PLS Group Limited (PLS) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to P2000 Investor Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Dale Henderson, MD and CEO. Please go ahead.

Thank you, Maggie. Good morning, and good evening. Thank you all for joining us, and apologies for the short delay and kickoff. I'll begin by acknowledging the traditional owners on the lands on which PLS operates, the Whadjuk people of the Noongar Nation here in Perth and the Nyamal and Kariyarra peoples in the Pilbara. We pay our respects to elders, past and present. I'm joined today by Alex Willcocks, our Chief Financial Officer; and Paul Laybourne, our Project Director, with other members of the team here supporting us. Today's announcement marks the next chapter of value creation for PLS. P2000 continues our strategy of unlocking more value from our 100% owned Pilgangoora asset. Improved processing enables us to recover more ore and mine more efficiently, creating a larger, lower-cost operation with attractive incremental shareholder returns. Now we recognize recent price softness and volatility. In our view, shorter-term conditions are sentiment driven, and that's what's contributed to the softness. Electrification and battery storage underpin what is substantial long-term demand growth, although the pace varies across markets and applications. We continue to look through this short-term volatility and remain focused on capturing the mid- and long-term opportunity. Our investment decision today reflects our confidence. Our established operation, financial strength and expansion experience position us to invest through the cycle and strengthen our role as a reliable long-term supplier. We're investing today to meet the world's growing need for lithium, with first production expected in the September quarter of calendar year '29. Today, we'll explain the investment case, funding and delivery, and then we'll move to questions. Turning to Slide 2. There are 3 parts to today's announcement. The first, P2000. Operating experience and further test work have enabled improved processing that unlocks approximately 67 million tonnes of mineralized material previously classified as waste and converting that into economically recoverable ore. This also enables less selective, more productive mining. The life of mine strip ratio falls from 7.7 to 5.6, supporting lower mining costs. A second update. We have updated our ore reserve to 249 million tonnes, comprising this unlocked mineralized material and our maiden underground reserve. Underground development remains subject to further study and a future investment decision. The third announcement, we've announced targeted infrastructure investment to reduce costs, improve productivity and support our people over the operation's long life. These investments would proceed regardless of the P2000 investment decision and whilst they also provide capacity for the P2000 expansion. Together, these announcements support more ore recovered, more efficient mining and a larger, lower cost and more valuable Pilgangoora. Turning now to Slide 4. The operating improvements we've described underpin AUD 2.7 billion incremental post-tax NPV improvement and incremental IRR of 29.5%. These returns are additional to the existing operating profile and using consensus pricing from 11 market analysts, which generated a long-term SC6 price of USD 1,620 per tonne. P2000 is expected to take Pilgangoora to approximately 2 million tonnes per annum with the average FOB operating costs of approximately AUD 620 per tonne in real terms over the first 10 years at steady state, excluding freight and royalties. That combines greater earnings capacity with competitive operating cost position through the cycle. First production is expected in September quarter '29 within this decade, with full production targeted for approximately 6 months of ramp-up, positioning capacity beyond that for expected future demand. P2000 capital is approximately AUD 1.9 billion, including the previously approved pre-FID expenditure. Pilgangoora is 100% owned by PLS. So our shareholders retain the full economic interest in the additional value created through this investment. Turning now to Slide 5. These 2 charts show the combination P2000 delivers, globally significant production and a competitive cost position. On an ownership basis, the production chart positions PLS amongst the major global lithium producers. Pilgangoora is 100% owned, so shareholders retain the full economic interest in this production. Now the expanded operation positions PLS in the second quartile of the forecast 2030 industry all-in sustaining cost curve that you can see on the right-hand side. That combination matters through the cycle. Competitive costs strengthen our resilience in weaker markets, while greater production increases our earnings exposure when markets strengthen. Alongside Pilgangoora's long-life operating life and established capability, this strengthens PLS' position as a reliable long-term supplier. Turning now to Slide 6. Our updated Pilgangoora ore reserve is 249 million tonnes at 1.24% lithium grade, representing a 23% growth in reported reserve tonnes and a 31% growth in contained lithium. Improved processing enables more of the existing ore body to become economically recoverable. Alongside this, we have established our maiden underground ore reserve. The update also changes the reporting point to after crushing and ore sorting. This is a step to improve accuracy. As this chart shows, Pilgangoora has a substantial reserve base relative to other major hard rock lithium deposits. Importantly, the open pit reserve supports approximately 20 years of production at the expanded P2000 operating rate. This allows us to realize value faster while retaining the long-life operating life. Underground provides further potential to extend this life beyond 25 years and is subject to further study and ultimately a future investment decision. Turning now to Slide 7. This slide relates to timing. Now 4 factors support investing now. The first is attractive incremental returns. Improved processing and more productive mining unlock greater value from the asset we own, underpinning attractive shareholder returns. The second, investment in time for future demand. Building capacity takes time. Investing now positions first production for late 2029, supporting reliable supply as electrification and battery storage drive -- sorry, as electrification and battery storage drive expected future demand growth. Number three, stronger competitiveness. Lower costs improve resilience in weaker markets, while greater production increases earnings potential when markets strengthen. And lastly, number four, capacity to fund and deliver. Our strong balance sheet, operating cash flows and experience delivering the P680 and P1000 project provide a strong foundation for this investment. Moving now to Slide 8. Separately, we intend to invest between AUD 600 million and AUD 650 million in infrastructure that improves the existing Pilgangoora operation and would proceed independently of P2000. Pilgangoora's long operating life supports investment in permanent infrastructure to lower costs, improve productivity and support our people. This covers an upgrade to the access road for efficient mine haulage, a new permanent village supporting workforce well-being and retention and a new mine services facility, improving fleet availability and maintenance efficiency. Turning now to Slide 10. Our strategy is consistent through the cycle, maintaining a strong balance sheet, improving our cost position and preserving flexibility to pursue attractive growth. P2000 puts this strategy into action. We are investing from a position of strength to unlock more value from Pilgangoora and build a more competitive business through the cycle. Turning to Slide 11. This timeline shows our growth in Pilgangoora's reserve base has supported successful expansions of the operation. We have delivered the P680 and P1000 project, building practical experience in construction, commissioning and operating expansions at Pilgangoora. P2000 builds on that foundation, combining a deeper understanding of the ore body with the delivery experience gained from our previous projects. And just a quick comment on market sentiment I've been reflecting on, and I'll get to market a bit later. But when you look back at our history, most of PLS' investment decisions have occurred in times when sentiment at that moment in time was offbeat. Arguably, it's that moment in time now. It was that moment with Colina and going back in time to Altura was also a moment in each case where sentiment of the day was somewhat dour, but ultimately, the market continued to grow and move forward. And I think it's deja vu at this time. Moving now to Slide 12. This slide shows our strategy in action and the results which have been delivered. Over FY '23 to '26, increased production and strong lithium pricing enabled $2.4 billion in capital investment, $0.8 billion in dividends back to our shareholders and $1.7 billion increase in our cash balance. P2000 continues that same strategy, investing from a position of financial strength and a more competitive capacity, positioning PLS to capture future market opportunities and create long-term shareholder value. And with that, I'll now hand over to Paul to explain the project, the operating improvements underpinning this value. Over to you, Paul.

