IGO Ltd
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Thank you for standing by, and welcome to the IGO Limited June 2021 Quarter Investor Conference Call. [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. Good morning, everyone, and welcome to our call this morning as we walk you through IGO's operating and financial results for the June 2021 quarter, which we 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. They will be available to answer questions during the Q&A session at the end of the call.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, where I would like to start with a commentary around safety. Our focus on the safety and well-being of our people is paramount. And we have an enduring commitment to supporting and enhancing the strong safety culture that we have built over many years. With the right systems, processes and behaviors, we aspire to a workplace that is as safe as we can make it while also offering opportunities for people to improve their general health and well-being.It has, therefore, been pleasing to see the improvements achieved in both our lagging and leading indicators over the course of the last financial year, FY '21. In particular, the positive trend in leading indicators gives us confidence that what we are doing should result in improved safety outcomes into FY '22.Moving to Slide 4. The June quarter was another highly successful period for IGO, in which we delivered excellent operational and financial performance, while also completing our transformation to become 100% focused on metals critical to enabling clean energy. At Nova, an excellent final quarter meant we finished the year with production better than the top end of guidance, just as we guided towards during our March quarter conference call. In addition, cash cost performance was also impressive finishing the full year at the lower end of the improved guidance range we provided just 3 months ago.We also celebrated the completion of both our divestment of Tropicana to Regis Resources and our transaction with Tianqi Lithium to form our global lithium joint venture. It is great to have these transactions behind us and to now be focused on integrating the lithium joint venture into our business, and starting the important work of collaborating with Tianqi to maximize and optimize value from these assets.In addition, we had a number of exciting developments across our business with highlights including the appointment of our new Chair, Michael Nossal; the continued strong engagement with our people; and of course, our ongoing commitment to meeting the expectations of our shareholders from an environmental, social and governance perspective. It is an incredibly exciting time to be at IGO, and we are all proud of all we have achieved over this quarter and indeed, over the entirety of FY '21.Moving to Slide 5, where we summarize our key financial metrics for the quarter and our unaudited full year results for FY '21. We will release our full year audited accounts, along with our annual and sustainability reports on the 31st of August.As highlighted on this slide, we finished the year strongly with quarter-on-quarter increases in all key financial metrics. Higher sales and strong metal prices resulted in 44% higher quarterly revenue of $266 million, and 50% higher underlying EBITDA of $140 million. Underlying free cash flow generation for the quarter was $114 million, and for the full year was $363 million.In these numbers, we have excluded the gain and proceeds from the sale of Tropicana and the investment in the Tianqi joint venture from our underlying EBITDA and free cash flow for the quarter. Before these underlying exclusions, EBITDA was $717 million and free cash outflow was $772 million. The sale of Tropicana, which I will discuss later in the presentation, contributed to the significant increase in net profit after tax during the quarter.With 2 major transactions completed during the quarter, you can imagine that our finance team had a very busy period. With the dust now settled on these transactions, our balance sheet remains strong with a net cash position at the 30th of June of $528 million and an undrawn debt facility of $450 million. This is a fantastic outcome, which will enable IGO to continue to take a balanced approach to capital management, to continue to fund both growth and cash returns to shareholders.Moving to Slide 6, where we demonstrate the impact of the Tropicana divestment on net profit after tax. The sale to Regis for a headline sales price of $903 million generated a pretax accounting gain of $557 million. From a tax perspective, the profitable Tropicana divestment has accelerated the utilization of most of our tax losses. Our strong operating and financial results for FY '21 and the Tropicana sale are expected to generate a group tax payable position as at the end of FY '21 of about $170 million, which will be payable in -- through the course of the 2022 financial year.Moving to Slide 7, where we provide a cash flow reconciliation for the quarter, which was largely driven by the expected cash inflows and cash outflows related to the Tropicana and Tianqi transactions. Combined with other cash movements, the net decrease in cash held was $767 million. Elsewhere, Nova cash flows of $130 million for the quarter was strong due to higher quarterly production coupled with higher sales and collection of receivables from the March quarter, also combined with higher quarter-on-quarter metals prices. I'd also note that there was a $20 million positive contribution resulting from favorable moves in foreign exchange rates on the U.S. dollar balances that we held.Moving to Slide 8 and a brief review of the Nova operation. Moving to Slide 9. Nova finished the year strongly, producing 7,887 tonnes of nickel; 3,538 tonnes of copper; and 285 tonnes of cobalt for the quarter. This resulted in above-guidance production for all metals for the full year, an excellent outcome, which the entire team at Nova and IGO more broadly are proud of. This strong quarterly performance was driven by expected higher milled grades, which compensated for lower milled tonnes as compared to the previous quarter, while ongoing flotation circuit optimization resulted in nickel recoveries moving higher to 88.9%.Cash costs for the quarter were $1.28 per payable pound, positively influenced by higher production, higher by-product credit pricing and offset by marginally higher production and offsite costs. For the full year, cash costs of $1.85 per payable pound were well below our original FY '21 guidance range of $2.40 to $2.80 per payable pound of nickel. These numbers cement Nova as the lowest cost nickel operation in Australia.Moving to Slide 10, where on the left-hand side of the chart, you can see the Nova cash cost trend over the course of FY '21 as well as the ongoing consistency with respect to metal production. From a cash flow perspective, operating cash flows of $135 million for the quarter were substantially higher than the prior quarter, benefiting from both higher sales and prices achieved in the quarter.Moving to Slide 11, where we set out our guidance for FY '22 at Nova. As noted in our directional guidance