Speaker #1: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker #1: To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Dale Henderson, Managing Director and CEO of PLS Group.
Speaker #1: Please go ahead.
Speaker #2: Thank you, Maggie. Good morning and good evening, everyone, and thank you for joining us today. I'll begin by acknowledging the traditional owners of the lands on which PLS operates: the Whadjuk people of the Noongar Nation here in Perth, and the Nyamel and Gariara peoples in the Pilbara.
Speaker #2: We pay our respects to Elders, past and present. I'm joined today by Brett McFadjen, our Chief Operating Officer, and Alex Wilcox, our Chief Financial Officer.
Speaker #2: The September quarter delivered record production and lower unit operating costs. Despite weaker lithium pricing, the business continued to generate substantial operating cash. Since the quarter end, we've improved the P2000 project, and we've completed our second U.S. bond offering.
Speaker #2: Today, we also announced a power agreement with Fortescue that is expected to further reduce future operating costs and power-related emissions intensity. These developments demonstrate our strategy in action, delivering today whilst investing in Pilgrim Gora's long-term competitiveness.
Speaker #2: We will take you through the results and strategic developments before opening the line for questions. Moving now to slide two. Our ability to create value through the cycle starts with Pilgrim Gora.
Speaker #2: This is a large, long-life operation that we own 100%. We control its development and capital investment, and PLS shareholders retain the full economic interest. P2000 builds on that foundation.
Speaker #2: It is expected to increase production capacity to approximately 2 million tons per annum, recovering more of the ore body and reducing mining intensity. Our ore reserves now contain an increase of 31% in lithium, supporting the larger production profile, whilst retaining approximately 20 years of open-pit mine life.
Speaker #2: Today's power agreement adds further expected cost savings beyond the P2,000 FID assumptions, while materially lowering power-related emissions intensity. Kalina and our downstream partnership in South Korea provide additional growth and diversification options, which we will progress selectively.
Speaker #2: We ended September with AUD $2.2 billion in cash, and the US $700 million bond was completed after the quarter end, which further extends and stages our debt maturities.
Speaker #2: Including these proceeds, pro forma liquidity is approximately $3.7 billion. That financial strength gives us flexibility through the investment period and the capacity to invest through the cycle.
Speaker #2: Our focus is to use this capacity with discipline, improving competitiveness and investing for attractive long-term returns for our shareholders. Moving now to slide three.
Speaker #2: The September quarter delivered record production and lower unit operating costs against a weaker lithium pricing backdrop. Production reached 260,000 tons, up 25% on the June quarter, supported by strong performance from Pilgam and additional production from Nuggajou. Nuggajou has now completed its ramp-up on schedule.
Speaker #2: FOB unit costs fell 12% to Australian 539 dollars per ton. Average estimated realized pricing of US 1,809 dollars per ton on a 5.2 basis, revenue was 563 million Aussie, down 24%, reflecting lower pricing and sales volumes affected by shipment timing.
Speaker #2: Since quarter end, we have also improved the P2000, which I mentioned a moment ago. This is expected to increase production capacity to approximately 2 million tons per annum, late in the decade.
Speaker #2: The Fortescue power agreement announced today is expected to further improve that future operating profile, reducing FOB unit costs by a further AUD $15 to $20 per ton against the P2000 FID cost base, once supply commences.
Speaker #2: With that, I'll now hand over to Brett to take us through the safety and operational performance.
Speaker #3: Thank you, Dale. Moving to slide four. Safety is our highest priority. No production outcome or financial result outweighs the safety and well-being of our people.
Speaker #3: Our rolling 12-month total recordable injury frequency rate improved to 2.36 at the end of September from 2.77 at the end of June. However, four of our people sustained recordable injuries during the quarter, which simply means we need to do better.
Speaker #3: Our focus remains on visible leadership and quality engagement with our frontline teams—identifying hazards and checking that critical controls are in place and working.
Speaker #3: This slide also shows increased safety interactions per site leader. These conversations are an opportunity to understand the risks where the work happens and reinforce those safe work practices.
Speaker #3: Moving now to slide five. Pilgangoora delivered record production of approximately 267,000 tons in the September quarter, up 25% on the prior quarter. This was driven by strong performance from Pilgan and additional production from the restart of our Ngungaju operations.
Speaker #3: At Pilgim, improved feed quality, all sorting benefits, and stable plant operations supported the strong performance. Overall, Pilgim Gora lithium recovery was approximately 75%. Nuggajou restarted as planned in July and performed in line with expectations through the quarter.
Speaker #3: It reached full operational status in October, delivering against the ramp-up timetable we previously outlined. Mining activity increased in line with the mine plan, with 11.5 million tons of total material moved, including 1.5 million tons of ore supporting requirements across both plants.
Speaker #3: Sales were approximately 223,000 tons, down 11% on the prior quarter, reflecting shipment timing, while customer demand remained strong. This was a strong start to FY27, although production—and any single quarter—should not be taken as the run rate for the full year.
Speaker #3: Quarterly volumes will vary as a function of all feed characteristics, planned maintenance shutdowns, and other operational activities. Taking these factors into account, we have today reaffirmed our full-year production guidance volumes and unit costs.
Speaker #3: I'll now hand back to Dale.
