MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the MMG Limited First Quarter Production Report. [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 sites for the first quarter of 2024 and the outlook for the year. Joining us today for this call are key members of the MMG leadership team; Mr. Li Liangang, our Interim CEO; Mr. Song Qian, our Executive General Manager of Finance; Mr. Troy Hey, Executive General Manager for Corporate Relations; and Mr. Nan Wang, Executive General Manager for Operations. I will now pass over to Liangang, who will walk us through the highlights of the report. Following his overview, we'll have -- we'll open the call for questions you may have.

Thank you, Jarod. Good morning to everyone, and welcome to MMG's First Quarter Production Report Teleconference. As always, at MMG, safety comes first. In the first quarter of 2024, our total recordable injury frequency was 2.74 per million hours worked, indicating an increase from the 2023 full year TRIF of 1.57. On a positive note, we saw an improvement in the significant events with energy exchange frequency, which was 1.11 per million hours worked in the first quarter of 2024, down from 1.54 in the first quarter of 2023. This is an increased focus from our sites on enhancing the planning and execution of tasks and reminding our people that they are encouraged to stop work if they feel it is unsafe. I'm delighted that we've successfully completed the acquisition of the Khoemacau mine in Botswana on March 22 this year. Khoemacau is a scarce, high-grade, low-cost-producing copper asset in a world-class mining jurisdiction of Botswana. An expansion product 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. [ Adjacent to the mine ] and existing resources, we are also acquiring a dominant tenements package with 4,040 square kilometers in the emerging and highly prospective Kalahari Copperbelt. This acquisition marks a pivotal moment in our company's journey, bringing a high-quality, transformational growth asset into our portfolio. Now let's turn to our operation performance for the first quarter 2024. During the first quarter of 2024, we produced a total of over 67,000 tonnes of copper and 59,000 tonnes of zinc. Specifically, at Las Bambas, we produced 56,000 tonnes of copper. This reflects a 4% decrease compared to the same period last year, primarily due to lower ore grades, which is mainly a result of our mining sequence. During this quarter, mining activities were conducted in lower grade sectors as part of the development of Phase 5 of the Ferrobamba pit, to access higher-grade sectors in the third quarter and fourth quarters. Additionally, the concentrator consumed some low-grade stockpile ores during the first quarter, further contributing to the reduction in the average ore milled grade with an expected improvement in ore grades from the Ferrobamba pit and nearly returning to normal operations following a plant maintenance shutdown, we expect a rebound in Las Bambas production during the remainder of the year. Our ore grades are also expected to improve in the second half with the contribution from Chalcobamba. I'd also like to take this opportunity to update you on our community engagement efforts and transport logistics. MMG remains committed to transparent and constructive dialogue with the government of Peru and community members. Our discussions with the Huancuire community continues to progress as we work with the community towards the lasting agreements for the development of Chalcobamba deposit. As a result of collaborative efforts of our Las Bambas team and the community, the contracts for the 5 Huancuire community companies have been extended to the end of this year. MMG machinery and personnel are now working alongside community companies on development activities at the Chalcobamba pit since the beginning of February this year. Regarding transport logistics, the government has extended the state of emergency for an additional 30 days beginning on 5th of April 2024. At the beginning of April, we encountered a disruption in transportation due to a blockade on Southern Road Corridor in the Velille district. A meeting led by the national government and attended by Velille local authorities, community members and representatives from Las Bambas was convened. As a result of this collaborative effort, the blockade was lifted on April -- on 11th of April, and production at Las Bambas remained unaffected. Now looking ahead to the rest of 2024, we'll remain aligned with our previous years of guidance. We anticipate Las Bambas copper production