MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MMG Limited 2023 Interim Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Jarod Esam, Head of Investor Relations. Please go ahead.

Good morning, and welcome, everyone, to MMG's 2023 Interim Results briefing. Presenting today are MMG Interim CEO Li Liangang; and CFO, Ross Carroll. The slides for today's presentation -- and webcast in both English and Chinese. They can be accessed from the Investor and Media section from the MMG website. At the end of today's presentation, we will open the line for questions. For those wishing to ask questions, please ensure you're accessing the 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 2023 Interim Results Briefing. At MMG, safety is our utmost priority. Across the business, we are committed to eliminating the significant potential incidents that present [indiscernible] risks by driving a culture that recognize the safety and wellbeing of our people above all else. In a tragic start to the year, 2 people employed by our mining contractor Barminco at the Dugald River mine, tragically lost their lives after a light vehicle they were traveling in fell into a slope on 15th of February 2023. We extend our sincere and heartful condolences to their families and friends. For the first half of the year, MMG recorded a total recordable injury frequency rate of 1.20. This represents a decrease of 0.05 when compared to the full year of 2022. In addition to our industry-leading TRIF performance, we also focus on significant events as leading indicators, particularly significant events with energy exchange, which have the highest potential to result in the loss of life. Our operational report and learn from these events, so we can prevent serious injuries and fatalities. We continuously improve our risk management processes, ensuring that critical controls for material safety risks are always in place in our journey to eliminate fatalities from our business. Now let's move on to our production and financial results. We are delighted to report that MMG achieved an increase of 31% in total copper production compared to the first half of 2022. Notably, during the second quarter, we experienced increased production at all of our 4 operations compared to the first quarter of 2023. However, our total zinc production experienced a decline of 22% primarily to a 34-day suspension at Dugald River caused by the fatal incident in February. On the revenue front, we achieved a significant increase of 35% in total revenue for the period. This growth was primarily driven by record sales volumes from our Las Bambas operation in the second quarter with stability around the southern corridor since March 2023. MMG's revenue stream continues to be dominated by copper, contributing 76% of our total revenue in the first half of 2023. In terms of net cash flow from operations. We achieved a significant increase of 216% compared to the first half of 2022, totaling USD 426 million. While we experienced some positive outcomes, we also faced challenges with lower prices for copper and zinc in the first half of 2023, higher consumption of third-party ores at Kinsevere to offset reduced oxide ore mined during the transition to mining sulphide ores and higher costs in line with the broader industry. Our total EBITDA decreased by 2% compared to the same period in 2022. I'm pleased to report that the construction progress for our Kinsevere expansion project is on track with the first cobalt production expected this year. The majority of the structural and mechanical installation of the cobalt plant has already been completed. This project will extend the mine life of Kinsevere until 2035 and take any production up to 100,000 tonnes of copper equivalent production. As a member of the ICMM, we have aligned our approach to sustainability to the organization's mining principles and add additional position statements, which provides the best practice framework for the mining and metals industry. In our efforts to reach net 0 emissions by 2050. The operation of Dugald River solar farm commenced in the first half of the year, providing around 1/3 of the site's powering requirements. Additionally, at Rosebery, we have successfully completed a trial of a hybrid diesel-electric underground loader. As our current equipment approaches the end of its operational life, we have placed orders for these new hybrid loaders. Our internal carbon price has also been implemented for use in our annual mine and business planning processes. This will help us to assess potential decarbonization options at each mine and make better informed business decisions. The aim of our social contributions is to drive social development by supporting our host communities and providing individual economic [indiscernible] through improved access to infrastructure, health care, education and employment opportunities. In 2022, we paid USD 567 million in taxes and royalties to our host governments. And our direct social spending in our host communities amounted to USD 31 million. Our Las Bambas operation has continued to face challenges with social conflicts and uncertainty impacting our people, our operations and our business more broadly. With the team on the ground continues to work hard to manage these challenges, Las Bambas has decided it's time to seek a new path forward. The transaction basis of relationships is no longer sustainable. A new model and a significant change program is required. This program will be called Corazón Las Bambas, heart in English. As a reminder of the importance of Las Bambas, for the communities and regions in which it operates. If the heart of Las Bambas beats, everyone benefits. The program has been tasked with the implementation of the Las Bambas social and land access strategy developed and approved by the [indiscernible] of the company and will consist of 8 key projects. Now moving on to our Kinsevere expansion project. The Kinsevere expansion project aims to significantly increase our production capacity to approximately 8,000 tonnes per year of copper and between 4,000 and 6,000 tonnes per year of cobalt at full capacity. To support this expansion, we have allocated a capital [ expenditure ] in the range of USD 550 million to USD 600 million. The construction is progressing well. You can see from the progress we have made through this picture of the cobalt plant with the majority of the structural and mechanical installation already completed. We have achieved many milestones in the KEP project's execution. Board approval was received in March 2022 and we commenced the construction of the third TSF in November 2022. Earthwork started for the sulfide concentrator in March 2023. We are currently doing proprietary work at Sokoroshe II and progress in construction of the roaster and acid plant. As already mentioned, the majority of the structural and mechanical installation for the cobalt plant is already complete. Looking ahead, we anticipate the first cobalt production to commence in the second half of 2023, making a significant milestone in our expansion project. Subsequently, we expect the first copper cathode from sulphide ores to be produced in the second half of 2024. Moving on to our recent exploration results. Firstly, I'm pleased to report significant progress at Las Bambas, Ferrobamba Deeps. Through our exploration efforts, we have successfully defined the depth extension and continuity of skarn and porphyry mineralization beneath the 2022 ore reserve pit design. This is an exciting development as it indicates the potential for a large tonnage deposit at Ferrobamba Deeps. We are thrilled with these results and believe they open up new possibilities for our operations at Las Bambas. Looking ahead, we have planned further drilling activities in 2023 and 2024 to continue evaluating the mineralization and determine potential mining methods. This could involve the expansion of open pit, all the development of an underground mine or a combination of both. At Rosebery, we started an accelerated drilling program in January 2023. This program has already yielded promising results, including extensions to mine life, such as the z-lens and t-lens as well as the discovery of new mineralized zones. These findings highlight the remaining potential within -- in and around the Rosebery mine. Concurrently, with the Rosebery drilling program, we are conducting studies to identify a sustainable long-term tailings storage solution. This is an important step in extending the life of the Rosebery mine, ensuring its continued operation and contribution to our overall portfolio. For further details, please refer to the full report on these exploration results released on 13th of July. I will now hand over to Ross to take you through our 2023 interim financial results in more detail. Ross, over to you, please.

