Allkem Limited (OROCF) Q4 2023 Earnings Call Transcript

Allkem Limited (OTCPK:OROCF) Q4 2023 Earnings Call Transcript July 26, 2023 8:00 PM ET

Company Participants

Martin de Solay - Managing Director and CEO

Christian Barbier - Chief Sales and Marketing Officer

Christian Cortes - Acting CFO

James Connolly - Chief Project Development Officer

Liam Franklyn - Head of Mt Cattlin Operations

Conference Call Participants

Rahul Anand - Morgan Stanley

Tom Hays - CLSA

Max Vickerson - Morgans

Kate McCutcheon - Citi

Mitch Ryan - Jefferies

Al Harvey - JPMorgan

Hugo Nicolai - Goldman Sachs

David Wang - CICC

Austin Yu - Macquarie

David Deckelbaum - TD Cowen

Matthew Friedman - MST Financial

Martin de Solay

Thank you, Paulie. Welcome, everybody and thank you for joining us for Allkem's June quarterly results briefing. As usual, I will be providing an update on our business and Christian Barbier, Chief Sales and Marketing Officer, will be providing us with a market update. Also joining us for the Q&A is James Connolly, our Chief Project Development Officer; Liam Franklyn, Head of Mt Cattlin Operations; and Christian Cortes, our acting CFO. We have concluded the financial year with a very strong performance at both our operations. We have achieved record annual and quarterly production of lithium carbonate at Olaroz.

At Mt Cattlin, quarterly production increased 50% from the prior quarter and annual spodumene concentrate exceeded current guidance. Across the portfolio, we have made solid advancements in project execution. In Argentina, we are proud to have successfully achieved the milestone of first wet production at Olaroz Stage 2, while also advancing construction of Sal de Vida Stage 1.At Mt Cattlin, we confirm the additional 4 to 5 year mine life via open pit methods. In Canada, we progressed the IBA in relation to the James Bay project to final stages and in Japan, Naraha is commencing battery-grade qualifications with customers. We continue to be in a very strong financial position.

This quarter, we generated group revenue of $334 million, a slight improvement from prior quarter. We also achieved significant group cash operating margins of 82%. Group net cash at the end of the quarter was approximately $648 million. We continue to focus on our long-term strategy to deliver scale and product flexibility to customers and remain fully committed to the delivery and execution of our growth pipeline. The proposed merger with Livent helps us accelerate our strategy and derisk our growth profile, while driving higher vertical integration into the EV value chain. We have advanced the transaction and we are still targeting completion by the end of calendar year '23.From a sustainability perspective and starting with safety, we recorded a 12-month moving average total recordable injury frequency rate of 1.98 at the end of June, achieving our financial year '23 safety target.

Financial year '23 TRIFR evidences a 24% improvement year-on-year, but a 15% increase quarter-on-quarter, as 4 recordable injuries occurred in Argentina. Investigations have been carried out with corrective actions implemented. The 12-month moving average lost time injury frequency rate target was also achieved, closing financial year '23 with 0.62 incidents per million hours. Community engagement and share value continues across all our projects and regions in which we operate. Some highlights include positive community engagement with the Cree stakeholders in relation to the James Bay project to agree on local economic benefits and also the installation of 8 photovoltaic systems to generate electricity for families residing in the Salar de Hombre Muerto near Sal de Vida. We also recently signed a $130 million project finance facility with the IFC for Sal de Vida Stage 1. This facility is structured as a sustainability-linked green loan that combines environmental and social targets.

These targets reinforce commitment to support our responsible and sustainable development of lithium for a greener future and economic growth in the province of Catamarca.Moving to our operations, at Olaroz, we achieved record annual production of 16,700 tonnes of lithium carbonate and record quarterly production of over 5,000 tonnes. This is a result of a strong operating performance, excellent plant reliability, low downtime and improved energy efficiency. Lithium carbonate sales of over 3,400 tonnes were up 18% quarter-on-quarter and generated revenue of $132 million. Approximately 380 tonnes slipped into the earth into early July due to delayed vessel arrivals. Strong production from Olaroz Stage 1 significantly exceeded budget sales forecast and sale for the September quarter are expected to be materially higher. Gross cash margins remained at 85%.

