Q3 2022 First Quantum Minerals Ltd Earnings Call
Thank you for standing by this is the conference operator welcome to the first quantum minerals limited third quarter results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
Join the question queue any press 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 Benita toe director of Investor Relations.
Please go ahead.
Thank you operator, and thank you everyone for joining us on our call today.
During the call, we will be making forward looking statements and as such I encourage you to read the cautionary notes that accompany the presentation are N DNA and the related news release.
As a reminder, the presentation that's available on our site and that all dollar references are in U S dollars unless otherwise noted.
Today's call will be trips in Pasco exec.
Executive Officer with opening remarks, followed by really bad and of course, our Chief operating officer, who will provide an overview of operations during the quarter.
Brian Williams, our Chief Financial Officer will follow with a review of financial results.
We'll then wrap things up after which we will open the lines up to take questions and with that I will turn it over to Christian.
Thank you Vanessa and thank you everybody for joining us on our conference call today.
Concerns of a macro slowdown and they've accelerated since our last conference call and while there continues to be a healthy physical demand for Copa.
We have not seen erosion on this front the copper price has declined from an average of $4 31 per pound in the second quarter to hover around $3 40 per pound today.
This pricing environment combined with broad cost inflation has led to margin compression across the industry and for first quantum.
Despite this challenging environment, we saw real operational improvements during the quarter, which really will speak to later on the call.
Our commitment to paying down debt over the last two years has placed our balance sheet in a better position to weather. The challenges ahead of us and the companies and our strong a considerably stronger position when compared to slow down so the past, which Ron will review.
I remain confident that with the quality of their operations and experienced team, we are well positioned to navigate through the current period of challenging macroeconomic conditions.
We continue to be focused on driving productivity and cost improvements at our operations and exercising financial discipline to preserve the balance sheet.
We will manage capital expenditures prudently, which may include the ferring as yet unsanctioned items.
I will now address the guidance changes that we announced yesterday evening.
With that third quarter results, we load out 2022 production guidance to between 755, and 795000 tons of copper a 6% decline from the midpoint of our previous guidance.
The main reason for the lower production guidance is concerned she which I will address.
But before going into more detail about consensus I don't want the strong operational performance at Cobre, Panama and Sentinel to be overlooked with today's guidance changes.
The operations are set up very well for next year.
Panama once again achieved record quarterly production at the mill achieved throughput rates of.
95 million tonnes per annum on an annualized basis.
And since we will achieve that target run rate of 62 million tonnes per annum on an annualized basis ahead of schedule.
It really will discuss bite these accomplishments in more detail when he speaks.
At Constancia, we lowered this year's corporate production guidance to between 140 to 150000 tons of copper, which is a 22% decrease from the previous guidance.
The lowered guidance reflects the challenges year to date of the operation.
This year, we experienced an accumulation of the water in the mine pit after an extended rainy season, but this was resolved by the end of September when the pit was fully to waters.
As a result, however oxide ore mining in Q3 was restricted and resulted in supplementing all feed with low grade and tonnage stockpile materials.
This was a setback for this year at Constancia, but we have built greater redundancy into the de watering infrastructure in order to provide greater insurance for the upcoming rainy season.
We are preparing consents you to transition to more sulfide ores as the oxide ores continue to deplete.
The sulfide ores, which are the future of the operation a lower grade and hence the mine will need to transition to high volume operations in order to offset the great decline.
We have known about this for some time.
Although we commenced construction of its three some music Guy we subsequently stopped the project.
Important to be disciplined and 90 proceed with a supportive investment climate in Zambia.
On this we have seen significant progress in the last 12 months.
The budget speech by the Ministry of Finance National Planning two weeks ago was the further step forward in this regard and reinforced their decision. This year to proceed with the S. Three expansion.
As you May also recall during the second quarter. We also conducted detailed updates of the geological model at Constancia that confirm that 20% of the sulfide ores comprise vein hosted areas.
Given the nature of the vein and lower grade profile of the sulfide ore body production volumes at Constancia I expect it to continue at lower levels until the completion of the S. Three expansion projects in 2025.
With the expansion concerned she is expected to return to a 200000 tonnes plus copper producing mine with several of the initial use above 250000 tons of production per year.
And deliver the increased volumes into a better macro environment.
I remain confident with first quantum has in house capabilities on the successful execution of yesterday expansion, which will be similar in nature to the three trains that are currently operating at Cobre, Panama and the two trains currently operating at Sentinel.
