IRC Limited (1029) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the conference call. Our chairperson today is Mr. Johnny. Mr. Johnny, please begin your call, and also stand by for the question-and-answer session. Thank you.

Good afternoon, everyone. I'm Johnny Yuen and the Finance Director and Company Secretary of IRC. I would like to welcome all of you to IRC Limited Trading Update Conference Call for the Second Quarter of 2023. Apart from me with us today is our CFO, Danila Kotlyarov; our CEO, Mr. Denis Cherednichenko with current troubling and he would like to apologize for not being able to attend this meeting. [Operator Instructions] A reminder, this conference call is being recorded. Announcement and pop up slides for use in 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 turn the call over to our CFO, Danila Kotlyarov. Danila, you may begin.

Ladies and gentlemen, good afternoon. It's a pleasure to present you the results of our CEO of the last quarter. If you look please look at the slide 4 of the PowerPoint, which we have loaded, I'll be able to give you a quick highlight of the results of the last quarter. As you can see here, there was a decrease in production of K&S mine over quarter-to-quarter in the amount of to 2.1%. The result of this was due to the small issue, technical issue with the pulp station of K&S mine. We like to report that this issue was already resolved, and the plant is operating normally at the moment. We do not expect any repetition of such an issue in the future, but we are taking the measures against this. The reason of the issue was the interruption of the electricity supply on the main grid, which is out of the control of the management and we have taken the precautionary -- we are taking the precautionary measures in order to avoid the situation in the future. I would like to report that despite this small decrease of the production quarter-on-quarter, we have increased the production. Again, the first half of the previous year due to the good results of the Q1, we -- which we reported earlier. In terms of sales, there was a decrease as well. It was attributable to the decrease in the production. Although, again, if you look on H1 of this year against at the first half of the previous year, there was -- we had a significant increase in the amount of sales as well. We would like to report that we are in progress of development of the Sutara with an aim of beginning the mining operation -- with mine operation at the beginning of the next year and the production and the cost of the work in the mid of next year. There is -- we experienced a small delay in the permission of Sutara and I'll give more information about this in a later stage. In terms of the finance on the corporate update, we would like to highlight that there is a -- we have a significant increase -- an increase in the cash balance primarily due to the obtain of the cash flows of the vessel, which we purchased in Q1 of this year, which we reported already. We are currently in the process of completion of the sales of the vessel with significant amount of the cash we received already in the last quarter, and we are aiming to complete the trade of the vessel and get the remaining amount of cash by the end of this month. So in line with the increase of the cash, we have a decrease in the debt and the net debt of the company, which is a good news, of course. In terms of the macro data, as you know, there was a significant decrease of the iron prices quarter-on-quarter. This is happening, as you know, on the back of the slower-than-expected recovery of the Chinese economy. Although I would like to know that there was significant -- there was a significant depreciation of the ruble, which is -- has a positive impact on the cash cost of the K&S mine because the majority of the cost, as you know, is remunerated in ruble. So we can move and look at Slide 7. Here, I can give a short information about results of operations, as I mentioned already, it's not on the result of the vessel which we trade, but also the -- we have seen a positive increase -- we have seen increase in cash flow because of the positive contribution of the operations of K&S mine. And also the -- we have seen the improvement in the payment discipline of our customers. So it all contributed to the increase of the cash flow, and decrease of the net debt of the company. Let me give you a few words. Let me -- a few explanations about the opportunities and challenges we are facing at the moment. As we mentioned in the previous update, obviously, we're operating in the -- we're operating in environment, which is changing. So we have seen significant changes in the price of iron ore. So currently, it's weakening again. We believe it's still -- we are still operating on a level which are quite comfortable overall. We are minded of all the pressure on the iron ore prices, and also negative outlook in iron ore prices and the management has taken steps to address this. We have -- as I mentioned already, we have a positive development in terms of the movements in the ruble exchange rates as we have primary operating in Russian -- operating in ruble environment with our costs being remunerated in rubles. So we have an immediate positive effect in case of depreciation of the ruble. At this moment of time, there is ruble depreciate to a level of about RUB 100 a $1, which is a significantly lower given the closure of the ruble at the end of the quarter. We have an immediate positive effect, but we have to bear in mind that significant depreciation of ruble puts inflationary pressure on the cost in Russia as well. And while we see a positive impact, there is a negative impact as well, and we have to take this into account. We would like to mention, and we mentioned this in the previous update that the tax environment in Russia is changing as well. And as we've been warning -- we are currently expecting there will be a tax -- to be an additional tax, which we didn't plan like a year ago. It will be one of payment of the profit over the tax in profits in the amount of about USD 5 million. We calculate this amount on the basis of the current version of the law, which was just approved recently. Although we have an option to pay this in advance and have a significant discount on this, which we are planning to use, of course. Minded of the issues and risk and challenges we face. And I would like to again remind you about the opportunities which we got and one of them is the development of Sutara. As you know, and I mentioned this in previous updates, we believe that with the commission of Sutara is not only going to be the extension of the life of the mine, but it will also give us the opportunity to mine the better quality ore. And with this improved the yields and recoveries of iron ore, and it shall have the positive effect on the cost of the company. As I mentioned at the beginning, we're experiencing this small delay in the commission of Sutara. If the original plan was that Sutara will be commissioned by the end of this year with the production for iron ore at the beginning of next year. So right now, we believe there will be a minor delay a few months with the beginning of mine operation earlier at beginning of next year and the processing of the ore will be commenced in mid of next year. It shall not affect the production plan of K&S. We -- at this point in time, we are not expecting any decrease in the production. We will be -- the operation will grow in Kimkan mine. And we just -- we were just required to make a changes in mining plan of K&S. I would like to give a few words about the operations of the bridge. So the bridge is up in line at the moment. It's still working on -- in the kind of a trial mode. So the design capacity of the bridge in the connecting -- and also connecting railways, a 10 million ton per year. So in the first half of this year, the total amount of turnover is about 1 million. It means basically so it's not working at full capacity now, and it means that the separations are not optimal. Although we actually are using the bridge and significant volume of the iron ore, which we ship into China, was supplied using the bridge already. As I mentioned at this moment of time, the mode of operating the bridge is not optimal. And it means that at this moment of time, we are not getting a significant saving on the cost using the bridge. But in any case, it provide us an alternative route of transporting iron ore. And that means we have more certainty in shipping our iron ore into China because if you remember previously, we were reporting quite regularly on the bottlenecks in [indiscernible] , which resulted in some decline in the volume shipment. So right now, with the two border crossing operations, we are not experiencing this issue anymore. So I think this, basically, it's all information which we wanted to give you at this moment of time, and we are happy to move into Q&A. Johnny?

Yes. Operator, please can we move to Q&A, please.

[Operator Instructions] Johnny, there seems to be no further question at this point in time.

All right. So if there's no question, we will now ending the meeting here, and thank you, everyone, for joining the call today. We appreciate your time. But if you have any questions, please feel free to contact us at any time. Contact details can be referred to our corporate website, www.ircgroup.com.hk. With that, thank you, and have a good day. [Foreign Language] That concludes the meeting. Thank you.

Thank you. Thank you for your participation. This concludes the conference. Goodbye.