First Quantum Minerals Reports Operational and Unaudited Financial Results for the Three and Six Months Ended June 30, 2011
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 08/08/11 -- (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 six months ended June 30, 2011. The complete unaudited 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.
The Company's results are now being prepared in accordance with International Financial Reporting Standards ('IFRS'). The changes in accounting policies have been applied consistently to the comparative period unless otherwise noted. See 'Regulatory Disclosures' for further discussion.
SUMMARY OPERATING AND FINANCIAL DATA
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Three months Six months
ended ended
June 30 June 30
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(USD millions unless
otherwise noted) 2011 2010 2011 2010
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Production - copper (tonnes) 64,587 85,402 139,475 170,464
Sales - copper (tonnes) 65,511 74,421 136,176 155,862
Production - gold (ounces) 41,087 51,471 90,233 96,113
Sales - gold (ounces) 38,426 44,300 83,775 93,295
Net realized copper price
(per lb) $3.81 $2.70 $3.91 $2.78
Average copper unit cash cost
of production (C1)(1)(per lb) $1.43 $1.21 $1.28 $1.21
Sales revenues $660.0 $539.8 $1,365.2 $1,091.0
Gross profit $363.2 $239.9 $802.7 $546.6
Net earnings (loss) $155.3 $(182.0) $362.0 $(31.7)
Comparative earnings(2) $155.3 $124.6 $362.0 $293.4
Earnings (loss) per share $1.81 $(2.27) $4.22 $(0.40)
Comparative earnings per
share(2) $1.81 $1.55 $4.22 $3.67
Cash $1,119.5 $729.6 $1,119.5 $729.6
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All comparisons of performance throughout this report are to the
comparative periods for 2010 unless otherwise noted
(1) C1 costs are not recognized under IFRS. See 'Regulatory Disclosures'
for further information.
(2) Comparative earnings and comparative earnings per share have been
adjusted to remove the effect of asset impairments and acquisition
transaction costs incurred in 2010. These measures are not recognized
under IFRS.
SECOND QUARTER HIGHLIGHTS
-- 51% increase in gross profit as the 41% higher net realized copper
price more than offset the lower sales volume.
-- 3% decrease in copper production from the Kansanshi and Guelb Moghrein
mines due to maintenance-related downtime at both operations and the
processing of low-grade, high acid consuming oxide ore at Kansanshi.
-- Continued strong cash position net of significant development capital
investment and significant payments of taxes to the Zambia Revenue
Authority ('ZRA').
Development projects advancing on schedule
-- Pre-commissioning activities at the Ravensthorpe project commenced in
Q2 2011. This will be followed by an estimated six months of
commissioning and ramp-up.
-- The Kevitsa project remains on schedule to achieve commercial
production in mid 2012.
-- At the Trident project, mining licences were granted in April 2011
covering the entire project and the Environmental Impact Assessment
('EIA') was approved and a land use agreement was agreed to in July
for the development of the Sentinel deposit. Orders have been placed
for some long-lead mills and mill drives.
-- Site works have commenced on the expansion of the oxide/leach
processing circuit at Kansanshi and delineation and near mine
exploration has been expanded with 16 drill rigs.
-- Exploration activities continue at a high rate at the Company's other
projects in Zambia, Peru, Finland and Mauritania.
-- On July 20, 2011, the Company issued 125,679 common shares in
connection with a listing of depositary receipts by the Company on
the Lusaka Stock Exchange in Zambia.
Operational outlook for 2011
-- Production of 280,000 tonnes of copper and 190,000 ounces of gold. A
reduced outlook for the year reflects lower production to date as well
as lower expected sulphide ore grades in the short-term at Kansanshi,
lower acid availability in Zambia and plans for continued plant
enhancement works at Guelb Moghrein.
-- Average C1 cost of $1.25 per pound of copper. An increase in the
forecasted C1 cost is a result of lower production, inflated input
costs and increased waste stripping at Kansanshi as required for the
planned plant expansions.
-- Nickel production to commence with the commissioning of the
Ravensthorpe project in the second half of the year.
REVENUES
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Three months Six months
Sales revenues (after ended ended
realization charges) June 30 June 30
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(USD millions unless
otherwise noted) 2011 2010 2011 2010
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Kansanshi - copper 491.8 336.6 1,055.0 710.1
- gold 31.9 30.5 66.0 52.9
Guelb Moghrein - copper 56.8 26.8 105.9 67.2
- gold 21.2 13.8 40.7 34.7
Frontier - copper (0.5) 64.4 13.2 144.4
Bwana/Lonshi - copper 0.5 16.6 0.7 30.6
Corporate 58.3 51.1 83.7 51.1
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Sales revenues 660.0 539.8 1,365.2 1,091.0
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COPPER SELLING PRICE USD/lb USD/lb USD/lb USD/lb
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Realized copper price 4.05 2.98 4.14 3.06
Treatment charges/refining
charges ('TC/RC') and freight
parity charges (0.24) (0.28) (0.23) (0.28)
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Net realized copper price 3.81 2.70 3.91 2.78
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Sales revenues were up 22% from Q2 2010 as an increase in the net realized copper price outweighed the 12% lower sales volume. The primary reason for the sales volume decrease was the forced shut down of operations at Frontier at the end of August 2010. Gold revenues increased by 20% over Q2 2010 to $53.1 million due to the higher realized gold price and the timing of sales from Guelb Moghrein.
