MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MMG Limited 2020 Annual Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Jarod Esam, Head of Investor Relations. Please go ahead.

Thank you, and good morning, and welcome to MMG's 2022 Annual Results Briefing. Presenting today are MMG Interim CEO, Li Liangang; and CFO, Ross Carroll, together with other Exco members. The slides for today's presentation are being webcast in both English and Chinese. They can be accessed from the Investor and Media section of the MMG website. I'll shortly hand over to Liangang and Ross to take you through today's presentation, at the end of which we will open the line for questions. For those wishing to ask questions, please ensure you're accessing this presentation via the teleconference details that were included in the invitation for today's session and not just the webcast. I will now hand over to Liangang.

Thank you, Jarod. Good morning to everyone, and welcome to MMG's 2022 Annual Results Briefing. Given the recent incident at degree mine and the tragic dates of dealing language and travel [indiscernible], we start this presentation on a very typical note. The entire Dugald River mine and the broader MMG team have been affected by the loss of dealing and travel, and we extend our sincere condolences to their families, friends and teammates. In addition to the independent investigation be conducted by the Crestline mice is factory, MMG is undertaking a comprehensive investigation of the Internet. Our formal mining services contract partner, Barminco is also conducting its own internal investigation. -- underground operations remain suspended at this time. Safety is our highest value and despite our ongoing commitment to ensuring our workplaces are safe. This strategy is a reminder that more remains to be done as we work to eliminate interest from our workplaces. Let's now turn to our safety performance for the year of 2022. Our operations recorded a total recovery dual frequency of 1.25 for the full year of 2022, which is consistently amongst the lowest of all ICI members. However, we will never stop driving improvement in our safety performance until each of our employees and contractors can return home safely at the end of each shift. I will now move to our 2022 annual results update. 2022 provided some significant challenges for MMG with social protests and stomas impacting our largest operation. As a result of the operational disruptions and the escalating costs due to global inflation of profit of USD 172 million attributable to shareholders was 74% below the record level set in 2021. In June, we made a prepayment of USD 500 million on the la facility, which we anticipate will result in a gross interest cost saving of around RMB 180 million over the life of the facility. Our bankers team has been committed to transforming the way we manage our relationships with communities, with the new model based on the principles of building direct relationships, shared governance, transparency and achieving mutual benefits. We continue to engage in ongoing dialogue in order to transparently review our commitments with communities. We are optimistic about reaching a sustainable outcome to these discussions that is based on the shared vision. Despite external challenges across our sites in 2022, we continue to drive a value optimism focus. -- at Las Bambas, our third one mill was commissioned in the fourth quarter, which supported an increase in mill throughput as severe expansion product started construction. We have completed a seal work for the cobalt plant and commenced the installation -- the installation of equipment. At Dugald River, the processing team delivered a record high annual recovery rate of 89.3% as the site continues to drive incremental improvements to various optimization initiatives. As we look to 2022, we will focus on safety, cost control and productivity improvements across all sites. At the river supply of renewable energy under long-term solar offtake agreements will provide immediate cost savings and reduce our carbon footprint. At Las Bambas, development of [indiscernible] deposit is targeted for the second half of this year. At Kinsevere, first cohort production is expected this year. An important milestone is adding a new product to our existing portfolio of future-focused meters. At Rosebery, an accelerated 2-year exploration drilling program has commenced to support mine life extension. Now I will briefly touch on the current situation in Peru. As you may be aware, since December 2022, Peru has experienced widespread social unrest following the impeachment of the [indiscernible] President, Pedro Castillo. The [indiscernible] protest have caused disruptions along the Southern Road corridor affecting the broader mining industry. We are certain by the casualties sustained during the protests, and our first priority is the health, safety and security of our people, contractors and the broader community members as well as the last fanbase property. The continuous transport disruptions have resulted in a shortage of critical supplies, and we have been forced to slow down our operations. Our production outlook at Las Bambas is in contingent on a swift resolution to the widespread political protests. We look forward to progressing discussions with our communities when the social unrest dissipates. Las Bambas is a world corporate asset with significant growth potential and is a significant contributor to the local, regional and perinatal economies. Moving on now to our mineral resources. I'm very pleased to report that we have grown our mineral resources in 2022 over and above our depletion. Resources for copper totaled 11.2 million tons of contained copper as at 30th of June 2022, an increase of 600,000 tons from 2021. Our total resources were 18.2 million tons on a cover equipment basis, increasing by 500,000 tons from 2021. Looking forward, we will continue with acceleration activity at all sites. We will share more information where assets are completed on recent results, including Dugald river exploration focused on the follow-up of corporate targets and La Bambas [ acceleration ] focused on [indiscernible]. I will now hand over to Ross to take you through our 2022 financial results in detail.

