Earnings Call: Q4 2019

Jan 23, 2020

Earnings release

Hello, and welcome to MMG's fourth quarter production report teleconference. This report and today's discussion cover the operational performance of MMG's assets for the December quarter and the full 2019 year. We will also touch on the production outlook for 2020. Joining us today are Geoffrey Gao, Chief Executive Officer of MMG, Ross Carroll, Chief Financial Officer, Mr. Wei Jianxian, Executive General Manager, Americas, Suresh Vadnagra, EGM Operations, Australia and Africa, and prior to December, the EGM Operations, Americas, along with other members of the MMG executive team. Thank you for joining us. I will now hand over to Geoffrey, who will discuss the highlights in the report, after which there will be an opportunity to ask questions. Thank you, Blake, and hello to everyone who has now in today. At MMG, our first value is safety. In the final quarter of 2019, our operations recorded a total recordable injury frequency, TRIF, rate of 1.44 per million hours worked. This remains one of the lowest TRIF rates in the global mining industry, as ranked by the International Council on Mining and Metals. I am pleased to report that all our operations continue to deliver improved performance over the final quarter of the year, which increased the production of copper, lead, and zinc. For the full year, MMG produced around 452,000 pounds of copper and 253,000 pounds of zinc. Now, I will briefly discuss the operational performance of our mining assets before moving on to our short and medium-term outlook. Las Bambas produced around 100,000 pounds of copper in the final quarter, and the full-year production was in line with the latest guidance at just over 382,000 pounds. As a result of community road disruptions during 2019, copper stockpiled on-site at year-end was around 50,000 tonnes. This is expected to be progressively drawn down and shipped during the first half of 2020. For 2019, Las Bambas reported C1 unit cost of $0.99. Noting that this does reflect a change to our accounting treatment for deferred stripping. With strong focus on cost control and operational excellence, Las Bambas remains one of the lower cost copper mines of this scale in the world. Continuing with our copper operations, Kinsevere delivered its strongest production quarter in over a year at over 20,000 pounds of copper cathode, driven by record mill throughput. Full-year production was around 68,000 pounds of copper cathode. This reduced volumes relative to prior years was the result of lower ore grades and mining challenges in the first half associated with the final stages of mining in the Mashe pit. Let me now move on to our zinc operations, Dugald River and Rosebery. Dugald River delivered another strong quarter with a new record Dugald River mine output and the seventh consecutive increase in quarterly mill throughput. Over 48,000 tonnes of zinc was produced in the final quarter of the year, with more than 170,000 tonnes being produced in 2019. The ongoing ramp-up of mine output, together with the demonstrated ability of the plant to produce well above design capacity, has assisted in full-year C1 cost of $0.70 per pound. This was at the bottom end of the guidance range, despite challenges of extreme weather events and higher zinc treatment charges in 2019. At Rosebery, a series of operational improvements supported a second consecutive year with mining and milling volumes in excess of 1 million tons. This is particularly noteworthy as it was achieved despite two seismic events which temporarily restricted access to operational mining areas. Zinc production for the December quarter represented a 6% increase from the prior period, and full-year production exceeded 83,000 tons, a 10% increase over 2018. Full-year C1 cost of $0.20 per pound was $0.05 below guidance due to the strong contribution of precious metal by-product credits. MMG remains committed to extending the life of Rosebery. In 2020, the company will focus on resource extension drilling. We have learned to never underestimate a mine that has been operating for 85 years. We will shortly move on to questions, but before doing so, let me make a few comments on the outlook for our operations. The company expects to produce up to 445,000 tonnes of copper and 245,000 tonnes of zinc in 2020. At Las Bambas, production of 350,000 to 370,000 tonnes of copper will be temporarily lower in 2020 due to the development of the Chalcobamba pit, which is expected to come into production in the third quarter of 2020. This work, along with the completion of the third ball mill and other initiatives, is expected to deliver a further 2 million tonnes of copper production over the five-year period from 2021 to 2025. This significantly improves upon the pre-production mine plan and extends our initial guidance to around 4 million tonnes of copper by the 10th anniversary of the commercial production. Beyond that medium-term outlook, we