Earnings Transcript for IPGDF - Q4 Fiscal Year 2023

Operator: Thank you for standing by, and welcome to the IGO Limited FY '23 Results Webcast. [Operator Instructions] I would now like to hand the conference over to Matt Dusci, Acting Chief Executive Officer. Please go ahead.

Matt Dusci: Thank you, Travis. Good morning, everyone. Thank you for joining the call this morning, as we provide a summary of IGO's audited financial results for FY '23. Joining me on the call today is Kath Bozanic, our Chief Financial Officer, will be available to answer questions during the Q&A session. Also note that we released both of our Annual and Sustainability Reports this morning, as well as our FY '23 mineral resource, ore reserve and exploration update. Slide 2 highlights our cautionary statement and disclaimer. Of note, all currency amounts in this presentation today are in Australian dollars unless otherwise noted. Moving to Slide 3. Before we move to the financials, I want to discuss the important work we are doing to build a more sustainable business and making a positive impact on future generations. I encourage you to refer to our ninth sustainability report issued today. The report provides a snapshot across the multiple facets of sustainability throughout our business, including safety and well being, our response to climate change, environment, business integrity, our financial contributions, traditional owners and communities and our people. IGO has a proud history in the work we do in sustainability, and this year is no exception with some highlights including

Operator: Thank you. [Operator Instructions] The first phone question today comes from Levi Spry from UBS. Please go ahead.

Matt Dusci: Hey, Levi.

Levi Spry: Good morning, Matt and team. Thanks for your time. Two questions. Firstly, just on the capital management for the new dividend policy. Can you just talk us through what the higher returns piece means in terms of do you have a target gearing level here? Obviously, shareholders are happy with [indiscernible] but what does this mean around the $1 billion liquidity?

Matt Dusci: Yes, I'll hand the call to Kath in a second. But in terms of liquidity, liquidity is cash reserves plus balance of undrawn debt. So at the moment, we have about $775 million of cash and we have about $360 million of revolver and that's how we define liquidity. Ultimately, in determining the dividend it really shows the strength of IGO both in this -- what has been an exceptional year in FY '23, but also going forward into FY '24. and beyond. Do you want to talk about gearing?

Kath Bozanic: Yes, obviously, internally, we have our gearing, targets and ratios, and at this point in time gearing is quite low. What I would say about that is it's consistent with what you'd expect for an organization like [indiscernible]. And therefore if we were to actually do something that required debt, we would use utilize those targets in order to determine the amount of debt we could take. Hopefully that answers your question, Levi.

Levi Spry: Yes, kind of, just not sure why you can't pay out debt, I guess.

Kath Bozanic: I understand the question.

Levi Spry: Yes, okay. Maybe to the next question then on Cosmos. While you're talking, I guess -- so what are the options that are being considered? And can you just remind us 338 spent in FY '23? Can you just remind us under the old plan, how much was left to spend to get to 1.1 million tonnes throughput? That’s the two questions there, I guess, remain CapEx under the old plan and what are you -- what's in front of you?

Matt Dusci: Yes, we -- what’s in front of us, I suppose we're doing that whole review, including the reassessment of capital costs complete. Reassessment of scheduled timing to complete. And ultimately what that production profile ramp up would be under the new plan. So that's this program of work that we're committed to driving value added at Cosmos project going forward. So we haven't come out as part of that FY '24 guidance, we haven't come out with that capital costs to complete for Cosmos.

Kath Bozanic: Yes, I am -- I actually haven't got -- what was left on hand at the moment, but it's pretty easy to calculate from the numbers we've created previously, given the [indiscernible]. I just don't have the exact number to hand right now.

Levi Spry: No problem. I'll do that. Thank you. Thanks, guys.

Matt Dusci: Thanks, Levi.

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

Kate McCutcheon: Thanks, Matt. With the special dividend paid out, would it be premature to read into that around how the timing in Train 2 at Kwinana might play out or how you're thinking about the downstream battery or PCAM plan? Or, if I ask it another way, can you remind me on the timing for how we should think about a Train 2 decision and also an update on the PCAM partner and study there?

