First Quantum Minerals Reports Operational and Financial Results for the Three Months and Twelve Months Ended December 31, 2007
Posted on: Thursday, 21 February 2008, 18:00 CST
First Quantum Minerals Ltd. (TSX: FM)(LSE: FQM) -
(All figures expressed in US dollars)
First Quantum Minerals Ltd. ("First Quantum" or the "Company") is pleased to announce its results for the three months and twelve months ended December 31, 2007. The complete financial statements and management discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.
Key features for the quarter
- Net earnings of $135.3 million or $2.00 per share on record sales (after year end negative provisional pricing adjustment of $34.7 million (before tax and minorities) or approximately $0.34 in earnings per share)
- Record operating cash flow before working capital of $220.8 million or $3.26 per share
- Record copper production of 72,746 tonnes increases 56% compared to Q4 2006
- Kansanshi produces at an annualized rate of over 200,000 tonnes
- Record copper sales of 73,322 tonnes increases 77% compared to Q4 2006
- Cash operating costs (C1) 14% lower than Q4 2006
- Commercial production begins at Frontier on November 2, with 8,712 tonnes produced
- The Company announces the acquisition of 17.27% of the shares of Equinox Minerals Limited
Key features for the year
- Net earnings of $520.3 million or $7.72 per share, up 30% on last year
- Record operating cash flow before working capital of $771.8 million or $11.45 per share
- Record copper production of over 226,000 tonnes following expansions at Kansanshi, full year of operations at Guelb Moghrein and start-up at Frontier
- Record copper sales increases 30% to over 223,900 tonnes compared to 2006
- Net sales increase 41% compared to 2006
Near term outlook
- Copper production for 2008 estimated to grow by 37% to approximately 310,000 tonnes
- Smelter and power capacity in Zambia likely to remain issues during 2008
- Q1 2008 results dependant on extent of power and wet season disruptions
- Resolution of current uncertainties being sought with the governments of DRC and Zambia
Longer term outlook
- Kansanshi expansion project and gold plant construction will drive further improvements in production
- Guelb Moghrein gold plant modifications underway will improve gold recoveries
- Kolwezi project approved and under construction
- Copper production profile over the five years 2009-2013 is expected to average 222,000 tonnes at Kansanshi, 43,000 tonnes at Guelb Moghrein and 81,000 tonnes at Frontier as a result of planned expansions
Key Group results ------------------------------------------------- Fourth quarter (Q4) Q4 2007 Q4 2006 Q4 2005 (Restated) (Restated) ------------------------------------------------- % of % of % of sales sales sales -------------------------------------------------------------------------- Production t Cu 72,746 99 46,531 112 42,220 105 Sales t Cu 73,322 100 41,454 100 40,203 100 -------------------------------------------------------------------------- Net sales USDM 443.3 100 216.4 100 176.9 100 Operating profit USDM 249.0 56 111.8 52 115.9 66 Net profit USDM 135.3 31 60.9 28 56.7 32 -------------------------------------------------------------------------- Basic EPS USD $ 2.00 $ 0.93 $ 0.92 -------------------------------------------------------------------------- ------------------------------------------------- Full year (FY) FY 2007 FY 2006 FY 2005 (Restated) (Restated) ------------------------------------------------- % of % of % of sales sales sales -------------------------------------------------------------------------- Production t Cu 226,693 101 183,277 106 119,117 100 Sales t Cu 223,907 100 172,485 100 118,602 100 -------------------------------------------------------------------------- Net sales USDM 1,539.2 100 1,094.5 100 444.6 100 Operating profit USDM 913.7 59 749.8 69 258.4 58 Net profit USDM 520.3 34 399.4 36 154.5 35 -------------------------------------------------------------------------- Basic EPS USD $ 7.72 $ 6.14 $ 2.51 --------------------------------------------------------------------------
Unless otherwise indicated, all comparisons of performance throughout this report are to the comparative period for the prior year.
Q4 2007 net sales ------------------------- Q4 2007 Q4 2006 Q4 2005 ------------------------- (After TC/RC charges) USD M USD M USD M -------------------------------------------------------------------------- Kansanshi - copper 305.2 131.0 119.5 - gold 10.2 2.8 2.7 Bwana/Lonshi - copper 37.1 75.4 54.7 - acid 0.1 - - Guelb Moghrein - copper 55.3 5.6 - - gold 19.3 1.6 - Frontier - copper 16.1 - - -------------------------------------------------------------------------- Net sales 443.3 216.4 176.9 -------------------------------------------------------------------------- Copper provisional pricing adjustment included above (34.7) (31.7) 6.0 -------------------------------------------------------------------------- Copper selling price USD/lb USD/lb USD/lb Current period sales 2.97 2.89 2.02 Prior period provisional pricing adjustment (0.21) (0.35) 0.07 TC/RC and freight parity charges (0.20) (0.22) (0.12) -------------------------------------------------------------------------- Realized copper price 2.56 2.32 1.97 --------------------------------------------------------------------------
Group net sales increase 105% to $443.3 million due to record copper production and higher copper price
Net sales increased due to an increase in the tonnes of copper sold (up 77% to 73,322 tonnes of copper) and an increase in the realized copper price recognized during the quarter. Group copper production achieved record levels, surpassing the prior quarter's record, and was 56% higher than the comparative quarter in 2006.
The higher realized copper price and the decrease in the tolling and refining charge (TC RC) rates also contributed to the record net sales. In addition, the decrease in the LME copper price from the prior quarter end was less than the decrease in the comparative quarter in 2006, which resulted in a lower negative provisional pricing adjustment per pound.
Kansanshi net sales increase 136% to $315.4 million on the back of record copper production
Net sales, compared to the same quarter in 2006, increased as a result of a 90% increase in the tonnes of copper sold and an increase in the realized copper price. Kansanshi, again, reached record production levels this quarter with copper output of 51,012 tonnes. Copper production increased 76% compared to the same quarter in 2006 due, primarily, to an increase of 42% in oxide and 51% in sulphide ore processed as a result of the throughput expansions at Kansanshi. In addition, Kansanshi processed higher grade ore at improved recovery rates. With the high pressure leach system becoming operational during the previous quarter, the sulphide circuit contributed approximately 1,950 tonnes to cathode production. Total sales volume was higher than production at 51,966 tonnes primarily due to a drawdown in copper in concentrate stockpiles.
