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Edited Transcript of FM.TO earnings conference call or presentation 14-Feb-20 2:00pm GMT

Q4 2019 First Quantum Minerals Ltd Earnings Call

VANCOUVER Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of First Quantum Minerals Ltd earnings conference call or presentation Friday, February 14, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geoffrey Clive Newall

First Quantum Minerals Ltd. - President & Director

* Hannes Otto Meyer

First Quantum Minerals Ltd. - CFO

* Juliet Wall

First Quantum Minerals Ltd. - General Manager of Finance

* Philip Kelvin Rodda Pascall

First Quantum Minerals Ltd. - Chairman & CEO

* Tristan Pascall

First Quantum Minerals Ltd. - MD of Cobre Panama

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Conference Call Participants

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* Brian J Lalli

Barclays Bank PLC, Research Division - Director & Senior Analyst

* Gordon Lawson

Paradigm Capital Inc., Research Division - Senior Research Associate

* Ioannis Masvoulas

Morgan Stanley, Research Division - Equity Analyst

* Izak Jan Rossouw

Barclays Bank PLC, Research Division - Director

* Jackie Przybylowski

BMO Capital Markets Equity Research - Analyst

* James Peter Finnerty

Citigroup Inc, Research Division - Director

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

* Karl Blunden

Goldman Sachs Group Inc., Research Division - Senior Analyst

* Lawson Winder

BofA Merrill Lynch, Research Division - VP & Research Analyst

* Matthew Wyatt Fields

BofA Merrill Lynch, Research Division - Director

* Orest Wowkodaw

Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals

* Oscar M. Cabrera

CIBC Capital Markets, Research Division - Research Analyst

* Sanjay Aiyar

Coherence Capital Partners LLC - Senior Credit Analyst

* Thomas McNamara

Impala Asset Management, LLC - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the First Quantum Minerals Q4 Results Conference call. (Operator Instructions)

Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. Clive Newall, President and Director of First Quantum Minerals. Thank you. Please go ahead.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [2]

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Thank you, operator, and thank you, everyone, for joining us on what I believe is an extremely cold day in Toronto.

Joining me on the call today are Philip Pascall, Chairman and CEO, Hannes Meyer, CFO; Tristan Pascall, General Manager at Cobre Panama; Juliet Wall, General Manager Finance; and Simon MacLean, Group Reporting Controller.

As usual, before we proceed, I will draw your attention to the fact that over the course of this conference call, we'll be making several forward-looking statements, and as such, I encourage you to read the cautionary note that accompanies our fourth quarter and full year MD&A and the related results news release as well as the risk factors particular to our company, which are detailed in our most annual -- most recent annual information form and available on our website, first-quantum.com and on SEDAR. A reminder that the presentation which accompanies this conference call is available on our website.

So I'll get us started with some opening remarks before Hannes' review of the financial results, and then we'll open the lines to questions.

So 2019 was a transformative year for the company as we brought Cobre Panama into commercial production. This allowed us to deliver yet another record quarter of copper production and a new company record for annual production. Also, our costs remained low during the quarter and for the year, well within our guidance range. In particular, costs at Cobre Panama continued to be better than we might have expected from such a new operation, but we believe that there's still room for improvement as the ramp-up continues.

As a result, a first full quarter of production from Cobre Panama also contributed strongly to quarterly cash flow reflected in our results.

Before moving on to the full financial review, I think it's important to address current events. I'm sure you're all aware of the continuing evolution of the coronavirus, now termed COVID-19 epidemic and its actual and potential impact on our industry. The last time I spoke to you a little more than 3 months ago, no one had heard of this disease. Despite its seriousness, this epidemic, which particularly in China, is already impacting on copper usage, supply chains, sales and, ultimately, the copper price. Some of our actions earlier this year have helped to mitigate its potential impact.

Our hedging program, now extended through 2020, provides some protection from copper price volatility. Our [opportunistic] Bond "Tap" issue back in January 2020, has strengthened our balance sheet and made us more resilient to black swan events such as this.

However, although our physical sales have not been material -- materially affected and experts believe it is likely to be a short-term event, we are monitoring the situation very closely.

So to wrap up my comments, our performance in 2020 and the start of commercial operations at Cobre Panama has accelerated several of our strategic objectives. Our vision to be a leading copper company has been greatly advanced. Our geographic diversification has been better realized and we have increased our cash flow generation capacity, which in turn will help us to begin to delever our balance sheet before considering any new growth projects.

So with that, I'll hand over to Hannes to go through the financial review.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [3]

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Thanks, Clive, and good day to everyone. I would like to direct you to the slide titled Overview in our presentation. 2019 was indeed a transformative year for First Quantum, marked by the successful delivery of Cobre Panama to the market and into commercial production ahead of our schedule. This achievement greatly enhances our vision of being a leading copper-focused metals and mining company.

