Q4 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 fourth quarter results Conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions.
She joined 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 then CMO.
I would now like to turn the conference over to director of Investor Relations. Please go ahead.
Thank you Damian and thank you everyone for joining us today to discuss our fourth quarter results.
During the call we will be making forward looking statements as such I encourage you to read the cautionary notes that accompany this presentation are N DNA and the related news release.
As a reminder, the presentation is available on our website and that all dollar references are in U S dollars unless otherwise noted.
On today's call will be tricky Pascoe, Chief Executive officer with opening remarks, followed by really bad in first of all our Chief operating officer, who will provide an overview of our operations during the quarter.
While William our Chief Financial Officer.
[noise] will follow with a review of financial results and interest and we'll wrap things up after which we will open up the lines for Q&A.
That I will now turn it open to interesting thanks.
Thank you Vanessa.
Thank you everybody for joining us in our conference call today.
I'm pleased to be I believe on the call today to speak to you about out fourth quarter and year end 2022 results and also provide you enough that you don't have discussions in Panama and brownfield projects.
2022, it can be characterized as a very volatile year. That's so large fluctuations in commodity prices and input costs and interest rates is the water global economic mood shifted from recovery after the pandemic.
Change of a major recession.
These challenges net debt at first quantum reduced by $361 million during the year, bringing the net debt level down to $5 $7 billion in total debt $7.4 billion as of December 31st 2022.
So we try and we will talk to more lights really cool.
It was also pleasing to see operational improvements continue into the fourth quarter last year, which Rudy will review.
But before I hand over to Rudy for operational highlights there are a few items that I would like to discuss.
On Panama I want to provide a brief update on developments since our call last month in short the situation remains fluid. However, we continue to make progress.
I'm confident that we will achieve a refreshed agreements, which will be to the benefit of the country and we will support the long term operations of the Cobre Panama Marlin.
Engagement continues with the government of Panama and dropping towards an agreement, making steady headway regarding the long term future of the operations.
However, in the short term and I'm children agreement is finalized I do expect the pressure being applied to first quantum by the government will increase.
The government has chosen to add pressure to the situation through a series of escalating regulatory hurdles for the operations.
These steps are unnecessary and first quantum and M. P. S. A our subsidiary in Panama voice remained committed to coming to an agreement with the government of Panama unreasonable in St. James.
As we have said we are and have been prepared to meet any part exceed the objectives that the government outlined last year related to revenues environmental protections latest standards.
This includes a minimum payment of $375 million per year in government income comprised of corporate taxes and profit base mineral royalty of 12% to 16%.
With downside protections that are aligned with the government's position.
We continue to seek to your ability in the agreement, which equates reasonable protections against early termination.
These conditions of the agreement would be vulnerable to future renegotiations, which would be unfair to all stakeholders, including our investors local partners.
And workers at Cobre, Panama, but also the reputation of the country.
Last week, we reported the concentrate shipments had things suspended from the Cobre, Panama mine due to a requirement by the Panama Maritime authority to have al Skiles Recalibrated to support.
I want to emphasize that the scales well measuring accurately and backed up all the final drops at the age of the vessels and the Maritime Authority had previously accepted the internationally accepted certifications that we get some niches.
Nonetheless M P S I complied with the maritime authorities new requirements.
We had the scale recalibrated and submitted the certification.
But a few days later the maritime authority rejected that.
M. P. S. A is challenging this decision and at the same time working to find another accredited certification company that the government will accept.
If the government does not allow us to restart shipment shortly we will likely run out of storage capacity for our concentrates on thoughts and be forced to stop operations in Vermont.
We have alluded the maritime authority.
Relevant authorities and the government of this fact yet.
The action, maybe negotiation tactics and happy but it also threatens real world consequences for everybody, who has a stake in Cobra, Panama and the broader Panamanian economy.
Much like the situation will not come to this.
Stopping operations would be to the detriment to Panama mine's employees suppliers and the broader Panamanian economy.
We are taking all necessary measures to avoid this outcome given the progress that both parties have made to date in discussions.
Moving onto the rest of the business alongside our fourth quarter results. We have also published our second T CFT.
The law and climate change report he sits at our strategy for managing the risks faced by our business to climate change, but also the opportunities that are expected to rise in the global transition to renewable power.
Metals that we mine will be volatile for the world to meet Quantico.
I would also like to take this opportunity to congratulate our teams in Zambia and in Panama, who received recognition during the quarter for their sustainability wood in.
In Panama and National School support program, which feeds over 5000 children children. Every day was recognized by the government in Panama and the United Nations.
And in Zambia, our colleagues received a number of awards at the annual National Conference in Occupational health safety and environment, including best performer in local content for Constancia mine.
The format in environmental management tried and facility.
We're saddened by the recent earthquake in Turkey, and we offer our consultants is to all those affected while all trailing mine was not located near the Epicentral. The earthquakes I'm about colleagues have family members in the affected areas and our thoughts go out to them at this very difficult time.
