Jupiter Mines Limited (JMS) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Jupiter Mines Annual General Meeting 2020. I would now like to hand the conference over to Mr. Brian Gilbertson, Chairman. Please go ahead.

Thank you very much. Good afternoon, ladies and gentlemen. Welcome to the 2020 Annual General Meeting of Jupiter Mines Limited. My name is Brian Gilbertson, and I am the Chairman of the company. As a quorum is present, I declare the meeting open. I would like to introduce my fellow Directors: Priyank Thapliyal, Jupiter's Chief Executive Officer; Andrew Bell, an independent non-Executive Director; Paul Murray, an independent non-Executive Director; Mr. Yeongjin Heo, non-Executive Director; and Hans-Jürgen Mende, a non-Executive Director, also. And then Brian Beem, a non-Executive Director, who acts as alternate to Mr. Mende. Also present are Melissa North, the Chief Financial Officer and Company Secretary; and Mr. Brent Steedman, a partner from our auditors, Grant Thornton. So this is a meeting of shareholders of Jupiter Mines Limited. So only shareholders that are appointed proxies or corporate representatives are entitled to ask questions and to vote. All other attendees are welcome as observers. Shareholders attending the meeting online will be able to cast their votes using the electronic voting card received when online registration is validated. Please refer to the Virtual Annual General Meeting online portal guide or use the helplines specified. Following the voting, general business questions will be taken. Shareholders participating online through the virtual meeting website, please click on the Ask Questions button. Type your question in and click submit. And I encourage shareholders attending online, if you have questions, to send the questions through as soon as possible, please. Shareholders' questions received prior to the meeting will be addressed during the general business questions. After considering the 2020 financial statements, I will give shareholders the opportunity to question the Board or the independent auditors, Grant Thornton. You will also have an opportunity to ask questions throughout the meeting in relation to each resolution. I intend to vote all proxies given to me as Chairman in favor of the resolutions where I am directed or permitted to do so. And then finally, after any discussions and before the poll vote is taken, the total number of valid proxies and the number in which -- and the manner in which they have been directed would be displayed. The figures will be as at the closing time for receipt of proxies, which was at 5:00 p.m. Australian Eastern Standard Time, on the 6th of July of this year. All resolutions will be voted on a poll, which will be conducted at the end of the meeting. Now ladies and gentlemen, I invite Jupiter's Chief Executive Officer, Priyank Thapliyal, to update shareholders on the activities of the company. Priyank, can I hand to you?

