Thank you for standing by. Welcome to the MMG Limited 2022 fourth quarter production report. 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 1 on your telephone keypad. I would now like to hand the conference over to Mr. Jarod Esam , Head of Investor Relations. Please go ahead.
Hello, and welcome to MMG 2022 fourth quarter production report teleconference. This report and today's discussion cover the operational performance of MMG's assets for the December quarter of 2022 and the outlook for 2023. Joining us today are MMG Interim CEO, Mr. Liangang Li, and CFO, Mr. Ross Carroll, together with other Exco members. I'll now hand over to Liangang, who will discuss the highlights in the report, after which there will be an opportunity to ask questions.
Thank you, Jarod. Hello to everyone who's joining us today. As always, I will start my report with safety, as MMG, our first value is safety. Our operations recorded a total recordable injury frequency rate of 0.67 per million hours worked for the fourth quarter of 2022, and 1.25 for the full year, which is higher than 2021 result of 1.09. That is a 16% improvement on the level in the first half of the year. I'm pleased that our result represents a continuation of our strong safety performance when compared with our ICMM peers. There is still an opportunity for improvement, and we will never stop our efforts to eliminate injuries. Now to address our operational performance.
In 2022, MMG produced around 305,000 tons of copper and 225,000 tons of zinc. The year provided some significant challenges for MMG, but a strong fourth quarter ensured that we matched or exceeded our revised production and cost guidance at each MMG operation. Las Bambas copper production in the fourth quarter was 73,000 tons. On a full year basis, production of 255,000 tons was slightly above the revised guidance of 250,000 tons. Our third ball mill was commissioned in the fourth quarter, which supported an increase in mill throughput. Las Bambas processed 14.5 million tons of ore in the fourth quarter, recording the highest quarter since 2020, and the second-highest quarter in the mine's history.
Las Bambas mining activity in the fourth quarter was impacted by community protests that restricted access to critical supplies. To mitigate the impact of reduced ore mine supply to the processing plant, they increased 300 ore volumes, resulting in lower average milled ore grades. Las Bambas C1 costs were $1.53 per ton, which was below our revised guidance range. Regarding community protests in Peru, I'd like to provide an update. As you may be aware, since early December 2022, Peru has experienced widespread social unrest following the impeachment of Peru's President Pedro Castillo. The widespread protests have caused disruptions along the southern rail corridor, affecting the broader mining industry.
We are saddened by the casualties during the protests, our first priority is the health, safety, and security of our people, contractors, the broader community members, as well as Las Bambas' property. The continuous transport disruptions has resulted in the shortage of critical supplies, we have been forced to progressively slow down operations. If the situation remains unchanged, the mine will be unable to continue copper production from 1st of February 2023, Peruvian time, with the operation starting a period of care and maintenance.
In addition to the progress of our dialogues with communities, with the efforts of our Las Bambas team, we have made progress in the dialogue process and the implementation of agreements during the fourth quarter across the 6 communities that participated in the mid-year protests, as well as with other communities located along the railroad logistics corridor. In January 2023, we resumed discussions with the Francoli community and have established ongoing dialogue forums to discuss implementation of agreements with the Carabaya community. Unfortunately, all dialogue tables have been forced to pause due to security concerns amidst nationwide protests. We look forward to continuing these discussions once social peace is in place. Las Bambas has a world-class copper asset with significant growth potential and is a significant contributor to the local, regional, and Peruvian national economies. Turning to the outlook for 2023.
Las Bambas, Las Bambas production is expected to be in the range of 265,000 tons and 305,000 tons of copper in concentrate. This is an improvement on 2022, but is subject to the swift resolution of the widespread Peruvian political protests and a resumption of stability in concentrate transport logistics. Subject to this social unrest, followed by reaching a comprehensive agreement with the Huancuire community, development of Chalcobamba deposit is targeting the second half of 2023. Regarding the costs, we expect Las Bambas C1 costs to increase to a range of $1.70-$1.90 per pound. The cost escalation is driven by cost inflation on consumables, higher levels of concentrate transport, lower capitalized mining and increased development and maintenance activities deferred from 2022.