Speaker #2: Thanks, Brett. And well done to you, Chris, and all the operating team for delivering a cracking quarter. Moving now to slide six: our wholly owned Kalina project in Brazil provides a further opportunity for growth and geographic diversification.
Speaker #2: During the quarter, we completed the acquisition of Lithium Ionics interests and tenements adjacent to Kalina, and commenced infill resource development drilling on the acquired ground.
Speaker #2: Alongside this work, we continued metallurgical testing, flowsheet development, and infrastructure studies. Feasibility study outcomes remain on schedule for the December quarter next year. These studies will inform the project's development pathway.
Speaker #2: Any decision to proceed will depend on successful study outcomes, funding, and support of market conditions. Moving to slide seven. Our chemicals investments provide access to additional markets and opportunities across the lithium value chain.
Speaker #2: We continue to progress these opportunities on a staged and disciplined basis. At PPLS and in South Korea, output was moderated to align with customer demand and prevailing conversion economics.
Speaker #2: At a midstream demonstration plant, commissioning progressed with first ore through the electric calciner, which provided successful conversion. First product has taken longer than anticipated as the team works through commissioning of the specialized equipment and integration of the plant systems.
Speaker #2: The first lithium phosphate product is now expected in the December quarter this year. With that, I'll hand over to Alex to take us through the financial performance.
Speaker #4: Thank you, Dale. Good morning, everyone. Moving now to slide nine. Revenue for the September quarter was A$563 million, down 24% on the prior quarter.
Speaker #4: This reflected a 14% lower realized price as at 30 September, together with sales volumes affected by shipment timing. Turning to costs, FOB unit operating cost was AUD $539 per ton, 12% lower than the June quarter.
Speaker #4: This improvement was supported by operational and cost efficiencies, reflecting cost discipline embedded across the business through our cost-smart, future-ready way of operating, as well as a greater volume of capitalized waste.
Speaker #4: We expect unit costs to increase over the remainder of FY27 due to wet season impacts and anticipated increases in diesel prices. Embedded efficiencies position us well to mitigate these pressures, and we remain on track to achieve full-year guidance.
Speaker #4: Cash margin from operations was Australian 329 million dollars for the September quarter. Demonstrating the underlying business's cash generating capacity despite lower realized pricing. Following further price reductions through October, provisional pricing adjustments on first quarter sales are expected to reduce second quarter cash margin by approximately Australian 88 million dollars based on estimates as at the 26th of October.
Speaker #4: Turning to capital expenditure, capex on an accruals basis was AU$185 million, up 50% on the prior quarter, driven by pre-FID expenditure on the P2000 expansion.
Speaker #4: During the quarter, we also paid the final FY26 dividend and funded the Kalina tenements acquisition. We closed September with cash of $2.2 billion Australian and total liquidity of $2.7 billion Australian.
Speaker #4: Together with future operating cash flows, this underpins our capacity to fund the P2000 expansion. Following quarter-end, completion of our second US bond further strengthened that funding capacity.
Speaker #4: I'll now cover financing and our balance sheet position on slide 10. We have secured additional long-term funding ahead of a period of significant capital investment, strengthening our financial flexibility as we progress the next phase of growth.
Speaker #4: As announced on October 26th, we completed a $700 million offering of an 8% senior unsecured note due in 2032. This was our second issuance in the US debt capital markets.
Speaker #4: And despite recent market volatility, we are pleased to have received strong ongoing support from high-quality global institutional investors. The financing reflects our proactive approach to capital management, adding long-term funding and further diversifying our debt maturity profile.
Speaker #4: Across our 2031 and 2032 senior unsecured notes, the weighted average cost of funds is now 7.48% per annum. Weighted average debt maturity across those notes has extended to 5.3 years.
Speaker #4: The additional liquidity strengthens our resilience through the commodity cycle and provides greater flexibility to manage our investment program and capital allocation priorities. These decisions continue to be governed by our capital management framework and dividend policy.
Speaker #4: Our focus will remain on maintaining the financial capacity to execute our growth strategy, while preserving flexibility through changing market conditions. I'll now hand back to Dale for the corporate update.
Speaker #2: Thanks, Alex. And well done to you and all the team on the second bond. Moving now to slide 12: Since quarter-end, we've progressed three complementary initiatives to increase the value we recover from Pilgrim Gora.
Speaker #2: And strengthen its long-term competitiveness. P2000 combines greater production with a more efficient approach to the ore body. Improved processing capability allows more mineralized material to be recovered as ore.
Speaker #2: Reducing mining intensity and supporting lower long-term unit costs. The feasibility study supports approximately AUD $1.9 billion investment, with an incremental post-tax net present value of AUD $2.7 billion under the disclosed study assumptions.
Speaker #2: Alongside P2000, we’re investing in the access road, permanent village, and mine services facility. These investments are expected to improve productivity and reduce costs in the existing operation, while also supporting its larger future scale.
Speaker #2: Today's power agreement with Fortescue delivers a further expected benefit of an Australian $15 to $20 per ton reduction in future FOB operating costs against the P2000 FID cost base.
Speaker #2: This benefit is additional to the valuation shown here, on the slide. This is a substantial investment program directed at greater production, better productivity, and lower costs.
Speaker #2: With Pilgrim Gora's 100% ownership by PLS, our shareholders retain full economic exposure to that larger operating base and its future returns. I'll now take you through each initiative, starting with P2000 on slide 13.
