MMG Limited (1208) Earnings Call Transcript & Summary

[Interpreted] Hello, everyone. Thank you for dialing into the MMG Limited 2025 Interim Results Investor Earnings Call. I'm Sherry Shen, the company's Head of Investor Relations. First, let me introduce the MMG leadership team joining this call. Mr. Zhao Jing Ivo, CEO and Executive Director; Mr. Qian Song, CFO; Mr. Wang Nan, Executive General Manager, Operations; Ms. Guan Xiangjun Sandra, Interim Executive General Manager, Commercial and Development; and Mr. Troy Hei, Executive General Manager, Corporate Relations joining via the English channel. Please note the disclaimer on screen. This presentation will provide the first half year review and overview of MMG's financial results and the strategy and outlook update. [Operator Instructions] I will now hand over to Mr. Zhao Jing Ivo.

[Interpreted] Thank you, Sherry. Welcome, everyone. The team and I are delighted to share our 2025 interim results. It's exciting to be here with so many of you, and thank you also to those joining online. Thank you all for your attention and support for MMG. Let's begin the presentation. At MMG, safety is our first value. First of all, in line with the company's tradition of building a strong safety culture, today's presentation will begin with our safety performance. Here, I must emphasize again, safety is the top priority in all of the company's work, whether in daily operations, project challenges or emergency responses, safety is the primary driver for decision-making. All teams are required to always promote proactive safety behaviors embed critical controls and strengthen contractor oversight. Only by building a solid safety foundation can we steadily advance our work. Based on MMG's first half data, the company's total recordable injury frequency per million hours worked was 1.8, and the significant events with energy exchange frequency rate per million hours worked was 0.78 with safety indicators outperforming peer companies. However, we must continue to enhance management, strengthen safety culture and implement measures to continuously improve safety performance. In first half 2025, the company made significant progress in both production operations and financial management, delivering an impressive performance. Our flagship asset, Las Bambas continued to demonstrate strong momentum. Copper production steadily increased while unit operating costs significantly decreased. Meanwhile, production at our other 2 copper mines also grew and the market tailwinds from rising prices of key metals such as copper, gold, silver and zinc further drove the company's performance to achieve exponential growth. During the reporting period, the company's net profit after tax reached USD 566 million with USD 340 million attributable to equity shareholders. Total net profit after tax increased by more than 600% compared to same period last year. At the same time, profitability and cash flow strengthened in tandem. EBITDA reached USD 1.54 billion, up 98% year-on-year while net operating cash flow reached USD 1,185 million, up 130% year-on-year. The company's financial health also reached a new milestone. Gearing ratio dropped from 41% at the end of last year to 33%, marking the lowest level since the acquisition of Las Bambas. These figures reflect the company's comprehensive capabilities in production, market and financial management, laying a solid foundation for future development. We will continue to move forward steadily, driving sustainable growth for the company and creating long-term value for shareholders and all stakeholders. In terms of specific production performance, our total copper production in the first half of the year reached about 260,000 tonnes, a significant increase of 64% year-on-year, marking a remarkable breakthrough in production scale. Total zinc production reached about 110,000 tonnes, achieving stable operations. From the perspective of rent renewal contribution structure, with the dual benefits of steadily increasing copper production and higher copper prices, copper business has continued to grow in significance. In the first half, copper revenue accounted for 78% of total revenue. I will discuss organic growth of our 3 copper mines. At Las Bambas, we implemented a dual core model of operational excellence standard plus community development benchmark to systematically unlock the resource potential of this world-class asset. In the first half, through the coordinated mining of Chalcobamba and Ferrobamba pits and optimized core blending, the mine achieved an average core grade of over 0.9%, laying a solid foundation for achieving the annual copper production target of 400,000 tonnes. It is worth emphasizing that to fully tap into the resource potential of this world-class mine, we have established a 3-dimensional exploration system focusing on deep edge peripheral areas. Currently, we are prioritizing growth-oriented exploration projects in the ring of fire region. As exploration work continues to advance, we aim to convert more resources into JORC compliant reserves, thereby effectively increasing the resource and reserve base. At Khoemacau, the resource reserves are also substantial with proven resources capable of supporting stable annual output of 130,000 tonnes of copper. Currently, the feasibility study design and preliminary work for this project are progressing well. Our goal is to produce the first concentrate production from the expansion project by no later than 2028. Notably, the company has the mining rights to a mining area of 4,040 square meters in the Kalahari Copper Belt. However, the current exploration area accounts for less than 10% of this total. Preliminary exploration has revealed that the Zone 5 structural belts exhibits characteristics conducive to hosting large-scale high-grade deposits. This indicates significant potential for future development with capacity to expand production to an annual output of 200,000 tonnes. At Kinsevere, the expansion project to achieve an annual output of 80,000 tonnes of cathode copper has entered a critical phase. The team is systematically advancing work around 3 core tasks: capacity ramp up, technical optimization and power supply stability. In June, recovery rates of the sulfide ore concentrator exceeded 75% and the calcium conversion rates of the roaster reached 88%. To address the issue of our supply instability in the local grid, the project game is begun exploring a due assurance power solution. This includes the addition of a 12-megawatt diesel generator whilst systematically conducting analysis for solar power and BSS project. The goal is to achieve an upgrade in our supply assurance and align it with the capacity expansion strategy as soon as possible. For MMG, investing actively in sustainable development underpins or company's growth. Take Las Bambas as an example. Through the implementation of the heart of Las Bambas project, we have carried out a series of impactful initiatives. The scholarship program has effectively improved local education levels. The specialized medical companies have helped the safeguard the health of community residents and the agricultural projects have promoted economic diversification within the community. More importantly, initiatives touch as the construction of the Kutuctay Bridge, a work for Texas program and our innovative approach to deeply integrating community development into the mine's value chain have not only significantly improved local infrastructure, but also achieved a deeper level of understanding and mutual prosperity between the community and the mine. We firmly believe that these efforts will contribute to Australia momentum for the stable operation of the mine, laying a solid foundation for the company's long-term development. Now I will hand over to Mr. Qian Song, our CFO.

