Metro Mining Limited (MMI) Earnings Call Transcript & Summary

Over to you, Simon.

Thanks, Peter. Hello, everybody. Welcome to another edition of the webinars for Metro Mining. I thought it was a good idea to put one of these in place. I think there's been quite a lot of activity in the last month or so with fair few announcements coming out. And in the last 2 days, even a bit of a flurry around the shareholder base and so on. And so we can touch on that as well. And also importantly, I think update the market as we've been doing on the ramp up for this year in terms of our -- this being our commissioning and ramp-up year for the 7 million tonne expansion to give everybody a bit of an update. So look, I've got a pack, which I can share. So let me just try and share that now. So this pack went up onto the ASX this morning, and it's largely containing -- almost all containing information that's out there already. So there's nothing market sensitive or new here that hasn't been put out before. Can everybody see that?

Yes, it's all -- quite pleased, Simon.

All good. Okay. Look, a bit of a summary. So you can see there. Look, it's been a great year for those of you who have been with us for a while and [ we're ] certainly at the end of 2024 -- '23 as we went through to '24, we were trading in that sort of $0.015 to $0.02 range and now through the rest of the year up to that $0.06 level. So look, you've been at tremendous support, and I want to thank everybody out there. Those who have been with us for a while and those who are fairly new on the register as well. Look, it's been a very, very solid run this year. And look, I think we really are on the precipice of what will be really a truly superb year next year. So I think, really, this is still just the entree, and we haven't yet got to the main course. So I think that really is still to come in 2025, both from an operations perspective, from a market perspective, and therefore, from a margin generation perspective. I did want to just touch on the sort of recent changes in the shareholder base. So last week, one of our longest -- our largest shareholders, Greenstone Resources Private Equity Group out of the U.K. They've been with Metro as a cornerstone investor since the development of the company back in 2018 and been around that long. So they've -- they were coming towards the end of their fund life and took the opportunity to exit. The -- that's given an opportunity to another strategic investor. So this morning, we announced that, that Virtue Investments Corporation has taken a 9.9% stake in Metro. So Virtue Investments Corporation is a fund out of Singapore. They are -- they're also already involved in a number of mining projects and indeed, Australian mining projects. They are both the debt provider and led their significant equity holder in Stanmore Coal alongside some other Indonesian -- and other Indonesian entities there. And so look, they've got a strong experience in the mining sector and indeed, we believe will be a very positive long-term holder within Metro. Also, this morning, Nebari, also -- so yesterday morning sort of sold down another tranche of their equity. As we've said before, these -- the equity that Nebari hold is as a virtue of their warrants that they had picked up as part of the deal that we did on the long-term debt. And Nebari are not long-term holders of equity. That's not their raison d'être, that's not their business model. So they have exercised those warrants over a period of time, and taken an equity position, but their mode is to not hold that for the long term. So Nebari are still extremely strong supporters of the company. We announced, last week, a restructure of our debt, and we've been running a competitive process to look at refinancing the debt that we put in place at the beginning of 2023 to underpin our expansion, and that happened. And Nebari ended up restructuring all of the debt that was in there for lower -- at a lower coupon rate and adding another tranche and some flexibility into our debt package. So very, very strong supporters of the company, indeed, and I might ask Nathan to touch on that towards the end of the session. Okay. So look, this is just our standard sort of summary for those people who are a little bit new to the company. So we run this very simple mining operation up in the northern part of Cape York Peninsula on the West Coast there, about 100 kilometers north of Weipa. We have a very good quality Weipa-style bauxite deposit, very low overburden strip ratio and very close to the coast. We've got long life 12 years of reserves plus an additional roughly sort of 30 million tonnes of resources there and a very simple flow sheet. So we mine using fairly standard equipment. We've got a new -- we're very resilient screening circuit, which takes out the oversight, which we then crush back into the system and a low cost and scalable transshipping model. So all of that means that we have all of the prerequisites of a very competitive and low-cost bulk commodity operation. That's exactly where you want to, be low cost. We are heading right down to the bottom of the cost curve, the economies of scale as we lock in this 7 million tonne capacity will take us to probably one of the lowest cost producers in this market. So look, just a quick review there. How we've been -- we're traveling to -- this chart appeared in the operational update earlier in the week. And you can see that we've had another very, very solid month up in the zone that we've been targeting the 7 million tonne zone. We've had a bit more variability in the last month due to a couple of operational issues and also some planned maintenance there. But you can also see that we've sort of hit -- we've also hit higher rates than we've had in any of the previous months. Indeed, we sort of hit a daily record there from a barge loading and transshipping point of view of almost 36,000 tonnes per day. So that gives you a sense of what the capability of the system is. We've maintained rates between 20,000, 28,000 and that number for quite long periods during the month. So again, that gives me a good sense that the expansion is pretty much locked in now. So it's all about optimization from here. I just listed a couple of items there in terms of what we've been doing. And certain -- mining was certainly stand out from for November. We saw the benefit of the -- of all of our quad trailer [ consists ], all operating on the site