Jupiter Mines Ltd

Good afternoon, and I would like to welcome everyone to the Jupiter Mines second quarterly call. Today we have Jupiter Chief Executive Officer Priyank Sapriel to provide a brief update on the second quarter of the 2022 financial year, and then we will open up for some questions from callers. Thank you, Priyank. Please go ahead.

Thank you, Erica. Good afternoon, everyone, to Jupiter Mines second quarter call. As you must have seen from the report which was released a day or two ago, the second quarter had a couple of challenges. Firstly, it was to do with the mining where we, just like the first quarter, had substantial issues on the equipment breakdown, especially the excavators, and also the absenteeism which has been there since the COVID started. And the net impact of that was that we were about 1.1 million BCM behind on the mining volume. On the production side, we had close to 945,000 tons of production. Out of that, about 850,000 tons was on the high-grade side. About 100,000 tons was on the low-grade and the low-low-grade product side. The key theme which we also faced, just like most of the industry, was the low manganese price. And in light of the low manganese price and the reduced profitability on the low-grade products, we cut back substantially on the sales on the low-grade and low-low-grade product side. So of the 808,000 tons of sales, roughly 752,000 tons was on the lumpy side and only about 50,000-55,000 tons was on the fine side. In terms of the profitability, despite the challenging manganese price, we are still profitable. Our EBITDA is still close to 17% margin and on the net profit, we are close to 10% margin. But what that basically resulted in was that on the half-yearly basis, we are about 2 million tons behind on the mining side, which has necessitated us to basically start mining the barrier pillar from September of this financial year. That access to the barrier pillar will help us substantially in meeting our production targets, which we have still maintained for the full year at 3.45 million tons. If we now look at on the logistics side, Transnet has had some challenges. It's not something which is unique to Chippy. Cable theft has been a major issue. But what we have done is that whenever we have those sorts of setbacks, we have moved tons which were basically destined for the Transnet Rail network onto the road. It has had some impact on our profitability, but we have still been able to maintain our cost targets of close to $2.20, $2.30 FOB basis. In terms of markets, Again, I think the theme which played out in the first quarter has largely played out in the second quarter also. The steel production in China has slowed down a bit on the federal oil side because of the power curtailment. While the federal oil pricing is quite high, what that has led to is the federal oil smelters slowing. preferring the higher-grade products so that they can maximize their value in use for the electricity which is basically allocated to them. And that has, again, had some impact on the semi-carbonate, which is the product which Chipie produces out of South Africa. The port stockpile still is close to 6 million tons. And from our perspective, we don't see that changing for the rest of this financial year. Again, I think on the CIF prices, while the prices are quite good, the impact has been severe on account of the shipping costs, which are still close to $1.65, $1.70 per DMTU. And again, we do not see that changing for the rest of this financial year because the ships which we are using to move our tons from South Africa to China are pretty much the same ships which the marginal iron ore producers are also using because iron ore price has been so high over the last three to six months. The other thing which we have seen is that from the production side, there has not been any impact out of South Africa. Historically, in the past, the tons have gone down, largely the trucking tons, but we are not seeing that in South Africa in the current quarter. That, I think, largely has to do with the fact that some of these marginal producers, which are lower-grade manganese, which rely on the trucks, have high iron content in their ore, and because of the high iron ore price, their net realization is not as low as what it would be when the iron ore price was low over the last few years. So, again, I don't think that is going to change over the next three to six months. We are basically planning our business in that scenario. But just to summarize, we are looking at close to 3.45 million tons production for this financial year. So I think that, in a nutshell, is a quick snapshot of the second quarter. But with that, I'm more than happy to answer any questions.

Thank you, Priyank. The question and answer session has now commenced. Guests are invited to ask questions by pressing star 1 on their telephone keypad now. You will hear a tone as you are joined to the queue. Please listen for your name and I will introduce you through to the call. That's star 1 on your telephone keypad now if you would like to ask a question. We have our first question from Mara Lombardo who is a shareholder. Please go ahead.

Hi, Priyanka. Thanks for that update. I just had some general questions around how GP is going with the expansion. And when that's coming online, we don't seem to get too much information on that. And I wanted to also understand whether the cost for that expansion has been held back by the parent company and whether that's fully funded. Yes, just some discussion around that.