Thank you, Ivo. Good morning, investors and analysts. Good morning. Next, I will present the company's financial performance and outlook. In the first half of 2025, thanks to sale production growth at our mines, effective implementation of cost control strategies and favorable increases from metal prices, the company's financial performance improved significantly with key indicators achieving substantial year-on-year growth. Revenue reached USD 2.8 billion, up 47% year-on-year. Unit cost at our mines decreased. EBITDA reached USD 1.5 billion, up 98% year-on-year. Net profit attributable to shareholders increased to USD 340 million. In terms of net profit contribution attributable to shareholders from each asset, the largest profit contribution came from the Las Bambas mine. Compared to peer companies, MMG has demonstrated outstanding profitability. In first half of the year, our EBITDA margin increased to 55% ranking among the top globally for similar companies. Now let's take a closer look at the performance of each of our mining assets. So Las Bambas mine demonstrated exceptional production and operational performance in the first half, the mine output increased significantly, producing over 210,000 tonnes of copper [indiscernible] in copper concentrates. Notably, 3 key indicators or processing volume, feed grade and recovery rates all achieved strong growth. Steady production growth combined with effective cost reduction and efficiency improvement measures reduced cash costs C1 cost, to nearly $1 per pound of copper, positioned to mine near the first quartile of the global copper cost curve, strengthening our competitive advantage. EBITDA increased by 122% year-on-year, reaching $1.3 billion. Following the completion of the acquisition in March 2024, Khoemacau continued to increase production in the first half of this year, achieving an EBITDA of USD 90 million, a year-on-year growth of 167%. In line with MMG's growth plans, Khoemacau will further increase its production capacity to 130,000 tonnes by 2028. Along with this capacity expansion, the mine financial metrics are expected to continue to strengthen. In the first half of 2025 Kinsevere achieved an EBITDA of USD 30 million, a 27% decrease compared to the same period last year. Ramp-up of the expansion project towards 80,000 tonne cathode copper annual production continued to progress. During the ramp-up process, the mine's short-term profitability has been under pressure. Production ramp-up was affected by countrywide power supply instability, resulting in relatively high unit production costs for the sulfide ore processing facilities. Currently, backup generators are being installed. The right-hand chart shows that various technical indicators of the expansion project are continuously being optimized. As production increases and unit production costs decreased the profitability of the Kinsevere mine is expected to gradually improve. Dugald River increased ore processing volumes and maintained a recovery rate of over 90%. Its production reached 84,000 tonnes, a year-on-year increase of 6%. Due to impacts including inventory movements and ground support costs, operating costs at the mine decreased Dugald River's EBITDA was USD 66 million, representing an 18% decrease compared to the same period last year. Our Rosebery mine continue to implement its polymetallic output strategy, producing 24,000 tonnes in the first half of the year while zinc equivalent production totaled 55,000 tonnes. Revenue from other metals, including gold, silver, lead and copper significantly exceeded that from zinc. Thanks to byproduct credits from revenue contributions of other metals included in zinc C1 cost, the mine achieved a negative zinc C1 cost of USD 0.32 per pound in the first half of the year. EBITDA for the same period reached USD 55 million with diversified metal revenue serving as the core driver of profitability. Leveraging a strong operational performance, the company optimized our financial structure, steadily reducing debt. As of the end of June, the gearing ratio further decreased to 33% from its lowest level at the end of last year, 41%, bringing the gearing structure to its most robust state in over a decade. With the improved profitability of Las Bambas, we completed our first dividend distribution from Las Bambas to MMG and its joint venture partners in the second quarter, marking the realization of investment returns for the mine's joint venture shareholders. Using the dividend funds, MMG injected capital into the Khoemacau joint venture and repaid USD 500 million in shareholder loans ahead of schedule, reducing overall debt levels. The chart on the right of the slide provides a detailed overview of the company's future debt repayment schedule. With the support of our major shareholder, China Minmetals, MMG can flexibly adjust the scale of share loans based on liquidity conditions and funding needs, further enhancing financial flexibility. With the company's financing structure and current strong operating cash flow, MMG's financial structure is secure and stable with a safe and manageable debt repayment schedule. In terms of capital allocation, the company's capital expenditure estimation for 2025 has been adjusted to USD 1.1 billion to USD 1.25 billion, covering maintenance inspection investments, development project investments and capitalized mining expenditures. Here, we have listed some of the key expenditure projects, undertaking reasonable investments to drive long-term value gross is a critical component of the company's development strategy. Additionally, the acquisition of the Nickel Brazil assets progressing and expected to be completed by the end of the year with initial consideration of USD 350 million. I would also like to report but MMG's Board places great importance on shareholder returns, conducting reviews of dividend matters twice a year. In April this year, the Board approved the company's dividend policy, we remain committed to building on an operational excellence to continuously enhance the company's profitability with financial stability as a priority and focus on maximizing long-term shareholder value. At the same time, our efforts will be directed towards increasing shareholder returns, including addressing any dividend obstacles and paying dividends for the listed company as soon as possible. That concludes my report. I will now hand back to Mr. Zhao.

