IGO Limited (ASX: IGO) CEO Ivan Vella outlined the company's performance in the first half of FY 2024, focusing on operational and financial aspects. Despite facing lower revenue at AUD 438 million, IGO Limited maintained a strong underlying EBITDA of AUD 515 million and robust free cash flow of AUD 434 million. The company announced an interim dividend of AUD 0.11 per share but noted an increase in adjusted lithium cost guidance to AUD 330-380 million. Vella acknowledged the need for improvement in transaction processes and risk management following a review of the Western Areas transaction. He also highlighted the company's commitment to safety, the ramp-up of the Kwinana refinery with partner Tianqi, and the optimization of the nickel business. Challenges such as the deterioration of nickel prices were addressed, alongside the company's strategic approach to maintaining value and assessing future growth opportunities.
Key Takeaways
- IGO Limited reported a decrease in revenue but strong EBITDA and free cash flow.
- An interim dividend of AUD 0.11 per share was declared.
- Adjusted lithium cost guidance was raised due to operational challenges.
- The company is focusing on safety, value maximization, and operational efficiency.
- The review of the Western Areas transaction revealed areas for improvement.
- Despite market challenges, the company remains optimistic about future growth.
Company Outlook
- IGO Limited is committed to optimizing existing operations and assessing growth opportunities.
- The company emphasizes safety and cost discipline in all its projects.
- Financial details and project updates are pending, signaling ongoing assessments.
Bearish Highlights
- The company faced challenges with the Cosmos Project, leading to its transition to care and maintenance.
- There is a need for enhancements in transaction processes, risk management, and project integration.
- Nickel price deterioration has impacted the company, necessitating adjustments in production planning.
Bullish Highlights
- Greenbushes continues to generate strong cash flow, covering capital expenditures.
- Kwinana refinery's first hydroxide sale indicates a promising start.
- The company's joint venture structures are being optimized for better performance.
Misses
- Revenue fell to AUD 438 million, reflecting market and operational challenges.
- The adjusted lithium cost guidance increased, indicating cost pressures.
Q&A Highlights
- The company is exploring strategic decisions to maintain high capital returns from Greenbushes.
- Past M&A mistakes are acknowledged, with a focus on learning and making future value-accretive decisions.
- A strategy refresh is underway to drive business value and ensure accountability.
IGO Limited's first half of FY 2024 demonstrates a resilient financial position amid operational challenges. The company's focus on safety, cost discipline, and strategic planning is aimed at navigating the current market conditions while preparing for future growth. With an interim dividend declared and a cautious yet optimistic outlook, IGO Limited continues to adapt and optimize its operations for long-term success.
Full transcript - IGO Ltd (IGO) Q2 2024:
Operator: Thank you for standing by, and welcome to the IGO Limited First Half FY 2024 Results Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Ivan Vella, Managing Director and Chief Executive Officer. Please go ahead.
Ivan Vella: Thank you, operator. Good morning, everyone, and welcome to our IGO's first half 2024 results call. Thanks for joining us. As we just released our quarterly results a few weeks back, I don't intend on stepping back through all of our operating results again. Rather, what I wanted to do upfront in this call is focus more on the key priorities that I see in focus for 2024. And then I'll hand over to Kath, our Chief Financial Officer, who will go through some of the details in our financials. Firstly, I want to start with safety. This is a personal value of mine and my top priority, and across IGO, as I've looked into the business, there's been some continued improvement over the last 12 months, which is encouraging, but there is still a lot of work to still do. I've been impressed with the strong commitment to safety across IGO, but we do need to improve our execution and translate the dedication in this business into a real reduction in harm to our people. We've seen some solid progress towards reductions in our TRIFR and an uptick in our leading indicators, which is all encouraging. But just a few days ago, there was a very serious incident at one of our sites that really highlights the need for us to remain ever vigilant and continue to improve and drive safety to the forefront of our minds. On Monday evening, three contract drilling crews returning to our Forrestania camp at the end of their shift were involved in a truck rollover and this injured all three passengers. One of them seriously. Our emergency response team attended and with the assistance of other agencies, they managed the scene and assisted with a safe evacuation of two of our crew members. They are admitted to the Royal Perth Hospital for treatment and are continuing their recovery. It's a very alarming incident. As you can imagine, any vehicle rollover has potential for a very, very serious injury to our people. It's a critical risk that we need to work harder at improving our controls and ultimately, make sure these kind of things don't happen across our business. Through the first two months in my role, I've started to develop a greater understanding of our business, the risks and opportunities and most importantly, get to know our people and our key partners. Of course, it's been a very challenging period working through a number of issues, most notably transitioning Cosmos to care and maintenance. As I noted at our quarterly I'm very excited about the opportunity we have in IGO to play an important role in the clean energy transition, and we have an outstanding platform to be successful in the future. I spent a week on the East Coast meeting with our investors and have the opportunity to listen to their feedback on our business and also share widely observations and intentions