Thanks, Liangang, and welcome to everyone who's on the line with us today. [indiscernible] 2022 has proved to be a challenging year for MMG. Total revenue decreased by 24% due to lower realized commodity prices and lower sales in our Las Bambas and Rosebery operations. This, combined with cost escalation experienced across the mining industry led to an EBITDA of just over $1.5 billion, which was 44% below 2021. MMG's EBITDA margin was 47% in 2022, which is ahead of most of our peers, improves the resilience of our portfolio, even in the current inflationary and high interest rate environment. Now to Slide 11. This slide sets out the EBITDA bridge between 2021 and 2022 to provide investors for some of the detail behind the change in our operating and financial performance. The first point to note is that the largest impact in 2022 is from lower sales volumes at Las Bambas caused by transportation disruptions due to community protests in Peru. This reduced EBITDA by USD 540 million when compared to 2021. As a result, we had 85,000 tonnes of copper in concentrate on site at the end of 2022. We are hopeful that the stockpile copper concentrate will be drawn down and shipped by the fourth quarter or 2023, subject to the resolution to the current nationwide protests and the reliable opening of the Southern Corridor road. The next part of the right shows impacts from lower prices, in particular, copper and resulted in lower EBITDA by $330 million for the year. The green bar to the right shows the impact of stock movement at Las Bambas with a $70 million higher buildup of finished goods -- we had expected to draw down inventory not but instead we build it up. Moving further to the right, exchange rates had a favorable impact in 2022 and increased EBITDA by $30 million. However, cost inflation on consumables and Energy resulted in a negative $150 million impact on EBITDA. This is obviously a problem the whole industry is facing. We also incurred an additional $35 million of costs to manage the social unrest at Las Bambas. Now moving to the controllable factors on the right-hand side of the chart. Firstly, we see the impact of lower sales volumes at Duran Rosebery. The major change occurred at Rosebery due to the COVID-19 impact on workforce availability really in the year and then lower grades throughout the year. The next bar to the right shows an increase of around $50 million in operating costs, which is largely due to the resumption of mining at Kinsevere. The move to the right of the chart, it shows a favorable stock movement in the amount of $44 million, which was due to the stock that poll buildup in Kingsbury. This is actually the sulfide ore that's being stockpiled for the cat project to these last 2 items largely offset each other. And the final item to mention is the decrease in other income of USD 88 million. In 2021, we recognized the gain on the release of the Century Bank guarantee, whereas in 2022, there was no corresponding item. Moving on to our debt slide, which is Slide 12. The chart on the left-hand side sets out our updated term debt repayment profile. As Meaning highlighted, we made a prepayment of USD 500 million on the LB project facility in June 2022. This will result in a gross interest cost saving of around USD 180 million over the life of the facility. We do have some significant debt owing to our major shareholders over the next 3 years. 2 of the buildup of concentrated LB and the overall inability to run all be at full capacity, we haven't been able to reduce our debt as much as we would have liked. The debt owing to our major shareholder will be rolled over. Over the past 6 years, we have continually reduced our overall debt levels with the commencement of production at Las Bambas and Dugald River. As the chart on the right shows, our effective interest rate was around 4.3%. This compares favorably to LIBOR and corporate bond yields due to approximately 60% of the MLB project facility being hedged to the 6-month LIBOR rate of 0.54 25%. And our shareholder loans being at fixed rates. Importantly, we maintain very strong relationships with our funding partners. These partners are very supportive of MMG in flexible in their approach to funding MMG to help us grow. Now to an update on our capital expenditure outlook. Our 2022 capital expenditure of $560 million was lower than initially planned. The lower spend was mainly due to delays of the Chalcobamba development and also general delays at Las Bambas due to the social issues. We expect total capital expenditure in 2023 to be between USD 700 million and $850 million. This includes 50 -- sorry, this includes $400 million to $450 million attributable to Las Bambas, which remains subject to the resolution of the social unrest in Peru, and also reaching a comprehensive agreement with the Wan Keri community. The development of the Chalcobamba deposit is now expected to commence in the second half of 2023. For the CAT project, we are expecting to spend around $200 million to $250 million in the upcoming year. The chart on the right demonstrates that our projects compare favorably to other greenfield and brownfield copper development projects that are planned to be commissioned in the next 5 years. For all those copper development projects, the average cost per tonne of yearly production is around USD 15,000, while our brownfield projects, the KP project in Chalcobamba delivered incremental production with capital intensity of around $7,000 per ton and $10,000 per tonne, respectively. Slide 14 highlights our earnings leverage to changes in commodity prices and FX. Copper and zinc prices and the Australian to U.S. dollar exchange rate had the biggest sensitivity, which is the way it has been for some period of time now. I will now quickly run through a few key points in relation to our 4 operating sites. We've already discussed our Las