First Quantum Minerals Reports Operational and Financial
NEWS RELEASE 12-09 March 6, 2012 www.first-quantum.com
FIRST QUANTUM MINERALS REPORTS OPERATIONAL AND FINANCIAL RESULTS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2011
(In United States dollars, tabular amounts in millions, except where noted)
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, 2011. The complete audited financial statements and management‟s discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.
The Company‟s results have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and are presented in United States dollars, tabular amounts in millions, except where noted. Changes in accounting policies have been applied consistently to comparative periods unless otherwise noted.
SUMMARIZED OPERATING AND FINANCIAL RESULTS
| Q4 2011 | Q4 2010 | 2011 | 2010 | |
| Copper production (tonnes) Copper sales (tonnes) Realized copper price (per lb) Cash cost of production (C1)1 (per lb) Gold production (ounces) Gold sales (ounces) Nickel production (tonnes) Nickel sales (tonnes) | 67,316 | 75,920 76,290 $3.73 $1.06 48,564 50,139 - - | 265,576 | 323,017 311,560 $3.25 $1.18 191,395 188,368 - - |
| 65,638 | 273,257 | |||
| $3.33 | $3.87 | |||
| $1.53 | $1.41 | |||
| 43,524 | 175,225 | |||
| 49,209 | 180,442 | |||
| 5,666 | 5,666 | |||
| 1,388 | 1,388 | |||
| Sales revenues Gross profit Net earnings attributable to shareholders of the Company Earnings per share | 567.3 | 707.8 377.9 454.7 $1.12 | 2,583.5 | 2,393.2 1,211.7 305.8 $0.76 |
| 182.7 | 1,308.0 | |||
| 76.0 | 528.9 | |||
| $0.16 | $1.18 |
Operating and financial results from continuing operations2
| Copper production (tonnes) Copper sales (tonnes) Sales revenues Gross profit from continuing operations Comparative earnings from continuing operations3 Comparative earnings per share from continuing operations3 | 67,316 | 75,920 69,404 652.9 363.3 143.3 $0.35 | 265,576 | 268,094 258,121 2,071.5 1,108.8 549.7 $1.37 |
| 65,638 | 271,606 | |||
| 567.3 | 2,569.3 | |||
| 185.4 | 1,311.1 | |||
| 78.9 | 580.5 | |||
| $0.17 | $1.30 |
1 Cash costs (C1) are not recognized under IFRS. See “Regulatory Disclosures” for further information.
2 Operating and financial results from continuing operations have been adjusted to remove operations of Frontier and Bwana/Lonshi from the 2010 results for comparative purposes to provide further information of the results to investors.
3 Earnings attributable to shareholders of the Company have been adjusted to remove the effect of unusual items to arrive at comparative earnings from continuing operations. Comparative earnings from continuing operations and comparative earnings per share from continuing operations are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. The Company has disclosed these measures to assist with the understanding of results and to provide further financial information about the results to investors. See “Regulatory Disclosures” for a reconciliation of comparative earnings from continuing operations.
Established new records for full year sales revenues, gross profit and net earnings, despite operating challenges experienced in mid-2011
- Annual sales revenues from continuing operations of $2,569.3 million was 24% higher than 2010 due to an increased average realized copper price and higher sales volumes from continuing operations.
- Annual gross profit from continuing operations of $1,311.1 million was 18% higher than 2010 due to higher sales revenues, offset partially by an increase in operating costs.
- 2011 net earnings attributable to shareholders of the Company were higher than 2010 primarily as a result of prior year asset impairments of $772.4 million, offset partially by a $510.8 million gain on sale of investments. 2011 comparative earnings from continuing operations are higher than 2010 due to an increase in the average realized copper price, offset partially by inflationary cost pressures.
- 2011 copper production from continuing operations was broadly in-line with 2010.
- Kansanshi‟s gold production increased from the prior year as a result of gold circuit modifications which resulted in improved recovery of gold in dore. However, total gold production was 8% lower than 2010 due to lower production from Guelb Moghrein, which was affected by reduced throughput, grade and recovery in the current year.
- Overall cash costs of production increased in 2011 due to inflationary cost pressures related to sulphuric acid, energy, labour and other consumables. Cost efficiency was also adversely impacted by lower copper grades and recoveries at Kansanshi.
Q4 copper and gold production improves from Q3 2011
- Total copper production improved 15% over Q3 2011 as Kansanshi‟s production increased in each subsequent month following the circuit reconfiguration in August 2011. In comparison to Q4 2010, copper production was 11% lower, reflecting lower ore grades processed at Kansanshi and throughput limitations at Guelb Moghrein.
