Jupiter Mines Ltd

ASX:JMS

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, and I would like to welcome everyone to the Jupiter Mines Q1 call. Today, we have Jupiter's Chief Executive Officer, Priyank Thapliyal, to provide a brief update on the first quarter of the 2022 financial year. After the update, we will open up to questions from the callers. Thank you, and please go ahead, Priyank.

[Priyank Thapliyal, CEO & Executive Director]

Thanks, Erica, and good afternoon, everyone, and welcome to the First Quarter 2022 Jupiter Mines Conference Call. Let me start off by saying that the first quarter of this financial year posed a couple of challenges, the major one being that both the Northern Cape, where the mine is located, and Gauteng, where the head office is located, went through the third wave of COVID, which was much more worse than the first and the second wave. And that had some impact on our operations. The wave in the Northern Cape is now tapering, but the wave in Gauteng is still going very strong. So that has some implications on the day-to-day running of the operations. The good thing is that, as all of us know, JP's success relies on transit, and most of the transit operations are located in the Eastern Cape. And Eastern Cape has, until now, being immune to the third wave. So while the operations have had an impact on account of COVID, the logistics, the transmit has pretty much been going as per normal. And that is reflected in the numbers. In terms of mining volumes, we mined about 4 million bcms, but we had substantial hiccups on account of mining efficiencies, which led to a loss of around 1 million bcm of mining production. So those losses were largely on account of mining efficiencies. The blasting was not done properly, which resulted in big boulders in the mine, which resulted in inefficiencies in terms of transporting it from the mine pit to the primary crushing, where we had to use the pecker to break it down into smaller product before it could be fed into the primary crusher. So that was largely the reason why we had these losses. What we have done since then is it's due to 3 work streams. The first work stream is to look at the mining efficiency where we are looking at the blasting techniques, the inefficiency in terms of the trucks and the excavators, the maintenance philosophy. And lately, we have seen a surge in absenteeism, people using COVID as one of the reasons for being absent. So the shift contingent has been smaller than what we have had historically. So we are looking into all those techniques, all those work streams to see like what we can do with the mining contractor to increase the efficiency. What we are also contemplating is looking at bringing new equipment on the site. Moolmans, the mining contractor, has received funding approval to do so, so we are now factoring that into our medium-term mining plan to see what sort of OpEx we can achieve with the new mining equipment and also how the efficiencies and all they'll improve. That said, the efficiency has improved since we have instituted this project even with the old equipment. But with the new equipment, it will be much, much better. 3 out of the 5 escalators can potentially be replaced with the capital, which has been allocated to Moolmans, so we are looking at that. And we are also looking at owner mining as one of the options. So we believe that all these work streams should be finalized over the course of July, August. And at that time, we should be in a position to take a decision on what we need to do on the mining front. So that is as far as the mining is concerned. On the production side, we produced about 1 million tonnes of material. 800,000 tonnes of that was on the high-grade product, and 250,000 was roughly the low-grade product. What we are also looking at is bringing the secondary crusher, what we've called like the GP 500 plant in-house that will result in some cost savings, which was always the plan. It was outsourced. And once everything was stabilized, we will plan to bring it in-house. So we are now at that stage, and we are looking into that as an option of further cost reduction. In terms of logistics, we raised close to 860,000 tonnes to the port. Out of that, about 560,000 tonnes was on the rail and 300,000 tonnes was on the road. And in terms of sales, we shipped about 845,000 tonnes of product against 630,000 tonnes was primarily the high-grade lump and fine, and the remaining was the low-grade product. So that's how the operations have basically phased out. Suffice to say that even at these low manganese prices, the operations have been cash positive, and that is depicted in the numbers. In terms of logistics, a couple of things have happened. Now we have stabilized the 60,000 tonnes per month run rate through Lüderitz, 720,000 tonnes over the course of the year, which, against previous option where we had to track it, results in almost ZAR 65 million to ZAR 70 million of cost savings. And what we are also looking at is the co-loading of these Lüderitz vessels through the Port of Mokha against the previous option of through Port Elizabeth. And that should result in bigger shipment sizes and should lead in cost reduction on account of logistics. We are also looking at options of increasing the shipment size from other ports from 44,000 to 55,000 to 60,000 tonnes. And that, again, is one of the options for cost reduction. So all these options are basically being looked at. And as I said, we should have a finality on these over the course of July and August. In terms of the market, I think it's fair to say that over the 5 or 6 years of operations on the FOB basis, the average price which we have realized in the first quarter has been the lowest. That said, on the CIF basis, the price is still pretty strong. So the major theme, which has basically been faced by the manganese industry is the high freight cost, and that is largely on account of the competition. The ships are facing from other commodities, which have basically trading at very high and robust prices. In the past, our shipment cost to China would have been something like $0.60 to $0.70 per dmt. And right now, we have to pay close to $1.25 to $1.30 per dmtu. And I do not think this is going to change over the course of the next 3 to 6 months. The good thing is that we are seeing a slight reduction on account of the trucking tonnes coming out of South Africa. But again, we have only seen that over the course of May. So we will be following and tracking like what goes over the course of the next few months to see whether there's been like a genuine downturn in terms of trucking tonnes out of South Africa. So I think that in a nutshell is what I would like to highlight as the major achievements, our focus over the course of the fourth quarter and what we plan to do over the next 3 months. And with that, I'm more than happy to answer any questions.

