Q4 2020 First Quantum Minerals Ltd Earnings Call
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.
Yeah.
[music].
All participants please standby your conference is ready to begin.
And ladies and gentlemen, and welcome to the first quantum minerals.
<unk> Conference call I would now like to turn the meeting over to them and they'll do it director of Investor Relations. Please go ahead and Mr.
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.
As the risk factors particular to our company, which are detailed in our most recent annual information for them and available on our website and on SEDAR.
Mind, you that the presentation, which accompanies this conference call is available on our website on today's call truth, and Pascal Our Chief operations Officer will provide some general comments and discuss operations 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.
Tristan.
Thanks, Lisa Hi, everyone and thanks for joining us 'twenty and 'twenty was an unprecedented year to which first quantum's operations responded very well and.
And the company achieved its highest ever annual copper production.
Early in the year COVID-19 emerged and shortly thereafter with day in the global pandemic for the World Health organization. The year was full of challenges lockdowns and restrictions and and some uncertainty 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 a 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 vigilance at Sentinel and consents you mind share.
During the fourth quarter, we continued to see the resurgence of the virus and and some jurisdiction and the level of restrictions taught and further and we've been fortunate the strict protocols, we have and place it operations have been infected effective and keeping us all it's mostly unaffected and the quota we did see further cases emerge.
And our workforce work force across several thoughts, but these were identified and isolated and managing conduction with local health authorities. This for.
These challenges across the year, we did achieve record annual production.
And with S. C. One cost at the lowest level and for years and 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 data mining areas, which contributed to these results cost improves for the previous year.
<unk> 'twenty and 'twenty benefiting from the depreciation of the culture and lower maintenance and fuel costs at 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 2021 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 online and then into next year 'twenty and 'twenty two.
<unk>.
Constancia mine continues to be a consistent producer and continues to demonstrate flexibility and adaptability.
Results from the fourth quarter reflect lower feed grades and recoveries as the oxides to plate, which is an expected part of the mine plan.
Production rates at Constancia are expected to be similar across this year 'twenty 'twenty. One work will begin this year on upgrading the smelter so improve our ability to treat high volumes of our own concentrate from both central and <unk> and $40 million has been provided and half Capex guardant for this work and each of this year 'twenty, one and next year 'twenty two.
Yeah.
The decision to move ahead with the brownfield is three expansion at Constancia remains dependent on our balance sheet and reaching agreement with Zambia for greatest stability and the country and we continue the constructive discussions with government and this regard.
We do expect the normal seasonality without Zambian operations and typically Q1 is the weakest quarter as a result of rainy season. This year 'twenty 'twenty. One has already seen heavier rain from last year, which have impacted operations and genuine and February to some degree.
Cobra, Panama was back to normal operations in the fourth quarter and performed as expected. There was a planned maintenance there was planned maintenance in October which resulted in a seven day shutdown and despite this the operations 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 at Cobre, Panama with an average of around $6 2 million tonnes across November and December 2020, and were above 6.8 million tons for the month of January 'twenty 'twenty one.
We continued 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 Ravensthorpe the ongoing ramp up continues at a satisfactory rate during Q4 last year, whilst we continue to take mine feed from the alleys and Hale BOPP ore bodies, the new conveyor to the shoemaker Levy ore body will be completed in Q2. This year and we have already completed first loss from mineral body Shoemaker Levy is X.
Spector to improve grades and the material handling characteristics of the ore feed and the second half of the year and <unk>.
Q1 of this year, we are conducting the regular maintenance shuts and the two H Pal units.
Work is now ready completes and both units have restarted well and are back to full throughput.
All of our other operations performed according to expectations. During 2020, they all manage to continue their operations will despite various COVID-19 constraints and a number of significant technical factors.
And I'll highlight amongst the smaller mines was the contribution from coiled and grind.
And this operation was particularly impacted by the various travel restrictions on its rotational staff I'm pleased to say that our local workforce and resolute expatriate staff showed remarkable tenacity to deliver record like cost for the year 2020 a 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.
Cost structure is expected to remain consistent with 'twenty and 'twenty and although we do see lower costs at cobre, Panama across these years.
These will be offset as we see some of our lower cost Iraq operations come to the end of their lives and in anticipation of some cost inflation.
Another highlights included and now Q4, and 2020 results was the formalization and publication of the first quantum approach to climate change, which is now on our website.
This is an important step forward for our company and part of a broader commitment to improve our ESG reporting and communications across this year and into the future.
We understand that mining has a significant impact on the environment, including through emission of greenhouse gases and we recognize that our obligation to identify and report on our actions to address climate change.
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.
Our intent is to deliver meaningful change and our business based on the implementation of step change improvement projects for.
First quantum of price to climate change and keeping with our results driven culture is to sit tangible targets and focus on the identification and execution of projects, which produce real outcomes over 'twenty and 'twenty, one and subsequent periods will be sitting cleared 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 onto Dennis I want to on behalf of the entire company think GAAP people.
