Q4 2021 First Quantum Minerals Ltd Earnings Call
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This conference is being recorded.
Hey, How's it though as you see.
All participants please standby your conference is now ready to begin.
Good morning, ladies and gentlemen, and welcome to the first quantum minerals quarterly results conference call.
But I would like to turn the meeting over to Bernie that toe director Investor Relations.
Please go ahead Mr <unk>.
Thank you operator.
Hello, and thank you everybody for joining first quantum fourth quarter and 2021 year end conference call on our call today will be chip from Pascal, Our Chief operating officer, who will provide an overview of the operations and performance during the quarter.
He will be followed by Hana Mayer, our Chief Financial Officer, who will review the results at the financial results.
To wrap things up with an overview of our strategic priorities and after that we'll open up lines to take questions.
Before I hand, it over to Triptans are a few items to mention a copy of today's presentation can be found on our website.
The event is also being recorded.
Paul will be available.
As well all dollar amounts mentioned today are in U S dollars unless otherwise noted.
And finally today's presentation may contain forward looking statements. So I encourage you to review by two of our presentation and with that I will hand, it over to Tristan.
Thank you Vanessa hi, everyone. Thank you for joining us today on our call to discuss the fourth quarter and yearend results.
Despite the ongoing challenges of the global pandemic.
Quantum was able to deliver another year of solid copper production growth with a record amount of copper produced for the 2021 year.
We ended the year in a strong position as fourth quarter results benefited from continued strong copper prices the rolling off of our hedge book and continued strong operational performance.
This enabled us to continue to deliver on our ongoing commitment of reducing debt with tennis will speak to you more in his presentation today.
Before going into the operational performance during the quarter I would like to begin with updates to other commitments. We made last quarter and also to provide some commentary on discussions with our host governments in the countries we operate.
I am pleased that since our last quarterly call first quantum was able to deliver on two significant commitments.
Firstly on January 17, we announced that we have set targets to reduce scope, one and scope two greenhouse gas emissions.
About 30% by 2025 and by 50% by 2030.
And we have provided more information on these targets in the T. C. F D along to climate change report available on our website.
It was important to us to set targets based on real tangible solutions.
And we are pleased that the solutions identified are not expected to result in significant incremental capital or operating costs and do not rely on the use of all set to achieve these targets.
First quantum is now well positioned to deliver the copper that is essential to make the global challenges posed by climate change with a significantly lower carbon footprint.
Another announcement made the same day was that of a cautious but more meaningful dividend framework for our shareholders.
This policy, which hennis will also discuss in more detail.
A lot of confidence in the strong outlook for the business.
Moving onto discussions in our host countries.
In Zambia discussions with the government of Zambia are focused on ensuring that the appropriate and enduring investment conditions exist for first quantum to advance the concerned she has three expansion and the enterprise nickel project.
The removal of the non deductibility of royalties for textbook offices, which became effective at the start of this year was an important step towards the approval of these projects.
Also the discussions are seeking an agreed mechanisms for repayment of debt owed to the company.
Predictable returns in the future.
These discussions continue to be constructive such that we are hopeful that we can advance both of these projects this year as reflected in our guidance.
In Panama discussions with the government are ongoing.
During January 2022, the government of Panama table, the new proposal, namely that the government of Panama should receive 375 million U S dollars and benefits per year from Cobre, Panama and the existing revenue royalty would be replaced by gross profit royalty.
The parties continue to finalize the details behind these principles, including the appropriate mechanics that would achieve the desired outcome the necessary protections to the company's business for downside copper price and production scenarios and to ensure that the new contract in legislation of both durable and sustainable.
We continue to welcome the transparency of the robust ministerial commission process and we are hopeful that we can conclude this matter shortly.
Once an agreement is concluded and the full contract is documented it is expected that the newly drafted legislation would be put to the national Assembly.
Okay.
Turning to operations for the full year 2021 .
First quantum achieved its highest ever annual copper production of 816435 tons attributable to record breaking production at Cobre, Panama and the resilience of our other operations in dealing with the ongoing challenges brought about by COVID-19.
For the fourth quarter total copper production was 201823 tons down 4% quarter over quarter on lower production at Cobre Panama.
Wealth consents, you can sense and we'll continue that consistent production levels.
The difficult shipping environment on containerized shipping capacity that we experienced in Q3 continued into the fourth quarter.
This had an impact on our sales and shipments out of Zambia in particular.
Do you expect it to continue throughout the first quarter of 2022.
The majority of the company's products are transported in bulk and this sector has been less affected both shipping constraints.
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Cobre, Panama performance of 331000 tons over the year with strong exceeding initial 2021 guidance and achieving the top end of our revised guidance and Q4 production was down 8% quarter over quarter to 80000 tons unexpected lower ore grades and an unplanned seven day shutdown of unit two of the power plant.
Which impacted mill tonnage.
There was also a planned maintenance on unit one at the power plant during the quarter, which was completed at the end of January .
Year to date production has also been affected by two major mill re lines in January at Cobre, Panama looking.
Looking ahead mill throughput is expected to ramp up over the course of 2022 to achieve between <unk> 95, and 90 million tons for the year.
