MMG Limited (1208) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MMG Limited Interim Results webcast. [Operator Instructions] I would now like to hand the conference over to Andrea Atell, General Manager, Corporate Affairs and Sustainability. Please go ahead.

Thank you. Good morning and good afternoon. Welcome to MMG's 2024 Interim Results Briefing. Presenting today are Mr. Liang Cao, our CEO; Mr. Song Qian, our CFO; and members of the company's executive committee. In this presentation, we'll cover MMG's performance highlights for the first half. We'll then detail our financial performance at an asset level and share insights into MMG's strategy and outlook. At the conclusion of the presentation, there will be an opportunity to ask questions. You'll be provided with details by the moderator and hard to ask your question. I will now hand over to Mr. Cao Liang.

Thank you, Andrea, Hello everyone. Thank you very much for attending today's meeting. I'm very pleased to share with you MMG interim results. Firstly, safety performance. Safety is our core value. Our commitment is that every employee and contractor across our organization will go home safely every day. For the first half of this year, we recorded a total recordable interim frequency trip of $2.44 per million hours worked. This is an increase compared to last year. The significant events with energy exchange frequency were 1.2 million hours worked. Our company placed great importance on this matter and has implemented improvement plan. The plan has a particular focus on critical controls around the vehicle and mobile equipment and also improvement to contractor management. These matters have already shown results. We've seen no high potential interest in the past 2 months, and the trip in July shows a downward trend. Now, let's move on to discussing our performance in the first half of this year. MMG had an improvement in financial performance in the first half. The improvement is closely linked to a stable production across all the sites allowing us to benefit from higher commodity prices. Our CFO, Mr. Song Qian, will give you a more detailed slide later. In this first half, we are actively pursuing growth and accelerating portfolio expansion. As you know, we successfully acquired the clinical copper mine in Botswana, further expanding our presence in the copper business. At Las Bambas, for the first time, we shipped all from the Chalcobamba pit to the processing plant in the second quarter. The construction of the TRIF's expansion project is progressing very well and with mechanical completion anticipated by the end of this year. Also in the first half, we successfully completed 2 significant asset restructuring activities. The first is the establishment of Khoemacau invention. The second is the completion of Rights Issue. These actions are key milestones in optimizing our balance sheet and driving sustainable growth. Now, I will share an update on our asset portfolio. All of our assets have been performing well throughout the first half of the year. This is particularly true for our largest asset at Las Bambas. Although compared to the same period in last year, as does produced last quarter in the first half of this year. However, it was in line with our mining plan with mining activity primarily occurred in the low-grade sectors in Chalcobamba pit. As we advance operations in the Chalcobamba pit, which is time on the way, we are now having stronger production. This positive trend sets the stage for a stronger second half of the year with Las Bambas production expected to be towards the high end of our guidance range of 320,000 tons of copper. We also anticipate improvement in Las Bambas C1 costs starting from the second half of the year. Turning our focus to our operations at Kinsevere in DRC, our initiatives during the first half of the year was dedicated to improving power stability for the processing plants, and increasing money activity the Chalcobamba pit. The rise in self-mine ore supply has allowed us to significantly cut costs associated with the third-party war. We anticipate this year's production to closely align our target range of 39,000 to 44,000 tons of copper. As I just mentioned, Kinsevere expansion is also advancing very well. Shifting to the Khoemacau mine, which has been included in our financial report for the first time, we expect copper production this year starting from the completion of our acquisition on March 23, the range between 30,500 to 40,500 tons of copper. We are dedicated to ramp up Khoemacau to reach an annual production of 60,000 tons of copper by 2026. This growth will be supported by continuous mining development to enhance mining prongs, operational flexibility, and mined grades alongside the completion of the primary ventilation fans and paste fuel projects. Furthermore, the company is promoting our expansion project at Khoemacau as well, aiming to boost the production capacity to 130,000 tons of copper. We expect it to complete the project by 2028 and of it at full capacity by 2029. Further reduction in C1 cost is also expected. Regarding zinc production, Rosebery production remained very stable, while the River plant resumed operation in late July from the planned maintenance shutdown. We still maintain our target of 225,000 to 250,000 tons of zinc for this year. Driven by strong metals prices, including zinc and [ precious ] metals, and the lower treatment charges. This year, we foresee a better profitability for our zinc mines. Now, I will talk in a little bit more detail about our accomplishments this year for PC, for Khoemacau, our initial step towards strengthening our balance sheet and lowering the gearing issue was the establishment of our joint venture at Khoemacau. This strategic move positions the Khoemacau mine to more effectively deliver the expansion projects, revise promising long-term benefits for all of our shareholders. Let's turn our attention to our recent completed equity recent project, which served as the second step in our strategy to strengthen our balance sheet. Through this Rights Issue, MMG successfully raised a total of $1.163 billion. These funds have been directed towards the repayment of the short-term funding of the Khoemacau acquisition and additional debt repayments leading to the immediate interest saving of approximately $8 million. As a result of this equity leasing MMG pro forma gearing ratio has achieved a record low since the physician of Las Bambas, now estimated around 45%. In terms of the community relationships at Las Bambas' during the first half, we continued to advance the implementation of the Corazon de Las Bambas program., our new social management approach. As part of this, we conducted extensive and constructive dialogue between Las Bambas and the communities, and the local government as well. Through the implementation of this program, communities, including those around 1,000-odd corridor and those nearby our site will benefit from a Las Bambas payable production. In parallel with advancing dialogue tables, we started the development of the Chalcobamba this year. With such progress, we will work towards same production of about 350,000 to 400,000 tons of copper from next year, 2025. We will provide more details regarding the Corazon project as part of our sustainability briefing. For KP, the Kinsevere expansion project, construction remains on track. MINEM milestones include the completion of the construction of the SAFAS concentrator and the mechanical completion of roster of RGA pumped with commissioning currently on the way. First, production of copper cathode from SAFAS is expected in the second half of this year and the full ramp-up is expected in next year. This next phase of Kinsevere will extend the mine life to at least 2035. Moving forward, we will focus on the delivery of the Kinsevere expansion project and Chalcobamba pit and the activity-promoted organic growth, such as the Khoemacau expansion with the growth increase in copper production capacity by 150,000 to 200,000 coppers over the next 3 to 5 years. Our mission is to be a top 10 corporate producer globally. I will stop here and hand over to Mr. Qian Song, our CFO, to talk about a little bit more about our financial performance.

