First Quantum Minerals Reports Operational and Financial Results for the Three and Nine Months Ended September 30, 2010
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 11/09/10 -- (All figures expressed in US dollars, unless otherwise noted) -
First Quantum Minerals Ltd. ('First Quantum' or the 'Company') (TSX: FM)(LSE: FQM) today announced its results for the three and nine months ended September 30, 2010. The complete financial statements and management discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.
SUMMARY OPERATING AND FINANCIAL DATA
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Three months ended Nine months ended
September 30 September 30
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(USD millions unless otherwise noted) 2010 2009 2010 2009
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Production - copper (tonnes) 76,633 93,486 247,097 275,412
Production - gold (ounces) 46,718 43,357 142,831 130,609
Sales - copper (tonnes) 79,408 105,154 235,270 268,410
Realized copper price (per lb) $ 2.99 $ 2.21 $ 2.84 $ 1.88
Net sales $ 602.6 $ 546.3 $1,694.1 $1,219.4
Net earnings before impairment,
derivatives and acquisition costs $ 129.7 $ 164.2 $ 401.8 $ 375.7
Net earnings (loss) $(136.7) $ 123.8 $ (578.7) $ 236.2
Earnings per share before impairment,
derivatives and acquisition costs $ 1.62 $ 2.10 $ 5.02 $ 5.04
Earnings (loss) per share $ (1.70) $ 1.59 $ (7.24) $ 3.17
Average copper unit cash cost of
production (C1)(1)(per lb) $ 1.21 $ 0.98 $ 1.21 $ 0.95
Cash $ 632.8 $ 807.7 $ 632.8 $ 807.7
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Unless otherwise indicated, all comparisons of performance throughout this
report are to the comparative periods for 2009
(1) C1 cost is a non-GAAP measure. See 'Regulatory disclosures - non-GAAP
measures' for further information
Q3 HIGHLIGHTS AND SIGNIFICANT ITEMS
-- Operating profit of $309.6 million increased by 36% from Q2 2010
-- Results benefitted from a higher copper price, but were adversely
impacted by the forced shut down of Frontier operations on August 27,
2010
-- Net earnings of $129.7 million (EPS of $1.62) before impairment and
derivative timing losses
-- Impairment of $243.8 million, net of tax and including closure costs,
related to the Frontier copper operation following the forced shut down
by the Republique democratique du Congo ('RDC'). See 'Other items' for
further discussion
-- Increased on-site activities in the development of Ravensthorpe,
Kevitsa and Trident (formerly Kalumbila)
-- 18% decrease in total copper production resulting from the shut down at
Frontier and lower ore grades at Kansanshi
-- 8% increase in total gold production resulting from circuit
improvements and plant expansions completed at Kansanshi
-- Strong cash and working capital position despite significant
investments in Ravensthorpe, Kevitsa and Trident in 2010
RECENT DEVELOPMENTS AND NEAR TERM OUTLOOK
Kansanshi copper and gold operation, Zambia
-- The new mining fleet continues to be commissioned with the nine of the
twelve new 180 tonne AC drive units now operating. The third 250 tonnes
excavator was commissioned and together with improvements to the mobile
plant availability, mining rates lifted during Q3. These enhancements
are expected to continue during Q4.
-- The secondary crusher on the sulphide circuit was commissioned during
Q3 and will be optimised during Q4.
Guelb Moghrein copper and gold operation, Mauritania
-- Ongoing optimization of the autogenous circuit, including the high
pressure grinding rollers, will continue in Q4 with a goal to achieve
design throughput and increase copper and gold recoveries.
Kevitsa nickel/copper/PGE project, Finland
-- Construction works at Kevitsa have advanced on schedule during Q3.
Earthworks and concrete works have advanced well and the first
construction steel will be erected at the beginning of Q4. The update
of the Kevitsa resource has also progressed well during Q3 and is
expected to be finalised during Q4.
Ravensthorpe nickel project, Australia
-- The refurbishment of the processing facilities at Ravensthorpe has
advanced significantly during Q3 2010. The new crusher installations
are well advanced. Refurbishment of the existing fixed plant facilities
has commenced with commissioning on track for Q2 2011.
-- Grade control drilling has commenced to ensure the geological database
is sufficiently advanced to allow detailed mine planning ahead of the
re-commencement of the plant.
Trident project, Zambia
-- Significant exploration activities at the Sentinel copper deposit and
Enterprise nickel target were undertaken in Q3 with an aim to further
delineate the existing copper deposit and define other targets within
the licence areas. An economic assessment including metallurgical test
work, engineering and geotechnical studies are underway and expected to
be completed in Q4 2010. Environmental studies also commenced in
preparation for environmental and mining license applications.
-- Base-line environmental and social consultations are planned as part of
the environmental impact assessment to be prepared in support of a
mining license. Exploration activities will focus on the three main
prospects, Sentinel, Enterprise and Intrepid, targeting both copper and
nickel.
Production Guidance
-- The Company's 2010 production outlook has been lowered to 322,000
tonnes of copper and 195,000 ounces of gold. The lower estimated
copper production reflects the closure of Frontier.
-- Estimated average C1 cost for 2010 is unchanged at $1.17 per pound
Acquisition of Antares Minerals Inc.
-- In October 2010, the Company entered into an agreement to acquire
Antares Minerals Inc. ('Antares') for CAD $460 million in cash and
shares. Antares' principal asset is the 100% owned Haquira project in
Peru, one of the world's major undeveloped copper deposits.
Sale of investment in Equinox Minerals Limited
-- In November 2010, the Company announced the sale of its approximate 16%
interest in Equinox Minerals Limited which will raise proceeds of
approximately CAD $650 million in cash. The funds will be used towards
advancement of the Company's diversified pipeline of growth projects.
