Rana Gruber ASA (RANA) Earnings Call Transcript & Summary

Welcome to this presentation of Rana Gruber's results for the fourth quarter and full year of 2024. My name is Gunnar Moe, and I'm the CEO at Rana Gruber. With me today is our CFO, Erlend Høyen. We will now take you through our operational and financial performance, and you are welcome to send us questions during our presentation by using the Q&A feature. Questions will be answered at the end of the session. Rana Gruber maintained strong production throughout the year, achieving a new record for the second consecutive year. This success highlights our resource potential and is a testament to our skilled team. At our Capital Markets Day, we published our long-term cash cost target of USD 50 to USD 55. For the fourth quarter, we achieved a cost of USD 46, thereby positioning Rana Gruber below our target. Our cash costs are subject to seasonal variations due to fluctuations in the production, both at the mine and in the processing plant. Our CFO will provide a detailed briefing on these variations later in the presentation. At the beginning of January, I had a very productive meeting with the Salten Reindeer District. We reached an agreement on the framework for future operations in the Storforshei and Ørtfjell areas. Coexistence is essential to achieving mutual understanding and sustainable solutions. Therefore, the production at the Stensundtjern open pits is hearing commencement -- nearing commencement, and we are finalizing the pit design and planning a seamless transition from the Ørtfjell open pit operations to new site with estimated production start later this year. Returning capital to our shareholders has been a central part of strategy since we went public. After 2 quarters, we are now returning back to 70% of our adjusted net profit and paying NOK 1.80 in dividends per share for the fourth quarter. Since going public, we have returned over NOK 1.4 billion to our shareholders. Our most valuable asset is our people, and their safety should always be our top priority. In the fourth quarter, we had no injuries resulting in absences from work. For the full year of 2024, we recorded one injury that led to a short-term absence. These incidents provide important lessons that we continuously strive to implement in our operations. In January 2025, the results from TSM, Towards Sustainable Mining, reporting became publicly available in Norway. This is an important milestone for transparency and sustainability in the mining industry. At Rana Gruber, we are committed to high standards. And in 2024, we reported on all available TSM protocols. As a result, we are among the few companies in Norway to achieve a top-tier rating, scoring between A and AAA. This reflects our dedication to responsible mining practices and continuous improvement in environmental and social performance. 2024 has been a notable year for Rana Gruber with a significant increase in magnetite volumes and total production reaching new highs. Fourth quarter was another strong production quarter, both related to hematite and magnetite. Going forward, we expect the magnetite production will increase as we're entering into more magnetite-rich areas and production begins in Stensundtjern. This will eventually reduce the hematite production, but at the same time, it will also reduce future volatility in our revenues. Our Colorana products have been a part of Rana Gruber's brand for decades. However, the market has declined, profitability has weakened in recent years and the production line is approaching the end of its life cycle. Future production will necessitate increased investments. To make room for new equipment supporting our high-grade transformation, we will stop production of the Colorana products at the end of 2025. We aim to offer employees currently working on the Colorana production line positions in other parts of Rana Gruber in line with the company's expected workforce turnover. Now over to our CFO, Erlend Høyen, who will give you the financials.

