IGO Limited

Good morning, everyone, and thank you for joining the call this morning as we present our operating and financial results for the March quarter. Joining me on the call today is Kath Bosnich, our CFO. Slide two highlights our cautionary statements and disclaimer. Of note, all currency amounts are in Australian dollars unless otherwise noted. Turning to slide three. To commence this morning's presentation, I would like to draw attention to our ongoing efforts towards enhancing safety, wellbeing and the engagement of our people. Our people are our priority. As highlighted in previous quarters, our recent safety record has been disappointing. Over the last year, we have amplified our focus on critical risk identification and management. It's pleasing to see improved safety lag metric outcomes over the last few quarters, although we acknowledge there's still work to do as we improve our safety performance. We have a fantastic group of people and a unique culture. An important measure that we track at IGO is our employee engagement. It's an annual pulse of the organisation to understand the strengths and weaknesses of our culture, and most importantly, identify where we can improve. Our 2023 survey, the first survey conducted since we welcomed in the Western Areas team into the business, was completed in April. Initial results indicate a strong employee engagement across the business, underpinning the strength of the IGO culture. Turning to slide four, our key highlights of the quarter again demonstrate the strength of our business. These highlights include record quarterly earnings and net profit after tax and repayment of our revolving credit facility, leaving our balance sheet in an excellent position. Our lithium business had another great quarter, with Greenbush's delivering consistent production and cost performance, while higher lithium price helped drive strong margins of free cash flow to IGO by way of another strong quarterly dividend from TLEA. In our nickel business, we have seen the rapid recovery of the... from the power station fire at Nova last quarter. We also secured a strategic parcel of land at Kwinana for our proposed integrated battery material facility, a key part of our downstream strategy. And finally, we also plead that our commitment to sustainability continues to receive third-party endorsement with recognition from S&P and Sustainalynix that IGO is a sector leader in sustainability. I'd also note that we advise in the quarterly of an anticipated impairment on the nickel assets acquired through the Western Dan areas transaction. I'll provide some detail on this later in the presentation. Turning to slide five, we'll provide an overview of our March quarter financial results. Of note, group sales revenue of $236 million which excludes contributions from our lithium business, was marginally lower due to lower sales from Forestania. IGO's share of net profit of TLEA, our lithium joint venture, rose to 30% quarter on quarter to $450 million. Quarterly EBITDA of $533 million and net profit after tax of $412 million were both quarterly records. And strong underlying free cash flow of $284 million enabled the repayment of our $240 million revolving debt facility, and thereby reducing our net debt position to just $9 million. Turning to slide six, where we lay out the quarter-on-quarter movements in net profit after tax. The key contributor to the excellent result was a strong increase in our share of profit from TLEA, driven predominantly by higher revenues from green bushes. Other factors include lower tax and a lower contribution from forestania, offset by marginal movement in mark-to-mark value of our listed investments. Turning to slide seven, where we reconcile cash. As shown here, we had some large movements in cash over the quarter. including inflows of $321 million dividend received from TLEA and $92 million free cash flow from NOVA. Key outflows included $240 million in debt repayments, as mentioned earlier, a record interim dividend payment of $106 million to shareholders, and $93 million in development expenditure at Cosmos. As at the end of the quarter, IGO's cash at bank was $441 million, with a total debt of $450 million. Turning to slide 8, and on to a discussion of the lithium business, which is held by a joint venture interest in Chanche Lithium Energy Australia, referred to as TLEA. Turning to slide 9. TLEA recorded another outstanding quarter, driven primarily by 45% higher quarter-on-quarter lithium prices. This delivered a 30% increase in IGO's share of TLEA net profit to $450 million and a quarterly dividend to IGO of $321 million. This brings total annual dividends received from TLEA to $761 million. I'd also like to note TLEA's proposed scheme arrangement to acquire central metals, which was originally announced in early January. As has been reported, the proposed scheme did not receive sufficient shareholder vote to be passed at the scheme meeting held last week. As a result, TLEA has terminated the scheme implementation agreement with essential metals. TLEA will continue to assess opportunities to grow its lithium business through M&A, but will only execute transactions which can deliver value to its shareholders. Turning to slide 10, we will discuss performance at the Greenbushes lithium mine. Production was marginally lower quarter and quarter to 356,000 tonnes due to lower run times on CGP1 and CGP2, offset by higher feed grades. Despite spodumene sales being 13% lower quarter on quarter, the higher spodumene prices noted earlier drove sales revenue and EBITDA to $2.8 billion and $2.6 billion, respectively, on a 100% basis. This represents an EBITDA margin exceeding 90% for the quarter. Unit costs excluding royalties of $290 per tonne were also higher