Pilbara Minerals Ltd (OTCPK:PILBF) Q3 2024 Results Conference Call April 18, 2024 7:00 PM ET
Company Participants
Dale Henderson – MD, CEO & Director
Vince De Carolis – COO
Luke Bortoli – CFO
Conference Call Participants
Kaan Peker – Royal Bank of Canada
Rahul Anand – Morgan Stanley
Hugo Nicolaci – Goldman Sachs
Kate McCutcheon – CICT
Rob Stein – Macquarie
Operator
Good day, and thank you for standing by. Welcome to Pilbara Minerals, March 2024 Quarterly Activities Report. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Dale Henderson, Managing Director and CEO. 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 for your ongoing support. I’d like to begin by acknowledging the traditional owners on the land on which our businesses operate, which are people of the Noongar Nation in Perth, where we are undertaking a call from today. And Yamal and Gary are people where our operations are located in the Pilbara. We pay our respects to the elders past and present.
With regards to introductions, the speakers joining me on the call today are Luke Bortoli, our CFO; and Vince De Carolis, our Chief Operating Officer. Also in the room, I have a number of the team supporting the call. For the call today, we have 45 minutes, and we’ll step through a short presentation followed by Q&A for the remaining time. We will aim to give our comments brief.
However, we will offer some expanded commentary on the partnering feasibility study we announced during the quarter. We will then move to analyst questions and we’ll set aside 5 minutes at the end for webcast questions. As it relates to the March quarter, well, the March quarter was one of solid operating performance and on-track project delivery. During the quarter, we have seen an uptick in pricing from recent lows observed through December and January.
This uptick is comforting, however, our strategy remains unchanged to prudently invest in expanding our production platform to position the business with: one, a lower unit cost profile post expansion; and two, yield the benefits of higher produced volumes and higher-priced environments with this expanded capacity in store. Now, although we are expanding, we retain our focused approach on, one, cost, continuing our pursuit of cost down through operational efficiencies, improved lithium recoveries and sensible capital investments for further OpEx reductions.
And, secondly, balance sheet, prudent management of the balance sheet, which we touched on in the half year update. These 2 focus areas, cost and balance sheet are business as usual for Pilbara. Continuous improvement is our DNA and ongoing cost reductions as an output of our continuous improvement culture. Now, moving to Slide 2.
The pillars of our strategy are prioritized to generate the most rapid value creation for our shareholders and service of our vision, which is to be a leader in the provision of sustainable battery materials products. Now, the March quarter made steady progress against each of the planks of the strategy. Moving to Slide 3. Now, for the quarterly highlights. As it relates to production, the production outcomes were on plan for the year, volumes and unit cost. 179,000 tonnes that are produced at a unit cost of USD 440 per ton or AUD 675 only per tonne, which is an improvement on the first half cost of only AUD 691per tonne, so trending well.
Although it was a quarter of 2 halves, which Vince will speak to in his section. As it relates to the operations, the month of March was a key highlight with nameplate production for the P680-primary rejection circuit. This period demonstrated peak production with 80,000 tonnes produced across the combined operation. I would note that the month of March had no shutdowns, high head grade and higher recoveries. However, it serves to demonstrate the sprint capability of the operation and the new capacity we have installed and it also add the incremental benefit in corresponding unit cost reduction with this stronger volumetric output.
Well done to all the team on this milestone, in particular, the Pilbara Minerals operations and projects team who have been working tirelessly during the course of the year to bring forward this outcome. As it relates to sales, they were in line with production with shipments relatively evenly spaced across the quarter. And a related area, Pilbara Ports Authority announced yesterday, this week that Pilbara Minerals alongside Mineral Resources foundation customers for Lumsden Point.
Lumsden Point will provide a common use at outload facility using shared bulk outload facilities at Port Hedland. These facilities will ultimately are expected to provide a unit cost reduction compared to the current outload methods of Pilbara user support.
Congratulations to the Hedland Ports Authority on this next step. We are delighted to support this important asset development at Port Hedland.
