Pilbara Minerals Ltd

ASX:PLS

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by, and welcome to the Pilbara Minerals March 2023 Quarterly Investor Conference Call and Webcast. [Operator Instructions].

I would now like to hand the conference over to Pilbara Minerals' Managing Director and CEO, Mr. Dale Henderson. Please go ahead.

[Dale Henderson, MD, CEO & Director]

Thanks very much. Good morning, good afternoon, good evening to anywhere you're dialing in from. Welcome to the Pilbara Minerals March quarterly call. A warm welcome to all. I'd just like to acknowledge the traditional custodians on the land on which our businesses operate, the Whadjuk Noongar people where our headquarters are and where we're calling in from today. And then Nyamal and the Kariyarra people up north where our operation is located. And we pay our respects to their elders past, present and emerging.

In terms of introductions, speakers today, we've got Luke Bortoli, our new CFO; got Vince De Carolis, Chief Operating Officer; and we'll have Alex Eastwood, moderating our questions, he's our Chief Commercial and Legal Officer. Also in the room, we've got a number of the team who are also joining us today.

As to the call outlined, we'll be stepping through the slide pack presentation. The basic flow there is, I'll offer some opening remarks on the quarter. I'll then hand to Vince for an operations update. Back to myself to update around the expansions and downstream. Over to Luke for the financials. And then lastly, I'll be updating on guidance and some commentary on the market.

As the moderator outlined, we're going to try and aim for -- well, 20 minutes roughly, we think for Q&A questions and 10 minutes for the webcast, and we'll look to keep this call within the hour because I understand there's a number of other calls today, so we'll be firm on the time limits today.

Now just starting with a bit of opening commentary, in terms of progress for the quarter, it was a solid quarter for the business, both volume and pricing, albeit at a slight touch of what was achieved in the December quarter. It was still solid in terms of volumes and pricing and more similar to the September quarter. Financing, a lot of reinforcement and the milestones in the financing area, which I'll touch on a little bit later. As it relates to expansions, during the quarter, we essentially just got on with the plan, FID for P1000 and P680 in progress. Downstream, POSCO is making great progress on our joint venture operation. I'll speak to that a little bit later.

And then we are now underway with our partnering process given we'll have additional tonnes coming online mid '25, P1000 project, which we approved. So another busy quarter getting on with the plan. But of course, this is all set against a market backdrop that has changed. And it's no surprise to everyone that we have seen some softness sort of emerging over the last couple of months. And we've seen a price decline, particularly within the Chinese market, which is in contrast to some of the global market price references. And I'll offer some market commentary later in the pack around us.

But the relevance of mentioning this, of course, is we have seen a bit of a pullback in the realized pricing for this quarter, and some of that will flow through into next quarter because our pricing mechanisms trail the market indices. So we'll see some of that flow through into the June quarter. All that being said, the pricing is very strong. And you're looking back 300% year-on-year increase in terms of realized price. So still very solid margins to be made in this market.

Now moving now to highlights on Slide 2. As I mentioned, solid quarter for volumes both in production and shipment, albeit a touch back on the December quarter, 80-plus percent increase year-on-year for the quarter. So -- which sort of speaks to the big leap we've had in that short period of 1 year. Realized pricing down a bit on last quarter, reflective of the market. Our unit costs are up a touch, and we have revised up our expected guidance for costs for the year. And Vince and I will offer some comments on that a little bit later.

But a solid set of numbers, which generates some solid margin. Of course, that's flowing through to the balance sheet and a good balance sheet step-up of $457 million. And that's after, of course, paying inaugural interim dividends. So still a great set of numbers, a solid quarter, and we are going well.

Moving to Slide 3, a couple of the milestones for the quarter. The dividend that I mentioned, great to get that out -- out the door to reward those many loyal shareholders who have gone through Pilbara journey. As it relates to expansion, the P1000 FID approved by the Board and the team are getting on with the job of delivering now.

And the category of finance, yes, a number of finance milestones, debt facility for our joint venture with POSCO for the downstream plant in Gwangyang, South Korea. I'd note that, that's nonrecourse to Pilbra Minerals, a great debt facility, which will support our development. Our new debt facility back at home for expansion key role EFA and NAIF to the tune of $250 million, long tenure low-cost debt. And then there was the refinance of our existing debt on a 5-year term.

Major construction package was awarded to Primero for the P680 expansion project. Site is looking very busy as the concrete comes out of the ground and steel goes in the year. And great to see that project moving forward.

Also during the quarter, we completed the executive appointments. So the team is filled and they are very busy delivering our growth profile. And lastly, but not least, we're now underway with what we're calling a partnering process, whereby we're engaging with a select group of the market to explore joint downstream initiatives. So look forward to updating on that later in the calendar year.

Now moving to Slide 4, just a quick update on our growth strategy. Our aim is to be a leader in the provision of sustainable battery materials product, and we have 4 planks to that strategy. First and foremost, it's about delivering operating performance, that's our foundation; two, it's about expanding that foundation and expanding this incredible Tier 1 asset, making the most of this amazing asset that we are stewarding into existence; priority 3 is about extracting more value through downstream integration, the likes of our joint venture with POSCO, the likes of our midstream joint venture we have with Calix or the likes of the partnering process, we're now starting to step into. And lastly, but not least, priority 4, last on the list is around diversification through inorganic growth outside of our base asset.