Many of our personnel, particularly on the Mos allotted sites have been working across the last 10 to 12 months with restricted travel and some cases extended periods away from their family and friends and we certainly appreciate their depth ability commitment and resilience and without the significant contributions first quantum would just not be the same communities.
And with that I'll turn things to Hannahs for continued review of our results.
Thanks, Tristan and.
And good day to day everyone.
To direct you to slide <unk> titled Other view, it's slide seven.
Despite the challenges faced in the company achieved its highest ever annual copper production with record breaking production at Sentinel and a strong contribution from Cobre Panama.
Total copper production of 779000 tons.
For the 11% higher than 2019 and.
Within the upper quartile of the guidance range.
St Total had an outstanding year and achieved record copper production of over 251000 tons, which exceeded guidance.
Cobre, Panama performance was strong at 206000 tons, despite being placed on preservation and safe maintenance and operating at reduced levels of activity and the second quarter of per year.
Total gold production of 265000.
Ounces was 3% higher than 200 in 2019 and 5000.
And so it's ahead of the guidance range for the year.
Nickel production for.
The year was 13000 tons.
The plant continued to stabilize by startup with nickel recoveries, increasing to 78% and the fourth quarter.
Comparative EBITDA of 2.15 billion for 'twenty and 'twenty reflects.
Strong operational performance and was three four per say, it's higher than 2019 with record sales for Williams higher metal prices and lower cost.
Total copper cash costs for the year with the lowest level and for years with almost all operations delivery.
And reduction record low and you'll see one cash cost and all in sustaining costs were achieved.
Does sentinel and well from Macquarie.
Net debt decreased by $266 million to $7 4 billion.
At the end of the year capital expenditure and the year of $610 million was 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 state and low cheap.
Hey.
For the production of 60000 tons at 24% increase compete.
And quarter four last year.
Panama set new quarterly records for both both throughput and copper production.
Per fraction was 9% higher than the same period and 2019.
Gold production of 69000 ounces.
Was 12% lower than Q4, 2019, principally due to lower grade at Cobre, Panama and the production and gravity recoverable gold produced at Constancia.
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 cents per pound lower than 2019.
Totally get one and all in sustaining costs were comparable with comfortably at the low end and all.
All of our guidance ranges.
C. One cost for the quarter of $1 28 per pound was for sales higher than quarter for 2019.
Cobre, Panama C. One.
Cost for the quarter, plus six sales higher than the same period and the prior year.
<unk> and additional costs relating to health and safety protocols and response to COVID-19.
St and all the consensus or decreases to see one and the quarter compared to the same quarter last year, reflecting favorable impacts of foreign exchange and lower fuel prices.
Well from a grind achieved its lowest quarterly C. One and a decade.
Cost reduction initiatives and higher realized gold prices.
All in sustaining costs for the quarter was for sales higher than quarter for 2019, reflecting ISC one.
As well as higher Zambian royalties on the back of higher copper process.
These were mitigated by lower sustaining capex and deferred stripping.
Turning to the next slide on quota for financial overview.
Comparative EBITDA of $725 million, and the quarter was $214 million or 42% higher than quarter for 2019.
EBITDA benefited from increased sales volume set St total on Cobre, Panama and.
13% higher realized copper prices.
Lower operating costs and favorable foreign exchange movements.
Comparative earnings for the quarter of $53 million is an increase of 51% compared to comparative earnings of $35 million and quarter four 2019.
Net debt reduced by $266 million and the year and.
And by $136 million and a quarter to $7 $4 billion.
This could have been better.
But we had two late shipments from Panama that lift.
Around Christmas and and the 13th of December and we received hundreds of $30 million in early January.
Then turning to the next slide comparative changes to the comparative EBITDA.
It just illustrates that detailed and competitive EBITDA movements and the main items to highlight the change and price offset.
Some of the hedge losses.
Turning to the next slide on debt and liquidity profile.
The company ended the year with non net at a $14 billion of net unrestricted cash and cash equivalents and was in full compliance with all financial covenants on.
And on October 1st 2020, the company completed the offering of $1 5 billion of senior notes due 2027 for.
The proceeds of the offering.
We used towards true.
Partial repayment of the companys existing revolving credit facility.
And the redemption and full of the company's outstanding senior notes due in 'twenty and 'twenty two.
Taking into account forecast.
Operating 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 operations operating and capital expenditure plans and remain in full compliance with financial covenants.
We continue to take action to manage operational risk and price risk and further strengthen the balance sheet.
Turning to the copper hedging.
Program outlook in slide 13.
Aging was undertaken wind tablet panel was being built to ensure consistent and sufficient cash flow.
As we look for which is.
Certainty of cash flow and confidence and Copa process. We will continue to review the level of hedging and act opportunistically.
Over time the level of sales hedged is expected to decline.
We would look to increase that.
