IRC Limited (1029) Earnings Call Transcript & Summary

Good afternoon, everyone. I would like to welcome all of you to IRC Limited 1029 2020 Trading Update Conference Call. With us today, we have our CEO, Mr. Yury Makarov; and also our interim CFO and Company Secretary, Johnny Yuen. [Operator Instructions] A brief question-and-answer section, which you can ask in English, Mandarin or Japaneses, will follow the formal presentation. As a reminder, this conference is being recorded. Announcement and PowerPoint slides we'll be using the call has been uploaded, and you can download the documents from our website,www.ircgroup.com.hk. [Foreign Language] It's now my pleasure to turn the call over to our CEO, Mr. Makarov. Mr. Makarov, you can begin now.

Thank you very much, Kent, and good morning, everybody. We are very happy to welcome you on this presentation of our results of the Third Quarter. And talking about the results, we're very glad to announce that our production is -- keep increasing. We are more than 12% -- we have done more than 12% increase in the production comparing to the 9 months of the last year. If you will compare third quarter, it's also higher than it was last year, but we -- should it mean that we have been affected by the unusually heavy torrential rains in this period, which hopefully, will not repeated next year. But still, we have restored normal production and currently, we are creating at around 90%. Nothing to add about Kuranakh, which is under the administration, but we're still thinking about reopening if conditions will be acceptable. Prices for our production are quite attractive. Russian ruble is also helping us to maintain good costs. LIBOR was decreased, and it helps us to decrease our payments to the bank. So overall, financial environment was quite good for the company within this period. You can see more figures about what I have just mentioned on the Slide #7. And I would like to add a bit more information about what was very important to everybody. I think it was about the COVID virus. Up to now, there were no material impacts on us. We are doing a lot of testing for those people who are arriving to the site. And since next week, we will start to do it on the weekly basis, not only do they -- when people are arriving for the 4-week shift. Situation in the area is quite tough. The amount of ill people in the Jewish Autonomous Republic is increasing. Although, once again, I should have meet that my colleagues and especially those one who are occupied with their medical assistance of the staff, they are doing great job and identifying people with virus. I should also admit that there are no -- there are not that much people who have symptoms. So even those who are in the active stage of the illness, they are asymptomatic. And there are only a couple of people who have symptoms. But still, we are very carefully monitoring situation to avoid distribution of the virus and that is actually the reason why we are doing those -- why we are going to do those frequent measuring since next week. Once again, rainstorms, which -- talking about rainstorms, which affected our operations. We believe that it's a matter of an unusual weather shift in the area. We have no idea so that if it will be repeated in future. But last 2 years, it was very unusual and a very heavy level of rainfalls. It was that problematic that local authorities even declare a state of emergency in the area to fight with the consequences of these rainstorms. But anyway, right now, we are in the process of preparing for the winter operations. Since next week, we are going to start drying. And hopefully, at least, this problem will not affect us anymore in the nearest future. I think that's it from my side, and I would like Johnny Yuen to give more detailed information on our financial stuff. And I will probably come back later with them and answer to some questions or add some information. Johnny, please?