Among the guidance changes was also an increase in S. C. One cash cost guidance range to $1 70 to $1 80 per pound of copper produced.
The cause of the increase is two fold.
It reflects the lower production from the Zambian operations, and secondly, broad cost inflation, which continued to increase further during the third quarter and remain at elevated levels as Rudy and Ron will discuss in more detail.
With that I would like to handle that Rudy.
Rudy to review our pricing.
Yeah.
Thank you Justin and good day to everybody joining us on the call.
I am pleased to say that the production improvement we saw in the second quarter.
Continued into the third quarter with gold production of almost 195000 tons.
The quarter over quarter increase in production was largely driven by himself.
Which saw a step up in drayage.
Along with continued strong performance at Cobre Panama.
Challenges are concerned you continued into the third quarter, which will go into more detail at the moment.
Corpus see one cash costs that would be $1 82 per pound in the third quarter.
Up from $1 74 per pound in Q2.
The impact of inflationary pressures was felt across all three months in the quarter.
As you look through higher cost inventory.
This cost inflation was partially mitigated by an improvement in production volumes.
During the quarter, we were pleased to have hosted an analyst and investor to Cobre Panama.
And showcase the excellent operating performance of the asset.
After a strong second quarter. The operation continued its strong operational performance into the third quarter.
Cheating record mill throughput.
$2 4 million tons of ore.
With an average head grade of 0.46% copper.
This resulted in another record achievement of just below 92000 tonnes of copper in the third quarter.
C. One cash cost of $1.40 people found was down 11 cents a pound from the previous quarter.
And simply driven by higher production volumes despite cost inflation.
The operation continues to benefit from improvements in blasting and mill availability.
And consequently, we have no <unk> to 2022 guidance at Cobre Panama.
Between 340000 to 350000 tonnes of copper.
The operation is well on track to exit.
At the year at a rate of 90 million tonnes per annum.
As for much of September post the routine fact multi line.
No throughput was at or above the run rate of 95 million tonnes per annum.
As I mentioned earlier.
The quarterly improvement in group life production was largely attributable to seasonal which produced approximately 64100 tons of copper.
This was a 22% increase in production from the second quarter.
That means that the operation has achieved its more stupid someday, so I'll get off 62 million tonnes span out equal.
So to speak.
And well ahead of schedule.
During the quarter. We also saw a step up in all grades of high grade ore was exposed in the stage, one and stage two pits that change at all.
She one cash cost of $1 77 pounds.
It was 6% lower than quarter two as.
Hi production more than offset the impact of elevated cost pressures.
So it is expected to continue to improve from the fourth quarter.
As higher grade ore is exposed.
The operation is well set up for 2023.
However, due to the slower turnaround debentures earlier in the year.
We have lowered the 2022 copper production guidance for St. Jude.
So between 240 and 250000 tons of copper.
Continued challenges had been saying she partially mitigated the production improvements at St at all.
During the third quarter Ken.
Ken. Thank you produced 29900 tonnes of copper, which.
Which was down 25% from the second quarter.
Due to lower grades across all three of the ore types.
As Justin mentioned, whilst the mindset was dewatered.
At the beginning of September .
Movement within the pit was constrained for much of the quarter.
What's your restricted access to main 12 cut back the bottom up with it.
The worsening of the mindset was completed towards the end of the third quarter.
And planned mining activities resumed.
However for the majority of the quarter. It was nice to see to supplement feed from stockpiles of lower grade oxide ore.
And garnish sulfides.
We continued.
You have seen from narrow veins agents.
In the third quarter as well.
Cash costs of $2.93 a pound.
It is considerably higher than the previous quarter.
Lower production and continued high cost for key consumables.
As a result of the challenges to date.
2022 production guidance Atkins century.
It's been lowered to between 140 and 150000 tons of copper.
Full optimization of mining from the sulfide ores.
As anticipated when the money methods moved from current Leach monies techniques to full fledged shovel mining technique.
The new money for the HD expansion is brought online over the course of next year and into 2024.
Until the completion of the project. The Honeywell production volumes are expected to continue at these levels as a result of higher proportion of sulfide ore will be mined.
I will now hand, it over to Ryan for the financial overview of the third quarter.
Thank you Rudy.
As Tristan and really highlight the company's operational performance improved during the third quarter.
The macro environment, however has been challenging.
