Earnings Call: Q3 2021

Oct 22, 2021

Earnings release

Hello, and welcome to MMG's 2021 Third Quarter Production Report Teleconference. This report and today's discussion cover the operational performance of MMG's assets for the September quarter. Joining us today is MMG's CFO, Ross Carroll and other members of MMG's executive team. I will now hand over to Ross, 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. Firstly, on Pavin' record an accident this quarter involving a bus transfer of the employees of our contract partners to Los Pampers, which caused a tragic death of 600 passengers. The tragic event reminds us that we must always play safe with all family members and team we do at work and in our daily lives. PMG continues to support an ongoing investigation into this incident and expresses the safe facilities to the families and friends of those involved. Our operations have had a recordable injury frequency rate for the year to date of 1,160,000 hours work. We continue to try and eliminate falling duties from our workplaces. Before moving to the operational performance of the business, I'd also like to mention a very important commitment we have made towards reducing our emissions footprint. Early October, along with our key partners and international council on mining metals, we announced a commitment to target net 0 emissions for 2,050. As part of this commitment, we are implementing a whole of company's climate resilience strategy, which covers energy mix, technologies, efficiencies and mitigation measures that will determine interim 2,030 targets in support of 20.15 goal. We're pursuing completion in early 2022, and we look forward to sharing the results with you. I'll now address operational performance. In the Q4 of 2021, PNG produced around 91,000 tonnes of copper and 62,000 tonnes of zinc. On a full year basis, our expectations of zinc production remains in the range of 240,000 to 260,000 tonnes. However, we have slightly lowered our expectation for total copper production to between 245,000 tonnes 265,000 tonnes. We'll explain the resultant adjustments shortly. The front of copper production in the September quarter was 59,000 tonnes. This represented a decrease of 6% on the prior year. During the quarter, production was impacted by a community road blockade that has peaked inbound and outbound logistics and people movement for approximately 20 days and limited mining operations for 12 days, which caused total mine volumes to around 5,000,000 tonnes below claims during the quarter. Significant impact to gross stockpiles to maintain crude throughput will be at the lower grades resulting in production levels lower than planned. Hilltopl production from Los Banos is now expected to be around 300 to 305,000 tonnes of copper in concentrate compared to the previous guidance of around 310,000 tonnes. Despite the lower production, pipeline costs are expected to be around $0.10 lower with US1 dollars to US1.10 dollars per pound. This lower cost base is due to the strength of the moly, gold and silver prices, which increased our buyback credits as well as ongoing shelter's under the rise. Community roadblock growth that took place during the quarter in the Chambi Bulkers region from 200 kilometers from Los Fundres belonging to community demands for further integration of the Los Bambis value chain through a large number of service contracts as well as government classification for these communities in an area of direct influence. On September 30, the agreement for temporary removal of the roadblocks is reached and transport operations were closed in June. However, this agreement revolved around a commitment to establish commercial relationships between Los Tambos and community organizations. Discussions are now underway. While roads remain clear in the Chumba Bienkis province, in recent days, new roadblocks have been established in Cote D'ambres and Shalu Achu, which are both from the same province of Los Pampers. Both communities are demanding the attendance of the President, Pedro Castillo, or the Prime Minister to discuss social and economic development of the region and the fulfillment of commitments from Los Banda and the government. Seeing these roadblocks extremely frustrating, we continue to push the dialogue with communities and government to remove the blockades. I don't understand the situation we feel is the roadblocks cross not only us, but the local and national economies of Peru. Income connections are helping us understand this. Per capita income is more than tripled in our host presence. The poverty rate is halved and basic health and development outcomes have improved considerably. The company has provided over 1% of Peru's GDP and submitting its funds and now flowing locally from royalties and soon mining cannon payments from profits. All these currencies have been injected by a single community seeking to leverage transport disruptions in the range of negotiating. At present, we're closing fire enough to continue production. However, mine development is starting to be impacted. And for roadblocks and not clear by the end of October, we