First Quantum Minerals Reports Operational and Financial
NEWS RELEASE 10-12 March 16, 2010 www.first-quantum.com
FIRST QUANTUM MINERALS REPORTS OPERATIONAL AND FINANCIAL RESULTS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2009
(All figures expressed in US dollars)
First Quantum Minerals Ltd. (“First Quantum” or the “Company”, TSX Symbol “FM”, LSE Symbol “FQM”) today announced its results for the three months and year ended December 31, 2009. The complete financial statements and management discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.
SUMMARY OPERATING AND FINANCIAL DATA
| Three months ended December 31 | Year ended December 31 | ||||||
|---|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2009 | 2008 | 2009 | 2008 | 2007 | ||
| Realized copper price (per lb) Production – copper (tonnes) Production – gold (ounces) Sales – copper (tonnes) Net sales Net earnings (loss) Earnings (loss) per share Average copper unit cash cost of production (C1)1 (per lb) Cash | $2.79 | $(0.04) 95,635 39,644 97,280 $12.4 $(491.6) $(7.19) $1.26 $216.5 | $2.16 | $2.22 334,415 116,177 334,787 $1,740.4 $45.9 $0.67 $1.23 $216.5 | $2.97 226,693 107,961 223,907 $1,539.2 $520.3 $7.72 $1.04 $222.5 | ||
| 98,528 | 373,940 | ||||||
| 62,679 | 193,288 | ||||||
| 98,171 | 366,581 | ||||||
| $656.3 | $1,902.9 | ||||||
| $227.2 | $463.4 | ||||||
| $2.91 | $6.14 | ||||||
| $0.97 | $0.96 | ||||||
| $959.5 | $959.5 |
Unless otherwise indicated, all comparisons of performance throughout this report are to the comparative periods for 2008
FOURTH QUARTER HIGHLIGHTS
- Record quarterly and yearly copper production on successful plant expansions at Kansanshi and Guelb Moghrein
- 58% increase in Q4 gold production to record levels at Kansanshi and Guelb Moghrein on gold circuit and gold plant expansions
- 23% reduction in the Q4 average copper unit cash cost of production (C1) due to cost saving initiatives, lower process input costs and higher gold credit; annual reduction of 22%
- Q4 net earnings of $227.2 million and EPS of $2.91 realized on higher copper price and lower production costs
- Announcements made to acquire the Ravensthorpe nickel operation in Australia for $340.0 million and Kiwara PLC, which holds prospecting licenses in Zambia, for approximately $260.2 million
- Strong closing cash and working capital position realized on cash flows from operations and financing activities in 2009
1 C1 cost is a non-GAAP measure. See “Regulatory disclosures – non-GAAP measures” for further information
RECENT DEVELOPMENTS
- Development of the Kevitsa nickel-copper-PGE project in Finland was approved in Q4 with increased mineral reserves published in November 2009. Project construction has commenced and commercial production is targeted for mid 2012.
- Construction work has commenced at the Ravensthorpe nickel operation on modifying the crushing, conveying, stockpile and reclaim areas and will continue for approximately the next 12 months, followed by approximately six months of commissioning and ramp-up. The total modification cost is estimated at $150.0 million.
- In February 2010, the Company established a physical metal marketing division to manage offtake sales, marketing, logistics and administration for all tonnage produced by the Company‟s mining operations.
- In Q1 2010, the Company, along with partners the IFC (International Finance Corporation) and the Industrial Development Corporation of South Africa (“IDC”), commenced international arbitration against La Générale des carrières et des mines (“Gécamines”) and the République démocratique du Congo (“RDC”) regarding the cancellation of the Kolwezi project.
- The Company continues to evaluate the Lonshi underground project with a development decision pending. A drilling program is currently underway to define possible extensions to the ore body.
- The Bwana Mkubwa copper SX/EW plant was restarted in January 2010 to process the stockpiled ore from the depleted Lonshi open pit mine. Grade A copper cathode production at an average rate of 800 tonnes of copper cathode per month is expected to continue until the end of 2010.
NEAR TERM OUTLOOK
- Estimated production for 2010 is 385,000 tonnes of copper and 240,000 ounces of gold
- Estimated average C1 cost for 2010 is $0.97 per pound. The gold credit is expected to increase with the additional estimated production. Management of processing costs will remain a key objective in the year. Higher mining costs are expected due to increased stripping activity.
- Kansanshi now has three distinct fully operational processing routes. These routes, which cater for oxide/leach, mixed float and sulphide feeds, will continue to be optimized and metallurgical recoveries are expected to be enhanced. Gold production is expected to improve as a result of the commissioning of additional gravity concentrators in early 2010. New AC powered mining equipment will be commissioned with the objective of reducing unit costs and improving fleet reliability. Following an extensive geological review and drilling program at Kansanshi, a revised mineral resource and reserve estimate is pending.
