Earnings Call: H2 2019

Mar 5, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the MMG Limited 2019 annual results presentation. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the session, press star one on your telephone. I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chief Executive Officer of MMG, Geoffrey Gao. Thank you. Please go ahead. Thank you. Good afternoon, everyone, and thank you for joining MMG's 2019 annual results briefing. Unfortunately, circumstances mean that we cannot be meeting in person today. I trust you have read through our 2019 full year results, which were released to the Hong Kong Exchange yesterday. I will shortly hand over to Ross Carroll, our Chief Financial Officer, who will discuss the financial results in more detail. Before doing so, I will give a brief overview of 2019. After the presentation, we will welcome your questions. We faced a number of headwinds in 2019, including community disruptions at Las Bambas, flooding at Dugald River, and seismic events at Rosebery. Production volumes were also impacted at Kinsevere, which faced some mining challenges as it approaches the end of life for its oxide operations. This was a key trigger in the decision to take a $150 million impairment against that asset. These challenges were faced in an environment of lower commodity prices and resulted in the company delivering a full-year loss to shareholders of $230 million. Despite these challenges, our world-class asset base and cost focus has enabled the company to deliver cash flow from operations in excess of $1.1 billion and reduce borrowings by $511 million. On a more positive note, 2019 saw MMG celebrate its tenth anniversary. Over that time, the company has transferred from an Australian-focused zinc miner to a significant copper producer with a global footprint. We have demonstrated our ability to successfully execute on greenfield projects and operate world top 10 mines in both copper and zinc. We have built a strong platform, and during the year, we embarked on a transformation and reorganization program to ensure we remain well-positioned to capitalize on existing and new opportunities into the future. At MMG, safety is our number one value. As a result of our strong focus on safety, MMG is proud to maintain one of the lowest TRIF rates of all members of the ICMM. Despite a slight uptick in the company's 2019 TRIF rate, we remain a leader in the industry when it comes to safety performance. I am committed to ensuring that we continue to improve our safety performance. Ensuring strong partnerships with our communities is fundamental to our success. We maintain a strong focus on environmental commitment, and we are proud of ongoing contributions that we make to the development of our host communities. Over recent years, MMG has placed a high priority on business excellence and improvement. This ensures the company is well-placed to withstand low points in the commodity cycle, and importantly, to capitalize on the eventual upturn. In 2019, MMG shifted to a decentralized operating model based around clear accountability for performance, empowering sites to operate differently and drive their own businesses for value. We have created a lean corporate office focused only on those things needed to operate and govern a listed global business and deliver growth. We have continued to drive cost efficiencies across all operations and have generated significant savings to ensure our operations remain highly cash generative throughout the commodity cycle. I would like to address the social challenges faced at our largest operation, Las Bambas. Community protest activities had a material impact on the company's operations and financial performance in 2019. Las Bambas operations interact with three regions, four provinces, 14 districts, and more than 70 communities. Making this a complex situation. The difficulties we face are not unique to Las Bambas, and similar issues are faced by several other mining companies that operate along Peru's southern mining corridor. While Las Bambas maintains a positive relationship with most communities, we continue to face periodic roadblocks and demands for the negotiation of benefit agreements. Some of these demands can be extreme. Las Bambas' approach to social management is based on building strong, trusting relationships. Since 2010, we have invested more than $360 million in social development programs. This is in addition to the $250 million in royalties and over $200 million spent improving the national road used for concentrate transport. Following extended roadblocks over the past 12 months, dialogue tables continue to progress with the communities and government. We remain committed to finding solutions with studies underway regarding alternate logistics options, regional development agreements that provide enduring benefits to communities along the corridor, and road improvement works. I will now hand over to Ross, who will provide you with a more detailed overview of our financial results. Thank you, Geoffrey, and welcome to everyone who has joined us