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IGO Ltd
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Thank you for standing by, and welcome to the IGO Limited March 2021 Quarter Investor Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Peter Bradford, Managing Director and Chief Executive Officer. Please go ahead.
Thank you, operator, and good morning, everyone, and thank you for joining us on the call today as we provide an overview of our operating and financial results for the March 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 at the end of the call.Slides 2 and 3 highlight our cautionary statement and disclaimer and competent person's statements. Of note, all currency amounts in the presentation today are in Australian dollars unless otherwise noted. Moving to Slide 4, where I would like to note our ongoing process to improve the safety and well-being of everyone who works in our business. We do this by making our workplaces safer and by working with our people to put in place effective and fit-for-purpose systems and process and a strong safety culture. Throughout the last year, this strong safety culture has meant that our people at Nova, across our exploration projects and at our South Perth office have adapted to the changes that were necessary as a result of COVID-19 to ensure their own safety and well-being and to safeguard the communities within which we operate while also maintaining our business continuity.Last Friday, the Perth and Peel regions in Western Australia went into a 3-day lockdown as a result of a community transmission of COVID-19. And once again, our people have adapted. I take this opportunity to thank all our people, our direct employees, our contractor employees and our joint venture partner employees for the manner in which they have responded over the past year and continue to respond today.Moving to Slide 5. We have delivered another successful quarter as we have repositioned our portfolio to align with our strategic focus on clean energy metals, as highlighted on this slide. Firstly, at Nova, we have safely delivered another strong operational quarter with production in line with guidance and with cash costs lower quarter-on-quarter. We are on track to deliver at the top end of our guidance range -- our production guidance range with cash costs materially better than our original guidance.Secondly, production and cost performance from Tropicana for the March quarter was as expected and in line with the mine plan. In parallel, and subsequent to quarter end, we announced the divestment of our stake in Tropicana to Regis Resources for $903 million.And thirdly, we continue to progress the completion of the transformational transaction with Tianqi, which we announced in December and which we expect to complete within the current quarter. I will talk to these matters in greater detail throughout the presentation. Finally, IGO was elevated to the S&P ASX 100 Index during the quarter, and was also included in the S&P Sustainability Yearbook. Both of these reflect the maturity and increasing global relevance of our business.Moving to Slide 6 where we outline our group financial results for the March quarter. I wanted to start by highlighting 3 key drivers to the financial results: first, an increase in nickel and copper concentrate inventories at Nova during the quarter, which deferred sales into the June quarter; second, lower production at Tropicana as anticipated, with the focus continuing to be the cutback of the Havana pit; and third, quarter-on-quarter movements in the Australian dollar value of the currency instruments that we have put in place to protect the U.S. dollar purchase price for the Tianqi transaction.These factors have led to revenue for the quarter of $186 million, EBITDA of $93 million and underlying free cash flow of $51 million, all of which were lower quarter-on-quarter. Revenue was primarily impacted by lower nickel and copper sales volumes as a result of the timing of shipments, which I've already talked to and we'll catch this up in the fourth quarter. The net profit after tax result, as mentioned, was significantly higher due to the depreciating Australian dollar, while cash flows were lower due to the lower sales receipts from both Tropicana and Nova for the reasons already given. Group EBITDA margins for the quarter remained steady at 50%.Moving to Slide 7 where we illustrate the cash movements over the quarter. Operating cash flow from Nova and Tropicana were both lower quarter-on-quarter driven by the lower sales receipts. Exploration activity was lower quarter-on-quarter with the exploration team pausing field activity over the course of the summer months. Corporate and other costs of $15.5 million was higher quarter-on-quarter and include one-off bank finance costs and commitment fees totaling $7.2 million relating to the debt facilities put in place for the Tianqi transaction as well as annual insurance premiums. Including these items, corporate costs were generally in line quarter-on-quarter.I also note the $53 million received following the completion of the retail component of the entitlement offer announced in December as part of the Tianqi transaction. Closing cash balance of approximately $1.3 billion, combined with the approximate $900 million proceeds due from the Tropicana sale, positions IGO well to settle the Tianqi transaction