IGO Limited (OTCPK:IPGDF) Q3 2022 Results Conference Call October 30, 2022 8:00 PM ET
Company Participants
Matt Dusci – Acting CEO
Mike Nossal – Independent Non-Executive Chairman
Kathleen Bozanic – CFO
Conference Call Participants
Mitch Ryan – Jefferies
Lyndon Fagan – JPMorgan
Levi Spry – UBS
Daniel Morgan – Barrenjoey
Kaan Peker – Royal Bank of Canada
Matthew Frydman – MST Financial
Matt Green – Credit Suisse
Tim Hoff – Canaccord
Kate McCutcheon – Citi
Jon Bishop – Jarden
Matt Dusci
Thank you, operator. Good morning, everyone. Thank you for joining our September quarterly call. As an introduction, my name is Matt Dusci, Acting CEO of IGO. Joining me on the call today is our executive leadership team, including Kath Bozanic, who has recently joined the team as our CFO. Also on the call this morning is our Non-executive Chair, Mike Nossal. Mike will make some introduction comments.
Mike, I hand across to you.
Mike Nossal
Thanks, Matt, and welcome, everybody. As you, no doubt, aware, it was with great sadness that we announced the sudden passing of our Managing Director and CEO, Peter Bradford, two weeks ago. On behalf of the Board and the broader IGO family, I wanted to start this call by extending our deepest sympathy to Peter’s family and friends at this very difficult time.
Peter’s innovative and strong leadership over many years has transformed IGO into the company it is today. His passion for the mining sector, generosity, warmth and humility was truly inspiring as was his strong belief that our industry has a critical role to play in the global transition to a clean energy future. Importantly, Peter always brought people along with him and developed strong relationships at all levels of the company through genuine care for others. For those of us who are fortunate to know and work with Peter, the news of his passing was devastating, he is dearly missed.
While our immediate priority has been to provide all the support and care we can for his family and everyone at IGO, we’ve also moved quickly to ensure business continuity. On that front, we benefited from Peter’s ability to build a strong team around him. Matt Dusci, who most of you know already, was appointed as Acting CEO, while the Board conducts a formal search process for a permanent CEO. Matt’s been pivotal to IGO’s recent transformation and is committed to delivering on our strategy and purpose. He is well supported by the executive leadership team as evidenced by our recently appointed CFO, Kath Bozanic, who joins us here today as well as the broader IGO leadership group and the board has every confidence that the team will continue to deliver for all stakeholders.
While the last two weeks have been difficult, all of us being buoyed by the huge number of people across the industry who have reached out to offer their condolences and support. Not surprising, given the high regard in which Peter was held, but greatly appreciated, and I thank all of you on behalf of the IGO family.
I’ll now hand the call back to Matt and the team for the quarterly results presentation.
Matt Dusci
Thanks, Mike. I would also like to pass on my condolences to Peter’s family and friends, and also thank everyone who has reached out to the IGO family over the past 2 weeks. The support we have received highlight enormous impact that Peter has had across the entire industry, both to locally and globally. The IGO family has lost [Indiscernible] difficult for us as Peter passed away. We’d like to acknowledge the collective strength and resilience of the IGO team shown you this time. This is a testament to our culture and our support for each other. We all miss him. I know Peter would have been immensely proud of, and we are determined to deliver on Peter’s vision to make a difference.
Moving to Slide 3. I’ll start by commenting on safety and our focus on improving safety outcomes for our people. Recent safety performance has been disappointing with our strip out moving higher since the start of the year. While the severity of injuries we experienced in the business are generally minor, we acknowledge that our performance is not good enough. We need to minimize harm and create a safer workplace for our people.
We are in the process of harmonizing our safety systems and processes across the Forrestania and Cosmos sites. In addition to our current safety programs of work, we are looking at complementing each with additional resources, in-field supervision and workplace-focused safety risk workshops to ensure our people have the support they require.
Moving to Slide 4. We are again proud to deliver another excellent set of operating and financial results for the September quarter. This has included record sales revenue and EBITDA for the group, record quarterly spodumene production at Greenbushes, coupled with strong realized lithium prices, consistent delivery from our nickel operations at Nova and Forrestania, announcement of our project to provide development plan at Cosmos, we’re also proud to publish our 2022 Sustainability Report in August. This is our eighth consecutive report.
On governance, we have continued to evolve and renew the Board with the appointment of Trace Arlaud and Justin Osborne as non-executive directors. It’s great to have them as part of the team. I would also like to acknowledge the contribution of Peter Buck, who will retire from IGO’s Board at the upcoming Annual General Meeting. Thank you, Peter, for your contributions over the past 8 years.
