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First Quantum Minerals Ltd
Symbol FM
Shares Issued 691,199,884
Close 2022-04-26 C$ 33.83
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First Quantum earns $385-million (U.S.) in Q1

2022-04-26 17:35 ET - News Release

Mr. Philip Pascall reports

FIRST QUANTUM MINERALS REPORTS FIRST QUARTER 2022 RESULTS

First Quantum Minerals Ltd. has released results for the three months ended March 31, 2022, of net earnings attributable to shareholders of the company of $385-million (56-cent earnings per share) and adjusted earnings (1) of $480-million (70-cent adjusted earnings per share (2)). (In U.S. dollars, except where noted otherwise.)

"Despite the operational and inflationary challenges presented in the first quarter, First Quantum was able to deliver another quarter of strong earnings and demonstrate continued financial improvement. Cash flow generation continues to be strong in the current commodity price environment, and we remain committed to improving our balance sheet with net debt (1) reduction of over $200-million during the period and the early redemption of $500-million of senior notes subsequent to the quarter," commented Philip Pascall, chairman and chief executive officer. "While the restrictions from the global pandemic have largely eased, recent geopolitical events have brought about new challenges, and I thank the entire First Quantum team for their tireless efforts."

First quarter summary

In first quarter 2022, First Quantum reported improvements in gross profit (16 per cent), EBITDA (earnings before interest, taxes, depreciation and amortization) (1) (9 per cent), net earnings attributable to shareholders (56 per cent) and adjusted earnings (1) (57 per cent) relative to the fourth quarter of last year. On a quarter-over-quarter basis, despite lower copper and gold sales volumes and the inflationary pressures on costs, the first quarter benefited from higher realized metal prices (2) as the company's copper hedge positions continued to decline.

Total copper production for the first quarter was 182,210 tonnes, a 10-per-cent decrease from fourth quarter 2021. Different factors at each of the main operating mines contributed, to varying degrees, to a reduction in grade from Q4 2021 levels. Grades are expected to return to planned levels at Cobre Panama and Sentinel over the coming months while Kansanshi's grades are expected to be lower than 2021. Total copper production guidance for 2022 has been lowered to a range of 790,000 to 855,000 tonnes from 810,000 to 880,000 tonnes to reflect the lower production experienced in the first quarter. Guidance for gold and nickel production remains unchanged.

Copper C1 cash cost (2) of $1.61 per pound for Q1 2022 was 22 cents per lb higher than the preceding quarter as global pressures on fuel, explosives and freight prices have been seen across all of the company's operations. The guidance range for copper C1 cash cost (2) has been increased to $1.45 and $1.60 per lb, and copper all-in sustaining cost (AISC) (2) guidance has increased to $2.15 and $2.30 per lb. The conflict in Ukraine and the associated wide-reaching sanctions imposed upon Russia have led to higher energy and commodity prices. These increases have further contributed to the global inflationary environment since the company provided three-year guidance in January, 2022. For the company, various inputs and operational costs have increased and may increase further. These include costs for fuel, explosives, sulphur, freight, reagents and steel. Such inflationary pressures have currently added approximately 10 cents per lb to monthly copper C1 cash costs (2) and approximately 50 cents per lb to monthly nickel C1 cash costs (2).

(1) EBITDA and adjusted earnings are non-generally accepted accounting principle financial measures, and net debt is a supplementary financial measure. These measures do not have a standardized meaning prescribed by international financial reporting standards and might not be comparable with similar financial measures disclosed by other issuers.

(2) Adjusted earnings per share, realized metal prices, C1 cash cost (C1) and all-in sustaining cost (AISC) are non-generally accepted accounting principle ratios, do not have a standardized meaning prescribed by IFRS and might not be comparable with similar financial measures disclosed by other issuers.

Q1 2022 operational highlights

Total copper production for the first quarter was 182,210 tonnes, down from the 201,823 tonnes reported in Q4 2021, as all three of the company's main operating sites experienced lower production. Given the current events with the Ukrainian conflict and COVID-19 restrictions in China, and most recently the flooding in Durban, the shipping environment and inland logistics remain challenging and continue to impact sales volumes. Despite these constraints, copper sales volumes in the first quarter totalled 196,702-tonne sales, exceeding production levels by 14,492 tonnes, with lower closing inventory levels at the Zambian operations in particular.