Net revenue was positively impacted by decreased TC RC and freight parity charges as the TC RC terms for the majority of Kansanshi's concentrate off-take agreements are based on annual benchmark terms, which for 2007 were lower than 2006 and included the removal of price participation as a component of refining cost.
Bwana/Lonshi net sales decrease 51% to $37.2 million as Lonshi mine nears end of life
Similar to the previous quarters of 2007, net sales fell compared to the same quarter in 2006 as a result of the low availability of high grade ore from the Lonshi pit and the exhaustion of run-of-mine grade ore in stockpiles at the Bwana treatment plant. In addition to the effects of the mining delays during the first half of the year, the provincial government disallowed shipments of ore from the Lonshi mine to cross the border into Zambia effective November 28, 2007 until all issues raised by the government were addressed. As of the date of this report the border remains closed. In all, copper production in the quarter was down 53% compared to the same quarter in 2006.
Guelb Moghrein net sales of $74.6 million as stockpiles reduced
Since achieving commercial production in the comparative quarter in 2006, copper sales revenue increased 888% as sales restrictions were resolved and production achieved full capacity compared to the same period in 2006. Compared with the previous quarter, net sales revenue decreased 15%, although there was a 21% increase in the tonnes of copper in concentrate shipped, as the realized copper price declined period on period. The increased concentrate shipments were the result of a reduction in the copper in concentrate stockpile of 5,616 tonnes since the previous quarter end. Production decreased 12% to 7,158 tonnes of copper in concentrate from the previous quarter due to an 8% decrease in the tonnes of ore processed and the processing of lower grade ore. The reduction in ore throughput was primarily due to the planned maintenance shutdown of the plant during the fourth quarter. Despite the decrease in net sales, gold sales revenue increased by 37% over the previous quarter as the volume sold increased due to the increased concentrate shipments and, also, due to higher gold prices.
Frontier net sales of $16.1 million as commercial production achieved
Since the achievement of commercial production during the fourth quarter, Frontier produced 8,712 tonnes of copper in concentrate. Partly as a result of a temporary border closure which prevented the shipment of concentrates, Frontier shipped and sold only 2,684 tonnes of copper in concentrate before year end. The balance of production was stockpiled at year end.
Provisional pricing adjustment negative following decrease in copper price during final settlement periods
Total net sales were reduced by $34.7 million or $0.21/lb as a result of negative provisional pricing adjustments. These adjustments reflect the quarter's final settlement prices for prior period copper sales at an average of $3.28/lb compared to the September 30, 2007 provisional forward average LME price of $3.68/lb.
As at December 31, 2007, there were 54,558 tonnes of contained copper that were provisionally priced at an average LME copper price of $3.04/lb. This revenue will be subject to future adjustments as a result of movements in the copper price. Of this amount, 27,496 tonnes had the final price determined in January 2008 at $3.21/lb resulting in a favourable provisional pricing adjustment of $9.8 million, 24,722 tonnes will be determined in February 2008, and 2,340 tonnes in March 2008.
Q4 2007 operating profit ------------------------------------------------- Q4 2007 Q4 2006 Q4 2005 (Restated) (Restated) ------------------------------------------------- % of % of % of USD M sales USD M sales USD M sales -------------------------------------------------------------------------- Kansanshi 194.7 44 80.9 38 97.9 55 Bwana/Lonshi 0.0 0 28.6 13 18.0 10 Guelb Moghrein 44.4 10 2.3 1 - - Frontier 9.9 2 - - - - -------------------------------------------------------------------------- Total operating profit 249.0 56 111.8 52 115.9 65 -------------------------------------------------------------------------- Unit costs USD/lb % of USD/lb % of USD/lb % of sales sales sales (1) (1) (1) Cash costs (C1) $ 0.98 38 $ 1.14 49 $ 0.71 36 Total costs (C3) $ 1.19 47 $ 1.38 60 $ 0.88 45 -------------------------------------------------------------------------- (1) Calculated as the % of current period selling price
Group operating profit increases 123% to $249.0 million on the back of significant sales increases
Group operating profit rose materially as a result of higher sales and lower cash costs than in the same quarter of last year. The profit margin benefited from the increased realized copper price and a reduction in the average cash unit cost of production (C1) to $0.98/lb, down 14%. Profit margin per pound of copper sold averaged $1.54/lb, which was 26% higher than the comparative quarter (2006: $1.22/lb). Cash unit costs benefited from the increase in the gold credit related to the increased concentrate shipments at Kansanshi and Guelb Moghrein and the lower contract TC RC rates compared to the same quarter in 2006.
Kansanshi operating profit increases 141% to $194.7 million on higher sales and reduced costs
Kansanshi's average cash unit cost of production (C1) decreased by 22% to $0.85/lb and the average total unit cost of production (C3) decreased by 32% to $0.86/lb compared to the same quarter in 2006. The decrease in the average cash unit cost was due to multiple factors; including the increase in production output, the lower TC RC rates (56% lower) and the increase in gold sales (100% higher). With copper production increasing 76%, of which copper in concentrate production increased 108%, processing costs decreased 15% per pound of copper compared to the same quarter in 2006. Improved efficiencies, along with the increased ore throughput and the processing of higher grade sulphides resulted in lower costs per pound of copper produced.
Bwana/Lonshi breaks even as lack of high grade ore impacts results
Bwana copper production continued to be significantly affected by the lack of available high grade ore for processing due to the mining delays related to the previous heavy rainy season, increases in oil based consumables, electricity and wage costs and the closure of ore exports through the DRC border. This resulted in an increase of the average cash unit cost of production (C1) by 142% to $2.45/lb and the average total unit cost of production (C3) by 123% to $2.81/lb as compared to the same quarter in 2006.
