IGO Ltd

ASX:IGO

Earnings Call Transcript 2022-Q3

[Operator]

Thank you for standing by, and welcome to the IGO Limited March 2022 Quarter 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.

[Peter J. Bradford, executive]

Thank you, operator. Good morning, everyone, and thank you for joining us on the call today for a discussion of our operating and financial results for the March quarter, which we released to the market on Friday afternoon. With me on the call today is Matt Dusci, our Chief Operating Officer, who will be available during the Q&A session at the end of the call. I note that Scott Steinkrug, our CFO, is on leave and will not join us on the call today.

Slides 2 and 3 highlight our cautionary statement and disclaimer and our competent persons' statement. Of note, all currency amounts in the presentation today are in Australian dollars, unless otherwise noted.

Moving to Slide 4. As always, the safety and well-being of our people comes first. We are, therefore, pleased that our focus on continuous improvement in this area has continued to result in improved lag and lead indicators, as shown on the slide. Our care for people was reflected in very strong responses to the safety-related questions in our recent engagement survey, which once again also reflected high levels of engagement by our people across the business. We are proud of this outcome and the strong culture that we have cocreated with our people at IGO.

We are also proud of the way our people have responded to the high COVID caseload environment which has emerged in Western Australia over the quarter. While this period has not been without its challenges, our people have demonstrated outstanding adaptability and resilience as together, we have managed increased restrictions and higher absenteeism due to the pandemic. Pleasingly, our systems and risk management procedures have proved effective, and we have not experienced any material disruption to our operations.

Moving to Slide 5. We are also proud of our commitment to sustainability, both in performance and transparent reporting. It was, therefore, great to see IGO being included in the S&P Global Sustainability Yearbook for 2022. This was IGO's second consecutive year as a member of the yearbook, which in 2022 assessed the ESG scores of over 7,500 companies globally. Of these, only the top 15% are recognized as members, and IGO was the only Australian company to be recognized in the Mining & Metals category in 2022, a fantastic achievement.

Moving to Slide 6 and to some key highlights from the quarter. Firstly, and as mentioned previously, we kept our people safe and engaged, both of which reflect the strong culture we continue to build at IGO. At Nova, strong nickel prices and consistent operational performance drove excellent financial results and margins. Similarly, strong spodumene prices and a solid quarter of production at Greenbushes resulted in a significant uplift in the financial results for the lithium joint venture. At Kwinana, trial production of the lithium hydroxide facility proceeded towards production of the first battery grade product. Together, the strong performance of our nickel and lithium businesses resulted in materially improved financial results for IGO for the quarter, highlighted by stronger margins and higher net profit after tax. Finally, post-quarter end, we negotiated a revised scheme of arrangement with Western Areas and now expect to complete the transaction in June.

Moving to Slide 7, where we summarize our key financial results for the quarter. Nickel and lithium realized prices were sharply higher for the quarter. In the case of lithium, this is driven by continuing strong demand from the battery sector and for nickel, was precipitated by supply concerns arising from the conflict in Ukraine. Materially higher prices have resulted in a sharp increase in group sales revenue, up 31% quarter-on-quarter to $245 million, and underlying EBITDA which is up 89% to $233 million. I note that the underlying EBITDA result includes IGO's share of net profit after tax attributable to our investment in the lithium joint venture. Net profit after tax for the quarter increased to $133 million.

Of note, we made a cash payment of $171 million -- a cash tax payment of $171 million during the quarter, which is primarily attributable to the taxable gain on the sale of our interest in Tropicana last May. This payment drove the lower quarter-on-quarter net cash and free cash flow results. We also paid $38 million in respect of our fully franked interim dividend during the quarter. We finished the quarter with a strong balance sheet with closing cash of $440 million and no debt.

Moving to Slide 8, where we reconcile net profit after tax for the quarter. I note the contributions made by Nova and, most significantly, the lithium joint venture, which contributed an additional $43 million and $52 million, respectively, to the overall net profit after tax result for the quarter. There was also an $11 million positive variance in the value of our listed investment portfolio.

Moving to Slide 9 and a reconciliation of cash flow. As shown, stronger free cash generation at Nova partly offset fully franked dividend and income tax payments that I mentioned earlier.

Moving to Slide 10 for a discussion on Nova performance for the quarter.

Moving to Slide 11. Nova delivered a solid quarter with no material impact to operations as a result of COVID. As guided, lower plant grades resulted in marginally lower production for all metals quarter-on-quarter, resulting in nickel and copper production of 6,290 tonnes and 2,760 tonnes, respectively, for the quarter. For the reasons discussed earlier, realized nickel prices for the quarter were materially higher at AUD 37,600 per tonne, up 38% quarter-on-quarter. Cash costs of $1.86 per payable pound were marginally higher quarter-on-quarter with key drivers being lower production volumes, which were offset by continued high by-product credit pricing.

