Allkem Limited (OTCPK:OROCF) First Quarter 2023 Results Conference Call October 20, 2022 7:00 p. m. Eastern Time
Participating companies
Martín Pérez de Solay – MD, CEO and Director
Christian Barbier – Sales Director
Christian Cortés – Chief of Staff
Keith Muller – Manager, Asia Pacific Operations
Conference Call Participants
Rahul Anand – Morgan Stanley
Kate McCutcheon – Citigroup
Alistair Harvey – JPMorgan Chase
Reg Spencer – Canaccord Genuity
Glyn Lawcock – Barrenjoey
Lachlan Shaw – UBS
Operator
Good morning and welcome to Allkem Limited’s September quarterly earnings briefing. [Operator Instructions]. Finally, I would like to tell all participants that this call is being recorded. Thank you.
I would now like to welcome Martín Pérez de Solay, General Manager and Executive Director, to start the conference. Martin, it’s your turn.
Martin Perez de Solay
Thank you Paulie. Let’s welcome you all and thank you for joining us for Allkem Limited’s September 2022 quarterly earnings briefing. As usual, I will provide an update on our activities; and Christian Barbier, our Director of Sales and Marketing, will provide us with a market update. James Connolly, who joined Allkem Group 3. 5 months ago as Director of Project Development, is also helping us expand our vital expansion pipeline. We will also have Keith Mueller, Neil Kaplan and Christian Cortes, who takes over as deputy chief financial officer, while Neil Kaplan is on leave due to health issues.
First, the lithium market remains physically powerful and we continue to navigate through demanding situations globally while remaining fully committed to executing our expansion portfolio. In our operations, we continue to produce consistent, quality or expansion products. And at Mt Cattlin, they have successfully implemented mitigation measures to build mining capacity.
In our progression and expansion projects, we have a complex structure in Sal de Vida, inlets in James Bay, resource extension drilling and Mount Cattlin and commissioning activities in Naraha. In the total of Stage 2, we effectively achieved more than 33% completion. However, we have been informed of some delays in the manufacture and delivery of some key end components. We expect to begin pre-commissioning in the December quarter. Full commissioning will take place in the March quarter and the first production will take place in the quarter. June 2023 quarter.
We remain in an incredibly strong monetary position. This quarter, we generated organizational revenue of approximately $299 million and achieved a significant organizational monetary operating margin of 82%. The organization’s net monetary position at the end of the quarter was $447 million and our organizations remain focused on advancing the progression of our portfolio of allocations, as we have obviously indicated to triple production through 2026.
While we are in a strong monetary position with significant expansion assets that will also contribute to generating significant gains, we are making progress on 2 opportunities that are subject to due diligence and final approvals.
The first is a strategic agreement to obtain the construction of Maria Victoria 10 kilometers from our Olaroz plant while divesting from our borax operations. The acquisition complements our wide diversity of existing interests in the region and will allow a more effective progression of the Salar de Olaroz.
At the moment is a proposed $200 million allocation funding line with IFC for Sal de Vida Stage 1. We saw an opportunity to improve Sal de Vida’s financing plan and partner with IFC, an institution with decades of experience in financing and sustainable business solutions in the mining sector.
Sustainability, one of the basic pillars of our business, we continue to be identified by our leading practices and strengthen our transparency and functionality in our operations.
Allkem recorded a 12-month moving average TRIFR of 1. 9 at the end of the September quarter, a 27% improvement over the last quarter and a 12-month moving average lost time injury rate of 0. 5, representing a continuous trfinish improvement in either indicator. Unfortunately, we suffered 2 recordable injuries, one in Mt Cattlin and one in Olaroz, but we recovered and returned to work. Since then, preventive movements have been implemented.
COVID-19 cases in operations have decreased significantly, as the effect of the pandemic on operating jurisdictions is also diminishing. As a result, we have minimized biosecurity protocols and will monitor the situation heavily if we redeploy them soon. We continue to maintain a normal and positive engagement with all the communities we work with as we expand the activities of the structure, as we expand our projects and progress the activities of the structure.
Let’s move on to our operations. No: At Mt Cattlin, not so long ago, we revised the production forecast for year 23 at Mt Cattlin due to labour shortages in Western Australia, which resulted in delays in the exposure of the main mineral body, coupled with transient fine grade mineralization. We have effectively implemented a number of improvement systems with the addition of magnetic separators, a larger mining fleet, an additional mining contractor and the implementation of retention systems. Mining capacity effectively exceeded 1 million BCM at the end of August, to 750,000 BCM in the month: the last few months.
