IRC Limited (1029) Earnings Call Transcript & Summary

Good morning, good afternoon, ladies and gentlemen. Welcome to the conference call. Johnny please begin your call, and I'll be standing by for the question and answer session.

Good afternoon, everyone. I'm Johnny Yuen, and I'm the Finance Director and Company Secretary of IRC. I would like to welcome all of you to the company's conference call for the trading update of the first quarter of 2024. Apart from me with us today are our CEO, Mr. Denis Cherednichenko, and our CFO, Danila Kotlyarov. [Operator Instructions] A brief Q&A session, which you can ask in English, Mandarin or Cantonese will follow the formal presentation. As a reminder, this conference is being recorded. Announcement and PowerPoint slides for use in this call have been uploaded, and you can download them from our website at www.ircgroup.com.hk. [Foreign Language] It's now my pleasure to turn the call to our CEO, Denis, can you please begin?

Thank you very much, Johnny. Good afternoon, good morning, dear shareholders, dear investors. Let me tell a few words about results of quarter 1, 2024, you saw our presentation. So I will start from the Page #5 with the quarter 1, 2024 highlights. First of all, so I need to say that regarding the Kimkan and Sutara saw 8.2% decrease in production volume over the previous quarter, as issues with ore quality and mining conditions at the depleting Kimkan mine continues to hamper production. And while these sales volume decreased by 10.4% over the quarter 4, 2023 in line with the decreasing production volume, and also continuous preparation of the Sutara deposit with aim of starting of the mining operation in the third quarter of 2024. It is in line with our previous report. So cash balance reduced to $49.8 million, and net debt increased accordingly to $13.4 million, mainly due to the timing of cash flows and working capital movement. Average Platts 65% iron ore index decreased by 1.4% over the quarter 4, 2023 to USD 136 per tonne. And Russian ruble slightly appreciated by 2.4% (sic) [ 2.2% ] in first quarter to an average RUB 91 per USD 1. And mandatory unconditional cash offer launched by Axioma Capital was completed in February 22, 2024. Axioma now holds 56.76% of IRC totally. So please move to the Page #7. Some additional information about the Kimkan and Sutara operations. So as you see mining has decreased slightly, drilling increase. And also rock mass moved also decreased, by because of the [indiscernible]. Poor ore quality at the depleting Kimkan mine has led to decreased output, efficiency and profitability of this year. Sutara's higher quality ore will enable Kimkan and Sutara to extend its mine life for more than 30 years and increase the production rate. So Kimkan and Sutara plant is now using low-quality ore stockpiles to make up for lower Run-of-Mine ore feed. As such, despite a 26.4% drop in mining volume, ore fed to the primary processing plant decreased by only 9.7%. Continuous preparation of Sutara deposit with the aim of starting the mining operation in quarter third as I already told. And now I want to pass the word to our CFO Danila Kotlyarov to tell a few words about the financials. Danila, please.

Good afternoon, ladies and gentlemen. Yes, I can provide a quick comment about the state of the liquidity at the end of Q1. If you look at the Slide #9 so the main movement of the cash between the quarters is a decrease of roughly like $6 million. So yes, it's actually $6.8 million. So out of this. We have roughly breakeven in terms of the -- in terms of operation and also investment cash flow, it means that cash that we have been earning on our operational activities will spend on development of Sutara project. And we've been also spending on repayment of the interest and principal of the loan. As a result, our cash at the end of the quarter was roughly $50 million, and we have also the increase of the net debt in line with this. In terms of the repayment schedule of the loan, we are paying our loan as planned. This year, so we haven't scheduled the payment, which is in line with the previous year. And -- so there's no more news about this. On the next slide, I can give you a slight update about the progress of Sutara project. So if you looking at our previous updates. So in terms of the capital expenditures from Sutara, it's roughly USD 4 million over the quarter. which is slightly lower than we expected. So we've been aiming on commissioned Sutara mine at the beginning -- in the mid of this year. So at this moment of time, we are expecting it will be -- it will be in H2 of this year. We're expecting a little bit of delay in terms of the commissioning of crush and screening plant in Sutara, but at this moment of time, we are still aiming to begin the mining works on Sutara mine in mid of this year. And -- it's kind of even in the absence of the [indiscernible] crushing and screening plant, we are planning to -- we have plans to use the truck and transfer [indiscernible] to into Kimkan processing plant and begin to process the Sutara ore in the mid of this year that was planning initially. Although in any case, the amount of the capital when the capital expenditure we are planning to incur until the end of the year is quite significant. And we are relying on the accumulated cash we have on our balance at the moment. So I think, yes, that's all I can update you at this point of time, like more updates will be in mid of the year when we publish our internal account and I can pass over to Denis again.

