Thank you for standing by, and welcome to the MMG Limited 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 number one on your telephone keypad. I would now like to hand the conference over to Mr. Brent Walsh, Head of Corporate Development. Please go ahead.
Hello, and welcome to MMG's 2021 fourth quarter production report teleconference. This report and today's discussion cover the operational performance of MMG's assets for the fourth quarter of 2021 and the outlook for 2022. Joining us today is MMG Interim CEO, Mr. Li Liangang, CFO, Mr. Ross Carroll, and Executive General Manager Corporate Relations, Mr. Troy Hey. I will now hand over to Liangang, who will discuss the highlights of the report, after which there will be an opportunity to ask questions.
Thank you, Brent, and hello to everyone who is joining us today. I would like to start with a brief introduction of myself and our recent management changes. On January 6, I accepted the role of interim CEO following Gao Xiaoyu's resignation to take up a role with our major shareholder, China Minmetals Corporation. I'm excited and honored to have the opportunity to lead the MMG team. Having had a long history with the company, I suppose a director on the board from 2009 to 2012, and more recently on the executive committee since 2020. Gao Xiaoyu and the executive team have handed over a business in very good health with a solid platform for growth.
I look forward to working with our board, including Gao Xiaoyu, who returns to the role of chairman to deliver value for all our shareholders. Now moving on to the quarterly production report. At MMG, our first value, as always, is safety. Our operations recorded a total recordable injury frequency rate of 0.88 per million hours worked for the fourth quarter of 2021, and 1.09 for the full- year of 2021, which is a 21% improvement on 2020. We will never stop our efforts to eliminate injuries, and I'm very pleased that we continue to benchmark at the very bottom end of global peers, injury frequency. In 2021, MMG produced around 340,000 tons of copper and 250,000 tons of zinc.
We delivered strong operational performance despite facing considerable challenges, including ongoing management of the COVID-19 pandemic and also community disruptions at Las Bambas. Las Bambas copper production in the fourth quarter was 65,000 tons and 290,000 tons for the full- year of 2021. Operational performance was strong, with mining and milling rates 3% and 7% higher than 2020. Ultimately, however, production levels were quite below plan with initial guidance to the market of 310,000 to 330,000 tons of copper provided at the very beginning of last year. There were two main factors that led to lower production. Firstly, ongoing permitting delays for Chalcobamba development has restricted access to higher-grade ores.
Following submission of the original application in February 2019 and the completion of the prior consultation process, we continue to seek regulatory approval for development of Chalcobamba. The combination of lengthy community consultation and administrative delays, as well as complications associated with the 2021 national elections after that prevented the receipt of permits. We continue to work closely with the government on this critical issue and now expect approvals to occur in this current year, with first production in the second half of 2022. The other main factor impacting 2021 production was community roadblocks that restricted access to critical supplies for over 900 days during the year and eventually led to a complete plant shutdown in mid-December.
The most recent roadblocks in the last quarter of the year took place on a public road in the Chumbivilcas Province, about 200 kilometers from Las Bambas. These blockades were in relation to demands for a large number of logistics transportation contracts. As well as demand for the government classification of these communities as an area of direct influence. Roadblocks were removed at the end of the year with an agreement for ongoing dialogue, and the mine and the concentrate transport has since returned to full capacity.
At a meeting on 20 January 2022, agreement was reached with a number of communities in Chumbiv ilcas for integration into the Las Bambas value chain, and discussion continues to create zones of special interest for social development investment. The most recent disruptions bring total days of transport lost since the commencement of copper concentrate transport in early 2016 to over 400 days. While MMG remains committed to pursuing constructive dialogue, the actions of external agents, disproportionate demands on company and an inability to reach enduring agreements continue to limit Las Bambas operations, future investment and economic contribution to regional communities and the Peruvian economy. Now turning to the outlook for 2022, Las Bambas production is expected to increase to a range of 300,000 to 320,000 tons of copper in concentrate.