From a finance perspective, we are now well positioned to focus firmly on deleveraging the balance sheet since our capital commitments in 2020 is expected to be well below each of the prior 7 years.

As you have seen with the refinancing we completed last month, consistent with this objective, we are continuing to prudently manage our capital structure and assess our liquidity and financing sources. In the past several years, there have been many uncertainties that have caused fluctuations in commodity prices. As such, we have utilized a hedge program to manage our commodity risk and cash flow stability. In light of continuing uncertainties, which now includes the economic disruption and any implications of the new coronavirus, we are continuing our program. Today, we have hedged approximately 1/3 of our expected copper sales in the first half of 2020.

The next slide on delivering on growth. During the year, we had record copper production with 702,000 tonnes of copper and 257,000 ounces of gold. We have diversified our geographical presence with over 1/3 of 2020 copper and gold production guidance coming from Panama, following a successful ramp -- initial ramp-up period in 2019.

For the full year, which, for the most part, consisted of [4 of] its ramp-up contributed approximately 147,000 tonnes of copper. Cobre Panama will indeed be a world-class operation.

Turning to the next slide on production. Copper production was within guidance and continues our upward year-on-year record-breaking trend, with copper production increasing 64% since 2015. Gold production of 78,000 ounces was 62% higher than the same period in the prior year, with annual production of 257,000 ounces being 39% higher than 2018, reflecting Cobre Panama's contribution of 60,000 ounces and higher gold production at Kansanshi following operational enhancements.

Turning to the next slide, financial overview. Comparative EBITDA of $511 million for the quarter is 6% increase on the comparable quarter of 2018 and benefited from the contribution of $136 million from Cobre Panama. The results were impacted by a $0.07 lower net realized copper price, mitigated by a $26 million hedge gain in the quarter from the copper hedge program. Comparative earnings of $0.05 per share includes $0.27 per share of interest expense. This is new since interest is no longer being capitalized following the declaration of commercial production at Cobre Panama.

Turning to the next slide on EBITDA. Underlying comparative EBITDA after allowing for the movement in metal prices and foreign exchange on operational cost was 10% higher in the fourth quarter on the back of stronger Cobre Panama contribution. Whilst the EBITDA is lower than the previous year, the full 2019 underlying EBITDA was $71 million higher than the comparative period in 2018 when removing the impact of lower realized metal prices and favorable foreign exchange on operational costs in 2019.

The improved underlying EBITDA was due to hedge gains from the managed hedge program, combined with strong Cobre Panama contribution. These were somewhat offset by the impact of the Las Cruces land slippage.

Turning to the next slide on quarterly unit costs. Copper C1 cost of $1.24 was broadly in line with the same quarter in the prior year despite lower production at Sentinel. These costs include the impact of Cobre Panama's first full quarter of commercial production with a copper C1 cost of $1.28 per pound. Overall full year copper C1 of $1.31 per pound and all-in sustaining cost of $1.78 per pound were comfortably within the full year guidance. All-in sustaining cost of $1.73 per pound for the quarter increased $0.05 against the same period in the previous year. The increase reflects the impact of Cobre Panama's higher deferred stripping activity.

Turning to copper hedging program outlook. As I mentioned at the start, we utilized a hedge program to ensure stability of cash flows while maintaining compliance of financial covenants amid the fluctuations in commodity prices. As of today, the company has 172,000 tonnes of 0 cost collars with maturities till January '21, at a weighted average price of $2.66 per pound to $2.92 per pound and 62,000 tonnes of unmargined copper forward sales contracts at an average price of $2.81 per pound, and that runs through to periods of maturity or January '21. Approximately 1/3 of expected copper sales in the first half of 2020 are hedged to and margined forward and 0 cost collar sales contracts at an average floor price of $2.71 per pound. The company also has an end margined legal forward sales contract of 12 -- just over 12,000 tonnes at an average price of $6.77 per pound of nickel with maturities through to February '21.

Turning to the next slide on debt and liquidity profile at the year-end. The company ended the quarter with $523 million of net unrestricted cash and cash equivalents in addition to the $250 million of committed undrawn facilities and is compliant with all financial covenants. Taking into account forecast operating cash inflows, capital expenditure outflows and available committed facilities, the company expects to have sufficient liquidity through the next 12 months to carry out its operating and capital expenditure plans and remain in full compliance with financial covenants. And as I said earlier, we continue to take action to manage operational and price risk and further strengthen the balance sheet.

