Jupiter Mines Ltd

ASX:JMS

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and I would like to welcome everyone to the Jupiter Mines Q2 Call. Today, we have Jupiter Managing Director and Chief Executive Officer, Brad Rogers; and Chief Financial Officer, Melissa North, to provide a brief update on the second quarter of the 2024 financial year. And then we will open up to questions from callers. Thanks, Brad. Please go ahead.

[Brad Rogers, executive]

Thank you very much, and good morning, good afternoon. Thank you for, everyone, joining the call and also everyone listening afterwards. In addition to Melissa, our CFO, as was just mentioned, Ian Murray, Chairman, is also on the line. As usual, I'll give some overview comments of the quarterly activities report that was released this morning. And after that, I'll open up for any questions that might be there.

So the second quarter was actually a strong operating performance at Tshipi against a low manganese price environment, and I'll give an overview of the manganese prices and shipping rates that prevailed during the quarter.

And in the quarterly, you will have seen that I also provided some additional analysis. And it's been good to see the overhang of high Chinese stockpiles that existed throughout the quarter. We're talking about today actually get drawn down quite rapidly through January, and the manganese price has responded accordingly. So I will speak about that in a moment.

But for the second quarter that we're talking about here, the manganese price hung around from an FOB level around 5-year low levels. And obviously, that is relevant for the results that we're about to talk to.

But from an operational performance, we saw sales that were 764,000 tonnes for the second quarter. That was lower than the previous quarter by about 18% and 10% lower than the prior corresponding period. But noting that the first quarter was a very high sales quarter and we're expecting January to be the March quarter rather to be higher as well, so we're not concerned about that. We were expecting the second quarter to be lower.

There were some operational factors involved there at the fringes. We had 2 parcels of manganese ore totaling 95,000 that we expected to [ sail ] in December that have rolled into March. And if those 2 parcels had, in fact, [ sailed ] in the December quarter as we expected, then the sales for the quarter would have been about 10% higher and higher than the prior corresponding period. So hopefully, that provides some context.

But as I said, in the activities report, when you combine the very high first quarter sales outcome with the lower second quarter we're talking about right now, we're on track for full year expectation for sales. So notwithstanding that, sales number was a bit lower. That was in line with expectations. And we've also had, as part of that lower result, 95,000 tonnes of ore rolled into the March quarter, which will assist us when we're talking about the next quarterly in a few months' time.

From a production perspective, the quarter was actually a record at Tshipi. So the crush tonnes for the quarter came to 1,015,633 tonnes, and that was 29% better than the previous quarter and 26% better than prior corresponding period in the previous financial year.

So that outcome was a very good one, and it was based on underlying improvement in uptime and utilization management that crushing circuit is operating as well as it ever has as be marked by the production record that was achieved there. And that sets up good stockpile levels that have been produced during the quarter, as we'll talk about later, that can be sold into, hopefully, better manganese prices in the second half of this calendar year.

Mining levels, in terms of volume, was slightly down, about 11% down on the previous quarter, mainly impacted by some labor availability issues over Christmas and also some wet weather issues persisting throughout the quarter, but nothing too material there. And you'll see the overall trend for mining activity through last year and into this year has been improving.

From a cost-of-production perspective, we were at USD 2 a dmtu for the quarter. That's been very stable over the last few quarters. There was a slight increase from $1.95 from last quarter, but that $2 dmtu is very much in the range of what we've been producing. From the current cut of the pit for the recent period of time, you will have noticed that that's ranged between $1.85, $1.90 at the lowest to about $2.15 a dmtu, so $2 is right in the middle of that range that we've seen for the recent history.

I'll just note that the next 2 quarters, we're likely to see slightly higher mining costs as we move into cut 12, which has a slightly higher, 15% higher strip ratio. That can be obscured by whatever is happening with the rand-dollar exchange rate. And there's always a blend of ore going through our sales.

So I'll just flag that for the next 2 quarters, we may see slightly elevated, up to about 15% higher, mining cost, but that's in line with the overall mining plan as we move through this section of the pit. Post that next 2 quarters, we then move into a much lower strip ratio. So we go about 15% up in terms of strip from cut 11 to cut 12. But after cut 12, it drops about 34%, so lower than even cut 11 one.

So again, this is a function of the mine plan. It's -- you'll see those slight movements. And usually, they are obscured by whatever is happening with the exchange rate. But particularly at low manganese prices, I thought I'd flag that and to the extent that we do see slightly elevated FOB costs in the next 2 quarters that will exist for that period of time, and then we expect that to drop down to much lower levels as we move into that new cut.

From a safety perspective, we saw 2 lost time injuries during the quarter, which was disappointing. They were both contractor injuries, and they were both minor in nature, so not life-threatening, notwithstanding that Tshipi management are rightly proud of their safety record over a very long period of time.

So as you can imagine, notwithstanding those minor injuries, it's still a concern there in the nature of sort of [ anchor ] roles, et cetera, which are not uncommon mining injuries. But obviously, we're trying to eliminate all injuries from the business. So that's the focus of the team at site, at the moment as well.

