Q2 2022 First Quantum Minerals Ltd Earnings Call
[music].
Thank you for standing by this is the conference operator welcome to the first quantum minerals limited second quarter results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Benita toe Director Investor Relations. Please go ahead.
And thank you operator, and thank you everyone for joining us today to discuss our second quarter results before we begin I will draw your attention to the fact that over the course of the call we will be making forward looking statements.
As such I encourage you to read the cautionary note that accompanies this presentation, our N DNA and the related news release.
As a reminder, the presentation that's available on our website and that all dollar references are in U S dollars unless otherwise noted.
She's been Pascal our CEO is dialing in from Zambia will provide an overview of operations and performance during the quarter.
Followed by habits Mayer, our Chief Financial Officer, who will review the financial results.
Hello wrap things up after which we will open the lines up for questions and with that I will now turn it over to Tristan.
Thank you Vanessa and thank you everybody for joining us today on our conference call.
The second quarter of 2022 was characterized by increased macro uncertainty and an emerging global economic slowdown.
This was most notable in China, where the continued zero Covid policy resulted in economic growth of 0.4% through the quarter.
Copper price as a result has declined substantially.
Currently down more than 30% from its highs in March.
Well I'm pleased to say that our debt position decreased by a further $476 million during the quarter and then our debt reduction target of $2 billion was also achieved.
I'm very cognizant of the headwinds that may face the company with a looming economic slowdown.
The debt reduction efforts over the last several years have placed our balance sheet in a better position to weather this slowdown.
The company is in a considerably stronger position when compared to slowdowns in the past.
And in order to build further resilience through these uncertain times, we will continue to target a further 1 billion dollar reduction in debt in the medium term.
Which tenants will speak more to in his presentation.
We will also remain tightly focused on driving consistent operational performance.
Full execution of our brownfield projects and.
And by taking a cautious and disciplined approach with our capital investments.
This may include deferring unsanctioned projects, if we deem it necessary.
The brownfield nature of our current growth projects combined with our in house experience.
He will also serve us well, we believe to navigate through these volatile times.
After a slow start to the year I'm pleased to say that we saw an improvement in production in the second quarter, we are making progress on catching up on the backlog of truck maintenance and mine development that was present in the first quarter is a direct result of COVID-19 towards the end of last year.
This catch up however will still take a few more months completely resolved. However, we had might headway.
In the second quarter, we produced 192668 tons of copper.
The second increase in the second quarter increase in production was entirely attributable to Cobre Panama.
Which produced 19800 tonnes of copper and achieved quarterly records in mining volumes throughput and also in copper production, which was very heartening.
Highlighting the excellent operating performance of the assets.
Increased plant stability and continuous improvement projects allowed for this record performance and we remain comfortable with our annual guidance range of 330000 to 360000 tons of copper.
Second quarter copper C. One cash cost averaged $1 54 per pound.
11% slower than previous the previous quarter as higher production volumes offset the impact of inflationary pressure for key consumables.
It's also important to note that our exposure to spot thermal coal prices remains limited until the end of 2023 due to the coal coal is in place.
Yeah.
In Zambia and extended rainy season into April and the lingering impacts of COVID-19 restrictions were largely subsiding deep continued to impact both Sentinel unconcerned she during the second quarter.
Here at the Central mine copper production of 52000, and 447 tons in Q2 was essentially flat compared to the previous quarter.
Sentinels mine production was behind the planned schedule due to the extended rainy season and challenging ground conditions early in the quarter, which delayed stripping in the stage two north wall and as a consequence prevented some access to higher grade ore.
The second quarter was also impacted by low truck availability and a backlog of truck maintenance.
However, the second half of the year is sitting up to improve.
<unk> hit a record in daily mill throughput in July and progress has been made on preparing the pit for an improved second half of the year through.
Through exposure good volumes of high grade ore.
We have maintained our annual guidance of central at 250 to 265000 tons of copper.
AG production is expected to come in at the lower end of the range.
C. One cash cost of one dollar a.
Pound in the second quarter was 27% higher than the preceding quarter, reflecting the higher input prices since the drying process again.
At <unk> copper production totaled 39719 tons in the second quarter of the.
2000 tons lower than the first quarter.
The extended riding season did restrict mining deployments.
And required supplement plant feed with low grade stockpiles.
We are currently installing additional pumping capacity and water from the <unk> oxide ore is expected to be removed by the end of the third quarter of the year, which will provide access to the schedule.
Oxide and mixed all the NATO water there.
Additionally, we monitor a high proportion portion of vines material in the quarter, some of which comprise narrow it unless mineralized veins, resulting in higher dilution and lower overall grades to the mill.
Our new geological approach to these narrower and lower mineralized veins is expected to improve optimize optimization of the mine plan in the near term.
Constancia is tracking towards the lower end of guidance or the guidance range of 175 to 195000 tons for the year.
Locke Sentinel copper C. One cash cost of consents you were impacted by price increases in key consumables. However, the lower quarter over quarter production resulted in a steep increase in cash cost of 37 to $1 83 per pound.
