Metro Mining Limited (MMI) Earnings Call Transcript & Summary

Good morning everybody, and thank you for joining us here today. We have a presentation from Managing Director of the Metro Mining and supported by the Chief Financial Officer, Mr. Nathan Quinlin. Simon Wensley will give us a rundown on the quarterly and a bit of an update and the outlook on what he thinks seems to come. So I'm going to hand it over to Simon, and there'll be an opportunity for questions at the end of the presentation. Over to you, Simon.

Thanks, Peter. Good morning, everybody wherever you are, and belated Happy New Year to those who I haven't spoken to or seen since the New Year. So look, just a reminder, if you want to ask a question, we'll try and leave some time at the end and put them through on the chat function on the -- through the webinar. I might just share the screen to put up the actual quarterly report, which I hope that you've had a chance to have a look at. Look, the highlights really there speak for themselves. The -- it was a good year in all and actually a good quarter. I mean, another record quarter. It was slightly above the production rate of the third quarter. And indeed, we ended the season with meeting guidance. We also demonstrated the run rate of 6 million tonnes consistently through the quarter. But interestingly and importantly, even in a difficult December, we demonstrated some days where we demonstrated the 7 million tonne rate. So I mean that equates to about 23,000 tonnes per day for the sort of 6 million tonne rate and about 28,000 tonnes per day for the 7 million tonnes rate. So it was really, really important for us to demonstrate that the system even without having some of the new pieces of equipment and so on that are still arriving that we were still able to demonstrate that output for next year. Obviously, as a bulk commodity, our throughput is absolutely critical. And so those rates really do underpin still our target for 2024 of 6 million to 7 million tonnes. We're just going through our budgeting process at the moment. And so at a later stage, I'll put a more sort of official guidance out there. But look, at this point, given what we've achieved in 2023, that is still our target. I might just bring up later in the presentation, there is a very good graph that shows sort of how the year went. I hope you can all see that. And the lower 2 lines are the 2022 results and then the upper 2 lines are the mining and shipping for 2023. And you can see through the year, we started off pretty much at the same rate where we ended in 2022. And then we continue to build with a few little bumps and hiccups and peaks and troughs through the year. But there's a very, very steady and pleasing improvement in output all the way through the year. And that was exactly what we were trying to achieve through 2023. It was about -- as elements of our expansion came into play, whether it was mobile equipment, fixed plant, marine assets, et cetera, through the year. We tried to take advantage of that at the time by implementing some innovative ways of getting more tonnes on to ships. And so right the way through the year, we started, as you can see at that 4 million tonne rate where we ended 2022, then we raised our game to 5 million tonnes and then 6 million tonnes sort of rate achieved on average through the -- through that fourth quarter. And then you can see, as I said, that peaking just before Cyclone Jasper hit in December, where we were heading up to that sort of 6.5 million tonne rate. And as I said, on certain days, we were demonstrating we hit a couple of days at 28,000 tonnes per day, and that is a really good indicator for next year. Look, the cyclone, in terms of the quarter, that last sort of 3 weeks, the 2/3 of December, we had the first cyclone in December, indicate for about 30 years. And of course, we use relatively scientific, predictive technologies to look at weather, but those of you who are in this game will understand that it's a really difficult thing to do. We look at past averages, we look at the future. And look, there's an element of luck in this. We -- at that -- at the beginning of December, we had -- we were going strong. We were heading for that 5 million tonne, the top of guidance. We had no reason to believe that, that wasn't going to be able to be met. We did factor in what you might call normal weather interruptions, which in December tends to be larger storms that you get running through. They tend to be relatively short, but heavy in nature. And we're set up for that now more and more. But obviously, a cyclone is quite different. If you watch the TV, you would have seen the tremendous sort of rainfall that accompanied this system, and it was a very large system. So it started to affect our shipping conditions well before the cyclone hit on to the eastern side of the Cape and then -- and then that's because it changes. The system changed the direction of the wind and the waves and the energy of the waves. And that created unsafe conditions for our tugs, barges and our floating crane, and that's -- it is what it is when it comes to that and we have to take safety very seriously. Then what followed on once the cyclone had sort of tracked to the site, and we didn't hit our site directly, if you like, but obviously, the rainfall that then accompanied in the second half of that was tremendous and that left us in a difficult position. Now we did restart and we got another 100,000 tonnes out over the rails at the -- post the cyclone, but it was pretty difficult. We had a couple of pits that were flooded and it was a pretty difficult position. Now