U.S. Markets closed

Edited Transcript of GXY.AX earnings conference call or presentation 18-Apr-19 1:00am GMT

Q1 2019 Galaxy Resources Ltd Earnings Call

West Perth, WA Dec 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Galaxy Resources Ltd earnings conference call or presentation Thursday, April 18, 2019 at 1:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alan David Rule

Galaxy Resources Limited - CFO

* Anthony Peter Tse

Galaxy Resources Limited - Executive Director

* Brian Colin Talbot

Galaxy Resources Limited - Acting Chief Operations Officer

================================================================================

Conference Call Participants

================================================================================

* Glyn Lawcock

UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst

* Nick Herbert

Crédit Suisse AG, Research Division - Research Analyst

* Peter Arden

Bell Potter Securities Limited, Research Division - Resources Analyst

* Rahul Anand

Morgan Stanley, Research Division - Equity Analyst

* Reg Spencer

Canaccord Genuity Corp., Research Division - Mining Analyst

* Warren Edney

Baillieu Holst Ltd, Research Division - Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to the March quarter 2019 results conference call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, the 18th of April 2019.

And now let me hand the conference over to your first speaker today, to Mr. Anthony Tse. Thank you. Please go ahead.

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [2]

--------------------------------------------------------------------------------

Hi, good morning, everyone. With me today, I have Alan Rule, our CFO; and also Brian Talbot joining the call as well, our Chief Operating Officer.

So without further ado, let me hand over to Alan, just to walk through the quarterly for everyone.

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [3]

--------------------------------------------------------------------------------

Thank you, and good morning to everybody. The deal with Mt Cattlin operations first. For the March quarter, there was a deliberate focus on operational execution and optimization of production at Mt Cattlin. Production for the quarter was 41,874 tonnes. This was within the production guidance of 40,000 to 45,000 tonnes provided previously and was 24% higher than the December quarter primarily due to the increased grade of ore processed, increased volume treated and an improved recovery.

The production volume for the month of March was just over 17,000 tonnes at a recovery rate of just over 54%. This is the equivalent production run rate of over 200,000 tonnes on an annualized basis. Despite lower average grade of spodumene produced for the quarter as a whole, the weighted average lithium grade of spodumene through February and March was just over 5.75%, which is in line with the average grade achieved in FY '18. We have achieved further improved grades in lithium spodumene produced in April.

During the quarter, the Yield Optimisation Project was commissioned and brought into operation with the major focus now centered around improving utilization in each aspect. If you recall, the objective of the Yield Optimisation Project is to increase production volumes by processing a greater proportion of feedstock, enhancing plant recovery and improving the quality of the final product.

The 3 key component status is as follows: the ultra-fines DMS circuit, commissioning is now complete and ramp up under way. Total circuit utilization of 80% in the final 3 weeks of March is slightly below our budget utilization. The secondary floats reliberation circuit was successfully commissioned and operated. However, there was an imbalance in the water circuits, which negatively affected the operation of the existing DMS. Minor mechanical upgrades are underway that will rectify this.

Final product optical sorting is operational at full throughput rate. Utilization was below budget during the quarter. However, utilization and efficiencies are expected to increase significantly in Q2 as a result of software and mechanical upgrades underway.

Recovery in the June quarter is expected to increase primarily due to the rationalization of recoveries in the coarse and fine DMS circuit, resulting from improved maintenance of the DMS cyclones and an increase in utilization of the ultra-fines DMS and secondary float circuits.

The cash cost of production for the quarter was $453 a tonne, a 19% decrease on the December quarter primarily due to the increased production volumes. It's worth noting that the cash cost of production for March was down at $415 a tonne, and it is anticipated that unit cash cost of production will continue to reduce further in the June quarter as production volumes increase.

The difference between production and sales volumes for the quarter was due to timing differences between production and the agreed delivery schedule with customers. You would have noted, there were large volume shipments made to customers at the end of Q4 2018, taking advantage of the higher sales price at the time.

It's not Galaxy's intention to stockpile large volumes of final product. Multiple shipments are anticipated in the June quarter with final arrangements currently being confirmed, and a more normalized shipping schedule will continue for the remainder of 2019. Galaxy is targeting spodumene production in the range of 45,000 to 50,000 tonnes for the June quarter and retains its annual target of 180,000 to 210,000 tonnes for the full calendar year.

