Pilbara Minerals Limited (PILBF) Q4 2024 Earnings Call Transcript

Pilbara Minerals Limited (OTCPK:PILBF) Q4 2024 Earnings Conference Call July 23, 2024 7:00 PM ET

Company Participants

Dale Henderson – Managing Director and Chief Executive Officer
Luke Bortoli – Chief Financial Officer

Conference Call Participants

Kaan Peker – Royal Bank of Canada
Rahul Anand – Morgan Stanley
Kate McCutcheon – Citi
Rob Stein – Macquarie
Timothy Hoff – Canaccord Genuity Corp.
Hugo Nicolaci – Goldman Sachs
Alistair Harvey – JPMorgan Chase & Co.
Levi Spry – UBS

Operator

Good day and thank you for standing by. Welcome to the Pilbara Minerals June Quarterly Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please note, Pilbara Minerals will be taking one question per person with one related follow-up question permitted. [Operator Instructions] Pilbara Minerals will be taking some questions from the webcast towards the end of the call. Please be advised that today’s conference is being recorded.

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

Dale Henderson

Thank you, Maggie, and a warm welcome to those who have joined us on the call today, in particular to our long-term shareholders. Thank you for your ongoing support.

I’d like to begin by acknowledging the traditional owners on the lands in which our businesses operate, the Whadjuk people of the Noongar Nation in Perth, where we are undertaking a call today. And the Nyamal and Kariyarra people where our operations are located in the Pilbara. We pay our respects to their elders past and present.

With regards to introductions, I’m joined on the call today with Luke Bortoli, our CFO. Also in the room, I have a number of teams supporting the call. For the call today, we have an hour and we’ll step through a presentation, followed by a Q&A with the remaining time. We’ll aim to keep our comments brief. We have approximately 25 minutes for analyst questions and five minutes of questions from webcast.

Now the June quarter. Well, the June quarter was one of strong operational performance and on track of project delivery. In fact, it was a record breaking quarter to close out what has been a very successful growth year for the company. Now as all of you will be aware, it’s been a softer market to operate in. We’ve had a decline in pricing through 2023 than in the December quarter last year, but was still declining. As we went into March quarter of this year, we saw a reversal on that trend and then it’s essentially been flat pricing since.

Now the team has kept focused on controlling what we can control, disciplined delivery, delivering on our commitments and the June quarter speaks to exactly that finishing off what has been a very strong year of performance.

Moving to Slide 2 for the highlights. Here we are. So 26% increase in production to 226,000 tons achieved through strong throughput, strong run time and healthy lithium recoveries averaging at 72% for the quarter. 43% increase in sales to 236,000 tons. This step-up is a function of shipment timing and strong production volumes.

Our 12% reduction in unit operating costs from the combination of volume uplift and ongoing cost down efforts. As to revenue, a 58% increase owed to the strong volumes and small improvement in average pricing. Pricing for the period was slightly up at the start of the quarter before leveling.

As it relates to the projects area, the expansion pre-feasibility study, the P2000 project was delivered, offering the potential of 2 million ton per annum future production capacity, a highly accretive project delivering optionality for the business and positioning Pilbara as a supply partner of choice.

Also, the projects category, the P680 and P1000 projects tracking on time and on budget. Great to see the scale expansions moving forward safely and with momentum. This brings me to guidance for FY2024 and FY2025. I’m pleased to advise and confirm that FY2024 guidance was achieved and exceeded across all metrics. As it relates to the FY2025 guidance, we have taken the decision to bring this forward and releases today.

The basis of this early guidance is due to the unique year ahead. We have the combination of expansion project integration in combination with continuing to drive operational and efficiency improvements. We’ll take you through this shortly.

Now I’d also like to note, for those who are reading the word document under the section of guidance, Table 1 and Table 2 of the document, the unit cost units are incorrect. This should be Australian dollars per ton, not U.S. dollars per ton as currently listed. So we will get that correction out very shortly, if it’s not far out. Not already out at this time. Apologies for that correction.

Now moving to Slide 3. As it relates to safety, pleased to report further improvement in safety with the reduction in TRIFR from 3.73 in the prior quarter to 3.63 for the June quarter, a lead indicator for safety interactions also trending well above target.

Moving on to Slide 4. Strong quarter for production performance where the build capacity and optimized capacity of the P680 primary rejection facility are yielding strong benefits during the quarter. Five points for the quarter included a solid lithium recoveries of 72%, on plan mining performance of 9.2 million tons versus March quarter of 9.3 million tons. And a huge quarter of sales was 235,000 tons, well done to Melody and all the shipping team.

Moving now to Slide 5. The P2000 project, a quick reminder of this, we announced our P2000 PFS. It’s a highly accretive project offering, highly value accretive returns with an IRR of 55% provides expansion optionality. It provides further improvement in unit operating costs, and of course, that affords potential partnership opportunities to which we have a number of major partners are making inquires.

Now I’d like to stress, we will only expand when this expansion makes sense for our shareholders and partners, of course, taking into consideration the market outlook. Pilbara Minerals’ growth strategy to date has been one of phased and incremental step-ups with the market. We will continue to follow this philosophy. This potential expansion presents a powerful option that reinforces Pilbara Minerals position as one of the leading scale, low-cost operators globally. Next step is the next level of feasibility study, which is during the December quarter next year.

