Liontown Resources Limited

Good morning everyone and welcome to the September quarterly webcast for Liontown Resources. I have Tony Ottaviano, Managing Director and CEO, Alan Smith, Chief Operating Officer, and John Latto, Chief Financial Officer, with me this morning to present the company's results. Following the formal presentation, there will be a Q&A session for investors and analysts. Participants can ask both text and live audio questions during today's call. To ask a text question, Select the messaging icon, type your question in the box towards the top of the screen and press the send button. To ask a live audio question, press the request to speak button at the top of the broadcast window. The broadcast will be replaced by the audio questions interface. Press join queue and if prompted, select allow in the pop up to grant access to your microphone. If you have any issues asking a question via the web, a backup phone line is available. Dial-in details can be found on the Request to Speak page or on the Home tab under Asking Audio Questions. To view documents relevant to today's meetings, select the Documents icon. A list of all available documents will appear. When selected, the document will open within the platform. You will still be able to listen to the meeting while viewing the documents. Text questions can be submitted at any time, and the audio queue is now open. I'll now hand over to Tony Ottaviano.

Thank you, Josh, and welcome everyone to the call. We are immensely proud to today deliver our first quarterly, which includes a suite of production results. It's been an immensely proud journey that we've been able to do from explorer to developer, now to producer. So we've joined the ranks of the global lithium producers as of today. This quarterly report demonstrates very clearly our continuation of what we say we deliver and we are in the process of moving forward on a ramp up that we're very confident and is in line with our expectations. So if we go to the first slide, please, Josh, is the important information. So the next one, please. Okay, I'd like to start with ESG and the first bucket being safety. I mean, we are a company that has come out of construction and we're now moving into a new phase of being an operator. As a result, the risks present themselves in a different way and the management team led by Adam Smith are very conscious of this and our focus remains relentless on safety. Any injury is one injury too many and whilst these results are steady, we continually look to remove all injuries from the workplace as best we can. Our social metric around, one of the social metrics, we've got many, but the one around female participation in the workforce, and again, from a company that started with nothing, we've now got well over 320 employees and we've hit the industry standard on female participation. That's not the end, it's just the beginning. Whilst the B end of town can offer various value propositions for female employees to join them, we'd like to encourage females to also consider companies such as us that we can offer a differentiated value proposition. On the environment, and there's a great photo that demonstrates this, a company of our size made a bold commitment that we would get at least 60% renewable power and build Australia's largest hybrid power station. And we've done that. Not only have we done that, we've exceeded our 60% target with 86% renewable penetration at first production. And finally, again, like injuries, we don't want any material reportable incidents and we've done well there and we continue to be vigilant. Next slide, please, Josh. Looking at production highlights, I might hand over to Adam to give us that overall view of production.

Okay, good morning, everyone. I think the key metrics here are pretty standard for a company such as ours. Mining, 4.1 million tonnes for the quarter. We started mining very early in the piece. The open pit mining has been running almost 20 months. Underground has been running since last October, so nearly 12 months. And that's proven in the way that's just, I guess, drum beating through and producing the tonnes when we need them. So we're not living hand to mouth. We've got decent stockpiles on the ROM at grade. Processing 280,000 tonnes for the quarter based on two months. To put that in context, we've already processed nearly 200,000 this month. So you can see the progression from when we started. Plant availability, I think, reflects the amount of effort and design and effort and work that we put into building the plant. 87% for the quarter. To put that in context, 99% for the last week, 98% for the last month. So this is real... I guess a real positive for what we've built and allows the team to then optimise the plan. And that's where people should get some confidence. Production, 28,000 dry metric tonnes for the quarter. That's in excess of 52,000 tonnes as we sit today with sort of 65,000 tonnes forecast to be shipped. So that gives you a feel for how confident we're going with the production. Sales, 10,000. That was our first shipment. Our second shipment got away last Friday of another 22,000. So you can see not only are we producing it, but we're getting it out the door as well. And lithium recovery at 51%. There's a chart a little bit further in the slide deck that shows you how that has progressed and continues to progress, I think would be the best way with lithium recovery. Thank you, Adam.