REVENUES
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NET SALES
(after provisional pricing Three months ended Nine months ended
and realization charges) September 30 September 30
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(USD millions unless otherwise noted) 2010 2009 2010 2009
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Kansanshi - copper 375.7 379.7 1,082.3 770.8
- gold 29.5 18.7 82.4 45.3
Guelb Moghrein - copper 49.6 24.1 116.8 70.3
- gold 23.0 16.3 57.8 57.4
Frontier - copper 80.9 107.5 225.3 273.4
Bwana/Lonshi - copper 17.2 - 47.8 0.4
- acid - - - 1.8
Corporate 26.7 - 81.7 -
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Net sales 602.6 546.3 1,694.1 1,219.4
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Copper provisional pricing
adjustment included above 6.5 12.9 (4.8) 40.1
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COPPER SELLING PRICE USD/lb USD/lb USD/lb USD/lb
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Current period sales 3.20 2.44 3.12 2.11
Prior period provisional pricing
adjustment 0.04 0.06 (0.01) 0.07
Treatment charges/refining charges
('TC/RC') and freight parity charges (0.25) (0.29) (0.27) (0.29)
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Realized copper price 2.99 2.21 2.84 1.89
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The Q3 2010 average realized copper price was significantly higher than Q3 2009 due to an increase in the average LME copper price. Copper sales volumes for Q3 decreased 24% to 79,408 tonnes due to the shut down of operations at Frontier at the end of August. Sales volumes from Kansanshi, Guelb Moghrein and Bwana/Lonshi were consistent with production in Q3 and the inventory held in the Company's metal marketing division was consistent with the start of the period.
The Q3 positive provisional pricing adjustment resulted from the finalization of contracts totalling 16,949 tonnes of copper at an average price of $3.14 per pound ($6,913 per tonne). These contracts were provisionally priced at $2.96 per pound ($6,527 per tonne) at June 30, 2010 and were finalized during July and August 2010.
The year-to-date negative provisional pricing adjustment resulted from the finalization of contracts totalling 21,647 tonnes of copper at an average price of $3.24 per pound ($7,140 per tonne). These contracts were provisionally priced at $3.34 per pound ($7,361 per tonne) at December 31, 2009 and were finalized during January and February 2010.
At September 30, 2010, 16,024 tonnes of copper provisionally priced at $3.65 per pound ($8,054 per tonne) remain subject to final pricing in October and November 2010. Refer to the 'Outlook' section for further discussion.
Gold revenues increased by 50% over Q3 2009 to $52.5 million. The increase resulted from a higher realized gold price which offset lower sales volumes in Q3 2010.
Metal marketing division
A metal marketing division was established in Q1 2010 to improve the management of copper and gold sales from the Company's operations and reduce the Company's exposure to provisional pricing. Prior to the establishment of the division, revenues were recognized by operations when title transferred to buyers, usually upon leaving the mine site. Copper and gold sales managed by the metal marketing division are now recognized when title has transferred to final purchasers resulting in reduced sales volumes and higher inventory for the year-to-date. The impact on current quarter and current year sales volumes and inventory balances are summarized as follows:
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Metal marketing division Impact on sales volume for the period
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Three months ended Nine months ended
September 30, September 30,
2010 2010
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Copper (tonnes)
Kansanshi (392) 798
Guelb Moghrein 736 3,493
Frontier 889 8,032
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Total copper 1,233 12,323
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Gold (ounces)
Guelb Moghrein 1,045 6,966
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In addition to marketing the Company's production, the metal marketing division purchases and sells metal from external parties. During Q3, the division had revenues of $26.7 million and finished goods inventory of $44.5 million related to external purchases and sales.
In order to reduce the effect of movements in metal prices between the time of shipment of metal from the mine site and final recognition of the sale, the metal marketing division enters into futures contracts. As a result of the significant increase in LME copper prices during Q3, a derivative instrument loss of $23.8 million was recognized on these futures contracts in the period. This loss offsets an unrecognized gain in the fair market value of the inventory held by the metal marketing division at September 30, 2010.
SEGMENTED OPERATING RESULTS
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Kansanshi Copper and Gold Operation Three months ended Nine months ended
September 30 September 30
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2010 2009 2010 2009
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Production (tonnes)
Copper cathode 21,914 25,436 61,761 70,509
Copper in concentrate 9,723 9,516 32,016 49,903
Copper cathode tolled 23,564 26,344 71,115 62,114
Total copper production (tonnes) 55,201 61,296 164,892 182,526
Copper sales (tonnes) 55,355 73,985 166,485 177,161
Gold production (ounces) 29,456 25,350 80,647 67,460
Sulphide ore tonnes milled (000's) 2,443 2,576 7,683 9,217
Sulphide ore grade processed (%) 0.8 0.9 0.8 1.0
Sulphide copper recovery (%) 93 93 92 90
Mixed ore tonnes milled (000's) 1,289 1,477 3,826 2,022
Mixed ore grade processed (%) 1.2 1.3 1.3 1.1
Mixed copper recovery (%) 67 65 66 81
Oxide ore tonnes milled (000's) 1,495 1,540 4,153 4,183
Oxide ore grade processed (%) 2.4 2.3 2.2 2.2
Oxide copper recovery (%) 78 80 86 81
Cash costs (C1) (per lb)(1) $ 1.09 $ 1.01 $ 1.11 $ 1.00
Total costs (C3) (per lb)(1) $ 1.42 $ 1.31 $ 1.33 $ 1.27
Gross operating profit (USD M) $242.6 $208.5 $674.3 $379.2
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(1) C1 costs and C3 costs are non-GAAP measures. See 'Regulatory
disclosures - non-GAAP measures' for further information
Q3 copper production decreased by 10% from Q3 2009 due to lower throughput and grades processed. Overall mining production improved in Q3 on the continued commissioning of new mining equipment. However, increased waste stripping resulted in lower total ore volumes mined and processed in the period.
