Mineral Resources Limited

Thank you for standing by and welcome to Mineral Resources Analyst Call covering today's release of its December 2024 Exploration and Mining Activity Report. Your speakers today are Mark Wilson, Chief Financial Officer, Mike Gray, Chief Executive, Mining Services, and Chris Chong, General Manager, Investor Relations. A bit of admin before we kick off. This is a sell-side call with analysts able to ask both text and live audio questions. To ask a text question, select the messaging icon, type your question in the box towards the top of the screen and then 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 homepage under Asking Audio Questions. Text questions can be submitted at any time, and the audio queue is now open. This call is being recorded, with a written transcript being uploaded to the MINRES website later today. I will now hand over to the MINRES team.

Thanks Josh and good morning everyone. It's Mark Wilson, Minres CFO here. Welcome to the December quarterly conference call and thank you for your interest in Minres. I have with me this morning Mike Bray, our CEO of Mining Services and Chris Chong, our GM of IR with me. I intend to run through a few highlights first and then we're happy to take questions at the end. In terms of our summary of where we are for the quarter and for the half, starting with governance, I'm just going to say up front that you'll appreciate I can't comment further on governance matters or answer any questions on this subject today. Moving on to focusing on the highlights from the quarterly. In terms of our liquidity, that's been a key topic of focus for some time. Liquidity remains very strong. We've got $1.5 billion as of the end of December, and sitting in that balance is a $1.8 million revolving credit facility. Of note, our onslaught line carry loan, which is a receivable from MIMRES from our JV partners, which is created as we funded them into the project, has now increased to a touch under $800 million. This receivable is accruing interest at around 7.25% and it's repaid from 80% of the JV Partners free cash flow. That means that we're effectively reaping over 90% of free cash flow related to the Oslo mining operations for the first few years. But note the carry loan has started to be repaid as the mine itself is now generating positive cash flow. I'll talk on that a little bit later. The 31 December net debt total $5.1 billion. Major inflows. We received both the $1.1 billion upfront cash from the sale of the 49% stake in the road and also the initial proceeds of $780 million for the Hancock gas sale were received in the quarter. Both are significant achievements and, as I've said previously, previously demonstrated our ability to realise capital from underappreciated assets. In terms of major outflows, as previously foreshadowed, CapEx was heavily weighted for the first half, came in at about $1.4 billion, largely due to the completion of the major infrastructure for Onslow. There was a working capital impact of around $500 million, primarily to a decrease in trade payables. That wasn't unexpected given CapEx was always going to peak through this half, and you're just seeing an unwind of less payables. Additionally, in the half, we had the $200 million final payment for Red Hill Iron ore, once we got first ore on ship. and a further payment, sorry, a payment of $26 million in relation to the IV Iron Valley acquisition. Headline net debt numbers adversely impacted by the $300 million revaluation about US bonds of about $3 billion. That was a balanced state revaluation at an exchange rate of $0.62 compared to the $0.66 presented by this at 30 June 24. As you would understand, that's a point-in-time accounting calculation rather than any real adverse impact on the group. We have US dollar earnings that balance that, and the lower AUD is actually welcome for us. In terms of the bonds, if you haven't checked recently, they continue to trade very well, continue to trade with strong support from our bondholders, well above par. And just to reiterate that we have no financial maintenance covenants of any kind on those instruments with the earliest maturity in May 27. In terms of safety, the rolling 12-month TRIFA was 3.83 and the LTIFR was 0.21. The increase in the TRIFA is due to the construction activities and the intense level of work that was going on through the period. We're expecting that number to come down as construction lines off. And just to reiterate, as I said last time, safety remains our priority and we know it's important for our people, it's important for who we are as a business and it's important for our clients as well. In terms of our outlook, we're maintaining volume and cost guidance for all of our continuing operations. We did have higher costs in the first half across a number of the operations, which I foreshadowed on the last call, and I'll talk through that in a little bit. We did also talk back in September of 2020 CapEx and OpEx savings, 180 of CapEx and 120 of OpEx. In terms of the OpEx savings, we've made good progress there. We're now up to about 1,200 roles that have left the business across head office and sites since the start of FY25. That's a considerable increase from where we were at the last call. Those numbers reflect the wind-down of the construction activities, the transition of Boyle Hill and Yorga into Cairn Maintenance. Some roster changes as previously foreshadowed with lithium and a commensurate reduction in head office staff. So comfortable where we are on the APEX. On the CAPEX savings, we have made progress with the CAPEX. What I'm going to say on the CapEx is we're going to provide more detail at the half because we're still working through it. When we made that call around the savings, that predated the deal with Hancock. I think that the deal with Hancock gives us a bit more flexibility to think about how we might spend a little bit, particularly on gas. So you might see some more drilling costs, which again we'll talk about in February as we work through that. In terms of moving into the business now, mining services, production volumes were flat quarter on quarter at 68 million tonnes. We did see volumes come up with Onslow and some external work largely offset by Yule Gardens, Walthill going into Caron Maintenance. In terms of guidance, as I said, maintaining guidance, we expect volumes will continue to increase as Onslow ramps up. And a point of note on the external environment, I know that's been of interest to our investors. The external environment, the outlook remains positive. We've got good interest with a number of opportunities we're exploring with our key clients. We commenced two new external client contracts in the quarter. One was for rehab and one for mining. And we also renewed four existing external crushing contracts. In terms of iron ore, attributable iron production, iron ore production across the three hubs was 8 million tonnes for shipments of 5.2 tonnes. The average quarterly realised price across the three hubs was 84 US a tonne, which was 81% realisation. There are a