So if we can go to the next slide, please. Mining performance. So there's a suite of slides now that we will talk through which are regarding overall performance. This will be something I will share with Adam. I'll just hit some highlights. As Adam mentioned, we've been going in the open pit for more than 20 months and we've been getting through the underground for nearly 12 months. And if you look at some of those photos, the open pit, we've now got the full floor of the ore body. as we predicted as part of our mine scheduling. So we're now producing 100% all, very little waste. The underground, you can see from that photo, tremendous progress. Now, we've got jumbo productivity in excess of 311 metres per jumbo per month. And in the recent month, September, we averaged over 320 metres per jumbo per month. per month, which is an outstanding effort. And you can see the ground conditions in the underground. They are exactly what we expected. It's dry and very good from a geotech perspective. Adam, do you want to add any of the specifics?

No, look, I think the underground has just progressed remarkably well. Burncut as a partner has been exceptional. We're over 5,000 metres of development now, both capital operating and level development. The open pit, the timing of that pit was quite critical. We wanted to actually be in ore when the plant started up. So not only have ore on the ROM pad, but be producing more ore We're forecasting by the end of the year to have north of a million tonnes of ore on the ROM pad or stockpile next to the plant to give you a feel for how well that pit is going and I guess the foresight in starting that open pit team early. As Tony said, no major issues in terms of hydrology. In fact, we've had no water seen underground. And likewise, the pit continues to be dry. Importantly, in terms of weather events, both the underground and the open pit, there's been a lot of work put in them and tested throughout the last year or so to prove that we're not going to get interruptions in oil supply due to rain events. Thank you, Adam.

Next slide, please, Josh. Now, this one, these next few slides, I will hand over to Adam. But as a CEO, I'm very, very proud of these outcomes. Only eight weeks' worth of data, and you can see the trends. And I've got to thank our designers, Lycopodium, and all our partners in helping us get to the plant up and running and producing these sorts of results only after eight weeks.

Yeah, as I touched on earlier, a key focus in the design phase with Lycopodium was around a very operable and maintainable plant. A lot of effort and time was put into selecting the right materials based on past previous or other projects. What would you call it? Battles with poor material selection. Certainly we haven't had those issues to date. As I said earlier, 98% availability for this month is where we're tracking and 99 for the last week. And you can see that trend on availability there. The only dip really was when we had a shutdown at the beginning of this month. In terms of recovery, there's been a steady progression there in recovery from where we started in week one to sort of where we're sitting now. Average last week was 55. This week we're in the 60s. So there's definite progression is what we expected. We've got a, I think to put it in context though, we've got a brand new team with a brand new plant and these curves and this is reflecting Not only, I guess, the ramp-up phase, but it's reflecting that the plant's been commissioned. So we are commissioning and ramping up simultaneously, and that's what those numbers are reflecting. So I think it's fairly remarkable that we're not far away from some of our peers, certainly in terms of recovery after barely two months of operation. The other point there to point out is Tantlem came on stream in October this month. already north of 70 tonnes there of tantalum. That is just like icing on the cake in terms of income for the company. And that's worked straight out of the box with plenty of room for improvement. So there's more upside there as well.

The final point that I'd make on the plant is we've built and now commissioned and into operation the most modern lithium plant on the planet. and with maintenance and operability front of mind, which then translates to operating costs. So next slide, please, Josh. Here's a further reinforcement of the plant's performance, and I'll get Adam to talk to you through this as well.

Yeah, look, I think just in terms of weekly production and not only throughput but also production. So you can see there the milling tonnes have steadily increased. We're roughly putting through 7,000 to 8,000 tonnes a day now and that continues to improve. It's all part of the ramp-up. It's all planned. And likewise, the concentrate production, the last couple of weeks sort of reflecting where we're going, north of 1,000 tonnes a day of concentrate. Importantly, that concentrate from day three, I think it was, has been on spec. So north of 5% lithium and well under 1.5% iron. And we have produced over 600. it's been north of six, just to give people an indication, north of six, north of 66% recovery. So real, real metrics, real, real progress. Again, reflecting the money and the time and the effort and the design work that went in up front. It hasn't been just to build a shiny plant. It is delivering results. The crushing circuit is idling. It runs between six and 10 hours a shift, simply because it's got that excess capacity up its sleeve.

