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Earnings Transcript for LTR.AX - Q4 Fiscal Year 2024

Antonino Ottaviano: Good morning and good afternoon listeners. Thanks for joining our First Full Quarterly Production Update for Liontown. With me on this presentation is Jon Latto, our Chief Commercial Officer; and Grant Donald, our Chief Commercial Officer, but also acting for Adam Smits, who's taking a well-earned break and will be back with us early in the new year. This full quarter of production from Kathleen Valley confirms we are well on track to achieving our ambition of becoming an established world-class producer of lithium. This quarter demonstrates a continuation of what really matters and what's within our control. We've done our open pit mining and our underground mining, and they're proceeding smoothly, and we're recording both record output but record production productivity. And the ramp-up performance in the plant, as you'll see when we go through this presentation, is going in line and in some areas, exceeding our expectations. Now both of those things have to come together for us to deliver the production we need and more importantly, in today's world, the unit cost outcomes we need. If we can just go to the first slide, please. Look, I wanted to start with the strategy slide because I think it's important to reinforce that our focus is very much on all of these three horizons that are in different intensities. Clearly, the focus is getting the ramp-up and getting it right. And we're putting a lot of effort, as you can see from today's report, the focus that we're employing to make sure that Kathleen Valley is at its full potential. But we're also working quietly in the background around our downstream aspirations, both with Sumitomo and LG. And then ultimately, we've got Grant Donald here on the call today, but Grant's and his small team is focused on what Liontown to its full potential also looks like. And the importance here is this strategy remains unchanged and it endures the cycles. We're taking both a short- and long-term view because we're here for the long term. We go to the next slide, please. Our ESG performance for the quarter, we start with safety. Our record lost time injury frequency rate is 0.66, and our TRIFR is just 4.6. As most of you know, the focus on safety is also enduring, and we have to keep our vigilance. And we're in new operations, we've got new employees, we've got new ways of working and systems and processes that people need to understand. And I think it's a testament to management that given everything that's developing and the speed of which we're ramping up, we're maintaining our focus and intensity on the safety and the health of our employees. I think this week, the area recorded temperatures well over 40 for the whole week. So it's pretty tough conditions to work within. And then we go to the ESG, we're getting renewable power of -- in excess of 80%, 82%. And I think that's important to put into context. Our ambition, when we did the DFS, was that we will get 60% penetration. Well, we've exceeded that. And we're working very closely with Zenith, our partner, to ensure that, that actually increases and improves. Our female participation is 23%, which is in line with industry benchmarks, and we're hoping to continually improve that by attracting high-caliber females to our organization. And this is a very special and personal event for me, which was signing up an agreement with the Tjiwarl business, which you see in the picture there and -- to do all our light vehicle maintenance. This is a homegrown genuine partnership between an aboriginal business and ourselves, and we're very proud of this, and there's more to come. Next slide, please. So this is the highlights for December. And I said to the team when we were constructing the slide, I'm very proud, and the team should be very proud of this slide. In our minings, we're having record production both for the quarter and for the year. So we're very happy with the way things are going in the mining sector. The underground mining is going exceptionally well, a testament to the team there and the planning they've done, but also to Byrnecut, our contractor that's done some great work there. And I'm not taking anything from [Iron Mine], our contractor in the open pit. They're doing a great job as well with the team there. And we're on track to do our first stope by the end of the quarter. On the processing side, we've processed nearly 620,000 tonnes of material from the quarter. And we've given the listeners the specs and run rates and details on that in the appendix, which is an annualized rate of 2.4 million tonnes per annum. Our guidance for this year is 2.3. But in pockets, we've gone and hit our 3 million tonne rate. So we know the plant has that capacity. We're seeing an average availability for the quarter of 89%, which again, is a fantastic effort for a plant that's only been running for 5 months. And we recorded 92% in December, which is very close to our target. And importantly, the lithia recovery of 55% for the quarter and 59% for December. I think all of you are aware that the Holy Grail for the lithium hard rock producers is recovery. There is a close relationship between recovery, grade and flow sheet design in which to deliver this outcome. This is the ambition for us. This is the focus area for us for the coming months in order to get to where our target should be, and we've got a slide on that. I've spoken about production. 88,000 tonnes for the quarter. I mean that's an outstanding effort, again, for a plant that's been running for 5 months. And Grant and the team are doing a great job on the sales front, and he'll talk a little bit about that in a minute. And then finally, operating cash flow. Again, in ramp-up, we've been able to generate a positive operating cash flow from the operating activities. Next slide, please. Touched on the mining side in my highlights, but here are the specifics. In the open pit, the ROM stockpiles are building. We'll talk a little bit about the ROM stockpiles when Jon gets to his section. The 2.6 million tonnes moved for the quarter. For me, the [CD ore] mobilizing from the lens that we've uncovered and we're still in that lens, is quite a feat. It's exactly where we thought it would be, it's exactly the grade and chemistry that we expected. So there's been a great bit of work done there in understanding what we're mining. And we've demobilized an excavator and truck fleet as part of the cost optimization work that we did earlier in the -- or later in the year last year. In the underground, I will just summarize by saying we're moving development meters. You can see the trend there. That's coming along nicely. And we've got the ground conditions we expect. I mean I was in the underground just before Christmas and with the Byrnecut leadership team, and it was exceptional what we could see underground. And the production stoping activities are on track for quarter 4 FY '25. And the productivity from the jumbos, which is the key metric that everyone looks at, is still well over the 300 meters per jumbo per month. And we're mobilizing the third jumbo early in '26, in line again with the revised mine plan that we issued in November. Yes, to the next slide, please. I'll now hand over to Grant, who will take you through the plant performance.
