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. And thank you for joining us. Today's call covers the operational performance of MMG's sites for the second quarter of 2025 with our report released yesterday. I'm joined by Mr. Zhao Jing Ivo, our CEO, along with members of the Executive Committee. I will now hand over to Ivo, who will provide a brief overview of the quarter. The moderator will then facilitate your questions.

Thank you, Andrea. Good morning and good afternoon. Thank you for joining us today. It is a pleasure to share our second quarter performance with you, a really strong result with some impressive milestones. Let me begin with an update on our safety performance. I'm pleased to report a significant improvement in our total recordable injury frequency at 1.23, down from 2.40 in the first quarter. Our significant events with energy exchange frequency reduced to 0.49 from 1.08. These improvements reflect the focus and commitment of our teams to embedding critical controls and proactive safety practice across all sites. We must continue our journey towards a significant and ongoing safety and health improvement. On to our production results, total copper output, including copper cathode and copper concentrate, increased significantly to just over 140,000 tonnes. This represents a 54% increase year-on-year, thanks to a strong performance across all three of our copper assets. Las Bambas set a new record by mining close to 22 million tonnes of ore. They delivered almost 115,000 tonnes of copper in concentrate, their second-highest quarterly result on record. This excellent result was underpinned by improved ore grade and contributions from both the Ferrobamba and Chalcobamba pits. These impressive milestones were achieved despite the challenge the team faced towards the end of the quarter with intermittent road blockage on the Southern Road Corridor. They were part of nationwide protest by informal miners regarding the scheduled end of the REINFO program. We continue to maintain production at Las Bambas and with the road blockage now cleared, stockpiles concentrate is leaving site progressively. I'm pleased to share that Kinsevere and Khoemacau both delivered solid double digits growth by -- at 19% and 28%, respectively. It's worth noting that Kinsevere's performance was considered by regional power instability, which affected several other copper producers. In response, we're adding 12 megawatts of diesel generation capacity to help stabilize supply and support future throughput. The ramp-up of Kinsevere expansion project continues with copper recovery at the sulfide concentrator exceeding 75% in June. While the calcine conversion rate of the roaster achieved 88%. At Khoemacau, planning for the 130-tonne (sic) [ 130,000-tonne ] annual expansion continues to progress. A feasibility study is underway with early work to establish infrastructure and personnel recruitment also having started. As part of recently awarded 5-year contract, JCHX Mining is now on site with mobilization having gone smoothly. Moving to zinc. Total production for the quarter was just over 56,000 tonnes, a 12% increase compared to the same period last year. Dugald River produced over 43,000 tonnes, a 26% increase year-on-year. This reflects a recovery from unplanned maintenance and weather-related disruptions earlier in the year and was supported by strong ore grades and continued improvements in mill performance. At Rosebery, zinc production declined by 20% compared to the second quarter of 2024. This was largely due to lower grades associated with mining sequence and the challenges related to equipment reliability. Despite this, zinc equivalent production remained strong at nearly 30,000 tonnes, reflecting continued value from by-product metals. As a team, we are focused on delivering our production and cost targets for 2025. At Las Bambas and Rosebery, we have favorably adjusted the C1 cost range to reflect improved by-product credits and strong market conditions. With the improved profitability of the Las Bambas mine, I'm pleased to announce that the mine distributed dividends to MMG and its joint venture shareholders for the first time in the second quarter. This marks the first dividend payment from Las Bambas since its acquisition in 2014, representing a significant milestones in shareholder value creation. Additionally, Khoemacau made an early repayment of USD 500 million on its acquisition facility. This was funded through equity contribution from MMG and our joint venture partner, supported by the dividend distribution from Las Bambas. I would also like to congratulate Mr. Chen Xuesong on his appointment as the Interim President of Las Bambas. We worked closely together during my time in Peru, and with his extensive mining background, I know he will do a great job at learning our local team and maximize the site's potential. Our ambition to become a top 10 global copper producer is within reach, and we're well positioned to achieve this through operational excellence, disciplined capital allocation and a continued commitment to responsible mining. Across our portfolio, we're proud to be making a positive impact by driving local employment and enabling social development, whilst at the same time, supplying the critical materials -- minerals needed for low-carbon future. As we progress the integration of Nickel Brazil, we remain confident in the long-term value it will bring to our portfolio and growth outlook. And just before we close, I wanted to acknowledge our recent positive profit alert, where we announced an expected net profit after tax attributable to equity holders for the half year ended June 30, 2025, of approximately USD 340 million. More details to be shared at the interim results presentation on August 13. I hope you will join us. On behalf of MMG's Executive Committee, I would like to sincerely thank our team for their efforts and commitment to safe operations. It's been a really pleasing performance, and I look forward to building on this result as we close out the year. My colleagues and I are now happy to take your questions. I will hand back to the moderator.