Guelb Moghrein operating profit increases to $44.4 million
Guelb Moghrein enjoyed a significant increase in operating profit compared to the same quarter in 2006, which was the mine's first operating period. Compared to Q3 2007, Guelb Moghrein's average cash unit cost of production (C1) increased by 42% to $0.37/lb and the average total unit cost of production (C3) increased by 38% to $1.05/lb. Overall, increased maintenance costs on the mining equipment and processing facilities negatively impacted mining and processing costs as the dry and dusty conditions of the site began to impact the equipment. This, combined with the processing of lower ore grades, resulted in a decrease in copper output, thus increasing mining costs by 66% and processing and administration costs by 59%. These increases were partly offset by an increase in the gold credit of 62% compared to the previous quarter, flowing from the increased concentrate shipments.
Frontier achieves operating profit of $9.9 million in first few months of operations
Since achieving commercial production, the average unit cost of production (C1) was $1.29/lb and the average total unit cost of production (C3) was $1.59/lb as the operation continues improving production processes to achieve optimal output.
Q4 2007 net profit ------------------------------------------------- Q4 2007 Q4 2006 Q4 2005 (Restated) (Restated) ------------------------------------------------- % of % of % of USD M sales USD M sales USD M sales -------------------------------------------------------------------------- Operating profit 249.0 56 111.8 52 115.9 66 Corporate costs (10.9) (2) (8.1) (4) (4.3) (3) Derivative gains/(losses) (5.0) (1) 1.0 - (12.7) (7) Gain on sale of investment - - 0.2 - - - Exploration (10.1) (2) (6.7) (3) (3.8) (2) Interest (net) (5.4) (2) (10.7) (5) (8.8) (5) Tax expense (46.8) (10) (15.4) (7) (19.7) (11) Minority interests (35.5) (8) (11.2) (5) (9.9) (6) -------------------------------------------------------------------------- Net profit 135.3 31 60.9 28 56.7 32 -------------------------------------------------------------------------- Earnings per share - basic $ 2.00 $ 0.93 $ 0.92 - diluted $ 1.97 $ 0.91 $ 0.89 Weighted average shares outstanding - basic 67.7 67.3 61.6 - diluted 68.6 68.7 63.4 --------------------------------------------------------------------------
Group net profit increases 122% to $135.3 million on increased operating profit
This increase in net profit was the result of increased copper prices, record production at Kansanshi and the increased profitability of Guelb Moghrein. This was partially offset by correspondingly higher income tax charges and higher minority interest share of profit compared to the same quarter in 2006.
Derivative losses increase to $5.0 million on increasing gold price
The loss on derivatives was primarily due to the effect on outstanding gold contracts of higher gold prices this quarter than in the corresponding period last year.
Exploration costs increase 51% to $10.1 million due to increased exploration activities in Zambia
The Company increased its exploration activities in Zambia during the fourth quarter of 2007. Part of the increase was targeted at finding new oxide ore bodies to provide suitable feed to the Bwana processing facility.
Interest expense, net of interest income, decreases 49% to $5.4 million despite higher outstanding debt
The Company's net interest costs were lower than the same quarter in 2006 due to the comparative quarter's recognition of $8.7 million in deferred finance fees related to the repayment of outstanding debt facilities in that period.
Q4 2007 cash flows ----------------------------------- Q4 2007 Q4 2006 Q4 2005 (Restated) (Restated) ----------------------------------- USD M USD M USD M -------------------------------------------------------------------------- Cash flows from operating activities - before working capital 220.8 70.6 100.1 - after working capital 224.1 129.3 109.2 Cash flows from financing activities 50.6 53.1 15.1 Cash flows from investing activities (297.3) (122.8) (104.7) -------------------------------------------------------------------------- Net cash flows (22.6) 59.6 19.6 -------------------------------------------------------------------------- Cash flows per share - before working capital $ 3.26 $ 1.05 $ 1.62 - after working capital $ 3.29 $ 1.92 $ 1.77 --------------------------------------------------------------------------
Cash inflows from operating activities increases 73% to $224.1 million on significant increase in net profit
Operating cash flows before working capital movements continued to benefit from the Company's operating results with an increase of 213% over the same quarter in 2006. Non-cash related expenses that were included in the operating results including depreciation, minority interests and future tax expense were significantly higher than the comparative quarter in 2006.
Operating cash flows after working capital movements for the quarter were impacted by a build up inventory of approximately $43.2 million offset by an increase in accounts payables of $26.8 million. Inventory was impacted by an increase in ore stockpiles and higher stores and consumables. The payables increase was due, primarily, to the timing of trade payments.
The increase in operating cash flows after working capital movements compared to the same quarter in 2006 was due to the increase in net cash earnings, which was partially offset by a negative change in working capital movements.
Cash inflows from financing activities decreases slightly to $50.6 million due to lower debt draw downs
Financing activities included a long-term debt draw down of $50.0 million on the corporate revolving credit and term loan facility, a repayment of $4.6 million on the Kansanshi subordinated debt facility and vested stock option proceeds of $7.4 million. These financing cash inflows were slightly lower than in the same quarter in 2006 due, primarily, to higher net debt facility draw downs of $55.0 million, net of financing fees, in the comparative quarter.
Cash outflows from investing activities increases 142% to $297.3 million on purchase of Equinox shares
Investing activities included the purchase of $194.3 million in shares of Equinox resulting in the increase compared to the same quarter in 2006. In addition, the Company invested $80.5 million in continued capital expansion related to the completion of the Frontier project, the Kansanshi sulphide circuit expansion, and initial expenditures on the Kolwezi project.