The colored component of these hedges to part to say participate more and the upside.
And most recently, we've done Hey, just way and we've had upside up to $4 11 seems a pound of copper.
Approximately 40% of expected copper sales and the next 12 months are hedged.
At February 16, the <unk>.
Company net and margins 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.
And margin sales contracts for 198000 tons at weighted average prices of two.
And $2 93 at the full price and $3 25 at the ceiling.
Furthermore, subsequent to December 31st GAAP.
And he realized and January 'twenty, one and margin for copper sales contracts of 23, and a half thousand tonnes and zero cost.
Color and margin sales contracts for nearly 16000 tons at an average price of $2 91 per pound.
The company also had and.
And margin nickel forward sales contracts, which are detailed on that page.
More detail of the hedges and a quarterly format.
And you.
Confined on page 31 of <unk>.
And DNA.
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.
Question. Please press star one on your devices keypad and that anytime you wish to cancel and your question. Please press the pound sign. Please press star one at this time, if you have a question.
For all participants register for questions. We thank you for your operations.
My first question is from the arrest.
From Scotiabank. Please go ahead.
Hi, good morning.
And 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.
And when I look at the technical report it and.
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 $3 10 to $3 40, and 22 and $3 30 to 360 and I'm just curious what's changed.
Obviously the.
I assume that the COVID-19 shutdown.
During 2020 might have pushed that back a bit but what are the big drivers here.
Yeah, Hi, Aurist I can answer that question.
Yes, the 43 101 did.
And I.
Paint the picture of the reserve resource in terms of our ability to abstract.
And really at those rights and by 2023, I think what 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 'twenty and 'twenty three but the labels around 460 and the technique.
Technical report a more indicative, we the guidance as a conservative picture around with.
We were happy to stake and happy to be.
Judge by those boy those volumes.
In terms of change there isn't really much we are a little bit behind the fights positions that we read and the 43, one and one in terms of where we want it to be in particular it doesn't change the overall perspective on grade its just.
Yeah.
And the sort of volumes and so on that come out over the next period.
So.
It is on track it's on course.
And all of that copper is in front of us that you see there.
Actually at the moment and the five year plan, we do see some high years after 'twenty and 'twenty three and part of our work between now and then as sort of balancing that out and bringing it forward a little bit otherwise, we do see some.
Some very high levels of copper.
And after 2023 and we.
No. We just we will keep working on balancing that and at the moment that conservative position that we put into the guidance is.
Is the view.
And just.
So unclear so it sounds like you're saying, you're assuming the more conservative throughput level and we shouldn't assume any changes to the greater recovery profile is that fair.
Yeah.
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 in the 460 is reporting into the mine planning and.
In light to ease.
And we're working on bringing that forward as much as we can.
Does that answer your question.
It does thank you very much.
Thank you.
Following question is from Jackie <unk> from BMO capital markets. Please go ahead.
Alright, Thank you very much and good morning, or afternoon or evening for everyone.
Question about their concern and she expansion.
Given the guidance that you're planning to spend $40 million. This year $40 million next year and I know you talked a little bit on the on the earlier part of the call about that.
You tell us how that relates to the technical report I guess this is similar to <unk> question.
On Constancia the Tech report that you published in September.
And thinking is that for first quantum is a portion of about $870 million for the expansion is this $80 million that we see and 2021 and 2022 are 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 once it is fully sanctioned by the board.
Sure I can answer that Jackie.
Yes.
Our references on page three of the technical report the smelter is included in that capital.
The 40 million net we spending now is on those expansions it's around the oxygen plant and then bringing the the already existing.
Bert process.
Which takes us to the to the high levels for $1 6 million tonnes per annum throughput at the smelter the.
The additional capital was all around its three and that decision has not been made but we can talk about our growth perspective.
And I'll ask John Gregory to comment on that and a minute.
The debt capital is included there.
No capital being spent on Ace <unk>, three and now guidance prior to 2023 and in that year. There is around 270 million debt. We expect debt that we've included in the guidance, but obviously that's contingent on balance sheet and as you say the.
The fiscal standing and Zambia and in that regard, we're working pretty constructively with government at the moment, but in terms of the growth prospects for key Santee, John maybe if you just want to add a comment there.
Yes sure.
The guidance.
And is in line with the technical report that we issued last year and.
And the capital offshore and.
And with $270 million and 'twenty threes.
Aligns with the technical report.
And the completion of the project is shown at the end of 2020 full coming online in 2025 as you'll see from the technical report.
Now a couple.
A couple of locations.
Timing of that and the technical report as Covid with the government and balance sheet.
Aspects.
We don't need from here on to 'twenty for it to actually to finalize the design and construct the street should things.
<unk> for the possibilities that we could change the timing.
Oh, yes.
Yes, three expansion.
Thanks, very much if I could just ask a excuse me a follow up question on interest and at the beginning of the call you mentioned too.
And conditions for approving the project, where I guess, including.
