Jupiter Mines Limited (JMS) Earnings Call Transcript & Summary

Good afternoon. I would like to welcome everyone to the Jupiter Mines Q4 call. Today, we have Jupiter Managing Director and Chief Executive Officer, Brad Rogers; and Independent Nonexecutive Chair, Ian Murray, to provide a brief update on the fourth quarter of 2023 financial year. Then we will open up for questions from callers. I will now hand over to Ian. Thank you, Ian.

Good afternoon, everybody, and welcome to our call. This, as you see from heading, is our fourth quarter quarterly report, which we've changed to year-end, which Brad will talk about. I would just like to congratulate Brad on completing 12 months -- or tomorrow, completing 12 months with Jupiter. And with that, over to Brad to talk us through the quarterly.

Thanks, Ian, and thank you, everyone, for joining the call today. In addition to myself and Ian Murray, our CFO, Melissa North, is also on the call today. So as Ian said, this is our June quarterly report, and we're now moving on to a 30 June reporting calendar and rhythm from here on out. And again, as I think we discussed on the last call, that is to align Jupiter with Australian reporting norms, and hopefully, that will make us an easier follow with respect to Australian investors. As was mentioned, I'll just provide some overview comments in relation to the key themes and highlights from the last production quarter, and then we should have time for questions should there be any. So as you've seen on the report that we put out this morning, Australian time, the last quarter was quite strong from a production perspective. Our production of 921,488 tonnes for the June quarter was up 9% on the last quarter and this being the strongest quarter in the last 12 months. And pleasingly, costs were also down at the same time. So down 8% on the last quarter. And from a cost perspective, it's been the strongest performance also in the last 12 months that we've reported there. Some of that is due to the weak rand relative to the U.S. dollar, but there was also underlying improvement in mining and land logistics costs and so that's good to see, and it's been a focus of the team. Sales, on the face of it, were down quarter-on-quarter, but there's a couple of key points to make there. One is that the March quarter was particularly strong as we were rolling off the South African February year-end. That February sales figure was particularly high, and that obviously was contained within the reported March quarter. So you'll see that the March quarter was particularly high. And the other point to make was that, as I've said in the activities report, that one 30,000 tonne shipment rolled over into July. It was expected to be booked in this June quarter figures, and it carried over slightly into July, and so that 30,000 tonne shipment will be picked up in the next reported quarter, and we do expect that next reported quarter to be higher in terms of sales volumes. So although the current reported quarter looks slightly down on sales, it's actually in line with trends, particularly when you normalize for that 30,000 tonne shipment that I just mentioned. And for the full year, as you can also see on a financial year reported basis, Jupi delivered about 3.5 million tonnes of sold ore, and that's slightly above the long-term trend and around the current target for sales. So notwithstanding those few comments, the quarter was in line with the trend and the overall year was satisfactory from a target perspective. Manganese prices were lower during the June quarter. The supply side disruptions that benefited the manganese price in the third quarter, that we talked about on last quarter's call, were resolved and combined with that muted Chinese end demand and sufficient stockpiles at the moment in China resulted in lower manganese prices than prevailed in the previous quarter, and that's continuing right now through July post the end of the June quarter. Most market analysts that I've seen are predicting a modest pickup in the manganese price towards the end of this calendar year and into next year. And the assumption there is that Chinese end demand will pick up post the Chinese winter going into summer, which is a traditionally stronger demand period. Freight rates are still down, which is obviously good for us. For the quarter, we're looking at now freight rates trending between USD 25 and USD 30 per tonne. They're currently at around USD 23 a tonne. So that's good. You will recall the discussion through last calendar year that freight rates were quite elevated. And since that's a major component of Tshipi's cost base that was impacting profitability. So freight rates are pleasingly low at the moment. So with those comments, you'll see in the Financial Outcomes section of the Activities report that profit was slightly lower than last quarter, and that's not surprising given what I've just said about lower manganese prices and also lower sales volumes for the June quarter. Although you can also compare the fourth quarter with the second quarter and on that basis, the fourth quarter actually outperformed with the second quarter on the 30 June financial year. So the December quarter had higher [ shift ] prices and also higher sales volumes. Notwithstanding that the fourth quarter had higher profitability, and that was because of the lower costs, both FOB delivered costs and also lower shipping costs on a quarter-on-quarter basis. So again, coming back to that theme of good control around the controllables, production volumes and costs have served this quarter's performance well. The nice thing about Tshipi is it does produce good cash through the cycle as a function of its focus on cost and performance on costs, and you can see that again in this quarterly report that Tshipi has accumulated a little under AUD 27 million in cash through the quarter, notwithstanding relatively modest manganese prices prevailing throughout that quarter. Looking forward into the current quarter, we should expect fairly steady state operating conditions. As I said, the manganese price is likely to remain in around its current range, and that's based on the forecast I've seen from most analysts. We are expecting higher sales volume, shipped volumes in the September quarter, in part benefiting from that rollover of the 30,000 tonne shipment that I mentioned earlier in my comments. And then finally, from a strategy update point of view, we expect to be scheduling a Strategy Day, and we'll provide the details of that strategy day in the next month to interested investors and the intention for that Strategy Day is that we will give a run-through of the strategy document that was released in late March, take questions in relation to that strategy, but also we'll be providing an update in relation to the key focus areas of that strategy, and we've been working in the meantime on all of those matters. So I think I'll leave it there in terms of overarching comments, [ Lisa ], and just hand back to see if there are any questions.

