IGO Ltd
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Thank you for standing by, and welcome to the IGO Limited June 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.
Thank you, operator, and good morning, everyone, and thank you for joining the call today for our June quarter results presentation. With me on the call today are Matt Dusci, our Chief Operating Officer; and Scott Steinkrug, our CFO, and they will both be available 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 I otherwise note. And I also note that the full year results that we mention through the presentation are unaudited, and we expect to release our fully audited full year results on the 30th of August 2022.
Moving to Slide 3. I will start by talking to safety and to note the continuing reduction in injury severity across the business and the reduction in high potential and serious potential incidents. We are minimizing harm and creating a safer place to work for our people. However, as always, there are improvements that can be made, and our team has refreshed our work program for the coming year to continue to deliver a safer work environment for all of our people.
Moving to Slide 4. We are proud to once again present a strong set of results for the June quarter, a period in which we recorded safe and strong operational and financial performance while also remaining focused on generating and delivering growth for the business. Highlights for the quarter include the completion of the Western Areas transaction, which has enhanced our nickel business and will enable us to explore the opportunity to move into downstream nickel sulfate production studies, for which we have already begun.
At Nova, the team have done an outstanding job to once again safely deliver nickel production within guidance while also achieving full year cash costs better than our guidance range. Our lithium business continued to benefit from strong lithium pricing and continued production growth at Greenbushes, which has enabled the first dividend to be paid by the lithium joint venture company to IGO. We also highlight the progress that the Greenbushes team are continuing to make to build out production capacity and prepare the operation for future growth. And at Kwinana, an important milestone was achieved with the first production of battery grade lithium hydroxide during the quarter.
Our operating performance has delivered great financial performance with strong free cash flow and a strong balance sheet at year-end with net cash -- sorry, net debt of $533 million post the Western Areas transaction.
Moving to Slide 5, where we summarize our key financial results for the quarter. Group sales revenue was 13% higher quarter-on-quarter at $278 million, predominantly due to higher nickel prices. Underlying EBITDA, which includes IGO's share of net profit from Tianqi Lithium Energy Australia, or TLEA, was also higher, driven by record earnings from Nova and a significant increase in our share of TLEA profit, which was $102 million for the quarter. Offsetting this within EBITDA was approximately $24 million in negative mark-to-market revaluations of investments held.
Net cash from operating activities and underlying cash flow -- free cash flow were both significantly higher quarter-on-quarter as a result of record free cash flow from Nova, receipt of the first dividend of $71 million from the lithium joint venture and the absence of income tax payments, which impacted the March quarter results. As noted earlier, net debt at quarter end was $533 million, following the completion of the Western Areas transaction, which was funded via a new fully drawn $900 million syndicated debt facility and $362 million of cash. I note that we also acquired Western Areas' cash balance of $94 million.
Moving to Slide 6, where we reconcile net profit after tax for the quarter. June quarter net profit after tax was $107 million, with the primary drivers being stronger quarter-on-quarter profitability from Nova and TLEA, as noted earlier; acquisition costs relating to the Western Areas transaction of $66 million; and a decrease in the value of our listed investments. Full year unaudited net profit after tax was $331 million.
Moving to Slide 7 and a reconciliation of cash flow. As shown, the key movements during the quarter relate to the settlement of the Western Areas acquisition. But I also want to point out the positive contributions from the record free cash flow from Nova and the receipt of the first dividend from TLEA.
Moving to Slide 8 and a discussion on our expanded nickel portfolio.
Moving to Slide 9. IGO now has a diverse and enhanced nickel-focused portfolio with projects spanning producing operations at Nova and Forrestania, an advanced development project at Cosmos, feasibility study stage projects at Silver Knight and Mt Goode and an expansive exploration portfolio substantially all located in Western Australia. In addition and in line with our strategy to be vertically integrated, our expanded nickel portfolio enables us to recommence downstream nickel sulfate processing studies. This work has commenced in partnership with Wyloo Metals, and we look forward to updating the market as this study progresses over the next 2 years.
Moving to Slide 10 and a more detailed review of the performance at Nova, which had another great quarter. Production increased quarter-on-quarter, resulting in full year nickel production at the upper end of our guidance range. Cash costs were higher quarter-on-quarter as a result of higher production and off-site costs, offset by higher metal production. Despite this, cash costs for the full year were better than the lower end of our guidance range, a great result given the inflationary cost environment globally and the challenges that the team have continued to manage through a period of higher COVID incidences and absences.
