting capacity that there is. There is ample capacity in China to upgrade technical into battery grade. There is also increasing capacity being installed like ours in Japan to convert technical grade carbonate into hydroxide. Demand for technical grade as a consequence is there to support or to complement the supply of battery grade carbonate. So again, I don’t see any reason why the spreads would materially change in the next few months.
Lachlan Shaw
That’s great color. Thanks, Christian. Thanks, Martin.
Martin Perez de Solay
Okay.
Operator
Your next question comes from the line of Ben Lyons from Jarden. Your line is open.
Ben Lyons
Thank you. Good morning, Martin. Just quickly on James Bay, great to see that federal environmental approval come through and particularly noting some of those [indiscernible] comments from the Federal Minister. Is it fair to assume that those remaining approvals the Comex and then the standard construction approvals are more procedural in nature from this point? And obviously, you’ve been running those approval streams in parallel. So can you give any indication about the best case of timing for the final approval of the project. And then the second part is the minister is imposed 271 operating conditions for James Bay. It’s probably not unusual, but from your perspective, was there anything particularly punitive or might give you a cause to rethink the design of the project or the placement of the non-process infrastructure, et cetera. Thank you.
Martin Perez de Solay
Thank you, Ben, for your question. I’ll answer that quickly for the sake of timing. Lesson number one, it’s not abnormal to see those many conditions from project. We haven’t identified a new one, that makes us change the project. There is a request to update some of the baselines which we can understand because [indiscernible] were to be told. We have progress with both studies in parallel, in terms of the federal and provincial level, and I don’t foresee problems other than the longer [indiscernible] process in — at the Quebec provincial government. So despite I don’t foresee any reason for not securing the permits relatively quickly. I have to tell you that I have missed on any expectation that I have had on timing for [indiscernible] from the Quebec government. So I rather don’t run any risk on that. And once I get a final approval, which I expect they should come soon, we’ll update the market on that. But it has been a lot more bureaucratic than I expected.
Ben Lyons
Yes, absolutely. Noted. Thanks, Martin.
Operator
Your next question comes from the line of Matthew Frydman from MST Financial. Your line is open.
Matthew Frydman
Sure. Thanks, morning, Martin and team. Just one on Olaroz. If I can, you haven’t given any guidance to date on what you’re expecting from either production or sales perspective in FY ’23 from Olaroz? Clearly if we annualize the December quarter, that’s a very strong run rate and pretty close to your nameplate capacity on Stage 1. And you talked earlier in the call through the plan availability and throughput improvements that have been able to drive that result in the December quarter. So if we think about the outlook across FY ’23, if we can put aside the ramp up to Stage 2, which is obviously only going to come in towards the end of the financial year, is it fair for us to expect a similar production rate in the second half versus third half? Should we be expecting further improvements on the December quarter? Or is that run rate that you achieved in December quarter only really sustainable while you’re producing the lower levels of battery grade material?
Martin Perez de Solay
Thank you very much for your question. It’s a good one. Annualizing the December quarter would be [indiscernible] because it’s impacted by many things. And as we said several times before, the amount of battery grade and technical grade product that we produce impacts on the total throughput of the plant. So for the — what I said before in December quarter, we’ve been impacted by good climatology by a significant volume of technical grade that was produced to create the feedstock for the Naraha plant and was also impacted by operational improvements. We continue to see the impact of operational improvement throughout the year. And as I said before, the key manual level has continuously been able to improve its performance in terms of volumes and product quality.
So we will continue to see steady increases in the product — in the production capacity of Olaroz approaching to the original expected at nameplate as we produce more. Producing total focus Olaroz as I said in a couple of goals before for 2023, it’s a bit difficult because we have the ramp up of Stage 2 happening at the same time. So it is from Stage 1. I said before we should see steady production with continuous improvement as we have seen throughout the last 3 years in Olaroz that will continue to be the case. Do not extrapolate the quarter because it has many things that make it particularly good. But yes, you can extrapolate on operational improvements when you compare it to previous quarters.
