is ready to begin. Good morning, ladies and gentlemen. Welcome to the First Quantum Minerals Quarterly Results Conference Call. I would now like to turn the meeting over to Bonita To, Director, Investor Relations. Please go ahead, Ms. To.
Thank you, operator, and thank you everybody for joining us today to discuss our third quarter results. Before we begin, I will draw your attention to the fact that over the course of the call, we will be making several forward-looking statements. I encourage you to read the cautionary note that accompanies our most recent MD&A and the related news release, as well as the risk factors which are detailed in our most recent AIF and available on our website and on SEDAR. And a reminder that the presentation which accompanies this conference call is available on our website. On today's call, we have Tristan Pascall, our Chief Operating Officer, who will provide an overview of operations and share his perspective on the company's outlook moving forward.
Hannes Meyer, our Chief Financial Officer, will review the financial results, and Tristan will wrap things up with an overview of our key strategic priorities. After that, we'll open up the line to take questions. With that, I'll turn it over to Tristan.
Thanks, Bonita. Hello, everyone. Q3 was another strong quarter for First Quantum, both financially and operationally. Debt reduction remains a major focus for First Quantum. I'm proud to say that with the strong operational cash flows during the quarter, driven by continued high operational performance and supported by commodity prices steadying at higher levels, plus the rolling off of our hedges, and combined with the closing of the sale of a 30% stake in Ravensthorpe, we were able to reduce our net debt by approximately $450 million during the third quarter. We are well on our way to achieving our objective of $2 billion in gross debt reduction on an accelerated timeframe within the first half of 2022.
Before going into the operational performance during the quarter, I would like to take this moment to reiterate two of our other commitments that we have made to our stakeholders. Firstly, we are on track to deliver targets for our greenhouse gas emissions by the end of this year, and during the quarter, we introduced an internal carbon price that will now be integrated into the evaluation of new projects at First Quantum. In addition, we remain committed to defining a more meaningful dividend framework for our shareholders by the start of next year. Operationally, copper production in the quarter was just shy of 210,000 tons, an increase of 5% quarter-over-quarter, mainly attributable to strong production from Cobre Panama and Sentinel, but also ongoing consistent production from Kansanshi.
Due to a difficult shipping environment, our copper sales in Q3 were somewhat lower than production at just over 197,500 tons. In particular, anode shipments in Zambia were impacted by a global shortage of container shipping capacity, as well as congestion at the Durban, Walvis Bay, and Dar es Salaam ports. Consequently, a number of planned shipments were rolled into the fourth quarter, but these have now been caught up and shipped. We do expect shipping and logistics challenges, in particular in relation to Zambian sales and finished goods inventories, to continue throughout the first quarter. Although we will continue to address these directly through our relationships with customers and shippers. Some marginal impact from logistics, shipping, fuel, and consumable costs and labor has been felt on operating costs in Q3.
Our C1 cost guidance for the year has been narrowed by 5 cents to $1.25-$1.35 per pound. However, our all-in sustaining cost guidance for 2021 of $1.80-$1.95 per pound remains unchanged. At Cobre Panama, it is very pleasing to see the operation continuing to achieve new milestones with production in Q3 reaching a quarterly record of over 87,000 tons of copper. During the quarter, some portions of higher grade ore from the mine were brought forward from the fourth quarter in order to smooth the copper production profile and de-risk the remainder of the year. Grades are expected to be lower in the fourth quarter.
However, given the level of confidence in production, we have increased the lower end of the range for Cobre Panama guidance by 10,000 tons, so that overall guidance for 2021 production is now 320,000-335,000 tons of copper. With the recent escalation in global energy prices, including thermal coal, it is worth mentioning that a collar structure for all of Cobre Panama's supply requirements has been in place since May 2020, with the ceiling price reached at the end of Q2. This prevents exposure to further increases in the coal price until December 2023. In parallel, we continue to study options in moving the energy supply for Cobre Panama to a less carbon-intensive and more renewable mix over time.
