Metro Mining Limited (MMI) Earnings Call Transcript & Summary

Good afternoon, everybody. Thank you for joining us. We have here today the CEO of Metro Mining and -- Simon Wensley; and the CFO, Nathan Quinlin, to talk us through the recently published quarterly report. There's some great numbers in it, and I'm going to have to hand it over to Simon to talk us through. We'll have a few questions at the end. Over to you, Simon.

Thanks, Peter. Hello, everybody. Thanks, everybody, for their support and the time that you're taking to join the webinar. The -- look, I think a very pleasing quarterly report this quarter, really starting to deliver on the expansion, the 7 million tonne expansion. The ramp-up profile this quarter has been as we had initially planned, albeit it's taken probably a couple of months extra to get up to those rates. But we really did ramp up strongly during this quarter, and we ended up with a record in September of 780,000 tonnes. And now I'd like to say, and I'll touch on it later, that we've continued that momentum through to October, which is also very pleasing. So 2.13 million tonnes for the month. And I think the -- if I was to pick out one number from this in terms of the outcome, it's the reduction in the site cash costs to a 26% reduction, and that's been driving up the margin this quarter. We've had some price appreciation, but the major driver has come from the cost side. And that's been, I guess, from a long-term perspective, when we look at the strategic positioning of Metro in this industry, that cash cost position is going to be critical. And I think that we're now well on the way to heading towards that. The DFS forecast or the DFS sort of study that said, yes, we were looking at sub AUD 20 costs on to ship. And I think that, that is now well achievable if we start to hit these 7 million tonne rates month after month. So look, we're not quite there in terms of the cost efficiency. There's still, as many of you would know, if you're associated with the mining industry, that takes a bit of time to optimize and get everything all working properly, particularly around the interfaces between the different elements of the flow sheet. But I think that shift this quarter has really demonstrated what we've trying to sail all along that with this relatively high fixed cost business, this scale will deliver a very, very competitive cost position. I'll get Nathan to touch a bit on the corporate finance side a little bit later with respect to the debt paid and also the cash flow and cash in bank, et cetera. So don't worry about that. Look, I might then touch a little bit on the market. And during the third quarter, we saw a continuing tightness in the market. The demand coming from the alumina sector, particularly in China, but also in other parts of the world was quite strong. We're certainly seeing aluminium's position in this energy transition, indeed in transportation and electrical grids, in power generation, et cetera, is really sort of coming through. And that's been despite a lag in sort of construction demand, one of the more traditional sectors for the demand for aluminium. So certainly, that has been moving. I'd encourage anyone, who wants to know a little bit more about the demand for aluminium and how that flows through to bauxite to have a look at the webinar that we did a couple of months ago on that, and that tries to explain a little bit more about how the sector -- the industry structure and how the sector works. So we're still seeing that flow through, new aluminium demand, alumina refining demand is high. In fact, it's -- the alumina price through this quarter and indeed in the last week or 2 has shot up again. So there's a very tight position in the alumina space. The -- the demand from aluminium is strong, but the supply from bauxite is tight. And so, we're seeing that alumina -- that intermediary product of alumina being -- the price is really going through the roof there. So we're almost at record -- almost at record levels at the moment, around about USD 700 per tonne of alumina. So that's a good environment to be in. That will also continue to pull through bauxite prices. We've seen -- we saw a steady rise in Q3. And just before the end of the quarter, we saw a nice big jump of $2 or $3 per tonne, which we've tried to get into the pricing for this coming quarter. So we should see a relatively reasonable amount of that flowing through into our contract pricing. I mean, not all of it will flow through to contract pricing and from the spot market, but we try as hard as we can to negotiate as much of that through as possible. In the last quarter, pricing was up, but it was offset a bit by our contract position in terms of having some legacy contracts that were at lower prices. So we didn't ship any of those cargoes in Q2. So we did ship a number of those cargoes in Q3, and that brought the average price down. And we also saw -- look, it's always a bit difficult to know expansions, in my experience, never happen in a nice sort of smooth, smooth line. They are always a little bit jaggedy and you never quite know when things are going to take off. But we saw -- we've had to try and plot and predict about a month out what shipping rates would be, and that means that there's a bit of an imperfect match between shipping and production. So we've seen a bit of demurrage flow through into those net pricing elements. So -- but look, the market is still very strong, and I'm expecting to see bauxite prices continue to go. In fact, we sort of -- there's a constraint in Guinea at the moment with one of the producers, and that's providing even more tightness in this market. So I expect to see spot prices continue to head up, as we go towards the end of the year and into 2025. I might just sort of share the quarterly report, and I can then get the chart on the screen, the production chart. So there, you can see the alumina price I was just talking about in the last few weeks, indeed, very strong growth again after a relatively stable middle of the year, and that's obviously flowing through into the spot bauxite prices I just mentioned. I'll get Nathan to come back on to the financials in a second. So look, there's the chart we've been showing in various forms through the year. And you can see the black line, the green was our plan, just under 7 million tonnes planned for this year. So the black line represents the ramp-up. And you can see during this quarter, July, August and September, we've seen that step-up in production. And that's very similar to the profile in the green, but it is a couple of months delayed from where we thought it would be starting in April, May, we were hoping that we would still get to those ramp-ups, but it's been a little bit delayed. But you can see also then also in October now that we've been working after a gap. We had a gap in shipping and a day of planned maintenance. So that saw that V-shaped drop there at the beginning of the month. But since that, we've seen production rates and shipping rates sort of above our planned levels. So certainly, in that sort of 28,000 tonnes to 30,000 tonnes per day average. In fact, I had to change the scale on the left-hand side of this graph to be able to get the data in, which is always a nice thing to be able to do. Okay. Well, look, I might pause there. And then, Nathan, maybe do you want to just have a quick chat about the financials.