- At Frontier, additional mining flexibility will be applied to the mining operations through advanced mine planning and the utilization of AC powered haul trucks. The new haul trucks are expected to reduce costs and enhance operational reliability which in turn should result in an increase in mining volumes to ensure that ore feed rates are maintained or improved. In addition, a dewatering shaft project has commenced in order to maintain favourable ground conditions for mining as the open pit deepens.
- At Guelb Moghrein, the final commissioning of the new heavy fuel oil (“HFO”) power station in Q1 is expected to lower generating costs as all power will be derived from the new power station with all other power generator units expected to remain off-line. The commissioning of the high pressure grinding rollers (“HPGR”) unit in early 2010 should mark the completion of the 3.8 million tonne per annum expansion project and allow for the further enhancement of both gold and copper recoveries.
- An intensive drilling program is planned in 2010 for the Kalumbila exploration project in Zambia, which was acquired with Kiwara PLC and additional drilling programs have been initiated in Zambia, Finland and the RDC.
REVENUES
| NET SALES (after provisional pricing and realization charges) | Three months ended December 31 | Year ended December 31 | ||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2009 | 2008 | 2009 | 2008 | ||
| Kansanshi - copper - gold Frontier - copper Guelb Moghrein - copper - gold Bwana/Lonshi - copper - acid | 391.8 | 81.2 10.1 (73.9) (13.0) 11.1 (3.1) - | 1,189.8 | 1,180.4 44.1 287.8 137.7 53.4 35.4 1.6 | ||
| 29.1 | 74.4 | |||||
| 165.8 | 439.2 | |||||
| 45.4 | 115.7 | |||||
| 24.2 | 81.6 | |||||
| - | 0.4 | |||||
| - | 1.8 | |||||
| Net sales | 656.3 | 12.4 | 1,902.9 | 1,740.4 | ||
| Copper provisional pricing adjustment included above | 5.5 | (212.7) | 40.0 | 44.5 | ||
| COPPER SELLING PRICE | USD/lb | USD/lb | ||||
| USD/lb | USD/lb | |||||
| Current period sales Prior period provisional pricing adjustment Treatment charges/refining charges (“TC/RC”) and freight parity charges | 3.00 | 1.35 (0.99) (0.40) | 2.35 | 2.50 0.06 (0.34) | ||
| 0.03 | 0.05 | |||||
| (0.24) | (0.24) | |||||
| Realized copper price | 2.79 | (0.04) | 2.16 | 2.22 |
The average realized copper price for Q4 was significantly higher than Q4 2008, when the sharp decline in copper price impacted both the Q4 sales and provisional pricing adjustment. The realized copper price improved consistently through 2009 aided by increased local smelter capacity which resulted in reduced realization charges.
Copper sales volumes for Q4 increased 1% to 98,171 tonnes over Q4 2008. Sales volumes during Q4 were consistent with production. The 2009 annual sales volume increased 9% due to a 12% increase in copper production.
The Q4 positive provisional pricing adjustment resulted from the finalization of contracts totaling 16,364 tonnes of copper at an average price of $2.94 per pound ($6,486 per tonne). These contracts were provisionally priced at $2.79 per pound ($6,149 per tonne) at September 30, 2009 and were finalized during Q4 2009.
A positive provisional pricing adjustment for 2009 resulted from the finalization of 2008 year end sales contracts totaling 79,293 tonnes of copper at an average price of $1.56 per pound ($3,438 per tonne). These contracts were provisionally priced at $1.33 per pound ($2,932 per tonne) at December 31, 2008 and were finalized during 2009.
At December 31, 2009, 21,647 tonnes of copper provisionally priced at $3.34 per pound ($7,361 per tonne) remain subject to final pricing in January and February 2010. Refer to the „Outlook‟ section for further discussion.
Gold revenues increased by 151% for Q4 and 60% for the year. The increases resulted from higher gold production from copper in concentrate and tolled copper sales and from the operation of the new gold plants at Guelb Moghrein and Kansanshi. Gold revenues were further improved by the higher gold price and lower realization charges incurred on gold dore sales during 2009.