On January 9, the company launched a tap of an additional $750 million of bonds by tapping the existing '23 and '25 notes. The company intends to use the proceeds from the sale of the notes to redeem in full the outstanding $300 million, '21 notes tomorrow, and we have repaid $450 million of the revolving credit facility. The second graph depicts the pro forma debt profile post the issue, illustrating the improved maturity profile.

Just a comment on VAT in Zambia. The total VAT receivable value accrued by the company's Zambian operations at the date of the claim was $847 million. The carrying value at the end of the quarter was $398 million, reflecting the devaluation of the Zambia kwacha, and that accounted for $242 million and the application of a discount for the time value of the total receivable to expected repayment of just over $200 million.

All Zambia VAT balances are now categorized as noncurrent. A finance charge of $182 million was recognized in the year, representing the discounting over the expected time frame till repayment. We remain in regular discussions with the relevant government authorities and continue to consider that the outstanding claims are recoverable.

Turning -- moving to the next slide with capital expenditure. Cobre Panama capital expenditure for the year was $697 million for the 85 million tonne per annum development project. Project construction and commissioning is now essentially complete. Other project -- capital expenditure in 2019 included the tailings dam management facility, construction costs at Cobre Panama, capital expenditure to allow the operation to reach 100 million tonnes per annum as well as the development of the Colina pit. It's also a project capital expenditure for realigning of one of the high-pressure leach autoclaves and the development of the asset convert at Kansanshi, as well as Troilus' program at Sentinel and remediation work at Las Cruces following the January land slippage.

Thank you. And with that, I will hand back over to Clive.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [4]

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Thank you, Hannes. So operator, could you now hand over for questions, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Ioannis Masvoulas with Morgan Stanley.

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Ioannis Masvoulas, Morgan Stanley, Research Division - Equity Analyst [2]

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A couple of questions from my side. First, in terms of the power situation in Zambia. Can you provide an update in terms of power availability in the short term, and what sort of risks, too you're seeing as we go into Q2, especially as the Mopani's smelter is supposed to be restarting?

And also related to power. So the purchase agreement with ZESCO is supposed to be renewed this year. Do you envisage any changes to the terms, especially if we switch the cost of service model instead of a fixed power tie? And I'll leave it there.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [3]

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Hannes, do you want to deal with that? Or...

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [4]

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I'll answer it, Clive. It was a most difficult time for ZESCO or possibly being -- while the [Kansanshi] dam has been very low. As from about the end of January, we see that its decline has stopped and then the dam starts to fill, which is what you'd expect of rainy season or during the rainy season. And that's, at the moment, it seems to be very normal.

During all of that time, the supply to our 2 operations have been uninterrupted. And there's no reason for us not to expect that to continue. And that's about, I guess, what we can say.

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Ioannis Masvoulas, Morgan Stanley, Research Division - Equity Analyst [5]

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Okay. And maybe the second point on the power types, anything you could mention here at all?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [6]

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Well, again, our power price -- as far as we know, is slightly -- the arrangements that exist differs slightly from one mining operation to another. And most of them were governed by arrangement in which CEC is a supplier, receive power from ZESCO and made certain charges. We weren't party to that. And when the power price needed to be changed, Kansanshi mining took an arbitration case. Since then that -- the outcome of that is being honored by ZESCO. So we don't expect there any reason for that to change our prices by in large, are higher than most of the others.

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Ioannis Masvoulas, Morgan Stanley, Research Division - Equity Analyst [7]

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I see. That's very helpful. And maybe just a quick follow-up on the fiscal changes in Zambia. You have provided explicit guidance on costs -- cost and impact for 2020. It looks like it's a preliminary figure. Do you expect any material changes to that estimate, or do you have a good visibility at this stage of the overall change and the associated impact?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [8]

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I think we do have...

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [9]

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Ahead of that, Hannes?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [10]

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Look, we have incorporated those fiscal changes in our plans and in our guidance already. So we don't expect a major variation from that.

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Operator [11]

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Your next question comes from Jackie Przybylowski with BMO Capital Markets.

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Jackie Przybylowski, BMO Capital Markets Equity Research - Analyst [12]

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I just wanted to ask you about the Kansanshi mine and the expansion that you're considering doing there. And if you could give us an update on what the scope of that expansion might be and timing, if you had any ballpark idea of when that would be? And finally, I guess, how you'd be looking to finance that if an asset sale in Zambia is still on the table?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [13]

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Philip, do you want to do that?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [14]

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Yes. Because we have a strong incentive and desire to improve the balance sheet, we actually would seek to avoid any kind of expenditure for as long as we can. That now, as far as we can -- our latest evaluation goes, is that we would not need to have any expansion operating before the end of 2024. That's 5 years out. And we would make no commitment to or other than to say minor items, for another 3 years at least. And during this time, of course, we are looking carefully at a detail of what we actually have to do. And in the course of this quarter or by the end of this quarter, we expect to publish a technical report with some information on how that's modeled. And specifically, with the capital cost that doesn't require full expansion of the smelter, which we didn't release originally.

