First Quantum Minerals Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 25, 2023

There are 13 speakers on the call.

Operator

You for standing by. This is the conference operator. Welcome to the First Quantum Minerals Limited Third Quarter 2023 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.

Operator

I would now like to turn the conference over to Benita Thill. Please go ahead.

Speaker 1

With opening remarks followed by Rudy Van Horst, our Chief Operating Officer, who will provide an overview of our operations. Ryan McWilliam, our Chief Financial Officer, Sir, will review our financial results and Tristan will wrap things up, after which we will open up the line to take questions. And with that, I will now turn the call over to Tristan.

Speaker 2

And thank you everybody for joining us in our conference call today to discuss our 3rd quarter results. I'm speaking to you today from our Sensenor and Enterprise operations here in Zambia. I'm pleased that production at our 3 largest operations continued to improve in the Q3, which Rudy will provide more detail in his review of operations. As well, we saw a modest easing with some of our input costs. As a result of our focus on productivity and costs, Our 3rd quarter EBITDA of US969 $1,000,000 was a meaningful improvement from the 2nd quarter despite the continued weakness in the copper price.

Speaker 2

Before continuing with details on our Q3 results, it is pleasing to With you that the concession contract surrounding the Cobre Panama mine was enacted into law at the end of last week, which marked the final step in revising the legal framework for the mine. The new law received strong Support of the National Assembly with 47 votes in favor of the new agreement out of a total of the 55 votes that were registered. I would like to thank the team in Panama for their hard work and collaboration with the government of Panama to ensure the successful passage of the contract into law. With the law published in the official Gazette, First Quantum will soon be making payments to cover taxes and royalties for 2022 and the year to date in 2023, which Ryan will provide more details on in his financial review. With the legal certainty at Cobre Panama now established, we look forward to continuing our contribution to the economic benefits of the country through employment, Supplying from local businesses and all our other programs in country.

Speaker 2

Nevertheless, we have seen the protests from various groups across the country, Which acts as a reminder that we as a mining company and the industry as a whole need to do more hard work in communicating the many benefits That our mines can bring to the surrounding communities and our host countries. And with that, I would like to hand the call over

Speaker 3

It was pleasing to see improvements continue from the 2nd quarter with each of the 3 main operations having production increases in the 3rd quarter. Total copper production was nearly 222,000 tons during the period, up over 34,000 tons quarter over quarter as grades and throughput improved at each of Cobre Panama, And Sanchi and Sentinel. Copper C1 cash costs in the 3rd quarter improved considerably at all 3 of the operations. Group wide C1 costs averaged $1.42 per pound during the Q3, a $0.56 per pound improvement over the 2nd quarter, which was primarily driven by the higher production volumes, although there was an easing in some input costs, which Soren will speak to in his remarks. At Cobre Panama, the operation delivered record copper production of 113,000 tons, 25% higher than the 2nd quarter as grades improved and mill throughput was higher with the continued successful ramp up of the CP100 Expansion Project.

Speaker 3

Throughput was over 24,000,000 tons during the quarter and we remain on track to exit 2023 at a consistent and reliable annualized rate of 100,000,000 tons through the plant. There is currently a drought in Panama, which is impacting water levels in the Panama Canal and has led to some vessel restrictions. At this time, the Cobre Panama operations are not impacted by the Canal, with most of the mine supplies sourced from South America and delivered through our own port. With regards to the concentrate shipments, The only impact on Cobre Panama are slightly longer voyage times for concentrate shipments to customers based in Asia that have not chosen alternative shipping routes. Moving over to Zambia.

Speaker 3

At Kansanshi, copper production of approximately 40,000 tons was nearly 5,000 tons higher than in the 2nd quarter. Production during the Q3 continued to focus on mining cutbacks at elevated ventures with higher grades and this is expected to continue into the Q4. At Sentinel, grades continued to improve in the 3rd quarter allowing for copper production to improve by nearly 10,000 tons to 64,000 tons in Q3. The improved copper production was driven predominantly by higher grades while throughput was challenged by hard ore found in the lower levels of Stage 1 and 2 pits. This had a ore impacting mining, crushing and milling rates during the quarter and is expected to continue into the 4th quarter.

Speaker 3

As such, along with the challenges experienced earlier in the year at Sentinel, 2023 production guidance has been lowered for the operation, which Tristan will address in his closing remarks. Thank you and I will now hand the call over to Ryan to review the financials.