Thank you. MMG's core business will remain firmly focused on copper and other base metals that are critical to a low-carbon future. Currently, the global energy system is undergoing profound and sustained transformation. At the same time, organization continues to progress steadily. And electrification is increasingly penetrating and deepening across various sectors, including industry, transportation and daily life. Against this backdrop, the installed capacity of renewable energy sources such as solar and wind power is expanding rapidly. Energy storage systems have become an indispensable component for ensuring stable energy supply, and the market share of EVs is steadily rising and continuously growing. Given these robust development trends, it is expected that the demand for metals such as copper, zinc and nickel will remain strong and sustained. This will undoubtedly provide fast opportunities for MMG's future growth. As shown on this global map, we are achieving a strategic presence across the world's major mineral line [indiscernible]. In terms of our development strategy, the company consistently prioritizes enhancing operational value and maximizing asset growth potential. At the same time, we actively explore diversification opportunities across different regions and commodity sectors to strengthen the company's diversified business portfolio. Regarding production expectations, the company's total copper production this year is projected to reach up to 520,000 tonnes while total zinc production is expected to reach up to 240,000 tonnes. If operating conditions remain stable and unaffected by external factors, Las Bambas is expected to contribute 400,000 tonnes of copper production this year. Additionally, Kinsevere and Khoemacau will continue to play a significant role in driving the company's copper production growth. In the zinc sector, Dugald River and Rosebery are on the track to achieve the zinc production targets. This year, amongst the conclusion of China's 14th 5-year plan, and we are fully committed to advancing the implementation of MMG's next 5-year plan. Notably, we plan to share with investors the 5-year development blueprint for the company and each of our mines. I firmly believe that with the collective efforts and unwavering dedication of our colleagues across all departments, 2025 will be a year of abundant achievements for us. Board of Directors. I would like to extend my heartfelt gratitude to all our employees, shareholders, partners and stakeholders for their trust and support over the years. Thank you all.