Third-party sales were completed at $38,062 per tonne FOB and cash cost of goods sold was $5,882 per tonne, up 19% quarter-on-quarter due to elimination of export incentives coming to effect and the rate of materials, labor and energy, which have been impacted by inflation. Over time, unit costs will be offset as we progressively increase production volumes at Olaroz Stage 2, where we will focus on achieving product volumes and quality specification over a 12- to 18-month ramp-up period. At Mt Cattlin, we produce over 58,000 tonnes of dry metric tonnes of spodumene concentrate and achieved a 67% recovery. This demonstrates significant improvement in grade and favorable mineralization as mining has moved into the central zones of the main ore body. We shipped over 46,700 tonnes of spodumene concentrate and generated revenue of $123 million. Shipment of additional 11,700 tonnes slipped into the July due to severe weather conditions delay in loading at the port.

The gross cash margin of 80% was based on cost of production of $830 per tonne for the quarter and average pricing of $4,979 per metric tonne. At Naraha, we implemented some equipment repairs and improvements during the quarter and we continue to focus on increasing product quality and volumes through design capacity. We sold 464 tonnes of technical grade lithium hydroxide and we're also commencing the battery-grade hydroxide qualification process with customers. At Sal de Vida, we reached 98% construction completion of the first 2 strings of ponds. The first 9 ponds have been completed and filled with brine. All ponds have now been lined, the engineering for the third string of ponds has also been completed and earth works have commenced. Detailed engineering of the Process Plant progressed during the quarter.

Process Plant construction also advanced with mobilization of the EPC contractor and continuation of civil works, including delivery and installation of pre-cast foundations and associated concrete works. Engineering at James Bay advanced to 72% completion by the end of the quarter with the Process Plant package at 81% completion. Procurement of mechanical process equipment and mobile mine equipment complete to 94% and 88%, respectively. Stakeholder and community engagement remains very positive. We've made significant progress on the IBA with the Cree First Nations and reached the last stages of the approval process. However, this has been delayed slightly with the evacuation of the local community due to severe forest fires.

We will recommence once the situation returns to normal and we will continue to support them through difficult time. I will now hand over to Christian Barbier, who will provide us a market update.

Christian Barbier

Thank you, Martin, and good morning, everyone. The markets over the last 12 months has been a tale of 2 halves, from the extremely tight hyped market conditions in the first half of the fiscal year to the dramatic correction in the second half. This volatility has created a lot of noise in the market. However, the truth remains that market fundamentals are strong. Decarbonization is still an imperative and battery storage remains a key enabler.

Direct electrification through the use of batteries has been identified as the most efficient, cost-effective and commercially available route to fully decarbonize road transport. We already observe that the transportation sector is undergoing profound transformation and we can all agree that electrification is a foregone conclusion when we see penetration rates have reached 34% in China, 24% in Europe and now 9% in the U.S. EV sales continued to increase at a significant rate from 3 million in 2020, 10.5 million in 2022 to closer to 14 million in 2023, and according to BNEF, 27 million by 2026. We should not and cannot afford to become distracted by short-term volatility. There's been some concern over the recent futures exchange outcomes. Keep in mind that futures markets are not commonly used for markets for lithium product sales. They represent very limited small volumes relative to the lithium chemical market.

And as such, price indications are driven by short-term speculative sentiment and are not representative of the underlying physical markets. During the June quarter, lithium chemical prices were observed to have rebounded and stabilized. Consensus view suggest a relatively stable pricing environment over the next 6 months based on expectations of balanced supply and demand dynamics. However, I note that the market continues to be regularly surprised on the upside in relation to demand with being repeatedly surprised on the downside on supply. We believe the market will be at best slightly balanced overall and prices likely to be responsive to factors that we have set this tight balance. Allkem has delivered in the last quarter, better-than-expected production rates, both at Olaroz and Mt Cattlin.