So that's a quick snapshot on the quarter, which was -- at this point, I'll hand over to Vince for an update on the operation.

[Vince De Carolis, COO]

Thanks, Dale. So starting with safety, as you can see on Slide 5. Our lead indicators, safety interactions, continue to trend strongly, which is critically important in our ways engaging with our people out in the field. Our total recordable injury frequency rate has increased from 4.2 in the December quarter to 4.9 in the March quarter, due to some low severity soft tissue injuries. This in part has been due to a rapid increase in new employees, particularly in mining as part of our plan to increase mining volumes. We're enacting a plan to improve our onboarding of new starters to rectify that.

We've also commenced a new training for all of our leaders on our critical risk management and how to conduct effective critical control deal verifications. And this program will run from now and through all of FY '24.

People and culture, we've been delivering on our commitments coming out of the first cultural engagement survey, delivering a bunch of hygiene improvements such as a new warehouse facility and new admin and room facilities to meet our growing demands. And pleasingly, we're seeing a reduction in our voluntary turnover. And female employment is also strong at 22%.

Moving on to volumes. Production, as Dale had mentioned, was in line with our expectations, given expected lithia grade and planned run time for the quarter. I can also confirm with this production volume that we're comfortable with our previously reported production guidance. It is, of course, noted that this quarter's production is slightly down on the previous quarter owed to a combination of an extended processing plant maintenance shutdown for the Ngungaju Plant to accommodate maintenance activities, and lower-than-planned recoveries due to suboptimal or feed mineral variations. Run time for the period was 82% across the combined processing plants. However, we plan for higher than this. And recoveries for the period was 68% for February and March and slightly lower in Jan.

In mining, we achieved the 4.5% improvement in total material moved at 7.8 million tonnes for the quarter, an improvement month-on-month through the quarter as well. Our mining uplift plan is gaining traction, inclusive of additional resources, as I mentioned earlier, due to improved utilization rates of equipment and new equipment plus upgraded facilities that we continue to work on. And further initiatives to come include fleet composition optimization and improved equipment availabilities in the coming months.

In processing, both Pilgan and Ngungaju have operated consistently in runtime rates and recoveries. However, processing rates were reduced to the prior quarter linked to critical maintenance activities that were required to be completed and recoveries were slightly lower than previous quarter as a result of ore feed material variations. Programs at work are underway with a focus on recoveries, availabilities and rates.

And unit costs, as mentioned -- noted in the quarterly release, we adjusted our guidance, lifting our expected operating cost for FY '23. And this is broadly attributable to 3 categories: inflationary pressures such as labor costs, although they stabilized, it's still elevated, contract services such as our mining service contractors, fuel and flights, just to mention a few. We then had a bunch of one-offs. We have a number of one-off operational expenditures, which include things like spares as part of our availability uplift program and P680 operational readiness. Maintenance provisions, such -- as noted, such as the Ngungaju shutdown. And upgraded infrastructure, as mentioned, the new facilities, warehouse again to lift our operational standards.

And the third bucket is pre-investment, a component of increased operational costs as we prepare for being a larger operation, such as P680 ramp-up, our mining ramp-up, just to mention a couple. But ultimately, we expect the unit cost reduction as we realize productivity and scale efficiencies into the coming future.

And with that, I'll hand back to Dale.

[Dale Henderson, MD, CEO & Director]

Thanks, Vince. Moving to 7, our expansion pathway. As I mentioned in the opening, we're getting on with the job of expansion delivery. So pleased to report that the P680 project, construction is on track and going well. And then there's the P1000 project, which achieved FID during the quarter, of which we're looking to be online and ramped up of mid '25.

Moving to Slide 8, offers a little bit more detail on a couple of pictorials of what's coming to life. And a bit of extra detail there, just a reminder of the dates, which remain on track.

Moving to Slide 9, downstream integration. The POSCO Pilbara Lithium Solutions joint venture is going well. To remind everyone, this is a 43,000 tonne lithium hydroxide plant located in Gwangyang, South Korea. The POSCO team are foot down, going very, very well on construction. It's a 2-train processing plant. The first train, procurement is essentially complete, a lot of construction work is done in terms of civils and steel work. As it relates to train 2, which lags train 1, the team has procured 22 of the 26 packages and have started to commence some of the civil works in that regard. So from all reports and what we see on track and going well, and we look forward to seeing that project develop in the months ahead. And hard to believe that it's only going to be -- at the end of the year, we'll be sending some tonnes over there to support the commissioning. So very excited to see this joint venture facility come to line.

Moving now to Slide 10. As I mentioned, here we completed our executive appointments. And I know I made note in the half year that a couple of the team had joined us, being Sandra, John and Paul. And the last team member to join us, Luke Bortoli, our new CFO. So a big welcome to Luke. It's week 3. So he's really had a chance to unpack his pencil case, but already is well off the curve. So big welcome to Luke, and that completes the set of the executive appointments. I'm delighted because that means no more interviewing for me. But I think we've got a fantastic executive team of all in their own right, got an amazing track record and will serve the business well, and most importantly, serve their teams because it's all about that great people in Pilbara, our teams, everything we've achieved in our business to date has been through our team. So as much as the executives as shown here, it's all about the team and the team delivery and supporting those teams to be successful. So I think we've got good -- we're in good hands with these new leaders who have joined us.