Let's move on to provide some more color in relation to the general market update. And as I mentioned before, what we've tried to do in this activities report is provide a bit more color, given the low manganese prices and actually higher than you would expect shipping rates that have prevailed during the quarter. So a little bit more color on what's occurred there and what we're seeing post quarter end now, which as I said, conditions have improved from where they were in the December quarter.

But for the December quarter, firstly, we did see -- as I've mentioned, manganese prices from an FOB perspective, that hung around 5-year low levels, the 5-year low that we have in $2.61, and that was a couple of years ago, per dmtu. Prices in early December got down to $2.66. But the reality is for the most of the December quarter, they were at low levels, somewhere in the $2.66 to $2.80 type range.

What was going on there was that [ CIF ] prices, so manganese prices excluding the impact of shipping rates, actually range traded in a fairly small range, from about $3.55 to about $3.60 or in that $0.05, $0.10 range for most of the quarter. So manganese prices were relatively stable at relatively modest levels.

But what we saw through the quarter was that shipping rates increased. We will have spoken at the last activities report discussion of shipping rates between USD 24 and USD 25 a tonne, which is about the sort of pre-COVID average and in line with the general market circumstances we're seeing that we would expect the rates to be. The shipping rates through the second quarter were around $30 to $32 a tonne. They're still around the lower end of that range today, as you will have seen in the activities report.

So what happened with the FOB prices during the second quarter down rating by $0.20, $0.30 was actually mostly driven by an escalation in shipping rates on top of manganese prices that were stubborn at relatively low levels.

The core factor affecting the manganese price was high stockpiles in China. And I think we will have spoken about that in previous discussions, quarterly discussions. That was driven by trader speculative buying earlier in the calendar year.

People expected the Chinese industrial economy to come out of COVID stronger than it eventually did. And that resulted in manganese ore stockpiles being at elevated levels for most of last calendar year. And for most of the last calendar year, manganese ore supply to China also stayed quite high.

With the manganese ore prices running off and with various other things happening in the world, manganese supply from major manganese-producing countries started to moderate as profitability waned for those suppliers. And so while Chinese [ manganese, steel ] demand wasn't spectacular or as solid, you started to see supply dropping off. There's also been, post closure of the December quarter, some usual cyclical calendar restocking prior to Chinese New Year, so that's steel mills buying up more manganese ore.

And what that combination of factors has driven has been a reasonably material drawdown in Chinese stockpiles in manganese ore in the last 30 days. You might have seen in the activities report that Chinese stockpiles have reduced by about 11% in the last month.

And so that's been pleasing to see, and that's been a key factor behind the FOB manganese price increasing to about $2.92. So that's still a low level, much lower than the sort of 4- or 5-year average, but it's much improved on the $2.66 that we saw in early December.

I've given some history in the activities report as well to say that if you look further back to the March quarter and you compare it to the current levels of Chinese stockpiles, the Chinese stocks currently are 19% lower than we saw in the March '23 quarter.

And at that time, the FOB manganese price was [ 15% ] higher than today, noting that shipping rates were lower at that period of time as well. But all of that points to hopefully some continuing support for the manganese price, and that's a general sentiment in the market to date.

So we've been through a low quarter, by historical terms. And hopefully, I've explained the reason as to why that was the case, and it was a combination of these high manganese ore stockpiles persisting in China as well as increased shipping rates. The shipping rates haven't come down, although hopefully, they do at some point in time. That's driven by other global factors, as we explained in the activities report.

But the manganese prices have started to respond to reduced supply, and that's resulted in the drawdown in Chinese stockpiles to where they now sit around more normal levels. So hopefully, we've been through this period of sort of price disruption, but that did impact the second quarter.

From a land logistics market perspective in South Africa, that was relatively stable through the quarter, no real change there. We saw road trucking at much lower levels, which is to be expected, given the low manganese prices prevailing the road trucking in South Africa is the highest cost method of getting ore support. And so naturally, people are looking to diminish or reduce that part of their production to [indiscernible] 2.

The low manganese prices has resulted in less manganese being shipped by any method in general, though, and that's resulted in opportunities for Tshipi to rail more volume than it is expected, and that's what we've been doing.

So when you look at the mix of logistics volumes for Tshipi, road is drastically reduced apart from the route out through Luderitz in Namibia. But we've been railing more volume than we expected to do, and that's because of other [ produces ] while taking up their expected rail allocations.

Just briefly from an earnings, cash and corporate perspective. Tshipi's earnings were naturally lower this quarter compared to the prior quarter, and that's because of the factors that we've just mentioned, lower sales volume growth compared to the previous quarter but also lower manganese prices achieved quarter-on-quarter. There was a minor FOB cost differential, but that was a fairly minor. The major driver for the difference in earnings were again [ cost ] and lower manganese sales.