Moving to Slide 12, where, on the left-hand chart, we set out the last 4 quarters of production and costs for Nova. Importantly, and thanks to the continued focus from our site team at Nova, production remains on track to meet full year production guidance, while cash costs are expected to end the year better than our guided range of $2 to $2.40 per pound. On the right-hand chart, I note that we built some working capital during the course of the quarter, largely due to the timing of shipments, and we expect this to unwind in the June quarter.

Turning to Slide 13 for a brief update on the Silver Knight development project, where early in the quarter, we released an initial mineral resource estimate for Silver Knight, which was informed by historical drilling results. As part of the current work program, further infill drilling will be undertaken to inform an updated resource and reserve as well as supporting the feasibility study into the development of Silver Knight as a secondary ore feed source for Nova. In addition, the team have identified several high-priority exploration targets in close proximity to the Silver Knight deposit, which will be tested during the June quarter.

Turn to Slide 14 for an update on the lithium joint venture with Tianqi Lithium Corporation.

Moving to Slide 15. The lithium joint venture delivered a stronger quarter with higher realized spodumene prices delivering stronger financial performance. The chemical grade spodumene transfer price for the quarter was USD 1,770 per tonne FOB, up from USD 592 per tonne for the 6 months to December 2021. I do note, however, that the average realized price for the quarter was marginally lower than this due to December spodumene shipments being booked in January and different pricing for technical grade spodumene.

The same chemical grade spodumene transfer price will apply to the June quarter. The transfer price is then expected to reset from 1st of July 2022 for the 6-months period July to December 2022, and this will be informed by the benchmark price for the June quarter. Using April benchmark prices as a guide, we expect the transfer price to be materially higher again for this coming 6-months period. IGO's share of the lithium joint venture net profit after tax for the quarter was just over $60 million, up from just shy of $9 million for the prior quarter.

Moving to Slide 16, where we illustrate the various elements that make up the lithium joint venture net profit after tax result for the quarter. Of note is the significantly higher contribution by Greenbushes in the quarter to IGO's account of $75 million, which was partially offset by IGO's share of commissioning and expenditure at Kwinana of $7 million and IGO's amortization costs for the lithium joint venture investment of $7 million. The contribution from Kwinana is expected to increase once battery grade lithium hydroxide is being produced at or near commercial quantities and sold into the continuing strong battery supply chain market.

Moving to Slide 17 for more details on the Greenbushes mine. Quarter-on-quarter spodumene production was higher despite a period of production downtime in February when a nearby bushfire resulted in a loss of power to the site. No doubt, we all remember the ferocity of these bushfires, as reported widely in the media, the impact to people and property and the threat that the fire posed for a number of communities in the Bridgetown-Greenbushes area. We note the contribution that the Greenbushes team made to support those fighting the fire and to support the community following the fire.

On a 100% basis, production for the quarter was 270,000 tonnes of spodumene concentrate, bringing year-to-date production to just shy of 800,000 tonnes. IGO expects the June quarter to benefit from an increased contribution from the recently commissioned tailings retreatment plant and CGP2, both of which continue to ramp up to full production.

This quarter, we have reported a cost of goods sold with and without state government royalties. This is to provide the market with better visibility on the consistent performance by the site team with respect to their controllable costs. As shown, cost of goods sold for the quarter, excluding royalties, were $235 per tonne, which is in line with the prior quarter and within our full year guidance. IGO expects cost of goods sold, excluding royalties, to be within guidance for the full year. By comparison, materially higher benchmark prices, upon which royalties are calculated, has driven a higher cost of goods sold result, inclusive of royalties, of $476 per tonne. The higher realized spodumene prices resulted in higher EBITDA, up nearly 250% quarter-on-quarter.

Moving to Slide 19, where we illustrate the installed production capacity at Greenbushes. Construction of the tailings retreatment plant was successfully completed in the quarter and commenced commissioning and ramp-up. Maiden production in the quarter was just over 15,000 tonnes of spodumene concentrate. We expect the tailings retreatment plant to ramp up towards full capacity over the coming quarters, resulting in total nominal production capacity at Greenbushes increasing to 1.55 million tonnes per annum. At CGP1, higher feed grade and improved recovery performance generated a stronger result. The Greenbushes team have also made considerable improvements in recoveries at CGP2, which continues to ramp up to full production.