Thanks, Mario. I think, as I've said consistently in the past, that we will not proceed with the expansion until we have got 100% confidence on the mining side. And we have set the target to achieve that expansion in terms of the mining tons moved on a BCM basis of 1.5 million BCM. If we can achieve that consistently over a three-month period, then we feel that we are in control of the mining issues and in a position to press the trigger for the expansion. But as I've just now described, over the last three to six months, we have had severe hiccups on the mining side. The mining contract is until February of 2024. Again, as I've outlined in the past, we are working with the mining contractor to see how we can improve the efficiencies. And if and only if we are able to improve those efficiencies and achieve that 1.5 million BCM target, we will, as a board of Chippy and as a board of Jupiter, give the green light to the expansion. So, again, I mean, I can't forecast when we will have clarity on that because of what we are facing right now on the mining side. But as part of our disclosure, when that happens, we will come back and announce to the market. The expansion costs, again, I think we have announced in the past, will be close to 1.1 billion rands. But again, because of all these challenges, we have not held back anything to Chippy for that expansion. As and when that happens, we will look at how we fund it. But for the time being, we are just basically keeping enough cash and chippy to weather the storm and to meet our ongoing expansion and stripping and working capital requirements. But the rest is paid out every six months to Jupiter and to the other shareholders.

Thank you. Thank you.

Thank you. If there are any more questions at this time, please press star 1 on your telephone keypad now. Thank you. We have our next question from Mark Fischera from Foster Stock Broking. Please go ahead, Mark.

Yes. Hi, Priya. Yeah, just a question on, just given obviously the low manganese price at the moment, just in terms of any costs reduction initiatives. I think you mentioned in the previous quarterly about looking at new mining equipment and potentially shipping on larger shipping vessels to improve unit costs. Can you comment on any of those initiatives?

Thanks. Thanks, Mark. I think on the bigger shipping equipment, as I said in the last call, we were looking at co-loading from Ludris and KUKA. So we have tried some ships, and again, as you know, we have more and more confidence we will be doing that. In terms of the larger equipment, again, I think, as I said in the last call, that The bigger equipment is going to cost 500 million rands for moments to bring. That will require us to enter into a new mining contract, which is, again, a new commercial negotiation. But, again, in light of these day-to-day hiccups which we are having, we feel that we need to address that first before we can start looking at bringing bigger equipment The Morgan contract expires in February of 2024, so we have to bear that also in mind. But yeah, all the work streams are progressing, and as and when we feel that we are in a position to finalize anything, we will come back and disclose it to the market.

Okay, thanks.

Thank you.

Thank you, Mark. Our next question is from Claude Eagles, who is a shareholder. Please go ahead, Claude.

Yes, I have a question. Shippy, I am confused with the ownership of this mine. There's only one mine, apparently, which is to Shippy. Is that correct? Yes. And Jupiter only owns 49% of it. Is that correct, or 48%?

Yeah, 49.9%, yes. So we own half, 49.9% of the mine, and we also have marketing like 49.9% of the product.

Right. So I just don't quite follow how this goes on as we don't own over 50% of the company, how Jupiter is controlling it.

Well, Chippy is a separate entity based out of South Africa. It has its own CEO and CFO who are based at the mine. It has its own board where Jupiter has got half the nomination rights and RBE Partners has got half the nomination rights. Brian and I sit on that board as representatives of Jupiter, and the board of Chippy meets as frequently as needed on whatever decisions need to be taken. And they set the business plan, the strategy, incentives, look at all these new ideas like expansion, the port of load rates, whatever we have done in the past, everything has been done at that board and management level.

Okay. Thank you. Thank you.

Thank you. If there are any other questions at this time, again, please press star 1 on your telephone keypad now. We have another question from Mauro Lombardo who is a shareholder. Please go ahead.

Thank you. I was just wondering, and I know that this is quite topical and there's probably a lot of thought being given to it. As a shareholder, I appreciate that the strategy for Jupiter is to distribute dividends at that 90% rate to shareholders and that's pretty much the strategy apart from obviously the potential expansion of the mine going forward and a few other things on the periphery. Why and is thought being given to even expanding or any M&A activity given that interest rates around the world are so low, given that the price of manganese at the moment has come down significantly, so there would be mines in difficulty, and there's obviously mines in South Africa, a whole lot of manganese mines in South Africa. Is there an ideal opportunity for us to consider taking on some M&A activity or getting control of another mine to help... We obviously boost our overall earnings capacity, but control of a separate mine. What are the thoughts around that?

