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Edited Transcript of FM.TO earnings conference call or presentation 28-Apr-20 1:00pm GMT

Q1 2020 First Quantum Minerals Ltd Earnings Call

VANCOUVER Jun 15, 2020 (Thomson StreetEvents) -- Edited Transcript of First Quantum Minerals Ltd earnings conference call or presentation Tuesday, April 28, 2020 at 1:00:00pm 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

* Rudi Badenhorst

First Quantum Minerals Ltd. - Director of Operations - Zambia

* Simon MacLean

First Quantum Minerals Ltd. - Group Reporting Controller

* Tristan Pascall

First Quantum Minerals Ltd. - MD of Cobre Panama

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Conference Call Participants

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* Gordon Lawson

Paradigm Capital Inc., Research Division - Senior Research Associate

* Greg Barnes

TD Securities Equity Research - MD and Head of Mining Research

* 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

* Karl Blunden

Goldman Sachs Group Inc., Research Division - Senior Analyst

* Lawson Winder

BofA Merrill Lynch, Research Division - VP & Research Analyst

* Matthew Vittorioso

Jefferies LLC, Research Division - Analyst

* Matthew Wyatt Fields

BofA Merrill Lynch, Research Division - Director

* Nicholas Jarmoszuk

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* 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

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Presentation

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [1]

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Thank you, operator, and thanks, everyone, for joining us today. Joining me on the call from their respective homes are Philip Pascall, Chairman and CEO; Hannes Meyer, CFO; Tristan Pascall, Director of Strategy; Rudi Badenhorst, Director Operations Zambia; Wyatt Buck, Director of Operations; 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 first quarter MD&A and the related result's news release as well as the risk factors, particular to our company, which are detailed in our most recent annual information form and available on our website and on SEDAR. A reminder that the presentation which accompanies this conference call is available on our website.

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

However, there isn't much that is usual about anything these days as we're dealing with the pandemic. I think this is the first time we've not had at least some of our group assembled in one office to participate in our quarterly calls. Today, we're all joining that call -- those calls from our home and it's certainly an unprecedented time.

Before the quarter began, very few people had even heard of the coronavirus or COVID-19. And at our last call in February, it still seemed like a China problem, but that was about to change dramatically. The impact at first was not significant, and our operations continued normally other than the introduction of some new protocols around sanitation, distancing and travel issues. In fact, the operations performed quite well during the quarter. Cobre Panama experienced some unplanned downtime, but that issue was resolved. Kansanshi was a little better-than-expected with improved throughput and recoveries while Sentinel remained steady. Our costs were within guidance and all-in sustaining cost was better than guidance. There certainly was increasing pressure on the copper price, but despite that, we continued to generate strong cash flow. We continued to advance Ravensthorpe operational readiness work, culminating in the restart of production through the atmospheric leach in April 2020 followed closely by the high-pressure leach plant.

Before I turn things over to Hannes for his review, I do think it's very important that I reiterate that First Quantum's top priority is the health and safety of its employees and communities. Throughout the organization, we've implemented new protocols and procedures to provide protection for our workforce and the community at large. These protocols have been developed and implemented according to the restrictions, guidelines and regulations set out by the government and health authorities in each of our operating jurisdictions. The controls that some governments have put in place to mitigate the spread of the virus like travel restrictions, border closures and nonessential business closures have had an impact on our business, but we are dealing with these issues and finding solutions.

As a result of the government controls, we had an interruption of operations at Las Cruces that lasted a few weeks, but we were able to continue to process stockpiles and have recently recommenced feeding fresh ore from the mine. Cobre Panama operations have also been impacted, and it was placed on preservation and safe maintenance on April 7, although we are keeping the port and power plant operating to power maintenance activities and to feed the national Panamanian grid.

As a result of these impacts, we have reduced our previously announced overall production expectations for the year by some 75,000 tonnes of copper and 30,000 ounces of gold on the assumption that Cobre Panama resumes production by the end of May. As you would, no doubt, have had expected, we have completed a thorough review of all spending and as a result have significantly reduced our expected capital spending for the year. And our operating costs have benefited from the decline in price of some of our inputs, together with reductions in G&A through headcount reductions, compensation cuts for most senior staff of up to 25%. Exploration spending will also decline in part as a result of travel restrictions. And so along with the financial improvement made in the Q1, the bond tap issue in January, the ongoing hedge program, and more recently, the resetting of bank debt covenants, all of which Hannes will talk about shortly, the actions we are taking at our operations with the support of the host governments and all our employees will help us to withstand these unprecedented challenges.

So with that, I'll now ask Hannes to take you through his review.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [2]

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Thank you, Clive, and good day to everyone. I would like to direct you to the slide titled Financial Management. The company is actively focused on the management of all capital spending and operating costs, while maintaining a high level of safety and productivity. During these unprecedented times, we have reduced our guidance on both capital expenditure and all-in sustaining cost. Commodity prices have weakened over recent months, but the company's copper and nickel hedge programs mitigate some of the price volatility in the near term. In April, the company also hedged 180 million litres of Ultra Low Sulphur Diesel as part of our cost management strategy.

Recently, we announced that we have amended our financial covenants under the senior term and revolving credit facility in response to uncertainty related to COVID-19.

Net debt decreased for the first quarter since June 2016. Liquidity improved with net cash and cash equivalents of $1.1 billion at quarter end available.

Turning to the next slide, Cobre Panama placed onto preservation and safe maintenance. We've outlined some of the impacts on Cobre Panama being placed into preservation and safe maintenance. So following the decision to place Cobre Panama preservation safe maintenance effective 7th of April, Cobre Panama production guidance for 2020 has been reduced to 210,000 tonnes to 235,000 tonnes, and gold guidance reduced to 90,000 to 100,000 ounces. Cobre Panama production guidance is dependent upon receiving approval from the Ministry of Health of the Republic of Panama to end the preservation and safe maintenance shutdown and to commence the restart of operations before or by the end of May 2020. Production guidance for all other operations is unchanged. Preservation and safe maintenance costs are estimated at between $4 million and $6 million per week, assuming the suspension of labor contracts and other variable and fixed costs.

