Q2 2021 First Quantum Minerals Ltd Earnings Call
[music].
This conference is being recorded so it's gonna stay hospital stay.
All participants please standby your conference is ready to begin <unk>.
Good morning, ladies and gentlemen, welcome to the first quantum minerals quarterly results conference call I would now like to turn the meeting over.
To Ryan Macwilliams director of business development and Investor Relations. Please go ahead, Mr. Mac William.
Thank you operator, and thank you everyone for joining us today to discuss our second quarter results.
Before we begin I will draw your attention to the fact that over the course of the call we'll be making several forward looking statements and as such.
Such.
Average you to read the cautionary note that accompanies our most recent MD&A and the related news release as well as those risks risk factors, particularly to our company, which are detailed in our most recent annual information form and available on our website and on SEDAR.
And a reminder, that the presentation, which accompanies come from school is also available on our website.
On today's call Tristan Pascal, our Chief operating officer provided a view of operations and performance during the quarter and share his perspective on the company's outlook moving forward.
Youll be followed behind US Mayer, our Chief Financial Officer, who will review the financial results true.
<unk> will then wrap things up with an eye to the next quarter and an overview of our key.
Key strategic priorities.
After that we'll open up the line to take questions.
With that I'll turn the call over to trust them.
Thanks, Ron Hello, everyone and welcome to the call.
Q2 was another strong quarter from first quantum of debt reduction remains a key part of our focus.
And I'm proud to say that we are well on our way to achieving our target of more than $2 billion reduction in gross debt. There was the result of strong operational cash flows and robust commodity prices.
Tapering off of the hedging program will further benefit financial results from the remainder of this year.
And the expected close of the sale of a 30% stake in the REIT.
<unk>.
<unk> to our new partners postcard from $240 million in Q3 will also contribute to our debt reduction program.
Copper production was just shy of 200000 tons in the quarter, an increase of 18% from the same period in 2020. This increase was due primarily to strong production.
<unk>, the Cobra, Panama, which was nearly 4 times the rights of the COVID-19 impacted second quarter of 2020.
Cobre, Panama continued with the ramp up to the target throughput rate of 85 million tonnes per annum in 2021 with stronger throughput being somewhat offset by higher maintenance during the month of April and slightly lower grades compared to.
The previous quarter, However, production throughput in May and June was pleasing with a new production record of approximately 7.5 million tonnes processed in the month of June.
This resulted in quarterly production of around 82000 tons of copper income contained in concentrate.
Early this month, the government of Panama announced the appointment of a high level.
Commission of senior government ministers and officials to deliberate on low non which sits a fiscal regime for cobre, Panama. The public acknowledgment of these ongoing discussions and choice transparency and the outcome of the price. It's we've been speaking about the.
I mean this is a commerce finance LIBOR in environments, where confirmed as represented on the commission the company welcome to the <unk>.
<unk> of the commission and the opportunity for stakeholders to resolve this matter in the medium term.
Also during the Supreme Court ruled on the clarification motions presented by the company to the court in relation to it slower non decision announced in September 2019, which have not yet come into effect.
The Supreme Court upheld its ruling.
The company understands the decision will be enacted once published in the Gazette to the Supreme Court in the near future.
The company is reviewing these developments and expects the government announced proceeds to result in a mutually agreed new low to be <unk>.
Institute and approved by the National Assembly.
And the MBS operations at Sentinel experienced weighted.
And I would go as we guided to in last quarter's report.
Throughput was higher by softer ore and higher availabilities. This resulted in record milling rates during my <unk>.
Installation of the 14 pit crusher continued as planned with installation in Q3 and commissioning in Q4 this will enable the plant.
We could grow ramp up throughput to 62 million tonnes per annum in 2022.
Thank you saw improved throughput following the end of the dry season at the end of April.
Each was offset with lower grades lower grades are anticipated to remain through the balance of this year as reflected in the change made to consensus guidance in this.
Quarter.
Scheduled smelter shutdown on Constancia occurred as planned in June with the smelter coming back online in early July on schedule.
In respect of Zambia, we are no longer in discussions to sell down our stake in that business with strong performance with copper price and continued solid operational performance has meant that the prices.
As offered by Counterparties.
Too much of a discount to the stronger earnings of the business currently generates.
Nickel production in the quarter was.
4543 tons at Ravensthorpe, while construction of Shoemaker Levy continues to advance with all civil works now predominantly complete.
Pre strip at Schuh.
It continues where the first mining area cleared.
We look forward to moving on to better quality feed from Shoemaker Levy and anticipate first or delivering its third quarter of 2021.
Cross first quantum all of our established COVID-19 protocols at each of our in line remained in place.
The health and well being our workforce.
<unk> from the surrounding community continues to be a priority.
We continue to work closely and support the various levels of government and health authorities in all the regions, we operate from a reduced transmission of the virus.
And to deal without breaks in infections as they occur.
In Panama the company support the work of the government with <unk>.
Transport food medical supplies and other facility based needs, including support to the Gorgas Institute Laboratory testing facilities.
And so Andy of the company's provided COVID-19 testing equipment and treatment in isolation facilities from the community and community continues to implement COVID-19 protective measures across all of our operations.
<unk> programs and have commenced in most of the host countries for the company's operations and first quantum is supporting rollout of vaccination programs as appropriate to each country.
Panama the rollout is reasonably strong in by mid July 3928 employees had received their first dose vaccination.
Sam via the rollout was slow to start but has been increasing steadily in by mid July 366 employees had received the first those vaccination.
On ESG, the company's always been committed to extracting resources as responsibly as we can and sustainability intrinsic part of first quantum is operations.
We recognize.
Is that mining is a significant impact on the environment and we work as hard as we can to mitigate these impacts and to deliver positive contributions from mining to the communities around us.
In line with our commitment to transparency and the ongoing development of first Quantum's ESG reporting we recently published our 2020 environment safety and social data report and our tax transparency.
Recognize that you report, which are both now available on our website.
These years. This year's report highlights of the first on the significant C. O 2 emissions savings realized with some of our industry, leading mining technology, including the use of trolley assist in pit crushing and conveying which are part of first quantum is approach to placing innovation and operations.
Operational excellence, the core of our business and in our response to climate change.
Also in this year's report, we've expanded SCO to emissions intensity disclosures to reflect that downstream scope 3 emissions.
Emissions in the emissions benefit of our largely hydropower onsite smelter in Zambia.
