MMG Ltd. narrowed its net loss attributable to shareholders for 2020 thanks to higher copper and precious metals prices as well as lower financing costs, which offset the downside from challenges such as COVID-related interruptions and the effects of political instability in Peru on its mining operations.
On a full-year basis, the company's net loss attributable to shareholders was $64.7 million, or 0.8 cent per share, narrowing from a year-ago loss of $230.4 million, or 2.86 cents per share.
MMG's revenue was largely in line with 2019, up by 1% to $3.03 billion in 2020, while EBITDA fell 6% to $1.38 billion.
"While the first half of 2020 was particularly difficult from an operational and financial perspective, increases in production, sales volumes and commodity prices during the second half has more than offset it" MMG CEO Geoffrey Gao said on a March 4 earnings call following its results.
Although lower production from its flagship Las Bambas copper project in Peru weighed on the company's profitability by about $82.7 million year on year, CFO Ross Carroll said that it was partially offset by increased molybdenum sales volumes while stronger production also supported higher sales volumes at its Dugald River and Kinsevere mines. The company estimated the production shortfall at Las Bambas at 70,000 tonnes in 2020, largely due to COVID-related operational disruptions as well as unplanned maintenance activities.
MMG's total capital expenditure for 2020 came in at $516.6 million, significantly below the initial guidance of $650 million to $750 million. This reflected the impact of the pandemic on the progress of key capital projects at Las Bambas and much of the expenditure will be pushed into 2021, according to Carroll. Total capex for 2021 is projected at $750 million to $800 million, with most pegged for Las Bambas.
Beyond 2021, the company anticipates a reduction in annual capex to about $450 million before capitalized mining, according to the CFO.
MMG expects to produce between 360,000 and 390,000 tonnes of copper and 240,000 and 260,000 tonnes of zinc in 2021, with Las Bambas' annual copper production anticipated to increase to an average of 400,000 tonnes from 2022 to 2025. The company produced 384,564 tonnes of copper and 245,097 tonnes of zinc in 2020.
The political situation in Peru has made a significant impact on MMG's Las Bambas operations and become an increasing source of frustration, Gao said, adding that the key impact is a restriction on the sales of finished goods. Gao flagged a working capital challenge posed by increased inventories due to the disruption events in 2020. In 2020, Las Bambas faced transportation issues because of local community protests. MMG declared force majeure in December 2020 on certain supply contracts as a result.
Gao said the stockpile at Las Bambas at the end of 2020 is worth roughly $450 million and expects that the existing inventories, which picked up in early January, can be drawn down over the first half of 2021.
In its development strategy announced in 2020, MMG aims to double in size and value, and then double again by 2030. Gao said on the call that the near-term focus is still on maximizing the value from existing assets, focusing on productivity, efficiency, controlling costs and looking for additional resources near current operations. In the short to medium term, copper and zinc will remain the company's main products, and MMG will work on expanding its portfolio to cobalt.
Gao added that the company does not have a concrete plan to see when it will expand its portfolio into other commodities at this stage.
Looking ahead, the CEO said key announcements by major economies in regards to COVID-related stimulus plans have indicated potential demand for copper, zinc and cobalt. The company is planning to develop a sulfur deposit at its Kinsevere copper project in Congo and Gao expects that the project can produce around 3,000 to 5,000 tonnes of cobalt as a by-product per year.
"It is an exciting time for a company like MMG. MMG is positioned to gain as this fundamental demand shift continues to play out over the coming decades," Gao said.
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