MANAGEMENT'S DISCUSSION AND ANALYSIS
S E C O N D Q U A R T E R E N D E D J U N E 3 0 , 2 0 2 1
(In United States dollars, tabular amounts in millions, except where noted)
(in United States dollars, tabular amounts in millions, except where noted)
INDEX
SUSTAINABILITY | 5 |
COVID-19 | 5 |
DEVELOPMENT PROJECT | 6 |
OTHER DEVELOPMENTS | 6 |
EXPLORATION | 7 |
GUIDANCE | 7 |
SUMMARY OPERATIONAL RESULTS | 10 |
OPERATIONS REVIEW | 14 |
SUMMARY FINANCIAL RESULTS | 24 |
LIQUIDITY AND CAPITAL RESOURCES | 31 |
ZAMBIAN VAT | 35 |
JOINT VENTURE | 37 |
PRECIOUS METAL STREAM ARRANGEMENT | 37 |
MATERIAL LEGAL PROCEEDINGS | 38 |
REGULATORY DISCLOSURES | 41 |
SUMMARY QUARTERLY INFORMATION | 50 |
APPENDIX | 51 |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION | 55 |
First Quantum Minerals Ltd. | Q2 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 1
(in United States dollars, tabular amounts in millions, except where noted)
First Quantum Minerals Ltd. ("First Quantum" or "the Company") is engaged in the production of copper, nickel, gold and silver, and related activities including exploration and development. The Company has operating mines located in Zambia, Panama, Finland, Turkey, Spain, Australia and Mauritania, and a development project in Zambia. The Company is progressing the Taca Taca copper-gold-molybdenum project in Argentina and is exploring the Haquira copper deposit in Peru.
The Company's shares are publicly listed for trading on the Toronto Stock Exchange and the Company has depository receipts listed on the Lusaka Stock Exchange.
This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated financial statements of First Quantum Minerals Ltd. ("First Quantum" or "the Company") for the three and six months ended June 30, 2021. The Company's results have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to interim reporting, IAS 34 Interim Financial Reporting, and are presented in United States dollars, tabular amounts in millions, except where noted.
For further information on First Quantum, reference should be made to its public filings (including its most recently filed Annual Information Form) which are available on SEDAR at www.sedar.com. Information is also available on the Company's website at www.first-quantum.com.This MD&A contains forward-looking information that is subject to risk factors, see "Cautionary statement on forward-lookinginformation" for further discussion. Information on risks associated with investing in the Company's securities and technical and scientific information under National Instrument 43-101 - Standards for Disclosure for Mineral Projects ("NI 43-101") concerning the Company's material properties, including information about mineral resources and mineral reserves, are contained in its most recently filed Annual Information Form. This MD&A has been prepared as of July 27, 2021.
SECOND QUARTER HIGHLIGHTS AND OVERVIEW
Another quarter of strong copper production at Cobre Panama drove strong operational performance in the quarter and first half of the year. Financial performance in the quarter was driven by strong sales,with increased metal prices, resulting in a significant increase in comparative EBITDA 4,5 and net earnings, as well as further notable reduction in net debt 3.
Total copper production for the quarter was 199,689 tonnes, 18% higher than the same period in 2020, with the increase attributable to near record quarterly production at Cobre Panama.
Cobre Panama delivered another strong quarterly result with a near record 81,686 tonnes of copper produced, and achieved further quarterly milestones such as records in crushed tonnes, milled tonnes, mill availability and contained copper in concentrate shipped. Production was 276% higher than the same period in 2020, which was impacted by a COVID-19 related reduction in production.
Kansanshi had another consistent quarter, with copper production of 50,340 tonnes. Performance was impacted by lower oxide ore grades and lower oxide copper recoveries. The Kansanshi smelter processed 240,895 dry metric tonnes ("DMT") of copper concentrate, produced 58,458 tonnes of copper anode and 229,000 tonnes of sulphuric acid with higher than normal recoveries of 99%, in advance of planned maintenance throughout June.
As previously guided, Sentinel experienced lower grades during the quarter, and delivered 54,308 tonnes of copper. Grades are expected to improve during the third quarter as higher-grade ore is exposed. For the third consecutive quarter, sales volumes at Sentinel exceeded production and were 11% higher than the same period in 2020.