We expect this to continue. We're fortunate to be in the position to offer more volumes in an improved market. Allkem has demonstrated discipline in withholding from selling at low prices into a sluggish market. And over the coming quarter or 2, we expect to monetize at current recovered prices or better. Thank you. I will now hand back to Martin.

Martin de Solay

Thank you, Christian, and I will now hand back to the operator to commence the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Rahul Anand from Morgan Stanley.

Rahul Anand

Congratulations on the result. Look, I just want to talk on production for my one question. Obviously,, production coming in quite strong and ahead of consensus and us. I just wanted to perhaps get a bit of color for both assets, Olaroz Stage 1, obviously, production. How much was it helped by the extra brine availability?

And if we had to take that away, what is the underlying production rate now for Stage 1? Is it starting to perform much better than before is what I'm trying to get some color on? And then on Cattlin, again, a good result there as well. How are we thinking about the setup of the asset going into next year? So, just production related from me.

Martin de Solay

Listen, as we discussed before, in the case of Olaroz Stage 1, clearly, the increased availability of the operation area from the [indiscernible] Stage 2 has helped Stage 1. But clearly, there's a significant improvement in the plant. The plant is currently operating at higher rates, higher recoveries, higher volumes flowing through the plant. And significantly higher equipment availability time as improved maintenance programs have occurred. So clearly, moving into a significantly better ground, but there are some additional production coming from additional operation areas we discussed before. In Cattlin, it's a significant recovery after a difficult first half of the year and with a very solid second half of the year, I think returning to normal operations in Cattlin is what we should expect in terms of volumes.

And we are working on the production numbers to be guided along with the yearly financial statements that would be released around the 20th of August.

Rahul Anand

Just one follow-up there, Martin. In terms of Stage 1 itself, do you think we start getting close to that nameplate that we've had as a target for a long time pre your tenure at the firm?

Martin de Solay

We're getting closer. We are almost there, if you were to look at it in terms of prime equivalent production. But it will also depend on the breakdown between prime and battery-grade products produced from Olaroz Stage 1. So yes, it has improved a lot from where it was about 5 years ago.

Operator

Your next question comes from the line of Tom Hays from CLSA.

Tom Hays

Congratulations on the production results. Just one on James Bay. You just called out the delay there has some sort of effect given the forest fires, given that the community has been evacuated and also some of that environmental monitoring-related activities had been suspended. Just wondering if you can give me some more color on what is the main driver here? Is there -- were there environmental monitoring activities that have come out of your discussions with the communities, that is sort of a follow-up on that draft environmental assessment report?

Or is there a meeting coming out with the community that's delaying an outcome? I'm just interested to hear from you if you could sort of lay out the next steps to conclude that permitting process.

Martin de Solay

Listen, many things to answer there. The good news is that the community we're returning today to Eastmain and that's very good news. The quality of the earth is [indiscernible] leasable there. What's -- what [ holded ] the IBA process is the final discussion with the community on the IBA agreement was going to happen 2 weeks ago, that was delayed. We hope it's going to happen soon and we are almost finalized with the IBA with the community. Then regarding the ESIA, if you remember, we secured the approval from the federal authorities back in January.

That approval came with certain requirements of environmental monitoring was basically flora and fauna floor to be completed before starting construction. Those works have already been completed and all requirements to start construction they have been completed. The remaining approval comes from Comex. That is the joint body between the province of Quebec and the Cree National government and that is in the final stages. Comex is having another meeting towards the end of July next few days in which we expect to have some clarity around finalization of the process now should go into -- after your questions have been answered. And all clarifications have been put forward, we expect to progress in getting that final approval quickly.

However, I don't know how quickly, quickly is in Quebec these days.

Tom Hays

Maybe just one follow-up. You flagged that once we get that permitting of production, then you will sort of tell us about first production. I'm just wondering, will that comment sort of an updated view on CapEx and costs?

Martin de Solay

Well, clearly, once we've got the permit and we know that the key issue there is how many winters we have to go through in the construction because they do have a significant impact on indirect costs. So, once we get the permitting, we will come out with an updated time line and cost schedule for [indiscernible].

