Jupiter Mines Limited (JMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Jupiter Mines Q2 Investor Call. [Operator Instructions] There will be a presentation followed by a question and answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Brad Rogers, Managing Director and Chief Executive Officer. Please go ahead.

Thanks very much, and thank you, everyone, for joining us this morning, and happy New Year to everyone as well. I hope you all had a good break over the holiday season. As usual, I'll give an overview of key points in opening remarks here, covering off on the Q2 FY 2025 quarterly activities report for the December quarter just passed that was released to the market this morning. So I'll give the key points of that report, and then I'll have some time for questions if there are any. As usual, I've got our Chairman, Ian Murray; and our CFO, Melissa North, on the phone as well. And if appropriate, they're available for questions at the end as well. So you all have seen in the December quarterly, just in overview that it was a strong performance operationally for the quarter. I'll talk through the key points behind that statement in a moment. But in overview, we had a quarter where quarter-on-quarter, December quarter versus September quarter, realized manganese prices were low for reasons that we talked about in the last quarterly call. And so the team has navigated a period of time of low manganese prices that, as I'll explain in a moment, are actually improving quite nicely and shipping rates are improving nicely as well. But quarter-on-quarter volumes were mindful of that market overlay. And so as part of that, you'll see that we've executed on the plan to navigate that market very well and the financial outcomes for the quarter were pleasing in that context as well. I'll talk through Tshipi operations first, the KPIs from the operational outcomes from the mine, and then I'll cover off on an observational overview of the manganese market and shipping rates. I'll come back to Tshipi for financial outcomes, and then I'll just give some overview comments in respect of the strategy update document that we released to the market yesterday. From a Tshipi operational perspective, from a safety perspective, firstly, you'll see in the report that there was one lost time injury during the quarter. It was a relatively minor one where an individual had a cast strain resulting from stepping on a rock on a pathway. But in general, the underlying safety trend at Tshipi at the moment is very good. You'll see that TRIFR is stable quarter-on-quarter, but we're seeing good improvements against an already excellent safety track record at Tshipi. So that's great. From both the sales and the production perspective, you'll see that the December quarter numbers were down on the September quarter. And again, I flagged this in the last quarterly. This is planned. It's off the back of the September quarter that saw very elevated volumes and in the case of production volumes, record volumes for that quarter. Sales and production in the September quarter, you'll recall, were delivering on elevated manganese prices that were contracted through the June and July period. And so that quarter was characterized by delivery in high volumes against high manganese prices. As we came into the December quarter, as we again discussed on the last call, those manganese prices have started to moderate to quite low levels. And so in particular, we didn't want to keep producing low-grade ore and selling it into the market at the manganese prices that were prevailing through the December quarter, that didn't make sense. And so what we had through sales and production for the December quarter reflected that reality and reflected that plan. Importantly, if you're familiar with Tshipi, you'll know that Tshipi delivers sales and production of 3.4 million tonnes on average per annum. And notwithstanding the lower December quarter, we're on track for that. From a sales perspective, the year-to-date annualized number puts us on track for 3.44 million tonnes of manganese ore sold for the year. And from a production perspective, we're well above that because of that record quarter in September, notwithstanding the lower production levels in December, we're on track for a year-to-date annualized number of 3.91 million tonnes. So again, quarter-to-quarter, don't be too concerned about the sales and production numbers. What we're looking to do on a full year basis is aim for that 3.4 million tonnes. We're on track for that. And given the lower realized manganese prices through December quarter, it was appropriate to pull back a bit and in particular, to not continue selling low-grade ore into those lower prices. Land logistics volumes not surprisingly go hand-in-hand with what I've just said in respect to sales in particular, low-grade ore. So land logistics volumes were also down. The benefit from the market that we've just seen through December is that road haulage in South Africa was practically absent for the quarter. We were also pulling back on our low-grade ore, and that's always going to be trucked. And so our own road logistics usage was also down in terms of volume. And what that does is bring down the mix of our average blended logistics costs. And so that was a benefit financially when we come to those numbers. Part of that was lower blended logistics costs as a result of shipping using more rail on average than it ordinarily would and