Jupiter Mines Ltd

ASX:JMS

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, and thank you for holding. I would like to welcome everyone to the Jupiter Mines Q1 Call. Today, we have Jupiter Acting Chief Executive Officer, Scott Winter; and Independent Nonexecutive Chair, Ian Murray, to provide a brief update on the first quarter of 2023 financial year. And then we will open up to questions from the callers. I will instruct how to join the queue. And right now, I'll hand over to Scott. Thank you, Scott.

[William Winter, executive]

Thanks very much, Lisa, and good afternoon to everyone. Welcome to the Jupiter Mines' Quarter 1 results update. Like first and foremost, like to thank Ian for coming on, and I'll introduce Ian. He's going to be here through the session and also at the end to answer any questions.

So today, I'll hand to Ian in a moment, and then we'll go through just some of the highlights through the quarter results. And as Lisa said, we'll take questions on the end for anyone that has any particular queries.

So first and foremost, over to you, Ian.

[Ian Murray, executive]

Thanks, Scott. Just a question that some people will have on their minds is where are we with the new Chief Executive Officer appointment. In the last quarter, we said we would like to have an announcement and the person appointed by the end -- during this quarter and update the market in our quarterly. Unfortunately, we're not in that position. We do have a preferred candidate selected and we are going through the final negotiations with that person. And our aim is to be in a position to announce that person's appointment prior to our AGM later in July.

Obviously, that person will come in and drive the strategy of the company, which is something else shareholders are waiting for the company to articulate. But we believe it's right to have the Managing Director articulate that strategy for the company to all shareholders. So please bear with us on this appointment. We do have the preferred candidate, and we're just going through the final negotiations with that person. Thanks, Scott, back to you.

[William Winter, executive]

Thanks for the update, Ian. Appreciate that. Look, I'd now like to take you through quickly highlight and then a little bit more depth around the safety and production side logistics, talk about some costs and market outlook. Look, I suppose that I'll start, it's been a pretty good quarter at Jupiter. The range has sort of stayed away a little bit, and we've had a better production month. But just touching on some of the highlights.

Near on $60 million of EBITDA for the quarter. NPAT of around $38.5 million, which is better than last quarter. 750,000 tonnes of only high-grade sold, we've sort of put on low grade on hold at the moment so we all start following that as it's coming through. Safety is performing really well. I'll talk about that shortly. Graded ore is on target at around 200,000 cubic meters for the month. And we had a better overall in situ movement for the month, around 2.75 million meters, which is around sort of 400,000 better than last quarter.

High-grade production through the mill is about 780,000 tonnes, again, a little bit more than Q4. And overall production, 883,000 which was good. We're still seeing some impacts of logistics through Transnet. So we're 7% behind on overall land logistics. Talk about why that is beyond some of the rail outages as well. And our cash balance is about $64 million as compared to $75 million last quarter.

So touching on safety. Look, the no LTIs for the quarter. And if you recall, last quarter's TRIFR was 0.95. This quarter, it's down to 0.75, which is a terrific -- sorry, a terrific trend. Turning in the right way, a number of reasons for that, largely due to the safety program they're implementing across their own team plus the new ones contracts and other contractors in the business. They are focusing on my safety, my family, my community. They're driving some of the obligations through the supervisor team, through the statutory obligations and really working on some of the critical risk management in the business. And that's a rolling program that touches on all those critical risks over the next few months.

Moving off that, on the biodiversity program. No updates there from last, all progressing well. And again, the EMP3 work we're doing on the EMP3 around mine closure is still ongoing and moving on and going, so there's no updates there either.

On to mining production, look, we had a better quarter this quarter. As I said, less rain. We had a little bit in March, but it's certainly abated in April and May, and that always helps. So we can get a little bit ahead. Graded ore production and total movement were on target for the month, which is great. We are seeing the impacts that our general managers having with some of the programs, he's implementing with Moolmans, the contractor around efficiencies. So we're seeing some of the trucks set up, maintenance and some of the operational delays being reduced, which is a great sign for the operation.

