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Earnings Call Transcript

Earnings Call Transcript
2022-Q1

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P
Peter J. L. Bradford
MD, CEO & Executive Director

Thank you, operator, and good morning everyone. And welcome to today's call for IGO's Operating and Financial Results for the September 2021 quarter, which were released to the market this morning. Joining me on the call today are Matt Dusci, our Chief Operating Officer; and Scott Steinkrug, our Chief Financial Officer, both of whom will be available to answer questions during the Q&A session.Slide 2 highlights our cautionary statement and disclaimer. Of note, all currency amounts in the presentation today are in Australian dollars unless otherwise noted. Moving to Slide 3. I'm pleased to report that IGO has recorded a strong start to the 2022 financial year, which is our first periodic reporting since we completed the 2 transformative transactions to become 100% focused on clean energy metals. Later in the presentation, we will talk to the lithium joint venture in detail. But Greenbushes has delivered better than planned, and good progress was demonstrated on the growth projects at both Greenbushes and the Kwinana Refinery. At Nova, our team delivered another safe and strong quarter with nickel production and cash cost better that pro rata guidance. The acquisition of Silver Knight from Creasy Group was completed in October, delivering optionality for Nova. And finally we have recorded strong financials for the quarter, which benefited from robust commodity prices.Moving to Slide 4. As I've highlighted during previous calls, we care about our people and want to provide safe workplaces that are also free from any form of discrimination and harassment. We do this through proactive work programs that minimize the safety risks in our business, while at the same time fostering strong safety behaviors. It is, therefore, good to see the improving lead and lag safety indicators shown on this slide. The inquiry into sexual harassment has highlighted some appalling behaviors in our industry. At IGO, we will not tolerate behaviors that make any person feel unsafe in any way. A strong and inclusive culture is important to all of us, and we continue to work together across our business to understand how we can do this better. Moving to Slide 5. We continue to see a heightened and increasing scrutiny by stakeholders, including investors, customers, government, our communities and the people in our business on sustainability, ESG and decarbonization. Interwoven into our strategy at IGO is a genuine focus on sustainability and decarbonization because we believe that it is the right thing to do. We also believe that maintaining a leading posture on sustainability and decarbonization practices is a part of IGO's value proposition to our customers, investors and people and society as a whole. In our recently released 2021 Sustainability Report, we mapped out our climate change response and our tangible action plan to continue to reduce our carbon intensity at Nova, which forms part of our broader aspiration to be carbon neutral by 2035.Moving to Slide 6, where we summarize our key financial results for the quarter which, for the first time, incorporate our investment in the lithium joint venture with Tianqi Lithium Corporation. We will be referring to the lithium joint venture as TLEA, the acronym for Tianqi Lithium Energy Australia, an interim name, which will be changed in the coming quarters. As expected, the September quarter results are lower on a quarter-on-quarter basis which primarily reflects the absence of a revenue contribution from Tropicana following our divestment in the previous quarter. The impact of this and guided lower quarter-on-quarter metal production was partially offset by higher nickel and copper prices. Group sales revenue of $189 million generated underlying EBITDA of $97 million and net profit after tax of $46 million, with TLEA contributing $13 million to this result. The balance sheet remains strong with net cash of $552 million. I do note, however, that $45 million was paid to Creasy Group in October as consideration for the Silver Knight transaction and that approximately $172 million in tax is payable in February 2022, most of which arose in respect of the taxable gain on the sale of Tropicana. Moving to Slide 7, where we reconcile the quarter-on-quarter movement in the net profit after tax. The significant item here is a $398 million net profit variance due to the sale of Tropicana in May 2021, which inflated our June 2021 quarter profit to $453 million. Excluding this, the main drivers to net profit after tax for the September 2021 quarter were: Lower quarter-on-quarter profit from Nova as a result of guided lower production volumes, and a $13 million profit booked from TLEA to the IGO profit and loss. We also had less ForEx movement impact on our profit as a result of the payment of the U.S. dollar currency we held up to the 30th of June 2021 to Tianqi to complete our investment in the lithium joint venture.Moving to Slide 8, where we provide a cash flow reconciliation, which details the key inflows and outflows for the quarter. Nova continued to generate strong free cash flow of approximately $157 million, with stronger metal prices offsetting guided lower production volumes. Key outflows included $76 million paid with respect to: our FY '21 final fully franked dividend, $16 million paid as IGO's cash call into TLEA, and $17 million exploration expense as our field activity ramped up across several of our key projects. Group underlying free cash flow margin for the quarter was 59%. Moving to Slide 9 and a brief review of the Nova operation. Moving to Slide 10. Nova has started FY '22 with a strong operating and financial result with nickel production in concentrate of 6,889 tonnes, which is better than pro rata guidance, while copper production was in line with guidance at 3,023 tonnes.As guided, cash costs of $1.99 per payable pound were higher quarter-on-quarter due to expected lower production volumes but finished the quarter better than the pro rata guidance range. Metal production rates were lower quarter-on-quarter in line with the mine plan and grade of -- with grade of ore mined and processed closer to reserve grade. Recoveries were also lower quarter-on-quarter as a result of the material type processed.Moving to Slide 11, where on the left-hand graph we show production and cash costs over the last 4 quarters. Higher quarter-on-quarter costs were driven primarily by the lower metal volumes shown on the graph and higher production costs. This was partially offset by higher copper and cobalt byproduct credit pricing, which continued to be robust.Free cash flow from Nova was $27 million higher quarter-on-quarter, which is part due to June 2021 quarter receivables collected during the period. Nova recorded a strong EBITDA margin of 64% and a free cash flow margin of 83%.Turning to Slide 12, and a brief discussion of Silver Knight. I'm pleased to report that IGO and the Creasy Group completed this transaction in October. In parallel, we have progressed planning for an infill drill program to define an updated resource and reserve estimate, which is expected to start in the March 2022 quarter. In addition, we have commenced our engagement with the traditional owners regarding our mining agreement as well as the planning for various technical studies needed to progress permitting and development. Our exploration team is also refining our understanding of the prospectivity of the exploration tenements joint ventured into as part of the transaction. We expect to commence field work on these during 2022.Moving to Slide 13, where we turn to an update on the lithium joint venture or TLEA. Moving to Slide 14, where I'm really pleased to provide the first quarter of reporting since we finalized the investment in the