Thanks, Liangang, and welcome, everyone, joining us on the line today. I'll now provide an overview of MMG's performance for the first half of 2023. While we faced certain challenges during the period, there are also a lot of positives to take away. Firstly, we achieved a significant increase in total revenue, which rose by 35% compared to the first half of 2022. This improvement was primarily driven by higher sales volume from Las Bambas as we were able to operate for longer periods than the first half of 2022, which more than offset the impact of lower copper and zinc prices. MMG also achieved a significant increase of net cash flow from operations, totaling USD 426 million. This represents an increase of 216% compared to the first half of last year. This is primarily attributable to favorable working capital movements, including the inventory drawdown at Las Bambas in 2023 compared to a buildup of inventory in the first half of 2022. Additionally, lower tax payments for both Las Bambas and Kinsevere contributed positively to our net cash flow from operations. However, despite the positive impact of higher sales of Las Bambas, our total EBITDA experienced a 2% decrease compared to the first half of 2022. I'll explain it further on the next slide. This slide provides the EBITDA bridge between the first half of 2022 and the first half of 2023. I'll [indiscernible] with some of the detail behind our change in the operating and financial performance. First, there was an unfavorable impact of $170.6 million, driven by lower realized prices of copper and zinc. It's important to note that the price gains includes mark-to-market adjustments on open sales contracts of 126,000 tonnes of copper and 20,000 tonnes tons of zinc. These adjustments were recognized based on the price on the last day of June but will be finalized in the second half of the year when the contracts close. Moving on. The largest positive impact in the first half came from higher sales volumes at Las Bambas, resulting in an increase of revenue of over $719 million compared to the previous year. This positive impact was partially offset by lower zinc concentrate sales volumes at Dugald River due to the 34-day suspension in February. Additionally, zinc and lead sales volumes at Rosebery were lower due to the timing of sales with a couple of slip -- shipments slipping into the second half. Next, we have the impact of operating costs, which are mainly driven by the unfavorable stock movement at Las Bambas due to the drawdown of stockpile compared to the buildup in the first half of 2022. Additionally, production costs at Las Bambas in the first half were higher due to the increase in the volume of material mined and milled. Ancillary production cost increased as well, mainly driven by increased consumption of third-party ores. It compensates the reduced mining of oxide ores as we await the completion step, which will allow us to process sulphide ore. Moving on to an overview of our debt. The chart on the left-hand side illustrates our updated term debt repayment profile. We have already repaid $318 million of our Las Bambas project facility in June '23. And as we move forward, the repayments will reduce in 2024 and 2025. With the shareholder loan repayments, we have the flexibility to review them with our major shareholder as necessary. As the chart on the right shows, our effective interest rates for 6 months ended 30th of June was around 5.2%, remaining lower than the benchmarks due to the [ hiking ] done in our Las Bambas project facility and our shareholder loans being at fixed rates. Slide 17 provides an update on our capital expenditure. As previously guided, we anticipate total capital expenditure in 2023 be within the range of USD 700 million to $850 million. USD 350 million to USD 400 million is attributable to Las Bambas. It includes investment in the expansion of the Las Bambas [indiscernible] and the development of the Ferrobamba pit infrastructure. Additionally, in Kinsevere, we expect capital expenditure for the new plan to range between USD 200 million to $250 million. An additional $50 million to $100 million will be spent on the associated stabilized mining activities. 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 over the next 5 years. Slide 18 highlights our earnings leverage to changes in commodity prices and FX. Copper and zinc prices in the Australian-U.S. dollar exchange rate has the biggest sensitivity with a $0.10 per pound move in the copper price having an $82 million impact on our EBIT. I will now provide a brief overview of some of the key points regarding our 4 operating sites. At Las Bambas, as we discussed earlier, we experienced a significant increase in production and sales in the first half of 2023 thanks to the stability along the southern corridor in the second quarter. Notably, we achieved record high sales of approximately 417,000 tonnes of copper concentrate in the second quarter. These increased sales volumes resulted in an 84% increase in Las Bambas's revenue and contributed to a 56% higher EBITDA compared to the first half of 2022. In terms of costs, the Las Bambas C1 cost was USD 1.60 per pound for the first half, well below our guidance range of