Thank you, Brian. Good afternoon, everyone, and it is my pleasure to welcome you once again to our Annual General Meeting. I basically would like to summarize what we have achieved over the course of the last financial year 2020 using the first slide on the presentation. If I may have the next slide, please. So I think the first point, which I would like to make, is that our sole focus has been to deliver what we promised at the time of IPO. That is the single-most important pillar of our strategy, and we have stuck to it with a 90% payout ratio, well in excess of our 70% policy, which we stated at the time of the IPO. And if you look at the bar graph, what you have seen is that whatever amount we have received as a half share of the Tshipi profit, we have more or less paid out all of it as dividends to our shareholders. No one, I think, will dismiss the fact that for the last 2 financial years, we have paid a double-digit yield on the dividend. And when you compare it to the PITI interest rates, one is getting in the bank, it is a very, very attractive investment proposition. How we have achieved that is, is by sticking to 2 things, which are fully in our control, and one is our cost of production and the second is how much we can produce. And we basically have achieved that by sticking to guidance, which we have given to the market over the last few years, which is at $2.20 cost of production. We have a very lean and mean head office of the overheads again compared to the profit, which we make on our investment is pittance compared to that. If you look at what we have done over the past 3 or 4 years, what we said at the time of the IPO is that to build the Tshipi mine, it cost about ZAR 2 billion. So the half share of Jupiter was ZAR 1 billion, which is roughly $100 million. Against that $100 million investment, we have paid out close to $400 million over the last 4 years. And since the IPO, we have paid out close to $250 million. So it has been a very, very attractive investment, both for people who have been our shareholders from day 1 who have backed the team, and also the people who came in at the time of the IPO and have been supportive since then. In terms of the current market cap, if you look at what it is and how much we have paid out, we have almost 45% return on the market cap over the last 2 years and close to 70% over the last 4 years. So again, whichever way you want to investigate this investment, it has been a very, very accretive and attractive investment for the shareholders. And I think we pretty much want to stick to the same strategy because when it is working and it is doing what is supposed to do so remarkably for the shareholders, we don't see any reason to change it. So we have a mine, which is going to last for at least 50 to 100 years. And if we can achieve 3 million tonnes production at the cost [ of ] which we have outlined, irrespective of work, the manganese prices, we will always make money. And I think the proof of that was, over the last financial year and start of this current financial year, we have had some challenges first on account of the trade war between the U.S. and China when the manganese price plummeted to almost $2.50 to $2.60 levels. We made money. We never lost money in those months. And then when the COVID pandemic set in, again, we had the same challenges, and we basically made money over those periods. I think it's, again, no hidden secret that the success for manganese mining in Northern Kalahari pretty much hinges on logistics. The mines are, give or take, almost 1,000 kilometers inland. And the people who are able to maximize their production on the rail are the ones who can maintain their low cost. And we have been very, very successful in achieving that, and I think the biggest part of the credit for that goes to our great management team on the ground in South Africa, especially the logistics team and the CEO and the CFO, Ezekiel and Carel. What I think a lot of people may not recall is that when we launched this mine, when we triggered the investment in this Tshipi Mine in South Africa, we started off with a backdrop of no real allocation. And against that, slowly, slowly, we have built up almost 2.1 million, 2.2 million tonnes legal entitlement on the metal channel. And I think how we have achieved that is on account of 2 things. We have come up with proprietary ways of shipping manganese out of South Africa. The first success we had was on the Skiptainer channel, which became such a resounding success that, over time, it was incorporated as part of Transnet's metal allocation strategy. And lately, we have had another breakthrough by testing and now implementing and shipping close to 30,000 tonnes over the last financial year through the port of Lüderitz in Namibia. And now the challenge, which we have set ourselves, is to double that capacity and go from 30,000 to 60,000 tonnes. And I'm pleased to say that over the month of June, we were able to achieve that. So we have a very entrepreneurial, very switched-on team, which has done what we have said to the market. And as long as they keep on doing and I have the full faith that they will keep on doing, we should be very well positioned for decades to come as a strong dividend-paying company. If I can have the second slide, please. So I think on this slide, what I really want to summarize is basically 3 messages. The first message which is that we try to achieve our 3 million tonne plan. And depending on the market and depending on the logistics and how much of stockpiles we have, we try to exceed that by putting low-grade product in the market. So that is why you will see that our numbers are always in excess of 3 million tonnes because our team has been able to exploit those opportunities. And the second message is that we try to stick to our guidance that is of the cost of $2.20, which I think should not be underestimated because the logistics cost, the labor cost, all escalate at almost 5% to 7% annually in South Africa. So against that -- escalation and our logistics cost is almost 55% of the total cost of production. So against that pretty hefty inflation, if we are able to still maintain our costs, that again is a reflection of the quality of the team on the ground