SEGMENTED OPERATING RESULTS
| Kansanshi Copper and Gold Operation | Three months ended December 31 | Year ended December 31 | ||||
|---|---|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |||
| Production (tonnes) Copper cathode Copper in concentrate Copper cathode tolled Total copper production (tonnes) Gold production (ounces) Sulphide and mixed ore tonnes milled (000‟s) Sulphide and mixed ore grade processed (%) Sulphide and mixed copper recovery (%) Oxide ore tonnes milled (000‟s) Oxide ore grade processed (%) Oxide copper recovery (%) Copper sales (tonnes) Cash costs (C1) (per lb)1 Total costs (C3) (per lb)1 Gross operating profit (loss) (USD M) | 25,716 25,641 10,657 62,014 23,633 2,956 1.3 95 1,414 1.7 93 60,156 $1.24 $1.52 $(66.9) | 102,353 67,780 45,181 215,314 54,252 9,219 1.2 93 5,972 1.7 94 207,701 $1.16 $1.63 $664.2 | ||||
| 21,535 | 92,044 | |||||
| 16,017 | 65,920 | |||||
| 24,901 | 87,015 | |||||
| 62,453 | 244,979 | |||||
| 32,476 | 99,936 | |||||
| 4,343 | 15,582 | |||||
| 1.0 | 1.1 | |||||
| 86 | 91 | |||||
| 1,478 | 5,661 | |||||
| 1.4 | 1.5 | |||||
| 93 | 91 | |||||
| 62,417 | 239,578 | |||||
| $0.96 | $0.99 | |||||
| $1.28 | $1.27 | |||||
| $231.2 | $610.4 |
Copper production increased 1% in Q4 and 14% in 2009 achieving records in both periods. The addition of the mixed ore circuit during 2009 allowed for the effective processing of mixed acid soluble and acid insoluble copper ore to produce copper in concentrate. This ore type was previously stockpiled, and due to the successful recent introduction of the mixed ore circuit and continuous improvements made during 2009, mixed ore now represents a significant portion of Kansanshi‟s total copper production. The mixed ore circuit contributed 14,400 tonnes and 32,200 tonnes of contained copper for Q4 and 2009, respectively.
Q4 sulphide and mixed ore tonnes milled increased by 47% with capacity gains realized from the 12 million tonne per annum expansion and the addition of the mixed ore circuit in 2009. The increase in throughput was partially offset by decreases in ore grades processed and recoveries of sulphide and mixed copper contained. Recoveries were lower due to the inherently lower recovery rates of the new mixed ore circuit and the ore grade processed was lower due to a decrease in mined ore grades during Q4.
Q4 tolled copper cathode production from the Mufulira smelter increased by 134% from Q4 2008 due to capacity improvements throughout 2009. Kansanshi‟s high pressure leach system (“HPL”) continued to process Frontier‟s concentrates and as a result there was no processing of Kansanshi concentrates through the HPL in Q4.
Copper cathode production decreased 16% during Q4 and 10% in 2009, in comparison to 2008, as output was restricted by decreased availability of higher grade ore in the mine pit.
Gold production improved through 2009 achieving a quarterly record of 32,476 ounces in Q4. Production benefited from increased ore throughput, the addition of gravity concentrators and further upgrades to the gold plant during Q4. The gold plant contributed 8,800 ounces of the total gold in dore production during Q4.
1 C1 costs and C3 costs are non-GAAP measures. See “Regulatory disclosures – non-GAAP measures” for further information Compared to Q4 2008, Kansanshi‟s Q4 average cash unit cost of production (C1) decreased by 23% for several reasons: cost saving initiatives implemented in late 2008, an increase in the gold credit, lower sulphur prices and therefore acid price and an impairment against stockpile inventory recorded in 2008. The gold credit was realized on record gold sales volumes and higher realized prices during Q4 2009. Acid consumption and prices have decreased significantly from 2008 when local acid availability was limited and sulphur prices were high. Kansanshi‟s average total unit cost of production (C3) was 16% lower due to the suspension of the Zambian concentrate export levy after Q1 2009 which was partially offset by an increase in the Q4 2009 depreciation expense resulting from the capital expansions during the year. The concentrate export levy was introduced in March 2008 but was temporarily suspended in March 2009 for the balance of 2009 in response to insufficient smelter capacity in Zambia to treat domestic concentrate production.
| Frontier Copper Operation | Three months ended December 31 | Year ended December 31 | ||||
|---|---|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |||
| Production – copper in concentrate (tonnes) Sulphide ore tonnes milled (000‟s) Sulphide ore grade processed (%) Copper recovery (%) Copper sales (tonnes) Cash costs (C1) (USD per lb)1 Total costs (C3) (USD per lb)1 Gross operating profit (loss) (USD M) | 24,259 | 24,917 2,178 1.3 91 28,533 $1.53 $1.67 $(137.1) | 92,353 | 80,177 7,122 1.3 89 87,022 $1.52 $1.82 $86.9 | ||
| 2,280 | 8,068 | |||||
| 1.2 | 1.2 | |||||
| 91 | 92 | |||||
| 26,424 | 91,567 | |||||
| $1.32 | $1.13 | |||||
| $1.52 | $1.30 | |||||
| $104.1 | $270.0 |
Copper production decreased by 3% in Q4 and increased by 15% in the year compared to the same periods in 2008. Q4 production was impacted by lower ore grades processed as mining activities were mainly focused on waste stripping in preparation for the rainy season. Full year 2009 production benefited from increased ore throughput as efforts to improve mill rates were successful. Included in Frontier‟s total copper in concentrate production was approximately 2,450 tonnes that were processed through Kansanshi‟s HPL in Q4 and 11,050 tonnes in 2009.
