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spk01: Hello, and welcome to First Quantum's third quarter conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. Thank you. I will now turn the call over to Clive Newell, President and Director at First Quantum.
spk16: Thanks, Operator, and thank you, everyone, for joining us today. Joining me on the call today are Philip Paschal, Chairman and CEO, Hannes Meyer, CFO, Tristan Paschal, Director, Strategy, Juliet Wall, General Manager, Finance, and Simon MacLean, Group Reporting Controller. As usual, before we proceed, I will draw your attention to the fact that over the course of this conference call, we'll be making several forward-looking statements And as such, I encourage you to read the cautionary note that accompanies our third quarter MD&A and the related results, news release, as well as the risk factors particular to our company, which are detailed in our most recent annual information form and available on our website and on CDAR. A reminder that the presentation which accompanies this conference call is available on our website. So as usual, I'll get started with some opening remarks, and we'll have Tristan provide an update on COBRE Panama before Hannes' review of the financial results. We will then open the lines to take your questions. So during the third quarter, we, together with the rest of the world, have continued to deal with the impacts of the COVID-19 pandemic. Although in some jurisdictions, there's been some easing up of restrictions related to the virus, in others, new or tougher restrictions being put in place, as we now seem to be dealing with a second wave. However, despite these continuing restrictions, the third quarter was solid operationally and financially overall. Kansanshi performed well with higher throughput across all three circuits, but with production being impacted by lower grades and recovery on the oxide circuit. During the quarter, we filed an updated 43-101 technical report for Kansanshi, that showed an impressive increase in mineral reserves and resources and the potential of an expansion that would maintain or enhance production levels and increase mine life. I think this report highlights the genuine quality of this great asset. Over the next few years, we will continue to refine the expansion before making a formal construction decision when balance sheet fiscal issues allow. Sentinel performance was exceptional, as we alluded to in our released just prior to the end of the quarter. Higher throughput and grades led to record production, which drove record low costs, though a weaker quatcher and lower fuel and maintenance costs did help. At Cabaret Panama early in July, we began the process to resume normal operations, a big part of which was bringing a large number of people back onto site without compromising COVID safety. The ramp backup was completed in early August ahead of schedule and we are very pleased that Cabaret Panama continues to be virus-free. Tristan is here to provide more detail on Cabaret Panama ramp-up and the increase in our expectations there. We delivered another quarter of improved production costs and have revised our expectations accordingly. Hannes will provide more on our updated guidance for production and costs shortly. Late in the quarter, we took advantage of an opportunity to continue to manage our debt profile with a successful senior notes offering, the proceeds from which have been used to extend our debt profile. Through the quarter, we of course continued with the various protocols and measures that we have in place to protect our employees and communities. We will continue to practice the highest standards of health and safety protocols and to focus on measures to prevent and manage the transmission of COVID-19 amongst the workforce in those communities. Although the impact of the pandemic at our operations has been manageable so far, and has had relatively modest impact operationally, I do need to acknowledge the impact of the pandemic continues to have on our workforce, many of whom are far away from their family and homes for extended periods as a result of quarantine requirements, rotation timings, travel restrictions, etc. So on behalf of the entire company, I'd like to thank all of those people who have made these personal sacrifices, and we recognize the significant contribution they continue to make to the ongoing success of the business. So without any further ado, I'll hand over to Tristan to talk about Cobre.
spk02: Thanks, Tristan. Thanks, Clive, and thank you to everyone joining the call. As Clive mentioned there, the performance at Cobre Panem was very strong in quarter three as the line ramped back up. to running on all three trains from the period of preservation and safe maintenance in July. So back to full production in August, slightly ahead of expectation. Copper production at Cobra Panama in the quarter was 62,055 tonnes in concentrate, significantly higher than in the same period in 2019. The cost of production at Cobra Panama and Q3 were also pleasing, especially given the ramp-up phase in July and August. As we stated in the MD&A for the Q3, the C1 for the quarter was $1.06 per pound and all in sustaining costs were $1.31 per pound at COVID Panama. The success of the ramp back up to operation on all three trains is testament to our people and the effort put into the preservation and safe maintenance regime. In Q2, the site was reduced to around 800 personnel due to the impact of the COVID-19 health protocols. but we were nonetheless able to keep the assets and our environmental and safety performance in good standing, and this paid off in Q3 in terms of our ability to re-establish quickly and smoothly. As Clive said, we would like to recognise the many employees who went above and beyond their duty in terms of the efforts to support the operations, including some staff who were on site for long periods away from their families. In October, Cobra Panama reached a milestone of 10 million man hours without a lost time incident, representing a period of more than eight months. Although we have achieved this milestone previously in the project phase, this is the first achievement in the commercial operations phase of the mine, and it's