Metro Mining Limited

We have the CEO and CFO of Metro Mining, Simon Wensley and Nathan Quinlan, here to discuss the highlights from the June quarterly activities report. I'll hand it over to Simon to run through and we'll have a few questions at the end. Thank you, Simon. Thank you, Nathan.

Thanks, Peter. Good afternoon, everyone in Australia or wherever you are. Thank you for joining this call. We wanted to... give the chance to present some of the key elements of our Q2 release that we've released this morning onto the ASX. So I might just share that on the screen. So just bear with me. Okay, so this release is available on the website today, and you can obviously pick it up off the ASX as well. So, look, a very positive quarter for us. I mean, we'd already released the operational results at the start of the month, but record shipments for Q2, that's obviously our expansion has ramped up during the back half of last year, and now we're into our first full year of production at that 7 million tonne rate. So that's up 19% year on year. I think, I mean, the comment I made on the front page, we've obviously climbed that into a pretty robust market, the price of bauxite reached record highs at the end of 2024 and has has come down a little but we were still able to during the quarter back ourselves onto that high pricing environment and so we've had significant price uplift over Q4 last year which was our last full operating quarter and then we had some tonnage in Q1 this year, a low tonnage but so I mean the FOB, the net FOB unit revenue up about 41% to $72 per ton. So that's generated along with our delivery of some very positive costs between sort of the SIF and FOB level, about $32, just under $32 per ton. And so that's obviously a huge amount from a margin of leverage, obviously, over margin is much greater. So about a 500% increase from the same quarter last year and about an 83% increase over the So a very pleasing result and another mention in the paper, it's really indicative I think of the type of cash generation potential that we've got here at the Bauxite Hills asset. So I mean not everything I guess went to plan in the last quarter. We did have a tropical storm around Easter time and that did unfortunately damaged quite significantly our channel. I mean, it's a late storm in this season after we had already done the bed levelling where we sort of clear out the channel for operations. We'd already sort of spent quite a lot of time and effort doing that in early March. And so that was an unfortunate incident and that restricted our barging through the back half of May and into June. And that was sort of... you know, probably around 1400 tonnes per barge that we weren't able to put on. So that also affected our ability to bring empty barges back. So the tidal windows were also reduced. So it's a combination of both, you know, capacity per barge and the number of barges that we were able to get in and out in any specific day. So we did take the opportunity to bring forward some maintenance and so we shut down the site and the transshipping for three days to get that done. And so that should also enable us a bit more of a clear run during this coming quarter. So, look, so operationally, you know, it's still a reasonable result up on last year, but, you know, we were certainly targeting, you know, probably 15% more volume this year, sort of round about that sort of 1.9, 1.8 to 1.9 million times. Let me just touch, I'll pass over to Nathan in a minute to go a bit more into the operational results and some of the financials as well. But I'll just touch a bit on the market before I do that. So there's quite a good and lengthy explanation, as we always try and do, in the quarterlies. Oxide isn't the most transparent of markets but it's structurally moving in a good, you know, moving in a good direction generally. There would clearly be some volatility and we saw, we've seen that over the last, you know, six to nine months with Illumina pricing as you can see on that graph. I mean our customers are making Illumina and so this is an important factor that occurs you know, in our market and with our negotiations. So, you know, that did go up significantly at the end of 2024. There was a correction, but it sort of has sort of stabilized through the last quarter. And at these sorts of levels, you know, 3,000 Chinese RMB per ton, you know, most customers are making, you know, reasonable money. So that puts the market in a relatively stable position. a stable position again, albeit a bit below where you saw the levels in 2024 before the run up. So we did see some Illumina producers exiting the market. They were in Q1. That was really mostly inland refineries who were using high cost domestic bauxite. A few of those have come back online, but this is that swing has also cemented somewhat this transition between inland domestic refineries and coastal refineries in terms of the trend that's occurring in China. And those coastal refineries have either built or expanded, and they're quite, they're all exposed to imported bauxite. So let's, and you can see that, you know, you can see that sort of appearing there in the total bauxite consumption. of domestic and imported bauxite in China up until the end of May. And so the, you can see there that imported number is still, you know, that slice is still growing. And what we've seen in the first half of the year, again, is a record, another record. So the fourth year in a row, we've had first half record times over the previous half. And indeed just over a hundred million tons has been Now, you know, some of that has gone into inventory, and that's also, you know, I guess, created a little bit of context for a reduction in the bauxite price that's also sort of been driven by that Illumina price reduction. But as you can see from that chart, if you compare it with the Illumina chart, certainly the bauxite price has not dropped to the same level as the Illumina price, and that's because the bauxite market dynamics are different and so we've seen again that although there's been very strong imports in the first half of the year, the second half of the year is much more difficult to predict and indeed there'll be I think certainly increasing volatility again in that price. So the Guinea government has continued to exercise its rights in terms of the mining leases that it has there in terms of asking producers to consider doing studies on refinery capacity. Some are compliant, many are not and there are also other gripes that are there from the government and so at the present time and I flagged at the AGM that there might be just over 40 million tonnes of bauxite capacity, annualised capacity in in Guinea exposed to these restrictions, well, that's now risen probably to around 70 million tonnes of annualised capacity. So at some level, either some of those licences have been cancelled and others are under restrictions or constraints being placed on them by the Guinea government. The Guinea government's also decided to exercise some rights in gaining access to some books, to be able to sell itself which is obviously going to create some dissonance in the market and they've also flagged to those producers that they want bauxite placed on Guinea registered bulk ships which again is going to create I think a bit of dissonance in that market. So I think we're going to continue to see obviously the largest bauxite, traded bauxite producer in the world out of Guinea is going to continue to be quite volatile over the next – certainly over the next six to 12, probably 18 months at least. Look, in terms of our own offtake contracts, as we talked about before, they're predominantly with large and high-quality customers. Some are integrated, some trade Illumina on the market. Our bauxite goes into a combination of high and low temperature. so I do get asked this question quite a lot, but the line has blurred between those technologies. The Chinese, as they have done in many industries, have sort of innovated quite considerably in the use of raw materials and in the technology development as they build out their industries. And what we're finding with our customers, those that are innovative and willing to to trial and blend and work with our technical teams is that what we're seeing is that they like the high level of gipsitic alumina that we have in our book site. And because we have a relatively high level of quartz, so our silica levels exist in both the kaolin element and also the quartz element, but our relatively high level of quartz, which dissolves at between 230 and 240 degrees, if they can control their operating conditions, they can minimize what's called that quartz attack, the dissolution of the quartz. And so our reactive silica is somewhat better than the chemical silica that exists on our specification. Look, in any case, this is an ongoing piece of work that we're doing with all of our customers and we believe we do provide a very strong value proposition to those customers. In terms of guiding price, the spot pork site market Q versus where we were negotiating before Q2 and now in Q3, those contracts that we have been agreeing are about 10% below the price that we agreed for those contracts. And there are also some legacy priced contracts, fixed price contracts that we agreed. some time ago in 2022 and 23 that we're still having to deliver on. And there's about a million tons of those contracts left to deliver through the back half of this year. So in terms of tonnage, you know, we'll be looking at roundabout, you know, trying to catch up some of the loss that we had in tonnage in the last quarter. It's not a huge amount. And so we're still confident that, you know, we're tracking towards the top end of guidance. We'll be looking to produce probably around 5 million tonnes in the second half. So that million tonnes will be approximately 20% of that sales volume. Okay, Nathan, I might hand over to you.

