Q4 2020 First Quantum Minerals Ltd Earnings Call
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All participants please continue to standby the conference call will begin momentarily.
Once again, please continue to standby and we thank you for your patience.
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And then.
Yeah.
All participants please standby your conference is ready to begin good morning, ladies and gentlemen, and welcome to the first quantum minerals quarterly results conference call I would now like to turn the meeting over to Lisa Doddridge Director of Investor Relations. Please go ahead and Mr. Edwards.
Thanks, operator, and thank you everyone for joining us today to discuss our fourth quarter and full year 'twenty and 'twenty result, before we begin I will draw your attention to the fact that over the course of the call we will be making several forward looking statements and as such I encourage you to read the cautionary note that accompanies our most recent MD&A and the related results news release as well.
The risk factors, particularly to our company, which are detailed in our most recent annual information for them and available on our website and on SEDAR.
And that the presentation, which accompanies the conference call is available on our website on today's call true and Pascal Our Chief operations Officer will provide some general comments and discuss operation then hand as Mayer, our Chief Financial Officer will review the financial results. After that we'll open up the lines to take questions. So with that I'll turn the call over to you.
Tristan.
Thanks, Lisa Hi, everyone. Thanks for joining us.
<unk> was an unprecedented year two weeks first quantum is operations responded very well and.
And the company achieved its highest ever annual copper production.
Daily and the year COVID-19 emerged and shortly thereafter was deemed the global pandemic for the World Health organization. The year was full of challenges lockdowns and restrictions and and so.
Some of them certainty cobre, Panama was shut down for periods and the middle of the year as part of the COVID-19 mitigation efforts and Panama, we had to move quickly to make changes within our organization for two.
To protect our workforce and the communities within which we work. These protocols remain in place today as we continue to deal with the pandemic and all.
Operations and the wider population and Zambia have been fortunate to see less of an impact from the pandemic across 'twenty and 'twenty that we maintain a high level of preparedness and vigilant Sentinel and consenting them on.
During the fourth quarter, we continued to see the resurgence of the virus and in some jurisdictions and the level of restrictions tort and for the we've been fortunate the strict protocols. We have in place of the operations have been infected the effective and keeping us all of its mostly unaffected in the quarter. We did see for the cases image.
And I work for workforce across several thoughts, but these were identified and isolated and managing conduction with local health authorities. This for.
All of these challenges across the year, we did achieve record annual production.
And with S. C. One cost of the lowest level and for us. The Sentinel, we had another strong quarter and Q4 with continued high throughput and great. There was a high proportion of softer ore from the east and cutback and higher grade reporting from the deeper mining areas, which contributed to these results cost improves for the previous year.
2020, benefiting from the depreciation of the kwacha and lower maintenance and fuel cost of Sentinel for.
You see one unit costs were a record for the mine.
For the full year, 'twenty and 'twenty Sentinel cheat throughput of 57 million tonnes and we expect to continue with these rights and 'twenty 'twenty, one and the second half of this year 'twenty 'twenty. One we expect to put the fourth in pit crusher into commission, allowing for another step up and throughput when it comes on line and then into next year 'twenty and 'twenty two.
The.
Constancia mine continues to be of consistent producer and continues to demonstrate flexibility and adaptability.
And the fourth quarter reflect lower feed grades and recoveries as the oxides of the plate, which is an expected part of the mine plan production.
Production rights of Constancia are expected to be similar across the this year 'twenty 'twenty. One work will begin this year on upgrading the smelter to improve our ability to treat high volumes of our own concentrate from by the Sentinel and concern and.
And $40 million is being provided and our capex guidance for this work and each of this year 'twenty, one and next year of 'twenty two.
The decision to move ahead with the brownfield is three expansion of consents you remains dependent on our balance sheet and reaching agreement with Zambia for greater stability and the country and we continue the constructive discussions with governments and disregard.
We do expect the normal seasonality without Zambian operations and typically Q1 is the weakest quarter as the result of the rainy season. This year 2021 has already seen heavier rain for the last year, which had impacted operations and genuine and February to some degree.
Panama was back to normal operations and the fourth quarter and performed as expected. There was the planned maintenance. The was planned maintenance in October which resulted in the seven day shutdown and the spot. This the off price and set new quarterly mill throughput and production records for the quarter mill throughput continues to ramp up to the 'twenty 'twenty one target rates of 85.
<unk> tons for the full year monthly all meals rights of Cobre, Panama, where on average of around $6 2 million tonnes across the November and December 'twenty, and 'twenty and we're above $6 8 million tons for the month of January 'twenty 'twenty one.
We continue to advance the brownfield project for expansion of Cobre, Panama to the 100 million tonne throughput level, which we continue to expect will be achieved sometime in 'twenty and 'twenty three and is included in our current production and capital guidance.
At the right and for the ongoing ramp up continues at the satisfactory right. During Q4 last year, whilst we continue to take mine feed from the <unk> and Haile Buffalo bodies, the new conveyor to the shoemaker Levy ore body will be completed in Q2. This year and we have already completed first plus for mineral body Shoemaker Levy.
Specced at the improved grades and the material handling characteristics of the ore feed and the second half of the year.
Q1 of this year, we are conducting the regular maintenance shuts and the two H pallet unit.
Work is now ready completes and voice units of restarted well and are back to full throughput.
All of the other operations performed according to expectations. During 2020, they all manage to continue the operations will despite various COVID-19 constraints and a number of significant technical factors.
Highlight amongst the smaller launch was the contribution from equivalent of grind and.
The stock price was particularly impacted by the various travel restrictions on its rotational stuff I'm pleased to say that our local workforce and originally ex-patriot staff showed remarkable tenacity to deliver record low cost for the year 2020 of group.
Looking ahead total production is expected to grow and each of the next three years across the period for which we've provided guidance of.