Matt Dusci: Yes, yes. So I can provide a bit of an update. So ultimately, when we look at dividend, we also factor in our internal growth. So we take into that into consideration when we were doing the dividends. So we've felt strongly that business is in such good shape that we can continue to fund all the internal growth projects we have in our portfolio, which is quite significant. In terms of trying to doing front end engineering design, we are scheduled to complete that in the first pass of calendar year '24. That will lead into the financial investment decision after that completion. With the completion of that feed, we will come out with capital costs and timing to all that capital spend and ramp up profiles, et cetera. In terms of the integrated battery metal facility, we continue to have discussions with PCAM partner, and we're advancing feasibility studies on the -- on that facility. The idea is that we'll be in a position to announce PCAM partner sometime this calendar year with the completion of studies round about mid calendar year '24.

Kate McCutcheon: Okay. Thanks, Matt. And then if I can just squeeze in a quick one. After the impairment and the update we are expecting for Cosmos next quarter, would that be underpinned by those FY '23 resources you've announced today with the [indiscernible]. It looks like reserves have remained flat there, but you've also used higher nickel price assumptions. Any color there?

Matt Dusci: Yes. So if I -- if you strip back to the mineral resource and ore reserves for Cosmos, the resources -- [indiscernible] sorry, the variance in nickel tonnes, you see on the resources [indiscernible]. So what we've done at [indiscernible] good in the resources essentially define that to an open pit that was previously reported adjusted above a set off grade, so you ended up with a lot of metal that will never come into a mining shape. So that resource has more confidence and what had previously been reported under western areas and would be what you would expect to see in an [indiscernible] successful in a completion of the preceding stability studies, et cetera at [indiscernible]. In terms of the reserve, the reserve fundamentally hasn't changed. Any reserve update on Cosmos will come out as part of this update on plan.

Kate McCutcheon: Thanks, Matt.

Operator: Thank you. The next question comes from Daniel Morgan from Barrenjoey. Please go ahead.

Daniel Morgan: Hi, Matt and team. Just to follow-up on that last point. So this reserve announcement today across your assets, which includes Cosmos, there hasn't been any of the review work that's informed. And so if the reserves statement that you've put out could still be at some risk via the review processes, is that right?

Matt Dusci: Yes, look, I would state that that reserve is based on previous reserves. We're obviously drilling -- do a lot of drilling at the moment et cetera and updating that whole resource model and then feed that into the mine plan and life of mine for [indiscernible]. If I was summarizing just generally that resource and reserves, resource and reserve you saw a depletion come out of Nova. Effectively the depletion out of Forrestania on a reserve basis, some of the resources that have come out just because of their resources back ended. Greenbushes is just a depletion. We're in the process of updating Greenbushes and we expect to see a new update on Greenbushes results [indiscernible] in start of calendar year '24.

Daniel Morgan: So on that latter point, what is in scope for consideration for the Greenbushes updated resource reserve, like what body of work has been done and what has been considered?

Matt Dusci: There has been quite a significant body of work in terms of drilling resource extensional work on Greenbushes and then ultimately trying to determine where the optimal open pit would fall.

Daniel Morgan: Is underground or potential underground in scope? Or is it too early for them.

Matt Dusci: It's too early for this or be too early for this, our [indiscernible] statement for calendar year?

Daniel Morgan: I also note in the resource reserve statements that Silver Knight has been reviewed -- removed, I mean, it's not -- it was not a large deposit in any case, but you no longer think that can be processed. And so what Nova has got 3 years left?

Matt Dusci: Yes, so correct. So Silver Knight has been taken out of resource because at the moment, we don't have and we're quite tight on resources. So our resources really have to have an economic path to development. At the moment, we don't have that economic path to development, obviously, overnight. So we've taken that out of our resource statement. Why that case is, as we've talked to previously is blending -- blending Silver Knight with Nova reduces recovery at Nova. The blending is not an option, it is there you [indiscernible]. And then if you treat Silver Knight by yourself, then it will require capital and it doesn't support that capital.