From 2024, Las Bambas will benefit from the development of Chalcobamba, resulting in higher production grades, which will partially offset the increase in cost. Moving on to Kinsevere. Copper cathode production of around 12,000 tons in the fourth quarter was an increase of 11% from the prior corresponding quarter in 2021. On a full year basis, Kinsevere production of 49,000 tons represented an increase of 2% from 2021, and was at the top end of our guidance. The better performance was driven by the resumption of mining activity, which supported a higher grade of mined oxide and increased supply of higher-grade third-party ores. Despite an environmental uprising...
Despite an environment of rising industry costs, Kinsevere full-year C1 costs of $2.55 per pound were at the lower end of our latest guidance due to stronger second half production and good cost control costs. The Kinsevere Expansion Project is also progressing well. During the fourth quarter, we completed all civil work for the cobalt plants and commenced the installation of equipment. We are now shipping the long lead time equipment to the mine and have started earthworks for the new tailing dam. Through this project, the mine will see a shift to the mining and processing of sulfide ores and introduction of a cobalt circuit, extending mine life by 30 years, and taking annual production up to more than 100,000 tons of copper equivalent production. We expect the first cobalt to be produced in the year of 2023.
Copper production in 2023 will be constrained by the declining oxide ore grades as a result of the transition from the mining of oxide ores to the mining sulfide ores. As such, Kinsevere copper cathode production for 2023 is expected to be in the range of 400,000 tons and 408,000 tons. In 2024, we will see the contribution of the first copper from the sulfide feed. You may have become aware that following our announcement in relation to Sokoroshe II and Nampundwe leases in October 2022, during the fourth quarter, we have filed arbitration proceedings against government-owned mining company Gécamines before the International Chamber of Commerce. Following a favorable preliminary ruling and engagements with Gécamines, the armed forces and third parties have now left both sites.
We have continued our work at Nampundwe and conducted our first field visit to Sokoroshe II in December 2022, with the aim of resuming works in January 2023. I will now move on to our zinc operations, Dugald River and Rosebery Mines. We are very pleased to report that Dugald River continues performing well, with 45,000 tons of zinc production during the fourth quarter of 2022, representing an increase of 4% on the corresponding period in 2021. Dugald River's mining performance improved sharply, achieving 522,000 tons of mined ore in the fourth quarter, which is the strongest quarter in the past 2 years. In addition to the strong mining performance, the processing team delivered a record high annual recovery rate of 89.0% as they continue to drive incremental improvements through various optimization initiatives.
On a full year basis, Dugald River produced 170,000 tons of zinc in 2022 within guidance. On a zinc equivalent basis, Dugald River production exceeded 200,000 tons for the third consecutive year. Dugald River's 2022 full year C1 costs were $0.85 per pound, lower than our revised guidance. This reflects strong production and good cost control despite an environment of rising industry costs. In 2023, we expect Dugald River to produce 170,000-185,000 tons of zinc in zinc concentrate. Meanwhile, C1 costs are anticipated to increase to the range of $0.90-$1.05 per ton.
Due to increased mining costs in current highly competitive contracting market and a soaring Australian gas prices. To mitigate cost escalation, Silver River will transition to an owner miner model for production activities and commence our long-term solar offtake agreement with energy provider APA Group. The renewable energy provided under this contract, starting from early 2023, will reduce the mine's carbon footprint and provide immediate energy cost savings. At Rosebery, the mine produced 13,000 tons of zinc and 5,000 tons of lead in the 1st quarter of the year, representing the strongest level of zinc production for the full year. On a full year basis, its production of 52,000 tons of zinc and 18,000 tons of lead was in line with revised guidance, while decreasing from 2021.
The reduction is mainly a reflection of longer-term grade declines, COVID-19 impact on workforce availability early in the year. we consist with the sequencing of mining activities in the second and third quarters. C1 costs of $0.26 per ton were at the lower end of advised guidance, but higher than 2021 as a result of the low production rates and lower by-product credits. As you may have become aware that there was a bushfire in the vicinity of Rosebery mine on 27th of December, which caused significant damage to the power infrastructure that supplies the mine. Our Rosebery emergency response team has worked side by side with the Tasmanian Fire Service and local emergency services to bring the fire under control.