and how well they run the asset. And I think we are able to do that largely on account of our excellent load-out station, which gives us the opportunities to put more tonnes, which were originally assigned to the road and transferred onto the rail. And every tonne of that, which they can move from the road to the rail, results in AUD 30 roughly per tonne of cost savings, and that is why we are able to achieve our targets of $2.20. And I think we will be able to achieve that because now we are moving more tonnes to the Lüderitz channel, which is a good way to move tonnes from the road to the rail. And the eventual plan in the next 12 to 18 months is that the Lüderitz channel will be almost on par in terms of logistics costs with the metal channels. So that will, again, give us an additional opportunity to maintain our cost at the $2.20 level. Now on the next slide, it pretty much summarizes what we have been trying to do to address this COVID pandemic, which is, as everyone acknowledges, unprecedented and challenging times. And I think what we can say is that we were able to manage the situation very well during the course of the lockdown. We instituted everything, which is to be expected from a top-notch mining company to safeguard the interest for the workforce, all the screening, all the testing, everything, which one can expect, world-class, has been institutionalized and is part of the process now. And having done that, we came back to almost 100% production when the lockdown was lifted in the 1st of May. And the production is back to normal. I mean over the course of the period since the lockdown has been lifted, we are almost at 100% capacity in terms of mining. Logistics, obviously, is a challenge because it is in the control of Transnet and some of the operators are, what is called, less vulnerable group. So because of that, every now and then, if some incidence of COVID-19 is detected, the line shuts down, and that impacts the logistics -- the railing on the -- to the port. What I think we have been very successful in doing is that we have been able to transport substantial amounts of tonnes on the road. So the cost has been slightly higher, but we have been able to stick to our targets because of being able to put so many tonnes on the truck. And our strategy remains that if Transnet can come back to its full capacity, which we expect towards maybe the end of July, early August, then we might have close to 1.7 million tonnes of product shipped on the rail and about 1.4 million tonnes, we should be able to put on the trucks because, in the past, we have tested and we are able to go to almost 130 trucks per day, which, again, is not a very trivial operation to run when you are running the trucks up and down almost 1,000 kilometers. So if nothing changes in terms of new incidents, new lockdowns and everything remains as it is, what is happening right now, our plan is that we should be able to produce and ship around 2.6 million to 2.7 million tonnes of high-grade products. That was the case, the initial target of 3 million tonnes, but the 300,000, 400,000 tonnes has been the loss because of the lockdown. And again, as and when the opportunity emerges, we would like to put almost 300,000 to 400,000 tonnes of low-grade material in the market. And as I've said, time and again, we will try to do that by maintaining our cost of the $2.20 level. So that is what we are trying to achieve, as I said, when the market was very, very soft. Over the course of the first quarter, we still were cash positive. And I think we can say that if we can implement what I've just now outlined to you, we should be able to make profit. Now my last slide largely summarizes what we want to do over the course of this remaining year, and I think all these 4 bullet points, which I'm outlining, are all under the premise that we will try to maintain our very healthy dividend strategy and high payout ratio strategy. So as I said, we would like to produce 2.6 million to 2.7 million tonnes for 2021, try to do that at cost close to $2.20 levels FOB. And as and when the opportunity emerges, we would like to put whatever else we can put in the market, looking at the global situation. And if we can achieve that, we would like to maintain our track record, which we have for the first 2 years of our life as a listed company. The big thing, which we are focusing right now is the expansion to go from 3 million to 4.5 million tonnes. Our breakthrough on load risk is going to be a critical part of it. And as I've said, we have tested over the course of June, 60,000 tonnes, and that is what remains our target. So all the work is happening and over the course of this financial year, we will be in a position to finalize all those studies. And again, at the Board of Tshipi and at the Board of Jupiter, we look at everything and take the decision, which I hope that we will be able to pull the trigger on. And last but not the least, I think the objective of the Board and the team of Jupiter always is to look at strategic opportunities, whether they are on the iron ore, which are the 2 assets, which we've got; whether it is to increase our underlying stake in Tshipi, which we always look at, but we will only do it when we believe it is in the interest of the Jupiter shareholders. I have a very strong view that with half ownership of Tshipi and half the marketing right, we are the biggest economic shareholder, and that is a substantial manganese company in itself. We would obviously like to increase the stake, but it has to be on terms which are accretive to the Jupiter shareholders because Jupiter is a very, very clean structure. It is an Australian-listed company, and it is a totally different risk profile. So we have to maintain that. But if some accretive transaction can be structured, I think the Board and management of Jupiter is very, very open to that. And then obviously, there are synergy opportunities at the operating level. I think we announced to the market the success we had on the barrier pillar. It is a piece of the puzzle, but I think better things can be achieved. So that largely will be our strategy for the course of financial year 2021. And on that basis, Brian and I would be very happy to take any questions.

