First Quantum Minerals : Q2 2023 Conference Call Transcript

Corrected Transcript

26-Jul-2023

First Quantum Minerals Ltd. (FM.CA)

Q2 2023 Earnings Call

	Total Pages: 16
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First Quantum Minerals Ltd. (FM.CA)	Corrected Transcript
Q2 2023 Earnings Call	26-Jul-2023

CORPORATE PARTICIPANTS

Bonita To	Rudi Badenhorst
Director-Investor Relations, First Quantum Minerals Ltd.	Chief Operating Officer, First Quantum Minerals Ltd.
A. Tristan Pascall	Ryan MacWilliam
Chief Executive Officer & Director, First Quantum Minerals Ltd.	Chief Financial Officer, First Quantum Minerals Ltd.

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OTHER PARTICIPANTS

Orest Wowkodaw	Greg Barnes
Analyst, Scotia Capital, Inc.	Analyst, TD Securities, Inc.
Jackie Przybylowski	Edward Brucker
Analyst, BMO Capital Markets	Analyst, Barclays Capital, Inc.
Ralph M. Profiti	Bryce Adams
Analyst, Eight Capital	Analyst, CIBC World Markets
Ioannis Masvoulas	Dalton Baretto
Analyst, Morgan Stanley Securities Ltd.	Analyst, Canaccord Genuity Corp.
Christopher LaFemina
Analyst, Jefferies LLC

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First Quantum Minerals Ltd. (FM.CA)	Corrected Transcript
Q2 2023 Earnings Call	26-Jul-2023

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MANAGEMENT DISCUSSION SECTION

Operator: Thank you for standing by. This is the conference operator. Welcome to the First Quantum Minerals Limited Second Quarter 2023 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Bonita To, Director, Investor Relations. Please go ahead.

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Bonita To

Director-Investor Relations, First Quantum Minerals Ltd.

Thank you, Gaylene. And thank you, everyone for joining us today to discuss our second quarter results. During the call, we will be making forward-looking statements and as such, I encourage you to read the cautionary notes that accompany this presentation, our MD&A and the related news release.

As a reminder, the presentation is available on our website and that all dollar references are in US dollars, unless otherwise noted. On today's call will be Tristan Pascall, our Chief Executive Officer, with opening remarks followed by Rudi Badenhorst, our Chief Operating Officer, who will provide an overview of our operations. Ryan MacWilliam, our Chief Financial Officer, will review our financial results and Tristan will then wrap things up. After which, we will open up the lines to take questions. And with that, I will now hand it over to Tristan.

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A. Tristan Pascall

Chief Executive Officer & Director, First Quantum Minerals Ltd.

Thank you, Bonita, and thank you, everybody, for joining us on our conference call today to discuss our second quarter results. After what was a challenging start to the year, it is pleasing to report improvements in the second quarter, which Rudi will speak to in his review of operations.

As a result of our focus on productivity and costs to which we continue to seek to improve, our second quarter EBITDA of $568 million increased from the first quarter despite the weakness in the copper price, which Ryan will provide more details in his financial review.

Overall, I'm pleased with our second quarter results with our three largest operations hitting daily production records during the period, and I'm confident that our three main operations are set up well for the remainder of the year. We do expect a stronger performance in the second half of the year and we remain comfortable with our guidance, although production will likely be at the bottom end of the range.

I would like to give an update on the Concession Contract in Panama. As you're aware, we reached an agreement with the Government of Panama earlier this year. Since this agreement, the Concession Contract has successfully gone through the public consultation process in April and has been signed by both the government and MPSA in June.

It is currently under normal course review with the National Comptroller, which is the final stage before the contract is presented to the National Assembly. We do expect endorsement from the National Comptroller in short order, and continue to expect the Concession Contract to be put in front of the National Assembly in the current legislative term. The Cobre Panamá team continues to work closely with government to support the

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First Quantum Minerals Ltd. (FM.CA)	Corrected Transcript
Q2 2023 Earnings Call	26-Jul-2023

passage of the contract into law for the mutual benefit to Cobre Panamá and the people of Panama.

Before I hand over the call to Rudi to review operational results, I would like to highlight that during the quarter, we published our 2022 ESG Report, which was our seventh Annual Report on our sustainability performance.

Following the publication of this report, we hosted our inaugural Virtual ESG Day that outlined our practical and pragmatic approach on a number of ESG areas that are key to our business. I'm very proud of the work we do across our business, and the commitment of all our operations to the surrounding communities and our commitment to produce copper in a safe and responsible manner. If you were unable to attend this event, I encourage you to view the replay, which is available on our website.

And with that, I would like to hand the call over to Rudi.

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Rudi Badenhorst

Chief Operating Officer, First Quantum Minerals Ltd.