lithium joint venture with Tianqi on the 30th of June 2021.Over the course of the quarter, the TLEA Board has been formally constituted and the management team embedded. I've been able to spend much more time at both the Greenbushes mine and the Kwinana Refinery, and I'm really pleased with the quality of the teams and the level of collaboration demonstrated.It's also been pleasing to see the combined -- sorry, the continuing strengthening of lithium prices with spot spodumene prices now more than double the level we assumed for our long-term pricing when assessing the transaction last year. Supply-demand fundamentals continue to look very compelling over both the medium and long term. Financially, we have recorded the first financial results from TLEA amounting to a $13 million contribution to IGO's net profit after tax. As guided, we made a capital contribution of $16 million to TLEA during the quarter. At this time, we believe that it is unlikely that we will need to make any further capital contributions this financial year, which is a better outcome than the $50 million of capital contributions we envisaged having to make when we announced the transaction in December 2020.Moving to Slide 15. Greenbushes production exceeded plan for the quarter with a production of 39,130 tonnes of technical-grade spodumene concentrate and 228,548 tonnes of chemical-grade spodumene concentrate on a 100% basis. The chemical-grade spodumene concentrate production benefited from a contribution from CGP2, which commenced commissioning in May 2021. Cost of goods sold at $310 per tonne of spodumene sold includes all cash production costs net of waste deferral and stockpile movements as well as site G&A, corporate G&A, selling costs and royalties.Moving to Slide 16, where we lay out the Greenbushes site plan to give you an understanding of the location of each of the expansion projects, which are at various stages of completion. Chemical grade plant #1, or CGP1, and the technical grade plant, or TGP, have both been operating for some time. CGP2 is the concentrator, which has been recently commissioned. Once CGP2 is fully ramped up, the total spodumene production capacity from Greenbushes will be approximately 1.34 million tonnes per annum on a 100% basis.Construction of the Tailings Retreatment Project, or TRP, has commenced with practical completion and commissioning expected by early 2022. The TRP will add another 280,000 tonnes per annum of spodumene concentrate for a period of 5 years.In addition, 2 further concentrators, CGP3 and 4 are planned. During the quarter, an EPCM contract was awarded to Lycopodium for CGP3 with an expectation that construction could commence during calendar year 2022 and with commissioning by late 2024 to early 2025.Moving to Slide 17. Rectification and commissioning for Train 1 at the Kwinana lithium hydroxide refinery has progressed with first lithium hydroxide produced on a batch basis in August. Since then, we have carried out further rectification work identified in the initial commissioning operations and have now recommenced commissioning operations progressing from a batch process to a continuous process.Moving to Slide 18. On this slide, we have set out the key milestones for Train 1 and 2 at the Kwinana Refinery. Both trains have a nameplate production capacity of 24,000 tonnes per annum of lithium hydroxide.Commissioning of Train 1 will continue into 2022 with a focus on continuously improving product quality with the goal of delivering a premium chemical-grade specification in the December 2021 quarter and a battery-grade specification by March 2022, while also demonstrating the operation of the refinery at approximately 50% of nameplate capacity on a continuous basis. Once battery-grade quality is achieved, we will commence the qualification process with our contracted offtake partners while continuing to progress ramp-up towards nameplate capacity through 2022. Train 2 engineering and design studies are to commence in the December 2021 quarter, with the expectation that TLEA will make a financial investment decision and recommence construction in 2022, and that Train 2 will be commissioned in late 2024 to early 2025.Turning to Slide 19 and an update on our journey towards discovery. Turning to Slide 20. As we have discussed in previous quarters, exploration is a key plank of IGO's growth strategy with the potential to deliver transformative value to shareholder through the discovery of new mines, which are aligned to our clean energy metal strategy. In particular, we are focused on magmatic nickel sulfides and sediment-hosted copper discoveries. During the quarter, we continued various work programs over our belt-scale land positions, with much of these programs centered on the Near-Nova and Fraser Range projects and the Paterson Project, which have been allocated the lion's share of this year's $65 million exploration budget.Turning to Slide 21. In the Near Nova environment, our team has been very active over the quarter, continuing to test several high priority targets, including Chimera, Western Eye, Halia and Griffin. Mafic and ultramafic intrusions hosting disseminated to blebby magmatic iron-nickel-copper sulfides were encountered at all 4 targets with results from the Chimera prospect being the most encouraging. Two diamond drill holes were completed at Chimera during the quarter with several intrusions intersected, which exhibited textural and lithological features, which indicate the potential for nickel and copper sulfide accumulation. Understand, that's geological speak for good quality rocks. Further work is currently underway at Chimera, including modeling of a downhole electromagnetic target.Turning to Slide 22. On the broader Fraser Range project, our recent focus has been on the Celestial target, which is located proximal to the Silver Knight discovery. Again, positive drilling at this target intersected the right rock types with evidence of nickel-copper sulfides. Further drilling in the December 2021 quarter, we'll test the downhole electromagnetic anomaly at Celestial as well as several other prospects across the Fraser Range portfolio. Turning to Slide 23. And finally, in the Paterson, we continue to progress various geological, geochemical and geophysical programs with our joint venture partners. And as I've talked to on previous calls, our focus in FY '22 is data accumulation, collecting new geological data, new geophysical data and new geochemical data. This will drive targeting, and we would expect to pursue those targets in FY '23. Moving to Slide 24 and to a summary of today's presentation. Moving to Slide 25. IGO has had a great start to FY '22 with safe and strong performance across the business. Importantly, we are retaining our focus on keeping our people safe while also keeping them engaged with our business through our unique purpose-led culture.In summary, Nova outperformed pro rata guidance for nickel production and cash costs and within guidance for copper and cobalt production. Our lithium joint venture with Tianqi has started life with good progress on the brownfields growth opportunities at both Greenbushes and the Kwinana Refinery combined with strong pricing tailwinds. We have had positive engagement and collaboration with the teams at Greenbushes and Kwinana as well as with the partners in both, being Tianqi and Albemarle. We remain incredibly excited about the future for the lithium joint venture. We finalized the Silver Knight transaction, which will deliver mine life extension to Nova and several high-priority exploration opportunities via the new joint venture tenements around Silver Knight.And finally, we have recorded a strong set of financial results with demonstrated strong free cash flows and a balance sheet, which provides us with optionality for future growth. Thank you for joining our call this morning. We now hand back to the operator for questions. Thank you, operator.