Grades and recoveries are expected to be consistent with 2021 levels that will flow fluctuate from quarter to quarter.
With the recent escalation in global energy prices. It is worth noting that we had increased exposure to spot prices for electricity in Panama during the fourth quarter, while we had the planned maintenance to unit one however.
However, with the maintenance complete costs are already moving back in line with the color on coal prices for the mine. This prevents further exposure to increases in the coal price until December 2023.
<unk> copper production of 202000 tons in 2021, reflecting the reduction of oxide ore and the ongoing challenge of the selective high ore grade methodology at Constancia in advance of the approval of the S. Three project.
Q4 was another consistent quarter delivering copper production of 53000 tons, a slight decline in throughput was offset by the improved grades.
Looking ahead for 2022 process or Constancia is expected to be slightly higher compared to 2021, how the grades are expected to decline over the course of the year from Q4 2021 levels.
Sentinel achieved copper production of 233000 tons for the full year.
Despite a ball mill trunnion failure in Q1 last year, and a lower grade profile relative to 2020.
In Q4 Sentinel produced over 60000 tons of copper as record quarterly throughput rates equivalent to 60 million tonnes per annum offset lower grades in the quarter.
The installation of the fourth in pit Crusher at Sentinel has been completed which is expected to enable the process plant to achieve throughput rates equivalent to 62 million tonnes per annum.
On slides nine and 10, we provide information on that three year guidance for.
For 2022, we are guarding for 810 to 890000 tons of copper production.
22, however has so far got off to a slow start at Cobre, Panama as I noted earlier the quarter was impacted by a seven day unplanned shutdown of the <unk>.
I can use the power plant as well as two mill relaunched in January .
Containerized shipping environment continues to be felt in the first quarter, which impacted shipments out of Zambia.
And all of the first quarter will be a ramp up period towards 62 million tonnes per annum and was impacted by lower grades.
For 2022 is expected to have a slightly high grade profile level.
You'll not see this improvement until after the first quarter.
A three year production guidance includes completion of the C. P 100 expansion in 2023, and Cobra, Panama operating at a 100 million tonnes per annum from 2024 onwards.
Well, it's three remained subject to board approval. We have included limited production from phase three in 2024.
Likewise enterprises also subject to board approval.
Guidance includes first nickel production from enterprise in 2023.
We also show you Ravenswood ramping up to 25 to 30000 tonnes of nickel production supported by the completion of the Shoemaker Levy project in Q4 last year.
With regards to Capex approximately $2 2 billion will be spent over the three year period of which 1 billion relates to consent. She via three project.
830 million to cobre, Panama, and $60 million to enterprise and $15 million to our coiled mcgrane project in Mauritania.
Okay.
The ongoing challenges presented by the global pandemic have continued throughout the first quarter with the omicron variant prison on several thoughts Fortunately our employees and communities are not experiencing a severe symptoms from this wave as with previous variance.
The company continues to employ measures to ensure minimal spread and the health and wellbeing of our workforce continues to be a priority, including maximizing vaccination rates and boost booster vaccination campaigns for 2022.
After the huge efforts by personnel across 'twenty, 'twenty, and 2021 and dealing with the impact of the pandemic to operations. We are investing in our people to support them and ensure a retention of staff at cobre, Panama or Capex guidance includes new expenditure to upgrade kit.
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We also remain focused on the ongoing importance of our community support during the ongoing pandemic not just in order to mitigate the impacts of COVID-19, but also in greater community outreach.
In the fourth quarter, we were delighted to launch our Bbs community Health program in the northwestern province of Zambia.
This initiative will support the Zambian government and providing essential health services to the communities around our Sentinel and Constancia mine through 182 schools and health facilities as we seek to improve the health of our host communities.
Staying in Zambia, I'm pleased to highlight the fantastic collaboration between the team at Sentinel and the local communities and the construction of new infrastructure to serve local villages.
After the previous Woodbridge bridges collapsed, we worked with the Chapala village to both to new bridges said that the community will not need to weigh through flying with us to access a farmland.
Our school and sports programs in Zambia, a very popular I'd like to take this opportunity to contract congratulate the 24 students who were awarded both scholarship that Sentinel as well as the contention netball team, who try them to the northwestern Cup about regional tournament.
Moving to Panama I commend the team at all Cobre, Panama online for their support for the Golar Club UN funded movement that provides training and support to empower young women and surrounding communities and provide them with the skills and opportunities to become future leaders.
And with that I'll turn it over to Hana and the interest will be back in a few minutes to wrap things up.
Okay. Thanks, Ron I'd.
I'd like to direct you to the slide titled Financial overview Slide 12.
The financial performance in the quarter was driven by higher metal prices together with strong operational performance, which resulted in significant increase in net earnings and EBITDA as well as a notable further reduction in net debt.
Gross profit of $2 6 billion and EBITDA of $3 7 billion for the full year was substantially higher than 2020 attributable to an increased sales volumes at cobre, Panama as well as at the 33% increase in realized copper price.
Net earnings attributable to shareholders of the company of $832 million and adjusted earnings of 826 million represented a significant improvement from last year.