a testament to all the employees on site. Nonetheless, effort on safety requires continual vigilance and reinforcement. As in quarter two, the site continued in Q3 under the new normal health and sanitary protocol No new cases of COVID-19 have been detected onsite at Cobra Panama for more than five months since early May. By October, Cobra Panama had reached 3,400 personnel onsite, which is the full capacity of the site under the new normal health and sanitary protocols. In this respect, we continue to receive strong Government of Panama support. On 12 October 2020, the Ministry of Health issued Resolution 3096, which underlines the current staffing capacity of the mine and that we continue with our current health and safety sanitary protocols with respect to the control of COVID-19. The costs of these measures are not hugely material to the cost structure of the business and they will remain in place in order to underline the stability of the site. We'd like to thank our many local and international suppliers who've also subscribed to these health protocols on the site and have supported our efforts to manage our supply lines and reduce input costs across the period. We're also continuing to help in the communities around us at Cobra Panama In October, the Cobra Panama Foundation signed its first contracts and the establishment and start-up of this foundation in the operations phase of the mine honours our commitment to Panama and to the ESIA for the life of operations. We have transferred and extended our previous arrangements for infant nutrition in our surrounding communities this month into the newly established foundation. We continue provide medical and PPE support to the Government of Panama's response to the pandemic in the wider community. Reflecting the strong operational performance since ramp up from the preservation and safe maintenance regime, Cobra Panama has increased the copper production guidance for the full year 2020 to between 190,000 to 205,000 tonnes, an increase of 10,000 tonnes to the lower end of the range and 5,000 tonnes to the upper end of the range. This underlines our confidence in the operations for the remainder of the year. Gold production guidance for the full year 2020 has also been increased to between 75,000 to 85,000 ounces, an increase of 5,000 ounces. This month, October, we've undertaken a fairly major shutdown for the first change out of the crushed ore stockpile shoot liners. This maintenance is part of the normal course of operations, but is infrequent, being underneath the crushed ore stockpile, and required seven days of closure of both Train 1 and Train 2 of the milling area. The stockpile chute line of work was completed on time and we are now back up and running on two trains, with a third train expected to come on line this Sunday. The shutdown will have an impact on our costs and production for this month of October, however we expect November and December to be solid months in terms of continuing our ramp up to consistent achievement of the 85 million tonne per annum annualised throughput rate at Cobra Panama. In addition, we continue to look at the expansion project from 85 to 100 million tonnes per annum, and this is dependent on a decision to proceed with a capital expenditure across the period 21 to 2023. At this stage, we remain confident that the timetable is set out in the NI43-101 technical report to achieve 100 million tonnes per annum in 2023 is achievable. A decision on the capital expenditure program will be made later this year or early next year. And with that, I will now ask Hannes to take you through the finance presentation. Thanks, Hannes.
spk05: Thanks, Tristan, and good day to everyone. I'd like to direct you to the slide titled Overview. I think it's slide eight in the company presentation. As Clive has said, record copper production at two of the company's largest operations drove the strong operational performance in the quarter, which coupled with the increased metal prices and favorable operating costs meant that the company achieved a significant increase in EBITDA and a return to positive net earnings, inclusive of net finance expense, as well as started to reduce its net debt position. The resilient and robust operational and financial performance of the company's operation has resulted in increased total copper and gold production guidance and improved cost guidance. Total copper production was 10% higher than the same period in 2019, with record production at both Sentinel and Cowboy Panama. Excluding last year's pre-commercial production, total copper was 36% higher than the comparative quarter. It was another exceptional quarter for Sentinel, producing 71,000 tons, achieving its highest ever quarterly production and record low cash costs. Fabric Panama performance was impressive, as it ramped up from preservation and safe maintenance in July to full production levels in August. Cash cost of production was at its lowest level in four years, with almost all copper operations delivering a reduction, but notably lower C1 and oil and sustaining costs achieved at Sentinel and Guelph-McGrane. Comparative EBITDA of $641 million increased by 81% from the same period in 2019, with higher commercial production volumes and a 6% increase in the realized copper price, as well as lower costs and favorable foreign exchange. During the quarter, the company's net debt reduced by $113 million to just over $7.5 billion. On September 18, the company issued a redemption notice for their 850 million senior notes due in 2020, with the company completing the offering of the $1.5 billion senior notes due in 27 on October the 1st. Turning to the next slide on production, total copper production for the quarter of 211,000 tons was 10% higher than Q3 2019. Sentinel's performance, as mentioned earlier, was exceptional, achieving 71,000 tons, 25% higher than the same period in 2019, with higher throughput and higher grades and surpassing the previous quarterly record production set in Q2 2018 by 16%. Performance at Cabre Panama was strong at 62,000 tons, as it successfully ramped up to full production levels in August. Copper production in quarter was 10% higher than the same period in 2019, and this includes the pre-commercial portion of