for our business. This was helpful so early in my tenure to get their views. And together with this, as I looked through the business, I've - I'm very clear we need to refresh our strategy. We need to build on the foundations we have, but we also have some clear immediate priorities, which is where I wanted to focus my attention now. Firstly, as I've just said, safety is a clear priority and an area where there is room for improvement. I've been really impressed with the strong caring and people-centric culture that IGO has but we do need to build on this further in the safety area and see it translate into a reduction in harm to our people. Second priority, we're focused on is maximizing the value of our interest in green buses. And we're tackling this in three key ways. Firstly, continuing to work with our partners to unlock productivity and leading operating practices to drive the most value we can for this incredible asset. There is still a lot of untapped potential here. It's something I'm very focused on. Secondly, we're focused on helping our investor community gain a better understanding and better visibility of the financial performance of Greenbushes and our TLEA joint venture. And we've, as committed, included additional detail in our financial statements released today that will help you appreciate the capital structure of TLEA. Thirdly, we are continuing to have constructive discussions with our partners about the opportunity to enhance the ways we work together, leveraging our complementary skill sets and delivering optimal value for all parties. The third priority I wanted to talk about is working with our partner, Tianqi, to deliver the continued ramp-up of the Kwinana refinery. We acknowledge this has been a challenging process. There's been a lot of setbacks along the way, and I'm still not able to give you certainty or clarity on the rate and pace of that ramp up this year. But there's strong dedication from both IGO and TLC to find a pathway and deliver the improved operational and financial performance of this asset. The fourth area of focus is to optimize our nickel business. During what has been a very tough period for our industry, delivering safe and stable production is key even in the increasing challenge of our assets as they near their end of life. Driving maximum cash from our Nova and Forrestania assets is a key focus, and both operations are well placed to do this over the remaining time. The next area of focus, of course, is transitioning our Cosmos Project into care and maintenance. It was a very tough decision. And as we focus on transitioning this project into care and maintenance, we're focused on two key things. First of all, managing that process with care and compassion for our people where they're impacted. And secondly, making sure we safely and carefully preserve the asset base at Cosmos to give us optionality for a restart in the future. And the last area of focus for me is, I guess as we continue to support the growth in our business, we need to be maintaining a very prudent cost focus and cost discipline right through the organization. We are focused on increasing our productivity at the same time ensuring our corporate structure is efficient and set up to manage through the cycle. We have a fantastic portfolio of exploration projects, which can potentially unlock new resources we need to deliver for the high demand flowing from the energy transition. But we need to work through this carefully and prioritize and focus our efforts to ensure that we maximize the chance of success while balancing our expenditure. Those are the key areas of focus that I've got through 2024. I think they set us up for a strong future. I'll now hand over to Kath, who will walk through a brief summary of our half year financial results and then I'll pick up with a few more comments after that. Over to you, Kath.
Kathleen Bozanic: Thanks, Ivan, and good morning, everyone. Slide 5 outlines the key financial results for the half year. Group revenue of AUD 438 million was lower when compared with the first half of financial year 2023 driven primarily by lower nickel prices and sales volumes. Underlying EBITDA generation remained strong at AUD 515 million. It includes IGO's share of profit from TLEA, which was also lower on a like-for-like basis, reflecting the roles spodumene prices. Pleasingly, the dividend flow from TLEA and cash generation from the nickel business has driven a strong underlying free cash flow result of AUD434 million, which is consistent with the corresponding period. As reported in the quarterly result, the balance sheet remains very solid with AUD276 million of cash and no drawn debt. The Board has today declared an interim dividend of AUD0.11 per share for the half, which will be fully franked. This was determined based on the application of our capital management framework and equates to 20% of our underlying free cash flow. On Slide 6, we reconcile our net profit after tax for the half year. The key points to now include reduced earnings from lithium nickel businesses as a result of lower commodity prices and sales volumes and to the lower tax impact due to the lower operating revenues and tax profits. On Slide 7, we reconcile cash for the first half. Here, you can see the key inflows are dividends received from TLEA and the strong free cash flow generation from Nova and Forrestania. Outflows include the AUD254 million of dividends paid to shareholders in respect of the final FY 2023 dividend, which included a special dividend of approximately AUD120 million. The repayment of AUD360 million in debt and the AUD208 million of CapEx related to Cosmos development. The cash balance is reduced during the half, but this is a product of the repayment of our term loan and the returns to shareholders. Before I hand back to Ivan, in summary, we've had a solid financial performance for the half despite headwinds in the market. Our balance sheet is in an exceptional state with liquidity of just under AUD1 billion. This, together with the quality of our operational assets and our confidence in the future has enabled us to declare a dividend of AUD0.11 per share for the half. Back to you, Ivan.
