First Quantum Minerals Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 12 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the First Quantum Minerals Limited First Quarter 2024 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, Director, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and thank you, everyone, for joining us today to discuss our Q1 results. During the call, we will be making forward looking statements. And as such, I encourage you to read the cautionary notes that accompany this presentation, our MD and A and the related news release. As a reminder, the presentation is available on our website and that all dollar references are in U. S.

Speaker 1

Dollars unless otherwise noted. On today's call are Tristan Pasquale, our Chief Executive Officer Ryan McWilliam, our Chief Financial Officer and Rudy Badenhorst, our Chief Operating Officer. And with that, I will turn the call over to Tristan for opening remarks.

Speaker 2

Thank you, Benita, and thank you everybody for joining us for our Q1 update today. Shortly following our Q4 results, we announced our comprehensive refinancing package that involved an amendment and extension of our corporate loan facilities, a $1,600,000,000 second lien bond offering and a $1,150,000,000 equity bought deal offering. These transactions combined with our $500,000,000 copper prepay agreement with our long standing customer, Jiangxi Copper, has strengthened the company's balance sheet significantly, to which Ryan will speak more on later and provides the company with the necessary time and space to deliver the Kansanshi S3 expansion whilst we work towards a resolution for Cobre Panama. With the closing of these transactions in the Q1, the focus is for both Kansanshi and Sentinel and Enterprise to deliver operationally. During the quarter, Zambia declared a state of national emergency due to drought conditions that have brought about challenges in food security and electricity generation across the country.

Speaker 2

We have seen that the country is adopting a proactive and organized response to these national challenges. We also note that the end of the Q1, Zambia successfully completed its debt restructuring with both official and private sector creditors, which is a solid step forward for the country. Due to the drought conditions, the state electricity utility ZESCO announced a comprehensive electricity management plan that includes power reductions to the mining sector. Based on our bilateral discussions with ZESCO, it is expected that their capacity to deliver power to our Zambian operations will be curtailed by approximately 20%, equivalent to around 60 to 80 megawatts on the current forecast from May 1 to the end of this year. In anticipation of these challenges, the company's primary objective is to prioritize production, particularly at today's copper prices.

Speaker 2

With that in mind, in working with DESCO and by proactively engaging with alternative power providers, I'm pleased to share that we are in the process of finalizing binding agreements for power from Mozambique and Namibia that will cover the reductions requested from ZESCO. Related to this, on April 11, First Quantum received a force majeure notice from ZESCO to formalize the request for power reductions, thereby allowing First Quantum to independently contract power from these alternative sources. As such, we anticipate that we will be able to substitute power curtail by ZESCO with imports and avoid any major interruptions to our Zambian operations based on current forecasts. The imported power will come at a higher cost to which Ryan will provide more details later, but will allow us to maintain our production as planned without a large impact on our overall cost base. Over to Cobre Panama, where the mine remains in a state of preservation and safe management, which Rudy will review some of the work that this entails with respect to the plants and equipment.

Speaker 2

The mine remains clear of blockades, allowing the delivery of necessary supplies for the PNSM program. As I noted on our last conference call at the request of MECI, the Ministry of Commerce, we submitted a preliminary draft to formalize the P and SM plan and its associated costs estimated around $15,000,000 to $20,000,000 per month. In March, MECI requested some clarifications and additional information and in response Cobre Panama has submitted an updated and expanded PNSM plan. We also submitted a request to the National Authority of Public Services to extend the auto generator license to restart the power plant, which is critical to the ongoing implementation of the P and SM plant. Earlier this month, government delegations including representation from various ministries undertook site inspection and verification visits as part of their processes to evaluate the P and SM plan.

Speaker 2

In regards to the environmental standing of the mine, we recently received finding of Mianda Mente, the Ministry of Environment's compliance audit for the period from June to October 2023, undertaken by the government's independent auditors, CADESA. Their report finds that Cobre Panama was 100% compliant on its environmental commitments and legislative obligations. On health and safety, there were 5 instances of non compliance relating to 3 commitments of the total 371 commitments under the ESIA, which at the time were being actively addressed. The summary report will be published shortly on the Cobre Panama transparency website. As well approximately 121,000 dry metric tons of copper concentrate remains on-site.