Grant Donald: Thanks, Tony. Our ramp-up continues to meet or exceed the expectations across plant availability, milled tonnes. And recoveries continue to move higher, demonstrating our progressive improvements. The SAG mill availability remains high, as you can see from the top right chart, enabling strong mill throughput with over 600,000 tonnes processed during the quarter, equivalent to an annualized run rate Tony mentioned, of 2.4 million tonnes, just ahead of our run rate, which we guided to in November of 2.3. Our recoveries continue to show progressive improvements averaging 55% during the quarter, which is 10 percentage points higher than the last quarter or 23% higher. The bottom left chart shows the progressive improvements over month by month, showing December averaging 59%, which already exceeds some of our peers after only 5 months of operation. We still have further to go on this journey with identified actions and a program of work in place to continue advancing towards a 70% target by Q3 '26, which is the March quarter. The combination of throughput and recoveries culminated in production of 88,700 dry metric tons during the quarter at a weighted average grade of 5.2% lithium oxide. If we can go to the next slide. Strong production allowed us to push tonnes sold to customers since the commencement of production to over 100,000 wet metric tons. Those tonnes went to a combination of our offtake partners and to spot customers. A particularly strong December saw us produce 36,400 dry metric tons, which enabled total shipments of 81,300 dry metric tons during the quarter. 4 shipments to customers were made during the quarter, including our inaugural cargo to LG Energy Solution, on the largest vessel loaded so far at 33,000 wet metric tons, which is a personal best for the company, and we're looking to beat that this month. This quarter also saw us initiate production and shipment of tantalite, which we are looking to turn into a regular flow of production and deliveries to customers this quarter. In another milestone for Liontown, we also called commercial production under our offtake with Tesla, effective from the start of this calendar year. We continue to see robust inbound interest from customers looking to establish regular spodumene purchases from well-known names with an established track record, many of which the callers would be familiar with. The demand for spodumene, even against a relatively weak backdrop of chemicals, remains robust, demonstrating the embedded optionality of buying spodumene in the face of uncertainty and the continued evolution of battery chemistries. With our forward offtake expected to commence in July 25, the forward demand outlook for Liontown product remains strong, meaning we expect to have a tight forward sales book for the remainder of FY '25 and beyond. With that, I'll hand over to Jon Latto.
