First Quantum Minerals Reports Operational and Financial Results for the Three Months Ended March 31, 2013
VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 05/06/13 -- (In United States dollars, tabular amounts in millions, except where noted)
First Quantum Minerals Ltd. ("First Quantum" or the "Company") (TSX: FM)(LSE: FQM) today announced its results for the three months ended March 31, 2013. 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 Tuesday, May 7, 2013 at 5:00 am (PDT); 8:00 am (EDT); 1:00 pm (BST). The call and webcast will be available on www.first-quantum.com and by dialing 416-340-2218 or toll free in North America on 866-226-1793.
First Quantum's results have been prepared in accordance with International Financial Reporting Standards ("IFRS").
SUMMARIZED OPERATING AND FINANCIAL RESULTS(1)
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(USD millions unless otherwise noted) Q1 2013 Q4 2012 Q1 2012
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Copper production (tonnes) 79,308 84,918 65,869
Copper sales (tonnes) 89,109 77,570 67,789
Cash cost of copper production
(C1)(2) (per lb) $1.52 $1.42 $1.59
Realized copper price (per lb) $3.48 $3.46 $3.67
Nickel production (contained tonnes) 11,072 10,096 8,573
Nickel sales (contained tonnes) 11,048 8,081 5,332
Cash cost of nickel production
(C1)(2) (per lb) $5.34 $6.12 $5.69
Realized nickel price (per payable lb) $7.80 $7.74 $8.85
Gold production (ounces) 55,944 64,383 42,495
Gold sales (ounces) 58,791 61,350 45,619
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Sales revenues 901.2 774.6 728.7
Gross profit 310.2 295.0 270.3
EBITDA(2) 310.4 309.7 1,498.9
Net earnings attributable to
shareholders of the Company 112.4 186.7 1,336.9
Earnings per share $0.23 $0.39 $2.82
Diluted earnings per share $0.23 $0.39 $2.81
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Comparative earnings(3) 153.8 186.7 119.0
Comparative earnings per share(3) $0.32 $0.39 $0.25
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(1) Results of operations and financial results in this section include the
results of the Cayeli mine (100%), the Las Cruces mine (100%), and the
Pyhasalmi mine (100%) from March 22, 2013, the date of acquisition. The
operational review section below also includes historical results for the
full quarter for the acquired operations without adjustment for acquisition
accounting. The non-controlling interest of 14.5% of net earnings relating
to shareholders of Inmet at March 31, 2013 are excluded from the net
earnings attributable to the shareholders of the Company.
(2) Cash costs (C1) and earnings before interest, tax, depreciation and
amortization ("EBITDA") are not recognized under IFRS. See "Regulatory
Disclosures" for further information.
(3) 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.
Production
Copper production 20% higher than Q1 2012
-- Copper production of 79,308 tonnes increased by 13,439 tonnes over Q1
2012 primarily due to increased throughput at Kansanshi. Included in
this increase are 3,181 tonnes being the contribution from Kevitsa and
3,305 tonnes contributed by the addition of Las Cruces, Cayeli and
Pyhasalmi after the successful acquisition of Inmet Mining Corporation
("Inmet").
Nickel production of 11,072 tonnes after record quarterly production from Ravensthorpe
-- Ravensthorpe production benefited from higher grades and Kevitsa saw
improved recovery and throughput.
Gold production 32% higher than Q1 2012
-- Gold circuit enhancements at Kansanshi and Guelb continue to yield
results with higher recoveries.
Copper production cash costs decreased by 4% from Q1 2012
-- Average copper production cash cost of $1.52 per lb is lower than Q1
2012 reflecting lower processing costs and higher by-product credits,
slightly offset by an increase in mining costs.
Sales revenues 24% higher than Q1 2012
-- Sales revenues rose to $901.2 million, an increase of $172.5 million
over Q1 2012. This is primarily due to increased copper and nickel sales
volumes, partially offset by lower average realized prices. This
increase includes $39.8 million from Kevitsa and $29.8 million from Las
Cruces, Cayeli and Pyhasalmi in the 10 days since the date of
acquisition.
Gross profit 15% higher than Q1 2012
-- Gross profit of $310.2 million was $39.9 million higher than the prior
year quarter with higher sales volumes and by-product credits more than
offsetting the impact of lower average copper and nickel prices and
higher depreciation. There was also $3.4 million contribution for the 10
days post-acquisition results of the newly acquired operations.
-- Net earnings attributable to shareholders of the Company include $41.4
million of non-recurring acquisition and other costs.
-- The effective tax rate of 41.6% for the quarter is in line with
guidance.
Acquisition of Inmet Mining Corporation
-- On March 22, 2013, the Company acquired 85.5% of the diluted shares of
Inmet for total cash and share consideration totalling $4.3 billion.
Subsequent to the end of the period, a further 7.2% of the outstanding
shares were acquired by the Company on April 2, 2013, and the remaining
7.3% on April 30, 2013.
-- As a result of the transaction, shares in First Quantum immediately
following the initial acquisition are owned approximately 83% by
previous First Quantum shareholders, and approximately 17% by previous
Inmet shareholders. Share options, performance share units, long-term
incentive plan units and deferred share units in Inmet have been
extinguished and not replaced.
-- The acquisition was funded through a $2.5 billion new debt facility. On
March 20, 2013, a wholly owned subsidiary of the Company entered into a
syndicated debt facility arrangement for $2.5 billion incurring interest
at LIBOR plus 2.75%.
-- Through the acquisition, First Quantum has acquired 100% ownership of
three operating mines and 80% ownership in a development project. The
Las Cruces mine in Spain is an open pit mine producing copper cathode,
the Cayeli mine in Turkey and the Pyhasalmi mine in Finland are
underground mines producing copper and zinc concentrates. The Cobre
Panama development project is located in Panama and on successful
commissioning will produce copper and molybdenum concentrates. Following
the acquisition, operating guidance has been updated to include
production results from Cayeli, Las Cruces, Pyhasalmi, as well as
expected capital expenditures at these sites for March 22 to December
31, 2013.
-- The financial position of Inmet as at March 31, 2013 has been
consolidated with the results of the Company. The financial performance
of Inmet for the 10-day period ending March 31, 2013 has been included
with the results of the Company for the three months ended March 31,
2013.
Development projects remain on track
-- Expansions to the oxide and sulphide circuits at Kansanshi continue
according to plan. The oxide expansion to 14.5 million tonnes per annum
("Mtpa") continued in the quarter, as well as design work on the
sulphide treatment facility to 25 Mtpa.
-- The Kansanshi smelter project remains on schedule for construction
completion in mid-2014 followed by commissioning and ramp up.
-- Construction of the Sentinel project is on schedule, as is the
engineering design and geotechnical investigation at the Enterprise
project.
-- Following the successful acquisition of Inmet, specific current
construction activities continue at Cobre Panama while the Company
undertakes a detailed review of the project.
Operational outlook for 2013
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Nickel
Copper (000's Gold Zinc
(000's contained (000's (000's
tonnes) tonnes) ounces) tonnes)
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Group 384 - 416 40 - 45 193 - 213 41 - 48
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Kansanshi 250 - 270 - 126 - 140 -
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Guelb Moghrein 37 - 41 - 56 - 61 -
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Ravensthorpe - 31 - 35 - -
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Kevitsa 15 - 16 9 - 10 11 - 12 -
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Cayeli(1) 21 - 24 - - 27 - 31
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Las Cruces(1) 53 - 56 - - -
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Pyhasalmi(1) 8 - 9 - - 14 - 17
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(1) The production guidance shown above for Cayeli, Las Cruces and Pyhasalmi
represents guidance from acquisition date of March 22, 2013 until the end of
the year. Pro-forma full year guidance for copper production remains at
28,000 to 31,000 for Cayeli, 69,000 to 72,000 tonnes at Las Cruces and
12,000 to 13,000 tonnes at Pyhasalmi. Pro-forma full year guidance for zinc
production remains at 36,000 to 40,000 tonnes for Cayeli and 20,000 to
23,000 tonnes at Pyhasalmi.
-- Guidance for combined average copper production cash cost for Kansanshi,
Guelb and Kevitsa remains unchanged at $1.50 to $1.60 per lb of copper.