Net earnings included $159 million.
Foreign exchange gains.
<unk> and realize.
Primarily due to the appreciation of the Zambia kwacha against the US dollar in the third quarter.
Net earnings also include <unk>.
Total impairment charge of $44 million.
Cash flow from operating activities of $2 9 billion represent $1 3 billion or 79% increase from the prior year.
Copper cone cash cost of $1 30 per pound was nine cents per pound higher than 2020.
Impacted by higher fuel cost and freight charges together with the cessation of the open pit mining at less cruises.
Net debt decreased $1 $4 billion over the last 12 months and by $1 6 billion since June 2000.
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Christian Pascal has joined has rejoined the call.
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Hi, Nathan I think Ron which is going to cover the part two of my script and then I'll come back for questions at the end.
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Hey, Al previously adopted thank you Diana.
Well it was pleasing to announce our emission targets, a new dividend framework and the new debt reduction targets at our capital markets day.
Generally moving on growth also continues to be a priority and reinvestment in the business remains central to our business strategy.
Panama.
<unk> hundred expansion is now well underway with construction already at around 35% in.
In Q4, a letter of intent with Sean for renewable power being hydro electricity source from a Panamanian grid for the CP 100 expansion.
The prices plant expansion includes a new screen facility processed water uprights and the addition number six formula.
In 2022, the company expects to expand the fleet by adding a fifth drug shovel and additional ultra class trucks.
The plan also includes developing the colina pit and its associated overland conveyor and in pit crushing facility.
Completion of construction works and commencement of commission. These targets for the first quarter of 2023 to allow for ramp up production over the course of the year and achieve a throughput rate of 100 million tons per annum by the end of 2023.
And we will add an additional 50 to 60000 tons of copper to our production profile.
We also plan to provide a 43 101 reserve and resource update for Cobre, Panama later in this year.
On a three as noted earlier the expansion to delighting board approval and discussions with the government remain constructive.
<unk> involved the 25 million tonne per annum expansion of the sulphide oil processing facility.
<unk> annual throughput of 53 million tons per annum.
Great expansion would also involve a new larger mining fleet and combined with <unk> Standalone 24 million tonnes from processing plant.
As expected to create efficiencies and economies of scale.
With much of initial foundation in steelworks already in place from prior activity. The majority of remaining construction of the <unk> III plant and pre stripping activities at south each time is expected to take place in 2023 and 2024.
Once built a stream will increase <unk> 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.
Also <unk> board approval.
Scott the enterprise project.
Already being built as part of the original sanction on construction of the process plant and the remaining capital spending is modest at $60 million and mostly comprised of pre screen pretty strict work, which is expected to take approximately 12 months to complete.
The project has the potential to add 30000 tonnes per annum of nickel production per year and our current guidance assumes first production in 2023.
There is also a flexibility to target higher grade portions of the ore body that allows for a substantial increase in production should the nickel price spike during the launch demand.
We are very pleased to provide a 43 101 resource update for the Las Cruces Underground project in January .
And we expect to provide a reserve update later this year, which should also provide more detailed capex and opex estimates.
<unk> is contained copper equivalent to approximately 900000 tonnes similar in scale to the original items Piedmont body.
The project also added benefits from an established relationship with local communities and experienced workforce existing infrastructure.
Environmental permitting and.
In mining permitting in place the key pending order authorized is expected to be granted in 2022.
This project has the potential to add approximately 45000 tonnes of copper equivalent annually to our production profile.
Please call brownfield projects have us on track to produce around 1 million tonnes of copper per annum. While at the same time same time, allowing us to continue our financial discipline, and reducing debt and returning capital to our shareholders.
Our portfolio of growth options include two major greenfield opportunities as well, notably tech attack and the Keira.
Continued on both of these projects and we are excited about the long term optionality that these projects offer.
We are proud of the project pipeline ahead of us at first.
Three months, we look forward to sharing with you more detail on <unk>.
Virtual thought tool and hopefully in person tour Cobre, Panama later in the year. So that you can see the progress firsthand.
Finally, I would like to thank all of that once again I'm proud of our workforce in executing in a safe and sustainable manner.
Ongoing challenges that continue from the COVID-19 pandemic.
As well as the generous efforts and commitment to ensure extremely important lumpy with programs to support the local communities continue.
I'll try that we would now be happy to take questions.
Thank you.
We will now take questions from the telephone lines. If you will have a question and you are using a speaker phone. Please lift your handset before making your selection if you have a question.
Please press star one on your devices Keypad you may cancel your question at any time by pressing star two.
So please press star one at this time if you have a question. We please ask that you limit yourselves to one question and one follow up.
There will be a brief pause on the participants register.
Because some of the detail we are back online again.
Okay.
Thank you. So the first question is from Greg Barnes from TD Securities.
Please go ahead your line is open.
Thank you.
Thanks, Justin obviously with the pilot plants, partly down during Q4, you saw your costs go up at Cobre Panama.
Over the coming years as you shift away from the power plant that onto the grid.
Do you expect to see an increase in your power rates that Cobra, and obviously that would push up the cost as well of the longer term.
Thanks, Greg.