Moving to Slide 11. Nova benefited from higher average nickel prices during the quarter, attributable to favorable hedge positions put in place in the prior quarter. The average realized nickel price was 17% higher quarter-on-quarter, resulting in a strong free cash flow of $209 million for the period.
Turning to Slide 12, where, for the first time, we report on the assets acquired through the Western Areas transaction. Given that we closed the transaction on the 20th of June, just 10 days prior to the end of the financial year, the net assets and performance of Western Areas have been included in IGO's accounts from this date onwards. However, we've also taken the opportunity to report full quarterly and, where applicable, full financial year performance of these assets in this quarterly report.
June quarter production at Forrestania was impacted by underground ore availability and COVID-19-related absenteeism, which impacted equipment availability and mine scheduling. Nickel production was 14% lower quarter-on-quarter at just under 2,900 tonnes for a full year result of just over 14,000 tonnes. Cash costs, which are now reported using IGO's cash cost methodology, were $8.46 per payable pound of nickel for the quarter and $8.02 per pound for the full year.
Turning now to Slide 13, where we discuss the ongoing Cosmos project development. Key activities included the ongoing development of the shaft infrastructure and underground support structure, including power, paste plant and also aerodrome. In addition, underground development was advanced with a further 250 meters of decline development and over 1.3 kilometers of underground capital development in the quarter.
Moving to Slide 14. In parallel with the Western Areas integration into IGO, we have been developing a revised project development strategy for Cosmos, which derisks the operation and enhances overall value for IGO shareholders. The key elements to this strategy include prioritizing completion of the shaft development and infrastructure, completing more mine development prior to first production to open up multiple ore sources and expanding the process plant capacity through to 1.1 million tonnes per annum. As a result and to enable these key work programs to be progressed, first concentrate production has been deferred from late 2022 to mid-2023. The engineering studies to support these changes are ongoing, and we expect to provide updated capital cost estimates to the market once the work is completed in October 2022.
Moving to Slide 15, where we summarize the -- our guidance for the nickel operations for the coming year. Nova production in FY '23 is expected to be lower relative to FY '22, reflecting the maturity of the mine and lower grade stopes planned for the period. Cash costs are expected to be higher due to the lower production, combined with general inflationary pressures within the industry. Note that CapEx in FY '23 primarily relates to ongoing work carried over from FY '22, including construction of water borefields, aerodrome upgrade, solar farm earthworks for the expansion of our solar farm and the small amount of capitalized mine development.
Forrestania production for FY '23 is lower relative to FY '22, largely due to an expected lower contribution from Flying Fox, while cash costs are in line with the prior year and CapEx is lower year-on-year. Upside production opportunities are currently being assessed, which may result in additional mine development expenditure at Flying Fox and, therefore, an increased production contribution from Flying Fox.
Moving to Slide 16, where we discuss our lithium operations.
Moving to Slide 17. IGO's lithium investment is held through TLEA, which is a joint venture between Tianqi Lithium Corporation and IGO. During the quarter, TLEA benefited from production growth at the Greenbushes lithium mine and the continued strength of lithium prices. As a result, IGO's share of TLEA profit reported in the new IGO accounts at the EBITDA level was $102 million for the June quarter, materially higher than the March quarter result of $60 million. The strong cash flows generated by TLEA has enabled the payment of the first dividend to IGO, resulting in a distribution of $71 million. Looking ahead, we expect further strong performance as a result of the material increase in the chemical grade spodumene transfer price, which was reset -- which has been reset to just under $4,200 per tonne FOB for the first half of FY '23.
Moving to Slide 18, where we summarize performance from Greenbushes on a 100% basis, noting that IGO holds a 25% indirect interest via TLEA. Notably, spodumene production was materially higher quarter-on-quarter, resulting in full year production within our guidance range. Cost of goods sold, excluding royalties, for the quarter and full year were also within our guidance range despite higher mining costs, increased processing volumes and higher labor costs generally within the quarter. Royalty costs of $364 per tonne for the quarter were materially higher and reflect the sustained increase in benchmark lithium prices upon which the royalties are calculated.