Moving to growth. The project team continued to deliver very well, and I’m pleased to say that both our major mine expansion projects remain on schedule and budget. As it relates to offtake, consistent with our sales strategy for securing medium-term supply sales whilst presuming long-term optionality, the company executed a series of 3-year commitments with 3 leading chemical conversion customers and all have global supply chain relationships. This included 2 agreement extensions signed with Shanshan and Ganfeng and a new agreement with Yahua.
Yahua joins Pilbara Minerals stable of Tier 1 customers who are in our view amongst the best in the business. As it relates to partnering, we are pleased to expand our relationship with Ganfeng by the commencement of a joint feasibility study for a potential downstream joint venture.
I’ll elaborate on that shortly. Thank you and well done to the commercial team for landing the suite of offtake updates and this important partnering agreement with Ganfeng. Pilbara foundations are further bolstered through these agreements. With that, I’ll now pass the call over to Vince for an update on the operation of events.
Vince De Carolis
Thank you, Dale. Starting on Slide 5 with safety. As you can see, safety performance is steady with a modest increase in TRIFR from 3.53 in the prior quarter to 3.73 for the March quarter. Our safety program initiatives continue to gain traction, empowering employees to actively participate in creating a safe working environment. Moving on to Slide 6. We had a solid operational quarter with production and costs in line with expectation.
As Dale mentioned, we did have some issues with adverse weather and ore supply challenges in the first half of the quarter, but we’ve worked hard to resolve these and had a very good second half of the quarter. This was supported by achieving nameplate production capacity from the P680 primary injection facility in the period. Mining performance was delivered to plan for volumes achieving 9.3 million tonnes.
And I note that this is a 16% lift in volumetric movement for the same quarter in FY ’23.On spodumene production, it was again in line with our expectations and a record for the quarter at 179,000 dry metric tonnes, which is ahead of quarter 2 at 175,969 dry metric tonnes. However, it was a tale of 2 halves with the first half of the quarter impacted by weather events and ore supply challenges that are now resolved. In the latter half of the quarter and in particular, the month of March, we set a new monthly production record with over 80,000 tonnes of spodumene produced, demonstrating nameplate performance for the P680 primary reduction facility.
This peak performance was underpinned by continuous operation of the P680 expanded production capacity and no shutdowns planned, higher ore lithium head grade and higher lithium recoveries due to operational improvements, including the mobile ore sources. I would like to emphasize that this was a peak performance month that demonstrates what can be achieved with no shutdowns. However, this should not be construed as an annualized run rate. Recoveries were below target for the quarter at 65.3%, but largely in line with the previous quarter of 65.9%.
As mentioned earlier, this is a result of all supply challenges that impacted feed mineralogy. This was resolved in the later stages of the quarter, and we are now seeing improved plant performances, inclusive of recovery of above 70% for the month of March. We continue to work on strategies to improve our recovery, such as ore sorting, and we expect those to improve in quarter 4 and into FY ’25.Moving on to costs.
Our costs for the quarter was AUD 675 per tonne versus AUD 635 per tonne for the previous quarter. Unit costs were slightly higher than quarter 2 primarily due to the pre-investment spend for P680. However, we will see the benefit of this investment into Q4 as the increased production rates flow through the whole quarter. The feed mineralogy noted earlier, which impacted production in the first half of the quarter.
The investment into the mobile oil orders, which have been strategically brought in to test ore sorting, train our workforce ahead of the primary P680 ore Soa commissioning and also provide supplemental ore. The mobile ore sorters are now fully commissioned and will assist in our June quarter production profile. These mobile ore sort of increased our unit cost for the quarter by $50 per dry metric ton. If we excluded these ore sorts of the underlying unit operating costs for the quarter would have been $625 per dry metric tonnes.
In parallel and supporting our ramp-up activities, we continue to implement operational productivity improvements that will result in further unit cost reduction over time. Some of these key initiatives are reduction in our mining fleet enabled by productivity improvements, our HME strategy Phase 1, which is purchasing our own fleet and reducing hiring costs and our optimized shutdown strategy to mention a few. Thank you. And now I’ll hand back over to Dale.
