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spk12: Good morning, ladies and gentlemen. Welcome to the first Quantum Minerals quarterly results conference call. I would now like to turn the meeting over to Benita Toh, Director, Investor Relations. Please go ahead, Ms. Toh.
spk01: Thank you, Operator, and thank you, everybody, for joining us today to discuss our third quarter 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. I encourage you to read the cautionary note that accompanies our most recent MD&A and and the related news release, as well as the risk factors, which are detailed in our most recent AIF and available on our website and on CDAR. And a reminder that the presentation, which accompanies this conference call, is available on our website. On today's call, we have Tristan Paschal, our Chief Operating Officer, who will provide an overview of operations and share his perspective on the company's outlook moving forward. Hannes Mayer, our Chief Financial Officer, will review the financial results. And Tristan will wrap things up with an overview of our key strategic priorities. After that, we'll open the line to take questions. And with that, I'll turn it over to Tristan.
spk10: Thanks, Benita. Hello, everyone. Q3 was another strong quarter for First Quantum, both financially and operationally. Debt reduction remains a major focus for First Quantum. I'm proud to say that with the strong operational cash flows during the quarter, driven by continued high operational performance and supported by commodity prices, steadying at higher levels, plus the rolling off of our hedges, and combined with the closing of the sale of the 30% stake in Ravensthorpe, we were able to reduce our net debt by approximately $450 million during the third quarter. We are well on our way to achieving our objective of $2 billion in gross debt reduction on an accelerated timeframe within the first half of 2022. Before going into the operational performance during the quarter, I would like to take this moment to reiterate two of our other commitments that we have made to our stakeholders. Firstly, we are on track to deliver targets for our greenhouse gas emissions by the end of this year, and during the quarter we introduced an internal carbon price that will now be integrated into the evaluation of new projects at First Quantum. In addition, we remain committed to defining a more meaningful dividend framework for our shareholders by the start of next year. Operationally, copper production in the quarter was just shy of 210,000 tonnes, an increase of 5% quarter over quarter, mainly attributable to strong production from Cobra Panama and Sentinel, but also ongoing consistent production from Consanche. Due to a difficult shipping environment, our copper sales in Q3 were somewhat lower than production at just over 197,500 tonnes. In particular, anode shipments in Zambia were impacted by a global shortage of container shipping capacity, as well as congestion at the Durban, Walvis Bay and Dar es Salaam ports. Consequently, a number of planned shipments were rolled into the fourth quarter, but these have now been caught up and shipped. We do expect shipping and logistic challenges, in particular in relation to Zambian sales and finished goods inventories, to continue throughout the first quarter. although we will continue to address these directly through our relationships with customers and shippers. Some marginal impact from logistics, shipping, fuel and consumable costs and labour has been felt on operating costs in Q3. Our C1 cost guidance for the year has been narrowed by 5 cents to $1.25 and $1.35 per pound. However, our oil and sustaining cost guidance for 2021 of $1.80 to $1.95 per pound remains unchanged. At Cobra Panama, it is very pleasing to see the operation continuing to achieve new milestones with production in Q3 reaching a quarterly record of over 87,000 tonnes of copper. During the quarter, some portions of higher grade ore from the mine were brought forward from the fourth quarter in order to smooth the copper production profile and de-risk the remainder of the year. Grades are expected to be lower in the fourth quarter. However, given the level of confidence in production, we have increased the lower end of the range for Cobra Panama guidance by 10,000 tonnes, so that overall guidance for 2021 production is now 320,000 to 335,000 tonnes of copper. With the recent escalation in global energy prices, including thermal coal, it is worth mentioning that a collar structure for all of Cobra Panama supply requirements has been in place since May 2020. The ceiling price reached at the end of Q2. This prevents exposure to further increases in the coal price until December 2023. In parallel, we continue to study options in moving the energy supply for Cobra Panama to a less carbon intensive and more renewable mix over time. I'm also pleased to share that due to the high vaccination rates at Cobra Panama being around 97% of the workforce, as of October the 11th, fully vaccinated employees are no longer required to enter preventative isolation prior to arrival to site. In addition, the limit on the number of personnel on site has been lifted, which now allows the operation to return to optimal staffing levels. With regard to Law 9 discussions, we continue to be engaged in formal discussions with the High Level Ministerial Commission and constructive progress has been made. The Government's commitment to the process is evidenced by the contribution of four Cabinet Ministers to the Commission meetings throughout the month of September. At the end of the quarter, the Ministry of Commerce publicly announced the culmination of discussions on environmental and labour matters while discussions on financial matters were continuing. The company welcomes the transparency of the high-level commission process and the opportunity to resolve this matter in the medium term. In Zambia, Q3 marked the general elections in the country and the smooth transfer of power to the opposition party, the UPND, and to the new president, Hakienda Hichalema. We welcome the display of healthy democracy demonstrated so well by the country and its citizens. We look forward to working with the new government on their objectives of empowerment through economic management, job creation and democratic governance and in their stated desire to partner with the mining sector to significantly increase copper production in Zambia. The expected 2022 budget announcement at the end of this week will provide us with initial indication of the policy that will accompany these objectives. Sentinel delivered its best quarter of the year in Q3 and produced 59,931 tonnes of copper, up 10% from the previous quarter. A record milling rate was achieved in the month of August and improved ore grades were processed in September, and we expect these trends to continue into the fourth quarter. As a consequence, the guidance range for full 2021 production from Sentinel has been narrowed to between 235,000 tonnes and 245,000 tonnes of copper. The fourth in-pit crusher at Sentinel is scheduled for commissioning in December 2021, which will enable the process plant to ramp up throughput to 62 million tonnes per annum. Consanti produced another consistent quarter, albeit on lower grades, with copper production of 50,987 tonnes, which was the best in the year so far. The Consanti smelter ramped up on schedule in