Pilbara Minerals Limited (PILBF) Q2 2023 Earnings Call Transcript

Pilbara Minerals Limited (OTCPK:PILBF) Q2 2023 Earnings Conference Call January 19, 2023 5:30 PM ET

Company Participants

Dale Henderson – Managing Director and Chief Executive Officer

Vince De Carolis – Chief Operating Officer

Brian Lynn – Chief Financial Officer

Alex Eastwood – Chief Commercial and Chief Legal Officer

Conference Call Participants

Hugo Nicolaci – Goldman Sachs

Levi Spry – UBS

Alistair Harvey – JPMorgan Chase & Co.

Matthew Frydman – MST Financial

Glyn Lawcock – Barrenjoey Markets

Anthony Barich – S&P Global

David Feng – China International Capital Corporation

Kate McCutcheon – Citigroup Inc.

Ben Lyons – Jarden

Joshua Hain – REST Investments

Michael D’Adamo – Canaccord Genuity

Alex Ren – Credit Suisse AG

Operator

Thank you for standing by, and welcome to the Pilbara Minerals December 2022 Quarterly Investor Conference Call and Webcast. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session first for teleconference participants followed by online questions from webcast participants. [Operator Instructions]

I would now like to hand the conference over to Pilbara Minerals, Managing Director and CEO, Mr. Dale Henderson. Please go ahead.

Dale Henderson

Thanks very much. Hello, everyone, and welcome to the Pilbara Minerals December quarterly activities call. I’d like to start by first acknowledging the traditional custodians on the land, which our business operates. And Perth, that’s the Whadjuk Noongar people and up north where our operation is, the Nyamal and Kariyarra people, we pay our respects to their elders past, present and emerging.

Moving to introductions. Our presenters today, of course, myself; we’ve got Brian Lynn, our Chief Financial Officer; Vince De Carolis, our new Chief Operating Officer is with us; and Alex Eastwood, our Chief Commercial and Chief Legal Officer. Also in the room today, supporting us is, we’ve got Greg Jason, Assistant CFO; Gavin Spoors, Investor Relations; and we’ve got Nicholas Read from Read Corporate. Thank you all for joining us today and we are looking forward to taking you through our update and moving to Q&A.

So the outline for the call will follow the usual format. I’ll give some opening remarks, I’ll then hand to Vince to talk about the operations, I’ll then talk about the projects and chemicals, progress that we’ve made, and then we’ll hand to Brian for the financials and lastly, back to myself for some comments on the market and closing comments. We will then move to Q&A, which will be in two parts. The analyst call which will be approximately 30 minutes and then we’ll move to the webcast for approximately 20 minutes, which will be moderated by Alex.

So moving to Slide 2. What an amazing quarter we’ve had. The December quarter for 2022 the best quarter to date for the operation. Step up in production tons to 160,000 for the quarter. Sales of 148,000 step up in the prior quarter. The realized price for the quarter, a big step up there, and then from a unit cost perspective, a modest decrease. So great set of numbers for the quarter and big credit to the full operating team and extended business for bringing that home.

Now moving to Slide 3. [If that strong pricing time] strong volumes is equaled to a strong balance sheet to the tune of $2.2 billion, being at 62% increase on the prior quarter, big step up there as a function of, as I say, that strong volume and strong pricing. Other highlights for the quarter included the offtake price reviews were completed as part of the normal cycle, which has resulted in some improved pricing outcomes, which take effect from effectively December pricing moving forward.

The capital management framework for the business was established and deployed to market, which was inclusive of our inaugural dividend policy. In the funding category, we were successful in securing the $250 million debt facility from the Australian government to support the P680 expansion project of which – and that funding, I’d say, it’s a real coup for Pilbara with [long-standing] debt, competitive terms. And importantly, it’s government endorsement of our critical minerals project, which we think bodes well for the business as we look to reach outwards to the global market in the years to come.

In the projects category, the Board approved the pre-FID funding for the P1000 project to the tune of $38 million to support long-lead procurement and engineering. And then in the chemicals category, progress and two [Audio Gap] continues there, which I’ll speak to later. And then there is consummating the joint venture with Calix for our Mid-Stream Demonstration Project. So great to get that signed up and we locking arms with our friends and partners of Calix.

Lastly, a quick update on executive recruitment. We have been going flat out in that category, obviously, Vince coming on Board as our new COO, it’s the first cab off the rank, and welcome Vince. But our other executive roles that we are employing for are vastly progressed and those roles being the Chief Sustainability Officer, Chief Development Officer, the new CFO, the new – Brian, big shoes to fill and our new Project Director. So we are flat out. I’m an interview machine for the last couple of weeks, but we are getting there and looking forward to announcing those appointments in the weeks to come.

So moving from highlights now to Slide 4. For those who are new to Pilbara, just a very quick introduction and speak to strategy. Pilbara is building an Australian powerhouse in lithium battery materials production. We’ve got a Tier 1 asset, Tier 1 location, the Tier 1 team, and it’s all coming together at the perfect time. With that Tier 1 asset, we’ve got is a massive hard-rock pigmentite system, one of the largest on the globe, and it’s in a Tier 1 location. Our southeast of Port Hedland, one of the largest bulk export ports globally, and of course, domicile in Western Australia, one of the best mining precincts you could hope for globally, which has all the mining and technical support you could hope for as a miner and operator.

And then the Tier 1 team, we’ve got a fantastic development and operating team whose skills were forged during the downturn, and they are the key ingredient, which is unlocking the value that Pilbara was creating and most recently, of course, the ramp up of the Ngungaju operation, which of course, was the Altura operation and of course, deploying that expertise to scale as we step into the expansion of P680, P1000. And as I say, all of this is coming together at the perfect time, fantastic confluence of events and Pilbara is poised like no other to thrive in those burgeoning market.

What’s our mission? Our mission is to be a leader in the provisioning of sustainable battery materials products. Now strategy to deliver on that has four legs. First and foremost, it’s about delivering on our commitments, making sure the operating platform is shooting the lights out and I’d like to say and like to thank this quarter – [case in point]. Secondly, it’s about achieving the full potential of the Pilgangoora operation. This is about ensuring that we – first and foremost that we are extending that resource to full extent through drilling this massive Tier 1 asset. By the way, you’ll note in section six of the report that we are busy drilling further. So I am looking forward to saying how that goes. But having extended the resource, then it’s about matching that with right processing capacity. And of course, in the first instance, this P680 to P1000, but of course on the assumption that more growth than the asset that would afford more growth in the production capacity. Obviously work to be done to confirm that, but we remain optimistic.

Our leg three is about extracting more values, more value per lithium units through our chemicals participation. And in this regard, the first cabs off the rank are our POSCO joint venture for the development of a 43,000 ton lithium hydroxide plant in South Korea. Then there’s a joint venture with Calix for the R&D project for the mid-stream project, the production of high-grade lithium salt from the mine site. But we look to do more in this category. The more we can add value per lithium units for downstream integration that creates more value to channel back to our shareholders.

Moving down to the fourth leg of our strategy, diversifying revenue beyond the Pilgangoora operation, so that enclose us expanding beyond our base asset, so when you roll all of that together, we think it’s a strategy grounded and fundamental value creation trained on our mission. It’s an absolute privilege and we, Pilbara continues to have a fun time ahead as we step through these growing leaps as we expand this impressive base that we already have. In my opinion, there is no better growth story on lithium, but I might say, I am slightly biased. And with that, that sums up pretty much our strategy.

So that’s said at the high level, now at this point, I will hand to Vince who will offer us a bit more detail about the operation for the quarter we’ve just had. Over to you, Vince.

Vince De Carolis

Thanks, Dale. Starting with safety on Slide 5. We’ve had a good quarter. A key lead indicator Safety Interactions has seen improvement on the prior quarter, and that’s a key focus for us indicating increasing engagement with our workforce. And on the back of that, our lag indicator, the Total Recordable Injury Frequency Rate has also improved quarter-on-quarter sitting at 3.5 [indiscernible] we’ve commenced our graduates program with several inaugural participants who will hopefully someday be our future leaders.

