Earnings Transcript for PLS.AX - Q4 Fiscal Year 2024

Operator: Good day, and thank you for standing by. Welcome to the Pilbara Minerals FY '24 Results Webcast Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dale Henderson, Managing Director and CEO. Please go ahead.

Dale Henderson: Thank you, Michelle, and thank you all for dialing in this morning. Good morning. I'd like to begin by acknowledging the traditional owners on the lands in which our businesses operate, the Whadjuk people of the Noongar Nation in Perth, we are undertaking our call from today, and the Nyamal and Kariyarra people to the north, where our operations are located in the Pilbara. We pay our respects to the elders past and present. For the call today, the focus of the presentation is on our FY '24 full year financial results. However, we will take the opportunity to recap on progress made during the year and finish with some market commentary. I'm joined today by Luke Bortoli, our CFO; and Sandra McInnes, our Chief Sustainability Officer, with the wider team also in the room supporting the call. For this update, we will step through a short presentation followed by Q&A for the remaining time. We'll also take some questions from webcast at the end of the call. To summarize FY '24, it was a year of solid performance and disciplined delivery across each of the pillars of our strategy. This was most evident in our projects and operations outcomes. On-plan outcomes that flowed through direct to the bottom line, delivering each element of our guidance. The team navigated the challenges of this ramp-up year, working closely with their contracting partners very successfully. A great set of results. In parallel, we got on with the job of maturing our approach and sustainability, which Sandra will touch on in brief later on the call. Now turning to Slide 3. Our ambition is to become a leader in the provision of sustainable battery materials products. Over the course of the year, we have made progress against each of the 4 strategic pillars you see here. Now stepping through these, you turn to Slide 4 for our operational highlights, FY '24 was focused on seeing through the expansion projects that were in motion while simultaneously improving our operating performance, the team progressed both of these fronts. Both expansion and continuous improvement are additive to further extend our low-cost position. This burning focus on continuous improvement is central to our DNA and continues into FY '25 and beyond. Now stepping through each of these pillars, starting with the operation. We had record production of 725,000 tonnes and record sales of 707,000 tonnes. Unit costs, net guidance and the June quarter, particularly provide an example of the unit cost benefit that can come from the scale step-up here at the P680 primary rejection facility. Our average realized price over the course of the year was USD 1,176 per tonne. As it relates to the growth pillar, while these records were enabled by the on-time delivery of the P680 primary rejection facility, the P680 crushing and ore sorting facility was also progressed and is compensated to ramp up subsequent to the reporting period. The P1000 project also progressed during the year with ramp up later this year that will provide a capacity of 1 million tonnes per annum. And also during the course of the year, we released our PFS for the P2000 project, offering 2 million tonnes per annum. This is a potential growth option for Pilbara and will be considered down the track and considered against the market conditions at that time. As it relates to our chemicals pillar, well, our joint venture with POSCO for our downstream facility in South Korea progressed to plan, and we had our first produced tonnes from Train 1. Also, we had the construction commencement of our midstream processing plant back at Pilgangoora in Australia. And we had our agreement with Ganfeng for a joint downstream study was signed and is now on the progress and underway as we speak. Moving to the last pillar, our diversification pillar. Subsequent to the period end, we announced the acquisition of Latin Resources, which will allow us to diversify our revenue beyond Pilgangoora. I'll offer some brief comments on this later. Lastly, and most importantly, we had a year where we had material improvement in safety on the prior year. TRIFR improved by 27% to 3.4 compared to 4.7 in the year prior. So a big well done to all the team and our contracting partners on that step change in performance. Moving now to Slide 5. Luke will cover the financial results in detail, but I'd like to hit the high points. The key piece I'd like to highlight broadly across here is despite the softer lithium pricing environment, the company has achieved a healthy set of financial outcomes. These include revenue of $1.2 billion, EBITDA of $538 million, which gave rise to a robust EBITDA margin of 43%, underlying profit after tax of $318 million, cash margin from the operation of $513 million, and we finished the year with $1.6 billion cash balance, noting this was post a considerable investment back into the base asset care of those projects I mentioned a moment ago. Also today, I'm pleased to announce that we have taken the next step of our capital management maturity journey with the credit-approved commitments received for a new AUD 1 billion debt facility in the form of a revolving credit facility or RCF to refinance our existing project debt and further strengthen the company's balance sheet. The banking and group involves a number of blue-chip Australian and international banks. This is the next step in the maturity of Pilbara Minerals capital structure. For the avoidance of doubt, this is not lithium market related, and it is not driven by an impending capital need, rather providing a more resilient balance sheet, funding flexibility and a lower cost finance structure. Thank you to the banks, some of which have supported us for many years, and thank you to our advisers, Barrenjoey and our finance team, Melanie, Luke and others. This is a great step forward. Luke will take us through more of these details shortly. Moving to Slide 6. We also released today our FY '24 Sustainability Report. This is integrated into our FY '24 Annual Report, which I would encourage everyone to take a look at. For the first time, we have also published our Sustainability Data Book, which is available on our website. Well done to [Marie Ellis] and the team on that production. And we have made significant strides this year on our sustainability journey, progressing several key initiatives that you can see on the slide. These continuous sustainability efforts are shaping our path to become a leader in driving a sustainable energy future. And again, Sandra will step through some more detail a bit later. Now with that, I'll now hand over the call to Luke to run through the financial results in more detail.

