MMG Limited (1208) Earnings Call Transcript & Summary

Hello, and welcome to MMG's 2022 Second Quarter Production Report Teleconference. This report and today's discussion cover the operational performance of MMG's assets for the June quarter of 2022. Joining us today is MMG Interim CEO, Mr. Li Liangang; CFO, Mr. Ross Carroll; EGM Corporate Relations, Mr. Troy Hey; EGM Americas, Jianxian Wei; and EGM Australia and Africa, Nan Wang. I'll now hand over to Liangang, who will discuss the highlights of this 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, at MMG, our first value is safety. Our total recordable injury frequency rate for the second quarter is 1.29 per million hours worked. This is a decrease from the 1.68 for the first quarter. Now to address our operational performance. In the second quarter of 2022, MMG produced around 45,000 tonnes of copper and 53,000 tonnes of zinc. Las Bambas copper production in the second quarter was 42,000 tonnes, a decrease of 60% from the comparable period last year. As we disclosed the market, members of the Fuerabamba and Huancuire communities enters our mine site on [indiscernible]. For safety and security reasons, we were forced to shutdown production for more than 50 days. To raise a resolution for the disruption, MMG has participated in the government-led dialogue process with communities. And as a result, the community has agreed to seize protest activities. Production and concentrate transport resumed on 11th of June and has remained at normal levels since then. Due to the complexity of matters under discussion at the meeting held on 21st of July, which was last Thursday of the time, it was proposed to continue the dialogue process until 20th August, 2022. We are grateful to the government of Peru for its efforts to resolve the impasse. Over the coming months, we will continue working closely with the governments and communities with the aim of achieving a sustainable resolution to current issues. Las Bambas is a significant contributor to the local, regional and national economies in Peru. MMG has provided large social investment and business support from local communities, since the start of this commercial production in July 2016. As the world class copper mine with significant growth potential, Las Bambas will keep delivering social development as we have always done, and we are committed to maintain ongoing production levels. As the community disruption impacted production and the development of Chalcobamba pit, MMG has restored its 2022 production guidance for Las Bambas. We are in the process of resequence the mining activities and will provide a further update at our interim financial report in August. Moving on to Kinsevere, copper cathode production of around 12,000 tonnes was 24% above the first quarter of 2022. This was the result of the resumption of mining activity following the temporary suspension in the fourth quarter of 2020. Mining and processing of medium grade ores has reduced the overall reliance on lower-grade stockpiles, which has improved the average [indiscernible]. Processing plant performance remains strong with an average recovery rate of 96% in the second quarter and year-to-date. Copper cathode production for the full year 2022 is now expected to be at the higher end of the guidance range of 45,000 and 50,000 tonnes. C1 cost guidance remains at USD 2.5 at USD 2.80 per pound with stronger second half production, partially offset by rising industry costs. In relation to the Kinsevere expansion product, we commenced civil construction works in the second quarter as planned. Through these products, the mine will see a shift to the mining and processing of sulphide ores and the introduction of a cobalt circuit extending mine life by 13 years and taking annual production after more than 100,000 tonnes of copper equivalent production. First cobalt production is expected in 2023 and the first copper from the sulfide feed in 2024. We also disclosed briefly in our report overlapping claims on the nearby Sokoroshe II [indiscernible] deposits. Certainty of tenure is an essential platform for investment in mine infrastructure, and we are currently working with government at the DRC Ministry of Mines for Gecamines to resume activities. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, zinc production of around 42,000 tonnes was 4% higher than prior corresponding period. Impacts of COVID-19 in Queensland reduced in the second quarter which improved workforce availability and help to stabilize production rates. Processing plant performance was strong with an improved zinc recovery rate of 89.6% compared with 87.9% in the same period of last year. We have made 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 now expected to be in the range of USD 0.85 to USD 0.95 per pound. The key drivers of cost escalation include higher treatment charges and selling costs and higher energy and consumables prices as well as higher mining contractor costs. At Rosebery, zinc production of around 12,000 tonnes was in line with the first quarter of 2022. However, it is 35% lower than the same period last year. The lower production relatively to the same period last year was largely due to lower mining rates and lower ore grades. The lower mine productivity was a function of ongoing workforce availability due to COVID-19 and the general [ tightness ] of skilled mining labor across the industry. In line with prior guidance, we expect Rosebery to produce between 55,000 tonnes and 65,000 tonnes of zinc in same concentrate in the year of 2022. C1 costs are estimated at the high end of the range of $0.00 to $0.50 per pound due to the impact of higher treatment charges like the broader industry cost pressures, which include energy, consumables and labour. Now we are happy to take any questions.

