MMG Limited (1208) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MMG Limited 2019 Annual Results Presentation. [Operator Instructions] I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chief Executive Officer of MMG, Geoffrey Gao. Thank you. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining MMG's 2019 Annual Results Briefing. Unfortunately, circumstances mean that we cannot be meeting in person today. I trust you have read through our 2019 full year results, which were released to the Hong Kong Exchange yesterday. I will shortly hand over to Ross Carroll, our Chief Financial Officer, who will discuss the financial results in more detail. But before doing so, I will give a brief overview of 2019. After the presentation, we will welcome your questions. We faced a number of headwinds in 2019, including community disruptions at Las Bambas, flooding at Dugald River and seismic events at Rosebery. Production volumes were also impacted at Kinsevere, which faced some mining challenges as it approaches the end of life for its oxide operation. This was a key trigger in the decision to take a USD 115 million impairment against that asset. These challenges were faced in an environment of lower commodity prices, and resulted in the company delivering a full year loss to shareholders of USD 230 million. Despite these challenges, our world-class asset base and the cost focus has enabled the company to deliver cash flow from operations in excess of USD 1.1 billion and reduced borrowings by $511 million. On a more positive note, 2019 saw MMG celebrated its tenth anniversary. Over that time, the company has transferred from an Australian-focused zinc miner to a significant copper producer with a global footprint. We have demonstrated our ability to successfully execute on greenfield projects and operate the world's top 10 mines in both copper and zinc. We have built a strong platform. And during the year, we embarked on a transformation and reorganization program to ensure we remain well positioned to capitalize on existing and new opportunities into the future. At MMG, safety is our #1 value. As a result of our strong focus on safety, MMG is proud to maintain one of the lowest trade rate of all members of the ICMM. Despite a slight uptick in the company's 2019 trade rate, we remain a leader in the industry when it comes to safety performance. I am committed to ensuring that we continue to improve our safety performance. Ensuring strong partnerships with our communities is fundamental to our success. We maintained our strong focus on environmental commitments, and we are proud of ongoing contribution that we make to the development of our host communities. Over recent years, MMG has placed a high priority on business excellence and improvement. This ensures the company is well placed to withstand low points in the commodity cycle and, importantly, to capitalize on the eventual upturn. In 2019, MMG shifted to a decentralized operating model based around clear accountability for performance, empowering sites to operate differently and drive their own businesses for value. We have created a lean corporate office focused only on those things needed to operate and govern a listed global business and to deliver growth. We have continued to drive cost efficiencies across all operations and have generated significant savings to ensure our operations remain highly cash generative throughout the commodity cycle. I would like to address the social challenges faced at our largest operation, Las Bambas. Community forecast activities had a material impact on the company's operations and the financial performance in 2019. Las Bambas operations interact with 3 regions, 4 provinces, 14 districts and more than 70 communities, making this a complex situation. The difficulties we face are not unique to Las Bambas, and similar issues are faced by several other mining companies that operate along Peru's southern mining corridor. While Las Bambas maintains a positive relationship with most communities, we continue to face periodic roadblocks and demand for the negotiation of benefit agreements. Some of the demand can be extreme. Las Bambas' approach to social management is based on building strong, trusting relationships. Since 2010, we have invested more than USD 360 million in social development program. This is in addition to the USD 250 million in royalties and over USD 20 million spend improving the national road used for concentrates transport. Following extended roadblocks over the past 12 months, dialogue tables continue to progress with the communities and governments. We remain committed to finding solutions we studied on the way regarding alternate logistics options, regional development agreements that provide enduring benefits to communities along the corridor and road improvement works. I will now hand over to Ross who will provide you with a more detailed overview of our financial results.