And your balance sheet being ready for it and and and agreement with what Sam B can you give us a little more color on what you mean with the stability and Zambia and I think it's the first I've heard you talking about that are you looking for a formal agreement are you looking first time share of outcome of the upcoming elections, and Zambia or or what exactly.
We would.
First quantum confidence and the country stability.
Sure. The answer is yes, as we've said before and.
And within the release, when we put out the Constancia and 43, one and one yes.
Yes, we're looking for a fiscal stability and and we envisage that debt would be and agreement and we've spoken about that before.
And what it really boils down to is the deductibility.
Royalties and that's the central question and that stability, but what we really looking for is a period of.
Confidence in and around debt and in that regards in terms of progress we've been having those conversations.
Yes, there's an election coming we expect around August this year.
And so.
And we'll need to.
Move for quite quickly in terms of those discussions.
The election rules.
And the politicians or otherwise and gauge but the.
This is a clear.
Provisos debt, we have in place and.
And what we do see and Zambia is a lot more discipline a lot more stability in 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 a default that kind of a period of good financial standing and discipline.
The and.
In the aftermath of that as part of the work out with bondholders and.
Beyond that.
Alright, Thank you and yes, I do and do you have talked about that does that.
Billy royalties for the past day, I apologize I just hadn't.
And connected the dots and thanks very much for that.
That's it for me thanks.
Thank you well 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.
Kind of a seven year high or I guess.
The highest it's been in seven years and pretty close to its all time high.
What are the thoughts about issuing a little bit of equity to kind of speed up debt deleveraging, maybe you know.
Brings you and ability to kind of bring forward. Some of these expansion projects like S. Three R. 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 do you want to answer that question.
And Matt, Yes, once always got debt option available.
With current high prices, we see.
Deleveraging happening happening pretty rapidly and any event.
And I think the company is probably in the best position its been.
Okay, and the last seven eight years and in terms of we've got a lot of debt capital projects behind us and.
Copper process a good so the cash flow generation.
Good.
So we are focusing on debt reduction and so that's absolutely key.
And we mentioned processes and the path that we're running in terms of.
Trying to get minority stake sales in and Zambia.
And Ravensthorpe, so that's continuing and so those up so part of the tinnitus, we evaluating and just.
Accelerating debt deleveraging and.
But yes, I mean that option is available.
Got it.
Yes, I mean, we and a pretty good spot at the moment.
Okay Fair enough and then on the flip side you know.
And you've got a couple of near term maturities that are callable at 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 that's 23% and 20 fours and sort of bringing your.
You know youre pushing out maturities, even further and this very favorable credit market.
Yeah, We've got the 20 threes are stepping down from the first of April so.
And I mean.
And if you look at way out.
This recent issue is treading thats trading at sub 5% on a yield to worst basis.
It would indicate that it would be and accretive to sort of refinance the 'twenty threes that will probably also have a look and see where we could and two 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 and 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.
No.
Thank you.
Our following question is from Giannis.
Smith from.
From Morgan Stanley. Please go ahead.
Good morning, and thanks for the presentation and the tourists and congrats congratulations from me and you roll.
I had three questions and I'll take them one at the time and if that's okay. The first on Capex.
And if we take into account and the five comes with millions of dollars of combined stripping and sustaining capex in 2022 and 23.
Still our remaining growth Capex element of 415, and 22 and 515 2023 and.
And then if I take into account the larger items for on Cobre, Panama for 100 million tons.
That expansion and.
The first phase of the extra spending theres still a residual capex stuff that kind of explains the range of 202 hundred $60 million per annum could you, perhaps elaborate and some of the other projects.
Yes.
Sure sure I shall I take that one.
Yes, Thanks Juliet.
Yes, so you're absolutely right sales.
And that's about 540 and.
And stripping and sustaining and 2021 day.
Note that sustaining capex is expected to be up at Haile and <unk> 2020, lump because let's see and.
Smelter maintenance during that year and then.
And with the remaining $410 million on projects.
As you say includes the smelter expansion.
And I can punchy.
And it also includes the fourth crusher sense and I'll talk about $50 million and then it also includes some projects and Panama for about 150 million, which would include.
The Tms construction.
And some initial spend on.
Cleaner and <unk>.
Full mill and other associated projects, there is and allowance in bath for some spend if necessary.
In South America of up to $35 million to $40 million and then.
And there's obviously the shoemaker Levy project.
Ladies and film sales.
Okay.
Project spend of about 40 million it right and so.
And then just moving moving into the outer years, yes, again, and we have $40 million.
Constancia on the smelter, we have some expansionary mining equipment and Sentinel of about $50 million.
And at.
Further projects and expansion.
Panama, and including mining equipments and some from.
Some of that.
Michael and the Tms.
And again, we do allow for some discretionary spend and South America as well.
Okay, and the big step up.
And the big step up and this idea and its obviously you said that three.
