Metro Mining Limited (MMI) Earnings Call Transcript & Summary

Good morning, everybody. This is Simon Wensley from Metro Mining, and I've got Nathan Quinlin, CFO, standing by here. We thought we would put a webinar invitation out for today. We didn't do one after the results, and we just provided a bit of an update yesterday for the start of the season and some pricing outcomes. So I'll try and cover most of those items today. Briefly, to start with, obviously, with the annual results from 2024. We're very, very pleased to have managed to commission and then ramp up the operations through last year and that resulted in 5.7 million wet metric tonnes of shipments for last year. Q2 was effectively the commissioning period and then we really saw the operations start to ramp up and hit its straps. We saw a demonstration, for sure, of the 7 million tonne per annum capacity. We didn't sustain it for the whole of that period. We were experiencing some, I guess, interface issues with some of the older and newer equipment. And I guess that's been the focus of our maintenance program over the last couple of months, which I'll go into a bit more detail. Revenue was up through the year by 30% to over $300 million, and that resulted in a 100% increase in our underlying EBITDA numbers to $37 million. So I think that's really my core indicator of the health of the business. Of course, financing and other costs were a bit higher last year. But from an operational perspective, that shows the direction in which we've been trying to take the company. And we were able to generate almost $14 a tonne in margin in Q3 and then over $17 per tonne in margin in Q4. So that, again, is the direction that we're trying to take this. As a bulk commodity business, it's all about trying to generate margins and economies of scale through that. So again, I'll touch on that again in a minute. But the other important part was the focus on balance sheet in 2024. All of the junior debt and the short-term working capital facility were paid down. So that's accounted to $39 million and that resulted in a 35% reduction in the net debt figure by the end of the year, which included $31 million in cash on the books. And I think, as I've mentioned in a couple of the releases, that strong cash balance at the end of the year allowed us to probably go a bit larger on our maintenance program for January, February, and early March. So we've been able to trigger a couple more of those maintenance programs that we had sitting in the wings with a potential to either kind of do or defer. Yes, so reflecting on 2025, very, very happy and a lot of hard work from everybody involved, including our contractors, and in particular, the Metro workforce to be able to integrate that and then ramp up the operations. You never quite know how ramp-ups are going to go. In my career, there are always a few things that come in from left field, but I think I was very happy that we had planned. Most of them are those that we hadn't planned we were able to problem-solve on the run. So I think that's a real tribute and a hallmark of the culture that we're building in Metro. I think I'll jump to some slides here just to maybe illustrate, I think, some of the things that we've been doing over the wet season. So just give me a second to share the screen. How's that looking, Nathan? Is that good?

Yes, we've got it.