Thank you, Geoffrey, and welcome to everyone who is joining us on the call today. As Geoffrey mentioned, 2019 was a challenging year for the company, and this was reflected in the financial results. A 17% fall in revenue for the year reflects lower sales across all sites, with the exception of Dugald River, and lower copper and zinc prices. As you'll be aware, Dugald River had its first full year of commercial production in 2019. EBITDA also dropped by 17% due to lower sales volumes and prices. On an underlying basis, we recorded a loss of USD 90 million for the year. I will cover the specific operating factors that impacted the EBITDA on the next slide. But before moving on, I would like to discuss 3 important items. Depreciation for the year of approximately $970 million was around $50 million above 2018. This was largely due to higher amortization of the Las Bambas deferred stripping asset of $55 million, which I will explore in more detail shortly. The other key contributor to the increase was Dugald River, taking into account the full 12 months of commercial operations. These increases were offset by a reduction in Kinsevere of $15 million due to lower ore mined and milled. Net interest costs for the year of $512 million were about $15 million below 2018. A reduction of average debt balances and the full year benefit of steps taken to fix interest rates and the borrowings from our major shareholder resulted in incremental savings of about $41 million. However, these were partly offset by higher average LIBOR rates for the year which were applicable to our floating rate debt, together with the unwind of discounts on lease liabilities of $16 million arising following the change in lease accounting standards. The company also recorded $115 million impairment at Kinsevere. This amounted to $105 million on a post-tax basis. The impairment was taken against some of the remaining oxide-only assets at Kinsevere as the oxide operations near the end of their remaining life. The outcome of all these factors was a statutory loss for the year of $195 million. Slide 11 sets out the bridge between 2018 and 2019 EBITDA performance of the company. As mentioned earlier, revenue in 2019 was impacted by low average prices across our key commodities. Copper prices were on average 8% below 2018 levels, and zinc was 13% below. The negative impact of this was around $211 million. In addition, lower sales at Las Bambas of $469 million due to community roadblocks and lower production at Kinsevere and Rosebery were the main contributors to the net $427 million negative volume variance, which includes the partial offset of an additional 4 months of commercial production at Dugald River, and that was $138 million benefit. Investors should be aware that as at 31st of December 2019, Las Bambas still had around 50,000 tonnes of copper stockpile at site. The revenue and profit impact associated with these stockpiles will be recognized in 2020. Overall operating costs reduced by $304 million in 2019. Our operating expense of $407 million was the main contributor. This includes a $256 million favorable stock movement of Las Bambas, reflecting a buildup of copper concentrate inventory, that is the 50,000 tonnes I just referred to, which would have otherwise been shipped during the year. This concentrate has progressively been drawn down and have reduced to less than 40,000 tonnes by the end of February. This is in addition to lower royalty of $20 million and transport costs of $3 million and efficiencies associated with lower maintenance and energy expenditure. Higher operating costs at Kinsevere and Dugald River partially offset the lower cost at Las Bambas. At Kinsevere, a $47 million increase in operating costs was largely attributable to a 48% increase in waste ore movement together with operating difficulties in the first half. Dugald River operating costs increased by $68 million. However, this essentially just reflects an additional 4 months of commercial production compared to 2019. Rosebery's operating cost profile was broadly flat. The other key item relating to Las Bambas' operating cost reduction resulted from the change in the accounting for deferred stripping. This was a noncash item that effectively resulted in a reallocation of operating costs to capital expenditure, incrementally impacting EBITDA by $90 million in 2019. This change in accounting methodology is quite technical, and we have included some slides in the appendices to provide further explanation. At a high level, we have changed the methodology from a whole pit approach to a phased or a cutback approach. Slides 27 and 28 in the appendix provides some more detail. This methodology achieves a more accurate alignment between the recognition of the cost of waste removal activity and the timing of the benefits received. The key point to be made here is that there is no cash impact. Moving along the chart, the $12.5 million reduction in corporate overhead spend was a result of efficiency and cost improvement initiatives across the group support functions, including a reduced headcount and lower consulting costs and travel spend at group office. Further savings can be expected in 2020. Reduced exploration spend for the year occurred as a result of our previously reported decision to wind down our new discovery programs in Northern Australia and Zambia. Instead, we have a renewed focus on exploration opportunities around our existing operating hubs. This was consistent with our view that the most economic discoveries will be those that can be exploited with existing infrastructure. Finally comes other income and expenses which during 2019 included a reversal of prior year over-provisions and proceeds received from insurance claims. The combination of these factors resulted in a full year EBITDA of 1.6 -- $1.46 billion. Slide 12 illustrates the financial result that's specifically attributable to MMG shareholders, essentially removing the impact of the 34 -- 37.5% interest in Las Bambas held by minority JV partners. MMG's 62.5% share of Las Bambas' profit after tax amounted to $58.5 million in 2019. We then deduct the operating loss from the other operations, where the loss at Kinsevere outweighed the profit contributions from Dugald and Rosebery. From this, we've ended up exploration expenditure and corporate overheads at remaining group office. Other items include FX movements and intercompany eliminations. Also included in the loss is the $105 million after-tax impairment expense in relation to Kinsevere, which I've mentioned earlier. Finally, finance costs excluding Las Bambas are deducted. This largely represents interest payable in relation to Dugald River project debt and borrowings from our major shareholder, CMC, which we used to fund the company's equity contribution to Las Bambas joint venture. The net result of this is a loss for the year attributable to equity holders of $230 million. The next slide provides investors and analysts with an indication of MMG's EBIT sensitivity to movements in commodity prices and relevant exchange rates using the midpoint of our guidance ranges. As you can see from Slide 13, the largest exposures are the copper and