Ivan Vella: Okay. Thanks, Kath. Look, just a couple of words on our lithium business guidance. As we noted that quarterly, we've taken the opportunity to refine our guidance here for the lithium assets. And based on the reforecast in Talison on their operating capital costs for their financial year 2024 budget, we're amending the cash cost guidance AUD330 million to AUD380 million, you can see from our prior guidance to AUD280 million to AUD330 million. And that's largely driven by the lower production, which we discussed in our quarterly update a few weeks back. The CapEx guidance for Greenbushes remains the same, AUD850 million to AUD950 million. We are working to identify non-critical path projects, anything that can be deferred or tidied up. But the key takeaway really is there's no change to our commitment on CGP3. That work is continuing at pace, and the feed is also continuing with respect to the proposed CGP4 facility. There's been no other changes to guidance for nickel business since our update a few weeks back. Just to, I guess, quite a few words in summary before we open up for Q&A, I did want to talk a bit about the post-investment and integration review that we've done on the Western Areas transaction. That was commissioned in late 2023 and conducted by an independent consultant, very substantial review and go deeply into the background behind that transaction and the process running through that as we integrated the business and work through the construction. At the highest level, the review acknowledged that the transaction was aligned with IGO strategy. However, the outcome of the acquisition, we've obviously got a number of recommendations to work through. There's three key areas that I wanted to draw out. If we look at the headlines. First of all, there were clear issues around the assumptions made to support that transaction. And that is obviously evident as the transaction was completed. It was exacerbated by the rapid deterioration in nickel price, and the review has recommended a number of improvements, but the key point is making sure we have good external independent validation of that - of that review of our assumptions. Secondly, the review identified opportunities for us to improve our overall transaction process with respect to due diligence, project gating and risk management, and there's a number of improvements recommended there, focusing, I guess, about how IGO makes an assessment of downside risks. And finally, the review found the Cosmos Project was challenged by IGO's acquisition during mid-construction or mid-flight. And that was compounded by a period of high capital cost inflation that we saw in the markets worldwide, but certainly pronounced here in Western Australia. It was exacerbated by a challenging integration process that took longer than expected. And ultimately, there's a number of recommendations there that call out IGO’s need to improve and expand our capability in this area as we look forward. The findings of this review have been confronting. But they're fair and the Board and management team have worked through them carefully and - are committed to ensuring those learnings are fully integrated across our business. As I mentioned, where - we're working through a review of our operating model and our organization structure tied into the strategy refresh. And there's already been quite a bit of work done, for example, on our risk framework and risk management across the business over some time now. So a lot in progress, more to come. And I guess, I'm firmly committed to seeing through these recommendations and making sure they're fully implemented. In summary, look, we've faced a number of challenges in recent months, and it's certainly been a difficult period for me to come into the business, I'm learning quickly and getting a lot of support as I get into the business to understand the areas that we need to focus on. I've talked about our key priorities, and I think they're very straightforward in concept. We need to just knuckle down and get through this work. Firstly, on safety performance. There is some good momentum, but there's plenty more to do, and that's something that we can really leverage off our unique culture. Secondly, driving value from Greenbushes is fundamental. There's an enormous amount of opportunity to unlock there. And we'll continue to work very closely with our partners to achieve that. Dealing with Kwinana and working through the challenges to - to bring that ramp up online, making sure that it can deliver the expected operating and financial performance is key. Safely and carefully transitioning Cosmos into care and maintenance, while supporting our people through that process, maintaining safe and stable production at Nova and Forrestania and maximizing the cash from those nickel operations, despite the price environment, both are cash positive, both are delivering, and we need to continue to build on that momentum. And lastly, continuing to assess growth opportunities, but looking hard at our organization, its productivity and its performance and of course, focusing on exploration, making sure that we're - we're really set up well, managing our costs closely, pursuing the very best targets in that pipeline of activity. We have a fantastic team of people across the business, an excellent asset base and a very strong balance sheet. And that's enabled by - and driven by our purpose. I'm very excited about what IGO can achieve in the future. And with that, I'll turn it back to the operator and open up for Q&A.
Operator: Thank you. [Operator Instructions] Your first question comes from Hugo Nicolaci with Goldman Sachs (NYSE:GS). Please go ahead.
Hugo Nicolaci: Morning, Ivan and Kath, thanks for the update this morning. Just one on the JV to begin with - the JVs have now set the budget for the full calendar year 2024. We've updated guidance for the remainder of FY 2024. Are you able to talk us through what the planned CapEx looks like across all lithium assets for the full year and particularly with regard to what you've got left to spend at CGP3 and the recently proposed site-wide ore sorting at Greenbushes, I'll come up with a second. Thanks.
Ivan Vella: Look, I mean, I can't give you a whole lot more than we've got at this point. I think we've been very transparent with the information that we have available at this point as you've called out, the budget is not complete. And so without that being finalized, it's difficult for me to give you that certainty. I appreciate that doesn't really cover your question, but I just don't have final information to be able to share at that point. What we've done is given you the picture that we can for the first half of this year. And then as soon as we have more information, we'll share it.
Hugo Nicolaci: Great, thanks for that Ivan. And then maybe just coming back to your comment in the presentation around optimizing the JV structures. Can you just elaborate on what you're looking to get out of any changes to the relevant JV structures and maybe what you'd have to kind of give to get any changes there?
Ivan Vella: Yes. So I mean my point on optimization there is around the performance of Greenbushes as an asset. It's a world-class ore body. I guess the question is, is it a world-class mining operation. I think there's a gap there, and there's an opportunity. And I think the team has been working hard at it already at Talison, I think there's more to do in that scenario that I'm very invested or IGOs are invested in bringing our strengths and our capabilities to the table and working with Albemarle (NYSE:ALB) and TLC to support Talison and achieving or closing that gap and really optimizing that asset. In terms of the JV, it's not so much about structure. It's a bit about the three parties all have aligned interest, but also some differences. And as we get to work more together through the cycle, obviously, it's easier in a very, very fast rising price environment, but in a more challenged price environment, where we're trying to manage our capital program, our growth agenda, the decisions on CGP4, all of these kind of things, I think the more that we're engaging and talking and building that alignment, the better. And so that's something that I'm personally focused on working closely with Matt, who's doing this day-to-day to make sure that we're getting the very best from those JV relationships and that partnership.
Hugo Nicolaci: Great. Thanks for that, Ivan. I'll pass it on.
Operator: Your next question comes from Levi Spry with UBS. Please go ahead.
Levi Spry: Hi Gary, Ivan and Kath. Thanks for your time. Maybe just firstly on the Greenbushes cost increase. Can I just confirm that, that is all about volume and that the costs otherwise are unchanged. I do note in the reserve statement, maybe the strip ratio went up and there's some new unit costs mentioned there. Does it go back to 300 once the mine gets back to 1.5 million tons?
Ivan Vella: Yes, Levi, thanks for the question. It's obviously, we're waiting on the budget, so to my earlier comments, it's hard to give you that clarity as we work it through. As you can appreciate, production volumes will, of course, affect the unit costs and there's some amortization of the fixed costs we're going to see roll through. Equally, if we look through the profile of the mining, it's never going to be flat either, and this is part of some of the clarity I want to get is that longer view of how we manage and optimize those costs through time. So I can't give you any certainty on what that looks like for the back end of this year, but I guess we're very, very clear and strong focused to driving those costs as hard as we can, and we'll give you more clarity once we get those budgets through.
