Q1 2022 First Quantum Minerals Ltd Earnings Call
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Okay.
Thank you for standing by this is the conference operator welcome to the first quantum minerals limited first quarter results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue you may <unk>.
Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero I would now like to turn the conference over to Bonnie to toe director of Investor Relations. Please go ahead.
Thank you operator, and thank you everybody for joining us today to discuss our first quarter results.
Before we begin I will draw your attention to the fact that over the course of this call we will be making symbol forward looking statements.
And as such I encourage you to read the cautionary note that accompanies this presentation, our MD&A and the related news release.
As a reminder, the presentation, which accompanies this constant conference call. It is available on our website and that all dollar references are in U S dollars unless otherwise noted.
On today's call Tristan Pascal, our Chief operating officer, who will provide an overview of the operations and performance during the quarter.
Followed by Hana Mayer, our Chief Financial Officer, who will who will review the financial results.
The symbol wrap things up after which we will open up the lines to take questions and with that I'll turn the call over to Tracy.
Thank you Vanessa.
And thank you everybody for joining us on our call today.
Copper production in the first quarter of 2022 was softer than the previous quarter due to mill and palace station maintenance at Cobre, Panama and as we saw the impact of an extended rainy season and as ambien operations.
At the same time, our operations faced inflationary pressures, particularly from the end of February onwards.
It's the conflict in the Ukraine and the associated sanctions imposed upon Russia has led to high energy input costs.
Despite these challenges the first quarter delivered another record in earnings and profits as a result of continued strong metal prices as they are exposed to spot prices has greatly improved with minimal remaining hedges in place.
This enabled us to continue to deliver on our ongoing priority of reducing that Janice will speak to more in his presentation.
Before going into the operational performance during the quarter I will address the changes that we might to guidance yesterday evening.
The decision to change our guidance so early in the year it was not taken lightly.
The World has changed since we provided our guidance in January and we felt it important to be transparent on the impact it is happening on the company.
For the last two years each of our mines worked and delivered under restricted conditions presented by the global pandemic, particularly around labor and logistics.
While these restrictions have eased they do nonetheless continues to be present in the UK and cross. This is light on a number of further disruptions to an already complex situation.
It was paramount that we reset realistic expectations for the year ahead, given the challenges that we see.
For 2022, we have lowered our production guidance to a range of 790 to 855000 tons of copper production.
The lower guidance reflects the impact on actual progress of mining compared to plan during an extended rainy season, Zambian operations and higher maintenance in Panama.
At Sentinel, the wet ground conditions constrained the planned waste stripping and delight access to high grade ore in the east of the pit.
At both Cobra, Panama and Sentinel grades of the old fits the plant were impacted this mine production was behind the budgeted schedule in Q1.
Largely due to a backlog of truck maintenance, which impacted machine availability.
This was a direct impact of restrictions on labor and resources during the COVID-19 pandemic and is now subsiding.
There was a catch up on truck maintenance might take several months to resolve.
At both Sentinel and Cobra, Panama grades are expected to return to planned levels over the coming months.
At Constancia the feed grade to the plant were lower than planned and we consider this patent will likely continue for the remainder of the year.
Yeah.
Onto costs.
We realized when we released our cost guidance in mid January it was based on the inflationary pressures that we were seeing at that time.
Since the end of February early March as a result of the conflict in the Ukraine and the sanctions imposed upon Russia most of our major input costs, such as fuel explosives sulfur prices reagents and steel have increased significantly globally.
I would note that our core colors at Cobre, Panama in part have insulated us from the full impact of electricity price inflation.
Well it is too early to determine if these global costing crisis are structural or transitory in nature. The impact of these higher costs cannot be ignored and we felt more prudent to plan for the year under conservative cost scenario.
That assumes these cost pressures remain for the balance of 2022.
Moving onto discussions in our host countries.
I spent time in the quarter in Zambia meeting with the President and senior ministers and its administration to pull the path forward for our business in Zambia.
I'm grateful for their efforts and the collaborative nature of these discussions, which we hope will ensure that the appropriate and ensuring investment conditions exist for first quantum to advance the consent. She has three expansion and the enterprise nickel project.
Discussions with the government include seeking an agreed mechanism for repayment of VAT owing to the company.
These discussions continue to be constructive such that we are hopeful that we can reach a resolution in the very near to them and advanced voice projects. This year as reflected in that guidance.
In Panama and discussions with the government are ongoing the parties continue to finalize the details behind the benefits of a $375 million per year contribution from cobre, Panama on a gross profit base royalty.
These details include the necessary protections to the company's business for downside copper price and production scenarios and to ensure that the new contract in legislation that both in Europe , both durable and sustainable.
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.
Turning to operations. The company produced approximately 192000 tons of copper during the first quarter down around 10% quarter over quarter for the reasons I noted earlier.
We saw some improvement in the shipping environment in January and February and styles for the quarter totaled 197000 tons.
