Q3 2021 First Quantum Minerals Ltd Earnings Call
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[music].
This conference is being recorded.
C homes that don't have as you see.
All participants please standby your conference is ready to begin good morning, ladies and gentlemen, welcome to the first quantum minerals quarterly results conference call.
I'd now like to turn the meeting older Chipping each auto director of Investor Relations. Please go ahead Michelle.
Thank you operator, and thank you everybody for joining us today to discuss our third quarter results.
Before we begin I would call. It try your attention to the fact that over the course of the call we will be making several forward looking statements I encourage you to read the cautionary note that accompanies our most recent MD&A and the related news release as well as the risk factors, which are detailed in our most recent aif and available on our website and on SEDAR.
And and a reminder, that the presentation, which accompanies that accompanies this conference call is available on our website.
On today's call, we have Tristan Pascal, our Chief operating officer, who will provide an overview of operations and share his perspective on the company's outlook moving forward.
And as mayor, our Chief Financial Officer will review the financial results interest and we'll wrap things up with an overview of our key strategic priorities.
After that we'll open the floor to take questions and with that I'll turn it over to Justin.
Thanks, Benita Hello, everyone.
Q3 was another strong quarter for first quantum both financially and operationally.
Debt reduction remains a major focus for first quantum.
I'm proud to say that was a strong operational cash flows during the quarter driven by continued high operational performance and supported by commodity prices steadying at higher levels.
Plus the rolling off of our hedges and combined with the closing of the sale of a 30% stake in driving school, we were able to reduce our net debt by approximately 450 million during the third quarter.
We are well on our way to achieving our objective of $2 billion and gross debt reduction on an accelerated timeframe within the first half of 2022.
Before going into the operational performance during the quarter I would like to take this moment to reiterate two over other commitments that we've made to our stakeholders.
Firstly, we are on track to deliver targets for our greenhouse gas emissions by the end of this year and during the quarter. We introduced an internal carbon price that will now be integrated into the evaluation of new projects with first quantum.
In addition, we remain committed to defining a more meaningful dividend framework for our shareholders by the start of next year.
Operationally copper production in the quarter was just shy of 210000 tonnes, an increase of 5% quarter on quarter, mainly attributable attributable to strong production from Cobre, Panama and Sentinel, but also ongoing consistent production from Constancia.
Due to a difficult shipping environment, our copper sales in Q3 was somewhat lower than production of just over 197 and a half thousand tonnes in particular Android shipments since the MBA was impacted by a global shortage of containers shipping capacity as well as the congestion at the turbine world with spy in dollar Salon ports.
Consequently, a number of planned shipments were rolled into the fourth quarter, but these are now being caught up and shipped.
We do expect shipping and logistic challenges in particular in relation to Zambian sales and finished goods inventories to continue throughout the first quarter. Although we will continue to address the directly throw out relationships with customers and shippers.
Some marginal impact from logistics shipping fuel and consumable costs and labor has been felt in operating costs in Q3.
F C. One cost guidance for the year hasn't been narrowed by half a cent.
Oh, sorry about fog since two adult with 24 at an adult study five per pound. However, our all in sustaining cost guidance for 2021 or $1 80 to $1 95 per pound remains unchanged.
At Cobre, Panama. It is very pleasing to see the operation continuing to achieve new milestones with production in Q3, reaching a quarterly record of 87000 tons of copper.
During the quarter some portions of high grade ore from the mine was brought forward from the fourth quarter in order to smooth the copper production profile and Derisk the remainder of the year.
Grades are expected to be lower in the fourth quarter. However, given the level of confidence in production. We have increased the low end of the range for cobre, Panama guidance by 10000 tons. So the overall guidance for 'twenty, one 'twenty 'twenty. One production is now 320 to 335000 tons of copper.
With the recent escalation in global energy prices, including some coal it is worth mentioning that our cost structure for all of Cobre, Panama supply requirements has been in place since May 2020.
<unk> price rates at the end of Q2 this prevents.
Prevents expose it to further increases in the coal price until December 2023 in parallel we continue to study options moving the energy supply for Cobre, Panama to a less carbon intensive and more renewable mix over time.
I'm all set.
I'm also pleased to share that due to the high vaccination rights at Cobre, Panama being around 97% of the workforce as of October the 11th fully vaccinated employees and no longer record into preventative Asa license prior to arrival to sought in addition, the limits on the number of personnel on site, it's being lifted which now allows the operation through it.
Optimal staffing levels.
With regard to low nine discussions we continue to be engaged in formal discussions with a high level ministerial Commission and constructive progress is being made the government's commitment to the process as evidenced by the contribution of four cabinet ministers to the commission meetings throughout the month of September.
At the end of the quarter, the Ministry of Commerce publicly announced the culmination of discussions on environmental and labor matches, well discussions on financial matters, we're continuing.
The company welcomes the transparency the high level Commission process and the opportunity to resolve this matter in the medium term.
In Zambia Q3, Mark the general elections in the country and the smooth transfer of power to the opposition party. The U P N D and so the new president heck into each of Lima, We welcome the display a healthy democracy demonstrated so well by the country and its citizens. We look forward to working with the new government on their objectives of empowerment through economic manner.
<unk> job creation and Democratic governments, and then they stated desire to partner with the mining sector, which has significantly increased copper production.
The expected 2022 budget announcement at the end of this week will provide us with initial indication of the policy that will accompany these objectives.
Sentinel delivered its best quarter of the year in Q3, and produced 59931 tonnes of copper up 10% from the previous quarter a record milling rate was achieved in the month of August and improved ore grades with processed in September and we expect these trends to continue into the fourth quarter as a consequence, the guardant range.
The guidance range for full 2021 production from Sentinel has been narrowed to between 235000 tons and 245000 tons of copper.
