IGO Ltd

ASX:IGO

Earnings Call Transcript 2023-Q4

[Matt Dusci, Acting CEO]

Good morning, everyone. Thank you for joining this call this morning, as we present our June quarterly operating and financial results. Joining me on the call today is our Chief Financial Officer, Kath Bozanic.

Slide 2 highlights our cautionary statement and disclaimer. Of note, all currency amounts are in Australian dollars unless otherwise noted. Also note that our quarter and full year results are unaudited, and we'll be reporting our audited full year financial results on the 31st of August.

Turning to Slide 3. I want to start this morning's call with a comment on safety. Over the course of the last 12 months, we have experienced too many incidents of harm to our people. The Board and management teams have responded to ensure that our people are engaged with our safety programs and driven a review of our risk assessment, safety systems and training to help minimize the likelihood and severity of safety events. We have boosted resources both on site and from corporate support and continue to closely examine ways in which we can drive better outcomes. It's pleasing that we have recorded reductions in our total reportable injury frequency rate over the course of FY '23, with the majority of these being low severity incidents, but we still have a way to go.

Turning to Slide 4, where we'll outline some of the key highlights for the June quarter. Financially, the strength of our Lithium business has continued to drive excellent financial results. Another record for both underlying earnings and free cash flow was delivered in the June quarter. This has enabled us to build exceptional balance sheet strength.

Operationally, Greenbushes was a highlight, delivering record spodumene production in the quarter, resulting in exceeding full year production guidance. This performance, combined with strong spodumene pricing, delivered another record dividend from TLEA. At Kwinana, the ramp-up of Train 1 experienced ongoing technical challenges, which resulted in lower-than-expected quarterly production.

In our Nickel business, Forest -- Nova and Forrestania both finished FY '23 strongly, while development of the Cosmos Project also made material progress. I note the impairment that we announced 2 weeks ago. We acknowledge this disappointment, and I'll discuss this later on in this presentation.

Finally, as always, sustainingly has been a focus over the quarter. A key highlight here was the commissioning of expanded solar farm and battery energy storage system at Nova.

Turning to Slide 5, we will provide an overview of our June quarter financial results, as well as unaudited full year financial results for FY '23. Key highlights to note here include a 16% increase in IGO's share of TLEA net profit up to $522 million for the quarter, which drove a corresponding 19% increase in underlying EBITDA to $636 million. This brings IGO's underlying EBITDA for FY '23 to just over $2 billion. This is nearly a threefold increase compared to our FY '22 results.

Underlying free cash flow of $381 million for the June quarter was again enhanced by strong dividends from TLEA. As a result, the balance sheet is in great shape with cash at bank of $775 million and a net cash position of $415 million following the repayment of a $90 million of our debt facility.

I note we have not reported a Group NPAT result in this quarter, as this result will be impacted by the impairment charge, which we announced 2 weeks ago. This impairment value is yet to be finalized and as such, will provide unaudited NPAT with the full year results at the end of August.

Turning to Slide 6, where we reconcile cash. As with the last quarter, the big driver in cash uptick was the record quarterly dividend received from TLEA. Other points to note include strong cash generation for Nova of $118 million, a cash outflow of $5 million for Forrestania, which was driven by restricted sales for the quarter, $53 million received from the sale of investments related to our divestment of our holdings in non-core and $90 million scheduled debt repayment relating to the Group's debt facility.

Turning to Slide 7. Alongside our quarterly results disclosure this morning, we have also released details of our updated capital management policy. As our business has transformed over the recent years, we understand that shareholders need clarity, transparency with respect to how IGO will seek to balance the reliable and consistent return of capital to shareholders, while maintaining our strong balance sheet and ability to respond to financial growth opportunities.

IGO's shareholder return policy has been updated with a target range of between 20% and 40% of underlying free cash flow when liquidity is less than $1 billion. When liquidity exceeds $1 billion, there is board discretion to pay in excess of 40% threshold. We'll announce our final dividend for FY '23 with our full year results on the 31st of August.

Turning to Slide 8, where we'll jump to a discussion of our Lithium business. This is held by our joint venture interest in Tianqi Lithium Energy Australia referred to as TLEA.

Turning to Slide 9. As noted in the highlights, the strong financial performance of our Lithium joint venture has continued, driven by strong production performance at Greenbushes and favorable pricing. IGO's share of TLEA net profit after tax was up 16% quarter-on-quarter to $522 million, bringing our full year result to just over $1.6 billion. The quarterly dividend received from TLEA for the June quarter was $423 million, up 32% versus the prior quarter. For FY '23, IGO has received just shy of $1.2 billion in dividends from TLEA. This is an exceptional result.