going forward, you've heard us talk about the way we're trying to create more resilience in Metro to create less variability. We've done quite a lot of that through this year already, but the 2 major pieces of investment that we are making -- that will do that are the wobbler screening circuit. So that screening circuit is much more effective in wet weather or [ dap ore ] conditions. That's exactly what it's designed for. And so we'll see a much less effect -- much lower effect on screening performance once we get that system in place. And of course, the new floating terminal and the floating terminal is a much bigger vessel. I hope that we can, at some point, show a picture of the 2 floating the transshipping assets next to each other, you'll see how big the OFT Ikamba is. It's at least 4x bigger from an area perspective. And so that vessel has demonstrated already in its life, its ability to work in more difficult conditions. So that, again, is part of our strategy to try to increase the resilience of this. Obviously, a cyclone is a cyclone and that's a bit more of a difficult thing to handle. But in terms of just dealing with the vagaries of wind waves and rain, we are certainly putting in place -- putting in place the strategies that will make them less and less impactful on our business. So look, I think overall, I'm extremely pleased with that the teams working really well together, the mobile equipment -- the new mobile equipment we brought on, the new Scania trucks running with the 4 quad trailers. They're doing it almost in the same cycle time that the previous fleet we're doing with the 3 trailers. The -- we're getting bigger mobile equipment coming through. We've had an extra barge arrived already in the fourth quarter this year, that really did help us -- was part of the way we lifted our production, and we're getting 2 more of those larger barges arriving in March this year as well. So before the season starts. So we'll then have a fleet of 6 large 90-meter barges to be able to run around and to be able to hit the top end of our production, we only need 5 of those to be loaded in a day. And so the system we're setting up is about trying to get 5 barges loaded and unloaded during the operating day. Let me talk a bit more about the market. Look, and this is very relevant for the decisions that we made around funding, but I'll start to talk about the market. So we just found out just before the quarterly that the numbers -- the traded market will continue to be pretty strong during the last quarter. The annual imports, for example, into China, which is the major recipient of traded bauxite that start to hit another record in 2023. So 142 million tonnes of imports, which is about 13% over the 2022 number. So you can see that's a function of both the top end demand. So demand is increasing for bauxite in China. So you get that top end growth, at the top line in this graph, and you're also seeing the bottom line sort of fading away to an extent. So you've got the domestic bauxite, which has underpinned Chinese alumina production for many decades is fading away slowly. So you can see that wedge shape getting larger and larger. So that's why we're getting the sort of significant double-digit growth in demand from China. So above the natural GDP or GDP-plus that you might expect from the aluminum sector generally. That's also being obviously reflected in pricing. Of course, there is growth in supply at the same time. But you're seeing -- with that kind of growth, it's difficult for the major supply countries to bring on that sort of capacity. Guinea has been adding a lot of capacity, but that has only really just replaced what's left the market with Indonesia leaving in 2023. So you can see tightness in the market and particularly as the domestic bauxite constraints hit in China, you're seeing that increased demand. And you can see, I haven't shown this scale of graph before. I've shown a much more longer-term cyclical, I guess, a cyclical graph going back to 2016. But when you look at the shorter term here between the beginning of '22 and now, you can see that the growth in the market has been substantial. And I think maybe uranium aside, there aren't very many other commodities that have shown this kind of robust and strong growth without the volatility in there. When you talk about lithium or you talk about the copper or whatever, you've seen a lot of volatility and certainly, 2023 wasn't a good year for most of those commodities. So look, bauxite the market is tight, that wedge shape is continuing and these prices are rising. And I think that was a major factor in our deliberations around the funding, which I'll come on to a little bit later. I'll just touch on the project side of things quickly. The -- as I said, the 2 major elements of the project remaining to be put in place are the floating terminals. So you can see that we've got a nice picture of Ikamba passing through the Indonesian islands. Ikamba, I can tell you off the press has arrived in Darwin this morning. So it's made very good time from Shenzhen to Darwin. I'm seeing e-mails coming in with the master negotiating with the port authorities about where -- which -- what to put her on. So she's there safe and sound, and we'll start to go through the importation and the regulatory -- the marine regulatory processes to get her place secured in Australia. So that's happening as we speak. Look, the shipyard process took a bit longer than we had anticipated, and that was -- we wanted to make sure that we've done what was sensible to do in a shipyard rather than doing renovation or repairs or refurbishment on