Jupiter Mines Ltd

ASX:JMS

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and I would like to welcome everyone to the Jupiter Mines Q3 call. Today, we have Jupiter Managing Director and Chief Executive Officer, Brad Rogers; Chair, Ian Murray; and Chief Financial Officer, Melissa North, to provide a brief update on the third quarter of the '24 financial year. And then we will open up to questions from callers. Thanks, Brad. Please go ahead.

[Brad Rogers, executive]

Thanks, Hailey, and thank you, everyone, for joining our call. As usual, I will step through the key operating highlights that are set out in our Q3 FY '24 quarterly activities report. Given what's going on in the manganese market, I'll also spend a bit more time on that subject and where we see the market's moving.

And you'll note that in the quarterly activities report this time, we have also provided more analysis in that regard and also a little bit of guidance in terms of, for example, how spot prices and negotiated prices interact with Jupiter's revenue through Tshipi and therefore, some guidance as to when people can expect to see the elevated prices that we're now enjoying in the spot market through elevated Tshipi revenue.

At the end of all of that, there will be a bit of time for questions. And I'll also touch on, before we get to questions, where we're at in terms of our announced strategy and actions that we're pursuing in that regard.

So firstly, running through the performance of Tshipi for the quarter. From a safety perspective, you'll note happily that the mine had no lost time injuries, and that's good. But you'll also note that the total recordable injuries was slightly up quarter-on-quarter, and that was due to a couple of minor injuries that occurred at the mine during the quarter, things like rolled ankles, which is a focus. Obviously, we don't want to see any injuries at the mine and Tshipi. And we are very proud of the good safety performance of the mine. And so that remains an ongoing focus.

From a sales perspective, compared to last quarter, sales were slightly up, and that was a good performance because the prevailing prices, as you would have seen, flowing through this quarter as distinct to what happened post quarter, were actually quite low. And so for that reason, production of low grade was off, sales of low grade was off as well. And so overall sales being up quarter-on-quarter was a good outcome.

We'll set up -- we're set up, as you'll see, commented throughout the activities report; for a stronger June quarter in terms of sales, and that's good because obviously, that's a quarter that we'll be benefiting from increased prices. And we've got an intention and an ability to increase sales for the fourth quarter of this financial year as compared to the third quarter we're talking about today.

From a production perspective, total processed tonnes were in line with what we expected, notwithstanding it was down on the last quarter. That last quarter was an all-time record for Tshipi.So not surprising that this quarter was a little bit lower. So nothing to be concerned about there and as we get into the more detailed statistics in relation to high-grade and low-grade tonnes. As I mentioned a moment ago, we pulled back on production of low-grade tonnes because of low prices throughout this quarter.

Realized prices, as you can see, the CIF-realized prices of $3.55 for the third quarter, was slightly higher than second quarter realized prices, but you'll see that FOB prices were slightly lower, and that's because shipping rates increased quarter-on-quarter.

Notwithstanding that, and we'll talk about it more in a moment, those prices, $3.47, $3.55 for the third quarter, were fairly low. And again, it's important to understand that we sell our manganese ore to customers a month or so in advance of that ore being shipped and the revenue being booked. And so I'll come back to that point in a moment.

But for the third quarter, you'll note that we've stated that those tonnes and the realized prices and therefore, the revenue associated with those prices were [ off ] negotiated prices from November of last year to February of this year, and that was the time when spot prices were relatively low. So the elevated prices that we're seeing post quarter end will start to benefit at the back end of the fourth quarter and into the next financial year. And again, I'll come back to that in a moment.

Costs were higher by 10%. That was expected, and I flagged that on our last quarterly. The main reason for that was that we were going through a higher strip ratio section of the mine, a section called cut 12. In that section, you have to extract a bit more waste to get at the ore that you wanted to. So the strip ratio was [ 14% ] elevated quarter-on-quarter, and that's going to affect this quarter and next quarter if it might creep into the quarter following that.

About half of that increase, though, or about $0.08 of the $0.21 dmtu step-up was actually associated with the slightly lower high-grade ore mined because of those same mining conditions. So naturally, when you've got a lower volume of ore, you're amortizing fixed costs over a lower volume.

And so some of that step-up was associated with the strip ratio, but a reasonably significant amount of it was also associated with lower volumes. And as I'll talk about in a moment, we're expecting higher mine volumes for the fourth quarter as we rebalance towards a mine plan with a bit less cut 12 in it for that quarter.