Turning to Slide 19. Following completion of front-end engineering design studies, or FEED studies, by Lycopodium during the quarter, the joint venture approved the construction of CGP3, the third chemical grade plant. Based on the FEED study, CGP3 construction is expected to be completed by early 2025 at a remaining capital expenditure estimated at $507 million. However, with continuing cost pressures in the construction sector in Western Australia, IGO expects that this could potentially be in the range $500 million to $550 million. Once commissioned and ramped up, CGP3 is expected to increase nominal production capacity at Greenbushes by an additional 520,000 tonnes per annum by early 2025.

Moving to Slide 20. At the Kwinana lithium hydroxide refinery, trial production is continuing. The Kwinana team, along with a high level of assistance and support from Tianqi engineers from China, have made solid progress towards the production of first battery grade lithium hydroxide. IGO's observation is that the team are very close to delivering battery grade quality products and that there are no fatal flaws that would prohibit this from happening. In parallel, the Kwinana team had progressed various work streams towards their commitment to the recommencement of the construction of Train 2. This decision is expected sometime during the second half of the calendar year.

Turning to Slide 21 and a brief summary of some select exploration activity for the quarter.

Moving to Slide 22. In a near Nova environment and excluding the work being done at Silver Knight, which I discussed earlier, our primary focus has been on the Chimera target. Chimera remains prospective for large-scale nickel-copper-sulfide accumulation. And despite recent testing of an EM conductor not bearing fruit, the majority of the interpreted extent of the anomaly remains to be tested. This will be our focus in coming quarters in addition to further testing of the Elara and Orion targets. Elsewhere on the Fraser Range, the team will be testing multiple targets over the coming quarter, as set out on the slide.

Moving to Slide 23 and to a brief update on the proposed acquisition of Western Areas.

Moving to Slide 24. As announced in December 2021, IGO and Western Areas agreed to a scheme of arrangement, whereby IGO was to acquire Western Areas for $3.36 cash per share. As a result of significant nickel market volatility following the announcement of the initial scheme, IGO and Western Areas agreed to increase the scheme consideration to $3.87 per share. We note that the independent expert has concluded that the scheme consideration of $3.87 is not fair but reasonable and is, therefore, on balance in the best interest of scheme shareholders. We also note that the Western Areas Board of Directors have recommended the scheme to Western Areas' shareholders on the basis that the IGO offer is within the Board's own view of value on a risk-adjusted basis.

Following a review by ASIC and the first court hearing, the scheme booklet is in the process of being mailed to Western Areas' shareholders. And we expect that subject to Western Areas' shareholder approval at the scheme meeting scheduled for the 1st of June, that the scheme will complete on 20th of June 2022. The transaction rationale and structure remains the same, and IGO is funding the transaction via new debt facilities and existing cash reserves.

Moving to Slide 25 and a short summary of today's presentation before we move to Q&A.

Moving to Slide 26. IGO has delivered another safe and strong quarterly result. In large part, this is attributable to our people who have shown great resilience and flexibility in managing COVID, resulting in no material impact from COVID to our operations. Our people remain highly engaged, motivated and proud to work at IGO.

Nova has continued to deliver with higher nickel prices driving improved margins and free cash flow. Our investment in the lithium joint venture also benefited from materially higher prices, resulting in sufficient cash flow to fully fund planned expansions and return a dividend to IGO in the near term. At Greenbushes, the production rate continues to increase. The tailings retreatment plant is in ramp-up, and we have committed to the construction of CGP3. At Kwinana, we continue to commission Train 1 towards first battery grade lithium hydroxide production, and we expect to commit to the recommencement of construction of Train 2 later this year.

Subject to shareholder and other approvals, the Western Areas transaction is now expected to complete in June. This transaction is on strategy, will expand our nickel portfolio and is expected to provide a pathway to future production of battery grade nickel sulfide. Finally, we have continued to deliver strong financial performance with higher net profit after tax of $133 million for the quarter while also maintaining a strong balance sheet with $440 million net cash.

Thank you for joining us on the call this morning. We will now hand back to the operator for questions. Thank you, operator.

[Operator]

[Operator Instructions] And if time allows us, we will address some of the questions received via the webcast. Your first question comes from Daniel Morgan from Barrenjoey.

[Daniel Morgan, analyst]

First question, can you just help me understand what is the dominant driver of the lower price at Greenbushes in the $1,770 price? Is it technical grade price? Or is it the lag that you've highlighted just now on the call from December?

