Jupiter Mines Ltd

ASX:JMS

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to the Jupiter Mines Q3 Call. Today, we will provide a brief update on the third quarter of the 2023 financial year, and we will open up the call for questions from callers.

I'd like to hand over to our independent Non-Executive Chair, Ian Murray. Thanks, Ian.

[Ian Murray, executive]

Thank you. Good afternoon, everybody, and welcome to our November 2022 quarterly report, the third quarter of our financial year and Brad's first full quarter as Managing Director. I will hand over to Brad to talk us through the activities of the quarter. Thank you, Brad.

[Brad Rogers, executive]

Thanks, Ian and thanks, everyone, for joining. As Ian has said, I'll give some overview comments with respect to the third quarter report that you hopefully have in front of you. It was distributed today. And at the end of those comments, I'll take any questions if there are any.

So starting with zero harm, continues -- continuing its good track record in that regard, no lost time, injuries during the quarter. And they're on a good run rate in that regard. We had 600 days and counting lost time injury free, which is fantastic. Their total recordable injury frequency rate, so measuring all injuries, including minor ones, also improved quarter-on-quarter. So that's good to see.

From an operational perspective, production was slightly down quarter-on-quarter, and that was because of drill rig availability in the mine and the team had made changes in that regard during the quarter, and we could see that by the end of the quarter, the run rate was where we needed it to be. So that issue appears to be fixed, and we're looking to the fourth quarter, the quarter that we're currently in as a stronger, both production and shipping quarter in order to finish out our financial year.

In the sales quarter, so tonnes that we shipped were also lower than previous quarter. There were 2 reasons for that. One is that's the August quarter. So the preceding quarter was a very high shipping quarter, you'll recall me saying that on our last call. So we did expect that this quarter would be somewhat lower.

Having said that, you will also recall if you follow the stock that there was a Transnet strike that occurred during the November quarter that actually occurred during the month of October. That strike was surrounding a pay negotiation that was resolved during the November quarter. The strike actually impacted both rail operations in South Africa and also port operations in South Africa.

So effectively, Tshipi had no rail operations or shipping for about 2 weeks. And then there was a further week of interruption while Transnet was running -- getting back up to full run rate speed again. So that all in impacted about 3 weeks of shipping rates during the quarter. Transnet has been operating as normal since that strike was concluded and they ramped back up again, that was surrounding a wage negotiation that has now been resolved and resolved with a multiyear labor agreement in place.

So hopefully, we should not see anything like that in the near future. We are expecting those, as I said, in the quarterly, a good shipping quarter to finish out the year. And we are expecting it based on what we're seeing and what we have scheduled for shipments for this fourth quarter that we'll be able to achieve 3.4 million tonnes of shipped ore for this year, that's bang on the 5-year average. But what's different about this quarter is that ordinarily, we're also shipping low-grade ore. And so when you think about the 3.4 million tonnes of ore that we're typically shipping in a given year, about 400,000 or 500,000 tonnes of that total is usually made up of low-grade ore, low-grade ore in any market naturally sells at a discount to the high-grade ore product.

This year, you'll be aware that we haven't actually been shipping and selling any low-grade ore at all. And so the 3.4 million tonnes that we're on track to achieve for the current financial year will actually represent a record for the mine because all of that is high-grade ore whereas typically about 3 million of the total would be high-grade ore.

What that means is, although we've been in a moderated manganese price environment, and that is why we've chosen not to ship and sell any low-grade ore, we have been maximizing the margin and the pricing from the material that we are shipping, which is great, and that's actually a function of why if you have a look at our comparative financials, notwithstanding manganese prices, are a bit lower than some preceding periods that you might compare to our profitability, including for this quarter, so compared to the corresponding quarter last year actually looks better than you might expect.

In terms of prices, as I mentioned, manganese prices were relatively soft during the November quarter. But pleasingly, they have started to improve both in the month of November, so at the end of the quarter and into through December as well. And that's on the back of improving Chinese sentiment and also some drawdown in stockpiles that has occurred and actually the Transnet strike helped some of that drawdown.