Moving on to Sal de Vida. As you all know, in relation to the POSCO deal in late February, Galaxy received the full $271.6 million consideration payable by POSCO in relation to the sale of the northern tenement.

Dealing with the strategic partnership, Galaxy has not been able to agree a transaction structure that provides Galaxy with what it believes is an appropriate valuation basis that properly reflects the world-class nature of the Sal de Vida asset. Negotiations are ongoing with a short list of interested parties. However, the company has now resolved to formally close the Sal de Vida process. Due to prevailing market sentiment and current weakness in short-term contract prices for lithium chemicals, Galaxy believes that it is prudent to remain patient regarding any third-party transaction for the Sal de Vida project because Galaxy remains highly confident in the underlying fundamentals of the lithium sector, the market growth potential and the world-class nature of the Sal de Vida project.

There are currently 2 concurrent test work programs underway at Sal de Vida that are focused on product validation and process optimization. The first one is process optimization product qualification work using the existing flow sheet of conventional evaporation ponds and processing technology. The work currently involves a semicontinuous pilot operation that is underway on site and construction of 15 hectares of evaporation ponds where the earthworks are now complete and the lining of these ponds is to commence shortly.

The second strategy involves testing a limited number of alternative process technologies for implementation in the process flow sheet. Early lab results regarding lithium extraction have been very encouraging in terms of the potential to improve process efficiency and increase recoveries.

A geotech study that was -- survey that was conducted at the proposed operation is now 90% complete. Results of this will be -- provide key inputs to allow facility and infrastructure locations, cost estimations and layouts to be completed.

Moving on to the James Bay project. As we've announced previously, in March, the Canadian Environmental Assessment Agency confirmed that the ESIA for the project is consistent with EIS Guidelines, resulting in the file moving to the next stage of analysis, which could mean that we receive a final recommendation within the next 12 months.

The predevelopment agreement with the Grand Council of Cree, the Cree Nation Government and the Cree Nation of Eastmain was signed in March. The Phase 2 test work program with Nagrom is 80% complete and is focused on optimizing upstream flow sheet design to maximize theoretical process performance.

At the corporate level, the Galaxy balance sheet is in the strongest position it has ever been with closing cash and liquid assets of $285.3 million and no debt. This provides financial flexibility to Galaxy and allows Galaxy the ability to continue to progress the development of Sal de Vida to ensure that its true value is unlocked and enhanced.

Anthony, I'd like to hand back to you.

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [4]

--------------------------------------------------------------------------------

Thanks very much, Alan. Operator, with that, could we open up the line to take any questions?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is, from today, it's from Nick Herbert from Crédit Suisse.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Can I just start on Mt Cattlin, please? And just looking at that grade profile, that processed grade above mined grade, wondering if you can isolate how much of that is due to the blending with that mined rate above processing, and how much of that is due to the positive grade reconciliation you referred to? I'm just trying to get a sense of how sustainable that outperformance is and whether that has implications for how we should be thinking about your general resource grade there.

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [3]

--------------------------------------------------------------------------------

Thanks for the question, Nick. Brian, could I ask you to step in on this one?

--------------------------------------------------------------------------------

Brian Colin Talbot, Galaxy Resources Limited - Acting Chief Operations Officer [4]

--------------------------------------------------------------------------------

The mined grade and the processed grade have always had a slight differential and we expect to see that continue through the operation of the mine.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

Yes. Okay. And -- but in terms of the processed grade, how much of that is due to the actual blending versus the grade differential you've just spoken to?

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [6]

--------------------------------------------------------------------------------

Nick, it's Alan here. The -- it's nothing to do with blending. It's all to do with the differential in terms of the mined grade and the methodology of how the mined grade has been determined.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

Okay. No problems. And then just on the -- on the sales contracts, and I know you guys have spoken that you moved to that biannual price reset, and just wondering how the actual contracted volumes were. Are they set 12 months in advance? Or are they also reset along with the prices?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [8]

--------------------------------------------------------------------------------

Nick, it'll be probably along with the prices. So customers generally have a production profile, which is established for kind of the first half of the year and second half of the year depending on how they think their business cycle is going to be going. And so as a result, this year, customers had pretty much weighted more volumes towards the second half of the year.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

Okay. And do you think then, given that's the case, how much of that first half volume you'll be able to recover in the second half sales, do you think, in terms of your full year production guidance? And...