the production. Production also benefited from less cruises operating at normal throughput levels compared to the impact of the land slippage in 2019 and a robust performance at Guelph-McGrain. Constantia delivered consistently throughout the quarter. While throughput was higher, copper production was slightly lower from reduced grades and recoveries. Gold production of 73,000 ounces was 4% higher than the same period in 2019, reflecting the full production levels at Cowboy Panama. Turning to the next slide, quarterly unit cash cost. Higher production, lower cost than favorable foreign exchange have driven unit costs to the lowest level in four years. Copper oil and sustaining cost was $1.48 per pound, and C1 cash cost was $1.07 per pound for the third quarter of 2020. A $0.29 per pound and a $0.38 per pound decreased respectively compared to the same period in 2019. Lower C1 cost reflects in particular favorable cash cost of recovery Panama, higher production at Sentinel, and lower Zambia fuel maintenance costs with favorable FX movement as well. Lower oil and sustaining costs reflects the lower C1 costs combined with lower sustaining capex at Sentinel and Kansanshi. Sentinel achieved a record low C1 cost of $1.25 per pound and record low oil and sustaining cost of $1.77 per pound. Guelph-McGrain achieved its lowest C1 cost for over a decade of $0.24 per pound, with lower mining costs, fuel prices, and higher realized gold prices, and its lowest ever reported oil and sustaining cost. Co-break Panama's contribution to total C1 cost was $1.06 per pound. Turning to the next slide on 2020 guidance, Following a strong performance this quarter, guidance has been increased for copper production to a range of 750,000 tonnes to 785,000 tonnes, an increase of 25,000 tonnes to the lower end of the range and 15,000 tonnes to the upper end of the range. Cabaret Panama's guidance has been increased to 190,000 to 205,000 tonnes, as Tristan stated earlier. while Sentinel's copper guidance has been increased to 240,000 tons to 250,000 tons of copper. There's also been an increase to Las Cruces and Guelph-McGrain's copper production guidance. Gold's production guidance has been increased to 245,000 tons and 260,000 ounces, an increase of 15,000 ounces to the lower range and 10,000 to the upper range. Increased production, higher gold prices, and a lower operating cost environment with favourable foreign exchange has allowed improved copper cash cost guidance. Oil and sustaining cost has been reduced to $1.60 per pound to $1.70 per pound. Oil's cash cost guidance, including Kuwait-Panama, has been narrowed for C1 cash costs to $1.20 per pound to $1.30 per pound. Guidance on draven salt production has been reduced 13,000 tonnes to 15,000 tonnes of nickel. Total capital guidance remains unchanged at $675 million. Guidance on the underlying effective tax rate excluding Kobe Panama interest has been revised to allow for non-deductibility of hedge movements. Turning to the next slide, financial overview. Comparative EBITDA of $641 million in the quarter was $287 million, or 81% higher than the same period in 2019. EBITDA benefited from higher commercial copper and gold sales volumes from Cabaret Panama, higher realized copper and gold prices, lower operating costs than payable foreign exchange. Comparative earnings per share of $0.09 in the quarter included net finance expense of $179 million compared to $59 million expense in the same quarter in 2019, when an additional $146 million was also capitalized to Cabaret Panama during the pre-commercial production phase. Net debt reduced by $113 million in the quarter with higher comparative EBITDA and lower capex. The next slide showing comparative EBITDA The largest changes there reflects just the movement in the commodity price as well as the increased production levels and sales levels. Turning to the next slide in net debt and liquidity profile, the company ended the quarter with $915 million of unrestricted cash and cash equivalents and was in full compliance with all financial covenants. On September 17th, the company announced the offering and pricing of $1.5 billion of 6.875% senior notes due in 2027. Settlement took place on October the 1st. On September 18th, the company issued a notice of redemption of the outstanding senior notes due in 2022 to be redeemed at par. Process of the new bond were used to partially repay the existing revolving credit facility and redeem in full the company's outstanding senior notes due in 22 on October the 19th, the next business day following the redemption date. Taking into account forecast operating cash flows, capital expenditure outflows, and available cash and committed facilities, The company expects to have sufficient liquidity through the next 12 months to carry out its operating and capital expenditure plans and remain in full compliance with financial governance. Continue to take action to manage operational and price risk and further strengthen the balance sheet. Turning to the copper hedging program outlook, approximately half of the expected copper sales in the next 12 months are hedged. The bar chart for presented here shows you the split between swaps and collars. At 28th of October, the company had unmargined copper forward sales contracts for 204,000 tons at an average price of $2.82 per pound outstanding, with periods of maturity to December 21. In addition, the company had unmargined zero-cost collar sales contracts for 207,000 tons at an average price of $2.76 per pound at the bottom end to $2.99 per pound on the upper end, outstanding with maturities to December 21. The company also has just over 4,800 tonnes of unmargined nickel forward sales contracts at an average price of $6.75 per pound, with maturities to February 21. Thank you, and I will now hand back over to Clive.
spk16: Sorry. Thank you very much, Hannes and Tristan. And so, operator, could you now open the line for questions?
spk01: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Greg Barnes with TD Securities.
spk14: Thank you. Hannes, you just ran through the copper hedge book, and I understand why you've had that in place, but is it time to let that start to wind down given where the copper price looks like and cobras back up at capacity?
