Thank you for standing by, and welcome to the MMG Limited second quarter production report teleconference. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Ms. Andrea Atell, General Manager, Corporate Affairs and Sustainability. Please go ahead.
Thank you.
Hello and welcome to MMG's quarterly production report teleconference. Today's report and today's discussion cover the operational performance of MMG's sites for the second quarter of 2024 and the outlook for the year. Joining us for this presentation are Mr. Liang Cao, our CEO, Mr. Song Qian, Executive General Manager, Finance, and other members of the executive team. I will now hand over to Liang Cao, who will take us through the highlights of the report. Following his overview, we will open the line for questions. Thank you.
Thank you, Andrea. Hello everyone, and welcome to MMG's second quarter production support teleconference. This is my first time as an MMG CEO, so I'm very pleased to be heading up our talented team at an exciting time for the company. We are committed to growing our global portfolio of assets, which produce the materials essential to building a more sustainable world. This is something we are very proud of. MMG's contribution at the local, regional, and national levels is significant, and it forms a strong part of our identity and purpose. As you well know, MMG's safety is our first value. Coming to our performance in this critical area, our total recordable injury frequency for the second quarter of this year was 2.28 per million hours worked, a decrease from the first quarter TRIF of 2.64.
The TRIF for the month of June was 1.72 per million hours worked. While this was the lowest rate recorded this year, with no high potential injuries, we continue to encourage a culture of active reporting and improvement. However, our leading indicator, significant events with energy exchange frequency for the second quarter this year, was 1.38 per million hours worked, which is an increase from 1.11 per million hours worked in the first quarter. The increase in the number of these events is a matter of concern and is being closely monitored. In response, there is an increased focus from our sides on enhancing the implementation and execution of critical controls, as well as improving contractor management. Moving on to an update on our recent completed rights issue. Following our acquisition of the important Khoemacau in Botswana, we are committed to debt reduction and prudent balance sheet management.
In line with this strategy, we undertook rights issue to raise approximately $1.2 billion before expenses. Early this month, we announced that the rights issue was approximately 2.8x oversubscribed in aggregate. The funds raised from the rights issue will be used to repay existing debt and complete our funding plan for the Khoemacau acquisition. This strategic move, along with the establishment of the joint venture with CNIC Corporation Limited for Khoemacau, is expected to reduce our gearing level from approximately 60% to 44%. This significant reduction is important as it will support our capacity for future growth initiatives. Now let's turn to our operational performance for the second quarter this year.
During the second quarter of this year, total cobalt production, which includes cobalt cathode and cobalt concentrate, was 90,972 tons, representing a 2% decrease from the prior corresponding period, but most pleasingly, a 36% increase from the first quarter of this year. For zinc, we recorded total production of 50,300 tons in the second quarter, which was 1% above the prior corresponding period in last year. Turning to site-by-site performance, at Las Bambas, we produced 7,173 tons of copper in the second quarter of this year, representing a 14% decrease compared to the same period in last year. However, this was a 25% increase from the first quarter of this year. During this period, ores from the Chalcobamba began being supplied to the processing plant. The average ore mined grades were lower than the previous year at 0.58% versus 0.69%.
This was primarily due to mining of the low-grade sectors at the Ferrobamba Pit, which is the main pit. As the operation progressed in the Chalcobamba, milled ore grades are expected to continue to improve from the third quarter onwards. During the quarter, both mining activity and milling activity proceeded without interruption. Ore mined volumes saw an increase of 63% compared to the previous quarter. This was despite adverse weather conditions affecting the previous quarter, which extended until April. Milled ore throughput rose by 12%, reaching 13.5 million tons compared to 12.1 million tons in the previous quarter, when the production was affected by planned maintenance shutdown.
While the moly production in the second quarter fell by 35% compared with the same period in the last year, the decline was due to lower moly grades in the ore, which was a result of the mining sequence in the current sectors of both the Ferrobamba and Chalcobamba. In relation to community and transport logistics, MMG remains committed to working closely with the government, local governments, and community members to ensure transparent and constructive dialogue. As we have previously shared, the Chalcobamba is ramping up production, with six Huancuire community companies working alongside the Las Bambas team on development activities. At the same time, extensive and constructive dialogue between Las Bambas, the Huancuire community, and the government of Peru continues to progress.
