Pilbara Minerals Ltd

ASX:PLS

Earnings Call Analysis

Pilbara Minerals' Prudent Performance Amid Market Volatility

Pilbara Minerals had a disciplined quarter with strong production volumes, decreased costs, and strategic growth despite the lithium market's short-term volatility. Production increased by 22% to 176,000 tonnes, while costs dropped by 14%, yielding a healthy operating margin. The balance sheet was defended with prudent steps, leading to CapEx deferrals, totaling a reduced FY '24 guidance by up to $100 million. Revenue halved due to a 67% decrease in average realized price, resulting in a 65% revenue reduction compared to the prior year. Still, a strong cash margin was maintained, and given the current conditions, no H1 FY '24 dividend is likely to be declared.

Solid Production Performance and Sustained Cost Control

The company produced 176,000 dry-metric tonnes, achieving a 22% growth from the previous quarter, slightly ahead of internal expectations. The firm's operational efficiencies have kept unit costs in line with guidance at $639 per tonne, ensuring a stable cost structure as it progresses into the second half of the fiscal year.

Advancing Project Developments with P680 and P1000

The P680 project, aimed at increasing production capacity, has seen significant progress, including the ramp-up of the Primary Rejection facility, which bolstered processing throughput by 15% compared to the first quarter. It remains on track for commissioning in the June quarter with full ramp-up in the September quarter. Concurrently, the P1000 project has completed its detailed design stage and moves forward with targeted first ore for the March quarter of FY '25.

Focused Drilling Program and Revenue Challenges

With nearly 12,000 meters drilled in the quarter, the drilling program has shifted focus to surface ore loads and priority sterilization, reflecting a refined strategy to optimize near-term operational outcomes. Revenue in the December quarter, however, saw a substantial decrease to $264 million, a 46% drop from the prior quarter, primarily due to a 50% reduction in the average realized price of the ore sold.

Strong Operational Performance amid Revenue Dip

Despite the revenue downturn, the company managed to increase its sales volume by 9% to 160,000 tonnes, and production volume rose by 22% to 176,000 tonnes, thanks to higher mining volumes and improved plant availability. These figures point towards a company that's experiencing solid operational growth, even as market prices pose headwinds.

Future Production Geared Towards Growth

The anticipated production volumes for FY '24 are skewed towards the latter half of the financial year, indicating that the company expects stronger performance in the upcoming periods.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to Pilbara Minerals December 2023 Quarter Update Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. Please note, Pilbara Minerals will be only taking one question per person with one related follow-up question permitted. [Operator Instructions] Pilbara Minerals will also take some questions from the webcast towards the end of the call. Please be advised that today's conference is being recorded.I would now like to hand the conference over to your first speaker today, Pilbara Minerals Managing Director and CEO, Dale Henderson. Please go ahead. Thank you.

[Dale Henderson, executive]