Cobre Panama.
We are currently evaluating the opportunity to increase our use of renewable power as part of our efforts to reduce emissions intensity. We will continue to provide updates in respect to the energy strategy at Cobre, Panama as these plans become more developed.
The company continues to make progress on that 2021 commitments related to climate change we have.
So if it's to reported in alignment with the task force on climate related financial disclosures framework.
Program to set tangible and realistic emissions liberal in carbon intensity target with an identified pathway to achieve it remains on schedule and we are making progress on establishing an internal carbon price and consequent commodity prices and devaluation.
Commenced projects.
The company also continues to make substantial critical contributions to the countries, we operate in which we operate and during this quarter. We disclosed the 2020 estimate tax transparency report, which is also now in the web site.
From 2020, our direct tax and economic contributions to our host governments rates close.
First the $1.1 billion U S dollars.
I am proud of what first quantum team has achieved this quarter and the ongoing improvements we continue to make across our operations much as being done more work remains but I am excited about what the future holds and look forward to reporting a net progress throughout the year.
With that I'll hand, things over to Hana and it'll be back in a few minutes.
To wrap things up.
Dennis.
Thanks, Kristen and good day to day everyone.
I would like to direct you to the slide titled Financial overview.
Financial performance in the quarter was driven by strong sales and increased metal prices, resulting in significant increase in comparative EBITDA and.
Nate earnings.
As well as a notable reduction in net debt.
Gross profit of 625 from again in a comparative EBITDA of $902 million for the quarter.
It was significantly higher than the same period in 2020.
Attributable to record contained copper in concentrate.
Shipped at Cobre, Panama as well as a 37% increase in realized copper price.
Net earnings attributable to shareholders of the company of $114 million.
Comparative earnings of $173 million also represent a significant improvement on Q2.2020.
At debt decreased during the 6 months period, <unk> $658 million to $6.75 billion.
June 30th 'twenty 'twenty 1.
Including a 311 million production and just the second quarter.
With the current strength in the copper price significant further reduction is expected in the second.
This year.
Q1 cash cost of $1.29 per pound.
9 cents per pound higher than Q2, 2020, driven by lower production at both as ambien in operations as well as less crashes.
Capital expenditure in the quarter was 260.
$4 million, which includes the costs associated with the consensus smelter shutdown and the construction of Shoemaker Levy conveyor and crushing station.
In May 2021, the company announced that it has entered into a binding agreement to sell our 30% equity interest in Ravens stope for cash.
Cash consideration of $214 million.
To posco.
The company will obtain a 70% interest in driving soap and continue to be the operator.
Sections I expect it to be to complete in the third quarter of 2021.
Turning to the next slide from corporate.
Copper unit cash cost.
Total <unk> cost for the quarter of $1.20 non per pound was non since higher than Q2, 2020, driven by the impact of lower grades.
At the Zambian operations and cessation of the open pit mining at <unk> cruises.
In August 2020.
Cobre, Panama C..1 cash cost of $1.25.
Pound was 47 cents per <unk>.
Lower than Q2, 2 last year and reflects the significant increase in production.
Year to date copper production at Cobre, Panama as a result at the non increased copper production.
<unk> guidance for 2021 but.
Turning to 5000 tons.
To between 300, and non 335000 tons.
All in sustaining cost for the quarter of $1.91 per pound.
It was 29 cents per pound higher than the comparative quarter.
Increase in all in sustaining cost reflects the higher royalty of 10% in Zambia.
Following the higher copper price and higher sustaining capex, which includes.
The plant smelter maintenance shutdown that concern.
Our scope of seaborne cost for the second quarter and for the first 6.
Months up here I've been in the middle of the guidance range all in sustaining costs has been under pressure, particularly in the second quarter from higher Zambia royalty rights.
Accordingly, all in sustaining cost guidance has been increased by 10 sales to allow for higher royalty.
Expense, which for the year to date.
Its exceeded.
Prior year levels by it even sales and for the quarter by 12%.
Turning to the next slide Q2 summary financial overview.
Comparative EBITDA of $902 million.
156% higher than Q2 'twenty 'twenty.
Attributable.
237% increase in net realized copper price of increased sales volume at Cobre, Panama with near record quarterly production on record contained copper shipped.
The comparative period sales were also significantly affected.
By COVID-19 related restrictions.
Comparative earnings for the second.
Total below a $173 million, an increase of $257 million compared to Q2 'twenty 'twenty.
Basic earnings per share of 20 cents.
And comparative earnings per share of 25 cents of 43, and 37 cents higher than Q2.2020, respectively.
Tiffany.
There's a reduction in net debt as previously mentioned of 311 million on the quarter, which brings the total reduction over the last 12 months to have a non under $1 million.
The reduction remains a key priority.
Capital expenditure in the quarter was $264 million, which includes the smelters.
Got down at Constancia now.
Full year guidance for capital expenditures and changed at non under $15 million.
The next slide is a significant increase in gross profit.
And it just shows a bit more detail on the gross profit quarter on quarter movement.
With a 494 million.
Mel dish net increase in Q2 gross profit from improved paper process and higher contribution from Cobre Panama.
Turning to the next slide on data and liquidity profile.
Companies need debt of $6.75 billion at the end of the quarter has decreased over $900 million in the last 12 months.
William don't they ended the quarter with $1.8 billion of unrestricted cash and cash equivalents and was in full compliance with all of its financial covenants.
Company signed a bilateral borrowing facility of $175 million in April 'twenty 1.
Available for 12 months from the date of signing.
Following the upgrade spot.
It can be global ratings and Fitch ratings in April to a b credit.
Writing the company outlook remains stable copper price and demand continued to be robust.
That's just and has highlighted the tapering off of the hedging program will further benefit financial results from the remainder of the year.
Now turning to the copper hedging program outlook.
Approximately 1 quarter of expected copper sales from the next 12 months hedged at.
At an average floor price on an average ceiling price of $3.16 per pound.
And $3.70 per pound respectively.
This compares to approximately 35 per.
And at the end of the first quarter.
During Q1 with an average flow price in a free cheating price of $3 <unk> and $3.44 respectful per pound respectively.
As of July.
27th 'twenty 'twenty 1.
The company had.
Over 44000 tons of.
Margin copper forward sales contracts at an average price of $2.96 per pound.
With periods of maturity out to the same between 2.1.
