CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
A lower copper price and a strike at its Kansanshi mine in Zambia has bit into the bottom line at Africa-focused base metals producer First Quantum Minerals.
Reporting its first quarter results, First Quantum (TSX:FM; LON:FQM) said it produced 12% less copper compared to Q1 2011 due to reduced ore grades at Kansanshi and a loss of about 2,700 tonnes of copper during labour-related stoppages at the mine- which saw workers down tools in March. First Quantum sold copper at $3.67/lb this quarter compared to $4.23/lb during the same period last year.
Still, the company managed to increase revenues by $3 million to $708.8 million, and made $1.3 billion in net earnings attributable to shareholders- a more than 5-fold increase over the same period in 2011. The large influx of cash was due to the settlement of claims and sale of it assets in the DRC.
In January Eurasian Natural Resources Corporation PLC agreed to pay First Quantum US$1.25 billion for its Kolwezi tailings project, along with the Frontier and Lonshi mines and related exploration interests.
Over two years ago First Quantum had its largest copper mine, Frontier, nationalized by the DRC government, which accused the company of contract violations. First Quantum was subsequently ordered to shut down the mine after a Congolese Supreme Court ruling that granted prospecting rights, but not mining rights, to state-owned miner Sodimico.
First Quantum then took the Congolese government to international arbitration over the expropriation.
In other highlights of today’s announcement, First Quantum said production from its Ravensthorpe nickel mine in Australia exceeded expectations, and construction at the Kevitsa nickel mine in Finland was completed with first concentrate expected to be poured during the second quarter. An expansion to the oxide processing circuit at Kansanshi to 7.2Mtpa is also on track for Q2.
Read the full news release:
VANCOUVER, BRITISH COLUMBIA–(Marketwire – May 2, 2012) – First Quantum Minerals Ltd. (“First Quantum” or the “Company”) (TSX:FM)(LSE:FQM) today announced its results for the three months ended March 31, 2012. The complete financial statements and management’s discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.
First Quantum’s President, Clive Newall, will host a conference call and live webcast to discuss the results on Thursday, May 3, 2012 at 6:00 am (PST); 9:00 am (EST); 2:00 pm (BST). The call and webcast will be available on www.first-quantum.com and by dialing 416-340-8530 or toll free in North America on 877-440-9795.
First Quantum’s results have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
SUMMARIZED OPERATING AND FINANCIAL RESULTS
---------------------------------------------------------------------------- Q1 2012 Q1 2011 ---------------------------------------------------------------------------- Copper production (tonnes) 65,869 74,888 Copper sales (tonnes) 67,789 70,665 Cash cost of copper production (C1)(1) (per lb) $1.59 $1.15 Realized copper price (per lb) $3.67 $4.23 Nickel production (contained tonnes) 8,573 - Nickel sales (contained tonnes) 5,332 - Cash cost of nickel production (C1)(1) (per lb) $5.69 - Realized nickel price (per lb) $8.85 - Gold production (ounces) 42,495 49,146 Gold sales (ounces) 45,619 45,349 ---------------------------------------------------------------------------- Sales revenues $708.8 $705.2 Gross profit $270.3 $439.5 Net earnings attributable to shareholders of the Company $1,336.9 $206.7 Earnings per share $2.82 $0.48 ---------------------------------------------------------------------------- Comparative earnings(2) $119.0 $206.7 Comparative earnings per share(2) $0.25 $0.48 ---------------------------------------------------------------------------- (1) Cash costs (C1) are not recognized under IFRS. See "Regulatory Disclosures" for further information. (2) Earnings attributable to shareholders of the Company have been adjusted to remove the effect of unusual items to arrive at comparative earnings. Comparative earnings and comparative earnings per share are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. The Company has disclosed these measures to assist with the understanding of results and to provide further financial information about the results to investors. See "Regulatory Disclosures" for a reconciliation of comparative earnings.Ravensthorpe’s first quarter exceeds plan with higher production and lower cost
-- Nickel production from the Ravensthorpe nickel operation exceeded plan with steady state operation of the complete circuit and lower C1 costs as a result of the steady state operation of the sulphuric acid plant and lower input costs.Overall copper production affected by lower ore grades at both mines and work stoppages at Kansanshi
-- Total copper production was 12% lower than Q1 2011 due to reduced oxide ore grades processed at Kansanshi and a loss of approximately 2,700 tonnes of copper during labour-related stoppages in Q1 2012. Guelb Moghrein achieved a quarterly throughput record however production was lower than the prior year period as a result of lower grades processed. -- Total gold production was 14% lower than Q1 2011 due to lower gold grades processed at both Kansanshi and Guelb Moghrein.Year-over-year comparative earnings impacted by lower average copper price and cost inflation on consumables
-- Sales revenues increased to a quarterly record of $708.8 million as a result of the nickel revenue from Ravensthorpe, offset partially by the impact of lower copper prices and sales volumes. -- Cash costs of copper production increased as a result of inflationary cost pressures principally related to sulphuric acid, energy and other consumables. Cash costs were comparable with Q3 and Q4 2011. -- Comparative earnings were lower than Q1 2011 due to lower realized copper prices and sales volumes and higher production costs. This was offset partially by the earnings contribution from Ravensthorpe.Commissioning ramped up at Kevitsa; first production expected in Q2 2012
-- Construction of the Kevitsa project is complete and commissioning activities were ramped up in Q1 2012. The rotation of the mills and full end-to-end testing of the plant is imminent. First concentrate production is expected during Q2 2012 with commercial production shortly thereafter.Development projects progressing