Speaker #2: We'll move to now. This image shows the new Jimmigunya processing facility, with its dry and wet plants to be built alongside the Pilgam processing facility.
Speaker #2: It will become our third major processing facility at Pilgrim Gora. Under the P2000 operating plan, total Pilgrim Gora production is expected to average approximately 2 million tons per annum over the first 10 years at steady state.
Speaker #2: Over that period, average FOB unit costs are expected to be approximately A$600 per ton in real terms. This includes the expected benefits of the Fortescue Power Agreement I mentioned a moment ago.
Speaker #2: First production from Jimmigunya is targeted for the September quarter of calendar year '29, followed by an approximate six-month ramp-up period to steady state. Moving to slide 14.
Speaker #2: Pilgrim Gora has grown substantially since production began. With a long operating life ahead, we are investing in permanent infrastructure suited to its scale and future requirements.
Speaker #2: The access road upgrade will enable larger road trains, moving from triples to quads. This upgrade is supported by an initial funding commitment of $11 million by the Western Australian Government.
Speaker #2: We are grateful for the state's support for this public access road upgrade, and for the Cook Government's leadership on shared infrastructure investments of this nature.
Speaker #2: Moving to the camp, the new 1,200-bed, cyclone-rated village will support our work drills and allow the existing village location to be used for more efficient mine sequencing.
Speaker #2: Moving to the mine services facility, the mine services facility is expected to improve equipment availability and maintenance productivity whilst reducing maintenance costs. Together, these investments are expected to improve the existing operation whilst providing the infrastructure capacity to support P2000.
Speaker #2: Moving to slide 15. As mentioned, today we announced a 20-year power purchase agreement with Fortescue, with PLS becoming its first external customer to connect to its green grid.
Speaker #2: The agreement guarantees a minimum of 325 gigawatt-hours per annum and supports the additional power requirements for our P2000 expansion. We expect to invest approximately $150 million between FY27 and FY29 in connection and network upgrades, with approximately $20 million expensed in FY27 this year.
Speaker #2: From 29, the agreement is expected to reduce operating costs, as mentioned earlier, by $15 to $20 per ton. This is the most effective power solution for Pilgrim Gora, while also significantly enhancing our power strategy.
Speaker #2: We expect PLS to reduce power-related emissions by approximately 80% compared to our FY23 baseline, and we've shown a schematic in the slide deck illustrating this.
Speaker #2: And I'd just like to commend Fortescue for their leadership with this initiative. Renewables such as solar are a low-cost solution for power generation in so many locations around the world, and that's certainly the case in Western Australia.
Speaker #2: And equally, network solutions just make a lot of common sense. In this case, we've got both coming together, and it's a credit to Fortescue for pulling this initiative off. We're delighted to be their first customer, and again, we congratulate them for having the courage, conviction, and fortitude to deploy this scale network.
Speaker #2: And looking forward to that future low-cost power. Moving to slide 15—sorry, slide 16. P2000 is expected to position PLS among the world's largest primary lithium producers, with a competitive cost position and a long-life operating asset.
Speaker #2: The production comparison on the left is based on a tributed ownership, with Pilgangoora's 100% owned by PLS. Our shareholders retain the full economic interest and the substantially larger production base.
Speaker #2: The chart on the right places Pilgrim Gora in the second quartile of the forecast 2030 industry cost curve, using the P2000 FID operating profile.
Speaker #2: This combination is important. Greater production increases our exposure to stronger lithium markets, while competitive costs strengthen our ability to operate through weaker market conditions.
Speaker #2: With approximately 20 years of open pit mine life under the P2000 plan, these benefits extend across a long operating horizon. Turning now to guidance on Slide 18.
Speaker #2: As mentioned by Brett, our FY27 operating guidance remains unchanged for production volumes and unit operating costs. Today's change is an additional AUD $20 million in FY27 for capital expenditure for the Fortescue power connection and associated onsite infrastructure.
Speaker #2: This takes enhancing infrastructure expenditure to A$185 million and a total FY27 capital expenditure guidance between A$1.13 billion to A$1.195 billion. The A$500 million FY27 allocation for P2000 remains unchanged from the guidance announced at FID.
Speaker #2: And that figure includes the previously announced pre-FID expenditure. Base capital guidance is also unchanged. Turning now to the lithium market outlook: lithium pricing remains volatile.
Speaker #2: Strong long-term demand growth can coexist with periods of weaker pricing because prices reflect near-term supply inventories, purchasing conditions, and, most of all, they reflect sentiment.
Speaker #2: The cost curve on the right shows current spot pricing below the estimated sustaining costs of a meaningful proportion of the industry supply. That puts pressure on operating returns and the incentive to invest.
Speaker #2: Sharp downward price movements also undermine investment confidence. Investors and lenders become more cautious, making capital harder to secure, particularly for greenfield projects requiring substantial investment before generating revenue.
Speaker #2: That creates a challenge for future supply. The industry needs investment ahead of demand, but the price cycle can discourage that investment when projects need to advance.
Speaker #2: For PLS, this highlights the value of financial strength and an established operating base. They give us the capacity to invest through the cycle, where long-term economics justify expanding production while improving competitiveness.
