Liontown Resources Limited

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Welcome to the Liontown March quarterly call. 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 a Speak button at the top of the broadcast window. The broadcast will be replaced by the audio question screen. Use the dial-in number and access pin provided to ask your question via the phone. Alternatively, for those on a home or personal network, you can ask your questions via the web by pressing Join Queue. If prompted, select Allow in the pop-up screen to grant access to your microphone. If you have any issues using the platform, dial-in details can also be found on the homepage under Asking Audio Questions. Text questions can be submitted at any time, and the audio queue is now open. I will now hand over to Tony Ottaviano, Managing Director and Chief Executive Officer of Liontown.

Thank you, Lisa, and good morning, everyone. Before I launch into the presentation, I'd just like to introduce who else is going to accompany me on this presentation. There's Ryan Hare, Chief Operating Officer. We've got Greg Jason, our CFO, and we've also got Grant Donald, our Chief Commercial Officer. I'll start by saying this is a defining quarter for Liontown. So if we go to the next slide, please look up. There are five things I want you to take away from today and mirroring what's been said on this slide. So firstly, cash on hand grew by $33 million this quarter, closing at $424 million. Operating cash flow alone was $55 million, and Greg will show this in a later slide. And for the first time since production commenced, the operating cash flow funded the business in full. After capital investment in the asset and net financing flows, we will still end the quarter well ahead. This is the strongest financial quarter since production commenced. It's also worth noting that the port of Geraldton was closed for several days at the end of the quarter due to the cyclone threat by Cyclone Narelle. That delayed two of our shipments. One slipped into April and the other departed in the last day of March. The cash receipts associated with that 31st of March shipment was approximately $64 million. So the underlying cash generating capacity of the business this quarter was even stronger than the reported $33 million. Secondly, the market conditions are strong and our realised pricing reflects that. Our average realized price for the quarter was $1,845 per dry metric ton on an SE6 equivalent basis, up 87% quarter-on-quarter. The structural setup in the lithium market is compelling, and we're now capturing this through our contracted sales. And again, Grant will go through the market in some detail in his section. We are delivering on plan. We've achieved our 1.5 million tonne per annum underground run rate target early in the quarter, ahead of schedule. The wrap-up is tracking to plan, the all-body is performing as modelled, and the great reconciliation against the resource model remains strong. Again, Ryan will go through this in some detail in his section. Fourthly, costs remain on track. Unit operating costs for the quarter were $981 per tonne, and we're within our FY26 guidance range. We're continuing to manage the ramp-up, the transition through a variable feed mix, and the fuel crisis by ensuring our business optimisation focus remains strong and disciplined. And finally, the pathway to 70% recovery is now confirmed. We've demonstrated 70% recovery on clean oil, underground oil, as we had planned and as we have... identified to the market. This is sustained across the first three weeks of April. The plant is performing as designed and as expected. Now let me go through a little bit more detail in the next slide please. This slide gives you the quarter at a glance and as the subtitle says we are delivering on all fronts as the underground ramp up continues. Let me walk through each of the tiles for you. We've had production of 96,000 tonnes. And as we highlighted in our half-year results, Q3 had fewer calendar days and we ran a planned plant shutdown during that period. So production is on track. We've had sales of 84,000 tonnes across five parcels. We finished a quarter with significant inventory and port, around 26,000 tonnes of saleable contracts. And as I mentioned earlier, The inventory build reflects the Cyclone Norell impact at Geraldton. It's a timing issue, not a market issue. Pricing, I've already spoken about the $1,845 a tonne, and the cost, unit operating cost of $981 per tonne, and this is a fully loaded unit operating cost. It has leasing costs in there, inventory movements. It's a fully loaded unit operating cost. Consistent with our prior disclosure around unit operating costs, we want to make sure that we are being compared on an apple-for-apple basis. It's an 8% increase on Q2, reflecting the transitional feed mix and the ramp-up. This remains within our FY26 guidance range. Finally, the cash. And again, the headline number of $424 million. is the $33 million of positive net cash flow generated this quarter. And I've already mentioned around the operating cash flow for the first time fully funding our business. As the banner shows, FY26 guidance is maintained across all metrics, production, costs, all in sustaining and capital expenditure. I'll now move on to Ryan to give us... the health and safety and environment update.