The site restarted full operations on 6th of January 2023 after the damaged cables were repaired. We are thankful for the strong support received by the Tasmanian Government, local council, emergency services, nearby mining companies and our employees in enabling operations to resume as soon as possible from the bushfire. Rosebery zinc production for 2023 is expected to be between 55,000 and 65,000 tons, with a C1 cost of $0.45 US dollars per ton to $0.50 US dollars per ton. This cost guidance range reflects the cost escalations experienced across the mining industry, lower anticipated by-product credits and increased QC compared to the year of 2022, which will be partially offset by higher plant production. I'm now happy to take questions with my expert members.
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. Please limit your questions to 2 per person. If you wish to ask further questions, please rejoin the queue. Your first question comes from Lawrence Lu from BOCI. Please go ahead.
Hi. Thanks, Liangang, for the presentation. I have 2 questions. First of all, regarding the guidance for 2023 for Las Bambas. I just want to know what's the assumption behind for the output guidance. You have issued an announcement earlier that saying that the mine will suspend production starting from today or so. What's the assumption behind, say, when you expect the production to resume and when you expect the production can reach the, say, normal level at which point of the year? Secondly, regarding Rosebery. I think in the announcement you mentioned that you're exploring options to further extend the life of the mine.
Can you give us more idea or more information as to what you can do, given the mine has been mining for many years already? Or is there any real possibility that we can do something significant? Thank you.
Thank you, Lawrence, for the question. Maybe I'll have Ross to take your first question and then to give some feedback on your second question.
Okay. Yes, thanks, Lawrence. In regard to the guidance, you will see that we have fairly or very heavily qualified it. Effectively for us to get near the 305,000 tons, we would need to be pretty much commencing sort of full production within a week or two. Then you can really.
Work backwards from that. Roughly every month that we don't produce is roughly 25,000 tons of production. Now, to be honest with you, at this point, we don't know how long the social issues in Peru will continue for. Yeah, I think as I said, the 305 is basically business as normal within a week or so, and then you can so basically take 25,000 tons off from every month, moving backwards from that. Does that make sense?
Oh, thank you. I think you did make it pretty clear.
Yeah. Nan will answer the question on Rosebery for you.
Yeah. Hi, Lawrence. Just, in terms of life extension program for Rosebery, there's two areas we're actually focusing on. One is in the exploration space. We are put a two-year exploration program to really focus on finding the additional resources for Rosebery to continue to grow. In terms of GSF capacity, on top of current South Murchison and Uptown Creek area we are investigating, we're also expanding other areas and options for further studies.
Thank you.
Thank you.
Thank you. The next question comes from Martin Ritchie from Bloomberg News. Please go ahead.
Yeah, hi there. Good morning, and thanks for this call. I just wanted to understand a bit better this situation on the ground and the relationship with the communities around Las Bambas in light of recent events. I think you said that any negotiations with the community had been put on pause. You know, are there concerns that, you know, some of the relationships you've built up over the past year during negotiations may be sort of set back to, you know, set back to zero or at least sort of set back to some extent by the tensions and the protests we've seen recently? Previously, you know, you're talking about community issues. Now you're talking about widespread nationwide social protests.
Just wondering what you think that looks like for the relationship with the communities if we sort of get back to normal in the next week or two?
Yeah, thank you for the question. I will now try to have feedback. Nan, it's you.
Thanks for the question, Martin. I think the frustration for us is that the second half of last year was, I think, a general improvement through the dialogue processes with the 6 communities, 4 of which, have substantially completed, and the last 2 communities, we had a good constructive program ahead. The current disruptions are purely logistic. It's not because the relationship has changed in any way. Indeed, we'd started the discussions with Huancuire around the 10th of January. They were good, and a clear work plan was set. The only reason we've suspended those is because we just can't physically get there, and the community can't come together because of roadblocks. And the...
To your question, the relationships are improving from the back of last year and have not changed, and we're confident that we can work through to agreements. The frustrations for, I think, both community and ourselves is that current levels of social unrest mean that, and state of emergency controls mean that logistics, transport, and getting together is impossible. We'd both like to see those situations improve. We're still very hopeful negotiations can commence, but as Ross said, it's a bit dependent on how the social peace is restored and whether we can get logistics and transport up and running.