in July 2020, FY '22 production is expected to be lower relative to FY '21 as lower-grade stopes make up a proportionally higher share of mine tonnes. Having said this, our FY '22 nickel production and cash costs are expected to be marginally better when compared to our directional guidance of a year ago. The FY '22 nickel production is expected to be between 25,000 and 27,000 tonnes, while copper and cobalt production is expected to be broadly in line with FY '21 at 11,000 to 12,500 tonnes of copper and 900 to 1,000 tonnes of cobalt.Cash costs are expected to be between $2 and $2.40 per payable pound of nickel, which is marginally higher than the FY '21 result but still better than the directional guidance for FY '22 that we provided a year ago. Higher cash cost guidance in FY '22 relative to FY '21 is primarily due to lower guided metal production and higher off-site costs as well as expected higher labor costs due to an ongoing tightening of the labor market in Western Australia. Higher by-product prices are expected to offset some of these cost pressures with IGO assuming a copper price of AUD 5.22 per pound for copper and AUD 29 per pound for cobalt in our FY '22 cash cost guidance. Both of these numbers are in line with consensus.Sustaining CapEx is expected to increase in FY '22 relative to FY '21 as we make commitments to capital works programs that had previously been deferred primarily the establishment of borefield infrastructure and reverse osmosis water treatment capacity. These programs are intended to future-proof water supply and contribute to lower operating costs associated with water supply to site.Moving to Slide 12 and a shift in focus to the lithium joint venture we have formed with Tianqi. Moving to Slide 13. We are delighted to have successfully completed our transaction with Tianqi on the 30th of June 2021 to form a global lithium joint venture. This was a key milestone for IGO. And combined with the divestment of Tropicana, completes our transformation into a business focused purely on metals, which are critical to enabling clean energy and energy storage. The quality of the upstream and downstream lithium assets held by the lithium joint venture are exceptional. And we look forward to working with Tianqi and Albemarle to unlock the significant growth opportunities at both Greenbushes and Kwinana.It has also been pleasing to see the strengthening of spodumene and lithium hydroxide prices since we struck the deal in late 2020 as demand for lithium-ion batteries continues to grow through the course of 2021. Since the transaction was agreed, the spodumene benchmark price has been -- has risen by roughly 90%, while the lithium hydroxide benchmark price is approximately 50% higher.Moving to Slide 14, where we provide a high-level refresher on the status of expansion activities at Greenbushes and Kwinana. At Greenbushes, the priority is to restart and ramp up the second concentrator, CGP2, which is underway, and complete the construction of the Tailings Retreatment Project, which is expected to commission in early 2022. Longer term, the planned CGP3 and CGP4 expansions will deliver further production growth.At Kwinana, commissioning of Train 1 has commenced, and the joint venture expects first production of lithium hydroxide during the first half of FY '22, ramping up to full production by the end of the 2022 calendar year. With respect to the joint venture entity and since the formal completion of the transaction just 4 weeks ago, IGO and Tianqi have been working on the establishment of the joint venture management teams and setting up the requisite governance structures as detailed in the shareholders agreement.From a financial perspective, the nature of the joint venture means that IGO will equity account the value of the joint venture with the future dividends received to be recorded against this line item on the balance sheet. From a capital call perspective and as guided at the time of the transaction was announced, IGO's capital contribution into the joint venture in 2021 over the next 6 months is expected to be $40 million, which will largely fund punch list work and commissioning of Train 1. Beyond 2021, our total expected capital contribution is expected to be $10 million. We are currently working with Tianqi to refresh these estimates and to agree a reporting and disclosure framework for the lithium joint venture moving forward.Turning to Slide 15, where I will briefly talk to the results from Tropicana. Turning to Slide 16. As announced during the quarter, we successfully concluded the transaction to divest our 30% stake in Tropicana for $903 million to Regis Resources at the end of May. The sale of Tropicana has allowed IGO to complete our strategic transformation to focus on clean energy metals, and conclude the Tianqi transaction without the need to draw down on debt facilities. After completion adjustments, we received proceeds of $889 million from Regis. Net proceeds following the relinquishment of some joint venture cash, our selling costs and the closeout of our Tropicana-related gold and diesel hedge positions were $862 million.The divestment of Tropicana came after a near 20-year association with the asset, and I would like to take this opportunity to once again extend my thanks to AngloGold Ashanti for their partnership over many years. We also wish AngloGold Ashanti and Regis all the very best in their new partnership.As the transaction with Regis settled on the 31st of May, Tropicana's results are included in IGO's reporting up to this date. Gold for the period, from the 1st of April to the 31st of May, was 19,146 ounces at a cash cost of $1,100 per ounce. For the quarter, this contributed $19.3 million of EBITDA and $7.6 million of free cash flow.Turning to Slide 17 and on to an update on exploration. Turning to Slide 18. Our commitment to organic growth through exploration and discovery continues in FY '22 with a budget of $65 million. The prospectivity of our tenure for nickel and copper discovery, the first-class team we have in place and our deep and sophisticated understanding of how to apply the right technology and science to maximize our probability of success gives us confidence of unlocking transformative value through discovery for shareholders in time.Our portfolio prioritizes discovery of clean energy metals, specifically magmatic nickel sulfide and sediment-hosted copper deposits. Our exploration budget prioritizes discovery around Nova and on the Fraser Range with $33 million allocated for this to leverage off the incredibly deep understanding we have developed here over the course of several years. In particular, we will continue to prioritize targets in close proximity to the Nova operation.Elsewhere, our Paterson Project has been allocated approximately $17 million to fund exploration for copper-gold discoveries across our joint ventures with Antipa, Cyprium and Encounter as well as our 100%-owned tenure. Our focus in FY '22 is on geological, geophysical and geochemical data capture to generate targets for drilling in FY '23. A further $6 million will be dedicated to the Kimberley Project, where we are exploring for magmatic nickel-copper sulfides