Pilbara Minerals Ltd

ASX:PLS

Earnings Call Transcript 2019-Q4

[Operator]

Thank you for standing by, and welcome to the Pilbara Minerals June 2019 Quarterly Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.

[Nicholas Read]

Thanks very much, Sia. And good morning, everyone, and thanks for your time this morning. On behalf of Pilbara Minerals, I'm very pleased to welcome you to the company's June quarterly analyst and media conference call and webcast. This follows the release on the ASX platform this morning of Pilbara's June quarterly activities report together with an associated quarterly update presentation. Leading today's call for Pilbara, I'll shortly introduce the company's Managing Director and CEO, Ken Brinsden; and together with him here in Perth and presenting this morning as well will be the company's Chief Operating Officer, Dale Henderson; and Brian Lynn, Chief Financial Officer.Before we begin, just a couple of brief housekeeping notes. Ken will open the proceedings with a brief presentation before handing back to the moderator to open the call to questions.Please note that shareholders and other interested parties are welcome to listen to the live webcast of today's call, which is available through the BRR Media service using the link provided both in the quarterly and on the front cover of the presentation. A recording of this webcast will be available at the same link shortly following the conclusion of today's conference call. Shareholders with questions for Pilbara's management team are also welcome to send them to [e-mail]. That's [e-mail].I'll now hand over to Ken Brinsden to introduce today's conference call. Thanks very much. Ken?

[Kenneth Edward Brinsden, MD, CEO & Director]

Thank you, Nick. And welcome, ladies and gentlemen. Thanks to those participating on the call and also a big thank you for those participating via the live webcast. As Nick mentioned, here in the Perth office of Pilbara Minerals I am joined by Dale Henderson, our Chief Operating Officer; and Brian Lynn, our Chief Financial Officer. And we'll address some of the detail arising from the June quarterly report but of course, also welcome your questions at the end of the call.I'll address a summary in the first instance, hand over to Dale and Brian. They'll address some of the detail in the operating and corporate environment, and then I'll also offer some comments with respect to question of sales and the market more generally before we open up to Q&A. So thanks, everyone, for your participation.So coming out of the June quarter, another reasonably consistent period of growth in the underlying production at the Pilgangoora mine, and the plant continues to keep its improvement occurring. Albeit relatively modest growth with respect to recovery, we've been able to continue to grow the underlying production as a result of really strong throughput through the plant and also very strong utilization. The team has done an excellent job in keeping the plant running and defending the operating time as a result of a really strong maintenance performance.But we're still in ramp-up mode. So we have some way to go with respect to recovery, and Dale will address that in more detail as he speaks. And that translates to a higher cost environment than we expect to be over the medium term. There is some big cost levers that will continue to be pulled over the course of the next 9 months, nonetheless of which is the expected continued improvement in recovery at the plant.A strong production performance wasn't quite matched by the sales environment, so we continue to carry more stocks, and as a result, there's quite a bit of value tied up in those stocks now. We expect to unwind some of that value in the current quarter and leading into the end of the year as we moderate production, particularly in the September quarter, and draw down some of those stocks.Anyway, in any case, plant performance, strong. The quality in the product is strong. Lithia grade is strong. And that's the guidance via consistent term we think of a representative of Pilgangoora's performance for the very long term. I'll come back to address sales and marketing in more detail. But certainly, one of the highlights coming out of the June quarter was the continued growth in our relationship with Great Wall Motor Company. They've been very successful in the relationships that they have established in the chemical conversion world, so they're well ahead of where they expected to be in comparison to when we wrote the first rounds of offtake with Great Wall. And as a result, we've expanded the offtake position. They're going to be taking some of the Stage 1 sums. In fact, the first vessel will go to Great Wall during the course of the next month.We've been keen to continue to prove the potential in the Pilgangoora endowments and resource. We still have plenty of outstanding exploration targets, and we saw still a small program during the June quarter off the back of some of our RC grade-controlled drilling, and that's delivered some excellent results in areas where we've been targeting. And really, the point to be made there is just to say that exploration is far from finished in the Pilgangoora Project area, and we have every expectation that we would continue to grow the resource and ultimately continue to grow the reserve. And we think that those exploration results continue to prove that fact. They're also very high grade, which is encouraging in that south end project area.We really value the relationship with POSCO. That's continued to grow, and we're progressing towards the execution of detailed terms with POSCO on the Korean chemical joint venture for the future hydroxide production. That's an important relationship to us, and whilst it's very much a stepwise process, we're happy with the progress with them been and have an expectation that those relationships will culminate in the signing of the joint venture terms during the September quarter.So an important relationship. First entry of major spodumene tonnes. We're already shipping them some tonnes but first entry of major tonnes into the Korean market, which is a very important battery market. So a Tier 1 cell supplier globally. Koreans are a really big movers as far as global OEMs are concerned in the supply of cells for the high end of the car market. So that's the summary. I'm now skipping over to Slide 5 from the pack lodged on the ASX.Here, we're outlining a bit more detail in the production summary. But at a high level, further production growth in spodumene concentrate in the June quarter, further production growth in the tantalite concentrate. Now that has translated to growth in stocks. Again, Brian will address this in a little bit more in detail. But obviously, we're carrying more stocks than we would have expected at the end of the June quarter and that's been flagged previously in prior announcements.That's also a little bit true as it relates to tantalite. We're not having any dramas with respect to tantalite sales. That still relates primarily to the programs we're doing to create the higher-value tantalite concentrate that is the upgrade of a primary concentrate in the range of sort of 5% to 10% tantalite through to higher-value concentrate in the range of 25% to 35%. And actually, as it stands, we've been pretty successful with those programs, and we have significant stocks that are now ready for sale in that higher-grade category. And we're pretty happy with the engagement we've got with key customers, including global customers, as it relates to the tantalite conc.Available tantalite from stable sources of western supply, as we would have expected, seems to be a key target for the global buying base. So again, pretty happy with progress there. And as I said, stocks relate more to the high-grade program than they do to the question of sales around tantalites.That's all I've got in summary. I'm going to hand over to Dale now who'll address some of the production and project details. And then he, in turn, will hand on to Brian, who'll discuss some of the sales and cost environment. So Dale, I'm going to hand over to you and backfill some more detail. Thanks. Dale?