As mentioned earlier, this is particularly partly subject to government permits and development of the Chalcobamba pit from mid-2022. The current budget assumes around 20,000 tons of pre-production from Chalcobamba ore in the second half. Regarding costs, Las Bambas is expecting C1 cost to increase to a range of $1.3 to $1.4 per ton. The cost escalation is due to a combination of one-off factors, deferred development spending since 2020 and inflationary pressures. I will now address some of these issues in more detail. 2022 will hopefully see higher project development expenses, including pit stripping at Chalcobamba that has been delayed since 2020. The delay in this spending has meant lower C1 costs in the past two years, 2020 and 2021.
While we now expect to incur these additional expenses in 2022, the benefit of this will be realized with higher production levels in subsequent years. Another one-off factor impacting C1 cost in 2022 is the fact that the three-year labor agreement with our Las Bambas employees is subject to renegotiation in 2022. After benchmarking industry trends, it is likely that we will pay a significant bonus upon the signing of a new agreement, and the size of this bonus payment will be linked to the length of the agreement as well as other market factors. Las Bambas will have lower levels of capitalized mining costs in 2022. To remind our investors, this relates to the amount of waste and ore that is mined.
When waste removal provides better access to ore that can be extra-extracted in later years, that excess waste removal is capitalized and is therefore not captured in C1 cost for that year. In Las Bambas' earlier years, it has benefited from higher levels of capitalized mining costs. This trend for lower capitalizing, for lower capitalized mining costs in 2022 will continue over the next few years. This does not impact cash, but just recognizes it deferred capitalized mining from periods. In 2022, Las Bambas will also see higher cash production expenses from increased material movement, longer haul distance, and higher consumable usage as is typical in open-pit mining operations as they are developed. Higher energy prices, contractor rates, and consumable prices are also being seen across the industry.
We are forecasting a lower contribution from by-product credits in 2022, although this will be partly subject to market prices for moly, gold, and silver, which are very difficult to predict. Finally, TCRCs will be higher in 2022 as we are seeing costs, partly due to increased shipment volumes and partly due to higher freight and energy costs. From 2023, Las Bambas will benefit from the development of Chalcobamba, investment in the new mine fleet and the third ball mill, resulting in higher production rates than the 2020 and the 2022 period. This is expected to partially offset the impact of the higher C1 costs expected in 2022. Moving to Kinsevere, a copper cathode production of around 11,000 tons in the fourth quarter was 4% below the third quarter.
On a full- year basis, production of 48,000 tons represented a drop of 33% from 2021. Mining activities at Kinsevere have been suspended since the fourth quarter of 2020, while the site undertakes preparatory works for the mining and processing of sulfide ores. In the meantime, plant feed grades have been reliant on the remaining medium and low-grade stockpiles, as well as the supply of third-party ore. This resulted in average copper feed grade falling to 2% in 2021, compared to 3.08% in 2020. However, processing plant performance remained very strong, with an average recovery rate of 96.6% compared with 95.4% in 2020.
This resulted in a reduction of C1 cost to $1.95 per ton below the guidance range. Copper cathode production for 2022 is again expected to be in the range of 45,000 to 55,000 tons. Mining of the remaining oxide reserves is expected to resume in April this year, following the wet season. This will also improve the average plant feed grade over the year due to the mining resumption. During the year 2022, C1 costs are expected to be between $2.5 and $2.80 per ton. The Kinsevere expansion project is progressing, with the team currently undertaking early site works and detailed engineering in anticipation of project approval.
We now expect an investment decision in the first quarter of 2022. It will include a shift to the mining and processing of sulfide ores and a introduction of a cobalt circuit, extending the life of the mine for a further 10 years and taking copper equivalent production levels above 100,000 tons. I will now move on to our zinc operations, Dugald River and Rosebery. We are very pleased to report that Dugald River had a record production year with 180,000 tons of zinc or over 200,000 tons of zinc equivalent production. Dugald River's 2021 full- year C1 cost was $0.67 per ton, lower than 2020, driven by low prevailing TC, higher production rates, cost controls, and higher lead prices.