there and we're able to build up. We always like to have a bit of stock on the ground going into December. So there's a fair bit of work now going on around optimization, looking at how we -- as we hit these very high rates, and when you're doing 35,000 tonnes in a day and only sort of 12 months ago, we were probably doing half that. It does challenge some of those interfaces between the equipment that's been there for a while and the new pieces of equipment, so we're really looking at those interfaces and also in terms of how we plan around some of the more unpredictable things like tides and weather, et cetera. So these are all still factors that we're facing. But as we head now towards January and February, we're going to go into a strong maintenance program in January and February, and that's already underway in terms of planning, it's quotation, procurement. That's all very much a long way down the track there, and we're certainly planning on some significant maintenance over this period. And that restructuring of the debt has really given us a very strong underpinning for that maintenance program. We now feel very comfortable going into that period with all the cash that we need to do -- to be able to do that. And indeed, Ikamba, whilst it's performed well in its first year, there are some things that we have to modify as we go into next year. So we're looking at chutes, the transfer chutes between the conveyors and the boom loader. The boom loader, we want to upgrade that to a further state of productivity for next year. We still got a lot of bottlenecking -- sorry, debottlenecking activities underway to try to increase our capacity further from this 7 million tonnes, and we'll keep the market updated as to how those are progressing in the future. Look, I did want to touch a bit on the market. I put together our usual slide there, which sort of shows the Guinea price and the Australian price on the same chart. Look, I think it's fair to say that we've seen some quite -- the intersection of a number of factors here that have set this price through the roof. I mean, there's no other way of -- I was saying this in the last -- I think, our consultant has sort of reached escape velocity. I think that's sort of more of a planetary simile. But it is -- the prices here are now at record levels. And indeed, I think seeing the Guinea price at over 105. We are -- I think we are now more expensive or that's more expensive than I know. Well, look, I don't -- I think I've been flagging this for a while now, and I was involved in the iron ore industry back in the early 2000s. And this is exactly what happened. I mean, we saw demand grow. We saw supply constraints occurring in China. And we -- people found it difficult to bring on larger, higher-grade mines sufficient to meet demand. And I know the scale here in aluminum is not quite to the same scale as the iron ore market, but we're talking about exactly the same dynamics here. So structural change is occurring in the industry structure here. And quite often, as we see in this -- in our industry, that rents tend to migrate towards the upstream into the raw materials. And so that is exactly what you're seeing here in this bauxite market. And I don't quite know where this is going. I did sort of -- I think, last webinar, I sort of talked about $100 bauxite. And look, we're now there. But obviously, this is a very strong market. There will be a supply response, I'm sure, but demand is still growing. So it's -- I don't see a rapid reduction. I think we are seeing some structural change in this market. The alumina price, you can see on the right-hand side chart there, the Chinese market is obviously the clearing market for alumina, and you can see local and imported prices also massively high. We're over $750 a ton there in local currency terms. And I think the -- this is obviously -- [ China ] is trying to have that last tonne of bauxite to make that additional tonne of alumina, which is what's driving these prices much higher. So look, the Australian price is at $88. This quarter, we'll obviously see contract prices that are much more reflective of the market as it was back in the third quarter of this year. That's what affected the contract pricing. We will see -- the impact of these higher prices will flow through for us in the second quarter of next year. So that is where we'll start to see the impact of that. Look, just a couple of pictures to give you a sense how things are going on-site here. The 992 loaders there are now fully operational. They're choke feeding the wobbler circuit. We're seeing planned rates now from that at over 1,600 tonnes per hour. And you can see that in the plan of the whole site, so you can see the wobbler sitting up on the middle of the circuit there. The middle of the circuit and the former screen, as we're calling it, Screen1 is still able to feed into the overland conveyor. So that's now the circuit that we'll operate from here on. And we're getting most of the bulk of our product. In the middle here, you can see our new control center. So we can now operate all of the all of the equipment from a central control point and that control point sort of goes -- can see and operate all the way down to the barge loader. Yes. Look, and just -- it's probably one of my favorite pictures here on the left, the Capesize being loaded by the 2 transhippers. We stabilized now operating practice and crew on the Ikamba. And so that's coming through in a more stable operations. We did have a few issues with the belt, which we're -- which we have dealt with and are dealing with in an ongoing way until the wet season. But we're still hitting record tonnes. So the whole system is delivering the potential to deliver over 35,000 tonnes per day, which is great to see. We just need to make it more consistent. So consistency is the key going forward. And look, pleasingly, we've also loaded a number now of the Newcastle variant of the Capesize vessel. So we're expecting that we'll see probably about half of our vessels next year or over half will be in the Newcastle size. And that lowers cost for us. It increases productivity because we don't have to move the vessel so often, and we can sort of get more out of each cycle of each GB. Okay. Well, that was a brief summary. I know there are always a lot of questions out here. But I might just ask Nathan to give us a couple of minutes just on the finance, on the restructuring of the debt.