Thanks, Dale. Good morning, and good evening to everyone joining the call, boa noite to our Brazilian team. Operating experience and expertise, along with further test work have enabled us to develop an improved operating model that extracts more value from Pilgangoora. The new processing design enables approximately 67 million tonnes of mineralized contact material, previously classified as waste to become economically recoverable ore. This enables less selective and more productive mining. The life of mine strip ratio falls from 7.7 to 5.6, meaning approximately 27% less waste per tonne of ore, supporting lower unit mining costs. To capture this opportunity, Jimmagunya's wet plant capacity increases from 5 million to 6.3 million tonnes per annum compared with PFS, which equates to a 26% increase. The larger plant and greater processing capability contributes to the increase in capital requirement, but this translates into higher production and lower overall unit costs. Together, these changes create a more productive and more valuable Pilgangoora operation. Now turn to the next slide. The revised operating combines Jimmagunya's ore sorting and whole of ore flotation circuit with an ore feed strategy that matches each ore type to the most suitable processing plant. Ore sorting removes host rock before wet processing and the flotation circuit recovers lithium from the upgraded feed presentation. Further test work and operational experience have demonstrated our improved ore sorting efficiency. This has increased our ability to accommodate more host rock dilution in the mine feed while maintaining the product quality. As a result, mineralized contact material is now economically viable to process, creating value through increased ore recovery and a reduction in selective mining. Together, these changes are expected to improve overall ore body recovery by approximately 17%, increasing the recovery of the value from Pilgangoora. Next slide, please. The reserve update reflects the additional contact ore made economically viable by the improved processing flow sheet, together with the updated mining and economic assumptions. It also includes our maiden underground ore reserve of 46.5 million tonnes of 1.5% lithium head grade, providing a separate development opportunity beyond P2000. In our announcement, we have explained that we now report the reserve after crushing and ore sorting rather than at the ROM. This approach now excludes the material ejected during the sorting process, which is reflective of the reduced volume of feed material to the wet processing plants downstream of sorting. The updated reserve now totals 249.2 million tonnes, representing a 23% growth in reported reserve tonnes and a 31% growth in contained lithium. Next slide, please. Named by our Nyamal Elders, Jimmagunya means Spring Country and will be our third major processing facility at Pilgangoora. It combines a 9 million tonne per annum dry plant for crushing and ore sorting with a 6.3 million tonne per annum wet plant with a whole of ore flotation and tantalum recovery. We are targeting the 70% lithium recovery through the Jimmagunya wet plant. Our modular construction approach uses off-site fabrication and preassembly to reduce site activity, which simplifies the installation and commissioning process. This approach also reduces the size of the workforce needed on site, which mitigates the labor constraints in WA. Construction is not expected to impact production due to the minimal number of tie-ins to the Pilgan plant. First production is expected in September quarter of 2029 with full production targeted following an approximate 6-month ramp-up. Turning to the next slide. The expanded operation is expected to average approximately 2 million tonnes of spodumene concentrate per annum over the first 10 years. During steady-state conditions, we will operate 2 complementary processing facilities. Jimmagunya is optimized for processing contact material and waste rock and Pilgan will continue to process higher-grade coarse material. Ngungaju will be retained as flexible upside capacity dependent on market conditions. Matching ore types to the most suitable processing plant improves global recovery across Pilgangoora and is one of our major processing value levers. Together, this means more ore recovered, more efficient mining and a larger, lower cost and more valuable Pilgangoora. With that, I'll hand back to Dale.

