Hello, and welcome to MMG's 2022 second quarter production report teleconference. This report and today's discussion cover the operational performance of MMG's assets for the June quarter of 2022. Joining us today is MMG Interim CEO, Mr. Liangang Li, CFO, Mr. Ross Carroll, EGM Corporate Relations, Mr. Troy Hey, EGM Americas, Wei Jianxian, and EGM Australia and Africa, Nan Wang. I'll now hand over to Liangang, who will discuss the highlights of this report, after which there will be an opportunity to ask questions.
Thank you, Brent, and hello to everyone who is joining us today. As always, at MMG, our first value is safety. Our total recordable injury frequency rate for the second quarter is 1.29 per million hours worked. This is a decrease from the 1.68 for the first quarter. Now to address our operational performance. In the second quarter of 2022, MMG produced around 45,000 tons of copper and 53,000 tons of zinc. Las Bambas copper production in the second quarter was 32,000 tons, a decrease of 60% from the comparable period last year. As we disclosed to the market, members of the Fuerabamba and Parccoray communities entered our mine site on the 14th of April. For safety and security reasons, we were forced to shut down production for more than 50 days.
To reach a resolution for the disruption, MMG has participated in a government-led dialogue process with communities, and as a result, the communities agreed to cease protest activities. Production and concentrate transport resumed on 11th of June and has remained at normal levels since then. Due to the complexity of matters under discussion, at the meeting held on 21st of July, which was last Thursday local time, it was proposed to continue the dialogue process until 20th August 2022. We are grateful to the governments of Peru for its efforts to resolve the impasse. Over the coming months, we will continue working closely with the governments and communities with the aim of achieving a sustainable resolution to current issues. Las Bambas is a significant contributor to the local, regional, and national economies in Peru.
MMG has provided large social investment and business support to local communities since the start of its commercial production in July 2016. As a world-class copper mine with significant growth potential, Las Bambas will keep delivering social development as we have always done, and we are committed to maintain ongoing productive dialogue. As the community disruption impacted production and the development of Chalcobamba pit, MMG has restored its 2022 production guidance for Las Bambas. We are in the process of resequencing mining activities and will provide a further update at our interim financial report in August. Moving on to Kinsevere. Copper cathode production of around 12,000 tons was 24% above the first quarter of 2022. This was the result of the resumption of mining activity following the temporary suspension in the fourth quarter of 2020.
Mining and processing of medium-grade ores has reduced the overall reliance on lower-grade stockpiles, which has improved the average plant feed grade. Processing plant performance remained strong with an average recovery rate of 96% in the second quarter and the year to date. Copper cathode production for the full year 2022 is now expected to be at the high end of the guidance range of 45,000-50,000 tons. Same mine cost guidance remains at $2.5-$2.80 per ton, with stronger second half production partially offset by rising industry costs. In relation to the Kinsevere Expansion Project, we commenced civil construction works in the second quarter as planned.
Through this project, the mine will see a shift to the mining and processing of sulfide ores and the introduction of a cobalt circuit, extending mine life by 13 years and taking annual production up to more than 100,000 tons of copper equivalent production. First cobalt production is expected in 2023, and the first copper from the sulfide pit in 2024. We also disclosed briefly in our report overlapping claims on the nearby Sokoroshe sulfide deposit. Certainty of tenure is an essential platform for investment in mine infrastructure, and we are currently working with our joint venture partners at the DRC Ministry of Mines for documents to resume activities. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, zinc production of around 42,000 tons was 4% higher than the prior corresponding period.
Impacts of COVID-19 in Queensland reduced in the second quarter, which improved workforce availability and helped to stabilize production rates. Processing plant performance was strong, with an improved zinc recovery rate of 89.6% compared with 87.9% in the same period of last year. We maintain our production guidance for Dugald River in 2022 of 170,000-190,000 tons of zinc in zinc concentrate. Meanwhile, the anticipated C1 cost is now expected to be in the range of $0.85-$0.95 per ton. The key drivers of cost escalation include higher treatment charges and selling costs, and higher energy and consumables prices, as well as higher mining contractor costs.
At Rosebery, zinc production of around 12,000 tons was in line with the first quarter of 2022. However, it is 35% lower than the same period last year. The lower production relatively to the same period last year was primarily due to lower mining rates and lower ore grades. The lower mine productivity was a function of ongoing workforce availability due to the COVID-19 and the general tightness of skilled mining labor across the industry. In line with prior guidance, we expect Rosebery to produce between 55,000-65,000 tons of zinc in zinc concentrate in the year of 2022.