I'd like to thank to try at least risky teams, who had traveled to the affected areas and they've been actively assisting the authorities with the rescue and recovery efforts.
These teams have now returned to Charlie after a week on the ground in the affected areas. We have full of admiration of pride for the assets, which saves several lloyds from the rubble also helped many families come to town.
You know Tom with the great grief.
Like many in Turkey. They are exhausted physically in psychology, psychologically and we will support them over the coming periods.
Lastly, it is with deep regret that we announced the death of one of our colleagues in an accident that the central operations earlier this month.
I would like to extend my deepest sympathies to the family and friends of alcoholic.
Another colleague was seriously injured in the incident and medically evacuated and we are providing to support him and his family.
I would like to thank kept saw emergency response team, who responded immediately and worked hard to assist our colleagues in the accident.
Safety and health of their Workforces that top priority. This includes providing all necessary support for both our employees and their families. During this difficult time.
Instigations, both external and internal have still underway and we are committed to improve health and safety practices from this incident.
With that I would like to hand, it over to Rudy to review our operations.
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 third quarter.
Due to the final quarter of the last couple of production.
206000 tons.
The quarter over quarter increase in production was driven by both cancer and she and Sentinel.
Great improvement experienced at both months.
Got to see one cash cost averaged $1 86 per pound in the fourth quarter.
Up from $1 82 in Q3.
While cash costs benefits from higher production volumes. This was offset by lower byproduct credits to withdraw and we will provide more detail in his financial review.
During the quarter.
Cobre, Panama produced 89652 tons of copper.
This was a modest decrease from the third quarter levels.
Mainly due to lower throughput with $21 9 million tonnes of ore processed during the period.
It is worth noting however that December recorded a record monthly multi you put a 5.3 million tonnes.
You know October .
Two of the Palace station had scheduled maintenance work and as such.
Panama had exposure to spot prices from the Panama to getting this time.
This combined with higher labor costs resulted in an increase in C. One cash costs at Cobre Panama.
So $1 63 per pound or 20 cents increase from Q3 levels.
Cobre, Panama is forecast to produce 350 to 380000 tonnes of copper in 2023.
Production for 2023 includes production from the C. P 100 expansion.
Justin will speak to more about later.
Before moving onto the Zambian operations.
I want to touch on the palace situations in the country on the current rainy season.
Water levels have agreed with them.
Reached a record low at the end of 2022.
As such and Jenny, Let's go requested the company's Zambian operations to reduce its power usage for a two week period due to lower levels, I think kariba dam as well as Splunk plant maintenance.
300 megawatts Mamba pellet plant.
During this time he can send sheehan central conducted planned maintenance.
As previously scheduled for February and March.
And as such the impact on production is expected to be minimal for the quarter and for the year.
Although the country continues to experience bell restrictions.
No cheating across the country has been reduced from 12 hours per day to four hours per day with no Palo restrictions to the mines.
Have you the normal range of experience.
I've been experiencing the garden's rainy season in January alone, we experienced three times the normal rainfall at our Zambian operations. It should replenished at Kariba basin. However, it will be at a seasonal seasonality impact on our first quarter results.
Yeah.
Atkins century, it was pleasing to see production improve in the fourth quarter after a difficult start to the year.
Concerning she produced nearly 35000 tonnes of copper in Q4.
Approximately 5000 tons from the previous quarter and great improvement.
And enhance water management strategy at the bottom of the mine but.
Need to have more consistent feed grade to the mixed oxide circuits.
Balancing of all feet between start up and all associated with narrow veins also improved sulphide feed grades.
Lucas continuing on reconciliations in the lending cycle painted in the near term mine plans to further improve and optimize.
The mine sequences.
Okay cool.
Q1 cash cost of $2 81 per pound was 12 cents lower than Q3 in 2022.
Due to higher production volumes from improved right.
As we noted on their last conference call.
Copper production that Consensually in 'twenty, 'twenty, three and 'twenty 'twenty four.
Will reflect similar levels as 2022 with lower oxide and sulfide diets, while mining mine hoisted areas.
That's such consensual production in 2023 is expected to range from 130 250000 tons of copper.
Since you know also had a strong quarter, producing 73000 tons of copper and improvement of over 9000 tonnes from Q3.
For the benefit of full 13 crusher.
Record quarterly throughput was achieved in the fourth quarter.
Couple of C. One cash cost of $1 55 per pound was.
It was 22 cents lower than the preceding quarter.
Reflecting improved production volumes.
For 2023 copper production that St and all do you expect it to range between 260 and 280000 tons.
As I noted earlier.
We have experienced particularly heavy rains in journey.
Which has impacted mine sequencing it seems though.
As a result first quarter copper production is expected to be the weakest quarter of 2023.
That's just been mentioned.
It was a fatal accident that central on February the first.
All mining operations were immediately suspended following the incident dwell a plant continues to process stockpile ore.
It was a progressive reopening of isn't it but with full operation by February the fourth.
