Operator: Welcome to the Liontown September Quarter Results Call. Following the formal presentation, there will be a Q&A session for investors and analysts. Participants can ask both text and live audio questions during today's call. To ask a text question, select the messaging icon, type your question in the box towards the top of the screen, and press the send button. To ask a live audio question, press the Request to Speak button at the top of the broadcast window. The broadcast will be replaced by the audio question screen. Use the dial-in number and access PIN provided to ask your questions via the phone. Alternatively, for those on a home or personal network, you can ask your questions via the web by pressing Join Queue. If prompted, select Allow in the pop-up to grant access to your microphone.
Operator: If you have any issues using the platform, dial-in details can also be found on the homepage under Asking Audio Questions. Text questions can be submitted at any time and the audio queue is now open. I will now hand you over to Tony Ottaviano, Managing Director and Chief Executive Officer of Liontown.
Tony Ottaviano: Thanks, Oliver. Good morning, and thank you for joining us at Liontown's September quarter results. With me this morning are Ryan Hair, our Chief Operating Officer, and Greg Jason, our Chief Financial Officer. Over the next short while, I will set out the quarter's key outcomes and where we sit regarding our strategy. Ryan will take you through the safety, the underground ramp-up processing, and where the expansion has got to. Greg will cover the financials and the balance sheet. I will come back and then provide a market outlook, reinstating of our FY2027 guidance and a short summary. Then we will take questions. I will take you to the next slide, which is our disclaimer, and take it as read. Now we move into our strategy in action.
Tony Ottaviano: We run the business on three pillars. All three moved forward in the September quarter. The first is ramp up. We are safely ramping up Kathleen Valley to 2.8 million tonnes a year. Underground mining ran at 1.6 million tonnes a year rate through the quarter, consistent with our guidance in March and June. We are stepping this up to 1.9 million tonnes a year rate in the December quarter, where we expect to mine between 450,000 to 500,000 tonnes of underground ore. We remain on track for that 2.8 million tonne run rate exiting June 2027. Ryan will expand on this further in his section. The second is delivering Kathleen Valley's full potential. In September, the board approved the final investment decision for the expansion and early works already in execution.
Tony Ottaviano: From that point, we will have two ore bodies operating independently, which gives us genuine operational flexibility. The third is growth. We completed the initial stage of our farm-in at the Centenario brine project in Argentina, our first dip into brine, and our studies in Buldania are advancing. Underpinning all three, we finished a quarter with AUD 502 million in cash and an underlying operating cash flow of AUD 69 million. A combination of these two helps underpin the funding for the next phase of growth for the company. If we now move to the next slide, please. As previously guided, we used the last two quarters to invest heavily in preparing the underground for the next step up in production and productivity, and the numbers reflect that.
Tony Ottaviano: Underground development advanced 4,021 meters, a record for the operation and up 21% for the June quarter. We prioritized opening new ore access ahead of production tonnes. Development is what opens the new mining fronts and new mining fronts are what lifts the mining rate. We produced 78,000 dry metric tonnes of spodumene concentrate, which we completed processing in the last of the open pit stockpiles, drawing them down from 239,000 tonnes to 81,000 tonnes. The final open pit material was more variable, which affected recovery, and recovery will benefit as underground feed takes over and we can blend more material more consistently. The plant was also paced to the ramp up and the stockpiles we had available, but it ran at its best availability to date, at 94%.
Tony Ottaviano: We sold 82,000 tonnes across five parcels. Sales reflected previously guided shipment timing at the port, with one shipment moving into the December quarter. Unit operating costs were AUD 1,259 a dry metric tonne on an FOB basis, reflecting the sales timing and what we expect unit costs to come down as new volumes build. Our realized price was $1,966 a tonne on an SC6 basis. Underlying cash flow was AUD 69 million, but after accounting for a one-off customer settle, we recorded a statutory operating cash flow of AUD 46.6 million. We closed the quarter with AUD 502 million in cash and 16,000 tonnes of saleable con. This quarter is where we invested in the ramp up.
Tony Ottaviano: Our guidance is unchanged, and the work we did in this quarter is what delivers the rest of the year and underpins our 2.8 million tonne a year run rate. The market has moved since the quarter is closed. I will come back to that at the end when I read out and discuss the market analysis. Ryan will now take you through the safety and operational in detail.
