Mineral Resources Limited (OTCPK:MALRF) Q4 2022 Results Conference Call August 28, 2022 8:00 PM ET
Company Participants
Christopher Ellison – MD & Director
Mark Wilson – CFO & Company Secretary
Conference Call Participants
Mitch Ryan – Jefferies
Rahul Anand – Morgan Stanley
Glyn Lawcock – Barrenjoey
Paul Young – Goldman Sachs
Matt Frydman – MST Financial
Hayden Bairstow – Macquarie
Lyndon Fagan – JPMorgan
Christopher Ellison
Good morning, everyone. Welcome. Thanks for joining us at our Full Year Results Presentation. I think James would like me to mention that anything we say or do here won’t be taken down and evidence and used against us. What we’re after James isn’t that don’t take anything too serious. We’ve made a little movie up, actually, we’ve made two. We’ve got a little movie we want to show you now.
So, we’ll let you run through that. Then I’m going to tell you what we’ve been doing over the last 12 months. And Mark’s going to share with us a detailed run through on financials. And then I’m going to tell you where I’m taking the business over the next two to five years. And then, we’ll have some Q&A. So should we roll the movie.
[Audio/Video Presentation]
Pretty amazing, all those people. All those sites you just saw, they’re all ours. Just quite incredible because on July 1st, this year was our 30th anniversary, I started MinRes, in the lounge of my house, my rented house, just over 30 years ago. I had $10,000 cash in the bank and a credit card they forgot to take off me. And we listed in 2006 with a market cap of about 100 mil, and we’ve just gotten into the ASX50, and we’ve got a bit market cap of about we did have on Friday of about $12.5 billion. So I mean, a little business has come a long way. And it’s got an incredible future ahead of it.
We’ve done some milestones over the years, and the one that’s just passed is probably one of our busiest ever. I mean, when you look at that and think shit, did we get all that done, and we run the business. And we did. So look, I’m going to, I’ll be as quick as I can. I’ll run you through the performance of the business over the last 12 months. I want to talk about where we’re going over the next five years. It’s really important. I mean, it’s not where we hope to be going through, we’re actually going we got most of its pretty much locked in. And at the end, we’ll spend a bit of time on no Q&A, if it’s anything I haven’t really explained to you as properly.
So highlights in the business, we’ve had just over 1 billion EBITDA, second best performance that we’ve had financially. We got about 2.5 billion cash at the bank. We did a bond raising with JPMorgan over in the U.S. earlier in the year. We got our timing right on that very happy to have that done. We’re going to pay a dividend for this financial year of $1. We didn’t pay anything in the first half, but we’re more or less holding back to make sure that we got our bond racing done. We understood where we’re going on our funding and we had everything in place. So we think we can afford to give our shareholders $1 a share.
We restructured the business over the last 12 months which had been substantial. I spent almost 30 years trying to make sure I had a fully integrated business when no silos in it. And I’ve now got four main operating pillars sitting in the business and we brought in some extra help to make sure that they’re all self-managed, that’s gone incredibly well. We’ve got — we’ve done that because over the next five years, the business is going to grow significantly.
So Commodities part of MinRes over the next two years will at least double. The Mining Services part of the business over the next five years will double and then some — so getting a much more difficult creature to manage, but we’re just going about doing that in a different way. Some of the other highlights in terms of BD business development, without doubt our best period ever, I mean, we’ve been working on some things for a number of years, but we’ve just got a whole lot of things to come together over the last 12 months.
The Mining Services part of the business always performs pretty well. We are the premium mining services business in the country. If you got MinRes on the job, I mean, you’re going to get your tons done every day, whether it’s mining, crushing or running process plants, or some of the innovation we brought online lately. We’re well known for delivering, and not just delivering the way we deliver with the culture that we have. Some of their major clients tell us, they monitor our productivity. We’re generally sitting 30% to 40% above our clients and that’s just because the nature of the biz, the culture that we have in that business.
We’ve got some really good innovation. We’ve brought into the Mining Services. We’ve got these big tracks. We have really killed the price of inland haulage. We’ve got it down to a number that’s getting closer to owning trains without the capital cost, and we’ve established a marine business. And as I said earlier, we are currently out there. We’re building four trains shippers. There will be a fifth one that we’re going into the order lineup shortly.
On the lithium front, again, it has been a pretty good year for us on lithium. Wodgina is back online. We’re cranking up trains 1 and 2, both them are running now. We restructured completely the Albemarle deal, which I’ll tell you about. And we’re doubling production down at Mt Marion. So we’re going from 450,000 to 900,000 tons. They are mixed tons, which I’ll talk about as well.
The iron ore, we have got as of Friday night just passed. Finally, it’s been — we were talking a little bit earlier, we were heading towards trying to buy that asset about 2013, that’s going to be about 1.25 billion for it. And I’ve now been able to secure the majority of that. And we had FID from all our partners, three great partners in there with Baosteel, POSCO and AMCI. We also were the winners of the last Capesize Carrier berth in Port Hedland. We got a majority share in that given to us. And we use that majority share as currency and then we went and sat down with Hancock and we got a binding deal with them where we are going to put together a port and rail structure for probably the last forever.
And then on the energy front, our fourth arm of the business. We’ve probably got the largest onshore gas discovery sitting up in the Perth Basin. Sustainability, really important, we’ve got to grow our business around people. People are everything to us going forward. They are getting more difficult to get. And even then when you get them, you’ve got to keep them. We’ve developed a fairly amazing work environment in our new Head Office. We’ve only been in it for a couple of months, but it’s already changed the way people view it. The way they behave. We don’t have one single person that wants to work-from-home anymore. It’s fully equipped with the wellness center, medical facilities, a great coffee shop.
We’re serving over 1,000 meals a day in there and there is a choice of probably 30 different meals she can have for lunch is four or five that you can take home at night. So your wife no longer has to cook. She can trade the kitchen and for about $8 a meal, they’ve got a really high quality offering. So we’ve got a large training intake through apprentices, graduate programs, trainees, uni-kids, we’ve got a lot going on that front end, and we’re exceptionally good at what we do when it comes to training. The safety, we’ve got a really strongly entrenched culture in the minerals business. If you have a look at our results, we’re running over 5,000 people, and we’re throwing stones at bits of metal pretty much all day long.
We haven’t had one total recordable injury, sorry, lost time injury over the last 12 months. And our TRIFR rate is that a standard that you’d expect an insurance company to have say, the results we’re getting there are incredible. Most of these results are a direct result of either the culture that we run in the business, in conjunction with all of the training that we do. And we’re very heavy on training, but that’s the result you get out of it. Supporting local indigenous communities is really amped up a lot more over the last couple of years for us, very, very focused and engaged with the traditional landowners around the water on site projects.
In terms of community donations MinRes put nearly $6 million into the community and a different range of donations that we’ve done, about 1.7 billion spend into the local community, and about $10 million spent into the indigenous communities. And that’s going to grow a lot more over the next couple of years. The environment, I think the environment, the mining industry in Western Australia is out there as probably if it’s not the best in the world, it’d be in the top two. I mean, the way that we manage the mining the environment, the land that we’re on, is almost second to none in the world.
I know that we’ve had some bad press over there for blowing up a cave, but you need to remember that that was the way it was done in those days. It is they were fully approved and permitted to do what they’ve done. It’s just that the timing got wrong. We generally, I think, I look over rehab ground that we do. When we walk away from it, it’s genuinely a better state than when we found out that there’s any doubt about that. And we’re doing a lot of work around innovative ways on how we can better use water, we’ve had a lot of success on that we’re using less water now per ton of order processed. And we’re spending quite a bit of money on that going forward. That’s becoming really important.
So if we can get that water usage down, we’re also looking hard. We’ve been working the last couple of years on tailings management, dry stacking and trying to eliminate tailings dams. So we’re hitting all two, I mean, we’re all aiming for a net zero on carbon emissions by 2050. I think the whole world starting to think we can do a whole lot better than that. And we’re trying to look in every area that we can.
We’re using gas and solar to transition away from diesel. So our focus has been for a couple of years on getting out of burning diesel wherever we can. We’re installing solar, solar is a good friend for us in the regions that we live in. So we can certainly create a lot of power during sunlight hours. And then we’re looking at wherever we can, we’re heading down the path of going electric so that we can reduce emissions.