Thank you, Mr. Zhang and Mr. Qian, the presentation of the company's performance and strategy has concluded. Next, we will move on to the Q&A session. We will use consecutive interpretation for the Q&A session. Please pay attention to the way of raising questions. [Operator Instructions] I have already translated the instructions.

[Interpreted] Congratulations on the very good results of your company. So I have a few questions to ask. The first question is about cost of Las Bambas Mine. In the first half of the year, C1 cost was $1.06, which is actually very different from expectation. In the first quarter, it was $1.26. In the second quarter, it was rather low. So given your full year guidance at $1.4 to $1.6, if there is no road blockade, then what are the reasons behind the cost increase for the second half of the year?

[Interpreted] Thank you very much for your question. Your observation is very accurate. In the first half of the year, cost was $1.06. In fact, we have not changed our full year cost guidance because of some room for risk control and prevention in the future. Well, if production volume of Las Bambas remains high, then cash costs will continue to remain low. So that's my answer to your question.

[Interpreted] My second question is about road blockade at Las Bambas mine. In the first half of the year, actually towards the end, there was some road blockade. And as a result, that was inventory issue. So right now, have you already cleared all the inventory? Then for the second half of the year, is that the possibility of road blockade as well? If so, what are some time points that we should pay particular attention to that there might be real blockade?

[Interpreted] In your answer your question about road blockade. In the first half of the year, there was indeed some road blockade, which had led to some disruptions an inventory issue. Actually, there were 15 days in which then was road blockade And on the 15th of July, with the help of the state police, the blockade problems were cleared. And in fact, right now, all the road transport did not suffer from any disruption. And in the coming few months, we will spend the time to clear our inventory. Concerning the reasons behind road blocking, it is because the craftsman and also the artisans in Peru were not happy with the government, and they staged a protest because they were not able to reach an agreement with the government. So in the second half of the year, there would still be risk of road blockade. We will continue to monitor the situation because we are also concerned. In the second half of the year, we hope that we could try our best and more assets can be made to make sure that there would be a fewer number of days of road blockade, but we will try our best to maintain our operational stability. Let me supplement in relation to road blockade. In fact, if you refer to our Las Bambas mine, all along, it is been operating at full capacity. That means it was not disrupted by the road blockage issues. In April next year, that would be presidential election in Peru. So we expect that there would be an increase in risk of protest. So that's why, as we said earlier, we have to leave some room for some cost expectation or some room to -- for contingencies.

[Interpreted] My last question is about your finance cost. Well, I'm happy to see that your debt have decreased and your finance cost was at a level of 1.4. So for the second half of the year, what is the outlook of your finance costs, please? Thank you.

[Interpreted] For the half yearly report, our finance costs actually was USD 168 million. So there was a decrease by USD 33 million because at the same period last year, it was USD 168 million. Now it's USD 139 million. But on actual terms, while the actual decrease is actually USD 75 million, for the whole year, we hope that we are able to lower the finance cost to $320 million.

[Foreign Language]

[Interpreted] Congratulations on your excellent results. I have two questions to ask. The first question is a follow-up question from the question previously asked by Jimmy. Well, concerning Las Bambas mine, that was potential risk of road blockade. And as you said, there is going to be the presidential election in Peru. Last time, in 2022, when there was presidential election in Peru there was big disruption cost to Las Bambas mine. So the mine actually stopped operation for half a year. So this time, given the coming Peru presidential election, what do you think will be the potential impact? Do you have any plans to put in place any measures to go against the problems? My second question is, in the first half of the year, your gearing ratio has come down by quite a lot. This may be due to your debt repayment regarding Khoemacau mine. So what is your long-term guidance of your gearing ratio? So how much further decrease are you anticipating in terms of your long-term gearing ratio?