And with again some.
Projects.
Panama, and allowing some discretionary spend and South America.
Understood that's clear thank you very much.
Second question just on S. Three.
And just trying to figure out the.
And the milestone and trying to achieve in terms of for negotiations with the government.
Are you looking for some sort of a fiscal stability and when it comes to that project, specifically or don't want and need a wholesale change and desktops deductibility of royalties for your interest.
Public confidence too.
And with the project.
Yeah, Hi units I can answer that question.
I don't know better wholesale structural change and Zambia, I think what we're looking for.
And is a reasonable perspective around that project and consent she going forward its debt.
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 came in as the Nassau and statutory instrument.
Some time ago, a year and a half ago or so and.
That's the key element.
Beyond that yes, there would be a broader sort of a 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 continues in time and I think that's a very reasonable position, that's pretty standard and most mining jurisdictions.
And you know royalties, which are taxation of deductible from your cost for.
For the purposes of Corporation tax and.
So that's the discussion.
And.
Yeah, well, obviously have to navigate the election coming this year.
But we envisage that.
Constructive for us.
Zambia and the context now that Zambia is a major mining entity as well at mopani.
Though there'll be interested and that themselves.
Okay, Thanks for that and.
For the last question is around hedging and you talked about the reduction and the hedging proportionate to 40% of expected copper sales for the next 12 months and I guess, it's been lower for nickel.
Is that.
And reduced hedging proportionate reflection of your more bullish price outlook or more a reflection of your view that the balance sheet is and a better shape and kind of withstand more volatility and we've seen that should we expect to see us further step down later in the year or is it sort of for 2022 store in terms of.
Meaningful reduction beyond the 40 per cent. Thank you.
Yes.
And as to answer I mean, the key for US is we're not natural hedges and the long term in any event and.
The reason for the hedge book to be in place was around protecting the balance sheet and that means that might be.
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 we do as I sit and the long term, we're not natural hedges, but we do need to make sure that we protect it as Hans said we have.
We are putting that more and more of the colors and place, which gives us help net exposure to the upside up to about $4 as Emma said.
But it does continue to limit the downside for us.
And as we see debt repayment and accelerating that's what's changing that dynamic for us.
And this would you add and you go through that.
Yes, my probably not much more debt.
A while ago when we did the ages it was sort of protecting covenants.
Think its progress now from day, we the focus now is on debt reduction so.
And Tom.
The percentage is overall H will decrease but the other focuses on sort of.
Reducing debt.
Using wider call us and participating on the upside and cause.
Good day.
Enough on that for me.
Understood. Thank you very much.
Thank you.
<unk> question is from Ian Rossouw from Barclays. Please go ahead.
Hi, guys.
Just one question on capital allocation with with balance sheet gearing happening probably a bit faster than what you previously anticipated and your budgets.
What is the flexibility and.
Your capital spending and bringing projects forward and it seems like you've been able to do that already with some of the spending and.
<unk> on the smelter.
So just getting a sense of if if markets remain strong and do you have the ability to bring forward all projects or are you constrained by other sort of planning stage gates.
Yeah, Thanks Jan look.
Cobre, Panama is not too much and the way and flexibility in terms of that the debt.
<unk> type of August through the $100 million.
Pretty much set by the ore body and boy.
And the tailings dam, we want to put a good two years into the existing time and Dan before we can cope with a level of being and inundation at 100 million tons.
And that really sets the pace there.
We would otherwise just be spending money to accelerate.
And.
Without having the capacity to store those tailings.
And as three however.
<unk>.
On a theoretical basis that we could do it earlier, John you might comment there but.
This possibly potential there and a theoretical basis.
Joe.
Yes and interesting.
We've identified the preliminary activities that we need to undertake to accommodate this free which is why we're focused on the <unk>.
And the smelter upgrades, which in terms of capital and relatively modest and various other infrastructure enhancements. So that we have the ability to.
Maybe for engineering and bring the timeframe for that.
And the.
The parameters.
Oh that we've already identified should they become more favorable. So there is a degree of flexibility at constancia.
And that coupled with the expansion.
Okay.
They could.
The fourth crusher.
Central Zone.
And that'll come online for next year and.
And the Cobra, Panama as interest and is identified we are and of course from a check and we.
Committing.
For the infrastructure that will support the $100 million.
Tons per annum case, and we're looking at bringing that online and I'll come and planning and the 2000 and force.
2005 era, so basically come in and along with 2000 and for 24, so that in terms of will give us the yep salt production and the upside production profile all of law.
Those projects for the 2024 and $2.
And 2025, we can see them all for their estimates and our planning that we can.
Start to look at.
The 1 million tonnes of copper production profile.
From a.
43, 101 technical reports that basically fixed and 2025.
And we bring that forward potentially we could.
But that is predicated primarily on.
Tommy.
Okay, and then just maybe to follow on.
What about the South American projects is there, but it's a much in the timelines there.