Moving to Slide 5, we will summarize our key financial results for the quarter. As mentioned, the key driver during the quarter was a significant increase in earnings from the lithium business. IGO share of net profit from TLEA, which we report as the EBITDA line, almost tripled quarter-on-quarter to $286 million. This result, combined with earnings from our nickel business, generated a record quarterly group underlying EBITDA result of $398 million.
Net profit after tax rose to $253 million for the quarter, while underlying free cash flow of $194 million was lower quarter-on-quarter. This is attributed primarily to our $59 million investment in the development of the Cosmos project. Strong cash generation by the business over the quarter enabled IGO to make a partial repayment of $220 million of the amortizing debt facility, leading to a closing net debt position of $396 million.
Moving to Slide 6. The graph shows the reconciliation of net profit after tax for the quarter. The key drivers to a significant increase in net PAT quarter-on-quarter were increase in lithium business earnings, the absence of acquisition costs recorded in June quarter related to the Western Areas transaction and an increase in mark-to-market valuation of our investments. This was offset by lower earnings from Nova and higher D&A and tax charges.
Moving to Slide 7, which shows a reconciliation of cash flow. Cash generation within the nickel business is strong with Nova and Forrestania contributing $227 million in aggregate, offset by $59 million spent on development of Cosmos. The second quarterly dividend from TLEA of $106 million was also received. Other outlflows of note include $38 million payment of the FY ’22 final fully-franked dividend of $0.05 and the repayment of $220 million of our net debt facility. Closing cash balance as of 30th of September was $284 million.
Turning to Slide 8. I’ll talk about our lithium business. IGO’s lithium assets are held by our joint venture interest in Tianqi Lithium Energy Australia referred to as TLEA. Moving to Slide 9. It’s pleasing to report the strong financial performance of TLEA for the quarter. As noted earlier, IGO’s share of TLEA’s net profit rose nearly threefold in the September quarter to $286 million, while $106 million received by way of quarter’s dividend was also significantly higher than the prior quarter. This strong financial performance is primarily driven by premium production and higher spodumene prices, which reset on the 1st of July 2022, generating strong margins and dividend flows from Greenbushes.
With Peter Bradford’s passing resulting in vacancy on the TLEA Board, we have today announced that IGO’s Non-executive Chair, Mike Nossal, has joined the TLEA Board on an interim basis. I’ve also joined the Board of Windfield Holdings, the joint venture company, which owns Greenbushes and remain active in the operating subcommittees, which [Indiscernible] to the operation and the numerous growth projects being executed by the Talison team. I would also like to extend my thanks to our partners, Tianqi, Albemarle and Talison for the support over the last recent weeks. It’s greatly appreciated.
Moving to Slide 10 and to a discussion on the quarterly performance of Greenbushes. Spodumene production at Greenbushes this quarter was 361,000 tonnes. This is 7% higher quarter-on-quarter with increased plant throughput and improved recovery performance. Given the increased operational performance, the team commenced lower in-field grade.
The cost of goods sold, excluding royalties, was $253 per tonne, within guidance and consistent with the previous quarter. The significant step-up in revenue and EBITDA was predominantly price related with chemical grade pricing reset on the 1st of July 2022 to USD4,187 per tonne. As first foreshadowed last quarter, our realized price of USD3,729 for the quarter was impacted by a delay in June shipment that was realized in July at the previous price of USD1,770 per tonne.
The average price also uncovered technical grade pricing, which continued to lay chemical grade price. For reference, technical grade production remains at approximately 10% of the chemical grade production. As discussed during our full year results call, the spodumene pricing, transfer pricing mechanism, which determines the price at which spodumene concentrate from Greenbushes is transferred to its shareholders is currently being reviewed by the Greenbushes board. While discussions are well progressed, no decision has yet been ratified by the board. We expect to update the market on this shortly.
Moving to Slide 11. As Greenbushes team is continuing to study and execute programs to work to maximize and optimize its world-class assets. During the quarter, excellent progress was made on the expansion of mining and processing operations. Early works are advancing well in the construction of CGP3, which will add an additional 5,000 tonnes per annum of processing capacity at Greenbushes. Construction is expected to be completed in early 2025, with commissioning to come in thereafter. The tendering process for the new mining contract for the expanded operation is ongoing.