- Total gold production improved 5% over Q3 2011. In comparison to Q4 2010, Kansanshi increased due to ongoing circuit improvements whereas Guelb Moghrein‟s production was impacted by throughput constraints and lower grades and recoveries.
- Sales revenues from continuing operations decreased from Q4 2010 as a result of an 11% lower realized copper price and 5% lower copper sales volumes from continuing operations in Q4 2011.
- Cash costs of production increased over Q4 2010 as a result of inflationary cost pressures principally related to sulphuric acid, energy, labour and other consumables. Cash costs were in-line with Q3 2011.
- Q4 2011 net earnings attributable to shareholders of the Company were lower than Q4 2010 as the prior year included the gain on sale of investments of $510.8 million offset partially by a negative Zambian tax adjustment of $210.7 million. Comparative earnings in Q4 2011 of $78.9 million were impacted by lower realized copper prices, lower sales volumes and inflationary cost pressures.
Commercial production achieved at the Ravensthorpe nickel operation
- The Ravensthorpe nickel operation in Western Australia achieved commercial production on December 28, 2011 following re-commissioning in Q4 2011. This key milestone marks the Company‟s entry as a significant nickel producer with Ravensthorpe expected to produce between 33,000-36,000 tonnes of contained nickel in 2012 and the addition of Kevitsa production later in 2012.
Significant advancement of development projects and exploration activities
- Construction of the Kevitsa project is virtually complete and commissioning activities are in progress. The project remains on schedule to achieve commercial production by mid-2012.
- Drilling at Sentinel is complete and finalization of the resource estimation is expected in early Q2 2012. Plant design is now well advanced and process plant construction is expected to start in Q2 2012 subject to the completion of commercial negotiations.
- Expansion of the oxide processing circuit at Kansanshi to 7.2 million tonnes per annum (“Mtpa”) is progressing well and is scheduled for completion during Q2 2012. The stage two expansion to 14.5 Mtpa is on track for commissioning in 2013.
- The Sentinel plant is being designed to incorporate a nickel concentrator facility with capacity to produce between 40,000 and 70,000 tonnes of contained nickel per annum in anticipation of the establishment of a substantial nickel resource at Enterprise.
- The Kansanshi copper smelter project, which was approved in Q4 2011, is designed to process 1.2 million tonnes of concentrate to produce over 300,000 tonnes of copper and 1.1 million tonnes of acid as a by-product. The cost benefit of the smelter is estimated to be between $340-$500 million per year in reduced concentrate freight costs, export duties and sulphuric acid costs.
Balance sheet strengthened
- In Q3 2011, the Company induced the conversion of the $500.0 million convertible bonds into common shares of the Company and made the final repayment of the $400.0 million term loan facility.
- On January 5, 2012, the Company reached an agreement with Eurasian Natural Resources Corporation PLC (“ENRC”) to dispose of its residual République démocratique du Congo (“RDC”) assets for $1.25 billion. The agreement closed on March 2, 2012 with the Company receiving payment of $750.0 million and a three-year promissory note for $500.0 million. In connection with the transaction, First Quantum, ENRC, the RDC Government, International Finance Corporation and Industrial Development Corporation have also settled all disputes relating to the companies being sold and their assets and operations in the RDC and each of First Quantum, ENRC, the RDC Government, International Finance Corporation and Industrial Development Corporation have released one another in respect of all claims and judgments relating to the foregoing or to any other matter arising in the RDC on or before the date of closing.
- On January 30, 2012, the Company announced the signing of a five-year, $1.0 billion senior term and revolving facility at Kansanshi. The Company expects that the conditions precedent will be satisfied shortly and the facility is expected to be available to draw before the end of Q1 2012.
Other corporate developments
- The Company has declared a final dividend of C$0.1277 per share in respect of the financial year ended December 31, 2011. The final dividend of C$0.1277, together with the interim dividend of C$0.0533, is a total of C$0.1810 for the 2011 financial year. This total dividend paid for the 2011 financial year is 15% of net earnings attributable to shareholders of the Company, which reflects an increase from 10% of net earnings attributable to shareholders of the Company used as guidance in prior years (adjusted for unusual items).
- The Company‟s common shares were split on a five-for-one basis in Q3 2011.
- Depositary receipts were listed on the Lusaka Stock Exchange (“LuSE”) in Zambia making First Quantum the first mining company to be listed on the LuSE.
Operational outlook for 2012
- Expected production of approximately; 270,000 to 290,000 tonnes of copper, 36,000 to 40,000 tonnes of contained nickel and 170,000 to 190,000 ounces of gold.
- Expected average cash cost of approximately; $1.45 to $1.55 per pound of copper.