If you're thinking about comparisons during the quarter of November, the average FOB Port Elizabeth 37% manganese price, i.e., the index that we tail off what averaged about USD 3.11 per dmtu. Today, that's sitting at about $3.33.

The other thing that's happened during the quarter, which is material and helpful is that shipping rates have reduced precipitously during the quarter. Shipping rates have been for us and to everyone who is bulk shipping at very elevated over the last 18 months or so. And in the last couple of months, that has reduced quite materially. You'll see in the quarter that the November quarterly average was USD 35 a tonne, the preceding quarter was USD 49 a tonne. And if you multiply that out by our shipped volume that I just quoted before is about 3.4 million, you'll see that that's a $48 million annualized savings just quarter-on-quarter. So that's very helpful indeed and $35 a tonne average for the quarter, shipping rates are actually a bit lower than that today.

We regard those very high shipping rates as being a function of global disruption. I think that's generally a consensus view. So hopefully, we won't see those very elevated shipping rents again, and we'll get that tailwind which is quite material as is explained from a cost perspective.

If you look at unit costs quarter-on-quarter in the quarterly, you'll see that they were up slightly by about 8% or $0.15 per dmtu. But most of that was due to the lower production volume that I referenced before, that has been addressed. So that 60% or $0.09 of that $0.15 per dmtu were relating to the lower production, that's obviously resulted by increasing that production again.

We also had a accrual in the quarter for the Transnet labor increase that we actually haven't received yet, but we expect to. So there was an element of that cost increase on a unit basis quarter-on-quarter, that related to a prior period accrual that actually made up about 3/4 of the $0.03 and that $0.15 step up due to that Transnet driver.

And then the final element of that was due to moving into a new mining area, [indiscernible] and seeing conventionally less barrier to the mining during the quarter, that made up about $0.03 of the step-up. And again, these step-up that I'm referring to are against the $1.96 per dmtu cost that we had on a unit basis in the August quarter.

On a financial basis, profit was lower than last quarter, really because of volume and manganese prices on the cost side, those sitting behind that was shipping, which, we should say, increasingly that move happened during the quarter and is a continuing trend. And also the price blend, again, selling 100% high-grade versus low-grade and something that's been a boon for this financial year.

All of that saw attributable cash for Jupiter, including our share of Tshipi cash increased by AUD 28.8 million to AUD 144.2 million at the end of the quarter.

So wrapping all of that up, in summary, production was slightly softer for the quarter, but that's now being addressed through the addition of new drill rigs and the run rate where it needs to be for our targeted production right now.

Sales were softer during the quarter, but that was both forecasted because we had an outsized sales quarter in the August quarter. But we also saw that we had an impact from the Transnet strike, which impacted 3 weeks, which equates to about that 16% quarter-on-quarter reduction in sales that we have seen there.

We had sufficient stockpiles to be able to support a higher level of sales than that. So it wasn't production flowing on to sales. It was more the Transnet strike restricting our ability to hit a higher number there. But again, we're in a position to be able to have a solid end to the year such that we're targeting 3.4 million tonnes for this financial year based on a strong fourth quarter. And we've also seen prices of both manganese improving since the quarter. I'm just speaking about up to about $3.33 today after improving sentiment from $3.11 on average during the quarter. And also shipping, very helpfully, as I mentioned, shipping dropping USD 14 a tonne quarter-on-quarter, equating to actually, I said before AUD 48, but that's actually USD 48 million. And so if you're familiar with the financial scale of our business, that particular change is actually quite material.

Shipping costs on average, if you've had a look at the presentation that was released from the Macquarie Conference a few weeks ago, you can see that shipping costs about 35% of our total cost of production last financial year and has really been at that level or slightly higher for the first 6 months of this year. More typically, shipping should be somewhere between 15% and 20% of our total cost of production, and we're really headed right back to that direction, which is great. But for the first 6 months of this financial year, shipping costs are still elevated and in the last quarter they've started coming down and that trend has continued.

