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Ladies and gentlemen, thank you for standing by, and welcome to Mineral Resources call for sell-side analysts following the release of our June quarterly release this morning. My name is Chris Chong, MinRes' Investor Relations manager. Shortly, I will hand over to James Bruce, EGM of Corporate Development, to provide a short introduction before opening the lines for questions.
A little bit of admin before we kick off. Please be aware that today's call is being recorded and a written transcript will be uploaded to our website to the Investors Financial Reports page. This call is a Q&A with our sell-side analysts to discuss our quarterly production report. We will not be able to answer questions that relate to our FY '22 results, which will be released on August 29. [Operator Instructions] This is meant to be an interactive and free ranging discussion.
And with that, I'll pass over to James.
Great. Thank you, Chris, and good morning to you all, and thanks for joining us today. It's great to have Chris as part of the team. He's been with us now for 6 months and it's been fantastic the way he has embraced the role and got to understand our business to help you guys all understand our business better.
This is our second sell-side quarterly call for what is going to be an ongoing quarterly engagement. The intent is to provide an opportunity for you to ask questions so that you can better understand our Q4 results. It's been a very active quarter for the company. The safety performance has been strong with no LTIs. Mining Services, we produced record volumes in line with guidance and margins have been consistent. In our iron ore business, production was at the upper end of guidance. It's a great result in the current environment. Costs will be in line with the guidance range.
I did want to make a comment about realization. And I just want to make the point that the FMG SSF discounts are the best representation of our product quality and it's more liquid than the 58% market. We also sell on a 2-month quotational period. During Q2 and Q3 of this year, of our financial year, the discounts in the 57% to 58% market were historically very high. And in the last few months, these discounts have narrowed significantly.
And in July, this has improved further which is a function of demand, steel mill profitability and coking coal prices, which have recently been pulling back. We report realizations versus the 62% IODEX price, in line with industry practice. The volatility of our realization is reduced if you look over a longer period of time. Long term, we expect 80% realizations versus the 62% index, and our average realizations since FY '20 has been 79%. I just provide that as context.
During FY '23 we'll move to a quotational period of 1 month rather than 2 months after shipment, and this should reduce volatility of our realizations on a quarterly basis.
So I wanted to move on to lithium. We're ramping up on all fronts. We're benefiting from record high pricing. Mt Marion production grew and -- but was marginally below guidance. Costs will be within the guidance range. We also converted for the first time Mt Marion lithium to lithium hydroxide sales as part of a tolling arrangement, and we achieved 30% EBITDA margin for that product.
Wodgina ramped up and Trains 1 and 2 have gone very well. We're producing product. And at Kemerton, we've also started producing from the first train and going through the qualification period right now.
And those are some comments I wanted to make at the start of the call. I'll hand over back to Darcy and happy to answer any questions that you might have.
[Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley.
Chris and James, hope you guys are well. Thanks for the opportunity. Look, firstly, on Mt Marion, so this tolling arrangement, a great result and good addition to the EBITDA. Could you perhaps provide a bit of visibility, if you can on sort of how we should think about these volumes going forward? Considering this was an interim contract as far as I can remember. And I just wanted to sort of get a feel for how we should be modeling this going forward?
Thanks, Rahul. Yes. So this is a new revenue and income stream for the company. We exercised our right to take our share of our offtake from February of this year. And -- so we will -- we originally had said that was a 7-month period. We've recently extended that to November of this year, and we've got the option to extend it further. Our clear intent as a company is to convert all of our share of spodumene production into high-quality lithium hydroxide and those sort of products.
So I think we've been very clear about that over the last 6 months and year. And so our expectation is that, that will become part of an ongoing part of our business. So I think that should give you some idea about where we're going and our longer-term expectations around hydroxide production from our operations.
Perfect. Okay. And then in terms of Mt Marion, I just wanted to perhaps talk through the high-grade, low-grade split I mean, they've moved around a bit, but I don't think that really matters because you're just adjusting to the market. But 7% this quarter, is that something that we should be thinking about in terms of the splits going forward as well?