We talked last quarter around a focus on removing waste in the barrier pillar. We've now finished that, which has exposed a large block of ore, which is now being mined. Actually, it's -- I wouldn't say almost finished, but it's largely being mined. We're now waiting for South32 to remove some of the ore on the other side, so we can bring the waste dumps back in and shorten some of the hauls again to reduce some of the costs.

We did see a benefit in the barrier pillar. We hit our geological intrusion, which actually replaced waste with low grade, which is a nice bonus, ultimately reducing the overall strip ratio. That has helped just get through the part of the waste in the barrier pillar a little bit quicker. Coincided actually with exposing cut 11 graded ore. So we now have quite a fair bit of exposed graded ore in the pit really to push through the plant. You'll see that coming through in sort of July, August and the production should be a little bit higher.

Again, I just want to make a specific note that we are high-grading. We're maintaining our mining rate at our life of mine strip ratio to make sure that we just keep the cost profile consistent. Our processing of high-grade ore was above target for the month. And again, because we put low-grade off in terms of sales, the overall production was slightly lower than our target. It will come on. It's been currently stockpiled on the ROM, ready to put through the plant when the market allows us to sell that at a profit.

And look, nice to see that the fine percentage coming through. High grade is a little lower than expected, which is a focus with the team at the moment to reduce some of the fines output through the mill.

On the logistics and sales, we again are being hampered through Transnet abuse with the power outages, some of the cable thefts. There have been some rail derailment. And weather has certainly affected some of that area as well. So we're at about 7% down. We feel that with truck road logistics, but I will say that the road logistics is -- it's available, but it's starting to show higher costs. There's a strong demand, as you would know, in the coal sector and the iron ore sector, so they are consuming a number of the trucks across the sector.

And you'll see fuel prices, and you probably felt that in your back pocket, that fuel prices are starting to increase. And that's not only here, but it's everywhere. So the cost of road transport is certainly increasing as well. That does not turn us off from looking at innovative solutions to push through different various channels to get our market -- I'm sorry, our product to market. Jupiter has always been one of those innovative companies at timing and, I suppose, leading the way in certain areas, the logistics, and trying to manage the costs, which have done quite well.

We shipped about 750 million -- sorry, 750,000 tonnes of ore for the month, which is slightly lower than planned. But that really is because we didn't ship any low grade. So we're on target with high grade.

If I move now to overall costs, as I said before, we had a pretty good month. Revenue was slightly down, but largely, that was 6% sort of attributable to sort of the tonnes and 3% down on what we expected the price to be. Our FOB cost for the quarter around USD 182 per dmtu compared to a plan of higher around the $2 mark. But this is lower as a result of a few things. One, the favorable geological conditions, so less cost in waste, which is good. We actually saw some improvement in losses that we run through the model, the financial model. So we actually had better recovery of the ore and also some of the expected higher costs that were -- and have been negotiated with Moolmans over the last 3 months have not flowed through to this as expected. But we do expect to see that increase coming in the new -- the next few months as we conclude some of those conversations with Moolmans.

The rail and road logistics, again, because the road was slightly higher, not too much, but slightly higher than expected. Our cost of production is around [indiscernible], which is lower than forecast, again last year a result of lower mining costs. And the -- as you would know, the shipping costs are slightly higher than what we -- what they have been last year. But again, they're on target -- they're on par with what we expected that to be, which is around sort of USD 1.90 to $2 per dmtu, which is quite high, as you can imagine. Look, our average CIF price achieved for high-grade lump is around $5.46. So we are still making quite a healthy margin through even the higher cost profile.

So I'd like to take us through a little bit of the market outlook over the last quarter. And it's been quite interesting, lots of dynamics happening through the market. If I take you through this deal, market first talked about the alloys and then moved on to the manganese ore that's how flow through it. The steel production obviously increased in the first quarter compared to at Q4, and I think that was expected through the completion of the Olympics and after the Spring Festival.

However, it didn't increase as much as everyone was thinking. And this is really a result of COVID coming into effect again and the lockdowns and the restrictions that occurred. And essentially, what happened is that affected the industrial and the construction sectors in China. The result of that is actually the steel mill started to build large inventories of steel. So again, we didn't start -- didn't see that flow into the alloy market. So with the lockdowns lifted in Shanghai, we saw the prices would start to rise off the back of the demand, but because you've got all the inventory is still sticking there, that needs to flow out before we see any effect.