Speaker 4

Thank you, Rudy. The copper price was broadly flat quarter on quarter, averaging $3.79 per pound in Q3, 1% lower than in Q2. However, copper prices fell towards the end of the quarter to just over $3.60 per pound as expectations of higher for longer interest rates With a knock on impact on industrial activity and rising geopolitical tensions have led to a risk off market sentiment. Despite this, copper demand, particularly in China, remains robust on the back of continued electric grid and electric vehicle spending, A reminder that the lifeblood of energy transition will flow through copper veins. As Ricky described, production was very strong through the quarter resulted in a 23% increase in copper sales to 219,000 tons, which is a record for First Quantum.

Speaker 4

This meant that despite the flat copper price, revenues increased by 23% to $2,000,000,000 As Rudy also noted, there's a draft in Panama that has led to longer voyage time through the canal for some of our shipments. Based on the structure of these contracts, however, The company's revenue recognition and timing of cash receipts from these shipments is not impacted by these delays. The record quarterly copper production also benefited unit costs, helping drive copper C1 cash costs down 28% to $1.42 per pound. Cash costs also benefited from higher byproduct credits as well as lower consumable costs as fuel, sulfur and explosive prices all reduced compared to the previous quarter. It is worth noting that Brent's crude oil prices increased from $75 per barrel at the beginning of the quarter to $92 per barrel at the end, driven by OPEC cuts and tension in the Middle East.

Speaker 4

This is the potential to impact costs towards the end of the year once existing fuel inventories are worked through. On labor costs, it was pleasing to see the Cobre Panama collective bargaining contract successfully signed in September. This agreement will be enforced for the next 4 years, providing more certainty in our labor spend. More broadly on cost, we have narrowed our C1 guidance for the year to $1.75 to $1.85 per pound. This mostly reflects our weaker copper production at Sentinel in H1, offset by the strong production in Q3 across the other sites and the expected strong end to 2023.

Speaker 4

Slide 17 highlights that 3rd quarter EBITDA increased 71 percent to $969,000,000 the highest in the last year. The significant increase was as a result of the record quarterly sales and lower costs. Net earnings attributable to shareholders increased to $325,000,000 and adjusted earnings per share increased to $0.52 The effective tax rate has averaged 17% year to date, with full year guidance between 40% 45%. Effective tax rates in the final quarter will be higher as income tax Expense for 2023 is adjusted under the refreshed concession contract to Cobre Panama. As noted in IMD and A, It is intended that the charge relating to the taxes and royalties up to the year end 2022 will be excluded from 2023 adjusted earnings.

Speaker 4

So the full year guidance rate of 40% to 45% reflects 2023 tax and royalty payments only. I would also note that the anticipated top up under the new structure in Panama is treated as a royalty and not a tax in the calculation of effective tax rates. Moving on to our balance sheet. Net debt reduced slightly by $13,000,000 to $5,640,000,000 this quarter. Despite strong EBITDA growth, net debt was impacted by unfavorable changes in working capital.

Speaker 4

The successful completion of the La Grana acquisition and the resulting $105,000,000 payment to Rio Tinto and an increase in CapEx spend of $49,000,000 The increase in CapEx reflects the steady progress in the Esri expansion project at Kansanshi, which Tristan will describe later. Lastly, on capital allocation. Current copper prices are well below the level needed to incentivize greenfield developments, particularly when one considers the high CapEx and OpEx inflation in recent years. For context, in real terms, This week's opening cost per price of $3.54 per pound is equivalent to a price of around $2.90 per pound in 2018. Our capital allocation focus, therefore, remains on strengthening the balance sheet and less capital intensive brownfield projects like S-three rather than allocating any material capital to our portfolio of greenfield projects.

Speaker 4

Additionally, with CP100 commissioned in Q1 and Enterprise now producing nickel concentrate, The brownfield expenditure on 2 of our 3 key projects is behind us with the production growth to come as Cobre Panama and Enterprise ramp up. Current liquidity remains strong at $2,300,000,000 supported by the issuance of the $1,300,000,000 8 year bonds in the previous This positions us well to cover the Cobre Panama taxes and royalties, which are payable soon as a result of finalizing the legal framework in Panama. Total payments for the year will be comprised of tax and royalties for up to the year end 2022 of $395,000,000 of which $45,000,000 is already paid and approximately another $215,000,000 will be payable soon to cover the 1st 3 quarters of 2023, resulting in a near term payment of $565,000,000 For 2023, as a whole, based on current copper prices, we expect a total payment $375,000,000 for the year that includes the top up payment. This will result in a total tax and royalties payable For 20222023 in Panama of $770,000,000 And that brings the finance section to an end. I'll now hand the call back to Tristan.