Now with that, I will now hand over to Luke for an update on the financials.

[Luke Bortoli, CFO]

Thanks, Dale, and good morning to those on the call. As Dale discussed earlier, the March quarter showed marginal declines across production, sales and unit cost metrics in the period. Notwithstanding this, the quarter also showed continued strong performance from an operating margin and cash flow perspective as well as payment of our first fully franked interim dividend. More specifically, the quarter featured a marginal 3% decline in tonnes sold to 144,000 tonnes, a 15% reduction in weighted average realized sales to USD 4,840 per tonne on an SC5.3 basis, reflecting a softening market price in the period. And a 9% increase in unit operating costs to $632 per tonne measured on a free on board basis, and excluding royalties, primarily due to higher mining and maintenance costs as we ramp up to P680 as well as general cost inflation.

Against these declines, we saw continued strong cash operating margin in the period of $919 million, comparing very favorably to the $950 million received in the December quarter. This strong operating margin underpinned the $457 million or 21% increase in cash to $2.7 billion. As Dale mentioned earlier, to help support our expansion plans, we also announced a number of finance initiatives. The first is the signing of a 10-year $250 million debt facility with Export Finance Australia and Northern Australia Infrastructure Fund to support the P680 expansion project. We also refinanced our existing debt facility, replacing debt of USD 110 million with a new facility of USD 113 million on improved turns through a syndicate of new and existing banks. And finally, we signed a USD 460 million debt facility for the POSCO Pilbra Downstream joint venture to fund the remaining capital and commissioning costs for the 43,000 tonne per annum lithium hydroxide chemical facility in South Korea.

To provide some more detail on margin in the period, as mentioned earlier, unit operating costs, excluding freight and royalties, saw a 9% increase in the March quarter to $632 a tonne. In contrast, unit operating costs on a CIF basis improved by 2% to $1,144 per tonne in the December quarter. This was driven by a reduction of approximately $75 per tonne in royalty costs linked to the lower selling price as well as a continued reduction in ocean freight costs.

Overall, operating margin declined broadly in line with the mix of a lower selling price and lower unit operating costs in the period but still remain strong in nominal terms. As mentioned earlier, cash operating margin was approximately $919 million, or $6,368 per tonne versus the December quarter at $953 million or $6,412 per tonne. So our operating margin remained very solid.

Turning now to cash flow. As previously mentioned, the company's cash position increased by 21% to $456.5 million or $2.7 billion as at 31 March. Key movements in the cash balance included net cash margin from operations of $919 million, comprising $1.1 million from sales of concentrate, less $174 million of operating costs to produce and sell concentrate.

There was capital expenditure of $119 million versus $76 million in the December quarter. Net proceeds from borrowings of $78.6 million were primarily driven by a partial drawdown of the 10-year $250 million debt facility for the purpose of funding P680. We also showed a first dividend payment of $0.11 per share, equating to $329.8 million and a first tax payment of $88.6 million relating to the company's FY '22 tax return. Excluding the first dividend payment and first tax payment, cash would have increased by approximately $875 million, which is comparable to the December quarter cash increase of $851 million, again emphasizing the strong quarter that we had.

I'll now hand it back to Dale.

[Dale Henderson, MD, CEO & Director]

Thanks very much, Luke. Moving to Slide 13. As Vince outlined, we've adjusted our guidance on our unit operating cost, tweaking that up from our previous guidance. So moving it up to $600 to $640 per tonne unit cost range. And as Vince walked us through, this is owed broadly to 3 buckets: inflation pressures, some one-off costs, and some pre-investment to support expansion. Importantly, volumes for the year, we're reaffirming that we're on track and feeling comfortable about the delivery of those for the full year, which is good. And -- yes, looking forward to moving through to the last of quarter 4 and finishing the year strongly.

Moving from Slide 13 to Slide 14, a market update. I'll be slightly more expansive in my commentary here just to support those who I know are keen to hear our perspectives. And answering this, I'll talk through 3 sort of pieces. The long-term outlook, secondly, the March quarter and our observations of what has occurred in the March quarter. And then lastly, I'll talk about the look forward.

So in terms of the long-term outlook, we remain very positive on the structural deficit for lithium. And of course, we note that there seems to be a broad supportive opinion for that deficit. But when we look back over the March quarter, really the points of evidence we would highlight are in 2 parts: one is around the major investment, which continues to happen; and then secondly, it is around EV sales being the key consumption driver for lithium at this point in time.

Now as it relates to major investment, a couple of the highlights of late, obviously, the Albemarle takeover attempts of Liontown's rejection of that speaks to the value both the Liontown sees in that asset and also Albemarle does. GM invested $650 million in Lithium Americas. Ford invested $3.5 billion, was committed to for its first LFP plant in the States. LG has committed $5.6 billion towards their battery manufacturing facility in Arizona. Redwood has secured $2 billion from the DOE in the U.S. BMW has announced $870 million plant in Mexico. And the Canadian government has unveiled federal government budget of CAD 80 billion in tax credits for clean technology, including CAD 25 billion for investments in clean energy. So just rattling through a couple of major announcements of late.

