Pilbara Minerals Limited (OTCPK:PILBF) Q4 2022 Earnings Conference Call July 28, 2022 2:30 AM ET
Company Participants
Dale Henderson – Managing Director & CEO
Ken Brinsden – Managing Director and CEO
Brian Lynn – CFO
Nicholas Read – Read Corporate
Conference Call Participants
Hayden Bairstow – Macquarie
Timothy Hoff – Canaccord
Dale Henderson
Thank you, Darcy, and good afternoon, everyone. Thank you for those participating on the call and also for the shareholders who have tuning in through the webcast. Within the room today, we’ve got a few of the team. I’ve got Brian Lynn, our CFO; Alex Eastwood, our Chief Commercial Officer and General Counsel. We’ve got Brad Mill, who’s our acting COO; David Hann, our Investor Relations Adviser; Jane Aberdeen, Sustainability Lady; and you also got Ken Brinsden, who needs no introduction; and Nicholas Read from Read Corporate.
Just to start with, firstly to acknowledge is excited take on the role and excited to be taking the baton forward after the amazing work that Ken has done, 6-5 half years of the helm after being an incredible chapter for the company going from the [indiscernible] as we’ve talked about a few times and through that journey just amazing, amazing period from raising the capital, the survival period, the Altura acquisition, the Downstream Joint Venture with POSCO that’s been an incredibly amazing journey for our company.
And Ken has been at the helm steering it across with us the executive team, the Board and the broader team, but it’s just been a monumental chapter and here we are having the most incredible quarter in our history today. So Ken on behalf of the Board, staff, investors and Njamal and all those connected to the business, just wanted to say a big well done and thank you, mate, it’s been incredible and you’ve got the big shoes to fill.
So before we get into any of the detail on the call, I may just like to hand over to you for a few comments to your last quarterly call.
Ken Brinsden
Thanks very much, Dale. Thank you for those kind words, but it’s really been all my pleasure. I consider myself incredibly lucky to have been working with an amazing team of people from those building a mine and operating a mine to the Board, a deeply integrated team dealing with pretty remarkable market conditions with some amazing high, but also a couple of hellish lows, but through that team that we’ve come as far as we have and the business is in great health today. And I have no doubt that, that kind of team, Dale, your team, the Board ensures that the company is in really, really capable hands.
As to the industry, I still no doubt that people underestimate the significance of the battery raw material thematic for the mining industry. And it’s with that, that I’ll be continuing to watch Pilbara incredibly important part in backfilling that demand. And my sense is that Pilbara sits within almost the perfect storm to create an incredible business that becomes larger and larger and more deeply vertically integrated over time. So, well done Dale for taking over and I wish you and the rest of the team all the success for the future. And it’s David Southam finishing up with Mincor, [indiscernible] Ash Barty of the nickel world. Well, I’m going to the leather it’s where triple bypass in the lithium world.
And it’s on that note that I’ll leave you in the guys’ capable hands. So thank you. Thanks to everyone for your participation in our business.
Dale Henderson
Thank you, Ken, I’m not sure there’s a triple bypass but thanks, mate, and well done again to you. So in terms of the call today, we’ll follow the traditional flow we’ve done in the past. I’ll offer a few summary comments and then a deeper dive into ops, then projects and downstream. I’ll then hand to Brian for an update in the finance category. And lastly, to finish a couple of closing comments from myself on the market before we move over to Q&A.
So in a nutshell, the June quarter was a ramp-up quarter. Our production, sales and pricing all on the up, and that’s translated to a huge step up in the balance sheet, just great to see. The market backdrop, of course, has remained solid through the period $30 per kilo on POSCO chemicals. And of course, Pilbara has benefited from that as its translated through to our product pricing.
Within the business, as I said, a strong step-up in production, 56% increase from the previous quarter and a 30% increase year-to-date compared to the prior year. Shipments also very strong, being 127% increase from the previous quarter. Some of that’s explained by the 20,000 tonnes, which moved from March quarter to June quarter. But again, on an annual basis, almost a 30% step up on the previous year. So big volumes stepping up as we ramp up Ngungaju operations.