Speaker 2

The company was advised on January 29 by the Attorney General of Panama that minerals extracted through mining concessions granted in accordance with the mining code belong to the concessionaire. The shipment of the concentrate is included as part of the PMSM plan. In protecting our investment in Panama, we continue to move forward with our 2 arbitration proceedings that being the Canada Panama Free Trade Agreement and the second one as per the arbitration clause of the refreshed concession contract. However, as we have consistently stated, arbitration is not our preferred outcome and we remain committed to Panama and being part of a long term solution that delivers the best outcome from the country and the people of Panama. The next few months will be a period of change for the country with elections to be held on May 5 and a new president to officially take office in early July.

Speaker 2

In the meantime, we will continue to engage constructively with the current administration to ensure the environmental stability and asset integrity of Cobre Panama. We also continue to seek to listen and learn from the people of Panama. With that, I will conclude the opening remarks and pass the call to Rudy to review our operational results.

Speaker 3

Thank you, Tristan, and thank you everybody for joining our call today. As Tristan mentioned, the Cobre Panama mine remains in a phase of preservation and safe management. And with the absence of production from Panama, total copper production for the Q1 was approximately 101,000 tonnes, a decrease of 37% from the Q4. As a result of the lower production volumes, group wide copper C1 cash costs were $0.20 higher than the preceding quarter, averaging $2.02 a pound. Looking at the business excluding Copper Panama, however, copper production was 3,021 tons higher quarter over quarter resulting from improving production at Sentinel, while copper C1 cash costs were $0.06 lower to which Ryan will speak to in his financial overview.

Speaker 3

At Cobre Panama, preservation and safe management work during the quarter involved a 14 day preservation and maintenance cycle at the process plant, with equipment being run and monitored for periods to help maintain the integrity of the plant. With the major ultra class mobile equipment, the maintenance cycle involved daily inspections and weekly startup in order to keep the fleet in good working condition. Toward to Kansanshi, copper production totaled 31,000 tonnes in the Q1. Production was down slightly in the quarter due to low asset stock availability to treat the higher grade oxide material as a result of an unplanned smelter shutdown. Despite lower production volumes, copper C1 cash costs were down quarter on quarter to $2.34 per pound as quarter 4 costs were impacted by a one time catch up charge on new electricity rates from a new 10 year power supply agreement with ZESCO that we entered into at the end of 2023.

Speaker 3

We have maintained Kansanshi's production guidance for this year 130,000 to 150,000 tonnes of copper with copper grades expected to improve over the course of the year as mining progresses at higher elevation areas with higher grade material emanating from the Mine 15 and Mine 17 cutbacks. Sentinel had a strong quarter, reducing just over 62,000 tonnes of copper, which was a 4% improvement from the 4th quarter. This was driven mainly by grade as mining activity was able to progress as planned to high grade areas in Stage 1 and the Saddle Zone between Stage 1 and Stage 2 pits. Throughput, however, was lower than the Q4 due to a planned shutdown that was deferred from the preceding year. Copper C1 cash cost of $1.85 per pound is unchanged from the preceding quarter as the benefit of higher volumes was offset by higher electricity rates from the new power supply agreement with ZESCO and higher freight costs associated with concentrate that was shipped to 3rd party smelters during the smelter shutdown at Kansanshi.

Speaker 3

Copper production guidance for Sentinel has been maintained at 220,000 to 250,000 tonnes. Copper grades were higher in the Q1 and are expected to normalize for the remainder of the year, while throughput is expected to improve over the course of the year as development of the Stage 3 Western Cutback and the relocation of input crusher 3 continues to progress well and will enable improved mining productivities and increased availability of softer material. At Enterprise, mining operations continue to ramp up with the operations producing 4,000 tonnes of nickel in the Q1. During the quarter, there was a noticeable improvement in the recoveries with the expansion of the flotation cleaner circuit. Work continues towards commercial production handful ramp up later in this year with additional equipment mobilized to increase mining volumes and the final ramp up of the process plant to full capacity.

Speaker 3

Production guidance in 2024 for Enterprise continues to be 10,000 to 20000 tonnes of contained nickel. Continuing with nickel production, Ravensthorpe produced approximately 3,700 tons of contained nickel during the quarter. In February of this year, the operation implemented a new strategy with a focus on improving margins by suspending mining at Shoemaker Levy and bypassing the high pressure acid leach units. While margins did improve in the Q1, operating costs nonetheless remain high. This combined with maintenance challenges, weak nickel prices and low payabilities continue to result in significant margin pressure at the operation.