[Dale Henderson, Chief Operating Officer]

Thanks, Ken. And good morning, everyone. So just starting on Slide 6. In terms of the high-level production numbers for the quarter, it was another step forward at sort of 64,000 tonnes produced of spodumene, which is approximately 20% increase on the previous quarter, which is in line with our expected improvements. The team are happy about that. And you can see from the monthly graph certainly for this calendar year there's been sort of steady increase on a month-by-month basis in the order of roughly 7% to 10% increase per month. With the exception, of course, June slight step back. That was an intentional kind of step back through a 5-day shutdown that we chose to do to implement some works on the plant. But from a run rate perspective, very strong in June. Had we operated through that full period, that would have been a standout month. We're happy about the continued production improvement, which is great.With regards to recovery for the quarter, Ken alluded to this that we've had improvement, that it's been modest and we're expecting it to be modest improvement continually as we move from now through to the end of the year, which is consistent with previous guidance as it relates to recovery improvement. And I'll explain some of the underlying projects which support that improvement in a second.Moving on from Slide 6 to Slide 7. Reflecting on the quarter, as I've mentioned, yes, a step forward in total volume produced. As Ken mentioned, quality remains strong, so we're delighted with the continued performance in that regard. Throughput and utilization for the plant remains strong, and that's been brilliant. So really, really happy with the progress that the team has made in that space.During the quarter, we also implemented some of the improvement works throughout the operation. These things, improvements to the plant which is responsible for the extraction of the water from the product, so that occurred. We also completed some of the step-in works relating to the RCR contract. Namely, that was around some tubes that are being installed which affect the way materials presented to one of the iron removal piece of equipment and its intermediate circuit. We also replaced some nonspecification valves and piping.The other area of improvement work for the quarter, which is not mentioned but I'll make mention here, is relating to the control system through the operation. And through the quarter, the team has graduated to a new level of sophistication in the operation of the plant. The controls improvement are allowing more flexibility and operability options within the operation. And that's important because what that allows us to do is to operate a more sophisticated blended operation. And we're a blended operation throughout, and that -- it starts with the way we mine, what lands on the ROM, gets fed into the crusher and then as it propagates through the plant we produce 2 different product streams. The controls improvements we've made over the last months are enabling the team to control each of those product streams with more accuracy. And what that allows us to do is during different periods as grade from flotation fluctuates, well, we're able to compensate through one of the other product streams, mainly being HMS.So during the course of the operation, we generate stocks and we generate stocks at different grades and we blend that out. So by way of example, where we sit at today is approximately 15,000 tonnes worth of SC6 ready to go, then we have a large bulk around 25,000 tonnes at 5.5%. So very close to spec. And then a small amount which is sort of sub-5%. But this blending strategy is key because this really gets to the heart of the operations team objective around optimizing recovery. We solve for grade first, target SC6 whilst maximizing recovery, which is about maximizing yield. That all plays to the highest lithium extraction and the lowest cost base. So hence, blending strategy is a key part of that, and these improvements in controls are an important enabler. But we're really happy that the team has made progress in that regard over the past quarter.So as we look forward into the next quarter and generally in the next 6 months, a few more projects are planned and underway, some of which have been in a gestation period for some time. The first of which listed here is related to grind size. We've done some full mill surveys throughout the entire plant, end to end. What's that about, it's about optimizing for the I guess perfect grind size. Grind size matters for flotation. You want the particles to be as large as possible and -- but not too large that you can't float them. So we're working through a process of understanding how can we eke out more improvement end to end through the plant in that regard. Studies are happening now, and we're expecting those studies to conclude imminently. And we're expecting some projects will flow from that, which we anticipate we will be installing in the last quarter of this calendar year Q4.Other projects underway. The top right-hand corner of Page 7, you'll see a 3D sort of shot of LIMS. What these are, are iron removal drums. We are installing a few more of these. This was related again to step-in works related to the completion of the RCR EPC contract. These units are principally responsible for the removal of the ball mill iron [ finds ], which gets introduced as part of the milling circuit. Volumetrically, we need a couple of more. These are manufactured on the East Coast, and we're looking to have these installed in the early part of Q4 -- calendar Q4 this year.Other projects. Some continued valving and piping replacement, and there's a series of other improvement programs which we've got running in parallel. Process controls. I spoke to that earlier. We will continue to progress and become more sophisticated in project controls through the circuit. And the flotation circuit itself, we're doing a number of studies around how we can continue to optimize the float circuit. Floatation circuits have got quite a few levers ranging from the concentration of reagents, the combination of reagents, flow rates, air bed depth, the conditioning of the material as it enters the flotation tanks. There's quite a few levers and more work to be done to eke out continued improvement across the board.Lastly, in terms of improvement projects, we're doing some work around potential debottlenecking opportunities. We mentioned earlier that we're really happy about throughput and volumetric performance, but we think we can get more. And so we're looking at that, and there should be some low-cost wins we're participating in that regard. And in that space, we -- as it relates to expansion beyond Stage 1, our mine has turned to different ways which we can step out the expanded operation leveraging the existing capacity of the Stage 1 circuit. I'll leave Ken to talk to a bit about this detail later on. But in short, we see some good opportunity within that circuit, particularly at the front end. Our HPGR performed very well. We have some done in capacity. We're looking to use that, and we see some opportunities to do more of an incremental expansion. So we've got some studies happening in that regard.So in summary, a good quarter. As we look ahead, we have a series of improvement projects planned. As it relates to next quarter, most of them will still be in stages of manufacture. But as we enter the start of Q4, most of them will start to get installed. So hence, the recovery improvement forecast reflects that, so modest improvement for next quarter and then sort of picking up in Q4.So that's it for me in terms of an overview of operating performance. I'll hand now over to Brian Lynn, CFO.