-- Expansion of the oxide processing circuit at Kansanshi to 7.2 million tonnes per annum ("Mtpa") progressed well and is scheduled for completion in Q2 2012. The stage two expansion to 14.5 Mtpa is on track for commissioning in 2013. -- The fifth Kansanshi acid plant is scheduled to be commissioned during Q3 2012 allowing for full utilization of the 7.2 Mtpa oxide circuit capacity. -- Detailed design work on the Kansanshi copper smelter project is underway with long-lead equipment ordered and site construction works scheduled to begin in Q2 2012. -- Finalization of the Sentinel resource estimate was completed in Q1 2012 resulting in a resource of 1,027 million tonnes containing 5.2 million tonnes of copper. -- Design of the Sentinel project, including a nickel concentrator facility for the anticipated development of the Enterprise target, is being advanced. Commitments are in place and full-scale development of the project is expected to commence by mid-2012 subject to the completion of power tariff negotiations.Strong financial position maintained to finance development projects
-- On March 2, 2012 the Company completed the settlement of claims and sale of its Republique democratique du Congo ("RDC") assets for $1,250.0 million. Consideration is comprised of; $750.0 million, received on March 2, 2012, and a $500.0 million promissory note, receivable on March 2, 2015. A gain of $1,217.9 million has been recognized in net earnings which includes the fair value of consideration received, net of transaction costs and the underlying net assets of subsidiaries disposed of. -- Cash generated by operations, before working capital changes, of $176.9 million. -- On January 30, 2012, a five-year $1.0 billion senior term and revolving facility was signed for Kansanshi Mining PLC to enable the execution of planned capital projects at the mine site. The facility is available and undrawn at the date of this report.Operational outlook for 2012
-- Expected production of approximately; 270,000 to 290,000 tonnes of copper, 36,000 to 40,000 tonnes of contained nickel and 170,000 to 190,000 ounces of gold. -- Expected average cash cost of approximately $1.55 per pound of copper. -- Expected average cash cost of approximately; $6.60 to $6.80 per pound of nickel at Ravensthorpe. -- Expected total capital expenditure of approximately; $1.2 to $1.4 billion.OPERATIONS
----------------------------------------------------------------- Kansanshi Copper and Gold Operation Q1 2012 Q1 2011 ----------------------------------------------------------------- Copper production (tonnes) 56,611 64,797 Copper sales (tonnes) 58,545 63,073 Gold production (ounces) 27,158 30,612 Gold sales (ounces) 30,308 31,210 Sulphide ore tonnes milled (000's) 1,433 2,318 Sulphide ore grade processed (%) 1.0 0.9 Sulphide copper recovery (%) 95 94 Mixed ore tonnes milled (000's) 2,562 1,638 Mixed ore grade processed (%) 1.1 1.2 Mixed copper recovery (%) 64 68 Oxide ore tonnes milled (000's) 1,424 1,517 Oxide ore grade processed (%) 2.0 2.4 Oxide copper recovery (%) 85 84 Cash costs (C1) (per lb)(1) $1.54 $1.14 Total costs (C3) (per lb)(1) $1.82 $1.39 Gross profit (USD M) $236.4 $400.5 ----------------------------------------------------------------- (1) C1 and C3 costs are not recognized under IFRS. See "Regulatory Disclosures" for further information.Copper production decreased by 13% from the prior year due to lower grade ore processed and two short-term labour-related work stoppages which resulted in an estimated production loss of 2,700 tonnes. All parties involved in the labour dispute are engaged in a legal process aimed at resolving the differences.
The sulphide and mixed circuits were reconfigured in August 2011 to align plant throughput with ore availability. This configuration remained in place during Q1 2012 resulting in the large offsetting variances in throughput on both circuits in comparison to Q1 2011. Combined throughput was consistent with the prior year despite the downtime caused by the labour-related stoppages.
Sulphide ore grade has improved as a result of continuing mine pit development work aimed at exposing more sulphide ore faces at planned grades. This work is planned to continue as part of the overall mine pit development project with a view to preparing mining operations for the significant concurrent plant throughput expansions in 2012-2014. See “Development activities” for further discussion.
Copper production from the oxide circuit was 21% lower than Q1 2011 as the limited availability of locally-sourced sulphuric acid continued to affect ore grade processed. During the quarter, high-grade, higher acid consuming oxide ore was stockpiled resulting in a 16% lower ore grade processed. The high-grade oxide ore stockpile is expected to be processed when the availability of sulphuric acid improves.
Gold production was lower than Q1 2011 due to lower gold grades processed, offset partially by improved recovery. The continued gold circuit enhancements and improvements have resulted in a higher proportion of gold recovered in dore, which is not subject to the smelter deductions applied to gold recovered in concentrate.
C1 costs increased year-over-year by $0.40/lb of copper. Outweighing the improved gold credit were higher sulphur prices, mining costs, and the impact of lower production. Realization costs were also higher in Q1 2012 due to higher off-take terms.
Gross profit was lower than Q1 2011 as a result of lower realized copper prices, higher operating costs and lower sales volumes.
Outlook
The main areas of focus are on the accelerated pit development and improving the sulphuric acid supply. Available mining areas have increased as planned with several new areas in the main and north-west pits now providing ore. Mining rates are expected to step up significantly as conditions improve with the onset of the dry season. Further improvements are anticipated with additional plant operational efficiency and flexibility afforded by multiple concurrent mining areas.
The current configuration of the sulphide and mixed circuits is planned to be reversed during Q2 2012 in line with increasing availability of sulphide ore. The plant’s flexibility allows for a simple and fast change which will be undertaken at an appropriate juncture to mitigate circuit downtime.
The additional leach and CCD capacity in the oxide process circuit is expected to contribute to maximizing output from available ore resource through improved recovery, as well as providing the capacity to efficiently operate at higher treatment rates, acid supply permitting.