Yes. Thanks. Like Simon mentioned, I think it was just last week, we released to the market, the updated terms of what was ultimately a very competitive and productive refinancing process. So it was a refinancing process that took place over, really, a period of sort of 6 to 9 months. Really, the key for us in this process was to make sure that we had timed it well to be able to ultimately go to the market and get the repricing that we thought was appropriate for the business. And so with the expansion now bedded in, we were able to demonstrate, essentially, the runs on the board and that what we have here is a significantly derisked operation. And we got, essentially, the repriced debt that is commensurate with that risk. So it was really pleasing to be able to get that done, and it was really pleasing in terms of the interest and engagement that we got from the market on that as well. So like I said, it was a very competitive process and to Nebari's. They put forward a very compelling term sheet, a very compelling restructure that, not only delivered, essentially, a better coupon rate, which was obviously one of the impetuses for going out for this restructure, but also provided us with increased flexibility, which was something else that we were looking for. So very pleasing to get that done, continues to be a very productive relationship. And also pleasing to get it done before the end of the year as well as we start to move into what's going to be a very, very busy wet season as happening as tempting as to get to the end of what has been a very big year and have a breather. But on the contrary, it's going to be a very, very busy wet season and an exciting wet season as we start to look forward to making all the improvements and all the debugging that we've seen in the new gear and get ready for a very big year in 2025.

Yes, that's right. I think '25 bodes well. We're still bedding down the budgeting process for next year, but it all looks really, really, really excellent from both a volume and a margin point of view. We'll be trying to make the most out of this. Obviously, the market is strong. We'll be basing it around everything that we've got there already, but we're already working on ways that we might sort of try and stretch that over the year. So we haven't quite got that locked in yet, but we're very close to being able to do that. But look, the Q4 -- the quarterly we'll show, I think, increased -- we showed about a $14 a tonne margin for last month -- for last quarter, sorry. We'll be increasing that with increased prices and the economies of scale coming through our costs a little bit more as well. So -- and we're looking to try, and even though we're still pushing for as high a volume as we can for next year, we'll still be looking to try and take our cost down in real terms for next year. So that's still going to be on the cards as we try to optimize everything. Okay. Peter, we normally have a few questions. So is any out there?

We do, Simon. It's -- obviously in this pricing environment, there's a lot of interest in the pricing both that you have today and what's coming up. So one of the questions is when do your fixed contracts finish and when will you be exposed to the current spot price or what we see in the spot price environment?

