MMG Limited (1208) Earnings Call Transcript & Summary

Hello, and welcome to MMG's 2021 First Quarter Production Report Teleconference. This report and today's discussion cover the operational performance of MMG's assets for the March quarter 2021. Joining us today is Chief Executive Officer, Geoffrey Gao; and MMG's executive team. I will now hand over to Geoffrey, who will discuss the highlights in the report, after which there will be an opportunity to ask questions.

Thank you, Brent. And hello to everyone who is joining us today. At MMG, our first priority, as always, is safety. In the first quarter, our operations recorded a Total Recordable Injury Frequency rate of 0.79 per million hours worked. This was significantly better than the 2020 result of 1.38. While we will never stop our efforts to eliminate injuries, I am pleased that we continue to benchmark at the very bottom end of global tiers on injury frequency. I am also pleased to report that we continue to deliver stable operations at all of our sites, with production modestly ahead of our budget in the first quarter despite the ongoing COVID-19 impact. Now to address the operational performance. In the first quarter of 2021, MMG produced over 77,000 tonnes of copper and 68,000 tonnes of zinc. And on a full year basis for 2021, we maintained our guidance for production of between 360,000 tonnes and 390,000 tonnes of copper and 240,000 tonnes and 260,000 tonnes of zinc. Las Bambas copper production in the March quarter was over 64,000 tons, which, despite being 12% below the prior year, was in line with our internal plan. The lower production was a function of the lower ore grade in this current phase of the Ferrobamba pit. Production levels are expected to improve sequentially over the remainder of this year. Initially from higher mining volumes and grades at Ferrobamba, followed the contribution from Chalcobamba in the second half. At Chalcobamba, we anticipate formal permitting to complete during this current quarter. At the same time, we are progressing community discussions and continue to expect mining to commence shortly after formal permitting approvals are received. Turning to community relations, and despite Las Bambas during over 100 days of transport disruptions in 2020, the first quarter of 2021 saw fewer disruptions. This allowed transport operations to run at full capacity for longer periods and stockpiles were reduced from around 65,000 tonnes of copper to around 37,000 tonnes. Pleasingly, transfer operations have continued to run well and, as of earlier this week, stockpile has been further reduced to around 33,000 tonnes, was over $300 million at current prices. We will endeavor to transport these remaining stockpiles and realize cash as quickly as possible over the remainder of the second quarter. Moving on to Kinsevere. Cathode production of around 12,500 tonnes are also in line with expectations. Mill throughput was stable, but simply -- but similarly to December. The processing of lower-grade ore resulted in production being lower than prior quarters. Following a temporary suspension of mining activity in the first quarter of 2020, the majority of mill feed came from low-grade stockpiles and third-party ore. In terms of outlook, we continue to make progress on study and early mobilization works in anticipation of the next development phase at Kinsevere, which will see a shift to the mining and processing of sulphide ores and the introduction of a cobalt circuit. We anticipate a final investment decision during the current quarter of 2021. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, zinc production of 49,000 tonnes was close to record levels, highlighting consistent strong performance since the ramp-up of this asset in 2018. This outcome was driven by strong recovery, improvements in mining performance and better extraction methods to reduce waste. This represents the benefit of ongoing work to debottleneck the mine and optimize the plant. We remain confident that from 2022, we can deliver on our target of over 2 million tonnes of mine ore a year and annual zinc production approaching 200,000 tonnes. At Rosebery, zinc production of over 19,000 tonnes was 11% higher than the prior year, while lead, copper, gold and silver production was 19%, 14%, 31% and 23% higher, respectively, displaying the benefit of the polymetallic nature of the Rosebery ore body. During the quarter, Rosebery celebrated the major milestone of its 85th year of continuous operations. Positively, we see no signs of this coming to an end in the near future, with recent encouraging drill results providing support to our ongoing work to further extend the mine life. Another positive driver for our zinc business is the outcome of the recent zinc treatment charge negotiations. Benchmark TCs were set at USD 159 per tonne for 2021, more than USD 140 per tonne reduction on 2020, which will provide significant cost relief for both Dugald River and Rosebery. It should be noted, however, that some of this benefit will be offset by the impact of a higher Australian dollar, U.S. dollar exchange rate. And so at this stage, we are maintaining our C1 cost guidance at $0.70 to $0.75 per pound for Dugald River and $0.0 to $0.10 per pound for Rosebery. I'm now happy to take your questions. Please can all questions be directed to me in the first instance. I will then call members of the executive team to respond. Due to the reason of the time difference. Mr. Wei Jianxian, the EGM America, is not available today. Together with other executives, I will address Las Bambas-related questions. I will hand over to the moderator.