Turning to the next slide on 2020 guidance. As I've just noted, Cobre Panama copper and gold guidance have been reduced and total copper production guidance is now 755,000 to 805,000 tonnes compared to 830,000 to 880,000 tonnes previously issued. Total gold guidance has been reduced to 250,000 to 270,000 ounces, a 30,000-ounce decrease from guidance previously issued. As previously mentioned, the company has reduced capital expenditure guidance for 2020 in a company-wide review, a reduction of $175 million from previous guidance issued, and this is now down to $675 million.

The reduction in capital expenditure for the year includes moving construction on the fourth crusher at Sentinel into 2021 as well as deferring some 5% expenditure, together with following some process improvement and maintenance programs operations.

As part of the cost management strategy, the upper end of the total C1 cost range has been reduced $0.05 per pound, while all-in sustaining costs guidance range has been reduced by $0.05 per pound as well. I should note that the production guidance and cost guidance includes assumptions on the impact of COVID-19 on operations, including the assumptions on the deterioration of the preservation and safe maintenance at Cobre Panama.

Turning to the next slide on production. Total copper production for the quarter of 195,000 tonnes was 43% higher than the comparable period of 2019. This increase reflects 56,000 tonnes of Cobre Panama's contribution. Gold production of 69,000 ounces was 39% higher than the same period in the prior year, with the increase attributable to 23,000 ounces of Cobre Panama production.

Turning to the next slide, financial overview. Comparative EBITDA of $434 million for the quarter is an 18% increase on the comparable quarter for 2019. EBITDA benefited for the quarter with $157 million contribution from Cobre Panama and the favorable movement in the hedge program and FX, despite the impact of 8% lower realized copper price and the ramp-up cost at Ravensthorpe of $32 million. Comparative loss of $79 million in the quarter and a comparative loss of $0.11 per share. Comparative loss includes a net finance expense of $184 million, of which approximately $182 million would have been eligible for capitalization in the same quarter last year.

Net debt decreased for the first time since June 2016, a reduction of [$60 million].

Turning to the next slide. It highlights a bit more detail on the movement and just illustrates the impact of Cobre Panama on the EBITDA movement.

Turning to the next slide on quarterly unit costs. Copper C1 cash cost of $1.30 per pound was $0.04 below the same quarter in the prior year. Current copper C1 cost for the quarter was $1.38 per pound. All-in sustaining cost of $1.64 per pound for the quarter decreased $0.13 against the same period in the previous year. The decrease reflects the lower total C1 cash costs together with lower sustaining capital. As noted previously, we have reduced the guidance for all-in sustaining costs by $0.08 per ounce [to reduce] the upper range of C1 by $0.05 per pound.

Turning to the copper hedging program outlook. We continue to utilize the copper hedging program to ensure stability of cash flows while maintaining compliance with financial covenants amid the fluctuations commodity prices. Approximately half of the expected copper sales of 2020 are hedged at an average floor price of $2.62 per pound. The copper has 11,000 tonnes unmargined -- also forward sales contracts at an average price of $6.76 per pound with maturities due February 2021. The company has also hedged $180 million litres of Ultra Low Sulphur Diesel at an average price of USD 0.32 per litre to help manage costs with maturities due April '21.

Turning to the next slide. Debt and liquidity profile at the year-end -- or sorry, it's at the quarter end. The company ended the quarter with $1.1 billion of net unrestricted cash and cash equivalents and was in full compliance with all its financial covenants. On April 22, just post the quarter end, the company amended the financial covenants and senior $2.7 billion term loan and revolving credit facility. The net debt on EBITDA ratio has been increased to 5x for the second half of this year to 4.75x for the first half of next year and 4.5x for the second half of next year. The debt service cover ratio has been decreased to 1 for the second, third and fourth quarter of this year, and for 1 point -- to 1.1 for all of the next year.

Taking into account forecasts to cash, operating inflows, capital expenditure outflows and available cash and committed facilities, and based on current assumptions of the impact of COVID-19 operations, the company expects to have sufficient liquidity through the next 12 months to carry out its operating and capital expenditure plans, and remain a focal branch of this financial covenant. We continue to take action to manage operational prices and further strengthen the balance sheet.

Thank you. And with that, I'll now back over to Clive.

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

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Thanks very much, Hannes. Thank you, operator. Could you now turn over the call for questions, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question is 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 [2]

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I was wondering if we could get a little bit of color on the knock-on impact of the suspension at Cobre Panama? And I'm wondering, I mean, you've obviously cut the guidance for this year. I think you're assuming essentially a 2-month suspension. What kind of impact could that have to the ramp-up next year based on the guidance? I think you previously issued, which was about [310] to a higher range. Do you anticipate any impact?