In terms of mining then, you will have noticed that waste ore mined was in line with the last quarter, we're pretty much bang on. But as I mentioned a moment ago, graded ore was down 15%. Again, that wasn't surprising. We did have that harder section of the mine to get through, higher strip ratio and also some [ greater incidence ] in intrusion.

So normally, in a higher price environment, we actually wouldn't notice this sort of variability in the strip ratio. It's part of the normal quarter-to-quarter periods of the mine. But when you have low prices, it does tend to stand out a bit more notwithstanding, as you'll see in a moment, the mine -- even with these low prices, there's obviously positive earnings and positive cash flow.

From a production perspective, high grade was in line with expectations. We did process less low grade ore through the crushing circuit this quarter, and that was simply for the reason that prices, as I mentioned a few times, were low. And so therefore, low grade [ wasn't ] attractive to process for sale through the quarter.

Land logistics. So the volumes in land logistics was 25% up on the last quarter. And because of the low prices, I think I've mentioned in the last few quarters, we are actually enjoying a higher mix of rail volumes than we would ordinarily expect. And that's because some smaller miners in South Africa, idle production at the sorts of prices that prevailed through this third quarter.

And Tshipi and other large miners in the Kalahari manganese field, therefore, got to take up more rail capacity than they otherwise might. And so while volumes were up quarter-on-quarter, the mix of rail was favorable relative to expectations, and that helps from a cost-of-logistics perspective on a blended basis.

From a sales split perspective, you'll see that there was a weighting towards CIF prices as they ordinarily is [ CIF ] shipped volumes and very low mine gate sales. That was all low grade. So we didn't actually ship any of our low grade ourselves, but we did sell about 44,000 tonnes, as you can see, in the quarterly at the mine gate.

From a cash perspective, the cash at Tshipi and at Jupiter, the major factor there was the payment of the interim dividend that occurred during the month of March. And so you'll see, that was the major reason for the variance quarter-on-quarter from both Jupiter and Tshipi.

You'll note that Jupiter also contributed AUD 8.3 million [indiscernible] cash to that interim -- to top interim dividend rather, the top up the dividend that we received from Tshipi. So that was also the reason why Jupiter's cash was down slightly less than the amount of cash that we put into that dividend. It was the main driver of Tshipi's cash variance as well.

There were, as we set out in the quarterly, some minor working capital timing differences, and part of that was a building of inventory through the quarter in order to be set up for what we're planning as a strong June quarter, in particular, a strong month of June since that's the month, which will start to benefit from the sort of elevated prices that we're now seeing in the market.

So that covers the key points from an operational perspective with respect to Tshipi's performance for the quarter. I'll now spend a bit of time talking about what's going on with manganese prices. And that's, as callers would have seen, become a lot more interesting post the quarter.

So through the third quarter, you did see an improvement of prices on a spot basis, on a relatively gradual basis. And as we've talked about in the last quarterly, that's because prices got so low in the December quarter that a number of [ mines ] actually weren't profitable, and they started pulling back on their production.

Tshipi, with its cost base, was fine and so kept going, but others pulled their volume out. And as you can imagine, that supported prices to gradually improve through the third quarter. So prices that were much better than we're seeing on a spot basis through the December quarter, but still well below average levels, still below average 6-year levels, as I'll show you -- as I'll talk about in a moment.

And then in the middle of March, South32 and Anglo's mine, GEMCO was impacted by Cyclone Megan. I think everyone's probably aware that, that cyclone caused significant damage to the mine and also to other infrastructure on the mine.

So much so that South32, last week in its own quarterly, guided that, that mine which hasn't been in production since that cyclone hit in mid-March, would be out on a preliminary basis until the March quarter of next year.

They did say that they will seek to commence some type of interim operations, and I think that's likely to include train shipping of ore from the mine, and they will seek to do that if it makes sense, obviously, for them to do that on an earlier basis. But they also commented sensibly that, that's likely to be volume constrained.

GEMCO is the world's second largest producing mine. It makes up 12% of all global supply of manganese. The top 5 manganese mines in the world by production make up together 44% of all supply. The next 57 make up 56%. So that is to say that the top 5 mines, GEMCO being the second largest, Tshipi being the fourth largest; all are very significant in terms of supply of manganese to the world.

And to the extent that there's an interruption to the supply from one of those mines for a period of time, then that tends to matter for the market balance of manganese in the world and therefore, prices. So that incident and the update last week is why manganese prices are re-rating. And that re-rating will come to now happen post the end of the March quarter.