In addition, the company net a little bit more than 150000 tons of March and zero cost collar sales contracts.
And maturities to March 2022.
At average.
Process of $3.21 per pound to $3.92 per pound.
Company also had end margin nickel forward sales contract.
But more than a thousand tonnes at an average price of $7.74.
Saint per.
Pound outstanding with maturities out to December 21.
In addition, the company has zero cost nickel color on margins how contract for Neil.
Nearly 1300 tons at an average wait.
Average price of saving.
68 per pound to dollar <unk> 58 per pound.
With maturities out to May 22.
And with that I'll hand, it back over to Justin.
Yeah.
Thanks Dennis.
Let me just take a few moments to discuss the path forward.
First quantum as we continued to execute our vision into the future.
We have a number.
Key strategic priorities that are underway at the current time, and which we believe will help build sustained long term value per shareholders.
Along the time, we have optionality within our portfolio that we also believe has the potential to deliver significant shareholder value.
So now the current focus about capital allocation approach within the context of a very strong commodity market.
Market remains firstly on debt reduction, which is a commitment and strategic focus.
Secondly on execution, a brownfield project to add incremental value and thirdly on cautiously improving out dividend policy to reward shareholders.
And on Greenfield projects will remain limited, while we deliver on these core focus areas, particularly.
Number of production.
I'll take a moment to discuss each of these key strategic thrust and a little more detail first and foremost debt reduction will continue to be the major focus in the near term as we work towards reaching our goal of reducing net debt by more than $2 billion and thanks to strong operational and solid commodity prices.
When we achieve this goal our gross debt.
Debt below $6 billion and our net debt.
Through the cycle EBITDA ratio will be below 2.
Next is brownfield expansion and we are fortunate to have a robust internal pipeline of new in line growth projects at our disposal.
To that end progress on delivery of the 85 million tonnes per annum target throughput rate at Cobre Panama continues.
<unk> and remain on track to grow to a 100 million tonnes or more than 100 million tons per annum by the end of 2023.
In the mine during Q2, we broke ground at the in pit Crusher Bulks cut location for the new Colina pit location and the overall Colleena mine planning if it remains on track at the process plant a primary screening facilities expected.
It will be delivered in Q4, 2022 and upgrades the process water supply and ball mill 6 are expected to be delivered by Q1.2023.
At the enterprise project in Zambia, the design for development of the pit has been revised and optimized to support an accelerated mine plan targeting early pre stripping in the second half of 2020.
'twenty 1.
Following potential board approval, which could potentially come later this year.
The majority of the pre strip would be done pulling it out of the dry season in April 2022.
This project has the potential to add around 30000 tons of Corona nickel production.
The decision on the S 3 expansion at Constancia.
You remains pending as we continue to work with the Zambian government to formulate a framework to move this expansion cohort there.
Has been limited progress on this through the last quarter given the election process isn't Zambia, and we do expect for the noise and distraction in this regard in the near term however, once given the green light.
He would increase.
Clearly concerned she's annual throughput to well over 50 million tons per annum.
In short production levels remained strong for more than 20 years.
Last month, we received a mining license for cover less cruises underground we expect the water concession license may be granted by late 2021, as we continued to make solid progress towards being full.
Ltd.
Study work continues with the drill program currently underway.
All of this work the company expects to release the National instrument 43, 101 report with an associated resource in the second half of the year, we still have a way to go before deciding on where this project fits into our pipeline, but it's pleasing to see the recent progress.
Next we expect to have an update on guidance around our dividend policy by the start of next year.
Which will include an increase to our current nominal dividend, we will start cautiously once confident our debt reduction targets, a big net and this policy will not be the expenses brownfield growth.
At.
This point is we focus on debt reduction in the brownfield opportunities I just discussed we can take a more measured and cautious approach to greenfield opportunities within our portfolio, most notably tech attack there in Argentina and <unk> in Peru. We are certainly excited by the prospects of these projects and the longer term potential day offer.
<unk> for example, we recently completed.
43, 101, declaring a maiden mineral reserve of more than $7.7 million tonnes of contained copper however, before proceeding with investment and construction decision, we would like to further understand the physical environment in Argentina.
Similarly, Keira, we strength, we see strong potential in the project situated in the prolific.
Built in southern Peru.
At <unk>. Our current primary goal is to continue to work with the local communities who reside in the area where the project is located.
Finally on behalf of the entire company I want to thank our people once again, our workforce continues to demonstrate adaptability commitment and resilience and make significant.
<unk> contributions to the success of the business I am proud of how our workforce has continued to focus on executing in our sights and sustainable manner in the face of ongoing logistical and operational challenges, resulting from the COVID-19 per Tim.
And Amy.
Operator, we would now be happy to take questions. Thank you.
Jeremy Thank you.
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The first question is from Rs <unk> with Scotiabank. Please go ahead.
Hi, good morning.
In your release, you disclosed that you plan to increase the throughput at Cobre, Panama, a 100 million tons a year.
Possible.
By the first quarter of 2003 that was certainly earlier than I was thinking and I'm. Just curious if you plan to complete the rest of the work.
For the expansion at the same time from a tailings and mining perspective or is that is that going to come later.
Your first I'll take the question, yes that was really in regards to formula 6 delivery of debt installation in Q1, 2024, and it will be commissioning and ramping up throughout the year.
So.
<unk>.
This guidance, we'd put there remains in place in 2023 that as we expected.
The 100 million tonnes per annum right.
Throughput rates by the end of the year not necessarily from the end of Q1.
Sure.
Okay. So you basically plan to be fully operational at that 100 million tonne throughput rate exiting 'twenty 3 that's the way to think about it.
Yes.
Yes that is a good way to put it yes, Okay and then just also on Cobra Panama.
It sounds like you're you're getting close to.
Down to negotiate a replacement for law 9 with the government. There has been some media reports about government officials.
I'm asking.
By royalties over the 5% current copper royalty.
Should we anticipate that there could be some give and take in terms of the current terms in order to get a replacement for for law 9 or.
Any color would be would be appreciated.
Sure Chris.
Yes.
For Hawk I think Thats right.
We do expect that there'll be noise around this process given that it's a public process.
That's a good thing given that it is a public process. It means that we expect to transparent outcome and we expect it will lead to a robust and defendable outcome for both the government and net sales.
Yes look.
We wouldn't comment on the Minister's comments, although to say that a significant investment was made on the basis of that.
