MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MMG Limited First Quarter Production Report Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Jarod Esam, Head of Investor Relations. Please go ahead.

Hello, and welcome to MMG's quarterly production report teleconference. This report and today's discussion cover the operational performance of MMG's assets for the first quarter of 2023. Joining us today are MMG Interim CEO, Mr. Li Liangang; and CFO, Mr. Ross Carroll, together with other ex-co members. I will now hand over to Liangang, who will discuss the highlights in the report, after which there will be an opportunity to ask questions.

Thank you, Jarod. Good morning to everyone, and welcome to MMG's 2023 First Quarter Production Report Teleconference. As always, at MMG, our first value is safety. We again extend our heartfelt condolences to the bereaved families, friends and teammates of Trevor Davis and Dylan Langridge, who are physically injured at the Dugald River mine on Wednesday, the 15th of February 2023. An instant investigation is in progress, and we will take every matter necessary to ensure events like this don't occur again. Mining and processing activities at Dugald River recommenced on the 21st of March, following approval by the relevant authorities with a safe and careful approach to reintroducing our workforce to the underground environment. Our Total Recordable Injury Frequency rate for the first quarter of 2023 is 1.46 per million hours worked. This represents an increase on the full year 2022 TRIF of 1.25. Let's now turn to our production performance for the first quarter of 2023. During the quarter, we produced around 69,000 tonnes of copper and 31,000 tonnes of zinc. Las Bambas copper production in the first quarter was 58,000 tonnes. This represented a decrease of 50% on the prior comparable period last year. Las Bambas mining activity was impacted by widespread protests that restricted access to critical supplies. To mitigate the impact of reduced ore mine supply to the processing plant, we increased processing of low-grade ore stocks, resulting in lower average milled ore grades. On the 11th of March 2023, with the removal of roadblocks in the Velille district, we recommenced transportation of concentrate. Outside operations have since returned to full capacity. With the improved local security situation, MMG is planning for the resumption of formal dialogue tables with the Fuerabamba community in the coming weeks. The Huancuire community has elected a new Board of leaders and are now in the process of registration as the public registry. We continue to engage with the community at multiple levels, and our planning for the resumption of formal dialogue tables once the Board's registration is finished. Las Bambas is a significant contributor to the local, regional and national economies in Peru. MMG remains committed to working closely with the government of Peru and the community members for transparent and constructive dialogue, and is optimistic that more enduring agreements for the continued development of Las Bambas can be reached. Now turning to the outlook for 2023. In line with prior guidance, we expect Las Bambas copper production in the range of 265,000 tonnes and 305,000 tonnes this year. This subjected to continued supply, people and logistics access to the site. Our development of the Chalcobamba deposit is targeted for the second half of 2023, subject to reaching a comprehensive agreement with the Huancuire community. Moving on to Kinsevere. Copper cathode production of around 10,000 tonnes in the first quarter was an increase of 5% from the same period in 2022. This improved performance was driven by increased supply of higher-grade third-party ore and the supply of mined ore following the resumption of mining activity in April 2022. The contribution of these 2 positive factors was partially offset by lower mill throughput, which was impacted by poor power availability from the national grid in the first quarter. As you may be aware, Kinsevere is now in the transition period from the money upside or to sulfide ore, as the higher-grade oxide ore in the current mine phase is depleted. Kinsevere plans to secure more third-party ores and utilize lower-grade ore stockpiles. I'm happy to report that the construction of -- the construction progress of Kinsevere expansion product is on track. During the first quarter, we awarded all the long lead equipment packages for the concentrated plant and the civil work broke ground on the 3rd of March. Earthworks for the new tailings dam are also in progress. Preparatory works, including civil and road improvements, have now commenced at Sokoroshe II. First cobalt production is expected in 2023 and the first copper cathode from sulfides in 2024. The product is expected to extend the mine life to 2025 and take annual production up to 100,000 tonnes of copper equivalent production once we reach full ramp-up in 2025. In line with prior guidance, the expectation of copper production remains to be between 40,000 and 48,000 tonnes. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, zinc production of around 21,000 tonnes was 45% lower than the prior corresponding period due to a 34 days production suspension after the fatal incident. We resumed mining and processing activities on the 21st of March 2023, after receiving approval from the relevant authorities. The mine continues to ramp up with the focus on safety, returning our workforce to the underground environment. We have made additional available -- we have made additional support available to our people as underground operations recommenced. Regarding the Dugald River guidance, we have adjusted our production expectation in 2023 to be in the range of 135,000 and 150,000 tonnes. Dugald River C1 cost in 2023 are now expected to be in the range of USD 1.05 and USD 1.20 per pound, higher than the priorly expectation reflecting the lower zinc production. Dugald River has now transitioned to an older miner model for production activities and to mitigate cost escalation and lower carbon emissions. We commenced our long-term solar offtake agreement with energy provider, APA Group. Construction of the Dugald River solar farm completed in February 2023, and I'm happy to report that commercial operations were achieved on the 21st of April. At Rosebery, the mine produced around 10,000 tonnes of zinc and around 3,000 tonnes of lead in the first quarter. This represents a decline of 18% and 27%, respectively, to the prior corresponding period. During the first quarter, our mined and milled volumes were impacted by lost production time related to the bushfire at the end of December 2022, and lower workforce availability as a result of increased competition for skilled mining labor in the region. Milled ore grades were also lower largely due to mining sequence and a lower contribution from remnant stops. In line with prior guidance, we expect Rosebery to produce between 55,000 and 65,000 tonnes of zinc -- in zinc concentration -- in zinc concentrate in 2023. The first quarter represented some significant tonnages for MMG particularly at Las Bambas and Dugald River, but we have finished the quarter in a much stronger position with the return of operations and concentrate logistics at full capacity at Las Bambas, and a safe return and ongoing ramp-up of operations at Dugald River. We are now happy to take any questions.