On the right-hand side of the graph, we’ve displayed the growth profile at Greenbushes over the coming few years. Over the next 5 years, Greenbushes will expand processing capacity by 1 million tonnes per annum with the addition of CGP3 and CGP4, while mining volumes, we expect will average — to an average of about 9.5 million tonnes per annum over the estimated 21 years life of mine.
Turning to Slide 12. At Kwinana, the team has continued to grow with commissioning a representation on Train 1 during the quarter. Key activities include advancing of the acid roast kiln and calciner, continued debottlenecking of the flowship, improved reliability and run times, and increased battery grade conversions. Team remains focused on continued commissioning and ramp-up.
During the quarter, Tianqi China has embedded a large team of technical and operating personal from their operations in China as part of the ramp-up process. Trial production increased quarter-on-quarter to 195 tonnes, while the product qualification process with offtake customers continues. EBITDA of $21.2 million for the quarter relates primarily to the sales of lithium hydroxide to SKI delivered by tail — treatment tailing arrangements in place with TLC, whereby TLC conversion facilities in China have delivered products on behalf of TLEA.
In parallel, progress continues on Train 2 to enable the TLEA board to make a final investment decision on Train 2 over the coming quarters. This has included continuing engineering, design, tendering, EPC, contract negotiation and resourcing the owners team as well as some early works on site.
Turning now to Slide 13 and a review of our nickel business. Moving to Slide 14. The September quarter has been the first full quarter IGO has joined the Cosmos and Forrestania assets following the completion of the Western Areas acquisition in late June. Our expanded portfolio provides IGO with significant opportunity to grow an equal business organically with our current key strategic items listed on the slide.
First and foremost, our focus is on completing the integration of the Forrestania and Cosmos assets into the IGO business. This is progressing to plan, and I’d like to thank everyone who has worked on making this process happen. We have more and more opportunity to increase value through optimizing and synergies.
At Cosmos, our focus is on delivering a safe and sustainable project, which maximizes value. We’ve now mapped out a preplan to deliver this project over the next 12 months. We are currently negotiating new offtake arrangements for 50% of the Nova’s nickel concentrate and 100% of the Forrestania concentrate volumes, which will now become available in the March quarter. This is a unique opportunity for IGO, which delivers value both at operational and financial level. We expect to provide an update on this in the December quarterly results.
Our nickel downstream study is progressing with Wyloo Metals. The aim is to reach a financial investment decision on net in mid-2024. We have a strong interest in partnerships as we look at making our technologies in the production and nickel sulfate with pre-CAN. And finally, we’re working on various studies with the objective of expanding our nickel resources and reserves base. Silver Knight is the most progressively studied, while New Morning and Mt Goode have recently commenced.
Moving to Slide 15. The Nova team has delivered another strong quarter of operating and financial performance. Production of all metals were generally in line quarter-on-quarter, while costs were higher at $3.14 per pound. The increase in cash costs relates primarily to lower copper byproduct pricing over the quarter, which has driven lower byproduct credits. Prevailing copper price of $5.12 per pound compared to our assumed price [Indiscernible] guidance of $5.65 per pound and accounts for $0.52 of the total variance quarter-on-quarter.
Sales revenue and underlying EBITDA were lower by 27% and 37%, respectively, driven by lower realized nickel prices consistent with the lower spot prices and absence of hedging gains we enjoyed during the quarter. EBITDA margins at Nova remained strong at 65%.
Moving to Slide 16. At Forrestania production of 3,189 tonnes of nickel was 11% higher than the prior quarter, with higher milled grades, greater ore availability and success of the scats magnetic sorting program. Higher production drove costs lower, offset by increased cash production costs related to mining contractor rates. Cash cost of $8.70 per pound compared favorable with the prior quarter result of $9.24 per pound.
Moving to Slide 17. Our project development team has been busy over the quarter at Cosmos. I don’t care to speak in any detail. However, broadly, development activity is progressing well with high levels of activities on the process plant, paste plan, shaft and supporting infrastructure. In addition, a total of 1,427 meters of underground development was completed. Total construction and mine development CapEx was $59 million for the quarter.
Moving to Slide 18. The other key work stream has been delivering a revised project development strategy for the Cosmos project. This has included expansion of the processing plant from 750,000 tonnes per annum to 1.1 million tonnes per annum, upgrading an improvement of the shaft and infrastructure, committing to advance AM6 and AM5 with additional development, which will open up multiple mining areas and ore sources, generally rightsizing and strengthening site infrastructure.
With the detailed work behind the plan now complete, IGA expects to progress plant and first concentrate to be completed during the first quarter of FY ’24. The shaft, infra and underground material handling systems are expected to be completed around the end of CY ’23 with all hoisting from this point.