continue to be excited by the results from the Las Bambas drilling program. Drilling associated with the development of Chalcobamba continues to define mineralization in the zone southwest of the current pit shell and is likely to result in an expansion of the existing pit design. High-grade intercepts, some in excess of 1% copper, support our ongoing optimism regarding the exploration potential that exists more broadly at Las Bambas. We are also confident of sustaining steady increases in mine and mill outputs at Dugald River, with work underway to lift mine capacity above 2 million tons, and zinc equivalent production towards 200,000 tons in the years beyond 2020. We are actively working on programs to extend the life and optimize value at Kinsevere and Rosebery. MMG has a strong future. We are now happy to take your questions. Given the challenges with technology and translation from Mr. Wei in Peru, Wei will respond to Las Bambas-related questions from the team here in Melbourne. I look forward to introducing you more formally to Mr. Wei at the release of our 2019 annual results in March. I will hand over to the moderator. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, just please press star one on your telephone and wait for your name to be announced. If at any time you need to cancel your request, just please press the pound or the hash key. So once again, that's star one on your telephone to ask a question today. Just another reminder, ladies and gentlemen, if you wanted to ask a question or make a comment, it's star one on your telephone. Your first question today comes from the line of Chris Xu from Horizon Asset. Please ask your question, Chris. Hi, good morning, and Happy New Year. I've got two questions. One, could you give us some updates on the latest situation at Las Bambas? Do you see any risk to the road usage, transportation, logistics, and so on? That's the first question. Also related to that, any sort of longer-term solution that we are seeking, and how are we working with the local community as well as the government there? The second question is, do you have any guidance for CapEx for 2020 and beyond? Yeah, these are the main questions. Thank you very much. Okay, thank you, Chris. About your first question regarding the latest situation in Las Bambas. Since the fourth quarter, we haven't been meeting any serious road blockage since then. The transportation of logistics, I mean, the copper concentrates, remains normal. We also see some good progress or announcements made by the Peruvian government regarding the request from the local communities. Such as government has declined some government decrees regarding the benefits allocation of mining canon to be distributed to the communities along the roads. So we are happy to see some positive progress in that area, and we will continue work closely with the government to build the relationships and also provide development and the business opportunities with the communities. Regarding these long-term solutions, we are also actively reviewing the options, including the pipeline and also rail options, and the alternate road routes, or possibly the combinations of all this. We will give the market when we got any further results regarding the long-term solution towards the logistics. Regarding the second question, Gus? Yeah. Thanks, Chris. Thanks, Jeffrey Gao and Chris. In regard to the CapEx, Chris, we'd be looking at sort of ongoing regular CapEx of between $400 million and $500 million this year. Again, that incorporates the development of Chalcobamba but also with the change in the deferred stripping policy, we'll be looking at an additional $200 million of deferred stripping on top of that, and that's because we've got a significant lift in total movement at Las Bambas. Just to give you an idea, the total movement at Las Bambas lifts from about 180 million tons up to 225 million tons next year. That's no real cash impact because that increase in deferred stripping would've been incurred as an operating cost otherwise. Yep. Thank you very much. Also, just to follow up, since you have given more medium term guidance for the production. Do you also have the corresponding medium term guidance for the cost, C1 unit cost, 2021 to 2025? We don't propose to give out that sort of guidance just yet. We'll obviously give them the guidance for the 2020 year, but we would expect it to be relatively similar and really within that band of $1 to $1.20 as it has been. Got it. Thank you very much. Yeah. Thanks, Chris Xu. Just a final reminder, ladies and gentlemen, it is star one to ask a question or make a comment in today's call. Okay, there are no further questions at this time. I will hand the conference back to your presenters. Please continue. All right. If no more questions, thanks for joining us today and for your continued interest in MMG. If you have any further questions, please follow up with our investor relation or corporate affairs team.