As noted on slide 13 third quarter revenues of $1 $7 billion, a 9% reduction from the second quarter.
Production volumes increased slightly from Q2 and for the first time in 2022 sales exceeded production.
This was as a result of some improvement in shipping and supply chain logistics globally.
However, improved sales were not enough to offset weakness in the copper price, which fell 18% quarter over quarter.
This fall was driven by western macro sentiment.
With recessionary concerns front of mind and interest rates rising globally.
And usually for a period of pricing weakness the micro remains constructive.
As you can see from the chart at the bottom of the Slide Global Cup of stocks have continued to fall and now are now at the lowest levels seen in more than five years.
Generally our parents a copper price weakness prices of key inputs also poll, which provides a partial offset from a margin perspective.
This quarter. However, this has not been the case.
While metal prices have fallen oil gas and coal prices have all remain elevated.
The same chart demonstrates this contrast, with the steeply falling oil to copper price ratio over the last 12 months.
The oil price directly impactful diesel prices and is often highly correlated to reagent freight and energy costs.
As a result, I'll see one costs have continued to rise to $1 82 per pound this quarter.
This combination of falling revenues and increase in costs has led to EBITDA margin compression declining from 54% earlier this year to 34% in the third quarter.
We did see some early positive green shoots on cost inflation as some input costs started to fall later in the end of the third of this quarter.
Well fell from $123 per barrel in June to $90 per barrel in September .
Marine freight rates a major global container routes also fell by approximately 15%. Although there has been a minor recovery in bulk rates in recent weeks.
Health of prices, which represent approximately 20% of ravensthorpe costs have fallen by 80%.
While these costs are now starting to slowly move in the right direction. The full effect of this reduction will not be felt until 'twenty two 'twenty three as operations work through current warehouse inventories.
Slide 15 highlights that as a result of lower margins Q3, EBITDA fell to 583 million net income fell to $113 million and earnings per share fell to 14.
The EBITDA waterfall on slide 16 highlights that by far the biggest drive up the reduction in EBITDA was lower metals prices.
Okay.
Slide 17 outlines the changes made in Zambia fiscal regime as part of the annual budget presentation on September 30.
The mineral royalty calculation was changed to be on an incremental basis and an amendment was made to the mineral royalty bands.
This announcement reduces the company's effective royalty rate for next year by a range of one point bias to 325% depending on the copper price.
These changes in conjunction with the removal of the non deductibility of mineral royalty taxes at the start of this year brings.
Brings the Zambian fiscal regime more in line with that of other mining jurisdictions and Caribbean improving zambia's competitiveness.
Yeah.
Moving onto slide 18, and the balance sheet.
Debt reduction remains a priority why margin compression will slow the rate of reduction.
Since peak debt in Q2 2020, the company had decreased net debt by $2 $3 billion.
This includes the $1 billion redemption of the 2023 notes earlier this year.
Importantly, the company's credit ratings with S&P and Fitch upgrade early upgraded earlier this year to be plus.
The company has $2 $4 billion in available liquidity and we remain comfortably in compliance of the covenants on our debt, which looks at our 12 month EBITDA trailing 12 month EBITDA.
Our policy is to remain below two times net to EBITDA on a through the cycle basis, and we were at one four times at the end of the quarter.
And lastly, I'd like to speak to the company's capital allocation priorities. These are outlined on slide 19.
The current macro uncertainty confirms that our focus on debt reduction over the last several years what is the right approach.
The priority will continue to be deleveraging and preserving our balance sheet.
Depending on the magnitude and duration of the slowdown. This includes looking at efficiencies and cost improvements across all operations and deferring unsanctioned project projects as necessary.
And that brings to an end the finance section.
I'll now hand, the call back to <unk> for closing remarks.
Thank you Ron.
I'm pleased to announce that during the quarter, we received approval from the Panamanian LNG regulator it Tessa.
Our 20 year agreement with Aes, Panama to source 64 megawatts of renewable power for the C. P 100 expansion.
This power, which will be from a combination of wind solar and hydroelectric sources.
The first important step on our pathway to Decarbonize power in Panama, and which is central to our 2025 and 2030 greenhouse gas emission reduction targets.
The cost of this power is consistent with our current all in cost of power generation inclusive of a call out pricing structure on coal purchases.
This milestone in Panama full as the early stage wind and solar development project in Zambia that we announced early this year.
As Rudy mentioned, we were very pleased to have posted a tour of Cobre, Panama September and to show the progress with regard to the CP 100 expansion.