Thank you, Paul. Moving to Slide 19. P2000 improves resource efficiency by recovering more mineralized material and moving less waste per tonne of ore, supporting lower carbon intensity per tonne of product. Dry stack tailings and other water-saving measures have the potential to reduce water use per tonne by up to 40%, helping limit the additional groundwater demand associated with the expansion. The project design also seeks to avoid environmental and cultural heritage impacts. Now of course, P2000 is a much larger operation. In support of that, it's expected to create a large number of jobs, including approximately 1,000 construction jobs and more than 500 ongoing operational roles. We are also working with the traditional owner groups to facilitate contracting opportunities. Turning to Slide 20. PLS combines long-life mine, competitive costs, scale and an established operating record. That makes us a dependable supply partner, a capability customers increasingly value. We are seeing strong interest from existing and prospective customers. Contracted placement capacity covers approximately 50% of forecast P2000 volumes in FY '30 that you can see in the illustration. This includes volume election rights and extension rights of PLS' election. Pricing floors under relevant agreements provide downside protection, while volume election and extension rights preserve commercial flexibility. The remaining unallocated volumes allow us to respond to demand and pursue partnerships and commercial terms that maximize long-term value. Turning to Slide 21. The operating improvements underpin an estimated AUD 2.7 billion incremental post-tax NPV and an incremental post-tax IRR of 29.5%, measured against the existing operating profile. These returns use consensus pricing from 11 analysts, generating a long-term SC6 price of USD 1,620 per tonne CIF China. The chart shows how value changes with lithium prices. For every USD 250 per tonne increase in the assumed pricing outlook adds approximately AUD 900 million to the modeled NPV. Now whilst lower pricing, of course, reduces returns, this illustrates the additional value P2000 could deliver in a strong lithium price environment. On costs, we estimate average FOB unit operating costs of approximately AUD 620 per tonne in real terms over 10 years. Our operating experience and the detailed feasibility study give us grounded confidence in the cost assumptions supporting this investment decision. Now of course, we will continue to target further cost reductions. Building on our track record of improving operating performance, we see opportunities in power, port, autonomous haulage, electrification and other technologies. These potential additional savings and other opportunities are not included in this cost estimate of AUD 620 per tonne. Also over the same period, annual sustaining CapEx is estimated AUD 40 million to AUD 60 million, with mine development expenditure averaging approximately AUD 180 million annually, both in real terms. Sustaining CapEx excludes mine fleet purchases, which are expected to be lease financed. Turning to Slide 22. Our underground pre-feasibility study has established a maiden underground ore reserve of 46.5 million tonnes at 1.5% lithium grade, included in the updated Pilgangoora reserve. Combined open pit and underground mining could supply all 3 processing plants supporting average production of approximately 2.2 million tonnes per annum over the first 10 years at steady state and extending the operating life beyond 25 years. This provides further growth potential beyond P2000. Underground development is excluded from the P2000 approval, capital estimate and financial outcomes. A separate feasibility study is to follow ahead of any future investment decision and of course, subject to market conditions. Turning to Slide 23. Pilgangoora has further geological potential beyond the existing mineral resource. Our updated exploration target includes unclassified pegmatite and the bridge zone that you can see in the red box. The target remains conceptual and is uncertain whether further exploration will establish additional mineral resources. We plan to test these opportunities through a staged multiyear RC and diamond drilling program commencing in the March quarter of '27. Now to Slide 25. Moving to our enhanced infrastructure. These infrastructure investments improve the existing Pilgangoora operation and would proceed independently of P2000. Upgrading and sealing the 24-kilometer Wodgina Road East enables higher capacity ultra-quad road trains, requiring approximately 35% fewer concentrate haulage movements for a given volume. We also like to thank the Western Australian government, who today has committed AUD 11 million towards the intersection upgrade of this road. We'll also be working with the state government and federal government to explore further funding for this public section of the road. This road upgrade is expected to lower transport costs, road maintenance and water use for dust suppression. Completion is expected late '28 for this road. Moving to Slide 26. The new 1,200-bed cyclone-rated village will replace the dispersed accommodation we have approaching its end of -- which is approaching its end of life with progressive operational use expected from late '27. The better accommodation and amenities support workforce well-being, attraction and retention. Relocation also enables the potential for more efficient waste placement and haulage, improving mining flexibility. This investment benefits both our people and the productivity of the existing operation. Moving to Slide 27. The new 8-bay mine services facility will accommodate larger haulage equipment and support our owner-operated mining model. It enables major life cycle maintenance on site, improving maintenance efficiency and equipment availability while helping reduce costs. The facility is sized for the larger waste fleet and for the 20-plus year life of mine requirements, as I said, enabling major life cycle maintenance to be undertaken on site. Now with that, I'll now hand over to Alex to take you through the investment profile and our funding approach. Over to you, Alex.

