IRC Limited (1029) Earnings Call Transcript & Summary

Thank you, everyone, welcome to today's conference call. And Kent, please begin the call. And I'll be standby for the question-and-answer session.

Thank you. Good afternoon, everyone. I would like to welcome all of you to IRC Limited 2020 Second Quarter Trading Update Conference Call. With us today, we have our CEO, Mr. Yury Makarov; and our Interim CFO and Company Secretary, Mr. Johnny Yuen. [Operator Instructions] As a reminder, this conference is being recorded. Announcement and PowerPoint slides we'll be using for this call have been uploaded, and you can download the documents from our website, www.ircgroup.com.hk. [Foreign Language] It's now my pleasure to pass the call to our CEO, Mr. Makarov. Mr. Makarov, you may start now.

Thank you, Kent, and really warm welcome to all who have joined us. We are very pleased to announce that these 2 quarters were quite good for the company, and we are very proud to announce that we finished in this period with a profit. I think it's the first time in our history when we have operational profit, profit, which comes from real operations rather than the accounting things. This can be attributed to different things. First of all, our production and shipments have been increased. We are now operating at around 90% of our capacity. Our shipments is around the same figures. Thanks, God, we have not been influenced by the COVID-19, not being materially influenced by these -- we have some people who were infected, but most of them have passed through this illnesses without any symptoms, which is a reflection of very good preemptive measures of my colleagues. We have removed almost everybody who are not involved in the production. We removed them to their houses, they work remotely. And those who are on the plant or in the open pit, and they are implementing quite a strict measures like face masks, like using sanitizers, almost all day long, and we have installed a lot of bactericide lamps over the plant. So once again, Thanks, God, this illness will not affecting us materially. Now returning to the operations. We have been affected by some problems of our mining contractors who have some issues with the delivery of the blasting materials onto the site. But we have seriously discussed it with them, and they will -- they promise us to improve the performance and implement some measures to avoid this in future. My colleagues will give you more information about our financial figures, and I will be happy to answer questions when we will be in Q&A. Johnny, please go on.

Thank you, Yury. Ladies and gentlemen, if I may ask you to turn to Page 9 of our presentation slides, which talks about our financials. I'm pleased to report that in the first half of this year, we are going to report a profit of not less than $5 million, which is a significant turnaround. If you look at our last year's loss, which is around $25.2 million, so this is a significant turnaround. And it's a very important moment for IRC, because as you Yury has just mentioned, this is essentially our first operating profit or, let's say, underlying profit. So it's a moment we celebrate. We have worked on our numbers, we have worked on the report, and this 2020 interim results, we will publish by end of August. So we will have further details when we announce the year full interim results at the end of this month. Looking at the cash balance. Our cash balance as of the end of the period, 30th of June, was $5 million. But then, obviously, cash fluctuates because of working capital movement and timing of cash flows or payment or CapEx or things like that. And so a snapshot might not be representing a true picture of the company. I can assure you that by the early August, I mean, our cash balance will be back to more than $10 million or so. So it's just a timing difference in terms of the cash balance. Total outstanding debt is $214 million, which is basically the amount we own to Gazprombank. We make our principal interest repayment as per schedule in the second quarter, $9.4 million, so we are servicing the debt timely. So I mentioned about recording a profit for the first half. I mean this is a combination of factors, which give us this encouraging result. First of all, obviously, Slide 10, if you look at it, iron ore price has actually performed very well in the first half of this year. It has gone up by 14.4% despite all this COVID-19 issues. I mean iron ore price has been very strong. So we are benefiting from that. Slide 11 shows another advantage we have. In March, obviously, ruble has depreciated quite significantly. And now it is at around USD 1 to RUB 72. Now that is quite a weak currency. If you look at last year, the average was RUB 65, and now it's RUB 72. So it's, let's say, 10% depreciation. So that is helping our cost because our cost are mainly denominated in Russian rubles. So the weaker the ruble, the better we are. Slide 12 shows basically what -- how the market foresee the premium for 65% iron ore versus 62%. Basically, the market is seeing -- is expecting the premium will increase, which is, again, beneficial to us because we produced and sell 65% premium iron ore. Again, the higher premium, the better for us. And it seems like, at the bottom part of it, is it's a very interesting chart. And that, it shows how iron ore performs when compared with other more precious metals. We -- basically, iron ore is one of the best performers in the [ overall ] precious metal market. So we are fortunate to be operating in this segment. And Slide 13 shows that, apart from iron ore, currency, things like that, we are also benefiting from a lower interest rate because of the falling market LIBOR rate. So all these factors contribute to our positive operating and financial results for the first half of this year. Again, I will remind you that we shall issue the first half financial results at the end of August. So we will have further details by then. And with that, I will pass the call back to Yury. Yury?

Hello?

Yury, I think I've finished my part, and we can start Q&A.

[Operator Instructions] So Kent, we don't have question at this point of time. So would you have like any closing remarks?

Yes. I will wrap up.

Sorry. Kent, we just got a question. So would you like to take it?

Yes, please. Go ahead.

And the question is coming from [ Gary Lo ].

Can you hear me? May I ask the question in Mandarin or Cantonese as we are a Chinese radio, so we would like to have a Chinese sound bite?

Cantonese is fine. [Foreign Language]

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So Kent, we don't have questions on the queue.

Any more questions, Amit?

Yes. Sorry, Kent, we do have another one. Sorry about that. And that question is coming from [ Rosen ].

So my question is for Mr. Makarov. I actually wanted to see if there is -- if you foresee any supply and production disruptions for the rest of the year given the COVID situation. And also if there's any foreseeable disruption in the demand from China?

Listen, this situation is -- first of all, thank you for your question, it's a very important one. And I should admit that I'm not an epidemiologist to make conclusions of what will happen with this COVID virus in the nearest future. What we all know is that currently, partly, this shortage in iron ore reflect some restrictions in the production in Brazil, and we all hope that people there will not be heavily influenced there. But we have what we have. So it's quite hard to make any predictions in the future. What I can assure you is that we, in our minds, we will do whatever we can to avoid all possible influence of this virus onto our operations. And we will not be restricted, although all in at hand.

Okay. And one more follow-up question is, do you have any updates for the Kuranakh mine at this moment?

As we mentioned in our report, it's not operational in -- it's not in operational mode, and it's under arbitration. So we are always -- we are looking over situation and if conditions will be improved, we will discuss whether it's worse to restart operations there, which is possible or no. Right now, there are no any changes.

[Operator Instructions] So Kent, we don't have question at this point of time. So do you have any closing remarks?

Yes. I would do the remark. Thanks. [Foreign Language] If there is no more question, we are now ending the meeting here. And thank you, everyone, for joining the call today. We appreciate your time. If anyone has any questions, please feel free to contact us at any time. Contact details, you can refer to our corporate website, www.ircgroup.com.hk. With that, thank you and have a great day. Bye-bye.

Thanks. Bye-bye.

Thank you. Thank you, management. The conference call has been concluded. Thank you for your participation.