Yes. So I guess we purposely have not run a spot-based business over the last 3 years. I mean, that's been required, really, for us to get the lending -- the support from lenders and so on. And I suppose that kind of risk mitigation has been absolutely necessary in our business to take some of the volatility out of our results. Look, that means, obviously, that we don't have exposure to the spot price. I mean this year, we had probably 3 or 4 cargoes that were sold under sort of more like spot conditions. Next year, we've got about just over 1 million tonnes that are still on a legacy, what we're calling the expansion contracts, so the contracts we signed in the middle of 2022. So there are about 1 million tonnes of that next year still on those that legacy pricing from 2022. I mean the rest of it will be on quarterly reset. So up to -- we've announced 6.9 million tonnes of locked-in sales for next year. The bulk of that will now be on quarterly repricing. And the quarterly repricing does bear a strong resemblance to, I guess, the spot market. The spot market is one of the factors we use in a negotiation with our customers. But there are other factors as well. Obviously, a contract customer who's taking -- might be taking 10 cargoes a year. They don't expect to sort of be exposed to a price -- single cargo price. So we're trying to factor in as much as we can. There were there are also other factors, the freight market and so on. What's happening with the caustic soda price because that affects the value and use of our products. So all of these things sort of go into every negotiation. We will be -- I'll be getting out there in February to try and negotiate prices for the Q2. If the prices stay as they are at the moment, I'd be expecting that we could get a fairly substantial portion of that -- of those prices into contracts for next year. I mean that has to be the way that it happens. But it won't be everything and it might take maybe a few more months to a few more quarters to get everything in. It has been an enormous increase this last quarter. So it may take a few more to get -- to bed them in. But it will certainly be an increasing price environment through next year. And we're looking to try -- if we can get more volume out over and above the contracts, next year, we'll be looking to try and take advantage of that spot price. So there's very strong incentive for us to try and get more -- a bit more volume out.

Given the spike in the bauxite price, does the discount that Metro receives versus Amrun benchmark price change? Or does the discount remain consistent on a per tonne basis?

It's -- it remains relatively consistent on a contract by contract -- sort of on a contract-to-contract basis. So if Amrun is contracting at a certain level, then our value and use is based around the cost of treating of the silica and alumina. So that stays broadly the same in U.S. dollar terms. So it's not a percentage per se. So that discount based on quality is usually based around the cost of caustic soda or the sort of the bauxite to alumina ratio in the refinery. So look, I think it broadly stays the same in -- from a value in use perspective.

Thanks, Simon. And taking advantage of these high prices with a little bit of extra production would be nice. What's the opportunity there and perhaps a plan to expand the resource and perhaps other commodities within that mineralization as well, perhaps the kaolin, if that's available.

Okay. Well, a lot of questions there. Okay. So look, expansion, the biggest -- the 2 biggest parts of our expansion are really making the most of our barge loading. So being able to load barges quickly and then getting them out to the transhippers. The transhipper, Ikamba, has already demonstrated the ability. We knew it had it. It's already demonstrated significant upside to what it's already being required to do. So really, the key is around the barge loading and the ability to get material out to feed the transshipping. So look, I think where we're looking at the moment is increased capacity through the barge loader. So the barge loader this wet season is going to go off-site. It's going to get completely stripped down. We're going to replace the extendable part of the conveyor, which -- with a completely new boom on the end. And all of the other parts are going to get sandblasted, recoated, repainted. All the motors are going to get changed out. All the belts obviously are going to get changed. So we're going to see some upside from the barge loader next year. But further down the track, it's around how can we further increase the size of that. So we're going through study work there. Also the number of tugs and barges, the size of those barges. That's also part of our study. The study that we're going through as well. So we've already done a bit of simulation work, some design work on what that might look like. And so getting, for example, more tonnes on barges, that's exactly part of how we would get more tonnes per day. So look, all of those things are part of that equation. The mining side is relatively easily scalable with more loaders and more trucks and trailers. Look, I think -- in terms of other products, there is obviously a kaolin resource on the site. We've done some feasibility work on that this year. That's continuing. We visited markets and customers. I mean with the bauxite price where it is at the moment, it probably still makes sense for us to be selling bauxite over anything else and rather than create risk in the -- in our production chain, but we're certainly preparing ourselves for when there might be a time when the kaolin resource is capable of being extracted and being sold. So that work is on a slow burn there. We've developed that opportunity. We've got -- we've done some test work on it. It's gone to customers to be tested. So look, it's there. But look, right now, the focus is really on bauxite and making the most out of that. I mean, at these prices, with our margin that we can generate from the bauxite, that really is the prime focus for 2025. Exploration, did you talk about exploration? Yes. So sorry, that's how I jumped over that. So look, we have done some exploration this quarter for the first time. They've mainly been on EPM and MDL leases that are surrounding our current pits. So -- but we have stepped outside our current reserve areas to explore sort of a stint what you might call additional sort of step out or bolt-on opportunities outside of our current reserve base. So that's been in the Southern Skardon River area. Next year, we will continue to do that, but we're also going to step across the river. We do have a large EPM on the northern side of the river, which does contain bauxite. So we're going to start as building up there to understand what that -- what might be there as well. And we're also looking -- we've got a couple of other EPMs further south, and we're also reviewing plans to get into maybe one or both of those next year as well, but that'll depend on, I guess, time and resources.