Incorporating acquired operations of Cayeli, Las Cruces and Pyhasalmi
for the nine months following acquisition reduces guidance on Group
average copper production cash cost for 2013 to approximately $1.40 to
$1.50 per lb of copper.
-- Expected average nickel production cash cost per lb remains at $5.50 to
$6.00.
-- Expected total capital expenditure for pre-acquisition First Quantum
sites and development projects remains at approximately $2.0 billion.
Forecast capital expenditure for Cobre Panama is under review and
revised guidance will be given in due course. Capital expenditure at
acquired operations is expected to be between $70.0 million to $85.0
million for the full year compared to previous guidance of $85.0
million.
-- Fair value adjustments to the value of property, plant and equipment is
expected to increase depreciation going forward, as well as a shorter
term impact of fair value adjustments on inventory which is expected to
impact Q2 2013.
OPERATIONS
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Kansanshi Copper and Gold Operation Q1 2013 Q4 2012 Q1 2012
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Sulphide ore tonnes milled (000's) 2,521 2,679 1,433
Sulphide ore grade processed (%) 0.7 1.0 1.0
Sulphide copper recovery (%) 91 92 95
Mixed ore tonnes milled (000's) 1,928 1,951 2,562
Mixed ore grade processed (%) 1.1 1.1 1.1
Mixed copper recovery (%) 75 74 64
Oxide ore tonnes milled (000's) 1,594 1,738 1,424
Oxide ore grade processed (%) 2.2 2.0 2.0
Oxide copper recovery (%) 86 90 85
Copper production (tonnes) 63,123 70,431 56,611
Copper sales (tonnes) 71,522 61,758 58,545
Gold production (ounces) 36,866 45,410 27,158
Gold sales (ounces) 37,518 38,179 30,308
Cash costs (C1) (per lb)(1) $1.55 $1.45 $1.54
Total costs (C3) (per lb)(1) $2.02 $1.90 $1.82
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Sales revenues 562.9 494.3 490.5
Gross profit 246.9 238.0 236.4
EBITDA(1) 275.4 251.1 258.1
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(1) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information.
Copper production increased by 12% from Q1 2012 mainly due to increased throughput rates as the benefits of the plant expansions are being realized. Targeted throughput rates were met during the wet season.
The increase in sulphide production compared to Q1 2012 is a result of the increased throughput, partially offset by lower grade and lower recoveries. The lower sulphide grade in the quarter reflects higher volumes processed from the main pit, which is a lower grade area. The lower recoveries compared to Q1 2012 reflects the lower feed grade.
Mixed ore production benefited from increased recoveries which increased by 11% over Q1 2012 reflecting the quality of the ore processed from the mine in the quarter. The mixed circuit maintained high average milling rates of 21,400 tonnes per day, but decreased compared to Q1 2012 when a temporary circuit reconfiguration increased the capacity of the mixed circuit.
Oxide throughput has increased by 12% from Q1 2012 as a result of the completion of the oxide expansion to 7.2 Mtpa capacity in Q3 2012. This increase in throughput combined with increases in grade and recoveries meant a 20% increase in oxide production.
Gold production was 36% higher than Q1 2012 as a result of gold circuit enhancements.
Q1 2013 C1 costs increased by $0.01 per lb from Q1 2012. C1 costs benefited from lower processing costs and lower treatment and refining charges. This benefit was slightly outweighed by increased mining costs of $0.02 per lb and a lower gold credit.
Sales revenues and gross profit increased by 15% and 4% respectively in Q1 2013 compared to Q1 2012. The increase in sales revenues reflects an increase in both copper and gold sales volumes, partially offset by lower realized prices. Gross profit was negatively impacted by lower realized copper and gold prices, higher royalty rates and higher depreciation. The Zambian copper royalty rate was increased from 3% to 6%, effective April 2012, resulting in an increase of $17.2 million in the royalty expense in Q1 2013 compared to Q1 2012.
Outlook
Production in 2013 is expected to be between 250,000 and 270,000 tonnes of copper, and 126,000 and 140,000 ounces of gold.
The reduction in mining rates during the wet season will impact on progress in opening up mining areas and hence oxide ore availability. This, in turn, is expected to result in on-going variation in feed quality with respect to copper grade and gangue acid consumption (GAC). Pre-screening of high GAC ore continues to assist in reducing the GAC of ore ahead of processing.
Optimization of the recently commissioned fifth acid plant continues, with full production rates only expected after a water treatment system upgrade, expected to be completed during Q3 2013.
In the medium term, some of Kansanshi's mining areas for oxide ore are characterized as high grade, high acid-consuming ore. The supply of sulphuric acid from smelters remains constrained and acid manufactured at the Company's acid plants requires the import of sulphur at high costs. Some high grade, high acid-consuming ore will be stockpiled until acid is available from the Kansanshi smelter. The capacity of the oxide expansions will, in the interim, be utilized with a view to improving overall recovery at relatively lower throughput rates.
Copper in concentrate inventory levels marginally improved at the end of Q1 2013 compared to the end of Q4 2012. However no significant changes in smelter capacity within Zambia is expected that will enable a further reduction in inventory levels this year.
Sulphide ore processing is expected to remain strong. Refinements to the process control systems across mill and float continue to maintain and further enhance metallurgical performance in the sulphide circuit through increased circuit stability and rapid automated response to mineralogical and process variations. Gains particularly in throughput have been realized and this is expected to continue as long as ore availability remains good.
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Guelb Moghrein Copper and Gold
Operation Q1 2013 Q4 2012 Q1 2012
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Sulphide ore tonnes milled (000's) 696 825 797
Sulphide ore grade processed (%) 1.5 1.4 1.3
Sulphide copper recovery (%) 95 93 92
Copper production (tonnes) 9,700 11,038 9,258
Copper sales (tonnes) 10,988 13,007 9,244
Gold production (ounces) 16,190 16,802 15,337
Gold sales (ounces) 19,462 20,864 15,311
Cash costs (C1) (per lb)(1) $1.43 $1.13 $1.84
Total costs (C3) (per lb)(1) $2.05 $1.69 $2.41
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Sales revenues 106.8 127.3 90.3
Gross profit 36.3 47.5 24.4
EBITDA(1) 43.7 54.2 28.5
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(1) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information.
Q1 2013 copper production increased by 5% from Q1 2012, as a result of increased grades and increased recoveries offset by lower throughput rates. Copper recoveries were increased as the gold bullion plant flotation cells are now being used to produce copper and this allows for longer flotation times. Throughput was affected by lower mill availability in the quarter due to maintenance downtime.
Gold production increased by 6% from Q1 2012 as lower throughput was outweighed by higher grade and recovery.
Cash costs in Q1 2013 are 22% lower than Q1 2012 primarily as a result of lower treatment and refining charges and a higher gold credit. Costs in Q1 2012 were also affected by the sale of higher cost inventory.
Sales revenues and gross profit have both increased in comparison to Q1 2012 with a 17% increase in copper sales revenues and a 22% increase in gold sales revenues. The increase in sales revenues reflects an increase in copper and gold sales volumes offset by lower realized copper and gold prices. This increase in revenues combined with lower cash operating costs drove the year-over-year increase in gross profit.
Outlook
Production in 2013 is expected to be between 37,000 and 41,000 tonnes of copper, and between 56,000 and 61,000 ounces of gold. Mine development planning is expected to continue to be a priority by exposing additional ore reserves from the extension of the pit boundaries in two additional cutbacks. The replacement of some older haulage trucks is expected to be necessary during 2013.
Process plant enhancements continue with a focus on better availability in the grinding circuit to achieve higher throughput. Better coordination of ore sourcing will permit higher throughput rates. The project to reconfigure the grinding circuit to a conventional Semi-Autogenous Grinding ("SAG")/ball mill circuit is progressing well with the feasibility study and capital cost estimate of $49.6 million approved in Q1 2013. Design is continuing and construction is expected to commence in Q2 2013. Commissioning is scheduled for mid-2014.
Guelb Moghrein is currently undertaking a feasibility study and preliminary design work on a magnetite recovery project. A plant expansion is being considered to recover magnetite as a by-product of the ore feed. The study is expected to include the future potential to reclaim the stored tailings to extract contained magnetite.
