Jupiter Mines Ltd

ASX:JMS

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, and I would like to welcome everyone to the Jupiter Mines Q4 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 fourth quarter of 2024 financial year, and then we will open up to questions from callers. Thanks, Brad. Please go ahead.

[Brad Rogers, executive]

Thanks, Darcy, and good morning, everyone. Thanks for joining us. As Darcy just said, I'll give some overview remarks as usual, which should go for about 10 minutes or so. And then there should be plenty of time for questions at the end if there are any.

So no doubt, you will have all seen our quarterly activities report that was released this morning, and I'd just run through the high points in relation to that report. You will have seen no doubt that it was a very strong quarter, particularly with respect to operating performance. You'll see that our numbers really across the board were a significant step-up from the previous quarter and in some cases, were near or at record levels of performance. So it was an outstanding performance during the quarter from the team at site. And obviously that was in view of prices, which increased, as you will also all be aware, reasonably materially quarter-on-quarter. So I'll come back to each of those themes in a moment.

But in summary, sales were up 35%, sales volumes on [ north ] last quarter, full year sales of 3.55 million tonnes, which was above what I guided to last quarter and above what we averaged, frankly, for the last 5 or 6 years, which is between 3.3 million and 3.4 million tonnes. Production was up 22% on the March quarter, and that was a reflection both obviously of our tactical intention to increase production, but obviously complementary to the performance of the team at site. Realized prices for the quarter were 24% higher than the March quarter.

Costs, you will have seen operating costs increased to $2.50 per dmtu quarter-on-quarter. But the main driver of that was a bit of an oddity as to how royalties work in South Africa. Because the last quarter was so profitable, it actually moved the full year up into a new royalty banding, a higher royalty percentage. And that meant we had to go back and true up effectively the royalties for the entire year, not just that quarter. ForEx is also unfavorable. So if you back those out, that accounts for about half of that increase, and then you had some one-offs as well in the quarter.

Looking at profitability and cash. You will see that EBITDA quadrupled quarter-on-quarter. And if you annualize that increase, it works out to about AUD 140 million increase in EBITDA quarter-on-quarter as against an $0.87 per dmtu higher realized price. And so you might recall from the last quarterly, I gave some guidance around rough rule of thumb or sensitivity of EBITDA to movements in the manganese price. And that increase quarter-on-quarter is pretty much in line with the guidance I gave of about AUD 147 million for every dollar increase in the manganese price from a U.S. dmtu perspective. So that was good.

Cash increased less than EBITDA, and I'll go into that in a moment. But in summary, the main driver of that is a run-up in accounts receivable, which is obvious when you have what occurred in the quarter, particularly in the month of June in particular where you had very high volumes, higher prices, you receive that cash after quarter end. There was also a product inventory build. And so I'll come back to cash in a moment. But in summary, if you look at the table in our quarterly that provides a summary overview of production through to financials, an outstanding quarter for Tshipi and really taking advantage of the prevailing prices that were materially higher quarter-on-quarter.

From a more detailed production perspective, you'll see that waste mining was in line with last quarter, but graded ore extraction was materially higher than last quarter, 39% higher, and that supported the higher sales and logistics figures that you can see elsewhere in the report. That's really a benefit, which we flagged last quarter that we'd opened up more of the ore body. In the last quarter, you would have seen, conversely in the March quarter, that graded ore was lower. Waste was about the same. So we had the ability to produce a bit more from a mining perspective and also support higher logistics and sales through the quarter, which was obviously very pleasing.

High-grade ore processing was higher by 9% at last quarter and low-grade ore processing was much higher by about 107% in the last quarter, and that reflected a strong performance of the crushing circuit during the quarter and a plan to capitalize on higher manganese prices. You will see in the sales figure that volumes were higher across the board, but obviously, a reasonable component of that was low-grade sales, which we're able to achieve in higher pricing environments.

Land logistics achieved a record quarter, and that obviously supported the elevated ore sales. Land logistics volumes increased by 55% on the March quarter, and that was a record achieved in the June quarter, all channels. Rail, road and Lüderitz outperformed for the June quarter. This was really a function of the logistics team to be reacting quite early and booking up capacity through to June quarter and beyond to be able to take advantage of higher prices. Export sales increased materially as we've already said, up 35% on last quarter.