Thanks Tony. So I am on site today, Kathleen Valley, so apologies in advance if there's any unintended background noise. Our renewable power penetration held at 85% for the quarter, reflecting the investment in our wind, solar and battery hybrid system and reducing our exposure to gas and diesel. On safety, whilst our TRIFA has moved from 11.55 to 10.53, that movement is well within normal variation on a quarter to quarter basis. We're not reading anything into it and we're continuing to stay focused on building a safety culture that prevents injuries and reduces high potential incidents. A healthy level of safety observations is a leading indicator of engagement and we want to continue to see this indicator and the quality of safety interactions continue to build. Next slide, thank you. So I'll now walk through the operational story for the quarter, starting with mining. As Tony indicated, we hit our 1.5 million tonnes random underground run rate ahead of schedule. The target was set for the end of March. We achieved it early and sustained it through the quarter. 402,000 tonnes mined, up 31% on Q2. As we've highlighted previously, and as Tony mentioned, the ore body continues to perform as expected with grade reconciliation and stoke dilution outcomes in line with expectations. Our fleet capacity continues to build. An additional jumbo, an additional haul truck arrived and went into production during the quarter, lifting both development and haulage capacity. This improvement and increase in fleet capability will continue, particularly as we get into developing the new development areas for the expansion in the Northwest Slate soil body. Looking forward, ongoing level development will unlock wider ozones. The next material step-up in our extraction rates is expected in Q2 FY27, as we ramp towards the 2.8mton run rate by the end of FY27. Next slide, thank you. Turning now to the plants, the plant performance this quarter reflects exactly what we expect at this point in the open pit to underground transition. Plant availability was 90%, reflecting the planned shutdown schedule. Combined with fewer calendar days in the quarter, we processed 614,000 tonnes and producing 96,000 tonnes of concentrate. Global recovery for the quarter was 61%. Through Q3, the underground to open pit feed split was similar to Q2, but the quality of the open fit material was lower than the previous quarter, leading to a slightly lower recovery. As Tony did mention in his opening remarks, at the quarter end and into the first part of April, while processing clean underground ore, the plant delivered 70% recovery, exactly what it was designed to do. As was said in previous updates, plant recovery is fundamentally a function of the feed mix. Looking forward, the feed mix will be predominantly underground, with the remaining open-pit stockpiles blended in during FY27 and quarter four of this year. Turning to the next slide, I'll explain the recovery trajectory in a bit more detail. So on recovery, if we look reading left to right, across the full March quarter, the underground mix was 48% and recovery, as we've said, was 61%. For the whole of the March period, March month I should say, Underground stepped up to 60% of the feed and Recovery lifted to 64%. And in the first three weeks of April, Underground was 67% of feed and Recovery had been running steady at 70%. These results are very clear. As Underground will become the dominant source across Q4 and beyond, which it is now, we expect to sustain that 70% recovery target. It validates the recovery pathway that we have been outlining for some time and underpins our confidence in delivering FY26 guidance, which we reiterated today. With that, I'll hand back to Tony to talk about guidance in more detail.

Thank you, Ryan. So, guidance is maintained across all metrics, as I alluded to in my opening presentation. Concentrate reduction guidance between 365 to 450,000 tonnes is maintained and so are the unit operating costs and all-in sustaining costs. This is against a backdrop of fairly challenging conditions through the geopolitical unrest and the headwinds we're receiving from the various fuel-related input costs. There are Three forward-looking statements that I'd want to, that's worth flagging. Firstly, the feed mix is transitioning. Underground oil, as Ryan has explained today, is expected to be the dominant feed source in Q4. And we're already seeing this trend accelerate. In the first three weeks of April, we've seen the recovery improvement. Second point that I want to note is the FY26 guidance has been maintained despite the geopolitical headwinds which I've alluded to but I think the rising fuel prices have had minimal impact on Q3 costs but our business optimisation focus remains strong and disciplined as I said in my opening and we will continue to look at ways of mitigating any of those headwinds to the best we can. Thirdly, And this is an important point. We're reviewing the 2027 costs through our budget process. That's ongoing right now and we're working through both the geopolitical issues and how they have an impact on AFY27 budget, but also the interaction of the planned brownfield expansion that we mentioned in our announcement the other day around the early works. How that interaction goes with the brownfield expansion in an operating plant and we will establish that as part of our study work and its impact on the budget when we announce the scope and the feasibility study at the end of September quarter. Then on the early works piece, the early works and long lead-up procurement has just been announced. for the Kathleen Valley expansion. These are additional to the current FY26 guidance on CapEx. They're not embedded in the unit cost or capital numbers we issued at the start of the year. We expect the $15 to $18 million that we've mentioned, expansion-related capital spendage in FY26, separate from the figures on this slide. And I will cover those numbers in a little bit more detail in the expansion slide. So to the next one, please. I'll now hand over to Greg Jason, our CFO.

