First Quantum Minerals Reports Operational and Financial
NEWS RELEASE 10-18 May 10, 2010 www.first-quantum.com
FIRST QUANTUM MINERALS REPORTS OPERATIONAL AND FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2010
(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 ended March 31, 2010. The complete financial statements and management discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.
SUMMARY OPERATING AND FINANCIAL DATA
| Three months ended March 31 | |||
|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | |
| Production – copper (tonnes) Production – gold (ounces) Sales – copper (tonnes) Realized copper price (per lb) Net sales Net earnings Earnings per share Earnings per share before acquisition costs Average copper unit cash cost of production (C1)1 (per lb) Cash | 85,062 | 89,440 46,764 69,774 $1.51 $261.0 $10.9 $0.16 $0.16 $0.97 $123.1 | |
| 44,642 | |||
| 81,441 | |||
| $2.89 | |||
| $562.8 | |||
| $146.2 | |||
| $1.81 | |||
| $2.04 | |||
| $1.19 | |||
| $552.7 |
Unless otherwise indicated, all comparisons of performance throughout this report are to the comparative periods for 2009
FIRST QUARTER HIGHLIGHTS
- Successful completion of acquisitions of the Ravensthorpe nickel project (“Ravensthorpe”) in Australia for $338.8 million and Kiwara PLC, which holds prospecting licenses in Zambia, for $268.6 million
- Q1 net earnings of $146.2 million and EPS of $1.81 on a higher copper price, offset by acquisition costs and a delay in the recognition for sales to final off takers under a new metal marketing division. EPS before acquisition costs of $2.04
- 5% decrease in total copper production caused by a power disruption in the Copperbelt and the replacement of the oxide SAG mill shell at Kansanshi
- 5% decrease in total gold production caused by lower ore throughput and grades processed, offset by circuit improvements and plant expansions made in late 2009 and continuing in 2010
1 C1 cost is a non-GAAP measure. See “Regulatory disclosures – non-GAAP measures” for further information
- 23% increase in the average copper unit cash cost of production (C1) due to higher ore costs and lower production
- Strong closing cash and working capital position realized on cash flows from operations, despite significant investing activities in Q1 2010
RECENT DEVELOPMENTS
- Following an extensive geological review and drilling program at Kansanshi, a revised mineral resource and reserve estimate has been completed. The increased mineral reserves can now support a mine life of approximately 13 years at a throughput rate of 24 million tonnes per year or 20 years when the revised inferred mineral resource is considered.
- Construction work has commenced at Ravensthorpe 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 million. The implications of the new Australian resource taxes recently outlined, yet to be finalized and approved, are being monitored.
- Detailed engineering design has commenced at Kevitsa and the majority of long-lead equipment has been tendered. Construction activity at the site is planned to commence in Q2 2010 and commercial production is targeted for mid 2012.
- In February 2010, the Company established a physical metal marketing division to manage off take sales, marketing, logistics and administration for all of the Company‟s production. Whilst reducing risks for provisionally priced sales this extended the recognition date for sales: the Q1 impact on sales was $29.8 million and earnings $13.3 million.
- In February 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.
NEAR TERM OUTLOOK
- Estimated production for 2010 is 385,000 tonnes of copper and 220,000 ounces of gold. Lower estimated gold production primarily reflects the lower Q1 production.
- Estimated average C1 cost for 2010 has increased to $1.05 per pound, from $0.97 per pound, reflecting higher Q1 2010 costs and higher anticipated mining costs due to increased stripping activity.
- Kansanshi now has three different processing methods: oxide/leach, mixed float and sulphide float. These circuits will continue to be optimized and metallurgical recoveries are expected to be enhanced. Gold production is expected to improve as a result of the recent commissioning of additional gravity concentrators. New AC powered mining equipment will be commissioned with the objective of reducing unit costs and improving fleet reliability.
- At Frontier, additional mining volumes and flexibility are expected through the implementation of advanced mine planning, utilization of additional haul trucks and completion of the dewatering shaft project.
- At Guelb Moghrein, the final commissioning of the new heavy fuel oil (“HFO”) power station is expected to lower generating costs. The commissioning of the high pressure grinding rollers (“HPGR”) unit in 2010 should mark the completion of the 3.8 million tonne per annum expansion project and allow for enhanced gold and copper recoveries.
