Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Quantum Minerals Ltd (FQVLF, Financial) reported a solid operational quarter in Zambia, with both Constantia and Sentinel set up well for the second half of the year.
- The company remains on track to deliver on its copper production guidance and announced commercial production at Enterprise on June 1.
- Copper C1 cash cost declined by $0.29 to average $1.73 per pound, benefiting from higher gold production at Kansanshi and record gold prices.
- The company has initiated a copper hedging program to manage balance sheet strength, covering roughly 40% of production until the end of 2025.
- First Quantum Minerals Ltd (FQVLF) reached a shareholder rights agreement with Chunky Copper, formalizing their relationship and removing uncertainty for stakeholders.
Negative Points
- The company made the difficult decision to place Ravensthorpe on care and maintenance due to high-cost structure, impacting nickel production guidance.
- Copper sales volumes lagged during the quarter by approximately 8,000 tons due to timing of shipments, vessel delays, and port congestion.
- Severe drought conditions in Zambia have led to a 40% reduction in power availability, necessitating costly power imports.
- The situation in Panama remains unresolved, with 121,000 dry metric tonnes of concentrate on-site awaiting approval for shipment.
- The company reported a Q2 net loss attributable to shareholders of $46 million, impacted by further impairment at Ravensthorpe.
Q & A Highlights
Q: Can you provide any color on what you think the President of Panama's comments about potentially restarting the mine to close mean from a restart perspective?
A: The President has made several comments around the mine, emphasizing the need to manage environmental issues through an operating asset. We see the initial steps progressing through the preservation and safe management plan. However, we don't expect a restart this year, and the timing is complex. We are committed to dialogue with the new administration to ensure long-term environmental security.
Q: What's the timing for the environmental audit?
A: We are open to the audit and see it as necessary for the government of Panama. The government is currently assembling a list of international experts, which could take a few weeks. We expect the audit to happen this year, and it will help understand that doing nothing at the mine is not a good outcome for the country.
Q: Can you talk about what you might look at in terms of adding hedges and what you may need to see in the market to add further hedges going forward?
A: Our intent is to replace hedges as they roll off and stay broadly 40% to 50% hedged through to the end of 2025. This ties in with the delivery and ramp-up of the S3 project, after which we move to a stronger phase of cash flow generation and won't need the hedging insurance policy.
Q: Would the approval of the preservation and safe maintenance plan depend on the outcome of the audit?
A: The preservation and safe management plan is needed to deal with immediate environmental requirements, independent of the audit. It was submitted in January to address upfront key environmental matters.
Q: What are the key drivers for the shareholder agreement with Chunky Copper, and what practically changes?
A: The agreement formalizes our relationship, ensuring guardrails around our ongoing relationship, including standstill restrictions and Board support on majority matters. This removes uncertainty for all stakeholders and ensures a stable relationship with Chunky Copper, which is important for securing copper supply.
Q: Could you give a sense of the timing for the sale of Las Cruces and the stake in Zambia?
A: We expect both of these to play out through the second half of this year.
Q: What are the key sensitive areas you expect to come out of the environmental audit?
A: The key issue at Cobre Panama has always been handling of water, particularly through the tailings dam. Our continued strong management of environmental conditions at the site is crucial, and we are prepared to respond quickly to the audit's requirements.
Q: What is the risk of further power curtailment in Zambia, and what actions are being taken to avoid production displacements?
A: The situation is serious due to drought conditions. However, we have secured power through imports and have agreements in place to cover our operational requirements. We believe we can avoid operational interruptions despite the challenges.
Q: Does the Panama Canal Authority's jurisdiction over the watershed affect the environmental audit or negotiations?
A: We are not aware of any direct impact as we are several watersheds away from the Panama Canal. We are committed to being part of a solution for the country and ensuring environmental security.
Q: Should we model cash costs at the higher end of the guidance range given the power cost impact?
A: We have seen both tailwinds and headwinds in various areas. We remain comfortable with our cash cost guidance range and would not point you to the top or bottom end of that range.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