Thank you, Maggie, and a warm welcome to those who have joined us on the call today, in particular to our long-term shareholders. I'd like to begin by acknowledging the traditional owners on the lands on which our business operates, which are Noongar People of the Noongar Nation in Perth, where we are undertaking a call today and the Nyamal and Kariyarra People, where our operations are located in the Pilbara. We pay our respects to the Elders past and present.With regards to the introductions, the speakers joining to me today are Luke Bortoli, our CFO; Vince De Carolis, our Chief Operating Officer; and also in the room we're supported by member of the team. As for the call today and as outlined by Maggie, we'll be stepping through a short presentation followed by Q&A. We'll be aiming for roughly 25 minutes of analyst questions and 5 minutes from the webcast. So, looking forward to your questions.To start with some opening remarks, the December quarter for Pilbara was one of disciplined delivery. This included at the operations, strong production volumes, cost improvement in the operation and further ongoing sales, including a significant offtake expansion was signed. As related to projects, all projects are on track to schedule and cost and in particular, our major project expansions. As related to chemicals, progress on those fronts. And lastly, the balance sheet. We took prudent steps to further defend our strong balance sheet with some CapEx deferral and some other capital preservation steps.Now more broadly, I appreciate there's plenty of activity within the lithium market. This includes some very positive signs of the market continuing to grow, including strong EV growth, company mergers and significant share purchases and assets likely within the sector. And of course, these activities are contrasted against news of developer project challenges and speculation on the pricing outlook for lithium products. Further, these activities are set against a global backdrop of continued significant activity. I'll offer more comments on the market later.For Pilbara, we're looking through the short-term volatility. We remain focused on the long-term opportunity this market presents for our stakeholders, shareholders and everyone connected to our business. As this market takes shape, Pilbara is uniquely placed given our cost position, scale, operating know-how, market understanding and balance sheet strength. We have navigated these choppy waters for the lithium market for some time. This is not our first rodeo. With that, I can confirm we are head down with delivery against our strategy, which brings us to Slide 2.The pillars of our strategy are prioritized to generate the most rapid value creation for our shareholders and service of our vision, which is to be a leader in the provision of sustainable battery materials products. In pursuit of the same, the business is wired in service of 4 strategic pillars. First, the operating platform. The operating platform is the engine room of Pilbara Minerals, driving our returns for our shareholders and stakeholders. Secondly, we want to be growing that operating platform to full extent, making the most of the incredible Tier 1 asset that we have stewardship of. Thirdly, chemicals, this is all about dovetailing our production into chemicals to realize additional margin per lithium unit showing we have a resilient business through downstream integration. Fourthly, and a distant fourth, diversification. Ultimately, we are open to diversify if and when an appropriate accretive extension is identified.The December quarter was a solid quarter of delivery and I step to Slide 3 to touch on a few of the highlights for the quarter. And starting with production, production was on plan for the quarter, 176,000 tonnes, a 22% increase on the prior quarter. Sales were in line with production with a 9% increase on the prior quarter. The delta to quarter production volumes is owed to timing of shipments. I would note that the timing of these shipments was more heavily weighted to the month of December due to some congestion at the Port of Port Hedland.As it relates to realized pricing, the timing of those vessels leaving port impacted the realized price as headline chemicals prices moderated downwards during the quarter to lower pricing at the back of the quarter. As such, realized pricing for the quarter was timed to the back of the quarter being USD 1,280 per tonne on an SC6 basis or $1,113 per tonne on a 5.2 basis. As it relates to costs, in relation to costs, our continued focus on cost performance has yielded a cost improvement with a 14% decrease on the prior quarter, which is great to see. Operating margin, although pricing moderated down during the quarter, healthy cash margin was still generated from the operation. Pilbara Minerals cost position, which was a great outcome, particularly given this has been a ramp-up quarter.I'd like to remind all that the back half of this financial year will comprise larger production volumes here with the P680 Expansion Project. These larger volumes will support further improvement on a unit cost basis. As it relates to growth, the projects team has continued to deliver well. The P680 Primary Rejection Facility was fully integrated during the quarter and has commenced yielding benefits. The P680 crushing and ore sorter facility is on schedule and on budget, targeting ramp-up in the September quarter this year. The P1000 Expansion Project remains on track for schedule and budget, targeting ramp-up in the September quarter calendar year -- this calendar year also -- sorry, calendar year '25. As it relates to chemicals, our joint venture with POSCO for the 43,000 tonne lithium hydroxide plant, continued progress with the commissioning Train 1 commenced in the quarter and we had the privilege and pleasure of joining the opening ceremony during the quarter as well.As related to offtake, within the current quarter, March quarter, we were pleased to finalize an amendment to our existing offtake with Ganfeng for the next 3 calendar years where we can supply up to 310,000 tonnes per annum. I would note that within this agreement includes volume options at Pilbara's election. We are delighted to expand our relationship with Ganfeng. They have been a long-standing partner of Pilbara Minerals further amongst the world's leading lithium chemical converters. This co-commitment speaks to the respective strengths we see in each other's business and a want for deeper collaboration and a want to expand our respective positions in this growth industry.So, all of these highlights have only been achieved through our team. So, a quick shout out to the team at Pilbara Minerals and our contracting partners whose dedicated focus is continuing to look to deliver the outcomes. Thank you for another great quarter, in particular, upholding our focus on safety and navigating the hot summer period, which coincides with Christmas and New Year. It is through these results, we continue to build our reputation for disciplined delivery. Thank you, team.Also during the quarter, we announced the transition of our long-serving Chair, Tony Kiernan. After 8 years, Tony is handing the baton to Kathleen Conlon with the formal transfer occurring at the end of this month. Tony's contribution to the journey of Pilbara cannot be overstated. From the fledgling minnow in the shed and Fremantle to the ASX 50 critical minerals, lithium powerhouse we have evolved into, Tony has played a huge part as has the full Board he leads and shaping the response at each of the important junctions the business has encountered.Following his stead is Kathleen Conlon, a seasoned Chair, a well credential professional at large-cap companies. Amongst the many strengths Kathleen brings to Pilbara includes strongly applicable industry experience from her time as Chair of Rare Earths operator at Lynas. I have no doubt Kathleen will make a significant contribution to the Board in the years to come. Welcome, Kathleen. So Tony, on behalf of the Board, management team and shareholders, thanks for an incredible contribution. You will be missed. However, I know you will remain in close contact. Thank you.Now with that, I will now pass to Vince for an update on the operations for the quarter. Over to you.

[Vince De Carolis, executive]

