low-low-grade productsGood afternoon, I would like to welcome everyone to the Jupiter Mines 2nd quarterly call. Today we have Jupiter Chief Executive Officer, Priyank Thapliyal, to provide a brief update on the 2nd quarter of the 2022 financial year. Then we will open up for some questions from callers. Thank you, Priyank. Please go ahead.
Thank you, Erica. Good afternoon, everyone, to Jupiter Mines second quarter call. As you must have seen from the report which was released a day or two ago, the second quarter had a couple of challenges. Firstly, it was to do with the mining, where we, just like the first quarter, had substantial issues on the equipment breakdown, especially the excavators, and also the absenteeism, which has been there since the COVID started. The net impact of that was that we were about 1.1 million BCM behind on the mining volume. On the production side, we had close to 945,000 tons of production. Out of that, about 850,000 tons was on the high-grade side. About 100,000 tons was on the low grade and the low-low-grade product side. The key theme which we also faced, just like most of the industry, was the low manganese price.
In light of the low manganese price, and the reduced profitability on the low-grade products, we cut back substantially on the sales on the low-grade and low-low grade product side. Of the 808,000 tons of sales, roughly 752,000 tons was on the lumpy side, and only about 50,000-55,000 tons was on the fine side. In terms of the profitability, despite the challenging manganese price, we are still profitable. Our EBITDA is still close to 17% margin, and on the net profit, we are close to 10% margin. What that basically resulted in was that on the half yearly basis, we are about two million tons behind on the mining side, which has necessitated us to basically start mining the barrier pillar from September of this financial year.
That access to the barrier pillar will help us substantially in meeting our production targets, which we have still maintained for the full year at 3.45 million tons. If we now look at on the logistics side, Transnet has had some challenges. It's not something which is unique to Tshipi. Cable theft has been a major issue. What we have done is that whenever we have those sorts of setbacks, we have moved tons which were basically destined for the Transnet rail network onto the road. It has had some impact on our profitability, but we have still been able to maintain our cost targets of close to $2.20- $2.30 FOB basis. In terms of markets, again, I think the theme which played out in the first quarter has largely played out in the second quarter also.
The steel production in China has slowed down a bit on the ferroalloy side because of the power curtailment. While the ferroalloy pricing is quite high, what that has led to is the ferroalloy smelters preferring the higher-grade products so that they can maximize the value and use for the electricity, which is basically allocated to them. That has again had some impact on the semi-carbonate, which is the product which Tshipi produces out of South Africa. The port stockpile still is close to six million tons, from our perspective, we don't see that changing for the rest of this financial year. I think on the CIF prices, while the prices are quite good, the impact has been severe on account of the shipping costs, which are still close to $1.65- $1.70 per DMTU.
Again, we do not see that changing for the rest of this financial year because the ships which we are using to move our tons from South Africa to China are pretty much the same ships which the marginal iron ore producers are also using, because the iron ore price has been so high over the last three-six months. The other thing which we have seen is that from the production side, there has not been any impact from South Africa. Historically, in the past, the tons have gone down, largely the trucking tons, but we are not seeing that in South Africa in the current quarter.
That, I think, largely has to do with the fact that some of these marginal producers, which are lower-grade manganese, which rely on the trucks, have high iron content in their ore, and because of the high iron ore price, their net realization is not as low as what it would be when the iron ore price was low over the last few years. Again, I don't think that is going to change over the next three-six months. We are basically planning our business in that scenario. Just to summarize, we are looking at close to 3.45 million tons of production for this financial year. I think that in a nutshell is a quick snapshot of the second quarter. With that, I'm more than happy to answer any questions.
Thank you, Priyank. The question answer session has now commenced. Guests are invited to ask questions by pressing star one on their telephone keypad now. You will hear a tone as you are joined to the queue. Please listen for your name, and I will introduce you through to the call. That's star one on your telephone keypad now, if you would like to ask a question. We have our first question from Mauro Lombardo, who is a shareholder. Please go ahead.
Hi, Priyank. Thanks for that update. I just had some general questions around how Tshipi is going with the expansion activities and when that's coming online. We don't seem to get too much information on that. I wanted to also understand whether the cost for that expansion has been held back by Tshipi, the parent company, and whether that's fully funded? Yes, just some information around that.