Luke Bortoli: Thanks, Dale, and good morning to those on the call. Please turn to Slide 8 of the presentation for a summary of the group's key financial metrics for the full year ended 30 June 2024 or FY '24. There were a number of financial highlights in the FY '24 period, notwithstanding the impact of lower prices. We reported a healthy EBITDA of $538 million and an EBITDA margin of 43%. We also reported a positive cash margin from operations of $513 million and positive cash margin from operations post ongoing CapEx. Our ending cash balance remains strong at $1.6 billion. Turning to physicals, as Dale mentioned, we reported record production volume of 725,000 tonnes of spodumene concentrate in FY '24. This was 17% or 105,000 tonnes higher than the prior corresponding period and exceeded the top end of guidance for FY '24 of 690,000 tonnes. As mentioned in the June quarterly, this production volume outcome was largely achieved through a very strong Q4 performance. As planned, Q4 was underpinned by the P680 primary rejection facility, fully operational and uninterrupted by project commissioning downtime with optimized recoveries. Sales volume was 707,000 tonnes in FY '24, 16% higher than the prior corresponding period, enabled by the higher production volume mentioned earlier. Average realized price declined from USD 4,447 per tonne in FY '23 to USD 1,176 per tonne in FY '24, a 74% decline. This was the key driver of our reduction in group revenue to $1.3 billion, 69% lower than the prior corresponding period, albeit with some offsetting benefit from higher sales volume. Moving down the P&L, EBITDA was $538 million, a reduction of 84% on the prior corresponding period. Like revenue, the decline in EBITDA primarily reflected the impact of lower realized prices in the period. There was also a partial offset from lower total costs period-on-period driven by lower royalty expenses against higher production cash costs. Underlying profit after tax was $318 million, an 86% reduction on the prior corresponding period, reflecting the same drivers as EBITDA. Turning now to Slide 9. Slide 9 provides further detail on the group's profit or loss, including the key metrics used by management to assess the performance of the business. Operating costs, excluding depreciation, which is equivalent to CIF costs, improved 14% relative to the prior corresponding period to $579 million in FY '24. This decline in costs reflected lower royalties due to reduced pricing, offsetting increased costs to support the expanded operation as flagged throughout the FY '24 period. On a CIF basis, unit operating costs were $818 per tonne in FY '24, a 25% reduction on the prior corresponding period, which can be largely attributed to lower royalty costs. On an FOB unit operating cost basis, excluding royalties and shipping, unit costs were $654 per tonne in FY '24, an increase of 7% on the prior corresponding period. This was, again, the result of the previously disclosed increased investment operating costs to support the P680 and P1000 expansion projects, partially offset by increased sales volumes. Turning now to Slide 10. Slide 10 shows a summary cash flow statement. As a headline comment, the group ended the year with a strong cash balance of $1.6 billion. Cash margin from operations measured as receipts from customers less payments for operating costs was $513 million. Moving down the cash flow statement, the previously disclosed FY '23 income tax catch-up payment of $763 million and approximately $210 million of income tax paid relating to FY '24 contributed to a net operating cash outflow of negative $440 million. For investing cash flows, there was a significant increase in capital expenditure in FY '24 with payments for property, plant and equipment of $810 million on a cash basis and $865 million on an accruals basis, in line with our FY '24 guidance for CapEx. This included growth capital expenditure of $493 million or 57% of the total on P680 and P1000, $141 million of capitalized mine development costs or deferred stripping, $141 million of new projects and enhancements, and $89 million of sustaining capital spend. Interest income in the period was $118 million from interest on cash held in term deposits. Other operating cash outflows of $98 million reflected the group's corporate costs, exploration and study costs for the period. Our financing cash outflows were $434 million, primarily relating to the FY '23 final dividend payment of $421 million made in September 2023. Interest, leases and other payments was an outflow of $121 million, reflecting lease payments of $74 million, interest on our borrowings of $27 million and interest on leases of $11 million. There was also a net increase in borrowings of $109 million, largely attributed to additional drawdowns under our government agency loan facility established in February 2023 for the funding of P680 project works. Turning now to Slide 11. I Slide 11 provides a waterfall chart representation of our FY '24 cash flow statement. Throughout FY '24, we saw a total change in cash or cash outflow of $1.7 billion, with cash declining from $3.3 billion as at 30 June 2023 to $1.6 billion as at 30 June 2024. There were some key drivers of this decline. The $1.7 billion decline in cash in the period largely reflected the FY '23 income tax catch-up payment mentioned earlier of $763 million, growth capital expenditure on P680 and P1000 of $493 million and the dividend payment related to the second half of FY '23 totaling $421 million. In the absence of these three cash outflows, the change in cash would have been broadly flat. As mentioned above, cash margin from operations remained strongly positive at $513 million, reflecting the strong cash generation of the business even at a lower spodumene price of USD 1,176 per tonne. Importantly, cash margin from operations less ongoing capital expenditure, deferred stripping and sustaining CapEx was positive for the year at $282 million. Turning now to Slide 12. The group continues to have a strong balance sheet with net cash of $1.3 billion as at 30 June 2024. During FY '24, additional drawdowns of $142 million were made under the group's government agency loan facility to support completion of P680 construction. Total drawn debt was $368 million as at 30 June 2024. Turning now to Slide 13. Slide 13 sets out our summary balance sheet. At 30 June '24, the group recorded net assets of $3.2 billion, relatively flat on the prior period. This flat net asset outcome period-on-period largely reflects the decline in cash that was spent on CapEx due to planned capital investment mentioned in our FY '24 guidance and a reduction in our tax liability from the payment of the FY '23 income tax payment. The reduction in receivables and payables at 30 June '24 to $78 million and $285 million, respectively, was largely driven by