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

Actually, I have three questions, if I may. First of all, for Las Bambas, we see further pileup of inventory to 115,000 tonnes. So what's the management views as to how realistically we can lower to that inventory level by the end of this year? Say, what's the inventory level we expect to be at the end of this year? And secondly, in the presentation introduced, you're talking about the power supply problem in -- or power supply issue in Kinsevere. So what's the management view on this part? Do you see further power supply disruption down the road? And thirdly for Dugald River, you mentioned you have signed a power offtake agreement from solar. Just wonder if the management can provide, say, estimate for cost saving from this part?

Thanks, Lawrence. It's Ross here. I might take the first question on LB inventory and then I hand over to Nan to talk about the power supply at Kinsevere. But yes, you're right, we have got 115,000 tonnes of metal work at Las Bambas, copper metal. Now if the logistics line or logistics route stays open, continuously, we would expect to run that down to normal stock levels by the end of the year, but that's obviously dependent on the ability of us to keep logistics rolling at optimal levels. So yes, if all goes well, that will be run down by the end of the year. Perhaps, Nan, do you want to take the next question [indiscernible]?

Yes. Thanks, Ross, and hi Lawrence. Thanks for the question. Regarding the power supply issue in DRC recently is more of a national-wide. We do see some infrastructure breakdowns and of course, the downtime and also some of the scheduled maintenance as well from the power supply company, SNEL. In terms of current power supply, we do see some recovery and then stability from the power supply company in April. We're working closely with SNEL to make sure we have a stable power tool like [indiscernible] going forward. So we're definitely watching in this space closely. Just to answer your third question on the solar for Dugald River. So the solar power accounts about 30% of power supply to Dugald. And then in terms of C1, saving is roughly about $0.03 per pound C1 cost saving.

Lawrence, just one more comment on the solar farm, from Dugald River, it's not only a cost saving, but also we are moving on the green energy path, and MMG has a target for the carbon emission strategy. That's part of our strategy on that. Thank you.

[Operator Instructions] Your next question comes from Jimmy Feng with Citi.

I have few questions. Firstly, could you give us some update on the Chalcobamba project. So the expectation is that Chalcobamba starts construction in the second half or start operation in second half. I'm asking this just wondering how long will it take for the construction of Chalcobamba project as that since the construction can only be started after reaching the agreement with Huancuire committee? Is that right? And the second question is that the production guidance for Las Bambas is that include any contribution from Chalcobamba project this year? And another question is for the KEP project. This is the last question. And I want to ask, is there any update on the discussion with Gécamines about the issue? That's all my question.

