IGO Limited

Thank you Darcy. Good morning everyone and welcome to our September Quarterly Operating and Financial Result Call. Joining me on the call today is Kath Bosnich, our Chief Financial Officer. Slide 2 highlights our cautionary statement and disclaimer of note all currency amounts in Australian dollars unless noted otherwise. Turning to slide 3, to begin this call this morning, I would like to note the improvement in safety performance recorded over recent quarters. We are continuing to ensure we have the right safety culture, we are focused on critical risks, we strengthen our safety systems and ensuring people have the right skills and training to do their jobs safely. Our people are our priority and will continue to drive a culture that supports their safety, wellbeing and engagement. I'm positive that the results we will continue to see include improvements slide four and to a high-level summary of quarterly results. Financially, we delivered another record quarter of free cash flow, principally driven primarily by continued strong cash generation from our lithium business. This enabled us to make a final dividend payment of $454 million during the quarter while continuing to build a strong balance sheet position. Operationally, Greenbushes was a key highlight, delivering another record quarter of spodumene production and lower cash costs, while continuing to advance the numerous growth projects. Our nickel business experienced a softer quarter. We had always expected the quarter to be lower. However, this was coupled with some operational challenges, delivering lower than expected production, which flowed through to higher cost. Our review of the COSMOS project is progressing well. It was also pleasing to see the exploration success we had in the West Kimberleys with the discovery of massive sulphide at the Dockleg nickel, copper and cobalt prospect. On sustainability, a key highlight was RGO's membership of the United Nations Global Compact, symbolising our commitment to responsibility and sustainable business conduct. Turning to slide 5 will provide an overview of our September quarterly financial results. Revenue, which I remind you only reflects quarterly revenue from our nickel business, rose marginally to $248 million. IDEO's share of TLEA net profit was lower quarter on quarter at $328 million, reflecting lower lithium prices realised in the quarter. Our underlying EBITDA result was $362 million per quarter, which is lower than the June quarter result due to lower lithium prices already mentioned. Despite this softer earning result, underlying free cash flow of $530 million per quarter was a record for IGO and reflects the lagging nature of dividends versus earnings within the TLEA business. Cash at the end of the quarter rose to $840 $444 million, despite paying a dividend of $454 million. We've seen some near-term volatility in the lithium sector, which is likely to have an impact on Greenbush's sale in December quarter. I'll talk to this later in the slides. Turning to slide six, where we reconcile cash quarter on quarter. As with the last quarter, the big driver was cash uplift with a record quarterly dividend received from TLEA of $578 million. Other points to note here include the $454 million in dividends paid to IGO shareholders during the quarter, $98 million invested at Cosmos, which I'll discuss later, and a continued free cash generation from our nickel assets at Nova and Forestania of $88 million and $30 million, respectively. Turning to slide seven, where we display the quarter-on-quarter movement in net profit after tax. As you can see, the key driver in NETPAT improvement over quarter was the absence of the impairment recorded at the prior quarter result. You can also see the lower contribution from the Frostania and the Lithium business offset somewhat by some favourable tax adjustment driven by accounting of TLEA's profits and dividends. NETPAT for the quarter was $392 million. Turning to slide eight, we will move on to a discussion on the lithium business. This is held by our joint venture interest in Tianqi Lithium Energy Australia, referred to as TLEA. Turning to slide nine. As mentioned earlier, our lithium joint venture has continued to drive strong financial returns to RGO, with record dividend flows from TLEA of $578 million for the quarter. up 37% from the previous quarter. This brings the total dividends received from TLEA to above $1.8 billion, which is the equivalent of the investment we made to acquire our interest in TLEA just over two years ago in 2021. IDEO's share of TLEA's net profit after tax was $328 million for the quarter, which was lower than the prior quarter as a result of lower lithium prices. Turning to slide 10 and on to green bushes. Higher feed grades and improved recoveries at green bushes drove 5% stronger production compared to the June quarter. Industry-leading cash production costs at $260 per tonne were lower quarter on quarter as a result of the improved unit production and lower mining cost. The total revenue was down this quarter due to lower realised botulinum pricing flowing into lower EBITDA for the quarter. However, I note that the EBITDA margins continue to remain strong at over 90%. The realized spot demand price for the September quarter including both chemical and technical grade product was $3,740 US dollars FOB Australia per tonne. This compares to $5,431 US dollars per tonne received in the June quarter. Turning to slide 11. The graph on the left demonstrates the continued growth and optimisation that Greenbushes has delivered in recent years. Future production growth will be supported by CGP3, which is expected to be commissioned in 2025. Over the quarter, structural, concrete and bulk earthworks advance with the completion of electrical and instrumental design and contractor mobilisation occurring post quarter end. Simultaneously, other capital work programs continued with a focus on the paving storage facility fall, mine service area, power supply and accommodation villages during the quarter. Before moving to Kwinana, I want to briefly comment on the lithium market conditions generally and the likely impact they will have on sales at Greenbushes in the December quarter. In recent months, we witnessed softening of lithium prices, a distortion in the spodumene versus chemical price dynamic, and some supply chain congestion, especially out of China, driven by sentiment-driven buying and destocking. IGO believes this volatility is near-term, and the long-term structural dynamics supported by strong demand and constraints on supply will continue to play out. This volatility has had an impact on Greenbushes, in which TLEA has elected to take a lower allocation of spodumene concentrate than they are entitled to from the Greenbushes during the December quarter. This lower election reflects lower volume requirements of our partner TLC. This will flow through as a likely deferral of sales in which IGO expects to report approximately 25% lower sales in the December quarter from green bushes. Shareholders are currently working through mechanisms to manage any unallocated