MMG Limited (1208) Earnings Call Transcript & Summary

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

Thank you for joining MMG's webcast. Presenting today are MMG Interim CEO, Liangang Li; and CFO, Ross Carroll. The slides for today's presentation are being webcast in both English and Chinese. They can also be accessed from the Investor and Media section of the MMG website. [Operator Instructions]. I'll now hand over to Liangang.

Thank you, Jarod. We are pleased to present to you today on the acquisition of the Khoemacau copper mine in BosValen. This transaction is compelling and transformational for MMG. We have entered into a binding agreement to acquire the mine for USD 1.875 billion. Our major shareholder, [indiscernible] is fully supportive of this transaction. At signing, the transaction is fully funded via shareholder loan but funding at completion is expected to be a combination of shareholder loan and third-party financing. Long-term financing could involve a combination of debt, equity and a potential joint venture. The transaction is expected to stay in the first half of 2024, and is subject to several conditions that are detailed in the announcement. Khoemacau is [ scarce ], high-grade, low-cost producing cooper asset in the world-class mining jurisdiction of BosValen. Our expansion project will deliver near-term production of around 130,000 tonnes of copper per annum. The expansion is a cost-efficient pathway to achieve production at scale with a low capital intensity. Khoemacau is a long-life asset with a greater than 20-year mine life based on the Zone 5 group deposits with potential for further increases in scale and life from other resources. In addition to the mine and the existing resources, we are also acquiring a dominant 4,040 square kilometer landholding in the emerging and highly prospective [indiscernible]. I will now hand over to Ross to guide us through the transaction in more detail.

