Hello, 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, I'm saddened to report an accident this quarter involving a bus transporting employees of our contract partners to Las Bambas , which caused the tragic death of 16 passengers. This tragic event reminds us that we must always place safety at the forefront of everything we do at work and in our daily lives. MMG continues to support the ongoing investigation into this incident and expresses its deepest sympathies to the families and friends of those involved. For our operations, our total recordable injury frequency rate for the year to date is 1.16 per million hours worked, as we continue to try and eliminate all injuries 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.
In early October, along with our peer companies from the International Council on Mining and Metals, we announced a commitment to target net zero emissions by 2050. As part of this commitment, we are implementing a whole of company climate resilience strategy which covers energy mix, technologies, efficiencies, and mitigation measures that will determine interim 2030 targets in support of the 2050 goal. This work is due for completion in early 2022, and we look forward to sharing the results with you. Let us address operational performance. In the third quarter of 2021, MMG produced around 91,000 tonnes of copper and 62,000 tonnes of zinc. On a full-year basis, our expectation for zinc production remains in the range of 240,000 tonnes-260,000 tonnes. However, we have slightly lowered our expectation for total copper production to between 345,000 and 365,000 tonnes. I'll explain the reasons for this adjustment shortly.
The tonnes of copper production in the September quarter was 79,000 tonnes, which represented a decrease of 6% on the prior year. During the quarter, production was impacted by a community roadblock that restricted inbound and outbound logistics and people movement for approximately 20 days, and limited mining operations for 12 days, which caused total mining volumes to be around 5 million tonnes below plan during the quarter. Significant impacts with processing stockpiles to maintain plant throughput, albeit at a lower grade resulting in production levels lower than planned. Total copper production from Las Bambas is now expected to be around 300,000-305,000 tonnes of copper and concentrate, compared to the previous guidance of around 310,000 tonnes. Despite the lower production, unit mine costs are expected to be around $0.10 lower at $1-$1.10 per tonne.
This lower cost base is due to the strength of the moly, gold, and silver prices, which increase our by-product credits, as well as ongoing [shelter numbers arrays. Community road blockade that took place during the quarter in the Chumbivilcas region, some 200 km from Las Bambas, related to community demands for further integration into Las Bambas value chain through a large number of service contracts, as well as government classification for these communities as an area of direct influence. On September 30, an agreement for temporary removal of the roadblocks was reached, and transport operations were able to resume. Part of this agreement revolves around a commitment to establish commercial relationships between Las Bambas and community organizations. Discussions are now underway.
We may include in the Chumbivilcas province, in recent days, new roadblocks have been established in Cerro Ccelleray and Sarhuayo, which are both in the same province as Las Bambas. 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 fulfillment of commitments from Las Bambas and the government. Again, these roadblocks are extremely frustrating and we continue to push for dialogue with communities and government to remove the blockades. Part of the frustration we feel is the roadblocks cross not only us, but the local and national economies of Peru. Since the commencement of development of Las Bambas, per capita income has more than tripled in our host province. The poverty rate is halved, and basic health and development outcomes have improved considerably.
Las Bambas provides over 1% of Peru's GDP, and significant sums are now flowing locally from royalties and soon mining canon payments from profits. All these benefits have been jeopardized by a single community seeking to leverage transport disruptions for the means of negotiating. At present, supplies and fuel are enough to continue production. However, mine development is starting to be impacted, and if the roadblocks are not cleared by the end of October, we will need to cease all operations and stop mine site production. We ask for a quick resolution of these blocks as soon as possible. Las Bambas is not alone in facing heightened community protest following the recent elections in Peru, and we continue to work constructively with the Peru mining sector and new leaders in the Ministry of Mines and the council of ministers to broker more enduring solutions.
Plant stockpiles on site are around 150,000 tonnes of concentrate or about 30,000 - 35,000 tonnes of copper metal. On Las Bambas, following the submission of the original application in February 2019, and completion of the prior consultation process, the funding continues to seek regulatory approval for development of the Chalcobamba pit. A combination of lengthy community consultations and administrative delays, as well as complications associated with the 2021 national elections, continue to delay the receipt of the relevant permits. It's difficult to predict the timing of the permit approvals, but from a Las Bambas perspective, there's no reason why they should not be awarded tomorrow. We continue to work with the Ministry of Energy and Mines to seek a swift resolution. Moving on to Kinsevere. Copper cathode production of 11,700 tonnes [broke] the sample over second quarter.