So at the end of April, you will see, for those who follow the prices which we do post weekly on our website, that month-on-month FOB prices increased to $3.92 per dmtu, and that was up from $3.04 a month earlier. So that's a 29% increase month on month. That correlated with stocks being drawn down by about 10%, as you'll see in our quarterly. That $3.92 equates to about $4.80 on a CIF basis. The difference is shipping. And shipping is quite elevated at the moment.

We would expect freight rates to be closer to $25 a tonne in this type of macroeconomic environment. They are elevated because a raft of other macro factors going on in the world that are constraining shipping capacity, higher grain exports from Brazil, but also wars that are going on, Russia, Ukraine, the Gulf of Aden, they're all constraining shipping capacity. And that's why shipping rates at the moment are higher than we would expect, and they remain elevated through this period of time.

But you'll note that $3.92 equates to $4.80 on a CIF basis before shipping rates are taken into account. And that was a very significant increase month-on-month, 29%, as you can see there, after a period where manganese prices have been very, very flat for the last 9 months or so and flat at low levels.

So you can note that, but you can also note that we think manganese prices are still moving. The $4.80 CIF price equating to that $3.92 FOB price that I quoted from Fastmarkets at the end of last week is lower than Platts quoted at the end of last week.

They've quoted $5.20 -- $5.40 higher than this on a like-for-like basis. And that's because Chinese prices that are currently being negotiated both at port and for some seaborne [ trades ], are still moving even from this price that was reported on Friday, and there were some [ trades ] pointing higher than that, higher than $5.20.

So we are expecting that whilst manganese prices have increased, they will continue to increase over the period of time, and that is because supply is short. As I mentioned a moment ago, GEMCO is a very significant manganese producer. It's been out since the middle of March, and it's going to be out for several months to come.

And that is why manganese prices have moved, and that's why we expect them to continue moving and the leading indicators, as I mentioned a moment ago, for that to occur based on prices that are being negotiated in [ China ] even after the end of last week.

Most months, you don't actually see a price movement week to week, and that's because South African traders like ourselves sell our ore in the same week of each month and so you have a lot of activity where there are trades occurring. And then you have another 2.5, 3 weeks where there isn't any activity.

And so that's why if you're looking at our website and the Fastmarkets prices that are reported week-to-week, you often don't see very much movement, and that's because there aren't many trades going on, and that's occurring every month or so.

This is a different market because there has been this interruption. And that is why, notwithstanding ordinarily, you wouldn't have seen a move in prices in the Fastmarkets index that was very material last week. It has occurred because, again, directly related to the shortage of supply that's occurring.

The other point that I've made in the quarterly is that notwithstanding month-on-month, there's been this big 29% increase in the FOB price to $3.92 FOB, that price is only just now at 6-year average levels. So although it has re-rated spectacularly in the course of a couple of weeks through late April, it's potentially got more to go.

We think, based on what we're looking at, that is likely to occur -- as I mentioned, the Platts index is already $0.40 higher than this. And it's a long way off any sort of 6-year-high-type levels, as you can see there. $3.92 today, $3.88 6-year average. The 6-year high FOB price was actually $6.31, so much more elevated than what we have here today.

So we'll see where it gets to. But given the materiality of GEMCO, given the leading indicators that we're seeing from the Platts price and also from Chinese trading, we do expect prices to continue to move upwards.

Again, based on how our business works, we are selling June volumes based off the prices we are seeing now and through the first half of May. So that is when we expect to see revenues start to benefit from the month of June onwards. And you should bear that in mind as you see the next few quarterlies coming through. The March quarterly was based off prices that were negotiated from November, December last year until February, and that was much lower prices than we've seen here.

So we are looking at improving revenue from a price perspective from June, going forward. And as I mentioned before, we're looking to plan volumes shipped around that expectation.

I also mentioned in the quarterly, just to give people a bit of a feel for how sensitive Tshipi's earnings are to movements in price, every dollar dmtu increase for 12 months improves Tshipi's EBITDA by about ZAR 1.8 billion or about AUD 146 million. So if you're taking any price and earnings points, you can take that as a kind of rule of thumb in terms of sensitivity of earnings to price movements.

So in summary, Q3 was an operating quarter that was in line with expectations. Sales were slightly up, and we're up on a target to be able to achieve our expected volumes of 3.3 million tonnes to 3.4 million tonnes, possibly slightly higher, and that's being on average with how Tshipi has performed since Jupiter listed in the last 5.5 years or so.