early July and processed just over 325,000 dry metric tonnes of copper concentrate during the quarter. We continue to expect Kansanshi mine grades to remain low in the fourth quarter and consequently we have reduced the top end of the range for Kansanshi guidance by 10,000 tonnes so that overall guidance for 2021 production is now 200,000 to 205,000 tonnes of copper for the year. Zambia's electricity generation is largely hydropower and so remains somewhat insulated from the energy dynamics currently playing out in other parts of the world. The level of water supply in the Kafui and Kariba systems remains stable and we're confident in the outlook for power supply for the remainder of the year. COVID-19 related border closures and labour shortages in Western Australia continued to impact Ravensport during the third quarter, which negatively impacted the quarter's production and cost. Despite these challenges, commissioning of shoemaker levy at Ravensport progressed and saprolite ore was introduced in the third quarter. Due to delays accumulated to date, 2021 nickel production has been revised lower and costs have been revised higher from prior guidance. Completion of construction and commission works at the Shoemaker Levy project and the delivery of limonite ore is the main priority for the fourth quarter of 2021. I would like to express my gratitude to the First Quantum team for their hard work throughout the period of the global pandemic. In all of the countries that we operate in, we continue to work closely and support the various levels of government and health authorities to ensure the health and safety of our employees. COVID-19 continues to present challenges and it remains a top priority, First Quantum, to provide support to our local communities, particularly the most vulnerable. As an example, in Zambia, when schools around our Kansanshi mine closed during the pandemic, First Quantum helped transition students to remote learning via two FM radio stations. Teachers from around the region were broadcasting 12 hours a day and have been able to engage some 42,000 students across the period. During these challenging times, I'm not only proud of the accomplishments of our operations, but also the work we have done with our local communities who are so important to our overall success. With that, I'll turn things over to Hannes, and I'll be back in a few minutes to wrap things up. Hannes? Thanks, Justin, and good day to everyone.
spk06: I would like to direct you to a slide called Financial Overview in slide 10 in the presentation. The financial performance in the quarter was driven by higher metal prices together with strong operational performance, which resulted in a significant increase in comparative EBITDA and net earnings, as well as a notable further reduction in net debt. Gross profit of $613 million in comparison Comparative EBITDA of $886 million in the quarter was significantly higher than the same period in 2020, attributable to the increase in sales volumes at Cabaret Panama, as well as a 34% increase in the net realized copper price. Net earnings attributable to shares of the company of $303 million and comparative earnings of $197 million represented a significant improvement on the same quarter of 2020. Net debt decreased by $449 million this quarter, and it's now at $1.4 billion reduction since June 2020, down to a level of $6.3 billion as of the end of September. With the current strength in the copper price, we foresee a further reduction in the last quarter of this year. Copper C1 cash cost of $1.26 was 19 cents per pound higher than the third quarter of 2020, driven by higher fuel costs and freight charges and also lower production at Kansanshi, Sentinel and Las Cruces. The company has completed the sale of the 30% equity interest in Ravensthorpe for cash consideration of $240 million from Costco. Post quarter end on October the 14th, the company signed a new $2.925 billion term and revolving credit facility with its bankrupt. Getting to the next slide, a quarterly unit cash cost. Total copper C1 cash cost was 19 cents higher than Q3 2020, driven by higher fuel and freight charges and also the lower production, as mentioned before. Guidance on unit costs for the full year has been narrowed to between $1.25 a pound and $1.35 a pound. All in sustaining costs for the quarter was 39 cents higher than Q3 2020, impacted by higher C1 costs and higher royalty rates in Zambia, which was driven by the higher market copper prices. All in sustaining cost guidance remains unchanged. Getting to the next slide, a summary financial overview. Comparative EBITDA of $886 million was 38% higher than Q3 2020, attributable to a 34% increase in net real estate copper price and increased sales volume at Cape Panama. However, as Tristan mentioned earlier, Zambia's sales volumes were impacted by port congestion and level shortages of containers, and we see such logistical challenges continuing throughout the fourth quarter. Comparative earnings for the third quarter of $197 million is an increase of $133 million compared to Q3 2020. Basic earnings per share of $0.44 and comparative earnings per share of $0.29 are $0.40 and $0.20 respectively higher than the same quarter last year. Basic earnings benefited from unrealised foreign exchange gains in Zambia. There was a reduction in net debt, as previously mentioned, in the quarter, which brings this total reduction down to $1.4 billion since June 2020. Turning to the next slide, and significant increase in gross profit. With a 267 increase in Q3 gross profit from improved metal sales and higher contribution from Cobre Panama, It was impacted by the lower sales in Zambia and Las Cruces, which sees open pit mining in August 2020. Turning to the slide on debt and the liquidity profile, companies' net debt of $6.3 billion at the end of the quarter, as previously stated, decreased by $1.4 billion in the last 15 months. The company ended the quarter with $1.9 billion of net unrestricted cash and cash equivalents and was in full compliance with all its financial covenants. The company signed a new $2.925 billion term loan and revolving credit facility, maturing in September 2025. This replaced the existing $2.7 billion credit facility. The refinancing extends the debt maturity profile and removes all material debt maturities through April 2023. As Tristan has already highlighted, the tapering of the hedging program will further benefit financial results in the remainder of the year. So turning to the hedge slide then. So approximately one-sixth of our expected copper sales for the next 12 months are hedged at an average floor price, an average ceiling price of $3.41 per pound and $4.23 per pound, respectively. And this is a blended rate between the swaps and the collars. So turning to the end, and this compares then to approximately a quarter in the previous quarter of sales at at an average price, which is probably about floor and ceiling, probably about 10% on average lower. At the end of September, the company had 12,500 tons of forward and margin copper forward sales at an average price of $3.01 per pound for periods of maturities to December this year. In addition, the company had 125,750 tons of unmargined, zero-cost copper collar sales contracts with maturities to June 2020 at an weighted average price of $3.45 per pound to $4.35 per pound. Thank you. And with that, I'll now hand back over to Tristan.