Processing plant performance remained strong with a record recovery rate in July and a quarterly average recovery of 97.8%. However, with mining operations still suspended at Kinsevere and continued depletion of the remaining medium grade stockpiles, as well as lower delivered grades from third-party ore suppliers, the average copper head grade fell to 1.9% compared to 2.2% in the prior quarter. While optimization works continue for the Kinsevere expansion project, mining of the remaining ore reserves are now not expected to resume before the end of 2021. As a result, copper cathode production for the full year is expected to be between 45,000 and 50,000 tonnes.
We are taking an investment decision on the Kinsevere expansion project by the end of 2021, which will see a shift to the mining and processing of sulfide ores and the introduction of a cobalt circuit, extending the life of the mine to over 10 years and taking copper equivalent production levels above the historical level of 80,000 tonnes. I now move on to our zinc operations, Dugald River and Rosebery. Dugald River zinc production 48,000 tonnes is 21% above the second quarter, which was impacted by a planned maintenance shutdown in June. Mining and plant throughput rates were strong, delivering an annual run rate of above 2 million tonnes. During the quarter, however, an incident with an agitator truck in the underground mine impacted on delivery of cement to the backfilling of stopes. Carry on impact of this is that mining rates have been low in October.
However, we still confirm that production guidance of 180,000-190,000 tonnes of zinc will be delivered. However, recent strength in the lead prices as well as the low prevailing TC/RCs in 2021 mean that full year C1 costs should be at the lower end of the guidance range of $0.65 and $0.70 per pound. At Rosebery, zinc equivalent production of around 32,000 tonnes is 27% lower than the prior period due to a combined impact of lower ore mined, lower throughput and reduced ore grades for metals. Mining and processing volumes and grades were impacted by higher mining dilution and a rock fall in the northern exploration decline. This added up to two hours to underground haul times and therefore impacted the delivery of ore to the plant. This issue has now been rectified. We expect production to increase in the fourth quarter. Zinc production for 2021 is expected to be near the upper end of our 60,000-70,000 tonnes guidance range, with new larger mining stopes coming into production and grades recover from the 3rd quarter. Similar to Dugald River, high by-product prices and low TC/RCs will also drive costs towards the lower end of the guidance range of -$0.20 per pound. I will now hand you over to the moderator to take the questions.
If you wish to ask a question , please type 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 speaker phone, please put up your hand to ask your question. The first question comes from Lawrence Lu with BOCI. Please go ahead.
Hi. Thank you. Ross, can you hear me?
Yes, Lawrence.
Hi. Just a couple of questions regarding Las Bambas. First of all, in your presentation, you mentioned there's roadblocks in neighboring regions. Does it impact your operation at all? If it does, in what extent? Secondly, we still have not got the approval for Chalcobamba project, and it seems there's no timetable for it. Can you give us some idea in case we don't have the approval for the entire year next year? What will the output of Las Bambas will be for copper next year? Thank you.
Okay. Right. The first question, Lawrence, the way the roadblocks impact the operations is that with three ways, really, quickly, we can't get our supplies into the mine, so they'll block, or at least the most obvious one is diesel. We end up eventually running out of diesel, so we can't run the haul trucks and other plants. We've got the incoming supplies. It also makes it 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. The reason why our stockpiles are building is we're unable to get the concentrate stockpiles down the road and onto the railway line to the port, which applied impacts on production.
This time around, we didn't really have a chance to get our supplies back to full storage levels because it was only less than a week between the ending of the previous roadblock and then the commencement of these two new ones. We didn't really have full inventory to start with. Yeah, I hope that's clear on the first question. With the Chalcobamba approval, we've expected and been advised by the government that we would get this numerous times during the past 6 to 12 months. Even this week, we were hopeful of getting it, but that didn't eventuate. It's really hard to predict. Obviously with the new government, a sort of complex situation in Peru, and we're already on our second mining minister, even though the government was only elected at the end of July.