Speaker #2: The next slide shows the battery economics and adoption trends supporting that longer-term demand opportunity. Moving now to the next slide, on slide 21. The long-term demand outlook starts with the economics of batteries.
Speaker #2: The global average battery pack prices have fallen approximately 90% between 2010 and 2025. That has improved the competitiveness of electric vehicles and energy storage, and supported wider adoption.
Speaker #2: In September, globally, more than one in four vehicles sold were electric, with penetration reaching 28%, according to Benchmark Minerals Intelligence. Importantly, growth is broadening well beyond China.
Speaker #2: Ex-China EV sales increased 29% year-to-date to September and accounted for 48% of global EV sales, up from 38% a year earlier. The expansion is even faster in storage.
Speaker #2: Ex-China battery energy storage installations increased 67% year-to-date, representing 60% of global installations. These are substantial growth rates across an increasingly broad market.
Speaker #2: They highlight the potential for demand to outpace expectations as adoption accelerates and markets outside of China expand. Benchmark Minerals' September forecast projects lithium demand to approximately triple by 2040.
Speaker #2: Electric vehicles remain the largest demand source, with storage adding substantial growth. Now, the pace of adoption matters—faster growth across these markets would bring forward the requirement for additional supply.
Speaker #2: Moving to slide 22. So, meeting that growing demand requires both new projects to be delivered and existing operations to perform. New supply takes time.
Speaker #2: The chart on the left shows discovery-to-production timelines across the mining industry increasing from approximately six years in the '90s to around 18 years for mines entering production in 2020 to 2024.
Speaker #2: For calendar year '27, forecasters are divided. Some project a surplus; others expect a deficit, reflecting different assumptions about demand and supply delivery. Benchmark Minerals Intelligence forecasts a deficit of approximately 100,000 tons of LCU.
Speaker #2: The downside scenario shown here identifies a further 400,000 tons of supply at risk from policy, security, and environmental issues. If those shortfalls materialize, the deficit in the BMI-based analysis could widen to approximately 500,000 tons on an LCU basis.
Speaker #2: The important point is that supply under delivery could tighten the market beyond current base expectations. Now, our strategy is to build resilience through the cycle and retain the capacity to invest throughout it.
Speaker #2: At Pilgrim Gora, we are building on an established operation, existing infrastructure, and our experience delivering the P680, P1000, and the Nugaju Restart. Our financial strength allows us to progress investments based on their long-term economics through periods of market volatility.
Speaker #2: In P2000, while it puts the strategy into action— increasing production and improving long-term competitiveness—PLS shareholders retain the full economic exposure through our 100% ownership.
Speaker #2: Now, moving to some final comments. The September quarter demonstrated what our business can deliver: record production, lower unit operating costs, and substantial operating cash generation, despite weaker lithium pricing.
Speaker #2: Nugaju's ramp-up is complete and on schedule. Our FY27 production and cost guidance remains unchanged. We are now building the next phase of Pilgrim Gora.
Speaker #2: P2000 is approved. Our oil reserve has grown, and our infrastructure and power investments are expected to strengthen productivity and long-term competitiveness. The US $700 million bond, completed after the quarter end, further strengthens our debt maturity profile and financial flexibility.
Speaker #2: Together, these strengths give us the capacity to invest through the cycle and build a larger, more resilient business. Our task is now to deliver.
Speaker #2: Safely, efficiently, with capital discipline. We've been here before. With Pilgrim Gora 100% owned, our shareholders again retain the full economic exposure to the operation we are building and the long-term value we aim to create.
Speaker #2: Thank you for joining us today. With that, I'll now hand back to Maggie to open the line for questions. Thanks, Maggie.
Speaker #1: Thank you very much. We will now conduct the Q&A session. As a reminder, to ask a question, please press star, one, one on your telephone and wait for your name to be announced.
Speaker #1: To withdraw your question, please press star one one again. PLS will take one question per person, with one follow-up question. Please stand by while we compile the Q&A roster.
Speaker #1: The first question comes from Levi Spray at UBS. Please go ahead.
Speaker #3: Yeah, good morning, Dialing team. Thanks for your time. After a very nice quarter—and thanks for the detail on the QP adjustments there, Alex.
Speaker #3: Just in terms of the CapEx forecast, if I look at slide 17, can you help us think about the base forecast going forward?
Speaker #2: I'm going to take that.
Speaker #4: Yeah, absolutely. Morning, Levi. Thanks for the question. So, in relation to base capex going forward—and I assume the question is more an outlook for FY28.
Speaker #4: You may remember we called out that mine development was elevated this year and will remain elevated next year as part of the mine planning activity.
Speaker #4: Sustaining capital, we have called out, is at a high point now. I'm not expecting that to drop to what we referred to in the P2000 announcement as long-run, steady-state sustaining capital, around that $40 to $60.
Speaker #4: I don't think we'll see it drop back down from 85–100 to the 40–60 range in FY28, but I do expect it to begin to drop.
Speaker #4: There are a number of, sort of, smaller but value-accretive projects, in addition to some other projects that sit within those numbers. And in a similar way, infrastructure and projects will continue to trend down, but FY28 will remain slightly higher than the long term.
Speaker #4: So hopefully, that gives you a feel. The one piece to flag—and we will speak to this more at the December results—as you know, we announced the updated reserve post the quarter end.