[Brian Lynn, Chief Financial Officer]

Thanks, Dale. And good morning, everyone. I'd just like to talk to Slide 8, which is really a corporate update for the quarter. So staying on the results for the quarter, we've -- as mentioned, we sold about 40 -- just over 43,000 tonnes of spodumene concentrate during the quarter and achieved an average price of USD 644 per dmt on a CFR basis into China.The cash operating costs associated with those tonnes sold was USD 528 per tonne. Now that unit cost obviously is reflective of exactly where our operations are at the moment as we continue to ramp up and optimization of the processing plant towards nameplate capacity. And it's something that we had flagged before that costs will remain elevated until we are getting close to nameplate capacity.What we do expect though is unit costs will come down once we actually achieve a stable plant and a plant which is quite predictable, one that's actually at nameplate recovery and therefore, can achieve the nameplate capacity. So that's obviously the goal, which Dale has just outlined, that we need to get the plant settled down, we need to get the plant operating at nameplate capacity. And having done that, your unit costs will obviously come down.So if we look forward, we see our unit costs coming down in the range of USD 320 to USD 350 a tonne, and that should be achieved by the June quarter of 2020.So they obviously mean that there needs to be about a USD 200 saving between what we just achieved for June and what we expect for June of next year. So where do we see those savings come from? So the obvious one is the improvement in recovery. We just had a quarter with a recovery of 55%. If we get nameplate recovery of 75%, that translates to about USD 130 a tonne. If we get our plant operating predictably and being quite stable, well, there's about USD 30 to USD 35 of cost savings to be won there just through the function of plant run time, the maintenance regime that we're having to run now. So we see, at least [ those right here ], easy opportunities to be won then. And then there's a whole range of other cost-saving opportunities, whether it be reagents and fuel usage, whether it be investigating and getting the most out of our supply chain, using triples rather than doubles to get product to port. So we do -- we obviously feel confident that we will be able to get our cost out down, but obviously the key thing there is achieving a stable plant and achieving nameplate capacity.With respect to cash and working capital, just a couple of comments. So we ended the quarter with just under $64 million in the bank, having received about 30 -- just under AUD 31 million from sales during the quarter. One thing I probably would like to address here just to hopefully so people understand our Appendix 5B. So I don't know if anyone has had a chance to look at the 5B that was released today, but it is a bit ambiguous, and I imagine some people might find it a bit difficult to understand. And it really relates to what I'll call a one-off hangover from the decision to declare commercial production from the 1st of April 2019. So prior to 31 March 2019, every single cost that we were incurring was being capitalized and therefore was being put onto the balance sheet. Now to ensure a consistent accounting treatment, any cost that were incurred in the March quarter when we were still ramping up but were actually paid in the June quarter still needs to be classified as a capital cost in the 5B from a cash flow point of view. So it's just making sure that you've got a consistent treatment from an accounting point of view and a cash flow point of view.Similarly, the production costs for the June quarter represent those costs incurred and paid in the June quarter. So it's only those costs which were actually incurred and paid during the June quarter. And obviously, there will be certain June quarter costs for operations which we paid in the September quarter, so there will be a flow-on effect continued into the September quarter. So I know that's probably a little bit confusing. Hopefully, that's gone some way to clarifying that for everyone. But obviously, if anyone's got further questions, then we're happy to take on during the call -- questions during the course of the day on that.With respect to inventory, I think the guys have mentioned that we built inventories during the quarter. So in terms of value increased by about $14 million most of which was invested in spodumene concentrate stocks, about $10 million. Now part of that is obviously the market regime that played out during the June quarter, but obviously they're a bit tied up in concentrate stocks now.As was mentioned earlier, the tonne we've got around about 25,000 tonnes of salable stocks which are grading at around 5.5%. And one of the focuses of the company during the next quarter and the next half year will be to monetize those stocks. And it's probably worth noting that when we put out our forecast sale for the September quarter, none of those stocks was included in those forecasts. Those forecasts were really around the SC6% product we're selling to offsite customers. So obviously, if we're able to monetize some of those stocks, obviously, then that's a good outcome from a cash management point of view and therefore will be a strong focus for the company.Just a couple of other comments -- just high-level comments on our debt. So we have a USD 100 million Nordic Bond, which we used to finance Stage 1 operations. So just to confirm that we continue to comply with the financial covenants under that particular bond, so there is no issues there. And with respect to Stage 2 funding, I think we've been quite clear that, that is currently suspended on a temporary basis until we run to ground the permit process that is currently going on. But obviously depending on what's the result of that, we feel fairly confident that if we had to we would be able to fund Stage 2.And status of the POSCO joint venture. Just to confirm, due diligence has been completed now. We're in the phase of finalizing the various legal documents, which are all in a very mature state. So the expectation is that we -- both parties will be signing the relevant documents during the September quarter.So I think that's everything I wanted to go through, and I'm going to hand back to Ken.