in the June quarter, while maintaining a strong balance sheet with approximately $300 million net cash on a pro forma basis.Moving to Slide 8. As discussed earlier, we booked some large swings in net profit after tax quarter-on-quarter as a result of the movement in the Australian dollar-U.S. dollar exchange rate which has impacted the Australian dollar value of the currency protection mechanisms we have put in place to protect the Australian dollar-denominated value of the USD 1.4 billion purchase price for the pending Tianqi transaction.In the December quarter, we booked a $39 million ForEx loss, primarily as a result of the Australian dollar appreciating during that period between the announcement of the Tianqi transaction on the 9th of December and the end of the period on the 31st of December. For the March quarter, we have seen some of this reverse with a net ForEx exchange gain of $23 million. This has given rise to the large $63 million quarter-on-quarter swing, which is shown on the chart on this slide. The majority of this swing is attributable to the revaluation of U.S. dollar cash balances into Australian dollars with a smaller contribution due to the changes in the mark-to-market value of currency hedging instruments that also form part of the currency protection measures. Adjusting for these foreign exchange losses provides for an adjusted net profit after tax of $25.6 million.Moving to Slide 10 and a brief review of the Nova operation. I'm pleased to report that Nova has safely delivered another strong quarter of operations. Metal production was just over 6,800 tonnes of nickel and just over 3,000 tonnes of copper and 256 tonnes of cobalt in concentrate, with all metal production marginally lower than the prior quarter as a result of lower feed grades in line with the mine plan.Cash costs for the quarter of $1.83 per payable pound of nickel after byproduct credits reflect higher quarter-on-quarter average copper and cobalt byproduct credit pricing, partially offset by the marginally lower production volumes. Importantly, with 1 quarter of results remaining for the 2021 financial year, Nova is on track to deliver at or above the top end of full year production guidance.Cash costs are expected to continue to benefit from higher byproduct credit pricing. And consequently, we have lowered our full year cash cost guidance to a range of $1.80 to $2.10 per payable pound, which is materially lower than our original guidance of $2.40 to $2.80 per pound.Moving to Slide 11, where we highlight the consistent production and falling cash costs reported from Nova over the last 4 quarters. On the right, we reconcile EBITDA to operating cash flows, and you can see the P&L impact of a build and product inventories at quarter end, and the impact that this has had on cash flow in the quarter. We expect this to reverse in the June quarter as we sell these concentrates into the market.Moving to Slide 12 and on to Tropicana. Where I will provide an update on the quarterly results and also the sale of our Tropicana interest to Regis that we announced earlier in April. Moving to Slide 13. As guided at the half year result, production from Tropicana during the March quarter was lower than the previous quarters. On a 100% basis, Tropicana produced just over 82,000 ounces, which equates to just over 25,600 ounces sold to IGO's account. This lower production is a result of lower milled grades resulting from an increased draw from low-grade stockpiles during the period in which the Havana open pit cutback was progressed. The lower production volumes resulted in higher cash costs and all-in sustaining costs. Notwithstanding this, Tropicana remains on track to deliver into the full year guidance range with June quarter production expected to be approximately 90,000 ounces.Moving to Slide 14, where we illustrate the impact that the investment in the Havana cutback has had on production and unit costs in the quarter. To the right of the slide, you can see the reconciliation between EBITDA and operating cash flow, which demonstrates the P&L impact of drawing on low-grade stockpiles with the benefit appearing in cash flow when the ore is converted to [ doray ] and outturned at the Perth Mint.Moving to Slide 15, where I will talk to the Tropicana transaction which we announced subsequent to quarter end on the 13th of April. As previously communicated to the market, we commenced a strategic review of our holding in Tropicana in the second half of 2020. This review was designed to understand how best IGO could extract value from Tropicana. Our global sales process was subsequently commenced in late 2020.Tropicana is undeniably a high-quality asset. And as you would expect, the sales process generated strong and highly competitive interest from a range of parties. The process concluded with our announcement earlier this month to sell our interest in Tropicana to Regis Resources for cash consideration of $903 million, subject to completion adjustments.Last week, AngloGold Ashanti formally waived their right of last refusal, meaning the transaction with Regis will proceed with completion expected on or before the 31st of May. This has been a great outcome for IGO, with the divestment delivering 3 key benefits: first, it maximizes value for IGO shareholders through a cash sale. Second, once the Tropicana and Tianqi transactions are completed, IGO will