----------------------------------------------------------------- Guelb Moghrein Copper and Gold Operation Q1 2012 Q1 2011 ----------------------------------------------------------------- Copper production (tonnes) 9,258 10,091 Copper sales (tonnes) 9,244 6,031 Gold production (ounces) 15,337 18,534 Gold sales (ounces) 15,311 14,139 Sulphide ore tonnes milled (000's) 797 758 Sulphide ore grade processed (%) 1.3 1.4 Sulphide copper recovery (%) 92 92 Cash costs (C1) (USD per lb)(1) $1.84 $1.26 Total costs (C3) (USD per lb)(1) $2.41 $2.03 Gross profit (USD M) $24.4 $33.3 ----------------------------------------------------------------- (1) C1 and C3 costs are not recognized under IFRS. See "Regulatory Disclosures" for further information.Copper production was 8% lower than Q1 2011 due to lower grade ore processed. This was offset partially by an increase in plant throughput to a quarterly record of 0.8 million tonnes (“Mt”), on account of improved blast fragmentation and mill optimization. Gold production was negatively affected by lower year-over-year ore grades and recoveries. The Q1 2012 copper and gold grades reflect the current ore profile in the pit and are expected to remain at these levels going forward.
Cash cost of production was higher than Q1 2011 due to increased waste stripping and higher costs for labour, fuel and other consumables and additional plant maintenance. The gold credit benefitted from the increased realized gold price in Q1 2012.
Gross profit was lower than Q1 2011 as a result of lower realized copper prices and higher operating costs, offset partially by increased copper sales volumes and a higher realized gold price.
Outlook
The focus in continues to be on the optimization of milling throughput and enhancing recoveries. Flotation performance is being pushed with an aim to achieving higher copper recovery and concentrate grades through improved auto control and reagent changes. An additional mill from the mothballed Bwana Mkubwa copper plant is planned to be installed in Q4 2012 to stabilize milling at targeted throughput rates.
----------------------------------------------------------------- Ravensthorpe Nickel Operation Q1 2012 Q1 2011 ----------------------------------------------------------------- Nickel production (contained tonnes) 8,573 - Nickel sales (contained tonnes) 5,332 - Nickel production (payable tonnes) 6,617 - Nickel sales (payable tonnes) 4,199 - Beneficiated ore tonnes processed (000's) 724 - Beneficiated ore grade processed (%) 1.5 - Nickel recovery (%) 78 - Cash costs (C1) (USD per lb)(1) $5.69 - Cash costs (C3) (USD per lb)(1) $6.93 - Gross profit (USD M) $10.9 - ----------------------------------------------------------------- (1) C1 and C3 costs are not recognized under IFRS. See "Regulatory Disclosures" for further information.The operation continued to ramp up to design capacity in Q1 2012 following the declaration of commercial production onDecember 28, 2011.
Q1 2012 nickel production exceeded plan as a result of steady state operation of the complete circuit. The addition of buffer ponds to the process has greatly improved the overall circuit stability and contributed to the plant’s continuous operation during the quarter. The sulphuric acid plant, which generates power as a bi-product, also benefited from this continuous operation, resulting in lower diesel consumption for power generation.
Nickel cash costs per payable pound were lower than plan as a result of the lower diesel consumption as well as lower sulphur costs from the use of low-cost sulphur inventory for processing. The low-cost sulphur inventory was depleted in the quarter and accounted for a reduction of approximately $0.60/lb in C1 costs.
Outlook
Circuit developments and enhancements will continue with a view to optimizing the complete circuit. Projects are currently planned to further improve the rejects handling section and the hydrometallurgical pumping capability for additional flexibility in the mixed hydroxide product section.
Various options are also being explored to improve the payable nickel content in order to recover increased revenues from sales.
DEVELOPMENT ACTIVITIES
Kevitsa nickel/copper/PGE project, Finland
Construction of the Kevitsa process plant is complete and the focus shifted to commissioning activities. Significant progress has been made with the majority of drives direction tested, conveyors run, services commissioned and water pumping and testing underway. Ore crushing, wet-testing of float cells and general commissioning activities are now well advanced. The rotation of the mills and full end-to-end wet testing of the plant is imminent. First concentrate is expected to be produced during Q2 2012, with commercial production expected shortly thereafter.
At the current approved throughput rate of 5.5 Mtpa, Kevitsa is expected to produce approximately 11,000 tonnes of nickel and 20,000 tonnes of copper annually. In Q4 2011, the Company submitted the environmental assessment and application to increase the plant throughput rate up to a maximum of 10 Mtpa. Approval is expected in the first half of 2013. With the current estimated measured and indicated resource, the increased throughput rate is expected to increase annual production to approximately 15,000 tonnes of nickel and 28,000 to 30,000 tonnes of copper while retaining a mine life in excess of 20 years.
Kansanshi expansions, Zambia
The multi-stage Kansanshi plant upgrade to an annual production capacity of 400,000 tonnes of copper progressed well in Q1 2012. Mechanical construction for the oxide circuit 7.2 Mtpa upgrade is essentially complete; circuit commissioning of the leach and CCD elements commenced in April and is expected to be complete during Q2 2012. The milling circuit configuration changes to increase mill throughput rates to 7.2 Mtpa is planned to be implemented once acid supply is increased through the operation of the fifth acid plant which is currently under construction and on track for commissioning in Q3 2012.
Progress on the stage two oxide capacity expansion to 14.5 Mtpa continued with long lead-time capital items ordered. Civil works have progressed well and mechanical completion is expected in Q2 2013. Acid supply will dictate the rate of oxide treatment until the smelter is commissioned in mid-2014, however the output of the five acid plants as well as the current volume of acid that can be externally sourced will allow for interim treatment rates of approximately 10 Mtpa.
The second phase of the 400,000 tonne annual production capacity expansion project is a proposed expansion of the sulphide treatment facilities by construction of a new section of plant capable of treating 16 Mtpa of sulphide ore. Construction of this new plant is expected to occur in two stages depending on ore grades. Project commitment is expected in mid-2012 following completion of the resource definition drilling program, which is necessary for detailed mine planning.