couple of percent attributable to prior period adjustments. Without those, it would have been around 83%. In terms of Onslow, so we're pleased with the way Onslow is continuing to progress. The average realised price for Onslow was... $85 US a tonne, which is an 82% realisation. Customer feedback's been very positive. In terms of the operations, as I said earlier, the mine, well, the carry loan's now being repaid. The mine itself is, mining operations are profitable. Mineco is profitable. and generating cash and mining services continues to generate cash out of that operation. So the operations there are performing as we would have hoped. We believe we're now at peak leverage with that maxing out of the CapEx spend through the half. Over the quarter, we produced 4.4 million tonnes, which represents an annualised run rate of 17.6 million tonnes. Just to note that that's done with effectively two crushes operating, the third one's in the final throes of commissioning. January production, we are expecting to be... at least 1.6 million tonnes, which is a production rate annualised of just over 19 million tonnes. And again, we'll see the benefits of the third crusher really kick in through February and beyond. Third transshipper started in October, loaded 18 vessels and 3.10 million tonnes shipped over the border. January shipments were running at over 18 million tonne run rate before we got hit by severe tropical cyclone Sean. That was a somewhat unusual cyclone in terms of its nature and the direction it took. It basically disrupted transhipping for eight days. And we have identified the need to do some rectification works to limited sections of the road. to repair flood damage caused by the cyclone and a separate recent heavy rainfall event. The amount of water that moves up in that region is quite extraordinary in this instance. And I'm sure Mike can provide further flavor if you have any questions on that. The third next-gen crusher, the reclaimer, Truck loadout will commence commissioning in December. We're very happy with the way each of those is progressing. The transshippers are operating at nameplate capacity. Fourth is scheduled to arrive in February and the fifth is expected in April. The truck unloading circuit, product handling, shed, the bridge reclaimer and the transshipper loader are all complete and each have demonstrated they can achieve nameplate capacity raise. I just want to take a moment to talk about the road train rollovers that occurred in the December quarter, or in the half actually. There were four different incidents between August and November. One of these occurred on the Hall Road, and the others occurred on various access roads around the mine. Hall Road's been operational since late October, and there have been no incidents in December or January. All incidents involve some degree of operator error, but notwithstanding this, our response has been intense. We've included a number of operational improvements, strengthening driver training, looking at the road design, making some improvements, and improving signage and lane delineation. We feel that we're in a good space there now. On the other operations for Iron Ore, Yorgon and Pilbara Hubs, the shipment's total 3.5 million. Yorgon, as we flagged, has transitioned to Cairn Maintenance and we've successfully redeployed over 780 people to other roles within Minres. We are running a process for a potential sale of the Yorgon. If and when we have any updates on that, we'll make an appropriate announcement. In terms of costs, Bob at the Yorgan was higher than guidance, primarily because we wrote down some remaining unsold stockpiles. We also had to carry a fair bit of fixed costs through that quarter as we moved into care and maintenance. Pilbara with Iron Valley and Wanmana, another solid quarter just ticking over. 2.4 million tonnes shipped. Again, some write-down of some stocks, but comfortable with the way those operations are performing. Moving to lithium, spot production across all three sites was 136,000 biometric tonnes, with shipments of 143,000 Average realized price achieved across all the sites on an SE6 equivalent basis was US$827, which was a solid performance in a market that we believe is improving. And we continue to see prices better than that as we move into this second half. In terms of Marion, we previously foreshadowed a a shift to deliver a higher grade product, which we've executed on, and to realign volumes around market conditions. As a result, production decreased to 58,000 tonnes and we shipped 55,000 at 4.4%. The underground development, we've taken that to 160 metres vertical depth. We've paused at that point. We sold... 56,000 tonnes at realised price, SE6 equivalent of $816 a tonne. As previously foreshadowed, we have implemented a range of cost reduction measures across our lithium operations, including workforce roster changes to two-on-one, mine plan changes. We've seen that Marion, 190 people off that site, along with a whole lot of gear. First off, Bob costs, again, on an SE6 basis were $1,076. We're maintaining our guidance of $870 to $970. We're already seeing the cost reduction measures flow through towards the back end of the quarter, and those will continue to have an impact through the second half, and we continue to see expected improvements in recoveries. partly because of the introduction of WIMS, which we'd flagged previously. In terms of Wojana, production was at 54,000 tonnes, which is up 5% quarter on quarter. I talked last time about the challenges we'd had in the first quarter with the transitional ore and the quality of the material that we were working through. We have seen more fresh ore. We are getting better recoveries. in this second period. We shipped 61,000 tons at an average SE6 realized price of $834 US. Similar story on costs. First half fold, We expect them to be a touch over 1,000, 1,013 or thereabouts. Again, we're maintaining guidance. As we see the impact of those cost reduction measures flow through, we're seeing the cost per tonnes decrease. We've seen that through the tail end of the half, and we expect that to continue as production increases. As we disclosed a few months ago, it's been placed in care and maintenance given the market conditions and it's our highest cash operation. We saw shipping decrease as a result to 27,000 tonnes. We are maintaining the site on the basis that we can turn it on again for a quick restart as needed. So we have three months pre and post-pressure. or in Vast Soccer Vale, or make prices a bit easier for us when we need to go, when the market moves. In terms of FOB costs for Bald Hill, they've come in, we expect them to come in about $1,150 or thereabouts for the first half on their C6 basis. Farther than guidance, but again, impacted by the decision to move to care and maintenance and lower associated production costs. So there's some introductory comments. Hopefully they help provide a little bit more context of the numbers that were in the announcement this morning. With that, I'm going to hand back to Josh to queue for questions. Thanks.