Operator

Your next question comes from the line of Max Vickerson from Morgans.

Max Vickerson

Can I just ask a quick question about the difference between sales volumes and production of Olaroz, just especially given that it sounds like the production improvements may have been slightly anticipated? So, just wanting to tease out whether there's any marketing decisions behind why sales volumes put so much or was it just because production was kind of weighted towards the back end of the quarter?

Martin de Solay

Well, I think production has been quite stable through the quarter, but I'll let Christian Barbier answer the detail question on sales forecast.

Christian Barbier

Yes, Max, thank you for your question. So look, yes, we've had a very strong production from Olaroz over the last 2 quarters. You may remember at the end of the March quarter, we had an inventory increase because production was already above forecast. And we also had reduced internal requirements from Naraha at the time. So, we said then that we decided selling -- we decided against selling immediately at the Chinese spot price because at the time the spot price was low around $25 and that didn't really make sense for us to destroy value for shareholders.

That price did not reflect market fundamentals. It was the right thing to do. The spot price inside China has recovered from $25 to $40 during the second half of May and it has more or less stabilized since. So, during the June quarter, what we did is that we increased the level of spot sales and short-term contracts as soon as prices recovered, which is during the second half of the quarter. Most of the impact will be seen during the September quarter because of order lead time and also some shipping delays that we've had at the end of June into July. And we also had, as you mentioned, a higher-than-forecast production in Olaroz, thanks to really strong operational performance, which is great, about 1,200 tonnes higher than what we expected. And again, our consumption in Naraha has remained reduced because we continue our process improvement and we now have started the qualification with our key customers.

So overall, good news. It has resulted in a temporary increase in finished product inventory, but we're not concerned. Sales level will be higher and already are higher in the current quarter and will continue in the December quarter without compromising the realized price.

Max Vickerson

Just a quick follow-up then. You mentioned Naraha was not necessarily needing a lot of volume at the moment, but does the extra inventory do anything to the time line for qualification? Or are you still waiting for Stage 2 to ramp?

Martin de Solay

The qualification of -- the qualification for hydroxide with our customers is not impacted by Stage 2. We've started that process. We've had an audit from one of our key customers already and the technical qualification has already started. We expect it will take some time. In battery production, qualification of hydroxide takes anywhere between 6 and 12 months.

Operator

Your next question comes from the line of Kate McCutcheon from Citi.

Kate McCutcheon

When I was at Olaroz this quarter, it seems like a big feat to deliver Stage 2, so congrats to the team there. My question was on cost at Olaroz, the removal of the export duty. Is that the [indiscernible] credit, which I think you said is 4% of revenue or thereabouts? And is it fair to think that half of that goes to cost of good sales? And so should we expect cash cost to come down as Stage 2 ramps up given it doesn't have the purification circuit?

And how should we think about weighted costs over the long term on a real basis there? There's been a lot that's moved around since the last kind of update, I guess, on expected pricing for the Olaroz, expected costs, I should say?

Martin de Solay

And yes, you're right, the impact on cost is on the [indiscernible] refund, which we estimate around [$1,000] in total, but Christian Cortes can give you more details on the cost -- expected cost evolution.

Christian Cortes

Yes, the export refund was eliminated in February. So, when you're comparing to the previous quarter, we would have had an impact approximately of about $750 a tonne quarter-on-quarter. Now the explanation provided in the past is that benefit was effectively about half taken to a reduction to cost of sales and about half was effectively impacting another line item in the profit and loss statement. So, your question around looking forward, obviously, we'll go through a process of commissioning and ramping up. At steady state, we will effectively expect to see benefits from incremental production as we will see a lower portion of fixed costs attributable to those volumes.

So, we'll keep the market updated as we go along through the journey.

Kate McCutcheon

And can we expect cost guidance for both assets or guidance in general, I guess, with your financials in August?

