MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MMG Limited Second Quarter Production Report Teleconference. [Operator Instructions] I would now like to hand the conference over to Ms. Andrea Atell, General Manager, Corporate Affairs and Sustainability. Please go ahead.

Thank you. Hello, and welcome to MMG's quarterly production report teleconference. Today's report and today's discussion cover the operational performance of MMG sites for the second quarter of 2024 and the outlook for the year. Joining us for this presentation are Mr. Liang Cao, our CEO; Mr. Song Qian, Executive General Manager, Finance and other members of the executive team. I will now hand over to Cao liang, who will take us through the highlights of the report. Following his overview, we will open the line to questions. Thank you.

Thank you, Andrea. Hello, everyone, and welcome to MMG's Second Quarter Production Report Teleconference. This is my first trivia as MMG's CEO. So I'm very pleased to be heading up our challenging team and an exciting -- time for the company. We are committed to growing our global portfolio assets, which have produced the materials essential to building a more sustainable world. This is something what we are very proud of. MMG's contribution at the local, regional and international levels is significant. And it forms a strong part of our identity and presence. As you will know, at MMG's, it is our first value. Turning to our performance in this critical area. Our Total Recordable Injury Frequency for the second quarter of this year was 2.28 per million hours worked, a decrease from the first quarter TRIF of 2.64. The TRIF for the month of June was 1.72 per million hours worked. While this was the lowest rates recorded this year with no high potential injuries, we continue to encourage a culture of aggregate reporting and improvement. However, our key leading indicator, Significant Events with Energy Exchange Frequency for the second quarter this year was 1.38 per million hours worked, which is increased from 1.11 per million hours worked in the first quarter. The increase in the number of these events is a matter of concern and is being closely monitored. In response, there is an increased focus from our sites on enhancing the implementation and execution of critical controls as well as improving contractor management. Moving on to update on our recently completed rights issue, following our acquisition of important Khoemacau asset in Botswana, we are committed to that reduction and prudent balance sheet management. In line with this strategy, we undertook rights issue to raise approximately USD 1.2 billion before expenses. Earlier this month, we announced that the rights issue was approximately 2.8x over-subscribed in aggregate. Upon registration from the rights issue will be used to repay the existing debt and complete our funding plan for the Khoemacau acquisition. This strategic move along with the established of the joint venture with the CNIC Corporation Limited or Khoemacau is expected to reduce our gearing level from approximately 60% to 44%. This significant reduction is important as it was for our capacity for future growth initiatives. Now let me turn to our operational performance for the second quarter of this year. During the second quarter of this year, total production -- the total copper production, which includes copper cathode and copper concentrate was 90,972 tonnes, representing a 2% decrease from the prior corresponding period, but [ supplied a ] 36% increase from the first quarter of this year. For zinc, we recorded total production of 50,300 tonnes in the second quarter, which was 1% above the prior corresponding period in last year. Turning to the site-by-site performance. At Las Bambas, we produced 70,173 tonnes of copper in the second quarter of this year, representing a 14% decrease compared to the same period in last year. However, this was a 25% increase from the first quarter of this year. During this period, ores from the Chalcobamba pit began being supplied to the processing plant. The average ore mined grades were lower than the previous year and 0.58% versus 0.69%. This was primarily due to mining of the lowest grade sectors and the Ferrobamba pit, which is the main pit. As the operation progress in the Chalcobamba pit for milled grades are expected to continue to improve from the third quarter onwards. During the quarter, both mining activity and milling activity proceeded without interruption. Ore mined volumes saw an increase of 63% compared to the previous quarter. This was despite adverse weather conditions affecting the previous quarter, which extended until April. Ore milled throughput rose by 12%, reaching 13.5 million tonnes compared to 12.1 million tonnes in the previous quarter, when the production was affected by a planned maintenance shutdown. Molybdenum production in the second quarter fell by 35% compared with the same period in the last year. The decline was due to lower moly grades in the ore, which was a result of the mining sequence in the current sectors of both the Ferrobamba and Chalcobamba pits. In relation to community and transport logistics, MMG remains committed to working closely with the government of Peru, local governments and community members to ensure transparency and constructive dialogue. As we have previously shared, the Chalcobamba pit is ramping up production with the six Huancuire community companies working alongside the Las Bambas team on development activities. At the same time, extensive and constructive dialogue between Las Bambas, the Huancuire Community and the Government of Peru continues to progress. At the start of the month, the Las Bambas team completed a number of the agreements with the Huancuire community, covering education, local business and most recently local employment. This work further strengthen our relationships with the local community and demonstrates a commitment to mutual success. Our ongoing discussion will continue to cover topics from the great negotiation agenda. The Las Bambas team also continues active dialogue with communities and the local government authorities along the Southern Road corridor with the government support. The Government-declared State of Emergency has been extended for 30 days effective the 5th of July. In further positive news, Las Bambas received a favorable decision from the Tax Court in Peru, the ruling, determines that Las Bambas is not liable to penalty withholding tax at 30% with -- for 4 years in dispute from 2014 to 2017 to a sum of USD 557 million. And finally, Las Bambas' copper production for this year is expected to remain within the range of 280,000 to 320,000 tonnes. Thanks to the uninterrupted production and good progress on the development of Chalcobamba, production is expected to be at the higher end of the guidance. C1 Cost guidance for this year is now improved to USD 1.55 to USD 1.75 per pound, down from the previous guidance. This was driven by operational efficiencies and by-product credits. Now moving to our operation at Kinsevere, [indiscernible] we produced 11,546 tonnes of copper cathode in the second quarter, an increase of 2% from the prior comparable period. This growth was