Moving to Slide 19. IGO has also updated the capital cost estimate to the revised project plan. Total project cost till 30th of June 2022 prior to IGO ownerships were $302 million. The remaining cost to complete the project is estimated between 493 and $523 million. This estimate includes all project development activities up until commercial production, plus the expected cost to complete the shaft and associated infrastructure after commercial declaration. Of this remaining cost to complete, IGO expects to spend between 400 and $425 million during the current financial year.
On the right-hand side of this — on the side of this slide, we provided some context to the capital estimate showing a bridge from the implied total project cost as detailed in the independent expert report published in April this year to the midpoint of the revised total estimate range of $810 million. The cost differential is being driven by 3 key drivers: $150 million relates to IGO optimization initiatives, designed to deliver a more robust mining and processing operation, items within this category include the cost to expand the processing plant, accelerated mining bring forth development of AM5 and AM6 ore bodies, $140 million relates to timing. Effectively, items previously classified and sustained capital low-operating expenditure, which has now been brought forward into the project capital cost estimate and $95 million related to rectification omissions and escalation. These items are costs not included in the IGO’s assessment of the project. These [Indiscernible] engineering scope were commissioned along with capital-based guidance.
On Slide 20, we provide a more detailed project delivery schedule, showing key deliveries over the coming quarters. As previously noted, process plant and first concentrate production will be in first quarter FY ’24. First, ore hoist from the shaft in the following quarter, second quarter FY ’24.
Moving to Slide 21 and a high-level review of our exploration for the quarter. Moving to Slide 22. In the near, Nova [Indiscernible] very busy at Silver Knight with drilling, identifying sulphur mineralization at Silver Knight South outside the existing resources. More work is required here with further drilling underway in the current quarter, Silver Knight South as well as Firehawk and Red Queen targets.
Team has also been diamond drilling at Chimera and Orion targets during the quarter. The geology expected at Chimera was consistent with previous drilling and disseminated nickel, copper, sulfides, [Indiscernible] At Orion, drilling encountered mafic intrusions, however, they do not appear as to be as prospective as previously intersected in the Orion intrusions.
Moving to Slide 23. At the Paterson project, the project team continues to work on generating quality data sets to help inform future work programs with several geochem and geophysical programs completed across various joint venture projects. The most interesting results in the quarter came from the account of joint venture where diamond drilling intersected quartz-carbonate veining with variable copper sulphide content at EB01 and ET01. Air-core drilling was also completed across several targets on the Cyprium joint venture tenure.
Moving to Slide 24. Before I move to the summary of the call, I just wanted to highlight the recent release of our 2022 sustainability report, our eighth consecutive report detailing our performance in key areas of environment, people and culture, community, governance and business integrity.
We are proud of our achievements in these areas and the recognition we continue to receive the quality and transparency of our reporting. At a project level, the second solar farm at Nova, which will expand our renewable generation and storage and further reduce our carbon emissions is near completion. We’re also actively seeking carbon reduction initiatives in several other areas in line with our convictions to deliver a clean energy future.
Moving to Slide 25. Before we move to Q&A, just like to summarize the quarter in which we continue to deliver. Highlights of note include record quarterly sales and underlying EBITDA, record spodumene production at Greenbushes, our nickel business, which is tracking within guidance, announcement of the Cosmos revised development plan, a stronger balance sheet with strong free cash flow is enabling us to reduce debt and a continued focus on ensuring our people are safe and supported. Although it has been a difficult couple of weeks, IGO has a great culture, a great team and a great future. Collectively, we are committed to making a difference and continuing Peter’s legacy.
Thank you for joining us on the call, and we’ll hand it back to the operator now for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Mitch Ryan from Jefferies.
Mitch Ryan
My first question relates to Kwinana and the hydroxide sales. Just wondering if you could provide any color on either the volume or the grade that was of that product?
Matt Dusci
Yes. So we hear you, Ryan, you’re taking the value and the grade of that product?
Mitch Ryan
Yes, that’s correct.
Matt Dusci
Yes. So that we have that value and the grade of that product is within battery sticks.
Mitch Ryan
Sorry, it was battery sticks. Okay. Staying on Kwinana, with regards to — you’ve called out the dryer issue is continuing. Do you have a pathway or a time to rectification? And or sort of as a second part of that, is there a cost or time to replace the piece of kit that seems to be not working at this point in time?