Daniel Morgan: Okay, and last question. On your exploration slide in your presentation, refer to page 15, you've got in the lithium section of Forrestania project. Is that anything material given that there's a few juniors out there that are multibillion dollar companies on the back of new lithium projects?

Matt Dusci: Yes, in a summary report in the back of the mineral resource on exploration, and I talk to some of the lithium opportunities around Forrestania. Forrestania even though it's [indiscernible] bell holding us down strike from [indiscernible] and there has been very little done on lithium. There's a couple of prospects that were starting to drill this quarter. [Indiscernible] one of those, which has some promising lithium. But again, in terms of materiality for us as a business once this material, then we'll pull them [indiscernible] to everyone.

Daniel Morgan: Thank you very much, Matt.

Operator: Thank you. The next question comes from Lyndon Fagan from JPMorgan. Please go ahead.

Lyndon Fagan: Thanks and good morning. Just on the Greenbushes slide where the capacity in FY '27 is slated at 2.5 million tonnes Are you able to confirm that includes the tailings retreatment. And when what the latest guidance on when that finishes is?

Matt Dusci: Yes, okay. Hi, Lyndon. So yes, so that 2.5 does include tailings retreatment project. And under the original plan, tailings recruitment program doesn't continue beyond the 7 years that it's currently sitting at, then production profile would come off. Having said that we're working through how we better utilize that infrastructure and better see that infrastructure so that we can continue to maximize and utilize all processing capacity at Greenbushes.

Lyndon Fagan: But just to clarify, I had that ending in FY '27. Is that still the latest guidance for when it is meant to finish?

Matt Dusci: Yes, It was approximate. Maybe another year on top of that, but in terms of this is total production capacity at Greenbushes. And we will be striving to ensure that we've filled total production capacity at Greenbushes.

Lyndon Fagan: Okay, great. And then on Kwinana, are you able to speak to what the latest kind of conversion metrics look like? So how many tonnes of spodumene per tonne of hydroxide? And I mean, can you guide anything on the conversion cost there?

Matt Dusci: Not really. Even if we do, probably do a little bit more maybe at the quarter end. Generally, in this ramp up phase we're trying to keep that working through that ramp up because of the efficiencies. What we are doing is we're still getting that ramp up profile, right? We're still confident of getting to that 50% of the nameplate by the end of this calendar year. I wouldn't [indiscernible] because it's not that efficient, you don't get where you think you would be. But everything to date should suggest that conversion solve the issue. The main issue really is associated with these bottlenecks of production of actually getting material through.

Lyndon Fagan: Okay, no worries. I might sneak a final one in, if I may. Just with that reserve downgrade or resource downgrade, particularly in Nova now that it looks like it's wrapping up in 3 years. Can you speak to some of what the rehab costs are that we need to have?

Matt Dusci: Yes, we have that on our books. Can you remember that funnel?

Kath Bozanic: Yes, it's about 40 mil that we've got provided for. And we did a review, very bottom up detailed review in last 12 months of that.

Lyndon Fagan: So that starts spending when, sorry.

Kath Bozanic: Well, with Nova, we'll be looking at whether we pop it into care and maintenance for a short period of time, because of the way the rehab works, we'd need to pull up roads and things like that for the tailings dam. So as we go through the next year, we'll be doing work on what that plan is for closure. And bearing in mind, we're still doing quite a bit of exploration in that region. So it wouldn't make sense to tear up roads if we got good prospectivity there. But I can say that in the next 12 months, we'll be looking at the timing of that in more detail based on what we're finding from an exploration perspective.

Lyndon Fagan: Right. Thanks for the color.

Matt Dusci: No problems.

Operator: Thank you. The next question comes from Jon Bishop from Jarden Group. Please go ahead.

