Elevra Lithium Limited (ELV) Earnings Call Transcript

Thank you for standing by, and welcome to the Elevra Lithium June Quarterly Results Webcast. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Lucas Dow, Managing Director and Chief Executive Officer, to begin the conference. Lucas, over to you.

Welcome, and thank you for joining Elevra Lithium's June 2026 quarterly update. I'm joined today by Christian Cortes, Chief Financial Officer; Sylvain Collard, Chief Operating Officer and President, Canada; Andrew Barber, Chief Development and Investor Relations Officer. As a reminder, any dollar amounts are in U.S. dollars, unless otherwise quoted, and unit cost of revenues are reported on an FOB basis. June quarter was an important one for Elevra, both operationally and strategically. Operationally, North American Lithium, NAL, delivered another strong performance. We achieved our second best quarterly production result, established a new monthly production record in May, and importantly, we continue to improve plant recoveries while maintaining high mill utilization. Strategically, we completed a transformational financing package that fully funds the NAL Brownfield Expansion and provides capital to continue advancing Moblan toward a Final Investment Decision. Those 2 achievements together create a solid foundation for the future. We have demonstrated that NAL can operate consistently at a high level, while putting the funding in place to significantly grow production in the near term and over the coming years. I'll now turn to our operational results. Safety continues to be central to everything we do and I'm pleased to report that we recorded no lost time injuries during the June quarter. Our overall safety performance continues to reflect the growing maturity of our operational systems and also the culture our teams have built over the past several years. As we grow the business through the NAL Brownfield Expansion, maintaining that safety culture will remain fundamental to how we operate. Mining during the quarter continued as planned as we continued to work through areas containing historical underground workings. As we've discussed previously, Mining through these historical underground stopes requires additional waste movement and increased safety and operating protocols. Despite this, all mining remained consistent and aligned with mill requirements allowing us to continue to supply quality feed to the processing plant. Operationally, beyond our safety performance, the highlight of the quarter was our processing performance, supported by improved mining and blending practices. We produced just over 54,000 tonnes of spodumene concentrate, representing a 15% increase over the March quarter and the second best quarterly production performance in the history of NAL. Within that result, May established a new monthly production record of more than 22,000 tonnes. That wasn't achieved through 1 single improvement. It reflects the cumulative benefits of the work our operating teams have been implementing over recent quarters on both the mining and processing sides of the operation. Full utilization remained strong at 92%. While that was marginally below the record March quarter, the June quarter included a planned maintenance shutdown to realign the rod mill during April. Even with that major shutdown, mill utilization remains strong amongst the best we've ever achieved at NAL. Recoveries increased to 71% during the quarter, representing another meaningful step forward. The improvement in recoveries was the result of continued strong crushing performance, optimization of stockpile and blending strategies, high mill utilization and sustained throughput rates. Stepping back now for a moment, I'm pleased to report that NAL produced approximately 198,000 tons of concentrate for the 2026 financial year, exceeding the revised production guidance that we provided with our results for December 2025 quarter. That is an important achievement. Earlier in the year, we encountered transitional mining challenges that impacted production. Our team identified the issues and responded quickly, adjusting operations to mitigate the impact and safely maximize production. Moving now to our commercial results. We generated $31 million in revenue and as we previously announced, our average realized selling price for the June quarter was $921 per tonne. This was below realized pricing in the March quarter and also below spot pricing reported during that period. This soft pricing is associated with deliveries under a legacy customer contract that contained a lagged pricing mechanism. The embedded pricing formula referenced lithium hydroxide pricing and corresponded to a pricing period of October 2025 to March 2026. Therefore, our realized pricing did not reflect the strength we've seen in the spodumene market. The June quarter represented the final deliveries under that arrangement. So those legacy contract obligations have now been satisfied. Going forward, we expect realized pricing to better reflect prevailing market prices. Sales volumes were also lower as we shipped approximately 34,000 tonnes during the quarter, aligned with customer shipping schedules. Our sales volume for the year totaled approximately 181,000 tonnes which was the midpoint of the guidance provided with the December 2025 results. With strong production and the step-down in sales volumes, we finished June with approximately 41,000 tonnes of product inventory and the majority of those tonnes are expected to be shipped in July. To summarize, the June quarter saw a decline in reported pricing and sales volume as a function of timing and legacy contract pricing mechanisms as opposed to operating performance, which was strong. Turning to costs. Unit operating costs increased modestly