Turning to Slide 10 and on to Greenbushes. The June quarter performance saw 11% stronger production compared to the March quarter, as a result of higher feed grade into CGP1 and CGP2. This was a result -- a record quarter for Greenbushes. Full year's spodumene concentrate production of 1.49 million tonnes was above our full year guidance. Sales, which was impacted by shipment delays in the March quarter, recovered strongly in the June quarter, resulting in a strong uplift to sales revenue, up 23% to $3.5 billion and EBITDA up 24% to $3.2 billion on a 100% basis.

Unit costs, excluding royalties of $304 per tonne for the June quarter were marginally higher, reflecting ongoing inflationary pressures in the sector, while the full year cost result of $279 per tonne finished just above the top end of our guidance. We've also introduced a new cost reporting metric in today's quarterly report. To improve clarity on production costs, we'll report cash costs of production going forward, which will include mining, processing, crushing, site admin and deferred stripping and utilize production rather than sales, as a unit of measure.

The realized spodumene price for the June quarter, including both chemical and technical grade products was USD 5,431 per tonne for the quarter. I note that the chemical grade spodumene pricing for the current quarter has reset at USD 3,739 per tonne, which reflects the lower prevailing benchmark pricing we witnessed in the March during the quarter.

Turning to Slide 11. The graph on the left illustrates the production growth at Greenbushes over the recent 2 years. Production growth to the current 1.5 million tonnes per annum run rate has been enabled by the commissioning of CGP2 and the tailings retreatment project. The next step up in the production profile is expected when we commission CGP3 in 2025.

As noted last quarter, a review of the capital cost estimate for CGP3 has been underway in order to address the impacts of cost escalation and challenges related to engineering and design, particularly of pilings. While the final cost estimate is subject to further update and require approval from the Talison Board, IGO currently expects the total remaining capital to be between $550 million and $605 million. This equates to an approximate uplift of $180 million versus the original guidance after $125 million of expenditure was occurred in FY '23. In the meantime, other capital work programs continue to focus on the mine service area, power supply, tailings [dam 4] and accommodation village during the quarter.

Turning to Slide 12 and to the update on Kwinana lithium hydroxide facility. The ramp-up of Train 1 continued to be challenged with only 142 tonnes of lithium hydroxide produced during the quarter, which was well below expectations. The team faced a number of technical challenges and plant delays coming out of the shutdown in May to rectify several key bottlenecks. The plant has now been stabilized and has returned to approximately 20% of nameplate capacity. We'll continue to work through engineering and rectification work on Train 1.

Turning to Slide 13, where we'll provide guidance for FY '24 for our Lithium business. Spodumene concentrate production from Greenbushes is expected to be in line with FY '23 performance and has been guided between 1.4 million tonnes to 1.5 million tonnes on a 100% basis. Cash costs of production are guided at between $280 per tonne and $330 per tonne. Costs are expected to be marginally higher than FY '23 due to the ongoing impacts of inflation, which has been partially offset by improved mining costs.

FY '24 CapEx at Greenbushes is guided to be between $850 million and $950 million, representing a sizable uplift versus the FY '23 spend of $513 million. This increase in CapEx reflects a significant level of expansionary activities on site with many key projects running concurrently to deliver the increased mining and processing rates into the future.

Of note, majority of the capital guided can be attributed to 5 key projects, including CGP3 construction, deferred stripping, as we invest in the cutback to open up the [indiscernible] design, the permanent accommodation village to debottleneck operations from workforce constraints, continuation of construction of tailings storage facility 4 and other additional supporting infrastructure for the site. This is a sizable investment at Greenbushes and will enable future growth to that 2.5 million tonnes production and beyond.

At Kwinana, we're not in a position to provide production guidance at this point, as we continue to work through rectification and ramp-up production. CapEx at Kwinana for FY '24 is guided at $35 million to $45 million. The vast majority of this which relates to modification and rectification work required on Train 1.

Turning to Slide 14, we will move to our discussion on the Nickel business unit. Turning to Slide 14, we will start with the Nova operation. Quarterly production performance was stronger for all metals. Nickel production finished FY '23 marginally below the bottom end of guidance, while copper and cobalt production finished within guidance. This stronger quarter was aided by higher mill throughput with power issues experienced in the March quarter now mostly resolved.

With higher metal production, cash cost performance also improved. June quarter cash costs of $2.60 per payable pound were 31% lower quarter-on-quarter and full year cash cost finished at $3.54 per pound within guidance. For the full year, Nova generated $460 million in underlying EBITDA with EBITDA margins over the full year at over 62%.