Thank you, Yury. If you can turn to Slide 9 of our presentation, it shows the financial resources and liquidity of our growth as of the end of the third quarter. I'm happy to report that our cash and deposit balances have increased to $14.3 million at the end of the quarter. Now that compares positively to what we reported previously in the second quarter. When the cash balance was about USD 5 billion. So we are curating cash. And I would like to draw your attention to the fact that our $14.3 billion cash balance at the closing of the quarter end was around at after we paid for the Gazprombank loan and interest, which amounted to around $9 million. So right after repayment, we still have this $14.3 million cash balance, and we are slowly building all the cash. The total debt outstanding as of the quarter end was USD 209 million that is totally related to the Gazprombank loan facilities. So perhaps I will also quickly go through the market perimeters during the third quarter. If you look at Slide 10, again, we are very encouraged to report a very positive movement in the market price of the iron ore. As this clearly shows that, in the first quarter, the average price was $103 per tonne, but then at the third quarter the average price was $129 per tonne. It was at higher $140 something during the quarter, now it's returned to around $133 per tonne. So still that is a very, very attractive and encouraging price level. Currency rise. If you look at Slide 11, that shows the movement in Russian rubles. Now obviously, if I can remind you guys that our expenses are mostly denominated in rubles. So the weakest ruble is relative to the U.S. dollar term, the better we are. And the rubles have been depreciating throughout 2020. For the quarter average ruble rate was RUB 76, last quarter was -- sorry, RUB 74, last quarter was RUB 72. But now as of today, it was RUB 76. So again, I mean, it keeps on depreciating, which is beneficial to us. Slide 12 shows the price movement of the 65% iron ore relative to the 62% once. Now obviously, we sell 65% iron ore. So the greater the premium over the 62% comes first, the better we are. As if you can see from the graph, we expect that the price premium will continue to rise in the next 12 months or so. So it's looking positive to us. Slide 13 shows the LIBOR movement. We are seeing a drastic decrease in the market LIBOR rate throughout 2020. In the first quarter, it was like 1.53%, but now at 0.21%. So this reduction in LIBOR rate will help reduce our finance costs. So as a quick summary, I think all these perimeters are beneficial to us. And hopefully, I mean, we will see better results when we report our fourth quarter as well as the yearly results towards the end of the year. So with that, I will pass the ball back to Yury, who will talk about our competitive advantages on page -- on Slide 14 and 15. Yury, please.

Yes. Johnny. As usual, I'm talking about the most interesting things. Just to remind to those who probably have forget about it or to those our -- part of our audience, which is first time listening to such type of presentation. First of all, we are very conveniently situated. We are on the -- just on the border of China, which is the biggest consumer for the item of concentrate. We are producing quite a good quality of the product, which is 65% of ferrum. We once again, repeating -- enjoying current very convenient and very comfortable environment for us from the point of view of the currency exchange rate from them. Lower financial price of the finance because of the lower LIBOR. And the most attractive, once again, talking about the logistics, we are not only not far from the Chinese border, but we hope that in nearest future, maybe next year, by the end of the next year, we will enjoy the utilization of the newly built Amur Crossing River Bridge, which will decrease the transportation time from the mine to our clients in China. And hopefully, the price of those amount -- the amount of money we're spending for them delivery to our clients. I think that's all from our side Johnny, and probably we can move to Q&A.

[Operator Instructions] Our next first question comes to the line of [ Ann Tong ] , Investor.

[Foreign Language]

[Foreign Language]

Your next question comes from the line of [ Andrew Pedro ] of [ DX Investment ] .

Mr. Makarov, thank you very much for your report for the production of the first quarter of 2020. I have 2 questions to ask, if possible. The first one is about the impact, which the weather had on the operations in the third quarter. It seems like for the second year in a row, you blame the rains for the lower production volumes in August and September. I'm a little bit confused, I read some comments in the Russian Far East at this time of the year. Aren't your operations supposed to be like all weather. So this is the first question. And the second one, if I may, is related to your main shareholder, Petropavlovsk. I could not help but notice that recently, Russian media, there was a lot of coverage regarding the corporate conflict in Petropavlovsk. Is there any impact on IRC company in this relation?

