Jupiter Mines Limited

The conference is now being recorded.

Good afternoon and thank you for waiting. I would like to welcome everyone to the Jupiter Mines Q1 call. Today we have Jupiter Chief Executive Officer Priyank Sathya to provide a brief update on the first quarter of the 2021 financial year and then we will open up to questions from callers. Thank you Priyank. Please go ahead.

Thank you and welcome everyone to the Jupiter Mines Q1 call. As I think all of us are aware, this first quarter has largely been around the COVID-19 pandemic and how Jupiter has tried to mitigate and maneuver around those restrictions. And the results which we have presented today are largely a reflection of what we have been able to achieve. So as we announced around 27th of March, South Africa went into lockdown. All the mines were basically put into the shutdown mode, and that lasted for around three to four weeks. And around the middle of April, all the open pit mines were allowed to come back into production at around 50% of the capacity, which was then increased to 100% of capacity around the 1st of May for the open pit mines. And around the last week of May, that restriction was lifted for the underground mines to come to 100% of the production. So with that as the backdrop, the Jupiter management came up with a comprehensive COVID management plan. And as part of our control regime, testing regime, we basically from the production side, which is the mining, the processing side, came into 100% of production mode around the first week of May. But that was largely what was in our control, as all of us are very much aware. The primary mode of shipment for the Chippy product is largely through the MECA allocation through Transnet. And Transnet, while they have done a very good job of coming back into production, they are still not at 100% production. They are operating somewhere around 60% of the capacity. And that has largely to do with the fact that some of the train operators on Transnet are classified in the vulnerable group. If something happens on one of the lines, all the production on that line is halted, and it takes around two days for it to come back into full production. So that has likely been the reason why we have, compared to our business plan, moved a substantial amount of tons on the trucks. which is reflected in our cost of production. As I've said time and again, and I want to remind everyone that our cost of production on the rail versus the road, the cost differential is roughly 300 rands per ton, which translates to about 30 Australian dollars per ton. So that is the reason why our cost is a little bit higher because of the lockdown again, the transnet, the shipment, everything is going to take time to come back to 100% of production. We anticipate that to happen sometime over the course of, I would probably say July and August. That is what Transnet is aiming for when they will come back into their 100% production mode. So that was again one of the reasons why although we produced and we considered sales for close to 470,000 tons, approximately 150,000 tons was moved from May to June. So I think the overall impact of the coronavirus If we don't see any further impacts and Transnet comes back to full production around, as I said, July and August, it's going to be that we will probably be on a yearly basis losing around 300,000 tons of sales because of what has happened in the first quarter. From the Transnet perspective, compared to 100% rate allocation with, again, the hiccups on the rail side and the fact that they will only come back to full production around July and August. Our allocation will probably be around 75% of our legal contract. And the rest we will basically be supplementing through the trucking channel. So we have the capacity to go up to 120, 130 trucks per day. So compared to our business plan, We anticipate that we will be transporting around 1.4 million tons on the trucks, primarily through South Africa, but the remaining will be through our port of Lodritz. As I said, we truck to the border, and then from the border we rail to the port of Lodritz. So that, in a nutshell, is going to be our plan if – We don't see any further impact from the ongoing pandemic. We would try to achieve around 2.7 million tons against that 3 million tons target. And the cost will be slightly higher, largely because of us moving substantial amounts on the trucking channel compared to the railing channel. But that said, we have in the past always achieved more than what we have targeted on the rail, and that still remains the plan for the rest of the year. So that's largely what I wanted to say in terms of what we have achieved in the first quarter and what our plan is going forward. As the report says, we are still profitable. The foreign exchange is favorable, and our target of trying to produce manganese at or below $2.20 still remains the focus, despite these hiccups. So with that, I'm more than happy to take any questions.

Thank you so much, Priyank. Yes, you are invited to ask questions by pressing star 1 on your telephone keypad now. You will be placed into the queue. Please listen for your name, and I will introduce you through to the call. I won't be a moment, Priyank, and I'll be back with your first questions. Okay, we have our first question, and it is from John Schultz. Please go ahead, John.

Hi, Priyank. Just one on rail capacity. So you're saying 75% for the total year, that even though you expect some back or Transnet to ramp back up in July and August. Is that correct?

Well, Transnet is currently operating at close to 60% of their nameplate capacity for the Manganese Mecca channel. So we anticipate that because of the fact that some of the operators in the vulnerable group, as I said, if someone is identified and tested and comes back with COVID positive, then they shut the whole line down. It takes about two days for that line to come back into action. So according to the tactical volume plan, which Transnist shares with all the producers, their target is that they should be able to resolve all these issues and come back to full capacity over the course of July and August.

