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spk04: All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen, and welcome to the first Quantum Minerals Quarterly Results Conference Call. I would now like to turn the meeting over to Lisa Doddridge, Director, Investor Relations. Please go ahead, Ms. Doddridge.
spk07: Thanks, Operator, and thank you, everyone, for joining us today to discuss our fourth quarter and full year 2020 results. Before we begin, I will draw your attention to the fact that over the course of the call, we will be making several forward-looking statements. And as such, I encourage you to read the cautionary note that accompanies our most recent MD&A and the related results news release, as well as the risk factors, particularly 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. On today's call, Tristan Pascal, our Chief Operations Officer, will provide some general comments and discuss operations. Then Hannes Meyer, our chief financial officer, will review the financial results. After that, we'll open up the line to take questions. So with that, I'll turn the call over to Tristan.
spk08: Thanks, Lisa. Hi, everyone. Thanks for joining us. 2020 was an unprecedented year to which First Quantum's operations responded very well, and the company achieved its highest ever annual copper production. Early in the year, COVID-19 emerged and shortly thereafter was deemed a global pandemic by the World Health Organisation. The year was full of challenges, lockdowns, restrictions and some uncertainty. Cobra Panama was shut down for a period in the middle of the year as part of the COVID-19 mitigation efforts in Panama. We had to move quickly to make changes within our organisation to protect our workforce and the communities within which we work. These protocols remain in place today as we continue to deal with the pandemic. Our operations and the wider population in Zambia have been fortunate to see less of an impact from the pandemic across 2020, but we maintain a high level of preparedness and vigilance at Sentinel and Kansanshi mines. During the fourth quarter, we continue to see the resurgence of the virus, and in some jurisdictions, the level of restrictions tighten further. We've been fortunate the strict protocols we have in place at our operations have been effective in keeping our sites mostly unaffected in the quarter. We did see further cases emerge in our workforce across several sites, but these were identified and isolated and managed in conjunction with local health authorities. Despite these challenges across the year, we did achieve record annual production with our C1 costs at their lowest level in four years. At Sentinel, we had another strong quarter in Q4 with continued high throughput and grades. There was a high proportion of softer ore from the eastern cutback, and higher grade reporting from the deeper mining areas, which contributed to these results. Costs improved for the previous year, 2020, benefiting from the depreciation of the kwacha and lower maintenance and fuel costs at Sentinel. Full year C1 unit costs were a record for the mine. For the full year 2020, Sentinel achieved throughput of 57 million tonnes, and we expect to continue at these rates in 2021. In the second half of this year, 2021, we expect to put the fourth in-pit crusher into commission, allowing for another step up in throughput when it comes online and then into next year, 2022. Kansanshi Mine continues to be a consistent producer and continues to demonstrate flexibility and adaptability. Results in the fourth quarter reflect lower feed grades and recoveries as the oxides deplete, which is an expected part of the mine plan. Production rates at Consantia are expected to be similar across this year, 2021. Work will begin this year on upgrading the smelter to improve our ability to treat higher volumes of our own concentrate from both Sentinel and Consantia, and $40 million has been provided in our CAPEX guidance for this work in each of this year, 2021, and next year, 2022. The decision to move ahead with the brownfield S3 expansion at Consantia remains dependent on our balance sheets, and reaching agreement with Zambia for greater stability in the country, and we continue the constructive discussions with government in this regard. We do expect the normal seasonality with our Zambian operations, and typically Q1 is the weakest quarter as a result of rainy season. This year 2021 has already seen heavier rains than last year, which have impacted operations in January and February to some degree. Cobra Panama was back to normal operations in the fourth quarter and performed as expected, There was planned maintenance in October, which resulted in a seven-day shutdown, and despite this, the operation set new quarterly mill throughput and production records for the quarter. Mill throughput continued to ramp up to the 2021 target rate of 85 million tonnes for the full year. Monthly oil milled rates at Cobra Panama were an average of around 6.2 million tonnes across November and December 2020, and were above 6.8 million tonnes for the month of January 2021. We continue to advance the brownfield project for expansion of Cobra Panama to the 100 million tonne throughput level, which we continue to expect will be achieved sometime in 2023, and is included in our current production and capital guidance. At Ravensport, the ongoing ramp-up continued at a satisfactory rate during Q4 last year, whilst we continue to take mine feed from the Hallies and Hale-Bopp ore bodies. The new conveyor to the Shoemaker Levy ore body will be completed in Q2 this year, and we have already completed first blast from their ore body. Shoemaker Levy is expected to improve grades and the material handling characteristics of the ore feed in the second half of the year. In Q1 of this year, we are conducting the regular maintenance shots on the two HPAL units. This work is now already complete, and both units have restarted well and are back to full throughput. All of our other operations performed according to expectation during 2020. They all managed to continue their operations well, despite various COVID constraints and a number of significant technical factors. A highlight amongst the smaller mines was the contribution from Gwell McGrain. This operation was particularly impacted by the varying travel restrictions on its rotational staff. I'm pleased to say that our local workforce and resolute expatriate staff showed remarkable tenacity to deliver record low costs for the year 2020 at Guelph. Looking ahead, total production is expected to grow in each of the next three years across the period for which we've provided guidance. Our cost structure is expected to remain consistent with 2020, and although we do see lower costs at Cobra Panama across these years, these will be offset as we see some of our lower cost operations come to the end of their lives and in anticipation of some cost inflation. Another highlight included in our Q4 and 2020 results was the formalisation and publication of the first quantum approach to climate change, which is now on our website. This is an important step forward for our company and part of our broader commitment to improve our ESG reporting and communications across this year and into the future. We understand that mining has a significant impact on the environment, including through emission of greenhouse gases, and we recognise our obligation to identify and report on our actions to address climate change. The metals we mine are essential components driving the transition to a low carbon economy and we're committed to find ways to use less energy, improve efficiency, reduce waste and greenhouse gas emissions by continually challenging the status quo, leveraging our innovative culture and new technologies as they become commercial. Our intent is to deliver meaningful change in our business based on the implementation of step change improvement projects. The first quantum approach to climate change, in keeping with our results-driven culture, is to set tangible targets and focus on the identification and execution of projects which produce real outcomes. Over 2021 and subsequent periods, we'll be setting clear, progressive and realistic targets which have an identified pathway to achievement. The full statement, including our commitments, is now available on our website. Before I hand things on to Hannes, I want to, on behalf of the entire company, thank our people. Many of our personnel, particularly on the more isolated sites, have been working across the last 10 to 12 months with restricted travel, and in some cases, extended periods away from their family and friends. And we certainly appreciate their adaptability, commitment, and resilience. And without these significant contributions, First Quantum would just not be the same company it is. And with that, I'll turn things to Hannes for a continued review of our results.