The fourth in-pit crusher at Sentinel has been installed in position, and remaining works will be completed to enable the plant to ramp up throughput to 62 million tonnes per annum ("Mtpa") in 2022.
Total gold production for the quarter was 81,375 ounces, a 49% increase from the same period in 2020, attributable to record production at Cobre Panama of 36,290 ounces and consistent delivery from Kansanshi of 32,942 ounces.
Gross profit of $625 million and comparative EBITDA of $902 million for the second quarter of 2021 were significantly higher (343% and 156%, respectively) than the same period in 2020, attributable to increased sales volumes at Cobre Panama, as well as a 37% increase in the realized copper price. C1 cash cost of $1.29 per lb was $0.09/lb higher than the second quarter of 2020, impacted by lower production at both Zambian operations and cessation of open-pit mining at Las Cruces in August 2020. The realized copper price of $3.55/lb achieved during the quarter reflected the hedge profile in place.
Financial results include net earnings attributable to shareholders of the Company of $140 million ($0.20 earnings per share) and comparative earnings of $173 million ($0.25 comparative earnings per share) and represents a significant improvement on the same quarter of 2020.
First Quantum Minerals Ltd. | Q2 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 2
(in United States dollars, tabular amounts in millions, except where noted)
Cash flows from operating activities of $679 million ($0.99 per share) for the second quarter of 2021 were $524 million higher than the same period in 2020.
Net debt decreased during the six-month period by $658 million to $6,751 million as at June 30, 2021, including a $311 million reduction in the second quarter. With the current strength in the copper price, a significant further reduction is expected in the second half of this year. On the basis of ongoing strong operational performance, the Company anticipates continued strong future cash flow and expects to be in a position to support increased dividend payments by the end of next year.
At June 30, 2021, the Company had 44,125 tonnes of unmargined copper forward sales contracts at an average price of $2.96 per lb outstanding with periods of maturity to December 2021. In addition, the Company had 152,125 tonnes of unmargined zero cost copper collar sales contracts with maturities to March 2022 at weighted average prices of $3.21 per lb to $3.92 per lb outstanding. Copper sales in the quarter were 52% hedged. Approximately one quarter of expected copper sales for the next 12 months are hedged to unmargined forward and zero cost collar sales contracts, at an average floor price and average ceiling price of $3.16 per lb and $3.70 per lb, respectively.
The Company also had unmargined nickel forward sales contracts for 1,110 tonnes at an average price of $7.74 per lb outstanding, with maturities to December 2021. In addition, the Company has zero cost nickel collar unmargined sales contracts for 1,299 tonnes at weighted average prices of $7.68 per lb to $8.58 per lb outstanding with maturities to May 2022.
Construction of Shoemaker Levy progressed during the second quarter and is now predominantly complete. Mine pre-strip is advanced with the first mining area cleared and ready for first ore delivery which is expected to be delivered to existing plant in the third quarter of 2021. The resulting improved ore characteristics are expected to assist with the process plant performance.
In May 2021, the Company announced that it has entered into a binding agreement to sell a 30% equity interest in Ravensthorpe for cash consideration of $240 million to POSCO, one of the world's leading integrated producer of materials for the electric vehicle ("EV") sector. The Company will retain a 70% interest in Ravensthorpe and continue to be the operator. The transaction is expected to complete in the third quarter of 2021.
On July 27, 2021, the Company declared an interim dividend of CDN$0.005 per share, in respect of the financial year ended December 31, 2021 (July 28, 2020: CDN$0.005 per share), to be paid on September 21, 2021 to shareholders of record on August 30, 2021.