The cost structure is expected to remain consistent with 'twenty and 'twenty and although we do see lower cost of cobre, Panama across the sea is.
These will be offset as we see some of our lower cost of rock operations come to the end of the large and in anticipation of some cost inflation.
Another highlights included and now Q4, and 2020 results one of the formalization of publication of the first quantum of approach to climate change, which is now on our website.
This is an important step forward for our company and part of a broad of commitment to improve out the ESG reporting and communications across this year and into the future.
We understand that money has a significant impact on the environment, including through of emission of greenhouse gases and we recognize that our obligation to identify and report on our actions to address climate change the.
And the metals, we mine ore and essential components driving the transition to a low carbon economy, and we are committed to find ways to use less energy and improve efficiency reduce waste and greenhouse gas emissions by continually challenging the status quo, leveraging our innovative culture and new technologies as they become commercial.
And our intent is to deliver meaningful change in the business based on the implementation of the step change improvement projects. The first quantum of price the climate change and keeping with our results driven culture. It's the CIT tangible targets and focus on the identification and execution of projects, which produce real outcomes over 'twenty and 'twenty, one and subsequent P.
And we'll be setting clear progressive and realistic targets, which have and identified pathway for achievements.
The full statement, including our commitments is now available on our website.
Before I hand things on Santana I want to on behalf of the entire company think kept people many of our personnel, particularly on the more watch a lot of thought to be working across the last 10 to 12 months with the restricted travel and some cases extended periods of away from the family and friends and we sit and we appreciate their depth of ability commitment and resilience and with the.
The significant contributions first quantum would just not be the same computer use.
And with that I'll turn things to hang on for continued review of our results.
Thanks, Jason and the day to day everyone.
The direct you to slide title of the view of its slide seven.
Despite the challenges faced in the get the company achieved its highest ever annual copper production with record breaking production of paint channel and a strong contribution from Cobre Panama.
Total copper production of 779000 tons.
For the 11% higher than 2019 and when.
And the upper quartile of the guidance range.
And total had an outstanding year and achieved record copper production of over 200 of 51000 tons, which exceeded guidance.
Top of Panama performance was strong at 206000 tonnes, despite being placed on the preservation and safe maintenance and operating at reduced levels of activity and the second quarter of the year.
Total gold production of 265000.
Ounces, plus the 8% higher than 202019 the thoughts.
Balance is ahead of the guidance range for the year.
And equal production for the.
It was 13000 tons.
The plant continued stable loss of startup with nikko recoveries, increasing to 78% and the fourth quarter.
Comparative EBITDA of 2.15 billion for 2020 reflects.
Strong operational performance and was 34 per se, it's higher than 2019 with record sales volumes and higher metal prices and lower cost.
Total cash cost for the year with the lowest level and for years with almost all operations delivery.
And reduction of record low and you'll see one cash cost and all in sustaining cost we achieved the <unk>.
Does Sentinel and go out some of Greg.
Net debt decreased by $266 million to $7 4 billion.
At the end of the year capital expenditure and the yet of $610 million about $65 million below our revised guidance.
Turning to the next slide Q for production.
Total copper production for the quarter of 203000 tons was in line with Q4 2019.
Taken low cheap.
Copper production of 60000 tons of 24% increase compared to.
And quarter four last year.
Panama and set new quarterly records for both the low throughput and copper production cost.
For us actually it was 9% tied on the same period and 2019.
Gold production of 69000 ounces.
Was 12% lower than Q4, 2019, principally due to lower grades at Cobre, Panama and the production and <unk> recoverable gold produced and consenting.
Turning to the next slide on quarterly unit cash cost.
Full year copper cone cash cost of $1 21 per pound was at its lowest level and for years and 10 sales per pound lower than 2019.
Full year <unk>, one and all in sustaining cost were comparable but comfortably at the low debt and all.
All of our guidance ranges.
C. One of cost for the quarter of $1 28 per pound was full of sales higher than quarter for 2019.
Cobra, Panama tier one.
Cost for the quarter, plus six sales higher than the same period and the prior yet the <unk>.
<unk> additional cost relating to health and safety protocols and response to COVID-19.
Safety and all of the consensus or decreases to see one on the quarter compared to the same quarter last year, reflecting favorable impacts of foreign exchange and level of fuel process.
Welcome and growing and achieved its lowest quarterly C. One and the decade.
Cost reduction initiatives and higher realized gold process.
All in sustaining cost for the quarter was full of sales higher than quarter for 2019, and reflecting IFC one.
As well as higher Zambian royalties on the back of higher cost of process.
These were mitigated by lower sustaining capex and deferred stripping.
Turning to the next slide on quarter full financial overview.
Compared to EBITDA of $725 million for the quarter was 200 of $14 million of 42% higher than quarter for 2019.
The EBITDA benefit from increased sales volume at the St total on cap rates on a third.
10% higher realized copper prices.
That will all pricing cost and favorable foreign exchange movements.
Comparative earnings for the quarter of the three.
The million dollars is an increase of 51% compared to comparative earnings.
The $35 million and quarter four 2019.
Net debt reduced by $266 million and the year.
And by $136 million for the quarter to seven $4 billion.
Yeah.
This could have been better.
We had two late shipments from Panama that lift on.
Around Christmas and the city of of the same day, and we received hundreds of $50 million in early January.
The intending to the next slide comparative changes to the competitive EBITDA.
Illustrates the detail on competitive EBITDA movements and then.
And I can just to highlight the change of price offset cost.
Some of the hedge losses.
Turning to the next slide on the debt and.
The liquidity profile.
The company ended the year with none of it of $14 million of net unrestricted cash cash equivalents.
And full compliance with all financial covenants on the.
October 1st 2020 of the company completed the operating of $1 5 billion of senior notes due 2027.
For the proceeds of the offering.
Used towards true.
The offshore repayment of the companys existing revolving credit facility.