No, absolutely not. It's -- we're transitioning through the pit as we expand right now. So that is a very low number, and that will probably be the lowest that we see going forward. So our expectation, and as we've previously announced, is to expand production to 900,000 tonnes of mixed grade product. On an equivalent basis, that's 600,000 tonnes of 6% spodumene, and we've also previously stated that we expect to be about 50% high-grade and 50% of the low-grade product.
So we will -- as we expand production, we will also recover a greater proportion of high grade going forward. So you should not assume a 7% high grade going forward. It's just a reflection of where we are in the pit right now.
Okay. Perfect. Just one final 1 for me before I pass it on. On Wodgina, pleasing to see that the trains are now starting to come online and start ramping up. When do we expect to be in nameplate for Train 1 and Train 2?
So we ramped up Train 1 very successfully, and the ramp-up has been very, very quick. So -- and Train 2 is starting as we speak right now. So I think you can see the numbers we've got. We do expect to take that production and convert into hydroxide, and that's our strategy across our business. So the -- yes, Chris, so just go on.
I think from September, all things going well, the way we're seeing it, we should be at nameplate for both those trains.
Okay. That's very helpful.
Your next question comes from Matthew Frydman of MST Financial.
Sure. I guess firstly, I'll carry on from the last questions on Wodgina. And you made a comment there in the quarterly and you repeated it just then when you're talking about the cargoes from Wodgina being exported for conversion. So I am just wondering if you can give us some information on where that material has gone, why you have to wait until it's converted in order to realize the revenues and the earnings from that product? And I guess just wondering if you can give us any more information on what your economic interest is there?
Thanks, Matt, and congrats on your new role buddy and all the best and thanks for initiating coverage on us. So look, we will -- as we go forward, I think we'll have more to say on that at our full year results. So that's -- I think today, we're talking about what's happened in this quarter, and we'll hold off on any of those sort of disclosures for our guidance that we'll give at our full year results.
Okay. No problems. Secondly, you just talked about, I guess, the ramp-up of the trains in terms of nameplate throughput. Wondering, I guess, whether you can give us further information on, I guess, other aspects of the ramp-up, recovery, yield, grade of the concentrate being produced, how all of those things are tracking. And even if we really want to get specific, you produced 20 kilotonnes; you mined 61. Can you tell us how much you actually put through the plant to produce that 20 kilotonnes to give us an idea of some of those other factors?
Yes, Matt. So I mean, as I said in my commentary, the plants have ramped up very quickly and very well. We're not in a position at the moment to give you the specifics of that data that you're asking for. I can tell you that we are on -- that it's on spec product. So -- but we'll disclose some more information on that in our full year results.
The volumes have been good, and we're very pleased with how it's gone, especially in a tough labor market. I'd just point out that we first gave guidance that Train 1 would start in July, and we brought it forward many months. So I think it's been a pretty successful operation. And technically, it's going very well.
Yes, for sure. No problems. I look forward to that additional disclosure. I guess, maybe to put it another way, it's early days in the ramp-up, but are you guys seeing opportunities to improve yields and recoveries and ultimately, throughput maybe in the same way that you've realized on the Mt Marion circuit?
So I think we've got many options given our experience at Mt Marion of how to operate and successfully operate these plants in these operations. So yes, I think we've got a good opportunity to continue to maximize the value of the ore body, minimize the amount of material going into the tailings. And that ultimately and especially at the time of high prices and very high demand is the most valuable thing that we can do.
So we are very conscious of the value of the ore body and the unique assets that we have located in Tier 1 jurisdictions, and we know how to operate these assets and we've done it for many, many years. We've also got a management team that is very stable and knows how to do this.
So yes, I think it's -- I think there are some big opportunities for us, but you'll just have to wait for some of the detail around that and maybe in the meantime, just [indiscernible].
I can be very patient, I promise. Maybe 1 last question. I've got lots of others, so maybe we'll loop back. But just lastly, can you give us an update at all on the discussions around moving to 50% stake in Wodgina?