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

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Tristan, will you deal with that?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [4]

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Sure, Clive. Orest, so look, extensively, it's the 300,000 tonne copper production per annum. At that level, we were expecting to be producing at about 75,000 tonnes per quarter. And really, the impact of COVID-19 on our business is that it's really just how long is that duration. And in the guidance, we've lost 3 weeks in April so far. We -- we're staying at the lower end of the band that it might -- hoping to start in May, but then it might impact production through to the end of June, but at the upper end, maybe until sort of mid-July. And then we would get back to the 75,000 tonne per quarter. And at that level, particularly for Q4. And at the higher band if we're able to do that in the third quarter as well, we wouldn't see any impact into next year 2021 because we'd be at that -- at the 85 million tonne per annum throughput rate.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [5]

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That's excellent. And just in terms of the restart from the COVID-19 suspension, you put out guidance, I guess, of restarting by the end of May. Is that indicative of what the government is telling you with respect to the appropriate restart time line? Or is that just sort of -- I'm just wondering if you can give us some color on the timing here.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [6]

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Sure, Orest. Look, I think it's like everywhere else. I don't think we're going to see a massive green light or anyone come down from the temple mount to say everything is open for business. What we have got in place is a very collaborative approach with the Ministry of Health and the government around the priority being the health and safety of the workforce, and that we're able to have a clean and safe site to do business. So at the moment, there's about 1,000, 1,100 people on site. And really, that on care and maintenance. The reason we talk about preservation and safe maintenance is that we are able to turn the mills. And that's important because in the Panama climate, we wouldn't want condensation and so on. So there is rock going into the mill. There is some production happening, but it's really around ensuring that -- when we're ready to start and everybody is happy that we can start. And that will be around demonstrating a clean and healthy site, which is we're confident in, in terms of where we're at as the site. And then also the surrounding impact of COVID in Panama and the overall trajectory of transmission in Panama. They'll obviously be looking at the curve nationally and making the decision nationally. We would hope that Cobre Panama is an isolated site, is a good candidate because it's segregated from the rest of the country with a reasonable ability to hold a border and then manage accommodation, manage personnel on-site to operate in the very strict protocols that the Ministry of Health has put forward.

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Operator [7]

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The next question is from Lawson Winder with Bank of America.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [8]

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Tristan, maybe if I could just start off by following up on your commentary there on preservation and maintenance. Obviously, that's different text than you guys used in the April 7 release where you called it care and maintenance. You mentioned that rock is still going into the mill. Is that rock of a high enough grade to still have some copper coming out? And what else is involved in preservation and safe maintenance as opposed to care and maintenance?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [9]

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Sure. Lawson, look, extensively, it's care and maintenance. What we -- and we wouldn't be saying that we're producing copper at the moment in terms of ships of copper leaving Cobra Panama, it's nowhere near what would be full production level. But what's important is that the mills turn, that's principally focused on the preservation of the assets. So that -- for example, those big GMDs, the gearless motor drives on the big SAG mills, on the big ball mills, we wouldn't want to see any condensation. So it's important they run for a continuous period of time, sort of 12 hours. And for that reason, we wouldn't want to be running them empty for that period of time. So that's why we're putting rock in. It's not about production, it's about keeping the assets in condition. If you went to the other extreme, which is a full care and maintenance program, you'd obviously be looking to completely empty and completely shut down. And then the problem is when you come to start, you have a much longer ramp-up curve. The reason we're able to do that is the number of people is not materially different between care and maintenance and what we call preservation and safe maintenance. It's the same workforce. So we have the people on site. We're confident that they can maintain social distance that we're able to in the risk -- the job and hazard identification for each task on the site to manage COVID-19, to manage the transmission of the virus in our safe work practices. And for that reason, it’s okay to keep putting material through, but we wouldn't talk about it in the context of production.

The other activities that are happening, we're obviously focused on the tailings stand and moving that forward. And that, again, that's more around the environmental side that we're managing that responsibly. And then the other is the power plant, Panama and the National Grid Authority is keen to have that power into the grid. And so at the moment, the power station is running at pretty much full production.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [10]

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Okay. Great. And then just another question on Cobre Panama. Your guidance that normal production levels at Cobre Panama will require from late May until -- to late June or early July to resume normal production. It was a bit of a surprise to me. I'm just curious if you could just give us some detail on why you think it would take such a long period of time to get from a restart at the end of May to normal, possibly as late as mid-July?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [11]

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Yes. Look, I think the May date is really around where we would be at breakeven. And it really depends on having a clean and safe site available. It isn't really about ramp-up, it's about demonstrating and making sure that personnel are safe. As part of that, at the moment, because we have a hard border to the mine, it takes -- we're insisting on an isolation regime that's 2 weeks in quarantine to come on to the site to make sure that we don't have further cases on the site. And you'll appreciate that moving a shift workforce on and having 2 weeks of isolation when they enter the gate to when they can actually work in the field, we just need to work through that on a sort of context of manpower and labor movement. And that's so that we can maintain safe accommodation, not be doubling up in accommodation units. And that's really the reason there. And then if we can -- obviously, if the curve in Panama performs a lot better, then we can start to accelerate that a little bit more than the sort of mid-June, mid-July.

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Lawson Winder, BofA Merrill Lynch, Research Division - VP & Research Analyst [12]

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Okay. And then maybe just one final question on Cobre Panama. You spoke about the $4 million to $6 million in care and maintenance costs, so I guess now preservation and safe maintenance costs. Assuming the suspension of labor contracts and a hard downturn of other variable and fixed costs. I'm just curious, have you been able to suspend those labor contracts? And to what degree can you affect a hard downturn in other variable costs and fixed costs?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [13]

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Yes, sure. The simple answer is yes. So we suspended 7,000-odd labor contracts last Monday. And that's progressing in order. That's according to the -- that was approved by MITRADEL, the Panamanian Ministry of Labor, the prior Friday, and that's happening in order. So that's already underway. The other turndown in cost is really -- as was mentioned, accessing cheaper fuel prices and so on. And that's really starting to come through into the business.

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Operator [14]

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The next question is from Matthew Fields with Bank of America.