In 2022, Dugald River is expected to produce between 170,000 tons and 190,000 tons of zinc in zinc concentrate, with C1 costs in the range of $0.70 to $0.80 per ton. At Rosebery, the mine produced 119,000 tons of zinc and 6,000 tons of lead during the fourth quarter of 2021, which was a 38% and 21% improvement on the third quarter, respectively. The increase reflected higher ore grades and a return to normal mining activity after a rockfall impacted the third quarter. On a full-year basis of 2021, Rosebery's zinc equivalent production was 157,000 tons, 11% higher than 2020 due to higher recoveries and increased mining and plant throughput.
Similar to Dugald River, high by-product prices and low TC drove C1 costs to -$0.34. Zinc production for 2022 expected to be between 55,000 and 65,000 tons with a C1 cost of $0 to $0.15 per ton. This guidance range reflects longer-term grade declines, lower by-product prices, and higher costs associated with operating at depth, as well as increasing energy costs. Rosebery will start its 86th year of continuous operation in the first half of 2022. Positively, we see no signs of this coming to an end in the near future, with recent encouraging drill results providing support to our ongoing work to further extend the mine life. Before concluding, I will just make a brief comment on the ongoing COVID-19 situation.
The recent level of infection from the Omicron variant is currently impacting the availability of employees and contractors at all sites. While hospitalization rates remain very low and hygiene, access, and testing protocols have been adapted, it is possible that production could be impacted over the coming weeks and months. I'm now happy to take your questions with my team. Thank you very much.
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 Lawrence Law with BOCI. Please go ahead.
Hi. Thank you very much for the management presentation. I have two questions regarding Chalcobamba. First of all, in your 2022 guidance, you are assuming the approval of Chalcobamba will be happening sometime in first half this year. I just wonder how confident are you this time because this approval have been delayed for a few times. What kind of confidence level you have this time that you'll be approved first half this year? Secondly, in your announcement, you mentioned that on the meeting last week, there is a recent agreement that you integrate some of the communities into the Las Bambas value chain. I just wonder what does it mean for the company by this?
Including them as a part of your value chain, does it mean that you have to pay them some money or you make them part of your operation? Can the management explain more on that? Thank you.
Thank you for your questions. I would like to take your first question. Regarding the Chalcobamba approval, we all understand that this approval has been delayed for quite some time. You know, we are quite at present state, we are quite confident that the approval we got some information from the government's approval office that the process has been going pretty good. We are quite confident with that, the approval can be granted before in the first half of this year. Regarding your second question, the Las Bambas has always been trying to help the communities, you know, to grow together.
By saying that we put the relevant or more communities into our value chain doesn't mean that we pay cash to the communities. Rather than we have different arrangements like you know we can have more contractors or employees from local governments from local communities. Also we have you know agreements with like the transportation and also service providing kinds of or different kinds of agreements so that make the relevant communities to be you know involved in our value chain or part of our mining business.
Thank you.
Thank you. Your next question comes from Chris Cheung with Balyasny Asset Management. Please go ahead.
Hi. Thank you very much for the presentation. I've got two questions. The first one is there any updates to the medium-term guidance of annual copper production of 400,000 tons per year for Las Bambas?
Sorry, Chris, I understand that you are asking for the interim production forecast. I think this,
Yeah. For Las Bambas. Yeah.
Yeah. I think for this meeting, we are only, you know, talking about the first quarter's production.
Oh, okay.
Yeah.
Yeah. Okay.
Hope we—
No problem. Yeah. Understood. Yeah. Maybe the second question then regarding the Las Bambas C1 cost guidance. What would the cost be if we exclude those one-off factors that you have mentioned? In the announcement it mentions that from 2023 hopefully the C1 cost should come down, right? I mean, about, you know, what level would that be? I mean, what level should we expect? Does it assume that the production volume will be, you know, back to, you know, something more like, you know, 400,000 tons or it would be something, you know, below that?
Thank you, Chris. I think that I should pass this question to our CFO, Ross. Ross, would you like to answer this question, please?