Turning to Slide 16. At Forrestania, improved processing capacity and performance delivered a stronger quarter-on-quarter production results and a 16% improvement in cost. Production and costs both finished FY '23 within guidance. Of note, sale revenues were markedly lower, as a result of lower nickel prices, while free cash was also lower due to limited trucking availability and poor weather resulting in road closures. We expect it to improve over the coming quarter.

Turning to Slide 17 and on to Cosmos, where we continue to progress project development during the quarter. Key deliverables include completion of the paste plant and development of underground chambers for the material handling infrastructure. In addition, as at 30th June 2023, the processing plant and shaft were approximately 85% complete, while the headframe picture to the right was also nearing completion at the end of the quarter. Capital expenditure for the quarter was $98 million, with a total spend over FY '23 of $338 million.

Turning to Slide 18, where I talk through the impairment that we recorded against the Western Areas assets and the Cosmos Project review currently underway. As announced 2 weeks ago, we will be recording a non-cash pretax impairment of between $880 million and $980 million on the assets acquired from Western Areas in 2022. Subject to finalization and audit, this impairment charge will be recorded in our full year results due out at the end of August. This impairment is disappointing and reflects higher CapEx and operating costs, challenges to the mine production schedule and delays in development at Cosmos.

A comprehensive independent review of the Cosmos Project is underway with the review team given a broad mandate to better address the risk and opportunity to the current life of mine plan, capital cost estimates and schedule. We expect this review to be completed during the December quarter at which point, we will provide an update to the market.

Turning to Slide 19, where we set out our FY '24 guidance for our Nickel business. Starting with Nova, FY '24 production is guided between 21,500 tonnes and 23,500 tonnes of nickel. This is in line with FY '23 production levels that, as you remember, was impacted by the fire in December. Year-on-year, the Nova mine plant is forecasting lower mill tonnes and grade.

Copper and cobalt production are also expected to be marginally lower than the FY '23 production. Cash cost guidance of between $3.40 per payable pound and $3.90 per payable pound in nickel is marginally higher year-on-year, reflecting lower unit production and our expectation that some inflationary pressures were going to persist into FY '24.

At Forrestania, we guided to lower year-on-year production with nickel production between 7,500 tonnes and 9,000 tonnes for FY '24. This reflects the conclusion of mining from the Flying Fox mine expected in December, which will result in lower mined and milled tonnes. Cash costs are expected to be in line with FY '23 performance between $9.50 per payable pound and $10.50 per payable pound.

Capital development both Nova and Forrestania is expected to be higher year-on-year. As noted earlier, we're also in the process of completing a review of Cosmos. We are not in position to provide guidance at this point.

Turning to Slide 20, where I'll provide a brief update on exploration activities during the quarter. Moving to Slide 21. Exploration activities continued across our portfolio. In FY '24, we've allocated an exploration budget of $65 million to $75 million. This budget is driven by a bottom-up assessment of high-quality opportunities to unlock value across our portfolio.

Activities worth noting during the quarter include at the Fraser Range Project with ongoing programs of work at both Silver Knight and others new Nova targets, where we are continually [Technical Difficulty] disseminated nickel sulphides and drilling. And in the Paterson, we have diamond drilled 2 key copper targets, Nifty East and Rainbow West, with assay results pending.

Turning to Slide 22 and to a summary of today's results.

Turning to Slide 23. To summarize the quarter, we have continued to deliver outstanding financial performance with another quarter record underlying EBITDA result and strong free cash flow generation. Our balance sheet is in great shape with a net cash position of $415 million. Greenbushes has driven much of this performance with FY '23 production exceeding guidance, which, combined with strong pricing has generated exceptional dividend flows back to IGO. We continue to invest heavily into production growth at Greenbushes with a focus on construction of CGP3.

Nova and Forrestania has also delivered during what has been a challenging year for both projects. Development at Cosmos continues, while we conduct in parallel an independent review designed to deliver optimal value on the asset. And as advised, we'll be working over the coming weeks to finalize our full year audited results, including the impairment, and we look forward to engaging again on the 31st of August.

Thank you for joining us on the call this morning, and I'll now hand the call back to the operator for questions.

[Operator]

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

[Rahul Anand, Morgan Stanley Australia]

For my question, I had one on the write-down. I know there's a review underway, but you've talked about potentially the differences in the spot and consensus nickel price forecast, and you've also talked of cost inflation in terms of the Cosmos Project. Can you perhaps shed a bit more light on whether you're using spot or consensus forecast for that write-down figure? And then what's the nature of the write-down in terms of the OpEx? How should we think about that, please?

[Kath Bozanic, CFO]

Rahul, I'll answer that. We're using consensus nickel for the impairment, pricing, so that will add to the first part of your question. In respect of the impairment, there were numerous contributions to that escalated capital and operating costs, challenges in the mine schedule and challenges in the development schedule. In terms of giving you an idea of the split of that it's a bit hard to do that because this -- they all contribute to differing levels, not one of them was more than any of the others.