- An intensive drilling program is now underway at 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 March 31 | ||
|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | |
| Kansanshi - copper - gold Frontier - copper Guelb Moghrein - copper - gold Bwana/Lonshi - copper - acid | 375.6 | 155.7 8.0 55.2 20.5 19.7 0.4 1.5 | |
| 22.4 | |||
| 86.6 | |||
| 43.2 | |||
| 21.0 | |||
| 14.0 | |||
| - | |||
| Net sales | 562.8 | 261.0 | |
| Copper provisional pricing adjustment included above | (4.8) | 39.4 | |
| COPPER SELLING PRICE | USD/lb | ||
| USD/lb | |||
| Current period sales Prior period provisional pricing adjustment Treatment charges/refining charges (“TC/RC”) and freight parity charges | 3.21 | 1.54 0.26 (0.29) | |
| (0.03) | |||
| (0.29) | |||
| Realized copper price | 2.89 | 1.51 |
The average realized copper price for Q1 was significantly higher than Q1 2009 due to an increase in the average LME copper price from the comparative period.
Copper sales volumes for Q1 increased 17% to 81,441 tonnes over the comparative period as the Q1 2009 sales volumes were constrained by local smelter capacity. Sales volumes during Q1 2010 were 4% lower than production as a result of the establishment of the Company‟s new metal marketing division which has resulted in a delay in the recognition of some copper sold and an increase in finished copper contained in inventory in transit. Sales volumes in Q2 are expected to normalize to levels comparable to production.
The Q1 negative provisional pricing adjustment resulted from the finalization of contracts totalling 21,647 tonnes of copper at an average price of $3.24 per pound ($7,140 per tonne). These contracts were provisionally priced at $3.34 per pound ($7,361 per tonne) at December 31, 2009 and were finalized during January and February 2010.
At March 31, 2010, 19,477 tonnes of copper provisionally priced at $3.55 per pound ($7,836 per tonne) remain subject to final pricing in April, May and June 2010. Refer to the „Outlook‟ section for further discussion.
Gold revenues increased by 57% over Q1 2009. The increase resulted from a higher realized gold price and higher sales volumes in the current period. In Q1 2010, gold sales volumes exceeded production due to the increase in gold dore sales, as well as improved smelter capacity compared to Q1 2009.
SEGMENTED OPERATING RESULTS
| Kansanshi Copper and Gold Operation | Three months ended March 31 | ||
|---|---|---|---|
| 2010 | 2009 | ||
| Production (tonnes) Copper cathode Copper in concentrate Copper cathode tolled Total copper production (tonnes) Copper sales (tonnes) Gold production (ounces) Sulphide ore tonnes milled (000‟s) Sulphide ore grade processed (%) Sulphide copper recovery (%) Mixed ore tonnes milled (000‟s) Mixed ore grade processed (%) Mixed copper recovery (%) Oxide ore tonnes milled (000‟s) Oxide ore grade processed (%) Oxide copper recovery (%) Cash costs (C1) (per lb)2 Total costs (C3) (per lb)1 Gross operating profit (USD M) | 23,836 21,600 15,402 60,838 46,691 21,993 3,260 1.1 95 - - - 1,343 1.6 93 $0.99 $1.22 $46.7 | ||
| 19,180 | |||
| 7,202 | |||
| 27,201 | |||
| 53,583 | |||
| 56,464 | |||
| 24,272 | |||
| 2,449 | |||
| 0.8 | |||
| 95 | |||
| 1,249 | |||
| 1.4 | |||
| 63 | |||
| 1,250 | |||
| 1.4 | |||
| 91 | |||
| $1.18 | |||
| $1.39 | |||
| $227.1 |
Copper production decreased by 12% from Q1 2009 due to lower mining volumes and mill throughput in Q1 2010. Production from all three circuits was impacted by a four day power blackout and low ore volumes and grades from mine operations caused by the impacts of lower mine equipment availability in Q1 2010.
Sulphide circuit production was impacted by lower throughput and ore grade processed. Throughput stabilized later in Q1 2010 and is expected to improve with circuit enhancements planned for Q2 and Q3 2010.
The mixed ore circuit continued to achieve strong recovery rates in Q1 2010. This circuit processes mixed acid soluble and acid insoluble copper ore and produced copper in concentrate totalling 10,907 tonnes in Q1 2010.
In addition to the power blackout and mining issues discussed above, the oxide ore circuit was impacted by the replacement of the SAG mill in January 2010. Recovery was lower due to the processing of higher acid insoluble grade ore in Q1 2010. Projects are underway to enhance the recovery rates from the oxide circuit during 2010. See “Development activities” for further discussion.