I also would like to express my deepest condolences to the family of my colleague in.
And the team that seem to know.
I will now hand over to Ryan for a financial overview of the fourth quarter.
Thank you Rudy.
Since the beginning of Q4 2022 copper prices fell by 16% and is currently sitting at just about $4 per pound.
A portion of this price support has been the result of a weaker U S dollar, which was down almost 8% over the same period.
The copper prices also found supporting the fundamentals on the <unk>.
Supply side disruptions.
Disruptions in several countries, most notably Peru, and lower production at several large mine that had a negative impact on supply.
Yeah.
Demand expectations have also attend albeit modestly with China's setting aside the other COVID-19 policy and increasingly reopening its economy.
At the same time, they have been slightly better than expected economic data developed nations as more countries appear headed towards a soft landing rather than a recession.
The resulting higher copper prices led to a 6% increase in revenues to $1 $8 billion in the fourth quarter.
While copper sales of 199000 tons were flat quarter on quarter.
Input costs largely stabilized in the quarter, albeit at elevated levels. Following the inflationary pressures in the first three quarters of the year.
Market rates for fuel in place rate reduced slightly from the end of the third quarter. However.
Lots of costs remained at similar levels.
As a reminder, there'll be a lag of a few months before these costs I felt as operations work through existing inventory.
Uh huh.
As can be seen on the waterfall on slide 17, copper cone cash costs of $1 86 per pound with 2% higher than the previous quarter. Despite higher production improved feed grades.
The increase was driven by the timing of maintenance activities and lower byproduct credits as gold sales volumes were down 8% quarter over quarter.
Slide 18 highlights that as a result of the higher revenues Q4, EBIT increased to $647 million.
Net earnings increased $117 million and adjusted earnings per share Rose 22 cents.
Yeah.
The EBITDA waterfall on the next slide shows the biggest contributors to the increase in EBITDA with higher copper nickel prices, which were somewhat offset by lower golden asset sales volumes as well as the timing of maintenance activities.
Moving on to slide 20, and our balance sheet.
During the fourth quarter net debt increased by $363 million due to the timing of working capital cash flows and $195 million dividend paid to noncontrolling interests.
This represented that T C M H as share of a dividend paid from Consensually two it's two shareholders.
The dividend was paid on signing of the agreement announced in December 1st of last year, whereby it's a T. C. M I H as dividend rights and Ken essentially were converted to a three 1% revenue royalty.
Liquidity remains strong at $2 $2 billion.
This was supported by the completion of the new Zambian terminal facility.
$425 million in the quarter.
The facility has a three year tenor and was fully drawn down by year end.
It's robust liquidity and the strong support of our banking group positions the company well to whether any disruptions that may arise in Panama.
Alongside our fourth quarter and year end results. The company declared a final dividend of 13 Canadian cents per share.
This brought the total 2022 dividend to 29 Canadian <unk> 10 per share and represents 15% of available cash flows which are paid out on about dividend policy.
Debt reduction continues to be a priority.
Cause peaked out in the second quarter of 2020, the company had decreased net debt by $2 billion.
We continue to target an additional $1 billion in debt reduction in the medium term.
This is particularly relevant given rising interest rates and the highest cost associated with servicing debt.
In line with this yesterday, we announced a $450 million partial redemption of about 2024 notes.
That brings the finance section to Anne and I'll now hand, the call back to address them.
Yeah.
Thank you Ryan.
As you can see in the pictures on slide 23 of our presentation C. P 100 expansion project at Cobre, Panama made great progress during the fourth quarter.
C. P 100 is operational with a new process water circuits in use.
And this has already had an impact on plant recoveries particular, particularly at higher throughput rates.
Construction has been completed for the balance of the expansion Sky those facilities now and they are pre commissioning testing stage.
We achieved a major milestone last week with the introduction of fished all three ball mill six and through the new screening plant.
We are pleased with the progress of the expansion and Cobra Panama remains on course to achieve a throughput rate of 100 million tons per annum by the end of this year 2023.
At the S. Three expansion are concerned she detailed design is progressing well and incorporates enhancements and efficiencies introduced for the latest generational preferred equipment and the learnings of the Sentinel Cobre Panama operations.
The long lead items, including mining fleets and process plant equipment have been ordered with deliveries to commence in the second half of 2023.
Overall project procurement is approximately 25% committed.
With the three year guidance provided in January we were pleased to report that the Capex is three remains unchanged at one point to $4 billion.
So the spending to occur in 'twenty, and 'twenty, three and 'twenty 'twenty four.
At enterprise work on the process plant is complete and ready for introduction of first or should we expect to occur in the first half of this year.
We have completed introduction of first owing to the crushing circuit and the mills have been training with water.
We expect the remaining works to be completed on time and on budget.
Before we open the lines for Q&A I would like to go back to my opening remarks, 2022 was a challenging year on many fronts and I would like to thank everybody is first quantum for their hard work.
In particular I want to thank the team at Cobre, Panama, who continue to work through this difficult and uncertain times we.