have a strong balance sheet with pro forma net cash of approximately $300 million and well positioned to continue to pursue value-accretive growth for our shareholders through both M&A and exploration; and finally, it completes our evolution, our transformation to strategically focus on metals critical to enabling clean energy, with a unique portfolio of high-quality assets, delivering a diversified suite of clean energy products including nickel, copper, cobalt and lithium.Turning to Slide 16 where I will briefly talk through the status of the transaction we announced in December to invest in the lithium partnership with Tianqi Lithium Corporation. Turning to Slide 17, on this slide, we have set out the key highlights of the transaction. To summarize, IGO is investing in Tianqi's Australian lithium assets via a new incorporated joint venture which gives IGO an indirect 25% interest in the world-class Greenbushes lithium mine and a 49% interest in the Kwinana lithium hydroxide refinery. The purchase price of USD 1.4 billion will be funded from existing cash on hand and proceeds from the Tropicana sale.Moving to Slide 18 where we outline the pathway to the completion of the transaction. As you can see, the majority of conditions to the transaction have been successfully completed. The remaining work streams relate to the restructure of the Tianqi controlled holding companies, which currently hold the Greenbushes and Kwinana assets. This internal restructuring of Tianqi's holding companies is progressing well, and we expect final approvals from the Foreign Investment Review Board and the Australian and U.K. tax authorities over the coming months. As such, the transaction remains on track for completion in the June quarter.Turning to Slide 19 and on to exploration. Turning to Slide 20. In the interest of time, I do not intend to talk in great detail about individual exploration projects during this part of the call, but I'm happy to discuss areas of interest during the Q&A. The March quarter is typically a quiet period for the exploration team with summer weather conditions, meaning it is unsafe to access many of our project areas. However, work has continued to progress around Nova and the Fraser Range with works being completed to prepare for drilling of the Orion tunnel lift on the Boadicea joint venture concession in the coming months.Elsewhere on the Fraser Range, the focus has been on drill testing the Copernicus target and on accessing the Southern Hills tenement areas with ground electromagnetic or EM surveys are well underway and continuing in the June quarter.At Lake MacKay, a joint venture with Prodigy Gold, our diamond drill hole testing a large conductor encountered a downhole interval of approximately 45 meters containing a mixture of massive, semi-massive, stringer and disseminated sulfides, including visible copper sulfides throughout. Assays, and final downhole EM results are pending.And at the Paterson Project, a range of work programs are underway on our various joint ventures with Cyprium, previously Metals X [ encounter ] and Antipa. Focus at our exploration projects is to identify new high-value nickel sulfide or sediment-hosted copper deposits, and we have the team, the technology and the tenure to maximize our chances of success.Moving to Slide 21 and to a summary of today's presentation. Moving to Slide 22. In conclusion, it has been another outstanding quarter for IGO as we rapidly progress our transformation into a business focused on metals critical to enabling clean energy. Nova continues to perform in line with expectations with solid production and excellent cash cost performance continuing to drive strong free cash generation. Meanwhile, our corporate development team has continued to deliver with the successful divestment of Tropicana to Regis while simultaneously progressing the transformational transaction with Tianqi towards completion.I look forward to finishing the current financial year with the successful conclusion of both transactions and updating the market and in real time as we achieve these key milestones. And finally, our exploration teams have mobilized back to the field to unlock organic growth opportunities for the business going forward.In summation, the successful execution of our strategy over recent years has put IGO in a great position to continue our aspiration of further growth and delivering returns to our shareholders. Thank you for joining us on the call this morning. We will now open up the call for questions. Thank you, operator.
[Operator Instructions] Your first question comes from Rahul Anand with Morgan Stanley Australia.
A couple for me. Look, firstly, [ re ] the nickel recoveries, obviously, slightly off from the last quarter. You mentioned the finer grain copper in the reserve. How do we think about this going forward, is this now past us? And then looking ahead also, the grade starts to go closer to the 1.8% mark. How should we think about recoveries under that scenario? That's the first one.And then the second is on Greenbushes, just the internal restructures that are required at Tianqi. And if you could provide a bit of color on that, sort of what are they and what the progress is so far with those?
Yes, sure. I'll first get Matt to talk to the nickel recoveries. Then either myself or Scott will talk to the Greenbushes internal restructuring approvals.