Q1 2010 tolled copper cathode production from the Mufulira smelter increased by 77% from Q1 2009 due to capacity improvements made during Q3 2009.
Gold production improved from Q1 2009 by 10% but was behind plan due to low ore throughput on all three circuits. Gold in dore production of 8,001 ounces reflects improvements made to the gold plant in Q3 and Q4 2009.
2 C1 costs and C3 costs are non-GAAP measures. See “Regulatory disclosures – non-GAAP measures” for further information Kansanshi‟s cash unit cost of production (C1) increased from Q1 2009 due to higher ore costs and processing costs incurred. Ore costs were impacted by lower mine production caused by lower equipment availability in the period, which increased the cost per tonne of ore processed and resulted in the processing of ore from stockpiles at lower grades and a higher average cost per tonne. Processing costs reflect inefficiencies of lower copper production and lower ore grades processed in the period. Additionally, higher engineering and maintenance costs were incurred related to the replacement of the oxide SAG mill in Q1 2010.
| Frontier Copper Operation | Three months ended March 31 | ||
|---|---|---|---|
| 2010 | 2009 | ||
| Production – copper in concentrate (tonnes) Copper sales (tonnes) Sulphide ore tonnes milled (000‟s) Sulphide ore grade processed (%) Sulphide copper recovery (%) Cash costs (C1) (USD per lb)3 Total costs (C3) (USD per lb)1 Gross operating profit (USD M) | 20,786 | 19,271 14,226 1,570 1.3 94 $1.23 $1.36 $28.6 | |
| 15,521 | |||
| 1,932 | |||
| 1.1 | |||
| 90 | |||
| $1.46 | |||
| $1.70 | |||
| $48.9 |
Copper production increased by 8% in Q1 2010 due to an increase in mill throughput, partially offset by lower sulphide grades and recoveries. The heavy rains at Frontier meant that mining activities were restricted to waste stripping and pit maintenance, and ore grades suffered as a result. Recoveries were impacted by an increase in acid soluble content of the material processed which is not recovered in Frontier‟s sulphide circuit.
Frontier‟s Q1 average cash unit cost of production (C1) was 19% higher than Q1 2009 due primarily to a change in the mine plan to increase waste stripping in order to establish a wider and more efficient working area in the pit. Processing costs were largely unchanged as increases in oil based consumables costs were offset by efficiencies gained on higher throughput and production volumes in the current period.
Operating profit is higher than Q1 2009 due to the increase in the realized copper price, offset partially by an increase in production costs. The Q1 2010 operating profit was affected by a delay in the recognition of copper revenues as the new metal marketing division held 2,568 tonnes of copper as at March 31, 2010.
3 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 March 31 | ||
|---|---|---|---|
| 2010 | 2009 | ||
| Production – copper in concentrate (tonnes) Copper sales (tonnes) Gold production (ounces) Sulphide ore tonnes milled (000‟s) Sulphide ore grade processed (%) Sulphide copper recovery (%) Cash costs (C1) (USD per lb)4 Total costs (C3) (USD per lb)1 Gross operating profit (USD M) | 8,405 | 9,331 8,857 24,771 530 1.9 92 $0.35 $0.66 $17.9 | |
| 7,350 | |||
| 20,370 | |||
| 660 | |||
| 1.4 | |||
| 90 | |||
| $0.59 | |||
| $1.40 | |||
| $36.0 |
Copper production decreased from Q1 2009 as an increase in mill throughput was outweighed by lower grades processed and lower recoveries experienced in Q1 2010. Mill throughput has increased as a result of the sulphide plant expansion completed in Q3 2009, however, throughput was lower than plan due to mill downtime in Q1 2010.
Gold production also decreased from Q1 2009 due to lower grades and recoveries processed in Q1 2010. The commissioning of the gold scavenger flotation cell in Q1 2010 is expected to enable circuit changes to be introduced to increase gold recoveries. The gold dore smelter produced approximately 4,100 ounces of gold in Q1 2010.
Guelb Moghrein‟s average cash unit cost of production (C1) was higher compared to Q1 2009 as a result of higher waste stripping and lower production volumes, as well as costs related mill downtime in Q1 2010.