And in the sort of activities category, a quarter of more mining with the ramp-up of Ngungaju as I mentioned. And it’s also been a quarter we have been contending with COVID, which I appreciate everyone else has as well, but that’s certainly been presenting challenges for the operation and the team. Under the projects category, the big update was the approval of our P680 project, which includes two subcomponents, one the 100,000 incremental step-up, the other being the large integrated Crushing and Ore Sorting Solution, which is pre-investment for the P1000 project.
And sustainability, solar farm is well underway. So it’s great to share a couple of products, showing the progress there. In the downstream category, POSCO is underway, and Ken and Alex actually did a trip a couple of weeks back to check out the progress on that front. So good to see POSCO, our partner moving forward there. And yes, so in a nutshell, a very busy quarter and probably really the highlight is how the balance sheet is going. That step-up in production, coupled with the step-up in pricing translated to a $500 million-plus increase to the balance sheet, $874 million.
And absolutely, we’re, of course, aware we’re accumulating cash at this point. Brilliant to see both uses of cash, obviously, the things that just come to mind the expansion that we just mentioned, the upcoming expansion decision, the P1000, time is for the December quarter. We’ve got the Mid-Stream Project, share buyback, dividend, all of the above are, of course, potential uses of capital, and we expect to provide some guidance on our capital management before the end of the year.
As we think about that capital management plan, considerations within that for management and the Board relate to existing debt instruments. There are some limitations with those around how we can channel funds. Nothing out of the ordinary but there are some considerations around that. And there is considerations around franking credits. Given we don’t have new franking credits at this time, we will start to accrue these commencing next year when we start paying tax. So those are a couple of subpoints which will feed into our capital management plan. And as I say, we’ll update on that before the end of the calendar year.
So moving from the sort of summary comments into deeper dive into operations. The vital signs from a safety perspective, three recordable injuries for the quarter, not great. Translating to TRIFR of increased to 4.4 from 3.5 from the previous quarter. Production, as I mentioned, fairly solid for the quarter with the Ngungaju operation now coming to life, but both parts of the operation in the floats and core circuit.
From a cost perspective, we came in at the low end of our guidance of AUS 648 per dry metric ton. However, those cost pressures remain inflation, supply chain disruptions, et cetera. But I’ll just remind everyone, it was a ramp-up quarter for us. So we, of course, anticipate from an efficiency in that regard. Now Brian will offer a couple more comments around cost, when I hand over to him shortly.
As it relates to product grades, we’ve made — taken an intentional decision and consultation with our customers to start move down the grade curve slightly. The rationale there is all about increasing yield of product to deliver that additional product into what is an insatiable market calling us for more products. So we’re happy to answer that call and increase yield. However, as I say, this has been through close consultation with our customers. Average product grade for the quarter being at 5.4% this year.
Moving to a couple of the key activities in the operation. Mining for the quarter was all about, again, increasing volumes another 20% on the previous quarter, 7.3 million tonnes in the total material moved. The execution model that we have in mining is a combination of owner miner fleet and MACA. So for the COVID challenges, that’s gone okay, but COVID has definitely been an impact for the quarter.
And yes, we had an increase in mined volumes, but we would have liked to have done more. It hasn’t impacted the operation, but it wasn’t as quite a little volumes we were intending for the mine plan. So no massive drama there, but as I said, we would have preferred to move a little bit more for that — for the quarter.
As it relates to the processing plant, bill gain, on plan and happy with how that’s been performing. Ngungaju, as I mentioned earlier, has been really the big focus for the quarter, bringing up that operation and both parts of that operation, and bringing that to life. So to remind everyone, we brought the core circuit on — so just take a step back, the Ngungaju plant comprised of two circuits, the coarse circuit and float circuit. The recommencement plan we pursued was about bringing on coarse circuit early, which we did last year, whilst we undertook construction and upgrade works to the float circuit that was completed and the June quarter was about bringing that float circuit on such that the whole Ngungaju operation was brought back to life.
I’m pleased to say that’s happened. We’re happy with what we’re seeing in terms of the flotation circuit performance ended the month of June, particularly with the month where both of those two subcomponents, circuit subcomponents came to life and we like what we see. And as we look forward into the September quarter, we’re looking to achieve that 580,000 tonnes nameplate at some point during the September quarter as we look to — really into the optimization phase for the circuit 580, 000 tonnes of course, being aggregate across the two plants, Ngungaju and Pilgan.