will need to cease all operations and stop production. We have to seek a solution of these blocks as soon as possible. The government is not alone in facing heightened community protests following the recent elections in Peru, and we continue to work constructively with the Peru mining sector and the latest administrative mines and the transport ministry to drive the more enduring solutions. The stockpiles in sites are around 100,000 tons of principal site over about 30,000 to 35,000 tons of copper metal. On Renewal Ox Condos, following the submission of the original application bid in 2019 and completion of the product simplification process, The company continues to seek regulatory approval for development of the Chesa Bamba Pit. International went to community consultations and administrative supplies as well as consultations associated with the 2021 national elections and 2 of the delays in receipt of the relevant permits. If you go to the timing of the permit approval, which from a Lhasa perspective, there's no reason why they cannot be awarded tomorrow. We continue to work with the Ministry of Energy Mines to see the swift resolution. Moving on to Kufeiri. After capital production of 11,700 tonnes was 8% below the 2nd quarter. Processing plant performance remains strong with a record recovery rate in July with a total average recovery of 97.8%. The mining operations were suspended at Kinkiberi, continued depletion of the remaining medium grade stockpiles as well as lower delivered grades from third party oil suppliers, and average property grade fell to 1.9% compared to 2.2% in the prior quarter. While optimization works continued for the Sincere expansion project, mining of the remaining ore reserves are now not expected to resume until the end of 2021. As a result, copper capital production for the full year is expected to be between 45,000 to 50,000 tonnes. We are expecting to make our decision on the Kinturi expansion project by the end of 2021, which will see a shift to the mining process in the sulfide ores and the introduction of the cobalt circuit, extending the life of the mine for over 10 years and taking copper equipment production levels above the historical level of 80,000 tonnes. I'll now move on to our zinc operations, Bouygues River and Roseby. Bouygues River's zinc production of 48,000 tonnes was 21% above the 2nd quarter, which was impacted by a planned maintenance shutdown in June. Mining and plant throughput were just strong, delivering an annual run rate of about 2 new entrants. During the quarter, however, an incident which necessitated truck in the underground mine impacted the delivery of cement of the backfill in the scopes. Carry on impact of this is that mining rates will be low in October. However, there's still constant production guidance of 180,000 to 190,000 tons of zinc that will be delivered. Meanwhile, recent strength in the lead prices as well as the low prevailing TCs in 2021 and the full year C1 costs stood at the lower end of the guidance range of €0.65 and €0.70 per pound. At closing, zinc equivalent production of around 32,000 tonnes, 27% lower than the prior period due to the combined impact of lower ore mined, lower throughput from the used gold grade for all metals. Mining and processing volumes and grades were impacted by higher mining dilution and a rockfall in the northern exploration decline. We added up to 2 hours to underground ore farms and therefore impacted the drilling force of the plant. This issue has now been rectified, and we expect production to decrease in the 4th quarter. Production for 2021 is expected to be near the upper end of our $60,000,000 to $77,000,000 guidance range with new hydro mine infrastructure built into production and grades recovered from the 3rd quarter. As we continue to deliver high byproduct prices and low proceeds will also drive costs at the lower end of the guidance range of negative $0.20 per pound. We'll now hand it over to the moderator to take the questions. Thank you. The first question comes from Lawrence Lu with BOCI. Please go ahead. Hi, thank you, Ross. Can you hear me? Yes, Francois. Hi, hi. Just a couple of questions regarding Los Angeles. First of all, in your presentation, you mentioned there's roadblocks in neighboring regions. Does it impact your operation at all? If it is, in what extent? And secondly, we still have not yet the approval for charcoal flipper project, and it seems there's no timetable for it. So can you give us some idea in case we don't have approval for the entire year next year, what would the output of what's going to be for copper next year? Okay. Your first question, Laurence. The way the growth has impacted the operations is that there's 3 ways really. Look, we can't get our supplies into the mine. So they'll block, I guess the most out of this one is diesel. So we end up eventually running out of diesel. So we can't run the haul trucks from other plants. So we've got the incoming supplies. It also makes it very, very difficult for us to swap our people over because the vast majority come to site by road, so we can't get them through. And