on the call today. As Geoffrey mentioned, 2019 was a challenging year for the company, and this is reflected in the financial results. A 17% fall in revenue for the year reflects lower sales across all sites, with the exception of Dugald River and lower copper and zinc prices. As you would be aware, Dugald River had its first full year of commercial production in 2019. EBITDA also fell by 17% due to lower sales volumes and prices. On an underlying basis, we recorded a loss of US$90 million for the year. I will cover the specific operating factors that impacted EBITDA in the next slide, but before moving on, I would like to discuss three important items. Depreciation for the year for approximately $970 million was around $50 million above 2019. This was largely due to higher amortization of the Las Bambas deferred stripping asset, $55 million, which I will explore in more detail shortly. The other key contributor to the increase was Dugald River taking into account a full 12 months of commercial operations. These increases were offset by a reduction at Kinsevere of $15 million due to lower ore mined and milled. Net interest costs for the year of $512 million were about $15 million below 2019. A reduction of average debt balances and the full year benefit of steps taken to fix interest rates under borrowings from our major shareholder resulted in incremental savings of over $41 million. However, these were partly offset by higher average LIBOR rates for the year, which were applicable to our floating rate debt, together with the unwinding of discounts on lease liabilities of $16 million arising following the change in lease accounting standards. The company also recorded a $115 million impairment at Kinsevere. This amounted to $105 million on a post-tax basis. The impairment was taken against some of the remaining oxide-only assets at Kinsevere as the oxide operations near the end of their remaining life. The outcome of all these factors was a statutory loss for the year of $195 million. Slide 11 sets out the bridge between 2018 and 2019 EBITDA performance of the company. As mentioned earlier, revenue in 2019 was impacted by lower average prices across our key commodities. Copper prices were on average 8% below 2018 levels, and zinc was 13% below. The negative impact of this was around $211 million. In addition, lower sales at Las Bambas of $469 million due to community roadblocks and lower production at Kinsevere and Rosebery were the main contributors to the net $427 million negative volume variance, which includes the partial offset of an additional four months of commercial production at Dugald River, and that was $138 million benefit. Investors should be aware that as at the 31st of December 2019, Las Bambas still had around 50,000 tons of copper stockpiled at site. The revenue and profit impact associated with these stockpiles will be recognized in 2020. Overall operating costs reduced by $304 million in 2019. Lower operating expenses of $407 million were the main contributor. This includes a $256 million favorable stock movement at Las Bambas, reflecting a buildup of copper concentrate inventory, that is the 50,000 tons I just referred to, which would have otherwise been shipped during the year. This concentrate has progressively been drawn down and have reduced to less than 40,000 tons by the end of February. This is in addition to lower royalty of $20 million and transport costs of $3 million and efficiencies associated with lower maintenance and energy expenditure. Higher operating costs at Kinsevere and Dugald River partially offset the lower cost at Las Bambas. At Kinsevere, a $47 million increase in operating costs was largely attributable to a 48% increase in waste ore movement together with operating difficulties in the first half. Dugald River operating costs increased by $68 million. However, this essentially just reflects an additional four months of commercial production compared to 2019. Rosebery's operating cost profile was broadly flat. The other key item relating to Las Bambas' operating cost reduction resulted from a change in the accounting for deferred stripping. This was a non-cash item that effectively resulted in the reallocation of operating costs to capital expenditure, incrementally impacting EBITDA by $90 million in 2019. This change in accounting methodology is quite technical, and we've included some slides in the appendices to provide further explanation. At a high level, we have changed the methodology from a whole pit approach to a phase or a cutback approach. Slides 27 and 28 in the appendix provide some more detail. This methodology achieves a more accurate alignment between the recognition of the cost of waste removal activity and the timing of the benefits received. The key point to be made here is that there is no cash impact. Moving along the chart, the $12.5 million reduction in corporate overhead spend was a result of efficiency and cost improvement initiatives across the group's support functions, including a reduced head count and lower consultant costs and travel spend at group office. Further