First Quantum Minerals : Q1 2024 Conference Call Transcript

In regards to the environmental standing of the mine, we recently received the finding of MiAmbiente, the Ministry of Environment's compliance audit for the period from June to October 2023 undertaken by the government's independent auditors [ph] CODESA (00:05:56). Their report finds that Cobre Panamá was 100% compliant on its environmental commitments and legislative obligations.

On health and safety, there were five instances of non-compliance relating to three commitments of the total 371 commitments under the ESIA, which at the time were being actively addressed. The summary report will be published shortly on the Cobre Panamá transparency website. As well, approximately 121,000 dry metric tonnes of copper concentrate remains on site. The company was advised on January 29 by the Attorney General of Panama that minerals extracted through mining concessions granted in accordance with the mining code belong to the concessionaire. The shipment of the concentrate is included as part of the P&SM plan.

In protecting our investment in Panama, we continue to move forward with our two arbitration proceedings, that being the Canada Panama Free Trade Agreement, and the second one as to the arbitration clause of the Refreshed Concession Contract. However, as we have consistently stated, arbitration is not our preferred outcome and we remain committed to Panama and being part of a long-term solution that delivers the best outcome from the country and the people of Panama.

The next few months will be a period of change for the country with elections to be held on May 5 and a new President to officially take office in early July. In the meantime, we will continue to engage constructively with the current administration to ensure the environmental stability and asset integrity of Cobre Panamá. We also continue to seek to listen and learn from the people of Panama.

With that, I will conclude the opening remarks and pass the call to Rudi to review our operational results.

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Rudi Badenhorst

Chief Operating Officer, First Quantum Minerals Ltd.

Thank you, Tristan, and thank you, everybody, for joining our call today. As Tristan mentioned, the Cobre Panamá mine remains in a phase of Preservation and Safe Management. And with the absence of production from Panama, total copper production for the first quarter was approximately 101,000 tonnes, a decrease of 37% from the fourth quarter. As a result of the lower production volumes, group-wide copper C1 cash costs were $0.20 higher than the preceding quarter, averaging $2.02 a pound.

Looking at the business excluding Cobre Panamá, however, copper production was 3,021 tonnes higher quarter- over-quarter, resulting from improving production at Sentinel, while copper C1 cash costs were $0.06 lower, to

which Ryan will speak to in his financial overview. At Cobre Panamá, Preservation and Safe Management work during the quarter involved a 14-day preservation and maintenance cycle at the process plant, with equipment

being run and monitored for periods to help maintain the integrity of the plant. With a major ultra-class mobile equipment, the maintenance cycle involved daily inspections and weekly startup in order to keep the fleet in good working condition.

For its Kansanshi, copper production totaled 31,000 tonnes in the first quarter. Production was down slightly in the quarter due to low asset stock availability to treat the higher-grade oxide material as a result of an unplanned smelter shutdown. Despite lower production volumes, copper C1 cash costs were down quarter-on-quarter to $2.34 per pound as quarter four costs were impacted by a onetime catch-up charge on new electricity rates from a new 10-year power supply agreement with ZESCO that we entered into at the end of 2023.

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We have maintained Kansanshi's production guidance for this year at 130,000 tonnes to 150,000 tonnes of copper with copper grades expected to improve over the course of the year as mining progresses at higher elevation areas with higher-grade material emanating from the M15 and M17 cutbacks. Sentinel had a strong quarter producing just over 62,000 tonnes of copper, which was a 4% improvement from the fourth quarter. This was driven mainly by grade as mining activity was able to progress as planned to high-grade areas in Stage 1 and the saddle zone between Stage 1 and Stage 2 pits.

Throughput, however, was lower than the fourth quarter due to a planned shutdown that was deferred from the preceding year. Copper C1 cash cost of $1.85 per pound is unchanged from the preceding quarter, as the benefit of higher volumes was offset by higher electricity rates from the new power supply agreement with ZESCO and higher freight costs associated with concentrate that was shipped to third party smelters during the smelter shutdown at Kansanshi.

Copper production guidance for Sentinel has been maintained at 220,000 to 250,000 tonnes. Copper grades were higher in the first quarter and are expected to normalize for the remainder of the year, while throughput is expected to improve over the course of the year as development of the Stage 3 Western Cut-back and the relocation of In-pit Crusher 3 continues to progress well and will enable improved mining productivities and increased availability of softer material.

