MANAGEMENT'S DISCUSSION AND ANALYSIS
Y E A R E N D E D D E C E M B E R 3 1 , 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 | |
FOURTH QUARTER HIGHLIGHTS | 5 |
SUSTAINABILITY | 8 |
COVID-19 | 9 |
LOGISTICS AND SHIPPING | 9 |
DEVELOPMENT PROJECTS | 9 |
EXPLORATION | 11 |
OTHER DEVELOPMENTS | 12 |
GUIDANCE | 13 |
SUMMARY OPERATIONAL RESULTS | 16 |
OPERATIONS REVIEW | 21 |
SUMMARY FINANCIAL RESULTS | 33 |
LIQUIDITY AND CAPITAL RESOURCES | 41 |
ZAMBIAN VAT | 46 |
JOINT VENTURE | 48 |
PRECIOUS METAL STREAM ARRANGEMENT | 48 |
MATERIAL LEGAL PROCEEDINGS | 50 |
REGULATORY DISCLOSURES | 53 |
SUMMARY QUARTERLY INFORMATION | 66 |
APPENDICES | 67 |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION | 71 |
First Quantum Minerals Ltd. | Q4 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. The Company has depository receipts listed on the Lusaka Stock Exchange and is in the process of terminating the facility. The termination of the depositary receipts will be effective at 5:00pm (Eastern Time) on May 2, 2022.
This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the audited consolidated financial statements of First Quantum Minerals Ltd. ("First Quantum" or "the Company") for the year ended December 31, 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") 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 was prepared as of February 15, 2022.
OVERVIEW
The Company's operations continued to demonstrate resilience in dealing with the challenges brought about by the COVID-19 pandemic and the new variants as they emerged. The Company continued to maintain strict health and sanitation protocols to minimize transmission and support the government health authorities with the focus on ensuring the health and safety of the workforce and the wider community.
Despite some additional challenges faced in the year, the Company achieved its highest ever annual copper production of 816 thousand tonnes ("kt"), attributable to record-breaking production at Cobre Panama and the resilience of the other operations. This together with higher realized metal prices has led to the Company's best financial performance to date with sales revenues rising to $7,212 million.
Cobre Panama set new quarterly records on mill throughput and copper production throughout the year and achieved record annual copper production, delivering its first full year of uninterrupted production since announcing commercial production. Despite facing COVID-19 preventative restrictions for the majority of the year, Cobre Panama's performance was strong, exceeding initial 2021 guidance.
Record annual gold production of 312k ounces was achieved by the Company during the year and exceeded guidance.
The Company experienced some cost increases over the year, in particular with fuel, foreign exchange movements and freight costs, in part due to global shipping and logistical challenges presented by widespread constraints faced by the global container freight sector over the majority of 2021. Operational improvements and cost control remain a priority.
Financial results for the year increased significantly from the prior year with the Company achieving gross profit of $2,562 million, operating cash flow of $2,885 million, EBITDA1 of $3,684 million, and a reduction in net debt1 of $1,356 million.
On the basis of continued strong operational and Environmental, Social & Governance ("ESG") performance, the Company anticipates to be in a position to continue growth programs, continue the debt reduction program, and support a cautious rise in dividend payments in 2022. With the Company on track to meet the previously announced $2 billion debt reduction target during the first half of 2022, the target for debt reduction in the short to medium term has increased by an additional $1 billion. A new dividend policy (the "Dividend Policy") was also adopted by the Company and announced on January 17, 2022. Pursuant to the Dividend Policy, the Company intends to pay, on a semi-annual basis, a performance dividend (the "Performance Dividend") that
1 EBITDA is a non-GAAP financial measure and net debt is a supplementary financial measure. These measures do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. EBITDA was previously named comparative EBITDA, the composition remains the same. See "Regulatory Disclosures".
First Quantum Minerals Ltd. | Q4 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 2
(in United States dollars, tabular amounts in millions, except where noted)
represents, in the aggregate, 15% of available cash flows generated after planned capital spending and distributions to non- controlling interests. It is expected that a minimum annual base dividend (the "Annual Base Dividend") of $0.10 Canadian dollar ("CDN") per share consisting of semi-annual dividends of CDN$0.05 per share will be part of the Performance Dividend. Dividend payments remain at the discretion of the Board.