Moving to Slide 19. On the left-hand chart, we illustrate the ramp-up in chemical grade spodumene production over FY '22, which has been enabled by several factors. These include the commissioning and ramp-up of the tailings retreatment plant, where we have seen strong improvement in recoveries in the June quarter; continued ramp-up of CGP2, which was commissioned in late FY '21; and then improved plant availability and recovery at both CGP1 and CGP2.
Moving to Slide 20. The next phase of processing plant expansion at Greenbushes is the construction of CGP3, Chemical Grade Plant #3, which was approved in March 2022. In parallel, we are developing the infrastructure necessary across the operation to support the higher production and processing rates delivered to date and to be delivered into the future. Key work programs, which progressed well during the quarter, will continue into FY '23. These are shown on the map on the right-hand side of the slide and include the construction of the tailings dam -- tailings storage facility #4, TSF4; a new mine services area; expansion of the power and water supply; and several other key pieces of infrastructure.
Moving to Slide 21 and a discussion on the Kwinana lithium hydroxide refinery. As previously announced, the first battery grade lithium hydroxide was produced from Train 1 during the quarter. This key milestone, which is the first time lithium hydroxide -- battery grade lithium hydroxide has been produced at scale in Australia, has enabled TLEA to commence the product qualification process. Train 1 is expected to continue to ramp up to nameplate over the next 18 months. In parallel, our final investment decision to recommence Train 2 will also be made during FY '23.
Moving to Slide 22, where, as we did for our nickel operations, we detail our FY '23 guidance for our lithium operations. At Greenbushes, IGO expects spodumene concentrate production to increase year-on-year and for cost of goods sold, excluding royalties, to be unchanged year-on-year. Capital investment at Greenbushes, including investment CapEx, sustaining CapEx and deferred waste CapEx, is expected to be between $420 million and $480 million, of which the biggest contributor is the construction of CGP3.
At Kwinana, we have not guided on production and cost in this reporting period. However, we will do so once the operation has reached commercial production. Sustaining capital expenditure for Train 1 at Kwinana is expected to be between $15 million and $20 million, and CapEx for Train 2 will be provided to the market once the outcome of the final investment decision is made. We expect that towards the end of the calendar year -- the current calendar year.
Moving to Slide 23, where we will discuss our exploration program. However, in the interest of time, I will keep it relatively brief. Exploration remains a priority for IGO, and we continue to believe that exploration will deliver the next phase of organic growth for our business and that we have the right team, the right technology and the right projects in place to deliver this.
Moving to Slide 24. The primary drilling focus during the quarter was on the Fraser Range projects and specifically on the Near-Nova targets that we have identified in previous programs, and the majority of this has been captured in the quarterly releases. Of note, we drilled a target immediately to the south of Silver Knight in the quarter, which was based on some new interpretations by IGO. This resulted in multiple holes intercepting up to 21 meters of visible nickel and copper mineralization at the targeted position. This target remains open and sits outside the optimized shell that the existing mineral resource sits within. Although not yet material, this is exciting, and further work is planned within the September 2022 quarter.
Moving to Slide 25. Elsewhere, the team has been busy on multiple work programs, 3 of which we highlight here. At the Kimberley Project, we progressed geophysical programs around the Sentinel target while also progressing heritage surveys to support drilling in the coming months. At the Paterson Project, an extensive program of airborne and ground surveys have been completed with drilling expected in the current quarter. And finally, at the Broken Hill project, we have also completed a program of ground EM, which has identified unmapped intrusive rocks above a high-conductive EM plate, which will need follow-up work in the coming months.
Moving to Slide 26. Looking ahead to FY '23, the exploration team has a busy year ahead, which will include a body of work to better understand the prospectivity of the tenements acquired from Western Areas. This work will be conducted as part of our broader exploration plan for FY '23, where we have budgeted $75 million in total exploration expenditure with key priorities being the Fraser Range, Near-Nova, the Paterson and the Kimberley projects. I also note several new projects to the portfolio, notably the Bridgetown-Greenbushes project, which is located immediately to the east of the Greenbushes mine. We believe these tenements are prospective for pegmatite-hosted lithium as well as mafic-ultramafic intrusion hosted nickel-copper-PGE mineralization.
Moving to Slide 27 and a short summary before I close and we open the lines to questions.