Fourth in pit Crusher Sentinels scheduled for commissioning in December 'twenty, 'twenty, one, which will enable the process plant to ramp up throughput to 62 million tonnes per annum.
Constancia produced another consistent quarter, albeit on lower grades with copper production of 50997 tons, which was the best in the year so far.
The consensus smelter ramped up on schedule in early July and processed just over 325000 dry metric tons of copper concentrate during the quarter.
We continue to expect Constancia mine grades to remain low in the fourth quarter and consequently, we have reduced.
The top end of the range for consensus guidance about 10000 tons to the overall guidance for 'twenty. One 'twenty 'twenty. One production is now 200 to 205000 tons of copper for the year.
Sandy as electricity generation is largely hydropower and so it remains somewhat insulated from the energy dynamics currently playing out in other parts of the world the level of water supply and the curfew inquiry with systems remained stable and we are confident in the outlook for power supply for the remainder of the year.
COVID-19 border.
COVID-19 related border closures and labor shortages in Western Australia continued to impact driving school during the third quarter, which negatively impacted the quarter's production of cost. Despite these challenges cause mentioning of shoemaker Levy at Ravensthorpe progressed in saprolite ore was introduced in the third quarter.
Due to delays accumulated to date 2021 nickel production is being revised lower and costs are being revised to hold off from probably gardens completion of construction and commissioning works at the Shoemaker Levy project and the delivery of laminate or is the main priority for the fourth quarter of 2021.
Okay.
We'd like to express my gratitude to the first quantum team for their hard work throughout the period of the global pandemic and all of the countries that we operate in we continue to work closely and support the various levels of government and health authorities to ensure the health and safety of our employees covenant.
COVID-19 continues to present challenges and it remains a top priority first quantum to provide support to our local communities, particularly the most vulnerable as an example in Zambia when schools that are around our Constancia mine closed during the pandemic first quantum and help transition students to remote learning pilot two FM radio stations.
Teachers from around the region, we're broadcasting 12 hours, a day and have been able to engage some 42000 students across the period.
During these challenging times I'm not only proud of the accomplishments over the operations, but also the work we have done with their local communities, who are so important to outgrow a success.
With that I'll turn things over to Hannes and it'll be back in a few minutes to wrap things up tennis.
Thanks, Kristen and good day to everyone.
I would like to direct you to slide called financial overview in slide 10 in the presentation.
The financial performance in the quarter was driven by higher NATO process together with strong operational performance, which resulted in a significant increase in component comparative EBITDA and earnings as.
As well as the deductible so the reduction in 18.
Gross profit of $613 million.
Alright, just EBITDA of 886.
In the quarter was significantly higher than the same periods in 2020.
Attributable to the increase in sales volumes at Cobre, Panama as well as a 34% increase in the niche realized copper price.
Net earnings attributable to shareholders of the company of $303 million in comparative earnings of $197 million represented a significant improvement on the same quarter of 2020.
Need dates decreased by $449 million this quarter.
And it's now at $1 4 billion reduction since June 2020.
Down to a level of $6 $3 billion as at the end of September with the current strength in the copper price, we foresee a further reduction in the last quarter of this yet.
Yes.
Help us see one cash cost of $1 26 was <unk> 19 cents per pound higher than the third quarter of 2020.
Driven by higher fuel cost and freight charges and also lower production that can saying gee seem to know and Thats cruises.
The company has completed the sale of a 30% equity interest in Ramius thoughtful cash consideration of $214 million from the pump Bosco.
Nice quarter inch on October 14th the company signed a new 2.925 billion, Jim Andrew evolving credit facility with its bank group.
Turning to the next largest quarterly unit cash cost.
Total copper cone cash costs was <unk> 19 cents higher than Q3, 2020, driven by higher fuel and freight charges and also the lower production.
I mentioned before.
Gone in some unit.
Costs for the full year has been narrowed to between $1 25, a pound and $1 35 a pound.
All in sustaining costs for the quarter was 39 cents higher than Q3 'twenty 'twenty.
Impacted by higher <unk> costs, and higher royalty rates in Zambia.
Which is driven by the higher market called the process.
All in sustaining cost guidance remains unchanged.
Turning to the next slide in summary financial overview.
Comparative EBITDA of $886 million was 38% higher than Q3, 'twenty 'twenty attributable to a 34% increase in nuclear.
Copper price and increased sales volume of turbine Panama.
I bet, it's just mentioned Elliot Zambia sales volumes were impacted by port congestion and levels. Shortly just so containers.
And we see such logistical challenges continuing throughout the fourth quarter.
Comparable earnings for the third quarter are at.
$197 million is an increase of $113 million compared to Q3 'twenty 'twenty.
Basic earnings per share of 44 seats and comparative earnings per share or 29 seats.
<unk> 40 cents and 20% respectively higher then.
At the same quarter last year.
Basic earnings benefited from unrealized foreign exchange gains.
In Zambia.
It was a reduction in the Nic data as previously mentioned in the quarter, which screen brings this total reduction down to $1 4 billion since June 2020.
Turning to the next slide significant increase in gross profit.
With it.
67, increasing Q3 gross profit from improved mutual sales and high contribution Cobre Panama.
It was impacted by the lower sales in Zambia, and thus cruises, which sees open pit mining in August 2020.
Okay.
Turning to the slide deck and the liquidity profile.
This new date of $6 $3 billion at the end of the quarter.
As previously stated decreased by $1 4 billion in the last 15 months.
The company ended the quarter with $1.9 billion of neat unrestricted cash and cash equivalents and was in full compliance with all its financial covenants.
And found a new $2 nine 2 billion term loan and revolving credit facility.
Turing in September 2020 bonds.
Hmm.
This replaces the existing $2 7 billion credit facility.