Speaker 2

Thanks for that, Ryan. As Rudy noted, the Q1 saw production improvements. However, regrettably, we are lowering our copper production forecast for 2023 to £745,000 to £775,000 mainly due to Sentinel. At Cobre Panama, the CP100 expansion project continues to ramp up very well. The operation continues to achieve periods of design capacity And remains on track to exit the year at a consistent rate of 100,000,000 tonnes per annum.

Speaker 2

As such, we have tightened our copper production guidance for Cobre Panama to between 365,000 to 375,000 tonnes of copper. Construction of the Moly plant continues to progress well And commercial production of that unit is expected in 2024. At Kansanshi, Mining will continue to focus on the upper benches of Main 15 and Main 17 and we expect the strong grades to continue in the 4th quarter. Kansanshi continued to perform within our expectations, albeit at the bottom end of the range. As such, our copper production guidance range has been tightened to between 130,000 to 140,000 tonnes.

Speaker 2

Gold production has been lowered to between 65,000 to 70,000 ounces to reflect gold grades encountered to date. Current levels of copper and gold production will remain at or near these levels Until the S3 expansion project comes online. The S3 expansion continues to progress well. We have started receiving long lead items during this past quarter, including the 1st ultra class trucks and initial components of the mills and primary crusher. Earth and construction works continue and are expected to accelerate into next year.

Speaker 2

We remain on schedule for 1st production from the Estuary expansion in the second half of twenty twenty five. At Sentinel, given the challenges early in the year and the harder than expected ore accounted in the Q3, we have lowered copper production guidance to between 220,000 230,000 tonnes. However, work is being done to bring in softer ore with mining starting in Stage 3, Which should start to meaningfully contribute to ore feed in the Q2 of next year. As well, over the last several months, a lot of work has been conducted to better prepare the mine for the upcoming rainy season, including mining down the sale zone between Stage 12 and adding additional pumping capacity. We continue to review the impact of harder ore on the coming year mine plan, but at this stage we expect We will address guidance in January, but at this stage we are holding to our previous outlook for At Enterprise, another important milestone was achieved during the quarter with the 1st sale of nickel concentrate.

Speaker 2

The focus remains on stripping of waste and the final ramp up of the process plant to full production capacity, which is expected next year. We encountered challenging metallurgical characteristics of a shallow ore due to weathering, leading to a reduction in our 2023 guidance to between 3000 to 5000 tonnes of contained nickel. However, a good understanding of the process impact of this material has been developed And we expect plant recovery and concentrate quality to continuously improve as we gain greater exposure to less weathered ore deeper in the mine. Lastly, it was with great sadness that we announced the passing of our Chairman, Philip Pascall, during the quarter. I'm in Zambia right now where Philip was posthumously honored for his work and contributions to the country with the Eagle of Zambia Award by President Titchelema yesterday.

Speaker 2

Philip was a great mentor and inspirational leader and this loss has been felt deeply across the company and the communities that First Quantum operates within. The outreach from the investment and mining community has been tremendous and humbling. I would like to sincerely thank everybody for their condolences and their sharing of memories of Philip. Built on the legacy of the founders of the company, we remain committed to the trajectory of First Quantum and we believe we have both the projects and the capability and people To deliver that into the future in an environmentally and socially responsible manner and in a financially disciplined Approach cognizant of needing to continue to improve our balance sheet. With that, I will be happy to take questions now.

Speaker 2

Thank you.

Operator

We will now begin the analyst question and answer session. Analysts are permitted to ask one question and one follow-up and are welcome to rejoin the queue if they have more. The first question comes from Jackie Przybylski with BMO Capital Markets. Please go ahead.

Speaker 5

Thanks very much. And just to echo what you said at the end of your remarks, Tristan, I'll Pass on my condolences to you and the team on the testing of Philip. It's a huge loss to First Quantum, of course, and the whole industry. My question is on your guidance revisions, both on the volumes and the costs. It Seems like Q3 was a strong quarter across your operations.

Speaker 5

And my understanding based on prior comments from yourselves Was that Q4 is expected to be fairly strong as well. So I'm wondering if that's changed, if your expectations for Q4 has changed or if you're just reflecting some more of a cautious outlook, just given what we know from the first half of the year.

Speaker 2

Yes. Thanks, Jackie. And I'll ask Ryan to provide some more detail. But Yes. We have tightened the guidance and as you say that's still tough particularly at Cobre Panama, very strong performance in the quarter and We're very pleased with the progress in the CP100 expansion in terms of the impact that it's having.