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Ravensthorpe Nickel Operation Q1 2013 Q4 2012 Q1 2012
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Beneficiated ore tonnes processed
(000's) 690 687 724
Beneficiated ore grade processed (%) 1.7 1.5 1.5
Nickel recovery (%) 78 78 78
Nickel production (contained tonnes) 9,023 8,227 8,573
Nickel sales (contained tonnes) 10,033 7,288 5,332
Nickel production (payable tonnes) 6,951 6,338 6,617
Nickel sales (payable tonnes) 7,613 5,425 4,199
Cash costs (C1) (per lb)(1) $5.36 $6.05 $5.69
Total costs (C3) (per lb)(1) $6.59 $7.33 $6.93
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Sales revenues 132.6 94.3 82.2
Gross profit 11.3 2.8 10.9
EBITDA(1) 24.6 14.6 22.2
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(1) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information.
Ravensthorpe recorded its highest quarterly production as Q1 2013 nickel production exceeded Q1 2012 by 5% mainly due to increased grades. New areas of limonite ore were exposed in Q4 2012 and early in Q1 2013, producing higher than average grade nickel feed for the plant in the second half of the quarter. Throughput was marginally reduced in Q1 2013 in order to optimize processing and production at higher ore grades.
C1 costs have decreased in Q1 2013 by $0.33 per lb compared to Q1 2012 despite higher mining costs, which include drilling and blasting, higher processing costs and a lower cobalt by-product credit. These increases were outweighed by lower refining charges which reflects a different sales mix to offtakers, and a decrease in administration cost. In Q1 2012 the C1 cost benefited from the use of low-cost sulphur.
Sales revenues for Q1 2013 increased by 61% compared to Q1 2012. An increase of 88% in contained nickel sales volumes was offset by a 3% decrease in payability and a 12% decrease in realized nickel price. The increase in sales volumes in Q1 2013 reflects that the operation was still ramping up to design capacity in Q1 2012 and agreements with offtakers were being finalized.
Outlook
Production in 2013 is expected to be between 31,000 and 35,000 tonnes of nickel.
Crushing plants and beneficiation have operated well in Q1 2013 and operations in these areas are expected to continue to show improvements in plant utilization on the production and maintenance fronts with various initiatives being implemented from April to September 2013. The sulphuric acid plant will undergo a 14-day planned maintenance downtime in April to coincide with statutory bi-annual inspections on pressurized vessels. Various smaller planned works on the remainder of the plant, aimed at improving throughput, will be conducted at the same time. Nickel production however is expected to remain in line with budgeted numbers for the month and the full year.
Following the April planned downtime, the sulphuric acid plant is expected to continue to have stable operations with efficient use of power distribution, significantly reduced diesel fuel consumption and associated savings. Taking advantage of lower cost sulphur opportunities with associated logistical improvements will remain a focus for Ravensthorpe.
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Kevitsa Nickel-Copper-PGE(1)
Operation Q1 2013 Q4 2012 Q1 2012
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Ore tonnes milled (000's) 1,512 1,413 -
Nickel ore grade processed (%) 0.2 0.2 -
Nickel recovery (%) 64 59 -
Nickel production (tonnes) 2,049 1,870 -
Nickel sales (tonnes) 1,015 792 -
-
Copper ore grade processed (%) 0.3 0.3 -
Copper recovery (%) 80 84 -
Copper production (tonnes) 3,181 3,448 -
Copper sales (tonnes) 2,734 2,805 -
-
Gold production (ounces) 2,619 2,172 -
Platinum production (ounces) 6,833 6,123 -
Palladium production (ounces) 5,732 5,419 -
-
Nickel cash costs (C1) (per lb)(2) $5.29 $6.37 -
Nickel total costs (C3) (per lb)(2) $6.57 $7.19 -
Copper cash costs (C1) (per lb)(2) $1.94 $1.75 -
Copper total costs (C3) (per lb)(2) $2.75 $3.06 -
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Sales revenues 39.8 36.5 -
Gross profit 15.6 6.4 -
EBITDA(2) 19.9 11.2 -
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(1) Platinum-group elements ("PGE").
(2) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information.
Throughput rates continue to exceed expectations at Kevitsa with a 7% increase in throughput compared to Q4 2012, the first full quarter of commercial production, although production is still affected by the processing of weathered ore. It is expected that this ore will be fully depleted in Q2 2013. Modifications to nickel flotation were implemented which have improved recoveries in Q1 2013. The increased throughput and nickel recoveries have increased nickel production by 10% from Q4 2012.
A decrease in copper recoveries from processing oxidized ore was slightly offset by the increase in throughput, with copper production decreasing by 8% compared to Q4 2012.
Nickel cash costs decreased by 17% compared to Q4 2012 while copper cash costs increased 11%. The ramp up to a full seven days per week mining shift roster was implemented during Q1 2013 and training of an increased complement of employees continues. Cash costs for copper were higher resulting from lower than planned feed grades and lower recoveries resulting in less metal production.
Nickel sales volumes increased from Q4 2012 by 28%, with copper sales volumes falling slightly by 3%.
Outlook
Production in 2013 is expected to be between 15,000 and 16,000 tonnes of copper, between 9,000 and 10,000 tonnes of nickel and 11,000 to 12,000 ounces of gold.
The amount of weathered ore going into the plant is expected to reduce further in Q2 2013 and pre-stripping the Stage 2 cutback is also expected to commence. On-going studies continue towards improving recoveries, as well as other operational optimization of the plant, including expansion of the nickel filter. A secondary crusher is expected to be delivered in the second half of the year.
Liaison with the relevant environmental authorities to increase the plant throughput rate to a maximum of 10 Mtpa is still in progress.
The following operation discussions review the results of the Las Cruces mine (100%), the Cayeli mine (100%) and the Pyhasalmi mine (100%). The tables show both the post-acquisition results of the mines from March 22, 2013 to the end of the quarter, and historical results for the full period without adjustment and as reported by Inmet. The non-controlling interest portion of 14.5% of net earnings relating to shareholders of Inmet at March 31, 2013 are not disclosed here.
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Historical results
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Las Cruces Copper March 22-31 Full Quarter
Operation(1) 2013 Q1 2013 Q4 2012 Q1 2012
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Ore tonnes milled (000's) 30 305 276 246
Copper ore grade processed (%) 6.8 6.7 6.9 6.7
Copper recovery (%) 90 88 90 85
Copper cathode production
(tonnes) 1,923 17,927 17,302 13,343
Copper cathode sales
(tonnes) 2,852 17,360 17,394 13,561
Cash costs (C1) (per
lb)(2) n/a $1.00 $1.14 $1.38
Total costs (C3) (per
lb)(2) n/a $1.53 $1.76 $2.03
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Sales revenues 22.1 138.5 136.0 110.1
Gross profit(3) 6.1 74.0 73.4 51.6
EBITDA(2) 11.5 101.8 93.5 71.1
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(1) Results from the Las Cruces mine are only included in First Quantum's
financial results for the period subsequent to the date of acquisition on
March 22, 2013. Prior period results are shown for comparative purposes only
and do not include any financial adjustments that would be required had the
acquisition taken place on January 1, 2012.
(2) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information. C1 and C3 costs have been
recalculated using First Quantum's methodology and may be different to that
previously disclosed by Inmet.
(3) Gross profit is defined as sales revenues less cost of sales; disclosure
regarding the Las Cruces mine in Inmet's financial reporting defines sales
revenues less cost of sales as operating earnings.
Copper cathode production was 34% higher in Q1 2013 compared to Q1 2012 due to increased throughput and recovery. Recovery increased to 88% in Q1 2013 due to the full implementation of the leach feed surge tank with oxygen addition that was completed during 2012. Copper grades were consistent at 6.7%. Production in Q1 2012 was negatively impacted by a nine-day planned maintenance shutdown and a one-day national strike.
Cash costs in Q1 2013 were 28% lower than Q1 2012 due to significantly higher copper cathode production as well as lower operating costs relating to lower reagent costs and the non-recurrence of costs associated with the maintenance shutdown in Q1 2012.