spk10: Thanks, Dennis. As debt reduction at First Quantum accelerates, we have stated our intent to post more meaningful dividends based on our outlook for solid cash flow generation from the business. Notwithstanding these intentions, delivering growth has always been one of First Quantum's core competencies and reinvestment in the business remains central to our business strategy. In this regard, we are focused on our four main low-cost and low-risk brownfield projects in the near term. These four brownfield projects, which we've presented in the slide deck today, are the expansion of Cobra Panama to 100 million tonnes per annum throughput, the S3 expansion at Kansanshi, the enterprise nickel project near Sentinel, and the Las Cruces underground project. In many ways, the variety of these projects reflect the ongoing diversification of our business, spanning three continents, a mix of both copper and nickel, a mix of both open fit and undergrounds. What they all have in common is that they leverage existing infrastructure, operating teams, existing licence to operate and strong community relations. This reduces both the completion risk and the capital intensity of these near-term growth projects for us. Progress was made on all four of these projects during the quarter. At Cobra Panama, preparation to move to the Kalina pit, which will support the 100 million tonne per annum expansion, continued in Q3 with initial groundbreaking for development of the Kalina box cut, and ongoing development of the Overland Conveyor Corridor. Orders for the additional mine fleet for Kalina were placed at the front end of quarter three, including a fifth Komatsu P&H 4100 rope shovel and ATOF Liebherr Ultra Class 360 metric tonne trucks during the quarter. On S3, discussions continued with the Zambian government in relation to the stable fiscal conditions required to proceed with the expansion, including addressing the non-deductibility royalties. Once built, S3 will materially increase Constantius' annual throughput to well over 50 million tonnes per annum and ensure production levels remain strong for more than 20 years. At the Enterprise project, a decision to proceed is expected by the end of this year. The process plant for Enterprise is already built as part of the original Sentinel construction and so capital spending of approximately $90 million is mostly comprised of pre-strip work, which is scheduled for the dry season after April 2022. The enterprise project has the potential to add 30,000 tonnes per annum of nickel, with production likely to ramp up from early 2023. Work towards fully permitting Las Cruces Underground continues. The last major permit remaining is for the water concession, and progress on this permit is expected in an orderly manner. Resource delineation drilling was completed in Q3, which will support the release of the NI43-101 resource statement by early next year. Our portfolio of growth options include several major greenfield opportunities, notably Takatak and Akira. And while we are excited about the long-term potential that they offer, we will take a more measured and cautious approach towards these two projects as our priorities remain on debt reduction, brownfield growth and establishing a more meaningful dividend framework for investors. Finally, on behalf of the entire company, I want to thank our people again. Our workforce continues to demonstrate adaptability, commitment and resilience and make significant contributions to the success of the business and our positive impact on the communities around us. I'm proud of how our workforce has continued to focus on executing in a safe and sustainable manner in the face of ongoing logistical and operational challenges resulting from the COVID-19 pandemic. Operator, we would now be happy to take questions.
spk12: Certainly. Thank you, Mr. Pascal. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. Please kindly limit yourself to one question and one follow-up question, after which you may rejoin the queue. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Orist Waukada with Scotiabank. Please go ahead.
spk16: Hi, good morning. Tristan, I was hoping you'd give us some more colour on the Law 9 negotiations in Panama, and specifically whether you're seeing anything that might be outside of the existing mining code. And I'm also wondering if you can give us an expected timeline for the conclusion of these negotiations.
spk10: Sure, Oris, thanks and hi. Yeah, look, Law 9 has been very constructive during September and... Sorry, Oris, you might just put on the mute there. Thanks. Yeah, Law 9 was very constructive during the quarter. We managed, and you saw the announcements from the Minister of Commerce on the culmination of of matters relating to environmental issues and also on labour issues and the work on the financial side of things is continuing. There has been noise around that and you would have seen that in the press but in the discussions it's been constructive and look I can't really be drawn on too much else that's in there, it's in that room in terms of timing. We're optimistic that it's gaining momentum off the back of the commitment from four senior ministers in the cabinet, that's fully a third of the cabinet that's been present in those discussions, and also the movement in the discussions themselves. So it is difficult to draw a timeline around that, but we would hope to be in parliament with a piece of legislation I think early in the new year. if not before, and that would then be a timetable around the ratification of that new legislation.
spk16: Thanks. And just as a follow-up, is there anything left to negotiate beyond fiscal terms at this point?
spk10: Yeah, we had some discussion around social infrastructure, but it's part of those discussions at the moment. Okay. Thank you very much.
spk12: Thank you. The next question is from Abby Agarwal with Deutsche Bank. Please go ahead.
spk08: Thanks, Maureen. Thanks a lot for the call and congrats on the follow-up set of results. I have a couple of questions, please. The first one is on hedging. While the amount of hedges which were put on were quite small, should we expect continued opportunistic hedging going forward? That's my first question.
spk06: Thanks, Abby.
spk08: Hannes, do you want to take that question?