savings can be expected in 2020. Reduced exploration spend for the year occurred as a result of our previously reported decision to wind down our new discovery programs in Northern Australia and Zambia. Instead, we have a renewed focus on exploration opportunities around our existing operating hubs. This was consistent with our view that the most economic discoveries will be those that can be exploited with existing infrastructure. Finally comes other income and expenses, which during 2019 included a reversal of prior year over provisions and proceeds received from insurance claims. The combination of these factors result in a full year EBITDA of $1.46 billion. Slide 12 illustrates the financial result that's specifically attributable to MMG shareholders, essentially removing the impact of the 37.5% interest in Las Bambas held by minority JV partners. MMG's 62.5% share of Las Bambas' profit after tax amounted to $58.5 million in 2019. We then deduct the operating loss from the other operations, where the loss at Kinsevere outweighed the profit contributions from Dugald and Rosebery. From this, we then deduct exploration expenditure and corporate overheads at remaining group office. Other items include FX movements and intercompany eliminations. Also included in the loss is the $105 million after-tax impairment expense in relation to Kinsevere, which I've mentioned earlier. Finally, finance costs, excluding Las Bambas, are deducted. This largely represents interest payable in relation to Dugald River project debt and borrowings from our major shareholder, CMC, which we used to fund the company's equity contribution to Las Bambas joint venture. The net result of this is a loss for the year attributable to equity holders of $230 million. The next slide provides investors and analysts with an indication of MMG's EBITDA sensitivity to movements in commodity prices and relevant exchange rates using the midpoint of our guidance ranges. As you can see from slide 13, the largest exposures are the copper and zinc prices and the Australian dollar. A $0.10 a pound change in copper prices will have a $90 million EBIT impact. For zinc, a $0.10 a pound change will have a $42 million impact, and a 10% movement in Australian dollar will have a $32 million impact. There is a further slide in the appendices of this presentation that highlights the impact of movements in copper and zinc prices on our free cash flows that will assist analysts and investors in building their models. As you can see, we have reduced debt by $511 million using a combination of our surplus operating cash flow and existing cash balances. At current prices and production levels, unfortunately, we won't be in a position to continue deleveraging. The right-hand side of the chart highlights our capital expenditure profile. Our full-year capital spend for 2019 was $476 million, which included around $89 million of additional deferred stripping and capitalization at Las Bambas, which has resulted from the change in accounting methodology. Looking forward to 2020, we expect total capital expenditure of between $650 million and $700 million. This includes approximately $250 million of capitalized deferred mining expenditure across all our sites, but the bulk is realized at Las Bambas. Once an allowance is made for the impact of the deferred stripping change, CapEx guidance is comparable to the USD 400 million-USD 500 million range that we have previously communicated to the market as being normalized sustaining CapEx. The vast majority of this spend relates to Las Bambas with some of the key projects and associated 2020 spend set out on the slide. Now to our debt maturity. This slide provides an updated view of the amortization profile for the company's term debt. Obviously, we have some significant repayments in 2020, 2021, and 2022. The key point I want to raise here relates to the $700 million light blue bar that's shown in 2021, relating to the funding provided by a major shareholder. At current commodity prices, we will not be able to meet this $700 million loan repayment. However, MMG continues to enjoy strong support from our major shareholder, which has been key in our ability to develop Las Bambas and Dugald River in recent years. We've already entered into discussions with them regarding this upcoming maturity and fully expect to reach agreement on an amendment to the repayment profile. In relation to cash flow and liquidity more generally, the coronavirus outbreak is likely to have a negative impact on results for the first half, with copper and zinc prices dropping sharply lower since the Chinese New Year. However, with strong support from Minmetals, a very supportive panel of banking partners, and a series of working capital facilities available to the company, we have access to sufficient liquidity. Now to the operations. There's further detail in the appendices, but let me now run quickly through a few of the key points in relation to our four operating sites. Operationally, Las Bambas continued to perform well. The 2019 EBIT result was 8% lower than 2018. The copper price average for the year was actually 8% lower. As Geoffrey Gao mentioned earlier, the community action during the year prevented us from offsetting lower prices with higher production and sales. This primarily impacted outbound logistics, but nonetheless, resulted in around 20,000 tons of payable copper production being lost and a significant concentrate balance being held on site for the year-end. As mentioned earlier, sales of this material will be deferred into 2020. 