MMG Limited (1208) Earnings Call Transcript

Thank you for standing by, and welcome to the MMG Limited 2022 Fourth Quarter Production Report. [Operator Instructions] I would now like to hand the conference over to Mr. Jarod Esam, Head of Investor Relations. Please go ahead.

Hello, and welcome to MMG's 2022 Fourth Quarter Production Report Teleconference. This report's a discussion regarding operational performance of MMG assets in September quarter of 2022 and the outlook to 2023. Joining us today are MMG Interim CEO, Mr. Li Liangang; and CFO, Mr. Ross Carroll, together with other executive members. I'll now hand over to Liangang, who will discuss the highlights in the report, after which there will be an opportunity to ask questions.

Thank you, Jarod, and hello to everyone who is joining us today. As always, I will start my report with safety. As MMG, our first value is safety, and our operations recorded a total recordable injury frequency rate of 0.67 per million hours worked for the first quarter of the year of 2022 and 1.25 per million hours worked for the full year, which is higher than 2021 result of 1.09 per million hours worked. That is a 16% improvement on the level in the first half of the year. I'm pleased that our results represent a continuation of our strong TRIF performance when compared with our [indiscernible] peers. But there's still an opportunity for improvement, and we will never stop our efforts to eliminate injuries. Now to address our operational performance. In 2022, MMG produced around 305,000 tonnes of copper and 225,000 tonnes of zinc. The year provided some significant challenges for MMG, but a strong fourth quarter ensured that we met or exceeded our revised production and cost guidance at each MMG operation. Las Bambas copper production in the fourth quarter was 73,000 tonnes. On a full year basis, production of 255,000 tonnes was slightly above the revised guidance of 250,000 tonnes. Our portfolio was commissioned in the fourth quarter, which supported an increase in mill throughput. Las Bambas processed 13.5 million tonnes of ore in the fourth quarter, recording the highest total since 2020 and the second-highest quarter in the mine's history. Las Bambas mining activities in the fourth quarter was impacted by community protests that restricted access to critical supplies. Significant impact of reduced ore mine supply to the processing plant with increased [ 800 ] more volumes, resulting in lower average feed grades. Las Bambas C1 costs was USD 1.53 per pound, which was below our revised guidance range. Regarding community protests in Peru, I would like to provide an update. As you may be aware, since early December 2022, Peru has experienced widespread social unrest following the impeachment of Peru's President, Pedro Castillo. The widespread protests have caused disruptions along the Southern Road Corridor, affecting the broader mining industry. We are saddened by the casualties during the protests, and our first priority is the health, safety and security of our people, contractors, the broader community members as well as Las Bambas property. The continuous transport disruptions has resulted in the shortage of critical supplies, and we have been forced to progressively slow-down operations. And if the situation remains unchanged, the mine will be unable to continue copper production from 1st of February 2023 Peruvian time, with the operation starting a period of care and maintenance. In relation to the progress of our dialogues with communities with the efforts of our Las Bambas team, we have made progress in the dialogue process and the implementation of agreements during the fourth quarter across the 6 communities that participated in the mid-year protest, as well as with other communities located around the Heavy Haul Road logistics corridor. In January 2023, we resumed discussions with the Huancuire community and have established ongoing dialogue forums to discuss implementation of agreements with the Fuerabamba community. Unfortunately, all dialogue tables have been forced to pause due to security concerns amid nationwide protests. We look forward to providing these discussions once social peace is in place. Las Bambas has a world-class copper asset with significant growth potential, and is a significant contributor to the local, regional and Peruvian national economies. Now turning to the outlook for 2023. Las Bambas production is expected to be in the range of 265,000 tonnes and 305,000 tonnes of copper in concentrate. This is an improvement on 2022, but is subject to the swift resolution of the widespread Peruvian political protests and a resumption of stability in concentrate transport logistics. Subject to this social unrest, followed by reaching a comprehensive agreement with the Huancuire community, development of Chalcobamba deposit is targeting the second half of 2023. Regarding the costs, we expect Las Bambas C1 costs to increase to a range of USD 1.70 to USD 1.90 per pound. The cost escalation is driven by cost inflation on consumables, higher levels of concentrate transported, lower capitalized mining and increased development and maintenance activities deferred from 2022. From 2024, Las Bambas will benefit from the development of Chalcobamba, resulting in higher production rates which will partially offset the increase in costs. Moving on to Kinsevere. Copper cathode production of around 12,000 tonnes in the fourth quarter was an increase of 11% from the prior corresponding quarter in 2021. On a full year basis, Kinsevere production of 49,000 tonnes represented an increase of 2% from 