Allkem Limited

Thank you, Gavin. Welcome, everybody, and thank you for joining us for Orkham's September quarterly results briefing. As usual, I will be providing an update on our business, and Christian Bavier, Chief Sales and Marketing Officer, will be providing us with a market update. Also joining us for the Q&A are James Connolly, our Chief Technical Officer, and Liam Franklin, Head of Moncatling Operations, and Christian Cortez, our CFO. We have delivered yet another very strong quarter, particularly from an operational perspective. Mount Katling achieved quarterly record production and record revenue. Olaros achieved above-budget lithium carbonate production and record sales volume. We have also made solid advancements in project execution across the portfolio in line with our growth strategy. In Argentina, we are proud to have successfully achieved the milestone of first wet production at Olaros Stage 2, with commissioning activities currently underway. Ramp-up remains on track to be completed in the next 15 months. We also continue to advance the construction of Sal de Vida Stage 1 with the first two strings of ponds complete and work now underway on the carbonation plant. In Canada, we have advanced engineering and procurement at James Bay and commenced a drilling campaign to further delineate mineralization. In Japan, Naraha has demonstrated capability to run at 100% capacity and battery grade qualification with customers has commenced. Looking at the portfolio, we recently updated our projects in line with current conditions and confirmed material growth underpinned by our group resource of 40 million tons of LCE. We plan to also deliver 179,000 tons of LCE production capacity by financial year 28 across the assets. Our capital development costs, operating costs, and project schedule have been updated to reflect industry-wide inflationary conditions and in-country specific conditions. Results confirm robust economics and the Tier 1 nature of our assets and growth portfolio. We continue to be in a very strong financial position. This quarter, we generated group revenue of approximately $327 million. Group cash-operated margins remained robust at 72%. Group net cash at the end of the quarter was approximately $671 million. We continue to focus on our long-term strategy to deliver scale and product flexibility to customers and remain fully committed to the delivery and execution of our growth pipelines. The proposed merger with Livent helps us accelerate and de-risk our growth profile while driving higher vertical integration into the EV value chain. We have advanced the transaction and we're still currently targeting completion around the end of calendar year 2023. All Kemen Livent have agreed that the name of the combined company will be Arcadium Lithium PLC upon a successful merger of equals. From a sustainability perspective and starting with safety, we recorded a 12-month moving average total recordable injury frequency rate of 2.03, slightly higher than the financial year 23 result. Three recordable injuries occurred during the quarter with one resulting in a lost time injury. Investigations have subsequently been carried out with corrective options implemented. Community engagement and shared value projects continue across all our operations and regions in which we operate. Some highlights include a new physiotherapy room at Susquehanna Hospital near Oloros, following a collaborative effort with the community and the Ministry of Health. We also continue to deliver health and well-being programs to local communities at Sal de Vida. Moving to our operations at Olaros, we achieved above-budget quarterly production of 4,453 tons of lithium carbonate. 42% of this was battery grade, which was higher than the previous quarter in line with customer requirements. Strong operational performance continues with excellent plant reliability, low downtime, and high brine feedstock concentration. As previously stated, September quarter sales were expected to be higher, and we achieved record quarterly sales volume of over 4,500 tons, up 33% from the prior quarter. Sales generated a total revenue of $123 million in the quarter. Sales were completed at $25,981 per ton on an FOB basis, and cash cost of goods sold was $6,088 per tonne, up 4% quarter-on-quarter. Gross cash margins remain robust at 77%. Cost of sales over the last year have increased due to the elimination of export incentives, the rise of material costs including soda ash, lime, labour and energy, which have been impacted by inflation. However, these impacts have been in large part mitigated by improved operational performance, brain concentration, and higher recoveries. Over time, unit costs will be offset as we progressively increase production volumes from stage two, where we will focus on achieving product volumes and quality specifications over the next 15 months of the ramp-up period. Production achieved a quarterly record with over 72,500 tons of spodumene concentrate produced at 5.3% lithium oxide grade. This was a 25% increase from prior quarter and in line with the financial year 24 production forecast of 210 to 230,000 tons. We shipped over 76,600 tons of spodumene concentrate, a generated record quarterly revenue of $201 million at an average price of $2,625 per dry metric ton on a CIS basis. The gross cash margin remained robust at 69% and was based on low cost of production of $636 per ton for the quarter. Costs were lower due to higher production volumes and recoveries compared to the previous quarters. Positively, we have also received regulatory approval for stage 4 cutback and mining commenced in early October. At Naraha, the scheduled maintenance shutdown was complete during the quarter and planned performance demonstrated capability to run at 100% capacity. 526 tons of lithium hydroxide were sold and we also commenced the battery grade hydroxide qualification process with customers. At Sal de Vida, we have completed construction of the first two strings of ponds. The brine distribution system is complete, and the booster stations have also been commissioned. The third string of ponds is well advanced and over 63% complete. Engineering of the process plant is at 66% completion, procurement is at 70%, and construction is approximately at 13%. After a rigorous review of our cost and schedule, we gained a better understanding of our execution plans, factoring in the ongoing import challenges and delays experienced in country and regional productivity factors. We released our first project update since early 2022 with revised SOPEX for stage one and the combined stage one and two, which both remain highly competitive. CAPEX for stage one and stage two also increase in line with inflationary condition with stage two benefiting from stage one. Substantial mechanical completion, pre-commissioning and commissioning activities are expected by the first half of calendar 2025 with first production expected in the second half of 2025 and ramp up expected to take one year. Stage two construction is anticipated to commence upon receipt of applicable permit and substantial mechanical completion of stage one, with stage two first production approximately two and a half to three years thereafter. Similarly, we updated James Day mineral resources and all reserves, project cost, and project economics. This is the first update since late 2021. The total mineral resource increased by 173% from the previous estimate to 110.2 million tons at 1.3% lithium oxide grade. CAPEX and OPEX have increased in line with inflationary conditions, but overall remain very competitive, supporting a very attractive economic result. Engineering and procurement advanced to 84% completion by the end of the quarter, with a process plant package at 87% completion. Stakeholder and community engagement remains very positive, The IBA with the Cree First Nations remains in progress and has resumed after the recent state of emergency arising from the forest fires. The environmental and social impact approval draft report was completed in September by the Quebec government personnel and submitted to COMEX for review and final evaluation. A 40,000 meters drilling campaign commenced in late September. 30,000 of which will target further definition of the ore body. The remainder of the program will target possible extensions to the mineralization and newly identified targets. We also released our first project update to Cautiari since 2019, supporting a base case of 25,000 tons per annum production capacity coming online in the second half of calendar year 27. The study demonstrates the value of the project on a standalone basis. We do see substantial opportunities to integrate this asset into our Olaroth complex, and these opportunities would likely to reduce capital and operating costs. We are investigating this as part of our Olaroth Stage 3 expansion studies. I will now hand over to Christian Barbier, who will provide us with a market update.