[Operator Instructions] We are showing no questions at this time. I will now hand back to Geoffrey.

Okay. Thank you. Thank you all for joining us today, and I want to thank you for your continuous...

Pardon me, Geoffrey. We have a question. Your first question comes from Joanna Tan from Citi.

Geoffrey, it's Jack. Jack here. Just a quick one. Can you hear me okay? Sorry about the background noise.

Yes, we can hear you, Jack.

Yes. Just a quick one on Las Bambas Chalcobamba permit. So given that, as mentioned in your production report, the formal permitting is actually continued to be delayed by COVID-19 impacts and also the blissful situation in Peru, so how visible it is that -- how confident are you in forecasting we're going to get the formal permits in the second quarter of 2021? I guess the question is more referring to -- also relevant to the full year production guidance now is maintained. But I mean in case of more COVID-19 cases or very slow vaccines, well, blue vaccines and also the uncertainties, so what are the contingency plans and how visible is that?

Okay. Thank you. Thank you, Jack, for your question. Regarding the permit of Chalcobamba, because this is the process handled by the government, so we have been continuously working closely with the government and also the discussion with the community. I -- because we don't have the control on the exact timing, but right now, we do not see significant risk around the -- our time line to get this permit in place in this quarter. But I'm afraid I cannot -- I'm not in a position, we can't give you exact time on that. Yes, that's answer to the Chalcobamba permit. Regarding the COVID situation in Peru, yes, we do see the second wave of COVID-19 from earlier this year. But thanks to the experience we launched from managing the COVID-related risk in 2020, now we got effective health and hedging protocol, for example, prior mobilization testing and safe accommodation, right now we've got enough accommodation facilities on site. So we have been able to maintain the workforce availability around -- above 90%. So that's close to normal level. And so right now, we don't think the COVID-19 situation will have significant impact, particularly on our operation.

I think, Geoffrey, if I could just add, too, the Peruvian government has given mining companies permission to vaccinate their own employees. We only heard that this morning. So I think there's been a time to enact it, but I think that's also a promising sign and reflects the importance of the mining down -- mining community to the Peruvian economic climate.

Your next question comes from Eun Young Lee from DBS Bank. .

Can you hear me clearly?

Yes.

So I have two questions. So what is your utilization ratio in Las Bambas mine? And expecting that you are selling stockpile at the Kinsevere and then so I didn't read your report. So what is the copper stockpile at the end of the March? And then current stockpile in the Las Bambas for the copper. And then when -- I mean that -- so I understand the COVID-19 situation is quite worse in the South America area, and then -- so it's very difficult to expect, but what you are actually doing to minimize negative impact from the -- impact to your operation from the COVID-19, that's a focus question and the second question. I understand that this year, the zinc has been declined significantly. So that is the positiveness for the Dugald River. So how much do you expect your EBITDA in the zinc in this year? How much of EBITDA is expecting to grow, thanks to the lowering [indiscernible]? That is the second question.

I may need some clarification on your question.

First question is stockpiles in the Las Bambas and second [indiscernible] 65 to 35.

Yes, I understand your first question regarding the stockpile in the Las Bambas. I have said in, yes, in my briefing, that is the 37,000 tonnes by the end of first quarter. Yes, in general, the second question regarding the COVID-19 implication, I have answered that to Las Bambas operation. And we have other operations in Australia and in DRC. In Australia, the COVID-19 situation is well under control. So no any implication, particularly on our Australian operations. Even the DRC, we continuously monitor the COVID situation and to have all the naturally protective matters in place. And so far, we have been able to manage the situation well. And the COVID-19 situation in the local region so far didn't have any substantial impact on our data operation.

Okay. So can I ask how many steps in the Las Bambas mine has been impacted by COVID-19?

You mean...

How many cases of COVID-19 you have in the Las Bambas in Peru?