zinc prices and the Australian dollar. A $0.10 a pound change in copper prices will have a $90 million EBIT impact. For zinc, a $0.10 a pound change will have a $42 million impact and a 10% movement in the Australian dollar by over $32 million impact. There's a further slide in the appendices of this presentation that highlights the impact of movements in copper and zinc prices on our free cash flows that will assist analysts and investors in building their models. As you can see, we have reduced debt by $511 million using a combination of our surplus operating cash flow and existing cash balances. At current prices and production levels, unfortunately, we won't be in a position to continue deleveraging. The right-hand side of the chart highlights our capital expenditure profile. Our full year capital spend for 2019 was $476 million, which included around $89 million of additional deferred stripping capitalization at Las Bambas which has resulted from the change in accounting methodology. Looking forward to 2020, we expect total capital expenditure of between $650 million and $700 million. This includes approximately $250 million of capitalized deferred mining expenditure across all our sites, but the bulk is realized at Las Bambas. Once an allowance is made to the impact of the deferred stripping change, CapEx guidance is comparable to the USD 400 million to USD 500 million range that we have previously communicated to the market as being normalized sustaining CapEx, the vast majority of this being related to Las Bambas and some of the key projects and associated 2020 spend set out on the slide. Now to our debt maturity. This slide provides an updated view of the amortization profile for the company's term debt. Obviously, we have some significant repayments in 2020, 2021 and 2022. The key point I want to raise here relates to the $700 million light blue bar that is shown in 2021 relating to the funding provided by our major shareholder. At current commodity prices, we will not be able to meet this $700 million loan repayment. However, MMG continues to enjoy strong support from our major shareholder, which is maintaining our ability to develop Las Bambas and Dugald River in recent years. We've already entered into discussions with them regarding this upcoming maturity and fully expect to reach agreement on an amendment to the repayment profile. In relation to cash flow and liquidity more generally, the coronavirus outbreak is likely to have a negative impact on results for the first half, with copper and zinc prices dropping sharply lower since the Chinese New Year. However, with strong support from Minmetals, a very supportive panel of banking partners, and a series of working capital facilities available to the company, we have access to sufficient liquidity. Now to the operations. There is further detail in the appendices, but let me now run quickly through a few of the key points in relation to our 4 operating sites. Operationally, Las Bambas continued to perform well. However, 2019 EBIT result was 8% lower than 2018. The copper price average for the year was actually 8% lower. And as Geoffrey mentioned earlier, the community action during the year prevented us from offsetting lower prices with higher production and sales. This primarily impacted outbound logistics but, nonetheless, resulted in around 20,000 tonnes of payable copper production being lost and a significant concentrate balance being held on site at the year-end. As mentioned earlier, sales of this material will be deferred into 2020. 2020 represents a year of transition for Las Bambas with the focus on continued increases in mining volumes, completion of the third ball mill and the development of the Chalcobamba pit. Ore from this pit is expected to come into production in the third quarter of 2020, and we expect Chalcobamba will contribute around 10,000 tonnes to full year production. Importantly, we now anticipate that Las Bambas will deliver around 2 million tonnes of copper between 2021 and 2025. This improved medium-term outlook is a result of the higher grade from Chalcobamba, a series of initiatives around mine sequencing, debottlenecking of the plant and the installation of a third ball mill. Beyond 2025, we're confident this strong production profile can be maintained. This view is underpinned by the highly prospective nature of the Las Bambas tenements and supported by positive drilling results at the Chalcobamba Southwest Zone. The high-grade intercepts is likely to drive an expansion of the existing pit design. There is this exploration potential and subsequent development opportunities that will add significant value to Las Bambas in the future. Moving to Dugald River. We are very pleased with the progress of the Dugald River ramp-up and, after Las Bambas, is another demonstration of the company's capability to deliver large greenfield projects. The mill has continued to perform well, exceeding nameplate capacity for 7 consecutive quarters. The exceptional start-up at Dugald River will enable us to focus on an increase in mine capacity during 2020, allowing us to increase mine capacity to over 2 million tonnes per year by 2022. This will pave the way for a targeted increase in zinc equivalent production to around 2,000 tonnes per year. Although Dugald River's enduring tough market conditions at the moment, there's a long-life zinc mine of significant scale that will enable MMG to capitalize on the strong zinc market fundamentals over the next 25 years. At Rosebery, operational challenges associated with mining at increasing depths will overcome to deliver good production results. However, declining zinc grades are expected to result in lower production in future years, starting in 2020. The focus for 2020 is on resource drilling so that we can firm up the future for Rosebery. Rosebery is operating for the 5-year remaining mine life for most of its recent history. It's essential that we optimize the remaining life there to extract the most value from the business. Kinsevere faced significant operational challenges during the first half of the year but recovered well in the second half. Production was 29,000 tonnes in H1 but recovered to 38,900 tonnes in the second half. First half production difficulties included lower grades from the Mashi pit along with dewatering problems and plant instability. The second half improved as we moved back into the Central pit and the plant stabilized. Pleasingly, during the year, we recorded some encouraging drilling results at Sokaroshe, Nambulwa and DZ, which we will be able to be milled through the existing infrastructure. Kinsevere's oxide ore reserves are nearing the end of their life. As previously announced, the company is pursuing a feasibility study that will potentially see the addition of a sulfide and cobalt circuit to existing operations and extension of Kinsevere's mine life for up to 10 years. Copper production should remain at around 80,000 tonnes, and cobalt production is expected to average 4,000 tonnes per year. I will now hand back to Geoffrey who will speak more on the company's broader strategy and outlook before we move back to the Q&A part of the presentation.