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Matthew Wyatt Fields, BofA Merrill Lynch, Research Division - Director [15]

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I have two questions, one on the term loan and one on the revolver. Good to see you got the covenant relief in April. I see from Slide 14 that $450 million is still due under that term loan amortization in 2020 and 2021. Was there any discussion with the banking group for the covenant waivers, that term loan amortization relief would be a part like you might be able to defer some amortization until '21 or even later? And then I have a revolver question.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [16]

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Sure. Look, it was raised, so I did raise it. But at this stage, we do have sufficient liquidity and headroom to [dissolve] what we need for the remainder of the year and to see us through that period. So the plan is still to repay the term loan in the biannual installments of [225] every 6 months, so that's well placed. And you had a question on the revolver as well?

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Matthew Wyatt Fields, BofA Merrill Lynch, Research Division - Director [17]

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Yes. So the January refi, where you did the bond add-ons took care of the '21s the $300 million stub there. And then the $450 million excess was supposed to pay revolver down, but you ended up drawing it in full. Why the draw fully on the revolver? Is that $450 million now sort of -- is that earmarked for the term loan amort this year? Or is it something else? And then do you intend to use the $300 million accordion feature before June on that revolver? Sorry because that's a few questions.

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

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No. No. So the intent when we issued that was to pay down the revolver, which we did. But then as you quite away, the circumstances changed quite dramatically in the matter of 2.5, 3 months. And what we've seen is quite a few companies draw down on the revolver, and we did the same. And so that's what we did just before quarter end. It's just true down on the revolver and to have that available as cash. So I can do with the accordion feature, that's just an ability for us to bring in additional banks before end of June to upsize that facility to $300 million, but I think it's probably fair to stay in the current environments, unlikely to secure any fresh cash under that facility. I wouldn't count on that $300 million being available at all under the facility, the incremental bit under the accordion.

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Operator [19]

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The next question is from Jackie Przybylowski with BMO Capital Markets.

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Jackie Przybylowski, BMO Capital Markets Equity Research - Analyst [20]

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I just wanted to circle back to the guidance and maybe talk about the CapEx spending that you've deferred. Are you able to comment on what this means for 2021 CapEx spending? Can we assume most of that $175 million deferral will be pushed into 2021 and that spending in that year should go up? Or with some of that 2021 spending discretionary and maybe the overall spending is going to be similar to what the previous guidance was?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [21]

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Hannes, do you want to do that?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [22]

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I can maybe do the first one, Juliet can add on to that. But look, a lot of -- or some of the '21s as you rightly stated is discretionary as well. So I wouldn't add the $175 million to next year. I would expect next year to probably reduce from the previous levels. But Juliet, maybe you can then add a bit more?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [23]

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Yes. I mean, of that, it's right that some of that is deferring into 2021, things like particularly the fourth crusher at Sentinel. But as Hannes has said, when it comes to 2021, we're really -- we'll do a full review of that as well. And it might be some discretionary spend falls out of that as well. So I wouldn't read into it, but that it means that our 2021 guidance will go up. I don't think it will.

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Jackie Przybylowski, BMO Capital Markets Equity Research - Analyst [24]

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Great. And just shifting gears to Zambia. I noticed in the MD&A that there was a comment about how the Zambia Revenue Authority is looking to bring in some COVID mitigation measures in terms of tax relief. I know it doesn't seem like there's a lot of information on those tax measures yet. But can you maybe give us some color around when you might expect those to be implemented? And if those are temporary, what the thinking on when those would be lifted? And also if any of that tax relief has been included in the new C1 and all-in cost guidance that you've given?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [25]

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Juliet, do you want to cover that?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [26]

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Would you like me to comment on that?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [27]

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Maybe, Juliet, on the guidance side, yes?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [28]

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Yes. So in terms of where -- obviously, that's not been enacted at this stage. But our understanding and looking into it is that there would be a -- if you looked at 9 months from the 1st of April for the rest of the year, that will be a saving on C1 level of about $44 million, which is $0.03 at group level, probably about $0.06 at Kansanshi and $0.04 at Sentinel. And the post-tax impact of that would be about $31 million. We haven't embedded that into our guidance at this stage because it's not enacted, and we're awaiting further detail.

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Operator [29]

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The next question is from Karl Blunden with Goldman Sachs.

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Karl Blunden, Goldman Sachs Group Inc., Research Division - Senior Analyst [30]

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You've done a lot of good work in terms of hedging and limiting downside on the commodity side. When you think about the additional sources of liquidity, I realize you've tapped the revolver. Could you give us an explanation of what those might be, if things continue to be worse than expected in the macro? And any preferences you might have? Some of the things you've spoken about historically has been secured debt potential asset sales, maybe project level debt. Just interested in potential liability management you could do down the line?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [31]

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Sure. Look, we do have some capacity still available if we want to do prepaid on some copper streams or something like on our copper forward sales. So we do have some ability to do some of that. We've still got some gold at Kansanshi as well that if you're looking at streaming deals, that's available as an option. A secured debt is certainly an option because we don't have a lot of security at the asset level. So we can certainly introduce some -- basically capacity within the banking group to introduce more at that level. So that is an option. And then as you will be aware that we are running up processes in terms of some minority interest stakes in Zambia and Ravensthorpe that we spoke about before. And that will take some time. But yes, there is certainly quite a few levers. And that's without going to the bond market at the current moment, which is probably not that attractive.

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Karl Blunden, Goldman Sachs Group Inc., Research Division - Senior Analyst [32]

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That's helpful, Hannes. And on those levers, is it -- does it seem like it's a couple of months, a couple of quarters before you have to make a decision. Obviously, you can be opportunistic, and you've done a good job of that in the price when the markets have opened, you extended maturities. But should we expect anything near term? Or just kind of -- you see how 2020 plays out, we'll find out a little bit later down the road?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [33]

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I think in terms of liquidity, we're pretty good in terms of the liquidity. We've now got some headroom that we got with the support of our very supportive banking group. So that's given us headroom in terms of covenants. And we do have liquidity. So there's no immediate need to rush out and do something. So we can take our time and assess the opportunities as and when applicable and opportune.