Improvements to the existing sites are ongoing with some pivotal capital projects completed during the year. The Sentinel mine construction of the fourth in-pit crusher was completed in December 2021, with commissioning and ramp up now well underway, which is expected to enable the plant to ramp up throughput to 62 million tonnes per annum ("Mtpa"). At the Ravensthorpe nickel mine operations, the Shoemaker Levy conveyor was completed during the fourth quarter and resulted in improved material handling and beneficiation upgrade performance, in line with expectations, as limonite ore supply to the plant transitioned away from the Hale Bopp orebody.
Several brownfield projects are also under development. At Cobre Panama, an expansion ("CP100 Expansion") of the process plant facilities and related infrastructure is well underway, in order to facilitate a 100 Mtpa throughput operation. In addition, Cobre Panama has committed to invest in new facilities and accommodation upgrades to allow for more staff to be accommodated on site in improved conditions.
In Zambia, the Enterprise and S3 Expansion projects are both pending Board approval. The Enterprise project is a low-cost, high- grade nickel sulphide project that is anticipated to progress in 2022 and to produce its initial nickel concentrate by early to mid 2023. The S3 Expansion at the Kansanshi mine, once approved and completed, is expected to transition the mine from a more selective high-grademedium-scale operation to a medium-grade, much larger scale mining operation while increasing annual throughput to 53 Mtpa.
In January 2022, the Company filed an updated NI 43-101 Technical Report for the Las Cruces Underground project, which upgrades the previous Polymetallic Primary Sulfide ("PPS") Inferred Mineral Resources to 41.2 million tonnes of PPS Measured and Indicated Mineral Resources, and includes approximately 18.3 tonnes of Measured Mineral Resources and approximately
17.9 tonnes of Indicated Mineral Resources, as well as 5.02 million tonnes of Indicated Mineral Resources tabled as stockpiles. No Mineral Reserves are included in the Mineral Resource estimate for the Las Cruces Underground project. There is an additional 7.1 million tonnes of Inferred Mineral Resources. The Company continues to examine the Las Cruces Underground project and is expected to consider Board approval for the project by early 2023.
On November 15, 2021, the Board of Directors announced that Tristan Pascall, currently the Company's Chief Operating Officer, will be appointed to the role of Chief Executive Officer ("CEO"). The appointment will take effect at the Annual General Meeting ("AGM") to be held on May 5, 2022, at which time Philip Pascall, the Company's current Chairman and CEO, will retire from the CEO role and will continue to serve as Chairman of the Board. The Company will nominate Tristan Pascall for election as a director at the AGM. Tristan has served as First Quantum's Chief Operating Officer since January 2021 and oversaw the ramp-up of the Company's largest mine, Cobre Panama. Prior to this, Tristan served as Director of Strategy in 2020. From 2015-2020, Tristan was a member of the team that managed the construction of Cobre Panama. Previously, Tristan spent six years in Zambia as part of the group that developed, constructed and operated the Sentinel project. Prior to joining First Quantum, Tristan spent eight years in corporate finance and investment banking with a focus on resources and heavy industry.
FULL YEAR HIGHLIGHTS
Operational and Financial
Record copper production of 816kt was achieved during the year, backed by solid operational performance at Cobre Panama and the resilience of the other operations, leading to strong operational results in the fourth quarter and full year 2021. Robust financial performance during the year was driven by an increase in revenue, with higher metal prices, together with strong operational performance resulting in a significant increase in net earnings and EBITDA1, as well as a notable further reduction in net debt 1.
Total copper production for the year was 816kt, a 5% increase from the prior year.
1 EBITDA is a non-GAAP financial measure and net debt is a supplementary financial measure. These measures do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. See "Regulatory Disclosures".
First Quantum Minerals Ltd. | Q4 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 3
(in United States dollars, tabular amounts in millions, except where noted)
Cobre Panama achieved record copper production of 331kt for the full year, 125kt more than 2020. Despite facing COVID- 19 preventative restrictions for approximately three quarters of the year, Cobre Panama's sustained performance exceeded initial 2021 guidance announced in January 2021 and delivered its first full year of uninterrupted production since announcing commercial production on September 1, 2019.
Kansanshi achieved copper production of 202kt for the full year, 19kt lower than 2020, reflecting the depleting oxide ore in the maturing mine.