USD 1.70 to USD 1.90 per pound. Las Bambas copper production in 2023 was expected to remain within the range of 265,000 to 305,000 tonnes contingent upon continued access to the site, the supplies, personnel and logistics. The Las Bambas team is working hard towards enduring agreements with the development of the Chalcobamba deposit with the waqui community. We are hopeful that the development of the deposit can commence by the end of 2023. Moving on to Kinsevere. In the first half of 2023, we saw a slight decrease of 2% in copper cathode production with 22,000 tonnes produced. This decrease was due to an unstable power supply from the national grid and a planned shutdown of the processing plant for the integration of the cobalt plant in the second quarter. During the first half of the year, we recorded an EBITDA loss of USD 14 million at Kinsevere, down from an EBITDA profit of $64 million in the same period for 2022. This cost can be primarily attributed to lower copper prices and the higher consumption of third-party ores to compensate for the reduced oxide ore mined during the transition period and higher sulfuric acid consumption. This also resulted in an increase in C1 cost for the first half of 2023 to USD 3.53 per pound. The construction of the Kinsevere expansion project is progressing as planed. Expansion projects will contribute to higher production and with the introduction of cobalt byproduct credits reduced unit costs. The Kinsevere team has made significant progress on the preparatory work at Sokoroshe II. We expect that mined ore from Sokoroshe will start to be transported to the Kinsevere main site in the second half of the year, allowing us to optimize the consumption of third-party ore. As such, we anticipate that the average C1 cost for Kinsevere in 2023 will be in the range of USD 3.15 to USD 3.35 per pound, which is lower than the cost incurred in the first half. I'll now move on to Dugald River. In the first half of 2023, Dugald River produced 57,000 tonnes of zinc. This represents a 28% decrease compared to the prior corresponding period. The mine has been prioritizing the safe ramp-up of operations since restarting in late March after 34 days suspension due to the fatal incident in February with full rates of mining and processing achieved in late May. Dugald River has successfully transitioned to an owner-miner model with MMG executing production operations while our new mining contractor Redpath is solely focused on development activities. We achieved the highest monthly advance rate on record in January, reaching 1,138 meters of development. However, Dugald River recorded an EBITDA loss of $26 million in the first half of 2023, representing a decrease of 121% compared to the same period in 2022. This loss can be attributed to lower zinc prices and lower zinc and sales -- lead sales volumes due to the suspension of operations. In terms of cost. Dugald River's C1 costs were USD 1.30 per pound in the first half. Our annual guidance range is USD 1.05 to USD 1.20 per pound with improved performance expected in the second half of the year as we will operate at full capacity. We continue to implement improvement measures, the savings already realized from our long-term solar offtake agreement with energy provider, APA Group, an ongoing plant optimization delivering 89.7% zinc recovery in the first half of 2023. And finally, moving on to Rosebery, which continues to deliver after almost 90 years of operations. Rosebery mined 4% more ore in the first half of 2023 due to improved mine productivity and workforce availability despite lost production in January resulting from the bushfire incident in late December. However, production of 23,000 tonnes of zinc represents a 2% decline compared to the first half of 2022, reflecting lower grades, mainly attributable to the mining sequence. Revenue of $103 million was 27% lower than the same period last year due to lower -- sales prices and lower sales volumes, partly offset by higher precious metal prices. Operating expenses were lower by 24%, reflecting a favorable stock movement with the buildup of zinc and lead concentrate stock due to the timing of sales. C1 of $0.18 a pound was 53% lower than the first half of 2022, attributable to higher byproduct prices, partly offset by higher production expenses. In line with our prior guidance, zinc production in 2023 is expected to be between 55,000 to 65,000 tonnes of zinc and zinc concentrate. The 2023 average C1 costs are expected to be at the lower end of the prior guidance of $0.35 to $0.50 a pound, supported by higher byproduct grains and strong precious metal prices. Looking forward, we are working hard to extend the mine life of Rosebery. The accelerated exploration program is already delivering encouraging results, as demonstrated in our recent exploration release. And currently, we are continuing to investigate potential options for a sustainable tailings storage solution as well as potential options for safe and viable short-term capacity increases at our existing facilities while awaiting the minister's decision on the proposed preliminary works at South Marion Oak. I'll now hand it back to Liangang to wrap up the presentation. Thank you.