From a cash perspective, you will have seen the Jupiter's cash was stable for the quarter, but Tshipi's cash actually reduced quarter-on-quarter as a function of various timing impacts. And what I've sought to do in the activities report is give you a bit more color of that movement, and you can see that there are a number of [ micro ] timing impact, different in nature.

So you had in there some biannual payments that are only paid in December and January naturally being paid in December for tax and royalties. There was some working capital investment during the quarter. That higher production has resulted in higher inventory.

We're at relatively high levels of stockpile on mine now. And as I said before, that provides us the opportunity while that cash was spent during the quarter to sell that inventory into the second half, where hopefully we'll see high manganese prices and therefore, comparatively higher revenue realized.

We had some stripping during the month in that cut 12 as well, which, again, will open up the volume to be sold into the coming period of time. There was some CapEx and a nonrecurring payment that I've outlined in that activities report as well. Tshipi typically does not spend much CapEx, and that is still true. So nothing has changed there. They did have some minor projects outlined for this year, and the bulk of that spending occurred during the December quarter. CapEx in that line item is about 1/3 of the overall items. So the actual CapEx, although we spend a bit in December, what -- overall, that material when you take into account, it's about 1/3 of that total amount on that line item. The [ major ] rising in that CapEx was the procurement of Skiptainers of vessels that are used to rail material from Tshipi to East London.

You may have seen us mention that Tshipi has opened up a new channel to rail or out through the port of East London. And to do that, we needed to procure skiptainers to go onto the rail. There's a relatively short payback for that investment of about a year, so that made sense to go ahead and do that, and that capital was spent during the year. And the rest of that line item was a nonrecurring payment, the settlement of a [ rise in ] for dispute that was paid. So that won't be recurring either.

So you'll see there is a combination, a number of timing impacts from a working capital and nonrecurring or occasional payment perspective that occurred during the December quarter.

We did have positive operating profit cash as you would expect, given the FOB prices for the quarter. But obviously, with the lower prices, that does sort of draw out some of these timing impacts a bit more, but a number of them have added to the opportunity to generate higher cash in the second half, noting that there was also a rollover of the cash receiving on those line items as well.

From an interim dividend perspective, Tshipi and Jupiter will be deciding and declaring the interim dividend or the next dividend at the end of February. Jupiter intends to announce that late February in line with our first half financial report, so that's something to look out for.

And from a strategy update perspective, the work on Jupiter's announced strategy continues in all of its [ lanes ], and we expect to have several updates this quarter, including in relation to the UV battery scoping study, which is now completed. So we'll be providing an update on that, as well as the sustainability report, that work is also completed. The other thing of the strategy announced in last March, we'll also see updates in the short to medium term.

So hopefully, that provides a bit of additional color on the activities report. As I said, the [ Tshipi ] site did a job during the quarter. Sales were a bit lower, but if you take into account the fact that the 95,000 tonnes of ore has rolled into January, you would have actually seen a reduction on prior corresponding period and the first quarter was high. So we're on track for sales that you would expect us to be tracking towards for the financial year.

Very high production levels, record production levels, so that speaks well of the performance in that area at site. And that set us up with stockpiles that hopefully position us well to sell into improving manganese prices. They are still quite low, but certainly much improved from what we saw prevailing through the second quarter. I'll pause there and see if there are any questions from the line.

[Operator]

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

[Mark Fichera, analyst]

Yes, just a couple of questions from me. Just on the Tshipi EBITDA, obviously, a significant drop, [ although ] as a profit, from the previous quarter. And I know you've talked about the lower sales and lower manganese price, but it seems to have -- that EBITDA seems to have fallen more dramatically than the sort of percentage piece there. I was just wondering, was there any other cost items besides the production cost, which is quite flat, that impacted those earnings?

[Brad Rogers, executive]

Thanks, Mark. No. So I haven't talked through the actual proportions to see whether there was anything causing a disconnect, but the things in my analysis, although no doubt you're right, the major drivers that explain that reconciliation is sales volumes, realized prices and a slight increase in FOB cost of production. So there may be a little bit extra to explain there, but those are the key drivers of what we're focused on. So there's nothing else going on that was material in my review.

[Mark Fichera, analyst]

Okay. And secondly, just on the high-purity manganese sulfate, I know just in terms of the scoping study, which you're looking to -- and you said you completed that, in terms of releasing the details to the market, is that -- will that be at the time of the result in late February? Or could it be before or will be...

[Brad Rogers, executive]

Yes, thanks, Mark. So as I said, that work has been done. It was due to be completed, from memory, by 31 December, and it was through the course of January. And most people have been on a belief that we've been preparing a public release version of that, and that work is done as well. So our intention is to release that scoping study as well as outlining proposed next steps prior to our interim report. So that should come out in the next 1.5 weeks.

[Mark Fichera, analyst]

Okay. Great. Thanks.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll now hand back to Brad for closing remarks.

[Brad Rogers, executive]

Okay. Thank you for your time, everyone. And hopefully, that's been informative. We look forward to speaking with you in the not-too-distant future. Thank you.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.