And finally, on the plant design, as Adam's already talked about, we've got a whole of all flow sheet, which is providing a stable platform for us to be able to progressively improve and get the efficiencies we expect. And there's significant optimisation levers still available to us. We're only just started. So we know what they are and we're hunting them down. Next slide, please, Josh. Okay, on shipping, as we've mentioned in our opening slides, we've had a strong start to shipments and our offtakes. Our first shipment went out of Geraldton on the 27th of September, We've also initiated our spot sales strategy, as we've always indicated from the last two and a half years, that we're always going to dedicate a portion of our production to the spot market in order to generate that transparency that's required. And we've done that and we're delivering on that. Sales of the proceeds from this quarter will be recognised in the December quarterly. On the offtake agreements, our strategic offtake agreements, we're planning to progressively deliver into them as production ramps up and there'll be announcements on that in due course. The other point of note is we've had negotiations with Ford and we've come out to a win-win situation where we've now balanced our offtake book by having some of our product priced off a carbonate index as opposed to a hydroxide only And in return, Ford's getting their product when they require it. Next slide, please, Josh. On the cash flow waterfall, I'll now go to my CFO, John, and John can walk you through that.

Yeah, thanks very much, Tony. What I'll do is just walk across the cash flow from left to right. So we opened the period with $123 million of cash on hand. Clearly, as we announced the market, we then secured a $250 million USD in convertible notes with our foundational off-take partner, LGES, and that converted to $372 million Australian dollars. So that's the big green bar you can see there. Moving across, we then had some financing costs, and that was primarily some leasing costs that we paid. Plus, obviously, there's some advisor fees and legal fees associated with putting the convertible note in place. Moving across, you see a $1 million deposit. That was associated with a 20,000 tonne sale that we made in September. That's a small deposit associated with that sale. Obviously, the inflow of those funds we expect to receive or we will receive or have received in October. Then what you see is a $52 million outflow associated with our operating activities. So what that is, is our mining costs at the open pit for July, August and September, our processing costs for August and September, given that we started production on the 31st of July, plus obviously our site administration costs, our maintenance costs and also our corporate costs. Then there's a small little bar of $2 million of net interest receipts and a few minor sort of fees, but basically that's new flow. And then we move across to a $29 million bar, and what that effectively relates to is the capital spend at our mining operations. So we've got our deferred waste in our open pit, but also the cost of moving forward with our underground, looking to bring that online. And when you take all that into account, we would have ended up pre any capital spend associated with the Kathleen Valley project, with a cash balance of $413 million. Then during the quarter, we spent $81 million, or we had an $81 million outflow associated with costs required to get to first output at Kathleen Valley. And that's costs, you know, things like the EPCM contractor, the structural and mechanical piping, mod squad, first fill, first spares, things like that. And then we had some capital spend of $69 million, and that really relates to additional capital spend that was not required for first production, and that's primarily expenditure on the PACE plant, which is required for the underground, but also capitalised commissioning costs as we continue to wrap the process and plant up. And that leaves us with a very healthy cash position at the end of the quarter of $263 million. And having said that, I'll hand back to Tony. Thanks, John.

