Earnings Call: Q1 2021

Apr 23, 2021

Earnings release

Hello, and welcome to MMG's 2021 First Quarter Production Report Teleconference. This report and today's discussion cover the operational performance of MMG's assets for the March quarter 2021. Joining us today is Chief Executive Officer, Jeffrey Gao and MMG's executive team. I will now hand over to Jeffrey, who will discuss the highlights in the report, after which there will be an opportunity to ask questions. Thank you, Brent, and hello to everyone who is joining us today. At MMG, our first value, as always, is safety. In the Q1, our operations recorded a total recordable injury frequency rate of 0 point 79 per 1000000 hours worked. This was significantly better than the 2020 result of 1.38. While we will never stop our efforts to eliminate injuries, I am pleased that we continue to benchmark at the very bottom end of global peers on injury frequency. I'm also pleased to report that we continue to deliver stable operations at all of our sites, with production modestly ahead of our budget in the Q1 despite the ongoing COVID-nineteen impact. Now to address the operational performance. In the Q1 of 2021, MMG produced over 77,000 tons of copper 68,000 tons of zinc. And on the full year basis for 2021, we maintain our guidance for production of between 360,000,390,000 tons of copper and 240,000 tons of zinc. Sustamba's copper production in the March quarter was over 64,000 tons, which despite being 12% below the prior year, was in line with our internal plan. The lower production was a function of the lower ore grades in this current phase of the Faribamba pit. Production levels are expected to improve sequentially over the remainder of this year, initially from higher mining volumes and grades at Firebomba, followed the contribution from Charcoal Bamba in the second half. At Chaco Gamba, we anticipate formal permitting to complete during this current quarter. At the same time, we are progressing community discussions and continue to expect mining to commence shortly after formal permitting approvals are received. Turning to community relations. And despite the Bamba enduring over 100 days of transport disruptions in 2020, the Q1 of 2021 saw fewer disruptions. This allowed transport operations to run at full capacity for longer periods and stockpiles were reduced from around 65,000 tons of copper to around 37,000 tons. Pleasingly, transport operations have continued to run well and as of earlier this week, stockpiles had been further reduced to around 33,000 tons with over $300,000,000 at current prices. We will endeavor to transport these remaining stockpiles and realize cash as quickly as possible over the remainder of the Q2. Moving on to Kinsigira. Cork vessels production of around 12,500 tons are also in line with expectations. New throughput was stable, but similarly to Asamba. The processing of lower grade ore resulted in production being lower than prior quarters. Following a temporary suspension of mining activity in the Q3 of 2020, The majority of mill feed came from low grade stockpiles and third party ore. In terms of outlook, we continue to make progress on study and early mobilization works in anticipation of the next development phase at Kinspira, which will see a shift to the mining and processing of sulphide ores and the introduction of a cobalt circuit. We anticipate a final investment decision during the current quarter of 2021. I will now move on to our zinc operations, Dilgo River and Rosemary. At Dilgo River, zinc production of 49,000 tons was close to record levels, highlighting consistent strong performance since the ramp up of this asset in 2018. This outcome was driven by strong recoveries, improvement in mining performance and better extraction methods to reduce waste. This represents the benefits of ongoing work to depotleneck the mine and optimize the plant. We remain confident that from 2022, we can deliver on our target of over 2,000,000 tons of mined ore a year and annual zinc production approaching 200,000 tons. At Rosebury, zinc production of over 19,000 tons was 11% higher than the prior year, while lead, copper, gold and silver production was 19%, 14%, 31% and 23% higher, respectively, displaying the benefits of the polymetallic nature of the Rosebury property. During the course, Rosebery celebrated the major milestone of its 85th year of continuous operation. 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. Another positive driver for our zinc business is the outcome of the recent zinc treatment charge negotiations. Benchmark TCs were set at US159 dollars per ton for 2021, a more than US140 dollars per ton reduction on 2020, which will provide significant cost relief for both Gilgal River and Rosemary. It should be noted, however, that some of this benefit will be offset by the impact of a higher Australian dollar, U. S. Dollar exchange rate. And so at this stage, we are maintaining our C1 cost guidance at $0.70 to $0.75 per bond for Duval River and $0.10 per bond for Rosemary. I'm now happy to take your questions. Please can all questions be directed to me in the first instance. I will then call members of the executive team to respond. Due