Speaker 3

Thank you. And I will now hand the call over to Ryan to review the financials.

Speaker 4

Thank you, Rudy. Starting with

Speaker 5

the market, copper prices broke out in March from recent ranges and traded to the highest level since April 2023. Copper is now at around $4.40 per pound, albeit much of this increase only incurred after the quarter end. So this is not reflected in these financials. This price increase has been partly driven by the collapse in copper treatment charges, which is to some extent the result of the situation at Cobre Panama and the resulting potential smelter production cuts in China. This copper price increase since the cessation of operations at Cobre Panama will contribute to making the green energy transition more expensive and as a result extend the time that it will take the world to decarbonize.

Speaker 5

Moving on to our financials, where it was a noisy quarter despite the solid operational performance that Rudy described. This was due to it being the 1st full quarter without Cobre Panama production. Revenue and EBITDA both declined quarter over quarter as Cobre Panama remained in the phase of PNSM. Excluding Cobre Panama, revenue and EBITDA increased by 11% and 70%, respectively, mainly on the back of improved operational performance and higher metal prices. Impacting EBITDA were P and SM costs at Cobre Panama of $63,000,000 due to a larger workforce than budgeted at the start of the quarter.

Speaker 5

Workforce reductions have now been completed and as such, going forward, we expect these costs to normalize to the $15,000,000 to $20,000,000 per month rate. Our Q1 net loss attributable to shareholders improved to $159,000,000 this quarter, as Q4 last year was impacted by both the impairment at Ravensthorpe and the tax expense at Cobre Panama. Moving on to costs, excluding Cobre Panama, copper C1 cash costs reduced 3% to $2.01 per pound. This was attributable to improved production, lower fuel costs and the absence of a 1.12 catch up charge on new electricity rates in Zambia last quarter. This was partially offset by the impact of asset purchases and higher freight costs, as Rudy mentioned.

Speaker 5

As Tristan described, as a result of the power shortages in Zambia, our operations will procure approximately 20% of their power from outside the country. The contracts in this respect are currently being finalized with key terms agreed. The imported power will predominantly be a mix of hydro, solar and natural gas from Mozambique and Namibia. While the imported power will be more expensive than the rates that we have with ESCO, The impact to the overall cost structure will be modest, given power represents about 7% of our costs. We expect an incremental cost $25,000,000 for the remainder of the year, which is equivalent to a $0.03 impact on our C1 cash costs.

Speaker 5

In other areas, inflationary pressures have stabilized and prices are tracking favorably to the assumptions we're using for our cost guidance. As an example, our guidance is based on an oil price of $90 per barrel, while spot prices have averaged in the low 80s year to date. Additionally, the gold prices average well above $2,000 per ounce, while our cost guidance assumes a gold price of $1900 Taking all this into account, we remain comfortable with our C1 cash cost guidance range for the year of $1.80 to $2.05 per pound. Onto our balance sheet. During the quarter, we took a proactive approach to address our liquidity position and near term bond maturities through a number of capital markets actions and a $500,000,000 copper prepayment.

Speaker 5

These actions included amending and extending our corporate loan facility, a $1,150,000,000 equity issuance and a $1,600,000,000 second lien secured bond. We appreciated the support that we received from our shareholders, our bondholders and our banks as part of this transaction. But both in the bond and the equity offerings oversubscribed and 100% consent from our banking group. Changes in our corporate facility include revising our leverage covenant, deferring our debt amortization until June next year and pushing off the facility maturity to April 2027. Proceeds from the equity and debt offerings allowed us to redeem our 2025 and 2026 bonds in full and repay a sizable portion of our revolving credit facility.

Speaker 5

This materially derisks our liquidity position through 2025 to support the delivery of the S3 project in Zambia and resolution in Panama. Net debt decreased by $1,140,000,000 during the quarter to $5,300,000,000 as a result of these financings, partially offset by the impact of working capital movements in Zambia and payments to suppliers at Cobre Panama related to orders placed for the Halton operations last year. Equity improved to $1,800,000,000 at the end of the quarter, comprised of approximately $700,000,000 in cash and $1,050,000,000 of undrawn revolver. As per accounting standards, the prepayment has been recognized as a liability under deferred revenue. Revenue will be recognized in line with deliveries and the prepaid amount will reduce over the 2nd 3rd years in accordance with deliveries.