Ryan Hair: Great. Thanks, Tony. To the next slide, please, Oliver. Starting with safety, our total recordable injury frequency rate rose from 11 to 14 over the quarter. Each of those injuries means someone was hurt on our site, and we are committed to ensuring everyone goes home safely. The recent injuries are mostly hand injuries and strains concentrated in contracted work groups at a time when we are bringing new crews and equipment onto site. We have been working closely with our contract partners to ensure everyone is set up to work safely. Our key response to this is the Safety Culture Program, which started this month. It is a 2-year program built on the evaluation we undertook last quarter, focused on three things: leadership in the field, critical risk management, and a strong reporting culture.
Ryan Hair: Our lost time injury frequency rate held at 1, and safety observations rose to just over 5 per thousand hours. People are reporting, which is exactly what we want to see. On power, renewable energy penetration held constant at 71%. Next slide. Thank you. Next, again. As Tony indicated, development is the story of the quarter again, with just over 4,000 meters developed in the quarter. A record up 21% on the prior quarter. That is more than double the rate from the same time last year. The image on the right-hand side shows where those meters went. Each color is a quarter. Purple and orange are Q3 and Q4 from last financial year, and green is the quarter just gone.
Ryan Hair: You can see the mine development down and out from the Mount Mann box cut, opening new levels and new mining fronts. As we have noted before, this is the point of the meters. Every level we open is somewhere we can mine from. Our investment in development is opening up the mine to support the ongoing ramp up in production. Next slide. Thanks, Oliver. We presented a version of this slide previously. Getting from 1.5 to 2.8 million tonnes per annum comes down to two things, more places to mine and more equipment to mine with.
Ryan Hair: On work areas, we are unlocking seven new mining levels over the course of the FY. The lower levels, which are being developed now, carry somewhere between 2 and 5 million tonnes of ore each, with room for several work areas on a level. By the end of the quarter, we had grown from four work areas to 14, setting the mine up well for the rest of the year.
Ryan Hair: On equipment, we added two jumbos, two loaders, and three trucks in the quarter, taking the fleet from 21 to 28. We are bringing equipment on in stages, growing to a fleet of 41 by the end of the financial year. More places to mine and more equipment is what underpins the step up from here. Next slide. Thanks. Underground ore mined was 389,000 tonnes at 1.4% lithium, up 9% on the June quarter. Annualized, that is approximately 1.6 million tonnes per annum, in line with the 1.5 million tonnes per annum we guided through to this quarter. We said in March and again in June that development would be prioritized, and it was. That development has opened up the next levels, which significantly increases the tonnes per vertical meter and productivity.
Ryan Hair: For Q2, we expect between 450,000 and 500,000 tonnes of underground ore at a rate of approximately 1.9 million tonnes per annum. From there, we will continue building towards the 2.8 million tonnes per annum run rate by the end of FY2027. Moving now to the plant on the next slide. Starting with the reliability that Tony Ottaviano mentioned, availability was 94%, our best quarter, up from 92%. Throughput was mainly set by ore supply, not the plant. With stocks drawn down from 240,000 tonnes to around 80,000 tonnes, we matched the plant to the underground mining rate, resulting in ore processed of 508,000 tonnes. Notably, the plant processed just shy of 650,000 tonnes in the June quarter, so it has room for the ramp up tonnes. Recovery was 60%, down from 63% in the prior quarter.
Ryan Hair: Feed this quarter included higher levels of contamination in the open pit stockpiles, with limited stocks for blending, feed consistency was not optimal. As a reminder, when we have fed the plant clean ore, it has delivered 70% recovery. So the work from here is managing what goes into the plant, especially feed consistency, which we expect to improve as the mine ramps up through the course of the year. As a result, recoveries will improve, with the mine ramp up progressing well, we expect production to increase through the remainder of FY2027, and as such, production guidance is unchanged. With that, onto the expansion. Next slide, thank you. In late September, the board sanctioned the Kathleen Valley expansion.
Ryan Hair: It is a staged AUD 389 million investment that delivers capacity incrementally, increasing processing capacity from 2.8 to 4.2 million tonnes per annum and lifting concentrate production by more than 50% to a five-year average of around 780,000 tonnes a year from FY30. This is a mine expansion and a plant de-bottlenecking project. I would like to highlight four things. Firstly, the two ore bodies, Mount Mann and Kathleen's Corner underground, operate independently, which gives us operational flexibility. Second, capital intensity of AUD 1,619 per tonne is the lowest of recently announced greenfield expansions. Third, scale lowers unit cost. Unit operating costs of AUD 840 to AUD 920 a tonne in today's dollars, averaged over five years from FY30. Lastly, payback is around two and a half years from the end of construction.