2020 represents a year of transition for Las Bambas, with the focus on continued increases in mining volumes, completion of the third ball mill, and the development of the Chalcobamba pit. Ore from this pit is expected to come into production in the third quarter of 2020. We expect Chalcobamba will contribute around 10,000 tons to full-year production. Importantly, we now anticipate that Las Bambas will deliver around 2 million tons of copper between 2021 and 2025. This improved medium to outlook is the result of a high grade from Chalcobamba, a series of initiatives around mine sequencing, debottlenecking of the plant, and the installation of a third ball mill. Beyond 2025, we are confident that a strong production profile can be maintained. This view is underpinned by the highly prospective nature of the Las Bambas tenements and supported by positive drilling results at the Chalcobamba South West zone, with high-grade intercepts likely to drive an expansion of the existing pit design. There is deep exploration potential and subsequent development opportunities that will add significant value to Las Bambas in the future. Moving to Dugald River. We are very pleased with the progress of the Dugald River ramp-up, and after Las Bambas is another demonstration of the company's capability to deliver large greenfield projects. The mill has continued to perform well, exceeding nameplate capacity for seven consecutive quarters. The exceptional start-up of Dugald River will enable us to focus on an increase in mine capacity during 2020. Our aim is to increase mine capacity to over 2 million tons per year by 2022. This will pave the way for a targeted increase in zinc equivalent production to around 2,000 tons per year. Although Dugald River is enduring tough market conditions at the moment, it's a long-life zinc mine of significant scale that will enable MMG to capitalize on the strong zinc market fundamentals over the next 25 years. At Rosebery, operational challenges associated with mining at increasing depths were overcome to deliver a good production result. However, declining zinc grades are expected to result in lower production in future years, starting in 2020. The focus for 2020 is on resource drilling so that we can firm up the future for Rosebery. Rosebery's operated for five-year remaining mine life for most of its recent history. It's essential that we optimize the remaining life there to create the most value from the business. Kinsevere faced significant operational challenges during the first half of the year, but recovered well in the second half. Production of 29,000 tons in H1, but recovered to 38,900 tons in the second half. First half production difficulties included lower grades from the Mascie pit, along with dewatering problems and plant instability. The second half improved as we moved back into the central pit and the plant stabilized. Pleasingly, during the year, we recorded some encouraging drilling results at Sokoroshe, Nambulwa, and DZ, which should all be able to be milled through the existing infrastructure. Kinsevere's oxide ore reserves are nearing the end of their life. As previously announced, the company is pursuing a feasibility study that will potentially see the addition of a sulfide and cobalt circuit to existing operations, and the extension of Kinsevere's mine life for up to 10 years. Copper production should remain at around 80,000 tons, and cobalt production is expected to average 4,000 tons per year. I will now hand back to Geoffrey Gao, who will speak more on the company's broader strategy and outlook before we move back to the Q&A part of the presentation. Thank you, Ross. As an international mining company with deep connections to China, the world's largest consumer of metal and mineral products, MMG has a unique insight that underpins our positive views on our key commodities. Toward the end of 2019, global manufacturing and the Chinese copper end-use demand indicators had started to improve off multi-year lows. This was reflected briefly in improved commodity prices. However, the outbreak of coronavirus has seen a significant decline in short-term global economic activity. This naturally has impacted prices. However, to date, MMG's operating sites, sales channels, and supply chains have remained largely unaffected. We are closely monitoring the situation as it develops. We expect that once the short-term issues surrounding the coronavirus are resolved, the positive fundamentals supporting global industrial activity will resume. This may be supported by significant stimulatory measures from central governments around