IGO Limited (OTCPK:IPGDF) Q4 2022 Earnings Conference Call August 29, 2022 8:00 PM ET
Company Participants
Peter Bradford – CEO
Conference Call Participants
Hayden Bairstow – Macquarie
Levi Spry – UBS
Peter O’Connor – Shaw and Partners
Matt Greene – Credit Suisse
Rahul Anand – Morgan Stanley
Lyndon Fagan – J.P. Morgan
Daniel Morgan – Barrenjoey
Kaan Peker – Royal Bank of Canada
Operator
Thank you for standing by. And welcome to the IGO Limited FY22 Full Year Results Webcast. [Operator Instructions] I’d now like to hand the conference to Mr. Peter Bradford, Managing Director and CEO. Please go ahead.
Peter Bradford
Thank you Rachel. Good morning everyone and thank you for joining our call this morning as we present IGO’s audited financial statements and results for the 2022 financial year which we released to ASX this morning. Joining me on the call today from Sydney is Scott Steinkrug, our Chief Financial Officer who will be available during the Q&A session at the end of the call.
Slide 2 highlight our cautionary statement and disclaimer. Of note, all currency amounts in the presentation today are in Australian dollars, unless otherwise noted.
Moving to Slide 3. Within, I wanted to talk to sustainability and some of the work programs we are progressing across the business to continue to be a leader in sustainability practices and reporting. Our focus on safety and wellbeing has resulted in a reduced incidence severity over the past few years, and our culture of care has enabled us to better manage the impacts of COVID-19. I am proud of the way in which our people have demonstrated adaptability and collaboration during this time. In parallel, we progress our carbon reduction initiatives through the commitment to expand solar and energy storage capacity at Nova. Our internal carbon price implemented 12 months ago, has generated approximately A$3.7 million of internal funding that we will apply to our carbon reduction and offset initiatives. And it has been particularly gratifying to see the engagement and ingenuity of our people and partner organizations to our carbon reduction initiatives.
Despite to see the continued external validation, we will see from key sustainability indexes on the quality and transparency of our sustainability reporting. And I note that we released our 2022 sustainability report today.
Moving to slide 4, we’re also incredibly proud of what we have achieved for the year. Operationally, we met or bettered production and cost guidance at both Nova and Greenbushes and enter the first battery grade lithium hydroxide production from Kwinana. Financially, we generated record revenue and underlying EBITDA which was underpinned by record financial performance from Nova, and a maiden profit contribution from the lithium joint venture. In parallel, we continue to transform the business through the strategic acquisition of Western Areas, while also progressing our exploration portfolio towards discovery.
And finally, we successfully delivered for our stakeholders delivering improved outcomes for shareholders, a stronger culture and value proposition for our people, and proactive caring engagement with our host communities and traditional owners.
Moving to slide 5, where we set out our financial results for the 2022 financial year, strong commodity prices, combined with consistent operating performance generated higher revenue from continuing operations of A$903 million and higher underlying EBITDA of A$717 million when compared to the prior year. Net profit after tax at A$331 million was lower year-on-year due to the absence of the one-off gain recorded in the 2021 financial year relating to the divestment of Tropicana. On a normalized basis net profit after tax more than doubled year- on-year.
Similarly, underlying free cash flow was lower in the 2022 financial year due to tax payments during the year, totaling A$199 million, of which A$140 million related directly to the gain on sale of Tropicana last year. The acquisition of Western Areas was funded by a new A$900 million debt facility and approximately $1,263 million of existing cash, resulting in a year end net debt position of A$533 million.
Moving to slide 6, where we illustrate the continued improvement in financial metrics over recent years. These results position IGO well for the future and reflect the transformation of our portfolio and our disciplined financial management. I wanted to point out here that reported revenue for the 2022 financial year does not reflect revenue generated within the lithium joint venture, as we report this contribution at the EBITDA level.
Moving to slide 7, where we provide a waterfall to reconcile the year-on-year change in the group cash position. In particular, I draw your attention to the record free cash flow generation for FY22 from Nova, which was primarily attributable to higher commodity prices. Also, the first dividend received from the lithium joint venture, the TLEA of A$71 million. Also the debt drawdown and cash payments with respect to the Western Areas acquisition, which settled in June 2022. And finally, the taxes paid as mentioned earlier, arising primarily from our taxable gain on the divestment of Tropicana during the 2021 financial year.