the run. So look, it was a deliberate decision to try to -- in any refurbishment, those of you who've refurbished bits of equipment or your houses know that you never quite know until you start taking things apart and pulling back the walls and taking equipment apart that you don't quite know until you get in there, what needs to be done and there was an additional sort of scope of work that we had to put in place to ensure that we got -- her in a good condition to be operating. We want her to be in a good condition this year. There will be a commissioning period and a ramp-up phase like any other -- like any other pieces of equipment. And we wanted to make sure we did the sensible scope of work in a shipyard that was better done there, and then we were trying to test all the pieces of kit to the extent that we could in a shipyard before we left. So that took longer. Obviously, that costs a bit more than we might have thought initially. The other aspect, I think, was really the towage. At the moment, the oil and gas sector is pretty strong. And the sort of tugs that we need to tow this thing around are large, the sort of tugs that tow oil rigs and things like that -- so for deep ocean tows. We don't need those tags around the operation in shallow coastal waters. But when we're pulling this thing across the ocean, we take a very, I guess, conservative approach to the sort of the size and power of the tug and we're price takers in that market. And obviously, with the fuel price where it was as well, that -- the budget we had for towage has been exceeded as well. So we saw -- we've seen some creep in the last few weeks over as we get those numbers in on the budget for the expansion. The wobbler system is in shape. Everything is manufactured. It's all either on site now or in cans. Waiting to get across. The team is on the ground that we've already got the civil works sort of in train, the wobbler and the apron feeder, the conveyors, et cetera, are waiting to get on a barge this week. So that's all going to plan at the moment. There is -- we have had normal -- despite all of the predictions, we've had a pretty normal wet season so far up in the cape. So there's weather contingency built into those plans. But we're aiming, and we believe that both of these pieces of kit will be in place for the end of March. Look, just a quick note on the funding. Obviously, we've assessed that roughly the cyclone impact when you take into account the shipping and we had all of the ships that we needed to do roughly 5 million tonnes, we're either at the site or on their way. We have to book vessels roughly 20, 30 days, maybe 25 days in advance. So we don't have the luxury of sort of waiting to the last minute. We made the call -- that was the call we made. We've been pretty aggressive as a company over the last couple of years to try and turn this company around. Look, most of the costs have gone the way we thought. But look, now and again, you get one that doesn't and that was reflected in some of the costs. So once you've got vessels waiting on site and then being diverted, we had to actually take 2 vessels and send them off to do other tasks. The cost involved in that are quite significant. So there's probably about 1/3 of the cost that we've assessed is in the shipping side of things. And then all of the other costs at the site are all committed to as well. So the labor, the -- all of our transshipping the equipment, those are all fixed costs. So our variable margin is quite large. And so we missed that on probably 300,000 to 400,000 tonnes of sales and at $20, $25 a tonne, they need -- of variable margin, you can see where the rest of that money comes from. So look, that is what it is. We've been -- our performance has been excellent through the year. But as we've been disclosing all the way through the year fuel, in particular, has been way above our budget. And so that's probably cost us at least $2 a tonne in our EBITDA margin through the year. And that left us, I guess, with not a lot of financial capacity left at the end of the year, not that we were in desperate straits, but we've been negotiating already with our lenders to provide some buffer capacity and that negotiation just, I guess, upsized, if you like, through the end of December and into January to get the amount that we need. And we need to do the funds. We need the funds to make sure we can complete this expansion at the revised CapEx, get all the maintenance down, get the working capital ready to get into operation and then get going. And I think we looked -- obviously, the Board considered equity a whole range of options in terms of funding and equity was definitely there. I mean, I guess, with our share price where it was, with a further discount being required to put that in place, then that was obviously going to be a difficult thing for shareholders to [ stomach ], and we felt very strongly about trying to do the right thing for shareholders. And so look, we recognized that what we put in place is effectively more debt here. But we wouldn't have done that had we not had that outlook on the market, which we think is strong and also on our confidence on 2024's production, which having demonstrated a lot of that and with this new equipment coming through, we felt very confident about that as well. So we felt the short-term bridge was better for shareholders than a dilutive equity raise. And I suppose time will tell, but that's the choice that we made. Okay. Look, there's obviously information on margins and so on here, which is easy to read. But look, we've got about 10 minutes left, and Peter, happy to take questions.