Thanks, Dale, and good morning, everyone. We are taking the P2000 investment decision with a strong funding foundation in place, which reflects the disciplined capital management decisions taken by the business. Our existing cash balance of AUD 2.3 billion, together with future cash flows generated from the P1000 investment underpin the upcoming capital program. The project capital of approximately AUD 1.9 billion for P2000 and AUD 600 million to AUD 650 million for enhancing infrastructure will be phased over 3 financial years and includes previously announced pre-FID funding of AUD 175 million. We have outlined on this slide the approximate timing of that spend by financial year across both areas. We have taken deliberate choices to structure the balance sheet to allow for long-term investments such as P2000 while ensuring we maintain strong liquidity and capacity through the investment cycle. Our access to a range of funding options has continued to mature with the U.S. high-yield bond now in place alongside our undrawn AUD 500 million RCF. We will continue to periodically assess debt funding opportunities against our capital requirements as well as market conditions, and we'll seek to ensure that we preserve optionality to undertake future growth. We remain committed to the core principles of our capital management framework, including franked dividends where consistent with that framework and subject to Board discretion. Turning now to Slide 30. We have updated our FY '27 CapEx guidance to include the P2000 and enhancing infrastructure capital expenditure we've announced today. This reflects the phasing of expenditure that we've outlined on the previous slide. As mentioned, these numbers are inclusive of the previously announced pre-FID expenditure, which related to spend up until the end of October. I'll now hand back to Dale.

Thanks very much, Alex. Turning to Slide 32. Recent weeks have been another reminder of how quickly this market can move. Lithium is still a young capital-intensive industry that is scaling rapidly. Demand can move quickly, but supply responds slowly and the capital is cyclical. That combination makes volatility structural, and we expect it to continue. Prices do not always follow fundamentals. Sentiment, short-term flows and policy headlines can push the market well above or well below where supply and demand would suggest. We have seen that in both directions, and we expect this to continue as the market matures. The industry cost curve, however, provides a critical insight into price sustainability with many lithium producers operating at higher costs than the current spot price, as can be seen in the curve on the right-hand side. It creates a structural challenge for the industry. Higher cost producers will struggle to maintain production at current prices, constraining supply growth as demand continues to compound. Moving to Slide 33. The long-term fundamentals underpinning global electrification are compelling. Battery costs have fallen by around 90% since 2010, making electrification increasingly competitive on economics rather than incentives alone. We are seeing that in electric vehicles. In September, more than 1 in 4 vehicles sold globally was electric, with penetration reaching 26% as estimated by Benchmark. Storage is also growing rapidly as well. Global battery energy storage investment was around USD 80 billion in last calendar year, and the IEA expects it to exceed USD 100 billion this calendar year. Behind both, it's a rapidly changing electricity system. Under the IEA's stated policy scenario, global electrification generation increases by more than 50% to 2040 with solar and wind reaching 46% of generation. As that share of intermittent generation increases, so does the need for energy storage. The demand for lithium is also diversifying away from China by proportion. Ex-China EV sales are up 29% year-to-date to September 26 and now make up almost 50% of global EV sales, up from 38% a year earlier and closer to an even split. The shift is even sharper in storage. Ex-China battery energy storage installations are up 67% year-to-date and now account for 60% of global installations, up from 50%. A market that was once concentrated in one country is increasingly driven by demand across the rest of the world. So the takeaway here is this is becoming a global industry. China, without question, has been the force of demand, the force of manufacture. But as noted, with these stats, this is absolutely becoming a global market and the rest of world growth, particularly is quite impressive. And just to cite one additional quick stat, rest of world EV growth year-to-date is up 117%. So albeit a smaller base, that growth is rampant. So in combination, these demand drivers translate directly to lithium consumption. Benchmark Minerals Intelligence September forecast outlines annual compound growth rate of 8% to 2040, reaching approximately 5.3 million tonnes of LCE or roughly 3x the size of the market today. Turning to Slide 34. Now meeting this demand is becoming harder, not easier. Development time lines have lengthened materially with new projects increasingly complex, capital-intensive and slower to deliver. In that environment, established long-life assets become scarcer and more valuable. We call this combination reliable supply. Now PLS has a long track record of project execution, operational excellence and supply reliability. P2000 is set to extend that record, adding scale, further low-cost production, consistent product quality and reliable supply from our long-life asset here in Australia. And just to share a quick anecdote, PLS continues to receive inbound requests, and there is 3 major Asian conglomerates seeking enormous volumes, and we take this as the strongest marker of the trajectory of the industry. And if you're looking for further evidence, I would cite our price floors, our prepays, you name it, there is strong evidence of the trajectory of this industry. And for these reasons, we're stepping forward with this investment today with strong level of confidence. We are here to capitalize on this incredible growth market. Moving to Slide 36 for some final closing reflections. P2000 continues our strategy of unlocking more value from our 100% owned asset portfolio. Approved processing unlocks 67 million tonnes of previously uneconomic mineralized material moving into a recoverable ore, and it enables more productive mining. This creates a larger, lower-cost operation with attractive incremental shareholder returns that we've outlined today. Now we recognize the recent market softness and volatility. But as mentioned, we've got confidence in the long-term demand for electrification and battery storage. We are investing today to meet the world's growing need for lithium with first production in the September quarter of '29. And as Alex has outlined, we are investing from a position of strength. Our established operation, balance sheet, operating cash flows and expansion experience provide the foundation to deliver P2000 and strengthen our role as a reliable long-term supplier. More ore recovered more efficient mining, delivering a larger, lower cost and more valuable Pilgangoora. At this point, I'd just like to thank the team for the huge amount of work over the years building to this point, and thank you to our shareholders for your continued belief in PLS, the team and this market. And with that, Alex, Paul and I will now be pleased to take your questions. I'll now hand over to Maggie to open the line. Thank you, Maggie.