C1 costs are estimated at the higher end of the range of $0-$0.50 per ton due to the impact of higher treatment charges and the broader industry cost pressures, which include energy, consumables, and labor. Now, we are happy to take any questions.
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 using a speakerphone, please pick up the handset to ask your question. Your first question comes from Lawrence Lau from BOCI. Please go ahead.
Hi, thank you management for the presentation.
Yes.
I have a couple of questions about Las Bambas. In the announcement, you mentioned that the operations of the mine nearly being shut during the 15-plus days the mine being occupied. Could you give us more of an idea as to what actually happened during that period with no production and you also stopped the development of the mine, including the Chalcobamba pit? Also, you mentioned that you are engaged in the dialogue with those local communities, and which is expected to continue until the twentieth of August. Could you please tell what happened if, say, by that time you still have no agreement with the local communities, or has the company done anything to stop the mine being occupied or by those local communities again?
Thank you.
Thank you, Lawrence. Yes, as the report mentioned that we got more than 50 days interruptions both the production and also some of the development works especially in the area of Huancuire community. The production resumed second half of mid-June. Since then, the production, as I just mentioned in my brief briefing, the production has become at a very good rate. Also the other areas development activities we have kept normal.
The second question, regarding the next dialogue, we expect to resume the next dialogue table starting from early August, but the final time of the restart has not been finalized yet. I think that we will have more detailed time just for the restart probably next week, sometime next week. Yeah, I think that's probably Troy, you can provide more detailed information regarding the dialogue.
Thank you. Thank you, Liangang, and thank you for the question. Just to clarify for others on the line as well that only the Huancuire community remains on site, and that only affects the Chalcobamba development. The rest of the site has been operating as normal since we restarted on 11 June. As to what's happening at the moment and next, a meeting last week on 21 July had all the communities, the government and Las Bambas together, and a new date of 20 August was put for that dialogue to continue. It's working across those six tables. At the moment, the process is moving well, some better than others. Around 75% of commitments have been reviewed through the table so far in over 53 different meetings.
It is a very detailed process. We hope to continue those talks as the best way to look at the commitments outstanding, how we would review them, and how we get an agreement with those communities to work together. To the credit of all involved, it has been peaceful, constructive dialogue to date. Probably the community we are struggling most with is the Huancuire, which remain at Chalcobamba. While that process is yet to formally start, we're very confident we can get that dialogue process up and running, and that unlocks Chalcobamba for us in the future.
We really, really hope that those dialogue tables will lead to continued production for us through the rest of the year, and also that we can reach agreement with Huancurie on accessing the Chalcobamba development, which is really critical to the next stage of Las Bambas.
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 for management. I've got a question regarding the logistics for Las Bambas. During May, there was essentially no production of copper, right? How about the logistics? I mean, did we manage to ship out, you know, any of the copper stockpiled at site during that time?
Hi, Chris. It's Ross. No, the site was fully shut down, so we weren't transporting copper during that time.
Got it. Yeah.
Yeah, since the 11th of June, the transportation resumed and we shipped close to 80,000 metric tons of concentrate in the month of June.
I think you'll notice from the report, at its peak, we had about 85,000 tons of metal on site, and that's now down to just over 60,000 tons. We are getting that backlog down.
Got it. Understood. Yeah. Assuming that logistics routes remain uninterrupted, so what is the monthly rate of transfer or that can be done, assuming that is possible?
Well, I think, you know, assuming they stay unaffected, I mean, you're probably looking up to 35,000-40,000 tons a month that is possible for us to do. Based on past experience, you know, that'd be a very good outcome if that was to occur for the rest of the year.
Understood. Yeah. Also regarding the negotiation process, right? So the communities, are they negotiating separately or are they negotiating collectively? It sounds like they are sort of you know, collectively bargaining, right? I mean, are there you know, some other communities that are not being represented?
Chris, there are a series of dialogue tables. The six that are the formal tables at the moment are meeting separately. There's six different community dialogue tables. They came together last week as a group to review progress across each individual table, but they will go back to meeting as those six tables. The government also has a collective oversight group. It is being run as a kind of joint process, but there are six distinct community groups that we're working with, and they have different sets of commitments and different levels of progress across those groups. Some have reviewed all of the commitments that relate to them, and some are very early in the stage of reviewing. They, if you want, cooperate in a sense of being part of this.