Thank you, Martin. Good morning, everyone. It has been an interesting past few months. The price volatility we've observed is a function of the relative immaturity of the industry and the high degree of sentiment that influences pricing outcomes that come with this immaturity, despite strong fundamentals and the mismatches along the uniquely long battery supply chain as capacity grows. The lithium market balance remains fragile. Demand is growing at a pace that almost any other industry would envy a fraction of. Even if the increase this year has been somewhat slower than expected last year, resulting in a catch-up of supply. At the same time, delays may easily move the market back into deficit. Despite expectations of a wave of lithium supply this calendar year, it has not materialized, as projects have taken longer to commission or ramp up to name plates, and longer-to-reach production specifications. This fact is often overlooked. Initial supplies seldom meet battery-grade specs and require further processing, thus again undershooting supply expectations. We believe the electrification trend remains on track. EV sales remain on course to increase 35 percent year-on-year to 14 million unit sales in calendar year 2023. in defiance of global macroeconomic headwinds. China and the U.S. are reaching milestones in terms of EV sales and penetration rates. And ESS performance continues to grow strongly across the globe as energy storage targets are announced or expanded. During the quarter, OrCam delivered strong sales performance, reaching record sales volume across carbonates and spodumene-concentrated products. demonstrating the strength and the resilience of our customer portfolio. Production performance at Olaroff and Mount Capri remained very strong over the quarter, which meant that our carbonate inventory didn't drop as much as targeted. However, our order book for the December quarter is quite full already, and we expect another very strong sales day. Again, during the past quarter, we've been able to achieve pricing above industry average. thus maximizing value for our shareholders. It's also worth mentioning that a significant part of sales contracts is now priced subsequent to shipping dates. When six or 12 months ago, all was priced before shipment. This industry trend is quite widespread in China and significantly reduces the time lag of our average pricing compared with the main indices. And it will also provide more reactivity now that prices have likely bottomed out. Thank you. I will now hand back to Martin.

Thank you, Christian. And I will now hand back to Gavin to commence the Q&A session.

If you would like to wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. And your first question comes from Rahul Anand from Morgan Stanley, Australia. Your line is open.

Hi, Martine and team. Good morning, good evening, and thanks for the call. Look, perhaps one for Christian. Christian, you talked about how the industry is moving towards more China-based pricing and product being priced post-sale instead of pre-sale, which was a trend six to 12 months ago. Can you provide a bit more color on that? I mean, does that mean that you're now having to change the pricing mechanisms on your contracted tons whereby you're now pricing them on a provisional basis like we see in the iron ore industry, i.e. with a one to two month lag post-revenue recognition? Is that the right way to think about it?