Thank you, Ross. As an international mining company with deep connections to China, the world's largest consumer of metal and mineral products, MMG has a unique insight that underpins our cost views on our key commodities. Toward the end of 2019, global manufacturing and the Chinese copper end-use demand indicators have started to improve of multiyear lows. This was reflected briefly in improved commodity prices. However, the outbreak of coronavirus has seen a significant decline in short-term global economic activities. It naturally has impacted prices. However, to date, MMG's operating size, sales channels and the supply chain have remained largely unaffected. We are closely monitoring the situation as it develops. We expect that once the short-term issues surrounding the coronavirus are resolved, the positive fundamentals supporting global industrial activity will resume. This mainly is supported by significant stimulatory measures from central governments around the world, and it's likely to be very positive for base metals demand. MMG's medium- and long-term view remains unchanged. With respect to copper, both supply and demand factors point to a very positive outlook. Demand growth will be supported through the increase in electronic vehicles and renewable energy demand, urbanization and the China's Belt and Road Initiative. This, combined with supply challenges at new projects and expansions continue to be delayed or shelved and existing projects face declining grades, sovereign risk and pressures from environmental and employee demands. With respect to zinc, you'll be aware of the large increase in zinc concentrate charges over the last 12 months. With latest discussions at the International Zinc Association suggesting they may settle around $275 to $300 per tonne. Long time ago, our constructive view on this demand growth is driven by continued infrastructure investments in emerging markets, along with higher rates of zinc penetration for galvanized steel in the automobile sector and in fertilizer consumption. This and the lack of investments in zinc mine supply growth drive our views for a strong medium-term price outlook. MMG's core commodities are exposed to 3 megatrends that will drive the global economy over the coming decade. They are the continued urbanization of emerging economies, the decarbonization of energy and the electrification of the automobile. This is in addition to cobalt, which was reported in MMG's mineral resources for the first time in 2019. MMG was established in 2009. Looking back over the 10 years since MMG was first established, I am very proud of what the company has been able to achieve. We have transcended from an Australian-focused zinc miner to a significant copper producer with a global footprint. We have demonstrated our ability to successfully execute our greenfield projects and now operate top 10 producing mines in both copper and zinc. We have built a company capable of operating throughout the commodity cycle and withstanding external challenges. We have developed a valuable local operating knowledge in key mining regions and the platform for future growth and expansion. As we transition in 2020 and look forward to the next 10 years, MMG remains committed to growth through the acquisition of established assets and greenfield opportunities as well as through the realization of the brownfield potential at existing sites. In 2020, MMG expects to produce between 418,000 and 445,000 tonnes of copper at an average cash cost of $1.15 a tonne and 225,000 and 245,000 tonnes of zinc at an average cash cost of $0.60 per pound, meaning that we expect to continue to be highly cash generative despite the current weakness in copper and zinc prices. With our unit impact into China and the strong support of our majority shareholder and the key funding partners, we will be able to execute on the right opportunities when they present. Thank you for your time today and your support over 2019. I will now hand back to the moderator, who will open the line to question.