Thank you, Dale. Starting with Slide 5. As you can see there, we're seeing improved safety performance for the quarter. Our total recordable injury frequency rate has decreased from 3.99 in the September quarter to 3.35 for the December quarter. This is very pleasing as our safety program initiatives continue to gain traction with our people. And however, we know there's no room for complacency when it comes to safety. Our lead indicator, safety interactions continues to trend strongly. And in the quarter, we ramped up our critical risk management training and awareness and we've commenced to roll out our new critical risk management system and the rolling out and embedding will continue into the second half.Moving to people and culture. We continue to deliver on our commitments through our cultural engagement survey that we completed. Just in the last quarter, we delivered a new mining precinct, which sets us up for now and into the future. Additional new rooms that will help us through the expansion, newer fleet, just to mention a few. We have a strong culture program that we've been building, consisting of a purpose-built leadership development program and linked to hiring leaders and people that align to our value sets and this is continuing to drive improved results through our culture.Moving to Slide 6 on to volumes. Production was slightly ahead of our internal expectations at 176,000 dry-metric tonnes, which is a 22% growth from the first quarter. This was on the back of strong performance from both mining and both processing plants and also continued commissioning of our P680 Primary Rejection Expansion, which sets us up for the remainder of the year. Our full year production guidance is unchanged. On to processing, a strong quarterly performance from both plants was attributed primarily to improved plant availabilities being 89% for the quarter versus 82% for the previous quarter. And as I mentioned, the commissioning of Primary Rejection resulted in record processing throughput for the quarter and a 15% increase on Q1.Our improved shutdown cycle has also proved successful and we now take the next step of moving to quarterly plant shutdowns as we move into the second half, which is a significant improvement from the 6 weekly shuts just a little over a year ago. Recoveries were, however, challenged for the quarter at 65.9% versus 66.6% for the previous quarter. This is due to feed mineralogy as a function of face positions in the mine and as we bring on new mine zones and also some plant instabilities as we commissioned Primary Rejection. We continue to work on strategies to improve our recoveries, such as ore sorting and we do expect these to improve into half 2 and into FY '25.On mining, we continue to improve our mining performance, achieving another record for the December quarter at just under 9.6 million tonnes versus the September quarter, which was 9.1 million tonnes, which is -- and that is a 12.5% improvement half-on-half. And on the last quarter, same time last year, it's a 29% improvement in our mining productivity. This is a fantastic result from the team and we expect further improvement as we continue to deliver on our mining uplift plan. Key focuses of that plan in the coming quarter remain unchanged, beginning to implement our heavy media, HME strategy Phase 1, continued improvement on productivity is realized through newer fleets, improved payloads, improved road networks and system upgrades such as our fleet management system.On to costs. As mentioned by Dale, our unit cost for the quarter was in line with guidance being $639 ores per tonne versus the Q1 performance. We are comfortable in our unit cost guidance as we progress into the second half of FY '24. In parallel with supporting ramp-up activities, we continue to implement operational productivity improvements that will result in improved unit costs into the second half. Some of those key initiatives that I just mentioned before, is improved mining productivities that will result in reduction in mining fleet, our HME strategy, which is purchasing our own fleet and reducing hiring costs and optimize shutdown strategies, just to mention a few. These assist in helping to offset some of the inflationary pressures we continue to see such as diesel prices, labor, camp services and contracted services such as equipment high rates, power costs and flights.And with that, I'll hand back to you, Dale. Thank you.

[Dale Henderson, executive]

Thanks very much, Vince. And as you've heard from Vince, plenty going on at the operation to continue to make improvements. Now, moving to Slide 8. I remind you that the P680 project comprises 2 components being the Primary Rejection facility, which increases production capacity, which has been ramped up during the December quarter that we just spoke to and there's the integrated crushing and ore sorting facility that you can see on the slide. So, as relates to the crushing and ore sorting facility, our progress for the quarter included completion of civil and concrete works and the award of the SMP, being structural, mechanical, piping and electrical instrumentation controls contract to Primero. So, thank you and well done to Primero. We look forward to your good performance. The project remains on track for June quarter commissioning and ramp-up during the September quarter. Looking forward to that facility coming online.Now, moving to the next leg of expansion of P1000 project on Slide 9. Focus for the quarter included detailed design completed for construction and fabrication packages, all growth works progressed and awards of the contracts for concrete and fabrication. We remain on schedule with first ore targeted for the March quarter of FY '25. And so just a mention too, well done to the operations team and project team on the close work on P680. It's not easy maintaining parallel operations for full extent plus integrating what has been a large brownfields addition. So on time, on budget, well done to the 2 teams, Primero and all the respective contracting partners. Thank you, guys, and looking forward to you repeating those results in the next leg of expansion.Moving to Slide 10, the drilling program. During the quarter, we commenced our latest drilling program with almost 12,000 meters drilled in the quarter. I would note that we have rationalized the drill program for this year to focus on nearer surface ore loads and priority sterilization drilling that provides shorter-term benefits to the operation. Noting, of course, that we've had considerable success last year with drilling, we had an enormous increase in reserve last year, 35%, which provide an extension up to a 34-year mine life. As such, we've got plenty of ore ahead of us. Hence, we are just rationalizing and focusing on the must-do drilling in the near term.Moving to chemicals on Slide 12, a quick reminder on the different lithium product pathways that we have with increasing level of processing or value-adding moving from left to right. On the left, our spodumene concentrate, which is our core business today, midstream in the middle, which is the production of an intermediate lithium chemicals product and then to the right, downstream lithium hydroxide being battery grade feedstock product. As it relates to the midstream, the aim here is to generate a superior lithium intermediate product for the market, which will add more value at the mine site and is undertaken through more sustainable methods, in particular, reduction of carbon energy intensity. We are busy progressing our demonstration plant for this. It's on track and looking forward to progressing that in the year ahead.As it relates to downstream, moving to Slide 13, and downstream chemicals facility joint venture with POSCO in Gwangyang, South Korea, December was a busy quarter with a number of milestones. The Pilbara Minerals Board visited the plant late last year for the official Train 1 opening ceremony and commissioning continues to plan and is expected to be materially completed in the March quarter with full ramp-up of capacity expected to occur within 18 months from completion. As Train 1 was prioritized in the December quarter, we now expect that commissioning for Train 2 will commence in the second half of this calendar year.The JV has also increased the funding requirement for the facility from USD 800 million to USD 895 million, inclusive of USD 65 million contingency. Pilbara Minerals' 18% share is equivalent to USD 17 million. This increase is fully funded by additional short-term debt facilities that were established during the period. This increase is due to a number of items that includes inflation and exchange rate movements. The joint venture will sell uncertified lithium hydroxide products to other chemical converters and traders. The product will be certified in approximately 6 to 12 months.Regards to Pilbara Minerals option for equity increase from 18% to 30%, we thought we would touch on this in brief. As a reminder, Pilbara has a call option. So up until the date of the conversion facility, i.e., the chemical facility receives independent battery certification, Pilbara has the call option to exercise at cost plus a subscription price of 3.58% per annum. Thereafter, Pilbara can up to 18 months after the plants being commissioned elect to step up from 18% to 30% once 90% of nameplate production capacity has been achieved. So, very favorable terms for Pilbara, which enable Pilbara to be 18% participant for quite a long period yet as we observed the development and ramp-up of the operation. So, we just wanted to share that one. So as I said, Pilbara remains currently an 18% equity interest in that joint venture.Now with that, I will now pass to Luke to take us through the financials.