Thank you, Tristan. After a difficult first quarter, it is pleasing to see operations back on track in the second quarter, with Sentinel achieving its highest monthly production for the year in May and Cobre Panamá and Kansanshi achieved the same records in June.

Total copper production for the second quarter was approximately 187,000 tonnes, up over 48,000 tonnes from the first quarter as grades increased at each of our three largest operations and throughput improved at both Cobre Panamá and Sentinel.

At Cobre Panamá, the operation delivered a strong performance in the second quarter with copper production of just over 90,000 tonnes, 38% higher than the first quarteras grades improved and mill throughput continues to ramp up towards the 100 million tonnes per annum rate.

At Kansanshi, copper production of approximately 35,000 tonnes was nearly 6,000 tonnes higher than the first quarter. Production during the second quarter focused on mining cutbacks at elevated benches that have historically had higher grades. As a result, grades across all three circuits were higher quarter-over-quarter. During the quarter, we encountered harder ore in the Main 11 area with high carbon content, which impacted crushing and milling rates. This is being addressed by blending with softer ores from stockpile and by continued acceleration of ores from the Main 15 and Main 17 areas.

Sentinel reported copper production of 54,000 tonnes in the second quarter, approximately 18,000 tonnes higher than in Q1. While the mining activities continued to be impacted by excess water from the heavy rains in the first quarter, by mid-May, operations steadily improved once the pit was dewatered, thereby allowing the operations to regain access to higher grade ore.

Overall, it was good to see an increase in the production in the second quarter, and we expect to see these improvements continue over the remainder of the year, which Tristan will address in the guidance section of his closing remarks.

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

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Ryan MacWilliam

Chief Financial Officer, First Quantum Minerals Ltd.

Thank you, Rudi. The copper price averaged $3.84 per pound in the second quarter, down 5% from Q1. This fall

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First Quantum Minerals Ltd. (FM.CA)	Corrected Transcript
Q2 2023 Earnings Call	26-Jul-2023

was as a result of the weak global industrial activity and the accompanying recession concerns as interest rates continued to rise.

However, this broader demand softness was balanced by reasonable electric grid and electric vehicle spending, particularly in China. As such, commodities like copper, which are tied to the energy transition, outperformed traditional industrial commodities.

Despite the weaker copper price in the second quarter, total revenue increased 6% from Q1. This was driven by increased copper sales of 27,000 tonnes due to the higher production, which Rudi described. Sales were lower than production during the quarter, partly due to the inventory levels returning to normal, following a low Q1, and as well as the timing of shipments which will catch up over time.

As can be seen on slide 15, the copper C1 cash costs of $1.98 per pound were 12% lower than Q1. This decrease was driven by higher production and lower fuel and explosive costs in the quarter. This was partially offset by higher maintenance costs and lower byproduct credits due to the lower gold grades at Cobre Panamá.

Our costs generally fall into three categories. The first category includes costs directly linked to commodity markets, such as fuel, freight, and explosives. This category makes up roughly 25% of our costs and is an area where we have seen strong cost improvements through the first half of this year.

The second category includes items such as grinding media and reagents, where the cost base is partially linked to commodity prices built into the cost base, but with a lagging effect. These make up roughly 15% of our costs, and improvements so far have been muted due to this lagging effect.

The last category includes labor, services, and fixed costs. These fixed costs include items such as electricity, which is generally based on multiyear contracts, and items such as treatment charges, which are priced off annual contracts.

These costs make up roughly 60% of our cost base and it is in this category where costs remain sticky. This is similar to what we're seeing in inflation globally as core CPI remains above broader CPI measures.

Slide 16 highlights the Q2 EBITDA increase by 10% to $568 million, driven by higher revenues. Net earnings attributable to shareholders increased to $93 million and adjusted earnings per share increased to $0.12.

Moving on to our balance sheet, during the quarter, we announced the offering of our first standalone eight-year Senior Notes. This $1.3 billion issuance resulted in a 50% increase in our weighted average debt maturity.

The proceeds were used to pay down $970 million in the existing revolving credit facility and $300 million of redemption of the company's outstanding 2025 Senior Notes. This provides us with a continued strong liquidity buffer, which is important given the global macro uncertainty.

Our net debt decreased by $130 million to $5.65 billion due to higher EBITDA and favorable working capital movement.

Also during the quarter, it was pleasing to see the government of Zambia reach a $6.3 billion debt restructuring deal with external government creditors. This unlocks another tranche of IMF funding and is expected to benefit the fiscal and monetary environment in Zambia, and therefore, its sovereign credit rating. This benefits Zambia and First Quantum as an improvement in the Zambian rating decreases the country risk component of our corporate credit rating.

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