Now moving to Slide 6, for a quick update on our joint venture with POSCO. Our progress with the downstream joint venture with POSCO is progressing well. Initial production volumes of technical and battery grade lithium hydroxide were produced during the quarter. And Train 1 achieved 45% of nameplate targeting full capacity by the end of September quarter. Train 2 commissioning activity is expected to commence in the second half with ramp-up scheduled for next year.

Now moving to Slide 7 for FY2024 guidance. As I mentioned in my opening remarks, the outcomes against guidance were very pleasing with all metrics meeting or exceeding the targets we were chasing. This is a fantastic set of outcomes of what’s been a challenging year building out the base. It’s timely to reflect that scaling up any operation is bloody difficult. This has made more challenging when it’s in a remote location and even more challenging when it’s a hard-rock lithium operation where there is limited expertise.

The Pilbara Minerals team has really delivered. The team at Pilbara has both lithium project delivery and lithium operations know-how accrued over six years of operation and a unique culture focused on outcome delivery care of our great people. To this end, I’d like to thank the full team of Pilbara Minerals and our contracting partners whom have pulled together to deliver these fantastic outcomes.

Special thanks to Brett Mcfadgen and his operating team, our projects team and all the back office support that has come together. Great set of results delivered by our great people.

Now with that, I’ll now hand over to Luke for a review of the June quarter financials. Over to you, Luke?

Luke Bortoli

Thank you, Dale, and good morning, and good evening to those on the call. Please turn to Slide 9 of the presentation for a summary of the group’s key financial metrics for the June quarter.

The group was pleased with its performance in the June quarter across both physicals and costs. Group revenue in the June quarter was $305 million, a 58% increase from the March quarter. This was driven by a 43% increase in sales volume, combined with a 4% higher average realized price.

Average realized price increased from US$804 per ton in the March quarter to US$840 per ton in the June quarter. Production volume was 226,000 tons in the June quarter, 26% higher than the prior quarter. As previously disclosed, FY2024 production volume was weighted towards the second half of the financial year, in line with the ramp-up of the P680 primary rejection facility.

June quarter performance was underpinned by the P680 primary rejection facility, fully ramped up and operating at optimized levels. Sales volume was 236,000 tons, 43% higher than the March quarter. This period-on-period increase was higher than production volume and was enabled by focus on optimizing shipment timing before year-end and utilization of our inventory stockpiles.

Looking at unit costs. Unit operating costs on an FOB basis improved by 12% in the June quarter compared with the March quarter to $591 per ton. This improvement was driven by production and sales volume enabled by the P680 primary rejection facility. Importantly, unit operating cost FOB of $591 per ton is lower than both the March quarter at $675 per ton and the half-year period ended 31 December 2023 at $691 per ton, showing a trend of improved unit operating cost performance throughout FY2024.

On a CIF basis, unit operating costs were $733 per ton in the June quarter, a 7% reduction period-over-period. This reduction was driven by the improvement in unit operating costs, partially offset by an increase in royalty expenses from higher average realized prices and sales volumes. Finally, the group’s cash balance at 30 June was $1.6 billion and remains strong. I’ll speak more about this on the next slide.

Turning now to Slide 10. The group continues to maintain a strong cash position with a closing cash balance of $1.6 billion as at 30 June 2024. The June ending cash balance was $156 million lower than the prior quarter, primarily due to continued growing capital expenditure primarily directed towards the P680 and P1000 expansion projects.

Focusing on cash margin. Our cash margin from operations defined as receipts from customers less payments for operating costs was $123 million in the quarter, reflecting the strong cash generation of the business notwithstanding the lower spodumene prices we see today. In addition, cash margin from operations less ongoing CapEx being capitalized mine development costs and sustaining CapEx was also positive in the quarter at $59 million.

Turning now to Slide 11. Slide 11 provides a summary of the group’s key financial metrics for the full-year ending 30 June 2024. Full-year 2024 performance is headlined by a set of strong results, again, notwithstanding the lower price environment. This includes $1.3 billion of revenue as well as positive cash margin from operations. As Dale mentioned earlier, guidance was also met.

Group revenue of $1.3 billion in FY2024 represented a 69% decline on FY2023, almost entirely driven by the 74% lower average realized price period-on-period. It’s worth remembering that the FY2023 period captured the historical peak in spodumene concentrate prices with an average realized price in that period of US$4,447 per ton versus US$1,176 per ton in FY2024.

FY2024 delivered production of 725,000 tons of spodumene concentrate produced, 17% up on the prior period. This was also approximately 105,000 tons higher than the prior year and exceeded the top-end of guidance for FY2024 by approximately 35,000 tons. Again, this was achieved through expansion of P680 with peak Q4 performance underpinned by the primary rejection facility.

Moving down to costs. Unit operating costs on an FOB basis was 7% higher in FY2024 at $654 per ton. This increase period-on-period reflected the previously disclosed advanced investment in operating costs to support P680 commissioning and ramp-up and was in line with our guidance.