[Operator Instructions] First question comes from the line of Austin Yun from Macquarie.

Good to see the project has been approved and demonstrate the ability to perform through the cycle. Just take note of your comment that you will revisit the recent and the past cycles and appears that the company can make a strategic move to make inorganic acquisition, whether it's Altura or Colina. Not sure about your assessment of the current cycle, but keen to get your view on buy versus build and the company's thinking in that space, please?

Austin, thanks for the question. Well, yes, look, as you've heard today, we had a huge focus on growing the existing asset portfolio. That's what today is about. And we've always described this as our sort of second pillar of our strategy, making the most of the incredible asset portfolio. So of course, that's what this investment announcement today is about. Have we got an open mind for further inorganic growth? The answer is yes. Of course, we are set up for that, and we'll continue to run the ruler on opportunities as these things progress. But we won't grow for growth's sake. We will continue to be highly selective and highly discerning if we were to pursue anything else. But as I say, we'll continue to run the ruler. And look, in a volatile market like lithium, it does present opportunities from time to time. And I think we can say Colina and Altura are examples of that. So look, if the right confluence events occurs in the future, who knows? We'll see. But as I say, we need to be accretive for our shareholders, and it's not a priority focus relative to our other strategic pillars. Thanks, Austin.

Can I just ask a quick follow-up, please? Just on the P2000, conscious of the current market dynamic, but you do mention that there are a strong interest from the market on offtake and different sort of supply contracts. Would you be interested to progress those discussions now? Or would you wait rather later when the sentiment has been repaired? But given that you also have some capital commitment coming, how do you balance those 2 considerations?

Yes. No, thanks, Austin. Great question. And look, what we've chosen to do is to set ourselves up for the full spectrum of opportunities. And as you've seen with our sales profile today, it's part committed, part uncommitted. So that enables us to consider opportunities. And in care of the strong balance sheet we've built, we are not under pressure to make any commitments in a rush. We have shored up the order book through a part committed strategy. Strong balance sheet enables us to take our time, but the doors remain open. So we'll continue to assess current offers and we'll continue to assess future offers. And we will remain focused on, of course, landing what we think is the most attractive set of outcomes for our shareholders. And we love the idea of continuing to build on our recent track record of price floors, premiums, options at PLS' election. If we can continue to build on that, well, of course, we love the idea of that. And look, we'll see how we go.

Next, we have Lyndon Fagan from JPMorgan.

I just wanted to touch on the open pit mine life. So now that we've got a new reserve and resource, Dale, just keen in your comments around that 20-year number that's given. Is the upside on that reliant on that bridge zone coming through with additional material? Or is there somewhere else that could help extend the open pit? And I guess as a related question, it's interesting seeing a full design of the underground mine in Slide 22. When would you envisage that to start up, assuming market economics were supportive?

Great. Thanks for the question. So the reserve is not dependent on that bridge zone. We've provided a waterfall of what's generated sort of this increase. So that's available to you. But yes, for the avoidance of doubt, the bridge zone is not part of that. The bridge zone is potential future volume upside. Now lots of drilling to go to work out if there's something there. But when you look in the rearview mirror, the history has been the more we've drilled, the more we've grown the Pilgangoora asset. It's an incredible system, 10 kilometers of strike length. And as we've gone deeper, well, guess what, we've found more. And that is really what's led us to exploring the underground opportunity. And the pre-feasibility study outcomes that we have included today are, of course, PFS and the ink is only just drying on that. And really the next step is to move to the feasibility study. So no time lines around any of that. What we've got in front of us is, of course, a very long-life open pit mine that's going to keep us well and truly occupied in the near term. And you really need to progress those studies before we work out the when and the how on underground. But -- and by the way, a lot more drilling to go as it relates to underground as well. So there's quite a profile of work ahead of us there. But again, it just underscores the incredible quality of this asset that we have the privilege of expanding and growing.

Yes. Just to clarify, so the 20 years, I was aware that, that didn't include the bridge zone. But in terms of thinking about where the open pit could get to in terms of mine life, whether it's 25, 30 years, like what would -- what is there out there? Is it just the bridge zone? Or is there other areas that you're drilling out that could see the open pit growing in terms of years?