similar to Nova.Turning to Slide 19, where I'll spend just a few minutes talking to some highlights from the quarter and our near-term activity across the portfolio. So first, close to Nova, our recent focus has been on the Orion and Chimera prospects. At Orion, drilling has intersected the target chonolith intrusion, which extends on to the joint venture tenure with Boadicea Resources. Highly encouraging geology identified in this drilling means we will continue to prioritize follow-up drilling in this September quarter.At Chimera, about 10 kilometers southwest of Nova, disseminated to blebby iron-nickel-copper magmatic sulfides were intersected by a deep stratigraphic hole, designed to test a mafic-ultramatic intrusive complex. Again, this drilling has provided valuable data and encouragement, and we are planning further drilling here in this September quarter.Turning to Slide 20, where we look more broadly across the Fraser Range. During the quarter, our focus was on the southern Fraser Range area, in particular, the Haul Road prospect as well as ongoing test work to identify new prospective intrusions, the units which potentially host economic accumulations of nickel and copper. This work continues to generate targets. And in this September quarter, we expect to diamond drill test a number of targets, including Titan, Garfish, Hook, Red Bull, Celestial, Oaktree and Lignum.Turning to Slide 21, where I will talk briefly to the transaction we announced yesterday to acquire the Silver Knight deposit from the Creasy Group, and to form a joint venture with them over several other tenements which surround Silver Knight. By way of background, Silver Knight was discovered by the Creasy Group in 2015. After which, they proceeded to estimate a mineral resource and applied for a mining lease. At the time, the discovery was validation of our conviction of the potential for the Fraser Range to host multiple magmatic nickel-copper-cobalt sulfide deposits.Located just 35 kilometers away from and within trucking distance of Nova, Silver Knight will provide a secondary source of ore feed for Nova with development activity targeted to commence in 2023 once feasibility studies, permitting and agreements with the traditional owners have been completed. In addition, the new surrounding joint venture tender -- tenure delivers promising exploration upside.Turning to Slide 22. Finally, in the Paterson, we are working with our various joint venture partners to progress various geological, geochemical (sic) [ geophysical ] and geochemical programs as we continue to build our knowledge and understanding of these areas. Whether under joint venture or in our own right, IGO has a foothold on a significant tenement package in the Paterson, an area which is a proven mineral province, hosting deposits, including Nifty, Telfer, Havieron and Winu.Moving to Slide 23 and an update on our thinking around climate change and how we accelerate our response. Moving to Slide 24. Making a contribution towards a better planet for future generations is embedded in our purpose at IGO, and has guided our strategic pivot over the last few years to focus on metals critical to enabling clean energy. Key pillars to our strategy have been our commitment to be proactively green and to make our clean energy products ethically, safely and sustainably.To continue to walk our talk, we have accelerated our response to climate change with the adoption of an internal carbon price to generate funds, which we can deploy to reduce and/or offset our carbon footprint. Our emissions reductions projects will focus on programs across our business to reduce our Scope 1 and 2 emissions, while in parallel, we will implement programs to improve our understanding of our full carbon footprint, including our controllable Scope 3 emissions. We look forward to further articulating our strategy and plans in our 2021 sustainability report and updating the market as we implement these plans through the course of FY '22.Moving to Slide 25 and to a summary of today's presentation. Moving to Slide 26. As I mentioned at the start of the call, the June quarter and FY '21 have been transformative and highly successful periods for IGO. Our people are excited and energized about the direction of our business and want to be part of a purpose-led, future-facing resources business with a core vision of enabling our clean energy future.To summarize the highlights from the quarter: Nova has performed exceptionally well, with production better than guidance and cash costs finishing FY '21, well below our original guidance range. We completed the lithium transaction with Tianqi, and are well advanced with the establishment of the joint venture vehicle and further exposure to the battery industry as a globally relevant supplier of lithium products. We completed the divestment of Tropicana, which has allowed us to complete our clean energy metals transformation.Our balance sheet is in a very strong position, providing us optionality to fund further growth and shareholder returns. Lastly, throughout this transformational period, we have remained focused on our people and the environment. We have done this by ensuring IGO was a safe, engaging and exciting place to work, and a business, which our people feel proud to be a part of. In addition, we have demonstrated a tangible and focused commitment to reducing our environmental impact to ensure a better planet for future generations.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 from Morgan Stanley.
Two for me, if we can start with Nova perhaps looking into next year, I think the cost increase, as you said, was well flagged. I just wanted to understand perhaps if you can help us understand how we should be thinking about some of the other drivers of the costs here in terms of cost inflation pressures, et cetera, that are different from the grade stresses that you're seeing at Nova. Are you able to break that down at all for us? Or how you're thinking about them perhaps for the next year and the year after? That would be the first one. I'll come back with the next.
Yes. Sure. Sure. So like we flagged in the materials, the core areas are the lower volumes being produced, which obviously has an impact on both the -- on the cash cost headline number. But from a real cost perspective, we are seeing increases in our offsite costs largely ocean shipping, which has gone up quite dramatically. And as well our royalties, whereby as a result of the higher metals prices, we will be paying higher royalties to government. And then sort of beyond that, we are seeing movement in the labor costs as a result of the tightening labor market here. And we've put provisions into our estimates to make sure that we can continue to attract and retain the talent that we need to deliver a successful business.
Rahul, it's Matt Dusci. Like we've done in FY '21, it has been a significant focus on getting costs down. So although you're seeing that increase, there's still mechanisms that we'll work through part of FY '22 to look at those sort of cost structures. Things like increasing our shutdown frequencies, et cetera, to offset some of the labor costs that we're seeing coming through.