All key components of the project are now on site that they can't water portion of the expansion has begun commissioning and initial results are in line with our expectations.
We remain on target for completion of remaining construction works and commissioning in the first quarter of 2023.
With regards to low nine discussions with first quantum and the government of Panama continued to progress, including the establishment of a bilateral contractual drafting committee.
Current drafting discussions are focused on ensuring that we attain robustness stability and durability in the long term.
Once an agreement is concluded and the full contract is documented it is expected that the newly draft legislation would be puts the Panamanian National Assembly.
First quantum remains committed to a swift conclusion balloon on discussions.
At the Constancia three expansion project long lead items have been procured, including the primary crusher mills and mining fleet.
Engineering contractors have commenced with detailed designs where needed.
Three expansion mining fleet has been procured with deliveries commencing in the second half of next year, which will enable the mine to transition ahead of the plant commissioning in 2025.
At Enterprise, we commenced pre strip work in May of this year plant refurbishment completion and commissioning activities are on schedule and aligned.
To the pre stripping duration. The project is on schedule for first oil in the first half of 2023.
At Las Cruces. So we are continuing with detailed technical work. However approval the Las Cruces Underground project is not expected before the end of 2023, and we will take into consideration prevailing economic conditions.
Before we go into Q&A. It is worth taking a moment to discuss the copper market and its outlook.
Sentiment towards the copper price is being dominated by recession concerns and in our view has decoupled somewhat from longer term structural fundamentals, we have seen no erosion in demand for our corporate product and as Ron mentioned global inventories remained at historically low levels.
In the medium and longer term the outlook for copper remains very positive in our view.
On new copper supply will be challenging in the current macro weaknesses on the exacerbated this.
The current macro weakness inflationary environment and higher cost of capital has seen several projects put on hold and we'll likely see more deferrals. So long as these conditions persist.
This combined with a lack of new project and stringent permitting hurdles is likely to only make an already tight copper market even Toyota.
Over the medium to longer term the outlook remains bright and first quantum is well positioned with a portfolio of long lived assets and organic organic growth opportunities.
In the meantime, we will adapt accordingly to the realities, we face today.
Near term priority will be to stay focused on driving productivity and cost improvements at our operations.
Successful deliver on a brownfield projects and.
And exercising financial discipline to preserve the balance sheet.
Thank you operator, we would now be happy to take questions.
Thank you we will now begin the analyst question and answer session.
Analysts are permitted to ask one question and one follow up I don't want him to rejoin the queue. If they have more.
He joined the question queue you May Press Star then one on your telephone keypad.
You will hear a tone acknowledging your request.
If you are using a speakerphone please pick up your handset before pressing any keys.
Withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
Okay.
The first question comes from <unk> with Scotiabank.
Please go ahead.
Hi, good morning.
Tristan and team I'm, just wondering if we can get some more color on sort of what's going on at Constancia and how that might impact the outlook for 2023 24, you're your disclosure. It does mention that you expect to operate at lower rates.
Beyond 2022, and until the three expansions online, but I'm. Just wondering if you can give us a little bit of color on magnitude or potential decline from previously issued guidance. It does look like like for 'twenty two that your updated guidance would imply something like a 27% reduction from the initial guidance you put out.
Annually.
I'm, assuming the impacts for 'twenty three 'twenty four it will not be that significant from the existing guidance.
Any color you can give us.
Thanks, Doris Yeah. So you know the challenge we've been facing which is the reduction in proportion on the oxide material and the shift of the of the asset into the.
A greater proportion of sulfides is consistent with what we've known at Constancia for some time that the mine is getting deeper.
And that's why we need to bring a three into bear and Thats why we had started building at three am all those years ago.
Unfortunately stopped and now recommenced and that's important to the future of concern she is a.
A world class asset, which it remains.
But in the interim.
The asset the grade profile will decline, we geographically constrained this year and that I think has impacted and wide on this year more than it will weigh on next year, but when we say that it will continue at low levels I think you should.
Be anchored around the 'twenty two sort of levels we.
We do expect that we'll be able to to provide much more clarity for next year in our guidance.
But clearly the challenges on the sulfide are there and we need to work that through in terms of the old model and in particular, our optimization of working areas. We're working very hard of that in terms of continuing to strip and provides flexibility into next year and that will all be <unk>.
Taking into account in terms of have come back in January and.
Make it clear picture on guidance for 'twenty, three and 'twenty four.