Thank you, Gunnar. Starting off with the revenue side of the P&L. As seen in the graph to the right, revenues for the fourth quarter increased from previous quarter and ended at NOK 443 million. Compared to last year's fourth quarter, however, revenue was impacted by lower iron ore prices. This has partly been offset by increased sales volumes, lower freight costs and a more favorable foreign exchange position. From the graph in the middle, you can see that realized prices for both magnetite and hematite has been stable for the last quarters. And as Gunnar mentioned, we still expect magnetite sales to increase throughout the year due to the strategic uplift that we have done in annual production volumes on that product. Going over to the cost side. On our Capital Markets Day in November, we established a cost target of staying between $50 to $55 per tonne of iron ore produced. For the fourth quarter, we are glad to report that we are below this target, ending at NOK 521 per tonne or approximately $46 per tonne, well below the target of $50 to $55 per tonne. Beyond the strengthening of the U.S. dollar, the underlying cost structure in NOK was impacted by several cost optimization initiatives as well as factors such as lower waste rock removal in the open pits, lower energy costs, both on electricity and diesel and savings on the use of external resources. Going forward, we do expect some seasonal variations in some of our cost structure, but we remain confident in delivering on our cost target range. A quick note to some of the figures shown here. EBITDA decreased to NOK 147 million from NOK 358.5 million last year, mainly due to the reduction in revenue as we've seen. In the fourth quarter, the pretax profit was adjusted with positive NOK 48.8 million related to unrealized changes in the company's hedging portfolio, resulting in an adjusted net profit of NOK 95.2 million, down from NOK 215 million last year. Please note that there has been a change in the APM related to how we adjust the hedging portfolio related to freight and foreign exchange. And you can see more details about this in the interim report that we have published today. This gives us an adjusted EPS of NOK 2.57 compared to NOK 5.8 last year. And by following our dividend policy, the Board decided to pay out NOK 1.8 in dividends per share for the last quarter of 2024. Moving over to cash flow. The total net cash flow from operations in the fourth quarter amounted to positive NOK 85 million. Included in this is a tax payment of NOK 97 million. CapEx for the period was NOK 38 million. NOK 26.4 million of this was development CapEx related to projects, then mainly to the new mine level, but also smaller investments in the Fe65 project and the increased magnetite production project. NOK 11.5 million was related to scheduled investments in machines, buildings, et cetera, things that we typically classify as maintenance CapEx. Of financial activities, NOK 54 million was payout of dividends for the third quarter and NOK 11 million was payment of principal portions of our lease liabilities. All in all, this gives us a negative change of NOK 17 million for the fourth quarter. As normally, let's look at our -- let's end the financial review with a short look at our financial position. We still consider our financial position to be solid and strong and no big changes on our balance sheet on the last quarter of '24. And after the dividend distributions for the third quarter, our equity ratio was 56%. And by the end of the year, we had a total cash holding of NOK 45 million. That concludes the financial section. And I'll now leave the word over to you, Gunnar, for your final takeaways.

Thank you, Erlend. To sum up the end of 2024, we delivered strong production figures and increasing magnetite volumes, securing a more stable cash flow going forward. Q4 showed a solid delivery on cash cost of USD 46 per tonne, well below target between USD 50 and USD 55. We have a strong balance sheet, solid partners and a competent organization to handle volatile markets. We are also on track to deliver iron ore concentrate of 65% and increased magnetite production. Now we have had 16 consecutive quarters of dividend payouts returning to our 70% goal on the distribution policy. With that, we conclude this presentation and move over to the Q&A session. Thank you.

Thank you, Erlend and Gunnar. For the moment, we haven't received any questions. So I will give the audience time to write some questions. And before that, I could start with a couple of questions from our side. The first question, I will ask to you, Gunnar. What is your thoughts about the U.S. and the tariffs ongoing?

Well, this is, of course, extremely difficult to say. First of all, the tariffs that has -- will be implemented in March regarding steel and aluminum is, at the moment, difficult to say if this regards also the raw materials to the steel market. But we think that the activity in China is much more important than what happens in U.S. between U.S. and Europe. So we're not that anxious, and we are also quite -- we do believe that the Norwegian government will find ways in order to sort out the way of doing business within EU and Norway. So we're not that concerned. But of course, it's -- we are following everything that happens very closely. So -- but at the moment, very difficult to say.

Thank you. The next question, I will take it to Erlend. Going forward, our cash cost, what could you say about that?

I would say that this quarter proves that we are on the right path of sort of like reducing our cash cost. We're confident that we will stay within the target range that we have communicated in November. This quarter, some of the change was related to typically stuff like lower waste cost -- waste rock removal, lower electricity prices and diesel prices. Some of this will go forth in 2025 as well, of course. But a lot of the reduction has been due to optimizations that we've done internally, organizational and a lot more focus on key tasks internally. So we're quite confident that a lot of the reduction that we see has been made due to internal focus and initiatives. So positive going ahead. I won't promise that we will sort of like hit below our target each quarter, but confident that we will secure a cash cost within the target for the next year.