And it's a good question. So yes, you saw in Q1.
In Q4 see one costs that rise and we indicated around 10 cents a pound a motor that was from exposure to the national grid that one number.
Positives around that first of all that we were able to drill a well over 150 megawatts for the first time.
Down.
Jim.
Transmission line.
Which provided adequate for us to run more than half of the process plant.
But yes, we did see exposure.
<unk> October November December have been good months for hydro electricity production in renewable energy and in Panama.
Year was somewhat different and somewhat of a surprise.
It was some other power plants that we're also undergoing maintenance at the same time and all of that combined did push up power prices in the country. So I think we reached a peak at the city of <unk>.
At around 190 to 193 thereabouts per megawatt.
The megawatt alpha <unk> in Panama.
Yeah.
The thrust of your question as to whether when we contract.
We'd be looking at.
Similar to that.
Levels of spot and I think the answer to that this was a peak condition and we would be looking to uptake renewable power on a long term contract basis.
In seeking to ensure that the rights were enshrined in that contract and as we said before we had indications sometimes pricing levels and trying to expect them to be significantly different.
From the levels that we were able to generate at using call. Once we add in the financing costs and depreciation costs.
Okay.
Just thanks, Thanks, Tristan just shifting to Zambia.
In the MD&A you highlight the government has suggested they could incrementally you look over time, but.
Changing the royalty rates there wasn't much detail around that can you provide some commentary about what what that shift is or what theyre thinking about it.
Yes, so Greg.
Very good conversations with the government of Zambia.
Last month, or so and the full team from first quantum has been out and speaking to the president.
Heck in Lima, and then the team that's been appointed too.
To go through these topics.
At the moment, we're not too focused on the royalty, it's really around ensuring and durable and lasting environments in Zambia that we could you could investing $1 billion in history.
The key consideration, but looking forward as we nights.
The countries.
<unk> targets and they stated intent to triple copper production up to around 3 million tons. The government itself and said that they might need to look at the enabling environment.
And that would include royalties in terms of attracting that level of investment into the country.
Good news is that has been done before it was done in Chile between 1991 in 2001.
Corporate production from one 5 million tonnes per annum.
One 5 million tons per annum and that was the basis of.
The Chilean changes too.
Legislation in Chile, which we should.
The audit for that level of investment in the country.
And so I think that's the nature of the comment.
But really that's a decision from the government of Zambia.
And certainly we would be supportive and be looking to invest three once we get the rock conditions, perhaps for Joe.
Okay. Thanks, guys.
Thank you.
The next question is from Rs <unk> from Scotia Bank. Please go ahead. Your line is open.
Hi, Good morning, just following up on Greg's question on Cobre, Panama can you walk us through kind of what happened with the power plant. It sounded like there was both plan and then unplanned outages at the plant I'm wondering also if there are any scheduled power plant outages moving forward for this year.
Yes sure. Thanks, so yeah.
Yes, the major shut with a scheduled shut it happens every two years on each of the power plant.
And so we would be doing similar shots.
On the unit two this year.
Around November December .
That shot related too.
Infection across the province, and normally would take around 30 day. What happened then was we did some regular checking off the reuter.
The turbine.
And using the in camera system, we found some foreign objects in the retail.
And went to investigate it further.
We also had done some work looking as we did in the detailed inspection across the boiler. We also found an area, where we had some erosion from the flows on the power on the boiler and so it was appropriate and we made the decision to go and also check that unit.
And that was the reason for the unplanned seven day shut at unit two was we went and checked.
Lois on unit two to ensure that.
If there was erosion that it was well in hand, and the answer to that was it was fine we made some changes and.
And we.
Sort of debt situation add on unit two during that seven day unplanned shut tight with.
The lessons from unit one that we took across all of that work was completed and the foreign particles in unit one.
Refine we'd been running looked at on the condition since March this year, we noticed a drop off with an efficiency.
And it was really the establishment of quarter caused that drop off inefficiency that deep maintenance at two <unk>.
Extra period of time into January of this year to bring in the.
The paper from <unk> can I mean, with the Covid protocols and so on to come into the country took some time, but the aim to go through a very measured.
<unk> two.
The maintenance and repair that situation, which was done very well in.
The team on site established a new protocol for <unk> that had not been done before and now <unk> taken the standard Frisco to do so.
Very good step forward and well done by the first quantum team there.
Cover Panama, but the power plant was re energized and re synchronized to the grid on the 31st of January and has been and is now running at full.
Full production level, and we no longer have that efficiency.
Come through in March this year.
Okay.
It.
Does that mean, we should anticipate sort of elevated unit cost than in Q1, and Q4 of this year as youre drawing grid power.
So, yes, there'll be an impact to Q1 this year, because we had that period.
We continued with one down and we were drawing from the grid.
Would be October November this year, when we do take off units to.
Scheduled maintenance period.
There.
There will be adequate rainfall in the country and there'll be adequate wins, we just had a culmination of of effective this year.
Low wind.
And low rank coal.
Which is usually the sort of take rainfall period and that was the reason for the heart.
Spot prices at that time so.
So we would anticipate October November that is it.
Renewables was strong.
We shouldn't see the elevated prices.