FY 2007 net sales --------------------------- FY 2007 FY 2006 FY 2005 --------------------------- (After TC/RC charges) USD M USD M USD M -------------------------------------------------------------------------- Kansanshi - copper 1,102.7 727.2 252.8 - gold 26.0 18.5 6.7 Bwana/Lonshi - copper 166.5 341.2 181.4 - acid 0.4 0.4 3.7 Guelb Moghrein - copper 183.4 5.6 - - gold 44.1 1.6 - Frontier - copper 16.1 - - -------------------------------------------------------------------------- Net sales 1,539.2 1,094.5 444.6 -------------------------------------------------------------------------- Provisional pricing adjustment included above (9.7) 30.9 - -------------------------------------------------------------------------- Copper selling price USD/lb USD/lb USD/lb Current period sales 3.16 3.04 1.79 Prior period provisional pricing adjustment (0.02) 0.08 - TC/RC and freight parity charges (0.17) (0.30) (0.13) -------------------------------------------------------------------------- Realized copper price 2.97 2.82 1.66 --------------------------------------------------------------------------
Group net sales increase 41% to $1,539.2 million on record copper production and higher copper price
Sales volume increased (up 30% to 223,907 tonnes of copper) as a result of record copper production (up 24% to 226,693 tonnes of copper). Net sales further increased as a result of a higher average copper price for the year of $3.16/lb compared to $3.04/lb in the 2006 year. In addition, TC RC charges were lower under 2007 annual contract terms. However, provisional pricing adjustments to prior period sales had a negative impact in the current year due to the final settlement of copper sold in 2006 at prices lower than the December 31, 2006 provisional price.
The increase in copper production resulted from Kansanshi's capital expansions, a full year of commercial production at Guelb Moghrein in 2007, and the achievement of commercial production at Frontier in early November 2007. These increases were reduced by lower production at Bwana/Lonshi due to a lack of high grade ore for processing.
Kansanshi net sales increase 51% to $1,128.7 million as capital expansions result in record production
Net sales, compared to the 2006 year, rose as a result of increased copper production and higher copper prices. Record production increased (up 29% to 163,824 tonnes) due, primarily, to the 21% increase in oxide and 39% increase in sulphide ore processed as compared to the 2006 year. This increase in ore throughput was attributable to the capital expansions at Kansanshi, including the commissioning of the new SX/EW facility during the third quarter of 2006. Sales volume increased 37% to 163,864 tonnes, with the balance of the increased sales revenue coming from the higher average price received and lower TC RC charges. TC RC terms for the majority of Kansanshi's concentrate off-take agreements are based on annual benchmark terms, which for 2007 were lower than 2006 and no longer included price participation as a refining cost.
Bwana/Lonshi net sales decrease 51% to $166.9 million due to low ore availability from Lonshi
Net sales fell as a result of the low availability of high grade ore from the Lonshi pit and the exhaustion of run-of-mine grade ore in stockpiles at the Bwana treatment plant. The heavy rains during the last wet season resulted in mining delays at the Lonshi pit as the Lonshi fleet was used to reconstruct pit walls and rebuild roads that were damaged from the excessive water. In addition, two DRC border closures in March/April and November/December restricted ore shipments to the Bwana SX/EW facility. To maintain throughput at the Bwana facility, its low grade ore stockpiles were fully utilized and additional ore from external vendors was purchased. This resulted in an equal decrease in copper cathode production and sales volume (down 50% to 25,402 tonnes) compared to the 2006 year.
Guelb Moghrein net sales of $227.5 million on first full year of operations
With the achievement of commercial production in October 2006, production reached its nameplate operating levels during the year. Through better engineering and maintenance, ore mill rates increased steadily resulting in total production for the year of 28,755 tonnes. Copper in concentrate sales volumes were 11% higher than production as concentrate shipments improved significantly due to sales agreements with new customers being concluded and continued improvements in shipping logistics. This allowed for a reduction in the copper in concentrate stockpile of 3,201 tonnes since the end of the 2006 year. Guelb Moghrein also benefited from higher concentrate shipments with a gold credit of $44.1 million during the year.
Frontier net sales of $16.1 million as commercial production achieved
Since the achievement of commercial production during the fourth quarter, Frontier produced 8,712 tonnes of copper in concentrate. Partly as a result of a temporary border closure which prevented the shipment of concentrates, Frontier shipped and sold only 2,684 tonnes of copper in concentrate before year end. The balance of production was stockpiled at year end.
Provisional pricing adjustment negative following decrease in copper price during final settlement periods
Included in the above net sales numbers was a total of $9.7 million or $0.02/lb for negative provisional pricing adjustments related to prior period sales as the majority of provisionally priced copper at December 31, 2006 settled in January and February at average LME prices of $2.57/lb for each month compared to the December 31, 2006 provisional price of $2.87/lb.
FY 2007 operating profit ------------------------------------------------- FY 2007 FY 2006 FY 2005 (Restated) (Restated) ------------------------------------------------- % of % of % of USD M sales USD M sales USD M sales -------------------------------------------------------------------------- Kansanshi 740.7 47 541.4 50 176.2 40 Bwana/Lonshi 14.0 1 206.1 19 82.2 18 Guelb Moghrein 149.1 10 2.3 - - - Frontier 9.9 1 - - - - -------------------------------------------------------------------------- Total operating profit 913.7 59 749.8 69 258.4 58 -------------------------------------------------------------------------- Unit costs USD/lb % of USD/lb % of USD/lb % of sales sales sales (1) (1) (1) Cash costs (C1) $ 1.04 33 $ 0.93 33 $ 0.64 39 Total costs (C3) $ 1.27 40 $ 1.15 41 $ 0.84 51 -------------------------------------------------------------------------- (1) Calculated as the % of current period selling price
Group operating profit increases 22% to $913.7 million
Operating profit at Kansanshi increased 37% compared to the 2006 year and Guelb Moghrein posted very strong results in its first full year of operation. The combined increase in operating profit was impacted, however, by the results from Bwana/Lonshi. The high unit costs of this operation contributed to an increase in average group cash unit cost of production (C1) by 12% to $1.04/lb compared to the 2006 year. Removing the impact of higher costs at Bwana/Lonshi, C1 costs for the other operations averaged $0.86/lb for the year. Across the Group average profit margin per pound of copper sold was $1.87, which decreased from the comparative year (2006: $1.97/lb) again reflecting lower volumes from Lonshi.