Moving to slide 8, where we reconcile the net profit after tax variance between the 2021 and 2022 financial years. On those, we highlight the A$254 million positive impact to net profit after tax, resulting from higher metals prices at Nova, and NPAT net profit contribution from the lithium joint venture, TLEA of A$177 million. I also noticed that the 2021 financial year net profit after tax results included the gain on sale of our interest in Tropicana which when combined with the absence of Tropicana earnings in FY22 led to the A$432 million negative variance when compared year-on-year.
Moving to slide 9, where I’m pleased to report that the Board has declared a 5c fully franked final dividend for FY22, which is consistent with our shareholder returns policy, which targets cash returns to shareholders equivalent to 15% to 25% of underlying free cash flow. This final dividend which will be paid on the 30th of September brings total FY22 dividends to 10c per share, which is consistent with the dividend paid in FY21 is at the top end of our payout formula and represents A$76 million of returns to shareholders for the full year.
Moving to slide 10, where I will take the opportunity to speak very briefly to each of the core assets within our portfolio, which we did discuss in greater detail during the June quarter conference call. I will start with Nova where once again, our team has delivered another great result with nickel production and cash costs within or better than guidance, resulting in A$631 million of underlying EBITDA and A$574 million of underlying free cash flow for the year. Looking ahead, our priorities at Nova to continue to optimize the operation, particularly our metallurgical recovery, advance our decarbonization programs, and progress the Silver Knight feasibility study.
Moving to slide 11. As announced within our June quarter results, we are revising the strategy and development plan for Cosmos to enable a number of work programs to be completed before producing first concentrate in mid-2022. The key work programs that need to be completed are the shaft infrastructure that was always central to complete around mid-2023, additional underground development and the expansion of the processing plant all of which will contribute to a stronger production profile and lower cash costs when concentrate production does commence. This change to the development plan will result in additional pre-production development costs. And we expect to update on this with the September quarter results in October. In parallel, we are progressing the scoping study into Mt Goode and commenced our next phase of work to understand the downstream nickel sulfate opportunity.
Moving to slide 12, having acquired Forrestania at the end of June, its contribution to the IGO financial results commenced as at 1st of July. The integration process is progressing well. And in parallel we are progressing plans to optimize the operation and understand the potential for additional nickel and looking opportunities on the broader economic package.
Turning to slide 13, Greenbushes delivered a highly successful year with records production and financial results, which included EBITDA of A$1.35 billion on 100% basis. The production results benefited from the first full year of production from Chemical Grade Plant 2 and maiden production contribution from the Tailings Retreatment Plant. This together with very strong Spodumene prices had great financial results. Already the team at Greenbushes are focused on the next stage of growth with the construction of Chemical Grade Plant 3 commenced, which was approved back in March 2022.
Moving to slide 14, at the Kwinana refinery. The team’s focus for the year was on quality and getting the rest of it to make battery grade product right. Having achieved this in May 2022, the focus is now on quantity and progressing the ramp up of Kwinana Train 1. In parallel, we works for the recommence on a construction of Train 2 has commenced and we expect the decision to proceed with construction in late 2022.
Moving to slide 15, serial under investment in exploration by our industry has resulted in a shortage of projects to provide the metals critical to global decarbonization through electrification. Consequently, exploration is a key plank in our continued growth strategy with an objective to unlock transformative value for shareholders through the discovery of our next clean energy metals project. Following the Western Areas transaction, we have increased our exploration commitment in FY23 to A$75 million with a greater portion of our budget going to brownfields exploration in close proximity to our operating activities at Nova and Forrestania. Our greenfields exploration focus is on exploration for nickel and copper, from our Fraser Range, Paterson and Kimberley project with initial investments being made across the coming year in [Tech Difficulty]
Turning to slide 16, the 2022 financial year was an outstanding year across this business with strong financial and operating results delivered alongside the ongoing transformation of our clean energy metals portfolio. Nova continued its track record of operational and financial delivery. We’ve had some nickel business through the acquisition of Western Areas. Our lithium business generated outstanding financial results and delivered its first dividend to IGO. We maintain our focus on shareholder returns and have declared a 5c final fully franked dividend for FY22. We have advanced our decarbonization programs, and remain committed to leading sustainability practices and reporting.