Guelb Moghrein‟s Q1 operating profit increased from the comparative period due to the increased realized copper price, partially offset by higher production costs and lower sales volumes. The Q1 2010 operating profit was affected by a delay in the recognition of copper revenues as the new metal marketing division held 1,356 tonnes of copper in transit as at March 31, 2010.
| Bwana/Lonshi Copper Operation | Three months ended March 31 | ||
|---|---|---|---|
| 2010 | 2009 | ||
| Production – copper cathode (tonnes) Copper sales (tonnes) Oxide ore tonnes milled (000‟s) Oxide ore grade processed (%) Oxide copper recovery (%) Cash costs (C1) (USD per lb)1 Total costs (C3) (USD per lb)1 Gross operating loss (USD M) | 2,288 | - - - - - - - $(2.3) | |
| 2,106 | |||
| 101 | |||
| 2.8 | |||
| 90 | |||
| $1.27 | |||
| $1.40 | |||
| $(2.0) |
The Bwana Mkubwa copper SX/EW plant recommenced production in January 2010 to process the Lonshi oxide ore stockpile. Production volumes are in-line with expectation and recoveries have improved consistently from start-up. The
4 C1 costs and C3 costs are non-GAAP measures. See “Regulatory disclosures – non-GAAP measures” for further information entire high grade ore stockpile has now been transported to the plant which is expected to continue to produce grade A copper cathode at an average rate of 800 tonnes per month until the stockpile is exhausted in August 2010.
Bwana/Lonshi is cash generative as the gross operating loss for Q1 2010 includes a non-cash expense of $7.0 million related to the net realizable value write-up recognized in 2009 and now expensed as the Lonshi ore stockpile is processed in 2010.
COSTS AND EXPENSES
| Three months ended March 31 | |||
|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | |
| Gross operating profit General and administrative Acquisition transaction costs Other income Derivative instrument adjustments Exploration Interest Income taxes Non-controlling interests | 310.0 | 90.9 (5.7) - 0.5 (46.4) (5.5) (11.1) (1.2) (10.6) | |
| (7.3) | |||
| (18.5) | |||
| 7.3 | |||
| (3.5) | |||
| (7.8) | |||
| (13.9) | |||
| (85.3) | |||
| (34.8) | |||
| Net earnings attributable to equity holders of the parent | 146.2 | 10.9 | |
| Earnings per share - basic (USD per share) - diluted (USD per share) Weighted average shares outstanding - basic (number of shares – millions) - diluted (number of shares - millions) | $0.16 $0.16 68.8 69.2 | ||
| $1.81 | |||
| $1.70 | |||
| 80.7 | |||
| 90.4 |
Acquisition costs incurred in Q1 2010 are primarily Australian duties paid in relation to the purchase of Ravensthorpe. Other income includes realized and unrealized foreign exchange gains on cash balances and monetary assets and liabilities held in currencies other than the US dollar.
Derivative instrument adjustments in Q1 relate to copper hedging undertaken to reduce the Company‟s exposure to quotational period pricing risk on copper sales in the period. In Q1 2009, the Company‟s hedging loss was incurred on derivative positions entered into in order to protect the Company against the uncertain economic outlook of early 2009.
Exploration expenses include $5.4 million incurred at the Lonshi underground evaluation project in Q1 2010.
Interest expense has increased from the comparative quarter due to the issuance of the 6%, $500.0 million convertible bonds in Q2 2009. Interest expense includes non-cash accretion of $3.4 million on the convertible bonds in Q1 2010.
Income taxes have increased from the comparative quarter primarily due to the increased profitability.
Non-controlling interests has increased from Q1 2009 due to the increase in net income of Kansanshi, Guelb Moghrein and Frontier in 2010. In February 2010, the Company acquired the remaining 20% ownership interest in Mauritanian Copper Mines SARL, which owns Guelb Moghrein, resulting in no further non-controlling interests from this operation.
FINANCIAL POSITION AND LIQUIDITY
| Three months ended March 31 | |||
|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | |
| Cash flows from operating activities - before working capital - after working capital Cash flows from financing activities Cash flows from investing activities | 85.1 (59.1) 79.5 (73.5) | ||
| 209.1 | |||
| 153.5 | |||
| 8.5 | |||
| (532.8) | |||
| Net cash flows Cash balance | (370.8) | (53.1) 123.1 | |
| 548.4 | |||
| Available credit facilities - Corporate revolving loan and short-term facility - Corporate revolving credit and term loan facility - Short-term borrowings Cash flows from operating activities per share (basic) - before working capital (USD per share) - after working capital (USD per share) | 100.0 - - $1.24 $(0.86) | ||
| 250.0 | |||
| 50.0 | |||
| 33.7 | |||
| $2.59 | |||
| $1.90 |
Operating cash flows were generated from positive operating results during Q1. Working capital movements include an increase in accounts receivable as a result of an increase in copper price over the period, and an increase in finished copper inventory caused by the establishment of the new marketing division, resulting in a delay in the recognition of sales and an increase in finished inventory held in transit.