Thanks, Christian but sorry, just to make sure I understand are.
Are you, saying that the the 'twenty two guidance of 140 to 150000 tonnes is kind of a good baseline for 'twenty three 'twenty four.
Yeah look I think at the <unk>.
As a limit that would be we do expect some improvement from med because we you know this year, we had the constraints on accessing oxide material from N 12, we are improving flexibility and so on but certainly the challenges that we've seen on corn and the measure of dried, particularly in these various areas I'm, we're not going to get away from that in the <unk>.
A couple of years.
Okay.
The next question comes from Emily Chang with Goldman Sachs.
Please go ahead.
Good morning, Christian Ryan Rudy Thank you for taking my questions.
My first is just around some of the comments you made on the Capex inflationary pressures, you're saying that could.
Could you highlight perhaps if that will sustain or project capex and perhaps if there is any sort of buckets.
Buckets that you could point us to as to what's driving that I'll put pressure.
Sure.
On the Capex side that is the capital expenditures.
Cobra, Panama Everything's delivered on site and we don't expect to see much capex inflation there.
At is three and we have more exposure and as we think around a third of the capex that we have allocated for plants or equipment, which is around 300 320 million, we will have some exposure.
But in the meantime, we have placed those long lead orders for a similar amount or just over $300 million and in that we we were very pleased to come in line with our expectations. So we haven't seen that in terms of those long leads but we would retained some exposure.
If inflation pressures due to the continued what we are seeing at the moment is that those who are coming off the peak. So you know freight is very important when you're building a project like S. Three obviously oil price, but then also cement and steel and so on.
And we can see that the risk to those at the moment are more on the downside than continued upside for example steel price.
So at the moment, we think the exposure is probably reducing may if we look at the sort of 'twenty 'twenty four when the major portion of the Capex work is there in terms of sustaining capex.
Look the main area for that is really on the input prices on fuel input prices because that for example, a big portion of sustaining capex at Cobre, Panama and the tailings dam.
And so you know that we are seeing that pressure on the upside at the moment although.
It's probably most theories reached a peak and we have seen some areas decline.
Albeit they still remain at elevated levels and we'll have to see Emily how sticky those through into next year in terms of all in sustaining costs, which includes the sustaining capex items.
Understood. Thanks, Kristen just a quick follow up on the Zambian royalty update so thanks.
Thanks for providing the new.
Ryan just asked that the copper side, but I wanted to check if there was any update to that gold royalties as well with that with that change.
Ah, Thanks, Tim or yet to our knowledge no. There's no change on the gold the gold royalties.
The next question comes from Greg Barnes with TD Securities.
Please go ahead.
Yes. Thank you just on Rudy.
I saw it consents units about 20% of the sulfide.
So that base from what I understand.
Will that have an impact on S. Three production levels.
Yeah.
Hi, Greg. Thanks, Yeah. So it is certainly part of our all the understanding of it of the geology at Constancia and being well known for some time, so 20% in the sulfide veins and those volumes as they go to that narrow a win.
When you and the remaining 80% is on the strata form a mineralization as you go and given the morning methodology that we have at the moment, which is very selective.
It's trying to targets.
Reasonable grades above <unk> five above 6% in order to push into the mill, but as we go into a much more high volume mining methodology. We can take each block is an average block and so it's far less of a concern to us in the future once we're at that high volume mining methodology.
Using large face shovel equipments and so on.
The underlying answer is no it doesn't affect.
Effect that sort of long term standing over a three but it does impact the the selective mining methodology that we have in the interim.
So effectively with the larger mining rate you blend out the lower grade material by higher volumes of better grade material is what you're saying when you get to history.
Yeah, that's right Craig So John Gregory I don't know if you want to comment, but we will come back on the 43 101 next year and the update there.
At some stage during the year, we will cover.
An update in terms of the Capex, which includes the 1.25 billion expenditure.
But then you know greater clarity on what we see in the model John do you want to comment Matt.
Yeah.
Thanks, Tristan Yeah, Greg.
We've run various trials over the last few months when we do take veinous areas and we mine the whole.
Faces one block and we can actually trucks are great to represent what will happen in the S. Three environments and we do end up with a with a blended grade.
And that gives us a lot of confidence that those those seed areas will be more than suitable to satisfy its three.
And the other point is that we know where these areas. All we spent a lot of time.
Stay tuned and upgrading the mineral resource so the zones of the vein of phones and the.