Sales revenues and gross profit have both increased in comparison to Q1 2012 by 26% and 43%, respectively. The increase in sales revenues reflects higher copper cathode sales volumes, partially offset by lower realized copper prices. The increase in sales revenues combined with lower operating costs drove the increase in gross profit. Gross profit in the 10-day post-acquisition period is impacted by the partial recognition in net earnings of the fair value adjustments made to inventory on the date of acquisition. These adjustments impact the results as a portion of the inventory held on the balance sheet at acquisition date has been sold. It is expected that the fair value adjustment to finished goods inventory will be fully unwound during Q2 2013.
Subsequent to the quarter end, a fire occurred in one of the plant's eight leach reactors. All eight reactors were shut down following the fire to allow for a thorough assessment of damages and to investigate the cause of the fire. As of April 23, seven of the eight reactors were re-commissioned and the final reactor is expected to be online by mid-May. The fire and related re-commissioning period is expected to result in approximately 3,300 tonnes of lost copper cathode production, however plans to recover some or all of the lost production are currently under review.
Outlook
Production is expected to be between 69,000 tonnes and 72,000 tonnes copper cathode in 2013. The plant will be tested at higher ore throughput and lower grade to assess the effects on plant performance before Las Cruces enters into lower copper grade areas of the mine, which is expected in 2014.
In 2013, process plant improvements will focus on reducing recovery losses downstream of the leaching reactors that have risen with the increase in copper cathode production and due to operating with process solutions that contain more copper.
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Historical results
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Cayeli Copper and Zinc March 22-31 Full Quarter
Operation(1) 2013 Q1 2013 Q4 2012 Q1 2012
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Ore tonnes milled (000's) 37 323 319 299
Copper ore grade processed (%) 3.2 3.2 3.0 3.4
Copper recovery (%) 76 77 74 79
Zinc ore grade processed (%) 4.5 4.6 5.0 5.4
Zinc recovery (%) 66 68 69 65
Copper production (tonnes) 909 7,873 7,024 8,082
Copper sales (tonnes) 742 8,080 5,088 11,136
Zinc production (tonnes) 1,107 10,249 11,062 10,498
Zinc sales (tonnes) - 7,173 10,019 10,298
Cash costs (C1) (per
lb)(2) n/a $0.93 $0.65 $0.76
Total costs (C3) (per
lb)(2) n/a $1.51 $1.14 $1.22
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Sales revenues 5.0 65.3 45.9 101.9
Gross profit (loss)(3) (1.7) 31.3 16.5 66.0
EBITDA(2) (0.4) 38.2 21.2 71.0
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(1) Results from the Cayeli mine are only included in First Quantum's
financial results for the period subsequent to the date of acquisition on
March 22, 2013. Prior period results are shown for comparative purposes only
and do not include any financial adjustments that would be required had the
acquisition taken place on January 1, 2012.
(2) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information. C1 and C3 costs have been
recalculated using First Quantum's methodology and may be different to that
previously disclosed by Inmet.
(3) Gross profit (loss) is defined as sales revenues less cost of sales;
disclosure regarding the Cayeli mine in Inmet's financial reporting defines
sales revenues less cost of sales as operating earnings.
Copper production decreased by 3% from Q1 2012 due to slightly lower copper grades and recovery. The deferral of several high copper grade stopes to later in the year led to the reduced copper grades compared to the prior year. The negative impact was partially offset by higher mine production and throughput, with Cayeli having benefited from improved mine planning and logistical control during the quarter.
Zinc production decreased by 2% from Q1 2012 due to lower zinc grades partially offset by higher zinc recovery and higher throughput. The decrease in zinc grade resulted from lower grade stopes in the areas mined, while favourable blending and controlled throughput led to higher zinc recovery.
Cash costs in Q1 2013 increased by 22% from Q1 2012 due to lower copper production and a decreased by-product credit. The increase in cash costs in Q1 2013 was partially offset by a slight decrease in operating costs.
Sales revenues and gross profit decreased by 36% and 53%, respectively, in Q1 2013 compared to Q1 2012. The decreases in sales revenues and gross profit reflect lower copper and zinc sales volumes and lower realized metals prices this quarter. Gross loss in the 10-day post-acquisition period is impacted by the partial recognition in net earnings of fair value adjustments made to inventory on the date of acquisition. These adjustments impact the results as a portion of the inventory held on the balance sheet at acquisition date has been sold. It is expected that the fair value adjustment to finished goods inventory will be fully unwound during Q2 2013.
The three-year labour agreement at Cayeli expired in May 2012. The negotiation of a new labour agreement, initially delayed due to changes to government labour regulations, is proceeding and Cayeli plans to make a strong effort to manage labour cost escalations to retain the operation's cost competitiveness.
Outlook
Production is expected to be between 28,000 tonnes and 31,000 tonnes of copper and between 36,000 tonnes and 40,000 tonnes of zinc in 2013. Both copper and zinc recovery are expected to be lower in 2013, reflecting the increased proportions of metallurgically challenging ore types.
In 2013, throughput is expected to increase from 1.20 million tonnes to 1.25 million tonnes. The mine should benefit from the commissioning of two new ore passes by Q3 2013, the extension of a shotcrete slickline to the lower levels of the mine, improved lower mine infrastructure and the addition of stope production from a new mining block, all of which should ease pressure on existing production areas. Cayeli's ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. Continued progress in meeting the challenges of poor ground conditions and planned operational efficiencies is aimed at reducing the risks associated with achieving the production plan.
-------------- ---------------------------------
Historical results
--------------------------------------------------------------------------
Pyhasalmi Copper and Zinc March 22-31 Full Quarter
Operation(1) 2013 Q1 2013 Q4 2012 Q1 2012
--------------------------------------------------------------------------
Ore tonnes milled (000's) 39 346 351 342
Copper ore grade processed (%) 1.3 1.3 1.0 1.0
Copper recovery (%) 96 97 97 96
Zinc ore grade processed (%) 1.4 2.0 3.0 1.5
Zinc recovery (%) 90 92 93 90
Copper production (tonnes) 473 4,362 3,273 3,381
Copper sales (tonnes) 271 3,747 3,237 3,909
Zinc production (tonnes) 483 6,184 9,660 4,620
Zinc sales (tonnes) 144 6,738 8,984 4,154
Pyrite production (tonnes) 21,187 189,955 222,534 211,275
Pyrite sales (tonnes) 10,953 114,478 299,676 112,298
Cash costs (C1) (per
lb)(2) n/a ($0.55) ($1.62) $0.51
Total costs (C3) (per
lb)(2) n/a ($0.10) ($1.19) $0.84
--------------------------------------------------------------------------
Sales revenues 2.7 47.6 51.8 44.2
Gross profit (loss)(3) (1.0) 30.5 32.4 26.1
EBITDA(2) 0.4 34.2 33.5 27.5
--------------------------------------------------------------------------
(1) Results from the Pyhasalmi mine are only included in First Quantum's
financial results for the period subsequent to the date of acquisition on
March 22, 2013. Prior period results are shown for comparative purposes only
and do not include any financial adjustments that would be required had the
acquisition taken place on January 1, 2012.
(2) C1 and C3 costs and EBITDA are not recognized under IFRS. See
"Regulatory Disclosures" for further information. C1 and C3 costs have been
recalculated using First Quantum's methodology and may be different to that
previously disclosed by Inmet.
(3) Gross profit (loss) is defined as sales revenues less cost of sales;
disclosure regarding the Pyhasalmi mine in Inmet's financial reporting
defines sales revenues less cost of sales as operating earnings.
Copper production increased by 29% in Q1 2013 compared to Q1 2012 due to higher copper grades and recovery, and slightly higher throughput.
Zinc production was 34% higher than Q1 2012 due to significantly higher zinc grades and higher recovery.
The copper and zinc grades achieved in Q1 2013 were higher than plan for the year due to areas mined outside of the mine plan. Copper and zinc grades are expected to return to plan levels for the remainder of 2013.
Cash costs in Q1 2013 decreased compared to Q1 2012 due to higher copper production and higher by-product credits. The decrease in cash costs in Q1 2013 was slightly offset by an increase in operating costs mainly related to contractor fees.