Perfect. Yes, I just wanted to sort of understand if there were some provisions available in that number. So that's good. Moving on to Silver Knight. Pete, if you can help me perhaps understand how we should think about it. I mean the initial reserve -- or resource rather was a lower grade one, and you did talk about this being a supplementary feed. Is that basically it that you'd be trying to blend this ore with current Nova ore? Or do you think there's potential here for this orebody to be something bigger and perhaps extend mine life quite significantly here for you?
Sure. So Silver Knight, as I think most people are aware, is a near-surface occurrence. And therefore, some of the mineralization is weathered and would be unsuitable for -- as feed for the Nova flotation concentrator. And so we've discounted that from our -- from the planning that we will do. So we'll be focusing on a subset of that historical resource that Mark Creasy published. And we believe that the -- that subset of the resource will be amenable for coprocessing with Nova material going forward. And then in addition to that and given that there's been very little additional exploration activity at Silver Knight and around Silver Knight over the last 1.5 years, we will be doing the work to understand that tenure around Silver Knight.
Okay. And how would you think about dollars being spent currently in the Fraser Range? Do you think those will then be focused primarily on Silver Knight once the transaction completes?
With all of our exploration dollars, we prioritize our best targets. And prior to this announcement on Silver Knight, our #1 target was Orion. And with the Silver Knight coming into the portfolio, the view of the team is that further work around Silver Knight and what we call Silver Knight [ dips ] would become our #1 target, pushing Orion back into #2.
Yes. So Rahul, we'll keep to that -- we'll keep within that $65 million and just reprioritize some of our work programs.
Okay. Perfect. All right. Final one for me. Look, the balance sheet is in very good shape, perhaps this question's a bit early, but how are you thinking about dividends versus inorganic growth to bolt-on going forward?
Yes, yes. Look, we've kept our powder dry on commentary around capital allocation and capital management, and held that back so that we've got some news flow for our full year results at the end of August. So we'll be able to answer your question then, Rahul.
Your next question comes from Mitch Ryan from Jefferies.
Just wanted to focus back on Silver Knight and you just mentioned it briefly there, Silver Knight [ dips ]. Could you just please outline what drilling has occurred since that initial resource in 2018? And I note that you didn't reiterate that in your announcement yesterday. Just can you explain the reasoning behind that?
Yes. Sure. We'll -- I would expect, Mitch, that we'll provide more fulsome updates once the transaction is completed towards the -- around early October and as we start doing our own work programs. And use that opportunity to articulate the past work that has been done and where the focus of our future work will be. And our first priority here has been securing that subset of the known resource as potential further feed for Nova, so locking that in. Our second priority is understanding what else there may be in the catchment around Silver Knight.
Okay. And did your work -- I guess, you've been doing some drilling on Ecliptic, which pretty much was sitting on the border there. Is that -- did that also help inform some of your decision-making?
Correct.
And my last question is...
As you indicated, we've got a number of targets in that area, as does Creasy. So a holistic program going forward. Part of what we do, we'll be continuing to follow all of those up as potentially part of a broader system and trying to understand where we might find further economic mineralization within that system.
Okay. And just stepping back to the lithium JV. Just a clarification on the capital calls. That's only just the next 2 years, it doesn't necessarily cover the long-term view overall for trains? Or can you provide any clarity on that.
Yes. So what we said when we made the original announcement back in December 2019 was that we only envisaged capital calls in those first 2 years. And thereafter, the lithium business would be cash flow positive and would fund itself. And the only change that could potentially impact that will be what commodity prices do, spodumene and lithium hydroxide going forward and also whether any of the expansion projects get accelerated or not. And if projects get accelerated, that may have our capital call implications. But that remains a work in process amongst ourselves and Tianqi to map that out.
Your next question comes from Daniel Morgan from Barrenjoey.
Peter and team, just to follow up on the Silver Knight acquisition, there was that application made for a mining lease. Can you utilize that work stream? Or will you need to make a new mining lease application?
The aim is to leverage off the work that was done previously. We don't believe in reinventing the wheel.
Yes. And on the lithium business, when it comes to the decision to expand or accelerate the various growth options within that, are you reliant on the JV partners where their downstream applications will need that feed? Or do you think the third-party market, Greenbushes expansions could be independent of the requirement for third-party freed -- feed from your JV partner?
Yes. Sure. So all of the expansions that we've talked about in our prior disclosures, they're all part of the embedded strategy at both the Greenbushes and the Kwinana level. And so going forward, we'll be collaborating with both Tianqi and Albemarle to ensure that those strategic work programs stay on track.And certainly, as an integrated business on the Tianqi IGO side of that equation, we'll be looking to expand lithium hydroxide production capacity in parallel with expanding capacity at Greenbushes so that we can fully utilize the additional spodumene concentrate. And I'm not able to speak for Albemarle.
Sure. And just on the hydroxide side of the business, Train 1, obviously, was -- and it's been well disclosed that the project has been behind schedule over budget and have quite a few problems. Just wondering if you can update us on whether you think these problems have been addressed and that the finalization of delivery of Train 1 and then Train 2 will be more streamlined.
Yes. Sure. So all of that poor delivery of construction and cost overrun, I think, is certainly in the rearview mirror. It's in the past. And Kwinana was ready for commissioning back in 2019. But market conditions at the time caused Tianqi to hit the pause button on that commissioning. With the better market conditions today, it makes sense to restart that commissioning process, and that's why it's underway. As you get in all commissioning programs of work, there's a little bit of punch listing to be done, which we're doing in parallel with the commissioning work. So -- and you don't really understand what some of those bits look like until you actually press go on the commissioning work.And -- but so far, there's been no surprises. And we've been on a batch basis, commissioning each part of the process, and that will culminate in the coming weeks with the production of the first lithium hydroxide. And then once we've proved that on a batch basis, we'll start operating the plant on a continuous basis.And well, from all of that, there will be some key learnings. We'll capture those key learnings and then reflect that in an updated design for Train 2. And once we've got that updated design for Train 2, likely sort of late 2021 calendar year at the best, but more likely 2022 calendar year, we would recommence construction on Train 2.