Thank you, Mark. 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 Ben Lyons from Jordan Securities. Ben, please go ahead after the beep.

Ben, please go ahead.

We will move on to our next caller. We have Kate McCutcheon from City. Kate, please go ahead.

Hi, good morning, Mark and Mike, and happy new year. Just starting at Onslow, how much of that capex there is left to spend in 2H now that big infrastructure spend is done? And where is the bottleneck now if you had to call something out given the haul road is done? Is that the crushes? And I guess confidence in that 35 million tonne per hour rate by the middle of this year, I think it was.

Morning Kate, thanks for joining and the Happy New Year seems like a long time ago. Going backwards on the questions, in terms of the bottleneck, you know, I think we've shown that we've got at the front end the capacity with our production volumes to deliver at the sort of targeted rates. On the road, we've been operating on the road since October. we've had to rely on some contractors with haulage with lower capacity to assist us through that ramp period a little bit longer than we would have liked. The road was working well and in December we actually had more challenges at the port end with reclaimer in the shed just doing a few things that shouldn't have been doing where we were ramping up. We've got those largely sorted now And now we're actually just working through the impact of the cyclone and the storm and just a little bit of work on the road. So we're constantly juggling all the different components. As we said, the transshippers, we're very happy with the way that they're performing in terms of, you know, the cyclone, as I said, that was eight days, which, you know, generally we'd budgeted for four days in our planning for a cyclone loss. The track of this cyclone meant that it was a little bit different. So, you know, there have been little bits and pieces we've been wrestling with along the way each month, different points along the supply chain. But, you know, as I said in the comments, we've demonstrated each component on the projects capable of hitting that main plate rate. In terms of the capex that's left to go, We've got mine development costs to start to open up other areas, which we've got scheduled for first half FY26. That's as we push into other regions and start to get ahead of it so that we can maintain the production rates for the life of the mine. So in terms of the actual construction costs, through the half, through the quarter, we opened our bistro and village um at the at the mine we've still got some work to do at the um at the onslaught town side um but generally we haven't we've got a little bit of touch up on the road um particularly after the storm but generally we're happy with where we are with onslaught and the capex okay thank you and then just on the balance sheet

On the balance sheet market, are you still pursuing options to push down that net debt to your targeted levels using some more levers? You've mentioned looking to add some more CapEx back in just now and you believe this is peak net debt, but you've previously spoken on all the options that are available for liquidity. Is that something that's still on the cards here or you're happy with how the business is tracking and how deal leveraging is looking?

The answer is that we still have lots of choices available to us if we need to go there, if we want to go there. When I look at the way that the business is performing, how it's set up for the second half, how Onslow is performing, how the costs are performing, I can see, generally, I can see the cash that's going to be generated in the second half And I'm comfortable with where we are with the net debt position. I know it's a number. I know it's a big number. But, you know, I think the way I would characterize it is this. You know, by June, this business will have been fundamentally transformed from where it was three or four years ago. You know, it's effectively a free option on the lithium. And you'll have... Onslow generating significant earnings. You'll have mining services generating a significant, substantial annualised rate of earnings with long life contracts underpinning those earnings. So, you know, what I would ask the market to consider is what that shape of the business looks like. And, you know, that's why I'm comfortable with the net debt number. I think our bondholders remain very supportive and confident and were comfortable with the position also. But as always, you know, we keep an eye on the market. We keep an eye on commodity prices. If we need to move, we can.

Thank you. We'll go back to Ben Lyons from Jordan. Now, Ben, please go ahead after the beep.

Oh, thank you. G'day, Mark. Apologies about the earlier difficulties. I hope you can hear me okay now. Three questions, please. The first one, just following on from Kate's around the balance sheet and that working capital release, sorry, unwind that occurred in the first half. Are you expecting a further unwind of that substantial current payables number in the second half? Thanks.