volumes should market conditions remain challenged and requests for products are below forecast production going into CY24. We are confident that guidance is not impacted as shareholders work through solutions to manage this excess volume over the short term, given recent market volatility. Moving to slide 12, we'll provide an update on Kwinana Lithium Hydroxide Refinery. At train 1, we While we achieved improved production of 607 tonnes for the quarter, performance remained below expectation with multiple blockages and material handling issues resulting in additional downtime to allow for remediation work. I do note that Train 1 did operate at nearly 40% nameplate capacity for several consistent day runs, indicating we are progressively de-bottlenecking the facility. We're currently in a major shut and expected to be ramping up production as a team continues to work towards achieving 50% nameplate by the end of December. Train 2 is also progressing. This quarter we advanced the review and confirmation of the front end engineering and design contracts. Feed completion will follow in mid-Hell in the year 2024. Turning to slide 13, we'll move to a discussion on our nickel business. I'll start with Nova operation on slide 14. Quarterly production was down across all metals this quarter, although a reduction in production was planned for the quarter. Notice operational performance was challenged by production sequencing moving towards lower grade stoking blocks combined with several operational issues including paste fill and nickel reconciliation. While with lower nickel production, cash cost performance was unfavourably impacted. September quarterly cash costs were $4.18 per pound compared to $2.60 per pound in the prior quarter. Revenue and sales were also down this quarter, resulting from lower nickel prices. It's important to note, however, that the quality of the earnings and EBITDA margins remain extremely strong at 57%. Turning to slide 15. At Forestania, we transitioned to campaign milling during the quarter, which combined with a seismicity at Spotted Quoll resulted in lower milled tonnes, lower feed grade and lower production rates. As a result, cash costs were higher quarter on quarter at $11.64 per pound. Also impacted by the introduction of a new contract haulage rates during the quarter. Sales revenue was markedly higher at $86 million, up 93% quarter on quarter as a result of improved trucking and road availability. This flowed through to a recovery in free cash flow generation of $30 million for the quarter, compared to a cash outflow of $5 million last quarter. We are continuing to assess opportunities for optimisation and cost-improvement at Forestania as the operation transitions towards end-of-life opportunities. Turning to slide 16 and on to COSMOS where we continue to make solid progress on key work streams while the project review is ongoing. Notably, works during the quarter included the advancement of early commissioning activities for the processing plant with the completion of all works expected in the coming weeks. Further, I'm pleased to say that we've commenced commissioning of the processing facility and expect first concentrate shortly. The shaft proper was completed during the quarter with a focus on installation of shaft hoisting and loading structures over the coming quarters. Simultaneously, the head frame and winder scopes are nearing completion, with the scopes for underground crushing all silos and on the lift of the tailing storage facility both successfully completed during the quarter. Capital expenditure for the quarter was $106 million, with expenditure split roughly evenly between mine development and project infrastructure capital. The project review, which we announced a few months ago, is nearing completion and we expect to update the market before the end of December. Turning to slide 17 will provide a brief update on exploration activities for the quarter. Exploration activities continue across our portfolio with several interesting developments made as we progress on our journey to discovery. Activities of note which occurred during September quarter include successful drilling at the West Kimberley Prospect with massive sulphides intersected at the Dogleg Nickel Copper Prospect. Further drilling is expected this quarter to test additional conductors. Diamond drilling also commenced at Iron Cap Prospect at Forestania, with two drill holes intersecting spodumene-bearing pegmatites up to 30 metres in downhole thickness. Further drilling will continue in the December quarter. And finally, our partners Buxton announced some positive drilling success at the Copper Wolf Prospect project in Nevada, in which IGO holds an earning right for up to 70% of the project. While at an early stage, the team are encouraged by evidence of a large copper moly mineralised cistern at the project. Turning to slide 19 before wrapping up the call, I'll provide a brief summary of our September quarterly results. Slide 20, in summary. We are pleased to achieve further reduction in our TRIFA safety metrics over the quarter and continue to record sustainable improvements over the last year. We have delivered exceptional free cash generation with record quarterly free cash flow of $530 million and record dividends received from TLEA, bringing total dividends received from TLEA to over $1.8 billion. This has translated into strong cash generation and a net cash position of $440 million, despite a record IGA dividend payment of $554 million made during the quarter. Exceptional Greenbushes production, with a record of over 400,000 tonnes of spodumene concentrate produced this quarter, driving lower cash costs while continuing to focus on expansion production at Greenbushes. While we note the ongoing volatility in the liquor market, there is a likely deferral of sales by 25% for the December quarter. All shareholders are working through solutions to deal with the shortfall in elected volumes. Nova and Forestania had a softer quarter with some operational challenges. FY24 guidance remains unchanged. While at Cosmos, we have continued to progress project development While the project review is continuing, we'll update the market on how it comes in due course. Thank you for joining the call this morning and we'll now hand back to the operator for questions.

Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. In the interest of time, we ask that participants please limit to one question and one follow-up each. Your first question comes from Hugo Nicolasi from Goldman Sachs. Please go ahead.

Oh, morning, Matt and team. Thanks for the update this morning. Just one on green bushes in the Spodumene market, please. I mean, you've highlighted that TLEAs like to not take their full entitlement in December and project partners maybe not taking their full entitlements in March. Can you give us some more colour on how much of that is the weaker outlook and the ramp-ups of Kwinana and Kemerton, or is it a way for the JV to maybe force a renegotiation on that pricing mechanism because they're buying Greenbush's volumes above current spot pricing? Thanks.