Frontier‟s Q4 average cash unit cost of production (C1) was 14% lower than Q4 2008 due to decreases in realization charges as a result of changes in export contract terms and increased sales to local smelters. This decrease was offset partially by the increase in ore costs caused by increased waste stripping in Q4. The full year 2009 C1 costs were also lower following the implementation of cost saving initiatives started in Q4 2008. There were efficiency gains in on processing costs for the year due to higher mill throughput and higher copper production in 2009.
Operating profit is significantly higher than the comparative periods in 2008 due to the increase in the realized copper price and decrease in total operating costs. The 2008 results were impacted by the sharp decline in the Q4 2008 copper price and higher costs associated with the first full year of operations at Frontier.
1 C1 costs and C3 costs are non-GAAP measures. See “Regulatory disclosures – non-GAAP measures” for further information
| Guelb Moghrein Copper and Gold Operation | Three months ended December 31 | Year ended December 31 | ||||
|---|---|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |||
| Production – copper in concentrate (tonnes) Gold production (ounces) Sulphide ore tonnes milled (000‟s) Sulphide ore grade processed (%) Copper recovery (%) Copper sales (tonnes) Cash costs (C1) (USD per lb)1 Total costs (C3) (USD per lb)1 Gross operating profit (loss) (USD M) | 11,816 | 8,177 16,011 553 1.7 85 8,073 $0.96 $1.08 $(27.9) | 36,608 | 33,073 61,925 2,072 1.9 86 34,070 $0.70 $1.05 $91.9 | ||
| 30,203 | 93,352 | |||||
| 769 | 2,287 | |||||
| 1.7 | 1.8 | |||||
| 92 | 89 | |||||
| 9,330 | 35,436 | |||||
| $0.63 | $0.44 | |||||
| $1.02 | $0.83 | |||||
| $41.0 | $94.6 |
Copper production increased by 45% in Q4 and by 11% for 2009 due to increased plant throughput. Ore throughput in Q4 was 44% higher than Q4 2008 due to the completion of the expansion to 3.8 million tonne throughput per annum in Q3 2009.
Gold production increased by 89% in Q4 and by 51% for 2009 due to increased plant throughput, higher gold grades treated and the addition of the gold dore smelter in Q1 2009. The gold dore smelter produced approximately 3,500 ounces of gold in dore in Q4 and 14,300 ounces of gold in dore in 2009.
Guelb Moghrein‟s average cash unit cost of production (C1) was 34% lower in Q4 compared to Q4 2008. This reduction was due to an increase in the gold credit and efficiencies gained from the 45% increase in copper production in Q4 2009. The full year C1 cost for 2009 was 37% lower than 2008 also due to the increases in gold and copper production in 2009.
Guelb Moghrein‟s operating profit was higher against the comparative periods in 2008 due to the lower total production costs and higher realized copper and gold prices in Q4 and for 2009.
| Bwana/Lonshi Copper Operation | Three months ended December 31 | Year ended December 31 | ||||
|---|---|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |||
| Production – copper cathode (tonnes) Copper sales (tonnes) Gross operating profit (loss) (USD M) | - | 527 518 $(64.2) | - | 5,851 5,994 $(99.5) | ||
| - | - | |||||
| $12.7 | $(5.9) |
The Bwana Mkubwa site remained on care and maintenance as at December 31, 2009. The operating gain at Bwana/Lonshi in Q4 2009 was recognized on a net realizable value of inventory adjustment of $15.5 million.
In January 2010, transportation of the Lonshi ore stockpile provided sufficient feed to restart the Bwana Mkubwa copper SX/EW plant, with grade A copper cathode production expected in 2009 at an average rate of 800 tonnes per month. The Company has recorded a partial reversal of the 2008 adjustment to net realizable value of inventory of $15.5 million as the conditions causing this write down have improved.