Morning, Ben. Nice to talk. Yes, I can hear you clearly. The answer is no.

Okay, thank you. Second one's another quick one, just on your mining services contracts. Can you just confirm that all of your mining services contracts, or the majority of them, are denominated in A dollars?

Thanks. Yes, can confirm that.

Awesome, thank you. And then the third one, just going back to your introductory comments around safety at onslaught, and maybe just looking to interrogate those truck rollovers a little bit further, obviously with the overpinning worry about the safety of your drivers before you make the transition to fully autonomous road trucks. So I guess, firstly, is Demers and WorkSafe investigating or have they completed investigations into the numerous rollovers? Secondly, have you determined the root cause of those? I know you referred earlier to operator error. But, you know, there's potential also here that there might be a design flaw in the trailers. For example, maybe their centre of gravity is too high. Maybe the design of the whole road is insufficient, got an inappropriate camber or road base, for example. And just as it pertains to your operating settings, what's been the impact on, like, your load factors on the trailers and your speed, for example? Have you had to reduce those factors? Thank you.

Thanks, Ben. Very important topic. And, you know, with that, I'm going to pass the mic to Andrew and I'll supplement.

Yeah, look, to answer your question, yes, the mayors and externals are still conducting their investigations, and we've sent them all the information they require, and they'll come back to us in due course. And to be honest, they don't expect anything out of the ordinary there that will return to us. In respect to the road, you know, the road's been designed... by ourselves in conjunction with third parties, including main roads, so we don't have any issues with the road configuration or design in that respect for safety. And just keep in mind that the majority, three of the four rollovers weren't on the whole road at all. So, you know, I can't point to the exact... cause of the rollovers, but the interface and the interactions off the whole road, we're a contributor. I won't say they're all a problem, but we're a contributor. So having been on the whole road in total for some time now, we haven't seen another incident, and nor should we.

Our next question comes from Khan Picker from RBC. Khan, please go ahead after the beep.

Hi, Mark, Mike and Chris. Happy to meet you. Thanks for the update. Just on AUD, I know you've talked about the impact on debt due to AUD changes. Has there been any impact on CapEx fund or expected CapEx fund and how much of the CapEx is US dollar based?

Thanks. Hi. The answer is most of the CapEx that we're doing at Onslaught is AUD. We do have transshipper costs that are US dollars. A lot of that's already incurred. We do have commitments for further transshippers out in years, but that's not spend that will happen this year. We have US dollar facilities available to fund those US dollar spends on the transshippers as necessary. So the answer is little of the CapEx is US dollar denominated.

Sure, thank you. Second question is on Wojnar. Seems like there's been a bit of a shift to higher-grade products there as well. Maybe if you can talk to that decision. And also, there still seems to be transitional ore issues. Can we maybe... that out a bit more.

Thanks. In terms of WODGE, what I've talked about last quarter was that we've done a lot of drilling to better understand the ore body where we were active. We've seen the benefits of that in the second half. We've been very pleased with the reconciliations that we're getting to our modelling and our planning. In terms of the quality of the feed, that has improved over the half, as we expected, as we've moved through that transitional law that I'd foreshadowed. So generally, Wodgen is shaping up well for a good second half. We're pleased with the way it's progressing.

Thanks. Our next question is from Paul Young from Goldman Sachs. Paul, please go ahead after the beep.

Thanks. Morning, Mark. Hope you're well. Thanks for all the detail in the intro, et cetera. Just a few more questions on the cash flow issue. In particular, I just want to confirm that that capex number of $1.4 billion, that's actually cash capex, not accrued capex. And then just with the ramp-up of Ashburton, how do you fully ramp up as far as the inventories are concerned? So are we picking inventories? Are we going to see a building working cap in the second half?

Morning, Paul. Nice to chat. In terms of the inventories, we're pleased with the way that we've been able to build those stockpiles. In fact, we've taken an opportunity through the cyclone to continue to produce and to build out those stocks. So there's a slight build, you know, through these first couple of weeks of January, but we're largely there in terms of stocks. We've got stocks at the mine, and then we've got stocks down at Yari, which supplement the stock that we have in the shed. So we're pretty comfortable with that. In terms of the cash versus accrued number, the 1.4 is effectively a cash number.

Yep, okay. Excellent, thank you. And then just on the lithium assets, just a with respect to where the costs were in the first half and I know the cost reductions came through late in the quarter so we should see a decent drop in cost in the second half but to the tune of I think of a couple hundred dollars a ton to get into the guidance range. So just a question on I guess our real cash flow position of both Roger and Matt Marion. Post those cost reductions are they cash flow positive at spot and also If they're not and you're just hanging on to that option, as you say, as far as when the price improves and iron ore effectively funding lithium, has there been any discussions from the JV partners about potentially putting either of those assets on care and maintenance?

