Phoslock Reports $752K Operating Deficit with Production Doubling to 710 Tonnes

Production Recovery Drives Inventory Build

Phoslock Environmental Technologies Limited (ASX:PET) ramped up production sharply in the June 2026 quarter, delivering 710 tonnes; double the output of the previous quarter. This improvement came as plant recommissioning issues and equipment failures eased, allowing operations to reach 85% of capacity, up from 65% in March. Despite the production surge, sales volumes dipped slightly to 189 tonnes from 197 tonnes a year earlier, with Europe accounting for 72% of sales and the USA 24%. The company increased product inventory to 1,696 tonnes, including a substantial 756 tonnes held in China, positioning itself for anticipated strong demand in Europe later in the year.

Cash Position Weakens on Higher Operating Deficit

Phoslock’s cash reserves fell to $3.5 million by 30 June, down $787,000 over the quarter. The operating cash flow deficit widened to $752,000, up from $475,000 in the prior year’s June quarter. This increase was driven by significantly lower sales receipts of $501,000 and only a modest reduction in net operating outlays, which stood at $1.25 million. Legal fees, net of insurer reimbursements, accounted for $175,000 of the outlays, reflecting ongoing legal expenses. Notably, the company did not undertake any financing activities during the period, relying on existing cash to fund operations.

Advances in Lanthanum-Based R&D and Patent Prospects

Research and development efforts continued in China, with several tonnes of a new product containing 10% lanthanum produced at commercial scale. This product retains its phosphorus-binding and free lanthanum properties, and bulk samples are being sent for in-lake trials in the USA and Europe, with potential trials in China under consideration. Laboratory work also yielded promising results for a formulation with 15% lanthanum content. Preparations are underway for patent applications covering these innovations, suggesting a strategic focus on enhancing product efficacy and intellectual property protection.

Legal Proceedings Cast Uncertainty Over Outlook

The company remains embroiled in legacy legal issues, including a shareholder class action initiated by the Banton Group in Federal Court. Mediation efforts in June failed to resolve the dispute, with proceedings set to continue under court direction. Phoslock stated it cannot predict the outcome but is committed to defending its interests and complying with regulatory requirements. Legal fees continue to weigh on the company’s operating costs and cash flow.

Operational Flexibility Enhanced by Wastewater Approval

A regulatory milestone was achieved with Phoslock’s Changxing subsidiary securing approval to discharge wastewater meeting minimum quality standards. This approval enables increased production capacity without significant capital expenditure, as the plant can now handle higher wastewater volumes without additional treatment. This operational flexibility could support scaling production if market demand materialises as expected.