[Interpreted] Okay. Let me answer your question in relation to road blockade. In 2022 in May, we experienced a 55-day period of community intrusion or transposing. So as a result, the operation of the mine stopped for that period. This is the biggest problem or incident that we have experienced. And we have put in place a number of measures. We have taken a number of actions, and we have actually introduced our community relationship rebuilding strategy. So as a result, we were able to rebuild our relationship and also our dialogue with the community to maintain good relationships. So since 2023 there has not been large-scale intrusion or a blockade at our Las Bambas mine. So that's why we are able to maintain stable production volume. At the end of 2022, the Peru President, the then Peru President actually started a political riot. So as a result, that was road blockade all over the country. And all the trunk roads were actually blocked and stopped operation for 3 months. And so all the way until March 2023. But then, well, that road transport was seriously affected, but not our production or operation at Las Bambas mine. So we will take active measures to address the problem and face up to the situation at the Las Bambas mine. Internally, we have done a lot to reinforce community relationship in order to stabilize production. So we will also pay attention to road and also connections with suppliers to make sure that we will not suffer from any serious disruption. So we hope to see smooth transport, and we also pay attention to potential political changes arising from the coming presidential election. We will make early preparations to make sure that our operations will be stable. Thank you.

[Interpreted] So in face of our improvement in our results and performance, we have also put in place comprehensive financial management measures. For example, last year, we made early repayment of the debt in relation to Las Bambas. And then we have also incorporated MMG into the overall capital pool, and then we have also enhanced our dividend policy and strategy, and then we increased our capital at Khoemacau. So given our very satisfactory operating cash flow, the financial management measures that I have outlined have delivered good results as well. So overall speaking, we are able to lower our gearing ratio, our debt balance, and also our financing cost has also improved. So in the first half of the year, actually, for new cash -- or new increase to our cash flow while it amounted to USD 1.185 billion, of which $400 million was CapEx. And also, we used $470 million to repay debt. And there is an increase to cash amounting to $500 million. We did not use all the cash flow to repay debt. We took the opportunity to optimize our balance sheet. Besides, we need to balance a number of different factors in managing our very diversified financial management approach. So we take into consideration the market situation, our company's overall value, our development plan, our profitability in determining our overall optimum debt level. So we will consider our overall cash position and also the marketization in making our plan in terms of our overall financial management.

[Foreign Language] BOCI, Lawrence. [Foreign Language]

[Interpreted] I have three questions to ask. First of all, concerning Las Bambas mine, there was an increase in cost. According to your results announcement, that was because of the cost arising from profit-sharing mechanism. So can you explain more about this mechanism? How much of the profit will have to be shared with the community and also third party. The second question is, in the first half of the year, there was an increase of $96 million in inventory from low grade ore increase. So what kind of grade are we talking about of that ore? And what is your future approach of handling that? In the second half of the year, will there be some impact to the grade of the processing mine? The third question is about the Kinsevere mine. In the first half of the year, in relation to power supply, there was a new 11-megawatt diesel generator after that is put in place. So how much decrease can there be in terms of the share of purchase of electricity from the local grid?

[Interpreted] So okay, let me comment on your first question. Your first question is about profit sharing. Well, it is the Peru governments' requirement that all industries will have to contribute or pay a certain amount in form of profit sharing. And the rate, the percentage differs for different industries. So for the mining industry, it's 8%. And then for other industries, it may be 10% or 12%. And for some industries, it is quite low at 5%. So it is a legal requirement by the government that there is this percentage to be paid for profit sharing. So it is like a form of tax. And if you are able to make more profit contribution, then you will have to pay more. The benefit is that employees can really benefit, and there can be some advantages in terms of employee cohesion. And also, that would also be other benefits overall speaking for the economy as well.

[Interpreted] So let me supplement in relation to the employee profit sharing, where it is actually included in the C1 cost, and that means it is also shown in the operating cost of our mines. And usually, you will see a growth or increase in the first quarter.