Jon Bishop: Good morning, Matt and Kath. Just around intermediary lithium conversion, sort of we're noting that lithium sulphate as an intermediary product is kind of all the rage at the moment. Is it sort of too early to comment on the joint ventures thinking around the commercial outlooks for Train 3 and 4 at Kwinana. And any sort of colors to perhaps what you're thinking around what sort of form they may take?

Matt Dusci: Hi, Jon. Yes, probably a little bit early, but we remain open to different forms. Having said that, you have to remember most of the savings you get from going to these intermediates is associated with transportation and other elements. For when you have Greenbushes located so close to your industrial hubs, then you may not see the same sort of beneficiaries you do when you're going to an intermediate. And you'll see your [indiscernible] into that lithium hydroxide as well close to Greenbushes. So it gives you an idea of where those savings come from.

Jon Bishop: Got you . So there's no sort of thought perhaps to locate the crystallization part of the conversion elsewhere say proximal to European markets or North American or anything like that, or is that just too early?

Matt Dusci: Yes, [indiscernible] would be talking even theoretically -- that theoretically, you could do a sulphate and can do a beneficiary, if you wanted to somewhere closer would be one option that, again, the variance there on the drivers is transport -- transport, et cetera, so you may actually benefit -- more benefit just going straight to hydroxide.

Jon Bishop: Okay. And look, just a bit of [indiscernible]. Notice that [indiscernible] has changed recently. [Indiscernible] if you're listening. He's gone to an exploration business development manager from GM exploration. Is that a change in remit or a complete change in title and role? And I guess more broadly, I guess, the high-level questions just around, is there any change in your strategy around organic exploration at all?

Matt Dusci: Yes, good observation, Jon. You are correct. And we have brought in a new Exploration Manager Suzanne from Oz Minerals. So it's just part of a continuation of what we do in our business and looking at different skill sets within our business. So there's no change in terms of exploration and exploration approach, remain committed to exploration, building a portfolio and a pipeline is really important as part of executing strong exploration programs, ultimately leading to discovery. We'll do a portfolio review about our exploration through December and we'll continue to make sure that our exploration dollars are wisely spent.

Jon Bishop: Right. Thanks for the answer.

Operator: Thank you. The next question comes from Robert Stein from CLSA. Please go ahead.

Robert Stein: Thanks for the opportunity to ask some questions today. The first one's sort of getting on that intermediary question. One of your competitors came out the other day and talked to some pretty low CapEx numbers in [indiscernible] as locations for downstream conversion. Just questioning whether you're exploring that at the JV level, or even at the IGO level around potentially locating conversion offshore to make use of potentially labor cost advantages. That's the first. And my follow-up with the second.

Matt Dusci: Yes, look [indiscernible] as a business and as a joint venture, we always explore options to try and create value. So if there's an option to extract value, then we will be exploring it. But it's a little bit early to -- it's too early for us to say that we have a preference on which way we're going to go or how do we actually extract that value?

Robert Stein: And sorry, as a follow-up, is that an alternative for Train 2 that you would look to the Train 2 FID [ph] and then compare it with other jurisdictions? And if not, what type of capital synergies or operating cost synergies are you expecting in the Train 2 FID versus, say, what's been executed around Train 1 outside of the typical type of learning synergies that you would get?

Matt Dusci: Yes, look, specifically on Train 2 30% of our capital already is sunk on Train 2 with the major pieces of equipment. And then why we do that is that, ultimately will, we're working through the [indiscernible] to lock down with our capital to complete is, but we are in a huge advantage, in terms of having Train 1 understanding what we need to do on Train 1. Derisk really -- derisking Train 2, for us to go into the new product and not leverage that advantage on Train 1. From Train 1 on to train 2 would be a really lost opportunity. And we're actually potentially may introduce further risk in terms of technical risk and engineering risks that we wouldn't want to take on at this point in time.

Robert Stein: So stuff like benchmark that to say like it, and I know that take the competition's sort of estimates with a [indiscernible]. But if you say, in the US$6,000 to US$10,000 capital intensity with the sunk capital in the learning advantages, we'd be expecting a material change or difference to what was executed on the Train 1. Can you give us a rough couple intensity there? Or is that …?