In recent months, 2. 1 million BCM were removed from curtains in the quarter and includes a record 872,000 BCM in September. During the quarter, 17,606 dry metric tons of spodumene concentrate with a lithium oxide content of 5. 3% were produced. A weaker first part of this fiscal year, we expect production to recover in the current part of the year.
In terms of sales, we shipped 21,215 metric tons of engine and generated revenues of $106. 7 million with a gross monetary margin of 84% in charge of production and an average value of $5,028 consistent with dry metric ton CIF for SC 5. 3%. Additional revenue of $35 million was generated from the sale of 59,326 dry metric tons of low-grade spodumene concentrate with a grade of approximately 1. 3%.
Resource extension drilling at Mount Cattlin is also progressing. And by the end of the quarter, we finished 92 wells totaling 22,000 meters. We have intercepted high-grade spaces with wonderful thickness and in the first phase of drilling, whose objective is in the conversion of resources into reserves. In the current phase, as our effects demonstrated the prospect of extension to the north of the existing pit. A representative has also begun painting the open-pit mine relief feasibility study, which will reformulate mineral and mineral resource estimates. reserves
Let’s move on to Olaroz. Se achieved a quarterly production of 3289 tons of lithium carbonate, of which 43% are battery-grade materials. Asset utilization. Lithium carbonate sales totaled 3,721 tons, generating record revenues of $150 million with a gross monetary margin of 89%. Excluding shipments to Naraha, third-party sales were $43,237 consisting of tons on a FOB basis.
By the end of September, the Olaroz Stage 2 expansion had achieved an overall physical construction of 93%. The pumps operating in Olaroz were complete and commissioned. The Line 3 plant is now fully commissioned. Pre-commissioner and commissioner of Line Plan four parts is underway and final structural activities are expected in the December quarter. Lately the soft drink facilities are being put into operation. The carbonation plant is 77% complete. All carbonation plant operations are progressing as planned, with the exception of the pipeline and electrical equipment delay, which we were recently notified of due to production and supply chain limitations.
Pre-commissioning activities shall commence in the fourth quarter of calendar year 22, and commissioning activities shall commence in the first quarter of calendar year 23 and progress to the current quarter of calendar year 23. The beginning of production: there was an error in that progression. I am sorry. I will read it again. Pre-commissioning activities shall commence in the fourth quarter of calendar year 22, and commissioning activities shall commence in the first quarter of calendar year 23 and continue until the current quarter of calendar year 23. Production will now begin in the current quarter of calendar year 23. calendar year ’23.
As discussed above, we navigate through global challenges, adding inflationary effects and supply chain constraints. A recent review of Olaroz Stage 2 capital expenditures was conducted, taking into account the revised deadline and the effect on logistics and freight. Capital expenditures are expected to increase through approximately 12 percent to approximately $425 million. This still represents a very competitive capital intensity of $17,000 per ton and construction will be financed through a steady flow of money.
Additional capital expenditures for James Bay and Sal de Vida; in addition, capital expenditures for James Bay and Sal de Vida remain subject to the same inflation and constraints experienced by all projects worldwide. We will continue to review and monitor those projects as they progress.
Now let’s move on to our progression assets that underpin expansion results, start-up activities. In Araha, Olaroz furnace heating and technical grade lithium carbonate were incorporated into the main processing area. We are back on track for the first production in the December quarter.
At Vida, we have made great progress since the beginning of the structure in January of this year. We have focused on commissioning the first chain of consistent carbonation points and have the carbonation point structure for Style 1 until the end of this completion year. The structure of the 2 strengths of the ponds reached 65% completion with the first four wells complete and filled with brine. The brine main pipe is complete and the first 3 wells have been commissioned. The procurement procedure has reached the maximum level for the processing plant and network have started. We also have complex detailed engineering for Stage 2, another 30,000 tons consistent with the year to allow progression to happen sequentially after Stage 1.
At James Bay, we are bringing forward the allocation on several fronts anticipating the structure early next year. Hydro-Québec has completed detailed engineering of the power line and substations have begun initial on-site paintings. Digital engineering continues throughout procurement activities, adding package allocation of key appliances.
Jack, the Joint Assessment Committee, a committee of representatives from the Cree and federal governments, has released the draft report on the project’s environmental assets, and we have begun the era of final consultation that will end in November. The explanation procedure with the government and the provincial government has also progressed and positive engagement with network stakeholders continues. In addition, we are targeting the start of 15,000 meters, a 15,000-meter drilling program to tax ore frame extensions.
I will now give the floor to Christian Barbier, who will give us an update on sales and marketing.