Shifting environment.
Since March has become more challenging due to the Ukraine conflict, China's Covid Lockdown, which has impacted it supports and the recent flooding in South Africa.
This has created congestion and some delays in shipping a product here in Q1, mostly in smaller volumes, which are shipped from Zambian ravensthorpe in containers.
We expected challenging shipping environment to persist for the remainder of this year.
With respect to the port of Durban damage has been extensive from the heavy rains. Some port operations have already resumed however priority has been given to shipments of seasonal produce and it may still take a few months until operations at the port returned to normal.
In the meantime, the company's rerouting shipments.
Much Zambian production as possible for other South African ports, which may themselves experienced some capacity constraints.
Cobre Panama's performance of 78000 tons for the quarter was impacted by Sag mill relaunch performed early in the quarter as well as the backlog of truck maintenance, which I spoke of earlier.
The mills have since ramped up well and Cobra, Panama achieved a record monthly mill throughput of seven 6 million tons in March and we have the benefit of six new trucks, which have already arrived on site at the end of Q1 for the Colina pit.
We remain confident that mill throughput will ramp up over the course of 2022 to achieve between 95 and 90 million tons for the year.
Along with the cost inflation, resulting from the Ukraine crosses cobre Panama's cash costs of $1 65 per pound were also impacted by exposure to spot prices. During the planned maintenance to unit one at the Palace station that was completed at the end of January .
However, with the maintenance complete costs have moved back in line with the color on coal prices for the mine.
This call it prevents further exposure to increases in the coal price until December 2023.
At Constancia copper production of approximately 42000 tons in the quarter was in part impacted by the rainy season.
But production also reflected the nature of the ore body and the reduction in oxide ores and the ongoing challenge of the selective high grade methodology and so forth.
Sentinel copper production of 52000 tons for the quarter was particularly impacted by the rainy season with higher than normal rainfall impacted ground conditions and delayed access to high grade ore in the east of the pit.
As noted earlier also contributing to the restriction of all movement was limited truck availability and the backlog of truck maintenance due to restrictions on labor and resources during the COVID-19 pandemic.
Our revised corporate production guidance assumes great improvement in the second half of this year.
The fourth the in pit Crusher was successfully commissioned during the quarter, which is expected to stabilize mine or fade at an annualized rate of six 2 million tonnes per annum.
Yeah.
Turning to some about ESG highlights from the quarter I'd like to start by congratulating our teams at Constancia and Sentinel, who were honored with six awards from the Zambian responsible business awards across various categories, including the 2021 company of the year corporate Social responsibility award.
These awards recognize open authorization to take action, while building coalitions across communities and it's great to see our programs and public health support education, and environmental stewardship being recognized.
In Mauritania and 132 women recently completed our annual female empowerment program. This.
Targets, improving literacy numerous C and logging roads in the poorest neighborhoods that Jude close to about 12 moraine mine to improve standards of living.
Moving to Panama, where we continue to support the development of our host communities with a range of programs in February we were happy to sponsor the World neighborhood basketball tournament, which took place in Cologne.
Over 1100 children took part in the five day festival of sport and culture, which highlighted the importance of sports in the development and wellbeing of our communities as well as our ongoing commitment to supporting them.
And with that I'll turn over things that Dennis and I'll be back in a few minutes to wrap up.
Thanks Tristan.
Good day to everyone.
I would like to direct you to the slides titled financial overview.
Slide 11.
Strong financial performance in the quarter was driven by higher realized metal prices benefiting from a reduced age profile and resulted in a significant increase in EBITDA and earnings.
Great coach.
Coffee record in both gross profit of $98 million and adjusted earnings per share or 70 seats.
And the food a notable reduction in eight days.
This was despite the inflationary pressures on cost.
Gross profit and EBITDA of 9 million to $8 million and $1 $2 billion, respectively were significantly higher than the comparable quarter in 2021.
As a result.
Significant improvement reflected a niche any such a beautiful to shareholders of the company of $385 million and adjusted earnings of $418 million.
Earnings included $14 million nonrecourse caring cost in connection with previously sold assets.
Net debt decreased by $258 million this quarter, bringing the need state level down to $5 8 billion as at March 31st.
2022 with it.
<unk> program on track.
Cash flow from operation activities.
From operating activities were $666 million for the quarter.
$77 million lower than the same quarter in 'twenty one due.
Due to high receivable working capital balances at the end of the quarter, principally due to higher realized metal prices.
Copper cone cash cost of $1 61 per pound was 37 cents per pound higher than the comparable quarter in 2021.
Impacted mainly by inflationary pressures seen over the past year and lower production.
The conflict in Ukraine, and the associated wide, reaching sanctions.
And Russia has led to sustained high energy and commodity prices, which.
That's just how it earlier, but it is a contributor to the factory environment. Since the company provided three year guidance in January 2022.
Turning to the next slide financial overview continued.