[Operator Instructions] Your first question comes from Lawrence Lau from BOCI.

I have a couple of questions about Las Bambas. In the announcement, you mentioned that the operation unit of the mine being shut during the 50 plus days that mine being occupied. Could you give us more idea as to what actually happened during that period? Is that no production, and we also stopped the development of mine, including the Chalcobamba pit? And also, you mentioned that you are engaged in the dialogue with those local communities, which is expected to continue until the 20th of August. Could you please tell us what happens if say, by that time, we still have no agreement with the local communities or has the company done anything to stop that mine being occupied or -- by those local new communities again?

Thank you, Lawrence. Yes, as the report mentioned that we got more than 50 days interruptions, both the production and also some of the development works, especially in the area of Fuerabamba and Huancuire community. But the production resumed second half or mid of June. And since then, the production has -- I just mentioned in briefing, but production has begun at a very good rate. And also the other areas development activities, we have kept normal. And the second question regarding the next dialogue, we expect to resume the next dialogue table starting from 2oth August but the final time of the restart has not been finalized yet. I think that will be -- we will have a more detailed targets for the restart probably next week, sometime next week. Yes, I think that's -- probably Troy, you can provide more detailed information regarding the outlook.

Thank you, Liangang, and thank you for the question. So just to clarify for others on the line as well that only this one query community remains on site. And that is -- that only affects the Chalcobamba development. The rest of the site has been operating as normal since we restarted on 11th June. As to what's happening at the moment and next, the meeting last week on the 21st of July, had all the communities, the government and Las Bambas together and a new date of August 20 was put for that dialogue to continue. So it's working across those 6 tables at the moment. The process is moving well, some better than others. Around 75% of the commitments have been reviewed through the table so far in over 53 different meetings. So it is a very detailed process. We hope to continue those tables as the best way to look at the treatment of the outstanding, how we would review them and how we get an agreement with those communities to work together. And to the credit of all involved, it has been a peaceful constructive dialogue to date. Probably the community that we are struggling most with is Huancuire, which remain at Chalcobamba. And while that process is yet to formally start, we're very confident that we can get that dialogue process up and running, and that unlocks Chalcobamba for us in the future. But we really, really hope that those dialogue tables will lead to continue production for us through the rest of the year and also that we can reach agreement with Huancuire on accessing the Chalcobamba development, which is really critical to the next stage of developments.

[Operator Instructions] Your next question comes from Chris Shiu from BosValen Asset Management.

As for the question regarding the logistics for Las Bambas. So during May, there was essentially no production of copper right, but how about the logistics? I mean do we manage to ship out in any of the copper stockpiled assets during that time?

Chris, it's Ross. No, the site was fully shutdown. So we weren't transporting copper during that time.

But since 11th of June, the transportation resumed. And yes, we shipped close to 80,000 metric tonnes of concentrate in the months of June.

And I think you'll notice in the report at its peak. We have about 85,000 tonnes of metal on-site, and that's now down into just over 60,000 tonnes, so we are getting that backlog down.

Got it. Understood. So assuming that logistics growth remain uninterrupted, so what is the monthly rate of transfer that can be done, assuming that is all smooth?

Well, I think assuming they stay unaffected. I mean, you're probably looking up to 35,000 to 40,000 tonnes a month. So it's possible for us to do. But based on past experience, it's got to be a very good outcome if that was to occur for the rest of the year.

Understood. Yes. And also regarding the negotiation process, right? So the communities, are they negotiating separately? Or are they negotiating collectively? It sounds like they are sort of collectively bargaining, right? But I mean, are there some other communities that are not being represented?

Chris, so there are a series of dialogue tables. The six are the formal tables at the moment. I am meeting separately with six different community dialogue tables. They came together last week as a group to review progress across each individual table, but they will go back to meeting at those six tables. So the government also has a collective oversight group, and so it is being run as a kind of joint process, but there are six distinct community groups that we're working with and have different set of commitments and different levels of progress across those groups. Some of have reviewed all of the equipments that relate to them and some are very early in the stage of reviewing. So if you want to cooperate in a sense as being part of this. We also have the existing dialogue tables around in Chalcobamba and around the [indiscernible] region and also with communities along the road. So it's not that these six communities are the only discussions underway, but they are the ones being brokered as part of this government sponsored response.