Thank you so much, Danila. So your words about the results of the monetary cash offer right now, so please go the Page 12. As I already said, monetary cash offer was successfully completed and Axioma now holds 56.76% of IRC. So pursuant to the Takeovers Code in Hong Kong, Axioma launched a mandatory cash offer of HKD 0.118 per share to all other shareholders of IRC. On February 22, the offer was completed, with 26.15% shareholders accepting the offer. And also on the slide, you can see the current situation. And so you can see also the MIC Invest, the shareholders of the [indiscernible] of the Axioma also sold the shares to Axioma. And right now so other public shareholders is at 43.4% of total shares. So the corporate information still in the Board exists like it is on the next slide, and so on that's it for our quick quarter first 2024 year update. So please let's go to the question. Yuen please.

Yes. Operator, I think, please go to the Q&A session.

[Operator Instructions] Our first question comes from Mr. [indiscernible].

[Foreign Language]

[Foreign Language] This question comes from Mr. [indiscernible]. So we have 3 questions altogether. So let me just go through that. The first question is about our issues with CMAC whether we are concluding that? Or what was your view on that? What's the progress update on the issues with CMAC. The second question is about Sutara. What's the progress of Sutara and whether there's any certification or approval that we need in order to make sure that it's operational. I mean, we still as aware of the fact that we had a bit of a long compliance previously. So he wants to make sure that everything is in order and we got all the approval needed. And the third question is about, obviously, the delay in Sutara. I mean, now that production is decreasing, we dropped by 8% this quarter. And it's a bit concerned about the timing of the commissioning of Sutara. So there are all together 3 questions, so the first question about CMAC, so about the progress of it. So perhaps you can shed some light.

So I will start with the answer to the question. First, the first question, so the situation with our legal dispute. So it is going on. We have provided all the answers on the claims from CMAC and also, we are expecting that the court will consider our answers and then the expectation is that we will have a legal dispute. So in the first half of the next year is still going on. So both parties have claims again each other. But we pretty confident that we have a good position. So the next question is certification and approval for the Sutara, yes. So according to the Russian legislation. So definitely, we need to confirm the project itself. So we need to pass certain level and process of the approval, receiving the permissions and confirm and registered. So our project with the certain authorities, it is going on. We are on a pretty good way definitely. So it takes as expected, a little bit longer than it could be. So but anyway, it depends on the marks and the questions from the authorities and registration agencies. But anyway, we are on the right way. And we expected that before quarter third before [indiscernible] Sutara so everything will be completed. And regarding the progress of Sutara. So as I already said, so initially, so it was planned that we will start the Sutara mining in the third quarter of 2024. So we previously announced on a previous quarter update and before that. And we try to be in this schedule nevertheless, of all the difficulties. So as we mentioned before, the weather conditions was bad. So it was the [indiscernible] and some other problems in the region. But anyway, so we try to be in time.

Understood. Thank you, Denis. I will translate into Chinese. [Foreign Language]

[Foreign Language]

Mr. [indiscernible] has further questions about the general, the liquidity of the company. Obviously, we only have 1 loan from MIC, and he would like to know whether we have any other facilities available. In case, I mean, obviously, he mentioned about weather, mentioned about Kimkan providing good ore. We mentioned about the need to support Kimkan and he would like to know whether we have any other better plan in case for example, iron price falls to a certain degree where we stop production, then we will be able to subsidize. Do you have any other facilities? If not, then that you might be to raise issue shares, which is -- somebody wish -- something which nobody would like to see because of the fact that we will be further [indiscernible] in the shares. So that's why that's question from Mr. [indiscernible] whether we have any other backup plan in case things turns south.