OPERATIONS
| Kansanshi Copper and Gold Operation | Q4 2011 | Q4 2010 | 2011 | 2010 |
| Copper production (tonnes) Copper sales (tonnes) Gold production (ounces) Gold sales (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 profit (USD M) | 59,163 | 66,232 58,704 28,982 29,355 2,699 0.8 93 1,636 1.3 70 1,521 2.4 84 $1.07 $1.29 $324.6 | 230,295 | 231,124 225,189 109,629 115,742 10,382 0.8 93 5,462 1.3 67 5,674 2.2 86 $1.10 $1.31 $998.4 |
| 54,036 | 235,832 | |||
| 29,580 | 112,286 | |||
| 27,742 | 114,488 | |||
| 1,628 | 8,855 | |||
| 0.6 | 0.7 | |||
| 92 | 91 | |||
| 2,986 | 8,377 | |||
| 1.0 | 1.0 | |||
| 64 | 63 | |||
| 1,492 | 6,072 | |||
| 2.3 | 2.3 | |||
| 88 | 86 | |||
| $1.52 | $1.41 | |||
| $1.90 | $1.70 | |||
| $186.2 | $1,187.1 |
1 C1 and C3 costs are not recognized under IFRS. See “Regulatory Disclosures” for further information Full year operating results
Kansanshi‟s 2011 gross profit was 19% higher than 2010 due to higher realized copper prices and sales volumes, offset partially by an increase in operating costs in 2011.
Full year copper production was consistent with 2010 as an increase in overall throughput was offset by lower grades and recoveries. Total tonnes milled in 2011 increased to 23.3 million tonnes from 21.5 million tonnes in 2010 on the back of ongoing throughput enhancements. In Q3 2011, the sulphide and mixed ore circuits were reconfigured to match a concurrent change in the mine plan. The mine plan was revised to accommodate the production expansion project to 400,000 tonnes per annum resulting in a short term reduction in availability of sulphide ore. In order to better match the circuits to mine feed, the throughput capacity for mixed ore was increased to 12 Mtpa and the sulphide ore capacity was reduced to 6.5 Mtpa. This change in mine plan and circuit reconfiguration temporarily resulted in processing of low grade sulphide ore from stockpiles which reduced overall production in Q3 2011. Sulphide ore grades and total copper production have increased in each subsequent month following the circuit reconfiguration in August 2011.
Gold production improved in 2011 on the back of additional gravity concentrator capacity and optimization of the overall gold circuit.
2011 cash costs per pound increased by $0.31 per pound from 2010 due to higher input costs for acid and other consumables. Realization costs were higher in 2011 due to higher off-take terms. The gold credit improved in 2011 to $0.28 per pound from $0.23 per pound in 2010 due to higher realized gold prices.
Q4 operating results
Q4 2011 production was 11% lower than the prior year period as a result of lower ore grades processed.
Sulphide circuit production was lower than the prior year period as a result of the lower throughput and ore grades processed in the period. However, sulphide grades have increased from Q3 2011 and are expected to continue to increase in 2012 as mine pit development continues.
Mixed ore circuit production increased significantly from Q4 2010 with the throughput capacity change in 2011. Mixed ore grades and recoveries were lower than Q4 2010 as a result of a less favourable blend of sulphide and oxide ore processed. Flotation cell capacity improvements have allowed for the mixed ore circuit to maintain targeted recoveries at increased throughput rates.
Production from the oxide circuit was largely in line with Q4 2010 as a decrease in throughput and grade was offset by higher recoveries in Q4 2011. An acid supply constraint resulted in the stockpiling of some high-grade, higher acid consuming oxide ore. Production of this high-grade oxide stockpile will be realized when sulphuric acid supply improves.
Kansanshi‟s cash cost of production increased by 42% over Q4 2010 due to inflationary cost pressures with respect to consumables, sulphuric acid, energy and labor costs. Lower grades and recoveries also impacted unit costs in Q4 2011.
Outlook
Kansanshi will continue to focus on pit development throughout 2012 utilizing additional mine fleet and mining contractors. The mine pit development work will increase available mining areas through 2012 providing additional flexibility and access to higher volumes of sulphide ore. Improvements in sulphide grades realized in Q4 2011 are expected to continue in early 2012.
The treatment of mixed ore at elevated rates will continue until the second half of 2012 when the sulphide circuit will revert to 12 Mtpa and the mixed circuit to 6.5 Mtpa, respectively, to align with increased availability of sulphide ore from the mine.
Oxide circuit throughput capacity will increase during 2012 on completion of stage one of Kansanshi‟s plant expansion project. Limited acid supply is expected to impact oxide production in early 2012 until a fifth acid plant is commissioned in early Q3 2012 at Kansanshi.