Moving on to Slide 6. Production and sales, we’ve had a strong quarter as you can see in the graph in both sales and production. In mining, we’ve had a consistent ore supply to the processing plants. However, this hasn’t been without its challenges in the quarter. The main challenges have included some equipment availability, resource levels with the current hot market and some mining hygiene control practices. For the quarter, we have mined a slight reduction on the prior quarter at 7.4 million tons. But importantly, the ore supply volumes to the processing plants have been maintained. However, suboptimal mineral feed at times has occurred and that impacted the processing plant recoveries.

Moving on to the processing plants, both Pilgan and Ngungaju have performed well and consistent in both availabilities and throughput rates. Recoveries have also been consistent, albeit down on target and between the high-60s to the low-70s and that’s dominantly dependent on the mineral feed.

Moving to Slide 7, and just to finish off on another quick news story. Very pleased to report that we commissioned and energized our new six megawatt solar plant, representing our first step in decarbonization, which looks fantastic out on the plant.

With that, I’ll hand back to Dale.

Dale Henderson

Thanks very much, Vince. Now moving to Slide 8, a quick update on our expansion, that’s leg two of our strategy. That’s the P680 project, earthworks, effectively complete, procurement well underway and we are maturing and coming near the finalization of the execution contract for that project. Obviously moving as quickly as we possibly can to bring that project to life, still targeting that September quarter ramp up, which remains on track. But we did revise the capital estimate for the project during the quarter, which was announced last couple of weeks back. That project remains full steam and we look forward to bringing that to life in due course.

As it relates to the P1000 expansion, as I mentioned in the highlights, the Board approved pre-FID funding of $38 million to support procurement and early engineering and the full FID for that expansion, we are on target to have that approved and out the door back of the current quarter in the March quarter. So it’s foot down on the expansion and we are keeping the throttle jammed wide open to make the most of this market.

Now moving from Slide 8 to Slide 9, just to update on the chemicals, the third leg of our strategy. As it relates to the POSCO, Pilbara joint venture construction is absolutely underway in South Korea. You can see from the picture on the left hand side of that slide. The team there is absolutely focused on schedule and deliver that project. Myself and Tony Kiernan at Chair had the privilege and benefit of being there in November, so it’s great to get on the ground and talk to the team and see the progress. And as you can see, it’s well underway and they remain – Pilbara, POSCO remain on target for that quarter four ramp up of commissioning commencement for the first train of that plant. So excited to see that unfold in the months ahead.

Moving to Mid-Stream joint venture. As I mentioned in the highlights, that agreement was finalized during the quarter for the development of the demonstration plant. And for those not familiar with the Mid-Stream Project, what this is about is doing more processing of our product at the mine site, producing a different product to market, a superior product to market, I believe because for several reasons. First and foremost, a big step down in carbon energy intensity; two, a big step up in the concentration of the lithium units; and three, leaving behind the aluminum silicate waste at the mine site will be readily handled. That aluminum silicate waste is part of the existing spodumene product, which has to be handled by our customers.

So those three benefits for the product we think are material and with all of that, obviously that step up and we will see concentration offers a reduction in transport volumes. There is a lot of benefits which can flow from this, if we get this right plus doing some more value add onshore, we think makes good sense. So we like what we see in terms of the test work. We like what we see in terms of the study work. The big step we need to do is this demonstration plant, which is about deploying the unit step process at scale and validating effectively unit cost, reducing the volumes of the products, so we can test the market for pricing and iron out any process learning.

So as much as we are excited about it, we very much put R&D on the can and others will recall when we were successful and some grant funding for this project as well. So it’s an exciting project. It has the potential to change the future of our business and that of the industry remain cautiously optimistic, but as I say, it’s R&D and we are delighted to have that joint venture finalized with our friends at Calix and well done to Alex and the commercial team for getting that across the line in the quarter.

Now, that completes the chemicals update. And at this point, we’ll move to Slide 10, and I’ll hand over to Brian for the financials.

Brian Lynn

Right. Thanks, Dale and good morning, everyone. I probably just quickly give a very high level summary of the financials for the quarter, offer some commentary around selling price, costs, cash positions, and then a little bit on the capital management framework.

So in summary, I think in the June quarter, I described the June quarter as transformational for the company. I think I described the September quarter as pleasing from a financial perspective for the company. Well, I would describe the December quarter as an absolute cracker from a financial perspective for the company.

The business generated very healthy operating margins. This led to an $851 million improvement in the company’s cash position. And we stand with about $2.2 billion in the bank at December 31, 2022. This is really all driven on sort of the key metrics and all key metrics were better than what we have done in the September quarter, so we had a lift to production tons. We improved our sales tons and healthy improvement in our U.S. dollar realized price, and we also managed to lower our unit operating costs as well.

We also ended that quarter with a net cash position to net of debt of just over $2 billion. And as Dale mentioned before, we took the opportunity, given the continued growing cash position to establish a Capital Management Framework which was disclosed to the market in November.

On selling prices and operating margins, a really important outcome for the quarter was a completion of the price reviews with our customers, and this when combined with what was an ongoing positive market. Hence an average selling price of US$5,668 per ton was achieved with 148,000 to 149,000 tons of product sold at an average grade of 5.4%. The equivalent SC6.0 reference price for this product was US$6,273 per ton. So a fairly significant increase compared to the September price, it was about a 33% increase.

The average realized price in Australian dollar terms was also bolstered compared to the September quarter because of a returning depreciation in the Australian dollar. I think it depreciated by about 4%, which obviously helps our revenue line. So these strong pricing outcomes supported obviously a very strong operating margin at the Pilgangoora operations, so we achieved a margin in Australian dollar terms of about $7,400 per ton, and that’s equated to about $1.1 billion of margin.

In terms of operating costs, the unit operating costs that we generally referred to, which excludes freight and royalties, and that was in Australian dollar terms of $579 per dry metric ton, which was a 5% improvement on the September quarter. So I think about operating costs within our business, I think operating costs continue to be outlined where they were sort of 12 months ago and still are being impacted by labor shortages, particularly in the WA mining sector. Supply chain disruptions continue and there is this general inflationary pressure being experienced and obviously we continue to incur high mining costs as we invest more in the mining space, particularly in moving more waste.

Just thinking about the quarter, we did, however, get some benefits compared to the September quarter. So the lift that we had in production, which is about 10% obviously gives us economies of scale when it comes to cost, and most of that production lift was actually spending down the Ngungaju plants. So most of the extra times came from the Ngungaju plant, which was pleasing.

We had a lot of maintenance costs during the quarter with one less shutdown compared to the September quarter. And we also benefited from lower diesel costs and particularly as a result of the reinstatement of the government’s temporary reduction in the fuel tax credit, which equates to about $0.23 per liter. We include the freight royalty costs and the unit cost, the December quarter at a unit operating cost of A$1,169 per ton, and this was about 6% higher than the September quarter that was really – that increase is really driven by an increase in royalties. So with the higher selling price we achieved, we end up paying about $130 per ton in royalty costs. Pleasingly though, we did see a reduction in the cost of freight as pressures in the shipping markets starts coming off during the December quarter.

Turning to Slide 11, and just some commentary around the cash position. As I mentioned, very healthy cash position of $2.2 billion, an increase of $851 million over the quarter. So key movement was the cash operating margin from the Pilgangoora operation, so that was about $950 million. We spent about $73 million on capital, and that’s across capital waste development movements, the P680 project and our sustaining and capital development projects. We paid about 10 – just a bit more than $10 million in relation to the syndicated facility agreement we have in place. So that’s across both principle and interest with US$5 million principle payment made during the quarter. And we also had about $11 million worth of payments under various leasing arrangements.

This is worth noting that – we are talking about the cash position that the company has not yet commenced paying tax. So our first tax payment, which will be about $90 million, is due in February 2023, when we actually lodge FY2022 tax return. And once that tax return is lodged, we then enter into the monthly tax installment process with the ATO. So then we’ll be start becoming a regular taxpayer and obviously with that building and franking credits as well.

