Metro Mining Limited

thanks peter thanks everybody for joining i really appreciate your time and the support of metro mining yeah so the quarterly report um came out uh yesterday and i just want to highlight a few a few areas so look i think uh from a production point of view i think they the the the production numbers were were solid and um i think from my point of view still you know, there are continuing opportunities to drive higher output. And it's particularly, we're seeing the throughputs, the top-end throughputs really coming to bear now in terms of the ability. We're effectively able to produce at around about that sort of 8.5 million tonne run rate. I mean, and if I reflect back, I think, you know, the journey over the last sort of three or four years, I mean, the team... the team on site, uh, after, you know, back, back then was 10,000 tons in a day was a good day. You know, now that they're not satisfied if they're not doing, uh, over 30,000 tons. So, and we certainly saw in September, the first half of September and, and, you know, some really strong, you know, consistent production over, over a couple of weeks. Um, as always, we're trying to balance, uh, all things. We're trying to balance, I suppose, that output. We're very focused on continuing to be a lean producer. We're a remote site and anything we do up there is relatively expensive. So we're trying to stay lean. If you bring a piece of equipment up there, it basically stays for its life. I mean, the cost of mobilization up and back means that that is effectively the outcome. So we're very judicious about that and about driving productivity. When you have a spurt like we had in September, then you start to see other parts of the system where the bottlenecks are. And again, that's continuing focus for us to try to de-bottleneck the system. So 2.25 probably still had some opportunity there. And I think when I then look at the cash flow and how that occurred, I mean, the timing, you know, two or three more days would have seen, you know, an additional almost $30 million flow into, you know, into the cash generation for the quarter. And, you know, by those sort of thin margins, you see, you know, receivables become cash. I mean, we... at the end of the quarter, had one Newcastle Max 201,000 tonnes sail the following day on the 1st of October. We also had a second vessel which had about 135,000 tonnes, which a couple more days to load, and then that was gone. So literally, we get paid a couple of days. It doesn't matter whether it's SIF or an FOB, we sell on letter of credit. letter of credit by site. And that means that we get, once the bill of lading and the quality results come in, then we get paid pretty much straight away. So, you know, five more days would have seen. And that, you know, had we kind of driven our production, you know, slightly harder that quarter, that would have ended up in the cash flow. So look, those Those receipts are still there. We're expecting another stronger court, I'm hoping. And we are driving for, you know, still to try and meet the original guidance. That is our internal, certainly our internal intent. And we've made we're continuing and made and continuing to make changes. An example of that is that, you know, one of the constraints we saw at the back end of September was that, you know, our stripping was getting overtaken by the mining. And so we've, for example, moved to a 24-7 stripping night shift, day shift and night shift over the last year. the last two weeks to drive that productivity and tons higher. So that's just an example of changes we're making. But of course, I'm very conscious about continuing to try and take costs down. Costs did come down as we had flagged uh that they would and and so still again more more to go there we really drive i think at this time of the year we can certainly still see another few dollars coming off costs as we sort of try and head back to that sort of roughly around 20 20 aussie aussie dollars per ton uh onto the ship now the cash uh the cash conversion or the cat you know the cash generation and conversion was significantly affected by sales mix this quarter. And I know I've had a few questions directly to me over the last sort of day or so about that. And I just want to maybe make a bit more of a communication around those legacy contracts. So we announced in the middle of 2022 with our DFS that we had signed 3 million tons, 3 million dry tons. So just over 3.5, 3.3 million wet tons of fixed price contracts. So if you go back and look at, the pricing is commercial in confidence, but if you go back and look at the price for Australian bauxite in the middle, of 2022 and you see that's around about the 43 or 44 dollars per ton and you then uh subtract the i guess the the value in use or quality uh discount that that we uh tend to see with metro seven to eight bucks a ton that's going to give you a sense of the uh pricing of those contracts now we did negotiate some flexibility into those contracts and we've been trying to utilize that flexibility. It doesn't really make sense for us to be selling low price contracts when the market price is high. Obviously, if you have a quarter where the market price is very high, then we will maximize the number of cargoes we sell at the high price. Now, when prices are reducing, that is a time when we will consider to sell those contracts or ship those contracts In addition, the flexibility that was built into those contracts really relied on us hitting certain expansion targets. And we basically hit those expansion targets this year. So the customer had every right to start to demand that we deliver those contracts in place. So about 38%. of our volume in the last quarter was delivered under those contracts. They were largely FOB. There were four FOB contract, four FOB cargoes and one CIF cargo. So what that does also, if you look at the chart, On page four of the quarterly, you can see that the SIF and FOB prices, the gap has widened. So that is not reflective of freight. That is not reflective of penalties. That is not reflective