[Kenneth Edward Brinsden, MD, CEO & Director]

Okay. Thank you, Brian. Thank you, Dale. Moving on, some comments with respect to the sales environment and the market more generally from Slide 9. We made it clear during the June quarter and then shortly thereafter that there was a fundamental sort of mismatch between our relative success in bringing on mine capacity. The June quarter, especially the months of May and June from a run rate point of view, the plant was operating at about 85% of capacity. So having done that in basically 12 months or less is a successful effort, but unfortunately, the key customers haven't necessarily been able to match that with respect to their chemical conversion capacity.I think more broadly that is a challenge across the whole chemical conversion industry, and now whether that's China or even here in Australia, the combination of the construction, commissioning and ramp-up of those plants I think just has fundamentally taken longer than anyone would have expected. So in that regard, to be prudent from our point of view, the only thing that really makes sense is to continue to work with your key customers, especially where they're important customers that are deeply integrated with the battery industry, to work with them with a view to moderating outside production.So we've done a small portion of that during the month of June. Dale mentioned their extended shutdown there. We've used those opportunities to continue to work on the plant, and we expect to do the same thing during the September quarter. That will likely result in 2 reasonably lengthy shutdowns during the September quarter, so we're not expecting a huge production quarter nor a huge sales quarter. But we do expect -- based on feedback from the customers, we do expect the plants to be able to move back to full production within the December quarter, albeit slightly less than full capacity because we're still finishing the ramp-up in the plant's capacity.Dale during the course of his more details sort of operational perspective has mentioned that we'll continue to work on key items in the plant. They represent the next big levers that we have to continue to improve recovery, and of course, that translates to materially lower operating cost. As per Brian's feedback, there's definitely some big levers to be pulled there.I also wanted to mention how the experience to date reflects the way we're thinking about the expansion projects. We've made note in the quarterly of work underway to subdivide the delivery of the Stage 2 project. And it's worthwhile explaining that there's some key reasons as to why we're trying to achieve that. The first is -- and from experience we'd say, we can bring on the mine capacity faster than the equivalent chemical capacity can be brought on. With that in mind, you probably don't want to bring on big chunks of mine capacity too quickly. So hence, the logic should be that you further subdivide the investment and the relevant expansion capacity. The benefit in that is that we're probably then better able to match the mine capacity to the chemical capacity coming on. But potentially even more important than that, we don't have to spend as much money upfront.Now we'll have more to say about the delivery of the Stage 2 project or the way we expect to be able to execute that project in the coming months, but if I was to read the tea leaves, I would say a key part of that will be that we'll further subdivide the capacity in Stage 2 without compromising the ultimate capacity. And the benefits come out of that will be to lower the amount of upfront capital. So we'll have more to say about that in the coming months.Moving on to Slide 10. We've included an update of the top markets price data coming out of China and international markets. It's not meant to be deadly accurate, at least not as it relates to a genuine battery ready product. But what it tells you a bit about is the -- obviously, the direction in the market. In China across the top -- the 2 graphs there being lithium carbonate ex-works and lithium hydroxide ex-works in China. It's been a punishing period for the Chinese conversion industry. The last 18 months basically the price has pretty much only gone one way, and the key drivers there have been the effect of the changes in the subsidy regime, which has been quite difficult for the industry to digest.I think the expectation of the chemical conversion industry in China, cathode materials industry and even the battery industry was that the carmakers would chase the high-nickel cathode materials as the subsidies move towards higher energy density. That doesn't appear to have been the case, and I think that probably has surprised the industry. And the effect of that has been to see that the price continue to deteriorate. Now is it reasonable to assume that the combination of battery technology improvements and ultimately cost improvements means that they do move to high-nickel cathode materials over time? I think the answer is yes. It looks like it's just going to take a little bit longer for that to unfold.So hence the importance of working with the right customers and those that are deeply integrated, not even just with the domestic industry in China but also the key markets in Japan and Korea. And that typically is the case with respect to the key customers that Pilbara Minerals works with. A dynamic to come out of the more recent market data is the extent with which some of the chemical conversion industry in China has been able to integrate and qualify with Japanese and Korean markets. So I think that's an important development for the industry. Ultimately, I think that is supportive to price because -- the price of lithium chemicals that is because the Korean and Japanese markets are more quality sensitive than they are price sensitive in contrast to China where the market is very price sensitive. So I think in the end that ultimately leads to more stability in the market, albeit having an impact on pricing in the short term.So it's against that backdrop that we've chosen to continue to work with customers, to continue to support their growth whilst we continue to optimize or smooth our growth profile. So that's a broad picture across the market.Moving on to Slide 11. I don't think -- well, I think it's pretty much universally agreed that the consensus here is there's still a long way to go in the lithium-ion supply chain and ultimately a lot more lithium raw material has to come out of the ground. The evidence keeps growing that the electrification of the transport industry is going to happen, in which case, mines -- critical mass mines like Pilgangoora are going to be important to the industry going forward. And hence, the value that we believe we hold in the combination of quality in resource in the ground, quality in the concentrate that we produce and scale and longevity, they're all important key attributes.And that's what attracted the key interest to our partnering process. It's difficult for us to address directly. Suffice to say, we've been happy with the engagement in the partnering process. We cannot guarantee that there will be a deal. But nonetheless, we've been happy with the engagement and the key participants in that process, and we look forward to being able to clarify the position on the overall partnering process, and we would obviously hope to achieve that during the September quarter. So in that area, it's a question of watch this space.I think that's it for our download, but I'm sure there'll be questions. So at this stage, I'd like to open up the call to Q&A. So please, fire away, Sia.

