First Quantum Minerals Reports Operational and Financial
NEWS RELEASE 10-41 November 9, 2010 www.first-quantum.com
FIRST QUANTUM MINERALS REPORTS OPERATIONAL AND FINANCIAL RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
(All figures expressed in US dollars, unless otherwise noted)
First Quantum Minerals Ltd. (“First Quantum” or the “Company”, TSX Symbol “FM”, LSE Symbol “FQM”) today announced its results for the three and nine months ended September 30, 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 September 30 | Nine months ended September 30 | |||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | 2010 | 2009 | ||
| Production – copper (tonnes) Production – gold (ounces) Sales – copper (tonnes) Realized copper price (per lb) Net sales Net earnings before impairment, derivatives and acquisition costs Net earnings (loss) Earnings per share before impairment, derivatives and acquisition costs Earnings (loss) per share Average copper unit cash cost of production (C1)1(per lb) Cash | 76,633 | 93,486 43,357 105,154 $2.21 $546.3 $164.2 $123.8 $2.10 $1.59 $0.98 $807.7 | 247,097 | 275,412 130,609 268,410 $1.88 $1,219.4 $375.7 $236.2 $5.04 $3.17 $0.95 $807.7 | ||
| 46,718 | 142,831 | |||||
| 79,408 | 235,270 | |||||
| $2.99 | $2.84 | |||||
| $602.6 | $1,694.1 | |||||
| $129.7 | $401.8 | |||||
| $(136.7) | $(578.7) | |||||
| $1.62 | $5.02 | |||||
| $(1.70) | $(7.24) | |||||
| $1.21 | $1.21 | |||||
| $632.8 | $632.8 |
Unless otherwise indicated, all comparisons of performance throughout this report are to the comparative periods for 2009
Q3 HIGHLIGHTS AND SIGNIFICANT ITEMS
- Operating profit of $309.6 million increased by 36% from Q2 2010
- Results benefitted from a higher copper price, but were adversely impacted by the forced shut down of Frontier operations on August 27, 2010
- Net earnings of $129.7 million (EPS of $1.62) before impairment and derivative timing losses
- Impairment of $243.8 million, net of tax and including closure costs, related to the Frontier copper operation following the forced shut down by the République démocratique du Congo (“RDC”). See “Other items” for further discussion
1 C1 cost is a non-GAAP measure. See “Regulatory disclosures – non-GAAP measures” for further information
- Increased on-site activities in the development of Ravensthorpe, Kevitsa and Trident (formerly Kalumbila)
- 18% decrease in total copper production resulting from the shut down at Frontier and lower ore grades at Kansanshi
- 8% increase in total gold production resulting from circuit improvements and plant expansions completed at Kansanshi
- Strong cash and working capital position despite significant investments in Ravensthorpe, Kevitsa and Trident in 2010
RECENT DEVELOPMENTS AND NEAR TERM OUTLOOK
Kansanshi copper and gold operation, Zambia
- The new mining fleet continues to be commissioned with the nine of the twelve new 180 tonne AC drive units now operating. The third 250 tonnes excavator was commissioned and together with improvements to the mobile plant availability, mining rates lifted during Q3. These enhancements are expected to continue during Q4.
- The secondary crusher on the sulphide circuit was commissioned during Q3 and will be optimised during Q4.
Guelb Moghrein copper and gold operation, Mauritania
- Ongoing optimization of the autogenous circuit, including the high pressure grinding rollers, will continue in Q4 with a goal to achieve design throughput and increase copper and gold recoveries.
Kevitsa nickel/copper/PGE project, Finland
- Construction works at Kevitsa have advanced on schedule during Q3. Earthworks and concrete works have advanced well and the first construction steel will be erected at the beginning of Q4. The update of the Kevitsa resource has also progressed well during Q3 and is expected to be finalised during Q4.
Ravensthorpe nickel project, Australia
- The refurbishment of the processing facilities at Ravensthorpe has advanced significantly during Q3 2010. The new crusher installations are well advanced. Refurbishment of the existing fixed plant facilities has commenced with commissioning on track for Q2 2011.
- Grade control drilling has commenced to ensure the geological database is sufficiently advanced to allow detailed mine planning ahead of the re-commencement of the plant.