Within the quarterly summary, somebody's table, albeit sweepstakes April cash flow from operating activities and made date.
Oh cool T. A record for the company with high realized metal process driving such strong financial results.
Turning to the next slide on copper unit cash cost.
The C. One cash cost and all in sustaining cost of $1 61 per pound and $2 27 per pound.
We recorded in the quarter.
So that'll help us see one cash cost plus 37 students I am than Q1 'twenty one.
<unk> the additional inflationary impact with increased increases seen in view.
Explosives fright reagents and steel as.
As well as sulfur, which impacts our ryzen so nickel operation.
During January February Panama will say experience Hyatt palace during the January .
<unk> power plant maintenance period.
Q1 guidance has been increased to $1 45 to $1 60 per pound to take account of the increases took cost environment since guidance was issued as well as changes to our production guidance.
All in sustaining costs for the quarter was 55 seems higher than Q1 last year.
The two highest one cost.
Further impacted by higher royalty costs due to higher copper prices.
All in sustaining cost guidance has been increased to $2 52 to do a city or town to take account of higher royalties as well as increased C. One costs.
The next slide provides more detail on the significant increase in gross profit year on year.
Gross profit increased by 68% compared to Q1 <unk>.
<unk> 21, primarily due to higher realized major process.
It could be used H protocol.
We mitigated the impact of the higher operating cash costs and royalties as well as the lower sales volumes.
Turning to the next slide on net debt evolution.
The company's name data has reduced by $1 $8 billion since Q2 2020.
And the amount of $5 8 billion at school teams.
The company's leverage ratio was one four times at quarter end.
The 21 corporate facility as a single made debt to EBITDA covenants, not exceeding three and half times and it's tested on a semi annual basis. After the June and December results.
Turning to the next slide on debt maturity and HBO.
On April <unk>, the company redeemed at par $500 million, all the remaining $1 billion senior unsecured unsecured notes due in 2023.
At least $500 million remaining offsets pumped.
No new hedges were placed in the quarter with aegis maturing during quarter two.
At <unk> the company at 15000 tonnes of margin zero, plus Copa colors sales contracts outstanding.
Maturity.
To the end of June 2022 at a weighted average price of $3 75 per pound to $4 63 per barrel.
And I will now hand back over to Justin.
Thanks Dennis.
Despite the operational and inflationary challenges presented in the first quarter, we remain committed to improving our balance sheet is.
As <unk> commented, we continue to reduce our debt position during the quarter and also announced the early redemption of senior notes subsequent to the quarter.
We also remain committed to our brownfield projects, which continue to be compelling economics, despite the global inflationary environment.
At Cobre, Panama the C. P. One hundreds of expansion is now well underway with 55% of the overall project complete.
Procurement is 100% complete with supply ex works almost fully complete and delivered to site is 80% complete.
In the first quarter of 2022, we took delivery out of six out of eight additional ultra class trucks with the remaining to be delivered during the second quarter of 2022.
These units will support an additional rope shovel, which is expected to become operational during the second half of 2022.
Pre strip work for the cleanup pit and earthworks for the associated overland conveyor and in pit crusher crushing facility have commenced and are expected to continue throughout 2022 and into 2023.
In terms of the potential impact from the tight shipping market construction completion continues to be to targeted for 2023.
All mill six and at scale as strive March are already on site.
A major outstanding components that remain to be fully delivered are related to the decant water pipeline and the screening project and deliveries are expected to be complete by mid this year.
The S. Three expansion, which is awaiting board approval in both the 25 million tonne per annum expansion of the sulphide ore processing facility, increasing annual throughput to 53 million tons per annum.
Our current guidance for F. Three assumes construction in 2023 and 'twenty four.
And first production in 2025, the long lead items, yet to be ordered other Sag mill ball mill and in pit crushing station in our current planning assumes a two year delivery time and not.
So I shouldn't.
At the Enterprise Park.
So while awaiting board approval.
The project has the potential to add 30000 homes per annum of nickel in our current guidance assumes first production in 2023.
In the context of the current inflationary pressures and taught shipping in volume.
Well, you said with the plant largely built as part of the Sentinel complex and the remaining $60 million spend relating to pre stripping activities.
The law the Las Cruces Crucis underground project is a longer days of Brownfields project that has the potential to add approximately 45000 tonnes of copper equivalent annually to our production profile.
Ziv update is expected later this year, which should also provide more detailed capex and opex estimates.
These full brownfield projects have us on track to produce around 1 million tonnes per annum of copper while at the same time, allowing us to continue our financial discipline, and reducing debt and returning capital to our shareholders.
Our portfolio of growth options include several major greenfield opportunities, notably tech attack and Akira.
In 2022, the work plans for these projects are focused in country and on the ground at each site and we are excited about the long term optionality that these both these projects so far.