Thank you, Ross. Let's move on to MMG's strategy and outlook. While the overall strategy remains consistent, our new vision sets a clear direction for us as a leading international mining company that plays a crucial role in providing the material essential for green energy transition. We recognize the importance of sustainable practices and are committed to contributing to the global effort towards a greener and more sustainable world. In line with our operation, our ambition focuses on growth and diversification. We aim to expand our portfolio of assets, commodities and jurisdictions, bringing together the best of MMD and our Chinese and international expertise. Now let's turn our attention to our approach to sustainability. At MMG, we understand the importance of delivering sustainable development and are committed to making a positive impact in the communities where we operate. As a member of the International Council on Mining and Metals and through our commitments to global sustainability related initiatives, we prioritize sustainability in all aspects of our business. Our approach to sustainability encompasses 3 key areas: people and communities, environmental stewardship, and being a trusted and responsible producer. The data outlined on this slide demonstrates the significant demand outlook for our products. The need to take meaningful action on 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 as the global sweep towards greener -- green energy sources intensifies. We intend to leverage this mega trend with a portfolio position to outperform over the coming -- upcoming decade, and we will continue to focus our growth plans around future-facing metals. Looking beyond 2023. We remain confident about our overall market opportunities and outlook. We will continue to pursue disciplined growth. Our Kinsevere expansion project and Chalcobamba developments are expected to deliver additional copper equivalent production of more than 150,000 tonnes per annum compared with 2022. At Las Bambas, our focus is to build better partnerships with our communities that are based on respect and mutual success. We believe that a new sustainable model that promotes greater participation and building meaningful relationships can take us a step forward to reduce social pressures at Las Bambas and support our growth so that all stakeholders can benefit. And finally, on behalf of the MMG management team, I thank our shareholders, host communities, contractors and all MMG employees for their support and efforts. Thank you for your time today. I will now hand over back to the moderator, who will open the line to questions.