Thanks, Simon. So from a quarter perspective, as you can all see from the table, a fantastic result on a margin basis, which we were all expecting given the pricing environment. Site costs have naturally been impacted by the channel restrictions, which saw reduced volume than what we had set out for initially at the start, but still some pleasing structural savings that we've seen come through that give us greater confidence over the flow sheet, particularly at this activity level, and definitely expecting to see, with the channel restriction now lifted, expecting to see full realisation of those scaling benefits into Q3 2021. So pleasing to see that site margin. Look, from a cash perspective, as you would have seen, cash balance has built up quite nicely. From a 30 June perspective, the cash balance will have been impacted a little bit by just timing of shipment. So I think we had roughly around 200,000 tonnes of bauxite shipped over the rails over that period. So I have a fairly large trade receivables balance with our customers. of around $25 million, most of which has been subsequently received. So in combination of cash and the working capital, in a very good position. In addition to that, some of the highlights for the quarter, we're in a position where we've now essentially paid all of the deferred royalties that we've had. So we paid $9 million in deferred royalties this period that you would have seen come through the cash flow. So that will be the first time in many periods where we have fully paid out all royalty obligations. So that's a big moment for Metro and one that we're really pleased with. In terms of other highlights, we've been pleased to be able to restructure the hedge book on the FX. So you might recall at the end of last year we had fairly significant unrealised losses and so it's been pleasing to make sure that we haven't had to crystallise those losses and we've been able to convert some of those foreign exchange contracts that were at 68 cents. We've now been able to hedge out our book for the remainder of the year at 63 cents, which is, I think, sitting in a pretty good position relative to where the spot rate currently is.