The Q2 2011 average net realized copper price was significantly higher than Q2 2010 due to an increase in the average LME copper price. TC/RC and freight charges were lower in the current year reflecting a higher proportion of cathode sales in the total sales volume.
During Q2 2011, the metal marketing division had revenues of $58.3 million and finished goods inventory of $56.3 million related to external purchases and sales.
SEGMENTED OPERATING RESULTS
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Three months Six months
Kansanshi Copper and Gold ended ended
Operation June 30 June 30
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2011 2010 2011 2010
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Production (tonnes)
Copper cathode 21,037 20,667 46,482 39,847
Copper in concentrate 11,641 15,091 24,338 22,293
Copper cathode tolled 23,478 20,350 50,133 47,551
Total copper production
(tonnes) 56,156 56,108 120,953 109,691
Copper sales (tonnes) 57,621 54,666 120,694 111,130
Gold production (ounces) 25,417 26,919 56,029 51,191
Gold sales (ounces) 25,944 29,741 57,154 56,480
Sulphide ore tonnes
milled (000's) 2,724 2,791 5,042 5,240
Sulphide ore grade
processed (%) 0.7 0.7 0.8 0.7
Sulphide copper recovery (%) 93 93 94 94
Mixed ore tonnes milled
(000's) 1,696 1,288 3,334 2,537
Mixed ore grade processed (%) 1.0 1.3 1.1 1.4
Mixed copper recovery (%) 62 68 66 66
Oxide ore tonnes milled
(000's) 1,469 1,408 2,986 2,658
Oxide ore grade processed (%) 2.1 2.2 2.3 2.2
Oxide copper recovery (%) 86 90 86 91
Cash costs (C1) (per lb)(1) $1.41 $1.05 $1.26 $1.11
Total costs (C3) (per lb)(1) $1.68 $1.26 $1.53 $1.32
Gross profit (USD M) $333.7 $204.7 $734.2 $432.0
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(1) C1 and C3 costs are not recognized under IFRS. See 'Regulatory
Disclosures' for further information
Kansanshi's total copper production was similar to Q2 2010 as an increase in total throughput was largely offset by lower ore grades and recoveries. Mining activities were focused on cut-backs of upper benches to establish wider pits resulting in higher waste stripping and lower overall ore grades mined and processed in the quarter.
Production from the sulphide circuit was higher than the prior year due to slightly higher ore grade in Q2 2011. The installation of additional flotation capacity was completed in May 2011 which required some downtime during its commissioning and optimization. This installation, combined with the new secondary sulphide crusher, is expected to increase throughput capacity and improve recoveries in the second half of 2011.
The mixed circuit throughput rate continued at a high rate however ore grades processed were 1.0% copper reflecting the current ore profile from the mine pits. Recovery also was lower as a result of an unfavourable blend of sulphide and oxide ore processed.
Production from the oxide circuit decreased from the prior year due to lower acid-soluble copper grades in the ore mined, resulting in lower recoveries. Domestic sulphuric-acid supply was intermittent in the latter part of the quarter which resulted in the stockpiling of some higher acid consuming oxide ore.
Gold production was 6% lower year-over-year as a result of lower gold grades mined and processed from the upper benches of the mine in Q2 2011.
Kansanshi's cash unit cost of production (C1) increased 34% over Q2 2010. Ore costs were impacted by increased fuel prices and the higher level of waste stripping activities. The increased waste stripping is required to enable future mine production to meet the planned increase in plant throughput. Processing costs were impacted by the lower grade of the ore processed, higher input costs for oil-based consumables and acid together with the costs of plant maintenance programs undertaken in Q2 2011.
Kansanshi's gross operating profit was 63% higher than Q2 2010 as a result of higher copper and gold prices in the current period, offset partially by higher production costs.
Outlook for 2011
Mining rates will increase as replacement and new mining equipment is introduced during 2011 and 2012. This higher capacity will allow for additional ore production, waste stripping and mine cutbacks, providing greater operational flexibility. The new equipment required to increase the rate of mining has been selected and procured. Also during Q2 2011, the 350-tonne electric face shovels from the Frontier mine were relocated for re-assembly at Kansanshi. Lower than plan mine grades are expected to continue in Q3 though efforts are being made to alleviate this through re-scheduling mining operations.
Optimization works are ongoing on the sulphide circuit to derive the required throughput gains expected from the installation of secondary crushing capacity. The expansion of the oxide/leach circuit has commenced with the relocation of the fixed plant from Bwana. This initial stage will be completed by late 2011 and an approximate 20% increase in cathode production is expected.
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Three months Six months
Guelb Moghrein Copper and Gold ended ended
Operation June 30 June 30
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2011 2010 2011 2010
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Production - copper in
concentrate (tonnes) 8,429 10,390 18,520 18,795
Copper sales (tonnes) 7,810 5,591 13,841 12,941
Gold production (ounces) 15,670 24,552 34,204 44,922
Gold sales (ounces) 12,482 14,559 26,621 36,815
Sulphide ore tonnes
milled (000's) 631 744 1,389 1,404
Sulphide ore grade
processed (%) 1.5 1.6 1.5 1.5
Sulphide copper recovery (%) 91 87 92 88
Cash costs (C1) (USD per lb)(1) $1.62 $1.08 $1.44 $0.87
Total costs (C3) (USD per lb)(1) $2.49 $1.69 $2.26 $1.56
Gross operating profit (USD M) $38.7 $11.9 $71.9 $47.9
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(1) C1 and C3 costs are not recognized under IFRS. See 'Regulatory
Disclosures' for further information
Guelb Moghrein's copper production was 19% lower than Q2 2010 due to a major crusher repair which resulted in 14 days of circuit downtime. Throughput recovered to planned rates once the crusher returned online by the end of the quarter. Gold production was impacted by the circuit downtime as well as lower gold grades.