[Rahul Anand, Morgan Stanley Australia]

Right. Okay. And in terms of just the combined, I mean, you've talked about the synergies or the positive gains you've made out of blending the products as well from the Western Areas assets and IGO assets. Can you provide an order of magnitude of what level of write-down that part of the synergies have seen?

[Kath Bozanic, CFO]

The devil's in the detail. So at this point, no. We'll be providing more information around the impairment, as part of our annual report. But I can let you know that, that was factored into our impairment calculations.

[Rahul Anand, Morgan Stanley Australia]

Sorry, go ahead.

[Matt Dusci, Acting CEO]

Yes. It's fair to that most of that value that will come from -- it comes from Nova and Forrestania. And so it hasn't -- we haven't realized that value yet for Cosmos.

[Rahul Anand, Morgan Stanley Australia]

Sure. And just to close off that impairment point, I know it's certainly one question, apologies. Just to square off, you're only using reserves in this calculate. I mean, any sort of upside in terms of your resource expansion and conversion into reserves is still not captured here?

[Kath Bozanic, CFO]

Correct. We're working on expanding our drill programs and there is some opportunities at depth and laterally, which we'll be working on over the course of the next 6 months, 12 months.

[Matt Dusci, Acting CEO]

Yes. It’s important to know that impairments are driven by accounting standards. So what we’re working through with all of the – and part of that with an independent review is also assessing those opportunity, so we can clearly articulate the value proposition for Cosmos.

[Operator]

Your next question comes from Hugo Nicolaci with Goldman Sachs.

[Hugo Nicolaci, Goldman Sachs]

Good morning, Matt and team, and then, thanks for the update this morning. Maybe just one around Kwinana. Just hoping you could provide a bit more color around the technical challenges to the restart following the planned maintenance in the quarter? And then maybe just how the plant's been performing through July following the modification?

[Matt Dusci, Acting CEO]

Yes. Fair to say that we -- I mean, we were disappointed with the quarterly results out of Kwinana with that small production. There was a number of reasons on that, and it's not fair to point to one of those reasons in terms of that production profile. We have stabilized the plant now, and we're back up to around about 20% of nameplate. So we're consistently at about 20%. We continue to work through some of the rectifications, including the performance at the lithium hydroxide back end, we actually shut down, and we still not -- still haven't got there out of that shock.

[Hugo Nicolaci, Goldman Sachs]

I mean, is there any particular part that's still underperforming? I know it's still the dryer circuit that's not up to nameplate capacity and what's holding that back? Or just any data you can provide as to which parts of the plant that are still kind of holding you back there?

[Matt Dusci, Acting CEO]

Look, it's fair to say that -- this as we work through ramping the project, ramping to get to closer to nameplate, and then, you also noticed that we pulled back in calendar year '23 to that 50% target. It's fair to say there's a list of things associated with debottlenecking. One of the key debottlenecking areas is in that back end around that dryer, around the material handling, that is a constraint, but there is other constraints that we're going to have to continue to work through, as we ramp up Kwinana.

[Hugo Nicolaci, Goldman Sachs]

And then, just rounding out the Kwinana pace. I mean, you commented in the release that the FEED costs on Train 2 were the only CapEx you'll incur in FY '24, but FEED completing in early calendar '24. How do we interpret that around the timing that you're currently expecting a potential FID on Train 2 at this stage then?

[Matt Dusci, Acting CEO]

Yes. So we’re in process of committing to an engineering group on the FEED. We expect FEED to be completed, be pushed out slightly, so get depleted early in FY – early in calendar year ‘24. And then they will obviously after the completion of FEED that it’s going to go through approval process to reach a capital decision. So that’s why we haven’t guided any sort of decision because ultimately, that will come through a board approval. And once that decision is made, then we will inform the market.

[Operator]

Your [Technical Difficulty] question comes from Levi Spry with UBS.

[Levi Spry, UBS]

Good day, Matt, and thanks for the call. I probably want to talk about Greenbushes and capital, please. So the new capital guidance, can you just break it down and sort of walk us through that a little bit? You mentioned $180 million increase on the CPG3. So does that get you to full production? What else is in there, talk through the stripping? What is the sustaining number? And I guess, what is the read-through here for CPG4?

[Matt Dusci, Acting CEO]

Yes. Okay. So a few questions in there, and I’ll try to get through those. So as we guided in the quarter, I mean, we’re looking at a cost increase of CGP3 about $180 million and that -- that’s an estimate. So tend to -- it hasn’t been approved by the Board at Talison and still looking at locking what exactly CGP3 cost would be.