Within the quarterly, just to highlight, we have noticed that we are considering our FY2023 guidance that we previously provided in August. Obviously our key metrics are all sort of probably above guidance at the moment, so we are taking the time at the moment to review our FY2023 guidance, and we’ll release an update on that when we release our half-year results in the late February this year.

Lastly, just some commentary on the capital management framework. As mentioned with the growing cash position, we took the opportunity to structure capital management framework, which we released to the market in November. Now that framework is designed to firstly prioritize current operations, making sure that we maintain a strong balance sheet through all commodity cycles. We deliver on sustainability commitments and initiatives, and we pay sustainable dividend to our shareholders.

Within that capital management framework, we disclose our inaugural dividend policy, and the view of the company is that we will apply that dividend policy to paying a fully frame dividend for the first time based on the FY2023 financial results.

Now with the company’s current strategy to grow and diversify the business, which Dale alluded to before. Cash flows will also then be allocated to growth paths that we think will deliver longer term shareholder value. So in the sort of – in the next sort of 12 to 18 months, we will be allocating capital to obviously the P680 expansion project, the P1000 expansion project, which we’ll be releasing our FID decision on shortly.

The downstream joint venture with POSCO for the chemical facility in South Korea, the mid-stream project in joint venture with Calix and we will also be looking for other downstream lithium chemical opportunities. Obviously, if it continues to be excess funds beyond those requirements, then that cash will be allocated towards either debt reduction or for further returns to shareholders in the form of special dividends or share buybacks.

So I think that’s everything I wanted to cover off, so I might hand back to Dale.

Dale Henderson

Thanks, Brian. And the cracking quarter indeed and given that we’ve just completed the finance sections, probably, just to thank Brian for what an amazing journey of course for those [indiscernible] Brian signaled his intent to transition from Pilbara for his incredible six years and what a journey to, and you just heard it there to be talking about the steps we are taking for this business around dividends, the cash flow, which has being generated and Brian has been the CFO who stewarded that journey from a finance perspective, from the [indiscernible] to go the other side of the globe to raise the first financing, the $100 million U.S. Nordic Bond and here we are today A650 company with strong cash flows and amazing future.

So Brian, well done to you mate and congratulations on stellar chapter, you’ll definitely missed, but we thank you for your amazing work on behalf of the Board or the team. And I would also just say Brian continue to support us on a bit of a part-time basis, so we’re still going to be twisting his arm to help us out, so he is not going completely, but thank you, Brian.

And now just moving to market update. So in this space, look, we thought just be worthwhile just off of Pilbara’s view of the market. And look, there’s nothing particularly surprising of what I’m going to step through here. There’s plenty of commentators in this space, but we did want to offer our perspective of what we see unfolding and hopefully provide some confidence and assurance to those listening who are trying to make sense of some of the divergent opinions out there.

So firstly, we’d start with the fundamentals with lithium remain incredibly positive. The world is absolutely converting in terms of the renewable energy transition. And as it relates to the EV subset being the key demand subset for lithium at this point in time, it continues to pick up pace, and it’s absolutely moved from a China story to a global story. And that rate of change has been through the – increase through the likes of the inflation reduction act and the U.S. government policy, so on so forth. So the long-term shift seems well fueled, that’s a structural shift well underway.

That being said, in the near-term horizon, and particularly when we look back the last two months, there has been some pullback. We’ve seen the 15% reduction in chemicals pricing from those highs in November. But when we say 15%, that’s coming off a high $80 mark down to sort of a high $70 mark, and then when you start to ask yourself, what drove that well, largely Chinese centric, it was the COVID unlocking going from the zero COVID policy to actually where the gates were lifted. And that coupled with the EV subsidies being removed and taken it back, plus we’re heading into Chinese New Year. The sum of those things have equated to approximately a 15% reduction.

My suggestion I’d put to you is 15% reduction of those highs is not that bad, but very healthy pricing. And I had been asked six months ago for a prediction around China pulling up the gates and going from a zero COVID policy to fully letting COVID integrate into the society, to be honest, I think the impact has been pretty modest. All things considered would be my personal view.

But where does the market hit? Well, that’s the big question. Now from our perspective, the insight we can offer is we’re positive about the outlook, and the reason we’re positive is first and foremost, there’s demand indicators and demand remain strong. As we look to supply, we of course, keep a close eye on the emerging supply and the various analysts and commentators in this space, and what gives us a lot of comfort is bringing supply to market is incredibly hard. We know that because we’ve done it and it will not be easy, it is not straightforward, it does not matter which raw materials lithium supply that you’re dealing with whether it be hard-rock or clay, they’re all difficult, they’re all bespoke and it’s not capital helps, but it does not guarantee speed.

So when we start to consider supply versus demand, as we look forward, we feel we’re in a good position and we’ll see how we go. There is uncertainty in the market, but the long-term shift remains positive. And yes, unfortunately or fortunately, that is the establishment of a new industry and we’ve seen lithium has been a little bit volatile. But what I would put to you is if you want to participate in lithium, the place to go with a large operator who knows what it’s doing, who’s got a base of expansion, who’s got other demand to grow further downstream, and that’s exactly what Pilbara offers. So we think we’re incredibly well placed and we’re positive about the outlook for the market and we look forward to continuing to grow our business into this demand set.

Moving now from the market. Just a final couple of comments. Great quarter, cracking quarter, as Brian characterized, strong pricing, strong production, cost base where we heading in the right direction, flying through to a very strong balance sheet, projects on track, chemicals projects underway, fall into a strong lithium market, albeit recently tampered by the COVID changes in China. So fantastic quarter, thank you for all our shareholders and particularly those longstanding shareholders who supported us in the downturn, we’ve not forgotten you.

And will now move to questions. So I’ll pass back to the moderator.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from [Thomas Hayes] from CLSA. Please go ahead.

Unidentified Analyst

Hi, Dale and Brian. Congratulations on great quarter, and Brian, congratulations on your contribution to the company. Just looking at your production, on annualized rate, you’ve got about 580 on a 6% basis, which is about a 12% improvement, I calculate. Understanding the seasonality in the Pilbara region, I’m just wondering if you can talk through, how seasonality will affect your production going forward and what the remaining two quarters will look like, should we expect them to hold at these levels? Thank you.

Dale Henderson

Yes. Hi, Thomas. Thanks for your question. As it relates to guidance, we will be updating our guidance on the half-year, so we’ll provide some detail on that one there.

Unidentified Analyst

Thanks, Dale. And then just a second follow-up. Just focusing on those questions around the debt facility provides extra flexibility to expand and diversify further down the material supply chain. I’m just thinking about what that means in terms of regional exploration and M&A that could be on the cards. Do you see further downward pressure on price as an opportunity to acquire people in the region given some of the negative macro news?

Dale Henderson

So yes, Thomas, as it relates to that leg four of our strategy around diversification beyond the Pilgangoora asset, it’s fair to say we’re very early in that thinking. And you would’ve noted, in terms of the executive appointments I noted, recruiting a Chief Development Officer, you could read into what that means. But it’s fair to say, yes, we don’t have a [indiscernible] point of view, I should say, on the where to next, but of course, we’re starting to progress a lot of the homework around what that looks like. But you’d have to say, Pilbara has a couple advantages, others don’t. Of course, we’ve got a very healthy business, first and foremost. Secondly, we like to think we’ve [learned] some very valuable skills in the space of hard-rock lithium processing, and we have a spread of very important strategic relationships in the space. So the contact combination is highly valuable and very useful if looking to expand into another asset or operation. But as I said, no decisions at this stage. Brian, do you have anything to add?

Unidentified Analyst

Thanks for that.

Dale Henderson

Yes. Thanks, Thomas.

Unidentified Analyst

Thanks for that. And just a quick one just on the BMX strategy. You sold 25,000 tons this quarter up from 15. I’m just wondering if you could provide any commentary on sort of how many tons you expect to sell in the quarters to come.

Dale Henderson

Yes. Thomas, look, the BMX platforms of course gone really well for us. We’ve not provided any guidance as to what proportion of production tons we will deploy on it. And the reason is we want to retain that flexibility. We of course, consider all the different avenues to market, which include a) BMX, a spot sales, b) tolling is a possibility and c) working with our existing customers, so all of the above remains available to us. But yes, no guidance on that one.