Great, okay. In my note of yesterday, I did highlight a couple of things that we're doing. So let's just start with the mine site. I guess the major program that we've been progressing with is a large maintenance program and refurbishment of the barge loading facility and the pontoon. So we've completely demobilized that unit down to Weipa and you can see there on the left-hand side there, the stacker arriving at Weipa. It sat in maintenance shed there with good line engineers for a couple of months, and we've stripped it right the way back. We've replaced a couple of the sections. All of the rollers and the pulleys have been replaced and the belts, et cetera. We've then obviously brought it back to operational status. So last week you can see it being remobilized, and that's it landing back on the pontoon there. And we are commissioning it yesterday and today in preparation for our restart. So that's been an important part. That wasn't part of our expansion program. We did some work to it in 2023 just to increase some of the speeds on the motors, but we didn't do much else. We've also stripped back the pontoon. It sits on a pontoon, and you can see there it swings from a base. So it swings up across left and right, up and down. And with the stingers, as we call it, it's the extendable conveyor that moves out over the barges. So the pontoon takes a lot of the weight and the stress of the equipment and the material. So we stripped that back, had a look inside all of the sections and recoated a lot of that, replaced anodes and cathodes, et cetera, all that and then put that back on. So that's -- we've had a good look at that and that looks to be in good shape. We've also been looking at screen plant #1. There's no picture of that here, but that was one of the old vibrating screens. So that's been acting as a sprint capacity over and above the wobbler screening circuit that provides us with that additional ability to hit throughput tonnes there of the screen over 2,000 tonnes per hour at times. So that's been useful for us, and it's also obviously a backup for when we're doing maintenance on the wobbler. So that's had a fairly significant piece of maintenance work on it. And then just on the top right there is our -- one of the kind of, I guess, optional things that we were waiting on to do with basically we're upgrading the sample station. You can see there that had been -- honestly, the design of that had not been ideal and I think we're having issues with ore sticking through it and so on. So it's been a bit of a pain for the technical services team. So we've upgraded that as well over this wet season. So that's going to make that a lot easier. It's now much more automatic in terms of the sampling and in terms of the -- we changed the way in which the ore gets cut out of the stream and then we crush that down into sample sizes. So we take physical samples roughly every 10 to 20 minutes. We have an on-belt analyzer that takes an XRF sort of picture essentially of the ore stream every two minutes and then we have physical samples taken every 10 to 20 minutes. So we're really trying to focus in on delivering on spec and on quality for the customers. In the Marine side, we've been doing some work on Ikamba, particularly. The cranes on Ikamba are electric cranes. They operate a bit more like an excavator rather than a wired crane. So you can see there, there's a luffing cylinder being replaced. So that was due for replacement based on the hours that it had been used. So it's a very big piston style piece of kit there. We've also been working a lot -- very hard on what I might call ore flow through the system and so we've replaced all of the shoots with stainless steel shoots. So we were having some issues. So between the hopper, you can see there on the bottom we now have stainless steel plates replacing essentially there are Teflon boards or called Matrox boards sitting there, and they've all been replaced with stainless steel and the shoots between the hopper. And conveyor number 1 and conveyor number 2 and the ship loader have all been replaced with much larger and these are now much smoother, circular, if you like, shoots rather than square or hexagonal shoots where we were getting hangups. So that's been an important part of the maintenance program. I just wanted to highlight also the arrival of two new tugs at the end of last year. So last year, we've been ramping up. As we were ramping up, we were hiring third-party tugs to help push through some of the tug and barge productivity. But now with the arrival of TSA BRIZO, that's a shallow draft tow tug so you can see that in action just there in December last year. So that completes our tow tug fleet. And then Metro's own Mandang, which is a larger, more powerful offshore assist tug. So that is designed to be able to pull-push-pull the transshippers by itself with only one assist rather than having two or three tugs having to deal with that. So that also arrived at the end of last year. So that completes our fleet now of effectively 7 tugs to be able to -- and they're all in-house and crewed. I wanted to take you through then what's going on this year. And I think there's been a lot of focus, obviously, on the bauxite price and pricing. Through 2023 and 2024, we've been regularly updating the market on how pricing is going there. We've seen all the way through that period growth in traded bauxite in the Asia Pacific region. Again, 2024 was another record for demand and trade in this region. Then we saw some particular market circumstances at the end of last year where we saw quite a significant spike in pricing. So the trend was fairly obvious before that up to October and November, and then we saw this spike in the alumina price. So a number of factors in the market saw the alumina price spike up to record levels and then, of course, bauxite, which is the feed to alumina, also followed. So you saw both the Guinea price and the Australian price spike in that November- December period. And there were a specific bunch of reasons for that, including supply restrictions out of Guinea, in particular. And with the alumina price being so high, of course, everybody -- each alumina plant was trying to produce those additional tonnes. So the demand for bauxite also spiked in a very, very short period. We've seen some of those conditions ease in terms of supply out of Guinea. We've also seen the alumina price come down and correct itself quite sharply over the last sort of couple of months. And just to emphasize, this is a spot price. So this is reflecting, I guess, the marginal cargo in the market. So this is not how we would be normally be pricing contracts, but that does reflect, I suppose, the supply-demand balance at any particular time and so the challenge as we've entered into the market in 2025 into the second quarter. Obviously, we weren't present in the market in the first quarter due to our maintenance shutdown for the wet season. So as we've entered into that Q2 position, we've tried to reflect. It's been a difficult negotiating process, frankly, given that volatility and the current state of the market. But as with all longer-term relationships, we have longer-term contracts with all of our suppliers. So all of our volume is pretty much sold under long-term contracts, which have these quarterly pricing resets. We've been able to reflect broadly where, I guess, the trend was going and where the current price, I suppose, is sitting is if you can see the price has settled, it's peaked and then come back down and then settled in that Australian sense between $75 and $80 per dry metric tonne delivered into China. So just coming out of that round, we've now agreed pricing for contracts in Q2, and that's resulted -- because we have a mix of FOB and CIF contracts, I've indicated that we've gotten about a $25 per tonne on an increase -- sorry, 25% increase on where we were in Q4 on a relative basis. But I'd like to also emphasize that it's not just about price. We've also worked very hard with customers to adjust our specifications in that period. And so last year, we were still working under a number of legacy contracts where the specification really wasn't matching our, I guess, reserve position. So we've managed to change all of those contracts to be much more reflective of our position there. So we should also then see much lower penalties, et cetera, for grade in this year. So not only have we seen an increase in the price, but we should also see lower penalties there. So net-net, that should also be another increase in margin based on that. I mean, if you look at that price, the Australian price is the Rio Tinto benchmark Amrun price. And I've indicated that we normally look at about a $7, I guess, discount to