Your next question comes from Hayden Bairstow from Macquarie.
Pete, just a couple from me. Just on the lithium JV. Just interested in the discussions you have and the comments you made around reporting regime effectively coming out of the JV and sort of what we can expect. I mean, obviously, I'm not expecting production guidance out of the hydroxide plant until they're sort of fully commissioned and ramped up. But with Greenbushes, does there need to be a full agreement with Albemarle as well as to what sort of production and cost guidance you can actually disclose? And then obviously, we'll see more within the hydroxide plant later on.And then just on the business broadly. I mean you've -- Silver Knight's a nice, little bolt-on. But do you sort of feel the need as a business that you need to get through the Kwinana commissioning and get Train 2 underway before you'd look at sort of advancing the battery mineral strategy and looking at more material projects that you could potentially look at? Or you're happy to remain pretty active in that space?
Yes. Sure. So 2 very different questions there. So knocking off the reporting and framework that we're negotiating. And yes, that's really taking a collaborative approach in our dialogue with both Tianqi and Albemarle to make sure that going forward, we continue to have a very open and productive relationship with both of those, while also recognizing that IGO has got a great reputation for -- great transparency around our quarterly and financial reporting as well as our guidance. So we'll be working to ensure that we can continue to do that with the lithium business while also maintaining great relationships with Tianqi and Albemarle.On the other one, we've exited this transformative transaction with Tianqi in a fantastic position. When we did the original work and started putting in place the debt facility, which to remind everyone, is about a $1.1 billion debt facility, although we had an aspiration to sell Tropicana and not have a need to utilize that debt facility, there were no guarantees. But with having delivered on the Tropicana sale, we've ended the Tianqi transaction with the balance sheet in a strong position. And given that -- given the nature of the joint venture on the lithium business, that leaves us in a fantastic position with the management bench strength and the balance sheet strength to be able to continue to look for growth opportunities for IGO.So from a looking point of view, that's something we haven't stopped. From a delivery point of view, that really is subject to when we find the right opportunity that satisfies our due diligence and is going to deliver real accretion for our shareholders. And there's some fairly tall bars in there. And so therefore, the next thing we do, it might take some time, but we're already looking.
Yes, Pete. Just on the debt, I mean, circling -- confirm is you're not actually going to use any of it? Or you're still going to draw the term loan? Or where are we sitting with all of that?
We restructured the debt facilities. So as a reminder, it was $1.1 billion, and it comprised of 3 components. There was a term loan, there was a revolver and there was a bridge. And the size of that was based on the carrying capacity of both Nova and Tropicana. With Tropicana no longer in the business, we can't carry a $1.1 billion debt facility. So we resized it down to a $450 million facility, and that's sitting there as an undrawn revolver.
Pardon me, Lyndon, your line is now live.
So my first question is just about the $50 million of capital calls in -- that's been outlined in the presentation. Can you perhaps give us some guidance on what lithium prices they're based on because it does look as though given the way prices have run, the business will be actually free cash flow positive and perhaps those capital calls aren't necessarily needed anymore? That was the first one.And the second one is just to pick up on that discussion about Greenbushes and the various expansions that have been outlined. I'm just wondering if you can say whether Greenbushes offtake has to go to either a Tianqi or Albemarle downstream plant or whether you can sell to third parties.
Yes. Sure. No, great questions. And you're right. And the language we use carefully in the quarterly disclosure was that the $40 million and the $10 million were as we reported it back in December 9. And since then, we've seen significant move in both spodumene and lithium hydroxide prices. So that means there will be some dividend flow up from Greenbushes, which will help offset capital requirements at the lithium joint venture level.At the time of finalizing our reporting for the June quarter, we hadn't been able to finalize and update those projections with Tianqi, so we've left the previous disclosure as it was. But we expect by the time we get to the September quarter result, we'll be able to provide updated disclosure and give people a better idea of what those look like.The caveat to all of that is that those dividend flows up from Greenbushes have a lag effect. So although you see improved prices in -- near enough to real time, the benefit of that through to the lithium joint venture business would be lagging. On the other question...
Offtake for Greenbushes.
Oh, the offtake. Yes, the spodumene from Greenbushes needs to go to the -- be utilized by either of the offtakers, so either Albemarle or the IGO-Tianqi JV.
And just a quick follow-up. Can you talk about the dividend mechanism that sits within the JV? Is there a cash wait that we need to be thinking about similar to [ AWAC ] or one of these other companies that basically, when cash -- once a quarter, you sweep all the cash above a certain balance back to the JV partners and how often that's done?
Lyndon, Scott here, I'll take that call. So there is a cash sweep element. And I mean some of this is all subject to confidentiality between the parties, well between Albemarle and Tianqi. But absolutely, we try and maintain cash balances at the Greenbushes level. And those balances are different to -- currently to the Kwinana JV level. However, dividends will get swept up based on cash. So the more that -- the more sales revenue that gets generated at Greenbushes, it creates higher cash, which is going to then flow through to a higher dividend flowing through from Greenbushes to the lithium joint venture. Likewise, then when Train 1 ramps up, we'll start selling product. Then that lithium hydroxide product, that will also then generate cash flows, which will generate a potential dividend flow then back to the shareholders, being ourselves and Tianqi in China.
And so is that a quarterly mechanism?