Can we move to the next slide, please, Josh? Okay. Business optimisation. We want to be strong through the cycle. We've indicated in our more recent announcements around the fact that we have embarked on a business optimisation, looking at our costs, looking at our mine plan and how best we optimise. But first and foremost, it starts with productivity. We've already mentioned that the plant is producing in line with our expectations, but we want to get more productive and we've got a number of operation levers that will deliver this for us. The second piece which we've been highlighting for some time is our mine plan optimisation. We've got a world-class ore body in Kathleen Valley. We've designed that ore body to be exploited when we had a market that was extremely strong and we were getting to three million tonnes as quick as we possibly could and then quickly ramping up to four. The world has changed and we need to understand how that operates within that context and we've got some strong options in that regard. We're looking at all our input costs, everything from existing contracts to new contracts. all the consumable costs, everything's being reviewed and we're making fantastic progress. This is a systemised, well-organised focus on all key drivers of operating costs in the business. And finally, like everything, there should be a capital component which we're looking at. We're assessing all our capital spend from top to bottom We're looking at whether we can optimise that capital spend, defer it or remove it entirely. With the view, we're not going to simply remove and then replace it in operating costs because there's also a focus on that. We're looking at recurring savings. We're also going to be implementing a capital allocation approach and process and that will come out and that will give us further insight into and how capital will compete within the organisation. And finally, we continue to look at our mining engineers, our mine planners, continually look at how to best spend the sustaining capital in the underground in order to optimise development costs. We were providing an update to the market. We said we were going to provide it in the first quarter of next calendar year. We've brought that forward to by the end of this year and that was a result of we're getting strong performance in the plant and the work is being done. So we will be able to give you further insight on that in the coming weeks. Next slide please. Finally, as a summary, safety continues to be our priority and we've demonstrated that we're moving from construction into operations. We're acute that that has a different, there are different suite of risks and we are looking at that and managing that. We've joined the ranks of being global lithium producers and we're on our ramp up and we've delivered our first shipment and we've got clear line of sight around steady state. Our mining activity continues to progress to plan with the underground achieving nearly 1,900 meters of development for the quarter at a jumbo productivity of in excess of 300. As I said, the last month we've got north of 320. On the mining activities, we will produce, when we do make the announcement on the mine plan, a suite of options. And we will pick the option that we believe will best optimize the business through this current cycle and into the foreseeable future. It won't include care and maintenance, just to be clear. We've got a strong balance sheet with $263 million worth of cash in the bank. We continue to collaborate with our customers. The reason we have this customer-led finance is because our interests are aligned. Our customers want our product and we want tier one customers. And we continue to work together on that as we manage a very difficult market. And we are and we have initiated our spot strategy. Finally, it all starts at the resource. We've got a high-grade, large resource in Kathleen Valley that provides optionality in a whole range of things. We've got a plant that gives us that optionality, and we've got an ore body that gives us that optionality. And we'll be able to provide guidance to the market on how we navigate this market through that with this ore body and the plant we've designed. And we'll provide that business update, as I said, by the end of this year, maybe earlier. So that brings our presentation to an end. I'll now, Josh, hand over to Q&A.

Thank you, Tony. If you have not yet submitted your text question or joined the live audio queue, please do so now. I will introduce each caller by name and ask you to go ahead. You will then hear a beep indicating your microphone is live. Our first question today comes from Kate McCutcheon from Citi. Kate, please go ahead after the beep.

Hi, Tony and Adam. Well done on the ramp-up and the physicals. You've just said that the mine plan update will come in the next couple of months. What can we expect in that? I think you just mentioned options. Will there be recut operating costs for the 3 million tonne case? I think the last market disclosures were based on 4 million tonne case. And would it be fair to expect lower concentrate grades as a response to what customers are wanting?

Kate, we will provide all of what you've requested in that update. Detailed costs, the mine plan that we've selected to take us through, our position on concentrate grade, all those things will come out in the next few weeks. I'm not going to pre-empt it now, but what I will say, Kate, is we will publish our costs according to the world gold standard. We will give you cash costs and all-in sustaining costs. We're not going to play games with things that are in and out and not included or We're going to be very transparent in how we produce it, and I would recommend the industry does the same.

Okay, good. I like it. And then just on the capex, I think you just said there was about 70 mil in there that wasn't required for commissioning. Does this mean that it wasn't included in that 120 mil that you said was left to spend in capex at Kathleen Valley when the convertible was announced, or...? Is it a pull forward of spend? I just don't recall there being any growth capex in your study after commissioning. And can you just remind me when you expect to declare commercial production and how to think about the remaining construction capex per se?