Speaker 5

From an accounting perspective, the prepay is not recognized as debt and is included within reported net debt and is not included within reported net debt. However, the prepayments will be treated as debt by our lenders and covenant calculations. We continue to manage our balance sheet with discipline by focusing initiatives underway such as further working capital optimization, reductions in operating capital expenditures through driving improved efficiencies. As previously announced measures for optionality and flexibility continue, such as the sales process for the Las Cruces mine in Spain, as well as potential minority investments in the company's Zambian business. And that brings the finance section to an end.

Speaker 5

I'll now hand the call back to Tristan.

Speaker 2

Thank you, Ryan. We continue to make good progress on the Kansanshi S3 expansion project, which remains on track for construction completion in mid-twenty 25. Our focus is on project cost control, while ensuring the quality of construction execution. We continue to receive deliveries during the quarter and these deliveries of major long lead items will continue through the remainder of the year. During the quarter, the primary crusher excavation was completed and we received first deliveries of SAG mill components.

Speaker 2

This is a 6 mill of the same size that the project team has installed and we are pleased so far with progress against the schedule. Similarly, the Kansanshi smelter expansion to 1,600,000 tonnes per annum feed capacity remains on track for 1st production in 2025. Before I hand over the call to take questions, I would like to circle back to the comprehensive financing transactions that I opened today's call with. There was a lot of complexity in putting together this package with respect to the interdependency of each transaction and the short timeframe put together and execute the transactions.

Speaker 3

There were a lot

Speaker 2

of teams within First Quantum that worked tirelessly on this and I want to thank them all for their hard work. I would also like to thank our shareholders, banking partners and bondholders for their confidence and strong support of the company. That being said, however, I want to reassure our investors that the hard work does not stop there. We will continue our work to prudently manage the balance sheet. At the mines, we remain laser focused on operational delivery and identifying further operational efficiencies.

Speaker 2

And finally, at the Kansanshi S3 expansion, as I noted earlier, the focus is on cost control, quality and timely execution. This project will be key to restoring First Quantum's strong cash flow generation. Thank you for your attention and I will now pass call to the operator to open the line for questions.

Operator

Thank you. We will now begin the analyst question and answer session. The first question comes from Greg Barnes with TD Securities. Please go ahead.

Speaker 4

Good morning, everyone. Just a couple of questions, Tristan. First off, the application to restart the power plant, is that just solely to support the care and maintenance plan? Or is there broader implications behind that? And the second question is just around the delays in actually selling that concentrate that's stored in the port of Coprey Panama?

Speaker 2

Sure, Greg. And Greg, thanks. Before I answer your question, I heard that you are retiring and I believe you are our longest covering analyst. So Greg, I want to thank you for your many years of support. We'll miss your coverage and wish you a happy retirement.

Speaker 2

But to your questions, look, firstly on the power plant, what we put forward was rejuvenation of the auto generator license, which is for the full 300 megawatts. We won't need all of that power for the PNSM plan, but we note that power prices for retail customers in Panama remain very high. And we think that that power into the market will do a lot to bring down the cost for ordinary Panamanian citizens in terms of their energy costs. However, that really that decision will be up to the regulator as to whether we just they look at 1 unit or both units running. Secondly, in regards to the concentrate, the 121,000 tonnes sitting at the port, yes, in terms of timetable for when that will get out, I think we note the Minister of Commerce's recent comments that they are looking closely at the P and SM plan and he made comment that he would like to see that approved before the election.

Speaker 2

Obviously, it's in the context of election politics and the strong debate around that. So balance and probability probably spills over after the election. We'll just have to wait and see as to what the timing is there.

Speaker 4

There. Great. And thanks for that Tristan. I think it's been 23 years and it's been a hell of a ride and honestly never a dull moment.

Speaker 3

So yes, thanks a lot.

Operator

The next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Speaker 4

Hi, good morning. My question is around Cobre Panama as well. With the election in Panama now, I guess within 2 weeks, is it your expectation that there will be a window to reengage with the new administration when they come to power in July in terms of negotiating some kind of restart agreement?

Speaker 2

Thanks, Orest. Yes. So certainly, our job at the moment in Panama is to be listening, to understand the voices that speak on the mine and the future of mining in Panama. With regard to the election, we certainly we want to see a strong democratic process. We will work with whichever party is successful and whoever the successful presidential candidate is.