As mentioned earlier, the investment in production-related costs to support the ramp-up of P680 is now delivering the benefits of operating leverage via higher production volumes and lower unit costs as shown in the June quarter with a unit operating cost of $591 per ton. Unit operating costs on a CIF basis declined by 25% to $818 per ton in FY2024, reflecting lower royalty expenses, in line with reduced revenue.

Turning now to Slide 12. Slide 12 shows the cash flow bridge for the FY2024 period. As mentioned earlier, the group ended FY2024 with a cash balance of $1.6 billion. The $1.7 billion reduction in cash during the FY2024 period reflected a number of non-recurring items. These included, in FY2023, income tax catch-up payment of $763 million and growth capital expenditure of approximately $493 million related to the P680 and P1000 expansion projects.

Capital expenditure for the period was $865 million, as mentioned, on an accrual basis. This included $493 million of spend on P680, approximately $140 million of mine development, approximately $89 million on sustaining CapEx and another $140 million on infrastructure and projects.

Cash margin from operations calculated as receipts from customers minus payments for operating costs remained strong during FY2024 at $513 million. Additionally, cash margin from operations after deducting ongoing capital expenditure being deferred stripping and sustaining CapEx was also positive for the year, totaling $282 million. As mentioned, for the June quarter, these metrics underscore that even with lower spodumene prices over the FY2024 period, the group is cash flow positive based on the metrics outlined above.

I’ll now hand it back to Dale.

Dale Henderson

Thanks very much, Luke. Moving to Slide 13. As we look forward at the FY2025 year ahead, it is centered on completing construction and integrating new capacity that brings us further down the cost curve, whilst also simultaneously continuing to drive operational improvements. The next few slides paint the picture for these integration steps for the year ahead, how this translates to the production profile, and lastly, the flow-through to guidance for the year.

Moving to Slide 14. A reminder that the P680 crushing and ore sorting circuit is sized for the P1000 expansion with 5 million tons of processing capacity. This facility, as the name suggests, has ore sorting capability that will provide the benefit of mine reserve support and lithium recovery benefits. This is the largest facility for whole of ore feed for hard-rock lithium processing.

Now you can see from the photo, construction is largely complete. Our plating is still to go, as you can see in this photo. First ore was achieved from this facility in July, and the project is on track for schedule and budget with ramp-up now underway during the September quarter. Now in parallel with this, the team is progressing the next leg of expansion, which is due for tie-in this year, the P1000 project.

Moving to Slide 15. The P1000 expansion provides approximately 1 million tons in aggregate production capacity across the total operation. The facility comprises a new flotation circuit with the processing trend that wraps around existing facility at the Pilgan operations, as you can see in the photo. The project is approximately 60% complete at the end of the quarter, and first ore targeted for the March quarter next year. Now as I mentioned, both the P680 and P1000 expansions are being tied in and ramped up this financial year. This requires dedicated shutdowns to tie-ins and has a degree of impact to headline steady-state lithium recoveries.

Now to better illustrate these parallel activities, the team has pulled together a time line. Moving to Slide 16. Now at the top of the page, you can see the parallel phasing of the two expansion projects across FY2025. Both projects require plant shutdowns or tie-ins and there will be a level of operational impact until optimization is complete as we saw this past year with the P680 primary rejection circuit.

Now these impacts, of course, translate to an impact on total forecast production volumes for the year. Now we’ve provided a visual to illustrate the relative difference from the four quarters. You can see at the base of the graph – base of the slide there. And you can see from this that the September quarter volumes are lower. And you can also see that the volumes are back-ended in the second half of the year, care of the new capacity coming from the P1000.

Now translating these activities into the guidance for the year. Moving to Slide 17. This slide sets out the guidance across the metrics of production volume, unit costs and CapEx consistent with prior periods. As mentioned in my opening, we have taken the decision to provide this guidance today rather than the FY2024 results – full-year results announcement, given the very exciting, intense execution and ramp-up here we’ve got for FY2025.

Now stepping through each of the subcomponents, starting with production volume. Our production volume guidance for FY2025 is 800,000 tons to 840,000 tons. These volumes, of course, reflect the integration requirements of the P680 crushing and ore sorting circuit and the P1000 processing facility. The integration of these two circuits requires additional processing plant shutdowns. It also requires a derating of lithium processing recoveries until such time commissioning ramp-up and optimization steps have been completed.

By comparison, the June quarter for FY2024 represents P680 production volume rates at optimized levels without any impacts from project commissioning ramp-up. As such, this does not provide a representation of expected performance into FY2025. However, it does show run rate production volume of the P680 prime rejection once optimized.

Now moving to operating costs. Our FOB unit operating cost is A$650 ton to A$700 per ton. And as noted in my opening remarks, there will be some corrections to the word doc under guidance for Tables 1 and 2, correcting the unit cost from U.S. dollars per ton to Australian dollars per ton. So to repeat, this is A$650 ton to A$700 per ton for guidance.

Our brownfield project expansions, of course, in fact, these unit operating costs, as explained earlier here, is integration and ramp-up. Now FY2025 also includes a number of nonrecurring costs, such as operating mobile ore sorters during the September quarter and higher maintenance costs related to extended shutdowns for project handover commissioning and demobilization costs.

Now you’ll note that the midpoint of the FY2025 guidance at A$675 per ton was broadly in line with the March quarter for FY2024 performance, which is also impacted by the project integration of the P680 primary rejection facility.