Q3 sulphide circuit production was impacted by lower grades and tonnes processed. Throughput decreased from the comparative period on the testing and commissioning of the secondary sulphide crusher in Q3 2010 resulting in downtime on the crushing and milling circuit.
Mixed ore circuit throughput was constrained by maintenance downtime on the SAG mill in early Q3, resulting in processing of ore directly through the ball mill at lower rates. Circuit recovery remained strong in Q3 offsetting a small decrease in ore grade processed.
Kansanshi's oxide circuit recovers both oxide and sulphide minerals to produce copper cathode and copper in concentrate. Total copper recovery of 78% reflects an increase in the proportion of sulphide material floated in the circuit at a lower overall recovery. Q3 throughput was impacted by downtime caused by the construction and commissioning of circuit improvements aimed at achieving higher recoveries of sulphide and oxide material. The benefits of these improvements are expected to be realized in Q4 and into 2011.
Total gold production increased by 16% due to continued gravity circuit improvements. Kansanshi produced a record 14,482 ounces of gold in dore in Q3.
Kansanshi's cash unit cost of production (C1) increased from Q3 2009 due to higher ore costs and higher processing costs, partially offset by an increased gold credit. The cost of ore processed was 29% higher than Q3 2009, despite a decrease in total mining costs per tonne of mined material, due to lower grade ores mined and the impact of higher waste stripping on the cost per ore tonne mined. Increased processing costs resulted from lower overall copper production and higher maintenance costs. The increased gold credit resulted from higher gold sales volumes and prices realized in Q3.
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Guelb Moghrein Copper Three months ended Nine months ended
and Gold Operation September 30 September 30
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2010 2009 2010 2009
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Production - copper in
concentrate (tonnes) 8,487 7,425 27,282 24,792
Copper sales (tonnes) 9,291 6,958 22,232 26,106
Gold production (ounces) 17,262 18,007 62,184 63,149
Sulphide ore tonnes milled (000's) 644 514 2,048 1,518
Sulphide ore grade processed (%) 1.4 1.7 1.5 1.9
Sulphide copper recovery (%) 92 84 91 88
Cash costs (C1) (USD per lb)(1) $0.79 $0.67 $0.85 $0.35
Total costs (C3) (USD per lb)(1) $1.85 $1.19 $1.60 $0.61
Gross operating profit (USD M) $35.0 $14.8 $82.8 $53.6
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(1) C1 costs and C3 costs are non-GAAP measures. See 'Regulatory
disclosures - non-GAAP measures' for further information
Guelb Moghrein's Q3 production improved from 2009 on the plant expansion completed in 2010. The plant continued process configuration work aimed at achieving design throughput capacity and improved recoveries. This included a conversion to an autogenous circuit in Q3 which temporarily reduced overall mill availability and throughput. Ore grades processed are generally lower in 2010 reflecting the ore profile going forward.
Gold production was 4% lower than Q3 2009 due to lower gold grades processed, offset partially by increased recovery and throughput. The gold plant is expected to improve dore production with the addition of a gravity concentrator.
Guelb Moghrein's average cash cost of production (C1) was higher compared to Q3 2009 due to increased ore costs and processing costs incurred on lower grade ore and circuit downtime during optimization work undertaken. The gold credit benefitted from higher realized gold price which outweighed lower gold sales volume in Q3 2010.
Guelb Moghrein's Q3 operating profit increased from the comparative period due to increased copper sales volumes and significantly higher realized copper and gold prices. This was reduced by higher production costs incurred and increased depreciation on the plant expansion completed in 2010.
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Frontier Copper Operation Three months ended Nine months ended
September 30 September 30
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2010 2009 2010 2009
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Production - copper in
concentrate (tonnes) 10,541 24,765 47,508 68,094
Copper sales (tonnes) 12,360 24,211 39,643 65,143
Sulphide ore tonnes milled (000's) 1,346 2,183 5,425 5,788
Sulphide ore grade processed (%) 0.9 1.2 1.0 1.3
Sulphide copper recovery (%) 92 92 90 92
Cash costs (C1) (USD per lb)(1) $2.22 $1.02 $1.77 $ 1.06
Total costs (C3) (USD per lb)(1) $2.55 $1.19 $2.10 $ 1.21
Gross operating profit (USD M) $30.6 $67.8 $93.6 $165.9
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(1) C1 costs and C3 costs are non-GAAP measures. See 'Regulatory
disclosures - non-GAAP measures' for further information
There was no copper production at Frontier following the forced shut down of operations on August 27, 2010 by the RDC government.
Copper production at Frontier during July and August was impacted by the effect of reduced capital investment in 2010 which was a consequence of the uncertainty following the legal proceedings instigated by the RDC state-owned mining agency, Sodimico. As a result, Frontier's mine equipment availability was lower and access to higher grade ore was limited.
A significant increase in cash costs was caused by lower ore grades processed, increased mining costs, and inefficiencies experienced on lower copper production in Q3 2010. The Company incurred an impairment charge of $249.8 million, net of tax and including closure costs, related to the Frontier copper operation following the forced shut down by the RDC. See 'Other items' for further discussion.