And just a question on Nebari, how many shares do they continue to own? And is there an exit strategy for that?

So as of today, they don't own any actual shares. So they still hold 116 million -- sorry, there are still 116 million warrants outstanding, of which Nebari's portion, Nathan, is...

About 102 million is Nebari.

So the 102 million of those are with Nebari and the remainder is -- are with the junior lenders, so no share -- all of their current equity has been sold down, but the warrants which would convert into equity are still there.

And on that particular topic, can you discuss the company's strategy or plans to have remaining junior debt?

Yes. So all the junior debt will be repaid this month. So we will end the year with all of that -- all of those liabilities repaid.

And the last couple of questions are around the weather, Simon. Given the weather patterns in your guidance, how do you see the time that you've allocated for the weather to impact positively or negatively on your guidance?

Look, it's a really hard one. If you go back even in the short history of Metro, we've had Decembers with 0 lost days to weather in December, and we've had days where we've lost probably 11 or 12 days, if you add it all up. So there's a strong extreme to those weather outcomes. The expansion, we could have gone for a cheaper expansion here, but we've spent a fair bit of time and money looking at our flow sheet and saying, "Well, how can we make it more resilient to weather." So that is going to be tested a little bit. Obviously, as we get towards the end of this year, I'm not going to make a prediction. I mean, we plan for a number of days. I think it's sort of 5 or 6 days of lost days. We've already seen, this week, a few what, we call tops. They're basically -- we shut the site down for lightning and when we get very, very heavy rain because it just becomes unsafe to operate. So those hours that we lose all get added up. So look, we've already lost in this sort of last 4 or 5 days, roughly, I don't know, 3 or 4 hours per day on -- from storm -- rainstorms and lightning. But that doesn't -- we've built a lot of mining. That tends to affect our mining and our screening process and barge loading. I mean, it doesn't affect the transshipping as much until we start to get significant swell, and that hasn't shown itself yet. So look, we're ready. It happens every year. We know it's coming. We're prepared for it. We're better prepared for it this year than we have ever been. So it's actually going to be a nice trial for us to see how well our new equipment behaves versus the equipment that we've had in the past. So look, it's a bit difficult to say. I think -- look, we're certainly -- we have a shipping schedule that was going to deliver the 6 million tonnes. We obviously try and flex that as we sort of get through the month. We may sort of run over the end of the month a little bit to try and deliver, but we're certainly -- and we're certainly going all out to try and hit that 6 million tonnes.

Thank you, Simon and Nathan. That brings to the end our questions if there are a few that -- or anybody else has more questions they want to send through, please make sure you get them and I'll send through to Simon for him to answer you individually. Otherwise, thank you, everybody, for joining us, and thank you, Simon and Nathan, for giving us, I think, a pretty successful update for the period.

Great. Thank you.

Thanks, everyone.