Moving to Slide 28. We are proud to have ended the 2022 financial year with another safe and strong quarter of operational and financial performance while also maintaining our focus on growth across our business. Our nickel business has evolved significantly with the Western Areas transaction enhancing our portfolio and providing new growth opportunities for the business and our people. Meanwhile, Nova continues to deliver and generate strong margins and returns for our business.
Our lithium business has gone from strength to strength with a combination of higher lithium prices, expanding production at Greenbushes and delivery of a key milestone at Kwinana, setting us up for an -- setting up an exciting platform for financial performance and organic growth into the future.
Financially, we remain in a robust financial position with strong cash flows, including the first dividend payments from TLEA, strong margins and a balance sheet which is well capitalized following the Western Areas transaction. And finally, we are proud of our ongoing commitment to our people and our culture and are continuing to build a workplace that can provide our team with the professional, personal and well-being opportunities that will inspire them to continue to live our values.
Thank you for joining us on the call this morning. We'll now hand back to the operator for questions. Thank you, operator.
[Operator Instructions] Your first question today comes from Mitch Ryan with Jefferies.
My first question is at Kwinana, the refinery underwent a 3-week shutdown in May and June. Can you just give me, I guess, some more clarity around that? How often are these shutdowns scheduled? And when is the next one? And potentially, what was the exit production rate for Kwinana?
Yes. Sure. The -- we would expect an annual shutdown of 3 to 4 weeks, and this is required for key maintenance on some of the larger items like the calciner and the solvation oven but also to do the annual inspections we need to do on the pressure vessels within the facility. And we're yet to land on which particular month of the year when these will occur, but it will -- we will be identifying that in our guidance each year.
And then the exit production rate for the quarter?
We had -- I think there was a total of 90 tonnes of lithium hydroxide produced in the quarter. And a lot of the momentum that we got in May was stripped out with that 3-week shutdown in -- that followed it.
Yes. All right. So my next question is in the footnotes, I noticed that there's a 5% volume discount for the chemical grade spodumene out of Greenbushes. To my mind, that's the first time that's been disclosed. I guess how is this applied? Is it across all offtakes? And then secondly, does that become irrelevant for the tonnes that are internalized into Kwinana refinery once it's ramped up?
Say that again, Mitch.
So you've disclosed that there's a 5% discount from pricing for the chemical grade spodumene, a volume discount. So I just wanted to ensure that I understand how that is applied. Is it across all of the offtake agreements? And then secondly, does that become irrelevant once you are starting to internalize those spodumene tonnes into the Kwinana refinery?
Yes. Sure. Yes. And it's a transfer price. So it's a transfer formula to calculate the price at which spodumene is moved to the shareholders, which is TLEA and to Albemarle. And so we wanted to make sure that disclosure was fulsome and to update the formula, and that applies to all chemical grade spodumene. The technical grade spodumene is determined through a different pricing structure, and that's based on offtake agreements that both Tianqi and Albemarle have with ultimate end users for those -- for that technical grade spodumene. And we do not have full visibility on the pricing of those.
Your next question comes from Rahul Anand with Morgan Stanley.
Look, I just wanted to follow up on the volume discount, obviously, in terms of pricing for next year. I believe this was new news. So it's come in a bit lower than my forecast at least. So I was just trying to touch on sort of understanding how the mechanism works. So you're obviously losing 5% of the volumes as you sell in. To Mitch's question, is there any such volume discount that's in your contracts for hydroxide perhaps that we need to know of? And then also, whether there is a relief for this once you start supplying to your own refinery. Or was that basically, this is to continue forever for mine life?
This is the current formula for the transfer pricing, which is agreed on a 3-year -- for a 3-year term, starting from approximately September 2019. There's a -- that will be up for review in the -- towards the end of the current calendar year. We don't have any positional guidance on whether that will be reviewed or not or whether it will stay in place. And the main focus here is making sure that the transfer pricing formula is efficient and reflective of the market so that we are mitigating any risk of scrutiny for the transfer price from Greenbushes to the shareholders. And that's the underlying -- the basis for the formulation of the price. If we can't come up with a more efficient model, you could expect that pricing model for the transfer pricing to continue into the future. The -- and this only applies to the chemical grade spodumene.