Got it. Understood, yes. And one last question. I'm just curious, given that the current deadline for the dialogue process is August 20, I mean why do we choose August 18 as the announcement date for the interim results and providing the update?

So the date of August 20 was agreed last week amongst the Canadian government as being the next stage for review, it doesn't mean that the process finishes, it's more just that, that's a good date to come together and review. Obviously, our annual report date had been seriously and not related. So it's an accident of time. And we should be able to give a reasonable update on the six tables progress by 18 anyway. It's just we won't have had that group meeting with the government again.

Your next question comes from Jack Shang from Citi.

A couple of questions on Las Bambas also one follow-up on Kinsevere. Regarding Las Bambas, it seems to us that in the past year or so, the local communities has become more demanding in their protests, in their road blocks. And this time, it's the first time they occupy the mine site. Do you feel the same? Or do you feel it's actually getting increasingly difficult to communicate -- compared with past couple of years to communicate with local communities? And in this case, the mine has been occupied for over 50 days. And also if you could provide maybe a little bit more detail, since you mentioned the 2 of the communities Fuerabamba and Huancuire. Are there any -- well, specific demand from these communities that kind of stood out and which is very hard for the two parties to agree or three patries, the government, yourself and the local communities, do you see very like a wide range of demanding the best amount and which you think it's hard to kind of come -- it's hard to actually accommodate and as a result of that, there was this kind of protest? And also, what would be the scenario potentially if we just do some brainstorming by, say, 20th of August, what are the potential scenarios there after if we get there? And last question on Las Bambas would be, is Chalcobamba still a community member of the [ Huancuire ]. The property of Chalcobamba government remains suspended. The question is, assuming there's no issue, assuming that those community members withdraw from the property, they leave the property, how much time? Or what is the lead time required to get Las Bambas -- sorry, to get Chalcobamba up and running?

I'll take the first 2, and then I might give back to Ross to do on the restart plan. And it probably needs a bit more context. What the six communities are effectively -- or what these dialogue tables are about is a review of existing commitment. As you know, when MMG acquired Las Bambas, there was more than 750 individual commitments to communities along the whole road and surrounding the mine. Fuerabamba, the relocated community had aligned share of those, but there were lots of those commitments in place. So over the last 6 years, that number has gone from above 750 down to less and less than 200, but there are still a number of those. And each commitment is bespoken unique. Each commitment requires cooperation from government often local authorities and the company to deliver, and they are working through them very methodically. What I think occurred with this invasion was a combination of, I think, the community is seeing a newly elected government giving them a supported platform to protest and to grow just in a way that there would not be repercussions. And also Las Bambas, I think, has reached a point where you cannot keep solving problems by making further commitments. And so this negotiated process came based on that history of -- we were wanting to sit down with the government as a broker and supporter in this process to review the outstanding commitments that are still being met and to come up with each of those communities on a way forward. When we set up the these tables, the challenge has been that the communities, I think, in almost all cases, the first request was to start with new commitments and to make new promises. And I think we have worked very hard with governments and with communities themselves to say the first step is to review the existing ones. Las Bambas has reached a point where you can't keep making future promises when previous promises are yet to be delivered, and that's got to be our focus. So at the moment, you've got -- the community is feeling that they could take the state of invasion to get these dialogue tables up and not be removed and have support for that and they took it to the credit of government they've come together with the company, and we've worked really well together in getting some clear scope for dialogue on keeping those dialogue tables to the delivery of previous commitments. And as I said, in some of those cases, we've worked through 100% grade, 50% in 4 of those groups. And it's really -- the sticking point is, especially with Fuerabamba and Huancuire, those two communities are still wanting to introduce new [indiscernible] as part of this dialogue process, and that's slowing down discussions. The extension is important in that it keeps the government in the process that we will continue to try to make sure we focus on delivering all those previous commitments and in the end, there should be no time frame on these because these are community relationships that should continue through life of mine. And we don't want to see a kind of month rolling review. But on the other side, having the government, bringing those groups together and sharing progress has been very, very useful. So it's not a matter of we can't meet these demands. In fact, the previous commitments are all written, agreed, and we have either a plan to deliver them or work to do with the communities, and we believe they're all very possible. The struggle we have at the moment is reducing or limiting the scope to previous commitments before we look at what we might do ahead and then coming up with a new method of working with these communities that doesn't rely on roadblocks and disruptions and future promises, which is the legacy inherited by Las Bambas. Due to [ asset ] scenarios on August 20, it will be community by community, and it's Las Bambas and MMG absolutely committed to ensuring that this mine continues to operate at full pace and the Chalcobamba is brought into production in the most enduring way that the community benefits and feels part of but also that delivers. Without Las Bambas operating more the benefits don't flow. That's the key message we're taking to the groups. They have legitimate concerns, and we need to talk through, but there are also scope issues that we have to deal with, the commitments as they stand at the moment and to get that done, and that is the commitment that the government and Las Bambas have jointly made and many of those communities are working really well with us on that. So we're not seeing August 20 as a drop dead date. We are always planning with what happens in the scenarios that these dialogue tables do fall over, but we are 100% committed to keeping dialogue tables on foot to solving them -- to solving the problems around previous commitments and getting us a time frame and a schedule to deliver and then to working with these communities to build new relationships that are far more based on shared value for what we do ahead. The same in Huancuire, you asked specifically about. Again, this is about -- we have been through the full approvals process, a prior consultation process that community ended up not wanting to participate in and now we are still trying to get to the table to have a constructive dialogue on Chalcobamba. But once we do, it's a very swift entry to starting the development work on Chalcobamba projects set up. A lot of contracts with local providers are already in place. And I'll defer to Ross to about if we've got going ahead tomorrow, how long we will be to production.