Trident project, Zambia
- Significant exploration activities at the Sentinel copper deposit and Enterprise nickel target were undertaken in Q3 with an aim to further delineate the existing copper deposit and define other targets within the licence areas. An economic assessment including metallurgical test work, engineering and geotechnical studies are underway and expected to be completed in Q4 2010. Environmental studies also commenced in preparation for environmental and mining license applications.
- Base-line environmental and social consultations are planned as part of the environmental impact assessment to be prepared in support of a mining license. Exploration activities will focus on the three main prospects, Sentinel, Enterprise and Intrepid, targeting both copper and nickel.
Production Guidance
- The Company‟s 2010 production outlook has been lowered to 322,000 tonnes of copper and 195,000 ounces of gold. The lower estimated copper production reflects the closure of Frontier.
- Estimated average C1 cost for 2010 is unchanged at $1.17 per pound
Acquisition of Antares Minerals Inc.
- In October 2010, the Company entered into an agreement to acquire Antares Minerals Inc. (“Antares”) for CAD $460 million in cash and shares. Antares‟ principal asset is the 100% owned Haquira project in Peru, one of the world‟s major undeveloped copper deposits.
Sale of investment in Equinox Minerals Limited
- In November 2010, the Company announced the sale of its approximate 16% interest in Equinox Minerals Limited which will raise proceeds of approximately CAD $650 million in cash. The funds will be used towards advancement of the Company‟s diversified pipeline of growth projects.
REVENUES
| NET SALES (after provisional pricing and realization charges) | Three months ended September 30 | Nine months ended September 30 | ||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | 2010 | 2009 | ||
| Kansanshi - copper - gold Guelb Moghrein - copper - gold Frontier - copper Bwana/Lonshi - copper - acid Corporate | 375.7 | 379.7 18.7 24.1 16.3 107.5 - - - | 1,082.3 | 770.8 45.3 70.3 57.4 273.4 0.4 1.8 - | ||
| 29.5 | 82.4 | |||||
| 49.6 | 116.8 | |||||
| 23.0 | 57.8 | |||||
| 80.9 | 225.3 | |||||
| 17.2 | 47.8 | |||||
| - | - | |||||
| 26.7 | 81.7 | |||||
| Net sales | 602.6 | 546.3 | 1,694.1 | 1,219.4 | ||
| Copper provisional pricing adjustment included above | 6.5 | 12.9 | (4.8) | 40.1 | ||
| 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 | 3.20 | 2.44 0.06 (0.29) | 3.12 | 2.11 0.07 (0.29) | ||
| 0.04 | (0.01) | |||||
| (0.25) | (0.27) | |||||
| Realized copper price | 2.99 | 2.21 | 2.84 | 1.89 |
The Q3 2010 average realized copper price was significantly higher than Q3 2009 due to an increase in the average LME copper price. Copper sales volumes for Q3 decreased 24% to 79,408 tonnes due to the shut down of operations at Frontier at the end of August. Sales volumes from Kansanshi, Guelb Moghrein and Bwana/Lonshi were consistent with production in Q3 and the inventory held in the Company‟s metal marketing division was consistent with the start of the period.
The Q3 positive provisional pricing adjustment resulted from the finalization of contracts totalling 16,949 tonnes of copper at an average price of $3.14 per pound ($6,913 per tonne). These contracts were provisionally priced at $2.96 per pound ($6,527 per tonne) at June 30, 2010 and were finalized during July and August 2010.
The year-to-date 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 September 30, 2010, 16,024 tonnes of copper provisionally priced at $3.65 per pound ($8,054 per tonne) remain subject to final pricing in October and November 2010. Refer to the „Outlook‟ section for further discussion.
Gold revenues increased by 50% over Q3 2009 to $52.5 million. The increase resulted from a higher realized gold price which offset lower sales volumes in Q3 2010.
Metal marketing division
A metal marketing division was established in Q1 2010 to improve the management of copper and gold sales from the Company‟s operations and reduce the Company‟s exposure to provisional pricing. Prior to the establishment of the division, revenues were recognized by operations when title transferred to buyers, usually upon leaving the mine site. Copper and gold sales managed by the metal marketing division are now recognized when title has transferred to final purchasers resulting in reduced sales volumes and higher inventory for the year-to-date. The impact on current quarter and current year sales volumes and inventory balances are summarized as follows:
| Impact on sales volume for the period | |
|---|---|
| Three months ended September 30, 2010 | |
| (392) 736 889 | |
| 1,233 | |
| 1,045 |
Metal marketing division
Copper (tonnes)
Kansanshi
Guelb Moghrein
Frontier
Total copper
Gold (ounces)
Guelb Moghrein
In addition to marketing the Company‟s production, the metal marketing division purchases and sells metal from external parties. During Q3, the division had revenues of $26.7 million and finished goods inventory of $44.5 million related to external purchases and sales.