Bambas production was impacted by the community protest in 2022. This resulted in a 35,000-tonne reduction in copper production from 2021 and some 60,000 tonnes lower than the midpoint of our initial 2022 guidance. The third ball mill was commissioned, which contributed to an increase in mill throughput in the fourth quarter and EBITDA in 2022 was 45% lower due to the lower sales volumes and higher costs. C1 costs increased to $1.53 a pound compared to $1.02 per pound in 2021. The increase in C1 was mainly a function of increased prices for energy and consumables, increased wage rates and the impact of lower production. Turning to the outlook for 2023. We now expect Las Bambas production to be in the range of 265,000 to 305,000 tonnes of copper in concentrate. This is highly contingent on the swift resolution of the widespread Peruvian political protests and our ability to efficiently transport copper concentrate to the port. Subject to the resolution of the social unrest followed by reaching a comprehensive agreement with the [indiscernible] community, the development of Chalcobamba is expected to commence in the second half of 2023. I -- in regard to C1 costs, we expect Las Bambas to increase to a range of USD 170 to $1.90 per pound. This is driven by cost inflation on consumables, further wage increases, higher levels of concentrate transported, lower capitalized mining and an increase in development, social and maintenance activities that were deferred from 2022. Looking towards the medium term, Las Bambas will benefit from the development of Chalcobamba, resulting in higher production rates that will partly offset the increase in costs that we have seen. Moving into very, you can see the progress we're making with the construction of the Cobalt plant. Tiger copper cathode production of 49,000 tonnes in 2022 was an increase of 2% from 2021. This production was at the top end of our guidance, driven by the resumption of mining, which led to the mining of higher grade oxide ore and an increase in the supply of higher-grade third-party ores. During the fourth quarter, we completed all civil work for the cobalt plant and commenced the installation of equipment. We are now shipping the equipment with long lead times for the mine. We've also started earthworks at the new tailings dam. The KP project will enable us to mine and process sulfide ores and also introduce a cobalt circuit. -- tender my life to 2035 and taking annual production up to 100,000 tonnes of copper equivalent production. For 2023, MMG's full year guidance for copper production at Kinsevere is between 40,000 and 48,000 tonnes. C1 cost guidance is in the range of $2.50 to $2.80 per pound. This cost is temporarily high and will reduce significantly with the higher production and the impact of the cobalt by-product credits once the new plants are fully operational. I'll now move on to Dugald River on Slide 20. Dugald River continued performing well, producing 173,000 tonnes of zinc in 2022, within guidance, but slightly lower than 2021 due to the COVID-19 impact on workforce availability early in the year and lower ore feed grades. On a zinc equivalent basis, Dugald River production exceeded 200,000 tonnes for the third consecutive year. The Dugald River processing team delivered a record high annual recovery rate of 89.3% in 2022 as they continue to drive incremental improvements through various optimization initiatives. Dugald River EBITDA of USD 210 million was 1% lower than 2021 due to increased mining expenses to support the transition to an owner minor model for production activities and the onboarding of read past for development activities. Dugald River's full year C1 costs were $0.84 a pound higher than 2021 due to lower production volumes, higher gas prices, higher treatment charges and the additional mining costs I just spoke about. In 2023, Dugald River is expected to produce between 170,000 and 185,000 tonnes of zinc in zinc concentrate, with C1 cost in the range of USD 90 to $1.05 per pound. Increased costs are due to increased mining costs in the currently highly competitive contracting market, some further costs to mitigate the risk in transitioning to owner mining and a full year's impact of the higher Australian gas prices. To mitigate this cost escalation, the supply of renewable energy under our contract with APA will commence in March and will immediately reduce the mine's carbon footprint and provide energy cost savings. We also expect the transition to owner mining to improve production rates and reduce costs in the near future. And finally, moving on to Rosebery, which continues to deliver almost to deliver after almost 90 years of operations. Rosebery produced over 50,000 tonnes of zinc, which was 26% lower than 2021. The lower production was largely due to the COVID-19 impact on workforce availability early in the year, declining ore grades and the resequencing of mining activities in the second and third quarter. Rosebery EBITDA of nearly USD 99 million was a 52% decrease in 2021, mainly due to the lower sales volumes. C1 costs for 2022 were $0.26 a pound compared to a negative $0.34 a pound last year. The higher C1 costs were largely due to lower production rates, which also led to lower byproduct credits. We expect Rosebery to produce between 55,000 and 65,000 tonnes of zinc in 2023 with a C1 cost of $0.35 to $0.50 per pound. This cost guidance range reflects cost escalation experienced across the industry, lower anticipated byproduct credits and increased treatment charges compared to 2022, which will be partly offset by higher planned production. Looking forward, we remain fully committed to extending the life of Rosebery through an accelerated exploration program and the investigation of additional tailing storage options. Thank you, and I will now hand you back to Liangang to wrap up the presentation.