[Operator]

[Operator Instructions] Your first question comes from Nick Herbert, Crédit Suisse.

[Nick Herbert, Research Analyst]

I'd like to start on question with the customers, please. Could you provide some more detail into the chemical conversion facilities? Talk to General Lithium and Ganfeng Lithium, where they are in their construction phase and when they're due to commission. And maybe just sort of the size of those facilities as well, that would be helpful.

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes. Nick, thanks for the question. So in the case of General Lithium, they have installed -- fully installed, commissioned and now ramping up. They have installed an additional 15,000 lithium carbonate equivalent tonnes in direct hydroxide capacity. Now an important twist that's worth mentioning is that you'll find, especially those with the more sophisticated experience and technology, they will typically build a primary hydroxide plant now and then they'll have a very cheap twist at the back end of the plant to supply carbonate and a high-quality carbonate. That cost of conversion from hydroxide to carbonate at the back end of the plant is very, very cheap. It's about USD 100 a tonne. So those with the technology and the know-how are now building primary hydroxide plants from spodumene with the ability to produce carbonate via that low conversion cost.The reason I mentioned that is you hear a lot of people fret over the question of what people are building. Is it just hydroxide? Or is it just carbonate? Really from a spodumene point of view, you can be a bit ambivalent now. It doesn't matter because those with the right technology will in essence make some dual-purpose plants. General Lithium, as I said, fully constructed, fully commissioned, now ramping up. They've realized about 50% of the capacity. But the ramp-up has been challenged by technical difficulties in the flow sheet but very high-quality hydroxide being produced. As I said they're typically qualified now for Korean and Japanese markets.As to unwinding the technical challenges, they've indicated it's pretty clear. It relates to primarily just refrigeration capacity. Now retrofitting the additional capacity that's required. So hence, the expectation that they'll pretty much go back to full capacity from the December quarter.Ganfeng, with respect to our product consumption, it relates to plants that have already been constructed, a new -- both new carbonate facility and new hydroxide facility. They're in the range of sort of 15,000 to 20,000 tonnes each depending on which plant. And Ganfeng is also in the process of building out additional capacity that will take them to about 90,000 lithium carbonate equivalent tonnes by next year. So they're well and truly down the path, albeit somewhat technically challenged as to the ramp-up of their capacity.You'll find similar stories through the entire chemical conversion industry in China. Some of it will relate to technical challenge. Some of it will relate to approvals. It's possible that some of it also relates to financing given the price movements in the Chinese market. But big picture view, from our point of view, we believe we are working with the right people. We're happy to be supportive of their objectives because they are important players to the battery industry not just in China but also in Korea or in Japan.