The short answer to that, Paul, is no conversation about putting them on care and maintenance. You know, I think... everybody understands that these assets, carrying maintenance is not a good choice for a big complex lithium asset. Bald Hill, a little bit different. We can turn that on again pretty quickly. But with Wajana, with Float in particular, that's a challenging thing to turn off and then turn on again. Not for Lisa, which is the loss of experience and so on. So, you know, that's not on the cards. The way I think about it is this. As we take those costs out, the mines will certainly be profitable in an accounting sense. In terms of the actual cash position from them, it really depends on how hard we're going at the strip. I'm talking to Chris about trying to get some people up to Wajina sometime in the next half, hopefully to have a look at it and give you a better sense of it. But what you'll see is that what we're continuing to do is open it up and we're trying to get to a point where we've got clean feed for three trains consistently. It's taken longer than we expected, I accept that. But, you know, I've got a belief and the business has a belief that the lithium market's not going to stay at 900 for the next five years. And so it's important from my perspective that we continue to develop those mines and invest so that when the market does need that product and can take it, we're in a position to absorb, you know, to produce it. You know, one of the risks for the lithium market globally is underinvestment in projects over these last couple of years. And that... you know, has the risk for the end consumers. As you would know, we're seeing a steep rebound in prices. We're trying to make sure that we're positioned to take advantage of that. That's how we're thinking.

Our next question is from Rahul from Morgan Stanley. Rahul, please go ahead after the beep.

Hi, Mike and Dean. Thanks for the call. three from me. Look, firstly, just to clarify a bit more following Paul's question, in terms of the working capital itself, at the end of last half, you had about a billion in receivables as well in terms of your current assets. How has that progressed this period? And I'm just trying to get a read on sort of next period, whether I should see a build or a release of working capital. That's the first one. Thanks.

So, Raoul, in terms of working capital generally, you know, I think, as I said, we were comfortable, or we were expecting, not comfortable, but expecting to see the payables unwind. In terms of receivables, as volumes increase out of Onslow and out of Lithium, there should be... It should be a little bit of a build, I would expect, just in line with increased revenues. But I'm not expecting any significant further payables unwind, if that makes sense.

Yeah, no, it does. And to be fair, I mean, I did have about a 600 build myself, but I just wanted to sort of understand how it looks like going forward. But take your point on that. Look, the second one, Perhaps if we can go back to the mining services business really quickly, if I think about this half versus June half, generally the volumes internally were better in terms of production volumes and you've also got Onslow ramping up. What was it then that kept the mining services volumes flat? I mean, you talked a bit about your external contracts and how you had a few renewals etc. But was there a drop-off as well there that needs to be talked about, or is it just seasonal volumes that's causing this flat result?

Sorry, perhaps I wasn't clear in your comments, but we saw, obviously, Yulgan and Broad Hill going to Cairn Maintenance, and we have some mining services, or had some mining services activities of those operations, which have effectively stopped But slightly less than the increase as a result of Onslow starting to ramp. And Onslow was very early throughout the quarter as well in volume. So that's why. And the renewal of the crushing contracts sort of flattened in terms of impact. But as we said, we've got a few new contracts that we've won throughout the quarter that will start to have an impact over the next six months or so. And most importantly, the mining services, sorry, most importantly, you'll see the Onslow ramp have a real impact on mining services volumes in the second half.

Yeah, yeah, okay, noted. Thanks, Mike. And look, just the last one, I think we've talked a bit about, through various questions on Onslow Hall Road and sort of the infrastructure issues, I guess it would be really good if we can give us perhaps a little bit of an update in terms of what type of damage you've seen from the cyclone in terms of the whole road. I mean, what's the repair program looking like? Are you expecting, you know, impact of throughput rates? Obviously, I know you haven't changed your guidance, but given this is so topical for people's understanding at this point in time, can you add a bit of colour to that, please?

Sure, I'd like to expand on that.

Yeah, it's Mike. It's interesting, isn't it? I mean, I look at this, and particularly this cyclone event was significant. And we, you know, it had a hell of a lot of rain that come through. And, you know, you just look at the other operators, our neighbours, Rio Tinto, and And in Karratha, they had a 20-year rainfall there that was a record. So, you know, nearly 300 millimetres in 24 hours. And when you see a port get flooded and their rail get flooded, you can appreciate how much rain that must be, particularly around the port. So, you know, our road is built around modelling around 10- and 20-year floods. And, you know, this essentially fell into that category. And at that point, we do have floodways and water will cross the road. And we need to do that to make sure the road remains sustainable. And in doing that with a sealed road, you do get damage on it. And we understand that. We know it. We've actually planned for it. So there's nothing significant in that. bloody unusual rain event and it's just, there was so much water coming through that catchment area, the result is the result. We don't anticipate any interruptions to our guidance in respect to that at all. And I just see this as, you know, a one in ten year flood. We'll deal with it and just carry on.