Yeah.
Yeah.
Speaking on costs as noted in the last quarter call. The broader inflationary environment has been exacerbated by the Ukraine conflict.
Resulting supply disruptions have led to an increase in most of our major input costs and we are seeing fuel explosives sulfur frights reagents and steel prices increased significantly.
Although they appear to have stabilized to varying degrees, albeit at elevated levels.
Group wide Capa C. One cash cost averaged $1 74 per pound in the second quarter.
For the first half of the year see one cash cost averaged $1 67 per pound.
Which is above the annual guidance range of $1 45 to $1 60 per pound and cost in the second quarter averaged above levels assumed in current guidance.
In recent weeks, we have seen some of these cost pressures ease such as fuel and sulfur prices, whilst electricity and expose it costs are tracking below our forecast.
Stronger production in the second half of 2022 should be a benefit on AR should benefit on a per pound basis and as such we are maintaining our guidance from April .
However, it should be noted that achieving costs within this range over the next six months will be dependent on the market rates for fuel another of our key.
Key important supply.
And the market price of gold and our other byproducts.
Moving onto discussions in our host countries. It was very pleasing to announce that during the quarter.
The I T repayment agreement was reached with the government of Zambia.
First quantum and the governments successfully resolved all points of contention that being stumbling blocks to progress the S. Three expansion and the enterprise nickel project.
This included reaching agreement in respect to the outstanding value added tax receivable, some and an approach for repayment based on offsets against future mining taxes and royalties.
With this agreement in place the board approved the sanctioning of the S. Three expansion projects and the smelter expansion of consent.
And the enterprise nickel project, New Sentinel, which I will discuss in more detail later in my presentation.
In Panama, there has been civil unrest in the country by the increased cost of living and unemployment, which has led to protests and temporary highway blockades around the country over the last few weeks.
Production at the Cobre, Panama Marlin remains unaffected.
We have been able to navigate regulus supplied through ROI books as they lift whilst parents just to add sorry to unaffected.
We also received supplies, including fuel through our wholly owned international Port, which has not been interrupted.
With regards to our workforce, which is not taken part in the protests. We are monitoring labor relations closely and we have transportation plans in place to move out workers safely to and from Celgene.
We are also employing effective work from home arrangements for all support departments.
We will continue to monitor the evolving situation closely.
Whilst discussions regarding born on are still ongoing the finalization of the agreement has been delayed to the extent as the government replace the responsible minister of Commerce and more recently has been naturally focused on resolving civil disturbances.
First quantum and the government of Panama remained committed to a swift conclusion of the lawn on discussions on the basis of the great principles.
And on ensuring that the new contract in legislation are both durable and sustainable way.
Downside copper price and production scenarios.
Okay.
With the publication about 2021 ESG report this quarter, we continued to deliver on our commitments on the development of the reporting on our ESG performance to our stakeholders. This is our fifth annual report on ESG and highlights the performance of the company across a range of environmental health and safety social and.
<unk> areas of our business.
We also published out 2021 tax transparency report June quarter. This report underlines the importance that we place on transparency initiatives, which provide stakeholders with clearer information on the contribution that first quantum makes to our host governments.
I would also like to highlight the positive impacts that we've had on that community initiatives, particularly the edge program, which was launched by a tried and colleagues in June .
Lots of Africa had the highest rates of gender based violence and the goal of this program is to enhance each bills access to education and training opportunities by helping them to stay in school.
At the launch of this program, we doubt we donated thousands of essential feminine hygiene projects at June two and we will continue to do this.
And see that has expanded to other schools in the surrounding communities.
Working with their local communities continues to be a core value at first quantum and I'm proud of the trial and the same for this initiative.
And with that I'll turn things over to Hans.
Okay.
Thanks, Kristen and good day to everyone.
I would like to direct you to the slide titled Financial overview, which is slide 11 on the website.
The company reported significant increases in both net earnings attributable shareholders and adjusted earnings today.
Together with a notable reduction in net debt.
Gross profit and EBITDA remained robust and were comparable to the same quarter in 2021.
Net earnings attributable to shareholders of the company of $419 million.
Our 61 basic earnings per share.
And adjusted earnings of $337 million or 49, six adjusted earnings per share.
She had significant improvement ever comparable quarter in 2021.
And benefited from higher net realized metal prices following the reduced hedge profile as well as a lower tax effective tax rate together with lower finance cost.
Gross profit and EBITDA of $629 million and $906 million respectively.
We're in line with the comparable period attributable to the higher net realized metal prices.
Offsetting lower sales volumes and inflationary impact on cost.
Papa C. One cash cost of $1 74 per pound was <unk> 45 cents per pound higher than the comparable quarter.
Impacted mainly by inflationary pressures seen over the past year as well as lower production.
Maybe it has decreased by $476 million this quarter, bringing the net debt level down to $5 3 billion as at June 30th 2022.
The reduction of $2 3 billion since June 32020.
Cash flow from up right.