Matt Dusci: Yes, we've [technical difficulty] ultimately, what we're trying to do on Train 2 is really fully derisk. So when we have a capital number, it will be engineered, it will have will have all the contracts in place. And we'll have some movement on that on that capital in this sort of environment with a sort of complexities on these facilities coming out with capital numbers early is not in anyone's favor.

Robert Stein: No problem. Thank you very much.

Operator: Thank you. [Operator Instructions] The next phone question comes from Matthew Frydman from MST Financial. Please go ahead.

Matthew Frydman: Sure. Thanks, good morning, Matt and team. Maybe just following on there I guess the questions around the downstream and in the context of the number you've put out there for Greenbushes production in FY '27 of 2.5 million tonnes per annum. You know, obviously, IGA is entitled to 24.9% of that. So little over 600 kilotonnes there, even if you had two trains that Kwinana fully ramped up, that would only consume maybe a little bit over half of that. So I guess what's your thinking around what's the goal there for that spot, your main product for that difference? Are you happy to sell that spot you mean to Tianqi over the long run, do you look to, to place that into some kind of conversion solution down the track, either [indiscernible] or yes, within Australia, what's the thinking around that product?

Matt Dusci: Ultimately [indiscernible] objective is integration. So there's always focused on value creation, how we drive value for both the TLEA as a joint venture and see. And then also for IGO shareholders. You're right. So in terms of Greenbushes, we are long from an IGO perspective, or from a TLEA perspective, we are long on Spodumene. And we will continue to be long [indiscernible] and then as we build up production at Greenbushes. We're comfortable with that. There's margins to be ahead on -- just on the spodumene on that side of business. Coupled with that is, is a cautious and approach to continue to expand out downstream within the TLEA, that can be done through a number of ways, getting Train 1 -- first priority is getting Train 1 up and performing to that 50% and beyond to tell him in calendar year '24, trying to bring, making sure that we derisk Train 2 and then looking at where the Train 3 and 4, or how we drive value add maybe out of sulphate et cetera. In parallel to that, there is options potentially [indiscernible] if there was options outside of China.

Matthew Frydman: Got it. Thanks, Matt. That's pretty clear. Secondly, can I ask on, I guess organic and inorganic growth, particularly in the context of the capital management framework you've presented. And I get off something along the lines of the quarterly, but I guess how did the Board and management get comfortable with the approach to any sort of major investments in organic or inorganic growth in the future, obviously, given the learnings from the Western areas acquisition and impairment? What sort of returns would you be seeking from a major organic or inorganic project, what returns you need to clear in order to be more attractive on a risk weighted basis than simply returning that cash to shareholders through your framework as you've outlined?

Matt Dusci: Yes, they're all very good questions. And [indiscernible] questions that continually get discussed, and even at a Board level, I'm very cognizant of that. Coming back to us as an organization is, yes, there has -- there is learnings [indiscernible] good organizations take those learnings and improve. So we should and ultimately strengthen ourselves. You saw at the moment for us really it's about sort of significant investment that we're putting into the lithium business and into expansion of Greenbushes and then bringing on those [indiscernible] productions. When you look at those returns by themselves then like [indiscernible] anything else that we could do in terms of return to shareholders.

Matthew Frydman: Okay, sure. Thanks, Matt. I guess maybe thinking about it in the context of the review you're doing on Cosmos, I mean, are you still going to assess that in the framework of, I guess, putting aside the sunk cost and the sunk capital in that project, and looking forward at the returns, that any sort of future investment that we're going to generate and whether they, again meet the requirements of that framework?

Matt Dusci: Yes.

Matthew Frydman: Okay. Short answer, thanks.

Matt Dusci: The answer is yes. Look, even as part of -- that's why we're doing this work ultimately to get to a good answer, a good outcome. We remain confident, there's value to be extracted, and we will be able to extract that value, but there has to be assessed against a framework of how do we deploy capital through our business.

Matthew Frydman: Got it. Thanks very much, Matt.