Speaker 2

What we do see is the grades were higher at CP100 during the quarter and they will come off a little bit in the 4th quarter just In the normal course of the mine plan for the year. And so it's not really conservatism there, but just focus On the existing mine plan, at Sentinel, look, we're in a good position to face the wet season. And Perhaps I can just ask Rudy to comment a little bit more on that. Rudy, would you just cover that in terms of outlook for the remaining quarter at Sentinel and perhaps also at Kansanshi? And then Ryan, if you could just comment on the cash cost outlook?

Speaker 2

Thank you.

Speaker 3

Yes. Thanks, Jason. Hi, Jackie. Thanks for that question. Look, at Sentinel, we experienced a difficult first half of twenty twenty three as a result of the impact on the rainy season that we Gus, on the last call, we've made a lot of infrastructure Investment on dewatering capability and capacity at Sentinel, effectively tripling its input dewatering capacity To over 10,000 cubic meters per hour.

Speaker 3

We've finalized the final environmental treatment Pond construction activity during this latter part of Q3. We've also finalized pumping water back to the plant and using it primarily in the plant rather than utilizing and discharging to the environment under The regulatory limits. So effectively meaning that we do not have to hold back and wait for water to be neutralized that Sentinel, before we can discharge, because all of that's now going into the plant. Secondly, At Sentinel as well, the subtle between Stage 1 and Stage 2 that The previous wet season resulted in the damming of water that's been completely mined out. And As far as the hard ore is concerned, yes, certainly, we experienced some very hard ore in the bottom of Stage 1 and Stage 2 pits During the quarter, we are mining in the area of the ore block called Domain 4, which is hard kyanite.

Speaker 3

And although that will remain with us during the course of the Q4 in both of Stage 1 and 2, We are already noticing drilling and blasting punching through that domain into the one below, which hosting slightly Softer, softer ore. So, we are

Speaker 4

in the way

Speaker 3

we are currently Situated in Stage 1, but in the hard stuff, it won't migrate out of that towards Q1, Q2 of next year. But Seth will be with us for the remainder of this year.

Speaker 4

Then Jackie, maybe if I just jump in on costs. So we still expect to finish within our initial cost guidance. All we've done is we've moved up our bottom end from 1 $65,000,000 to $175,000,000 And that's largely a function of what really described the weak production from Sentinel for most of this year, which is somewhat offset by Slightly better cost inputs, most notably diesel and explosives than what we assumed at the beginning of this year. So we now have a new cost guidance, $1.75 to $1.85 per pound of copper.

Speaker 5

That's super helpful. Thanks, Ryan and Rudy and Tristan. And if I could ask a follow-up, Maybe to Ryan, you've got a number of cash outflows coming up with the tax settlement as part of this Agreement with the government of Panama and the La Granja acquisition completion and the work you're doing on S3 and other projects. Can you talk a little bit about your balance sheet and where you see your balance sheet sort of Going over the next couple of quarters with those cash outflows and so how you expect to fund those, if it's through just cash on hand or Any other way of funding them? Thank you.

Speaker 4

Go ahead, Jackie. Go ahead, Brian. So, We saw leverage metrics improve through the quarter. We were at 2.2x net debt to EBITDA at the end of Q2. Because of the strong EBITDA performance, we're now at Just above 2x net debt to EBITDA, so pleasing to see that focus off the stronger off the back of stronger EBITDA.

Speaker 4

That was also in a quarter where we made the $105,000,000 payment to Rio Tinto for La Grana. So that payment is now behind us. In terms of what is ahead, as you know, we've got the payment Associated with the settlement and agreement and new legal framework in Panama that will be paid shortly. And we're in a fortunate position where we have $2,300,000,000 of liquidity, strong liquidity on the balance sheet to address that. And then going into next year, it will be as before, continue to remain disciplined about capital, certainly not looking at spending material Capital on greenfield projects and being disciplined around the capital that goes into our brownfield projects, which are being enhanced.

Speaker 5

That's super helpful. Congratulations again on a really great quarter. Thank you.

Operator

The next question comes from Horace Walcadelle with Scotiabank. Please go ahead.

Speaker 6

Hi, good morning and my condolences as well. No doubt, Philip, legend of the mining industry. Just following up on Jackie's questions. If I'm hearing you correctly, I think you said that you expect the harder ore at Sentinel to spill over in The first half of twenty twenty four. Has that already been factored into the existing guidance for Sentinel for next year of 245 To 265,000 tons or is the are you finding the ores harder than what's assumed in the current mine plan in that guidance?