We also have the existing dialogue tables around, in Cotabambas and around the Chalcobamba region and also with communities along the road. It's not that these six communities are the only discussions underway, but they are the ones being brokered as part of this government-sponsored response.
Got it. Understood. Yeah. One last question. I'm just curious. Given that the current deadline for the dialogue process is August twentieth, I mean, why do we choose August eighteenth as the announcement date for the interim results and providing the update?
The date of August 20 was agreed last week among the community and government as being the next stage for review, which it doesn't mean the process finishes. It's more just that that's a good date to come together and review. Obviously our annual report date had been set previously and not related. It's an accident of timing. We should be able to give a reasonable update on the six tables progress by the 18th anyway. It's just we won't have had that group meeting with the government again.
Got it. Understood. Thank you very much.
Thank you. Your next question comes from Jack Shang from Citi. Please go ahead.
Hello. Thanks, management, for the presentation. A couple of questions on Las Bambas and also one follow-up on Quanziri. Regarding Las Bambas, right, so it seems to us that in the past year or so the local communities has become more demanding in their protests, in their roadblocks, and this time it's the first time they occupy the mine site. Do you feel the same? Or do you feel it's actually getting increasingly difficult to communicate compared with the past couple of years to communicate with local communities? In this case, the mine has been occupied for over 50 days.
If you could provide maybe a little bit more detail since you mentioned the two of the communities, Fuerabamba and Huancuire, are there any, well, specific demands from these communities that kind of stood out and which it's very hard for the two parties to agree on, for three parties, government, yourself and the local communities, do you see very like wide range of demands and which you think is hard to kind of come. It's hard to actually accommodate, and as a result of that, there were these kind of protests.
Also, what would be the scenarios, right, potentially if we just do some brainstorm, if by, say, 20 days of August, what are the potential scenarios thereafter, right, if we get there? Last question on Las Bambas would be, since Chalcobamba is still, there's some community members are still on site, the property. So Chalcobamba development remains suspended. The question is, assuming there is no issue, assuming this, those community members withdraw from the property, they leave the property, how much time or what is the lead time required to get Las Bambas, so sorry, to get Chalcobamba up and running? That's my question for Las Bambas. Thank you very much.
I'll take the first two, and then I'm gonna come back to Ross to do on the restart plan. It probably needs a bit more context to it. What the six communities are effectively or what these dialogue tables are about is a review of existing commitments. As you know, when MMG acquired Las Bambas, there was north of 750 individual commitments to communities along the haul road and surrounding the mine. Fuerabamba, the relocating community, had a lion's share of those, but there were lots of those commitments in place. Over the last six years, that number has gone from above 750 down to less than 200, but there are still a number of those. Each commitment is bespoke and unique.
Each commitment requires cooperation from government, often local authorities and the company to deliver, and they are working through them very methodically. What I think occurred with this invasion was a combination of, I think the communities seeing a newly elected government giving them a supported platform to protest, and to protest in a way that there would not be repercussions. That also Las Bambas, I think, has reached a point where it cannot keep solving problems by making further commitments. This negotiating process came based on that history of, really wanting to sit down with the government as a broker and supporter in this process to review the outstanding commitments that are still to be met and to come up with each of those communities on a way forward.
When we set up these tables, the challenge has been that the communities, I think in almost all cases, the first request was to start with new commitments and to make new promises. I think we have worked very hard with government and with the communities themselves to say the first step is to review the existing ones. Las Bambas has reached a point where you can't keep making future promises when previous promises are yet to be delivered, and that's got to be our focus. At the moment, you've got the communities feeling that they could take the step of invasion to get these dialogue tables up and not be removed and have support for that, and they took it.
To the credit of government, they've come together with the company, and we worked really well together in getting some clear scope for dialogue on keeping those dialogue tables to the delivery of previous commitments. I said in some of those cases, we've worked through 100%, greater than 50% in four of those groups. It's really the sticking point is especially with Fuerabamba and with Huancuire, those two communities are still wanting to introduce new commitments as part of this dialogue process, and that's slowing down discussions. The extension is important in that it keeps the government in the process, that we will continue to try to make sure we focus on delivering all those previous commitments.
In the end, there should be no timeframe on these because these are community relationships that should continue through life of mine. We don't want to see a kind of monthly rolling review. On the other side, having the government bringing those groups together and sharing progress has been very useful. It's not a matter of we can't meet these demands. In fact, the previous commitments are all written, agreed, and we have either a plan to deliver them or work to do with the communities, and we believe they're all very possible.