then the reason why our stockpiles are building is we're unable to get the concentrate stockpiles down the road and onto the railway line into the port. So that's why the impacts on production. And this time around, we didn't really have a chance to get our supplies back to full storage levels because it was only sort of less than a week between the ending of the previous roadblocks and then the commencement of these 2 new ones. So that's what we did in the rest of the inventory to start with. So I hope that's clear on the first question. With the settlement under approval, we've expected and been advised by the government that we would get this numerous times during the past 6 to 12 months. And even this week, we're hopeful of getting it, but that's going to eventually. So it's really hard to predict. And obviously, with the new government, it's a complex situation in Peru. And we're already on the second Mining Minister even though the government was only elected at the end of July. So it is very difficult to predict and hard to manage. We're still doing some work on this. If for some reason we weren't able to get Shiloh Bamba approved and get moving there next year, I think our production will be around about 300,000 tons a year. But we're still working on that, and we've obviously do everything we could to mitigate the impact of having those approvals. I have one follow-up question regarding the growth of them. So your new guidance regarding the output for the spender is 300,000 to 905000 tonnes this year. What's your assumption regarding the current roadblock, say, are you assuming it to be resolved in certain time zones that you can reach that level? Or because based on your information, it seems that if the roadblock continues, you may have to stop operation after a certain period of time, and that won't be too long. So what's your assumption between the current roadblock? Yes. That's a good question. Yes, thanks for asking. The current assumption is predicated on that roadblock being cleared by the end of October. So if it wasn't cleared, there'd be more business focused on guidance. Thank you. The next question comes from Jack Schon with Citi. Please go ahead. Hey, Ross. How are you? Hi, Patrick. Good. Thanks, Jack. How are you? Hey, Good. Thank you. Just actually a similar question on the around the last numbers. So just of course, I want to have a preference, right? So what are the next steps for us to potentially contact the relevant authorities? And I know there's no time line right now. So what are the key next steps? And what how asking on the ground to the new is the new Minit Mining Appointed already and how they are running off, are they receiving the opening for these approval requests and what kind of initial color. So anything on the ground would be very helpful. And on top of that, right, so whether the Board or the management team, beyond the last members, what we are looking at and what we are looking for going forward for future growth options? Thanks, Jack. I want to hand over to Troy Hai, who's Executive General Manager with National Corporate Affairs to answer your question. And then I'll come back to the growth question at that time. Sure. Thanks, Ross. Hi, Jack. Two questions. What we're looking at at the moment is, I guess, 2 problems: 1 on the roadblock, which is in the Chateau Ocho and Potokampos region, which is really goes back to the 2016 roadblock that we experienced there and development plan put in place for that region, purpose of return to the road, planning more and faster development on that 2/16 plan as well as a set of other measures. So we are working really closely with them. There is no doubt that dialogue is the best way to control it. We are on the ground working closely in terms of all of the communities and with a number of social development initiatives underway. Part of the struggle with this one is the aggressive call for both the President and Prime Minister to attend and a delegation headed up there on October 18. I've seen the last ministers, but the community weren't happy to see them. So they were sent back, and they are now waiting for the President and Prime Minister. The Prime Minister is not up for approval of Congress until next November 25. And whether that's still an appropriate thing to happen is what we're working through on the ground. So it's a bit difficult to call ahead. What our next step is making sure the government as involved as we can, and we are working very closely with the new minister as well as new ministers across all the portfolios. And operations, they're all fairly new to their portfolios. And so there's a bit of learning going on. And we hope to get those meetings and to get a resolution to this as soon as we possibly can. On the ground itself, these are the communities around the mine. So they know Los Bumbos very well. The change that they've experienced over the 5 or 6 years Los Bumbos has been incredible in terms of development in terms of the wells in that region, in terms of production and property, etcetera. So this is more the class that is anti mining would be completely