lower pricing on customer sales. At 30 June '24, the lower average realized price has resulted in a lower total dollar amount of receivables outstanding on approximately the same volume of shipments where payment is not yet received. Customer payables also declined largely due to lower provision to final price adjustments due to declining prices. The increase in inventories to $215 million in FY '24 was driven by a small $15 million increase in spodumene concentrate inventory period-on-period due to shipment timing, representing approximately 19,000 tonnes. There was also a $15 million increase in ROM stockpiles in preparation for the P680 crushing and ore sorting facility, and there was a $52 million increase in contact ore stockpiles, which are noncurrent assets. These contact ore stockpiles have a higher basalt content and will be processed over the life of mine on a moderated basis. Turning now to Slide 14. As mentioned in previous presentations, the company's cash balance and overall balance sheet position remains a competitive advantage relative to many of our peers in the lithium sector. This is particularly the case in an environment of lower spodumene prices and potentially more difficult capital raising conditions. Our investment strategy in FY '25 remains focused on continued investment in the P680 and P1000 projects, which are fully funded, will give rise to lower unit costs and will put Pilbara Minerals in an even stronger position to benefit from higher prices. Notwithstanding our balance sheet strength today, we are not being complacent. Pilbara maintains its focus on operating cost efficiency and the ramp-up to P680 and P1000 as well as having a disciplined approach to capital expenditure. As a demonstration of this unit operating costs, FOB in the June quarter of FY '24 declined to a low of $591 per tonne, showing the benefits of increased production volume and cost management through FY '24 and in the ramp-up to P680 and P1000. In addition to that, FY '25 capital expenditure guidance was reduced to $615 million to $685 million in FY '25 relative to $865 million of spend in FY '24 with the P680 and P1000 projects scheduled to be largely completed in FY '25. We also note that in order to further preserve our balance sheet strength in the current market environment, the Board has not declared a final dividend for the H2 FY '24 period. Free cash flow as defined in our capital management framework also suggested that no dividend was payable for the period. Turning now to Slide 15. As many of you are aware, Pilbara has undergone a period of rapid growth and transformation over the past 5 or so years. From an operational perspective, this commenced with the construction of the Pilgangoora plant in 2017 and first shipment of ore in FY '19. Next was the announcement of the P680 expansion project FID in '22 and completion of the primary rejection facility in '23. In '24, the company finalized construction of the P680 crushing and ore sorting facility, as Dale mentioned earlier, and in '25, the P1000 project will be completed. Most recently, we also announced the acquisition of Latin Resources, the company's first international expansion project. The company's operations have expanded and matured significantly. The company is also maturing its support functions as an enabler for our growing operation and business more broadly. This includes maturing the company's balance sheet and access to debt capital markets. The company has transitioned from a business that was originally equity funded like many development projects to the current government-led project style facilities established in '23 and drawn to approximately $368 million as at 30 June 2024. Today, we're very pleased to announce the next step in the maturity of our capital structure being a more flexible and more efficient corporate debt facility. The history of Pilbara has been one of disciplined and prudent management of our balance sheet. The new debt facility we have announced today is the next logical step in that journey and as the company matures. Turning now to Slide 16. Today, we announced that the company has received commitments from a group of domestic and international banks for a proposed new AUD 1 billion debt facility in the form of an RCF. This new debt facility is being established to refinance our existing project style debt facilities on improved terms while further increasing our financial flexibility and liquidity. Relative to our existing drawn debt facilities, the proposed new debt facility will increase our liquidity and enhance financial flexibility, provides an additional funding source for growth initiatives subject to market conditions, has competitive pricing and is expected to reduce financing costs relative to the existing facility, has a favorable covenant framework, provides flexibility to put in place project level debt and other unsecured debt, and finally, significantly strengthens Pilbara's institutional banking relationships with strong support from a group of blue-chip domestic and international banks for this $1 billion of new debt. Turning now to Slide 17. To reaffirm our prudent approach to capital management and maintaining a strong balance sheet, we're also making an adjustment to our previously announced capital management framework to include a target leverage ratio. We've set a target leverage ratio of less than 1.5x through the cycle, which will guide our approach to leverage and balance sheet management. This target leverage ratio serves to reinforce and define our commitment to maintaining a strong balance sheet through the cycle. Importantly, it's also set at a level which provides a significant buffer to the leverage covenant applicable in the proposed new debt facility. We also note that our target dividend payout ratio is unchanged at 20% to 30% of free cash flow, subject to prevailing market conditions and Board discretion. As outlined in our capital management strategy, Pilbara Minerals will continue to prioritize its capital allocation, firstly, to maintaining safe and reliable operations. Secondly, through investment in the P680 and P1000 expansion projects to maximize operating efficiency and cash generation from the operation. And finally, any excess cash flow will be allocated to a combination of maintaining balance sheet strength and the payment of dividends through the cycle. Today's announcement is another exciting step in the maturity of our company. The new $1 billion debt facility is an indication of our company's strengths in the external market and will further strengthen our company relative to our peers by fortressing our balance sheet even further. With today's announcement, we also confirm that we will continue to manage our balance sheet in line with our track record of being thoughtful and prudent. I'll now hand it over to Sandra.