spk06: Sure. Abby, what I would expect is that the average amount of hedges continue to decrease. So last quarter we were at 25% or one quarter hedged, and this quarter we ended at 16% hedged or one sixth. So you should see that trend continuing.
spk08: Got it. Thank you. The next question I had was regarding the Zambian budget, which I think is this Friday. Could you talk a bit about what your expectations are with the budget? And also, what would you look for as you move closer to the decision to approve the Conscientious History Project? Thank you.
spk10: Thanks, Abby. Yeah, look, we certainly will be listening on Friday. Obviously, we couldn't comment what will be in the budget other than to say we've had the constructive discussions with the government and certainly in terms of everything that we've heard in their conversations with us privately, but also more broadly conversations with the IMF, with the US and the re-engagement with the US and the UN and so on has been very constructive. But really, I think the budget is where we'll start to see that policy enter implementation phase, and that's what we're watching. Beyond that, yeah, S3, as we said, is really around fiscal stability in the country. Again, non-deductibility of royalties is high on our list, but there's a broader range of issues to be tackled there, and that's what the conversation's around. So it won't necessarily follow from the budget an automatic move on S3. there is a broader discussion to occur.
spk08: Thank you very much.
spk12: Thank you. The next question is from Craig Barnes with TD Securities. Please go ahead.
spk05: Yes, thank you. Tristan, you've talked about renewable power for the expansion at Cobre Panama. I'm not sure what avenue you'll go down, but what's a realistic timeframe for converting the current coal plant, and what is the plan at the initial stages and how much would it cost?
spk10: Sure, Greg. And yeah, I mean, the first thing is we will come out later in the year and make that clear. In terms of the increment that's required for the expansion, it's about 60 to 80 megawatts, something in that range. And for that we said that we won't be expanding the existing coal-fired power station in order to cover that additional increment. And so there is the opportunity for lower carbon or renewable to come into the mix. And so certainly we're out in the market on the moment on that. And then, you know, more broadly, look, and I wouldn't want to pre-empt what we do and what we say at the end of the year, but we've been looking very closely at how we can then expand and address the broader greenhouse gas emissions from the power station, the existing unit. And there isn't... You know, the mix in Panama is there. There's a range of hydro... Wind power is there but it's sort of around 30% available across the year and solar less at about 15%. So there's no silver bullet there and it's important to bear in mind our impact on the national grid in terms of pricing if we fully came off. So those are the considerations that come together and we'll outline more specifically by the end of the year.
spk05: Can you convert the coal plant to LNG or something like that? I have no idea whether that's even possible.
spk10: Greg, yes, it can be converted. It's very capital-intensive. But, yes, there's a technical solution and it has been done elsewhere. So the actual conversion of the units themselves is straightforward, but then you have to install all the gas infrastructure in order to be able to do that. That's obviously the ability to offtake gas and the storage and so on, and then that gets quite... There's a lot of capital in that. So there is gas already in Panama at another location in Cologne. And so, you know, part of the consideration is where that would be, you know, more capital efficient as an existing facility that has gas and needs power lines but is there, you know, as compared to a full, you know, adjustment to our facility. Okay, great. Thanks, Kristen.
spk12: Thank you. The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
spk09: Good morning, and thank you for the update. I would like to touch on your outlook for Cobre Panama. You provided some comments, but basically going back to Q2 results, you guided to 10% lower grades in the second half versus H1, obviously Q3. With anything but that, it was actually a little bit higher, 0.46%. So can you maybe just give us a little bit of... help understanding why there was such a material upside surprise in the grade. But also, should we be expecting a fairly substantial drop-off in Q421? Any quantification around that would be super helpful. Thank you.
spk10: Yeah, thanks, Lawson. I think I remember our conversation at the time. Yeah, I guess, so what we see What we've done in this quarter is bring forward some areas of higher grade in the pit and that was to de-risk the end of the year. So what we were seeing was our copper production schedule showed a very high peak in December and rather than put that in a time which is a higher rainfall part of the year, we brought that forward and put it in the bank. So that's in the bank in Q3 now. and as a result we will return to the sort of more life of mine grades and it will come off. But as I said we nonetheless are very confident in the guidance that we've given for the year and we fully expect to be within that guidance. We will see throughput go up a little bit we expect because it's sort of softer material compared to where we've been mining this quarter on average but lower grade. Does that help answer the question?
spk09: Maybe on a follow-up, I would like to ask about Sentinel. So you've provided some guidance again on 2022. You expect Sentinel to reach 62 million tons per annum run rate next year. How should we think about the timing on that 62 million tons per annum? I mean, is that something you can hit basically from the start of the year, or should we think of it being obtained sometime sort of mid-year?
spk10: No Lawson, it was in the introduction of the fourth crusher that just opened up our ability to deliver into the process plant and the process plant can certainly take it. So as soon as that fourth crusher comes in and it's feeding we have the capacity to run at that annualised rate. So we expect that to be commissioned by the end of the year and then it would just be into production. So there might be a small ramp up at the start of the year but we should be on those rates or that kind of annualised rate fairly early in the new year.
spk09: It's very helpful. Thanks very much, Tristan.
spk12: Thank you. The next question is from Jackie Przeglowski with BMO Capital Markets. Please go ahead.
spk13: Thanks very much. And congrats on the quarter. It's a great quarter. I guess I wanted to ask you sort of how you're looking at the balance sheet now. I mean, it's in much better shape. I recognize you're still adding hedges. Can you maybe talk a little bit about what balance sheet you'd need to see to fully stop adding hedges. And I guess on the same page, where you're maybe thinking of the dividend at this point in terms of how much the balance sheet could support next year.
