MMG Limited (1208) Earnings Call Transcript & Summary

Hello, and welcome to MMG's first Sustainability Briefing. Today's presentation will provide an overview of our group-wide sustainability performance. Joining us today is Troy Hey, the Executive General Manager, Corporate Relations; Sandra Guan, the General Manager of Stakeholder Relations; Joshua Annear, General Manager of Operations and Technical Excellence; Jon Crosbie, Head of Climate and Closure Planning; and Fiona Sartain, Head of Social Performance and Sustainability. I will now hand over to Troy, who will provide an introduction to today's presentation.

Thanks, Andrea. Welcome to everybody today, and thank you very much for your participation. I'm really excited to have the opportunity to introduce our first sustainability briefing. Sustainability for us has always been critical to our overall success. Safety is our core value and our commitment to mine for progress for us means about ensuring that we have a commitment to being a valued and positive contributor to host communities. MMG was founded in 2009 with a vision to become the world's most respected miner and this vision remains our aspiration. Today, our portfolio supports copper, zinc and cobalt production, products that are absolutely critical to achieving global decarbonization of the energy targets. But we recognize that producing commodity is critical to a sustainable future should also be backed by robust sustainability practices. Today, we'll provide an overview of our key priorities, our management approaches and our performance. MMG remains our major shareholder, China Minmetals Corporation, leading international mining platform and our commitment to sustainability is critical for us to maintain its position. We also remain the only Chinese-owned mining company to join the International Council of Mines and Metals, the world's leading organization promoting sustainable development for our industry. The need to make meaningful action on climate change is becoming more urgent for every government's organization individual, particularly as we've seen more extreme weather events and challenges related to food and water security. The minerals we produce are essential to assuring we can successfully transition to a more sustainable world. We remain very confident in the medium to long-term outlook for copper, zinc and cobalt, particularly as we shift towards green energy sources. The data outlined on this slide demonstrates that the significant and growing demand outlook for our products. However, supply is also a challenge our industry faces, greater demands from host communities, reducing our operational carbon footprint and delivering in a global carbon-constrained world. We recognize also that stakeholder expectations are only rising in terms of performance across the nonfinancial aspects of our business -- in climate, social performance, governance and other areas. We're committed to meeting those challenges by setting ambitious targets and to ensuring that a high-level operational discipline and continuous improvement. And we've got a long way to go, both this company as an industry, but we are committed to working openly and together with other groups. We're an active member of the industry's leading organizations, as you can see listed on this slide, and a member of ICMM since 2009 when the business was founded. As a member of ICMM, we've aligned our approach to the sustainability and the mining principles of ICMM and their additional supporting position statements, which provide a best practice framework for the mining and metals industry. To ensure our business is compliant with our membership requirements, in 2001, we undertook a company-wide self-assessment to validate the mining principles. Operations also undertook their own assessments and action plans have been developed to address the gaps. We regularly revise these action plans and in line with site-level process. I will now hand over to Sandra to begin to provide an overview of the group level sustainable management approach.

