Jupiter Mines Ltd

ASX:JMS

Earnings Call Analysis

Strong Quarter for Jupiter Mines with Challenges Ahead

In the recent earnings call, Jupiter Mines reported a solid operational performance with 1.04 million tonnes sold, up 12% from last year. Production hit a record 1.21 million tonnes, marking a 54% increase year-over-year. However, reduced manganese prices are expected to lower volumes in the upcoming December quarter. The current cash balance stands at AUD 97 million, supported by inventory buildup amid low manganese prices, which averaged $4.24, down from $5.50. Looking forward, steel production growth of 1.2% is anticipated in 2025, potentially stabilizing manganese prices in the future.

Strong September Quarter Performance

Jupiter Mines reported a robust operational performance in the September quarter, achieving manganese ore sales of 1.04 million tonnes. While this marked a 3% decline from the previous quarter, it still represented a significant 12% increase compared to the same quarter last year. The company produced 1.21 million tonnes of manganese ore, a remarkable 33% rise from the June quarter and a 54% increase year-on-year. This production rate outstripped sales, indicating a strategic build-up of finished product stockpiles in anticipation of potential wet weather disruptions expected between November and February.

Price Pressures and Future Guidance

Despite robust production, the company anticipates lower sales volumes in the current December quarter due to declining manganese prices. Average spot prices fell from USD 4.24 per dmtu in the June quarter to USD 3.74 by the end of September, stabilizing later at approximately USD 3.71. This price reduction, influenced primarily by softening demand from China and increased supply, is expected to limit sales moving forward. The company forecasts strong steel production growth of 1.2% for 2025, expecting this to support stabilized manganese prices over the coming months.

Cash Flow and Financial Health

Financials for the quarter reflected the challenges posed by lower manganese prices, with both earnings and cash inflow declining from the previous quarter. However, Tshipi's cash balance grew to AUD 97 million, bolstered by an inventory build and effective management of accounts receivable, which remains elevated due to high shipment volumes. Jupiter reported a minor decline of AUD 4.9 million in cash, attributed entirely to dividends paid to shareholders.

Strategic Focus on Production Levels

Going forward, the company does not intend to maintain the recent 4 million tonne per annum run rate, opting instead to align production levels more closely with prevailing market conditions. This strategic approach aims to maintain operational efficiency without overextending in a low-price environment. The company has indicated an ongoing evaluation of the optimal output level from Tshipi, preparing to adjust production as needed based on manganese prices and market demand.

Outlook for Dividends and Corporate Strategy

Management confirmed that the next dividend consideration from Tshipi would occur after the December 31 period, promising updates in March following operational assessments. Additionally, Jupiter's management is focused on executing its corporate strategy, which includes evaluating potential mergers and acquisitions within the Kalahari Manganese Field.

Investment in High Purity Manganese

The company is also pursuing opportunities in high purity manganese, planning to establish a conversion facility in the U.S., leveraging available grant funding and emphasizing its competitive advantages in this emerging market. Plans for a pilot plant are underway, with ongoing discussions with potential customers to ensure future demand aligns with production capabilities.

Earnings Call Transcript 2025-Q1

[Operator]

Thank you for standing by, and welcome to the Jupiter Mines Q1 Investor Call. [Operator Instructions]

I would now like to hand the conference over to Mr. Brad Rogers, Managing Director and Chief Executive Officer. Please go ahead.

[Brad Rogers, executive]

Well, thanks, Sally, and thanks, everyone, for joining. As usual, I've got Ian Murray, our Chairman on the line; as well as Melissa North, our CFO. As usual, I'll just give a few opening remarks, and then we will throw the line open for any questions that might be out there.

I'll be providing the key comments summarized from the September quarterly that was released to the market this morning. And for those that have had a chance to read that quarterly, you will have seen that the September quarter was a particularly strong quarter operationally. We had sales of 1.04 million tonnes for the quarter, which was actually 3% down on the June quarter, which was a very strong quarter, capitalizing on high manganese prices prevailing in that quarter. But the September quarter figure I just mentioned was 12% up on the prior comparative period the same quarter last year.