Operator

[Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley Australia.

R
Rahul Anand
Equity Analyst

Can we perhaps start with Nova? I wanted to touch a bit upon the recoveries. Obviously, a bit lower this quarter at 86%. It seems from the release that it was driven by the type of material being fed into the plant. How long should we expect this to continue and the recoveries to be impacted?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, like there's a couple of different drivers. Oftentimes, these sorts of things are never one single item. During this quarter, we had some partially oxidized material on the stockpile that we pushed through the plant, which contributed in part to the results. And we also had some material from underground, which we do encounter every now and again that was problematic. So the 2 of those delivered it. We won't have a reoccurrence of the stockpile issue going forward. But from time to time, we may see some of that more problematic material from underground.

R
Rahul Anand
Equity Analyst

Okay. Perfect. And then if we move on to perhaps Greenbushes. The cost of production around $310 a tonne, you have your calendar year '21 forecast from the presentation sitting at about $225 to $275. Is that forecast still valid? And do you expect to drop into that number by the end of the year? And then how are you thinking about perhaps the costs and recoveries of that plant going forward?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, sure. And we also lead to a focus on the different definitions for unit costs. And what we've shown in the results today is a cost of goods sold, so it's something akin to an all-in cost metric. So we've got our site G&A, corporate G&A, royalties, our selling costs, et cetera. If we were to look at this on a total cash cost basis per tonne of spodumene produced, the result would probably be about 20% less.

R
Rahul Anand
Equity Analyst

Okay. So -- and how are you looking at the costs? I mean, I would assume that currently, you're being impacted a bit by the ramp-up perhaps. And also perhaps a follow-up is, would there be recovery data being made available going forward for Greenbushes at all? Or is this the quantum of the metrics that we're going to receive?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, we expect that the level of our reporting and guidance that we provide for both Greenbushes and Kwinana will be a journey over time. And I personally am really pleased with where we got to this quarter and the level of granularity that we were able to provide. It's not the bookend that I'd like us to achieve, and we'll continue to work on how we can provide that -- a more granular disclosure going forward. And of course, one of those would be recoveries.

R
Rahul Anand
Equity Analyst

Okay. And final one from me is on Kwinana. Just wanted to perhaps touch upon Train 1 and some of the issues that you've had there. If you can perhaps talk to them a bit on how the rectifications have been carried out. And then perhaps as a follow-on from that is on Train 2, I note that there's a slight delay, although it was always dependent on market conditions, I guess. Is there a change perhaps in the CapEx profile? And is that still going to be covered by Tianqi? Or does that mean that you might have to contribute a bit there as well?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. The -- so there are a number of questions built into that. So the first one is really around the, some of the detail around the rectification, I understand from your question. And there, we've had 2 components. We had some rectification work we envisaged back in December when we announced the transaction. And all of that work has been completed, and the contracting outfit that we brought in to do that has done an excellent job. And as you get in any commissioning process, you identify additional things that you need to modify. So that's what we talked to in this results presentation today. And none of those are what I would call material. They're more akin to irritating. But to give you -- to get bogged down in the details, it's -- one of those was seals, mechanical seals on pumps. The equipment there at Kwinana has been sitting around for some time. And as a result of that, some of the seals have become damaged, and that became apparent during the first commissioning, so we had to take those out and replace them. So there's a body of work and a lag time in getting that done. So it's that level of rectification work and more of a nuisance quality than a material quality.And on Train 2, very -- and as everyone would like to expect, the focus from the team at TLEA and at Kwinana has been on the commissioning process for Train 1. And as a result of that, the sort of bandwidth to do the work to get started on the Train 2 initiatives were delayed a little bit relative to when we would have initially envisaged. But that work has started. We went out with an RFP to a number of engineering companies. We've selected an engineering company to do the study work that we need. And that study works simplistically is to look at the modifications we made to Train 1 on the start-up, embody those changes into the design of Train 2. Then do a gap analysis on the equipment that we've got on site for Train 2 and whatever else we might need and then update the capital cost estimates. So it's a compact body of work. We imagine that, that will take through to about the end of the June quarter, into the September quarter next year to do. And then there will be a financial investment decision after that and then recommencement of construction.