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Bwana/Lonshi Copper Operation Three months ended Nine months ended
September 30 September 30
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2010 2009 2010 2009
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Production - copper cathode (tonnes) 2,404 - 7,415 -
Copper sales (tonnes) 2,402 - 6,910 -
Oxide ore tonnes milled (000's) 112 - 327 -
Oxide ore grade processed (%) 2.2 - 2.5 -
Oxide copper recovery (%) 92 - 91 -
Cash costs (C1) (USD per lb)(1) $1.24 - $1.28 -
Total costs (C3) (USD per lb)(1) $1.54 - $1.43 -
Gross operating profit (loss) (USD M) $ 7.1 $(6.3) $ 1.7 $(12.9)
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(1) C1 costs and C3 costs are non-GAAP measures. See 'Regulatory
disclosures - non-GAAP measures' for further information
The Bwana Mkubwa copper SX/EW plant continued production of grade A copper cathode from the Lonshi oxide ore stockpile until the end of Q3. The gross operating profit for Q3 includes a non-cash expense of $15.5 million related to the inventory net realizable value write-up recognized in 2009. The write-up was expensed as the Lonshi ore stockpile was processed in 2010. The facility has been placed on care and maintenance while options are considered for use of the SX/EW assets.
COSTS AND EXPENSES
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Three months ended Nine months ended
September 30 September 30
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(USD millions unless otherwise noted) 2010 2009 2010 2009
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Gross operating profit 309.6 284.8 847.6 585.8
General and administrative (13.3) (8.7) (26.2) (20.0)
Acquisition transaction costs - - (18.5) -
Other income (loss) (2.0) 10.0 9.6 20.9
Derivative instrument adjustments (22.6) (40.4) (14.6) (139.5)
Exploration (12.6) (4.4) (31.9) (15.6)
Assets impaired (306.9) - (1,120.0) -
Interest (15.5) (19.5) (44.0) (42.1)
Income taxes (61.1) (73.2) (104.3) (111.7)
Non-controlling interests (12.3) (24.8) (76.4) (41.6)
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Net earnings (loss) attributable to
equity holders of the parent (136.7) 123.8 (578.7) 236.2
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Earnings (loss) per share
- basic (USD per share) (1.70) 1.59 (7.24) 3.17
- diluted (USD per share)(1) (1.70) 1.50 (7.24) 3.11
Weighted average shares outstanding
- basic (number of shares -
millions) 80.2 78.1 80.0 74.6
- diluted (number of shares -
millions)(1) 80.2 87.7 80.0 78.6
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(1) As the Company has incurred a loss, pursuant to Canadian GAAP, the
convertible bonds and stock options are excluded from the computation of
diluted loss per share.
The derivative instrument adjustments of $22.6 million in Q3 2010 consist of losses recognized on LME futures sales contracts held by the metal marketing division as at September 30, 2010 following a significant increase in copper price during the current period. The commensurate gain in the underlying copper inventory is not recognized until it is sold. In the comparative period, the Company's derivative loss was incurred on derivative positions entered into in order to protect the Company against the uncertain economic outlook of early 2009.
Exploration expenses in Q3 include $7.5 million incurred at the Trident project representing a significant increase in exploration activity. See 'Development activities' for further discussion.
Asset impairment expense in Q3 2010 consists primarily of the impairment of Frontier's property, plant and equipment, and inventory that were deemed unrecoverable following the forced suspension of the Frontier operation. The tax impact of this impairment is included with income tax expense.
Interest expense has decreased from Q3 2009 due to a decrease in LIBOR and a lower balance of the corporate revolving credit and term loan facility.
Q3 income taxes were reduced by the impact of Frontier's impairment on current and future tax liabilities, representing a tax recovery of $63.1 million. Normalized income taxes have increased from Q3 2009 due to increased profitability and a decrease in the proportionate earnings contribution from Guelb Moghrein, which is operating under a tax holiday.
Non-controlling interests has decreased from Q3 2009 due to the 5% non-controlling interest portion of Frontier's impairment, resulting in a $12.5 million recovery in Q3 2010. In February 2010, the Company acquired the remaining 20% ownership interest in Mauritanian Copper Mines SARL, which owns Guelb Moghrein, resulting in no further non-controlling interests in this operation.
FINANCIAL POSITION AND LIQUIDITY
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Three months ended Nine months ended
September 30 September 30
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(USD millions unless otherwise noted) 2010 2009 2010 2009
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Cash flows from operating activities
- before changes in working capital 193.8 164.6 573.2 408.2
- after changes in working capital 8.3 196.7 471.0 292.5
Cash flows from financing activities 49.7 (52.2) (21.1) 594.5
Cash flows from investing activities (114.5) (86.1) (736.3) (255.5)
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Net cash flows (56.5) 58.4 (286.4) 631.5
Cash balance 632.8 807.7 632.8 807.7
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Available credit facilities
- Corporate revolving loan and
short-term facility 250.0 250.0 250.0 250.0
- Corporate revolving credit and
term loan facility 50.0 50.0 50.0 50.0
- Short-term borrowings 9.9 - 9.9 -
Cash flows from operating activities
per share (basic)
- before working capital
(USD per share) $2.42 $2.11 $7.17 $5.47
- after working capital
(USD per share) $0.10 $2.52 $5.89 $3.92
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Operating cash flows were generated from positive operating results during Q3. Working capital movements during Q3 2010 include an increase in accounts receivable of $86.4 million as a result of a significant increase in copper price, and a decrease in taxes payable due to payments of $115.0 million made by Kansanshi to the Government of the Republic of Zambia ('GRZ').
Cash inflows from financing activities comprise proceeds from debt of $66.2 million related to an increase in short-term borrowings required to finance material purchases and short-term hedging of copper and gold in Q3. Financing activities also include Q3 dividend payments of $15.2 million to equity holders of the Company and $1.9 million to non-controlling interests.
Investing activities in Q3 consist primarily of property, plant and equipment expenditures. The Company invested $25.7 million on the plant at Ravensthorpe and $33.4 million at Kevitsa as development continues to increase at both projects. Kansanshi expended $44.0 million on new mining equipment and the secondary crusher during the period. The Company undertook significant investing activities in early 2010 including; the acquisition of the Ravensthorpe nickel project for $338.8 million, of which $34.0 million was paid in 2009, the acquisition of Kiwara PLC for $133.2 million in net cash and $137.2 million in common shares of the Company, and the acquisition of the 20% non-controlling interest in Mauritanian Copper Mines for $63.0 million.