Guelb Moghrein's average cash cost of production (C1) was 50% higher than Q2 2010. During the period of the crusher downtime, the mining operation focused on waste stripping which resulted in a significantly higher strip ratio and higher ore costs in Q2 2011. The benefit of this additional stripping will be reflected in future periods. Processing costs were directly impacted by the circuit downtime as fixed costs were allocated to lower production in the quarter. Higher diesel and heavy-fuel oil prices also had a significant impact on mining and processing costs during Q2 2011.
Outlook for 2011
Following the completion of the commissioning phase of the 3.8 million tonnes per annum ('Mtpa') expansion, efforts have focused on the streamlining of the whole process plant. The optimization of the plant with the focus on increasing throughput and metal recoveries is ongoing. The delivery of the expanded mining fleet will provide additional mining flexibility and it is anticipated that this will allow the blend of mine feed to be enhanced ensuring ore quality can be maintained within practical operational limits.
COSTS AND EXPENSES
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Three months Six months
ended ended
June 30 June 30
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(USD millions unless
otherwise noted) 2011 2010 2011 2010
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Gross profit 363.2 239.9 802.7 546.6
General and administrative (14.5) (5.6) (33.2) (12.9)
Other income (expense) (10.6) (1.6) (7.0) 1.9
Exploration (15.4) (11.5) (34.8) (19.3)
Net finance income (expense) 0.4 (4.1) (3.1) (10.0)
Impairment of assets - (306.6) - (306.6)
Acquisition transaction costs - - - (18.5)
Income taxes (135.8) (63.2) (284.1) (148.8)
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Net earnings (loss) for the
period 187.3 (152.7) 440.5 32.4
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Net earnings (loss) for the
period attributable to:
Non-controlling interests 32.0 29.3 78.5 64.1
Shareholders of the Company 155.3 (182.0) 362.0 (31.7)
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Earnings (loss) per share
basic (USD per share) 1.81 (2.27) 4.22 (0.40)
diluted (USD per share) 1.64 (2.27) 3.83 (0.40)
Weighted average shares
outstanding
basic (number of
shares - millions) 85.8 80.3 85.8 79.9
diluted (number of
shares - millions) 94.6 80.3 94.6 79.9
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General and administrative costs increased year-over-year due to elevated legal and other costs related to RDC matters and a higher complement of employees to develop and manage the expanded pipeline of projects.
Exploration expenses in Q2 2011 include $8.0 million incurred at the Enterprise and Intrepid targets in Zambia and $4.5 million at the Haquira project in Peru. The Company now capitalizes costs incurred at Sentinel as the project has advanced to a development planning phase. See 'Development Activities - Exploration' for further discussion.
Net finance costs decreased in Q2 2011 due to an increase in interest income earned on cash balances. Interest costs on group debt balances are capitalized to the Kevitsa and Ravensthorpe projects in accordance with IFRS.
Income taxes are higher on increased profitability in Q2 2011 and an increase in Kansanshi's effective tax rate from 30% in 2010 to 43% 2011. See 'Other items' for further discussion on Zambian taxes.
FINANCIAL POSITION AND LIQUIDITY
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Three months Six months
ended ended
June 30 June 30
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(USD millions unless
otherwise noted) 2011 2010 2011 2010
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Cash flows from operating
activities
before changes in working
capital 241.0 185.2 453.1 405.7
after changes in working
capital (55.0) 339.2 319.7 503.9
Cash flows from financing
activities (93.6) (98.0) (141.8) (92.5)
Cash flows from investing
activities (238.5) (100.3) (423.5) (641.3)
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Net cash flows (387.1) 140.9 (245.6) (229.9)
Cash balance 1,099.3 689.3 1,099.3 689.3
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Available credit facilities
Kevitsa facility 250.0 - 250.0 -
Corporate revolving credit
and term loan facility - 50.0 - 50.0
Short-term borrowings 76.2 18.6 76.2 18.6
Corporate revolving loan and
short-term facility - 250.0 - 250.0
Cash flows from operating
activities per share(1)
before working capital (USD
per share) $2.81 $2.31 $5.28 $5.08
after working capital (USD
per share) ($0.64) $4.23 $3.73 $6.30
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(1) Cash flows per share is not recognized under IFRS. See 'Regulatory
Disclosures' for further information
Operating cash flows before changes in working capital increased from Q2 2010 due to an increase in net earnings. Working capital movements during Q2 2011 resulted in a decrease in cash of $296.0 million. This was principally due to the payment of $347.0 million in Zambian taxes in the current quarter. These tax payments comprised of an instalment for operating earnings in the current year and payment of back-taxes of $224.0 million to the ZRA. See 'Other items' for further discussion on Zambian taxation.
Cash flows from financing activities comprise dividend payments made to shareholders of the Company as well as dividends paid to non-controlling interests. Restricted cash increased to meet the final scheduled principal payment of the Corporate revolving credit and term loan facility in September 2011.