So combined with improving prices -- combined with actually the site doing a good job in the meantime with producing enough material so that we can hit our total sales expectation of around 3.4 million tonnes but all of that being comprised of high-grade ore, which is a record for the mine and is a very good place to be.

Finally, you will have seen in the quarterly, a note saying that we intend to provide more detail to you all and to the market in general in relation to our planned strategy for Jupiter. Obviously, there's been some changes both at Board level and from a management perspective in the last 9 months or so. And so we've been busy in the background working on both the development of the strategy, working with our various internal and external stakeholders and also working on a number of the initiatives within that strategy. And we're in a place that we think we'll be able to brief you more clearly on our plans in that regard.

There's a high-level schematic that you'll see on the quarterly throughout these figures, which is out of several presentations that we've also provided. The intention of that schematic is to indicate that the strategy is one that's targeted really comprehensively at continuing to defend and improve the fantastic operation we have at Tshipi, and we think that there are some good opportunities to do that, both at the mine, we're looking at solar, for example, we're always focused on mining in terms of cost and reliability opportunities to organically improve ore volumes there and then off mine looking at logistics, which is a much larger component of our cost, so if we call out shipping, not as necessarily too controllable, but the intention there is just to flag how valuable the material shipping costs are within our overall total cost of production.

And then we're looking at some, if you like, inorganic opportunities, both diversification downstream and also consolidation. So it does start with the fantastic assets that we have at Tshipi and this is an asset that you've seen through lower manganese price environment has continued to produce very good cash flows and we want to protect and nurture that asset. But we think we've got good opportunities to continue to improve efficiency, volume and also add to the story, which did of course.

So I look forward to providing you with more detail in that regard. I don't intend to get into too much more detail here because we want to be able to provide that information in the right way, and we see that, that timing is going to be in the next quarter. So prior to 31st of March, we'll come back to you with more detail, but we're excited about that strategy. It is adding, we think, a compelling element of growth to what's already a really good operational story.

So with that, I'll just pause and see if there are any questions. I'll roll it back to you.

[Operator]

[Operator Instructions] Our first question comes through from Mark Fichera.

[Mark Fichera, analyst]

Brad, just a couple of questions from me. Firstly, just we see, I guess, see the low-grade ore that obviously, you've been stockpiling, not produced -- not selling at the moment. Just wondering, do you sort of have a price in mind that the manganese price must be before selling that product? And that, should it be with the benchmark, say, Port Elizabeth price, so that's the -- significantly higher than it is now or close.

[Brad Rogers, executive]

Yes. So that's big opportunity, sorry, Mark, did you want me to answer that question first? Or did you have a follow-on question?

[Mark Fichera, analyst]

Yes, if you could answer that first and I can tell the next question afterwards.

[Brad Rogers, executive]

Thanks, Mark. So we were selling some last year. And so I don't think the price has to be -- the price was quite low last year as well, but there were windows. And there are windows this year as well where we could actually sell some low-grade material at a relatively low margin, but we were choosing to focus our capacity in a moderated manganese price environment on selling high grade. And so I think that's actually been a valuable strategy through this year, as I've mentioned. So it's not like we couldn't have sold any this year.

The low-grade market is discounted, as I said, to the high-grade market. But this isn't in total not as big as manganese price environment as it would otherwise be. So there's a different market issue we're facing, rather than we'd want to at the price. And so it's not a question, not being able to sell any, it's a question of not wanting to. We would have made a positive margin on the stuff, we are working on as part of the strategy, a strategy also for low-grade material. We're producing it year in, year out, it does have a value and quite a good value in strong manganese price environment. It doesn't in the year that we've seen here, and we've chosen to focus more from a value perspective on the high-grade material, but we've got some thoughts around how we might be able to get value out of low grade through the cycle, and we can get into that more as I said, next quarter.

But to answer your question more directly, we'd like to see, I would say manganese prices more around $4 per dmtu for 37% material, before we'd want to start really looking at selling that. It's not like you can't sell any underneath that level, but the margins aren't really high, we'd rather get the best deal selling high grade.