Yes, similar to FY ‘24, we’re guiding to $880 million to about $950 million for FY ‘24. If I break that down, there’s a number of key projects like CGP3 costs were around about 30%, 35% of that, deferred stripping would be another 15% to 20%, the permanent -- permanent camp village is about 10% to 15%, tailings dam 4 is about another 10% to 15%, and then you’ve got enabling capital, et cetera, including some offices and et cetera. So a lot of the capi’al that you've seen in FY '24 is really about positioning Greenbushes, as we continue to expand and grow and realize that value proposition that we have at Greenbushes.

CGP4, if I may -- is the last question. Working through studies on CGP4 with the idea that, that should go to Talison board sometime early in calendar year ‘24 for approvals.

[Operator]

Your next question comes from Lyndon Fagan with JPMorgan.

[Lyndon Fagan, JPMorgan]

Thanks for that. Just on Cosmos. Are you able to give an idea of when we should expect first production?

[Kath Bozanic, CFO]

Look, we're going through the independent review at the moment, Lyndon. And as we've guided in to -- in the quarterly report, we're anticipating to be able to give some more flavor in the December quarter. Until then, when -- we've withdrawn guidance and won't comment on it. We need to finish this review.

[Lyndon Fagan, JPMorgan]

I guess the other way of looking at it, if you spent $98 million of CapEx in the fourth quarter, should we expect that rate of spend to continue? Or is there any dramatic change in demobilizing the construction project?

[Kath Bozanic, CFO]

Again, there's fluctuations in CapEx during any project. So I think that we're not guiding on CapEx for the next quarter or 2. We need to go through this independent review. Sorry, I can't give you more than that at this point.

[Lyndon Fagan, JPMorgan]

No worries. I'll try my luck on another asset. So just at Nova, what's driving the lower milled tonnes. So I realize the lower grade, just a function of the mine plan, but what's driving the lower throughput there? And does that continue in subsequent years?

[Matt Dusci, Acting CEO]

Yes. Lower throughput is largely driven by just mining schedule. So you see grade drop off, but you'll also see some of the higher-volume stopes also drop-off, so it's just scheduling, mining scheduling stabilizes around about this level.

[Lyndon Fagan, JPMorgan]

So this is the kind of new run rate going forward. Is that how we think about it?

[Matt Dusci, Acting CEO]

Yes. It's fair to say that when you get to the right to the back end.

[Lyndon Fagan, JPMorgan]

Right. And is there anything on Silver Knight night worth commenting on? Or...

[Matt Dusci, Acting CEO]

Not in terms of materiality to Nova or extension of life of mine. Silver Knight really -- is really about the exploration opportunities around it.

[Lyndon Fagan, JPMorgan]

Yes. No worries.

[Operator]

Your next question comes from Kaan Peker with RBC.

[Kaan Peker, RBC]

Good morning, Matt and Kath. A few -- one question on the TLEA dividend. Just wondering, the previous dividend was impacted by that essential transaction. Is that now not proceeding? Has all the funds allocated to that now being distributed this quarter?

[Matt Dusci, Acting CEO]

Yes. So there is that essential metals, no acquisition there, that just becomes part of the pull that comes through that we do the cash sweeps through TLEA. So that's been lifted from any restriction, as we do cash sweeps through TLEA.

[Kaan Peker, RBC]

Okay. And the second one, just maybe the quantum of the EBITDA loss for Kwinana, a bit more detail around that. Is that essentially due to the technical challenges that you previously flagged?

[Kath Bozanic, CFO]

Yes. The reduction of sales during the quarter, which you will have seen.

[Kaan Peker, RBC]

So there's no more detail around it. It's just the technical challenges.

[Kath Bozanic, CFO]

Yes. and reduced revenue coming through, obviously.

[Matt Dusci, Acting CEO]

Yes. It's [indiscernible] volumes just revenue coming through. We've still got significant inventories at Kwinana, and we're looking, and that's part of the qualification once we reach that qualification, then, we'll also sell that inventory that sits in warehouse.

[Kaan Peker, RBC]

Just last one on Cosmos. I know it's been talked about, but and there is a review going on. But it seems like the shaft and the headframe is progressing, the underground development rates are actually okay. So what's actually changed? Is it more the plant?

[Kath Bozanic, CFO]

As we sort of said in the quarterly, we've had some challenges with the mining schedule underground, and it's been a little bit more difficult with geotech, which we've had delays in AM6, which I think we spoke about last quarter. There's schedule slippages. There's cost escalation on both the CapEx and operating costs. I hope that answers your question.

[Kaan Peker, RBC]

It does. I’ll pass it on.

[Operator]

Your next question comes from Mitch Ryan with Jefferies.