Copper smelter project, Zambia
Kansanshi’s concentrate is currently treated primarily at smelters in Zambia, however, existing domestic smelting capacity will be insufficient to process the substantial increase in production resulting from the Kansanshi expansion and the Sentinel project. The new copper smelter will be designed to process 1.2 million tonnes of concentrate to produce over 300,000 tonnes of copper metal annually. The smelter is expected to also produce 1.0 million tonnes of sulphuric acid as a by-product at almost zero cost which will benefit Kansanshi by allowing the treatment of high acid-consuming oxide ores and the leaching of some mixed ores. The additional acid is expected to also optimize the expansion of the oxide leach facilities and allow improved recoveries of leachable minerals in material now classified and treated as mixed ore.
Detailed design work on the copper smelter project is underway. Key long-lead equipment packages have been ordered, including the Isasmelt furnace and waste heat boiler, the oxygen plant, the acid plant and the matte settling furnace. Deliveries for these long-lead equipment packages support the overall project schedule for construction completion by mid-2014 followed by commissioning and ramp up. Site construction works for the smelter are scheduled to begin in Q2 2012.
Sentinel project, Zambia
The maiden mineral resource and reserve estimate for the Sentinel copper project was released in March 2012. An estimated measured and indicated resource of 1,027 Mt at 0.51% copper grade, containing 5.2 Mt of copper has been delineated, inclusive of an estimated recoverable proven and probable mineral reserve of 774 Mt at 0.50% copper grade, containing 3.9 Mt of copper. The life of mine strip ratio is anticipated to be 2.2:1 and the estimated mine life is in excess of 15 years.
The project is expected to produce up to 280,000 to 300,000 tonnes of copper in concentrate annually.
Detailed design works are in progress and commitments are in place for the longest-lead mining, crushing and milling equipment. Initial site construction works have been completed to provide access roads, an airstrip and a 300-person construction camp. It is expected that full-scale development of the project will commence by mid-2012 subject to the completion of power tariff negotiations. Project capital costs are estimated at $1.7 billion.
Exploration
Exploration programs were active in most districts during the period, however drilling was suspended for the worst of the seasonal rains in January-February at Enterprise and Haquira.
Enterprise
At the Enterprise nickel target, drilling was suspended in January and February due to seasonal rains but recommenced in early March. A resource definition program of approximately 30,000 metres utilizing nine rigs is planned to be completed by June. Metallurgical testing and preliminary design scoping are currently in progress. Drilling on extensions of Enterprise and other regional targets is planned later in the year after the end of the rain season.
Kansanshi
At Kansanshi, 18 diamond drill rigs continued activity on the project evenly divided between incremental resource/reserve additions immediately around the existing pits and the district exploration program. These programs are designed to provide enhanced definition of longer term oxide and sulphide resource potential as well as to test the ultimate extents of the mineral system.
Drill programs totalling approximately 140,000 metres of diamond core are currently in progress and include resource development on the Southeast Dome prospect as well as an extensive drill grid surrounding the Northwest pit and Main pit. Encouraging intercepts continue to be reported from holes along the centre and western side of the broad Kansanshi Dome structure including some significant veins well beyond the current resource envelope. However, given the relatively sparse drill spacing, the density of veining cannot be currently estimated. A further phase of drilling is planned during the year to convert these areas of potential into a classified resource.
Finland
At Kevitsa, winter drilling programs were focused on the southern side of the Kevitsa Intrusion. A program of shallow scout drilling and several core holes are in progress that will test a wide spread area of copper anomalism defined in base of till sampling.
An extensive winter drilling program using shallow ‘scout’ drills and diamond core drills is in progress to test the large suite of magnetic and geochemical targets defined in the area north and west of Kevitsa. Several holes have intersected the preferred target ultramafic intrusions with some evidence for magmatic sulphides. However, delays in granting of exploration permits together with changes to the access permissions in State Forests have combined to slow down exploration drilling in many areas.
Peru
Exploration drilling at Haquira was suspended in January during the rainy season. Further significant drill programs planned for Haquira, Cristo de los Andes and other targets are awaiting the granting of environmental permits and community access permissions.
Several new regional prospects are under evaluation in southern Peru with applications for new tenure and discussions for joint venture participation underway.
West Africa
Reconnaissance exploration including mapping and geochemical sampling continued on mafic hosted Ni-Cu-PGE targets in Cote d’Ivoire, Burkina Faso and Mali as part of a strategic alliance with Newgenco. Permit applications are pending for new projects in Cote d’Ivoire and Burkina Faso.
SALES REVENUES
--------------------------------------------------------------------------- Sales revenues (after realization charges) Q1 2012 Q1 2011 --------------------------------------------------------------------------- Kansanshi - copper 441.8 563.2 - gold 44.8 34.1 Guelb Moghrein - copper 56.4 49.0 - gold 23.7 19.6 Ravensthorpe - nickel 74.3 - - cobalt 2.1 - Corporate 65.7 25.4 --------------------------------------------------------------------------- Sales revenues from continuing operations 708.8 691.3 --------------------------------------------------------------------------- Frontier - copper - 13.7 Bwana - copper - 0.2 --------------------------------------------------------------------------- Sales revenues 708.8 705.2 ---------------------------------------------------------------------------Q1 2012 total sales revenues from continuing operations were 3% higher than the prior year period due to the contribution of $76.4 million of revenues from Ravensthorpe and higher corporate revenues, offset by a 13% lower average copper price and lower copper sales volumes.
The Company’s revenues are recognized at provisional prices when title passes to the customer. Subsequent adjustments for final pricing are materially offset by derivative adjustments and shown on a net basis in cost of sales (see “Hedging Program” for further discussion).