At Enterprise, mining operations continue to ramp up, with the operation producing 4,000 tonnes of nickel in the first quarter. During the quarter, there was a noticeable improvement in recoveries with the expansion of the flotation cleaner circuit. Work continues towards commercial production and full ramp-up later in this year, with additional equipment mobilized to increase mining volumes and the final ramp-up of the process plant to full capacity. Production guidance in 2024 for Enterprise continues to be 10,000 to 20,000 tonnes of contained nickel.

Continuing with nickel production, Ravensthorpe produced approximately 3,700 tonnes of contained nickel during the quarter. In February of this year, the operation implemented a new strategy with a focus on improving margins by suspending mining at Shoemaker-Levy and bypassing the high-pressure acid leach units. While margins did improve in the first quarter, operating costs nonetheless remain high. This, combined with maintenance challenges, weak nickel prices and low payabilities, continue to result in significant margin pressure at the operation.

Thank you. And I will now hand the call over to Ryan to review the financials.

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Ryan MacWilliam

Chief Financial Officer, First Quantum Minerals Ltd.

Thank you, Rudi. Starting with the market, copper prices broke out in March from recent ranges and traded to the highest level since April 2023. Copper is now at around $4.40 per pound, albeit much of this increase only incurred after the quarter-end. So, this is not reflected in these financials. This price increase has been partly driven by the collapse in copper treatment charges, which is to some extent the result of the situation at Cobre Panamá and the resulting potential smelter production cuts in China. This copper price increase since the cessation of operations at Cobre Panamá will contribute to making the green energy transition more expensive, and as a result, extend the time that it will take the world to decarbonize.

Moving on to our financials, where it was a noisy quarter despite the solid operational performance that Rudi described. This was due to it being the first full quarter without Cobre Panamá production. Revenue and EBITDA both declined quarter-over-quarter, as Cobre Panamá remained in the phase of P&SM. Excluding Cobre Panamá,

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QUESTION AND ANSWER SECTION

Operator: Thank you. We will now begin the analyst question-and-answer session. [Operator Instructions] The first question comes from Greg Barnes with TD Securities. Please go ahead.

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Good morning, everyone. Just a couple of questions, Tristan. First off, the application to restart the power plant, is that just solely to support the care and maintenance plan or is there broader implications behind that? And the second question is just around the delays in actually selling that concentrate that's stored in the port at Cobre Panamá?

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Sure, Greg. And Greg, thanks. Before I answer your question, I heard that you are retiring, and I believe you are our longest covering analyst. So, Greg, I want to thank you for your many years of support. We will miss your coverage, and wish you a happy retirement.

But to your questions, look, firstly on the power plant, what we put forward was a rejuvenation of the auto- generator license, which is for the full 300 megawatts. We won't need all of that power for the P&SM plan. But we note that power prices for retail customers in Panama remain very high, and we think that that power into the market will do a lot to bring down the cost for ordinary Panamanian citizens in terms of their energy costs. However, that - really that decision will be up to the regulator as to whether we just - they look at one unit or both units running.

Secondly, in regards to the concentrate, the 121,000 tonnes sitting at the port, yeah, in terms of timetable for when that will get out, I think - we note the Minister of Commerce's recent comments that they are looking closely at the P&SM plan, and he made the comment that he would like to see that approved before the election. Obviously, it's in the context of election politics and the strong debates around that. So, balance of probability, it probably spills over after the election. We'll just have to wait and see as to what the timing is there.

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Great. Thanks for that, Tristan. And I think it's been 23 years and it's been a hell of a ride. And honestly, never a dull moment. So, yeah, thanks a lot.

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Operator: The next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

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Hi. Good morning. My question is around Cobre Panamá as well. With the election in Panama now, I guess, within two weeks, is it your expectation that there will be a window to reengage with the new administration when they come to power in July in terms of negotiating some kind of restart agreement?