Gold production is expected to continue to improve as gravity gold extraction capacity has been amended to focus on potential gains from oxide ore. The increasing proportion of gold recovered in dore will reduce the impact of smelter deductions on Kansanshi‟s overall gold production.
An ongoing program of grade control drilling is expected to enhance the mine planning performance, and this, combined with the additional mining fleet, is expected to improve the flexibility of the mine to deliver the optimal mix of ore-types to the plant.
| Guelb Moghrein Copper and Gold Operation | Q4 2011 | Q4 2010 | 2011 | 2010 36,969 32,932 81,766 72,626 2,796 1.5 91 $0.90 $1.65 $118.5 |
| Copper production (tonnes) Copper sales (tonnes) Gold production (ounces) Gold sales (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 profit (USD M) | 8,155 | 9,687 10,700 19,582 20,784 748 1.4 91 $1.03 $1.79 $40.9 | 35,281 | |
| 11,601 | 35,774 | |||
| 13,943 | 62,938 | |||
| 21,467 | 65,954 | |||
| 634 | 2,691 | |||
| 1.4 | 1.4 | |||
| 91 | 91 | |||
| $1.63 | $1.46 | |||
| $2.45 | $2.20 | |||
| $3.5 | $127.8 |
1 C1 and C3 costs are not recognized under IFRS. See “Regulatory Disclosures” for further information Full year operating results
2011 copper production was 5% lower than 2010 as a result of constrained throughput rates in the current year. Ongoing optimization works and extended maintenance related downtime reduced plant availability and throughput during the year. Gold production is lower than 2010 due to lower throughput, grades and recoveries in 2011.
Guelb Moghrein‟s cash cost of production increased in 2011 due to increases in fuel and personnel costs. Plant maintenance costs also increased during 2011 related to ongoing optimization projects. The 2011 gold credit of $1.16 per pound was $0.21 per pound higher than 2010 due to higher realized gold prices.
Q4 operating results
Q4 2011 copper production was 16% lower than Q4 2010 due to a labour dispute in December which caused 11 days of plant downtime. The dispute was resolved and operations ramped up to design capacity in early January 2012. Gold production in Q4 2011 was lower than Q4 2010 as a result of lower throughput and gold grades processed.
Guelb Moghrein‟s cash cost of production was higher than Q4 2010 due to increased waste stripping and higher costs for personnel, fuel, other consumables and plant maintenance. The gold credit in Q4 2011 benefitted from the timing of sales and an increased realized gold price.
Outlook
At Guelb Moghrein, the continued focus is on maintaining feed tonnages at design capacity. Progress has been seen in Q4 and into 2012 with steadier operations, most notably in the high pressure grinding rolls and pebble crusher circuit. The metallurgical team is focused on recoveries, particularly in the gold circuit where there are opportunities for improvement.
| Ravensthorpe Nickel Operation | Q4 2011 | Q4 2010 | 2011 | 2010 |
| Nickel production (tonnes) Nickel sales (tonnes) | 5,666 | - - | 5,666 | - - |
| 1,388 | 1,388 |
The Ravensthorpe nickel operation achieved commercial production on December 28, 2011 marking a key milestone in the Company‟s advancement to becoming a significant nickel producer.
Ravensthorpe was acquired as a decommissioned nickel operation by the Company in February 2010. Significant modifications were made to the nickel processing plant in the following 18 months. Modifications were focused on the redesign of the crushing, conveying, storage, reclaim and rejects areas.
Both beneficiation plants have been re-commissioned, the surge ponds for beneficiated ore have been filled and are now in full operation. Reject product from the beneficiation plant is being successfully dewatered in the new dewatering section so that it can be readily conveyed and trucked. Saprolite and limonite beneficiation have achieved throughput rates as high as 550 tonnes per hour and 1200 tonnes per hour. These achievements confirm that the problem areas, identified prior to the acquisition of the project, within the crushing, beneficiation and rejects plants, have been successfully addressed and resolved.
The atmospheric leach plant was commissioned in September and since November is consistently operating above design. Both pressure acid leach trains were also successfully brought on line during October and have achieved design throughput.
The first contained nickel was produced in early October 2011 and 5,666 tonnes of nickel was produced during the commissioning ramp-up until commercial production was achieved at the end of 2011.
Revenues and costs associated with the commissioning of Ravensthorpe have been capitalized to property, plant and equipment and accordingly Ravensthorpe had an insignificant impact on the Company‟s 2011 operating contribution.