So they are the stratified areas, so very clear to us and we need to make sure that we balance.
The proportional feet.
And basically it won't be exactly 20, <unk>, but it'll be more in the order of a balance between seats on the two.
Different zones of mineralization.
That's one of the challenges we are facing at the moment that balance is slightly out of kilter.
But going forward.
Confidence in terms of.
The resource and subsequently resolved.
And yes, we are looking at updating the technical report, which will give the production profile.
So the two years before that starting in the next three and.
And beyond.
The next question comes from Ralph <unk> with eight capital.
Please go ahead.
Thanks, operator, good morning Kristen.
Maybe a question for Ryan.
If we compare Panama versus Zambia, when you talk about these inflationary pressures.
Pressures, which jurisdiction would you say is sort of more being influenced.
It's the same or is there more of a bifurcation in some of these pressures.
Thanks, Ralph I'd say broadly the drivers are the same with a couple of those differentiators. So Panama is dollarized, whereas Zambia, obviously, we are exposed to the question. So what we've seen through this year as the questioner has strengthened from about 23 question to the dollar at the start of the year to 15 question to the dollar in.
In Q3, and that has had a bigger impact on our labor costs in Zambia VAT in Panama.
In other areas they fairly similar I mean, you've seen power prices remained consistent across both operations because in Zambia with larger off a fixed price agreement and in Panama, We've got a contract in place on the collared contract on the call and then in terms of diesel reagents consumables, we've seen fairly consistent upward pressure across the two operations.
The contrast size rarely has been and where we've been operating in more heated mining markets of Ravensthorpe is stood off this year, where market like like that and W. A you do see even more inflation than what we're seeing in countries like Zambia in Panama.
Hmm.
And an interest in them.
Are you able to sort of quantify the previous question is so you need to train and transcend from glitch, we'll get the full face shovel mining is there a number that you can peg on sort of a dollar per units what that means in terms of productivity improvements.
How that measures up on those unit cost improvements that we could see.
Yeah, Ralph look.
I wouldn't give you a number right now, but I think what you would need to just compare the mining cost per DCM at.
At.
<unk> compared to what it is that Sentinel and effectively what we're moving to is very much more a sentinel Monty methodology.
Larger faces a larger mining equipment.
And you know and would follow the sort of mining cost that we see at Sentinel.
The next question comes from Gordon Lawson with paradigm capital.
Please go ahead.
Hey, good morning, everyone I'm switching over to enterprises are you able to provide any updates with respect to capex or.
The timing of first production.
Sure Gordon enterprises going well so in terms of the development in the pit, which was to get on top of the ore body, that's progressing very well and hence we see at first or early in the.
The first half of next year in that regard.
The process plant is in good shape in terms of commissioning and you know the final conveyor belts and so on going into it.
We haven't seen any change to the schedule and very limited change the cost the inflationary pressure, we really have there is diesel price.
So.
For importation into Zambia has come down in terms of the indicators, but it will take a few months to wash that through in terms of.
The lag on the supply chain, but otherwise yeah.
Much on schedule and on the timeline.
Okay Fantastic are you able to provide numbers with respect to our the percentage of the fleet on site or the Capex expected. This year next year to get this thing up and running.
Rudi do you have an idea of how much of the fleet is on sorry, it's a contract mining methodology, there and most of the fleets there isn't it Rudy.
Yeah, that's that's good.
Gordon and interesting.
Its contact mining, but most of the fleets are really just wanted to excavate to say though are.
Being bought online as we as we speak.
So there's no real impact there and Capex is in line with what we said previously this.
This year, it's probably in the region of about <unk>.
$18 million.
And then I'm.
We don't see much of a problem.
It sounds of an increase in Capex right.
The next question comes from Edward Brucker with Barclays.
Please go ahead.
Thanks for taking my question. This morning, So just two on the balance sheet I'm looking at the cap stack and I've asked it before but the 'twenty 'twenty four and 'twenty five maturities are callable I just wanted to get your thoughts on if you would follow a similar playbook to what you did for the <unk> 'twenty 'twenty threes, where you wait for the bonds to.
<unk>.
You know become close to current to call them or does your view change at all with the difficult market environment, both from a macro perspective, and our difficulties in the funding market.
Yeah, Hi, Ed the approach will be consistent we will continue to be opportunistic in terms of how we think about the redemption of those bonds and as you saw the 20 fours became callable at par in September and become current in March of next year, but from a cost perspective.