The refinancing extended the date maturity pretzel and removes all matured with.
All material date maturities to April 'twenty 'twenty Chi.
That's just and as already highlighted the tightening of the hedging program will further benefit financial results in the remainder of the year.
So turning to the H sliding.
So approximately one six of our expected cost of sales for the next 12 months all hedged at an average full price.
And average ceiling price of $3 41 per pound and $4 20, keep it down respectively.
And this is a blended rate between the swaps and the colors.
So Jenny choosy and.
And this compares to approximately a quarter in the previous quarter.
Sales at <unk>.
At an average price, which is probably about a hull and sealing are probably about 10% on average lower.
At the.
The end of September the company had traveling <unk> thousand tons of.
For what and margin copper forward sales at an average price of $3.01 per pound.
With periods of maturity to December this year in.
In addition, the company at 125750 tons of a margin zero cost collar sales contracts.
Maturity to June 2020, and wait.
Weighted average price of $3 45, a bounce to Florida list that he thought about.
Thank you and with that I'll now hand back over to Justin.
Okay.
Thanks Dennis.
As debt reduction at first quantum accelerates, we have stated our intent to post more meaningful dividends based on our outlook for solid cash flow generation from the business.
Notwithstanding these intention delivering growth has always been one of the first condoms core competencies and reinvestment in the business remains central to our business strategy Misra God. We are focused on our four main low cost and low risk brownfield projects in the near term.
These full brownfield projects, which we've presented in the slide deck today or the expansion of Cobre, Panama to a 100 million tonnes per annum throughput the S. Three expansion at <unk>.
Enterprise Nickel project near Sentinel, and the Las Cruces underground project in many ways. The variety of these projects reflect the ongoing diversification of our business spanning three continents, a mix of both copper and nickel a mix of both open pit and underground, but they all have in common is that they leverage existing infrastructure operator.
[laughter] teams.
Existing license to operate and strong community relations.
This reduces both the completion risk and the capital intensity of these near term growth projects for us.
Progress was made on all four of these projects during the quarter at Cobre, Panama preparation to move to the claim of pit, which will support 100 million tonne frame expansion continued in Q3 with initial groundbreaking for developments of the cleanup bulks cut and ongoing development of the overland conveyor Carnival orders for the additional mining fleet.
Full colina workplace at the front end of quarter, three including a fifth commence who pay nights 4100 rope shovel and I talked to lay the ultra class.
360 metric ton trucks during the quarter.
On a three discussions continue with the Zambian government in relation to the stable fiscal conditions required to proceed with the expansion, including addressing the non deductibility royalties.
Once built S. Three will materially increase consensus annual throughput to well over 50 million tons per annum and ensure production levels remained strong for more than 20 years.
At the Enterprise project a decision to proceed as expected by the end of this year.
The process plant for enterprises already built as part of the original Sentinel construction until the capital spending of approximately $90 million is mostly comprised of pre strip work, which is scheduled for the dry season. After April 2022.
The enterprise project has the potential to add 30000 tonnes per annum of nickel with production likely to ramp up from early 2023.
Work towards fully permitting Las Cruces underground continues the last major permit remaining for the water concession and progress on this payment is expected in an orderly manner.
Resource delineation drilling was completed in Q3, which will support the release of an Ni 43, 101 resource statement by early next year.
Our portfolio of growth options include several major greenfield opportunities, notably tech attack and Akira and while we are excited about the long term potential that they offer we will take a more measured and cautious approach towards these two projects is our priorities remain on that robot debt reduction brownfield growth and establishing a more.
Full dividend framework for investors.
Finally on behalf of the entire company I want to thank our people again.
Workforce continues to demonstrate adaptability commitment and resilience Mexican Michigan contributions to the success the success of the business in a positive impact on the communities around us.
I'm proud of how our workforce has continued to focus on executing in a safe and sustainable manner in the face of ongoing logistical and operational challenges, resulting from the COVID-19 pandemic.
Operator, we would now be happy to take questions.
Certainly thank you Mr. Pascal.
We'll now take questions from the telephone lines. If you have a question and you're using a speaker phone. Please lift your handset prior to making your selection. Please kindly limit yourself to one question and one follow up question after which you may rejoin the queue.
If you have a question. Please press star one on your devices Keypad you may cancel your question at any time by pressing star two.
Please press star one at this time, if you have a question there will be a brief pause while the participants register thank you for your patience.
The first question is from Oreste <unk> with Scotiabank. Please go ahead.
Hi, Good morning, Chris I was hoping you could give us some more color on the law nine negotiations in Panama, and specifically, whether youre seeing anything that might be outside of the existing mining code.
And I'm also wondering if you can give us an expected timeline for the conclusion of these negotiations.
Sure, Thanks, and Hi, Yes look low nine it's been very constructive during September.
And.
Sorry, our smart just put on the future.
Thanks.
Moving on with very constructive during the quarter.
We we managed and you saw the announcements from the minister of Commerce that.
On the culmination of matters relating to environmental issues and also on library shoes.
And the work on the financial side of things is continuing.
There's been noise around that.
And you would've seen that in the press, but in the discussions it's been constructive and look I can't really be drawn on too much else. That's in there it would seem that in that room in terms of timing.
We're optimistic that it's gaining momentum off the back of.
The commitment from four senior ministers in the cabinet, that's fully a third of the cabinet but.
Being present in nice discussions and also the.
The movement in the discussions themselves. So it is difficult to draw a timeline around that but we would hope to be in parliament with the pace of legislation I think early in the new year, if not before and that would then be a tonne type all around the ratification.
Ratification of that new legislation.
Thanks, and just as a follow up is there anything left to negotiate beyond fiscal terms at this point.
