Mineral Resources Limited

Ladies and gentlemen, thank you for standing by and welcome to Mineral Resources investor call and presentation for the half year 2021 financial results. I'll shortly hand over to Chris Allison, Managing Director of Mineral Resources. Please be advised that today's call is being recorded and the presentation contains forecasts and forward-looking information. You should carefully read the disclaimer at the back of the presentation. A copy of the presentation and a transcript of this call will be posted to Mineral Resources website under the new section at mineralresources.com.au. At the end of the managing director's address, there will be an opportunity for institutional investors, analysts and media to verbally ask questions. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. I will now hand over to Chris Allison.

Thank you. Thanks, everyone. Good morning. Welcome. This is the Mineral Resources half-year result. If you're dialled in for that, you're in the right place. I'm Chris Allison. I'm going to be joined by Mark Wilson, who's going to run us through the financials. We've had another fairly solid year. We've been able to follow on from our results from last year. It's got better, solid, no surprises, and probably almost predictable, but the business is operating extremely well. We've continued to manage through COVID. I mean, it's still out there in the world. I mean, it's something that we work on every day to make sure that our people are safe and well and healthy. Over the next few minutes, I'm going to tell you where we've been over the past six months. I'll talk about the performance of the business. We'll have a look at where we're going over the next three years, where we're going to take the business, and we're going to give some guidance around production and opportunities towards the end. As I said earlier, Mark will come in and he'll walk us through the financials. And if we've got any time left at the end, we'll have some Q&A. Highlights for the year. So far, we've survived these uncertain times. We've thrived, in fact. We've done incredibly well. Revenue's up 55%. Our first half EBITDA is almost equivalent to the whole of last year. and we're going to pay a dividend of $1 a share to keep our track record intact. The mining services continues to grow at its good, if not better than its normal growth path. We're up 23% on volume, and we're up 37% on EBITDA. We're commissioning three plants right now, three crushing plants, all going well there. just over 31 million tonnes of capacity. Commodities have performed incredibly well in the face of a number of challenges that that business has had to face this year. Control of costs has been a highlight. Costs are extremely well managed. We've invested heavily in iron ore over the last few years. We're reaping the benefits of that. Production's up 38%. Lithium. Pricing, as we all know, is not great. We've been in a very flat market. The Mount Marion mine site has continued to run extremely well. Again, cost control has been another highlight and being able to pull the cost down. Probably the only spod producer out there that's running a mine at full production plus and We've been able to pull the cost down substantially and the chemitin hydroxide plants progressing very well in light of the fact they've got a lot of challenges still around this COVID. Sustainability, another outstanding result. Credit to the staff and everyone in the business on these sort of results. We've kept the LTI rate at zero, which is almost unheard of in a business like ours. The TRIFA is down below three, which is our target. We're down at two and a three-quarter mark. While all that's been going on, we've added 800 new people to the business. So to be able to bring them in and make sure that they've got the culture and make sure that they understand how important the wellbeing and safety of our people is, is always a challenge. And to be able to bring those statistics back to the level they're at now, we'd be one of the few that's achieved that. We've put a lot more... focus on our well-being of our people around mental health as well. It's another area that we're growing and I think we're seeing a lot of benefits out of that, making sure that the people know that they're cared for and their health and their state of mind is incredibly important, particularly in times like we're in now with all of the different challenges that are getting around Just in Australia with bushfires that keep coming and going and the COVID and luckily we had a flood to put the bushfires out, but I'm not sure what we're going to face next month. I mean, trying to keep our open pits running and trucks on the road while all that goes on has been quite challenging. Sustainability performance, again, in terms of our people, new apprentice intake this year, the best we've had so far. We've got 16 were brought in, so we've got 54 in total. Incredibly important to make sure that we've got a workforce for the future. People are becoming the major focus in the mining industry and making sure that we've got good quality people that can deliver is important. Trainees and graduates, our intake is around 72 people. Our focus on supporting the community and issues out there, we've got 40 charities that we're supporting sitting around health, wellbeing, education, employment. Our spend in WA, over half a billion dollars, tax paid over 400 million. We've committed to zero emissions by 2050 at the latest. Realistically, I think we're going to achieve it a lot sooner than that. We've developed a roadmap on how we're going to get there. We've got some issues out there we're yet to have technology to be able to solve, but We'll keep delivering at least twice a year on a roadmap on how we're going to progress through to achieve that result. It's easy to be able to stand here and say we're going to do it, but more importantly, it's how we're going to do it and how quickly we can get there. emissions control is to simply try and eliminate diesel. It's the worst pollutant that we have in our business so we've been working on that over the last four years. We've made some good results. Our first step is to get rid of that by using solar power, wind power We're going to use natural gas, LNG, so it's going to be a progression of being able to reduce the damage that we're doing, getting right through to zero. As I said, I think we can, with the focus worldwide now, I think we're going to have better technology and better innovation to be able to bring that on a lot quicker. Business remains in incredibly good shape, great balance sheet. We've got plenty of firepower, and more importantly, we've got some extremely good management around that. So I'll pass over to Mark to let him walk you through that.