I think if I can add to that, Rahul. We have flexibility with our operations because, as you might remember, we have a mine access road that runs parallel to the road. We have traffic management arrangements we can put in place on the road as well. So we have a little bit of flexibility in terms of our operations whilst we make the changes that we need to make. I think Yeah, from my perspective, it's actually not a bad thing this has happened early on because it actually gives us a better understanding of where the water is going to lie and move across. We're talking about 150 kilometres of road. And look, I appreciate the storm direction might change next time, but generally it gives us a pretty good idea. We were working off modelling previously, so we're now able to analyse that water impact, how it's going to impact the floods, floodways and so on. The photos that I've seen, we had a little bit of damage to the batters, which are effectively the build-up of the sides of the roads. So we need to think through, in some areas, what we do there. One of the other things we're toying with is the surface along part of the road. In our modelling, in our planning, we had allowed for a maintenance cost per tonne in the build-up of our own internal cost structures, and we're starting to think about whether we might move to eliminate some of that ongoing maintenance by just firming up some of the surface capping along parts of the road. So that's just a work in progress. It's something we're working through at the moment as a result of these rainfall events.

And I think just one more point on that, as Mark mentioned, it's a learning exercise. So we've intentionally left some of the road build up in respect to the rock pitching that protects the road in large storms. to exactly do that part of the understanding. So we know where the water goes now. We can rock pitch and get our drainage correct. Otherwise, we'd be rock pitching the whole 150 kilometres. So there's a bit of a learning exercise, and we're just managing that through accordingly. So, yeah, no risk.

Thank you. Our next question comes from Jonathan Sharp from CLSA. Jonathan, please go ahead after the beep.

Yeah, good morning, Mark and Mike. Continuing on with the haul road, and I'll just follow up from Ben's question. You've had quite a few rollovers. I would imagine the regulators involved, and you're required to put controls in place after these events, either to minimise or eliminate or minimise the risk of any other rollovers. Can you just be specific in what controls you've put in place to do this and does it include lower speeds or reduced loads or is there potentially some more costs involved with with sealing some of the roads or you know some areas of your site that haven't been sealed or even making turning points larger thanks

I'd just like to go back on what I said earlier. Keep in mind these incidents happened off the main haul road. And yes, we did modify our speeds and our loads at that point in time until we reached the period when we got back onto the haul road in total. So those control measures were put in place in the interim whilst we were navigating through part of that construction handover period.

Okay, so there's no reduced speeds on the whole road. I mean, even with this damage, I would imagine, with the damage from the recent cyclone, I would imagine there'd be some areas where you'd have to slow down.

No, there is. There's absolutely. We have traffic management in place. We repair the roads. All that's been part of our modelling. So, again... It's not impacting our overall guidance. It might impact us in the short term, but overall, I'm very comfortable where we're at.

Thank you. Our next question comes from Rob Stone from Macquarie. Rob, please go ahead after the beep.

Thanks, Mark and Mark, for the opportunity. Just a question on the prepayment. Are they also valued in US? Are those exposures hedged? And then got to follow up on just unit cost tracking.

Morning, Rob. Yes, the prepayment was a 400 US number. And the sales, you know, it's effectively being handled through the sales of iron ore which are denominated in US dollars.

Okay, that's good to know. Thank you. And then just on Unicost, obviously in the lifting business, we're tracking higher. We're not really seeing the full impact of those cost-out initiatives yet. but yet where guidance has been retained. Are we expecting to see FX play a role in dropping those costs? How are you expecting labour costs in region to help drive some of that benefit going forward?

Sorry, Rob, did you say FX playing an impact on costs? I just wasn't quite clear on what you said.

Yes, so we're seeing that obviously there's going to be potential FX on US denominated portions sort of offset, you know, working against you, noting that there is a high local currency denomination there. But how are we expecting to see those costs come back down? Are we looking at lowering stripping, or is it just purely the cost of niches that you outlined previously, having a full half to play out?

Yeah, look, sorry. When I first listened, I couldn't quite understand you, but I'm clear now on what you're asking. So the answer is that there are... a range of aspects that will drive the costs down on those lithium operations. None of them really relate to FX. So, yes, stripping will be a little bit lower, but more importantly, we've reshaped the size of the operations and we've taken heads out, we've taken font out, and we're into better... parts of the ore body through this second half as a result of the work that we've been doing over the last six to 12 months. So, you know, we're very comfortable with where we are. We've seen the impact of those changes already through the end of the half once they've been implemented.

Thank you. Our next question comes from Lachlan Shaw from UBS. Lachlan, please go ahead after the beep.

Morning, Tim. Thanks for the opportunity. Just two questions from me. So firstly, just on the lithium market, just interested in what your marketing team in China is seeing at the moment. We obviously had... chatter around a potential SQM tender at $920-odd for spodumene. We have a weak and interesting spread between that and PRAs, current quotes, but also lithium chemical prices are not adjusting. What's your latest read on the market right now, and in particular spodumene versus chemical pricing?

Morning, Lachlan. In terms of I mean, it's such an opaque market, isn't it, Gee? I think what I would say is we're very pleased with our ability to extract value from the market. I think we've shown that with our realised pricing for a number of quarters now. We are seeing better pricing in January than we were in December. We're comfortable with where it's trending. In terms of the LBC market, you know, to be honest, I'm not really that well placed to comment on it because I'm just focused on spot because that's what we're selling. So I'd be guessing, but I'm happy to take that offline and get an answer back to you offline. Okay.