Yes. Look, too hard to say. I mean the drill bit is the truth finder as the geos would say, and we've really got to let it do its work. So what we've got reasonable confidence that there's something there is the bridge zone based on. You can see from the cross-section, the indicators. We really need to get drilling on that. Can we extend the ore body further north, south, east, west? Well, over the years, we've done a fair bit of that. So I think the probability of further extension is probably less likely. But as it relates to underground potential, I think we are reasonably confident that there's more to be had there based on the few deep holes that we've done and what that guides us. So again, time will tell, more drilling to be done. And I certainly couldn't give you a view of what would that equal in terms of volume and mine life. But as I say, the history has been one of continued drilling is equal to continued resource growth. And hopefully, that trend continues.

Next, we have Hugo Nicolaci from Goldman Sachs.

Firstly, congrats. Obviously, it takes a lot of work across the team to get to this point. Plenty of questions, but maybe the 2 key ones for me to begin with. First, on unit costs. You've noted a lot in the presentation around reducing unit costs and improving productivity. However, if I look at the study outcomes, you've essentially guided expansion in unit costs to be flat in real dollars versus FY '27 guidance, which is inclusive of the Ngungaju ramp-up, even though longer term, you're idling the higher-cost Ngungaju plant, doubling site production, assuming diesel prices correct and growing the tantalite byproduct. So can you just talk us through the moving pieces there and why you're not expecting a real unit cost benefit from the scale and productivity improvements?

I'll take that one. There are really 3 different factors that play into the unit cost. And I think importantly to realize that the period of time that we've provided the AUD 620 guidance for starts in FY '31 and goes through to FY '40. And so whilst you're right, it is on a real basis, it is important to realize that it is a different period of time, and therefore, it relates to a different mining profile. And what that means, and as you know, we do experience higher mining costs as we progress through different pit stages and strip ratios. And so that's why it's really difficult to be able to compare it on a like-for-like basis with today's costs. The other part -- so given that comparison is difficult, the best comparison is to the PFS range, which when adjusted for inflation since the PFS, sat between the AUD 600 to AUD 700. And so obviously, the AUD 620 sits towards the very bottom of that range that we previously thought. The other piece is that the unit cost really only unlocks part of the value. So the feasibility study, as we've said, also unlocks more ore. That supports the higher production over the long mine life. And it really means that, that change in mining and processing configuration just adds complexity when you're trying to compare it like-for-like, but it also means that, that additional production and lifetime just generates obviously more cumulative cash in total, and there are some really significant benefits. The third piece is the AUD 620 that we've provided, we have deliberately drawn on demonstrated operating costs, and then we've adjusted for the expanded operation. But we have taken sort of proven costs to ensure that we've got a really solid sound basis for an FID. Now we do see that there's further opportunities for cost out through power port, autonomous haulage, electrification and some other technologies. But for the purpose of this FID decision, we've excluded all future benefits. We're naturally targeting additional reductions, and we continue to build on our strong track record through the Cost Smart program of delivering those. But for the purpose of making an FID decision, we felt that this was a more appropriate conservative basis.

Got it. And then maybe the next question on CapEx and maybe in 2 parts. You've given the AUD 1.9 billion for the new plants, the AUD 600 million to AUD 650 million on enhancement works. You told us that longer term, the mine stripping rates once in steady state, AUD 180 million. Can you talk us through what you have to spend over the next 3 years to essentially double the ore output out of the mine? Is that AUD 250 million to AUD 280 million this year on the cutback? I mean, should we just think about dragging that to the right maybe for the next 3 years? And then if that's the case, this project all in with the enhancement works is essentially AUD 3 billion and change. How easy is it to potentially demobilize or slow down the project if we see lithium prices continue to fall from here?

Hugo, let me take the first part on CapEx and mining costs. And it's a really important piece of this is that because with P2000, the ability to process more of the ore body changes. What it means is that there is not a fundamental difference between the mine plan of P2000 and P1000. The amount of material being moved is really broadly the same amount. So -- and that's why we haven't called out mine development as part of these broader project costs because there just isn't a fundamental feature. The mine plan is pretty much unchanged. We have said, obviously, for this financial year, the mine development is higher than what we've seen previously. And we are expecting the strip ratios under the P1000 strip ratios, we've called out that they were going to be higher over the next couple of years. As it comes to FY '28 and FY '29, we'll provide that mine development cost at the right time in the way that we normally do with annual guidance.

And just a quick add-on for me, Hugo. As Alex has said, this is quite a big operational shift. And arguably, maybe this is the next generation for hard rock extraction and processing, where we're leveraging a bunch of new processing tools for more ore body capture. And as Alex said, it's not a significant change to mine plan at all. There's a strip ratio improvement, which is brilliant, but a big sort of operational strategy shift, which is value accretive. To the point on in the event of down cycles or want to preserve cash, the good news is as a function of our strong balance sheet, we control all the levers. So firstly, we're well funded, as Alex spoke to, and that enables us to have flexibility around the deployment of capital for the project. We're not on the hook for a particular offtake or financing structure, et cetera, et cetera. But -- and then because of that, well, all of the levers are at our disposal around timing of capital. So we could hypothetically defer capital expenditure if we chose to, which we did do historically when we were a smaller company and we did not have the balance sheet strength. But we're not looking to do any of that, of course. We're setting ourselves up to execute, deliver and build this larger production base to enjoy future price improvement.