And we think -- when we think about the Kwinana refinery, that's the price that the Kwinana refinery were paid for the spodumene that it gets from Greenbushes. Any spodumene that we don't use at the Kwinana refinery within TLEA is on sold to Tianqi. And when it's on sold to Tianqi, it gets a bump up of 2.5%. So at the moment, where the majority of the chemical grade spodumene is going through to Tianqi, the net discount, if you like, is 5% minus 2.5%, so a net of 2.5%.
Okay. And just one follow-up before I ask my second question.
There's no such similar formula on the lithium hydroxide pricing. Those are set based on a straightforward benchmark calculation.
Understood. Okay. And just one follow-up there, I guess. The 3-year terms that you mentioned, what is a typical review process? I mean, if you could perhaps shed a bit of light in terms of sort of what happens at that 3-year mark. I mean, I presume you have a meeting. But given the shareholdings and how they are structured at the moment, I mean, what does this review look like? Is that sort of trying to look at benchmarks and see how the product was priced over the last 3 years and then try to get closer to market? Or is this more related to the cost base at the asset?
It's a market-based determinant. It's not a process I've personally been through before because we are new to the table, and we're not in a position to comment on how we think that might progress.
Perfect. Okay. Look, the second question is on costs. So across the industry, obviously, we've seen costs go up for the next year. And I just wanted to perhaps get a bit of an understanding on where you're seeing currently the underlying inflation in terms of your operating costs and also how you're seeing some of your CapEx estimates shape up for CGP3 and Kwinana Train 2. What is sort of the underlying rate that we should be thinking about as opposed to the headline?
Yes. So with CGP3, in the guidance that we provided, we've attempted to apply some forward-looking escalation to that. So from recollection, the projected CapEx out of the study was $507 million. We've provided a range of -- for our guidance of, I think, $500 million to $550 million, and that range at the top end envisaged continued escalation around 7%, 7.5%. And that's not dissimilar to sort of the average basket of construction cost escalation that we are seeing. Obviously, some elements escalating slower. Some elements where there's a tightness of supply, whether it be materials or services, are escalating much faster. And that would be a similar story across the operating assets. First and foremost, anything related to fossil fuel inputs, which are all high, is -- has had a negative impact, and we would expect that to continue into FY '23.
Rahul, I'll just add to that as well. In our cash flow guidance spend for Nova, we've actually built in cost escalations. As we've seen in financial year '22, we're seeing that now in financial year '23. We're less factoring that in. So out of the mine site, there's grinding media that we've seen has gone up. There's diesel prices that have gone up as well throughout FY '22. And so we think it's prudent to get some of that into FY '23 as well so that it doesn't become a shock down the track.
Your next question comes from Matt Greene with Credit Suisse.
Back on the -- just on the Greenbushes CapEx, well, I guess, the whole lithium business. Firstly, Kwinana's sustained CapEx of about $15 million to $20 million, is that -- are you quite comfortable with that on a go-forward rate?
And then secondly, just on Greenbushes, it seems about $100 million or so has spilled over to FY '23, basically prior guidance. Can you give us a bit of a rough split as to how much of the -- this new guidance is sustaining versus growth and deferred waste?
Deferred waste component, order of magnitude is like somewhere in that $40 million to $70 million range. And then the split between the growth and the sustained for Greenbushes, I don't have those at my fingertips. We will have some further materials come out on Friday afternoon. We'll likely have some more detailed guidance in that. At the Kwinana end, $15 million to $20 million, that's probably a good guide on sustaining CapEx going forward for Train 1.
Great. And I guess just on CGP3, you've said previously that peak spend will be about halfway through the 2.5-year build time. Is that still the case? Or is there an element of front-loading actually going on here?
Yes. Without sort of getting bogged down in detail, that's broadly correct.
Okay. And just my second question, I noticed your underlying free cash flow for the half was around $130 million. I think you said previously that TLEA distributions were potentially moving to a monthly basis. Just -- is that $130 million number what we should be working for in terms of your final dividend? Or is there potential of distributions early in this quarter that you'd consider as part of the dividend?
I'm not 100% clear on the question, Matt.
Yes. So I guess just in terms of your dividend policy, the underlying free cash flow number, I suppose in your disclosure today, is around $130 million for the half. And you've mentioned previously that your distributions from TLEA will potentially move to a monthly basis. I guess, has that happened? And if so, any distributions that you've received early in the September quarter, would you consider that as part of your final dividend in August?