CONSOLIDATED OPERATING HIGHLIGHTS
Three months ended | Six months ended | ||||
June 30 | June 30 | ||||
2021 | 2020 | 2021 | 2020 | ||
Copper production (tonnes) 1 | 199,689 | 169,059 | 404,753 | 364,344 | |
Copper sales (tonnes) | 203,790 | 159,944 | 414,524 | 349,897 | |
Gold production (ounces) | 81,375 | 54,651 | 159,423 | 123,439 | |
Gold sales (ounces) 2 | 85,291 | 54,591 | 162,682 | 128,373 | |
Nickel production (contained tonnes) | 4,543 | 1,979 | 9,185 | 1,979 | |
Nickel sales (contained tonnes) | 6,910 | 1,791 | 9,267 | 1,791 | |
- Production is presented on a contained basis, and is presented prior to processing through the Kansanshi smelter.
- Excludes refinery-backed gold credits purchased and delivered under the precious metal streaming arrangement (see "Precious Metal Stream Arrangement").
First Quantum Minerals Ltd. | Q2 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 3
(in United States dollars, tabular amounts in millions, except where noted)
CONSOLIDATED FINANCIAL HIGHLIGHTS
Three months ended | Six months ended | ||||
June 30 | June 30 | ||||
2021 | 2020 | 2021 | 2020 | ||
Sales revenues | 1,847 | 1,014 | 3,525 | 2,196 | |
Gross profit | 625 | 141 | 1,165 | 288 | |
Net earnings (loss) attributable to shareholders | 140 | (156) | 282 | (218) | |
of the Company | |||||
Basic and diluted earnings (loss) per share | $0.20 | ($0.23) | $0.41 | ($0.32) | |
Cash flows from operating activities | 679 | 155 | 1,422 | 628 | |
Net debt3 | 6,751 | 7,658 | 6,751 | 7,658 | |
Comparative EBITDA4, 5 | 902 | 352 | 1,713 | 786 | |
Comparative earnings (loss) 4 | 173 | (84) | 323 | (163) | |
Comparative earnings (loss) per share 4 | $0.25 | ($0.12) | $0.47 | ($0.24) | |
Cash cost of copper production (C1) (per lb) 3 | $1.29 | $1.20 | $1.26 | $1.25 | |
Total cost of copper production (C3) (per lb) 3 | $2.21 | $2.08 | $2.15 | $2.14 | |
All-in sustaining cost (AISC) (per lb) 3 | $1.91 | $1.62 | $1.81 | $1.63 | |
Realized copper price (per lb) 3 | $3.55 | $2.60 | $3.39 | $2.58 | |
Net earnings (loss) attributable to shareholders of | 140 | (156) | 282 | (218) | |
the Company | |||||
Adjustments attributable to shareholders of the Company: | |||||
Adjustment for expected phasing of Zambian value-added | 22 | (22) | 14 | (59) | |
tax ("VAT") receipts | |||||
Loss on debt instruments | - | - | - | 2 | |
Total adjustments to comparative EBITDA excluding | 28 | 18 | 40 | 137 | |
depreciation 5 | |||||
Reversal of tax effect of unrealized hedge position | - | 67 | - | - | |
recognized in other comprehensive income | |||||
Tax and minority interest comparative adjustments | 9 | (25) | |||
(17) | (13) | ||||
Comparative earnings (loss) | 173 | (84) | 323 | (163) | |
- These figures are non-GAAP financial measures and not recognized under IFRS. These measures are disclosed as they reflect those used by the Company's management in reviewing operational performance. The definition and reconciliation of these non-GAAP financial measures is included within "Regulatory Disclosures".
- Comparative earnings (loss) have been adjusted to exclude items from the corresponding IFRS measure, net earnings (loss) attributable to shareholders of the Company, which are not considered by management to be reflective of underlying performance. Comparative earnings (loss), comparative earnings (loss) per share, comparative EBITDA and cash flows per share are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. The Company has disclosed these measures to assist with the understanding of results and to provide further financial information about the results to investors. See "Regulatory Disclosures" for a reconciliation of comparative EBITDA and comparative earnings (loss) to the IFRS measures. The use of comparative earnings (loss) and comparative EBITDA represents the Company's adjusted earnings (loss) metrics.
- Adjustments to comparative EBITDA in the second quarter of 2021 relate principally to foreign exchange revaluations (foreign exchange revaluations in the second quarter of 2020).
First Quantum Minerals Ltd. | Q2 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 4
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First Quantum Minerals Ltd. published this content on 27 July 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 July 2021 20:29:04 UTC.