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Operator [15]

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Your next question comes from Ian Rossouw with Barclays.

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Izak Jan Rossouw, Barclays Bank PLC, Research Division - Director [16]

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Just to follow-up on Ioannis' question about the sort of changes in the fiscal terms. Do you expect -- or if you don't get any of the VAT sort of receivables during the year. What do you expect the sort of outflows in terms of cash flows would be for the whole of Zambia?

And then secondly, just to ask about the Ravensthorpe restart, just if you can give me -- give us some details on the expected cost for that.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [17]

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Hannes, do you want to do the VAT one first?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [18]

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Yes, sure. I'll do the VAT. I think with the changes in the most recent VAT changes. I mean that limits anyway, some of our VAT claims. So I think if -- on the assumption that we don't get any VAT back in the year, which shouldn't -- I mean, I think we will get some back in this year. But if we don't get any back, the outflow is probably in the order of about $10 million per month. So you're looking at about $120 million for the year.

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Izak Jan Rossouw, Barclays Bank PLC, Research Division - Director [19]

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Okay. All right. So that's similar to what it was historically?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [20]

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No. Historically, we got more we go. VAT was probably about $15 million per month in total. So we were looking at $180 million, but with some of the changes. We now -- we can't claim that back any longer.

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Operator [21]

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Our next question comes from Oscar Cabrera with CIBC.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [22]

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I was just wondering if you can help us out. You've tried in the past with capital expenditure, your capital expenditure forecast for 2021, '22, specifically to Cobre Panama. I mean, in your release, you mentioned that the final decision to proceed with the capital deployment to get the project to 100 million tonnes per annum will be taking later on. So can you just put figures around that and the timing of it? When do you -- if you go ahead with it, when do you need to spend it? And what would you be spending at all?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [23]

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Tristan, do you want to do that?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [24]

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Yes, sure. Thanks for the question. The 43-101 provided an outline of the capital expenditure and the time table to get to 100 million. And in that document, we were saying that the 100 million case would come on board in 2023. What we're saying is there's no change to that plan. We have the ability to flex a little bit between Botija pit and Colina pit, but there's no change from the 43-101 in terms of timing and when we would expect to come on at this stage. What we're saying is we don't need to deploy that capital this year, and we won't -- certainly in the first half of this year, and we'll be pushing out a decision as much as we can, but still meeting the time table.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [25]

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In other words, sticking to whatever the technical report says with a view to start in 2023. When would you take this decision?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [26]

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This year -- later this year.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [27]

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Later this year. Okay. And then with respect to Ravensthorpe, is there any additional CapEx that you've required in 2020 and '21? There is a mention of a new deposit being mined?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [28]

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Yes, included in our projected capital is an expenditure for the conveyor that goes to Shoemaker Levy. And Shoemaker Levy is the large long-term deposit that we'd like to have operating in 2021. So expenditure for that will occur through the end of this year.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [29]

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Okay. And then lastly, if I may. In previous calls, you have mentioned your expectation for cash, C1 cash costs for Cobre Panama for 2021. I was wondering if you were willing to provide any guidance for this year? Or how should we think about the progression of this cash cost? I mean, you have done fairly well over -- during the first quarter of commercial production.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [30]

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Tristan?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [31]

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Yes. The guidance that we previously provided looks very conservative, and we think that we will be able to achieve that. What we are saying is that we're continuing to ramp up, but we do see a lot of opportunity on cash costs. So everywhere I look in the business, from the port and the power plant through to the mine and the process plant, we do see opportunities to optimize.

Really, 2019 was about fundamentals and making sure that we could run and making sure that we could run well. 2020, we can start to optimize in each of the areas, particularly on the cost side of things. So we're comfortable with the cost where they are and progression as they reduce.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [32]

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Okay. So I mean, I think, if I remember correctly, you had mentioned like under $1.20, you did $1.28 on the first quarter. So 20%, less you think is achievable in 2020?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [33]

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Yes, I think we're sticking with the guidance we've provided at the moment. But yes, we see opportunity.