We continue to work hard to reach a sustainable and durable agreement with the government that ensures that the team at Cobre, Panama will not have to go through this again.
I would also like to thank our investors many of whom the thing with us.
And in the company for some time for a long time.
We'd like to thank our shareholders for their patience as we work towards a refresh contract with the government of Panama and for their understanding and expressions of support the agreement doesn't need to be durable.
Thank you operator, we would now be happy to take questions.
Thank you well now begin the question and answer session.
Analysts that permitted to ask one question and one follow up and are welcome to rejoin the queue. If they have Laura.
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Our first question comes from Jackie <unk> with BMO capital markets. Please go ahead.
Thanks, very much congratulations on a good quarter guys I was going to ask the obvious question first I guess can you maybe give us a quick update on the status of the negotiations with the Panamanian government I think it looks like you know theres. Some challenges still in terms of this this back and forth on the port but at the same.
Writers are published an article the other day, saying that negotiations are progressing well that'd be helpful. Just to get a bit of a high level update for me if you don't mind.
Sure Jackie Thanks for the question, Yeah look I.
We sit and he's been making a lot of progress and since December 14, We you know at that time, we probably had.
So I don't know 14 items left outstanding and we really are now down to sort of two or three remaining at times, but it's always a fairly kate so as it relates to termination elements of the contract and also to some detail on the economics, we are making good progress towards an agreement as I said before.
We are prepared to mention part exceed the objectives of the government outlined last year and that includes the 375 million.
Year end government income and the gross profit.
Profit base mineral royalty of 12% to 16%.
What's remaining now is really to get those final details they have to wait but we we cannot accept the resolution and agreement that is reasonable and durable and as I say Jackie I think we will see pressure continues to Mount until we get to that point.
In the room and in the negotiations Sydney the momentum has been there and we.
We are pleased with the government's engagement and the level of good fight that is happening in the room towards reaching a mutual outcome.
I realize it's hard for you to answer but.
Well, what do you see as the probability teekay that the mine would have to close temporarily whether it's because of this scale calibration issue or or some similar issue that might come up.
Yes, Jackie Thanks look the key point there is.
It's really it's the government's decision are you know any.
Situation, where the mine would close all need to shut operations at this time, whether it was on the maritime authority or care and maintenance or the other actions would would be a decision for the government.
We are focused on on on engaging with the government in in good discussions in the room in constructive conversation towards getting to an outcome. It would be complicated to stop the operations.
Likelihood of that.
I think it's unnecessary we don't need to be in that situation given the progress that's being made and given.
You know in the end to get to an outcome that suits, Panama and suits. The mine any closure would have a you know we would have a real world impact not just on us but.
But the company, but the country and also the reputation of the country and we don't want to see employees or suppliers. For example uses bargaining chips in that like I met with the unions in country, well I would say last weekend and with suppliers in country. While I was there last week and express that to them. So really it's about combos.
In the room and getting to an outcome, we wouldn't want to see a demand pushed to closure.
The next question is from or swap it out with Scotiabank. Please go ahead.
Hi, good morning interest in sort of same line of questioning I guess, it's Jackie.
Sure.
Do you expect you mentioned earlier in your disclosure that your challenging this maritime authority around the scale do you expect to get the results of that challenge before you run out of concentrate storage capacity on on slide 20.
Yeah, or think say look the 20th of February is roughly the day when we expect that.
That we would reach capacity and obviously we thought.
We can play around with that change the mine plan would will change great or changed production, but really that's beside the point we were running the operation.
And in a responsible manner. According to the mine planning and in terms of the optimum output for this year.
Play around with that pretty much runs in the face of that and funds and what we are responsible way to run operations without employees with suppliers and also to pay tack towards the government.
Really if we do get to that point and the governments remains committed.
To keep the core closed and we would update the market at that time.
In the interim we are doing that work that they've requested to bringing accredited certifies the wife's skiles. He had one attempt to that and we certainly trying again to meet the requests.
Ultimately the decision he does rest with governments it's on.
Certain because they could turn around and say, okay. That's fine and we could ship quite quickly once we get that decision.
But that would be their decision and if we do get to that point. We would then update people at that time of course.
Okay, and then as a follow up thank you Tristan do you have any ability to increase temporary storage of concentrate onsite anywhere.
Yeah. These various options around that or a suite, we can shuffle things around we for example, we can use some of the coal ship to store are but some of that gets caught cumbersome just in terms of re handling material, it's not optimum.
There are a few options of that nature, Oh, we see.
This is a little bit uncertain. So in terms of what's the exact dates and the exact timing again, it's the government's decision.
If they if they said okay. You can ship, we could be shipping extremely quickly you know within a matter of hours that would resolve that.
And if this is indeed just pressure for the negotiations then.
The response to that is we would we have been making good progress we would like to keep that in the room and continued to make good progress in the room and we say you know just kind of step is unnecessary.
Next question is from Emily Chang with Goldman Sachs. Please go ahead.