Yeah.
Yes.
South American projects, we released for 43, one and one tech and Tucker and.
And so it's a very good project life of 30, 30 odd years 32 used and very good and the first 27 years.
<unk> really so the assets and good.
We think is a good asset.
The the decision and is all R&D investment case into Argentina, and and in that regards we have more work to do there.
So again, our priority remains the balance sheet and and.
And clearing the balance sheet dance at the levels, we've been speaking about.
And I think the investment case, it ran Argentina will take longer and that's the reason for the focus on on the brownfields.
And cobre, Panama and it is three.
And that Keira.
We think at the moment, it's behind Tech attack and just because of the community issues ongoing there and we do have exploration projects and the region and further afield that are very interesting, but for the nature of those are longer late it is the challenge of mining now and.
And in most jurisdictions is to bring these projects on lawn first quantum has got a good reputation in that regard suddenly the last project, we've done cobre, Panama and and delivering that in a timely fashion.
But.
Those new approach and Greenfield projects are challenging.
John would you add anything more to that.
I think in terms of tech attack and we have the we.
And we have a pretty clear indication of the two.
Real time frame from once we take the business case decision to proceed.
In terms of.
Initial pre strip requirements for the mine construction of major infrastructure and construction and the fixed swaps.
So that is.
All identified clearly and the technical report and as we've said and the technical report for women.
We are nicely for technical report and the business decision and we're looking at.
Some Tom Toby.
23 2024.
Okay, Thanks, John and thank Jason and Yeah, that's clear thank you.
Thank you.
Following question is from Lawson Winder from Bank of America Securities. Please go ahead.
Thank you operator, and Hello, everybody.
A question on the debit dividend for me when you think about the dividend. So two questions here 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 a higher dividend I just wanted to see if that's still where you're thinking is 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, and this could you tie that glitch.
And.
Maybe they didn't get to the second one first so the hit just as part of.
The strategy now instead of deleveraging and the balance sheet repaying some of the date.
And that also enables them the first aspect of it is the dividend question.
So.
And we've.
Previously stated the sort of 2 billion dollar debt reduction that was a target.
But we wanted to achieve.
So we pay down some of the data and the lost here.
So we are on track for that and then and this year will generate.
Pretty decent cash so I don't think we precluded from increasing dividends.
Prior to repaying $2 billion.
So I think what we are stating is that in the past we used to have a dividend policy and prior to and then.
And then the nominal dividend debt, we paid we've paid about 15% of net earnings as a dividend.
So I think what we've now said is that we'll look at returning a bit more cash to shareholders. Once we see.
Debt reduction so I think that will come through and this year and late in and we say it and the next two years will sit there and look at increasing that dividend.
Okay. Thank you and then.
And for the hedge book.
What Trey said, one first yes.
And I think thank you very much for that and this.
And now in your prepared remarks, you mentioned that.
Lower cost going forward cash cost going forward at Cobre Panama.
And would effectively be offsetting some of the smaller low cost mines coming up but also.
Offsetting some inflation.
And I.
I think it would be really helpful to get your thoughts on.
Where do you expect net inflation to come I mean is it labor or are you looking for.
Our input costs are.
And just wait what's your thinking on that.
And that comment thanks.
Yeah losses.
And certainly labor.
And we are seeing higher shipping cost at the moment certainly we've seen that for.
Bulk freight and.
And particularly coming out of Asia. So some of the project elements that debt.
And certainly vein and parents and starting to come through.
I think it's some of the reason for the uplift and commodity prices is that inflationary outlook certainly we're starting to see some of that.
And I would point also to consensually with the ongoing lower grades.
It does.
Main debt.
The cost per unit.
Yes.
We will rise because you have the overhead day with <unk>.
Labor and the cost for the business, but as III changes that as we get into a higher volume 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 at Constancia.
And that trend reverses and we're able to keep running at these levels and as soon as you are at those units of production and then your unit cost looks a lot better at a convention.
But yes, the main element on inflation.
And labor.
And and and.
And right at the moment.
Excellent and maybe just one more from for me on <unk>, which you touched on briefly and in prior questions.
Sure.
You commented that the focus still remains on resettlement and community engagement 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 there's been no resettlement and yet in terms of actual movement of people.
Dealing with the various.
Community groups.
Different areas and different locations.
Obviously big next door to Las Palmas, it's broader than that and into.
And the infrastructure roots and the transit corridor as well and just how to navigate those in the future.
So that's the situation and Akira.
I appreciate that thank you all.
Thank you.
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, but when you think about deleveraging targets and suddenly in a couple of price environment that certainly looks favorable can you remind us about the balance between accelerating some of the growth projects.
And that you talked about a three and then balancing that with potential for higher capital return and stuff.
Yeah, Hi, Emily.
Okay.
And look the priority of the business remains deleveraging and that's with.
And as head of sales with the rising copper prices, we are generating cash.