And then just finally, your and the MD&A talks about variable grades quarter to quarter at Cobre Panama.
Can you give us a sense of.
Does the mine plan and start off with lower grades and then they improve during the year or are they truly sort of all over the place on a quarterly basis.
Alright, Thats really large volumes that are being more.
Most of the movement shovels in the movement.
The longer time period longer time horizons.
So we do see the fluctuations but.
So it's up and down.
Is it in.
Hi.
The part of the year Richard.
Do you have a consistent level towards the sources mined John Gregory I'm not sure.
Comment any further on grade profile at Cobre Panama.
Alright, Thanks John .
Keith.
Well the overall plan for the year.
Im very confident at that time, a couple of them.
Month by month.
Quarter by quarter, there are fluctuations.
Do come into the mining practice due to equipment deployment.
And rock conditions blasting availability and blocked itself. So we do expect to see a degree of fluctuation, but over the year.
We'll achieve the goals and the guidance that we've put forward.
Thank you.
Next question.
Is from Jackie.
Lasky from BMO capital markets. Please go ahead your line is open.
Thanks, very much and thanks for the call I just wanted to ask a question about the tax guidance that you gave.
In the MD&A.
You're saying that the tax rate for 2022 is expected to be between 20, and 25% which is significantly lower than the 31%.
'twenty one.
I know that doesn't include any of the law nine changes that have been talked about.
Is it possible for you to.
Give us some kind of sensitivity with the.
Proposals.
It's not set in stone, yet, but what the proposals that have been.
Scott So far do you expect the tax rate effective tax rate would be closer to that 31% that.
That you that you saw.
So in 2021.
Hi, Jackie Thank you for the question.
The change in tax rate.
And the reason for that comment.
Really the biggest change over the last year was.
<unk> of the non deductibility of the.
<unk> royalty regime.
Certain hedge losses as well on that Brooks.
The lower effective tax rate in 2020 twos.
As related to those physical changes, which took effect on one January this year.
And as you say, we haven't put through.
Hum.
It's just really too early to say and a few moving parts there.
If we get to conclusion of that agreement.
We'll be able to provide guidance on an effective tax rate will be in Panama.
Yes, I don't know, whether you had any comments on that.
Zambian tax rate and the impact to our overall tax rate.
No I think you summed it up very nicely.
It is really why.
By having that step down to 20% to 25%.
Yeah that non deductible.
Royalty the impact that but I will say.
So the hedge Paypal.
That's all.
We had before.
If it comes out of that that much longer range.
Alright, Thanks, Juliet Thanks, Jason and then maybe just following up on Greg Brian <unk> question from earlier about.
About <unk> I know you mentioned that.
But you would be looking to sanction.
Three once you had some stability or understanding what the royalties you Didnt mentioned enterprise.
What's the trigger today, what would be the trigger for sanctioning enterprise.
Thanks, Jackie and it's a good question enterprise.
Leo.
And for us it really $60 million capital outlay exposure there.
Much less capital intensive obviously.
The originally triage process plant has already been built and that's largely a sunk cost.
Any thoughts.
The decision there.
It does still linking to broader conversations with government and I think it's important we see a path forward in most discussions tend to trigger point, we would like to get to that as soon as we can but.
But we would like to make sure that.
There is a clear indication as to the direction of travel and I think we've seen that in the narrative from government and also in terms of the non deductibility.
No one in January .
But the border issues remain and we've really got to get some direction on that before.
You might get commitment I would hope that we're able to get.
Relatively soon and as I said, it's been a lot of conversation and a large team from first quantum.
In country with the Zambian government and the designated group to.
So those points.
Alright, thanks, very much I think that's my allocated two questions. So we'll leave it to somebody else. Thank you.
Thank you.
The next question is from Abbvie Agarwal from Deutsche Bank. Please go ahead. Your line is open.
Well. Thank you thanks, Tim for that.
Further details on the call I had a couple of question on itself.
Take them one by one.
First question is a follow up to the corporate cost so even if you adjust for the one off <unk>.
Bartlett.
Finally, the coffee costs look we had the Steven cash cost still went up by around 16% Q on Q.
Any other transitory factors you expect to roll off as you move further into 2022, that's my first question.
Thanks Eddie.
The first thing to note is we also had slightly lower corporate production.
Unit cost basis that certainly had an impact the other changes that marine they're really related to fuel cost consumables.
And so on.
Some inflationary impact of that.
Also on shipping.
Yes.
Major factors, there isn't anything else that I'm aware of Juliet.
Missing something.
The major ones.
Yes.
That's great.
Got it thank you.
The second question I had is on.
There was a recent article which suggested that the Panamanian government looking to propose the transformation of the bottler.
As soon as 2023.
Can you please comment on that I'll take any remind us of your current plan there and what Capex have you earmarked for the transition of a long term transition. Thank you.
Sure.
The current plan is that we would.
Hi.
Stages.
60 megawatts, which is required for the 100 gig in comp per annum increments.
For the <unk> hundred expansion and that we have a letter of intent signed for that.
It won't be 100% renewable.
And purchase from these low.
Capital cost.