Operator

Your next question comes from Peter O'Connor from Shaw and Partners.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Great result. Firstly, feedback. Slide 18, could you try and get the team when they're pooling together the packs not to mix calendar year and fiscal year quarters. It just becomes a bit confusing. Moving on, Nova, you mentioned problematic ore. What proportion of the reserve at Nova would you define as problematic?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Gosh. I'll have to hand over to Matt to answer that.

M
Matt Dusci
Chief Operating Officer

Yes, it's a small proportion of ore we would define as problematic. And that's C5, so during the quarter, some of the material coming in with C5 material, probably less than 10%.

P
Peter J. L. Bradford
MD, CEO & Executive Director

C5 is that extension of the mineralization that was identified above Bollinger in the grade control phase.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Great. And to Scott, franking and tax, given your tax payment due in February, could you just update us on franking position of the company and when a dividend could be franked? What your thoughts may be?

S
Scott Steinkrug
Chief Financial Officer

So I mean the relevant point here is the fact that we'll pay the tax now in February. And all that really matters is that we have franking balance at the end of the year, which enables us to pay our fully franked dividend now ahead of the year, ahead of the end of the year.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Right. So to flesh that out, we did pay a dividend in the quarter in respect of the final dividend for 2021 financial year, and that was fully franked. And that leveraged both those tax payments that we'll be making this year and the franking position that we'll have at the end of FY '22.

S
Scott Steinkrug
Chief Financial Officer

That tax plan will give us ample franking credits, not only for this dividend, but as I mentioned, future dividends.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Excellent. Pete, could you remind us what the completion date of due diligence is for the Western Areas potential change of control process?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Peter, I'd really like to answer that, but I'm not going to take any questions on where we may or may not be with Western Areas.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Understood. Looking at joint venture, Pete, the name change. TLEA was going to be changed upon completion of your deal. It's now a quarter behind and you're saying it's going to be a couple of more quarters. Small point, but does delay of that nature reflect the mechanics of the joint venture that things just take time?

P
Peter J. L. Bradford
MD, CEO & Executive Director

No, completely opposite. Like we'd actually agreed with Tianqi a name change before the completion of the transaction. And we, together with Tianqi, started a process to take registration of that name for trademarking globally. And we got a certain way down that journey and realized that we're probably going to be unable to get that trademark in several jurisdictions. So we said that wasn't ideal, so we went back to restart the journey.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Got it. Understood. Pete, you talked about first quarter Greenbushes as being better than planned but we don't have guidance. So what is the plan for the year from Greenbushes in place of guidance?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, sure. No, great question. And here, what I should have done is clarified relative to internal plans. And we've done -- and we've seen some of the research commentary around lack of guidance for the lithium assets, but there are several things going on. Number one, first and foremost, IGO wants to do enough continuing on further DD on the forward-looking plans to be able to make those forward-looking statements and provide that guidance. So that continues to be a journey. In addition, since we announced the transaction, the dynamic in the lithium market has changed considerably. And as a result of that, all of the plans at a Greenbushes level and, to a lesser extent, Kwinana have all been accelerated. So that means that plans that were in place at the start of calendar year '21 have all been thrown out the window and updated. And so until we've got some greater assurance around what that looks like, particularly for calendar year '22, which forms the second half of our FY '22, then we'll be a little bit hesitant to put any guidance out there. And then -- but if we go back to your original comment relative to plan, so we were better than the plan that Greenbushes has started with for our calendar year '22. And we're better than the updated plan for calendar year '22 for the September quarter.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Is it too much a stretch to normalize that first quarter as like a guide for the full year from our perspective?

P
Peter J. L. Bradford
MD, CEO & Executive Director

I think you can look at some of the disclosures that we've got there, Peter. And when you look at where we are with CGP2, the production in the September quarter, project that forward towards its ramp-up to full nameplate, then you've got the guidance that we have provided around the tailings retreatment plant, with that commissioning in early 2022 and the contribution it may make towards the tail end of FY '22, but more importantly, for a full year FY '23. I think pretty quickly, you could come up with some fairly robust concentrate production numbers going forward.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Okay. My last question, spodumene. What is the price guide for the September-December quarter based on the trailing pricing formula? And is the TRP product quality the same as the other product quality out of the other concentrators?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Correct. It is. And with the pricing, I think I've said previously, pricing from Greenbushes on a transfer basis to the 2 shareholder groups, TLEA and Albermale, is done -- are set twice a year. So the one price is used for July to December. So I think you'll be able to pretty much work out the October to December pricing by doing the math on the results that we just released.