[Nick Herbert, Research Analyst]

Great. That's really helpful. And a few more small ones, please. Just on the finance side on the 5B, I can see your cash outflow projections for the September quarter. We can obviously do the sums around -- and cash inflow expectations. Just wondering, are there any other lumpy cash inflows that aren't or not included in that? So any more refunds that you are due, specifically I guess on the CapEx side of things, I think some of those works were being covered under claims?

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes, that's right, mate. We're would like to think we're nearly at the end of those discussions with the administrator of RCR. Can't be completely clear on it but just generally sort of reasonably happy with how that's progressed. And in broad terms, the work that we are doing on the Stage 1 project is largely funded by the previous bonding established under the contract.As to CapEx more broadly, we're really not spending anything now, certainly nothing material outside of those works that support the rework in the plant as it relates to the original design or generally the improvement projects that we're deploying. But even taking that into account, it's also not really big numbers. To confirm, I think for the September quarter, including both residual payments from the June quarter, it's about $9 million in CapEx. And as I said, that that's primarily around those modifications to the existing Stage 1 facility and very much rats and mice category in Stage 2, more engineering than the procurement, which is largely now completed as it relates to the long-lead items in Stage 2.

[Nick Herbert, Research Analyst]

Sorry, just be clear on that. So the $9 million that's projected for the September quarter, is that an amount to be refunded under the claims from RCR? Or will that be a pure October cash outflow?

[Kenneth Edward Brinsden, MD, CEO & Director]

In a small way, it's a mixture of both. But difficult to be completely clear, Nick, because we're still in the final throes of the discussions with the RCR administrator. So a -- yes, a bit of both. But we'll obviously have more to say about that in the coming weeks.

[Nick Herbert, Research Analyst]

Okay. And then just on the sales number, I couldn't see a figure. You might have had one in relations to that I couldn't see just around projections for September and December quarter. You've given those in your 9 July update. Just wondering if they remain valid still.

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes, mate, yes. Based on what we know in the market today and prior engagement with customers, yes, we'd say that, that still holds.

[Nick Herbert, Research Analyst]

Okay. And then finally, just on the provisional pricing, could you explain how that works? And how much is at risk being repriced from the June quarter. Is that just a -- I guess your final shipment for the quarter?

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes. It relates to -- it's a relatively small proportion of the total tonnes. It relates to about 10,000 tonnes of the June quarter sales. And it's a new customer relationship. Our objective in working with them is to try and tie the delivery to the consumption basically. That's the model that's being deployed. So we'd expect that to be something like provisional settlement in about month -- in a month of delivery plus 2 to evolve that order. So not -- certainly not the lion's share of the June sales but nonetheless, sort of a bit of innovation as we work an alternate customer group.

[Operator]

Your next question comes from Steuart McIntyre, Blue Ocean Equities.

[Steuart McIntyre, Senior Resource Analyst]

Just to follow on from that question just on sales. On the 9th of July, you obviously said that sales are more -- expected to more closely align with production from the 1st of October, so in the December quarter. I didn't see that guidance reiterated in the quarterly, but you are saying that, that is still your expectation for sales to sort of meet -- to match production by the December quarter, is that right?

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes, mate. That's right. That's our expectation. And as I said, yes, it just relates to the previous engagement with customers and our understanding of the current market conditions.

[Steuart McIntyre, Senior Resource Analyst]

Okay. Excellent, excellent. Because that's obviously a key concern for investors at the moment. And the second one is obviously the cash balance fell $40 million during the quarter or more like $50 million if you adjust for the $10 million received from option exercise. People are watching that cash balance pretty closely. You've also guided to a $66 million cash outflow in the September quarter. If you generate similar revenue to what you did in the June quarter, so that's about $30 million. This implies a cash -- further cash burn of $36 million in the September quarter, which would reduce the cash balance to around $27 million. Do you think that's a sort of reasonable level that we should be thinking about? Or what's your expectation for the cash balance at the end of December?

[Kenneth Edward Brinsden, MD, CEO & Director]

No. Our expectation with respect to the cash balance both on our expectations around sales is, is actually higher than that, Stu. Now we would like to think that we have taken a relatively conservative view because we're only talking about sales as they relate to the SC6 product that was discussed by both Dale and Brian. There is significant value tied up in those stocks. So we continue to engage with the customer group about what we can do with them in the products that falls into that slightly lower-grade category, so basically the stuff between 5.5 and 6.So we'd like to think that there's opportunity to the upside. And then, of course, the other thing is, again, to be clear, we are minimizing spend in the project area generally. So CapEx is down substantially -- or is expected to be down substantially in the September quarter as compared to the June quarter, albeit relatively minor. The exploration programs are all finished. So -- and hence, our expectation is that the cash balance will be higher than what you'd suggested, and we are looking to the opportunity to monetize more of the value in those stocks. It's not a small number in the tantalum world. That's -- in tantalum stocks, including the high-grade stocks, that's in the order sort of $3.5 million as well. So a lot of work going into continuing to push those sales too.