In addition to the Company's cash reserves, additional sources of funding available include the $250.0 million corporate revolving loan and $50.0 million available under the corporate revolving credit and term loan facility.
Subsequent to September 30, 2010, the Company cancelled the $250.0 million corporate revolving and loan facility and sold all of its marketable security investment in Equinox Minerals Limited which will raise proceeds of approximately CAD $650 million.
As at September 30, 2010, the Company had the following contractual obligations outstanding:
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Less
(USD than 1-2 2-3 3-4 4-5 There-
millions) Total 1 year years years years years after
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Term debt 208.3 182.6 5.3 5.1 5.1 5.1 5.1
Convertible
bonds 500.0 - - - - 500.0 -
Accounts
payable 370.1 370.1 - - - - -
Deferred
payments 9.3 0.4 0.4 0.3 0.2 - 8.0
Commitments 184.5 184.5 - - - - -
Asset retirement
obligations 27.1 - - - - - 27.1
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INVENTORY
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Copper Gold in dore
(tonnes) (ounces)
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Kansanshi 20,468 2,472
Guelb Moghrein 8,092 1,150
Frontier 8,032 -
Bwana/Lonshi 450 -
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Total 37,042 3,622
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The Company's finished copper inventory decreased by 3,658 tonnes in Q3 to 37,042 tonnes as at September 30, 2010 with an average cost of approximately $1.49 per pound ($3,279 per tonne). Guelb Moghrein's inventory includes finished copper in concentrate which required further blending prior to sale and will be sold in Q4. Frontier's inventory balance represents finished copper held in transit to final offtakers through the metal marketing division. Approximately 16,500 tonnes of Kansanshi copper in concentrate was in the process of being treated or stockpiled for treatment at the Mufulira smelter as at September 30, 2010. Included in the total finished goods inventory balance, but not in the table above, is 5,977 tonnes of third party material purchased for resale by the metal marketing division.
Contained gold in dore inventory increased to 3,622 ounces due to timing of shipments in Q3. Gold contained in copper in concentrate is not included in the inventory balances noted above.
COMPREHENSIVE INCOME
The market value of available-for-sale investments increased during Q3 resulting in the Company recognizing a tax affected increase in the fair value of investments of $208.5 million.
EQUITY
As at the date of this report the Company has 80,672,932 shares outstanding.
DEVELOPMENT ACTIVITIES
Ravensthorpe nickel project, Australia
In February 2010, the Company acquired the Ravensthorpe nickel project for $338.8 million.
Ravensthorpe is located in Western Australia, approximately 550km southeast of Perth. It is an open pit mine and hydrometallurgical process plant that uses proven technology to recover nickel and cobalt to produce a mixed nickel cobalt hydroxide intermediate product. Ravensthorpe's development was completed in 2007, however, operations were suspended in January 2009 after the LME nickel price dropped to as low as $8,810 per tonne in late 2008.
An engineering firm in Perth is completing the detailed design of modifications for the Ravensthorpe process plant, of which a significant part is the modification of the crushing, conveying, stockpile, reclaim and rejects handling areas of the plant. Various environmental and project management plans received approval from the relevant authorities during Q3. As a result, site works are progressing well. Concrete demolition work on both the limonite and saprolite crushing stations have been completed and new civil work is underway. Inspection, testing and re-commissioning of the existing plant continues. Major equipment deliveries have commenced. Upgrade and modification work scheduling will allow commissioning to commence in Q2 2011. This will be followed by approximately six months of commissioning and ramp-up. In order to provide further enhancements to the plant, the revised capital requirement for the modification has increased to approximately $190 million.
The operations recruitment program is continuing and is on schedule. The Company expects Ravensthorpe's average annual production of nickel metal will be approximately 39,000 tonnes for the first five years after recommencement of operations. The expected average annual production is 28,000 tonnes over the total life of mine of 32 years.
Kevitsa nickel/copper/PGE project, Finland
Detailed design is continuing and nearing completion for earth works, concrete works and structural steel. Procurement of the major items of equipment is well advanced and the first major components will be delivered to the site in Q4 2010.
Construction progressed with 160 contractors currently on site and 350 scheduled by Q1 2011. The earthworks are now 83% complete, the concrete works are 35% complete. The construction of the main power line is in progress and work on the water line will commence in Q1 2011. Additional major contracts are in progress for the primary crusher excavation, the tailings and water reservoir construction and the site switchyard.
The project remains on schedule to commence commercial production in mid 2012.
Trident project (formerly Kalumbila), Zambia
In January 2010, the Company acquired all of the issued share capital of Kiwara PLC ('Kiwara') which owned 85% of Kalumbila Minerals Limited ('Kalumbila') and holds mineral property licences on the periphery of the Kabombo Dome in North Western Province, Zambia. Under the terms of the Kiwara acquisition agreement, the Company acquired a further 10% interest in Kalumbila in February 2010 and 1% in May 2010 bringing its ownership interest to 96%. The Company holds options to acquire the remaining 4% interest in Kalumbila for GBP 3.5 million which will be exercised in Q4 2010.
Base-line environmental and social consultations have commenced as part of the environmental impact assessment to be prepared in support of a mining license.
Refer to the 'Exploration' section for discussion on the Company's exploration program at Trident.
Kansanshi copper/gold operation, Zambia
Throughput optimization of the sulphide circuit is ongoing, mainly focused on the production of a finer product from the crusher. The first phase of the milling expert control system was implemented and is working well in its current restricted configuration. Full implementation will happen in a staged manner over the remainder of Q4.