[Luke Bortoli, executive]

Thanks, Dale, and good morning to those on the call. Please turn to Slide 15 of the presentation for a summary of the group's key financial metrics for the December quarter and H1 FY '24 period.Group revenue in the December quarter was $264 million, a 46% reduction on the September quarter, driven primarily by 50% lower average realized price. Average realized price declined from USD 2,240 per tonne in the September quarter to USD 1,113 per tonne in the December quarter. Despite the decline in revenue, operational performance was positive period-on-period as mentioned earlier. Sales volume was 160,000 tonnes, 9% higher than the September quarter, which was enabled by higher production volume.Production volume was 176,000 tonnes, a pleasing 22% higher than the prior quarter and in line with plan. As mentioned earlier, this was achieved through higher mining volumes and processing plant availability in the period. Processing volumes in turn benefited from 1 less shutdown for the quarter and higher throughput enabled by the ramp-up of the P680 project's Primary Rejection facility. As previously disclosed, FY '24 production volume for the full year is weighted towards the second half of the financial year, in line with the ramp-up of the P680 project.Looking at unit costs, unit operating costs on an FOB basis improved by 14% in the December quarter compared with the September quarter to $639 per tonne. Unit operating cost reductions were underpinned by higher sales volume. As outlined at the full year '23 results announcement, planned investment and production-related costs in FY '24 has increased in total dollar terms to support the expansion to P680. However, this quarter's results show the scale benefits of higher production volumes that are beginning to be realized by the group. On a CIF basis, unit operating costs were $805 per tonne in the December quarter, a 20% reduction period-over-period, primarily due to a decrease in royalty costs from lower sales revenue.Turning now to Slide 16. Slide 16 provides a summary of the group's key financial metrics for the H1 FY '24 period. Group revenue in H1 FY '24 was $757 million, a 65% reduction on H1 FY '23 driven almost entirely by 67% lower average realized price. H1 FY '23 period captured the historical peak in spodumene concentrate prices with an average realized price of USD 4,993 per tonne versus USD 1,645 per tonne in H1 FY '24. H1 FY '24 did deliver production in line with our plan at 320,000 tonnes of spodumene concentrate produced, approximately 10,000 tonnes higher than the prior corresponding period. This was achieved through a significant step-up in total material mined and ore process, as Vince mentioned earlier.At dividend cost level, unit operating costs on an FOB basis was 16% higher in H1 FY '24 at $691 per tonne. And also, as mentioned earlier, investment in production-related costs has increased to support the ramp-up to P680, which is reflected in these unit costs. The scale benefits of higher production volumes to unit costs are beginning to be realized in the December quarter. Unit operating costs on a CIF basis declined 21% to $900 per tonne in H1 FY '24, reflecting lower royalty expenses in line with reduced revenue.Turning now to Slide 17. The group continues to maintain a strong cash position with a closing cash balance of $2.1 billion as of 31 December. The December ending cash balance was $897 million lower than the prior quarter, primarily due to the impact of income tax payments, but is in line with the prior corresponding period being 31 December 2022. Focusing on cash margin, our cash margin from operations defined as receipts from customers less payments for operating costs was $176 million in the quarter, reflecting the strong cash generation of the business, notwithstanding lower spodumene prices. In addition, cash margin from operations less ongoing CapEx being capitalized mine development costs and sustaining CapEx was also positive in the quarter at $118 million. These metrics show that even with the low spodumene prices observed in the December quarter relative to prior quarters, the group remains cash flow positive, pre-growth CapEx and financing cash flows.Turning now to Slide 18. We believe the group's cash balance and overall balance sheet position is a competitive advantage relative to many of its peers in the lithium sector. This is particularly the case in an environment of lower spodumene prices and potentially more difficult capital raising conditions. With a low unit cost structure and a strong balance sheet, Pilbara Minerals is uniquely placed to withstand and capitalize on a period of lower prices that could rationalize the market. With increasing production capacity, the group is also uniquely placed to take advantage of an improvement in market conditions when the pricing cycle turns.Notwithstanding this balance sheet resiliency today, the group has increased its focus on unit cost efficiency in the ramp-up to P680 and P1000, and it has also conducted a review of nonessential spend. Based on this review, the group is revising FY '24 capital expenditure guidance from $875 million to $975 million to a reduced range of $820 million to $875 million, with a number of new projects and enhancements deferred for conservatism. This represents a reduction of $100 million at the top end of the range and $55 million at the bottom end of the range. It's also equivalent to a reduction of 1/2 to 1/3 of the discretionary component of total CapEx that relates to new projects and enhancements.We also note that to preserve the group's balance sheet position even further, it's unlikely that a dividend will be paid for the H1 FY '24 period. The Pilbara Minerals Board will make a final determination on the H1 FY '24 dividend payment and announce it with the H1 FY '24 results. The combination of the CapEx spend reductions and pausing on a dividend payment would result in approximately $200 million of total cash savings at the top end of the range relative to what would have been spent otherwise. These reductions, we believe, are prudent in the current environment and will place the group in an even stronger position going forward.I'll now hand it back to Dale.