Thanks, Mauro Lombardo. I think as I said consistently in the past that we will not proceed with the expansion till we have got 100% confidence on the mining side. We have set the target to achieve that expansion in terms of the mining tons moved on a BCM basis of 1.5 million BCM per calendar month. If we can achieve that consistently over a three-month period, then we feel that we are in control of the mining issues and in a position to press the trigger for the expansion. As I've just now described, over the last three- six months, we have had severe hiccups on the mining side. The mining contract is until February of 2024. Again, as I've outlined in the past, we are working with the movement of the mining contractor to see how we can improve the efficiencies.
If, and only if, we are able to improve those efficiencies and achieve that 1.5 million BCM target, we will, as a board of Tshipi and as a board of Jupiter, give the green light to the expansion. Again, I can't forecast when we will have clarity on that because of what we are facing right now on the mining side. As part of our disclosure, as and when that happens, we will come back and announce to the market. The expansion costs, again, I think we have announced in the past, will be close to ZAR 1.1 billion rands. Again, because of all these challenges, we have not held back anything into Tshipi for that expansion. As and when that happens, we will look at how we fund it.
For the time being, we are just basically keeping enough cash in Tshipi to weather the storm and to meet our ongoing expansion and stripping and working capital requirements. The rest is paid out every six months to Jupiter and to the other shareholders. Thank you.
Thank you.
Thank you. If there are any more questions at this time, please press star one on your telephone keypad now. Thank you. We have our next question from Mark Fisher from Foster Stockbroking. Please go ahead, Mark.
Yes. Hi, Priyank. Yeah, just a question on, just given obviously the low manganese price at the moment, just in terms of any cost reduction initiatives. I think you mentioned in the previous quarterly about looking at new mining equipment and potentially shipping on larger shipping vessels to improve unit costs. Can you comment on any of those initiatives? Thanks.
Thanks, Mark. I think on the bigger shipping equipment, as I said in the, I think the last call, we were looking at co-loading from Lüderitz and Coega. We have trialed some ships, and again, as and when we have more and more confidence, we will be doing that. In terms of the larger equipment, again, I think as I said in the last call that the bigger equipment is going to cost ZAR 500 million rands for movements to bring. That will require us to enter into a new mining contract, which is again, a new commercial negotiation. Again, in light of these day-to-day hiccups which we are having, we feel that we need to address that first before we can start looking at bringing bigger equipment. The movement contract expires in February 2024. We have to bear that also in mind.
Yeah, all the work streams are progressing, and as and when we feel that we are in a position to finalize anything, we will come back and disclose it to the market.
Okay, thanks.
Thank you.
Thank you, Mark. Our next question is from Claude Eagle, who is a shareholder. Please go ahead, Claude.
Yes, I have a question. Tshipi, I am confused with the ownership of this mine. There's only one mine, apparently, which is Tshipi. Is that correct?
Yes.
Jupiter only owns 49% of it. Is that correct? Or 48%?
Yeah, 49.9%. Yes. We own half, 49.9% of the mine, and we also have marketing rights for 49.9% of the product.
Right. I just don't quite follow how this goes on with, as we don't own over 50% of the company, how Jupiter is controlling it.
Well, Tshipi is a separate entity based out of South Africa. It has its own CEO and CFO who are based at the mine. It has its own board, where Jupiter has got half the nomination rights, and BEE p artner has got half the nomination rights. Brian and I sit on that board as representatives of Jupiter, and the board of Tshipi meets as frequently as needed on whatever decisions need to be taken. They set the business plan, the strategy, its incentives, look at all these new ideas like expansion, the port of load rates. Whatever we have done in the past, everything has been done at that board and management level.
Right. Okay. Thank you.
Thank you.
Thank you. If there are any other questions at this time, again, please press star one on your telephone keypad now. We have another question from Mauro Lombardo, who is a shareholder. Please go ahead.
Thank you. I was just wondering, and I know that this is quite topical and there's probably a lot of thought being given to it. As a shareholder, I appreciate that the strategy for Jupiter is to distribute dividends, at that 90% rate, to shareholders, and that's pretty much the strategy, apart from obviously the potential expansion of the mine going forward and a few other things on the periphery. Why is it thought of being given to even expanding or any M&A activity, given that interest rates around the world are so low, given that the price of manganese at the moment has come down significantly, so that there would be mining difficulty, and there's obviously a whole lot of manganese mined in South Africa?