spk13: Thanks, Justin, and good day to everyone. I'd like to direct you to a slide titled Overview. It's slide seven. Despite the challenges faced in the year, the company achieved its highest-ever annual copper production, with record-breaking production at Sentinel and a strong contribution from Cobre Panama. Total copper production of 779,000 tons was 11% higher than 2019 and within the upper quartile of the guidance range. Sentinel had an outstanding year and achieved record copper production of over 251,000 tons, which exceeded guidance. Kobe Panama's performance was strong at 206,000 tons, despite being placed on preservation and safe maintenance and operating at reduced levels of activity in the second quarter of the year. Total gold production of 265,000 ounces was 3% higher than 2019, and 5,000 ounces ahead of the guidance range for the year. Nickel production for the year was 13,000 tons. The plant continued to stabilize post-startup, with nickel recoveries increasing to 78% in the fourth quarter. Comparative EBITDA of 2.15 billion for 2020 reflects strong operational performance and was 34% higher than 2019 with record sales volumes, higher metal prices and lower cost. Total copper cash costs for the year were at the lowest level in four years with almost all operations delivering a reduction. Record low annual C1 cash costs and all in sustaining costs were achieved at both Sentinel and Guelph-McGrain. Net debt decreased by $266 million to $7.4 billion at the end of the year. Capital expenditure of the year of $610 million was $65 million below our revised guidance. Turning to the next slide, Q4 production. Total copper production for the quarter of 203,000 tons was in line with Q4 2019. Sentinel achieved quarterly copper production of 63,000 tons, a 24% increase compared to quarter four last year. Covreg Panama set new quarterly records for both mill throughput and copper production. Copper production was 9% higher than the same period in 2019. Gold production of 69,000 ounces was 12% lower than Q4 2019, principally due to lower grade at Cowboy Panama and a reduction in gravity recoverable gold produced at Kansanshi. Turning to the next slide on quarterly unit cash costs, full year copper C1 cash costs of $1.21 per pound was at its lowest level in four years and 10 cents per pound lower than 2019. Full year C1 and all unsustaining costs were comfortable at the lower end of our guidance ranges. C1 cost for the quarter of $1.28 per pound was 4 cents higher than quarter for 2019. COVID Panama C1 cost for the quarter was 6 cents higher than the same period in the prior year, affecting additional costs relating to health and safety protocols in response to COVID-19. Sentinel and Consangie saw decreases to C1 in the quarter compared to the same quarter last year, reflecting favorable impacts of foreign exchange and lower fuel prices. Guelph-McGrane achieved its lowest quarterly C1 in a decade through cost reduction initiatives and higher realized gold prices. Oil and sustaining costs for the quarter was four cents higher than quarter four 2019, reflecting higher C1, as well as higher Zambian royalties on the back of higher copper prices. These were mitigated by lower sustaining capex and deferred stripping. Turning to the next slide on quarter four financial overview, comparative EBITDA of $725 million in the quarter was $214 million, or 42% higher than quarter four 2019. EBITDA benefit from increased sales volumes at Sentinel and Cabaret Panama, 13% higher realized copper prices, lower operating costs, and favorable foreign exchange movements. Comparative earnings for the quarter of $53 million is an increase of 51% compared to comparative earnings of $35 million in quarter four 2019. Net debt reduced by $266 million in the year, and by $136 million and a quarter to $7.4 billion. This could have been better, but we had two late shipments from Panama that left around Christmas and the 30th of December, and we received $130 million inflow early January. Then turning to the next slide, comparative changes to the comparative EBITDA. It just illustrates the detail and comparative EBITDA movements and the main items to highlight the change in price offset by some of their hedge losses. Turning to the next slide on debt and liquidity profile, the company ended the year with $940 million of net unrestricted cash and cash equivalents and was in full compliance with all financial covenants. On October 1st, 2020, the company completed the offering of $1.5 billion of senior notes due in 2027. The proceeds of the offering were used towards a partial repayment of the company's existing revolving credit facility and the redemption in full of the company's outstanding senior notes due in 2022. Taking into account forecast operating cash inflows, 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 covenants. We continue to take action to manage operational risk and price risk and further strengthen the balance sheet. Turning to the copper hedging program outlook and slide 13 hedging was undertaken when coverage panel was being bought to ensure consistent and sufficient cash flow as we look forward to certainty of cash flow and confidence in copper prices we will continue to review the level of hedging and act opportunistically over time the level of sales hedged is expected to decline we would look to increase the the collar component of these hedges to participate more on the upside. And most recently, we've done hedges where we've had upside up to $4.11 a pound of copper. Approximately 40% of expected copper sales in the next 12 months are hedged. At February 16, The company had unmargined copper forward sales contracts for 128,000 tons at an average price of $2.86 per pound. In addition, the company had zero-cost collars and margin sales contracts for 198,000 tons at weighted average prices of $2.93 at the floor price and $3.25 at the ceiling. Furthermore, subsequent to December 31st, The company realized in January 21 unmargined forward copper sale contracts of 23,500 tons and zero-cost copper collar unmargined sale contracts for nearly 16,000 tons at an average price of $2.91 per pound. The company also had unmargined nickel forward sales contracts, which are detailed on that page. More detail of the hedges in a quarterly format can find on page 31 of our MD&A. Thank you, and I will now hand back over to Lisa.