2021, and was at the top end of our guidance. The better performance was driven by the resumption of mining activity, which supported a higher grade of mined oxide and increased supply of higher-grade third-party ores. Despite an environment of rising industry costs, Kinsevere full year C1 costs of USD 2.55 per tonne were at the lower end of our latest guidance, due to stronger second half production and good cost -- control of costs. The Kinsevere Expansion Project is also progressing well. During the fourth quarter, we completed all civil work for the cobalt plants and commenced the installation of equipment. We are now shipping the long-lead time equipment to the mine and have started earthworks for the new tailing dam. For this project, demand will see a shift to the mining and processing of sulphide ores and the introduction of a cobalt circuit, extending mine life by 30 years, and 39-year production up to more than 100,000 tonnes of copper equivalent production. We expect the first cobalt to be produced in the year of 2023. Copper production in 2023 will be constrained by the declining oxide ore grades as a result of the transition from the mining of oxide ores to the mining of sulphide ores. As such, Kinsevere copper cathode production for 2023 is expected to be in the range of 400,000 tonnes (sic) [40,000] and 48,000 tonnes. In 2024, we will see the contribution of the first copper from the sulphide field. You may have become aware that following our announcement in relation to Sokoroshe II and Nambulwa leases in October 2022, during the fourth quarter, we have filed arbitration proceedings against government-owned mining company, Gecamines, before the International Chamber of Commerce. Following a favorable preliminary ruling and engagements with Gecamines, the armed forces and third parties have now left both sites. We have continued our work at Nambulwa and conducted our first field visit to Sokoroshe II in December 2022, with the aim of resuming works in January 2023. I will now move on to our zinc operations, Dugald River and Rosebery mines. We are very pleased to report that Dugald River continues performing well, with 45,000 tonnes of zinc production during the fourth quarter of 2022, representing an increase of 4% on the corresponding period in 2021. Dugald River's mining performance improved sharply, achieving 522,000 tonnes of mined ore in the fourth quarter, which is the strongest quarter in the past 2 years. In addition to the strong mining performance, the processing team delivered a record-high annual recovery rate of 89.3% as they continue to drive incremental improvements for various optimization initiatives. On a full year basis, Dugald River produced 170,000 tonnes of zinc in 2022 within guidance. On the zinc equipment basis, Dugald River production exceeded 200,000 tonnes for the third consecutive year. Dugald River's 2022 full year C1 costs was USD 0.85 per tonne, lower than our revised guidance. This reflects strong production and good cost control despite an environment of rising industry costs. In 2023, we expect Dugald River to produce 170,000 to 185,000 tonnes of zinc in zinc concentrate. Meanwhile, C1 costs are anticipated to increase to the range of USD 0.90 per pound to USD 1.05 per pound due to increased mining costs in current highly-competitive contractor market and soaring Australian gas prices. To mitigate cost escalation, Dugald River in transition to an owner miner model for production activities and commence a long-term solar offtake agreements with energy provider, APA Group. The renewable energy provided under this contract starting from early 2023 will reduce the mine's carbon footprint and provide immediate energy cost savings. At Rosebery, the mine produced 13,000 tonnes of zinc and 5,000 tonnes of lead in the fourth quarter of the year, representing the strongest level of zinc production for the full year. On a full year basis, its production of 52,000 tonnes of zinc and 18,000 tonnes of lead was in line with revised guidance, whilst decreasing from 2021. The reduction is mainly a reflection of longer-term grade declines, COVID-19 impact on workforce availability early in the year, and resequencing of mining activities in the second and fourth quarters. C1 costs of USD 0.26 per pound was at the lower end of revised guidance, but higher than 2021 as a result of the lower production rates and lower by-product credits. As you may have become aware that there was a bushfire in the vicinity of Rosebery mine on 27th of December, which caused significant damage to the power infrastructure that supplies the mine. Our Rosebery Emergency Response Team has worked side by side with the Tasmanian Fire Service and local emergency services for putting the fire under control. Besides, we restarted full operations on 6th of January 2023, after the damaged cables were repaired. We are thankful for the strong support received from the Tasmanian government, local council, emergency services, nearby mining companies and our employees in enabling operations to resume as soon as possible from the bushfire. Rosebery zinc production for 2023 is expected to be between 55,000 and 65,000 tonnes with a C1 cost of USD 0.35 per tonne to USD 0.50 per tonne. This cost guidance range reflects the cost escalations experienced across the mining industry, lower anticipated byproduct credits, and increased TC compared to the year of 2022, which will be partly offset by higher planned production. I'm now happy to take questions with my exec members.

[Operator Instructions] The first question comes from Lawrence Lau from BOCI.