So that’s completely sort of update. Moving to the projects categories. As I mentioned in my opening remarks, the big milestone for the quarter was the expansion of FID with the two capital subcomponents, being the 100,000 tonnes DMS circuit for the P680 project and the second piece being the large integrated crushing and ore sorting circuit. So great to have that capital project approved. The Board has made it clear to us to drop the clutch and get on with the expansion in this market, it’s money for jam, and we positioned like none other to capitalize on this market. So that’s our plan, and that’s what we’re going to do.
Moving from projects to Downstream, here POSCO well underway. So great to see their focus and our progress is well and truly underway in Gwangyang, building what will be a state-of-the-art plant. And POSCO Pilbara Lithium Solution, the name of the JV. Well, we’re looking forward to becoming a major player in South Korea with that 43,000 tonne Lithium Hydroxide plant. So that really completes sort of the main update categories for the quarter across of the project downstream.
At this point, I’ll hand over to Brian.
Brian Lynn
Great. Thanks very much, Dale, and good afternoon, everyone. My plan is just to give everyone an overview of the pricing and the margins that the business achieved for the quarter, talk a little bit about the cash generation during the quarter and then also a bit of focus on the cost for the business as well.
From a financial point of view, it’s fair to say that the June quarter has been transformational for the company. We had strong sales, strong production volumes, and those together with a positive pricing environment has meant that a strong operating margin has been delivered by the business. Strong operating margin transforms into a high cash balance as well. So that in a nutshell is a summary for the quarter.
In terms of pricing and operating margin, clearly, we’ve had a significant increase in pricing during the quarter. The average price on an SC6 basis was in $4 — just under $4,300 a tonne drop per dry metric tonne, which is a 60 — just over 60% increase on what we achieved for the March quarter. As Dale mentioned, we deliberately targeted lower grade material in response to what the market required and what our customers demanded. And therefore, the average grade of the product that we sold was 5.4% lithia and as a result, there is a pro rata adjustments to the SC65 (ph) price with a realized price for the business of $3,900.
At the Pilgan operation, very strong operating margin as a result of those pricing outcomes. So on the 98,000 tonnes that were produced by the Pilgan plants, a margin per tonne of just over $3,000 a tonne was generated. And on the Ngungaju Plant even though it was still in ramp-up and commissioning, clearly, a lower margin but still fairly significant on the 34,000 tonnes that was produced out of the Ngungaju Plant. So all fairly good operating margins and largely driven by the pricing environment that we find ourselves in.
So good operating margin has shown up in our cash position. So just a reminder to everyone, when we talk about cash, we also include the value of the letters of credit, which attached to shipments that already left and for which subletting (ph) is present because we could if we wanted to draw that down into cash. So the cash balance inclusive of the LC’s (ph) at the end of the June quarter was $874 million, and that’s a significant increase compared to what it was at the end of March. So we had about $590 million increase during the quarter, which is — as I said, which is quite transformational for the business.
So we’ve most of that cash being generated. The cash operating margin at the — from the Pilgan operation was about just over $500 million. The Ngungaju operation, even though it was still in ramp-up and commissioning phase, generated $145 million of cash. We spent about $48 million on capital. Now a lot of that was on the waste movement for mining, about $30 million of that, which is clearly something that we’ve spoken about in the past about the need for us to move more waste to help with the time that we’re sending to the plant, but also to help with the expansion that we’re planning, particularly P680.
And then we also spent some capital on obviously the restart of the Ngungaju Plant, a little bit on getting ready for the P680 project and also some work on the tailings management facility as well. Interest costs took about — just over $3 million of cash out of the business and our corporate and administration function of about $7 million. So that’s largely account for the cash movement of the $590 million I mentioned. And if we look at our position net of debt, we’ve got — we’re a net cash position of about just over $700 million. So clearly, a very strong position.
The other important thing to note during the quarter is that we reached an agreement with our lenders. But under the facility that we have, there is a cash sweep mechanism, which — where we make excess cash — the facility has a sweeping cash back to the lenders. We worked with our lenders to get a waiver on that cash sweep mechanism given the cash that’s been generated from the business. The lenders clearly didn’t want all of the money paid back to them. And so we’ve got a waiver in place now, so we don’t have any cash sweeps going back to land until the end of the calendar year until December, which I think is a good result for the business and provides further flexibility for us.