And the redemption and full of the Companys outstanding Senior notes due in 'twenty and 'twenty two.
Taking into account full cost.
And cash inflows capital expenditure outflows and available cash and committed facilities. The company expects to have sufficient liquidity through the next 12 months to carry out its operation operating and capital expenditure plans and.
And remain in full compliance with financial covenants.
Continue to take action to manage operational risk and price risk and further strengthen the balance sheet.
Turning to the copper hedging.
The program outlook on slide 13.
Hedging was undertaken with tablet panel was being built to ensure consistent and sufficient cash flow.
As we look forward to it.
Certainty of cash flow and sort of confidence and cut that process. We will continue to review the level of hedging and act opportunistically.
At the time the level of sales hedged is expected to decline.
And we would look to increase the.
The colored component of the stages to put the site participate.
Participate more on the upside and.
And most recently, we've done and he just we've had upside.
<unk> debt to $4.11 a pound of copper.
Approximately 40% of expected copper sales and the next 12 months hedged.
At February 16th.
The company had and margin copper forward sales contracts for 128000 tonnes at an average price of $2 86 per pound.
In addition, the company and zero cost collars.
And margin sales contracts for 198000 tons at weighted average prices of <unk>.
And $2 93 at the full price and the $3 25 at the.
The Sealy.
Furthermore, subsequent to December 31st got the realized in January of 'twenty, one and margin forward couple of sales contracts of 23 and half thousand tonnes and zero cost Cup of color and margin sale of contracts for nearly 16000 tons at an average price of $2 91 per pound.
The company also and.
And the margin nickel forward sales contracts, which are detailed on that page.
More detail of the hedges and our quarterly format.
And you can find on page 31 of <unk>.
And DNA.
Thank you and I will now hand back over to Lisa.
Thank you very much Kenneth operator, I think we can open it up for questions.
Thank you we will now take questions from the telephone lines. If you have a question and you are using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad.
And anytime you wish to cancel and your question. Please press the pound sign. Please press star one at this time, if you ask the question.
We filed for all participants register for questions.
Thank you for your patience.
Our first question is on the arrest.
From Scotiabank. Please go ahead.
Hi, Good morning, a question about Cobre, Panama and the three year guidance that was recently issued.
I'm just trying to understand how to reconcile the guidance for 2022, and especially 'twenty three to the previous technical report and when I look at the technical report.
It shows.
2022, and 23 copper production north of 400000 tons, including for 60 in 2023 and I'm just wondering how we should think about the difference.
With that relative to your guidance of up three tenths of $3 40, and 22 and $3 30 to 360 and I'm just curious what's changed.
Obviously, the I assume the the Covid shutdown.
During 2020 might have pushed that back a bit but what are the big drivers here.
Yeah, Hi, Orris I can answer that question.
Yes, the 43, one on one.
The paint the picture of the the reserve resource in terms of our ability to the abstract.
And really at those rates by 2023 I think.
We see now as we will.
We will meet that timetable in terms of delivering the 100 million. We are confident in delivering that in 2023, but the labels around <unk> 60 and the.
Technical report on more indicative, we the guidance as a conservative picture around with.
We are happy to stake and happy to be.
Judge by those by those volumes.
In terms of change there isn't really much we are a little bit behind the fights positions that were in the 43, one on one in terms of where we want it to be in particular it doesn't change the overall perspective on grade its just.
On the sort of volumes and so on the come out over the next period.
And so.
It is on track it's on cost.
And all of that copper is in front of us that you see there it actually at the moment and the five year plan, we do see some high years after 2023 and part of our work between now and the any sort of balancing that out and bringing forward a little bit otherwise, we do see some.
And some very high levels of copper.
After 2023.
And we.
We will keep working on balancing that and at the moment that conservative position that we put into the guidance.
Is the view.
Okay.
And so unclear so it sounds like you're saying, you're assuming a more conservative throughput level and we shouldn't assume any changes to the greater recovery profile is that fair.
Yes.
The 43, one and one was on the basis of 100 million as well it was really on that grade profile and at the moment the grade debt.
See there and the 460 is reporting into the mine plan and a couple in.
And in light of <unk>, and we're working on bringing that forward as much as we can.
And then answer the question.
It does thank you very much.
Thank you.
<unk> question is from Jackie the landscape from BMO capital markets. Please go ahead.
Alright, thanks, very much and good morning, or afternoon or evening for everyone.
And about the concern she expansion.
You've given the guidance that you're planning to spend $40 million. This year $40 million next year and then when you talked a little bit on the on the earlier part of the call of about that can.
Can you tell us how that relates to the technical report I guess is of similar to <unk> question.
But on Constancia the.
Check reported that you published in September.
Is that for first quantum proportion of about $870 million for the.
The expansion is this the $80 million that we see and 2021 and 2022 of part of that or is this in addition to that and and does it change the timeline or the scope of the of the expansion of once it is fully sanctioned by the board.
Sure I can answer that Jackie.
Yes.
And the references on page three of the technical report the smelter is included in net capital.
The 40 million net we are spending now is on those expansions, it's around the oxygen plant and the.
And in bringing the the.
The the already existing.
The process.
Which takes us to the to the high levels of the $1 6 million tonnes per annum throughput at the smelter the.
The.
The additional capital was all around the three and that decision has not been made but we can talk about our growth perspective, and our last year on Gregory to comment on that and a minute.
The debt capital is included.
The capital being spent on a three and now guidance prior to 2023 and in that year of is around 270 million that we expect low debt that we've included in the guidance, but obviously that's contingent on balance sheet and as you say the.
For the fiscal standing and Zambia and in that regard, we're working pretty constructively with the government at the moment, but in terms of the growth prospects for <unk>, John maybe if you just want to add a comment there.
Yes sure.
The guidance on.
And is in line with the technical report that we issued last year and.