Unidentified Analyst

Thank you. I’ll leave it there.

Dale Henderson

Thank you.

Operator

Thank you. The next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.

Hugo Nicolaci

Hi, Dale and Brian. Thanks for the update and again, echo Tom’s comments. Brian, great work on what you’ve done so far with the company. Two for me, please, if I could, just firstly, on your time in career, Dale. I was just keen to better understand how the downstream was kind of progressing on the ground there and what key milestones we should kind of expect as we move towards commissioning at the end of this year? And then secondly, just kind of following up a little bit on Tom’s question around the M&A piece. To what extent do you need – would you look at kind of domestic versus offshore in terms of future downstream opportunities and how important is partnering versus being a sole operator? Thanks.

Dale Henderson

Yes. Okay, thanks, Hugo. Yes, in terms of downstream milestones, well, for the POSCO joint venture, the key one is that, commissioning commencement on the December quarter for train one. The train two is the commissioning commencement on the following year. So those are probably the key ones to watch for. And as that project moves forward, we of course, will be providing a deeper level of insight as to progress and the next set of milestones.

Moving to your second question on M&A, to what extent do we value domestic versus offshore? Well, yes, look, obviously, our backyard is the best place you could go in terms of – we know the area well. As to offshore, there’s many options out there, but one of the things we’re very sensitive to is our offering to the market being a Tier 1 asset and a Tier 1 location. We’d consider very deeply our next step around making sure we didn’t dilute that offering, but yet can’t give you a steer as to one over the other, in the months to come, we’ll provide a bit more insight into how we think about M&A and that leg four of our strategy.

Hugo Nicolaci

Great. Thanks for that, Dale. That’s my two. I’ll pass it on. Thanks.

Operator

Thank you. The next question comes from Levi Spry from UBS. Please go ahead.

Levi Spry

Good day, guys. Happy New Year everyone as well. Just if I could ask another question on the guidance. Can you talk through exactly what is driving the stronger performance? Maybe you can talk to the current mining and processing capacity across both the plants before you add the 100,000 tons from the December quarter? Thank you.

Dale Henderson

Yes, Levi, I’ll offer a view here and then Vince might want to fill. Yes, what’s guiding the – and Happy New Year to you too, mate. In terms of the stronger performance, I’ll put it down to just rhythm and routine coming together both the mining and processing, that being said for the quarter that the mining had its challenges, which Vince offered some insight to. And what we see here, frankly, is more optimization and opportunity to come, which Vince and the team are very, very focused on. And we look forward to moving further up the curve in due course, which of course, that’s what our operating team is tasked to. Do you think you want it?

Vince De Carolis

I think that covers it down at a high level.

Dale Henderson

All right. Thanks, Levi.

Levi Spry

Okay. Thank you. Thanks guys.

Operator

Thank you. The next question comes from Al Harvey from JPMorgan. Please go ahead.

Alistair Harvey

Yes. Good day, Dale and team. Don’t want to labor the point too much, but just on that guidance, I guess it is under review with the financial result, it was a very strong first half. So what are the key moving parts that are kind of concerning you, that’s not giving you the confidence to come out a bit earlier with an updated guidance? It looks like that will go up towards a top end of the range or even beyond. Are you thinking more changes in grade profile, catch up in plant maintenance, just trying to get a sense of those key levers there?

Dale Henderson

Yes. Thanks, Al. Look, I think there’s been a couple of things which occupy our mind in the space. One is about optimization of the mine plan. We’ve been busy recutting many different versions of that to maximize our production. That’s one element, which of course then sort of feeds into a plant optimization piece. The other bit, which is probably worth noting, is the season we’ve had has not been too bad in the way of cyclones and wet weather. It’s been – and remain very, very mild, which has been nice. And frankly, I think this has actually helped a little bit more than we were expecting for the production outcomes we’ve had, that’s been an overlay. And yes, we’re obviously computing our guidance as we speak. In half years, we’ll be here before you know it, we’re targeting late February for those. So that’s not too long away.

Alistair Harvey

Yes. We’ll be patient. Just another one on pricing, so there was a solid price in the quarter not much guidance for next quarter and do note your announcement before Chrissy, on those successful renegotiations. But was there – in those renegotiations, was there any major changes in contract mechanics? And I’m wondering if you could comment on any benefit from lags with respect to spot prices, which as you mentioned have rolled over? Yes, are you able to indicate roughly where the price might sit today, if you ran the numbers?

Dale Henderson

Yes. Al, sorry, we don’t – we’ve never given guidance on pricing first and foremost as to what were those changes and the formulas. Yes, unfortunately, we can’t give you any insight there either, so sorry about that?

Alistair Harvey

That’s all right. And just finally, saw a bit of CapEx inflation at Pilgangoora, one of your peers has just announced an upward revision. I was just wondering if you could give us any sense of how the POSCO hydroxide plants going with respect to planned budget.

Dale Henderson

Yes. Sure, Al, so far so good schedule and budget for the POSCO joint venture, but I just added it is early days in terms of the progress of the project. As you can see from that photo, things are underway. But yes, the lion’s share of the builders has yet to come. We will of course keep the market informed as that progresses, but yes, nothing of concern at this point.

Alistair Harvey

No worries. I might line up for one more. Thanks, Dale.

Operator

Thank you. The next question comes from Matthew Frydman from MST Financial. Please go ahead.

Matthew Frydman

Sure. Thanks. Good morning, Dale and team. I just want to say, carry on from Al’s question on pricing and forgive me if the answer is as braced this time around again. But as you said, clearly, the chemicals pricing has fallen by maybe 15% since you made that announcement in late December. So I guess, how do we think about – how that realized price that you quoted $6,300 a ton. How does that move proportionally relative to those reference prices or to those benchmarks? I mean, is there anything that you reference in those major offtake contracts that means that your realized price shouldn’t move proportionally to what we can see on chemicals pricing?

Dale Henderson

Yes. Thanks, Matthew. The price reviews that we announced during the quarter gives you a bit of a feeling for the relative change. I appreciate we haven’t given insight into the mechanics, and the reason there isn’t is because we can’t. But as to is this additional factor which would take it out of whack of the prevailing market pricing. The answer is no. The intent to all the formulas is that it follows the market movement and making sure that Pilbara’s shareholders are receiving the appropriate value as that market ebbs and flows. So there’s no sort of lift fuel factor integrated in there.

Matthew Frydman

Got it. Thanks. I appreciate this commercial sensitivity, so thanks for the additional color there, Dale. Secondly, again, on the FY2023 guidance, but more on the CapEx guidance, I guess particularly the amount that you’ve spent in the first half versus what you previously quoted this full-year guidance. I suppose the question is, obviously the run rate in the first half was a lot lower than what you might imply by guidance, were you always expecting such a large second half SKU in the spend rate when you set that capital budget or do you now need to rethink, I guess CapEx guidance as well as potentially production guidance? And then I suppose, maybe to partly answer the question is, is it really just a question of timing of the cash outflows or is there anything else going on there in terms of that spend rate?

Dale Henderson

Yes. Sure. I’ll offer a view and Brian might want to add in this space. Firstly, it was always going to be skewed to the right just the function of the timing of the bill that’s first and foremost. Has there been some sub elements of drift to the right? Yes, but nothing untoward. Brian, did you have anything you want to add to that?

Brian Lynn

Yes. Look, Matthew, that’s right. In terms of the P680 project, I think most of the first half was about doing engineering works and those sorts which take time, but don’t actually consume a lot of cost. It’s once we get into the real bill, which is what’s about to happen now is when we start really incurring those costs. But put aside the P680 projects in terms of all the other capital items, I think we’re largely in line with where we thought it’d be probably maybe a little bit behind, but not significantly different. And my expectation is that whatever the gap is for the first half, we’ll make up in the second half. So a lot of it is around the timing of the P680 spend.