Oh, good morning interesting I agree maybe just a follow up on the same theme amplified and that is the around the durability. He says the negotiation that you're discussing.
Provide some color as to you know what you're looking for there is it correct that number yes.
Total mine life.
And if that's really the law sticking point.
Thanks, Emily sure. So when we refer to durability, it's really around the termination provisions in the contract and yeah, we really all down for the last two to three awesome say.
But you know we have a contract in Panama, the 1997 agreements Ah and we believe the company fulfilled all the obligations of that contract, but we know the situation, where that's been called into question and we need to to.
Refresh the contract we don't want to see that happen again, and that's why did your abilities important we wouldn't want to situation, where this happens on a regular basis, that's bad for for clarity, it's bad for the reputation of Panama durability protects not only the mining company, but also the.
In the longer term and but the details of that are important.
Termination triggers and there's some complexity of that because there's.
This agreement relates.
It's not just the.
The economic terms, but also the broader the basis of the contract. So we would like to get that resolved.
Making good momentum.
In that towards an agreement and we.
We believe it's in the best interests of the parties to resolve that in the room.
And not only for the long term future of the mine and the current contract would run for 20 years, and then would be a renewable for further 20 years. That's the intent in terms of timing, but it also would help protect Panama reputation as a destination for investment.
Understood. Thank you I'm just one follow up is around the rainfall season and beyond right. Now I know you mentioned that that doesn't seem to be too much impact anticipated for the quarter in the year, but just as it relates to sort of the seasonality that any sort of indication that we would be.
Any shape or form yes under the flooding scenario that we saw last year.
Thanks, Emily really confirming a comment there on the waterfall in Zambia.
No problem. Thanks.
Hi, Amy.
Certainly.
So January rainfall almost three times, what we saw the year before it comes as a bit of a surprise.
But both Centurylink and changes might.
Quite a little provision towards the end of last year. It was additional pumping capacity to.
Especially on the Wade Jurney, obviously more water.
We are busy handling and.
And there's no reason why we don't change our guidance, obviously called a one well.
We will have an impact due to the seasonality of the rainfall, but we don't foresee any impact on an annual production figures.
Concerned she certainly in much better position than it was last year.
You know what's in the pet so that's going strong.
The next question is from Greg Barnes with TD Securities. Please go ahead.
Yes, Thank you Tristan with fives or maybe a few more days of capacity less left of Cobra in terms of storage are you taking steps to ramp.
Downhole or any other steps to prepare for care and maintenance.
Yeah, Thanks, Greg Hi.
So that's something we've certainly been looking at closely and at the moment, we just decided not to go down that route.
Clean mine plan for the year that's.
Its based on you know.
This is the optimum way to run the assets.
And to deviate from that because of these circumstances.
You know it it's just.
It's on the it's on the periphery of what the issue here, which we believe relates to the.
The outcome of negotiations so that must be focused in the room.
You know we'd be making good progress there.
The government's been engaged and we thankful for their level of engagement and the good fight the basis by which that's been occurring.
But to sort of change the way we would run things are you know the problem. There is uncertainty. It says you know what would it be on me the five days or with something else come alone.
Would we go one would be there.
It would be a different resolution from somewhere else. So that's the kind of questions that are throwing up by that.
So really the decision rests with governments if if it's this issue on the Maritime authority. They seek to continue to restrict shipments and that's their decision and that would certainly bring us to the point eventually we can as it is as said before we can play here and there a little bit but eventually it would bring us.
To that point, where we don't have capacity and putting that all four.
Days, though for a week or whatever how does that Ah cheap now come when really the outcome should be in the room and she'll be on lease negotiation. So that's the thought process. We go through.
You know we have been working very closely with the government on that I think we've made good progress as I've said.
And really the these two remaining two to three remaining items, which we believe can be can be sorted out and.
Closure will Oh restriction of shipping is unnecessary as a means to get to that outcome, which in the end.
It needs to work for both parties.
Thanks, Kristen question for Ryan.
On the coal pricing so a cobra are with your call is rolling off this year.
Like I don't remember what prices you have locked in all the range, but what are you thinking about next year, you're considering putting new colors and coal prices have come down.
I'm not sure where they sit today, but how are you.
Going to transition into 2023 on that coal pricing front.
Oh, sorry.
Thanks for the question, Greg, Yes, I'll call. It runs off at the end of this year. We've previously said that we have reached the ceiling on that contract in the $80 range for <unk>.
Thermal coals to send you a contract that's worked out very favorably from our perspective, our long term cost guidance assumes $150 post that's broadly in line with both the consensus for every $50 higher than that it is that's about a three cents impact on our group C. One costs.
When you were considering options for next year, I think with prices continuing while coal prices have fallen they remain at.
Fairly elevated levels, so not looking at this stage to lock in a new contract and we'll just monitor the coal price through the rest of this year I think well it's important to note that the additional 65 megawatts.