And the capital on all shown on.
On the $270 million and 2000 and phase.
Aligns with the technical report.
And the completion of the project is shown at the end of 2020 for coming online in 2025 as you'll see from the technical report.
Now as the theme.
On a couple of locations today.
Timing of that and the technical report as to the with the government of on balance sheet.
Aspects.
And we don't need for Halo to the <unk>.
For it to actually to finalize the design and construct the street should things.
Change for the possibilities that we could change the timing of.
The <unk> III expansion.
Thanks, very much of the effect of just that Scott and excuse me of follow up question on <unk>.
And at the beginning of the call you mentioned too.
And conditions for approving the project, where I guess, including.
Your your balance sheet being ready for it and and and agreement with what Zambia can you give us a little more color on what you mean with the stability and Zambia I think it's the first I've heard and you're talking about that are you looking for a formal agreement are you looking first time share of the outcome of the upcoming elections, and Zambia or what exactly.
Well.
The first quantum confidence and the country of stability.
Sure. The answer is yes, as you said before.
And within the release when we put out the the consensus of 43, one and one yes.
Yes, we're looking for the fiscal stability and and we envisage the debt would be and agreement and we've spoken about that before.
And what it really boils down to the deductibility of.
Of royalties and that's the central question and that stability, but what we really looking for is a period of.
Of confidence in and around debt and.
And in that regards in terms of progress we've been having those conversations.
Yes, the election coming we expect trend August this year.
And so.
Me too.
Move for quite quickly in terms of those discussions.
Does the election rules.
The the politicians or otherwise and gauge but the.
Those of the clear.
Provisos debt, we have in place and.
And what we do see and zombies is a lot more discipline a lot more stability and any event engagement with the IMF, we seen clearly.
And that takes us back to the previous situation that they've had and the country.
And when there has been of default the kind of.
Periods of good financial standing and discipline.
In the.
In the aftermath of that as part of the the work out with bond holders.
And the only manner.
Alright, Thank you and yes, I do and didn't know you have talked about that the.
Deductibility of royalties for the past day, I apologize I just hadn't.
And I hadn't connected the dots and thanks very much for that and.
And that's it for me thanks.
Thank you I was following question is from Matthew fields from Bank of America. Please go ahead.
Hey, everyone.
And just thinking looking at your stock.
Sort of run up so much so quickly.
On the seven year high or I guess.
Hi, as it's been in seven years and pretty close to its all time high.
One of the thoughts about issuing a little bit of equity to kind of speed up the deleveraging maybe.
You know brings you and ability to kind of bring forward. Some of these expansion projects like S. Three of our Taco Taco or at least take the balance sheet.
Part of the equation kind of off the table with a little more surety of capital.
Thanks.
Thanks, Matthew and this do you want to answer that question for sure.
And.
Yes, one for <unk>.
And it's got debt option available.
With current high price as we see.
Deleveraging happening happening pretty rapidly and any of it.
And I think the company is probably on the base position its been.
Okay, and the loss of seven eight years and in terms of.
We've got a lot of the capital projects behind us.
Copper prices are good so the cash flow generation is good.
So we are focusing on the.
Debt reduction so thats actually the key.
Key.
And we mentioned the processes and the path that we're running in terms of.
Trying to get minority stake sales and and Zambia.
And revenue so that's continuing and so there is up so part of the tinnitus, we evaluating and just.
The accelerating debt deleveraging and.
But yes, I mean that option is available.
Got it.
Yeah.
Yes, and then we had a pretty good spot at the moment.
Okay Fair enough and then on on the flip side you know you've got a couple of near term maturities that are callable debt pretty cheap call premiums at this point and a very very favorable high yield market.
What's the thought on sort of clearing out maybe the 'twenty and 'twenty for us and sort of bringing your AR.
You're pushing out maturities, even further and this very favorable credit market.
Yeah, we've got the 20 threes of stepping down from the first of April so.
And.
And if you look at way out.
This recent issue is treading thats trading at sub 5% on the yield to worst basis of.
The good indicate that it would be accretive to sort of refinance of 'twenty. Three that we'll probably also have a look and see where we get it and to in terms of these other processes that we're running.
Got some cash flow coming in from that that might be well used to call some of those bonds.
And but yes. It is something on the right on something we're looking at as well just to proactively manage like like we have done and.
And the past.
Okay, great. Thanks, a lot and honestly I appreciate it and good luck this year.
Yes.
Thank you.
The following question is from the illness muscle and from Morgan Stanley. Please go ahead.
Good morning, and the thanks for the presentation and the tourists and it comes out and congratulations for making growth.
And I had three questions and I'll take them one at the time and if that's okay. The first on Capex.
If we take into account the five comes with the millions of dollars of combined stripping and sustaining capex in 'twenty and 'twenty, two and 'twenty three and theirs.
The remaining growth Capex element of $450 22, and 515 to 20 of them to see and then if I take into account of the larger life and so on Cobre, Panama, The 100 million times the smell.
The expansion and.
The first phase of the extra spending theres still a residual capex for that kind of explaining of the range of $200 million to $260 million per on them could you perhaps elaborate on some of the other projects.
Thank you.
Sure sure I shall I take that one.
Thanks Juliet.
Yes, so you'll have to keep me right and.
But it's about 514 and.
In stripping and sustaining and 2021, but we did note the sustaining capex is expected to be up at Highland and 2020 bump because let's see.
Smell for maintenance.
And in that year and.
And then with the remaining $410 million on projects.
And you say includes the smelter expansion.
And I can punchy.
It also includes the fourth crusher sense, and I'll look of about $50 million.
And then it also includes some projects of the Panama was of about 150 million, which could include.
The Tms construction.
And some initial spend on.
Cleanup and the <unk>.
First of all mill and.
All of the associated projects, there is and allowance in Bath for some spend if necessary.