spk10: Sure, Jackie. Hannes, do you want to take that question? Sure.
spk06: Jackie, I think I've largely answered already that, look, you'll see that trend you know, reducing sort of trend continuing, you know, so as I said, one quarter last, one quarter H last quarter, and now we're at one six now, and that should roll off now in the next, you know, as we go along, that should come down.
spk13: I guess, I mean, I think I asked you the same question last quarter, and I think you kind of suggested that And maybe I just misinterpreted what you said, that you weren't adding new hedges. So I was expecting just to see the existing hedges roll off. But it's fair to say you'll add more going forward as well?
spk06: Jackie, the hedges we've added this year are all collars and all quite wide. So it shouldn't be an impediment to receiving the current spot price. So that wouldn't be. But overall, there's a genuine trend and reduction on that. Got it. I think, Tristan, on the dividend, I think we'll have an update early next year.
spk10: Tristan, I don't know if you want to... Yeah, I think that... Yeah, Hannes, I think, Jackie, we just say, well, stay tuned. And what we're saying is that the nominal dividend that we've been paying, we're aware of that, and it is the Board's intention to come and address that with shareholders.
spk13: Okay, maybe in the meantime, until we get the full update from you, can you give us a picture of what copper prices you guys are assuming for next year? Is that a fair question?
spk06: It's somewhere above the BMO price, I would guess.
spk13: That's a good answer. Thank you.
spk10: Yeah, Jackie, we're trying to strike the balance there on that dividend, and that will be cautious. We'll enter that slowly. But what we're signaling is the cash flow generation that we see coming from the business.
spk13: Okay, I appreciate that. Thanks very much.
spk12: Thank you. The next question is from Chris Lafamina with Jefferies. Please go ahead.
spk00: Hey guys, thanks for taking my question and congratulations on another good quarter. It's good to see the deleveraging really starting to happen now, the cash flow kicking in. That should be good for your stock price. But a question I have regards cost inflation. So we hear a lot about mining cost inflation in places like Australia and Brazil, but not so much about what's going on in Panama and Chile. I'm sorry, Panama and Zambia. And if we look at your unit cost progression so far through 2021, your costs have been pretty flat. I know third quarter costs were up pretty materially on a C1 basis year over year, but Costs this year have been, net cash costs have been flat, despite the streaming deals you have on gold, so you're not getting the benefit of a high gold price, and despite, again, the fact that you have shipping issues and energy prices rising and all sorts of inflationary pressures. Just trying to understand how we should think about costs heading into 2022. Is there a reason to believe that some of the inflationary pressures that we're seeing in mining globally will begin to impact you in the near future? or what is going on specifically potentially in Panama or Zambia or with you specifically in terms of how you're managing your operations to control cost inflation that others are struggling more with. Thank you.
spk10: Hi, Chris. Thanks for noticing. Yeah, there's been a lot of effort and talking to the guys in Zambia the last few weeks around the efforts that are going in on managing those costs. So, yes, you saw Consanche, you know, it is the most production in the quarter this year. But there's been a lot of work on the cost side to manage that, and so really that's been the impact. The ability for us to protect that into 2022, I think that remains to be seen. So the cost inflation is definitely there, and we're seeing that on things like steel price. You mentioned shipping, but fuel costs. You mentioned labour, particularly in Australia, labour rates. In Zambia there has been a movement of the kwacha so we went down to exchange rate around 23 and it's come back to 16 or 17 or now. And so that is having an impact there on labour rates. The work that we've been doing is really with our big suppliers in terms of managing that and the contracts that we have with them and that's been the effort that's gone in. I think where we're most seeing it is on capital projects. So certainly Ravensport as an early receiver has seen that on things like steel price and shipping and as we look I guess we would telegraph that we've seen that and we'll address our capital guidance early in the new year and what we would telegraph is that definitely it's a cost inflationary market at the moment and it's on all of those main inputs around capital projects.
spk17: Thank you.
spk12: Thank you. The next question is from Ian Russo with Barclays. Please go ahead.
spk07: Thank you. I maybe just wanted to follow up on Greg's question on the power station at Covered Panama. Tristan, you mentioned sort of noise around the Law 9 discussions, and I wonder if that's referred to the Energy Minister's commentary around ending coal imports in 2023. I'm just sort of curious what's your view on that and how that sort of if that was actually part of the discussions with the other four cabinet ministers. And then maybe just to follow up on Ravensthorpe, you mentioned in the release sort of cost inflation pressures from higher sulfur prices. I just wanted to get an insight into your sort of contract structure there, how much spot exposure do you have, and I guess if there's a lag effect we'll see coming through from next year on higher sulfur prices. Thanks.
spk10: Thanks, Ian. So the first question on coal imports, yeah, certainly, look, we wouldn't comment on the government's planning around greenhouse gas emissions. Panama will go to COP26. The president of Panama will be there on Monday. And we'll talk about Panama being one of the three countries in the world that is negative in terms of greenhouse gas emissions. So, you know, that's where Panama stands today. And look, our planning, it certainly takes into cognizance the endeavours of the government of Panama, but it also needs to balance our impact on the community. And I talked about possible impacts on pricing and so on, and also the stability of the national grid. And we're seeing that in Europe at the moment, that these things need to be managed well. So those are the considerations we take. And as I said, we'll come out by the end of the year to comment on those. So there were those comments in the newspaper and it certainly is part of discussion and that's fine. We're happy to do it in that forum but the planning there and we'll look to align our planning with the government's own ambitions on greenhouse gas emissions. In terms of Raventhorpe and the sulphur price, at the moment as far as I'm aware it's 100% exposure to the spot price. It's something that we're actively managing with our suppliers. and looking to, yeah, given where sulphur price has gone to, certainly well above what we'd expected. And I think that's, Ian, in this you're seeing some of the secondary impacts of the change to renewables is that fertiliser, food production, all of those things, there's going to be a lot of ripple effects through the economy and I'm not sure that all of those are taken into account in the way economists are looking at the situation. But yes, certainly for us, an area to work closely on, and we're certainly doing that directly with our suppliers.