Manganese alloy prices rose at the start of the quarter off the back of supply concerns. And this is largely as a result of Ukraine and Russia. Europe really didn't know where they were going to get their alloy from. And we started to see higher cost production in China, coupled with sort of downstream pressures, which has really squeezed the margins in China. Even factories, some of the factories in China have been asked to ease some of the production of ferroalloy in China. And I suppose the thing that was not expected was Ukraine came back into production of alloys into the market a little earlier than expected. So the supply squeeze lifted, so Europe started to see flow of alloys into their market.

India also has started to really start to increase and pick up some of the shortfall in the market as well. They do consume a lot of their own. They've got a large steel market themselves. But interestingly, another dynamic, they had a massive heat wave, which affected their domestic construction industry. And again, they didn't see the domestic demand. So whatever they produced in India started to export as well. So you're starting to see a sort of an excess supply of manganese alloy in the market. So near the end.

And again, that leads on to the manganese ore. So if you looked at the start of the quarter of both seaborne and the portside prices jumped at the start of the quarter. We did see quarter 4 was quite poor. But the start of this quarter, we saw restocking and GEMCO came out and indicated there was a shortage of oxide ore, so people started to get a little bit worried. So the upside price went through the high-grade -- manganese price went through the roof.

Semi-carbonate jumped on the back of that for no real reason other than many of these prices were going up. So it logically sort of fell back a little bit. And then coupled with what I was talking about before, the subdued steel sector in China and with all the inventories sort of been -- sort of consumed and the alloy sector being it's a bit of an oversupply that the prices started to fall. So we are seeing a slight sort of pressure on prices, which is interesting. And we're starting to see stocks in China now being consumed later -- sorry, the start of June, which is starting to show a little bit more support in regard to prices.

If you look forward, look, it's all very finely balanced, lots of parts of the puzzle, which is interesting. But I suppose the rest of the world, steel production is showing signs of improvement. But I think if you look back now that all of the lockdowns in China are starting to lift, those production of sort of general items have just starting to ramp up now. So the demand ex China is growing, but the -- I mean the example in the car market, you've got a lot of other components that are required to sort of see increased production.

And a lot of those companies have relied on other components coming out of China. So there's that slowed progress. And again, it's having an impact on the overall manganese price. But I suppose China has turned on a lot of economic stimulus as well. And this is going to have an impact. So we do see a positive resurgence in prices for manganese going forward in the next quarter.

Sorry, that was a bit of a long winded, but it's quite a dynamic market. A lot of things that impact that and that you need to be across a lot of items to have an understanding of where manganese itself is actually being priced.

Corporately, we've talked about EBITDA. We had a strong month. It's got a strong cash position. I suppose that what is dominating the corporate business at the moment is largely the conversations with Moolmans to secure that going forward, making sure that we've got the right contract in place, commercials to see Jupiter is secure and operating.

We have spent a considerable amount of time looking at the site and have specific sort of conversations around reinvesting. And I talk about reinvestment in some of the infrastructure, some of the materials handling where we see some terrific opportunities to reduce some of the -- further reduce some of the operating costs in there. So we are looking at capital investment in the materials handling part of the operation to -- and those should flow at the -- more towards the back end of this year for commencing some of those projects as they get through the Board.

They're really targeted improving cost in that part of the operation safety because there's some contractors there with equipment loaders and trucks that moving around that infrastructure area. And another important one is really improving the quality to manage the manganese grade, not that it's bad at the moment, but we certainly want to fine-tune that and improve and how we manage quality throughout the system and selling on to the train and to the customer. So there is a fair bit going on.

I'm sorry, the last point that I'll just touch briefly on it, and we'll certainly wait for the appointment of the managing director to, I suppose, talk about this in a lot more. But there is a lot of work going on, as we've said before, in the work we're doing corporately with some of the opportunities, the merger and acquisition opportunities that we're currently looking at. Our corporate adviser is working strongly at developing those. And again, we'll keep you well posted on progress as they come to life.