to $907 per tonne. That was a 3% increase quarter-on-quarter as we sold higher cost inventory. Those higher costs reflected 2 factors: increased mining intensity associated with operating through historical underground workings and the inclusion of a planned maintenance shutdown in April compared to no major shutdown activity in the previous quarter. When we look at the full financial year, our unit operating cost of $853 per tonne sold came in below the revised guidance range of $860 to $880 per tonne. But just as we exceeded our updated production guidance, we also delivered a better cost outcome. In terms of advancing our strategic priorities, we achieved multiple objectives during the June quarter. First, we assembled a strategic financing package, which secured the funding to execute our near-term growth strategy at NAL and advanced longer-term development of Moblan. The financing included an equity placement, which was significantly oversubscribed and a retail share purchase plan, which combined to generate $207 million in net proceeds along with CAD 145 million investment from Canada Growth Fund through 2 tranches of convertible notes. One question we received is why did we choose to raise enough capital to fully fund this stage expansion now? And the answer primarily comes down to one factor, that being certainty. While the expansion is a relatively capital-light project compared to a greenfield development, this is a major capital project, and we wanted to remove financing as a potential constraint. By securing funding upfront, we can focus on execution rather than being reliant on future market conditions, which may be impacted by lithium prices, geopolitics or any other host of factors. That funding certainty allows our project teams to move confidently through detailed engineering, procurement and construction execution rather than depending on a series of future stand-alone funding outcomes. And with the funding now secured, our attention has shifted to execution. We broke ground on the NAL expansion in late June, and we will continue placing orders for key long lead equipment to reduce schedule risk and maintain project momentum as we move into execution. The NAL expansion remains our highest strategic priority because it has the potential to expand our cash flow generation and improve margin durability across lithium price cycles by significantly improving our unit cost base. The updated scoping study released in May reinforced that view. Compared to the previous expansion scoping study, which looked at a single stage expansion, the 3-stage development approach accelerates initial production growth and cost reduction by approximately 2 years to deliver returns more quickly. And that comes while maintaining the same total capital intensity and allowing capital deployment to be staged to align with project development and execution. So overall, the staged approach allows us considerably more flexibility while maintaining the same long-term vision and improved outcomes. We also made progress at Moblan where we completed the purchase of the offtake rights previously held by Waratah Capital. That transaction eliminated a life of mine sales commitment that would have required selling a percentage of Elevra's annual concentrate endowment at a discount to prevailing market prices. By purchasing the offtake rights, we control 100% of our attributable production at Moblan, which is equivalent to 60% of Moblan's annual production, which gives us greater flexibility as we continue to progress the project and evaluate future commercial and financing arrangements. Our immediate priorities at Moblan remain advancing permitting and completing an updated scoping study to incorporate the significantly expanded resource base. During the quarter, we also agreed to sell our interest in Ewoyaa project. While we believe in the development potential at Ewoyaa, we view this as a disciplined portfolio management decision that will reduce our corporate complexity, bring additional capital into the business, remove future funding obligations and sharpen our focus on developing our North American asset portfolio. We ended the quarter with $255 million in cash. This included $202 million in net proceeds from the equity issuance completed as part of the strategic financing package. This amount does not include the proceeds from the issued upfront tranche for the Canada Growth Fund convertible note, which was approved by shareholders earlier this month or the proceeds from the sale of our interest in Ewoyaa. Despite the decline in realized pricing during the quarter, NAL generated a modest operating profit, which was impacted by a $51 million operating cash outflow made up of $30 million increase in receivables associated with the timing of cash receipts and an $80 million increase in finished goods inventories. Beyond this, there was approximately $10 million of cash outflows associated with capital expenditure, corporate and other expenses. Moving forward, we retain the financial flexibility to execute on our growth initiatives while continuing to operate from a position of improved strength. To conclude, we believe the June quarter demonstrates how far Elevra has progressed over the past year. Operationally, we've shown that NAL is capable of consistently delivering high levels of production while continuing to improve recoveries and operating performance. Commercially, we moved beyond the legacy pricing arrangements that affected recent realized prices. Strategically, we've secured the funding required to execute our growth strategy, commenced the fully funded NAL brownfield expansion, strengthened the long-term value of Moblan and simplified our portfolio through the sale of Ewoyaa. And with that, we will now be happy to take questions.