---------------------------------------------------------------------------- COPPER SELLING PRICE USD/lb USD/lb ---------------------------------------------------------------------------- Average LME cash price $3.77 $4.38 Realized copper price 3.67 4.23 Treatment charges/refining charges ("TC/RC") and freight charges (0.34) (0.22) ---------------------------------------------------------------------------- Net realized copper price $3.33 $4.01 ----------------------------------------------------------------------------The LME copper price averaged $3.77/lb for the quarter, a decrease of $0.61/lb from the average for Q1 2011. Following a rally in January, the price traded to highs at the end of February of $3.92/lb then retreated in March following an announcement that China was lowering its growth prospects to 7.5%. These reduced growth prospects continue to temper copper’s ascent short-term.
The main driver of the copper market at present is the imbalance in the location of physical inventories which has led to tightness in the spreads. Premiums are higher in those locations where stocks are being consistently drawn down or tightly controlled. As prices swing in line with the macroeconomic news flows, an uptick in demand from the United Statesand a better than expected start to the year in Europe, have helped to support the LME price.
------------------------------------------------------------------- NICKEL SELLING PRICE USD/lb USD/lb ------------------------------------------------------------------- Average LME cash price $8.91 $12.20 Realized nickel price per payable pound 8.85 - TC/RC and freight charges (1.04) - ------------------------------------------------------------------- Net realized nickel price per payable pound $7.81 - -------------------------------------------------------------------The LME nickel price averaged $8.91/lb for the quarter, a decrease of $3.29 from the average for Q1 2011. The nickel price rallied to a peak on February 8, 2012 of $9.90/lb before steadily declining over the rest of the quarter to a close of $7.91/lb. Both the rally and the subsequent decline appear to be the result of trading in the financial sector rather than being driven by the fundamentals of supply and demand.
LME nickel stocks, after increasing through January and February, remained steady at approximately 99,000 tonnes whereas demand from stainless steel, though still better than in Q4 2011, has not picked up significantly since January and may now moderate in the face of lower surcharges announced for April. SUMMARY FINANCIAL RESULTS --------------------------------------------------------------------- Q1 2012 Q1 2011 --------------------------------------------------------------------- Gross profit Kansanshi 236.4 400.5 Guelb Moghrein 24.4 33.3 Ravensthorpe 10.9 - Other (1.4) 4.8 --------------------------------------------------------------------- Total gross profit 270.3 439.5 --------------------------------------------------------------------- Exploration (12.9) (19.4) General and administrative (17.4) (18.6) Other income 0.3 3.5 Net finance costs (0.8) (3.5) Gain on disposal of residual claim and assets 1,217.9 - Income taxes (96.4) (148.3) --------------------------------------------------------------------- Net earnings for the period 1,361.0 253.2 --------------------------------------------------------------------- Net earnings for the period attributable to: Non-controlling interests 24.1 46.5 Shareholders of the Company 1,336.9 206.7 --------------------------------------------------------------------- Comparative earnings 119.0 206.7 --------------------------------------------------------------------- Earnings per share (USD per share) basic $2.82 $0.48 diluted $2.81 $0.44 --------------------------------------------------------------------- Comparative earnings per share $0.25 $0.48 ---------------------------------------------------------------------Exploration expense decreased from Q1 2011 as the prior year period included $14.3 million related to the significant drilling program at Sentinel. Q1 2012 exploration expenses comprise;
-- $2.5 million at Haquira, -- $2.5 million at Enterprise -- $1.9 million at Kevitsa -- $1.8 million at KansanshiGeneral and administrative costs decreased from Q1 2011 due to reduced legal costs related to RDC matters. This was offset by an increase in personnel costs driven by an increased complement of skilled employees to develop and manage the Company’s expanded pipeline of projects.
On January 5, 2012 the Company reached an agreement with ENRC to dispose of its residual claims and assets in respect of the Kolwezi Tailings project, and the Frontier and Lonshi mines and related exploration interests, all located in theKatanga Province of the RDC and to settle all current legal matters relating to these interests for a total consideration of$1.25 billion. The transaction was completed on March 2, 2012. The total consideration was comprised of $750.0 million, paid on March 2, 2012, together with a deferred consideration of $500.0 million in the form of a 3-year Promissory Note with an interest coupon of 3% payable annually in arrears. Under the terms of the acquisition, ENRC acquired, with certain limited exceptions, all of First Quantum’s assets and property either physically located within the RDC or relating to the operations formerly carried out by First Quantum and its subsidiaries in the RDC. In connection with the transaction, First Quantum, ENRC, the RDC Government, International Finance Corporation and Industrial Development Corporation have also settled all disputes relating to the companies being sold and their assets and operations in the RDC and each of First Quantum, ENRC, the RDC Government, International Finance Corporation and Industrial Development Corporation have released one another in respect of all claims and judgments relating to the foregoing or to any other matter arising in the RDC on or before the date of closing.
The $1,217.9 million gain recognized on the disposal includes the fair value of proceeds received, net of transaction costs and the underlying net liabilities of subsidiaries disposed of.
The Q1 2012 effective income tax rate was 7% of earnings before taxes. This was significantly lower than the Company’s expected group tax rate as the settlement of RDC claims and sale of assets has not given rise to a tax expense. Additionally, a deferred tax recovery has been recorded at Guelb Moghrein in relation to accumulated capital allowances recognized in Q1 2012. Following the completion of its tax holiday in Mauritania on February 19, 2012, Guelb Moghrein is now subject to Mauritanian income taxes at a rate of 25%.