driven by improved ore milled throughput with the plant benefiting from enhanced power stability. The increased ore supply from mining and the Sokoroshe II pit also helped to offset the reduction in third-party ore supply. However, production was negatively impacted by lower milled grade due to mining sequence at the Sokoroshe II and the Kinsevere pits, and a reduced reliance on expensive high-grade third-party ores. The mine also ramped up cobalt production in the second quarter, reaching 788 tonnes of contained cobalt in cobalt hydroxide. This resulted in our first cobalt sales of 346 pounds in June. I'm pleased to share that the construction of the Kinsevere Expansion Project remains on track. This project includes the transition to the mining and processing of sulphide ore and the commencement of cobalt production. During the second quarter, the construction of the sulphide circuit in the concentrator was completed, and the commissioning commenced. The construction of all major equipment for the Roaster-Gas-Acid plant has been completed with the commissioning planned for the third quarter. This next phase of Kinsevere development will extend the mine life to at least 2035. And once fully ramped-up will result in total annual production of approximately 80,000 tonnes of copper cathode, and between 4,000 to 6,000 tonnes of cobalt in cobalt hydroxide. The first copper cathode from sulphide is expected in the second half of this year and full ramp-up is expected in 2025. In line with the prior guidance, our copper cathode production for this year is expected to be in the range of 39,000 to 44,000 tonnes. Our C1 costs in this year, is now expected to be in the range of USD 3 to USD 3.35 per pound reflecting an increase from the previous guidance. This adjustment can be attributed to 3 factors: the first is lower-than-expected by-product credit from cobalt sales, largely driven by the decline in price; the second is increased mining cost due to accelerated mining activity at the Sokoroshe II pit; and finally, the third factor is a change in the mining sequence at the Kinsevere pit to align with the Sulphide plant commissioning and ramp-up plans. These adjustments in mining operation at the Sokoroshe II and the Kinsevere pit will result in larger-than-expected ore stockpiles. The cost associated with the mining of these additional ores have been incorporated into the revised C1 costs guidance. However, these ore stockpiles will be processed in the future, which we anticipate will positively impact the future C1 costs. Now let's turn our attention to the Khoemacau mines. In the second quarter of this year, Khoemacau produced 8,907 tonnes of copper in concentrate. The mining operation during this period were influenced by equipment availability and the high turnover of skilled labor, a situation intensified by a competitive labor market in Botswana, due to an increase in underground mining operations in the country. To address this issue, Khoemacau mine has significantly increased the replacement numbers with training and induction on way. During this period, mining activity were concentrated in low-grade sectors due to the mining sequence, which coupled with dilution, adversely impacted ore grades. Those grades were 1.57% in the second quarter versus 1.68% in the first quarter. The team has taken measures to reduce dilution factors and expectation of achieving better ore grades in the forthcoming quarters. We've also provided the 2024 guidance for Khoemacau in the report. We're expecting cobalt production to be between 30,500 and 40,500 tonnes starting from 23rd March of this year. With the C1 costs in this year expected to be within the range of USD 2.30 to USD 2.65 per pound. We remain committed to supporting the ramp-up of Khoemacau to achieve annual production of 60,000 tonnes of copper by 2026. This will be facilitated by ongoing mining development efforts to increase mining fronts, operational flexibility and the mined grades. These efforts will be further enhanced by the completion of the primary ventilation fans as well as the paste fill project. In addition, the company is dedicated to completing the construction of expansion by 2028, which aims to increase production capacity to 130,000 tonnes of copper. With the Khoemacau mine expected to reach full capacity by 2029, further contributing to the reduction of C1 costs. And now our performance at our zinc corporations at Dugald River. We produced 34,524 tonnes of zinc in zinc concentrate and 4,618 tonnes of lead in lead concentrate during the second quarter of 2024. This represents a decrease of 5% and an increase of 8% for zinc and lead, respectively, compared to the same period of last year. The lower production was primarily due to 24% in ore milled throughput compared to the previous quarter impacted by maintenance of the SAG mill in June, which I will discuss further later. However, on a positive note, the processing plant achieved a record high lead recovery of 70.8% in the second quarter and the continued high zinc recovery, supported by continuous operational improvement initiatives. During a recent inspection of the SAG mill, we identified an issue with bearing pads. Necessary unplanned maintenance, shutting down at the Dugald River processing plant. Plant operation have resumed this week and we are planning additional maintenance works in August to ensure the SAG mill's operational integrity. Our Dugald River team is supported by internal and external specialist for this works. Our primary goal is to recover any production deferreds due to this shutdown. Consequently, now we anticipate Dugald River zinc production for this year to be towards the end of the previous issued guidance of 175,000 to 190,000 tonnes of zinc in the zinc concentrate. We expect C1 costs to remain within the range of USD 0.70 to USD 0.85 per pound. And finally to Rosebery, which had a strong quarter, producing 15,776 tonnes of zinc in zinc concentrate, an 18% increase compared to the prior corresponding period of last year and a 9% increase compared to the previous quarter. A significant milestone for ore mined and milled volume achieved in the second quarter, the second highest quarter in the past 20 years. This result can be attributed to workforce stability, development focus to increase the number of available mining fronts, and a lower proportion of ore being sourced from deeper ore areas of the mine. In addition, continuous operational improvement initiatives supported strong plant performance in achieving the highest zinc recovery of 88.6% since 2017. In line with the prior guidance, Rosebery production for this year is expected to be in the range of 50,000 to 60,000 tonnes of zinc in the concentrate. Including the contribution of by-product metals, zinc equivalent production for this year is expected to be in the range of 115,000 to 130,000 tonnes. And finally, C1 is now expected to be in the range of USD 0.05 to USD 0.20 per pound, with the improvement mainly driven by strong by-product credits and lower zinc concentrate treatment charges. This concludes the results part of our call. Now I'm happy to take your questions together with my team, and I will hand back to the moderator. Thank you.