And finally, our people remaining engaged with our purpose and has continued to make a difference. We also continue to strengthen the team. And to that end, it was great to welcome Trace Arlaud to our board yesterday, bringing our board gender balance to 50:50. Thanks to everyone for joining on the call this morning. We will now open up for questions. Thank you, operator.
Question-and-Answer Session
Operator
[Operator Instructions]
Your first question comes from Hayden Bairstow with Macquarie.
Hayden Bairstow
Good morning, Peter. So a question on Kwinana. Just kind of get into an update on how that’s going. Obviously, we saw it all at the Investor Day in late July early August is just the progression on the battery grade sort of ramp up and how that’s going particularly given, you need to make the decision on Train 2 later this year. Thanks.
Peter Bradford
Yes, so that all of the work programs that gets or and heard about on the ground in Kwinana are continuing, and we’ll provide a fulsome update with our September quarter results.
Hayden Bairstow
And just on the exploration portfolio, Peter, is obviously a huge portfolio here now. I mean, he sort of outlined the 5 K priorities there. I mean, what are we thinking about in terms of an ongoing spend on this portfolio sort of beyond this year is, is it going to be particularly success required? Or is there a number of the next phase of priorities that we’ll see similar sort of spend going forward?
Peter Bradford
Yes. A lot of our investment today has been to mature the portfolio that we did had, recognizing that the vast majority of the portfolio, going back a few years was very Greenfield. In nature, the work we’ve done has given us the understanding of the geology, the geophysics, the geochemistry, and through that across all of these adult scale portfolios as we’re now very much in a target definition and testing stage, and you will likely see some significant rationalization of the portfolio over the next couple of years as we drill test the targets previously identified. From the same point of view, we would like to think that our stream matures, and that in the coming years, a greater majority of spend is going into resource drill out on the discoveries that we’ve made.
Operator
The next question comes from Levi Spry with UBS.
Levi Spry
Good morning, Pete. How are you? Just a two questions. First one Spodumene pricing. Obviously key value driver here. Can you just talk us through what your expectations are for the second half? And what does happen in September with the renegotiation of the contract? How do we think about your second half pricing I guess?
Peter Bradford
Yes, so this time, we’ve got no further, with this site, we got no further news to update the market on what that may or may look like. So the guidance for people will be to roll the existing formula forward. And given where Spodumene prices continue to trade. I think that creates exclusive scenario for the Spodumene pricing for the second half of the year. So we think about a strong financial results for Greenbushes additional result reported for FY22. We’ll have that on [Inaudible] for FY23.
Levi Spry
Yes, that’s what we’re looking forward to, is there anything else you can share on expectations around pricing? Maybe what TN&T saying or what other feedback from the industry is?
Peter Bradford
I unfortunately can’t, Levi, I can’t confirm or deny anything that might be happening.
Levi Spry
All right, I’ll try another different one then the Inflation Reduction Act, you’ve been talking a lot about strategic supply with — for some of your commodities for a long time, is this the first time that you can actually get paid more for some of that production? So specifically, now I’m thinking about hydroxide and maybe nickel or nickel downstream? Is that — has there been any discussions along those lines is, what are your views on it?
Peter Bradford
We’ve maintained for some time that if you make a superior quality product, in a jurisdiction where you can demonstrate that it’s been made, safely, ethically and sustainably, that you will get and you can demonstrate that through traceability through from raw materials to in product, that you would be able to get a price premium. And I think some of the movements we’re starting to see with the inflation Reduction Act and others. Now it’s starting to provide some substance to that theme that we have been talking to for some time. And I think it really puts Australia in a very unique position from a clean energy metals perspective.
Operator
The next question comes from Peter O’Connor with Shaw and Partners.
Peter O’Connor
Hi, Pete. Two questions with respect to [Inaudible] Spodumene, if the book ends were, firstly, what you’ve got at left hand booking now with [Inaudible] and how the booking will end up, is where it will end up ever going to be fully spot? Is that on the radar? Or on the agenda? Or is that just an untenable situation to go for spot?
Peter Bradford
Yes, I just don’t want to make any sort of provide any conjecture around what that may or may not be Peter and given where spodumene prices are, and that maybe it’s a scenario where you need to be careful what you wish for and to be take a view on whether spodumene prices might be at the top of the cycle than a formula with a lag gives us a stronger price [Inaudible]. But none of us have the crystal ball that can tell us where we are in that cycle for spodumene. And in fact whether there’s more opportunity in front of us. So back to what I said at the start. There’s really no clarity or granularity I can give you on what that pricing formula may look like going forward.