Sales revenues increased by 8% and gross profit increased by 17% in Q1 2013 compared to Q1 2012. The increase in sales revenues and gross profit reflect an increase in zinc sales volumes partially offset by a slight decrease in copper sales volumes and lower realized copper and zinc prices. Gross loss in the 10-day post-acquisition period is affected by the partial recognition in net earnings of fair value adjustments made to inventory on the date of acquisition. These adjustments impact the results as a portion of the inventory held on the balance sheet at acquisition date has been sold. It is expected that the fair value adjustment to finished goods inventory will be fully unwound during Q2 2013.
Outlook
Production is expected to be between 12,000 tonnes and 13,000 tonnes of copper and 20,000 tonnes and 23,000 tonnes of zinc. Zinc production should be lower than it was in 2012 due to an expected decrease in zinc grades in 2013. Pyrite production is expected to be approximately 820,000 tonnes.
Improved procedures for mucking and backfilling stopes will be developed in deteriorated ore access drifts in support of Pyhasalmi's ground control rehabilitation program and underground voids are expected to be reduced.
DEVELOPMENT ACTIVITIES
Kansanshi expansions, Zambia
The multi-stage Kansanshi plant upgrade to an annual production capacity of 400,000 tonnes of copper continues into 2013. The stage one oxide circuit expansion to 7.2 Mtpa was completed in Q2 2012 and optimized during Q3 2012 with the benefits being seen in the oxide throughput rates. Progress on the stage two oxide capacity expansion to 14.5 Mtpa continued with a phased commissioning planned to begin in mid-2013. The expansion encompasses additional crushing, flotation, leach tanks, CCD thickeners, solvent extraction, electro-winning and associated ancillary systems and equipment. Acid supply and economics will dictate the rate of oxide treatment until the smelter is commissioned in mid-2014.
The second phase of the 400,000 tonne annual production capacity expansion project is an expansion of the sulphide treatment facilities by construction of a new section of plant capable of treating up to 25 Mtpa of sulphide ore. Board approval has been granted and design work is continuing while environmental approvals are being pursued. No significant barriers to environmental approval are envisaged.
Copper smelter project, Zambia
Kansanshi's concentrate is currently treated 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 is designed to process 1.2 million tonnes of concentrate to produce over 300,000 tonnes of copper metal annually. The smelter is also expected to produce 1.0 million tonnes of sulphuric acid as a by-product at a low 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 also expected to 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 smelter is around 60% complete. Manufacture of the major equipment packages is progressing well. The waste heat boiler has been delivered to site. Earthworks construction is approximately 85% complete. Concrete works are around 30% complete. The main frames for the electric furnace have been installed and erection of the acid plant towers is underway. The project is scheduled for construction completion in mid-2014 followed by commissioning and ramp up.
Sentinel project, Zambia
A 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. An infill drilling program has commenced to identify further detail of the geological resources that will be encountered during the initial years of operation.
The project is expected to produce between 270,000 and 300,000 tonnes of copper in concentrate annually.
Sentinel construction activities continued to ramp up in Q1 2013 with the construction effort approaching its peak. Project milestones to the end of March 2013 include detailed design engineering which is approximately 90% complete; Musangezhi river dam is operational and Chisola river / raw water dam earthworks has commenced; over 42,000 cubic metres of concrete poured on site; and approximately 5,500 tonnes of structural steel fabricated with approximately 4,000 tonnes of steel already received on site and being erected. A significant safety milestone of 3,000,000 man hours without lost time incident was also achieved in this period. The first ball mill shell and heads are erected, and the project's first 100+ ton lift was completed successfully. Construction continues to progress well across the site. The development of project infrastructure continues: the first affordable houses in the town are scheduled to be occupied by early operations and mining personnel during Q2 2013; clearing for the first mine pre-strip areas commenced in April 2013; and the major tenders for the Zambia Electricity Supply Corporation Limited ("ZESCO") 330kV transmission line project have been received with the first contract for substation works near completion. A dispute has arisen with ZESCO, the state-owned power transmission and supply company, in respect of the tender selection for the contractor to build the transmission line. On April 23, 2013, a wholly owned subsidiary of the Company served a Declaration of a Dispute and Notice to Arbitrate under the Connection Agreement with ZESCO. In the event the dispute is not resolved the connection of power to the Sentinel project could be delayed.
The Company will continue project development with an on-going commitment to social responsibility within the complete license area.
Project capital costs were initially estimated at $1.72 billion for a 40 Mtpa throughput plant. However, a throughput increase to 55 Mtpa, plus the addition of a nickel processing plant (Enterprise project) has been added to the project development which increased the total capital cost estimate to $2.0 billion. The completion target for Sentinel remains unchanged and expected during 2014.
Enterprise project, Zambia
The maiden mineral resource estimate for the Enterprise nickel deposit has been identified at 40.1 Mt at 1.07% nickel. This supports proven and probable mineral reserves of 32.7 Mt at 1.10% nickel and based on a 4 Mtpa operation, the mine life would be approximately eight years producing 38,000 to 40,000 tonnes of nickel per annum. There is further potential to increase both the mineral resource and reserve as drilling continues in the adjacent Enterprise South West Zone. The Enterprise deposit is located approximately 12 kilometres north west of the Sentinel project.
The longest lead equipment items being the SAG mill and the ball mill have been ordered, and engineering design is progressing with area layouts approved. Geotechnical investigation of the mill, crusher and stockpile are complete showing favourable ground conditions. Earthworks are set to begin on the Enterprise haul road and first concrete placement is planned for Q2 2013.
Target completion for the Enterprise project is between late 2014 and early 2015.
Cobre Panama, Panama
Following the successful acquisition of Inmet, the Company has commenced a detailed review of the Cobre Panama project. The objective is to re-establish the project on a more 'self-perform' basis to maximize the benefit of the Company's core project development skills. To this end a number of key contracts, including the main engineering, procurement and construction management contract, have been modified or cancelled and a rationalization of the work force is currently under way.
This review is expected to take between two and four months before a revised capital cost estimate and project timetable will be available.
Exploration
Exploration programs continued at a sustained level in most areas with ongoing drilling campaigns active in Finland, Mauritania and Zambia.
A considerable review process has now commenced to integrate the Inmet exploration activities into First Quantum. Other than ongoing drilling at Cobre Panama, the Inmet exploration portfolio includes projects in Finland and Peru which complement the Company's current position as well as several early stage copper porphyry prospects in Chile, Mexico and the USA. The objective of the review is to ensure that the best projects from both organizations are selected and prioritized in line with the Company's corporate objectives.
Trident
Five rigs are currently active on the Trident project. At Sentinel the program includes holes focused on resource infill, communition testing and geotechnical assessment. These will assist the first stage pit optimization program which is on target for completion by mid-2013. A small resource extension drilling program commenced at Enterprise and should also be complete by mid-year.
Ground geophysical surveys are planned over the new Bream prospect as well as areas around Enterprise and Intrepid. A technical review of the Trident datasets has generated several new targets that will be drill tested during the latter part of 2013.
Kansanshi
Exploration and resource drilling continued during Q1 2013. Exploration of the Rocky Hill prospect between South East Dome and Main pit continued to return mineralized intercepts that should provide an extension to the South East Dome optimized pit.
With the completion of much of the Kansanshi near mine exploration program, objectives have now extended to exploring for similar mineralization styles around the Solwezi Dome immediately south of the mine. Analysis of historical data with the benefit of current knowledge from Kansanshi suggests that considerable potential exists in this area.
A suitable high quality silica source for the Kansanshi smelter has been located in an area to the east of the mine. Further sampling and resource drilling will be conducted in Q2 2013.
Finland
Reconnaissance drilling and ground geophysics continued to be focused on Mafic nickel-copper-PGE targets in the large project area north of Kevitsa, with seven targets tested during the period. Some encouraging new conductors have been defined which require drill testing. Base of till reconnaissance over selected geophysical targets encountered prospective ultramafic rocks with nickel-copper anomalies.
Other activities are focused on sediment hosted copper and IOCG copper-gold targets through Finland with claim applications also lodged over a new IOCG target in Sweden.