From a production perspective, volumes were even higher than that. So 1.21 million tonnes of manganese ore produced for the quarter, which was 33% up on the June quarter and 54% up on the prior comparative period. That represented in the month of August a record achievement out of the production circuit, which is obviously pleasing as we look forward to our strategy and think about the capacity of Tshipi to potentially do more on a sustainable basis. That represented a run rate from a sales perspective of over 4 million tonnes per annum annualized compared to an average over the last 6 years or so of about 3.4 million tonnes. So strong sales, even stronger production.

The strong production, and the production being higher than that sales level I just mentioned, was intentional and targeted towards building finished product stockpiles, which will stand us in good stead, ahead of potential wet weather disruptions, which at Tshipi occur between about November, about now and February. So to the extent that there are some wet weather events at the mine that may flood the pit, then we'll be prepared with finished products stockpile to continue the desired run rate, notwithstanding any weather interruption.

I will say though with abating manganese prices, and I'll talk about that in a moment, we should expect volumes the current December quarter to be lower than the very strong sales and production figures that I've just mentioned in the September quarter.

I've talked before about how sales work at Tshipi. One of the reasons why sales were still elevated during the September quarter, notwithstanding stocked manganese prices reduced through the quarter, was that those sales were volumes that had been priced in the June quarter. So as we've come through the September quarter, manganese prices reducing, we should expect to see somewhat lower volumes when we're talking about the December quarterly post calendar year-end.

Mining was strong in the quarter as well, 4.1 million bcm, representing a strong mining performance and that was 27% up on the last quarter. So sales production mining perspective, all very strong figures, and that was pleasing for the quarter.

Logistics was down slightly, 14% volume-wise, down on last quarter, and that was reflecting lower road volumes given the manganese price environment. Obviously, road haulage is the most expensive way of getting our ore from mine to port. FOB cost of production at USD 233 per dmtu, was 7% down last quarter and broadly in line with where I've sort of been guiding where we're expecting Tshipi's cost to come in given inflation and also given the exchange rates.

The manganese market the quarter was softer than last quarter, reasonably significantly softer. Average spot prices were USD 4.24 per dmtu compared to $5.50 per dmtu for the June quarter. By the end of the September quarter, so 30 September, the price had reduced further to $3.74. Prices have stabilized through September and October. Today, the price is $3.71. So relatively low levels, but it has stabilized at those sorts of levels through September and October.

The FOB price today is $2.97. The prices I've just been quoted were CIF basis. And the FOB price, to give you a feel, has varied between about $2.94 and about $3.05 pretty much for September and October. So relatively low levels. The kind of average FOB price for the last 5 or 6 years is around $3.80. So the price has stabilized at a much lower level that, but it has stabilized. It hasn't kind of continued this sharp downward trajectory that it was on through the course of August. So that's good.

The reduction in price that we saw through August and the reason why it's much lower than average today really is a function of Chinese demand, which has softened. And sentiment around Chinese steel production and the profitability of steel mills and those sorts of factors has driven steelmaking material prices, including manganese, lower. There has also been through July, August, September, even an increased level of manganese ore exports, mostly from South Africa, and Tshipi volumes have been part of that.

So the main factor in manganese prices reducing through the period as we've just talked about is demand related, but supply has exacerbated that. With lower manganese prices prevailing as we just discussed through August, September, October, there has been a correction on the supply side. So you have manganese ore sales through October, November and I dare say for the next few months being at lower levels we've observed through June, July, August, September. That will take awhile to flow through to China.

And so we've seen the supply side direction to low manganese prices, as you'd expect, already coming through at the sorts of prices as you can see in our quarterly that were observed through the September quarter. Tshipi was profitable and cash generative, but other manganese mines aren't. And so naturally, those mines, in that situation, pull back on their own production, and that helps to support and stabilize the manganese price, which appears to be what's underway right now.

Tshipi rates were lower through the quarter, and that's good, that helps. And you'll see in the quarterly that shipping rates today are around USD 27 a tonne for our shipping, and that compares to $30.60, which was the average through the June quarter.

Looking further out, looking at next calendar year, we included in the quarterly some World Steel Association forecasts. And on the demand side, what the World Steel Association is expecting to occur next calendar year 2025 is for growth in steel production, steel demand of 1.2% comparing to a contraction of 0.9% this year. And so most people are expecting that factor on the demand side as well as moderating manganese ore supply to start to support improving manganese prices over coming months and as we move into 2025.