Development at Ravensthorpe and Kevitsa resulted in a cash outflow for investing activities of $192.2 million. Capital investments also continued at Kansanshi and Guelb Moghrein related to the mining fleet additions and plant expansions.
As at June 30, 2011, the Company had the following contractual obligations outstanding:
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Less
than 1 - 2 2 - 3 3 - 4 4 - 5
(USD millions) Total 1 year years years years years Thereafter
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Term debt 81.1 59.3 5.6 5.4 5.4 5.4 -
Convertible
bonds 500.0 - - 500.0 - -
Trade, other and
current taxes
payable 691.2 691.2 - - - - -
Deferred
payments 7.9 0.4 0.2 0.2 - - 7.1
Finance leases 31.0 2.0 2.1 2.3 2.4 2.5 19.7
Commitments 235.0 235.0 - - - - -
Restoration
provisions 156.9 1.3 1.3 1.3 1.3 1.3 150.4
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INVENTORY
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Copper (tonnes)
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Kansanshi 27,439
Guelb Moghrein 11,759
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Total 39,198
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Finished copper inventory decreased by 923 tonnes to 39,198 tonnes as at June 30, 2011 with an average cost of approximately $1.89 per pound ($4,168 per tonne). Approximately 15,000 tonnes of Kansanshi's copper in concentrate was in the process of being treated or stockpiled for treatment at the Mufulira smelter as at June 30, 2011. Included in the total finished goods inventory balance, but not in the table above, is 4,890 tonnes of third party material purchased for resale by the metal marketing division.
EQUITY
At the date of this report, the Company has 95,260,265 shares outstanding. Changes in common shares outstanding from June 30, 2011 are as follows
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'000 shares
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Total shares outstanding as at June 30, 2011 86,179
a) Shares issued on conversion of convertible bonds 8,955
b) Lusaka stock exchange listing 126
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Total shares outstanding as at August 8, 2011 95,260
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c) Five-for-one common share split 381,041
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Expected total shares outstanding on August 11, 2011 476,301
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a) Conversion of convertible bonds
On July 27, 2011, the Company announced a voluntary incentive payment offer in relation to its $500 million 6% convertible bonds. The offer included a cash payment of $8,088.91 per $100,000 in principal amount of the Bonds (the 'Incentive Payment') and a cash payment of $1,410.68 per $100,000 in principal amount of the Bonds (the 'Conversion Price Adjustment Payment') to convert any or all of the convertible bonds due 2014. The incentive offer period expired on July 28, 2011 with 99.98% of the bondholders accepting the conversion offer.
On August 4, 2011, the Company issued 8,955,547 common shares on conversion. The $460.0 million convertible debt liability and the equity component of the convertible debt transferred to common shares. The incentive payment and other transactions costs will be recognized in profit and loss in Q3 2011.
b) Lusaka stock exchange listing
On July 20, 2011, the Company issued 125,679 common shares in connection with a listing of depositary receipts by the Company on the Lusaka Stock Exchange in Zambia (the 'LuSE'). These shares, together with 7,700 common shares in the capital of the Company purchased on the open market, will underlie the depositary receipts. First Quantum is the first mining company to list on the LuSE and these are the first depository receipts issued in Africa. The depositary receipts are held by local Zambian investors and employees and trade under the LuSE Symbol 'FQM'.
c) Common share split
On July 29, 2011, shareholders of the Company approved a five-for-one share split of the Company's issued and outstanding common shares. The record date of the share split will be August 11, 2011. The Company's common shares will begin trading on a split basis from August 9, 2011.
Each shareholder of record of the Company as at August 11, 2011 will receive four additional common shares for each common share held on such date. Earnings per share will be retroactively restated on the five-for-one basis for all comparative periods.
DEVELOPMENT ACTIVITIES
Ravensthorpe nickel project, Australia
Construction of the new plant elements is complete in a number of areas and pre-commissioning of these new elements has commenced. The environmental and project management approval processes continue with approvals now obtained for the recommencement of operations.
Re-commissioning of the existing plant continues with most areas handed over to operations. A period of approximately six months of plant commissioning and ramp-up is expected.
The operations recruitment program is continuing and is on schedule. Ravensthorpe is estimated to produce an average of 39,000 tonnes of nickel annually for the first five years after commencement of operations. The estimated average annual production is 28,000 tonnes over the total life of mine of 32 years. The life of mine planning has commenced with a focus on the sequence of depletion of the respective geological deposits; Halleys, Hale Bopp and Shoemaker Levy.
Kevitsa nickel/copper/PGE project, Finland
Detailed design activities are essentially complete and all major items of equipment are on site. Plant site earthworks are complete, concrete work is over 90% complete, structural steel construction is well progressed, mill installation is over 50% complete and mechanical, piping and electrical installation is progressing. Construction of a number of infrastructure items is complete including the access road, the incoming power line and the water pipeline.
The significant increase in the Kevitsa ore reserve (See 'Exploration' for discussion) means that at the currently planned processing rate of 5.0 Mtpa, the mine life would be extended to over 30 years. Taken together with the potential for further resources to be recovered, the Company is currently scoping opportunities to scale production up to 10 Mtpa. An EIA is in process with a view to applying for a revised environmental permit later in 2011. In addition, an application has been made to expand the current mining lease to accommodate the further infrastructure that may be required.
Kevitsa has an initial annual production target of 10,000 tonnes of nickel and 20,000 tonnes of copper. Commercial production is targeted for mid 2012.