The installation of additional flotation capacity on sulphide and mixed ore is progressing with commissioning due in January 2011. This additional capacity will enhance recovery potential of both sulphide and mixed ore at higher production rates. The installation of additional leaching capacity for the oxide circuit, aimed at improving recovery of soluble copper, is scheduled for completion towards the end of Q4 2010. The de-sliming circuit aimed at improving recovery of sulphide minerals from the oxide ore flotation circuit was commissioned in Q3 and optimization work to deal with capacity constraints is underway.
Optimization of gold recovery continues with an additional gravity concentrator installed and commissioned in the mixed ore milling circuit. Test work on the treatment of the acidic high pressure leach residue to extract gold was also positive. The goal for these installations is to reduce gold in concentrate to below payable levels and maximize the more favorable return on gold in dore.
Guelb Moghrein copper/gold operation, Mauritania
Ongoing optimization of the autogenous circuit, including the high pressure grinding rollers, will continue in Q4 with a goal to achieve design throughput and increase copper and gold recoveries.
Acquisition of the non-controlling interest in Mauritanian Copper Mines SARL
In February 2010, the Company completed the acquisition of the 20% non-controlling interest in Mauritanian Copper Mines SARL, which owns the Guelb Moghrein copper and gold operation, for $63.0 million.
Exploration
Exploration activities continued at a high rate during the period with staff, resources and drill rigs redeployed from the RDC to Zambia to boost the Trident program. Extra drilling capacity arrived in Mauritania and a substantial summer prospecting program in Finland has revealed significant potential for new nickel and copper projects.
Fourteen drill rigs are now active on the Trident project in Zambia. Nearly 50,000m of drilling has been completed in 142 holes on the Sentinel copper deposit since the Company acquired the project in Q1 2010. A pattern of 200m spaced sections has been largely completed in the area of the current mineral resources of approximately 4km by 1km with preliminary results demonstrating good continuity of mineralization. Furthermore, the focus of the drilling activity has now moved to the south west to test for potential significant extensions up to several kilometers and outside of the current mineral resource. Preliminary results are positive with visible mineralization observed and logged in the drill core.
A major regional exploration program is currently in progress over the entire Trident project of approximately 2,300 km2 of license area. Detailed airborne electro-magnetic work has been completed and is proving an excellent tool to identify the prospective target zones. A low level helicopter magnetic-radiometric survey is currently in progress and a systematic geochemical program of 23,000 soil samples is already providing targets for follow up drilling. Drilling has commenced on the Enterprise nickel target 12 km north of Sentinel and will progress to further regional targets over Q4.
At Kansanshi two exploration rigs continued drilling on the southeast dome prospect and 74 holes have now been completed that define a clear domal structure approximately 500m across hosting typical Kansanshi vein style mineralization. Recent drill results have defined the first area of near surface oxide mineralization.
At Kevitsa in Finland, drilling will focus on high priority geophysical targets in the Kevitsa tenure. Resource modeling of the new extensions to the south of the proposed Kevitsa pit has been completed and optimization studies are currently in progress. An extensive field validation program of regional targets has defined 22 prospects for follow up drilling during the coming winter.
In Mauritania a second drill rig and a boosted geological team are now in place which will accelerate the testing of regional targets over the next few months.
Antares Minerals Inc.
In October 2010, the Company entered into a definitive agreement to acquire, by way of a court-approved plan of arrangement, all of the outstanding securities of Antares. The total consideration for the purchase of 100% of the fully diluted shares of Antares is approximately CAD $460 million in cash and shares.
Antares' principal asset is the 100% owned Haquira project located in southern Peru adjacent to Xstrata Copper's Las Bambas copper-gold project. It is one of the world's major undeveloped copper deposits with excellent potential for the development of a large scale copper mine. Haquira currently has reported measured and indicated resources of 3.7 million tonnes of contained copper equivalent and inferred resources of 2.4 million tonnes of contained copper equivalent.
OTHER ITEMS
RDC - Kolwezi dispute
During 2007, the Government of the RDC announced a review of over 60 mining agreements entered into over the last decade with foreign companies. The Kolwezi mining convention ('Contract of Association'), to which the Company's subsidiary Congo Mineral Developments Limited ('CMD') is a party, in partnership with Industrial Development Corporation of South Africa ('IDC') and the IFC (International Finance Corporation). At the conclusion of the 'Revisitation' CMD received a letter from the RDC Prime Minister dated August 21, 2009, which reported on the outcome of an August 4, 2009 meeting of the RDC Council of Ministers with respect to the Contract of Association. The letter notes the 'impossibility to pursue the partnership' and directed that the Kolwezi exploitation permit held by KMT, the Company formed by the parties to pursue the KMT Project, be returned to Gecamines pursuant to the Contract of Association. Subsequently, the exploitation permit was cancelled and on September 15, 2009 CMD received an order by the General Prosecutor of Katanga to seal KMT's facilities. In January 2010, Gecamines terminated the Contract of Association.
The Company believes there is no legal basis for the cancellation of KMT's exploitation permit, the sealing of the KMT facilities, and Gecamines' termination of the Contract of Association, and as previously noted, that CMD and the KMT Project's other contributing partners, the IFC and the IDC, continue to have a valid and binding contract with the RDC and Gecamines.
Following the cancellation of the Kolwezi exploitation permit, on October 28, 2009 the RDC local court ruled on the incorporation of KMT and found on the basis of no evidence that there was a formal defect in the Decree granting authorization for the constitution of KMT. The local court also found without any evidence presented that there was fraud committed in the constitution of KMT and held for this reason KMT did not exist in law. CMD, IFC and IDC appealed this decision.
On February 1, 2010, CMD, IFC and IDC commenced international arbitration at the International Chamber of Commerce ('ICC') in Paris. A Tribunal has been appointed and a final decision is expected in the latter part of 2012.