[Operator Instructions] Your first question comes from Jack Shang from Citigroup.

This is Jack Shang. Can you hear me okay?

Yes, thanks, Jack.

Hey, hey, hey, Ross. A couple of questions regarding Las Bambas. First one, since you've updated your midterm production outlook for the mine, I wonder if there is new guidance for, say, the mine life, whether that is being affected by this changing mining plan. And so that's the first question. The -- on the back of the midterm outlook, any impact on the life of the mine outlook? And also, the second one is on ore grade. So the ore grade has been consistently higher than the -- now your reserve report. So last year was also 0.84 -- around 0.84% for copper. What's the ore grade going to trend, say, in the next 5, 10 years? And you mentioned a little bit about Chalcobamba has a lower -- relatively lower grade of ore, gradually being ored and milled. So what's the ore grade guidance? Because it's been above the report guidance from the technical report. And the third one is regarding the C1 cost trend of Las Bambas. Thank you for the presentation. I managed to find a very helpful page on that open pit mining stages. I think it's in the slide. So whether -- my question is whether the different phases of this mining will affect the C1 cost significantly for that. So what's the C1 cost trend in different cases -- in different stages? Last one is a quick one. So that 50,000 tonnes inventory on hand, would that be sold just predominantly just in Q1 or mainly in Q2?

So I'm still writing, Jack. Yes. All right. Yes. First one, about the mine life, at this stage, we're still expecting to have a mine life of -- through to 2038 with our financial planning. But I think we're very, very confident that the mine life will be extended in maybe roughly 50 or 70 years. Sort of getting to -- adding to the -- sort of my answer on this is we would probably expect the mine production to dip down in 2026 just as the current Chalcobamba pit -- or sorry, the current Chalcobamba pit as we see it, as the grade drops. But we see discoveries at Chalcobamba Southwest. We're quite confident that we'll be able to use that higher-grade ore to lift up the production for '26 and '27, so at least staying in that sort of 380,000 to 400,000 tonne range. But that -- those of the discoveries aren't in our reserves yet, so that's just a sort of anticipation, not a factual statement. Next question, I think, was about the ore grade. Yes, this year, we'll be roughly around about 0.8% with the ore grade. And where Chalcobamba becomes very important is in '21 and '22. Once we're doing the pushbacks at Ferrobamba, it will contribute higher-grade ore that enables us again to stay in that range of sort of 380,000 to 400,000 tonnes. And that's why you'll see this year, we've only got a contribution of about 10,000 tonnes from Chalcobamba, while our ore production is dropping down a little bit. So does that sort of makes sense on those 2 questions?