[Operator Instructions] We do have our first question from Jon Scholtz at Macquarie.

Just 2 questions. Just with the warehousing of cash at Tshipi with the change in financial year, does that mean that when it comes to an interim dividend for, I suppose, first half or for the December half, does that include this interim period or the transitional period that we just went through?

Yes, it does, Jon. And thanks for the question. You will note that although our dividends forecast in terms of timing of when we next expect to pay the dividend has been in our calendar, investor calendar on the website for a couple of months, we did clarify that in this Activities report. And the answer to your question is, yes, the next dividend will sweep the cash produced for the entire intervening period, notwithstanding there has been a changeover because of this reporting period, and we will distribute the next dividend when we receive the next dividend from Tshipi. So that interim cash will remain at Tshipi, but the next dividend will benefit from the accumulated cash flow, including for that intervening transition period of time. Is that clear?

Yes, that is clear. And then maybe just on the high-purity manganese monosulfide. Just wondering what's that outlook looking like at the moment? And what Jupiter should be doing on that front?

Yes. Thanks for the question, Jon. So this is the fourth pillar of our announced strategy, and I will be providing more detail both in relation to our view on that market and outlook and also our strategy for that market and also where we're up to in our work in that regard. But our view is that it is a potentially exciting market. We also think that Jupiter is well positioned to compete in that market as a supplier. We are an existing significant miner of manganese. We have a strategy around which particular product stream we could use to provide advantage into that market without taking any revenue away from our existing incumbent business. And we think we also have other advantages that I'll go into. It's a very new market. It's a rapidly growing market. And so there's a bit to think about from a strategic and commercial perspective, but we have been working for some time on a business case that's under development, including in relation to a flow sheet that we've developed and the testing of that material. So we will provide again a more detailed update on the Strategy Day, but this is something that's included within our strategic focus area. It's an add-on for Jupiter. We've got a great business already in the core of the strategy that's being reported is around broadening and deepening our exposure to what we're already doing well and continuing to pay dividends. So the high-purity manganese sulfide monohydrate market is, in its nature, different to what we're doing today. It's really a chemical processing business and much more infrastructure-like in its nature. And so we're seeing that as a potentially quite valuable additive opportunity, that's something where you want to diligently do the work on and provide our view to investors before we decide to actually head down that path. So the strategy that we've announced is that by the end of this calendar year, we will have done that work, and we will provide that information, including our view as to how we intend to proceed to the market. But it is an exciting new area for manganese. We think it's an area which is potentially quite valuable for Jupiter's investors, and it's something where we think we've got some competitive advantages. Otherwise, we wouldn't bother to look at it. So we are doing that work, and we will keep investors updated and the next major update on that will be at the Strategy Day that I've just mentioned.

Awesome. And maybe one more. Just the rail in South Africa at the moment, how is it going, what's the outlook for it and maybe the same for load shedding?