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [10]

--------------------------------------------------------------------------------

Yes. I think our sales is pretty much going to be in line with our production guidance for the full year. At the end of the day, our customers also have their customers as well. And so what they're looking to do is budget the timing of procurement of raw materials in line with what they expect they would need to be producing for their customers on their downstream.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Okay. And just a couple more. The June quarter and with the shipping schedules that you're talking to at the moment, are you able to provide any more clarity around what your expected sales volume is for that period?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [12]

--------------------------------------------------------------------------------

Historically, we probably run at a rate of about 3 ships a quarter, 1 ship being approximately, plus or minus 10%, 15,000 tonnes. That's currently kind of where we're looking at the moment in terms of the June quarter.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

So 3 ships, yes?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [14]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

Great. And then finally just on Sal de Vida. How should we think about in terms of the rate of advancement of that project absent of the sale partner? And consider works that you're doing, should we just assume a continued, I guess, spend rate is to the guidance that you provided this year and just push back our estimates for possible production on that basis until we actually get some clarity around financing?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [16]

--------------------------------------------------------------------------------

So just let me clarify kind of what Alan said earlier. The fact that we have not yet agreed a partner and the fact that we're closing the process with JPMorgan are essentially 2 separate things. And we didn't want a process that was going to be hanging out there forever. However, we still currently are engaged with a small handful of counterparties to, essentially, negotiate a transaction structure and, more importantly, a value that we think is more appropriate for Sal de Vida. And so that process is -- that internal process is ongoing. It's just that we've basically stopped the banking process.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question today is from Reg Spencer from Canaccord.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [18]

--------------------------------------------------------------------------------

Just a follow-up question on Nick's regarding the shipping schedules. Anthony, you mentioned that June quarter, you might expect 3 shipments of circa 15,000 tonnes each go. You've got approximately, as you stated, an inventory of around 35,000 tonnes. Now if we assume production next quarter is around 45,000 tonnes, in line with your guidance, and then in the second half, if we then assume that your production continues to increase following the Yield Optimisation Project, do you ever actually make up those sales or that unsold inventory? When can we expect that, that 35,000 tonnes you've got on hand now actually gets sold?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [19]

--------------------------------------------------------------------------------

Yes. So Alan, probably jump in if my understanding is incorrect. But towards the latter part of the year, Reg, we actually end up substantially increasing the volume on a per quarter basis due to the ramp-up in delivery. So essentially in the past, what you've seen is a fairly kind of regular 2.5, 3 ships a quarter, like 40,000, 45,000 tonnes. And therefore, that kind of gave you your 160,000 tonnes for last year. But this year, the volumes are pretty much going to be second half loaded.

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [20]

--------------------------------------------------------------------------------

Reg, our expectation is that we're going to be using larger vessels in the back half of the year. So we're currently using 15,000-tonne shipments. We expect to move to 22,000- to 30,000-tonne shipments. Also, the storage capacity at the Esperance shared with Qube is much larger than it has been in the past. So it gives us more flexibility to get larger vessels going out.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [21]

--------------------------------------------------------------------------------

Understood. Just on your -- just curious as to any reason why you guys didn't report a cash margin on Mt Cattlin this particular period. Obviously, we can look to -- back at a rough price that you would have received for your concentrate based on your reported cash, but any reason that you've changed your reporting and your disclosure on that front?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [22]

--------------------------------------------------------------------------------

No particular reason. I mean you can basically work out our sales -- our unit price on the sales side by essentially ship volumes and now revenues, Reg.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [23]

--------------------------------------------------------------------------------

Okay. Understood.