During Q1 a scheduled repayment of $40.3 million was made on the Corporate revolving credit and term loan facility using the restricted cash balance outstanding from December 31, 2009. The Company also paid $6.3 million of finance fees for the renewal of the Corporate revolving loan and short-term facility in Q1 2010.
The Company undertook significant investing activities during Q1 including; the acquisition of the Ravensthorpe nickel project for $338.8 million, of which $34.0 million was paid in 2009, the acquisition of Kiwara PLC for $128.4 million in net cash and $137.2 million in common shares of the Company, and the acquisition of the 20% non-controlling interest in Mauritanian Copper Mines for $63.0 million. In addition to these acquisitions, the Company invested cash of $36.6 million in capital expenditures on existing projects and operations during Q1. Capital expenditures have decreased from Q1 2009 due to the suspension of the Kolwezi project.
In addition to the Company‟s 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. An additional $33.7 million is also available for draw under the Company‟s new short-term facility. The Company‟s working capital balance (not including cash and debt) at March 31, 2010 decreased by $24.3 million from December 31, 2009 due to an increase in accounts payable and taxes payable, partially offset by an increase in the accounts receivable balance as a result of the increase in copper price for Q1. Included in the working capital balance is finished goods inventory of approximately 29,500 tonnes of contained copper.
As at March 31, 2010, 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 payable Deferred payments Commitments Asset retirement obligations | 166.2 500.0 361.0 9.5 89.4 32.3 | 101.0 - 361.0 0.4 89.4 - | 45.2 - - 0.4 - - | 5.0 - - 0.4 - - | 5.0 - - 0.4 - - | 5.0 500.0 - - - - | 5.0 - - 7.9 - 32.3 |
INVENTORY
| Copper (tonnes) | Gold in dore (ounces) | |||
|---|---|---|---|---|
| Kansanshi Frontier Guelb Moghrein Bwana/Lonshi | 19,000 6,200 4,100 200 | 2,600 - 700 - | ||
| Total | 29,500 | 3,300 |
Finished copper inventory increased by 3,400 tonnes in Q1 to 29,500 tonnes as at March 31, 2010 with an average cost of approximately $1.26 per pound ($2,771 per tonne). The commencement of sales made directly to end customers through the metal marketing division has created a one-off delay in the recognition of some sales and an increase in finished copper inventory held in transit. At March 31, 2010, there were 4,200 tonnes of finished copper held in transit to final off takers. Approximately 16,000 tonnes of Kansanshi copper in concentrate was in the process of being treated or stockpiled for treatment at the Mufulira smelter as at March 31, 2010. Contained gold in dore inventory increased to 3,300 ounces due to timing of shipments and increased dore production at Kansanshi in Q1. Gold contained in copper in concentrate is not included in the inventory balances noted above.
COMPREHENSIVE INCOME
The market value of available-for-sale investments decreased during Q1 resulting in the Company recognizing a tax effected decrease in the fair value of investments of $12.1 million in Q1 2010.
EQUITY
Shareholders‟ equity increased during Q1 due to the issuance of 1,885,360 shares pursuant to the acquisition of Kiwara PLC in Q1 2010.
As at the date of this report the Company has 80,595,849 shares outstanding.
DEVELOPMENT ACTIVITIES
Acquisition of the Ravensthorpe nickel project, Australia
In December 2009, the Company entered into an agreement with BHP Billiton to acquire the Ravensthorpe nickel project subject to relevant approvals from the Australian Foreign Investment Review Board and the West Australian Minister for Mines and Petroleum. Following the receipt of the government approvals, the finalization of the acquisition was completed on February 10, 2010 for $338.8 million.
Ravensthorpe is located in Western Australia, approximately 550 kilometers (“km”) southeast of Perth. It is an open pit mine and hydrometallurgical process plant that uses proven technology to recover nickel and cobalt to produce a mixed nickel cobalt hydroxide intermediate product. Ravensthorpe‟s development was completed in 2007, however, operations were suspended in January 2009 after the LME nickel price dropped to as low as $8,810 per tonne in late 2008.