Dale Henderson
Thank you very much, Vince. Then turning to Slide 8 for the P680 and crystal ore standing update. I haven’t been on site last week. It was great to see the progress on the ground. The P680 crushing also [indiscernible] on track for schedule and cost. As noted in the deck for the quarter, updates included structural capital piping and ENI works commenced and delivery and installation of scale and mechanical equipment continued.
Ramp-up is scheduled for the September quarter. Now, I’m particularly excited by this project. This is the world’s largest lithium ore sorter. It is scaled to take whole ore feed and stands to materially improve the operating performance over time from our assets. As a side note, the test work in pursuit of this technology deployment risk back to 2018 with testing and progression of the project continuing through the last downturn. The ore sorter is a well-proven technology. However, the application for this use at this scale is leading for our industry.
We all look forward to seeing this project come to life. Now, the next leg of expansion is the P1000 Project so, turning to Page 9 of the deck. As you can see from the photo, the progress is well underway, and this project too remains on track for schedule and cost. Progress for the quarter included bulk [indiscernible] in engineering, concrete construction and underground services work. The first consignment of steel and module units were completed, having been shipped to WA and a reminder that first ore is targeted for the March quarter of financial year ’25.Now, moving to Slide 11 as we move to chemicals.
On Slide 11, a reminder of our different lithium product pathways that we have with increased level of processing involving more value-adding, moving from left to right with a spodumene concentrate on the left and battery-grade products on the right relates to battery grade products joint venture with POSCO is their first foray in this regard. So, now moving to Slide 12 for an update on our POSCO joint venture. I’m pleased to say that our commissioning and ramp-up schedule was maintained by the POSCO Pilbara Minerals JV in South Korea.
As noted a small volume of uncertified lithium hydroxide was produced in the quarter as part of the commissioning process of the first train. The JV will progress ramp-up over the coming 18 months. Meanwhile, construction of Train 2 progressed as planned, and the JV is on schedule to commissioning in the second half of calendar year ’24.The JV also commenced the product certification process. This is expected to occur within the next 12 months.
Now, turning to Slide 13. During the quarter, we announced the outcome of the downstream partnering process with an agreement with Ganfeng for a joint feasibility study for a 32,000-tonne downstream lithium conversion plan. As a reminder, the aim of the partnering process was to explore partnerships that provided an accretive benefit to Pilbara Minerals shareholders through extracting more value along the supply chain whilst also creating a more resilient business through deeper supply chain integration.
As discussed in previous calls, the industry is growing and evolving rapidly. This includes new government-driven subsidy regimes, major commitments downstream and evolving supply chain is emerging. As such, this presents a level of uncertainty on where the winning supply chain hubs will ultimately reside and who will occupy them.
This set of conditions presents both a challenge and an opportunity. With this backdrop in mind, the partnering process through a wide net to explore the full global opportunity set at the time. Prospective partners in the process include OEMs, battery makers, cathode producers and lithium chemical converters to which we have selected Ganfeng. The study pathway agreed with Ganfeng combines our respective strengths to solve this Rubik’s cube of opportunity. Both parties recognize each other’s respective strength as 2 large-scale industry operators and the merit of combining our talents on this shared aim.
Key strengths of this match are many, but I’ll highlight for commercial alignment, strong commission alignment, as presented with both parties with the aim of maximizing project economics, expertise, Ganfeng. Pedigree is one of the world’s leading lithium chemical converters, having built and operating 7 lithium chemical plants.
They also have chemical conversion intellectual property and, of course, experience converting Pilbara Minerals product. Thirdly, supply chain integration, Ganfeng’s global reach and Tier 1 customer base is an important advantage. And fourth, both companies are aligned and out pursue the ESG performance.