Levi Spry: Yes. Okay. Thank you. I'd probably like to ask more about the JV, but I'll leave that till later. Just on the nickel, have we got updated CapEx for what's left at Cosmos till, I guess, May or the rest of the year?
Kathleen Bozanic: Yes. The team are working through that and we've had some initial indications, but we're not at a point where that's finalized to be able to provide information, and therefore we actually need to hold off on that till the next quarterly. But I can tell you there's also revenue coming in there, and that's obviously impacted by commodity prices and everything, so it's not just about outflows, we're going to start selling that stockpile in the next month.
Levi Spry: Okay. Great. Yes. Thanks, Kath.
Operator: Your next question comes from Kate McCutcheon with Citi. Please go ahead.
Kate McCutcheon: Hi, thanks Ivan and Kath. We've covered a lot since you've joined. You mentioned in the call some new disclosures on granularity around TLEA provided today. Did I hear that correctly, and if so, what were they? I haven't seen the updates on Winfield since the December 22 numbers? Thanks.
Ivan Vella: Yes. Look Cass can dive into the details, but if you have a look through our half statements, there's quite a bit of extra information in there about the capital structure. Kath, do you want to walk through some of the headlines? Have a look at page 2024, Kate.
Kathleen Bozanic: We added note 10 in, which gives granularity about the joint venture and provides a summarized balance sheet at 100%, that's 100% of both TLEA and Greenbushes. And what you can see from that balance sheet is that there's almost 600 mil worth of cash sitting within the joint venture, and there is a debt facility of AUD 100 billion US, of which it's drawn down to AUD 875 million at the moment, and there's a little bit more information in there. The other thing that is important to note, Kate, is TLEA and Taliesin lodged their financial statements by the end of April. And you can drill down further when those financial statements get lodged with ASICs or Companies House in the UK. So hopefully that helps everybody with what the capital structure looks like.
Kate McCutcheon: Okay. I will go and have a look at that, that is helpful. Thank you. And then secondly, today we've had some of your peers noting they might not bring online subsequent trains as planned pending the market, so looking to limit production that they're putting in. So on the supply response part at Greenbushes, what part of the volumes are take or pay? I guess I'm trying to understand if we could see more volumes come out, or if those volumes are somewhat set in stone for all of the airfare?
Ivan Vella: Yes. Kate, look, let me pick that up. The sales that we've indicated for the half, which we talked about in the quarterly, those are agreed and fixed, and of course, we're adjusting production along with inventory to try and obviously minimize the impact on Greenbushes performance and their costs through that period. So that does give you some certainty there's not some further adjustment there or change. We know what that looks like out at the end of the first half of this year. In terms of our forward view on new supply. So as we've said, CGP3 continues in construction, there's no wavering or change there. There's no attempt to slow it down or adjust that the construction team is getting on with it and delivering as planned. The piece of work that we will have to look at, obviously, is CGP4 that feed is underway now. Once we have the information, we can stand back and look at where it fits. But again, there's no intention at this stage from any of the partners that I'm picking up to start to dial back our intentions on growth. We've got the best hard rock assets, the world, lowest costs its great business as we optimize it and grow it. We want to make sure we take our place right there at the bottom of the cost curve. So we'll share more on that in due course. But probably I can't be more specific at this point - at this stage. But the key is the sales are fixed for the first half and our continued growth for CGP3 is tracking well.
Kate McCutcheon: Okay. So 2H itself is take-or-pay?
Ivan Vella: Correct.
Kate McCutcheon: Okay. Thank you.
Operator: Your next question comes from Michael D'Adamo with Canaccord. Please go ahead.
Michael D'Adamo: Hi, Ivan. Thanks for the call. Just a quick question on Kwinana. You've mentioned here that the guidance is tracking above the top end of that AUD45 million. I was just wondering if you guys are planning to update that at some point before the end of the financial year, potentially in the next quarterly or roughly when do you think you'll be able to determine how much you're going to spend?
Ivan Vella: Yes. Thanks, Michael. Look, we certainly will update next quarterly if we think that guidance needs to change. At this point, all we can see, again, budgets are not finalized, hence, my ability to be really specific yet. And it's a bit about the run rate of spend and the sharp schedule and some of the detail around the changes they're making inside the plant there. We will give you more clarity as soon as we can quarterly laying out. I suspect, obviously, we'll have the budgets through and we'll have a full view for the rest of the year as well. We can give you more guidance at that point. But at this stage, we know that we're tracking right there on the top end, maybe a little above, and that's I guess what we wanted to indicate at this point.
Michael D'Adamo: Thanks. And just previously on the call, you mentioned the Cosmos stockpile, could you tell me roughly how much is stockpile there?
Kathleen Bozanic: About 160,000 sitting there.
Michael D'Adamo: Thank you. That’s all for me. Cheers.
Operator: Your next question comes from Daniel Morgan with Barrenjoey.
Daniel Morgan: Hi, Ivan and the team. I appreciate the transparency on the JV structures, the lithium structures. Based on this, it looks like there's been a large cash build in the TLEA portion rather than at Greenbushes, i.e., it looks like dividends were paid to TLEA but not on the JV partners. Can you just expand on this from your perspective? And what discussions you're having with Indiscernible] with regard to sweeping cash out of the vehicle in the future?