Yes. So -- and here, you're talking about dividends at 2 levels, so dividends from TLEA and ultimately, an IGO dividend?
Yes. So I mean, in terms of distributions from TLEA to IGO in the September quarter, would that potentially form part of your thinking for the IGO dividend?
Yes. Sure. Tackling that in a couple of bits. Contractually, the distribution frequency from TLEA is quarterly, and we have not made any changes to that. And all things being equal, we would expect another distribution probably towards the end of the current quarter in September. And we would -- the Board would look at the overall cash requirements of the business, cash on bank and the operating performance for FY '22 when coming to a conclusion on the final dividend for FY '22. And we'll be able to update the market on that in August.
Your next question comes from Hayden Bairstow with Macquarie.
Yes. Pete, just a couple for me. Firstly, just on Cosmos on pushing the sort of start back to the middle of next year. Can you just talk about sort of development rates? And is there anything that's sort of been slower than what you thought? Or is this literally you want to get further ahead on the development and stoping before you turn this thing on and sort of ramp it up or, I guess, start it at a faster rate? Just keen to understand what the process was there.
Yes. Yes. I think at a high level, the strategy, as previously envisaged, the focus was getting to concentrate production as quick as possible and then to continue developing the mine while operating the mill. The problem with that is that there would have been insufficient working areas available underground. And therefore, the mill would have been drip fed rather than fully fed. And therefore, the economics of that would have been not optimal. And we think the more optimal outcome is to spend more time in the development phase, get more working areas developed, allow the current shaft construction to be -- time line to be completed and obviate any need for truck haulage of ore to surface, which was originally envisaged, because that just gets a bit messy with mobilization, being mobile with extra trucks and then the cost of doing that. And so therefore, we think the current plan makes a lot more sense and will deliver a more resilient operation and a better overall outcome for IGO shareholders.
Okay. Great. And on Greenbushes, just keen to understand, I mean, you've got to ramp this mining rate up to sort of 9 million tonnes a year of ore, I mean, obviously, with a fair bit of stripping ahead of that, I presume. And there was some data put out in the Tianqi IPO docs. Are you happy with what they provided? Or are we going to see better guidance on how you're going to deal with that? And do you -- are you able to sort of capitalize most of that so your cash cost for the ramp-up period won't change that much?
We're happy with the level of the -- or the quality of the disclosure in the Tianqi prospectus document, and that's reflective of what the plan is. And as we said a little bit earlier to one of the other questions, we've got a bump up in capitalized stripping in FY '23. That will be in that range, $40 million to $70 million, during the year. And that will contribute to cash costs for the current production staying within the guided range.
Your next question comes from Daniel Morgan with IGO.
I must have filled in the form wrong. Sorry, Barrenjoey. Just on this transfer pricing mechanism, am I correct in my understanding that TLEA gets this volume at a 5% discount and then you on sold it at 2.5%, which kind of implies the effective read-through discount is 2.5% from an IGO shareholder's perspective. Is that right?
Correct.
And the WA state royalties, do they take account of this 5% discount for volume? Or is this something that shareholders were and also is the ATO comfortable with this arrangement?
The state royalty is calculated with a slightly different formula. So there's, again, 3 reference prices used. One of the -- but there are 3 different reference prices, and that results in a higher average quarterly price on which the state government royalty is based on. And there's always been that disconnect. And at a point in time when all the reference prices come to equilibrium, one would expect that disconnect to disappear. I'm not able to comment on the ATO's view of the transfer pricing.
And I note that there is carryover tonnes again this quarter, which will attract the lower price. Would this magnitude of carryover occur if the lithium price was falling? I'm just trying to think, is this another element of transfer pricing potential profits out of the business to JV partners rather than for the benefit of IGO shareholders?
It's more of a business-as-usual outcome. Ships are loaded. Ships leave port, and the -- and there's a point in time when the pricing of the shipment is set. And in the future, we had a different scenario with a quarter-on-quarter price change for the spodumene where the following quarter was lower, then that delayed shipment would attract the higher price from the prior quarter. So ultimately, it all washes out.