Jon Latto: If you could go to the next page, please. Thank you. Thanks, Grant. So Tony and Grant have covered off on the production and sales data in the top half of this slide. I will now talk to the financial metrics that you can see in front of you. Firstly, from the heading on the page, you can see that we returned net cash flow from operating activities of $16.7 million for the quarter, as Tony mentioned, and you can see that number in the 5B quarterly cash flow statement that we have also released today. At this point, it's important to remember that we are in ramp-up. And we are following the accounting standards and we are capitalizing our commissioning costs at the Kathleen Valley processing plant such that we have a new margin when we look at revenue as our operating costs. We will continue to adopt this approach until we declare commercial production at the Kathleen Valley processing plant, which is expected to occur in the current half-year period. If we had declared commercial production, these capitalized commissioning costs would flow through to the profit and loss statement in a normal manner. We did have $5.3 million of cash commissioning costs in the quarter. And therefore, if we had declared commercial production at the processing plant, we would have recognized these costs as cash outflows from operating activities and returned an adjusted positive cash flow from operating activities for the quarter of $11.5 million. That is a strong result for our first full quarter of operations when the company is still in ramp-up. We returned revenue for the quarter of AUD 89.8 million from sales of 81,341 tonnes of spodumene concentrate from 4 shipments during the quarter, as Grant mentioned. You can see that we've reported both a unit operating cost of AUD 1,000 per tonne for the December quarter on an SC6 basis and an all-in sustaining cost of AUD 1,170 per tonne also on an SC6 basis. There are a couple of points I'd like to make here. Firstly, this equates to a cost per tonne of USD 652 a tonne for unit operating costs and USD 763 per tonne for all-in sustaining cost on SC6 basis. It is pleasing to see that our average USD realized price per tonne on an SC6 basis was $806 a tonne for the quarter, which was higher than both our unit operating cost and our all-in sustaining costs. My final point here is that we have included our capitalized commissioning costs in both the unit operating cost and our all-in sustaining cost numbers, so you can get a true sense of how we're performing. Finally, in relation to our cash balance. At the end of the December quarter, we had a strong cash balance of $193 million. There are a couple of things I'd like to note here. In addition to the $193 million cash balance, we had another shipment of $12 million of product before the end of the year, with those funds being received in January 2025. We also had 25,000 tonnes -- dry metric tons of salable concentrate on hand. We also have built and paid for the mining of significant ore stockpiles as planned. And at the end of the quarter, we had 1.3 million tonnes of stockpiled ore. In addition to that, we also have $25 million of cash on deposit with Export Finance Australia, associated with a guarantee required under the power purchase agreement with Zenith. This has been cash backed for some time, and we are working with the various parties concerned to have those funds return to us and replace with an alternative form of security. If you could turn over to Page 10, please. So I'll now go into a little bit more detail regarding our cash flows in the cash flow waterfall that you see in front of you. And I'll move from left to right across the waterfall. So firstly, we start obviously with our opening cash balance of $263.1 million at the beginning of the quarter. We then have cash inflow from the sale of our spodumene concentrate of $91.2 million for the quarter. The next bar in the waterfall shows our operating cost for the quarter, which were approximately $79 million, and that's essentially our open pit costs, both our contractor costs and our owner costs, our processing and maintenance costs, outside administration costs and our corporate costs. And in the next bar, you see that we had interest receipts of $4.8 million. It's those numbers that give us our positive cash flow from operating activities of $16.7 million, which then as the waterfall then shows in the callout box, you can see how that adjust to $11.5 million positive cash flow if we were to adjust for the cash commissioning costs that I spoke about previously. Now those cash commissioning costs you can see are in the next bar, which is the cash flows from investing activities. So I'll now move on to the next bar, which is project costs. Project costs for the quarter were $45 million, and they are essentially payments for the construction of the Kathleen Valley operation that we paid during the quarter. And these were payments -- this $45 million was payments for items such as paste plant, final payments to our structural and mechanical piping contractor Monodelphous, multipoint payments and payments for spares and other items like that. I will stop there and make a couple of comments here. So last quarter, we said that we had around $65 million of project cost to pay for and that this would be wrapped up in the December quarter. What we now see is that this amount is actually approximately $10 million lower as some of the project provisions that we had were ultimately higher than we required and combined with our continued strong contract management. But it will take longer for the project tail to be paid out as we finalize things like final insurance premiums, commissioning of the paste plant, finalization of the construction training fund levy and release of project retentions. But what this essentially means is that we have a lower project spend and it stays with us for longer. It's a good outcome. The next component of the waterfall is other capital of $28 million for the quarter, and the majority of this spend is underground development costs, with the balance being general sustaining capital. We are in a development-intensive phase of the underground now, and I expect that the quarterly cost for capitalized underground spend will not be as high in FY '26 and FY '27, as we have seen in the current quarter. The reason for this is that in FY '25, we have expanded the capital requirement to establish access to the top of the ore body, being event rise, decline, et cetera; in advance of stoping, which will commence around April '25. Finally, the last bar of the waterfall, we have the lease and hire purchase costs, which includes the lease payments we have for our right-of-use assets, with the largest of those being payments for the power station. And this brings us back to our strong cash position that we see at the end of the quarter of $192 million. And having said that, I'll turn back to Tony.