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Operator [34]

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Your next question comes from Lawson Winder with Bank of America.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [35]

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Just -- you made the comment in the release that debt repayment will be a big focus in 2020. I'm just curious, in that light, is asset monetization a component of that? Of course, in addition to the substantial expected free cash flow.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [36]

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I'll take that. Yes, what we've said before is we would continue to consider some areas, which will be including Ravensthorpe in particular. But other than, in addition, where we would seek a strategic partner in part of that business, a benefit which would be to, obviously, improve the balance sheet, but also on point of view is that in the longer term, other projects might be -- might benefit for having relationships and that sort. So yes, we continue to consider them.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [37]

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And then just to maybe dig down on that a little bit more. To -- would a minority interest in the Zambian assets still be a possibility? And are there any conversations going on in that respect?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [38]

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Yes. I mean, the difficulty there has only been in terms of any meetings. The arrangements that were -- have been talked about really just became in haywire over coronavirus. So any actual face-to-face conversations haven't been able to take place. They need to be arranged, But we haven't had any great expectation that would be advanced very much until after the first half in any event.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [39]

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Okay. And then just one other sort of point on the asset monetization. Would you consider, sort of like a longer-term offtake agreement at Cobre Panama as part of a potential monetization?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [40]

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I mean, there's a strategic benefit of some longer-term offtake agreements that could easily form part of where our arrangements we might negotiate because of its desirability. And that's really the area that we'll pursue rather than a streaming sale or an equivalent of that sort.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [41]

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Okay. That's very helpful. And then just one question on Cobre Panama. I mean, you're already hitting pretty impressive throughput rates. Maybe this one's best for Tristan. I mean, do you really need to spend more CapEx to get to 100 million tonnes per year?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [42]

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Look, we -- so we have a bit to do in terms of making those consistent and reliable, and that's where we say we're still ramping up. Really, the capital expenditure for the 100 million is to give us -- it's in 3 areas. The mine is the principal one of those. And that is we just need to balance the rate of vertical advancements in particular with the volume that needs to come out of the pit. And so for that, we look to go to Colina, and that's what we're evaluating at the moment, and that's largely what the decision's around. To go to Colina, you need to extend the conveyors and possibly invest in more mining fleet that site. So that's part of the evaluation that will happen this year. The -- you can do it from Botija. It's just that your rate of advancement, vertical advancement may get excessive. So that's really what we're balancing up.

In the process plant, a large portion of the work is done, but we will have some mine areas on transfer pumps and small items of that nature. We might need to do some work at the port in terms of just the ability to handle, concentrate and dispatch to our customers. And then we'd like to see the tailings dam come on and perform well in the start-up period. It's already underway. We'd like to get the runs on the board of the tailings dam. So those are the considerations. And the capital was really around the mine in those areas that I'm speaking about there.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [43]

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And Tristan, just one more question while I have you, the, sort of, cost per tonne mining cost that you achieved in Q4 at Cobre Panama, are those sustainable going into 2020 and onward?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [44]

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Certainly, on the mining side. There's no difference -- so I made -- and I've made the point before, there isn't really much place for us to hide at Cobre Panama. We can't run the numbers. There's no -- it really depends on volumes through the door. If we achieve the volumes through the door, then we get those cost results. There isn't any tricks that we've pulled to get these costs for Q4. So certainly, we do see opportunity to improve further. So the first trolley assist line came on stream in December. And we're now running trucks on the trolley. We will be putting more trolley into Botija field. There are opportunities for us to improve from where we are.

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Operator [45]

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Your next question comes from Karl Blunden with Goldman Sachs.

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Karl Blunden, Goldman Sachs Group Inc., Research Division - Senior Analyst [46]

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Just on the jurisdictional side. I noticed that the language didn't change about the Law 9 process and potential resolution in your statements. Has there been any kind of qualitative update in the last couple of months?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [47]

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Will you do that one? Or Tristan?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [48]

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Tristan will.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [49]

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Okay. So Law 9, the discussion is continuing. We've had -- so really, the progress has been in meetings and the number of meetings we've had over -- with the new government at this time. And so those there's obviously discussions behind closed doors and we're going through that process. So it's very constructive, but we don't have a time table around it.

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Karl Blunden, Goldman Sachs Group Inc., Research Division - Senior Analyst [50]

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Okay. That's helpful. And I know earlier in the call, you guys discussed the water levels a little in Zambia. I was just interested. It does sound like the risk is now receding as the water level stabilize and rise. But what are the levels now versus in 2015, '16, when the power supply was curtailed? Is it materially different?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [51]

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There's actually a website that you can look at that shows the dam level. I don't have it at my fingertips. They ran the dam very low by the end of the rainy season of 2019 because they were doing work below the wall. And then, of course, had a particularly dry season, and so it was pretty poor. There -- it will take certainly more than a year to recover assuming reasonable rains. And then, of course, that's not predictable. But you actually can go on the web and see that. And you will see that it got to a pretty low level and the recovery will take some time. But it's not a bit lower at that time.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [52]

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The website is the Zambezi River Authority, and you can see the lake levels and rises, say, over the seasons as well.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [53]

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The river flows have been particularly strong this year, which is always a good sign, the river flows in the Zambezi.