And I don't think we should get too bogged down on those individual shipments, which at quarter end, ultimately, similar to what we do in our Nova business, we would look to a more efficient mechanism where those shipments that are loaded -- well, effectively priced at the prior quarter and -- but occurring in the following quarter from a sales point of view, we'd like to tidy that up and have some sort of presales mechanism that just buries that in the previous quarter.
Your next question comes from Levi Spry with UBS.
Peter, lots of questions on price. I might come back to that in a second. But just at Kwinana, so 18 months ramp-up, how do we think about the declaration of commercial production along that trajectory? What is the critical path? How do we model it?
We would expect to get to there sometime between now and Christmas and then to continue the ramp-up through calendar '23.
Yes. And Levi, that's largely dictated by continuous runs, just ensuring that we're getting continuous runs through the circuit.
Okay. Great. And maybe just a different part of the spodumene price realization. So what was the technical grade realized price for that quarter?
I don't have the numbers sitting in front of me, Levi. It's -- but it should be a fairly simple arithmetic determination [indiscernible].
How does it work, though? So do you literally find out after the event?
No. We're seeing the numbers in real time.
Yes. We can't guide to it, yes. Okay.
Yes. Well, it's -- I think we stated in the quarterly, it's commercially in confidence. So it's a matter that we are not allowed to talk about it.
Your next question comes from Lyndon Fagan with JPMorgan.
I just wanted to ask about the Greenbushes CapEx guidance, so up to $480 million. Are you able to provide a bit of a split on how much of that is pre-strip versus other items? And whether we should expect this sort of rate to continue into FY '24 and beyond?
Yes. I think we've already answered that question. Remember, we said it was somewhere -- the range for the deferred waste would be $40 million to $70 million. And yes, over the next couple of years, we've got an increasing mining volume with increased stripping to be able to get to the point where we can sustain an ore production rate of plus/minus 10 million tonnes per annum. And so we would expect deferred stripping to continue over that period.
And I guess just going back to your 3 indices that you average for the lithium price realization, I noticed one of them isn't Platts. And that's a good $1,000, $1,200 higher than the Asian Metal price. I'm just kind of wondering whether the new discussions are likely to sort of agitate to include Platts because it sort of looks like you're leaving some money on the table there.
One -- I think your comments are noted. And I would expect that, that would be certainly one of the points of any discussion around a determination of a more efficient pricing mechanism. But I think we've done chemical grade pricing discussions to death on this call. So perhaps we move on to anything else from the quarterly.
Well, I'll just hit you with one more on price, if that's all right. But the Asian Metal indices CIF, but you're averaging FOB prices. What sort of shipping cost should we be using to sort of calculate the average price at our end to net that off?
I mean, the figure we use, about $25 a tonne to go from a CIF price down to an FOB price.
Your next question comes from Kaan Peker with Royal Bank of Canada.
Two quick ones for me. Just with the tailings retreatment plant. Given that it involves reclamation in processing, not conventional mining, how do you expect that to impact aggregate costs when TRP ramps up?
Yes. Overall, we expect it to be cost neutral to slightly cost beneficial to average chemical grade production costs.
And I assume that would be in guidance currently?
Correct.
And with chemical grade spodumene production not sold, I know it's priced on SC6 basis. Does Greenbushes produce different grade chemicals spod? And is it consistent?
Yes. The chemical grade spod is all SC6 and consistent, and that's the delivery spec that's required by the 2 customers, which is TLEA and Albemarle.
There's no 6.8 or 5.5 that's being produced, just 6.
No. No. No. It's a high-grade ore body that is very amenable to producing SC6. And therefore, we do. Other ore bodies which are lower grade find that it's much more difficult to achieve that sort of concentrate grades, so ultimately produce a lower spec. But a lower spec then attracts higher transport costs overall, has a more negative impact on carbon footprint and presents some challenges, potentially reducing throughput at the calcination stage downstream.
Your next question comes from Kate McCutcheon with Citi.
I have a Nova question this morning. So the copper price assumptions in your guidance of the $5.65 a tonne, if I'm reading that correctly, imply a pickup in spot that's now $4.80. Are you comfortable with those assumptions? Is that a risk perhaps?
Look, as I said, it might be a slight risk, as I said, mathematically, if you have a look at the calculation. But we've provided a range here, number one. Number two, we provided, as I said, some good flex in here for inflationary pressures, but this is a number that we saw at a point in time when we pulled this together. And it was a number that's a blended number for the whole year.