spk07: Thank you very much, Hannes. Operator, I think we can open it up for questions.
spk04: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Orest Waukedal from Scotiabank. Please go ahead.
spk01: Hi, good morning. A question about Cobra Panama and the three-year guidance that was recently issued. I'm just trying to understand how to reconcile the guidance for 2022 and especially 23 to the previous technical report. And when I look at the technical report, it shows 2022 and 23 copper production north of 400,000 tons, including 460 in 2023. And I'm just wondering how we should think about the difference with that relative to your guidance of 310 to 340 and 22 and 330 to 360. I'm just curious what's changed. Obviously, I assume the COVID shutdown during 2020 might have pushed that back a bit, but what are the big drivers here?
spk08: Yeah. Hi, Orist. I can answer that question. Yeah, the 43-101 did... paint a picture of the reserve resource in terms of our ability to abstract really at those rates by 2023. I think what we see now is we will meet that timetable in terms of delivering the 100 million. We're confident in delivering that in 2023. But the levels around 460 in the technical report are more indicative. The guidance is a conservative picture around where We're happy to stake and happy to be judged by those volumes. In terms of change, there isn't really much. We are a little bit behind the FACE positions that were in the 43-101 in terms of where we wanted to be in Batika. It doesn't change the overall perspective on grade. It's just the sort of volumes and so on that come out over that next period. It is on track, it's on course, and all of that copper is in front of us that you see there. It actually, at the moment in the five-year plan, we do see some high years after 2023, and part of our work between now and then is balancing that out and bringing it forward a little bit. Otherwise, we do see some very high levels of copper after 2023. And we will keep working on balancing that. But at the moment, that conservative position that we put into the guidance is the view.
spk01: Okay. And just so I'm clear, so it sounds like you're saying you're assuming a more conservative throughput level and we shouldn't assume any changes to the greater recovery profile. Is that fair?
spk08: Yeah, well, the 43-101 was on the basis of $100 million as well. It was really on that grade profile. And at the moment, the grade that you see there in the $460 is reporting into the mine plan in later years. And we're working on bringing that forward as much as we can. Does that answer the question?
spk01: It does. Thank you very much.
spk04: Thank you. Following question is from Jackie Prisbelowski from BMO Capital Markets. Please go ahead.
spk05: Thanks very much, and good morning or afternoon or evening to everyone. I have a question about the Consanche expansion. You've given the guidance that you're planning to spend $40 million this year, $40 million next year, and I know you talked a little bit on the earlier part of the call about that. Can you tell us how that relates to the technical report? I guess this is similar to Oris's question, but on Consanti. The tech report that you published in September, I think you've got for first quantum's portion about $870 million for the expansion. Is this $80 million that we see in 2021-2022 a part of that, or is this in addition to that? And does it change sort of the timeline or the scope of the expansion once it is fully sanctioned by the board? Thanks.
spk08: Sure. I can answer that, Jackie. So, yeah, I mean, the references on page three of the technical report, the smelter is included in that capital. The $40 million that we're spending now is on those expansions. It's around the oxygen plant and then bringing the the already existing ISA BERT process, which takes us to the higher levels, the 1.6 million tonnes per annum throughput at the smelter. The additional capital is all around S3, and that decision has not been made. But we can talk about our growth perspective, and I'll ask John Gregory to comment on that in a minute. But that capital is included. There's no capital being spent on S3 in our guidance prior to 2023. And in that year, there's around $270 million that we expect or that we've included in the guidance. But obviously, that's contingent on balance sheet and, as you say, the fiscal standing in Zambia. And in that regard, we're working pretty constructively with government at the moment. But in terms of the growth prospects for Constanti, John, maybe if you just want to add a comment there.
spk14: Yeah, sure, Tristan. The guidance is in line with the technical report that we issued last year, and the capital as shown, the $270 million in 2023, aligns with the technical report, and the completion of the project is shown at the end of 2024, coming online in 2025, as you'll see from the technical report. Now, as has been said on a couple of occasions, that's to do with The timing of that in the technical report is to do with the government and balance sheet aspects. We don't need from here on until 2025 to actually finalize the design and construct S3. Should things change, there are possibilities that we could change the timing of the S3 expansion.