Operator

Your next question comes from Lyndon Fagan from JPMorgan.

L
Lyndon Fagan
Analyst

First question is on Greenbushes. So we're still mining up around 2.5% grade which is a great outcome, but there's a reserve grade closer to 2%. I'm wondering if you can actually shed any light on the grade profile over the next few years and how quickly it might revert to reserve grade.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, we don't have those, that information at our fingertips at this stage and unable to provide you any guidance around that.

L
Lyndon Fagan
Analyst

No worries. Next one is on costs. So if I take the reported revenue, subtract the EBITDA and divide it into the production, I get a unit cost around $340. So I guess the first question is, is the sales number above production by a margin? Or is that not a fully loaded EBITDA cost? What I'm getting at is, does the unit cost reported include shipping?

S
Scott Steinkrug
Chief Financial Officer

Yes. Look, it's Scott here. That -- you can actually do the math to work out in the unit sales price received given that there's $310 of unit costs. So when you have a look at the revenue number, the EBITDA number, take a look. The difference is costs. Cost divided by the unit cost will give you then sales volume for the quarter. And you'll see then that, that is higher than the production for the quarter.

L
Lyndon Fagan
Analyst

Right. So just to be clear, the $310 is an EBITDA cost.

S
Scott Steinkrug
Chief Financial Officer

Look, it works out at an EBITDA cost, yes, that's right. And so it includes all of the site-based costs. It includes selling costs, includes royalties as well and G&A.

L
Lyndon Fagan
Analyst

Right. And just to sort of revisit the net debt within the vehicle and when we can expect dividends to start. So you've obviously mentioned there's no more contributions. But when do you actually start pulling cash out? And what's the latest net debt in there?

S
Scott Steinkrug
Chief Financial Officer

Yes. Look, it's a bit tight. So when we'll just start calling cash out and when -- we're not going to really guide on that. But what we can tell you is that the TLEA business, I mean, we contributed in this quarter, USD 16 million or USD 11 million. Tianqi contributed their portion of that as well. Also ended the quarter with dividend payments coming through from the Greenbushes business itself. And all of that means that this -- I mean, there was out -- cash flow into the business. That is Greenbushes dividends into the business, that will continue. And unfortunately, at this stage, we can't tell exactly when those cash flows are going to come out to our shareholders.

L
Lyndon Fagan
Analyst

And is there an update on the net debt within there? So we can sort of at least try and forecast your payment of.

S
Scott Steinkrug
Chief Financial Officer

Sure. So I mean, the net debt within the Greenbushes business hasn't really changed. It's the same as we had at 30 June. And it's -- look, it's one of the reasons -- it has impacted on our overall profitability that we disclosed. And so the unaudited $13.2 million, it has been weighed down somewhat by the translation of that U.S. dollar debt. So at the start of the quarter, that U.S. dollar debt was at $0.75. At the end of the quarter, it was $0.72. So that's going to get revalued into Aussie dollars. And as I said, that has had an impact on that $13.2 million profit number that we've announced.

L
Lyndon Fagan
Analyst

Yes, that's helpful. That was going to be another question. And final one for me. When do you think you'll be able to declare commercial production for Kwinana, i.e., when is it going to start hitting the P&L?

P
Peter J. L. Bradford
MD, CEO & Executive Director

We would be -- I think that's when we've demonstrated battery-grade product and started that qualification process. So probably sometime in the June quarter, possibly the end of the June quarter next year. Just going back to your question with Scott on cash flow contribution from the lithium business. When we announced the transaction, we talked to when this would be earnings and cash flow accretive to IGO. And at that time, from memory -- and I haven't got the numbers in front of me. But we said as I recollect, 2023, this would be earnings accretive and 2024 would be cash flow accretive to IGO. Since then, we've seen a significant turnaround in pricing for spodumene and lithium hydroxide, so we believe that what will happen is that we'll become earnings and cash flow accretive earlier. We just haven't done the updated work to be able to provide guidance on when that will be. And then the other thing to bear in mind is one of the key attractions for these assets is the brownfields expansion opportunities. So we will have significant capital investment at Greenbushes and at Kwinana over the coming few years as we turn this into a -- or continue to make the investments to retain Greenbushes and Kwinana as globally significant assets.

L
Lyndon Fagan
Analyst

Just, sorry, a quick little one, if I may. You've given us the waste in bcm. What's the conversion at Greenbushes to get that into tonnes?

P
Peter J. L. Bradford
MD, CEO & Executive Director

We can come back to you on that. I don't have it at our fingertips. Sorry.

Operator

Your next question comes from Mitch Ryan from Jefferies.

M
Mitch Ryan
Equity Analyst

A couple of questions. It might be all semantics here. But just in the quarterly, you said ramp up towards nameplate with regards to Kwinana Train 1. You said ramp up towards nameplate capacity will continue through calendar year 2022. Now can you just please -- when do you expect nameplate capacity to be reached? Is it in calendar 2022 or 2023? Or can you put a bit more color around that, please?

P
Peter J. L. Bradford
MD, CEO & Executive Director

I think, like in our past guidance, as we've said December 2022. So I would expect it will be late in 2022 or early in 2023. And...

M
Mitch Ryan
Equity Analyst

And sorry, this one also, again, semantics. But in the written release today, also on Page 5, you said IGO understands Train 2 at Kwinana Refinery is partly constructed with approximately 50% of capital. I'm just wondering why the use of understands. I realize it's absolute semantics, but I just -- yes. Is it 50% approximately constructed, or is there something else that we're not quite aware of?