Yes.

Now the next question was about the C1 cost trend. This year, obviously, we're just around about $1. I think next year, we've given guidance of sort of $0.95 to $1.05, so you might as well call that around about $1 again. We probably expect over time that the C1 cost will drift up a little bit, and this will be because as the mine gets older, the holes get longer, they have a steeper gradient, and all our equipment gets older as well. So it will sort of start to drift upwards, but obviously, we'll be trying to get further efficiencies to sort of mitigate the drifting upwards from one of a better time. So I think over time, you'll see our C1 move from sort of somewhere around $1 to $1.10 range just over the period of time. Now what we've done with the deferred stripping, that should even it out so that we don't have such an impact on the C1 in the current sort of year depending on how much waste we're moving. So by doing it by phase, it actually makes them more accurate rather than the previous way we're doing it, which actually sort of did the -- both the booking of the capitalized stripping and the depreciation of that stripping over the life of the mine. So by doing it phase by phase, we actually should have more accurate numbers. So that should still -- would still enable us to remain in the $1 to $1.10 a pound. And then I think your final question was about the 50,000 tonnes of ore we -- or sorry, the concentrate we had at the mine at the end of last year. We expect that to sort of run down through the first half of the year and press into July. So at the end of February, we're down to about 40,000 tonnes. But I think it runs away. We had the roadblock in sort of late January and early February which obviously hindered our ability to sort of deploy those stockpiles. But based on what we know now, they should be all gone by June or July.

Your next question comes from Han Fu from JPMorgan.

Can you hear me?

Yes.

Okay. Great. So I have 3 questions from my side, and one is actually a follow-up on what's Jack already asked. Just on the like raised mid-term volume guidance. Does that mean we also maybe need to accelerate our CapEx in the sense of both mining construction as well as the operating CapEx to -- like in line with the accelerated volume guidance? And if that's the case, what will be our new sort of the normalized CapEx guidance level for next -- we should look for, for the next 5 years? And the second question is on our cobalt reserve. Are we -- which stage are we at for the Kinsevere's next step, maybe building a sulfide, copper ore circuit, as well as possibly the cobalt circuit? And could you roughly give us an idea what will be the so called -- sort of the copper -- cobalt production costs in terms of U.S. dollar per tonne? And the final question is on the -- what is our current thinking or planning stage at the long-term transportation solution for the Las Bambas mine? Are we -- is that still under the feasibility study for different options? Or are we still thinking maybe we should stick to the public road transportation at the moment?

Thanks, Han. Firstly, in regard to the CapEx, we actually expect 2020 will probably be the peak year for CapEx and certainly from what we can see ahead of us. And the reason for that is we're bringing on the third ball mill. We've also got Chalcobamba coming into place, so we'll have the construction cost there. And then we've also bought some new fleet, and we'll be buying some new fleet. So 2020 should be the peak of the spend, and it's also a very high year with some deferred stripping. So after we get through 2020, I think you can pretty safely say, and this is for the whole company, that Las Bambas tends to be the bulk of it, we'll be back into that $400 million to $500 million range for our sustaining CapEx. Yes. So hopefully that answered that question. With KDP, we're just -- sorry, the cobalt and sulfide expansion, we're still in the feasibility stages for that, so I couldn't give you an accurate U.S. dollar per pound cobalt cost yet. But the way we actually do that is the copper will be the main product, and then cobalt will be a byproduct. So effectively, we have all the costs going in together, and we sit in the cobalt being a credit to copper costs, so actually, given that the relative price of cobalt has a big impact on the C1 cost for copper.