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

And congratulate on a strong second quarter production report and also a strong first half profit alert. So I have several questions. Let me ask one by one. First is for the Las Bambas output. The first half output is very strong at more than 200 kt. Well, I noticed that you keep the full year guidance at 360 kt to 400 kt. I want to check if there is no roadblock in Las Bambas in the second half, would the full year output higher than the guidance? Or according to the mining sequence in the second half, the output would be lower than first half as planned? This is my first question.

Okay. I will give a quick answer. So if there are no disruptions in the second half of the year, mainly talking about the external factors, and I think 2025 production can exceed 400,000 tonnes, implying about 200,000 tonnes we produced in the second half of the year. But as you know, we're so close to the election year, which will be the next year in Peru. And recently, there are a lot of [ informal ] mining activities trying to express their political requests. So we are trying -- right now having a lot of challenges from all these political factors could be -- probably interrupt the transportation of all the materials and concentrates. So this is with our -- main concerns from our side. But without all of these external factors, we still try to achieve our maximum production and the target of the year at 400,000 tonnes. Nan, do you have something to say? I hope this can answer your question, Jimmy.

Sure. Yes. Very clear. And my second question is also related to the Las Bambas. It's mainly for the C1 cost. I know that the first quarter C1 cost was very low at [ $1.26 ]. I also see that you lowered the guidance, very happy to see. But the guidance is still higher than the first quarter. I'm just wondering what's the potential reason for higher C1 costs in the second half? Is that also because of the potential disruptions in Las Bambas? So if there is no disruption, how should we expect the C1 cost? This is my second question.

Okay. I'll answer the question first. Just as I mentioned, if there's no disruptions on the production in the second half, we expect just we can -- the C1 cost can approach the lower end of the range. But as you know, we have a lot of external challenges, which can make the C1 cost higher. Taking one example, with all the logistics, probably we will have more standby expenses. That could be one of the big cost we will have. And additionally, probably we have also other expenses, for example, the social expenses because, as you know, just normally, we have the first half of the year as the planning, as the designing and for the social expenses. And normally, the second half of the year, we have more expenses for the social part, just taking an example. So normally, just the second half of the year, we have a higher C1 cost, but we will try to just maintain at the end of the range.

Got it. Got it. And my third question -- last question is about the Kinsevere. I know that there was an unstable power supply, so I know the Kinsevere is also in the ramping up. So what's the outlook for the power supply? Would that disrupt the Kinsevere from reaching the full capacity and what's the solution or the outlook for the power supply?

Yes. Jimmy, this is Nan here. Yes, the power supply is definitely the area we pay a lot of attention. We're working closely with now the local power supplier to make sure our supply is stabilized. But this one is a national-wide power instability. So we do get impacted frequently at this stage. So we'll work -- again, going forward, all these trips and then power outages will impact our ramp up, our production. But by minimizing that, we have acquired additional 12-megawatt diesel generators, just try to pick up the shortfalls. So with the existing diesel generators and then the new one coming later on this year, that will give us additional backups. So we still work very hard. Combine the diesel and then a local grid and then to secure our production going forward.

Your next question comes from Lawrence Lau with BOCI.