the world, and is likely to be very positive for base metals demand. MMG's medium and long-term view remains unchanged. With respect to copper, both supply and demand factors point to a very positive outlook. Demand growth will be supported through the increase in electric vehicles and renewable energy demand, urbanization, and China's Belt and Road Initiative. This, combined with supply challenges as new projects and expansions continue to be delayed or shelved, and existing projects face declining grades, sovereign risk, and pressures from environmental and employee demands. With respect to zinc, you will be aware of the large increase in zinc concentrate charges over the last 12 months. With latest discussions at the International Zinc Association suggesting they may settle around $275 to $300 a ton. Long term though, our constructive view on zinc demand growth is driven by continued infrastructure investment in emerging markets. Along with higher rates of zinc penetration for galvanized steel in the automobile sector and in fertilizer consumption. This, and the lack of investment in zinc mine supply growth, drive our views for a strong medium-term price outlook. MMG's core commodities are exposed to three mega trends that will drive the global economy over the coming decade. They are the continued urbanization of emerging economies, the decarbonization of energy, and the electrification of the automobile. This is in addition to cobalt, which was reported in MMG's mineral resources for the first time in 2019. MMG was established in 2009. Looking back over the 10 years since MMG was first established, I am very proud of what the company has been able to achieve. We have transitioned from an Australian focused zinc miner to a significant copper producer with a global footprint. We have demonstrated our ability to successfully execute on greenfield projects, and now operate top 10 producing mines in both copper and zinc. We have built a company capable of operating throughout the commodity cycle and withstanding external challenges. We have developed valuable local operating knowledge in key mining regions, and a platform for future growth and expansion. As we transition in 2020 and look forward to the next 10 years, MMG remains committed to growth through the acquisition of established assets and greenfield opportunities, as well as through the realization of the brownfield potential at existing sites. In 2020, MMG expects to produce between 418,000 and 445,000 tons of copper at an average cash cost of $1.15 per ton, and 235,000 and 245,000 tons of zinc at an average cash cost of $0.60 per ton. Meaning that we expect to continue to be highly cash generative despite the current weakness in copper and zinc prices. With our unique insight into China and the strong support of our majority shareholder and key funding partners, we will be able to execute on the right opportunities when they present. Thank you for your time today and your support over 2019. I will now hand back to the moderator, who will open the line to questions. Thank you, Geoffrey Gao. Ladies and gentlemen, we will now begin the question and answer session. 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 the pound or hash key. Your first question comes from Jack Shang from Citigroup. Please ask your question. Hey. Good afternoon. This is Jack Shang. Can you hear me okay? Yep, fine. Thanks, Jack. Hey, Ross. Thank you, Geoffrey Gao, and thank you, Ross. A couple of questions regarding Las Bambas. First one, since you've updated your midterm production outlook for the mine, I wonder if there is new guidance for, say, the mine life, whether that is being affected by this change in mining plan. That's the first question, on the back of the midterm outlook, any impact on the life of the mine outlook. Also, the second one is on ore grade. The ore grade has been consistently higher than your reserve report. Last year was also around 0.84% for copper. What's the ore grade going to trend, say, in the next 5, 10 years? You mentioned a little bit about Chalcobamba has a relatively lower grade of ore, gradually being ore and milled. What's the ore grade guidance? Because it's been above the report guidance from the technical report. The third one is regarding the C1 cost trend of Las Bambas. Thank you for the presentation. I managed to find a very helpful page on that open pit mining stages. I think it's in the slides. My question is whether the different phases of this mining will affect this C1 cost significantly for that. What's the C1 cost trend in different stages? Last one is a quick one. That 50,000 tons inventory on hand, would that be predominantly just in Q1 or mainly in Q2? Thank you. I'm still writing, Jack Shang. All right. Yeah. First one about the mine life. At this stage, we're still expecting to have a mine life through to 2038 with our financial planning. But I think we're very confident that the mine life will be extended and maybe run for 50 or 70 years. Adding to the answer on this is we would probably expect the mine production to dip down in 2026, just