The big haul trucks that were running it Onslow, we’re confident by 2025. We’ll have them all running electric and that’ll get rid of about 120 kilotons of carbon out of the atmosphere. The one manner solar that we put up there got rid of 1,800 tons out of the atmosphere. Our new head office already is totally carbon neutral. So wherever we can in those areas, we’re working pretty hard to make sure that we can get the right outcomes.
So look, I’m going to pass over to Mark to talk to you about financials and then I’ll come back to you as well.
Mark Wilson
Thanks, Chris, and good morning, everybody. Apologies, if I sound a bit croaky. It’s a pleasure to be here this morning to walk you through the financial results for the group for FY ’22. As Chris said, it’s been a huge year for the business in many ways. From a financial perspective, it’s been a year of two halves for us. First half was a challenging year financially, challenging period financially with steep decline in iron ore prices, widening discounts and increased costs, particularly in the shipping. We took steps to cut production in Uganda to remove high cost tons and worked to preserve capital by targeting CapEx.
Second half was very different. We saw the emergence of lithium as a real generating powerhouse for us. We expect that to contribute into the future. We saw lithium driven by higher prices and first contributions from hydroxide sales, which we’ll talk about. Plant stabilized through the period and discounts tightened. And as Chris said, in the second half, we took steps to strengthen the balance sheet with the debt rise to help make sure we’re well placed to fund the growth in front of us. So in summary, we’re in a strong position, strong balance sheet with great liquidity ready to deliver all these opportunities in front of us.
In terms of the underlying P&L, as Chris said, underlying EBITDA was 1.024 billion. A strong performance for us from where we were at the end of the first half. It was driven by record contributions from lithium 585 million, mining services 333 million, both very strong. Iron ore rebounded from a loss in the first half to contribute 64 million. We did see considerable cost pressures through the year until I’ll talk about that when we get to the guidance section, but the costs did land within the guidance that we’d provided. Overall, solid performance and as Chris said, gave us the confidence to declare our, the board to declare a $1 fully franked dividend.
In terms of the next slide, you’ll see a bridge that shows how the year looks compared to the prior year. You can see from that graph, the significant impact the fall and iron ore price had on us about 1.4 billion offset to an extent by spodumene prices rising that $400 million benefit for us, overall adjusting for pricing and so on underlying performance of the group’s or about 9% growth, through improved volumes and so on.
In terms of the cash flow, historically, the group’s had a very strong record of converting EBITDA to cash. This year, we saw an increase in working capital which I’ll step through on a little bit more detail shortly. So we converted about 60%, 62% of the EBITDA into cash in the period. The tax and dividends that you see there on that slide referenced 2021 and we’ve invested about $800 million in CapEx of the year. We’ll talk through that in a bit more detail. And you can see the impact of the bond raising and the cash flow of course.
In terms of the working capital movement, just to explain this a little bit better, we saw an increase in working capital required of about 404 million in the year. Three quarters of that tied up in receivables and of that spod — sorry, half of the lithium receivable is spod and that’s about spodumene. That’s the shipments of spodumene right at the end of the period. So that’s a sign of the increased. Working capital demands of the higher price in podumene, including drop on earlier shipments. And there is $223 million worth of lithium hydroxide receivables at the end of the year and that ties to the commercial arrangements we have with Gangfeng through the conversion of that hydroxide.
In terms of the capital expenditure, of the $800 million, $431 million of its referable to investment in growth for the future. You can see in this slide that, the breadth of activity that we have across different categories, the recommencement of operations at Wodgina, continued expansion of growth and new opportunities in iron ore as well as Onslow. Chris said that we’ve started there, we have. Mining Services continued investment there and the investment in the office, not just in the office, but we’ve also started to invest more heavily in technology and moving towards the implementation of an AIP.
In terms of the balance sheet, balance sheet with solid position, closing cash of $2.4 million, undrawn facilities on top of that, borrowing sitting at $3.1 million, following the new notes offering. Overall, I’m comfortable with the way the balance sheet shapes up, but leaves us in great position to be able to move forward and deliver on the opportunities in front of us. Just note that there is — we’re playing with the numbers. There is a non-current payable of just under $200 million, that’s part of the deal for the Red Hill deferred consideration effectively on the Red Hill line, JV tenements.
Net debt. So this is only the third time in the last 10 years that we’ve in net debt balanced out. So historically, we’ve been conservative. We’ve been happy to sit net cash. Where we see opportunity to invest, we will and we have. Last time, we went and it did was 2019 when we funded the lithium expansion. And what we saw then was a rapid transition back into net cash. We’re happy to go net debt where we see good quality assets with long-term horizons. That’s what we see here with strong returns. And we’ve talked consistently and we haven’t changed our view. We want these assets, these investments to deliver a 20% return on invested capital, that’s an after tax return. We haven’t changed that metric.
So we finished the year $700 million net debt. There is more details in the appendices around the credit metrics which remains strong. As we move through this next half and complete this next year, credit metrics will look very strong. And to be frank, that’s why the bond investors were prepared to back us in the middle of a very uncertain debt market a few months ago.
There was a value creation. We like these graphs because we think they tell the story of the business. We focus on return on invested capital. Historically, we have averaged 21% since listening. That focus has helped us to drive operating cash of almost $7 billion, $6.9 billion over that period, that’s allowed us to grow dividends at a rate of 20% per annum. Balance sheets doubled in size over the last five years, and we will continue to do so in coming years. Key thing I want to leave you with. As a thought this morning, though, we’re in great shape to be able to take on what we have in front of us.
In terms of guidance. In terms of iron ore, we’re keeping productions flat. We’re being a little bit more targeted, particularly in the Yilgarn. We’re trying to simplify operations there a little bit, as we start to think about other opportunities down there. In terms of costs, midpoint of our cost guidance is up 14% year-on-year. So we’re seeing that industry wide cost pressures, labor, labor increases cost of retention of people, energy costs, we’re saying cost being passed-through to us by OEMs, on heavy equipment and so on.
In terms of lithium, as Chris said, significant ramp up of production ahead of us with Marion, targeting to a run rate of 900,000 by the end of this year. Costs at Marion are going to be in line with where they were last year, and that’s showing the benefit of improved scale. Wodgina, we were giving guidance there on the basis of a 50% share in the asset, just note that we haven’t moved legally to that point. But you’ll see that detail and Chris will get to cost there are high and that’s just showing the ramp up at Wodgina with lower scale. Life of mine Wodgina is probably 20% cheaper than Marion to mine to operate.
We haven’t provided hydroxide guidance at this time because we’re still working on finalizing the long-term downstream arrangements. And Kemerton hasn’t yet reached commercial production. In terms of mining services expect those volumes to remain steady over this next this current year FY ’23. There’s a capital expenditure guidance debated whether to round some of these numbers up because they look very precise. But anyway, about $2 billion this year, 70% of it’s with Onslow Iron, that’s the spin, that’s underway now, with fid taken on Friday night and the binding term sheet entered into will be accelerating that in the months ahead, the team already.
Some growth spend in lithium. Notably, we’ve set aside about $100 million to do more drilling in energy. We think there’s a huge opportunity there. Chris will talk about that in more detail. But the payoffs already been huge and we just see enormous opportunity in the tournaments that we have. So in summary, we’re in good shape heading into this New Year. The combination of those numbers that you see in the guidance will give you a good outcome in the current year. Balance sheet is in great position to be able to help us fund the opportunities in front of us.
Thanks everybody. I’ll hand back now to Chris.
Christopher Ellison
Pardon Mark. Thanks for that. So I’ll just give you a little bit of rundown on what we’ve done over the last 12 months from an operational point of view. For those who aren’t really familiar with the Mineral’s business, with sort of running for four key parts pillars to our business, so we got mining services, lithium iron ore and energy. The mining services are part of the business, that’s sort of where we started. That’s sort of the heart and soul of us. It’s where we stay agile and productive. It means that we use those skill sets and we can find deals.
We can move on very quickly. We’ve got good analytical people in our business. We know what we’re doing and we generally get it right. We run mining services generally across we started in crushing, we do crushing, processing, flotation. We also run mining fleets in specialized areas, we’re not real big on that unless it’s one of our key clients, where they’re looking to get productivity and they’re willing to pay for our services and we have a number them. And we have this very unique build and operate model that a lot of tried to replicate and copy around Australia of the last 20 or so years.