Antonino Ottaviano: Thanks, Jon, and thanks, Grant. If we can go to the next slide, please. I do want to wrap up before we open up for Q&A. And in saying that, I think, with the listeners, the safety continues to be a priority and ESG remains at the forefront. And as I mentioned in my opening piece, this is an enduring and continual focus for the company and all mining companies for that matter. And our spodumene production and shipped for the quarter of 81,341-- sorry, our shipping for the quarter of 81,000 tonnes on a dry metric ton basis was strong and tantalite sales have commenced. Our revenues of $90 million approximately with a positive net cash flow of $16.7 million, again, a great result for the first full quarter of production. And importantly, we've got $193 million of cash, and Jon elaborated on some of the other funding amounts that are coming in, especially the receivable that we shipped in December, but have -- and received the funding in January. On the ramp-up side, this continues to be a focus and a strong outcome. It's meeting and exceeding plan. But I do want to say to the listeners that as I sort of alluded to, recovery is the main focus here for us, and we'll continue to push this and push it hard. And we're optimizing and testing things as we go. In fact, in the end of December and in January, we put through the plant some of the transition material from the mining. And this transition material is a material that is high in contamination, but it's still very good grade. Now typically, this product would have been put through our ore sorters, which we then stopped as part of the optimization work. And we're seeing whether we can either blend it through the high grade or the clean ore, or we can run it at as discrete products. So we've done some test work in January to understand the performance of this product through the plant. The key operating metrics, again, are a strong outcome, our all-in sustaining costs and our unit operating costs. Our productivity per jumbo of 317 meters and our plant performance, both the mill availability, which is now pretty well on target to what we expect in normal operation and after 5 months, and a recovery of 59% in December; and we're continuing in January, notwithstanding the trials that we've done with the transition material. And finally, just to finalize this presentation. We maintain our guidance that we provided the market in November and -- but also noting that we've deferred $5 million of capital from H1 into H2. So in summary, strong delivery, solid financial position and a robust foundation for the future value creation. That summarize our position at the moment. Thank you. And now I'll open up for Q&A.
Operator: [Operator Instructions] Our first question comes from Levi Spry from UBS.
Levi Spry: A couple of questions for me. So maybe just starting on the market, there was a story going around a few days ago about -- I think it was SQM, potentially realizing a price in circa $900 range. Can you give us a bit of insight into what you're seeing from customers since we've come back from Christmas, I imagine? And just, I guess, remind us when your next ship is set to sail?
Antonino Ottaviano: Look, yes. Look, I've got -- Grant did a piece on the market outlook. We -- just to reiterate that, we are seeing strong inbound interest in spodumene, no question. I won't comment on the specific auction that SQM did, but we also heard one that Albemarle did, there was some press on that yesterday. I mean that's very positive. And as Grant mentioned, there is a deficit in spodumene in the market, notwithstanding where the chemical prices are. And we presented a graph from Wood Mac in our AGM that showed this a continual deficit in spodumene into the future. So we -- our next make shipment's in this month. I think it's arriving into Geraldton either today or tomorrow. So -- and it will be our largest shipment so far. So again, we're seeing very strong demand.
Levi Spry: Okay. Great. And just this idea of optimizing the business, the asset, the ore body for -- or the concentrate grade, can you just talk me through that? So 5.2% now, but all the metrics that you're reporting are on a 6% basis production and costs. Is there any -- why wouldn't this just be a 5.2% mine, assuming you get the delta in the additional volume, but reduced realized price and it evens itself out? Can you just sort of talk us through that and how you're thinking about how you're optimizing for that, yes?
Antonino Ottaviano: Yes. That's a good question. Look, I think we touched on it a little bit in our November update, but also in the course of this discussion. We're trialing the transition material to see what impact that has on recovery. Now for us, we are continuing to optimize the circuit to understand what grade -- we know the relationship between grade, mine grade and recovery. The better the grade, the better the recovery. And we're seeing some of our competitors at times, increase their mine grade to get a better recovery. So all those trade-offs, we've only been in operation 5 months, and we're trying to zero in on what is that optimal range for con grade. Is it 5.2%? Is it somewhere between 5.2% and 5.5%, right? We have produced 6% con. But I think we're coming to the realization that somewhere between the 5.2% and the 5.5% could be optimal, but we're still working that through.
Grant Donald: And Levi just, it's Grant here, I mean we use a 6% basis just because it's what the industry standard is. It's not because that's necessarily the target.
Antonino Ottaviano: Yes.
Levi Spry: Yes. Got it. And maybe just I'll sneak one in. So just thinking about -- you've given us cost guidance for the second half, but you're obviously still in ramp-up, and the recovery is the key piece there, and the underground hasn't come in yet. So when will you be in a position to update us on, I guess, more steady state sort of cost base together with that underground mining cost piece when you fully ramp up and running only on underground ore from part of FY '27, I think, it was the guidance?