[Peter J. Bradford, executive]

Yes. Thanks, Dan. I don't have the exact split between -- with me at the moment. A portion is attributable to that shipment, which was expected to go out late December, but actually went out late January. So therefore, it was booked at the old pricing but included in revenue for the March quarter. And then some is due to the marginally lower technical grade pricing this quarter relative to chemical grade pricing. Customarily, in the past, we've seen that there's a premium paid for technical grade. And in time, we expect that to revert.

[Daniel Morgan, analyst]

What is the outlook just on the technical grade price? What is the outlook in the near term for that? Are you able to argue for and receive a price commensurate with the battery grade or chemical grade product?

[Peter J. Bradford, executive]

There's less -- much less of a market for the technical grade than there is the chemical grade and, therefore, much less transparency on pricing. We would -- and ultimately, it's all -- the pricing is driven by the existing contracts that Greenbushes stakeholders have with the offtakers of that technical grade product. Of course, over time, if we continue to see persistent chemical grade prices relative to technical grade prices, then there would be a motivation in our mind at IGO to potentially discontinue production of chemical grade spodumene concentrate in the future -- technical grade spodumene concentrate in the future.

[Daniel Morgan, analyst]

Okay. And you sold less than produced at Greenbushes in this quarter. Does that unwind in the following quarter? Or is it a working capital build as the business scales?

[Peter J. Bradford, executive]

It's a working capital build. And similar to what you see at Nova, that's sort of waxes and wanes from 1 quarter to the next. And over the course, everything levels out.

[Daniel Morgan, analyst]

Okay. And last question, just the tailings retreatment plant, it ran pretty well in March at about 60% of capacity. When do you think that might be at 100%, during this quarter?

[Peter J. Bradford, executive]

We've allowed through to -- for a couple of quarters for that to hit its straps. And the -- and that it provides time to bed the plant down, get the system for extracting the tailings from the tailings dam and into the plant working well, get the plant working well and to get the crew trained up to the same level of competence as what we've historically seen on the technical grade plant and CGP1. And as you can imagine, with the significant ramp-up of expansion at Greenbushes, with CGP2 commencing -- commissioning last year and TRP commencing -- commissioning this year, some of the skilled resources are being spread thin. And there's a training element over the next quarter -- a couple of quarters to bring the overall crew up to the same level.

[Operator]

Your next question comes from Matt Greene from Credit Suisse.

[Matthew Greene, analyst]

Yes. Just a follow-on to Dan's question there. Peter, just the chemical grade pricing is -- I guess you're restructuring that contract in September this year. How are your discussions going there with your JV partners? And when are we going to see any sort of changes potentially to the structuring around the technical grade?

[Peter J. Bradford, executive]

The -- first off, with the potential pricing formula for the chemical grade, we would see those happening in the coming months. And to date, there's been no formal process on that.

And then on the technical grade, that pricing structure is based on orders of the 2 offtakers, Tianqi and Albemarle make -- or sorry, TLEA and Albemarle make for the technical grade product based on the contracts that they have with their customers. And that rubs off -- and that sort of dialogue between the buyer and the seller sets the price. There's no benchmark price that's referred to for the purposes of setting the technical grade price.

[Matthew Greene, analyst]

Okay. That's helpful. And then just on costs, look, congratulations on the unit costs across both Nova and [indiscernible]. My question is just on Greenbushes on the site costs, so ignoring the royalties there. Just trying to understand how you achieved this. I mean, material move was up 25% quarter-on-quarter. Spod sales were down slightly, and we've been hearing from everyone just how much consumables have increased. So can you just provide a little bit more context as to what you're seeing there at Greenbushes on the cost front?

[Matt Dusci, executive]

Sorry, it's Matt here. So largely, that cost will drive -- with production ramp-up, you'll see greater efficiencies coming out of that operation, hence, why inflationary pressures are not necessarily seen at Greenbushes compared to other operations.

[Peter J. Bradford, executive]

Yes. And then over the medium term, we will see a build in mining and material movement. And on a cost per tonne basis, that could provide some upward pressure.

[Matthew Greene, analyst]

Okay. That's helpful. And just lastly for me, the -- on the hydroxide plant, not much color there. I appreciate you said no fatal flaws. But what is challenging the time line there just so you can provide a little more color there?

[Peter J. Bradford, executive]

Yes. Yes. So it's like -- I would describe it as we're like 97% there, and we know that we can make battery grade product because we are making it. And the reality is we are getting some marginal contamination in the drying and packaging stage. So we're just working through some mechanical changes there to stop that contamination. And then we would expect to be able to bag battery grade products as well as make it at the crystallizer.

And one thing to appreciate here is the very high levels of purity. And with contamination, for instance, from the likes of magnetics, we're talking about a quality benchmark which is 100 parts per billion. So the level of contamination that's required to kick that over to the wrong side of the performance metric is not very much.