Christian Barbier
Thank you Martine. Et good morning to all. We continue to see a very strong lithium market, with visitors and market demand for a particularly superior source. Government policy for the electric vehicle battery supply chain continues to be strengthened through significant U. S. tax incentives. An offer under the recently passed Inflation Reduction Act. the U. S. Congress U. S. Stakeholders have made a gradual inventory of its potential and its very important implications in recent weeks. Several major investments have been announced as a result of the bill.
In addition to this week, an unprecedented $2800 million in government grants from the U. S. Department of Energy was awarded a new amount of $2800 million in government grants. U. S. for critical chain and raw material projects for electric vehicle batteries. critical raw fabrics and batteries, adding lithium.
Despite the demanding global situation in the face of the recession, EV sales in all major regions remained strong. Electric vehicle sales figures in China in September reached 675,000 units, up 7% month-on-month, marking an all-time record. Electric vehicle sales in China for the quarter were estimated at 1. 9 million units, an increase of 107% over the last reporting period. Sales of electric vehicles in the U. S. to the past period.
Despite the increase in exports of spodumene concentrate to China during the quarter, Chinese lithium chemical production increased slightly. Carbonate, lithium hydroxide and spodumene concentrate accumulated during the quarter with new record values set for each. And the quarter-weighted average promotion values for either spodumene and lithium carbonate reflect this upper-point value environment combined with the inherent inertia of our contract portfolio and the lag between pricing and billing.
Thank you. Now I’ll pass it on to Martin.
Martin Perez de Solay
Thank you, Christian, I will now move on to the operator to start the Q&A session.
Q&A session
Operator
[Operator Instructions]. And the first comes from Morgan Stanley’s Rahul Anand lineage.
Raul Anand
First consultation. Look, the production was really very strong, so congratulations on that, especially year after year given the seasonality. My query about that was actually about the load and the brine source. So, was phase 2 brine used in the production procedure?this period? And then, if we take a look at the load, what kind of load pressures do you see on the floor in terms of constant and variable loads?That’s my first consultation. I return to the thing of the moment.
Martin Perez de Solay
Thank you, Rahul. La brine, basically for the period, came from level 1. The brine of Stage 2, as we explained through all the other calls, the pumps finished filling up for Stage 2 in the last quarter. So we are still cooking brine for Stage 2. It will be available for Stage 2 in the first quarter of next calendar year.
As for costs, I will ask Christian to answer that he is more in the main points of constant and variable.
Christian Barbier
Rahul, the load tension we saw in the variables is very likely to be constant and reconcentrated at a point similar to that observed last quarter. This takes into account the main uncooked fabrics we use at the processing stage. So I guess the top tension remains the same.
As for constant prices, this is the main factor at the moment as inflation in the country continues to outpace the depreciation of the local currency, which means that we are seeing an increase in labor prices in genuine US dollar terms.
Raul Anand
And Christian, in terms of variable distribution now on the site?
Christian Barbier
Well, we’ve talked about something like 60% variable, 40% fixed. Now, looking for the details on devaluation and inflation, you’ll probably see a 2 or 3 basis point turn in the other direction.
Raul Anand
Second consultation, listen, regarding step 2, first of all, thank you for providing clarity on CapEx and also adding current capital in this estimate you provided today. Then the last update was on December 21, which was another $50 million. We therefore forecast CapEx inflation of around 30% from the outset. My query is, in relation to the rest of the portfolio, we expect inflation of around 30%. % in the rest of the portfolio? And then, in terms of financing that, about $330 million, will it be funded through you through shareholder loans, as you’ve already largely indicated?
Martin Perez de Solay
A few things. Thank you, Raul, for your question. Many answers to a long question. The number one is the number is based on the same basis as the previous one is VAT and current capital.
Secondly, yes, yes, you can calculate the number of capital increases of the 30% to which you refer. However, you should note that this number includes a COVID effect of approximately 24 months during which operations were limited. Expansión. Es possible that the small paintings are just finished and the fee will be higher, especially due to the total COVID situation.
So when I look at the overall CapEx for the task, considering it took a lot longer due to COVID and there was a steady period of global inflation that had a pretty significant effect on the numbers over the last 12 months and supply chain disruptions, as we’re seeing that a capital intensity of $17,000 consistent with the ton is still thought to be a pretty significant cost. competitive to establish an assignment in such difficult conditions.
The 30% number is, what you discussed, is correct. But if you look at it, you have to include all the COVID-related disruptions that every project has experienced. So I think if you look at the 12% number we’re pronouncing from the previous update, reflecting more commonly what Christian was talking about local inflation being higher, more vital: an era of longer start-up and longer-term prices and other prices that James can give you more details about. James, please, if you can go up to what I just said on this subject.