Okay. So in terms of nickel recovery, you're right, we saw a drop in nickel recovery for this quarter. That's largely -- I mean there was a number of factors why we saw that recovery drop. We had a major shut in that quarter. We also looked at changing reagents in that quarter as we trial different reagents. And we're also feeding in a lot of disseminated mineralization during the quarter. We would expect to see grade go up in the next quarter, increase recoveries. And we are still working on improvement programs for the next financial year to ensure that we consistently deliver and improve recoveries.
Okay. And in terms of -- sorry, Matt, just a quick follow-up there. In terms of future grades expected to go closer to the 1.8% mark, how should we think about recoveries under that scenario? I mean would you be able to do numbers similar to the 88% mark that you've achieved past quarter or 87%? Or should we expect them to come off?
No. We -- the idea is to continue to hold those recoveries as they stand now. Recoveries are driven a little bit by grade, but they're also driven by what we call the high MGO [ portion ] of the deposit, which is also not necessarily linked to grade as well. So the aim is to continue to hold recoveries consistently.
Rahul, I'll just talk to you then about the restructuring that's still required to be done, and this has advanced quite well. The primary one is in relation to the Lithium HoldCo which is a current U.K. tax resident company, which is in the process of being migrated to an Australian tax residency. Same time, that's got to be then accepted from an Australian tax office point of view as well, so then that's a dual process that's currently well underway. The other restructuring step -- well the other approval that has already been achieved and is in relation to corporate reconstruction relief, which is something that we achieved a month or 2 ago.
Okay. Perfect. And then you are expected to meet those time lines by June, yes?
Yes, correct.
Your next question comes from Mitch Ryan with Jefferies.
Just can you clarify one more on the Tianqi acquisition, the timing between the completion of the conditions precedent and then the settlement of the transaction. What mechanisms are in place around that?
Yes. Mitch, I'll take that one. So if we were to complete all of the CPs, then we've been -- we'll post more than 5 days prior to month end, then we will settle at the month end. So we're talking here potentially like if we would -- if we were to complete all of the CPs by, say, the 20th of May, just to pick an example, it would settle by the end of May.
Okay. And then so if it's -- if those conditions precedents are completed on, for example, the 10th of June, I don't even know if that's a workday, it would be 5 days hence that or it would be at the end of June.
In that case, we tend to -- in that case, that would push our completion out to the end of June. Yes. The contract is designed to end on a month's end. But it's the close -- it's a minimum 5 days between the date the conditions are met and the month's end. So anything after the 26th May would fall back to a June completion date rather than a May completion date.
And then similarly on troughs, just understanding the numbers, we just modeled it up in the fourth quarter up to the 12th of April and then post that it's been black box to note they won't come through either financials or production numbers beyond that, will they?
Mitch, so just to be clear, we've got -- this is almost like a lockbox mechanism transfer. So we will still keep on booking the P&L impacts through to the sale effective until we hand over the keys, however the economic benefit then will then revert to Regis of -- and that is basically the net difference in between cash calls we pay and gold sales that we receive.
Okay. And then finally, just moving on to exploration. I noted there were sort of several targets tested and downgraded around Nova. Just wondering if you still remain confident about the prospectivity of the remaining targets or identifying further targets within your holdings?
Yes. Mitch, it's Matt here. We certainly do. In terms of prospectivity, the next major work program that will start to kick off is drilling designed to go into the Boadicea ground, which we'll get access to shortly in this quarter.
Okay. And one very last one. Just the Paterson and Antipa JV, that large aircore program. When do we start to sort of see results coming through to the market on that?
Yes. I'd be expecting to see that come through this quarter. As we see across the whole sector, assay labs are seeing slow turnaround in assay labs.
Your next question comes from Hayden Bairstow with Macquarie.
Just a couple for me. Just on the lithium transaction. Obviously, with Tropicana now being done, just keen to understand whether you will use all those debt facilities or is the bridging finance down to get set to one side [indiscernible] the other 2. And then just on -- just more on the exploration story. I mean, obviously, with all these deals completing, you merge with net cash, is the sort of belt-scale strategy still going to be limited to largely Australia? Or are you sort of starting to broaden the search for more battery minerals type opportunities on the exploration side of things?
Hayden, I'll talk to the other debt position. So we've announced a pro forma cash of $300 million. So that's a net cash position. Ultimately, whether we draw down debt, it will depend on what comes in first, i.e., if we receive the proceeds from Tropicana sale ahead of having to pay out in the consideration for Tianqi. I mean, it's entirely possible here the way things are aligning that we won't be drawn down on the debt, and then we've got a decision to make over the next coming months as to what we do with our debt facility.