Yes. Sure. Thanks. Sure. Thanks. Thanks, Simon. So as mentioned from the outset, from our perspective, the really pleasing thing to see here is the 26% reduction in site costs on a unit basis. And so, for us, that's a very important validation of the overall expansion thesis. So that's excellent to see. As you can imagine, the first time you're hitting these expanded production levels, there is the potential for it to be expensive or a little bit value erosive. So -- so to see us do it in -- see us do it well and deliver value at the margin level has been very satisfying. Having said that, we still see lots of opportunity there for further optimization. So this is an area in Q4 that we will continue to sweat, and we'll continue to get into the minutia on the site cost to make sure that we're doing it as efficiently as possible, but very pleasing to see those economies of scale come through and drop down into a much improved margin. So obviously, what that's doing for us is then delivering what's been a pleasing operating cash flow for the quarter, so [ near on ] $30 million for the quarter, which has allowed us to make a sizable repayment of our junior debt of $12 million and put us in very good shape to be able to repay the remainder of that in Q4, which will be about $12 million again. So that leaves us also in a very good position in terms of our cash balance at this point, which I think is just under $17 million, as at the end of September. So overall, a very well-rounded financial result, I think, for us for this quarter, and I'm very pleased. Still a bit of work to do on the site costs, but definitely trending in the right direction.

Great. Thanks, Nathan. Look, I think one thing I want to call out this last quarter is the performance we've seen out of the new transshipping asset that we purchased last year and took it to dry dock and mobilized this year. So Ikamba, the floating terminal you could just see the scale in that picture, it's about 4x bigger than the single floating crane, the TSA Skardon that we've had. That makes it a lot more resilient to weather. We've had one weather event in this quarter in July, and we did see the difference in the operating parameters of the 2 assets. So TSA's Skardon being a smaller asset had to shut down for almost 4 days, but Ikamba was operating for 2 of those 4 days. So look, I think that's, again, some validation of the rationale as to why we got this asset. It's also been ramping up through the quarter. We've been cautious to get used to its operating parameters for the bauxite, obviously hasn't loaded this kind of bauxite prior to this year. So we've been working out modifications of shoots and conveyor belt speeds and working out how to safely unload barges. They're a little bit smaller than what it would have been used to unloading in Africa in previous years. So this is all part of the ramp-up process and part of the experience curve. And pleasingly, we're now -- we're operating at close to the parameters that we've set. So we're seeing 1,800 tonne per hour on a sustained basis across -- and that's an average across the barges, and we're seeing 2,500 tonne per hour in terms of peak digging rates, which is what you get for about 70% of the barge before you start having to sort of clean around the edges of it. So -- and it's been extremely reliable. So we've seen a good reliability out of it. And so, that's really been a good validation for it. The crews, we're getting settled now with the crew. We're getting settled with the operators and they're getting into a rhythm, et cetera. And so, look, we've got -- we've still got a few things to tweak and to manage, and that will happen over the wet season, shutdown. But look, very, very pleased with the performance of Ikamba and the crew. So credit to them and I think credit to the whole marine -- the marine team. Similarly, the wobbler screen, which I know I get a lot of questions about the wobbler, but when you see it in action, you can see why it's called the wobbler. So look, again, we've got a video out there, which if you'd like to have a look, we did a bit of a special on that one, and you can see why the oversized rock sort of wobble off the end of the bars. So that's really exceeding expectations at the moment. So we've actually blown past the nameplate capacity on that, and that's sort of now operating in the sort of 1,600 tonne to 1,700 tonne an hour sort of rates. And so, we've been really happy. And it's taken a few optimization steps, and we've added a couple of teflon-type boards to reduce some of the sticking in the shoot. We've put in some vibrators and et cetera, to manage sort of buildup in some of the areas, had to strengthen the stacker to manage the speeds that we're getting out of that, that goes into our apron feeder to the barge loaders. So look, we've been working, but again, credit to the teams on site to be working through that and getting into a rhythm of really loading these barges, as fast as they can when they come in. So look, I think maybe at that point, we might stop. I know there's always a lot of questions. So why don't we stop there? And Peter, if you want to coordinate some questions, that would be great.