I have 2 questions that it's more or less in the same page. And I think maybe Erlend could start on that at least. The first question is, I think it was mentioned that magnetite may increase revenue volatility. And another question is how much reduction in hematite would it be because of the increased magnetite production?

Yes. I guess I can answer both of them. The magnetite has a different structure when it comes to pricing. It's more bilateral agreements that is like supporting the magnetite sales, and it's also sold to a different market. It's not going to the steel market. That's the reason for a more stable price expectations when magnetite volumes takes over more of the sales compared to historical figures. And when it comes to the mix between magnetite and hematite production, I would say the easy answer is that our production capacity is roughly 1.8 million, 1.85 million tonnes per year. And there is a 1:1 mix between the increased magnetite production and reduction in hematite as of now. But as we have communicated a lot of times, we are doing optimizations both in the hematite production line and in the magnetite. So we are also looking at how we can optimize this going forward, of course.

Perfect. The next question, I think Gunnar could take it. How many shipments did you do in total to China in 2024? And what are the expectations to deliver to the Chinese markets versus Europe in 2025?

Well, that's not -- last year, I think we sent, I'm not sure maybe Allen could, but I think it was 3 vessels to China. This year, we are prepared to continue to sell some vessels to China, probably not more than last year, but it's a little bit early to say. We had one vessel going to China in the first quarter. There will not be any more this quarter. So we have to look ahead to see what happens in Europe. But at the moment, it looks like we will be approximately the same volume this year as last year to China.

Yes. Going back to the cash cost, Erlend, could you say something about how FX sensitive our cash cost target is? Is it more relevant to think of it as USD or a NOK target?

The reason for communicating a USD target is related to that the whole revenue side is mainly related to the USD target. But eventually, there is a conversion, of course, because most of our cash cost base is in Norwegian kroner. So obviously, when you sort of calculate it over to the USD side. But since the foreign exchange will come into play. So I would say the rationale of linking it to the USD is that, that also links it to the revenue side of the company. So if one moves, the other one moves with it. But obviously, on a day-to-day basis and working with the organization, a NOK target internally is obviously key to be able to deliver on the dollar target.

Thank you. The last questions I have here now is going about Colorana. I think Gunnar could answer that. Will the revenue contribution of approximately NOK 14 million per quarter from Colorana be substituted with anything?

Well, as communicated in this presentation, the margin for the Colorana line hasn't been there at all in the last period. So that the main reason for closing down the operation is that we don't -- we lose money on the production. And because of that, we decided to focus on the main production of hematite and magnetite, which is our main focus now and will be in the future of high grade. So it has been a loss. So on the revenue side, there will be a replacement of increased revenue on the magnetite side because the magnetite production will increase when we close down the Colorana line.

Thank you. And back to cash cost, Erlend. You said that the majority of the costs are in Norwegian krones. Could you specify approximately how much in percent?

Let's see the 2 sort of like main -- obviously, a lot of the input will eventually come from abroad. So -- but on a short period, I would say that electricity is directly linked to euros and our diesel consumption is directly linked to U.S. dollars. So say that roughly 7% to 10% is directly linked to foreign exchange on a monthly basis and the rest, so 90% to 93% is on a short-term basis linked to Norwegian kroner. But if you expand that to a 12-month period, then wear and tear parts would obviously -- also could fluctuate. So it depends on whether you look at just a month or on a year and the changes. But most of it on short term is directly linked to NOK.

Thank you. That looks like all the questions for today. And of course, if you have any other questions, you are more than welcome to contact us by e-mail or by phone, and we'll try to answer them as fast and as good as possible. So with that, I will thank you all for today and looking forward to see you again in May.

Thank you.

Bye, everyone.

Thank you.