As it relates to EV sales, China, 27% year-on-year growth, pulled back quarter-on-quarter, but overall, the broad theme remains strong. And outside of China, the combined global EV growth rate remains strong at a 25% year-on-year growth. So broadly, very, very strong indicators supporting the structural deficit that looks to emerge in the outlook.

Now moving now to the March quarter, which in contrast has demonstrated some softness, particularly in China. So just to offer some commentary around us, and I'm not going to be revealing anything particularly new or different year other than just reinforce. We support what we're hearing. The evidence around the pullback within the Chinese market for the quarter was owed to a number of factors, which have conflated. There was a seasonal variation in the Chinese New Year. That's been the end of the China's EV subsidies. There's also been a war underway between the ICE vehicles and EVs. The ICE vehicles within China have been heavily discounted to move that stock in advance of some tightening on Chinese emission standards, which are coming into effect from the first of July. So that, of course, has put some competition -- some strong competition, short-dated competition, we think, in the market around EV versus ICE. There's also been a component of inventory destocking or stocking which had occurred, which is moving through the system.

And then lastly, there's a category of what we call buying behavior and sentiment and our observation of the Chinese market as it runs up hard as price starts to appreciate and it runs down hard as price declines, and it looks like we're seeing that play out yet again. So that's as it relates to the Chinese market. But I'd point out that hydroxide pricing although it's had a pullback, it's been nothing near the pullback we've seen in the lithium carbonate pricing, engaging with our customers who are in the main ore weighted to hydroxide producers. And by the way, also, most of those are exporters to the external market. Their commentary around this talks to the high barrier of entry to the -- to produce hydroxide product in contrast to carbonate product, and they also talk of the remaining strong demand for the high nickel cathode feedstock.

So -- because of that, here we are seeing a bifurcation at this point in time between, as I say, the Chinese price points versus the global, particularly hydroxide price points, which haven't gone off as much. Does the gap close? We'll find out. I think it's likely the gap will close some of the low-cost carbonate can be taken into hydroxide. We haven't seen that yet, but we'll see what unfolds in the months and quarters to come. So it's a little bit about the March quarter.

Now moving to the look forward, where does pricing go and what do we see is going to unfold? Now of course, this is in the category of crystal ball gazing. But our assessment is having spoken across our customer set and engaging with some of the respective reporting agencies in this space is what we anticipate in the June quarter is likely either a leveling or softening. If it is softening, we'd be surprised if it softens strongly, but we'll wait and see. But as to a turn in the market, the opinion we have formed, as I say, engaging with others, is the back half of this calendar year, it looks most likely.

Now granted there is a big range of source -- ranging from -- [indiscernible] within weeks, some saying late in the year. As I say, we're anticipating the second half of this year to be the most likely time that we would see big uptick to get underway. But of course, we all have to wait and see. This is set against a backdrop of a number of moving matter of pieces, Chinese domestic sentiment, global sentiment, where we'll see what happens. But as I say, Pilbara Minerals remains bullish and on the long-term outlook for the market. We remain committed to our expansions and getting on with the job of developing this incredible Tier 1 asset and enjoying, hopefully, strong margins for many quarters and many years to come.

So with that, that completes my commentary on the market. I'll now hand back to the moderator to step into Q&A.

[Operator]

[Operator Instructions]. Your first question comes from Hayden Bairstow with Macquarie.

[Hayden Bairstow, Macquarie Research]

A couple of quick ones. Just on CapEx. I mean, you're seeing a fair bit of this now across the industry, but how confident are you in your ability to actually spend the capital in line with what you're trying to do to deliver these productions and growth plans? Is there some risks around, not necessarily the actual CapEx number, but just the timing to actually deliver it? What are you seeing on that front?

[Dale Henderson, MD, CEO & Director]

Yes. You're correct, Hayden. I'd put that -- the short answer is yes. I'd put that in the category of any of these big projects, you always have that risk. Our project team is foot-down busy, getting commitments done. And they assure me that we're all a-okay. But as always, these projects -- there's a lot of moving parts to be progressed quickly and we'll keep a keen focus on that.

[Hayden Bairstow, Macquarie Research]

Yes. Okay. And can you just remind us on realized pricing on your spot contracts, just how linked they are to -- is it domestic or export pricing for -- China, obviously, getting a fair bit of bifurcation on pricing at the moment. Just to get an idea of not so much this quarter, but even into next year, how things might start to move around between what you get versus some of the peers. Just want to work out the differences.

[Dale Henderson, MD, CEO & Director]

Yes, sure. So I can -- we can, in general terms across our offtakes, it's broadly weighted to hydroxide and broadly weighted to the export market, but it does depend on which offtake we're talking about. And pricing references a bundle of different -- a basket of different reporting agencies depending which groups and price points, that does affect it as well. But that's probably as much as I can say without getting into the specifics of each contract.

[Operator]

Your next question comes from Rahul Anand with Morgan Stanley.

[Rahul Anand, Morgan Stanley]

Look, the first one here is on that spot sale, you flagged for the 15,000 tonnes on the new pricing model, which was linked to tolling this quarter. So the question there for me is, how does that pricing compare to other sales? And then in terms of that contract itself, should the downstream margins turn negative? Are you forced to still supply into that in terms of volumes and basically have losses on that conversion? Or can you step out of that contract?