Lastly, Pilbara and Ganfeng have established a strong relationship over the past 5 years working together. As the JV proceeds, we’ve agreed on a range of principles, which the parties intend to give effect to. This includes 50-50 JV, our ownership, provision of 300,000 tonnes of spodumene concentrate at market prices and a willingness to explore IRA benefits via project equity sell-down that required. This study first approach provides Pilbara Minerals with the option but not the obligation to proceed with the lithium chemicals joint venture. We see this as a prudent approach to ensure Pilbara Minerals only proceed with the joint venture.
If the investment case is sufficiently compelling this approach with Pilbara Minerals staged and incremental approach to downstream exposure is what we undertook with the joint venture partner with our previous joint venture partner with POSCO. So, we are consistent in this stage and incremental approach, and we look forward to progressing the study with Ganfeng. We expect to complete the study in the March quarter ’25.Now, with that, I will now pass to Luke to take us through the financials.
Luke Bortoli
Thank you, Dale, and good morning to those on the call. Please turn to Slide 15 of the presentation for a summary of the group’s key financial metrics for the quarter ended 31 March ’24, relative to the prior quarter ending 31 December ’23.From an operational perspective, the group delivered in line with its plan for the quarter in terms of production volume and unit cost performance. We reported production volume of 179,000 tonnes, 2% higher than the prior period and sales volume of 165,000 tonnes, 3% above the prior period.
Average estimated realized price was USD 804 a tonne in the March quarter, declining by almost 30% compared to the September quarter. As Dale mentioned, pleasingly, prices stabilized in January, increased in February and increased again in March month. Our BMX pre-auction sale of 5,000 tonnes in March month at USD 1,106 per tonne, SC 5.5, demonstrated the improvement in prices in the period. Group revenue in the March quarter was $192 million.
This represented a 27% reduction on prior quarter, driven almost entirely by the 28% decrease in average realized price, partly offset by the 3% increase in sales volume mentioned earlier.Looking at unit cost, unit operating costs on an FOB basis increased by 6% in March quarter to $675 per tonne. This increase was largely driven by the previously disclosed planned investment in production-related costs to support the P680 expansion, including the use of mobile ore sorters. This investment has occurred before P680 volumes have come on stream at a capacity for a full quarter period, as mentioned by Vince.
Also, as mentioned by Vince, March month was a record for the operation and demonstrated what is capable at P680 per capacity. March month recorded at 80,000 tonnes of production volume at a unit operating cost, FOB of less than $625 per tonne. On a CIF basis, ended operating costs reduced 2% to $789 per tonne, primarily due to a decrease in royalty costs from lower sales revenue. We also note that the difference between production and sales volume in both the December and March quarters simply reflects shipment timing rather than an intention to build up inventories.
More specifically, from the beginning of the December quarter to the end of the March quarter, there was an approximate 27,000 tonne increase in spodumene concentrate inventory with approximately 26,000 tonnes sold across the first 2 weeks of April, offsetting that amount. Finally, the group’s cash balance at 31 March was $1.8 billion and remains strong.
I’ll speak more about this later in the presentation.
Turning now to Slide 16. This slide outlines our March year-to-date FY ’24 operational and financial performance relative to the prior corresponding period of the 9 months to 31 March ’23.Production volume in the March year-to-date FY ’24 period increased 9% relative to the PCP at 499,000 tonnes. This metric is beginning to reflect the additional production capacity provided by the P680 expansion project, particularly in the March month. Sales volume increased by an equivalent rate of 9% to 471,000 tonnes, enabled by higher production volume capacity.
Revenue for the March year-to-date FY ’24 period was just shy AUD 1 billion at AUD 950 million. March year-to-date revenue is 7% lower than the PCP, almost entirely reflecting the fact that the prior period incorporated close to all-time high prices as watchmen concentrate with price of 73% lower in the March year-to-date period. At a unit cost level, unit operating costs FOB was 13% higher at AUD 685 per tonne due primarily to pre-investment to support P680, as mentioned earlier.
Importantly, unit operating costs at FOB of AUD 675 per tonne in March quarter is lower than the year-to-date period at AUD 685 per tonne, and the half year period ended 31 December ’23 at AUD 691 per tonne, demonstrating the trend of improved unit operating cost performance during FY ’24. Turning now to Slide 17. This slide shows a waterfall chart representation of our March quarter cash flow statement. As mentioned earlier, the group’s cash balance as of 31 March ’24 was AUD 1.8 billion and remains very strong.
