MMG Limited (MMG) today reported its interim financial results for the six months ended 30 June 2016.
Key points
- Result reflects both the tough market conditions and planned transition as production profile shifts from zinc to copper.
- Las Bambas commercial production achieved on schedule on 1 July 2016. Total project cost confirmed at US$9.7 billion, the lower end of budget guidance range of US$9.7-$10.2 billion, including acquisition and construction costs. Total project cost includes $60 million of plant improvements and logistics upgrades to continue into the second half 2016.
- Las Bambas produced 118,612 tonnes* of copper in copper concentrate in the first half with a total of 250,000-300,000 tonnes of copper in copper concentrate expected in 2016.
- Finance confirmed and costs savings achieved for the Dugald River zinc project, predicted to be one of the world’s top 10 zinc mines with first production expected in the first half 2018.
- Revenue down US$527.7 million (47%) on 2015 to US$586.1 million due to lower zinc sales volumes as a result of the Century mine closure, lower copper production at Sepon and lower average realised prices for all commodities except gold.
- First result since Century mine closure. Las Bambas to contribute to earnings from 1 July 2016 following declaration of commercial production.
- Copper sales volumes down 14% on lower production from Sepon, Golden Grove and Rosebery. Zinc and lead volumes impacted by the end of mining and processing at Century.
- Operating expenses down by US$254.3 million (38%) on lower production volumes and a favourable Australian to US dollar exchange rate. Total production expenses across operating sites (excluding Century). US$63.0 million lower from a continued focus on strategic cost reduction.
- Positive cashflow from operating activities of US$57.7 million.
- These factors resulted in a reported loss (after tax) for the first half of US$93.0 million.
- The Board has resolved not to pay a dividend for the period.
Commentary from Andrew Michelmore, Chief Executive Officer:
“The first half of 2016 has been pivotal for MMG and we have emerged a very different company,” Mr Michelmore said.
“The achievement of commercial production at Las Bambas is a significant milestone and tribute to the more than 19,000 employees and contractors who have worked on the project. To complete construction of one of the largest projects of its type both on schedule and within budget, demonstrates the skill, strength and resilience of our team.
Safety
At MMG, we place safety at the centre of everything we do and we believe nothing is so important that it cannot be done safely. That is why the death of an employee of our logistics provider has impacted us so deeply.
I extend our sincere condolences to the family and friends of Mr Felipe Chavez, who died following a road accident while driving an empty concentrate truck to our Las Bambas operation in Peru on 21 July.
In the first half of the year, our operations recorded a Total Recordable Injury Frequency (TRIF) of 1.68 which is the lowest half-yearly TRIF ever recorded. In addition, the Las Bambas construction project recorded a TRIF of 7.59 for the first half 2016. While this result demonstrates we are moving in the right direction, we must continue to focus on the high energy, high potential incidents and remain committed to eliminating injuries.
Financial performance
Challenging market conditions and pressured commodity prices impacted our first half financial results. Revenue for the first half 2016 of US$586.1 million was US$527.7 million (47%) lower than the first half of 2015 due to lower realised prices for our key commodities of copper, zinc and lead.
During the first half we continued to focus on achieving further operational efficiencies and cost reductions. The total production expenses across all operations (excluding Century mine) were US$63.0 million lower due to our ongoing focus on strategic cost reductions. A US$15.6 million reduction in administration expenses was also achieved. Total operating expenditure was down 38% to US$254.3 million attributable to lower production volumes and a favourable Australian to US dollar exchange.
Due to these factors, MMG reported a loss of US$93.0 million in the first half.
Production
In the first half we shifted our production profile significantly toward copper from zinc while focussing on driving operational improvements across our sites.
We announced the commencement of commercial production at Las Bambas from 1 July 2016, a significant milestone which has been transformational for MMG. The ramp up of the project has been delivered within guidance to the market and demonstrates the skill and commitment of the 19,000-strong team which has made it possible.
Las Bambas produced 118,612 tonnes of copper in copper concentrate during the first half and we expect to produce 250,000-300,000 tonnes of copper in copper concentrate for the full year 2016.
Total first half production at Kinsevere was 39,974 tonnes or 2% higher than the corresponding period in 2015 due to sustained operational efficiency improvements, stable access to grid-sourced electricity and increased mill throughput. During the reporting period the operation sourced only 10% of the electricity requirements from diesel generation, which is a reduction from 29% for the comparable period in 2015.
Sepon produced 35,919 tonnes of copper cathode in the first half which represents a 20% reduction on 2015. Sepon’s performance was impacted by the planned outage of the concentrator plant and the site’s ongoing transition to lower grade, more complex ores. Ore milled grades were 3.6% compared to 5.2% in the first half of 2015 as ore grades continue to decline.
Copper in copper concentrate production across our Australian operations was 50% lower at 7,231 tonnes on the comparable period 2015 due to the reduced throughput at Golden Grove in line with our strategy, which was implemented in January 2016, to preserve the value of the resource. Zinc in zinc concentrate production at Rosebery was 58,137 tonnes or 11% lower than reported in the first half of 2015, due to lower head feed grades at Rosebery.
We expect to produce 415,000-477,000 tonnes of copper and 120,000-135,000 tonnes of zinc in 2016.
Strategy
Delivering Las Bambas has been our priority. Its completion is a major achievement for MMG and is set to deliver significant benefit to our Shareholders. Looking ahead, our ability to extract value from this asset will ensure we maintain our growth mandate.
In June 2016 we affirmed our commitment to proceed with the funding and development of Dugald River. The project will deliver production in 2018 into a market of shrinking global supply following the closure of major zinc mines, including our own Century mine.
Over recent months we have received several approaches from external parties interested in acquiring our Golden Grove operation. As a result, we are in the process of appointing a financial advisor to commence a formal expression of interest process which we expect to conclude by the end of 2016.
There is no predetermined outcome to this process, and we maintain a positive outlook for both copper and zinc. We are actively increasing our exposure to zinc through the development of the Dugald River project.
Together with the support of our major Shareholder China Minmetals Corporation (CMC), we will continue to seek further opportunities to invest and grow our business during this down cycle.”
Andrew Michelmore
Chief Executive Officer
* 2016 copper in copper concentrate produced at Las Bambas includes production from commissioning and start up activities in December 2015.
For more information, please view MMG’s announcement on Interim Results for the six months ended 30 June 2016.
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