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [24]

--------------------------------------------------------------------------------

It's -- the number is there.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [25]

--------------------------------------------------------------------------------

Just lastly on Sal de Vida, again, just following on from Nick's question. So your update stated that you will continue with -- or actually called it an early works program at Sal de Vida. And just to reconfirm, will you at some stage be providing a firmer development time line? Given your update today, can we assume that in the absence of any transaction that you will still proceed to develop the project? Or is it still your intention to seek a partner?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [26]

--------------------------------------------------------------------------------

One, we will push ahead and develop the project; and two, we will concurrently kind of look to bring some of those -- handful of discussions that we currently are continuing engagement on to fruition. But going forward, Reg, expect to see probably a little bit more detail from kind of activities and milestones, et cetera, from Sal de Vida.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [27]

--------------------------------------------------------------------------------

Okay. And then may -- Anthony, may that include a time line for us to work on? Or we'll just have to get in touch with...

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [28]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Our next telephone question is from Warren Edney from Baillieu.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [30]

--------------------------------------------------------------------------------

I'd just like to go back to the question on the revenue side of things because in terms of your closing cash balance of $285 million and the funds received of, what, $270 million, are you therefore saying that the revenue was only $15 million for the quarter? I'm not sure what capital expenditure you had for Sal de Vida or anything like that.

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [31]

--------------------------------------------------------------------------------

It's -- Warren, in that number is also -- is the revenue that we received on that single shipment. We had relatively low CapEx for the quarter. So we've included the sales of that one shipment in there.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [32]

--------------------------------------------------------------------------------

Okay. In terms of the recovery process, how do you see the recoveries improving as the year progresses, given that you said it was better in March but it's only sort of 3% higher than your average for the quarter itself?

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [33]

--------------------------------------------------------------------------------

Our expectation is...

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [34]

--------------------------------------------------------------------------------

Sorry, go ahead.

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [35]

--------------------------------------------------------------------------------

Our expectation is that we'll move up to around 60% for this quarter and hopefully a little bit higher after that.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [36]

--------------------------------------------------------------------------------

So when do you now feel that the target of 70% could be achieved?

--------------------------------------------------------------------------------

Brian Colin Talbot, Galaxy Resources Limited - Acting Chief Operations Officer [37]

--------------------------------------------------------------------------------

Looking at your target, the 70% in the -- end of quarter 3 and beginning of quarter 4, but we're also looking to target an improved quality of product. And so those 2 things come in conflict with each other. So our current strategy is around making sure we attain and improve quality of product. And that could come at some discount to recovery.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [38]

--------------------------------------------------------------------------------

Okay. In terms of quality, does that mean the concentrate grade?

--------------------------------------------------------------------------------

Brian Colin Talbot, Galaxy Resources Limited - Acting Chief Operations Officer [39]

--------------------------------------------------------------------------------

Indeed. Concentrate grade.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [40]

--------------------------------------------------------------------------------

Okay. So it's quite possible then if you end up having a concentrate grade of 6% or something like that, that you'll never achieve the 70% recovery?

--------------------------------------------------------------------------------

Brian Colin Talbot, Galaxy Resources Limited - Acting Chief Operations Officer [41]

--------------------------------------------------------------------------------

That's a possibility.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [42]

--------------------------------------------------------------------------------

Okay. And finally, just in terms of an earlier question just on the grade reconciliation between the mined grade and the reserves, I would've thought that your reserve grade with your -- whatever you're mining, you would have been using the block model out of the reserve grade to actually generate what you thought you were mining. So what -- I saw some commentary about nugget effect and all that sort of thing. But how confident are you of the reserve grade given the -- your inability to reconcile it on a quarterly basis?

--------------------------------------------------------------------------------

Brian Colin Talbot, Galaxy Resources Limited - Acting Chief Operations Officer [43]

--------------------------------------------------------------------------------

In summary, you hadn't said, right, we use a grade control model, which is based on a 20x20 meter drilling pattern. So the confidence levels associated with that are defined by that, whereas the processed plant grade is a sample taken every 100 tonnes and has a greater certainty around it. So the issue around spodumene is with -- is the nugget effect makes it quite difficult. And you would have to drill it at a -- about 5-meter spacing, which isn't economic and doesn't justify the cost. So the simple statement is, we believe we have enough accuracy to determine our business plan with the model we have, and we expect to see an offset between mined grade and processed grade going forward.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

And our next question is from Rahul Anand from Morgan Stanley.