And I have 2 questions. First of all, regarding the guidance for 2023 for Las Bambas. I just want to know what's the assumption behind for the output guidance, because you have issued an announcement earlier that saying that [ supply ] will suspend production starting from today or so? So what's the assumption behind this? When do you expect the production to resume and when do you expect the production can reach the, say, normal level during which point of -- at which point of the year? And secondly, regarding Rosebery. I think in the announcement, you mentioned that you're exploring options to further extend the life of the mine. Can you give us more idea or more information as to what you can do, given the mine has been mining for many years already? Or is there any real possibility that we can do something significant?

Thank you, Larry, for the question. Maybe I'll ask Ross to take your first question, and then to get some feedback on your second question.

Thanks, Lawrence. In regards to the guidance, you will see that we have fairly or very heavily qualified it. And effectively, for us to get near the 305,000 tonnes, we would need to be pretty much commencing sort of full production within a week or 2, and then you can really work backwards from that. So roughly every month that we don't produce is roughly 25,000 tonnes of production. Now to be honest with you, at this point, we don't know how long the social issues in Peru will continue for. But I think, as I said, the 305,000 tonnes is basically business as normal within a week or so, and then you can sort of maybe take 25,000 tonnes off from every month moving backwards from that. Does that make sense?

I think you made it pretty clear.

Yes. And [indiscernible] will answer the question on Rosebery for you.

Lawrence. Just in terms of the life extension program for Rosebery, there's 2 areas mentioned we're focusing on. One is an exploration space, so we put a 2-year exploration program to really focus on finding the additional resource for Rosebery to continue to grow. In terms of TSF capacity, so our top of [indiscernible] and then [ Northern ] Creek area, we are investigating. We're also expanding other areas and options for further studies. Thank you.

The next question comes from Martin Ritchie from Bloomberg News.

I just wanted to understand a bit better the situation on the ground and the relationship with the communities around Las Bambas in light of recent events. I think you said that the -- any negotiations with the community have been on pause. Are there concerns that some of the relationships you built up over the past year through negotiations maybe sort of set back to 0, or at least set back to some extent by the tensions and the protests we've seen recently? Because previously, you're talking about community issues. Now, you're talking about widespread nationwide social protest. Just wondering what you think that looks like for the relationship with the communities if we sort of get back to normal in the next week or 2?

Yes. And I will have [Troy ] to have feedback. Troy?

Martin. I think the fluctuation for us is that the second half of last year was, I think, a general improvement through the dialogue processes with the 6 communities, 4 of which have substantially completed and the last 2 communities, we had a good constructive program ahead. The current disruptions are purely logistics. It's not because the relationship has changed in any way. I mean, indeed, we've started the discussions with Huancuire around the 10th of January, but good and clear work plan was set. And the only reason we've suspended those is because we just can't particularly get there, and the community can't come together because of roadblocks. To your question, the relationships improving from the back of last year and have not changed, and we're confident that we can work through to agreements. The frustrations that I think both community and ourselves is that current levels of social unrest mean that -- and state emergency controls mean that logistics transport and getting together is impossible, and we both like to see those situations improve. So we're still very hopeful negotiations can commence, but as Ross said, it's a bit dependent on how the social peace is restored and whether we can get logistics and transport up and running.

[Operator Instructions] Next question comes from [Chris Cheung] from Balyasny Asset Management.

I've got 2 questions. The first question is regarding the medium-term production trajectory, so how much copper and cobalt production should we be expecting from Las Bambas as well as Kinsevere after those new expansion projects like Chalcobamba's and KEP are completed? And in particular, for the guidance for Las Bambas this year for copper, I mean, how much of that will be coming from Chalcobamba's versus Ferrobamba's? And that's my first question.

Yes. Chris. In regard to medium-term guidance, obviously, at Las Bambas, it's difficult to predict and it is going to be dependent on when we finally get access to Chalcobamba, but I think we've pretty consistently said that once we get up and running, we should be doing in that 380,000 to 400,000 tonnes a year sort of ballpark. But as I said, it is very hard to predict now. But we'd be hopeful of getting back to those sort of levels next year, assuming that the sort of broad civil unrest is resolved and also we get access to Chalcobamba. And then in regard to KEP, once it gets up and running and we've got production from the sulphide plant in -- towards the end of 2024, that will be running at about 80,000 tonnes of copper and 4,000 to 6,000 tonnes of cobalt. So that's -- yes, that's the medium-term question. And this year...

I have another question -- sorry.

And for this year, we're probably looking at a relatively immaterial contribution from Chalcobamba. If we can't get access to the second half of the year, you may only be talking 15,000 or 20,000 tonnes from Chalcobamba, but then it would have a big impact next year.