Thanks, Chris. Good morning. It's a pleasure to be here to walk you through the interim results for the group for the half. The numbers we've released this morning, I believe, reflect another strong half of operating performance across each of our businesses. I also believe they show the benefit of our commitment to reinvest for future growth. Starting with underlying profitability. Pleased to report the group has delivered record underlying profitability for the half for EBITDA of $763 million and net profit after tax of $430 million. And those results have been achieved. They don't include unrealised gains of over $160 million sitting in foreign exchange and in the value of our listed investments. Full reconciliation of that is in the appendix. Those items are non-cash, I emphasise. As Chris said, the EBITDA result is broadly in line with what we delivered over the previous 12 months, so a very strong result, and it's come out of strong contributions of each of the mining services and commodities businesses. As Chris said, revenue is up 55% and the underlying EBITDA is up 131% on the prior corresponding period. Appreciation amortisation, generally flat, aligned with the growth of the business. Effective tax rates back to 30%, as we'd foreshadowed. And as Chris said, the board has declared a fully franked dividend of $1 a share. And that represents a payout ratio slightly less than half of net profit after tax. A year ago, we reported underlying EBITDA of $330 million. And this next chart shows the build to this current result. You can see from it the clear driver has been the increase in the iron ore price over that period. But the point I want to make is that this half is not just about the iron ore price. What we've seen is strong margins being maintained through the business, particularly in the mining services business. We've seen great cost control throughout the business. In very difficult circumstances, a lot of cost pressure is starting to emerge in the business and the commodities costs generally perform extremely well. Volumes are up across each of mining services and commodities. And if you were to exclude the impact of the iron ore price movement, the business underlying profitability is still up 25% year on year or half on half. In terms of our cash flow over the period, key impact has been working capital, a deterioration of $108 million. A major driver for that has been increase in trade receivables, $178 million. That balance started to increase towards the end of the half as volume started to increase, shipping volume started to increase, and the iron ore price started to increase. And I would expect that balance to reduce over this coming half. Over the period towards the end of the period, we moved to respond to the federal government initiative to ensure fair payment terms for small business. We've taken steps to implement change in our system to ensure that the small businesses that supply us, they represent about two thirds of our suppliers, are paid within 30 days. Those changes won't have a material impact on our working capital position. Other drivers on Cash flow through the period have been capex, which I'll talk about shortly, and tax. At the end of the period, we paid $322 million to the tax office for the final payment on Wajana profit, making the total payments paid in respect... ..tax payments paid in respect to that transaction just over $410 million. In terms of capital expenditure... The typical sort of sustaining CapEx spend on deferred strip and the commodities business continuing to invest in the support and growth of that business. In terms of the growth aspects of CapEx, the major item in the commodities number there is the one-money expansion, one-money investment, sorry, and delivery. We've previously advised the market we expect to spend about $126 million on that. on that investment. You're starting to see that come through this half. On the mining services spend, that represents investment in growth, investment in opportunities which will deliver higher production over coming periods. We're also investing in this half. We previously advised that we've made an office acquisition. We're investing again to support the growth of the business with supporting infrastructure as well. As a result of these changes over the half, we've increased our capital expenditure forecast for the year, our guidance, to $600 million. Details are in the appendix. The major driver of that increase is Wanmunna. The balance represents increased investment in our mining services business. In terms of the balance sheet, I think the notes there are pretty self-explanatory. The key point I want to emphasise is we finished the period with over $1.1 billion in cash, a very strong performance. The following slide shows the movement in our net debt position over the half. We've taken the net cash position at the start, made a few adjustments, including for the Wojnar tax payment to get to a pro forma balance at 30 June of minus $8 million. which is a net debt. You can see there that we finished the period at a net debt position of $75 million. So a small increase in the net debt, more than explained by the increase in trade receivables of $178 million in the period. Before I hand back to Chris, I just want to take a couple of minutes to reflect on some of the financial aspects of the business over the last four, four and a half years. Over that period, we've worked hard to grow our core mining services capabilities. We've broadened the offering. We're offering a broader range of infrastructure solutions to the mining industry throughout Australia. We've leveraged that capability, that deep capability, into growing our commodities business. And that commodities business is, as Chris said, performing extremely well. We've made these changes, this growth, without increasing our equity base, issuing fresh equity. We've maintained our gearing levels at conservative levels. The result of those changes has seen increased diversification of our business. greater production, greater production capacity, increased revenue and more reliable, more predictable earnings and cash streams. How do we do that? We do that by taking our capital base and ensuring we invest it prudently. We target returns of at least 20% after tax return on invested capital basis when we're evaluating our investment decisions We take conservative view in terms of the commodity price needed to make a project stack up. Over the last four and a half years, we've accumulated three quarters of a billion dollars worth of free operating cash flow as a result. The group has an extremely bright future. We're well placed financially to ensure that we deliver on the opportunities in front of that. With that, I'd like to hand back to Chris. Thanks.