In South America of up to 35 to 40 million and.
And then there's obviously the shoemaker Levy project.
Ladies and Philips.
Okay.
Project spend of about 40 million of late and so.
And then just maybe moving into the house, yes, yes, okay, and we have $40 million.
The consensus on the smelter.
Have some expansion of the mining equipment of Sentinel of about $50 million.
And.
Some of the projects expansion the.
Panama, and including mining equipment and Hum.
So that's not the kind of.
Construction of Michael on the Tms and the.
And we do allow for some discretionary spend and South America is one of them.
Okay.
Okay and.
And the big step up the big.
Stepping up and the safety of yourself as Nancy said that's free.
And with again some.
The projects.
Panama, and allowing some discretionary spend and South America.
Understood that's clear thank you very much the.
The second question just on the S. Three.
I'm just trying to figure out the.
And the milestone you're trying to achieve in terms of the negotiations with the government on.
You.
Looking for some sort of fiscal stability and when it comes to the project, specifically or the only need the wholesale change and desktops deductibility of royalties for you.
The hub of the confidence to proceed with the project.
Yeah, Hi, you and that's all I can.
And on to that question the.
I don't know about of wholesale structural change and Zambia of I think what we're looking for.
It's a reasonable perspective around that project and the concern.
Going forward.
We would envisage that would extend to the industry as a whole, but really the key as I said is the deductibility of royalties that timing is and soi of statutory instruments.
Some time ago of year and half ago, or so and that's.
And that's the key element beyond that yes, they would be of broader sort of.
Wish list of items, but I think that's the key.
In terms of the discussions that we have and we would want to ensure that that continued and Tom and I think thats, a very reasonable position, that's pretty standard and most mining jurisdictions.
The unit.
Royalties, which of taxation of deductible from your cost.
For the purposes of cooperations attacks and.
So thats the discussion.
And.
Yes, well, obviously have to navigate the election coming this year.
But we envisage that.
It is constructive for the.
Zambia and the context now that Sam beres of major mining entities will at Mopani.
The there'll be interested and that themselves.
Okay, Thanks for that and.
For the last question is around the hedging you talked about the reduction and the hedging proportion to 40% of expected copper sales for the next 12 months and I guess, it's been lower for nickel.
Is the.
The reduced hedging proportion of reflection of your more bullish price outlook or more of a reflection of your view that the balance sheet is in the better shape and kind of interest on more volatility and wish him. The should we expect to see US further step down later in the year or is it sort of of 'twenty and 'twenty two store in terms of.
The meaningful reduction beyond the 40%. Thank you.
Yes.
I'll ask Dennis to answer I mean, the key for US is we're not natural hedges and the long term and any event and.
The reason for the hedge book to be and place was around protecting the balance sheet and that means the mine.
And it.
Continues to be the core elements and determine of the hedge hedging strategy.
But yeah in terms of where we are at the moment, we have the existing strategy, but.
But we do as I sit and the long term, we're not natural hedges, but we do need to make sure that we protected the tenant said we have.
Putting that more and more of the colors and place, which gives us helping the exposure to the upside and up to above $4 as Emma said.
But it does continue to limit the downside for us.
And as we see debt repayment accelerating that's what's changing the dynamic for us.
How much would you add on and you go after that.
Yes, my propping up much more debt.
A while ago when we did the agents it was sort of protecting the covenants.
Think of progress now from the day, we the focus now is on debt reduction.
And Tom.
The same teachers overall hedge will decrease but the other focuses on the sort of.
Reducing debt.
Using wider call us and participating on the upside and crystal.
Good day.
And thats on that for me.
Understood. Thank you very much.
Thank you.
The following question is for me and Russell from Barclays. Please go ahead.
Hi, guys.
Just the one question on capital allocation with with balance sheet, the gearing happening probably a bit softer than what you previously anticipated and youll budgets.
What is the flexibility and.
Your capital spending and bringing projects forward and it seems like if you've been able to do that already with some of the spending and <unk>.
<unk> on the smelter.
So just getting a sense of if if markets remain strong.
You have the ability to bring forward oil projects or are you constrained by other sort of planning stage gates.
Yeah. Thanks Jan.
Cobre, Panama is not too much on the way and flexibility in terms of that the the.
<unk> type of or best of the $100 million.
Pretty much set by the ore body and buy.
And the tailings dam, we want to put a good two years into the existing tailing dam before we can cope with the level of income.
On dice and at a 100 million tons.
And that really sets the pace there.
We would otherwise just be spending money to accelerate.
Without having the capacity to store those tailings.
It's three however.
<unk>.
On the theoretical basis that we could do it earlier, John you might comment there, but this possibly.
The potential there on the theoretical basis.
Alright, well I agree yes interest them.
And we we've identified the preliminary activities that we need to undertake to accommodate growth through which is why we're focused on the.
The the smelter upgrades, which in terms of capital of the relatively modest and various other infrastructure enhancements. So that we have the ability to.
The move of our engineering and bring the timeframe forward for us.
Yeah.
And the parameters.
All of that we've already identified should they become more favorable.
So there is the degree of flexibility at Constancia.
And that coupled with the expansion of <unk>.
The.
The the kit.
The fourth crusher at <unk>.
Sentinel is on track and that'll come on loans for next year.
And the Cobra, Panama is interesting for us.
And the flawed, we are and of course on the track and we are.
The meeting.
For the infrastructure that will support the hundreds of million.
Ton per annum case, and we're looking at bringing that online and I'll kind of on flooding and the 2000 and tools.
2005 era, so basically coming on line of 2000 and for 24, so that in terms of will give us the of the upside production and the upside of production profile all of the.
Those projects for the 2020 for answering.
2020 saw and we can see them all for the estimates and our planning that we can.
Start to look at the.
The 1 million tons of copper production profile.
Some of for.