spk07: Okay, great. Thanks for that.
spk12: Thank you. The next question is from Ioannis Masoulis with Morgan Stanley. Please go ahead.
spk17: Yes, hello, and thanks for taking my questions. Most have been answered. I'd like to ask on Zambia, and that's a very ambitious target by the new government to hit 2 million tons of copper production by 2026. Given that you have operated in the country for a number of years and you've been in touch with the government, could you share your views on how realistic that target is and also whether First Quantum could play a role here beyond VST expansion and beyond enterprise? Thank you.
spk10: Sure, Jonas. Yeah, I think the Zambian government had put on record they'd like to see copper rise to 2 million tonnes per year, if not 3 million tonnes per year. And so those are certainly ambitious targets. As I said, the new government came in on a platform of really jobs and youth empowerment, and that's important. And they have a challenge on their hands. As you look at the debt situation in Zambia, there's certainly going to be challenge to cover all that ground and I think this budget will be an indication as to where they're going but not an easy task in managing a default situation with the IMF and then coming out and spurring that growth. But their program seems to be very constructive in terms of the economy and delivering through the economy to their electorate but let's see. In terms of of our contribution, I mean we would say that we're very willing to support Zambia and we believe we're one of the strongest spokespeople out there for Zambia and it's as a destination for investment and a destination for mining. So certainly we're part of that future and we think S3 is an important part of that future Beyond that, if you're intimating at Mpani or the situation at Vedanta, that's not something we're entertaining at the moment at all. But more broadly in the country, we'll continue to remain a strong supporter of Zambia and its ambitions.
spk17: Okay, that's clear. And the second question around your funding mix. You recently refinanced your bank debt and said, Just wanted to figure out what's the next sort of prerequisite before or milestone before you look to refinance some of the bond maturities. And ultimately, are you happy with the current mix between bond and term debt and bank loans? Or is there potential to shift that as leverage continues to come down?
spk06: Anna, do you have a comment? Sure. You would have seen, I mean, we've talked about the $1.4 billion net debt reduction over the last 15 months. So with the new facility, we'll definitely use some of that proceeds then to start chipping away at the bonds. The first bond maturity is only in April of 23, so it's quite a bit of time before that. So we generate quite a bit of cash at the moment, and we've got the benefit of the new facility as well. So we'll start managing that. those maturities coming up now. Thank you very much.
spk12: Thank you. The next question is from Emily Chang with Goldman Sachs. Please go ahead.
spk11: Good morning, Kristin and Hannes. My first question is just around the disruption in shipping that you noted during the third quarter. Maybe do you expect those volumes that have been produced but not shipped to drive a catch-up in sales volume in the fourth quarter? Or do you expect still a little bit of a mismatch given some of the port congestion challenges you're seeing there?
spk10: Thanks, Emily. Hi. Yeah, I think we said that we'll continue to see those challenges through the fourth quarter. So look, we're directly managing it. So we have our own trading desk that manages that logistics chain and then all the way through to the customer. And we've been working, you know, not just on an exclusive basis, also with the others in the region that are similarly challenged. So it is a, you know, the region and then the world is challenged by this at the moment. And our customers, you know, it's part of something that they need to resolve as well in terms of getting the shipments in through the front door. So it's covering the whole supply chain. At this stage Q4 looks as hard as Q3 and the indications are when you speak around the market that that's expected to continue on into 2022. So we don't I guess we're telegraphing it will continue to be at these levels through the end of the year and maybe into the next year but it's certainly something that we're directly managing and because of that management in our business it's not as high as it might otherwise have been without the sort of the day-to-day in the trenches fighting to get our containers onto ships.
spk11: Got it. That's really clear. And maybe shifting gears a little bit, how should we think about the partnership between First Quantum and POSCO? I think when 30% of the Ravensthorpe asset was sold down, there was mention that an MOU was signed around a path to producing battery cathode materials. How should we think about that program? Thank you.
spk10: Thanks, Emily. Yeah, we did sign that MOU and we're very excited by the opportunities in that batteries, metals and batteries chain. We think that Raventhorpe is very well positioned in terms of being an ESG friendly and delivering a product that's well liked by the market and well recognised. It's at a very early stage, the discussions with POSCO around that, really picking up from completion of the deal and so on. But it's something that is an active piece of work for us.
spk11: That's very clear. Thank you.
spk12: Thank you. The next question is from Ralph Perfidi with Eight Capital. Please go ahead.
spk02: Good morning, everyone, and thanks, Tristan. Two questions. My first one is on Sentinel. In addition to the 62 million tons a year, We're also seeing some work being done on flotation and just wondering, you know, is that really just positioning the back end of the plant for the higher throughput or could we see some recovery improvements? You know, when I look at the 62 million tons a year, it doesn't take much to get you to the upper end of that guidance range at Sentinel. Just wondering what we could see on recoveries as well.