It is very difficult to predict and hard to manage. We're still doing some work on this, but if for some reason we weren't able to get Chalcobamba approved and get moving there next year, I think our production would be around about 300,000 tons a year. We're still working on that and move obviously do everything we could to mitigate the impact of not having those approvals.
I have one follow-up question regarding the roadblock thing.
Yeah.
Your new guidance regarding the output for Las Bambas is 300,000 tons-500,000 tons this year.
Yeah.
What's your assumption regarding the current roadblock? Are you assuming it to be resolved in certain time so that you can reach that level? 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. What's your assumption regarding the current roadblock?
Yeah. No, that's a good question. Yeah, thanks for asking. The current assumption is predicated on that roadblock being cleared by the end of October. If it wasn't cleared, there'd be more downside risk to our guidance.
Okay. Thank you, Ross.
Thanks, Lawrence.
Thank you. The next question comes from Jack Shang with Citi. Please go ahead.
Hey, Ross. How are you?
Good. You can check in.
Good. Thank you. Actually a similar question around the Las Bambas. Just I want to have an assessment, right? What are the next steps for us to potentially contact the relevant authorities? I know there's no timeline right now. What are the key next steps and how are things on the ground? Is the new Minister of Mining appointed already and have they already been running offices? Are they opening for these approval requests and what are the initial colors? Anything on the ground would be very helpful. On top of that, right, whether the board or the management team, beyond the Las Bambas, what we're looking at and what we're looking for going forward for future growth options. Thank you.
Thanks, Jack. I might just hand over to Troy Hey, who's our Executive General Manager, looking after corporate affairs, to answer your first question. Then I'll come back to the growth question, if that's okay.
Sure.
Thanks, Ross. Hi, Jack. Two questions. What we're looking at at the moment is, I guess two problems. One on the roadblock, which is in the Cerro Ccelleray, Las Pintas region. Which really goes back to the 2016 roadblock that we experienced there and the development plan put in place for that region. Groups have returned to the road claiming more and faster development on that 2016 plan, as well as a set of other measures. We are working really closely with them. There is no doubt that dialogue is the best way to work with this. 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 groups have called for both the President and Prime Minister to attend. A delegation headed up there on October 18th of senior vice 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 by Congress until next Monday, the 25th. Whether that's still an appropriate thing to happen is what we're working through on the ground. It's a bit difficult to call ahead. What our next steps are is making sure we get government as involved as we can. We are working very closely with the new Minister, as well as new Ministers across other portfolios. The process is good.
They're all fairly new to their portfolios, there's a bit of learning going on. 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 Las Bambas very well. The change that they've experienced over the five or six years of Las Bambas has been incredible in terms of development, in terms of the wealth of that region, in terms of reductions in poverty, et cetera. To class it as anti-mining would be completely wrong. It's more how are benefits accruing and more benefits are sought, and many of the promises, especially from the government for delivery, are not coming quick enough.
It's working directly with the communities, as we still have a good relationship with, just 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. It's not a position we want to be in. It's 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. That's where we're focused. The second part on the EIA, as Ross mentioned, is all the processes are complete. The consulta previa or the prior consultation process is done, signed, and delivered. It is really just getting that EIA signed, and we are working at every level of government. We are working really closely with the community of Huancuire, which is the impacted community.
Again, I think we will get there, and every possible step has 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 when we negotiate. As Ross said, it is frustrating, but we're really cooperating well with the new government. 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. Just a quick follow-up, if I may. What are these roadblocks? We know that these have been happening over the past few years. Sometimes they cause a certain amount of disruptions. These are temporary in nature. How did most of these roadblocks ended up or ended? Meaning that, what usually that we do to pacify them or to make them feel better to remove the roadblocks usually? What are specific demandings for jobs or for payment or some sort of subsidy being handed to them? Any further detail color would be very helpful. Thanks.
The struggle we face, Jack, is that it's very easy for a very small group from a one community to occupy the road and just turn back all Las Bambas traffic. They're very temporary. It can be literally two 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. 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.
The struggle is a single community or even a part of a single community can block a road and demand additional benefits, and we have to balance that conversation with all of the other communities who, one conversation with one will then flow down. That's why typically 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 a dialogue process. That's exactly what we're trying to do in the Cotabambas and Challhuahuacho region at the moment.