The organization continues to closely manage operating costs and rationalize other nonessential capital investment to maintain the competitive advantage that our balance sheet strength provides versus our peers. In March quarter, cash reduced by AUD 362 million. A key driver of the decline in cash was negative customer settlements or final price adjustments on shipments made prior to 31 December ’23 or the start of the March quarter period. You will recall that December quarter shipments were back-ended, so, there was a higher than usual number of shipments where final price adjustments were captured in the following March quarter.
In addition to that, March quarter was unusual, and it was impacted by sharply declining prices that have since stabilized. These final price adjustments realized over the March quarter amounts to AUD 218 million, largely offsetting the AUD 225 million of receipts from customers for March quarter sales. Cash margin from operations measured as receipts from customers less payments for operating costs was negative AUD 146 million.
However, once adjusted for final price adjustments of previous quarter shipments of AUD 218 million, cash margin from operations was positive AUD 72 million. This positive AUD 72 million demonstrates the positive cash generation capacity of the operation even at lower estimated realized prices of approximately US AUD 800 a tonne as seen in the March quarter. If prices remain stable over time, the impact of final price adjustments for customer settlement amount is negligible.
In March quarter, we saw prices stabilize and we then saw the opposite trend where prices have risen. In terms of investing cash flows, there was AUD 170 million of cash outflows in March quarter for property, plant equipment and mine properties. This included gross capital expenditure of AUD 110 million on the P680 and P1000 expansion projects, AUD 31 million of capitalized mine development costs, AUD 29 million of new project enhancements and AUD 19 million of sustaining capital spend. This capital spend is in line with our guidance.
As mentioned at half year results, the group’s near-term strategy remains squarely focused on P680 and P1000 expansion while seeking to reduce unit costs through that expansion as well as the deferral of nonessential capital expenditure. This will aid in preserving our balance sheet strength position while expanding production volume. By focusing on this strategy, the group will capitalize on improving market prices with the benefit of higher production volume capacity and proving capability to operate at that higher capacity.
We believe this will further position the company ahead of our peers. And to that end, we’re pleased that in the second half of the March quarter. The operation achieves full nameplate capacity on P680, as Vince mentioned. I’ll now hand it back to Dale.
Dale Henderson
Thanks very much, Luke. Now, to finish just with a few brief comments on the market. Turning to Slide 19 We had the team that updated the data from road motion and benchmark here for EVs and lithium demand. For my comments, I’ll step through 4 parts, demands, supply, pricing and Pilbara Minerals insights. So, starting with demand. During the quarter, there was a number of noteworthy data points are reinforcing the direction of the industry, touching on a few of these as it relates to EV sales.
Road motion have released preliminary numbers for quarter 1 for calendar year ’24 of $3.2 million in sales globally, which represented a 23% year-on-year increase. As it relates to China, EV sales are the quarter 1 numbers for calendar year ’24 on 8 million units, representing a 34% year-on-year increase. As it relates to supply chain investment, a number of announcements, I won’t go through each of these, but [indiscernible] JSWL and F Code.
Just calling out one of these North pole, 16th of January secured USD 5 billion loan per giga batteries expansions, another one here, LG can, 7th of February, U.S. $18.6 billion cathode supply deal with GM. So, more announcements, which highlight the build-out of the industry. As it relates to government investment and policy support, U.S. government, China and German government made announcements, those dates 4th of March, 3 April, 2nd of February, respectively.
I’ll just call out one of these, the German government setting up a EUR 1 billion fund for critical raw materials investments. So again, positive signs of the investment going into the industry to build out the industry. Moving to supply comments. During the quarter, we noted there were a number of supply curtailments occurring or flagged. These included a number of updates across a number of the Australian supply sources and, of course, most notably a core lithium.