Peru
Exploration activities at Haquira have been put on hold whilst the company concentrates on the community and environmental aspects of the project development. Emphasis has moved onto regional exploration projects including the Zincore joint-venture agreement and assessments of two new joint-venture areas.
On the Zincore joint-venture agreement, the first phases of drilling have been completed at the main Dolores prospect. Significant widths of low grade mineralization have been reported, however, no higher grade zone has yet been intersected. Drilling and geophysical datasets are now being integrated into a new 3D model in order to review further potential targets at Dolores. Exploration has also begun at several high priority targets within the Zincore portfolio, as identified in a recent airborne survey.
Turkey
Drilling has continued through the winter on the Columbus Copper Corp (formerly Empire Mining) joint-venture agreement at Bursa in Turkey.
The intent of the current drill program is to test the size and scope of the entire mineralized system, commencing with the eastern extremities that coincide with significant Induced Polarization ("IP") geophysical responses. The IP anomalies can be attributed to skarn and secondary copper mineralization, although the wide spacing of the drill holes bracket the main chargeability anomaly, which still requires infill drilling. A second set of drill holes in the current program is targeting the sulphide mineralization where past drilling has demonstrated an increase in primary copper at depth. Better results from the current program include 59.9 metres of 0.55% copper and 0.06 grams per tonne ("g/t") gold from 219.1 metres depth including 35.4 metres from 220.1 metres grading 0.67% copper and 0.09 g/t gold and 9.4 metres from 235.1 metres grading 1.27% copper and 0.14 g/t gold. For more details see www.columbuscopper.com.
Mauritania & West Africa
The diamond drill program on the Oriental Hill mineralization adjacent to the current Guelb Moghrein open pit was completed during the quarter with 24 holes having results outstanding. As part of the program five metallurgical holes have been completed for detailed metal testing. Consistent thicknesses of oxide and typical Guelb Moghrein style 'FMC' mineralization have been intercepted and are wider than anticipated in the south.
Two new permits have now been now been granted over prospective nickel-copper-PGE targets in Western Cote d'Ivoire. An airborne geophysical survey is planned.
SALES REVENUES
-------------------------------------
Q1 2013 Q4 2012 Q1 2012
--------------------------------------------------------------------------
Kansanshi - copper 510.1 437.9 445.7
- gold 52.8 56.4 44.8
Guelb Moghrein - copper 77.8 92.5 66.6
- gold 29.0 34.8 23.7
Ravensthorpe - nickel 130.5 93.0 80.1
- cobalt 2.1 1.3 2.1
Kevitsa - nickel 10.2 6.9 -
- copper 19.3 20.6 -
- gold, PGE and cobalt 10.3 9.0 -
Las Cruces(1) - copper 22.1 - -
Cayeli(1) - copper 4.7 - -
- zinc, gold and silver 0.3 - -
Pyhasalmi(1) - copper 1.7 - -
- zinc 0.3 - -
- pyrite, gold and silver 0.7 - -
Corporate and other 29.3 22.2 65.7
--------------------------------------------------------------------------
901.2 774.6 728.7
--------------------------------------------------------------------------
(1) Results for the period subsequent to the date of acquisition on March
22, 2013.
Q1 2013 total sales revenues were 24% higher than Q1 2012. This includes the contribution from Kevitsa of $39.8 million and $29.8 million from Las Cruces, Cayeli and Pyhasalmi in the 10-day post acquisition period. Excluding these results, sales revenues increased by 14% from Q1 2012 from a combination of higher sales volumes at all operations and contribution from Kevitsa, offset by lower realized prices. Revenue for the Corporate and other segment in Q1 2012 benefited from a one-off sale of excess sulphur.
The Company's sales 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 (per lb) Q1 2013 Q4 2012 Q1 2012
-------------------------------------------------------------------------
Average LME cash price 3.60 3.59 3.77
Realized copper price 3.48 3.46 3.67
Treatment/refining charges ("TC/RC")
and freight charges (0.25) (0.23) (0.34)
-------------------------------------------------------------------------
Net realized copper price 3.23 3.23 3.33
-------------------------------------------------------------------------
The LME copper price averaged $3.60 per lb for the quarter, a decrease of $0.17 per lb from the average for Q1 2012. Copper prices fell to a five-month low in mid March 2013 with news of the $13.0 billion aid package for Cyprus and an increase in LME inventories.
-------------------------------------
Nickel selling price (per lb) Q1 2013 Q4 2012 Q1 2012
--------------------------------------------------------------------------
Average LME cash price 7.85 7.70 8.91
Realized nickel price per payable
pound 7.80 7.74 8.85
TC/RC charges (0.33) (0.35) (1.04)
--------------------------------------------------------------------------
Net realized nickel price per payable
pound 7.47 7.39 7.81
--------------------------------------------------------------------------
The LME nickel price averaged $7.85 per lb for the quarter, a decrease of $1.06 per lb from the average for Q1 2012. Nickel prices remained range bound through January trading between $7.70 and $7.95 per lb for most of the month before rallying at the end of the month reaching a quarter peak of $8.42 per lb on February 5, 2013. Late February saw prices falling to reach a quarter low of $7.45 per lb on March 1, 2013 with prices at the end of the quarter closing at $7.50 per lb.
SUMMARY FINANCIAL RESULTS
------------------------------------
Q1 2013 Q4 2012 Q1 2012
-------------------------------------------------------------------------
Gross profit
Kansanshi 246.9 238.0 236.4
Guelb Moghrein 36.3 47.5 24.4
Ravensthorpe 11.3 2.8 10.9
Kevitsa 15.6 6.4 -
Las Cruces 6.1 - -
Cayeli (1.7) - -
Pyhasalmi (1.0) - -
Other (3.3) 0.3 (1.4)
-------------------------------------------------------------------------
Total gross profit 310.2 295.0 270.3
-------------------------------------------------------------------------
Exploration (9.7) (13.4) (12.9)
General and administrative (25.7) (20.4) (17.4)
Acquisition transaction costs (29.5) - -
Other income (expense) (2.3) (5.0) 0.3
Net finance income (costs) (4.4) 1.0 (0.8)
Settlement of RDC claims and sale of
assets - - 1,217.9
Income taxes (99.3) (50.5) (96.4)
-------------------------------------------------------------------------
Net earnings for the period 139.3 206.7 1,361.0
-------------------------------------------------------------------------
Net earnings for the period
attributable to:
Non-controlling interests 26.9 20.0 24.1
Shareholders of the Company 112.4 186.7 1,336.9
-------------------------------------------------------------------------
Comparative earnings 153.8 186.7 119.0
-------------------------------------------------------------------------
Earnings per share
Basic $0.23 $0.39 $2.82
Diluted $0.23 $0.39 $2.81
-------------------------------------------------------------------------
Comparative earnings per share $0.32 $0.39 $0.25
-------------------------------------------------------------------------
Gross profit from Las Cruces, Cayeli and Pyhasalmi has been impacted slightly by fair value adjustments recognized at date of acquisition that subsequently are recorded through net earnings. These adjustments increase depreciation and the cost of inventory sold. It is expected that the fair value adjustment related to finished goods inventory will be fully unwound during Q2 2013.
Q1 2013 exploration activities continued at a sustained level although exploration costs decreased from Q1 2012. Q1 2012 includes exploration expenses at Haquira, which were capitalized starting in Q4 2012 following a development decision by the Board. Q1 2013 exploration expenses comprise primarily:
-- $2.0 million at Kansanshi
-- $1.2 million at Intrepid
-- $1.7 million in Finland and Sweden
-- $1.2 million at Guelb Moghrein
General and administrative costs increased in comparison to Q1 2012 mainly as a result of payments made relating to the acquisition of Inmet, excluding acquisition transaction costs which are disclosed separately above.
In the first quarter of the prior year, the Company reached an agreement with Eurasian Natural Resources Corporation PLC ("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 the Katanga Province of the Republique Democratique du Congo ("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 three-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.
Income taxes for the quarter amount to an effective income tax rate of approximately 41.6% of earnings compared to 40% in the prior year. The effective tax rate of underlying operations is approximately 38% as a result of increased earnings in lower tax jurisdictions compared to the prior year quarter, with the increase to 41.6% attributable to non-deductible acquisition related costs.