Ryan Hair: As shown in the plant images, the core upgrade is a new ball mill and the rest are upgrades to the existing circuit. We are expanding a plant we already know, not building a new one. Next slide. We are moving at pace. Most of the owners team that will deliver the expansion is engaged or identified and working from new project offices at site, and that is the pre-start in the top left image. The ball mill is being manufactured and on track for delivery in Q3 of FY2027. Bottom right is the pin mill ready to ship. The mine services area is taking shape, as shown in the bottom left image. Engineering and procurement are underway across mining, processing, and non-process infrastructure, and contractors are on track to mobilize.
Ryan Hair: Top right is the progress at Kathleen's Corner. We remain on track for first ore in Q1 FY28 and completion of the expansion by the end of Q2 FY29. With that, I will hand back to Tony.
Tony Ottaviano: Thanks, Ryan. Can we move to the next slide, please? Okay, we are now talking about the third pillar, which is growth. In September, we signed a binding farm-in with NEXT Lithium Corp. to earn up 100% of the Centenario Lithium Brine Project in the Salta province. Initial completion occurred on 2 September. Kathleen Valley remains the core focus, however. Brine is one of two principal sources of the world's lithium, and Centenario gives us an early low-cost access to a prospective brine district alongside a partner that knows lithium, knows brine, and knows Argentina. We paid $15 million US upfront with $5 million in cash and $10 million in Liontown shares. Phase one is $15 million of project expenditure over the next 2 years, which earns us up to 49% of the interest.
Tony Ottaviano: Beyond that, we can move to 100% by funding another $40 million of project expenditure over 4 years, together with milestone payments linked to resource success. Every stage is a decision point, not an obligation. We fund the next tranche only if the results and the market justify it. This is how we take a position on a frontier basin without putting significant pressure on our balance sheet. Alongside that, we have Buldania advancing. We have designed the infill drilling program and engaged contractors during the quarter. RC drilling and diamond drilling begins in the December quarter, and we will feed the geotechnical and waste characterization studies as part of the overall assessment. We have completed heritage surveys with the Ngadju people, and I will now hand over to Greg to take us through the financials.
Greg Jason: Thank you, Tony. Slide 17, please, Oliver. We generated AUD 69 million of underlying operating cash flow in the quarter, and that came from AUD 193 million of sales receipts, which was supported by stronger realized price and backward-looking QPs. Production and other operating cash costs increased 3% to AUD 130 million, as we prepare for the ramp up through the rest of FY2027. We had an AUD 22 million outlay in settlement of a disputed shipment from the March quarter of this calendar year, and that takes us to an overall operating cash flow of AUD 47 million. We had AUD 82 million of CapEx with AUD 14 million of that sustaining CapEx. That is clearly less than 25% of the full-year guidance that we provided a few months ago.
Greg Jason: The time phasing of projects is not uniform through the year, and sustaining CapEx will ramp up during the rest of the year. We had AUD 68 million of growth CapEx. AUD 23 million of that was underground development to ramp up Mount Mann to a 2.8 million ton per annum run rate. AUD 38 million was spent on optimization and expansion projects, including the mine services area, Kathleen's Corner underground capital development and infrastructure, the new ball mill, paste plant upgrades. We had a significant step up in the financing cash flows this quarter because we commenced the principal and interest payments on the Ford facility and the principal-only payments on the LISP.
Greg Jason: So overall, our net cash flow was negative AUD 58 million, and we closed the quarter with just over half a billion dollars in the bank, 16,000 tonnes of saleable concentrate. Next slide, please, Oliver. Looking at some of the other financial metrics, we generated AUD 199 million of revenue from 83,000 tonnes of sales.
Greg Jason: We had a 10% increase in the Aussie dollar realized price. The increase in Aussie realized price was driven by two factors. One was the higher product grade, going from 5% to 5.2%, and the other factor was the increase in the USD SC6 price going up to $1,966 a tonne. That reflects the customer mix on the variety of QPs, some forward and some backward-looking. Moving to the unit operating costs, we provided guidance that we would deliver in the range of AUD 1,050 to AUD 1,250 for the full year, and we also guided that Q1 would have flat mine production compared to Q4. Quarters 2 to 4 all have incrementally higher production than their preceding quarter.
Greg Jason: We plan for lower tonnes in Q1, and we budgeted the Q1 unit operating cost to be at the upper end of the guidance band, and that is exactly what we are seeing come through. We are maintaining full-year guidance, and we will see unit cost reduce as the year progresses. Moving to the next slide, please, Oliver. As part of the FID announcement for the expansion that we made at the end of September, we said that we could fund the capital program from existing cash reserves and operating cash flow, given consensus pricing. Current prices are obviously below the September consensus, and they dropped quickly.