Finally, I want to thank the team at first quantum the last two years during the pandemic brought many challenges and current global events have introduced another layer of disruptions to maintenance to overcome.
I think being taught them for the efforts and dedication to our success.
I'll try that we would now be happy to take questions.
Thank you.
We will now begin the analyst question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
If you are using a speakerphone please pick up your handset before pressing any keys.
Jay Your question. Please press Star then two analysts are requested to restrict themselves to two questions and are welcome to rejoin the queue. If they have more.
Our first question comes from Greg Barnes of TD Securities. Please go ahead.
Yes. Thank you operator system really into the Covid restrictions and all the other issues that have happened over the past couple of years. He has been lagging impact impacts on your mine plans and mine sequencing.
As a result of the feed through the balance of this year and into 2023.
Yeah, Hi, Craig. Thanks for the question Yeah look COVID-19, we have worked for the past two years under Hum fairly serious restrictions, but nonetheless delivered throughout that time, including the ramp up of Cobre, Panama and we were able to navigate most of the pandemic.
You know fairly well.
<unk> certainly did impact the operation So December and January our.
January in this last quarter and yes, we have seen as a result of that so for example at Cobre, Panama There was quite an impact on us.
Of the number of cases in the maintenance section for example, and that has had an impact on on on truck availabilities.
Causing us.
Some backlog on truck maintenance.
Beyond what was normal maintenance on the mill relaunch and so on that wasn't cover Panama during the quarter. So that backlog will take several months I think to work through and as a result of that yeah. I think we were behind in Q1 in terms of where we wanted to be in mine schedule. The copper steel in the ground in front of us.
We would just not on the schedule the feis positions because of that truck availability as I said in my comments. We now have another further six trucks on thought as part of the uplift for the expansion and that does give us some flexibility and we have a program in place to address the backlog of mine.
Minutes and catch up although I think that will take a few months.
Yeah.
And you've talked a lot about opex inflation, but not a whole lot about capex cost inflation in.
Particularly upstream.
You still have a lot of things a number of things to order on that with the ball mills and what have you.
Are you seeing cost pressures or even scheduling pressures on yesterday project.
Standing Hasnt been approved yet.
Sure Greg Yeah, we would like to place the orders I think for those big items I mentioned the mills.
And the in pit crushing facilities by the end of this year, all going well in Zambia.
We have had a first look at it and so the the last time, we went through that the estimates.
It's really at the end of last year I'm.
So you sort of Q.
Q3, 2021 was the last time, we really went into detail on those costs. So there is potential exposure on some of that.
I guess the key question is how much of this impact, particularly on steel and logistics and freight is transitory nation in nature and how much.
We will stick and so by the time, we come through that.
Certainly.
I'd be looking at in terms of the order book I will say that most of that Capex will come through for S. Three towards the end of 2023 and 2024 and in fact as we sit in the 43 101 will extend into 2025.
It is back weighted and now guidance.
And so if we do see some of these current inflation environment around Capex on one thing.
And there's potential to get that back as I stated in Panama, we are largely through procurement of 100% complete and most of the kit ready to leave it on the site and so there's very limited exposure there.
Yeah.
Our next question comes from arrest walked out of Scotiabank. Please go ahead.
Hi, good morning.
Most of your comments relating to the weaker Q1 and impacts to guidance seem fairly transitory in the sense of sort of just delayed.
Accessing higher grade ore and things like that but your comments around <unk> and the oxide and different to that and perhaps what suggests or something more pervasive here.
Can you give us more color on what you're seeing there with the oxide and I guess the mixed.
And.
Whether this is something that you're seeing that's actually below the mine plan from a structural nature and potentially below that multi year guidance.
Thanks, Doris toy yeah.
Really two main areas at Constancia. So the first was the rainy season, which did continue we still had heavy rains mid April in late April in Zambia. So.
So it did push on this year and so you know quite a lot of those oxide materials are in locations and the conditions can get quite muddy.
In order for us to be able to tune to.
Process that material.
So that was one impact we are addressing that over the longer term and you'll be aware, we previously had a.
Shaft that was de watering under the pit and we're now involved in thinking a decline that will resolve that into the longer term and the decline will finish about the end of next year in terms of the greater.
Great to dewater and capacity.
The other elements are concerned she is really around dilution and grade and that is a longer term element that we see it in in the ore body that we become more of a sulfide operation and really that's the underlying driver to move across to the S. Three project is three will change consents you from.
Being a selective high grade mined so far higher volume.
Medium grade operation will continue as a world class asset for another 20 years. So I think this is.
Demonstrating that the challenges on grades are there until we get into S. Three John Gregory I don't know, whether you would comment any further on the detail I mean, the only other thing I would add is.
In terms of guidance for next year 'twenty, three and 'twenty four we're doing a lot of work on on stripping. So the strip ratio is currently at around two seven versus the budget of 1.9, and we're really pushing quite hard over the last nine months to be sure that we have good grade exposed for 'twenty three 'twenty four but John would you comment on it.