And they just for some reason haven’t really been able to nail it and get it. So it’s a little bit like the bindings model for summary, we must have some trick in there that they can’t see. But it produces a very long-term annuity cash flow, incredibly reliable business. Every time I look at doing something out there whether it’d be a joint venture or going and doing a deal where we’re mining, I’m forever looking at where the mining services part of that deal is because each part of it has to have that mining services for us to make our model work.
Lithium, we’re in the top five global producers, we’re going to do better than that over the next couple of years. We’ll get bigger and better. We have got two of the most significant hard-rock deposits on the planet. And I think that as time goes by people will really get to realize what it means to have a Tier 1 mine, even more importantly, sitting in a Tier 1 location. So, Tier 1 locations don’t exist, for example, in Africa, they don’t exist in parts of Europe, this short shutdown exists down in South America because you can own those assets and your ownership can change and the rates change. So we’re very fortunate that ours right here and in WA.
So we’re progressing also in that area on the lithium. All of the spots that we produce, we’re eventually going to turn it into hydroxide. My well advanced on doing that. Now I can’t talk a lot about that at the moment, but the AGM we’ll be able to give you a lot more news on that. And iron ore, top five producer, we’re transitioning into long life low cost operations. We’re currently running about 20 million tons a year over the next five years. We’re going to move out to 90 million tons a year.
A lot of people ask why have we put money into iron ore? Why don’t you put more into lithium, then the answer is that it’s really simple. We’re going after lithium as hard as we can with securing as much as we can. And whatever we get we can fund but just remember the amount of cash that these iron ore mines they consistently pump out cash decade after decade. I mean they’re an incredibly reliable business and we’re hitting now we finally got a balance sheet we’ll engage develop some iron ore assets that higher cost in terms of the capital we spend but lower intensity burden, good business.
Our energy business, it’s been around for a while, it basically looks after the all the power that we run now it goes out and buys the gas runs the power plants. Where we’re heading now is into a different area. We’ve acquired land over the last few years in the Perth Basin. So the Perth Basin is probably the most unexplored and the most prospective region in Australia for gas. So we got — we’re the largest holder in that region and also in the Carnarvon Basin and so that’s sort of the business in a nutshell. That’s what we do.
Performance in the Mining Services business over the last 12 months, again, it’s been quite exceptional, as road showing out in New York in 2019, we’ve done our first bond. And I said to them that, over the next 2 to 2.5 years, we’re going to double the Mining Services business. And the common theme was that, every time you grow a business that you melt away the margin. So I said, not with us. I mean, we have a unique model. So we’ve doubled that business and then a bit from 2019 through to ’22 and we’ve increased our margins by 14% in doing that. So that’s quite an outstanding achievement.
We’ve had record volumes over the last 12 months. We’ve retained a 100% of our contracts, and we’ve added five new ones. So, they’re always a great performer. We’re running 23 operating plants. Construction division inside our Mining Services business is very strong. The leadership have been in there for 15 to 22 years, leading that business and running it. And they can — time and time again, we can go on, so we can go build a plan at the number that we thought we could do it for because we have got people that know what they’re doing. They’ve recently recommissioned Wodgina trains 1 and 2 and they’re almost there on train 3.
They’re doing the upgrade, obviously down at Mt Marion, and they got a fairly big chore ahead of them. They are spread out right across from the coast to 150,000 Inland and Onslow. And they’re getting ready to crank that up. Haulage part of the business in our Mining Service has been really busy, to develop these big road trains. They’re the largest road trains in the world. Our cost of moving dirt now is under $0.03 per ton per kilometer. And if you have a look at the capital cost of being able to put these things together compared to our heavy haul train system. I mean, these things open up stranded deposits.
So we’ve got about 25 of them running that we’ve developed over the last sort of nine months. Again, there are one-off there the first. Work with Kenworth to develop these big gills to pull them. We’ve actually had one in the yard the other day and we’ve got a hydrogen injection that goes on the side of the engines now. So we basically, from what I understand, we kind of get some water and we sort of inject it in the engine and it gives about a 30% fuel saving already. So we’re working down that path, but big trucks and they can move a lot.
We have also had an organization out of the U.S. working with us for about 18 months. We’ve actually got these big drills now. They’re autonomous, but we’ve still got drivers sitting in them. Over the next 12 months, those drivers will come out and we’ll no longer have cabs in our tracks. So Onslow line will be running Stage 1, about 150 of these big drills. And for that, you need about 550 drivers, so probably over 500 drivers will disappear, obviously, a big saving. But you take the drives out of trucks to the safety that it adds to them just goes to another level as well and consistency in running. So a lot of good work done there.
And also in the Mining Services, we’ve started the Marine Division. We have got the first four of our five train shippers getting built. When we operate the on-site port, it’ll be our lowest cost port, even though we’re running these train shippers, it’ll be lower cost than Esperance, it’ll be lower than Guyana and it’ll be much, much lower than what we’re running out of Port Hedland. So good result for us.
Commodities on lithium has performed well as you can see the average price of lithium going back a year ago. It is about $1,600 a ton for spot. And hydroxide was up to about 22,000 a ton. Today, realistically, round about 6,000 a ton for a ton of spodumene, I mean 6% and we’re getting on all the tons we’re selling on hydroxide we’re getting plus 70,000 U.S. a ton. I think last quarter, we averaged about 77. So numbers are in good shape.
All of the hydroxide — sorry, all of our off-take now coming out of Mt. Marion as of February, we’re converting that into hydroxide. And we’re doing that with the help of our friends from Gangfeng, who were told trading for us up in China, and come to a really great commercial arrangement. I’ve got to acknowledge Gangfeng had been just a great partner from day one and very easy to work with.
So the Wodgina restarts gone well, one until a running first shipment of spod went out in July for conversion over in China. The conversions the responsibility of Albemarle, so what we’re doing is we’re buying and building plants and as quickly as we can, we want to be able to convert all of our hydroxide or spod that comes out of Wodgina over the years into hydroxide. Iron ore, we’ve had record tons 19.2 million shipped, up 11%. Pricing has been challenging. If we go back a year and a bit ago, we were selling it like it was gold. Within about 69 days, we had the greatest crash in history of iron ore.
So we went back to work, we thought on the verge of retirement, but the price disappeared from underneath. And then it’s sort of been up again and down. But it’s okay the way it is. I mean, if it hangs in the way it is, we’ll be happy. I don’t think we’re going to see it getting back down around the $80 level, I shouldn’t prejudice by say up. I don’t think it will. I mean there is a lot of challenges out there on the supply side at the moment. So there’s not as much iron ore running around the market as everyone perceives.
Berth 3, so I’ve said earlier, great achievement, we’ve given that by the WA Government, we converted that into a binding agreement on its supply chain with Hancock, so that’s gone really well. And the early works have started on Onslow and in fact we’re getting into that in earnest. Energy, how do we go on energy, we doubled our landholding was attend to come out. So we had large land holdings in the Perth Basin. And we just went up and doubled it, we won the tender convincingly. And since then, every gas company in the countries approached us about being our partner.
And the second thing we’ve done is we just got lucky. We’ve got some very talented people that looked at all the land and figured out if we drill a hole four and a quarters deep, we should add gas. And we did we spent $15 million, and we’ve hit what they believe is the largest onshore discovery in Australia. There’s no doubt, there’s a lot of gas down there. We’ve got a lot of work to do on that. We’re doing it now doing tests work.
So more to happen down there, we think that we can bring our Red Gully plant that we’ve had in [north poles], bring that back into line over the next couple of years, And we’ve got a lot more work to do up in the Carnarvon Basin as well. So that’s the year that’s been, where are we heading over the next five years. We’ve got some projects that are locked in we’ve got some great opportunities sitting in the beauty lineup. The first one that we’re looking at obviously is Onslow.
To be able to do what we’re going to do over the next five years it’s a people thing. It’s not about money, I mean, we can get money, it’s not getting great opportunities, we’ve got all of those sitting and it’s purely people. So in the next five years, we’re going to go from 20 million to 90 million ton of iron ore production. In two years, we’ll be at 50 million ton. We’re going to go over 100,000 tons of hydroxide production in our own right.
Mining services, it’ll more than double. I mean, if you just have a look at what we got locked away at the moment, I mean, we’re adding three major mining services contracts out of the Onslow region and crushing tracking trend shipping. We’ve got the supply chain from Marillana mine site to ship through Port Hedland. So huge numbers, we’re going to be doing their 30 to 40 year contracts.