In order to reduce the effect of movements in metal prices between the time of shipment of metal from the mine site and final recognition of the sale, the metal marketing division enters into futures contracts. As a result of the significant increase in LME copper prices during Q3, a derivative instrument loss of $23.8 million was recognized on these futures contracts in the period. This loss offsets an unrecognized gain in the fair market value of the inventory held by the metal marketing division at September 30, 2010.
SEGMENTED OPERATING RESULTS
| Kansanshi Copper and Gold Operation | Three months ended September 30 | Nine months ended September 30 | ||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 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)1 Total costs (C3) (per lb)1 Gross operating profit (USD M) | 25,436 9,516 26,344 61,296 73,985 25,350 2,576 0.9 93 1,477 1.3 65 1,540 2.3 80 $1.01 $1.31 $208.5 | 70,509 49,903 62,114 182,526 177,161 67,460 9,217 1.0 90 2,022 1.1 81 4,183 2.2 81 $1.00 $1.27 $379.2 | ||||
| 21,914 | 61,761 | |||||
| 9,723 | 32,016 | |||||
| 23,564 | 71,115 | |||||
| 55,201 | 164,892 | |||||
| 55,355 | 166,485 | |||||
| 29,456 | 80,647 | |||||
| 2,443 | 7,683 | |||||
| 0.8 | 0.8 | |||||
| 93 | 92 | |||||
| 1,289 | 3,826 | |||||
| 1.2 | 1.3 | |||||
| 67 | 66 | |||||
| 1,495 | 4,153 | |||||
| 2.4 | 2.2 | |||||
| 78 | 86 | |||||
| $1.09 | $1.11 | |||||
| $1.42 | $1.33 | |||||
| $242.6 | $674.3 |
Q3 copper production decreased by 10% from Q3 2009 due to lower throughput and grades processed. Overall mining production improved in Q3 on the continued commissioning of new mining equipment. However, increased waste stripping resulted in lower total ore volumes mined and processed in the period.
Q3 sulphide circuit production was impacted by lower grades and tonnes processed. Throughput decreased from the comparative period on the testing and commissioning of the secondary sulphide crusher in Q3 2010 resulting in downtime on the crushing and milling circuit.
Mixed ore circuit throughput was constrained by maintenance downtime on the SAG mill in early Q3, resulting in processing of ore directly through the ball mill at lower rates. Circuit recovery remained strong in Q3 offsetting a small decrease in ore grade processed.
Kansanshi‟s oxide circuit recovers both oxide and sulphide minerals to produce copper cathode and copper in concentrate. Total copper recovery of 78% reflects an increase in the proportion of sulphide material floated in the circuit at a lower overall recovery. Q3 throughput was impacted by downtime caused by the construction and commissioning of circuit improvements aimed at achieving higher recoveries of sulphide and oxide material. The benefits of these improvements are expected to be realized in Q4 and into 2011.
Total gold production increased by 16% due to continued gravity circuit improvements. Kansanshi produced a record 14,482 ounces of gold in dore in Q3.
Kansanshi‟s cash unit cost of production (C1) increased from Q3 2009 due to higher ore costs and higher processing costs, partially offset by an increased gold credit. The cost of ore processed was 29% higher than Q3 2009, despite a decrease in total mining costs per tonne of mined material, due to lower grade ores mined and the impact of higher waste stripping on the cost per ore tonne mined. Increased processing costs resulted from lower overall copper production and higher maintenance costs. The increased gold credit resulted from higher gold sales volumes and prices realized in Q3.