Hi, good morning, Robert. Thanks for your question. Look, you're not wrong in the sense that, yes, the industry practice has shifted during the course of the last few months. And it is a measure of how, in particular, cathode producers have been trying to protect, to hedge their margins, basically underlying the buying price to their selling price. This has happened in China mostly, or really probably we've only observed that in China. And as far as our contracts, we continue to implement our shipments as per our contract conditions. But you probably would have seen over the last couple of quarters with the increase of volumes, volume that we've that we've produced and shipped. We've diversified our customer portfolio, which actually puts us in a good position to manage our contract book as these contracts will mature. And most of these new contracts, whether they are short or longer term, use different pricing formulas, but basically they use a pricing quotation period based on shipping or arrival. and not prior to shipments, and sometimes quarter prior to the shipment quarter. So, yes, it is an industry trend, and we've observed that also on the chemical side, especially for carbonates.

Okay, perfect. That's very clear. Thanks for that. Perhaps one for Martine. Martine, stage one obviously going really strong, being helped by the stage two tons coming in. I just wanted to understand perhaps the battery grade limits that currently exist in the plant. Is there any view there to potentially increase that number or proportion at site or is it still being considered that the offsite purification plant is the way to go and what's the progress on that as well in terms of that study? Thanks.

Thank you, Raul. Quite a few questions. With regards to the percentage of battery grade, we have been operating at higher percentages, and the way we define that is based on our customer requirements. So the amount of battery grade we produce at all our offices is based on what our customers require. With regards to operating capacity and increasing battery grade, shall it be a significant increase in battery grade requirement from our customers? As you said, off-site purification is the way to go. particularly because Stage 2 has been designed to produce 100% technical grade product to be used as a feedstock for Naraha. Customers are demanding technical grade products and shifting Stage 1 more towards battery grade if that is required.

Okay, and then in terms of the Stage 2 initial... Yes. Sorry, go ahead. I was telling you and studies on purification plant continue to progress on off-site purification if that is required we would be ready to do that gotcha okay and then just my final one is on stage two you know wet production in mid-July and commissioning continuing is it too early for us to know whether the plant would be able to produce you know, very close to battery grade, like we saw at the mine site visit last year, or do we need to wait for that information once the plant's fully ramped up?

Thanks. Yes, it is early to conclude that, Raul. We want to have the plant fully ramped up operationally for some time to test the ability to produce higher quality than technical grade. I do trust that the Technical improvements in the plant are very good, but we have to run it, and it's close at this point in time.

Understood. Okay, that's all from me. Thank you very much.

Thank you, Raoul. Thank you, Raoul.

Before we go to the next question, I'd like to announce, if you could please keep it to two questions per person, just so that we're able to get through everybody's questions. And your next question comes from the line of Austin Young from Macquarie. Your line is open.

Good morning and good evening, Martin, Chris, and the team. Two questions from me, please. The first one is on Oloros. Just wondering how much of the high-grade ground stock you have at the Oloros. I recall you have quite a bit during the start of the visit. Do you plan to use that to support the Stage 1 production, or will more save it for the Stage 2 ramp-up? Thank you. We'll come back with the second question.

Thank you, listen, it's the brine that we have a lot of support is both stage one and stage two. The availability of a larger evaporation area in advance of bringing stage two into production has increased and enabled us to keep that higher brine concentration throughout the year and we shall see that continue to happen.

Okay, thank you. The second one is on kettling. I'm just wondering if you can provide some colours I mean, really strong recovery performance. Congratulations. Should we kind of think the recovery to stay at this, you know, 67%, 68% over the next couple of years? Is that in line with your plan?

Thank you. Thank you for that. I'll ask Liam to answer that question in more detail. Liam, please. Yes, no problem, Martin.

So recovery has been strong this quarter. A lot of that's influenced by the quality of ore that we're currently in at the moment in the stage of mining. The good news is that that should continue throughout the remainder of the financial year. As to longer periods than that, we've still got to process some of the information from our grade control drilling to really get a good sense of that for future years.

Thank you.

Your next question comes from the line of Con Parker from RBC. Your line is open.

Hi, Martin and team. Two questions from me. The first one on Mount Catalan is, probably following on with the previous question but on that, can you just talk through what grades that you're processing? Is it above reserve and how much capex was spent on the asset this quarter? And I'll follow up with a second. Thanks.

Thank you Liam. Can you expand on the grade question?