And then on the exploration, Hayden, we've got a full exploration book at the moment with our belt-scale projects. But they're all towards the greenfields end of the spectrum. And so we have an ongoing work program to identify new exploration opportunities, both in Australia and elsewhere. which are aligned with our focus on high-value magmatic nickel sulfide projects and also settlement-hosted copper projects. And it's a matter of continuing that work to identify the best opportunity for the investment of our dollars.
Okay. Great. So Scott, you might actually emerge this with none of those debt facilities being used and then look for some sort of different corporate debt facilities. Is that a takeaway from what you said?
Takeaway is that we can either draw down some or all or none based on the numbers we're seeing at the moment and depending on the timing of both transactions. We may want to then start discussions with the lenders as well about what we do with the facility, whether there's a possibility to rightsize it or to keep flexibility up our sleeves. So there's quite a few options we have on the table at the moment.
As you would expect, Hayden, a lot of work goes into putting these facilities in place. And ourselves and the counter-parties would be reluctant to sort of park those without looking at some sort of enduring benefit from all the work that we put in. So there is an opportunity there to potentially renegotiate those facilities and park them for a future use.
Yes. No, that was sort of my thought process. I know you've got them locked away and that you'd still look at keeping them in some form. And just a final one on Nova. I mean there was discussions previously about obviously, the grade profile does fall back. There was opportunities to sort of lift the throughput rates sort of the mine life a bit. Is that still on the table now that you've got this sort of big long-term lithium sort of pipeline in place to maximize sort of the NPV of Nova? Or you just going to sort of keep it running as it is?
Our focus has always been on maximizing NPV. And certainly, what we did for the current financial year was we turned throughput rate up a little bit from 1.5 million to 1.6 million tonnes per annum to offset the slightly lower-grade profile year-on-year. And we would expect to continue to do that in subsequent years. with the potential there to mine and process at a rate of up to 1.8 million tonnes per annum.
And that -- so that rate doesn't require any more capital to the plant in the underground level?
That's correct.
Your next question comes from Sophie Spartalis with Bank of America.
I just wanted to expand a little bit on Hayden's question. We talked around your appetite to go offshore and exploration basis. Just in terms of your appetite to buy producing assets offshore? Or would you prefer to stay in Australia?
It's really driven by opportunity, and both from an exploration and an operating asset perspective. We want to improve the maturity of our exploration pipeline. And we really see -- we really believe that we have to look at opportunities both in Australia and outside to achieve that. And ideally targeting tenure that -- where -- which is post discovery. And then we would also -- as we continue to look at potential M&A opportunities, as we have done in the past, we look at opportunities both in Australia and offshore. And the real drivers there are about projects that are aligned with our strategy, our strategic focus on clean energy metals that also meet our quality requirements. And that are also in jurisdictions that have similar mining investment fundamentals to what we enjoy here in Australia.
So just a bit more of a pointed question then. Would you look at opportunities in China for lithium?
We haven't looked at any upstream opportunities in China.
Okay. And then just in terms of the cash buffer, you've talked here of a pro forma net cash position of $300 million. What kind of cash buffer would you want to keep hold? You talked around wanting to park those debt facilities for future use. Would you be considering any capital management in the near term? Or you basically want to save your bullets for your M&A?
We have a minimum cash requirement that we self-imposed for the business, if you like, which is $100 million. And then when it comes to capital management, we would look for a consistent and measured approach to capital management. And to continue to deliver strong cash returns to shareholders, just as we've done every year since 2005.And we -- over the last few years, our policy there has been to return 15% to 25% of cash flow to shareholders. We're in the process of working with the Board to reset that policy. And we would expect to do that on the completion of the transaction with Tianqi and the transaction with Regis, most likely in our July announcement or our August announcement. At the moment, we're cautious about saying what we will do until we've completed those transactions.
No. Fair enough. That's fine. And then just had a quick follow-up to, I think, Mitch's question on the financials and how you're going to treat Tropicana. So given that you do expect the deal to close by the 31st of May, then we should be adjusting our models to exclude the June month of production and therefore, financials. Scott, is that correct?