[Matt Dusci, executive]

Yes. And we know that we produce that factory grade in the circuit prior to the drying circuit. So -- and that's where the introduction of iron is coming into the circuit.

[Operator]

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

[Peter O'Connor, analyst]

Just to reiterate, great on costs given the inflationary pressure in the West and also nice to have a tailwind. Pete, just to the JV and cash flow, you indicated in your commentary that you're expecting returns in the second half of this calendar year. Could you just remind us of the process and structure of sweep and dividend payments for both Greenbushes and also the hydroxide plant eventually?

[Peter J. Bradford, executive]

Yes. Sure. So in April, Greenbushes moved to a monthly sweep of dividend to the shareholders, so that from an IGO perspective, there's Greenbushes dividend going out to TLEA on a monthly basis. And we would expect that at an IGO level, we would see a dividend flow from TLEA most likely in the early September quarter. And with a -- and although contractually, under the shareholders' agreement with TLEA, we are expecting quarterly dividend flow with a monthly dividend flow from Greenbushes, there could be good logic for Tianqi and IGO to consider a monthly dividend from TLEA up to the shareholders.

[Peter O'Connor, analyst]

Okay. Thinking ahead, with the refinery, is that the sellers sweep process when you do start putting cash there?

[Peter J. Bradford, executive]

Say it again, Pete.

[Matt Dusci, executive]

With the refinery.

[Peter J. Bradford, executive]

Say it again, Pete.

[Peter O'Connor, analyst]

When you do start generating a profit and delivering product from the hydroxide plant, what's the sweep arrangement for cash there?

[Peter J. Bradford, executive]

Exactly the same. When we think about Kwinana holistically, it's -- we said it's 100% embedded in TLEA. So we would see as -- it's just part of that TLEA dividend structure.

[Peter O'Connor, analyst]

Okay. To the hydroxide plant, Pete, just -- you said you're at 97% of the process to get there. When you do achieve a product and start shipping product which is commercial, do you then have to go through a qualification for that product? Is there another step or...

[Peter J. Bradford, executive]

Yes. Yes, there's a period of qualification with each of the offtakers. And variably, that's between 4 and 6 months. And once they finish their qualification, we are then obligated to deliver into the contracts. And until that point where we're delivering into contracts, they would -- we would expect there would be product available to sell into the spot market.

[Peter O'Connor, analyst]

So how should we think about the financial contribution from hydroxide over the next 1 quarter, 2 quarters, 3 quarters? Will there be any reasonable income coming through?

[Peter J. Bradford, executive]

It will be higher than the March quarter.

[Peter O'Connor, analyst]

That's not hard.

[Peter J. Bradford, executive]

But it's in commissioning and trial production, Peter. And it's too early for us to give guidance at this stage and -- because the risk is that we could be wrong to either the upside or the downside. And so we would prefer to just hunker down, get the work done, deliver what we're saying we will do. And then the financial results and the cash flow will be an outcome of that.

[Operator]

Your next question comes from Tim Hoff from Canaccord.

[Timothy Hoff, analyst]

I was just wondering around the Chemical Grade Plant 3. Can you take us through the 2.5-year time frame? It just seems like that's a fairly long development schedule for a brownfield operation. And can you perhaps take us through what that capital profile might look like over that period?

[Peter J. Bradford, executive]

Yes. Sure. So the overall capital profile is similar to what you would expect for this sort of project. There's a -- effectively an S curve of cash flow. And the peak cash flow point or cash outflow point from recollection, and I'm shooting from the hip here, Tim, and -- is about the midpoint of the project.

[Timothy Hoff, analyst]

Roger. And just in terms of that time frame?

[Peter J. Bradford, executive]

From a timing point of view, we have built some cushion in there, recognizing the fact that we are in an overheated construction market here in Western Australia and that the people we need to do work may not be available the instant you need them. So there's some cushion provided in the estimate from that. But we fully expect that we'll take up all of the construction time that we've allowed for through to early 2025.

[Timothy Hoff, analyst]

Yes. And just in terms of, I guess, the Western Areas acquisition, you've got your debt facility there, perhaps it's going to be used to finance that. And you've got $400 million of additional capacity. Do you anticipate drawing any of that additional $400 million?

[Peter J. Bradford, executive]

The $400 million revolver that we have at the moment will be replaced by the -- effectively by the new term facility and revolver. So going forward, the full debt capacity will be that -- the full debt facilities will be that $900 million.

So to answer your question, we won't be drawing down any of the existing $400 million revolver because that will disappear.

