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Edited Transcript of MIN.AX earnings conference call or presentation 21-Feb-19 4:00am GMT

Half Year 2019 Mineral Resources Ltd Earnings Call

Bibra Lake Jun 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Mineral Resources Ltd earnings conference call or presentation Thursday, February 21, 2019 at 4:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher James Ellison

Mineral Resources Limited - MD & Director

* Mark G. Wilson

Mineral Resources Limited - CFO & Company Secretary

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Conference Call Participants

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* Hayden Bairstow

Macquarie Research - Analyst

* Mathew Hocking

JP Morgan Chase & Co, Research Division - Analyst

* Rahul Anand

Morgan Stanley, Research Division - Equity Analyst

* Timothy Hoff

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Mineral Resources Limited Half Year Results Teleconference. (Operator Instructions)

I would now like to hand the conference over to Mr. Chris Ellison, Managing Director. Please go ahead.

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Christopher James Ellison, Mineral Resources Limited - MD & Director [2]

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Thank you, and welcome, everyone. Welcome to the Mineral Resources Half Year Results Presentation. I'm going to run you through a few key points. I'm then going to hand across to Mark Wilson, and Mark is going to run through the financials with you. And then I'll step back in and I'll take you through what we've been doing over the first half of this year and where we're going over the foreseeable future, and we'll close out with questions.

So the year, financial year, because we're halfway through -- to say we're halfway through is probably the most significant for Mineral Resources. Since its inception, we've achieved a lot. The only thing missing, I guess, is we didn't miss the -- we did miss the bottom line that we had from last year. But I think with logical reason, you will see that and you probably will understand it without me telling you that.

During the period, we've sold down 50% of Wodgina lithium site, and we found a great partner in Albemarle. We've got a huge amount of progress. We worked through on the buildup at -- largely around developing the crushing plant, the infrastructure and the 3 trains that make up our spod plant. And that's been really the heavy end of the plant at Wodgina in that period. We finished the upgrade down at Mt. Marion, so we've changed that to all-in 6%. We've completed the joint venture with Brockman on the Marillana iron ore project, which is part of our medium-term plans to bring online the BOSS system and to be able to connect that up at the right cost. We've completed the acquisition of Cliffs. We're moving on the site. We've got that operation underway. We've acquired the Kumina iron ore deposits, and we've completed all the detailed design on the Bulk Ore Shuttle System in conjunction with our partner, Destec. And we're significantly through the third-party verification from one of the world's most renowned on -- going at that workforce. We've had the first carbon fiber dump truck tray actually go to site and (inaudible) the digger and we've loaded iron ore on it successfully. So that's dump truck tray #3. We'll talk about that a bit later. And the hydrogen/synthetic graphite test plant is nearing completion. So a lot has been achieved just in the [half].

Health and safety, I'll go through with you briefly. We are still sitting at a very solid industry level, 2.87. That's slightly better than where we were this time last year, and that's a significant achievement for the whole team at MinRes. Because during that time, we've added about 800 new full-time positions, so very challenging to bringing new people into a very busy environment and to be able to achieve those end results. The culture is another area the company (inaudible) culture. And that's been achieving some outstanding results, and that's giving longevity to a lot of our high-quality staff we got.

We've achieved some good areas. I've introduced another little section in here on our clean energy initiatives. So I think it's important that we be able to highlight them going forward. But we've achieved some outstanding results over the recent period of time with that. We are focused on reducing our reliance on diesel fuel going forward. And sitting inside the presentation, you can see there's a range of initiatives that we've been able to achieved through: gas-fired power up at Wodgina; the LNG-fired power station down at Mt. Marion, which is going really well; and we've recently added one of the big lithium batteries down there. And what that does, that allows us to reduce the runs -- or the running of one of the gen sets down there. So that we've got a battery standby power. That, in effect, has reduced our fuel burn overall by 12%, which also saved us about 1,380 tonne of carbon going up into the atmosphere. Solar panel's another area we're working on, small at the moment, but we've got 2,700 of them installed and getting some great savings there. We're moving in the right direction. But we're looking at natural gas, LNG, battery storage and hydrogen gas (inaudible).

Another section I just put in as well, a hot topic at the moment, tailings storage. So I just wanted to confirm to our investors that we don't have any tailings at storage dams in operation, with the exception of dam at Mt. Marion. We're using an abandoned pit down there. So it's not a tails dam. It's a hole in the ground that they -- it had a gold mine previously, and we're using that. It's probably got 15 to 20 years of life. And if so, we've got no exposure there. At Wodgina, we've recently just completed building a 3-million tonne tailings storage facility. We did that under a third-party specialist engineering and design contractor. We also have them continuously on site, making sure that they inspected the whole dam as it's being built, verified that it was built to the right standard and the right way and the right confection, and we've got certification that the dam is fully compliant.

So they are the key points from where we are at the moment. I'll hand over to Mark, and Mark is going to take you through where we are on the financials. And then, I'll step back and tell you where we're heading.