Yeah, we had some discussion around some social infrastructure, but it's part of those discussions at the moment.
Okay. Thank you very much.
Thank you.
The next question is from Abby Agarwal with Deutsche Bank. Please go ahead.
Yes, thanks Mark.
Great. Thanks, a lot for the color and congrats on a solid set of results.
I have a couple of I have a couple of questions. Please. The first one is on hedging what is the amount of hedges, which were put on what quite small.
<unk> continued opportunistic hedging going forward. That's my first question.
Thanks, Debbie and let's do you want to take that question sure.
Sure and what you want what I would expect is that the.
The average amount of hedges continuing to decrease so last quarter, we bought 20, 25% to one quarter H N.
This quarter, we ended at 16% and tasteful one six so you should see that trend continuing.
Got it thank you.
The next question I had was regarding the Zambian budget.
Despite that could you talk a bit about what your expectations are with your budget and also what do you what would you look for.
Move closer to the decision to approve the transaction yesterday project. Thank you.
Thanks, Yeah look we certainly will be listening on on Friday.
Obviously, we couldnt comment what what will be in the budget other than to say we've had the constructive discussions with the government and certainly in terms of everything that we've heard in their conversations with us privately but also more broadly conversations.
The IMF with the U S and the Reengagement with the U S and the U N and so on has been very constructive, but really no I think the budget is where it will start to see that policy into implementation phase.
And that's what we're watching beyond that yeah. It's three as we said is really around physical stability in the country.
Again, non deductibility of royalties is high on their list, but there is a broader range of issues to be tackled.
And thats, what the conversations around so it won't necessarily followed from the budget an automatic.
Move on Ace <unk> three.
There is a broader discussion to occur.
Thank you very much.
Thank you. The next question is from Greg Barnes with TD Securities. Please go ahead.
Yes, Thank you, Chris and you've talked about renewable power the expansion at Cobre, Panama I'm not sure what happened there you'll go down, but whats a realistic timeframe for converting the current coal plant.
And what is the plan.
The initial stages and how much would it cost.
Sure, Greg and Yeah, I mean, the first thing is we will come out later in the year and make that clear in terms of the increment that's required for the expansion. It's about 60 to 80 megawatts something in that range and for that we said that we won't be expanding the existing coal fired power station.
In order to cover that additional increment and say there is the opportunity for lower carbon or renewable to come into the mix and so certainly we're out in the market on the moment on that and then you know more broadly.
And I wouldn't want to preempt, what we do and what we said at the end of the year, but we'd been looking very closely at how we can then expand.
And address the broader group.
In house gas emissions from the past I shouldn't the existing unit.
And the reason.
You know the mixing in Panama was that there's a range of hydro wind.
Wind powers, there, but it sort of around 30% available across the year and in solar less at about 15%. So theres no silver bullet there and it's important to bear in mind, our impact on the national grid in terms of pricing. If we if we fully came off so those are the considerations that come together and we will outline.
More specifically by the end of the year.
Can you convert the coal plant to LNG or something like that I have no idea, whether that's even possible.
Greg Yes, it can be converted it's very capital intensive.
But yes, there's a technical solution that has been done elsewhere.
So the actual conversion of the units themselves a straightforward, but then you have to install all the gas infrastructure in order to be able to do that so that's how we see the ability of tight gas in the storage and so on and then that gets caught you know there's.
A lot of capital in that so there is gas already in in Panama at another location in Cologne, and so you know part of the consideration is where that would be more capital.
Efficient at an existing facility that has gas needs power lines, but is there.
As compared to a full you know.
Hum.
Adjustments to our facility.
Okay, great. Thanks Kristen.
Thank you. The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Good morning, and thank.
Thank you for the update.
I would like to touch on your outlook for Cobre, Panama, you provided some comments but.
Thank you going back to Q2 results you guided to 10% lower grades in the second half versus each one obviously Q3 was anything but that it was actually a little bit higher at four 6%.
So could you maybe just give us a little bit of.
Health understanding why there was such a material.
Upside surprise.
It would be great, but also.
Should we be expecting a fairly substantial drop off in Q4, 'twenty one any quantification around that would be super helpful. Thank you.
Yeah, Thanks, Lawson or not I think I remember our conversation at the time.
Yeah, I guess, so what we see.
What we've done in this quarter is bring forward some some areas of higher grade in the pit and that was to Derisk. The end of the year. So what we were seeing was al our copper production schedules show the very high peak in December and you know rather than then put that in a time, which is a high rainfall part of the year.
We brought that forward and put it in the bank. So that's in the bank in Q3, now and as a result.
We'll return to the sort of more of a life of mine grades and it will come off.
But as I said, we nonetheless are very confident in the guidance that we've given for the year and we fully expect to be within that guidance, we will see throughput golf a little bit we expect because it's sort of a softer material.
Compared to where we've been mining this quarter on average.
But that lower grade does that does that help answer the question.
Yes, that's fair.
Very helpful and then maybe on <unk>.
Follow up I would like to ask about Sentinel so.
Provided some guidance again on 2022, you expect sensing ultra reached 62 million tonnes per annum run rate next year.
What how should we think about that.
The timing on the 62 million tonnes per annum.
Is that something you can hit basically from the start of the year or should we think of it being obtained some time sort of mid year.
No loss in it.
The introduction of the fourth crusher that just opened up our ability to deliver into the process plant and the process plant can certainly take it so as soon as that fourth fourth crusher comes in and is fading we have the capacity to run at that annualized right. So we expect that to be commissioned by the end of the year and then it would just be.
To production, so there might be a small ramp up at the start of the year, but we should we should be on those rights and all that kind of annualized rate fairly early in the new year.
That's very helpful. Thanks, very much Tristan.
Thank you.
The next question is from Jackie <unk> with BMO capital markets. Please go ahead.