Outlook
Ravensthorpe is expected to produce between 33,000 to 36,000 tonnes of nickel in 2012 and an average of 39,000 tonnes for the first five years after commencement of operations. The estimated average annual production is 28,000 tonnes over the total life of mine of over 30 years.
DEVELOPMENT ACTIVITIES
Kevitsa nickel/copper/PGE project, Finland
Construction of the Kevitsa project is virtually complete and commissioning activities are in progress. The project remains on schedule to achieve commercial production by mid-2012.
Application has been submitted to the relevant authorities to increase the approved throughput rate to 7.5 Mtpa starting in 2013. With the current estimated measured and indicated resources, this increased throughput rate is expected to increase the annual production to approximately 15,000 tonnes of nickel and between 28,000 to 30,000 tonnes of copper while retaining a mine life in excess of 20 years.
Sentinel project, Zambia
In April 2011, large scale mining licenses for the development of the Trident project were received from the Government of the Republic of Zambia (“GRZ”). The licenses give the Company the exclusive rights to carry out mining operations on the full area of interest at Trident, including Sentinel and Enterprise, for a period of 25 years. The environmental impact assessment was approved and a land use agreement was agreed in July 2011 for the development of the Sentinel project.
Resource drilling on the Sentinel project is complete with approximately 170,000 metres of core drilling in nearly 500 holes completed during the past 14 months. Geological modelling, data analysis and reporting are currently in progress.
Resource modelling and estimation for the Sentinel deposit has been completed. An independent report compliant with National Instrument 43-101 is expected to be completed in early 2012 together with mining and optimization studies. Based on an internally generated resource estimate, the project is expected to initially produce 150,000 tonnes of copper in concentrate annually, rising to 300,000 tonnes of copper in concentrate.
The project works have progressed into detailed design and commitments have been made for long-lead mining, crushing and milling equipment. Initial site construction works are underway to establish improved access roads, an airstrip and a construction camp. It is expected that construction of the process plant could commence by mid-2012 subject to the completion of commercial negotiations.
Kansanshi expansions, Zambia
Construction commenced in 2011 at Kansanshi to expand annual copper production capacity from 250,000 tonnes to approximately 400,000 tonnes by 2015. The first phase of this increase relates to the expansion of the oxide/leach facilities which will be undertaken in two stages. Stage one is expected to increase annual production capacity to approximately 285,000 tonnes by expanding the oxide circuit throughput capacity to approximately 7.2 Mtpa by Q2 2012. This stage is progressing well with the relocation of equipment from the mothballed Bwana copper processing plant complete and installation and incorporation into the Kansanshi process underway. Stage two, scheduled for commissioning in 2013, is planned to increase the oxide circuit capacity to 14.5 Mtpa. Oxide copper production from these two projects will be restricted by acid supply. Acid supply will be addressed in the short-term with the commissioning of a fifth acid plant, and in 2014 with the construction of a copper smelter.
Construction of the fifth acid plant at Kansanshi has commenced with completion due in Q3 2012. This will provide enough acid to allow full use of the 7.2 Mtpa oxide leach expansion, and up to 10.0 Mtpa of the stage two expansion referred to above.
The second phase of the 400,000 tonne expansion project is a proposed expansion of the sulphide treatment facilities by construction of a new section of plant capable of treating 16 Mtpa of sulphide ore. Construction of this new plant may occur in two stages depending on ore grades. Project commitment is expected in mid-2012 following completion of the resource definition drilling program, essential for detailed mine planning.
Copper smelter project, Zambia
In Q4 2011, the copper smelter project was approved for construction at Kansanshi. Currently, Kansanshi‟s concentrate is treated primarily at smelters in Zambia, however, existing domestic smelting capacity will be insufficient to process the substantial increase in production resulting from the Kansanshi expansion and the Sentinel project. The smelter will be capable of processing 1.2 million tonnes of concentrate to produce over 300,000 tonnes of copper metal. The smelter will also produce over 3,000 tonnes per day of acid as a by-product at almost zero cost which will benefit Kansanshi by allowing the treatment of high acid-consuming oxide ores and the leaching of some mixed ores. The additional acid will also optimize the expansion of the oxide leach facilities and allow improved recoveries of leachable minerals in material now classified and treated as mixed ore.
Work on the project has commenced with key long lead equipment items tendered and commencement of detailed engineering design. Construction of the smelter is planned to be completed by mid-2014 followed by commissioning and ramp up.
Exploration
The Company‟s exploration and resource development activities continued to expand in 2011 with operations now underway in eight countries on four continents. As at December 31, 2011, there were forty drills active on the Company‟s properties with programs designed to realize the potential of the prospective mineral districts in which the Company operates.