Now moving to capital expenditure. The capital expenditure guidance of $615 million to $685 million as a reduction on FY2024. The four areas of category – four areas of CapEx spend, I’ll step through these now.

Firstly, we have growth CapEx of $195 million to $215 million, which represents the remaining spend on the P680 and P1000 projects. Secondly, we have mine development costs of $120 million to $135 million, which is broadly in line with FY2024.

Thirdly, we have sustaining CapEx of $60 million to $68 million. That includes maintenance, spares and upgrades. And finally, we have infrastructure CapEx of $240 million to $267 million to support the existing operations, expanded production capacity and to drive efficiency. This CapEx category includes new longer-life tailings facilities, new access routes, new warehouses and new workshops.

Okay. Now moving to some market commentary on Slide 19. As to the market, well, it appears there’s never a dull moment in the lithium market. The industry remains a young industry growing quickly from a small base with continued developments in lithium-ion technology, lithium-ion technology use cases, government support and changes and, of course, supply chain response.

As done in previous calls, I’ll touch on some of the major developments in the quarter and offer our observations as a major industry participant. Now starting with demand. EV growth continues to show broad strength despite some of the headlines. Notable facts for global EV sales care of Rho Motion estimates includes year-to-date estimate to June, 7 million units sold or 20% increase year-on-year. The June quarter, 3.1 million units or a 21% increase quarter-on-quarter for the June month, 1.4 million units or an 8% month-on-month.

As it relates to China being a key subset of demand, the EV sales, care of the CPCA, include, year-to-date for June, 4.1 million units or a 33% increase year-on-year. The June quarter, 2.3 million units, which is a 32% increase quarter-on-quarter. And then the June month, 856,000 units, over 6% month-on-month.

Further would say that, for China, EVs have been noted to be cheaper now than combustion equivalents as reported by BloombergNEF. I also draw your attention to the two graphs, which we’ve displayed here. On the left-hand side, you can see the EV growth sales estimates. Note the green column there, showing a very robust level.

And on the right-hand side, you could also see the breakdown of the submarkets and I’d highlight there that the U.S. and the rest of the world submarkets remain relatively small components of the total demand to date. And the point of highlighting this is you’ll note that the U.S. market continues to get a lot of the headlines, but frankly, it has a disproportionate representation of the demand to-date. Ultimately, a very important market. But as I say, to-date, it’s a small market in terms of its total demand contribution.

Other demand cases, of course, is global energy storage systems, particularly grid installation. This continues to be increasing. And I note that there’s been a 70% increase in the last months, as reported by Rho Motion.

Now moving to government changes. A bit of a mixed bag in this regard. We have seen a level of industry protection that’s emerging in the form of tariffs. We saw the U.S. government on the 13th of May, a quadrupling tariffs on Chinese EVs from 25% to 100%. And a month later, on the 13th of June, the European Commission applying tariffs on Chinese EV imports ranging from 17% to 38%.

However, on the other side, there’s also continued stimulus continues to occur. So a couple of announcements during the quarter. The European Commission, on the eighth of April, approved €267 million grant to Volvo to build a $1.6 – sorry, $1.2 billion EV plant in Slovakia.

On the 26th of April, China also announced that the subsidy regime for trading of old vehicles for new electric vehicles, well, that subsidy support up to RMB10,000. On the 11th of July, we had the U.S. government providing $1.7 billion funding support to conversion of IC factories to EVs. So as you can see from these demand indicators, these government responses, the bottom line is some of the doomsday headlines don’t – just don’t reconcile with the broadly strong growth markets that you can see.

Now moving to the supply side. At current price levels, the supply side appears to be dominated by the larger low-cost suppliers, including ourselves. Higher cost supply sources are moving out of the supply base, and there appears to be less access to capital for new projects, which, of course, could set up good conditions for, ultimately, a potential price run in the future. Our level of supply is coming from Africa. However, reporting suggests some of these supply sources are also very much cost constrained.

Moving to pricing. As noted earlier, the market has seen a softening in pricing across the second half of the quarter, which has continued into July, but it’s been broadly pretty level and hasn’t seen some of the volatility we’ve experienced earlier. Now what does all this mean for Pilbara Minerals? Well, as it relates to Pilbara Minerals, well, we continue to see strong demand across all our customers. We continue to field approaches from a number of major suppliers. Supply chain participants are seeking to secure long-term contracts and looking to partner with Pilbara.

Now given this backdrop, we remain focused on maximizing our strengths. This is all about further reduction in cost performance care of our expansion and further cost down efficiency improvements. It’s also about retaining our strong balance sheet. And lastly, it’s about positioning for the future, and ultimately, what we expect to happen is, ultimately, higher price environments at some point in the future. And this is, of course, all achieved through a couple of our key attributes: Our Tier 1 asset, continuing to build and extend our operating track record; our low-cost position; and, of course, our strong balance sheet.

With that, that completes our commentary, and I’ll now hand back to Maggie to move to Q&A. Thank you, Maggie.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Kaan Peker of RBC. Please proceed with your question.