Kansanshi operating profit increases 37% to $740.7 million on increased profit margins
Kansanshi's average cash unit cost of production (C1) decreased by 5% to $0.90/lb and the average total unit cost of production (C3) decreased by 8% to $1.04/lb. The decrease was due to a decrease in TC RC's of 72%, which was offset by an increase in ore costs of 22% and an increase in processing unit costs of 14%. The original Kansanshi Definitive Feasibility Study was based on a $0.80/lb copper price, and revisions in the reserve model for higher current prices resulted in a reduction of the grade of ore treated through the two process routes. The decision to process lower grade ore and higher acid-consuming mixed ores through the leach circuit, resulted in the need for external purchases of a significant quantity of acid at a much higher marginal cost, as well as increased ore mining and processing costs. Increases in oil-based consumables, electricity and wage costs all contributed to the increased ore and processing costs.
Bwana/Lonshi operating profit of $14.0 million
Bwana copper production was significantly affected by the lack of available high grade ore for processing due to the heavy rainy season and two border closures during the year. This resulted in an increase of the average cash unit cost of production (C1) by 163% to $2.24/lb and the average total unit cost of production (C3) by 133% to $2.63/lb as compared to the 2006 year. Mining unit costs were significantly impacted by these problems resulting in a 191% increase.
Guelb Moghrein operating profit of $149.1 million as production reaches design capacity / lower unit costs
Guelb Moghrein copper in concentrate production achieved design capacity during the year with continued cost improvements since the beginning of the year. The average cash unit cost of production (C1) was $0.65/lb and the average total unit cost (C3) of $1.15/lb for the period. This improvement continued to be driven by an increase in copper output, an increase in the gold credit and improved production processes as the operation continued to stabilize since achieving commercial production in October 2006.
Frontier achieves operating profit of $9.9 million in first few months of operations
Since achieving commercial production, the average unit cost of production (C1) was $1.29/lb and the average total unit cost (C3) of production was $1.59/lb.
FY 2007 net profit ------------------------------------------------- FY 2007 FY 2006 FY 2005 (Restated) (Restated) ------------------------------------------------- % of % of % of USD M sales USD M sales USD M sales -------------------------------------------------------------------------- Operating profit 913.7 59 749.8 69 258.4 58 Corporate costs (32.9) (2) (27.2) (3) (7.0) (2) Derivative losses (8.7) (1) (58.2) (5) (21.8) (5) Gain on sale of investment 0.8 - 1.8 - 16.1 4 Exploration (20.3) (1) (18.9) (2) (7.5) (2) Interest (net) (18.1) (1) (23.9) (2) (17.3) (4) Tax expense (182.8) (11) (161.1) (15) (46.3) (10) Minority interests (131.4) (9) (62.9) (6) (20.1) (4) -------------------------------------------------------------------------- Net profit 520.3 34 399.4 36 154.5 35 -------------------------------------------------------------------------- Earnings per share - basic $ 7.72 $ 6.14 $ 2.51 - diluted $ 7.62 $ 6.01 $ 2.45 Weighted average shares outstanding - basic 67.4 65.1 61.5 - diluted 68.3 66.4 63.0 --------------------------------------------------------------------------
Group net profit increases 30% to $520.3 million on higher operating income, lower derivative losses
The increase in net profit was attributable to increased operating income and lower derivative losses compared to the 2006 year. In addition, Guelb Moghrein's current tax exempt status results in a lower effective group tax rate. These were offset by a higher share minority interests' profit compared to the 2006 year, due to the strong contributions from the partly-owned Kansanshi and Guelb Moghrein operations.
Derivative losses decrease significantly
The 2007 year's derivative losses were primarily related to the increasing gold price. Following the closing out of virtually all of the Company's copper based derivatives in 2006, the Company was no longer exposed to derivative losses resulting from an increasing copper price.
Exploration costs increase 7% to $20.3 million due to increased exploration activities in Zambia
The Company increased its exploration activities in Zambia during the fourth quarter. Part of the increase was targeted at finding new oxide ore bodies suitable as feed for the Bwana processing facility.
Interest expense, net of interest income, decreases 24% to $18.1 million due to capitalization of project related interest costs
The Company capitalized interest costs on facility funds drawn for the development of Frontier, which reduced the interest expense This, with an increase in interest income, resulted in the net decrease compared to the 2006 year.
FY 2007 cash flows ----------------------------------- FY 2007 FY 2006 FY 2005 (Restated) (Restated) ----------------------------------- USD M USD M USD M -------------------------------------------------------------------------- Cash flows from operating activities - before working capital 771.8 564.2 236.8 - after working capital 540.8 474.0 195.1 Cash flows from financing activities 20.0 13.4 13.6 Cash flows from investing activities (610.3) (320.8) (175.8) -------------------------------------------------------------------------- Net cash flows (49.5) 166.6 32.9 -------------------------------------------------------------------------- Cash flows per share - before working capital $ 11.45 $ 8.67 $ 3.84 - after working capital $ 8.01 $ 7.29 $ 3.16 --------------------------------------------------------------------------
Cash inflows from operating activities increases 14% to $540.8 million due to operating results
Operating cash flows before working capital movements continued to be driven by the Company's operating results with a 37% increase compared to the 2006 year.
Operating cash flows after working capital movements for the year were impacted by an increase in accounts receivables of $136.1 million, inventory build-up of $106.9 million and contributions to the long term incentive plan of $21.3 million. The increase in accounts receivable was due to the increase in sales volume during the latter part of the year and an increase in the amount of provisionally priced copper tonnes outstanding at year end. In addition, an increase in income tax payments compared to the previous year contributed to the lower percentage increase in operating cash flows after working capital movements compared to the 2006 year.
Cash inflows from financing activities increases to $20.0 million due to increase in net debt facility draw downs
The increase in financing cash inflows was due to higher net long term debt proceeds as the Company had facility draw downs, net of repayments of $69.3 million compared to $44.7 million during the 2006 year. This, combined with proceeds on stock options vested and exercised of $11.5 million, was partly offset by an increase in dividend payments of $31.6 million compared to the previous year.