And 43 101 technical reports that basically fixed and 2025 could we bring that forward potentially we could.
But.
That was predicated primarily on the FCA plumbing.
Okay, and then just maybe to follow on what.
What about the South American projects, there, but it and see much in the timelines there to fix that.
Yeah on the South American projects, we released the 43, one of the one of tech of Tucker and.
And.
So it's a very good project loss of 30.
City of Citi to use and very good and the first 27 years.
The tech attack.
Really so the assets and good.
We think is a good assets.
The the decision is all around the investment case into Argentina and in that regards we have more work to do there.
And so again, our priority remains of the balance sheet and and and.
And clearing the balance sheet kind of dance at the levels, we've been speaking about.
And I think the investment case of it ran Argentina, and what type of long, but that's the reason for the focus on on the brownfields.
Cobre, Panama and is three.
And beyond that Keira.
We think at the moment that sits behind the tech attack of just because of the community issues ongoing there.
And we do of exploration projects and the region and further afield that are very interesting, but for the nature of those are along the late it is the challenge of mining now and.
And most jurisdictions is to bring these projects on lawn first quantum has got a good reputation in that regard certainly the loss of project, we've done the cobre, Panama and and delivering that and autonomy fashion.
But the.
And those new approach and greenfield projects of challenging.
John would you add anything most of that.
I think in terms of attack attack of we have the.
We have a very clear indication of the actual timeframe from once we take the the business case decision to proceed.
In terms of.
The initial pretty strict requirements for the mine construction of major infrastructure income and construction of the fixed plots.
So that is.
All identified clearly and the technical report.
And as.
As we said and the technical report.
When we of 96 for the technical report of the business decision and we're looking at.
Some of them.
The 23 2024.
Okay. Thanks, John Thanks first on yeah. That's good thank you.
Thank you.
Following question is from Lawson Winder from Bank of America Securities. Please go ahead.
Yeah.
Thank you operator, and Hello, everybody.
The question on the debit dividend for me and youth.
Think about the dividend so two questions here of really on the dividend in the past you've indicated.
Debt repayment of approximately $2 billion would be the right quantum before you think about of higher dividend I just wanted to see if that's still where you're thinking it at and then secondly on the dividend with the hedges.
Do you think about hedging as a tool to help enable you to pay a dividend or would you expect debt the need for hedging will be gone by the time.
And you start considering a higher dividend.
Thanks for the us, hence could you tie that glitch.
And.
And maybe they didn't get to the second one first so the hit just as part of.
The strategy now and sort of deleveraging and the balance sheet of repaying some of the data.
And that also enable stand and the first aspect of it.
The dividend question.
So.
And I'll leave.
Previously stated the sort of 2 billion dollar debt reduction that was the target.
We wanted to achieve.
So we've paid down some of the data and the lost here.
So we are on track for that and then and this year, we will generate.
Pretty decent cash flow I don't think we precluded from increasing dividends.
Prior to repaying $2 billion.
So I think what we are stating is that in.
In the past, we used to have the dividend policy and prior to <unk>.
And the nominal dividend debt, we paid we've paid about 15% of net earnings.
The dividend.
So I think what we've now say it is that we'll look at returning a bit more cash to shareholders. Once we see.
Debt reduction so I think that debt will come through the and this year and late in the United We say it on the next two years, we will certainly look at the increasing that dividend.
Okay. Thank you and then sent to the.
The hedge book.
What day Stefan first yes for that.
And I think thank you very much for that and this.
And now in your prepared remarks, you mentioned that.
Okay.
Lower cost going forward cash cost going forward at Cobre Panama.
That would be offsetting some of the the smaller low cost mines coming up but also.
Offsetting some of inflation.
And I think it'd be really helpful to get your thoughts on where you are expecting that inflation to come and is it labor are you looking for.
The input costs are low.
And just wait what's your thinking on that the.
That comment thanks.
Yeah, the lesson, the Sydney labor and.
And we are seeing higher shipping cost at the moment certainly we've seen that for.
Bulk freight and particularly coming out of Asia. So some of the project elements and that's certainly been the parents and starting to come through.
I think it's some of the reason for the uplift and commodity prices as the inflationary outlook Sydney's west.
Starting to see some of that.
And I would point all sorts of concern with the.
The ongoing.
Lower grades.
And it does.
I mean the.
The cost per unit.
Yes.
We will rise because you have the overhead day with <unk>.
Labor and the cost of the business, but as III changes that as we get into a higher volume of operation and.
And we're able to continue to produce at the current levels.
And you see and the guidance each year coming off a little bit of Constancia.
The train reverses and we're able to keep running at these levels and as soon as you are at those units of production and the new unit cost of it looks a lot better of out of contention.
But yes, the main elements on the inflation.
And labor.
And and.
The price at the moment.
Excellent and maybe just one more for me on <unk>, which you touched on briefly and in prior questions.
And you commented that the focus still remains on the resettlement and community engagement and.
And I'd be curious to know whether or not.
Any resettlement has actually started or is it still at the discussion phase thanks, and that's it for me.
No other thing no resettlement and yet in terms of actual movement of people.
Dealing with the various community groups and.
And the different areas and the different locations.
Obviously, the next door to Las Palmas, it's broader than that and into the.
The infrastructure roots and the transit corridor as this world and just had and navigate those in the future.
And so thats the situation of the cure.
I appreciate that thank you all.
Thank you our.
Following question is from Emily Chang from Goldman Sachs. Please go ahead.
Hi, everyone.
My first question is just around the capital allocation and what's exciting to hear that there might be a little bit of movement on the dividend debt.
When you think about the deleveraging targets.
A couple of price environment that certainly looks favorable can you remind us about the balance between accelerating some of the growth projects that you talked about.
And then balancing that with the potential for higher capital over time and stuff.
Yeah, Hi, Emily.
Okay.