Trident project, Zambia
In April 2011, large scale mining licenses for the development of the Trident project were received from the GRZ. The licences give the Company the exclusive rights to carry out mining operations on the full area of interest at Trident for a period of 25 years. Both the EIA was approved and a land use agreement was agreed to in July 2011 for the development of Sentinel deposit.
Resource drilling on the Sentinel deposit is essentially finished with approximately 170,000 metres of core drilling in nearly 500 holes completed in the last 14 months. Geological modeling, data analysis and reporting are currently in progress. Finalization of the resource estimation awaits the last batches of laboratory assays and should be complete in Q3 2011.
Based on an internally generated resource estimate, the Company is proceeding with the design of a project that is expected to initially produce 150,000 tonnes of copper in concentrate annually then rising up to 300,000 tonnes of copper in concentrate. Once the resource drilling is complete, the production target may be increased further. A National Instrument 43-101 ('NI 43-101') compliant resource statement for the Sentinel deposit is expected later in 2011. Initial design works have commenced, the long lead mills and mill drives have been ordered, and initial construction works are planned to commence in Q4 2011 with commercial production being achieved in 2014.
Kansanshi copper/gold operation, Zambia
Works have commenced at Kansanshi which are expected to expand the annual copper production capacity from 250,000 tonnes to 400,000 tonnes of copper by the end of 2014. The first element of this increase relates to the expansion of the oxide/leach facilities and will be undertaken in two stages. Stage one is expected to increase annual production capacity to approximately 285,000 tonnes. It is focused on expanding the annual treatment capacity of the oxide circuit to approximately 7.2 Mtpa by Q1 2012. Stage two increases the oxide throughput further to 12 Mtpa by the end of 2012. The stage one design is complete and construction is well underway.
The second element of the increase is an expansion of the sulphide treatment facilities by construction of a new section of plant capable of treating 16 Mtpa of sulphide ore. Construction of this new plant will start in 2012 and continue until 2014, with all elements of the expansion to 400,000 tonnes per annum of copper expected to be complete by the end of 2014.
Copper smelter project, Zambia
Currently, Kansanshi's concentrate production is treated at smelters in Zambia, but from time to time, due to limited capacity, copper concentrate is sold to third parties for export sale. Due to the substantial increase in production expected from the Kansanshi mine together with anticipated new production in Zambia including from the Sentinel deposit, an evaluation is currently nearing completion to design a copper smelter at Kansanshi capable of processing 1.2 million tonnes of copper concentrate to produce over 300,000 tonnes of copper. This evaluation is expected to be completed in the second half of 2011.
Exploration
Exploration activities continued at a high rate during Q2 2011 with ongoing drill programs in Zambia, Finland, Peru and Mauritania.
Trident, Zambia
At the Trident project in Zambia 10 core drills are still active. Completion of the Sentinel resource program is now allowing rigs to be transferred to regional targets and to Kansanshi.
Five drills have continued testing the Enterprise nickel prospect approximately 12 kilometres ('km') to the northwest of Sentinel. Eighty core holes have now been completed over an area of approximately 2km by 1km. Mineralization has been intercepted on most sections. Geological modeling is improving the understanding of the mineralization which appears to be controlled by an interplay of high angle faults and a strongly altered black shale unit. At least two significant pods of high grade mineralization have been identified. Further drill intercepts of 25-60 metres at grades of 2 to 3% nickel continue to be returned from the northern extent of the Enterprise prospect which remains open. Ground geophysical surveys are in progress at Enterprise and Sentinel to test methods capable of mapping the mineralized sequence in three dimensions.
Kevitsa, Finland
Near mine exploration work has included 12 core holes focused on discrete magnetic targets and copper-gold mineralization encountered near the south-eastern contact of the intrusion. Geophysical surveys completed during the quarter demonstrate that this contact style mineralization can be mapped as a chargeable anomaly. Base of till drilling continues to test targets around the southern and eastern side of the Kevitsa intrusion within the mine license area and adjacent claims. Drilling continues on regional targets to the north of Kevitsa.
Haquira, Peru
Infill and extension drilling on the main Haquira prospect continued with four rigs currently active. Helicopter borne magnetic and electromagnetic surveys commenced during the period. These will be the first detailed geophysical surveys to cover the entire Antares tenure and will directly map the Haquira porphyry and extensions as well as any further porphyry targets. Systematic soil geochemical grid sampling is also planned to cover the entire tenure.
Kansanshi, Zambia
The major program of resource development and exploration drilling planned at Kansanshi is ramping up successfully with 16 drills now on site and the successful commissioning of a new core processing area and full onsite assay laboratory. Resource development drilling continues to define extensions of significant veins to the north, south and west of the North-west Pit. Exploration drilling continues to be focused on extensions to the South-east Dome prospect and a series of regional traverses designed to test the overall extent and architecture of the Kansanshi mine sequence. Several holes on the regional traverses have intersected significant Kansanshi style veins well away from the current resource, demonstrating the potential scale of the mineralizing system.
Guelb Moghrein, Mauritania
In Mauritania, reverse circulation and core drilling continued with two rigs testing targets in the Guelb Moghrein area. Some near surface copper and gold intercepts were reported near the mine.
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. These changes included a windfall tax on copper sales revenue; a 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 President elected in October 2008, the GRZ reviewed these tax changes and proposed that the windfall tax be removed, the deductibility of capital allowances be reinstated 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 were not retroactive to April 1, 2008.