All right. Thanks, Simon. We've got some good ones coming through. One of the best ones I had so far was will we do the next quarterly webinar from the desk of the Ikamba?

Okay. That's a deal. Assuming we can get our Starlink and Mr. Musk -- all with us on getting our Starlink uploads up in time, we'll try and do that at the end of April.

Good question here. Assuming all things go to plan, what's the thinking around the debt paydown and shareholder returns going forward with 50% of free cash flow mix of dividends and buybacks seem appropriate for '25?

Yes, that's a great question. And yes, probably now the question sort of now the answer almost, I think, look, so this year, we've got 32 million of the junior debt to pay back. We've just taken on that additional working capital facility. So that will come into play this year as well. That being done, I mean, our projected cash flow does provide for a surplus over that. So our net debt to cash should be in a better position at that point. The Nebari loan it starts to be paid down in 2025. So we've got to make sure that we've got that -- that was a 4-year facility. So we're now in the -- entering the second year of that facility. So we've got a couple of years to pay that down. The -- so that will obviously have to factor into our thinking. And then we've got the royalty, which, of course, -- our firm aim is to buy -- obviously, buy that royalty back. And that -- the structure of that royalty is deliberate to obviously provide a fallback position should we not be able to do it, but our firm obviously out there. We didn't want to have a long-term legacy sort of drain on margin coming from that additional royalty. So it was something we could put in place quickly and something that was structured to give us the flexibility. So look, I think that's the plan. If we can get through to close to that 6 million to 7 million tonne range, that does deliver and we can get close to that target of $15 a tonne average margin for the year. That will be the firm target. Once we get into '25, then certainly a buyback would certainly help our share -- the number of shares on offer. So that's certainly something we're thinking we would be thinking about. And if we have surplus cash, I'm certainly not going to sort of create this war chest and start making silly acquisitions. And we do want to grow the business. But if we do have spare cash, we will be trying to return that to shareholders who've been with us through the year. So look, I think, look, it all -- it's all there. It's -- everything is up for grabs. I think once we sort of start to pay that debt down to another level -- to a level that we're much more comfortable relative to the market cap. So I'm hoping what we see is debt coming down, market cap going up, and we're then in a much better, I guess, sort of a sustainable position from that point of view.

Thanks, Simon. This is one for Nathan. Can you confirm that something as of over $200 million in tax assets? I assume that means credits. So no tax expenses for a few years, and -- the capital allocation framework once debt is paid down?

Yes, that's right. I mean, I think in terms of capital allocation framework, I think Simon just addressed that quite well. In terms of tax credits, $200 million is probably about the right number. We'll firm that up for the year-end accounts. But yes, I can confirm carry forward tax losses of around $200 million. Last time sort of I checked, and what that equates to for us is -- I expect we won't be a taxpayer for at least the next 3 to 4 years.

Nice to know for shareholders with the opportunity to perhaps some dividends along the way as well. And following on from one of those -- that question earlier, someone has asked, would you consider a share consolidation to avoid 5% bid-ask experience, I don't know about that, but the optics of billions of shares on issue, I mean market capitalization is as it is, but I know offshore investment companies do sometimes do a bit shares with $0.01 or $0.02, and they don't pass their mandate.

Yes. Look, it's a good question. I think the jury is out on the value of those for shareholders. I mean I think everyone you ask sort of different position on that and have seen either ones go well or ones go badly. And I think that -- it's not top of my list. It's not something that I'm pursuing urgently. I mean, I think we're focused on the business. As I said earlier, there are other levers to try and reduce the number of shares, and we'll obviously look at that as well. But look, it's something that's on the radar, but it's not one that I'm sort of pursuing in an urgent way.

And double the market cap, Simon, then quickly the share price obviously changes as well. So that would be the preferred pathway. You're discussing the market in bauxite just a minute ago, and which was reflected in the charts you have shown. What's your feeling and your sort of aspirations for the bauxite prices globally and what sort of global impacts to the landscape do you see?