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [3]

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Thanks, Chris, and good afternoon, everybody. It's a pleasure to join you here for the first time with Mineral Resources, and what a busy time for me joining the company. There's a lot happening, a lot happening -- a lot has happened through the period, and we've tried to put some extra information into the materials we put up for the exchange today to help get you all through that activity with a bit more clarity.

Generally, results of the EBITDA align consistent with the guidance we provided in November. At the headline, EBITDA for the group for the half was a shade under $72 million with NPAT of about $13 million. As we've reported, those numbers are impacted by the fair value adjustment for our investment in Pilbara Minerals. It's about $30 million. So really, on a normalized basis, EBITDA was shade over $100 million at $102 million, and NPAT normalized was at $34 million.

Turning to the detail of the results themselves and the composition. Chris touched on it very briefly in his introduction. The results are down on the prior corresponding period. We dropped -- set out very clearly drivers for that. The main driver was the cessation of spodumene -- sorry, cessation of DSO sales at Wodgina with a direct impact to the mining [segment] of almost $68 million, but that impact was more than that through the group. The -- well, the level of activity at Wodgina, total impacts on things like asset utilization and other margin that emerging through other mining services and from future mine services arrangements. The second main impact was at Iron Valley, where despite shipping some 600,000 tonnes more in the corresponding period, results are down almost $40 million compared to the prior corresponding period. And the key driver there is the realized price as a result of the discounts that we were experiencing at Iron Valley as we go deeper into that body. So those 2 were the major movements through the period.

Just for reference. Our -- at corporate cost (inaudible) over the half by about $10 million. But within that number there, there are a number of nonrecurring one-off items. And I would estimate that, on an annualized basis, the corporate costs, just doing business across these multiple (inaudible), is about $16 million up on the prior year. As a result of all that, we end up with a -- the board has resolved today to declare dividend of $0.13 a share. That dividend has been calculated applying the same dividend policy the company has adopted for some time, where we basically provide for (inaudible) dividends, settling 50% of our expected NPAT over the course of the year, and then we okay the third of that for the first half and 2/3 of it for the second half.

In terms of cash flow, business has experienced a working capital outflow during the year of about $80 million. Key driver there has been the [site of] Kooly, where we've seen cash tied up in stockpile builds and also in receivables. While we expect some of that $80 million to reverse out in the second half, but note, we will be ramping up activity at Wodgina, and so I would expect inventory to build in Wodgina as a result.

In terms of CapEx, I'd just like to take a minute to talk about that. In November, we offered a number of $490 million for the year for Wodgina, Marion, Kooly and Yellow Goods. When we provided that number, we were in a position where we had significant unplanned contingency at Wodgina, and we made the assumption that we would be made to spend that contingency. Today, it's clear that we will need to spend that contingency. Well, we don't believe the overall Wodgina capital spend will differ materially from the $610 million or so estimate that was provided middle of last year. We have about $70 million of contingency now. It wasn't in that $490 million estimate that will be expensed. I just want to emphasize, though, that the Wodgina capital spend program will come in at or very close to that estimate that was given some -- almost 8 months ago. During this quarter, remarkable achievement (inaudible) number of months ago before we complete.

Other key drivers on the CapEx. We thought to call out a couple of other key elements, which haven't been called out typically before and weren't part of that $490 million or didn't fall within that $490 million number, most particularly mining development and explorations for the new -- we're estimating that a little -- shade over $70 million. Just for reference. Into the last couple of years, that category of spend has been insane, some totaling about $180 million -- sorry, $160 million expended. So the spend this year for that (inaudible) is broadly in line with what we've done in the last couple of years. There are other elements of the CapEx spend this year, again, that we haven't expressly incorporated into that November number, such as crushing, which we've made more -- expressed in the deck, along with some intangibles and other spend, (inaudible).

So that takes us to a balance sheet that has a net debt position at 31 December of $653 million. I think the critical point there is that, that will -- that balance will increase over the second half as we complete our capital spend program. However, we would expect that the completion of the Wodgina program -- and we've given some guidance in the deck of the timing there. The critical path there is the Chinese regulatory approval estimated to be somewhere between 3 and 9 months. Proceeds of that settlement will turn the company to a net cash position.

So in summary, a period of significant activity, significant investment for the future. And I'll turn it back to Chris now to take you through the operational performance and also where we're heading second half.

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Christopher James Ellison, Mineral Resources Limited - MD & Director [4]

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Thanks, Mark. Okay. I'll just give you a brief run-through on where we've gone over the 6-month period in our crushing and mining services part of our business. We have added a 6 million tonne contract at Koolyanobbing, and we've ramped up the first of our NextGen plants and, in it, Pilbara Minerals. That's gone exceptionally well. I mean, that was really important to us because this is a new innovation we've been developing over the last 3 or 4 years, where we can take a 12 million tonne modular plant from 0 to (inaudible) and be in full production. And it probably took us a couple of weeks longer, but it was the first one, and it's really performed above expectation. So good for us going forward. We've got a couple more of those in the yard, and we're working on that.

We'll give you -- I'll give you a bit of an outline. I won't go through everything I've got here in the presentation. But we've certainly moved some dirt with our mining fleet.