P
Peter J. L. Bradford
MD, CEO & Executive Director

No. So 50% of the CapEx is spent, but as I explained before, we've engaged Lycopodium to do the design study to understand and do the gap analysis on what else is remaining to be spent. So that will inform our final percentage. What we understood in 2020 and based on 2020 cost estimates was there's about USD 190 million to spend. The work by Lycopodium will verify or validate that number. And then the other number we talked to there is percent construction complete. We've got a 20% to 30% estimate there. And some of that construction completion will be tied to Train 2 on a direct basis, and that will include the key bits of plant that are already in place, such as the calciner and sulfation kiln, et cetera. And then we've got some indirect construction items for Train 2, where we've got shared infrastructure between Train 1 and 2. So somewhere around the 20% to 30% construction completion is our understanding. But what we haven't done, which is why we've used the words understand, is we haven't done that detailed work to, line by line, work out what exactly is done and what the percent completion of each item is. We're all engineers, right?

M
Mitch Ryan
Equity Analyst

Yes, exactly. I'm often -- I could be found guilty of using the word understands quite often a lot. So I just wanted to understand also with regards to Train 3 when you may feel -- when you would look at commencing the financial studies on that. And at what point we should start to -- you would be likely to start talking to the market about that with regards to Kwinana Train 3.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, sure. So in the calendar year '22 budget for TLEA, we'll be incorporating a trade-off study for Train 3 and 4. That will be sort of like a scoping study type thing. And off the back end of that, we should be able to talk with a little bit more confidence on Train 3 and 4.

M
Mitch Ryan
Equity Analyst

Okay. And final -- this is my final last question. The -- you sort of intimated that the guidance and the planning within TLEA is accelerating, and that there may be sort of increases to previous guidance. So I just wanted to understand if that was relative to the guidance that you gave today on Slide 18 or if that was -- what that was relative to? Or if it was just relative to the previously disclosed information?

P
Peter J. L. Bradford
MD, CEO & Executive Director

This is referring back to the comment I made earlier?

M
Mitch Ryan
Equity Analyst

Yes. Yes.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. Sure. Yes. So when we committed to this transaction and made our announcement back in December 2020, we were looking at totally different plans for Greenbushes and for Kwinana for calendar year '22 and '23. And as I said -- mentioned earlier, once spodumene prices kick, once lithium hydroxide prices kick, there was an acceleration of activity to get more spodumene production. So bringing CGP2 online while also keeping CGP1 online, and that was envisaged back in December 2020. And then there was that level of urgency to get going on the commissioning for Train 1 and start those engineering studies for Train 2.

Operator

Your next question comes from Daniel Morgan from Barrenjoey.

D
Daniel Morgan
Analyst

My question relates to the Kapanga deposit, which if I'm seeing that right, which lies to the east of the Central Lode at Greenbushes. In the presentation, it looks like there's been a high-intensity drilling campaign there. So just wondering when is the evaluation of that deposit due to be complete?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. The work there, Dan, is ongoing, and we don't have a time line for when that may be available. We do recognize that Tianqi and Albermale may have resource reserve reporting obligations coming up in early calendar '22, and that may be a catalyst for an update on Kapanga.

D
Daniel Morgan
Analyst

Okay. And if we look at your cost -- sorry to keep going back to this $310, does that include your freight and shipping costs? I presume it does.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes.

D
Daniel Morgan
Analyst

Okay. And then with the discussion with your JV partners about when you're going to be updating the market on guidance and providing that and also your transparency, you talked about a budget for 2022 that you need to review. Is there a later date that you would expect to maybe provide market guidance on the various parts of your lithium business? Perhaps towards the end of this year or early next?

P
Peter J. L. Bradford
MD, CEO & Executive Director

In an ideal world, being able to talk to that with our December quarter reporting would be a great outcome.

D
Daniel Morgan
Analyst

And is the reduced level of transparency versus, say, Nova, for example, is that being driven by a particular member of your JV? So one of your JV partners. And is it unlikely that they would look at being more transparent in the future, given what appears to be not a lot of transparency in this release?

P
Peter J. L. Bradford
MD, CEO & Executive Director

I'd just characterize it as this as early days in the relationship, and I wouldn't make any comment further than that. Thanks, Dan.

D
Daniel Morgan
Analyst

Okay. And last question just Silver Knight. Good to see that, that's now been completed. What do you say about what work has been done since the mining lease application was made by Creasy Group a while ago now and the initial resource then? What can you say about drilling or activity? Or is it now up to you to expedite this now that you've completed it?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. So Creasy Group did a lot of work to progress a mining lease application and to start progressing traditional owner approvals and really have done very little work on the ground for -- since the start of 2020. I don't think Creasy Group had any presence on the ground there for all of 2020, 2021, and I'm not sure when the most recent work prior to that was done. So we're now picking up the charge on all of that. And just for the benefits of being an operating mining company, I think we have better access to the resources to move that work along faster. We can also leverage off the great relationship we have with the local traditional owner group to put those necessary traditional owner approvals in place.

Operator

Your next question comes from Matthew Frydman from Goldman Sachs.