predominantly rail for the quarter. Cost per unit were up about 5% to $2.43 per dmtu. You'll see in the quarterly that about 3/4 of that movement quarter-on-quarter is a true-up in royalties, which are paid every 6 months. And so the higher profitability in the second quarter that we moved up into a new royalty bracket and then you true up for the whole 6 months. So that was part of that. Obviously, the lower volumes also factor into cost per unit type calculations. The other point I'll make that I've made before in relation to cost per unit is that for many years, a weakening rand has been a tailwind for reported U.S. dollar per dmtu costs for manganese mines in South Africa like Tshipi. That situation for the last little while has reversed. The rand has been strengthening against the U.S. dollar. And so although this $2.43 or $2.75 odd that we reported last quarter is higher than you would have been used to in a range of around $2 to say, $2.20 for the last few years. A big part of that is what's going on with the exchange rate that has really benefited reported U.S. dollar costs, notwithstanding inflationary pressures in South Africa that face all manganese miners, including Tshipi. So that's something to be aware of. It's also something to be aware of that's important to understand when you think about Tshipi's competitive positioning against other large manganese miners in the Kalahari Manganese Field. Our aim from a cost perspective is obviously to be at the lower end of the Kalahari cost curve and notwithstanding the cost that you can see in the quarterly, and again, there was a particular royalty impact going on there. But notwithstanding that we're higher in part because we're not getting the benefit from the rand-dollar exchange rate that we have in past years, that still places us very favorably against other South African manganese miners. We think other large competitive manganese miners that are also globally competitive are producing at around $3 per dmtu, give or take. And some evidence of that is the fact that when the manganese price got down to $3 per dmtu FOB in the last quarter, you saw a strong supply side response. Road haulage volume came out of the market and a number of producers trimmed their volumes, and that is why the manganese price has responded so well. And so that's a pretty good evidence point, we think, for where South African producers are sitting. So I just wanted to provide that context. Cost is obviously something we're very focused on. I've mentioned on previous calls that the rand-dollar exchange rate has benefited that particular KPI in the past, and it's working against us right now. But notwithstanding that, our focus is on ensuring that we're competitive against the pack, and we're confident that we are with that sort of performance that we've seen in the December quarter. From a manganese market perspective, there's a bit to follow through the quarterly in this respect. Firstly, you'll see that the December quarter realized manganese prices, i.e., the prices that we're actually delivering manganese or sales into were lower about 14% quarter 2 as compared to quarter 1. And that's the result of the manganese market cooling post the GEMCO incident. And so Q1, particularly the first part of Q1, you saw elevated prices that were negotiated right in the middle of the GEMCO incident that you were selling or into through the December quarter, that had started to cool. And so if you look at quarter-on-quarter in terms of realized manganese prices, they were lower by 14% in the second quarter as compared to the first quarter. And again, that was the market that we were mindful of when we were thinking about planned sales for the quarter. Conversely, if you look at spot manganese prices from, say, the end of the first quarter until now, they've increased quite a lot. They've increased about 22% if you're looking at SI prices from 30 September to 31 January. That has occurred because of that supply side response I mentioned before. Prices got low enough that people were either not making money or around breakeven. And so volume pulled back through that period of time. That has drawn down stockpiles in China. You'll see the levels that we've reported in the -- in our quarterly, and that has driven prices up. So this is all about the supply side response triggering of lower manganese prices that were being observed. Supply has come out. The market has done what it should do in that circumstances and righted itself and actually relatively materially, if you look at the few months and that improvement I mentioned at about 22%. At the same time, shipping rates, which are obviously important in a market that shipping volume from South Africa mostly to China and India have also come down. Shipping rates have been quite elevated for the last few years or so for various reasons that we've covered in this call. But if we look at it right now and again, compared to, say, spot shipping rates at 30 September compared to the end of January, they're about 20% lower today. And we're looking at the end of December $24 a tonne. I think it was around $21 and change at the end of January. So we've got some tailwinds there at the moment, both in respect of the manganese market because of moderating supply and Tshipi being well positioned in terms of its own production and cost point, but also shipping rates finally moderating after years of being quite elevated, frankly, relative to macroeconomic