As it relates to China, there were some curtailments noted calling out some shutdowns in January as noted by SMM on the 16th of January and also some other curtailments in relation to environmental inspections, again, via an SMM announcement on the 25th of February. So, a series of supply curtailments, partly driven by the lower pricing that we observed through December and January. As it relates to pricing, and as we’ve covered, we have seen an uptick of late now on a quarter-to-quarter basis, moving from December to March quarter, an average decline across all metrics. However, when you look at the past 60 days up to mid-April, the increases are feeling material.
So just touching on these over the last sort of 60 days to the 16th of April, we’ve seen a 27% increase for spodumene concentrate across a 27% increase in average of the 5 PRAs. As it relates to Chinese domestic carbonate, the last 60 days has been a 14% increase, utilizing the SMM sources and seaborne hydroxide past 60 days, a 6% increase cure of fast market. So, those numbers obviously underlie the upwards movement that we’ve been discussing. Lastly, as it relates to Pilbara Minerals Insights, as you’ve heard, with a number of support points here of the new offtakes, obviously, that we discussed, a strong indicator of demand and where the market is heading.
As it relates to our offtake compliance for the awareness of doubt. There’s absolutely no issue there. And, furthermore, we are getting pushed for more supply. So again, our insight and to the industry is very positive in terms of demand for our product and the direction of the industry. So, given the demands, supply and Pilbara’s insights, we remain of the view the emergence of the lithium industry remains well underway with a long runway hit.
We remain focused on delivering our strategy to maximize and realize the value creation opportunity for our shareholders. The Pilbara presents care of our unique position that Pilbara offers being a Tier 1 asset, Tier 1 location, demonstrated operating track record of know-how, low-cost position and strong balance sheet. Now, with that, I’ll hand back to Maggie, and we can move to Q&A.
Question-and-Answer Session
Operator
We will now conduct the Q&A session. [Operator Instructions] Our first question comes from Kaan Peker from Royal Bank of Canada.
Kaan Peker
Yes, 2 questions from me. The exit run rate for March pretty impressive at 80,000 and unit costs as well. Just wondering what that throughput rate was for the month? And have you continued to see higher grades and recoveries in April. I’ll follow up in a second.
Dale Henderson
Thanks for the question. Through our Hedland operation, our tonnages per hour rates went around 380 tonne an hour, and we continue to improve on that. So, that’s from low 300s prior to the primary reduction expansion. So, that’s been going very strongly. And in terms of recoveries, yes, we continue to be trending in April above 70%. So, we’re seeing the continued strong performance.
Kaan Peker
And, secondly, for mobile ore sorters, were they part of the original ramp up? And maybe if you can talk around the performance of that and how long they’re meant to be operational?
Dale Henderson
Yes. Good question. So, the mobile ore sorters, part of the strategy for us was to bring them online to test and train our workforce, given that the P680, are crushing ore sorting is going to be the largest facility that’s been seen in our industry. So, that was one of our strategies to bring them online. In terms of how long we want to have them on for, we’re still working through the budgeting process for that. And essentially, as soon as the P680 crushing and ore sorting commissions, which is coming up into the next quarter, we will decommission the mobile ore sorters.
So, as we work through the budgeting process, we think that’s probably going to be in the first quarter of the next financial year.
Operator
Our next question comes from Rahul Anand of Morgan Stanley.
Rahul Anand
My first question is just around inventories. You talked a bit about the two missed shipments this quarter. So, on my estimates, you’re sitting at about 73,000 tonnes of inventory, which is now roughly 6 weeks of your production for this year. Admittedly, obviously, production is rising. So, you probably have a normalized number coming up. But what I wanted to know perhaps was, where is the normalized level of inventory for you?
And where does inventory become a headwind? And are you holding back on any of the sales given the market at the moment? I’ll come back with a follow-up.
Luke Bortoli
Thanks, Rahul, for the question. It’s Luke here. I’ll answer part of that question and then pass to Dale. So, you are correct in that end inventory. At the end of March was around about 70,000 tonnes. The two shipments that occurred in early April were not so much missed shipments, that’s just the phase timing of shipments, and that the balance of inventory back by 30,000 tonnes to circa 50,000 tonnes.