| Guelb Moghrein Copper and Gold Operation | Three months ended September 30 | Nine months ended September 30 | ||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 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)1 Total costs (C3) (USD per lb)1 Gross operating profit (USD M) | 8,487 | 7,425 6,958 18,007 514 1.7 84 $0.67 $1.19 $14.8 | 27,282 | 24,792 26,106 63,149 1,518 1.9 88 $0.35 $0.61 $53.6 | ||
| 9,291 | 22,232 | |||||
| 17,262 | 62,184 | |||||
| 644 | 2,048 | |||||
| 1.4 | 1.5 | |||||
| 92 | 91 | |||||
| $0.79 | $0.85 | |||||
| $1.85 | $1.60 | |||||
| $35.0 | $82.8 |
Guelb Moghrein‟s Q3 production improved from 2009 on the plant expansion completed in 2010. The plant continued process configuration work aimed at achieving design throughput capacity and improved recoveries. This included a conversion to an autogenous circuit in Q3 which temporarily reduced overall mill availability and throughput. Ore grades processed are generally lower in 2010 reflecting the ore profile going forward.
Gold production was 4% lower than Q3 2009 due to lower gold grades processed, offset partially by increased recovery and throughput. The gold plant is expected to improve dore production with the addition of a gravity concentrator.
Guelb Moghrein‟s average cash cost of production (C1) was higher compared to Q3 2009 due to increased ore costs and processing costs incurred on lower grade ore and circuit downtime during optimization work undertaken. The gold credit benefitted from higher realized gold price which outweighed lower gold sales volume in Q3 2010.
Guelb Moghrein‟s Q3 operating profit increased from the comparative period due to increased copper sales volumes and significantly higher realized copper and gold prices. This was reduced by higher production costs incurred and increased depreciation on the plant expansion completed in 2010.
| Frontier Copper Operation | Three months ended September 30 | Nine months ended September 30 | ||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 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)1 Total costs (C3) (USD per lb)1 Gross operating profit (USD M) | 10,541 | 24,765 24,211 2,183 1.2 92 $1.02 $1.19 $67.8 | 47,508 | 68,094 65,143 5,788 1.3 92 $1.06 $1.21 $165.9 | ||
| 12,360 | 39,643 | |||||
| 1,346 | 5,425 | |||||
| 0.9 | 1.0 | |||||
| 92 | 90 | |||||
| $2.22 | $1.77 | |||||
| $2.55 | $2.10 | |||||
| $30.6 | $93.6 |
There was no copper production at Frontier following the forced shut down of operations on August 27, 2010 by the RDC government.
Copper production at Frontier during July and August was impacted by the effect of reduced capital investment in 2010 which was a consequence of the uncertainty following the legal proceedings instigated by the RDC state-owned mining agency, Sodimico. As a result, Frontier‟s mine equipment availability was lower and access to higher grade ore was limited.
A significant increase in cash costs was caused by lower ore grades processed, increased mining costs, and inefficiencies experienced on lower copper production in Q3 2010. The Company incurred an impairment charge of $249.8 million, net of tax and including closure costs, related to the Frontier copper operation following the forced shut down by the RDC. See “Other items” for further discussion.
| Bwana/Lonshi Copper Operation | Three months ended September 30 | Nine months ended September 30 | ||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 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 profit (loss) (USD M) | 2,404 | - - - - - - - $(6.3) | 7,415 | - - - - - - - $(12.9) | ||
| 2,402 | 6,910 | |||||
| 112 | 327 | |||||
| 2.2 | 2.5 | |||||
| 92 | 91 | |||||
| $1.24 | $1.28 | |||||
| $1.54 | $1.43 | |||||
| $7.1 | $1.7 |
The Bwana Mkubwa copper SX/EW plant continued production of grade A copper cathode from the Lonshi oxide ore stockpile until the end of Q3. The gross operating profit for Q3 includes a non-cash expense of $15.5 million related to the inventory net realizable value write-up recognized in 2009. The write-up was expensed as the Lonshi ore stockpile was processed in 2010. The facility has been placed on care and maintenance while options are considered for use of the SX/EW assets.