Thank you, Tony. Good morning, good afternoon, everyone, depending on where you are in the country. I'm going to begin with this cash flow slide. As Tony said, quarter three was the strongest financial quarter we've had since production commenced, with operating activities funding all investing and financing cash flows to give us a net cash flow of $33 million. Operating cash flow improved significantly again from breakeven in quarter two to $55 million for this quarter. We had $165 million in receipts, which was a $37 million increase on the prior quarter, and it reflected the higher realized prices. As Tony also said, we'd have had another $64 million in the quarter if Cyclone Narelle hadn't delayed its shipment until 31st of March, and we subsequently received $64 million Aussie in April. Production and other operating cash costs decreased to $113 million, and that reflects the completion of open pit activities and the fact that the underground mine is still ramping up to $2.8 million by the end of FY2027, and so therefore the amount of mining costs hasn't taken the place of the open pit that's come to an end. We had $22 million of growth capex in the quarter, a very similar amount to Q2, and again it predominantly related to underground development, $4 million in sustaining capex was a couple of million dollars higher than the prior quarter, with different projects being executed across those two quarters. We received a $10 million refund from EFA, and that reduced a security bond arrangement with Zena for the Kathleen Valley Power Station. There's still $10 million of bonds related to that. We closed the quarter with $424 million of cash, 26,000 tonnes of saleable product in inventory, I know it's old news, but we also recorded the LGES conversion of debt into equity. There was $482 million of liabilities in debt and derivatives at 31 December that were removed from our balance sheet in February. So our net cash at 31 March was $61 million Aussie. Of course, that puts us in a really strong position for the continued ramp-up, the expansion that we talked about in the announcement yesterday, and other growth projects. Could you please move to the next slide, which is the quarterly financial metrics? So, looking at the other metrics beyond the cash, our revenue increased by just over 50% to $197 million. The increase in realized price significantly outweighed the reduction in tunnel ships during this period. The cyclone also caused a 12,000-ton parcel to be delayed from March until April, and so there was almost $30 million of revenue that moved from March to April because of that delay. Tony's talked about the increase in realized price, 87% on an SZ6 equivalent basis. The Aussie dollar equivalent was a bit lower because of appreciation of the Australian dollar relative to the US. And as always, the realized price, 1845, reflects the contract mix, the exposure to different indices, the mix of QPs, some of which are forward and some of which are backward looking. They had a $71 increase in the unit operating costs to $981, and that was fundamentally driven by the lower production tons, which in turn was driven by the feed mix, as Ryan talked about. Fuel prices had a minimal impact on unit costs during the quarter. Our supply is contracted. It has not been interrupted to date. Like everyone, we continue to watch it closely. and we are maintaining four-year guidance of unit operating cost $8.55 to $1,045. All-in sustaining went up by $192 to $1,251. The unit operating cost impact to $71 flowed into that. We had almost $80 per tonne higher induced by the higher price driving higher royalties, a couple of million dollars of extra capex in sustaining, and the lower tonnes accounts for the rest of the difference I now pass back to Grant or to Tony to talk about the market outlook. Thanks Greg.