Devotees was known at a $4 million for the quarter.
225 million higher than the same quarter in 'twenty one.
Due to a favorable movement in receivables working capital at the end of the quarter.
On July .
26, the company declared an interim dividend of 16 Canadian cents per share in respect of the financial year ending December 31st 2022.
Turning to the next slide financial overview.
As I mentioned previously earnings have increased significantly over the same quarter in 2021 with a lower effective tax rate for the quarter in line with the guidance as well as lower finance costs gross profit and EBITDA remained at comparable levels over the same quarter in 'twenty, one, but the benefit of higher net.
Realized process following the cessation of the H program.
<unk> by higher cost environment, as well as lower sales volumes.
Turning to the next slide in gross profit against the same quarter in 21 states at a more detailed the positive impact of higher net realized process.
This also shows the impact of increased unit costs over the quarter and I will talk about this in a bit more detail.
Hey, Terry.
The next slides on our copper unit costs.
Copper cone cash cost.
Of $1 67 per pound and all in sustaining costs of $2 32 per pound for the first expense.
Currently slightly above the top end of our full year guidance.
Total copper C. One cash costs for the quarter was 45%.
Pound higher than Q2 2021 as process continued to increase during the quarter for key consumables, including few.
Explosives steel prices, along with higher freight electricity charges.
As well as the impact of lower copper production levels.
All in sustaining costs for the quarter was 46 cents per pound higher than Q2 last year.
Reflecting the higher cash cost.
Turning to the next slide on debt evolution.
The reduction in net debt the company's leverage ratio also reduced and stands at one three times net debt to EBITDA at quarter end.
Turning to the next slide and the debt maturity profile.
During the quarter the company redeemed at par the remaining $1 billion of senior unsecured notes due in 2023.
500 million was redeemed on April 5th and a further 500 redeemed on June seven.
Thank you with that I'm going to hand back over to Justin.
Okay.
Thank you Hannah.
Yeah.
Despite the macroeconomic headwinds and inflationary challenges first quantum's balance sheet is in a stronger position today and the group will endeavor to continue to improve in this regard.
This will be through operational discipline and as Hans commented continued debt reduction.
I will now speak to our brownfield growth projects.
Due to the low capital intensity that brownfield projects that continue to have compelling economics to <unk>.
The global inflationary environment and current pricing environment.
Cobra, Panama as you can see from the pictures in the presentation.
Good progress has been made over the quarter with regards to the C. P 100 expansion.
Project is overall, 70% complete.
Procurement is 100% complete we supply ex works almost fully complete and deliberate to so it will be over 90% complete during August .
In terms of the key individual project components. The additional decant water long is well progressed and is expected to be completed and commissioned this year.
With ball mill, six and the screening facilities following in the first half of next year.
Almost six is making good progress with the mill shells, having been installed already.
For screening the vast majority of the modular Steve.
Steel and equipment has arrived on site and the modular nature of fabrication will minimize site construction time, we believe.
We remain on target for commissioning early next year to ramp up over the course of the year and exit 2023 at a throughput rate of 100 million tonnes per annum.
At the S. Three expansion engineering contractors have been engaged in procurement of long lead items commenced.
The longer lead items, including the ball mill mill marches and elements of the overland conveyor were ordered in June .
While we saw some price movement I'm pleased to say that pricing. These components are inline without capex budgets.
<unk> orders for mining fleets have commenced and are also in line with our Capex budgets.
Our current planning estimate assumes that two year delivery time on these major components nine.
Nine to 12 months on installation and first production in 2025.
Yeah.
Alongside the S. Three project, we will embark on the expansion of the Constancia smelter to one 6 million tons per annum of feet.
This project was approved by the board in July and will provide capacity for the additional copper concentrate from S. Three with the planned up upgrades to H B L.
This expansion is included in the company's three year capital expenditure guidance provided earlier this year.
At the Enterprise project mining contractors were mobilized upon board approval and pre stripping in the pit commenced in June .
<unk> has the potential to add 30000 tonnes per annum of nickel production and our current guidance assumes first production in 2023.
I was pleased to host his excellency the prison in Zambia, and the diplomatic representatives of Canada, the UK and the USA at the groundbreaking ceremony held at enterprise yesterday.
Before we go into Q&A. It is worth taking a moment to discuss the challenges that face the mining industry today and the challenges of bringing on new copper supply.
A global slowdown combined with a number of new projects coming into production over the next 12 months has made us cautious on the copper price in the near term despite continuing tightness in physical inventories.
However, in the medium and longer term, we do consider that the outlook for the copper for US remains positive as there is a lack of new discoveries and shovel ready projects in our view.
This combined with stringent permitting obstacles inflationary pressures and the escalating cost of capital, we believe will contribute to an even tighter copper market in the medium to longer term.
The current macro weakness and higher cost of capital will likely further deferred approval of new projects that will be needed to supply into longer term growing demand.
Yeah.
Our near term priority is therefore to drive operational performance and work hard to mitigate the cost.
Impact of inflation.