I think, Murray, I think the only point which I would like to make is that the board of Jupiter and the management of Jupiter has, at the time of the IPO, articulated a strategy which we have basically been following. We have been evaluating a lot of opportunities, but again, it doesn't make sense to come back to the market with a product which is half-baked. As and when anything material happens and we feel that it is in the best interest of the shareholders, we will come and make the announcement and get the support and blessing of the shareholders. But we do not believe in making what I call announcements with irrational exuberance only when we feel that the product is fully baked and in the interest of the shareholders, we will come back to the market. But I think the shareholders should be under no illusion that the management and the board just basically sits and twiddles their thumb and is not looking at other opportunities. But again, we have to make sure that whatever we do is in the interest of all the shareholders and not just a select few.

Okay, thank you.

Thanks. Thank you. We have our next question from Nick Worrell from 708 Capital. Please go ahead, Nick.

G'day, Brink. Just regarding this spill motion, it's a little bit off topic, but you've stated there your concern that some shareholders are looking to gain control without having to pay a control premium. Can you maybe elaborate on how that might happen?

Again, I think, Nick, as you said, it's a very topical thing. This call is largely for the second quarter and not to discuss all those things. I think my statement and Brian's statement is fairly clear as to what we see and how we see. But I think the Australian shareholders are very smart. They know how the minorities can be squeezed by some of the major shareholders. but suffice to say I have not been privy or nothing has been shared with the Jupiter board and Jupiter management team as to what their intentions are in terms of the strategy of the company, except for some broad statements which have been put, which are fairly easy to put in the public domain but very hard to execute. I'm not aware, and neither is the board aware of what their management plans are. I can't really say anything more than that.

Okay, well, thank you.

Thank you. Thank you. If there are any further questions, again, please press star 1 on your telephone keypad now. We have another question from Mara Lombardo. Please go ahead.

Yes, last question, hopefully. I just wanted to get your view on the price of manganese at the moment. We've had some years where it's been quite high and buoyant, and it seems to be quite volatile in the sense that it doesn't seem to have found its happy medium, so to speak. What's the view? I know there's a lot of stuff happening in China and whatnot, but... be great to get some insights on what your thoughts are in relation to the price of manganese and then future impacts ending EV, electric vehicles and whatnot. And, you know, yeah, I'd just like to get some insight if that's possible.

I think, as I just now said, we as Chippy management team and the board do not see the manganese price changing substantially over the next three to six months on account of, like you said, the issues happening in China, the electricity curtailment with the federal exporters in that scenario trying to maximize their value in use and preferring the higher-grade manganese product and not like medium-grade semi-carbonate, which is what Chippy and most of South Africa produces. The stockpile is currently at 6 million tons, which is substantially higher. A good sweet spot is somewhere close to 4.5 to 5 million tons, so that has to reduce. And from our perspective, we do not see that changing in the next three to six months. As to electricity vehicles and manganese and all, I think, again, it's one of those things where the market what I call irrational exuberance. It has still got a long way to go before manganese becomes a substantial EV player. But even in that scenario, the primary driver of manganese is and will be the steel industry. And again, when you talk about manganese and EV and all, a lot of technological changes have to happen Not every manganese ore can be used for that. But again, the metallurgists are very smart, and as and when that demand picks up, you can rest assured that at 3.5 million tons, the Chippy product will have a role to play in that. But we do not plan our next year or two business plan based on what is going to happen to the manganese and EV. If that happens, that's a bonus for us.

Thank you, Mauro. If there are any further questions, please again, star 1 on your telephone keypad now. There seem to be no more questions at this time, so I'll conclude the question and answer session. Thank you, and back over to you, Priyank.

Well, on that note, thank you once again, everyone, for dialing in, and thanks, Erica, for managing the call. Thank you, everyone. Thanks a lot. Bye.

Thank you. That now concludes the Jupiter Minds second quarterly call. Thank you so much for attending, and enjoy the rest of your day.