The Company, through its Zambian subsidiaries, is party to Development Agreements with the GRZ for its existing operations which provide an express right to full and fair compensation for any loss, damages or costs (including interest) incurred by the Company by reason of the government's failure to comply with the tax stability guarantees set out in the Development Agreements, and rights of international arbitration in the event of any dispute. Based on legal advice on its rights under the Development Agreements, the Company initially recorded a receivable from the GRZ for an amount it regarded as reasonable expected ultimate repayment of taxes in excess of that permitted under the Development Agreements. However, in November 2010, the GRZ required payment of all back taxes outstanding pursuant to the 2008 and 2009 legislation by June 30, 2011. The Company's Zambian subsidiaries complied with the GRZs demand and completed the payment of all back taxes, totalling $224 million, on June 27, 2011, without prejudice to its rights under the Development Agreement.
Until resolved differently with the GRZ, the Company is recognizing taxes in excess of the Development Agreement as a tax expense with no associated receivable, resulting in an effective tax rate of approximately 43% at Kansanshi.
RDC - Disputes
The Company has reported extensively through press releases and prior MD&A's on its disputes with the RDC government. As reported, the illegal actions taken by the RDC government resulted in the cessation of construction of the Company's Kolwezi project in September 2009, the suspension of operations at the Frontier mine in August 2010, and suspension of all of the Company's exploration activities in the RDC, including the Lonshi underground mine. As previously reported, in relation to the Kolwezi project, the RDC local courts have also rendered judgments against the Company's RDC subsidiaries Congo Mineral Developments Limited ('CMD') and Kingamyambo Musonoi Tailings SARL ('KMT') of US$12 billion in damages. The Company believes this judgment has no legal basis and in any event would not be enforceable against the Company outside of the RDC.
The Company has commenced international arbitrations in respect of the Kolwezi project and the Frontier and Lonshi mines and will continue to pursue all available avenues to recover the value of its RDC assets. The timing of any judgments or negotiated or arbitrated settlements is not known at this time.
Hedging program
As at June 30, 2011, the following derivative positions were outstanding:
--------------------------------------------------------------------------
Maturity
2011 June 30, 2011 December 31, 2010
-------------------------------------- ----------------- -----------------
Asset Liability Asset Liability
--------------------------------------------------------------------------
Interest rate
Floating to fixed
interest rate swap
Principal 26.0 - (0.2) - (0.4)
Average fixed interest
rate 1.80%
--------------------------------------------------------------------------
Foreign currency
USD/EUR extendible
collar
- Principal EUR60.0m 0.5 - - -
Strike price 1.376-1.416
--------------------------------------------------------------------------
Copper (a)
Futures sales contracts
over quotation period
(tonnes) 40,600 4.2 (13.2) 3.0 (42.3)
Average price ($/tonne) $9,105
Embedded derivative
hedged by future sales
contracts (tonnes) 40,975 - - - -
Average price ($/tonne) $9,320
--------------------------------------------------------------------------
Net provisional copper
exposure (tonnes) 375
--------------------------------------------------------------------------
Gold (a)
Futures sales contracts
over quotation period
(ounces) 14,103 0.1 - - (0.9)
Average price ($/ounce) $1,519
Embedded derivative
hedged by future sales
contracts (ounces) 14,105 - - - -
Average price ($/tonne) $1,509
--------------------------------------------------------------------------
Net provisional gold
exposure (ounces) 2
--------------------------------------------------------------------------
Other
Embedded derivative - (3.3) - (3.7)
--------------------------------------------------------------------------
4.8 (16.7) 3.0 (47.3)
--------------------------------------------------------------------------
a) Provisional pricing and derivative contracts
A portion of the Company's metal sales is sold on a provisional pricing basis and is subject to adjustment as a result of changes in market prices subsequent to the recognition of sales revenues. In order to mitigate the impact of these adjustments on net income, 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 and gold embedded derivatives which are included with accounts receivable.
As at June 30, 2011, substantially all of the Company's metal sales contracts subject to pricing adjustments were hedged by offsetting derivative contracts.
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, principally included in the Development activities section, but 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, Ravensthorpe, Kevitsa and Sentinel, the impact of ore grades on future production, the potential of production disruptions, capital expenditure and mine production costs, the outcome of mine permitting, the outcome of legal proceedings which involve the Company in the RDC and other countries, information with respect to the future price of copper, gold, cobalt, nickel, PGE, and sulphuric acid, estimated mineral reserves and mineral resources, our exploration and development program, estimated future expenses, exploration and development capital requirements, the Company's hedging policy, and our goals and strategies. Often, but not always, forward-looking statements or information can be identified by the use of words such as 'plans', 'expects' or 'does not expect', 'is expected', 'budget', 'scheduled', 'estimates', 'forecasts', 'intends', 'anticipates' or 'does not anticipate' or 'believes' or variations of such words and phrases or statements that certain actions, events or results 'may', 'could', 'would', 'might' or 'will' be taken, occur or be achieved.