Ivan Vella: I'll let Kath build on this. But Daniel, look, there is cash in both entities. And so what you're seeing is, obviously, us finalizing budgets being prudent, making sure we've got a full view of the rest of the year before we continue to move that cash up. I spoke to a lot of investors and it was very clear that we only want cash to flow one way in this business from Talison and up to TLEA and out to IGO. We don't really want to have cash calls ever having to go the other way. So that's the conservatism you see coming through here. But to be clear, there is absolutely cash sitting in both TLEA, the JV, which has zero debt and is effectively that holding entity for the assets and the activity at Kwinana and then more cash sitting in Talison directly. Kath, I don't know if you want to build on that?
Kathleen Bozanic: Yes, you're right. There's more cash sitting in TLEA than we normally would have, but there's also more cash in Greenbushes than Greenbush would normally have. With a capital profile with lumpy tax payments and everything, there's periods in the year in which slightly more cash gets held. So it's not - although it's correct to say there's more cash in TLEA, it's probably a slightly higher cash balance at Greenbushes than they normally hold as well.
Daniel Morgan: Just expanding on some of those last comments, is there any big lumpy cash tax outstanding that we should think about that was not paid at the 31st of December. But that's outstanding that has been paid or will be paid that we should just think about with the balance sheet. Thank you.
Kathleen Bozanic: Yes, tax is always lumpy. It doesn't get paid in one hit and amounts get paid during the month. But until you actually finish your tax return, you actually don't know how much you're going to pay at the end, and they'll be going through that process during this half.
Daniel Morgan: Okay. Thank you very much.
Operator: Your next question comes from Lyndon Fagan with JPMorgan (NYSE:JPM).
Lyndon Fagan: Thanks very much and good morning. Look, I'm still trying to understand the summarized balance sheet for TLEA on page 23. If I look at the cash balance there, it's AUD 587 million of this financial liability of AUD 1.3 billion, which looks like there's a big net debt position. So can you help us understand with all of the JVs and everything, what the actual net debt position is? And how do we then triangulate that with future dividends just noting there wasn't a dividend. So I'm just trying to figure it out? Thanks.
Kathleen Bozanic: I think you have answered your own question a little bit in that one because there is a net debt position across the two entities. There's no net debt at TLEA, but there is a net debt in Greenbushes, and that's reflective of the capital structure that is required for a growth strategy where you're investing in a reasonable amount of capital. It doesn't necessarily easily triangulate to dividends because as you can also say in the night underneath, it's a revolver facility, and it is actually there until 2027. So there's quite a bit of flexibility in ups and downs on that depending on what's required. The intent is to not hold significant or unreasonable amounts of cash at either entity and to wait as we have historically. But obviously, in this market, where there's some headwinds, there's some prudence involved in that. I'm not sure that I can add a hell of a lot more than that.
Lyndon Fagan: No, that's all right. So we've - so it does look like we've got just under AUD 700 million net debt position within TLEA. Is there an intention to reduce that to zero or a lower level ahead of distributing a dividend to shareholders? And I guess I'm wondering what the target gearing or net debt position for this vehicle is over the longer-term?
Kathleen Bozanic: Yes. I'll just clarify one thing. The net debt is actually sitting in Talison, which is at Greenbushes. So there's a bit of a nuance in that. And the capital structure is aligned with what you would normally expect as an entity of Greenbushes size. It doesn't need to be repaid in order to pay dividends in any way shape or form.
Ivan Vella: I think, Lyndon, if I can just build on that, the Talison entities carried debt for some time. This is not new. It hasn't changed materially. I think it's well aligned with the growth of the investment plans and the capital that's been put into the business. It doesn't - and we've been paying dividends with that in the background for some time. It's not linked. We don't have a specific policy, I guess, to answer that part of your question. But there's no expectation from the JV partners that we would pay that down before we pay dividends or there's any link. In fact, we think that gearing is actually very healthy and very sensible for this entity. The key point to know just to make sure there's no confusion, there is no debt at TLEA. So the joint venture between IGO and TLC has zero debt in it. It has cash. That's the focus where we obviously, managing the costs of Kwinana. But all of the debt that we're talking about sits at Talison, and that's shared across the three parties being IGO, TLC as part of the interest from TLEA and Albemarle being the other part.
Lyndon Fagan: Okay. So just sorry to harp on. So there wasn't a dividend, and we had a AUD 3,000 spodumene price. I'm still not particularly clear on why that was. And I guess you said on the quarterly call that there's no sort of catch-up coming in this quarter. How do we think about a dividend in this quarter in the context of everything we've been talking about?
Ivan Vella: Well, we've been paying dividends - well, let's talk about a cash sweep out of Talison, into TLEA every period up until the end of the year. We haven't done that in January, and we are waiting for the budgets to finalize those decisions and then decide how we manage our cash. So I think there's a sort of anxiety around that and people are enrolling their minds forward and thinking there's some other thing that you're missing there isn't, it's just the case of us not having final budgets and that was a function of us getting our sales and production, which is a function of a very fast following market. So we're just giving the Talison team time to finish that plan, understand what the rest of the year looks like. They'll plan out the whole of 2024 and then we can stand back and say this is the cash that we want to retain. This is the cash that we want to let go with a view on the forward market, which is obviously still generally quite soft. And make sure that we don't end up with a position with our capital plan that we do not want to disrupt of having to put cash back down into the business.
Lyndon Fagan: Okay. Not sure I get it that much, but I might leave it there. Thanks.
Ivan Vella: Okay.
Operator: Your next question comes from Rob Stein with Macquarie.