We will also take a cautious and disciplined approach to any new as yet uncommitted capital a sanction decision on the Las Cruces Underground project is not expected until next year and tech attach rate in 2024 at the earliest and any decision will take into consideration prevailing economic conditions.
Over the medium to longer term the outlook remains bright and we remain well positioned with our portfolio of long lived assets and organic growth opportunities.
Thank you.
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 youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then channel.
Analysts are requested to restrict themselves to two questions and are welcome to rejoin the queue. If they have more.
We'll pause for a moment does caller is trying to kill.
The first question is from Greg Barnes from TD Securities. Please go ahead.
Yes. Thank you Tristan notwithstanding the situation Panama right now can you give us an idea if any more discussions or meetings are scheduled on the law nine situation with the government.
And what the process is from here forward.
Sure Greg, Yes, so we have been having discussions with government all through this period and they are scheduled meetings ahead of us but naturally they are focused on the civil disturbance in the country at the moment, we have met with the new Ministry of Commerce Hany's part of it.
Those discussions.
And so we expect them to continue but in the background and obviously as support as to the government.
In terms of the challenges that they have in the community.
The proceeds from here again is that we were in the detailed drafting phase and really it's a green those.
Along the lines of the agreed principles with.
With a focus on ensuring that the new contract in legislation will be durable and sustainable.
Particularly during times, when we see carpal tunnel.
Prices come down with production.
And that debt dropping of the contract and legislation will then be finalized and I assume made public and then be going into the National Assembly. So the process remains the same and the stages remain the same it's really just around the delays we've seen with the new Minister and then more recently on the challenges with government choices.
With some civil disturbances.
Okay.
I just wanted to switch to the VAT rebate agreement with the Zambian government.
Is it fair to say, Tristan obviously based on copper price that this could evolve over a like a 10 year timeframe and you'd get a rebate or tax offset of $70 million ish a year is that the way we should be thinking about this.
Yeah, Greg.
This setup is that historic V I T and future Vit can be offset against future taxes and royalties there.
The reason to sit repayment periods.
And it's in proportion.
To revenues so it hardcore copper prices, the Vit receivable will be repaid quicker and at lower copper prices it will take longer but certainly the timeframe you mentioned unit as part of the assumptions and it's a mechanical formula So.
It will come through and we have shortened the repayment.
But at least sort of prices the timeframe that you shouldn't seems appropriate.
The next question is from Emily Chang from Goldman Sachs. Please go ahead.
Good morning, Justin and had US My first question is around Capex and it looks like that hasn't been changed whether yeah. And then you you've made some progress on the procurement process for <unk>.
Long lead time items, but what factors are there within that budget could you see potentially drive upside risk is labor inflation, a key issue for you.
Thanks, Emily Yeah, So as I said and consistent what we sit and in the quarterly.
The procurement at Cobre, Panama. The C. P 100 expansion is complete and we largely delivered so it would really only be on you know remaining fright.
We were confident of our labels around freight than we have seen fright come off from the really challenging times, which is probably a year ago now and freight rates start to improve or just the first into the improvement.
So it would really just be on installation.
With its an overrun our labor in terms of labor itself. We have we follow a different model to me.
Any other projects that we largely self perform and so you know that skilled labor.
It really comes from our own existing team and so for example, new.
Installations the team.
Has done the Sentinel installed the Panama installs will go onto the S. Three installs in time so.
We don't have quite the same exposure to skilled contractors or the use of contractors that may be moving up and down at higher rates.
And so we see less of that as a risk at his three we're in early stage, but so far in looking to place orders in the first orders have been place we've been on track with budget.
And we do see depending on how sticky these prices on how long they lost that potentially we will see further improvement in and freight and so on depending on fuel prices that we might be able to benefit from given the timetables for delivery over the next two years sorry.
Yeah, So I don't see any major huge risk at cobre, Panama at all and its three although there is some exposure potentially we will see some unwinding of these higher price levels, depending on fuel prices and so on.
Understood that is fairly clear Tristan and maybe a quick follow up is just around the economic environment that is driving some of these decisions whether to proceed or not with these brownfield or greenfield projects, but what do you need to see changes.
Copper price level, a is it a balance sheet metrics or what changes this decision making process from here.
Sure Emily we will be taking a cautious and disciplined approach to new projects. So.
C. L C Tech attack again, we like those projects, we like the way that they stack up sale sees more capital intensive, but it's a low cost producer in the in our goods.
Table environment and tech attack.
We need to manage and understand in Argentina, but the project itself stacks up very well in terms of production of copper and the financials around capex and the timing of that outlay. So really the decision from here around making sure that we maintain a disciplined reduction in debt and obviously.
That will be.
B are determined by copper price to an extent in terms of the pace of that reduction.
But until that reduction does come down we will certainly be taking a more cautious approach.
And tempered by a copper price Sydney's as an input to that but cognizant that in the longer term, we do see.
Supply shortfalls projects that.
You know challenging to get off the ground and so.
Unlikely to become.
