MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MMG Limited Q3 '22 Production Report. [Operator Instructions] I would now like to hand the conference over to Andrea Atell. Please go ahead.

Thank you. Hello, and welcome to MMG's 2022 Third Quarter Production Report Teleconference. This report and today's discussion cover the operational performance of MMG's assets for the September quarter of 2022. Joining us today are MMG Interim CEO, Mr. Li Liangang; and CFO, Mr. Ross Carroll; together with other ExCo members. I will now hand over to Liangang, who will discuss the highlights in the reports. After which, there will be an opportunity to ask questions.

Thank you, Andrea, 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 third quarter this year is 1.41 per million hours worked. I'm very pleased that we continue to rank right at the bottom for this index when compared to our global mining peers. Now moving on to the operation performance from different sites. In the third quarter of 2022, MMG produced around 96,000 tonnes of copper and 61,000 tonnes of zinc in what was our strongest production quarter of this year. Las Bambas copper production in the third quarter was around 81,000 tonnes. With the mine enjoying a period of relatively uninterrupted operations, we start -- dialogue tables with our neighboring communities continued. Mining activity was strong with a total material movement of 57 million tonnes, enabling us -- enabling some catch-up streaming activity and access to higher grade ores. Average recovery rate of the processing plant also increased to 85.6% from 84.9% with an ongoing focus on optimization activities. Regarding the dialogue with communities, I wanted to provide an update on these discussions. As you will be aware, our Las Bambas colleagues have been committed to working closely with the government of Peru and the community members to review all existing commitments. We have made significant progress in the dialogue process during the third quarter, reaching agreements with 4 out of 6 communities and moving towards the implementation of these agreements. Our discussions with the 2 remaining communities, Ferrobamba and Huancuire, are continuing to progress with the support of the government, and the process has been extended until the end of December. We are optimistic that more enduring agreements for the continued development of Las Bambas can be reached by that time. Looking towards the end of the year. Subject to no further prolonged operational disruptions, we now expect Las Bambas to produce around 250,000 tonnes of copper in concentrate for 2022. This exceeds the prior revised guidance of around 240,000 tonnes due to the quicker-than-anticipated restart in June following the community protest. We expect that the current strong operation performance will be maintained throughout the fourth quarter. C1 costs, however, are expected to be slightly higher in the range of USD 1.6 to USD 1.65 per pound. The higher costs are mainly due to lower capitalized mining costs due to a change in mining sequence to compensate for ongoing Chalcobamba delays, lower byproduct credits due to lower commodity prices and general cost escalation across energy, consumables and labor. Moving on to Kinsevere. Copper cathode production of around 15,000 tonnes was 19% above the second quarter of 2022 and also the strongest production quarter of the year. The better performance was driven by the ramp-up of mining activity and processing of the ore from the Kinsevere Central pit with improved average milled feed grades and reduced reliance on lower-grade stockpiles that impacted the first half of 2022. Processing plant performance remained strong with the average recovery rate increasing to 96.5% in the third quarter, above the 96.1% average in the first half of the year. We expect higher production rates to continue in the fourth quarter due to higher ore grades and stable recovery rates. Copper cathode production for the full year of 2022 is expected to be at the higher end of the guidance rate of 45,000 and 50,000 tonnes. In line with prior guidance, C1 costs are expected to be in the range of USD 2.5 to USD 2.8 per pound with stronger second half production partly offset by rising industrial costs. The Kinsevere Expansion Project is also progressing well. During the third quarter, we commenced civil works for the cobalt plant and are now manufacturing long-lead time equipment. Major packages for the construction of the concentrator and roaster have been awarded. Through this project, the mine will see a shift to the mining and processing of sulphide ores and the introduction of cobalt circuit, expanding mine life by 13 years and taking annual production up to more than 100,000 tonnes of copper equipment production. First cobalt production is expected in 2023 and the first copper from the sulphide feed in 2024. You may have become aware that following the earlier announcement in relation to Sokoroshe II and Nambulwa, we have filed an arbitral proceeding before the International Chamber of Commerce. Since the operation of Sokoroshe II and Nambulwa mining leases by the military forces and third parties, we were issued agreements by -- or issued agreements by Gécamines in breach of MMG's existing contractor rights. MMG is involved in regular engagement with Gécamines, the DRC government, the provisional government and also the Chinese Embassy in DRC. Due to lack of progress in discussions and the ongoing occupation of the sites, MMG is focused to commence arbitration proceedings in order to protect its interest. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, the mine achieved the strongest production in over 18 months with around 49,000 tonnes of zinc concentrate, 18% higher than the second quarter. Mining performance improved sharply, with greater workforce availability and a strong support from our mining contract partner as we transition towards the end of this contract and prepare to in-source development work from the year of 2023. In addition to the strong mining performance in the quarter, the processing team delivered a record-high zinc recovery rate of 90.1% as they continue to drive incremental improvements for various optimization initiatives. We now expect Dugald River to produce 170,000 to 180,000 tonnes of zinc in zinc concentrate in the full year of 2022. Meanwhile, C1 costs are anticipated to remain in the range of USD 0.85 to USD 0.95 per pound. At Rosebery, zinc production remained stable at around 12,000 tonnes, which was in line with the first and second quarters of 2022. Year-to-date production has been impacted by lower ore grades, which as a result of continuous resequencing of mining activity to manage geotech conditions in that mine. The geotech modeling and mining strategy review has now been completed. And towards the end of the quarter, mining grades and ore grades started to improve. Higher workforce availability also enabled us to maintain better compliance with the mine plan. This trend is expected to continue in the fourth quarter of the year. We now expect Rosebery to produce between 50,000 and 55,000 tonnes of zinc in zinc concentrate in the year of 2022, below the prior guidance due to COVID-19 impact earlier this year and the resequencing of mining activity in the second and third quarters. As a result of the lower production rates and lower byproduct prices, full year C1 costs for Rosebery are expected to be in the range of USD 0.25 to USD 0.35 per pound. I'm now happy to take your questions with my ExCo members. Thank you.