The head grade at this point in time is slightly ahead of reserve but across the course of the project it's it's in line with expectations so we're in a good period at the moment and we'll do for the next six months tapering off towards the end of financial year into the next year and sorry I didn't quite catch the next question was around the capital investment was that right the amount of capex spent in the quarter The CapEx spend in the quarter is going to be reasonably minimal. It's going to increase in the next half more as we invest in infrastructure.

Martin, it's Christian here. I can provide a bit more color on the CapEx. The CapEx incurred in the quarter for Catlin, as Liam already said, is is quite minimal. We spend less than $10 million during the quarter, although as we make progress in the next three quarters, that amount will increase in line with what Liam was just clarifying.

And the second question is around the costs at James Bay. It looks like there's a step up in the long run costs. and appears to be driven by mining dilution. Could you maybe expand or clarify that? Thanks.

Thank you for that. Last question, James Connolly put together a study to answer that one.

James Connolly Yeah, I think in the next cut of our mining design, we look forward to reducing some of that dilution that you've seen. Obviously, we were We had a drilling update that we'd recently done and some of the opportunities with some of the smaller lenses coming through, the smaller pegmatites added to the dilution. So we'd be mindful that we'd be looking to maintain grades as we did historically over the initial years of life. And if you see us manage that stockpile or that lower grade material through surface stockpiles, that would be the way to go. But we haven't done the work yet, but we do look to get it back in line where it was in the previous study.

Well, thanks. I'll pass it on. Appreciate it.

Your next question comes from Alex Papiano from Citi. Your line is open.

Hi, Martin. Just following up on comments around the inventory and strong order book in December quarter. Are you looking to sell majority of your built inventory in December quarter or should we expect additional sales into the March quarter?

We're continuing to progress with the sell-down of our inventory during the December quarter, and it may take part of the March quarter as we're seeing a strong performance of the all-oil production as we start to see production coming through from all-oil stage 2. We'll start to see high inventory levels and higher sales as well. Christian Babier, if you want to add something on that, please.

Yeah, thanks, Martin and Alex. Good morning. Look, we have reduced during the September quarter only marginally our level of carbonate inventory despite record sales because we had an extraordinary performance from State 1 in Aros again. And we also didn't ship any carbonates to our Maraha plant affiliates. this quarter because they had enough inventory. So for the December quarter, to answer your question, we've already recorded a very high level of sales. So volume is expected to be significantly above the September quarter. And you can expect, and this is what we indicated last quarter, to have a progressive adjusting of our inventory levels over a few quarters. So this remains on course.

Great, thanks. My second question, so with the Argentinian primary election done and the final upcoming, what would a renewal of the existing party mean for you and how you operate in terms of any fiscal changes, if there's anything to note there?

It is a good question. We had primary elections last weekend. There wasn't a winner, so we have to go to a ballotage in Argentina again on November 19th. The two running candidates in the ballotage have manifested their support for the lithium industry. The current Minister of Finance was one of the candidates and got 37% of the votes from the official party and the challenging who is coming from a libertarian abstract and libertarian as in the US type towards the right, not the European style. both of them very supportive of the lithium industry, both of them very supportive of Argentina reaching fiscal balance and both of them have manifested the intention to continue growing in an industry that helped the country. Nothing that has changed in terms of new fiscal terms and particularly important to mention that the provinces in which we operate, the current governors have renewed their mandates So we don't foresee any change in the provinces who are the ones controlling particularly royalties and the main terms of the concessions. So no significant changes on the political front, I'll tell you. Relatively positive despite it's still a very difficult environment in Argentina and we continue to see foreign exchange restrictions applying for some time. until fiscal balance is reached and the situation starts to easy out.

Great, thank you.

I'll pass it on.

Your next question comes from Mitch Ryan of Jefferies. Your line is open.

Morning, Martijn and team. I know that you've updated the pre-tax NPVs for several of your projects. And if I go through them, Kachari 2.5, Saldivita 5.5, Olaroz 7.1, and James Bay 2.9, I get a pre-tax NPV of US$18 billion, and obviously that excludes Mount Catlin and Naraha. In light of that, are management comfortable that the transaction metrics remain fair and reasonable to shareholders?

Well, thank you for your question, Ryan. I think it's a good one. Yes, we remain comfortable on the transaction being fair and reasonable for our shareholders. The transaction is a script merger of equals and we think that both parties are adding value to the merged company. As we described before, the transaction relies on three main strategic pillars. One is becoming... an important supplier for our customers. This is a market in which demand would concentrate around 10 or so buyers. So you need to be a large supplier to the industry in order to be relevant for them. Number two, its vertical integration is key and essential. As we discussed in previous questions, the amount of battery-grade product being required, the requirement of customers in terms of quality, which we are seeing in the complex product qualification processes. And the fact that the industry will continue to evolve and require particularly detailed and quality lithium molecules being vertically integrated is important. Both parts add a lot of value to the vertical integration. Leiden would put us ahead of where we are in terms of vertical integration and delivering these specialty lithium chemicals to the market. And also the growth opportunity, both companies being a unique company growth portfolio into the merge entity that will enable us to continue to grow and accelerate our ability to deliver this quality product and a larger product portfolio to our customers.