Unidentified corporate representative
100% Martin. Rahul, smart question. The last 12%, yes. 30% of this is relevant to delays, and we can communicate about those delays in terms of the supply chain issues we’ve faced. 25% of this most recent accumulation is similar to cross-inflation and Argentina. context around FX. Because we have tested the schedule, it is obviously very advantageous for us to move quickly on this task. We’ve noticed an accumulation of about $3 million to $4 million in freight and then amount, and that goes back to our initial estimate in the early days, and that would possibly answer your question. So $20 million of that charge is the technical estimates and bill for the amounts we had at the beginning. So no, I don’t think the 30% is right in the whole portfolio. Can we be informed of the supply chain crisis?Can we reduce this number in the future? Of course we can. So we will look to handle this strongly in the future.
Raul Anand
No, listen, given the circumstances, I think you’ve done a wonderful job in terms of installation and operation. Sorry, Martin, move on.
Martin Perez de Solay
No, the last component of your funding inquiry. Funding for this additional charge comes from operating money generation, which comes from Olaroz Stage 1. So, we have a positive money generation that has been committed to the expansion project.
Raul Anand
Perfect. Listen, the last query is only about the distribution of battery quality. 43% battery distribution in terms of production. Should you also provide a breakdown of sales?
Martin Perez de Solay
I will ask this to Christian Barbier. Christian, if you can communicate about it, please.
Christian Barbier
So, Rahul, we sold 40% of our cabinets in the last quarter in battery-quality cabinets. And the rest, 60% technical quality. Is that your question?
Raul Anand
Yes, it was. Yes, I was just looking to find a way to think about pricing. So I was just looking to get a diversity of worthwhile developments.
Operator
The next one comes from UBS’s Lachlan Shaw lineage.
Kate McCutcheon
Oh, I’m sorry. I’m Kate McCutcheon from Citi. I think you’ve misrepresented me. Recovery of Mount Cattlin by 25%. Is it for all the ore?I think last quarter you said 53%, 57% recovery expectations for the year. Did the curtains not meet expectations and what are the recovery expectations for the rest of the year as an indication?
Martin Perez de Solay
Thank you very much for your question. I’ll ask that question to our Cattlin expert, Keith Mueller.
Keith Muller
Thank you for your question. No, this recovery we experienced this quarter is similar to the quality of the uncooked fabrics we are processing lately. Therefore, unfired curtains have a very high point of Basel-shaped contamination. Dismantle the northwest divide and we get to the maximum ore body, the 25% recoveries will disappear and return to some kind of steel recovery of about 55% to 56% once we are in the blank ore. So this is just an inconvenient transience that we are suffering from right now.
Kate McCutcheon
It is ok. And just to confirm, they gave it to me. The annualized September quarter is a semi-annual forecast. And he expects to succeed at 30%, 40% of the forecast in the third and fourth quarters, which implies a record 2 quarters, I think. And that would mean a massive volume of ore crushed to that grade of 0. 9%. What grinding rates do you expect in the last 2 quarters or perhaps the next 3 quarters compared to those forecasts?
Keith Muller
Of course. Just a correction in production consistent with the quarter. Record production in the March 2021 quarter a little over 60,000 for the quarter. So what we’re looking to do in the current part of the year is 50,000 consistent with the quarter, so we’re still below the record. production of recent years. So what we’re looking to build for this consistent H2 content is around 900,000 tons of raw ore, which will produce about 100,000 tons of spodumene concentrate for part.
Kate McCutcheon
It is ok. And is there even more low-quality stock to process there?Are there 60,000 to increase?
Keith Muller
There are more low-grade stocks, but we don’t prefer to deal with low-grade stocks. Our preference is to process qualified blank ore. As this ore arrives at Array, we are transitioning as temporarily as possible and delaying this low-grade processing and focusing only on the ore for export.
Kate McCutcheon
It is ok. So do we assume that the next quarter will benefit from this lower stock?
Keith Muller
The community where we are, yes. As we guided in the last quarter, we were for 100,000 tons of sales below the standard, of which we have achieved only a part now and although we have not yet made commitments with the company, for the moment part of the decrease in quality materials. So I think it is only necessary to emphasize that this is a measure of transience to provide, let’s say, sets to our client. It is not a long-term strategy. As soon as we can return to the high-volume spodumemia, we will do so immediately.
Kate McCutcheon
It is ok. And the last question, for Christian. So, the quality production of the battery is a little more than 40% in Olaroz. Can you tell us what you see from customers?Does the call for technical quality reflect the manufacture of LFP cathodes?Is the plan still to basically produce batteries?