The original low non physical assumptions.
It's also pleasing to see comments from the Minister earlier this year that Panama wants to see mining at the forefront of its recovery from COVID-19 coming out from.
From the current situation and also we did see comments from the president.
Panama, Lawrence, saying net of Coty, though yesterday in the National media, which was on.
Debt he considered that they can be a win win outcome in the process.
We certainly aligned with that.
It will be given take but it can be a win win.
For the company and the government in terms of realizing benefits, an increasing set for both the country and in the company.
Okay. Thank you first and then just finally can you give us a sense of timeline for that law 9 replacement type negotiation.
What would the expectation be.
That theres something completed by the end of the year or could this take a lot longer.
Yes, I'll, just I realize that it's been a challenge through.
Through the COVID-19 period in debt prior to this.
We were engaged them in that's being held back by the inability to make.
That is important as I stated on previous calls we are having those face to face discussions I think what you should range from this is that there is momentum building.
What the government headwinds that I can give a bit of background to some of the comments recently I did have a price is on the Panama Canal.
Sorry, the Panama Port Commission, and concession and that was around making sure that there was public engagement and so we do see that now the public engagement these public announcements and that builds momentum around timing.
It is a government process. It goes through the negotiation with the administration and then into the nationals.
Assembly.
Those are the steps they remain the same.
But it's challenging to give a timeline around debt.
I understand that it would be good to give you a clear picture.
So to go through those steps.
Thank you.
Thank you.
Next question is.
He is from Matthew Murphy with Barclays. Please go ahead.
Hi.
On Cobre, Panama and just on a recent story on this pipeline spill unearned should we read anything into that is there a likelihood of.
Anything meaningful in terms of.
There are sanctions coming from that.
Thanks, Matt Yes, the median Panama has picked up on.
What was really a minus still.
Smoothed volume of water and slowly slurry rock from the pipeline 2 weeks ago.
Our response teams and the spill protection to it very well and we are confident the adjacent stream was not impacted beyond an hour or so.
Some high suspended solids.
And those were diluted by heavy rains, but nonetheless, the incident, it's regrettable for us and we're working to continue to improve the equipment and the systems involved and also with the ministry of environment in regards to the recommendations for corrective actions.
As I said at the low level of incident.
So it's really around the noise and.
The processes that are ongoing but it's come the debt.
We've seen those media reports.
Okay. Thanks, and then if I could just ask another 1 on the risk front.
Looking ahead to Zambia and elections.
I mean it.
It's interesting to me that the mining sector hasn't seemed to become really a lightning rod.
Election process, but I'm wondering.
On how we should think about news flow I guess theres, a new budget presented.
60 days after elections, I mean, do you think mining.
It doesn't.
Not really come to the floor through all those.
Yes, Matthew Thanks.
Look the I guess the challenge during the election is it's always that's a competition and there's noise in.
And we've seen nationally.
Elements come up in most.
Discussions at least in terms of the election here it.
It's been hard to make progress the ministers are in recess and that means really the president and a number of key.
Public office, all those that are in position of environment and that means we can't engage.
To any great extent in terms of outcome there.
And then yes. The election is on the 12th of August and we will see a budget 60 days thereafter, we expect that the whoever comes back in with its an incumbent or otherwise.
We'll need to engage with in particular on.
On the <unk> process.
And in consolidating the.
Group position in Zambia in terms of.
How that relates to the mining industry.
The government is now.
Cooperate accessories at CCM up to the major mines in the country.
Subject to ongoing court cases in South Africa in regards to the 1 month, but.
Have a.
The first very good picture now of what it's like to run and operate the mines.
The part and parcel of the industry going forward. So we don't see any significant risk there.
Given with tax rates at the moment in Zambia, but there is a need.
So ongoing engagement and particularly as we look through the history investment.
<unk>.
Be the right kind of framework around that investment.
Hope that covers your question Matthew.
Perfect. Thank you.
Yeah.
Thank you. The next question is from Jackie principal Lawsky with BMO capital markets. Please go ahead.
Thanks, very much I think I'm, just a follow up on Matt's question.
Okay.
And then maybe slightly different way.
I guess, maybe true if you could clarify.
Slide deck presentation, I think it does.
<unk> is looking to make a decision on enterprise by end of 2022, and I think you mentioned earlier, maybe I misheard you, but I think you said the end of this year.
So maybe if you could just talk a little bit about.
What the timing is I know you guys are working on some pre stripping second half of this year how much activity do you plan to do at enterprise before you make a board decision and.
Maybe if you can just just clarify like when when do you think you'd need.
To make a board decision and what you need to see for that decision would be a positive 1 thank you.
Sure. Thanks, Jackie the enterprise, we are able to do some preliminary works and as you said that's the just some ongoing pre stripping work out there and actually I was on the ground the.
Week before last and very good to see.
Some preliminary works on going after those.
The rainy season in terms of the decision later this year it will be linked to the broader fiscal environments in Zambia, It's just that we're at lining debt.
Yeah.
A decision can come and then.
Then actually fairly quickly.
We can be in production because this is a brownfield. This is a brownfield projects non meant a.
Our new Greenfield project, given that a lot of the debt.
The plant is already standing so the total capital.
For the investment.
As around $90 million and that number will be reviewed as part of.
Approval process.
And yes, we could we would hope to be able to put that in from the board later this year notwithstanding the preliminary works ongoing.
Full approval.
Subject to the situation in Zambia.
And I guess, we'll see that that.
That feasibility study that you are.
The border to update as part of that board approval process as well right. So that'll come out later this year as well.
Yes.
<unk>.
Once we are engaged in the project will make sure that there is an understanding of the.
The production profile.
And if we're seeing around the project, whether it's a full feasibility study.
Planning, whether it's a greenfield project will make sure that you've got all the parameters around that that's for sure.
And maybe if I could just asked from the the hedge programs that you mentioned or hand has mentioned that you are.
Bringing that off a little bit.
No less of your.
Represents less of your copper sales going forward can you give us some updated guidance in terms of like what you mean.
Do would that hedge program are you still planning to add hedges.
Is there some level of hedging that you're planning to maintain or as we kind of roll the quarters forward over the next.
Year, or so should we expect that to sort of wind down entirely can you just maybe give us an update on what your thinking is with that.
Would you like to take that question sure.
Jackie I.
I mean, we we have hedge program win.
Once people building Panama.
Hi.