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

Hugo Nicolaci: Good morning, Matt and Kath. Thanks for the update this morning and congrats on the special, maybe just one following up on previous question just around Kwinana noting that you're aiming to get 50% nameplate by the end of the year. Some of your peers have kind of highlighted that they didn't see the need to ramp up production until they're fully battery qualified. Are you able to just remind us where you're at through the battery grade qualification process with your off take partners?

Matt Dusci: Yes. We are confident of getting battery grade qualification and we expect that to be shortlist. And that's not as -- that's not consideration to getting production profiles ramped up. The consideration of getting that production profile is not -- is about how we debottleneck the processing plant and continue [indiscernible].

Hugo Nicolaci: Great, thanks. That's clear. And then maybe just another one following on from earlier question around the lithium exploration at Forrestania. Understanding the JV that you have to offer new lithium opportunities into the JV first, does that still apply to assets you already had, if you find lithium, does that still have to be offered into the JV?

Matt Dusci: Yes, you're right. So what would happen under a scenario like that is that at some point we would offer that into the JV at some form of market rate -- at market terms.

Hugo Nicolaci: Great. Thanks for that clarification. And then just last one just around Greenbushes. [Indiscernible] are you still seeing any absentee issues now that McMahon [ph] has been on site for a couple of months. And could you broadly maybe just comment on how you're seeing labor broadly across the WA assets? Thanks.

Matt Dusci: Yes, okay. Specifically Greenbushes we continue to ramp up mining production with that change with demand, so it steps on going on track. Short-term -- some short-term absenteeism, which you would expect that nothing material. Labor for WA in the market remains tight. And then each area has different challenges. One of the biggest challenges that are specifically the Greenbushes level really comes down to accommodation and accommodation ability to actually accommodate the workforce [indiscernible] the investment in mine [indiscernible] at Greenbushes. Within the rest of the -- rest of our business, it really depends on what skill set we are chasing and what we've seen is a different skill set that have different scarcity and that kind of moves around, it doesn't stay [indiscernible] discipline.

Hugo Nicolaci: Great. Thanks, Matt. That's helpful. I will pass it on.

Operator: Thank you. The next question comes from Tim Hoff from Canaccord. Please go ahead.

Timothy Hoff: Hi. Thanks for the question. Just in regards to the TLEA JV. [Indiscernible] M&A opportunities ex China have to come into the JV before the individual companies can assess them. If that's correct, how does IGO start to deal with if [indiscernible] brings in African, South American projects or projects ex China around the world?

Matt Dusci: Yes. Okay. So under the -- it's a global joint venture, so you’re correct, [indiscernible] related to Lithium has [indiscernible] related to lithium and lithium products. How that joint venture works for new projects is [indiscernible] to offer it into the joint venture. So then the other counterparty, the share -- other shareholder has a right to say whether I would want it into the joint venture or not. You can see -- you'll be able to see potentially that differently the opportunities may or may not go into that joint venture depending on different returns and different financial considerations or different investment criterias. That's not the joint venture not working, exactly the joint venture working.

Timothy Hoff: And so does that stand to [indiscernible] that IGO is going to maintain its Australian focus? Or will you start to look out to these other jurisdictions. IGO will remain focused on value creation at the end, so that that's the underlying basis for us is really have to see the value and ensure that it fits within our capital management and our risk appetite.

Timothy Hoff: Excellent. Thank you. And then, I'm not sure if I missed it earlier, my phone line drops down. But [indiscernible] to, I guess how much [indiscernible] the reserve indicates about a year.

Matt Dusci: Yes. So under the current -- our current reserves is about a year and a half.

Timothy Hoff: Yes, excellent. All right. Excellent. Thank you very much.

Matt Dusci: Thanks, Tim.

Operator: Thank you. At this time, we're showing no further questions. I'll hand the conference back to Matt for closing remarks.

Matt Dusci: Thank you, everyone, for joining the call. We appreciate everyone's participation and thank you again. Have a safe and wonderful day.