--------------------------------------------------------------------------------

Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [45]

--------------------------------------------------------------------------------

Look, I did join a bit late so if I'm repeating some of the questions, apologies in advance. First one is around contracting. I mean I understand that first half, second half pricing, it's been changed from last year and we're doing biannual pricing now. Can I also get an idea of how the discounts work in this new contract? Has that $15 per 0.1% grade differential changed? Or is it flexible now? And if so, how has that discount moved in the current market? That's the first one, I think.

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [46]

--------------------------------------------------------------------------------

Rahul, it's $10, not $15.

--------------------------------------------------------------------------------

Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [47]

--------------------------------------------------------------------------------

Right. Yes, so is that fixed?

--------------------------------------------------------------------------------

Alan David Rule, Galaxy Resources Limited - CFO [48]

--------------------------------------------------------------------------------

Yes. It's the same ratchet.

--------------------------------------------------------------------------------

Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [49]

--------------------------------------------------------------------------------

Right. Okay. So that's irrespective of price. And in terms of the volumes then, is it fair to assume that the volumes are contracted for this year and the price is biannual? Or are both biannual?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [50]

--------------------------------------------------------------------------------

No. We negotiated long-term volumes and the price is a biannual reset, which is a change from the previous annual pricing regime that we used to have.

--------------------------------------------------------------------------------

Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [51]

--------------------------------------------------------------------------------

Okay. Understood. And then just finally with regards to the DMS project and the ramp-up, with the 70% recovery, what end-product grades can we expect?

--------------------------------------------------------------------------------

Brian Colin Talbot, Galaxy Resources Limited - Acting Chief Operations Officer [52]

--------------------------------------------------------------------------------

So the 70% recovery was based upon an end-product grade of 5.6% when we did the modeling. And we are targeting a 5.8% to 5.9% grade at the moment. So there will be a slight discount on the recovery.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

Our next question in queue is from Glyn Lawcock from UBS.

--------------------------------------------------------------------------------

Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [54]

--------------------------------------------------------------------------------

Just a couple. Firstly, just going back to Sal de Vida, just so I'm clear, so no more banking syndicates and you're not searching for more parties but you're talking to a small handful. I think you sort of answered Reg's question a little bit that you'll gave us a time line, but I mean do you think you can close this deal? And if you can't close the deal, do you still move ahead with Sal de Vida? I mean what's your appetite for going alone? Or is a sell down necessary for you to continue to move this forward? And then I guess, Anthony, I'm just interested, the announcement at the corporate level, your change of role, just what's your longer-term intention? I mean are you thinking you'll stay in that new role for a while? Or we're just curious what -- why the change and what's your intention.

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [55]

--------------------------------------------------------------------------------

Thanks for the question, Glyn. Essentially, on Sal de Vida, we will be pushing ahead on development and we essentially are still aiming to bring in a partnership. Obviously, in all scenarios, we'll be evaluating the different options. And that kind of comes hand-in-hand with, I guess, kind of the more broader kind of corporate strategy in terms of we are looking to essentially beef up, essentially, operation and project building capacity within the senior executive team. Hence, obviously, the announcement that you would've seen recently about the future management change.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

Our next telephone question is from Peter Arden from Bell Potter.

--------------------------------------------------------------------------------

Peter Arden, Bell Potter Securities Limited, Research Division - Resources Analyst [57]

--------------------------------------------------------------------------------

Just on Sal de Vida mainly. The process to find a partner has taken a very long time. And it just seems to me that it's hard to understand whether you were really looking for financial assistance or technical input. Can you put some light on where the weighting is in that because I have a sense that you -- and in your announcement that you're looking at alternative technologies, it tells me that you're looking for something a bit special in the way you develop that project or operate it.

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [58]

--------------------------------------------------------------------------------

Thanks, Peter. In terms of the partnership, we've always been looking for a balance of someone who has the financial capability but also would have the ability to add value on the execution side. And so as a result, we've been quite particular about the profile of that partner. In terms of the execution side, I mean, it could range based on the counterparties that we're dealing with, people who have existing exposure or experience within the lithium industry as well as those that more broadly have a project execution kind of track record as well.