[Operator]

[Operator Instructions] We have our first question from Stuart Dodd from Renaissance Asset Management.

[Stuart Dodd, Portfolio Manager]

Just wanted to ask the initiatives that you're looking at, the cost reduction initiatives, is there any capital associated with any of those?

[Priyank Thapliyal, CEO & Executive Director]

Hi, Stuart. So I think I highlighted 2 or 3 things. The first was the JP 500, the secondary crusher, which we are trying to bring in-house. So the capital for that has already been incurred. So it is largely a function of what was our growth is now being brought in-house, and that will provide some cost savings. So that was the first one. The second one was the co-loading of the vehicles of the vessels from Lüderitz with Mokha. Again, we have been doing that since March, April. So if we can do that on a sustainable basis, we know that the ships will be bigger, and that will lead to some cost reductions. So that is the second one. The third one, which we are looking at, is mining where Moolmans have conceptually been approved, I think, close to ZAR 500 million of capital to deploy for GP equipment. And what we are now looking at is with those bigger equipment with our revised medium-term plan, like how everything is going to dovetail and what sort of efficiency enhancement will we achieve. And if we are able to achieve that on account of the bigger equipment, then that will no doubt lead to cost reductions, but we have to see what sort of proposal comes from Moolmans on account of that. So those are the 3 things. The fourth thing which we have also been able to do is switch from our own power generation to the SCON grid, and that project was completed over the course of, I think, March, April. And that, again, has already been costed, and the money has been spent. I think it was close to ZAR 50 million, ZAR 60 million, and we hope to achieve ZAR 30 million, ZAR 35 million of cost savings per annum. So that in a nutshell is like what we have spent and what we hope to save in terms of the OpEx going forward.

[Operator]

We have our next question from Mark Fichera Bechara from Foster Stockbroking.

[Mark Fichera, Executive Director & Head of Research]

Yes, just a question, you mentioned about trucking volumes being reduced. I was just wondering, are you seeing this across all the mines in the belt? Or are there any particular mines that are being impacted more so in terms of trucking volumes?

[Priyank Thapliyal, CEO & Executive Director]

We have -- as far as GP is concerned, we have not seen any impact on our trucking tonnes. As I think I might have mentioned in the past, now the low-grade volume, the low-grade product is part of our business plan and not seen as a byproduct. So the trucking tonnes are quite critical and crucial for our overall business plan where we hope to ship 2.4 million tonnes on the rail and close to 720,000 tonnes through Lüderitz, and trucking is integral to that. As I said, we are seeing like a slight dip in May, and that is largely to do from the smaller players, but we need to see like a consistent pattern. What we have seen in terms of numbers that in November of 2020, that was close to like 730,000 tonnes shipped via trucks that month. And in May, that number is down to like 300,000 tonnes. But again, as I said, I want to see like 3 or 4 months of consistency before we can form a view on that.

[Mark Fichera, Executive Director & Head of Research]

Right. And just 1 further question. I guess on the -- just regarding the GP expansion, I guess, given you're contemplating these other initiatives, I guess that you want to make sure those initiatives are vetted down and, therefore, I guess, in terms of any expansion plans that will be sort of on hold for another 12 months?

[Priyank Thapliyal, CEO & Executive Director]

As I said, Mark, the critical number for me is 1.5 million bcm on a consistent basis. We need to see that for 3 months. We are not seeing that. And this efficiency exercise, this new equipment exercise is largely to ensure that the ongoing operations do not face the hiccup, which I have mentioned in this conference call. So once we have ticked that box and if the same equipment can then enhance our productivity to meet the 1.5 million bcm, then the trigger for the expansion will have been executed. Until then, we are not going to pull the trigger on the expansion.