conditions. The final thing I'll say on the manganese market, and it's something that was discussed in response to a question at our AGM last year for anyone who tuned into that is that we're looking to recommence weekly manganese price reporting on our website from next Monday. So every week, we will update a price on our website. People will be able to access that to freely understand the trend of the manganese market. We think that, that's important for a lot of investors. I know that some people, if they subscribe to services are able to get manganese prices. But for a lot of other people, it makes for an opaque market if you can't see what the manganese price is. And so notwithstanding we had to withdraw that page in terms of our ability to being able to access the source of the data that we were using for that page late last year. We'll be reinstating that page from Monday and then every week thereafter. It will be a new source. That page will disclose the source and basis of that information provision, but we think that's an important thing. Again, I think this manganese market has actually improved quite a bit in the last couple of months. And unless you're able to see that easily, you may not recognize that. And I think that's possibly the case right now. So look out for that on our website. From a Tshipi financial perspective, our earnings for the December quarter were up quarter-on-quarter. And that's a good outcome considering both volumes and prices on a realized basis were down quarter-on-quarter. And in the quarterly, you'll see that the reason for that was lower logistics costs overheads and the foreign exchange gain. So they all benefited us such that EBITDA, but also NPAT were up EBITDA as a market was up 28% quarter-on-quarter. You'll also see that cash at Tshipi was actually up quite materially, up 46% to $141.6 million on a 100% Australian dollar basis at the end of the December quarter, 46% increase from 30 September. That's the result of an accounts receivable unwind. And so we're collecting the cash that was from sales recorded at high prices and high volumes through the September quarter. And again, that was something that we flagged would be coming. And you can see that in the cash at the quarter end resulting in that fairly material step-up for cash at Tshipi. Jupiter cash was effectively flat, slightly up to $14.3 million at the quarter end. Yesterday, you will have noted no doubt that we released a strategy update. It's a relatively comprehensive document. And the intention for that document is to update interested parties on the context of the market conditions that surrounded the setting of our 5-year strategy that was released in March of 2023. And so as we come up to the 2-year mark post the release of that document, we think it's good practice and important that we go back and ensure and report on whether those factors are still true or not. Naturally, things will always move around in your environment and an amendment of strategy may be necessary if that's the case. The punchline through all of that detail, you'll note is that although there are obviously changes, the settings and the market conditions that underpin the setting of the strategy and the initiatives that we embarked on are still sound today, and therefore, there's no change in the strategy. It wasn't the intention of that document to report outcomes in terms of initiatives. That's something that we will be doing in separate announcements as they're available, and that's something that we've always said. Notwithstanding that, we have provided, we hope, some interesting color in relation to the nonconfidential aspects of our strategy settings. And so we hope that, that's a useful read for people. What we'll be doing in the coming weeks is releasing a supporting video in which I step through that strategy. I'll probably release both a summary and a more detailed version of that so that there's a supporting narrative, I guess, in addition to just having that document available for reference. We think that type of thing is good practice to come back and report against the settings in addition to just reporting on outcomes as they're delivered, and that's something we'll probably do again at least once before the end of this 5-year strategy planning period. So those are my comments and overview. Again, happy to take questions in a moment. But just summarizing, it's been a good quarter operationally from a December perspective, notwithstanding sales and production were down, that was appropriate in the market circumstances and was planned. Even though that occurred, we're still very much on track for what you can expect in terms of both sales and production for the full year. The site is in good shape from a safety perspective and notwithstanding production was down and outstrip sales. And so there's good levels of inventory sitting at site as well. So we're well positioned. The site has done an excellent job of navigating a down period in the manganese market, and we're seeing the manganese price and also the shipping rates in more favorable condition right now as we head into this current quarter. We'll be reinstating weekly manganese price reporting, and we think that that's important for a lot of investors. And we hope that the release of the strategy update yesterday was useful, and you can look out for a bit more detail on that front in the coming weeks. With that, I will throw the call open to questions if there are any.