Speaker 2

Sure, Orest. So I'm here at Central now and just looking at what that Harder material was and look, it's chemically altered rather than anything you can see delineated Otherwise, it's an area that we really saw as we approached it in terms of drill rig performance, the Grade control drilling and then the production drilling. So it really did affect us in Q3. We are starting to get through it very much A horizontal band that runs through and as I said it's sort of chemical alteration, so very hard to pick up other than in a physical parameter. But we believe that it is present in the pit in that horizontal band.

Speaker 2

We threw some of it There is in the bottom of Stage 1, but we do see it continue. And as Ruth said, we will see that continue to Q4. It was part of the mine plan before, But we did see that during the course of the year, we were going to be across different areas of the pit that would have provided flexibility. The wet weather in Q1 hampered that flexibility and we were very much more sequential as the year turned out that is we mined Stage 2 and we went to Stage 1. And I think next year with the additional water infrastructure in place, we'll see much more of a blended Mixed mine plan across the year and that's why we say we are where we're at in terms of guidance for next year.

Speaker 2

We will address that in we're going through the budgets right now at the moment to address it in January, but at this stage, no reason to preempt that.

Speaker 6

Okay. And thank you for that. And just as a follow-up question from Ryan. I didn't quite catch some of the numbers that you disclosed with respect to The upcoming payments here in Q4, can you just give us that total again for the total payments, I think, in Panama Relating to both 2022 and I guess, what would that be, the 1st 3 quarters of 'twenty three?

Speaker 4

Sure, Orest. So we'll be paying $395,000,000 which is for all payments up until the end of 2022. In addition to that, we'll be paying a large portion of 2023 taxes and royalty is effectively a catch up for this year, and that combined number is at $565,000,000 We do expect across 2022 and 2023 to pay total tax and royalties of $770,000,000 But obviously some of that those payments will occur in 2024.

Speaker 6

Okay. So that $770,000,000 includes a Q4 number in it? Correct. Okay. All right.

Speaker 6

Thanks so much.

Operator

The next Question comes from Greg Barnes with TD Securities. Please go ahead.

Speaker 7

Yes. Thank you. Tristan, with Law 406 now in place, There are a number of Supreme Court rulings and government actions that relates to Law 9, one of them being that Law 9 was unconstitutional. Do all those fall away now and they become really non issues for you?

Speaker 2

Yes. Hi, Greg. Thanks. Look, So certainly, we're very pleased to have the contract passed into law. The process has alleviated a lot of the Around that, it received really good support through the National Assembly, 47 Volumes out of the 55 that were cast and I guess that level of support speaks to the authority of the passing of the contract.

Speaker 2

The unconstitutionality motion, Panama is a litigious environment and so there is Ongoing on constitutionality proceedings, we're not a party to those proceedings. So we don't have the detail of their specific nature, But it is common practice, as I said, in Panama and other minor jurisdictions for the challenges like this to be filed. Because of the passing and the status, the involvement and the deliberation that was involved In establishing now the new legal framework to go forward, it went through public due public process, it went through the National Assembly. We followed the our understanding is the due legal process has been adhered to and the government of Panama certainly assured us All the same. Once the details emerge from those proceedings, we will be able to take part in the proceedings.

Speaker 2

But we do see this as just a normal course of action in the litigious environments, but we have confidence in the standing Of this process that's taken this long to get to this point. And again, we're pleased to have it passed into law.

Speaker 4

Okay.

Speaker 7

That's great. Thanks, Tristan. Just a second question and maybe a bit out of left field, but with respect to Ravensthorpe, it Continues to lose money. The nickel price is weak and the outlook isn't great. And I just noted in the MD and A that it appears that there was A cash call and POSCO didn't participate.

Speaker 7

Is there any thought about the future operational viability of Ravensthorpe from here?

Speaker 2

Yes. Thanks, Greg. Look, Q3 at Ravensthorpe, we were impacted by ongoing maintenance. It's a feature of the saltwater that we take there and but also adaption of the plants So the material characteristics of Shoemaker Levy, so for example, magnesium constant and so on and the density Around what comes in from Shumway facility. So that adoption is ongoing.

Speaker 2

I think it will continue to impact us in Q4. We have a major shot On the asset plant coming up, we need to renew the catalyst there and that chart will improve significantly The electrical side and the asset plant performance and efficiency, really the ongoing focus for us at Ravensthorpe Just to get to the 30,000 tonne per annum plant design capacity and that really does start to deliver a lot in terms of maintenance improvement. Modik, we will we've put in place those adaptions to the

Speaker 4

front end beneficiation

Speaker 2

that deal with density And deal with beneficiation from Shoemaker Levy and also on the back end on rejects handling and so on. But Brian, you might just comment on POSCO's decision Around the cash input?