Cash outflows from investing activities increases 90% to $610.3 million on acquisition of investments
Investing activities included the purchase of $283.2 million in shares of publicly listed companies held for investment purposes, which was primarily the investment in Equinox. A further $319.6 million was invested in continued capital expansion related to the completion of the Frontier project, the Kansanshi high pressure leach project and sulphide circuit upgrade, and initial expenditure on the Kolwezi project.
FY 2007 balance sheet ------------------------------ FY 2007 FY 2006 FY 2005 (Restated) (Restated) ------------------------------ USD M USD M USD M -------------------------------------------------------------------------- Cash 200.0 249.5 82.9 Property, plant and equipment 1,308.4 1,068.1 471.3 Total assets 2,682.7 1,719.7 745.8 Long term debt 361.2 294.9 235.0 Total liabilities 1,096.7 799.9 434.7 Shareholders' equity 1,586.0 919.8 311.1 -------------------------------------------------------------------------- Net working capital 457.3 312.8 81.2 -------------------------------------------------------------------------- Net debt to net debt plus equity 9% 5% 33% --------------------------------------------------------------------------
Group assets rise 56% to $2,682.7 million
The Company's positive operating cash flow enabled continued capital expenditure and investment. Working capital also rose significantly during the period.
The Company holds $11.3 million of asset backed commercial paper ("ABCP"), which matured in August. Due to disruptions in the markets, the funds were not repaid when due to the Company. The defaulting issuers of this ABCP were placed in an interim standstill arrangement (Montreal Agreement) to restructure these investments and no final resolution has yet been achieved. In response to the current market conditions, the Company valued these investments at 85% of the original cost and a provision of $1.1 million, net of tax was recognized during the fourth quarter. The Company continues to monitor the restructure process and will review its position during the current quarter in the light of any proposals in which it is asked to participate.
Inventory balances increased due, mainly, to an additional $55.3 million in consumable stores and $54.2 million in ore stockpiles. The Company had stockpiles of approximately 18,300 tonnes of copper in concentrate at year end. Reductions in the Kansanshi and Guelb Moghrein stockpiles from the previous quarter end were offset by stockpiled production at Frontier. DRC related border issues resulted in the delay of Frontier concentrate shipments. The issues were resolved in December and shipments commenced, however, this delay contributed to the stockpiling of approximately 7,100 tonnes of copper in concentrate. Of the remaining 11,200 tonnes, approximately 8,300 tonnes is Kansanshi copper in concentrate production that is stockpiled at the Mufulira smelter awaiting treatment, with the balance stockpiled at the Guelb Moghrein plant and the Nouakchott port awaiting shipment.
With the Company's continued investment in publicly traded company shares throughout the year, an additional $272.8 million of marketable securities were acquired bringing the total cost to $308.4 million at December 31. Included in this total was 17.27% of the total issued and outstanding shares of Equinox Minerals Ltd. ("Equinox"). Equinox is developing its 100% owned Lumwana copper mine located in the North Western Province of Zambia approximately 65 kilometres west of Kansanshi. The Company holds these Equinox shares for investment purposes and may acquire further Equinox shares or dispose of its holdings as investment conditions warrant. The Company recognized an additional $247.0 million of comprehensive income before tax due to the appreciation in the fair value of these investments for the year, resulting in a closing carrying value of $547.9 million.
Property, plant and equipment balances increased by $240.3 million, net of depreciation, as the Company completed the Frontier project and achieved commercial production on November 2. In addition, the Company continued capital investment in the Kansanshi high pressure leach project and sulphide circuit upgrade and began work on the Kolwezi project.
Group liabilities increase 37% to $1,096.7 million
Long-term debt increased by $66.3 million due to net draw downs during the year to assist in the funding of the Frontier project. Minority interests increased by $130.2 million due to the positive operating results at Kansanshi and Guelb Moghrein. In addition, future income tax liabilities increased by $57.1 million due, primarily, to the appreciation in fair value of the investments.
Subsequent to year-end, the Company finalised a $250.0 million loan facility for general corporate purposes and to provide financing in relation to the Equinox investment. The facility is secured by a first ranking mortgage over Equinox shares owned by the Company and will mature in January 2009.
Shareholders' equity increases 72% to $1,586.0 million
Positive earnings of $520.3 million were offset by the payment of dividends of $51.7 million. In addition, with the adoption of the new accounting policy on financial instruments, the Company recognized $202.6 million of accumulated other comprehensive income after tax, which was directly related to the appreciation of the investments in publicly traded securities.
As at February 21, 2008 the Company has 68,143,922 shares outstanding.
Growth activities
Kolwezi development in DRC
The Kolwezi Project received board approval in November, and the project has started. Detailed design is in progress and is approximately 25% complete. Construction works are underway on site for infrastructure items which include power supply, water supply, roads access, construction camp, site housing and site buildings.
A number of major equipment packages have been awarded, and construction contracts have been let for earthworks, concrete works and site erected tankage. Approximately $120 million of the project budget has been committed at year end. Significant work is being undertaken during this current wet season to prepare the site (especially in terms of availability of construction equipment and tools), to ensure that an efficient and effective start on process plant construction is made from commencement of the dry season 2008 (nominally April onwards).
Kansanshi high pressure leach ("HPL") facility
Operation of the HPL facility continued during the fourth quarter and concentrated on Autoclave #1. This autoclave's metallurgical performance is excellent and has exceeded its design expectation. Efforts were concentrated on obtaining steady state operating data, and to continue with mechanical improvements which will result in maximizing continuous and reliable run time. December's availability and utilization was 27 days on the #1 autoclave; however, the mechanical (materials) failure of certain valves, seals, and ducting continues to reduce operating time between repairs. The replacement of components with exotic corrosion/erosion resistant materials continues. Autoclave #2 returned to service in January incorporating various component improvements. Both autoclaves are expected to be fully operational at a throughput capacity of 8,500 tonnes per month by the end of Q1. Actual throughput will be dependant on management decisions to optimise production in the light of electrowinning capacity and power availability.