[Operator Instructions] Your first question comes from Adam Baker with Macquarie.

Just one on Tshipi and the upcoming meeting, I guess, on the discussions around potential dividends for the second half of last year. And you mentioned that the strong cash position that Tshipi was in with over AUD 146 million. I noticed the last distribution was around ZAR 300 million. I guess that's around AUD 26 million in today's prices. How should we be thinking about potential dividends in the upcoming period out of Tshipi?

Thanks, Adam. Thanks for dialing in, and thank you for your question as well. It's an understandable question as I've just flagged and pleasingly, there's been a nice release of cash there that you may have expected, but still good to see that come through. And again, I think that marks the quality of the asset that we have here. And that leaves Tshipi with a nice amount of cash, as you can see in the quarterly. The other comment I'll make that you're aware of and you framed in your question is that's a 2-phased decision, which hasn't yet been taken. There's a process that occurs at the Tshipi Board to consider any dividend. Jupiter is represented on that Board. And so we participate in that conversation. And then off the back of that dividend decision that we we'll see through the course of February, Jupiter will make its own dividend distribution decision, and that's what we'll lay out to the market. So it's premature for me to make a comment on that given what I've just said in terms of process. Now that the quarterly and the half year numbers for Tshipi are closed out, it's appropriate we move into that consideration, but that will occur over the course of the next month.

And can you comment on -- is there a traditional cash level that Tshipi likes to maintain before going before that -- is it -- for instance, would they not go below $100 million in cash? Is that something that has been outlined or?

It's -- there is a process, Adam, the Tshipi CFO and CEO make a recommendation to the Tshipi Board. There are some considerations that they always make in framing that recommendation. One of them is a cash floor, and that is a contingency floor in the event of a very severe down market situation we want to be able to sustain ourselves. And that floor is around about ZAR 350 million usually. And then on top of that, there are other considerations that may come into frame, like are there any working capital or CapEx requirements or any other contingencies that may be necessary. So those other things can change. They can be quite de minimis or material. And that's kind of why I wouldn't look to make a recommendation right now, and we haven't yet received anything from the Tshipi management team, and that's the process that we'd anticipate through February.

Great. And then just secondly, I mentioned there was a comment that the wet season has started in late December. But just wondering if you could give a quick comment on how the wet season has been going? Is it been in line with prior wet seasons given we're almost through -- halfway through the wet season now? And how should we be thinking -- just secondly, how should we be thinking about in the context of production and sales breakdown for the 3 and 4Q?

Yes. So December volumes were quite strong. And I don't think, in short, I'm not anticipating, notwithstanding, I haven't quite seen the closeout in January volumes that I'm not anticipating that there's going to be a material wet weather impact to January either. The site is operating quite well. There's kind of fairly healthy processed product stockpiles at about 3 months of steady-state production sitting there, and that is both to ensure sales can continue on a desired basis, but in the event of any other unanticipated risk in the future. So we've been through a period where we've had lower sales, but actually a bit higher production to set us up well. So far, we're looking pretty good in terms of December volume outcomes, which was stronger than October and November in the quarter that you've just seen, and I haven't heard anything that suggests that January was overly impacted by weather.

Your next question comes from Mark Fichera from Foster Stockbroking.

Just a couple of questions from me. Firstly, can you tell us the size of that foreign exchange gain impact on Tshipi's profit? And then I guess the second question is just on costs. You gave a quite good detail there on the factors influencing the costs. But going forward, obviously, your volumes will improve, which should obviously improve the unit cost. But I'm just thinking, obviously, you've got the royalty impact and the rand impact. Just what we should be thinking is to -- is that $2.43 sort of a range we should be thinking about or maybe slightly higher or slightly lower?