[Operator]

[Operator Instructions] We have our next question from [ Nick Worrall ] from 708 Capital.

[Unknown Analyst]

Noting the recent share register movements from your BEE partner and their previous desire to get listed either on the JSE or maybe another exchange, is there any way from list that the ship vehicle itself on the ASX? And would that be a value unlocking tool for the benefit of all shareholders?

[Priyank Thapliyal, CEO & Executive Director]

Nick. I think at the time of the listing, one of the key things which we mentioned when we went and met prominent shareholders was that our desire is that Jupiter not only holds half the chippy and half the marketing rights, but if, at all possible, it should be the vehicle which lists like all of chippies, 100% of the product marketing, 100% of the equity and Jupiter. And that has always been the intention, but it has to be done on commercial terms, which work for both parties. You're absolutely right. Our BEE partner has tried, I think, 2 or 3 times to list on the JSE. And for all sorts of methodic reasons, they have failed. And Jupiter stands ready to see if a good commercial deal can be done for our shareholders, which provides them the benefit of taking the full ownership of the asset. What we, I think, all need to appreciate is that Jupiter is a clean way until it's Australian listed. It provides the liquidity. And depending on every shareholder's perspective, they can get in and get out, enjoy the dividends, but they have much more flexibility and full control on the shareholding. And like our BEE partners, and that requires a proper compensation commercially for our shareholders. So yes, the desire is there on both sides. It's just that we have not been able to agree the proper commercial terms, which compensates our shareholders for that additional risk.

[Unknown Analyst]

Yes. In saying that, you are talking about buying out the BEE partner?

[Priyank Thapliyal, CEO & Executive Director]

[indiscernible] shares potentially.

[Unknown Analyst]

Okay. Got you. Because...

[Priyank Thapliyal, CEO & Executive Director]

We have tried to -- they have tried to list 3 times on the JSE, and they failed. And I don't think anything has changed for that result to change. I mean miracles do happen, but [indiscernible].

[Unknown Analyst]

Got you. And I noted that you commented previously that they said it make sense at some stage to combine the 2 halves together. So it's just a question of how and when.

[Priyank Thapliyal, CEO & Executive Director]

Yes.

[Operator]

Our next question is from Richard Logan, who is private investor.

[Unknown Analyst]

Yes. I missed the start of the call, so sorry if you already answered this, but it looks like sales are nearly doubled over the first quarter from last year. The marketing fee income is double, nearly double the EBITDA or as nearly double, but the net profit is exactly the same. What's going on there? Why is everything really much higher income, but profit is the same as first quarter 2021?

[Priyank Thapliyal, CEO & Executive Director]

I think the first quarter of 2021, there was a severe hit in production on account of COVID, so that's why those numbers are much, much lower than what they are this year. The numbers were much higher because there were some foreign exchange gains, and all their U.S. dollar was substantially different to what we had assumed in our business plan and also much different to what it is right now. It was purely on account of FX and some accounting issues. But in terms of the cost of production, the costs were slightly higher because we had to pay for some of our contractors when the operations were put on a lockdown, although for a short period of time.

[Unknown Analyst]

Yes. Okay. So -- yes. Was there a much higher tax or something because your EBITDA...

[Priyank Thapliyal, CEO & Executive Director]

No. Tax we only pay like every 6 months, so the tax is largely captured in the second quarter and the final quarter.

[Unknown Analyst]

Because it's just like looking at EBITDA for this quarter was ZAR 1.7 million, and the previous year was ZAR 1 million. So it's quite -- up quite a lot, but the profit after tax was the same. So it's like...

[Priyank Thapliyal, CEO & Executive Director]

I'm not sure which numbers you're looking at, but maybe you can pick it off-line with Melissa.

[Unknown Analyst]

Yes, it's Page 2 on the quarterly report that came out today.

[Priyank Thapliyal, CEO & Executive Director]

Yes. I think maybe the best thing is you pick it up off-line with Melissa. I've given you the gist, but she can share the details with you.

[Operator]

[Operator Instructions] There seem to be no more questions at this time, so we will conclude the question-and-answer session. Thank you, and back over to you, Priyank.

[Priyank Thapliyal, CEO & Executive Director]

Well, thanks, Erica. And once again, thank you to all the shareholders for their support, and I'll speak to you guys next quarter. Thank you so much.

[Operator]

That now concludes the Jupiter Mines Quarterly Call. On behalf of Express Virtual Meetings, we would like to thank you for attending, and have a good afternoon.