And the thing that we need the most out of all of that is we got to get people, we got to get them through the door. We got to do it in the right way and we got to make sure we get that retention. And we’re going to go to — we have already started, we’re going to a different level than anyone’s gone to in the mining industry, we’re going to be really innovative with this. When you walk into our Head Office, you’ll think we’ve lost the plot, but about two minutes later you go this is the place you’d want to work.
We don’t have anyone that wants to work from home. They all want to come to work. They love the experience. We’re going to carry that forward into our camp. So typically a room in a camp is about 12 square meters when we build on so, it’s going to be about 30 square meters, plus on suite, plus laundry, plus a balcony with a barbecue on the front of it. So, we’re looking at, how do we get people to go there from a different area that we’ve recruited from, we’re looking for couples, boyfriend, girlfriend, husbands, wives.
I mean, if the husband’s a mechanic and the wife wants to do something, in about eight weeks, we can put her through a training course. And we can give her a job for about 120 grand to 140 grand a year. And they can live there as a couple, they can do one on one off for two weeks on two off. So, we’re going to have a whole range of different opportunities to bring people to site. Young people can go out there and earn some good cash, go buy a house. Older folk can go out there and just make sure that they really secure their retirement.
So I also want to get away from this thing you know where the guys walk in the camp, they hang up their hobnail boots, they dominate the wet mess, they drink piss, they throw darts. Here we’re going to have Olympic-sized pools in the camps, we’re going to have restaurants, we’re going to have taverns, very small taverns, we’re going to have a lot of training on site, we’re going to get involved in sport, all those sorts of things. So my concern is mental health, safety of our female population, so I’m going to create a community, not a single man’s quarters.
So community is going to be full of couples, it’s going to have a very different atmosphere. And we get some pretty average press on the safety of our women in our camps, our women and our camps are safe, they always have been. I can’t guarantee it 100% when you consider the communities they’re coming out of, they’re not safer. So they’re much safer on my mine site than anywhere, but we’re going to multiply that up.
So I just want to let everyone know that you know, a typical room that I would have spent $40,000 on last week, I’m probably going to spend $120 on now. So it’s going to be three times the cost. But if you knew the cost of losing people and not having retention in your workforce, and the missed opportunity on production is pitting — sorry, the room costs and what we’re doing the camps and absolute pitons to where we’re going. So I’ll explain that a little bit more shortly. So I wanted just to be prepared for that because it’s really important.
So, operations where we are going over the next five years, iron ore, Utah Point, it’s pretty much going be business as usual. We’re going to run about 11 million ton out of the year. It’s coming out one manner in Iron Valley. Later down the track in years, the camp will probably open up Lamb Creek and Wedge. There are other opportunities out there for us. But as long as that Utah Point thing makes money, I’ll keep it running. It doesn’t make a heap of beans. It’s a high cost operation, but it’s like a cat with nine lives that just keep surviving. So as long as it does, so I’ll keep doing that.
The Yilgarn, again, it’s sort of high cost we’re running. We’re going to be running about 7 million ton a year down there for the next four years. We’re running hematite out of there. It’s challenging again, it’s 15 pits that we’re running, North to South, they spread over 200 kilometers. So, we’re bringing them into a central hub, processing them, and then we’re shipping them about 600,000 South to Esperance on rail. Where we are going with the Uganda and the upside and that is, we have got an awful lot of magnetite down there.
So, I’m going to transition out of the hematite over the next three to four years and it’ll be a full on magnetite operation. I can see us getting to a good solid 15 million tons of magnetite coming out of there, about 67% if it’s up the top of where you want to be in terms of quality. And then if you combine that with where we are going with gas. I mean, we’ll have gas. It’s probably going to cost us about $1 a gigajoule.
I want to be able to get power down there. I’ve got the lowest cost gas in the world. If I can pelletize my magnetite, it’s a much greener product, it’s dust free and it’s going to go to places like Korea and Japan into specialty mills. So I can see a 30 year plus operation in that and we’ve already got a great supply chain. So that’s where I’ll be going with that. It’s one that all may certainly happen.
The Pilbara hub. So As I said earlier, we won the right to develop the Southwest Creek Berth. We’ve married in with Hancock. And we’ve got the approval process is running. We’ve got a binding agreement with them. We’re going to develop a 40 million ton supply chain up there, rail and port. Great partners. We’ve known Hancock for a long time. They’re an exceptionally good organization to work for with high quality people. So that’s going to be a great opportunity. We are going to develop Marillana, it’s 50-50 between MinRes and Brockman.
And we’ll haul that down and put it into ships. It’s about a 30 year mine life, 20 million ton run rate, about 60.5% ore, so good product. About two years to do the development and get the approvals done and then about another 2 to 2.5 years to go do the build, so no real money to spend there until after the Ashburton sort of in operation. So a bit more detail here around the Ashburton.
As I said finally on Friday night after many years, and I’d hate to thank how many thousand a man hours I’ve put into this. But this is the toughest joint venture deal I’ve ever, ever put together, but it’s three good partners, POSCO, AMCI and Baowu from China. So, we’ve got good partners in there. It’s transformational. It’s low risk. It’s a long, long term project. There is over 3 billion tons of ore out in that region.
We’ll be there for a long time, Stage 1, 30 million ton design. All of the equipment we are putting in there has the capability of doing about 35 million, 36 million. It’ll do 35 million dollars when it’s running. Stage 2, we can easily kick it up to 55 million without spending a heap of beans. So the project has been structured, where MinRes are the managers. They’re the manager of everything.
So, we’re the managers of providing the funding, design, build it. And then once it’s built, we’re the operators. So in terms of funding that we got went from 40% to 57% of the project. The project pays that money back to us out of cash flow. We’ve got a formula in there how we could so we get that money back relatively quickly. And then we got another 3.3% shareholding through our ownership in Aquila.
So, the way we’ve broken this up is we’ve got what we call Mineco. Mineco is owned by the JV. Mineco owns the iron ore, the tenements, the pit, everything inside the gate with the miners, the camp the airstrip. We operate that when the all goes through the gate, it goes down privately owned haul road into Onslow into storage and onto a trend shipping wharf. All of that’s the Infraco that’s owned 100% by MinRes. We charge a unit rate for the use of that forever.
And then the third part of it is that we got three mining services contracts, actually for we’ve got the crushing, the haulage, we’ve got the port management, and then we got the train shipping. So in a nutshell, it’s got all of the recipe that MinRes like we’ve got the management control of it, we’re going to get this thing built fast, we’re going to be efficient. We’ve got the mining services carved out of it. And the reason that the mining services, it adds a huge benefit to our clients. It’s not like we go and make our magic which we do. But no one else has got a next gen plan for us to go and put one of our plants on site.
Capital cost of putting our plant there is about a third of putting the traditional plant that reflects in the right. Yes, we make good profit and make no excuse for that. But also our client gets it for a lesser cost than they can get it for otherwise. The trucks without the trucks in the trench shippers this project would never go. So it didn’t, it couldn’t afford the traditional cape carrier berth, 20 miles a dredging and heavy haul rail. It can stand this. So, we bring a lot of benefit to our joint venture partners. And yes, we do, we always make money in our mining services. And we’re proud of the margin that we make. We just don’t like to share it.
So look just a brief central hub 150,000 Inland the central hub. The main feeder pits, is going to be kids born there that’s where we put everything. We put one of these resorts style camps, an airport right beside the camp. The cost of Mineco we’ve got a number of gates that fixed price for us to do that $1.3 billion. As I said, MinRes is funded and the money comes back out of the surplus out of the iron ore and the mine cost more MinRes operating costs or sorry — the cost of iron ore. FOB Onslow is about $32 AUD a ton. That is inclusive of the memories mining services margins as well. So, take note of that.
Baowu have given a commitment they want to market at least 50% of MinRes share of the iron ore and they’ve got an option over another 25% of it. So I think, I’ll most likely do that. And I’m more than happy for Baowu to be hauling all our dirt into China for the next 50 years. Mining Services, I think you got a good grip of that. The infrastructure as I said, we own it forever. We charge a fixed rate per ton.
Same with the Mining Services, it’s based on charging a fixed rate based on 30 million tons. If I do 35, 36, even up to 55, I still charge the same rate. Under normal conditions, those rates diminish. In this case, they don’t. Same with the infrastructure, I mean, I charge that for, as many times it goes over the road, and I charge it for the next whatever 100 years, so another great asset for us to own.