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

I have several questions, and let me ask one by one. I saw that -- the first question is that, I saw Chalcobamba has already contributed to copper output during the second quarter. So does that mean Chalcobamba is ramping up? When do you expect this will be fully ramped up? And the question also related to Las Bambas, is that the full year output may reached upper side of the production guidance at 320 kt. So for the second half, roughly would be 200 Kt output. So considering the ramp up, the fourth quarter may be even higher than 100 kt. Is that right? And if so, the output in 2025 would be very good. So how about the production level for 2025?

Thank you for your question. [indiscernible] and [ Evo ] have to answer this question. Thank you.

This is [ Evo ] from Peru. I'm happy to answer the question. In the first of all, I'd like to say that the Las Bambas, first half year production aligns with our plan and or even the second quarter production is a little better than our plan. As you may notice, actually, we have a lower production and is below the annual guidance, because we have the mining of the low-grade sectors from the Ferrobamba pit, but however, and we have more ores from Chalcobamba pit began, being supplied to the processing plant in the second quarter. So with the ramp-up of Chalcobamba pit, we expect the production will continue to improve in the third quarter. And of course, right now, we have -- we have a plan just to improve our productions. And I think we -- as we move into 2025, we are so optimistic about the future. We have ongoing well with the negotiation with the community Huancuire, and also, we expect our end production to reach a capacity of 350,000 tonnes to 400,000 tonnes for the next year. And we think of the production as the combined Ferrobamba pit and Chalcobamba pit contribution in the future. And we probably think the Chalcobamba pit will contribute higher grade ores with average grade of 0.8% to 1.0%, and contained metal produced is estimated to be above 10,000 tonnes per month. So we expected the Chalcobamba copper production in 2025, probably will be 150,000 tonnes. And in 2026, probably will be 180,000 tonnes. I don't know if I have already answered your question.

Sure. That's really clear. And my second question is for Dugald River mine, I thought that there will be additional maintenance work effected in August. So will that result in additional operation suspension? And if so, will by how long? That's my second question. Yes.

Thank you.

Thanks, Jimmy. This is Nan Wang. I'll take your question on this one. Yes, we have further maintenance work for SAG mill, but we will do in a plant shutdown period. So we anticipate around 2 weeks to complete that task, but the team is continuing to work on to see if we can optimize that time frame at this stage.

Very clear. That's good. And my final question is regarding the hedging. I saw in the announcement, there are 37 Kt hedge to collar and 84 Kt copper hedge to a fixed price swap. So totally, it will be around 120 kt copper being hedged comparably around 90 Kt quarterly output is large numbers. And at current spot price, the hedging would be profitable. I'm not sure whether I understand that's right? And could those playing on the hedging volume and also its impact on the profit for the third quarter, fourth quarter? That's my final question.

Thank you for asking this. The volume I can update you -- I can ask [ Song Qian ] to update the exact numbers after this call. But whatever we have disclosed are the true numbers and the impact, yes, we do have a hedging policy approved by board, and reviewed from time to time. While we do this, to the board firstly, with doing that, we could secure our cash flow for our debt repayment. As you all know, currently MMG still held a certain levels of external debt. And secondly, with that, we could secure our capital to support our major expansion projects in Las Bambas, in Khoemacau and in Kinsevere. We believe that those expansion projects could maximize our investor's value the most. And thirdly, with the hedging program, we could optimize our financial performance and cash flows for the two -- especially the 2 mines like Kinsevere and Khoemacau, because they are usually on the ramp-up stage or on the transferring stage. Their financial would be wonderful at the moment. So it -- so far as the current market, our strategy of hedging has proved to be very effective. And for the financial data, I'm not recommended to disclose more detailed numbers at this call, but you will have more information in our interim report. Thank you, Jamie.

Thanks, Cao for the answer and I have no more questions. Looking forward to the first half results.