At that 60,000-tonne level, if you look back to our history, that is sort of approximately where our inventory balance sits through time. I’ll just pass to Dale in respect to the strategy around inventory.
Dale Henderson
Yes. Thanks, Luke and thanks, Rahul for your question. As I mentioned on prior calls, we’re not pursuing any finished goods stockpile strategy. The aim is to move the product on to our customers as efficiently and as rapidly as we can. And part of the rationale for that.
There’s really 2 parts.
Firstly, we are a very big producer now and the logistics around ensuring that the passing of the product works hand in glove with our customers is a key thing that we work through as part of setting up the production profile for the year. So, this is one element. The second element is, of course, the movement in pricing, the lithium industry has a history of moving sharply in all directions, which could be hard to predict.
So, we don’t think it’s a sound strategy to be playing any sort of stockpiling game for the purpose of trying to realize the benefit, particularly given the disruption that they can cause for our important customers. And for that reason, [Indiscernible] used to move the stock on.
Rahul Anand
And look, in terms of the follow-up, I just wanted to ask a follow-up to Kaan’s question, if I may, around recoveries. In terms of your medium-term targets, are they still at about 75% recovery for 5.2% grade and 65% to 70% for 6% spot you mean? Or has there been any movement in that? Obviously, keeping in mind the impact on costs driven by recoveries?
Dale Henderson
Yes, I might take that, Rahul, and Vince may want to add to it. Yes, I can confirm that the long-run recoveries that we are targeting are 75% as communicated in the previous FIDs that we’ve done. As it relates to the very sort of near term, this, of course, has been a ramp-up year and next year, and there’s also a ramp-up here care of the P1000. So, inevitably, there is a bit of impact through integration of circuits and optimization, et cetera, et cetera. However, as it relates to incremental improvements, it’s been fair to say the team are progressing a number of fronts, which are pretty exciting, which will ultimately play through to ensuring the 75% attained.
And, hopefully, beyond that, these include things like online analyzers, which are coming with the circuits, which are coming on online, both the [indiscernible] and with the P1000 project. There’s all metrology work that Vince and the team have been doing to better understand the perfect recovery set points as a function of non mineralogy and the ore body, froth cameras, other online analyzers, you name it. The operations mission is ongoing recovery improvement.
So, I like the idea that we move beyond 75% ultimately. But you are very much in our sites. Vince, do you have anything?
Rahul Anand
And just that 75% at 5.2% spot? Or is that for 6% spot that you’re talking about, sorry?
Dale Henderson
The 75% was on a 5.7% based on the last major, if I did.
Rahul Anand
So, that’s still the target, and you’re looking to even better in the medium term, if possible?
Dale Henderson
Yes, yes. Yes, that’s right.
Operator
Our next question comes from Hugo Nicolaci of Goldman Sachs.
Hugo Nicolaci
Just first one for me, Dale, I just wanted to get a better sense around some of the offtake agreements that we signed. Just wanted to confirm that, I guess, the new sort of medium-term contracts are more akin to take-or-pay agreements. But then just going back to some of the legacy longer-term offtake agreements. I just wanted to get a better sense of how much up or downward flex in any given year that your customers have in terms of wanting to take volumes there?
Dale Henderson
So, the extensions that we’ve done to those offtakes effectively on the same terms or better as it relates to flex on volumes, you’ll know from those announcements. So, we’ve built in some options at Pilbara’s election. And, yes, so I think we’re in a fairly, fairly good to do it across those customers at pretty much all cases, they were seeking more product. Also, from our perspective, we had a good problem of setting up our sales book profile optimally for Pilbara hence, we built into those agreements, some options at our election.
Hugo Nicolaci
Yes, just clarifying that one. I guess, outside of the options that you have to add another 50,000 tonnes or 100,000 tonnes a year. Of the original 100,000 can the customers say that we won a 90,000 tonnes, not 100,000 or 110,000 tonnes, not 100,000? Is there any flex on those?