RobStein: Hi, team. Just a quick question on the resource and reserve statement that was put out the other day, I had some pretty pudgy price assumptions in definition of that. And I'm just wondering one, is that how you're thinking about the business going forward in terms of those price assumptions in terms of mine planning? Or is that really just a function that you took it from Talison, it's a legacy issue that you're going to work through and we can expect to see some prices in that mine plan that reflects consensus or something a little bit more appropriate longer term? And I got a follow-up. Thank you.
Ivan Vella: Yes, I think you've largely answered your question in the last part there. That's - it's a flow-through from Talison's work and doesn't necessarily reflect our - all of our internal view on the market. That said, I think the value of that release might have been missed a bit in the sense of it's a significant upgrade and still more potential there as well. Of course, we need to make sure our prices and costs are accurate for our mine planning, but that's part of that broader piece of work that I'm expecting will get through to look at the long-term potential of the asset and make sure we're really optimizing it. So - but look, the second part of your question answers it basically flow up from Talison.
RobStein: Yes. Okay. And so then, if we're thinking then about if you said something around 1,500 or $1,300 million the sensitivity analysis in the release showed that there is not a lot, but a little bit of downside to that reserve. But noting the strip ratio really jumped from 4.7%. So I think it was 5.5% from memory. Would we expect under current pricing and spot environment that, that would come right back in that your cost base, wouldn't sort of rise in flow. That is the ore body able to handle lower prices and keep costs under control?
Ivan Vella: Well, I think, yes, that sensitivity chart. I don't have it in front of me right now, but it showed you the negligible impact, which is - which gives us more and more confidence in just how good that asset is. We've talked about, obviously, this need to think through, the shift to underground mining and how that fits with the surface mining and optimizing those two work to do. So beyond that, I'm not sure it's helpful for me to sort of comment in any depth, because we really haven't done enough for that work to give you that extra clarity. But I think as you look at the overall ore body and how we see that coming out it's clearly not that sensitive to price because the grades are so strong.
RobStein: Okay. And just quickly, the $40 million acquisition of listed investments during the half, are you able to outline what they were?
Kathleen Bozanic: They were strategic investments and - but we don't provide that to the market.
RobStein: Okay. Thank you.
Operator: Your next question comes from Mitch Ryan of Jefferies.
Mitch Ryan: Hi everyone. Kathleen, thanks for your time. Look, I appreciate your desire to improve mining operations at Greenbushes, but I'm just interested how you can genuinely affect that change given the JV structure and if it was sort of easy, why hasn't it been done before?
Ivan Vella: Mitch, it's a good question. Let me give you an example of the work Matt's already been doing there and something very tangible. I mean he sits on the Board with 3 other Board members. They've obviously got formal and structured governance to influence the business. But Matt is also there involved with the management team at also on a routine basis. And a tangible example of the change is the shift on mining contractor, moving from what was a local very, very small provider who have been there for years changing them out and putting McMahon in and they're just starting to ramp up, setting up the right kind of mine services and fleet strategy and so on. That's all just coming through now, but there's an example that the teams worked through. Matt's been closely involved in influencing the decision making there. That's a practical example already gone. Beyond that, obviously, thinking about the decision or the balance between surface and underground mining is another very good example where we'll bring our capability and experience, help work through the mine planning, some of the capital program as well and how that plays out. There's a couple of examples. But I guess I want to leave you with a view that it's not a case of everything have to go through a formal Board meeting and a formal resolution to achieve anything there. There's a very close working relationship between the partners and the management team at Talison. And the more we can bring our mining capability to the table, the better to help with the optimization of that business.
Mitch Ryan: Okay. So does that mean that IGO sort of bears some additional costs inside the IGO structure that relates to the JV, but it's not sort of coming through the JV P&L?
Ivan Vella: Look, it's a good question. I mean, possibly, if I could try and quantify it, it's not material. We're talking about Matt's time, which is part of our role in managing our interest in the JV and maybe some of our technical team's time as we go, some of our geologists supporting some of the work, but this is not - it's not a significant cost that's flowing through there, where we do want dedicated and more material resource applied to help with work, then we bring that in and make sure those costs are borne by Talison.
Mitch Ryan: Thank you.
Operator: Your next question comes from Matthew Frydman with MST Financial.
Matthew Frydman: Sure. Thanks, good morning, Ivan and team. I guess you've highlighted on the call and also in the updated resource and reserve statement from Greenbushes. How are you seeing some of the opportunities to, I guess, capture value out of the mine plan at Greenbushes over the medium and the long term. How should we be thinking about things like moving infrastructure and developing underground and exploiting a bigger pit shell potentially at a slightly different spodumene price assumptions to what was used in the resource statement? How quickly will some of these concepts and ideas, I guess, get fleshed out and fall into the mine plan? When can we expect an update on these longer-term studies, particularly, I guess, given the context around a lot of these questions around how the JV operates and I guess, optimizing the JV structure. Are these longer-term mine plan and sort of value creation studies a priority for the JV in the current market conditions. Clearly, they're going to be much more material and more important for IGO shareholders than they are for Tianshi or Albemarle shareholders?
Ivan Vella: Yes. Look, there's lot in your question. First of all, do I have a firm time line for it all. No, I will give you that update as we get further in. But as I called out in my opening remarks, it's a very, very important priority for me something that I'll be working on and focusing on personally as well with Matt and the team. Your comment on the other shareholders, look, I don't want to speak for them, but it's fair to say this is a very valuable asset. It's the best quality spodumene and the highest margin from our point of view, spodumene out there. So other males and TLC is equally incentivized to make this happen. What we want to do is also make sure that we think about this asset over its life. And it hasn't been run obviously until fairly recently with that land, it's been fairly tactical, small mining operation without that global focus. And so I think lifting that's very important. But I would say, our partners are just as motivated to see all of that value flow through. Yes, it's more material for us in a technical sense, but I don't think that takes anything away from their interest and dedication to get the very best from that asset. And my sense is there’s huge opportunity for us working together and bringing the strengths of the different companies together there, naturally, whether the more experienced miner at the table, but that doesn't mean to say there isn't a lot of value and experience at Albemarle, Talison can be contributing. What I can do, obviously, as soon as we have a more structured way of describing that program at work and some of the examples is we'll share that with you. Naturally, that's going to be picked up in our strategy refresh as well, which I say we're looking to get done in this half and share more as the results come through.