spk05: Thanks very much. If I could just ask a follow-up question. Tristan, at the beginning of the call, you mentioned two conditions for approving the project were, I guess, including your balance sheet being ready for it and an agreement with Zambia. Can you give us a little more color on what you mean with the stability in Zambia? I think it's the first I've heard you talking about that. Are you looking for a formal agreement? Are you looking for some sort of outcome of the upcoming... elections in Zambia, or what exactly would give First Quantum confidence in the country's stability?
spk08: Sure. The answer is yes, as we've said before and was in the release when we put out the consangie 43-101. Yes, we're looking for fiscal stability and we envisage that that would be an agreement. We've spoken about that before. I think What it really boils down to is the deductibility of royalties. And that's the central question in that stability. But what we're really looking for is a period of confidence in and around that. And in that regard, in terms of progress, we've been having those conversations. Yes, there's an election coming. We expect around August this year. And so it will need to... move forward quite quickly in terms of those discussions, because the election will mean that the politicians are otherwise engaged. But those are the clear provisos that we have in place. And what we do see in Zambia is a lot more discipline, a lot more stability in any event. Engagement with the IMF we've seen clearly. And that takes us back to the previous situation that they've had in the country when there has been a default, that there came a period of good financial standing and discipline in the aftermath of that as part of the workout with bondholders and the IMF.
spk05: Thank you. Yeah, I do know you have talked about the deductibility of royalties in the past. I apologize. I just hadn't connected the dots, but thanks very much for that. That's it for me. Thanks.
spk04: Thank you. Our following question is from Matthew Fields from Bank of America. Please go ahead.
spk00: Hey, everyone. You know, just thinking, looking at your stock that's sort of run up so much so quickly, you know, kind of seven-year high, or I guess, you know, as high as it's been in seven years and pretty close to its all-time high. What are the thoughts about issuing a little bit of equity to kind of speed up this deleveraging maybe, you know, brings you an ability to kind of bring forward some of these expansion projects like S3 or Taka Taka or at least, take the balance sheet part of the equation off the table with a little more surety of capital. Thanks.
spk09: Thanks, Matt. Hannes, do you want to answer that question? Sure.
spk13: Matt, yes, one's always got that option available. With current high prices, we see deleveraging happening pretty rapidly in any event. You know, I think the company is probably in the best position it's been, I would guess, in the last seven, eight years, you know, in terms of we've got a lot of the capital projects behind us. Copper prices are good, so cash flow generation is good. So we are focusing on debt reduction, so that's absolutely key. We mentioned processes in the past that we're running in terms of trying to get minority stake sales in Zambia and Ravensorp. So that's continuing. So those are part of the alternatives we're evaluating and just accelerating that deleveraging. But yeah, I mean, that option is available. But it's a, yeah, I mean, we're in a pretty good spot at the moment.
spk00: Okay, fair enough. And then on the flip side, you know, you've got a couple of near term maturities that are callable at that pretty cheap, you know, call premiums at this point and a very, very favorable high yield market. You know, what's the thought on sort of clearing out maybe those 23s and 24s and sort of bringing your, you know, you're pushing out maturities even further in this very favorable credit market?
spk13: Yeah, we've got the 23s are stepping down on the 1st of April. And if you look at where the most recent issue is trading, that's trading at sub-5% on a yield-to-worth basis. So it would indicate that it would be accretive to refinance the 23s. But we'll probably also have a look and see where we get into in terms of these other processes that we're running. So if we've got some cash flow coming in from that, that might be well used to call some of those bonds. But, yeah, it is something on the radar and something we're looking at as well, just to proactively manage, like we have done in the past.
spk00: Okay, great. Thanks a lot, Hannes. I appreciate it. Good luck this year.
spk04: Thank you. Our following question is from Jonas Maslulis. from Morgan Stanley. Please go ahead.
spk16: Morgan Stanley Good morning, and thanks for the presentation. And Tristan, congratulations on the new role. I had three questions, and I'll take them one at a time if that's okay. The first on CAPEX, if we take into account the $500 million of combined stripping and sustaining CAPEX in 2022 and 2023, there's still a remaining growth CAPEX element of 450 in 2022 and 550 in 2023. And then if I take into account the larger items around Cobra Panama, 200 million tons, the smelter expansion and the first phase of the S3 spending, there's still a residual capex that I cannot explain in the range of $200 to $250 million per annum. Could you perhaps elaborate on some of the other projects? Thank you.
spk11: Sure. Shall I take that one?
spk09: Yeah, thanks, Juliette.
spk11: Yes, so you're absolutely right. So there's about 540 in stripping and sustaining in 2021. We do note that sustaining capex is expected to be a bit higher in 2021 because of the smelter maintenance during that year. And then with the remaining 410 million on projects, that, as you say, includes the smelter expansion at Consanchi. It also includes the fourth crusher at Sentinel of about £50 million. And then it also includes some projects at Cobra Panama of about £150 million, which would include the TMF construction and some initial spend on Kalina and the sixth ball mill and other associated projects. There is an allowance in there for some spend, if necessary, in South America of up to 35 to 40 million. And then there's obviously the Schumacher levy project at Ravensorp, so with sort of project spend of about 40 million at Ravensorp. And then just moving into the outer years, yes, again, we have 40 million of on the smelter. We have some expansionary mining equipment at Sentinel of about 50 million and further projects expansionary at Panama including mining equipment and some construction work on the TMS. And again, we do allow for some discretionary spend in South America as well. And the big step up in the third year is obviously, as you said, S3, with, again, some projects at Panama and allowing some discretionary spend in South America.