Thank you, Cao Liang, and welcome, everyone, joining on of this conference today. In the first half of this year, MMG's EBITDA, which is E-B-I-T-D-A increased to USD 779 million. And we achieved a net cash flow from operations amounting to $515 million. This positive shift can largely be attributed to stable production across our sites and was further enhanced by rising metal prices. Now, let me take you through the financial performance of our 5 operations. Las Bambas generated EBITDA of CNY 590 million for the first half of this year. Operating expenses decreased during the period, driven by an increase of an inferred mine capitalization costs, which is related to the Chalcobamba pre-stripping activities and a reduction in expenses allocated for the risk mitigation of social complete. With a stable production, the Las Bambas mine can generate very good operational cash flow as EBITDA margin reached 47% during the first half of this year. Kinsevere show the improved performance by generating a positive EBITDA of N41 million during the first half. This achievement was achieved by accelerating mining activities at Sokoroshe 2. I'm not reducing our reliance on expenses and hybrid third-party loans. Looking forward, we anticipate even greater profitability as we move towards the commissioning and ramp-up of the Q3 expansion projects. For Concord, beginning on March 27, 2024, when MMG completed the acquisition, it contributed $34 million in EBITDA through the first half. We are fully committed to supporting the ramp-up of forecast to achieve annual production of 60,000 tons of copper by 2026. And after that, we're completing the expansion to reach a production of 130,000 tenants by 2028. Dugald River achieved an EBITDA of $80 million in the first half. We aim to further enhance Dugald River's profitability through a continuous operational improvement initiative. Robur growth reported an EBITDA of $68 million. As a polymetallic mine, that generates a significant revenue from byproducts such as Golden silver, and Robur's profits were supported by the good price of precious metals. In recent years, MMG has continually reduced the gearing ratio through strong cash flow generated from operations, particularly after completing the acquisition of Khoemacau this year by utilizing a series of financing methods, the company's pro forma gearing ratio is now estimated at around 45%, which is the lowest level since the acquisition of Las Bambas. In the current global high-interest rate market environment, we will continue to take measures to consistently reduce our debt level, thereby lowering our financial costs and enhancing the profitability. Next, I will discuss our outlook on capital expenditures. As you all know, in Las Bambas Kinsevere and Khoemacau, we all have a promising expansion project. We believe that capital expenditures on these projects are crucial to ensure the increase of our copper production and the growth profitability for all the shareholders. Our total capital expenditures for 2024 is expected to be between $850 million and USD 950 million. For the farmers, we are maintaining CapEx between $400 million and $450 million. This budget includes the expansion of the projects such as the Las Bambas pit facilities, Ferrobamba pit infrastructure, and Chalcobamba execution. At Q3, due to reduced capitalized mining costs, capital expenditure is expected to decrease by $50 million from the previous guidance, bringing the range to $200 million and $250 million. For Khoemacau from March 23, 2024, capital costs are anticipated to be in the range of $150 million. This includes capitalized under brand on development, continued expansion studies, paced fuel plant design and construction, and the installation of primary ventilation fans. The company's strong field copper mine expansion projects are expected to add 150,000 tons to 200,000 tons of new copper capacity over the next 5 years with a capital intensity of less than $10,000 per ton, which is significantly lower than the investment intensity of new copper mine projects globally. I will now hand back to Cao Liang to wrap up the presentation. Thank you.