Matthew Frydman: Sure. Thanks, Ivan. Can I ask a follow-up then? You called out the technical report that Albemarle published very approximately to the update of the resource and reserve and some of the - you contrasted some of the differences between the work that Talison did and the technical report that Albemarle published. In the absence of any of that other sort of long-term thinking and planning from Talison, should we be taking that Albemarle technical report as, I guess, the conservative base case for how the JV views the operation? And again, I guess it kind of plays into some of these questions around how the JV operates from a technical and an operational perspective, does IGO agree with, and are you aligned with the sort of view that's presented in our technical report?
Ivan Vella: Yes. I'm not sure that's necessarily the way I'll be looking at. I mean, they're very different context and different regulatory frameworks that are being run against. So when you can make your judgment how you want to assess that. I think you'll find Albemarle's working a different environment with that. My sense is that the release that we put out, which is based on Talison's work, is the foundation. It's got a huge fact based, very thoughtful piece of work. Of course, there are a few of the dollar assumptions price and cost that we need to work through in the work we just talked about. I'd probably leave it with you to then draw off for that detail and then apply your own assumptions to roll that forward. We'll update it as we can. But I'm not sure that trying to reconcile or pick the eyes out of the two is necessarily helpful.
Matthew Frydman: Got it. Thanks, Ivan.
Operator: Your next question comes from Kaan Peker with RBC (TSX:RY).
Kaan Peker: Hi, Ivan and Kath. Two questions. One was following up on Lyndon's one that. Thanks for the additional information on the JV. I suppose, according to the current capital spend and assuming spot, does the JV generate cash over the second half of FY 2024? And is that why the Lithium JV has held back cash in the last quarter? I've got a follow-up.
Kathleen Bozanic: Just to clarify the question is about degeneration of cash in the second half.
Ivan Vella: In Greenbushes.
Kathleen Bozanic: In Greenbushes. Yes. Greenbushes is an extremely strong operation, and it does generate cash under just about any pricing mechanism given looking at our cash costs. Obviously, there's some capital that gets spent through that period and that - the cash that's being generated covers the capital that we've got there. And some…
Kaan Peker: Okay. And then with the inclusion of Kwinana obviously, does that sort of tip that balance into a negative cash or a negative cash balance.
Kathleen Bozanic: We're not anticipating that, but obviously, we're waiting for the budget to come through and Greenbushes is generating a lot of cash and the capital spend at Kwinana is pretty small.
Ivan Vella: Yes. And look, we've just seen our first sale from Kwinana, which is good, small volume, but that's starting. We thought that might be only Q2 this year when it would get going, but they've got the first chunk away, which is great. There's, I think, 3,000 tonnes of hydroxide sitting at Kwinana. While there's still obviously got a lot of work to do in the ramp up, they are still producing. I think the percentage of battery-grade hydroxide they produce. So the chemistry is working. I think we're in the sort of 98% type territory. So all of that is still cash that's going to come in as well. Yes, it's a depressed market, but it's still 3,000 tonnes that helps cover their costs as they roll forward as well. I think takeaway is that, look, yes, we have got demands on our cash generation from those assets, but we don't expect that, that's going to result in a negative cash position in either entity.
Kaan Peker: Sure. And the second one is on Kwinana. On the cost, so we see the EBITDA that's printed, how much of that cost is related to inventory movements, so i.e., non-cash that's been coming through.
Kathleen Bozanic: Most of the EBITDA is actually net realizable value adjustments on inventory, because the spodumene price and the hydroxide price has been dropping in both the held at Kwinana as you mark to market that at the end of each period. You have to write it down. So the majority of the EBITDA that you're seeing is actually the net realizable value adjustment on inventory.
Kaan Peker: So that non-cash?
Kathleen Bozanic: Non-cash. But remember, the cash portion goes into inventory. So it's a little bit a take and the way you can see it in the - so that was cash in the quarter in the previous half, but it's just NRB through the EBITDA.
Kaan Peker: That's very helpful. Thank you.
Operator: Your next question comes from David Radcliffe of Global Mining Research.
David Radcliffe: Hi, guys. Good morning, Ivan and team. My question was on the comments you made on exploration. So I was wondering if you could expand on those because it sounds like the large spend is maintained and also, the focus remains on the EV sort of commodity suite that you've been looking at. So how - just wondering how does the current nickel price and industry shut-ins maybe change priorities within that spend? And then following up on those comments you made about the trying to improve the rate of success. How can you do that? And I guess how do you start to get a return on what has been quite a large black hole for cash flow for a number of years?