Thank you, Troy. As Troy outlined, at MMG, our approach to sustainability is in line to the ICMM's 10 mining principles. And throughout the presentation today, we will outline how this translates into our management of each subject area. Internally, our approach is guided by our sustainable development framework and a number of policies, which are owned by our Board. These include our corporate governance policy, the people policy, the quality and stewardship policy and the stakeholder communication policy. We're also committed to continuous improvement in sustainability performance, and we recognize the performance must be assessed against robust and transparent criteria. To that end, we have recently commenced a process to develop and implement group-wide sustainability-focused matrix to drive ongoing performance improvement through our annual business plan and individual incentives for leaders and the team members. I will now provide an update on our approach to governance across the group. MMG is committed to a high standard of corporate governance that is underpinned by a quality and experienced Board and management team. Robust internal controls and the commitment to transparency and accountability to all shareholders. We applied the principle corporate governance set out by the corporate governance code of the Hong Kong listing rules, and those outlined by our membership of the ICMM. We committed to maintaining full compliance with all applicable listing requirements, which periodically requires us to update our reporting or internal targets such as our commitment to report against the TCFD-aligned climate disclosure by 2025. We maintain a strong focus on anti-bribery and corruption policies and obligations requiring all of our employees to be trained on these topics. Finally, as mentioned out, our approach to sustainability is guided by our sustainable development framework, which is owned and endorsed by the Board and implemented across the company. I will now move to an overview of our people strategy. MMG has a talented team across our operations and a small -- smaller focused head office presence across Melbourne and Beijing. We recognize the important role of people have in our success and ensuring that MMG is a respective partner in our communities and host countries. Our people strategy is based on building a long-term partnership with each individual and ensuring that those who join our team have the right capabilities and development opportunities to perform in their role and to contribute to our success. We're proud to have a strong commitment to engaging a local workforce in each of our operations. This means that the majority of our employees in each of our operating regions are local to that region. MMG maintains a global standard, which governs our people and employee benefits globally, ensuring a consistent approach. We recognize that attraction and retention of talented people is a priority for our industry globally. As a business, we're committed to competitive benefits and investing into training, education and apprenticeships to bring new people into the industry. As mentioned, we have a strong commitment to local employment across all of our operations -- operating jurisdictions, and we're proud of the strong cultural diversity across our business. In 2021, we updated our diversity and inclusion strategy to increase the focus on improving female representation rates across all business areas and introducing flexible working arrangements. We recognize that the further opportunities to increase the diversity across our management and board levels and -- as they look forward. This is an area of the business we'll continue to focus on. To ensure that we're reporting on the issues that are most important to our stakeholders, and that we are acting on feedback, we periodically conduct a materiality assessment process. As part of this process, we reviewed feedback from stakeholders through interviews and surveys, both internal and external, [indiscernible], investor feedback, employee culture survey and through media coverage as well. The material issues outlined on this slide are the result of the consultations recently completed for the 2022 reporting period. We will report our progress against these material issues as part of the 2022 Sustainability Report. I will now provide a short overview of how our material issues translate into our internal performance targets. As part of our materiality process, once our material issues have been determined, the head office sustainability team that work closely, which -- with each function and size to determine the most appropriate internal indicators and measures that help us report against our material issues. Safety and functions are then required to report against these indicators on a quarterly basis. Updates are provided to execute and also to award 4 times each calendar year. These slides include a selection of these indicators for the 2022 period, with over 40 indicators mapped across our material issues. We will report progress against all of our material issues in the 2022 sustainability report. I will now hand over to Josh, who will provide an overview of the next few section.

Thank you, Sandra. I'll touch on the safety performance prior to covering off our approach to environmental management, water and tailings. At MMG, safety is our first value, and we're proud of our strong safety culture. We have the goal of eliminating fatalities in our workplace and preventing injuries to our people. This slide summarizes our performance against the critical indicator of significant events with Energy Exchange, which has been a focus for leaders all across our operations. The total number of events in 2021 was 24%, and our year-to-date performance to July 22 is 10%. We continue to focus on driving further reductions by ensuring that our critical controls are implemented particularly for mobile equipment and light vehicles. As you can see, this is the area with most opportunity for improvement. If we move to the next slide, we continue to record strong total recordable injury frequency rate performance particularly when compared with our ICMM peers, where in 2021 we achieved the lowest TRIF of our ICMM peers. Our year-to-date June 22 TRIF result was 1.49 per million hours worked, which unfortunately represents an increase when compared to 1.09 for full year '21. While the severity of injuries in the year-to-date, '22 is lower than our '21. Our work continues until we ensure that each person can leave our workplaces in the way which they arrived. Our focus remains on ensuring that the critical controls are identified, implemented and working. Especially with our contract partners, as unfortunately, the contractor injury rates remain higher than MMG people of 1.58 compared to 1.21 for MMG. I'll now turn to a short case study on our approach to managing the impacts of the COVID-19 pandemic on our business. Throughout the pandemic, our focus has been on managing the impacts to our people, and surrounding communities, ensuring that our workplaces are safe. We've worked hard to manage the health impacts while also maintaining production, driving development and providing employee -- and employment for our regions. Our focus has been on promoting vaccinations and following all relevant regional government strategies to protect our people and also support the communities in which we live and work. For example, at our Las Bambas operation in Peru, 99% of our people have been vaccinated with the booster shot, and we continue to encourage this across our sites. Our safety and health teams implement and update operational protocols to protect the health and safety of our people and also the communities in which we work. Minimizing our environmental impact, MMG is committed to the effective management of impacts to air, land and water from our operations. We are conscious of the interactions of our operation with the broader air shed, catchments and neighborhood communities in which we operate. In 2021, we did not record any significant environmental events, and in 2022, we reported one environmental event based on potential environmental harm. The event was reported to the authorities, investigated and actions were put in place to remediate the area and prevent recurrence. I'll now provide an overview of our water management approach across the group. At a high level, our approach is aligned to the ICMM position statement on water stewardship, meaning that we are committed to promoting better water use, more effective catchment management and seek to contribute to improved water and sanitization for our sites and surrounding communities in which we operate. At our Las Bambas and Rosebery operations, we are designing water treatment plants to improve the quality of water that is released to the environment. And at Las Bambas, we are also focused on recycling water from the TSF and improvements in our processing plant to reduce demand on external resources. These efforts have resulted in a 66% annual reduction in the water drawn from the local Dugald River last year. At our Kinsevere operation, we're updating and improving our site-wide water management and balance to identify improvements to water management and at Rosebery, removing a water cover from a TSF to further reduce water demand. Across all our operations, we are further developing standard water reporting metrics to improve transparency align with the ICMM guide for consistent border reporting and the MCA water accounting framework. Now I'll move to an overview of our approach to tailings management. At MMG, we are a signatory of the ICMM tailings management standard. Our approach to managing tailings has been developed through the support and contributions of both internal and external experts, and it's aligned to the requirements of the Australian National Committee on Large Dams, the Canadian Dam Association, the Mining Association of Canada and the Global International Standard on Tailings Management. Our approach meets or exceeds the regulatory requirements in each of our operating jurisdictions. We have also developed and are applying a tailings management standard that is aligned to the ICMM Global standard. This incorporates a robust stepped risk management process, 3 lines of defense, and includes independent expert reviews and audits. Across all of our operations, we have established accountable executives, independent tailings review boards and responsible engineers in alignment with the ICMM Global standard. I'll now hand over to Jonathon Crosbie, our Head of Climate and Closure Planning, who will provide an overview of our biodiversity approach and climate resilience strategy, which was approved by our Board of Directors earlier this year.