Greg Jason: So naturally, we are watching to see how and when the market rebounds, but we are not managing our business based on a price drop that has occurred in a matter of weeks. There are a number of levers that we can pull to manage liquidity. Of course, we have got the starting point with half a billion dollars in the bank at the end of September to use or raise additional debt capital, as illustrated on this slide. We have got uncommitted expansion tons that we could commit under an offtake agreement with a prepayment arrangement.
Greg Jason: Finally, we could defer CapEx, but the expansion is highly accretive, and therefore, it is not the first lever that we would pull to manage the credit. I will now pass you back to Tony, who is going to talk you through the market outlook.
Tony Ottaviano: Thanks, Greg. I do want to spend a little bit more time on the market outlook, given the variability and the drastic changes we have seen in the last 28 days. If we can have the next slide, please, Oliver. There is no question the market has moved since the quarter closed. Given our recent growth announcements, we have continued to review the fundamentals to give us a better perspective and look through this volatility and the sentiment that the daily trades on the future trades are creating. This chart shows the latest forecast from six investment banks for calendar year 2026 and also 2027. They average, in 2026, a deficit of 121,000 tonnes of lithium carbonate equivalent, about 6% of the overall supply. For 2027, they average a surplus of 28,000 tonnes, a little over 1%.
Tony Ottaviano: For me, the telling points are the variances. If we think about what this implies, the average forecast swing in 2026 from the average to the other average in 2027 is 150,000 tonnes. That is three Kathleen Valleys in 12 months, all arriving in that single year. If I go one step further, one prominent bank goes to the fact that they say there is 404,000 tonnes of deficit in 2026 to an oversupply of 193,000 tonnes next year. That is a turnaround of 600,000 tonnes, nine Kathleen Valleys or four Pilgangooras in one year.
Tony Ottaviano: What is the insight here? Well, the insight here, I think it is obvious, that the market is tightly balanced, in our view. Small changes in sentiment have a large impact on price. Our view is that that is exactly what is happening when we look at the fundamentals. Firstly, inventory. Stocks lean right through the chain.
Tony Ottaviano: Stocks are lean right through the value chain, from spodumene to chemicals to cathode. Carbonate in the exchange's own warehouses is below 20,000 tonnes, the lowest since March. Part of that is deliberate because buyers expect plenty of supply next year, so they are leaving themselves open with very little buffer. If most forecasts assume inventory does not change, then we are going to see a massive fly up in the restock when that happens. The last time we saw a restock like that was in 2022, and prices spiked. The second is demand, which is more diversified than it ever has been, both geographically and by end use. While EV penetration in China has moderated, we have seen penetration rates in Europe and the rest of the world grow significantly. Global sales are up 3% year to date.
Tony Ottaviano: In August, China's battery output was up more than 50%, and energy storage output more than doubled. Demand for electric heavy trucks in China has doubled this year, and each heavy truck needs roughly 10 times the lithium of a car. On storage, the industry builds to order. The gap between shipments and installments mostly reflects how long large storage projects take to build. We do not see a large overhang of unsold batteries. The third is supply, which is harder to deliver than the forecasts assume. Most of next year's growth relies on China and Africa. In China, it depends on mine licenses being renewed, and the largest of these mines are still working through the approvals. Zimbabwe bans concentrate exports from 1 January before its local processing is ready.
Tony Ottaviano: Low volatile prices makes each new project harder to fund. We landed a deficit to balanced in 2027, with the surprises more likely on the upside. Our response is to lower our cost, lift our scale, and keep a balance sheet that lets us hold our course through every part of the cycle. If we move to the next slide, please. Our FY2027 guidance is unchanged, and we are reaffirming that again this morning. If we move to the next slide, please. Now I will close where I started on the three pillars. On ramp-up, we mined 380,000 tonnes of ore, up 9%, and we developed a record 4,021 meters, up 21%.
Tony Ottaviano: We are targeting a mining rate of about 1.9 million tonnes a year in the December quarter, which equates to 450,000 to 500,000 tonnes of ore in that quarter. We are on track for our 2.8 million tonne mining run rate by the end of FY2027.