Peter O’Connor
Okay. But in terms of cash flow, and capital management, instead a few sources of capital management I want to run by. So firstly, when is your next update, you used to do it bi-annually? Is that still the case?
Peter Bradford
Yes, so think end of June 24. So we provide an update June 21 and we said it would be three years after that.
Peter O’Connor
And in terms – sorry.
Peter Bradford
And just too sort of provide some clarity there, our formula, our payout ratio is 15% to 25% of underlying free cash flow. And for FY22, we’ve paid out net right at the top end of that at 25%. And what we’ve said previously, is that whenever liquidity, which is basically cash available, available debt facilities is about A$500 million, then the board will use discretion to adopt a higher payout ratio. So if you run this through your model, you will see that we’re likely to be in that scenario coming into FY23. And I would expect at that time, one of the decisions in front of the board will be what to distribute about the standard payout formula.
Peter O’Connor
So is that net debt available or net cash available if greater than A$500 million?
Peter Bradford
It’ll be cash available past any saleable equities that we may have, past any undrawn debt facilities as broadly out definition of equity.
Peter O’Connor
Okay, that’s great, important, thanks, okay. And just in terms of shaping the policy going forward, given you get large, we’ll be getting large dividends from the joint venture. Is there any thought about passing those and passing them straight through to shareholders with the franking attached? Although it always go through a formulaic whole of company IGO process, if you have two parts, lithium pass through plus an IGO other.
Peter Bradford
We will probably always take a shooting from the hip here, because ultimately, it’ll be a board decision. But my sense is that we’ll adopt a whole comp new strategy. And in setting dividend, we’ll always be looking at what the capital needs are for the company. And part of our discussion this year, was the review, we did at the capital programs embedded across the lithium business where the expansions at Greenbushes and Kwinana, but also the development project that we have at Cosmos. And we’ll always be looking at those cash needs to build and grow the business in parallel to the decision making on returns to shareholders.
Peter O’Connor
And extension franking, the franking you’ll generate going forward is extraordinary. So thoughts on that given potentially an enormous mismatch between franking balance bill versus the dividends paid out.
Peter Bradford
Hey, I might just start from that [Inaudible] one. You are right, we virtually extinguish all of our carry forward tax losses. So we’re in a fascinating position so we will be building our franking account balance. At the end of June, we had a balance about A$150 million franking credits, take in mind, Greenbushes, they are also a taxpayer. So they’ll be delivering Franks dividend through the TLEA. And when they pass on to us. Those franking credits, they give rise to lower tax payments for IGO that don’t actually pass through to our franking account. So there’s some differences.
Peter O’Connor
Okay, so that’s tax offset, not a [Tech Difficulty] and my last question year end do you change your yearend target going forward based on the amount of cash you’re looking to generate.
Peter Bradford
It’s about same — we keep, I am saying we could view of what our long-term gearing is. And we will look to maintain that. And we’ve always considered a number of our two as being something that two, two five or something that we don’t want to exceed. So long term number, we see ourselves gearing down below that field quickly. And as I said, that’s detrimental long-term amount for us.
Operator
Matt Greene with Credit Suisse.
Matt Greene
Hi, good morning, Peter. And, look, I guess a few questions on the Spodumene pricing, but I’ll try asking a slightly different way. You mentioned on the, I think it was the strategy day or the Kwinana site visit that the ATO takes fast markets to calculate its royalties, as it better represents the spot market, spot time in the market. And they deemed that Asian metals was more a laggard, in the sense. Your current transfer pricing model uses both of these agencies. So do you think the AHS is going to be supportive of you continuing to use Asia metal if it deems that it is a drag potential on your transfer pricing?