Matthew Frydman

Okay. That’s great. Thanks very much Vince. And then thirdly, maybe just quickly, can I ask on concentrate inventory at the end of December, you’ve been producing more than you’ve been selling for, I guess, probably four of the last five quarters. Is that just a natural consequence of that ramp up in production? And more of a timing question or are there any logistics constraints or anything else that’s driving that inventory build? Thanks.

Dale Henderson

Thanks, Matthew. No the inventory builds aren’t anything untoward at the moment. As to logistics bottlenecks, probably everything’s been going okay, load out through the port has its moments of course. But, yes, nothing which gives us cause for concern.

Brian Lynn

Matthew, sorry, it’s Brian. Just one other point on that, it’s probably worth noting. There was one cargo at the end of the quarter, which was meant to go out in the December quarter, in the month of December, right at the end. But due to sort of port, the way the vessels lined up in a port a bit of congestion that particular cargo, which was, I think it was about 15,000 tons fell into the first couple of days of January. So if that cargo had actually left the port, then clearly our stocks or our sailors and our production would’ve been fairly similar. So it’s really just around timing.

Matthew Frydman

Got it. Thanks very much, Brian. And yes, it would also echo the other analyst comments. All the best for the future. Thanks very much.

Brian Lynn

Thanks.

Operator

Thank you. The next question comes from [Austin Yan] from Macquarie. Please go ahead.

Unidentified Analyst

Good morning, Dale and the team. Congratulations on the strong quarter. Just two questions for me and – if I may. The first one is just around the deferred stripping. At the start of the year, financially you indicated that you are doing some catch up on that. Just wondering how that is going. Just want to have some high level color on the per strip profile for the next 12 months? I’ll come back with the second one.

Dale Henderson

Yes. Hi, Austin. Thanks for your question. The high level stripping has typically been around a five to one ratio for the year we’re in. That being said, we have, during the course of the year, reworked our mine plans a few times and with the objective of opening up more ore options. So we we’re deep into that. So there has been some shifts to the mine plan, which of course plays through to strip ratios.

Unidentified Analyst

Okay, cool. Thanks. Does that mean that the strip ratio will come down? And also just a follow-up. Do you need to build some mine ore inventory just ahead of the P680 commissioning, which is around like the September quarter this year?

Dale Henderson

Yes. Austin, there will be a little bit additional ore inventory, but nothing material in that regard.

Unidentified Analyst

Got it. The second question is around the price negotiation. Just in terms of the frequency, I don’t know if there’s any comment for when you’re going to have the next major discussion with your key offtakers?

Dale Henderson

Yes. We don’t sorry, go ahead on that one either Austin, given that each of the review mechanisms are unique to those offtake agreements. But we can say that, yes, they’re semi frequent I guess you could say. They’re more than an annual review.

Unidentified Analyst

Understood. Thank you, Dale.

Operator

Thank you. The next question is from Tim Hoff from Canaccord. Please go ahead. My apologies. The next question is from Glyn Lawcock from Barrenjoey. Please go ahead.

Glyn Lawcock

Good morning, Dale. Just on the December quarter, is it possible to provide us with the head grade, the recovery and the product grade from the plant in the quarter?

Dale Henderson

No. We haven’t disclosed those, Glyn.

Glyn Lawcock

Okay. You’re not prepared to. Do you expect any major changes from the December quarter into the March quarter in the June quarter of those three?

Dale Henderson

No.

Glyn Lawcock

No. Okay. I’ll try and push a little bit more on the pricing. You actually did give guidance in your results or the announcement on the 21st of December, you said you’d get 6,300 when applying current pricing reference data. Now that reference data has fallen 15%, if prices – if those reference data don’t move, would you still get 6,300?

Dale Henderson

Well pricing reference data at that time that matched, that would be within that guidance. That would be the way to think about it. We don’t guide on price. The obvious reason that the market moves and we cannot offer more detailed information into those formulas because they’re commercially sensitive.

Brian Lynn

I think the other key point there is that the market data using for the pricing is current to the relevant time of the shipment. Pricing is provisionally priced and then a final price. So whatever the times of the shipments are is going to be the market data that you’re going to use.

Glyn Lawcock

I appreciate that. So I guess I’m just asking is when you made that comment, current pricing or reference data, would those pricing data above where we’re currently seeing the reference data today then?

Brian Lynn

Yes. Glyn, I think the answer to that is yes. I mean the idea of those pricing formulas is to try and work off a hydroxide and carbonate price and reference through to spodumene concentrate price. So clearly if your reference price is to a hydroxide or carbon price and those prices are moving, then our price moves. That’s the way to think about it.

Dale Henderson

It’s a variable price market.

Glyn Lawcock

Yes. Perfect. Yes. So you wouldn’t get 6,300 if the current pricing reference data stays where it is. That’s all I’m making sure I’m clear on.

Brian Lynn

Yes. That’s correct.

Glyn Lawcock

And Dale, just a final question. What’s your thinking behind waiting till August 2023 for the maiden dividend? I mean, by then you’re probably going to have close to $4 billion plus of cash in the bank, it would appear. You are paying tax as of, I think you said February, I think on the call. Why wait, I mean, you could prepay some tax and pay a dividend and announce a dividend in February. So just why the wait? Thanks.

Dale Henderson

Yes. Good question, Glyn. No, we are certainly thinking about that one and that’s an active discussion internally.

Glyn Lawcock

Okay. Thanks very much.

Operator

Thank you. The next question comes from Anthony Barich from S&P Global. Please go ahead.

Anthony Barich

Yes, hi. I’m just interested in your comment earlier about bringing supply to market is really difficult, looking for some color there. I mean, is it just the usual shipping issues which every commodity has been plagued with for the last year or whatever, or a year or more, is there more to that’s specific to Lithium?

Dale Henderson

Yes. Thanks, Anthony. Yes, my comment was more directed at the later and that lithium and let me give you the hard-rock given is our wheelhouse. Yes, lithium hard-rock is a natural resource has a lot of nuance, which is unique to that resource. So then the challenge becomes a matching, a bespoke process path to that natural variation in the ore body. And then that challenge is just further compounded by the fact that the nature of hard-rock material, it’s challenging in terms of hygiene control. So the mine practice around that require a lot of effort, a lot of accuracy, the ore body, knowledge and management, a lot of effort and accuracy, which is a learned process over time and then into the processing plant. It’s a learned process and an optimization process, which commences once that project is actually built and operating. So there’s quite a journey of test work and then operating practice and operation to really optimize all of that.

And then in addition to that, then you’ve got the just the more practical elements that you just mentioned about being an operator in a competitive environment, the other logistics challenges and so on and so forth. So, yes, my comment was, as I say, more directed around the nuance of the mineral concentration for hard-rock. So what we envisage is for the new operators, they have to go through that learning journey. And it’s very hard to shortcut that.

Anthony Barich

So that’s not something that’s amended anytime soon then, or, but it’s all – sounds like it’s all within your control though?

Dale Henderson

Yes. Well, it is, but it takes time and it takes grassroots, test work flow sheet, modeling, deep understanding, lots and lots of field test work. And if you look back at our historic journey, where we are today, so the product of years of work and effort in this space, and as I say, there’s no real shortcuts. Is it in new control? Yes. But there’s a lot of effort, which is so hard to shortcut or accelerate.

Anthony Barich

Okay. Thank you.

Operator

Thank you. The next question comes from David Feng from China International Capital Corporation. Please go ahead.

David Feng

Thank you. Good day, Dale, Brian, and everyone. Thank you for taking my question. My first question is, may I have the production volume breakdown by Pilgan and Ngungaju during the quarters? And another question from me is, Ngungaju volume is this still on track tech now or part of volume is already secured by some offtake tons? Thank you.

Dale Henderson

Good day, David. So firstly, yes, we’re not segregating the processing asset volumes and the reason we’re doing that is we consider the operation as one, and we report one set of numbers sort of flying from that operation. As to available production tons outright, again, we think of the operation as one, so the Ngungaju operation and combination with the Pilgan. And as to what is those available offtake tons, we’ve guided in the past that once we’re expanded to the P1000 being a million tons per, there’s approximately 400,000 tons unallocated. And once we’re in that expanded format, which of course, we could afford us opportunities around could be vanilla offtake, could be other downstream joint ventures, POSCO, or other types of transactions.