Yes. Yes. Thanks, Jon. So I'll take load shedding first. And for those not familiar, the term load shedding refers to the current practice in South Africa of Eskom who are the state provider of electricity in South Africa having to limit supply and that's because there isn't enough electricity supply to go around. And so what that means is businesses and householders in South Africa are having to go for times of the day where they don't have power supplied to them. That's never been an issue for Tshipi and the reason is we have our own diesel-fired power station. Tshipi was built on that basis and was subsequently connected to the grid. So Tshipi has both a grid connection and a diesel-fired power station. It's entirely self-sufficient if it needs to be from that diesel-fired power station. Putting in solar at Tshipi is a good option. The Kalahari manganese field tends to be located in a very sunny part of the world. And so there's quite a strong sustainability case but also financial case to put in a solar farm and to replace that diesel-fired power station with a solar farm and there's financial payback available to Tshipi if it does so. So for us, we are insulated like many businesses in South Africa, larger businesses, from that power situation. It is a concern if you're a residential homeowner that can't afford your own power generation. There is a real focus on that within South Africa, which we're pleased to see. And it's not an easy problem to fix or it would be fixed already, but there are efforts, of course, to try and address the power situation. But for Jupiter and for Tshipi, it isn't an impact on our business. Rail is also constrained in South Africa. And if you have a look at the strategy document that have come out in March, the issue with respect to rail capacity, at least as it pertains to manganese, is not underperformance of the rail system, it's rather under capacity. So the rail system performs there or thereabouts where it's meant to at least as it pertains to rail, but the capacity hasn't grown with production. So the upshot of all of that is that there's today about 16 million tonnes of rail capacities made available for manganese and there's 22 million tonnes and growing and the delta goes on road. So that's something Tshipi does as well. You'd all be familiar that we rail some of our volume and we road home some of our volumes. So that's capacity that is insufficient for demand with respect to rail needs to be shared around the different manganese producers in South Africa, and that's why Tshipi and none of the major mines have enough rail capacity for their requirements. And we're working across all of the logistics options to try and optimize within that constrained situation. So the latest, Jon, to answer your question is that there's no real change in that situation. Transnet is working on improving capacity over time, but that will take time. We are engaged with them as are others in exploring both short- and long-term ways to lift the capacity on the rail line. In the meantime, we continue to work on the controllable elements of the logistics chain, which is the road haulage side of things, and that's part of our strategy to improve cost and risks as part of our load haulage logistics. So it's really status quo with respect to rail. It is what it is. We've been living with a constrained rail situation for years and that continues to be the case. There are short- and long-term projects that Transnet is working on in order to lift that rail capacity, but it's not likely to change in the very short term other than quite fractional improvements in the rail capacity. So this is one of the -- yes, it is what it is, frankly, operating there. It's been the state for the last 5, 6 years. It will continue to be for the next few years. And what we need to do as part of our overall logistics strategy is to continue to work with Transnet to find ways of being innovative to improve capacities on rail, but also work on our load haulage, which sits outside naturally of that rail -- constrained rail capacity, and there are opportunities to improve there. So as we go through the next 6 months-or-so, I'll provide updates on how we're intending to attack that situation, but it's a multipronged approach, including working with Transnet for the medium- and longer-term improvement of our capacity.

Our next question is from Mark Fichera at Foster Stockbroking.

A couple of questions. I think one is on logistics, and I think you answered that just previously now. But just on the mention of the rail volumes being higher than planned, was that [indiscernible] to picking up [indiscernible] where some of the other producers couldn't fit their allocation on? I was just wondering why the volumes were higher than planned? And secondly, just on the low-grade product for the year, should we expect a similar outlook for FY '24 in terms of the ratio between the high-grade and low low-grade product?

Yes. So thanks, Mark, for the questions. Answering your first question in relation to why we managed to get more wells than we had anticipated in the last quarter? The answer to that is the answer you gave. Not everyone is taking out their rail allocation at the moment. And for some people, that's operational reasons. They've been given rail allocation that they're not able to take up. For others, in this type of manganese pricing environment, you've got higher cost mines or maybe newer and lower volume mines that are profitable. And so that's actually an advantage for Tshipi as a low-cost incumbent mine, one of the top 5 mines in the world that is actually quite profitable through the cycle, including at these manganese prices, is to take up that additional rail capacity. That rail is our lowest logistics costs. As I mentioned, we're working on all ends of our logistics path to market, but rail is the lowest cost naturally. And so our costs are going to be lower to the extent we're averaging up the amount of rail that we're utilizing in the overall mix. So that answers the first question. The second question in relation to low grade. That's a month-to-month looking at the pricing environment, looking at whether it's profitable to put low grade into the market, and we're working with different geographic markets to see if we can optimize. We should be looking at lower grades to the extent that it is cash generative to put into the market because otherwise, it's been produced as a waste byproduct effectively. So we do continue to look for opportunities. We sold very little of it into the market last year. We sold very little of it so far this year also into the market, but we continue to look. So we'll be opportunistic. We are looking to, for this year, the same sort of run rate volume regardless of what the mix is to produce. And if there's an opportunity to do a bit more including putting low grade into the market, providing it's a responsible and cash generative thing to do, then that's what we'll be doing. But naturally, when you're in a lower manganese price environment like we are now and like we were for much of last year as well, so we're going to be studied around how we put low grade into the market.

[Operator Instructions] We have a question from [ Peter Crane ].

Look, I know you've mentioned this before, but the previous Board supported the share price by consistently buying a high volume shares in the company and yet the current Board doesn't seem to be interested in doing that. Is there any reason for that, please?

[ Peter ], thanks for your question. And I might give Ian [indiscernible] since that's really a governance question. And Ian, our Chairman, is on the line, I might ask him if he'd like to answer that question? If you can't, Ian, I know because Ian is in Germany with patchy comms, if you can't answer it, I'm happy to.

Yes. No, thanks, Brad. Thank you, Peter, for that question. The reality is -- this new Board came in with a mandate to look at growth and to grow Jupiter. And that is what we've been busy with for the last 18 months and Brad, for the last 12 months, that he's been in the seat. That means that because we are in discussions with other groups, we are precluded from transacting. There are a number of directors, together with the groups that -- who have appointed them onto the Board that are keen to increase their positions in the company. But at the moment, we are unable to do anything because of discussions which are ongoing behind the scenes.

We have no further questions.

Thanks, [ Lisa ]. And thank you, everyone, for joining the call.

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