Okay, a couple of points to that. The $120 million that we, or $122 million that we announced as money still to spend for the project when we did the convertible note was to bring on the project to first production. The Paceville plant, for example, is not required, wasn't required for first production. In fact, it'll be required a little bit later. So therefore, that capital was spent and included as part of our working capital, and that's what we're showing in the 69, right? In terms of commercial production, the... We have flexibility within our offtake agreements, and I've already mentioned this in our presentation, that we can call commercial production on a customer-by-customer basis. So we will make a series of announcements around commercial production in the foreseeable future, and we'll address that point. But it's not a requirement of anything specific. It's when we believe that it's our election, when we're ready and confident that we can supply into those contracts.

Our next question today comes from Hugo Nicolacci from Goldman Sachs. Hugo, please go ahead after the beep.

Morning, Tony, Adam, John, thanks for the update this morning and congrats on hitting some milestones. I just wanted to dig into a few points made earlier. Adam, you noted you've already processed 280,000 tonnes of material in the month of October. Appreciate, you know, we're probably jumping the gun on that outlook you're looking to provide in a couple of weeks, but any indications as to how you expect that ramp-up to progress over the next couple of months from here into next year?

Yeah, look, I think we had a target on tonnes of about eight months from start-up to nameplate, and we had, I think, about 15, between 12 and 15 months on the recovery curve. 15 to 18. Yeah, so... Notionally, we're well and truly in those bands of throughput. We're currently sort of processing at a rate of about 325 tonnes per hour versus a 380 sort of throughput rate. That's driven by the plant overall in terms of what we're chasing there is recovery and grind as opposed to just straight nameplate tonnes through whilst maintaining... grades north of 5% and keeping that iron level low. So that's the driver for the throughput. So that'll be progressively ramped up in a way that keeps us satisfying the con grade. In terms of recovery, anyone that's played with lithium knows it's not the easiest thing to chase those recoveries. We're not far off our peers already after two months of running. We're well and truly in the mid-50s and we're having days in excess of 60 already. um in a plant that that is basically brand new um some of our peers have taken 14 18 months to get to where we are today and we know that because we've had a look at other data so um i think we're traveling really well we've got a brand new team we've got a brand new plant um and i think we're uh we're well and truly in that sort of banding of um you know those sort of trajectories if you like in terms of both recovery and throughput that we put out there If we can get there faster, trust me, as the team will tell you over the weekend when I was sort of whipping them in a frenzy to put more out, we will. But at the same time, we've got to do it safely and we've got to do it sustainably. There's no point being one day wonders. We've got to be able to know what we're doing and know which levers we're pulling and what the outcomes are. So pretty much like we've done through the whole process from PFS to scoping, DFS. Very measured approach in a way that we can be sustainable about it.

Excellent. That's helpful, Kyle. I appreciate that. And then my other one was really just focusing on the timing of cash flows. Are you able to just give us a bit more information around the timing of payments you're expecting on your shipments? Obviously, you've had a deposit for the last shipment. Do you expect to get cash in the door when that's delivered to port, or is it a longer data in terms of cash coming in? And then any extra comments you can make on, I guess, cash going out the door in terms of working capital and other movements at the moment and completion on things like Paceplant and that that you've got coming up in the near term?

I'll sort of answer that with John's assistance. But in terms of revenue, the first shipment's revenue is in the bank. We've got that. Those contracts are done by letter of credit. So typically a letter of credit, once we supply the customer with the quality certification, which are done within three or four days of the ship leaving the port, we will then be able to draw on the letter of credit. So it's about 10 to 15 days is what we're seeing. So we've just shipped, as Adam said, on Friday, was it Friday? Yep, the 22,000 tonne shipment. And again, we will draw down on the letter of credit pretty soon once the quality certification comes through. So that's the sort of rhythm of the payments that we're getting. In terms of capital cost going forward and payments, we've got, or maybe I'll let you, John.