Thanks, Orest. Yeah. So, certainly, our job at the moment in Panama is to be listening to understand the voices that speak on the mine and the future of mining in Panama. With regard to the election, we certainly - we want to see a strong democratic process. We will work with whichever party is successful and whoever the successful presidential candidate is. And the context around that will be to meet the challenges around the mine, but the challenges for the country as well. And certainly, we would be seeking to approach those conversations with humility, listening, understanding what's going on and to work forward on the path forward that resolves the situation to the benefit of the people of Panama and working with whoever is successful in the election.

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Okay. As a follow-up, the $15 million to $20 million of sort of care and maintenance costs per month right now with Cobre Panamá shutdown, if there isn't an imminent restart of the mine, how long is the company prepared to fund that from its corporate balance sheet?

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Yeah. Thanks, Orest. So, that - the $15 million to $20 million per month is based on the current level of 1,400 people on site, and as Ryan alluded to, we brought that down during the quarter to that level. We will evaluate that continuously and monitor it continuously, and it will be based on our ability to meet the environmental compliance standards there. But certainly, without clear pathways on the P&SM plan and so on, we will need to manage those costs each month through the course of the year.

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Operator: The next question comes from Jackie Przybylowski with BMO Capital Markets. Please go ahead.

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Hi. Thanks very much. I guess my first question I'll ask, can you talk a little bit about Zambia and the power situation there and maybe what activities are being done by ZESCO to improve that power situation? And I know you guys had some mention in your MD&A. So, maybe can you talk a little bit about how you're supporting those activities? Thanks.

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Yeah. Sure, Jackie. I'd respond and Rudi can kick in with some detail. Yeah. So, we - firstly to say we see the Zambian government is managing the challenges on power and food security arising from the drought in a proactive manner, which is very positive given the level of challenge. Similarly, we've been very proactive in reaching out to other alternatives. And in terms of the arrangements with ZESCO, we can do that under the force majeure. Rudi can comment on the level of power and the origination. But our intent is that we will be able to subsidize the reduction of power forecast by ZESCO with alternate suppliers. And so, we don't see any impact to production at this stage based on current forecast. Rudi?

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Thanks, Tristan. Hi, Jackie. As Tristan said, the - and as part of the MD&A, the request was for a 20% reduction across both sites, which includes Enterprise, and that equates to 60 to 80 megawatts from the 1st of May. So, we were quite proactive with ZESCO when the emergency situation was called by the President and engaged with power providers across the Southern African Power Pool and have managed to come to an agreement with two providers [ph] with power (00:28:43) mainly being brought in via the utility provider in Mozambique, EDM, and also through NamPower. This will be effective on the 1st of May. Indications are that, because of the proactive nature that the government has taken, it in all likelihood will only run up until the end of this year as we move into another wet season. Everybody is talking about drought, but we are being proactive and engaging other entities outside that Southern African Power Pool for potential supply going forward.

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So, I guess what I was - I was hoping that if you could mention a little bit more about like the longer term power supply and like how Zambia may sort of prevent this situation from happening again. I think in the MD&A, you'd mentioned that you guys are looking at contributing to solar and wind and some other projects. So, just wondering like how you might see the grid evolve over time just to prevent this from happening in the future.

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Yeah. So, the - yeah, as you know, we're in the process of finalizing the installation of solar and wind with the TotalEnergies. We're also actively discussing additional hydro generation with other players in the Zambian power market, including ZESCO. And ZESCO themselves are actively engaged with EDM to secure an additional 200 megawatt of power from the 1st of January next year, and that is quite far down the road as far as their discussions are concerned. And the opening up of private participants in the electricity market in Zambia certainly generated a lot of interest, and there's quite a lot of companies keen on developing additional hydro and solar operations in Zambia.

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Yeah. Jackie, I would just add, the last time we saw the effects of El Niño in Zambia through the 2014 period was really for a period no more than around 12 months. We've seen the rainfall in the Northwest has largely been unaffected, and certainly, the impact on Southern and Central Province has been marked. But for example, in this last month, we've had around - more than 100, 150 millimeters of rain at the sites. And so, potentially we will see inundation coming from Angola and so on into Kariba. But that's not what we're planning for. We're planning for the worst [ph] prospective (00:31:36) there. And then, as Rudi says, if it does prolong, working with ZESCO and others, we believe we will have enough power in place for the S3 Expansion next year, although the indications are, in El Niño, it's really just a one-year impact.

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Operator: The next question comes from Chris LaFemina with Jefferies. Please go ahead.

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