Christian Barbier
So yes, thanks for your question, Kate. La production of carbonate and hydroxide, I think, in the Chinese market, which is by far the largest producer, was affected in August by electricity rationing in that country, and that recovered in September. But despite the resumption of production, stocks continued to decline for both carbonate and hydroxide and for the technical quality and quality of the battery. Obviously, it is for battery production, the peak of demand, but other people are improving. The technical quality in the quality of the battery. Therefore, our backlog in technical grade shipments in the last quarter was due to Naraha’s strength needs for commissioning. It occurs, and we will capture this long-term price probably more next year.
Kate McCutcheon
Oui. Et so you can see that you have the separate breakdown from there. What tons went to Naraha?
Christian Barbier
Listen, 60% were technical grade, and probably about 2/3 went to Naraha in the September quarter.
Operator
His next one comes from JPMorgan’s Al Harvey lineage.
Alistair Harvey
I just need a little more explanation about sales of lower quality money. Are the additional 60,000 tonnes you were talking about, the 60,000 tonnes you discussed in the press release on top of the 130,000 tonnes you guided in FY23?And that $500 a ton value you discussed last quarter is still some kind of ongoing speculation that we rely on?
Christian Barbier
Yes Sí. Es Christian discourse. Thank you Martine. Yes, well, look, again, we discussed it, and as Keith indicated, this is a crusade to get more lithium sets for our spodumene customers. We provided around 60,000 tonnes of this inferior quality in the September quarter. We will get another 60,000 tonnes in the December quarter.
In terms of pricing, look, we had a slightly higher value than you discussed in the September quarter because the score was a little higher. The value we will obtain in the December quarter will depend on the qualities we ship. A small decrease from what we had in the September quarter, but in fact consistent with what you’re saying. Then. . .
Alistair Harvey
And I guess it’s enough to stick to the unique fine scores, the distribution of the most productive points. Has there been anything about the recent resource drilling that has given you any indication of whether this will continue?What features does it have if it is a little more widespread than expected?Are there features for a float or a thin circuit on the track?
Keith Muller
Thank you, Ale, for your question. Therefore, the fine-grained spodumene we got towards the end of the last fiscal year in the first or second month of this quarter is already gone. All the ore we’ve processed in the last nine weeks or so involved fine-granulated spodumene, so it looks like we’ll cross again.
As for the resource drilling that we have done so far, the approximately 220,000 meters that we have finished have been RC drilling. Lately we are in the process of mobilizing a diamond platform to do more core drilling and perform a climate check. In it, however, we do not anticipate that this will continue.
But to answer your question, is there any option for us to process fine grains in the future?Absolutely, we are contemplating many features to enrich finer quality fabrics as well as waste. Therefore, we are achieving control paints on a number of enrichment features of possible fine subsidy fabrics if we cross them in the future, but also to treat the old waste we have in stock.
Alistair Harvey
Super. Et maybe just to complete, I guess I’m just thinking about those long-term features for Mt Cattlin. the metro? And you’ve already commented that tailings are also potentially an option.
Keith Muller
Of course. In terms of time, our mineral resource upgrade will be done until December, after diamond drilling ends, just to make sure the conversion to reserves is solid. Then, the feasibility will be completed in March. And if we have FID in this, we plan to start pre-cutting this outdoor expansion in April next year.
In terms of basement, this is in the $900 shell, as we already reported. We are also comparing an earnings envelope of $1,200 and $1,500 as a component of this feasibility. It is unlikely, it will be an open cup. What is our goal?Once we have finished the feasibility study for the rapid expansion of the fourth stage pit, we will begin painting the feasibility to see the underground options and then conduct this offset research towards the end of next year to calfinishar to allow us to make decisions about what we will do beyond Stage Four.
Operator
The following comes from the lineage of Reg Spencer de Canaccord.
Reg Spencer
Just a query for me today. What does the delay of Olaroz 2 mean for the source of volumes for Naraha and its overall price?If you can tell me that, please.
Martin Perez de Solay
As we discussed in the last quarter, Reg, thank you for your question, we did not consult any production for Phase 2 down, as it will be a component of the acceleration process. This does not mean any significant adjustment in our product volume. forecast for Naraha, nor the dramatic price adjustments we will face due to the delay.
Reg Spencer
It is ok. So what to do now is to offer some of the volumes to Naraha that will continue until Olaroz 2 is up and running?
Martin Perez de Solay
Exactly.
Operator
His next comes from the lineage of Joel Jackson of BMO Capital Markets.
unidentified analyst
My first question is that it looks like 6% spodumene concentrate is trading at around $7000 per ton. Could you give some color about the value gap?Does this have to do with contracts that were blocked before?
Martin Perez de Solay
Christian?
Christian Barbier
It’s Christian Listen, the costs you discussed are costs that come from auctions on online platforms, which are discovery prizes. They reflect the natural site scenario for marginal volumes and marginal costs and with places of limited size. This is not representative of the general market for spodumene concentrates.
