Earnings Call: Q3 2018

Oct 19, 2018

Earnings release

Hello, and welcome to MMG's third quarter production report teleconference. This report and today's discussion covers MMG's assets for the three months ending 30 September 2018. Joining us today is Geoffrey Gao, Chief Executive Officer, Ross Carroll, Chief Financial Officer, Suresh Vadnagra, EGM Operations Americas, Mark Davis, EGM Operations Africa, Australia, and Asia, along with other members of the MMG executive team. Jeffrey will discuss the highlights of the report, after which the moderator will ask you for your questions. I would now like to hand over to Jeffrey. Thank you. Welcome to everyone who has dialed in today. I will take the report as read and then briefly expand upon some of the key points. At MMG, our first value is safety. In the third quarter of 2018, our operations recorded a total recordable injury frequency of 0.85 for million hours worked and 0.89 for the year to date. This compared to a TRIF of 1.13 for the period, corresponding period to 30 September 2017. MMG is proud to have achieved an average 10% year-on-year reduction in injury rates since end of 2012. However, we remain committed to eliminating all injuries from our workplace and making sure everyone returns home safely each day. Now let's turn our focus to our major commodities. First, copper. The total copper production for the third quarter of 2018 was 121,926 pounds. Las Bambas produced 86,797 tonnes of copper in copper concentrate, 13% below the second quarter. The lower production was a result of a localized wall slippage, restricting access to mining in section of the Las Bambas pit. Remediation actions since this slippage have been successful, with mining in the affected area resuming on October 1st. Metal production since this date has been in line with our revised plan to produce between 375,000 and 395,000 tonnes of copper in concentrate in 2018. Looking forward, geotechnical conditions are expected to improve in this area of the pit as depth increases. Reliance of ore from this section of the pit in the short and medium term has also reduced as other areas are developed. Looking towards the medium term as we continue to advance a number of programs to ensure that we deliver on the vast potential of the Las Bambas asset. This includes debottlenecking and plant upgrade projects that we expect will increase plant throughput by 5%-10% over the next five years. We are also working on making advances on our exploration program, with 42 kilometers of resource expansion drilling in the Las Bambas pit so far in 2018. In addition, approval was received at the beginning of October to drill an additional 300 infill and exploration holes over the next 12 months. We are excited by the vast potential that Las Bambas brings to MMG, and we look forward to providing the market with further updates on the development at our most significant asset. Now turning to our other operations. Kinsevere continues to deliver excellent operational performance. Production is running at record levels for the first nine months of the year, and mill throughput for the third quarter was a record. The operation remains on track to deliver around 80,000 tonnes in 2018, its fourth consecutive year at this level. C1 costs are now expected at the lower end of the guidance range, $1.57-$1.67 per pound in 2018. As we have delivered on some improvement initiatives that are partially offsetting the additional cost associated with the changes to the DRC Mining Code. In relation to the Mining Code, MMG has made a formal request for negotiation with the DRC government pursuant to the bilateral investment treaty between the DRC and China. MMG is looking to enter negotiations with the DRC government regarding the implementation and application of the 2018 Mining Code. We continue to seek recognition of the protections contained for current investors in the 2002 code. We are also working to understand implementation plans and assessments, and that process is expected to continue for the remainder of 2018. During the quarter, the government has commenced enforcement of elements of the 2018 Mining Code including increased royalty rates, import duties, and environmental taxes. Now focusing on zinc production. The total zinc production for the third quarter of 2018 from our Australian operations was 57,595 tonnes as the ramp-up at Dugald River continued at world-class levels. Dugald River production was 38,377 tonnes of zinc in concentrate, with mining and milling rates at 100% and 112% of nameplate capacity. MMG now expected to produce 140,000-150,000 tonnes of zinc in 2018, above the previous guidance range of 120,000-140,000 tonnes. We are proud of our team at Dugald River and are excited to be operating a long-life, top 10 zinc mine in the world. Importantly, Dugald River will provide MMG with additional earnings diversification and increased exposure to zinc, a commodity that we believe has a very bright future. Our Rosebery operation produced 19,218 tonnes of zinc, with another record quarter for both mining and milling rates. On a rolling 12-month basis, Rosebery mined, milled over 1 million tonnes, reaching a new milestone in its more than 80-year history. It is pleasing that, in line with our operating philosophy, we have continued to improve productivity rates at our more mature operations in Rosebery and Kinsevere. Rosebery remains on track to produce 70,000-80,000 tonnes during 2018. C1 costs for zinc are expected to be in the range of $0-$0.15 U.S. per pound due to the significant contribution from by-product credits. Over the next 12 to 18 months, Rosebery will invest significantly in resource extension drilling, with the aim of extending the current five years of remaining life. This follows the recent investment in new mobile fleet, the successful completion of insourcing of mine development work, and completion of the new 25 training stamp this year. I would now like to hand over to the moderator for questions. Thank you, Jeffrey. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel a request, please press the pound or hash key. Your first question comes from Lawrence Lau from BOCI. Please ask your question. Hi. Thank you, management. I just got a question about the situation in DRC. You mentioned in the presentation that there's additional costs coming from the change in the 2018 Mining Code, including things like royalty, environmental tax, and import duties. Can you actually quantify a bit, say, how much cost increase you see coming from this change so far, say, on a per unit basis? Thank you. I'd like to pass. Yeah. Lawrence, it's Ross Carroll. Hi, Ross. Morning. We're probably not in the position of disclosure at the moment because we have got some estimates built into our numbers. But I think at the end of the year, we're going to have a lot more clarity, particularly on the super profits tax, and we'll be able to disclose it then. But it is sort of reasonably significant without being over the top. But, as you can see, the production's still very strong and our unit costs are expected to be at the bottom of the range. But we're probably just not yet 100% able to clarify that for you just yet. Oh, okay. Understood. Thank you. Yeah. There are no further questions at this time. I would now like to hand the conference back to Geoffrey. Please continue. Okay. I would like to thank you for your interest for joining us today. If you have any further questions, please follow up with our investor relations or corporate affairs team. Thank you. Goodbye.