Matt Dusci
Yes. Okay. There’s a couple of elements to that. So we’ve talked about the driver being one of the bottlenecks and that still remains one of the bottlenecks. So we’re working through this quarter continued rectification on [AER] throughout the plant. The team has a really good understanding of what they need to do. At the moment, we’ve got about 15 — 12 to 15 people from China headed up by the COO from TLC of China, [Indiscernible] and then developing that program that works. So we’ll expect this quarter to see an increase in production. The key for the dryer would be — the next key step for the driver would be a rectification of the material handling system around the dryer. And that’s associated with the assistant shooting successor. But the idea is to plan for that rectification work at the next shut and they’re in the process of scheduling that next shut.
Operator
Your next question comes from Lyndon Fagan from JPMorgan.
Lyndon Fagan
First question I had was just on the dividend received from the lithium joint venture looks quite low relative to your share of profit. Just wondering if you can talk through why that’s different?
Matt Dusci
Yes, I will. So I’ll hand it across to Kath Bozanic. Largely, the dividend was in line, and it’s largely due to driven by payment terms. I don’t know if you have anything else, Kath?
Kathleen Bozanic
Yes. So it was in line with our expectations, as Matt indicated, and you need to take consideration to the payment terms with our customers and also our investment in capital and including the timing of that investment. We expect that the higher spodumene prices will be reflected in our December quarter dividend. So you’re just seeing a bit of a lag there in terms of when the cash is coming through as well.
Lyndon Fagan
So is it a timing issue? Or are you holding on to the cash to invest in, say, Kwinana Phase 2?
Kathleen Bozanic
Predominantly timing, Lyndon. Yes, it’s predominantly timing. We’ve got slightly longer timing trends there, we’ve got a higher digit balance at the end of the quarter comparable to some of the other ways that things get paid.
Lyndon Fagan
Okay. And just to clarify, you called out the tail treating for Kwinana. Do you mind just talking through exactly what’s going on there? So are you tail treating your share of spodumene that would otherwise be going through Kwinana, and that’s what the EBITDA is from as opposed to any hydroxide sales directly from Kwinana?
Matt Dusci
Yes. So that tail treatment was the production of lithium hydroxide out of TLC China facility to ensure we made contractual terms with [Indiscernible].
Lyndon Fagan
And is there any opportunity to ramp up that tail treating to, I guess, opportunistically make some money.
Matt Dusci
That’s [12] treatments out of China that resides with TLC.
Lyndon Fagan
Okay. And look, just one more for me. I’m wondering if you can talk through the grade profile a bit at Greenbushes. It just seems to be still coming through at an elevated level, which is great to see. But how much longer is that likely to be the case?
Matt Dusci
Like this quarter, you’re seeing grade fees go down. That’s ultimately from stock filling. So they have a lot of flexibility at Greenbushes with mining sequences, et cetera, at the moment. Largely, that was to do with ramp up and run times and recovery. So we’ve got CGP2, throughput at CGP2’s improved, CGP recoveries and reproach et cetera, will bring that grade to more in line with forecasting.
Operator
Your next question comes from Levi Spry from UBS.
Levi Spry
Lyndon asked my 2 questions. I guess can you just push a little bit on the Kwinana Train 2, what’s delaying the FID? Or when can we just push you a little bit more on when we can expect the decision there?
Matt Dusci
Yes. So we expect to see that over the next coming quarter or 2. It’s not actually delaying the project at all because we are committing to the engineering. We’re committing to building owners teams or committing to systems and processes in place. And so what we’re actually doing is doing more early works versus making a final financial investment decision on Train 2. While we want to be sure about it in that financial investment we do make more of that financial investment decision at all rectification engineering has been captured into the Train 2 design.
Levi Spry
Okay. And just this arrangement with TLC. So your things keep taking a bit longer with Train 1, like how much capacity is there to — can you fulfill all of your contracts through China? How do we think about that?
Matt Dusci
Yes. There’s only a shortfall of contracts associated with the SKI and it’s more a relationship thing. Ultimately, they’re all commercially sensitive, but there is no other requirements.
Operator
Your next question comes from Daniel Morgan from Barrenjoey.
Daniel Morgan
Sorry to keep following up on this tail treatment comment. It’s just very interesting. So with SK innovation, I guess I’m trying to understand, is there more obligations you have to deliver products, for instance, next quarter or until, I guess, Kwinana Train 1 ramps up. Is there more obligations you have and therefore, more tail treating you might do and more earnings that might come through like what we’ve just seen from tail treating arrangements in the next quarter?
Matt Dusci
No, although it’s a small volume associated with what we’re doing for this tail treatment through TLEA, that was ongoing last quarter as well. So it’s not a new thing, and effectively, there’s no more opportunity really to tail treat to retire except for those requirements.