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Operator [34]

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The next question is from Greg Barnes with TD Securities.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [35]

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Clive, can you give us any guidance or color on whether the discussions around those minority stake sales, particularly in Zambia, have they reopened given China seems to be getting back to business? Or is that still a very slow process?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [36]

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Tristan, do you -- would you take that one?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [37]

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Sure, Clive. Thanks, Greg, for the question. Yes. We're seeing a little bit of China reopening. And yes, I wouldn't say that things are progressing with pace, but I think the analogy given to me is things are a little bit like a donkey at the moment, if you were looking for an analogy, like animal analogies. You have to push the donkey quite hard, but eventually, it will get there. And I think that's the flavor we have on things coming out of China.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [38]

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So would you -- are you pushing the donkey or are they pushing you?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [39]

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It's the donkey through. And certainly, we've been working on it substantially over the last few months. And I think that gives you some color as to where it's at. Certainly, there seems to be some interest. But I wouldn't -- in terms of likelihood, it's not like where it was at this time last year, for example.

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

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Greg, I think it's just a practical reality of it at the moment, and that is that those programs and initiatives have been running. But of course, there are due diligence requirements and other needs to witness and going to have a look at things. And right at the moment, none of the potential people can actually visit. I mean, in fact, nobody could get into Western Australia at the moment or out. And so looking at Ravensthorpe, just has to wait. And that is probably really constraining the timing of the things. So the progress has continued, more or less at pace, but inhibited by the fact that there are things that can't really easily be done. And that is a little bit uncertain because we're not quite sure when that would change. And it will be different here for different places, of course.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [41]

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Sure. Just as well, do you have any color on COVID-19 and the spread in Zambia, for example, in Africa, in general? Is the situation there at the early stages, do you anticipate it to accelerate? And if it does, with the government in Zambia put travel restrictions, social distancing restrictions and things that would cause you to reduce production at Kansanshi or Sentinel?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [42]

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Rudi?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [43]

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Rudi, do you want to do that?

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Rudi Badenhorst, First Quantum Minerals Ltd. - Director of Operations - Zambia [44]

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Yes, thanks. What we've seen in Zambia during all of this time since early January, when we started to educate our workforce and the communities around -- it wasn't so easy but also down in Lusaka and center of Kalumbila. As for early as January, we've been involving communities and have had education programs that went up. When the first cases really started in March, the -- as -- luckily, Zambia had obviously numerous examples to follow. Right throughout the world, and especially there's sort of very strict reactions in South Africa. The Zambian President effectively restricted access to Zambia through only 1 airport, Lusaka, and has made it mandatory for people that are coming to the country going to 14-day isolation. And that has worked well. There hasn't been the same sort of draconian restrictions put in place in Zambia as in South Africa or New York or any of those places. And I think to some extent, it has had the benefit here and that Zambia has got a very, very young population. Doesn't have the same sort of percentage of old people as the European countries are concerned. And obviously, it requires a different method of dealing with it. And I think he's dealt with it quite remarkably. Naturally ourselves as a company, as are the others, have instituted an enormous amount of work in screening and making provisions for staff and the communities, so that they are exceptionally aware of what's going on. So we are now in -- going into May. It's also been -- has had a month worth of lockdown of bars and restaurants and the like, although the rest of -- free movement is allowed. And that has worked perfectly. It looks very well. Zambia has only had 3 deaths so far. It's had a number of positive cases. Sure, there's not enough testing as you would see in the other European countries. But I think that's also part of its success, to be quite honest. And I don't think that for 1 minute, that we will find ourselves in a situation in Zambia, where the government would impose closure of mining facilities. They clearly -- they have clearly provided support. They are actively encouraging the mine to continue whilst observing various hygiene practices. So I don't see a situation in Zambia where it runs away, no.

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Operator [45]

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The next question is from Oscar Cabrera with CIBC.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [46]

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I was wondering if you could provide more color on the segmentation of your CapEx reduction of $175 million with respect to like sustaining projects? Or I think you already mentioned that part of it has to do with Sentinel, but just wondering if you could provide more color on it.

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

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Juliet?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [48]

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Yes. So in terms of the major reductions, it will include the deferral of some expenditure on the fourth crusher at Sentinel. So that's an element of it, and as well as Sentinel some delay or deferment of some process improvements such as the trolley assist Phase 4 and 5. We have reduced an element of development CapEx that we had -- and I think, we previously said we had $50 million in the guidance, and we've reduced that down to $20 million as well. They're also Kansanshi some deferment of certain improvement projects such as Sulfide Gravity gold project, and some resource drilling and some deferments of mine fleet replacement and mixed and oxide Jameson project. And then at Cobre Panama, we've had some reduction rather than -- a bit of a reduction in budgeted spend in 1 or 2 areas as well. So that's broadly -- and also a reduction in this year's spend on Shoemaker-Levy at Ravensthorpe. So those would be the sort of key areas where capital expenditure has either been deferred or reduced.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [49]

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Okay. So from what I can gather in your disclosure, there was about a $50 million reduction in sustaining CapEx. About a $25 million reduction in capitalized stripping. And so the other ones that you mentioned, is that the full $175 million?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [50]

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Correct. Correct.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [51]

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And then one more thing, please. It is my understanding that there was approximately $50 million put aside for greenfield projects. Was that completely eliminated? Is that part of your $50 million that you mentioned reduced to $20 million?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [52]

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Yes. Yes. So it's gone down from the $50 million that we had. There is still $20 million that we may or may not spend. But we've left it in for the time being within the guidance.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [53]

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Okay, great. That's helpful. And then with respect to your plans for the expansion in throughput in Cobre Panama? I'm assuming that all of this has been put on hold. Can you just provide us with your thoughts on how you're viewing this expansion in the current environment?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [54]