I also have quite a few questions. First of all, again, about Las Bambas, I just want to confirm that you have a very high ore grade in second quarter. And the management just said that if we have no disruption, the second half production will be strong. So are you implying that the ore grade will still be high in the second half? And second question about Kinsevere. I noticed that actually in the first half, you actually mill much more ore than you mined. So I just wonder, are you milling third-party ore or there's some inventory carryover? And also, I noticed that you have sales of cobalt in the second quarter. But I understand that the government of the DRC actually suspended export of cobalt in late February. So I just wonder how can this happen? And finally, about Khoemacau, I noticed that you changed the mining contractor. So will it result in lower cost for the mine in the future?

Yes. I'll go with the first one on Las Bambas. And as we mentioned, just -- so actually, right now, we have two pits, Ferrobamba and Chalcobamba. And obviously, Chalcobamba has higher ore grade. And what we're trying to do is to make a blending between all of this to make sure that all the input for the plant has a very stable grade. So we try to maintain a reasonable ore grade just to feed the plant to make sure that we achieve the target at 200,000 tonnes in the second half of the year, okay? So this is what we do right now. Las Bambas. The next question is -- I'm sorry to say that -- ore grade. Yes. Sorry, did I answer your question, Lawrence? I'm sorry.

Yes, about Las Bambas, yes.

Yes, Lawrence, this is Nan, here. I'll address the question on Kinsevere and KCM, Khoemacau. For Kinsevere first half, yes, we did mill more than mined. Majority of the contribution -- the ore contribution is from our ore stockpiles. We have a large sulfide stockpiles and there's some sort of low-grade oxide stockpiles. And then together combined, we had some small third-party ores in the blend, but the large portion is our stockpile -- is from our stockpiles. In terms of the sale of cobalt in Q2, that was the cobalt on route. So after the government ban, there was no more sales. And then going on to the question on Khoemacau, by changing to JCHX, that was gone through a competitive tendering process. And then by the -- reviewing the competitive results, so we picked the JCHX. So at this stage, I'm not in a position to actually disclose the detail of the contract. But I can say the new contractor will definitely bring value to KCM. Thank you.

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

I've got two questions. The first one is regarding Las Bambas. So could you compare the recent roadblocks by the informal miners. I mean how do they differ from those previous community unrest or to -- I mean, to any extent, are they are they similar? That's my first question.

Okay. Related to the road blockage, I think it's compared to Las Bambas, as most of you know, we suffered quite a lot of road blockage in the previous, I don't know, 10 years almost. And since 2022, when I first arrived there, actually, it was quite challenging. I mean, all the communities. It would take a lot of efforts to implementing the new social strategy, which is the heart of Las Bambas. We really engaged a lot with the communities. So right now, I think the risk with all the communities around Las Bambas is quite low. And we have to maintain a very healthy relationship with all the communities around Las Bambas. But this time, it's a little different because this -- the road blockage was raised by the old informal mining activities. And all of them not only blocked the roads in the Southern Road Corridor, but also in big cities, the second biggest city in Peru in the south part, which is Arequipa and also Nazca, which caused all the city more than 170 kilometers road blockade. And so it's almost a national-wide road blockade. And a lot of mining companies have been affected. And the good thing is the operation of Las Bambas has never been suspended. We have full operational since now, so -- until now. So obviously, we have been interrupted 2 weeks of the transportation of the concentrate -- copper concentrates. And after the government set up a dialogue table with the informal mining, they had agreement, and they are trying right now into another period to analyze possible alternatives to how to solve the problem with the informal mining activities. I think right now, just for Las Bambas, the more focus is how we can operate normally with all the mines we have and trying to maintain also this good relationship with the communities. So compared to the previous road blockades, this one, first, it's not against Las Bambas, it's nationwide, it's within the government. And the second, I think the government also had a lot of effort to sit down, talk with the communities, with all the informal miners and they try to just sign an agreement. And we need to wait another law, probably, it's called [indiscernible] in Peru and could we have a solution for all the informal miners. So this is the major difference between the other road blockades. I hope this can answer your question.