Sandra McInnes: Thanks, Luke, and good morning, everyone. Turning to Slide 19. As Dale mentioned, today, we released our 2024 Sustainability Report, which highlights the significant strides we've made this year on our sustainability journey. This is guided by our 3 sustainability pillars that provide strategic direction and drive our performance across the business. Moving to Slide 20. I'm pleased to say we've made positive progress in a number of areas, outperforming our metrics on quality, safety, interaction frequency rate and our total recordable injury frequency rate. We continue to make improvements on the diversity front, increasing the percentage of women across the company, including at the Board, executive and management levels. I'm also proud to say we released our first reconciliation action plan, which was led by a passionate group of team members. Now moving to Slide 21. During the financial year, we released our Power Strategy, which aims to significantly reduce our power emissions intensity by 2030. Stage 1 of the Power Strategy targeting a 20% improvement in our -- on our emissions intensity is underway. This builds on our 6-megawatt solar plant that we commissioned in FY '23. Moving now to Slide 22. We have an ongoing commitment to operating responsibly and ethically, maintaining and enhancing corporate governance and complying with our social license to operate. Pleasingly, as we move along our sustainability journey, we continue to make positive improvements in our disclosures and across our ESG rating. Moving to Slide 23. Finally, releasing our suite of reporting materials, including our new Sustainability Data Book demonstrates our ongoing commitment to transparent disclosures and highlights our focus on the creation of shared value for the community and our shareholders. I'll now hand back to Dale.