Thanks, Troy. Yes, Jack, if we do get the go ahead, it's going to take us about 4 months to get up to production. And that's mainly just so we can finish the stripping and get the waste out of the way and then get access to high-grade ore, which, as you know, was important to this year's production plan. So if it's August 20, it's effectively going to be the end of the year before we can start mining for the any sort of significant volume.

Just a quick follow-up. Is it right -- correct to say that the Huancuire community's agreement with us is kind of preconditioned or is kind of a clearance required for us to start the operations -- to start the development -- resume the development at Chalcobamba?, First. And the second quick follow-up would be potentially if I were at Huancuire community, should I use this like talk about the development as like opportunity to press for more agreements in addition to what is already being put in place. Is it fair to say that? And if I may also further ask, is it also difficult for us to separately agree on additonal agreements and being disagreed about it because there are many, many more communities look at this issue. If there were potential new agreements being additional like if we potentially agree to additional demand by some communities, the others might jump in and saying that, we also want this, right? So is this developing into this kind of difficult dilemma situation right now? Or am I just understanding this is not in the correct way?

It is a difficult situation. You're not being -- it is very tough because you're right. Any agreement in Las Bambas is a challenge. It has so many communities impacted by logistics operations out there and that any agreement that is agreed is shared, and we face different difficult demands. It is a challenge of the site. That said, with Huancuire, we have purchased the land from the communities with a setting with both payments and we've redone that purchase again. So we've twice paid for access and ownership of that land. We have been through the government and all regulatory processes, and we had the AAA ready to develop Chalcobamba. But without the communities or currently the communities invading the site and without receiving agreement with them, it is very difficult for us to commence work. But everything else is ready to go. And we sincerely believe that we can come to an agreement with Huancuire that really benefits our community in terms of not only the money they've already received, the commitments we've already made, but future contracts that they have as the community to help the development of that side. That said, we will work with them to get that access to land as soon as we possibly can. But again, as you said, it is really just getting an agreement that facilitates access to that site. But to other bigger question, and I refer to what I said before, Las Bambas and what we inherited was a model that because it was such a significant development in that region and because it was comparatively quick in terms of getting that from really the -- from deposit all the way through to production, a lot of the benefits were future promises. And we have been diligently trying to work through those promises for 6 years. And it is not the way we want to run the mine in the future. And so part of this year is a really important reset in terms of we want this mine to be successful and for its success to drive community benefits, not to promise the future and then spend our time trying to catch up. And that is a big change, and I think you're seeing some of that occurring this year and part of the struggle we're having with Chalcobamba. One of those is there is a better model for Las Bambas to work with communities than the future promises brought on by projects or roadblocks. And what we want to do is link Las Bambas' success to community outcomes, and that's the basis on which we hope to work with Huancuire. And if we get that right, then the opposite applies, and we start to have a better relationship with all communities that's linked to Las Bambas' success. We have not lost the belief that Las Bambas can be the greatest mine in Peru and that it has the potential to be an outstanding social agreement with these communities, but it is the hardest. And if you ask anybody else in Peru, Las Bambas has community exposures well in order of magnitude above others. So we have to be better at this, and we have to work with these communities constructively. And what you're seeing this year, I think, is a bit of a reset. But I don't believe it's impossible. I don't believe the demands are ones we can't meet, it's a matter of changing the model so that Las Bambas' success becomes really a success, and we integrate them in a value chain in a way that makes Las Bambas' contribution to this region in Peru as meaningful as it can be. So we are seeing lots of positives for this process. And I think that's the thing that probably isn't come across. We're seeing lots of new relationships and lots of ability to work together, but it's tough and difficult and we are well aware of the fact that any agreement struck during this process will have impacts on every future agreement we make. And that's why I think you're seeing the impacts we're having this year. But I would look into that and say, we are resetting these relationships, and we have a more constructive future rather than the fact that it is getting worse and we don't know where to go.