Great. Thank you. That's really helpful. And then my second question is just on mining services. I'm just interested in, I suppose you did, sort of disclose some external conflict winds in the period. What's the market conditions like at the moment? Obviously, there's been a fair bit of dislocation in the West Australia nickel markets. Lithium activity sort of scaled back. Are you seeing any evidence of sort of increasing kind of competition there in respect of your external contract side of the business and obviously then margins that you're able to realise there? Thanks very much.

I'll ask Mike to answer that. Thanks, Lachlan.

Well, look, as I said at the last round, we've seen an increase in activity, and we generally do when times get tough in respect to the commodity businesses. So we've seen certainly an uplift in interest, particularly in the Queensland area, and one of those contracts where extended and increased volumes were coming through on that contract as well. We're pricing a number of contracts over in Queensland at the moment, which is really positive, and I'm sure that's a result of us now being established there. And secondly, in Western Australia, we're very busy. We are pricing a lot of work with our regular clients. So absolutely not seeing a decline. I'm seeing a consistent with where the commodities are sitting.

I think, sorry, just to jump in there, I think that, and we probably don't do a good job of explaining, that the skills and the capabilities that we bring to our clients are somewhat unique. And I'm not just talking about the people. The people are at the heart of it, of course, led by Mike. But I'm talking about the inner supply chain that we have through our workshops, through our range of gear that we have sitting in our yards, through our proprietary designs, renovation areas. They're the sorts of things that the clients value, and it's very difficult for others who set themselves up with people to be able to compete against that holistic package. I just wanted to reinforce that. I guess the final point is safety. That's a key gating item for the large players, as it should be.

Thank you. Our next question comes from Matthew Fryman from MST Financial. Matthew, please go ahead after the beep.

Sure. Thanks. Morning, Mark and Mike. Mark, can I go back to the CapEx guidance for FY25, which is originally $1.95 billion, and then obviously in September you highlighted $180 million of CapEx savings to be realised. I know in your commentary you called out some bits and pieces of potentially additional capital spend and apologies, I probably didn't catch all of them or the kind of quantum that you're talking about. But if we do the back of the envelope maths after $1.4 billion in the first half, that only leaves about $400 million in the second half. So the question is in two parts. Firstly, you know, you talked about the first half skew, but is that sort of still the sort of quantum that we should be expecting in the second half? And secondly, if it is still around that $400 million number and we take away what's left to spend at Onslow and also sustaining capital across the business, that doesn't really appear to leave much left over for, in particular, mining services growth, the kind of stuff that you guys were just talking about in terms of new contract wins, et cetera, that you've highlighted. So is there anything we should be inferring there about the mining services business, maybe looking a little bit longer dated into next year, any kind of potential for volume growth? Effectively, is your... growth in the mining services division being somewhat constrained by the CapEx outlook.

Hi Matthew, that's one question I'm not going to give to Mike to answer because Mike would take whatever capital I could give him across a whole range of different things that he wants to do. I'm going to hold that question for myself and I've got a little bit of a smile on my face because this whole process over the last period of time has forced the business to be more disciplined in the way it thinks about its spend, its capital, its investment in projects. It's actually in one sense bringing us back to our roots as a contractor and focusing us on fighting for the dollar internally. In terms of how I think holistically about the CapEx and the Outlook. You know, what I said was that as we shaped our thinking around CapEx, we hadn't made the decision, let alone received the $800 million from Hancock for the gas, and that's given us a little bit more flexibility with our thinking. Not a lot. I'm not taking the foot off the neck of the business. What I flagged was the opportunity to spend a little bit more in a few areas. And what I said was that we're still working through all that. The business is still fighting for more. And I'll be providing further detail at the half in a few weeks.

Okay, I understand. Thanks for that, Mark, and apologies if I missed some of those comments in the intro. But in terms of the mining services business growth, I guess you've still got enough capacity there to deliver on those new contract wins and obviously potentially those volumes will only flow through in subsequent years, right, in FY26 or beyond.

That's right, Matthew. So just to explain that a little bit better, I probably didn't do it justice. You know, the process that we follow is that... Some of these projects have got quite long lead times. Some of them also are quite short-term responses, which is one of the things that we're particularly adept at. Either way, Mike and the business need to make a strong business case for the deployment of capital. Our guiding threshold, as we've talked about for years, is a minimum of 20% after-tax ROIC. Reality is that we push the mining services business to be higher than that, and we're never going to be a high-volume, low-margin mining services business. That's what others choose to do, and Mike understands that. The business understands that. If there's an attractive contract opportunity with the right risk profile, the right tenor, the client, the contractual terms, et cetera, et cetera, we'll find a way to make that capital available. We might end up releasing it from other parts of the balance sheet if we need to. We're constantly rebalancing and reallocating the balance sheet. moving capital from assets that might have value down the track, but perhaps value that we can monetize much earlier. So they're the sorts of choices we're making all the time. I hope that helps.