[Mitch Ryan, Jefferies]

Just wanted to turn to the integrated battery materials facility, and in light of what you're seeing both at Cosmos and more specifically at Kwinana with regards to capital blow out. The first question is how much capital have you sort of allocated to it within the feasibility study? And then secondly, how much of it is dependent on Cosmos ore feed to be successful?

[Matt Dusci, Acting CEO]

Yes. I’ll answer that. So we’re still continuing that – that’s the study. This quarter was quite lumpy in the expenditure because we’re doing all the pilot test work, pilot plant test work essentially running, and we’ll continue that during this quarter coming, where we’re running pilot continuous associated with this process flow sheet or part of the derisking program. We’re doing that before we’re jumping into any sort of engineering. So we’re doing – our test work is more about at level than where our engineering is.

Expenditure, I can’t -- I mean, the expenditures in the $20 million to $30 million over the total feasibility. So I can’t remember what’s for FY ‘24. So that – that sort of magnitude in terms of investment to provide that optionality, continue to engage with the third party, as part of that, bringing in that PCAM capacity.

The relationship to Cosmos, the – one of the key drivers of the – that – of the integrated battery metal facility is looking at some of these disseminated deposits that we have in Cosmos, as well like metal goods, and that’s a key enabler for [indiscernible].

[Operator]

Your next question comes from Matthew Frydman with MST Financial.

[Matthew Frydman, MST Financial]

Sure. Good morning, Matt and Kath. Yes, look, I mean my question is a bit of a broader philosophical one, so it might be challenging to answer specifically. But just wondering if you can try and articulate, I guess, what lessons have been learned as a business from the disappointments of the Western Areas acquisition? I mean, if I look at IGO exiting FY '23, it's obviously very well capitalized, you've got strong cash generation looking forward from Greenbushes, and we know that there's lots of efforts on the market, other assets will come up for sale over time, whether it's base metals or lithium. So I guess how does your target criteria and your risk profile change for acquisitions, firstly, from the learnings of that failure?

And secondly, in terms of your internal investment opportunities, how does your investment criteria for internal projects changed? So you just talked about the battery materials facility. How can you back as a business, your assessment of the value of that project when the assessment of the value of the Western Areas assets, which obviously you should have known very, very well or certainly much, much closer to your existing business, your assessment of value there was so far off. So I guess, yes, holistically, you're wondering in your view what the process values were and how have they been fixed going forward?

[Matt Dusci, Acting CEO]

Yes. Thanks, Matt. Appreciate the question. Yes. Look, I kind of look at it as -- it is a setback. We acknowledge that -- acknowledge that it is disappointing. But the value for what we've got to do is take those learnings and actually position ourselves that we actually become better at it. Now the specific learnings, I won't get into those specific learnings, et cetera, but there is learnings. I mean, as an organization, we've got to take those learnings and do better. And in parallel to that is we've got to work to deliver Cosmos value, and that's what we're doing.

In terms of internal investment, internal investment and you talked about the integrated battery metals facility, it is a study. I mean, it's not a decision to make a capital investment into Kwinana. What we're doing with the study is providing that optionality. And also what we're doing with those study is to -- is ultimately try -- is to ensure that we derisk it as much as possible, so that the decision was made, and we would feel comfortable with that decision. So it doesn't change anything we're doing at this point in time. If anything, it strengthens us, so that when some of these other decisions come that we are making more significant -- better decision going forward. No, I didn't get into a lot of details there, Matt, but I had to guide a little bit of context.

[Matthew Frydman, MST Financial]

Yes. No, that's helpful. Thanks, Matt. And I know it's a pretty -- I guess, it's a philosophical question, as I said. Maybe is there anything, I guess, a bit more objective that you can outline? So for example, any sort of changes in how you view hurdle rates for internal or external investments? Or I guess, how you look at commodity price risk or kind of any of those other factors that may be fed into that Western Areas acquisition that was shortcoming? Anything from an objective or quantitative sense that you can do differently going forward?

[Matt Dusci, Acting CEO]

Look, I don’t think it’s the right environment at the moment to get into sort of that detail like we do want to share, and we will want to share those learnings very specifically because it’s an opportunity for us to reflect on those. So I just don’t think it’s right up – right time for us to go into that detail. But that’s more than happy to have that sort of conversation at the right time.

[Operator]

Your next question comes from Hayden Bairstow with Macquarie.

[Hayden Bairstow, Macquarie]

Just back on Greenbushes, Matt, just keen to understand -- I mean, obviously, you went through the CapEx on Levi's question, but just sort of what's left from here and sort of where the decision-making processes are? I mean, I would imagine the amount of money this thing makes it's all going to go ahead, almost regardless of the CapEx, and it certainly seems that way given when Albemarle is committing to downstream. So just keen to get an understanding of where you think CapEx revisions can actually -- might actually change any of the decision-making plans here in terms of moving to CGP4 and then ultimately to 2 million, 2.5 million tonnes?