Production outcomes for the quarter were in line with expectations. We expected mining cost to be slightly higher. They're actually at the lower range of what I guided on the last quarter. Q3 manganese prices, notwithstanding what happened post quarter end, were still quite muted. They did start to improve. But the average spot for the corridor of $2.97 per dmtu in the March quarter was higher than $2.77 average spot in the December quarter, but still very low compared to the 6-year average, which is $3.88 per dmtu.

Post quarter end, we've seen this nice re-rate in manganese prices, 29% month-on-month from the end of this quarter to the end of April in response to that interruption of production at GEMCO and concerns around supply and the timing of that revenue benefit we start to flow through to Tshipi's revenue and therefore, Jupiter's results from the month of June onwards.

And we do expect, given the guidance from South32, given the materiality of GEMCO as a contributor to the supply side of global manganese there, to be continuing support for prices. And I've given a few guidelines in terms of where the market is currently at even from the end of last week. And also the fact that Tshipi's revenue and EBITDA is quite sensitive to movements in the movements in the manganese price, every dollar equates to AUD 146 million of EBITDA incrementally.

So Tshipi, as we all know, is a great mine, low cost relative to others, stable production and sales, as we've seen, and that enables it to go through low pricing environments like we've just seen and still be positive operating cash and positive earnings and then be on a strong footing as we are to be able to capitalize when prices increase.

Just briefly in relation to strategy update before I turn to any questions. You will have seen that we had updates on a couple of elements of our 5-year strategy that we're about a year in to now. The most recent of which was the release of our inaugural Sustainability Report that we released on the 15th of April.

You will see within that report that we're highlighting two things. Firstly, the excellent performance of Tshipi and its management team in this area to date, and we're proud to be able to give greater visibility to readers of that performance to date.

Secondly, that we are prioritizing improvement opportunities that are sensible from a business perspective. So the most obvious things that help our business from a sustainability perspective also happen to have a strong business case. And the obvious example there is putting in solar at Tshipi, which is a no-brainer on a cost basis, and it also moves out from an energy intensity and a carbon intensity perspective.

Earlier, on the 13th of March, we released an EV battery market entry scoping study, and that was in relation to the fourth [ NIM ] of our announced strategy. We've set out their attractive project economics, we've set out the market opportunity. And we've also set out Jupiter's, we think, superior competitive positioning to be able to execute on that strategy.

On that basis, the Board of Jupiter has endorsed us moving through to a pre-feasibility study stage, which is now underway, and we'll go for the rest of calendar year. The focus of that prefeasibility study is to drill in on customer arrangements and also funding arrangements. So by the end of the [ PFS ], we'll be able to update the market in relation to those elements, which are important before we move into the [ DFS ] stage.

The other elements of our strategy are also underway. We'll provide updates on those elements and also the further work that we're doing in the sustainability and the EV battery field as we have secured initiatives to update the market on.

So I think that's probably a comprehensive update in relation to both the performance of Tshipi for the quarter and also a brief update in relation to our strategic initiatives. I'll just pause there, Hailey, and see if there are any questions.

[Operator]

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

[Mark Fichera, analyst]

Brad, just a question regarding the shipments for the year. You're targeting 3.3 million tonnes to 3.4 million tonnes of all. What percentage of that amount of that will be low grade? And I guess, maybe just talk a bit about low-grade demand, just given in the context of GEMCO being out. What pricing are you expecting to get for low grade relative to, say, if high grade is trading at say $3.92?

[Brad Rogers, executive]

Yes. Thanks, Mark. So you will see in our quarterly -- I think we've provided low grade. We haven't sold much low grade this year to date. We generally plan for about 3 million tonnes of high grade in any market and the balance being low grade. Last year, we were able to lean a bit more into high-grade volumes than that. And obviously, we are looking to maximize high grade as much as possible.

We will be shipping some low grade in the month of June, and that is based on an assessment that it will be profitable to do that with the movement in volumes. I'm just checking my -- yes. So we're looking probably at about 100,000 tonnes of low grade in the June quarter, which is an increase on what we ordinarily would have put out.

I'm not going to sort of venture what that price will be. Prices are moving so much at the moment, and that's high grade, let alone what's going on with discount of low grade.

Obviously, low grade is going to be cheaper to purchase than high grade. But we have about 2 million tonnes of low grade sitting on the stockpile usually, and that's a [ mark ] we produce 400,000, 500,000, 600,000 tonnes of it in any given year of the fact that that's not able to be profitably sold or at least attractively sold in most quarters. We think that we're coming into a period where we will be able to attractively sell that.