that. And so I think the prices are broadly reflective of that plus the freight market adjustment for those FOB contracts. And so we're going to see a very positive impact, I think, on margins coming through for 2025 certainly into this quarter. A little bit hard to predict how things are moving for the rest of the year. I think the bauxite market is still relatively tight. We're certainly seeing increased demand from coastal refinery expansions and new build in China. So that's where our market is basically on the coast of China, and we've already seen a couple of the inland refineries in China react to, I guess, the correction in alumina price and they've been pulling back production there. So there is an elastic response to the alumina price, which should hopefully stabilize prices. I mean, production out of Guinea has been a bit higher in this quarter, but don't forget last year's first quarter in Guinea there was a significant impact due to a fuel and refinery explosion that occurred just prior to that. So year-on-year, their exports are definitely up. But I think we're still seeing restrictions out of Guinea and the government, I guess, getting involved with a number of different companies to use their exports to try and get the commitments they've made in their mining licenses sort of actually coming to fruition. So that's still occurring. And we're about to get into Guinea's wet season in a month or 2, which always provides a bit of -- another bit of volatility with that supply. I think a very positive outcome from pricing certainly into this quarter. In the longer term, there's been a bit of noise around Trump's tariffs, et cetera. Look, it's a bit hard to predict, but certainly, Australia has been impacted by that. But in terms of how that affects our market in terms of we're supplying into the Asia Pacific, into China, into the Middle East, I think that really doesn't -- there is not a lot of impact I can foresee there in the trade flows. China had already pulled back a lot in terms of supplying the U.S. with aluminum after the last Trump term. And so their exposure there directly is very low. We may see second or third order effects. I think potentially in the longer term, there will be effects, I guess, on trade flows to do with things like building products and maybe electric vehicles, et cetera. But when I look at electric vehicles, I was in China a couple of weeks ago, China has now reached that economy of scale in electric vehicle production. They can produce an electric vehicle cheaper than a petrol engine vehicle. They don't need help with subsidies, et cetera, to be able to do that. Whilst the U.S., there may be some issues there, the market is definitely growing globally for electric vehicles, and as I said, China has reached that point where their products are competitive with electric vehicles in any market anyway. So I don't really see any near-term issues. And in the longer term, we're just going to have to watch some of those second and third order effects. But look, the bauxite market is still certainly growing strongly and the supply side, particularly, is still going to have a similar sort of impact, the similar sort of issues that we've seen in the last couple of years that have allowed these prices to grow. This year, we're going to -- here's our plan for the ramp-up. We're looking at probably between 1.8 million and 2 million tonnes of production in the second quarter of this year. And then as we get towards the back half of the year, this is where the ore is a bit dryer, we get better [ tides ], et cetera. That's where we're really going to sort of hit our straps to try and hit that 7 million tonnes. For the first time, the expansion elements are all in place right the way from loading at the mine site, dozers to clear. Hauling trucks and trailers, we've now got nine consists of our new Scania port trailers et cetera. So that's all in place. And I think that what we were able to do is really empirically go back and look at the second half of last year and say, right, okay, what do we think the capability is? Can we run probabilities around that? So this year's production forecast, more than ever before, has been driven off an analysis of that, of how we performed last year and then taking into account some of the maintenance and issues that we're doing. But effectively, we can see right the way through our flow sheet to screening, to barge loading, to tug and barge, to transshipping and we can effectively be a lot more empirically predictive about what we're doing. So I'm quite confident with these numbers this year. There are a couple of slides from the investor pack, which went out a couple of months ago. This is the most important slide that I'll keep talking to you and to investors about. I mean, as we are on track as we get our economies of scale, pushing down towards that sub-USD 30 per dry tonne. That will take us to the bottom of this cost curve. So we will be firmly in the first quartile. We're on track for that 2026 outcome. And that was outlined in our definitive feasibility study, and that's been something that I've been very firm with my team on trying to ensure that we continue on that track. At the same time, on the right-hand side, you can see, obviously, demand pushing outwards towards that 200 million tonnes. You've got a tail there of Atlantic producers, say, from Brazil and Jamaica. But then the large part of that second half of the curve is Guinea or West African bauxite and their breakeven is sitting around that $60 to $70. So as the price comes down, sometimes in the future, we know the price will be cyclical as in any bauxite, as in any commodity market. That protects Metro. A lot of those producers will start losing money below $60 a tonne. And even with the quality adjustment, we're still going to make significant margins as we get into that run rate of around 7 million tonnes-plus. So that's a very important slide. That's about the medium term and how Metro sustains its margins going forward. Yes. So in terms of -- again, the slide was in the investor pack, we were able to execute now our maintenance program. We increased that spend to over $7 million. The production forecast is there. So as I said, we're commencing production this weekend and our first ship is arriving, we hope, on Sunday. Good weather -- with all good weather, et cetera, and we are going to be targeting by the latest -- we could get going on the 16th, but targeting at the latest 17th start. That's a smaller vessel as we wanted to make sure that we could take advantage of the production availability, but some of those projects on Ikamba may be taking a couple of extra days. But she should be back on station certainly by the 18th or 19th of March. We're going to be obviously focusing on improved productivity and cost. That's that pathway to the 2026 cost. So economies of scale and having a fully integrated fleet, a fully commissioned and ramped-up flow sheet this year. Further debt amortization this year of at least $26 million. That's part of our schedule with the renegotiated Nebari agreement, where we were able to get our coupon -- our interest rates down. So that will flow through as well this year. Debottlenecking activities we're looking at as well for this year. In terms of tug and barge optimization, for sure, is one of the things that we're looking at. And we're also going to progress studies on perhaps a new barge loading facility design. So that's something that we're in feasibility on at the moment. We're going to do more exploration activities. We did do some last year, quite close to our existing pits, if you like, sort of stepping out or extension of those existing pits, but we will be looking on the north side of Skardon River at the potential bauxite opportunities there. So we do have 30-odd million tonnes of resource that we need to do more work on, and we'll be looking to add more to those resources through that exploration program. We've also been working in the background on our Kaolin exploitation opportunity. So that feasibility study has been progressing, including market testing, product testing in the market. We've done some mine planning. There'll be a resource update also coming out, which takes the previous reserves and updates them to the latest JORC standard. And then we're going to be looking at -- starting to look at our business development activity against the strategy of core competencies, against which we might be able to look at growth and the other parts of our business and try to grow our business maybe in an inorganic way. So that will come -- that will take more shape as we go through 2025. Okay. So that's the end of the slides. Nathan, have there been any questions coming through at all for us?