[Dale Henderson, MD, CEO & Director]

Sure. Yes. No, a good question. Happy to answer this. And just to remind everyone that this particular sale was a 15,000-tonne spot sale, and this was our first toe in the water, as we described it, for doing a tolling contract. And 15,000 tonnes equates to about 2% of our production profile, a very, very small percentage. So it was our toe in the water.

To answer your question, so the price received from that was in 2 parts, and we disclosed this at the time that we did this. So the first part being effectively the spodumene price component of which was locked in. So that's secure and done. As it related to part 2, it was an uplift as it relates to the actual chemical price around the time of sale. Now because of the downward trend, that components has essentially gone to 0, but it does not mean that we go into a negative in that case. So we covered the downside risk in that regard. And as I said, this was a bit of a toe in the water as we look to explore this model.

[Rahul Anand, Morgan Stanley]

Okay. That's great. That helps. Look, the second question is around the sales this quarter, so 144,000 tonnes, but I note that there was a 20,000 tonne delayed shipment in the last quarter, which means the underlying shipment rate was probably sitting at about 124,000 tonnes. So I guess the question there is whether you held back sales during the quarter as you saw that weakness in the Chinese market because despite the operational performance, production was ahead and inventories as well, at least on my numbers, seems to be around that 50,000 tonne levels for finished products. So I just wanted to understand whether you withheld sales, which is similar to some of your peers' indication in the market.

[Dale Henderson, MD, CEO & Director]

Yes. No. The short answer is no. We didn't withhold sales. The view we've always taken is, as the product produced is to get that moved out and off to customers, so there hasn't been any sort of -- we haven't tried to sort of adjust any of that. What happens, as it relates to the actual sales, is sometimes it's blocky, and blocky in the sense that it depends. It's about pairing with when the customer needs that product and where that particular -- where that timing falls on sort of the quarter battery limit. Those are the reasons around seeing some sort of ups and downs in this space as we move from quarter to quarter.

[Rahul Anand, Morgan Stanley]

Okay. So it's basically some of the volume commitments not being taken up at this point, which will probably come through in the quarter? Is that the right way to think about it due to the softness in the market?

[Dale Henderson, MD, CEO & Director]

That's not softness, but yes, it's just timing. It's just timing. So the June quarter is a bigger quarter for us.

[Operator]

The next question comes from Tom Hays with CLSA.

[Thomas Hays, CLSA Limited]

Maybe a similar question to what was just answered, but around inventory. So we've seen build over the last 3 quarters, and by my count, it's sort of at about 30 days of your production rate last quarter. Will we see those inventories sort of stay at that level going forward? Or given the cycle, can we expect inventory drawdown during this quarter? And I'll come back for a second.

[Dale Henderson, MD, CEO & Director]

Yes. No, we should be drawing. Firstly, Tom -- yes, we should be drawing those inventories down. Yes, the name of the game is to reduce stocks and just keep that move to market. We don't want to hold our cash and stocks around produced product.

[Thomas Hays, CLSA Limited]

And is there any impact of the cyclone earlier this quarter?

[Dale Henderson, MD, CEO & Director]

Yes, we did have a bit of an impact. Yes, the cyclone, fortunately, as it was a fairly light touch for our site in the end, which was great. It was a Category 5 bearing down on us and some we were batten down and worrying what might transpire. But it was fairly light on in terms of the cyclone impacts other than, of course, we had to do all of our shutdown in readiness of the cyclone. So we did take a bit of a hit in terms of production run time. However, we have effectively allowed for that as we've looked at our guidance for our current volumes for the year. But -- yes, pleased to say, yes, that cyclone was a light touch.

[Thomas Hays, CLSA Limited]

And maybe just a follow-up just on pricing and maybe tackling it from a different way. I wonder if you can provide sort of a high-level split of your sales by country going forward?

[Dale Henderson, MD, CEO & Director]

This would be question 3, Tom. But -- let us take that on notice. Yes, we don't have many customers, and we just need to be careful the way we protect the commercial sensitivity of these arrangements. But let's put that on notice.

[Operator]

Next question comes from Ben Lyons with Jarden.

[Ben Lyons, Jarden Limited]

Dale, really helpful getting your insights into the market, much appreciated. I'm probably more interested in your current marketing behavior. We're already a full month into the June quarter. So can you make any comment about your sales behavior during April? So for example -- and this is one question, but it's a multi-parter. Have you resumed spot sales using that GLX platform? And can you make any comment about whether the April pricing has been in line or lower than those plants in fast markets indices that most people tend to look at, which I put it about 4,100 to 4,200 on an SC6.0 basis?

[Dale Henderson, MD, CEO & Director]

Yes. Good question on the sales pathways. So the short answer is, as it relates to spot sales, we are leaning more towards sort of closed tender type approach at the moment. Here we haven't done any BMX sales since last year. And I think I'd expect we'll probably continue with the closed tender approach for sales. If the market goes -- flips back into fever pitch, I could see a scenario where we probably exit the BMX. So it's where we are -- that's the way we think about it today.