LIQUIDITY AND CAPITAL RESOURCES
------------------------------------------------------------------------ Q1 2012 Q1 2011 ------------------------------------------------------------------------ Cash flows from operating activities - before changes in working capital 176.9 265.3 - after changes in working capital 138.5 379.3 Cash flows from financing activities (17.7) (52.8) Cash flows from investing activities Payments for property, plant and equipment (276.9) (189.3) Proceeds from settlement of RDC claims and sale of assets 736.5 4.3 Other investing activities (5.9) - ------------------------------------------------------------------------ Net cash flows 574.5 141.5 Cash balance 1,026.6 1,486.4 ------------------------------------------------------------------------ Cash flows from operating activities per share(1) before working capital (USD per share) $0.37 $0.62 after working capital (USD per share) $0.29 $0.88 ------------------------------------------------------------------------ (1) Cash flows per share is not recognized under IFRS. See "Regulatory Disclosures" for further information.Q1 2012 operating cash flows before changes in working capital were lower than Q1 2011 as a result of lower net earnings in the current period. Total working capital changes in the quarter of $38.4 million included an increase in product and consumable inventory values of $54.0 million. Q1 2011 working capital changes resulted in an increase in cash of $114.0 million.
Cash flows from financing activities comprise primarily of net repayments of debt in Q1 2012 as well as Q1 2011.
Capital expenditure for property, plant and equipment was $276.9 million in Q1 2012 comprising primarily of;
-- $98.5 million at Kansanshi for the oxide circuit expansion, and mine pit development costs, -- $59.7 million at Kevitsa for project development, -- $65.4 million at Sentinel, including deposits, for long-lead plant and mine equipmentProceeds from settlement of RDC claims and sale of assets represents the net cash proceeds received during Q1 2012. The $500.0 million promissory note is receivable on March 2, 2015.
As at March 31, 2012, the Company had the following contractual obligations outstanding:
---------------------------------------------------------------------------- less than 1 1 - 2 2 - 3 3 - 4 4 - 5 There- Total year years years years years after ---------------------------------------------------------------------------- Debt 46.7 31.5 5.2 5.0 5.0 - - Accounts payable and current taxes 622.5 622.5 - - - - - Deferred payments 5.8 0.4 0.2 - - - 5.1 Finance leases 28.6 2.0 2.1 2.3 2.4 2.6 17.1 Commitments 394.6 394.6 - - - - - Restoration provisions 256.6 1.3 1.3 1.3 1.3 1.3 250.1 ----------------------------------------------------------------------------Total commitments of $394.6 million comprise primarily of capital expenditure for property, plant and equipment related to the development of Kevitsa and Sentinel, upgrades at Kansanshi and other projects.
The significant capital expansion and development program is expected to be funded using available cash and debt facilities. Currently the $250.0 million Kevitsa debt facility and $1.0 billion Kansanshi senior term and revolving facility are undrawn and available for drawdown. The Company’s working capital, together with future cash flows from operations and available debt facilities is expected to be sufficient to fund the Company’s committed and planned capital expansion and development programs.
Hedging program
As at March 31, 2012, the following derivative positions were outstanding:
---------------------------------------------------------------------------- Maturity 2012 March 31, 2012 December 31, 2011 ---------------------------------------------------------------------------- Asset Liability Asset Liability ---------------------------------------------------------------------------- Foreign currency USD/EUR extendible collar - Principal EUR91.0 0.3 - - (0.2) Strike price 1.250-1.330 ---------------------------------------------------------------------------- Copper (a) Futures sales contracts over quotation period (tonnes) 41,357 1.7 (14.2) 1.9 (5.1) Average price ($/tonne) $8,325 Embedded derivative hedged by future sales contracts (tonnes) 42,306 - - - - Average price ($/tonne) $8,480 ---------------------------------------------------------------------------- Net provisional copper exposure (tonnes) 949 ---------------------------------------------------------------------------- Gold (a) Futures sales contracts over quotation period (ounces) 16,117 0.8 - 3.2 - Average price ($/ounce) $1,701 Embedded derivative hedged by future sales contracts (ounces) 16,160 - - - - Average price ($/tonne) $1,662 ---------------------------------------------------------------------------- Net provisional gold exposure (ounces) 43 ---------------------------------------------------------------------------- Nickel (a) Futures sales contracts over quotation period (tonnes) 1,809 2.6 - - (0.7) Average price ($/tonne) $19,029 Embedded derivative hedged by future sales contracts (tonnes) 1,407 - - - - Average price ($/tonne) $17,430 ---------------------------------------------------------------------------- Net provisional nickel exposure (tonnes) (402) ---------------------------------------------------------------------------- Other Embedded derivative - (2.2) - (2.4) ---------------------------------------------------------------------------- 5.4 (16.4) 5.1 (8.4) ----------------------------------------------------------------------------a) Provisional pricing and derivative contracts
A portion of the Company’s metal sales is sold on a provisional pricing basis whereby sales are recognized at prevailing metal prices when title transfers to the customer and final pricing is not determined until a subsequent date, typically two months later. The difference between final price and provisional invoice price is recognized in net earnings. In order to mitigate the impact of these adjustments on net earnings, the Company enters into derivative contracts to directly offset the pricing exposure on the provisionally priced contracts. The provisional pricing gains or losses and offsetting derivative gains or losses are both recognized as a component of cost of sales. Derivative assets are presented in other assets and derivative liabilities are presented in other liabilities with the exception of copper, gold and nickel embedded derivatives which are included within accounts receivable.
As at March 31, 2012, substantially all of the Company’s metal sales contracts subject to pricing adjustments were hedged by offsetting derivative contracts.
EQUITY
At the date of this report, the Company has 476,310,282 shares outstanding. There were no changes in common shares outstanding during Q1 2012.
OTHER ITEMS
Zambian taxation
The Government of the Republic of Zambia (“GRZ”) announced in January 2008 a number of proposed changes to the tax regime in the country in relation to mining companies. The Company, through its Zambian subsidiaries, is party to Development Agreements with the GRZ for its existing operations which provide an express right to full and fair compensation for any loss, damages or costs (including interest) incurred by the Company by reason of the government’s failure to comply with the tax stability guarantees set out in the Development Agreements and rights of international arbitration in the event of any dispute. The Company’s Zambian subsidiaries have complied with the GRZ’s new tax regime without prejudice to its rights under the Development Agreement.