That concludes the update of the quarterly report, and I'd like to now open if there's any questions. Thank you very much. Appreciate it.

[Operator]

[Operator Instructions] We have our first question from Jon Scholtz.

[Jon Scholtz, analyst]

Just a question on the lower-grade stockpiles. Could you just give us how much is actually on site at the moment? And sort of what price would those low-grade stockpiles go for in this current environment.

[William Winter, executive]

The stockpile is building. That's for sure. There's a few hundred thousand tonnes that is currently in various stockpiles, both we've got some sitting on product. And sitting in on the one side. So we're not going to extend the cost to put it through the product side. That's the first part of it. The -- and the exact numbers, I can get back to you and we can go through easy enough. What they would go for. Look, the current price, if we're in the realm of sort of 5.30, CIF pricing doesn't trigger the sale of low grade. So we need prices to get us all very linked from to the high-grade price. We need that to increase another $0.30 or $0.40, I think, to trigger the low-grade sales.

[Ian Murray, executive]

Scott, to add to that is, obviously, any low-grade material would have to get trucked. So you've got the additional cost of the trucking. So what Scott and the team have worked on in the last quarter is just a pricing matrix, which looks at the different cost elements, together with the revenue side. So we know, should diesel go below a certain price. And makes price go above a certain price, we would then increase production through the trucking route because that is any marginal sales does go through our highest cost of export.

[Jon Scholtz, analyst]

Yes. That makes sense. And I mean, thinking about logistics, how is the negotiations on the next round of MECA looking at the moment?

[William Winter, executive]

Sorry, can you just say that one again?

[Jon Scholtz, analyst]

The rail negotiations, the next round, I think it's called MECA.

[William Winter, executive]

The MECA -- yes, it's currently underway. So yes, absolutely, it hasn't concluded at this point in time, but it is -- we don't expect too many things to change there at all, Jon.

[Operator]

Our next question is from Mark Fichera from Foster Stockbroking.

[Mark Fichera, analyst]

Yes. Scott, well done on the cost during the quarter. I just had a question regarding the expected increase in mining rates from the contractor. From what I understand with previous Jupiter management, they were looking at annual increases of 5% to 7% in terms of wages, contractor costs. I was wondering, can you give me maybe sort of a ballpark figure of what you're expecting in rates? And also how that compares with the current inflationary environment out there?

[William Winter, executive]

Yes. I don't want to jump at the increase yet because that's still something that we're working through. But I will say that it's more than 5% to 7%. And it's a bit hard to say because our budget has included in the -- some of the sort of the general expected increase. And over the last sort of 12 months, and certainly, I've been there -- we've already made some step change with the contractor, with increases. So some of the costs you're seeing today have already seen some of those cost increases flow through the mining side.

There is another change to come and to conclude, we -- that may will be backdated or may not be. We're still negotiating with that. It won't get backdated too much, but potentially back to the start of the financial year. But we're seeing it being a little more than what you would see in escalation today just purely because the rates that should be secured a while ago were very sharp, were very good. So we've enjoyed some low-cost and escalation, I think, is probably in the range of where you were talking them from sort of 8% range. In some areas that's even more and if you look at exposure, that's actually sort of taken a very sort of significant step up. But we should be able to give you a better indication once we've concluded the negotiations which aren't far away at all.

[Mark Fichera, analyst]

Sure. And then these rates, will they be locked in for a number of years? Or will they be just done on an annual basis?

[William Winter, executive]

No, I will say the schedule that will get locked the basis will be locked in. For sure, there will be escalations are baked into that so annually they'll increase. But it will be a term where those rates will be fixed.

[Mark Fichera, analyst]

Right. And just one more from me, Scott. Just on the -- obviously, you talked about the freight charges, and they were quite high. There's been some mixed messages out there in just across the general market that some companies are seeing rates probably going down. I was just saying they're still high. I was just wondering what your feel for the outlook, say, in the next quarter. We should be expecting rates still quite high? Or do you see some easing?

