IRC Limited (1029) Earnings Call Transcript & Summary

Good morning and good afternoon, ladies and gentlemen. Welcome to the conference call. Our chair person today is Johnny. Johnny, please begin your call, and I'll be standing by for the Q&A. Thank you.

Thank you, Phoebe. Thanks a lot. Good afternoon, everyone. I'm Johnny Yuen. I'm the Finance Director and Company Secretary of IRC. I would like to welcome all of you to the conference call for the interim results of IRC Limited for the first half of 2024. Apart from me with us today is our CFO Danila Kotlyarov. Unfortunately, our CEO, Denis Cherednichenko is traveling, and he won't be able to join us today. [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 the 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] Okay. So let me begin by giving a brief overview of our results in the first half of 2024. And then I will turn the call to Danila, who will give you more color on our results. All right. So let's start. Obviously, we have uploaded the PowerPoint slides on our website. So let's go through that. If you turn to Slide 5 of the PowerPoint, this is actually the highlights of what we did in the first half of 2024. I will begin by giving you a brief update about the production and sales at the lower part of the slide. As you can see, production volume was down by 13.5% and sales volume down by 18.6%. Now this is mainly due to the ore quality issues as well as issue with mining, which I think we have already given you some kind of colors in the past trading update. So with that, with the lowering of this sales volume, our revenue dropped by 19%. And that is really contributing to our relatively poor results for this first half of the year. Cash cost increased by 24% (sic) [ 25.4% ] to $97.4 per tonne. That is really mainly because of this higher mining cost as well as very strong Russian inflation, which Danila will give more color at the later part of this presentation. EBITDA for this year -- for this first half was minus $1.7 million, again, with lower revenue and higher cash cost. That is the result. We reported an underlying loss of $10.8 million. But fortunately, we don't have to do any asset impairment for this first half of the year. And so for this year -- or for this first half, we are reporting a loss of $13.2 million versus last year's cost of $66 million, which is last year's loos was mainly attributable to the impairment loss provision. Our cash balance has dropped to $39.4 million. Again, mainly because of these issues with receiving sales proceeds. But the situation is getter better and Danila, again, give a bit more detailed explanation for that. And obviously, as we have repeatedly pointed out, I think we are now very much looking forward to the commissioning of Sutara. And we are making good progress in this Sutara's development where we have started the mining and stripping operations. So yes, that is really quick overview of what we did in the first half of 2024. I will probably -- I'll just give the call to Danila, who will walk through the rest of the slide and to give you more details about our performance in the first half of the year. Please, Danila?