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Operator [54]

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Your next question comes from Orest Wowkodaw with Scotiabank.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [55]

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Just more on Cobre Panama. Obviously, the ramp-up is going really well. How quickly do you think the operation can achieve the 85 million-tonne case now with the -- or I guess, the last mills installed?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [56]

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Tristan, please.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [57]

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Yes. Orest, it's really around consistency. So we've been able to do the kind of daily volume numbers that we need to get to that level. What we need to do is to be able to do that on a weekly basis and on a monthly basis. And that's really around consistency. That's part of the ramp-up curve, but it's on things like engineering and also training and the capability of personnel. And so it's not really in the assets so much anymore. The assets will deliver. It's really that we can consistently deliver that in terms of having supply chain working well, which is going well so far. But it's all of the aligned systems around keeping that happening every day, every week, every month.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [58]

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So is that -- do you think that will take a couple of quarters to get to that sustainable rate?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [59]

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We'd like to do it as soon as possible. And it really -- that's the ramp up curve. So yes, we would hope to have that by the second half of the year, but obviously, with a target internally to do it as soon as we can.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [60]

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Okay. And Tristan, how much -- can you remind us how much capital is actually left to spend to get to that 100 million-tonne case?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [61]

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I think we've given a number publicly, and I'm just looking at Juliet.

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [62]

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Over the next 3 years, it's about 240 million.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [63]

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Yes. I think that's the number in the 43-101, and that was principally on the mine fleet and on the conveyors, the crushers. I don't think that includes the pre-strip at Colina, which was a little bit -- a little bit on top of that. If we do decide to go to Colina and open Colina up, there's a pre-strip at that new pit.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [64]

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Okay. But given that capital is relatively minor in the context of your free cash flow now and what you spent for Phase 1, why wait until 2023? I mean, that's not a lot of capital.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [65]

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Can I answer that?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [66]

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Yes.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [67]

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What Tristan is really saying is that during this year, we always expected that we would push the plant and it will identify the kinds of things we need to do. And included in that is, obviously, some more detail on the mine planning. And to give an idea on Colina, we have been doing the sterilization drilling for that conveyor route. Some of the holes that turn out weren't actually sterilization. There was copper there. And that means you got to obviously change the plan on which route you take. And these are the kind of exercises that need to be done. So it's a combination of exactly what we would do and the extent to which we need to do it. If we would go rush out and want to spend the money now, we wouldn't actually be quite certain as to what we'd have to do, in particular. We can do a whole lot of things, but that's the evaluation process. That makes sense?

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [68]

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Okay. Is there a chance that you could get to above the 85 million-tonne case just based on what you have installed right now?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [69]

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Yes, probably.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [70]

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Yes, Orest. The 85 million is just a number. Sorry, go ahead, Phil.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [71]

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I think your question is, do we need to spend any capital to get out 85 million, we don't know. But it's quite possible. It will be very minor.

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Operator [72]

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Your next question comes from Matthew Fields with Bank of America.

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Matthew Wyatt Fields, BofA Merrill Lynch, Research Division - Director [73]

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So you've always kind of talked about deleveraging by $2 billion. But the debt has sort of been a moving target. So now that we're adding $3 billion of total debt, is this high watermark from which competitors in deleveraging, i.e., is sort of a low 6s total debt, is that right? What to think about your total capital structure?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [74]

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Matt, sorry, it was a little bit disturbed, but I think I got most of the question there. I think the Q4 is probably our peak debt level. So we should see deleveraging and a reduction of absolute amount of debt from now on going forward.

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Matthew Wyatt Fields, BofA Merrill Lynch, Research Division - Director [75]

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(inaudible)

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [76]

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You broke up there, Matt, pretty badly. Yes. You broke up very badly.

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Operator [77]

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Your next question comes from the line of Gordon Lawson with Paradigm Capital.

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Gordon Lawson, Paradigm Capital Inc., Research Division - Senior Research Associate [78]

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Just one question left for me. I get that Mali is not a large component of earnings, but there were concerns of a penalty at the Cobre Panama. So could you provide any more information related to the Mali plant with respect to timing and production estimates?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [79]

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Yes, I'll answer that one. This is Clive. Sure. Gordon, the Mali plant, yes, it's really there -- just to protect in the event that we do pass-through high moly zones in the pit. The moly presents in the ore body is not correlated to the copper, so it comes in zones. And we haven't seen any signs that knock us off-balance so far. So our moly content and feedback from customers in terms of the supply to smelters has been very, very positive. Even to the Japanese smelters who appear to be the most sensitive on moly. So we haven't had any feedback or -- on our moly content in the shipments so far that have gone out of Cobre Panama.