Thanks very much.
Congrats on the quarter was a great quarter.
I wanted to ask you how.
Looking at the balance sheet now.
I mean, it's.
Much better shape.
Recognize you're still adding hedges can you maybe talk a little bit about.
<unk>.
What what's what balance sheet you'd need to see to get.
To fully stop adding hedges and I guess on the same on the same page like where where you may be thinking of the dividend at this point in terms of like.
How much the balance sheet could support next year.
Sure Jackie Hence do you want to take that.
That question sure.
Sure.
Jackie I think that's.
Largely onset already that are you'll see that trend.
Yeah.
Are you seeing sort of trained continuing you know so as I said, one quarter last one quote age last quarter and now we had a we had one six now and that should trail off now and the next.
Okay.
We gave a number that should come down.
I guess I mean, I think I ask you this.
Same question last quarter.
You kind of suggested that and maybe I misinterpreted what you said that you weren't adding new hedges. So I was expecting just to see the existing hedges roll off.
Mark going forward.
Jackie the hedges we've at this year, all colors and old quite wide so it shouldn't be in.
Impediment to receiving this the current spot price so.
That wouldn't be bad overall, these data to even Clinton and reduction on that.
I think it's just.
I mean I could just on the dividend I think we will have an update early next year.
I don't know if you want to.
Yes.
Look.
Yeah.
Jackie we just say stay change and what we are saying is that the.
The nominal dividend that we've been playing we were aware of that and it is the board's intention to come and address that with shareholders.
Okay, maybe maybe.
In the meantime until we get the full update from you can you give us a picture of so what.
Copper prices you guys are assuming for next year is that is that a fair question.
It's it's somewhere above the beat my price I would guess.
[laughter].
Yeah, Jacky with trying to strike the balance there on that dividend and that will be cautious you know willing to that.
Hi, Lee.
But what we signaling is the cash flow generation that we see coming from the business.
Okay I appreciate that thanks very much.
Thank you.
Next question is from Chris <unk> with Jefferies. Please go ahead.
Hey, guys. Thanks for taking my question and congratulations on.
Another good quarter, it's good to see the deleveraging really starting to happen now the cash flow kicking in and that should be good for your stock price.
But a question I have regards our cost inflation. So we hear a lot about mining cost inflation in places like Australia, and Brazil, but not so much about what's going on in Panama, Chile, I'm, sorry, Panama in Zambia, and if we look at your unit cost progression. So far through 2021 your costs have been pretty flat I know third quarter costs were up pretty materially on a C. One basis year over year, but Karl.
This year had been.
Net cash costs have been flat despite the.
Despite that.
Dreaming deals you have on goals, you're not getting the benefit of a high gold price. Despite again. The fact that you have shipping issues in energy prices rising in all sorts of inflationary pressures just trying to understand how we should think about cost heading into 'twenty 'twenty. Two is there a reason to believe that some of the inflationary pressures that we're seeing in mining globally will begin to impact you in the near future or what is going on specifically in potentially in Panama, Zambia or whats your.
In terms of how you're managing your operations to control cost inflation that others are struggling more with thank you.
Hi, Chris Thanks for noticing yes, there's been a lot of effort in.
Talking to the guys in Zambia, the last few weeks around the efforts that are going in on managing those costs. So yes, you saw consent.
It is the most production in the quarter this year.
But you know there's been a lot of work on the cost side to manage that and so really that's been impact the ability for us to protect that into 2022, I think that remains to be seen.
So the cost inflation is definitely there and we're seeing that in things like steel price you mentioned shipping, but fuel costs, you mentioned labor, particularly.
And in Australia Labor rights.
In Zambia, there has been a movement of the kwacha. So we went down to the exchange right around 23 minutes come back to the 16 or 17, one now.
And so that that is having an impact there on labor right.
The work that we've been doing is really without the.
Big suppliers in terms of managing that and the contracts that we have with them and that's been the effort that's gone in and I think where we most thing it is on capital projects. So certainly ravensthorpe is an early receivers seen that on things like steel price and shipping and as we look I guess, we would telegraph that we've seen.
That and we will address our capital guidance you know early in the new year.
And what we would telegraph is yes definitely its a cost inflationary market at the moment and it's on all of those main inputs.
<unk> capital projects.
Thank you.
Okay.
Thank you.
Next question is from Ian Rossouw with Barclays. Please go ahead.
Thank you maybe just wanted to follow up on Greg's question on the power station at Cobre Panama.
And you mentioned sort of noise around the low nine discussions and I wonder if that's referred to them energy ministers commentary around it.
Indian coal imports in 2023, I'm, just sort of curious what's your view on that so now that's sort of.
Well if that was actually part of the discussions with the other full cabinet ministers.
And then maybe just a follow up on Ravensthorpe.
You mentioned in the release sort of cost cost inflation pressures from higher sulfur prices. So just wanted to get an insight into your youll sort of contract structure. There how much spot exposure do you have I guess, if there is a lot of lag effect, we will see coming through from next year on higher sulfur prices.
Thanks Ian.
The first question on on coal imports, Yes, certainly look we wouldn't comment on the government planning around greenhouse gas emissions, Panama will going to cop 26, the president in Panama will be the on Monday, and we'll talk about Panama being one of the three countries in the world that is negative.
In terms of greenhouse gas emissions. So that's the way Panama stands today and we are planning it certainly takes into cognizance the endeavors of the government of Panama, but it also needs to balance the impact on the community and I talked about.
Possible impacts on pricing and so on and also the stability of the national grid, and we're seeing that in Europe at the moment.
That win.
These things need to be managed well. So those are the those are the considerations. We taken as I said will come out by the end of the year to come on in.
Yeah. So they were those comments in the newspaper and it certainly is a powder discussion.