wrong. It's more how our benefits are coming, more benefits are sought and many of the promise and the system from the government delivery are not coming quick enough. And so it's working directly with the communities as we still have a good relationship with trying to expedite delivery, trying to get government involved and trying to make sure that roadblocks aren't the chosen way of negotiation by keeping our dialogue tables working. So it's not a you say, it's not a condition we want to be in. Frustrating, but it's also not a breakdown of relationships. It's trying to expedite social development together with company government and communities and do it as best we can. So that's where we're focused. The second part on the AIA, as Ross mentioned, is all the processes are complete. So the consulsor privy or the prior consultation process is done, signed and delivered. It is really just getting that AIA signed, and we are working at every level of government. We are working really closely with the community of Juan Cleary, which is the impacted community. And again, I think we will get there, and it's every possible that's been taken. There is not huge conflict on the ground at all. It is about getting the benefits right, the commercial agreements right and making sure government, community and company are together to negotiate. So it as Ross said, it is frustrating, but we're really cooperating well with the new government. And I think with the new Prime Minister coming in next week, we're hoping we can get a quick resolution to the current roadblocks. Okay. Cool. Thanks, Troy. And just a quick follow-up, if I may. What are these roadblocks? So we know that these are happen over the past few years. Sometimes they involve certain amount of disruptions. So these are temporary in nature. How did all these most of these roadblocks ended up or ended? Meaning that what's usually that we do to patch items or to make them feel better to remove the roadblocks usually? What are specific demands for jobs or for like payment or like some sort of subsidy being handed to them? So any further detail or color would be very helpful. The struggle we face, Jack, is that it's very easy for a very small group from a single community to occupy the road and just turn back or lost by this traffic. We're looking so they're very temporary. It can be literally a couple of people or a wooden gate across the road, and that stops us until we typically get a joint delegation of government and company into a dialogue process, and we convince the communities to sign up to that dialogue process so we can work through the issues. The frustration for us is we are working with all communities along the road at all times, and there is a very large social development investment underway. There are contracts with many communities for road maintenance for other areas and agricultural programs, infrastructure programs. But the struggle is that a single community or even a part of a single community can walk a road and demand additional benefits. And we have to balance that conversation with all of the other communities who one conversation with 1 will then slow down. And that's why, clearly, the way to resolve is to get government company community together to agree on the scope of discussions and to end the roadblock and enter the dialogue process. And that's exactly what they're trying to do in the Corribamas and Channellatso region at the moment. Okay. So if I understand it correctly, so there's of course multiple communities and any one of them could be causing this trouble and but there is a certain procedure that we need to work through. We don't usually you don't need to really negotiate with each one of them. There is like a high level mechanism that you work with the government together with all the community. I think by doing that great, it kind of also slowed down the whole process of getting the issue specific issue addressed. Is that the correct understanding, right? Yes. And as Ross said, it's not just us. I think with the new government, a lot of communities will come back and seek to resolve current grievances or seek greater benefits, and that's happening across Peru at the moment. You will have seen in previous years, sometimes we'll get to a point where there is a local state of emergency declared, which is the movement is police and military support to remove protesters. But that again takes time and brings it at risk. So our preference is always to get a dialogue started, agree on the issues and then work closely with the community to resolve. Thanks, Troy. Thanks, Troy. Thanks, Troy. In relation to your second question about acrylics, obviously, a little bit of background too before I answer that question. China Min Metals, which is obviously our major shareholder and who supported MMG through its growth over the last 10 years, we've just had a change in Chairman. And if it's a change in Chairman, I think it will be a positive for MNG. But the Chairman has reiterated that they will continue to support MNG on its growth and that they see mining and MNG as a core part of that overall