It's -- look, it's up to the shareholders. We've seen in the past, sometimes it's happened twice yearly, sometimes it's been 3 yearly. It's really up to the other parties. And that -- I think from what we've been able to gather so far is that it's in the interest of both shareholders to try and receive maximum cash flows as and when they can.
And just a quick final one. Can you give us an update on what the final net debt balance within the JV is at June 30?
Look, it's in the order of about AUD 600 million. And [ once -- they've got a -- these ] are secured facilities, and they will have another 12 -- they run through until June 2023.
So that's net debt of AUD 600 million at 100% level within the JV at June 30?
Yes, in the order of.
Your next question comes from Daniel Radclyffe (sic) [ David Radclyffe ] from Global Mining Research.
Guys, just a quick one, another one on Silver Knight. Could you just talk through maybe any of the networks you did as part of the DD process? I mean is this -- given this lower grade, is there any fundings here? Or is this something that could go through the mill by itself? Or would it need to be blended? And then a follow-up to that, I think you talked about development potentially '23 or '24. Could you just remind us what that might actually look like? Is this a potential open pit?
Yes. Sure. Yes. So certainly meant work done and done by Creasy Group, and we've leveraged off that. And yes, you mentioned low grade, the -- if you think about all resources at Silver Knight, you could characterize it lower grade, as lower grade, but those total resources would comprise oxide material plus transition material plus sulfide material. So we're only really interested in the material that can go through the Nova processing plant, so that's some of the transitional material in the sulfides. And when you take that subset, you actually end up with similar grades from the Silver Knight contribution as what we process at Nova. So we don't -- it's not going to create any sort of economic imbalance or it's not going to displace higher value Nova material when it goes through the Nova processing plant. And we'll continue to do work to improve our understanding around that.So if we think about the workflow through the remainder of this year and next year, we'll be doing some infill drilling to inform an updated resource and reserve estimate, which we would expect to then publish in 2022 calendar year. That will also inform a feasibility study. And feasibility study will be based around the open pit operation at Silver Knight to mine those transition in sulfide materials, and the development of a Haul Road to truck that material 35 kilometers down to Nova. So a relatively simple feasibility study. And in parallel with that, finalize any remaining permitting and the approvals with the traditional owners and then be ready to make a financial investment decision in calendar 2023.
Your next question comes from Sophie Spartalis from Bank of America.
Pete and team, just following on Silver Knight just in terms of the strategy there. So is it -- are you looking to add mine life? Or is it more around providing supplementary feed to Nova?
Yes. It will provide additional reserve from Nova and therefore, it will extend -- provide an extension of mine life at Nova. But we would layer it. So we think about what it may look like, and all of this is subject to conclusion of feasibility studies. But what it may look like is that a contribution from Silver Knight from 2023 would be layered in on top of normal contributions from the Nova underground mine, and that would allow us to slow down some of the stoping rate at Nova because we've got that layer of Silver Knight material that's making up the difference.
Okay. And then just in terms...
And the net effect of that is you push the mine life out a little bit.
Yes -- no, for sure. And then just in terms of the economic radius, as you mentioned, Silver Knight's 35 Ks away. Is it still sort of a 50 K zone that is deemed economic along the Fraser's Range (sic) [ Fraser Range ]?
Yes. It's all a question of grade and size. And what we've often talked to is if you had something of the same grade and the same size as Nova, then it'd be quite economic to mine that from a distance of 150 kilometers or more.
Right. Okay. Okay. And then just in terms of the grade profile at Nova, I appreciate seeing the -- a little bit fluid given now that you've got the Silver Knight feed coming in from '23. But can you just talk through sort of at a top level that grade profile beyond '22?
Yes. Sure. I'll get Matt to talk to that at a high level.
Yes. Sure, Sophie. So I mean like we're seeing this year, we're dropping grade, giving us production. Next year, we'll stabilize grades. So this grade will still stabilize around about 1.8% -- 1.7%, 1.8% nickel to 1.9%. So it varies a little bit year-on-year, but relatively consistent.
Okay. So from FY '23, drop it down to that 1.7%, 1.8% going forward?
Yes. At the 1.8%.
Okay. And then just a final question for me. In terms of the Paterson's range, you're expected to spend around $17 million in '22. You spent a decent amount over the last couple of years up in the Paterson. Just in terms of where that priority sits, I would have thought that given now that you've got a lot more potential sitting across the Fraser Range with the Silver Knight acquisition that you'd redeploy some of that capital as opposed to -- and going full steam ahead on both Orion and the Silver Knight deposit. Can you just talk through the strategy of still drilling up in the Paterson?
Yes. Sure. So with the Paterson, we're really starting from a clean sheet of paper. And you will see in the commentary that we report in the quarterly, in our guidance for FY '22, we're talking about going back to first principles and focusing on data capture around geological data, geophysical data, geochemical data. And that's because that hasn't been done holistically across this tenure for several decades. And when that was previously done, the tools that were available from a geophysical and a geochemical point of view aren't as good as the tools we have available today. And so we're doing that to generate new targets rather than just doing what others have done in the past and going back and then focusing on targets previously identified by Western Mining and other early explorers in the area.And that's necessary work that we need to do this year so that in FY '23, when we're thinking about drill programs on targets, we've got that information to inform an FY '23 work program. And so very much want to keep that moving, while at the same time recognizing the need to deliver step-change discovery around Nova, to deliver step-change extension of mine life. So we're wanting to keep moving on that Nova -- near Nova exploration as well, so very much wanting to continue that. So we've tried to cut our cost in a way that we can satisfy all of the aspirations across the exploration portfolio with the overall goal of delivering discovery and step change in value for shareholders.
Your next question comes from Jon Bishop from Euroz Hartleys.