And that's fine we're happy to do it in that forum.
But the planning and we will look to a law in our planning.
With the government's own ambitions on greenhouse gas emissions.
In terms of right and soften the sulfur price at the moment as far as I'm aware, that's 100% exposure to the spot price, it's something that we're actively managing with our suppliers.
And looking to yes, given where sulfur prices gone to certainly well above what we'd expected and I think that's.
Even in this you're seeing some of the secondary impacts of the change to renewables is that fertilize a food production all of those things.
Going to be a lot of ripple effects through the economy and I'm not sure that all of those are taken into account in the way.
Economists are looking at the situation, but yes, certainly for US an area to work closely on and we're certainly doing that directly with all our suppliers.
Okay, great. Thanks for that.
Thank you <unk>.
Next question is from Mr. Louis with Morgan Stanley. Please go ahead.
Hello, and thanks for taking my questions most have been answered but.
I'd like to ask on on Zambia, and that's very ambitious target by the new government to hit 2 million pounds of copper production by 2026.
Given that you have operated in the country for a number of years since you've been in touch with the.
The government could you share your views on how realistic target age and also with first quantum could play a role here beyond the yesterday expansion beyond enterprise. Thank you.
Sure illness, Yeah, I think the Zambian government had put on record they'd like to see copper at 2 million tonnes per year, if not 3 million tonnes.
And so those are certainly ambitious targets as I said, the new government came in on a platform of.
Really jobs and youth empowerment and that's important.
And I have a challenge on their hands as you looked at.
The debt situation in Zambia, they certainly going to be challenged to cover all that that ground and I think you know this budget will be an indication as to where they're going but not an easy task and managing a default situation with the Oems and then coming out and sparing that growth, but the program.
To be very constructive in terms of.
The economy and delivering through the economy to the to their electric but let's see in terms of all of our contribution I mean, we would say that we're very willing to to support Zambia and and we.
We believe one of the strongest spikes people out therefore, Zambia and it's.
As a destination for investments in the destination for mining. So certainly we are part of that future and we think <unk>. Three is an important part of that future beyond that you know if you're intimating it at.
Mopane or the situation that Dan to that's not something we're entertaining at the moment at all but.
But more broadly in the country, we continue to remain a strong supporter of Zambia and its ambitions.
Okay.
That's clear and the second question around your your funding mix you recently refinanced your bank debt and.
Just wanted to figure out what's the next set of prerequisite before or milestone before you.
Look to refinance some of the bond maturities and ultimately are you happy with the kind of new Mexico between bonds and Uh Huh.
Debt and bank loans or is there potential to shift thought us leverage continues to come down.
Sure.
You would have seen I mean, we've talked about the one 4 billion net debt reduction over the last 15 months, so with the new facility, we'll definitely use some of that proceeds seem to start chipping away at the bonds. The first bond maturity is ending on April 23.
It's quite a bit of Tom.
That said, we generate quite a bit of cash at the moment and we've got the benefit of the new facility as well so those sort of managing that.
That was maturities coming up now.
Thank you very much.
Okay.
Thank you. The next question is from Emily Chang with Goldman Sachs. Please go ahead.
Good morning, Jason had asked my first question is just around the disruption in shipping that you noted during the third quarter. Maybe do you expect those volumes that have been produced but not shipped to drive a catch up in sales volume in the fourth quarter.
Or do you expect still a little bit of a mismatch given some of the port congestion challenges you're seeing there.
Thanks, Emily Hi, Yeah.
I think we said that we will continue to see those challenges through the fourth quarter. So look with directly managing them and that you know so we have our own trading desk that manages that logistics chain and then all the way through to the customer.
And we've been working.
Not just on exclusive basis also with the others.
In the region that are similarly challenged.
The the region in the World is challenged by this with them at the moment and our customers.
It's part of something that they need to resolve as well in terms of getting the shipments in through the front door. So it is it is covering the whole supply chain.
At this stage.
Yeah.
Q4 looks as hot as Q3, and the indications are and when you when you speak random market that that's expected to continue on into 2022. So we don't I guess with Telegraphing. It will continue to be at these levels through the end of the year and maybe into the next year, but it's certainly something that we directly managing and because of that management and.
Our business is not as high as it as it might otherwise have been.
Without the sort of.
The day to day in the trenches fighting to get out containers onto the ships.
Got it that's really clear.
And maybe shifting gears a little bit how should we think about the partnership between first quantum and Posco like I think Glenn not 30% of the Ravensthorpe asset was sold down that was mentioned that on.
And like you've assigned them around a path to purchasing battery cathode materials, how should we think about that program. Thank you.
Thanks, Emily Yeah, we did sign that Mou and we're very excited by the opportunities.
Net.
Batteries metals and batteries chain, we think that right and feel very well positioned in terms of thing and ESG friendly.
And delivering a product that's well liked by the market and will recognize it's at a very early stage the discussions with posco around that are really picking up from the completion of the deal and so on but it's something that is an active piece of work for us.
That's very clear thank you.
Thank you.
Next question is from Ralph <unk> with eight capital. Please go ahead.
Good morning, everyone and thanks, Tristan two questions. My first one is on Sentinel and ended up in addition to the 62 million tonnes. A year. We're also seeing some work being done on a flotation and and just wondering you know is that really just positioning the backend of the plant for the higher throughput or could we see.
Some recovery improvements you know when I look at the 62 million tonnes a year. It doesn't take much to get you to the upper end of that guidance range at Sentinel I'm, just wondering what we could see on recoveries as well.
So Ralph the work there are on the flotation circuit was really on the column fills in the gym and that was around improving our concentrate grades. It was done during the last year or so and that was really in order to optimize the the transport our fee.