The average promotion value for the September quarter was just over $5,000 for 5. 4% LI2O 5. 4% LI2O, which corresponds to approximately $5,600 on an SC6% basis. Therefore, it was slightly higher than our values in the June quarter. it’s basically because we have a delay in value. We trade values from one quarter to another and also because we had tons from the June quarter that were carried over to the September quarter.
We expect the December quarter to be in line with the September quarter, probably with a slight improvement in costs because it has entered that all our volumes are contracted and do not adhere to the reference of a very small package that is communicated to the market.
But if you look at a weighted average value we extract for our spodumene concentrates, you’ll probably see that it compares quite favorably to other pairs that publish their data.
unidentified analyst
I appreciate that, the color. And just a momentary question. How long would it take to increase to be successful in production or full capacity?
Martin Perez de Solay
Thank you for the question. We stand by what we said earlier. We expect an era of Olaroz 2 acceleration of approximately 18 months. We’re starting with a much bigger plan than step 1. We had a start-up team component about a year ago. Being waiting for things to get better, however, we are wary of increasing and are not converting what we have been saying, what we have been saying about allocation for some time.
Operator
Next is from Kaan Peker of the Royal Bank of Canada.
unidentified analyst
Can you hear me?
Martin Perez de Solay
Yes Kaan.
unidentified analyst
Yes. Only in the bush Cattlin. Je only wondered how the previous dismantling was. And do we expect more pre-counts in FY24?
Martin Perez de Solay
Keith, can you ask that question?
Keith Muller
Of course, Martin. Thank you. Thank you for your Kaan. The previous disassembly is progressing well. We had a record mining volume in September of 870,000. This surpasses our previous record, which we reached in November 2021 of 760,000 BCM, just before WA’s borders with the rest of Australia were closed.
Therefore, for the quarter, we will extract about 2. 7 million BCM. And again, in the same quarter last year, this time we extracted 1. 9 million. This represents a 40% increase in quarterly extraction volume. We plan to continue strictly until 2023, especially as we present feasibility charts on the fourth-stage expansion. We anticipate that this volume of curtains will continue to move over the foreseeable long term, as we potentially enter a new downside situation.
unidentified analyst
Second question, on the initial production of Olaroz Stage 2 brine. I think Martin said he cooks now. I wonder if the sampling done and the type of chemistry of the brine, the concentration of lithium fit your expectations. And do we expect a quality of advertising production on the scheduled start date?
Martin Perez de Solay
We will see the production of ads accelerate. The brine, as we expected, the cooking of the brine and the concentrations that are coated with the final touch of the line plan n. ° 4 will allow us to have a process in conditions through the plant. And we’re sure that as we start pushing the plant forward, we’ll see advertising production come out of it.
When it comes to Stage 2 production, it is most commonly technical grade, so we don’t foresee a significant quality challenge at this point. But again, as I said before, increases are tough in the industry and I need to be pretty conservative when it comes to expectations in that regard.
unidentified analyst
Entendu. Et then last question. Only in the study tables of the separate wastewater treatment plant. I think the ad was talking about a study in elegance 3. Any approximate CapEx numbers I can share?
Martin Perez de Solay
I’ll let James answer that, but I think until we finish more studies, it’s hard to make percentages of numbers. But James can give it a little more color.
Unidentified corporate representative
So, we’re waiting to give you those numbers very soon when estimating Class 3. That’s pretty much in line with the landmarks there. It is not surprising in this regard, but we will publish it shortly.
unidentified analyst
And do you time that then, please?
Unidentified corporate representative
We said: I think our previous rules are still valid. And if I’m wrong, it would be the first quarter, the second quarter of next 2023.
Martin Perez de Solay
Kaan, we’re about a year old when we did the strategic presentation in April. That’s what weArray That’s what’s left.
Operator
His next one comes from the Matthew Friedman line of MST Financial.
unidentified analyst
Of course. First of all, I just wanted to stick to Reg’s question. Christian said 2/3 of the technical-grade products he sold during the quarter went to Naraha, or about 40% of his total sales. how, or if it affects the volumes of your contracts that are transferred to your contracts with third parties. As Reg says, you’re delaying level 2 for about 6 months. Also is this your ability to properly source from Naraha and deliver to your existing consumers and contracts?Or do you want to make some kind of compromise about where those volumes happen?