The Company has engaged an engineering firm and is proceeding with the detailed design of modifications for the Ravensthorpe process plant, of which a significant part will be the modification of the crushing, conveying, stockpile, reclaim and rejects handling areas of the plant. The modification works are planned to be completed during Q1 2011 and will be followed by approximately six months of commissioning and ramp-up. The capital requirement for the modification is estimated at approximately $150 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.
On May 2, 2010, the Australian Federal Government announced a proposal that, if implemented, would result in substantial changes to the taxation system and in particular corporate taxation applicable to the Australian extractive resources industry. If enacted as proposed, the Resource Super Profit Tax (“RSPT”) will apply a significant additional tax starting in 2012.
The proposed changes must first be approved through the legislative process of the Australian Federal Parliament prior to the planned implementation on July 1, 2012. The Australian Federal Government has released information on the proposed taxation changes, however draft legislation is not expected to be available until 2011. Furthermore, the legislation, if passed by the Australian Federal Parliament, may differ from the current proposal, with the Australian Federal Government publically indicating a willingness to engage with affected companies over the RSPT. In the event that the taxation reforms are introduced in their current form, the Company„s taxation costs pursuant to the Ravensthorpe nickel project are expected to increase materially.
Acquisition of Kiwara PLC
In January 2010, the Company acquired all of the issued share capital of Kiwara PLC (“Kiwara”) which owned 85% of Kalumbila Minerals Limited (“Kalumbila”) and holds mineral property licences on the periphery of the Kabombo Dome in North Western Province, Zambia. At the time of acquisition Kiwara had begun an in-fill drill program at Kalumbila to determine a mineral resource estimate for the properties. Under the terms of the Kiwara acquisition agreement, the Company acquired a further 10% interest in Kalumbila in February 2010 bringing its ownership interest to 95%. The Company holds options to acquire the remaining 5% interest in Kalumbila for GBP 6.5 million.
In Q1 2010, the Company has focused efforts on setting up and planning a major drilling program to upgrade and expand the main Kalumbila copper resource. An initial program of approximately 50,000 meters of drilling utilizing six diamond core rigs has been contracted and drilling commenced in April. Concurrent baseline studies for social and environmental impacts are now in process. An economic assessment including metallurgical test work, engineering and geotechnical studies are planned in 2010.
In addition to the resource development program, a regional exploration program has been initiated to assess the potential of a high grade nickel prospect as well as further copper and uranium prospects in the extensive Kalumbila tenure package.
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
Ongoing delineation drilling at the Kevitsa project has extended the mineralization both south and east with an updated mineral resource estimate anticipated to be assessed in Q3 2010. Detailed engineering design has commenced, and the majority of long -lead equipment for the project has been tendered. In addition, construction contracts are being tendered, and construction activity at the site is planned to commence in Q2 2010.
Kansanshi copper/gold operation, Zambia
The sulphide ore treatment capacity upgrade progressed in Q1 with belt drive and chute upgrades completed. The commissioning of the new secondary crusher is scheduled for the end of Q2. Milling rates of approximately 35,000 tonnes per day have been achieved and the secondary crushing will add to this capacity. Further enhancement of milling rates and overall operational stability are planned via the installation of a milling expert system.
The installation of additional flotation capacity on sulphide and mixed ore is on schedule, with completion intended in Q4 2010. This capacity will enhance recovery potential of both sulphide and mixed ore.
Oxide circuit developments aimed at improving recovery are expected to be complete by Q4 2010.
The project to improve recovery of gold to gravity concentrates via additional gravity concentrators continued with two more gravity concentrators installed in Q1. Commissioning of the final gravity concentrator will be complete by May 2010. Further upgrades to downstream secondary gravity concentration and pyrometallurgical treatment are in progress.
Following an extensive geological review and drilling program at Kansanshi, a revised mineral resource and reserve estimate has been completed. In summary, the revised mineral reserve estimate is:
Total tonnes: 304,500,000 Total copper: 1.16% Acid soluble copper (leach and mixed ore only): 0.81% Gold (grams per tonne): 0.17 Strip ratio: 2.2
Using a 0.3% cut-off grade, the measured and indicated resource categories and the contained copper increase by approximately 18% and 50%, respectively. Significantly increased proved and probable mineral reserves estimate can support a mine life of approximately 13 years at a throughput rate of 24 million tonnes per year. The mine life increases to 20 years when the inferred mineral resource estimate is considered. The overall strip ratio increases marginally to 2.2:1 compensated by the increase in head grade to 1.16% total copper.