So I think it's kind of a balance between the 2, Peter. In terms of kind of the time that it's taken, obviously, I think you are aware that we've also been essentially running a banking process with JPMorgan, in the backdrop of what, in the second half of last year, was a continuing softening market. And to put it bluntly, obviously when you have softness in the market, the valuations that we were kind of negotiating with the counterparties, I think in light of the POSCO transaction, probably fell short of our expectations of our targets. So that's why we're prepared to kind of spend more time to actually kind of negotiate that to something that we feel is a more appropriate recognition of value.

So Peter, sorry just one more point there. One of the things I actually want to kind of reiterate is that last year and the beginning of this year, we have actually been successful in actually completing a transaction on Sal de Vida. And so there is a clear recognition of value, and we were able to bring in essentially USD 280 million gross of nondilutive capital to the project. So I don't think that factor should also be kind of ignored as well in terms of kind of, if you want to get a look-through in terms of an appreciation of the underlying value for Sal de Vida.

--------------------------------------------------------------------------------

Peter Arden, Bell Potter Securities Limited, Research Division - Resources Analyst [59]

--------------------------------------------------------------------------------

Yes, absolutely. You did extremely well and it's a great project. And I guess that's why I'm just trying to understand where the balance might sit in terms of you said you've got 2 streams to develop the program for optimizing -- the process optimization of looking at existing technologies and also newer ones, a select number, a small number, I think you said. So are you able to give some sort of guidance to where that weighting fits? How long are you prepared to spend developing some new innovative technologies that could give you a real advantage versus just using more conventional methods?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [60]

--------------------------------------------------------------------------------

So Peter -- Brian, jump in if I've missed anything. But in terms of the 2 work programs, that test work is actually underway already. And we'll essentially be expecting to kind of bringing some of those findings to conclusion in the second half of this year. So concurrent to that, obviously, would also be how we think about executing on the project kind of going forward, whether it's full conventional, full unconventional or ultimately there could be actually a third scenario, which is a hybrid mix of the conventional and unconventional approaches to actually building the project.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

And next telephone question is from Warren Edney from Baillieu.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [62]

--------------------------------------------------------------------------------

Just wanted to go back to Sal de Vida again just so that I understand. In terms of the state of play at the moment, you're building ponds. Has the pilot plant been completed, first of all?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [63]

--------------------------------------------------------------------------------

Yes. We've got a semicontinuous or semiautomated kind of pilot operation there at the moment. We may actually have to do some alignment. But we're building about 15 hectares of test ponds there, Warren. And so we just want to make sure that essentially the capacity that we're going to be getting out of the ponds in terms of throughput is going to be matched on the pilot there. So there may have to be some equipment expansion there as well. But there is a pilot there. We just want to kind of have a pond on -- have some ponds on the back end.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [64]

--------------------------------------------------------------------------------

So how long will you have to have the ponds evaporating before you can actually run it, run the pilot plant?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [65]

--------------------------------------------------------------------------------

So outside of kind of the small kind of brine inventory that we essentially kind of had on hold anyway from our previous, kind of, like, very small, what I call, pilot ponds as opposed to demo ponds, actually, you would have to go through an evaporation process of about -- subject to whether -- somewhere between 12 to 15 months. There are other ways that the Tesla program is looking to actually shrink that time line and some of those time lines could actually be shrunk through techniques involving forced evaporations.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [66]

--------------------------------------------------------------------------------

Yes. Okay. So really we're looking at end of -- or middle of next year before you get anything meaningful from the existing flow sheet?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [67]

--------------------------------------------------------------------------------

On the existing one, but on the alternative one, Warren, I mean if, you're looking at direct extraction, you actually omit the evaporation step.