Next question comes from the line of Ben Lyons from Jarden Securities Limited.

Just another buy versus build question and acknowledge your comments to Austin's question earlier. But -- and I'm not questioning the countercyclical nature of this investment decision at all. But from my perspective, I guess, just noting some relatively modest return metrics, particularly given that assumed long-term real price of USD 1,620, so 30% IRR for a AUD 2.5 billion investment plus mine development plus the lease commitments for the [ Yellow kit ]. Dale, you're blessed with one of the most sophisticated BD teams in the industry. And intuitively, I would have thought that running USD 1,620 through a range of different current producers or near-term high-quality development assets would deliver somewhat higher returns than that 30% IRR that's been disclosed today. I recognize that speed to market is probably a key consideration here as is the lower risk profile from investing in your own asset, which you know better than anybody else. But just interested in probing a bit more on your perspectives on the relative returns from P2000 versus outbound asset acquisition process.

Yes. Thanks, Ben. And on behalf of John and the team, thank you for the compliment of the BD team. They're going to have a really big hit. Look, you've kind of answered the question there that in terms of speed to market risk profile, look, we think this is the best deployment of PLS' capital. We've got the approvals. We've got the know-how. We've got the team. We've got world-class infrastructure, stone throw from port. What more could you ask for? And our view is this market demand is compounding very strongly, supply isn't. That has to set up a mismatch opportunity, and we've seen that historically. To exploit that opportunity, what do you need? You need low-cost tonnes, not a promise of low-cost tonnes. You need volume ready to go out to market in those high price cycles. This is exactly what that achieved. So it's actually part of the reason that we chose to do an NPV continuum in the pack so that people can pick their number in terms of long-term price. But of course, as you know, Ben, it's not an average flat price. It's anything but, and what we've seen in the market is we see this habit of catapulting from one extreme to the other. And as those -- and you need to be there for those upward movements. So that's really the big opportunity we think we can unlock. As to the idea of continuing to run the ruler on other things, yes, we'll continue to do that as well. So John will continue to be busy.

Next, we have from Kate McCutcheon from Bank of America.

Two questions just on the mining side. So what does the total material movement profile look like in terms of that peak total material movement? And the fleet, you're not including that in the CapEx number. So how do I think about that leasing cost that will sit outside that swap cost number that you've given us today?

I might ask Brett to comment a little bit on the TMM profile, and then Alex can speak to the fleet part of the question. But as Alex has kind of alluded to on the mining, the profile is very similar and one of the advantages of the larger operation does actually allow a bit of an evening out of volumes. But Brett, do you want to talk conceptually about the profile, noting that we haven't given any numbers on this?

Yes. There's a couple of things, as Alex said to it as well is that the ability to bring in the additional 67 million tonnes of mineralized waste now into an economic ore kind of changes how much material we have to move, because we have to move it anyway, so we can deliver that to the new plant. So that helps to broadly keep our movement very similar to the P1000. We also have the benefit of -- which probably goes into the leasing question of, we will start to use larger sized fleet. So the 240-tonne trucks and the 600-tonne excavators, which will keep our efficiencies up and our costs down. So realistically, backing up what Alex said is our movement in the stripping is very similar to the P1000, broadly in line. There's nothing that's coming forward as a huge wave or anything. We've been pretty outward in the fact that we've always been having a keen eye on making sure we're doing enough.

And in relation to the second part around -- as we've called out, the HME fleet will grow as just the general mine plan grows. That isn't included in the capital numbers. We plan to continue to use lease financing for that. But as you look out over the next 2 to 3 years, our total sort of lease liability related to the HME fleet is expected to increase by about $150 million in total over that 2- to 3-year period. And obviously, it will just be phased based on the exact timing of the different equipment coming in.

Okay. Okay. I guess I was looking for like 1 million tonnes move number peak, but that's okay because they're big volumes to mine. And just in the study, I guess there's nothing in there on the port. I guess '29 isn't that far away. Port Hedland is pretty jammed. Just remind me where are we at with Port Lumsden time lines there and who is going to pay for that?

Yes. Kate, it's Paul Laybourne here. So couple of parts to your question there. The PPA are fully responsible and accountable for the build and the funding of those works. The publicly available information is that the latest forecast is that Lumsden will be operational on the second half of 2027. We have ongoing meetings with PPA from an operational point of view and also from a project perspective, and that is the live information that we receive.

Next, we have Matthew Frydman from MST Financial.

Firstly, can you, I guess, explain or maybe give a little bit more reasoning behind the decision to idle the Ngungaju plant as the base case? I guess as it stands and as we've talked about, you've got a 20-year life on the open pit reserves, and you've talked about the potential upside there. Yes, I guess it begs the question, why not have Ngungaju running in your base case? Is that a market-based decision? Or is there some other factor there? Like does that plant require some capital investment to prolong the life? Or should we be thinking about this as there's some immediate upside here to this FID base case, assuming market conditions are supportive of that plant running?