Thanks for that.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Chris Xu from Balyasny Asset Management. Please go ahead.
Hi. Thank you very much, management team. I've got two questions. The first question is regarding the medium-term production trajectory. How much copper and cobalt production should we be expecting from Las Bambas as well as Kinsevere after those, you know, new expansion projects like, you know, Chalcobamba and KEP are completed? In particular, for the guidance for Las Bambas this year for copper, I mean, how much of that will be coming from Chalcobamba versus Ferrobamba? That's my first question. Thank you.
Yeah. Thanks for the question, Chris. In regards to medium-term guidance, obviously at Las Bambas it's difficult to predict, and it is going to be dependent on when we finally get access to Chalcobamba. I think we've pretty consistently said that once we get up and running, we should be doing that 380,000-400,000 tons a year, sort of ballpark. As I said, it is very hard to predict now.
We'd be hopeful of, you know, getting back to those sort of levels next year, assuming that the sort of, broad civil unrest is resolved and also we get access to Chalcobamba. Then in regard to KEP, you know, once that gets up and running and we've got production from the sulfide plant in towards the end of 2024, that will be running at about 80,000 tons of copper and 4,000-6,000 tons of cobalt. So that's the... Yeah, that's the medium-term question. This year-
Can I ask another question? Oh, sorry.
Yeah. Yeah, this year, you know, we're probably looking at a relatively, you know, immaterial contribution from Chalcobamba. If we can't get access till, you know, the second half of the year, you know, you may only be talking, you know, 15 or 20,000 tons from Chalcobamba, but, you know, it would have a big impact next year.
Got it. Understood. Thank you. Following up on that, regarding inventory, we still have seen some, you know, pileup of inventory in the fourth quarter. Just a question, I mean, assuming, you know, still continuous disruption to logistics, I mean, to what extent can the inventory still, you know, pile up? I mean, is there any capacity limits to the inventory?
You know, we've got about 85,000 tons of metal on site at the moment, and we're looking at expanding that. You know, obviously, 85,000 tons is virtually, you know, a quarter of a year's production, so we don't really want it to go higher. If we need to, we're looking at trying to get further expansion, and that could be another 30,000-40,000 tons, but that's not confirmed yet.
I see. I see. Got you. The second question is regarding the financial side. Is there any sort of first thought on the CapEx for 2023? Also, related to that, in terms of capital management, is there any thoughts on, I mean, when the company will resume dividends? I mean, what would are the preconditions, I mean, in terms of I don't know, the leverage of the company or, you know, other metrics? Thank you.
Yeah. With the CapEx, Chris, at Las Bambas, you'd be sort of looking at sort of between $400 million and $500 million of CapEx there. The big question will be, can we execute that? Depending on how long the social unrest lasts for, you know, obviously, we're gonna lose volume and production, the offset to that is we won't be able to spend the CapEx as quickly. A lot of the social and development operating spend won't be incurred as well. We're probably looking somewhere between $400 and $500 for Las Bambas at the moment, that's very heavily dependent on when things resolve themselves. With the dividends, yeah, we're hopeful we can develop Chalcobamba. We've got money to spend at KEP.
Also the value of the stocKEPile at Las Bambas is about $800 million-$900 million. You know, we haven't got as much cash now as what we had at the start of the year, partially because we made a prepayment against our banking facility. I think with the current uncertainty in Peru, also the spend at the KEP project, there won't be sort of any dividends in the foreseeable future.
Okay. Thank you very much.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Esam for closing remarks.
Thank you, and thank you everyone for your time. If you have any further questions, please follow up, please. Sorry, is there another question come through? Hand back to the moderator.
Pardon me. We do have a question from Joy Zhang from Goldman Sachs. Please go ahead.
Hello. Hi, good morning. I have 2 questions. The first one is related to the this morning's announcement about tax update. Is this $160 million will affect our 2022 profit or next year profits? This is my first question. Second question is about the Chalcobamba progress. Is our 2023 volume guidance for the Las Bambas, does that include any contribution from Chalcobamba? Once we can access that pit or the mining area, how long do we need for the construction to complete for the expansion? Thank you.