Christian Cortes

Well, we won't be providing commentary around Olaroz, particularly on the basis that there's a certain period on which -- how that's going to look like during commissioning. And as we've said in the past, that process takes over a 12-month period. So, we don't think it would be reasonable for us to estimate that with the level of accuracy for the market. For Cattlin, once we talk about volumes, we can then provide color around what that expected cost may look like.

Operator

Your next question comes from the line of Mitch Ryan from Jefferies.

Mitch Ryan

Simple one, Naraha is starting to ramp up quite well. I'm just wondering if you can provide some color on just the ramp-up profile to nameplate?

Martin de Solay

Listen, Naraha started quite well. As you know, during ramp-up period, you evidenced some issues which we sorted out during the quarter in general maintenance of some of the equipment. Plant continues to do very well. There is not a significant market for technical grade hydroxide so we are not pushing product, and we focused on improving the quality of the product to be able to start the qualification process with the customers. So, as we complete qualification process and we start locking in the long-term contract for product, you will see the volume of Naraha ramping up to nameplate.

There's no issue in getting to nameplate capacity there from what we have seen during the ramp-up period.

Mitch Ryan

So, I was just waiting for some more color on just the timing of when you'll expect to be hitting that?

Martin de Solay

It's a combination of how quickly the customers answer on the qualification of the products and we're getting to those customers, we could start producing more, but wouldn't make sense to sell technical grade hydroxide into a market that doesn't present well.

Operator

Your next question comes from the line of Al Harvey from JPMorgan.

AI Harvey

Martin, Just wanted to touch on the merger. Looks like, you lodged all in trust documents. Just trying to get a sense of if there's any jurisdictions you're particularly concerned about? And I guess, as a quick follow-up, when we should expect the independent expert review if that's still in September?

Martin de Solay

Listen, there are no particular restrictions that we are concerned. We are following the approval processes in the different jurisdictions. And so far, so good, it's according to expected timing and nothing to update on that one. With regards to the independent expert report, as you know, it has to be produced with updated financial information. So, it will incorporate the annual financials that are expected to be delivered towards the second half of August.

From that time it may take another 3 or 4 weeks to complete the independent expert. So, we should be seeing it in the second half of September according to our current schedule.

AI Harvey

And just one quick one, if I may. You did mention in the release a lithium carbonate by-product was sold, not small, but just what was that and what kind of customer or any use was that for?

Martin de Solay

Yes, Christian, can you help me with that one, please?

Christian Barbier

We sold a few hundred tons of a by-product that we had been producing progressively over the last 2 or 3 years. And we took advantage of the high spot prices between October and April to sell these. These were sold to technical applications, industrial applications, non-battery applications.

Martin de Solay

Does that answer your question, Al?

AI Harvey

Yes, thanks for that.

Operator

Your next question comes from the line of Hugo Nicolai from Goldman Sachs.

Hugo Nicolaci

Maybe just a quick initial one for Christian, just looking at your tax paid in the quarter and I guess last quarter as well, looks just a little bit light. Just wondering if we'd expect to see a catch-up on the cash tax paid in the first half of FY '24?

Martin de Solay

Christian, you're muted.

Christian Cortes

Hugo, sorry, yes, the tax paid, both previous quarter and current quarter relate to Mt Cattlin. That's effectively an advanced payment, which will true-up once we close the year.Does that answer your question, sorry?

Hugo Nicolaci

Yes. So that's all the tax paid is in relation to Mt Cattlin. I guess how should we think about Olaroz sort of tax payments going forward?

Christian Cortes

Yes, absolutely. Olaroz will certainly be paying cash this financial year. It's a matter of fact that we're finishing the year and submitting our tax return and the expectation is that will be paying tax from here onwards.

Hugo Nicolaci

And then maybe just one for James. Any progress on the DLE technology selection at Olaroz. And are you still expecting to start piloting some of the short-listing technologies later this year? And how study is progressing on potential Stage 3 there?

James Connolly

Yes, the technology screening has gone extremely well. As we indicated, we are going more conventional on that side, focusing on, let's say, a first stage evaporation. On the DLE itself, we'll be looking at making the decision around and our process design team will be looking at that. In terms of the advancement around that, obviously, we focused on the hydrodynamic models. We've completed that work.