On February 22, 2010, without any prior notice KMT and CMD received a Notice of Hearing Date from Gecamines and CAMI setting the appeal of the judgment of the local court for hearing in less than 48 hours on February 24, 2010. Gecamines and CAMI requested the confirmation of the local court judgment and also made an unsupported request for up to US$12 billion in damages to be awarded to Gecamines and CAMI. KMT's lawyers attended and objected to the proceedings. Following a hearing on February 24, 2010, the Company received official notification of the Court of Appeal's judgment on April 7, 2010 confirming the local court's decisions with respect to KMT and awarding US$12 billion in damages against CMD and KMT. On July 27, at the request of the RDC and Gecamines, the Court of Appeal appointed a liquidator to KMT for the purposes of winding up KMT and distributing its assets.
On October 12, 2010 CMD, IFC and IDC applied to the ICC Tribunal for interim protective procedural orders. On October 26, the Tribunal ordered that the RDC and Gecamines cannot enforce directly or indirectly the March 10, 2010 decision of the Court of Appeal, which includes the US$12 billion damages judgment issued by the Court of Appeal against KMT and CMD, maintaining a temporary Order issued on August 19, 2010. This ruling impacts the ongoing efforts by the RDC to enforce the Court of Appeal judgment through the appointment of a Liquidator and means that the RDC cannot liquidate KMT's assets in the country in payment of the damages claim.
Following the appointment of an official liquidator to liquidate KMT and CMD, the Company determined that a complete impairment of the Kolwezi assets was required. The historical carrying value of the Kolwezi development project was $791.1 million and was comprised of the initial acquisition cost and subsequent capital expenditures. A future tax liability of $109.5 million relating to the acquisition of Kolwezi was derecognized concurrently with the asset impairment.
Sodimico
Sodimico, a RDC state owned mining company, obtained a judgment against Compagnie Miniere De Sakania SPRL ('Comisa') and the Company on March 12, 2010 from the Tribunal de Commerce of Lubumbashi and the Company was notified of the judgment on April 5, 2010. The judgment orders Comisa and the Company to pay to Sodimico $17.3 million for the value of studies made by Sodimico over the perimeters of titles now held by Comisa and a further $40.0 million as additional unknown damages. The court found, based on documents provided by Sodimico, that Comisa acquired the rights over the Lonshi deposits 'at the operation stage' and 'therefore there is no doubt that it must have used the results of the geological and mining studies made by Sodimico'. In fact, Comisa did not use any geological data or studies belonging to Sodimico and there is no factual or legal basis for the judgment. Comisa filed an appeal of the judgment, which is set to be heard November 16, 2010 in Lubumbashi. The Company believes that Sodimico could not enforce payment of the judgment amount against Comisa, and therefore no liability has been recorded as at September 30, 2010.
RDC - Frontier and Lonshi
On March 8, 2010, the Company, and its RDC subsidiaries Comisa and Frontier, and also Bwana, a wrongly named Zambian subsidiary of the Company, were served notices of a case introduced by Sodimico against the RDC before the RDC Supreme Court of Justice ('Supreme Court'). Sodimico requested the cancellation of a February 2000 letter from the Minister of Mines, which Sodimico alleged wrongfully withdrew mining titles belonging to Sodimico. These titles are further alleged to have been subsequently granted to Comisa and Frontier. A hearing was held by the Supreme Court on May 14, 2010 and on May 21, 2010 the Supreme Court delivered a judgment restoring certain mineral rights to Sodimico. These rights conflicted with mineral rights held by Frontier and Comisa. The conclusions of the Supreme Court are impossible to reconcile with the known history of the mineral rights in question.
On August 10, 2010 Frontier received notification from the RDC mining registry ('CAMI') of the withdrawal of its mining and exploration titles based on instructions from the Minister of Mines. On August 24, 2010 Comisa received notification from CAMI of the withdrawal of its mining and (bulk of) exploration titles based on instructions from the Minister of Mines.
On August 27, 2010 the Company announced the suspension of operations at the Frontier mine. This suspension followed the withdrawal of Frontier's exploitation permit by CAMI, and a letter received from Sodimico, which has purportedly been granted Frontier's titles, demanding that Frontier stop all mining and exports and leave the mining title areas. The threats by Sodimico rendered it impossible to continue safe and orderly operations at Frontier. Frontier's operations employed approximately 1500 workers and it was the largest tax payer in the RDC in 2009. The Company no longer has access to either Frontier or Lonshi and therefore has no ability to maintain the facilities or monitor for safety or environmental issues that may arise.
As a result of these actions the Company has determined there to be a complete impairment of the RDC assets of Frontier including product and supplies inventories, mineral properties, plant and equipment. The historical carrying value of these assets, and associated liabilities was $252.8 million in property, plant and equipment, $51.9 million in inventories and $1.2 million of other assets and associated liabilities. The impairment was recorded net of current and future tax recoveries of $62.8 million and includes closure costs of $6.7 million.
On October 1, 2010 the Company, through its subsidiaries International Quantum Resources Limited, Frontier and Comisa commenced international arbitration under the facilities of the International Centre for Settlement of Investment Disputes ('ICSID') in Washington, United States of America against RDC. The arbitration relates to the unjustified withdrawal and reissue of certain mining titles (the 'Permits') held by Frontier and Comisa, in violation of the provisions of the RDC Mining Code and applicable laws. First Quantum contests the validity of the RDC's cancellation of the Permits and illegal possession of the Company's investments and assets, seeks their return and is pursuing damages as compensation for the losses the Company has suffered with respect to the RDC's actions.
The Comisa and Frontier ICSID arbitration forms part of First Quantum's overall effort to pursue its legal rights in RDC.