Thank you very much, Priyank. Because of the way that the meetings work, I invite any shareholder to -- or those present to put in questions to you, and we can deal with them. We, in fact, have a couple of questions that have come in, and we will deal with them shortly. So rather than try to answer them online, yes, let's deal with -- in the formal part of the report here while we're dealing with the other questions. I give the shareholders the opportunity to type up their questions and put them in. So again, thank you, and I will now move on to the formal business of the meeting. The notice of the meeting was sent out to shareholders on the 30th -- 3rd of June, 2020. And if there are no objections, I propose that the notice of the meeting be taken as read. The annual report for the financial year ended 29th February 2020, contains the 2020 Directors report, the 2020 financial report and the independent audit report. The financial statements have been approved by the directors and audited by Grant Thornton. As required by Section 317 of the Corporations Act, I now lay these reports before the meeting. And now I invite your questions or comments on the financial reports or on any other general matters. And Brent Steedman, the partner from Grant Thornton, is also available to answer any specific questions that you may have. So could I then perhaps deal with the questions that have come in first and then for any new ones that appear? And Melissa, would you mind reading out the first question that you have in?

Sure, Chairman, I will. We have a shareholder question. Jupiter Mines over the past few years has advised that the iron ore assets would be looked at to determine if a viable corporate transaction is possible to realize value for shareholders. Where is this at? And why is it taking so long? Given this current favorable market and iron ore prices, what is the company doing? Is there an option to spin off these assets into a separate listed entity, providing part ownerships to shareholders and raising capital to progress the asset to production?

Thank you, Melissa. What a good question and how well timed. Priyank, can I ask you to deal with that in relation to the statements that you've made and have put up on the website.

Thanks, Brian. As I think Brian says, I think it's a very timely question. We all know when you have to optimize the value of the assets. It's all about timing, and the timing couldn't be better. It really reminds me of the timing, which we had on the Jupiter IPO. So we discussed this thing at our Board meeting yesterday, and the Board gave unanimous approval to execute an IPO via a spin-off of the iron ore assets. And Melissa and I would be taking this thing forward, investigating that and bringing it to the Board for final approval. But if our track record of Jupiter IPO is anything to go by, I am very, very hopeful that we should be able to achieve that over the course of the next 3 to 4 months. And if we are able to do that, then I think it achieves a couple of things. It not only optimizes the value of our iron ore assets, but it gives the assets to a new team, a new management, which we hope will be very entrepreneurial and do justice to these projects. But the process also cleans up Jupiter and positions that as a very strong half owner and half marketer of one of the best manganese assets in the world. And that, again, makes it a very proposing investment for a shareholder, for corporates. And that, again, I think, is something which this process achieves. So as Brian says, it's a very timely question. The Board has unanimously approved the proposal, which I presented to them yesterday. And we hope to achieve this over the next 3 to 4 months, but we will keep the market updated as and when anything material evolves as part of our continuous disclosure policy.

Thank you, Priyank. Melissa, do you have another question, I believe?

Yes, just one more question at present. Would the company consider an on-market share buyback?

Thank you, Melissa. Thank you for that question. As a cash-generating company, Jupiter, of course, does look at all the alternatives at its regular Board meetings. However, it has been our decision quite clearly up to this point that we should stick to the policy, which was outlined, defined and really cast in concrete, Priyank has just reemphasized it for you in his presentation, of paying out to shareholders promptly the cash that is generated from the mining operations. So at the present moment, that is -- remains the plan, and there is no current intention to do a share buyback. Any other questions, Melissa?