[Timothy Hoff, analyst]

And then perhaps finally, can you remind us what the offtake agreements are at Kwinana? Is that material? Just noting there was a few questions put to Tianqi around its supply chain and whether it had connections into Russian military supply chains, which they said they weren't connected. But I guess that just highlights some of the opaqueness in dealing with global partners.

[Peter J. Bradford, executive]

Yes. Sure. We've got 4 contracted offtakers for Train 1. Three of those are South Korean companies, and 1 is a European company, Northvolt. And I don't believe there's any connectivity back to Russia through any of those. And all of those offtakers are listed on prior presentations of ours.

[Operator]

Your next question comes from Mitch Ryan from Jefferies.

[Mitch Ryan, analyst]

My first question is with regards to Kwinana. Obviously, as you said, Train 1 is at 97%, and it didn't quite make it to guidance of first production in the March quarter. I guess I just wanted to understand how we should be thinking about the ramp-up profile beyond that. I know you said you're very close to producing first battery grade hydroxide. But what does the ramp-up profile look like? And is there anything that you're seeing currently that is changing how you're thinking about that?

[Peter J. Bradford, executive]

Like through this period, we've been able to flex various parts of the plant because we do have some storage capacity between stages. So we know -- for example, we recently ran the calciner at pretty much full capacity in the last run and through that filled up the storage in between the circuits. And we've been doing a similar thing through the dissolution and impurity removal stages.

So all of these we are testing. And the expectation would be that once we deliver the battery grade product, we'll -- the very next milestone will be continuous operation at about 50% of the capacity and then -- which we would expect to hit quite quickly and then to move up beyond that progressively.

[Mitch Ryan, analyst]

And my second question relates to, obviously, you've given us an update on CGP3. But do you have a current thinking on the timing of CGP4? Is there an ability to accelerate that, I guess, given the quantum of build time that you've outlined as part of that?

[Peter J. Bradford, executive]

Yes. Certainly. And at this stage, it's -- I'd characterize it as -- that it's on the plan. It's permitted. But we have not got a mapped-out Board process to approve CGP4, but that -- and that will be something that we'll start to backfill in the coming quarters. And the aim continues to be to have that in -- completed by 2027. So we would expect a commitment to that project sometime during the CGP3 build.

[Operator]

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

[Kaan Peker, analyst]

First question is on realized price, sort of circling back to Dan's question. But at Greenbushes, how much of the sales are booked under last quarter's pricing, I mean, in terms of 1,000 tonnes or percentage? Do you have an idea?

[Peter J. Bradford, executive]

Yes. I don't have that at my fingertips. And if Scott was here, he would likely have it available. But from an overall financial performance point of view, the split between the technical grade and the price for the -- and the amount of materials sold, the previous benchmark price doesn't really change the outcome for the quarter. That's...

[Kaan Peker, analyst]

If we go off that logic, if technical grade is similar pricing to chemical, it suggests that 10% to 15% of this quarter's sales were done on the previous quarter's pricing. Is that...

[Peter J. Bradford, executive]

Yes. I just don't have the number in front of me at the moment. Quite happy to circle back with you on that, but I don't think it moves the dial from a value realization perspective going forward.

[Kaan Peker, analyst]

Sure. Sure. It's just probably providing more transparency around the pricing. But yes, my second...

[Peter J. Bradford, executive]

I think like if you're looking for transparency on the technical grade pricing, I think the June quarter results would have less noise. There would only be the one moving part, and people would be able to back calculate what the technical grade price is with the June quarter results. I'm not at liberty to talk to the contracted price for that technical grade product that's privileged to Albemarle and TLEA.

[Kaan Peker, analyst]

Yes. Understood. And the second one is, again, on cost control. Great job at Nova. I mean, if you break out by-product credits, still, mining and processing costs, they really haven't escalated much. But maybe if you can provide some clarity around that, that would be great.

[Peter J. Bradford, executive]

Yes. Look, I can talk to that. What we see is some of our continuous improvements still come through. So for example, this quarter, we're shifting shutdown infills from 10 weeks to 12 weeks. So some of those initiatives that we continue to push through the business ensure that the costs -- we can keep a handle on costs and ultimately come in close to where we expected at the start of the financial year.

But it doesn't mean there's not cost pressures. And over the course of the last 24 months, we've seen fuel go from $0.73 a liter to $1.32 per liter today. We've seen freight costs for our concentrate from a road transport point of view increase by circa 15%. We've seen concentrate shipping costs increase by circa 60%. So there are lots of cost pressures. So the job that Matt and the team at Nova are doing, to corral those with productivity improvements and cost reductions in other areas, is just an outstanding job.