Speaker 2

And the context around that will be to meet the challenges around the mine, but the challenges for the country as well. And certainly, we would be seeking to approach those conversations with humility, listening, understanding what's going on and to work forward on a path forward that resolves the situation to the benefit of the people of Panama and working with whoever is successful in the election.

Speaker 4

Okay. And as a follow-up, the $15,000,000 to $20,000,000 of sort of care and maintenance cost per month right now with Copra Panama shutdown. If there isn't an imminent restart of the mine, how long is the company prepared to fund that from its corporate balance sheet?

Speaker 2

Yes. Thanks, Orest. So that the $15,000,000 to $20,000,000 per month is based on the current level of 1400 people on-site. And as Ryan alluded to, we brought that down during the quarter to that level. We will evaluate that continuously and monitor it continuously and it will be based on our ability to meet the environmental compliance standards there.

Speaker 2

But certainly without clear pathways on the P and SM plan and so on, we will need to manage those costs each month through the course of the year.

Operator

The next question comes from Jackie Przybylski with BMO Capital Markets. Please go ahead.

Speaker 6

All right. Thanks very much. I guess my first question I'll ask, can you talk a little bit about Zambia and the power situation there? And maybe what activities are being done by ZESCO to improve that power situation? And I know you guys had some mention in your MD and A.

Speaker 6

So maybe can you talk a little bit about how you're supporting those activities? Thanks.

Speaker 2

Yes. Sure. Jackie, I'd respond, then Rudy can kick in with some detail. Yes, so we firstly, to say we see the Zambian government is managing the challenges on power and food security arising from the drought with in a proactive manner, which is very positive given the level of challenge. We similarly, we've been very proactive in reaching out to other alternatives.

Speaker 2

And in terms of the arrangements with ZESCO, we can do that under the force majeure. We really can comment on the level of power and the origination, but our intent is that we will be able to subsidize the reduction of power forecast by ZESCO with alternate supplies and so we don't see any impact to production at this stage based on current forecasts. Rudy?

Speaker 3

Thanks, Jason. Hi, Jackie. As Dessin said, the and as part of the MD and A, the request was for 20% reduction across both sites, which includes enterprise. That equates to 60 to 80 megawatts from the 1st May. So we were quite proactive with ZESCO when the emergency situation was called by the President and engaged with power providers across the Southern African power pool and have managed to come to an agreement with 2 providers without mainly being brought in via the utility provider in Mozambique, EDM, and also through NAM Power.

Speaker 3

This will be effective on the 1st May. Indications are that because of the proactive nature that the government has taken, it's more likely it will only run up until the end of this year as we move into another wet season. Everybody is talking about drought and but we are being proactive and engaging other entities outside that South African power pool for potential supply going forward.

Speaker 6

So I guess what I was hoping that if you could mention a little bit more about like the longer term power supply and like how Zambia may sort of prevent the situation from happening again? I think in the MD

Operator

and A you had mentioned that

Speaker 6

you guys are looking at contributing to SilverWinds and Solar and some other projects. So just wondering like how you might see the grid evolve over time just to prevent this from happening in the future?

Speaker 2

Rudi?

Speaker 3

As you know, we're in the process of finalizing the installation of solar wind with total energy. We're also actively discussing additional hydro generation with other players in the Zambian power market, including Invesco. Invesco themselves are actively engaged with EDM to secure an additional 200 megawatt of power from the 1st January next year. And that is quite far down the road as far as their discussions are concerned. And the opening up of private participants in the electricity market in Zambia certainly generated a lot of interest and there's quite a lot of companies keen on developing additional hydro and solar operations in Zambia.

Speaker 2

Yes, Jackie, I'll just add. Last time we saw the effects of El Nino in Zambia through 2014 period was really for a period no more than around 12 months. We've seen the rainfall in the Northwest has largely been unaffected. Certainly, the impact on Southern and Central Province has been marked. But for example, in this last month, we've had around more than 100, 150 millimeters of rain at the sites.

Speaker 2

And so potentially, we will see inundation coming from Angola and so on into Cariba, but that's not what we're planning for. We're planning for the worst perspective there. And then as Rudy says, if it does prolong, working with ZESCO and others, we believe we will have enough power in place for the S3 expansion next year. Although the indications are in Elmina, it's really just a 1 year impact.

Operator

The next question comes from Chris LaFamena with Jefferies. Please go ahead.