With respect to forward-looking statements and information contained herein, we have made numerous assumptions including among other things, assumptions about the price of copper, gold, nickel, PGE, cobalt and sulphuric acid, anticipated costs and expenditures and our ability to achieve our goals. Although our management believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that a forward-looking statement or information herein will prove to be accurate. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. These factors include, but are not limited to, future production volumes and costs, costs for inputs such as oil, power and sulphur, political stability in Zambia, Peru, Mauritania, Finland and Australia, adverse weather conditions in Zambia, Finland 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 (Loss)
(unaudited)
(expressed in millions of U.S. dollars, except for share and per share
amounts)
--------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
--------------------------------------------------------------------------
Note 2011 2010 2011 2010
--------------------------------------------------------------------------
Sales revenues 9 660.0 539.8 1,365.2 1,091.0
Cost of sales 10 (296.8) (299.9) (562.5) (544.4)
--------------------------------------------------------------------------
Gross profit 363.2 239.9 802.7 546.6
Exploration (15.4) (11.5) (34.8) (19.3)
General and administrative (14.5) (5.6) (33.2) (12.9)
Acquisition transaction
costs - - - (18.5)
Impairment of assets - (306.6) - (306.6)
Other income (expense) 11 (10.6) (1.6) (7.0) 1.9
--------------------------------------------------------------------------
Operating profit (loss) 322.7 (85.4) 727.7 191.2
Finance income 1.7 0.9 3.5 4.0
Finance costs 12 (1.3) (5.0) (6.6) (14.0)
--------------------------------------------------------------------------
Earnings (loss) before
income taxes 323.1 (89.5) 724.6 181.2
Income taxes (135.8) (63.2) (284.1) (148.8)
--------------------------------------------------------------------------
Net earnings (loss) for
the period 187.3 (152.7) 440.5 32.4
--------------------------------------------------------------------------
Net earnings (loss) for
the period attributable to:
Non-controlling interests 32.0 29.3 78.5 64.1
Shareholders of the
Company 155.3 (182.0) 362.0 (31.7)
--------------------------------------------------------------------------
Earnings (loss) per common
share
Basic 8b 1.81 (2.27) 4.22 (0.40)
Diluted 8b 1.64 (2.27) 3.83 (0.40)
Weighted average shares
outstanding (000's)
Basic 8b 85,755 80,268 85,754 79,923
Diluted 8b 94,622 80,268 94,621 79,923
Total shares issued and
outstanding (000's) 86,179 80,599 86,179 80,599
--------------------------------------------------------------------------
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 (Loss)
(unaudited)
(expressed in millions of U.S. dollars)
--------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
--------------------------------------------------------------------------
2011 2010 2011 2010
--------------------------------------------------------------------------
Net earnings (loss) for the
period 187.3 (152.7) 440.5 32.4
Other comprehensive income
(loss)
Unrealized loss on
available-for-sale
investments (0.8) (39.2) (0.3) (56.4)
Tax on unrealized loss on
available-for-sale
investments 0.3 11.8 0.1 16.9
--------------------------------------------------------------------------
Comprehensive income (loss) 186.8 (180.1) 440.3 (7.1)
--------------------------------------------------------------------------
Total comprehensive income
(loss) for the period
attributable to:
Non-controlling interests 32.0 29.3 78.5 64.1
Shareholders of the Company 154.8 (209.4) 361.8 (71.2)
--------------------------------------------------------------------------
186.8 (180.1) 440.3 (7.1)
--------------------------------------------------------------------------
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
First Quantum Minerals Ltd.
Consolidated Statements of Cash Flows
(unaudited)
(expressed in millions of U.S. dollars)
--------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
--------------------------------------------------------------------------
2011 2010 2011 2010
--------------------------------------------------------------------------
Cash flows from operating
activities
Net earnings (loss) for the
period 187.3 (152.7) 440.5 32.4
Items not affecting cash
Depletion and amortization 24.1 31.2 44.7 59.0
Assets impaired - 306.6 - 306.6
Unrealized foreign exchange
loss (gain) 0.7 (3.1) 2.9 (4.9)
Deferred income tax 5.2 (3.3) (19.8) (6.9)
Share-based compensation
expense 1.9 1.4 3.9 2.9
Derivative instruments 17.3 (9.7) (31.3) (7.5)
Interest expense 1.3 5.0 6.6 14.0
Other 3.2 9.8 5.6 10.1
--------------------------------------------------------------------------
241.0 185.2 453.1 405.7
Change in non-cash operating
working capital
(Increase) decrease in trade
and other receivables (25.6) 119.7 96.9 58.2
Increase in inventories (71.3) (50.2) (125.1) (71.7)
Increase (decrease) in trade
and other payables (125.6) 52.0 (130.3) 25.0
Increase (decrease) in
current taxes payable (73.5) 32.5 25.1 86.7
--------------------------------------------------------------------------
(55.0) 339.2 319.7 503.9
--------------------------------------------------------------------------
Cash flows from financing
activities
Proceeds from debt 5.1 15.1 - 25.1
Repayments of debt - - (82.3) (40.4)
Proceeds on issuance of common
shares - 0.2 0.2 3.1
Restricted cash (20.2) (36.0) 20.1 -
Dividends paid (53.5) (40.5) (53.5) (40.5)
Dividends paid to non-
controlling interests (7.5) (18.1) (7.5) (18.1)
Finance lease payments (0.9) - (1.9) -
Interest paid (16.6) (18.7) (16.9) (21.7)
--------------------------------------------------------------------------
(93.6) (98.0) (141.8) (92.5)
--------------------------------------------------------------------------
Cash flows from investing
activities
Purchase of property, plant
and equipment (244.1) (93.7) (433.4) (138.5)