From a cash perspective, you can see in the quarterly also the increase in cash overall from a Jupiter perspective and the increase at Tshipi's cash increase for the quarter due obviously to the strong operating performance that we've already seen, and the operational cash flow, you can see a reconciliation on Page 6 of the quarterly shows an increase quarter-on-quarter of ZAR 224 million in the March quarter to ZAR 775 million in the June quarter.

Working capital increased. And again, you can see in that reconciliation what was going on there. Obviously, when you have higher volume, higher prices, you're going to have an increase in accounts receivable, and that made up most of the increase, as you can see there, in working capital. That cash obviously will be received in the FY '25 financial year.

There was also an increase in finished product inventory, increasing production that we've already seen ahead of anticipation of higher volumes and sales. So that was the majority of what was going on with that working capital build, genuine working capital. Taxes and royalties obviously paid in the quarter as well. And Jupiter's cash just reduced in line with normal corporate spend levels.

From a manganese market perspective, and we've provided an expanded commentary in the quarterly since we anticipate a lot of interest in this particular area, quarter-on-quarter headline average and also end-of-month spot pricing were provided both in the quarterly, were both materially higher. But underneath that overall observation, there was a fair bit going on. This is a market in disruption and flux at the moment. That was true during the quarter. It's true now. We all know that that's predominantly driven by the GEMCO outage. The major mine owned by South32 and Anglo in the northern territory that hasn't been operating since it was impacted by a cyclone in March of 2024 and is not forecast to come back online until the March quarter of next financial year -- of next calendar year, sorry.

That mine makes up 12% of the world's supply of manganese ore on its own. So that's a very major outage from the supply of manganese ore, and that is the reason why manganese prices ran up quite significantly, particularly in the first half of the June quarter. In the latter part of the June quarter, the 36.5% manganese grade price has started to retract, and that has continued beyond the end of the quarter. And I'll try and explain what's been going on there, and that detail's also in the quarterly.

So you had the price run up off the back of the disruption. It ran up to -- off June delivery, so May spot sales about $6.31, $6.40 CIF. That was a very fast increase in the price. And at the end of that, there was some concern that, that price had run up quite quickly. And this is because sentiment as to end steel demand is quite weak at the moment. It's been weak through this period of time. So that's not necessarily a change, but you do have a sentimentally driven market at the moment. People are concerned about weakened demand for steel and also people concerned about increasing supply from South Africa.

The flow from South Africa was always going to increase. And as we've seen in our numbers, we've been a part of that. Obviously, people, us included, want to take advantage of higher prices. That's been, in large part, due to low-grade manganese ore. So we did expect that volumes would increase. And it's a concern as to those 2 factors that's really driven prices to come off. You've had port traders in China selling off older stock that was procured at lower prices pre the GEMCO incident, and they were able to do so profitably. And that hasn't helped.

You've got a daily trade in manganese or from port traders in China to their customers, whereas the seaborne trade happens more on a monthly basis. So you had an absence of seaborne volumes during a period, call it, late June, where port traders were liquidating old stocks. And that was creating price markers for those port stockpile sales that were lower than the seaborne prevailing prices.

And so it's a combination of these factors, weakened demand, concern around increasing South African supply, price markers from port traders selling up old stock at lower prices that has dragged sentiment down and therefore dragged pricing down to a point now where the 36.5% price is around about 5-, 6-year average levels, having run up to higher levels than that.

Looking out -- sorry, before we get to that. So there's lots of disruption going on in the market at the moment, as you can imagine, every part of that market, scrambling to cover the GEMCO outage and also take advantage of it. And so what we've seen is use of -- increased use of waste, [ center waste ] to extract high-grade manganese ore in order to substitute for GEMCO; or you've seen greater use of 36.5% our grade of manganese ore in order to substitute for that high-grade ore.

You are seeing trade flows going in unusual directions. We are selling into different geographic markets, not just China that we would ordinarily sell into, and that's because there's demand from those markets. They may otherwise be buying from GEMCO or the high-grade miners. It's also because we're obviously trying to maximize our opportunities in this market, and selling some material, for example, into Indonesia or Saudi Arabia helps with our ability to keep some volume out of China.

Through all of these, Chinese stockpiles have been lower. So they're currently sitting at about 4-year low levels. Within that overall stockpile level, there are different stories. High grade, 44% material is obviously the grade of material that's been directly impacted by the GEMCO outage. And so high-grade prices are still very high, and that's the element of the stocks in China that's been most directly impacted.