Thanks, Mark. So on your first question, in Australian dollar terms, that FX gain was $13 million, which sounds large, but the drag from a reduction in manganese prices realized in volumes was $38 million. So logistics costs being better or about a AUD 22 million improvement there. So logistics FX gain and overheads were the big items there in the context of all of that and again, looking to counter that reduction in earnings that was dragged by volume and manganese price, $38 million down. FX gain helped that offset by about $13 million. And you can see the net improvement in Aussie dollars there. So second or the third largest item, I guess, offsetting the manganese price and volume reduction. from a unit rate perspective. And again, because we've got factors like half yearly royalties, which actually was the major driver of that step-up at the moment in the second quarter. It will move around a little bit. Exchange rate was a bit of a negative drag. The rand unit increase was 4.5% and the U.S. dollar increase was 4.9%. So not as material as it's been. It was relatively stable, but still a factor. So yes, I think gut steel, I've been saying about $2.30. It might be a little bit higher than that. I think you might have seen other manganese producers come out and say that they're for FY '25 looking at about up to 5% to 15% higher than what they had guided. So I think that might be 5%. I'm just recalling off the top of my head. But what we're again targeting is to be significantly lower this range of $2.30, $2.40, although it is much higher than we've had in the past. I think the biggest impact in causing that sustainable difference is the exchange rate and maybe that reverses again at some point in time. The team generally does a very good job in doing what they can from a productivity perspective in offsetting inflationary pressures. There is inflation there, and the rand has been helpful and it's not for the moment. So in and about this range. On a quarter-to-quarter basis, you can expect it to go slightly lower or slightly higher than this. It could be down to sort of $2.25 to $2.30, and it could even be slightly higher than this $2.43 depending on what's happening with volumes and things like royalties in a given quarter, but around this sort of range.

Your next question comes from Jack Cherry from Totus Capital.

Sorry, it's Ben here for Jack. Can you hear me, Brad and Ian?

I can.

Okay. So about the strategy update, there was references to M&A. And I suppose the thing that's changed in 2 years is that the share price is a lot lower than probably where it was a year or 2 ago. Does that change the thinking about uses of cash for dividends versus buybacks? And then what's the philosophy? I mean, you mentioned that any M&A would be accretive. But given where the share price is trading and I suppose if you put spot freight and manganese in and it's able to hold that, the stock is trading really cheap. Can you just give us a little bit more color about that M&A and capital management philosophy, please?

Thanks, Ben. Thanks for the question. So there are, as you'd appreciate, different opportunities and each of those would have a different way that you could potentially execute from a capital perspective on those opportunities. A lower share price that we have today does influence whether you would want to use equity for any of those opportunities. Having said that, when we set that strategy and we said that we would be looking at executing accretively, we had what we thought was quite a low share price at that point in time as well. So those comments were framed by the context of saying we're not going to do a dilutive raise in order to do M&A. Depending on the target, there are different ways of executing on M&A, notwithstanding what I've just said. We could, for example, accumulate cash and execute that way. That's not the current intention and the settings that we have from the strategy that we made clear was that we have a situation where people have enjoyed good dividends through Jupiter from Tshipi because of the good performance, and we've seen that again in the second quarter. And we intend to keep to the same dividend policy that's existed since Jupiter's listing that we will pay out at least 70% of any dividend that we receive from Tshipi to Jupiter's shareholders. With those comments, the other ways that you can execute is relative value script for script consolidations. And so that's available as a way of executing on consolidation in a way that isn't pressuring on the share price and doesn't require us to do cash from operations. And so you're right, the share price is, we think, too low at the moment. And I think there are some reasons for that, that we can get into. I think one of them is potentially that people can't see the manganese price for the last few months in the way that they've been able to through our website. So hopefully, weekly reporting again starting next week will help with that because the manganese price, as I said, is rerated since the last time people have seen it. But yes, we -- our M&A strategy is live. It's obviously confidential as well. So I'm being a bit cautious in what I'm saying there. But in short, we're not changing our capital management strategy from what framed the statements, both around dividends and that M&A strategy. It is a factor around some of the opportunities, but you've got others that you're able to execute in the way that I've mentioned.

Okay. Follow-up on that was the speculation in the press pre-Christmas about yourselves actually being a target. Is there anything you're able to I mean, yes, with the share price is low, was there any comment or observation about that, that you're able to make?