Kansanshi sulphide expansion project construction continues
The construction works for the Kansanshi sulphide circuit expansion to an annual throughput in excess of 12 million tonnes are well progressed. Concrete works and structural erection are essentially complete, and the site focus is on mechanical installation, piping and electrical installation. The majority of the project equipment items have been received on site, and much of the equipment is installed. The main items outstanding are the crusher and specific mill components (which are en route to site). The completion of the project will occur following the SAG mill installation after delivery of the mill shell which is due on site during February 2008. The construction completion and commissioning is expected during the first half of 2008.
Kansanshi fourth 35,000 tonne per year electrowinning tank house
Kansanshi is proceeding with the construction of a fourth 35,000 tonne per year electrowinning tank house to bring electrowinning capacity to 140,000 tonnes of copper cathode per year. The new tank house is based on existing designs and the project estimated capital cost is $16 million. All detailed design drawings have been completed and issued, and almost all mechanical equipment has been procured. Site construction is underway with earthworks having been completed and site concrete works approximately 50% complete. Structural and mechanical installation works are scheduled to commence in February, and delivery of project equipment will allow continued erection from late February onwards. Construction completion is expected in the second half of 2008, with commissioning of the new tank house to occur approximately mid year. It is not expected that Kansanshi will utilize the full tank house capacity. It will, however, provide flexibility to make up for periods of power disruptions.
Kashime resource calculation and engineering study for 50,000 tonne copper operation underway
An updated resource estimate is currently underway on the Kashime deposit located in Zambia. Concurrently, an engineering study has been initiated to evaluate the economics of a mining operation producing approximately 50,000 tonnes of copper per year.
Outlook
Group copper production estimate for 2008 is 310,000 tonnes
The Company expects to produce approximately 310,000 tonnes of copper in 2008. This expected production includes approximately 181,000 tonnes from Kansanshi, approximately 84,000 tonnes from Frontier, approximately 33,000 tonnes from Guelb Moghrein and approximately 12,000 tonnes from Bwana/Lonshi.
During January, total copper production was about 25,700 tonnes sourced as follows:
- Kansanshi - 18,300 tonnes;
- Bwana/Lonshi - 800 tonnes;
- Guelb Moghrein - 2,900 tonnes;
- Frontier - 3,700 tonnes.
The Company sold approximately 21,700 tonnes of copper in January.
Group copper production five-year estimate
The Company is investing significantly in additional capacity at its existing production facilities and as a result plans that these operations will achieve the following average production levels over the years 2009 to 2013:
- Kansanshi - up 22% on 2008 planned production to 222,000 tonnes;
- Guelb Moghrein - up 30% on 2008 planned production to 43,000 tonnes;
- Frontier - broadly in line with 2008 planned production at 81,000 tonnes.
Over this period the Company expects Group production will rise even further as a result of new operations being brought on stream.
Mufulira smelter had continued to experience operating difficulties
The Mufulira smelter continued to encounter operating constraints which limited its concentrate treatment capacity. These operating issues are expected to continue into 2008. The Company was advised by Mopani that it will be unable to treat all of the Company's anticipated concentrate production from Kansanshi and Frontier during 2008. Expansion projects underway on the smelter will increase throughput by mid-year to 1,850 tonnes per day of concentrate. Even then, the capacity of the Mufulira smelter after treating Mopani's own material will not be able to treat all the Company's concentrate. As a result, the Company will arrange to treat a considerable surplus of concentrates from Kansanshi and Frontier through alternative channels including other Copperbelt and overseas smelters. Depending on the final terms negotiated, this may result in slightly higher realization costs for some of the concentrate sold due to higher freight charges for export. In addition, the Company will process concentrates through the HPL at Kansanshi.
Power blackouts in Zambia causing disruptions
Power is a major problem in the whole Southern African region. Increased production capacity has been designed into the plants to help overcome the effects of power disruptions. Congolese supply is currently adequate. The Company is currently studying a number of initiatives in an attempt to mitigate long term disruption and supply constraints. Power supply in Zambia has recently improved, but risks to supply exist associated with load-shedding and new mine developments.
Zambian budget announcement
The Government of the Republic of Zambia ("GRZ") announced in January 2008 a number of proposed changes to the tax regime in the country, particularly in relation to mining companies. These changes, if enacted as proposed and if applicable to the Company, could result in higher tax payments in that country, which may be material at current commodity prices, as well as to potentially discourage further investment in both new and existing projects. The Company has entered into Development Agreements with GRZ on existing operations which provide for stability in the regulatory environment, including taxation, and rights of international arbitration in the event of any dispute which the Company will pursue if necessary to protect its contractual position. The impact of the changes proposed on the Company is uncertain and the Company is seeking resolution of this issue.
Kansanshi focussed on HPL, sulphide expansion and gold plant commissioning
Activities at Kansanshi continue to focus on both the HPL facility, targeting steady state production from autoclave #1 and autoclave #2, and on construction of the sulphide circuit expansion.
Construction of a carbon-in-leach (CIL) gold facility is complete. Water commissioning of the gold facility was successfully completed in early October. Process commissioning began in November. The gold plant project comprises a one ton per day Pressure Zadra circuit designed to treat gravity concentrate and leach residue from the HPL plant to produce gold/silver dore. Currently, the Company has stockpiled gold rich gravity concentrates containing approximately 27,000 ounces of gold. Realizing the value of this will result in a significant credit to earnings and C1 costs. Realization of the value of these concentrates is expected to occur during the first quarter of 2008.
The continued build-up of the mining fleet, the completion of a fourth 35,000 tonne electrowinning tankhouse and the completion of the sulphide expansion is expected to result in copper production of 181,000 tonnes in 2008.
Guelb Moghrein producing copper concentrates above design levels
During the fourth quarter, the process plant at Guelb Moghrein operated at above design throughput capacity attaining steady operations while improving and optimizing the flotation circuit. The average production for the first quarter in 2008 is expected to be approximately 2,700 tonnes of contained copper per month. The concentrate stockpile at site has been reduced to an operating level of about 2,500 tonnes of contained copper (approximately one month's production).