Yeah, it's all good. And then I think there are a couple of other points to make. which we flagged, we have flagged, but we are commencing exploration activity this year again in earnest. We did do a bit of that around some of our pits, you know, the back half of last year. But, you know, we will be doing greenfield as well as continuing with that pit extension work. We are going to go and look at some greenfield stuff. So north of the Skarden River, we have a fairly large book site tenement just on the northern side. We currently operate on the southern side of the river, so it's near enough, but we'll be going in there. And just a note, we've reached some commercial terms with a profit resources to farm into a tenement. We've got a tenement on the western side of Arrokoon, right on the coast. in about 180 kilometres sort of south of our current operation. So we've farmed into a tenement there next to our current one and that's just effectively double the size of that tenement. So that's yet to kind of be fully stamped and approved by the government but we expect that to happen in the next sort of week or two and so we would be looking to also get some exploration done on that property subject to commercial compensation agreements with the local traditional owners which discussions are underway. So we're certainly going to start executing on that exploration task as we had flagged. So look, I might just pause there. Peter, we usually get a few questions. Are there any questions out there that people want to get a bit more colour on?

We have a few and a good audience this afternoon as well. Thanks, Simon. We have a question here. Would you mind talking through the drop in shipping costs? They appear to have dropped by roughly $10 per tonne just in June quarter last year. Is the June quarter shipping cost indicative for the rest of the year?

I'll take the first one and Nathan can maybe talk about the indicative outlook. Yeah, so that drop is a function of a couple of things. So obviously the FOB revenue, we ship FOB and SIF. So the FOB revenue is the full sort of the fully allocated, if you like, the fully allocated revenue and unit revenue for all of our tons for the quarter. So that's the number you should look at. The SIF pricing is based upon a realized pricing for the SIF sales. So we did have a very slightly higher sort of FOB price on some of those sales. But the main difference as I guess indicated in the question has been really from two areas. One is freight for sure. So there's definitely several dollars a ton US reduction in our freight costs. So that's as a result of long-term contracts that we signed last year which has taken effect in 2025 and we'll see us moving forward and then also one of the differential issues is the reduction in some penalties which we've seen across several of our contracts over the last couple of years and what we've done there is move our contract specifications much closer to our reserve and resource grade. So we're not seeing anywhere near the level of penalties that we saw in previous years. So it's a function, those are the two main movements.

Yeah, that's right. And I suppose in terms of year-on-year differences, we include within that freight number demurrage as well. So we did have some demurrage in Q2 of this year as a result of that April weather event. but in relative terms a better demurrage result than what we had year on year. I think what you're also seeing is the benefit of much higher utilisation of Newcastle MAX vessels as well. So we've really tested our transshippers and making sure that we're loading the absolute biggest ships we can. So not only is there a productivity advantage there for us in loading those larger vessels, there's also a slight freight differential which we're benefiting from as well.

Thanks, Nathan. Probably one here for you too. One of the audience wants to confirm the trade receivables balance of circa $25 million as of 30 June. Would that be correct?

Yeah, that's correct. That's correct.

Now, the royalties question. Is the state royalty based on SOB or CIF revenue and how long do those royalty payments continue?

So in terms of the state royalty, so those payments will continue life of mine It's based on FOV, so freight is a deduction from those royalties.

Thank you. And a comment on the silt bill up in the river. Is there a permanent solution? Obviously it's pretty difficult. It's something you don't have a lot of control over, but what sort of solution do you have for silt bill up in the river and how much does it impact your barging?