--------------------------------------------------------------------------------

Warren Edney, Baillieu Holst Ltd, Research Division - Equity Research Analyst [68]

--------------------------------------------------------------------------------

Yes. Okay. But I guess the other thing I was going to ask about the new flow sheet, the alternative flow sheet. The chemical, like larger scale chemical processes just even for doing test work tend to take a long time to balance out and all that sort of thing, so I would've thought that unless -- when -- if you started working on it a long time ago, it'd be fine, but I would have thought it would take another sort of like a 12 to 18 months to actually get anything meaningful out of an alternative process route. Or am I misunderstanding the complexity of doing it?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [69]

--------------------------------------------------------------------------------

So there's 2 parts, Warren. One is actually what you're doing in the field at the work site. And secondly, in terms of having raw material available to actually kind of run through the test work program. And secondly is obviously the capacity that we have lined up in terms of third-party, kind of, service providers and kind of research labs, et cetera. But essentially, we're currently running to a time line which looks around -- probably around Q3, Q4 in terms of bringing some of the findings from that test work program in.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

Our next telephone question is from Reg Spencer from Canaccord.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [71]

--------------------------------------------------------------------------------

Just a follow-up on Sal de Vida again. In terms of, I guess, the process. Can you make any comment as to whether or not you've seen any change in the nature of the parties that ran the course over the course of, let's say, the last 2 years since you had initially been discussing bringing in a partner for the project?

Obviously, the market seems to have pivoted a little bit away from a carbonate from a brine-style operation into, I guess, in the short term, favor the integrated hard rock models. So I was wondering if you could tell me has the nature of the groups that have been interested in partnering up had changed over the last 2 years, and how might the groups that you would have been talking to a couple of years ago changed to what your shortlist might have ultimately looked like today?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [72]

--------------------------------------------------------------------------------

Yes. Essentially, probably about 18 -- 12, 18 months ago, you probably had a larger share of what I call more straight financial investors. Whereas now, I think each of the parties that we continue engaging are very much strategic in nature, either in terms of within the industry or outside of the industry, but with very substantial industrial operations and project execution kind of track records. So I think probably if you think about it not too dissimilar to the public capital markets, you probably had a very different type of investor in the sector, 15, 18 months ago versus what you have today. Ultimately, from Galaxy's perspective, one, we believe that this is a world-class asset; two, we actually are also strongly confident that the market actually has strong term kind of our fundamentals.

We probably won't -- I won't necessarily subscribe to your view that the world is going to be all hydroxide going forward. In fact, we probably have somewhat divergent views there. I think the carbonate market is actually potentially going to be making a comeback more so than what people had been expected, primarily due to a couple of reasons. One obviously, the phasing out of the subsidy policy in China as we start to level the playing field in terms of LFP versus NCM. But secondly, if we look at the potential uptake of storage within the China sector as well, that is going to be essentially predominantly an LFP play. And so ultimately, given that there are material handling kind of complexities around hydroxide and impurity profiles such as metallic content in hydroxide is actually even more sensitive than in carbonate, plus the fact that based on kind of our interactions with midstream users and end user OEMs, albeit that there is a lot of talk about kind of moving to 811, we do not think currently that, that will essentially become really mainstream until probably sometime between 2022 to 2024. And even that, based on our current view, I think we're probably still a little bit longer carbonate than hydroxide by 2025. I think it's going to be a balanced kind of mix. And so from that perspective, our views on buying versus hard rock still remain kind of in line with that balance.

--------------------------------------------------------------------------------

Reg Spencer, Canaccord Genuity Corp., Research Division - Mining Analyst [73]

--------------------------------------------------------------------------------

Okay. Just another question, and you may not be able to answer this, but I was wondering if you could provide a comment on where you believe the project worth might be at Sal de Vida because if we think about the NPV that you did at first, which outlined over $1 billion, and if with that valuation on which you would be looking to base the transaction on and structure a transaction around. Given your market cap is actually now arguably half-backed by cash, has that in your opinion, contributed to the difficulty in negotiating with these other strategic groups in delivering the -- a transaction structure that would match up with your belief or views on the value of the asset? How much has that contributed do you think?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [74]

--------------------------------------------------------------------------------

Reg, I think that the see-through that we've always been looking to achieve is essentially a see-through that was more indicative as a result of the POSCO transaction. So if I recall, the POSCO transaction at the time that we announced was essentially a sale of approximately 1.58 million tonnes of measured and indicated resource or 2-plus-million tonnes of total resource for a consideration of $280 million. I think if you actually pass that number back through kind of what we actually retain in terms of total resource at -- or measured an indicated resource at Sal de Vida, that kind of implies a $700 million kind of see-through.