Peter Bradford
Yes, I think just sort of recollecting the conversation we did have it was really around the pricing mechanism that the state government uses to calculate royalties from Greenbushes. And they do that because of the as a mechanism to provide some conflict for the state government, versus the transfer pricing model that we do use. A state government uses a basket of three prices, which is Platt, fast markets, and benchmark minerals, which is slightly different to the pricing formula that’s used for the transfer price by the shareholders, which is fast markets, benchmark minerals, and Asian metals. As you’re probably aware, across all of those reference prices, the one that leads the pack is generally Platt and the one that lag is generally Asian metals. And a more perfect formula from a transfer pricing formula perspective, going forward will probably be to sample all reference prices and incorporate all of them into a transfer pricing. That doesn’t indicate that that’s where we get to in a discussion with the shareholders on a renewed transfer price going forward. But that’s an indication of what a more perfect model would look like. Thanks, Matt. Any other questions?
Matt Greene
Yes, thanks Peter. And I guess with your hydroxide off take, you’re using the same agencies as the state government, I guess, facing Asian metal with Platt so did you see a situation here where Spodumene is going to have to lean towards Platt’s benchmark minerals, and fast markets.
Peter Bradford
And I don’t have any further clarity to provide other than what I just described on that one. With lithium hydroxide, it’s a little bit different. We’ve got no sales from one shareholder to another, and therefore all of the pricing is on an arm’s length basis to a third party. And that’s a contract and price that’s agreed on a contract basis with the third parties.
Matt Greene
Okay, thanks, Peter and just on the nickel concentrate lending strategy and I appreciate we’ll hear more on that soon. But is your focus just on Forrestania, Nova blending or you’re also considering Cosmos as part of this strategy.
Peter Bradford
At this stage, the focus is more around on Nova and Forrestania but as we get closer to production that Cosmos will do the work there to understand that whether that provides another layer of opportunity.
Matt Greene
Okay, thanks a lot.
Peter Bradford
Longer term, of course, our aim is to go downstream build a nickel sulphide plant. And at that point, we’ll have the ultimate blending strategy putting any materials any types of materials that we have into our own facility.
Matt Greene
Yes, okay. Understood. Thanks. And my last question just on Mt Goode on the scoping study. If you do go explore your own construction of your own plant there to process the oxide material, are you looking to produce an MHP or MHP intermediary product? And I guess as part of the scoping study, are you also considering toll treating that material with third parties?
Peter Bradford
The nature of the scoping study is to do all of the tradeoff analysis and understand what are all of the options for developing a project. And then to narrow those options down to the recommendation for the more detailed work that’s been done in a feasibility study. So all of those options will be under consideration during the scoping study stage. And maybe [Inaudible] first to comment on what will be the preferred outcome?
Operator
You next question comes from Rahul Anand with Morgan Stanley.
Rahul Anand
Hi, Peter. How are you? Thanks for the opportunity. Look, I perhaps wanted to revisit the capital allocation framework, Peter, ass you correctly point out next year seems to be a strong year for cash flows, both free cash flow and net cash balances. I guess if we move away from the question of dividends for a second. How are you thinking about potentially doing buybacks? Potentially off market? I guess, because you’re going to have plenty of franking credits.
And then I guess, my second question connected to that one would also be how do you see yourself now in terms of your inorganic growth side? I mean, do you think you’ve done what you need to or do you still think if opportunities come past, you can — you want to keep some of your powder dry. And perhaps look at opportunities into next year as well, again?
Peter Bradford
Yes. So yes, all good questions, Rahul. Frankly, on the capital allocation, so broadly, my language every now and again, slips into dividend. But our, we have a more holistic view than that. It’s all about cash returns to shareholders, and that can be via dividends or via share buybacks. And certainly, that would be a tool in the toolkit going forward. But of course, we’d only do that in circumstances where it made sense to do that rather than return cash to shareholders via a fully franked dividend. So we would continue to assess both options in the future. And better option will, whatever option we used would be based on what delivered the best outcome for shareholders and the business.
On the second question, on the organic growth, what — over the last couple years, we’ve transformed the business and we bolted on like a lithium business unit to what we’re doing, we’ve got a lot of brownfield gross within that building the third chemical grade plant at Greenbushes. After that finish we’ll be building the fourth chemical grade plant at Kwinana. We expect to start building the second train later this year. And going forward, we would envisage a third and a fourth train and then within the nickel business, we are busy build, developing Cosmos and doing a couple of studies around Mt Goode and the nickel sulphide. So we’ve got a lot of digestion to do from a from a brownfields development within the group. But we’re also constructive around looking for opportunities I’ve described, myself and the business as serial lookers, and we’ll continue to look, but we’ll always be very disciplined on what we may transact on. And the fact that we are busy within the business doesn’t create a sense of urgency for us to do anything. And therefore we can afford to be a lot more disciplined and a lot more prudent about what we may or may not do. I hope that answer the question.