[Kaan Peker, analyst]

Yes. Definitely agree. And just I'll sneak a third one, if that's okay. Just in -- with Kwinana postaccreditation, just wondering what the offtake contracts look like, I mean, your fixed volume or variable price? Is there sort of time periods? Any sort of [indiscernible]?

[Peter J. Bradford, executive]

Yes. Each of the contract has a different nature. The -- each of the contract is different, and each year has a different benchmark price as a reference point for pricing. And each of them are refreshed to benchmark at least one time per year.

[Operator]

Your next question comes from Lyndon Fagan from JPMorgan.

[Lyndon Fagan, analyst]

So just back on the technical grade product. How often does that contract reset? Is it a 6-monthly contract? Or is it something else?

[Peter J. Bradford, executive]

It's done on an order basis, and it's approximately every 6 months.

[Lyndon Fagan, analyst]

So should we expect a similar pricing period from a modeling perspective over a 6-month period, similar to how we think about chemical grade?

[Peter J. Bradford, executive]

Yes. I would say if you're modeling something, then June quarter will be unchanged. And then there would be a reset based on those contract negotiations for the second half of the coming year.

[Lyndon Fagan, analyst]

You mentioned technical sold at a discount to chemical this period. How long would that likely persist?

[Peter J. Bradford, executive]

It's like -- in the technical grade, it's all about supply and demand of the material. And so the price of it will respond over time. And customarily, the technical grade does sell for a higher price than the chemical grade. And that's been our observation for past periods prior to the March quarter.

[Lyndon Fagan, analyst]

And have you got a rule of thumb on how we should think about that from a modeling point of view over time? Is it a 20% premium? Is it something different?

[Peter J. Bradford, executive]

No. We're not in a position to speculate on that, Lyndon.

[Lyndon Fagan, analyst]

Okay. And another bit of admin. So you're reporting a free-on-board realized price. Can I confirm that all of your sales are done on a free-on-board basis? Or are there some CFR sales?

[Peter J. Bradford, executive]

I'd have to come back to you on that, Lyndon.

[Lyndon Fagan, analyst]

Right. Okay. And then just a final one, I guess. I mean, it was a pretty busy period from an M&A point of view. You almost bought a copper mine off Glencore and obviously, a big bump in the Western Areas bid. I mean, maybe just from a high-level perspective, can you maybe give us an update of your vision around how you'd like this portfolio to look? So I guess what I'm getting at is, there's a lot of cash flow coming through from the lithium joint venture over the coming years. How should the market expect that to be distributed versus reinvested into building a bigger company?

[Peter J. Bradford, executive]

Yes. Sure. So like we routinely talk about our aspiration, which is to grow a company that has -- that is globally relevant in the clean energy metals space. And we routinely talk to a diversified portfolio of clean energy metals, which would include lithium, nickel, copper, cobalt. And we currently produce all of those from -- through the lithium joint venture and from Nova. And we talk to our aspiration to be connected to customers through both upstream mining operations and downstream processing operations to produce finished products that are ready for use by end users in the battery supply chain. So that's the strategic framework there.

And at the same time, we recognize the needs of shareholders and the discipline that's demonstrated with regular cash returns to shareholders. So from a capital allocation perspective, we have a balanced approach with an amount of free cash flow generation which is returned to shareholders as cash returns and, at the same time, continuing investment in exploration to find the mines of the future and serve to invest in continuing growth of the business, whether it be through expansion activities of the existing assets like we're doing at Greenbushes and Kwinana or whether it be M&A to bring new assets into the business.

[Lyndon Fagan, analyst]

Right. And just a final one. So again, on costs, fantastic results, I think one of the only companies to report lower cost quarter-on-quarter. But again, I just don't quite understand the explanation at Greenbushes. Given how much more material movement there was versus last quarter, how was it that there was actually a lower unit cost?

[Peter J. Bradford, executive]

You've got marginally higher production on a dollar-per-tonne-produced basis. That has some impact. And those would -- and other than that, the costs are relatively static quarter-on-quarter.

[Operator]

Your next question comes from Justin Raja from UBS.

[Levi Spry, analyst]

That might actually be me. It's Levi here. I might come back to you on the average realized spodumene price later on. But just at Tianqi, can you just talk us through the, I guess, the iron in the lithium hydroxide? So how long you've been working on getting that out? And have the -- I guess, have the specs of those 4 customers changed over time? And do they have different specs? Like are you producing the same product for all of them?