Thank you, Ross. Now we move on to MMG's strategy and outlook. Starting with the overall strategy, and I'm very pleased to share our revised vision and ambition. While our overall strategy remains consistent, our new vision sets a clear direction for us as a leading international mining company providing the materials essential for the transition to a low carbon future. Our new ambition maintains a focus on growth and now includes diversification of assets, commodities and jurisdictions by bringing the best of MMG and our thin and international expertise. I will now provide an update on our approach to ESG. As a member of the SMM and through our commitments to global sustainability related initiatives, MMG remains committed to delivering sustainable development. We also committed ourselves to a goal of net 0 carbon emissions by 2050. Consistent with this, we have adopted a comprehensive climate resilient strategy to guide us on the journey with our interim target of a 40% reduction in emissions by 2030. For Scope 3 emissions, we will drive reductions in our value chain emissions by starting with finalizing validation of our emission foundries and inventory and interim target setting by the end of 2023 and then working further with our supply partners, our inventions reduction opportunities. The data outlined on this slide demonstrates the significant demand outlook for our products. The need to take meaningful action and climate change is becoming more urgent for every government organization and individual. The minerals we produce are essential to ensuring that 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 global shift towards green energy sources intensified. We intend to leverage this make trend with a portfolio positioned to outperform over the upcoming decade, and we will continue to focus our growth plans on this future-facing metals. Looking beyond 2023, we remain confident about our overall market opportunities and outlook. We will continue to pursue disciplined growth, our conserver expansion product and tackle development are expected to deliver additional corporate equipment production of more than 150,000 tons per annum compared with 2022. This is nearly 40% growth on 2022 production levels at very favorable capital intensity. And finally, on behalf of the MMG management team I thank our shareholders, host communities, contractors and all MMD employees for their support. Thank you for your time today. I will now hand back to the moderator, who will open the line to questions.