In the process of that we believe is in line with where we on the fully.
Refinance spices for the.
Past pension costs.
Second is on.
2025, we would look to rich.
Reduce our overall group.
Plus 80% and that's around.
One of the units offline and replacing that with renewables and we have solid indication that's available from hydroelectric sources.
On an average across the year, but we some months of the year that are lower.
Unless survivability in some months of the year and the third site.
By 2030 that will takeover the second unit again.
With those limitations.
It would need to be replaced by a combination of gas and other renewables amongst I apologize sorry.
It will mean some base level.
During the call for <unk> session is probably needed.
Online.
Just wanted capacity in Panama to a market transformation.
Yes.
Dental.
Responding to your question.
Two the administrative synergies.
Thanks.
Look we're happy to work with the government.
Panama and plans to reduce greenhouse gas emissions and we think those are important.
And the vision from a reduction trajectories.
<unk> is around 60% renewable the mine.
Good months, when water and wind plentiful and we saw in December and January the cash one.
Small headwind does struggle for renewable capacity draw.
Dry months, when there's less windy conditions, so touring instruments.
We'll need to continue to have some base.
Alex.
From a qualified.
Past session.
Hit me, Randy our conversations with the minister of energy.
We recognize the importance.
Of that trajectory.
Also around working with the grid and as we saw a shift away. We will also have an impact on power prices in the country. Those are the factors that need to be balanced top and bottom of the patients that were having.
Governments around the type of loan going on.
We get to the right outcome may both in terms of the trajectory too.
To meet greenhouse gas emission targets of the country, but also beyond.
Grid stability and and panel pricing on the grid.
Thank you.
The next question is from Jonathan <unk> from Morgan Stanley . Please go ahead. Your line is open.
Thanks, very much good morning, and good afternoon.
My first question is on the corporate finance. So you highlighted some operational disruptions during Q4, but how should we think about the sequential production development into Q1 of this year should we expect throughput rates to hit the target of 85 to 90 million ton level.
Copper grades which were relatively weak in Q4.
Yes.
Thanks.
Yes.
As I said, we haven't had a slower start to the year in January because of.
<unk> Coker, Panama and also the impact on.
All of the work on the past action.
Overall across the year, we remain confident in the guidance we provided.
So I look at that the 330000 pumps.
The bottom end of the guidance as well.
Produced last year and that was really on the devices.
One tied behind our back.
Are there new protocols for kind of advancing across three quarters of the year and so do we feel confident in that lower level limits.
That production level will coincide with the Rems.
5 million tons per annum.
We feel confident in that.
The range of debt okay.
Hello.
Operator, hooky law going again.
Well it doesn't seem so no.
Still there.
But can you give me okay.
We can hear you now thanks, Thanks a lot.
Okay.
To finish that off the site.
Debt at 9 million tons would be significant.
In terms of.
What we've seen from the price discounts and higher production months.
Imminently achievable.
It's really stringing together.
A good period of performance that we've had maturity that so again, it's a how do you think that gives you an idea of the bounds that'd be put into the guidance.
Okay perfect.
We're confident in achieving those levels for this year.
Great.
Helpful. Thank you.
Second question is just to call, China and Jason Giambi.
<unk> highlighted that's going to persist in Q1.
If I look at Q4, you manage to to deliver sales of both production. So how should we think about Q1 do you think that saves kind of keep up with production or are we going to see a shortfall like we spoke to you free.
Thanks Janice.
So definitely the worst period was in Q3, and we seem to be past that but.
But it is it is up and down we do see some uncertainty and some volatility so.
It was.
I think we improved in Q4, but we still at elevated levels.
We would like to be a little bit lower in terms of the inventory levels that we have for example in anodes.
Just shifting to containers so.
Looking at Q1.
And we have seen so far this year has been up and down its been periods, where it ran well and then other periods where this thing.
Some imbalance.
And not normal the normal efficiencies in price.
That's the reason for the statement that we see continuing.
But not at the sort of the worst on the peak.
<unk> period, which was in Q3.
Thank you.
The next question.
Is from Lawson Winder from Bank of America. Please go ahead. Your line is open.
Hello can you guys hear me.
Yeah.
Yes, hi, Massimo can be clearly okay. Okay, great yeah, yeah. Good morning, Thanks, so much.
And everybody.
Wanted to touch on the Panama again so.
Several.
Members of Congress proposal.
A new mining royalty bill.
Which which would alter the current sort of existing one.
And it included.
Class II minerals, which include copper of course.
Having a royalty that goes up to 30% after 10 years.
And I guess, what I wanted to ask you about it I mean, clearly I mean lot of ironwood exempt.
Correct, Panama from that at least for some period of time.
But.
Yeah.
How long could you guys potentially achieve in terms of an exemption from whatever new mining code might come in.
And is there a bit.
Belief on your end that you can get some sort of assurances.
What's the next.
Exploration of the mining license comes along that deadline.
Remain in effect.
Yes, hi loss, so Alan understanding of Etsy choice and as we have a 20 year plus 20 year arrangement from lost revenue to <unk> from a renewal and then a 20 year option beyond that.
It's al.
Our understanding is the attention of the government that.