Semi carbonate South African ore, what Tshipi produces has increased a bit in the last month or so, but it's still not at the high levels that you saw last year for example. And a lot of that is going to be lower grade manganese or 30% to 32% material, and that's because there just aren't excess stockpiles of higher-grade benchmark material available.

So you've got a market here that's really being driven by concern as to forward factors, not necessarily physicals in our view. No sort of industry analysts predicted this retracement, but we are where we are around average levels currently.

Looking forward, there are a few supportive factors that we can see in the market and we've also highlighted in our quarterly, and they include that high-grade pricing is -- hasn't repriced and it's still at very elevated levels. And so there is a big disconnect now between the high-grade price, which hasn't seen the repricing that our grade has. And obviously, there's some connection and substitutability there. So that's a supporting factor.

You also now have port traders in China having sold off pre-GEMCO-procured stock at lower prices now sitting on June procured stock that's now being delivered into China that was procured about $6 CIF. That material needs to be sold. And so you have port traders trying to increase prices, and that should provide some support for the seaborne market as well.

The low-grade volume that we can sell and some of the other open-cast Southern Kalahari mines in South Africa can sell, there's a limited market for that. There's not a deep endless market. And so there is a natural limit within the market from a volume perspective how much the market will take and at these sorts of prices also. I think you'll see the miners that have been selling a lot of that volume start to pull back a bit on that low-grade volume, and that should help with the optics as well.

And South African logistics, whilst we performed very well from a logistics perspective in the June quarter, there are constraints mainly at port but also with respect to road logistics in South Africa, which should limit the ability for ongoing very high levels of volume from South Africa. And we've got a long way to go on this GEMCO disruption. So we think that we're going to continue to be in this interesting period where there's lots going on. There's opportunities in this market as well as risks, and the team are doing a good job from a marketing and also an operational perspective of trying to take advantage of that.

So in summary, just drawing all of that together before I open for questions. The fourth quarter was an outstanding quarter from Tshipi sales, graded ore mining, processing, logistics, all at elevated levels. Costs were slightly higher quarter-on-quarter, but that's mostly due to royalties and ForEx. Profit increased in line with what you would expect and showed the very strong leverage of Tshipi to increase in the manganese price quarter-on-quarter. There was a quadrupling of Tshipi's EBITDA.

Cash is lagging, but again, that's understandable when you consider how any business works that you'll sell off of a given price and then collect the cash subsequently and both that factor accounts receivable and increase in production, therefore, product inventory was the reason for -- the main reason for that delta there as we explained.

Fourth quarter showed significantly improved prices quarter-on-quarter. Underlying that, there was a lot of volatility in the market, both through the quarter and post for the reasons that I've explained. But looking forward, whilst end steel demand remains weak, there are some supporting factors that could provide support for the manganese market, and we do have a long way to go on this disruption. And that includes South African logistics constraints, higher-priced manganese ore now having arrived in China requiring support and Chinese port traders being very focused on that.

Overall stockpile levels are low at 4-year low levels, so notwithstanding all this concern around increasing supply, overall stockpile levels are low. South African semi carbonate volumes within those stockpiles have increased a bit over the last month or so but not back to the sorts of levels we saw last year, and a significant component of that increase is going to be lower grade material where there's a limited appetite for that. And that's the volume [ area, well ], I'm expecting South African producers to pull back given where prices are right now.

So hopefully, that overview has been helpful to people on this call. Happy, Darcy, to turn it over to any questions we may have.

[Operator]

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

[Tony Gu, analyst]

It's Tony from Datt Capital. Yes. Congratulations on the quarterly results. Just a quick question regarding the new Chinese rebar standard that was published last month. So we have witnessed some short-term clearance of the existing steel products in response to the new standard published. I guess that does explain the recent weakening steel price. But in the long run, given that the new standard will come into effect in September this year and there is a higher requirement, there's further refining requirement mandated by the new standard. So obviously, the usage in silicon manganese is going to increase further due to that coming into effect. So have we seen any signs of such impact translating into the upstream and midstream at current or that's still really early days?

[Brad Rogers, executive]

No. It's a great point, Tony, and thanks for raising it. I think we haven't seen any impact yet, but that should be one of the supporting factors going forward. You've actually seen a little bit of an increase in manganese intensity into steel over the last period. And the concern about end steel demand being weak, which is a factor in what's driven down prices here, if you look at the figures, it's probably a bit overdone.