The <unk> smelter and also to make sure that we in the right mix of the carbon and net that feeds into that smelter. That's been done very well in that program. We now rolling over to Consensually Consensually. Similarly, upgrading its cleaner circuit and also columns jamerson's around that cleaner circuit four.
Same purpose that just allows us to optimize feed into the into the smelter and get the.
The optimal because it's limited by feed rather than copper production.
And so that allows us to do that.
Sentinel in terms of upside on recovery I think the guys would be cautious to talk too much beyond where they are but they have done extremely well over the last few years to manage what they called all talk I in all type B, which is the sort of two.
Major feeds that we see around the different weathering them in the pit.
And they've done a terrific job over the last two years and getting to the levels of recovery beyond where they are now I think that'd be cautious to add much ramp.
Got it and then my second question interesting is on flexibility for S. Three expansion capex, depending on what we hear are tomorrow from from Zambia, and just wondering.
There's a little bit of smelter capex in 2021 'twenty two 'twenty three a bigger chunk of Capex in 2023 could we see some bringing forward of capital or pushing some back depending on what we hear tomorrow.
Yeah Ralph.
So as I said the discussion around if there is broader than the budget, but you know.
From our perspective, it will be very interesting and we think there'll be some key markers in the budget around that but it is a broader discussion.
Around.
Predictability and stability.
<unk>.
But yes, we can change the timing of those three the reality is the capital expenditure wind to accelerate too much in terms of payments going out the door just because of the timing that's already there.
Our ability to to change that dramatically, even if we were able to bring it forward, but we could push harder on it.
At the moment, though.
All of our thinking will come together in the guidance that we put out early in the new year, and that's where I think we'll give you the clearest indication of of what we think is the you know.
Best approach at the moment.
Yeah.
Yep quite understood. Thanks Kristen.
Thank you. The next question is from Jason Douglas with BNP Paribas. Please go ahead.
Thank you Peter good afternoon, good morning.
Couple of questions. The first one on capital allocation.
Las Cruces.
I've gone to Fujitsu optical be expansion ex pregnant as three east Las Cruces going to be the next.
The project ahead of the Greenfield Tokotoko Makita and if that's the case Oh, we do have a project building capacity and capital.
Outlay ceiling on how much you want to do annually just trying to understand how would you prefer to sequencing and if there will be an annual ceiling.
On your Capex outlook, you've done more than two and a half billion annual Capex I think in the past is the company willing to go there.
If projects already and do you have the capacity to execute more than one big project, sometimes can thank you.
Thanks, Justin and look you touch on really the core issue, there, which is around people and the ability of the teams to cover all of this ground. So we're seeing that across the industry. So, particularly as we look at engineering in the major centers of Western Australia, or South Africa that it.
And that's been the experience on Ravensthorpe is that the engineering firms are very heavily weighed with this our engineering our project teams.
As much as that.
They've come off big projects, Cobre, Panama pretty fully occupied at the moment with with with these potential projects and that will be the challenge is to have to work.
Through all of that.
We certainly think that these four projects can be done in it.
Sequence that will make sense in terms of that that capacity for people and Resourcing and also in terms of capex.
As grant as brownfield projects, they're very much less capital intensive than a big Greenfield and we see that in terms of the returns that come back from them.
And they also as I said have you know the other elements the existing operating teams the social license to operate all the license to operate is in very good standing at each of those and because it's needed to mine all the shared infrastructure that is already on the ground.
So cobra loss cruises.
Would you do a greenfield projects and the PA Rockville, there's $1 billion processed plant that would be needed, which is already built cobre Las cruces, notwithstanding that CLC.
We really we don't really think about it and what in terms of sequence and how does it stack up with the others. So that's one of the considerations, but really on its own merit that goes ahead. So that's the valuation work that we're doing at the moment as I said, we were working on the technical report the 43, one woman that will come out.
And in the years of resource statement and that will give more guidance around the cycle of CLC, but the reality is we will be working across that I think nexium informing that.
That project up.
Understood, that's very clear and just a quick one on coal exposure.
Ah you're not exposed to coal prices.
Further increasing Coldplay sites, what's your reference point for further increase is it from today what is it from the second quarter, which you seem to be the peak or the feeling of you've called the structure.
Yeah, just in the from the end of Q2 so.
The prices that we're seeing that we basically at the top of the colon now and it won't go in terms of impact no further impact.
Help.
Yes. Thank you.
Okay.
Thank you. The next question is from Bryce Adams with CIBC capital markets. Please go ahead.
Yeah, Hi, there. Thanks for the call I wanted to follow up from an earlier question around Cobre, Panama expected grade.
Through to the year and Q3 was a positive surprise and you're confident in your guidance.
That said is it possible to talk to the head grade.
That you've seen in October so far just so that we can get a sense of how Q4 is tracking.
Yes, sure Bras to say look we can go to bear in mind Cobre Panama.
The volume.
The volume is significant so I think the difference in grade was.
0.47 this quarter.
Compared to <unk> four three earlier in the year so for 10.
<unk> of a percent of Copa.
Has that kind of impact on our business and that's really the challenge for us because you're starting to get.
Into the resource estimation solid things that it's very good for us. The reconciliation continues to be slightly positive.
And slightly.
So we don't have any problems with the grade control model or the original ore body model in terms of reconciliation.
What we are seeing however is as we get into areas of waste that we're finding some more copper tons I'm sorry in the northern box cut for example, it's spotty, but with a little bit all bound at the moment there's.
There's more there than it was in the original <unk>.
Planning around that the wife delivery.
That continues on and we've done some drilling between the <unk> and colina pit since starting to link those together and clearly so not any hiring great, but just very apparent that these these pizza now linking together a lot more as we do the delineation drilling and we are.