Rahul Anand
Yes. So thanks for the second one, sorry, I’ll go ahead. For the second one, I was just going to perhaps touch on again, the Silver Knights opportunity, any sort of progress there that you can update us on and how you’re thinking about that opportunity, any other metrics or updates there.
Peter Bradford
Yes, we’re doing the work. So a lot of metallurgical work and then all of the environmental baseline studies and permitting that we need to do for a new undermine development in Western Australia. And in parallel, we’re doing some drill testing around Silver Night to understand whether there’s any extensions and you would recollect, in the June quarter result, we did highlight that we’ve had a number of circa 20 meter, intersections with visible nickel and copper mineralization in close proximity to Silver Night, and we look there to continue to test that is continuing. And we would look to provide a more fulsome update on what that looks like going forward. I have characterized over the course of the last couple of months, it’s the results we’re getting, you will argue them it’s real to Silver Knight but then not get material to the IGO business.
Operator
Lyndon Fagan from J.P. Morgan.
Lyndon Fagan
Hi, Peter. Thanks for the call. The first question was just to try and revisit the opportunity to toll trade from Greenbushes Spodumene and turn it into hydroxide. Whilst Kwinana was not really producing any material volume. I know, I sort of brought this up at the site visit, but is there anything more you can say about that opportunity, or whether it is even an opportunity for the JV?
Peter Bradford
So and I said, rather than talk to what might be there, I think we’re better off leaving that question. And if we are able to do something in the future, we’ll talk about that with a certainty of having done it. And certainly an opportunity that IGO would be constructive around. And then it would be a matter of reaching the same conclusion without joint venture partner.
Lyndon Fagan
Okay, thanks. And then the other question was just to push a little bit more on Kwinana. And where we’re up to, you mentioned, on site that 90% of product in the last 10 days, had been on spec. I’m wondering if you could update as to whether we’re still seeing 90% of product on spec. And what sort of volume that’s associated with?
Peter Bradford
Yes, like I said earlier, Lyndon, all of the work programs that we talked about were on site, we’re progressing all of those, and we’re better off talking to where we are on Kwinana in the ordinary course, when we get to the September quarter results in October. Otherwise, we may need to start doing monthly reports from an ASX point of view.
Lyndon Fagan
No worries, Peter, I’ll say from third time, lucky. So the final question I had was on Greenbushes really just a long-term question. So by far and away the most valuable asset in the company. I’m wondering if you’re able to talk to the long-term optionality. There was a discussion about going underground. There was also not really any discussion about expansions beyond CGP4. Obviously, it’s an amazing ore body. I’d like to get a bit more of a flavor about the exploration potential whether there is, in fact, some opportunity to grow this asset beyond the projects that have already sort of been put out there. Is there anything more you can say about that? Or is it — it’s just what it is in terms of CGP4 and that’s it.
Peter Bradford
No, so it’s a great question, Lyndon. And from a strategic point of view, we do see additional potential below the depths of the current plant pit, and there’s an ongoing body of work to do the drilling to confirm that and, in part, convert inferred resources into measured and indicated so we can incorporate it into a larger pit plan, but also doing the work to identify extensions below that and understand the opportunity for further extensions, perhaps underground extensions below the depth of a maximum pit. And if you roll all that together as an opportunity, then very quickly, from a strategic point of view, you start thinking about how do we extract value quicker, and one of the challenges at Greenbushes will always be the relatively small footprint we had there, and the access to land that we would need to build more infrastructure. And I think one of the real opportunities going forward would be to better understand what the maximum potential of those existing process plants is, and what the opportunity is to take those well beyond nameplate as has been achieved with chemical grade plant number one. Chemical grade plant number one it operates at a level far above our nameplate. And if we were to achieve that same level of performance from chemical grade plant two, three and four, it will be similar to having another concentrator on the site. And that may be a more realistic opportunity than building a 5th chemical grade concentrator, but all of those are in front of us. And certainly from a strategic point of view, those would be some of the things that we would be focused on through our participation in the Greenbushes joint venture.
Operator
The next question comes from Daniel Morgan with Barrenjoey.