to be in the range of 280,000 to 320,000 tonnes. However, these figures are contingent upon the timing of the Chalcobamba development. Moving on to our operations at Kinsevere. We produced approximately 1,700 -- we produced approximately 9,700 tonnes of copper cathode, making a 6% decrease from the same period in 2023. This decline primarily stemmed from a reduction in feed grade, a move to reduce our reliance on costly high-grade third-party ores. However, this impact was somewhat offset by increased supply from the mining activities at the Sokoroshe II pit during the quarter. In alignment with our prior guidance, we anticipate Kinsevere production to be between 39,000 and 44,000 tonnes in 2024. As many of you are aware, Kinsevere is now in the transition period from the mining of oxide ore to sulfide ore. Following the commissioning of the cobalt plant in the fourth quarter of 2023, we initiated various improvement measures in the first quarter aimed at supporting the ramp-up of cobalt production. Our sales and marketing team has been engaging with cobalt customers to rely on their specific assay requirements, and we are preparing for trial sale of 100 tonnes in April. For the remaining months of the year, the focus -- our focus will be on completing this -- the installation of the concentrator and the roaster, gas cleaning and acid plant allow -- with work related to operational readiness. During the first quarter, we made progress in the construction of the concentrator, which included in the installation of the SAG mill shell and gear ring, hydro cyclone cluster and the flotation cells. Looking ahead, we expect to produce the first copper cathode from sulphide ores this year. This project is set to extend the mine life to 2035. And upon reaching full ramp-up in 2025, it's expected to increase our annual production to 100,000 tonnes of copper equivalent. I will now turn our attention to the Khoemacau mine, a significant addition to our copper asset portfolio. For the first time, we have included production data from Khoemacau in our report with a contribution of 9,075 -- with 1,075 tonnes of copper during a 9-day period starting from March 23. We've also provided the 2024 guidance for Khoemacau in the report. We are expecting copper production to be between 30,500 and 40,500 tonnes starting from 23rd of March of 2024, with C1 costs anticipated to range from USD 2.30 to USD 2.65 per pound. Our assets in 2024 will focus on continuously mining -- will focus on continuous mining development to expand mining funds, increasing mining volumes and gain access to higher-grade areas. Regarding capital costs of Khoemacau mine. We expect them to be in the range of USD 108 million and USD 138 million from 23rd March 2024. This includes capitalized underground mine development, continued study of the expansion project, design as well as the construction of the paste-fill plant project, construction and installation of primary ventilation fans among sustaining capital. We are committed to supporting the ramp-up of Khoemacau to achieve an annual production of 60,000 tonnes of copper by 2026. This ramp-up is expected to lead to an improvement of -- to an improvement in C1 costs. Furthermore, looking ahead, we plan to expand the mine capacity to 130,000 tonnes, which we anticipate will further reduce C1 costs to around USD 1.55 per pound. Let's now shift our focus to our zinc production -- to our zinc operations at Dugald River and Rosebery. Starting with Dugald River. We saw zinc production reach approximately 45,000 tonnes, which is 114% increase compared to the same period last year while operations were temporarily suspended for 34 days. In alignment with our prior forecast, Dugald River is expected to produce between 175,000 and 190,000 tonnes of zinc in zinc concentrate for the full year. Moving on to Rosebery. The mine produced about further 14,000 -- 14,000 tonnes of zinc in the first quarter. This marks a significant 49% increase from the prior corresponding period, reflecting a stable production and improved workforce availability. When including the contribution from by-product metals, zinc equivalent production at Rosebery reached 32,000 tonnes in the first quarter, effectively more than doubling its size of zinc output. In accordance with our prior guidance, we anticipate Rosebery's production to be between 50,000 to 60,000 tonnes of zinc in zinc concentrate for the full year of 2024. On a zinc equivalent basis, we expect production to be in the range of 115,000 to 130,000 tonnes for 2024. We're happy to take any questions. Thank you.