Total projects about a $3 billion spend. Capital intensity is about $65, U.S. a ton, but that kind of includes everything, a good solid 20% internal rate of return, if the price of iron ore, the indices is around 75.
So energy, getting towards the end, we’ve got a lot of gas. And it’s going to be a very substantial earner for men raise going forward. I mean, I think there’s a lot of opportunity out there and what we can do with it, there’s opportunities to convert it into LNG. Personally, I’m a strong believer that I think gas is going to be around in the market for the next 40 or 50 years. I think a lot of people have forgotten that.
We certainly want to get rid of carbon out of the atmosphere, but it’s got to be staged. And so a lot of third world countries out there that can’t stop using coal, for example, if they stop using coal, they’ll freeze they’ll die. They don’t have the capital. I mean, it’s like Australia, when we were before we came a first world country, we went out there, we burned coal, we chopped down all the trees and burned everything that we could and then we become first world. And now, we’re really, really good people. But to get here, it gets here at a cost.
So I think coal is going to be burned for decades to come. I think the world’s trying to get rid of it. But it’s a long way down the track. I think gas is a transitional fuel. And I think that we’re going to use gas for our own power. Obviously, we’re probably going to use gas if we can convert it to LNG and go sell it. And we’re certainly going to do down streaming wherever we can where we add value.
So, I think we’ll end up with 40 or 50 years of gas up on that Perth Basin. We’re going to put about $100 million worth of holes down over the next 12 months and go find some more that Lockyer Deep is no doubt it’s a large deposit. We think we’re probably going to bring that Red Gully plant that we got up there we inherited. We’ll bring that back online in the next couple of years, and we’ve got a lot of work to do up there.
Lithium. Just a few notes on lithium. The governments generally are putting policies in place around the world. And they really want electric vehicles to be a large part of the transition away from all the nasty fuels that we’re burning. It’s going to be a game changer. They’re already well on the way in the last couple of years. We’ve just seen them going from a couple of car companies doing electric cars to pretty much everyone. If you’re not building electric cars, you’re probably not going to stay in business long.
The global car companies are definitely responding. They’re targeting to have at least 60 million EVs by about 2030. They’re always understating the number of cars they need on the road, the amount of power storage as needed about every quarter. There’s new numbers that come out. We identified back in 2010 that lithium was certainly going to be a metal of the future. And it’s going to have an important place in the world. There is no alternative lithium at the moment, and it can’t be replaced. It’s one of the few commodities out there that has got really good visibility and it’s I don’t understand with a lot of the analysts.
I mean, if you get your a little thing called Google, you can get on there and it will tell you, how many cars they are going to make this year, next year and the year after. And they’ll tell you where the producers are with rock and brine. It’s not a hard equation. But we’re in supply deficit at the moment and it feels like it’s going to stay there through to at least 2030. The hard rock is probably the better source of lithium. I think generally speaking, the battery manufacturers get much more power retention in the hard rock batteries and the best place to find it in the world is in WA. We’ve got nice stuff. Let’s say, we’re in a good spot.
The price outlook for it. And again, I read that article a few weeks ago from Goldman Sachs and you just got to wonder what they were smoking. But if you have a look at this chart here, that’s us. If you’re down in the black and your own rock and the ground, you’re God. If you’re in that other space and you don’t own your rock, you literally, you’re screwed by us. And it’s a really good place to be. I mean, I haven’t been there very often. I’ve been on the other end. But right now, I feel really, really good about this.
So in simple math, you need about 7 ton of hydroxide of spodumene to make a ton of hydroxide, around 6%. It currently sells at the moment for about $6,500 a ton, do the math. Chuck about another $4,500, $5,000 at that for reagents, labor and capital. And that’s what it cost you to make a ton of hydroxide. So, over half the hydroxide around the world is made by people that don’t own rock in the ground. So, if I go to what the analysts say, the long-term consensus price outlook for hydroxide, is it $16,500 a ton? That means that all those guys in the blue are out of business. That means there is a huge supply problem. I like it.
Again, we’re in the right place at the right time. So I just think that, you have a look at California coming out of the blue last week and said by 2035, no more combustion engines on the road. And you go, yes, that’s sensible, but none of that is factored into the numbers that people are looking at in terms of where the supply is coming from. So look, I just think I’m not trying to pump our tires up, but I just think we are in a really, really good place. We’ve got great lithium, great partners. Both partners know how to make hydroxide and they’re making it. So I’m very hopeful that we’re going to do a lot of good things with this part of the business.
Mt Marion asset. It’s a great asset. We have been down there since 2010. We own half it. We designed it. We built it. We’ve got a great partner in Gangfeng. We’re doubling production down there at the moment. We’re going to 900,000 tons. It’s mixed grade. So what we do is that, we scavenge every last bit of lithium out of the product. So it’s not all 6%. But if you went 900,000 tons, factor it back to 600,000 tons of 6% equivalent. We’re spending $120 million there on just on improvement on recoveries and we are just growing the plant and growing the camp. So about $120 million, it gives us an awful lot of white powder and it’s a great return. So all our share of that goes into hydroxide up in China and we sell it.
Finally, MARBL and MARBL joint venture, that’s a JV between MinRes and Albemarle, they decided to call it MARBL, which is a mixture of MIN and ILB, nothing difficult with that. So we’ve just restructured that JV. So what it means now is on the Wodgina site, we’ve gone back to a 50/50 joint venture MinRes run the mine. We run the whole process up there, with throttle back from Kemerton from 45 to 15. And then we are jointly funding all the future development going forward in terms of hydroxide. We’re looking at a couple of plants offshore, buying one and building one, well advanced, that’s all on hand and started. The one that I’m very keen on, I want to build Wodgina, and I think, I build Wodgina for less than I can build up in Asia.
And we’re about 80% of the way through that study. We’ve done a lot of work on it. And it just makes a lot of common sense. If I can get it for the same capital cost here in Australia at Wodgina, I’ve got the cheapest power in the world, we own the gas. I’ve got great water supply, I’ve got total control over the whole thing. It’s a great site. My people go in there, they go in there do two weeks on two off, I’ve got them held total captive. So once they’re on site, I own them, it’s a good place to be. So, we’ll get our costs down fairly low there.
The other thing that we’ve done is that a while back, Albemarle had all the marketing rights, so they could market it to whoever they wanted for whatever price they wanted. So part of the trade down on the sell down on Kemerton was that I want control back of my pricing. So, they’re still going to sell our product, but they sell it under our AI model. So, we have a combined indices that we want them to sell it. So whatever the indices is, on the day, when we load the chip, that’s what they’ll pay very much like iron ore, when you load a ton of iron ore on a ship. It’s that number that’s published.
So what I don’t like to do, I don’t like to hedge any of our commodity or any of our dollar, we just take the price of the day. So I think they’ll ask me what I’m going to do one day when it all turns around and there’s more supply than demand. And I set off do what I always do, I’ll change. But in the meantime, while it’s supplied short, we’re going to take advantage of the price on the way up and I am fairly convinced that I’ve got five to seven years of that.
So Wodgina is probably close on the best deposit out there in the world. It’s open at depth. It’s opened in three directions. We’ve got it back into operation, it’s running well. And as I said, it’s my preference is to build up there. So I mean, it’s just a great asset, that Wodgina we’re probably between now and the end of the middle of next year. It’ll be pumping a lot of product. So our five year plan for lithium. Almost, there it is.
So in about five years, we land at about 118,000 ton of hydroxide. That’s sort of where we’re aiming to get to. And we’re also — we’re looking around the world to make sure, if there’s any other opportunities out there on lithium, we are working. So feel that sort of a minimum of where we’re going to be. I mean, I don’t know where the development of Wodgina ends, but I mean, it can handle another three or four trains on top of what it’s got now with a lot of ease.
So, we’ll see how that develops. We got a joint venture partner, and we bring product on in line with demand. The last part on our electric part of our business, I’ve got a really desire to develop battery manufacturing here in WA I think it’s logical. I think we have all the resources here. And what I really like to do is see how much of the value I can capture. I mean, we can go from, obviously digging rock out of the ground determining and despite and we can turn that into hydroxide, that’s just purely value, adding it to capturing all the value.