Daniel Morgan
Hi, Peter. Just on the Western Areas assets now that you’ve taken control of Forrestania. Can you talk about the synergies you’re expecting from the concentrate potential blending with Nova? Can you blend get a payability uplift and vague question, but is there any potential benefit to the reasonable reserve of ore mining at Forrestania know from blending?
Peter Bradford
Yes. So there’s a number of work programs that we have underway, Dan, to understand some of those synergies across operations and an obvious one with Forrestania is what can be done to maximize recovery and therefore, both from an ore body point of view, but also metallurgically by being able to blend out some of the high arsenic at Spotted Quoll, with no arsenic material from elsewhere. So we are in the process of doing the work to understand that opportunity, and would expect to talk to that in coming quarters. In parallel, we’re having the discussions with all of our partner organizations, whether they be contractors or suppliers, to understand what synergies we may be able to deliver across the multiple operations, where we’re working together with our partners.
Operator
Next question comes from Kaan Peker with Royal Bank of Canada.
Kaan Peker
Good morning, Peter and team. Two quick questions, I think prior to the acquisition, Western Areas, just talking about signing offtake for Cosmos beyond what’s agreed with Glencore. Just wondering if there was any progress on that? Or has the offtake approach change with IGO’s ownership?
Peter Bradford
Yes, we’re continuing on with some of the work programs that the Western Areas previously started, but also providing a sort of holistic overlay on that to think about the whole company concentrate package and how we deal with that strategically with our offtake partners. And I would expect that in between now and December quarter results, we would have an update for the market, because that’s certainly the timeline that we need to get those discussions finalized.
Kaan Peker
Sure, thank you. And also just following up on Matt’s question prior about blending, just wanted to see what benefit would arise from claiming a high [Inaudible] if that was the case, wouldn’t Cosmos just be a standalone concentrate to be sold?
Peter Bradford
Yes, as I said before we’re doing the work to understand that opportunity and to understand what benefit may be achieved from a payability point of view by blending across, initially Forrestania and Nova and then ultimately, across the three sites, but longer term and here I’m talking to maybe mid-2026. We will be focused on what’s the right blend to see into our own downstream processing facility. And given the nature of what that facility would be, we would expect that it will be much less sensitive to a wider bandwidth of material types. So it will be much less sensitive to iron MgO ratio, much less sensitive to asset concentration, which will then create a competitive advantage for us to compete with some of that off spec materials in the market.
Kaan Peker
Thank you. And just a final one, just under the theme JV. Wondering if you can sort of talk through or maybe give an update, I think at the site is that you mentioned monthly cash being distributed back to partners of the lithium JV and over the last month, have you seen a larger pickup in cash flow being distributed back to IGO or JV partners?
Peter Bradford
Yes, aside the framework that we have there is a quarterly agreed bodily distribution from Greenbushes up to the lithium joint venture company, but in practice, it’s actually happening every month at the moment. And then the framework at the lithium daily company TLEA is a quarterly dividend distribution up to IGO and we get to have a dialogue around whether that should be a more frequent distribution. And I’m really not able to talk to what distributions we’ve had in July or August, and we’ll provide an update to the market on those movements with the September quarter results.
Operator
The next question is for Mr. Freidman with MSJ Financial.
Unidentified Analyst
Thanks, good morning, Peter and team. Firstly, just wanted to follow on from your comments on downstream processing. At the Strategy Day, you floated the concept, I guess of an integrated process to produce cathode materials. Yesterday, we had one of your peers, or perhaps one of your competitors, also floating the idea of an integrated Australian battery production. So I guess wondering if you can provide the expected timing of that study? Am I right to say, do like FY23? What’s the scope being considered? Is it simply a desktop study or concept study? Or is it more involved, are you really assessing the economics of all these points in the value chain that you’ve highlighted? And then also what other moving parts are feeding into that study in terms of assessing other uncertain resources? Or perhaps your project partners on that study as well?
Peter Bradford
Yes, sure. So they, as we talked about on the Strategy Day, we see the natural evolution where a nickel sulphide downstream project actually incorporates a pre-tam facility adjacent to it, because that reduces overall capital and operating costs, we put in effect, nickel in solution across the fence into the pre-tam facilities. So we are doing the work to understand the merits of both of those at the same time, it will be correct to characterize work on the nickel sulphide portion at the moment is running ahead of the work on the other one, that we expect that will catch up quite quickly. And the aim is to deliver a feasibility study, which would support a financial investment decision on both of those by mid-2024.