Tony Ottaviano: On full potential, we approved the AUD 389 million investment in the expansion, which takes us to the 780,000 tonnes of concentrate by FY30. We closed the quarter with AUD 502 million of cash, supported by AUD 69 million of underlying operating cash flow. On growth, Centenario farm-in is complete, the capital is staged to results, and phase 1 drilling is designed and likely to start early next year, and we are advancing the Buldania studies. Finally, Kathleen Valley is a tier 1 asset. We have managed through a low price environment before, but today we are investing through the cycle to build a larger, lower cost operation that is resilient and ready to capture the upside. This is how we build long-term value for our shareholders. On that point, I am happy to take questions.
Operator: Thank you, Tony. If you have not yet submitted your text question or joined the live audio queue, please do so now. I will introduce each caller by name and ask you to go ahead. You will then hear a beep indicating your microphone is live. Our first question comes from Hugo Nicolaci at Goldman Sachs. Please go ahead.
Hugo Nicolaci: Morning, Tony and team. Two questions from me, if I can. Firstly, just on that near-term production piece. Is it fair to maybe presume you have seen the mining rates going reasonably well and you have decided to clear that remaining contaminated material in the September quarter and, taking that recovery hit, but effectively then letting it dial in the plant for that 100% underground feed from here? If so, can you maybe just, correct or adjust previous comments where you had expected Q1 and Q2 production to be similar. Do we now expect the Q2 to see a bit of a step-up, in production on that plant performance going forward?
Tony Ottaviano: I will hand that over to Ryan.
Ryan Hair: Thanks, Tony.
Tony Ottaviano: Thanks, Hugo.
Ryan Hair: Thanks, Hugo. So, a couple of points in the question. The first is, you will have noted, I think, that we have circa 80,000 tonnes of stock that we have not processed, and there is probably two buckets to that. First is that, there is a, I guess, a working amount of stock, and that is probably about half of that amount, and that is underground material. The second half is some remaining, open pit, and the intent for us is to campaign that through in this quarter. So that is kind of first point. Second is that you are absolutely right in saying that our intent now, going forward is to take that underground material and use that to continue to dial in the plant.
Ryan Hair: I think as we have discussed in previous commentary, we have been feeding the plant a variety of different feed types, and so that has made it more difficult to dial in the settings for the plant. So, we get an opportunity to do that now that we are fully underground, notwithstanding my comment around the campaign that we do on that remaining open pit stockpile. So with that in mind, with that consistent feed, I think also noting, you know, the commentary around, you know, stocks for blending.
Ryan Hair: As the underground mine ramps up with more active stocks, more tonnes, opportunity to blend from multiple sources out of the underground mine, will also give a bit of tailwind to recovery. So we expect not only tonnes to increase through the year, but the direction of travel on recovery is up from here.
Hugo Nicolaci: Great. That is super helpful. Next one, just on growth and balance sheet. You have called out that you have borrowing capacity available, and you have highlighted, you know, 3x FY2027 EBITDA and your headroom is approaching AUD 1 billion, and that is, you know, on current, you know, ramping up EBITDA. Should we interpret that as your capacity for future acquisitions to go beyond the recent initial toe dipping in Argentinian salars? How should we think about what headroom you would realistically look to use? You know, if you make an acquisition, do you perhaps need a pathway back to, say, a 1x leverage target on a certain timeframe to support that?
Greg Jason: Great. Hugo, Greg here. So there is a number of things in that. I would not read directly into the chart about intentions around acquisitions. Naturally, acquisitions, if they come up, can take different forms, and we would consider the capital structure according to the nature of it, the size of it, the timeframe. Is it generating operating cash flow, or is it a development asset? The chart was really more there in reaction to softening of price that we have observed and being able to address any concerns around liquidity and us continuing with the expansion of Kathleen Valley and talking about the levers that I called before. You made some reference about different leverage ratios at different points.
Greg Jason: Yes, you can extend your balance sheet, of course, for a particular project or acquisition and then seek to bring it back in line. Those ranges on the chart are indicative. Naturally, it comes down to discussions with financiers and what is acceptable, whether it is direct commercial lending or out in bond markets, for example. So I will not give you a specific number today about what is our target leverage ratio.
Operator: The next question comes from Stuart Howe at Bell Potter. Please go ahead.
Stuart Howe: Thanks, Tony and team. Just firstly, I have two questions, but firstly on cost guidance. Crude oil has obviously snuck up quite a bit since you last put that guidance out. Could you just remind us of what you factored into that guidance in terms of pricing? I guess anything you can talk around crude oil and diesel price exposure would be helpful, albeit obviously you are less exposed than the open pit guys.
Greg Jason: Right.