Just turning to some comments on the unit operating costs. And so when I’m talking about unit operating costs, I’m referring to the Pilgan operations. We’ve always spoken about Pilgan up till now because Ngungaju have been in restart, commissioning and ramp-up, but clearly, that’s going to change as of the September quarter. But for the first of the June quarter, the Pilgan Plant’s unit operating costs, excluding freight and royalties, as Dale mentioned, was about AUD648 a tonne, which is sort of in line with what we achieved in March, but there is a recognition that we did produce more tonnes. So clearly, there has been some cost increases through the business, which I’ll talk a bit more about.
The cost — the unit cost has definitely been impacted by the level of investment that has been going into the mining activity of the business, and this is largely around trying to catch up with some of the waste mining that we had done in past years when the price was obviously causing the business some pressures. And as we also start preparing for the expansion now that we’ve given P680 a tick of approval to proceed with.
But there is certainly has been some challenges that the business faced on costs. Certainly, the operations has been impacted by COVID-19. Particularly during April and May, we certainly saw a lot of absenteeism throughout the business, and that certainly impacted how efficiently we could run our operations. And when you can’t run the operations efficiently, it certainly does have an impact on your unit cost.
Just the extreme pressures in the labor market in the mining sector of WA has certainly affected the business. So the cost of people and just actually trying to retain your people as well as has been a real challenge, both for us as a company as well as our contractors that help us out on site. And we certainly had to have been quite innovative in terms of how we attract people and retain people and those sorts of measures always come at a net extra cost. But clearly, it’s important that we do attract and retain the right people to allow us to produce the volumes to put into the market, given how strong pricing is at the moment.
There’s also just been general inflationary pressures, which I know a lot of other mining companies have been highlighting as well and that’s across the entire cost base. But particularly, we found in the areas of diesel and reagents and consumables, just with the cost of diesel, we’ve essentially had a double whammy during this quarter. We’ve had an increase in the cost of diesel outright.
But then also, there’s been a short-term reduction in the fuel tax rebate, which the government has put in place until the end of the September quarter. And the combination of the high diesel cost and the lower fuel tax rebate has meant that as the cost of our fuel has actually increased by 40% compared to the March quarter. So that’s a fairly significant cost.
If we include freight and royalties in our costs, we — our average cost per tonne was $790 a tonne. So that’s an increase of about $93 a tonne compared to the March quarter. And nearly all of that increase is in the royalty cost. Clearly, the much higher pricing than we’ve been received also translates into higher royalty costs as well. So that’s really explained that difference as well.
And just one final point to make in terms of the unit cost is I mentioned that we haven’t been talking about what the unit cost for Ngungaju operations has been because it’s been a ramp-up and commissioning. But given the level of confidence that we now have on Ngungaju being able to reach nameplate capacity during the September quarter. The plan going ahead is that we will now report a combined unit cost, which is inclusive of both the Pilgan and Ngungaju costs starting from FY ’23.
In relation to guidance for FY ’23, we expect to have more to say on that when we issue our annual results for FY ’22, which is in August. So there’ll be a little bit more around guidance on production, cost and CapEx, when we release our full year results, which will be, I think, in the — around the third week of August.
So that’s everything I wanted to say. I might hand it back to Dale now. And obviously, if there’s any questions, we can follow that later after that. Thank you.
Dale Henderson
Thanks, Brian, I much appreciate it. Just moving to some market commentary from Pilbara’s perspective. Our view is the outlook in the near term to midterm remained strong. And looking outwards, we obviously observe as everyone else does with a strong demand indicate high points being the June sales for EV in China 500,000 tonne plus, great to see.
And of course, we see a widespread of activity throughout the supply chain. Notable mentions across being all of the commitments for the motor company has been on to PowerCo being the new arm of Volkswagen, charged with four elements of raw material supply and battery manufacturer. Impressive to see the move that they are starting to make.