Speaker #4: And so, the quarterly results in terms of the FOB and the mine development capex have been prepared based on the reserve that was in place as of September 30th.
Speaker #4: We are working through all of the detailed work by mine plan stage of what the new reserve and the new strip ratio imply. And to the extent there is any update on essentially the accounting split between what goes through FOB and what goes through that CapEx number—which may impact future years—we'll talk to that more at the December quarterly from a cash perspective.
Speaker #4: It will be unchanged, but as I spoke to at the P2000, with the strip ratio changing, that does have some longer-term implications on what sits through FOB versus deferred strip and managed depreciation.
Speaker #3: Yeah, very good. Thanks for the extra detail there. And maybe just one follow-up on the market. If we are in the middle of some sort of de-stocking cycle on the base outlook, can you—what color can you give us, I guess, Dale, on, I guess, size and duration of potentially that going forward?
Speaker #2: Yeah, that would be—my crystal ball is not with me today. But what I can speak to is some of the trends, which are very constructive.
Speaker #2: We are seeing a downward trend in lithium chemicals inventories, and we're not seeing or hearing of any elevated spodumene concentrate or other primary lithium supply inventories elsewhere.
Speaker #2: There is discussion around slightly elevated battery inventories further downstream; however, there's conjecture about what that actually means. Historically, we've seen that rise and fall out of step with fundamentals, depending on orders, and we may well be seeing that dynamic based on best orders at the moment.
Speaker #2: So, on an inventory basis, the trend is looking very constructive. And then, as we turn our mind to demand indicators, there is a lot to like.
Speaker #2: Global EV sales are still a net positive. In terms of the submarkets, China gets a lot of focus, as it should, being the principal gross engine for many years.
Speaker #2: But what's not getting the focus is some of the other submarkets to the same extent for the Rest of World category. The Asia ex-China categories are all stepping forward in leaps and bounds, in the order of plus 80% type growth rates on the prior year.
Speaker #2: So those are positive. BESS is also outright very strong, albeit a smaller component of the demand stack. So when you look at this combination of drawing down inventories plus strong demand markers plus hesitance on the supply side, I think there are forms of constructive sets of conditions for price support.
Speaker #2: Time will tell. And as you know, Levi, what we see in terms of pricing behavior is it's principally sentiment-driven, not fundamentals-driven. Ultimately, fundamentals prevail, but we do see these phases of sentiment having an outsized impact in both directions, and I think we're going through one of those phases right now.
Speaker #3: Yeah, thanks, Dale. Thank you for the extra detail. Thanks.
Speaker #5: Thank you. Just a moment for our next question, please. Next, we have James Redfern from RBC Capital Markets. Your line is now open.
Speaker #6: Good morning, Dale and team. Congratulations on a strong quarter. I just wanted to ask two questions, please. The first one, I guess just sticking with the lithium market, I was wondering, at what spodumene price would you consider slowing down the ramp-up or even curtailing production at the Nuggetry plant?
Speaker #6: And then my second question was just, I'm interested in what the— I mean, it's probably confidential—but just a rough indication of the electricity price that the PPA has been signed with Fortescue, please.
Speaker #6: Thank you.
Speaker #2: Yeah, good day, James. Thanks for that. I'll take the first one on the market, and Alex can speak to the power costs. Yeah, as it relates to a potential price point for Nuggetry, historically we haven't guided around that, given that, of course, that would be a judgment call based not on a near-term outlook, but a mid-term outlook.
Speaker #2: So, we don't have a number in mind for you there. However, as you can see from the results today, we're making very, very strong operational margins at current pricing, care of our low-cost position.
Speaker #2: And then beyond that, of course, we are well supported via price floors. Several of our recent offtakes have got price floor support—US $1,000 per ton.
Speaker #2: So, we have a different makeup of conditions to consider any changes to the operating platform.
Speaker #4: Thanks. Morning, James. In relation to your question on electricity, as you indicated—look, it is a confidential agreement in size. I'm not able to provide detail.
Speaker #4: What you will have seen, though, is that in terms of the impact on FOB cost—between $15 to $20 a ton—it does make a meaningful impact on our broader costs, and obviously that comes from the negotiated outcomes.
Speaker #4: I think the other piece, when we look at any long-term agreement like this, naturally we look at it from a returns perspective, particularly given the capital that's also associated with it.
Speaker #4: And we're very comfortable that it's a strongly value-creating project overall.
Speaker #6: Okay, fantastic. Thank you very much. It's good.
Speaker #2: Thanks, James.
Speaker #5: Thank you. The next question comes from the line of Rahel Anad from Morgan Stanley. Your line is now open.
Speaker #7: Hi, good morning, Dale and team. Thanks for the call. For my first question, I just wanted to touch upon the processing grade.
Speaker #7: Obviously, the production performance was very strong, which is pleasing to see. If I back-calculate the processed grade, I get to about 1.45. So, that does seem a fair bit higher than even where you mined in the last quarter.
Speaker #7: So, just wanted to understand that head grade into the mill at 1.45, sustainability, and sort of how should we view that? That's the first one, and I'll come back with a follow-up.
Speaker #7: Thanks.
Speaker #8: Yeah, I'll take that one as well. Look, we do have some good run stocks there, and we are able to blend mainly for impurities, to really get the best out of our raw sorters.