Yes. Absolutely correct. Sophie. So from -- if this completes at the end of May, There won't be any impact to IGO whatsoever. However, for the months of April and May, it should be P&L impacts only. And then those -- the cash flow in those 2 months reverts to Regis as part of a completion adjustment.
Your next question comes from Levi Spry with JPM.
Well done and congratulations on the Tropicana sale. It looks like it was very well timed. Can you just talk to us a little bit about what happens next? So have you closed out the hedge book and remind me of your -- the tax implications?
Yes, Levi, it's Scott. I'll take that one. Closing out the hedge book, that's something that we'll do as part of the transaction closure. So that is -- look, I see there are 3 completion adjustments that need to be factored in with the sale price. And that is usual working capital-type adjustments that have to be netted off and calculated as of the end of March. There's the net revenue and cash adjustment, and then there's the closeout of the hedge book. So the hedge book is currently at or around about $15 million, $16 million out of the money. So we pay that out and depending on when this happens, we could be a couple of million dollars below that as well and absolutely dependent upon the gold price at the time that we close it out. The reason we might be a couple of million dollars below that is because we would deliver into the May commitments. In terms of -- does that answer your question then for that?
Yes. And tax, please.
Okay. So the tax position is, so a $900-ish million sale price, if you look at the tax written-down value, that's about $200 million for Tropicana, and so that would then generate a gain of $700 million. Now we have got tax losses that we can apply against that. And some of that is subject to available fractions. So that sort of complicates things a little bit. But what we expect is that following those losses, we'll have about $400 million of -- a tax position that we would then pay tax on. So 30% of that $400 million is around $140 million. And so that would be then the tax payable purely with respect to the transaction. So these are the numbers that we're seeing at the moment. Obviously, we need to run that through with our tax advisers at the end of the year, but that's pretty indicative.
Excellent. And just one question on Tianqi completion. So thanks for taking us through the approval steps there. What happens next in terms of restarting works on train 1, tendering for that. Can you just sort of talk us through that time frame. And what's the next steps there?
Yes. There's a tender process during the March quarter for the remaining punch list items on train 1. And a preferred bidder has been identified. The preferred bidder has put some people on site that have started doing some of the initial works while the final contract is formalized. And we would expect the full mobilization of the preferred bidder within days.In parallel, all of the other work to start readying for the commissioning process, including the hiring on of people to replace some of the attrition loss from 2020, that's underway, and you'll see some of the evidence of that on SEC or LinkedIn when you're on your social media.
[Operator Instructions] Your next question comes from Peter O'Connor with Shaw and Partners.
You guys have been very busy, well done. We talked a lot on the call in December last year about governance. I know you've had, I guess, another 3, 4, 5 months of investing in this transaction. How is that side of it looking? And against the overarching, I guess, dark cloud of Australia-China relationships is what you're seeing better? Are you more comfortable?
Yes. We've had the benefit now of an extra 4 or 5 months of relationship building and really getting to know the people and the business. And during much of the March quarter, we had the newly appointed Tianqi CEO, Frank Ha in Perth. And I was able to spend a lot of time with him, getting alignment on how we saw the joint venture operating in the future. And coming to a common understanding on the degree to which -- or the opportunity for IGO to be more invested into the day-to-day activities on the assets.And certainly, when we look at something like the -- to give you an indication of that, the work we're doing at Kwinana. We formed a 3-person steering committee to oversee the works underway for the commissioning process. And we have IPO representation on that steering committee. So I think that's a great display of the both the governance and the relationship aspect. And certainly, this is -- we wouldn't look to any geopolitical influence on our day-to-day business activities to that part.
Okay. Can I just step back to the debt. Back at that call, you talked about 3 facilities -- a 3-year amortizing facility, 3-year revolving credit and 1-year bridge. So thinking about those and how you talked about how you may work with you, what you call club of banks. Is it the bridge gets dropped, you keep your revolver? How does -- thinking about that last answer you've given, what parts of the debt for Regis to drop and what parts will be kept?
Yes. And some of it's a little bit automatic because as we negotiated the debt facilities, we had the parallel work stream with Tropicana ongoing. And the banking club were 100% aware of that process. And therefore, there were some automatic mechanisms that were built in, in the event that we did sell Tropicana. So going forward, the debt package sort of drops from about $1.1 billion automatically down to around the $450 million.