spk05: Hi, Greg. Look, it's you know, the copper market is in a much more positive environment at the moment. However, there's still uncertainties around in the world, you know, just given the current state and COVID and the like. So we've, as stated previously, we've got a high leverage at the moment and, you know, we want to secure sort of a protective downside risk in the company. And therefore we sort of typically go in about half and half in terms of colors and, um, and swaps, and as it rolled off during the quarter, we just replaced it with sort of newer and higher prices, you know, the current prices. So we're likely to continue for a bit longer. Philip, I don't know if you've got something else to add there.
spk03: Yeah, hi, Greg. Thanks for that question. We had a policy historically of not hedging, and the exception for that was when, we needed to borrow money to ensure that we could undertake our capital works in much the same way as a bank would require it if they were lending us money. And of course, in a rising market, you're slightly behind it, and it looks disappointing. But the key to it is to retain that until you've been past some peak along the way, and you can't predict that until you've gone past it. And for as long as our debt and our leverage is as it is, and that's the way that Hannes was commenting on it, the policy will be that we will hedge. But we could imagine that in the next few years that leverage requirement, I mean the debt requirement and the servicing costs would have tempered somewhat, and then we could move away from the same level of hedging. Maybe we'd have a small level of hedging just to protect what was outstanding. And then eventually, with very little debt and the like, I think it would be nice to go back to a policy where we didn't hedge at all and live with the market as it goes up and down. Okay.
spk14: Okay. Fair enough. While I have you, Philip, just on Consangie S3, or the expansion, whatever you want to call it now, what do you need to see from the government, I suppose, in Zambia to make a go decision on that project?
spk03: Certainly stability and we expect that during the course of this next year we'll have the opportunity to liaise with government and resolve a position that would give us some security going forward. Capital expenditures of that sort can be easily made victim later on of changes to fiscal policy and the like, which would then damage the assumptions made at the beginning, and that's what we want to try and get past. Our dealings and our position with government at the moment are very benign and certainly they've been very cooperative and helpful through the period of COVID and a number of other times and our power supply has been in good shape. So it's a relationship that we'll build on and at what is difficult times for them to give us nothing more than certainty as to how we go forward over the next decade or two. And that's what you need for that investment. And that's a large part of it, because I think with that kind of confidence, our shareholders will feel happier about that increased exposure, which just replaces some of the debt replacement that would be going on.
spk14: Thank you, Philip. That's it for me.
spk01: Your next question comes from Orist Wakedao of Scotiabank.
spk08: Hi, good morning. Really impressive cash costs at Cobra Padma there in the third quarter, especially if you're ramping up of $1.06 per pound C1. I'm just curious if we should anticipate those to start normalizing back up starting in Q4 and beyond as grades come down, and whether we should still be thinking about kind of that $1.20 a pound to $1.30 a pound range as as kind of a more sustainable cash cost number, or has something actually changed here?
spk02: Hi, Clive. Thanks, Oris. Yeah, look, there wasn't anything particular in Q3 to really pull down cash costs at all. and was particularly pleasing given the ramp up. So we didn't have the sort of first half of August of production to assist with those cash costs. Look, I think we'd like to see a little bit more and a little bit further, particularly into some areas as we get into Batika and then into Kalina as part of the $100 million before we move away from the guidance that we provided. I think what you're seeing, though, is the potential for Cobra Panama to perform. It's exciting for us, but at the moment, we would stick with the guidance that we've provided.
spk08: Okay. It sounds like you're actually, though, indicating there could be some upside to the guidance in the future, which is great. Then, just changing gears with respect to more corporate policy, can you give us an update on where things stand or whether discussions have resumed? and whether it's a priority with respect to a minority interest sale in either Zambia or Cobra Panama?
spk02: Sure, Clive, I can take that one again. Look, as Clive and Hannes have pointed out, the Zambian assets continue to perform very well in Q3, and combined with the ongoing rebound in Q3, copper, gold, nickel prices, and indeed the uplift in resources in the Consangie 43-101 technical report. We really believe the Zambian assets do make a compelling value proposition. The minority stake sale process continues, but there's no further update from Q2 from what we said last time.
spk08: Is it still a strategic priority, though, in terms of accelerating the deleveraging? through that kind of transaction.
spk02: Of course, we continue with it on that basis, but we are watching the copper prices in particular very closely. I think if the outlook continues to brighten for copper, then we'll continue to look harder at that, yes.
spk14: Thank you.
spk01: Your next question comes from the line of Jackie Przybylowski. BMO capital markets.
spk09: Thanks very much. I guess I'll just maybe circle back on the question about the expansion of COVID Panama to 100 million tons a year run rate. Can you give us a sense, because I think the last few times the companies commented on this, you sounded pretty optimistic that that there might be some de-bottlenecking you could do, which might bring down the ultimate cost of that expansion. Can you give us a sense, like, I know it's been early and you guys have kind of just restarted, but how are you seeing the progress to that 100 million ton a year run rate? And do you have any sense that you might be able to have some cost savings in your plan to achieve that rate? Or is there any... maybe equipment that you had baked into the estimates that you maybe don't need at this point?