Matthew Frydman
Okay, thanks, Martin. So no raise in the second half should be alone in the first half.
Martin Perez de Solay
No, unless significant climatic impact of changes in the mix data, some customers may require an increase in battery grade product. And I said before we are managing the production for [indiscernible] off Stage 2 to meet our customer requirements.
Matthew Frydman
Got it. Thanks, Martin.
Operator
Your next question comes from the line of David Deckelbaum from Cowen. Your line is open.
David Deckelbaum
Thanks Martin and teams. I just wanted to ask a quick follow-up on James Bay, maybe to just in one combined here, too to play by the rules. But one, the last update for CapEx was with the last feasibility study. Do you anticipate or one I guess what’s your confidence on how stale or fresh that number is for full construction of the initial capacity? And then to within that is it still reasonable to expect the timeline from construction to first commissioning within 12 to 18 months?
Martin Perez de Solay
Listen, it is the — the first question is, we are developing the project that exactly the project that we put together in the [indiscernible] size of Qatar and that remains exactly the same. And as I answered in the previous question, increased resources from exploration will be analyzed in further expansions of the project in terms of life of mine extension and increased production. But the original project is within the NF43101 and the DFS that we put together.
With regards to timing, [indiscernible] what you say is within the ranges that we’re currently working. But again [indiscernible] confirm on a detailed production guidance once we secure all of the approvals. We are quite progress with the — with engineering, we’re almost 60% of engineering for the project. So it’s going to be once we get the approval as we move really quickly into construction.
David Deckelbaum
Thank you. Your next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is open.
Unidentified Analyst
Hi everyone. This is Joseph on for Joel, I’ll just keep it quick with one question and interest in the interest of time. So what do you guys think of the realistic for prices for [indiscernible] Spider Man over the mid to long-term, if bear case scenarios do end up materializing?
Martin Perez de Solay
I will ask Christian Barbier [indiscernible] on the market to give you that that answer, please.
Christian Barbier
Hi, Joel. Sorry, can you please repeat your question? It’s about price expectations for spodumene?
Unidentified Analyst
Yes, we’re just curious on what you guys think would be the realistic floor prices for carbonate and splodge mean over like the mid to long-term [indiscernible] scenarios to end up materializing?
Christian Barbier
Yes. Look, I’m not going to give price forecasts or such sets of data. And the reality is that nobody and everybody’s going to get it wrong. What is clear, I think is that the levels that we had in the past very unlikely to occur in the future, because we have completely changed the economic model and the level of consumption as well as the level of production costing for both carbonates and for spodumene. Now, I mentioned our views in the — our views on the market and the sustained demand, it is for carbonate as I mentioned earlier, but it is true also for spodumene. The constraints in terms of production, for a variety of reasons are expected to continue and also the pressure on costs are expected to continue. So what we had as flows in the past is not relevant at all for the future.
Now, if you’re trying to also to see where prices could go into the future, I again, I don’t really want to go in that area. But what is clear is that for the next foreseeable future and these are not straight lines, the line of production and the line of consumption. But for the next foreseeable future, which are probably by 2030, what we see at the moment, demand will be constrained by supply. At this stage we don’t see any reason why if we were to indicate a flow, we don’t see any reason why the markets would actually reach those flows, because there is constrained production. Does that answer your question?
Unidentified Analyst
Yes, that’s perfect. Appreciate it.
Operator
Your next question comes from the line of Glyn Lawcock from Barrenjoey. Your line is open.
Glyn Lawcock
Good morning, Martin. Just a quick one on Argentina and you’ve obviously spoke about the export benefits being removed. You’ve obviously spoken with the government, I suspect they’re doing this because they’ve got inflation running at almost 100%. Are there any other discussion points where we could be blindsided by the Argentinean government taking a hit at what is obviously a very profitable mining industry? And based on Christian’s comments going to remain quite profitable. Anything we should be aware of that you’re having discussions with the government over?