And rather than try to take a speculative view on what price is going to be from year to year, we do use a formularized approach with a blend of spot price on the day we fix it and our consensus estimates for the coming year. And we apply that same formula routinely here from 1 year to the next.
Yes. Okay. And then can I just follow on from Levi's question around Kwinana? So commercial production this half, I think, you said between now and Christmas. And what will happen to the product before it's qualified? Are you able to sell that into the spot market?
And then secondly, you exited this quarter with 88 tonnes. What does the ramp-up look like over the next 18 months?
Yes. First, we've got a couple of curves that we will show on our presentation on Friday afternoon, and that will give you a little bit more clarity on that rather than me trying to figuratively describe it on a conference call. If you need it urgently, something in between time, you could draw a straight line between today and that future date.
Okay. And the product sales before hydroxide is qualified?
We would expect to sell those into the spot market, and we will do that on a consignment or batch basis with a spec that's been certified by TLEA.
Yes. And just to confirm, does qualification and commercial production need to happen concurrently? Or it seems like you're saying commercial production can be declared before you've undergone product qualification. Is that correct?
That's correct.
Your next question comes from David Radclyffe with Global Mining Research.
So I've got a question on the nickel concentrate marketing strategy now that you own the Western Areas assets. How do you approach this going forward as the existing contracts roll off? Do you think that the scale could give you further upside to payabilities as a block? Then sort of historically, downstream sort of studies have been a good bargaining chip in negotiations. Do you actually think that you've now got the scale to make this work? And if so, what sort of volumes of sulfide are you thinking of?
Dave, it's Matt here. In terms of strategy and offtake, the -- both 50% of the Nova concentrate -- nickel concentrate comes off at the end of December. That's the line to when Forrestania concentrates also becomes available to the market. We're working through that strategy in terms of approach that will start to kick off in the second half -- the start of the second half of this calendar year. The idea there is ultimately to look at how we extract more value through integration of both of those concentrates. That value propositioning also drives back through to recoveries into cost structures, et cetera, at Forrestania.
In terms of the nickel sulfate, committed on that nickel sulfate started test work on Cosmos now. The idea is to get sufficient scale to make that facility economic, looking around about 24,000 tonnes of nickel metal as the first trade to get the right volumes to ensure you've got enough capital efficiencies.
Okay. And maybe as a follow-up nickel question, at Odysseus, does that deferral result in a larger ore stockpile being built? I seem to remember in the past, there was some talk about potentially shipping some more preconcentrate production. Is that still an option for you guys?
Yes. That wouldn't be an option for us. We would always look at the value-add proposition. That's what we're trying to do.
Okay. But no plans or you're not guiding to that yet?
No.
Your next question comes from Mitch Ryan with Jefferies.
Peter, I'm just trying to reconcile your question -- your commentary with regards to the ramp-up of the Kwinana Refinery. You've sort of said take a straight line over the next 18 months. However, last quarter, you sort of said that you expected it to reach 50% capacity quite quickly. And I think I've taken that 50% was when you would reach commercialization, and then it would ramp up to 100% more slowly beyond that. Can you help me reconcile those 2 comments to make sure I've got my understanding correct?
Yes. Both are broadly correct, Mitch. Like I said in answering Kate, we're going to have a chart showing ramp-up profiles with the strategy materials put out on Friday. And you're probably better informed by looking at that rather than me figuratively trying to describe it on the call. And the straight line was probably too conservative, yes. Thanks for the pickup.
Okay. And sorry, jumping around on Cosmos. Clearly, deferred timing increased CapEx, but it also comes with increased throughput. Just wondering if you can provide any commentary on the impact on either recoveries or operating costs you would expect from that increased capacity.
Yes. I mean, we're doing all of that work at the moment to lock down that plan. And we'll come out with all of that as part of our October quarter, including updated capital as we work through the value-add proposition.
Thank you. That is all the time we have for questions today. I'll now hand the conference back to Mr. Bradford for closing remarks.
Thanks, everyone, for joining us on the call today. We really appreciate your presentation and continuing interest in the company, and we look forward to reengaging again in a month with our fully audited FY '22 operating and financial results. In the meantime, stay safe, and have a great day. Bye.
That does conclude our conference for today. Thank you for participating. You may now disconnect.