We're quite happy with the results and that will lay the basis for our teams, both to explore that evaporation case as well as future state DLE case. So, very good on the hydrodynamic side.In terms of piloting, the process development team has scheduled piloting for this financial year coming. So, we look forward to updating you as soon as we get that piloted. We will be using the Hombre Muerto site, which will be a great -- where we did some really good work on Sal de Vida and we'll use that same laboratory just kitted out with the DLE technology and advance that going forward.

Operator

Your next question comes from the line of David Wang from CICC.

David Wang

So, my question is on the latest time line of Sal de Vida, it's great to see that we are making further progress this quarter and maybe have more color on the impact of the delayed cost by resourcing and procurement issue at Sal de Vida you mentioned last quarter. Are we still expecting first production in mid-2024 now?

Christian Cortes

So David, we made good progress. Sorry, Martin. We engaged with Turner & Townsend, as we spoke the last time. They are at the later stages of that review on the rebaseline activities. We're currently doing the quantitative risk assessments at the moment.

So within this quarter, we will be in a position to update the market both on cost and on schedule. At the moment, we will keep the guidance as is until we do the work and can have that spread and certainty around what our forecast will be.

David Wang

And a quick question on Mt. Cattlin's low-grade spodumene sales from it. We notice that there is no low-grade sales recorded this quarter. So, is this just a pause of sales? Or shall we expect no further low-grade sales in the future?

Martin de Solay

We said, David, when we started those lower grade sales that were to sort out the problems we are creating to our customers by lower production of Cattlin as we return normal operation. We would make a lot more money selling the high-grade concentrate at the lower grade. So, with regards to future outlook, we'll let Christian Barbier talk through it.

Christian Barbier

David, yes, you may remember that we said it was really about giving additional lithium units where we experienced lower than anticipated production levels. So, it was always temporary. We are not in the current moment selling any low grades, although we do have shipments that has been delayed at this [indiscernible] both in the month of July that was basically a legacy from the past few months.

Operator

Your next question comes from the line of Austin Yu from Macquarie.

Austin Yun

Just wondering if you could provide some color on the Naraha plant ramp-up and the modification work we did during the quarter. Do you need to do more work or any further modifications in the next years to come up?

Martin de Solay

As I said, it was not modifications. It was maintenance and adjustments after the initial ramp-up of the plant. It was basically work on the kiln, it's a large piece of equipment and being run for the first time in Naraha. Some adjustments have been made here to ensure that we reach the required recycling of line levels, and it's all good. I don't expect major modifications and there hasn't been any major modification.

In Naraha it has mostly been -- as I told you, adjustments on equipment that were evident through the ramp-up period as it usually happens.

Austin Yun

Just one quick follow-up. So, any color you can provide on the future shipments to Naraha plant from the other operations?

Martin de Solay

Mostly related to the amount of...

Austin Yun

Sorry, the amount of leasing covenant then to Naraha.

Martin de Solay

Well, as you know, Naraha had full capacity, can produce 10,000 tonnes of lithium hydroxide, which requires about 9,500 tonnes of lithium carbonate we produced and the shipments to Naraha would be directly related to the amount of battery-grade hydroxide that we achieved in Naraha after completing the qualification process with the customers.

Operator

[Operator Instructions] We do have some follow-up questions. Your first is from Kate McCutcheon from Citi.

Kate McCutcheon

Just a quick market question now. Usually, you give us realized pricing expectations for the next quarter. You haven't done that this quarter unless I've missed it. What's the rationale there? Or can you provide some expectations, please?

Christian Barbier

Kate, look, when we look at the market at the moment, as I mentioned in my opening comments, we expect stability during the September quarter. The market seems to have come down in terms of prices and demand remains robust and is expected to continue to increase. Having said that, we've seen a lot of volatility in the last 6 months. And we do have quantities of spot material to sell, both in carbonates and in hydroxide. So, our exposure to the spot is in our portfolio.