Ryan Hair: Yes. Stuart, just maybe taking the second point first, I might hand to Greg. As you have noted, we are less exposed than others for two reasons. One being, a lot of our equipment underground is powered by electricity and not diesel. We do have some diesel exposure there clearly, but proportionally lower. Secondly, because of the renewable energy penetration we have, obviously that power comes at very low incremental cost. In terms of, I guess, overall exposure, I think when we have spoken about this before, it is kind of circa AUD 1.3 million a month or about AUD 13 million a year kind of exposure was what we had said before with the incremental cost up.
Ryan Hair: I will let Greg talk more about the sort of variance, but I think it was around about 4% of the cost base, was probably the best way of thinking about it.
Greg Jason: Yeah. We were playing pin the tail on the donkey back when we were budgeting and thinking about what price per liter to put on diesel and what to put onto Jet A-1 fuel that, of course, comes through the flight cost. We had budgeted to be at a trend that was coming back down closer to AUD 1, because that is when the prices were easing a fair bit. I am trying to remember at the time, it was maybe back down to like AUD 1.50, AUD 1.30, so we had assumed that for a period and then coming back closer to AUD 1. That is not what we have realized. It is higher, and you can all see that when you go to the bowser.
Greg Jason: We did some work and talked at one of the previous announcements, it probably was the end of Q3. We talked about sensitivity of, say, AUD 25 to AUD 30 per tonne of concentrate per AUD 1 per liter. Therefore, I do not have any concerns about the higher diesel price and the Jet A-1 fuel price pushing us outside of the guidance band that we gave of AUD 10.50 to AUD 12.50 overall.
Stuart Howe: Great. Thank you. Then just on the ramp up to 2.8 million tons per annum. Obviously 1.9 in the current quarter and exiting June at that 2.8 rate. Is that a linear ramp up that we should expect or factor in going forward? Then I guess just on slide 8, it points to 13 pieces of kit added before the end of June. Can you just talk to the status of that equipment? Is much of that now contracted and on-site, or is there any risk to that arriving and ramping up on time?
Ryan Hair: Thanks to you, Brian. Again, I will cover that. Well, I think it would be fair to say, nothing goes in a straight line in mining. But, broadly speaking, what we have guided to before is a good approximation, is that it will step up from here from the notional 1.5, 1.6 rate to 2.8 by the end of the year. In a straight line is not a bad approximation, but obviously month to month, quarter to quarter, will look a little different to that, which is why we have tried to provide a little bit of color in terms of what the Q3 look ahead looks like. In terms of your question about equipment. The third jumbo is due to arrive any day now.
Ryan Hair: The other equipment, particularly loaders and trucks, will step up, particularly as that next jumbo, A, starts to do its work, and B, as we start to get into more of the stope ore. So we have sequenced that equipment to come, I guess, fairly staged through the course of the year. So, obviously front end with the jumbos because the development needs to be done early and before you do the other activities. But they will stage through the rest of the year. This kind of increment that you have seen in this quarter, broadly speaking, you will see happen in the next few quarters.
Ryan Hair: We have no concerns about the delivery of the equipment. It is, again, one of the advantages we have working with our contract partner, Byrnecut, is that they have got a deep network to be able to access what we need.
Operator: The next question comes from Elaine Fabares at Bank of America. Please go ahead.
Elaine Fabris: Hi. Thanks, Tony and team. As you noted, prices have moved quite sharply after the quarter. Regarding your contract book, could you remind me on the lag for your spodumene and chemical contracts? Is one month lag fair to assume? How should we think about the provisional pricing in the coming quarter? Thanks.
Greg Jason: Yeah, you are going to find it hard to model because we have such a range of quotation periods. We have a contract that looks back four months prior to shipment through to two months prior to shipment. I mean, it is a three-month average. We have others that look back a month. We have some that include the month of shipment and the month following shipment. So very hard to unpick that.
Ryan Hair: Yeah. I think in the past what Grant has said is just assume it sort of averages out to about in the month, I think, or maybe a lag of a month.
Greg Jason: Yeah, it depends on the customer mix.
Ryan Hair: Yeah, of a quarter. Yeah.
Greg Jason: We don't necessarily ship to every customer every quarter.
Ryan Hair: Every quarter. Yeah.
Elaine Fabris: Thanks. That is helpful.
Operator: Our next question comes from Chagu Ojaya at Citibank. Please go ahead.
Thiago Ojea: Thanks. Thanks everyone for the call. My first question is regarding the cost for the quarter. You had a total operating cost of AUD 104 million. I would like to understand how much of this was capitalized versus spent. Given that you have the fleet growing from 28 to 41 units, how should we think about the cost going forward?