I don’t think there’s any risk in us going down the path of manufacturing batteries here, because, again, the one thing that we’ve got that most others don’t have is that we got shortage of supply. So if we own the supplier, we can command the terms and conditions, we’ve got cheap energy in terms of a gas. And I think if we want to create jobs for our kids, it’s really smart that we do it in most of the battery factories. I mean, they’re not overly labor intensive.
But we should be able to make a very high quality battery here. All I have to do is go and get a battery manufacturer to come over here with the technology and a big bag of cash. And we can add shortage of supply. And our vision is to see if we can make that work over the next couple of years. So we’re certainly going to be out there banging the drums with spoke to the government about it and they think that it’s not a bad idea and they’ve very happy to support us.
So, the last page and then I’ll get out of your here. I said earlier, it was our 30th birthday recently. We started in my lounge with $10,000. We’ve gone through the list at about 450 people on the payroll in 2006 and about 100 million market cap. Today, we’ve gone to over 5,000 people were on the ASX50, got a market cap north of $12 billion. Our track record since listing, total assets have gone up 50 times, almost 8 billion. So it’s 30% per annum growth.
21% average return on capital per annum, 7.4 billion and EBITDA we’ve grown that by 25% per annum. No equity raises, so I haven’t watered my shareholders down, haven’t gone out and issue chairs and taken the easy way out, fully franked dividends of growth of about 20%. 30% per annum of total shareholder return. And we’re the best TSR performance on the whole of the ASX and aiming to get to the one spot position.
Over the next two years, our business will double. We’ll get five years out beyond that, I think we’ll probably double it again. So that’s pretty much with what we’ve got in hand with the funding that we’ve got, and the quality of people we got. That’s about as much as I can tell you on where the business is going. So thanks for joining us. And if you got any questions, Mark, join me up here and try and answer anything you’ve got.
Sorry, we got another little video. We’ve got some great people in house that we’re using them for recruitment and all sorts of things. The photographer is Russell James, you may have heard of him. He used to be the guy that photographed all of Victoria’s Secrets all the supermodels around the world. He lives in Perth now and he does our mine sites and videos and they’re doing a lot of work around our branding, which has really done a huge amount for our business.
So, we really want to make sure that we’re a respected company as we go forward as well. The only difference now is we get to keep the clothes on. But I go to say I have been in LA with Russell a couple of times and bumped into Alessandra Ambrosio and Jazelle, and it was not a bad experience. So, roll the video.
[Audio/Video Presentation]
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] I’ll now hand to Mr. Ellison to take questions from the room.
Mitch Ryan
Mitch Ryan from Jefferies. You’ve outlined the long-term strategy for lithium and spodumene, and more specifically from Wodgina. I guess at the fourth quarter, you had produced and shipped tons from Wodgina, but not yet booked those as revenue. Can you give us any update on where those tons are? And if you booked any revenue from at this point in time?
Christopher Ellison
So, there’s a bit of a lag with — when we move into hydroxide. So, we’ve got it from Marion and from Wodgina, get down to the Berth put them on a ship. They’re all heading for China at the moment, and they are getting converted in China. We then have to go and sell that product then we can book the sale. So, it’s quite a lead time. Mark, do you want to add to it?
Mark Wilson
Sure. Thanks, Mitch. The whole logistics chain around moving the spod through China to the coal toll converters that Albemarle is using at this point a little bit slower. So you need to add a few months for that process. And then there is the conversion process. And then, there is the sale process including the logistics of the sale delivery to the customer. And then, there is the payment in terms from the customer to Albemarle. So, it adds months to the process. We will be booking in this after.
Rahul Anand
Rahul Anand, Morgan Stanley. So with the announcement today, I just wanted to check on a couple of things. Firstly, you’ve called it Stage 1. So, I want to touch upon that perhaps. I believe the whole system at the moment will probably be constrained by the haulage on the road. Is that a fair assumption? And what kind of capacity can the port do? Because I’m trying to think about Bungaroo South and Kumina, how those look going forward as well.
Christopher Ellison
Yes, look, the constraint is probably going to be around the train shipping. That will probably be the bottleneck, not hard to add more trucks on the road. I mean we can double the number of trucks on the road very easily. Then we would just have to manage the port storage. I’m thinking to go to from 35 to 55, we’re almost certainly going to have to put more storage in at the port. Because, I mean, we’ve developed this whole thing on the basis that it’s totally dust free.
So, the ore doesn’t see the later date from when it goes in the tracks until it goes into the cape carriers offshore. But look, I think the answer is, there’d be more tracks pretty easy to bring them on mine. It’d be a different crushing plant and a different location. So, we’d be outside against both. The road will easily handle it. Different storage shed probably even different products. So, we want to separate keep them segregated. And then I probably need to add about another 3 train shippers.
Rahul Anand
And just one follow up. In the announcement, there was a mention about Bungaroo South and Kumina last time, which had perhaps the ability to not have to pay royalties. How’s that to be — how’s that going to be going forward? Is that a combined package now and you have to pay the royalty on these assets? Or if you develop them in the future, you don’t have to pay any in?
Christopher Ellison
No, we have to pay the royalties.
Rahul Anand
Okay, it would still be paid. Okay, perfect. Thank you.
Christopher Ellison
We did have a holiday down in that region for 30 million tons. But somewhere down the track, sadly, that runs out. And I haven’t been able to renew it.
Glyn Lawcock
Hi, Chris. It’s Glyn Lawcock at Barrenjoey. Just interested a little bit more, if you could — you’ve mentioned about toll treating downstream through the JV. So, is the downstream 50/50 JV for Wodgina not just going to be through jointly owned or Albemarle owned facilities? I’m just going to be curious, because I assume you can probably ramp Wodgina up faster than you can build downstream conversions, so I’m just I would hedge a little match?
Christopher Ellison
So what’s going to happen is that we’re going to do a combination of buying plants, and upgrading them and building plants. So that’s actually coming into progress. In the meantime, we’re also out there using toll traders. So, we’re obviously upfront, we’re going to be producing more spod than we can treat, because we don’t have the plants for it. And we may look — we may use toll traders long-term so.
Glyn Lawcock
Can you sell spod if you can’t find a toll trader? Or is that…
Christopher Ellison
We have an agreement with them that if we’re producing more spod than we can either toll trade or go put through our plants. We’re going to work it into the market and sell it. Yes, we’ve agreed to do that.
Glyn Lawcock
And train 3 seems to be slipping a little bit. It was sort of like now you’re talking about mid next year. Is that still in line with the decision before Christmas?
Christopher Ellison
Yes. It’s about so train 3 needs more tailings facility storage, more water to come online. We’ve got a double the mining fleet, getting mining fleet nowadays, you just don’t get it up over the counter. It’s about mid next year, when we’ve got all those issues addressed. We’re going to have train 3 commission, I’d say within the next three or four weeks. What we’re going to do is we’ll rotate the train. So at any given time, we’ll have two or three running.
So, there’s, if we need maintenance, like we do on train one, it needs some work done on the Bau mill. So, we’ll put that down and bring train 3 on running just to make sure they’re all match fit, but we just don’t have the downstream capacity that to run all three at once, but we will get there. It’s about eight or nine months away.
Glyn Lawcock
And then just switching to Ashburton or Onslow, maybe you want to call it. Just two quick ones. Just the quality of the product, I think I show 57%, 57.3%. What sort of pricing do you think that’ll attract? What are you expecting?
Christopher Ellison
It’s about — it’s going to average about 58% over the first seven or eight years, the pricing. What do you think the pledge just looking like?
Glyn Lawcock
Is that just going to be sort of sold against the 58 index? Is that what you sort of can probably get that?
Christopher Ellison
Yes.
Glyn Lawcock
Okay. And just dollars per ton on the contracts, you’re going to run out of surprises 140 million tons of more than I thought. Is that a couple of bucks a ton you can clip on that?
Christopher Ellison
Always. We always get our share of that. Are you going to add something, Mark?
Mark Wilson
No, I wasn’t going to add anything to that, Chris.
Unidentified Analyst
Hi Chris and Mark, I’m Paul Young from Goldman Sachs. Good to see you here in person, Chris, and thanks for the publicity during the presentation was appreciated.
Christopher Ellison
Assuming you didn’t write that.