spk02: Tristan, do you want to do that? Sure. Thanks, Jackie. No, I think it would be too early for us to go out on a limb there in terms of reductions to that capital cost. What we said in the 43-101 was in the order of $300 to $400 million for that expansion, and we'd stick with that. The principal components of that are the stripping at Kalina is included in that. Some upgrades in the process plant, which is essentially the conveyor conveying system and a ninth mill, a ball mill, a sixth ball mill. And then mining fleet. And those three elements remain the case. in terms of what would be required to go to 100 million. And we would really need to go through sort of detailed engineering to get any further refinements on those numbers. And that will be, you know, that's the sequence we will go through in terms of the 100 million expansion. But we're not there yet in terms of detailed engineering.
spk09: Is there a chance that you could complete some detailed engineering over the next few months or however, over the next period where you're maybe maximizing the throughput of the existing mill configuration and at that point, that's still a possibility that that might be an opportunity for you? Is that still possible?
spk02: Yeah, I think our key focus in the milling circuit is to understand the comminution on the the primary ore as we deepen now in Batica. So we've got a good view of what the Batica ore looks like and its analogies across at Kalina. So that will give us a lot of information towards that point.
spk09: Got it. Okay, thank you. And maybe if I could just switch gears and ask about Ravensthorpe. I mean, the result in the quarter was probably the, I guess, the most negative spot in your whole earnings update. And I know you guys are still working on Schumacher Levy there. Can you give us an update on Ravensorp? Is it all kind of going according to plan? And maybe also if you could just talk a little bit about strategic investors and strategic options that you're seeing there. Is it still too early to comment on that? Do you need to see Schumacher Levy in production before you would entertain a strategic partnership at Ravensorp? What's the current thinking on that?
spk16: Philip, do you want to do that one?
spk03: Yeah, okay, Clive. Look, to be... When we started up again at Ravensthorpe, we were also starting in a new ore body, or an ore body that we'd only taken a certain amount out of before, which is how about... It's proved to be more varied than we'd anticipated. And I think one of the factors of care and maintenance is that there are of the plant that, after you start to run, demonstrate a need to be changed or modified. And that's what you're seeing in those results. So that's steadying up and happening anyway. But as far as the strategic view goes, certainly, shimeka levy, which is a much more consistent and much larger long-term ore body, is one that we think would be useful to be showing us in production before we move forward with. But our conversations with that are not waiting for it. And I think that there's nothing in what we've been doing which is different from the expectations that we've made public to whoever we were talking with.
spk09: OK, that's great. That's all the questions I have. Thank you.
spk01: Your next question comes from the line of Matthew Murphy with Barclays.
spk06: Hi. Just had one on Zambia. Seems like the country is headed for a default and just wondering if there's any implications for yourselves on the ground, any impact? It looks like you've had some Forex benefits, but are you seeing inflation, and are you anticipating any government measures in response to that?
spk16: Hannes, do you want to do that?
spk05: Sure. Look, it's fair to say that since the new Minister of Finance, Honourable Gwalior Nandu, came in 16, 17 months ago, You know, we've had a fairly stable tax regime, so therefore taxes have not increased, and we've also been able to offset VAT. So that's been all good. It's taken the tough decision to actually now embark on this program where I speak to all stakeholders in addressing the government's debt, which, you know, I think it's something that you have to do, and you have to applaud and applaud. We're taking those steps. We're certainly seeing a little bit high inflation in Zambia. So that is filtering through. But at the moment, we're not seeing any negative impact on our operations. So on a fiscal side, we operate fine. And power-wise, we get all the power. So operating environment is actually pretty positive and pretty good. So it's been a good and constructive environment. Obviously, you'll have to go through the data and see what eventually happens, but I would not like to speculate on what measures will be introduced or if and when.
spk06: Sure. And then maybe just as a slightly longer-term view on that, I'm just interested in Philip's comments that maybe in the next year you'd get some more clarity around the long-term fiscal picture. and just wondering if there's any sort of events that are planned or discussions planned that give you the confidence you might get that clarity on that kind of timeframe.
spk03: I think my only view on that that I would express is that in the discussions that we've had, the Ministry of Finance particularly, there is a recognition that that's what mining companies need, and that's positive, and therefore it's going to end up being the detail and the nature of how one puts that in place. In other words, we're pushing against a door that is reasonably open and that we can go and talk about, to entrench it. And as Hannah says, there's nothing we've seen in the current activities that's changing them from a policy of keeping that stability. The purpose of what we want to do, though, of course, is to ensure that that perpetuates through various governments because of the timeline that we need for an investment of that sort. And that will be the conversation that we're going to have to have in the new year. This year hasn't been an easy time for anyone because obviously there were so many restrictions. And we expect that towards the second quarter of next year, we'll have an opportunity to start some of those conversations.