Dale Henderson: Thanks very much, Sandra, and well done to you and the team for all the progress on sustainability, particularly in this last year. Great set of outcomes you've stepped us through there. Now moving to the market. Stepping to Slide 25, I thought it would be useful just to reflect on the production journey to date. What you can see here is on the blue graphs, the delivered production outcomes, and the green represents the nameplate capacity, which is in different states of construction. And to the right-hand side, our future potential legs of growth that are in various states of study. And I'd like to stress, we are focused on bedding down the current operation. Any future expansion will be considered at the time studies are completed and will only be pursued when appropriate for the market as we have undertaken historically with previous expansion steps. Moving to Slide 26, a couple of recent photos of the expansion projects. On the left-hand side, you can see the P680 crushing ore sorting facility as at the 12th of August, and we opened this early this month with a number of dignitaries, including Minister Whitby. On the right-hand side, you'll see a photo of the P1000 expansion as at the 8th of August. The project remains on schedule for first ore in the March quarter. Stepping forward to Slide 27. As mentioned in my opening, we completed the PFS on the P2000 project in the June quarter. I'd like to reiterate, we will only progress with this expansion when it makes sense for our shareholders and partners, of course, taking into consideration the market outlook. But as a study outcome, it's a fantastic result, which demonstrates the scale of this incredible asset that we have the privilege of stewarding. And next steps for that study is the next level of study, feasibility study, which is due December quarter next year. Moving to Slide 28, a quick recap across our spectrum of products and in particular, chemicals participation. Our joint venture with POSCO for the lithium hydroxide plant in South Korea completed construction and Train 1 is in progress for a ramp-up. Train 2 is now construction complete and commissioning underway. We also started a new study with Ganfeng during the year for potential downstream facility. And separate to that, midstream project commenced construction back at site at Pilgangoora. Moving to Slide 29. It was only 2 weeks ago that we announced our binding Scheme Implementation Agreement for the acquisition of Latin Resources. If you move into Slide 30. The transaction has strong strategic mirror. It is on strategy, countercyclical transaction that is highly accretive to Pilbara's shareholders across a key range of metrics, including NAV and mineral resources. It provides near-term production optionality underpinned by an expedient permitting process. A pro-mining government and established infrastructure is already in the region. The transaction structure also enables us to preserve our strong balance sheet and ensures that we are well capitalized to fund both the existing near-term organic growth and the Salinas project acquire of the Latin Resources acquisition. Moving to Slide 31. The slide provides some more detail on the asset. Latin owns 100% of the Salinas lithium project. It's a hard rock lithium development located in Minas Gerais in Brazil. You can read the slide at your leisure, but I'll just highlight a couple of key points. Firstly, the region is well-established mining-friendly jurisdiction with more than 300 operating mines, including projects owned by majors such as BHP, Anglo American and Vale. The project is well supported by infrastructure, including hydropower, water, roads and port facilities. And Salinas is at PEA stage, which was completed in October last year, and Latin has been progressing the next level of study. As part of this transaction, we will now work with Latin to leverage our in-house technical expertise to optimize that study. The next step in the transaction will be the publication of the Scheme Booklet by Latin Resources in mid-October. Now for further information, please refer to our ASX release that we announced on the 15th of August that provides more detail. Now moving to Slide 33 for the markets update. And what we've displayed here is 2 graphs, one on the right-hand side, being the investment in fossil fuels versus clean tech energy, and you can see the strong departure with the IEA estimating approximately 2/3 of investment this year is going to clean tech versus fossil fuels. Indicated by the green line on left-hand side is the long-run EV sales trend over the past 5 years. So presenting a healthy upwards growth direction. As it relates to the market more generally, for lithium, well, it continues to present a level of volatility as the industry continues to shape -- take shape growing from a very small base. Now I'll make my comments across sort of 3 fronts here. First, I'll talk a little bit about pricing. I'll then talk about the lithium demand. Then lastly, Pilbara Minerals insights and how we see it shaping the decisions we're taking as a business. So starting with market pricing, Market pricing has seen strong declines over the past year, and we have actually seen further softness of late. Comparing FY '23 to FY '24, there's been a 67% decline over that period as it relates to the 5 spodumene PRAs. As it relates to the China domestic carbonate, a similar percentage at around about 67% decline. So a fairly large step down over the course of last year, of course, noting that the prior 2 years were very, very high and well above historical highs. So no surprise to see some downwards movement from a period of such record highs. Now moving to the more recent period from sort of 1 July to the 22nd of August, there's been some further declines across the PRAs for spodumene, roughly 22% and China domestic carbonate approximately 18% from that period 1 July to 22nd of August. So a little bit more softness on pricing. Now we suspect that at these price levels, this will be a very difficult price point for many of the converters and suppliers through the industry. So we will continue to see how others in the market behave and response to these price levels. Now moving to the second part of my commentary here around EV and sales demand more generally. Well, as it relates to market growth, a number of strong markets exist despite that pricing pullback that we've seen. So if we compare this financial -- the FY '24 financial year to the prior of financial year, well, globally, we've seen a 25% increase year-on-year, moving from 11.9 million units in FY '23 to 14.8 million units. Looking at the China subset, specifically, it's been a 30% increase year-on-year, 6.8 million units to 8.9 million units are sold. And as it relates to EV penetration, again, comparing the 2 years as it relates to global penetration, 17% year-on-year increase, and then China penetration, a 23% year-on-year increase. Then narrowing the focus to the more recent window, as it relates to July, what we've seen in China is some very healthy numbers, 787,000 units and 51% penetration rate, which, to our knowledge, is the first time EV penetration has passed 50% for China. So a bit of a milestone there. And then stepping into August, it looks like those healthy EV numbers are continuing for China with 490,000 units sold within the first 2 weeks. So anyways we watch with interest to see how this key subset of the market continues to grow. Now moving to Pilbara Minerals, well, as it relates to Pilbara Minerals sales, well, we continue to see strong demand and performance with their contracts across all of our customers. And I'd highlight that Pilbara has considered carefully our supply chain partners with a focus on partnering with those whom we feel are amongst the strongest within the supply chain. This assessment is based on their tenure in the industry, their strength of downstream supply chain relationships, i.e., their customers, their years of working experience with Pilbara and of course, their cost of production, all of which we think flow through to their relative strength in this marketplace. And our customers tell us they seek out the same criterion and their suppliers such as Pilbara Minerals. So for Pilbara, as I've said previously, we remain positive on the long-term prospects of the industry. However, historically, we have experienced periods of volatility in the industry as it's continued to grow and as we're seeing now. It is this experience that guides us with the decisions we have made on our sales strategy, our investment to drive down cost in our balance sheet management, which Luke has spoken to today. And all of these actions, well, we've reflected on these and taken steps across each of these fronts this past year as we've touched on. So to conclude, look, we remain focused on maximizing our strengths. Firstly, extending our low-cost position as a scale operator, secondly, disciplined capital deployment to scale the operation judiciously and lockstep with the lithium market growth, and finally, preserving a strong balance sheet. Thank you to our shareholders, in particular, our long-term shareholders for your ongoing support. And I'd like to thank you all this morning for dialing in for our results presentation. And with that, I'll now hand back to Michelle to move to Q&A.