quarter and quarter as a result of cost escalation and inflationary pressures. The overall realised spodumene price was $5,783 per tonne for the quarter. Turning to slide 11. The graph to the left shows results from green bushes illustrating a strong production and cost profile over the last 18 months. Expanding production and processing capacity is a key part of the Greenbush's growth strategy, which involves the addition of two new concentrators, CGP3 and in the future CGP4. During the quarter, the team progressed several of these key projects and related infrastructure, including advancing construction on CGP3, with the first ore targeted for mid-calendar year 2025. progress on the mine services area, which is advancing well and remains on track to enable the commencement of the new contract of McMahons in the coming months. The new power supply from Bridgetown has been completed and is currently awaiting energisation and earthworks for accommodation village have commenced with formal construction to begin next quarter. Turning to slide 12. Looking ahead, We expect the strong performance at Greenbushes to continue. Of note, quarterly sales were lower June quarter due to storage capacity constraints at Bunbury Port. However, we've seen the issue resolved and expect sales to rebound in June quarter to help offset this. The chemical grade spot treatment price has reset to $5,444 US per tonne for the June quarter, which continues to underpin strong margins at Greenbushes. We expect full production and cost to be at marginally above guidance, reflecting a strong production expectation for the June quarter. From a capital perspective, third quarter 23 was $122 million, which is behind schedule with a slower rate of spend over a number of projects. CGP 3 CAPEX, previously guided at around $500 to $550 million, is under review following some challenges related to earthworks and geotechnical piling. While a review is underway, which is planned to be completed next quarter, IGA speaks costs could exceed the contingency provided in our guidance range. We'll be in a position to provide an update on the completion of this review at the end of the quarter. Turning to slide 13 and on to an update of the Kwinana Refinery. The Kwinana team has continued to progress rectification works on Train 1, as noted in the prior quarter. Production rates have progressed, progressively improved, with total production of 960 quarter. Sales have also continued for potential customers as part of the ongoing product qualification process during the quarter. The ramp-up team is preparing for a major shut commencing at the start of May. This will focus on the lithium hydroxide material handling circuit at the back end of the processing plant. At the completion of production as we work towards achieving 60% to 70% of nameplate production by the end of this calendar year. Turning to slide 14, where we'll move to the discussion of our nickel business. In slide 15, we'll start with Nova. It's pleasing to report solid recovery of our Nova operation following the production disruption caused by the fire in December last year. Water production of all metals improved approximately 30%, while cash costs reduced 28% to $3.79 per pound. While operations have recovered well, the quarterly result was impacted by intermittent power supply issues that have persisted, as well as the result of a temporary power station. This is coupled with some constraints to pace production during the quarter. Issues at the PACE plant have been resolved and the site power supply reliability is expected to improve from the commissioning of a new battery energy storage system in connection with Nova's solar farm during the June quarter. Sales revenue and EBITDA from Nova rose quarter on quarter due to higher sales offset by a 6% decrease in realised nickel price. Turning to slide 16. At Forestania, quarterly performance was challenged by lower ore availability from both Flying Fox and Spotted Quoll mines, resulting in 5% lower nickel production quarter on quarter. Ongoing size week issues at Spotted Quoll have necessitated greater rehabilitation work and long re-entry times after blasting, while poor ground conditions at Flying Fox deferred access to some high-grade stoves to later quarters. Nickel sales of $58 million for the quarter were 36% lower than the prior quarter, impacted by trucking availability and road closure due to poor weather. Trucking availability is expected to improve during the June quarter with additional haulage contracts deployed to help draw down on the large concentrate stockpiles that have materialised at Forestania. Cash costs of $10.27 per pound were lower quarter-on-quarter benefit from savings generated by the NOVA blending agreement, including unlocking payable COBOL credits that were otherwise not realised and saving on on-site cost with NOVA export sales under the new agreement. Underlying free cash flow remains strong at $32 million for the quarter. Turning to slide 17. Development of the COSMOS project is continuing at pace. During the quarter, shaft and head frame constructions proceeded to plan, including the first leg of the shaft and paste plant completed. In addition, construction was completed on the new aerodrome, with the first flight celebrated last weekend. Total capex for the quarter was $97 million, with FY23 year-to-date capex at $240 million. This is below forecast due to some work being completed later than planned. However, the project delivery time remains on schedule and on budget. Turning to slide 18, where I briefly discuss progress on our downstream nickel strategy. Earlier this month, IGO and our partner, Walu Metal, announced the allocation of a strategic piece of industrial land at Kwinana for a proposed integrated