Thank you. Thank you very much. That's it for me.

Your next question comes from Reg Spencer of Canaccord. Your line is open.

Morning, guys. Thanks for the opportunity to ask a question. How should we think about the inflationary impacts on consumables that you outlined today? And how do those current rates or those current costs compared to the cost input estimates that you use with your recent project economic updates? Are they consistent? Are they based on any reduction in current rates for consumables? Just trying to get a a feel for costs that you reported today relative to those that you put out in your updated project studies. Thanks.

Thank you, Reg. As you have seen through those updated studies, costs have been increased and that was also part of previous questions. That is a recognition of the current increase in the cost of consumables that we are seeing from the inflationary environment. And the studies not only incorporate those increases in costs, but also incorporate increases in production capacity and improvements in efficiency and recovery rates, as we see through the assets and as we continue to expand and bring them in. There's also a temporary movement on the cost, on the overall basis, because it's impacted by the lag between inflation and devaluation in Argentina, which creates quarterly movements. And when you look at it compared to previous quarters, particularly about a year ago, there's a significant impact from the elimination of some export incentives that were applicable to production in the Pyrenees. So all of that has been factored into the studies, and the studies recognise the mix of all those impacts.

Great. Thanks, Martin. I must have missed that earlier question. Next one. You mentioned Couchari. That has always been in the portfolio, but I suppose you've had so many other things going on that there hasn't been a lot spoken about it. You outlined a potential development scenario for the project with all those recently released studies. You mentioned that it might fit into an OLROS 3 expansion. But I'm just curious as to how we should think about the current all-chem growth strategy Relative to what that might look like, assuming the merger proceeds, there will be, by the looks of things, competition for capital amongst various growth opportunities. Is this something that we should figure out now, or perhaps is this a question for Paul Graves, assuming the merger completes?

Well, listen, I'm having these discussions with Paul over time with regards to the strategy on how assets shall be developed, I think. When you look at Couchari, what we have done is updated the standalone basis study that was put together by Advantage Lithium. Updating that study shows very strong and profitable economics. If we were to consider the project standalone, the way you should look at Couchari is bringing Couchari as part of another expansion. You will see CAPEX reduction as we take advantage of existing infrastructure. and you will also see a lower production cost, improving the results from Couchari. Also, when you look at it in terms of the size that you can reach from a stage three expansion, bringing the brine from the Couchari assets enables to have a larger stage three expansion, improving the overall economics of that project. And that will apply regardless of the merger with Livent. That would improve, as you mentioned, in terms of capital availability or how do you compete for capital between the different projects of the new merged entity. This is a project that will rank up as a consequence of the improved economics from bringing it into a larger and more stronger Stage 3 expansion.

Okay. Thanks very much, Martin. I'll pass it on.

Your next question comes from Robert Stein of CLSA. Your line is open.

Hi. Just a clarification question for something that was addressed earlier on the merger ratio. How sensitive is that merger ratio to converter margins, given that converter margins at the moment are pretty anemic? I was just wondering, given that that was part of the transaction benefit that Lydon brought to the mix, how sensitive was that ratio to that?

The way the merger ratio was put together was considering the fundamental value that both companies were bringing into the table and looking into the long-term projections of values. As you can see in market volatility, we have been the value shifting from the upstream to the downstream quite a few times and there's a lot of volatility around it. When you look at it in long terms and you calculate the fundamental value that both for bringing to the merged entity, that's a way in which the ratio was calculated.

Okay, so if there was a substantial shift in the market or your understanding of the market on a long-term basis, then that would provide grounds then to reassess the ratio, i.e. if there was an oversupply of converting capacity or there were changes in demand for raw material, upstream raw materials.

But as I said before, the ratio was defined on the long-term fundamental value of both companies, so what both companies are bringing to the table. And should that change dramatically, we'll have to see. But for the time being, we're not foreseeing any change in merger ratio whatsoever based on what we're seeing in the market today. Both valuations of the companies have been equally impacted by market volatility. No problem.

And sorry, just a quick one on James Bay, any updates to the permitting there?

Hello?

Hello, sorry. Yeah, can you repeat?

There was music.

Yeah, just James Bay. Can you provide an update? That may have been earlier on the call, and apologies if it's a repeat of the question, but just on James Bay, whether there was an update to permit timing, whether that is starting to creep into first or delivery?