[Matt Dusci, Acting CEO]

Yes. Okay. Thanks, Hayden. So you may know the business for all shareholders at Greenbushes, it's just such a logical decision to -- for us to also invest capital into that project to unlock continued value. What you're seeing is, I mean, ultimately CGP is a lumpy capital when the decision gets made on CGP4, that would also be a lumpy capital into capital, some of the other enabling features like the mine services area, what we're doing with the village, what we're doing with power reticulation, what we're doing with tailings dam, all of those sort of things are ultimately enabling capital that has to be completed before you can make decisions on CGP4 and continue to ramp up those.

And yes -- and then from a Talison perspective is unless -- one of our challenges is that when the capital project becomes approved and it gets approved very simply, and they're working off different financial years, as part of budgeting approvals, et cetera. So there is a little level of complexity that we've got to work through with various shareholders and stakeholders.

[Hayden Bairstow, Macquarie]

Yes. Okay. Great. And just on Kwinana. Can you just confirm, is there still that final time with synergy at some point later this year and that's sort of really the starting point of getting this thing ramped up?

[Matt Dusci, Acting CEO]

There is a part of that with synergy on power, and that’s when we look at – they’re also going to do a shutdown in [indiscernible] where we’ll time the October shut or roughly October shut. I wouldn’t say that’s a constraint on production – the constraint on production, the ramp-ups or individual things associated with debottlenecking specific areas of the plant.

[Operator]

Your next question comes from Tom Hays with CLSA.

[Tom Hays, CLSA]

Look, I've just got one question on Kwinana. I'm just wondering if you can give us an update how you're thinking about Trains 3 and 4, given the challenges that we're still having. Has there been any sort of commentary or changes thinking from your joint venture partner and whether they should be constructed in Australia in the future?

[Matt Dusci, Acting CEO]

Yes. So Train 3 and 4 looking at completing PFS studies. But what we’re wanting to do is sequences, so we don’t want to get into a whole lot of details on Train 3 and 4 until we’ve got – until Train 2 and then we’ll take Train 2 and then – Train 2 will be a version 2, Train 3 and 4 will be different versions, et cetera. So what we won’t do is rush into those decisions and make sure that we actually sequence trains – different trains at Kwinana, so that we’re right in taking learnings and improving. And we’re so grateful that we – train 2, for example, have stopped. Otherwise, we will be facing the same sort of issues with Train 1 times by 2.

[Operator]

Your next question comes from Jon Bishop with Jarden Group Australia.

[Jon Bishop, Jarden Group Australia]

Good day, Matt and Kath. Just on Kwinana again. Is there any sort of view, obviously, putting Trains 3 and 4 to 1 side, any view from the TLEA joint venture to look at introducing a third party into that part of the business in terms of providing some specialization. Obviously, you've had a number of problems with Train 1 at the moment and Train 2 is being sort of pushed out, as a consequence. Is there a view to maybe look at third-party intellectual property and introducing that into the joint venture at all?

[Matt Dusci, Acting CEO]

None, at the moment, Jon. And we've got to remember that Train 2 is a legacy -- sorry Train 1 is legacy, so I mean, that was built at a specific time under a different engineering group without the rigor in the studies without FEED. I mean, we're building and designing this plant, Train 1 at the same time. So although we faced challenges on Train 1, and we acknowledge that. There's no, I mean, Train 2 and when we make the financial decision and trying to the challenges on Train 2 would not be like Train 1.

[Jon Bishop, Jarden Group Australia]

Okay. And then in terms of the engineering of Train 2, I think I've sort of asked this question before, but given you've got a fair amount already constructed, is there an ability to manifestly change that flow sheet to work symbiotically with Train 1?

[Matt Dusci, Acting CEO]

Yes, there is. So remember, Train 2 has have – has major pieces of equipment installed. It doesn’t have all [Technical Difficulty] everything else. And except for the back end around the dryer, we are comfortable with every piece of other major piece of equipment installed. So it’s all about the subsidiary equipments around bag houses and belts and conveyors and piping, et cetera, tanks. So envision that, that won’t change. There’s no need to change it. If anything, we’ll take those learnings out of Train 1 and apply that to Train 2.

[Operator]

Your next question comes from Lyndon Fagan with JPMorgan. Lyndon, your line is now live. Please go ahead.