And part of our quarter sales are not yet priced. So, it would send a signal to customers and to competitors that would be totally inappropriate. So it's -- this is the reason why we're not communicating a guidance.

Operator

Your next follow-up question comes from the line of Tom Hays from CLSA.

Tom Hays

Just a follow-up on Mitch's question around the ramp-up of Naraha. Is the implication here that you can actually run that plant sort of on a tonnes per day basis at 100% today? And if not, what have you achieved in terms of the percentage on a daily output basis?

Christian Barbier

No. The plan does not have any limitation to reach nameplate capacity as we proved through the ramp-up process, as I've said before. The market for technical grade hydroxide is not very strong and it doesn't make sense to produce a lot of technical grade hydroxide. So, we are ramping up the plant after the modifications according to the sales orders that we expect from the customers after completing the product qualification process. There's no technical limitation on it.

The plant was very quickly ramped up in terms of capacity.

Tom Hays

And just one quick follow-up. In May, we saw headlines of Mexico, Bolivia, Chile and Argentina sort of forming some sort of alliance. Some other headlines that we're seeing recently. Mexico amending their mining law to place higher environmental standards in use of water in the mining sector. And also just headlines around the upcoming election.

I'm just wondering if you can make some comments on what that association might look like going forward? And also any comments that pertain to your lithium operation or any impact that the election has on your operations going forward?

Martin de Solay

Tom, that's a difficult question because it requires to do some forecasting on politics, which is quite difficult in this part of the world. Listen, yes, we also those news, something that is important to bear in mind is that those news were mostly supported by the national government in Argentina. However, in Argentina, the natural resources and the custody are under the responsibility of the provinces. Provincial governments are against changing anything within the existing mining law. So we, based on the current configuration of the law and how the system works in Argentina, we don't foresee such an association having a direct impact on any of our operations for the time being.With regards to the potential impact of the elections, we have seen that most of the extreme candidates have weakened over the last few months in the run-up to the primary elections that will happen within 2 weeks.

So as of today, the polls are showing that most of the center type candidates are running up. And in that regard, one of the candidates comes from the previous government that was quite supportive of the lithium industry. The other one comes from the current government that was also quite supportive of the lithium industry. So, we don't foresee a significant challenge coming up from the elections in Argentina.I'm not sure what -- if that answers everything that was the second part in your question.

Operator

Your next question comes from the line of David Deckelbaum from TD Cowen.

David Deckelbaum

Martin or maybe Christian, I just had a couple questions about Mt Cattlin and the ore reserve update if you had a moment. First, I just wanted to confirm that you still expect Stage 4 to be permitted by August of this year. And then my follow-up to that is just as you think about -- I know that you all are looking into a feasibility study for underground mining, which I believe you're still targeting for the beginning of next calendar year or towards the early part of the calendar year. Is that initiative solely to extend the mine life beyond the sort of 2028 time period?

Martin de Solay

David, I will ask Liam to support us in the answers. Liam is the Manager of the Mt. Cattlin asset.

Liam Franklyn

So look, in terms of the mining permit that we launched in May for the Stage 4 expansion of Mt Cattlin, that is more likely looking at a September to October time frame. Obviously, that's in the hands of our local regulator. We're regularly in contact with them. We don't anticipate much slippage from that time line. However, we've factored in such risk into the profile of the waste stripping for Stage 4.

So that's in hand, and that won't impact obviously the FY '23 spodumene production because we're still in the ore body for Stage 3.In terms of the potential for underground expansion, we're really looking at that as an alternative that may present economic benefits as opposed to a further cutback in the later stages of the already proven Stage 4, which may extend the life of the mine beyond 2028 as you infer. So, we will have to do the work. And the time frame for that feasibility study remains early in the calendar year of 2024.

Operator

Your next question comes from the line of Matthew Friedman from MST Financial.