Yeah, that's a great question. We're in a tidal estuary where you get, obviously, over the wet season with monsoonal, I guess, weather patterns and, you know, cyclones and tropical storms, you know, we can see quite a lot of water activity. Most of the seabed is sand. There's very little, you know, rock or even seagrass or anything else. So it's a pretty benign environment. But it does mean that it's sort of exposed to that. to that weather. Now normally we conduct what we call bed levelling. So we actually use a plough to just sort of, it's like sweeping, effectively like sweeping out the hallway if you like between the river and the transshipment area, the offshore. So we normally conduct that twice a year with the equipment that we have on site. So we use our existing tugs and a plough to do that. And normally we do that just before the season So in end of February, early March. And then we also plan to do one sort of maintenance, if you like a maintenance leveling in just at the beginning of Q4 to ensure that we get what we want there. So it's a really critical part of our business. It's a very shallow channel. It's at lowest annual tide, it's 1.8 meters. deep. So that obviously means that we have to load our barges so they can, on the predicted tide, they can actually get in and out, or they can certainly get out on the way in that the tugs are the constraint coming back in. But on the way out, we obviously try and load as much as we possibly can according to the tide. So when we get movement in that, we've got a 60 metre wide channel that we have to keep, and the harbour mast obviously takes a keen interest on the pilotage of the tugs and barges through that channel. And so when we do have these incidents, we survey and we then have to kind of do some maintenance on that. So I guess a late storm like this, if you remember it, for those of you who know the area, sort of tropical storm, didn't quite become a cyclone, came in and sort of kissed the coast and then went south. And that created a sort of fairly unique set of kind of wave patterns that moved some of that channel, quite a bit of the channel, a bit of the walls on the channel into the middle of the channel itself. So we had a fair bit of activity to be able to move that out. Now, longer run, we obviously sort of taken that, that hasn't happened to us before in the middle of the season, so we've taken that as a bit of a, I guess, a lesson and some Obviously, we're going to take some action on that. So we're looking at, I guess, how we improve that. So we're looking at two things. Our tug, Mandang, which is a new tug which we got at the end of last year. It's a more powerful tug than any of the other tugs that we have. And so we're designing a new plough. For that, a bigger, more powerful plough. And then we're also looking into contractor bed leveling, which does occur around the – Gulf of Carpentaria already in some of the other ports, and so there are contractors who do that work and with specialist vessels. In the longer run, we are talking with the relevant stakeholders, including the harbour master in Port North, around potentially a dredging programme, so that would obviously we would try and take that opportunity to probably widen the channel and maybe even make it a bit deeper. So if we were going to go into that level, but it does require a rather different level of approvals and that takes some time. So I'm not expecting that to be in place for this season or this coming wet season or the restart for next year. So that does take a lot of study and a lot of approval time and effort. But that is something that we will almost certainly put in place at some point in the near future.

Thanks, Simon. You knocked off quite a few questions there with that. Another question about operations, how do you see PIT5 shaping up grain-wise?

The PIT5, BH2 as it was called, does have some areas of low silica material, so it does give us more flexibility in our operations. One of the reasons we had that amount of bauxite on ships at the end of the quarter was that we actually held a vessel partially loaded and then switched to a second vessel to start loading because we wanted to, we did a bit of a trade-off on a grade penalty versus demurrage and we decided to hold that vessel there to be able top it up with better grade that we were going to be accessing from the new mining area. So that was what we – that's what we did. And so Pit 5 is also a little bit closer than our Pits 3 and 4, so what was DH1. So that's a closer – it's near the airport for those people who know the area. And so that's all now – the road's been built and the mines have the mine has started in the first week of this month. So that will give us some extra flexibility in sort of managing their great control.

Okay, we'll finish up with a couple more questions here. One is just somebody wanting confirmation that $53 Aussie FX is for 100% of the sales for the dollars of calendar 2025.

Yeah, that's right. We forecast sales. We expect to be fully imaged.

Is there any expectation for where the site costs will reduce in this quarter as a higher production rate is achieved?

We're certainly expecting to see a couple of dollars drop off that site cost that you're seeing in Q2. We would like to see mid-25 once we're fully up in Q3 expectations.

Great. Thank you, Nathan. Thank you, Simon. That brings to a close all our questions. Anything to leave our listeners with, Simon?

Look, I think this is the year where we're going to execute on the expansion. As I said, I think the market is generally going to be in our favour as it was in Q2. I think it will be at periods again, although I sense it will be volatile. moving forward. But I think with our cost structure, as we head towards, as Leighton said, sort of mid-20s and then lower again next year, then that will set us in a really good position to where there are pretty much any pricing environment. So strategically, that is where we're going. And we've started now, obviously, to the cash that's come in we'll certainly get to a point, I think, through this third quarter where we'll be net cash in terms of the balance sheet. So that's a pretty exciting place to be as a junior. So, look, I think that's certainly where we're headed and everything seems to be on track for that.

Wonderful. Thank you for a good update on a successful quarter. Thanks, Simon. Thanks, Nathan. Thanks to our audience for joining us. There'll be a video made on this webinar, which will be available, and we'll send it out to those who have registered. Thank you very much.