Thanks, Josh. I will shortly provide an overview of our climate strategy. But first, I will touch on our approach to biodiversity. Management of biodiversity begins prior to the commencement of mining or other disturbance activities through the completion of environmental assessments to identify potential impacts. This ensures that the mitigation hierarchy, which you can see on this slide, is effectively applied in relation to any proposed land clearance activities with avoidance being the preferred option where practicable our overall ambition is to achieve no net loss. Building on this, we aim to plan for mine closure in a way that focuses on opportunities to develop self-sustaining ecosystems that can support the social, cultural, environmental, economic and land use objectives of our host communities and the surrounding landscape. Some of the management actions actively used at operations, focus on implementing low or no disturbance of areas that may form future conservation reserves, translocating and aged plants and supporting the breeding habitat requirements of vulnerable animals and also controlling invasive species. Regarding rehabilitation, only mine and progressive rehabilitations undertaken by operations as disturbed areas are largely limited to operational areas, which are in use or will be used in the future. Hence, we do not set annual rehabilitation targets. However, we do rehabilitate land that is no longer required for future mining activities, and we do monitor rehabilitation success over time. I will now turn to an overview of our climate resilience strategy. At Energy, we recognized the impacts of human-induced climate change in our environment, the economy and our communities. As an organization, we're committed to playing our part in addressing this global challenge by taking appropriate actions that will reduce both our direct and indirect emissions and sourcing the key minerals and metals required to help develop a low-carbon future. As Josh mentioned, in 2021, we developed our Climate Resilience Strategy. Process included workshops with our sites and external carbon specialists to use emissions projections and reduction pathway tailing to determine the likely optimal pathways to achieve suitable commission reductions. As part of this, we use methodologies that are widely accepted as best practice in the market, including the greenhouse gas protocol. We also had alignment with our Hong Kong Stock Exchange obligations and benchmarked a range of industry peers. We also engaged with a range of external subject matter experts from the ICMM and the University of Queensland Sustainable Minerals Institute as well as government representatives throughout the process. On the next slide, you can see our commitments towards 0 emissions. So in pursuit of a low-carbon future, we have considered the most recent IPCC reports and global trends. And early this year, we publicly announced our commitment to net 0 carbon emissions by the year 2050. To help us achieve this goal, we have also set an interim target of a 40% reduction in Scope 1 and Scope 2 emissions by 2030, and this is from a 2020 baseline. This is a science-based target, which is aligned with restricting global warming to 1.5 degrees above preindustrial levels. For Scope 3 emissions, we will drive reductions in our value chain by finalizing validation of our mission boundaries and inventory, an interim target setting next year in 2023. And we will further work with our supply partners on emission reduction opportunities. These new public commitments have enabled a very strong internal drive towards altering our LNG and mobility decisions over an appropriate time line. Our decarbonization targets are driving us to investigate multiple renewable energy options at our assets, aiming to have 75% renewable supply by the year 2026, which we are confident of delivering on. There are, however, several technical and commercial challenges along this journey, but we will be working closely with our existing suppliers, potential additional suppliers as well as evaluating on-site generation and storage opportunities. Following renewables, our next decarbonization priority is low-emission vehicles and equipment. While our projected timing of having these online is towards the end of the decade, we are beginning work on this right now. This year, we have joined several industry research groups, such as the electric mine consortium and the Global Mining guidelines group to assist us with this. And we have also recently ordered a Caterpillar hybrid loader to trial at our underground Rosebery mine in Tasmania. And finally, here is a short case study from our Dugald river mine in Northwest Queensland, where we have recently entered into a commercial agreement to supply solar power from a new solar farm to be built nearby. The agreement, which is with the APA Group was reached last year and is the first across our business and will lead to a reduction in the mine's carbon footprint and will supply the site with renewable energy and provide immediate energy cost savings once operational early next year. By incorporating renewable energy, the site is focused on achieving both environmental and economic benefits and the transition contributes to our carbon reduction initiatives as well as offering greater energy supply diversity. Dugald river is a 24/7 operation in a remote location, often under extreme weather conditions and having multiple power sources, safeguards our business so we can run without risk of interruption. The solar farm will reduce our electricity-related carbon emissions by around 33%. I will now hand over to Fiona, who will cover off on our human rights and social performance.