of demurrage. It is reflective of the differential between the FOB and the SIF prices. pricing in that sales mix. So the previous quarter where we did not sell, as I said, we maximized the number of tons we were selling at the highest price that we've seen for the last five years in bauxite. We were maximizing the number of cargos we were selling at that price. That kind of gap around about I think it was only $10 at the time, but again, round about $11 or $12 differential between SIF and FOB is about what you might see. We've got long-term freight contracts. They do not vary with the spot price, which at the moment they are significantly in the money with respect to the spot price of freight at the moment. So that's certainly been a good decision. Now, we had planned to sell... in the second half of the year, about a million tons of legacy contracts and leave some for the beginning of, for next year. The way the market is and the way the customers, the customer is, our customer is demanding we are going to sell, to ship all of those contracts in this current season. So there's roughly another four cargos, roughly about sorry, four cargos, roughly about 700,000 tons further to sell in in the next quarter. We are also planning This year, as we had also flagged to try and extend our seasons a little to move more into the January to March quarter, we're planning to operate this year up until about the third week of January, weather permitting. And so we will still be shipping some volume in January. So like I said, look, despite that significant increase chunk of legacy fixed price contracts that our margin was still extremely healthy at around $16 per ton. And so the cash generation for this quarter allowed us to pay down about $11.5 million of Aussie dollars of debt. And so that on top of the about $2.5 million worth of interest, there was also a cash payment to the Queensland government under our bonding scheme. So that is an environmental bond that smaller companies are forced to pay in cash. And so that depends on our amount of disturbed land versus our rehabbed, our rehabbed land and the rates, et cetera, relate to that. So that was sort of, I guess, the big impacts. Not much capital, capital spend, just over a million dollars. As again, we flagged that there isn't a lot of capital during the three months, the three quarters of fall season. So I hope that does clarify a little bit these legacy contracts. We have referenced that through the year. We have had some flexibility of what we do, and we are now saying that we will pretty much... sell all of those uh or deliver on onto those contracts through this year so next year we should be fully exposed to uh the market price now let's talk a bit about the market price um Obviously last quarter, the contracts we sold under market price were down from that very high priced quarter in the second quarter. We were coming off that peak of pricing that had occurred at the end of 2024. During this quarter, the bauxite prices have traded within a fairly narrow range. They've softened significantly. softened slightly. The balancing factors are that effectively the Illumina price, so the price for those customers that sell Illumina into the market has come down quite significantly. So at the beginning of the quarter, it was around about 3,200 RMB per ton, whereas sort of in the last few weeks, it's been around 2,800 RMB per ton. So you know, relatively significant, about a 15% drop. The good thing about the Chinese market is that it is quite elastic. You know, we are seeing refinery capacity swing in and swing out. That does obviously affect bauxite demand. Most of those refineries that do swing, though, are internal or, you know, in the inner provinces of China. And so it does affect a little bit the demand for imported bauxite, but a lot of those refineries do. are also taking domestic bauxite. And so for the first time, and I flagged this in the report, we're seeing the total share of alumina made from domestic bauxite has reached about 75%. So you can see that, again, that trend of Chinese bauxite exiting the market is generally continuing and imported bauxite is continuing to take to take the share. So look, where are we with that? I mean, we've negotiated with a couple of customers already. We've got a little bit more negotiation to go. We're going to see probably a very slight softening of the contract prices for the coming quarter. So those cargoes that we're selling under the quarterly negotiated price, maybe a dollar or two on average lower than where they were in the last quarter. The exports out of Guinea are definitely lower. There are restrictions both from their normal, they've got quite an extended wet weather, uh you know monsoon season of about four months and we've certainly seen an impact from that but also you know additionally about 50 million tons worth of capacity is currently under suspended in guinea through um by the government um in terms of um you know their their interpretation of the mining leases not being the conditions of mining lease is not being met of that suspensions, most of those leases have been withdrawn. So there certainly is a, the last six or eight weeks of, exports from Guinea have been actually barely any higher than the last couple of years. So we're certainly not seeing the continuation of the growth out of Guinea based on those issues. But there is a bit of stock on the ground. The exports from Guinea in the first half were strong. And there is enough stock on the ground. So customers are really more focused less on the ability to get the bauxite and more on the fact that they are not making much money out of out of alumina. That's is that aluminium price has continued to recover, it's still pretty strong. A lot of our customers are actually integrated aluminium producers. And so they're sort of seeing profits, stronger profits out of their metal production. And so that does help in quite a degree from a negotiating point of view. In the longer run, and I talk about this quite often, less in the quarterly, but more in our