MMG Limited (1208) Earnings Call Transcript & Summary

Hello, and welcome to MMG's 2022 First Quarter Production Report Teleconference. This report and today's discussion cover the operational performance of MMG's assets for the March quarter of 2022. Joining us today is MMG Interim CEO, Mr. Li Liangang; CFO, Mr. Ross Carroll; EGM, Corporate Relations, Mr. Troy Hey; and EGM Americas, Jianxian Wei. I will now hand over to Liangang who will discuss the highlights of the report, after which there will be an opportunity to ask questions.

Thank you, Brent, and hello to everyone who is joining us today. As always, our first value at MMG is safety. Our total recordable injury frequency rate for the first quarter of 2022 is 1.68 per million hours worked. This is a slight increase in the TRIF of 1.09 for the full year of 2021 and is a timely reminder that we can never stop our efforts to eliminate all injuries from our workplaces. Following the success of 2021, we produced around 79,000 tonnes of copper and 50,000 tonnes of zinc in the first quarter of 2022. Las Bambas copper production in the first quarter was 69,000 tonnes. This represented an increase of 7% on the prior comparable period last year. Operational performance was very strong with throughput up by 2.5% combined with stronger recovery rates. Despite Peru continuing to be impacted by higher rates of COVID-19 infections, we were able to maintain good workforce availability due to strict health and safety protocols for our people. I will now address the current situation at the Las Bambas mine where members of the Fuerabamba community have recently invaded the site to protest allegations that we have failed to meet certain social investment commitments to that community. For safety reasons, we have been forced to temporarily suspend operations. We completely reject these allegations and have presented evidence of completed commitments to the government for review. We remain extremely frustrated by these actions that continue to disrupt the operations of the mine and ultimately impact the development of the Peruvian economy. We provide large social investments and business support to local communities and take our commitments seriously. Las Bambas is a significant contributor to the local, regional and national economies, and we will continue to pursue peaceful and constructive dialogue with the aim of reaching an enduring solution. Regarding the Fuerabamba community's [ especially ], it should also be noticed that this community was relocated to a high-quality modern township that was developed in consultation with the community. And they have also been the recipient of many other benefits, such as employment, financial compensation, health care, education and social investments that amounts to one of the most generous relocation settlements in the history of the mining industry. There are further meetings scheduled with the Prime Minister's Office in the coming days, and we hope to reach a resolution for this current disruption. Despite these ongoing community challenges, Las Bambas remains a world-class corporate asset with significant growth potential that we are working towards delivering upon both for our shareholders and for the people of Peru. We are now finalizing construction of the third ball mill, which is expected to be commissioned in July and will help to lift recovery rates. And at Chalcobamba, we reviewed -- we received formal permit from the Peru Ministry of Energy and Mines on 24th of March. The development of this deposit and associated waste dumps is planned to be commissioned progressively over the next few months followed by the first production during the second half of 2022. We currently expect higher production rates for Las Bambas in the second half of this year, and full year copper production guidance is maintained at between 300,000 tonnes and 320,000 tonnes. Regarding cost, Las Bambas' cost guidance in 2022 remains in the range of USD 1.30 to USD 1.40 per pound. Moving on to Kinsevere. Copper cathode production of around 9,800 tonnes was 21% below the same period last year. This was the result of lower grades as plant feed was still entirely reliant on lower-grade stockpiles and supplemented by third-party ore. Despite the lower feed grades, processing plant performance remained pretty strong with an average recovery rate of 96.2% compared with 95.5% during the same period -- prior corresponding period. Following the end of the wet season, many of the remaining oxide reserves restarted as planned in the middle of April. The mined ore will be supplied to the plant at the beginning of May, which will improve the average plant feed grade for the remainder of the year. In line with prior guidance, copper cathode production for the full year of 2022 is expected to be between 45,000 and 50,000 tonnes. C1 cost is expected to be between USD 2.50 and USD 2.80 per pound, higher than last year to reflect the higher costs associated with the ramp-up of mining activity over the remainder of 2022. In addition to the Kinsevere Expansion Project, following the approval by MMG's Board on 24th of March, the team has started site works and will step forward with construction. Over this project, the mine will see a shift to the mining and processing of sulfide ores and the introduction of a cobalt circuit, extending mine life by 13 years and taking annual production up to more than 100,000 tonnes of copper equivalent production. First cobalt production is expected in 2023 and the first copper from sulfide feed in 2024. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, zinc production of around 38,000 tonnes was 23% lower than the prior corresponding period due to the combined impact of lower ore mined, lower throughput and reduced ore grade. From January to mid-February, Queensland implemented COVID-19 quarantine requirements, which reduced labor availability at Dugald River mine and impacted mining and processing volumes. The lower feed grade was a result of mining lower grade stopes in the current phase of the mining sequence, but was largely in line with expectations. We maintain our production guidance for Dugald River in 2022 of 170,000 to 190,000 tonnes of zinc in zinc concentrate. Meanwhile, the anticipated C1 cost is unchanged in the range of USD 0.70 to USD 0.80 per pound. We expect stronger silver and lead by-product prices will offset the impact of higher TCs. At Rosebery, zinc production of 11,831 tonnes was 39% lower than the same period of last year. Similar to Dugald River, ore mined and milled was impacted by workforce availability due to COVID-19 restrictions in the first quarter of the year. Ore grades also fell as the mine transitioned mining activity to lower-grade stopes. In line with prior guidance, we expect Rosebery to produce between 55,000 and 65,000 tonnes of zinc in zinc concentrate in the year of 2022. C1 costs are estimated at USD 0 to USD 0.15 per pound. The impact of higher treatment charges and higher costs associated with operating at depth and increasing energy prices is expected to be offset by the strong contribution from higher by-products production and prices, demonstrating the benefits of the nature of the Rosebery orebody. Now we are happy to take any questions.