And then our friends and partners POSCO, who in their earnings call the other week, spoke of the KRW6 trillion commitment for the Lithium business before 2030, which is $4.6 billion within lithium, so impressive to see POSCO making giant steps within the industry, and we are delighted to be obviously be partners and effectively in their slipstream as they look to — as I say, make giant steps as they take their position within the industry. So great to see those demand indicators as industry sort of established itself.
Closer to [indiscernible] the other indicators we would share, we remain pressured for tonnes from all corners, whether that’s customers or new inquiry. And of course, the strongest indicator remains what we see through the auctions we’ve done on the BMX platform. The last — well, all of the options remain incredibly strong. And of course, we had a new high watermark in the June quarter with the 7,000 tonnes per dry metric tonne.
SC6 equivalent pricings, great to see the appetite and it just speaks to the gulf, which exists between the existing condition capacity and the shortage of raw material supply and of course, the demand on the other side of that. So we overall feel incredibly positive and we’re well positioned given the circumstances we find ourselves. And so we’re feeling upbeat and looking forward to delivering more tonnes into market.
So lastly to finish just a couple of closing comments. As I said, a very positive ramp-up quarter, both from volume and pricing flowing through to a big step up in the balance sheet that Brian spoke to. Because of the symptomatic of the amazing market dynamic that the Pilbara finds itself in one of five producers is able to deliver into this insatiable market. So production volume, tonnes pricing equals happiness — equals a big step up on the balance sheet.
And from there, it’s really Pilbara’s focus in parallel is keeping busy on those value-add activities I mentioned. The Mid-Stream Project, so I should have added, during the quarter, we were successful in the $20 million grant fund for the demo plants. So big tick in the box for that project, and we’re looking forward to progressing that. The downstream piece with POSCO and the solar farm and the sustainability category, all value adds for the future for Pilbara.
Here we find ourselves as a young company who provide the downturn, incredibly well positioned to capitalize on this amazing market dynamics. Thank you. Special thank you to those shareholders who trusted us and the Board, thank you for backing the team and backing our business. And we look forward to continuing to deliver more strong results in the coming quarters.
So with that, that completes sort of the overview of the quarterly outcomes and I’ll pass back to Darcy for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Hayden Bairstow of Macquarie. Please go ahead.
Hayden Bairstow
Thanks, Dale. I just wanted to circle back on the change in the product grade. Just trying to understand the economics of how you think about obviously slightly low realizations versus the recovery rate, just sort of the work you’ve done on that? And what are the range of outcomes that we could see on product grades going forward?
Dale Henderson
Sure. Thanks, Hayden. As to what is lithium processing like many other mineral processing yields realized that the yield benefit for moving down the grade curve, which I think most on the call would know that, but just in case anyone out there is not familiar as it relates to what is the value of moving down that great curve, that’s a function of the mineralogy that’s being processed through the plant. But the broad relationship is, yes, as you move down the grade curve, you get a corresponding yield increase, but we haven’t been specific Hayden as to quantifying the exact volume upgrade that we’re getting there as it relates to recovery.
Hayden Bairstow
And just on the cost side of things, it seems to be — do you see sort of the increasing costs starting to taper off a little bit? And what are you seeing in the shipping market as well as that’s starting to ease off as well?
Brian Lynn
Yes. Hi. It’s Brian here. Look, I think, generally on the shipping, that seems to have stabilized. It’s come up a little bit, but not significantly. But hopefully, we’ve seen the worst of it. On other costs, it feels like there’s still a little bit more to go here on costs, would be my take on things at the moment. So I wouldn’t be surprised if we still have some headwinds there for the sort of three to six months.
Hayden Bairstow
Okay. Thanks guys.
Operator
Thank you. [Operator Instructions] Your next question comes from Tim Hoff of Canaccord. Please go ahead.
Timothy Hoff
I was on mute. A word on Ken, you’ve built a fantastic company in [indiscernible]. First one was just around are you mining and are you grade training at the moment. And if so, I guess just a low-grade product, how much [Technical Difficulty]
Dale Henderson
It’s difficult to hear. I think I heard you’re inquiring about our OE stream and [indiscernible] product, is that correct?
Timothy Hoff
Yeah, that’s right.
Dale Henderson
We do have – was either relates to the Ngungaju statement, we have been maximizing production throughput as you’d expect for that circuit. Within that circuit, we have what’s called a middling stream, which delivers waste to the float circuit. We have been dealing off a small volume there, which we are stockpiling, but we’re not looking at this stage, at least any sort of different product category. We look then getting out the gate today just being essentially our core products within the quarter.