As it relates to part 2, in terms of April pricing, obviously, I can't give away too much there. And I appreciate that the challenge anyone looking at the industry would have right now that I see that there is a very wide spread around what the price reporting agencies are reporting. Now within that, what I'd say is, our aim is to keep, of course, pairing our sales with those hydroxide participants who participate in the stronger margin part of the market. So that will be the aim at this point moving forward. But as to where does pricing go for the quarter. As we noted, we're sort of nondescript on that. We'll see how the quarter goes and look forward to reporting at the end of the June quarter.

[Ben Lyons, Jarden Limited]

All right. Okay. Might direct the second one towards, I guess, both you and Luke. Luke, welcome. Obviously comes with great credentials, highly qualified, et cetera. Just a bit slightly unusual, though, for your CFO to also hold other board positions in listed ASX companies. Just maybe whether you can sort of make any comments, Luke, around the allocation of your time. I'm sure you've got the capability, clearly, but just how you sort of approach those conflicting demands on your time.

[Dale Henderson, MD, CEO & Director]

Yes. Thanks, Ben. I might on that one. Look, firstly, with all of the executives we've engaged, it's been -- where we've engaged 5 executives in total in a short period of time, all of those executives, there's a long process of ref checks, screening and pretty much all of the roles, it was an international search, including that one for the CFO, which Luke won out. Now with each of these executives, they, of course, have other commitments. And as part of that, there's transition plans to be worked through. Now transition plans don't happen overnight. And -- but of course, there are things in motion.

Yes. As a business, we're -- of course, we're conscious of making sure the executives are fully devoted, heart sold to Pilbara. We don't want them distracted or their time diffused over their other interests, and that's the case across all the executives, but there is a bit of a process to work through to do that.

And we're delighted to have Luke, very well credentialed, indeed. He comes to us excited and enthused to really move the dial for us. So being a bit of an indirect answer there made, but I wanted to sort of outline the process is definitely on our radar, the split, and we're working with Luke on that point. Thanks for your question too.

[Operator]

Your next question comes from Levi Spry with UBS.

[Levi Spry, UBS]

Maybe just sticking on the realized price question. So the realized price did miss mile a little bit. Maybe -- so a 2-part question. The second part might be around more on what Ben was talking about. But firstly, just on grade. So can you talk around what grade you plan to produce this quarter and in the short to medium term?

[Dale Henderson, MD, CEO & Director]

Yes, the grade will continue to target the low 5s, 5.2 to 5.3, typically, we -- and just to remind everyone, we've progressively move down the grade curve to maximize yield from the mine to get more lithium units to market. So that production strategy will be unchanged in the near term.

[Levi Spry, UBS]

Yes. Great. And so just on the other part. So were there adjustments in the March quarter price received? And just in terms of like the read-through price discount, I remember you talked about recutting some of the price outcomes pre-Christmas. And now the tollings happened, but it didn't quite work that time. But can you just talk to what the other big piece there may have been versus those indices that we look at that mentioned the last quarter, not this quarter.

[Dale Henderson, MD, CEO & Director]

Okay. I'm not sure completely -- let me have a crack at the question, but welcome to follow up if I haven't quite hit it. So in terms of the offtakes of course, speak to the lion's share there of production commitment. We went through a bunch of commercial pricing negotiations, which a matter, of course, we contemplated in those contracts late last year. We are now moving into the next phase of that, which is a function of that timing, which is predetermined in those contracts. So we don't know where those outcomes will lead. But it's always a negotiation. As to which our price points we will use, yes, as I said earlier, there's a bit of a wide spread. So we'll see how we go with all of that, and we'll update in the future. Does that answer your question?

[Levi Spry, UBS]

Yes. Kind of. Just maybe just a simple one, so you mentioned the key pay adjustment that's happening, this period, this quarter, coming up. Was there any last quarter? Or what was the materiality of it last quarter?

[Dale Henderson, MD, CEO & Director]

Do you want to take that?

[Luke Bortoli, CFO]

Yes, sure. Yes, there was an adjustment in the last quarter. It's in Note 9 in the announcement and was also disclosed at the December quarter.

[Operator]

Next question comes from Tim Hoff with Canaccord.

[Timothy Hoff, Canaccord Genuity]

I just wanted to ask a couple of questions around the middlings product. Was that volume included in the shipped tonnes? Or is that actually excluded?

[Dale Henderson, MD, CEO & Director]

Tim, no, it wasn't.

[Timothy Hoff, Canaccord Genuity]

Excellent. And in terms of that product strategy, is that something you're going to keep going forward?

[Dale Henderson, MD, CEO & Director]

Yes, Tim, I think -- yes, that would be the aim. At the end of the day, our whole operating strategy is geared around maximizing value for our shareholders. So -- yes, if that lever works for us, we'll continue to pull it.

[Timothy Hoff, Canaccord Genuity]

Excellent. And then just finally, the plant was running at 82% availability. Is the goal there 100%? Or is that a total availability?

[Dale Henderson, MD, CEO & Director]

It's pretty -- not many operations were run at 100% availability. So we target high 80 percents. And in time, we want to get that even higher. So we want to be in the top quartile on our availabilities. But yes, that's our goal.

[Operator]

Next question comes from Mitch Ryan with Jefferies.