Well, listen, we continue to progress on the negotiations. IBA negotiations are in the final stage, and we're going through the final stages of approval of IBA. If you remember, we've said in previous calls that the forest fires that struck in Canada in the East Main region have impacted and had delayed some of the meetings at the Cree community of East Main. for as far as they're over now, and we have regained momentum on those discussions, so we're progressing significantly. The government of Quebec submitted to COMEX the draft for final review of the ESA back in September, and it's being considered by COMEX, and we expect to have resolution from both things in a relatively short period of time, taking into consideration that The Quebec province has been challenging in terms of timing since there are no time limitations for the government to issue the approvals.

Thank you. I'll pass it on.

Your next question comes from Lachlan Shaw of UBS. Your line is open.

Good morning, Martin. Thank you for taking the time and thank you for your time today. Two questions from me. So firstly, just a quick one. So costs at Oleroz, a bit over $6,000 a tonne, but the revised study is putting that at about just a touch over $4,000. Can you just help me understand the bridge to get to that lower cost? Is that solely volume or is there also assumptions there on sort of level cost out? Thank you. I'll come back with a second one shortly.

Thank you. It is volume increase and it's also impact of inflation and devaluation in Argentina starting to match over time. As I said before, the costs in this period are impacted by a larger gap in there. And James, you wanted to add something to that answer, please.

Yeah, if we break it down, so Martin's right, the inflationary pressures especially hit salaries and that's a temporary measure. As we know, Argentina goes through these macroeconomic phases, but we see a reversion of that to a more normal situation over the next two years. Similarly, on market analysis around soda ash and fuel, especially natural gas, it shows a reversion coming back to more normal more normal rates and so to answer Reg's questions yes we honor exactly what we have in our budget our guidance and actuals that's reflected in the technical reports but yes there is a transition over time back to normal normal pricing whether it's a supply side from our reagent supplies which we've seen a lot of movement on and the market analysis says that but we're coming back to a more normal space so for the models themselves we think that's more realistic

And the increase in volume is quite significant as well.

Yep. Good. That's helpful. Thank you. Second question is, I guess on the market, Christian's comments about customer demand remaining strong and growth remaining strong notwithstanding, prices have come off 60%, 70%. Two elements here. Firstly, are you seeing reports of supply exiting the market? And secondly, in terms of your inventory, is that now stable in terms of what you're carrying now in front of the sales book or would you like to actually be carrying less inventory going forward? Thank you.

Yeah. Good morning. Thank you for your questions. There's a lot of questions in there actually. In terms of market growth, as I mentioned earlier, we're heading for a 30% to 35% year-on-year growth in EV sales. So there is no question about the strength of the underlying demand, and despite some some softness in some comments and despite some realization, a little bit below expectations from last year, you still have in China, a market share of 30 to 36% in, in, in, in August in, in the U S. the market share has reached 10% now, unconceived really last year. And in Europe, despite the difficult situation, the market share is around 22% or 23%. So still a lot of growth every way in every jurisdiction. Now, what we have is a very complex supply chain, and the supply and demand balance applies at every step of the supply chain, from the producer to the converter to the cathode maker to the battery maker and then to the OEM. And all the capacity that needs to grow across the supply chain, well, doesn't grow at the same speed at every step of that supply chain, and this is why it creates some friction. in some places. So we did expect, and I think most of the industry expected a rebound in prices at the end, towards the end of August. They expected the market would pick up again because people normally build up inventories towards the end of the year, which is a strong period. And this did not happen. It did not happen also because people are concerned, sentiment is down, and everyone in the supply chain has been maintaining very, very lean inventories. So to your question about some production exiting upstream, yes, with the current level of prices, you probably have heard that independent producers of lepidolites in China have idled their operations. they're just playing their part as swing producers, which is a normal thing to do. Does that answer your question?

That's great, thank you. And then just the second part of that was on your inventory. So are your inventory levels normal in terms of what you'd like to hold going forward or would you look to be, again, you talked to a very strong sales book December quarter already, would you be looking to, you know, sort of draw that down a little bit into that strong sales book?

Yeah, so look, you can expect to see inventories drop during the December quarter. As I mentioned, we are going down our inventories progressively. and increasing our sales progressively. So you will certainly see a reduction of inventory during this current quarter. And as we continue beyond, the inventory will be a measure of the overall production. So with the development of stage two, we will recalibrate our target inventory considering the overall production.

Great, that makes sense. That's really helpful. Thank you very much, and I'll pass it on.

Your next question, Constable, is Hugo Nicali of Goldman Sachs. Your line is open.