as the current Chalcobamba pit, as we see it, as the grade drops. But with these discoveries at Chalcobamba South West, we're quite confident that we'll be able to use that high-grade ore to lift up the production for 2026 and 2027, at least stay in that 380,000-400,000 ton range. But those discoveries aren't in our reserves yet, so that's just an anticipation, not a factual statement. Next question, I think, was about the ore grade. Yeah, this year will be roughly around 0.8% with the ore grade. Where Chalcobamba becomes very important is in 2021 and 2022. Once we're doing the pushbacks at Ferrobamba, it will contribute higher-grade ore that enables us again to stay in that range of 380,000-400,000 tons. That's why you'll see this year where we've only got contribution of about 10,000 tons from Chalcobamba, why our ore production is dropping down a little bit. Does that sort of make sense on those two questions? Yes. Thank you. Yep. The next question was about the C1 cost trend. This year, obviously, we're just around about $1. I think next year we've given guidance of $0.95 to $1.05. You might as well call that around about $1 again. We probably expect over time that the C1 cost will drift up a little bit. This will be because as the mine gets older, the holes get longer. They have a steeper gradient, then all our equipment gets older as well. So it will start to drift upwards, but obviously, we'll be trying to get further efficiencies to mitigate the drifting upwards, for want of a better term. So I think over time, you'll see our C1 move from somewhere around $1 up to the $1.10 range just over the period of time. With what we've done with the deferred stripping, that should even it out so that we don't have such an impact on the C1 in the current sort of year, depending on how much waste we're moving. So by doing it by phase, it actually makes it more accurate rather than the previous way we were doing it, which actually did both the booking of the capitalized stripping and the depreciation of that stripping over the life of the mine. So by doing it phase by phase, we actually should have more accurate numbers. So that should still enable us to remain in the $1 to $1.10 a pound. I think your final question was about 50,000 tons of ore, sorry, concentrate we had at the mine at the end of last year. We expect that to run down through the first half of the year and perhaps into July. So at the end of February, we are down to about 40,000 tons. But I think everyone is aware we had the roadblock in late January and early February, which obviously hindered our ability to deplete those stockpiles. But based on what we know now, they should be all gone by June or July. Yes, perfect. Thank you very much. Thanks. Your next question comes from Han Fu from JP Morgan. Please ask the question. Thank you, Geoffrey and Ross. Can you hear me? Yes. Okay, great. Thanks. Thanks for the presentation. I have three questions from my side. One is actually a follow-up from what Jack Shang already asked. Just on the risk, the midterm volume guidance. Does that mean we also maybe need to accelerate our CapEx in the sense of both mine construction as well as the operating CapEx to, in line with the accelerated volume guidance? If that's the case, what will be our new sort of the normalized CapEx guidance level we should look for the next five years? The second question is on our cobalt reserve. Which stage are we at for Kinsevere's next step, maybe building a sulfide copper ore circuit as well as possibly the cobalt circuit? Could you roughly give us an idea what will be the sort of the copper cobalt production cost in terms of the USD per pound? The final question is on the, what is our current thinking or planning stage at the long-term transportation solution for the Las Bambas Mine? Is that still under the bankable feasibility study for different options or are we still thinking maybe we should stick to the public road transportation at the moment? Thank you. Right. Thanks, Han Fu. Firstly, in regards to the CapEx, we actually expect 2020 will probably be the peak year for CapEx certainly from what we can see ahead of us. The reason for that is we're bringing on the third ball mill. We've also got Chalcobamba coming into play, so we'll have the construction cost there. Then we've also bought some new fleet, or will be buying some new fleet. So 2020 should be the peak of the spend. It's also a very high year with deferred stripping. So after we get through 2020, I think you can pretty safely say, and this is for the whole company, but Las Bambas tends to be the bulk of it, we'll be back into that $400 million-$500 million range for sustaining CapEx. Hopefully that answered that question. Yeah. Thanks. With KEP, we're just, the cobalt and sulfide expansion. We're still in the feasibility stages for that, so I couldn't give you an accurate, USD per pound cobalt cost yet. The way we actually do that is the copper will be the main product, and then cobalt will be a by-product. So effectively, we have all the costs going in together, and with it then the