Unidentified Analyst
Got it, okay. That’s very helpful. Thanks Peter. And then just following on quickly from Kaan’s question on offtake. You talked about wanting to resolve the Cosmos offtake situation between now and the December quarter result. Is it fair to extend that to the portion of Nova concentrate and also for Spodumene concentrate that you’ll have available around that time?
Peter Bradford
Yes, like I may not have said that my thinking when I was answering the question was it would be a broad rough take on all of our offtakes because we have a couple of milestones coming up for Nova and Forrestania as well as need to deliver certainty on Cosmos. So we’ll be providing a broad update, plus or minus by the time we get to our December quarter results.
Unidentified Analyst
Got it. Thanks, Peter. You might have said it but I may be the one that —
Peter Bradford
I would have to take the transcript and to see what I said. But I think we won’t drive the commercial converse discussions with the counterparties around a date, around the December quarter results, we will need more time we’ll take the extra time at that point to do it. But plus or minus, that’s about when we should be getting there.
Unidentified Analyst
So does that mean that in the interim, you’d be happy to accept spot sales outside of existing offtake? So would you expect that any incremental volumes will just be delivered into the existing offtake?
Peter Bradford
To comment on that, I have anecdotally heard quite spot five spot sales in recent times, 82% spot sales have been quoted to me on a payability point of view. So it’s an outcome we were looking at. But again that the plan — that plan is to get your time blocked up and to have that committed from first of January or [Inaudible] timing.
Unidentified Analyst
Yes, so it’s always nice to be able to, I guess, reference spot indexes with the pricing. Maybe just finally on Forrestania. You mentioned that briefly in your slide around lithium exploration. I am wondering if you can expand on that a bit. Is that currently just a little bit of ology given that you’re down the road from Mt [Inaudible] or are there any high priority targets there that you’ve outlined any outcropping pegmatites that are ready for you guys to go and put a drill into.
Peter Bradford
Too early to talk to that, but there’s more substance than a spot dream or any sort of close-ology, and we look forward to updating people on some of those targets that are on the existing concession package in upcoming quarters.
Operator
Next question comes from Peter O’Connor with Shaw and Partner.
Peter O’Connor
Hey, two more into nickel business, firstly, Nova and the life of mine. And thinking about this from the context of your new director. She would have [Inaudible] ahead of joining the board and matter would have come up with a question to use IMP, Nova only got a short life. What are you going to do beyond Silver Night and Nova? And is there a gap there before you turn any more production of — range into production? And then I’ve got a second one.
Peter Bradford
Yes, given the likely depths of a discovering the Nova, I would expect it’s fair to say that there would be a hiatus in any activity that’s required to bring any new discovery that’s made from this point on into an operation. If the amount of time it would need to do the resource assessment of that new discovery, the time it would take to do the feasibility studies and the permitting it just about guarantees that we would need a — there would be a hiatus in activity.
Peter O’Connor
It will care a maintenance scenario for potential extended period, if necessary.
Peter Bradford
And that’s correct.
Peter O’Connor
Okay. My second one on nickel as well, the nickel supply more broadly holistically [Inaudible] way and having met with [Inaudible] last week with the CEO and he talked about the nickel business indicating that they wanted to partly grow the nickel business by reducing the units they buy from people like yourself, in the timeframe of the next smelter campaign shut and the change of the way they look at metallurgy and chemistry. Do you have enough time by mid this decade or mid late this decade to evolve your own downstream nickel processing to fill that hole? Or will you be selling materials spot as you just indicated from the previous question.
Peter Bradford
So the timeframe we’re talking to for our own downstream facility subject to completing the feasibility study and reaching a financial investment decision with circa mid-2026. And if there was a need to place offtake in the lead up to the commission of that is still a robust market that part of Australia.
Peter O’Connor
So to be clear, FID, FY26 or that’s first material FY23.
Peter Bradford
FID by mid-2024 leading to construction completion by mid-2026.
Operator
Thank you. We have run short on time and come to the end of the Q&A session. I’ll now hand back for closing remarks.
Peter Bradford
Thanks Rachel. Thanks everyone, for your participation today through our presentation and Q&A session. And we look forward to engaging with you again very soon when we present our September quarter results in October. Thank you and have a safe day.
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