The struggle we have at the moment is reducing or limiting the scope to previous commitments before we look at what we might do ahead, and then coming up with a new method of working with these communities that doesn't rely on roadblocks and disruptions and future promises, which is the legacy inherited by Las Bambas. You asked about scenarios on August twenty. It will be community by community, and it's Las Bambas and MMG absolutely committed to ensuring that this mine continues to operate at full pace and that Chalcobamba is brought into production in the most enduring way that the community benefits and feels part of, but also that delivers. Without Las Bambas operating, all of the benefits don't flow. That's the key message we're taking to the groups.
They have legitimate concerns, and we need to talk through, but there are also scope issues that we have to deal with the commitments as they stand at the moment and to get that done, and that is the commitment that the government and Las Bambas have jointly made, and many of those communities are working really well with us on that. We're not seeing August 20 as a drop-dead date. We are always planning with what happens in scenarios that these dialogue tables do fall over, but we are 100% committed to keeping the dialogue tables on foot, to solving the problems around previous commitments and getting us a timeframe and a schedule to deliver.
To working with these communities to build new relationships that are far more based on, you know, shared value for what we do ahead. The same inquiry you asked specifically about, again, this is about we have been through the full approvals process, a prior consultation process that the community ended up not wanting to participate in, and now we are still trying to get to the table to have a constructive dialogue on Chalcobamba. Once we do, it is a very swift entry to starting the development work on Chalcobamba. Projects are set up. A lot of contracts with work providers are already in place. I'll defer to Ross about if we've got the go-ahead tomorrow, how long we will be to production. Yeah.
Thanks, Troy. Yeah, Jack, if we do get the go-ahead, it's going to take us about four months to get up to production. And that's mainly just so we can finish the stripping and get the waste out of the way and then get access to high-grade ore, which, as you know, was important to this year's production plan. If it's August 20, it's effectively gonna be the end of the year before we can start mining ore there in any sort of significant volume.
Thank you, Ross. Thank you. Just a quick follow-up. Is it right or correct to say that the Huancuire community's agreement with us is a kind of precondition or is kind of a clearance required for us to start the operation, to start the development, resume the development at Chalcobamba? That's first. The second quick follow-up would be potentially, if I were Huancuire community, should I use this, like Chalcobamba development as, like opportunity to press for more agreements in addition to what is already being put in place? Is it fair to say that?
If I may also further ask, is this also difficult for us to separately agree on the additional agreements and being discreet about it because there are many more communities looking at this issue? If there were potential new agreements being additional like if we potentially agree to additional demands by some communities, the others might jump in saying that we also want this, right? Is this developing into this kind of difficult dilemma situation right now or am I just understanding this not in the like correct way? Thank you.
It is a difficult situation. It is very tough because you're right. Any agreements Las Bambas's challenge is that it has so many communities impacted by logistics operations or there, and that any agreement that is agreed is shared and we face different difficult demands. It is a challenge of the site. That said, with Huancurie, we have purchased the land from the communities with a set of with both payment and we've redone that purchase again. We've twice paid for access and ownership of that land. We have been through the government and all regulatory processes, and we have the EIA ready to develop Chalcobamba.
Without the communities, or with the community currently invading the site and without receiving agreement with them, it is very difficult for us to commence work. Everything else is ready to go. We sincerely believe that we can come to an agreement with Huancuire that really benefits that community in terms of not only the money they've already received, the commitments we've already made, but future contracts that they have as the community to help the development of that site. That said, we will work with them to get that access to land as soon as we possibly can. Again, it's as you said, it is really just getting an agreement that facilitates access to that site. To your other bigger question. I refer to what I said before.
Las Bambas, part of what we inherited was a model that because it was at such a significant development in that region and because it was comparatively quick in terms of getting that from really the deposit all the way through to production, a lot of the benefits were future promises. We have been diligently trying to work through those promises for six years. It is not the way we want to run the mine in the future. Part of this year is a really important reset in terms of we want this mine to be successful and for its success to drive community benefits, not to promise the future and then spend our time trying to catch up. That is a big change, and I think you're seeing some of that occurring this year.