Yeah, no, thanks, Tony. I think the important thing to note here is that, firstly, there is no overspend on our project. We are bringing it in at the cost that we said we would. In relation to timeframes, we do, you know, there is some expenditure of that. There is some of those funds required for first production that we still have to pay for, but that's just the tail of the project is just taking longer to play out from a cash outflow point of view. But again, I'd make the point there is no increase in cost. We're doing what we said we would do there.

It's just finalising invoices and those sorts of things and agreeing on final contract numbers with the contractors.

Correct. And in terms of timeframe, what I would say to you is that the remaining cash outflow associated with the construction of the Kathleen Valley project will pretty much be done by the end of the December quarter.

Thank you. Our next question today comes from Levi Spree. Levi, please go ahead after the beep.

Yeah, g'day. Can you hear me? Loud and clear. Oh, great. G'day, Tony. Sorry about that. It just sounded a bit funny. Thanks for all that. So can I just confirm that last number, so the cash outflow this quarter for the remaining capital?

Yeah, certainly, Levi. So what we're looking at is we've got, you know, there's approximately $65 million to go, which is broken into two components. Basically, there's around about $50 million of cash payments to make associated with the cash payments to get us to first production. And then, as Tony mentioned, we've got, you know, we are continuing with the paste plant. That's not required for first production. And there's circa... $13 to $15 million remaining there, and we expect those from a cash flow point of view to have moved through and be dealt with pretty much by the end of the December quarter.

Yep, got it. Okay, thank you. Thanks very much. And just back to the optimise my plan question, so I guess when can we see it, and what What are the parts that are being optimised other than just a ramp up to the 3 million tonnes, not the 4 million tonnes?

Okay, there are about five different levers, Levi, that we're focusing on. So in the mine, we're looking at ultimate production. The second lever we look at is how do we get to the working, stoping fronts cheaper, so optimising development costs. The third lever we'll look at is what grades we are mining, so what is profitable and what is something that we will leave for the market rebound. The fourth thing we will look at is what is the optimal size of the mill and to meet the production coming out of the plant. And then finally, as we've spoken about, you know, what concentrate grade do we produce? Given our customers produce around 5.3 to 5.5, some of them produce four and a half. So that has a huge benefit for us as well. So they're broadly the levers that we're looking at. There are others too. Capital, like I've explained, we've got that slide that sort of breaks it down for you.

Yeah, I think to add to Tony's point, the key differentiator for us is that unlike an open pit mine with the underground we can actually target where we go whereas an open pit you've got to come from the top and work your way down and mine a lot of waste and you don't really have many options other than sort of diving down and grabbing a bit of cheeky oil but you've still got to come back and pull the waste down to get to it But with an underground, we can have a very targeted approach to chase both grade and tonnes per vertical metre, which is a key driver for the underground team and a key, I guess, advantage of our mine plan, especially from an underground perspective.

And I think the tonnes per vertical metre is very important. We want to be able to keep those jumbos fully utilised, 100%. So my plan going forward is all around maximising and maxing out the equipment utilisation. That's the first thing. The second thing is by going as hard as we have on both the open pit and the underground, to get to $3 million as quick as possible and then ultimately to $4 million. We invested in a tremendous amount of infrastructure up front. Our Paceville plant for $4 million is built. It's being commissioned. It's done. Our ventilation system has been, there's a lot of thought going forward, it's being put in today. So the main vent draft is going in and we've already done the decline drafts to provide ventilation down to over 100 metres. So there's a lot of stuff that we've done up front that we can now lean on in order to optimise the plan if we decide to pivot a new way.

Our next question today comes from Reg Spencer from Canaccord. Reg, please go ahead after the beep.

Thanks. Good morning, Tony and Adam and team. I just wanted to follow up on Levi's question a little bit. I presume you're going to tell me that I'm just going to have to be patient and wait for the results of your optimisation, but Those alternative production scenarios that you're contemplating as part of that optimisation, I presume that might include like a smaller, higher-grade style scenario or open pit only and slowly underground. I'm just curious how those alternatives might fit relative to where your fixed costs might be.