Thank you, Johnny. Ladies and gentlemen, yes, I can give a little bit more information and color on our results. If you look at the next slide here, you have -- you have all the KPIs of our results. So as basically Johnny mentioned already about our results, we have a drop in production. So the drop in production is mainly the result of the quality of the ore and also the issue with the mining of the Kimkan ore body. As we were advising in our previous trading updates and last year, so this year was expected to be difficult. So we are depleting the Kimkan open pit, which effectively is, I suppose, down in a few years and with this process, the quality of the ore and the complexity of the mining operation is increasing. What is reflected in the increase of the stripping ratio, and most importantly, in the quality of the ore we mine. And with a drop in the quality, we have decrease in the yield of the production. And with decrease in the yield of production effectively with -- we are mining the same or slightly less volume of the roadmap. But in terms of the production, we have a significant decrease. As you noticed in terms of sales, we have a large decrease, but that is because last year -- in H1 of the last year, the one-off sales were including -- was included in the movement in stockpile on the finished good. So this year, effectively, we're producing and the loss of sales in production are basically in line with each other. So we have a mine also decrease in the Platts Index, which is reflected in the decrease -- in the price we're realizing. And although the major impact on the profitability is, of course, the increase in the cash cost, and I will give you more details when we will reach the slide with more detail information. So also, I can mention the absence of the impairment, which is good news because it means that even with change in -- in the market space in terms of the long-term outlook on the group, which is reflected in the impairment analysis, we have no significant changes versus the end of the year. So with this, let me move like to next slide. Here is information about our P&L of the group, P&L and the bottom line, which Johnny mentioned already. So here, I can only have that in terms of G&A, we have the slight kind of decrease in the G&A cost, which is reflecting our efforts in trying to minimize the cost, so yes. And I can only mention here, so out of the big items, is the absence of the impairment. If you can move to Slide 9. Here, I can mention the slight increase in accounts receivables against the year-end, which is the reflection of some issues and delays with the payments which we are experiencing, we were experiencing. So the situation is stabilized at the moment, but we are not immune to the issues with the compliance, which is a result of the tightened sanctions. Although we're not into manufacturing as before, but we are impacted by the compliance issues and, I guess, general difficulties with the transfer, which we, I think, explained during our trading update, but the situation is improving at the moment. So the next -- so I can add here is also one of the items with a big change here is the decreases in stockpiles of the ore. So I can explain. So this is kind of the positive change actually because as I explained already one of the problems with the production was the lack of the ore, and we worked wisely on the use -- relied significantly on the usage of the previously mined stockpiled ore. The problem with this ore was that the quality of this ore is relatively low and its big achievement of the K&S management that they have been able to process this ore, and we've been able to utilize this ore and extract significant amount of the production out of this. And in terms of the 6 months results, this is a noncash movement that we use this ore, but we were not kind of spending -- we were not spending any cost on mining of this ore before because it was mined in previous periods. And this was a positive change. On the next slide, there is the cash flow, which is basically a reflection of what I just explained. So in terms of duration, we saw movement in the working capital items. We are basically at breakeven and with the minus -- with a negative $1 million. And then we have changes in the stockpiles of the ore, which is a positive of almost USD 14 million for. And on top of this, we have some changes in other items of the working capital, which is a reflection of some movements, which are really -- including the delays in getting the revenues of our customers, but the situation is improving at the moment. So basically it means that in terms of operation, we are at breakeven or with a minor decrease in cash flow and so the major -- like decrease in the cash flow, the major spend of the cash flow was on the payment of the machine borings and also on capital expenditure primarily related to the Sutara development. With this, let us move to next where we have the analysis of the cash cost of K&S. Here, you can see, the major items, the single -- actually, two main items. One item is the mining cost. And I explained already, this is primarily in relation with the decrease in the quality of the ore, decrease in the volume of ore and kind of results, so this is that -- we are decided, we are mining the ore with a high-level stripping ratio or we are relying on the using the stockpiles of the ore, which are also low-grade and the result of this is a significant drop in the yield, which will basically increase the costs -- which will increase the unit cost of the product we're producing. So it is a major item. Second big item is, of course, the introduction of the export duties, which we believe, are going to expire at the end of this year in accordance with the current law and so will not affect our results in the next year, even through there will be no changes in the mining. So these like two items have significant increase in terms of the cost of production, almost like $20. And yes, that affected this -- that is why our profitability is affected basically. In terms of the transport, we have a decrease, but this is the result of the ruble change rate because of the low transport costs we are having. If you look at the next slide, there is I believe a helpful analysis to explain -- the factor analysis, which explains the difference between the level of the profitability of this 6 months against the 6 months of the last year. And I can just repeat again. So if you look at the major factors, which affected our profitability, that is in relation with the ore mining. So it's a decrease in the yield of the ore, which we are mining. So it's almost $9 million. So another $9 million is the decrease of the volumes of the ore we are mining. It means that if are mining less, if we get less ore, we will get less product. I guess another big item, which is a noncash and I would like underline it, that it is like USD 16 million in relation with the utilization of the stockpile is in relation with a bit noncash. It kind of means that in terms of the run-of-mine like mining, we are getting less iron ore, and we are required to utilize the stockpile and fortunately, this stockpile also always -- in all this, it has the major negative impact on stability. And of course, taxes and duties which is mainly the impact of the duties, which going forward this year and also increase in salaries, but this is basically the reflection of the Russian inflation. So in terms of the positives, it's primarily the depreciation of the ruble because one of the reasons of the high inflation is also the weak ruble. But fortunately, so this depreciation of the ruble is not covering all the negative changes, which we experienced. So this is it. And so on the next slide, just general information which we report and will update. So this is the amount of cash and the repayment of the loan. There is no change in schedule or the payment of the loan. I can just add that during our last trading update which we made 2 weeks ago, we mentioned there was a delay in the repayment of MIC loan, but I can comment that the situation with the bank transfer is improving. We transferred enough cash and quarterly repayment of the MIC loan was completed by the end of August that we announced. On the next one there, the information about the remaining CapEx of Sutara. As Johnny mentioned and we told on our trading update, this is the most important project at the moment because without the Sutara work, we are unable to improve the production yield and volumes. Sutara is progressing and is progress a little bit less -- is progressing a little bit slower in terms of completion of the projects in the previously included the commission of crushing and screening plan, but this is not a bottleneck in terms of the utilization of Sutara ore. We've been already processing and delivering Sutara ore into Kimkan plant. And by the end of the year, we're planning to begin crushing and screening of this ore on the Sutara pit, and delivering the crush product, which will improve the cost of transport because right now, we're required to transport the ore on a distance of 17 kilometers. And with the crushing and screening operation, these volumes of the transport will be left. But most importantly, we're already like mining and processing this ore. So this is most important. And by the end of the year, we'll be doing this or using the most of the ore. So I think that's the most -- yes, this is all the information I want to update you with, and we're happy to move to Q&A.

Phoebe, please can you put us through the Q&A session, please?

[Operator Instructions] Johnny, there's no questions online. Would you like to wrap up the call?

Yes, please. Thank you. Thanks, everyone, for joining the call. So we appreciate your time. And if you have any questions, please feel free to contact us any time. Further details can be referred to our corporate website at www.ircgroup.com.hk. With that, thank you, and have a great day. I will be happy to end the call. Thanks a lot for joining.

Thank you. That's the end of the conference. You may now disconnect. Thank you and goodbye.