So really, the impetus is just to guard against when we might see zones of moly. And so we are proceeding with the project. It will happen over the course of this year, but there isn't any great imperative to fast-track that or anything of that nature. So it's happening in an orderly manner so that we can de-man and pull back on the scale of project development at Cobre Panama. And that's why we're saying things are essentially finished, it's because we are de-manning and pulling right back to minimal levels. If we just continue with high manning, then it burns cash. And that's really the intent. So the moly plant will be done over the course of the year.

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Operator [80]

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Your next question comes from Brian Lalli with Barclays.

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Brian J Lalli, Barclays Bank PLC, Research Division - Director & Senior Analyst [81]

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Maybe if I could start, and I'll follow-up a little bit on maybe Matt's questions from before. But just on the balance sheet, I think, first, yes, to his question, what's the right way to think about what's the right gross debt balance is? And then specifically in light of the 2020 amortization, do you maybe mind walking us through your near-term thoughts on issuance versus pay down, what you might do with the term loan? And then I have a follow-up after that.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [82]

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Brian, look, I think we're at the gross debt level now. So we should see a reduction from now going forward. In terms of term loans or debt amortization, I mean, that is happening now, still in our bank facilities. I mean, we continuously look at various -- we are actively managing the balance sheet. So it's in our plan to repay that. So that's probably what I can say. And your follow-up question?

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Brian J Lalli, Barclays Bank PLC, Research Division - Director & Senior Analyst [83]

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Yes. I appreciate it. And then, yes, my follow-up, just outside of CapEx and the $50 million guidance. Is it possible honestly if we maybe walk through just some of the other notable 2020 cash flow items, just so we can sort of level set our models for whatever is below EBITDA as you think about where free cash flow is going to shake out this year?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [84]

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Juliet, do you want to just give them interest, you've probably got...

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [85]

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Yes. We've given guidance on interest. The other one would really be tax payment. So tax payments of probably around $300 million.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [86]

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So probably about $300 million of tax. There's still another -- what's the LS-Nikko payment of about another $100 million or so end of the year?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [87]

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Yes.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [88]

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So those are probably the major items in that.

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Brian J Lalli, Barclays Bank PLC, Research Division - Director & Senior Analyst [89]

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Got it. Okay. So it's CapEx, it's obviously, interest taxes and then the $95 million or $100 million LS-Nikko payment. And then, obviously, whatever happens with debt amortization on the balance sheet. Those are the main things to make sure we have right in their models. Is that a fair summary?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [90]

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Half the part.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [91]

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The $300 million.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [92]

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Yes, that's -- yes, yes.

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Operator [93]

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Your next question comes from Thomas McNamara with Impala.

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Thomas McNamara, Impala Asset Management, LLC - Senior Analyst [94]

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Tristan, could you just talk about as much as you can grade in recovery so far with what you're seeing?

And then secondly, Philip, is there a cobalt aspect to Ravensthorpe?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [95]

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Yes. Thanks for the question. Grade has been where we expect it to be. We did see a little bit of lower grades in January. But we had talked about grades of around 0.4, 0.42, 0.43. And we've seen that in the latter weeks of January and in February as well. So we're back to those numbers. That's a little bit higher than the sort of life of mine ore reserve, ore resource grades at Cobre Panama, but that was acknowledged early on in Botija . We do see those higher grades. That's why we start at Botija. So there isn't any change from the plan in terms of grade. We're getting what we thought we would see.

And then on the recovery side, I guess, that's one of the most pleasing aspects of the startup at Cobre Panama has been the recovery performance. We had expected some variability early on, and we expected recoveries at sort of around 80% or below. In fact, we've actually seen recoveries well north of that. And we've seen weeks where we've gone over 90% for the whole week in the startup of Cobre Panama. So we're very, very encouraged by that. We do have ongoing optimization to be done there. And that's really to look at where we're losing copper, and it's in the normal places in the fines and also in the course material. And so that's some of the optimization that we'll continue to do so that we can improve the recovery. But overall, the story has been very positive at the start-up.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [96]

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And then your question on cobalt. Yes, there's cobalt. I mean, roughly, if we reduce 30,000 tonnes of copper we'll end up on the top. Sorry, I don't know in terms of cobalt. I think our first year expectation is well south of that. I mean, close to 23,000 or 24,000. It's just a function of the start-up of copper and proportionately less cobalt.