Kaan Peker

Hi, Dale and team. Thanks for the opportunity. Just first question on FY2025 guidance, $800 million to $840 million. It seems like there’s quite a lot of conservatism built into the P1000 tie-in, which is obviously at the second half of the year. Given that you’ve done above 220,000 tons this quarter, how do we sort of think about that conservatism? And is it mainly in 3Q and 4Q that you’re sort of baked in possible reductions in quarter-on-quarter production. And I’ve just got a follow-up?

Dale Henderson

Thanks, Kaan. Thanks for your question. And as you heard from our commentary, we have emphasized the scale of integration and talked about recovery impacts. And both the integration requirements and recovery impacts are not immaterial. And just to provide a bit more color, the P1000 project is the integration of a much larger circuit, and it’s a flotation circuit. So different from the year just passed, where we have integrated P680 primary rejection facility, which is a density system. A density system is frankly quicker to optimize as it is – the response time is effectively immediate.

Flotation is a different story. Firstly, it’s much larger. We’ve got much more unit step processes connected and further that course and response time is actually longer. What that plays through to us, a longer time period required for optimization. That longer time period equates to recovery impacts. That’s what flows through, ultimately, to the volumes for the year. So frankly, you can’t compare the year we’ve been through to FY2025 because they’re two different years. But I thank you for the question, and I appreciate that it does kind of stick out relative to the strong quarter performance we’ve had in June. Does that answer your question?

Kaan Peker

Yes, it does. And just as a follow-up. I think in the call, you’ve mentioned that two renegotiated contracts with clients. So I was just wondering if you can provide a little bit more detail around those, the implications and, essentially, is it more towards index pricing? Thanks.

Dale Henderson

Yes. Thanks, Kaan. Yes. So to pricing, a formula was renegotiated during the quarter. That occurred at the back of the quarter. So we’ll see the benefits of that flow through moving forward. As to the specifics, obviously, I cannot share that because they’re commercially sensitive. But what I can confirm is this gets these particular references back to market pricing. And as a general comment across our contracts, we have been migrating more to spodumene references at this time.

But of course, as mentioned in previous calls, it’s always been a bit of a moving feast as it relates to the pricing, indices. They do move around. And as a function of that, we continue to renegotiate periodically to ensure that we maximize our full value for our shareholders for the product we sell. Does that answer your question, Kaan?

Kaan Peker

Sure, it does. I’ll pass it on. Thank you very much.

Dale Henderson

Thanks, Kaan.

Operator

Thank you. [Operator Instructions] Next, we have Rahul Anand from Morgan Stanley. Please go ahead.

Rahul Anand

Dale, Luke, James, thanks for the call and congratulations on the strong FY2024 finish. Look, I’ve got two questions. First question’s on recoveries. So what is the recovery target for next year? But then more importantly, recoveries for the midterm? Still expecting 72.5% for 5.7% product and 1.25% grade at the mine? That’s the first one.

And then the second is a general question on pricing, perhaps a follow-up to Kaan’s question. It did come in weaker in the fourth quarter versus consensus. I wanted to touch upon that and perhaps if you can help me understand, is that largely because you’ve seen a great discount widening for the 5.2% product across industry? Or is it related to perhaps contract structures and you’ve got rapidly rising volumes, which are leading to further discounting? Thanks.

Dale Henderson

You’ve got it, Rahul. Thanks. Starting with the recovery. No, we haven’t provided guidance on that. But the recovery, of course, as I’ve mentioned in the comments, very much impacted as a function of tie-ins and optimization, which, of course, is built in and ultimately flows through to the production volumes.

If we look backwards in the June quarter numbers we’ve had, the 72% average recovery reflects, obviously, what can be achieved across the two circuits when optimized. And certainly looking forward to – in time continuing to improve beyond those levels, certainly as we think forward and look at the additional tools that the big ore-sorting circuit will give the team, including online analyzers and so on and so forth.

So ultimately, on the other side of all of this expansion, the team will have, not only a scale operation, but be equipped with superior tools, which ultimately enable the team to continue to improve our recoveries from what are already very strong recoveries compared to our peers in the market.

Now moving to pricing. And just to confirm here that there is no additional low-grade discounts. We apply a pro rata to grade from the headline SC6.0 prices, so just to square that off. And as to the realized pricing for the quarter, obviously, the two renegotiated outcomes will improve the realized pricing. But the total realized pricing for the quarter is obviously comparable to market references, depending on which ones to choose. So as I’ve mentioned on pricing. It’s always been a moving feast depending on indices at different points in time sort of move out of sync. And I appreciate that, that’s really challenging for the market, because it gets really difficult to try and find an understanding of what was the prevailing market price. And until such time or volume come into the market and the industry matures, we remain, frankly, a bit challenged and that we’ll be more of the same. Rahul, does that answer your question?

Rahul Anand

Yes, it does on pricing. Dale, just one perhaps on the recovery re follow-up. I’m more worried about sort of the midterm mainly because you have a 10% increase in your product grade you’re expecting to 5.7% and then you have a 20% drop in grades where they are. You’re sitting at 1.5% currently. You’re expecting 1.25% once you’ve ramped up P1000 and your reserve grade is even lower. So that’s, I guess, the reason for my question. But if there’s any further color you’d like to provide in that context, that’d be great. But otherwise, I think you have addressed my question.