Copper C1 cash cost (1) averaged $1.61 per lb for Q1 2022, up from $1.39 per lb in Q4 2021, as global inflationary pressures led to increased prices, which were felt more acutely for fuel, explosives and freight. Copper AISC (1) of $2.27 per lb, up 11 per cent quarter over quarter, was also impacted by higher royalties on production at the company's Zambian properties due to the higher copper price.

  • Cobre Panama delivered copper production of 78,337 tonnes in the first quarter, down a marginal 1,693 tonnes from the previous quarter on slightly lower throughput due to planned SAG (semi-autogenous grinding) mill relines. However, March achieved record mill throughput of 7.6 million tonnes. Copper C1 cash cost (1) and copper AISC (1) of $1.65 per lb and $2 per lb, respectively, were eight cents and six cents higher than the fourth quarter of last year. While costs were impacted by spot electricity purchases in January during maintenance of unit one at the power plant, the cost increase was also attributable to price increases for key consumables, including fuel, steel for grinding media, liners, explosives and higher freight costs. Maintenance on unit one was completed in late January, 2022. A collar structure for coal purchases is currently in place with the ceiling price already exercised for July, 2021, onward, thereby limiting exposure to further increases in the coal price until the end of 2023.
  • Kansanshi's copper production of 41,899 tonnes for the quarter was approximately 10,000 tonnes lower than Q4 2021, resulting from a decline in ore grades. Kansanshi's lower grades on the oxide and mixed circuits had a consequential further impact on recoveries. Improvement in grades at Kansanshi in future years would be reliant on approval and implementation of the S3 project. Copper C1 cash cost (1) of $1.46 per lb was 67 cents higher than the fourth quarter of last year. The quarter-over-quarter increase in copper C1 cash costs (1) is largely due to a one-time benefit from a Zesco accrual reversal of approximately 45 cents per lb in the fourth quarter last year. Also impacting copper C1 cash costs (1) in Q1 2022 were lower production and the underlying cost increases from higher freight, fuel and explosive prices. Copper AISC (1) of $2.47 per lb was 80 cents per lb higher than the fourth quarter due to higher copper prices driving an increase in the royalty rate, higher capitalized stripping (2) and higher copper C1 cash costs (1) in the quarter.
  • Sentinel's copper production of 52,475 tonnes for Q1 2022 was 7,722 tonnes lower than the fourth quarter of 2021 due to lower mill throughput and grades. An extended rainy season led to wet underfoot ground conditions, which constrained the planned waste stripping and delayed access to high-grade ore. Lower ore grades are expected to continue for the first half of this year and improve in the second half. The fourth in-pit crusher was commissioned during the quarter, which is expected to stabilize mine ore feed at 62 million tonnes per annum. C1 cash cost (1) of $1.61 per lb was 10 cents higher than the preceding quarter, reflecting lower copper production and higher freight, fuel, explosives and mill ball costs. Copper AISC (1) of $2.41 per lb was two cents higher than the fourth quarter due to higher stripping costs and royalties associated with the higher copper prices, as well as lower copper production.
  • Despite production being limited in early January by a complete plant shutdown until mid-January, 2022, Ravensthorpe payable nickel production of 4,743 tonnes of contained tonnes was approximately 1,900 tonnes higher than the fourth quarter of last year as the mine benefits from higher grade and recoveries from the Shoemaker Levy operation. While the Ravensthorpe mine has faced similar inflationary pressures as the company's other mines alongside higher labour costs, C1 nickel cash costs (1) were down to $6.78 per lb in Q1 2022 from $10.93 per lb in Q4 2021 due to the higher production and sales volumes.

(1) C1 cash costs (C1) and all-in sustaining costs (AISC) are non-GAAP ratios which do not have a standardized meaning prescribed by IFRS and might not be comparable with similar financial measures disclosed by other issuers.

(2) Capitalized stripping is a non-GAAP financial measure which does not have a standardized meaning prescribed by IFRS and might not be comparable with similar financial measures disclosed by other issuers.