Trident A major exploration program was concluded over the Sentinel copper deposit in August 2011. The program included 514 diamond drill holes for over 172,000 metres of core and was completed in 16 months. A NI43-101 compliant resource estimate is being prepared for release in Q2 2012.
An extensive drilling program was initiated on the Enterprise prospect in 2011 which has confirmed the potential grade and size of the mineral system. 193 diamond core holes for over 68,000 metres were completed in the year. The drilling covers an area of approximately 2 kilometres by 1 kilometre and has tested mineralization down to an average depth of approximately 300 metres. A gently dipping body of mineralization has been defined which varies from a few metres to over 100 metres in true width. Grades vary rapidly from semi-massive sulphide with 2% to 8% nickel in the centre to disseminated sulphides with 0.2% to 1% nickel on the edges of the system. Currently delineated limits to the mineralization are approximately 1000 metres by 500 metres although some lower grade disseminated vaesite sulphide has been intersected over 2 kilometres to the east. An initial model of the inferred resources has been constructed for scoping purposes. Metallurgical testing and preliminary design scoping are currently in progress.
Kansanshi At Kansanshi, a major program of resource definition and exploration drilling ramped up during 2011. By the end of the year some 18 core rigs were operating on the project evenly divided between incremental resource/reserve additions immediately around the existing pits and a new exploration phase. These programs are designed to provide enhanced definition of longer term oxide and sulphide resource potential as well as to test the ultimate extents of what is clearly a world class mineral system.
Drill programs totalling 140,000 meters of diamond core are currently in progress and include resource development on the new Southeast Dome prospect as well as an extensive drill grid surrounding the Northwest Pit and Main Pit. Initial results suggest that mineralized veins extend well beyond the current resource/reserve envelope however, given the relatively sparse drill spacing currently it is not possible to estimate the density of veining and therefore the likely grade or tonnage that maybe defined. A further phase of more detailed drilling will be undertaken in 2012 to convert these areas of potential into a classified resource.
As well as the resource development program, a series of wide spaced reconnaissance drill traverses are currently in progress covering the entire 10 kilometre strike of the Kansanshi Dome structure. This drilling is successfully building an understanding of the regional geological and structural architecture around the Kansanshi deposits including the definition of subsidiary „domes‟ that may be prospective for satellite resources. To date, some significant areas of copper vein mineralization have been intercepted, mostly along the axis of the Kansanshi Antiform. By mid-2012, we expect to have enough detail to be able to commit to the sulphide expansion project.
Finland Following the major resource development drill program in 2009-10 and the release of a considerably expanded resource/ reserve statement in March 2011, a more modest drill program continued at Kevitsa in 2011 largely focused on incremental expansions of the near pit mineralization to the south and east, as well as testing deeper geophysical targets for higher grade „massive sulphide‟ style mineralization. Some additional low grade mineralization has been located immediately southeast of the current resource and further drilling should define whether this links back to the main body of mineralization. To date, no massive sulphide mineralization has been defined close to Kevitsa however, several new target areas have been established within the broader mining lease and will be tested in the coming season.
A program of target generation around Kevitsa and elsewhere in Finland has been in progress since 2009. The primary target of this program is high grade „massive sulphide‟ nickel-copper-platinum group elements mineralization. The prospectivity of the Kevitsa district for this type of deposit was re-enforced recently by the announcement of a significant discovery by Anglo American at „Sakatti‟, less than 20 kilometres south of Kevitsa. During 2011, several hundred targets were followed up with field reconnaissance, geochemistry and geophysics with many anomalous areas were selected for „base of till‟ drilling. Several targets are currently being followed up with diamond core drilling. The reconnaissance program has defined not only some strong nickel-copper-platinum group elements targets but a number of prospects with copper and gold mineralization styles that have now been secured under new claim applications. Follow up drilling is planned in 2012.
Peru The acquisition of Antares and its principal asset, the Haquira copper deposit, was finalized in December 2010. During 2011, a large exploration program commenced including systematic detailed airborne magnetic and electromagnetic surveys covering the whole property as well as detailed soil geochemistry and mapping programs. Several new high priority porphyry and skarn mineralization targets have been defined for testing in 2012 and environmental permits for drilling are currently in preparation.
At Haquira, a new 3D geological model of the porphyry system, alteration halo and regional architecture was completed in May 2011 and is currently being used to define extensions to the mineralization. A drill program with 4 to 6 rigs continued throughout most of the year completing over 25,000 metres. The drilling has been focused on extending the Haquira East mineralization to the north as well as testing the potential of sulphide mineralization below the dominantly oxide resource at Haquira West.
Several new regional prospects are under evaluation in Southern Peru with applications for new tenure and discussions for joint venture participation currently in progress.