battery materials facility. This is an important milestone in our ability to produce battery-grade chemical cathode precursor in an integrated facility here in Western Australia. While any investment decision will be subject to securing a pre-chem partner and a positive outcome for the feasibility study, IGO and WALU share a vision to produce low-cost, low-carbon, responsible-produced battery chemistries from what would be the first integrated facility of its kind in Australia. We look forward to keeping the market updated as we progress discussions with respect to potential partners and as the feasibility study progresses. Turning to slide 19 and on a brief outlook of the nickel business. Production and cost guidance at Nova and Forest Avenue remain unchanged. We've made some minor changes to CAPEX outlooks, with some NOVA CAPEX being deferred into FY24, while a slower rate of spend at COSMOS to date means we expect full-year spend to be under where we had previously expected at between $330 and $360 million. We have also advised in today's result that we anticipate recording an impairment against the assets acquired from Western areas The impairment reflects several changes compared to our expectations when we acquired the Western Areas assets last year. These changes include cost escalation, which has been widely reported across the industry, higher capex cost at Cosmos, as referred to in our September 2022 quarterly report, mine scheduling changes and delays in the mining of AM5 and AM6, and the general underperformance of Forestania. As we're currently working on our first annual life of mine and budgeting process with the new sites and the fact that any impairment will be dependent on the processes together with macroeconomic inputs at the time of testing, we're presently not in position to provide the market with a probable impairment value nor a range of values with any sufficient detail of certainty. We're currently, however, confident that an impairment charge will need to be recognised in respect to the Western Area's assets acquired in our 30th June 2023 financial statements and, as such, have elected to advise the expectation in advance while we continue to work through the budget and impairment testing process. We're working to complete this process as soon as possible and expect to be in a position to update the market further during the June quarter. The impairment will be non-cache. It will not impact underlying full-year EBITDA. Turning to slide 20, where I'll provide just a few comments on our exploration activities for the quarter. Moving to slide 21. Exploration during the quarter focused on the southern parts of Australia, specifically the Fraser Range, Forestania, Western Koala, Copper, Coast, Broken Hill and Greenbush's Bridglands projects. One program I note is a detailed review and sampling of lithium-barium pegmatite intrusions encountered in previous drilling at the Forestania project. This work is offering some interesting results, and we expect to commence drilling this quarter. We also continue to test nickel sulphide targets around surrounding silver nitrospects, with further drilling expected in the current quarter. Turning to slide 22, Before wrapping up with summary, I'd also like to provide some commentary on behalf of the board on the CEO search process. Shortlisted candidates have been interviewed by the search committee. Final interviews before the whole board will take place in the coming weeks, with a decision expected to be announced in the coming quarter. As you may have noticed in the quarterly, I've made the personal decision not to participate in the process. I look forward to leading the company as acting CEO through this transition. To summarise for the quarter, our business has continued to deliver outstanding financial performance with another quarterly record EBITDA and impact result. Free cash we are generating has enabled the rapid down payment of our revolving debt facility, putting IGO in a strong balance sheet position with just $9 million net debt. This has largely been underpinned by greenbushes, which is generating strong margins and driving dividend flow through TLEA to IGO, while at the same time supporting the production ramp-up at Kwinana. In our nickel business, Nova has recovered incredibly well from the fire last year, and we continue to improve performance at Forestania. The COSMOS development project remains on track, and we have made the first steps towards our downstream nickel strategies with the recent announcement of securing strategic land at Kwinana. As noted, we have also advised of an expected impairment on the ex-Western Areas assets, as we'll update the market on this in the June quarter. Thank you for joining us on the call this morning, and I'll now hand back to the operator for questions.

Thank you. If you'd like to ask a question via the phones, you'll need to press the star key followed by the number one on your telephone keypad. If you'd like to ask a question via the webcast, please type your question into the Ask a Question box. We will be addressing questions by the teleconference first, and if time allows, we will address some of the questions followed up received on the webcast. For the sake of time, please limit your questions to one per person. If you'd like to ask more questions, feel free to join the queue again. Your first question comes from Rahul Anand from Morgan Stanley, Australia. Please go ahead.

Hi, team. Thanks for the call. Look, my question, and I know you're only allowing one, is around CGP3, just looking for a bit more visibility around, I guess, the challenge ahead of you, some timelines, how we should think about those cost estimates, perhaps a bit more colour would be much appreciated. Thanks.