Speaker #8: So, what you often see coming out of the mine is not directly proportionate to what goes through the mill. But yeah, we do everything that we can to get the best feed quality to both plants.
Speaker #8: And we've been working hard over the last couple of years to get our stockpiles just right so that we can blend for that ore sorting. That gives us a kick as well with that grade because we're removing all those impurities from the material.
Speaker #8: So it might be a little bit easier once we go to the, with our new reserves, going from the coarser stockpile forwards. You probably will be able to see a lot simpler what's coming through, going into the plant.
Speaker #7: Got it, okay. And then, for my follow-up, I just wanted to touch upon that Fortescue PPA that you just signed. Can you give us some understanding? I mean, you've talked about the cost savings, which is great, but I do note that it's not firmed power.
Speaker #7: So, I just wanted to understand, per megawatt hour, what's your cost there? And how does it compare to your onsite generation, I guess? And do you have plans to firm it up yourself, or to eventually look at firming? Or are you going to use your diesel backend or gas backend to firm up that supply?
Speaker #7: Thanks.
Speaker #2: Yeah, Rahel, no, thanks for the question. I'll give you a description to the extent that we can, given some of the details are confidential. But really, the short answer is we do have backup at the site.
Speaker #2: Obviously, there's a remote site where we've progressively built out our own power system. So we have that, and we've made note in the release today that we'll look to scale that up slightly.
Speaker #2: So this ensures that we're absolutely covered for power, and then part of the cost benefit we're leveraging here is care of that larger network that Fortescue has.
Speaker #2: Now there's a lot of complexity and really how this is all tied together. Commercially, but really the key outcome is as we've disclosed today, it's a reduction, unit cost reduction quite material, 15 to 20 bucks per ton.
Speaker #2: And then, in parallel, it's a very material step down in emissions intensity, so it's a fantastic outcome for the business.
Speaker #7: Sure. Okay. Thank you.
Speaker #5: Thank you. Just a moment for our next question, please. The next question comes from Kate McChutney from Bank of America. Your line is now open.
Speaker #9: Hi, good morning, Dale and Alex. I'm sorry about your lost crystal ball. Just the new bonds that you issued—8%—is materially higher than other bond issuances we've seen from miners this year.
Speaker #9: And I guess it doesn't add another $80 million Aussie or so to your interest costs. You've given us a vague answer around general corporate purposes; just keen for some color on the timing of tapping the bond market there.
Speaker #9: Is it defensive with the CapEx spend for P2000, or is there any more kind of color you can add around that decision and the timing?
Speaker #4: Yeah, of course. Thanks, Kate, for the question. Look, the bond really fits into our broader philosophy when it comes to capital management and ensuring that we have a really robust and resilient balance sheet through the cycle.
Speaker #4: We do take a long-term approach to funding, and we don't seek to access debt markets only when funding is immediately required. So, in this situation, we have chosen to go ahead of time with what we've found in the bond markets. As you'll well know, the coupon rates are obviously a function of both U.S. Treasury rates and credit spreads.
Speaker #4: Our inaugural issue, which we did in April, was particularly well-timed. It came at a real low point in both treasuries and credit spreads compared to long-term averages.
Speaker #4: What we then looked at is, obviously, US Treasury rates have risen and global inflationary concerns have heightened. But what we've actually seen is that our PLS credit spread has remained in line with our first bond. Currently, the second bond that we put in place was well below the broader high yield index spread.
Speaker #4: And so we were really pleased to have that continued long-term support, and we felt it was a good time to access the market. As you'd also appreciate, we've disclosed your windows when it comes to the bond market, and we were currently within a window, which would have then closed until sort of the second half of the year after the half-year results.
Speaker #4: So all of those things combined—an outlook for broader Treasuries—sort of all fed into the decision on the timing. In terms of broader uses, as we've said, obviously P2000 is underpinned by the cash we already had on the balance sheet and future operating cash flows.
Speaker #4: But what this bond does is it really ensures that we can continue to have flexibility throughout this next two- to three-year significant capital investment period.
Speaker #4: Should we wish to pursue other avenues of growth, we have the flexibility to do that. It also gives us the resilience that, through a really wide range of market conditions over that period of time, we continue to invest in those growth projects, unimpacted.
Speaker #4: So, as I said, a number of factors combine into timing and also future usage.
Speaker #9: Okay, okay. Got it. Thanks for the color, Alex. And then can I just come back to James's question and nag you? So, you made the decision to restart that in February. We were sitting above $2,000 a ton then versus $1,300 now.
Speaker #9: How long will we need to see this pricing level for the teams to possibly revisit that? Or are you "happy" with US$1,300 a ton and those additional tons on that higher cost plan?
Speaker #2: Yeah, thanks, Kate. Yeah, very comfortable with current levels. We're making strong margins across the operation, as evidenced today in the quarterly results. And it's not in the near-term thinking.
Speaker #2: At this stage.
Speaker #9: Okay. Thanks, Dale.
Speaker #2: Thanks, Kate.
Speaker #5: Thank you. Next question comes from Austin Yoon from Macquarie. Your line is now open.
Speaker #10: Hey, morning, Dale, Alex, and team. Just a follow-up on the $700 million bond issuance. I was hoping to get a bit more color. Firstly, I'm thinking about potential stress testing and the minimum liquidity requirements as you go through peak spending in the next couple of years.