Speaker 7

Thanks, operator. Hey, guys. Thanks for taking the question. Congrats on all the initiatives to strengthen the balance sheet. I just wanted to kind of understand the progression of net debt and your covenants going forward.

Speaker 7

So if you look at the Q1 EBITDA run rate, which was obviously a period of a much slower copper price than we're in right now, you'd be below the required EBITDA to not change the covenants. And I mean, the strength in spot prices since then that clearly helps and I've seen you be generating positive free cash flow. But I'm wondering what else you can do in the event that copper price or commodities in general weaken again, what you can do to strengthen the balance sheet between say now and year end in addition to considering asset sales that could protect you against reaching those covenants? And kind of one specific question is really around the working capital build. So, for example, I think you had a $280,000,000 working capital build in the Q1.

Speaker 7

Will we see that reverse over the course of the year? And what sort of flexibility do you have around CapEx reduced your spending, again, in the event of commodity prices weakening and you have to take a little bit more aggressive measures strengthen the balance sheet further? Thanks.

Speaker 2

Thank you. Ryan, do you want to take that one?

Speaker 5

Sure. Hi, Chris. Couple of comments. First is I wouldn't take Q1 as a proxy for the rest of the year EBITDA and that's for a few reasons. As you know, the run up in copper prices has predominantly only happened in Q2.

Speaker 5

Secondly, there were a number of one offs in Q1. This included the fact that some of the lagging costs from the shutdown of COVID-nineteen Panama only flowed through this quarter, together with the fact that as we noted earlier in the discussion that we only brought down the numbers of employees at Cobre Panama through the course of the quarter. So we're now going to move to more run rate level at Cobre Panama together with the fact that you should see us see some strengthening on the cost side to our Zambian business through the balance of the year. But certainly, beyond that, if we do see a weaker copper price environment or we do see other headwinds come up, we'll be very closely monitoring capital spend, as you note. And we also continued other balance sheet strengthening initiatives, namely the Las Cruces sale process and being open to a minority investment in Zambia that we discussed earlier in the call.

Speaker 5

And then what about the working capital build

Speaker 7

in the Q1? Is that seasonal? Or should we see that reverse as the year progresses?

Speaker 5

Yes. So there are 2 drivers there. 1 was some of the payments for kind of lagging payments that came associated with the shutdown of Cobre Panama. That flowed through those payments flowed through in Q1. So I'd say that wouldn't necessarily reduce.

Speaker 5

But certainly on the Zambian side, we did drive our working capital down to lower levels in Q4 that came back a bit in Q1. And you may see some of that reverse out through the balance of this year. So certainly, you wouldn't expect the change in working capital that we had in Q1 was unusual for us. It obviously impacted net debt somewhat and that wouldn't continue to pay out through the balance of the year.

Operator

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

Speaker 8

Thanks, operator. Good morning, everyone. So firstly, on S3, Tristan or Ryan, it looks like cost controls have been kept in check and you're doing a good job there. I'm just wondering if you have a number or just risk of inflationary pressures at S3. How much of the CapEx is committed and locked in at this point?

Speaker 2

Yes. Hi, Ralph. So at the end of March, we were at the end of Q1, we were through around $600,000,000 committed and of that $385,000,000 incurred. So that gives you an idea in terms of the run rate to finish most of that turns now to the construction activities that is in country in Zambia, the logistics chain of getting equipment to Zambia. And at the moment, cost of that transport, we don't see any alarm bells there.

Speaker 2

And then in country, the construction erection and so on, and all that's really around labor and equipment. And so at this stage, we feel comfortable on that as well. So we don't all the long leads being procured, the final engineering closing out on instrumentation and control side of things, We don't really see any alarm bells. We haven't been really impacted by the situation in the Red Sea and the Suez Canal, 1 month here or 1 month there on small components, but overall don't affect schedule

Speaker 8

or cost. Okay. That's excellent to hear. Secondly, what is the scalability of outsourcing power in Zambia over and above 80 megawatts if needed? Is this a feature that's going

Speaker 5

is being put

Speaker 8

in place in these contracts? And is it likely that anything incremental, if needed, would be done at the contracted rates?

Speaker 2

Yes. Ralph, yes, the answer is yes. We have some flexibility there to ratchet if the situation deteriorates. At this stage, we think ZESCO has been very proactive about addressing the situation and the forecast look pretty reasonable to us, but we have that flexibility.