spk16: Understood. That's clear. Thank you very much. The second question, just on S3, I'm just trying to figure out the – the milestone you're trying to achieve in terms of the negotiations with the government. Are you looking for some sort of fiscal stability when it comes to that project specifically, or do we need a wholesale change in the tax deductibility of royalties for you to have the confidence to proceed with the project?
spk08: Yeah, hi, Yunus. I can answer that question. I don't know about a wholesale structural change in Zambia. I think what we're looking for is a reasonable perspective around that project and consangie going forward. We would envisage that that would extend to the industry as a whole, but really the key, as I said, is the deductibility of royalties. That came in as an SI, a statutory instrument, some time ago, a year and a half ago or so, and that's the key element. Beyond that, yes, there would be a broader wish list of items, but I think that's the key in terms of the discussions that we have, and we would want to ensure that that continues in time. I think that's a very reasonable position that's pretty standard in most mining jurisdictions that royalties, which are taxation, are deductible from your costs for the purposes of corporations tax. So that's the discussion. And yeah, we'll obviously have to navigate the election coming this year. But we envisage that it's constructive for Zambia in the context now that Zambia is a major mining entity as well at Mapani. They'll be interested in that themselves.
spk16: Okay, thanks for that. And the last question is around hedging. You talked about the reduction in the hedging proportion to 40% of expected copper sales for the next 12 months, and I guess it's even lower for nickel. Is that reduced hedging proportion a reflection of your more bullish price outlook or more a reflection of your view that the balance sheet is in a better shape and can withstand more volatility. And within that, should we expect to see us further step down later in the year, or is it sort of a 2022 story in terms of a meaningful reduction beyond the 40%? Thank you.
spk08: Yeah, Yunus, I'll ask Hannes to answer. I mean, the key for us is we're not natural hedges in the long term in any event. And, you know, the reason for the hedge book to be in place was around protecting the balance sheet, and that continues to be the core element and determinant of the hedging strategy. But yeah, in terms of where we are at the moment, we have the existing strategy, but we do, as I said, in the long term, we're not natural hedgers. But we do need to make sure that we're protected. As Hannah said, we have We're putting more and more of the collars in place, which gives us exposure to the upside, up to above $4, as Hannes said, but does continue to limit the downside for us. And as we see debt repayment accelerating, that's what's changing the dynamic for us. Hannes, would you add anything to that?
spk13: Yeah, probably not much more to add. A while ago when we did the hedges, it was sort of protecting covenants. I think it's progressed now from there where the focus now is on debt reduction. So in time, the percentages overall hedge will decrease, but the focus is on sort of reducing debt, but using wider collars and participating on the upside. I think that's probably enough on that for me.
spk16: Understood. Thank you very much.
spk04: Thank you. The following question is from Jan Rosso from Barclays. Please go ahead.
spk15: Hi, guys. Just one question on capital allocation. With balance sheet de-gearing happening probably a bit faster than what you previously anticipated in your budgets, what is the flexibility in your capital spending in bringing projects forward? I mean, it seems like you've been able to do that already with some of the spending in Kansanshi on the smelter. So just getting a sense of if markets remain strong, do you have the ability to bring forward more projects, or are you constrained by other sort of timing stage gates?
spk08: Yeah. Thanks, Jan. Look, at Cobra Panama, there's not too much in the way in flexibility in terms of that. The timetable of the $100 million is pretty much set by the ore body and by the tailings dam. We want to put a good two years into the existing tailings dam before we can cope with the level of inundation at 100 million tonnes. And that really sets the pace there. We would otherwise just be spending money to accelerate without having the capacity to store those tailings. At S3, however, on the theoretical basis that we could do it earlier, John, you might comment there, but there's possibly potential there on a theoretical basis.
spk14: John, do you agree? Yes, certainly, Tristan. We've identified the preliminary activities that we need to undertake to accommodate S3, which is why we're focused on the... the smelter upgrades, which in terms of capital are relatively modest, and various other infrastructural enhancements, so that we have the ability to move our engineering and bring the timeframe forward for the parameters that we've already identified, should they become more favorable. So there is a degree of flexibility at Consangie, and that coupled with the expansions The fourth crusher at Sentinel is on track, and that will come online for next year. And at Kerberry Panama, as Tristan has identified, we are on a course and a track, and we are committing to the infrastructure that will support the $100 million ton per annum case, and we're looking at bringing that online in our current planning in the 2004-2005 era. So basically coming online in 2024. So that in terms will give us the upside production. And the upside production profile of those projects for the 2024 and 2025, we can see in our forward estimates and our planning that we can start to look at the 1 million tons of copper production profile. From our 43-101 technical reports, that's basically fixed in 2025. Could we bring that forward? Potentially we could, but that is predicated primarily on S3 timing.
spk15: Okay. And then just maybe to follow on, what about the South American projects? Is there ability much in the timelines there to fix that?