David Feng

Okay, brilliant. Got it though. I will pass it on. Thank you.

Dale Henderson

Thanks David.

Operator

Thank you. The next question comes from Kate McCutcheon from Citi. Please go ahead.

Kate McCutcheon

Hi, Dale and team. Good morning. So you noted that you’re not giving away any – unexpected pricing next quarter. Perhaps, can you give some color on inventories at the moment? Comments on what you are hearing from customers? I mean, you’re producing a 5.3% product and I think, when you set guidance, you were looking at a 5.7%. So demand for lower grades seem to be strong. And secondly, when can we expect another BMX auction?

Dale Henderson

Okay. Now in terms of what are we hearing about an inventory. We have anecdotal scraps of information, so let me make that clear upfront, but we don’t hear of large volumes of inventory in the system, at least in the next step of the supply chain, which is pleasing to hear. And I note that that opinion seems to be throughout some of the commentators notes elsewhere as well. As to grade, we’ve guided that we’ve progressively been tweaking down the target product grade, that that’s just a function of wanting to maximize lithium units to market.

As to the next BMX sale, we haven’t guided on that and we’re keeping our powder dry so to speak around the timing of that. And moving forward, we’re not looking to disclose BMX auctions as we have in the past which we consider business as usual. So you’re moving forward, probably, yes, in order to disclose those and [indiscernible]…

Kate McCutcheon

Okay. So no announcements on BMX going forward?

Dale Henderson

Yes.

Kate McCutcheon

Okay. And then my second question was just on the P1000 project, so it looks like you pushed back FID there by about a quarter, I think. What was the driver of that delay and what are the final pieces you need to get essentially on or what are you working on to make that decision?

Dale Henderson

Yes. The drivers for the delay. Well, there’s a few things, Kate, but we just wanted to – in a nutshell, just take a little bit more time just to bear down some of the estimates. We’re of course conscious around the fact we don’t want to add more time to the overall schedule. We want to obviously ramp-up the operation to full extend as quickly as we can. And that’s why we went forward and the Board approved the pre-FID funding to maintain that schedule.

Kate McCutcheon

Okay. Thank you.

Dale Henderson

Thanks, Kate.

Operator

Thank you. The next question is from Ben Lyons from Jarden. Please go ahead.

Ben Lyons

Good day, Dale. That’s disappointing that you are going to stop reporting BMX numbers going forward. Yes, it’s been a great platform that you’ve helped develop and personally I think increased disclosures always positive for the industry, but hopefully you might reconsider. But anyway, my question was on the tolling discussions. I was hoping you might be able to provide a bit more of an update there. It seems like everything’s pretty aligned for a deal here where you’ve got big prize in terms of the economics and anecdotally, there’s plenty of spare conversion capacity in China still, and obviously your layer on your very strong operating performance, which frees up some of those uncontracted volumes. So can we expect anything more wholesome in terms of tolling in the short-term? Thanks.

Dale Henderson

Yes. Good day, Ben. Yes, sorry to disappoint you on the BMX. Yes. It’s to the tolling, yes, look, we’ve got the team busy doing work on it. But, yes, unfortunately I can’t often too much insight at this point.

Ben Lyons

Right. Okay, thanks.

Dale Henderson

Thanks.

Operator

Thank you. The next question is from Joshua Hain from REST Investments. Please go ahead.

Joshua Hain

Thanks for that. Good morning, all. I guess just in light of the sort of current mining challenges you’ve alluded to at current production levels, I’m just interested how that is sort of flowing into the P1000, thinking given you’ll need to move a significant amount of dirt to get there. And I guess are you committed to that level of expansion or is that still something that could be tweaked?

Dale Henderson

Yes. Joshua, yes, as to P1000, we’re absolutely committed to that. As to the mining volumes, the run rate that we’re moving – needs to go up a little bit more, but not massively from where we are. As to the challenges we’ve had, part of the explanation is, is we have been going through a period of effectively establishing our own operator – operation with – we had MACA mining, which we’d progressively tapered down, and we’ve been tapering up our own fleet, albeit it is supported with equipment higher contractors and some service contractors and drill and blast, being some drill and blast. So there has been, I guess you’d say some teething elements around establishing the operation. But as shift-to-shift, week-to-week, month-to-month, it’s getting better and better and the team is beating those operational roots down. So we see continued progress. So there’s no cause for concern about being able to resolve those challenges we’ve had and make sure we’ve got an efficient mining operating platform to support P1000.

Joshua Hain

Okay. Fantastic. Thanks for that.

Operator

Thank you. The next question is a follow-up from Al Harvey from JPMorgan. Please go ahead.

Alistair Harvey

Yes. Thanks for letting me to have the follow-up. I can’t get much out you on the spot pricing, but just wanting to get an update on where Tantalite markets are at the moment. Notice that your shipments pick back up after a quiet couple of quarters and does have a – can have a material impact on the cash cost through the by-product line. So any color on that would be helpful.

Dale Henderson

Sure. Thanks, Al. Welcome back. As to Tantalite, from a production volume perspective, it’s been slightly down on where we wanted it to be principally around two reasons around the – we’ve got some maintenance work, which was deferred, which meant to happen on the quarter being and we’ve had to defer that. That’s one element. The other element is just the concentration of tan units coming into the ore feed, has ebbed and flowed at different points, which translate to production volumes. As to the latest pricing, I’m looking around the room, has anyone got the latest pricing? I’m sorry, I don’t have the latest pricing at this stage. But as you’d expect, our tan relatively speaking, the team’s focus is on lithium. It’s not lost on us at the benefit of those Tantalite credits, however, but it doesn’t by proportion, lithium gets the focus.

Alistair Harvey

Yes. Makes sense. Thanks, again, Dale.

Dale Henderson

Thanks Al.

Operator

Thank you. We will take the final two phone questions before moving to webcast questions. The next question is from Michael D’Adamo from Canaccord. Please go ahead.

Michael D’Adamo

Hi, Dale. Just wanted to query your strategy around ore movement. We’ve seen the mining rates have been hardening the processing rates for a while. Are you guys building a low grade stockpile or is it some sort of blending and raw management strategy?

Dale Henderson

Yes. Good day, Mike. All of the above is the answer there. Yes, the operation is a blending operation, where the team mixes minerals effectively. So as a function of that, there is this sort of stockpile build as a function of mineral type, and there’s also a stockpile build, which relates to the ore or the host-rock to ore body interface, we call that content. There’s also a stockpiling which clears around that as well. So yes, there is stockpiling.

Michael D’Adamo

Okay. Thanks, Dale.

Operator

Thank you. The next question is from Alex Ren from Credit Suisse. Please go ahead.

Alex Ren

Dale and team happy new year and congrats on a strong quarter. Just a follow-up on BMX pricing. Obviously your house served as a great leading indicator when prices were rising and has helped out on the contract negotiation. But now in a falling pricing backdrop, is this part of the – so just trying to understand, is this part of the strategy trying to sustain your realized prices, just could you give us a bit more color on this decision to not to publish the pricing anymore?

Dale Henderson

Okay. Alex, look, firstly, as to where does the price goes, falling versus rising versus staying the same. I don’t think anyone knows that, so probably the first point. The second point is to the rationale of not looking to disclose on the BMX platform, the thinking there is, by proportion, it’s not a big part of our business as to the visibility of that pricing. Of course, it finds its way out into the market in any event. Obviously the price reporting agencies are all over the stuff whether we disclose or not disclose. So from our perspective, shining the spotlight on it through ASX releases is not required and not necessary in terms of the activities in our business.

Alex Ren

Understood. Yes, congrats, again on a nice quarter. Thanks.

Dale Henderson

Thanks, Alex.

Operator

Thank you. There are no further telephone questions at this time. I’ll now hand over to Pilbara Minerals’ Chief Commercial and Legal Officer, Mr. Alex Eastwood to MC webcast questions.