Daniel Morgan
Okay. And when I look at this earnings, is that predominantly the tail treatment earnings? Like when — typically, if something is being built or ramped up and not commercial, which this is not yet, I imagine that the costs and the revenue associated with the costs from the small volumes we’ve done at Kwinana are capitalized. Is that correct?
Kathleen Bozanic
The sales in terms of lithium hydroxide during the quarter. Does that answer your question? Maybe I hadn’t understood your question fully. So, we — sorry.
Daniel Morgan
Maybe I’ll just clarify. I mean, typically, pre-commercial production, all revenue and costs get capitalized. That’s true. Is it not?
Kathleen Bozanic
No, we’re actually putting them through the P&L at this present moment because you’ve got to remember they went into care maintenance for a period there, which drove a slightly different accounting treatment. Sorry, I didn’t understand the question initially.
Daniel Morgan
And at Kwinana, you say there will be — you’re going to make several rectifications at the next scheduled shut. Why not bring that forward to now given you’ve got immaterial volumes? Is it because you’re waiting for equipment to arrive?
Matt Dusci
Yes. It’s largely driven by timing, equipment, engineering.
Operator
Your next question comes from Kaan Peker from Royal Bank of Canada.
Kaan Peker
One, my first question is really around the offtake. Just wondering, I know you’ve talked about sort of aligning the offtake for Nova and Forrestania, they both get good payabilities. Now the duration of that timing and the strategy around that, will that depend on the study around the downstream processing that’s expected by end of CY ’22? Can we just get a bit more detail around that?
Matt Dusci
Yes, correct. So, what we make sure is any offtake arrangement is coupled with downstream and also include any provision that till we make a financial investment on downstream that will have the right to change those offtakes. The driver of the time — what the driver for the offtake is really about how we optimize the Forrestania essentially and that has the ability to ensure that we’re not processing arsenic nickel have additional operating costs associated with processing arsenic, how we get improved recoveries because we’re not having to drive arsenic as a reduction through the processing plant, et cetera. So, we think that the blending strategy will have a significant advantage not just in payabilities in providing significant nickel mill units but also on an operational basis.
Kaan Peker
Sure. And with the offtake, it’s sort of the same people that I suppose it’s rolling off [Indiscernible].
Matt Dusci
There’s a huge amount of interest from both traditional offtakers, but the broader market. So, we’ll cast that net very far and wide.
Kaan Peker
And second question was around Nova. Just if you could talk through the quarter-on-quarter cost changes, particularly around processing quarter-on-quarter?
Matt Dusci
Sure. I mean on a C1 basis, that large variance is largely driven by that copper buy pipes and credit and you’ll see that come through. In terms of operating, we had a [shut] in the quarter and you’ll see — typically, you’ll see some variance in operating costs associated in processing plant associated where shuts occur and being relines, et cetera.
Kaan Peker
And just last one with Forrestania, the inventory adjustments, can you just talk through what’s impacted those?
Kathleen Bozanic
Yes, I can cover that off. Because we’re being business combinations or we’ve done an acquisition, we have to fair value our inventory and all our balance sheet at the date of acquisition. So, you’ll see this one-off large increase in inventory, which has flowed through to our cash costs because our inventory has been valued at net realizable value on the 20th of June, which means that it had a negative impact on our EBITDA. We will see the normal ups and downs that you see going forward. This is just a first quarter thing.
Operator
Your next question comes from Matthew Frydman from MST Financial.
Matthew Frydman
Firstly, just after a bit of an update on some of the discussions that have been previously flagged that you’re having with your JV partners. Firstly, the TLEA quarterly dividend versus the monthly dividend that’s coming out of Greenbushes. I think we saw evidence of that during the quarter and you guys were discussing earlier that the quantum of the dividend. So, any movement there in terms of moving towards a more regular sweep out of TLEA, perhaps a monthly sweep as per Greenbushes? And then secondly, the 6-monthly backward-looking pricing mechanism from Greenbushes, any update to those discussions at the Talison level?
Matt Dusci
Yes, sure. So, I’ll capture the dividend line first. So as you’re aware, we’re doing monthly dividends sweeps at Greenbushes coming up to TLEA and then at TLEA level, it’s quarterly. There’s no tailor-made consistent for the time being. In terms of pricing, how spodumene and pricing mechanisms at the Greenbushes level, that’s still in discussion. As you’re aware, that was set in 2020, which is set by annual at start the of midyear — Jan. and also midyear and start of the year, so Jan. and July and is based on the preceding quarters. And it consists of the 3 PRAs, which is Fast Metals benchmark and Asian Metals. That discussion is still ongoing and we expect to provide updates to the market next quarter on what that new pricing mechanism would be.