That there'll be much more come coming into the copper market I've been sort of medium to longer term and that does provide a good basis for those projects.
Once we get the debt levels to a good position.
Okay.
The next question is from <unk> <unk> from Scotiabank. Please go ahead.
Hi, good morning.
Given the challenges that the Zambian operations have faced in the first half of the year I'm. Just wondering you seem pretty confident on.
Seeing an improvement H, two but how should we think about 2023 and 'twenty four like is there do you see should we be thinking about similar downside risks to those pre.
Previous guidance numbers.
Hi, Thanks.
Let me speak about both operations Sentinel, where I am currently and concern.
So at Sentinel, we have been focused in the first half of the year on getting through a period with lower truck availabilities, but also some where the areas, particularly Indian dam six way. We are set up now is that we we've been pushing.
Volumes through the plant in order to make sure that we are we give exposure for the second half of the year and not getting trapped into sort of diving in on grade. So for the second half of the year. What we see is we have a broad areas of good grade better exposed in the in the north that will be spent to bear.
<unk> of sequence material that needs to come off in the bottom of the pit, but we're in good shape, there and neither dam six area, we now and hard rock and directly above some good volumes of high grade materials that are in.
Close proximity to the new Crusher for station.
And so some good efficiencies that we're able to provide there. So we have every confidence in our ability in the second half to deliver at Sentinel and then looking forward to 'twenty three 'twenty four the Monty you set up well.
Now that is through that period of getting through <unk> and on the north wall, providing that exposure.
So Sentinel Auris, we believe is well shaped.
That concern she.
Really the challenge has been around grade and dilution. The copper is there with very comfortable we've been through at.
At current iteration of the reserves and resource and that's demonstrated to US an increase in tons and an increase in grade. So it's three remains well positioned.
But really we've been the challenges at Constancia is that we've been held off on that project and the proportion of oxide and mixed material has been reducing so we more and more reliant on the sulfides and the current areas that we're working on and sulfide have been characterized by narrow veins, that's about 20% of the sulfide ore body.
But the reality is those narrow veins have we have been seeing a high dilution the broadest sulfide ore body, which is the strata material.
It's far more disseminated, but that's not the focus of the current work areas. So we have improved our understanding of the model through the course of 'twenty to 'twenty. Two a lot of hard work has gone into that and I believe that will allow us.
Our near term mine plans to to better optimize our production from those areas.
And then looking forward into 'twenty three 'twenty four we've done a lot of work on stripping to provide access to other areas that can provide good sources of feed.
And then in addition make sure that we get the water out from him 12, which is a good source of oxide around 2 million tons of reasonable grade in the very near future.
Okay. Thank you and just as a follow up you mentioned earlier that.
If the copper price were to weaken or perhaps we can further you have some flexibility in terms of reducing capex plans and I think you set of projects that have not been sanctioned so I guess in the next few years that specifically would be around last Christmas can you give us an indication just roughly like if you.
<unk> decided to just wait on Las Cruces, how much capex would that potentially save you in 'twenty three or 'twenty four.
Yes, so Chris we haven't put las cruces into the guidance. So there would be no change from the current guidance.
What we do see is the is we will need to be doing some work there on the watering and that's just in preparation for the underground mine and that continuing work would've also differ some of the shutdown.
And mine closure costs that come through so that's what we would be doing is pushing at mine closure in anticipation of a decision.
And that would have some outlay, but we haven't included any outlay for the underground project in that guidance.
Okay.
The next question is from Jackie <unk> from BMO capital markets. Please go ahead.
Thanks, very much I just wanted to follow up I guess on the comments you made earlier and in a bit on Emily's question, when when Youre talking about procurement and the long lead time items that you're ordering you said that there are in line with your budget already which are which is excellent news, but maybe a little bit surprising given all of the cost pressure.
Sure. So we've been here and so I was wondering Chris if you wouldn't mind, giving us a bit of color on that.
The the market or the process that.
That you're seeing right now for long lead items and is it difficult for you guys to stay within budget or maybe it's related to the fact that there's fewer projects being built now but like how competitive is it right now for for Capex projects.
Thanks, Jackie that's a good question.
Look we placed the order for the mill and.
We were sort of in a budget was in the region of 30 to 32 million something.
Looking at the Rep brand drives and so on they have been.
Around the numbers that we thought they would be in terms of their expectations as we set guidance for Q3 last year.
And then on input crushing equipment and so on slightly over but not that we dramatically different from where we were sitting in Q3 last year I think that probably is around the delivery times as well and we're flexible in that we have in terms of the delivery for a three.
And then in terms of.
John you might comment on mine fleet, but we have seen that some deliveries on <unk> face a definitely uncompetitive been going at a long way.
But then.
In and amongst our capabilities and looked and speaking to different Oems have been able to find we believe competitive terms for mining equipment.
Like trucks, and and load loading equipment, John do you want to comment further.
Yeah sure Tristan.
Jacqui, what we have found is that by going to the market. We signed up this considerable range both in terms of delivery and.
Actual capital.