Ryan Hair: Well, the AUD 104 million is net of capitalization of underground development. There is almost AUD 40 million that was capitalized. What was the second part of your question? Whether the additional equipment, how does that impact our costs? That does come through and ultimately it shows up as a cost per ton of ore because it is spread over all those tons. Some of it ends up as higher capitalization, some of it ends up as higher inventory costs. Net-net, we have taken that all into account when we provided the guidance. Yes.
Thiago Ojea: Okay, that is clear. My second question, going back to the guidance. If we take the midpoint of the guidance, you probably would need to average 125,000 tons for the next quarters. Given that, the ore reserves rate on 2.8 million tons. If you consider a 1.3 feed grade, this would imply near a 70% grade. Is that the right rationale here, or should there be some difference on feed grade?
Ryan Hair: Yeah. Ryan here. Overall, the grade coming out of the underground is higher than open pit. What you saw in this quarter, for example, was underground ore coming out at about 1.4. But the average processed in the quarter was 1.3. That, I think, probably gives you a bit of a clue as to the grade delta, just between open pit and underground. So, overall through the course of the year, number one, feed grade will be higher. Number two, clearly, with the underground mining ramp up, more tons, particularly, as we have said before, with clean underground ore, recovery does step up, so the direction of travel goes up. With all of that in mind, we are comfortable with our guidance as stated.
Operator: The next question comes from Austin Yun at Macquarie. Please go ahead.
Austin Yun: Morning, Tony and Ryan. Just wanted to push on the underground mining activity, if I may. I took some notes, in the last quarter and the ones before. From what I took, you were only having 150,000 tons of contaminated ore in the last discussion. The base case was to only process that contaminated ore in the first quarter. But looking at today's update, the number has increased to over 200, 240,000 tons, and you still have 80,000 tons, which seems like you are going to be processing that in the next quarter. Clearly, it seems like the mining activity or plan has changed. The discussion around mining rate in the second quarter has also varied from the last update.
Austin Yun: I am just keen to understand, what are the key learnings in the last three months for you to make those changes? Any guidance will be appreciated. Thank you.
Ryan Hair: Yeah. Austin, I am not sure what you are seeing that has changed. The stocks were at 239,240 at the end of last quarter, and we have taken it down to 80. So that is circa 160,000 ton drawdown. If you refer to, I think it is slide 5 in the release, we have made some commentary there about some of that drawdown. Around about 40,000 tons was lost through the ore sorting. So when you separate ore and waste, some of it comes out as waste. So of that 160, you then end up with 120, which when you add to the 390, gives you the 510 processed in the quarter. So, that is kind of from a stock call point of view, what has happened.
Ryan Hair: We did signal, and you are right, we did signal that we would process the remainder of the open pit in the quarter. As I think I flagged with the question to Hugo Nicolaci, we have got circa another 40,000 tons, which we will process in this quarter, which percentage wise is obviously a relatively small amount. So from that point of view, we have carried some of those open pit tons into this quarter. From an underground mining perspective, we are delivering exactly what we said we are going to do, which was both at the end of March and June quarters, we said we would be flat for two quarters, which was Q4 2026 and Q1 2027. That was to enable the development of these deeper levels and set them up to be flexible and productive.
Ryan Hair: That is the work that we have done, and that is the work that will lead into the ramp-up from Q2, which is why we are stepping up now from circa 1.5 to 1.9, and then ultimately to the end of the year at 2.8. So, I think in all of that, perhaps a small amount of carryover of open pit from Q1 to Q2, but mining doing exactly what we said it was going to do.
Austin Yun: Thank you, Ryan. I will pass to Dan.
Operator: Our next question comes from Jacob Li at Barrenjoey. Please go ahead.
Jacob Li: Hi, Tony and team. Congrats on the record development quarter. Ryan talked to, I think, 2 to 5 million tons of ore per level or 150,000 tons ore per vertical meter. As you sort of mined through lower levels with thicker ore zones. As you push into new mining levels this quarter, is the ore tonnage or quality you are finding tracking in line with expectations or is there anything you are learning that might refine those numbers as you go deeper into ore zones? Thanks.
Ryan Hair: Yeah, look, I think I dropped most of that. You characterize it absolutely right. We are going into those thicker zones. One of the things that we have said previously is that the natural advantage we get as we go into those thicker ore zones is that as a proportion, stoped ore goes up relative to development ore, and that is typically cleaner as we define those stopes. I think it is fair to say that any time we go in and actively mine an area, there will be, you are always learning in the underground mining, but we continually maintained and continually keeping defined that all the ore parameters are as we want to see them. So the amount of under break, over break in mining, the ore quality is as we thought it was.