Liberty true you would've seen the leverage come down quite dramatically over the last.
Yeah.
And as we said, we would sort of reduce debt level of activity and you would've seen from HP dropping them debt off by 10% over the next 12 months sales in each of the last 3 or 4.
Quarters.
And last he just said we have place was just before the previous quarters.
From school so early.
Early start of this quarter. So we haven't added any new hedges so.
I think that's probably a good indication of weighted meeting.
Thanks, very much that's all my questions. Thank you congratulations.
Yes.
Okay.
Thank you and the next question is from Matthew fields with Bank of America. Please go ahead.
Hey, everyone.
Congrats on the strong execution.
I appreciate the sort of more spin.
Commentary on debt reduction and capital allocation that.
But you sort of put in writing and so the codified a little bit more than in the past I just on the balance sheet side.
<unk> had a few quarters now of very strong cash flow you've had the 175 million bilateral facility come in you've got 2.
$240 million of cash coming in from Ravensthorpe in the third quarter. My question is why is the revolver fully drawn.
At quarter end.
Okay.
Do you want to take that question sure.
I met him.
We had a few things.
Sort of in the quarter so.
Pacific We had.
Smelters shut in Zambia, and inventory buildup that we just.
Fund as well so that we went through that.
And as part of that process and just planning.
We had a drilling under that I think what you would see us now.
Sort of manager.
The next question you will ask because when will we take our bonds but.
Okay.
We would look at this now sort of saying we're at the smelter is now shut us beyond us.
Smelter started up early.
Early this month again.
So that inventory has been flowing through in the.
<unk> cash costs.
Flowing through.
So what we would see as cash Pasco cash coming in.
We're also working on our corporate refinancing that should be done by end of this year and then I think within the next year, we will start addressing.
Some of those bond maturities and so you would see some movement I mean.
So it was just particular to certain situation in this quarter, but say.
After you should see improvement overall and absolute debt reduction as well.
Alright, well I appreciate that and.
Believe it or not I wanted to ask you about refinancing bonds.
Yeah, well you sort.
Read my mind.
Obviously youre 7 quarters are callable now.
From the haves are callable now too in your cost of new debt would be well below that.
It takes them to have premium the call premium steps down on on September 1st. So you only have to really wait a few days now for a 30 day.
Day redemption notice to get that lower coal price.
Does that does the sort of high amount of cash on the balance sheet from revolver draw kind of coincide with that you know.
'twenty 3 'twenty 4 as being kind of prime targets for a refi.
In the coming weeks here.
Yeah.
Yeah.
So badly.
We tend to be opportunistic in this regard so I don't want to speculate on the exact timing as to when we will do it.
Yeah, I think within the next 2 years what would be a good.
Good enough response for now.
Okay, great well, thanks, very much and good luck with the rest of it that.
And in the coming year.
Thank you. The next question is from Greg Barnes with TD Securities. Please go ahead.
Thank you Kristen and kind of slip timna. The Zambian operations are no longer under discussion to sell down an interest in the business you're looking at investing in S. III.
Yeah.
Enterprise.
To me you kind of reassess your view towards Zambia again remember the time that we didn't want to invest now it sounds like you do.
Getting a much more comfortable about Zambia going forward.
Thanks, Greg Hi, Yes look.
We've got to get through an election.
<unk>.
Greg.
I just wanted to make the point that we will see noise.
<unk>.
These periods of always vocal and so we do expect some destruction in that.
Notwithstanding that.
We those are great assets that we have at Sentinel and consents.
Yeah.
Between them producing.
Nearly 500000 tons of copper certainly will be at that level.
After investment in necessary so in the longer term, yes, absolutely.
Great supported the Zambia.
We think it's a good.
Destination for investment.
Over the longer term, but certainly we do need to get through some short term.
Interactions with government.
As I said at the current time, we can't really do that given that ministers from recess and so but we do see that after the election.
And appetite to engage.
From that because these investments are good for Zambia.
Yes.
And have you had any further discussions we think see about shifting those.
Those discussions.
Selling an interest in them.
Yeah.
Do you have a sense of where they stand.
Well, what they want yes, Greg.
So that's fallen into just a regular conversation that we have each quarter really over the back of each quarterly results.
And so it's an ongoing engagements in an ordinary course now.
Right.
I mean, no I don't have any insight understanding as to.
You know day or intentions, but what we understand is that they.
They have to do with the investment.
And they're happy with the delivery against our strategy.
You know where the share prices at the moment and so on given where that came in.
And we were in a sort of in an ongoing engagement with them at the moment.
Great.
Good thank you.
Thanks, Greg.
Thank you.
The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Hello, Good morning, Thank you for taking.
My call.
I wanted to just ask you a little bit more on the.
The whole lot of tailings.
Phil.
Panama and just some comments that were made by the Ministry. So 1 of the comments was that they were looking for maximum sanctions maybe it would help if you could just quantify what that could possibly be.
In terms of numbers.
Yes, Thanks Lawson look.
We can understand that.
It's a motive public.
Visibility on mining at the moment, given the government's comments around looking to expand mining we its our intent to be.
Responsible miners to mine as well as we can and be a good corporate citizen in that regard it certainly.
Currently we hold ourselves to the highest environmental standards, we continue to improve the capability of the business.
<unk> was pretty minor so.
The incident itself with less than 12 minutes sales guys responded within 5 minutes. The actual volume of material was very insignificant it doesn't.
In our estimation doesn't reach level 3.
It was captured by event cons there was some the Skype did create some suspended solids, but it's fairly material.
So we would contend that it's fairly minor events and not material not significant but the minister.
There is quite a public.
Visibility on mining and we need to the heightened responses. We can so we will certainly take all the preventative actions to ensure that something like this doesn't happen again.
And that's been improving.
I believe we have lost connection with the speaker.
Hum.
Operator, if we can maybe move on to the next question.
I apologize it was a USB.
True Pascal I belief that has disconnected.
Yes.
Let's let's let's just wait for it might be to dial in again and then we can maybe move on to the next question dressed and are you still on the line.
Okay.
No he has disconnected.
Correct itself.
Another question that we have.
In the lung.
The next question will be from from Carl Blendon with Goldman Sachs. Please go ahead.
Great. Thanks, guys. Congrats on the strong result, again, a couple of questions behind us.
On the debt reduction target I, just want to make sure I understand that you talked about $2 billion of debt reduction.