Okay, noted. And then in the release, you noted that there was some additional equipment that couldn't be deployed because of COVID-19. Is this still an issue? Is it still being waiting to be deployed out there?

Yeah, that should be coming over the course of the next few weeks. So everything has basically been impacted by a month or two.

Yep. Okay, perfect. And then, I mean, just speaking about COVID-19, so, I mean, being up north of the Northern Cape, it's mostly local workforce. Is there any issues in terms of the operationship at Tipee that's impacted by COVID itself? I mean, I don't think there'd be quite a lot of community impact there for the disease itself. Is that correct?

Yeah, I think it's largely because the Northern Cape is so far remote compared to the rest of South Africa. The cases over there are minuscule compared to what you see around Houting and around Cape Town and all. So from the 1st of May when we got the permission to go back to 100% of our production, We basically, in that lockdown period, had instituted very comprehensive testing and control regime, how the people were going to be transported, how they were going to be tested before they got on the bus at the mine gate. And within the respective departments, if someone was identified as positive, what we were going to do to isolate the person, isolate the shift, contact tracing, and all those types of things. So we have about 750 employees who work for us and the contract, and out of that, about 20 were identified as in the vulnerable group. So apart from those 20, all of the others basically came back to site, and to date we have not had any case. So as I said, the opening, there has been almost 100% production on the mining side, on the processing side, on the loadout station side. The hiccups have been in transporting the material from the mine gate to the port, and whatever we have lost because of that, we have tried to put more of that onto the trucks. But there is a limit to how much you can transport on the trucks, both for us and for the highway and for the amount of trucks available in South Africa for mining needs. But there have been some other industries which have struggled, like chrome and all, on the industry side, and the trucks which were doing that have been available for manganese, but that's a temporary solution.

Okay, noted. Thank you.

Thanks. Thank you so much, John. Our next question is from Nick Worrell. Please go ahead, Nick.

I noticed one of your peers in the Kalahari is in a bit of financial distress at the moment. You previously made a lot of noise about industry consolidation. Is this something that's on your radar as part of the Toshibi group? Cheers.

Well, Nick, you're absolutely right. We have talked about the consolidation in the Kalahari, and we have always been exploring that option. That said, I think the only thing which we have to prove for that is what we announced probably middle of last year was the agreement with Mamatwan, which is South 32 on the barrier pillar. The obvious synergies for us are between Chippy and the Mamatwan mine. This mine which you're talking about is the Kalagadi mine, which is in the northern Kalahari, but nowhere in the proximity of our mine. So Yeah, I mean, it is in the northern Kalahari, but the synergies which we can achieve are not that much compared to what we can get with Mahmatwan. So our focus has been on the barrier pillar and largely around Mahmatwan.

Okay, thank you. It all looks to be in pretty close proximity, all things considered. So if you were looking to buy something out, I thought that would have been an ideal target, but I'm presuming you've done your DD. Thank you. Thanks.

Thank you, Nick. Our next question is from Trent Barnett. Please go ahead, Trent.

Hi, Frank. Just quickly, so if you put more onto rail, does that mean we might expect more than 2.7 million tonnes for FY21, or is that... ..or, you know, if you're going to displace trucking in, we're going to have lower costs?

So, Trent, I think, as I've said on numerous occasions, our focus remains to be like 3 million tons on what I call our bread and butter high-grade lump and fine business. And that 3 million tons, as I said, will probably be somewhere around 2.7 million tons, largely because of the impact of this lockdown and assuming that whatever I've said happens as planned and there are no further hiccups down the line. We have also said that as and when the opportunity presents itself and we have capacity available on the logistics, we try to add what I call the low-grade product on top of the 3 million tons. So that is basically something which happens as and when the opportunity arises, and there is a chance that that might still happen over the remaining nine months of this year. But the 2.7 is largely what we rely and plan our business on, and that is largely a function of the mine planning, the equipment which we have, the equipment which we plan to get. And I do not anticipate that will change over this remaining nine months. Yes, we might have some low-grade product which is available. Some channel might present an opportunity, and we might be able to capitalize on that.

Okay. Makes sense. Thank you.

Thank you, Trent. Our next question is from Mark Fisher. Please go ahead, Mark.

Yes, hi, Priyank. Just on the shipments, were there any low-grade manganese shipped in that quarter, or was that all purely the high-grade product in the first quarter?