Thanks for the question, Chris. We expect that the C1 will probably steady sort of somewhere in the $30 range in the medium term. That would be based on production sort of between 350,000 and 400,000 tons. Whilst we you know we have got some one-offs in this period, which is you know the project development expenses and the sort of industry bonus that we've spoken about, what we are seeing is rising costs across the board generally. I'm not sure what other mining companies you've looked at, but even you know Fortescue Mining released today that their C1 cost has gone up 20% year-on-year.
We are seeing cost pressures through energy in particular and consumables. The other factor that's gonna be impacting on us too is within sort of 2023-2024, we expect the capitalized mining to be about $100 million less than what it was this year. If the $100 million of capitalized mining is roughly about a 12% impact on C1. I would just caution on that as well. There's no cash flow impact. What that does mean is that the capitalized mining will move from sustaining capital effectively into cash production expenses. The cash flow is still very similar, but just the categorization will see that expense should move from sort of sustaining capital to operating costs.
Does that answer your question?
Thanks very much. I just want to follow up. If we compare Chalcobamba with Ferrobamba, I mean, is there any material difference in terms of the C1 cost?
No. It wouldn't really impact on the overall cost. The benefit we'll see from Chalcobamba is it will be higher grade to start with, so it'll be up around 0.9%. It does have longer hauls because we have to haul it from Chalcobamba over to where the crusher is at Ferrobamba. Yeah, so we sort of gain production based on grade, but then probably lose a little bit on cost because of the longer hauls. Yeah, overall, you're not really gonna see much of a difference. What you will hopefully see is once Chalcobamba is approved, the production lifting up towards 400,000 tons once it's approved and fully developed.
Got it. Understood. Yeah. Lastly, what sort of by-product prices have we assumed in the C1 cost guidance? I mean, for things like moly, gold, silver and so on.
Yeah, they're generally a little bit lower than what the current prices are. You know, particularly the gold's strong and the moly price is very strong. We tend to stick to more long-term averages so that there is probably a little bit of upside and maybe up to $0.05 a pound upside next year, or for 2022 if the current spot prices are maintained throughout the year.
Got it. Understood. Okay. Thank you very much.
Yeah, thanks, Chris.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from David Wei with Balyasny Asset Management. Please go ahead.
Sure. Thanks. Hi, management. Thanks for your presentation as well. My question is, like recently, I read the news that two communities from the district of Velille walked out of the meeting in the negotiation. I want to know in Las Bambas, like, how many communities do we need to deal with now? In your judgment, how do you think about the possibility of another road blockage?
Yeah. Thank you, David. I'll have Troy to answer your question, please. Troy?
Thanks for the question, David. We have at the moment, I think around 20 different dialogue processes underway with a large number of communities. When you say what's the likelihood of further interruptions, there is always that likelihood. What we're seeing, I think, and particularly with the Chumbivilcas agreement from very late last year, was we are trying to get a much more consistent approach and to build concepts together with government that mean that once we get a deal with one community, we can then apply that across all communities. That's why in some ways, the block in December led to a shutdown of the site for two weeks because the offer we made in early December was a very good commercial offer, and we didn't shift from it.
It was almost exactly the offer that was finally accepted. I think it's given us a platform now for all of those dialogue processes to be very consistent, to do what we say and to work with all the communities to their benefit, but also be very clear that we aren't going to make special deals for each community, which hopefully discourages single communities leaving the process to try and get any other advantage. As at the moment, the road is open throughout its length, but at the moment we are in a number of dialogue processes and all of them have the risk of what can be a one or two-day stoppage from a couple of individuals splitting off.
The focus for us is to get as many possible days as we can with the traffic working along that road corridor, which has been a challenge for many years as you know.
Cool. Understood. Thank you. We understood. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Li Liangang for closing remarks.
Thank you very much for your time. I think that just before we finish this meeting, considering you know we are going to have the Chinese New Year festival coming next week. I wish all of you a prosperous, healthy, and good Happy New Year. Thank you. Thank you very much.
That does conclude our conference for today. Thank you for participating. You may now disconnect.