Timothy Hoff
Okay. And then in terms of Ngungaju and the products that has been sold from that already. Is that going to be capitalized? Is that essentially still in commissioning phase?
Brian Lynn
Tim, it’s Brian. Hey. Look, we’ve largely got through that phase where we capitalized costs. So at this stage, the cost that we are incurring now are true operating costs.
Timothy Hoff
Okay. And revenues won’t be capitalized they’ll actually flow through to the P&L?
Brian Lynn
Yes, correct.
Timothy Hoff
That’s it for me. I’ll handle back. Thank you.
Brian Lynn
Thanks, Tim.
Operator
Thank you. As there are no longer anymore filing questions. I will now hand back to the speakers to read any online questions.
Dale Henderson
Over to Nicholas.
Nicholas Read
Thanks, Dale. We’ve got a ton of online questions. So I will just pick a few of them here. First one is from Mark [indiscernible] private investor, it’s about the P680 project. He says $194 million cost for the company-owned crushing facility and ore sorting facility is expected to deliver unit cost savings with operating costs of $4.62 per tonne as announced this quarter, how much of these facilities go to save their rates in OpEx in U.S. dollars per tonne. What are the estimated OpEx savings from that CapEx?
Dale Henderson
Yeah. Sure and thank you, Mark. As it relates to the OpEx savings for the expansion, we haven’t been specific about the outlook given the uncertain pricing environment we’re comparing to. But what we can talk to is one of the more concrete savings, which relates to displaying, the existing contract crushing. And what we’re anticipating is a unit cost saving against the concentrate of $20 to $30 per tonne. And — but as you’d expect, self-performing your crushing and having no capitalization costs built into that unit cost that provides material savings for the business.
Nicholas Read
Thanks, Dale. The next question here is from Ben Lawrence from Jarden (ph). It’s a three-part question. And firstly, congratulating you on your appointment and wishing Ken all the best. His first question is in regards to price realization. You said simply put, you’re in a privileged position with regards to price discovery on the BMX platform, where you reported SC6 equivalent prices of up to $6,350. Are you satisfied with the prices being reported by the price reporting agencies which averaged $4,267 a tonne this quarter. Can you remind us which agencies you’re closing for that revenue price of $4,267 ?
Dale Henderson
Sure. So thanks for the congrats, Ben and on behalf of Ken as well. Yes, as it relates to our price performance through the price reporting agencies and what the BMX platform has to us all as there’s additional margin to be had through having a competitive marketplace to buy us out of trading. And that’s why, of course, we can see as realized an additional premium above what we’re seeing is on the price reporting agencies.
So really the lesson to take on that is there’s more to be done for the price reporting agencies, but the bottom line is the BMX to our knowledge is basically the only efficient trading marketplace. So we think it’s only — our view around the BMX is that it’s been a great tool. For the market, we like the idea of obviously keeping that going for obvious reasons. And it will be interesting to see where we take that business.
So the second part of the question, as to which of the price reporting agencies we use, we haven’t historically been specific about that. And the reason for that is it’s very much related to the offtake agreements that we have in place with our core customers. So it’s as much that I can really share on that one.
Nicholas Read
Thanks, Dale. Second part of Ben’s question is in regards to the market. He said, I note the commentary around multiple approaches from new customers seeking product, are you able to make any comments around those approaches in respect to industry? Are they converters or you’re receiving inquiries from [indiscernible] or automakers, geography or any of these potential customers like outside of China? Are there reputable counterparties, which established conversion plants and are they well capitalized? And can you comment around what volumes were sourced like what time period?
Dale Henderson
The short answer is yes. All of the above and having been at the Fastmarkets Conference in Phoenix last month, which was really the lithium industry getting together plus all of those existing participants plus participants, groups wanting to participate with a good snapshot of the appetite. And yes, I can share that all of the above — there’s many different parties from many different corners of the globe looking to stake a claim and get involved.
So it’s exciting to see and good luck to many of them because this industry is going through a formative stage as it looks to establish itself and to serve the insatiable growth profile that we’re observing. As to the query on volumes, that’s been a wide continuum in that category is ranging from small to large volumes over a long period time and everything in between.