As you say cobre Panama.
<unk> would be exempted.
Bill if it's progressing any further would not relate to existing mines.
And.
Discussions around with governments on on the resolution of more non contain a number of protections.
That would be put into that you're just legislation.
That would seek protection against for example, this proposed legislation.
So.
This.
Bill if it progresses, we don't think would have any effect on cobre Panama given.
The degree of conversation and discussion around.
Resolution of that.
With the current government.
Okay, Yes that was my answer to you. Thanks for confirming that and then I also wanted to ask about.
The carbon price that.
You are now using in assessing project and how that relates to the development of <unk>.
Pocket target and I was just curious I mean.
I mean theoretically it would increase the cost of developing tokotoko and potentially lower the net asset value, but are there assumptions in the current feasibility study that it can be sufficiently adapted to offset.
That carbon price.
Show in Boston, That's a good question and I think that's one.
Hum.
As we report particular.
The longer dated projects at Martin.
Troy with seven or eight years.
Along with that project.
And while we look at it is the carbon price.
Form part of the scenario as we look at those those projects, particularly those that are further out, but we see that the carbon price.
Our view is a pretty direct link to copper price that is the world that we live in where these higher carbon prices will drive.
Demand for copper.
And so there's a direct link that can be made.
And that's backed up if we look at.
Yeah.
The IEA and their estimates and so on around where they see them.
Copper production coming through.
The different scenarios.
In terms of.
Climate trajectories, but also in terms of carbon price itself. So that's the way we look at it and so we do look at a number of scenarios around that.
And as we push in the evaluation.
Carbon price moves.
Is appropriate to also look at different price scenarios that are reflective of this.
Kind of in process.
Thank you.
The next question is from Jonathan <unk> from BNP Paribas. Please go ahead. Your line is open.
Thanks, Robert and good afternoon, and good morning, two questions. The first one on Cobre Panama.
Looks like the government is expecting a proposal from your side by June .
Switch to natural gas or any alternative fuel you indicated $215 million capex.
So two thoughts into this question when do you think you would need to start spending on this transition.
Transition and secondly is it part of it.
The negotiations that you're currently engaged with Goldman does this need to be resolved as well because for this define their knees June but it looks like.
The royalty in tax agreement looks more imminent.
Yes.
Hi, Jackson.
Okay.
And.
Okay question, and we understand given the minister of energy his comments.
As I stated before we are very happy to work with.
The government of Panama on their plans.
And their trajectories.
Greenhouse gas emissions in the country.
We would note Panama is one of the three carbon negative economies of the world.
Three negative.
Common countries of the world and Thats because of this.
<unk> now provides.
Reducing the trend.
The logistics for ships because ships going through the Panama Canal.
Our fuel burn.
And therefore sizable greenhouse gas emission.
In terms of the energy policy.
What we are.
What we would point out.
The impact.
Debt.
An abrupt change would have on both the stability of the grid and also crossing of electricity in the country and we saw that in December .
We saw peak prices in Panama, a rise to around 190 to $193 per megawatt hour.
Because the the hydroelectric dams weren't running as well, but it was less rightful water and also the wins I'm the head of.
Lower wind during the month and so that is the impact of renewable energy that it's moments remodel and.
And so having the coal fired power station available as base load, we think will continue to be important.
At least in the interim until longer term solutions are in place that underlie the stability of the grid.
Also the pricing power.
And that's the basis of our conversation with the Ministry.
To answer your question, yes. It is part of the conversation that we're having on Beaumont.
Just to go to one of the details there and you pointed out.
The capital expenditure, we provided overall.
<unk> $250 million.
For gas <unk>.
Station, but that we were not envisaging doing that in the next five years.
Because the immediate.
<unk>.
On <unk>, what was available and that is we had fairly strong.
Patients that we could take around 150 megawatts on a long term contracted renewable power in the country.
So we're going to be after that time.
Exam I know understand whether to proceed with the gas fired solution that would probably be based in Colombia is existing gas storage.
And alongside that dealing with things.
When do you think sort of guess.
Transport to Panama.
And I guess.
Yes, good morning.
In <unk>, we would also be building our Paolo on the cross from Paloma.
Two to Cobre, Panama, which is good for grid stability in itself, but it was the combined capital that.
It would be around $250 million and as we said at that time.
The estimated number and we don't see that happening before around 2025.
Yeah.
Thanks for the detailed explanation just one more on strategy, you've mentioned about adding a third Cynthia first quantum in addition to Zambia in Panama.
It looks like Las Cruces.
He has big too to be called over the telephone.
So is it going to be Taco Taco.
Do you think that diversification helps the case itself.
Geopolitical element.
Looking into things like.
Canada U S Australia configured to produce fiction.
<unk> is also part of the thinking here.
Yes, Hi, Jackson.
Definitely.
And the reason to point out.
That lag in the long term Greenfield lag as we think it adds to the yes.
Yes, exactly the diversification of the portfolio and the debt.
Starts to reduce the level of volatility and use in the volatility.
For example in the share cross in first quantum so longer term, we see the benefits of that strategy.
We think that we have an enviable.