We probably do for an update on the 43 101 at some stage, but certainly as we look at Colina pit, that's part of our thinking and part of the planning there.
In terms of grades in October I mean, no we've been tracking along as expected.
What we will see as the grade that we took.
Brought forward in the mine plan won't be there for us in December and so thats why the grade does come off.
We will be pushing through a little bit more volume.
But overall very happy with the guidance that we've provided.
Hope that gives you a flavor.
Yes.
Useful.
I guess just.
Following up from that then the step down in great. If it suddenly in December Q4 will probably be a modest step down versus Q3 in the first half.
He will be October November and December, but let me be clear.
Alright.
Yeah. Thanks, a lot. So broad we are confident in our guidance and the grade will be a bit less.
Thank you.
Thank you. The next question is from Matthew fields with Bank of America. Please go ahead.
Hey, everyone.
I hate to keep asking about this but hopefully it's the last one or two calls where I get to.
Just a lot of fixed income.
Fixed income investors are a little bit confused about your strategy on those bonds.
You know the credit markets are so accommodative to you at this point that you could.
And our quarters could be you know 200 basis points less than that.
You've got so much cash on the balance sheet I think you I think more than you've ever had about 1 billion.
I think what what do you say to fixed income investors, who are kind of wondering sort of what youre waiting for it to take care of that of that front end maturity.
Matt look I've said it earlier as well so we will start addressing those upfront and mature it just now.
In terms of refinancing them.
And are we generating a lot of cash had no real liquidity needs at this stage I think what you will see in future. The overall reduction on the <unk>.
<unk> of our bond portfolio.
So in time, we'll add.
New bonds.
Hopefully smaller size, but you know just to keep this sort of yield to current.
But.
Need to rush out and add longer dated non callable debt at this stage well be generating good cash flow. So we should see production of those near term bonds on that in the near future.
So we should think you know the 1 billion secretary of seven or eight quarters gets refinanced with you know call. It 800 of some longer dated.
And at a lower coupon.
No that sounds.
Look I can use cash and facilities that are put available so I'm not I don't know.
After the meeting to any of that at this stage.
And then on the on that new facility.
You see the amortization schedule on the on the slide deck. That's very helpful is it is it sort of $455 million a year semi annually. So that's correct.
Yes, that's it.
Great.
On the law on the on the rate on that.
The rate is not disclosed, but can you give us kind of a ballpark.
No.
Estimate or guidance of how the rate on this current facility compares to the rate on the older facility.
It is a it is a.
Yeah.
So quite a significant improvement compared to the Belgian facility.
Okay.
Okay. Thank you very much.
Okay.
Thank you operator, we'll take one last question certainly thank you. The last question will be from Oren <unk> with Scotiabank. Please go ahead.
Oh, thanks for taking the follow up.
Just thinking sort of big picture long term now with first quantum I mean, you've you've gotten the balance sheet well on its way to deleveraging you've got obviously, some brownfield opportunities ahead, but I'm just thinking more longer term. When you start thinking about next challenge is on the Greenfield side do you are you starting to look externally at all.
Potential deposit.
As an alternative to either Tokotoko crack here just given both of those it's.
It's not clear to me that either one of those projects makes sense to develop even in the medium term for various reasons.
Sure.
Look I mean, we're excited about tech attack that we put out the 43, one to one at the end of last year, and we like the projected steps up well, but certainly we need to.
We need to have regard to the business case for investment into Argentina, and that's where the work's going at the moment. So we.
There is progress we've put an environmental permit the infrastructure.
We need to submit the water permit and so on around that there's good work happening there and in conjunction that speaking with the federal government and also the regional government solta around the fiscal conditions for investment into Argentina.
Sure.
As an interesting project for us and certainly you know.
Reliance on community, where licenses that's been harder with COVID-19, but I think you know.
Something that we will.
To get more on the ground and deliver on more broadly, yes, we look at opportunities that come across your desk regularly what we look for us.
These projects that we can apply our capabilities.
And make a difference in terms of value so.
There's obviously been.
You know quite a bit of activity recently and I guess, what we would be distinguishing ourselves is around the ability to add value in terms of execution on the project side of operations excellence on the ESG side in terms of.
Changing the environmental picture or otherwise so that's what's important but in terms of that yeah.
The longer term picture for first quantum has continued to build on that growth and really that surround.
Adding a third leg in time beyond Zambia in Panama, and giving us that broad diversification and geopolitical diversification.
Thanks Kristen.
Christa.
As such all I'd comment that just in the answer to that right.
Well, we know that first quantum is recognized as.
But it's growth and for having the capability to address projects we.
Needed.
Through the end of 'twenty to 'twenty two to consolidate.
All kinds of reasons not least we've always said we would deleverage.
But also we had some brownfields work or we wanted to put out of the way.
What I can assure you of is that we are looking at.
Opportunities for growth.
Because that's important.
To maintaining that capability and exploiting that and also because I think.
That's what our shareholders would want.
So.
We have projects.
This is tucker.
These are really good projects and things in Argentina just to need.
Some.
Improvement or.
Well appreciation of what it's going to take two.
Tracks mining investment and I'm sure that that's happening.
And I think to some extent.
Ah is a development that we've kept working on them she possibilities.
We need to and we do look beyond that.
Exploration activities, which are quite fruitful.
Also to ensure that we have things we can work on that time frame.
As you know is especially that big.
There's one that's quite lengthy so you have to start working on those things.
From quite early on even the capital expenditure and the like might come later.
We understand that.
Mindful of it and in time, you'll see the impact of it.
Thanks for the color Philip I appreciate it.
Okay.
Thanks, operator, and just to say thanks to everyone for joining today's call are.
Please enjoy the rest of your day and we look forward to speaking to you again at our Investor Day in January Thanks, everyone.
Thank you.
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