<unk> St actually now trading at a reasonable ROI.
Relative to where we see have seen brought our debt funding costs, but the broad approach will be to continue to be opportunistic in that regard.
Thanks, and then my second question, just your thoughts or I guess comfort with the current mix of fixed versus floating if you'd.
To have a portion of the debt stack floating and then at <unk>.
If you could give us the floating rate on the term loan right now and is it hedged.
Sure. So we're currently at two thirds fixed and one third floating and that's obviously served us well over the last 12 months, while rates have risen and I think you should broadly expect to see that continue to be consistent obviously over time, we will continue to redeem bonds and you may see the rates the ratio of fixed increased slightly but the broad approach will be the same.
And then Ed we haven't disclosed the margin above LIBOR that we pay on that.
The facility, but obviously as a whole that cost has gone up as rates have moved up through the course of this yet.
Yeah.
Yeah.
Yes.
The next question comes from Sandy PD Morgan Stanley .
Please go ahead.
Good morning. Thank you first question is on cash interest you have based on your guidance for this year to see a solid $465 million.
What do you what do you expect this figure to between <unk> 23 on spot interest rates.
Sure. So we'll provide that guidance in January but you should expect.
Obviously with one third of our debt being floating rates at those rates have increased and that will impact our interest costs through next year, but we provide that guidance in January of each year.
Okay. Then my second question is.
Since the new.
Duties on these items.
Been implemented what is the impact on cash cost to enforce grew 22 and 2023.
Yeah sure, it's fairly minimal in 2022, and because the the VAT component and the excise duties only comes in from January one.
Broadly we expect it to be around 45 per pound on a C. One basis, but we expect that to be more than offset by the fact that royalties are now being calculated on a incremental basis, but hopefully that gives you a feel across the group and what the impacts are.
Yeah.
The next question comes from Bryce Adams with CIBC capital markets.
Please go ahead.
Thank you Jason Ryan Rudy I think can eventually it's coming off but also wanted to ask on Capex and maybe build on Emily's question. The disclosure highlighted F. M is experiencing ongoing inflationary pressures are relating to capital expenditures, but then the other all of 2022 Capex was maintained.
So my question is that given that upward pressure that that was highlighted what does that mean for 2023 and 2020 full capex can.
Can you talk to the magnitude of those inflationary pressures.
And why are why was 2022 guidance remained after that.
Given given those upwards pressures is it timing of Capex is that an offset them and and if it is timing maybe some of the 2022 spend slips into 2023.
Sure Bryce, yes, so it is timing, but Ron can you just give you a bit more flavor there.
We've seen kind of 10% to 20% inflation on capex items as we've talked about through the year.
Because we hope to prove S. III at the start of this year that ended up being approved in may at some of those items the spend at a three some of the sustaining capex will slip into 2023. So the extra color. We provided guidance today is really meant to be clear that while we haven't changed capex guidance for this year, we have seen.
And across the market and therefore, you can expect to see inflation in our capex numbers for 'twenty, three and 'twenty four broadly in line with them.
Market movements, we haven't seen anything specific to our capex profile that would suggest in a higher than average increase.
Brian maybe.
Sorry, Mike.
We sure can.
Suggest as Wallace is that since it is the initial capex our numbers were made available.
Seen the change in legislation in Zambia, as well as far as capital.
Imports are concerned so way, we would've had slightly higher numbers in there.
That's offset with a reduction of 10% and capsule import.
Okay. That's a good point, so just thinking about 'twenty three 'twenty four maybe 23 is.
Luckily it would be more impacted than in 'twenty four.
Given that the slippage from 'twenty two into 'twenty three is that fair.
I think you're going to have to wait till we come out in January with our 'twenty three and 'twenty four guidance, we have seeing broad inflation across all items.
Which is a negative or positive interest and say it is ready for <unk>.
Cobre, Panama expansion most of the capital items already onsite as Rudy noted enterprise will be largely done with that project coming into next year. So the numbers ready to watch around three but in the case of Ace <unk> three we do have the orders in and prices agreed for some of the larger items.
Such as the models such as input Crushers, which is helpful. But price will come back in January with really the the three year Capex guidance as we normally do.
The next question comes from Lawson Winder with Bank of America Securities.
Please go ahead.
Okay.
Hi, Good morning, guys and thank you for the update.
Okay.
And then if I just keep it to two questions number one I would like to drill down on your copper demand commentary so.