Right. Yeah, thanks for the questions, Joy. Firstly, in regard to the tax, this is obviously a very serious situation for us on top of all the social issues we're dealing with. Now, it won't affect the profit for 2022 or 2023 because we believe we have a very strong legal case. I guess just to run through the process with you, we have 20 days or 20 working days to appeal the assessment with SUNAT. If that appeal fails, we then appeal the situation or the decision with the tax court. If that fails, we can have the opportunity to appeal with the judiciary, which is effectively like a high court in Peru. That would be the process there.
Then we've also got the option of international arbitration as well, which is something we're seriously considering, given the nature of what's going on. The basic message of all this is that none of our interest is deductible. Absolutely zero. You know, I think everyone be aware that the financing we did get was at quite competitive rates and the general motive behind these types of tax laws is to stop multinationals, sort of loaning in an exorbitant rates where ours were at competitive rates. Yeah. Our plan at the moment is that there'll be no impact on the 2022 or 2023 profit because of the tax.
Okay.
In regard to Chalcobamba, the, as sort of mentioned before, that we're probably expecting at the moment to have sort of around about 15,000-20,000 tons contribution from Chalcobamba. There's not a significant amount of infrastructure to be built, because basically it's just setting up the pit and all the ore gets transported to the existing Ferrobamba infrastructure. It would take us, like, 2-3 months to ramp up once we've got, you know, full access to the mine. By the end of the year, if it, you know, assuming we get access in the second half, we'd be running at fairly strong production rates by the end of the year.
Okay. Thank you, Ross.
Thank you. There are no further questions at this time.
I'd like to thank everyone for their time today, and if you do have any further questions. Oh, I see one more has popped up. I'll hand back to the moderator.
Thank you. We have a question from Lee Yong from UBS. Please go ahead.
Thank you for the questions. I just have a quick question about your interest cost. What's your expectation on the interest cost increases in 2003? Second question is about the new, you know, exploration in the Ferrobamba. What do you have or kind of the expectation for the potential of this pit? When is this pit able to produce the production and how much it will be, how's the volume annually? That is my second question. Thank you.
Sorry. I'll answer the first question first. In regard to the interest cost, obviously our costs are increasing like everyone else's with the movement in the LIBOR rates. We do have a significant part of our external loans at Las Bambas are hedged, and they were hedged at an interest rate of around about 2.5% from memory, or maybe even 2.1%. That hedging's in place. If you go back to our last year's annual re-report, you'll be able to see the quantum of that. Most of our other debt is actually at fixed rates of around about 4%, which have largely been sourced through our major shareholders.
We because of the hedging and the fact that we've got these fixed, price, interest loans, you're not gonna see a massive increase in our, in our interest cost. Yeah, I think if you, if you go back into the half year report, you'll see that, yeah, there'd be a breakdown there of the interest costs and what's variable and what's not, and also the hedging that's in place. Sorry, your second question, is that about Ferrobamba Deep exploration?
Yeah, that's right. I just want to know about the potential of this Ferrobamba. When it will develop fully, how much volumes are you able to produce in this pit?
Yeah.
When will be it?
Yeah. Just to recap that, obviously we've done some drilling there and we are getting some success. Now, when we can done all the analysis, we'll be able to make a release on what we've sort of have hit with our drilling results there. Certainly Ferrobamba Deep, it will be a long-term addition to the existing mining areas. We, we haven't even done a scoping study yet. You know, at a guess, we wouldn't see any production there from probably, you know, for a period of less than 10 years. It is obviously adding to or hopefully adding to the inventory once the further analysis has been done.
It's certainly not a near-term add because it would mean, putting in a, obviously a, entrance to the underground mine in the existing pit. We would need to mine out the existing pit or that area of the pit, before we could go underground.
Okay, that's clear. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We'll now pause a moment to allow for any final questions to register. There are no further questions at this time. As there are no further questions, I'll now hand back to Mr. Esam for closing remarks.
Thank you. Thank you, everyone for your time. If you do have any further questions, please follow up with either our investor relations or corporate affairs team. Thank you, everybody.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.