Guelb Moghrein copper/gold operation, Mauritania
The commissioning of the new gold scavenger flotation cell in Q1 has enabled circuit changes to be introduced to treat higher arsenic ore at increased flotation recoveries. The new HPGR has been installed and the circuit will be commissioned in Q2. The remaining two 5 megawatt engines comprising the last phase of the new power station are undergoing final tests prior to commissioning in Q2.
Frontier copper operation, RDC
Frontier will continue to focus on increased waste stripping to establish wider and more efficient working areas in the pit in 2010. This will be achieved through the use of contractors and also with the introduction of new AC haul trucks. A dewatering shaft project is underway to provide better water management in the pit.
Bwana Mkubwa copper SX/EW plant, Zambia
The Bwana copper plant was successfully re-commissioned early in January 2010 and is operating at an output level of approximately 800 tonnes of grade A copper cathode per month until August 2010. All of the high grade ore stockpile from the Lonshi mine has now been exported to Bwana Mkubwa and no further exporting is planned for 2010. The strategy beyond the processing of the Lonshi ore 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 Kingamyambo Musonoi Tailings SARL (“KMT”) facilities. The project is currently on care and maintenance. Refer to the “Other items” section for further discussion.
Lonshi underground evaluation project, RDC
The exploration and development of the underground project continues with an objective to provide support for operational development.
Exploration
The Company‟s exploration activities continued at a high level in Finland and Mauritania. Seasonal rains in the Copperbelt slowed drilling activities in Zambia and the RDC.
In Finland, four drill rigs continue a high rate of production on resource expansion and exploration targets near Kevitsa. Infill and extension drilling at the southern end of the Kevitsa resource continues to return strong results of mineralization close to surface in a swamp covered area with little previous drilling. These results are expected to have a positive impact on the next resource model and pit optimization study to be completed in Q3 2010. Exploration drilling has focused on assessing the potential for near surface mineralization to impact on areas of the proposed plant and infrastructure. Targeting of a bowl shaped electro-magnetic anomaly 2 km southeast of the Kevitsa resource has defined a new area of near surface low grade disseminated Ni-Cu-PGE mineralization. A full 3D seismic survey is currently in process over the Kevitsa resource area. This survey will provide detailed structural information for geotechnical and exploration targeting purposes.
In Zambia, construction of access tracks to the SE Dome Prospect near Kansanshi allowed drilling to recommence in Q1 despite heavy rains. Two core rigs commenced a systematic test of this encouraging new target where mineralization has been identified within a dome structure covering approximately 700 meters by 500 meters at surface. Results from 2009 drilling returned during Q1 include many intercepts of 20 meter to 70 meter width at 0.6% to 2% total copper with subsidiary gold. The current program of 100 meter spaced drill sections is designed to generate a preliminary resource later in 2010.
In the RDC, regional drilling was suspended during the heavy rain season, however near-mine drilling continued at Frontier and Lonshi. The Lonshi program is targeted at extensions of the high-grade underground mineralization.
In Mauritania, a geology campaign to integrate geology, geophysics and geochemical signatures of the Guelb and El Joul mineralization was completed in March 2010. A new 3D model of the Guelb ore body has defined clear targets for mineralization extending to the west and southeast. A 19 hole diamond drill program has been initiated to test the new potential. A major airborne gravity survey was completed over a large part of the tenure around Guelb Moghrein. Integration of this data with airborne magnetic and regional geochemistry has defined a series of high-priority drill targets.
OTHER ITEMS
Kolwezi update
During 2007, the Government of the RDC announced a review of over 60 mining agreements entered into over the last decade with foreign companies. The Kolwezi mining convention (“Contract of Association”), to which the Company‟s subsidiary Congo Mineral Developments Limited (“CMD”) is a party, was included in this review. The Company and its contributing partners in the Kolwezi Project, Industrial Development Corporation of South Africa (“IDC”) and the IFC (International Finance Corporation), have obtained legal advice that the Contract of Association is valid and binding and that all terms have been complied with by CMD. The Contract of Association also provides a dispute resolution mechanism through international arbitration.