[Operator Instructions] your first question comes from Lawrence Lau from BOCI Research Limited.

I have got a few questions mainly about las Bambas. First of all, in the announcement, you mentioned that last Bambas still running at a very low supply of critical inputs, and you may be forced to suspend operation again. So can you tell how long the operation can last as things stand at the current situation? And secondly, can you tell us about the cost of the book cost of the 85,000 tons of corporate and corporate concentrate, you part up in Las Bambas on your book as at 2022 and finally, you've mentioned in the announcement that there was about USD 97.4 costs for care or maintenance for the mine because of the zinc suspension during the second quarter. So under which items did you book that cost?

Thanks for the questions. Firstly, in your relation to your first question about how long we can continue for. It's a little bit hard to predict. And at the moment, what we're doing is there's no actual mining taking place. We're just feeding stockpiles into the crusher. So that means we only really need enough fuel for about half a dozen trucks to run to the crusher. Now every now and then, we do get some -- get a break where we were able to get some fields aside. And to be honest, we feel we probably would have had to have shut down already. So it is just hard to predict exactly when it will happen. And if it will happen because our latest advice is that the government will use the army and the police to clear the roads. So we're hopeful that will occur before. We actually totally run out of fuel. But at the moment, we're sort of probably leaping along at about 30% or 40% capacity just due to the consumables. So yes, as I said, we can't really answer that question definitively. But hopefully, the road will be closed. With the cost of concentrate on the books at the end of the year, -- that will be roughly at a cost of about $3.50 a pound. So if you convert that from sort of 85,000 tonnes to over many pounds, it will be by about $3.50, you'll get the rough value there. And with the Cara maintenance costs, it was about $90 million, you're correct from April, May and part of June. That is still booked through cash operating expenditure because obviously, it's still a cost. But what we have done is backed out of our C1 and C3 calculations because, obviously, we had no production at that time, so it would distort the figures. Yes.

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

I've got 2 questions. So the first question is regarding Las Bambas. So quite often, we do see some data points on the power -- electric power consumption of the mines. To what extent are those data points good reflection of the production level or the run rate of the mine? That's my first question.

Honestly Chris, I'm not 100% sure of the question, but most of our power at Las Bambas used to run the whole processing facility and then also some electric shovels. Now at the moment, we've got one electric shovel operating, which is picking up the ore from the stockpile. And then obviously, the plant is pretty much running at full capacity, but with lower grade ores coming through. We're unable to run the moly plant at the moment. And then obviously, we're still running the camp. But yes, I'm not totally sure of your question, to be honest.

Yes, because very often, we can get some data points on the power consumption of the mines, right? So I'd like to understand to what extent those data points are reflective of the activity rate of the mines?

Yes, I must be maybe you know more than I do, but I yes, we -- it's actually not something we see that regularly. So I'm not sure what data you're reflecting or talking...

Okay. Okay. Okay. Yes. Because sometimes Reuters do publish some data points regarding the power consumption of the mines, right? So I'm just wondering whether they can tell us more about whether the mines are operating at normal levels or being disrupted. So -- I mean, that's where I'm coming from.

Yes. Yes.

Okay. Okay. Yes. That's -- Sorry. Not go on. Okay. Yes. So my second question is regarding Dugald River. So the tragic accident happened on the 16th of February, if I remember correctly, so it's been 3 weeks. But the 2023 production guidance has not been changed, right? So -- and if we look at the upper end versus the lower end is maybe about like 10% difference. So is it right to -- I mean, interpret it like this. So I mean, without the accident, we would have probably been running at a rate closer to maybe the higher end of the guidance. And now maybe it's closer to the lower end, I mean, because of the suspension? Is it the right way to look at it?