Financial highlights:

  • Record gross profit of $908-million and EBITDA (1) of $1.18-billion for the first quarter were higher (16 per cent and 9 per cent, respectively) than the fourth quarter in 2021, attributable to higher metal prices and reduced hedge profile, with a realized copper price (2) of $4.45 per lb achieved during the quarter.
  • Cash flows from operating activities of $666-million (97 cents per share (2)) for the quarter were $94-million lower than the fourth quarter of 2021, with a relatively high receivable working capital balance at the end of the quarter on the back of higher metal prices.
  • Net debt (1) decreased by $238-million during the quarter, bringing the net debt (1) level down to $5,815-million at March 31, 2022, with the debt reduction program on track. At March 31, 2022, total debt was $7,763-million (Dec. 31, 2021: $7,912-million).
  • On April 5, 2022, the company redeemed at par $500-million of aggregate principal amount of the $1-billion senior unsecured notes due in 2023.
  • Given the outlook for strong continuing earnings from the business, the board announced a cautious increase in shareholder dividends in January, 2022. The board has adopted the dividend policy, pursuant to which the company intends to pay, on a semi-annual basis, a performance dividend that represents, in the aggregate, 15 per cent of available cash flows generated after planned capital spending and distributions to non-controlling interests. It is expected that a minimum annual base dividend of 10 Canadian cents per share, consisting of semi-annual dividends of five Canadian cents per share, will be part of the performance dividend. Dividend payments remain at the discretion of the board.
  • The hedge profile is significantly reduced, and the results for the quarter benefited from high market prices. At April 26, 2022, the company had 15,000 tonnes of unmargined zero-cost copper collar sales contracts with maturities to June, 2022, at weighted-average prices of $3.75 to $4.63 per lb outstanding. Copper sales in the first quarter were 19 per cent hedged. Approximately 2 per cent of expected copper sales for the next 12 months are hedged to unmargined zero-cost collar sales contracts.

2022 guidance update

Different factors at each of the main operating mines contributed, to varying degrees, to a reduction in grade from the fourth quarter of 2021. Grades are expected to return to planned levels over the coming months at Cobre Panama and Sentinel, resulting in improved production levels over the course of the year. While grade was lower at Panama due to quarterly variations, full-year grades are expected to be consistent with full-year 2021. Sentinel's copper production was impacted by wet underfoot ground conditions with an extended rainy season, which constrained the planned waste stripping and delayed access to high-grade ore in the east of the pit. Grades at Sentinel are expected to improve in the second half of 2022. Kansanshi's production was impacted by a reduction in grade in the oxide and mixed circuits and associated recoveries in the first quarter, and full-year grades are expected to be lower than last year. Improvement in grades at Kansanshi in future years would be reliant on approval and implementation of the S3 project.

Total copper production guidance for 2022 has been lowered to between 790,000 and 855,000 tonnes, with Kansanshi's range decreasing to between 175,000 and 195,000 tonnes from between 190,000 and 210,000 tonnes, and Sentinel's range decreasing to a range of between 250,000 and 265,000 tonnes from between 260,000 and 280,000 tonnes. Cobre Panama's production guidance remains unchanged at 330,000 and 360,000 tonnes. Other site guidance has been increased 5,000 tonnes to 35,000 tonnes.

Total gold and nickel production guidance remains unchanged.

(1) EBITDA is a non-generally accepted accounting principle financial measure, and net debt is a supplementary financial measure. These measures do not have a standardized meaning prescribed by international financial reporting standards and might not be comparable with similar financial measures disclosed by other issuers. EBITDA was previously comparative EBITDA, and the composition remains the same.

(2) Realized metal prices and operating cash flows per share are non-GAAP ratios which do not have a standardized meaning prescribed by IFRS and might not be comparable with similar financial measures disclosed by other issuers.

Copper C1 cash cost guidance range has been increased to between $1.45 and $1.60 per lb. This is the result of global cost inflationary pressures experienced from the conflict in Ukraine and the associated wide-reaching sanctions imposed upon Russia, particularly across explosives, fuel, freight and steel prices. Copper AISC cost guidance has been increased to between $2.15 and $2.30 per lb, reflecting the C1 cost pressures and the impact of the increased Zambian royalty expense following rises in metal prices.

Ravensthorpe nickel production remains unchanged. Cash cost guidance for nickel has been increased, with nickel C1 cash cost range increasing to between $6.25 and $7 per lb and the AISC range increasing to between $7.50 and $8.50 per lb.

Guidance for total capital expenditure remains unchanged at $1.25-billion.