At the start of the month, the Las Bambas team completed a number of agreements with the Huancuire community, covering education, local business, and most recently, local employment. This work further strengthens our relationships with the local community and demonstrates a commitment to mutual success. Our ongoing discussion will continue to cover topics from the grazing and negotiation agenda. The Las Bambas team also continues active dialogue with communities and local government authorities around the Southern Road Corridor, which the government supports. The government declared a state of emergency has been extended for 30 days, effective the 5th of July. In further positive news, Las Bambas received a favorable decision from the Tax Court in Peru. The ruling determined that Las Bambas is not liable to penalty withholding tax at a 30% rate. For four years in dispute, from 2014 through to 2017, to the sum of $557 million.
Finally, Las Bambas' copper production for this year is expected to remain within the range of 280,000-320,000 tons. Thanks to the interrupted production and good progress on the development of Chalcobamba, production is expected to be at the higher end of the guidance. C1 cost guidance for this year is now improved to $1.55-$1.75 per lb. Down from the previous guidance, this was driven by operational efficiencies and by product values. Now, moving to our operation at Kinsevere in DRC, we produced 11,546 tons of copper cathode in the second quarter, an increase of 2% from a prior comparable period. This growth was driven by improved ore mill throughput, with the plant benefiting from enhanced ore stability. The increased ore supply from mining and the Sokoroshe II pit also helped to offset the reduction in third-party ore supply.
However, production was negatively impacted by lower ore grade due to mining sequence at the Sokoroshe II and the Kinsevere pits, and it reduced the reliance on expensive high-grade third-party ore. The mine also ramped up cobalt production in the second quarter, reaching 788 tons of contained cobalt in cobalt hydroxide. This resulted in our first cobalt sales of 346 tons in June. I'm pleased to share that the construction of the Kinsevere expansion project remains on track. This project includes the transition to the mining and processing of sulfide ore and the commencement of cobalt production. During the second quarter, the construction of the sulfide circuit in the concentrator was completed, and the commissioning commenced. The construction of all major equipment for the roaster, gas, and acid plant has been completed, with the commissioning planned for the third quarter.
This next phase of Kinsevere development will extend the mining to at least 2035, and once fully ramped up, we're resulting in total annual production of approximately 80,000 tons of copper cathode and between 4,000-6,000 tons of cobalt in cobalt hydroxide. The first copper cathode from sulfides is expected in the second half of this year, and a full ramp-up is expected in 2025. In line with the prior guidance, our copper cathode production for this year is expected to be in the range of 39,000-44,000 tons. Our C1 cost in this year is now expected to be in the range of $3-$3.35 per lb, reflecting an increase from the previous guidance. This adjustment can be attributed to three factors. The first is lower than expected by-product credit from cobalt sales, largely driven by a decline in price.
The second is increased mining costs due to accelerated mining activity at the Sokoroshe II pit. Finally, the third factor is a change in the mining sequence at the Kinsevere pit to align with the sulfide plant commissioning and ramp-up plans. This adjustment in mining operation at the Sokoroshe II and the Kinsevere pit will result in larger than expected ore stock piles. The costs associated with the mining of this additional ore have been incorporated into the revised C1 cost guidance. However, these ore stock piles will be processed in the future, which we anticipate will positively impact the future C1 costs. Now let's turn our attention to the Khoemacau mine. In the second quarter of this year, Khoemacau produced 8,907 tons of copper in concentrate.
The mining operation during this period was influenced by equipment availability and the high turnover of skilled labor, situation intensified by a competitive labor market in Botswana due to an increase in underground mining operations in the country. To address this issue, Khoemacau mine has significantly increased the recruitment numbers with training and induction on the way. During this period, mining activity was concentrated in low-grade sectors due to the mining sequence, which coupled with dilution have directly impacted ore grade. Those grades were 1.57% in the second quarter versus 1.68% in the first quarter. The team has taken measures to reduce dilution factors and expectation of achieving better ore grade in the forthcoming quarters. We've also provided the 2024 guidance for Khoemacau in the report. We're expecting copper production to be between 30,500 and 40,500 tons starting from 23 March of this year.
With the C1 cost in this year expected to be within the range of $2.30-$2.65 per lb, we remain committed to supporting the ramp-up of Khoemacau to achieve annual production of 60,000 tons of copper by 2026. This will be facilitated by ongoing mining development efforts to increase mining fronts, operational flexibility, and the mine grade. These efforts will be further enhanced by the completion of the primary ventilation fans as well as the paste backfill project. In addition, the company is dedicated to completing the construction of an expansion by 2028, which aims to increase production capacity to 130,000 tons of copper. With the Khoemacau mine expected to reach full capacity by 2029, further contributing to the reduction of C1 costs.