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

I have a few questions. The first question is related to the stock movement impact. Actually, you have disclosed it in the second quarter production report, but I want to drill on it more. So I want to check what's the rationale behind this stock movement impact then? Could you explain more on this item? And what this referred to? And another question is that I saw that there was no revised account in Las Bambas C1 cost and the full year guidance remains at $1.7 to $1.9 versus $1.6 in the first half. So what's factored in for a potential surge in cost in the second half as we know that Las Bambas was not running at the normal rate in the first quarter but maybe in second quarter -- in the second half is to -- that the cost may further increase. So that's all my questions.

Thanks for the question, Jimmy. With the stock movement, and it's primarily a outlook around Las Bambas, where we're seeing the big movement. But effectively, in the first half of Las Bambas, we had -- we drew down about 20,000 tonnes of copper metal. And it had a value of roughly $160 million and -- which works out to roughly $8,000 per tonne. Now if you bear in mind that copper prices around $9,000 a tonne on average. But to get -- to essentially sell that inventory, the P&L gets charged with the $8,000 a tonne as it comes out of inventory and becomes an expense. But then we also have royalty and the logistics cost on top of that. So what is -- in a sense doing it that because we are mining at lower rates at the end of last year and the start of this year, our costs were high. And then when they both come out of inventory, providing cash flow but not a lot of profit. So in the first half of this year, we were drawing down inventory and getting extra revenue, but not so much additional profit. But if you compare that to the end of last year -- the first half of last year, we were building up inventory because even though when the mine reopens after the shutdown in April to June, the roads were still closed. We weren't able to ship at that stage. So it's quite an unusual period to make a comparison. And then with the C1 guidance. I would probably say there's a bit of conservatism built into our outlook for the full year because we've had a very good run with the road being kept open since middle of March. And pleasingly, the government has just extended the state of emergency for another 2 months, which means we'll have the roads open again until the middle of October at a minimum. So if things keep going well, at Las Bambas and we don't have any major situations, we will probably exceed that cost guidance. But there's just a little bit of conservatism built in there at the moment. I hope that answers your questions.

Your next question comes from Lawrence Lau from BOCI.

I actually have 2 questions. First, about Dugald River. We see that the mining costs increased in the first half compared to last year despite we have lower inputs. So can the company explain more about that? And also, we have moved to owner-miner model. Can the company explain or tell us more about the impact on the cost side if that change? My second question is about the Chalcobamba project. Do we have any estimation of the likely timeline that we can start to work on the project given the progress we have regarding the communication with the local communities?

Yes. Ross?

Okay. Lawrence, the reason why our unit costs at Dugald River increased, there's probably 2 reasons. One is that the industry has been subject to widespread inflation over the last 2 years. And so I think you would see with most mining companies costs, they've gone up by 10% to 20%. So that's reason number one. Reason number 2, which is the primary driver is that we were closed completely for 34 days following the incident in February. And we -- but during that period, we still incurred fixed costs, and we still have to pay out later in stand-by time for our contractors and so forth. And then even once we restarted operations, we proceeded very carefully and made sure that particularly the mental well-being of our employees was looked after. So it basically took about -- a mistake, end of May, it was really towards the end of April that we started to get back to full capacity. So as mentioned from -- the 21st of March when we came back online, through to the end of April, we weren't operating at full capacity even though we were incurring full costs. That's why the costs were very high for the first half. Liangang, do you want to answer the question on owner miner?

Yes, Ross. Yes. Thanks, Lawrence. In terms of owner-mining cost impact, we do see the production, as seen on guidance revised to the $1.05 and $1.20 mainly at the beginning of the ramp-up due to the incident. So the transition was interrupted in the February -- post-February incident. And then at this stage, we look at the settle down once we reach to bit of a full production, like Ross mentioned towards the end of May. As you can see, the costs start to get down to lower part of that range, yes. So in terms of the improvement with all the inflation consideration, so I do see the C1 will continue heading down towards that lower part of the range.

And if I could add to that, too, Lawrence. The reason why we've made the change is, obviously, we feel we can -- with this model, we can do it more productively and at a lower cost. So in the past, we are paying a margin to Barminco to do both the production and the development. Now we're doing that development ourselves. So there's no margin payable. And then with Redpath as the new contractor, obviously, we're paying them a margin, but we expect that they'll be more productive because they're focused purely on the development matters. So yes, the reason for the change is we believe that we'll reduce costs and increase productivity.

Lawrence, if you are okay with your first question, I would like to take your second...

Yes, it's quite clear.