[Steuart McIntyre, Senior Resource Analyst]

I mean I -- that cash balance number is obviously the key concern for investors at the moment. So do you think it will be north of $27 million? You've obviously still got USD 15 million in undrawn debt sitting there. Are there any plans to sort of boost that working capital -- the size of that working capital facility or anything like that just to give you that balance sheet buffer during this commissioning period?

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes. No, I think that's a fair comment, Stu. And of course, we understand that everyone will be focused on cash as, of course, we are. And yes, it wouldn't surprise me that we've got some discussions going on with the bank as it relates to that working capital facility.

[Steuart McIntyre, Senior Resource Analyst]

Okay. Great. Now I also noticed from your Gantt chart on Page 6 there that you are still intending to begin construction of the $231 million Stage 2 expansion in about 2 months. Now you sort of alluded to this idea of doing that incrementally, which I sort of -- I guess I was thinking that would stretch the construction period over a longer period, but it doesn't seem to be the case. You're still sort of targeting commissioning in the September quarter next year. So I mean, how much of the Stage 2 CapEx has been spent to date? And how should we be thinking about how you actually sort of fund that CapEx?

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes. No, thanks for addressing it, Stu. It's a really important point. And that's why we flagged the question -- well really, there's 2 -- there are 2 important considerations that are interlinked. You've highlighted one, and that relates to the question of how the project is delivered. It's become -- now there's a bit of a confluence of events that have drawn us to this conclusion. We have to do a bit more work from an engineering point of view, but the early signs are good.About our ability to further subdivide the required CapEx in Stage 2 so that we can deliver it on a more incremental basis, both the effect of production growth but of course, also the required investment. Now some of those opportunities are really strong. As a result of our Stage 1 operating experience, we can see lots of latent capacity in the combination of the HPGR. And ultimately, the flotation circuit, obviously, that's got to be optimized. But nonetheless, there is probably capacity between the 2, HMS and flotation, and there's definitely capacity in the HPGR.So what that leads us to believe is that we can build out HMS capacity, increase the HMS yield and still utilize latent capacity in the flotation circuit. The benefit in all that is materially lower CapEx upfront and also some decent production growth associated with it but without compromising Stage 2. So -- but from an engineering point of view, a lot more work to be done, but the net effect of that is to reduce both spend -- the growth in production is more incremental. That's probably going to better match our customers or even our own chemical capacity in the relationship with POSCO and to ultimately make some more efficient expansion solutions. That's the first consideration.Now the second consideration is equally important, and the reason we've held -- held the Gantt chart that you mentioned is depending on where we land in the partnering process, the key people involved have different perspectives about the time frame for delivery of expansion capacity. Some are front-ended, some aren't so much. So until we've got clarity on the partnering process, it's difficult to lock down the scale in the Stage 2 expansion and the timing within which it's delivered. Now one more point in the JV with POSCO, we've obviously got a very sort of clear picture as to what POSCO is up to now and hence the requirement for some Stage 2 capacity from the latter part of next year. And then the question is how big does it need to be as a function of what our other customers are doing and/or the effect of the partnering process. So I'm sorry, it's a convoluted answer. There are many moving parts there.

[Steuart McIntyre, Senior Resource Analyst]

No. I understand. I mean there's a few moving parts here. I mean simplistically the way I've been thinking about it is if your partnering process comes up with the good and someone puts a number on the table for 20% to 49% of the asset that you -- is accretive, then you move forward and you stick with the timetable you've got here. But given if no sort of material offers materialize, I wouldn't be surprised, given the current cash burn and the state of commissioning, if that expansion was pushed out a little bit just until you sort of get Stage 1 right. I mean it wouldn't have a material impact on the valuation so much if you -- if that's pushed out a little bit. Is that a reasonable expectation? Or do you need to deliver that Stage 2 expansion to meet the sort of timing for POSCO?

[Kenneth Edward Brinsden, MD, CEO & Director]

My crystal ball is saying, Stu, that some capacity definitely have to be delivered, but it's unlikely to be the required full capacity. And I would argue that, that represents an opportunity rather than necessarily being a challenge.

[Steuart McIntyre, Senior Resource Analyst]

Sure. I just don't see that you -- with the cash burn coming that you don't really need to put additional stress on the balance sheet unless one of these -- as I said, the partnering process yields an outcome which boosts the balance sheet materially.

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes. No, fair enough, Stu.

[Steuart McIntyre, Senior Resource Analyst]

Look, final question. In the Stage 1 DFS, you estimated the steady-state cost of USD 280 a tonne. But now you're guiding to cost of USD 320 to USD 350 a tonne by the June quarter next year. Do you still think the cost of USD 280 a tonne are achievable longer term? Or should we be using USD 320 to USD 350 a tonne instead?