Mauritania & West Africa A concerted program of district scale targeting for new IOCG deposits around Guelb Moghrein continued during 2011. This program has included the collection of systematic regional geochemical and mapping data which has been compiled together with airborne gravity, magnetics and radiometrics to prioritize targets. These targets are being followed up using detailed geochemistry and ground geophysics together with RC and diamond drilling. Up to three drills have been active testing targets within a 40 kilometre radius of the mine.
Reconnaissance exploration including mapping and geochemical sampling continued on mafic hosted nickel-copperplatinum group elements targets in Mali, Cote d‟Ivoire and Burkina Faso as part of a „Strategic Alliance‟ with Newgenco. Permit applications have been made over two interesting prospects in central Burkina Faso.
SALES REVENUES
| Sales revenues (after realization charges) | Q4 2011 | Q4 2010 | 2011 | 2010 | |
| Kansanshi - copper - gold Guelb Moghrein - copper - gold Corporate | 368.4 | 463.2 33.1 69.2 25.9 61.5 | 1,909.3 | 1,538.4 115.5 192.7 81.7 143.2 | |
| 37.3 | 139.0 | ||||
| 66.2 | 244.4 | ||||
| 31.0 | 101.8 | ||||
| 64.4 | 174.8 | ||||
| Sales revenues from continuing operations | 567.3 | 652.9 | 2,569.3 | 2,071.5 | |
| Frontier - copper Bwana/Lonshi - copper | - | 51.2 3.7 | 13.5 | 270.0 51.7 | |
| - | 0.7 | ||||
| Sales revenues | 567.3 | 707.8 | 2,583.5 | 2,393.2 | |
| COPPER SELLING PRICE | USD/lb | USD/lb | USD/lb | USD/lb | |
| Average LME cash price Realized copper price Treatment charges/refining charges (“TC/RC”) and freight charges | 3.40 | 3.92 3.73 (0.25) | 4.00 | 3.42 3.25 (0.27) | |
| 3.33 | 3.87 | ||||
| (0.32) | (0.27 | ) | |||
| Net realized copper price | 3.01 | 3.48 | 3.60 | 2.98 |
Full year 2011 sales revenues from continuing operations were 24% higher than 2010 due primarily to a 21% increase in the net realized copper price in the current year. Gold revenues increased by 22% from 2010 to $240.8 million due to the higher realized gold price in 2011.
Q4 2011 total sales revenues from continuing operations were 13% lower than the prior year period due to a 14% decrease in the net realized copper price and lower sales volumes. Q4 realization charges increased with the proportion of sales from Guelb Moghrein which incur higher freight and TC/RC charges. Gold revenues increased by 16% from Q4 2010 to $68.3 million due to the higher realized gold price in Q4 2011.
The Company‟s revenues are recognized at provisional prices when title passes to the customer. Any subsequent adjustments for final pricing are materially offset by derivative adjustments and shown on a net basis in cost of sales (see “Hedging Program” for further discussion). The Company‟s 2011 realized copper price per pound of contained copper is lower than the average LME cash price due to the impact of the smelter payable copper deduction on copper in concentrates of approximately 3.5%.
SUMMARY FINANCIAL RESULTS
| Q4 2011 | Q4 2010 | 2011 | 2010 | ||||
| Gross profit Kansanshi Guelb Moghrein Other | 324.6 40.9 (2.2) | 998.4 118.5 (8.1) | |||||
| 186.2 | 1,187.1 | ||||||
| 3.5 | 127.8 | ||||||
| (4.3) | (3.8) | ||||||
| Gross profit from continuing operations | 185.4 | 363.3 | 1,311.1 | 1,108.8 | |||
| Frontier Bwana/Lonshi | (2.7) | 14.7 (0.1) | (3.6) | 101.0 1.9 | |||
| - | 0.5 | ||||||
| Total gross profit | 182.7 | 377.9 | 1,308.0 | 1,211.7 | |||
| Exploration General and administrative Other income (expense) Net finance costs Acquisition transaction costs Bond inducement costs Gain on sale of investments Impairment of assets Income taxes | (19.7) | (15.7) (18.4) (4.6) (3.8) - - 510.8 1.2 (400.1) | (73.0) | (47.5) (44.6) 1.8 (18.6) (18.5) - 510.8 (609.1) (611.2) | |||
| (15.8 | ) | (73.8) | |||||
| (3.8 | ) | 7.3 | |||||
| (0.1 | ) | (4.6) | |||||
| - | - | ||||||
| - | (48.4) | ||||||
| - | - | ||||||
| - | - | ||||||
| (49.5) | (460.7) | ||||||
| Net earnings for the period | 93.8 | 447.3 | 654.8 | 374.8 | |||
| Net earnings for the period attributable to: Non-controlling interests Shareholders of the Company | (7.4) 454.7 | 69.0 305.8 | |||||
| 17.8 | 125.9 | ||||||
| 76.0 | 528.9 | ||||||
| Comparative earnings from continuing operations | 78.9 | 143.3 | 580.5 | 549.7 | |||
| Earnings per share (USD per share) basic diluted | 1.12 1.01 | 0.76 0.69 | |||||
| 0.16 | 1.18 | ||||||
| 0.16 | 1.18 | ||||||
| Comparative earnings per share from continuing operations | 0.17 | 0.35 | 1.30 | 1.37 |
Full year exploration expenses comprise primarily of;
- $34.9 million at Sentinel and Enterprise
- $15.9 million at Haquira
- $8.3 million at Guelb Moghrein
- $6.7 million in Finland
General and administrative costs increased from 2010 due primarily to higher personnel costs driven by an increased complement of skilled employees to develop and manage the significantly expanded pipeline of projects as well as legal and other costs related to the RDC matters.