Following the change of government in 2011, the first Budget of the new government introduced a further increase in the mineral royalty tax from 3% to 6%, effective April 2012, in breach of the Development Agreements.
Until resolved differently with the GRZ, the Company is recognizing and paying taxes in excess of the Development Agreement, resulting in an effective tax rate of approximately 43% at Kansanshi.
On Behalf of the Board of Directors of First Quantum Minerals Ltd.
G. Clive Newall, President
12g3-2b-82-4461
Listed in Standard and Poor’s
For further information visit our web site at www.first-quantum.com.
Forward-Looking Statements
Certain statements and information herein, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. These forward-looking statements are principally included in the Development activities section and are also disclosed in other sections of the document. The forward looking statements include estimates, forecasts and statements as to the Company’s expectations of production and sales volumes, expected timing of completion of project development at Kansanshi, Kevitsa and Sentinel, the impact of ore grades on future production, the potential of production disruptions, capital expenditure and mine production costs, the outcome of mine permitting, the outcome of legal proceedings which involve the Company in the RDC and other countries, information with respect to the future price of copper, gold, cobalt, nickel, PGE, and sulphuric acid, estimated mineral reserves and mineral resources, our exploration and development program, estimated future expenses, exploration and development capital requirements, the Company’s hedging policy, and our goals and strategies. Often, but not always, forward-looking statements or information can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.
With respect to forward-looking statements and information contained herein, we have made numerous assumptions including among other things, assumptions about the price of copper, gold, nickel, PGE, cobalt and sulphuric acid, anticipated costs and expenditures and our ability to achieve our goals. Although our management believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that a forward-looking statement or information herein will prove to be accurate. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. These factors include, but are not limited to, future production volumes and costs, costs for inputs such as oil, power and sulphur, political stability in Zambia, Peru, Mauritania, Finland and Australia, adverse weather conditions in Zambia, Finland andMauritania, labour disruptions, mechanical failures, water supply, procurement and delivery of parts and supplies to the operations, the production of off-spec material.
See our Annual Information Form for additional information on risks, uncertainties and other factors relating to the forward-looking statements and information. Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actual results, performances, achievements or events not to be anticipated, estimated or intended. Also, many of these factors are beyond our control. Accordingly, readers should not place undue reliance on forward-looking statements or information. We undertake no obligation to reissue or update forward-looking statements or information as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements and information made herein are qualified by this cautionary statement.
First Quantum Minerals Ltd. Consolidated Statements of Earnings Unaudited (expressed in millions of U.S. dollars, except where indicated and share and per share amounts) ---------------------------------------------------------------------------- Three months ended March 31 Note 2012 2011 ---------------------------------------------------------------------------- Sales revenues 9 708.8 705.2 Cost of sales 10 (438.5) (265.7) ---------------------------------------------------------------------------- Gross profit 270.3 439.5 Exploration (12.9) (19.4) General and administrative (17.4) (18.6) Settlement of RDC claims and sale of assets 11 1,217.9 - Other income 0.3 3.5 ---------------------------------------------------------------------------- Operating profit 1,458.2 405.0 Finance income 1.4 1.8 Finance costs 12 (2.2) (5.3) ---------------------------------------------------------------------------- Earnings before income taxes 1,457.4 401.5 Income taxes (96.4) (148.3) ---------------------------------------------------------------------------- Net earnings for the period 1,361.0 253.2 ---------------------------------------------------------------------------- Net earnings for the period attributable to: Non-controlling interests 24.1 46.5 Shareholders of the Company 1,336.9 206.7 ---------------------------------------------------------------------------- Earnings per common share Basic 8b 2.82 0.48 Diluted 8b 2.81 0.43 Weighted average shares outstanding (000's) Basic 8b 474,069 428,757 Diluted 8b 476,310 475,213 Total shares issued and outstanding (000's) 8a 476,310 430,895 ---------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. For a copy of the notes visit the Company's website at http://www.first-quantum.com/ First Quantum Minerals Ltd. Consolidated Statements of Comprehensive Income Unaudited (expressed in millions of U.S. dollars) ---------------------------------------------------------------------------- Three months ended March 31 2012 2011 ---------------------------------------------------------------------------- Net earnings for the period 1,361.0 253.2 Other comprehensive income (loss) Unrealized gain (loss) on available-for-sale investments (2.0) 0.4 Tax on unrealized gain (loss) on available-for-sale investments 0.4 (0.1) ---------------------------------------------------------------------------- Comprehensive income for the period 1,359.4 253.5 ---------------------------------------------------------------------------- Total comprehensive income for the period attributable to: Non-controlling interests 24.1 46.5 Shareholders of the Company 1,335.3 207.0 ---------------------------------------------------------------------------- 1,359.4 253.5 ---------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. For a copy of the notes visit the Company's website at http://www.first-quantum.com/ First Quantum Minerals Ltd. Consolidated Statements of Cash Flows Unaudited (expressed in millions of U.S. dollars) ---------------------------------------------------------------------------- Three months ended March 31 2012 2011 ------------------------ Cash flows from operating activities Net earnings for the period 1,361.0 253.2 Items not affecting cash Depletion and amortization 40.7 20.6 Unrealized foreign exchange loss 1.7 2.2 Deferred income tax (13.7) (25.0) Share-based compensation expense 3.1 2.0 Net finance costs 0.8 5.4 Settlement of RDC claims and sale of assets (1,217.9) - Other 1.2 6.9 ---------------------------------------------------------------------------- 176.9 265.3 Change in non-cash operating working