Hmm. Reg, there's a lot in that question. You do have to wait, but I will give you some insight. again, I've sort of been in this business a long, long time, you can fall into the trap that more tonnes are better because they dilute your fixed costs, right? So typically you can't dig yourself out of a cost position by simply increasing more tonnes, always. There may be an optimal throughput that balances your fixed costs but also... your overall costs. We're managing for cash. So we're looking at the sweet spot that gives us the best cash outcome. So that's why we don't want to rush into this. There are many levers we need to pull to give us the ideal go-forward case.

Roger that. If I could just ask one last question. You mentioned concentrate grade as one of those levers you could pull. Tony, I'm just curious about what the trade-off between additional cost and impact on your throughput to get a higher con grade and better pricing versus throughput tons and what appears to be new industry standards, say 5.3%, 5.4%. Again, perhaps I might have to wait for your optimisation study.

Yeah, it's a good question, Rich. I guess it's well known that if you produce a lower congrade, you typically get better recovery. and you can typically push more tonnes through. So what we've been doing, obviously our focus has been on actually making concentrate and getting it out the door and getting some income in. So that's our number one focus. But making it on grade, and that's anything north of five and targeting some low irons. What we're starting to do now is optimise around what grade we produce and what recovery benefits we do and don't get. The circuit's so new, the team is so new, that we actually, in all frankness, don't have a baseline yet as to what the levers do when we pull them. So, for instance, the last few days we've been getting very good recoveries but also making grades around 6%. We couldn't do that a month ago. So we're trying to build up that data book, if you like, or that library of saying, right, if we want to make a five con... What recovery uplift do we get? And then what does that mean in terms of throughput? And what does that mean in terms of actually going all the way back to what do we take off the ROM pad? So to answer your question, there is definitely a recovery uplift. There's definitely a con production uplift by dropping the grade, which everyone is aware of. We're just trying to determine what that is exactly and whether it's worth the squeeze.

But just one final point, Reg. If that strategy doesn't deliver more lithium units, then it makes no sense. Correct. Okay, so I think that's where you're heading. So we will look at it. If it provides more lithium units, we'll do it. Correct. Correct. We're not just doing it for practice.

Thanks. Our next question comes from Adam Baker from Macquarie. Adam, please go ahead after the beep.

Hi, Tony and team. Thanks for that update on the remaining cash outflow for the December quarter. I assume that the $65 million, does that exclude the costs associated with open pit mining as well as the underground development? And if it does, what do you expect those costs to be for the December quarter?

So, Adam, are you talking about the bar that was $52 million on that waterfall? Because that does include the open pit costs. So, Adam.

No, no, no. This is for the December quarter moving forward. Yeah. So moving forward, Adam, it depends on the sort of mining optimization work that we will present. But what we tried to do in that waterfall is to demonstrate to the market, you know, what is recurring operating costs going forward. And what is non-recurring project capex that will cease by, you know, December, by the end of December? So the $52 million that we've got there, I think there's another $29 million, right, which is development for the underground, sort of gives you a broad brush of what typically should be go forward. But we've made that comment in the slide that once those project capex come out, we will get to what we believe is the more normalised operating system and cash cost profile. But again, this could all change once we come up with our revised plans.

Got it. Yeah. So assuming, you know, underground development rates increase a little bit, it'll be, you know, similar to that $29 million, if not a little bit more moving forward. And that'll be dependent on, obviously, how much development that you're putting through. So that's clear. Thanks. And maybe just on the all milled grades, is that something that you'll be looking at reporting in the future? And maybe, you know, how has that been reconciling to, to the block model.

Yeah, I think currently we're running about 80% in terms of the reconciliation to the block model. I think it's a rough rule of thumb. That has improved significantly as the pit has got through the, what would you call it, the stringy zones to be well north of 80. And now we're in the flat-lying zones, which we always expected. And in some months, I think we've had a positive reconciliation, just to give you a feel for where it's going. So it's a bit of a moving fest, but it is tracked. And we are getting good, I guess, reconciliation in terms of tons and also grade. Mill feed grade has varied. And we're playing with that a fair bit in terms of how we set it up. I think we're running about 12 fingers currently on the ROM pad. And blending and understanding the impact of the host rock or the gabbro, as we call it, has been a key focus for the last month.