Construction. The bulk of the work at Wodgina happened in that July to December period. We spent about $330 million. We peaked at about 600 guys on site and that we really did get an awful lot done. Mt. Marion construction is completed on the all-in 6% upgrade, and we commenced the commissioning process down there.

Energy, part of our business model. A lot happening in there other than the, still, progression through the Perth Basin and that we've got some very highly prospective pieces of exploration going out there, and we're progressing through there. And we are hoping that we'll be able to become self-sufficient one day in our own gas, and we want to get down to the bottom end of the cost curve on clean, green energy.

Site services. We've added on another 400 rooms. So we've taken on Koolyanobbing. So we've -- cooking an awful lot more meals there in that region. And we've got another 850 room life-of-mine contracts and airport services that are coming in at Wodgina. We're starting to get through that construction phase, and we got operational arrangements, people moving into the site.

Commodities with -- it performed well at Mt. Marion, had a little bit better than the plant was originally designed for, quite a bit better in fact. The pricing has been half reasonable.

Wodgina, we shut off the DSO operation. I mean, I think we became famous for that. Everyone knows that and for good reason. They're building a plant on site at the moment that is going to extract significant more value out of a tonne of lithium than basically just doing the easy way. I mean, look, we certainly produced a lot of cash for the business and have worked extremely well. But now we want to make sure that we not just extract the benefit through spodumene, we want to go right through to the hydroxide.

Koolyanobbing. We got there -- a little bit later than we anticipated. It took about 3 more months to get all the approvals and the startup to move and actually move on site, but that all happened. Then we got all out. In December, we made 300,000 tonnes, so good result. Costs are high, obviously, because we're spreading them over tiny number of tonnes. But as we're coming in place to run rate now, so we're looking at 600-tonne run rate, I think we're going to go with that. And that'll get the cost down to the budgeted numbers that we prepared, and it should run well.

Iron Valley, 3.7 million tonnes out of there shipped, and it went reasonably well.

Going forward, in the future, where are we heading? In the crushing and the mining services, probably the best outlook we've had in the last 15 to 20 years. The number of opportunities sitting out there are quite significant. We've got more than 35 million tonnes of new crushing volumes that we are currently working on or negotiating on. We're not saying that we're going to get all of them, but it's certainly up at the top of the list to acquire the large share of them. And we're having discussions over -- in the existing plants, where they'd want to double their capacity over the next 12 or so months.

Mining, busy. We're ramping up the full production down at Koolyanobbing, drill and blast and mining. And we're mobilizing to -- into Wodgina, again, and getting ready for the site early next -- for the next 30 to 50 years.

Construction have been very busy, I mean, very important part of our business and being able to make sure that we've delivered these projects. The new designs that we're working on, nothing overly new in the process. We're doing flotation at Wodgina, so relatively straightforward. But big plant, it's under construction up there and not only -- they're not just building a plant to produce 750,000 tonnes of spod. We're producing a huge amount of infrastructure up there for the future. So when we go in there for the hydroxide, I think we've got a power station there that's capable of taking right through to converting all of the spodumene into hydroxide. We'll have an airport. We're going to have bore fields. We've got bore fields, and we have ample tails storage. So the total cost of the spodumene and the hydroxide plant is going to be a fairly low number. I think Mineral Resources are well known for their capability of being able to design and build and own and operate in-house. So we don't bring in the traditional model, [if you] could see in contractors, then subcontract a whole bunch of work. So going to expense $610 million off on that site. We've got huge value for money. And obviously, we've attracted kind of the best in the world in terms of our partnership with Albemarle. They're attracted to the quality of the deposits and the quality of Mineral Resources to be able to play this year in the JV. So pretty happy with where that's going.

Mt. Marion is going pretty well. I think I said that the -- our (inaudible) a bit slower than we'd have liked. We had some issues with a supplier on that and we've overcome all of that. Then the guys have started commissioning that in end of December.

We've laid out what we think its commodities production looks like going forward over the next 6 months. So you've got the numbers on that, nothing special. The 4% is going to disappear out of Mt. Marion, and we're heading towards a full-on 450,000 tonnes of 6% coming out of there, good product, well received in China. And our partners at Ganfeng have had very good experience on the processing of that.

Production, we're all going normalish up at Wodgina. We should produce about 70,000 tonnes, and about 60,000 should go on a ship and be sold.

Koolyanobbing will be up at a run rate, well and truly, 6 million tonne. Slightly more fines down there than what we were anticipating, so the lump/fine [slip] has gone a little bit negative. That could improve in the future. But at the moment, you can see the numbers we were running on that.

And Iron Valley, Iron Valley is always a little bit of a tricky site because we're running high impurities out there. And the fines out there, down somewhere between marginal and a loss. So we've got to be opportunistic on those fines and make sure that we're locking them to sell at the right time. And at the moment, the timing is good now, but we don't know how long it's going to last.