Good day.
Yeah, sure, Chris and I think you've covered the main areas I would say on the oxide are mixed.
Access has been the issue.
As mentioned due to the rain season, which is in the upper whether designs.
So that copper is still there and oxide and we will treat it isn't going forward he have modified the demand.
The mine plans to.
Ensure that we opened up a further working areas. So that we will continue that during 2022 and ensure that 23 and 'twenty four deliver the copper that we need.
And we predict them ahead of the S. Three commissioning phase.
Yeah.
Sorry, so just to be clear you're still so you don't see any issue with respect to the grades in the ground. This is more of an access issue.
Ah, yes, the grades and the grants are reconciling well.
From the.
Great control and all control models back to the resource model.
We are very confident about grades has seen its access.
Areas of the mine that we are working and how the mineralization that she presents itself in those particular areas. So we have been producing from areas that we hadn't anticipated in quarter, one primarily due to.
The wetter than expected conditions, providing what underfoot access and restricting us to certain areas.
Our next question comes from Emily Cheng of Goldman Sachs. Please go ahead.
Good morning Kristen.
Thanks for taking my question. My first one is around the cost inflationary guidance that was announced last night.
I appreciate the update that but how should we think about where the upside or downside pressures could be and related to that in today's numbers, maybe specifically related to fuel cost how should we think about what's being baked into our forecast at this point.
Hi, Emily Thanks, Yeah look fuel in our mix has one of the strongest movers in terms of cost break down. So we've seen fuel Roy's from this time last year, 7% of our cost structure overall to around 10% of our cost structure overall so it's.
Really moved on with things that are 25% to 30% increase in prices. This is what's so what's baked in now costs at the moment is.
If these prices continue and we meet sort of.
Reasonable production that is the mid level of our production will come in at sort of mid level of our cost guidance assuming that these current levels of fuel price for example.
Prevalent for the rest of the year.
There's a little bit of upside in those costs. If fuel does tick up if we were at the bottom end of production than we would be at the top end of the guidance for the year as an example.
Understood that makes sense and then shifting back into the production side I appreciate the comments on consensus, but if we take a look at what happened in Sentinel. It sounded like that was also an access issue that prevented access to the higher grades SBC that grade improvement.
Cross sell throughout the second half of the year should that therefore, then bleed into the into 2023 and the tops. There's some upside to 2023 production guidance I'll I'll be too early to tell at this point.
Yes, Emily we would leave guidance for 'twenty two 'twenty three 'twenty four to next year and in January .
But really yes, it was a scheduling methods wet conditions and getting to the east of the pit so particularly in.
There's some high grade that we wanted to get into and we haven't been able to get into it as early as we hoped in the budget plan.
That copper is still in the ground that sits in front of us and it's a matter of getting through it.
Our remaining so two to three benches to get into that material and so we expect to begin that towards the end of Q2 from the middle of the year.
And then we would be in that great. So I don't know that we would see upsides.
For 'twenty three 'twenty four but we will address that in our guidance next year. What we do see is that the copper that we would expect to the stool. There we just got to get to it.
Yeah.
Our next question comes from Matthew Murphy of Barclays. Please go ahead.
Hi had another inflation question.
More around labor and Zambia.
I saw a headline Zambian inflation is actually slowing it appears but what.
What are you seeing on the ground there and.
I guess, when we see conflict in Ukraine and concerns around food price growth like what's happening to the real cost of living of your workers. There so and how does that affect your outlook on cost.
Yes, Thanks, Mathie look it's very important and something we do regularly with the Workforces is look at their cost of living and so in the past during times when inflation has been running away in Zambia, we've adjusted our labels our half yearly and so for example, that's very appropriate that we look at that at the moment in Turkey, where we sing.
Very high the currency falling away very quickly at the moment.
And then be at the moment, that's not the case so.
Currency has improved under the new government, but they have removed a lot of the subsidies that were in place. So for the average then certainly fuel prices risen a fertilizer prices have risen and that will impact food prices in the country. So the basket of goods sit out a workforce.
Deals with day to day, we look closely at with them and we will adjust if necessary.
In terms of.
You might be making sure that their cost of living is really valuable to meet reasonably so it's something we keep an eye on closely at this stage.
Labor in Zambia is not you know it.
Because of the kwacha denomination, it's not the same cost that we're seeing for example in other economies in Latin America or in Australia. As example.
And so when we look across our business.
This is probably the one area, which is not as connected to.
Global inflation at this stage, but we are keeping a close on them.
Okay. Thank you.
Our next question comes from Jackie <unk> of BMO capital markets. Please go ahead.
Thank you very much I wanted to ask you about.
The.
Progress.
<unk> law nine in Panama in the.
N DNA you have some comments on how.
How thats going it sounds like it's still in the drafting phased if I'm reading it correctly and then it would have to go to.
The broader.