Contract, which we entered into renewable pop where the expansion is at well below those levels and certainly we now have two drivers to transition cobre, Panama to more renewable sources. One is the reduction of greenhouse gases, but I'll say that the coal price remains elevated there's a strong economic driver for that as well.
The next question is from Lawson Winder with Bofa Securities. Please go ahead.
Hydrous and Hi, Ryan I Rudy Thanks for the update today I just I wanted to maybe ask one more thing on Cobre Panama.
And the negotiations.
So it's interesting that they had given you 10 days to get to work on the care and maintenance plan and obviously, we're far past that 10 days and so.
Just from a from a implementation point of view do they have to grant you. Some extension in order to keep working on that care maintenance plan and maybe this is kind of tough for you to answer but I mean could we may be interpret the fact that they haven't pushed for that closure plan to me and maybe theyre not really at the point that they're seriously considering shut.
Down the mine.
Thanks, Lawson, Yeah look the status of the care maintenance, a resolution, which horse from the Ministry of Commerce of industries.
So that resolution you're correct had a 10 day deadline, but that deadline hasnt started yet so we had some just procedural.
Procedural appeals and in process and then we have an appeal.
So the minister.
That appeal.
And those and those processes are still in play and so the the 10 day deadline Hasnt Hawk hasn't started on that yet, but certainly we've been preparing the care and maintenance plant.
Obviously, a complicated process to reduce the operations.
Hum.
And we don't believe it's a we think it's unnecessary it's not an action that should be taken lightly and you know is very significant impact for the business, but also more broadly in the economy and for our suppliers and employees and so on so we would like to avoid that outcome.
But the final decision there does obviously rests with government similarly to the situation with the Maritime authority.
I hold the case they weren't on deciding whether to go ahead with that.
Towards your question, whether it seems that they would make that decision or not you know.
We are certainly working on the basis that is their intent.
But in the meantime, we do think that the best place to resolve issues in the negotiation room, that's been very good progress for the parties over the last.
For weeks and in the last two weeks a lot of momentum is built up and were really down to the last couple of items we.
Ultimately, we can only accept something that's reasonable and durable and and so whether it's care and maintenance all the other pressure that's coming to bear you know that's all it is important that the contracts that stand thing stands for.
Period of time.
Because we wouldn't want to see a repeat of this situation in the future.
Yes. Thank you for those comments and then can I just ask about the operation. So you made some comments in the release about just fluctuating grades at Cobre, Panama is there any sort of insight you could give us into our grades in Q1 'twenty three so we're at the halfway Mark I mean does the quarter look like it will be below or above the <unk>.
Average grade for the year. Thanks.
Yeah listen.
Obviously during the course of the year, if things go up and down Gripes at Cobre, Panama, We work on the second and third decimal place given the volumes that go through it and it does make a difference you know the second or third decimal place. So obviously across the entirety of the petition pit.
You know, we will see variations from the different areas that we take for example, when we thinking there's some areas we see a bit of hard right now.
That area.
And then when we're working in the more general areas of the mine them. It will be different in the sequencing of that ease. According to the mine plan, what's an optimum in terms of the sizing and you know obviously in terms of ore and waste extraction, but I wouldn't read too much in terms of that guidance for this year.
Cobre, Panama is 350 to 390000 tons of copper production, we're looking forward to bringing in the C. P. 100 project as you saw the pictures there ball mill six tuning we've as I said, we've introduced first oil there that's exciting for the future of Cobre, Panama once we get through this negotiation phase with government.
The screening plant will add significantly to that and as I said the process plant. That's already had the addition of the off the processed water upgrades and those are already making a difference to recoveries, particularly hot throughput rights. So yeah I think.
Q1.
It's been running well there hasn't been any ups and downs, but you know.
Overall, we look at the guidance across the year.
The next question is from Sandeep PD with Morgan Stanley . Please go ahead.
Thank you all picked up I have a couple of questions. So firstly, what's the rough split of fixed versus variable cost of cobre, Panama has shut down completely I know, that's not an option but.
Just wanted to get some understanding.
Yeah, Thanks, and it's Ron do you have the numbers there.
Yeah, the significant portion of the cost so the sick.
3% is variable and you saw that during COVID-19, where despite the fact that we ramped down to one third of production in that period, we were able to cut our cost dramatically through that period. So it really is.
Around 80% is variable incentive if you move to a full shutdown. You can also then we'll cut into that 20% of fixed quite quickly.
Thank you and secondly, what's the size of concentrate storage captisol kicked up.
What.
Thank send it to the storage ship holds about 100000 tonnes at full capacity as I said we.
We can work on the periphery of that including some other areas potentially the culture and so on but.
But you know when we talk about Oh capacity one.
100000 tons, which is in the concentrates torched it.
The next question is from Ed <unk> with Barclays. Please go ahead.
Hey, Thanks for taking the question just wanted to get a better sense for the 1 billion of debt reduction does the $450 million that you announced yesterday.
Uh huh.
Right.
Is that inclusive of or is that to be included within the 1 billion reduction. So there's only $550 million left to be had.