Paul Young
We can talk after. First questions on, just on the joint ventures, first of all, well done getting those three partners aligned on Ashburton, I mean, that took me a long time. I know and they are Tier 1 partners. I’m interested in two things. One is it on the fact that you’re funding your partner share of capital to get it into first production? So I’d love to hear your thoughts or maybe Mark around why that was the case is because Baosteel doesn’t want actually physically put money into Australia at the moment. Is that it? And secondly, with Baosteel taking the off-take, I mean, they clearly interested in this product, and they’re taking 50% of the off-take, and it’s low grade. So just curious about when with your discussions with Baosteel, what is their view on the market? Is this diversification strategy away from the majors? Or is the fact that they see the iron ore market title long run?
Christopher Ellison
No look, on the marketing first, Baosteel because they’re in part of the project, they want to be seen to be able to use that product back in China. But they liked the product simply like it. So they’re going to take. If you take 35 million tons 60% of that’s ours. So they want they want 50% of ours, plus they’ve got an option to take another 25%. And they’re saying that almost certainly we’ll do that. Plus, they take a 100% of their own allocation. So, they’re probably sitting up at about — if they took all of ours, and all of theirs sort of sitting about 82% of the product they’ll take. They like it.
Paul Young
Okay, great. And then just on the funding and how that came about with respect to funding?
Christopher Ellison
The funding was easy. There’s a mechanism in there that said, hey, who funded it got another 78% of the project forever. It was a no brainer. So, we funded it. And we get the funds back fairly quickly when the project goes into operation. The other side of that, too, is that it gives us total control as managers. So, now that it’s approved, we’re in total control, we go out, raise the funds, we have the funds, and we just go build it at our speed, and we don’t have a committee from three joint venture partners overlooking us and giving us approvals to deal with everything. We’ve got it fixed price, which we got it. Pretty much every project we’ve ever built so far, FMG, or Rio Tinto or any of those guys, we always were only interested in doing it on a fixed lump sum. We’re not interested in doing reimbursable.
Paul Young
Thanks, Chris. And then on the gas, pretty unbelievable discovery. It seems you said it’s a largest onshore discovery. So you must have a number, at least a minimum number that that maybe you can point to in that regard. And then some interesting to you and your views around how we get to first resource, the size of it, and then you said you’re being approached by big gas company. So what’s your thoughts high level around how you monetize this JV?
Christopher Ellison
What I’d like to do basically is, I want to build a gas plant. So we’re looking at it now. We’ve got to do some more development holes around it. So we step those holes out and it’ll grow. At the same time, we are getting our development approvals in place. I’d like to be able to have a gas plant operating there by, let’s say, no longer than ’24. So, the opportunities with that, I like what like beach and that’s where we do it. They’ve got a pretty good deal of wood side. They’ve got capacity to turn gas into LNG, fairly economically. I’m going to power all of our plants that we’ve got. So I shouldn’t be much more than about $1 a gigajoule cost on my own gas internally. I want to be able to turn magnetite into pellets. I mean, that adds a huge amount of value and whatever else.
Paul Young
[indiscernible]
Christopher Ellison
Good question. Need to get a bit more information on it. We were thinking about a 250 terajoule per day plant with sort of day one.
Mark Wilson
We’re looking at a modular design that we can scale up because we know that there is a lot more gas there. This wasn’t the most prospective hole that we dug first.
Unidentified Analyst
Morning, Chris and Mark, thanks very much for the briefing. So just a couple of questions on Wodgina from Matlock-Wirksworth from UBS. So just firstly on your thoughts and your comments around onshore processing, Chris. So I get the gas, but what about reagents and waste handling? And I guess, what are you thinking in terms of timing for when you might look to start construction and ultimately get that capacity up at Wodgina?
Christopher Ellison
So, you’re talking about hydroxide at Wodgina?
Unidentified Analyst
Yes.
Christopher Ellison
Som reagents are fairly simple. We’ll import them all in three port heads under building, lamps in point out there that will facilitate that. All of the waste is pretty much that comes out of these plants is totally in it. We have done a lot of test work on that through what we are doing at Kemerton, and that waste can actually be used for a whole range of different things. Road base is an easy one, so not an issue with that. But the facilities that we got at Wodgina, we’ve got good water out there. We have got a large gas pipeline that comes in. I mean, we’ve got enough gas capacity to be able to fire that thing.
And the good thing about having it at Wodgina means when we control the energy costs for the next 30 to 40 years, we’re not going to get a spike like you’re seeing all over the world at the moment, urea plants anything that’s operating on gas and going out of business because of the cost of energy. So I just think that we got the total package there. And I think it’s in WA. And if we can keep growing downstream in WA, we’re creating jobs and future for our kids, chemical plants that we’re putting kids through uni, I mean, I want somewhere for them to go. So, we could be. In those areas, we may not be the best in the world at making cars. But all of these products that we’re producing, we got to do a lot better than just sell the rock.
Unidentified Analyst
And then just on timing when you have a sense of how that might play out?
Christopher Ellison
I would like to be talking sooner rather than later, because the easy way out to me is, I went and got partners that knew what they’re doing with hydroxide, so I don’t have to take a risk on that. And I’m happy with the partners I’ve got, to do battery manufacturing. We’re just going to go find someone. I mean, and they all I mean, I get calls from car companies regularly because they want majority of supply. I mean and they’re happy to pay market price, they just got to know that they can get it. So, if I can get someone that wants to make batteries and I think we’ll get a bunch of them, they don’t care where they make them as long as they’re guaranteed supply. But I also want them to bring the funding, I think we’d get a free carry on our half of the funding.
Unidentified Analyst
And then just a second one. So going back upstream to spodumene at Wodgina, so 6%, how are you thinking about the balance 6% versus 5.5% for more volume coming through the plant?
Christopher Ellison
We’ve done a lot of work on that. And across both the operations and the dropping it down to about 5.5%, it gives you more lithium unit recovery. So, we sell more lithium units, it’s a better value proposition. So, we will probably eventually head into that direction, we’ve just got to make sure that the plants at the other end are adjusted to take it.
Matt Frydman
Good morning, Chris and Mark. Matt Frydman from MST here. Couple of questions. Firstly, on the Mining Services business, regarding to flat mining services volumes year-on-year, which I guess is a little bit different to some of your prior overarching guidance of volume growth in that business. I’m wondering, if you can get give a bit more detail on some of the moving parts there? I noticed internally, you got into lower sales from the Yilgarn, which is obviously a pretty important driver of at least internal mining services volumes. But maybe there are offsetting factors externally. So wondering, if there are any opportunities for growth in FY ’23, that you see and might be working through but haven’t factored into that guidance or otherwise? What are the key moving parts to that that flight guidance?
Mark Wilson
So, we see significant opportunity externally. As Chris said, there’re some real challenges in the industry at the moment around supply. And because of our agility, we offer a solution that others well, really, there aren’t many other choices. But we have this great record with the majors working with them. So, we see a lot of opportunity externally. The reason you’re saying that overall guidance and the flat is because strips coming off on the projects that we’re working at quite considerably. And as you say, combined with the lower turns out of Yilgarn, we’re saying internal tonnage dropping considerably.
Matt Frydman
Maybe another one for you. Wondering how you think about the right level of gearing or debt on the balance sheet. If we look forward to FY ’23, spending $2 billion on CapEx, that’s without any new conversion assets in the MARBL JV. It does seem like gearing will start to creep up, even if you’re operating cash flows are pretty strong. So just broadly, what level of debt or gearing are you guys comfortable with? And where would you have to start considering the timing of projects or the timing of spend, if you reached a certain threshold?
Mark Wilson
We finished the year about 3 times, 3.1 times on gross debt to EBITDA and that was including six months of almost no EBITDA. When as I said earlier, when we run the full 12 months and even on a rolling 12-month basis by December, that ratio is going to come down significantly. We feel very comfortable with the quality of the assets that we have and the ability to deliver quickly with them to be able to hold this debt. We don’t anticipate needing to go and raise further debt at this point.
Operator
Thank you. Your first, final question comes from Hayden Bairstow from Macquarie.
Hayden Bairstow
A couple from me. Chris, just on iron ore business. Just keen to understand you sort of talked about the availability of mining fleet, you’ve downloaded these assets a little bit on volume. But if we do see weaker iron ore prices, is there options to do that even more aggressively and shift some of the gator Wodgina at around of Iron Valley stuff like that?