Ivan Vella: Yes. Thanks, David. Look, first, let me first of all, touch on commodities. The vast majority of the money is going into copper-related exploration, some lithium very little relative in nickel in proportion. Second of all, I don't want you to go away with a view that we're not looking at the expenditure of exploration. We are and we will. We'll do that in a thoughtful way. I don't want to knee jerk. But clearly, we need to make sure that's set at the right level and that we've got a focus in the areas where we've got the most confidence of a material discovery. I've been sitting through, in fact, I've got more briefings today than I did last week in detail with the copper team looking at their work, and I'm very impressed with the methodology with the technical approach, the capability of that team and where they're at in the process. My probably the biggest frustration is, of course, always time and that's a bit about us. Checking that we're not running on too many open fronts, that's probably a subtle way of putting where I'm going to focus my energy, I think we need to make sure that we're picking the areas that we're most confident with and focusing our resources there, so that we can convert rather than running a lot of other parallel fronts. It's going to need some time to work through. I don't want to just, as I said, jump in and knee-jerk but please be clear that we are going to look hard at the cost there just holding flat doesn't feel like the right thing to do with me. But I want to make sure that's done with some focus. The - and I talked about the commodities. We're already, I think, well-focused in copper. Clearly, that would be very attractive should we make it a material discovery there. But lithium is the other area that we've also got some really interesting prospects that we're working through. And that's where that fits well with our strategy and our battery materials focus.
David Radcliffe: Okay. Brilliant. Thanks. That was very helpful. I'll pass it on.
Operator: Your next question comes from Kate McCutcheon with Citi.
Kate McCutcheon: Hi Ivan. Just timing on the budget for the lithium business that you said you are currently working through with the JV. When can the market expect an update on that in terms of timing, please?
Ivan Vella: I haven't got the exact data when they'll finalize it all and get through all the board and approvals. But look, I think let's just focus on the next quarterly we'll make sure we've got a full update there and give you the information. If there's - obviously, if there's anything particularly material or relevant then we'll update on an interim basis, but I'd expect that the quarterly when we'll be able to share the rest of that.
Kate McCutcheon: Okay. Thank you. And I just wanted to ask around the nickel business. So, the government announced some incentives around royalty relief, they seem to be repayable. Are there any comments on what's being put forward and what we would like to see you could talk to?
Ivan Vella: Well, look, I think we've heard from the West Australian government, they're offering some relief on the royalties, but obviously, we paid back down the track as the price moves again. Of course, that's well-received and naturally take some pressure off the business. That said, our business - our two assets are cash positive, and we'll continue to work them hard to make sure we're getting the very best from them. So, it improves our situation. It's a little different from some of the distress that other assets are in around Western Australia, and I feel for those businesses. Obviously, we're going through that with Cosmos, and it's very painful. But beyond that, look, we'll wait and see what the federal government does with regard to any production tax credit or otherwise. I think the bigger issue, of course, is how this plays out for the whole industry and BHP has been sharing the work they're doing to look at the future of Nickel West, and that's challenging and obviously has an important set of relevance for the whole industry with their assets under review.
Kate McCutcheon: Thank you, Ivan.
Operator: Your next question comes from Lyndon Fagan with JPMorgan.
Lyndon Fagan: Thanks for the follow-up. Ivan, I know it's early days, but in terms of your strategy refresh, I'm just wondering if you can share some of the considerations. It looks like in three years, there won't be any operated assets. And on one hand, IGO could transition to a dividend holding company. On the other hand, there could be some exploration success or some M&A to try and bring in another operated asset, which would involve a set of criteria, et cetera. So I'm wondering how you weigh those two options up and just some of your initial thoughts on the vision would be helpful. Thanks.
Ivan Vella: Yes. Thanks, Lyndon. It's a bit early to give you too much. I mean probably the key parameter, which it's a very high watermark challenging threshold to reach, but I think it's a good problem to have, and that is capital returns from Greenbushes are amazing. And that kind of sets the time for the way we should be looking at our business. The last thing we want to do is dilute that with something that just doesn't make sense. We also need to be clear that if we are going to move into another business at some point that we are the right owners for that. And I know that's easy to say, but we really need to think hard about how that fits and what we bring to it. There's still a lot of work ahead to get through that thinking. For me, I'm not - I don't feel that time pressure or any rush about where we're at with our operating assets. I think what we've got to do is make sure we are getting the very best from what we've got, demonstrate our credibility with our exploration and corporate capability, the two nickel mines were operating and the role that we have in the JV. And on the back of that, then find the right path to deliver further returns. As I said, using Greenbushes as a bit of a benchmark to test ourselves against, which is, of course, a very, very hard challenge, but I think the right one to have.
Lyndon Fagan: And I guess, just to follow that up, I mean, if IGO were to not become a holding company, then I guess M&A is required, most likely, how do investors get any confidence in an M&A strategy after the Western areas deal was essentially written off completely?
Ivan Vella: Yes, of course
Lyndon Fagan: Some sort of measures
Ivan Vella: Yes. So I mean, obviously, I'm working through the actions that came out of that review. I think it's also important to stand back and look at the history of IG. I mean this was clearly a bad transaction that has destroyed some shareholder value. But there's a number prior to that has been extremely good. And we just spent a lot of time talking about the partnership with TLC and TLEA, which is an enormously value-accretive transaction And there's several - I won't go through the issue. You know the better than me prior to that. So we're only as good as our last decision, and we appreciate that. We've got to take accountability and make sure those changes are made through the business, and we give you the confidence that we've really learned those lessons. That's my work. I'm dedicated to it. I think as we go through the strategy refresh, it will also give me a chance to then articulate the way I see the business and where we can play and where we can drive that value. And obviously, on the back of that for the support to and I don't want to preempt either. We're sort of jumping or we must do M&A. I don't think that we should draw that conclusion. I think we just need to go through and do this work knowing that Greenbushes as a foundation piece is a fantastic investment. It's delivering high capital returns. It gives us a clear benchmark to work against. And if we do anything beyond that, we need to keep that in mind that we're not diluting that value.
Lyndon Fagan: Thanks.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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