Acquisitions, net of cash
acquired - (6.7) - (502.9)
Proceeds from available-for-
sale investments 0.1 0.1 0.1 0.1
Proceeds from disposal of
property, plant and equipment 5.5 - 9.8 -
--------------------------------------------------------------------------
(238.5) (100.3) (423.5) (641.3)
--------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (387.1) 140.9 (245.6) (229.9)
Cash and cash equivalents -
beginning of period 1,486.4 548.4 1,344.9 919.2
--------------------------------------------------------------------------
Cash and cash equivalents -
end of period 1,099.3 689.3 1,099.3 689.3
--------------------------------------------------------------------------
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)
--------------------------------------------------------------------------
June 30, December 31,
Note 2011 2010
--------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 1,099.3 1,344.9
Restricted cash 20.2 40.3
Trade and other receivables 285.8 377.0
Inventories 4 527.3 390.9
Current portion of other assets 21.9 26.7
--------------------------------------------------------------------------
1,954.5 2,179.8
Investments 17.4 18.0
Property, plant and equipment 5 3,157.9 2,730.9
Other assets 30.3 29.2
--------------------------------------------------------------------------
Total assets 5,160.1 4,957.9
--------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other payables 252.1 362.2
Current taxes payable 439.1 414.0
Current portion of debt 6 59.3 140.8
Current portion of provisions and other
liabilities 18.1 48.4
--------------------------------------------------------------------------
768.6 965.4
Debt 6 21.8 20.2
Convertible bonds 458.9 452.1
Provisions and other liabilities 193.9 168.3
Deferred income tax liabilities 176.2 194.5
--------------------------------------------------------------------------
Total liabilities 1,619.4 1,800.5
--------------------------------------------------------------------------
Equity
Share capital 8 1,490.5 1,486.5
Retained earnings 1,600.6 1,292.1
Accumulated other comprehensive income 0.8 1.0
--------------------------------------------------------------------------
Total equity attributable to shareholders
of the Company 3,091.9 2,779.6
Non-controlling interests 448.8 377.8
--------------------------------------------------------------------------
Total equity 3,540.7 3,157.4
--------------------------------------------------------------------------
Total liabilities and equity 5,160.1 4,957.9
--------------------------------------------------------------------------
Commitments 15
--------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
www.first-quantum.com
First Quantum Minerals Ltd.
Consolidated Statements of Changes in
Shareholders' Equity
(unaudited)
(expressed in millions of U.S. dollars)
--------------------------------------------------------------------------
Three months Six months
ended ended
June 30 June 30
--------------------------------------------------------------------------
2011 2010 2011 2010
--------------------------------------------------------------------------
Share capital
Common shares
Balance - beginning of period 1,479.5 868.7 1,479.3 727.4
Acquisitions - 2.1 - 139.3
Share options exercised - 0.8 0.2 4.9
--------------------------------------------------------------------------
Balance - end of period 1,479.5 871.6 1,479.5 871.6
--------------------------------------------------------------------------
Equity portion of convertible
bonds
Balance - beginning and end of
period 48.3 48.3 48.3 48.3
--------------------------------------------------------------------------
Treasury shares
Balance - beginning of period (56.9) (47.0) (57.1) (47.2)
Restricted and performance
stock units vested 0.1 0.6 0.3 0.8
--------------------------------------------------------------------------
Balance - end of period (56.8) (46.4) (56.8) (46.4)
--------------------------------------------------------------------------
Contributed surplus
Balance - beginning of period 17.7 16.6 15.9 16.5
Share-based compensation
expense for the period 1.9 1.4 3.9 2.9
Transfers upon exercise of
share options - (0.6) - (1.8)
Restricted and performance
stock units vested (0.1) (0.6) (0.3) (0.8)
--------------------------------------------------------------------------
Balance - end of period 19.5 16.8 19.5 16.8
--------------------------------------------------------------------------
Total share capital 1,490.5 890.3 1,490.5 890.3
--------------------------------------------------------------------------
Retained earnings
Balance - beginning of period 1,445.3 1,133.9 1,292.1 1,024.5
Earnings (loss) for the period
attributable to shareholders
of the Company 155.3 (182.0) 362.0 (31.7)
Acquisition of Mauritanian
Copper Mines SARL - - - (0.4)
Dividends - - (53.5) (40.5)
--------------------------------------------------------------------------
Balance - end of period 1,600.6 951.9 1,600.6 951.9
--------------------------------------------------------------------------
Accumulated other comprehensive
income
Balance - beginning of period 1.3 285.1 1.0 297.2
Other comprehensive loss for
the period (0.5) (27.4) (0.2) (39.5)
--------------------------------------------------------------------------
Balance - end of period 0.8 257.7 0.8 257.7
--------------------------------------------------------------------------
Non-controlling interests
Balance - beginning of period 416.8 363.6 377.8 391.4
Earnings attributable to non-
controlling interests 32.0 29.3 78.5 64.1
Dividends - (18.1) (7.5) (18.1)
Acquisition of Mauritanian
Copper Mines SARL - - - (62.6)
--------------------------------------------------------------------------
Balance - end of period 448.8 374.8 448.8 374.8
--------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
For a copy of the notes visit the Company's website at
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
Maitland - United Kingdom contacts
Brian Cattell/James Devas
44 207 379 5151
44 20 7379 6161 (FAX)
jdevas@maitland.co.uk / bcattell@maitland.co.uk