[Lyndon Fagan, JPMorgan]

Sorry. Just another follow-up on Kwinana. Can I ask the question, why even do Train 2? I guess, what gives you the confidence that the project would even be economic given the problems with Train 1 and why not maybe look at toll trading or some other option to monetize a downstream opportunity, while Train 1 is finding its feet. I don't see why there's any rush jumping into Train 2 at all at [Kwinana]. Would be keen to explore that?

[Matt Dusci, Acting CEO]

Okay. So -- and then -- let's say, Train 2 what [indiscernible] to articulate is we won't have the same issues on Train 1, as Train 2. We have yet to make a financial investment decision on Train 2. What we're doing is doing all the FEED work and truly all the FEED and a true assessment of what that capital to complete on Train 2 is. And then ultimately, that will be part of our investment decision on whether we go or but -- not go.

I would -- you mean, that the financial -- and that will largely be driven by both risk opportunities and also the financial return you'll drive out of Train 2. And that will all come together, as part of the end process on FEED. If, for some reason, that project was marginal, then your argument would stack up? So we don't believe that at any point in time.

[Lyndon Fagan, JPMorgan]

Is there a way of thinking about competition for capital? I mean, when it comes to the lithium strategy, why not if it's going to cost you another $0.5 billion or $1 billion for Train 2, why not put that towards an upstream opportunity to get more mine supply, as opposed to going downstream were pretty tough going?

[Matt Dusci, Acting CEO]

Yes, that would all be part of the decision at the time once we have resolution on what all of our value proposition is and the level of confidence on that value.

[Kath Bozanic, CFO]

Lyndon, we are continually looking at the deployment of capital and where best to deploy it because there are competing projects and competing priorities. So that’s part of our standard investment criteria process determining, where the best bang for our buck is for our shareholders.

[Operator]

Your next question comes from Rahul Anand with Morgan Stanley Australia.

[Rahul Anand, Morgan Stanley Australia]

Thanks for allowing me back on. Look, I just wanted to follow up quickly on Nova. Yes, just following on from that throughput point, my understanding was that the additional mill capacity was built basically to be able to maintain production through lower production periods or lower grade periods. Is that not the strategy anymore? I mean, are you looking to keep throughput at this level till pretty much end of mine life or a fair bit later. Is that how we should be thinking about this now? Because my -- as I said, I thought the expansion for the mill was to offset grade impacts.

[Matt Dusci, Acting CEO]

Yes. Thanks, Rahul. And that expansion of the mill has offset grade impacts. Remember that we've seen as grade has declined consistently at some -- at a point, you become mine constrained. And we -- so it's about mine constraints limited to a number of stopes, turnover stopes, areas that you think of mine, et cetera.

[Rahul Anand, Morgan Stanley Australia]

Okay. So how should we think about what the mine capacity is then versus that bottleneck?

[Matt Dusci, Acting CEO]

Yes. So that's why we -- that's why you can -- you're seeing that 21,000 tonnes to 23,000 tonnes of nickel.

[Rahul Anand, Morgan Stanley Australia]

So the mine is basically able to do about 1.6 million tonnes per annum.

[Matt Dusci, Acting CEO]

Yes. We'll be a little bit less.

[Rahul Anand, Morgan Stanley Australia]

Right. Okay. And then are you able to also provide any sort of some understanding on nickel recovery impacts, as the grades move lower from your current levels and in the future?

[Matt Dusci, Acting CEO]

Look, that's all accounted for in that production profile that we've guided to that 21, 23 plus cash costs on the payable.

[Rahul Anand, Morgan Stanley Australia]

That was the one for me. I’ll pass it on..

[Operator]

Your next question is a webcast question from Michael D'Adamo with Canaccord. Can you set -- step up through price transfer pricing and how Kwinana buy spod and sells hydroxide. What sets the price for hydroxide? And has these -- this margin squeeze occurred because you sell at the price of Chinese hydroxide?

[Matt Dusci, Acting CEO]

That’s a long question there. I’ll just keep it very short. And then, if we need to jump on the call like what we did, we can talk through that in detail. But basically, spodumene, 50% spodumene going to Albemarle, 50% going to TLEA. TLEA and sells product that it doesn’t use to TLC. That spodumene pricing is done at a 4x benchmark. It has a lag for the last quarter to the current quarter.

Kwinana lithium hydroxide at the moment, we haven’t qualified product at Kwinana. We’re close -- I mean, we’re close to qualifying product. Qualification of product is when we also feel comfortable too, with performance of the plant. Once that qualification is complete and under contract to the customer and that is that they have pricing mechanisms built into that contract. But happy to go into the detail with you on that one.

[Operator]

Thank you. That's all the time we have for our question-and-answer session. I'll now hand the conference back to Mr. Dusci for closing remarks.

[Matt Dusci, Acting CEO]

Thank you, operator, and thanks, everyone, for the call today, and look forward to talking with everyone this week.