Yes. Look, I'm not able to at the moment, Matt. When we've got more to say, obviously, we'll disclose it in the normal course of events.
Your next question comes from Hayden Bairstow of Macquarie.
James, just on the Mt Marion sort of disclosure to the results, so you'll have separate effectively profit centers for the hydroxide part of it, and that will be ongoing. So we can sort of think about that as Mt Marion selling effectively spot at the realized pricing you're putting here. And then that's just sort of an additional earnings on top of that effectively running it like a merchant plant?
Absolutely right. That's the right way to think about it.
Okay. And then commentary on the Wodgina spodumene sales. I mean that -- when you first started about -- talked about ramping this up, it was like, "Oh, we've got opportunity to sell spot into the market, but now it seems that it's all you're going to target, I guess, toll treating or using downstream plants that Albemarle sort of owns or is going to ramp up. Is that sort of the plan now? And is that because of the money you're making out of what you're seeing with Ganfeng or is capacity opening up that you didn't think it was there before? I mean -- because Albemarle hasn't really accelerated anything as yet on downstream plants in China.
What I would say, Hayden, is demand is extremely strong. We've got significant inquiries from multiple parties. Our intention is to convert all of our share into hydroxide. And you'll just have to wait to see the form that, that takes.
And we can use a similar model to Mt Marion in terms of running a separate profit center that's selling spot at the market price and then converting?
Yes. I think the only thing that you might need to think about is just the time frames and the cash flow implications. The tolling agreement -- the tolling agreement we've got with Ganfeng is slightly different to owning, depending on what the structure is, and how the cash flows will work through.
There is typically a, I don't know, a 4-, 5-month time frame between converting that were going from spodumene and then converting it through hydroxide depending on where in the world is being converted and how long it takes to get there and how long it takes inventory management [ and signed ] through the system. So you should just think about that as you model it going forward.
Yes. Okay. Great. Just one final one on the gas stuff. Were we expecting anything sort of nearer term? Obviously, you're talking about -- there's some commentary around potential drilling later this year. What about the overall strategy of what you might do with that asset?
Look, I think we've got to -- in terms of the overall strategy, I think we've talked about it at our AGM and other earlier this year at our financial half year results. And I think our strategy is pretty clear. We need to define the size of the resources. And we've got the largest land package in WA, I'm sure, across both near Perth and up in the North as well.
So we've got a significant opportunity to leverage our resource and hopefully reserve base to supply low-cost gas to our own operations, to our joint venture partners and others in WA and to help us decarbonize our business. But also, I think given the potential scale, we could also consider other gas opportunities to monetize and to commercialize the opportunities.
But it's an important first step that we've had very good success with the first well and we've got -- we need to do additional drilling, and then that's what we've disclosed in today, this release. So I think this is an important step, and we're gearing up to be able to complete those wells.
Your next question comes from Paul Young of Goldman Sachs.
Keeping on the topic of Lockyer Deep, James, you've got -- you have 4 wells to drill over the next year or so. But can you maybe just from your expectations, what's the talk around our expectation around potential maiden resource, timing around that? And then timing on entering feed and what that process looks like?
Yes, I mean, this call is a quarterly results call, you're asking it, but I think we'll have more to say at our full year results on that. I'm -- we're going to do some drilling and that's what we can confirm at the moment. Let's get to our full year results, and we'll have some more to say about it.
Yes. Okay. okay. I'll ask some specifics on the quarterly then. So just back on Mt Marion, the 6,700 tonnes of lithium hydroxide sold in the quarter from a production perspective and percentage nameplate or what can be fully converted. What does that represent? Like is that -- I know we've got the rules of thumb on converting from spodumene to hydroxide. But what should that be if that's a fully maximized, fully converted? What should the quarterly hydroxide production sales be?
Yes. So look, what we've -- what we've done is we've now converted all of February -- from February to June 30, we converted all of the spodumene to hydroxide. And so that's what's happened. So you can work through those numbers. And yes, that's what it is.