spk10: So, Ralph, the The work there on the flotation circles is really on the column cells and that was around improving our concentrate grades. It was done during the last year or so and that was really in order to optimise the transport of feed to the Consanti smelter and also to make sure that we're in the right mix of the carbon that feeds into that smelter. That's been done very well and that program we're now rolling over to Consanti is similarly upgrading its cleaner circuit and also columns and jams around that cleaner circuit for the same purpose. That just allows us to optimise feed into the smelter and get the optimal, because it's limited by feed rather than copper production and so that allows us to do that. Sentinel in terms of upside on recovery. I think the guys would be cautious to talk too much beyond where they are, but they've done extremely well over the last few years to manage what they call all type A and all type B, which is the sort of two major feeds that we see around the different weathering in the pit. And they've done a terrific job over the last two years in getting to the levels of recovery. Beyond where they are now, I think they'd be cautious to add much around.
spk02: Got it. And then my second question, Tristan, is on flexibility for S3 expansion capex, depending on what we hear tomorrow from Zambia. I'm just wondering, you know, there's a little bit of smelter capex in 2021, 22, and 23, a bigger chunk of capex in 2023. Could we see some bringing forward of capital or pushing some back, depending on what we hear tomorrow?
spk10: As I said, the discussion around S3 is broader than the budget, but from our perspective, it will be very interesting and we'll think there'll be some key markers in the budget around that. But it's a broader discussion around predictability and stability. But yes, we can change the timing of S3. The reality is the capital expenditure won't accelerate too much in terms of payments going out the door just because of the timing that's already there and our ability to change that dramatically even if we were able to bring it forward. But we could push harder on it. At the moment though, All our thinking will come together in the guidance that we put out early in the new year, and that's where I think we'll give you the clearest indication of what we think is our best approach at the moment.
spk02: Yep, quite understood. Thanks, Tristan.
spk12: Thank you. The next question is from Jitinder Goel with BNP Paribas. Please go ahead.
spk18: Thank you, Britta. Good afternoon. Good morning. A couple of questions. The first one on capital allocation. Las Cruces is a brownfield project. So after Kobe expansion, Enterprise and S3, is Las Cruces going to be the next likely project ahead of the greenfields, Taka Taka and Hakira? And if that's the case, would you have a project building capacity and capital allocation outlay ceiling on how much you want to do annually. I'm just trying to understand how would you prefer sequencing and if there will be an annual ceiling on your CapEx outlay. You've done more than $2.5 billion annual CapEx. I think in the past, is the company willing to go there if projects are ready and do you have the capacity to execute more than one big project simultaneously? Thank you.
spk10: Thanks, Jacinda. And look, you touch on really the core issue there, which is around people and the ability of the teams to cover all this ground. So we're seeing that across the industry, so particularly as we look at engineering in the major centres of Western Australia or out of South Africa, and that's been the experience on Raventhorpe, is that the engineering firms are very heavily weighed with this. Our engineering, our project teams, as much as They've come off big projects like Cobra Panama pretty fully occupied at the moment with these potential projects and that will be the challenge is how to walk through all of that. We certainly think that these four projects can be done in a sequence that will make sense in terms of that capacity for people and resourcing and also in terms of CAPEX. As brownfield projects, they're very much less capital intensive than a big greenfield, and we see that in terms of the returns that come back from them. And they also, as I said, have the other elements there, existing operating teams, the social licence to operate or the licence to operate is in very good standing at each of those. And because it's near to mine, all the shared infrastructure that's already on the ground. So Cobra Las Cruces, If you were to do a greenfield project in the pyrite belt, there's a billion-dollar process plant that would be needed, which is already built at Cobra Los Cruces. Notwithstanding that, CLC, we don't really think about it in terms of sequence and how does it stack up with the others, although that's one of the considerations, but really on its own merits that goes ahead. So that's the evaluation work that we're doing at the moment. As I said, we're working on the technical report the 43-101 and that will come out early in the year as a resource statement and that will give more guidance around the shape of CLC but the reality is we'll be working across that I think next year in firming that project up.
spk18: Understood, that's very clear. And just a quick one on coal exposure, when you say you're not exposed to coal price further increase in coal price rise. What's your reference point for further increase? Is it from today or is it from the second quarter, which seemed to be the peak or the ceiling of your collar structure?
spk10: Yeah, Jitinder, from the end of Q2. So the prices that we're seeing, we're basically at the top of the collar now and it won't go, in terms of impact, no further impact. Does that help? Yes, thank you.
spk12: Thank you. The next question is from Bryce Adams with CIBC Capital Markets. Please go ahead.
spk04: Yeah, hi there. Thanks for the call. I wanted to follow up from an earlier question around Cobre Panama expected grade through to the year end. Q3 was a positive surprise and you're confident in your guidance. That said, is it possible to talk to the head grades that you've seen in October so far? just so that we can get a sense of how Q4 is tracking?
spk10: Yeah, sure, Bryce. So look, we've got to bear in mind Cobra Panama, the volume is significant. So I think the difference in grade was 0.47 this quarter compared to 0.43 earlier in the year, so 0.410. of a percent of copper has that kind of impact on our business. That's really the challenge for us because you're starting to get into the resource estimation side of things. That's very good for us. The reconciliation continues to be slightly positive. We don't have any problems with the grade control model or the original ore body model in terms of reconciliation. What we are seeing, however, is as we get into areas of waste that we're finding some more copper tons. So in the northern box cut, for example, it's spotty, but we're a little bit ore-bound at the moment. There's more ore there than was in the original planning around the waste delivery. That continues on. We've done some drilling between the Meteo and Kalina pits and starting to link those together and clearly... So not any higher in grade, but just very apparent that these pits are now linking together a lot more as we do the delineation drilling. I expect we're probably due for an update on the 43-101 at some stage, but certainly as we look at Kalina pit, that's part of our thinking and part of the planning there. In terms of grades in October, I mean, no, we've been tracking along as expected. What we will see is the grade that we took and brought forward in the mine plan won't be there for us in December and so that's why the grade does come off. We'll be pushing through a little bit more volume but overall very happy with the guidance that we've provided. I hope that gives you a flavour.