I'm pleased to share that due to the high vaccination rates at Cobre Panama, being around 97% of the workforce, as of October 11, fully vaccinated employees are no longer required to enter preventative isolation prior to arrival to site. In addition, the limit on the number of personnel on site has been lifted, which now allows the operation to return to optimal staffing levels. With regard to Law 9 discussions, we continue to be engaged in formal discussions with a high-level ministerial commission and constructive progress has been made. The government's commitment to the process is evidenced by the contribution of four cabinet ministers to the commission meetings throughout the month of September. At the end of the quarter, the Ministry of Commerce publicly announced the culmination of discussions on environmental and labor matters while discussions on financial matters were continuing.
The company welcomes the transparency of the high-level commission process and the opportunity to resolve this matter in the medium term. In Zambia, Q3 marked the general elections in the country and the smooth transfer of power to the opposition party, the UPND, and to the new president, Hakainde Hichilema. We welcome the display of healthy democracy demonstrated so well by the country and its citizens. We look forward to working with the new government on their objectives of empowerment through economic management, job creation and democratic governance, and in their stated desire to partner with the mining sector significantly increase copper production in Zambia. The expected 2022 budget announcement at the end of this week will provide us with initial indication of the policy that will accompany these objectives.
Sentinel delivered its best quarter of the year in Q3 and produced 59,931 tons of copper, up 10% from the previous quarter. A record milling rate was achieved in the month of August, and improved ore grades were processed in September, and we expect these trends to continue into the fourth quarter. As a consequence, the guidance range for full 2021 production from Sentinel has been narrowed to between 235,000 tons and 245,000 tons of copper. The fourth in-pit crusher at Sentinel is scheduled for commissioning in December 2021, which will enable the process plant to ramp up throughput to 62 million tons per annum.
Kansanshi produced another consistent quarter, albeit on lower grades, with copper production of 50,987 tons, which was the best in the year so far. The Kansanshi smelter ramped up on schedule in early July and processed just over 325,000 dry metric tons of copper concentrate during the quarter. We continue to expect Kansanshi mining grades to remain low in the fourth quarter, and consequently, we have reduced the top end of the range for Kansanshi guidance by 10,000 tons, so that overall guidance for 2021 production is now 200,000-205,000 tons of copper for the year. Zambia's electricity generation is largely hydropower and so remains somewhat insulated from the energy dynamics currently playing out in other parts of the world.
The level of water supply in the Kafue and Kariba systems remains stable, and we're confident in the outlook for power supply for the remainder of the year. COVID-19-related border closures and labor shortages in Western Australia continued to impact Ravensthorpe during the third quarter, which negatively impacted the quarter's production and cost. Despite these challenges, commissioning of Shoemaker Levee at Ravensthorpe progressed, and saprolite ore was introduced in the third quarter. Due to delays accumulated to date, 2021 nickel production has been revised lower and costs have been revised higher from prior guidance. Completion of construction and commissioning works at the Shoemaker Levee project and the delivery of limonite ore is the main priority for the fourth quarter of 2021. I would like to express my gratitude to the First Quantum team for their hard work throughout the period of the global pandemic.
In all of the countries that we operate in, we continue to work closely and support the various levels of government and health authorities to ensure the health and safety of our employees. COVID-19 continues to present challenges, and it remains a top priority for First Quantum to provide support to our local communities, particularly the most vulnerable. As an example, in Zambia, when schools that are around our Kansanshi mine closed during the pandemic, First Quantum helped transition students to remote learning via two FM radio stations. Teachers from around the region were broadcasting 12 hours a day and have been able to engage some 42,000 students across the period. During these challenging times, I'm not only proud of the accomplishments of our operations, but also the work we have done with our local communities who are so important to our overall success.
With that, I'll turn things over to Hannes, and I'll be back in a few minutes to wrap things up. Hannes?