spk06: Got it. Thank you.
spk01: Your next question comes from the line of Matthew Fields with Bank of America.
spk07: Hey, everyone. I just wanted a couple balance sheet questions for me. So I noticed you paid down another $100 million of debt in the quarter. So we're down kind of from that $8.8 billion total debt high watermark in 1Q20. You know, you've often talked about reducing total debt by $2 billion. So is that $8.8 billion kind of high watermark that we should think of? So $6.8 billion or around there is kind of the target for where total debt is supposed to go?
spk05: Matt, yeah. I mean, the debt levels we saw earlier this year, that's certainly the high water mark in terms of that. And I mean, what you should see from now going forward is just the deleveraging effort and a reduction of the absolute debt numbers as well. Obviously, the current higher copper price and strong operational performance should accelerate that. You know, and that's in the absence of any... potential strategic deal that we talked about earlier, minority stake sales.
spk07: And is there a target sort of where you ultimately want to see that number go?
spk05: Look, the, you know, sort of net debt to EBITDA number of sort of around two or below, that would be the target. I think if you then you've also got to look at the absolute amount of debt in that, or the net debt number in total. But, you know, so certainly reducing it by $2 billion would be, you know, that should be a priority, and that's what we are working on and focusing on.
spk07: Okay. Thank you. And then on that minority stake sale potential, is the use of proceeds, in your eyes, most importantly, going to deleveraging or Is there some kind of capital return for shareholders in this copper price environment or even some M&A as a buyer of some development projects out there? Can you just talk about sort of capital allocation in any potential minority stake sale proceeds?
spk16: Tristan, do you want to take that one? Or Philip?
spk03: Yeah. Look, there were several different questions in that. Certainly, our priority is a reduction of debt, and that'll be largely where the funding of any of that would go to would be to reduce our debt. We do now recognize that in within the next year or two, we would need to review our dividend policy and start to return something to our shareholders. As far as capital work is concerned, Certainly there is no intention for us to go and make an acquisition of any project. We don't need to. We have a number of projects that are quite interesting that have been the subject and are ongoing subject of studies and evaluation, and that's the kind of work that we will do so that in a few years' time, in a couple years' time at least, we would be in a position if we want to expand or change and add projects other operations, we would be in a position to do so. And addressing that, we're mindful of both of the debt that currently exists, but also that in a couple years' time, we have a number of the smaller operations that will get to the end of their operating life.
spk07: That's very helpful. Thanks, and good luck. Thanks.
spk01: Your next question comes from the line of Ian Russell with Barclays.
spk13: Hi, guys. Thank you. I just had a question on the external liability that Cobra Panama owes KPMC. It looks like you're still accruing interest on the balance sheet for that. With Cobra Panama now likely to be in a strong cash flow generation position going forward, when will you start paying that liability? And can we assume, or can you give some details around that payment? I mean, can we assume all free cash flow goes to pay down the intercompany and that liability first before COBRE starts paying dividends?
spk05: Hi, Ian. Yeah, I mean, there is a... So remember, we own 50% of that KPMC debt as well, or a little bit more than 50, but let's call it 50%. So that debt and that interest, you know, half of it accrues to ourself as well in that regard. And And in Panama, I mean, we've got various shielder loans in, and so, yes, I mean, we will repay shielder loans, but then, yeah. So it's just a fact, you know, through time we'll reduce those shielder loans.
spk13: When you pay KPMC, can we assume half comes immediately back so it doesn't sit on the KPMC balance sheet?
spk05: Correct. You can assume that, yeah.
spk13: Okay. And then just a couple of follow-ups on Zambia. Just on the expansion, and Clive mentioning you at Consanchi that you're looking to refine the expansion before making a decision. Could we expect then a decision no earlier than 2022, 23? And then maybe just to add on, how does this arbitration with the government sort of play into that? Is that a prerequisite for that to be resolved before? before making that decision.
spk16: Do you want to take that, Philip?
spk03: Could you just repeat the first part of it?
spk13: I just wanted to get an idea of the timeline for the decision for the Kansanshi expansion.
spk03: Okay. In our 43-101, we addressed two options. One was that it would be running at the end of 2024. and the other was that it would be running at the end of 2023, and that was during 2024. And the second scenario there was in the event that we had brought in a partner for a proportion of the asset and that together we were happy then to fund it a bit sooner. But otherwise, our program is to meet completion at the end of 2024, and the rationale for that simply is that Consanxi's production begins to be quite difficult around about then as it moves into more and more sulfide ore and less of the higher grade primary oxides and the like. And that was the first part, and I think your second part was to do with arbitration, and we don't make any comment about that arbitration at all.
spk13: But can you approve that project irrespective of the timelines of arbitration?
spk03: The arbitration is not relevant to that subject.
spk13: Okay, thank you. And then maybe just lastly on Sentinel, you're exporting some of your concentrate for this quarter. Is this just a one-off? Could you maybe just comment about this third-party smelting constraints?