If we can go to the next slide, thank you. Look, the market has been very strong during the quarter. We've seen significant physical tightness in the market, which is demonstrated by the drawdown in weekly lithium carbonate inventories you can see in the chart on the top right here. Even more pronounced when you convert this from total funds to days of inventory. As the market's grown, typically the market sat at around 40 to 45 days worth of inventories. We're now down below one month, well below one month of inventories. And this is, I guess, against the normal seasonality you would see in this time of year. as you can see from the chart in the yellow line that's deviating from the prior years. This has been exacerbated by some supply disruption, which continues to create uncertainty, both in terms of volume and also in terms of restart timelines. Grindfield restarts will start to come in towards the second half of this year. This is really the only source of new supply with any near-term prospectivity, with greenfield supply taking three to five years of permitting, financing, and construction to come into the market. On the demand side, we've, as I said, seen very strong demand from customers, and we're just back from a trip to China where I think the demand continues to be extremely robust with an ability for us to place many more tons than we actually produce in this current outlook. I think, importantly, we're also seeing a significant increase in pack sizes, across vehicles in China and globally. This is actually accelerating lithium demand over and above pure EV sales growth. We have also benefited from the uncertainty and increased fuel prices in terms of that having an impact of driving increased EV demand. We've seen that in local markets, but we've also seen that phenomenon globally. And this is, in my view, not just short-term factor that goes away when oil prices go back to normal, but is a fundamental step shift in demand profile for EVs and electrification. And with that, I'll hand back to Tony.

Thanks, Grant. so a good segue strong market is the commitment we've made as a company to the early works for kathleen valley expansion so yesterday we announced we were proceeding with the early works and long lead item procurement for the kathleen valley expansion this is the head of fid which we plan to publish at the end of quarter one fy 2027. Now, there's two elements to this. There's a strategic rationale, which I'll talk about in a minute, but there's also a risk mitigation rationale. Committing to the long-lead items and mobilising the team now mitigate schedule risk and equipment pricing risk in a tightening market. And we've seen the impacts already start to percolate through from the fuel crisis. We want to get ahead of that. It supports a robust capital cost estimate at FID by having some of these early things put away and position us to execute immediately once the board approves the expansion. The committed program is set on this particular slide. It has six elements covering the ball mill, which is a critical piece and part of the critical part, pre-development drilling, underground development at Northwest Flats, which we've been flagging to the market for some time about the optionality that gives us, plus accessing it from the bottom of the open pit, as this diagram here indicates. There's also stage one of the permanent mine services area, which was a piece of infrastructure that we deferred during development the downturn in an attempt to preserve capital. And then there's the third pace pump that we want to put in to allow us to feed both Northwest Flats and Mount Man simultaneously. Now, there's the capital component. We've mentioned that these early works is between $15 to $18 million, and we're going to commit about $77 million of capital expenditure ahead of FID. And further capital and operating cost details we'll provide you in the FIV announcement. Then finally, the strategic logic. I mean, expansion at Tappling Valley is currently our most value accretive growth option. These commitments lay the foundation that the growth will full grow and demonstrate our confidence in both the market and more importantly, the operation. So if I go to the final slide, please. So just to recap the overall presentation, I won't go through each of these, but just to say that if I, in closing, Liontown is now a producing, cash-generating, self-funded Tier 1 lithium operation. We've simplified our balance sheet. The market is structurally tightening and we have a defined pathway to expansion with the early works program underway. The team is now building for what comes next. We enter the June quarter with genuine momentum. So on that point, I now turn to some Q&A and I'm happy to answer it with the team.

Thanks, Tony. If you have not yet submitted your tech 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 that your microphone is live. We will limit questions to two per caller. Our first question comes from Austin Yoon of Macquarie. Austin, please go ahead. Hi.

Thank you. Morning, Tony, Ryan, the team. Just two questions. The first one is on the run rate, good to see. It's already running at a 1.5 meeting time underground. How should we think about the continual ground path? Is that a step change or is that kind of a linear from now to your target? Thank you.

Austin, I'll let Ryan give you his response.