Thanks, Tristan, and good day to everyone. I would like to direct you to the slide called Financial Overview in slide 10 in the presentation. The financial performance in the quarter was driven by higher metal prices, together with strong operational performance, which resulted in a significant increase in comparative EBITDA and net earnings, as well as a notable further reduction in net debt. Gross profit of $613 million and comparative EBITDA of $886 million in the quarter were significantly higher than the same period in 2020. Attributable to the increase in sales volumes at Cobre Panama, as well as a 34% increase in the net realized copper price.
Net earnings attributable to the shares of the company of $303 million and comparative earnings of $197 million represented a significant improvement on the same quarter of 2020. Net debt decreased by $449 million this quarter, and it's now at a $1.4 billion reduction since June 2020, down to a level of $6.3 billion as at the end of September. With the current strength in the copper price, we foresee a further reduction in the last quarter of this year. Copper C1 cash cost of $1.26 was $0.19 per pound higher than the third quarter of 2020, driven by higher fuel costs and freight charges and also lower production at Kansanshi, Sentinel and Las Cruces.
The company has completed the sale of the 30% equity interest in Ravensthorpe for cash consideration of $240 million from POSCO. Post quarter end on October 14, the company signed a new $2.925 billion term and revolving credit facility with its bank group. Turning to the next slide of quarterly unit cash costs. Total copper C1 cash cost was 19 cents higher than Q3 2020, driven by higher fuel and freight charges and also the lower production, as mentioned before. Guidance on unit costs for the full year has been narrowed to between $1.25/lb and $1.35/lb. All-in sustaining costs for the quarter was 39 cents higher than Q3 2020, impacted by higher C1 costs and higher royalty rates in Zambia, which was driven by the higher market copper prices.
All-in sustaining cost guidance remains unchanged. Turning to the next slide and summary financial overview. Comparative EBITDA of $886 million was 38% higher than Q3 2020, attributable to a 34% increase in natural copper price and increased sales volume at Cobre Panama. However, as Tristan mentioned earlier, Zambia's sales volumes were impacted by port congestion and global shortages of containers, and we see such logistical challenges continuing throughout the fourth quarter. Comparative earnings for the third quarter of $197 million is an increase of $133 million compared to Q3 2020. Basic earnings per share of $0.44 and comparative earnings per share of $0.29 are $0.40 and $0.20 respectively higher than the same quarter last year. Basic earnings benefited from unrealized foreign exchange gains in Zambia.
There was a reduction in net debt, as previously mentioned, in the quarter, which brings this total reduction down to $1.4 billion since June 2020. Turning to the next slide, significant increase in gross profit. With a 267% increase in Q3 gross profit from improved metal sales and higher contribution from Cobre Panama, it was impacted by the lower sales in Zambia and Las Cruces, which ceased open pit mining in August 2020. Turning to the slide on debt and the liquidity profile. The company's net debt of $6.3 billion at the end of the quarter, as previously stated, decreased by $1.4 billion in the last 15 months. The company ended the quarter with $1.9 billion of net unrestricted cash and cash equivalents and was in full compliance with all its financial covenants.
company signed a new $2.925 billion term loan and revolving credit facility maturing in September 2025. This replaced the existing $2.7 billion credit facility. The refinancing extends the debt maturity profile and removes all material debt maturities through April 2023. As Tristan has already highlighted, the tapering of the hedging program will further benefit financial results in the remainder of the year. Turning to the hedge slide then. Approximately one-sixth of our expected copper sales for the next 12 months are hedged at an average floor price and average ceiling price of $3.41 per pound and $4.23 per pound respectively. And this is a blended rate between the swaps and the collars. Turning to the,
This compares then to approximately a quarter in the previous quarter of sales at an average price, which is probably about floor and ceiling, probably about 10% on average lower. At the end of September, the company had 12,500 tons of forward unmargined copper forward sales at an average price of $3.01 per pound for periods of maturities through December this year. In addition, the company had 125,750 tons of unmargined zero-cost copper collar sales contracts with maturities through June 2020 at a weighted average price of $3.45 per pound-$4.35 per pound. Thank you. With that, I'll now hand back over to Tristan.