Nicholas Read
Thanks, Dale. And Ben’s final question is as relates to unit costs, he said every quarterly that I can recall in recent years has expressed confidence in an eventual reversion and costs to the low $400 a tonne. So the appreciation that you’re going to appear in a higher strip ratio to make up for the higher grade during FY ’20 unless there is a significant good cost in there at present and higher royalties. But stripping out this temporary aberration, are you still confident in achieving this medium-term cost target.
Dale Henderson
Sure. A valid question and Ben, you rightly point out the history of many operations in this space. The way we think about our long-term unit cost is long term and then the knowledge that we have a 20-plus year mine life, and then the knowledge that we’re only very early into our journey of both ramp-up and optimization. We will have an operating team, which will continue to trickle down unit cost many years to come. And the levers which are available around that are many in the sense that ultimately delivering more scale, more accuracy in mining, so i.e., more lithium recovery from the mine itself.
Two, it’s about the actual optimization within the processing itself with the aim of increasing recovery. And then it’s about the lowering of unit costs and all the contributing elements, whether that be moving to going from triples to quad with haulage or lower of cost power solution and more automation, the list goes on. So as we start to consider those types of pieces, yes, there will be much more to come out in the years to come as it relates to unit cost.
Nicholas Read
Thanks, Dale. Next question here is from John Kendall. When can we expect a minimum of two BMX auctions per month or 10,000 tonne a month out of Ngungaju?
Dale Henderson
Yes, John, great question and one we’ve been talking about a lot recently. We haven’t guided on that front. But yes, it’s an obvious question to ask. And given the good ramp-up we’ve seen with Ngungaju, that will get the business options as it relates to where those tonnes go.
Nicholas Read
Okay. David Fang from China International Capital Corp. has a question here about the Ngungaju Plant. He says, we understand the volume at Ngungaju is uncontracted then we can estimate that the production volume was at least over 30,000 tonnes during the quarter. However, the volumes sold to BMX during the quarter is not the same. So can you explain the difference are they sold through other sales channels?
Dale Henderson
Sure. The analysis, David has performed, that’s right in that there’s a delta to explain. And the way we think about production tonnes is we’ve got [indiscernible] commitments, which largely speak to the Pilgan production profile. But we have had some elements of catch-up to do with — through our offtake partners. So some of that has been taken care of through the production from the Ngungaju Plant. So that sort of makes up for the difference that David highlights. As we look forward, the lion’s share of that Ngungaju operation in the near term, but certainly up for grabs in terms of how the different allocation.
Nicholas Read
Thanks very much. Now there’s a whole bunch of questions here for Brian about all that cash accumulating the bank. Capital management questions, so I’ll just read them all together, they all relate to, are you considering either share buybacks or will it be a statement about dividend policy sometimes here please…
Brian Lynn
Sure. And I think Dale alluded to this, the plan is that we would come — we would be in a position to give the shareholders more information on that front by the end of this calendar year. So December or maybe January, there are some restrictions right now in terms of how we can actually access the cash that’s being generated in a form that allows us to pay a dividend or even undertake a share buyback.
And there’s clearly also the question around franking credits. Up until very recently, we’ve had a lot of tax losses, which we’ve been utilizing and therefore, not paying tax. We are going to start paying tax early next calendar year. With that payment of tax we’ll start generating franking credits. And clearly, that gives us an opportunity then to pay franked dividends. So we’re just going through that thought process as we speak.
The other things we saw into the mix is just the funding of the investments on the P680 project, and also what cash might be required if we do that going ahead with the P1000 project and with the Mid-Stream Project as well. But the expectation should be that we will have something to say, if not December, January of next year.
Nicholas Read
Thanks, Brian. There is a question here from a shareholder, Eric. He says, why were there no Tantalite concentrate sales during the quarter?
Dale Henderson
Yes. Sure. Thanks, Eric. The reason there relates to where we were drilling ore from the ore body, and we’ve concentrated the majority of ore feed from the Southern Pit, which is formerly, Altura’s Pit and which has very low and contained tantalite volumes that simply explains the shortfall and then tantalite volumes as I said, a function of the mineral content.