For the fleet. So we have spent a lot of time looking at them. The most practical mix and extension of the current fleet that we have at Constancia.
And that is that is making use of.
Existing partners wherever possible so that we can utilize their infrastructure as well as outside of it and we have been.
At this this near completion stage, we are very.
I'm pleased that we've been able to keep well with them.
The capital total that we had set ourselves.
Last year or the year before.
So we are we believe that the mining fleet will be delivered in a reasonable timeline.
And within capital budgets.
Okay.
The next question is from <unk> from Deutsche Bank. Please go ahead.
Thank you Mani and thanks, a lot for the presentation I have a couple of questions. Please.
Just first question is on the Zambia.
I didn't hear you mention the great guidance for sentiment are you still happy with what other guidance for FY 'twenty to be in.
In line slightly higher than FY 'twenty one.
Yeah, Andy we see it.
At the moment, we're trending towards the bottom end of that guidance, but we're happy with the guidance that we provided which was 250 to 265000 tons of copper from <unk>, we see a 2022.
Yeah.
Got it okay.
My second question is regarding design tradeoffs, even cash costs you saw in June and July .
During the call you mentioned you have seen a rollover than raw material prices led by suddenly put in field. So could you tell us what the run rate of the Steven cash cost was in June and what you've been seeing over the last couple of weeks go ahead, but so but I understand you know how the.
How do you plan called the costs have developed.
Sure and what I can say is it's volatile so.
You mentioned sulfur price and we've seen it fall from what were extreme highs and really in the last couple of weeks combat a significant runoff down towards $100, a ton, which is a long way from where we were.
Even a few weeks ago.
Yeah.
Certainly volatile in terms of pricing fuel you mentioned is high and can continue to drift a little bit higher but we haven't seen it come down in recent weeks just off the back of our energy.
Energy security relaxation.
I think it's still an area of uncertainty looking forward.
Next six months or so.
In terms of our other major cost drivers.
As an example, we've seen fuel, which was perhaps 9% of our business out.
All of our cost structure at this time last year's increase of ready to around 13% of the cost structure. This year.
In terms of other movements labor, which was lagging I think in Q1 has picked up now and and we are seeing that inflation on the labor side, which was expected.
Maintenance, which goes alongside with that library and spare parts provision.
At high levels, but then.
Things like steel ball mills would definitely have stabilized and within our guidance numbers.
Tracy has actually come off a bit.
From where we were pricing our guidance numbers explosives of bidden ammonium nitrite is much lower than where it was when.
When we were posting I've gone and some of that so I think the overall picture is one of volatility.
Our movement up in prices, but in more recent weeks stabilization and even some reductions from from the extreme high levels.
Got it very clear if I could squeeze in one more question. So regarding the ongoing <unk> nine negotiation. So you did mentioned it'll be.
Focus has shifted to the opposite to the social unrest.
I mean I'm trying to understand has the.
Scope off the conversation also change trying to understand you know the Goldman.
Walked back on the deal, which was likely due in Jan and.
Trying to impose a higher taxation.
Pardon me, Sir I am.
Okay.
Yeah.
Go ahead, if I can take the question its final Friday no Andy.
You know the principles that are in front of us remain the same and it's really getting.
Finding out the final items and getting into the drafting the detailed elements of that but the focus of discussions.
The clear natural priority for.
For the Civil service is at the moment.
And certainly we support the government in terms of that resolution.
Next question is from Jackie Carlsbad.
Cause by the Husky Ah you can ask your second question sorry about that.
No problem. Thank you. So my second question was going to be on capital allocation.
Congrats on bringing the debt down to your target level, that's great to see and I see you've got another.
Targeted debt reduction level, but especially.
Especially I guess, if you are pushing out some of your longer term growth projects.
And let's say, we assume that the copper price cooperates.
Can you give us a little bit more color on where your capital allocation priorities would be if you. If you. If you had the capital would you accelerate that.
Pay down or would you raise the dividend up further from the 15th until you declared last night or like can you just give us some thoughts about what how how you leave that out.
Sure Jackie. Thank you, yes, the focus would be on debt reduction I think that would be the prudent course, and certainly that's been the focus poorer commitments to make sure that we reduce debt as quickly as we can and as you mentioned, we have targeted a further $1 million reduction in net debt in the medium term.
And if copper prices do come back up we would so in accelerating that.
In terms of the dividend.
It is a cautious start to dividends at 15% of free cash flow and provides us the opportunity to the dividend, we announced at 16 cents looks back to outperformance.
During 2021 and provides the opportunity for shareholders to share in that performance.
And but we would that come the calculation is done after we posted.
Capex.
That's needed for the business and for the guidance that we've provided in terms of the brownfield projects.
And.
If copper prices.
Increase from this level and if we hadn't repay debt then I'm sure. The board will be looking at that as a means to to adjust things.
But also looking at the opportunities on Greenfield projects in the future. So really the priority is dead.
Keeping and making sure that we provide.
Sharing of performance.
With shareholders in the dividend stream.