Parliament for ratification can you can you provide an update on sort of the timing of how long you think it's going to take for that to be to be fully passed and enacted.
<unk>.
Thanks, Jackie Yeah, low nine we continued to make progress and as you say, it's in the detailed drafting phase at the moment.
The one change in April .
We have seen the newspaper reports and we get to have official confirmation, but it does seem the minister of Commerce.
According to those newspaper reports that the minister of Commerce will be potentially taking assignment in Washington, as the ambassador to Washington, and so.
That may be.
An element of.
In terms of getting to fruition right now in April .
Potentially will have an impact if there's a change in personnel from the Panamanian government saw it again, that's not been confirmed but there was a newspaper.
On the 11th of April to that effect. So that's the one area, but otherwise in terms of the process. There's a lot of work going on in the detailed drafting and that continues to progress we would hope to get to resolution.
We said before very imminently and then yes. It will go into the National Assembly for ratification.
The.
The current session of Parliament and at the end of this month, but there has been an indication of the ministers have mentioned that the possibility of having an extraordinary session in order to deal with the legislation.
And maybe as a follow up question I can ask something similar in Zambia, It sounds like.
You continue to have a good and maybe even strengthening relationship with the government, Zambia, which is great.
Can you can you give us any kind of color on how how that might impact the AR the board full approval of <unk>.
The S three and the enterprise projects end and.
When maybe we could expect to see our announcement on this.
Thanks, Jackie look I would hope it's in the near future.
So I was there last month and we're in country at the moment working that through really around.
As I mentioned on the topics of VAT, but also looking forward Zambia has made it clear in this administration has made it clear the level of investment they want to encourage into the country that is to triple copper production at.
At that level, you know as potentially $30 billion that would need to flow into investment in the country to deliver that over the next 10 years.
Beyond exploration in the front end in order to.
Stablish those projects and certainly first quantum.
Very came to be at the front end of that and the business environment you know that.
Would encourage that level of investment so those are the discussions we're having.
With the government in order to get that appear just stability in front of us. So I would hope in the near future. We have an answer on that.
And I apologize because I know, we're only supposed to ask two questions, but if I could maybe just follow up on what you just mentioned interest in them what would that suggest if you're keen to be on the front end of a larger push to grow copper production in countries would that suggest that you might look at you.
Future greenfield sites or or something sort of outside of the assets you already own.
Yeah, Jackie Zambia is very perspective, I think we very much focused on convention center.
One on the commitments and building towards a decision to commit a billion dollars of consents you would certainly be a focus I think we haven't been actively exploring in Zambia for some time, but.
But certainly exploration.
We would consider in terms of a broader remit, but at this stage as we said we wouldn't be looking to go into other operations at this time.
At mopane, Okay see them or some of the other Reits there I think.
We were very much focused on our own portfolio beyond that in terms of prosper activity in front and that's potentially an area. We could look at on exploration.
Our next question comes from U N S.
<unk> of Morgan Stanley . Please go ahead.
Yes, Hello, thanks for the presentation.
The first question is on the cash costs at the Cobre, Panama. So the golar structure for coal purchases keeps the costs the costs contained to some extent what would be the impact to your Q1 cash costs in Q1.
If a call or it was not in place.
Thanks, Johannes Yeah, so electricity at Panama is about seven.
7% of our cost structure at the current time and so exposure to you know the full coal price, we can move that pretty significantly we seem so.
Coal price call has kicked in and around <unk>.
80, $889 and we would have exposure beyond that.
To the way you see the current <unk>.
Ross.
I see okay.
Very helpful. Thank you.
And then the second question going back to the fiscal stocks in Panama and you mentioned the potential of a chance that the ministry of Commerce could move on to Scott Andrew did you.
Foresee any risks around the principal items that you have already agreed either $675 million a key.
It gets replaced by someone else or do you think that's from today's point of view that's completely de risked.
Yeah, Yeah, no I don't think there's you know it's been pretty consistent group our overall the Panamanian administration.
In terms of their approach on these discussions so no I think it's more just the mechanics and the logistics of getting through the process more than the fundamentals of the principles that are agreed.
Our next question comes from Dalton Barreto of Canaccord. Please go ahead.
Oh. Thanks, most of my questions have been answered, but just and maybe I can ask you.
Some of the finer details I guess on Panama. So you mentioned that you guys ran into detailed jobs now and then.
Items have been covered does that mean that you have an agreement in principle around downside protection in the sustainability of the agreement and you're just working through mechanics or is that still yet to be determined.
Yeah Delta.
I wouldn't get too dragged into specifics of what we're working on they say, but yeah. Those principles were agreed and.
Protections and so on are part of the effort now in terms of the drafting to get that in place so that will cover things.
Broad level, but law nine addressed including those protections, including tax holidays, including all those details.
That's the drafting effort, that's going on and yeah, I wouldn't get too much into them.
We tailing off.