to the reason of the time difference, Mr. Wei Jiang Tian, the EGM America is not available today, Together with other executives, I will address Luspendbus related questions. I will hand over to the moderator. Thank We are showing no further questions at this time. I will now hand back to Jeffrey. Thank you. Thank you all for joining us today and I want to thank you for your continuous Pardon me, Jeffrey. We have a question. Your first question comes from Joanna Tan from Citi. Please go ahead. Hey, Jeffrey. It's Jack here. Hey, Ross. Just a quick one. Can you hear me okay? Sorry about the background noise. Yes, we can hear you, Jack. Yes, thank you. Just a quick one on Lassemba's Chalcopamba permit. So given that, as mentioned in your production report, the formal permitting is actually continued to be delayed by COVID-nineteen impact and also the political situation in Peru. So how visible it is that how confident are you forecasting we're going to get a formal permit in the Q2 of 2021. I guess the question is more referring to also relevant to the full year production guidance now is maintained. But I mean, in case of more COVID-nineteen cases or very slow vaccines, well, flu vaccines and also the uncertainties, so what are the contingency plans and how visible is that? Thanks. Okay. Thank you, Jack, for your question. Regarding the permit of Chacobamba, because this is the process handled by the government, So we have been continuously working closely with the government and also the discussion with the community. I even we don't have the control of the exact timing, but right now, we do not see significant risk around our timeline to get this permit in place in this quarter. But I'm afraid I cannot or I'm not in a position to give you an exact time on that. Yes, that's answered to the Chacobamba permit. Regarding the COVID situation in Peru, yes, we do see the second wave of COVID-nineteen from earlier this year. But thanks to the new experience we learned from managing the COVID related risk in 2020, now we got effective health and hedging protocol, for example, prior mobilization, testing and safe accommodation. Right now, we've got enough accommodation facilities on-site. So we have been able to maintain the workforce availability around above 90%. So that's close to normal level. And so right now, we don't think the covenant situation will have significant impact, particularly on our operation. Thanks. I think, Jeffrey, if I could just add to the Peruvian government has given mining companies permission to vaccinate their own employees. We only heard that this morning. So I don't think there's been a time to enact it, but I think that's also a promising sign and reflects the importance of the mining community to the Peruvian economic climate. Thank you. Thank you, Geoffrey. Thank you, Ralph. Thank you. Your next question comes from Yoo Young Lee from DBS Bank. Please go ahead. Hi. Can you hear me clearly? Yes. So I have two questions. So what is your utilization ratio in last month, last 9? And expecting that you are selling Sapphire at the peak speed. And then so I didn't read your report. So why is the corona stop by at the end of the March and then corona, corona stop by in the last numbers for the couple? And then when I mean that so I understand the COVID-nineteen situation is quite worse in the South America area. And then so it's very difficult to expect, but what you are actually doing to minimize the negative impact from the impact to your operation from the COVID-nineteen? That is the first question. And the second question, I understand that this year, the zinc has been declined significantly. So that is the positive news for the Zhiguan River. So how much do you expect your EBITDA in the Zinc Zinc in this year? How much of EBITDA is expected to grow, thanks to the lowering the zinc TCs? That is the second question. I may need some clarification on your question. Yes. I understand your first question regarding the stockpile in the Lasamba. So I have said in my briefing that is the 37,000 tons by the end of Q1. Yes. In general, the second question regarding the COVID-nineteen implication, I have announced that to Lufthamba's operation. And we have other operations in Australia and in the DRC. In Australia, the COVID-nineteen situation is well under control. So no any implication, particularly on our Australian operations. Given the DRC, we continuously monitor the COVID situation and to have all the necessary protective matters in place. And so far, we have been able to manage the situation well and the COVID-nineteen situation in the local region so far didn't have any substantial impact on our data operation. Okay. So can I ask how many steps in the last one box mine has been impacted by COVID-nineteen? You mean the Yes, how many cases of I don't have that number with me. We did have some cases. But as I mentioned earlier, through the prior mobilization test, we are able to identify any cases before they really go to the site. And so that means we are successfully managing the impact and without any direct impact on the operation itself. So I think anecdotally, there's probably close to a 50% infection rate in