Speaker 3

Sure. So, I would note firstly on

Speaker 4

the market side, Nickel price has struggled through Q3. And on top of that, payability for products like MHP remain low, a function of just the sheer amount of volume of nickel that is coming out of Indonesia. So I think for us and everyone in the nickel that exposure to the nickel sector at the moment, we are spending a lot of time On what we can do to enhance operating margins and that's some of the activities that Tristan talked about. This is only a person in question, Greg. In terms of POSCO specifically, They had certainly invested in Ravensthorpe to procure MHP for nickel sulfate plant, which they were looking to build.

Speaker 4

At this stage, they've delayed that Plants given the volumes that are coming out of Indonesia, so there's less incentive for them to fund Ravensthorpe going forward given what the strategic rationale for their initial investment was.

Speaker 7

Okay. Thanks, Ryan. That's helpful.

Operator

The next question comes from Ralph Profiti with 8 Capital. Please go ahead.

Speaker 8

Thanks, operator. Good morning, everyone. Tristan, at Sentinel, when you look into Q4 and into 2024, You've addressed sort of the water issues and the tail events on potential water inflows. So I thank you for that. Can you maybe expand on that and talk a little bit about Energy and grid availability as it pertains to some of the changes you're making in the combination circuit with that finer grind?

Speaker 8

And also How was the mine shaping up for things like maintenance given the increased wear with this harder ore?

Speaker 2

Thanks, Ralph. Rudy, do you want to answer that question? I'll come in at the end if needed.

Speaker 3

Thanks, Tristan. Hi, officer. Look, this heavy wet season when it approaches in Zambia, the question of electricity comes up. Certainly, we have as per our previous experience, there is No desire whatsoever to limit security or supply to our operations. And certainly, we have had a good rainy season last year.

Speaker 3

We have also just in the process of finalizing our long term power By agreements with the electricity provider and that effectively has been agreed for both Sentinel and Kansanshi And just again drafting final documents there. So, as far as electricity supply is concerned, I think there is no concern on our part. And certainly, as a company, we are also looking at with joint ventures with others, Like for total, for example, looking at the installation of renewable energies in Zambia. So, I think that long term, we are fine there. The harder ore is just going to explain, and I said earlier as well, is Mainly situated in Domain 4, the hard kyanite, there's a band that runs through the pit.

Speaker 3

It's been giving us trouble with throughput on the crushers and the mills during the last quarter and Looks like we are punching through that in the main pit now, although it will linger in Stage 2, but also the availability of the 3rd cutback 3 towards the west that we are now actively in mining that will deliver ore through The end of Q1 into Q2 next year makes the blending characteristics so much better. So, we've had a bit more Abridion in our crushers during this last quarter, but we don't expect to see that prolonging. And at the moment, we are also busy with a mine to mold study utilizing These are the vendor to help us with some of those material selections.

Speaker 8

Got you. Thanks, Ruhi. That's helpful. Ryan, when do the 2024 tax installments come due, right? Just thinking a little bit forward, are those front end loaded Towards the year end and going forward, how will tax installment payments be made?

Speaker 8

Just thinking about timing.

Speaker 4

Yes. So, in general, we make the royalty payments on a quarterly basis and then the top up generally comes in the first The next year. So, you're now going to see us move to a fairly normal approach in terms of timing of taxes and royalties, Rolf.

Speaker 8

Got you. Thanks team.

Operator

The next question comes from Bryce Adams with CIBC Capital Markets. Please go ahead.

Speaker 9

Tristan and team, thanks for the call and well done on the operational results. I have another question on Panama and the new mine contract. It's not into law, but it sounds like there's still quite a lot of protesting and opposition in the country. Do you think it's a risk that a presidential candidate picks up on this and uses it as part of their campaign election and that a new government in May next year Might want to revisit that contract. Quite a few ifs in there, but in terms of risk management, is that a scenario that you've thought through and planned for?

Speaker 2

Yes. Hi, Bryce. Thanks for the question. Look, again, we're pleased to have the contract passed into law and That was the outcome in terms of the votes in the National Assembly after due Democratic processing, which included that it was returned to the committee And then between the company and government, we addressed the queries that came back from Committee and back from the democratic process, which were related to sovereignty and then that went forward into the National Assembly. And again, It was very strongly supported 47 boats in the final reading of the 55 That was submitted.