So 2 major transactions, obviously, in the fiscal year, but let's keep going with Silver Knight. Can you remind me the Widowmaker prospect that was sort of immediately adjacent to Silver Knight? Was that something that -- I seem to recall you having some reasonable intercepts there. Is that something that's bubbled away in the background and driven this transaction ultimately?
Yes, Jon, it's Matt here. So that's -- hasn't necessarily driven the transaction. But what we do recognize is the exploration potential. Some of that potentially has extended on to the -- on to that [ Buxton at Widowmaker tenure ] that we had. So now with these structures with Silver Knight being the -- then being 100% of the Silver Knight resource and then being 65% interest in that final Creasy block ground.
Okay. Got you. And then just obviously, the big headline splash around BHP doing a deal with Tesla recently for nickel offtake. Can you remind me again when your offtake with BHP Nickel West resets for Nova?
The BHP, we don't -- now don't forget, that's 50% of our offtake, Trafigura takes the other one. And BHP expires in 2024. And Trafi expires at the end of 2022.
'22. Okay. And then just over on the Tianqi assets. Can you just remind us again what the expectation is for each of the stages of the planned ramp-up for Greenbushes?
Sure. For the near-term projects, Jon, or the -- holistically through to CGP4?
All of the above, please.
So with the -- there's 4 projects there. The first is CGP2, which is -- was built some time ago and was mothballed in 2020. So there's a process underway, which we talked to in the materials where that's being started up. And we would expect that later this year, that will be running at full production. And we would exit the current calendar year with chemical-grade production at that sort of 1.2 million tonne per annum of spodumene concentrate on a 100% basis.Throughout 2021, we're continuing to build the Tailings Retreatment Project. And as we've said in the prime materials, that would be commissioning in early 2022 and would ramp up in the months following that. And then the 2 big projects after that where there's no financial investment decision yet are -- but where there's the plans to build it is a CGP3, a third chemical-grade plant, which would commission in 2024 and then a fourth chemical-grade plant that would commission in 2027.
Okay. And the approximate run rate on 100%...
Yes. So the combined there will be about 2.5 million tonne per annum on a 100% basis when fully operational. And the caveat there is the Tailings Retreatment plant, which is a contribution of 280,000 tonnes per annum of spodumene concentrate, that only has a limited life, about a 5-year life. And so -- because it's just mining that defined resource within the tailings dam, so that -- and that needs to be done before the same area is used again for the new tailings dam.
Your next question comes from Matthew Frydman from Goldman Sachs.
Peter and team, just wanted to follow up on the questions around lithium pricing. And obviously, you mentioned the movements in benchmark pricing. Can you give us a little bit more detail on, I guess, how that -- you expect that to be reflected in terms of the realized price at both Greenbushes but also at Kwinana over time? You seem to suggest in your comments fairly limited lags in terms of the realized price, obviously, a potential lag in terms of the dividend sweep. But just wondering if that's the case. And if there's any premiums or discounts that we need to think about versus the benchmark for either product.
Yes. Sure. So what we've previously talked to in both at -- in a broad sense is that there's a pricing mechanism whereby the price for the next period is set based on benchmark pricing today. So if we think about 2022 calendar year for -- at the lithium hydroxide level, then those contracts would be informed with pricing in the sort of closing stages of the 2021 calendar year. And then a similar sort of framework for Greenbushes, except the look-ahead period is 6 months at a time.
Okay. That's very helpful. And I just wanted to clarify, Scott, you mentioned that the final net debt balance at June 30 was AUD 600 million. Just wanted to confirm, that's the TLA (sic) [ TLEA ] JV level? And does that include a consolidated share of any net debt in the Greenbushes JV? How should we think about that?
Okay. That debt is at the 100% Greenbushes level. So notionally, I mean only notionally 24.99% of that would be ours. But you'll never see that on our balance sheet because all we have on our balance sheet and -- is the investment that we paid for the business. And then after that, movements in and out of the balance sheet, our profit movements and our dividend flow is coming back from the JV.
Okay. I understand. So that was at the Greenbushes level. Is there any additional debt or cash balance we need to think about at the TLA level?
Nothing at that level, no.
Okay. And then just 2 quick ones, I guess. Firstly, you've obviously mentioned previously about the pathway to appointing an engineering contractor to finish the works at Train 1. Just wondering how progressed you are with that and whether we can expect any announcements on that in the near future. And secondly, whether there's been any progress on the tax determination related to the lithium transaction. Any expected updated timing around that decision?
Sure. The engineering contractor is embedded and doing the work at Kwinana. We haven't felt compelled to give a disclosure, and we would look like -- although the contract is part of a listed company, we would expect that they'd probably make some announcement in time. But they're certainly embedded and they've been there for some time now. And then on the tax, that's an ongoing process. And we probably wouldn't expect to have a news flow on that until calendar '22.
Your final question comes from Peter O'Connor from Shaw and Partners.
Pete, firstly, just a quick one, underlying NPAT for the full year, if you take out the Tropicana gain. Scott, can you just give us that number so we can reconcile where The Street was?
Yes. Okay. For the full year, so NPAT was $548 million. And I think if you strip out then the after-tax gain on Tropicana, that's the -- by far the largest share of some minor underlying that should bring us back to roughly where we ended up last year for financial year '20 at about -- at a $155 million or thereabouts.
Great.
But we've never really gone out to the market with an underlying NPAT. It's always been an actual NPAT number.
Got it. Got it. And Pete, to Nova, on last call, you talked about the focus at Nova. And you mentioned the focus was on maximizing NPV via mill throughput. And you mentioned that the lift from 1.5 to 1.6 was part of that. And you're looking, as grade eased, to lift that to 1.8. Thinking about that maximizing NPV in that 1.8 rate and marrying Silver Knight with that, where is your thinking around that?