COSTS AND EXPENSES
| Three months ended September 30 | Nine months ended September 30 | |||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | 2010 | 2009 | ||
| Gross operating profit General and administrative Acquisition transaction costs Other income (loss) Derivative instrument adjustments Exploration Assets impaired Interest Income taxes Non-controlling interests | 284.8 (8.7) - 10.0 (40.4) (4.4) - (19.5) (73.2) (24.8) | 585.8 (20.0) - 20.9 (139.5) (15.6) - (42.1) (111.7) (41.6) | ||||
| 309.6 | 847.6 | |||||
| (13.3) | (26.2) | |||||
| - | (18.5) | |||||
| (2.0) | 9.6 | |||||
| (22.6) | (14.6) | |||||
| (12.6) | (31.9) | |||||
| (306.9) | (1,120.0) | |||||
| (15.5) | (44.0) | |||||
| (61.1) | (104.3) | |||||
| (12.3) | (76.4) | |||||
| Net earnings (loss) attributable to equity holders of the parent | 123.8 | 236.2 | ||||
| (136.7) | (578.7) | |||||
| Earnings (loss) per share - basic (USD per share) - diluted (USD per share)1 Weighted average shares outstanding - basic (number of shares – millions) - diluted (number of shares - millions)1 | 1.59 1.50 78.1 87.7 | 3.17 3.11 74.6 78.6 | ||||
| (1.70) | (7.24) | |||||
| (1.70) | (7.24) | |||||
| 80.2 | 80.0 | |||||
| 80.2 | 80.0 |
The derivative instrument adjustments of $22.6 million in Q3 2010 consist of losses recognized on LME futures sales contracts held by the metal marketing division as at September 30, 2010 following a significant increase in copper price during the current period. The commensurate gain in the underlying copper inventory is not recognized until it is sold. In the comparative period, the Company‟s derivative loss was incurred on derivative positions entered into in order to protect the Company against the uncertain economic outlook of early 2009.
Exploration expenses in Q3 include $7.5 million incurred at the Trident project representing a significant increase in exploration activity. See “Development activities” for further discussion
Asset impairment expense in Q3 2010 consists primarily of the impairment of Frontier‟s property, plant and equipment, and inventory that were deemed unrecoverable following the forced suspension of the Frontier operation. The tax impact of this impairment is included with income tax expense.
Interest expense has decreased from Q3 2009 due to a decrease in LIBOR and a lower balance of the corporate revolving credit and term loan facility.
Q3 income taxes were reduced by the impact of Frontier‟s impairment on current and future tax liabilities, representing a tax recovery of $63.1 million. Normalized income taxes have increased from Q3 2009 due to increased profitability and a decrease in the proportionate earnings contribution from Guelb Moghrein, which is operating under a tax holiday.
1 As the Company has incurred a loss, pursuant to Canadian GAAP, the convertible bonds and stock options are excluded from the computation of diluted loss per share.
Non-controlling interests has decreased from Q3 2009 due to the 5% non-controlling interest portion of Frontier‟s impairment, resulting in a $12.5 million recovery in Q3 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 noncontrolling interests in this operation.
FINANCIAL POSITION AND LIQUIDITY
| Three months ended September 30 | Nine months ended September 30 | |||||
|---|---|---|---|---|---|---|
| (USD millions unless otherwise noted) | 2010 | 2009 | 2010 | 2009 | ||
| Cash flows from operating activities - before changes in working capital - after changes in working capital Cash flows from financing activities Cash flows from investing activities | 164.6 196.7 (52.2) (86.1) | 408.2 292.5 594.5 (255.5) | ||||
| 193.8 | 573.2 | |||||
| 8.3 | 471.0 | |||||
| 49.7 | (21.1) | |||||
| (114.5) | (736.3) | |||||
| Net cash flows Cash balance | (56.5) | 58.4 807.7 | (286.4) | 631.5 807.7 | ||
| 632.8 | 632.8 | |||||
| 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) | 250.0 50.0 - $2.11 $2.52 | 250.0 50.0 - $5.47 $3.92 | ||||
| 250.0 | 250.0 | |||||
| 50.0 | 50.0 | |||||
| 9.9 | 9.9 | |||||
| $2.42 | $7.17 | |||||
| $0.10 | $5.89 |
Operating cash flows were generated from positive operating results during Q3. Working capital movements during Q3 2010 include an increase in accounts receivable of $86.4 million as a result of a significant increase in copper price, and a decrease in taxes payable due to payments of $115.0 million made by Kansanshi to the Government of the Republic of Zambia (“GRZ”).
Cash inflows from financing activities comprise proceeds from debt of $66.2 million related to an increase in short-term borrowings required to finance material purchases and short-term hedging of copper and gold in Q3. Financing activities also include Q3 dividend payments of $15.2 million to equity holders of the Company and $1.9 million to non-controlling interests.