M
Matthew Frydman
Research Analyst

Just a couple of quick ones on Greenbushes. I guess, firstly, thanks to Scott for the additional detail that you provided on the unit costs. Just so I'm clear on that, you're saying basically that implies that you sold a little bit more during the quarter than the production numbers that you've given. Is that also the case for the revenue number that you've given? Is it also based on those slightly higher spodumene sales rather than the production fee?

S
Scott Steinkrug
Chief Financial Officer

That's exactly right there. So the revenue number is based on what we've sold.

M
Matthew Frydman
Research Analyst

Okay. Great. That's very helpful. And then secondly, on material movement, I guess, there was a question earlier around the density and the conversion from bcm to tonnes. But I guess, whatever reasonable numbers you use, you can see that the strip ratio is still running below, I guess, the life of mine average of around 3.7x that you guys have given before. Can you give us an idea of the profile of material movements going forward? And I guess when you're expecting things to pick up back to that life of mine strip ratio. And even if you can't speak specifically to any specific near-term guidance, can you give us an indication of actually what's happening on the ground? If any -- is any fleet being added at site currently or any new waste dumps or routes being developed that will allow or enable the pickup of material movement?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. Great question, Matt. Yes, there's a whole body of work being done to prepare the mining operation for the increased scale with increasing number of concentrators coming online and with the scale that's going to be required to expand the pit there at Greenbushes. And that main pit ends up being something like 2.9 kilometers long. I think about 0.8 kilometers wide and about 480 meters deep at its deepest point. So it will be a fairly large-scale operation. And what we'll see over the coming years is a ramp-up of waste mining activity and stripping to be able to deliver all of that and aiming to sort of flatten that off at a level to allow a contractor to have a sort of consistent amount of equipment on site. So all of that -- planning for that is well advanced. There's some studies going on to look at owner mining versus contractor mining options. There's a body of work that's started to put in place the infrastructure for the expanded size of the mining operation and -- so all of that work is progressing according to plan. And if you think about when that needs to be in place, it needs to be in place by about calendar '23, which is where we start to see the uptick in mining volumes.

M
Matthew Frydman
Research Analyst

That's really helpful. I guess, again, one of the themes of the call has been around your ability to provide guidance and when you expect to, I guess, give a bit more disclosure on the assets. Any idea if you're expecting to be able to release the outcomes of any of those studies to the market, maybe in CY '22 at some point?

P
Peter J. L. Bradford
MD, CEO & Executive Director

That would be a great outcome. And I think it would be really helpful to investors to provide that sort of granularity on those life of mine mining projections, and we'll continue working to be able to make that happen. We can't make any comments as to when that may be at this stage.

Operator

Your next question comes from Kaan Peker from Royal Bank of Canada.

K
Kaan Peker
Analyst

Two questions from me. Just the first one on Kwinana, just to follow up on Rahul's question earlier. Post batch commissioning, I think a number of modifications were made. You mentioned that they were previously identified in the technical study. I think last quarter, you also mentioned that the next sort of goal is to operate around -- continuously at around 50% capacity and then progress through quality improvements. When do you think you'll be operating continuously around that 50% capacity? And also, are there any modifications previously flagged in that technical study still to come? And I'll circle back, second question.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, of course. It's like all commissioning processes. You're actually trying to test all -- and demonstrate full capacity for all bits. So it's not that we're sort of in the sort of aiming for a 50% level. For instance, if we look at calcining, for example, we pushed production rates there up to, I think, 18 tonnes per hour versus a 21 tonne per hour nameplate. And that's to understand where the limitations are, et cetera. And so we're doing that with all of the various bits. Where the 50% comes from is when we get to the point where we're demonstrating battery grade, we want to make sure that we have got a percentage of production that's a realistic amount, that's delivering that battery-grade product. So hand on heart, we can say, this is what we're going to be delivering longer term. But like all commissioning processes, it's just going to be push the plant, find out where the obstacles are, make whatever changes that are needed, restart, push the plant, find the obstacles, et cetera.

K
Kaan Peker
Analyst

Sure. And then are there any modifications previously flagged in that technical study still to come?

P
Peter J. L. Bradford
MD, CEO & Executive Director

No. All of the work that we understood needed to be done back in December 2020 has been done. And -- with the exception of some minor ones that had nothing to do with being able to deliver production outcomes, more around asset integrity. And we're going to have to cycle back and do those. So that's things like lining some of the concrete-bonded areas to stop our -- to limit our chemical attack on some of those. We still need to do the work, but we said we don't need to do it at this stage. We don't need to have that as an obstacle to meeting our production targets.

K
Kaan Peker
Analyst

Sure. Also just with the accreditation process. Given Tianqi has done it previously, is there any possibility that, that accreditation process can be fast tracked? And is it actually sequential to first production?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Look, I think the -- but we'll still be selling product into the spot market, possibly by auction-type platforms while we're doing that -- our qualification process. So I think it will be a matter of demonstrating the battery grade, demonstrating being able to operate continuously at or above the 50% nameplate, and do that on a consistent basis. Demonstrating that we're turning a profit and, therefore, I'll make -- say that we're in commercial production and then be selling product into spot markets while doing the qualification. And once we satisfy the qualification, trigger whatever clauses that are in contracts and start delivering into offtake contracts. We've been guided that a good, reliable estimate for the qualification is 6 months.