Morning, Martina team. Thanks for the update this morning. Good to see the improvements at Mount Catlin. I just had more a couple of follow-ups from me, please, maybe just starting with James Bay. I appreciate that maybe parts that are out of your control in terms of getting the permitting through and government not having a timeline to hit. But maybe some more colour on if there are any sticking points. I mean, is it purely the administrative process or are there still some environmental or technical issues around maybe arsenic disposal or anything like that that are still being worked through? And then I'll come back with my second one. Thanks.

No, listen, thank you very much for your question. No, there are not environmental issues that we're aware of. The federal... Government of Canada has issued approval back in January with some comments, and all of them were addressed properly. So we don't expect any environmental issues from COMEX, as we didn't have any in May or one from the federal approval. So I think at this point in time, it's more the bureaucratic process and going from back and forth between the Ministry of Environment and COMEX and the whole team in the process that we have during the forest fires that created some commotion around the delayed meetings and did not enable us to continue to progress with the process. So things are back on track and we hope to get that bureaucratic process completed quickly.

Great, thanks so much. And then just the second one maybe around Naraha. Can you just clarify maybe what volume you produced in the quarter there and if you're still expecting to be battery grade qualified by the end of the year?

We started the battery grade qualification process during the month of July and we're continuing with that. We initially thought it was going to take between 9 to 12 months. We're on track with that. We're working with our customers. That involves not only the cathode manufacturers but in some cases the OEMs as well. So it's a lengthy process. We're on track with our expectations. With regards to the volume, we sold about 500 tons of production of hydroxide during the quarter. That was not qualified as battery grade because we had not had a qualification process with the customers. And if you remember during the month of August we did a major shutdown of the plant and checked all of the pressure valves and all of the pressure system had to be rechecked and recalibrated according to regulations in Japan. So that took the whole month of August, not a large production during this quarter in Naraha.

Maybe just following on on Naraha, just given the Japan government's kind of incentives around building downstream processing capacity and potentially getting half the capex rebated, I mean, how are you thinking about future expansions there?

Japan continues to be a very attractive place. The government continues to offer rebates and And we have the ability to expand that plan between 6,000 to 10,000 additional tons of capacity. And the government is offering rebates in other places of Japan as well. So Japan is a very interesting market for us. We have a good experience there. And the provider numbers continue to be as strong as they were for Naraha stage 2. We'll look into that into our global portfolio of downstream capacity.

Great. Thanks so much, Tina. Pass it on.

Your next question comes from the line of Matthew Fryman of MST Financial. Your line is open.

Sure, thanks. Morning, Martin and team. Martin, I'm wondering if you can talk about what's driving the timing around the scheme booklet and the independent expert report. I know that previously you flagged the November timing for the scheme booklet, but I'm thinking that's a little later than what you had hoped for probably a few months back, and it doesn't appear to leave a lot of time for shareholders to really digest everything. particularly when you're still hoping to complete the transaction before the end of the year. So yeah, firstly, can you talk through what's driving the timing? Could that timing slip further? And secondly, how important do you think it'll be to, I guess, conduct a further education piece with shareholders, you know, given some of the questions on this call today to get them comfortable with the structure of the merger? Thanks.

Thank you very much for that question. Regarding timing, we are aiming to complete the transaction before year-end and giving shareholders enough time to digest the SCIM booklet and the S4 document in the US. Both documents, SCIM booklet and S4, are now being reviewed by the regulating authorities in Australia and in the US. So at this point in time, We're doing everything and we know that we have a transaction that can close before the end of the year, depending on the regulators meeting the timings, but we're working in that direction to achieve a transaction before year-end.

Thanks, Martin. Sorry, in terms of the education piece, do you expect that that will be important?

I think it would be, and we're planning on further, once Kipnuklet is released and the S4 is released, further engagement with investors to continue to discuss transactions and address all of the questions that may be out there.

Okay, thanks for answering the question.

Your next question comes from the line of Glyn Lawcock of Barron Jerry. Your line is open.

Hi, Martin. Just a little bit further on the market, if we could just get Christiane maybe talk a little bit about the realisation for your carbonate versus, say, the indices, because Benchmark had the FOB LATAM index averaging 40,000 for the September quarter, so it's quite a big miss to that. And then Christiane also offered some good insight into the market, but he sort of talked about 30% to 35% growth in EVs. You know, that's led to inventory build and the supply chain yet we're seeing lipidolite producers idle production. Just, you know, what's driving the excess in inventory this year and how does he see the inventory now? Is it starting to finally come down and when does it start to get to levels that maybe we get some support back in the price? I know it's a hard question, but any colour, thanks.

Thank you, Glenn. I'll pass it on to Christian to answer the details on that one.