Yes. It's Matt here. I mean part of that will be what we come out with in October once we work through that Silver Knight. But what Silver Knight does give us is a flexibility to decouple a little bit from Nova underground to ensure that you're optimizing the Nova plant. So there's different mechanisms there that we can do in terms of throughput.
So is 1.8 still on options...
We haven't -- like the projections we've got haven't fully deployed the mining and processing throughput capacity that is available. So there's a little bit of flex there in our projections going forward.
Yes. So those forecasts, we're still doing at 1.6, which is still above nameplate of 1.5, working through debottlenecking mining, et cetera, now linking that also in with Silver Knight.
Okay. And thinking about milling and taking a step further to the work you did over the last few years on nickel sulfate, where is that now? Is that shelved? Or are you still -- is that an active option?
It's sitting on the back burner would be the way to characterize it. And to take that off the back burner, yes, we would need to have that access to the longer-dated nickel-sulfide feedstock. And so a key focus or a key catalyst for that would be step-change discovery around Nova or in fact on our Kimberley Project, which would deliver that longer-dated nickel-sulfide concentrate supply, and it certainly remains an ambition for us.
Yes. And the only thing we've done is ensure that we've got protection on the IP, so that we're getting all the IP in terms of patent applications and costs [indiscernible].
Okay. Pete, to that step-change thought, Silver Knight is really a bit of a rounding error given the size and the dollar value. And on last call, you talked about the trucking distance you'd look at to be 100 Ks. Now you're talking like-for-like deposits, it could be up to be 150. If you do a circle on the map now and look at who is there and who is drilling, there are a lot of other options in Silver Knight. So why was Silver Knight the deal that was done this week? Why not others?
Like there's a tangible sort of resource at Silver Knight and it's proximal to Nova. And it's not a transaction that was just done this week. It's a transaction that's evolved over the last couple of years. And it's just great that we've gotten to the end of that journey and being able to announce it this week.
Okay. And going back to Silver Knight and thinking about the mineralogy. You talked about weathering. And last quarter, you talked about weathering in -- across the Fraser Range varies a lot. It can be 5 meters. It can be 100 meters. Clearly, Silver Knight's got a lot of weathering. So thinking about how this open pit may look, are we talking about a fairly deep pit to get to below the weathering? And open cut-wise, any thoughts on strip ratio, depth of mining, et cetera?
No. It's probably a bit too early to come out with the geometry for the pit. But we really look forward to updating the market on that in the near term.
Okay. On the lithium deal, last call we talked about -- or you said you're thinking about the functional currency that you may use and also potentially a realignment of dates, balance dates to your partner, where are you at with those 2 factors?
Yes, usually one of the number of things that we continue to look at. To be honest, we've only just fully completed the transaction, so we haven't really taken that much further. It's not the biggest/top priorities at the moment in terms of how we report them and when we change our financial year to a calendar year, but I'll note the question and I'll try and move it up the list next, Peter.
Okay. And lastly -- and Scott, now just to speak to your answer about cash sweeps was worrying. Going back to the call we had in December where we talked about the structure of the deal and the governance you're putting in place, and you don't control the cash flow. And Scott, the answer you gave where you talked about -- I think you said the partners control it, and it's concerning that I know you're putting a lot of governance in place, but you don't have control of cash. So give me some comfort about those comments, it may have been a little bit off the top half.
Yes. At the Lithium HoldCo level, we've got a framework there where there will be a quarterly cash sweep on the dividend. And the mechanics of how that works at the Greenbushes level that we've previously talked to is that's currently a 6-monthly sweep. But there has been more than 2 dividends we have paid in the past, which has just been -- because the shareholders decided to do it. And I think that would be consistent with the -- with what we said previously.
Last one for me, Pete, labor. Labor issues in WA, are they border-related? Are they COVID-related, which relates to borders? Or is it competition amongst your peers? Or is it all of the above?
It's all of the above. The industry is doing really well over here, the mining industry. But likewise, all industries across Western Australia are doing well. So whether you're talking to a cafe or an engineering business or a mining -- a mine operator, everyone is seeing the same challenge. And it's not so much a skill shortage, it's a people shortage. And some of that's because with the potential to bring people in on a FIFO basis from the East Coast is harder today. The potential to bring people in from offshore is harder today. And therefore, there's very much an acute shortage. We've talked to it and other mining companies have talked to it. The way we tackle it is that we focus on making sure that we have the right culture at IGO to both attract and retain the talent and the people we need to continue to deliver success from our business. Our current 12-month rolling average, our voluntary turnover rate sitting at about 12%, and yes, that's a number that we continue to be proud of.
Can I leave you with a provocative question, Chairman change done, CEO succession?
We had a similar question asked recently by mining news. And I think what I said to them was that -- while I'm still having fun and still feeling like I'm making a contribution, it's great to be here. But we've got a lot of talent within the business. And I think that if I got hit by a bus tomorrow, walking across to the coffee shop, we'd have someone in the team to step into the role.
There are no further questions from the phone line. Unfortunately, we do not have time for webcast questions, so I will now hand back to Mr. Bradford for closing remarks.
Yes. Thanks, operator. Ladies and gentlemen, once again, we appreciate your participation through the presentation and the Q&A. FY '21 has been an exciting period with safe and strong operating and financial performance, and the completion of our transaction to become a clean energy, metals-focused company through the transformative deals with both Tropicana and the lithium joint venture with Tianqi. These achievements reflect the ambition, the commitment, the courage and the delivery of the whole IGO team, and I thank all at IGO and those that work with us for your contributions over the past year. We are now ready for FY '22. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.