So I'll come back to that question after the next quarter when we've actually negotiated those prices, but we are expecting to sell some in the month of June.

[Operator]

[Operator Instructions] Your next question comes from Tony Gu with Datt Capital.

[Tony Gu, analyst]

Congratulations on the result and applause to you and your team. Could you provide us an update on the cap on derailment? Because Moanda like, obviously, they produce about 7 million tonne per annum. What's the current estimate downtime from Eramet?

[Brad Rogers, executive]

Thanks for the question, Tony, and thanks for raising that point in particular, that's something that I didn't raise. There was a derailment in Gabon that we believe occurred on the 20th of April. Gabon is relevant, as Tony mentioned, because that is where Eramet's mine, Moanda, is located.

I mentioned that GEMCO is the second largest producing manganese mine in the world. Moanda is actually the first, is the largest producing manganese mine in the world. So as with GEMCO, anything that happens with Moanda is also important.

Eramet has been trying to increase their production from Moanda for some time. And we understand the main constraint to that ambition is the rail line that connects Moanda in land to the port that they ship out from. That rail line is run by government organization called Setrag, and that rail line handles not just Eramet manganese production, but also other trade that's occurring along that prior line.

It's a rail line that had that derailment in -- on the 20th of April. There was a derailment, a more significant one that occurred actually from a landslide in January of last year that people who have been around manganese for a while might recall. And that also tends to cause concern with respect to supply, given how significant Moanda is. And again, back to the point I made before about concentration of production from the largest mine, Moanda is one, GEMCO is one, Tshipi is another of those top 5.

We think, Tony, that 300-meter section of rail that Eramet announced was damaged. And it looks like that train was not carrying. Also, it was unloaded. It has been fixed now, so we think it's probably impacted 7 to 10 days, I would imagine, of production from the mine. So for me, it's not a long-term introduction at the fringes, given the significance of the mine, it also exacerbates an already-tight supply side around manganese, generally.

But what it also highlights is that given Moanda has been trying to increase production, that mine, as you mentioned, tracking around 7 million tonnes per annum at the moment, it was about 4.5 million a few years ago. So they have been increasing production, is capacity constrained around that rail line, and that rail line has been exposed in the last 18 months to a couple of incidents. And so that will be the constraint, we think, to Eramet lifting production in response to this GEMCO incident.

They would obviously love to do that, but they have been trying to push production, as we can see and as is demonstrated, for this period of time anyway. So we think that, that rail line is probably a limiting factor.

This incident that you've just mentioned, also got some attention in the market last week, Eramet as we understand it, withdrew prices during that period of time as well, but we think that they're literally back on track as about now. So probably about a 10-day-ish interruption, based on the intelligence side of Tony.

[Tony Gu, analyst]

Brad, just a follow-up question on that because the shipment time from Gabon to the Chinese port is roughly 40 to 45 days, in our estimation. So given an extra 10 days of downtime, do you see a supply gap at the Chinese ports?

[Brad Rogers, executive]

Yes, there's a number of things pointing to a supply gap, Tony. GEMCO is the most obvious one. The Eramet incident doesn't help with that and noting that Eramet ore is somewhat substitutable for GEMCO ore, you can substitute our ore as well for GEMCO. Ore is not perfectly substitutable, but the ways of changing the blend into ferroalloy [ plants ], which is why our ore price is also moving.

You also have, and you will have noted in our quarterly, the stocks generally being drawn down by about 10% during the course of March. Some of that will be the fact that supply was already tight. I mentioned during the course of December, January, a number of smaller mines had pulled back on production because of low prevailing prices.

Some of these smaller mines will be wanting to get back into the market as prices keep running. But naturally, there's a bit of a delay in that occurring because they have to get their minds going again, spend a bit of working capital, get workforce back, et cetera. So it's not a perfectly fungible thing.

And then on top of that, you'll have some people holding back some volume in order to maximize price benefit, given the trajectory that's going on. And people want to observe where these prices move to since in the last 2 or 3 weeks, they've moved quite aggressively upwards. So you're right, all of that does point to tightness, and it's already causing concern, being further exacerbated. And there's a mix of factors going on there.

[Operator]

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

[Brad Rogers, executive]

Thanks, everyone, for joining. I appreciate the very insightful questions. I think, hopefully, this has been a helpful call, and I look forward to speaking to you next quarter.

[Operator]

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