Martin Perez de Solay
A couple of things about that. I think Christian said 0. 33 of the technical grade production, not 2/3. It is simply [indistinguishable] in the quarter. And the timing is, as I said before, as we start pushing level 2, we’re going to get moderate-quality products to incorporate into the Naraha process, so we don’t expect to have any disruption with our long time. Olaroz forward contracts. And we have been very cautious when forecasting contracts, taking into account the volatility it has for the acceleration period. I therefore do not expect any effect in that regard.
unidentified analyst
Okay, and thanks for the clarity about the 0. 33 there. I must have heard wrong. Secondly, you indicated that the pipes and electrical appliances that were delivered, sorry, that caused delays in terms of your critical path in step 2. Can you tell us where you get those parts from in terms of geography and suppliers?And what gives you confidence now that the delivery schedule of this device is well underway?
Martin Perez de Solay
Basically, as far as pipe apparatus is concerned, it begins to be processed and rolled. We are sure that the device will arrive at the site on the dates required now. I had experienced transportation delays in the process.
As for electrical appliances, it is basically affected by the supply chain disorders that have arisen in Eastern Europe as a result of the war and other factors, which have an impact on the robbery. This device will be contracted through suppliers. during the first quarter of next year. This will allow us to complete the start-up.
James, if I may, brings up a little more color. You have more detailed shells on your head than I do.
Unidentified corporate representative
And maybe just to give a little more context about it. So if we take that, an MCC package in itself, we’d have all deliveries through the end of the year, however, some parts of that may be missing, and it may just be mid-voltage sales with a maximum altitude rating. So, everything is such a device, which is painful and we have to work with our suppliers to get there in that January, February time period so that we can have the plant up and running. and put things under load.
With regard to pipes, other examples would be the availability of resin in the supply chain crisis. And since we have a lot of GDPs, those are key issues for us. . We discovered other regional providers, so we could accelerate them, but it was an attractive time in the market to try to manage those critical parts.
unidentified analyst
I understand. That’s very helpful. I can end up with the pretty undeniable. The revised CapEx number, $425 million. Can you tell us how much of this spending is left before the first production in the middle of next year and perhaps also how much you spent in the September quarter?
Martin Perez de Solay
Christian Cortes, or James, would they have the precise spending figures to date and that they still want to extend on the CapEx of step 2?
Christian Cortes
Martin, I can reach out about that if you wish.
Martin Perez de Solay
yes.
Christian Cortes
So, to date, yes, so far, in the first quarter, CapEx for Stage 2 was about $41 million. And considering the additional pricing that was reported in today’s quarterly report, the estimated expenses for the rest of the year are around $80 million.
unidentified analyst
The remaining expenses for the remainder of the fiscal year are $80 million.
Christian Cortes
Yes, that’s right. Thank you.
Operator
His next comes from the lineage of Glyn Lawcock of Barrenjoey.
Glyn Lawcock
Could you verify that you now have an extraction capacity of 1 million BCM at the end of August?Year 23?
And then, in the prices for the quarter, I mean production was down almost 30% sequentially, and yet their unit prices remained solid and are heading toward $900,000. Just out of curiosity, is it because it capitalizes on a giant slice of the Strip in the quarter?Are there economic benefits? I’m just looking to perceive how prices fell when volume fell by 30%.
Martin Perez de Solay
Keith, can you please the mining issue?And Christian, you can answer the first one later.
Keith Muller
So yes, in terms of extraction capacity and if that is sufficient to extract the required volumes, for us to have a continuous source of ore for the foreseeable future, the requirement is 900,000 Bcms. However, we’ve resized the fleet to allow us to do around 1 million BCM just to have some buffering to make sure we can reach that goal.
The fleet we have on site right now, as we reported last quarter, we have mobilized a 350-ton fleet, as well as another mining contractor. Most importantly of that, this month we also mobilized an additional backup machine, a 200 one-ton excavator from one of our contract partners, again, just to allow us to have that eventuality in place. Therefore, the operational and on-site mining fleet is in fact sufficient for the volumes required prior to discovery.
Christian, if you need to answer about the cost.
Christian Cortes
Thank you, Keith. Look, the first part of this fiscal year, we expect to have a higher charge base. Especially in this neighborhood. We had a high capitalization of the pre-deposit. Most sensibly, some of the prices related to production or production activity were partially attributed to some of the lower quality products we saw in the quarter.
Martin Perez de Solay
For example, the devaluation of the Australian dollar or the appreciation of the US dollar against the Australian dollar were felt on the charge side in Cattlin.
Glyn Lawcock
It is ok. So, the forecast of 900 million that you think turns out to be a bit high given that the currency remains where we are now.
Christian Cortes
Yes, listen, we think we’re going to comment on the advice. At this stage, the estimate is not significant. We have left the rules unchanged for the time being.
Glyn Lawcock
Could you tell me what motto you assumed when you took on this orientation?