Dale Henderson

No, Rahul, all I’d like to reassure is, is that firstly, recoveries continue to get stronger and stronger when we look in the rearview mirror and what lies ahead, frankly, will be further improvement. There’s nothing, which gives us cause for concern around the combination of head grade coming from the mine or what we’re seeing in performance or any of the continued work. In fact, I’m delighted with the work the team is doing to further improve.

And frankly, I think Pilbara Minerals is, in many ways, I’d like to think, leading the way in terms of some of these recovery improvements. And we remain focused on continuing to build on that strength because we’re in the business of concentrating lithium to achieve the lowest unit cost of production. So we’re going pretty well. More upside to come and look forward to taking the market through that as we deliver those outcomes. Thanks for your question, Rahul.

Rahul Anand

Thank you. Thanks.

Operator

Thank you. Our next question comes from Kate McCutcheon from Citi. Please go ahead.

Kate McCutcheon

Hi. Good morning, Dale and Luke. Just on your sales versus production for the quarter, you’ve been producing at 5.2% product consistently, but then your shipments this quarter were at 5.3% product grade. Not a huge delta, but I’m just sort of wondering how does that work. And going forward, do we assume that they match?

Dale Henderson

Okay, Kate. So the target rate is 5.2%. We do see a little bit of variation around that in the order of 0.1% as a function of, effectively, the error loss through assays, et cetera, et cetera, but the target grade is 5.2%, and we’re not looking to move from that 5.2%. It’s, for us, we think, a sweet spot, which enables us to maximize yield from the mine, which, of course, enables a lower unit cost of production. And we know that at that level of grade that, that’s really processable by our customers and doesn’t invite any penalties or so on and so forth. So for that reason, we don’t see any reason to change from 5.2% at this point.

Kate McCutcheon

Sorry, but the question was you sold weren’t your shipments sort of 5.3% grade? Are you saying that’s just a rounding?

Dale Henderson

Yes, not so much a rounding. There is – also there’s a target grade of 5.2%, 5.3% or what gets communicated is ultimately from the assays, which come from the shipments. And there is a level of inaccuracy which just emerges, which is in the order of 0.1% maximum.

Kate McCutcheon

Got it. That makes sense. I understand it. And then perhaps a question for Luke. The $80 million other investing activities for the quarter. Can you just give some color on what that was?

Luke Bortoli

Thank you, Kate. This relates to the receipt of proceeds from a minority investment that was sold, but we haven’t provided any further detail on that.

Kate McCutcheon

Okay. Thank you.

Dale Henderson

Thanks, Kate.

Operator

Thank you. [Operator Instructions] Next, we have Rob Stein from Macquarie. Please go ahead.

Rob Stein

Hi, Dale, and team. Just a follow-up to the pricing questions. I’m sure you’re enjoying answering. Just, if you’re able to just give some indication for regional pricing impacts in this quarter? And then similarly, what do you expect to flow into next quarter, noting the 84 kt that was in transit at quarter end? And then I’ve got a question about P2000, if that’s okay?

Luke Bortoli

Thank you for the question. I’ll take the first part. The provisional pricing impacts for the June quarter were relatively immaterial given the consistency or relative consistency of pricing between March quarter and June quarter. We expect the same impact going into the next quarter.

Rob Stein

Okay, thank you. That’s a great clarification. And then a follow-up, just regarding P2000. Can you give us a clarifying – a clarification on the strip ratio profile of your P1000 base case that you’ve talked about in the previous release and then your P2000 base case? The 7.7 life of mine average is a big bulker figure. Can you perhaps give us a more granular build-up of how that strip ratio evolves over time in both cases?

Dale Henderson

Yes, sure, Rob. Thanks for your question. The strip ratio doesn’t change. Life of mine’s 7.6:1 and – but much of that is back-ended. And the – certainly, in the next few years, it’s more like 4 to 5:1, a little bit higher, but that’s right at the back of the mine life that we see the strip ratio step up. But as I mentioned, there’s not a change in strip ratio between the two cases. It’s just more a case of the rate of mining. Does that make sense?

Rob Stein

Yes. So for how long should we hold that 5x strip ratio for in that, say, P2000 case? Is that a – are we holding that for 10 years? Are we holding that for 15 years? Like, what’s the – how do we – basically, how do we make 5 over a short time period equal 7.7 over the life of mine?

Dale Henderson

Yes. So the team are telling me 10 years. They’re holding up their hands, 10 years. And what we’ll do, Rob, is on the next Strategy Day, we will do – we’ll offer some deeper insight into the outlook to help with these lines of questions. But yes, in the next 10 years. Does that answer your question?

Rob Stein

Yes. No, that does. That’s good clarification. Thank you very much.

Dale Henderson

Thanks, Rob.

Operator

Thank you. Our next question comes from Timothy Hoff from Canaccord. Please go ahead with your question.

Timothy Hoff

Thanks for the question here today. I was just going to dig into that stripping a little bit and particularly how you’re apportioning costs on that basis. And thanks very much for providing a lot more detail around costs. We’re getting close to an all-in sustaining cost that might sort of actually add up. But just on that $120 million of deferred stripping, how does that line up versus the life of mine strip ratio? And should that cost start to filter into your actual unit operating costs?