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

I have a few questions. First of all, regarding the Kinsevere. You -- in your announcement, you're saying that you are talking to a client to sell the cobalt. So can you tell what kind of clients you're selling to? Or you are actually selling it back to China? And secondly, regarding Khoemacau. I think there's a clause for the mine that you have to sell the silver to Royal Gold at a 20% of the spot price for a certain amount. I think up to 40 million ounce. And I would like to know what's the progress on that part? How much we have sold so far under this kind of clause in? Do the management have -- does the management have any expectation that when will this clause be fully achieved? And finally, I realized that you got loans from China Development Bank to help you to finance the acquisition of Khoemacau. Can you please tell us the interest rate on that particular USD 1 billion loan?

Yes. Thank you, Lawrence. I'll take the first one. Regarding the cobalt sales, MMG has been contacting with different customers, including traders and also producers globally. And our first trial sales contracts is -- will be reached with one of the Chinese -- with one of the producers based in China. And -- but of course, we are open to any opportunities to sell cobalt products to try to benefit from the highest attractive prices that we can get. Regarding the second question, Song Qian, are you...

Yes, Liangang, I will take that question. I agree the streaming equipment, the deadline for that in the 2039.

2039, okay.

And also, Song Qian, can you update -- can you take the third question from Lawrence regarding the loan?

Okay. Anything with loan [ same year ] debt funding, the interest rate [ for our funds CBD borrowing ] is so far plus margin with the margin ranging from 150 -- 130 to 200 basis points, even lower than the Las Bambas project facility.

Your next question comes from Jimmy Feng with Citi.

I have 2 questions. So firstly, for the Khoemacau project, this year's [ given ] cost guidance is relatively high. So I want to check what's the cost expectation will be when it ramps up to 60 [ Kt ] in 2026? And my second question is also regarding the Khoemacau project. I want to check what's the D&A estimation, the depreciation and amortization estimation, for the Khoemacau project this year. And also, I saw the CapEx guidance for this year. Would that also be applied to next year's until the expansion project? And also my third question is regarding the Las Bambas. I thought there was a roadblock on 5th April, but it was sold very quickly. What's the check that, that's related to the government-declared state of emergency as I saw that the meeting was that by the national government. So is the state of emergency expired in 5th May? What's the expectation on the transportation disruption? So that's all my question.

Thank you, Jimmy, for your questions. Song, would like to take Jimmy's questions on the Khoemacau's issue?

Okay. Thanks, Liangang. We have just finished the transaction and still in integration process. We are now providing the guidance just for indicative. But by the interim report, we will update the forecast, and that was quite an official guidance for the whole year. In terms of the C1 cost, we do see the guidance is between USD 2.3 to USD 2.65 per pound. The 2024 C1 cost guidance reflects the ongoing process to expand mining fronts, exchange mining volumes and gain access to higher-grade areas, all in preparation for reaching an annual production of 60,000 tonnes per annum by 2026. The mine is still ramping up to 60,000 tonnes of copper per annum. So unlike a higher C1 cost in 2024 was expected. C1 costs were trending down lower from 2026 onwards. Once development rates reach steady state and an increase in grades with mining at higher grade area and the move to lower cost owner's mining. I think Troy will just pick up the transport logistics question.

Yes. Thanks for the question. At the moment, transport logistics operating as normal. In context, I think you will see, as we have for 8 years, those regular small roadblocks occurring and coming off, and that is just part of operating that really remote logistics corridor [indiscernible]. But the last 12 months have been very good. Stocks at the site are very low, and suppliers have been running well. So while you never see the complete absence of small roadblocks often related to local issues or issues with Ministry of Transport or road maintenance or other things, we are getting more and more confident as the Las Bambas team working with government and community to keep the road operating well.

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

So I would like to check with you. So what is the latest overall CapEx guidance for the year after consolidating Khoemacau? And also what would be annual finance costs going to look like going forward?

Yes. Song, are you happy to take this Chris' two questions?

Yes. CapEx guidance for the ore expansion target to reach is -- would cost us, say, [ 800 million to 900 million ], but that will take 5 or 5 years' time. Yes. And in terms of the -- the other question is regarding the...

This year's...

This year's...

CapEx.

CapEx is around 940 million. I hope that answers your question.

940 million. How about the finance cost going forward on an annual basis? I mean for the entire company, not just for that one project.

All right. So far, we don't disclose that detailed information, but we are waiting the fund from CDB and other banks. We have a -- so far plus margin price regime.

There are no further questions at this time. I'll now hand back to Mr. Li Liangang for closing remarks.

Yes, thank you very much for everyone attending this teleconference. And just in case you have any further questions, please feel free to contact our Investor Relations or Corporate Affairs team. Thank you very much, and goodbye.

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