Operator: [Operator Instructions] And our first question is going to come from the line of Kaan Peker with RBC.

Kaan Peker: Yes. So the first question, just sort of looking at the accounts, the results indicate about 154,000 tonnes of sales that are still subject to provisional pricing as of end of FY '24. This accounts for about 80% of 4Q sales. Has this changed? And should we model sort of that 20% spot sales going forward? And I'll just follow up with the second one.

Luke Bortoli: Thanks for your question, Kaan. It was a little hard to hear you, but I think I've got the gist of it. You are approximately right in respect of the volume, which is still subject to provisional pricing. I think what is important to note is that due to the declining lithium price, our expectation on the provisional pricing adjustment is relatively immaterial. And it's around about, let's call it, $16 million of net cash outflow.

Kaan Peker: Very clear. And just on the second one, again, on more on the accounts. There seems to be $82 million of stocks. I think you mentioned that there might be stockpiles that might be contact ore. When will these be processed? And is it more around the P1000 or a much later date, where we should see these unwind?

Luke Bortoli: Yes. Thank you for that question. There was an increase in current and noncurrent inventories in the period, and I'll step through that. The total increase was around about $85 million. Of that total increase, the current portion comprised about a $15 million increase in spodumene concentrate, and that really just relates to shipment timing. The second component of current inventory relates to around about a $15 million increase for ROM stockpiles, which are building in preparation for the expanded P680 crushing and ore sorting facility. And then on the noncurrent side, there are contact ore stockpiles, which have increased to the value of about $50 million to $55 million in the period. Those contact ore stockpiles will be processed over the life of mine as a small percentage of annual processing fee.

Operator: [Operator Instructions] And our next question is going to come from the line of Ben Lyons with Jarden.

Ben Lyons: Dale and Luke, just a couple on the accounts as well for me, please. Firstly, on the P&L, just noting the feasibility study costs of about $33 million include -- well, the vast majority of that is related to the midstream plant. Just wondering if that actually includes capital expenditure on building the midstream plant, please?

Luke Bortoli: Thanks, Ben, and good question. So the midstream project from an accounting perspective is classified as R&D. As a consequence of that, none of the costs related to design, engineering construction can be capitalized. So what you're seeing running through feasibility costs is essentially the full amount in the period that was incurred in respect of design, engineering and other purchase of construction-related material.

Ben Lyons: Okay. Okay. Thank you for the clarity. And the second one, sorry again about the accounting detail, but just on the cash flow statement. There's an acquisition of a subsidiary in there for about AUD 13 million. Just wondering whether this relates to the recent transaction with Latin Resources or if it's something else, if you're able to please elaborate on that one?

Luke Bortoli: Thank you. It actually relates to stamp duty costs on the purchase of Altura. So it's not related to the cost of any investment or purchase of shares.

Operator: [Operator Instructions] And our next question comes from the line of Kate McCutcheon with Citi.

Kate McCutcheon: The debt facilities, we're much bigger than the total of your existing, which includes some government loans in there. Do I assume that you're repaying your existing syndicated and the government facilities? And then should we read into this that it's also optionality for more countercyclical growth? I mean there's obviously a lot of liquidity. So just trying to understand the rationale here.

Luke Bortoli: Thanks for the question, Kate. So yes, outlined in our materials is our approach to capital management for the next 12 months, and that will involve repayment of the existing project style debt facilities. It makes good financial sense to repay those facilities given our current cash balance, and we will save the interest costs associated with that. But what we did want to ensure was that we had a new and more flexible debt facility in place. So that encouraged us to work on what is the next logical step in the maturity of our balance sheet and putting in place a corporate facility. So that corporate facility should be seen as something which is a natural evolution, allows us to repay our existing debt but also have access to debt on our balance sheet and access to debt, which is far more flexible and appropriate for the size of the company. It's not intended to be something which is solely directed to investment in growth, but it has that optionality. This was very much a capital management initiative, which is suitable for the current environment where we would repay our existing facilities at a more favorable P&L outcome and have in place a larger debt facility for the future.

Kate McCutcheon: Okay. Got it. And then an operational question, if I may. I know it's your financials. Can you just remind me how much you can ship out of Port Hedland and what the timing is on construction of Port Lumsden, when you need that additional capacity for P1000 and how we think about the CapEx on that magnitude and timing of when that might come in?

Dale Henderson: Good day, Kate. I'll take that one. As it relates to the P1000 project, we do not need Lumsden Point capacity, and we'll continue to use the [Public Birth], but of course, those Public Berth capacity are utilized by others. So there is potential risk there. But that use grows from other areas. However, Pilbara Ports Authority gives us plenty of assurance that the outlook there is okay. And of course, we're in close contact with them around the management of that facility. So no requirements for more capacity as it relates to supporting P1000. However, as it relates to Lumsden Point, which is moving through construction now, that facility is coming and ultimately, we will pivot to that once that's ready. That is a purpose-built facility, which for Pilbara brings a number of benefits, including the dedicated sheds at the port, plus bulk outload facilities. That's through shared infrastructure, which will ultimately equal an approved operating cost. As to the timing, well, that's under construction. Now we're expecting the shed to be for us to be ready late in calendar year '25, and approximately late '26, Lumsden Point will start to come online, but the exact timing of that is ultimately in the hands of Pilbara Ports Authority. Does that answer your question, Kate?