capital (Increase) decrease in trade, other receivables and derivatives (38.0) 73.9 Decrease in inventories (54.0) (53.8) Increase (decrease) in trade and other payables 38.1 (4.7) Increase in current taxes payable 15.5 98.6 ---------------------------------------------------------------------------- 138.5 379.3 ---------------------------------------------------------------------------- Cash flows from financing activities Repayments of debt (16.7) (87.4) - Proceeds on issuance of common shares - 0.2 Restricted cash - 40.3 Finance lease payments (0.9) (0.9) Interest paid (0.1) (5.0) ---------------------------------------------------------------------------- (17.7) (52.8) ---------------------------------------------------------------------------- Cash flows from investing activities Purchase of property, plant and equipment (242.9) (189.3) Deposits on property, plant and equipment (34.0) - Acquisition of investment (6.5) - Interest received 0.6 - Proceeds from settlement of RDC claims and sale of assets 736.5 4.3 ---------------------------------------------------------------------------- 453.7 (185.0) ---------------------------------------------------------------------------- Increase in cash and cash equivalents 574.5 141.5 Cash and cash equivalents - beginning of period 452.1 1,344.9 ---------------------------------------------------------------------------- Cash and cash equivalents - end of period 1,026.6 1,486.4 ---------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. For a copy of the notes visit the Company's website at http://www.first-quantum.com/ First Quantum Minerals Ltd. Consolidated Balance Sheets Unaudited (expressed in millions of U.S. dollars) ---------------------------------------------------------------------------- March December 31, 31, Note 2012 2011 ---------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents 1,026.6 452.1 Trade and other receivables 290.5 238.1 Inventories 3 699.1 649.9 Current portion of other assets 5 29.1 34.0 ---------------------------------------------------------------------------- 2,045.3 1,374.1 Investments 22.3 18.0 Property, plant and equipment 4 3,982.0 3,824.4 Promissory note receivable 11 475.0 - Other assets 5 134.1 81.5 ---------------------------------------------------------------------------- Total assets 6,658.7 5,298.0 ---------------------------------------------------------------------------- Liabilities Current liabilities Trade and other payables 317.6 273.4 Current taxes payable 304.9 289.4 Current portion of debt 6 31.5 48.1 Current portion of provisions and other liabilities 19.3 11.0 ---------------------------------------------------------------------------- 673.3 621.9 Debt 6 15.2 14.8 Provisions and other liabilities 288.0 286.4 Deferred income tax liabilities 212.5 206.4 ---------------------------------------------------------------------------- Total liabilities 1,189.0 1,129.5 ---------------------------------------------------------------------------- Equity Share capital 1,953.7 1,950.6 Retained earnings 2,999.3 1,723.8 Accumulated other comprehensive income (0.4) 1.2 ---------------------------------------------------------------------------- Total equity attributable to shareholders of the Company 4,952.6 3,675.6 Non-controlling interests 517.1 492.9 ---------------------------------------------------------------------------- Total equity 5,469.7 4,168.5 ---------------------------------------------------------------------------- Total liabilities and equity 6,658.7 5,298.0 ---------------------------------------------------------------------------- Commitments 15 ---------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. For a copy of the notes visit the Company's website at http://www.first-quantum.com/ First Quantum Minerals Ltd. Consolidated Statements of Changes in Shareholders' Equity Unaudited (expressed in millions of U.S. dollars) ---------------------------------------------------------------------------- Three months ended March 31 ------------------------ 2012 2011 ------------------------ Share capital Common shares Balance - beginning of period 2,003.8 1,479.3 Shares issued and share options exercised - 0.2 ---------------------------------------------------------------------------- Balance - end of period 2,003.8 1,479.5 ---------------------------------------------------------------------------- Equity portion of convertible bonds Balance - beginning and end of period - 48.3 ---------------------------------------------------------------------------- Treasury shares Balance - beginning of period (68.0) (57.0) Restricted and performance stock units vested 0.2 0.1 ---------------------------------------------------------------------------- Balance - end of period (67.8) (56.9) ---------------------------------------------------------------------------- Contributed surplus Balance - beginning of period 14.8 15.9 Share-based compensation expense for the period 3.1 2.0 Transfers upon exercise of share options - (0.1) Restricted and performance stock units vested (0.2) (0.1) ---------------------------------------------------------------------------- Balance - end of period 17.7 17.7 ---------------------------------------------------------------------------- Total share capital 1,953.7 1,488.6 ---------------------------------------------------------------------------- Retained earnings Balance - beginning of period 1,723.8 1,292.1 Earnings for the period attributable to shareholders of the Company 1,336.9 206.7 Dividends (61.4) (53.5) ---------------------------------------------------------------------------- Balance - end of period 2,999.3 1,445.3 ---------------------------------------------------------------------------- Accumulated other comprehensive income Balance - beginning of period 1.2 1.0 Other comprehensive income (loss) for the period (1.6) 0.3 ---------------------------------------------------------------------------- Balance - end of period (0.4) 1.3 ---------------------------------------------------------------------------- Non-controlling interests Balance - beginning of period 492.9 377.8 Earnings attributable to non-controlling interests 24.1 46.5 Disposal of subsidiaries 0.1 - Dividends - (7.5) ---------------------------------------------------------------------------- Balance - end of period 517.1 416.8 ---------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. For a copy of the notes visit the Company's website at http://www.first-quantum.com/FOR FURTHER INFORMATION PLEASE CONTACT: First Quantum Minerals Ltd. - North American Contact Sharon Loung Director, Investor Relations (647) 346-3934 or Toll Free: 1 (888) 688-6577 Fax: (604) 688-3818(FAX) [email protected] First Quantum Minerals Ltd. - United Kingdom Contact Clive Newall President +44 140 327 3484 Fax: +44 140 327 3494(FAX) [email protected] www.first-quantum.com Maitland - United Kingdom Contact Brian Cattell/James Devas +44 207 379 5151 Fax: +44 20 7379 6161(FAX) [email protected] [email protected] Source: First Quantum Minerals Ltd.
