Jupiter Mines Ltd

ASX:JMS

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon, and I would like to welcome everyone to the Jupiter Mines Second Quarterly Call. Today, we have Jupiter's Chief Executive Officer, Priyank Thapliyal, to provide a brief update on the second quarter of the 2022 financial year, and then we will open up for some questions from callers.Thank you, Priyank. Please go ahead.

[Priyank Thapliyal, MD, CEO & Executive Director]

Thank you, Erica. Good afternoon, everyone, to Jupiter Mines' second quarter call. As you must have seen from the report which was released a day or 2 ago, the second quarter had a couple of challenges. Firstly, it was to do with the mining where we, just like the first quarter, had substantial issues on the equipment breakdown, especially the excavators, and also the absenteeism, which has been there since the COVID started. And the net impact of that was that we were about 1.1 million bcm behind on the mining volume.On the production side, we had close to 945,000 tonnes of production. Out of that, about 850,000 tonnes was on the high-grade side. About 100,000 tonnes was on the low-grade and the low-low-grade product side.The key theme which we also faced just like most of the industry was low manganese price. And in light of the low manganese price and the reduced profitability on the low-grade products, we cut back substantially on the sales on the low-grade and low-low-grade product side. So of the 808,000 tonnes of sales, roughly 752,000 tonnes were on the lumpy side, and only about 50,000, 55,000 tonnes was on the fines side.In terms of the profitability, despite the challenging manganese price, we are still profitable. Our EBITDA is still close to 17% margin, and on the net profit, we are close to 10% margin. But what that basically resulted in was that on the half yearly basis, we are about 2 million tonnes behind on the mining side, which has necessitated us to basically start mining the barrier pillar from September of this financial year. That access to the barrier pillar will help us substantially in meeting our production targets, which we have still maintained for the full year at 3.45 million tonnes.If we now look at -- on the logistics side. Transnet has had some challenges. It's not something which is unique to Tshipi. Cable theft has been a major issue. But what we have done is that whenever we have those sorts of setbacks, we have moved tonnes which were basically destined for the Transnet rail network onto the road. It has had some impact on our profitability, but we have still been able to maintain our cost targets of close to $2.20, $2.30 FOB basis.In terms of markets, again, I think the theme which played out in the first quarter has largely paid out in the second quarter also. The steel production in China has slowed down a bit on the ferroalloy side because of the power curtailment, while the ferroalloy pricing is quite high. What that has led to is the ferroalloy smelters preferring the higher-grade products so that they can maximize the value and use for the electricity, which is basically allocated to them. And that has, again, had some impact on the semi-carbonate, which is the product which Tshipi produces out of South Africa. The port stockpile still is close to 6 million tonnes, and from our perspective, we don't see that changing for the rest of this financial year.Again, I think on the CIF prices, while the prices are quite good, the impact has been severe on account of the shipment -- the shipping costs, which are still close to $1.65, $1.70 per dmtu. And again, we do not see that changing for the rest of this financial year because the ships which we are using to move our tonnes from South Africa to China are pretty much the same ships which the marginal iron ore producers are also using because the iron ore price has been so high over the last 3 to 6 months.The other thing which we have seen is that from the production side, there has not been any impact out of South Africa. Historically, in the past, the tonnes have gone down, largely the trucking tonnes, but we are not seeing that in South Africa in the current quarter. And that, I think, largely has to do with the fact that some of these marginal producers, which are lower-grade manganese, which rely on the trucks, have high iron content in their ore. And because of the higher iron ore price, the net realization is not as low as what it would be when the iron ore price was low over the last few years.So again, I don't think that is going to change over the next 3 to 6 months, so we are basically planning our business in that scenario. But just to summarize, we are looking at close to 3.45 million tonnes production for this financial year.So I think that, in a nutshell, is a quick snapshot of the second quarter. But with that, I'm more than happy to answer any questions.

[Operator]

[Operator Instructions] We have our first question from [ Mario Lombardo ], who is a shareholder.

[Unknown Shareholder]

I just had some general questions around how Tshipi is going with the expansion activities and when that's coming online. We don't seem to get too much information on that. And whether -- I wanted to also understand whether the cost for that expansion has been held back by Tshipi, the parent company, and whether that's fully funded. So just some general vision around that.