LIQUIDITY AND CAPITAL RESOURCES
------------------------------------
Q1 2013 Q4 2012 Q1 2012(1)
-------------------------------------------------------------------------
Cash flows from operating activities
- before changes in working capital 324.7 319.1 286.8
- after changes in working capital 416.4 70.2 138.5
Cash flows from investing activities
Payments for property, plant and
equipment (338.0) (420.0) (276.9)
Acquisition of Inmet, net of cash
acquired (620.0) - -
Proceeds from settlement of RDC
claims and sale of assets - - 736.5
Other investing activities 11.4 (27.3) (5.9)
Cash flows from financing activities 2,078.8 311.2 (17.7)
-------------------------------------------------------------------------
Net cash flows 1,548.6 (65.9) 574.5
Cash balance(2) 1,857.6 309.0 1,026.6
-------------------------------------------------------------------------
Total assets 16,568.6 7,536.4 6,658.7
Total current liabilities (5,198.7) (443.6) (673.3)
Total long-term liabilities (2,081.7) (1,211.4) (515.7)
-------------------------------------------------------------------------
Cash flows from operating activities
per share(3)
before working capital (per share) $0.68 $0.67 $0.41
after working capital (per share) $0.87 $0.15 $0.29
-------------------------------------------------------------------------
(1) Cash flows before changes in working capital has been adjusted from that
previously disclosed due to changes in presentation of taxes paid and
interest received in the cash flow.
(2) Cash balance includes $79.5 million of restricted cash at March 31,
2013. There was no restricted cash at December 31, 2012 and March 31, 2012.
(3) Cash flows per share is not recognized under IFRS. See "Regulatory
Disclosures" for further information.
In Q1 2013 the Company generated operating cash flows before changes in working capital of $324.7 million compared to $286.8 million in the same prior year period primarily due to higher non-cash expenses in Q1 2013. Changes in working capital during Q1 2013 resulted in an increase of cash of $117.1 million as the Company sought to reduce concentrate inventory on hand at year end and reduce amounts owing by offtakers. This amount was offset by $25.4 million in taxes that the Company paid during the quarter.
Capital expenditure on the Company's development projects totalled $338.0 million for the quarter. Capital expenditure comprised primarily;
-- $129.3 million at Kansanshi for the oxide circuit expansions, smelter
project and mine pit development costs
-- $151.9 million at Sentinel, including deposits, for site development and
long-lead plant and mine equipment
Cash flows from investment activities also include the cash paid for the acquisition of Inmet, net of the cash acquired.
Proceeds 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 payable by ENRC on March 2, 2015.
Cash flows from financing activities in Q1 2013 of $2,078.8 million consist primarily of the drawdown of a new $2,500 million facility entered into to finance the acquisition of Inmet. The facility is repayable by March 26, 2014 and has been included as a current liability on the balance sheet of the Company at March 31, 2013. Cash flows from financing activities in Q4 2012 comprise primarily of the net proceeds from the $350.0 million senior notes issue which was completed on October 10, 2012.
As at March 31, 2013, the Company had the following contractual obligations outstanding:
--------------------------------------------------------------------------
Carrying Contractual less than
Value Cashflows 1 year 1-3 years 3-5 years Thereafter
--------------------------------------------------------------------------
Debt(1) 4,704.9 5,113.4 4,610.9 51.0 50.7 400.8
Trade and
other
payables 796.6 796.6 796.6 - - -
Current taxes
payable 32.9 32.9 32.9 - - -
Deferred
payments 4.2 4.2 4.2 - - -
Finance
leases 26.7 38.1 3.8 7.6 7.6 19.1
Commitments 2,387.3 2,387.3 1,696.0 691.3 - -
Restoration
provisions 500.3 662.4 15.1 17.4 9.3 620.6
--------------------------------------------------------------------------
Total 8,452.9 9,034.9 7,159.5 767.3 67.6 1,040.5
--------------------------------------------------------------------------
(1) Included in this debt and in the amount payable within one year are the
Inmet senior notes issued in 2012 of $2,222.6. The acquisition of Inmet by
the Company triggered the change of control clause in the notes' indenture
which requires an offer to repurchase the notes. Subsequent to the end of
the quarter, a mandatory offer, that expires May 20, 2013, has been issued
to purchase these notes. The notes that remain outstanding after the expiry
of the offer will be reclassified as a non-current liability repayable after
five years.
Total commitments of $2,387.3 million comprise primarily of capital expenditure for property, plant and equipment related to the development of Cobre Panama, Sentinel, upgrades at Kansanshi, the smelter construction and other projects.
The significant capital expansion and development program is expected to be funded using available unrestricted cash of $1,778.1 million at March 31, 2013, future cash flows from operations and debt facilities. At March 31, 2013, the undrawn facilities that were available are the $232.5 million Kevitsa debt facility, the $1.0 billion Kansanshi senior term and revolving facility, and $361.6 million of the FQM (Akubra) debt facility.
Hedging program
As at March 31, 2013, the following derivative positions were outstanding:
--------------------------------------------------------------------------
Average price
--------------------------------------------------------------------------
Open Positions Maturities
(tonnes/ounces) Contract Market Through
--------------------------------------------------------------------------
Embedded derivatives in
provisional sales
contracts:
Copper 53,145 $3.55/lb $3.44/lb July 2013
Nickel 1,683 7.82/lb 7.50/lb June 2013
Gold 20,422 1,595/oz 1,598/oz June 2013
--------------------------------------------------------------------------
Commodity contracts:
Copper 53,789 $3.55/lb $3.44/lb July 2013
Nickel 2,959 7.82/lb 7.50/lb June 2013
Gold 20,993 1,595/oz 1,598/oz June 2013
--------------------------------------------------------------------------
As at December 31, 2012, the following derivative positions were outstanding:
--------------------------------------------------------------------------
Average price
--------------------------------------------------------------------------
Open Positions Maturities
(tonnes/ounces) Contract Market Through
--------------------------------------------------------------------------
Embedded derivatives in
provisional sales
contracts:
Copper 50,191 $3.61/lb $3.59/lb March 2013
Nickel 3,996 7.81/lb 7.70/lb February 2013
Gold 19,462 1,705/oz 1,676/oz March 2013
--------------------------------------------------------------------------
Commodity contracts:
Copper 53,453 $3.61/lb $3.59/lb March 2013
Nickel 3,315 7.81/lb 7.70/lb February 2013
Gold 21,253 1,705/oz 1,676/oz March 2013
--------------------------------------------------------------------------
A summary of the fair values of unsettled derivative financial instruments for commodity contracts recorded on the consolidated balance sheet:
-------------------------------------------------------------------------
March 31, December 31,
2013 2012
-------------------------------------------------------------------------
Commodity contracts:
Asset position $29.1 $5.0
Liability position (1.1) (2.4)
-------------------------------------------------------------------------
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, 2013, substantially all of the metal sales contracts of Kansanshi, Guelb Moghrein, Ravensthorpe and Kevitsa, subject to pricing adjustments, were hedged by offsetting derivative contracts.
EQUITY
At the date of this report, the Company has 590,836,559 shares outstanding. The increase in common shares since the date of the annual report relate to the issuance of shares to Inmet shareholders as part of the acquisition.
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 some of 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 copper mineral royalty tax from 3% to 6%, effective April 2012, in breach of the Development Agreements.
In the 2013 Budget, delivered in October 2012, the GRZ has decreased the rate of Capital Allowances from 100% per annum to 25% per annum. This will impact the timing of the tax benefit from the Company's significant capital programs at Kansanshi and Sentinel.