So out of the 330-odd shipments, 1,000 tons, 320,000 tons, which we have shipped. It's probably fair to say that a bulk of it was a high-grade product because what we try to do is try to use our meta-allocation to maximize our revenue and profit, which means that we try to push the high-grade tons and only if there is excess capacity available on the transport channel, we will try to go for the low rate product.

Right, okay. And on the previously mentioned feasibility study that you commenced on the expansion case, is that still progressing and are you looking to conclude that by the end of this financial year? Can you give some colour on how that's progressing?

Yeah, I think, Mark, well, nothing has changed on that front. As you know, like, we plan on a fairly mid- to long-term basis. We've got the tons, we've got the resources, we've got an excellent management team, and we've got a very good cost base. So, yeah, I think with what we have achieved in New Drift and what our plan is going forward, I'm sure this pandemic will resolve itself over the course of the next few months and we just want to be ready with the result and then the board will take the appropriate action based on what the report says. So all that is progressing as per plan, yes.

Right, thanks. And just a final question. Just on the manganese price achieved in the table there for the CIF price of $4.21, that If you look at the average of the FOB price, that seems to have been higher than that CIF price. Is that due to timing of shipments, I guess, or has also the freight costs during the quarter have shrunk, or is it both reasons?

Yeah. Well, I think it's largely a function of how we do our sales. As I said, we generally go into the market four to six weeks before the actual shipment. The price is set much more before the actual shipment date. And then our marketing people who are very experienced try to gauge from what the price is four to six weeks, what it might be at that time, and that's how they set the price. So the sudden jump in the manganese price, which came about and took the price to close to $6 and all, will probably be captured in the shipments which have been deferred into June.

Okay, that's great. Thanks, Priyank.

Thank you.

Thank you so much, Mark. We have no further questions in the queue at the moment, Priyank, so if anyone would like to ask one, it is star one on your telephone keypad. I'll be back in one moment. We have a further question from Sanko. Please go ahead, Sanko.

Hi, Priyank. Hi, Sanko. In terms of the money prices, which are on an upper trajectory or a higher trajectory, and considering the fact that the volumes are not going to differ much compared to the previous year, they think that it's going to have an impact on the profitability and also on the dividends in terms of, you know, paying higher dividends because of higher profitability due to high price. Well, I think our model is fairly simple, which we have expressed on numerous occasions, without trying to trivialize the enormity of the operation and the complications that come with dealing with various transportation channels. Very simplistically, it's one big hole in the ground. So that big hole in the ground is designed to produce and sell around 3 million tons of high-grade product. Anyone can assume whatever they want to believe is going to be the manganese price. Our costs, as I said, on a FOB basis, we try to stick to as close to $2.20, and then they can assume some FX rate again based on their judgment, and that should give whatever is the profit after our tax and royalties and all. We basically get half of it, and that half which comes to us every six months, we pay out as a dividend to the shareholders. So I can't really speculate on what that number will be or what will be, but the principles with which we came to the market at the time of the IPO still stands good, and that is what we will try to stick to. As I think I said on the previous question, we are doing this feasibility study, which should be ready at the end of the year. And at that time, we will look at what it looks like. My instinct says that what we told to the market around December, the feasibility study will prove itself. The success we've had on flood rates is going to support the logistics for the expansion, along with what we anticipate will happen in South Africa. And at that time, on that basis, the board will take the appropriate decision. And rather than be at the mercy of the markets and the banks and all, we are producing very good cash flow. And the board will probably take the view that if we have to go for the expansion, let's keep a little bit of it to fund the expansion. And whatever is left, we will still pay out. Half will come to Jupiter, and that half will go out to the shareholders as dividends. So the philosophy and the approach during the business has not changed. Thanks for that. And in terms of the CAPEX, do you already have plans in pipeline or it is going to be planned when you cross the bridge? Well, again, as I think Melissa put out end of last year, a report on what the feasibility study will look like, and I think the number in that report was somewhere around 1 billion rands. And I do not expect the feasibility study to show something which is drastically different from that. So we have around 1.37 billion rands in the bank account of Chippy right now based on what we have concluded to date. And some of that is going to go into the very minimal capital expenditure we have to do on the mine. But most of the expansion, apart from the stripping which we have to do will be on the equipment side, which is what I alluded to in the earlier part of my talk. And that equipment is going to be brought by our contractors, so they will bring it and they will charge us whatever they need to charge to bring that bigger equipment. But all that will be captured in our operating cost. And as I said, our target still remains to stick to the $2.20. Thanks. Thank you.

Okay, Priyank, there are no further questions in the queue, so I'll hand it back to you.

Thank you. So once again, thank you for dialing in, and I will speak to you again next quarter. Thank you so much.