Investing activities in Q3 consist primarily of property, plant and equipment expenditures. The Company invested $25.7 million on the plant at Ravensthorpe and $33.4 million at Kevitsa as development continues to increase at both projects. Kansanshi expended $44.0 million on new mining equipment and the secondary crusher during the period. The Company undertook significant investing activities in early 2010 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 $133.2 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 the Company‟s cash reserves, additional sources of funding available include the $250.0 million corporate revolving loan and $50.0 million available under the corporate revolving credit and term loan facility.
Subsequent to September 30, 2010, the Company cancelled the $250.0 million corporate revolving and loan facility and sold all of its marketable security investment in Equinox Minerals Limited which will raise proceeds of approximately CAD $650 million.
As at September 30, 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 | 208.3 500.0 370.1 9.3 184.5 27.1 | 182.6 - 370.1 0.4 184.5 - | 5.3 - - 0.4 - - | 5.1 - - 0.3 - - | 5.1 - - 0.2 - - | 5.1 500.0 - - - - | 5.1 - - 8.0 - 27.1 |
INVENTORY
| Copper (tonnes) | Gold in dore (ounces) | |||
|---|---|---|---|---|
| Kansanshi Guelb Moghrein Frontier Bwana/Lonshi | 20,468 8,092 8,032 450 | 2,472 1,150 - - | ||
| Total | 37,042 | 3,622 |
The Company‟s finished copper inventory decreased by 3,658 tonnes in Q3 to 37,042 tonnes as at September 30, 2010 with an average cost of approximately $1.49 per pound ($3,279 per tonne). Guelb Moghrein‟s inventory includes finished copper in concentrate which required further blending prior to sale and will be sold in Q4. Frontier‟s inventory balance represents finished copper held in transit to final offtakers through the metal marketing division. Approximately 16,500 tonnes of Kansanshi copper in concentrate was in the process of being treated or stockpiled for treatment at the Mufulira smelter as at September 30, 2010. Included in the total finished goods inventory balance, but not in the table above, is 5,977 tonnes of third party material purchased for resale by the metal marketing division.
Contained gold in dore inventory increased to 3,622 ounces due to timing of shipments in Q3. 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 increased during Q3 resulting in the Company recognizing a tax affected increase in the fair value of investments of $208.5 million.
EQUITY
As at the date of this report the Company has 80,672,932 shares outstanding.
DEVELOPMENT ACTIVITIES
Ravensthorpe nickel project, Australia
In February 2010, the Company acquired the Ravensthorpe nickel project for $338.8 million.
Ravensthorpe is located in Western Australia, approximately 550km 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.
An engineering firm in Perth is completing the detailed design of modifications for the Ravensthorpe process plant, of which a significant part is the modification of the crushing, conveying, stockpile, reclaim and rejects handling areas of the plant. Various environmental and project management plans received approval from the relevant authorities during Q3. As a result, site works are progressing well. Concrete demolition work on both the limonite and saprolite crushing stations have been completed and new civil work is underway. Inspection, testing and re-commissioning of the existing plant continues. Major equipment deliveries have commenced. Upgrade and modification work scheduling will allow commissioning to commence in Q2 2011. This will be followed by approximately six months of commissioning and ramp-up. In order to provide further enhancements to the plant, the revised capital requirement for the modification has increased to approximately $190 million.
The operations recruitment program is continuing and is on schedule. 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. The expected average annual production is 28,000 tonnes over the total life of mine of 32 years.
Kevitsa nickel/copper/PGE project, Finland
Detailed design is continuing and nearing completion for earth works, concrete works and structural steel. Procurement of the major items of equipment is well advanced and the first major components will be delivered to the site in Q4 2010.
Construction progressed with 160 contractors currently on site and 350 scheduled by Q1 2011. The earthworks are now 83% complete, the concrete works are 35% complete. The construction of the main power line is in progress and work on the water line will commence in Q1 2011. Additional major contracts are in progress for the primary crusher excavation, the tailings and water reservoir construction and the site switchyard.
The project remains on schedule to commence commercial production in mid 2012.
Trident project (formerly Kalumbila), Zambia
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. Under the terms of the Kiwara acquisition agreement, the Company acquired a further 10% interest in Kalumbila in February 2010 and 1% in May 2010 bringing its ownership interest to 96%. The Company holds options to acquire the remaining 4% interest in Kalumbila for GBP 3.5 million which will be exercised in Q4 2010.