cobalt being a credit to copper costs. So it actually, given that the relative price of cobalt has a big impact on the C1 cost for copper. Yeah, I'll take the last question regarding the long-term solution, if we call it that, for the Las Bambas concentrate transportation. In the current situation, the inbound, outbound transport at Las Bambas is operating as usual and we've got a 30-day state of emergency declared by the government in February. I would say, the short-term focus definitely is to commit to the transparent and productive dialogue with all the important stakeholders. We are working on a range of investment and regional development agreements. At the same time, we are also reviewing a few of the long-term options. That includes the possible alternative trucking routes. Also we are working on the feasibility study for a potential concentrate pipeline. We will give further updates when we get to the more detailed information on the progress. Thank you. Thank you. Just on the cobalt side, maybe can I quickly follow up? What is our probable time in maybe coming out with the bankable feasibility plan, then finally into the construction and the commissioning stage? What sort of timeline are we thinking about? Yeah, we'd expect the feasibility study to be finished in the first half of this year, then probably investment decision early in the third quarter of this year. Then, construction would start pretty much straight away, and we'd be aiming for production in early 2022. Okay, thank you. Your next question comes from Yan Chan from CICC. Please ask the question. Hey, thanks, Geoffrey and Ross for the presentation. I have got a few questions here. One is that we have seen a $150 million impairment charge on Kinsevere. I am just wondering whether there is any room for any further impairment charge on any of our facilities. That is the first one. The second one is, for inventory, I am not quite sure whether I got my numbers right. Las Bambas produced 380,000 tons last year, and then the sales volume was 310,000 tons. But the inventory, copper inventory was only showing 50,000 tons. I am not quite sure why there is a gap of 20,000 tons. I guess my question is, regardless of the number, the inventory seems a bit high. I am just wondering whether there is any risk of an inventory impairment charge, for this first half of this year. The third question is, for CapEx, I just want to clarify, on the note on page 14. It says that out of the $650 million-$700 million CapEx guidance, it actually includes $200 million-$250 million of capitalized mining. I am just wondering whether the cash outlay for the CapEx was only around $400 million-$500 million. I just want to clarify that. Thank you. Right. Thanks for the question. In regards to the impairment, we have done an assessment, and effectively that impairment relates to assets that we purchased with the purchase of Kinsevere via Anvil, that related wholly to the oxide resources there at Kinsevere. Obviously, we made a loss last year at Kinsevere on the existing oxide. If the current prices stay as they are, it is going to be a pretty marginal operation this year as well. That impairment totally relates to the oxide. We have incorporated our initial views on what is going to happen with the sulfide and cobalt expansion into our carrying value. This is really where the cobalt credits become so important because essentially we will have 80,000 tons of copper production, but if you effectively get another sort of 25,000 tons in copper equivalent or 30,000 tons in copper equivalent via the cobalt, that cobalt obviously adds a lot of value. At this stage, there is no room for any further impairment or need for any further impairment. With the LB inventory, we may have a little gap in our analysis there, so there might be 10,000 or 20,000 tons of difference. Some of that could be inventory that was held at the port as well. That could explain part of the difference between production volume, sales volumes, and what we have got held at site. As we mentioned, the inventory was high because effectively the logistics corridor was closed for 100 days last year. It meant in the other 265 days, we had to move as much as we could, but we could not catch up that shortfall from really periodically through 2019. Does that answer your question there? Yeah. Yep. All right. The third question was on CapEx. With the CapEx, we have $650 million-$700 million. That will be all, except for some accrued creditors, that will largely all be a cash spend. Now of that, $250 million is deferred stripping. That is about $200 million from Las Bambas. Rosebery and Dugald roughly have 20 million-30 million each of deferred underground mining. That will be a cash spend. Should have mentioned that really there is no cash difference. It is just really a reclassification, particularly for the increase at Las Bambas from operating costs to CapEx. That has also- So the cash outlay for this year is still $650 million-$700 million? Yeah, that is right. Okay. Got you. Thank you. Your next question comes from Chris Shu from Horizon