Martin Perez de Solay
No, Glyn, I’m not aware of any the government is quite creative in Argentina to tell you that they have to process many times, but I don’t foresee any other indication of I don’t see any indication that would tell us of potential further impacts other than this reduction in the incentives, which is clearly motivated by the high profitability of the industry and the current inflation rate and no situation in the local economy in which the government needs to get funds from everywhere. So basically [indiscernible] the top one on some subsidies in an industry that is highly profitable. That’s what they are doing. And I don’t foresee anything beyond that. The government continues to rely a lot on the export from the industry on the other important.
Glyn Lawcock
Okay. Thanks, Martin.
Operator
Your next question comes from the line of Stuart Howe from Bell Potter Securities. Your line is open.
Stuart Howe
Hi, Martin. Just quick question on Mt Cattlin shipments of low grade concentrate stockpiles. Just wondering if you could provide some guidance as to whether they’re going to continue or not. They’re above the sort of 50,000 mark for this quarter again? How much do we have left? Roughly, what grades are they in? And also if you haven’t seen any interest or having an interest in DSI material from that column?
Martin Perez de Solay
Yes, listen, they will continue. And I will ask Christian Barbier to give you a more detailed and quick answer on those questions that will continue in this quarter. Christian?
Christian Barbier
Yes, thanks, Martin. And thanks to you. As we mentioned in the past, the logo aids that we are shipping is a byproduct from our production process. It contains links in credit that we are not in the position at the moment to further process. So to improve in impurity, we’ve proposed those quantities to some customers as a short-term assistance, while it’s got to mean [indiscernible] difficulties. So again, this product is not [indiscernible] that would not make any sense for us to sell [indiscernible] when we can upgrade it into concentrate ourselves and realize that value for ourselves. So we haven’t yet caught up with the with shipping backlog with these customers. And that’s why the shipments of low grade material will continue in the next few months.
Martin Perez de Solay
And will that be at a similar level to the previous quarter?
Christian Barbier
Yes, it will be similar quantities. Absolutely.
Christian Barbier
Right. Thanks, guys.
Operator
Your final question comes from the line of David Fang from China International Capital Corp. Your line is open.
David Fang
Oh, yes. Thanks. Morning, Martin and everyone. I’ve got one quick question about Mt Cattlin’s pricing. You mentioned 5% expected increase in Mt Cattlin pricing in the March quarter. So may we know what’s the basis for this expectation in the house of visibility, given that we have already seen some decline in the stock market? Is your [indiscernible] negotiated on a shipment by shipment basis? Or is it sort of linked or referring to any pricing [indiscernible]?
Martin Perez de Solay
Christian Barbier, thank you for your question. Christian Barbier will give you an answer on that.
Christian Barbier
Yes. David, the first part I would say to your question is that we have not really observed any decrease in spodumene pricing in the last few weeks. And the decrease, the drop in market or in spot prices on the Chinese market has been well documented, and it relates to mostly carbonate and hydroxide. But we have not seen that is having an impact on the spodumene market. And that shows how strong the underlying demand is for lithium hydroxide and for high nickel batteries. So that’s the first part. The second part is a pricing for spodumene has been relatively strong in the last few quarters, but in the last December quarter, the increase has been more moderate than what we would have liked because some of the terms were priced in the September quarter. And we believe we still have a little bit to catch up with the optimal pricing for our times. So this is why we believe and we have a high-level of confidence. We believe that in the March quarter our weighted average realized price for spodumene will continue to increase.
David Fang
Okay, fantastic. Thanks, Christian.
Operator
This concludes today’s Q&A session [indiscernible]. I would now like to hand the call back over to Martin.
Martin Perez de Solay
Thank you very much, Paulie. And as I said before, we are committed to delivering scale and product visibility required by the customer as the world transitions to an [indiscernible] economy. In achieving this, we must remain focused on strong operational performance, project execution and managing costs in this environment. Thank you for joining our quarterly results briefing today. If you have any further queries, please don’t hesitate to contact our Investor Relations team.
Operator
This concludes today’s conference call. You may now disconnect.
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