And I think if I just -- Sorry, Jack. But what we inherited and we continued with was a series of lump-sum type of payments which -- and then obviously, lump-sum money can get spent. And once the money spent, it encourages people to come back for more. So far, we'll be trying to look at annuity and royalty type schemes where the payments continue for a number of years. And as for results that can involve a lot of community work rather than big lump-sum outlays at the start of the process. So that's a change what we're trying to implement as well.

One folllow-up question regarding Kinsevere. So first of all, on the Kinsevere expansion projects, right, so the 80,000 tonnes of copper a [indiscernible] potential production on an annual basis going forward and some cobalt. Is there any further kind of less licensing? Or do we need to pay for the reserves? Or is there any newly defined reserves that we need to settle with the government in DRC? That's the first question. And second is and that's all, there is Sokoroshe II project happening. What's the latest update there? And what should we expect for the next steps to happen?

Well, maybe I'm going to ask the first -- answer the first question regarding the reserves payment. Yes, there is an additional reserves payment, and we're still negotiating with Gecamines and we expect it to be in the range of $30 million, which is already included in the capital cost for the project. And I might just pass over to [indiscernible] to handle the question about Sokoroshe II project.

Yes. Jack, could you repeat that question, please? I'm currently in DC. The line is not very clear here. If you don't mind, just repeat that question, please.

Yes. The question is regarding the Sokoroshe II project update. I see that according to the production report of the company, they were -- there are personnel on the ground being removed by security forces who claim that the government-owned mining company Gecamines has signed contracts for the area with third parties. So what's the latest up there? And what is -- what are the expected next steps for us to undertake? And so what would be expected on that project. And also, Ross, a follow-up on the potential payment for the newly designed reserve in DRC. We noticed that there are like debate between other companies with recently working with Gecamines. So do we foresee any potential difficulties in negotiating and communicating with the national mining company out there? Is that a risk effect that we should be aware of?

Okay. I'll talk about the Sokoroshe II situation and then hand back the ore royalty reserve back to Ross. So on the Sokoroshe II, so as we all know, MMG currently holds an existing mining lease agreement with Gecamines and then we registered in the official mining registry. And then we so far made a formal request to the DRC Ministry of Mines for Gecamines to withdraw the two new agreements. And then in order to get us back to the tenement to continue our work. The Sokoroshe II, all inputs will be part of the 2023 -- 2022 mine plan really to open the copper capital production. So at this stage, really between the company and then the Gecamines to have a further dialogue to resolve this issue. Hopefully, we'll resolve this very shortly.

And Jack, in response to the second question about the negotiation with Gecamines, we don't expect any problems, but I guess, to understand that part of their dispute with China Moly is they believe that China Moly understated the reserves. So obviously in our case, we'll be putting through the reserves that are on our MR/OR statement and using that as the basis. Yes, we don't expect there to be any issue, but I guess you never know, but there's nothing to indicate at this point that there will be an issue.

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

Yes. Thank you very much for your participation and your time. And if you have any further questions, please feel free to contact our Investor Relations or Corporate Affairs teams. Thank you again.

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