Kate McCutcheon: Yes. So -- and Pilbara isn't responsible for any of that capital?

Dale Henderson: Pilbara has -- will have a capital requirement to contribute around the shed and potentially some of the other land side infrastructure, but the details of that are not yet determined.

Operator: [Operator Instructions] And our next question is going to come from the line of Hugo Nicolaci with Goldman Sachs.

Hugo Nicolaci: Dale, Luke, Sandra and team, thanks for the detailed update this morning. First one following on from Kate's question on the new debt being put in place. Can you just give us a bit more color on how that was sized and how much of that you see is, I guess, preserving that optionality for other opportunities versus the main driver being more about liquidity and repaying existing debt whose covenants, I think, get more restrictive at the end of FY '25?

Luke Bortoli: Sure. Thanks for the question, Hugo. So in terms of sizing, what we looked at was our through the cycle downside and upside scenario modeling to work out what would be an appropriate level of access to liquidity for the business. That was the first point. Secondly, we already have or have had $400 million of debt in place, and we wanted to upsize on that fairly materially. And then lastly, price environment of, let's call it, $1,100 a tonne at the average realized price over FY '24 and $500 million of EBITDA, having a facility that has sort of 2x EBITDA of limit also seemed appropriate to us. I would note that we were very pleasantly surprised by the demand in the bank market to support us and the $1 billion was well oversubscribed. But for us, this is the size of the facility that we think is appropriate. Together with our cash balance, it gives us pro forma at 30 June '24 access to in excess of $2 billion of cash and debt in terms of total liquidity. As it relates to covenants, they are confidential. However, they are materially more favorable. And you picked up a particularly key point, and that is the covenants on the existing facility, and particularly the leverage ratio will decline over FY '25 to gross debt-to-EBITDA of 2x, which is fairly restrictive. This facility has a net debt-to-EBITDA leverage ratio, which will take into account our significant cash balance. So it's significantly more flexible on that basis.

Hugo Nicolaci: Great. And then just a second question on volume growth. I mean how does the business, I guess, think about the timing of new projects or expansions? I mean, is that based on a price signal that you need to see before you start thinking about those again? Or do you see that maybe being based more on your own internal analysis so that those projects are may be ready to go when the market turns?

Dale Henderson: Yes. Thanks, Hugo. I think the short answer is all of the above. But I think probably one thing to highlight as we think about those next legs of potential growth, whether it's P2000 or the Salinas project with Latin, there's a considerable runway yet in both cases. In the case of the P2000, what we've announced today, there's only a prefeasibility study. The feasibility study is due December quarter next year. A year in the lithium market is eternity, and we will turn our mind to what is the market outlook at that time once those studies are nearing completion. So that would be the short answer, Hugo.

Operator: [Operator Instructions] And our next question is going to come from the line of Levi Spry with UBS.

Levi Spry: Yes, just following up on some of the accounting, please. So Luke, sorry, just on the debt there, so are we talking about replacing both the syndicated facility and the government facility? Just to be really clear on that.

Luke Bortoli: Yes, that's correct, Levi. So repayment of those 2 facilities, which mirror each other.

Levi Spry: Yes. Okay. And so rough savings?

Luke Bortoli: So in FY '24, we had interest expense of about $27 million. The commitment fee on our $1 billion -- proposed $1 billion debt facility is significantly lower than that.

Levi Spry: Okay. And sorry, just back on the inventory around the contact ore. Can you just give us a bit of help around how to model that going forward? Does that continue to grow?

Luke Bortoli: So yes, it will continue to grow over FY '25 and then moderate as we start moderating that contact ore through the processing plant. And it's the P680 primary rejection facility that enables us to process the contact ore.

Operator: [Operator Instructions] Our next question is going to come from the line of Al Harvey with JPMorgan.

Al Harvey: Luke, just following up, you mentioned that you sized the new debt based on upside and downside cases. I was just wondering if you'd be able to add any color there on how you're thinking about upside and downside? Is it predominantly price, volume-driven or something else?

Luke Bortoli: Thanks, Al. It's predominantly price-driven. And the way that we looked at this was, given that we have a substantial cash balance today, the RCF facility gives us essentially the same dollar-for-dollar access to liquidity in the RCF. So we don't have an expectation in the near-term that we'll be drawing down on the facility, but it gives us flexibility going forward to the extent that we need to draw down.

Al Harvey: And maybe just one for Dale, just on the Chief Operating Officer role, I know I did ask you about this on the Latin Resources acquisition call, but just wanted to clarify is having a COO part of the longer-term plan for you guys or are you happy just with an executive GM running Pilgangoora?