spk03: That's a very interesting question in that there are two components to the answer. First of all, Sentinel's production has been extraordinary, and the result of that is that regenerate a lot of concentrate. And the second part is that the smelting capacity within the country has been slightly limited as a result of various actions being taken by Mopani and the like. And the solution to it is one that we've been working on, which we'll see the benefit of within the next year or so, and that is we're beginning to produce higher-grade concentrates, first of all at Sentinel and, of course, at Consanchi. And as we make those changes, that impact is quite dramatic, so that the capacity of our own smelter and other facilities that we have there, like the pressure leach, will increase substantially the amount of material that the amount of copper output, if we put it that way, because the grade of the concentrate will be that much higher.
spk13: OK. Thanks, Philip. So you would say this is more a one-off exporting?
spk03: As far as we can see now, I mean, we're still producing a lot of concentrate, but the grades are pretty good. And we envisage by next year that we'll be able to get those concentrate grades higher.
spk13: OK. Thanks, Philip. Thanks, guys.
spk01: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Your next question comes from the line of Lawson Winder, B of A Securities.
spk11: Hi, everyone. Thank you. A question on Sanchi on the sulfide grade. Just vis-a-vis the technical report you published in September, would it be fair to say that the grades are performing slightly below expectation? And if so, what would be driving that? Thanks. And that's copper I'm referring to.
spk16: John, have you got a view? You go ahead.
spk04: Yes. Clive, at the current operations, we are mining from certain sulfide areas that are more vein-controlled. And we are working on means of minimizing dilution. As we look forward to the larger disseminated zones, the impact of vein-style mining will be minimized. We will deliver on the grade that we have projected in the 43-101. There certainly is a lot of activity at present to enhance mining efficiency, minimize dilution through enhanced blasting techniques, and all grade control systems, which we are improving at present.
spk08: Okay, great.
spk11: Is that okay, Lawson? Yeah, no, that's perfect. Just moving to Cobre then and looking just to Q4. I think other than the rainy season, is there anything you would highlight such as maintenance shutdowns that could impact throughput there?
spk02: Tristan, would you do that? Thanks, Claude. Thanks, Lawson. No, the main one was this shutdown on the the crushed ore stockpile chute. So as you can appreciate, that lies underneath the main feed stockpile to the sag mills. So it's quite a big job to empty the stockpile all out. You sort of have to run it down over the course of two or three days and then do the work itself. So that one has been and gone. It finished sort of the end of last week, early this week. But that's the main impact. So that will have impacted October's production. But looking forward, there was some catch-up work to be done on maintenance. It's largely been scheduled in and it's not sort of frontline key to operations. So no, we don't see any risks on the operational side there due to maintenance. By and large, during the preservation and safe maintenance, the guys did a good job with very limited personnel. on keeping on top of that. And then any backlog since then have already been completed, for example, on the trucks or scheduled to be completed as normal course of operations.
spk11: Okay, great. And if I might just ask one final question on cost, just to get a little more granular on your prior comments. Just on the mining cost per ton, I mean, obviously it's come down since Q2, but it's still... running above the very low levels you achieved in Q1. Are those Q1 levels, in terms of mining cost per ton of total materials, still something you see as achievable going forward? And what's sort of the timeline on that? And that would be it for me. Thank you.
spk02: And Lawson, that's specific to Cobra Panama, right?
spk11: Yes, exactly.
spk02: Yeah so look the impact there was while we were still coming you know under COVID and then after COVID there was some catch up on mine planning in terms of the volumes we were able to move and yes as we get into a much steadier regime particularly on the waste side our total movement will be much larger and therefore the denominator of that equation will be larger and we'll see a lower unit cost in the mine so Yes, I think we'd head down to those numbers and below as we move more material, particularly on the waste side.
spk11: Great. Thank you very much.
spk01: Your next question comes from the line of Jatinder Goel of Exane, BNP Barapath.
spk12: Good morning. Thank you. A couple of questions, please. Just broadly on Zambia, sounds like you're prepared to invest in Kansanshi expansion even if there is no minority partner introduced to that operation. But thinking about country risk, should we look at what's happened to or is in process with KCM or Mopani or even Anglo-American being dragged into an old case? Are those just individual instances just happening in one country, or does anything make you worried about developments on ground? And related to that, just a question. question on Mopani. You own just under 17% of the asset. Do you have any first right of refusal and do you have any thoughts on how you would want to deal with it if Glenpur puts it up for sale, which apparently media suggests they've offered? Thank you.
spk16: Philip, was that one for you? Those two for you?