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Tristan, do you want to answer that one?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [55]

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Yes, sure. In terms of the expenditure this year, the major elements were really on design stage. But at the moment, the main work stream is really on continued delineation drilling between Botija pit and Kalina, and in particular, around the [mediated] pit area, which was the route for the proposed conveyor belt to go through. And so that work's not enormously expensive. We have already completed a substantial portion of it. So we would like to finish that off so that we can get on with the permitting and the environmental studies and so on, which are part of the timetable. So those aren't big expenditure requirements. We think that it's good practice to continue and get those done. But yes, the major capital, which was in design, we sort of pushed that back because we think we can -- there won't be too many other projects that we're looking at in the near term, and so we'll be able to give some focus to that if we need to do that for the timetable. So at the moment, it's pushing back design with a view that we could bring that in later and accelerate it as we need to.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [56]

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Okay. And so the $25 million in deferred capital spending for stripping, was that all related to Cobre Panama?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [57]

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If it was in the first quarter? Sorry, you couldn't just clarify the question on stripping?

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [58]

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Yes. No, I guess, if you compare your guidance on CapEx at the end of last year to this quarter, there seems to be about a $25 million reduction in capitalized stripping.

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [59]

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Yes. Yes. And that's -- and in terms of previous guidance, it isn't all-in. It’s just -- it isn't -- it's -- as you know, it is largely in Panama, but it's correct, that reduction.

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Oscar M. Cabrera, CIBC Capital Markets, Research Division - Research Analyst [60]

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Okay. And then last thing, if I may. In terms of your hedging for diesel, does that fulfill your requirements for until April 2021?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [61]

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Not necessarily. I mean, hedging is a tricky exercise. And we've been pretty happy that we see the copper price moving back up above $2.30. But we will watch it carefully. As you all know, it's a very uncertain world. And it's useful for us at times to ensure a little more certainty, and it's what we -- so we focused a lot on the second quarter this year, and we were doing that early in the year. So it's not easy to hedge past 12 months, and that's what took us at the end of 2020. But then when the price came -- went down a lot, there was no question that we'd look at that, those sorts of prices for the first part of 2021, but we'll review it.

And I just comment that there was a provision made for capital expenditure at first at Cobre Panama for what might be needed to achieve eventually 100 million tonnes a year. But until the plant was running steadily ramped up, we always had a view that we didn't actually know what its limits were. And so what you'd have seen there for capital included amounts that were just provisional, what it might take either another mill or something like that. I think that in essence, those are no longer in there. And we view it actually to determine what the limit is on that plant going forward. And there are some opportunities to increase the production without any major capital expenditure. And one of them, for example, in the nature of the drill and blast. And we haven't yet had the chance to work on that to see its impact. What the benefit or one of the benefits of this period when it's a little bit slower, is that we have been able to make some -- do some work in the plant and improve a variety of elements that needed work done on. And we expect that those will manifest themselves to some advantage once we can wind it up again. I think Tristan was referring to that as the expected capacity of the operation later on in this year.

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Operator [62]

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The next question is from Matt Vittorioso with Jefferies.

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Matthew Vittorioso, Jefferies LLC, Research Division - Analyst [63]

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Maybe I'll just take a quick stab at a year-end liquidity question. You've got a little more than $1.1 billion of liquidity today. And then on the -- you've got loan amortization as a minus, but it seems like based on your current guidance, you should be generating some positive cash flow throughout the year. So I guess just from a high level, how do you see if copper were to stay in this $2.35, $2.40 range just for a conservative assumption, how would you see liquidity at year-end with those two sort of things trying to balance each other, the amortization and the positive cash flow? Would you see liquidity meaningfully different from where it is today?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [64]

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Look, we see it as sufficient. And that's when we make and making sort of going concern statements and making statements that we do make. I mean, we have reduced capital like by quite a bit. We do have the amortizations coming up. But some of the operating cost is coming down as well. So there's quite a few moving parts to that. But it's sufficient liquidity.

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Matthew Vittorioso, Jefferies LLC, Research Division - Analyst [65]

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How about just -- as maybe a different angle. I mean, do you -- under your current guidance in that spot copper where it is today, would you still anticipate in generating positive cash flow for the full year?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [66]

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Sorry, positive cash flow? We would generate a positive operational cash flow, certainly. I think the one, we go back repeatedly and look at capital expenditure and operating expenditure one-off exercise as you repeatedly go back and revisit some of these measures that we do to reduce cost.

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Operator [67]

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The next question is from Gordon Lawson with Paradigm.

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Gordon Lawson, Paradigm Capital Inc., Research Division - Senior Research Associate [68]

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Following up on the Zambian tax relief. Is there a way you can maximize your VAT receivables during this period?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [69]

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I think -- yes, the Zambia tax. I mean, as we said earlier, that's not legislated yet. Look, it's an ongoing discussion with government in terms of how do you do the historic VAT. But I think it's safe to say, Zambia's in a pretty tricky situation at the moment debt-wise and treasure-wise. So I wouldn't expect a sudden change in that VAT receivable. And hence, we have classified it on our balance sheet as well as a long-term receivable.

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Gordon Lawson, Paradigm Capital Inc., Research Division - Senior Research Associate [70]

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Okay. And can you comment on the expected cost to ramp Cobre Panama back up as it relates to CapEx versus OpEx? And is there any estimated time line to reach 100 million tonnes per year?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [71]

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Tristan?