Thanks, Lawrence. In terms of timeline and just to remind where we are, we originally acquired the land for Chalcobamba back in 2015. We had a renegotiation in 2017 around commitments. We've achieved all the -- so we have land ownership, we've achieved the -- all regulatory approvals. We have completed a consultant -- prior consultation process. We're now working with community on the social agreement that will govern development. So it's been a long and difficult process. The good news is we're now working with the community weekly in terms of meetings or working with different parts of the community on various aspects of social development and commitments made and it's a constructive and active dialogue, which is where we haven't been for a number of years before this. That said, we have a number of issues to work through. We have dynamics on both sides that continue to change. And we've put in, I think, in our release that we are very hopeful of reaching an agreement this year for that social access. We are absolutely committed to make that happen. And I think for the first time in a while, we have a community and negotiating group, who are also working closely with us. But it's very hard to give a definitive timeline, which is why we continue to give our best [ bet ]. At the moment, that is a very intense dialogue and negotiation period over the next couple of months with the hope that we will begin development this year. But that's about as best as I can give at the moment.

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

I've got 2 questions. So the first one is, well, it's very exciting to see that MMG is back on growth again. But at the same time, we are seeing rising financing costs in a rising interest rate environment globally or maybe except China. So I'm just wondering what are the ways potentially to optimize the financing? What are the options available? And how do we see the renminbi financing channels, be it renminbi borrowings or a share issuance or some other channels? That's my first question.

Thanks, Chris. I think with regard to optimizing the finance, we're very fortunate to have the support of our major shareholder. And that debt is all largely at fixed prices and in the [ 4s ]. So essentially, we've got a cost and a margin built in, it's less than what the cash rate is at the moment. So we can't really optimize at scale. And then with the external debt, which is largely the Las Bambas facility, that is getting sort of expensive again and -- at the moment, it's up over 8%. But really, it's going to be a little bit dependent that if we have a clear run of operations, we may be able to renegotiate that debt. But if we end up having social issues again and the operations become [ unsolvable ] that's very difficult for us. The only beauty is, I guess, at the moment, we're generating a lot of cash and we'll be hopefully in a position to pay that debt down sooner. But I think at the moment, we're pretty comfortable with where our debt is at, to be honest, it's a very competitive price thanks to both the Chinese banks and our major shareholder. In regard to the RMB financing, it's not something we actively look at. And the reason for that is we are a U.S. dollar-denominated company. And the problem was if we borrowed money in RMB, we would actually have to hedge it against the U.S. dollar. And then the hedging takes away any benefits we may get from the lower interest rates. So there's not really any benefit because you -- I think the Chinese rate has been roughly 2.5% and the U.S. rates sitting just over 5%. You lose that benefit through the hedging from RMB to U.S. dollar. So we prefer to keep it simple. And the other thing is there tends be a natural hedge between the commodity prices and the strength of the U.S. dollar as well. So at this stage, we don't see the need for pursuing RMB financing.

And the second question is -- so regarding dividends. So I understand that, I mean, currently, we don't have any sort of dividend policy or dividend payments yet. But how should we see the pathway to a potential dividend? I mean, is there any sort of level of net debt or maybe net debt to equity or maybe some other metrics that we should be focusing on?

So it's probably a little bit more of a complicated question in sort of things here. The issue we have is all the cash flow and the debt within Las Bambas is ring-fenced there. So we'll probably get to a state -- and then with the other side of MMG, at the moment, we've got Kinsevere and Dugald River not performing that well. And then we're also spending a lot of cash on the KEP project. So that's other side of the business. Now first, eventually we'll be able to pay a dividend, we need to finish the KEP project and get Kinsevere up to sort of 100,000 tonnes of copper equivalent, and then we'd obviously start generating a lot of cash. And then we also need to be able to get cash flow out of Las Bambas. And then we would use that cash flow potentially to pay down some of that shareholder debt as well. So it's really a matter of getting the balance right within the company, finishing KEP. And then also it depends on -- I think everyone's aware, we have some tax disputes in Las Bambas and then we have some capital ahead of us. So yes. I think realistically, it's probably at least another couple of years before we can consider dividends. And as I said, it's not just a simple debt-to-equity ratio. It's a matter of the balance between the between Las Bambas and the rest of the business and also potentially if we do M&A as well, that would have an impact, too. But -- sorry, but there's no clear pathway there at the moment. But obviously, it's something we're very cognizant of and we know that the shareholders want a dividend, but we just need to get our balance sheet put in the right space to do that.