1 C1 costs and C3 costs are non-GAAP measures. See “Regulatory disclosures – non-GAAP measures” for further information
COSTS AND EXPENSES
| Three months ended December 31 | Year ended December 31 | |||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2009 | 2008 | 2009 | 2008 | ||
| Gross operating profit (loss) General and administrative Other income (expenses) Derivative instrument adjustments Exploration Interest Income taxes Non-controlling interests | 389.0 | (296.1) (7.1) (5.3) (0.1) (9.1) (9.6) 61.2 28.7 | 969.1 | 743.5 (31.4) (0.5) (6.1) (28.5) (31.8) (247.2) (97.9) | ||
| (5.3) | (25.3) | |||||
| 5.3 | 26.2 | |||||
| 3.6 | (135.9) | |||||
| (16.0) | (25.9) | |||||
| (18.3) | (60.4) | |||||
| (88.6) | (200.3) | |||||
| (42.5) | (84.1) | |||||
| Net earnings (loss) before impairment charge | 227.2 | (237.4) | 463.4 | 300.1 | ||
| Impairment charge on investments | - | (254.2) | - | (254.2) | ||
| Net earnings (loss) after impairment charge | 227.2 | (491.6) | 463.4 | 45.9 | ||
| Earnings (loss) per share - basic (USD per share) - diluted (USD per share) Weighted average shares outstanding - basic (number of shares – millions) - diluted (number of shares - millions) | $(7.19) $(7.19) 68.4 68.4 | $0.67 $0.67 68.2 68.9 | ||||
| $2.91 | $6.14 | |||||
| $2.67 | $5.92 | |||||
| 78.2 | 75.5 | |||||
| 87.9 | 81.0 |
General and administrative costs decreased in Q4 and 2009 from 2008 due to cost saving initiatives implemented in late 2008 and a reduction in stock based compensation expense in 2009. Other income (expenses) includes a gain on sale of marketable securities of $9.6 million for Q4 and $18.6 million for 2009.
The Company implemented a hedging program during Q1 2009 due to the uncertain economic outlook and the steep fall in the copper price during Q4 2008. These copper hedges were entered into in order to protect the Company against possible further declines in the copper price. Subsequent to entering into the hedges, the copper price increased significantly resulting in the derivative instrument adjustments for 2009.
Exploration expenses include $20.4 million incurred at the Lonshi underground evaluation project for 2009.
Interest expense was higher than the comparative periods as the average debt level increased following the issue of the 6%, $500 million convertible bond during Q2. In addition, due to the significant changes in the credit conditions, the $250 million corporate revolving loan was renewed at higher costs in Q1.
Non-controlling interests expense has risen from 2008 due to the increase in net income of Kansanshi, Guelb Moghrein and Frontier in 2009.
FINANCIAL POSITION AND LIQUIDITY
| Three months ended December 31 | Year ended December 31 | |||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2009 | 2008 | 2009 | 2008 | ||
| Cash flows from operating activities - before working capital - after working capital Cash flows from financing activities Cash flows from investing activities | (148.2) 43.4 (47.7) (106.1) | 636.6 765.4 (24.2) (765.0) | ||||
| 269.9 | 678.1 | |||||
| 270.1 | 562.6 | |||||
| (47.5) | 547.0 | |||||
| (111.1) | (366.6) | |||||
| Net cash flows Cash balance | 111.5 | (110.4) 176.2 | 743.0 | (23.8) 176.2 | ||
| 919.2 | 919.2 | |||||
| Available credit facilities - Corporate revolving loan and short-term facility - Corporate revolving credit and term loan facility Cash flows from operating activities per share (basic)1 - before working capital (USD per share) - after working capital (USD per share) | 200.0 - $(2.17) $0.63 | 200.0 - $9.33 $11.23 | ||||
| 250.0 | 250.0 | |||||
| 50.0 | 50.0 | |||||
| $3.45 | $8.98 | |||||
| $3.45 | $7.45 |
Operating cash flows continued to be generated from positive operating results during Q4.
Financing activities during Q4 include a scheduled repayment on the Kansanshi subordinated debt facility and the reclassification of cash to restricted cash as required under the corporate revolving credit and term loan facility. During 2009, the Company generated cash through equity and debt financing. In April 2009, the Company completed an equity financing by issuing 9,343,750 common shares of the Company at a price of CAD37.00 per share for gross proceeds of CAD345.7 million. The net proceeds, after fees and expenses, were $269.5 million. In June 2009, the Company completed an issue of a $500 million 6%, five year unsecured convertible bond for net proceeds of $488.0 million after the payment of commissions, fees and expenses related to the offering.
During 2009, the Company repaid the balance of $50.0 million on the corporate revolving credit facility. Subsequent to December 31, 2009, this $250.0 million facility was extended and will be available for draw until January 2011. The Company also repaid the balance of $11.0 million outstanding on the Kansanshi project completion facility.