Yeah, thanks, Tony. Thanks, Austin. So, I think the best way to think about this, Austin, is that over the next two quarters, we will be consolidating this run rate. So I think part of what we wanted to demonstrate was that, in fact, if you do the math slightly ahead of the 1.5, at the 1.6 rate for the quarter, we'll consolidate that over the next two quarters as we continue to develop out the levels below. And so, as we've said in the announcement, From quarter two, FY27, you'll see another step change, and from that point, think about it as fairly linear. So we'll have developed those levels, and then that'll continue to ramp to 2.8 by the end of the FY.

Thank you. That's clear. Second one is just on the recovery performance. I understand this quarter was impacted by the S&P mix. and the early numbers that is already showing a marked improvement in April. I was just keen to understand, when you switch to 100% of the clean high-grade oil from underground, what kind of achievable recovery rate you'll be looking at? Can we get close to 75% or 78%? Thank you. Yeah, thanks, Austin.

That's a good question. So what I would say in answering that is that what we're trying to provide that... in that slide which shows the 67% undergrounds and 70% recovery, that is actually a bling. So that's actually got effectively two-thirds underground, one-third open pit material and 70%. So I think it's fair to extrapolate from that at 100% clean ore that it is higher than 70%. I think you'd be fully aware of our VFS around that kind of mid, maybe creeping into the high 70s. I still think that the plant is capable of doing that and on any given day on a clean underground mix, the plant does demonstrate that. Again, for those who run these types of plants or who observe how they run, doing that consistently is what we're focused on. And so I think in the longer term, you can assume that we'll be higher than the 76 and trending towards the DFS numbers over time.

Thank you. Our next question is from Stuart Howe of Bell Potter Securities. Stuart, please go ahead.

Thanks, Tony. Just on guidance, it's unchanged for production, and if you look at year-to-date, it implies quite a wide range for Q4. Just wondering, you know, what are some of the risks for parents to maintain such a wide range for Q4?

Thanks, Dewey, for the question. Look, for us, you know, we've got three quarters of actuals, so you've got one more quarter left, and we can extrapolate basically where we'll fall within guidance. To us, we are still transitioning, as Ryan has already mentioned, and we're still ramping up, so we're quite confident with that guidance.

Okay, and just secondly from me, on fuel supply, you noted that it's all secured under contract and remains uninterrupted. I guess, can you talk a little bit more about this? Is there anything to give us further comfort that you will have security to supply and perhaps some sensitivities if you've arranged any.

Okay, that's also a good question, Stu. I'll break it up into two parts. I'll answer the first bit and then I'll get Ryan or Greg can jump in on a few metrics. For us, what has been crucial, and I think it's been a systematic strategy from the get-go, we wanted to partner with major strategic partners in the supply and construction of our operation. So our fuel contract is with Viva, and so they're a tier one producer, and therefore we've got confidence in their schedule. Equally, our transportation is done by Cube. primarily for our product, and there are a number of others that do the supply of our consumables to site. Again, Cube has the size and the scale to manage their fuel supply, so we're very confident that they will continue to produce. So partnering with these large partners under proper contracts has served us good to this stage. Now, in terms of some of the financials, maybe I'll turn to you, Greg. Yeah.

So when we looked at the diesel, as Tane says, the small component relative to the overall business because of the renewable power generation that we have, but nonetheless, we do have that cost. And it was sub a couple of percentage points of our cost base before the Middle East crisis drove price increases, and on a $1 per tonne basis, approximately $1 per litre on diesel or Jet A1, which impacts the aviation for the charter flights, is worth somewhere around $25 to $30 per tonne unit operating cost to finish product. So that's for as long as it prevails.

Thank you. Our next question is from Jacob Lee for Sarah and Joey. Jacob, please go ahead.

Morning. Hey, morning, Tony, Ryan, team. Could you please provide some early color into your thinking around pathways to 4 million times per annum expansion? If 4 million times per annum is still the number, I guess my question is in two parts. First, you talked to a capital efficient incremental debacle-making process previously. Apparently, you've got key approvals and major infrastructure in place with some additional times you can unlock from Mountain Man and Northwest Flats, which were part of your original 3 million pound plant before full expansion. Then I guess what about other lead items to 4 million, 10,000, a million, in addition to ball mill, paste pump, you've already committed to, i.e. ventilation raises, paste fill plant work, water, et cetera. In the last update, I think we talked about 100 million for the process plant and 150 for the mine development. Is that still the right ballpark? Sorry, don't want to sort of front-run this, just wanted to get some early color into your thinking around your pathway to forming a compound and expansion, please.