Got it. Okay. And just thinking about the future of our [ joint V ] accounts, Scott, how do we think about the accounts? Have you talked about $8 functional currency or given the Tianqi set up? Is the U.S. still a functional currency where we're heading with this company?
Well, you're right. So not only are the [indiscernible] and functional currencies between the 2 organizations. There's also differences in reporting experience periods. We report in a year [indiscernible] as in a year. We have the workflow and ultimately do whatever is most efficient for both of us. At this stage, we'll be reporting numbers potentially 1 month of results in [indiscernible] under equity accounting principles. And look at some of them, we'll think about certainly very hard over the next 12 months as to whether there's some sort of alignment that we would do. We certainly got to be [indiscernible]
Debt balance for deck year-end and your sort of functional currency is that on the table?
Look, it bets on the table to give it a bit more thoughts. I don't think I want to make any judgments or announcing some just yet.
Okay. And Pete, on Nova, just 2 questions. Firstly, the cost slide you put up, which is Slide 11, and you talked about the trend, which is fantastic. If you took away the byproduct credit benefit and enjoy it whilst you can, that's great. What's the underlying C1 cost trend being of things that you could control?
Yes. It's fairly static. So when we look at it from a C1 cost or some drives down. When you look at it from a dollar per tonne basis, we're keeping costs aligned. From a total all-in operating cost on a dollar per tonne or total, we will come in within 1% or 2% investment budget. So we're keeping costs under control.
And last one, on the Nova and the broader Fraser Range. And I'm thinking beyond July 1, when you all have a party and go Tianqi's done, Tropicana's done we're back to where we're headed. It seems like your most prospective areas are right around your doorstep at Nova. And you've talked about exploration elsewhere. But how do I see the pathway of Nova extraction beyond its current reserve in that broader Fraser Range? How do the pieces fit together? You've talked about Boadicea drilling. Other opportunities in the area, it's a big province, and you've only got a short bite. I'm just thinking that's your next challenge. What are your thoughts on how you steer through that?
Yes, yes. And although we have a lot of tenure across the whole Fraser Range, we have increasingly prioritized our effort. So year-on-year from 2020 to 2021 financial year, you saw a transition of the spend with less going into what we call the northern Fraser Range and more into the southern Fraser Range around Nova. And we're certainly prioritizing our targets that growth from a distance and a debt perspective would be easier to and faster to take from Discovery to production.
Is there a rule of thumb for how far away from Nova that makes sense with your current structure? 50Ks? 100Ks?
With the high-grade nature of the Nova style mineralization, you could pretty much place a Nova size and grade lot a 100 kilometers away, and it would make sense to truck that to Melbourne. And likewise, you could take that same orebody and put it at 2 kilometers depth, and it would make sense to put in place the vertical infrastructure and mine that. Be that high-grade, high-value orebodies. They're just really small and hard to find.
Your next question comes from Nick Herbert with Credit Suisse.
I might just start on Kwinana. Pete, you mentioned you're on the steering committee there or the team is. Can you provide a bit of an update there on that plant commissioning, the timing around that. How that's looking in sort of ramp-up from here or when it commissions.
Yes, sure, sure. So the focus in the March quarter was on the starting of the punch list work that's required for the commissioning process. And as part and parcel of that, we morph into commissioning electrical, mechanical of individual items of plant. And then that transitions into commissioning of whole unit processes. If we think about where does the rubber hit the road, it's really about when we start producing lithium hydroxide. And I would expect that we'd produce the first lithium hydroxide in the September quarter.
Okay. Great. And then a bit of discussion around future opportunities. I think on one of these calls a couple back, you were talking about that nickel sulfate potential for an offshore processing plant and a JV there. Just wondering if that's still in your thinking. And if you could, yes, just provide any more details around that particular project style or avenue.
Yes. We -- it remains an aspiration of ours. The aspiration is a combination of mine life of nickel sulfide feedstock, but also the cost to build and operate such a facility. And until such time as we can identify that feedstock, it's really on the slow burner. And it's -- but we have got an amount of activity going on such that when we do put the next drill hole in that next discovery around Nova, we'll be very quickly able to reactivate the work and progress that downstream opportunity to unlock more value from our nickel sulfide concentrates.And certainly, subsequent to the Tianqi transaction and the market focus on the downstream opportunity and the market multiples that downstream attracts, we've seen a lot of inbound interest from our investors and shareholders wanting to better understand where we're at on that nickel sulfate downstream opportunity.