Thank you for your questions. I understand that it probably looks like we are blaming rains to hide some of our problems or mistakes. But I want to share with you that not every year, local government declares state of emergency because of the rains. Answering your question whether these rains are frequent situation on the past years rains a normal situation because we are in the monsoon climate zone, although, we are not this close to the Pacific Coast, but still, it's -- those monsoons, were causing problems from time to time in the Mainland China. They are coming up from Korea to the north and not always, but sometimes they are striking salvias of the Russian Far East where we are situated. According to the local and news media, there was 19 typhoons, this typhoon period, this year, which is extremely high amount. So even if rains are a common situation in the Far East, the amount of water they're pouring onto the surface and is not equal every year. And within last 2 years, it was extremely high amount of water and -- which affected us. I -- we are not able to foresee what will be next year and maybe the situation have some connection with the climate changes, I don't know. But once again, it's weather, we are not -- we can't avoid rain, we can't open an umbrella on our open pit. So what we can do is to try to do as much as possible, utilizing this information. So once again, yes, there are rains. And yes, these rains in the last 2 years were extremely strong. And your second question was, sorry, I forget the second question, exactly, about the rain. Can you remind me, please?

Yes, sure. This is about Petropavlovsk.

Yes, about Petropavlovsk. Petropavlovsk Is our biggest shareholder. But it's our shareholder, it's not -- we are an independent company. And up till now, there is no any influence to IRC. We know about situation within this company from the media as well as Yuen. So it's not affected anyhow -- we are not affected anyhow. And it's honestly better to ask them about the details of what's going on inside, they might believe that they will have same type of third quarter result declarations. And within a couple of weeks -- so once again, it's a better question to ask them. Sorry, if I'm not able to answer your question.

Your next question comes from the line of Rachel Kwan of VS Capital.

This is Rachel from VS Capital. I have 2 questions for today. The first question for 2 consecutive quarters, this seems that your production is being affected by the third-party mining contractors. Will you please let us know what's going on with these contractors? And how are you going to resolve these issues? My second question is, your drying unit seems to have issues every year, is it a recurring problem? Have you resolved these issues? Now that we are in late October. Have you started using the drying unit? And if so, have you run into any issues so far?

Thank you for the questions. Talking about our subcontractors is -- should it means that, yes, because we have had some problems. We normally have 2 subcontractors, and one of them stops their operations on our site. It was not a problem initially because another subcontractor was also on, which was bigger. They were happy to increase their volumes on our side because they were leaving some core operations. And they have some spare capacity to utilize. But unfortunately, they were not capable to do it in a proper pace and that's why we were a bit behind the schedule. So what -- that the situation and what we are going to do, what actually is going to happen? We, from one side, our contractor is increasing their capacity. Although not in a proper speed, but still they're increasing and trying to catch those delay, which will cost to us. On other side, we are working on the possibility to have some -- our own equipment to do some -- certain amount of the mining operations by ourselves. So most of these things, I hope will help us to the catch those depreciations now. And your second question was about the drying unit. As I mentioned, we are going to start drying by the end of the next week. According to the forecast, there will be negative average temperature of the 24 hours. Yes, we have done quite a lot of improvements in our drying unit because it was never commissioned by our EPC constructor, Chinese company called CMAC. They have done quite a lot of mistakes in the design and in the implementation of that design of -- during the construction period. And actually first couple of years, we were identifying problems and fixing them during the warm period of the year. We believe that our operations will be quite stable. And to add stability and to add some capacity, we are utilizing some chemical additions to drying material, which helps us to, first of all, decrease the amount of water they are getting from filtration stage before the drying unit. And secondly, to decrease the temperature of the freezing of this material. We have utilized same type of chemical agents on our Kuranakh mine and have quite a good experience of utilizing them. And from another point of view, sometimes, we are capable to ship our product being not completely dried. When weather allows us, when it's not very cold from one side or where it's very cold, when we can freeze the material and being frozen, if it will not freeze in the wagons, while -- during the transportation to the reloading rotation on the Russian-China border. I think that's all what I can tell you about drying unit and if there are any questions, I can answer, I'm happy to.

[Foreign Language] Due to the time limitations, we are now ending the meeting here, and thank you, everyone, for joining the call today. We appreciate your time. If anyone has any question, please feel free to contact us at any time. Contact details can refer to our corporate website, www.ircgroup.com.hk. With that, thank you, and have a great day. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may now disconnect.