Wodgina, critical asset to Mineral Resources going forward, as everyone's aware, that we've -- depending on the exchange rate, we've sold about the sort of half of it for about $1.5 billion. The number is relatively important on the day, but not as important as having a partner like Albemarle, I mean, outstanding partner. And we're bringing together 2 organizations, one that's got strength in operating underground here and operating plants and certainly building and operating the spodumene and Albemarle has got some great technology on the hydroxide design. They currently run hydroxide plants here successfully. They're ramping line up in China at the moment, going unbelievably well, and they are certainly at the -- in the top of the game in terms of marketing and long-term sales. So we think that over the next 30-odd years, we've got an outstanding operations and -- into the region we investing and it's [well and out].

And we should be able to bring this plant online progressively. It's a relatively simple process. We've had the process vetted by outside. We've done a huge amount of test (inaudible). So we've taken every precaution to make sure the setup's right. We're actually turning the crushing plant on tomorrow. And the crushing plant we put in there -- I guess because it's Mineral Resources, I mean, we had some pretty big share assets, we can actually handle about 10 million tonnes through the start, which means we can put big rocks through at low cost, good throughput, very robust plant. So first rock is going through that tomorrow, and we're going to start the commissioning on train 1 later this month, which is not far away. First ore will be coming out in March. Train 2 commissioning is in April. The first ore on the deck in May. And then the last train, #3, commissioning at the end of the financial year, around about mid to late June. We expect that each train is going to take us around about 8-ish weeks to go from 0 to 80% of its nameplate capacity. We think, certainly, there's no question, that when actually complete, Train 2 is much easier than 1 and Train 3 is much easier than the first 2 because lessons learned. Any issues that were found have been corrected for the others. So the luxury of having 3 trains is that we get one right, the others are a carbon copy, so.

And our power station's complete. We've got the biggest reciprocating gas-fired power station in the southern hemisphere. The good thing with that is that the costs are really low, one of the lowest costs I've heard for a power being generated on a mine site. And they're reasonably [green]. We feed in that with an 81-kilometer 10-inch gas pipeline, which should be commissioning in April. So we've got plenty of temporary power on site to get us through to there, and we've got the old power station, of course, but a bit of diesel and a bit of gas.

The Albemarle joint venture is, as I've said, it's subject now to FIRB approval, and we're also waiting on the China State Administration for Market Regulation for their approval. We're not sure on that time frame. But we're getting operational readiness and are thinking about what we're going to do when those things happen. And we're also going down the path with completing our hydrogen plant -- or sorry, a hydroxide plant design. And we're going to have most of that finished by the end of June this year. So that's been going well.

Mt. Marion. Commissioning is underway in the float plant, and we expect to be able to bring that online progressively. It's a little bit more awkward to do the commissioning on that because we're obviously running the existing plant. This one marries into it, and I've asked the guys not to interfere with production while they're trying to make this magic happen. So sometime during in March, we'll have them integrated, and we'll gradually fade out the 4%. We've got a few workshop and bore fields sitting down there, but (inaudible) will probably stop about the end of June.

Our joint venture partnership with Ganfeng has been outstanding, and the -- all the product now has moved from Kwinana, and we're now putting it through Esperance. We've been able to get the saving in doing that, and we are progressively going to be transitioning through -- to a 50-50 joint venture with Ganfeng (inaudible) Neometals supplier.

So going forward, the entire team of MinRes have got a very strong focus. We've got 5 key areas that we're focused on. In no particular order, but primarily the top 3 is: delivering Wodgina the nameplate; getting the sell-down complete with Albemarle and the joint venture locked together; and of course, Mt. Marion, bringing that online and up to nameplate capacity. The other area of our business that's extremely important is our new BOSS, Bulk Ore Shuttle System, that we've been working through and developing with the help of one of the former founders of MinRes, Steve Wyatt, through Destec. That's been going extremely well, and we hope to have the trial track running a little bit later than what I think I said earlier. But somewhere around July, August this year, we hopefully got that running. And we're also very focused on delivering each crushing opportunity.

So that's our total focus. We're not really interested in looking at any other opportunity or anything sort of between now and the end of June. And if we deliver those, the business has got a fairly outstanding pipeline ahead of us, and we've got 30 to 40 years of solid business that we've got sitting inside the company now.

A bit more on the Bulk Ore Shuttle System because it's important. I mean, I think once we get to a point where we've got this thing proven up, then we certainly -- we're going to share that information, that's all of our shareholders, and we're going to probably road show it and get everyone's view. We're not just going to go -- we're not using any funds that will get out of anything to do with our lithium and mining business. It'll be a separate funding arrangement, and that'll be -- once we have got the support of our shareholders.

But extremely important to us going forward. It's able to deliver ore from stranded deposits either into the terrace or take it through existing mining hubs. It'll certainly enhance our crushing business because these 2 operations, together, will be able to unlock ore bodies that are currently sitting out that are stranded. They're unaffordable for a lot of the bigger companies to be able to bring online. We'll be able to bring it online under a build, own, operate basis, and we'll add that to the annuity stream of our business.