In 2011, the Company induced the conversion of its convertible bond which included transaction costs and an incentive payment totalling $48.4 million. See “Equity” for further discussion.
In 2010, the Company sold its investment in Equinox Minerals Ltd for net proceeds of $646.5 million resulting in a gain on sale of investments of $510.8 million.
Income taxes in Q4 and for the full year in 2011 amount to an effective group tax rate of approximately 42%. This rate is driven primarily by Kansanshi‟s effective income tax rate of 43%, as the tax holiday on Guelb Moghrein‟s net earnings was largely offset by net losses generated in other group entities without related tax recoveries. The Guelb Moghrein tax holiday expires in Q1 2012. The prior year income tax expense includes the impairment of a Zambian tax receivable totaling $263.4 million. See “other items” for further discussion on Zambian taxes.
LIQUIDITY AND CAPITAL RESOURCES
| Q4 2011 | Q4 2010 | 2011 | 2010 | 20092 | |||
| 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 Payments for property, plant and equipment Acquisitions Disposals | 304.6 291.1 (89.7) (125.8) (10.2) 646.7 | 901.1 802.9 (151.6) (357.6) (514.9) 646.9 | 678.1 562.6 547.0 (361.8) (34.0) 29.2 | ||||
| 89.6 | 825.5 | ||||||
| (5.2 | ) | 412.3 | |||||
| (2.8 | ) | (206.3 | ) | ||||
| (294.4 | ) | (1,108.7 | ) | ||||
| - | - | ||||||
| - | 9. | 9 | |||||
| Net cash flows Cash balance | (302.4 | ) | 712.1 1,344.9 | (892.8 | ) | 425.7 1,344.9 | 743.0 919.2 |
| 452.1 | 452.1 | ||||||
| Total assets Total long-term liabilities | 5,298.0 | 4,957.9 853.1 | 5,298.0 | 4,957.9 853.1 | 4,654.6 1,687.7 | ||
| 507.6 | 507.6 | ||||||
| Cash flows from operating activities per share1 before working capital (USD per share) after working capital (USD per share) | $0.75 $0.72 | $2.25 $2.00 | $1.80 $1.49 | ||||
| $0.19 | $1.85 | ||||||
| $(0.01 | ) | $0.92 |
1 Cash flows per share is not recognized under IFRS. See “Regulatory Disclosures” for further information 2 2009 Financial information is presented in accordance with previous Canadian GAAP and may not be appropriate as a comparative basis.
2011 operating cash flows before changes in working capital decreased due the addition of higher non-cash expenses in 2010. Working capital movements during 2011 resulted in a decrease in cash of $413.2 million. Working capital movements include an increase in product and consumable inventory values of $241.1 million and a decrease in taxes payable of $124.6 million. The Company paid $224.0 million of back-taxes to the GRZ in June 2011.
2011 cash flows from financing activities include dividend payments of $79.3 million made to common shareholders of the Company as well as dividends paid to non-controlling interests of $10.8 million. The bond inducement costs of $48.4 million and the final $80.7 million repayments of the $400 million term loan facility are also included in cash flows from financing activities.
Capital expenditure for property, plant and equipment was $1,108.7 million in 2011 comprising primarily of;
- $332.1 million at Kansanshi for the oxide circuit expansion, mine fleet and mine pit development costs,
- $303.0 million at Ravensthorpe related to final development and costs incurred during the commissioning phase,
- $303.4 million at Kevitsa for project development,
- $118.9 million at Sentinel, including deposits, for long-lead plant and mine equipment