Off the far in which an element to note, but broadly all of that is a piece of work that's ongoing.
Yeah.
Okay, Great and then once disagreement has been ratified by Parliament. What is the effective date, well that'd be backdated to January 1st or will it be on a go forward basis.
Yeah Dalton.
I expect it to be on a go forward basis. So we are we've paid the Q4 royalty royalties of Gee, if I recall correctly 60 days after.
The period end on a quarterly basis, and so al quarterly royalty for the yen for 30 I'm. The same but has just gone through.
And being paid.
The next one that would be true would be pretty much but its only due at.
At the end of my so that would be the next state to consider.
And at that time, we would submit on the basis of what's currently in place.
And we would have to deal with that if if there's any change in the meantime, but no.
A clear indication that there wouldn't be any retrospectively there wouldn't be any look backwards.
So every quarter that goes through is resolved and wouldnt. It wouldnt be any look back to that.
Our next question comes from Farooq Hamed <unk> of Raymond James. Please go ahead.
Thanks, operator.
Kristin earlier in the call you made a comment that the world has changed in that.
You're looking at your cost structure and trying to figure out if it's transitory or structural.
Having your negotiations with various governments and drafting fiscal agreements what positions. You know can you kind of say that the governments are taking in terms of the cost pressures, you're seeing and the margin pressures you're seeing our governments.
Sympathetic to the cost pressures do they see it more as transitory.
Or are they factoring it into the negotiations in terms of expected outcomes in terms of revenue sharing or profit sharing.
Yes, that's a very good question I think what we're seeing so far is it's dawning stool and governments as to the precious certainly some of that's come through already you know directly to.
To consumers so fuel impacts people directly I don't think you've seen the full impact from food prices in some countries as yet because it takes time for those crops to come through to be growing and then obviously, there's a lot of storage and logistics in the interim.
So I don't think there is a full impact of that yet and that's reflected in the conversations that some of it starting to.
Awaken, but not sort of full exposure of.
Hum.
The broader impacts.
And I.
I guess uncertainty about what those.
Were those impacts could go. So for example, with its you know further sanction on oil or other areas you know coming out of Russia beyond what's currently in place.
In terms of our conversations we very much focus to make sure that as we go up and down through the cycle.
The protections in place.
We're a cyclical industry and so we need to be thinking of.
Ups is Willis downs and so it's part of our conversation to make sure that those level of protections are in place and that as you know.
Rival business sustainable.
Okay.
Long period of time.
In order to.
Invest $1 billion in Zambia or to continue forward in Panama.
Another 40 years or so.
Okay. So maybe we'd see some change in their state New Orleans standards related to that Mike.
My follow up question is just related to the intensifying cost pressures, we've seen in the last month or two months post the Russia, Ukraine conflict.
Can you talk to what options you have available to you in the in the very current environment in terms of locking in costs, our suppliers are willing to enter.
Short term supply agreements that locked in costs or are you really at this point or are you now or you are kind of at the whim of the market in terms of supply demand and availability.
Put supplies.
Yeah.
Yeah, we have been able to prior to the Ukraine crosses to put somehow we were starting to see inflation for example in sulfur and we were able to put some elements in place for protection I think then things have changed.
Since the end of February beginning of March.
And.
We're in a state of flux at the moment. So at the moment I think that's a harder discussion.
The.
So.
The same would be achievable right now on coal on an.
On sulfur for example.
We I think you know.
Laura that flux come through is not just on pricing in silver and lead times and so as a kind of congestion that you see.
In the Chinese ports.
It means that it's not just the cost. It's also when will when will that at some come through and.
So that's what we need to be aware of as well so that come.
To affect the market I think on things like spares.
Components that need to flow through and so we're doing a lot of work to critically analyze which says which elements.
Will there be a challenge on how to make sure that we have that area covered and it's in all the areas. So for example at the moment, we hear from our suppliers that filter material, which is a high moving awesome.
But the components that go into making a clean as it filters that are harder to come by.
Because all of the automotive industry, including our end on the truck side of things is competing for the same fuel to close.
And the orders went in before during Covid and now actually they've got quite extensive pluses the the logistics.
The shipping is going out in terms of duration. So it's a combination of factors and I think you know needs cool heads and working through the criticality to make sure that we don't get stuck out some of those key items.
Okay.
Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.
Okay.
Hello.
Thank you.
<unk> and I hope, you're all well.
Yes.
Yeah, I guess just two questions for me so.
I'd like to follow up.
<unk> question.
<unk>.
And.
Hopefully not to overdo this point, but.
Nate one comment actually Jonathan John Gregory I think it was you didn't know that you said, it's more of an issue of how the mineralization presents itself.
In certain areas and I just wanted to follow up on that in the context of sort of how the grades.
Energy performed in 'twenty, and 'twenty, one where they were quite materially below.
Technical report and.
Also in 2022, there now you know where you are.