Yeah, Hi, Thanks for the question. So when we talk about debt reduction we focus on net debt. So the full 50 yesterday will come out of existing liquidity will be net debt neutral. So at this point, we're still targeting around another billion dollars of debt reduction.
Got it that's helpful. And then you did say that the balance sheet is set up for a potential issues and expect it with with Cobra, Panama could you go into more detail there and what does that account for kind of in a worst case scenario and then what does that look like from a balance sheet perspective in a worst case scenario.
Yeah.
So Ed So we finished the year with $2 $2 billion in available liquidity around $1 $5 billion of that was cash and then $700 million and the Undrawn credit facility Whats really insulates US welcome any disruption. So we've looked at scenarios, where we'd go into care and maintenance, where we've gone to a full shut and certainly those can only extend well into the <unk>. This year.
And that's still being comfortable from both a liquidity and a covenant in the sector.
Super helpful. Thanks for the questions.
The next question is from Jackie principal Husky with BMO capital markets. Please go ahead.
Alright. Thanks, so much for taking my follow up my question was just on actually it's a good segue from the last one on dividend and they've got some debt reduction as well I mean, there's.
There's plenty of them actually are coming up on the expansion.
How's your balance sheet.
Are you fully financed without plus.
And then what.
The debt reduction or are or if they're still going to have to be some sort of kept all read on.
While not a quick fix.
Yes.
Hi, Jackie Thanks for the question. So the dividend policy, we put in place is 15% of available cash flows. The reason we chose that policy with that so it naturally ramps down when we move into more capital intensive phases. So certainly as we go through the S. Rebuild cash generation post capex will reduce and therefore the dividend will reduce.
But while we go through that period, we also expect to see strong cash flows from Cobre Panama a.
Sentinel and increasingly enterprises that ramps up which will then fund the brownfield expansion projects and I think the other thing that supports the balance sheet is certainly that as Christians emphasized we will not look at any greenfield are more capital intensive projects through that period over the next two years.
Yeah.
That's right I mean, maybe if I can sneak in one other one we never talk about what's great sense and I know you've got a great underground project there.
You're expecting that the water permit.
It sounds like is that the loss of permanent and when you receive that Oh Gee.
Sanction that fairly quickly or what do you look forward after asking your permits are already heat that lets Christmas.
Thanks, Jackie Yeah look we expect we can update the market on the water permit very soon but.
But we think it will be you know.
Positive in.
In terms of the decision around Las Cruces, as we said before it is a fairly capital intensive project and given where copper prices with COVID-19.
Yeah.
Certainly the second half of last year.
Looking at that project given the other needs of the balance sheet at the moment was challenging we continue to look at it in terms of you know its.
Tangible in the future its very well situated in terms of the regulatory environment in terms of the team there, which is excellent and the technology, which we would deploy as a pulling the metallic refinery. We think is very strong we would need to update our reserves and resources at some stage and come back on that.
And as part of that explain the capital cost.
The project, which we expect them sort of in the order of 400 and $600 million mm for the project and all of that together as we said, we will only embark on projects financially disciplined and disciplined manner and so at the moment that decision are we pushing back towards the end of the year.
And but the water permit is an important part and we expect to be able to update people on that very soon.
The next question is from all that work it out with Scotiabank. Please go ahead.
Alright, thanks for taking the follow up.
Indicated that you are initiated international arbitration proceedings against the government of Panama in the event that you can't reach a negotiated settlement can you walk us through what that timeline might look like and I'm also wondering whether sort of these tactics around the port.
Which appear to be kind of a bad faith negotiations here or have any impact on that timeline.
Thanks Ara.
So yeah, there's two arbitration proceedings that are underway. So one is on the existing concession contracts from <unk> 97, and the other one is on the free trade agreement between Canada, and Panama and that's the international arbitration that you refer to so the concession contract arbitration is firm.
Other alone and we're in the process of selecting arbitrage in the coming weeks and so we think that will be joined in a matter of weeks or so and so the timing there is fairly soon.
The free trade agreement arbitration does have a cooling off period to 90 day cooling off period and that pushes the.
The timing of that too.
Yeah.
Cooling off period ends in March so yeah, I mean towards your question Sydney These actions by the government.
Probably not a coincident with a cooling off period, but nonetheless hum.
We we would see that the arbitration would have a view on that in the future, but at the moment our preferred outcome is.
And continues to be that we we were cheap.
Mutual agreements upon negotiation or we wouldnt, but the arbitration does stand there and we would let that process run its course in tims.
Although those periods and you know should something come to bear such as you know the Port authority.
Continuing to refuse to it.
Ship that ship concentrate and also.
You know ultimately any agreement that we signed would then need to go through public consults and ultimately through the National Assembly and it's also important that the protection of international arbitration couplers that period before we ended up ultimately with the ratified.
Agreement that we can go forward with in partnership with the government.