Thank you. A quick reminder of the instructions before we move to the next question. 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 homepage under Asking Audio Questions. Our next question is from Glyn Lawcock from Barenjoie. Glyn, please go ahead after the beep.

Mark, Mike, thanks very much. An hour in, so thanks for your time. Mark, you made some interesting comments. You mentioned peak leverage in your opening remarks and then the business will be fundamentally transformed by the end of the fiscal year. I sort of know where you're trying to go, but can you flesh it out a little bit? I mean, when do you think this business will be free cash flow positive at a group level, given, say, just current pricing persists? You know, does it honestly need to get to 35, or can you see your way clear before the end of the financial year? Thanks.

Hi, Glenn. Good morning. Yeah, I do believe that by the end of this year... end of this financial year, the group's going to be generating significant cash. Its choice will be whether it reinvests or whether it applies that cash to the balance sheet. That'll be a choice that it has. There'll be an element, as always, of some sustaining capex, but we'll have choice. The reason I highlight that is that, and this is the point that I was trying to draw out earlier, my view is that the maintainable earnings from the business by the end of June looking forward are at a very different level and a very different quality than they were a couple of years ago. And so that gives me a high level of comfort in terms of the ability to support the debt that's on the balance sheet. That doesn't mean that we won't continue to monitor and track and look at the market and look at the way that the opportunities are playing, all those different forces that we take into account. What I'm trying to say is that we'll have that choice and we haven't made that choice yet. but that the underlying earnings would be fundamentally different.

Yeah, no, that makes perfect sense. And so just two other quick ones, if I could. Early payment by your onslaught JV partners, I mean, it's not really nice we have to fund 800 million Australians when their balance sheets are much stronger than yours. Could you consider early repayment or is that just not off the table, not on the table?

Glenn, let me just answer that by suggesting that you're probably not the first person to have asked that question who's on this call. I think the answer realistically is that's not going to happen. So what that leaves us with is a stream of additional cash over the next couple of years. It does earn effectively at the moment 7.25%, which, you know, it's not a big prize when our internal cost of capital's 20% after tax effectively. So I prefer to have that cash in the hand. You know, I've talked to you before and I've said before, you know, we have the option to monetize that. It would come at a cost. But if I needed to, I could monetize it at $800 million. And when I said it would come at a cost, the cost today would be lower than it was 12 months ago or six months ago because we can show the project's now cash positive and that that loan's coming down. We're not thinking about doing that. I'm just putting it out there as one of the other things that's, you know, in the back pocket if we ever needed it.

Yeah, naturally understand. And just a final quick one. Bald Hill restart, what would you need to see to turn that back on, do you think?

Yeah, that's a great question, Glenn. I'm not going to commit Chris and Josh to that answer, but, you know, it would need to be higher, you know, probably 20% higher than where we are today, maybe a little bit more, just to give us a solid run at it.

Thank you. Our next question comes from Rob Stone from Macquarie. Rob, please go ahead after the beep.

Hi, guys. Just a follow-up to the cross-linkages questions before. Can we assume that... circa 70% of your mining cost base is local, just to help us sort of think through the impacts for 2H.

Sorry, Rob, are you saying, just to make sure I understand your question correctly, are you asking whether, to help with your modelling, you should assume 70% of our cost base with our mining operations is local and therefore 30% is international currency? Is that what you're saying? Or did I misunderstand?

Yes, that's correct. No, no, that's right. Yeah, just trying to get an indication of just how, I guess, shielded you are on Aussie dollar costs. And obviously, you're 100% exposed to US dollar revenue. So just trying to get a feeling for the FX sensitivity that should advantage you in the second half, given where currencies are.

Yeah, I mean the major US dollar exposure through our operating costs sit in fuel effectively or diesel costs which are sort of driven heavily by US dollar movements but also a lot of the yellow goods we buy are denominated in US dollars particularly the bigger items of kit and so those elements are are more expensive, obviously, in local currency terms today than they were. Happily for us, we've actually... Maybe not happily, but we actually have a surplus of that gear because of the actions that we've taken over the last few months. So we're actually more in the market of selling that stuff rather than buying new stuff. We've got the gear that we need for Onslow. We've got the gear that we need for Wojnar and Marion. So, you know, we're not in the market trying to buy... to buy yellow gear. So we're less exposed on that than we would have been 6, 12 months ago. So, you know, the other costs generally, labour is obviously Australian dollars. There are some reagents and stuff like that in the lithium side of things, US dollar element, but generally it's all Australian dollars.

And those US dollar exposures are passed on to your JV partners via your contractors, if my understanding is correct. Is that right?

When you say the US dollar exposures, so could you explain that?

So, for example, higher diesel costs in Australian dollars are passed through to your JV partners as part of rising fuel precision in your contract, is that right?

Apologies, yes, yes. Usually we have fuel issued to us under our contracts where we're operating with third parties.

Thank you. There are no further questions. That concludes today's call. Thanks for your time and have a great day. Please reach out to the Minres team if you have any follow-up questions. You may now disconnect.