From a financial perspective, as laid out in the quarterly, as you'll imagine, our financials were mainly driven by the manganese price quarter-on-quarter. So earnings and cash both positive, but both lower in their generation than in the June quarter. From a cash perspective, Tshipi's cash increased to AUD 97 million. There were some accounts receivable unwind in that, but accounts receivable is still relatively elevated, and that's not surprising given the high volumes of ore shipped through the September quarter. And so that accounts receivable unwind should be a factor in the coming quarter or quarters as well.

That increase in cash at Tshipi to $97 million occurred notwithstanding, as I mentioned before, there was an inventory build during the quarter where we produced more manganese ore during the September quarter than we sold. And so that was a good outcome that we saw an increase in the cash balance, and that occurred notwithstanding low manganese prices and notwithstanding a bit of an inventory build as well. Jupiter's cash was down $4.9 million quarter-on-quarter, but that was entirely because of the dividend that we paid to shareholders during the September quarter.

So in summary, strong quarter from Tshipi operationally in some areas, very strong. And again, Tshipi demonstrates itself performing well in a weak manganese price environment. And Tshipi has been around a long time and has performed well through the cycle, and it's performed well again in the September quarter across the areas that I mentioned against a poor manganese price backdrop. Prices are low and were low through the September quarter, but they've stabilized.

And we are expecting based on the observed metrics that I mentioned a moment ago, hopefully, stronger steel demand according to World Steel, but also we can see moderating manganese ore supply that manganese prices have commensurately stabilized and should see some support over the forward period.

From a Jupiter perspective, in addition to providing ongoing support to Tshipi, we're obviously focused on execution of our own corporate strategy, and we are planning to provide an update on where we're up to in relation to the strategy to shareholders this quarter.

So those are the key points I wanted to draw out of the quarterly. Again, feel free to go through the greater detail in the quarterly in your own time.

But Sally, I'll see if there are any questions on the line now, please.

[Operator]

[Operator Instructions] Your first question comes from Adam Baker with Macquarie.

[Adam Baker, analyst]

Brad and team, thanks for the color on the inventory build during this quarter. I'm just wondering how you're seeing Tshipi output for the rest of FY '25? And whether these production and sales rates can be maintained? There's a couple of quarters now where you've achieved sales of over 1 million tonnes. Can that be sustained moving forward? And likewise, for production, can these production levels be maintained moving forward as well?

[Brad Rogers, executive]

Yes. Thanks, Adam, for the question. So you'll know that in the strategy that we've announced to market, we have, as part of the second in the growth part of our strategy, a piece of work aimed at determining what is the right level of output from Tshipi and what's the right time if we were to increase that level of production to move to that higher level. So that piece of work is underway. And the idea with that would be to step up to a level at a targeted period of time and stay there.

That's not what we're doing right now. We've gone through June quarter with high manganese prices and moved into a September quarter where we're, in part from a sales perspective, delivering against prices that were executed towards the tail end of the June quarter and also in July. So that kind of explains why sales were elevated. We don't intend to stay at that 4 million tonne per annum run rate for the moment.

From a production perspective, that was high in the quarter in part to deliver against those higher sales volumes in part to build a bit of inventory, as I said, ahead of the wet season. So given where manganese prices are, given that we're ongoing with that piece of work I mentioned before, you shouldn't expect that we're continuing to deliver around 4 million tonnes per annum for the moment. That's not the intention. But what the performance does do is obviously demonstrate our ability over a reasonably prolonged period of time to achieve it within the existing flow sheet and crushing circuit. The rate-limiting step on that volume is the crushing circuit.

I'd also say that we are road hauling the stretch tonnes. We have a rail allocation of just under 1.8 million tonnes and road haulage is the most expensive way of getting our ore to port. Obviously, you've seen through the financials that notwithstanding lower manganese prices, it's been profitable to road haul tonnes through this quarter, but it's definitely less attractive to do that when manganese prices are low. And that's exacerbated if we're doing it with low grade. And so we're getting lower prices again for low grade.

So there's not a huge incentive to keep running at that sort of rate with these manganese prices prevailing. And so for all of those reasons, long answer to your question, Adam, I think we'd be looking to pull back somewhere between that average level and where we've been in June and September. But it gives us the ability to prove to ourselves that on a tactical basis, manganese prices improve, we're able to capitalize, but also the flow sheet stands up to a higher level of volume.