Mayfield project pipeline attack attack and also had a cure, but obviously.
Some work can be done in terms of building the case in Argentina.
And we're doing that over the course of 2022 and also next year 2023 in order to get to a point with them.
Whether we can make the decision to proceed on March <unk> and also the Keira and working very closely with the communities there.
Whether that project could reach.
A decision point.
Broadly, yes, I mean, we're happy to look at other areas.
In Australia.
We look at different jurisdictions the answer is yes.
We from time to time and it's really.
The basis of how well, we can apply our skills and obviously in the jurisdictions that you're speaking about the pricing would also come aboard into those kind of decisions.
But for the time being we're very focused on our own greenfield portfolio. Because we believe there is significant value that we can add to them on those projects.
Thank you.
The next question is from Karl Blunden from Goldman Sachs. Please go ahead. Your line is open.
Hi, good afternoon, thanks for the time.
Wanted to focus in on capital allocation, you've got pretty strong cash flow outlook coming into 2022, and you've outlined our debt reduction goals.
With regard to your preferences for the capital structure between secured and unsecured debt our fixed versus floating rate debt would be interested to hear your thoughts at this point with rate volatility increasing and also as you roll off the hedges, perhaps some some visibility into cash flow declining right a high cash flow out.
Look but declining visibility.
Interested in the balance of the debt you would have to place.
Okay.
Do you want to take that question sure Hi, Cole.
At the moment, we've got about three quarters in a fixed rates in the quarter in.
Floating rates without bank debt.
Yeah.
I guess.
The bank data.
Element and will retain the banks as part of part of the setup in the longer end, where you would see our overall debt reducing.
As we pay down some of the data and these bonds as they become callable in stepping down to fall, we will we'll be reducing those levels. So I think.
You would see.
On a relative basis.
A larger percentage of the SKU data not saying the secure data.
In absolute amount will go up.
So it's just more as effect effective production of the bonds in that mix.
I think we are comfortable with the mix of the data we have of course, we can.
We can issue new notes at lower rates, but with the cash we generate.
The focus is on actually just producing and then paying back some of the state.
That's very helpful. And then just as you think about.
A couple of different growth options that you might have.
Is that helpful to you to have a more extended debt maturity runway. If you were to engage in more expensive growth options. So shall we think of you as running a relatively short dated capital structure going forward and then I guess the one add on there was would you intend to rely on our revolver drawings from time to time, we noticed summit.
In the slide 70, any update on that would be helpful.
Yes, I guess the previous nodes, we sure it's always been sort of $6 <unk> and sometimes <unk>.
At.
I guess, that's probably be the sweet spot for us in that regard.
As some of those state matures.
We will repay this and address it.
With the cash flows and other cash resources.
We do on occasion to use the revolver as as it currently costs growing but.
I mean, it is there it's available but it is not intended to be used.
Permanent.
Permanently in the capital structure.
Thank you. The next question is from Matthew Fields Bank of America. This will be our last question. Please go ahead. Your line is open.
Hey, Alex.
And everyone congratulations on a great year.
Wanted to follow up on one of carls questions and just sort of flesh out a comment I think you made which was it.
Is it your intent.
Repay the notes as they come due for instance, your.
Kevin in the quarters due to 23% become callable at par on April 1st is the preference of the company to simply just repay those out of cash and cash flow and not.
Terming it out with longer.
Longer dated on some more unsecured bonds.
Matt, Yes, I mean, we.
In the past we've always addressed these notes so we doesn't become current on the balance sheet. So that's a.
Intention is to continue addressing debt maturities before it becomes current.
I mean, we've got the option now that we've got cash generation that we can use that.
Of course, the bond market is important to us that we find.
You've got one bond outstanding Thats not callable at the moment, so that sets the pricing. So it is important to get the price.
Pricing for <unk> future.
But it's not that I need liquidity.
All the big projects are behind Us. So we are generating cash now so it's it's.
It's going to be entirely opportunistic for the company if it suits us will issue a new node.
There is no need to issue a new node to term out some of this date.
Okay. Okay, great. Thank you and then.
Longer term question.
You're set to achieve your 2 billion debt reduction in the first half of this year and you said another $1 billion of debt reduction is the goal and the I guess the short to medium term.
Maybe you could put.
A little bit of goalposts around what short to medium term means does that mean kind of pre tokotoko development.
That mean several years like what do you think about when you mean sort of short to medium term.
I guess short and accounting definition would probably be a current kit. So they would look at 12 months.
And then medium would be slightly longer than that so 18 months to.
Two years as a Max so I guess.
It gives you some sort of handle on that then.
It's highly dependent on the of course continued strong operational performance that we have that also the copper prices.
That's staying strong.
We have strong copper prices I mean, I think that gives you sort of it.
And a good guide as to what our expectation is.
Great well, thank you very much congratulations.
Okay 22.
Yeah.
Thank you there are no further questions registered at this time I'll turn the call back to Mr. Pascal.
Thanks, operator, thank you everyone.
<unk> support and for joining today's call and apologies again for the technical issues I Hope you enjoy the rest of your day and we look forward to speaking to you again.
The next quarterly update thank you.
Thank you the conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.
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