Okay. And then last one, James, on the Mining Services volumes. I thought there might have been a little bit of a tick up in the June quarter, considering it's a dry quarter and there's quite a bit of activity in the Pilbara with the majors. What is your expectation of when Mining Services volumes might start trending upwards quarter-on-quarter?
Yes. I mean, we don't give quarterly guidance on Mining Services volume. I think we've just produced our best results ever in Mining Services. The margins continue to be very stable. We are obviously, we've got some -- we've had good growth over the last year. We've had good contract wins and retention. I think I'm not going to get drawn into quarterly guidance on volumes for our Mining Services business. I think you as well as anyone know the trends in the industry. And we -- the business is going very well.
Your next question comes from Glyn Lawcock of Barrenjoey.
I joined a little bit late, so apologies. But I did catch you mentioned you produced on-spec product at Wodgina. Can you just remind, what is on-spec? Is that the proper 6% as we know it? If you could just help me understand that.
Yes.
That short answer? Yes. Okay. And the rest, we'll have to wait for them, by the sounds of it.
Yes.
The second question is, could you just help me understand the conversion then? Like you say you've converted all the spodumene to hydroxide since February. What sort of tonnage is that? Is that -- do you -- like how many tonnes of spodumene is going into this tolling? Or are we sort of looking at something closer to 10 tonnes to give 1 tonne of hydroxide given the grade? Just trying to understand the mechanics of it.
I mean if I can give you some help with that, Glyn, I mean you know what our production rate levels have been from -- you know, well more importantly, our sales of spodumene. And that those sales have been converted into that amount of hydroxide. So those numbers are...
Yes, But you said from February, so I'm sort of halfway through a quarter, so I can't quite...
Yes, from -- you're only missing 1 month there, you're missing January -- I mean, I think you can maybe do some ratios and work it out. So -- and I know we've disclosed the revenue. We've disclosed the EBITDA of that conversion. It's a 30% EBITDA. And I think you can -- I think we've disclosed sufficient to be able to help you model what you need to model.
Yes, I get that. But as the grade for Mt Marion spot, I think we'll obviously continue to trend down, you're not at the low point yet, are you in terms of the combined spot grade from Marion? Or are you there now?
Yes. We produced a very small amount of high grades in this quarter. I made some comments earlier about that and maybe look back to the transcript. But we expect to use more high grade over -- we expect as we ramp up to 900,000 tonnes of mixed grade and 900,000 tonnes converts to 600,000 tonnes at 6%, and we expect 50% higher grade and 50% low grade. So that's what the project does.
Yes. And 1 final question, and I think I know the answer, but I'll ask it anyway, if it hasn't been asked. Ashburton, the 30th of June has come and gone. Am I just like the Wodgina 50-50, just don't hold my breath and keep waiting?
We've made some comments about the Ashburton project in the past about our intentions and we have done a long lead item orders and so on. And when we have an agreement, we will obviously need to disclose them. And so that will occur in the normal course of events.
And you can't share why it's dragging on past the date you were hoping to get to?
No, not at the moment. We'll have more to say at our full year results.
Going to have a lot to say in a couple of weeks' time.
Look, Glyn, the only thing I'd add to that is we're dealing with large companies, right? So there's a significant process there, but I wouldn't -- there's nothing sort of untoward.
No, no, no. That's fine.
Your next question comes from Lachlan Shaw of UBS. Pardon me, your next question is from Robert Stein of CLSA.
Thanks for the opportunity to ask a few questions. Thanks, Glyn for asking about Ashburton, and I was going to ask that. But I'll move on to realized pricing. Noticed, obviously, the provisional pricing impacts of the -- in the realized price ratio. Just wondering, given the 60 -- 58-62 index really came in quite aggressively through that quarter, are you expecting that to then flow into I guess, your 1Q realized pricing given the 2-month lag that you speak of? I was just interested to see it was at 62 and I was expecting a little bit greater.
Yes, Rob, I mean it's very formulaic, right? So we do have a 2-month lag, which is longer than some others. We are, over the next year going to reduce that to a 1-month lag. That will reduce some of the volatility and some of the reporting that you see. But what the -- the implication of your question is correct. That's what happens.