Dale Henderson
No, not in that direction. They’ve got an obligation to take and we set up those sales schedules at the start of the year, including the time each of the best timing, et cetera, et cetera. Hence, that earlier comment to row we manage inventory.
Hugo Nicolaci
And then just one more, if I could, just on the POSCO JV. Just noting you’ve produced first volumes there. I’m just wanting to know when do you start that certification period? Is it from first volumes? Or do you need to produce a bit more volume this quarter before you can kick that one off?
Dale Henderson
We understand from the POSCO team that the process has essentially commenced and that certification process is very much dependent on that particular customer. But as mentioned in the release, they expect the process to be completed within 12 months.
Operator
Our next question comes from Kate McCutcheon of CICT.
Kate McCutcheon
Your pre-auction volume that you did was done at 5.5%. And I know it’s a small volume. But given that the December delivery, should we expect the rest of the year to continue to average that 5.2% produce product grades? Or should we expect for the back end of the year to lift to that 5.5%? Or is it just a discrete higher-grade parcel that was done for the auction?
Dale Henderson
The aim is 5.2% typically, and that’s predicated on maximizing the economics for shareholders as we have a higher recovery at that lower grade. And we don’t see any reason to change that at this point, that 5.5%. We built in some parameters around that such that we could deliver a slightly lower spec if we chose to. So, although the headline was 5.5%, we have provision in there to scale down a little bit on a linear basis.
Kate McCutcheon
And then year-to-date CapEx, $656 million-ish tracking below your revised guidance range. Should I think it would have been Q4 weighted or the biggest quarter of the year coming up? Or will some of it shuffle into next halfway?
Luke Bortoli
That’s right Kate. Yes, you should think about an increase in Q4.
Operator
Our next question comes from Rob Stein of Macquarie.
Rob Stein
Two questions or one strategic question for me on capital allocation. If I look at the cash position in the quarter, it was a pretty bleak quarter, but you still broke even and added a little bit of cash to the hopper. Are we looking forward to the end of the half and expecting outsized capital return to work down some of that cash balance, noting that you’ve got about 1 to 1.1 billion a month less to spend? And then, secondly, how should we think about the capital requirements for the Ganfeng JV and further downstream investments going forward?
Dale Henderson
As it relates to the approach to capital management, no change in the way we’re thinking about that from previous messaging. As a general comment, we’re taking a conservative approach and ensuring that we retained a very strong and healthy balance sheet given that the market has sort of gone through a downward pricing period. And given the volatility of the industry, we want to make sure that we’ve got a very strong balance sheet to carry on supporting the build-out of the business in support of our strategy. So, I’d say, unlikely, the Board would take a view around capital distribution.
That being said, however, it’s very pricing dependent. And as we’ve seen historically, very strong. We had some strong movements in pricing, which quickly translates to very, very strong returns quickly.
And we’ve got on the with the job with distributions back to shareholders. So, look, if that occurs, happily get the dividends rolling again. Second question was set capital requirements?
Rob Stein
Capital requirements to downstream.
Dale Henderson
Yes. Yes, thanks. There will be some time off. So, the first step for us is to progress the feasibility study, which is all about location assessment, selection of process, et cetera, those things will ultimately start to put some shape around capital requirements. We need to really work through that study, which is due March quarter next year. And from that point for there’s probably likely another step of study, which would ultimately progress the shape of that.
So, any capital, major capital requirements are quite some time off in that regard.
Operator
Thank you for all the questions. This concludes the Q&A session. I would now like to hand the conference back to Dale for closing remarks.
Dale Henderson
Thanks very much, Maggie, and thanks for everyone who dialed in today. For any questions we didn’t get to, please send those through, and thank you all for dialing in March quarter as been pretty solid quarter in terms of operating performance and project delivery, we remain focused on delivering on our strategy and building out through this part of the cycle to enjoy the fantastic opportunity to Permits business present for this growth market in lithium. Thank you all for dialing in and look forward to our next call in the future. Thank you.
Operator
Thank you. This concludes today’s conference call. Thank you all for participating. Have a great day, everyone.