Speaker #10: Does this bond issuance play into that part, and how should we think about a comfortable liquidity level when you assume a lower price environment?
Speaker #10: Yeah, if any color can be provided on that, thank you.
Speaker #4: Yeah, thanks. Morning, Austin. Thanks for the question. So, in relation to how we think about liquidity, and particularly how we think about liquidity, it's in two pieces.
Speaker #4: One, through this investment period, but also on the other side of the investment period, essentially being a business that is double the size as we are today.
Speaker #4: So, we broadly think around our minimum liquidity level. We would want to maintain around $1 billion. The way that we think about that is really around $500 million in cash and $500 million in the undrawn RCF.
Speaker #4: And so, that's obviously one of the factors we consider when thinking about the appropriate level of balance sheet resilience that we want throughout the cycle.
Speaker #10: Oh, that's really clear. And just one quick follow-up on the upstream. Yeah, we're now seeing this potential or concern of demand on the downstream. Keen to get color from your engagement with your kind of refineries.
Speaker #10: Do you see any tightness on the sportsman supply? There has been some speculation that some other sportsman producers may be struggling to deliver the promised tons in the next three to six months.
Speaker #10: Have you noticed, when you're dealing with your customers, any changes in behavior? Thank you.
Speaker #2: Yeah, Austin, as it relates to recent calls for spodumene, there is strong, strong demand. And it's not fever pitch, but there's certainly, without question, strong demand. From PLS's perspective, no issues placing volumes at all.
Speaker #2: So the question of, are we hearing of distress? What about some of the other suppliers? Yeah, it's hard to get a read on that conclusively.
Speaker #2: And I think the reason is, there is some overhang on some of these regions. We've seen changing rules in Zimbabwe, and there are question marks on where that goes.
Speaker #2: Mali, similar story as well. And, of course, as you know, some of the Chinese mines remained in the off position. Now, all of those—there are question marks around if things can be brought back on or will things be turned off.
Speaker #2: So there is that sort of overhang. And so some chemical converters are very much looking towards stable, reliable suppliers like PLS for supplies. And what we sort of do in the materials today is actually demonstrate, with that waterfall, how significant some of this supply, which could be under pressure, could be.
Speaker #2: Because, yeah, it's not immaterial. So, time will tell.
Speaker #10: Take it out for possible.
Speaker #2: Thanks, Austin.
Speaker #5: Thank you. Next question comes from Tiago or Gia from Citi. Your line is now open.
Speaker #10: Hi, good morning. I think my first question—we had a very strong result in terms of costs. If we look at what is the current cost midpoint, if we look at the guidance, the implied midpoint is 620.
Speaker #10: This would be 15% above September. Even at the bottom of the guidance, it would be $50 above the September quarter. So, can you give us a little bit more color on how you see the costs playing out throughout the year?
Speaker #10: That's my first question. Thanks.
Speaker #4: Yeah, morning, Terry. Thank you for the question. As Brett called out, obviously when we look at a quarter result, it's important to realize that it is just for one quarter.
Speaker #4: And there will be a number of factors that play into that. Obviously, production for this quarter was particularly strong. It also depends on the recoveries that we receive through the plants, depending on where we are in mining activities and shutdown activity.
Speaker #4: And one of the big pieces for this quarter is, from a weather perspective, it's probably one of our best quarters in terms of just stable operating conditions.
Speaker #4: Just as a reference point, the September quarter last year, the FOB reported was 540. So again, it was significantly lower than the overarching results.
Speaker #4: So, how are we thinking about it? Look, we're really pleased with the operational and cost efficiencies that we've seen in this quarter, and we've been able to see that embedded.
Speaker #4: I think that sets us up really well as we go through the rest of the year, and we may start to have some of those different impacts from weather.
Speaker #4: The other piece that we've seen when we look at the full-year guidance—and we called this out when we gave guidance—is, obviously, we had to make an assumption within there around diesel prices.
Speaker #4: Now, as we look at the September quarter, diesel cost has come in probably just below what I previously talked to—an 8 to 10 percent range for diesel.
Speaker #4: We've come in just below that for this quarter, but when I look at the outlook for diesel futures, I expect that we'll be towards the top end of that range in the December quarter. And then, who knows—again, we probably need Dell's crystal ball in terms of exactly where diesel pricing will land as we go forward.
Speaker #4: So, a few different aspects going in there. We're really pleased with the performance this quarter. It sets us up well, but no change to full-year guidance, given the number of those pressures coming through.
Speaker #10: I see. I think for my follow-up question, going back to the PPA deal with Boris Q, I understand you cannot provide exactly what the power cost per megawatt is, but can you give us at least a broad idea of how much load this would be compared to the current LNG and diesel blend?
Speaker #10: And what would happen with the $15 to $20 cost saving if the green grid is late? Thank you.
Speaker #2: Thanks, Tiago. So, as it relates to this power agreement, it's timed essentially contemporaneous with when P2000 is coming online, or the power will be slightly ahead of P2000.
Speaker #2: And given there's a lead time for the green grid build-out and the transmission lines, etc., what we're presenting today is a comparison of the benefits we expect in the future relative to that future case.
Speaker #2: So P2000 relative to P2000 with this power. And we've talked about the capacity that we can access there, of the 300-plus, and the cost of the $15 to $20 a tonne.