[Operator Instructions] Your next question comes from Lachlan Shaw of UBS.
A couple of just questions on Mt Marion. So obviously, realized price was very, very strong. Can you just give us a bit of insight around the marketing strategy there? Is it all spot? Are you signing contracts? What sort of terms are you preferring?
So Lachlan, I mean, we've taken our share of Mt Marion production, and we're converting it as a separate revenue and income stream into hydroxide. And the prices are formulaic based on -- for the spodumene prices that we sell, and this is important from a tax and the WA government royalty point of view and all the rest of it. As it goes on to the ship, there is a pricing point, which is based on -- there are 5 indices and it's the average of those 5 indices over the quarter. So -- and that gets you the number that we disclosed.
Okay, that's spod. What about the hydroxide?
Well, the hydroxide were sold in the market, and we've given you the price that we sold it at. And it's -- we will -- as we continue to sell into that market -- it's a tolling agreement with Ganfeng and Ganfeng will look after the sales.
Okay. Got it. And then just with Ganfeng and the tolling agreement. Can you give us any insight in terms of that toll charge, fixed versus variable split, how does it -- is it [ basis ] the chemical price? Can you give us a bit of a sense of how to think about that toll cost?
I mean look, we've disclosed the margin for you, so you can work out what that toll cost was for the quarter. I mean, I would note that for fully -- if you own your own plant and if you look at other people who report across the industry, if you own your own plant, the margins are typically 45% or thereabouts through the cycle at the time.
Our margin that we achieved, that's if you own your plant and you put the capital into the plant. We reported a 30% EBITDA margin, and that's probably appropriate given that we don't own the capital of the plant.
Got it. Okay. And then just one last one. Just on Wodgina, ramp-up is going really well there. But just how is it sort of looking for Trains 3 to 6?
Yes. Look, I've said it a couple of times, but this is a quarterly -- we're not going to get drawn into forward-looking statements about that sort of thing. We'll have more to say on that in our full year results on that, Lachie.
Your next question comes from Alex Ren of Credit Suisse.
Just 2 quick ones from me, please. Mt Marion hydroxide price $77,000 a tonne. I suppose that's a Chinese price. So I'm just wondering if that's inclusive of VAT, so if we need to take that 13% as an additional cost in addition to the feed conversion toll costs, et cetera, in order to derive that EBITDA?
And second one is just on that Mt Marion toll treatment again. I know you mentioned -- you touched a little bit on that. But just wondering have you guys started the discussion on looking at long say, longer-term contract just to provide some certainty for the market on this part? That's it.
Yes. Thanks, Alex. So the first part of your question is that the VAT is included in that margin that we've disclosed. So -- it's not on the revenue side, it's on the cost side. So that's included in the margin that we were able to achieve.
And then on the second part of your question, we'll answer that in time. So I'm not able to disclose that today.
Your next question comes from Alexander Papaioanou from Citi.
[Technical Difficulty]
Cost, is it best to think of these as lagged 4 to 5 months?
We couldn't actually hear your question. Can you just repeat it, please?
Sure. So Mt Marion tolling agreement, so input spodumene costs, is it best to think of these as lagged 4 to 5 months?
Yes, there is a time frame around it, and that's what I indicated previously.
Okay. And so you said before that you've converted the spodumene from February to June 30, and that's 6.2 for your share. So then in that case, would then the next time you report hydroxide numbers be in December quarter?
No. I think no, there will be -- I mean I think this will become part of our quarterly disclosures.
Okay, sure.
Anything else, Alex?
No, sorry, that's it for me.
As there are no further phone questions, we will now wait a brief moment for webcast questions to come through. Pardon me. We've just had some other financials come through.
As there are no webcast questions, I'll now hand back to Mr. Chong for any closing remarks.
Thanks. We hope you have a good opportunity to ask your questions today, guys. Thanks for the interest, and we hope you have a great day. Obviously, if there's any other questions, follow-up questions, just please come through and happy to take that. Thanks guys.
That does conclude our conference for today. Thank you for participating. You may now disconnect.