Look the priority of the business remains deleveraging and that's with <unk>.
As head of sales with the rising copper price, we are generating cash.
And at the upfront that will go into <unk> into.
And to reducing debt.
Beyond that.
I think growth profile was becoming on.
The more interesting but.
We have of disciplined focus in that regard debt, we will reduce debt and so the guidance that we've provided is on a pretty much in line with what we said last year certainly for 2020, 'twenty, one and 'twenty two.
We're on the same track as we said last year in terms of the capital outlay for the business and.
And in that we added.
Because we deferred some capital from last year, we've also added.
On the the <unk>.
Smelter constancia into that into the capital guidance without changing the.
The overall number for the for these two years, so thats the disciplined focus on beyond that and and.
And as we get the benefit of deleveraging and and the benefit of higher copper prices and yes.
We would look at balancing capital outlay for.
For things like S. Three.
And indeed to tech of Tegra, as John said and the future.
But also with the dividend coming on as well.
Okay.
Right.
Talk to M&A question because.
And that's a very personal and one it's a balancing act. So what's happening is we pay significant amounts and interest.
Two two lenders.
Which we would far rather be able to disperse as dividends to our shareholders and.
If we do if we don't reduce those pits and then obviously of the quantum that we have.
Finishing as dividends would be reduced and.
And there's always the.
The demand, which is for capital expenditure.
It's a very practical arrangement to focus on debt reduction and then.
And then get to dividend payment once that total.
The debt levels are modest.
And that really is our strong guidance and of issue with the higher <unk>.
<unk> prices, we can achieve that much more quickly and with.
The b very pleased to do so because of something to our shareholders.
Rather and thanks, so much interest.
Great that makes a ton of sense and and one follow up is just on the divestment process and I know you mentioned in your prepared remarks that you might be accelerating some whack that but is there any timeline that you're looking at or is it simply a search for value here and then.
One we're seeing what's happening in Zambia, and with some of the other mines is there any read across the asset the central and consent you feel you're on quite yet.
Yeah.
Okay.
Sorry, Emily I just missed the last part of your question there and what was the.
Just in that.
Things like that and getting.
The government is looking at some other mines or taking ownership of some of the other mines everything and right across that we should be thinking about.
Yes.
Yes, the those assets.
Sales processes of continuing obviously.
The challenge last year with Covid was really around getting people to thoughts and.
And some of that easing a little bit now so.
Certainly the right and for process and.
And the process is continuing and as you said the challenge for US there is on value.
What we see is.
The.
And the near term and mid term copper price outlook looks pretty reasonable when we compare that with.
Consensus, which has been lagging is catching up now I think in terms of consensus price forecast and that gives some indication as to where people's mindset in terms of long term copper price and we really see.
The off take in terms of.
And on a short and medium term cash flow from those businesses is very significant and that's what we have to trade off and looking at the minority stake so.
Zambia, and right and so as well in terms of.
And the processes and Zambia.
The government has been very clear that the northern nationalization process of realized that that would have been bandied around a little bit but it goes back to the decisions that we made last year and low cost low price environment, which was.
Upon the Glencore made the decision to put mopane on care and maintenance, which at that time as the high cost of operation as of.
The reasonable decision to look at obviously that has implications in terms of employment.
For the government and so.
And the government's position is understandable that had very constructive discussions and I think come through.
Agreement, there, which makes it clear.
The.
The demand will continue operating and the government Tuesday at CCM has decided to take that on.
But the construct around debt was reasonable and.
And so on and so no we don't see any contagion.
Contagion or any element of risk net more broadly and Zambia in fact, our relationship and sand is it's been fairly strong over the last 18 months two years.
Around.
And as the governments in the debt crisis that the reason and the debt.
The situation, a greater level of discipline and focus on stability and the <unk>.
And we've been there on time and have worked with the government through that time.
And that continues and a constructive manner.
Great that's really helpful. Thank you.
Thank you.
Following question is from Cal the Blunden.
Blunden from Goldman Sachs. Please go ahead.
Hi, good morning, all thanks for the time.
Just had a follow up on the balance sheet and.
And as I spoke on to that.
One of the prior quarters, but when you take a look at the tradeoff between the cost of the debt and the bond market, which is a little bit higher than bank, but it gives you more flexibility and importantly is pre payable and lot of it is pre payable.
How does that.
Influence of view on how and what the balance of bank of buses high up on.
And that should be going forward as you.
GAAP cash flow and now as you potentially look at the re Fi potentially use JV proceeds.
Okay.
And.
I mean, both markets.
The importance to me.
And then obviously with the bond market, it's certainly encourage taste and you'd end up maintenance covenants of that.
That makes it comfortable to lift the throughout the life of the volume.
But do you do that for quite a bit of period with and a non call period and you do carry that higher interest burden.
With the banks and yes, we do the covenants of that but as we delever youll see that as ratio is becoming less and less of the concern.
And we well within any covenant at the moment and forecasting to be anyway that what you would have seen over the last save and Ikea is through sort of two of the downturn and the cycle is the <unk>.
Actually support us and they come to the party. So wind we request that the amendment.
We obtained debt from the banks with great support from the and refinancing of this facility.
It is a check in the process of you do if there's maintenance covenants, but.
We could've liquidity support of banking group.
So.
And that's kind of.
It comes out of lower cost and it's also pre payable so.
Appropriately want to be in both markets and.
We've had a longstanding and support of banking groups.
Probably continue with it.
That's helpful. If I could just squeeze one more and it's related to the JV sale of processes and you've given some good information on that on this call.
And it's kind of a bigger picture question have you felt like private market valuations have kept pace with the public mark degrees and say in other words.
So attractive to pursue those options and I understand here that there are other consideration of two other than price as well.
I'm kind of comment on that would be helpful. Thank you.
Yeah.
There are other considerations diversification was one of the key elements of of what we've looked at and the assets so price.