I've put a couple of slides in just to give you a view of what it looks like. It's quite unique. It's small. You can see, it's very small, very lightweight footprint. That's part of the secret to success of the BOSS system. But in saying that, there's no new innovation inside this thing. It's things that are happening all over the world. The guys at this, I think they're being very clever in being able to bring all of those things into one unit, which is the unusual thing. It's setting all those known processes up and running. So we're looking forward to getting that moving.

Other projects that are sitting out there, they're all progressing. They're a time thing. We've got Marillana iron ore project, Kumina and McIntosh. They're all going through a process that can take 12, 18 months, 2 years to get all the approvals and get all of the necessary things that we've got to do in place. So we're progressing those, and they're all going pretty well with no hiccups to date.

Innovation. So as I've said before, the carbon fiber dump truck tray #3 is the first one that's been able to go to site. We haven't destroyed it to make sure that it -- on all test load we've done. It's still on the site. They are performing, and they've been throwing iron ore on the back of that with the normal diggers and front-end loaders. And we've got dump truck tray #4 and 5 will be due out of the workshop, probably both, by the end of April. So we're getting to a point, once we progressively get through to about #8 or 9, we're going to start looking at ramping the workshop after. We're aiming to see if we can get up to a run rate of somewhere around 60 or 70 a year coming out. So those things generally save somewhere around about 12% to 15% of total mining costs. So those are the numbers we're working at so far, and we'll able to progress that too. To give you a bit of a thumbprint on that, a normal 150-tonne Caterpillar dump truck tray that's fully lined weighs about 31 and a bit tonnes, and tray #3 weighed 10 tonne.

And finally, the hydrogen and synthetic graphite plant that we're working through, which is part of the Hazer technology. That plant is due to commission about early to mid-March, and we've got that (inaudible) reasonably well. It's difficult to get some of the specialty metals to close to turning on. Once we've proven that up, we're going to move ahead and do a 1,000 to 10,000-tonne commercial plant. And we're quite excited about the opportunity and what we can do with them. The main going on there is synthetic graphite but -- what we can do with that hydrogen coming up and producing clean energy.

So that's sort of where we're at, at the moment. So I think I might just turn over to the floor and to see if we've got -- if there are any questions. I'm sure you have a few. We're not that good at telling you everything.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Rahul Anand from Morgan Stanley.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [2]

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I'd like to start with Mark, if I may please. Just regarding firstly, the EBITDA guidance. I think the market might have come into this result expecting perhaps a change to the positive in terms of the EBITDA number just on the back of iron ore and how it's been tracking. If I estimate, you could be roughly making about $50 million extra per quarter in the iron ore business versus your initial assumptions around commodity prices. Obviously, the lithium price in the fourth quarter is going to be lower. The third quarter is already flagged. Just wanted to understand is there any particular reason why the guidance hasn't been touched today. I mean, is there any skepticism around whether the other parts of the business will be able to perform per initial expectations? That's the first one.

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [3]

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Rahul, thanks for the question. No skepticism that the rest of the business can perform. We've said today that we expect, for example, the mining services EBITDA to be in line with what we flagged a few months. That business is high quality and that quality is -- I think the market will start to understand that business a little bit better over the coming 6 to 12 months as the business model really kicks in. In terms of the question of guidance, perhaps I'll leave it to Chris to top-up anything what I'm about to say. But we're 5 to 6 weeks into the new period. We have had a period of higher iron ore prices, as you say. Board's taken a view that they don't want to make a call as to how sustainable that is in terms of giving guidance. What we have tried to do is be as transparent as we can be about our cost base, the assumptions that we've made in terms of iron ore. We've given a fair bit of information around the selective playing lump and fines around the different projects, the discounts that we're achieving. So we've tried to give investors the tools so they can make their own view. I don't know if you don't want to add anything to that, Chris.

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Christopher James Ellison, Mineral Resources Limited - MD & Director [4]

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Rahul, you probably don't want me to add anything to that. I mean, we're just about to bring online the largest known hard rock deposit of lithium in the world that's probably got 30 to 50 years in it. We've just knocked off half of it to one of the greatest companies in the world on lithium -- to Albermarle -- to one-point-something billion. We've got Cliffs up and running and everyone seems to be worried about the next 1 month or 2 months. But look, I am a bit skeptical on that because of the -- at the moment what are we dealing with, we're going to bring these plants online and we're trying to get our timing right on those obviously. But reducing the spend and getting production coming out is a fine balance with the plants the size we're building. The iron ore price is -- no doubt it's gone up very quickly and we've all seen it come down very quickly. The other issue that we're dealing within there is we've got fines set out at Iron Valley probably worse than the [Cobra]. They've got their offsets but opportunistically we get out there in the market and we sell them and that makes a difference. So there's a lot of moving targets in there and the best thing that we can do is -- with that, we've done the math and we think that where we're sitting is quite decent and I think where we're sitting, if you look at the next 1, 2 and 3 years, I think our team have delivered, but we've certainly worked hard to get where we are. But there's a large transition in going with that in the short-term and to where we're heading right now.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [5]

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Yes, indeed. Okay. And the second one is around CapEx. Just wanted to get a handle on rough numbers around maintenance and growth CapEx for the second half. And tied with that, where do you see the debt peaking as well?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [6]