[Dale Henderson, executive]

Thanks very much, Luke. Now moving to the market on Slide 20. So, it's been as always confusing signals in the market. So, to help with this, of course, we'll offer our view here. And to do that, I'll sort of step through in 3 parts layering down. So, starting first with some broader market observations. Two, I'll then speak to some industry-specific observations for lithium and lastly, finish with our business and what does the current landscape mean for our business strategy.So, starting with the macro market observations. So, the broader market global backdrop remains turbulent with of course, ongoing conflicts in Ukraine and the [ guards ] region and the areas of inflation globally. As we look out to the year ahead, it appears to contain the drivers for further potential change. I note that '24 is a historic year for elections with over 50 elections occurring this year, which include, of course, U.S., India, Mexico, European Union and South Africa. In fact, The Times are suggesting that over 49% of the world will be voting this year, which is pretty incredible. So obviously, change is afoot with those elections.Stepping to industry observations. At the industry level, despite the downward trend in pricing over the past year, signs of grassroots growth remain very positive. Noteworthy facts in this regard include global EV sales increased 31% on the prior year, as seen on the left-hand side of the graph. As it relates to China, the December quarter set all-time records for EV sales. In '23, China EV sales were up 37% on the prior year. For the December quarter, China EV penetration rate was 38%, 5% year-on-year from the prior year. And as it related to the December, sales totaled 1.1 million units, giving a penetration of rate of 41%. So, very strong signs of the uptick of this important demand market for lithium.As it relates to government support, a series of further support initiatives were announced during the quarter. Noteworthy news here included the South Korean government on 13th of December, committing USD 29 billion over 5 years for local battery companies in critical minerals. The European Commission on the 6th of December noted they're planning on additional funding to the tune of EUR 3 billion in battery manufacturing and then the U.S. government on 15th of November, providing up to USD 3.5 billion for cell manufacturing. So, big looks of cash going in to fuel the establishment of this growth industry. So, fantastic to see that occurring.As it relates to Pilbara's customers, we undertook several trips to Asia during the quarter. This included trip to South Korea and China. We were engaged with all of our downstream chemical partners. And I would note that our chemical partners are the major established participants within the industry. Most of which have got an international footprint and international relations. The consensus feedback was one of cautious in the near term as it relates to processing. However, all have a strong conviction on the long-term prospects of the industry and all of our major customers are building in some way, shape or fashion and seeking further long-term supply from Pilbara, which is great to see and great to see that we share this same view of seeing through short-term softness for the long-term prospects this industry provides. Now obviously, the most -- the best evidence of this was the offtake expansion that we did with Ganfeng during the quarter, which I spoke to earlier. But outside of that, we are getting inbound request for supply contracts at this time. So again, another positive signal and despite, as I said, some softer pricing at this moment in time.Now moving to the last point here. What does this all mean for Pilbara strategy. Well, there is no change. And as I noted in my opening, we are looking through the short-term volatility to the long-term opportunity, this incredible market presents for our shareholders and all our stakeholders connected to our business as are our chemical partners. As such, we will keep focused on our disciplined delivery and Pilbara Minerals is uniquely placed given our cost position, scale, operating know-how, market understanding and balance sheet strength, and we have navigated these choppy waters before. Now, as our outing Chair, Tony said to me on the phone as to when it comes to lithium, our pens down with Pilbara. And of course, I couldn't help but agree. So, shout out to you, Tony. Thanks for that one.Now with that, I'm pretty much, I'm over time. Sorry about that, and I'll hand back to Maggie to go to Q&A.

[Operator]

[Operator Instructions] Our first question comes from Rahul Anand from Morgan Stanley.

[Rahul Anand, analyst]

Just one clarification from me on the pricing and the revenue lines. Firstly, on the pricing, is it fair to understand that 44% of the volumes would be adjusted for your quotational price at the end of Jan. And as we see the realized price at the moment is reflecting prices up to Jan 7. And then I guess the second part of that is I did note that the per tonne revenue number is still lower than the pricing line in terms of achieved price. Is that being impacted mainly by quotational price adjustments from the previous quarter?