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [72]

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Yes. Thanks, Clive. Gordon, yes, we haven't really changed the timing on $100 million. It remains the same as what was in the 43-101. We'll just have to look at that iteratively. Obviously, the focus at the moment is on getting back into production and back into the ramp-up up to the 85. In terms of cost to do that, as Philip was mentioning, we've done a lot of work in the background now in terms of making that available to us once we restart properly. So look, I don't expect anything really out of the ordinary in terms of costs, where we're continuing to make sure that we do the right level of expenditure, for example, in the TMF and that we -- because we're at that period where we need to be covering the broad base of the whole wall, the whole sand wall. And so we need to keep that work going. But that's not -- no, we have the opportunity to do that over a long period and do it steadily and regularly. So we don't see any one area where we will massively increase capital. In fact, if anything, things like sustaining costs, for example, on the mining fleet, relate to the ongoing PCR or replacement of key parts. And that's directly related to the usage hours and a period of downturn like this will change that and push out some of those PCR programs. That's not in the capital adjustments as yet to a great level of detail. Because we would wait to see where we land and how those machine hours come out. No, I don't see any major area for large CapEx to get back up to the 85.

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Operator [73]

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The next question is from Ioannis Masvoulas with Morgan Stanley.

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Ioannis Masvoulas, Morgan Stanley, Research Division - Equity Analyst [74]

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A couple are left on my side. First, on Sentinel regarding the delay of the fourth crusher, should we be thinking about full year delay relative to the technical study you published a couple of months ago? That's number one. Number two, just in terms of the depreciation of the Zambian quarter, can you give us a bit of an indication on how much of that is baked into your cash cost guidance for the year? And I'll stop there for the questions.

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [75]

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On the crusher, on our forecast on things like that, we were using a rate of around $16.50. I think the current rate is around about $18, isn't it? So there is a little bit of potential upside in there.

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [76]

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Really couldn't talk about the fourth crusher. But I'd just comment that when you have input crushing in a mine, there's a development process going all the time. And so you need to have crushers in different locations. Sentinel has -- only has 3 crushers. And in time, it needs to move another crusher into what's called Eastern cutback. And that's where the fourth crusher will go. But in the meantime, they have 3 crushers. And they can produce what they need to. And in fact, at the moment, Sentinel is running particularly well. And we have no reason to believe that it won't continue like that. And then the fourth crusher will come into play sometime in 2021. And that just provides some flexibility for them in terms of their mine plan. So there's no significant change occurring because they have a fourth crusher, other than it's just gives them a lot more insurance on capacity of the plant and some -- and flexibility in terms of where they move the crushing plants to. So that's the significance of that capital expenditure. Just the nature of what goes with crushing, and of course, we can get the benefit of that in the operating cost.

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Ioannis Masvoulas, Morgan Stanley, Research Division - Equity Analyst [77]

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That's clear. And maybe a quick follow-up, if I may. You talked about the process around the minority stake sale, either in Zambia or at Ravensthorpe. Is it fair to say that stake sale at Cobre Panama is off the table, even when operations normalize?

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [78]

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Philip, you want to talk?

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Philip Kelvin Rodda Pascall, First Quantum Minerals Ltd. - Chairman & CEO [79]

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What's really happened to Panama was that there's a 10% holding by KORES, and they had tried to set it now on 2 occasions and go through a process to do that with no success. And our discussions will be with KORES, which is government owned so the process is pretty slow. And perhaps I'll explain why it is that it has no interest to other parties, and that's because the original Korean ownership was of 20% of Cobre Panama in a separate company, and they structured it with a Canadian company. And when we purchased LS-Nikko stake, we ended up with 50% of that Canadian company that in turn owned 20%. And in the original agreements, there was a fairly simple and conventional relationship between the 20% and the 80%, the operator, that's us. But there wasn't really much in the form of any agreement for the 50-50 ownership by LS-Nikko and KORES. So KORES' stake ends up being a 50% ownership of the complete unit. The other 50% is the operator of the whole lot minus the other 80%. And that means that bidders aren't particularly interested in that because it's quite a substantial amount. So what we've been trying to do is to sort out an arrangement or a relationship that might make that process work better. As you can imagine, that doesn't happen quickly, and that's what we're working on. And we will have to do that possibly by selling 10% of ours and then eventually acquiring the KORES stake or something like that. So it's not easy to plot a course for that lot. And that's our process with Cobre Panama.

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Operator [80]

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(Operator Instructions) The next question is from Ian Rossouw with Barclays.

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Izak Jan Rossouw, Barclays Bank PLC, Research Division - Director [81]

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I just wanted to follow-up on the VAT, Zambian VAT balances question on Hannes. I see in the quarter, you were able to offset some of these VAT, I assume it's sort of VAT that came due in the quarter against other tax balances. Just wanted to get a sense. I mean, this seems to have been the first time that you have been able to do that and maybe just comment on expectation that at least forward -- going forward, you could be able to do that? And then the second question, just around the working capital side. I mean, you mentioned -- there was quite a sizable working capital inflow into the business this quarter. Just what your expectations are for the remaining quarter. Just from a sort of ramp-up perspective at Cobre Panama and just elsewhere across the business? And then just lastly on the -- what, Tristan, you were saying on the production, you don't expect any impact for next year on the business, maybe just sort of across the business, given you are reducing stripping, do you -- is the assumption that you can catch up, and therefore, that should not pose a risk to production? Or do you think that, that might actually increase the risks or reduce flexibility for next year on the production side to maintain that guidance?

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

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Ian, in terms of the VATs, yes, we have received a bit of back. Obviously, circumstances come a bit now in the recent -- more recently. We'll certainly look at offsetting it going forward where, -- when if possible. So I mean that was positive progress in last quarter or year. Yes, and then this year, we certainly made decent progress in Zambia on that front. On the working capital, look at -- we are ramping up at Ravensthorpe, so they will be small, but that we will incur here some additional ramp-up at Panama or just in terms of the working capital. Before the other items, it's sort of large swings at quarter end, which we try and eliminate in terms of finished goods and receivables. But I wouldn't expect the rates to change by much and perhaps some -- or possibly some reduction in some of the inventory over the next -- while just with the restriction and movement in places.