Your next question comes from Matthew Frydman with Goldman Sachs.
A couple of quick questions for me. Firstly, just wondering if there was anything material from your perspective in Tianqi's results last night. I guess, anything that you'd like to call out, did they provide any incremental updates on the closure process from their end that you're aware of?And secondly, whether you can provide any sort of update or context around the latest thinking for the ramp-up of capacity at Greenbushes. Clearly, that asset has some spare capacity under the belt at the moment. Just wondering what the progress has been between discussions with the JV partners around expected timing for that, given, I guess, the various downstream projects that are currently under construction.
Yes, sure. Yes, we have not had the time yet to pick apart the Tianqi results. And so therefore, it would be not -- the timing's not right for us to comment on that. And likewise, with the expansion projects, we've outlined in our announcement on the 9th of December, where we saw those -- with the time lines we saw for those projects, and until those time as we complete the transaction, we won't be in a position to update the market on that. But I think needless to say, that the market dynamics have transformed since December, and we've seen significant improvement in spodumene and lithium chemical prices. And therefore, the expectation would be that those projects have progressed faster, not slower.
Yes, sure. I guess on that point, it's a fair point you've walked us through the lockbox arrangement around Tropicana. Can you remind us what the financial arrangement is around the closure of the Tianqi transaction when you actually start receiving financial benefit from that?
Yes. Sure. So it's very similar to the Tropicana transaction. We had an effective date of end of September. So we're getting the economic benefits and all the risks and rewards from September onwards through to completion, paid to us via a net cash position. And likewise, Tianqi would keep all of the -- like the profit and loss type impacts and results from operations, et cetera, over that period of time.
Your next question is a follow-up from Peter O'Connor with Shaw and Partners.
Pete, I should've followed up with some mineralogy in the Fraser Range. Looking at the different deposits and the drill holes, which have turned up some interesting results of late across the spread in EU. Is the mineralogy similar in terms of cobalt-copper-nickel assemblage? Or does it vary? Are there any other add-on minerals that you pick up? And how does that change in terms of processing through your current millers, most of that ore that's been found closed by amenable to a mill like yours?
Yes. Generally, yes, it is. And the mineralogy is largely the same. You see some bespoke differences in chemistry, i.e., the ratios of copper and cobalt to nickel. And there's always the opportunity of PGE overprint as well. But generally, all amenable to processing in the Nova processing plant.
The only exception there, Peter, is if it was weathered or not. So weathering will make an impact on how effective processing would be.
And weathering -- how deep do we get weathering in these areas?
Weathering depends. It's from 0 -- basically 5 meters, some areas up to 100 meters. It depends on where the deposits set within that weathering profile.
Your next question comes from Tim Hoff with Canaccord.
We've had a bit of commentary come through overnight that Tianqi had commented that they -- the HMRC has approved the conditions precedent from that side of things. Can you confirm or deny that or give us a update there.
Yes, we can confirm that we of that understanding as well. So we're kept in the loop exactly what's happening here. It's the tax office side of things like the flip side, the acceptance, if you like, of that, that store has to go through. And then there's -- within the U.K., there's also something -- it's a little bit technical but called competent authority process that needs to ratify that position as well. So look, this is all heading in the right direction as far as we're concerned.
Fantastic, great result. Looking forward to seeing it come through.
Your next question is a follow-up from Mitch Ryan with Jefferies.
Just picking up on that comment about processing weathered ore through Nova. I guess, -- the most recent resource statement on that, that was my understanding is that was all weathered material. Is that the correct understanding from your perspective?
Yes. Our understanding is that the near-surface or it's an over-style deposit that comes very close to surface. So there's a weathering zone and oxide zone at surface, there's some transitional material, and then there's a primary portion at depth.
Okay. And but the resource -- the only resource statement we have is the 2018 one is my understanding, and that was primarily the weathered component?
That's correct. Correct.
There are no further questions at this time. I'll now hand the conference back to Mr. Bradford for closing remarks.
Yes. Hello, again, everyone. And once again, we appreciate your participation through our presentation and Q&A today. And I look forward to reaching out to you in the coming weeks as we finalize the Tropicana and Tianqi transactions, and ultimately report our full year financials at the end of July. Thank you very much, ladies and gentlemen. Good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.