Yes. I'll take the last question regarding the long-term solution, we call that, for the Las Bambas concentrate transportation. The current solution, the inbound-outbound transport at Las Bambas is operating at Europe. And we got a state of emergency declared by the government in February. And I would say the short-term focus definitely is to -- committed to the transparent and productive dialogue with all the important stakeholders. And we are working on a range of investment and regional development agreements. But at the same time, we are also reviewing the feel of the long-term options. That includes the possible options in the trucking routes. And also, we are working on the feasibility study for a potential concentrate pipeline. We will give further update when we know -- get to the more detailed information on the progress. Thank you.

And just on the cobalt side, maybe can I quickly follow up? What is our probable time in maybe coming out with a feasibility -- the bankable feasibility plan then, finally, into the construction and the commissioning stage? What's sort of the time line are we thinking about?

Yes. We'd expect the feasibility study to be finished in the first half of this year and then probably investment decision early in the third quarter of this year. And then construction would start pretty much straight away, and we'd be sort of aiming for production in early 2022.

Next question comes from Yan Chen from CICC.

I've got a few questions here. One is that we have seen, I think, $115 million impairment charge on Kinsevere. I'm just wondering whether there was any room for any further impairment charge on any of our facilities. And so that's the first one. The second one is for inventory, I'm not quite sure whether I got my numbers right. Las Bambas produced 380,000 tonnes last year, and then the sales volume was 310,000 tonnes. But the inventory -- cobalt inventory was only showing 50,000 tonnes, so I'm not quite sure why there was a gap of about 20,000 tonnes. I guess my question is, regardless of the number, the inventory seems not that high. And I'm just wondering whether there is any risk of an inventory impairment charge for this first half of this year. And the third question is for CapEx. I just want to clarify on the note on Page 13, it's just that out of the $650 million to $700 million CapEx guidance, it actually include a $200 million to $250 million of capitalized mining. So I'm just wondering whether the cash outlay for the CapEx was only around $400 million to $500 million. Just want to clarify that.

All right. Thanks for the questions. In regard to the impairment, we've done an assessment, and effectively, that impairment relates to assets that we purchased with the purchase of Kinsevere via Anvil related wholly to the oxide resources there at Kinsevere. And obviously, we made a loss last year at Kinsevere on existing oxide. And we will -- if the current prices stay where they are, it's going to be a pretty marginal operation this year as well. So that impairment totally relates to the oxide. So we have incorporated our initial views on what's going to happen with the sulfide and cobalt expansion into our carrying value, and this is really where the cobalt credits become so important because, essentially, we will have 80,000 tonnes of copper production. But if you effectively get another sort of 25,000 tonnes in copper equivalent or 30,000 tonnes in copper equivalent by the cobalt, and that cobalt obviously adds a lot of value. But -- so at this stage, there is no room for any further impact or need for any further impairment. With the LB inventory, yes, we may have a little gap in that analysis there. So it might be 10,000 or 20,000 tonnes of a difference. Now some of that could be inventory that was held at the port as well. So that could explain part of the difference between production volume, sales volumes and what we've got held at site. But as we mentioned, we -- the inventory was high because, effectively, the logistics corridor was closed for 100 days last year. So it meant in the other 265 days, we had to move as much as we could, but we couldn't catch up that shortfall from 2009 -- from the -- really periodically through 2019. So does that answer your question there?

Yes, yes. And the third question is on CapEx, yes.

Yes. Then with the CapEx, yes, we have $650 million to $700 million. That will be all -- except for some accrued creditors, that will largely all be a cash spend. Now of that $250 million is deferred stripping, that's about $200 million from Las Bambas; and then Rosebery and Dugald roughly have sort of $20 million to $30 million each of deferred underground mining, but that will be a cash spend. But I should have mentioned that, really, there's no cash difference. It's just really a reclassification particularly for the increase at Las Bambas from operating cost to CapEx. But...

And also, the cash outlay for this year is still $650 million to $700 million?

Yes, that's right. Yes.

Your next question comes from Chris Shiu from Horizon Asset.