[Priyank Thapliyal, MD, CEO & Executive Director]

Thanks, [ Mario ]. I think as I've said consistently in the past that we will not proceed with the expansion until we have got 100% confidence on the mining side. And we have set the target to achieve that expansion in terms of the mining tonnes moved on a bcm basis of 1.5 million bcm per calendar month. If we can achieve that consistently over a 3-month period, then we feel that we are in control of the mining issues and in a position to press the trigger for the expansion.But as I've just now described, over the last 3 to 6 months, we have had severe hiccups on the mining side. The mining contract is until February of 2024. Again, as I've outlined in the past, we are working with Moolmans, the mining contractor, to see how we can improve the efficiencies. And if and only if we are able to improve those efficiencies and achieve that 1.5 million bcm target, we will, as a Board of Tshipi and as a Board of Jupiter, give the green light to the expansion. So again, I mean, I can't forecast when we will have clarity on that because of what we are facing right now on the mining side. But as part of our disclosure, as and when that happens, we will come back and announce to the market.The expansion costs, again, I think we have announced in the past, will be close to ZAR 1.1 billion. But again, because of all these challenges, we have not held back anything into Tshipi for that expansion. As and when that happens, we will look at how we fund it. But for the time being, we are just basically keeping enough cash in Tshipi to weather the storm and to meet our ongoing expansion and stripping and working capital requirements. But the rest is paid out every 6 months to Jupiter and to the other shareholders.

[Operator]

[Operator Instructions] We have our next question from Mark Fichera from Foster Stockbroking.

[Mark Fichera, Executive Director & Head of Research]

Yes. Just a question on just given obviously the low manganese price at the moment, just in terms of any cost-reduction initiatives. I think you mentioned in the previous quarterly about looking at new mining equipment and potentially shipping on larger shipping vessels to improve unit costs. Can you comment on any of those initiatives?

[Priyank Thapliyal, MD, CEO & Executive Director]

Thanks, Mark. I think on the bigger shipping equipment, as I said in the, I think, the last call, we were looking at co-loading from Lüderitz and [indiscernible]. We have tried some ships. And again, as and when we have like more and more confidence, we will be doing that.In terms of the larger equipment, again, I think, as I said in the last call that the bigger equipment is going to cost ZAR 500 million for Moolmans to bring. That will require us to enter into a new mining contract, which is, again, a new commercial negotiation. But again, in light of these day-to-day hiccups which we are having, we feel that we need to address that first before we can start looking at bringing bigger equipment.The Moolmans contract expires in February of 2024, so we have to bear that also in mind. But yes, all the work streams are progressing. And as and when we feel that we are in a position to finalize anything, we will come back and disclose it to the market.

[Operator]

Our next question is from [ Claude Eagle ], who's a shareholder.

[Unknown Shareholder]

Yes. So I have a question. So Tshipi, with -- what -- I'm confused with the ownership of this mine. It's only one mine apparently, which is the Tshipi. Is that correct?

[Priyank Thapliyal, MD, CEO & Executive Director]

Yes.

[Unknown Shareholder]

And Jupiter only owns 49% of it. Is that correct? Or 48%?

[Priyank Thapliyal, MD, CEO & Executive Director]

Yes. 49.9%, yes. So we own half, 49.9% of the mine. And we also have, marketing rights, 49.9% of the product.

[Unknown Shareholder]

Right. So I just don't quite follow how this goes on with -- as we don't own the 51 -- 50 -- over 50% of the company, how Jupiter is controlling it.

[Priyank Thapliyal, MD, CEO & Executive Director]

Well, Tshipi is a separate entity based out of South Africa. It has its own CEO and CFO who are based at the mine. It has its own Board, whereas Jupiter has got half the nomination rights and our BEE partners got half the nomination rights. Brian and I sit on that Board as representatives of Jupiter. And the Board of Tshipi meets as frequently as needed on whatever decisions need to be taken. And they set the business plan, the strategy, incentives, look at all these new ideas like expansion, the port of Lüderitz. Whatever we have done in the past, everything has been done at that Board and management level.

[Operator]

[Operator Instructions] We have another question from [ Mario Lombardo ], who is a shareholder.

[Unknown Shareholder]

I was just wondering -- and I know that this is quite topical and there's probably a lot of thought being given to it. As a shareholder, I appreciate that the strategy for Jupiter is to distribute dividends at that 90% rate to shareholders, and that's pretty much the strategy apart from, obviously, the expansion of the -- potential expansion of the mine going forward and a few other things on the periphery.Why? And is it -- is thought being given to even expanding or any M&A activity given that interest rates around the world are so low, given that the price of manganese at the moment has come down significantly so that there would be mines in difficulty, and there's obviously mines in South -- a whole lot of manganese mines in South Africa. Is it an opportunity-- an ideal opportunity for us to consider taking on some M&A activity and getting control of another mine to help, obviously, boost our overall earnings capacity that control of a separate mine? Or what are the thoughts around that?