Asset. Please ask your question. Hi, thank you very much for your presentation and answers. Three questions. The first one is, could you give us a more detailed, possibly year-by-year roadmap for the five-year copper production profile for Las Bambas? Has the plan built in any buffer for potential protests and community unrest? That is the first question. The second question is, what was the negative impact on cash flow in 2019 due to the higher than normal stockpile? The final question is, could you kindly give us some guidance on the interest expense for 2020 versus 2019? Thank you. Firstly, Chris, with the five-year copper profile, that is an indicative sort of range. As you know, historically, we have only given detailed one-year outlooks. We are not in the position, but I guess what we can say is from our internal planning, we are in that range of 2 million tonnes from 2021 to 2025. Yeah. Yep. Now, the higher stockpiles, you're basically looking there at 50,000 tonnes at $6,000 a tonne. It's basically $300 million of revenue that we're short in round figures, which is a result of the roadblocks. Then, with interest expense, I haven't got the exact numbers to hand, but the shareholder loan is about 4.1% for $2.2 billion. The Las Bambas loans, as they are now, is about $5 billion, and that's about 5.3% interest rates. Then the Dugald River, which is about 400 million USD, the interest rates of around about 5.3% as well, maybe 5.4. I think we do have that detail in the accounts. Then depending on where the copper and zinc prices end up, we may have to draw down on those revolvers as well. They're roughly the sort of 4.5% range. Thank you. But how would the interest rate in 2020 be different from the one in 2019, if any? Yeah. No, quite a significant change. Firstly, with all the debt with the Chinese banks, that's based on the six-month LIBOR rate plus a margin. The LIBOR rate has come down and, I guess as I said with the coronavirus, all the central banks are continuing to lower interest rates. That's really just moving as the six-month LIBOR comes down. Then with the shareholder loan, I think it was July last year where we entered into the new agreement with Minmetals. That was prior to that agreement, I can't remember the exact rate, but it had about a 3.5% margin on top of LIBOR. This year it will average about 4.1%. The major shareholder was quite generous with the terms of that loan. Got it. Thank you very much. Your next question comes from Joy Zhang from Goldman Sachs. Please ask your question. Hi, Joy. The line is now open. Yes, you may be on mute. Hi. Can you hear me? Yeah, we can. Thanks, Joy. Okay. Thank you for holding the call. I just have one quick question. Because you just mentioned earlier that you plan to increase the Dugald River capacity to 200,000 tons per year. I just want to ask, when do you expect to deliver? What is C1 cost might be the new range after you increase the capacity? Thank you. All right. Thanks for the question, Joy. We expect to get there probably in 2021 or 2022. Probably more likely 2022 that we'd really see a full impact from it. With the fixed costs and then we've got the very high TC/RCs with zinc at the moment. I think we'd see the C1 price drop down by between $0.05 and $0.10. It's not a massive decrease. Okay. Thank you. Your next question is a follow-up from Jack Shang from Citigroup. Please ask your question. Hey, it's me again. Hey, Ross. A follow-up question regarding the C1 cost accounting change. You mentioned earlier in your presentation there's no impact on cash. I understand because you reclassified some of that cash operating cost to CapEx. Yeah. My question is whether there is any impact from the tax accounting perspective, if the copper price goes back to a much higher level from here and Las Bambas is making more profit, whether there will be a tax impact if copper price is much higher than what it was in 2019? Thanks. Yeah. Okay. That is a very good question. Jack, with the Peruvian tax rules, we can write this off over three years, and we can actually choose how much we can take in each of the three years. We could even, depending on what is happening elsewhere, we can have 1%, 1%, and 98%, or 33%, 33%, and 33%. I guess the short answer to that question is that it does not really impact on the tax and actually gives us some more flexibility. But overall, there is no tax change. But, if the copper price is very low in the current year, we would probably choose to amortize less of it this year. Then, assuming the copper price picks up once the virus is finished and there are all the stimulation packages, we would then seek to take more depreciation. Okay. Got you. Thanks. Yeah. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further questions at this time. I would now like to hand the conference back to Geoffrey. Please continue. If no further question, I just want to thank everyone for attending our annual results briefing. After this session, if you still got questions, you can contact our investor relation or corporate affairs team. Thank you. Thank you, everyone.