If I just comment on Ravensthorpe, it will start producing mixed hydroxide as it has before. Many of the earlier customers for that have been in China. The people that we're talking to, and it's a verbal conversation, have said they're confident that the deliveries and the like for that will occur normally. We've yet to see what that means. There's always the possibility of a month or so of (inaudible) of mixed hydroxide. And it's in that mixed hydroxide that our cohort occurs.

But we are also conducting a field study, which is part of the proposal for offering a stake in Ravensthorpe, where some of the people who would be interested would like to see us produce a nickel sulfide. And we've done some cash work around producing that and its biggest advantage -- and there is a premium and sometimes there's not a very big premium. But the big advantage of it is that the payable has been a rather higher proportion than our current ones. When we sell mixed hydroxide our payable is low because of the downstream processing cost. But also it opens up many more potential uptake for that product.

So I mean, we'll get it commissioned, and we'll see what -- what the position is for our clients to take some of them off-line, of course, and some of them China, but that depends on the logistics there.

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Operator [97]

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Your next question comes from James Finnerty with Citigroup.

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James Peter Finnerty, Citigroup Inc, Research Division - Director [98]

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Just a question. I came on the call late. I might have missed this. Was there a comment earlier regarding potential sale of the junior stake in the Zambian assets being [sold]?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [99]

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Yes. And we said that we have some ongoing efforts in that area that is not hugely -- not progressing at a terrific rate at the moment because of the difficulty of meeting face-to-face. But in any event, we were expecting much to happen until after the middle of the year.

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Operator [100]

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(Operator Instructions) Your next question comes from John Tumazos with John Tumazos Very.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [101]

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Thank you for your service to the company. We all know copper is volatile and human behavior is volatile. And whenever the virus passes, the Chinese are going to come out of their house and maybe it will be like VE Day at the end of the World War II, they get to consuming again.

Would you consider just shutting down your 0 cost collars and taking a profit on them? If you have the situation where, at the outset, they're very lucrative or things broke in favor of the hedge? We remember Phelps Dodge having lost a couple of billion on 0 cost collars in the '04, '08 good copper market.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [102]

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Well, our copper hedges -- so on these swaps that end margin. So there is no margin calls on that. On the 0 cost collars, I mean, it does give us protection in the longer run. So the hedge book is currently probably somewhere around $100 million or so in the money. I think we had the disclosure in the Juliet -- but look, it's really about managing the risk in the longer run in the company. So we put it in systematically, and we plan then to deliver against that. We'll evaluate the opportunities, but it's really there for the sort of risk mitigation.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [103]

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John, the whole exercise of hedging is always one that's difficult and very much easier in hindsight. So -- but we are looking at it carefully, particularly -- actually the other way around, which of the swaps to take out. But in an uncertain world and timing for that, in what's best to come of this, it's something we just have to keep looking at. And as Hannes was saying, they're all in the money, and it's just a matter of some timing as to what we do about it.

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Operator [104]

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Your next question comes from Sanjay Aiyar with Coherence Capital.

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Sanjay Aiyar, Coherence Capital Partners LLC - Senior Credit Analyst [105]

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Just wanted to clarify. So you're focused on deleveraging and paying down debt. But there was some talks about some expansion as well. So what's the plan for any expansions or build out as far as financing, actually? Would it be with some project-level debt? Or would you use equity? Or how does that line up with the overall deleveraging goals?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [106]

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Look, I think the expansion that we talked about is relatively modest and over a few years. So it doesn't require a significant amount of data, and we can fund that from operational cash flows.

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Sanjay Aiyar, Coherence Capital Partners LLC - Senior Credit Analyst [107]

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Got it. Understood. And do you have a time line that you guys are looking to get to that $2 billion of debt reduction?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [108]

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That's a good question. I mean, it's very highly dependent on the copper price. So in a stronger copper price environment like we had earlier in the year, of course, will happen much sooner. At current levels, it will take longer. So in the end, that's why, I mean, we've talked about sort of other minority stake sale processes. And so we've got various initiatives on the go to try and reach those targets, whether it's price or otherwise.

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Sanjay Aiyar, Coherence Capital Partners LLC - Senior Credit Analyst [109]

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Okay. That was going to be my last question. So you are reevaluating the portfolio and there are other potential asset sales besides Zambia?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [110]

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Possibly.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [111]

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Sorry. No, we've got the process on Zambia on the go, yes?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [112]

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Yes. I mean, certainly, and we've actually have quite a formal process on Ravensthorpe.

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Operator [113]

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Your next question comes from Frank Duplak with Prudential.

There are no further questions at this time. I will now turn the call back to Clive Newall for concluding remarks.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [114]

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Thank you very much, operator. And finally, if there are any follow-up questions from anybody, please contact either myself or Lisa, and thank you for your participation on the call today. Goodbye for now.

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Operator [115]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.