Alex Eastwood

Okay. Thanks very much. And welcome everyone, and thanks for all your questions. We do have quite a few questions. And I’d say a number of them have already maybe touched on, we’ve touched on certain topics or some of these questions can be consolidated, so I’ll just try and go through them methodically. The one that’s – we’ve got quite a few questions about dividends, which I think we have touched on, but essentially, perhaps Brian, you could just relay the message there, the questions concerned about timing of the dividend and in particular, which month and whether there’s even a possibility of increasing the ratio payout of the dividend given a very healthy cash position?

Brian Lynn

Sure. Thanks, Alex. On the question on the payout ratio, I don’t think that would be increased. I think we do want to try and at this point allocate as much of the cash to growing the business. So I think that needs to be the emphasis of the business for the next 12 to 18 months. In terms of the timing of the dividends, we do refer to the fact that the first dividend is going to apply to the FY2023 financial year. Yes, the Board is still considering exactly what that timing is going to be. So that decision is going to be made, but yes, there is a possibility that there could be an interim dividend and then a final dividend paid later on, that still is under consideration. The Board and the company are very aware of the buildup of cash that is going on and clearly interested and keen to return some of that money to shareholders. So we just need to find the right balance there and obviously part of that is also just being cognizant of the level of tax being paid and the franking credits that might be available.

Alex Eastwood

Yes. Thanks, Brian. And one on the same theme, capital management, we have a few queries about the possibility of a buyback as opposed to a dividend or in conjunction with the dividend. Could you provide some commentary on that?

Brian Lynn

Yes. Look, it’s part of the considerations, yes, we clearly keep an eye on the company’s share and share price and I’ve got some value triggers, if you like, where we would think about buybacks. But again, I’d sort of emphasize that I think we’re better to deploy the capital and trying to grow the business. I think we’ve got a lot of very good opportunities ahead in the next 12 to 18 months, which are being explored by bringing the right people into the company to try and make the most of those opportunities. The P1000 project, once it’s up and running, we’re going to have in the vicinity of 350,000 to 400,000 tons of available tons, which aren’t committed, clearly that’s some leverage that the business should be using to try and grow. And I would’ve thought that’s probably where the efforts of the business need to be, including where we choose to spend the money.

Alex Eastwood

Thanks, Brian. I’ll start – questions come through as to in relation to Ngungaju as to whether there’s any updates on the Ngungaju plant in terms of production predictions, et cetera?

Dale Henderson

I’ll just say, yes, Ngungaju going well and nameplate.

Alex Eastwood

The questions come through – quite a few questions about strategy, which I think might be easy to consolidate, but essentially a few questions about strategy to diversify further downstream and also strategy to diversify potentially into other commodities like copper. And there’s particular line inquiry about North America being particular favorable opportunity given there’s a lot of junior emerging within companies in North America. There are some advantages in North America from an ESG point of view. So really people are just asking for a bit of commentary about that, Dale.

Dale Henderson

Yes. Sure. Thanks, Alex. Yes. So as it relates to diversification part through downstream, within lithium, our view is it makes really good sense to be integrated downstream for several reasons, but the most important of which is it enables a higher proportion of value to be created for our shareholders. Second benefit is, it puts in place a co-dependency between raw material supplier and that downstream converter and effectively hardwires you into the supply chain. So that’s another key strategic advantage.

The other pieces around downstream, we of course consider is geographic diversification and also having alignment as it relates to sustainability credentials and working with that counterparty to pursue that aim. And the POSCO joint venture is really casing point. So we think continued downstream makes really good sense for our business, and we will continue to explore and think through that aspect.

Moving to other commodities. In this category, look, we haven’t made any decisions as to where to next in terms of diversification beyond the Pilgangoora asset. As I mentioned earlier in the call, we’re definitely working through a process of turning our mine through this. And as I mentioned earlier, we’ve got a Chief Development Officer coming into the business who’ll be obviously leading up this function. So what’s the space? But as I say, no decisions in this category, but do we see opportunity as it relates to the renewables energy shift and the need for more copper and the line? Yes, of course, we’re believers in that as we are in lithium.

Moving to North America as a perspective opportunity, yes, absolutely North America clearly has got some great assets. That being said, in many parts of North America, it is very much a pioneering challenge, they do not have some of the benefits we enjoy in Australia or particularly Western Australia with an established mining industry and engineering and technicals plus all of the logistics and support infrastructure. What Western Australia has is hard to beat. So in some parts of North America, they don’t have that. And from an approval standpoint, again, that’s probably not as good as we enjoy here. But all said and done is the prospective emerging area. Yes, but we would, I think it will take time. Are we interested in it? It’s certainly on the cards as all other opportunities as I said earlier, we haven’t made any sort of decisions as to where we’ll go over, yes, North America is certainly higher up the list than other parts of the globe.

Alex Eastwood

Thanks, Dale. Next questions come through, concerning port capacities. The question is what is the company doing to improve the rate of loading product at the [indiscernible] of Port Hedland with P1000 not too far away, it seems the current rate of loading by the load out bulk system maybe too slow?

Dale Henderson

Yes. Thanks, Alex. So as it relates to port out load, now both case using retainer boxes, it’s fine and works as a methodology by which to out load concentrate both at our current production levels, but also at the expanded production levels for P1000. However a bulk out load system is absolutely a better methodology in terms of moving high volumes and unit cost. Now in this category, we are engaged with PPA and it’s well known that lumps point is to be developed and the government flagged funding couple $100 million last year to go towards the development of that port facility.

We are in discussions with PPA as you’d expect to support and influence the fostering forward of that development. And yes, we will look to work with the PPA with the view to hopefully help get a bulk out load system in store for the purpose of concentrate and certainly PPOs very receptive and keen to form a solution there. So for the long game, and let’s not forget we’ve got a multi-decade operation, we are thinking the full course of time, that’s where we’ll head.

Alex Eastwood

Thanks, Dale. A question about P680, essentially, what are your plans to maintain and accelerate the P680 project and what do you anticipate the annualized production rate will be after the P680 project is commissioned?

Dale Henderson

So P680 for us the team to accelerate. I think they would go. What do you mean we already are? We’ve asked the team to go at warp speed as it relates to the speed of not only the delivery of P680, but P1000. And we are bullish on lithium and we are bullish on our position to expand our operating platform and we think we have an incredible opportunity to capitalize in this market. But to capitalize in this market, we have to get that additional expanded production capacity in place as quickly as we can, and that’s what we are geared up to do.

Alex Eastwood

And on the same theme for P1000, the question is, as lithium prices are so high, is upgrading the facilities to 1 million tons per annum your first priority?

Dale Henderson

More lithium units to market is priority one. So as per the strategy outlined at the start operating platform, number one, to expand that operating platform as rapidly as we can and yes, the sooner we can do that, the more units to market, we can enjoy that pricing.

Alex Eastwood

Question – a few questions around BMX. How much volume in geometric tons per annum could be run through BMX?

Dale Henderson

I guess the sky is the limit with the cap bank. What does Pilbara have available? And broadly speaking at the expanded P1000 cases, it’s mentioned earlier, there’s 400,000 tons approximately of unallocated tons, so that 400,000 tons could go through different pathways to market, one of which could be the spot sales through BMX. However, as mentioned earlier in the call, we are a fan of downstream integration because we see that as a better avenue to create more value for our shareholders through the extracting value through that next processing step.

Alex Eastwood

Yes. I think, and that’s another question about BMX, what is the future strategy for it?

Dale Henderson

Yet to be determined. I would say in that regard, I think BMX has been absolutely massive step forward, very helpful for the industry to provide a trusted representation of price discovery. Certainly, spoke previously about we like the idea that it’s grown into an industry platform, that that’s certainly a possibility and it’s an open question as to where we take that platform.

Alex Eastwood

Okay. Question about Calix. Does the Calix demonstration plan become a usable for operations, if the demonstration is proved actually viable?