Antonino Ottaviano: Well, we've provided guidance for the rest of the half in November. In July, we'll provide guidance for FY of '26. So I think between now and then, your best target is the guidance we've produced, given you, right? And then we'll give the market the view of what the underground will look like as part of our FY '26 release. And we're starting stoping, as we mentioned in the quarter 4 of this financial year. So we'll quickly realize -- and we've got a fairly good handle on what our operating costs are underground, given what we've seen so far.
Operator: Our next question is from Hugo Nicolaci from Goldman Sachs.
Hugo Nicolaci: Congrats on, obviously, the ongoing ramp-up performance improvements you've seen to date. First question, I appreciate you're still in ramp-up and you're looking to optimize some of your costs going forward. But just given the run rates you've been able to achieve in the quarter, are you able to give us a bit more of a go-forward breakdown of where you're seeing things like processing costs and cost of the open pit?
Antonino Ottaviano: Yes. I think -- and I'll let Jon step in here. For me, the open pit mining, I mean, it's -- we will conclude the open pit by the end of this year, early next year. So we're at sort of peak production now. So there's nothing untoward there. And in terms of processing costs, as I mentioned, our tonnes through the mill is pretty well at our guidance level now, we're guiding 2.3 million, and we're sort of doing just over 2.4 million. So we're pretty well there now, and we'll go commercial production, as Jon mentioned, in this half at some point. So look, I think, Hugo, to answer your question, we're not that far away from what we consider to be steady state.
Hugo Nicolaci: Yes. Appreciate it. And then as already a previous question touched on the possible upside around spot pricing at the moment, I guess just looking for an update though around where you're at with conversations with either the banks or LG in terms of the optionality on that extra $100 million of indebtedness capacity. And if -- I'm not saying you're saying to use it, but if you did, what sort of timing that you would have access to possible additional funding there?
Antonino Ottaviano: Look, I think the word to note is optionality, and we do have a fair bit of optionality that we could pull if we felt the need. But at the moment, the focus has been very much on delivering what we've got and which we are doing. So that's -- there's a facility there that we could exploit if we have to. But at the moment, we're not focused on it.
Operator: Our next question comes from Reg Spencer from Canaccord.
Reg Spencer: Congrats on a pretty good quarter from the production trends. So I just had a quick question on the capital. If I could just clarify that you've got AUD 11 million or so of construction CapEx yet to spend over, say, the next 6 months, whatever that period might be; can you tell me what are your sustaining CapEx budgets for the next 6 months? And then, what you expect that to be once you achieve steady state in the underground?
Antonino Ottaviano: Yes, take it on, Jon.
Jon Latto: So Reg, you're right. Our cash outflow for the -- that remains for the project is $11 million of cash payments out the door, that is true. In relation to -- if you're talking about our CapEx spend being our underground development spend, I mean you can see, I think in this particular quarter, it was circa $28 million, which you can extrapolate that as you see fit. But broadly, this is the capital-intensive year. And we do expect to see a decent drop-off in the capitalized underground development spend as we look forward to FY '26 and '27. I certainly don't expect it to remain at current levels.
Reg Spencer : Yes. Okay. Yes, got that. So that underground, the $28 million in underground capital you mentioned, that's -- okay, development of the underground and not necessarily operating capital when you're into the underground?
Jon Latto: So that is the underground development cost, that's correct. That's the capitalized pace. So that's essentially the creation of the underground asset. In addition to that, we obviously do have some sustaining CapEx as well.
Antonino Ottaviano: And the...
Reg Spencer : Are you able to...
Antonino Ottaviano: Development will be in the operating cost. As that will be...
Reg Spencer : Got it -- and sorry, just apologies for harping on about. And just on that actual sustaining capital number, are you in a position to provide some guidepost as to where you expect that to be once you're at steady state?
Antonino Ottaviano: We provided you some guidance in our November update, Reg, which showed the -- we broke the sustaining capital down into what we feel is what ongoing PPE sustaining capital, plant and equipment, and then what is the sustaining capital for the mine, right? And I think if you use that figure, that should be a good proxy.
Operator: Our next question comes from Stuart Howe from Bell Potter Securities.
Stuart Howe: Congratulations on a really good quarter. Just a couple of questions. Firstly, on the ROM stockpiles, and you talk about the clean and ore sort of product. Could you just remind us that ore sort of product, how does that work? Has that been thought as that been ready to process? What's the differences between the 2 products in terms of how you treat them in grade?