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
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, Sentinel, Enterprise and Cobre Panama, 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, information with respect to the future price of copper, gold, cobalt, nickel, zinc, pyrite, 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, zinc, pyrite, 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, Spain, Turkey, Panama and Australia, adverse weather conditions in Zambia, Finland, Spain, Turkey and Mauritania, 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 2013 2012
-------------------------------------------------------------------------
Sales revenues 11 901.2 728.7
Cost of sales 12 (591.0) (458.4)
-------------------------------------------------------------------------
Gross profit 310.2 270.3
Exploration (9.7) (12.9)
General and administrative (25.7) (17.4)
Acquisition transaction costs (29.5) -
Settlement of RDC claims and sale of
assets - 1,217.9
Other income (expense) (2.3) 0.3
-------------------------------------------------------------------------
Operating profit 243.0 1,458.2
Finance income 7.2 1.4
Finance costs 13 (11.6) (2.2)
-------------------------------------------------------------------------
Earnings before income taxes 238.6 1,457.4
Income taxes (99.3) (96.4)
-------------------------------------------------------------------------
Net earnings for the period 139.3 1,361.0
-------------------------------------------------------------------------
Net earnings for the period
attributable to:
Non-controlling interests 26.9 24.1
Shareholders of the Company 112.4 1,336.9
-------------------------------------------------------------------------
Earnings per common share
Basic 10b 0.23 2.82
Diluted 10b 0.23 2.81
Weighted average shares outstanding
(000's)
Basic 10b 478,056 474,069
Diluted 10b 480,704 476,310
Total shares issued and outstanding
(000's) 10a 575,178 476,310
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
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
-----------------------------
2013 2012
-------------------------------------------------------------------------
Net earnings for the period 139.3 1,361.0
Other comprehensive income (loss)
Items that may be reclassified
subsequently to profit or loss:
Unrealized loss on available-for-sale
investments (3.7) (2.0)
Reclassification to income of loss on
available-for-sale investment (net
of taxes of $1.9) 5.7 -
Tax on unrealized gain on available-
for-sale investments 0.9 0.4
-------------------------------------------------------------------------
Comprehensive income for the period 142.2 1,359.4
-------------------------------------------------------------------------
Total comprehensive income for the
period attributable to:
Non-controlling interests 26.9 24.1
Shareholders of the Company 115.3 1,335.3
-------------------------------------------------------------------------
142.2 1,359.4
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
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
-------------------------------------------------------------------------
2013 2012
-------------------------------------------------------------------------
Cash flows from operating activities
Net earnings for the period 139.3 1,361.0
Items not affecting cash
Depreciation 67.4 40.7
Unrealized foreign exchange loss 0.8 1.7
Deferred income tax expense (recovery) 23.1 (13.7)
Current income tax expense 76.2 109.9
Share-based compensation expense 5.2 3.1
Net finance income 4.4 0.8
Settlement of RDC claims and sale of
assets - (1,217.9)
Reclassification to income of net loss
on available-for-sale investment 5.7 -
Other 2.6 1.2
-------------------------------------------------------------------------
324.7 286.8
Taxes paid (25.4) (94.4)
Change in non-cash operating working
capital
Increase in trade, other receivables
and derivatives (23.7) (38.0)
(Increase) decrease in inventories 42.6 (54.0)
Increase in trade and other payables 98.2 38.1
-------------------------------------------------------------------------
416.4 138.5
-------------------------------------------------------------------------
Cash flows from (used by) investing
activities
Acquisition of Inmet Mining
Corporation, net of cash acquired (620.0) -
Purchase and deposits on property,
plant and equipment (338.0) (276.9)
Acquisition of investments (4.0) (6.5)
Interest received 15.4 0.6
Proceeds from settlement of RDC claims
and sale of assets - 736.5
-------------------------------------------------------------------------
(946.6) 453.7
-------------------------------------------------------------------------
Cash flows from (used by) financing
activities
Net movement in trading facility (17.0) 16.7
Proceeds from debt 2,116.4 -
Repayments of debt (14.8) (33.4)
Finance lease payments (0.5) (0.9)
Interest paid (5.3) (0.1)
-------------------------------------------------------------------------
2,078.8 (17.7)
-------------------------------------------------------------------------
Increase in cash and cash equivalents 1,548.6 574.5
Cash and cash equivalents - beginning
of period 309.0 452.1
-------------------------------------------------------------------------
Cash and cash equivalents - end of
period 1,857.6 1,026.6
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
www.first-quantum.com/
First Quantum Minerals Ltd.
Consolidated Balance Sheets
Unaudited
(expressed in millions of U.S. dollars)
-------------------------------------------------------------------------
March 31, December 31,
Note 2013 2012
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 1,778.1 309.0
Trade and other receivables 499.6 390.2
Inventories 4 992.8 903.7
Short term investments 5 2,053.0 -
Current portion of other assets 7 175.9 230.1
-------------------------------------------------------------------------
5,499.4 1,833.0
Restricted cash 79.5 -
Investments 5 55.1 55.6
Property, plant and equipment 6 9,780.1 4,953.6
Promissory note receivable 483.8 481.8
Goodwill 3 444.2 -
Other assets 7 226.5 212.4
-------------------------------------------------------------------------
Total assets 16,568.6 7,536.4
-------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other payables 796.7 355.5
Current taxes payable 32.9 32.5
Current debt 8 4,365.5 49.1
Current portion of provisions and
other liabilities 3.6 6.5
-------------------------------------------------------------------------
5,198.7 443.6
Debt 8 339.3 347.7
Provisions and other liabilities 604.1 299.2
Deferred income tax liabilities 1,138.3 564.5
-------------------------------------------------------------------------
Total liabilities 7,280.4 1,655.0
-------------------------------------------------------------------------
Equity
Share capital 4,043.0 1,929.6
Retained earnings 3,518.1 3,405.7
Accumulated other comprehensive loss (1.4) (4.3)
-------------------------------------------------------------------------
Total equity attributable to
shareholders of the Company 7,559.7 5,331.0
Non-controlling interests 1,728.5 550.4
-------------------------------------------------------------------------
Total equity 9,288.2 5,881.4
-------------------------------------------------------------------------
Total liabilities and equity 16,568.6 7,536.4
-------------------------------------------------------------------------
Commitments 16
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
www.first-quantum.com/
First Quantum Minerals Ltd.
Consolidated Statements of Changes in Equity
Unaudited
(expressed in millions of U.S. dollars)
-------------------------------------------------------------------------
Three months ended
March 31
2013 2012
-------------------------------------------------------------------------
Share capital
Common shares
Balance - beginning of period 2,003.8 2,003.8
Shares issued on acquisition of
Inmet, net of issue costs 2,108.2 -
-------------------------------------------------------------------------
Balance - end of period 4,112.0 2,003.8
-------------------------------------------------------------------------
Treasury shares
Balance - beginning of period (98.9) (68.0)
Restricted and performance stock
units vested - 0.2
-------------------------------------------------------------------------
Balance - end of period (98.9) (67.8)
-------------------------------------------------------------------------
Contributed surplus
Balance - beginning of period 24.7 14.8
Share-based compensation expense for
the period 5.2 3.1
Restricted and performance stock
units vested - (0.2)
-------------------------------------------------------------------------
Balance - end of period 29.9 17.7
-------------------------------------------------------------------------
Total share capital 4,043.0 1,953.7
-------------------------------------------------------------------------
Retained earnings
Balance - beginning of period 3,405.7 1,723.8
Earnings for the period attributable
to shareholders of the Company 112.4 1,336.9
Dividends - (61.4)
-------------------------------------------------------------------------
Balance - end of period 3,518.1 2,999.3
-------------------------------------------------------------------------
Accumulated other comprehensive income
(loss)
Balance - beginning of period (4.3) 1.2
Other comprehensive income (loss) for
the period 2.9 (1.6)
-------------------------------------------------------------------------
Balance - end of period (1.4) (0.4)
-------------------------------------------------------------------------
Non-controlling interests
Balance - beginning of period 550.4 492.9
Earnings attributable to non-
controlling interests 26.9 24.2
Acquisition of Inmet 1,151.2 -
-------------------------------------------------------------------------
Balance - end of period 1,728.5 517.1
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
www.first-quantum.com/
Contacts:
First Quantum Minerals Ltd. - North American Contact
Sharon Loung
Director, Investor Relations
(647) 346-3934 or Toll Free: 1 (888) 688-6577
(604) 688-3818 (FAX)
sharon.loung@fqml.com
First Quantum Minerals Ltd. - United Kingdom Contact
Clive Newall
President
+44 140 327 3484
+44 140 327 3494 (FAX)
clive.newall@fqml.com
www.first-quantum.com