Okay, great. If I understand correctly, there are of course, multiple communities and any one of them could be causing the trouble. There is a certain procedure that we need to work through. Usually, you don't need to really negotiate it with each one of them. There is a high-level mechanism that you work with the government together with all the communities. I think by doing that way, it kind of also slow down the whole process of getting the specific issue addressed. Is that the correct understanding, right?
Yes. 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. That's happening across Peru at the moment.
Okay.
You will have seen in previous years, sometimes we get to a point where there is a local state of emergency declared, which is when they bring in the police and military support to remove protesters. That, again, takes time and brings with it risks. Our preference is always to get a dialogue started, agree on the issues, and then work closely with the community to resolve.
Beautiful. Yeah, thanks, Troy.
Thanks. In relation to your second question about growth, I'll just give a bit of background too before I answer that question. At China Minmetals, 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. Obviously, a change in chairman, I think, will be potentially positive for MMG. The chairman has reiterated that they will continue to support MMG on its growth and that they see mining and MMG as a core part of their overall group. We certainly still have the desire and the support from the major shareholder to enable us to grow.
Again, I think our strategy is fairly clear that we're looking for copper, cobalt, and zinc, and that's really in three regions, which is Central Africa, the Andes region of Latin America, and also Australia if we can. There's no change there. Obviously, good opportunities are hard to come by in the present environment, but still looking every day and still very keen to grow.
Thanks very much. Thanks, Ross.
Thanks, Jack.
Thank you. Your next question comes from David Haslett with Global Mining Research. Please go ahead.
Hi. Good morning, everyone. Maybe just shifting to the DRC then and Kipushi. Just in terms of the extension project there and the restart of mining that was scheduled and has been put back, could you give us maybe a bit more color what's happening there and what sort of pushed that timeline further back? In terms of the stockpiles there, in case that timetable continues to slip, how large are they and what is that grade of that million-grade stockpile?
Okay. Thanks, David. Thanks for the question. With the KEP project, we've still got our engineering teams working on optimizing it. Yeah, we do expect to get it approved by the end of this year. With the mining, there's a bit of a natural cut-off because the DRC has a wet season. It's a very wet season. We basically just run out of time to engage the mining contractor before Christmas. 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 the most dangerous.
That's the reason why we've pushed first mining out to April in that, I guess the delay of the KEP meant that we're not in the position to sign up a mining contractor and get them started before the wet season starts. It's purely that you've got a natural boundary there. With the stockpiles, we've certainly got enough stockpiles to continue through to April. By that stage, we would definitely be starting mining by then. There's enough stockpiles. The stockpiles are around about 2%, and then those will obviously go up and down depending on which stockpile we're in. Then, we've got contracts in place to get third-party ores as well. I think, the average feed grade throughout the upcoming period should be around the 1.8%-2%.
Okay, perfect. That's really helpful. Just quickly on Las Bambas, sort of answered the questions straight on there. On the debt side, is there anything you need to consider if there is a full stop in terms of your short-term repayments or covenants?
No, we'll be fine. Obviously, this period of high copper prices has put us in a strong position across Las Bambas. We've already got enough cash there to make our payments for June, December. I guess, I'm not sure how long you've been following MMG for, but we've got a very understanding group of bankers, being that they're Chinese SOE banks as well. If it did come to that ultra-prolonged stop, it's still going to be an issue. As I said, we've basically enough cash there that we could make those payments already now.
Sure. No, I get that. I just thought I should ask anyway.
Yeah.
Perfect. Thanks. I'll pass it on.
Thank you.
Thank you. Your next question comes from Chris Xu with Veritas Assets. Please go ahead.
Hi, Ross. Thank you very much for the presentation. I've got two questions. The first one regarding Las Bambas. The protesters and also the agitators, right? It's like the government and also the companies are trying to pacify them, right? There is actually no cost to them causing more trouble. Is there any sort of benefit lost to them? I mean, if they continue protesting, will the payments or benefits related to the mine operation given to them be suspended? Broadly related to that question, I remember the new administration had proposed huge increases in taxes, they have also talked about building railways or maybe asking you guys to build railways. I'm just wondering, is there any discussion regarding those?