Yes. Thanks, Matthew. Yes, we've taken, I guess, you should say, a conservative approach to the role that Ngungaju could play. And part of that's informed by our history that it has been really the incremental capacity that we've toggled on when that makes sense for market. And of course, the recent history is exactly that. So we see that as probably the future of that facility that we will toggle on when market conditions are appropriate. Obviously, we need to have the mine at the right spot in terms of sufficient mine feed for 3 plants. But as you can appreciate, its relative contribution is rather small. 2 million tonnes per annum, it's a 200,000 tonne plant, of course. So it's yes, not -- it's meaningful, but it's smaller. And of course, it's a higher cost facility. It doesn't have the whistles and bells that we have installed in Pilgan or will be coming as part of the Jimmagunya plant. And nor does it make any sense to invest in those whistles and bells given the sort of the base infrastructure layout. So we feel we've optimized it to its right sort of sweet spot, if you will. And yes, as market conditions in the mine supports, we will bring it on and bring it off as that makes sense in the future.

Got it. And then maybe if I could follow up, I guess, on that question of sensitivity to price in terms of production and also some of the prior discussion on, I guess, the kind of return metrics and hurdle rates at certain price assumptions. If I use your sensitivity, your NPV sensitivity, you can back calculate that the kind of NPV breakeven of this investment is around USD 900 a tonne. And obviously, that doesn't factor in any risk to CapEx or OpEx or any of those sorts of error bars there. I mean clearly, everyone has a view on what the right long-run price is. But if you just look at the chart on Page 32, it suggests that probably the price has been at that sub-$1,000 a tonne level more often than not at least in the last 7 or 8 years. So I guess the question is, is there more to do there in terms of signing more floor price agreements or more kind of structures that support the return metrics of this project or even maybe as you just kind of discussed, underpin the kind of ongoing or consistent operations of Ngungaju? I guess, how do you think about what needs to be done to kind of derisk and support the returns from this pretty large capital investment?

Yes. No, great question, Matthew. And it really gets to the heart of how do we think this market is going to evolve? And does the history of what we've seen is that representative of the future? And who knows is the answer, but on the balance of probability, the market has continued to shift significantly. So if I just reflect a little bit on the past, and then I'll talk to what are we focused on in terms of our controllables. So if you look back in the past, the most recent down cycles and the more significant ones, lithium pricing for spodumene concentrate hit a low of about $600 a tonne mid last year. I think that was the bottom point. That was double the low point of the previous down cycle, which went down to USD 380 per tonne a couple of years prior. So we saw a doubling of that low point. So if we think forward and say, what does the bottom of the next down cycle look like, it seems more likely than not that the future down cycle could be something much higher. And why would you think that? Well, when you look out for the supply side responses by proportion, there's fewer low-cost add-ons coming in. In fact, what we're seeing is a building out to the right side of the cost curve. So look, who knows what happens, but I wouldn't be surprised if we see broadly speaking, a movement upwards in terms of pricing. And certainly, the long-run averages that we're seeing sort of support that trend as people rerate their sort of predictions of the future, but time will tell. But for PLS, we're not really guided by that. What we're guided by is fundamentals. So we're really focused on how do we continue to drive cost out of the business structurally. And what we're investing in today achieves exactly that aim in terms of lower strip ratio, more smart in the processing, more scale, et cetera. So that pushes us further to the left of the cost curve, and we're going to continue to do that. And as flagged, there's other cost-out initiatives, which we touched on that aren't built in. So we'll keep focused on that. And of course, we can do it with a 20-plus year mine life. So we're going to keep focused on that. But also, and as you touched on, we'll do everything we can to protect ourselves. So price floors, prepays, you name it, I will take the lot, and we'll endeavor to land everything we possibly can to protect ourselves from potential downside futures.

Next, we have Thiago Ojea from Citi.

I think my first question is related to the balance sheet. So assuming that the current spot prices in our numbers, probably you would have like a negative free cash flow for '27, '28. Of course, it's our estimate, we can be wrong. But just for the sake of argument, assuming that this is the case, we would be sitting probably under $1 billion in terms of cash position after that. So I'm just curious what kind of level would trigger a draw on that or what kind of minimum cash balance would you consider that? That would be my first question.

Thiago, thanks for the question. When we think around funding and the balance sheet, really important that we're starting from a very strong position given the cash that we've already got on hand and the future operating cash flows that particularly at today's spot price continue to produce strong operating cash flow. As you rightly called out, under this amount of capital investment on a complete total free cash flow basis, it will be negative to fund the investment program, but we feel that we're well set up to do so. We also have, as you know, in addition to access to the high-yield bond market following the inaugural issue, we do have a $500 million undrawn RCF in place. And we also continue to have strong interest with government-backed funding agencies as well that we always maintain a good dialogue with. In terms of the broader question around sort of liquidity and how we think of that, we will naturally take a more conservative stance. It's been a strength as our in the future in the past, and we don't see that changing in the future. And so we will watch closely our minimum liquidity, and we're really confident with the current cash that we've got in hand plus operating cash flows that we're well set up. And as you say, we've got a breadth of other opportunities and options available to us.