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. These changes included a new windfall tax on copper sales revenue; a new variable profit tax; a concentrate export levy of 15%; an increase in the royalty rate to 3%; an increase in the income tax rate to 30%; and other changes including changes in the timing of deductibility of capital allowances and streaming of hedging losses and gains. These changes were passed by Parliament in March 2008 and the majority of changes took effect from April 1, 2008.
Under the new President, the GRZ reviewed these tax changes and proposed that the new windfall tax be removed, the deductibility of capital allowances be increased back to 100% in the period of expenditure and to allow hedging income be part of mining income for tax purposes. These changes were passed by Parliament in March 2009 and the majority of changes took effect from April 1, 2009. These enacted changes are not retroactive to April 1, 2008. On May 18, 2009 the GRZ issued a temporary exemption of the concentrate export levy of 15% until December 31, 2009 in order to allow the Company to export the copper in concentrate that cannot be treated in Zambia due to the lack of smelter capacity within Zambia.
The Company, through its Zambian subsidiaries, is party to Development Agreements with 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. Following consultation with external legal counsel, the Company assessed there to be a high probability of recovery from the GRZ of payments made in respect of these taxes.
In the consolidated financial statements, the Company has recognized a tax expense in accordance with applicable laws from time to time notwithstanding the Development Agreements. In addition and reflecting the enforceability of the Development Agreements, the Company has recognized a receivable from the GRZ for an amount in respect of the expected ultimate repayment of taxes in excess of the taxes permitted under the Development Agreements. This receivable has been classified as 'loans and receivables' and initially recorded at fair value based on management's best estimate of the timing of receipt and amounts due. As required, the receivable is assessed for impairment at each reporting period based on changes in facts and circumstances; any impairment amounts required may be material. As at September 30, 2010, this receivable amounts to $221.4 million.
Currently, the Company is involved in discussions with the GRZ to find an alternative solution to arbitration or litigation to fully resolve all outstanding matters in relation to the tax changes introduced in conflict with the Development Agreements. While the timing and outcome of these discussions remains uncertain, the Company recognizes that resolving this dispute through arbitration may not be in the best interest of either the Company or the GRZ. Accordingly, while no terms have been agreed to, the Company is seeking to achieve a compromise resolution which respects the key terms of the Development Agreements.
OPERATIONAL OUTLOOK
The Company's 2010 production outlook has been lowered to 322,000 tonnes of copper and 195,000 ounces of gold. The lower estimated copper production reflects no further production from Frontier in Q4.
The estimated average C1 cost for 2010 is unchanged at $1.17 per pound.
For 2011, the forecast is for 305,000 tonnes of copper and 210,000 ounces of gold. The Company also expects to begin nickel production in 2011 with the commissioning of the Ravensthorpe project planned for the second half of the year.
Kansanshi
Significant focus for Q4 and into 2011 will be given to increasing throughput to the oxide circuit. Key focus areas will be crushing and milling capacity along with leach, CCD and SX capacity. The use of equipment from Bwana Mkubwa will allow fast tracking of this project. In addition, a review is underway to develop a means to treat higher quantities of mixed ore. Optimization of the sulphide circuit to derive the required throughput gains expected from the installation of secondary crushing capacity are ongoing.
Guelb Moghrein
Optimization of the 3.8 million tonne per annum expansion will continue during Q4. Increased throughput and metal recoveries will remain the focus of the overall plant optimization. The blend of mine feed will be enhanced to ensure that the ore quality remains within practical operational limits.
Hedging program
As at September 30, 2010, the following derivative positions were outstanding:
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Maturity Maturity September 30, December 31,
2010 2011 2010 2009
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Asset Liability Asset Liability
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Foreign exchange
Foreign exchange
contracts 10.9 - 0.7 - 0.9 (0.6)
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Interest rate
Floating to fixed
interest rate swap
- principal 32.7 26.0 - (0.3) - (0.7)
Average fixed
interest rate 1.80% 1.80%
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Copper
Futures sales contracts
over quotation period
(tonnes)(a) 200 - 0.6 - - -
Average price
($/tonne) $7,416 -
Futures sales contracts
over quotation period
(tonnes)(a) 31,725 - - (21.1) - -
Average price
($/tonne) $7,485 -
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Gold
Futures sales contracts
over quotation period
(ounces)(a) 21,898 - - (1.3) - -
Average price
($/ounce) $1,249 -
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Other
Embedded derivative
(note 9c) - (4.1) - (7.6)
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1.3 (26.8) 0.9 (8.9)
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Copper embedded
derivative
(tonnes)(b) 16,024 -
Average price
($/tonne) $8,054 -
Gold embedded
derivative
(ounces)(b) 2,377 -
Average price
($/ounce) $1,308 -
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Copper embedded
derivative hedged by
future sales contracts
(tonnes)(a) 10,968 -
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a) Copper and gold derivative contracts
Part of the Company's metal production is sold directly to end customers
through its metal marketing division. As a consequence of these direct
sales, there is an extended period between shipment of metal from the mine
site and the timing of recognition of the final sale. In order to reduce
the effects of movements in the metal price during this period, the
Company enters into futures sales contracts.
b) Provisionally priced copper sales subject to final settlement prices
in Q4 2010
At September 30, 2010, 16,024 tonnes of copper sales were provisionally
priced at an average of $3.65 per pound ($8,054 per tonne). Of this total,
9,686 tonnes were priced in October and 6,338 tonnes will be priced in
November. The average LME cash price for October 2010 was $3.76 per pound
($8,292 per tonne) resulting in a positive provisional adjustment of $2.3
million which will be recognized in Q4 2010.
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
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 U.S. and Canadian securities laws. Such forward-looking statements or information include but are not limited to statements or information with respect to future price of copper or gold, estimation of mineral reserves and mineral resources, our exploration and development program, estimated future expenses, exploration and development capital requirements, 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 forw