spk08: Yeah, the South American projects, we released the 43-101 at Takataka and as was It's a very good project, a life of 30-odd years, 32 years, and very good in the first 27 years. Taka Taka, really, so the assets in goods we think is a good asset. The decision is all around the investment case into Argentina, and in that regard, we have more work to do there. So, you know, again, our priority remains the balance sheet and clearing the balance sheet down to the levels we've been speaking about. And I think the investment case around Argentina will take longer. That's the reason for the focus on the brownfields at Cobra Panama and at S3. Beyond that, Hekera, we think at the moment sits behind Takataka just because of the community issues ongoing there. And we do have exploration projects in the region and further afield that are very interesting, but by their nature those are longer lead. It is the challenge of mining now and in most jurisdictions is to bring these projects online. First Quantum has got a good reputation in that regard, certainly the last project we've done, Cobra Panama, in delivering that in a timely fashion. But those new greenfield projects are challenging. John, would you add anything more to that?
spk14: I think in terms of tackle-to-tackle, we have a very clear indication of the actual timeframe from once we take the business case decision to proceed in terms of initial pre-strip requirements for the mine, construction of major infrastructure, and construction of the fixed plant. So that is identified clearly in the technical report. As we said in the technical report, or when we announced the technical report, the business decision we're looking at sometime 2023, 2024. Okay. Thanks, John. Thank you, Sonia.
spk15: That's clear. Thank you.
spk04: Thank you. Our following question is from Lawson Winder from Bank of America Securities. Please go ahead.
spk03: Thank you, Operator, and hello, everybody. Just a question on the dividend for me. When you think about the dividend, so two questions here, really, on the dividend. In the past, you've indicated debt repayment of approximately $2 billion would be the right quantum before you think about a higher dividend. I just wanted to see if that's still where you're thinking is at. And then, secondly, on the dividend, with the hedges, Do you think about hedging as a tool to help enable you to pay a dividend, or would you expect that the need for hedging will be gone by the time you start considering a higher dividend? Thanks.
spk09: Thanks, Larsen. Hannes, can you take that question?
spk13: Sure. Look, maybe let me get to the second one first. So the hedges is part of the strategy now in sort of deleveraging the balance sheet, repaying some of the debt. And that also enables then the first aspect of it is the dividend question. So we've previously stated the sort of $2 billion debt reduction that was a target that we wanted to achieve. So we've paid down some of the debts in the last year. So we're on track for that. And then in this year, we'll generate pretty decent cash. So I don't think we... precluded from increasing dividends prior to repaying $2 billion. So I think what we are stating is that in the past, we used to have a dividend policy. And prior to the nominal dividend that we paid, we paid about 15% of net earnings as a dividend. So I think what we've now said is that we'll look at returning a bit more cash to shareholders once we see you know, date reduction. So I think that will come through in this year. And later, you know, and we said in the next two years, we'll certainly look at increasing that dividend.
spk09: Okay, thank you. And then... In terms of the hedge pool?
spk03: Yeah, well, I addressed that one first, yeah, so that's... Yeah, no, thank you very much for that, Hannes. Now, in your prepared remarks, you mentioned that... The lower cost going forward, cash cost going forward at Cobra Panama would effectively be offsetting some of the smaller low-cost mines coming off, but also offsetting some inflation. I just think it would be really helpful to get your thoughts on where you're expecting that inflation to come. I mean, is it labor? Are you looking for input costs? What's your thinking on that comment? Thanks.
spk08: Yeah, certainly labour and we are seeing higher shipping costs at the moment. Certainly we've seen that for bulk freight and particularly coming out of Asia. So some of the project elements that's certainly been apparent and it's starting to come through. I think it's some of the reason for the uplift in commodity prices is that inflationary outlook. Certainly we're starting to see some of that And I would point also to Kansanshi where the ongoing lower grades does mean that the cost per unit will rise because you have the overhead there with labour and the cost of the business. But S3 changes that as we get into a higher volume operation and we're able to continue to produce at the current levels. And you see in the guidance each year, coming off a little bit at Consanche, that trend reverses and we're able to keep running at these levels. And as soon as you're at those units of production, then your unit cost looks a lot better at Consanche. But yeah, the main element on inflation is around labour and freight at the moment.
spk03: Excellent. And maybe just one more from me on Hikira, which you touched on briefly in prior questions. You commented that the focus still remains on resettlement and community engagement. And I'd be curious to know whether or not any resettlement has actually started or is it still at the discussion phase? Thanks. And that's it for me.
spk08: No, there's been no resettlement as yet in terms of actual movement of people, dealing with the various community groups in their different areas and their different locations. Obviously, being next to Las Bambas, it's broader than that and into the infrastructure routes and the transit corridors as well, and just how to navigate those in the future. So that's the situation at Akira.
spk03: I appreciate that.
spk08: Thank you all.
spk04: Thank you. Our following question is from Emily Chang from Goldman Sachs. Please go ahead.
spk06: Hi, everyone. My first question is just around the capital allocation. It was exciting to hear that there might be a little bit of movement on the dividend there. But, you know, when you think about your deleveraging targets, you know, certainly in a higher copper price environment, that certainly looks favorable. Can you remind us about the balance between accelerating some of the growth projects that you talked about, you know, S3, and then balancing that with, you know, potential for higher capital returns there?