Christopher Ellison
Yes, there is. I don’t see that happening Hayden. I mean, the main fleet we’re hunting at the moment is certainly for Wodgina. And we’re going to start gearing up for Onslow Iron as well. And I mean, Onslow Iron has got pretty good returns with it. But yes, the answer is, we can easily move around. I mean, if we had to back off on a mine site like Iron Valley, we could easily move that and accommodate that into Onslow Iron and probably wouldn’t fit Wodgina. I mean, we’re going for bigger equipment in there.
Hayden Bairstow
Okay great. And on the downstream hydroxide Wodgina, I mean, you’re comfortable, you can convince Albemarle that you can build a much lower cost, and they’ve just delivered at Kemerton?
Christopher Ellison
Hayden, your wife could do that.
Mark Wilson
I think to be fair, Hayden. There was a period of COVID, which impacted quite considerably, right. And I think the supply chain disruptions have had a significant impact on that cost. We don’t expect to have those going forward.
Hayden Bairstow
And just the final one for me. Just on the rest of the sort of downstream within MARBL, I mean, at what point do we think we’ll get clarity on where they might be? I mean, MARBL, actually talked about a fair bit of capacity in China. Is that still the most likely location hurdle? Or is there other part of Southeast Asia as you are looking at?
Christopher Ellison
No, I think our eyes are wide open on a few locations. So we’re not wedded to any particular country. We’re doing a state of I mean, obviously, we’re looking hard at Wodgina at the moment, but we’re also looking at a couple of other regions as well. I mean, labor availability is always a key factor. Cost of energy going forward is always important. But look, there’s probably about four different locations that we are running the rollover right now.
Operator
Thank you. Your next question comes from Lyndon Fagan of JPMorgan. Please go ahead.
Lyndon Fagan
Thanks very much. The first question is just on the toll trading. Obviously, an amazing 30% EBITDA margin there. I’m just wondering, if you could give us some insight into the toll charge itself? Is that a percentage link or is it $1 million charge? I’m just wondering how it changes with price. If prices go down, is it still a 30% margin? Thanks.
Mark Wilson
So Lyndon, are you talking about Mt Marion?
Lyndon Fagan
Yes, that’s right.
Mark Wilson
Yes. So with Mt Marion, as Chris said, we’ve got this wonderful partnership with Gangfeng. And basically, we’ve developed a formula that accommodates the mixed blend of our grades. So, it scales depending on the grade that goes through, and it varies from ship to ship. You’ll see in the new year — sorry in the FY ’23 guidance. We’ve got at higher volumes. We’re capturing more lithium units, as Chris said, but we’re thinking that about 40% of that product will be higher, higher grade. So, you could expect that compared to the first half where we had much lot less high grade that the costs will come down relative to last half. There’s no — there’s no — there’s a combination of dollars and ratio per ton of feed. So there is no simple formula, I can give you. I’m sorry.
Lyndon Fagan
Maybe just to follow up on that. So at a much lower price, is it possible to sort of talk about how the toll margins would look? Just to be able to give us a sense of as everyone’s forecasting lower prices long-term, how would that sort of earnings stream look at a lower price?
Mark Wilson
Everyone except us, we don’t think the prices will be lower long-term.
Lyndon Fagan
Yes.
Mark Wilson
And we think there is compelling reason why that’s the case. But anyway, if you believe your world that they’ll go lower, we still think we are in reasonable space there. The cost of the spod coming down will come down as well. We’ll still be making good margin. The one thing that’s great or one of the many things that’s great about the relationship with Gangfeng is that we can pivot it quickly if we need to.
Lyndon Fagan
Okay, thanks. And then just another question on the Wodgina cost guidance. You mentioned it will be producing at 20% below Mt Marion over the longer-term. But how quickly do those operating costs come down, if we’re looking into ’24 and ’25? Is it — I imagine we’re not instantly below Mt Marion or any sort of color on that would be helpful. Thanks.
Mark Wilson
You can imagine when we’re running 3 trains in steady state, that’s when we’re running at a reasonable indication close to life of mine, plus or minus, depending on the year in the trip. So we need three trains to be running steady state to get to those sorts of numbers. You should expect the numbers to come down there from this half. This is startup half. We’re not capitalizing the costs. So there are inefficiencies. We’ve staffed up at Wodgina to get ready for 3 trains. So we’re carrying overhead and so on up there for that reason. So if you think in those terms that should help.
Christopher Ellison
We’ve got time for one more question.
Lyndon Fagan
Sorry, I was going to sneak another one in. You’re now guiding for 20% of lump at both Utah and Yilgarn. I remember some previous comments around moving away from lump. Is that now — is that unique to FY ’23? Or is it — should we now be thinking about 20% lump going forward? Thanks.
Mark Wilson
I think you can — well, sorry, let me go back. We’ve adapted to meet the market and we have moved the equipment around to be able to flex for the product that’s coming out of the pits. At this stage, you should assume that there is lump going forward.
Lyndon Fagan
Thanks very much.
Christopher Ellison
Thanks. We’ve got time for one and then I’ll hand the floor here and then we’ll have to close it up.
Rahul Anand
Hi, Chris and Mark. Rahul again here from Morgan Stanley. Look, just continuing on that lithium tolling arrangement. How should we think about the longevity really is what I want to touch upon? You’ve obviously got a short-term contract in place right now for Mt. Marion. How are the conversations looking to extend that further with whilst keeping your capital light and being able to extract some of that margin for a long period of time? That’s the first one and I’ll come back with a second.
Christopher Ellison
Okay. So on that, I mean, we’ve got options on that obviously. I mean, we can kick that out for a period of time. We’re just trying to balance that with what’s the longer-term that we want. Do we want to own our own plant or and how long will that take to build? So, we’re just working through that. And we’re working through that with Gangfeng. So, we’ll keep doing what we’re doing. My guess is we’ll keep doing what we’re doing for another couple of years. And in the meantime, we’ll probably go and put something in place and probably jointly with them. That’ll be for the long-term.
Rahul Anand
Okay, that’s very helpful. And then the second one on lithium was around the Wodgina stake. You talked about it briefly in your presentation. How are those conversations progressing? Is there any sort of timeline that you have in terms of converting that the extra 10%?
Christopher Ellison
Yes. I mean, I think it’d be true to say that we’ve got an effective date that we’ve agreed on. And all we’re doing is we’re going through the Albemarle process on getting to binding documentation. It’s tedious, lengthy and detailed.
Rahul Anand
Perfect. Final one, Iron Valley. There was a mention of Lamb Creek and Wedge. I just wanted to know, are you in that area right now? And perhaps getting some times out or that hasn’t been opened up at all and that’s purely in the future?
Christopher Ellison
No, that’s in the future. We’ve been in there and doing our thing, getting ready to do something and there. But it’s a few years away yet, I think, don’t quote me up I think Iron Valley is probably got 70 million or 80 million tons left in it. One mine has still got a lot and there’s some more land at one mine, we’re going to drill out. So, I just added that in because somewhere down the track we’ll probably had one of those, but I wouldn’t see it in the next three or four years.
Operator
Thanks Chris. We’ll wind it up there, if you’ve got some final comments.
Christopher Ellison
Yes, now, look, I appreciate everyone coming along today. I mean, it’s always our businesses can be a little unpredictable. I hope we present and give you as much we give you as much information as we can. I mean, I got a little bit of criticism last AGM about how we’re going to fund things going forward. There is some information that I just can’t put out there. We try and get to the market when whenever the information is available freely.
But I did say then at the time that I mean, you’ve got to trust us a little bit, we brought the business this far that we’re not going to do a whole lot different. We don’t put our balance sheet at risk and we’re pretty good at identifying projects, getting them running and being able to get value out of them. So, we got a better balance sheet now than we’ve ever had. I mean, I think that where we get to with the business over the next two years, especially, it’s going to be really interesting. I mean, I think the next two years will be absolutely defining on where MinRes goes over the next decade or 15 years.
So really critical time we’re in now. And if we get all of the things right that we’ve got. I think it’ll be a great business for a long time to come. So thanks for your interest in our company and obviously passionate about it and passionate about making sure the growth in the in the business is maintained. I think our margins that we’ve had in the past I think we can improve on them. They won’t diminish. They will improve and we’ll continue to get things done.
And we’ll hopefully coming the AGM, I’ll have an awful lot more news for you, and we can get some real numbers out there that you can really work on, so we can appreciate this coming along and thanks very much.
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