Thanks, Tristan and just a follow up if I may for Ryan Ryan are you able to quantify sort of what the monthly holding cost would be for cobre, Panama in the event of a of a portion of that down I know you spoke earlier about the variable cost portion, but just wondering around capex as well like sort of can you give a rough dollar number as well.
<unk> cost per month all in.
Yes.
Decreases rapidly in your first month, you're going to have some lag around that 20%. The majority of that 20% is labor in terms of fixed cost, but certainly post a month or two you're going to be able to cut but capex and classes of hull to very close to zero.
Yeah.
Hi, operator, we're coming up to the hour. So we'll take these last two questions.
And then we'll end the call. Thank you.
Our next question is from Karl Blunden with Goldman Sachs. Please go ahead.
Alright, thanks, very much for the time I was interested to see the partial redemption of the 'twenty 'twenty. Four is as you think about liquidity management from here should we think about further cash deployment towards debt reduction.
Not necessarily needing to wait until post the Athena resolution in Panama.
Yeah, So, yes, we announced a redemption of $450 million of the 2024 as yesterday with generally redeemed our bonds before they become current and we have $850 million of 2024th.
Beyond that certainly the focus of the company is on.
Getting to resolution in Cobre, Panama, but with any supported by the fact that we have strong liquidity as we go through that process.
That's helpful and then suddenly see the strong current liquidity position. When you think about the maturity schedule that you have how comfortable are you at that and when you. When you think about the maturities further out 'twenty fives and so on is there a period, where you think you'd you'd look to but it would be it would be a beneficial.
To look to extend that.
Yeah. So we've always been fairly opportunistic and I think it's a function of both maturity schedule and when their windows in the market that has always been the case, but certainly in this world of higher interest rates and the windows have become narrow that so at this stage. The focus has been on the 2024 and eight fifties beyond that it'll be on resolution in Panama and certainly beyond.
We'll then consider when the windows in the market as we consider them.
Sure.
Dealing with the 2025 and beyond.
And our final question is from Dalton <unk> with Canaccord. Please go ahead.
Thanks, guys I thought it'd be down in the call in Panama as well.
Tristan I wanted to ask about the administration's attorney flip flopping and filing top point your concession there in the event that that is accepted by the courts are what are the implications in terms of production would you have to shut down immediately or how does that work.
Okay.
Yeah, Hi, Dalton, Thanks, so yeah.
Yeah.
Now, let's see proceedings, we see as a unit.
Another steam to the pressure that the government's been applying and the interesting thing there is it challenges the government. So in process in the way in which they approved the renewal of the contract. The original concession contract was renewed in 2017 for for 20 years and.
That was challenged in the Supreme Court for third parties.
Panama Ziv.
Recently the to just.
Fiction.
Similar to the U S or otherwise and so it's normal that things are challenged in the courts are often but the governments are in process and the approval was was challenged and you consistently throughout 2019 in 2019 administrations to any is issued formal opinions.
I think that the extension resolution was legal and valid and sold them the process by which should.
And three was in order.
And then you know we just noted the change in January which was either the attorney General had reversed that view I'm somewhat disappointed in that.
Do you think it would set a bad precedent, it's nice you know.
It's important to say, it's far broader than just our situation with the mines a lot of the.
Legal standing there in you know it has a much broader context in Panama, including the real estate market and so on and so you know.
Tinsley impacts you know much more broadly, but also would impact on Panamax international reputation. So.
As we said, we're keeping a watch on that the Supreme Court has not.
Ruled on the matter and.
Usually these things take a long time in the courts.
But if it did come through you know our understanding is that it would have a similar impact in terms of.
Putting pressure on the mine to go into a market of closure yes.
Okay, Great and maybe I can squeeze one last one it kind of on the same topic here. So you mentioned the word durability several times.
The government.
His focus not the same thing I think the way they've phrased. It is clauses that would govern termination in the event of violation.
And so I wanted to ask is the point of contention around what they are defining as violations that you believe that there are loosely define anything to get themselves and that was in the future.
Thanks, Dalton, Yeah look I think it's.
Yes, that's that's the direction. It seems important that you know the termination clause in the contract which is necessary.
It does provide a clear.
Pathway for both parties so that in particular.
Don't have a situation of rising again with.
Termination could occur given that we have had a contract that was standing for 1997, but then has been put aside so yeah, it's really almost doubled.
Beautiful with Delta.
They do need to see that that doesn't happen again in the future in order to get.
Stability and that's why we referred to it as durability, we wouldn't want to see a situation where this you know we have.
You know contagion or that this happens regularly in Panama that would certainly undermine not just you know investment in mining, but given that these concession contracts.
In the country can cover a lot of international investment whether it's the port So you know concessions.
Concessions for hydro electrical for renewable power. This is the construct by which much of the direct foreign investment goes into Panama and that's why it's important.
So the country's reputation in the future.
This concludes the question and answer session I'd like to hand, the call back over to Justin for any closing remarks.
Thank you very much hope rider I would like to thank everybody, who joined the call today and wish everyone. A good day. 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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