Ryan Hair: Reconciliations, both on tonnage and grade relative to models continues to track pretty well. At this stage, I think, we are seeing a lot of positives as we get into those lower levels with larger stopes, net some quality uplift, and the mine performing as we have modeled it.
Jacob Li: Thanks, Ryan. Yeah, it seems to be all tracking in plan. Just shifting to the plant. On recovery, the 60% recovery this quarter clearly, I guess, looks to be just temporary from a more low grade ore blending perspective from your stockpile. Now, it seems like your open pit stockpile is essentially fully drawn and you are moving predominantly to underground feed. Are you seeing that 70% to 75% or even 78% in recovery rate when planned? The plant is running on clean, consistent underground ore, or has anything changed in the blend or contamination profile that might affect that going forward? Thanks.
Ryan Hair: Yeah. Again, good question. As you have rightly called out, we have had some, the lower or high contamination, lower quality ore from the open pit, has impacted this quarter. As I have also mentioned, with lower stocks to blend, that does create some headwinds in terms of feed consistency into the plant. As I indicated, when we do get clean underground feed, we have demonstrated a consistent 70% recovery. That is kind of still our view, and still our expectation out of the plant. As we go through the course of this year, obviously, we have still got a small amount of that open pit, which will get processed in this quarter.
Ryan Hair: But we also then have the need to kind of build up either blending stocks on the ROM or as we open more stopes and ore fronts underground, the opportunity to blend, because that does assist with that blending capability to provide that consistent feed into the plant. As I indicated before, the direction of travel on recovery is up from here, but I am not going to put a specific number on it at this point.
Tony Ottaviano: If I can just build on what Ryan is saying. There are three factors that we need to manage. We are ramping up still, and what we need to improve the recovery is more tonnes, cleaner tonnes, and tonnes sufficient to blend so we can get consistent tonnes. That will improve every quarter as we move towards our target of 2.8 by the end of June. The recovery profile will follow that.
Operator: Thank you. Our next question is from Lyndon Fagan at J.P. Morgan. Please go ahead.
Lyndon Fagan: Thanks. Good day, everyone.
Tony Ottaviano: Hi.
Lyndon Fagan: Tony, just to be absolutely clear on the stockpile processing and mining for next quarter. If you are doing 1.9 million tons run rate, that is 475Kt mined. If you then go and process 80Kt of stockpiles, we are at 550-ish for ore through the plant. Have I got that right?
Ryan Hair: Broadly speaking, Lyndon, that is right. 475 would be the midpoint of the estimate we have provided. The 80 of stockpile is unlikely to go to zero because you need a minimum amount of working stock, if you like. So it is probably about half of that, so 40. Then you would get to around about 415. If I infer where you are going, which is, so what does that look like from a recovery point of view? Again, the balance is underground, cleaner ore, so the recovery will be higher than what it was in this quarter. That obviously continues to build both in terms of, as Tony said, tonnage and recovery through the course of the year.
Lyndon Fagan: Thanks. That is helpful. Then, I guess just taking a step back. I know it is only just downturned, but how bad would prices need to get, Tony, before we see any sort of changes to the expansion plans?
Tony Ottaviano: That is a good question, Lyndon. Clearly expected on this call. Look, as a business, 28 days of lower pricing that we have seen to then pivot the whole organization is not something we are going to do. We know the project, and I think Greg explained that quite clearly. We know this project is very value accretive. We will continue to monitor the market. We are not going to be blind to this. We will continue to monitor the market. The nature of the project is incremental, so that we can bring on incremental tons, which also mean we can incrementally stop work or slow down.
Tony Ottaviano: But the project is so good, we have got to look through this temporary change in pricing and look for the longer term. As Greg pointed out, we have got various levers we can pull in order to get additional funding if we require it.
Operator: Thank you, everyone. That is the last question we have for today. I will now hand back to Tony.
Tony Ottaviano: Thank you, Oliver, and thanks again for the good questions. There is a lot of work that goes into these, and I appreciate the lot of work that you guys do behind the scenes in order to get your reports out. Any shareholders that are listening, we are in a strong position. We are ramping up. We continue to do that as we plan, and we are looking forward to the end of the financial year. Thank you.
Operator: That concludes today's call. Thank you for joining us. You may now log out.