Operator, are you able to prompt for questions, please?

[Operator Instructions] Your first question comes from Chris Shiu from Balyasny Asset Management.

And I've got a couple of questions for Las Bambas and Dugald River. The first question is this morning, we are seeing some headlines saying that Peru has just declared state of emergency to restore copper production at Southern Copper's Cuajone mine. So I'm just wondering, I mean, this is something that has rarely been done by the current administration, if ever. They haven't done it before for Las Bambas despite the fact that Las Bambas' production is probably double that of Cuajone. So I mean, what is the reason for that change in tactic? And I mean, is that going to change the situation in Las Bambas as well? That's the first question.

Thank you for your question. And I would like to have Mr. Wei, the EGM of Americas to take your question, please.

[Foreign Language] [indiscernible] we are also aware of that -- the creation of this emergency of state has been used for [ Southern ] Peru. So Las Bambas currently is coordinating with the government, and we hope they can take the same action for Las Bambas in order to resolve the problem.

Got it. And is this -- so now we are seeing invasion of Las Bambas' properties, right? So I mean, is that also an escalation of the protest? Because in the past, it's really just a blocking of public roads, right, public properties, but now it's actually entering into MMG's premises.

[Foreign Language] So today, the Minister of Energy and Mines has arrived in Las Bambas sites, also had a dialogue with the community. So the Minister basically has a position like [ further ] reconciliation to resolve the problem. So we believe [ an order ] meeting was conducted in a peaceful environment. So we believe there is no possibility or risk for the escalating the situation. And the Minister tomorrow will have another conversation or dialogue table with the other communities. So we believe there will be improvements to secure that there will be a good environment for the dialogue table.

Got it. And last question is on Dugald River. So if we compare the production volume and the sales volume, I think in year 2020 as well as 2021, production was like 25,000 tonnes or so above the sales volume. And I think in the first quarter of 2022, I think that the trend is similar, I mean, if we annualize that difference. So I'm just wondering, how should we account for that difference? And what is the inventory level now? And I mean do we have any plan of lowering the inventory or keep that level?

Regarding the Dugald River, as I just mentioned in my report, the production has been impacted from January to mid-February due to the COVID-19 infections of the low workforce availability. But if we look at the March production, the March production volume was above budget. So it shows that the production has been catching up from the March month. So hopefully, if we have -- the COVID-19 situation stays stable, we still -- so that's why we keep the annual production volume unchanged -- the expectation volume unchanged. Regarding the stock level, I think that the sales has been -- we have been -- the [ order ] sales of the concentrate from Dugald River has been most likely catched up with the plan. So we don't have really any real challenge in the sales.

Sorry, if I can -- Chris, I think what you might be referring to is the payability. So there's roughly a 25% difference between production and the payable metal. So that's actually the payability from the smelters. And as Li Liangang said, we have minimal stockpiles of finished product on site. So basically, we -- it's a little bit lumpy. We [ might have 3 shipments a month ]. But basically, as we produce it, we sell it.

[Operator Instructions] Your next question comes from David Wei from Balyasny Asset Management.

I just have a quick question regarding the inventory at Las Bambas. I noticed that it has reached like 88,000 tonnes by this quarter. So I want to know whether you have like a very specific plan how to unwind this or clear this inventory in the rest of 3 quarters. And also, I want to know like what's the ideal or like -- or normalize the inventory for you for the inventory at this site.

Thank you, David. Regarding the concentrate inventory at Las Bambas site, I think that the major constraints is the road blocks. We have been challenged by the road blockage starting from the year. And -- but if -- we plan to have a 140,000 [indiscernible] tonnes shipment for the month of April. But the recent community invasion has disrupted the shipping schedules or plans. But if we can keep the road blockage [ issue soft ], I think that we will have the chance of getting the site's inventory level to normal by the end of the year 2022.

Yes. So actually, I just want to gauge like what's the normal inventory, whether it's like 20,000 tonnes or 40,000 tonnes. Or like I just want to gauge the rate, how can we like destock this pile up?

Yes. David, I think the general inventory at site would be anywhere between 0 and 20,000 tonnes of metal. So yes, we basically got 4 or 5x more than what we would expect to have.

There are no further questions at this time. I'll now hand back to Mr. Li for closing remarks.

Okay. Thank you for your time, everyone, and that concludes today's call. If you have any further questions, please follow-up with our Investor Relations team. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.