<unk> to get below 6 billion total share currently at 8.5 and some of that has to do with the revolver draw.
But is it right to assume then that youre looking to reduce debt versus the quarter and by $2.5 billion and if there's any breakdown of bank facilities versus the bonds that would be very helpful.
Sure.
When we talk about the data production, we look at the net debt number so.
You would have seen I mean, we've made significant progress over the last certainly here in terms of debt.
So we well on the way in terms of that and with the.
We will get some proceeds in from the minority stake sale in driving soap as well plus continued stronger cash flows in the second half of the year, we have much more exposure to the.
To the upside from a copper price so that pulled off with long way I think we will probably be.
Beyond that.
And I don't want to give you exact numbers here, but.
We've got a certain amount of brownfields projects that.
It will spend some money on but it's not that significant in the cash flow generation.
So.
What we will do is I mean, there will be some reduction in the bonds.
And the next year, we will start reducing debt plus we'll refinance the bank facility. So the bank facility.
It was a $2.7 billion.
Probably about 3 years ago. So so we'll look before end of the year to replace that probably by a similar amount or slightly.
But smaller.
It doesn't make much of a difference if it's a bit smaller as well.
And of course, we'll use that then to reduce the bumps at the banks have been very supportive.
In the bold I mean sort of tough times as well. So we've got a very supportive banking group day. So it's key for us too.
Likely retain that sort of credit appetite from the banks and that support so we will look at replacing debt again.
And then reduce some of the banks, but as a bump the date for debt.
It is important for us in the long run to 2.
To have still a significant presence in the bond market. So.
There will be some reduction.
But.
That will flow through in the next year.
Okay that makes a lot of debt and then it from.
We haven't really spoken much about the delta there, yet COVID-19 and you've done really well the initial mandated slowdown.
To keep the operations running smoothly when you think about.
What that.
Berrien could mean income loved the.
Areas with lower vaccination rate how confident you are are you around the ongoing operations.
Africa in Panama.
Hi, Nicole just checking for yoga.
Good stuff.
The balance sheet, so a safe day.
The health questions for your interest in <unk>.
Apologies for that.
Look thanks for the question and I would think the MBA.
The week before last and.
Certainly the Delta of guarantee is that it's in South Africa and it's in.
Southern Africa more broadly any zander.
The third way that was causing has come off from the last fortnight. So what we're saying is is it an ongoing reduction of cases, and certainly an ongoing reduction in debt and that includes the testing.
No.
Some of the testing.
And we'll.
Continued to rollout at the same high.
Yeah.
Yeah.
What we are seeing and this is also the reduction.
So I think what it has the third wife has done creates understand increase.
It has broad acclaim Zambia.
And we are seeing a great.
Uptake of vaccination.
<unk>.
The challenges around delivery of vaccines.
Assisting the government in that regard with other things on the government debt can talk to the primary producers over the vaccine.
And we do see increased.
Shipments of vaccine to the country and more broadly in Southern Africa, which is good news.
And so we.
Levels seen debt.
It will be a slow.
But increasing in terms of vaccination and and but the numbers have come off in the interim.
In the last few weeks, which is a good time.
The company sufficient.
Yes, I think it does I don't know maybe ill.
Kind of extend that.
Panama as well it sounds like things are low.
Broadly under control, but any color there would be very helpful.
Yeah as I said in my comments the vaccination, it's gone extremely well.
The number of people that have decided not to take the vaccine so flowers.
3.3% and really debt.
1.2.
Our employees very progressive and gauged part of the solution and the uptake has been very strong.
The protocol in Panama is that over 30 eligible for Astrazeneca.
So.
Nearly 4000 of those doses have already been delivered to employees and we're supporting a broader.
Vaccination rollout in Cologne, and Coke light provinces.
Funding of around $1 million for drive through vaccination centers that have been very successful.
<unk>.
Enrollment at the program across the regional areas as well as the capital City.
The under <unk> in Panama.
The protocol and shipments of that debt vaccine.
Coming into the country. This month have been deleted and so we do see a pickup in.
In the <unk> as well, which is good news and that's against the backdrop of reducing third wave.
Across the country.
Which I think is good news and the plant in Panama. The government's plan is to fully vaccinate by by October.
Thanks, very much for the color on the health and then also on.
Thank you.
Thank you.
Next question is from Abby Agarwal with Deutsche Bank. Please go ahead.
Yes, good morning. Thanks.
Thanks, a lot product.
Couple of questions.
The first 1 is on Capex so there's been.
A shift around and Capex.
Less shipping has gone down by around 40 million net total.
Total capex is unchanged.
<unk> allocated to the.
And the price project, that's my first question.
Thanks Abbie.
Look the reality is given the labor shortages at Cobre Panama.
The balance sheet, Panama that we've seen that reduction in.
In in stripping.
Capitalized stripping so it came down about 40 million net strip ratio in Panama is currently sitting at about <unk> <unk> for the plan for the year was <unk> 6.6 so we'd like to build that up in the second half of the year. The shortfall has been on.
<unk> really.
Maintenance operators truck operators to be able to continue to deliver all of our capital equipment to do that nonetheless.
The challenge I should say, we've been finding too much copper, which is a nice problem to have but in particularly on the hanging wall and the north everywhere that we thought was waste is being mobile.
They need to realize the rate than originally expected.
It's a good problem to have but it does mean that the strip ratio is not as hard plan.
That will shift as we get into cleaner and as I've said, we've broken ground on the box cut position for the new Colina pit and so that is definitely wise.
We're able to command that is weisman stays waste.
More good news from my wife's perspective, so that's why we do see that.
We would like to get back to debt.
The overall target strip ratio for the year, but in the meantime, we will be a challenge to catch up with that and so that's why the.
Total capitalized stripping numbers come down for the year.
Yeah.
And that $40 million. So the sustaining capex has increased so has that been sustaining capex and other projects.
$40 million has that been allocated to enterprise.
No enterprises, not taking a significant portion of that.
It will be.
Waste.
In some of the overruns at Ravensthorpe and also.
On the other operations, but no it's not.
And what kind of influences.
Got it.
The last question is on Cobra unit cash costs.
I think in the release you mentioned there is still a component of COVID-19 costs income.
Could you could you.
Could you tell us what.
1 component is.
Yes, it was running at around $10 million a quarter, if I recall correctly and that relates to the hotel isolation cost studies that we went to hotels.
For a period of a week for every employee.