Thanks, Jimmy. I might take the first two questions and then let Nan talk about the KEP. First, the Chalcobamba project, but we started -- we're hoping to start construction in the second half. And while we are constructing, we can actually still extract small amounts of ore during the construction process. So the -- and we're not -- we're obviously just building a satellite mines. So there's not a huge amount of infrastructure to be built there. So the construction period is about 4 months. But that is also a little bit subject to how heavy or how much we get into the wet season there because obviously, [ rainwater ] in the wet season, but all going well, we'd be hoping to -- let the construction started and mine a little bit of ore during this year. Now you're right, it is dependent on us getting an agreement with Huancuire. And I think we -- as we said in the report, we're hoping to start formal discussions with them again soon once they're effectively the management of the Huancuire community is ratified. And at this stage, it's about between 10,000 and 15,000 tonnes of Chalcobamba ore included in our full year guidance for Las Bambas. Now if we can't get access and start producing from Chalcobamba, we won't lose the whole 15,000 tonnes because we'll bring lower grade, Fuerabamba ore into the mix. So you're probably looking at sort of -- if it's nicely 15,000 tonnes included, we'll probably lose about half of that if unable to progress Chalcobamba in time. Hopefully, that answers those two questions for you.

Yes, yes, that's very clear.

Yes. And I'll let -- leave to Nan talk about KEP.

Yes. Hi, Jimmy, thanks for the question. In terms of your question on the Gécamines discussion related with KEP project, currently, we still in discussion with Gécamines to resolve the current issues, and then we welcome the support received from the new Gécamines management team. So in terms of the arbitration is still ongoing, and then MMG is still working closely with the new management team from Gécamines to conclude this matter. We are in a view to continue pursuing our long-standing relationship with Gécamines to ensure a strong future for the Kinsevere asset.

Your next question comes from Chris Shiu with Balyasny Asset Management.

So I've got a couple of questions on Las Bambas. So the first question is, what has been the key for the stabilization of the situation there? So I mean a few months ago, when we look at Las Bambas, it seemed to be pretty chaotic, but now it seems that the situation has become more stable. So I mean, what has been the key to that change? That's my first question.

Thanks, Chris. Thanks for the question. A couple of factors. One, the general level of protest in Peru has been reducing from a couple of months ago and now largely defined to the Puna region, though there is still a lot of political unrest, it's not translating into on-the-ground protests. So that's been a big help. Number two is the interim government while not -- while the difficult political position is actually very administratively competent and so are really working well with across the industrial sector and across Peru to putting 3 very distinct kind of economic recovery plans to make sure that the Peru economy is supported and back into growth. So it's been really heartening to see the government come together and do a fantastic job of promoting economic activity. The third part is while that the Road Corridor has declared a critical national asset and can be protected, a state of emergency has also been put in, which gives additional ability for the government to mobilize both police and army support to make sure that any unrest is discouraged, and that's led to that road being continuously open since that was declared in April. So a bit of social peace, and government that is really administered will be quite confident and a greater effort on creating peace in the region has given us great confidence that the current situation will continue for some time, and it really allows us to reduce stockpiles, as Ross said.

And my second question is, so with the developments and also the contribution from Chalcobamba, what can we expect in terms of the C1 cost going forward?

Yes. I think this year, it will have a minimal impact, Chris, and we haven't sort of revised our numbers for next year. So -- but where it does have the impact really is that the initial Chalcobamba feed will be coming into the grade of about 1%. And I guess the substitute Fuerabamba feed, if we can't mine Chalcobamba coming in at sort of 0.5% to 0.6%. So it is [ insignificant ]. And then in 2024 and '25, it starts to provide significant volumes, so I think we'll obviously help our C1, but you still need to bear in mind, we are in a high inflationary environment in Peru and everywhere. And once we got those costs are in the system, they're very hard to get out, and it's likely to give your labor force high wage increases. They don't reverse. They sort of stay with you. So unfortunately, this round of cost inflation that we've seen is going to be largely sticky. Perhaps the one area where we may see some respite is, oil prices, because that is elastic up and down, but a lot of the other costs stay with us.

Got it. Yes. And lastly, regarding Sulfobamba, is there any thought as of now for its potential development, especially given the very precious chance that we are in a relatively peaceful and stable situation now at Las Bambas? I mean are we going to push it forward, maybe earlier just to take advantage of this current situation now.

Yes. It's sort of next in line after Chalcobamba and selling the social team at LBs in discussions with the community that has the sort of the land rights over Sulfobamba, but I still think that will be some years away. So that's the first -- [ first now first ] to crack will be the Chalcobamba.

Thank you. We're showing no further questions at this time. I'll now hand back to Mr. Liangang for closing remarks.

Thank you very much for your time. And if you have any further questions, please feel free to follow up with our Investor Relations and Corporate Affairs teams. Thank you again.

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