Speaker 2

So it's been thoroughly reviewed by the National Assembly. It's been through the public protest, the public participation. Look, the protests We acknowledge and it certainly highlights the need for us to And the industry as a whole to continue to improve disclosure, improve our communication, improve our engagements and discussions of benefits in mining Around economy, employment, our community impact, the positive social contribution, our environmental standing. We note the President's comments, his message to the nation yesterday on the topic and we certainly support his comments On the impact around the new framework and the new renewed and strengthened Benefits of the Floyd's Panama and the environmental and social standing of the contracts. In terms of the election, yes, that will be in May next year and the new President will come in place in July.

Speaker 2

Given the process to date, We believe things are in a strong legal standing and the risk is low, But we have confidence in the legal process today that given the exhaustive process that's been put in place.

Speaker 9

Okay. Thanks. I appreciate the discussion. That's it for me.

Speaker 3

Thanks, Bryce.

Operator

The next question comes from Ionis Masyllaris with Morgan Stanley. Please go ahead.

Speaker 10

Yes. Thanks very much for the presentation and my condolences as well. My first question is around The gold production outlook at both Kansanshi, which is on a better footing now and Cobre with CP-one hundred progressing well, Do you have better line of sight on the midterm gold production guidance? Is there any potential upside or downside versus the published technical reports on either asset?

Speaker 2

Rudy, would you like to take the question on gold guidance, please?

Speaker 3

Thanks, Justin. Thank you, Johannes. So we're currently going through our budgeting and we are planning process and obviously we'll update on guidance in January. Gold grades, especially at Kansanshi, It's really related or related challenges to the gold grades that you've seen with the overall Declining copper grades, there's been historically quite a good correlation between declining copper grade And the gold drag following suit. So copper and gold production going forward should be pretty similar to 2023 levels until we see It's the expansion of Kansanshi kick in.

Speaker 10

Okay, great. Very clear. And then the second question on the balance sheet. Despite a very strong cost performance in the quarter, You still haven't managed to bring down a net debt. Part of it, of course, is the La Granja deal and the outflow, But bigger part is also the working capital investment in the quarter.

Speaker 10

Could you provide a bit of color what happened there? And would Should we expect a release in Q4 that would temper the tax payments at Cobre? Thank you.

Speaker 4

Ryan, Yanis, do you want to take that? Sure, Tristan. So, Yanis, what you saw at the end of Q2 Was receivables were unusually low for us and they've now moved to a more normalized level. So I wouldn't expect future working capital releases. I'd now treat it as that We're at normalized working cap levels and generally that's just driven by the timing of shipments of copper concentrates with therefore before or after the end of the quarter.

Speaker 6

Great. Thanks very much.

Operator

The next question comes from Alex Siedemcuk with Stifel. Please go ahead.

Speaker 11

Hi, everybody. Most of my questions have been asked, but I wanted to just ask one more here on Cobre Panama. We had a very strong quarter in Q3, kind of look like it was firing on all cylinders here. I know you're ramping up to 100 1,000,000 tonnes a year, but the quarter already had 98 on an annualized basis. Is there What's the bottleneck here in this mine?

Speaker 11

Is there opportunities to get it above 100? Are you going to be going into some harder ore that's going to slow things down? I'm just trying to see what the opportunities are for your largest kind of lowest cost mine to deliver to the upside in future years?

Speaker 2

Yes. Thanks, Alex. Look, again, we're in the process of updating our budgets and we'll come back in January on Guidance for the coming years, but in a general comment on the CP100, yes, we're very pleased with progress. It's certainly delivering and again we have a lot of confidence in being able to achieve a consistent run rate of $100,000,000 by the end of the year. Look, I think we will see High maintenance is the high throughput continues on.

Speaker 2

As I said, we also we had Higher grades this quarter and next quarter is in the normal course of the mine plan. We do expect Slightly lower grades, still within the original setting. And so we did tighten guidance for the year. But look, the overall bottleneck at Cobre Panama, once we resolve the comminution circuits, the front end screening, The pebble crushing and secondary crushing and then also as we put in place the improved Process water supply, the bottleneck comes to the SAG Mills and the SAG Mill is the biggest capital item on the process plant. If you decide to put in a new SAG mill, you need everything downstream on that.

Speaker 2

And so what you're talking about is a new process plant. We're not at that stage yet where we're considering a second processing plant at Cobre Panama. We want to see this It's run to continue and deliver the $100,000,000 expansion. That decision is not in front of us at the moment. There's optionality around that in the future in terms of copper price and balance sheet position and so on.

Speaker 2

But really, Alex, that's where you get to the bottleneck Next is that the big signals and those are the big capital cost item, if you want to grow beyond that.