Yeah.
First question.
Yeah. Chris, I might answer question two first, and then I'll hand back to Troy to answer your first question about the payments and benefits in those communities. The government did get elected, with part of its mandate about increasing taxes to the mining industry. That's something we are obviously on the alert for. At this point, we haven't had any sort of proposals from the government, albeit we do know that in the background, they want to increase taxes. We are, at the moment, just waiting to see what the proposals are. What I will point out is that Las Bambas is the highest tax rate for any mining Peru at the moment, because the tax rates are a bit variable. We are just waiting to see how that pans out. We do have a stability agreement that runs through to 2029.
Obviously, it's better for everyone if we get a friendly resolution to it all. Until we get some idea of what they're asking for, we're unsure what the situation will be. At this stage, everything's still reasonably cordial with the new government. It's not like 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. I'll hand you over to Troy for the first question.
Thanks, Chris. I guess just to take a step back, we do have a very good community team in Las Bambas, and over the six years, almost six 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. 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 Las Bambas and who are very linked to us in terms of keeping production going. They have either employment with the mine or contracts. The communities are complex. There are many groups within them. Often those running the roadblocks are a different group than those with contracts are and a different group than those who are in leadership. It's a complex, ever-changing environment.
Often those who are running the roadblocks have, as you said, time on their side. There is direct impact from them for occupying the road, and it allows them to use that against Las Bambas or the government to seek greater support. Our real approach is to approach the communities as a whole and try to emphasize the benefits that do flow from Las Bambas, and they are significant. As Ross said, the frustration is those benefits are directly related to our production and our ability to deliver both production and profits. The more that these roadblocks hurt that, the more impact we have on local regions, let alone the impact on individual contracts or employees. 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 Las Bambas.
There are many who have significant grievances with Las Bambas, and there are those in the middle, and trying to make sure we're working with all of them. There is no tap we can switch off. There is no set of benefits we can withdraw for everybody that's aligned completely with Las Bambas' interest, and that's why we need government dialogue and ourselves involved and why we constantly work to deliver the social dividend from having Las Bambas as a neighbor. It is significant, but we probably share some of our frustrations that we see these roadblocks. They have been part of operating our mine for the six years we've been there. It is not easy to find an enduring solution.
Got it. Thank you very much, Ross and Troy. The second question is regarding the financial side. I'm just wondering whether the management has thought about maybe using potentially A-shares for financing. Recently we have seen some other companies, including even the red chip companies like CNOOC to raise capital through the A-share market. It seems there have been some recent policy changes regarding that front that may make it easier for us to tap the A-share market. Just wondering whether the management has any thoughts on that. Thank you.
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 big on the M&A front, there's no need to raise any additional capital. Obviously, doing a little bit of work in the background, but that's just to keep informed more than we're actually actioning anything.
Got it. Thank you very much.
No, thanks, Chris.
Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone. The next question comes from Jiaping Zhang with Goldman Sachs. Please go ahead.
Hi, good morning. [Hayden Bairstow for Halsey Nicole]. I just have a quick question about Kinsevere. First question is, do you see any possibility or chance that further delay of the investment decision? The second one is that the rest schedule of the construction starts and operation starts, the timeline. Thank you.
I'd love to, Hayden , I'd love to give you 100% ironclad guarantee. I don't expect there to be any further delay with the Kinsevere approval. We are expecting that to happen in the first quarter of 2021. Yeah, that's the best 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. That's part of the optimization process. We are still moving forward behind the scenes and going out to tender on different packages of work. Yeah, some legwork is all happening now. Obviously once it gets approved, we would speed everything up. Doing a lot of preparatory work, obviously we're not going to let major contracts until we're 100% sure that the project's been approved.
Okay, thank you.
Thanks.
Thank you. During your further session at this time, I'll hand back to Mr. Carroll for any closing remarks.
I just want to thank everyone for dialing in today and thanks for the questions. If there's any further questions, please follow up with Brent or our corporate affairs, and thanks again for dialing in. Goodbye.
That concludes our conference for today. Thank you for participating. You may now disconnect.