Thanks. Okay. Well, there was a lot in that question, so thank you for that. What I will say on the CapEx side is I'm not going to do any early predictions. We're going to let the guys do the work, guys and girls do the work, and properly, given how dynamic the market is, properly scope this and properly analyze the capital and operating costs. So we'll give you that when we're ready in Q1 of next year, financial year. In terms of how we, you know, what's the ultimate number? Well, again, that's part of the study, right? And capital costs, what I will say is when we published those numbers you quoted, that was in the DFS. That's five years ago. So I'll leave it to you to decide whether there's any inflation on that number. And in our capital costs, there will be costs associated with the expansion. There's costs in these early works around accelerating. And when we did the Northwest Flats piece, it wasn't just a service to 3 million tonnes. It was also... to develop the operations for the 4 million because we were going straight from 3 to 4. So when the downturn came, we mothballed Northwest Flats. So I think to answer your question in conclusion, you've got to let us do the work first.

Yeah, okay. Thanks, Tony. Okay, just a follow-up. Is there an opportunity to sort of unlock 3 million compounding in the next one or two years before the full expansion was probably my question just now?

Thanks. Okay. Sorry, as I said, there was a lot in that question, so I apologize if I missed that bit. I think the nature of this expansion that we've already identified to the market is this you know, de-bottleneck unlock capacity, de-bottleneck unlock capacity. And things like, you know, buying some more flotation cells, which is part of the area that needs upgrading, will deliver that. Putting the ball mill will deliver that. So if you're saying to me, is there a possibility to go to 3 million tonnes in the next couple of years? Well, it all depends on the underground ramp-up, because we've said the underground ramp-up will be at 2.8 million tonnes per year run rate at the end of financial year 27. So we're mine constrained until that point is reached, and then beyond that, we'll unlock more capacity as we unlock more capacity from the underground.

That's clear. Thanks, Tommy. Appreciate it.

Thank you. And our next question comes from Ben Lyons of Jarden Securities. Ben, please go ahead.

Thank you. G'day Tony. Yeah, maybe just further on that last question. You have to talk about the mine constraints, but you've still got a heap of the OSP material. From memory, it's around about a million tonnes that you've still got on hand and presumably You just balance that versus that sort of 1.5, 1.6 run rate that's coming out of the underground, so you can still run the plant, let's call it, I don't know, 2.5, 2.6 capacity, allowing for your shutdowns and maintenance. Is that the right way to think about it, just a consistent processing of the OSP, which supplements every time it comes out of the underground for the next 12 months or so?

Thanks Ben. Not exactly. The stockpile of OSP has been reduced substantially in order to get to us to where we are now. So we're going to be less reliant on OSP stockpiles going forward and therefore that's why there's a gradual, that's why we're saying FY27, end of FY27 for 2.8. So it won't be supplementing the feed right up until that point.

Okay. Cool. Do you have a sense for, you know, is it like maybe 800,000 tonnes remaining or 600, 700?

I'll let Ryan answer that. I'll let Ryan answer that.

Yeah, so at this stage, we've got a little under 400,000 tonnes of OSP remaining and... post-sorting, bearing in mind that part of the sorting process separates the ore and waste, and so the actual except speed will be somewhat lower than that. So it's probably circa 200,000 to 250,000 tonnes. So as Tony's indicated, we will continue to feed that OSP excepts material through the plant, and that will kind of be blended in with the underground, but that will not last until we've fully ramped up the underground mine. Ben, I hope that makes sense.

Thank you. As we have no more questions in the queue, I'll now hand back to Tony for closing remarks.

Thanks, Luca. In closing... For me, the numbers this quarter reflect timing and not trajectory. The cyclone closed the port of Geraldton, which would have made our numbers even stronger than they are today. We're looking forward to the next quarter and the next 12 months. There's a lot of work going to be planned with the expansion and further growth. So we're very strong and we're fully committed to the next phase of our operations. So thank you everyone for listening and I thank my team for the hard work that's gone into producing today's materials and the results.