This is that we embarked on on net remains relevant price.
The challenges of cities.
Is the need to him and earnings that we otherwise.
And from from Constancia and center.
Significant.
And the.
Private market valuations as to how they differ from public market.
Yes, I think.
The copper price is run.
And in public market valuations and we have to take that into account and.
The rise and the share price, we have to take that into accounts.
And.
And so.
Yes, that's the challenge for copper producers looking to and Bakken and MNI.
It is.
And <unk>.
And look at those levels of valuation and certain.
And we.
I think.
The perspective, we had.
And sort of March and April last year has moved on to where we on now.
And the assets themselves are very compelling.
The very strong proposition and at the price levels.
Yes.
As you said it does come down to price and.
And.
With the copper cost and so on where they're on the assets of producing very well.
And in particular at the moment producing record production.
As a compelling story and we know that first of all of us.
And as the owner.
Thanks very much.
Thank you.
Our following question is from Abbey some day.
Which bank. Please go ahead.
Yeah.
Yeah morning, guys. Thanks for taking my question just a quick one on cobre, Panama cost so how much of the 130% cost we saw this quarter related to Covid and maintenance cost, which you won't be seeing forward. Thank you.
Thanks, Savi, yes the.
I think we did have and one in the state and the talks about the the.
COVID-19 cost of Cobre, Panama that we're in the best in the order of around $10 million across the quarter the.
Cost of Cobre, Panama, where we in line with our expectations to see one of the.
<unk> 30 for.
And that was well within the guidance that we've put around cobre, Panama for the year.
It is true to say that Q3 was lower cost and.
And really that was off the back of the ramp up and really our focus and.
The Q2 comp forget that we got down to 800 people on thoughts and so we were running trucks.
And of very in order to keep things ticking over there was some we were focusing on grade to.
And to keep that operation running.
And you see that the low volumes and high grade the come through and in Q3 of the results from Cobre, Panama and so I think Q4 of the rebalancing of those cost levels now in Q4 of the big impact that we have on those going forward is on unit units of production.
And do see inflation and the market, but cobre, Panama as it gets to the 85 million tonnes per annum and producing guidance of 300 to 330000 tonnes of copper per year. It's always the units on the denominator to really pull down the cost quite significantly and we see that and we see its ability.
Two of them to really hit.
So the lower cost position and then as we go to the 100 million, but it will hit towards the dollar on a on a seaborne prices.
<unk>.
And so those of the dynamics of the Cobre Panama.
Yes.
Got it thank you.
Thank you.
Our following question is from Justin do go well from.
From Exane BNP.
BNP Paribas. Please go ahead.
Thanks, operator, good morning, and good afternoon.
I've got two questions first question Ive got three parts related to Zambia.
Just to understand is the minority stake sale and the decision do they have any interdependence of all the fully independent decisions.
And secondly, when do you need to get the stability agreement in place not to impact consumption production profile or to keep the volume behind the two currently in this age of what's the latest the timeline for that and the third element is the.
The stability agreement would apply for the whole of consumption, but not the Sentinel and what Youre currently looking at just to be clear.
Sure.
And yes, the first part of the question.
The minority stake sales independent from <unk> three there's no reason that we would link them together.
And what we previously spoken the areas. If we had if the minority Stakes out did go through and net cash became available intensity leveraging the balance sheet. We would obviously be and are better positioned in terms of debt.
And total debt.
Uh huh.
The order to go ahead with a three we the partner.
And so that would be the dynamic, but otherwise its independent and independent decision the.
The.
In terms of the stability agreement and the timing around that.
We as we sit and the 43 one on one there's no need immediately to go on with this three we do see good levels of production continue with Constancia as we put into the guidance for the next three years and as we sit and the 43 101 was really around <unk>.
2020 for 2025 that we needed to see.
On the three expansion come down or because thats, when we see the grades drop off with consent.
The decline and it's really on the OXXO and side more than more than anything else.
On.
And then the third element of the question was where the.
Stability agreement with just the plots of Constancia on the Sentinels will and net.
And is in discussion with the government I think.
Particular concern is around a three and net project, which is <unk> <unk>.
But obviously, we're looking at the broader.
Geopolitical situations and as well, but certainly the focus is on is on concession does that help.
Sure. So when you say S. T really just before the incremental volume at the very early stage or for all of consumption. Because we can soon speak volumes could articulate.
Based on I think or what do you see one of them on.
No and we'd be looking at the assets and talk to consultants and toys.
Sure and just a question on hedging.
Obviously, you've done the copper and nickel, but why not do gold hedging, which is more common and more of the secondary product understand the you've got to.
Youre screaming agreement, but you still have significant exposure to hit on is there any intention.
Has there been talk to hedge growth.
Previously all of the he's been an intention to do it on a forward basis.
I'm going to get to tender.
Meanwhile, as proposals and the past the.
The the answer that.
Although we produce quite a bit of call of the gold is not debt.
Material in terms of our total revenue profile and that does also then.
Consume credit lines. So you could choose we use use I was curious on sand.
And on not hedging the goals, we've actually benefited also on the upside to that.
But yeah, so you've got limited credit loans, and we rather choose to use it on the on the credit and on the copper side of it.
Both.
Understood very clear. Thank you so much what's the best.
Thank you that's all the time, we have for questions I would now like to turn the meeting back over to Mr. Rich.
Thank you very much I'd like to just thank everybody for joining us on the call today I apologize that we've run out of some time and you do have any follow up questions you need anything else. Please don't hesitate to contact me and with that thank you very much and I think you can disconnect your lines. Thanks Scott.
Thank you.
The conference has now ended please disconnect your lines at this time and we.
We thank you for your participation.
Okay.
Yeah.
Are we now on a post conference.
Okay.
Okay.
Operator, you and I on the hottest [laughter].
Hi.
Okay.