[Operator Instructions] Your first question comes from the line of Max Yerrill at BMO Capital Markets.

It looks like we're starting to see some of the positive impacts from the ore sorting initiatives. Do you think these head grades and recoveries are now more representative of what we should expect moving forward in the next coming quarters?

Sorry, Max. I was on mute. I was chatting away to myself. Sorry. Thanks for your question. So Max, Sylvain and the team has certainly done a lot of work around both our mining strategies, our stockpiling, ore sorting and ore blending and those benefits are being demonstrated through the improved recoveries. Probably a couple of points to note. The grades that we saw mined and processed during the quarter was still below the long-term averages of NAL. So there's increased potential there. So whilst we made excellent progress, the ore body's long-term average grade sits above where we were last quarter, which obviously gives us increased confidence in terms of the results we expect to see during the expansion as it relates to the recoveries and so forth. So again, Sylvain and the crew have done a great job, but there's still more to be done.

That's helpful. And then one more, if I may. With the old legacy contract moving behind us now and moving to the new commercial terms, is there a potential to increase the cadence of shipments with -- there's 41,000 tonnes sitting in inventory. Is there potential in the near term for a third shipment per quarter?

Yes. Max, I'll just provide a couple of comments before passing over to Christian Cortes who looks after our marketing. Well, the primary driver for the cadence of shipments that we've seen to date has been around minimizing freight. And when NAL first restarted, we were sending out 15,000 tonne cargoes, which obviously provide a more regular cadence. The issue is that it costs us probably another $60 to $70 a tonne more of freight cost by doing that. So we typically have those volumes together into larger shipments. So it's really a case of us being able to minimize shipping costs, but I'll pass to Christian for anything else you might want to add in the future outlook.

Max, yes, look, I'll first probably talk about what happened in the previous quarter. We did have a changeover on port at the end of June, which basically meant we had to shift towards building inventory at the new port. That, to some extent, limits how much volume we could move in the quarter. Saying that and putting last quarter behind us as we look for the next 6 months, those volumes on a quarterly basis will increase. I would expect to ultimately see 2 shipments per quarter, and on a combined basis, that should be somewhere between 50,000 and 60,000 tonnes. So we will see more volume as we move forward. And just adding to what Lucas was referring to, we obviously keep an eye on assessing cost benefit here. There has been ultimately an initiative to reduce the cost on the shipments. We are following the schedule with customers. So it's, to some extent, changing as we move into the new agreements. So that will allow us to assess when there is an incentive to get smaller cargoes out there with a view that we can maximize price, we will certainly do that as well.

Your next question is from the line of Reg Spencer of Canaccord Genuity.

Christian and Lucas, just after some comments on market conditions. Clearly, we've seen a pullback on market prices over the last couple of months. And I guess we could put that down to prospects of new supply coming back into the market. But demand does look robust. And at least to us, there's not a lot of obvious new supply alternatives coming into the market. So can I ask, what are your guys telling or your customers telling you with respect to their outlook for overall market conditions as you move into the second half and into '27?

Reg, thanks for the question. I think as we get feedback from different channels, call that customers, call that parties that are looking to source volume as we move forward. And in addition to that, independents are observing the market, I think it's fair to agree with how you're currently describing it. The fundamentals are still very strong. There's nothing that suggests that demand will weaken in the short term. With respect to, I guess, the reaction on the market on the buy side, yes, there are ultimately indications that we'll see more supply coming in primarily from restarts in addition to a couple of new projects gradually building our volume as we go into 2027. So my view is inventory levels continue to be relatively thin and therefore, our read of the market is a reaction towards sentiment driven of a potential increase in supply coming in the near term? Now whether that's going to come from [indiscernible] or that's going to come from restarts in Africa. I can't really tell you. But I think as we've seen DFS, DFS is already pricing that and that ultimately puts some level of pressure on spot pricing in China. But all in all, we continue to see the short-term 3- to 6-month window pretty strong in terms of fundamentals.