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So in terms of debt, we've got roughly $150 million left to go on Wodgina. I would expect debt to be getting close to $900 million, $950 million. That includes [Nammuldi]. We'd expect CapEx -- we tried to give that forecast -- we have given that guidance in the back of the deck. It shows that it's been hitting at around $750 million or thereabouts. That excludes transactions like Kumina, for example, and Mt. Marion.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [7]

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Right. Okay, and just a final one is regarding deal completion, of course. So is it mainly just the 2 approvals that we are waiting on and sort of a 6 to 9 months that we're talking about? Is that straight -- is that timing sort of starting from the day that the deal was sort of sealed or are we talking 6 to 9 months from today? Just trying to figure out sort when can we expect the cash to come in from that deal completion.

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [8]

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So those 2 approvals have been critical approvals -- critical positions, [proved for them] under the transaction. The third approval, I would expect that we would know where we sit with that by the end of March. In terms of the Chinese regulatory approval, the relevant applications have been submitted and we're working through initial inquiries from that regulator. The guidance we've had by legal counsel is that, that process is a bit unknown in terms of how could -- how long it could take (inaudible) between 3 and 9 months would be effectively from now and maybe a few weeks ago.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [9]

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Okay. Are you citing -- or from your legal counsel, are you sort of getting any advice suggesting that there could be potential headwinds there, or does it all seem standard procedure?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [10]

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Too early to comment on that. But there is a process that we'll follow. All of us have been through this process previously from another transaction. So it's a well-trodden path for them and we're confident in the advice we have from the counsel.

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Operator [11]

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(Operator Instructions) Your next question comes from Mathew Hocking from JPMorgan.

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Mathew Hocking, JP Morgan Chase & Co, Research Division - Analyst [12]

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If I have to pick one, the question I'd like to ask is about the mining services EBITDA. So first half, you reported $89 million and you are guiding to a big step up in the second half to $150 million to $170 million. Acknowledging you've got the L-of-M contracts coming online, can I ask is there anything in that second half guidance that's lumpy in nature in relation to the commencement of those contracts? Or would it be fair to annualize that second half number as an ongoing run rate pre any further contract wins?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [13]

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The -- I'll talk briefly about the quality of that business and we tried again to give a little bit of detail into that in the deck by showing performance over a number of years, by adjusting for the construction component of it. And you'll see it ticked over very steadily for quite a few periods. What we're seeing in the second half is the commencement or the ramping up of a number of internal [LOM] type arrangements across a number of projects. Chris has also talked about the strength of the external market and the opportunity that, that presents. I'm not going to provide a comment in terms of annualizing going forward, but I would say that -- what I would say is that those contracts and life-of-mine arrangements we have been moving into and really starting to ramp up into stretch over anywhere between 4 and 30 years. And Chris, this is -- just saying Chris was trying to emphasize in his commentary earlier that the business is really in this significant transition to a point where its quality of earnings will improve considerably. And I think we're just starting to see that in these numbers.

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Operator [14]

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Your next question comes from Hayden Bairstow with Macquarie Group.

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Hayden Bairstow, Macquarie Research - Analyst [15]

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Just a quick one on Iron Valley. Chris, you obviously have that big stockpile sitting there. I mean, if these prices do hold, do you have the capacity to try and knock that stockpile out into the market? Or do you sort of see that as a blend for longer-term plans for the BOSS systems?

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Christopher James Ellison, Mineral Resources Limited - MD & Director [16]

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Yes -- no, we're working hard. Look, we're taking advantage of the current situation and we spent probably the last 10 years on iron ore and manganese, being able to manage those, so the answer is yes, we are. We're dealing with it and we move very quickly on it and we anticipate that will disappear over the next 4, 5 months.

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Operator [17]

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Your next question comes from Tim Hoff from Deutsche Bank.

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Timothy Hoff, Deutsche Bank AG, Research Division - Research Analyst [18]

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Just wondering around discounting. The quality between Koolyanobbing and Iron Valley seems to be reasonably similar. Do you experience similar discounting between the 2 and should that price that you got at Koolyanobbing, is that reflective of the current market?

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Christopher James Ellison, Mineral Resources Limited - MD & Director [19]

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No. Look, I think the fines at Iron Valley are an issue. The ore that we're getting generally out of Koolyanobbing is pretty decent, but we've got startup issues there, and so it's getting the diggers in the pits and getting the blending and all of that running. So that is getting better at Koolyanobbing. It's going to be a fairly normal sort of operation. Normal in the sense of -- it's certainly not a high-grade operation because we're taking a lot of tonnes out over the next 6, 7 years. And to get those tonnes out that far, we've obviously blending some low with the high. But the challenge is Iron Valley. That's where there's high impurities and the finer you grind a piece of iron ore the more of those nasties fall down to the fines. So the lumps pretty decent over at Iron Valley but the fines are going to be an ongoing issue. I'll just finish up. That causes the other problem so your average sale value obviously gets dragged down. So it makes the Iron Valley deposit more difficult. But we've been lucky over the last decade with prices have moved around a lot and we've managed to keep these operations operating and making money. So unpredictable where it's going to be 6 months out from now.