Coming onto the site, where we see the vaccination program once we get through that and to the right level, we will be able to stop that and then it's also in just over time.
Labor costs, because we were able to have less people on site we are paying.
Above standard rights July but that is on site.
Got it thank you very much.
Thank you. The next question is from Emily Chang with Goldman Sachs. Please go ahead.
Good morning, and thanks for the update today. My first question is just around the capital allocation strategy.
So once you have it.
$2 billion of.
Correct debt reduction achieved you mentioned a cautious approach to dividends, but is that perhaps a framework. We can use to think about how first quantum would balance shareholder returns versus growth. For example, should we expect a payout ratio of some kind of percentage of free cash flow being returned or do you still perhaps have a preference for.
Progressive dividend policy instead.
Thanks, Emily I'll make some comments and then maybe hand this will jump in so look that's what we intend to come out with.
And as we said towards the end of the year or early next year to outline that more clearly what we are outlining for shareholders and intend to move.
At a nominal dividend, but as we said it will be a cautious approach and probably linked more to cash flow in the business.
Potentially although previously we've linked it to comparable earnings and paid apps on net basis.
How much do you have any more comments from that.
Yes, Justin I think it's fair enough.
Move from.
I wouldn't.
Describe the dividend definitely not as a progressive dividend policy. So it will be linked to some sort of earnings or cash flow from Asia.
But that will allow the company still to continue with these brownfield expansion in growth ambitions going forward.
Great I appreciate that that's.
Simple.
And my second question is just around the Las Cruces underground option that can you remind us what the size of the price here any rough estimates as capital costs and.
Anticipated timeline on decisions.
And then sort of following on from that it seems like in terms of.
<unk> Brown.
Brownfield is certainly ahead of the Greenfield options you have there.
So would it be sad to say that the decision, making time line around some of your greenfield opportunities are longer dated than sort of the 2 to 3 year plan that you've outlined for the brownfield so far.
Sure Emily thank.
So firstly on sales see as I said.
Our intent is to come back with a 43.101 that will give you more.
Clarity for the market on the decision and John Gregory you might come.
Comment on that further.
In terms of what that would look like but.
In that.
Do you include the capital.
And on the cost estimates and so on on the production profile, but in the meantime sales.
L C does continue to operate.
Based off reprocessing of initially stockpiles and maintain links and so really what we do.
The decision around closure and things are definitely being pushed out and.
We would say is that the study if it's on the underground and the opportunities day, we continue to work on and as I said expecting to receive full permitting hopefully by the end of this year it would be good.
And then more broadly on the Greenfield decisions before John Mark comment further.
The Greenfield decision that's.
What we pushed the decisions out on those towards sort of 'twenty 3 'twenty 4 and not included in everything on the brownfield side is included in net capital guidance.
Around.
$100 million Cobre, Panama and there is some capital in 2023 around $200 million in our guidance.
Thats right its 3.
And then the remainder of his III comes through in the following year.
Those timings registry won't change significantly.
But theres no capital and no decision, we expect on things like <unk> in that period. They would come after that period John did you have.
Any more clarity on on sales.
The 43.101.
Yes sure interested.
At the moment, we just finalizing.
Delineation drilling program and our intent is to provide an update from the underground.
Resource.
A 43.101.
We have ongoing works technical.
In terms of the water and geotechnical, which means it will be a period before we can actually match the reserves.
But our intent is to get a 43.101 update.
<unk> produced by the end of this year.
Got it I appreciate the color. Thank you.
Thank you. The next question is from Yannis Mathew boss with Morgan Stanley. Please go ahead.
Thanks for taking my questions.
2 left from my side. The first 1 again on the net debt reduction not too.
1 target.
Is this enough, let's say, it's $5 billion.
Could it be the case that you may need to bring leverage down even below levels you feel comfortable with just before you launch the next major Greenfield project over the next few years.
Because if we look at some of your peers.
They are running net cash balance sheet positions and I would say that many investors tend to favor about I'd be interested to hear your thoughts on that thank you.
Thanks, Tim do you want to take that 1 share.
<unk>.
We have state of the debt reduction.
$2 billion.
That was the target I think what you will see us.
You run the current numbers Youll see that.
That level achieved.
Being higher.
<unk> debt will achieve within the next year.
So I think if you look at our Greenfield projects.
But they also.
It's not it's not imminent.
So all day it will reduce further from that.
I think it's also important to look at share gross state will reduce and that will reduce probably bought more than their table.
And then just also to look simple just look at the sort of leverage ratio.
Stages on the path of less than 2 times net debt to EBITDA now.
We already nearly a day.
But I think what we look at the sort of the longer term copper price.
So if you run longer term copper price scenario not be not extended above those sort of numbers and that will be.
What was achievable when we get to the next decision on the next Greenfield project.
Okay.
Clear thanks, very much further out than debt 1 more question if I may.
You made an interesting comment around Cobra, Panama and the fact that you are looking to at least partly.
Switch the power mixed with renewables.
Interesting because you just commissioned.
Coal fired power plant a couple of years ago, how youre thinking about.
Monetizing that asset could it be the case that you sell more to the power grid in the country or are you thinking.
Some other arrangements.
Yeah look.
We're very happy with the coal fired power station in terms of the way, it's running and.
The cost of generation.
What we do see though however.
The coal fired power station.
Both were perhaps 40% of the <unk>.
<unk> emissions within first quantum and so it's right that we look closely at it. It wasn't brought that we look at that during construction and commissioning what was important that we got the power source.
We inherited that coal fired power station that was in it was in <unk> sitting on the ground and it was the right thing to do to install them and getting.
The mine started but now it's appropriate that we look at that and what we're saying is that I think.
Initially for the growth of Cobre, Panama to a 100 Union we're looking at.
Other sources of power, including renewables.
And then we.
We continue to look at the power station itself and what options might be.
Bye.
But I think it's broadly important for Panama debt.
I have stability in the grid hydro electricity in the country goes up and down very significantly across the year because theres no storage. It's all run of river hydro in the west of the country and so Dow relaunch on thermal energy, but at this time.
Baidu, particularly from diesel generators in the country.
And so that's an important consideration.
But all of these things will weigh up the NAV deliberations.
And as we've said, we'll come back and explain those later in the year in terms of our strategy around the power station.
And come back and report more.
As we have more information for you.
That's very clear thank you very much.