Thanks, Hannes. As debt reduction at First Quantum accelerates, we have stated our intent to post more meaningful dividends based on our outlook for solid cash flow generation from the business. Notwithstanding these intentions, delivering growth has always been one of First Quantum's core competencies, and reinvestment in the business remains central to our business strategy. In this regard, we are focused on our four main low-cost and low-risk brownfield projects in the near term. These four brownfield projects, which we have presented in the slide deck today, are the expansion of Cobre Panama to 100 million tons per annum throughput, the S3 expansion at Kansanshi, the Enterprise Nickel Project near Sentinel, and the Las Cruces Underground Project.
In many ways, the variety of these projects reflect the ongoing diversification of our business, spanning three continents, a mix of both copper and nickel, a mix of both open pit and underground. What they all have in common is that they leverage existing infrastructure, operating teams, existing license to operate, and strong community relations. This reduces both the completion risk and the capital intensity of these near-term growth projects for us. Progress was made on all four of these projects during the quarter. At Cobre Panama, preparation to move to the Colina pit, which will support the 100 million ton per annum expansion continued in Q3 with initial groundbreaking for development of the Colina box cut and ongoing development of the overland conveyor corridor.
Orders for the additional mine fleet for Colina were placed at the front end of quarter three, including a fifth Komatsu P&H 4100 rope shovel and eight off Liebherr ultra-class 360 metric ton trucks during the quarter. On S3, discussions continued with the Zambian government in relation to the stable fiscal conditions required to proceed with the expansion, including addressing the nondeductibility royalties. Once built, S3 will materially increase Kansanshi's annual throughput to well over 50 million tons per annum and ensure production levels remain strong for more than 20 years. At the Enterprise project, a decision to proceed is expected by the end of this year.
The process plant for Enterprise is already built as part of the original Sentinel construction, and so capital spending of approximately $90 million is mostly comprised of pre-strip work, which is scheduled for the dry season after April 2022. The Enterprise project has the potential to add 30,000 tons per annum of nickel, with production likely to ramp up from early 2023. Work towards fully permitting Las Cruces underground continues. The last major permit remaining is for the water concession and progress on this permit is expected in an orderly manner. Resource delineation drilling was completed in Q3, which will support the release of an NI 43-101 resource statement by early next year. Our portfolio of growth options includes several major greenfield opportunities, notably Taca Taca and Haquira.
While we are excited about the long-term potential that they offer, we will take a more measured and cautious approach towards these two projects as our priorities remain on debt reduction, brownfield growth, and establishing a more meaningful dividend framework for investors. Finally, on behalf of the entire company, I want to thank our people again. Our workforce continues to demonstrate adaptability, commitment and resilience and make significant contributions to the success of the business and our positive impact on the communities around us. I'm proud of how our workforce has continued to focus on executing in a safe and sustainable manner in the face of ongoing logistical and operational challenges resulting from the COVID-19 pandemic. Operator, we would now be happy to take questions.
Certainly. Thank you, Mr. Pascall. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. Please kindly limit yourself to one question and one follow-up question, after which you may rejoin the queue. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Orest Wowkodaw with Scotiabank. Please go ahead.
Hi. Good morning. Tristan, I was hoping you could give us some more color on the Law 9 negotiations in Panama, and specifically whether you're seeing anything that might be outside of the existing mining code. I'm also wondering if you can give us an expected timeline for the conclusion of these negotiations.
Sure, Orest. Thanks and hi. Yeah, look, Law 9 has been very constructive during September and... Sorry, Orest, you might just put on mute there. Thanks. Yeah, Law 9 was very constructive during the quarter. We managed and you saw the announcements from the Minister of Commerce that on the culmination of matters relating to environmental issues and also on labor issues. The work on the financial side of things is continuing. There has been noise around that and you would have seen that in the press, but in the discussions, it has been constructive. Look, I can't really be drawn on too much else that's in there. It's in that room.