Dale Henderson: Yes. Thanks, Al. Look, as it relates to the required executive structure for Pilbara Minerals, that decision is a function of the total scope to be delivered and managed. As to what does that mean in light of the Latin Resources acquisition, well, that's a question yet to be resolved, because ultimately, the first priority is to navigate the successful completion of the transaction, which is due at the end of the year. And then beyond that, it's a question of how do we -- what is the development pathway. So the answers to that require more work with the Latin team. And it's also worth highlighting, of course, that we have secured a number of the key leadership with the Latin team. So more to be worked through and all of that. But most importantly, as it relates to Pilgangoora, our base asset, we have promoted Brett Mcfadgen to Executive General Manager, who was previously the General Manager. And we're in very good hands with Brett, who's taking charge or joining the executive team for that revenue stream for the business.

Operator: [Operator Instructions] And our next question will come from the line of Mitch Ryan with Jefferies.

Mitch Ryan: I just wanted to clarify the response to Levi's question earlier. So the inventory expense will continue to grow in FY '25, I think I heard you say, Luke. Is that on an absolute terms year-on-year in relative to FY '24 or are you just saying that, that inventory expense will be maintained? How do we think about that in a quantitative format?

Luke Bortoli: Thanks, Mitch. So the contaminated or contact ore stockpile inventory balance will increase over FY '25. And that increase will then moderate as we start processing the contact ore through the P680 primary rejection facility.

Mitch Ryan: Yes. So -- but will it be at roughly the same rate that you accumulated over the course of FY '24? So with the number of tonnes we put to that in '25 as were in '24.

Luke Bortoli: It will be lower and then that growth rate will moderate from there on.

Mitch Ryan: Okay. So that stockpile will grow in tonnes, but not at the same number of tonnes as it grew in '24. Okay.

Luke Bortoli: Yes, the growth rate [Technical Difficulty].

Mitch Ryan: Okay. And then my other question goes to the capital management framework, which you've outlined quite clearly on 17. I just want to try and start to think about that. If we assume we're at steady state, you've declared tax of $146 million. So that comes through -- majority of that will come through your cash flow. So in those sort of market environment, you would have been net cash. I'm conscious that the Board still has to approve it and it's subject to prevailing market conditions. But would we have -- if the tax bill hadn't been so high, would have we expected a dividend, I guess, is sort of the question? Going forward, should we be expecting a dividend in FY '25?

Luke Bortoli: So the second half cash flow profile was negative pretax, which was the key reason why I mentioned in the presentation that the cash flow for the period didn't actually support the payment of a dividend.

Mitch Ryan: Yes. But I guess CapEx is going down next year and so is tax. So you would expect those things being equal.

Luke Bortoli: I can't speak to -- yes, I can't speak to, obviously, dividend payments going forward. That will be determined based on cash flow in the period and obviously, the Board and Board discretion.

Unidentified Company Representative: So we're going to move to a few questions from the webcast now. The first one is around what is the balance of CapEx spend to acquire the P1000?

Luke Bortoli: Yes. It's approximately $200 million to $250 million remaining.

Unidentified Company Representative: Okay. And another question from a shareholder around the dividend, about why the dividend has been declared.

Luke Bortoli: Happy to speak to that one as well. So the dividend that would have been payable for this announced or announced at this results announcement would have been payable for the second half of FY '24. The Board determined that no dividend will be payable based on a desire to preserve the company's balance sheet strength in an environment where access to capital will be more scarce for some. And secondly, that under the capital management framework, there is a formula which calculates dividend payments based on 20% to 30% of free cash flow. Free cash flow for the second half of the period was negative, and that supported the notion of not paying dividend for the period.

Unidentified Company Representative: Okay. The next question is, what through the cycle spodumene price have you used in your capital allocation framework, in particular for the calculation of your leverage target?

Luke Bortoli: I can't speak to the details of our modeling. It's obviously confidential. However, the leverage ratio target was really built on a couple of things. The first is a bunch of benchmarking of our peers and what leverage ratios they maintain, target leverage ratios they maintain. Secondly, it was based on our own internal modeling, which gave us an indication of what leverage we may require in a downside and it would take a very material downside for us to actually utilize our facility. Our price is much lower than today. And the third piece was we were very conscious of not having a very high leverage ratio, given that our market is one that is still embryonic. It's still growing. It's still evolving and having a significant level of debt on the balance sheet in that environment or with that embryonic market is not something we believe is a progress for the company.

Unidentified Company Representative: Okay. And one final question regarding tantalite. Do we sell it under contract or is it on the spot market?

Dale Henderson: Yes, thanks for the question. We sell our tantalite under contract, as its relationship to spot prices, it does tie effectively to spot prices. The tantalite market is rather small market. And yes, as I say, yes, we have a contract, the pricing is tied to the headline market pricing movement. Okay. Now I think that completes our webcast call. So to finish, I'd just like to reiterate a big thank you to all the team and our contracting partners for a really solid set of results for FY '24. We had solid performance care of the disciplined delivery with key outcomes and progress made across each of the pillars of our strategy. As we look forward, we're going to keep focused on maximizing on our strengths, extending our low-cost position as a scale operator, disciplined capital deployment to scale the operation judiciously and lockstep at the market and preserving our strong balance sheet. Thank you all -- thank you to all of our shareholders and thank you for those who dialed in today. We look forward to updating in the future. Thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.