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Tristan Pascall, First Quantum Minerals Ltd. - MD of Cobre Panama [83]

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Okay. Yes. Ian, its Tristan, to address the question on deferred stripping so, at least speaking from the Cobre Panama side, for us, is a disseminated sulfide. We have much less of those ore and waste contacts. It's much more about the grade of the block that's in front of you and which of those grades you're selecting to take to the crusher. So if we do have some ability, and as Philip was mentioning in terms of the plant throughput to take additional blocks into the mill if we can get the volume up and above the sort of target rate. So there is some risk there, of course. If you were simply high grading or deferring pure stripping, it's slightly more nuanced than Cobre Panama because we could take that block to the mill if we have the volume and space available to take that block. So that's really what we're thinking and what the main exercise will be as we ramp-up is to be pushing the grades. It's going to the mill lower and lower, producing more and more incremental content.

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Operator [84]

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The next question is from Nick Jarmoszuk with Stifel.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [85]

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Thanks for addressing the prior question regarding JVs and debt issuance. A question on -- would you consider issue any equity or equity-linked securities if you needed the liquidity to address the debt maturities?

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

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I think the short answer is no.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [87]

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Okay. And then on the Kansanshi mining license, I have in my notes, it expires in '22. Is that still the case? And can you talk about when you start discussions in earnest with the government to extend the license?

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Rudi Badenhorst, First Quantum Minerals Ltd. - Director of Operations - Zambia [88]

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We're already -- sorry, its Rudi here. We're already in process of doing that, and it's -- we don't foresee any issues there.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [89]

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Okay. When should we expect some sort of news there? And what sort of -- can you just discuss what sort of term you're looking for?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [90]

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Sorry can you repeat that, please? I didn't hear.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [91]

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I was curious if you could discuss what sort of -- what the duration of the mining license would be that you're looking for?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [92]

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It would just be a renewal of the current license, which makes the vision for 25 years, which covers the current mine life of about 20 years, so that should be fine.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [93]

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Okay. And then are you expecting any material changes from the current one?

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [94]

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Material changes in the license itself?

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [95]

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Yes. Yes.

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Hannes Otto Meyer, First Quantum Minerals Ltd. - CFO [96]

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No, not at all.

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Operator [97]

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The next question is 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 [98]

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I'm just curious if we can get some color on when the updated Kansanshi technical report may be released?

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

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I think it's sometime into later this year, but we haven't sort of pinned a date yet. I don't think.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [100]

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Okay. And then in terms of the energy cost, I mean, obviously, diesel fuel has come down significantly. Can you maybe give us kind of a broad idea of what that might represent with respect to cost savings? I mean with energy pricing falling in half, can you maybe quantify what that might do from a C1 perspective across the portfolio?

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Juliet Wall, First Quantum Minerals Ltd. - General Manager of Finance [101]

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I think in the appendices to the slide presentation, we give some sensitivity on fuel movement. So 10% movement in oil price, including hedge impact. It seemed to have an impact of about $5 million. If you didn't have the hedge in place, it would be about $10 million. So for example, the Zambian fuel price, about 30% to 40% of it is sensitive to the fuel price, but there will be some additional cost such as transport cost and local tax and a premium per [POS]. So there are some -- an element of more fixed cost as well attributed to some of the fuel sites. But we give a sense, I think it's on Page 19 of the slide deck.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [102]

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Okay. And then just finally, just an accounting question. Can you explain the -- what the accounting treatment is at Cobre Panama with respect to the precious metals on the stream? Because it looks like you're grossing up the revenue kind of far greater than even the market value of the precious metals and then offsetting that with some kind of cost increase for refinery back credits. I've never seen this before. Can you just walk us through that?

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Simon MacLean, First Quantum Minerals Ltd. - Group Reporting Controller [103]

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It's Simon here. I'll maybe take that question. So in terms of the revenue unwind to get to the stream, we recognize the sale of the gold and silver that's in concentrate itself. But then also as part of the stream, we unwind that deferred revenue, which includes the deposit was received in the construction phase of Panama and then the ongoing amount as well. From an accounting perspective, there is a bit of a gross up really on that revenue. So you'll see gold earned on the stream, which is essentially that outlined together with the gold and is earned from the copper and concentrate. And then coming through our cost of sales is the cost of refining back credits that we purchased to satisfy that obligation. So it's net off through gross profit, really.

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Orest Wowkodaw, Scotiabank Global Banking and Markets, Research Division - Senior Equity Research Analyst of Base Metals [104]

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Okay. But your cash cost per pound reported, I think -- are they a clean number? Or are they using an inflated precious metals revenue for credit?

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Simon MacLean, First Quantum Minerals Ltd. - Group Reporting Controller [105]

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It's the net. It's the net number. So within the byproduct credit, we are seeing the byproduct collect from the gold and silver in concentrate as well as the net impact of the streaming agreement as well. So that would include the revenue and in the cost of the refinery back credit. So it's a net number. So we're not grossing up the impact within C1.

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Operator [106]

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There are no further questions at this time. I'll turn the call back to Mr. Newall for any closing remarks.

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Geoffrey Clive Newall, First Quantum Minerals Ltd. - President & Director [107]

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Thank you very much, everybody. Thank you to the First Quantum team as well for the call today. And if you have any further questions, you know where to call, call myself or Lisa, and hopefully, we can answer those for you. So I look forward to seeing you -- well, some of you again next week or hearing from some of you again next week at the AGM. Otherwise, we'll talk to you in the next -- the end of the next quarter. Thanks. Bye.

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Operator [108]

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