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

I'm glad to be the first one to ask a question. Congratulations for a great -- for a good quarter of the results -- operational results, first of all. And a quick follow-up regarding Las Bambas. I see that the full year guidance has been revised up, but the implied 4Q actual copper output are still like over 10% below third quarter's level. So what -- but management also mentioned that you expect the current run rate or high run rate to sustain into the end of the year. So my question is, what are the considerations that the company hasn't really lifted the production guidance at Las Bambas up to, say, 260,000 rather than 250,000, so there could be more upside potentially from the 4Q production alone? That's the first question. A second one, a quick follow-up is related to the local community -- the negotiation with the local community. So assuming that we make some major progress, so what is the lead time potentially required for us to really mobilize the workforces to develop the Chalcobamba pit? So what's the lead time before Chalcobamba can actually take place? Yes.

Thank you, Jack, for your questions. And I will have Mr. Wei, the EGM, Las Bambas, to take your first question regarding the production. And also, I will have Troy to take your second question in terms of the community. And Troy is now at Las Bambas.

[Foreign Language] So the answer from Mr. Li's -- the reason rate changed in the guidance, the production, is because of the major focus we were aiming at. We would resume the operation in July. But in reality, we have resumed the operation in June instead of July. So the increase of the production for the guidance, this is the reason that we have changed the guidance or the production to the 250,000 tonnes of copper. But the rest of the indicator has remained the same with -- as major forecast.

[Foreign Language] So my follow-up question [indiscernible] production. Yes.

[Foreign Language] Okay. The answer for the question is because of the Chalcobamba reasons, in the major forecast, we were assuming that in the first quarter, we will have a Chalcobamba for the production. But in reality, there is no contribution from the Chalcobamba to this year. And also, we have made some change in the mining sequence for the Ferrobamba. So the fourth quarter, the production level will be a little bit lower than the third quarter.

Jack, I think it's -- there's also a bit of impact of lower grade. And obviously, there's a little bit of conservatism in there as well because we don't know if and when the community issues can flare up again.

And Jack, it's Troy here. Thanks for the question. The good news is, I think, we've begun the discussion with the Huancuire community around access and getting into Chalcobamba, which is good progress. It does depend in some ways on that -- how that agreement runs and how that negotiation runs about what our entry to the development of Chalcobamba is. And really until we reach certain agreements and [ stagger that ] entry, we won't know exactly. But it will take some time to get the access and infrastructure in place and mobilize contractors and then we would move to prestripping and first ore. So it's -- I think previously, we've said it's a couple of months from kind of getting a go ahead to really getting access to ore out of the mine, but it really depends also on how that discussion and on what basis we can do an agreement with the community.

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

I've got a couple of questions. So the first one is regarding Kinsevere. So what exactly is Gécamines looking for? And I mean do you see any potential for escalation? Because we have seen in some other cases of companies operating there, like, for example, China Moly's Tenke project, the exports have been disrupted. So what are we seeing there? That's the first question.

Thank you, Chris, for your question. I will have Nan, who's the EGM for Australian and African operations, to take this one.