Matthew Friedman

Just wondering if you can comment on the activity that you're seeing on the ground currently from other players, particularly in Argentina, particularly in terms of the construction and the ramp-up of new projects that are obviously coinciding with your own projects in country. And I guess, also thinking about how that feeds into your reassessment around the timing and the costs around sales of [indiscernible]. Do you expect these ongoing activities on other projects will impact you or feed into that process in terms of personnel or equipment availability or whatever the case may be?

Martin de Solay

As we said before, yes, there's a lot of activity going on in the region and the availability of resources as well as the current restrictions that the government has imposed on imports are the main reasons for us to review the time line on Sal de Vida. So that is clearly what underpins that review.

Matthew Friedman

I'm just wondering whether you can be able to provide any color on, I guess, specifically some of the other projects that are under construction in the region and I guess, how that's influencing your thinking?

Martin de Solay

The availability of resources is orally related to many projects being constructed in the region. And you just saw [indiscernible] starting production and there are quite a few others that though some of them are a bit more delayed. Some others are trying to push forward. I tell you, [indiscernible] as we are. There's the Livent plant in Phoenix on the other side of Hombre Muerto Salar and while all other projects are quite behind our progress in Sal de Vida.

But lots are announcing that if they have not started construction, they will start construction shortly. So there is activity in the region. I think that shows confidence following Tom's question from before. I think that the market continues to be confident on the availability of resources in Argentina and the ability to develop them?

Operator

Your next question, a follow-up from Hugo Nicolaci from Goldman Sachs.

Hugo Nicolaci

I have a follow-up. It was just more of a broader one. I guess back in May, we had a number of public comments from both the U.S. and Argentinian officials around Argentinian with finding a path to some IRA support. That seems to have been pretty quiet recently.

I mean do you think that that's just linked to Argentinian election timing? Or maybe could you just comment on the latest you're hearing around what those discussions are looking like at the moment?

Martin de Solay

Well, I think it's -- listen, Hugo, this maybe bit of speculation. It's an Argentine talking about U.S. legislation. So -- but we have seen the Department of Treasury being slow in answering the questions that or the comments that were posed on the IRA. I was talking to some lobbyists in Washington this week and the view is that this may take a bit longer for the U.S. authorities to define the agreement that they got with Japan in terms of the [indiscernible] a number of comments and discussions. So, we think those discussions are going to be a bit slower than we all expected. Nonetheless, and I was with the Argentina embassy as well. And it is a country effort and all of the companies operating in Argentina are supporting the country to find that path for the Argentine lithium into the IRA requirements. So that continues to be the case. It's -- clearly, we'll lose some focus from the Argentine authorities as we get into the middle of the election period, but the effort, the intention and the focus continues to be there.

Hugo Nicolaci

And then maybe just one last one, just around like I say, you're saying customer conversations with -- in terms of offtake and volumes since announcing the merger? Those conversations have changed in terms of what they're seeking in terms of maybe being diversified contracts from different assets now that you can potentially offer that? Or maybe how, I guess, pricing discussions shift given that maybe you have a greater sort of security of supply that you can provide from a bigger portfolio? Any sort of updates as to those discussions there?

Martin de Solay

First of all, you have to consider that given on [indiscernible] regulations, not lot of customer engagement could happen around these days with regards to the merger. So, until the deal is finally voted, both companies will operate separately. Nonetheless, support from customers and indications of interest have been quite good with regard to the merger because we will be a larger company with a larger asset base with a larger industrial base, being able to supply customers globally and with a significant flexibility meeting all of their requirements. So as you said, having a larger asset base, being able to supply from different assets, it's all good news for customers and Livent and we have both received quite optimistic or quite promising comments from the customers with regards to the merger. So from that regard, I will tell you it is as good as it could be given the current antitrust regulations that you are not able to get into detailed discussions at this point.

Operator

There are no further questions at this time. I would like to turn the call back over to Martin for closing remarks.

Martin de Solay

Thank you very much, Paulie. And as concluding remarks, I can tell you that we have achieved a strong quarter with solid progress and we continue to focus on strong operational performance, project execution and managing costs throughout our global portfolio. Thank you for joining us today. If you have any further questions, please don't hesitate to contact our Investor Relations team.