investor and AGM presentations, and you should reference those if you can, is that the industry structure is continuing to move in favour of metro mining. We are continuing to drive next year our costs down and our production levels up. So our strategic target that we set in the DFS, the expansion DFS, was around about US$30 per tonne. delivered into China, US dollars per dry ton delivered into China. And we're on track for that. We still have more optimization to go. But at the same time, the right-hand side of the cost curve, so which is dominated by Guinea. All of the activities that are happening in Guinea, whether it's royalties, whether it's taxes, whether it's shipping constraints, whether it's licenses being canceled or suspended, transshipping constraints that they have on the river there. additional haul distances to access new parts of their oil bodies and lower quality material generally is driving the cost of delivery higher. And for example, at the moment, the spot price for freight from Guinea to China has gone up to about 30 US dollars per dry ton equivalent. So the same in the same terms as price. So, you know, with Simundu Iron Org project coming on in the back half of the year, some of you may have heard about shipping restrictions. So China has imposed significant tariffs on US-owned vessels coming into China, that's going to create a two speed market in the freight space that will obviously reduce the ability for freight companies to triangulate and reduce costs on their freight. All of these elements are pushing freight up and we have a long-term fixed price, fixed fuel contracts with our providers who are not US-based companies. So all of these elements are, I think, placing our cost structure in a good space whilst the rest of the, certainly the right-hand side of the cost curve is rising. So we believe that um 65 to 70 dollars is is roughly where those some of those guinea producers start losing money and so i think that's going to be a relatively hard uh floor for pricing if we look forward to the next couple of years so i think that's a very positive uh positive industry structure so again look i think you know there's been maybe so i think some disappointing elements of the last quarter some some very positive elements from the last quarter i think nothing here changes my view about the long-term potential for Metro in terms of our ability to produce, our ability to drive margins and our ability to, you know, create, to drive cashflow out of this business. And, you know, indeed management is constantly also looking at that longer term. There were a couple of things mentioned in the quarterly, particularly regarding our gaining of a, project of regional significance. That may not sound like much, but that does allow us to now apply for water rights. And that, you know, as we've mentioned in the past, looking at, you know, the next stage of Metro after the reserve life about what, you know, beneficiation and what we might do there. So in terms of dry screening, wet screening, that does give us more optionality. And indeed, this ability for us to, you know, work in a risk managed way during the wet season, you know, we've had some clarifications and amendments to our environmental authorities working very closely with the Department of Environment in a very positive engagement with the Queensland Department there over that. And so we've now got all the clearances we need to manage in a risk, as I say, in a risk assessed way, all of the production that we might be able to push out. And I think, again, Our expansion was designed to be more robust to weather, to both rain and to indeed to the sea state. I mean, Kumbha has demonstrated its ability to operate in much higher swell conditions over the last 12 months, which has been, you know, obviously was our target. And now that's been proven. Our screening and mining processes have also had upgrades in that respect. So, look, all of those things, I think, are boding well for the future and in terms of, you know, the next year or two. And so, again, I think, you know, nothing in the last quarter has changed my view on that. Okay, I guess that's, I think, or there was one, maybe just one. I think there was a bit of some questions over. We did sell, we had one cargo during the quarter, which we are small, it was small, 40, just over 40,000 tons. We sold to a domestic customer that is a cement grade customer. So the demand, you know, there is a, a use for bauxite in cement manufacturer. It's alumina and silica is valued in that, in that space in a, you know, to create a pozzolanic, a pozzolanic sort of property within, within the concrete space. And I think that is a growing market as steel slags and blast furnace slags sort of exit the market. That could well be a growing market. So we sold a small vessel, but it came out of our resource base actually. So it's not the grade of it, meant that we were able to pull that out of our resource rather than our reserve. The price of it was on par, the net back price of it was on par with our other sales. And we get charged a lower royalty because it's a domestic cargo. So that was, I just think it's not necessarily massively material, but I think it was a point of interest that I've had a couple of questions on. Okay. I think that's probably what I wanted to cover in my upfront comments. Peter, so very happy to take questions.

Thanks, Simon. And you're pretty comprehensive too, covering that. It's good for us shareholders to listen. to your interpretation and get some color around that. First question we have here is, would you be able to provide some clarity on CIF pricing shown in the quarterly results? Does this pricing reflect purely the non-legacy contract prices achieved, i.e. current market price received is in the low $60?

Not quite. We have SIF contracts and FOB. SIF is cost including freight. And we had one legacy cargo shipped on a SIF basis during the quarter. So there is some impact in that SIF price for that cargo. But the remainder of the cargoes in that SIF price were at the market price.