And at the upfront debt will go into it.
And to reducing debt.
Beyond that.
I think growth profile is becoming.
And more interesting but.
We have a disciplined focus in that regard that 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 could for 'twenty 'twenty 'twenty, one and 'twenty. Two we were 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.
And the smelter at constancia into that into that capital guidance without changing.
The overall number for the for these two years, so that's a disciplined focus beyond that 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 things like <unk> three.
And indeed to tech attack or as John said and the future.
But also with the dividend coming in as well.
Okay.
Right.
Talk to M&A question because it.
That's a very pertinent and one it's a balancing act so what's happening is we pay.
Significant amounts and interest too.
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 the quantum that we have.
And just finishing as dividends would be reduced.
And there's always the.
Other 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 those debt levels are modest.
And that really is our strong guidance and of issue with a higher <unk>.
Commodity prices, we can achieve that much more quickly and we'd be very pleased to do so because then we can it too and something to our shareholders.
Rather than paying 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 from some black that but is there any timeline that you're looking at or is it simply a thought for value here and then when we're seeing what's happening and zombie with some of the other mines is there any read across staff up the central and congrats you feel you're in.
Thank you.
Okay.
Sorry, Emily I just missed the last part of your question there what was that.
Just in that.
Things like that and getting the government is looking at some other mines or taking a niche but from the other mines everything you read across that we should be thinking about.
Okay, Yes.
Yes.
Sales processes are 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, but certainly the right and for process.
And the process is continuing and as you said the challenge for US there is on value.
What we see is.
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 an indication as to where people's mindset in terms of long term copper price and we really see.
And the offtake in terms of.
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 sale.
And in Zambia and.
Right and so.
Well in terms of.
And the processes and Zambia, the governments being very clear that the northern nationalization process or realize it 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 mopane glencore made a decision to put mopane on.
On care and maintenance, which at that time as a high cost operations is a reasonable decision to look at obviously that has implications in terms of employment.
For the government and and so.
The government's position there is understandable they've had very constructive discussions and I think come to agree.
Agreement, there, which makes it clear.
The mine will continue operating and the government through sales CCM has decided to take that on.
But the construct around that was reasonable and.
And so on and so no we don't see any.
And contagion or any element of risk.
Net more broadly and Zambia in fact, our licensure and <unk>.
<unk> is being fairly strong over the last 18 months two years.
Around.
And as the governments.
And the debt crisis that they're in and the debt default situation.
Great.
Discipline and focus on stability and.
And we've been there a long 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 Kyle Blunden from Goldman Sachs. Please go ahead.
Hi, good morning, all thanks for the time.
A follow up on the balance sheet, and and Carlos and spoke to this so sometimes in prior quarters, but when you take a look at the tradeoffs 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 a lot of it is pre payable.
How does that.
Influence your view on how and what the balance of bank versus bond debt that should be going forward as you.
Net cash flow and now as you potentially look at a refi potentially use JV proceeds.
Okay.
And.
Both markets are important to me.
And obviously with the bond market, it's only incurrence test and you'd end up maintenance covenants so that.
That makes it comfortable to lift throughout the life of the bonds.
And but do you do that for quite a bit of a period with and a non call period and you do carry that higher interest burden.
With the banks and yes, we do have covenants of that but as we delever youll see those ratios, becoming less and less of a concern.
And we well within any covenant at the moment and forecasting to be anyway.
What you would have seen over the last seven and Ikea is through sort of to the downturn in the cycle is the banks actually support us and they come to the party. So wind we request that amendment.
And we obtained debt from the banks with great support from them and refinancing those facilities.
It is a check in the process. So you do have those maintenance covenants, but we put a very supportive banking group.
And so.
And it comes at a lower cost and it's also pre payable so.
Appropriately want to be in both markets and.
We've had a longstanding and supportive banking groups.
Probably continue with it.
That's helpful. If I could just squeeze one more and it's related to the JV sales processes and just given some good information on that on this call.
And it's kind of a bigger picture question. If you felt like private market valuations have kept pace with the public market recently in other words is it.
So attractive to pursue those options and I understand here that there are other considerations to other than price as well.
And 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 what we looked at and the asset sale processes that we embarked on and that remains relevant.
The challenge as I say these are.
Is the need to him and earnings that we otherwise.
From from Convention Center and very significant.
And.
Private market valuations as to how they differ from public market.
Yeah I think.
Copper prices run.
And in public market valuations and we have to take that into account and.
The ROI from the share price, we have to take that into accounts.
And.
And so.
Yes, that's the challenge for copper producers looking to embark and.
In EM and I.
It is.
Sure.
If you look at those levels of valuation and certainly.
I think.
The perspective, we had.
And sort of March April last year has moved on to where we are now.
The assets themselves are very compelling.
The very strong proposition and at these price levels.
As you said it does come down to product and.
And.
And with copper Prost and so on where there are and the assets are producing very well Sentinel and particular at the moment producing record production.