Luke Bortoli

Thanks, Tim, for the question. What I can say is that the deferred stripping being recognized in this period, $140 million is based on an approximate 5x strip ratio. What else are you seeking clarification on?

Timothy Hoff

Just if your life-of-mine strip ratio is closer to 7, should it be deferred? Or should it be ranged through your unit operating cost? It’s probably a [nuance] point.

Luke Bortoli

No. The way that deferred stripping is calculated is on a staged basis within pit. So at the moment, the approximate strip ratio for FY2024 for the stages and the pits is around about 5x. Now that strip ratio will change through time as we move into different stages and the pits.

Timothy Hoff

Great. Thank you.

Operator

Thank you. [Operator Instructions] Next, we have Hugo Nicolaci from Goldman Sachs. Please go ahead.

Hugo Nicolaci

Good morning, Dale and Luke. Thanks for the update this morning. Just maybe one for Luke on the cost outlook. And I appreciate you giving FY2025 guidance on costs. But was hoping to get a better understanding of how much of that cost guidance reflects a step-up in fixed costs of P1000. And as we move to FY2026, would you expect another material step-up in your absolute costs? Or should we start to see P1000 drive significant unit cost benefits once it’s ramped up? And then I’ll come back with a follow-up? Thanks.

Luke Bortoli

Thank you for the question. So there’s a few components to this. The June quarter FY2024 cost performance is illustrative of the potential for the operation when it is in a quarter and a period of unhindered production volumes and unhindered by project commissioning and ramp-up and things of that nature. So that is sort of illustrative of what the operation can achieve.

Going into FY2025, there are a few things to note. The total cost base will increase. And that total cost base in dollar terms will increase to support the fact that we’ve got two projects, which are being integrated. So there are some high costs that relate to that, a lot of which are one-off. And we’ve noted in our guidance, there are some one-off costs.

So what we should see by the end of FY2025, all going to plan is that P1000 is commissioned and ramped up. And by that point in time, we’ll see the operating leverage benefit both P680 and P1000. And again, going back to Q4 FY2024, that is illustrated and evolved the efficiency in the operation we can achieve when we’re running unhindered without impacts of commissioning and ramp-up.

Hugo Nicolaci

Great. That’s helpful. And can I just now follow-up on costs, more on the CapEx side of things? And kind of a two-part question. I mean, initially following on from Tim’s question. I mean, that mine development spend, I mean, is that something – is the FY 2025 guidance the level you expect them to continue for the next few years? And on the infrastructure projects that you’ve highlighted, in tailings dam, obviously, a significant build. How much of that do you expect to continue into, say, FY2026 and FY2027 still? Thanks.

Luke Bortoli

Thank you. So on the first part of the question, in terms of mine development, I mentioned in the call that for FY2024, mine development cost is approximately $141 million. We’re guiding to $120 million to $135 million in FY2025, which is, let’s call it, broadly in line with FY2024. We’d expect those types of numbers to continue going forward over the next several years. And we made mention on that before.

As it relates to your second part of your question, infrastructure projects. But there are projects, which are ongoing at site that are necessary to support P680 and P1000 production volumes. We’ve listed out a few of these. They relate to a much larger tailings facility. Our existing tailings facilities are, by comparison, small and require significant ongoing sustaining CapEx, so that’s one component.

The second is there are new and larger access roads that are being built, again, to facilitate mining volumes. And there’s a number of other initiatives like new warehouses and workshops, which will support the expanded operation, but also move into an owner-operator fleet.

So this bucket of spend is really around supporting the expansion of the operation, but also driving operational efficiency. And hopefully, some of that color came through in the commentary I gave. There will be some further spend in this area, but we’re not guiding beyond 2025 at this point.

Hugo Nicolaci

Just to confirm, the deferred CapEx that came out of FY2024, is that all now captured in FY2025? Or are some of those projects still deferred beyond the next 12 months?

Luke Bortoli

No, they are deferred beyond the next 12 months. So when we revised our guidance in December quarter, there were some CapEx efficiencies that we obtained. And there are also some projects that we deferred. And those projects, in a low price environment, can be deferred for an extensive period of time.

Hugo Nicolaci

Thanks, Luke.

Operator

Thank you. Our next question comes from the line of Al Harvey from JPMorgan. Please proceed with your question.

Alistair Harvey

Good morning, Luke and Dale. Just a quick follow-up on the offtake pricing reviews. Just want to get a sense of how much of the book those two contracts might represent?

Dale Henderson

Al, thanks for the question. Let me just check in here. It’s about one-third, so it’s not immaterial, but those two customers.

Alistair Harvey

All right. Thanks for that Dale.

Operator

Thank you. Next, we have Levi Spry from UBS. Please go ahead.

Levi Spry

Yes. Good morning. Thanks, Dale. Maybe just a question on the Slide 16 ramp-up, thank you for that. So just thinking about the sort of exit run rate in the June quarter, pushing over into FY2026, which would sort of let us think about a little bit. How do we think about that in the context of P1000 still ramping up but probably annualizing already in 1 million tons and, I guess, markets? And how you’re thinking about, I guess, the wave of African supply that seems to be out there?