Our performance at our zinc operations at Dugald River will produce 34,524 tons of zinc in zinc concentrate and 4,618 tons of lead in lead concentrate during the second quarter of 2024. This represents a decrease of 5% and an increase of 8% for zinc and lead respectively compared to the same period of last year. The lower production was primarily due to 24% decrease in ore mill throughput compared to the previous quarter impacted by maintenance of the second mill in June, which I will discuss further later. However, on a positive note, the processing plant achieved a record high lead recovery of 70.8% in the second quarter and continued high zinc recovery supported by continuous operational improvement initiatives. During our recent inspection of the second mill, we identified an issue with the bearing pads. Necessary unplanned maintenance shut down at the Dugald River processing plant.
Plant operations have resumed this week, and we are planning additional maintenance works in August to ensure the second mill's operational integrity. Our Dugald River team is supported by internal and external specialists for these works. Our primary goal is to recover any production deferred due to this shutdown. Consequently, now we anticipate Dugald River's zinc production for this year to be towards the end of the previous issued guidance of 175,000 to 190,000 tons of zinc in the zinc concentrate. We expect C1 cost to remain within the range of $0.70-$0.85 per lb. And finally, to Rosebery, which had a strong quarter producing 18,776 tons of zinc in zinc concentrate. An 18% increase compared to the prior corresponding period of last year and a 9% increase compared to the previous quarter.
We had a significant milestone for mined material volume achieved in the second quarter, the second highest quarter in the past 20 years. This result can be attributed to workforce stability, development focus to increase the number of available mining fronts, and a low proportion of ore being sourced from deeper ore area of the mine. In addition, continuous operational improvement initiatives supported strong plant performance in achieving the highest zinc recovery of 88.6% since 2017. In line with the prior guidance, Rosebery production for this year is expected to be in the range of 50,000-60,000 tons of zinc in the concentrate. Including the contribution of byproduct metals, zinc equivalent production for this year is expected to be in the range of 115,000-130,000 tons.
Finally, C1 is now expected to be in the range of $0.05-$0.20 per lb, with the improvement mainly driven by strong byproduct credits and lower zinc concentrate treatment charges. This concludes the results part of our call. Now I'm happy to take your questions together with my team, and I will hand back to the moderator. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Jimmy Feng with Citi. Please go ahead.
Hi. Thanks, Nan Wang, for the presentation. I have several questions, and let me ask one by one.
I saw that the first question is that I saw Chalcobamba has already contributed to copper output during the second quarter. So does that mean Chalcobamba is ramping up? When do you expect it will be fully ramped up? And the question also related to Las Bambas is that the full year output may reach the upper side of the production guidance at 320 KT. So for the second half, roughly it would be 200 KT output. So considering the ramp-up, the fourth quarter may be even higher than 100 KT. Is that right? And if so, the output in 2025 would be very good. So how about the production level for 2025? Thanks.
Thank you for your question. Nan and Ivo, could you help to answer this question? Thank you.
Hi. This is Ivo from Peru. So I'm happy to answer the question.
First of all, I'd like to say that Las Bambas, the first half-year production aligns with our plan, and/or even the second quarter production is a little better than our plan. As you may know, actually, we have a lower production below the annual guidance because we have the mining of the low-grade sectors from the Chalcobamba pits. But however, we have more ores from Chalcobamba pits again being supplied to the processing plant in the second quarter. So with the ramp-up of Chalcobamba pits, we expect the production will continue to improve in the third quarters. And of course, right now, we have a plan just to improve our productions. And I think as we move into 2025, we are so optimistic about the future. We have been going well with the negotiation with the community one quarter.
And also, we expect our annual production to reach a capacity of 350,000-400,000 tons for the next year. And we think of the production as the combined Chalcobamba pits and the Chalcobamba pits contribution in the future. And we probably think the Chalcobamba pits will contribute higher-grade ores with average grades of 0.8%-1.0%. And contained metal produced is estimated to be above 10,000 tons per month. So we expected the Chalcobamba copper production in 2025 probably will be 150,000 tons, and in 2026, probably will be 180,000 tons. I don't know if I have already answered your question. Thank you.
Yeah. Sure. Thanks. That's very clear. And my second question is for Dugald River mine. I saw that there will be additional maintenance work expected in August. So will that result in additional operation suspension? And if so, by how long? That's my second question.