Thank you.
The next question is from the island as a muscle that's from Morgan Stanley . Please go ahead.
So thanks for the presentation.
A couple of questions left from my side the first one on.
One of your cautious view on the copper price in the near term.
Are you considering or thinking about potential hedging activity or is that out of the question.
Hi Owens.
Yeah. So I think the caution on copper price comes from just the additional production, we see coming in from new projects, such as <unk>, two <unk> and so on.
But also then.
That uncertainty in terms of offtake in demand in the very near term from China. One song, although we have seen some easing on the logistics side.
And the Lockdowns.
The access with shipping and so on into China through recently, certainly inventories remain very tight.
But yes you.
To your question.
We we do think that the copper price.
Yes, it has some volatility to it in the near term, but over the longer term, we see improvements and a lack of supply.
Continuing.
To me that demand will outstrip that so we.
Mind very confident in that.
Okay. So theres no no urge to hedge at this point I guess based on your comments.
Yeah, Yeah, and as we wouldn't be hedging at the moment.
Not a natural hedge there.
And we.
We see that.
In the longer term the copper price.
It's marked by uncertainty in the near term certainly.
But in the longer term, we have every confidence you know.
Yeah, Justin I might just add that.
We don't generally hedge so we age when we've got big capital exposure Big capital commitments.
And when we had set of requirements to meet covenants and cash flow from a balance sheet point of view that as a big projects in terms of Panama is now behind US plus we've got the additional cash flow coming actually from Panama, Panama. So the company is a much stronger position even at lower processor.
It's not really that need now for us to go into that.
Okay.
The next question is from Karl Blunden from Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for the time, just a couple on the balance sheet nice to see that reiterate a debt reduction target. When you think about the ideal mix there of what that you'd want to reduce is it a mix of bank and bonds or at this point in time should we think about it is more focused on the bonds.
Similar to our recent actions.
Thanks, Carl Henning do you want to take that one.
Sure call in the presentation, we outline the debt maturity profile.
You will see that.
This year, we've got $228 million of term loan due in the same vessel. We will pay that then they made $455 million a 23 and 24 of term loan so that will naturally be pay down.
The bonds of course callable most of them, except the 27th.
It will be a mix between the two term loans paid as and when do you.
And then.
Utilizing excess cash to.
Pay down bonds as well.
That's helpful. Maybe getting just a little further ahead when you think about reaching that debt reduction goal of $1 billion less is that should we think about that as like the steady state that you'd want even if you go after larger growth projects are at that point in time could could you think about adding more debt to the the business if conditions are supportive in the capital markets.
The caller I'd like to.
Keep out dates or our bonds profile currently NSA.
Early bond not callable as the twenty-seven bump.
So at some stage, it's probably worthwhile to add another one probably not at the current sort of yields.
So at some stage, we will come back to the market just to keep.
Keep that profile currently it's not that we need the liquidity at the moment, it's more it's a good part of the funding mix.
So I think in the longer run you probably.
To think about as sort of $3 billion total loan portfolio. You know currently we've got about I think it's $4 7 billion outstanding. So you would see the bond portfolio still reducing fair.
Further.
And in the longer run I do see it as part of their long term capital structure.
Okay.
The next question is from Ed Brucker from Barclays. Please go ahead.
Hey, Thanks for taking my question so in relation to those questions and staying with the balance sheet.
It sounds like Youre looking to potentially hoard cash I'd say you know ahead of it.
Call it environment.
But to potentially reduce the total debt level do you think you'd be able to or maybe think about taking advantage.
In a difficult environment with the bonds trading at a discount potentially taking those bonds out in the open market.
Hello.
Yeah.
That's always an option available to us.
But not one that I would like to comment on.
Okay.
Got it Thanks, and then my second question.
Just relations with the Panama communities, given you're asking about what's going on in the country can you dive in a bit more on what you're doing to help those communities and community relations are there and then the confidence that there won't be disruptions at Cobre Panama.
Sure Ed Yes, there's been a lot go into working with the communities alongside demand itself and as I said, we we somewhat removed from.
The main area of civil disturbance, which is being focused on really the capital cities.
Loan and Panama City itself, particularly inside the city and.
So being somewhat removed it's much more about moving out people backwards and forwards from them and we have people that come from all over the country from the west and so on regional areas as well as the capital cities.
And making sure that we can get those people through the sought and is as I said.
Where necessary, particularly in.
To support the power.
<unk> such as commercial finance so.
Hi, John so on that.
We've learned a lot from the Covid period, and working from home and so its been straightforward to implement that again and that's so we haven't seen disruption in that regard.
But then as you.
And towards your question working with the communities outside the ongoing livelihood support programs that we had in place in during the pandemic given the curtailments in economic activity continued to be valid and so we're focused on supporting those communities in terms of outreach directly into their livelihoods emergent.
See funding when necessary.
But then making sure that they have access to education health care and so on so we have been for example, providing a radio education to school children and so on and those programs continue on but then you know I think really the strength has been that the communities around us because of the economic activity at the mine.