Yes, understood. Let me answer this. I believe is quite right. And we are worried about this as well. So in station with when the price of the iron ore is like changing dramatically. There is a great uncertainty about the development of the Chinese economy and about the prospects of the iron ore prices. Some people are even telling us that the prices of iron ore mine line dropped below $80 a ton. And we are definitely worried about this and work about our liquidity. In answering the question of [ Mr. Lubot ] whether we have any other loans available. At this moment of time, we don't have, we are in the process [ of a certain period of time, I'm discussing ] the revolver credit line with one of the two Russian banks. And we hope that we will eventually, will kind of land the -- will obtain this will -- will obtain the credit line within like next few months. But the main problem with this is that the interest rate with Russian banks is very high. And so we are talking about -- talking about big double digits. And so in parallel, we are discussing, we are discussing also with Chinese banks, the kind of trade lines, the -- we are discussing pre expert of financial lines. But as you know, compliance with the Chinese banks, especially with the business, which are dealing with Russian origin commodities, is very, very difficult. And up to now, we have been unsuccessful with this, but we are still working. And I can just mention that we help -- we just met with one of the banks this morning. So we kind of share [ the words of Mr. Long ], and -- that's why we are keeping like the results of the cash reserve our liquidity on the balance of the company, with interest rates on deposits, this money are not like siting idle. They are earning a little bit of the interest income, but it's one of the reasons that why we are not repaying the MIC loan because we are very well aware about the potential risks if we are running out all the cash. And yes, and also I can mention that if the company would like to be more cost efficient, it might need additional capital expenditures in terms of the plant upgrade and potentially the -- the raising of the fleet of the mine equipment. And this quite significant capital expenditures. So it's quite wrong.

[Foreign Language].

[Foreign Language].

[Foreign Language].

[Foreign Language].

So the next question is just to be more specific. All right. So now that you're utilizing all stockpiles, right? So when [indiscernible] comes into operation, so we will be leading to replenish those [indiscernible] levels to a reasonable level, such that in some [indiscernible] are in default, you will still be able to utilize those old stockpiles in those really [indiscernible] to maintain your production level in a reasonable level after the [indiscernible] comes into play.

Yes. I think the level of the stockpiles that we have currently at the beginning of the year, the total volumes of the stockpile like normal, like of the world which we can ordinary process was roughly 2.5 million. So it was like 2.5 million tons. -- which is roughly 1/4 of the capacity of the processing plant. So we normally with the stockpiling like last falls, but quite right. So definitely, we'll accumulate certain volumes or the worth of file because that ore that we process, it requires averaging. We have the stockpiles in any case. So it's not all the ore that we mine, we directly interact with the ores through the processing plant. Normally we also stockpiles averages [indiscernible] we also process them [indiscernible]. So he is quite right. We will as soon as we normalize and increase the capacity of start, we'll accumulate the loans of the stockpiles, maybe not like to this amount because it's quite significant like freezing of the working capital, which we need, but investment.

[Foreign Language].

[Foreign Language].

So now that we mentioned that we need to -- obviously, it's very normal that we need to put a certain [indiscernible] in our bandwidth at all operations. So what roughly what the amount of stockpile in [indiscernible] that we need to maintain, where we believe there is a very comfortable level. I think it's a very different question because things goes up and down.

Yes, yes, I can roughly give an estimate, better roughly. So just the base of the total previous historical #1 on the ore in stockpile at [indiscernible]. So if you're keeping definitely $1 million is $10 million. At the beginning of the year, we have like more than 2 million tonnes so more than $20 million. So it is quite significant, quite significant working capital.

[Foreign Language]. Operator, do you have further questions by audience, please?

Not at the moment [ Operator Instructions]. Mr. Johnny there seems to be no question at this moment in time.

Great. Thanks everyone, for joining the call. I think it's a first [indiscernible] call, and we appreciate your time. So if that's your [indiscernible] question, you can always contact us, the content are on our corporate website at www.ircgroup.com.hk. With that, thank you, and have a great day. [Foreign Language] So we end the call here. Thanks very much.

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