Thank you, Liangang. This is a transformational transaction and post expansion, Khoemacau is expected to generate significant cash flows for MMG at a low cost and high margin. The current operation is ramping up to 65,000 tonnes of copper equivalent production and post expansion will produce between 135 to 155 kilo tonnes a year of copper equivalent. The expansion project will deliver improvements across key operating and financial metrics, including an average predicted annual EBITDA around USD 600 million. We expect development CapEx to achieve the expansion to be in the order of USD 700 million to USD 800 million, approximately USD 100 million per annum in sustaining CapEx over the life of the mine. Khoemacau is set to become a cornerstone asset within MMG's portfolio. There's a significant copper resource that will support a mine life well in excess of 20 years. Khoemacau will become the second largest asset in MMG's portfolio behind Las Bambas. The acquisition of Khoemacau reduces MMG single asset concentration risk, with Khoemacau representing 28% of MMG total resource on a pro forma basis and 23% of the copper equivalent production. It provides enhanced geographical diversification while increasing MMG's overall portfolio exposure to copper. Khoemacau is estimated to bring a significant 30% increase to MMG's pro forma copper equivalent production once the expansion is delivered. Additionally, comical will reduce MMG's overall C1 cost by 6%. MMG will continue to focus on the delivery of the Kinsevere expansion project in the Las Bambas Chalcobamba project, which will further increase the group's production and reduce unit costs. The transaction is also value accretive on an EV-to-EBITDA basis and on an EV-to-resource basis. The post expansion implied acquisition to EV-to-EBITDA multiple with 4.3x, is materially below MMG's current trading multiple and that of most other listed copper producers. Khoemacau is a well-defined and low-risk expansion plan, supported by a strong in-country team. Khoemacau from favorable metallurgy, the continuous drop-down sequence of mining and good geotechnical conditions. With MMG's demonstrated track record of delivering on major projects, we are well positioned to execute the brownfield expansion at Khoemacau and assisting in-country teams to repeat the success they have had to date in the development and ramp up. MMG's recent project development credentials include the commissioning of Las Bambas in 2016 and [indiscernible] in 2017. Both operations achieved [indiscernible] mill throughput within the first 6 to 7 months of operation. The current expansion in Kinsevere is also progressing well and is on track to do extend the mine life and increased production on time and on budget. The acquisition of Khoemacau significantly improves MMG's position to be a global top 10 copper produced -- copper-focused producer, and we have further growth potential both at Khoemacau and within the existing portfolio. We hold a favorable view on the copper market outlook driven by growing demand for global push towards decarbonization. Khoemacau is well timed to align with the forecasted copper supply deficit with a low-risk expansion in a great jurisdiction at a time of copper projects are getting harder to deliver. Moving on to the [indiscernible] of this investment. I'll touch on the best aspects of this impressive asset. Khoemacau represents a scare, high-grade and long-life producing copper mine with low technical risk. The mine will operate in the bottom half of the cost curve for further upside from optimization. The near-term brownfield expansion project to 130,000 tonnes of copper production has a low capital intensity of approximately USD 8,000 per tonne with annual installed capacity. With a [ vast ] landholding of 4,000 kilometers across the emerging highly prospective Kalahari Copper Belt, there is significant upside potential. The mine has established strong community relationships, develop a skilled local workforce and has a track record for efficient environmental permitting. And both [indiscernible] offers a stable and world-class mining jurisdiction. I'll provide a little bit more detail on each of these aspects. Khoemacau boasts a high-grade resource with a 2% copper grade of deposits, which make up the Zone 5 group. This is one of the highest grade lines that have been developed in recent history. There's already one of the largest underground stoping copper mines globally. The resources geometrically consistent with -- along the strike full deposits remaining open at [ depth ]. The mine has nearly -- has been newly built and operates with modern underground technology. Post expansion, Khoemacau will be firmly in the bottom half of the C1 cash cost curve, with [indiscernible] in the bottom half of the cost curve, these assets will soon be joined by Kinsevere, and so Kinsevere expansion project is complete. Further upside for Khoemacau possible from optimization including deploying technology, leveraging Chinese sourcing, implementing renewable energy, the potential for an improved offtake agreement and the potential synergies with our existing Kinsevere operations and respective Johannesburg offices. Time for our extensions and development of the expansion deposits will feed a new 4.5 million tonne process plant in parallel with the existing plant to increase the total capacity to around 8.2 million tonnes per annum. The expansion of leverage off existing infrastructure and proven mining and processing methods with consistent geology and metallurgy across multiple deposits. The existing infrastructure is largely sized to accommodate the expansion with multiple water sources available to support the operations. The Khoemacau [ Branford ] expansion represents a cost-efficient way to achieve production at scale. Capital intensity of USD 8,000 per tonne of installed annual capacity is extremely competitive relative to new and future copper projects. The complement Design-59 has already in production is the other Zone 5 further deposits of [ Zeta Northeast], [ Zone 5 North and Mango ]. These deposits are all open at depth and likely to be extended. There's also existing resources at the [indiscernible] and [ Banana ] Zone group of deposits. On top of this, there's an expansive landholding in the Kalahari Copper Belt that has already allowed the team to make additional discoveries and identify many other high-priority exploration targets. Khoemacau demonstrates excellence in ESG practices in line with MMG's high standards. Comprehensive safety and health management systems are embedded through the operation. It maintains strong community relations with high employment levels within local districts. There's also an ongoing focus on sustainable water usage in biodiversity management to track record of environmental safety. There is strong potential for renewable energy generation at site, and these studies will continue under MMG ownership. Botswana is recognized as a world-class mining jurisdiction with a stable political landscape, tax regime, extensive infrastructure and a strong rule of bore. Botswana has a strong country credit rating and is recognized as one of the 10 best jurisdictions for the mining investment globally and it also is #1 in Africa. In closing, we believe that this acquisition represents a unique and available opportunity to acquire a world-class and high-quality copper asset that has already been derisked. With an exceptionally good strategic fit for MMG and will be a cornerstone asset for the group for multiple decades to come. On behalf of the MMG management team, I would like to thank all of the MMG employees involved in this project as well as our financial and legal advisers, and we look forward to welcoming the excellent team at Khoemacau into the group. Thank you for your time today. I will now hand back to the moderator, who will open the line for questions.