Right. And just last 1 from me for you, Lucas, if I can. Have you got an idea on when you might complete updated studies for Moblan? And have you guys put any additional thought into how that project might be scaled or scoped in terms of production capacity?

Yes. So Reg, we've actually awarded the scoping study for Moblan that will be delivered in this half. The key objective is really sort of twofold. One, just given the increased resource base to determine really what the optimal production level for Moblan is and just as a reminder, the previous DFS had annual production around 300,000 tonnes. The resource base has grown appreciably since then. So we expect it to support a much higher level of production. Combined with that, we also want to really sweat the approach on the capital investment and potentially whether that's staged. So that will be the primary objective of the scoping study, which we'll deliver this half. And then from there, we'll roll into an updated DFS.

Your next question is from the line of Austin Yun of Macquarie.

Just a quick question. I understand the legacy contract kind of roll off. So could you please just remind us how the price is linked going forward basis? So do we think like 1 month delay or if there's any additional sort of nuance adjustments required over the next 12 months?

Thanks, Austin. Yes, you're absolutely right. So that legacy contract is now very much in the rearview mirror for us. And now I'll pass over to Christian to describe the sort of contract terms in terms of delays and so forth on pricing periods, additional pricing periods under current arrangements.

Austin, look, it continues to be a combination of, I guess, months on pricing. However, that being said, we're no longer carrying those big lags that we described in the early report as well as on a quarterly. What do I mean by that? I mean primarily, there's potentially 2 that I can summarize here. One of them is you price on the month that you ship and that ultimately stays on the water for 2 months prior to getting to the customer. And there is a second category, which we are effectively exposed to index all the way until delivery. And you then take effectively the average of the month that you delivered on. So that will allow you to then, I guess, ultimately figure it out if you take a midpoint of what you saw in the quarter, it would effectively match that on the basis that we are shipping twice in the quarter, one at the beginning and one towards the end.

Cool. That's clear. Just a quick follow-up on the unit cost, which has been pretty good for this quarter. My understanding is that there is a bit of a favorable inventory movement. So just to strip that out, how should we think about just the pure cash cost performance for the business? Just trying to get some color for that again for '27.

Thanks, Austin. Look, probably if you were to think about it on a cost of production basis rather than cost of goods sold basis, in short, our cost -- unit cost of production was a little lower than last quarter. In short, as we highlighted in previous quarters, we have got an elevated level of stripping going on in the mining side of things, but that's been largely consistent for the last 2 quarters. So we consider that we've got a stable cost of production. Obviously, as we progress through those underground stopes over the next 12 to 18 months, effect of those incremental costs will drop away as well. It's also fair to say we've got a little bit of additional mining inventory into the system as well as we ramp up ahead of the NAL Brownfield expansion and increased milling capacity. So actual cost of production on a cost basis, actually reduced this quarter slightly, Austin, as compared to the previous quarter.

[Operator Instructions] And your next question comes from the line of Andrew Harrington of Petra Capital.

Thanks for that clear explanation on the pricing. That was going to be my first question. And my second 1 is in terms of the NAL expansion. Will there be any disruption to operations that we should look towards in the coming periods as you put the tools to work?

Thanks, Andrew, for the question. In short, no, the way that Sylvain and the project team are structuring that work is that any tie-ins we'll do during the course of regular maintenance shutdowns, Andrew. So we're not anticipating any extended or prolonged periods to be able to cut across the additional equipment that we'll be installing.

Okay. And no impact on pit operations either?

Sorry, just say that the last part again.

And any impact on in-pit operations?

The short answer is no. Again, Sylvain and the mining team have actually increased inventory ahead of that. And so one of the key elements is making sure we've got sufficient ore exposed and adequate blending options to be able to sort of maintain the recoveries that we've seen in the last quarter.