Operator

The next question comes from Gordon Lawson with Paradigm Capital. Please go ahead.

Speaker 4

Hey, good morning. I had a simple accounting question for you here on the enterprise project. So we briefly saw some cash cost guidance provided in the $4 to $6 range with your 2022 production results. But now that we're treating the asset as part of Sentinel and Trident, how should we think of these costs in terms of operating and bike product credits once it's commercial?

Speaker 5

Sure. So what we're going to do is we're going to report on copper and nickel separately. So those enterprise nickel revenues won't go against the Sentinel copper revenue. So we expect we've disclosed the Sentinel copper C1 costs and similarly we'll report enterprise C1 costs when that comes into commercial production, which we expect Q2, Q3. And that'll start around $6 per pound C1 and ramp down from there as enterprise continues to ramp up production.

Speaker 4

Okay. I figured as much as I had to check. And still on enterprise, you've got the 1st column for the Jameson cell providing better recoveries. I'm just curious if the second column is expected to include more flexibility in terms of ore characteristics?

Speaker 2

Yes. Rudy, do you want to comment on that at

Speaker 3

Enterprise? Gordon, he also included the additional telk float cells, which

Speaker 2

is working pretty well. We

Speaker 3

are seeing some really incredible recoveries at enterprise at this moment in time, way above the 70%, 75% mark with very good concentrate grades and clean concentrate, which our customers are very appreciative of.

Operator

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

Speaker 9

Yes, hello. Thank you very much for the presentation. Question on Panama. In a scenario that you're allowed to restart Cobre Panama operations in the second half of this year, how long would it take to fully ramp up as you will need to rehire people, repower equipment, etcetera?

Speaker 2

Yes. Thanks, Ionis. I appreciate the question. I don't know that we're at a phase now where we're talking about restart or what that could look like. I mean on a theoretical basis, I think it's the closer that it does happen, the easier it is.

Speaker 2

As you said, and that's really around people and suppliers and so on. But I think there's a lot to come in terms of discussion leading up to the election and then working with whoever comes through in the election about solving the challenges for the country, solving the challenges around the mine and working that through listening to the people of Panama to resolve the situation.

Speaker 9

Okay. Very clear. And just a follow-up. In terms of the concentrate that you have stored, how long can you keep that material in the warehouse until there is a degradation in quality that might impair your ability to monetize the amount you're expecting?

Speaker 2

Thanks, Jonas. Yes, look, our main concerns there are environmental on the quality of the concentrate. So it's largely chalcopyrite, so that is CUS and FE. And it's the S. So we see some heating because of the sulfur in there and then you get gas coming off SO2 and so on and that's not good for the environment and it might heat up to 60 or 70 degrees centigrade.

Speaker 2

And so that's the degradation we worry about. The CU component of that doesn't degrade. So in terms of the pyrometallurgical process that follows in the treatment of the chalcopyrite in the smelter,

Speaker 3

you still get all of

Speaker 2

those CE units through. So we don't see issues on the production of copper afterwards. It's more on the environmental side and that's why it's critical that that material does move.

Operator

The next question comes from Dalton Baretto with Canaccord Genuity. Please go ahead.

Speaker 10

Thank you. Good morning, everybody. Tristan, in regard to Panama, I think you've used the term listening to the people 3 or 4 times in today's call. And I'm just wondering based on this listening, what have you guys learned so far? And what's your current assessment of the gap towards acceptance of the mine restarting?

Speaker 10

Thank you.

Speaker 2

Yes. Dalton, I think Panama is understanding the impact that the mine has had on the broader economy and understanding the role that Panama can play as a responsible producer of copper in a global market that requires these metals for the energy transition and to continue to uplift developing countries. The standards that have been applied to Cobre Panama are amongst the highest in the world and we see that in terms of as we're speaking about the Codesa report that came back that is the government independent auditor inspecting the site in the run up to when the closure the cessation of operations came through from June to October and found 100% compliance. So mined of this size and status are needed to supply those critical materials. On our side, I think very definitely listening to people about the issues of sovereignty, the issues around Panamanianization and really approaching those conversations with humility so that we can learn as much as we can from them.

Speaker 10

Do you think your message is actually getting to the average person on the street there?