group. So we certainly still have the desire and the support from the major shareholder to enable us to grow. And again, our strategy is fairly clear that we're looking for copper cobalt zinc. And that's really in 3 regions, which is Central Africa, the Andes region of Latin America and also Australia, if we can, so that there's no change there. But obviously, good opportunities are hard to come by in the present environment, but still thinking every day and still very keen to grow. Your next question comes from David Ludwig, Global Mining Research. Maybe just shifting to the Gautiva and Kintuguri. In terms of the extension project there and the restart of mining that was scheduled to put back, could you give us maybe a bit more color what's happening there and what sort of push that time to settle back? And then in terms of stockpiles there, in case that time cycle continues to slip, how large are you? And what is that greater, that medium grade stockpile? Okay. Thanks, David. Thanks for the questions. With the Kratoski project, we've seen that our engineering team is working on optimizing it. And yes, we do expect to get it approved by the end of this year. With the mining, there's a bit of a natural cutoff because the DRC has a wet season. It's a very wet season. And we've basically just run out of time to engage the mining contract before Christmas. And if we were to engage in that sort of December January period, we're engaging them right in the middle of the wet season, which is the least productive time but also is the most dangerous. So that's the reason why we pushed 1st mining out to April in that, I guess, the delay of the KEP has meant that we're not in a position to sign up the mining contractor and get them sort of started before the wet season starts. So it's purely the natural boundary there. With the stockpiles, we've certainly got enough stockpiles to continue through to April. And by that stage, we would definitely be starting mining by then. So there's enough stockpiles in it. The stockpiles are around about 2% and then that's obviously go up and down depending on the stockpile we're in. And then we've got contracts in place to get 3rd party ores as well. So yes, I think the average free grade sort of the upcoming period should be around to 1.8% to 2%. Okay. Perfect. That's really helpful. Then just put it on Las Palmas. You sort of answered the questions, Trevor, on there. Then on the debt side, is there anything we need to consider if there is a full stop in terms of your short term repayments or covenants? No. We'll define obviously, this period of high copper prices has put us in a strong position across numbers. So we've got we've already got enough cash there to make our payments for June December. And I guess I'm not sure how long we've been following MNG for, but we've got a very understanding group of bankers being that they're Chinese SOE banks as well. So if it for a prolonged stop, it's still going to be an issue. But as I said, we're basically enough cash there that we could make those payments already now. Sure. Now I get that. I just thought I should ask anyway. Your next question comes from Chris Hsu with Horizon Asset. Ross, thank you very much for the presentation. I've got 2 questions. The first one regarding the SARS numbers. So the protesters and also the agitators, right? So it's like the government and also the companies are trying to pacify them, right? But there was actually no cost to them, no cost in more trouble. So is there any sort of benefit lost to them? I mean, if they continue protesting, I mean, will the payments or benefits related to the mine operation given to them being suspended? And also broadly related to that question, I remember the new administration had proposed huge increases in taxes and also they have also talked about building railways or maybe asking you guys to build railways. I'm just wondering, I mean, is there any discussion regarding those? Yes. I'm going to answer question 2 first, and then I'll hand back to Troy to answer your first question about the payments and benefits from those communities. The government didn't elect it and was part of its mandate about increasing taxes to the mining industry. So that's something Rob's still we'll work for. At this point, we haven't had any sort of proposals from the government, although we do know that in the background, they want to increase taxes. So we're at the moment just waiting to see what the proposals are. What I would point out is that, you know, Los Blancos is the highest sort of with the highest tax rate. So any mining through at the moment, the mine rates are a bit variable. So as I said, we're just waiting to see how that pans out. We do have a stability agreement that runs through to 2029. So obviously, it's better if we want to put a friendly resolution to the ball until we get some idea of what they're asking for. We're unsure what the situation will be. But yes, and at this stage, everything's still reasonably cordial with the new government. It's not like we've dealt with mass nationalization or anything like that. It's all relatively