Capital expenditures during Q4 were lower than previous periods due to the suspension of the Kolwezi development project on September 16, 2009. Kansanshi‟s mixed ore circuit and sulphide circuit expansions were completed during Q3 and expenditures on the gold recovery process continued in Q4. The plant expansion to 3.8 million tonnes per annum at Guelb Moghrein was substantially completed in Q3 and expenditures continued on the gold recovery circuit into Q4. During Q4, the Company paid a deposit of $34.0 million in relation to the acquisition of the Ravensthorpe nickel operation.
In addition to the Company‟s substantial cash reserves, additional sources of funding available include the $250.0 million corporate revolving loan that has been extended to expire in January 2011 and $50.0 million available under the corporate revolving credit and term loan facility. The Company‟s working capital balance (not including cash and debt) at December 31, 2009 increased by $228.4 million from December 31, 2008 due to an increase in the accounts receivable balance as a result of the sharp increase in copper price from 2008 to 2009. Included in the working capital balance is finished goods inventory of approximately 26,063 tonnes of contained copper.
1 Cash flow per share is a non-GAAP measure. See “Regulatory disclosures – Calculation of operating cash flow per share” for further information As at December 31, 2009, the Company had the following contractual obligations outstanding:
| (USD millions) | Total | Less | 1 – 2 | 2 – 3 | 3 – 4 | 4 – 5 years | Thereafter | ||||||
| than 1 | years | years | years | ||||||||||
| year | |||||||||||||
| Term debt Convertible bonds Accounts payables Deferred payments Commitments Asset retirement obligations | 191.6 500.0 643.8 9.1 112.9 21.9 | 84.5 - 643.8 0.4 112.9 - | 85.9 - - 0.4 - - | 5.3 - - 0.4 - - | 5.3 - - 0.4 - - | 5.3 500.0 - - - - | 5.3 - - 7.5 - 21.9 |
INVENTORY
| Copper (tonnes) | Gold in dore (ounces) | |||
|---|---|---|---|---|
| Kansanshi Frontier Guelb Moghrein | 22,059 963 3,041 | 1,415 - 1,120 | ||
| Total | 26,063 | 2,535 |
Copper in concentrate increased by 400 tonnes in Q4 to 26,063 tonnes at December 31, 2009, with an average cost of approximately $1.15 per pound ($2,529 per tonne). Sales volumes during Q4 were consistent with production and local smelter capacity remained strong. The high pressure leach facility at Kansanshi was offline for maintenance towards the end of 2009, with approximately 270 tonnes of concentrate stockpile awaiting further processing. Approximately 18,900 tonnes of Kansanshi copper in concentrate was in the process of being treated or stockpiled for treatment at the Mufulira smelter as at December 31, 2009. Contained gold in dore inventory increased from Q3 to 2,535 ounces due to timing of shipments and increasing dore production at Kansanshi and Guelb Moghrein in Q4. Gold contained in copper in concentrate is not included in the inventory balances noted above.
CONVERTIBLE BONDS
The Company issued $500.0 million of convertible bonds (the „Bonds‟) in June 2009 for net proceeds of $488.0 million after the payment of commissions and expenses related to the offering. The Bonds bear interest at 6% per annum, payable semi-annually in equal installments and are due on June 19, 2014 (the „Final Maturity Date‟). These Bonds may be converted into the Company‟s common shares, at the option of the holder thereof, at any time from October 19, 2009 to the close of business falling seven business days prior to the Final Maturity Date. The conversion price (the “Conversion Price”) is USD $56.39 (CAD $63.11) per common share for a maximum total of 8,866,820 common shares issuable upon conversion. In addition, if certain fundamental changes occur to the Company, holders of the Bonds may be entitled to an adjustment to the Conversion Price. The Company has the option to call the Bonds after July 3, 2012 until the Final Maturity Date, in the event that the trading price of the common shares exceeds 140% of the Conversion Price over a certain period. In addition, the Company has the right to redeem the Bonds if at any time the aggregate principal amount of the Bonds outstanding is equal to or less than 15% of the aggregate principal amount of the Bonds initially issued.
As the bonds are convertible into common shares of the Company, the Company is required to account for the Bonds as both debt and equity. The Company elected to use the fair value approach to value the debt portion and the residual value approach to allocate the remaining value to equity. The result of this accounting approach was an allocation of $431.1 million as debt and $56.9 million as equity, which is equal to the net proceeds of $488.0 million. The debt portion of the Bond will be increased over the term of the Bonds to the face value of $500.0 million.
COMPREHENSIVE INCOME
The market value of available-for-sale investments continued to increase during Q4 resulting in the Company recognizing a tax effected increase in the fair value of investments of $61.6 million for Q4 and $297.2 million for 2009.