<unk> seen the benefits of that and it remained strong supporters notwithstanding the situation in the lodging the largest centers such as.
A couple on in Panama City.
Yeah.
The next question is from Jet Center go out from Exane BNP Paribas. Please go ahead.
Thank you operator, good morning, and good afternoon, I've got two questions first one on the.
Distributions to shareholders, you worked with 15% of our cash flow distribution policy with the minimum and sent.
Is there any flexibility within that to go for buybacks, especially given how the share has triggered a motor symptoms.
Would you not do a buyback and then you can connect with much larger something which can be much more effective in terms of a buyback that's the first one.
Second one on the Las Cruces underground given European bothered guests places and the visibility that you might have is early 'twenty, two and three still realistic to make an investment decision there. Thank you.
Yeah. Thanks.
So firstly in terms of a buyback we do understand and we see that that's another option.
Another string in the boiler in terms of shareholder returns.
As.
As I've been saying that the focus is on.
And our prioritization is on repayment of debt and we want to see that come down we are targeting that billion dollar mark up from you.
Moving on from that what we have achieved at the end of the second quarter, which was a $2 billion reduction and so that's the focus and the commitment I think once we get to lower debt levels.
Then we would look at that.
In line with and depending on the copper price, but at the moment.
And a cautious start to dividends, which is appropriate.
And we believe that that debt capital return.
Policy.
We will remain in place, particularly as we look and way up opportunities around capital projects and you mentioned CLC underground in terms of the timing Yeah. We look we're not adjusting the timing at the moment certainly.
Given current market conditions, we will be cautious and disciplined around that decision and it might be appropriate to defer that depending on copper prices.
This stage, we are not moving the timetable for that decision.
We will weigh that up and circumvent circumstances in the macroeconomic environment, when we get to that point in time.
Operator, we're coming up to the hours. So this will be our last question or the last analysts will take questions from thank you.
Thank you.
Anil question is from Dalton Barreto from Canaccord. Please go ahead.
Thanks for squeezing me in guys. Tristan just one question from me you've talked a lot about consumable pricing and how that's impacted your cost, but I wanted to ask about wages and labor cost just given what's going on with the cost of living in.
Some of your host countries and I'm just wondering a are you under any pressure to hike wages b is any of that baked into your estimates and see how much will that impact your costs going forward. Thank you.
Thanks Dalton, Yeah. So look wages certainly were lagging our labor costs were lagging.
Through Q1, and we are starting to see that catch up now.
It's different at different sites.
In Zambia, we have certainly seen the.
Because of the movement in the exchange rate from the low of around 22 23 up to its current levels that has had an impact on the U S. Dollar cost about a library in Zambia, We did go through the CLA negotiations earlier this year at Sentinel and it has now brought in line with Constancia year end timing. So we'll go through.
Through the CLA negotiation for both mines are due in 2023.
And we will start that discussion towards the end of the year.
I would expect that there'll be some inflation in that given.
Yeah.
Input costs for families and for employees.
Fuel prices did food prices.
In fertilizer prices and so on which really.
The large component of the basket of goods in Zambia.
In Panama.
<unk> not jus wage negotiations, we have two unions, there and the wage negotiations will be in 2023, and 2024, but I think that again, we will see some inflation in U S. Dollar denominated so we don't see the exchange rate movement.
But certainly inflation in Panama has.
You know around the levels of the U S. If not a little bit higher and so.
We'll manage that through the course of those negotiations.
The.
The other element there in terms of.
Lighted negotiations is really around over time and certainly in Panama.
Being higher because of the restrictions on numbers onsite visits starting to ease now and so.
I think we'll be able to offset some of that cost in terms of.
Reducing overtime, but in terms of the overall impact on our business.
This quarter LIBOR was around seven.
17% of the cost of the business.
And.
And also a major component of our contracted cost which is perhaps around 11%.
Overall cost structure of the business as an indication of where it stands I will just add that in certain markets is very different so in Turkey inflation is currently around 75% in Turkey year on year and so that's an area, where we do we've intervene directly in order to make sure that our employees.
Standard of living is maintained and if we need to intervene there again.
Perhaps in the next six months if things continue at those rates then we will certainly look to do so.
We've seen that in Argentina as well.
In terms of the projects and some of the people working there.
Inflation has been pretty dramatic and if we need to intervene we will do so.
That's great. Thank you for that color, so just to clarify, though in Zambia and in Panama.
You don't intend to address wage rates until.
The negotiations are due.
Okay.
So we cover that each year in any event and Tim So the ongoing CLA those are programmed IND and theyre running at or just below the level of inflation at the moment in Zambia and in Panama and will be addressed in the course of next year.
Okay.
This concludes today's question and answer session I would like to turn the conference back over to Tristan Pascal for any closing remarks.
Yeah.
Thank you operator, I would like to thank everyone, who joined the call today and the market has certainly been very volatile recently and I'd like to thank our shareholders for their continued support through these uncertain times.
Please enjoy the rest of your day and the summer 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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