Matthew Frydman
Any comments around the fact that one of Albemarle’s other JV partners, obviously, Mineral Resources is now adopting that same pricing mechanism for their spodumene transfers. Is that — I mean, does that affect your discussions at all? Or how do you take that?
Matt Dusci
Look, I would describe discussions as positive.
Matthew Frydman
And then just finally, the Cosmos update, obviously, quite a bit to unpack there. I’m just looking at the component of operating costs and sustaining costs that you’ve now capitalized versus what was in the independent export report. I don’t have the exact numbers in front of me in terms of the mining cost and the sustaining capital that were described in that report. But should we be revising down our life of mine mining costs and our mine development costs by an equivalent amount of that $140 million that you’ve now capitalized? I think the [AER] had $80 to $90 a tonne mining cost and somewhere in the order of $150 million of sustaining capital over the life of the asset. Is it fair to take out that amount that you’ve now capitalized upfront?
Matt Dusci
Yes, look, majority of it. So, in terms of how we try to bridge the gap, however I could understand we use that AER and then we talked about $140 million, which is related to timing. There’s 2 main drivers within that timing of the $140 million, which is both shaft and underground mining.
Operator
Your next question comes from Matt Green from Credit Suisse.
Matt Greene
Just my first comment — I’m sorry, I note your comments on Mt Goode being a feedstock for your downstream. Just how are you conceptually thinking about this project now? Is the PFS following the scoping study that Western Areas was undertaking?
Matt Dusci
Yes. So, they were doing scoping. We’ll advance, we’ve started the PFS and that PSS will be designed to complete at the middle of 2024. And again, it would be ideal to couple that with our thinking on downstream. We’ve started to do metallurgical test work now on Mt Goode, so we will start this quarter our metallurgical test work. The idea of doing that metallurgical test work is to see properties and understand those properties related to downstream nickel as well.
Matt Greene
So, you’re still thinking open pit 4 million tonnes per annum, that’s the level?
Matt Dusci
That will be part of the PFS when we work through all of the options as part of the Mt Goode.
Matt Greene
And then just on the nickel downstream, did I hear you correctly earlier that FID is now mid-calendar year ’24?
Matt Dusci
Yes. That’s always been the case. Mid-calendar ’24 financial investment decision on nickel sulfate downstream.
Matt Greene
And are you still thinking modular approach single train? Or does this study on Mt Goode and potentially other upstream partners change initial scope?
Matt Dusci
Yes. So, we’re doing — the current study is all the optionality we’re doing at the moment. So, we’re in the process of doing all the trade-offs as we speak. And all of those sort of trade-offs are locked down, should be done early next calendar year. That will enable us to get into detailed engineering.
Matt Greene
And just one last one, Matt. The recent budget, there was, I think, about $1 billion earmarked for value-added downstream and critical metals. Are you engaging with the state federal government? Are you sort of confident that you can see some compliances?
Matt Dusci
Yes. Look, we are confident that we would get significant support from government and we’re already seeing that support come through. It’s just the timing. So, what we’re willing to do is get a better understanding of our business case before we present to government to look at funded.
Kathleen Bozanic
The devil is in the detail Matt, and they haven’t come out with a lot of detail on how it all fits in. So, we’re going to be working closely on that when the detail comes out in order to align it with our business imperatives and the like. I hope that helps.
Operator
Your next question comes from Tim Hoff from Canaccord.
Tim Hoff
I was just looking for the timing of the ramp-up to 1.1 million tonnes. Has the capital change led to a pull forward in what you expect at 1.1 million tonnes?
Matt Dusci
The philosophy of advancing both AM5 and AM6 is to bring on additional ore sources and that will enable a faster ramp up to the 1.1 million tonnes.
Tim Hoff
The next question I had just around the realized price. I realize there was a carryover shipment. I think the last quarter we had 34,000 tonne. Just during pricing out those, what you should be getting this quarter and what you were getting on the previous one, it point to a realized price of about 3,900. I was just wondering if you could explain the differential between what you’ve actually delivered and the 3,900?
Kathleen Bozanic
So, it was 34,000 tonnes. And my understanding is that the difference relates to the timing, forex changes at various points as to when those ships have been delivered. So, we’re confident with our pricing there. It’s timing effectively around forex.