Speaker 11

Okay. Sounds good. Thank you very much.

Operator

The next Question comes from Edward Goldsmith with Deutsche Bank. Please go ahead.

Speaker 11

Hi. Two questions from my side. Firstly, on Kansanshi, how should we think about the grade profile next year given the current focus on the higher grade cutbacks? And secondly, on Laconia, can you outline the milestones and time line to completing the feasibility study? Thank you.

Speaker 2

Thanks, Edward. Rudy, do you want to take the first question on Kansanshi guidance and grades?

Speaker 3

Thank you. Look, the quarter 4 throughput certainly will improve Kansanshi, as we mine back the May 15, 2016 and 2017 cutbacks to the south and removal of Waste dump around the May 2018 cutback, those higher upper benches do mine easier, Going through mix and oxide before we get into competent sulfide. So, we do mine a little bit easier And we're expecting to see higher grades there as a result of this platform mineralization. However, the Continuous the benefit of that through 2023 will be seen in quarter 4. From primary message, I guess, still is the business is migrating from Higher grade, low volume operation through to a larger volume, lower grade operation similar to Sentinel and Cover Panama, that's the reason for S3's expansion.

Speaker 3

So, until such time as we see S3 kick in, we will be looking at Similar sort of production levels.

Speaker 2

And Edward, in terms of your question on La Grange, look, we were very pleased To finalize that transaction with Rio Tinto during the quarter, Rio is Well capitalized industry leader and we're very excited about the opportunity posed by Lagrana, The opportunity to be a major partner in a large world class ore body in a country that's been very reasonable to build science and operate over the last 20 years Very exciting for us, obviously coming from when we are in a financially sound position that we do that in a disciplined manner. Look, in terms of your question on development timeline, the initial 2 to 3 years is really focused on 2 key areas, the community engagement, Number 1, and that relates to Rio had an excellent program there And in terms of world class community engagement and we will continue that on in terms of the project. And the second area is on the feasibility and really that surrounds mostly delineating the ore body, not so much in terms of Expanding it's already one of the world's largest undeveloped assets, but more around delineation And the phasing of developments of the project. So we're currently mobilizing the first drill rigs To do the infill drilling, to do the metallurgical test work, to look at the geotechnical side, to upgrade the resource And be able to develop a high level project layouts on the Granta.

Speaker 2

That will be conducted in house. The timetable for that over the next 2 years would then give us put us in a position to be able to put all of the engineering studies and so on in place Thereafter and developed the asset we expect over a period of around 4 years. So something in the order of 6 years is appropriate for La Grange. So in terms of timetable, we still see Taca Taca is more advanced at this stage. Obviously, that is the There's no sanctions to proceed with them at the current time.

Speaker 2

We're certainly awaiting the output of the ESIA Permitting process and also the final decision in the election of Argentina and what the incoming government will do In terms of improving the potentially improving the Argentina as a destination for investment. So but La Granada We are very excited by the project, but it will take that time, possibly 2 years initially and then 6 years in total to develop.

Speaker 3

Thank you.

Operator

The next question comes from Ian Whissel with Barclays London. Please go ahead.

Speaker 12

Thank you. Just one question for me for Ryan. Just on the outstanding VAT balances within the Zambian operations, Could you see there was some negative adjustments for phasing expected just for the, I guess, future noncurrent balances? Is that related To, I guess, changes on the cost base or is it pricing assumptions? Maybe if you can just provide some details on that, please.

Speaker 4

Yes. That would be a combination of a couple of things. So It's quite a lot in there, but the balance as it comes out to that slight adjustment.

Speaker 12

Okay. I mean, presumably that talks to the future expectations of profitability of Kansanshi being slightly lower.

Speaker 4

Yes, exactly. So the way that that agreement works is, we now can deduct off a set percentage of taxes and royalties Each quarter. And obviously, as copper prices move up or down, so that number Grows or reduces depending on what our taxes and royalties are. So that's generally what affects the phasing of that. So the lower the copper price is, the less we're able to offset And therefore, the longer that that becomes due.

Speaker 12

Okay, great. And what copper price sort of debt could you do you use Consensus prices or what do you use within that analysis?

Speaker 4

Yes, it's broadly consensus, Jan.

Speaker 12

Okay. Thanks.

Operator

I would now like to turn the conference back over to Tristan Pascow for any closing remarks. Please go ahead.

Speaker 2

Thanks, operator, and thank you everybody for joining us today. I certainly look forward to our next update with you early in the New Year.

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Earnings Conference Call
First Quantum Minerals Q3 2023
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