Yes. Thanks, Simon. Just looking at some of the questions now. There's obviously quite a few questions and so NWR will help us with this process and give us a list after this, and we'll aim to get back to everyone over the course of the next week or so. But there are some questions here, Simon. If you just wanted to touch on particularly the legacy contracts, the contracts that we have mentioned before that underpin the initial FID discussion and the impact of those and ultimately when we expect to deliver those.

Yes, that's right. So this year -- so when we did our definitive feasibility study back in 2022 as we sought to go out to get lending for that, we underpinned the first 3 million tonnes of our expanded operation with some fixed-price contracts. That's a decision that we take at the time based upon what lenders like to see in terms of being able to really lock in and understand what volumes and offtakes and margins might be available in the first couple of years of an expanded operation. So that was the rationale for that. They did their job. We were then able to underpin the expansion with the lending from Nebari. But we then now have to deliver on those. They are fixed price, so about 3 million tonnes. We've delivered on those through last year, but there remains about, I think, 1.7 million tonnes, I think, Nathan, to deliver this year.

Yes. That's right.

So we will deliver on those. That works out to be between 75% and 80% depending on what our total production looks like. So we'll be looking to deliver those through this year. They'll be relatively evenly spaced. Obviously, we want to try and take advantage of the higher price environment in this Q2. But we also, by the same token, have a duty to the customer to deliver on those contracts. They are fixed price and they're priced at sort of what would have been the market in 2022, so I can't reveal precisely what that price is. But if you go back and look at the pricing in the second half of 2022, you'll see roughly what that might have looked like. So they obviously priced a lot lower than where the market is today, but they were there to do a job. And so they'll be roughly evenly spread and we'll be trying to give guide then. And that's why we've said, look, I think roughly 75% of our volume in Q2 will be exposed to the new price and about 25% will be exposed to the legacy price.

Yes. Thanks for that, Simon. I do believe we've got a couple of questions there, particularly around the production guidance that we put forward and some of the timing around that. One of the observations noted particularly where in October we do have some derating for average tonnes. So maybe just give a little bit of an explanation into how we've built in some planned maintenance assumptions for the Ikamba over a quarterly perspective and how we might strategize around some other loading methods to make sure we reduce the opportunity cost of those maintenance periods.