SHAREHOLDERS’ EQUITY
Shareholders‟ equity increased due to the equity financing, the convertible bond issuance, the positive operating results and the increase in the fair value of the Company‟s marketable security investments.
The Company‟s equity financing resulted in the issuance of 9,343,750 common shares for net proceeds of $269.5 million and the convertible bond issuance resulted in an increase to shareholders‟ equity of $56.9 million.
As at the date of this report the Company has 80,549,483 shares outstanding.
DEVELOPMENT ACTIVITIES
Acquisition of the Ravensthorpe nickel operation, Australia
In December 2009, the company entered into an agreement with BHP Billiton to acquire the Ravensthorpe nickel operation (“Ravensthorpe”) subject to relevant approvals from the Australian Foreign Investment Review Board and the West Australian Minister for Mines and Petroleum. The government approvals were received in February 2010 and the finalization of the acquisition was completed on February 10, 2010 for $340.0 million.
Ravensthorpe is located in Western Australia, approximately 550 kilometers south-east of Perth. It is an open pit mine and hydrometallurgical process plant that uses proven technology to recover nickel and cobalt to produce a mixed nickel cobalt hydroxide intermediate product. Ravensthorpe‟s development was completed in 2007. However, operations were suspended in January 2009 after the LME nickel price dropped to as low as $8,810.00 per tonne in late 2008.
The Company is planning to spend the next 12 months constructing two additional crushing plants in the modification of the crushing, conveying, stockpile and reclaim areas of the plant. This is expected to be followed by approximately six months of commissioning and ramp-up. The capital requirement for the modification is estimated at approximately $150.0 million, depending on currency exchange rates. The Company expects Ravensthorpe‟s average annual production of nickel metal will be approximately 39,000 tonnes for the first five years after recommencement of operations and an average annual production of 28,000 tonnes of nickel metal over the expected life of mine of 32 years.
Acquisition of Kiwara PLC
In November 2009, the Company entered into an implementation agreement to acquire the entire issued share capital of Kiwara PLC (“Kiwara”) by way of scheme of arrangement (the “Scheme”). At the time, Kiwara owned a 85% interest in mineral prospecting licenses (the “License Area”) on the periphery of the Kabombo Dome in North Western Province, Zambia, and had an option to acquire the remaining 15%. The License Area includes the Kalumbila Copper deposit which represents an early stage opportunity to develop a relatively low grade but extensive copper resource.
Pursuant to the Scheme, Kiwara shareholders receive 0.0085 First Quantum shares and GBP0.375 for each Kiwara share held. The Scheme became effective on January 29, 2010 and the acquisition was completed at a value of approximately $260.2 million.
Subsequent to the successful acquisition of Kiwara, the Company, through its wholly-owned subsidiaries, exercised options to purchase 10% of the issued share capital of Kalumbila Minerals Limited (“Kalumbila”) increasing the Company‟s ownership to 95% of the issued share capital of Kalumbila and the License Area.
Acquisition of the non-controlling interest in Mauritanian Copper Mines SARL
In February 2010, the Company completed the acquisition of the 20% non-controlling interest in Mauritanian Copper Mines SARL, which owns the Guelb Moghrein copper and gold operation, for $63.0 million.
Kevitsa nickel/copper/PGE project, Finland
The Company announced Board approval for development of the Kevitsa project on November 30, 2009. Concurrently, an Engineering Study was finalized and a technical report for the updated Kevitsa mineral resource and reserve was published and has been filed on SEDAR. The new mineral resource shows an increase in both nickel and copper grades. Ongoing delineation drilling has extended the mineralization both south and east with an updated mineral resource estimate anticipated to be assessed in mid 2010.
Basic engineering has commenced and detailed engineering design is expected to begin in March 2010. A final contract on building the access road to the mine site was signed with the Lapland Road Administration Authority. The new Vajusuvanto bridge leading to the mine area was officially opened by the minister in charge in November 2009.
Kansanshi copper/gold operation, Zambia
Sulphide ore treatment capacity will be increased by approximately 10% and flexibility will be improved upon the inclusion of secondary crushing in Q2 2010 in conjunction with mill feed belt capacity upgrades and modifications to the pebble crushing. Additional flotation capacity is being planned to ensure that efficiency losses are mitigated as ore treatment rates are increased. The replacement of the SAG mill on the oxide circuit was completed in Q1 2010.
The project to improve recovery of gold to gravity concentrates via additional gravity concentrators progressed with rapid and successful commissioning of two additional gravity concentrators in Q1 2010. Two more gravity concentrators are scheduled to be installed in Q2 2010. Additional research projects are underway to improve secondary recovery of gold from the gravity concentrate streams.