We -- I don't have that number with me, but we did have some cases. But as I mentioned earlier, through the prior mobilization test, we are able to identify any cases before they really go to the site. And so that means we are successfully managing the impact and without any direct impact on the operation itself.

So I think anecdotally, there's probably close to 50% infection rate in Peru. But as Geoffrey mentioned earlier, we've got about 90% of our workforce on site. So -- and I think they get tested twice before they go to site. So we've been quite effective in making sure that we don't have an outbreak on site as such.

Ross, the third question is on the EBITDA benefit of Dugald River from the lower TC. Will you address that question?

Yes, there has been a significant decrease in the TC/RCs from last year, the benchmark being about $300 a tonne to $159. That will deliver quite a significant benefit. But where it is being offset for us is that the Australian dollar is much stronger than what it was last year as well. So we've got an Australian dollar, U.S. dollar exchange rate of about $0.77. So there's a slight benefit when -- if you sort of cancel out the TC/RCs and the exchange rate. But I think what you need to remember, too, is that virtually perfect correlation between the Australian dollar and the copper and iron ore prices. Now obviously, with copper prices being strong, zinc prices are being strong as well. So generally, when the price rises for the commodities, the Australian dollar rises as well. So there is a natural hedge there. But yes, there will be a small benefit, but that's basically immaterial. Does that answer your question?

[Operator Instructions] Your next question comes from Joy Zhang from Goldman Sachs.

I just have one quick question about the potential impact from the presidential election in Peru as well of the candidates seems suggest that the Peru should privatize all the mines in the Peru. So how do you see the potential impact to the Las Bambas if this candidate is elected?

As a company, as the business, we really don't comment on the -- particularly when we are still in the process. We just finished the first round. Now we know we've got 2 candidates for the second round of presidential election. But we -- I can say, we will closely watch the process. And also, I think, we, as a business, will, in individual work there together with the other mining peers to when we got the, finally the new president or new government, then we will also work closely with the government to definitely promote the -- our business development activities. But at the moment, I cannot give you further comments regarding any possible implication because it is still in the process.

Your next question comes from Chris Shiu from Horizon Asset.

I've got two questions. The first one is regarding Las Bambas, could you tell us more specifically in terms of numbers, what sort of mining volumes and also grades, we should expect for the second quarter and the third quarter and the fourth quarter for this year? That's my first question.

Okay. Thank you, Chris. Your question is around whether we can provide the quarterly production information, particularly on the guidance. We are not in a practice to provide quarterly guidance, I don't think most of the mining companies will do that. That's because of the volatility of the nature of operations from quarter-to-quarter. But as I said in my briefing, the Q1 production is lower than the prior period, but it's in line with our budget. So in our budget -- or in our internal plan, we will have higher mining volumes and also grades. Firstly, that is regarding some mining sequence in the current Ferrobamba pit. But then particularly, in the second half, we expect we will have contribution of hybrid ores from Chalcobamba. And so in our plan, definitely we'll have a much better second half than the first one and the grades will improve gradually. And as I mentioned, we still maintain our annual production guidance at the moment.

And my second question is regarding the further strategic development in the Kinsevere project. So I do understand that the further investments and projects will be dependent on the Board decision, which hasn't been made yet. But if we look at industry peers, like, for example, China Molybdenum, it has entered into a strategic cooperation agreement with CATL, in which CATL has secured a 1/4 of the stake in the Kinsevere cobalt projects, which is also sort of under a greenfield development stage, right? So do you see any interest from these battery makers or electric vehicle manufacturers? And do you see any merits in this sort of strategic cooperation agreements with them potentially?

Yes. I may answer the question in 2 aspects. First one is we are still in the, I can say, the final stage of optimization of the study works on the Kinsevere sulphide project. So we expect we can reach the decision point in this current quarter. Second aspect is that we have been in some discussions with, like you mentioned, the battery producers for the cobalt product from our project. But since we are doing the study stage for this project so -- there were some discussions, but at the moment, nothing concrete. I cannot disclose. Thank you.

Thank you. There are no further questions at this time. I will now hand back to Geoffrey.

Okay. Thank you. Thank you, everyone, for joining us today. And If you still have any further questions, please follow up with our Investor Relations or Corporate Affairs team. Goodbye.