Nicholas Read
Thanks, Dale. Next question here from Donald Payne, who is an investor. He says, the Calix JV development of a demonstration plant, will this be built at a mine site or on the coast? And does POSCO have any involvement in that venture?
Dale Henderson
Yes. Thanks, Donald. The plan is to be already demonstration plant at the mine site. The rationale for that is we want to observe and operate the mines at scale and integrate that into the mine site such that we can, a, accelerate the learnings and, b, become familiar with the operational elements required to run this sort of additional facility in conjunction with the mineral concentrator. As to part of, Donald, your question to POSCO’s involvement. No, POSCO is not involved. But I can share that all of our customers have indicated interest in this project. And we look forward to maturing the project and the thing that we take it.
Nicholas Read
Thanks, Dale. Next question is from [indiscernible] from Clarkson Securities. Could you please elaborate on production guidance for the coming quarters and the main challenges of achieving this?
Dale Henderson
Production guidance, as Brian had mentioned earlier, we will look to provide an update with the full year financials in August. As to the outlook of challenges, we’re interested, as everyone also see how this COVID has continued to manifest. As mentioned in the quarter, we have seen a resurgence in the month of July. As anyone’s guess, ultimately where COVID goes, but we think about that. We also think about the very buoyant mining market. And which Pilbara, of course, is not immune to changes there. But pleased to report that in the main Pilbara is certainly doing pretty well relative to others. So those two things are up front of mind as we consider the outlook.
Nicholas Read
Thanks, Dale. A question from Kenneth Wan from Drummond Knight Asset Management. What recoveries have you achieved during the quarter, please?
Dale Henderson
We haven’t been authorized around recoveries in this quarterly. I can say that the Pilgan operations performed through plan, in fact, on plan. So we were happy with that. As it relates to Ngungaju, it was a ramp-up quarter. So as I mentioned earlier, the two or three months was, of course, circuit only. Whilst the commissioning of and ramp-up of the first circuit emerged. So as you’d expect, recoveries outright across the Ngungaju plant were low but expected to be low. But as we, of course, move forward now that we’ve got both operations throughout and we’re in an optimization phase of Ngungaju, that’s where the focus will now be around that continual training of Ngungaju to reach out and move up that recovery curve.
Nicholas Read
Thanks, Dale. Question here from Ralph Rowe, (ph) who’s a shareholder. He said, can you comment on your relationship with the traditional owners of the areas that you’re operating in and what their expectations are here? And secondly, can you tell us a bit more about the solar plants. Would you be able to meet all of your energy needs from this and potentially sell excess electricity to external customers?
Dale Henderson
Sure. No. Thanks, Ralph. To our relationship with the traditional landowners being [indiscernible], they’ve all been good standing and has been throughout the course of the business and a big credit actually to Ken, who’s always made that’s a key focus, investing his personal time. And yes, we find the relationship, as I say, a really good standing working with the community. And we’re working with them to continue to find opportunities to work with them and integrate them into our business. And as part of that, we’re doing all things you would expect professional operators to do training and understanding across all of our staff, under our agreement with Njamal we have a meeting regime, where we meet regularly to ensure that we have good communications and we’re supporting demo as that agreement contemplates and that’s all in good standing.
To the second part of your question, Ralph, on the solar, 6-megawatt solar goes a long way to displace a fair chunk of carbon both power. So that’s great, and we’ll need every kilowatt of that with none left over for others, that’s fair to say. So if we think about where to take our power strategy for the future. We will definitely be looking to continue to scale up those forms of renewable energy. As to the possibility of selling to others, we don’t have many neighbors or we’re not that close, we were located in Pilbara. But, we’ve certainly been approached by some of the larger renewable energy solutions we were looking to network of Pilbara, we’re absolutely open to those solutions because it makes good sense to work together with others for a broader network solutions. So who knows we may end up one day plugging into a larger network, where we do sell some electrons into that through our facilities.
Nicholas Read
Thanks, Dale. I think I’ve picked the eyes out of the key ones then.
Dale Henderson
That’s a good one. Thank you for that, Nicholas. Well, I think, obviously I think that completes the call from Pilbara side. So lastly thank you to all those who remained on the call, and we look forward to talking to you all in our next quarter.
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