There is a mixed picture in China, which is in line with expectations for the year where, yes, property is a drag, but manufacturing is doing well, exports dealers doing well. You've had [ this slide ] from the manganese perspective, increase in manganese intensity. And then looking forward, you've got some supportive factors like you've just mentioned as well. And that's just China.

The rest of the world, India's doing well in line with expectations and providing some balance there. So yes, I mean, everyone talks about weak Chinese steel demand. It's obviously not been fantastic, but it's not like it's caving in. It's been broadly kind of flat and in line with what were weak expectations and then looking out. If you're looking at the greatest manganese intensity and therefore, the greatest area of manganese demand that comes from rebar, as you say, construction steel, and so the more of that and that policy that you're mentioning, whilst we haven't seen anything yet, it's a good point, and it's one of those factors, which should help on the demand side.

A lot of what I spoke about just then was about the supply side, and that's really kind of what's been going on and what people are sort of concerned about. Demand, in my view, has been flat, but the factor that you just mentioned should help increasing manganese demand going forward.

[Operator]

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

[Mark Fichera, analyst]

Congratulations on the quarterly. I've got a question just regarding the HP MSM project. Obviously, you put out the scoping study previously. I was just wondering, given the nature of what's happened in the EV market and upstream, obviously with critical minerals, just how that project is progressing in that context. But also we've also seen with the IRA guidelines as well that have come out for critical minerals. Just wondering how you're seeing that project in conversations with some potential customers.

[Brad Rogers, executive]

Yes. Thanks for the question, Mark. So people who have been following that part of our strategy would be aware that we published scoping study results in March, which were positive and supported us moving into the current phase of work, which is a pre-feasibility study. So as you can imagine, there's multiple streams of work that are ongoing in relation to the pre-feasibility study.

The question you relate -- you asked relates to market demand, I guess, for HP MSM and our outlook. And obviously, this is a growing area of demand. The market today is quite small, but it is growing rapidly and the market really starts to emerge meaningfully, we think, in the later part of this decade, 2028, and that's why our study is focused on being in production by that point in time. What we're doing at the moment is studying all of the risks and putting together a business model design that mitigates those risks.

The technical, the engineering, the site selection, all of those things are pieces of work that are underway. And from a technical perspective, that was the main focus of the scoping study. We now think that we're pretty satisfied that we're able to produce industry grade material from Tshipi low-grade ore. So whilst we are continuing to do further work in refining in that area, that was the main hurdle for the scoping study.

The main hurdle for this current piece of work is in the area that you mentioned, is in satisfying ourselves that we're able to get nonbinding offtakes in place by the end of this current period of work that underwrites our volume and pricing assumptions. And so we're essentially looking at approaching this area as an infrastructure business model, where we have ideally 7, at least 5-year offtakes with a 4-year or quicker capital payback. And that, I think, is an effective way of mitigating the risks.

The customers that we're talking to, notwithstanding the discussions around EV growth rates that are going on and concerns in other battery mineral areas, we're not seeing that same sort of concern amongst the customers. They know that they need more manganese based on their cathode chemistries. And so that is an ongoing discussion, and we haven't seen any backward step there from that perspective.

So we believe that the market will be there. We believe that it's too difficult to predict the overall shape of that market growth, though, and that's why it's important. And the main focus is our current phase of work to be able to establish before we move into the DFS phase, which would be slated for next year. Offtakes that add up to the total volume, we're looking for -- at the prices we're looking for so that we can get assured capital payback within that initial period of time.

That would then take us into the mid- to late 2030s, where the market will be more mature and [ simpler ]. And in our scoping study, we've assumed a much lower price for that subsequent period of time while still producing good economic returns.

[Operator]

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

[Brad Rogers, executive]

Well, thanks, Darcy, and thank you, everyone, for joining. As we've seen, it was a very strong quarter. We're kind of in interesting times from a manganese price perspective. The price that we have today is around average levels, so certainly not back to the levels we saw last year, and we've got a long way to run with this GEMCO disruption.

And as we've just discussed on the supply and also on the demand side, we think that they're supporting factors at play now, so let's see how that plays out. But from within -- what's within our operational control ourselves on that site, it was an outstanding quarter, and hopefully, that's come across strongly in the document. Thanks all for your time and for your questions.

[Operator]

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