In terms of timing, you know, we're optimistic that it's gaining momentum off the back of you know, the commitment from four senior ministers in the cabinet. That's fully a third of the cabinet, that's been present in those discussions, and also the you know, the movement in the discussions themselves. It is difficult to draw a timeline around that. You know, we would hope to be you know, in Parliament with a piece of legislation, I think, early in the new year, if not before. That would then be a timetable around the ratification of that new legislation.
Thanks. Just as a follow-up, is there anything left to negotiate beyond fiscal terms at this point?
Yeah, we had some discussion around social infrastructure, but it's part of those discussions at the moment.
Okay. Thank you very much.
Thank you. The next question is from Abhinandan Agarwal with Deutsche Bank. Please go ahead.
Yeah, thanks, morning. Thanks a lot for the call, and congrats on the solid set of results, team. I have a couple of questions, please. The first one is on hedging. While the amount of hedges which were put on were quite small, should we expect continued opportunistic hedging going forward? That's my first question.
Thanks, Abhi. Hannes, do you want to take that question?
Sure. Abhi, what I would expect is that the average amount of hedges continuing to decrease. Last quarter we were 25% or one quarter hedged, and this quarter we ended at 16% hedged or one six. You should see that trend continuing.
Got it. Thank you. The next question I had was regarding the Zambian budget, which I think is this Friday. Could you talk a bit about what your expectations are with the budget? Also what would you look for as you move closer to the decision to approve the Kansanshi S3 project? Thank you.
Thanks, Abhi. Yeah, look, we certainly will be listening on Friday. Obviously we couldn't comment what will be in the budget other than to say we've had the constructive discussions with the government and certainly in terms of everything that we've heard in their conversations with us privately, but also more broadly, conversations, you know, with the IMF, with the U.S. and the re-engagement with the U.S. and the UN and so on, has been very constructive. Really, you know, I think the budget is where we'll start to see that policy enter implementation phase, and that's what we're watching. Beyond that, yeah, S3, as we said, is really around fiscal stability in the country.
Again, you know, non-deductibility of royalties is high on their list, but there's a broader range of issues to be tackled there, and that's what the conversation's around. It won't necessarily follow from the budget an automatic, you know, move on S3. There is a broader discussion to occur.
Thank you very much.
Thank you. The next question is from Greg Barnes with TD Securities. Please go ahead.
Yes, thank you. Tristan, you've talked about renewable power for the expansion at Cobre Panama. I'm not sure what avenue you'll go down, but what's a realistic timeframe for converting the current coal plant, and what is the plan at the initial stages, and how much would it cost?
Sure, Greg, yeah, I mean, the first thing is we will come out later in the year and make that clear. In terms of the increment that's required for the expansion, it's about 60 MW-80 MW, something in that range. For that, we said that we won't be expanding the existing coal-fired power station in order to cover that additional increment. There is the opportunity for lower carbon or renewable to come into the mix. Certainly we're out in the market at the moment on that.
You know, more broadly, look, I wouldn't want to preempt what we do and what we say at the end of the year, but we've been looking very closely at how we can then expand and address the broader greenhouse gas emissions from the power station, the existing unit. There isn't, you know, the mix in Panama is there. There's a range of hydro. Wind power is there, but it's sort of around 30% available across the year, and solar less at about 15%. So there's no silver bullet there, and it's important to bear in mind, you know, our impact on the national grid in terms of pricing if we, you know, if we fully came off.
Those are the considerations that come together and we'll outline, you know, more specifically by the end of the year.
Can you convert the coal plant to LNG or something like that? I have no idea whether that's even possible.
Greg, yes, it can be converted. It's very capital intensive. Yes, there's a technical solution and it has been done elsewhere. The actual conversion of the units themselves is straightforward, but then you have to install all the gas infrastructure in order to be able to do that. That's obviously, you know, the ability to offtake gas, and the storage and so on. That gets quite, you know, there's a lot of capital in that. There is gas already in Panama, at another location in Colón.
you know, part of the consideration is where that would be, you know, more capital efficient at an existing facility that has gas and needs power lines but is there, you know, as compared to a full adjustment to our facility.