[Priyank Thapliyal, MD, CEO & Executive Director]

I think, [ Mario ], I think the only point which I would like to make is that the Board of Jupiter and the management of Jupiter has, at the time of the IPO, articulated a strategy which we have basically been following. We have been evaluating a lot of opportunities. But again, it doesn't make sense to come back to the market with a product which is half baked. As and when anything material happens and we feel that it is in the best interest of the shareholders, we will come and make the announcement and get the support and blessing of the shareholders.But we do not believe in making, what I'd call, announcements, irrational exuberance. Only when we feel that the product is fully baked and in the interest of the shareholders, we will come back to the market. But I think the shareholders should be under no illusion that the management and the Board just basically sits and [indiscernible] time and is not looking at other opportunities. But again, we have to make sure that whatever we do is in the interest of all the shareholders and not just a select few.

[Operator]

We have our next question from Nick Worrall from 708 Capital.

[Nick Worrall]

Just regarding your spill motion, it's a little bit off topic, but you've stated there your concern that some shareholders are looking to gain control without having to control -- pay a control premium. Can you maybe elaborate on how that might happen?

[Priyank Thapliyal, MD, CEO & Executive Director]

Again, I think, Nick, as I said, it's a very topical thing. This call is largely for the second quarter and not to discuss all those things. I think my statement and Brian's statement is fairly clear as to what we see and how we see. But I think the Australian shareholders are very smart. They know like how the minorities can be squeezed by some of the major shareholders.But suffice to say, I have not been privy or nothing has been shared with the Jupiter Board and Jupiter management team as to what the intentions are in terms of the strategy of the company except for some broad statements which have been put, which are fairly easy to put in the public domain, but very hard to execute. I'm not aware and neither is the Board aware of what their management plans are. So I can't really say anything more than that.

[Operator]

[Operator Instructions] We have another question from [ Mario Lombardo ].

[Unknown Shareholder]

Yes. Last question, hopefully. Just wanted to get your view on price of manganese at the moment. It's -- we've had some years where it's been quite high and buoyant and some -- it seems to be quite volatile in the sense that it doesn't seem to have found its meat, like, happy medium, so to speak. What's the view? I know there's a lot of stuff happening in China and whatnot, but it'd be great to get some insights on what your thoughts are in relation to the price of manganese and then future impacts pending EV, electric vehicles and whatnot. And yes, I'd just like to get some insight, if that's possible.

[Priyank Thapliyal, MD, CEO & Executive Director]

I think as I just now said, we as Tshipi management team and the Board do not see the manganese price changing substantially over the next 3 to 6 months on account of, like you said, the issues happening in China, the electricity curtailment with the ferroalloy smelters, in that scenario, trying to maximize their value and use and deferring the higher-grade manganese product and not like medium-grade semi-carbonate, which is what Tshipi and most of South Africa produces.The stockpile is currently at 6 million tonnes, which is substantially higher. A good sweet spot is somewhere close to 4.5 million to 5 million tonnes. So that has to reduce. And from our perspective, we do not see that changing in the next 3 to 6 months.As to electricity vehicles and manganese and all, I think, again, it's one of those things where the market, what I call, irrational exuberance. It has still got a long way to go before manganese becomes a substantial EV player. But even in that scenario, the primary driver of manganese is and will be the steel industry.And again, when you talk about manganese and EV and all, a lot of technological changes have to happen. Not every manganese ore can be used for that. But again, the metallurgists are very smart. And as and when that demand picks up, you can rest assure that at 3.5 million tonnes, the Tshipi product will have a role to play in that. But we do not plan our next year or 2 business plan based on what is going to happen to the manganese and EV. If that happens, that's a bonus for us.

[Operator]

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

[Priyank Thapliyal, MD, CEO & Executive Director]

Well, on that note, thank you once again, everyone, for dialing in. And thanks, Erica, for managing the call. Thank you, everyone. Thanks a lot. Bye.

[Operator]

Thank you. That now concludes the Jupiter Mines Second Quarterly Call. Thank you so much for attending, and enjoy the rest of your day.