[Mitch Ryan, Jefferies]

You've called out sort of that you're looking at downstream partnering initiatives. Obviously, that's in early stages, but can you just give us some of sort of the key metrics that you're assessing those proposals on? Is it just price? Or are there other components that you're assessing them on?

[Dale Henderson, MD, CEO & Director]

Mitch, we're only at the start of the process, but to talk about some of the parameters, which we would assess or think about, would be, obviously, around ultimately, if it's a downstream proposition together, capital cost, cost of production and ensuring the pricing, i.e., the ability to deliver high-end battery-grade product because, of course, that all speaks to margin.

Two would be about supply chain integration, i.e., is it located in an existing battery hub ecosystem? Or is it being proposed in an emerging hub? Three would be alignment on sustainability. Four would be around the technical expertise and demonstrated experience in being able to operate these types of facilities. And the last one would probably more around government support. So it's the particular domicile, does it yield IRA support or European subsidy support or other types of support. Broadly, those are the factors we would consider as we look at these different partnership opportunities.

[Mitch Ryan, Jefferies]

And the fact that you're assessing these, should we read anything into that with regards to your midstream product focus and project? Or do you think that they can coexist?

[Dale Henderson, MD, CEO & Director]

It's definitely part of the thinking, Mitch. Yes, with the -- but the thing with midstream, it needs to earn its stripes. We still characterize it as an R&D project. But we have got an eye on it in terms of -- and thinking around the long game as to prove that well, how do we migrate our business into that model. So the short answer is, yes, it is part of the thinking.

[Operator]

Our final question comes from Kate McCutcheon with Citi.

[Kate McCutcheon, Citigroup]

Can you just elaborate on the feed or production issues in the quarter? It seems like you're operationally well ahead of peers. And there are still some issues with feed quality. So I'm interested in that. Some of the market has a misconception that mining hard rock lithium is easy. So interested in comments around those issues.

[Dale Henderson, MD, CEO & Director]

Yes. So firstly, that would be a misconception. Mining hard rock is difficult, I would agree with you. On the ore mineralogy, there are variabilities of that through our operation or through our ore bodies, and we continue to work on that and improve the understanding of that. And then as we stabilize and learn more in what's coming out of the ground, it stabilizes through to the processing plants. That's part of our geometallurgy program of work. I won't get into the detail of the things that we're working on. That's something that I don't want to do here. But we've got programs at work in that space that will yield recovery improvements into the future and that program is up and running.

[Kate McCutcheon, Citigroup]

Okay. And then just a quick one to follow on. So you said recoveries for [indiscernible] 68% in Ngungaju plant, and that's below planned. Can you provide some color on what the site is broadly aiming for? What would be a good sector recovery? A good one?

[Dale Henderson, MD, CEO & Director]

Yes, absolutely. So for the Pilgan plant, we want to be into the 70s and our long-term goal is to be 75% and beyond. And for the Ngungaju plant, it's the high 60s. And again, similarly to the geometallurgy program of work, we've also got one that's just specifically on recovery, to make the plants more robust, depending whatever mineral feed is fed to them, so that they become more robust and, again, continue to improve their recovery. So lots of work to do and lots of potential upside.

[Operator]

I'll now hand over to Pilbara Minerals' Chief Commercial and Legal Officer, Mr. Alex Eastwood, to oversee webcast questions.

[Alex Eastwood]

Thank you, and hello, everyone. We have quite a few broad range questions. I know we are trying to stick to a time limit, so I'll try and consolidate some of those questions.

The first question we have is, has the Board considered a listing on the New York Stock Exchange or any other U.S. exchanges? There's a few questions along those lines, Dale.

[Dale Henderson, MD, CEO & Director]

Yes. Occasionally, the idea has been discussed, but that's certainly not something we have put any meaningful effort into. And that's something I think we would explore in the near term. Maybe one day down the track, that's certainly not now.

[Alex Eastwood]

Next question around appetite for M&A activity in the lithium space, and are we open to acquiring other battery metal assets other than lithium?

[Dale Henderson, MD, CEO & Director]

Yes. So as it relates to M&A, I would characterize those as being early in our journey around thinking through our inorganic growth strategy. Ultimately, in time, we want to be geared up to capitalize on opportunity. But as I said in the opening, we will step through the strategy. This is priority 4 down the list. We've got a very full plate delivering an organic growth -- our organic growth strategy. So as we look to effectively double our operation over the next sort of 18 months plus our downstream, plus midstream and our downstream joint venture with POSCO, et cetera, et cetera. So that remains the focus. And -- yes, M&A is well down the list.

[Alex Eastwood]

A few questions about the Calix JV, and just generally inquiring for a bit of an update on that. And also in terms of market engagement, what -- how has the sample products being received by the market? What gives us confidence that there will be a market for more intermediary product?

[Dale Henderson, MD, CEO & Director]

Yes, no problem. So -- as it relates to the midstream project, the team are busy working through the next level of study, which supports the FID decision on the demonstration plan that we have flagged to make that FID late in this quarter, in the June quarter. So -- yes, team's busy underway of progressing that. As it relates to feedback from the market on samples, that's been broadly -- yes, positive, supportive. The team are working through with counterparties understanding the detail really around impurities importantly, price, et cetera. So -- yes, nothing has given us cause for concern at all.