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

Also congratulations for tracking the deal. I have 2 questions. First of all, may I know your copper price assumption in arriving your valuation for the mine? And secondly, can the management tell us about -- more about the logistics side? Because we know the C1 cost is low. But if you look at the map, this is over 1,000 or more close to the nearest port. So can you give us some idea what kind of cost in terms of logistics? And also, will we encounter the similar problem we see in Peru that the local communities create all sort of troubles.

Thanks, Lawrence. Well, just on the copper price assumptions, I mean we don't normally quote what prices we use. But what I can say is that we've used our existing long-term price deck. So it's not likely -- you can play the prices or anything to get to the pricing we've got so on -- I think you'd probably be aware or can relatively work out what prices we've used. But as I said, it's in terms of our long-term pricing assumptions. As far as logistics costs, you're right, there's over 1,000 kilometers to get the get the product to the coast. It is different to lot of [indiscernible] we don't have the roadblocks and social issues, and it's also a much better quality highway. So logistics can not be such issue that we've seen it Las Bambas. Now I must admit I don't have the exact logistics costs in my mind. I'm not sure if anyone else on the team here has.

Yes. So I can speak briefly on logistics cost. It's comparable to industry trucking rates. So if you take the distance that we need to get say, product to port to be added sort of deriving from that. So they're comparable. And one thing I would add on to you stick to is well-established supplier network out of South Africa, even some in Namibia, any country as well that can support the project. Road networks, reliable, it's modern. Yes, we can speak specifically to cost if we need to, but it's all comparable to market rates for trucking and haulage.

I see. So this now basically based on trucking. So there's no sustain like railway, right?

That's correct. So there is no railway to port. It's based on trucking.

And that's the same position for -- same for mine that's in the neighborhood. So they truck the constant trade that as well. .

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

Congratulations on securing this great opportunity. I've got 2 questions. So the first question is regarding the production. So in the near-term expansion, so that would be considered maybe around 2029, the production will go up to around 135,000 to 155,000 tonnes per year, right? And in presentation, you mentioned 200,000 tonnes potential further expansion numbers. So I just want to understand, for that further expansion, what sort of time frame are we talking about? That's the first question. And the second question is regarding the new shareholder loan that the company will be taking on for this acquisition. What sort of costs are we looking at?

Yes. Chris, just so I understand your first question. Are you talking about the extension that -- or the expansion that gets us up to 135,000 to 155,000 tonnes or you're talking about 155?

I think in the presentation, there is also another number, talking about like even longer-term potential, right? Is there any further room to expand production beyond 135,000 to 15,000 tonnes.

I think definitely that potential is it, but it's going to be -- first things both is we need to do the initial expansion. And then it would obviously depend on the exploration success in the region. But yes -- so that's a target -- that would be a long-dated target. And obviously, we need to get control of the asset first and then do the exploration program as we need. Sorry, Chris, just repeat your second question.

Yes. The second question is regarding the shareholder loan. So I mean, if I'm not mistaken, the company will be obtain more shareholder loan, mainly for the purpose of the acquisition. So what sort of interest rates are we looking at?

Yes. The initial shareholder loan, we'll just see as a [ breaching ] loan. And then we'll be looking at getting a permanent debt facility. But you're probably looking at a rate of [ softer ] plus 1.5% to 2%. So like all our shareholder loans, they're very attractive. .

Yes. And sorry, just one more question. So for that project, is there any existing financial data for -- I don't see this quarter or maybe the previous second year or may be we can reverse it.

Chris, there is -- I think your question was, is there any existing financial data for the [ Khoemacau ] project? Is that right? .

Yes. Yes.

There is. But obviously, with Khoemacau being a private company, it's not as broadly circulators what it would be for a listed company. So as part of the process, we will get order at the accounts at the end of December, and then they'll be included in a circular to the Hong Kong Exchange somewhere in probably early in the second quarter of next year. .

[Operator Instructions] As there are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.