The CIL gold circuit was taken off line at the beginning of January 2007 due to CIL tailings storage facility (TSF) constraints. The construction of a new CIL TSF is expected to be completed in the second quarter of 2008. At present, CIL feed is being stored in a temporary impoundment for future treatment. Gold production at Guelb Moghrein is expected to be approximately 100,000 ounces in 2008.
An NI 43-101 compliant resource was published on February 12, 2008 and initial investigations into expanding the processing facility to 45,000 tonnes of copper year are underway. An exploration program to test coincident magnetic and induced polarization anomalies surrounding Guelb Moghrein with three drill rigs has commenced.
Frontier mine to produce approximately 84,000 tonnes of copper in 2008
The Frontier mine start-up has performed in line with expectations and production should continue to improve into 2008 as the mine reaches steady state production levels. Production in the first quarter of 2008 is expected to be impacted by the rains because, at this early stage, limited opportunity has been available to pre-empt the affect of the wet season. With limitations on the smelter capacity of Mufulira, the current plan is to ship all of Frontier's concentrate production for treatment elsewhere on the Copperbelt and for export overseas.
Bwana/Lonshi border issues continue to impact production
The DRC border has been closed for the export of copper ores and exploration core samples from the Lonshi mine into Zambia since November 2007. The Company has been working with the DRC authorities to resolve this issue. The mining operations at the Lonshi mine continued but as the ore body reaches its end, there will be retrenchment of personnel.
The Lonshi oxide reserve should be exhausted in mid 2008. It is anticipated that about 12,000 tonnes of cathode will be produced at Bwana during 2008. The Company continues to assess alternative and most beneficial uses for the Bwana processing plant after the Lonshi ore is exhausted.
The study to construct a decline to assess the underground mining option at Lonshi is underway. If feasible, the aim would be to commence a decline development by the start of the dry season. Studies are also underway to modify the Bwana plant for use in metallurgical treatment of cobalt ores, and to build a roaster for copper concentrate.
Kolwezi tailings project construction commences
The Board of Kingamyambo Musonoi Tailings SARL (KMT) (owned by First Quantum) 65%, La Generale Des Carrieres et Des Mines (Gecamines) 12.5%, Industrial Development Corporation of South Africa (IDC) 10%, the International Finance Corporation (IFC) 7.5% and the Government of the Democratic Republic of Congo 5% (RDC) committed to proceed with the development of the Kolwezi tailings project (Kolwezi). First Quantum with support from its contributing equity partners of KMT (IDC and IFC) will finance or procure third party debt project financing totalling up to $593 million. This satisfies the obligations of First Quantum, the IDC and the IFC under the Contract of Association to complete feasibility studies, carry out an environmental impact assessment, prepare an environmental management plan, and to obtain commitments with respect to the financing of the project.
Preparatory site works commenced to meet a schedule for commercial start-up in the first quarter of 2010. The plant will commence operations at 35,000 tonnes per year copper and 7,000 tonnes per year of cobalt hydroxide at a capital cost of $553 million. The plant will be designed and constructed such that its capacity can be doubled for an incremental capital cost of $40 million. The mine life is expected to be 22 years at an annual production rate of 70,000 tonnes of copper cathode per year. The future development of a cobalt metal facility and the expansion of copper and cobalt capacity will be considered in light of practical experience on site and on commodity market conditions.
The Government of the Democratic Republic of Congo ("DRC") announced during 2007 a review of over 60 mining agreements entered into over the last decade with foreign companies. The Kolwezi mining convention was included in this review and on February 19, 2008 formal notification of the outcome of the review was received by the Company. The notification lists a number of conditions to be met by the Company. The Company has advice that the convention is valid and binding and that KMT has complied with all its terms. The convention provides a dispute resolution mechanism through international arbitration. The Company will liaise with its financially contributing partners the IFC and IDC and, as invited by the Minister, will through KMT respond to the letter shortly and arrange to meet with him in due course.
On Behalf of the Board of Directors
of First Quantum Minerals Ltd.
G. Clive Newall
12g3-2b-82-4461
Listed in Standard and Poor's
Certain information contained in this news release "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and forward-looking information under applicable Canadian securities legislation. Such forward-looking statements or information, including but not limited to those with respect to the prices of gold, copper, cobalt and sulphuric acid, estimated future production, estimated costs of future production, the Company's hedging policy and permitting time lines, involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. Such factors include, among others, the actual prices of copper, gold, cobalt and sulphuric acid, the factual results of current exploration, development and mining activities, changes in project parameters as plans continue to be evaluated, as well as those factors disclosed in the Company's documents filed from time to time with the Alberta, British Columbia, and Ontario Securities Commissions, the Autorite des marches financiers in Quebec, the United States Securities and Exchange Commission and the London Stock Exchange. The preceding discussion and analysis and financial review should be read in conjunction with management's discussion of critical accounting policies, risk factors and comments regarding forward looking statements contained in the unaudited consolidated financial statements for the period ended June 30, 2007. The discussion and analysis of the Company's results of operations should also be read in conjunction with the audited consolidated financial statements and related notes.
Summary of quarterly and current year to date results
The following table sets out a summary of the quarterly results for the Company for the last seven quarters and the current year to date:
----------------------------------------------------------------------- --- ------------------------------------------------------------------- ------- Summary of Quarterly and Current Year to Date Results (unaudited) -------------------------------------------------------------------------- 2006 2006 2006 2007 Statement of Operations and Retained Earnings Q2 Q3 Q4 Q1 (millions, except where indicated) Revenues Current period copper sales(1) $ 295.9 $ 311.4 $ 243.7 $ 270.9 Prior period provisional copper adjustments(2) 60.4 11.7 (31.7) (17.6) Other revenues 6.2 5.3 4.4 8.0 Total revenues 362.5 328.4 216.4 261.3 Cost of sales (restated) 65.2 81.7 88.5 102.0 Net earnings (restated) 149.5 133.2 60.9 78.3 Basic earnings perSource: MARKET WIRE
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