[crosstalk] Thanks. Yeah. Thanks, Jimmy. Yeah. Thanks, Jimmy. This is Manuel. I'll take your question on this one. Yeah. We have further maintenance work for that second mill, but we will do it in a plant shutdown period. So we anticipate around two weeks to complete that task. But the team is continuing to work on to see if we can optimize that timeframe at this stage.
Thanks. Thanks. Very clear. That's good. And my final question is regarding the hedging. I saw in the announcement there are 37 KT hedged through collar and 84 KT copper hedged through fixed price swap. So totally, it will be around 120 KT copper being hedged compared with around 90 KT copper output. It's a large number. And at current spot price, the hedging would be profitable. I'm not sure whether I understand that's right.
Could you explain more on the hedging volume and also its impact on the profit for the third quarter and fourth quarter? Thanks. That's my final question.
Thank you for asking this. The volume, I can update you. I can ask Sherry to update you the exact numbers after this call. But whatever we have disclosed are the true numbers. And the impact, yes, we do have a hedging policy approved by the board and reviewed from time to time. Why we do this is to provide stability. With doing that, we could secure our cash flow for our debt repayment. As you all know, currently, MMG still held certain levels of external debt. And secondly, with that, we could secure our capital to support our major expansion projects in Las Bambas, in Khoemacau, and in Kinsevere.
We believe that those expansion projects could maximize our investors' value the most. And thirdly, with the hedging program, we could optimize our financial performance and cash flows for especially the two mines like Kinsevere and Khoemacau because they are either on the ramp-up stage or on the transferring stage. Their financial would be vulnerable at the moment. So so far, at the current market, our strategy of hedging has proved to be very effective. And for the financial data, I'm not recommended to disclose more detailed numbers at this call, but you will have more information in our interim report. Thank you, Jimmy.
Sure. Thanks. Thanks for the answer, and I have no more questions. Looking forward to the first half result. Thanks.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Chris Xu with Balyasny Asset Management. Please go ahead.
Hi. Thank you very much. I've got two questions. The first one is, so overall, what does the management expect for copper production in 2025 and 2026? Thank you.
Thank you. Nan, you got the number?
Yeah. Hi, Chris. Yeah. Just overall, in terms of 2025, the copper production outlook, we're looking at, like Ivo addressed earlier, for Las Bambas at 350,000-400,000 range. And then in terms of Khoemacau, so we probably extend around a similar production level to 2024. And then in terms of Kinsevere, we'll start the ramp-up in the sulfide plant. And then obviously, the copper production will be expected to be higher than 2024. So those are the copper production range.
Got it. How about 2026?
2026, we're still working through our planning process, so we can update that in due course. Yeah.
Got it. Thank you very much. And the second question is, with the reduced gearing, thanks to the ongoing free cash flow generation, the rights issue, and also the sell down of the Khoemacau stake, is there any sort of update to your thoughts on potential shareholder returns, like dividends, going forward? Thank you.
What's the pathway to that?
Yes, Jimmy. You actually asked many questions. First one, regarding the gearing ratio, and secondly, the dividend policy. Yes. So the gearing ratio, while we do that deal roadshow, we have disclosed that by the end of last year, our gearing ratio is roughly 50% or net debt level is $4.3 billion. And after this Khoemacau transaction, we raised two more billion of that.
With that rights issue, we successfully reduced part of that debt. Hopefully, by the year end of 2024, our gearing ratio will reduce to 44%. The net debt level will reduce to $4.7 billion. Regarding the dividend policy, we do review our dividend policy from time to time as well. The board will approve this policy. Currently, we are thinking that what's the best approach to maximize the investors' value is, again, firstly, to support keep reducing our debt level. Given the current, so far, interest rate is very high, and our actual debt cost is still at a high level. Keep reducing the debt would help maximize our investors' value. For example, with this rights issue, we pay the debt would effectively reduce our annual interest cost by $80 million.
Secondly, we think to keep focus on expansion projects delivering will also increase our copper capacity quickly and at a low cost. And with that, we will prioritize our capital to locate. Also, at the moment, according to Hong Kong listing rule, because we have the negative number of accumulated earnings, so we are not allowed to distribute any dividends at the moment. Does that answer your question?
Got it. Thank you very much. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Cao for closing remarks.
Okay. Thank you everyone for the questions and for your time to participate in this teleconference. If you have further or additional questions, please reach out to our investor relations or corporate affairs. Thank you very much.
That does conclude our conference for today. Thank you for participating. You may now disconnect.