Speaker 2

Yes. Dalton, it's a time now where the country is focused on the political process around the election. And there's a lot of conversation around these issues, a lot of conversation around in the change in politics and the change coming up with a new president must happen. That's a requirement of the constitution that the president will change whichever party goes forward. And in that context, these conversations in the country are important.

Operator

The next question comes from Lawson Winder with Bank of America Securities. Please go ahead.

Speaker 4

Good morning. Thank you very much, operator. Hello, Kristen and Rob, thank

Speaker 5

you for the update today.

Speaker 4

One question on Panama. To what extent, if at all, have you pursued a direct challenge to the Supreme Court ruling at the local Panama level in addition to the 2 arbitrations and just your thoughts on whether that would be a reasonable path to pursue particularly post the election?

Speaker 2

Thanks, Larsen. Yes, look, we acknowledge the decision of the Supreme Court. The Supreme Court, there is no route to appeal. That is the basis by which Supreme Court decisions are made. And so in terms of the legal argument, again, it's not preferred route.

Speaker 2

But the route there is arbitration around that to understand it more fully, but there is no route to appeal to the Supreme Court decision in Panama.

Speaker 4

Okay. Yes. Thanks for clearing that up. And then just my follow-up would be on the Zambian potential Zambian minority asset sale. It is still being considered, but your language suggests that the bar might be quite high in terms of what would be acceptable from First Quantum's point of view.

Speaker 4

Does it really just come down to value for First Quantum or are there other considerations such as maybe structure or the ability to combine with other assets that might also be important here?

Speaker 2

Brian, do you want to take that one?

Speaker 5

Sure. Lawson, we've been pretty consistent over the last 3 to 4 years that as a company, we'll look for opportunities to partner. The reason we sold a stake in Ravensthorpe to POSCO, it's the reason we've partnered with Rio Clinto at La Grania. And similarly at Zambia, if there's an opportunity to partner that makes sense for us, for our shareholders and for Zambia, we'll evaluate it. The recent financing transaction we put in place through Q1 means we don't have to enter into a transaction in Zambia.

Speaker 5

So really we're about holistically is there a new partnership from a value, from a long term workability and relationship perspective that works for all parties including the country. And that will be something we keep thinking about through the course of this year.

Operator

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

Speaker 11

Thank you, operator, and thanks First Quarter for the presentation. My question is a follow on to some of the earlier ones. So Tristan, with regards to the upcoming Panama elections, are there any parties that you think would be more favorable for a Cobre Panama resolution?

Speaker 2

Yes. Thanks, Bryce. Look, we 1st Quantum, we support strong democratic processes. And Bryce, we work from the basis that we would seek to work with any of the parties that got through whoever the final successful candidate would be.

Speaker 11

All right. I'll leave it at that. Thanks.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Tristan Pascal for any closing remarks. Please go ahead.

Speaker 2

Thank you, everyone, for your attention on today's call, and we look forward to speaking to you again soon at our Q2 update. Thank you.

Operator

This concludes today's conference call. You may disconnect your lines.

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Key Takeaways

  • Following Q4, First Quantum executed a comprehensive refinancing package—including an amended loan facility, $1.6 billion second-lien bonds, $1.15 billion equity, and a $500 million copper prepay—reducing net debt by $1.14 billion and extending liquidity to deliver the Kansanshi S3 expansion and address Cobre Panama.
  • ZESCO will curtail power by ~20% (60–80 MW) at Zambian operations due to drought, but First Quantum has secured binding agreements with Mozambique and Namibia to import higher-cost power, limiting production impacts with an incremental $25 million cost (≈$0.03/lb C1).
  • Cobre Panama remains in preservation and safe management with a $15–20 million/month care-and-maintenance plan, has received a 100% environmental compliance audit, is holding ~121,000 t of concentrate on site, and is pursuing arbitration alongside negotiations ahead of Panama’s election.
  • Group copper production for Q1 was 101,000 tonnes (–37% QoQ) due to Panama’s suspension; excluding Cobre Panama, Sentinel rose 4% to 62,000 t at $1.85/lb C1, Kansanshi produced 31,000 t at $2.34/lb C1, and nickel operations continued ramp-up amidst margin pressures at Ravensthorpe.
  • The Kansanshi S3 expansion and smelter upgrade remain on track for mid-2025 completion, with $600 million committed, major equipment deliveries underway, and ongoing focus on cost control and construction quality.
AI Generated. May Contain Errors.
Earnings Conference Call
First Quantum Minerals Q1 2024
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