[Kenneth Edward Brinsden, MD, CEO & Director]

No, that's also good question, Stu. So we guided to USD 320 to USD 350 a tonne for June next year, both on the most recent forecasting and obviously our budgeting processes this year on -- based on the terms of the continued plant optimization as a result of things like -- there are stuff that Brian mentioned, recovering from events, big lever, triples, further optimization of the maintenance program, those sorts of things.Actually, it was the case that the stage -- with the Stage 3 scoping study that identified about USD 290 a tonne. Now the difference between, say, the original Stage 1 DFS going way, way back in the day and then the most recent cost work is that the ores have grown. And as a result of the ores growing, the strip ratio has gone up. So that's one of the key drivers in the difference between, say, for argument's sake, USD 250 a tonne and USD 300 a tonne.As to our views about the operation getting to USD 300 a tonne or even less over time, actually we're okay with that. We're fine. We haven't -- on the proviso that the recoveries continue to improve, and obviously that we execute the optimization programs that we're generally working on, we don't see that necessarily being a challenge. And actually, by the time you consider further investment, gas networks, power distribution from [ headlands ] into the Northwest interconnected system, even hybrid solar, they all can have a material impact on the future prospects of the project. So yes, short term, comfortable with our guidance USD 320 to USD 350 a tonne. Medium term, comfortable with the view that we can achieve USD 300 a tonne or even a little bit less.

[Operator]

[Operator Instructions] Your next question comes from Larry Hill from Canaccord.

[Larry Hill, Analyst]

Just a quick question was around the guided production for September quarter. I know you've made commentary of maybe matching production to sales. So does that imply a production sort of range around or a number around 40,000 tonnes for September? I just want to get a feel for that 50,000 tonnes of stockpile material you've got, whether you're going to draw that down or the potential for spot sales also. That's my first question.

[Kenneth Edward Brinsden, MD, CEO & Director]

Yes. Thanks, Larry. And the answer is broadly speaking, yes, we will do our best to match the mine capacity to the forecast sales capacity and in fact even draw down a little bit more on the stocks. That's the, if you like, the forecast position.The opportunity comes in the second part of your question, and that's what can we do with the balance of the product? Now we're obviously continuing to engage with the market about what we could sell. We do engage with both, of course, our existing offtake customers. So key guys now are General Lithium, Ganfeng and Great Wall, but we do also have established relationships with others and continue to engage with them about the potential of additional sales.Fair to say that the current environment is very much about -- it's about price. So my general view would be that the price is still trending down. And that's principally driven by the perspectives that the lithium chemicals price is trending down, not so much on the carbonate side, that looks like it's stabilized quite a bit. But in hydroxide, still coming off. So the effect of that is to continue to impact spodumene pricing.

[Larry Hill, Analyst]

And just a quick one. Some good commentary there about recovery ramp-ups. So obviously you're looking to target towards 75% by end of -- sorry, 70% or so by the end of the year. Could I just get a feel how you can achieve that at the same time as you comments around being very prudent on capital. So the feel that you've installed the equipment or most of the larger cost equipment and now it's just the case of tuning that equipment. Is that the way to get a feel on this?

[Kenneth Edward Brinsden, MD, CEO & Director]

Actually, Larry, it's a bit of both. We do have what we would call more like genuine project work. We've identified 2 of those reasonable-sized projects in the form of the low-intensity magnetic separation and the grind circuit optimization. They are the 2 sort of bigger projects in that suite. And yes, they do involve some spend. We think of them as projects, but actually in terms of cost, they're not really that expensive. So for example, the LIMS upgrade is approximately a $2 million project. So it's not a huge project, at least not within the context of the entire plant's cost. Grind circuit optimization based on the current expectation cost is really not that high either. And in fact, it's -- based on the project we have between now and the end of the year, it's less than that. So yes, more money to be spent in Stage 1. Some of it falls into the category of rectification works from the previous EPC contracts. So we're using bonded tranche to get those projects underway. It's mixed with other more general operating practices with -- or remote sensing type of thing. Project control -- or sorry, production controls, that's all very low cost, albeit work that has to be done to continue to maintain the stability in the plant and improve the operating practices. There's not much cost in that. It just takes time and energy.

[Operator]

Your next question comes from Warren Edney from Baillieu.

[Warren Edney, Equity Research Analyst]

Just wanted to clarify just the receipts from customers in the cash flow statement. So the implied revenue is around $37 million, given what you sold and the price that you've given in the report. So is the difference just a timing difference in terms of receipts from customers versus what you have -- the implied sales revenue is from the release?

[Kenneth Edward Brinsden, MD, CEO & Director]

In short, yes, Warren. But Brian, do you want to...

[Brian Lynn, Chief Financial Officer]

That's right, Warren. There's just some money that gets received in July as of -- shipments in June. There was one that was quite late in June and just the actual receipt of that money, therefore, flows into the month of July. So it's just the timing difference in cash flow.

[Operator]

Thank you. There are no further questions at this time. I'll now hand back to Mr. Brinsden for closing remarks.

[Kenneth Edward Brinsden, MD, CEO & Director]

Thank you, Sia. And thank you, ladies and gentlemen. Really appreciate your participation. Thanks for your good questions on the call, and thanks to those who participated via the Web link. As Nick alluded to earlier, we welcome the chance to engage if there's any follow-up questions to come back to the office direct or via the shareholder services line. So thanks, everyone, for your participation. Look forward to catching up soon. Good morning.