Next question comes from Joy Zhang from Goldman Sachs.

I have a very quick question about the realized price for both copper and zinc. I noticed that you realized a very kind of higher-than-expected sales volume from Las Bambas. It seems that the realized price is still below the benchmark price a lot. I remember last year, we're kind of affected by this hedging activity. But it seems that similarly, this year is also -- I think even though with a declining trend more similar with benchmark price, but are we still affected by this hedging activity? And also as a similar question on the zinc side. So how should we think about going forward, this trend the realized price comparing to the benchmark price?

Yes. Thanks for the question, Joy. I think what you're seeing here is actually just the timing of when the sales are because both our zinc copper sales are at realized LME prices. So at the average LME price over the quotational period. Now with Las Bambas at the moment, all our sales or the vast majority of our sales are in a 4-month QP period. And you probably just also need to think about what happened during the first half of the year. The copper price was very strong in the first half. And that was -- I think one of the big factors was all the social disruption in Peru. Now in the first quarter, we were unable to sell any volume at all when the copper price is up around $4. And then when -- the middle of March, when the logistics corridor opened again, we were selling, but we were selling into a $3.75 market. And then also the prices were around, instead of a 4-month quotational period. So the shipment we've made in May, for instance, would get -- have its final price calculated in September. So there is a timing issue there. Now fortunately, we had the same applied to zinc where the prices were all strong in the first quarter, second quarter, they dropped from -- and unfortunately, for Dugald River, we didn't produce much in the first quarter because of the incident. And then when we're selling in the second quarter, we're selling into a lower market. And so I think it's unfortunately just the timing, but we're going to show you the fully -- the sales prices are linked to their time and benchmarks. And with the hedging, there's no negative impact from hedging. So any hedges we've had in place, there's not a huge amount, have all been profitable for us. So that's not affecting the realized prices at all either. So it's just kind of a long answer, but basically, it's a timing issue and both mines were not operating when prices were high and then when they opened up, prices dropped. So that's the reason for it.

Your next question comes from Eun Young Lee from DBS.

I have 2 questions. First question is what's the stockpile volume in the Las Bambas currently? And do we have any plan for the extra movement in the second half? And then what would be the impact to the earnings, if there is? And second question is about demand. So who are the major clients for the copper and zinc? And then do you expect any negative impact from the sales volume from weak demand, especially in China? That is a second question.

Thank you, Eun. I might answer the first question and then Liangang might be best placed to answer the marketing question. But with the stockpiles at Las Bambas, as we speak about 150,000 tonnes of concentrate, which would be depending on the grade, between 35,000 and 40,000 tonnes of copper metal. We would expect that to pretty much be run down to normal levels, maybe around about 10,000 tonnes of metal by the end of the year. So you'll see, we should have, assuming things continue to go well for the rest of the 6 months, should have very strong cash flow for the rest of the year, and that will assist with our profitability as well. Although just getting back to Joy's question, obviously, the copper price has come off of recent times. So yes, the fact that have an impact, too. But hopefully, we'll see another second half like the first half where we were drawing down inventory, and we should see some additional profitability because the inventory will be in the lower value. And then I might -- hand over to Liangang to talk about the marketing, and that's our time.

Yes. Talking about the marketing performance. I think especially for copper and zinc, we see quite a volatile performance starting from earlier this year and to the end of July. But I think that along with the Chinese economic policies, I think that -- we are looking forward to the stronger performance from China. And also, we see the stronger performance from other -- the rest of countries as well. So specifically, the -- we feel quite strong support for the metal prices, both copper and zinc at the present price level. And we are -- I think that's from the company of MMG, we -- our clients are quite confident for these present price level. And so we see a strong support at present stage and probably we can expect more stronger performance in the future -- coming months for 2023.

So if I could just add, because of our offtake agreements and the work our marketing team does, we don't have any issue about not being able to sell all our product. So it's not like if things did slow down, we'll be left with big stockpiles at the end of the year, we can sell all we produce.

There are no further questions at this time. I will now hand back to Mr. Esam for closing remarks.

Thank you. Thanks, everyone, for participating in the call today. That brings us to the end of the call. Thank you, and goodbye.

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