Thank you, Jon. I will start this section by providing an overview of our human rights framework. Our management approach is aligned with or exceeds the human right requirements in each of our previous jurisdictions. Our framework -- our human rights framework is underpinned by a comprehensive set of policies, our code of conduct, which applies to all of our people and appropriate with the -- and stakeholder grievance management processes. We have also recently strengthened our corporate governance procedure, fully -- corporate and community grievance procedure, fully integrating it with our whistle-blower framework and launching an external portal for community and local stakeholders to raise their grievances in an anonymous manner. This year, we are proud to have been confirmed as a full member of the Voluntary Principles on Security and Human Rights, which is a global membership-based multi-stakeholder platform dedicated to sharing best practices and mutually supporting the implementation of the Voluntary Principles on Security and Human Rights. All of our private and public security forces and teams comply with the VPSHR and receive training before they start working at any of our operations. In addition, they are required to be signatories to or agree in writing to the international code of conduct for private security providers and the VPSHR. All security events at Las Bambas and Kinsevere have been managed without breaches to and in full alignment to the VPSHR. In 2018, the Australian government introduced the Modern Slavery Act 2018, which requires businesses to report annually from 2020 on the risks of modern slavery in their operations as well as in their supply chains. Businesses must also report the actions that they have taken to assess and address these risks as well as the effectiveness of their responses. Consistent with the ICMM mining principles and guided by our commitment to human rights, we have a 0 tolerance approach to all forms of modern slavery across our business. To ensure our compliance, MMG has undertaken a company-wide modern slavery assessment and is implementing a series of controls to ensure we have systems in place to prevent the presence of modern slavery in our supply chain, particularly through due diligence processes. As part of this, suppliers may be required to complete a questionnaire prior to or during any engagement with MMG. This may include a request for information relating to, among other things, the human rights record and their own controls to prevent modern slavery. We have also developed and released the MMG supplier code of conduct, which our suppliers are required to meet. We are now focused on continuing our work to build where there's the modern slavery risks with our people and suppliers, and we will continue to report our progress on this on a yearly basis. I will now move to an overview of our social performance across the business and a closer look at the management of our Las Bambas social challenges. We seek to positively contribute to the regions in which we operate, and this means aligning our efforts with measures that have the most impact on quality of life, as outlined by the United Nations sustainable development goals. This slide outlines the over USD 32 million of contributions made in our communities during 2021. You will see that our initiatives are further broken down into the SDG-specific contributions. Of note are 2 specific -- 2 of the significant drivers of spent, SDG 1 no property, which saw a significant increase in infrastructure projects, roading housing maintenance, agricultural initiatives and local business development. We also increased the portion spent on health due to community and regional health infrastructure support throughout the COVID-19 pandemic. This next slide provides a broader overview of our economic contributions to the regions and the countries in which we operate. These contributions take many different forms and include things such as capital investment at our operations, taxes and royalty payments, wages and employee benefits and support for local businesses. For example, in Peru, in 2021, we spent USD 1.2 billion on national procurement. That also includes USD 63 million in the community closest to our operation. Las Bambas contributes 1% to Peru's national GDP and is a significant contributor to the economic growth of its host region Apurimac contributing to almost 70% of the region's GDP and helping to reduce poverty in the Apurimac region by 20% between 2012 and 2020. The GDP of Apurimac region has now risen to 8th place nationally from 23rd place in 2010, now well above the national GDP of PEN 11,000 sitting at PEN 15,000. These economic improvements highlight the important role mining has to play in regional development outcomes in the regions we operate. However, while the contribution of Las Bambas is well recognized and welcomed by our host communities, the challenges remain along our logistics route. Since commencing operations in 2016, Las Bambas has used a bimodal transport system of road and rail. The public road used by Las Bambas crosses 3 regions, 5 provinces, 14 districts, and more than 70 communities. We recognize that this has resulted in impacts to local communities in the form of dust, noise, congestion and vibration. However, the road has also contributed to improving access for local residents and increased economic opportunities. Over time, community expectations have continued to