[Peter J. Bradford, executive]

This is a -- the spec hasn't changed, and we've been working towards that spec for some time. There's a little bit of contamination that we are getting in the very final stage in some of the early commissioning and trial production work we were doing. That was masked as we were flushing some of that contamination from other parts of the circuit out. And it was only at the point where we cleaned up everything else that we realized that there was that last residual bit of recontamination in the drying and bagging phase. And so there's been a focus on that over the last probably 3, 4 weeks -- 4 weeks, I would say.

[Matt Dusci, executive]

Yes. There's 2 elements to that in terms of both introduction of iron into the circuit somewhere in that drying/bagging phase, but also in terms of throughput as well. So as we ramp up throughput through that circuit, we'll look at reducing that level of iron in that component of the circuit. Along with that, we're looking at some slight engineering change, changing some of the screw feeders, et cetera, from 300 series to 400 series stainless steel. So better -- we'll be able to better remove the iron through magnetic separation.

[Levi Spry, analyst]

Okay. Yes. So it may -- so maybe changing a bit of the kit out to higher quality and magnets and steel, the removal method, is it or the only removal, just for the layman?

[Matt Dusci, executive]

Right. It's about increasing throughput as a dilution, and they are also about changing out some of that kit so that we can actually remove the impurities that are introduced.

[Levi Spry, analyst]

Yes. Cool. And changing pace a little bit back to Silver Knight, I don't think we've really talked about that at all and Nova. But can you just talk to the next steps there when -- what the time lines look like, when it could be going through the plant and when you can really test -- that looks like you're drilling some of those nearby targets this quarter, but when you test the depth, so production and the depth?

[Matt Dusci, executive]

So in terms of time line, majority of the technical work will get done at the end of -- by the end of this calendar year. Currently, we're doing resource drilling. We've got all the net samples in process as well at the moment. That will just add in the blend that will feed into Nova. Critical path will be environmental permitting. Expectation is to have that environmental permit done by mid-calendar year next year.

In terms of drilling, first phase of drilling is really focused on resource extensions at Silver Knight. Both -- they will go into resource definition and then start to drill test some of these targets through the quarter, including some of those deeper targets.

[Levi Spry, analyst]

And mining, realistically, is that a 2- to 3-year job?

[Matt Dusci, executive]

Yes. Production profile largely is taken by blend feed going into Nova. And then -- what we're working through now is the Nova life of mine as well to find out the optimal feed and blend scenario for Silver Knight.

[Operator]

[Operator Instructions] Your next question is a follow-up from Peter O'Connor from Shaw and Partners.

[Peter O'Connor, analyst]

Pete, just circling back to Lyndon's question, which is not only about where you're headed from a corporate perspective. So you're clearly opportunistic, which is great. And your discipline is also noted. If we try and think about what keeps you [ rooted ] so that it makes you go to a [ data ] room, why do Cobar come up? Why not [indiscernible] here or broader? I guess I actually think -- is there a logic or some sort of an analogy with Cobar or other efforts you made? Look, I'm just trying to understand what gets this lag going in your corporate team and makes you do, do this?

[Peter J. Bradford, executive]

Yes. So that's a good question, Peter. We haven't said that -- what assets we may or may not have looked at. And generally, most of the assets we do look at, that's kept confidential. And it's something because there was a leak of information to -- around Cobar that the market was generally aware of the fact that we were looking at it. We routinely look at all types of assets across that space, nickel, cobalt, lithium, copper in Australia and globally with a focus on assets that -- where we see potential for mine lives in excess of 10 years or longer and where we see the ability to -- or the optionality to turn those assets into assets that are in the bottom half of the cost curve.

[Peter O'Connor, analyst]

Can I just segue back to Nova? And the plant that's been talked about in previous calls, the -- literally, it's called the -- sorry, I'm just having a little blank, the sulfide plant, you had mentioned in your prepared remarks about Western Areas steering you back in that direction. Could you just join the dots up there and explain how that would work and the time line and what we should expect?

[Peter J. Bradford, executive]

Yes. Sure. So this is a program of work that we will commit to as -- once the Western Areas transaction is completed. And in readiness or in preparation for that, we are assembling the team and putting in place all of the processes that we'll need to start that work. And I expect that by the time we get to September quarter reporting, we'll be talking about some of the early-stage activity around the nickel sulfide project.

[Operator]

There are no further questions from the phone line, and there are no further questions registered via the webcast. I'd now like to hand the conference back over to Mr. Bradford for closing remarks.

[Peter J. Bradford, executive]

Great. Thanks, everyone. Once again, we appreciate your participation throughout the presentation and the Q&A session and your continuing support for what we're doing here at IGO. Stay safe, and have a great day.

[Operator]

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