Part of the struggle we're having with Fuerabamba is one of those, there is a better model for Las Bambas to work with communities than future promises brought on by protests or roadblocks. What we wanna do is link Las Bambas' success to community outcomes, and that's the basis on which we hope to work with Huancuire. If we get that right, then the opposite applies, and we start to have a better relationship with all communities that's linked to Las Bambas' success. We have not lost the belief that Las Bambas can be the greatest mine in Peru, and that it has the potential to be an outstanding social agreement with these communities. It is the hardest.
If you ask anybody else in Peru, Las Bambas has community exposures well in order of magnitude above others. We have to be better at this, and we have to work with these communities constructively. What you're seeing this year, I think, is a bit of a reset. I don't believe it's impossible. I don't believe the demands are ones we can't meet. I just think it's a matter of changing the model so that Las Bambas' success becomes community success, and we integrate them in a value chain in a way that makes Las Bambas' contribution to this region in Peru as meaningful as it can be. We are seeing lots of positives through this process. I think that's the thing that probably isn't coming across. We're seeing lots of new relationships.
Mm-hmm.
lots of ability to work together. It's tough and difficult, and we are well aware of the fact that any agreement struck during this process will have impacts on every future agreement we make. That's why I think you're seeing the impacts we're having this year. I would look into that and say, we are resetting these relationships, and we have a more constructive future rather than the fact that it is getting worse and we don't know where to go.
I think if I just add to what Troy said.
Yes, please. Pardon.
Sorry, Jack, but what we inherited and we continued with was a series of lump sum type payments. Obviously with lump sums, the money can get spent, and once the money's spent it encourages people to come back for more. Part of it will be trying to look at annuity and royalty type schemes where the payments continue for a number of years. As Troy also said, involves a lot of community work rather than big lump sum outlays at the start of a process. That's a change we'll be trying to implement as well.
Yeah. Thank you. Thank you, Ross. This is very helpful and appreciate all the details. One follow-up question regarding Kinsevere. First of all, on the Kinsevere expansion project, right? The 80,000 tons of copper cathode potential production on annual basis going forward and some cobalt. Is there any further kind of lease licensing or do we need to pay for the reserves or is there any newly defined reserves that we need to settle with the government in DRC? That's the first question. Second is that I saw there's a Sokoroshe II project update. What's the latest out there, and what should we expect for the next steps to happen?
Thank you.
Answer the first question regarding the reserves payment. Yes, there is an additional reserves payment, and we're still negotiating it with Gécamines. We expect it to be in the range of $30 million, which is already included in the capital cost for the project. I might just pass over to Nan to handle the question about Kinsevere project.
Yeah. Thanks. Thanks, Ross. Jack, could you repeat that question, please? I'm currently in DRC. The line is not very clear here. Yeah, if you don't mind, just repeat that question, please.
Yeah. I just... Yeah, sure, sure. The question is regarding the Sokoroshe II project update. I see that according to the production report of the company, there are personnel on the ground being removed by security forces who claim that the government-owned mining company, Gécamines, has signed two recent contracts for the area with those parties. What is the latest out there, and what are the expected next steps for us to undertake? What should be expected on that project? Also, Ross, a follow-up on the potential payment for the newly designed reserve in DRC.
We noticed that there are like debates between other companies with recently with Gécamines. Do we foresee any potential difficulties in negotiating, in communicating with the national mining company out there? Is that a risk factor that we should be aware of? Thank you.
Okay. Thanks, Jack. I'll talk about the Sokoroshe II situation and then hand it back to Ross. On the Sokoroshe II, as we all know, MMG currently holds the existing mining lease agreement with Gécamines, and then we registered in the official mining registry. We so far made a formal request to the DRC Ministry of Mines for Gécamines to withdraw the two new agreements, and then in order to get us back to the tenement to continue our work.
The Sokoroshe II ore inputs will be part of the 2023 mine plan, really to supplement the copper cathode production. At this stage, really between the company and the Gécamines, to have a further dialogue to resolve this issue. Yeah. Hopefully, we'll resolve this very shortly. Thanks.
Thank you.
Jack, in response to the second question about the negotiation with Gécamines. We don't expect any problems, but I guess to understand that part of their dispute with China Moly is they believe that China Moly's understated the reserves. Obviously in our case, we'll be putting through the reserves that are on our MROR statement and using that as the basis. Yes, we don't expect there to be any issue, but I guess you never know, but there's nothing to indicate at this point that there will be an issue.
Got it. Thank you, Ross. Very helpful.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Li for closing remarks.
Yes. Thank you very much for your participation and your time. If you have any further questions, please feel free to contact our investor relations or corporate affairs teams. Thank you again.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.