Hi, Glenn. Yeah, thank you for your questions. Regarding the price, there's a variety of indices that are used in the industry. Benchmark is one of them. There's others and in China, for domestic China, people are using some others. So these are those that are probably more used in pricing. What is driving also our average price this quarter is, as I mentioned, The coming use of quarter minus one or M minus one has, or even fixed price for spot sales, has mostly been replaced in the Chinese market by pricing at the time of delivery. So for us, some provisional pricing that we had recorded in the June quarter have been reviewed downward after delivery in the September quarter. And likewise, when the price, the market price dropped during the month of September, shipments that were made in August and early September not yet arrived at destination or fully priced had been marked to market at the end of September. So this is what has affected our September weighted average pricing. It shows conservatives in the way we report prices. It also means that when the market goes up, our reactivity in prices will be higher. Now regarding inventories, actually, really, we don't see a lot of inventory in the supply chain. We see a pretty healthy situation. So maybe I'll give you some details because there's a lot of information that flies around and some doesn't make sense. So downstream, Cathode makers, as I mentioned earlier, have been extremely disciplined over the last six months. They don't want to take any price risk with their stocks. Our observation is that they generally have about one week of inventory of finished products. They may have sometimes up to two weeks, but certainly no more, and often they just have a few days. So cathode makers, no. Battery makers have more inventory, yes, and that's been reported. but sometimes with completely ridiculous figures. The norm for battery makers is to have between one and a half and two months of finished products. We hear that some have a little bit more, but you may have seen a little bit more because they might have built up some inventory ahead of this second half of the calendar year when the season is stronger. However, you may have heard or read that CATL indicated last week that they actually have less than two months. They have 55 days of inventories of finished products, and they had 92 days at the same time last year. And that's the biggest battery maker in the world. So one of the issues for battery makers in their inventory is that not all the cost decrease has reached the finished battery. And that's a frustration that Oriane has voiced. Now upstream. So miners, those that don't have a concentrator, certainly have seen the DSO becoming a non-sellable product. So they have stock. At current prices, there's no market for DSO. African producers don't need to make money, so the Chinese owners transfer profits to China or to Hong Kong, so they generally export their products, their concentrate, or they blend with DSO. We don't see significant stockpiles there, but there may be a little bit in China. That's for upstream. At converters, again, we mentioned the situation with cathode makers. Converters who produce the finished chemicals, they have minimal inventories. And the only thing that I might say here is that there's a couple of industry leaders that seem to have excess hard oxide and over the last couple of months have been dumping their hard oxide in the Chinese markets. and maybe added to the weakness of the hydroxide. But this is a temporary issue, and structurally, really, we see a pretty healthy situation for inventories.

So that's fantastic, Christiane. So, I mean, do you think now it feels like chemical prices have, it seems like they're trending more sideways now, and spodumene, I guess, has caught up? Is that how you'd see the market? Not asking you to give a price forecast, but just your sense of how the market is now balancing.

Yeah, so you're right in saying that spot amine prices were lagging, the reduction in prices was lagging the reduction in chemicals. And now they have largely caught up. That would be also my observation. We've seen a slight rebound of spot prices After the Chinese golden week and now some stability, yeah, this is all I can say.

That's great. Thanks very much.

You're welcome. Now let's hand the call over to Andrew Barber for questions from the webcast.

Martin, we're just on time, but if we just take one final question from the webcast, and that would be regarding DLE technologies and whether ULKEM has been working on DLE technologies in particular for Olaroz. What that might mean for recoveries and things like water usage please.

Thank you Andrew for the question. Yes, we are working with DLE technologies. We are currently piloting one technology for Olaroz and we are looking into our ability to get good recoveries from that technology. The next quarter we will start that pilot project and we aim from the DLE technologies the ability to improve the recoveries from the brine. At the same time we're looking into minimizing the consumption of fresh water. As you know DLE technologies are quite demanding on the availability of fresh water. We do have enough fresh water in Oloros, it's not a restriction in there, but we're looking into that balance also. applying the DLE technologies may help us reduce overall production costs and mixing it with the current evaporation technology. So that's what we are looking for in Oloroso. And pilots, as I said before, are being conducted during this quarter.

Thanks, Martin. I'll hand back to you for questions and comments.

Thank you very much. As a conclusion, I can tell you that we've achieved another very strong quarter as we continue to focus on operational performance, project execution, and managing the costs through our global portfolio. In addition, we continue to work to complete the merger with Livent, which will deliver higher quality and lower volatility of earnings as it will decrease the risk of delivery of the significant growth profile that both companies bring together. Further information will be available with the publication of the scheme document. Thank you for joining us today, and if you have any further queries, please don't hesitate to contact our Investor Relations team.