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [20]

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It's Mark. I guess, just in addition to what Chris has noted, the discounts at Iron Valley have come in from where they were a few months ago. They were quite a bit wider. But for the fines, as Chris said, it's still pretty healthy. But I think the batter in the deck is certainly for Kooly is off a relatively small sample. But the lumps coming out of Kooly is going to be very well received in China.

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Operator [21]

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Your next question comes from [Crystal Tse] from Bloomberg.

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Unidentified Analyst, [22]

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Just you mentioned about the stock that's going to come from (inaudible). The iron EBIT has ramped up production of iron ore from the (inaudible) valley shortfall? Do you have the capacity to fulfill?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [23]

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Crystal, I think question was, do we have the capacity to move the stockpiles. Is that correct?

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Unidentified Analyst, [24]

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Yes.

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [25]

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Yes. So there are some -- again, Chris can elaborate. But there are some physical constraints in terms of how we move the ore around. For example, in the south, there are some rail constraints that we're looking at; and in the north, we have road constraints. We've given a number in our deck of the expected tonnes we are looking to shift this year -- sorry, this half. To the extent that we can drive it harder, we will.

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Operator [26]

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The next question comes from [Jack McNollie], a private investor.

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Unidentified Participant, [27]

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Just on one of the slides that notes that the cash proceeds from the sale won't be used to fund the BOSS system. Given it's quite a significant lump-sum of cash, I was just wondering sort of what will it go towards, if that's the case. And then just a little follow-on from that relating to the Kumina acquisition. It looks like it's quite far away from where the BOSS plans to go and quite a marginal deposit there. And perhaps it's a bit of a left field question, but what was the thinking behind purchasing that other than just I guess it was quite cheap?

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Christopher James Ellison, Mineral Resources Limited - MD & Director [28]

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Yes. Look, certainly, first of all, Kumina, it's trackable from where it is. So we can go down there and we can continue using the road train fleet that we've got and put them down into that deposit and it gives us some pretty good options of giving that across to the rail line. So it's a good deposit and it's got a lot of upside in it, so there's no doubt that we think from our exploration people and our iron ore experts they think they're going to have some good success in being able to turn up quite a bit more. And I have no idea how much, but iron ore is much easier to find than most minerals because a lot of the time it's sticking out of the ground. So Kumina is a good investment for us and we'll use that going forward. What was the other part of the question?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [29]

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And the use of the application -- sorry, the application of the proceeds from the sale of the Wodgina Project.

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Christopher James Ellison, Mineral Resources Limited - MD & Director [30]

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Look -- I mean, we've said from the last 12 months to all of our shareholders is that we're not just going to go out there and build the infrastructure up north. The attraction of it up there is that, again, iron ore is a commodity that's going to be used for the next 100 years. We can put in a 50-plus-year business up in that region and the BOSS brings our total costs delivered to our customers at the very bottom end of cost curve. So it's a good long-term business, even if you're dealing in lower-grade iron ore. So it's very attractive, and what we're working through the process, obviously being able to connect that line up to Perth and the inner harbor in Port Hedland. And that gives us some fairly high-quality infrastructure assets as well.

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [31]

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Yes, it's Mark. I guess, the other piece to it is that we've committed that we will move forward on the hard rock site expansion at Wodgina, which will require capital. And whilst we still need to make final investment decision on that at the Board level, that represents a significant opportunity for the business in terms of its positioning over the next 3-plus decades.

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Operator [32]

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(Operator Instructions) Your next question comes from [Paul Gavey] from The Australian.

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Unidentified Participant, [33]

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There's going to be a lot of minority shareholders in (inaudible) mine who would be keen to know if you guys had looked at (inaudible) project, if you saw it having any potential to integrate with your BOSS system and if you have had any talks with those guys at any point.

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Christopher James Ellison, Mineral Resources Limited - MD & Director [34]

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Look, I think, certainly, in a couple of years ago, there was discussion around us doing some work as a contractor, but not -- certainly nothing to do with us having any ownership of the ore body or any of the [like lease]. No, we're fairly focused on what we've got.

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Operator [35]

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Your next question comes from [Brett Tucker] from Deutsche Bank.

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Unidentified Analyst, [36]

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Gents, a quick question just around Iron Valley and specifically around realizations. Can you just talk to how that's evolved in the first couple of months of the year given the changes that we've seen in iron ore?

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Christopher James Ellison, Mineral Resources Limited - MD & Director [37]

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Yes. Look, it's fairly simple. The price of iron ore that's gone up and the demand has increased obviously from the reduction of ore coming out of South America, so it's just simply easier to sell when the price is high and the discounting washes off. We can move into the market and we can make sales. So that combined with the exchange rate has also been a little helpful itself. So having a few things in our favor simply means that we can go from a negative to positive position [by this summer].