[William Winter, executive]

It's volatile. I think I expected last quarter that they would decrease. But I don't hold that view now. I think there's still a lot of shipping routes and channels that are finding their way with certainly the Ukraine sort of Russia issue. I mean a lot of routes are being reached sort of -- they're being rerouted. Different commodities are being rerouted and that's consuming sort of capacity in the shipping sector and another that's releasing some. So it's still volatile. I would think we're -- I mean we're in the sort of USD 50 to USD 60 per tonne range at the moment. I wouldn't see it drastically going under that. I wouldn't see it drastically going over that. I know that's a pretty broad range, but I -- there's nothing to show that it's going to significantly decrease at this point.

[Operator]

Our next question is from [indiscernible] investment fund.

[Unknown Analyst]

I just have a couple of questions. We've seen your peers, including Assmang and Eramet aggressively expanding over the last period. Or Jupiter's expansion plans to 4.5 million tonnes too on the cards?

[William Winter, executive]

The review of our capacity at Jupiter has been -- is on this year's budget. The one thing that we really want to cement and continue, it should be as a low-cost producer, and the comment I made before around looking at reinvestment in the asset is really about maintaining that and setting ourselves up for the next step going forward, and that's to keep our operating costs low, to keep our contractor sharp, keep our infrastructure low cost and efficient risk for going forward. So that being said, we are looking at the -- I think you would have seen in the past, the 4.5 million tonne expansion study.

Now that may be 4.5 or maybe 4, it may be -- I don't know the number, right? So we are doing that review this budget year. We're doing sort of a review of each of the pieces in the jigsaw puzzle that make our production profile, like the primary crusher, the secondary and the train load out, just to see where our bottlenecks are and where we need to invest. So that if we were to increase, then we know where to put our money. So yes, I won't say we're going to increase. I'd say we're going to review it this year, and we'll have an answer throughout this year.

[Unknown Analyst]

Okay. And then the last one, I think we spoke about the high grade and low grade. Just wondering what is the long-term effect on performance if we say experience an extended period of hard market conditions or tough market conditions, what is the effect of selectively mining out or sending out high-grade material? Is it going to cause as to in phase period later on in the future when we just got fines or can the mine sort of sustain the average grade for the remaining life?

[William Winter, executive]

Beautiful with the Kalahari is there is -- and we're not the only one. I mean we have 100 years of reserves. That's the next 30, 40 years open cut and then beyond that is underground. And we're not the only ones that have significant reserves of manganese ore at the current 36,5%, 37% grade. So I don't see that in the very short term being an issue. The market is finally balanced around from a price perspective, finally balanced around the volume that's going into the market, which is primarily high grade. And it will take more structural things like improvement in the rail system, increasing capacity in the rail and the ports to again change the structure of the market again as to whether or not low grade can be put into the market. So I think we are fine. There's enough reserves to maintain the current semi-carbonate production profile into the market into the foreseeable future.

[Ian Murray, executive]

Scott, the other comment is just on the strip ratio that the mining rate is keeping the strip ratio consistent. So it's not as if we're high grading and leaving the low grade behind. Reminding the low grade of stockpiling it, so it is available for the future. Not as if we have to then go back and spend a lot of money to access the high-grade areas.

[William Winter, executive]

Yes.

[Operator]

And our next question is from [ Charles Walford ], he is a private investor. We don't have Charles there. Thanks, Scott. We don't have any further questions in the queue.

[William Winter, executive]

Okay. That's terrific. I'd just offer Ian a chance, if you wanted to say anything further, Ian. If not, that's fine.

[Ian Murray, executive]

Thanks, Scott. So yes, it's been a mixed quarter for us. Obviously, the financial numbers are very good, which is great. Certainly, Scott and I came away from that international manganese conference in Cape Town, with a much better understanding of the potential growth in the Indian market, which does bode well for the manganese sector, together with the work going on in the battery space, using manganese in the battery space. So both of those are growth markets for the sector, and Jupiter certainly wants to be part of both of those growth areas. Thanks, Scott. Thanks, shareholders.

[William Winter, executive]

Thank you very much. Appreciate everyone for joining us this afternoon and until next quarter. Be safe. Thank you.