Dale Henderson

The short answer is yes. Yes, the scale of that demonstration of plant is such that it will produce material volume product to the tune of about 3,000 tons of migrate lithium salt. So subject to the pricing of that product and subject to the unit cost through that facility, we anticipate there would be healthy margin to be made. Obviously, that depends on the market, in which case you would keep that running. I think a bigger question is if it’s a compelling economic proposition, well, how do you go to scale? And if you are going to scale, what does that mean for that demonstration plan? Or we haven’t made decisions around this, but certainly it’s to be worked through and flow through.

Alex Eastwood

And just going back on BMX, a question came through around sort of timing, the next auction, will there be one in January? And volumes, 5,000 tons versus 10,000 tons. And a question also around, why on occasion we’ve accepted pre-bid auction pricing?

Dale Henderson

I must give this one to you. As to timing and volumes we haven’t guided in that regard for BMX and was mentioned earlier in the call, we’ve purposely kept our auctions available to us such that we will pick what’s best for our shareholders. As to the strategy of accepting pre-bid versus going to auction, I’d say BMX has been a process of discovery not only in the deployment of the system itself, but also how to best engage with the market. And what we’ve been doing is exploring both those options of the direct bid, but also the pre-bid auction and we haven’t formed a view of what’s best, but it’s just been a different strategy which we’ve chosen to explore.

Alex Eastwood

Question now, perhaps Brian, this one can be directly to you is, what is the current profit margin sales? And I suppose with increased supply coming from competitors is the margin likely to fall over the next 12 months?

Brian Lynn

I talked on the profit margin was for the December quarter. So yes, the margin – the operating margin is really the realized price, which was US$5,668. So if you convert that to Australian dollars, it’s probably, I don’t know, getting revenue per ton of about just over $8,500 a ton. Our cost per ton is the $1,169 per ton in Aussie dollars. So the difference between those two is the margin you’re making per ton. So that’s about just over 7,400 I think. So that times, the 148,000 tons we sold is the margin for the December quarter. But margins going forward are really dependent on what the market’s doing and what the market price is and that’s not just about selling price you get, but obviously if the whole mining industry comes off, then the expectations that your cost come down as well. So as a business what we are going to do is look after our costs as much as we can, and that is the best way to protect margin.

Alex Eastwood

Thanks, Brian. Next question is what percentage of sales are China based and therefore what’s the impact of COVID to these?

Dale Henderson

Sure. So the current proportion of sales to China is quite high in the order of 95%. However, that will change as joint venture with POSCO begins to ramp up by which point that would be approximately one-third, two-third to China, depending where we’ve got to with the P1000 expansion. But ultimately at P1000, I mentioned there’s approximately 40% of production profile unallocated. So that of course is a key consideration. So the forward view P1000, it might be 30% China, 30% South Korea and the balance to go somewhere.

Alex Eastwood

Yes. Thanks, Dale. Question about grade, we noted the quarterly average grade was 5.4 sold. The question really is what was the grade that was actually produced during the quarter?

Dale Henderson

I think from memory is about 5.3 produced for the quarter.

Brian Lynn

Yes. Just under 5.4.

Alex Eastwood

Question about exploration. Dale, could you provide an update on localized exploration around the current Pilbara sites?

Dale Henderson

Yes. Well, first and foremost, we’ve got drilling underway at Pilgangoora, so yes, section 6 of the quarterly provides a bit of detail around that. So Johnny Holmes, our longstanding Exploration Manager, is back out there working the rigs hard and we’re looking forward to seeing how he goes in the coming months with a view to doing a new reserve later in the year. So we can touch with that goes well, and we’re quite positive on that.

As to more regional exploration, we’ve been doing a little bit, but that’s fair to say the activities have been fairly minimal in that regard given we are concentrating our efforts where we can make maximum value as quickly as possible, and that’s first and foremost at our base asset, trying to keep the foot down and do everything we can to expand that as rapidly as we can.

Alex Eastwood

And just another question around that asking when we – about expanding reserves, there is a question about do we have initial results indications, but I don’t think we are in a position to disclose those, but perhaps just comment on the intention about exploration to expand the reserve base.

Dale Henderson

Yes. So we’re busy drilling now. As to that reserve update approximately August, now I’d expect the timing after that reserve update.

Alex Eastwood

P1000, is there a ballpark number for this investment?

Dale Henderson

No ballpark number. But obviously as we look to disclose the FID, later in the quarter, we’ll, obviously, the capital verdict for that will be part of that decision.

Alex Eastwood

Couple of questions about Calix. Could you give some detail about explaining the benefits of the midstream flash calcination?

Dale Henderson

Sure. So the flash calciner, we think is potentially a big step forward for the calcination of spodumene product. Well, hope we think it’s a big step forward is, firstly, it’s electrically fired and therefore you can plug in green energy effectively and contrast the conventional rotary kiln, big, long horizontal kiln, either gas fired or coal fired, so very carbon energy intensively. So we think that swap from hydrocarbons to electric is, firstly that the first big benefit.

The second big benefit is that the nature of a vertical kiln we see has a benefit in the way it actually enables the alpha to beta phase conversion of the spodumene particle because the vertical calciner enables the product to fall, it’s affected the – particles are effectively dislocated from the other particles, which means that one of the challenges that you get in a rotary kiln is a particle-to-particle contact, which affects what’s called the eutectics, which is a fancy way of saying the temperature properties change and you have issues around melting it all equals lithium loss. So what we’ve observed through test workers, the vertical kiln is superior in this regard. So those are probably the two big advantages.

And probably the third big advantages would be thermal control of that vertical kiln given that it’s electric, you’ve got more ability to control the temperature, which therefore means you can dial-in more strongly control the required temperature for your phase conversion for that spodumene. In contrast, back to the rotary calciner, which has the big jet engine of flame that has a thermal gradient because it has a thermal gradient, you get variation and the phase change property. So in a nutshell, those are the probably the three key parameters, but all said and done, at the end of the day, it will remain a cost game for competition. So unit cost will always matter, and hence why we need to get our demonstration plant built so that we can make sure that it can compete on the global stage.

Alex Eastwood

Thanks, Dale. So we’re at the home run now. Two final questions. First one, would we consider building our own lithium chemical plant?

Dale Henderson

Yes. We would.

Alex Eastwood

Okay. And the final question, which I think is a good question to sort of close out the session is can we provide some commentary about Pilbara’s market valuation noting that we are obviously producing significant revenue and have great prospects of expansions compared to say some of our other peers. Is there a message to existing our prospective shareholders as to why to invest in the Pilbara?

Dale Henderson

Sure. Well, where do you start? I think, as I said in some of my opening comments on the strategy slide, Pilbara has got an incredible offering in this space. Pilbara best and foremost is developing an enormous Tier 1 asset and a Tier 1 location. And we’ve got this remarkable opportunity to scale up this operation into a growing demand set for lithium. And the barriers to entry are high, processing of lithium is very challenging, and Pilbara has a technical advantage, technical and operating advantage, and has got a demonstrated track record of delivery. So that would be a couple of key reasons. And then further, we dealt well down the path of downstream integration with partners we met, the likes of POSCO. We’ve been in this space for a long time moving forward rapidly with the development of our joint venture chemicals plant and [indiscernible] South Korea, which is at the doorstep of the existing battery material supply chain being LG Chem, SK Innovation, so on and so forth. So we stand poised to benefit from that.

And then we are getting into the likes of the midstream project, which is novel, but look at has real potential to make a real dent and carbon energy intensity. And if we can get that right, we think that will go really well now. And to our knowledge, there is no other operator or business in this space tackling this head on and Pilbara is focused on this and doing everything we can to drag the cart forward now. That goes well, of course that benefits will flow back to our shareholders. So the combination of the above means that Pilbara who has an absolutely unique offering to market that in my opinion, no one else does. And the remarkable thing is we’re only partway up this growth curve, and that’s without turning our mind to the next steps of growth beyond the Pilgangoora asset, leveraging our strengths around balance sheet, technical aptitude so on and so forth. So gee, where do you stop? So that’s it in a nutshell. So pls fill your boots and thank you very much for that last question.

And my final comment is, yes, thank you to all who joined the call today and again to those longstanding shareholders. Thank you for your support and we look forward to updating at the half-year late in February. Thank you very much for your time. Back to the moderator.

Operator

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.