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [38]

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Brett, it's Mark. So in addition to that, it's probably easier to move the lower grade stuff, last month or so -- last month or 2, than it was 3 or 4 months ago when it was a bit harder. But I think Chris made an observation that we haven't got a view as to how long this is going to last that demand -- supply-demand equation. So at the moment, we're working to go on next (inaudible) opportunity.

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Operator [39]

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Your next question comes from Mathew Hocking from JPMorgan.

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Mathew Hocking, JP Morgan Chase & Co, Research Division - Analyst [40]

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Yes. Just a question on the CapEx and the revisions to the buckets that are being provided in terms of guidance. Noting your comments around the fact that exploration and mine development has been an ongoing spend that hasn't been guided before, can you just take us through where that hits the cash flow statement and how much of that gets expensed or -- just to make sure we don't double count the new capital line, can you give us an example of how that's been treated in the past? And then just one other final one. On the other bucket. Is that -- I mean, $64 million in some of the projects that you have there is probably more than an ongoing cost of doing business. Is that something that gets capitalized as well? And how do we think about that going forward?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [41]

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Okay. So in terms of the exploration and mine development, that covers costs that range from anything like drilling programs at Hexagon as we drill out and try and strengthen the ore resource at Mt. Marion, et cetera, the work that we're doing in terms of the planning and preparation at Kumina and Marillana. It includes the, I guess, the start-up costs associated with getting something like Koolyanobbing going. And certainly something at Wodgina having the third strip path expenditure would be caught there. Oil and gas as we say in terms of the notes, exploration costs for oil and gas. So it really is a broad bucket that covers quite a few heads. In terms of the other, giving you a flavor of some of it there. There's money being spent on development of Carbonart and Hazer and BOSS and so on. There is a bit of sustaining in there and other bits and pieces.

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Mathew Hocking, JP Morgan Chase & Co, Research Division - Analyst [42]

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Just to clarify, the accounting treatment of the same, I assume that the mine development costs and anything that is being spent on the operating site is not being included in operating costs. Is this straight capital...

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [43]

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It's being capitalized.

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Christopher James Ellison, Mineral Resources Limited - MD & Director [44]

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Yes, it's being capitalized.

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Mathew Hocking, JP Morgan Chase & Co, Research Division - Analyst [45]

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Okay. And the other bucket is that -- are these...

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [46]

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That's being capitalized as well. This is why we're calling it out.

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Operator [47]

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Your next question comes from Rahul Anand from Morgan Stanley.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [48]

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Did you want to complete before I start, Mark?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [49]

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Thanks, Rahul. What we're trying to do is just provide a little more insight. We recognize there's a lot happening in the business at the moment. We recognize there's lots of moving pieces. We know that the business is complex. But we know that that's the case when it's a steady-state of the mining services and the mining operations. And now we're laying in -- layering into that a period of significant heavy investment. So what we're trying to do is provide a little bit more visibility of those other items of spend just to help the market understand how the cash is being applied. Okay, Rahul.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [50]

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My question was regarding Kooly. Just wanted to understand, obviously second half should be more normalized operations. How should we think about the costs to track in the second half?

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Mark G. Wilson, Mineral Resources Limited - CFO & Company Secretary [51]

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I think we say in the deck, the cost should be broadly -- the cost will be broadly consistent with Iron Valley. Remembering Kooly was a marginal operation. The team's worked pretty hard to get it up and going. We don't have the full run rate on the board to evidence that. But as a general guide, and the deck says this, that you should assume that it's broadly consistent with the Iron Valley costs, mid-to-low 60s.

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Operator [52]

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There are no further questions at this time. I'll now hand back to Mr. Ellison for closing remarks. Oh, apologies. Mr. Tim Hoff has just reregistered for a question from Deutsche Bank.

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Timothy Hoff, Deutsche Bank AG, Research Division - Research Analyst [53]

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Just a follow-up question on Wodgina and the spodumene that you are -- that will be coming out of it. Obviously, Albemarle's got the offtakes. How are they talking about where this material is going to go and do they expect some of this to be hitting the open market?

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Christopher James Ellison, Mineral Resources Limited - MD & Director [54]

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So their expertise and their long-term markets are more aligned to hydroxide. But yes, they do have good skills in selling it. So this will be going into some of their existing customers. We're not exactly sure. We haven't got to that level of detail with them yet. But there's a limit to all of the discussions that we're able to have with Albemarle at the moment while all of these approvals are pending. So there is a number of things that we just simply can't talk about between us and Albemarle, that is. So we need to get through the approval stage.

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Timothy Hoff, Deutsche Bank AG, Research Division - Research Analyst [55]

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Is that the take or pay, though, if that was -- they're not able to place it, you can place it?

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Christopher James Ellison, Mineral Resources Limited - MD & Director [56]

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No, no, no. It's a joint venture. So Wodgina Lithium will be owned JV between both of us, 50-50 obviously.

Okay, well, look, I can't see any more question on the board. So look, thanks everyone for joining in. And obviously, we have an investor presentation happening next Monday and Tuesday. So we will look forward to seeing some of you out in Sydney and Melbourne. So thanks and have a good day, everyone.