Panama law 9 update

In July, 2021, the government of Panama (GOP) announced the appointment of a high-level commissioner of senior government ministers and officials, chaired by the Minister of Commerce, to discuss the company's concession contract.

During January, 2022, the GOP tabled a new proposal, and the commission reached an agreement in principle on certain items, namely that the GOP should receive $375-million in benefits per year from Cobre Panama and that the existing revenue royalty will be replaced by a gross profit royalty. The parties continue to finalize the details behind these principles, including the appropriate mechanics that would achieve the desired outcome, the necessary protections to the company's business for downside copper price and production scenarios, and ensuring that the new contract and legislation are both durable and sustainable.

Once an agreement is concluded and the full contract is documented, it is expected that the newly drafted legislation will be put to the Panamanian National Assembly. The company welcomes the transparency of the robust ministerial commission process, and it is hopeful that this matter can be concluded shortly.

COVID-19 response

The first quarter of 2022 has seen a marked drop in COVID-19 cases across the company's sites globally, with the exception of its Australian sites which are feeling the effects of the Western Australian border reopening in March. The company's focus this quarter has been to promote third vaccination booster shots, reinforce antigen and antibody testing, and continue to inform workers and the community of COVID-19 prevention measures.

Based on government health authority recommendations, site restrictions are being lifted, and international travel has become easier.

Environment, social and governance

First Quantum announced, in its proxy statement, published in March, 2022, the recommendation of Alison Beckett to the board of directors. If approved at the annual general meeting, her appointment will continue the process of board renewal with five new directors being appointed in the past four years, 60 per cent of whom are women. This would bring the company's female board representation to 30 per cent, a significant step toward the objective of having one-third of the company's board positions held by women. The company continues to focus on inclusion and diversity across the business, and actively runs training and development programs designed to improve diversity and local work force representation and advancement.

The company has reiterated its commitment to the work force with the approval of further investments to enhance social infrastructure. At Trident, the company has approved the construction of an additional 800 rooms in Kalumbila town, which will serve both the work force and the local community. At Cobre Panama, the company continues to invest in the work force following the pandemic and has approved the construction of an additional 11 permanent accommodation blocks, adding to the 14 that have recently been completed or are close to completion.

The health and safety of the company's employees and contractors are top priority, and the company is focused on the continual strengthening and improvement of the safety culture at all of its operations. The lost-time injury frequency rates (LTIFR) are an area of continued focus and a key performance metric for the company. Its rolling 12-month LTIFR is 0.04 per 200,000 hours worked as of March 31, 2022 (2021: 0.07).

In March, 2022, the company announced work on a 430-megawatt wind and solar project in Zambia that is expected to allow the Kansanshi and Trident operations to increase the renewable power above the current level of 80 per cent, which is predominantly hydroelectric power. First Quantum will work with Total Eren and Chariot Transitional Power, which will develop, finance, build and operate the project. It is expected that power will be provided by a 230-megawatt solar photovoltaic plant and a 200-megawatt wind farm. Total Eren is a leading renewable energy independent power producer, and Chariot Transitional Power is an African-focused transitional energy group.

First Quantum will also continue to prioritize the innovation and development of new mining technologies for optimizing productivity and profitability and reducing environmental impact.

Details of the company's environment, social and governance reporting, including the company's primary ESG report, and the annual environment, safety and social data report, policies and related programs, including the Taskforce on Climate-related Financial Disclosure (TCFD)-aligned climate change report, policies and data, can be found at the First Quantum website.

The company published its TCFD-aligned climate change report in January, 2022, which outlined targets for greenhouse gas (GHG) emission reductions. First Quantum aims to reduce absolute Scope 1 and Scope 2 emissions by 30 per cent by 2025 and the absolute and intensity of Scope 1 and 2 emissions by 50 per cent by 2030. These targets are based on commercially available solutions and projects with an identified pathway to achievement.

Complete financial statements and management's discussion and analysis

The complete consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2022, are available at the First Quantum website and at SEDAR, and should be read in conjunction with this news release.

Conference call details

The company will host a conference call and webcast to discuss the results on April 27, 2022, at 9 a.m. EDT.

Conference call and webcast details

Toll-free North America:  1-800-319-4610

Toll-free international:  1-604-638-5340

Webcast:  at the First Quantum website

A replay of the webcast will be available on the First Quantum website.

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