Yes, sure. So most of the major maintenance we do is we try to make a virtue out of necessity of this wet season. We're trying to reduce the impact of that wet season. So strategically, part of our expansion -- the expansion strategy was to build in components that are much more able to operate in more difficult, let's say, wetter, windier, wavier conditions. So in terms of the land-based infrastructure, that's the wobbler screening circuit. And in terms of the transshipping, that's Ikamba being a much larger vessel than the existing floating crane. And it has a proven -- one of the benefits of getting an asset that had already demonstrated its production was being able to know that, that has demonstrated its ability to operate in up to 2-, 2.5-meter swells, which is almost double what the floating crane is capable of doing. Of course, the whole supply chain has to work at that. So there's a safety aspect with respect to our tug and barge operation that services that. But certainly, the capability is there. And so I'd like to emphasize that we've been certainly working as a group, as a team to try to safely now eat into that sort of what was in excess of the 3-month shutdown period when I first came on board. So we're looking to now bring that right the way back down to maybe 6 to 8 weeks so that we can get revenue. And this then cash flow issue that we face every year of this Q1 sort of, I guess, reduction in cash flow, we can really offset that in 3 or 4 vessels in that period really does make a big difference. So when we then plan for the rest of the year, what we've been doing is trying to build in, I guess, some sensible periods where we might shut down. We've got several options to be able to do that if we've got the previous floating crane that we could use in that period, subject to agreement with our contractor to be able to do that. But also, as we've done with this first vessel, this year, we can bring in geared vessels, so vessels that have their own cranes. And so we don't intend to stop production, but obviously, the rates will drop as we go into, say, a 3- or 4-day maintenance period with Ikamba. So that's one of the reasons why that rate drops during October and there will also be another one, it's less obvious, but there's also a period in June, July where we will take Ikamba offline and do some maintenance work and use geared vessels to continue to load. And we can then bring our own crews. So the ship loading crew, the crane operators, those operators that operate on Ikamba who are not involved in that maintenance can then switch across to the geared vessel and operate the cranes and the dozers associated with that.

Great. Thanks for that, Simon. We did get a question and I have received a couple of comments on this subsequent to the release of the results, particularly around the noticeably large unrealized foreign exchange loss that we had within -- in our results for 2024. So it's probably just worth touching on that and giving that a little bit of extra explanation.

Nathan, can you do that?

Yes, of course. Of course. So I guess to give a little bit of background, in terms of that unrealized foreign exchange loss, the vast majority of that is essentially market-to-market adjustments on both our foreign exchange hedging book and then also essentially translation adjustments for balance sheet items that are essentially USD denominated. So naturally, as you can expect, as an exporter, for the most part, we receive all of our cash in USD so we will always try to, from a cost perspective and a balance sheet perspective, have as much USD denomination as possible to basically form that natural hedge and then ultimately reduce the amount of hedging activities that we actually need to do. So what that will naturally have is where you do have a bit of variability in the foreign exchange rate, particularly at a balance sheet date, is you will get those translation adjustments for, say, particularly the Nebari debt and our bareboat arrangement on the Ikamba. So that had quite an effect. And then essentially, the remaining difference there is the mark-to-market on the actual derivatives themselves. So they will begin to unwind fairly evenly over the 2025 period. So I think, as we've mentioned before and it might have been in the Q4 update, our hedging position as at balance sheet date was around 1/4 of what our USD exposure is. So that will unwind over the course of the year. As you can expect, and it's a little bit sort of counterintuitive, is that essentially any time our hedge book is out of the money, our sort of terms of trade from a revenue perspective are actually improved. So any time our hedge book is in a loss, we're actually in a better position as an exporter. So from that side of things, I'd much rather see an unrealized loss on our hedge book and ultimately be in a better position on exchange rate for revenue for the rest of the year. I think that's about it for the Q&A. Like I said, NWR will help collate these over the next week, and we'll endeavor to get back to everybody over the course of the week.

Great. Thank you very much, Nathan, for that. And look, thanks to all of you for spending the time this morning and your continued support. I think the key messages are we're on track. Expansion is being delivered. The market is still strong. There's a bit of noise out there with all of this other stuff around tariffs. But really, when you look at what we're trying to, where we serve, who we serve, our contract position, the supply-and-demand position, we're in a very, very good position here. I'm very happy with the quality of the expansion work that's been done and the maintenance work that's been done. So this is the year where all of that comes to fruition. We've seen the trend over the last year or 2 to sort of bring us back to increasing underlying earnings and margins. That's exactly the same track that we're going on through 2025. So really, that is the key message here. I think starting production as early as we've ever have this coming weekend, and we're getting set for an excellent year. So thanks for your support. Stay with us on this ride because I think it's going to be a good one.