Antonino Ottaviano: Yes. So the ore sort of product is already mined and stockpiled. So we've got clean ore, and we've got OSP material. So they're all -- it's already -- that money has been shrunk and that's ready to use. The reason it's been put to one side is, as I mentioned in my presentation to you, to do with grade and contamination. So how much of the host rock has diluted the clean ore? And it can range from 15% to 30% dilution, right? So what we did -- our initial thoughts was we would all sort that material and then put a cleaner product and bring the contamination down to the clean ore spec and then put it through the plant and blend it in, no problem. But we've also considered now, why don't we just put it through the plant as is, as a discrete product and batch treated, right, which is some of the test work we've done in late December, early January and see what result that has on product grade and recoveries. So we're still trying to optimize that, but that's the intention. We can either bleed it in as we go because it doesn't impact the plant materially or we can batch treat it? So that's what we're optimizing at the moment.
Stuart Howe : Yes. I just want to confirm that hasn't already been all sorted and still need further processing or as you say, blend in. And then secondly for me, just on recent FX weakness or Aussie dollar weakness. I'm just wondering, can you extract the full benefit of that through your current offtake contracts?
Antonino Ottaviano: Yes. Go ahead, Grant.
Grant Donald: Tony, sorry, I was just going to say, the industry standard is to sell in U.S. dollars. So we get the full benefit of that. Obviously, there is a relationship between U.S. dollar strength in commodity prices. But at the moment, that has been definitely a headwind or a tailwind for us.
Antonino Ottaviano: I think it's important that the conversions that we've done for you in our presentations to you was based on the quarterly average of FX, which is the $0.65. We know the spot price is lower than that today and has been for a few weeks now. So that's even further upside.
Stuart Howe : And just a quick final one, if I may, the underground mining, obviously, is going very well. That's first stoping scheduled for mid-2025. What are the, I guess, key milestones there to get to that first stoping? Development rate is now about 7.3 kilometers. Do you guys just have to continue doing what you're doing? Is there anything else we should look out for?
Antonino Ottaviano: Yes, there are a couple of enablers, I call them. Our ventilation work in order to facilitate the stoping, and we're well on track for the ventilation work. We did -- in our quarterly report, you'll see some of the pictures of the raise boring that's been underway. So that's well on track to be in place before we start stoping. The second enabler is the paste fill. And whilst we won't need a first stoping and not for a while, the paste fill plant is done, it's built. We just now will commission it when we're ready to start stoping. So there are two big enablers, I think, for steady-state production stoping.
Grant Donald: I think, Tony, just to add, this is Grant here. We've also done the work already to open up various headings, right? And it's really -- the decision we made around the new mine plan to defer this sorting until April was really driven by making sure that when the gear arrives on site, it's 100% productive from day 1 and there's not gaps in it. So we could have started stoping in November, but it's not the most efficient way of doing it. So we're making sure we've got enough headings open so that equipment is fully utilized on site from day 1.
Antonino Ottaviano: Yes.
Operator: Our next question is from Glyn Lawcock from Barrenjoey.
Glyn Lawcock: Tony, it's Glyn. Just a point of clarification. The realized price, is that a [SIF] price or an FOB price that you quote, the 806 for the December quarter?
Jon Latto: It's a [ SIF ] price.
Glyn Lawcock: Okay. So your all-in sustaining cost of [763] excludes freight. You mentioned it doesn't include sea freight. What's the sea freight running at, at the moment?
Jon Latto: Yes, good question, Glyn. I'll make two comments, one of which you didn't ask, but I'll use the opportunity to reinforce it. 806 is also the 30,000 tonnes of provisionally priced product in there. Unfortunately, 31 December 2024 was probably the weakest pricing point in the market so far. And that has been flowed through as a mark-to-market adjustment, which we don't expect to realize. But the question you did ask on freight, I mean it depends on the size of the vessel. But as you can see in some of the narrative we've been sharing, we are focused on trying to parcel our own shipments to customers on larger vessels, and that's allowing us to pull the freight down from the kind of $29 to $30 a tonne down as low as $19 a tonne. So the focus is very much on efficiency.
Glyn Lawcock: Okay. So you really should be comparing sort of [783] to [793] versus the 806 and then the 806 as a provisional pricing hit in it as well?
Jon Latto: Yes, that's fair.
Glyn Lawcock: Yes. And then just to clarify again, all your offtake is linked to chemical indices as well. So it looks like depending on the chemical indices you used for the December quarter, you got anywhere around 8.5%, give or take, for -- as a linkage? I know there's some provisional pricing adjustment in there as well. Is that fair? Is that the way to think about it?
Jon Latto: Look, yes, I mean it is mathematical. So it's fair. Obviously, the first -- this quarter here has had a different mixture to what you expect going forward. There's been more spot activity in this quarter than there will be going forward. But you're right, the long-term offtakes are all referenced against a chemical at this point. However, as Tony talked about, there is strong inbound demand, and I think the market is shifting away from that at the moment, and we'll see how that tracks.