Yes. No, I think that's right, Chris. -- the reason why we haven't adjusted our guidance yet is that we're obviously not unsure when the mine will reopen. I mean we're hopeful that will happen in the middle of March in some time, but that's dependent on the mine's inspector allowing us to reopen. But I think what I'm saying is roughly our production at Douglas 15,000 tonnes a month in round terms. So probably at best, we would be looking at getting the low end of that guidance, but subject to when we can actually restart operations that we could have to adjust our guidance. So unable to sort of provide a better estimate at this time. the bottom end of that guidance is probably the best we can do now.

Question comes from Eun Young Lee from DBS.

I'm just wondering if your target of LNG or [indiscernible] MMG as letters in a month. So that is the first question. And then second is to how do you expect interest cost? Is the remain high. So there is a -- and then for question about TI. So we are expecting for than last year. So just an how is the impact to impact your earnings from the highest...

Sorry, the line wasn't very good there. So we couldn't understand your first question. I think the second question was around the impact of higher interest rates -- and then I think that... Is the impact from the high LT CRC -- and then first question, just wondering, you suggest the target volume of the Las Bambas, wondering this number has resonance online expansion in the last number... Okay. Perhaps I might take the first -- can you take -- Yes. Yes, with Las Bambas, the guidance we've given here of $260 million to $305 million. I guess the $305 million is a number we can probably do if we're unhindered by the full of social protest. Now obviously, we've been closed for over a month there. So we'd be moving towards the bottom end of that guidance now. We're probably a low of up to 2 months of stoppage. So the bottom end of guidance is sort of coming into play. Now with our interest costs, if you see in the pack, we've got a lot of fixed rate loans, particularly from the major shareholder -- and then we've also hedged 60% of our Las Bambas debt at 0.54%, which is sort of over 3% lower than what actual LIBOR is at the moment. So we're relatively well insulated from the interest rate rises. So I'd say there's probably a $20 million to $30 million increase over what we paid this year. Yes. And then just regarding the TCRC movements both copper and zinc, you see the quite strong markets for the copper concentrate. So the copper TC level -- TCRC level now is lower from last year's high end. Now it's moving down to something like USD 70. And the zinc TCRC also stabilized. And -- but yes, it's -- I think it's quite stabilized around 270 to 80%.

Okay. Just wondering your pace is a pan to the SPC benchmarks your sales price is packed to the benchmark TC or Pat?

Yes. We have different sales arrangements. And we use something for the zinc, we use benchmark for some contracts, we use benchmark TC... And for Yes, yes. It is more.

Which is the majority of the TC contracts. So benchmark sales based on the benchmark is the higher than parts the other way? Which are...

That's quite, how do you say, our sales book quite diversified. And for the sports, I think that it can be different from year to year. And lastly, I think that the spot for zinc is like 40%, 60%.

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.

There's one more question.

Sorry, one moment. Yes. Okay. Here we go. Your next question comes from [indiscernible]

And so I want to ask a question about the commodity issue in the last numbers and truck bumpers. So I want to know if there any update from the negotiation with the communities, is the discussion still ongoing? Or it has been suspended due to the social unrest and can only resume after the resolution of the social analyst. Do you have any updates on this issue. Thank you.

Perhaps I'll take that one. sure how you the -- prior to the breakout of the social unrest around the political issues, we had begun a very good program with [indiscernible] community agreeing the terms of discussions and the items and setting out a time line. It's been difficult to get access to the community just because of road blocks and disruption in the region and also because of some community elections happening locally. We have very good contact and very good relationship with one query at the moment. We are working on getting all of that schedule restarted. And just when those elections finish and with social piece largely restored in the region, I think we'll see that conversation start up very soon. I think the... The key part here is that after many years of quite difficult in getting this started, we have a really clear path to an agreement, and we look forward to working very closely with the community and meeting the time frames we put forward...

[Operator Instructions] There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect. Here this call. You will now leave