spk08: Yeah, hi, Emily. Look, the priority of the business remains deleveraging, and that's where, you know, as Hannah says, with the rising copper price, we are generating cash. And at the upfront, that will go into... into reducing debt. Beyond that, I think growth profile is becoming more interesting, but we have a disciplined focus in that regard that we will reduce debt. And so the guidance that we've provided is pretty much in line with what we said last year. Certainly for 2020, 21 and 22, we're on the same track as we said last year in terms of capital outlay for the business. And in that we added, because we deferred some capital from last year, we've also added the smelter at Kansanshi into that capital guidance without changing the overall number for these two years. So that's a discipline focus. Beyond that, and as we get the benefit of the leveraging and the benefit of higher copper prices, then yes. You know, we would look at balancing capital outlay for things like S3 and indeed to Takataka, as John said, in the future, but also with the dividend coming out as well.
spk12: Okay. Can I just talk to Emily's question because it's a very pertinent one. It's a balancing act. So what's happening is we pay significant amounts in interest to lenders, which we'd far rather be able to disperse as dividends to our shareholders. But if we don't reduce those debts, then obviously the quantum that we have for dispersing as dividends would be reduced. And there's always the other demand, which is for capital expenditure. So it's a very practical arrangement to focus on debt reduction and then and then get to dividend payment once those debt levels are modest. And that really is a strong guidance. And obviously, with the higher commodity prices, we can achieve that much more quickly. And we'd be very pleased to do so because then we can return something to our shareholders rather than paying so much interest.
spk06: Great. That makes a ton of sense. And one follow-up is just on the divestment process. I know you mentioned in your prepared remarks that you might be accelerating some work there, but is there any timeline that you're looking at, or is it simply, you know, a search for value here? And then when we're seeing what's happening in Zambia with some of the other mines, is there any read-across there for the sense that someone can send you for your own projects? Thank you.
spk09: Sorry, Emily, I just missed the last part of your question there. What was it?
spk06: Just in that, you know, it seems like, Dan, the government is looking at some other mines or taking ownership of some of the other mines. Is there any read across that we should be thinking about? Okay.
spk08: Yeah. So, yeah, those asset sale processes are continuing. Obviously, you know, the challenge last year with COVID was really around getting people to sites. And, you know, some of that's easing a little bit now. But certainly the Ravensport process and Zambia process is continuing. And as you said, the challenge for us there is on value. What we see is that the near-term and mid-term copper price outlook looks pretty reasonable when we compare that with consensus, which has been lagging, is catching up now, I think, in terms of consensus price forecasts. And that gives an indication as to where people's minds out in terms of long-term copper price. And we really see the offtake in terms of short and medium-term cash flow from those businesses is very significant. And that's what we have to trade off in looking at the minority stake sale in Zambia and at Ravensworth as well. In terms of the processes in Zambia, The government's been very clear that they're not a nationalisation process. I realise that that word has been bandied around a little bit, but it goes back to the decisions that were made last year in a low-cost, low-price environment, which was, you know, Mopani Glencore made a decision to put Mopani on care and maintenance, which at that time, as a high-cost operation, you know, is a reasonable decision to look at. Obviously, that had implications in terms of employment. for the government and so the government's position there is understandable. They've had very constructive discussions and I think come to agreement there which makes it clear that the mine will continue operating and the government through ZCCM has decided to take that on. But the construct around that was reasonable and so on. So no, we don't see any contagion or any element or risk in that more broadly in Zambia. In fact, our relationship in Zambia has been fairly strong over the last 18 months, two years, around as the government's been in the debt crisis that they're in and the debt default situation, a greater level of discipline and focus on stability. And, you know, we've been there a long time and have worked with government through that time, and that continues in a constructive manner.
spk06: Great. That's really helpful. Thank you.
spk04: Thank you. Our following question is from Carl Blunden from Goldman Sachs. Please go ahead.
spk02: Hi, Gabrielle. Thanks for the time. Just had a follow-up on the balance sheet, and I think Hannes has spoken to this. sometimes in prior quarters, but when you take a look at the tradeoffs between the cost of the debt and the bond market, which is a little bit higher than banks, but it gives you more flexibility and, importantly, is prepayable. A lot of it is prepayable. How does that influence your view on what the balance of bank versus higher bond debt should be going forward as you get cash flow in now, as you potentially look at a refi, potentially use JV proceeds?
spk13: Yeah. Carla, I mean, both markets are important to me. I mean, obviously, with a bond market, it's only an incurrence, a test, and you don't have maintenance governance, so that, you know, that makes it comfortable to live throughout the life of the bond. But you do have quite a bit of period where it's in an on-call period, and you do carry that higher interest burden. With the banks, and yes, we do have covenants of that, but as we deliver, you'll see those ratios becoming less of a concern. And we're well within any covenant at the moment and forecasting to be anyway. But what you would have seen over the last seven, eight years through sort of two downturns in the cycle is the banks actually support us and they come to the party. So when we requested amendments, we obtained that from the banks with great support from them and refinancing those facilities. So it is a check in the process, so you do have those maintenance governance, but we've got a very supportive banking group. And it comes at a lower cost, and it's also pretty payable. So I probably want to be in both markets, and we've had a longstanding and supportive banking group, so probably continue with that.
spk02: That's helpful. If I could just squeeze one more in. It relates to the JV sale process, and you've given some good information on that on this call. It's kind of a bigger picture question. Have you felt like private market valuations have kept pace with the public market recently? In other words, is it still attractive to pursue those options? And I understand here that there are other considerations, too, other than price as well. But just some kind of comment on that would be helpful. Thank you.