spk03: I think the circumstances of KCM and Mopani are different and they're best able to answer them. So clearly KCM was the first situation and was a situation where the political approach taken by the government and in respect of actions and debts or whatever it is of KCM was the result that that certainly would not apply to our operations. And in the case of Mapani, which is very different, but if you recall, Glencoe had said they wanted to put it on care and maintenance and stop it. And the nature of the mining licenses and mining law in Zambia is that you do have to go through some justification to be able to do that with government. and explain why the economics don't work. And clearly that, again, is not really relevant to our operations of both consensually and centrally. And so there is no reason to expect any of that would arise at all. So that's the answer to the first part of the question, you know, that the parallels aren't there. All their mining operations in Zambia vary, and then one is different again. And the second part of your question?
spk12: Your thoughts on Mopani ownership?
spk03: Look, we own a share of the parent that holds it through, you know, share of something, and therefore it really has no say in it. But our general view, quite simply, is that we reserve our funding to do projects that we currently have in various places, including what we have in Zambia, but elsewhere, and that the funding requirements from a party or the purchasers and so on are not something we've expressed any interest in we wouldn't be having any discussion at all on that subject. Thanks a lot, Philip. Very clear.
spk01: Your next question comes from the line of Ioannis Mavoulas, Morgan Stanley.
spk15: Yes, hi. Good morning, and thanks for taking my questions. Just two left from my side. The first, just a short return, looking at the copper production guidance for Q4. It would seem to me to be quite conservative. I guess on cobre, you suggested that November, December, you shouldn't see much of an impact and maintenance was already completed in October. I guess here, can you give us a bit of an indication on the September run rate? I think for August, you said you produced 25,000 tons. I think having that September number would give us some visibility on the exit rate. And then, Related to that, on Sentinel, how should we think about Q4 relative to Q3? What are the moving parts on production? Because you have already made some comments on sales. It's just on the production side. Thank you.
spk16: Tristan, would you like to take that?
spk02: Yeah, sure. The first part of the question, the run rate in September at Cobra Panama was We produced 25,100 tonnes of copper in Cobra Panama for September, so a little bit more than August, and that's about the level we need to run at. We expect that consistent level through November and December. It's just October that was impacted. We'll probably have slightly lower grades to the end of the year, but not that that will impact on anything against that. So the guidance is about right in terms of where we'll be by the end of the year. And sorry, the second part of the question was relating to Sentinel. Could you just repeat that?
spk15: Yeah, just in terms of Q4 versus Q3. Q3 has been very strong. Any reason to expect Q4 to be weaker sequentially?
spk02: No, nothing that we see at the moment or that we've been opposed to. Really, the job at Sentinel, really next year we're looking forward to putting the fourth crusher in, and that project remains on track for that timetable, and that makes a big difference to feed to the process plant, but Q4 should be in line with the previous quarters of the year, which have been very strong.
spk00: Yes, we did just sort of highlight obviously the maintenance shutdown in the outlook. So we have sort of noted that for Sentinel as well.
spk15: Yes, for sure. Yes. No, that's clear. And maybe just a separate question on Zambia. You talked about the operating environment being pretty good right now. I was trying to figure out in terms of cost development how much of the positive effects of the weaker currency you've seen relative to the rising cost inflation in the country? I mean, are we going to see a catch-up where the inflation rates start feeding through in the coming quarters, or do you expect that to be largely offset by a weaker currency?
spk02: Hannes, have you got a view on that?
spk05: Yeah, I think, I mean, you will see some other costs, the inflation coming through, Obviously, in terms of labor is quite a large component of our quite high denominated cost. And that's sort of subject to annual agreements. And, you know, they might, I don't know, don't want to comment on where we might end up on that. But so eventually that will catch up to sort of the inflation rates or closer to that. uh some of your other local costs would would in time also catch up to inflation rates but um i mean we're not seeing much at this stage coming through i mean obviously some of it's coming through but there's also been a big drive in terms of efficiencies and higher throughput also obviously helps the underlying costs but yeah it's fair to to say that there's a higher inflation environment and that eventually in time you you should assume that um local costs will increase somewhat.
spk03: If I just comment on that, really could give you some, is that obviously labour has to catch up with inflation regularly because that would be a policy that we have to try and ensure that the people that we, you know, employees are okay. But a lot of our costs in Zambia are designated in U.S. dollars, including charges from government entities. I mean, Zesko's price is in U.S. dollars. So much of that then doesn't have a great impact. We did a few months ago take a hedge on oil, on the oil price. It's actually the heating oil, New York heating oil index, which is insane. is used as an index in a number of our areas, both in Panama and elsewhere. And that was to try and lock in for a 12-month period the sort of benefits that were around in the oil price, and obviously quite significant for us. But of course, those costs, as time goes by, will move again with the oil price. So you could probably answer the question better by looking to what might be changing in the world at large. And in fact, the US dollar costs of many of the components for us.
spk15: Sure. And I guess it's fair to assume that about 30% of OPEX is local currency denominated.
spk05: No, it's a smaller number. It's about one-sixth of the cost, so about 15%, 16% of the cost is local currency denominated. So as Philip said, a large portion of it is actually dollar denominated.
spk15: Understood. Thank you very much.
spk01: There are no questions at this time. I will now turn the call back over to Clive Newell for closing remarks. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.
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