[Luke Bortoli, executive]

I'll take that question. Thanks, Rahul. On the first part, the volume, which is subject to final pricing adjustments is probably something in that order. On the second part of your question, perhaps we take that offline. I think if you were to look at sales volume multiplied by price and then adjust the FX rate, it's very much in line with revenue.

[Rahul Anand, analyst]

We'll take it off-line. That's my one. I'll queue back in.

[Operator]

Our next question comes from Levi Spry from UBS.

[Levi Spry, analyst]

Maybe sticking on price. I guess, price reporting agencies, I think are reporting the price is currently around [ USD 850 ] SC6. Can you sort of just talk to, is that what you're seeing? How does that mean your realized prices are coming out at the moment? And I guess the context here just around what your customers continue to say about 5.2% product.

[Dale Henderson, executive]

Yes. The pricing indicators at the current market, I would agree with you it's anywhere in the range of [ USD 800 to USD 900 ] of what we're seeing from the price reporting agency. So, I think you're about right there in terms of what we're seeing with the market. And pleasingly, we've seen the -- some more convergence of all of the pricing references, which I think is helpful. As in prior quarters, there's a wide divergence between spot pricing on the chemicals side, which is -- I appreciate causing a lot of confusion and concern out there. So that has sort of tracked together, which is great to see, which albeit the price is a bit lower, which is what we're after but at least that's tightened up a bit. As it relates to product grade, there's no issues around 5.2%, 5.3% and no call for any change there. So, we're okay on that front.That answer your question, Levi?

[Levi Spry, analyst]

Yes. Unless you want to add anything on realized prices, I guess?

[Dale Henderson, executive]

You can look forward to that one next quarter.

[Operator]

Our next question comes from Mitch Ryan from Jefferies.

[Mitch Ryan, analyst]

My question relates to the updated agreement with Ganfeng for increased offtake. I understand that it's tied to prevailing market prices. But are there discounts associated with that quantum of volume? How should we think about that?

[Dale Henderson, executive]

Mitch, I can take that one. No discounts. No, it's the same pricing across the lot and consistent principle we have with all of our offtake agreements is to make sure that our spodumene concentrate reflects the prevailing market pricing. But I confirm there's no discount for a larger volume.

[Operator]

Next question comes from Hugo Nicolaci from Goldman Sachs.

[Hugo Nicolaci, analyst]

Thanks for the update and congrats on the additional opening in South Korea. Maybe just before my first question, just a quick clarification. The cash waterfall slide, you've got on Slide 17, there's $98 million of other investing but non-CapEx spend. Can you just clarify what that was?

[Luke Bortoli, executive]

Yes. I'll take the lead on that and then pass to Dale. So, a component of that related to share purchases in the quarter and another component related to payment on the acquisition of Altura in respect to stamp duty. I'll just pass it out for any other comments on that.

[Dale Henderson, executive]

No, I think you've dealt well.

[Hugo Nicolaci, analyst]

Maybe then just moving, I guess, more to kind of a strategic question. Obviously, different lithium pricing environment to where we were maybe 6, 12 months ago. I mean, how important in your view is maintaining a net cash position and I guess, preserving dividends at the full year result? And then with market conditions and share prices as they are today, how do you see the returns profile of the competing strategic priorities between further expansion at Pilgangoora, buybacks and acquisitions of likely longer-dated greenfield projects?

[Dale Henderson, executive]

Hugo, you are making the most of that question. Good on you. Well, probably to start with divis, so, we've provided some clarity on that in the quarterly release, basically plugging no dividends and/or want to preserve capital. As it relates to the -- how does the current market change our thinking, well, it doesn't really as per the presentation we stepped through. This is the establishment of a new industry, the grassroot prospects of awareness is heading directionally are pretty remarkable and we have strong conviction on that as we have done for many years. And this is not the sort of first period of stock pricing Pilbara has had to navigate. So, we've been through softer pricing before, we have a playbook effectively. The difference now is we're materially stronger and with respect of scale and know-how, our relationships, our balance sheet position, you could not ask for a better position to navigate these waters.So for us, it remains keeping our eye on the long-term price and being positioned to make the most of this industry as it unfolds. So, I'd probably also add that I think what is inherent in this industry today is there is a level of volatility and it tends to surprise everyone. I think going back in time, the downward pricing was probably longer than people expected. But then equally, the turn was more vicious and much higher than anyone anticipated. And it would be reasonable to expect more surprises in the future given that there is such -- it's coming from such a small base and there are big moves afoot to pull forward this industry and some maturities. So, we'll see how we go. But as I think all of our investors can take comfort that we are disciplined in delivery. We're prudent in our approach. And as I say, we remain strongly convicted on the long-term prospects. Thanks for your question, Hugo.

[Operator]

Next question comes from Hayden Bairstow from Argonaut.

[Hayden Bairstow, analyst]

Just a bit of a follow-up from that. Just to understand, I mean, obviously, you want to get these projects built and stopping anything halfway through a project is never a great idea anyway. But just your willingness to then adjust the volume ramp-up into these expansions just depending on where the market actually is. Is that something that you can just do or you'll look at? Or is it given that your cash margin is still pretty good, you'll just sort of push ahead regardless?