But I think there's a couple of points that I would add to that, Adam. Firstly, we all know the better grade we put through the plant, the better the performance in recovery, and we've seen it. Second thing is, you know, we're eight to nine weeks into production. We're still, I think fair to say, getting our feet in terms of operating disciplines. So managing that ROM pad, getting the operators to understand how to cook the recipe in order to feed the ROM is still work that we're doing and improving on. So we've got to have a bit more time. We don't have the benefit of many of our competitors have been operating for years. We're doing it at warp speed. And finally, in terms of ongoing reporting of grade, mine grade and ROM grade. We want to be transparent to the market, and as I said, we will be without cost. But do our competitors report their mine grades on a quarterly basis?

Yeah, a lot of them do, just on the mill grades going through the mill. I'll have to look at that. Yeah, we can circle back.

I'll have to look at that.

Thanks, Tony. Thank you. Our next question comes from Sam Catalano from Wilson's Advisory. Sam, please go ahead after the beep.

Yeah, hi, good morning, Tony and team. Thanks very much. And I think, yeah, very well done as the first eight or nine weeks. I think what's clear from the questions this morning is that we as an ALIS community are probably trying to draw far too many conclusions from eight or nine weeks of operations, which have seemingly gone well. But I'll probably add to that theme and just sort of push you a little bit more on the question that Adam asked earlier. So if we assume for the next quarter that 81 plus 69 in your waterfall chart effectively becomes 65-ish, if you double output in the fourth quarter, you know, to say 50,000, 55,000 tonnes of con, would the 52... And the 29 double? Or would you think they'd be closer to where they are now?

That's an interesting question. I mean, obviously a large component of our cost base is fixed. So no, I wouldn't expect it to double. I mean, there might be, I'd probably have to take that question slightly unnoticed, but I certainly would not expect it to double given the high fixed cost nature of our cost base. Obviously, you know, there may be a slight increase, but certainly would not expect it to double.

And Sam, the other point is we are getting revenues. So you've got to look at that side of the equation too.

Yeah, yeah, of course. Thank you, guys.

Thank you, Sam. Our next question today is a text question. In the context of Rio's takeover, has there been M&A interest in Liontown specifically?

I'll let you answer this one. Look, in terms of the Rio transaction in the sector, our view in Liontown is it's positive. When you have a multinational as big as Rio, providing what I feel is, as the bankers call it, a thematic reinforcement, that's going to be good. To have someone the size of Rio in as a supplier will also sort of help balance the power between, you know, suppliers and OEMs and battery producers that are far bigger than the current supplier suite. And finally, as it relates to Liontown, no.

Thanks. Our next question is another text question. What strategies is management implementing for the sale of tantalum?

Yes. We have an arrangement with a major tantalum consumer and we are selling it to them on a spot basis. So that's what we're doing with tantalum. But the ultimate objective is to put in place long-term contracts which we have had an initial round of discussions with a number of players, and we continue to do so. But the current production is being sold to one of those players on a spot basis.

Thanks. And our final question for today, how many long-term share... Sorry, I'll start again. To finish off, you have many long-term shareholders that have been with LTR over the journey. While the current market conditions look challenging... Can you give us confidence in our tier one quality to pull us through to the other side?

Well, firstly, and I'm hoping a few of them are listening, the management team, the board, and I know the chair very much so, values the support and the conviction that the retail investors have put into Liontown. I have personally spoken to a number of them and we couldn't ask for a better and more loyal suite of shareholders as opposed to maybe some of the investment funds. So we wanna do our very best and we are working 24 seven to ensure that their investment is sound and will continue to be so. We have a world-class oil body. There is unquestionably support around that. And also we've built a world-class plant Adam and the team have done a tremendous job. So we're confident. So thank you for your support.

Thank you very much. That does conclude today's call. Thank you for your time and have a great day. Please reach out to the Liontown team if you have any follow-up questions.