Peru. But as Jeffrey mentioned earlier, we've got about 90% of our workforce on-site. So and I think that they get tested twice before they go to site. So we've been quite effective in making sure that we don't have an outbreak on-site as such. The third question is on the EBITDA benefit of the group from the lower TCG. Yes. There has been a significant decrease in the TCRCs from last year, the benchmark being about $300 a tonne to $159. That will deliver quite a significant benefit. But where it is being offset for us is that the Australian dollar is much stronger than what it was last year as well. So we've got an Australian dollar, U. S. Dollar exchange rate of about $0.77 So there's a slight benefit when you sort of cancel out the TCRCs and the exchange rate. But I think what you need to remember too, there's a virtually a perfect correlation between the Australian dollar and the copper and iron ore prices. Now obviously with copper prices being strong, zinc prices are being strong as well. So generally when the price rises for the commodities, the Australian dollar rises as well. So there is a natural hedge there. But there will be a small benefit, but it's virtually material. Does that answer your question? Thank you. Your next question comes from Joy Chang from Goldman Sachs. Please go ahead. Hello. Hi. Thank you, management, for holding the call. I just have one quick question about the potential impact from the presidential election in Peru. As one of the candidates since suggest that the payroll should privatize all the mines in the payroll. So how do you see the potential impact to the last summer if this candidate is elected? As a company as a business, we really don't comment on the particularly when we are still in the process. We just finished the 1st round. Now we know we've got 2 candidates for the 2nd round of potential election. But we I guess we will closely watch the process and also I think we as a business will either individually or work there together with the other mining peers. The new President or new government, then we will also work closely with the government to definitely promote our business development activities. But at the moment, I cannot give you further comment regarding any possible implication because it is still in the process. Thanks. Okay. Thank you. Thank you. Your next question comes from Chris Xu from Horizon Asset. Please go ahead. Hi, Gabriel and Ross. Thank you very much for the presentation and the Q and A. I've got two questions. The first one is regarding Las Bombas. Could you tell us more specifically in terms of numbers, what sort of mining volumes and also grades we should expect for the Q2 and the Q3 and the Q4 for this year? That's my first question. Thank you. Okay. Thank you, Chris. Your question around whether we can provide the quarterly production information, particularly on the guidance. We are not in a practice to provide quarterly guidance. I don't think most of the mining companies will do that. That's because the volatility of the nature of operation from quarter to quarter. But as I said in my briefing, the Q1 production is lower than the prior period, but it's in line with our budget. So in our budget or in our internal plan, we will have higher mining volumes and also grades. Firstly, that is regarding this mining sequence in the current Faroe market. But then particularly in the second half, we expect we will have contribution of high grade ores from Chagobana. And so in our plan, that will have much better second half than the first one and the grades will improve gradually. And as I mentioned, we are still maintaining our annual production guidance at the moment. Thank you. Thank you. And my second question is regarding the further strategic development in the Kinsaviary project. So I do understand that the further investments and projects will be dependent on the default decision, which hasn't been made yet. But if we look at industry peers, like for example, channamolipidum, it has entered into a strategic cooperation agreement with CATL in which CATL has secured a quarter of the stake in the Kislenfu cobalt projects, which is also sort of under a greenfield development stage, right? So do you see any interest from these battery makers or electric vehicle manufacturers? And do you see any merits in this sort of strategic cooperation agreements with them potentially? Thank you. Yes. I may answer the question in the two aspects. First one is we are still in the final stage of optimization of the study work on the Kinchere sulfide project. So we expect we can reach the decision point in this current quarter. 2nd aspect is that we have been in some discussions with, like you mentioned, the battery producers for the cobalt product from our project. But since we are doing the study stage for this project, so there are some discussions, but at the moment, nothing concrete I can disclose. Thank you. Thank you. There are no further questions at this time. I will now hand back to Jeffrey. Okay. Thank you. Thank you everyone for joining us today. And if you still have any further questions, please follow-up with our Investor Relations or Corporate Affairs team. Goodbye.