Well, thanks, Simon. We have a good audience here. Probably a few money miners joined us perhaps, given the recent pricing environment. And a question on that, actually. Are you seeing -- what's your visibility on seeing the recent spot prices being reflected into upcoming contract and long-term contract pricing? Can you talk about that?

Yes, sure. It's always a bit of a -- in the bauxite industry, we haven't yet got to a liquidity level, where we can -- there is a liquid index or even an over-the-counter trading platform. I mean, it's a bit like iron ore and coal was back in the '90s and where bilateral negotiations are the order of the day. And it took a while for those Platts index, for example, in iron ore or the Newcastle index in coal to sort of take hold and to become more -- to provide more transparency. So we're not there yet. And so, these spot prices are really indicative. So they are indicative cargoes. There's a bit more liquidity in the West African volume. So we see the Guinea price sort of equivalent go up and down a bit more. But the Australian price has also rallied and strengthened much closer. I would always expect the Guinea Australia benchmark -- spot benchmarks to be within $8 to $10. And they have been closing and then the Guinea price tends to go on a run again after that. So look, we negotiate some of our -- most of our contracts now quarterly. So every quarter, we take into account the spot price. But obviously, Metro has other -- this is an individual negotiation between a buyer and seller. Our product is a bit different to, say, Rio Tinto's products or to products that are coming out of Guinea or Ghana or Jamaica or Brazil. So there are individual elements, where the customer finds more or less value than maybe one of the benchmark. And that may be to do with the chemical properties or the physical properties or indeed, they might get more or less out of our service from larger vessels or if they've got a bigger port and so on. And some of the things that they've got, for example, they might have a particular type of technology that can treat organics better than someone else or they might have their own in-house caustic soda plant, which helps them deal with silica. So these are all factors when we come to negotiate. And so, we obviously try and get as much of that spot price rise in a percentage way into our contract price, but it is in an individual negotiation and each contract, and each customer is different. So -- and as I said earlier, we also still have some legacy contracts, which are running at about roughly about 1 million tonnes per annum for this year and for next year still to work our way through, and that will obviously still have an averaging -- there'll be a contract mix element every quarter, which means you don't quite see all of the price sort of coming through. But I'm confident that we saw that -- we saw probably a 5% to 10% rise in the spot price in the last quarter, and we should be able to get a good proportion of that coming through into our fourth quarter contracts. So to the extent that we are negotiating those quarterly contracts and they're flowing -- we're shipping it into those contracts, then we'll get -- I think we'll get a good proportion of that.

And flowing through some more financial questions here. As mentioned in the research from Shaw & Partners recently, what progress you see with securing Nebari refinancing?

Do you want to take that, Nathan?

Yes, sure. Thanks, Simon. So short answer, I've been very -- we've been very pleased with the response in the refinancing process at this stage. Naturally, the objective there is, from our perspective, we're in a very different pace than where the company was at a couple of years ago when we originally essentially achieved FID on the expansion. And so really, the impetus for us in this refinance is to go out and improve our cost of debt ultimately. So obviously, I won't go into too much detail on the refinancing process itself in terms of specifics. But otherwise, that's a core strategy for us over the next few months, and I've been really pleased with the market's response.

I've got a couple here, more here for you, Nathan, if you'll just hang on. It's great to see the cash flow coming through and the repayment of some of that debt was almost $12 million paid in the quarterly. How much cash do you need on hand to get through the wet part -- the wet part of season or the wet season?

Generally, what we expect to see and a lot of that will just depend on maintenance programs that we set, and that can change a little bit year in, year out. But typically, what we expect to see over a wet season is somewhere around a cash burn of around $15 million to $20 million. So obviously, we manage to have some -- manage it to have some breathing room, obviously, above that. But that is generally what I expect going into the wet season, about $15 million to $20 million.

Thank you. And further with you, Nathan, while you're here, the company's margins are now improving. Could you say what quantum of tax losses the company has on its balance sheet? Are there any off-balance sheet? And when do you see -- expect the company to be paying cash taxes?

Yes, sure. So in terms of carryforward tax losses, we don't recognize any on balance sheet currently. But in terms of off-balance sheet carryforward tax losses, we've got about $250 million. So in terms of the timing around cash tax, I would expect probably in the second half of 2027 to be paying tax. But obviously, having said that, with the rising price environment at the moment, that could be even earlier.