Matt Dusci
Timing on forex and the other one is your technical grade and you’ll see that price come into this quarter coming.
Tim Hoff
And nickel grade product, is that going to be wrapped into the number that you report?
Matt Dusci
Sorry, I didn’t capture it. Can you say that one again, sorry Tim.
Tim Hoff
For the technical grade product, will that be wrapped into the next quarterly recorded price?
Matt Dusci
Yes, it does get wrapped up into the quarterly price. So, you’ll see a little bit of a discount. And we tried to guide the volumes in the quarterly, you can see as well. So, you have to take that into consideration.
Operator
Your next question comes from Kate McCutcheon from Citi.
Kate McCutcheon
I hope you guys are doing okay. At our Greenbushes, you gave us mill tonnes of 1,473 kilotons for the quarter. If I do tonnes times mine grade and recovery and some tonnes for TRP, it implies one of those numbers is kind of average. Can I get some color on those variables, maybe TRP tonnes, mill grade or overall recovery?
Matt Dusci
We can take that one offline, if you like, and we can give you bit of a snapshot if you want.
Kate McCutcheon
Okay. Sure. Sure. If you don’t want to share them with the call. And then at Cosmos, I might ask the prior question another way. We’ve got an update on CapEx. With some of that OpEx moving into CapEx, what are the expectations for OpEx now? So, I’ve been going to Western Areas, they are expecting 360 a pound kind of OpEx? Any color there? And then secondly, when can we expect to hit that 1.1 million tonnes with AM6?
Matt Dusci
So, I’ll [start] first with the OpEx one. So, OpEx will provide guidance on OpEx mid-calendar year as we do with normal OpEx. In terms of production profile ramp-ups, you mean it will be — it’s a relatively quick ramp-up profile.
Kate McCutcheon
Okay. So, AM6 will come online quite quickly?
Matt Dusci
AM6 will — AM5 will potentially come on earlier.
Kate McCutcheon
And so mid-calendar year, we’ll also get an update on those kind of life of mine OpEx numbers as well?
Matt Dusci
Correct. So, mid-calendar year we’ll provide OpEx and some ramp-up profiles.
Operator
Your next question comes from Kaan Peker from Royal Bank of Canada.
Kaan Peker
Just a quick follow-up question on Flying Fox. Just wondering what that current mine life is there? Are you still expected to produce into the second half of this year? And please remind us what’s banked into Forrestania cost guidance in terms of Flying Fox?
Matt Dusci
Okay. Yes, Flying Fox is continuing into next year. Largely Flying Fox and the amount of tonnes we get from Flying Fox will largely be driven by our offtake negotiations. At the moment, Flying Fox is at high cost tonnage and it’s largely being mined. Some of those stopes at high costs largely being mined because they are having to manage [Indiscernible] on site. If you have the offtake, comes in place, then we can make a decision on Flying Fox mining schedule, et cetera. So, a little bit early to give true guidance because it’s really largely driven by that offtake negotiations.
Kaan Peker
And your unit costs are based on Flying Fox continue into the second half of this year? The ones that were published a couple of months ago?
Matt Dusci
Yes. The unit cost will have to have an assessment once we make another strategic decision on what we do with the how we optimize the Forrestania assets and drive more margin.
Operator
Your next question comes from Jon Bishop from Jarden.
Jon Bishop
Condolences clearly to Peter’s family and to the team. I’ve just got a couple of questions just in relation to Kwinana. You were talking about, obviously, early works and long leads ongoing at Train 2. So, the read though clearly is that it’s a fait accompli. Can I ask though, what sort of changes if any the joint venture has been looking at in terms of the flow sheet in relation to what you’ve experienced at Train 1?
Matt Dusci
In terms of Train 2, flow sheet, it will be the same. Major capital pieces are in place. And most of the challenges are associated with train lines are doing with interconnectivities. So, it’s got to do with engineering around those interconnectivity and material transfers versus the change in flow sheet.
Jon Bishop
So, that materials handling piece is obviously being integrated into the layout plan. Is that right?
Matt Dusci
Correct.
Jon Bishop
And then just very quickly around the DCS development. Can I just ask just around inventories for AM5 and AM6? Do we just take the existing resource inventories as last deck by Western Areas in terms of integrating those into the life of mine plan for now?
Matt Dusci
Yes.
Operator
Thank you. There are no further questions at this time. I’ll now hand the conference back to Mr. Dusci for closing remarks.
Matt Dusci
Thank you, operator. Thank you, everyone, for joining the call today. Also, I’d like to thank you for your support and stay safe and have a good day.
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