Christian Cortes
Well, when we use the budget for the period, we use a rate of around 75. And as you’ve noticed this quarter, we had about 32 at the end of the quarter.
Glyn Lawcock
Oui. Je, obviously, if you use 75, now it’s 63. Es a big cut, almost, what, 15%, but I guess there’s also a refund for inflation compared to what you thought.
Christian Cortes
Yes, that’s right, Glyn.
Glyn Lawcock
It is ok. And just a third question, just extending the discussion of Olaroz 2. I mean, I sense you gave a little more detail about the delays, et cetera. But how sure are you of yourself? I mean, suppliers slipped and backed off. I mean, have you incorporated any fats now into the schedule with your first production of the 23rd year quarter time?Or if we do, we don’t get delivery in January, February of some of those minor parts you talked about. Just think of a smart delay, I guess.
Martin Perez de Solay
I’m going to ask James to give you more information about it, but we’re pretty comfortable feeling that, that we put it together. The team has developed some opportunities for those minor components, James can explain them in more detail now.
Unidentified corporate representative
Yes, we have adopted the technique of running with a P90. So, we’re conservative because we need. . . We don’t need to disappoint in the future, so there are opportunities for us to improve. But for now, we will opt for this. Q2. That makes sense to us. So we’re on the board and we know we can meet the schedule.
Operator
Now we have Lachlan Shaw from UBS.
Lachlan Shaw
Just to make Glyn’s query about the weather around Olaroz’s level 2 bigger. So, just in terms of your other projects, Sal de Vita, James Bay, can you tell us about the classes you learn from this new delay?Do you see that you could also bring a more conservative technique to those projects?
Martin Perez de Solay
Well, we will, as we said in the press release, we are constantly reviewing the forecasts of our projects. We work with James and the team to deliver, paint and prepare the P50, P75 and P90 scenarios for all our projects. We are constantly looking for our functionality against those scenarios, and the purpose of keeping the market updated, and taking into account the learnings is to assume that, in those differences between P50 and P90, the parties in this case of deliveries of the device can be delayed even if the contractors are dedicated to a certain date.
James, can you add a little more color to that?
Unidentified corporate representative
I think one of the other classes we’ve been informed of is that we’ll definitely get advantages from a little more technical detail than induscheck out is used to. We have very smart pricing projects and we can take a little more threat in terms of pre-FID financing to get the engineering so that we can unclog the source disruptions in the market. Therefore, we will be informed that classes must be reviewed to keep our schedules intact. But as Martin says, with every exam we do he will be very disciplined as to what our P50 is, what our P75 is and what our P90 is and he will consult the market accordingly.
Lachlan Shaw
It is ok. The next, a little reminder, hopefully. Just remind us of the marketing strategy for Naraha hydroxide sales, please.
Martin Perez de Solay
Yes, I will ask Christian Barbier, please.
Christian Barbier
Yes. Lachlan, thank you very much for your question. Look, we, this quarter, are going to start production of the first tons of Naraha for full commissioning and we have had conversations with several consumers. As GPC is our partner in this project, there will be a Japanese bias in the visitor portfolio, however, we are also talking to several other consumers to market this product. It will be, as is standard in this industry, most commonly under contract. But don’t think we’re talking about 10,000 tons of lithium hydroxide consistent with year. It’s not a huge amount, so we’re not looking to have a huge number of consumers either. I would probably say between 3 and five major consumers.
Lachlan Shaw
It is ok. And then in terms of contracted tons, deadlines and completion situations. So how do we think about this?Are you looking for flat or floor ceilings?
Christian Barbier
Listen, we don’t want to block doors and ceilings right now. The existing price point is very exciting and we want our sale value to reflect the accumulation in the current market value.
Lachlan Shaw
There’s bien. Super. Et last question, again, quickly. Is the expectation for the second quarter of December, a rather weak recovery because there are still fines passing through the factory?
Unidentified corporate representative
Lachlan is more related to the quality of raw curtains in terms of Basel contamination. The explained grain spodumene we processed in July is now exhausted. There is no more. Therefore, we expect that, for the time being, we will see larger and similar recoveries. And this is related to pollution, not fine soil ore.
Operator
There are no more questions at this time. I would like to return to Martin for his closing remarks.
Martin Perez de Solay
Thank you very much, Paulie, and thank you all for your questions and comments. As stated, we are committed to delivering the scale and production capacity required through our consumers as the world moves towards a net-zero economy. For this, we want to remain focused on strong operational performance, assignment execution and position containment in this environment.
Thank you for attending our quarterly earnings briefing today. If you have any further questions, please do not hesitate to contact our team of investors.
Operator
That concludes the convening of today’s convention. You can now log out.