calm. And I think the major issue for the government is getting themselves settled in the meantime. And I'm going to go over to Troy to the first question. I guess just to take a step back, we do have a very good community team in my sense. And over the 6 years almost 6 years of operation, we have done very well in terms of entering the region that has never experienced mining and was the poorest region in Peru, and it has fundamentally changed over that period. What the situation we have now is that there are many people in these regions who have existing contracts with Los Banos and who are very linked to us in terms of keeping production going and they have either employment with the mine or contracts. But their communities are complex and there are new projects within them. So often, those running the roadblocks are a different group than those with contracts are and are a different group than those who are in leadership. And so it's a complex, ever changing environment. And often those who are running the roadblocks have, as you said, time on their side. There is a good impact from them that are occupying the road, and it allows them to use that against or from this or the government to seek greater support. So our real approach is to approach the communities as a whole and try to emphasize the benefits that do flow from Los Bambus, and they are significant. And as Ross said, the frustration is those benefits directly related to our production and our ability to deliver both production and profits. And the more that these contracts hurt that, the more impact we have on local regions, let alone the impact on individual contracts or employees. So it's working really hard. It's really emphasizing that these are different groups within communities. There are many that are supportive and work well with Los Bambos. There are many who have significant grievances with Los Fundos, and they're already in the middle and trying to make sure we're working for them. But there is no cap we can switch off. There is no set of benefits we can withdraw for everybody that aligns completely with Los Bumbos' interest, and that's why we need government dialogue and ourselves involved and while we constantly work to deliver the social dividend from having Los Bumbos as a neighbor. And it is significant. But you probably share some of our frustrations that we see these roadblocks, they have been a part of operating their mines for the 6 years we've been there. And it is not easy to find an enduring solution. Got it. Thank you very much, Ross and Charlie. And the second question is regarding the financial side. So I'm just wondering whether the management has thought about maybe using potentially A shares for financing because recently we have seen some other companies including even direct ship companies like CNOOC CNOC to raise capital through the Asian market. So and it seems there have been some reasons of all the changes regarding restaurants that make it easier for us to tap the Asian market. The Asian market. So just wondering whether it's relevant and can you help us on that? Chris, at this stage, we've had no discussions on the A shares and not really giving any thought. I mean, at this stage, we're also fully financed. And unless we do something within the M and A front, others don't need to raise any additional capital. So obviously, we've done a little bit of work in the background, but just to keep informed more than we're actually answering anything. Got it. Got it. Okay. Thank you very much. Thanks, Chris. Thank you. The next question comes from Joy Zhang with Goldman Sachs. Please go ahead. Hi, good morning. Thank you for hosting the call. I just have a quick question about Kingfir. First question is, do you see any possibility of chance that further delay of the investment decision? And the second one is that the reschedule of the construction starts and operation starts in the time line? I'd like to Jerry, I can't give you 100% ironclad guarantee, but I don't expect there to be any further delay, which Kingsbury approval. So we are expecting that to happen in the Q1 of 2021. So yes, that's just sort of internal knowledge we've got at the moment. Now in regards to the construction, we're actually still continuing to do a lot of engineering work. I mean that's part of the optimization process, but we are sort of moving forward behind the scenes and coming out of tender on different packages of work. So yes, some head work is all happening now. And obviously, once it gets approved, we would speed everything up. But a lot of preparatory work, but obviously, we're not going to make margin traction till we're 100% sure that the projects are approved. Thank you. There are no further questions at this time. I'll now hand back to Mr. Cowell for any closing remarks. Well, I just want to thank everyone for dialing in today and thanks for the questions. And if there's any further questions, please follow-up with Brent for our corporate affairs team. Thanks again for calling in. Goodbye. That does conclude our conference for today. Thank you for participating. You may now disconnect.