Thanks, Song. In summary, our sites are tracking well with the performance in line with or exceeding our updated 2024 guidance. And we anticipate a more profitable second half. Looking ahead, we will continue to contribute to building a low-carbon future in 3 key areas. First, we will manage our existing assets to create more value. MMG has a world-class portfolio of copper assets in terms of coper bills. We will focus on operational efforts of our existing mines, continuously promoting capacity expansion and are achieving stable and increased production. Second, very effectively management balance sheet. Now, our balance sheet is the strongest that has been in the last 10 years, our business model with support from our major shareholder, China Minmetals Corporation, allow us to leverage the best of the international and Chinese mining expertise to drive better financial outcome. With improved performance, we will continue to strengthen our balance sheet. Third, we are committed to maintain strong relationships with the stakeholders. Our team will continue to work with and support the local communities and apply our rule driving economic and social progress. We are hosting our sustainability briefing tomorrow and the team will share more details about our approach and commitment for this important area. Finally, many thanks to our talented team for their hard work and commitment over the last 6 months. I look forward to working alongside them to grow our safety culture and achieve our operational growth. This concludes the results part of our call. I'm now happy to take your questions, and we'll hand back to the moderator. Thank you.

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

I have 2 questions. Firstly, for Q3 in mind, happy to see EBIT turned positive during the first half. So, what's the outlook for the second half? Because I see there is a positive other operating expense in the first half, which is caused by the increase in our stock. So, how should we expect this item in the second half because this number is in a relatively large scale relative to the EBIT [indiscernible]? So, this is my first question.

Sitting around this table, we have our COO, Nan online and/or EGM and the General Manager of the farmers Joint. So, I will address some of your questions and maybe Nam, you could add more on this. Thank you, Jim. Your question is regarding Kinsevere's outlook, yes, I shared the saving view with you that we see a very good result of the positive EBITDA in first half. I think before I come into the details of your question, I think in general, in Kinsevere, these 2 years are not an ordinary operational year. Of course, we run out of the oxide ore, and due to the COVID improved our KEP, which Kinsevere expansion project, which allows us to process the sulfide ore hasn't been able to come into operation in time. Therefore, in this year and last year, our operation is actually very, very [ unsual ]. It's purely relied on the third-party ore, which now with the Q1 copper price goes up, their price goes up rapidly. If we do fully rely on their resources, we will be doing very significant costs with -- Therefore, we pick up a satellite mine called Sokoroshe 2, which is very high cost ore. It only makes sense in the high price of copper market. Therefore, we have more to speed up the mining of that process. Therefore, you will see the cost goes up quickly.

Jimmy, just adding on what Song just mentioned. We fast tracked the Sokoroshe 2. We realized the mining costs nil. Obviously, we're feeding the high grade to the plant to produce more copper for Q2 and then for remaining of this year. And then some of the stockpiles will remain there until later part of the life. So, obviously, from the cost perspective, we'll realize that cost now. But later on, when we reprocess those stockpiles, the cost will be more favorable and beneficial.

Just a quick follow-up on this case cost. How do you expect the cost in the next year in 2025, if I mean?

The guidance we haven't published for now, but the outlook for the Kinsevere will be good because starting this Q4, we'll already be able to process sell-side ore. And, in next year, we will ramp up hopefully by the end of 2025, they could resume the 80,000 tons of copper per annum then I believe they will contribute to profit.

And my second question is regarding the financial expenses. After the repayment of the advertising, there will be some savings on the financial expenses. So, what's the financial expenses outlook in the second half? Or what's the guidance for the full year of 2024?

You mean what the second half of the financial part they look like?

Yes, financial expenses, yes, yes.

So, normally, we would see $300 million to $400 million of financial cost each year. But this year, we see first half of the financing total debt level goes off that purely suppose of the copper acquisition. So, by the end of first half, you will see our total debt level, which is 6.6 billion. But in July, we repaid 800 external debt from the summer. And hopefully, by the year-end, we will keep repaying $1 billion. That will reduce our debt level significantly plus with the capital raising, the right issue, we have repaid around 1 billion extra debt. This will help us to both reduce or that level and reduce our gearing ratio and also reduce our financial costs. For the whole year, we estimate to the financial cost to stay at 400, around 400 mine.