[Dale Henderson, executive]

Good question. And that is something we could consider, but not something we think we need to, to yet. I mean, we'll continue to monitor the prevailing market pricing and we will obviously make the decisions which produce risk for shareholders to maximize our returns, one of which is we could moderate the produced volumes. It did made the most sense for the business as we did during 2019-2020, but no signs of needing to do that at the current pricing levels at this stage.

[Operator]

Our next question comes from Al Harvey from JPMorgan.

[Alistair Harvey, analyst]

Dale, I just want to dig a little deeper into the balance sheet conservatism there, I guess. You've got a couple of studies coming over the next couple of months. So first off, you've got the downstream partnering. Just kind of wanting to get a sense, do you expect that to be CapEx heavy potentially? Or is there an option that you could go down a more offtake heavy route like you announced with Ganfeng last week? And then beyond that, I know you haven't ruled out the study on expanding Pilgangoora further. That's first study outcome in the June quarter. So, just trying to put those 2 together in terms of preserving the balance sheet and what options there might be in that respect?

[Dale Henderson, executive]

Yes, as it relates to downstream partnering, I'd say it's unlikely it would be any sort of capital requirement in the near term if we're proceeding with a partnership and if there was a proposition to build something together, these things, normally, there's quite a long gestation period of time in terms of studies and so on and so forth. So, I think it's not very probable that there's any sort of large CapEx requirement in that regard. As it relates to studies at the mine site, they are all pretty low cost relatively. And we don't see any harm and carrying on of those -- the project level. Does that answer your question, Al?

[Alistair Harvey, analyst]

Yes.

[Operator]

Our next question comes from Kate McCutcheon from Citi.

[Kate McCutcheon, analyst]

Just on the cost base, what are some of the nonessential spend items that you trim to give you that $55 million to $100 million reduction in CapEx? And is there a second round of things you could look out if prices continue to be lower or on spot, you're not looking at that here.

[Luke Bortoli, executive]

Kate, I can take that. Thanks for the question. So, the nonessential spend that we looked to reduce and when I call it nonessential, I'm referring to the fact that it's not critical for production expansion included things like commencement of a new village construction, some nonessential roadworks, warehouse upgrades. It's items of that nature, which we can prudently defer in FY '24. Beyond this, as it relates to our CapEx guidance that we provided the full year '23 result, there is unlikely to be any material -- more opportunity for reductions given that the vast majority of the remaining CapEx relates to P680, P1000 construction, deferred stripping and sustaining CapEx, keep in mind going. That doesn't mean as we roll into FY '25, there won't also be a review of CapEx going into that next financial year. Does that help answer the question?

[Kate McCutcheon, analyst]

Yes.

[Operator]

Our next question comes from Glyn Lawcock from Barrenjoey.

[Glyn Lawcock, analyst]

Just on the pricing again, just obviously, in the past, in the rising market, you were able to renegotiate with your customers. Is there any signs of that now prices have gone the other way, like pressure on you to lower the linkage rate to the chemicals? And any insight on whether -- what your costs were pre the credits that have now come back from tantalum?

[Dale Henderson, executive]

Glyn, I'll speak to pricing and in respect to tantalum credits. As it relates to pricing renegotiations, it's fair to say there's pressure on renegotiations as pricing increases and decreases, it's a bit of a constant and what we do is, of course, adhere to contract terms to the best of our ability. So, one of the underlying challenges, of course, in the market is the volatility and the divergence of the different price points that we saw -- that we just spoke about previously. So hence, that's one of the reasons that there's always plenty of discussion around what is the correct representation of the prevailing price, et cetera.So out of all of that, then, yes, it's always an ongoing discussion around pricing. But I think Pilbara is pretty confident in this regard now having been operating in the industry for a fair while and with a good base of competing customers, we know what fair value is. And of course, we'll do the best we can to navigate any negotiations to maximize the benefit for our shareholders.

[Luke Bortoli, executive]

On tantalum, there was a small amount of tantalum sales in the quarter, relatively immaterial. I can come back to you with the details offline, Glyn.

[Glyn Lawcock, analyst]

And can I just follow up, Dale, on your response, just so you haven't had to drop the prevailing rate to linkage?

[Dale Henderson, executive]

For the quarter, I can't get into specifics. I think one customer may have come up for review, which we had a look at and that case, there's been no sort of a change in terms of the proportion of proceeds to Pilbara. But of course, it's a case-by-case basis. And the underlying market is moving significantly. So as I said, we'll do the best we can to navigate any shift to maximize benefits for our shareholders.

[Operator]

Our next question comes from David Feng from CICC.

[Tingshuai Feng, analyst]

Just wanted from an inventory management perspective since we're seeing that the sales in December quarter is slightly behind your production ramp-up. So, just wondered, is it due to the ramp-up itself or kind of related to port congestion. We understand that Pilbara Minerals has always been very successful in keeping a very low inventory. So, how should we expect the sales to catch up with production in the March quarter?

[Dale Henderson, executive]

If I understand your question, you're talking about the delta between sales versus production. Yes, as my commentary earlier, yes, that's just sales timing being shipped by port. It's not to do with any sort of stockpiling strategy. As a business, we've appreciate others in the industry have used stockpiling as part of their strategy with market. That's not what we've done historically and we're not looking to do that in the near term. So, we expect those volumes will move through the system in due course in accordance with the agreed shipping schedules we have with our customers. Does that answer your question there, David?