That's a compelling story and we know that first of all is.
As the owner.
Thanks very much.
Thank you.
Our following question is from from Deutsche Bank. Please go ahead.
Yeah morning, guys. Thanks for taking my question just a quick one on cobre, Panama costs. So how much of the 130 for sales cost. We saw this quarter related to COVID-19 and maintenance costs, which you won't be seeing forward. Thank you.
Thanks Eddie.
And.
I think we did have and line in the state and the talked about.
And with COVID-19 costs at Cobre, Panama that were in the Bev and the order of around $10 million across the quarter debt.
Costs at Cobre, Panama, where we line with our expectations to see ones for adult 30 for.
And that was well within the guidance that we put around cobre, Panama for the year.
It is true to say that Q3 was lower costs.
And really that was off the back of the ramp up and really our focus in.
And Q2 comp forget that we got down to 800 people and source and so we were running trucks.
And a very in order to keep things ticking over there was some we were focusing on grade.
And that operation running and.
And you see that the lower volumes and high grade that comes through and in Q3 of the results from Cobre, Panama, So I think Q fours and rebalancing those cost labels now in Q4.
Big impact that we have on those going forward is on unit units of production and we do see inflation and the market, but cobre, Panama as it gets to the 85 million tonnes per annum and producing guidance 300 to 330000 tonnes of copper per year.
And those units on the denominator.
Really pulled down the cost quite significantly and we see that and we see its ability to.
To really hit.
Two lower cost position and then as we go to the 100 million, but it will hit towards a dollar on a C. One basis.
And.
And so those are the dynamics of debt Cobre Panama.
Yeah.
Got it thank you.
Thank you.
Our following question is from Chetan <unk> from.
And from Exane.
And Pete Paradise. Please go ahead.
Thanks, operator, good morning, and good afternoon and.
I've got two questions first question has got three parts related to Zambia.
Just to understand is the minority stake sale and S. Three decision do they have any interdependence or other fully independent decisions.
And secondly, when do you need to get the stability agreement in place not to impact concerned she production profile or to keep the volume behind the two currently and usage.
The latest timeline for that and the third element is the.
And the stability agreement would apply to the whole of consumption, but not to Sentinel and what Youre currently looking at just to be true.
Sure.
And yes, the first part of the question.
The minority stake sales independent from S. Three there's no reason that we would link them together the only what we previously spoke and theirs.
And had if the minority Stakes out did go through and net cash became available in terms of de leveraging our balance sheet, we would obviously be and a better position in terms of debt.
And total debt.
Uh huh.
In order to go ahead with a three with a partner.
And so that would be the dynamic, but otherwise its independent and independent decision.
And.
In terms of the stability agreement and the timing around that.
We as we sit and the 43, one and one theres no need immediately to go on with this three we do see good levels of production continue at Constancia as we put into the guidance for the next three years and as we sit and the 43, one and one was really around <unk>.
And 2020 for 2025 that we needed to see.
The <unk> III expansion come down or because that's when we see the grades drop off at Constancia.
Decline and it's really on the OXXO and side more than more than anything else.
<unk>.
And then the third element and the question was where the.
And the stability agreement, we just deploy to constancia or Sentinels, Wil and <unk>.
That is in discussion with the government I think.
Particular concern is the rent is three and net project, which is concerned.
But obviously, we're looking at the broader.
Geopolitical situation and Zambia as well, but certainly the focus is on is on convention does that help.
Sure. So when you say S T really just before the incremental volume at the very early stage or for other concerns for you because we can see and split volumes could articulate.
Based on and I think what do you think one and one.
No no we'd be looking at the asset and total consents and time.
Sure and just a question on hedging.
And obviously, you've done copper and nickel, but why not do gold hedging, which is more common and motor for a second do product understandably you got to.
Youre screaming agreement, but you still have significant exposure. There. If you don't is there any intention.
Had there been taught to hedge gold.
First the audit is done and intention to do it on a forward basis.
And to get to tender.
Meanwhile, had proposals and the past.
And the answer is that.
And although we produced quite a bit of gold the gold is not that.
Material in terms of our total revenue profile and that does also then.
Consume credit lines, so you've got to choose we you use those credit lines and.
And by and not hedging the gold we've actually benefited also from the upside.
But yes, so you've got limited credit lines, and we rather choose to use it on the on the credit and on the copper side.
Adult.
Understood very clear thank you so much northwest.
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.
Just thank everybody for joining us on the call today I apologize that we've run out at some time and you do have any follow up questions you need anything else. Please don't hesitate to contact me and with that I. Thank you very much and I think you can disconnect. Your line. Thanks guys.
Thank you.
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Operator, you and iron ore hardness.
Hi.
Okay.
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Operator are you still on the line.
I am sorry. This is my name is Matt I am another operator for the call.
Would you like to go back into a post post conference.
Just the first conference, but without the outside bodies and.
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