Guelb Moghrein copper/gold operation, Mauritania
The new HPGR comminution circuit is progressing with all major items of equipment on site and civils works near completion. Commissioning of the new circuit is scheduled for completion in Q2 2010. The gold scavenger flotation circuit extension and gravity concentrator are planned for commissioning in Q1 2010. Greater fuel efficiency at the plant is anticipated with the completion of the last phase of the new power station in Q1 2010. The remaining two 5 mega watt engines are on site and most of the auxiliary equipment has been installed in advance.
Frontier copper operation, RDC
The focus at Frontier for 2010 is to increase waste stripping to establish wider and more efficient working areas in the pit. This is planned to be achieved through the use of contractors and also with the introduction of new AC haul trucks. The AC haul trucks provide the capability for an AC powered trolley assist system in order to decrease hauling costs. These mining activities will increase the total mining volumes as well as the strip ratio in 2010.
Bwana Mkubwa copper SX/EW plant, Zambia
The RDC has permitted the Company to export Lonshi oxide ore with the border being officially re-opened November 5, 2009 and exports resumed on November 9, 2009. The Bwana Copper plant was successfully re-commissioned early in January 2010 and is anticipated to operate at an output level of approximately 800 tonnes of grade A copper cathode per month for the balance of 2010. The strategy beyond the exhaustion of ore from Lonshi is under review.
Kolwezi copper/cobalt project, RDC
Project construction was suspended on September 16, 2009 in response to an order by the General Prosecutor of Katanga to seal the KMT facilities. The project is currently on care and maintenance. Refer to the “Other items” section for further discussion
Lonshi underground evaluation project, RDC
Decline development into the Lonshi underground deposit continued with strong intersections through the lower conglomerate ore body, and adjacent lower dolomite ore body. In addition to the decline development, an extensive surface drilling program is currently underway to improve confidence in the current resource model and to test for potential extensions to the ore body.
The exploration and development of the underground project will continue into 2010 with an objective to provide support for operational development.
Exploration
The Company‟s exploration activities continued at a high level during Q4 with ongoing drill programs in Finland, Zambia and the RDC.
At Kevitsa in Finland, four drill rigs are now active and exploration drilling continues to return encouraging intercepts some distance from the planned pit. Efforts are focused on assessing the potential for near surface mineralization to impact on areas of proposed plant and infrastructure. Infill drilling has now commenced to follow up on encouraging exploration intercepts immediately south of the current resource area. A series of regional Ni-Cu projects in Finland have been defined with alliance partner Newgenco. Claim reservations are being applied for with follow up exploration planned in 2010.
In the RDC, drilling continued on several high priority targets. A new prospect has been defined at „Clairiere‟ some 50 kilometres (“kms”) east of Lubumbashi. Seven core holes testing a strong copper soil anomaly have intersected a prospective package which is variably mineralized with disseminated chalcopyrite and bornite, the intercepts lie in the centre of a large „copper clearing‟ with abundant copper flower, assay results are awaited. Five drill holes completed on the edges of the Frontier resource area have highlighted additional mineralization. A wide mineralized intercept on the footwall (western side) of the Frontier ore zone has potential to expand the mineable resource and is being targeted with follow up drilling in the next quarter. At Lonshi, an extensive diamond drill program of approximately 30,000 metres has commenced to test the strike and depth extent of the sulphide ore system with a view to expanding the current resource for underground extraction.
In Zambia, a potential new discovery appears to have been made at the „South East Dome‟ prospect some 2 kms SE of the Kansanshi Main pit. Nine core holes completed in Q4 have all returned mineralization including some wide intercepts of 50 meters or more at estimated grades of 1% TCu. Two rigs are actively drilling in order to delineate the extent and geometry of the new deposit.
The Company announced the acquisition of Kiwara PLC during the quarter. Kiwara is the owner of the Kalumbila and Kawako exploration projects located approximately 150 kms from Kansanshi in the Solwezi district of Zambia. Kalumbila represents an early stage opportunity to evaluate and develop a relatively low grade but extensive copper resource. The nearby Kawako Project is at a reconnaissance drilling stage but includes some extraordinary high grade Nickel intercepts. An intensive drilling program is planned for Kalumbila in 2010.
In Mauritania, a major airborne gravity survey is in progress covering over 1,500 square kms surrounding the Guelb Moghrein mine. This survey has the potential to directly target high density Iron-Oxide-Copper-Gold (IOCG) deposits like Guelb Moghrein under sand cover. Follow up RC drilling has commenced on the previously discovered IOCG mineralization at El Joul some 8 kms SE of the mine.