So youre seeing really really strong demand in the concentrate market, but are you seeing that consistent across geography that'd be the first part of that question and then secondly is.
Is this sort of more country specific for example, it is China's strong in Europe's weak or is it just sort of strong across the board and then as a follow up to that do you have any insight into the downstream industries that are driving that.
Hi, Louis and thanks.
Firstly on inventories yeah, when we mean, we see tightness L. A finished goods inventory are the lowest they've been through the year.
So we.
That's been noticeable that you've seen that in the styles that were higher.
Through the quarter than production and you know that and it's across the board loss in it.
We don't see any you know all of our customers, whether it's China rest of Asia or into Europe , or the Americas that demand is consistent and it's measurable in terms of.
Our finished goods inventory.
In terms of I.
I guess, the one area where might be Nicole is that you know on that side. It has been an up and down this year, that's been a very volatile market.
And you know there was some in the middle of the year in China. Some hesitation there.
And that's working its way through it you know China's got stronger I think now more recently in other geographies are coming back a little bit so nichols, a little bit more nuanced and Sydney. These more image P. Coming in are in Indonesia, and so on that I think is providing that pressure on the nickel side.
But on top of that that's not the case at all.
And it's across different product groups as well, so a blister and concentrate.
And then Lawson just remind me of the second part of your question.
Insight into kind of the downstream industries are driving that at all.
Yeah sure look at it in terms of our off takers for copper.
What we see is we don't see massive building of inventory or anything with our off takers.
As far as we know that's consistent with all our peers.
Yeah, I mean more broadly than that we cant really offer too much insight beyond what you would be reading.
Okay.
The next question comes from Dalton Barreto with Canaccord Genuity.
Please go ahead.
Thank you good morning, guys.
A couple of questions for me on the cost side of things. So first of all just a cobra Panama looking at into next year as you called her sense of thermal coal price roll off.
Can you give us a sense of what the impact will be to your unit cost if you assume spot thermal prices.
Yeah.
Yes sure.
We do have some of them as they run it because those numbers than anything yes sure.
You know what we.
Generally as we thought about 2024 guidance that was at or around $100 a ton call. When we put out that guidance at the beginning of this year. If you see coal prices come down as an example, with $150 a ton by 2024.
You'd probably see an increase on group wide cost of about three to four cents and then they remain elevated above that youll see that ratio continue as it stayed up I think the important point, which trust and talked to was that we now have 65 megawatts of renewable power and what that does is two things one it reduces our emissions, but also labels are now at these coal.
We're seeing the additional renewable power that we're putting into cobre, Panama wasn't being very cost competitive.
Yeah.
Okay. Thanks, Brian and then another kind of question on a similar vein your disclosure talks about it.
Structural cost of living increases for employees I'm, just wondering what kind of impact that'll have on your costs going forward.
Yes, sure because with specific cost of living adjustments that we made in some of the high inflation market that we in particular, Turkey, and Argentina really it was to make up for serious devaluation in those currencies and so it doesn't impact our overall cost structure.
Okay.
The question answer session.
I would like to turn the conference back over to Christian Pascal for any closing remarks.
Yeah.
Thank you operator, I would like to thank everyone, who joined the call today and wish everyone. A good day. Thank you bye.
Well that concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant Paul.
Hum.
Yeah.
Hum.
Hum.
Sure.
Okay.
Yes.
Okay.
Yeah.
Yeah.
Okay.
Yes.
Yes.
Yes.
Thanks.
Okay.
Yeah.
Yes.
Okay.
Yeah.
Okay.
Yes.
Okay.
Uh huh.
Okay.
Mhm.
Yeah.
Okay.
Yeah.
Yes.
Yeah.
Okay.
Yeah.
Okay.
Yeah.
Uh huh.
Yes.
Thanks.
Yeah.
Yes.
Hum.
Mhm.
Mhm.
Okay.
[music].
Okay.
Yeah.
Okay.
Okay.
Yes.
Yeah.
Yeah.
Okay.
[music].
Okay.
Yeah.
Hum.
Okay.
Yeah.
Yeah.
Okay.
Okay.
[music].
Yes.
Yes.
Yeah.
[music].
Yeah.
Yeah.
Yeah.
Yeah.
[music].
Yeah.
[music].
Okay.
[music].
Okay.
Okay.
Yeah.
[music].
Okay.
Yeah.
Yeah.