Thank you once again, please press star 1 at this time if you have a question. The next question is from Jay tender go out with BNP Paribas. Please go ahead.
Thank you.
Good morning, and good afternoon, just a couple of questions first 1 on carbon price integration.
Is there any timeline by when you will be able to conclude and would that been applied to all the projects debt unapproved in your portfolio, including as 3 expansion and so on.
Second just a quick 1.
Is there any cash tax guidance you can offer for this year. Please.
Thank you.
Thanks to Tinder.
The first question first so carbon pricing, yes, we will come back by the end of the year in terms of of how we will approach that within the group what we see.
Initially we're looking at new projects. So in particular things like Pac attack and Akira, but we are evaluating it against the other projects from the business, which include this 3 and we'll just give more color on that as we go forward what we do.
Do you have is a number of.
Initiatives within the business to save on <unk> and really that's.
Continuing to push our productivity and to reduce our emissions intensity against every units of copper production and that's important.
<unk> already seen very low down on the curve, but its the higher intensity operations, which really cobre, Panama is the highest debt.
That's most of the points importance in addressing that.
Around that moves the needle for us.
<unk> is in the middle, but it's really not on.
Okay.
Carbon pricing, it's much more around the processing stream, which is in particular, the covenants that come through on the <unk> side, but as we go forward will be.
Continuing to reduce the proportion.
<unk> of oxide leaching process plants, and so it does pull the right. So.
So that's just a bit of color there Youre second question, sorry could you repeat that 1.
On the Texas, Tristan, but Julia do you have a number on the cash taxes I don't think we've changed that much since lithia.
Thanks.
Julie just along the line.
I apologize she has been disconnected.
I don't think it's changed much from early of the year when we gave guidance.
What what you would.
We'd expect some of that 2.2.
As we.
You can appreciate in Panama, we spent all the better part of $7 billion building the mine.
So it will take a while before we start paying cash taxes, so significant cash taxes in Panama.
But in Zambia, with the higher prices and the non deductibility.
After royalty what what you would see is that sort of effective tax rates increase was the same percentage royalty now.
But that's not deductible for tax purposes.
So in Zambia, Youll see a slightly higher increase in the <unk>.
Effective tax rate.
Yes.
That's very clear thank you.
Thank you.
The next question is from John Tumazos with John Tumazos very independent research. Please go ahead.
Thank you very much.
Should we be worried from the minor tailings.
Cars are the slippage in the strip ratio.
Are the labor shortages at Cobra Panama.
The operations need more attention.
And maybe it is.
Premature to be focusing his thinking ahead to the fore.
Brian.
Non field into Greenfield capital projects.
Thanks, John.
I don't think I don't think Thats. The case I think that the management is doing an excellent job under the pressures of COVID-19, and all of the.
The challenge of continuing to ramp up what we have seen.
Measured against production in the mines have been progressing extremely well.
<unk> built the capabilities of the capital equipment to deliver the trucks that for example, we look at.
Total an empty ratio as we look at the Kpis.
Compared to the benchmark so although operating mines in particular Sentinel.
Those benchmarks in some areas Cobra, Panama is exceeding in other areas. We have continued work to do for example until that.
Time maintenance.
And road conditions, but in other areas.
We're already doing better than others.
Other mines, and we compare ourselves to the other benchmarks in the region, including the drawing mines Dan.
In Peru and Chile.
Suppliers that day irregular regularly and we compare ourselves to those and the process plant.
Our recovery.
Performing extremely well, we now have the golf.
Gold plants performing much better.
Investment in maintenance on that thought.
Price at 3 timings is working extremely well and we're well on track in terms of the phase 2 lift around the timing sandwiches all to get that ready.
And cope with the current Dyson right, but also to have it ready.
For the 100 million tonne non basin right we have regular.
External audit from independent orders to come through and Chick how operations are performing and whether the required standard and we are very happy with the outcome of that in terms of site management on the site.
This continued improvement from.
We're 18 months from 24 months ago, So we see a.
The leading indicators continue to improve and.
And you know the safety adherence and so on from the work force from a pan of mine use.
Definitely good for our new workforce, where the country has no history of mining, but develop very.
From where we and shining a great deal of capability.
Moving to them from the pipeline is an aberration and regretted but it's very small and minor it does need focus and were confident that its getting the focus that it required.
This is.
We were seeing 3 or 4 of these events last.
Quick.
And so certainly the frequency.
It has improved it pulled down to a failure on a world.
So that world, we difficult to analyze it does require it.
A higher technical capability of <unk> testing in order to examine net world.
To make sure that it has.
But everything else from Milan has.
<unk> has been performing exceptionally rollout to be improvements last year of the Elia problems, we had and so this is a 1 off related to a failure on the world.
And but again, we will put in place a corrective actions because it needs to be done.
So I hope John that gives you an idea that.
The application of management yet location of.
The operational excellence at beside us already.
<unk> the standard devote all of our operations, although we continue to lift the standards of those to global benchmarks and we're very happy with the progress in that regard.
Thank you.
Tristan if I could.
Ask you 1 more.
I'm thinking of here.
History of 1986, when Magna copper hedged 70, <unk>, which was at or below their breakeven.
Yes.
Or <unk> 6.1 Phelps Dodge launched a couple of billion dollars.
Because of zero cost collars as the price rebounded.
And.
I'm, a little bit tongue in cheek.
But I'm wondering if you're almost trying to trigger a hostile takeover with your hedge practice or your failure to renounce hedging.
And I just wanted to call your attention to companies that had similar hedge problems in the past.
Disappeared quickly.
Hi, Dennis do you want to take that call on the Haynesville, Yes, my understand daily.
So we Havent day.
Debt to agents this quarter. So we've stopped early this quarter.
If you look at the history in the last 3.4 quarters.
At Ashford used by 10% in each quarter, so that program.
Was in place, whilst we were spending quite a bit of capital at Cobre Panama.
And highly leverage.
As per Panama has ramped up.
H program has rolled off.
It is much less hedged now so it's less than 25% over the next 12 months sales are hedged.
You would see from from.
I think August.
Participate significantly more on the copper price.
Thank you I'm, a shareholder and wish him the best.
Thank you.
Thank you. This will conclude the question and answer session I would now like to turn the meeting back over to Ryan Mcwilliams.
Thank you very much to everyone for joining today's call enjoy the rest of your day and we look for.
Well, thank you again with our Q3 results.
Okay.