Sentinel achieved copper production of 233kt for the full year, 18kt lower than the prior year. Performance in 2021 was impacted by a lower grade profile during the year and a ball mill trunnion failure in the first quarter; however, record quarterly throughput was achieved in the fourth quarter of 2021. Construction of the fourth in-pit crusher at Sentinel was completed in December 2021, which is expected to enable the plant to ramp up throughput to 62 Mtpa.
Other sites achieved consolidated copper production of 50kt for the full year, a 51kt reduction from 2020, resulting from the cessation of open-pit mining at Las Cruces and Guelb Moghrein in late 2020 and early 2021, respectively. Las Cruces is now reprocessing high-grade tailings and Guelb Moghrein is processing stockpiled ore until the cutback to provide access to new ore is completed in 2023.
Ravensthorpe: The Shoemaker Levy conveyor was completed during the fourth quarter, which resulted in improved material handling and beneficiation upgrade performance, in line with expectations, as limonite ore supply to the plant transitioned away from the Hale Bopp orebody.
Total gold production for the year was 312k ounces, an 18% increase from the prior year, mainly attributable to record gold production at Cobre Panama of 142k ounces.
Total copper sales volumes, of 822kt were impacted, in particular for product from Zambian sites, by freight and logistical challenges in the year including port availability in Southern Africa and the global constraints that the container shipping sector experienced over the majority of 2021. Although the bulk shipping sector was less affected by the global supply chain and freight related constraints, vessel freight costs were higher than in recent years. Concentrates from Cobre Panama and Çayeli are shipped in bulk.
Gross profit of $2,562 million and EBITDA1 of $3,684 million for the full year 2021 were significantly higher (138% and 71%, respectively) than the prior year, attributable to increased sales volumes at Cobre Panama, as well as a 33% increase in the realized copper price2. The realized copper price of $3.64 per lb achieved during the year also reflected the Company's reduced hedge profile.
Financial results for the year includes net earnings attributable to shareholders of the Company of $832 million ($1.21 basic earnings per share) and adjusted earnings1 of $826 million ($1.20 adjusted earnings per share2), which represents a significant improvement from the prior year's net loss attributable to shareholders of the Company of $180 million ($0.26 net loss per share) and adjusted loss1 of $46 million ($0.07 adjusted loss per share2). Net earnings in 2021 includes foreign exchange gains of $159 million, largely unrealized, primarily due to the appreciation of the Zambian Kwacha ("ZMW") against the U.S. dollar ("USD") during the third quarter of 2021. Net earnings also includes a total impairment charge of $44 million against the Sese Integrated Power project, exploration projects and Zambian housing assets.
Cash flows from operating activities of $2,885 million ($4.19 per share2) for the year 2021 were $1,272 million or 79% higher than the prior year. On the basis of continued operational strength, the Company anticipates continued strong future cash flows and expects to continue the debt reduction program, advance brownfield growth projects, and cautiously raise dividend payments in 2022.
Copper C1 cash cost2 of $1.30 per lb for 2021 was $0.09 per lb higher than the prior year, impacted by higher fuel costs and freight charges, together with lower production at both Zambian operations and cessation of open-pit mining at Las Cruces in August 2020. Copper AISC2 of $1.88 per lb was also impacted by higher Zambia royalties due to higher copper prices.
Debt reduction: Net debt1 decreased by $1,356 million during the year, bringing the net debt1 level down to $6,053 million as at December 31, 2021. At December 31, 2021, total debt was $7,912 million. With the current strength in the copper price,
- EBITDA and adjusted earnings (loss) are non-GAAP financial measures and net debt is a supplementary financial measure. These measures do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. See "Regulatory Disclosures".
- Realized metal prices, copper all-in sustaining cost (copper AISC), copper C1 cash cost (copper C1), adjusted earnings (loss) per share, and cash flows from operating activities per share are non-GAAP ratios, and do not have a standardized meaning prescribed by IFRS and might not be comparable to similar financial measures disclosed by other issuers. Adjusted earnings (loss) and EBITDA were previously named comparative earnings (loss) and comparative EBITDA, respectively, and the composition remains the same. See "Regulatory Disclosures".
First Quantum Minerals Ltd. | Q4 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS 4
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First Quantum Minerals Ltd. published this content on 15 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 February 2022 21:35:20 UTC.