Probably not at this point. We've put that in the category of rumor and speculation, and we don't want to get into commenting on that publicly. Otherwise, that could become a that we want to do. We've been public on what our strategy is. Obviously, as part of that, we are having various discussions around as we sort of flagged in our strategy update around a number of situations. So beyond that, I don't really want to make a comment at the moment. We will make statements as we're able to as things are actually secured. But yes, we don't intend to clarify publicly at the moment, Ben, off the back of that report.

No, understood. And then the final one, just about the GEMCO jetty, wharf. I know South32 sort of talked about Q2 '25 as a target for that. Any sort of industry observations or speculation about supply coming back time lines or -- yes, I mean, it's nice to see the market being a bit more rational and responding on the road trucking stuff. But any other stuff that you could see globally that might impact supply?

So not really, Ben. I think it is right to say that the market at the moment, and frankly, it's been the case for the last few years, the manganese price is being driven by supply side factors. We saw that last year, both in the run-up in the price post GEMCO and then also the decline in the price. And then we've seen that through December with volume coming out. So that tends to be how people are looking at it at the moment. It would be nice to see some meaningful pull-through from a demand perspective. And in that strategy update, we sort of framed both sides of that argument. And there's generally a little bit more optimism around steel for this year, but there's some risk to the upside and downside. So absent being able to predict that, everyone expects it to be somewhat flat. If it's slightly up, that's good. But then it comes back to the supply side, hence, your question. From a controllable perspective, I've covered what Tshipi is doing, and that's our ongoing focus is ensuring that we're competitive from a cost perspective so that when prices do come down, as you've just seen through one of those periods, Tshipi is profit and cash generative, whereas others aren't, and that means others will respond and the price will improve, and that's what's happened. So that's how we're going to govern through any sort of cycle. We'll take our opportunities on the upside where we can get them. But on the downside, we want to be protected by cost curve positioning. On your question about GEMCO, I don't know anything more on that situation at the moment than is public. And I think that is that reconstruction has commenced and subject to wet weather impacts. That site is obviously in an area that's exposed to tropical cyclones. Subject to that, they expect to recommencing sales on a ramping up basis through the June quarter of this calendar year. And so that's consistent with what I hear elsewhere, as you'd imagine it would be. That's factored into people's expectations for this year that GEMCO is coming back online on a ramp-up basis. So -- when exactly that happens subject to the comments that have been made by South32, weather impacts or whatever we'll see. But the expectation is that over the coming 5, 6 months or so, it does ramp back up again, and we're fine with that occurring, and that's factored into our sort of plans at Tshipi and Jupiter for the year.

Good stuff, Brad. Just one more really easy one before I let somebody else jump on is the -- what is -- at the Tshipi level, what have they generally paid out in terms of a payout ratio up to Jupiter? And you said you pay out 70% of that. What is their policy historically?

So firstly, Jupiter tries to maximize its payout. We don't pay 70% on the nose. And if you look at the history and we do say what we've received from Tshipi and how much of that we're paying on, we've usually paid well in excess of that 70% and sometimes more than 100%. It does vary quite a bit for Tshipi. They don't look at it in terms of a payout for their overall earnings or cash. They look at it on a forecast basis. So what they're expecting for the forward period in terms of profit and cash, but also what any requirements for that cash may be in terms of working capital. That cash retention I mentioned before, Ben. So it's -- it would be all over the place to answer the question because it's not looking at on a payout basis, it's looking at on a forecast basis, as I just mentioned.

There are no further questions at this time. I'll now hand back to Mr. Rogers for closing remarks.

Okay. Thanks, everyone, for joining the call. And again, welcome back for the year. Look forward to meeting you on a further call. But for now, hopefully, you've gotten the key takeaways from this December quarter, really good quarter from site, notwithstanding lower realized manganese prices, the trim sales and productions in a way that has been appropriate for the market circumstances, but leaves us on track for a full year targets and the manganese price and shipping rates have improved through until now based on supply side responses. So good performance. Hopefully, that come through in the quarterly. Thank you very much for joining the call and look out for again our updated weekly reporting of the manganese price starting from next week and in the coming weeks, we'll release walking interested people through our strategy update released yesterday. Thank you.

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