Base-line environmental and social consultations have commenced as part of the environmental impact assessment to be prepared in support of a mining license.
Refer to the “Exploration” section for discussion on the Company‟s exploration program at Trident.
Kansanshi copper/gold operation, Zambia
Throughput optimization of the sulphide circuit is ongoing, mainly focused on the production of a finer product from the crusher. The first phase of the milling expert control system was implemented and is working well in its current restricted configuration. Full implementation will happen in a staged manner over the remainder of Q4.
The installation of additional flotation capacity on sulphide and mixed ore is progressing with commissioning due in January 2011. This additional capacity will enhance recovery potential of both sulphide and mixed ore at higher production rates. The installation of additional leaching capacity for the oxide circuit, aimed at improving recovery of soluble copper, is scheduled for completion towards the end of Q4 2010. The de-sliming circuit aimed at improving recovery of sulphide minerals from the oxide ore flotation circuit was commissioned in Q3 and optimization work to deal with capacity constraints is underway.
Optimization of gold recovery continues with an additional gravity concentrator installed and commissioned in the mixed ore milling circuit. Test work on the treatment of the acidic high pressure leach residue to extract gold was also positive. The goal for these installations is to reduce gold in concentrate to below payable levels and maximize the more favorable return on gold in dore.
Guelb Moghrein copper/gold operation, Mauritania
Ongoing optimization of the autogenous circuit, including the high pressure grinding rollers, will continue in Q4 with a goal to achieve design throughput and increase copper and gold recoveries.
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.
Exploration
Exploration activities continued at a high rate during the period with staff, resources and drill rigs redeployed from the RDC to Zambia to boost the Trident program. Extra drilling capacity arrived in Mauritania and a substantial summer prospecting program in Finland has revealed significant potential for new nickel and copper projects.
Fourteen drill rigs are now active on the Trident project in Zambia. Nearly 50,000m of drilling has been completed in 142 holes on the Sentinel copper deposit since the Company acquired the project in Q1 2010. A pattern of 200m spaced sections has been largely completed in the area of the current mineral resources of approximately 4km by 1km with preliminary results demonstrating good continuity of mineralization. Furthermore, the focus of the drilling activity has now moved to the south west to test for potential significant extensions up to several kilometers and outside of the current mineral resource. Preliminary results are positive with visible mineralization observed and logged in the drill core.
A major regional exploration program is currently in progress over the entire Trident project of approximately 2,300 km2 of license area. Detailed airborne electro-magnetic work has been completed and is proving an excellent tool to identify the prospective target zones. A low level helicopter magnetic-radiometric survey is currently in progress and a systematic geochemical program of 23,000 soil samples is already providing targets for follow up drilling. Drilling has commenced on the Enterprise nickel target 12 km north of Sentinel and will progress to further regional targets over Q4.
At Kansanshi two exploration rigs continued drilling on the southeast dome prospect and 74 holes have now been completed that define a clear domal structure approximately 500m across hosting typical Kansanshi vein style mineralization. Recent drill results have defined the first area of near surface oxide mineralization.
At Kevitsa in Finland, drilling will focus on high priority geophysical targets in the Kevitsa tenure. Resource modeling of the new extensions to the south of the proposed Kevitsa pit has been completed and optimization studies are currently in progress. An extensive field validation program of regional targets has defined 22 prospects for follow up drilling during the coming winter.
In Mauritania a second drill rig and a boosted geological team are now in place which will accelerate the testing of regional targets over the next few months.
Antares Minerals Inc.
In October 2010, the Company entered into a definitive agreement to acquire, by way of a court-approved plan of arrangement, all of the outstanding securities of Antares. The total consideration for the purchase of 100% of the fully diluted shares of Antares is approximately CAD $460 million in cash and shares.
Antares‟ principal asset is the 100% owned Haquira project located in southern Peru adjacent to Xstrata Copper's Las Bambas copper-gold project. It is one of the world‟s major undeveloped copper deposits with excellent potential for the development of a large scale copper mine. Haquira currently has reported measured and indicated resources of 3.7 million tonnes of contained copper equivalent and inferred resources of 2.4 million tonnes of contained copper equivalent.