Now obviously, the way that you structure the transaction has implications on pre-and post-money valuations. But I think what we are trying to achieve at the moment is a combination of having appropriate -- whether or not we can actually kind of hit that $700 million number is one thing, but on the other hand, I think we would not be doing any -- our shareholders any favors if we turned around literally back to back and did a deal on Sal de Vida for USD 70 million -- or USD 170 million because that, in our view, is not proper -- ascribing kind of proper value to the Sal de Vida asset.

So I think where we are at the moment is we're prepared to be strategically patient and continue to kind of engage and work with these parties. Obviously, one, the market cap, but two, just obviously as you can appreciate, just market sentiment, especially in the last 6 to 8 months would have invariably played some part in how counterparties come up with their valuations as well.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

And our final question today is from Glyn Lawcock from UBS.

--------------------------------------------------------------------------------

Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [76]

--------------------------------------------------------------------------------

Anthony, just on the pricing and the volume. So I understand you contract long-term volume and then the price is 6 monthly. The guys that have deferred in this first half, how do they pay for the product if they take in the back half? Do they pay first half price or do they pay prevailing price? I mean if they're choosing to push you around a bit by the sounds of it, how do they do that and how does the pricing work? And then secondly, I was just going to say and then on Sal de Vida, just trying to reconcile it, I mean, how is your confidence changed in being able to get a deal done given everything you've been saying around markets have gone against you a little bit in terms of price and sentiments? Like has your confidence in getting this deal done wavered or changed at all?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [77]

--------------------------------------------------------------------------------

Thanks, Glyn. We are essentially still confident that we can get a deal done on Sal de Vida. I guess between the market and the company's kind of expectations in terms of valuation, we may have to come -- try and come and meet in the middle somewhere. But we're prepared to kind of be strategically patient and try and kind of negotiate that through.

Obviously, there is aspects of structuring that we can do to obviously kind of -- to help kind of contribute towards getting that done, whether it's by way of not necessarily a sell-down but some form of kind of earning structure. So that's the first thing. Second thing, back on your questions around pricing and volume, the reset price that we have would essentially be for essentially shipping in the second half of the year.

--------------------------------------------------------------------------------

Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [78]

--------------------------------------------------------------------------------

So sorry, does that mean they pay the price in the back half if they've deferred from the first half?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [79]

--------------------------------------------------------------------------------

No, no, no. Whatever volumes they take in the first half, they pay a first half price. And then subject to us kind of having a renegotiated price, then second half fulfillment would have a second half price.

--------------------------------------------------------------------------------

Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [80]

--------------------------------------------------------------------------------

So they can -- if they think the market is falling, they can just keep deferring. Can they -- you don't have any control. There's no -- you can't push them to take the product. They can defer again in the second half as well if they feel price is still going south?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [81]

--------------------------------------------------------------------------------

No. We have to come to a landing on -- in terms of price. Like I said, the volumes, we look to fix volumes and float to price.

--------------------------------------------------------------------------------

Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [82]

--------------------------------------------------------------------------------

Yes. But it sounds like your customers have deferred volume in this first half and...

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [83]

--------------------------------------------------------------------------------

No. The volume was scheduled. I mean when we actually sat down with the customers at the beginning of the year, they'd say, "I want X in the first half of the year and Y in the second half of the year."

--------------------------------------------------------------------------------

Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [84]

--------------------------------------------------------------------------------

Okay. So they haven't deferred through the year. It was agreed that it would be quite a big skew at the start of the year then?

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [85]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [86]

--------------------------------------------------------------------------------

There's no more further questions at this time. I'd like to hand the call back to the speakers for any concluding remarks. Please go ahead.

--------------------------------------------------------------------------------

Anthony Peter Tse, Galaxy Resources Limited - Executive Director [87]

--------------------------------------------------------------------------------

That's great. Thanks, operator. Thank you, everyone, for joining our call today and I look forward to speaking with everyone again soon. Thank you.

--------------------------------------------------------------------------------

Operator [88]

--------------------------------------------------------------------------------

Ladies and gentlemen, that does conclude the call for today. Thank you all for participating. You may all disconnect. Goodbye.