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

I think I have 3 questions. First of all, for the Kinsevere, if we work out correctly, the realized price of cohorts in the first half was just around USD 14,000 per ton. It seems to be significantly lower than the market price. So, I just wonder why the price is so low? Or is the price going to be higher into the second half of the year? And also for this mine, we see a significant buildup of inventory, I think, primarily cohorts. What's your view on this? Do you think you can sell all the cohorts you produced this year within the second half? And finally, regarding the interest rate. Now, the market generally expects U.S. to cut interest rate, I think, later this year. But I understand we have some kind of interest rate swapped. So, I just wonder, if U.S. really cut the interest rate, how fast we can feel the impact of the rate cut on our loans?

Yes, Lau, I'll address the first couple of questions, and then I'll hand over to Song for the last one. In terms of the cobalt price, obviously, it's very hard to predict. So, we are working closely with our marketing team to actually further investigate and then monitoring the market closely. And then obviously, fiber copper price will definitely benefit all the mining companies. In terms of the cobalt stock, so we are working closely with the potential buyers and then looking for opportunities for the trial sales. Obviously, we're still at early stage. We try to introduce our product to the market. So far, so we're getting good feedback. But yes, so going forward, in the short term, will continue work on our potential customers and then to let them know our product specifications and then also getting feedback to further improve our products to suit their requirements. Over to you, Sam, for the third question.

Thank you, and thanks, Liang, for the question. Regarding the U.S. rates, yes, our first half, we realized the effective interest rate of 5.2 per annum. That's the annualized rate. We'll be able to benefit from the interest reduction if it really happens. So, we have already introduced all that level. So, every one point of interest rate reduction help us a lot. However, in terms of the swap, interest rate war, that was a very good deal. The Kinsevere management team has achieved several years ago. But we started at that. Better than last year. Please, Sherry, would you come up after this to have the details of that transaction. But I believe we don't have interest mark so far at the moment. And for the outlook of the interest rate, to be honest, you are a much better in a position to explain this forecast, we would happy to see any real interest reduction in the market. But I don't ask more than will take for this plan.

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

I've got 2 questions. The first one regarding Khoemacau. What sort of C1 cost trajectory should we be expecting over the next few years to 2029 when the production is expected to be extended to 130,000 tons? That's the first question.

Yes, Chris, I just touched on this. In terms of our currency line, obviously, we're still trying to land to 60,000 tons until 2026. So, we're still working towards our stabilized operation and then open up the mining fronts and then stabilize the mining grade. And if it gets to the main part of the ore body. In terms of the guidance, short term wise is pretty much in line with our guidance already provided. But going forward to 2029 as we're getting from 60,000 to 60,000 tons to 130,000 tons production rate as you can see that C1 will significantly improve. But at this stage, we are still working hard on the life of mine estimation and then expansion study. So, we'll be able to provide more detailed range in the near future.

And what sort of CapEx should we be expecting for the second stage expansion from 60,000 to 130,000?

That will be $600 million to $800 million of caps in total, but that will be happening in 3 years' time. So, starting now, we are working on the visibility. And given us 1 year's time, we could bring this into execution. And hopefully, by year 2028, we can deliver that and have the ramp up to 130,000 tons per annum.

And my second question is regarding ESO. Is there any updates on that project and maybe the infrastructure around that area?

Sorry, I didn't catch your question.

For the ESO project. Is that okay? The one in Canada?

Sure. Thanks. So as you know, we've been working really closely for almost 8 years now with the Government of Canada, the local First Nations group, and a group core West ticking resources who have taken up the proponent role in the infrastructure projects. We haven't changed our view that this is an outstanding project, excellent resource, and reserves and just really need that infrastructure on locks to make this a very viable and very attractive projects. The good news, I think, is that we're seeing very good support on that project to get into the work that needs to be done is feasibility. So, we are very confident that, that work will start up again in earnest. There's a couple of years of work to get the refill to get it to what we call shovel stage, which is when you'd be able to invest as for the infrastructure. We still have over $20 million of Canadian government funding committed to that work. It's advancing well. I would expect that next year, you would see some really significant work on the infrastructure and that gives us greater confidence to start thinking at M&G in terms of looking at the project again, looking at feasibility. And, as we've always planned to follow behind the infrastructure work with feasibility work on that study. So, we're confident it's in probably the best place it's been for the last couple of years and look forward to keeping you updated.

Thank you, there are no further questions at this time. I'll now hand back to Mr. Cao Liang for closing remarks.

Okay. Thank you again, and thank you for joining us today. If you have any additional questions, please reach out to our Investor Relations and corporate affairs teams. So, thank you for your time. Bye for now.

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