[Adam Baker, analyst]

And maybe just the stockpiles at Tshipi, given you've had that bit of inventory build, is it just the inventory build from this quarter or additional high-grade stockpiles in addition to the low-grade one?

[Brad Rogers, executive]

Yes. We normally don't run -- haven't been running a kind of excess of high-grade stockpiles. And obviously, through June, we were looking to maximize the amount of high grade we could ship out, Adam. So it really was just this quarter. So if you look at the kind of amount of high grade that was produced in excess of the sales in the quarterly, that sort of gives you a bit of a guide, and it's really just, again, focused on having a bit of mitigation capacity in the stocks through November, February. Obviously, if manganese prices hopefully improve and we see a little less wet weather than we might, then it also gives us the ability to perform on the upside.

[Operator]

Your next question comes from [ John Schultz with Arganoff ].

[Unknown Analyst]

Brad and team, a few questions. Maybe first one, just on the Tshipi distribution. Could you give us an updated timetable on when the next distribution would likely occur?

[Brad Rogers, executive]

Yes. So thanks, John. You know that there are 2 times where Tshipi considers a dividend per year. We're on an Australian financial reporting timetable, both Tshipi and Jupiter now. And so the next time that a dividend from Tshipi would be considered would be after the 31 December period ends. And it's, I'd say, March would be when you should be thinking about that, probably late March in line with the interim financials when that would be decided.

The payment of a dividend from Jupiter is obviously a 2-step process. There's a dividend declared from Tshipi, the Board of Tshipi and then the Board of Jupiter reviews a dividend off the back of that. And as a reminder, Jupiter's dividend policy is that we'll pay a minimum of 70% of any dividend that we receive from Tshipi or any other asset in which we're invested. So to answer your question, after 31 December, but obviously a lag to that for the completion of financials and the consideration of the dividend. So the next one would be communicated in March.

[Unknown Analyst]

Okay. Great. And could you give any update on the talks with Ntsimbintle and potential Tshipi consolidations and what else is happening in the Kalahari Manganese Field?

[Brad Rogers, executive]

Yes. So growing Jupiter both in terms of production at Tshipi, but also M&A growth within the Kalahari is part of our strategy. And there are numerous options that we can work on. Obviously, it comes down to opportunity and executability and some of those factors across the various opportunities in the field aren't completely controllable by Jupiter.

The second thing I'd make is obviously, those discussions across any opportunity are commercial and confident. So I'll provide in the strategy update just prior to our AGM as much additional color on all elements of the strategy as I can, but people should expect that it will be until there's something that's announceable relatively light on detail given confidentiality, but we are working through all elements of our strategy on an ongoing basis.

[Unknown Analyst]

Completely understood. And then maybe just one more. So we've seen some money in the U.S. being given to high purity manganese please. How is your strategy going with the high purity manganese? And is there a U.S. angle there as well?

[Brad Rogers, executive]

Yes. Thanks, John. I mean we've seen that. And our strategy, as people have read our scoping study summary, which is on our website, is to build an HP MSM conversion facility in the U.S. And in part, that's because of the availability of the sort of grant funding that you've seen announced by others. There are other factors as to why we think North America is an ideal location for that processing infrastructure. You can incidentally qualify for that same type of funding if you locate your facility in other countries that have a free trade agreement with the U.S., so South Korea, for example. So that's why if you read our scoping study, it's kind of U.S. square bracketed because some of those factors are still moving around.

So that is part of our study work. We'll provide an update on that part of our strategy work as well. We have been working on refining the flow sheet, and we've been pretty pleased with the improvements we've made in that regard. So we should be able to provide a bit of color on the financial and risk improvements that will result from the flow sheet refinement. We're building a small sort of lab-scale pilot plant, and that should be finished shortly to be able to share material with customers.

The key thing for me in this phase of the work, John, in that area of our strategy is that by the end of this pre-feasibility stage, we want to have essentially nonbinding offtakes in place standing behind the volume of output that we're looking to scale to if we execute this strategy. And that is an area where we're confident that, that volume will be there, we'll be able to get to that stage. But from the customer side, it's still kind of still going. So we're still talking to customers, but that whole EV battery demand space, frankly, I think, is moving a bit sideways at the moment.