[Tingshuai Feng, analyst]

Yes.

[Operator]

Our next question comes from Ben Lyons from Jarden Securities Limited.

[Ben Lyons, analyst]

Firstly, just possibly if you could clarify how much was the stamp duty payment associated with the Altura acquisition, please?

[Luke Bortoli, executive]

Sure. I can take that. It was approximately $15 million.

[Ben Lyons, analyst]

And then possibly a bit of a cheeky one. I'm not sure if anyone's got the numbers to hand. But can you possibly provide the breakdown of sales by month during the quarter, so in October, November and December stat, if you got in the hand, please?

[Luke Bortoli, executive]

There was approximately 90,000 tonnes that were shipped in December with the remaining tonnes in the month preceding that. So that I think is the right way to look at it.

[Operator]

Thank you. Thank you for the phone line questions. We will now move on to the webcast questions.

[Unknown Executive]

Okay. So Dale, the first question we have is, can you provide any more -- sorry, what does the extra supply of offtake agreement with Ganfeng suggest in terms of the broader movement as in why have you -- why have we signed more offtake with Ganfeng?

[Dale Henderson, executive]

Yes. Thank you for the question. So Pilbara has got the great position of being able to partner with sort of the best-in-class chemical converters globally. And we continue to have discussions across all of them as we have future offtake available. We chose to extend Ganfeng's, well, increase Ganfeng's volume based on the fact that, look, we think they're a great partner, we worked with them for many years. They are, as I mentioned in my commentary, one of the leading converters. And as also mentioned in the commentary, they have strong conviction on the long-term outlook. And we think we've got a great partnership there and it makes good sense to offer them more tonnes as we get more tonnes upcoming coming from expansion, so. But we like others, Ganfeng is great, but there's some other great convertible partners out there as well, which, of course, we're in discussions with.

[Unknown Executive]

Okay. Next question, PLS is heavily shorted as you all know. Is there any development that the hedge fund companies are aware of which drive them in the shorting land?

[Dale Henderson, executive]

That would be a question for them. But as it relates to the short interest, yes, we, Pilbara is one of the large liquid stocks and pure-play lithium in the ASX, what we hear from those who are wanting to short Pilbara what we hear is that they're betting on price movement downwards. I note that as it relates to lithium, we're not lone in terms of being shorted and certainly in the U.S. market, the other big lithium groups are shorted to something similar to us. So, we're not alone, but of course, we stand out a bit in the ASX. As to what the hedge fund is worried about, I hope they're shaking in their boots. I hope they're worried that there'll be other government stimulus and other things, which tends to pop up because what we know from this industry is pricing and demand contain very quickly, that could deploy short squeeze. But only time will tell, we'll wait and see.

[Unknown Executive]

What updates can you provide on the Calix joint venture and progress of the midstream project?

[Dale Henderson, executive]

Midstream is on track. So busy. There's some updates within the release there, which can be read, but it's on track to schedule and budget, busy doing design and procurement and looking to start some construction later this year. So, on track as per the previously guided dates.

[Unknown Executive]

Okay. Thank you. What is the progress of discussions with parties regarding the additional 300,000 tonnes offtake from P1000?

[Dale Henderson, executive]

Those discussions continue and we look forward to updating the market in due course. I can't offer much insight at this point given the sensitivity of those discussions, but we remain positive on what we can do in the regard.

[Unknown Executive]

Okay. Thank you. And what is the nature of queries outside of China? And any sort of potential ownerships ex-China in the coming year?

[Dale Henderson, executive]

Yes. It's fair to say there's a wide spread of inquiries globally, ranging from established car companies, emerging car companies, chemical groups, entrepreneurial groups, you name it. So, there's plenty going on out there in terms of companies and you can see the opportunity for this emerging market. And of course, we talk to them. But with Pilbara, we keep feet on the ground in terms of thinking deeply about maximizing the opportunity for our shareholders. So, we think deeply about obviously, returns, risk and ultimately, we keep a sharp focus observing the evolving landscape of the supply chains, which are emerging. The decisions we have to make around product commitment are long term. These are multi-decade commitments and we need to get that right. So yes, we very much entertain the inbound discussions from abroad. So, we keep a sharp focus to make sure we make the right decisions for our shareholders.

[Unknown Executive]

Okay, Dale. And last question. Are we looking at reducing production given the low market lithium prices?

[Dale Henderson, executive]

We're comfortable, we keep the foot down in the current market and as we run our scenario that makes good sense to do so as reported in this quarter despite the softening pricing for the quarter, we had strong operational margin delivered. Further, as mentioned in the quarter, delivery of the full expansion improves unit cost. It's a good thing to do. So, this is the other reason for carrying on with the approach that we're doing. And that does not mean we don't give keep an eye on the horizon and current pricing. But at the current prevailing market pricing, we are pushing on as per the plan as announced today. Thank you for the question.Okay. So with that, that's a wrap everyone. Thank you all for dialing in. And thank you again to the team and Pilbara for another great quarter and we look forward to updating at the half years in the coming weeks. Thank you all for dialing in.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.