Yes. And the second question is, you mentioned Nickel Brazil before. So can I just check the expected completion time is still within the third quarter of this year? And in terms of the financial contribution, will it only be consolidated from that completion date onward? Or would it be kind of like [indiscernible] to the previous -- I mean, in the beginning of the year or maybe some other date?

Okay. I will give a quick answer and probably Sandra can help me with that because so far, we didn't complete all the acquisition of Nickel Brazil, so we cannot comment about the value of the assets. And Sandra, do we have some updates related to the acquisition of Nickel Brazil?

Chris, this is Sandra. So we are still going through the regulatory approvals for this acquisition. So we still expect that we can close the deal by end of the year. In terms of the consolidation, I believe that we can only consolidate the financials post-acquisition.

Your next question comes from Miriam Chan with Bank of America.

So I have a few questions. So first of all, the first question is a follow-up on the Las Bambas. So understanding from your announcement that -- and also you mentioned that the previous roadblock in the end June was around 2 weeks. And right now, you have increased the number of trucks in order to increase the transportation. So I just want to ask about the sales volume. If we assume no further roadblock, will this like the event in the past 2 weeks affect the sales volume in the third quarter? And then a second question on Las Bambas is, how do you evaluate the upcoming risk? Like you also shared some already, but like under what circumstances would you decide to lower the production volume to the lower end of your guidance? I want to see if there is more visibility on this event.

Yes. Miriam, this is Nan here. Yes, I'll answer your question on the two. First of all, about the sales volume, obviously, we're focused on transportation and then maximize our transport capacity as soon as the road is remain open. So our intention is once the road open up and then we'll quickly use all our capacity to draw down the stock from site and then make the sale. So that's definitely our intention going forward. And then in terms of your second question, H2, I think, Ivo, our CEO already commented on that earlier. In terms of the -- if no external factors and impacts, we definitely plan to achieve the top end of our guidance. Thank you.

Sure, sure. And second question on the capital management. I also see that Las Bambas has distributed its first dividend to MMG. So on an MMG perspective, like I want to check what's your latest guidance on your CapEx and then your gearing ratio target and also if there is any possibility in the future to distribute a dividend.

Thank you, Miriam. Can I just suggest that at this point of a moment, we don't touch base on more detailed financial data. We can -- but I will write on this question. I will address this once we disclose our interim report. Let's talk about it in the next conference. Thank you.

Sure, sure. And so my final question is on the copper price. Like do you have any view on the outlook of the copper price in the second half?

It's a big question actually. As all the mine producers produce, we always hope that the pricing is going up. But actually, it depends on more the macro economy. So I'm sorry, we cannot give a really concrete answer to that. Sorry.

[Operator Instructions] Your next question comes from Hagen Bahnemann with Mercury RC.

First of all, congratulations on a fantastic result for the quarter. I just had a question regarding the additional cash flows that are resulting from this. How do you intend to use -- utilize that? Is that paying down debt or expansion of existing assets, further acquisitions?

Thank you, Hagen. In current copper market and with our good production, yes, MMG has generated very good cash flow in the first half. But we will consider our operation plan and also our growth plan to consolidate how we better utilize our cash flow. But as we have disclosed that in the first half, Las Bambas has already started a dividend distribution to the MMG Limited. But we will organize our other assets like Australian assets also to consider how we can better use our cash flow generated from the operation sites to support MMG group in general. So this will come into more detailed disclosement after our interim report. Thank you.

Your next question comes from [ Sam Roy ] with FactSet. Please go ahead. Sam, your line is now live, please ask your question. There are no further questions at this time. I'll now hand back to Ivo for closing remarks.

Okay. Thank you very much. And we -- I hope just we have the next meeting just after the interim report. And probably we can catch up later if you have further questions. And if you have any questions, you can contact our General Manager, Andrea Atell, for further questions. Thank you very much, all of you. Thank you.

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