So we're continuing the work. We're very happy with how things are going from a technical perspective and customer conversations are continuing. But I think everyone who's in this battery mineral space is seeing the customer demand taking a bit longer than they would like to form up. So ultimately, we're confident that, that demand will be there and that manganese has a strong value proposition within that space. But we also want to see that kind of demand firmed up before we move into any sort of definitive feasibility study phase. So what we're doing is continuing those discussions, continuing to refine the flow sheet, finishing the pilot plant so that we can take those customer discussions to the next phase of work.

The other areas, funding, grant funding, location selection, et cetera, I regard as kind of lower risk and lower uncertainty than customer demand at the moment. And so we're really doing everything to focus our efforts on that area right now. And again, that sort of provided some highlights of what you'll get in the strategy update in that regard, but that's how we're seeing things. And there's grant funding available in the U.S. There's grant funding available elsewhere in the world as well with alternative geographies that we looking at and authorities we're talking to.

So it's an area where I think if you've got the right business model, you've got the right customers and you've got some certainty around volumes, then you'll be able to get the funding and grant funding will be part of that. And so North America is still the base case and getting the sort of grant funding that others have announced would be part of that work as well. But I think the most important priority at the moment is to really be firmed up and confident that we'll be off risk in relation to customer demand volumes for HP MSM before moving into the DFS phase of work.

[Operator]

[Operator Instructions] Your next question comes from Mark Fichera with Foster Stockbroking.

[Mark Fichera, analyst]

Just a couple of questions from me. Firstly, just on the cost side, just given Tshipi's history in recent years, costs have been on that FOB cost around that $2 to $2.20 range, sometimes even lower. I just wanted to clarify now with -- you mentioned about the impact of inflation and that sort of $2.33 that you achieved during the quarter, is that sort of a level we should be thinking of, say, for sort of the year ahead in terms of costs?

[Brad Rogers, executive]

Yes. So you're right, Mark. We've had this for the last few years, average in that range that you said, $2 to $2.20. -- sometimes it's gone as low as $1. I think the level that we're at for the September quarter is around where we've been saying it's probably a couple of cents higher. I've been saying $2.25 to $2.30. In some months, it will go lower. In some months, it could even go a bit higher than that, but that's kind of where I think you should be thinking about it averages out.

What is behind and what's behind the costs of the last few years as well is that there's been a tailwind from foreign exchange where incurring costs mostly in rand, but reporting them in U.S. dollars and the rand has been on a long-term depreciating trend. More recently, that has reversed. And so you haven't had a tailwind, you've had a headwind from the exchange rate, more confident conditions in South Africa post election, et cetera, all of that is factored into that sort of trend of the rand U.S. dollar exchange rate helping has, in fact, kind of hindered for the moment.

So that has masked some cost inflation to some extent that's always been there. Cost inflation in South Africa runs at 6% or 7% and has done through that period of time. And some elements of the cost base for all bulk ore miners have been higher than that at times. And so underlying, you do have cost inflation. Some of that's been masked by foreign exchange. Tshipi has done a good job if you take out ForEx, I think, of managing efficiency gains such that they're well positioned from a cost perspective relative to other producers, and that is still the case today.

If you look at -- and it is difficult because a number of the producers in the Kalahari aren't public, but those that are guiding to higher costs at the moment than Tshipi is recording. So long answer to your question, yes, around the level right now is kind of what you should expect, but that still positions Tshipi well even in a poor manganese price environment and well compared to other producers.

[Mark Fichera, analyst]

Right. Okay. And the other question was just related -- there was mention of a one-off demurrage charge. I was just wondering, can you give me an idea of the quantum of that and why that occurred?

[Brad Rogers, executive]

Yes. So I think that affected not just Tshipi, but other producers as well. It was from memory, just looking at notes. Resulted as -- actually, I don't have -- I just have all producers exporting from that port were affected. So I think there was a general issue with the port there that impacted Tshipi as well as other producers. And I think the impact was around ZAR 10 million.

[Operator]

There are no further questions at this time. I'll now hand back to Mr. Rogers for closing remarks.

[Brad Rogers, executive]

Okay. Thanks, Sally, and thanks, everyone, for joining and for your questions. We look forward to talking to you next time.