Speaker #2: So that's the way we've kind of framed it, because it's most relevant. As to the question of the impact of delays, well, we have base load covered, courtesy of the existing facilities, which I mentioned earlier. We're looking to expand.
Speaker #2: So that covers off if, in the event, the grid was late. However, we're not expecting the grid to be late, given our discussions with Fortescue and their timelines.
Speaker #2: They appear to have a good handle on their schedule for when they're looking to bring things online, and for those reasons, I think we're in a really good standing.
Speaker #10: Thank you.
Speaker #5: Thank you. Just a moment for our next question, please. Next, we have Glenn Lawcock from Baron Joey. Your line is now open.
Speaker #7: Good morning, Dal. Just firstly on the cost opportunity, maybe you see obviously the PPA was a good one today. What are other other opportunities do you think you've got out there?
Speaker #7: Because it sounds like you're still going to be running some gas-fired power backup, so you're obviously trucking gas in. Is there an opportunity to maybe pipe the gas in and save costs there? And is there anything else you've got that you could do to maybe help lift or drop the $600 cost base?
Speaker #7: Thanks.
Speaker #2: Yeah, good, Glenn. Yes, thanks for exploring this. The good news is, yes, there are more cost-out opportunities to go, and I'll rattle off a couple. Brett might want to weigh in as well.
Speaker #2: But just to start with power, so the power agreement we've signed today—that will be the power for P2000. So we're not expecting, in any large volume, to be relying on that backup power.
Speaker #2: So the opportunity around piped LNG, etc., is not there. So we'll be placing reliance on the PPA. But that being said, as I mentioned earlier, for some reason, there is an issue where we've got that backup coverage.
Speaker #2: Further sort of cost-out opportunities could include autonomous mining, ongoing improvements in lithium recoveries, and, of course, at port. In time, we love the idea of moving to a bulk outload facility, and we've had discussions with PPA around that for Lumston Point.
Speaker #2: Those are some initiatives. What else have we got, Brett?
Speaker #7: Thank you. You’ve pretty much stolen all of my thunder, Dale.
Speaker #2: Okay.
Speaker #7: The only other one is, we've spoken about the quad road train. So, moving to getting our goods and services in at a better price as well with the road work.
Speaker #7: The updated power strategy is going to give us a really good advantage, and we'll continue to work with our own minor strategy as we move into the mobile maintenance strategy.
Speaker #7: So, there's a fair bit that we always go after. Glenn, as you know, our Cost Smart Future Ready program is always in there as well.
Speaker #7: And, obviously, this PPA opens us up to further downstream electrification opportunities as they come to fruition as well, so it's pretty exciting. Okay, that's great.
Speaker #7: And then, maybe just a follow-up, if I could, on everyone's talking about the cost for the quarter and the year. But it's a question, I guess, looking at—if you look at the first quarter production, it really only annualizes at roughly the midpoint of guidance.
Speaker #7: So, one would hope you're going to hold the volume at this level each quarter. Obviously, there'll be weather to deal with in the coming months.
Speaker #7: Just trying to understand, then, is it all diesel? How much of the deferred strip was an incremental increase compared to normal to pull the cost down, and does that mean you're not going to capitalize as much stripping in future quarters as well?
Speaker #7: How much was that you capitalized this quarter? Additionally, perhaps, are there other things?
Speaker #4: Yeah, morning, Glenn. Two pieces. So, in relation to the production, what we expect to see as we go forward is, obviously, Nuggagee was in ramp-up.
Speaker #4: And so what we'll expect to see is that the Nuggagee tonnes for the following three quarters will be at a higher level, and that probably will offset what we're saying around the Pilgrim plant, which had a particularly strong quarter.
Speaker #4: This quarter, and so there's sort of some detail behind the total production amounts. Diesel—look, it depends where pricing goes; we'll have an impact.
Speaker #4: In terms of capitalized waste and the impact of that, that is more of a call-out versus the June quarter. We talked to the fact that this year we were going to see an uplift.
Speaker #4: We've seen that uplift probably won't be quite the same benefit as we move through the following three quarters, but it will still remain higher than the previous year.
Speaker #4: So, a few different moving pieces within the.
Speaker #7: And sorry, maybe just a better way to ask is: what was the dollar-per-ton benefit you think you saw from additional deferred stripping?
Speaker #4: Yeah, we don't go.
Speaker #7: And will that remain?
Speaker #4: So, as I called out, I'm expecting it to remain higher than last year, but I think as we go into Q2, Q3, and Q4, it will be slightly lower than what we saw in Q1. But we don't provide that level of detail.
Speaker #7: All right, thanks.
Speaker #2: Thanks, Glenn.
Speaker #5: Thank you. That concludes our Q&A session. I will now hand back to Dale for closing remarks.
Speaker #2: Thank you all for dialing in today for the September quarter results. A really strong set of outcomes for production and cost—record-breaking, in fact. And post-quarter, rounded out a couple of fantastic releases.
Speaker #2: A second U.S. bond to the tune of $700 million. Power agreement that we've announced today. Fantastic set of outcomes, which in combination with P2000 and the infrastructure announcements, sets us up for a fantastic future.
Speaker #2: Thank you all for your time, and I look forward to tuning in in the future.
