ASX Today, page-44188

Hi Fooca,

I appreciate your response to my post with the feedback and analysis you have stated. It is also good that we can at the very least agree the figures recently published by Citi Research were disgraceful and misleading.

On reading of your comment, I respectfully believe there is a fundamental misunderstanding on the interpretation of the C1 and AISC (All-In Sustaining Costs) and I unfortunately have to disagree with your cost estimates because the cost items you mention have been grossly miscategorised.

To remedy your misunderstanding, I have listed the components of each different cost groups (C1 vs AISC) explaining and responding to your points.

I hope that you find this constructive and not personal. I do thank you for responding here and encouraging deeper analysis on HC.

Kind regards,
CK

Terms & Definitions:

C1 Costs represent the direct cash costs of producing a tonne of lithium concentrate. These are the basic costs of mining and processing the ore to produce a saleable product.

What is included in the C1 costs are:

• Mining costs (drilling, blasting, hauling, etc.).
• Processing costs (crushing, milling, concentration, etc.).
• On-site administration and support costs.
• Transport and logistics costs (to the point of sale or port).
• Direct labor costs associated with production.

What is excluded from the C1 costs are:

• Corporate overheads.
• Depreciation.
• Royalties.
• Exploration costs.
• Sustaining capital expenditures.

The C1 costs have been very accurate labeled LTR in their reporting. A copy of these numbers is at figure 1 below.

All-In Sustaining Costs (AISC) (as you mentioned) provides a more comprehensive measure of the costs associated with producing a tonne of lithium concentrate. It includes all sustaining capital and operational costs necessary to sustain the mine and its production over the long term.

What is included in the AISC costs are:

• All C1 costs (as listed above).
• Sustaining capital expenditures (costs necessary to maintain current production levels).
• Corporate overheads (general and administrative expenses at the corporate level that support the mining operation).
• Royalties (payments made to governments or private entities based on the production or revenue from the mine).
• Exploration costs (costs associated with exploration activities necessary to replace depleted resources and extend mine life).
• Reclamation and closure costs (estimated costs for rehabilitating the mine site and associated environmental responsibilities after production ends).

My response to the C1 vs AISC costings:

From what I gather from your post, your main critique is that the C1 costs used by the Company do not include some metrics and in your words "provide a discounted final figure which leaves a level of uncertainty to what the actual AISC cost to produce lithium spodumene per tonne really is".

I don't disagree with that statement and I can see where you're coming from. HOWEVER, the C1 costs are in fact only C1 costs and have only been used accordingly. These have not been used as a replacement to the AISC cost so I do not see where any misleading statements have been made.

If you refer to the figure 2 below ("Revised Citi Research AISC Chart") , you will note the BLUEbar are our production costs i.e. C1 costs and the ORANGE bar represents the freight, royalties & other costs. We can disregard the growth expenditure since there is no dispute here.

To calculate our all-in sustaining cost (AISC) figure, we are essentially combining our estimated C1 costs by LTR with the estimated remaining AISC items represented by the orange bars (and debatably gold) since AISC includes all C1 costs (blue) plus additional costs (orange). You will also note from my original post that I did not attribute much of a decrease to the 'freight, royalties & other costs' (orange bar) for a few different reasons. Firstly, the costs represented did not seem unreasonable, and secondly, there isn't to my knowledge strong data to refute these costs at present.

When we combine the estimated C1 costs in blue, with the remaining AISC costs in orange, I believe we get the most accurate perspective to date of what our total AISC would look like albeit these are all estimates at this stage and are subject to change. As more data becomes available, so will our projections. Furthermore, what the chart does demonstrate is the AISC costs against the prevailing lithium spot price which is exactly what investors want to see.

		10 Year Average ($/dmt SC6)
1	Mining	$449
2	Processing	$157
3	G&A (site and processing)	$39
4	Transport and logistics	$89
5	Tantalum credit	-$60
6	Inventory movement	-$23
7		$651

Figure 1 - "LTR 10 year average C1 costs".

Figure 2 - "Revised Citi Research AISC Chart".

Flaws in your calculations:

You have mentioned that the C1, A$651 figure excludes:

• A$37 million pre production mining and stock piling = A$62.25dm/t
• Royalties (Stae 5%, Private 2% not including the Tjiwarl component as it isn't / hasn't been disclosed?) @US$800 spodumene price = (US$62.00) - A$92.00dm/t (calculated at current A$0.67)

Firstly, you don't actually know whether the A$37 pre-production mining has been included or excluded with the 'mining' line item in the LTR report... there is no data to support that conclusion - if so please let me know. Until then, these should not have been added to your C1 estimates as you're essentially doubling on mining costs.

Secondly, as iterated above, royalties are not supposed to included in the C1 figure... It is incorrect that you have added these cost estimates to your C1 figure as they belong in the AISC total..

Thirdly, all other costs you mentioned such as sustaining capex and growth capex are factored into AISC costs, these are not items for C1 costs and have already been factored into the Citi Research AISC costs in figure 2 (orange and gold bars).

Fourthly, you speculate on a lot of items about the specifics of LTR operations and whether they have been included into the AISC costs or C1 costs. You also reference the impact of AASB16.... essentially your questioning here is around the accounting treatment and categorisation of particular costs. I believe you incorrectly referenced the Australian accounting standards incorrectly as AASB16 actually refers to leases and has nothing to do with C1 mining costs. As for the remainder of the speculation on individual cost items, I'm sure these costs have been appropriately categorised by LTR - at this point nobody knows what the specific individual costs of each line item in their cost analysis, you can only assume the reported figures are managements best estimates... You can be assured that once actuals are published, all listed companies on the ASX must undergo audits as a listing requirement so these will be checked.

After addressing these points, I (respectfully) don't agree with any of the adjustments you have made to your C1 costs.

Stockpiling ore and the associated reduction in production costs?

You mentioned that both @anatol and I have suggested that the mined and stockpiled pre production 567,000 tonnes of ore doesn't get included in the operating costs which is "contradictory" to the Company's information in released announcements, quote; "The A$37 million associated with building the 567,000 tonne pre first production ROM stockpiles from the mining operations (which will be included in the Company's operating cost once spodumene sales commence.)"

I can't speak on the behalf of the mighty wise Anatol and I'm not sure where you are getting that from. I can't find a source where Anatol or myself have said the costs associated with stockpiling the ore will not be included in operating costs. It also depends on which period you are referring to? Recent posts have been in reference to the upcoming September quarterly cashflow report, which only encompasses 1 July 2024 to 31 June 2024, a lot of the mining costs for stockpiling which occurred prior 1 July 2024 will NOT be included in the quarterly cashflow report as they have already been reported on, and will therefore
cause the company to report a higher profit. This does not mean the costs aren't reported on. They will appear in the historic quarterly reports and annual financial statements. That's the extent of my posts - anything else you will need to ask Anatol.

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