[Ian Murray, executive]

Brad, it's probably worth just adding to that, that it's not just the manganese price but also the shipping cost as well. So that's, looking at what the appropriate margin is to enter a product into the market, not -- which is not just looking at the manganese price, but factoring in what's happening on the shipping costs as well.

[Mark Fichera, analyst]

My second question just relates to the strategy. I know you don't want to go into detail and you will do that in that first quarter next year. Just thinking about it, should we expect Jupiter to just announce the strategy in terms of options and plans that will be examining? Or can we expect some initiatives that are underway that you'll detail to address some of those strategic options, i.e., that you've already taken some steps, so to speak to, in July.

[Brad Rogers, executive]

Thanks, Mark, good question. I'll address the latter. We're not coming out with here with some thoughts. What we've been doing this year is actually working on the strategy, working with stakeholders, prioritizing what's most valuable and executable and working on some of those and so you can expect a strategy that's intended to be executed once the Board approves rather than options. With real detail around that, including what we can share around what's about to be executed in the near term.

[Operator]

Thank you, Mark. We don't have any further questions. [Operator Instructions] Another question from Mark.

[Mark Fichera, analyst]

Just one more from me. Just on the shipping costs. Obviously, Brad, you talked about how that's come down in that November quarter, the $15 a tonne, can you give an indication of what they are currently, will they move further down? Are they in the 20s, for example?

[Brad Rogers, executive]

So I'd say around $30, Mark. It's obviously dependent on a day-by-day theme, but the trend has continued more down towards $30 and I'd say slightly under. The long-term average prior to COVID, I'd say, was more around $25 a tonne and perhaps even lower. We're not down at those levels yet, but we have continued that trend in that. There's been quite a sharp reduction at the beginning of the November quarter, shipping rates were still quite high. So as we move through the quarter, we've just seen we've had some of that benefit, but really that's going to be showing up more handsomely in the fourth quarter and beyond.

[Operator]

Our final question comes through from Stuart Foster.

[Unknown Analyst]

Brad, I just wanted to clarify, can you just explain the currency movement of the South African rand, what sort of impact that's having on you?

[Brad Rogers, executive]

Yes. So if you're looking at the quarterly rate, it's really we sell in U.S. dollars, our costs are in rand. If you're thinking about the results through from Tshipi, they are reporting from a functional currency perspective in rand, Stuart. So if you -- it's a multifaceted answer, I guess, where Tshipi is reporting in rand, where we are converting back to Aussie dollars from a Jupiter perspective. Tshipi also from a sales perspective is executing or its marketers like us are executing on its behalf in U.S. dollars. And then that figure is being translated into rand and in some cases, like in the summary table and our quarterly it's been -- being translated back into rand.

And so you'll see a note, for example, which might be what you're talking about there in the quarterly which has a single FOB sale at $2.76, which looks very low. That sale was actually executed at USD 3.1 translated by Tshipi into rand and then translated [indiscernible] rate back into U.S. dollars. So it's -- I think the simplest way to think about it is, firstly, Tshipi we have -- volume is currently -- they report in rand, their costs are in rand and the sales are in U.S. dollars and translated back into rand.

[Operator]

Thank you, Stuart, and thank you for your questions. As we have no further questions, I'll hand back over to Brad and Ian to close off.

[Brad Rogers, executive]

Okay. Well, thank you. Thanks, everyone, for joining. I look forward to talking to you next quarter, both in relation to the quarterly update and also more so in relation to strategy. So important talking about that. Thanks again for joining. I hope everyone has a great Christmas and look forward to speaking with you next year. Ian, anything you would like to add over there.

[Ian Murray, executive]

Yes. Just Christmas wishes, holiday wishes, Hanukkah wishes to everybody, have a great break, and let's chat in the new year. It's going to be a busy 2023 for Jupiter Mines, and we're ready for it. Thanks, everyone.

[Operator]

Thank you, Brad, and thank you, Ian, and thank you all for joining. That concludes our Q3 Jupiter Mines call. All participants may disconnect.