spk08: Yeah, Carl, look, there are other considerations. Diversification was one of the key elements of what we looked at in the asset sale processes that we embarked on, and that remains relevant. But I think the challenge, as I said, is the near-term earnings that we otherwise earn from consanguine sense are very significant. And yeah, private market valuations as to how they differ from public market, Yeah, I think the copper prices run in public market valuations, and we have to take that into account, and the rise in the share price, we have to take that into account. And so, yeah, that's the challenge for copper producers looking to embark in M&A, is to look at those levels of valuations. I think the perspective we had in March, April last year has moved on to where we are now. The assets themselves are very compelling. They're a very strong proposition, and at these price levels, as you said, it does come down to price. With the copper price and so on where they are, and the assets are producing very well, Sentinel in particular at the moment, producing record production, you know, that's a compelling story, and we know that best of all as the owner.
spk02: Thanks very much.
spk04: Thank you. Our following question is from Abby from Deutsche Bank. Please go ahead.
spk10: Yeah, morning, guys. Thanks for taking my question. Just a quick one on Cobra Panama costs. How much of the $0.134 cost we saw this quarter were related to COVID and maintenance costs, which you won't be seeing forward?
spk09: Thank you.
spk08: Thanks, Abby. Yeah, I think we did have in line in the statement that talked about the COVID-19 costs at Cobra Panama. They were in the order of around $10 million across the quarter. The costs at Cobra Panama were in line with our expectations. The C1s were at $1.34. and that was well within the guidance that we put around Cobra Panama for the year. It is true to say that Q3 was lower cost, and really that was off the back of the ramp up, and really our focus in Q2, we can't forget that we got down to 800 people on site, and so we were running trucks in order to keep things ticking over. We were focusing on grade, to keep that operation running, and you see that the lower volumes and higher grade that comes through in Q3 of the results from Cobra Panama. So I think Q4 is a rebalancing. Those cost levels now in Q4, you know, the big impact that we have on those going forward is on units of production. We do see inflation in the market, but Cobra Panama as it gets to the 85 million tonnes per annum and it's producing a guidance 300 to 330,000 tonnes of copper per year, those units on the denominator really pull down the costs quite significantly. We see that and we see its ability to really head to a lower cost position and then as we go to the 100 million that it will head towards a dollar on a C1 basis. And so those are the dynamics at Cobra Panama. Got it. Thank you.
spk04: Thank you. Our following question is from Jetinder Goel from BNP Paribas. Please go ahead.
spk17: Thanks, operator. Good morning and good afternoon. I've got two questions. First question has got three parts related to Zambia. Just to understand, if the minorities take sale and S3 decision, do they have any interdependence or are they fully independent decisions? And secondly, when do you need to get the stability agreement in place not to impact consumption production profile or to keep the volume profile that you currently envisage? What's the latest timeline for that? And the third element is the stability agreement would apply to the whole of Kansanshi, but not to Sentinel, what you're currently looking at, just to be clear.
spk08: Sure, Justin. Yeah, the first part of the question, The minority stake sale is independent from S3. There's no reason that we would link them together. What we've previously spoken there is if the minority stake sale did go through and that cash became available in terms of deleveraging the balance sheet, we would obviously be in a better position in terms of debt and total debt in order to go ahead with S3 with a partner. So that would be the dynamic, but otherwise it's an independent decision. In terms of the stability agreement and the timing around that, as we said in the 43-101, there's no need immediately to go on with S3. We do see good levels of production continue at Constantia, as we've put into the guidance for the next three years, and as we said in the 43-101, it was really around 2024, 2025, that we needed to see the S3 expansion come down, because that's when we see the grades drop off at Consanche or decline. And it's really on the oxide side more than anything else. And then the third element of the question was whether the stability agreement would just apply to Consanche or to Sentinel as well. And that is in discussion with the government I think a particular concern is around S3 and that project, which is Kansanshi. But obviously we're looking at the broader geopolitical situation in Zambia as well. But certainly the focus is on Kansanshi. Does that help?
spk17: Sure. So when you say S3, will it just be for the incremental volumes at the very early stage or for whole of Kansanshi? Because you can still split volumes theoretically. based on, I think, 43-101.
spk08: No, no, we'd be looking at the asset in total. Okay, that's clear.
spk17: Sure. And just a question on hedging. You've obviously done copper and nickel, but why not do gold hedging, which is more common and more of a secondary product? Understandably, you've got your streaming agreement, but you still have significant exposure of your own. Is there any intention... or has there been thought to hedge gold previously, or is there any intention to do it on a forward basis?
spk13: I mean, we've had proposals in the past. I mean, the answer is that, you know, although we produce quite a bit of gold, the gold is not that material in terms of our total revenue profile, and that does also then consume credit lines. So you've got to choose where you use those credit lines. And, you know, by not hedging the gold, we've actually benefited also on the upside. But, yeah, so you've got limited credit lines, and we'd rather choose to use it on the copper side than the gold.
spk17: Understood. Very clear. Thank you so much. All the best.
spk04: Thank you. That's all the time we have for questions. I would now like to turn the meeting back over to Ms. Dudridge.
spk07: Thank you very much. I'd like to just thank everybody for joining us on the call today. I apologize that we've run out of some time. If you do have any follow-up questions, you need anything else, please don't hesitate to contact me. And with that, thank you very much, and I think you can disconnect your lines. Thanks, guys.
spk04: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
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