So 3 questions. The first one is, could you give us a more detailed possibly year-by-year road map for the 5-year copper production profile for Las Bambas? And has the plan built in any offer for potential protests and community unrest? That's the first question. The second question is so what was the negative impact on cash flow in 2019 due to the higher-than-normal stockpile. And the final question is, could you kindly give us some guidance on the interest expense for 2020 versus 2019?

All right. Firstly, Chris, with the 5-year copper profile, I mean that's an indicative sort of range. But as you know, historically, we've only given detailed 1-year outlooks. So really, we're not in a position, but I guess what we can say is, from our internal planning, we're in that range of 2 million tonnes from 2021 to 2025.

Yes.

Now the higher stockpiles, you're basically looking there at 50,000 tonnes at $6,000 a tonne. So it's basically $300 million of revenue that we're short in round figures, which is a result of the roadblocks. And then with interest expense, I haven't got the exact numbers to hand, but the shareholder loan is about 4.1% at -- so $2.2 billion. The Las Bambas loans, as they are now, it's about $5 billion, and that's about 5.3% interest rate. And then the Dugald River, which is about USD 400 million, has interest rates of around about 5.3% as well, maybe 5.4%. So I think we do have that detail in the accounts. And then depending on where the copper and zinc prices in, that we may have to draw down on those revolvers as well, and they have roughly the sort of 4.5% range.

But how would the interest rate in 2020 be different from the one in 2019, if any?

Yes. No, quite a significant change. Firstly, with all the debt with the Chinese banks, that's based on LIBOR plus 6 months -- or sorry, the 6-month LIBOR rate plus a margin. So the LIBOR rate has come down. And I guess I'd say with the coronavirus, that all the central banks are continuing to lower interest rates. So that's really just moving as the 6-month LIBOR comes down. And then with the shareholder loan, I think it was July last year where we entered into the new agreement with Minmetals, and that was -- prior to that agreement, I can't remember the exact rate, but it had about a 3.5% margin on top of LIBOR. And this year, it will average about 4.1%. So the major shareholder was quite generous with the terms of that loan.

Your next question comes from Joy Zhang from Goldman Sachs.

Can you hear me? Sorry.

Yes, we can. Thanks, Joy.

Okay. And I just have one quick question, is that you -- because you just mentioned earlier that you plan to increase the Dugald River capacity to 200,000 tonnes per year, I just want to ask, when do you expect to deliver? And what is the C1 costs, might be the new range after you increase the capacity?

All right. Yes. Yes, thanks for the question, Joy. We expect to get there probably in 2021 or 2022. So it's probably more likely 2022 that we really see a full impact from it. And with the sort of fixed costs and then we've got the very high TC/RCs with zinc at the moment, I think we'd see the C1 price drop down by between $0.05 and $0.10. So it's not a massive decrease.

Your next question is a follow-up from Jack Shang from Citigroup.

It's me again. Ross, a follow-up question regarding the state of C1 cost accounting change. You mentioned earlier in your presentation there is no impact on cash I understand because you reclassified some of that cash operating cost to CapEx. Whether -- my question is whether there is any impact from the tax accounting perspective, let's say, if the copper price go back to a much higher level from here. And Las Bambas is making more profit, whether there will be a tax impact. If copper price is much higher, then what was it? And then what in 2019?

Yes. Okay. Yes, it's a very good question. So Jack, with the Peruvian tax rules, we can write this off over 3 years, and we can actually choose how much we can take in each of the 3 years. So we could even -- depending on what's happening elsewhere, we can have 1%, 1% and 98%, or 33%, 33% and 33%. So I guess the long short answer to that question is that it doesn't really impact on the tax and actually gives us some more flexibility. But overall, there's no tax change. But if the copper price is very low in the current year, we would probably choose to amortize less of it this year. And then assuming copper price picks up once the virus has finished and there's all the stimulation packages, we will then seek to take more depreciation.

[Operator Instructions] There are no further questions at this time. I would now like to hand the conference back to Geoffrey. Please continue.

If no further question, I just want to thank everyone for attending our annual results briefing. And after this session, if you still got questions, you can contact our Investor Relation or Corporate Affairs team. Thank you. Thank you, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.