rise, and frequency of protest activity has also increased with impact to production, logistics and the development of Las Bambas. During the first half of this year, Las Bambas was forced to temporarily suspend operations due to safety concerns from 21 April until 10 June after these communities -- after a number of communities entered our operations. Regarding this specific issue, we have continued to engage in ongoing dialogue with these communities to transparently and comprehensively review existing commitments. These dialogue tables are continuing, and we will provide further updates when this process is complete. We are, however, resolute in our goal of reaching a sustainable outcome that is based on productive and respectful dialogue and includes a shared vision of the positive future in which communities continue to benefit from the site's success and growth. To achieve this shared goal of forming strong partnerships with our communities, we will need to achieve a step change in how we manage social performance and stakeholder engagement at Las Bambas. This will require a shift away from a state of frequent conflict to a more sustainable partnership model with reciprocity at its core. To achieve this, we have established an expert team with applied dedicated resources. This slide outlines the principles of the overall strategy with key concepts being that when Las Bambas as the economic heart of our Port of Matarani, the whole region will prosper. We will work closely to link the success of Las Bambas to the community outcomes, which will continue to lead to stronger relationships. We will also seek to better integrate communities into the overall operational value chain in order to make our contributions more meaningful. For example, this week, Las Bambas signed an agreement with the Fuerabamba community transport association for the supply of concentrate trucks in our logistics transport. This will integrate the Fuerabamba community into our value chain and give them an opportunity to contribute to the future and success of our operations. Artisanal and small-scale mining is widespread in both Peru and the DRC and occurs on tenements where MMG hold exploration and mining rights. In the DRC, we are mindful that ASM is a growing sector and there is an increasing demand for minerals such as cobalt, which is present on our tenements. The demand for these minerals has the potential to increase significantly with the expansion of the market for electric cars. It is difficult and complex issue to manage and in many instances, it is either unregulated or illegal. Positive impact from ASM may include things such as poverty alleviation, increased community capital, decreased rural urban migration and diversified local economies. How these are often offset by poor environmental practices, low levels of health and safety, child and forced labor in equitable distribution of community benefits, illegal trade and heightened security risks. Many of the negative attributes of ASM also have negative human rights implications. We have developed and adopted appropriate strategies to mitigate risks associated with each ASM activity we counted. Communication and collaboration with all stakeholders, including the miners, government, local authorities, community organizations and governing authorities are our first steps towards developing mutually acceptable outcomes. The Kinsevere social development and security teams work closely together to monitor and assess ASM with regular meetings held [ on time ] with our pivotal and mining and community leaders for open and transparent discussion regarding the risks to all parties. I will now hand over to Troy who will conclude today's presentation.

Thanks to everybody today. Before we turn to questions, just to wrap up, I want to return to the fact that safety is our main and overriding priority. And as Josh underlined, the eliminated fatalities and a reduction of harm where our people was #1, but it also sits above our approach to social and other management issues in terms of security and the use of force, it's above everything we do. Finding a solution to the situation we currently face with our partners is also critical to us. As Fiona outlined, we're working to reset those relationships with the communities to make a secure and constructive future based on mutual success. And finally, to return to the company, we are committed to growing and growing a portfolio that is future fit. We already have a very good mix of commodities that are aligned to a decarbonized future, and we are committed to continue to working today. I'll now hand back to Andrea.

Thank you, Troy. We will now move to the question portion of today's presentation, and I will hand over to the moderator for this part.

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

Thank you very much, management team for the very detailed presentation. So I've got 2 questions. The first 1 is, I don't know to what extent your team looks at third-party ESG ratings. But if I look at -- for example, MSCI rating is BB, right? So I think it's better than a lot of the peers, but obviously, there is still some room for improvement to the A grade. So I'm just wondering, I mean, what are the areas that we are sort of like lagging the most behind the top rated peers? And also to what extent are we sort of like penalized for the issues at Las Bambas despite the fact that MMG is actually more of a victim of all these incidents?