Isn't it an ideal opportunity for us to consider taking on some M&A activity or getting control of another mine to help obviously boost our overall earnings capacity, but control of a separate mine? What are the thoughts around that?
Mauro, I think the only point which I would like to make is that the board of Jupiter and the management of Jupiter has, at the time of the IPO, articulated a strategy, which we have basically been following. We have been evaluating a lot of opportunities. Again, it doesn't make sense to come back to the market with a product which is half-baked. As and when anything material happens, and we feel that it is in the best interest of the shareholders, we will come and make the announcement and get the support and blessing of the shareholders. We do not believe in making what I call the announcements with irrational exuberance. Only when we feel that the product is fully baked and in the interest of the shareholders, we will come back to the market.
I think the shareholders should be under no illusion that the management and the board just basically sits and twiddles their thumb and is not looking at other opportunities. Again, we have to make sure that whatever we do is in the interest of all the shareholders and not just a select few.
Okay. Thank you.
Thanks.
Thank you. We have our next question from Nick Worrall from 708 Capital. Please go ahead, Nick.
Hi. Good day, Pritank. Just regarding this spill motion, it's a little bit off topic, but you've stated there your concern that some shareholders are looking to gain control without having to pay a control premium. Can you maybe elaborate on how that might happen?
I think, Nick, as you said, it's a very topical thing. This call is largely for the second quarter and not to discuss all those things. I think my statement and Brian's statement is fairly clear as to what we see and how we see. I think the Australian shareholders are very smart. They know how the minorities can be squeezed by some of the major shareholders. Suffice to say, I have not been privy or nothing has been shared with the Jupiter board and Jupiter management team as to what their intentions are in terms of the strategy of the company, except for some broad statements which have been put, which are fairly easy to put in the public domain but very hard to execute. I'm not aware, and neither is the board aware of what their management plans are.
I can't really say anything more than that.
Okay. All right. Thank you.
Thank you.
Thank you. If there are any further questions, again, please press star one on your telephone keypad now. We have another question from Mauro Lombardo. Please go ahead.
Yes. Last question, hopefully. Just want to get your view on the price of manganese at the moment. We've had some years where it's been quite high and buoyant, and it seems to be quite volatile in the sense that it doesn't seem to have found its happy medium, so to speak. What's the view? I know there's a lot of stuff happening in China and whatnot, but it'd be great to get some insights on what your thoughts are in relation to the price of manganese and then future impacts pending EV, electric vehicles, and whatnot, and yeah. I'd just like to get some insight, if that's possible.
I think, as I just now said, we as a Tshipi management team and the board do not see the manganese price changing substantially over the next three-six months on account of, like you said, the issues happening in China, the electricity curtailment with the ferroalloys smelters in that scenario trying to maximize their value and use and preferring a higher grade manganese product and not medium grade semi-carbonate, which is what Tshipi and most of South Africa produces. The stockpile is currently at six million tons, which is substantially higher. A good sweet spot is somewhere close to 4.5 million-5 million tons. That has to reduce, and from our perspective, we do not see that changing in the next three-six months.
As to electricity vehicles and manganese and all, I think, again, it's one of those things where the market, what I call irrational exuberance. It has still got a long way to go before manganese becomes a substantial EV player. Even in that scenario, the primary driver of manganese is and will be the steel industry. Again, when you talk about manganese and EV and all, a lot of technological changes have to happen. Not every manganese ore can be used for that. Again, the metallurgists are very smart, and as and when that demand picks up, you can rest assured that at 3.5 million tons, the Tshipi product will have a role to play in that. We do not plan our next year or two business plan based on what is going to happen to the manganese and EVs.
If that happens, that's a bonus for us.
Thank you, Mauro. If there are any further questions, please again, star one on your telephone keypad now. There seem to be no more questions at this time, so I'll conclude the question and answer session. Thank you, and back over to you, Priyank.
Well, on that note, thank you once again, everyone, for dialing in. Thanks, Erica, for managing the call. Thank you, everyone. Thanks a lot. Bye.
Thank you. That now concludes the Jupiter Mines' second quarterly call. Thank you so much for attending, and enjoy the rest of your day.