spk04: Yes, that's very useful. Following up from that, then the step down in grade, if it's only in December, Q4 will probably be a modest step down versus Q3 and the first half.
spk10: It will be October, November and December. Let me be clear there. All right. Thanks a lot. So, Bryce, we're confident in our guidance and the grade will be a bit less. Thank you.
spk12: Thank you. The next question is from Matthew Fields with Bank of America. Please go ahead.
spk03: Hey, everyone. I hate to keep asking about this, but hopefully it's the last one or two calls where I get to. A lot of fixed-income investors are a little bit confused about your strategy on those front-end bonds. The credit markets are so accommodative to you at this point that the seven-and-a-quarters could be refied 200 basis points less than that. you've got so much cash on the balance sheet. I think, I think more than you've ever had at a, at a billion nine. Um, I think, you know, what, what do you say to fixed income investors who kind of are wondering sort of what you're waiting for to take care of that, of that front end maturity?
spk06: Um, Matt, uh, look, I've said it earlier as well. So we will start addressing those front end maturities now in terms of refinancing, um, You know, we're generating a lot of cash. There's no real liquidity need at this stage. I think what you will see in future is an overall reduction in the size of our bond portfolio. And so in time, we'll add new bonds, probably smaller size, but, you know, just to keep this sort of yield curve current. But, you know, there's no need to rush up and add longer dated non-callable debt at this stage while we're generating good cash flow. So you should see reduction of those near return bonds in the near future.
spk03: So we should think, you know, the billion six of seven and a quarter gets refinanced with, you know, call it 800 of some longer dated bond at a lower coupon.
spk06: No, that's not. Look, I can use cash and facilities that have been available. So I'm not committing to any of that at this stage.
spk03: Okay. And then on that new facility, I see the amortization schedule on the slide deck. That's very helpful. Is it sort of $455 million a year semi-annually? That's correct.
spk06: Yeah, it's semi-annual.
spk03: That's correct. On the rate on that, I know the rate is not disclosed, but can you give us kind of a ballpark you know, estimate or guidance of how the rate on this current facility compares to the rate on the older facility?
spk06: It is a significant improvement compared to the old facility.
spk03: Okay. Okay. Thank you very much and good luck in the rest of the year.
spk12: Thank you. Operator, we'll take one last question. Certainly. Thank you. The last question will be from Orest Waukada with Scotiabank. Please go ahead.
spk16: Thanks for taking the follow-up. I'm just thinking sort of big picture long-term now with First Quantum. I mean, you've gotten the balance sheet well on its way to deleveraging. You've got obviously some brownfield opportunities ahead. But I'm just thinking more longer term when you start thinking about next challenges on the greenfield side. Are you starting to look externally at all for potential deposits as an alternative to either Takataka or Akira? It's not clear to me that either one of those projects makes sense to develop, even in the medium term, for various reasons.
spk10: Sure, Oris. Thanks. Look, I mean, we're excited about Takataka. We put out the 43-101 at the end of last year, and we like the project. It stacks up well, but certainly we need to... We need to have regard to the business case for investment into Argentina and that's where the work's going at the moment. So there is progress. We've put in environmental permit, the infrastructure permit. We need to submit the water permit and so on around that. But there's good work happening there and in conjunction that speaking with the federal government and also the regional government in Salta around the fiscal conditions for investment into Argentina. Hekira is an interesting project for us and certainly reliant on community relations there that's been harder with COVID-19. But I think it's something that we're interested to get more on the ground and deliver on. More broadly, yes, we look at opportunities. They come across our desk regularly. What we look for is projects that we can apply our capabilities and make a difference in terms of value. There's obviously been quite a bit of activity recently and I guess where we would be distinguishing ourselves is around the ability to add value in terms of execution on the project side or operations excellence or on the ESG side in terms of changing the environmental picture there or otherwise. So that's what's important but in terms of that, yeah, the longer term picture for first quantum is continue to build on that growth and Really, that's around adding a third leg in time beyond Zambia and Panama and giving us that broader diversification, a geopolitical diversification.
spk14: Thanks, Tristan. Tristan? Sure. I'd comment that, and Tristan's answered it very well. We know that First Quantum is recognized for its growth and for having the capability to address projects. We needed... particularly through the end of 2022, to consolidate all kinds of reasons, not least that we've always said we would deleverage, but also we had some brownfields work that we wanted to put out of the way. What I can assure you of is that we are looking at opportunities for growth because that's important both to maintaining that capability and exploiting it, and also because I think it's what our shareholders would want. So we have projects that, as Tristan says, Taka Taka is a really good project, and things in Argentina just do need some improvement or appreciation of what it's going to take to attract mining investment, and I'm sure that that's happening. And I think that, to some extent, Akira is a development that we've kept working on and see possibilities with. But we need to, and we do, look beyond that, both in our exploration activities, which are quite fruitful, and also to ensure that we have things we can work on. Their timeframe, as you know, especially if they're big, is one that's quite lengthy. So you have to start working on those things from quite early on, even though the capital expenditure and the like might come later. And we understand that and are mindful of it, and in time you'll see the impact of it.
spk05: Thanks for the call, Philip. Much appreciated.
spk10: Okay. Thanks, Operator. And just to say thanks to everyone for joining today's call. Please enjoy the rest of your day, and we look forward to speaking to you again at our Investor Day in January. Thanks, everyone.
spk12: 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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