Glyn Lawcock: So you may do what Pilbara did and moved everything to linkage to the spodumene indices in? Is that possible within your contract limitations?
Jon Latto: Yes. I mean, look, a contract is a contract until you negotiate otherwise. But look, the focus on this at this point is to make sure we're driving our cost down and being efficient. But of course, we don't leave any stone unturned.
Operator: Our next question is from Hayden Bairstow from Argonaut.
Hayden Bairstow: Well, a good quarter, guys. Just a couple of questions for me. Just on the products versus recoveries, I mean are you in any pressure to push that product grade higher? Or is the current customers you're selling to relaxed about it? And then the follow-on from that is Tesla and Ford more restrictive on what the minimum sort of product grades are likely to be? Or do you think through this process of getting to target recoveries, you can worry about the product grade later?
Jon Latto: Yes. Thanks, Hayden. Look, I mean, fundamentally, the contract, this specification is on contract, so there's no issue there. It's in line with many of our peers. I mean others produce a very similar product. In fact, those people who produce it below this and sell it successfully. So there's no issue for us. And at the moment, the industry uses a linear price adjustment, so there's no penalty for doing so. So if you can improve overall lithia recoveries and produce more product, it's positive for the P&L.
Operator: Our next question is from Melanie Burton from Reuters.
Melanie Burton: My question is at the inauguration this morning, we have seen the U.S. administration confirm they're going to roll back their Biden EV subsidies. Just wondering, do you see any impacts on your customer base or on the market in general?
Antonino Ottaviano: The way -- I listened to the speech quite extensively last night, my time. And the emphasis was on removing the subsidy, but I think the President mentioned that he wanted the consumer to have choice. So that boils down to ensuring that the EV suppliers can provide a competitive product from a price perspective but also a competitive product from a performance perspective. And we're confident they can, given what we see coming out of China and other places. So therefore, longer term, I just don't think it will be an issue on demand.
Grant Donald: Melanie, it's Grant here. I think it's also important to keep in context the relative size of markets, right? So China, last year, grew 40% year-on-year. It accounted for 11 million out of 17 million EV sales. So that's about 65% of the market. The comparable number for North America is 1.8 million, so -- and it's growing by 9%. One of the key things is the driver of demand in China continues to be towards that transition to EVs. And what the Chinese manufacturers have identified quite astutely is that the rest of the world, at the moment, is about 1.3 million units, and it's growing at about 20% -- 27% year-on-year. And within 2 years, that will put them higher than North America as a market, and that is the target that they are chasing at the moment, having been locked out in North American market.
Operator: Our next question comes from Sam Catalano from Wilsons Advisory.
Sam Catalano: Look, hopefully, fairly simple high-level question. Obviously, you had a few detailed questions today. But you guys provided a pretty detailed operational update and guidance back in November. So my sort of simple question is, apart from the $5 million slipping into next year on the project spend, has anything happened between the end of November operationally to make you -- you've obviously stuck with the guidance, but to make you think there might be a few changes from what we said in November?
Antonino Ottaviano: No, we're holding firm to our guidance. Other than that deferral of $5 million, which has moved from the first half to the second half, we're on target.
Sam Catalano : Right. That's what I expected.
Operator: Our next question is a text question from [Adrian Prendergas]. The question is, does the net operational cash figure of $16.7 million include costs like freight, royalties, et cetera? If so, you are making money at a spot price far lower than market anticipated. Why do you think that LTR is doing far better than most anticipated?
Antonino Ottaviano: Thanks, Adrian. Jon, do you want to answer the first part of that question?
Jon Latto: Yes, certainly, Tony. So yes, all of the operational costs are captured in the cash flow from operating activities, that's a fair comment. And I'll hand over you to answer the second part.
Antonino Ottaviano: So well, why are we doing better than the others or anticipated? I think -- look, for us, we've said all along that we've put a lot of effort into the design of the plant. We put a lot of effort into how we plan and how we execute. And I think we're starting to see the fruits of that. And -- I mean it's a tough gig starting up an operation and development company. And we're now beyond that, and we're now into production well and truly, and we'll see further benefits come through as we -- the good team that we've got continues to optimize and improve.
Operator: Our next question is a text question from [Brendon Saunders] from Pendal Group. What are the steps in the process towards improved recoveries? Which elements of the recovery are the most challenging?