[Alex Eastwood]

A question, perhaps for Luke. In terms of the $2 billion of cash held for the quarter, what's the average interest rate earned? And is there scope to get higher interest rates?

[Luke Bortoli, CFO]

Thank you for the question. It has been creeping up. At the moment, the weighted average interest income rate is approximately 4%, and there will be scope to track market rates over time.

[Alex Eastwood]

Thanks, Luke. A question centering around exploration at Mt Francisco. Is there any plans anytime soon to continue with that, really just around [indiscernible]?

[Dale Henderson, MD, CEO & Director]

No. No plans in the near term on that one.

[Alex Eastwood]

Yes. Question about -- I think you probably covered a bit of this, but how significant the POSCO JV company -- our JV is to the company. And what sort of things would we take into account in considering moving our interest from 18% to 30%?

[Dale Henderson, MD, CEO & Director]

Yes. So the POSCO joint venture is very significant for our business. First and foremost, we've committed 315,000 tonnes of our production profile. So that's approximately 50% of the run rate we produce today, and will be 30% once expanded to the 1 million tonne per annum profile on mid '25. So it's a big part of our production profile. But importantly, it's a means by which we're making margin not only through our spodumene concentrate delivery, but then we're getting the add-on of the margin cue of the lithium hydroxide production through that joint venture business. So it's about increased margins. It's also about increased stability.

The POSCO joint venture is 100% wholly dependent on the supply from our operation. So there's a codependency, which exists there, which we feel makes our business more robust and reinforces the foundations, such that inevitable cycles, Pilbara will be one of the mainstays of the industry, and we'll sale through those down cycles, which no doubt will occur from time to time.

And lastly, I'd add that POSCO is pretty impressive as a business. They've got, obviously, a global presence with being an honestly successful in steel. And as it relates to this new energy, green energy and green materials by moving powerfully into the space, of which the lithium component is a one puzzle piece that they're pulling together. So they have bold ambitions to take a large position, and we're delighted to be hopped up with them as they blaze that trail. So a lot of pluses for our joint venture with POSCO.

[Alex Eastwood]

A question around -- a few questions around dividends, mainly would we be reconsidering our dividend policy in light of buildup and cash reserves, such things like buybacks. If not, is further consideration been given to diversification through acquisitions, which I think we've really -- we've covered. Really just the questions around -- will there be a change in the dividend policy?

[Dale Henderson, MD, CEO & Director]

Yes. No -- thanks for the question. So the capital management framework that we put to market was only in the December quarter last year. So it's not that long ago. And yes, as time moves on, yes, we will periodically be reconsidering that capital management framework which, of course, sets out how we think about dividends and the other proceeds use, which come from the business. So short answer is, yes, we will reconsider that over time, and we'll make that assessment based on the health of the business where we're at with our strategic priorities and the macro outlook.

[Alex Eastwood]

There's a question about -- given significant cash flow we have each quarter, which is significant, is there enough market buyer interest to justify spending money for a possible P1500 expansion in the future?

[Dale Henderson, MD, CEO & Director]

I like it. Luke, is it possible to go P1500?

[Luke Bortoli, CFO]

To answer that, we need to do the work on that question. And -- but is it on the drawing board to consider?

[Dale Henderson, MD, CEO & Director]

Yes, it's on the drawing board as an idea that we should continue to do everything we can to make the most of this incredible Tier 1 asset. So that starts first and foremost around drilling out the asset to full extent. And as disclosed in the quarterly, we're busy progressing a drilling program there, which -- we are optimistic will yield more lithium units. That's really the first part of call is understanding what's in the ground.

And then the second part of the equation is to then optimize production capacity relative to life of mine doing optimization. So depending how we go with the drilling, there is potential opportunity to lift production, but it's too early to say to what level we could push production to.

[Alex Eastwood]

Okay. I note time is running out, so I'll limit to one more question. In terms of future expansions, are we expecting economies of scale with cost reductions?

[Dale Henderson, MD, CEO & Director]

Yes. The short answer is yes. Moving to a larger operation and does provide scale and opportunities. And that's -- as it relates very much to the processing capacity in plant. But I would also add that given our long life mine and the high volumes that we produce, continued capital investment around cost down investments is there, and we see quite a long list of opportunity ranging from different types of power for -- power supply for the business to reduce power costs; two, looking to move from triples to quads for haulage; three, the way we outload our port, potentially moving to bulk outload facilities at [indiscernible] moving away from retainer boxes, then there will be the continued focus on lithium recovery that Vince spoke about earlier.

We are in the business of concentrating Lithia. So that will always remain a focus. We want to keep building on that. That will all play to reduce costs. So the list goes on. So, yes, plenty more cost to come out I expect in the years to come.

[Alex Eastwood]

Thanks, Dale. Apologies, I haven't got to everyone's questions. There are a few, but we've covered, I think, the majority of them. And the ones we haven't covered, we do have e-mails from the shareholders who've made those questions so we can answer them through the normal shareholder enquiry line.

[Dale Henderson, MD, CEO & Director]

Thanks, Alex, and thanks, everyone, for dialing in today, and we look forward to updating our next quarter. Thank you very much.