K
Kaan Peker
Analyst

And secondly, on Nova, just in the commentary, you talk about FY '21 incentives to employees and your rents of $0.21 a pound. Just wondering if you could sort of break that up. What they actually relate to and are they ongoing?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. Look, they're not, they won't be ongoing. What they include is the payments that we've made throughout -- in that quarter then that relate to, a nice part, to FY '21 assets. And we put these in the annual report as to what they are, and they get rolled down, too, within the organization. It also does include some annual tenement rents and share payments that have been made in the quarter. So it's a bit of a mixed bag, but that will be the 2 main ones.

K
Kaan Peker
Analyst

So that incentive payment is only going to be experienced in 1Q.

S
Scott Steinkrug
Chief Financial Officer

Certainly, the uplift in 1Q, yes, that's correct. We will accrue for amounts. I mean we'll not disclose whether it is quarter-on-quarter. It is in the wash amongst all of the cash cost, but it was higher in this quarter as a result of the accruals that we had to put in place to complete FY '21 vested accounting.

K
Kaan Peker
Analyst

Sure. And how much of that $0.21 does that contribute to?

S
Scott Steinkrug
Chief Financial Officer

Look, I can't say cents per pound. It would be -- look, it would be the lion's share of that portion of that $0.21 per pound.

Operator

Your next question comes from Peter O'Connor from Shaw and Partners.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Just following up on the last question on the process, Scott, the mechanics over the next couple of quarters of how this plays out in financial statements on a quarterly or the half yearly basis. So when you've got a plant that's not commercial, how does it appear in the accounts? When it's commercial, how does it appear? What price would you be getting for product, which is not yet deemed to be battery grade? And do spot sales reflect a discount? How do we think about those dynamics over the next 1, 2, 3 quarters?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. So any revenue that comes in before commercial production will just be netted off against the...

S
Scott Steinkrug
Chief Financial Officer

[indiscernible]. We'll have to form an opinion as to whether we actually net off the revenue against the cost of the plant. I know there's change in accounting standards that effectively say that in a year or 2's time, you're going to be prohibited from doing that. And when you then make that -- when that gets put into place, you need to actually roll it back as well. So we may just end up not actually applying that against the capital cost of the project. We haven't disclosed it because it's not really that material, any preproduction or pre-commercial production revenues we've incurred for the quarter. We haven't disclosed that because as you can see, it's not in commercial production and probably wouldn't give a fair indication of what the earnings capability is. So we'll look to reporting that as it becomes a bit more material down the track.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Onto the revenue, how do we think about revenue as you're creating a product, which is not yet qualified? There may be the...

S
Scott Steinkrug
Chief Financial Officer

Look, I think the way -- I mean, the way we've got to think about this is that we will be showing our share of the net profit after tax of the TLEA group basically. And so if I wanted to take a look at that $13.2 million -- keep in mind, it's an unaudited number. We put out there on a 100% basis, Greenbushes sales, you can work out the costs and EBITDA. So there is -- there's a bit of a waterfall in that can be done in between our 25% share of that leading down to the $13.2 million. And I've highlighted part of what that is. There's about $4 million to $5 million, which represents the excess of what we paid for our share in the business relative to the book value of TLEA. That was about $4 million to $5 million. That then gets you to a position, maybe the TLEA stand-alone in their account before the Albemarle see. So on one of the previous calls, there was -- there's about $5 million that I hinted at for the retranslation of the U.S. dollar debt at Greenbushes. And then you've got to factor in a little bit of D&A as well at Greenbushes. That will then get you thereabouts up to that 25% share of the EBITDA Greenbushes number. That's all we will be reporting on a half year and an annual year basis. And so what we're trying to do here by showing some 100% numbers, is just to provide a bit more granularity as to the underlying performance of each of the businesses.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Right. Pete, you mentioned before about your partners, Tianqi and Albemarle, will have reporting obligations pending regarding Greenbushes. What level of reporting do they do? Is it a Canadian reporting, Australian reporting? And how confident and happy are you with the code at which they'll report to?

P
Peter J. L. Bradford
MD, CEO & Executive Director

I'm not able to comment on the code that they'll report to with the -- yes, I'm not able to do that, Peter.

P
Peter O'Connor
Senior Analyst of Metals and Mining

Okay. And lastly, COVID heading into December 1 and January 1, what level of your staff at both lithium and Nova are in a position that give you confidence that the assets -- that we're not going to lose some peripheral or marginal people at those projects?

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes, sure. I'll get Matt to talk to that, Peter.

M
Matt Dusci
Chief Operating Officer

Yes. So effectively, first vaccination is required by December 1. We think that majority -- well, the majority of our workforce is fully vaccinated. We're also working with contractors to ensure that, that process runs seamlessly. If anything, there'll only be a handful of people across both IGO and contractors that will make that decision.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. And I think what we've tried to do there, Peter, is be very proactive in communicating with our people and getting ahead of the government directives on how this is supposed to operate and to help our people through the journey. Because I think what we have at Nova and on our operations would be reflective of broader society, where you see some people who are highly supportive of vaccinations and some aren't. So it's a matter of working with each of the individuals in our business to understand and help alleviate some of their concerns.

Operator

Thank you. That is all the time we have for questions for today. I'll now hand back to Mr. Bradford for closing remarks.

P
Peter J. L. Bradford
MD, CEO & Executive Director

Yes. Ladies and gentlemen, everyone, once again, thank you very much for participating in the call today. We really appreciate your support, and we look forward to engaging on the next periodic reporting. Thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.