Antonino Ottaviano: Thanks, Brendon. There's a fair bit in this question. What we've established in the 5 months that we've operated is it starts at the mine. So the grade that you deliver into the plant is very critical. As I mentioned earlier, better grade, better recovery. The contamination or hygiene is super critical, right? So we need to produce product that has that low contamination of less than 5% in our case. Then as you move into the plant, what we're finding is the second area of opportunity is grind size. What do we grind the product to otherwise maximize flotation. So we've got a design grind size that we've now hit, and we're starting to see the improvements in recovery. The third element is minimizing the slimes production, so grinding too fine and therefore, not been able to recover it, right? So we've got to minimize the amount of slimes that we lose and therefore lose lithia. And then finally, there's the whole science of flotation. The mass pool, we're targeting about 15% to 18% mass pool. And an overall flotation recovery of 90% but an overall plant recovery of -- as we've said, targeting over 70%. So there's a few bits and pieces on the whole flotation area. I can go into reagent selection, [frophites] and all the other bits and pieces, but simply put, they're the major areas that we are focusing on, starting from the mine right through to the plant.
Operator: Our next question is a text question from Daniel Marinescu. When will you start paying back debt and interest?
Antonino Ottaviano: Now I can respond to this, but I'll let Jon do that.
Jon Latto: Yes, certainly, it's a good question. So obviously, I think as everyone is aware, we've got 2 debt structures at the moment, 1 with Ford and 1 with the LG. The -- if I tackle LG first, the LG interest will be capitalized for the first 2 years. And essentially, there will be no debt repayment as such under that. LG may elect to convert. If they don't elect to convert, it will be repaid in 1 bullet payment at the end of the tenure, which is the exploration of a 5-year period. That's the LG debt. In relation to the Ford debt, we are currently capitalizing the interest. But in terms of debt repayments, that will commence at the end of the quarter following the declaration of supply commencement under the offtake, which I think, Grant, we've given some guidance to the market, is likely to be September -- the September quarter this year at the earliest.
Operator: Our next question comes from Paul Krasnoff. Regarding dividends, Tony and team, how likely and when and how much?
Antonino Ottaviano: Thank you for that question. That surname is quite a famous surname. Dividends, I think my Chairman asked me about dividends every day. We have -- I think we need to put things in perspective. We've done a capital allocation strategy, which the Board has now sanctioned. And the focus is very much on debt repayments and where we can, and growth. So at this stage, it's too early to call the dividend piece, but believe me, it's not too far away in terms of our thinking, given our Chairman is very keen on it.
Operator: Our next question is a text question from Mark Heenan. 246 tonnes of tantalite concentrate produced. Have you had any offtake customers lined up? Can you provide a price guide?
Antonino Ottaviano: I'll let Grant answer this one.
Grant Donald: Yes. Yes, we do. We have made shipments under an offtake agreement. So yes, we do have customers taking the product. In terms of pricing, there is an index for tantalum, which is available from [Argus], which is a pretty useful guide in terms of overall price realization. It is for a different quality of products, so there is some upgrading and processing required. So we would realize all of that. But in terms of the top line number, that's effectively what the industry used for payments.
Operator: Our next question is a text question from Allen Pease. When will the shareholders be free from the shorters in our break company? Or do we have to wait until they finish manipulating the SP?
Antonino Ottaviano: Allen, thank you for the question. Look, I think shorting is part of the market. I'm not sure we'll ever be free. But look, the best way to deal with the shorting is to deliver on the outcomes. And that's where our focus is. Whether the investors decide to short or not is a separate decision they have to make, based on the performance of the company. So we'll continue to deliver. We'll continue to do what we say, and the reshorting will take its own path.
Operator: Our next question is a text question from [Scott Kik]. Is Liontown looking to develop downstream processing of lithium? Is this -- what is the timeline for this?
Antonino Ottaviano: I'll let Grant answer that. Yes.
Grant Donald: Yes. So I mean, as Tony touched on in his opening slide, on the strategy slide, we do continue to do work with both LG and Sumitomo on a downstream project, one focused around Japan and the other in another location probably in Southeast Asia. That work has its own timeline. But at the moment, both projects are in kind of pre-feasibility stage, if you like. I'm trying to put together some initial numbers in order to make an investment decision as to whether to continue them or not. Clearly, what is going to come out of that is that the current pricing levels are probably not sufficient to justify investment. And therefore, we will need to see an improvement in price expectations for refining to be built and funded.
Operator: There are no further questions.
Antonino Ottaviano: Well, again, thank you to the listeners for being with us today, and I'll just summarize by saying continue to -- we will continue to operate as best as we can and deliver what we say. So thank you, everybody. Thanks to Jon and Grant as well.