Guiding is now quite quite a bit below the technical report and I'm just curious.
When you make that statement, you mean that where you expect to get oxide material, you're actually getting either mixed or sulfide.
John do you want to take the high.
Yes sure.
What are the common relates to weed mining in different areas than the actual plan.
Anticipated with that.
Plan, but present that we work in social cutbacks I don't just Q2.
Weather.
The access issues you can't work in that area, so you'll have to resort to another.
Area of the mine and that has a different style of mineralization.
So.
The ratio of oxide mixed sulfide that we have anticipated in the current budget was not necessarily fulfill during quarter one.
In terms of the technical report.
We are.
We are working again.
In zones that are not necessarily aligned to.
Cut back sequence that was contained in the technical report.
We're in the process of reassessing the mine plan as we have this as I've mentioned previously.
And we were looking at reducing.
Sorry, increasing.
Our waste stripping so that we can.
Ensure that we deliver on the plans for later on in this year in 'twenty, three and 'twenty four.
Yeah.
Okay. Thank you I know I know it was a subtle difference but that does help.
And then finally, maybe could I just get your thoughts on <unk>.
M&A in the copper space I know.
You guys are always looking how would you describe the current.
Opportunity set.
Sure listen I think.
This distinct answer as we focused on our portfolio we.
We think that the brownfields opportunity within the business.
<unk> cool and you know this.
No.
The surge in inflation and so on that that's the right focus.
More broadly as you say, we we.
Opportunities to come across the desk and certainly I think at the moment copper continues to outperform.
In terms of price.
As we see it on cost.
All boats are rising on our input costs.
But copper is he's out stripping them and I think you saw that in the Q1 results that.
Despite the level of costs rise.
We did reach record profits for the quarter.
The.
Yeah in terms of you know.
Opportunities then it does make it a challenging environment in order to you know.
To put a peg on a margin and how each asset has gone up.
But I don't think Youll see first quantum out the front of line bidding indirect comp.
Competition.
On big assets, where we try to look at things, where we can apply our capabilities to add value.
For shareholders at values that others.
You know I have found challenging all that we can work through it bringing a different approach to bring a different way of doing things.
As I stated.
Our real focus at the moment is on the existing portfolio and the important work that we're doing.
In Argentina on Tech Tucker for example, and also in here on the ground in order to bring those projects to a level, where we could make a decision in the next couple of years as to whether to proceed.
Operator, we're coming on top of the hour. So this will be our last question. Please thank you.
Certainly our next question comes from Ed Brucker of Barclays. Please go ahead.
Okay.
Hi, Thanks for taking my question, it's Ian here. So just two quick ones. I think are just wondering if your thought process around continuing to reduce debt at this point or is it something like you know more share buybacks or more dividends, especially in the context of net leverage levels are.
Well below that two times target currently.
Yeah.
Yeah.
Yeah, Hi, Dennis do you want to take that one.
Sure.
Yeah.
Look we came out on the capital markets day, the third week of January and maybe maximum level.
The limit would be two times net debt to EBITDA, but that is a.
Through this cycle price so.
When current prices.
If we look at a longer term process is it makes it so that so we still got some work to do in terms of that and.
That's the key isn't it.
Is the debt reduction and we've laid out the new dividend.
Policy at this stage dressed him I don't know if you want to carry on.
No I think that that's clear and that's what we have been cautious on the dividend policy and so yeah, we focused on that as a means to capital returns in the near term.
Buy backs and so on you know the board would have the discretion in the future but at this stage.
As Hannah says the focus is to continue the debt reduction.
And too cautious leases commence on on dividend returns.
Okay.
Great. Thanks, and then just the cadence of the debt reduction and you know in this year and then into early next.
It looks like you did close to 200 million taken out this quarter, which I think will leave about 800 million left for to get to kind of your additional 1 billion a reduction.
Coincidentally is the same amount as the term debt left outstanding in 2022, and then the rest of the 500 million in the 2023 maturities. So just wanted to get your sense on.
Where you'd look to take reduce that debt.
Oh, Macau bonds. The 'twenty threes are callable at par on the 24th stepped down.
September two.
Its callable at par level as well.
That'd be the bonds carry a coupon of 7% to around 70% some of them just below that.
So that's how most expensive late and you know that would be key to reduce debt. The term debt today is at amortization schedule attached to that so when we get a little little pay that down in accordance with the amortization as it says as and when it becomes clear. So I think the first focus would be on producing the bonds, which mature in our portfolio as the.
Most of the expansion states.
This concludes the question and answer session I would like to turn the conference back over to Christian Pascal for any closing remarks.
Thank you to everyone for your continued support and for joining today's call first quantum will be hosting our first in person event in Toronto next week, and we certainly hope to see many of you there as.
As well, we look forward to hosting our Cobra Panama towards later this year in September I enjoy the rest of your day and we look forward to speaking to you again at our next quarterly update thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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