Dale Henderson

Yes. Thanks, Levi. So firstly, as it relates to run rates. What I’d draw your attention to is just the annualized production outcome for the total year. And we didn’t want to break that down on a quarterly basis because inevitably, the team might choose to move some shuts or et cetera, et cetera, so we’d like to retain that flexibility. But yes, I would like to draw your attention towards total production rate for the year. But of course, as we move into the following year, FY2026, we might not be a full P1000 run rate. It’ll depend a little bit on how the ramp-up goes, P1000, but we shouldn’t be far off with the mine expectation. But of course, we will guide that closer to the time.

Moving to your question on the market. Yes, as I sort of covered in my commentary, the current pricing levels – but it looks like the market’s matured and to the extent that we have this decent base load coming and supporting the market, so a base load in terms of – obviously, demand has continued to increase, and that demand is currently supported by the larger suppliers. It looks like the current pricing level appears to be the closest to maybe a swing price given that we’ve seen a number of other supply sources come out of the market.

In terms of Pilbara’s insight, as I noted in my commentary, all of our customers continue to push us for product. There’s certainly no issues around any of that. But of course, I’d highlight, we are partnered quite deliberately with what we think are the best in the business and some of the strongest groups who are deeply integrated through to Western markets. So we think we’re in good standing there, but as I say, we’re quite comfortable with what we’re seeing. We’re not seeing any cause for concern. And for us, it’s about getting focused on delivery. Does that answer your questions, Levi?

Levi Spry

Yes, kind of. What about the – so you mentioned marginal sort of supply there. Are you seeing other producers coming out at $900?

Dale Henderson

Yes. So we hear – there are insights in the spaces, not particularly – that’s no deeper than what others see, just what we hear. So if we go back in time, I think we’re seeing during the March quarter, so it might come out of the market. No surprise around that. Closer to home, of course, we’ve seen one of the – all these suppliers [pull up stops]. As it relates to Africa, speaking with one of the reporting houses this week, she updated me on the fact that some – she’s very effectively letting me know that all the petalite stuff is out of the market and can’t compete on the artisanal stuff. No surprises out of the market. And what seems to be left there are some of the lower-cost integrated supply sources owned by the bigger battery guys, et cetera. So no surprise that they might keep running. But those would be some of the data points I’m aware of. Yes. Does that help, Levi?

Levi Spry

Yes. Thank you. Thanks for the extra color. Thanks, Dale.

Luke Bortoli

Hey, Dale, we might move to some online questions now. What percent of white-label lithium production is currently taken out for building storage batteries? And do you see this becoming a potential major use for lithium?

Dale Henderson

Yes. Thanks for the question. So in terms of demand for the market, it’s absolutely majority through EVs and e-mobility, at this point, in time. But as to mass energy storage systems, it has the potential to be a bit of a sleeping giant. What we have observed over the last few years is the growth rates are significant, quite enormous in fact. But it’s coming from a very small base relative to the EVs. But as I say, it has the potential to be a bit of a sleeping giant.

One of the challenges of mass energy storage as it relates to forecasting, this is a whole brand new use case. So different from EVs where the addressable market for cars is very, very clear in terms of total combustion engines and sort of one in, one out as it relates to mass energy storage. It becomes much harder because this is about adding in, effectively, batteries to the side of solar plants and so on and so forth. And trying to forecast, well, how many solar panels is this going to be, et cetera, is a much harder job. But we continue to watch that area with interest. Good question. Thank you.

Luke Bortoli

Okay. Thanks, Dale. Another question here. Any update on the Calix JV?

Dale Henderson

The Calix JV continue to move forward, construction’s underway as we’ve noted in the release, and that’s moving forward. So we look forward to updating in the future on that one.

Luke Bortoli

Thanks, Dale. Another question here. Can we expect a dividend announcement in the full-year results?

Dale Henderson

Ultimately, that will be a decision for the Board. Under the capital management framework, of course, it contemplates dividends. We will address that at the full year’s. But I think it’s unlikely that dividends will be played. But as I say, ultimately, that’s a decision for the Board, and we’ll update at the full year’s.

Luke Bortoli

Okay. Thank you. Another question here. Can we expect any BMX options in FY2025?

Dale Henderson

Good question. As it relates to the BMX, it’s there, it’s available. We will consider it. In the very near-term, no plan to roll it out, but yes, it remains there.

Luke Bortoli

Okay. Dale, last question from online from the webcast, have lithium prices bottomed?

Dale Henderson

Thanks for that question. I love the pricing questions. Yes. Obviously, incredibly hard to predict what is the bottom of the market. However, I do take a lot of comfort from the fact that we’ve seen other supply sources come out of the market, in particular, during the March quarter and as further commented to Levi’s question earlier, it does look like there is price support around the current level care of the swing supply coming out of the market. So of course, there’s always downside risk, but we’re not seeing any reason for it to go lower. But at the end of the day, this is a young growth market. It’s been volatile historically, incredibly hard to predict. But Pilbara is a low-cost operator, strong balance sheet. We feel we’re incredibly well positioned to carry on building on our strengths.

Dale Henderson

Okay, everyone. Thank you very much for your time this morning, and really appreciate all those that dialed in, and we look forward to future updates. Thank you very much.

Operator

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