Okay, great. Thanks, Tristan.
Thank you. The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Good morning, and thank you for the update. I would like to touch on your outlook for Cobre Panama. You provided some comments, but basically going back to Q2 results, you guided to 10% lower grades in the second half versus H1. Obviously Q3 was anything but that. It was actually a little bit higher at 0.46%. So can you maybe just give us a little bit of help understanding why there was such a material upside surprise in the grade? Also, should we be expecting a fairly substantial drop-off in Q4 2021? Any quantification around that would be super helpful. Thank you.
Yeah. Thanks, Lawson. I think I remember our conversation at the time. Yeah, I guess. What we see, what we've done in this quarter is bring forward some areas of higher grades in the pit, and that was to de-risk the end of the year. What we were seeing was our copper production schedule showed a very high peak in December. You know, rather than put that in a time which is a higher rainfall part of the year, we brought that forward and put it in the bank. That's in the bank in Q3 now. As a result, you know, we will return to the sort of more life of mine grades, and it will come off.
As I said, we nonetheless are very confident in the guidance that we've given for the year, and we fully expect to be within that guidance. We will see throughput go up a little bit, we expect, because it's sort of softer material, compared to where we've been mining this quarter on average, but lower grade. Does that help answer the question?
Yep, that's very helpful. Maybe on a follow-up, I would like to ask about Sentinel. You've provided some guidance again on 2022. You expect Sentinel to reach 62 million tons per annum run rate next year. How should we think about the timing on that 62 million tons per annum? I mean, is that something you can hit basically from the start of the year? Should we think of it being obtained sometime sort of midyear?
No, Lawson, it was in the introduction of the fourth crusher that just opened up our ability to deliver into the process plant, and the process plant can certainly take it. As soon as that fourth crusher comes in and it's feeding, we have the capacity to run at that annualized rate. We expect that to be commissioned by the end of the year, and then it would just be, you know, to production. There might be a small ramp-up at the start of the year, but we should be on those rates or that kind of annualized rate fairly early in the new year.
That's very helpful. Thanks very much, Tristan.
Thank you. The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.
Thanks very much. Congrats on the quarter. It's a great quarter. I guess I wanted to ask you sort of how you're looking at the balance sheet now. I mean, it's in much better shape. I recognize you're still adding hedges. Can you maybe talk a little bit about what balance sheet you'd need to see to fully stop adding hedges? I guess on the same page, like, where you're maybe thinking of the dividend at this point in terms of like, you know, how much the balance sheet could support next year?
Sure, Jackie. Hannes, do you wanna take that question?
Sure. Jackie, I think I've largely answered already that, look, we will see that trend, you know, the reducing sort of trend continuing, you know. As I said, one quarter hedge last quarter, and now we're at 16 now, and that should roll off now in the next. You know, as we go along, that should come down.
Sorry, Hannes. I guess I mean, I think I asked you the same question last quarter, and I think you kinda suggested that maybe I just misinterpreted what you said, that you weren't adding new hedges. I was expecting just to see the existing hedges roll off. It's fair to say you'll add some more going forward as well?
Jackie, the hedges we've added this year are all collars and all quite wide.
Okay.
It shouldn't be a, you know, impediment to receiving the current spot price. That wouldn't be, but overall there's continuing trend and reduction on that.
Got it.
I think, Tristan. On the dividend, I think we'll have an update early next year. Tristan, I don't know if you wanna-
Yeah, I think that.
Update more on that.
Yeah, Hannes. I think, Jackie, we just say, well, stay tuned. What we're saying is that you know the nominal dividend that we've been paying, we're aware of that and it is the Board's intention to come and address that with shareholders.
Okay. Maybe in the meantime, until we get the full update from you, can you give us a picture of sort of what copper prices you guys are assuming for next year? Is that a fair question?
It's somewhere above the BMO price, I would guess.
That's a good answer. Thank you.
Yeah, Jackie, we're trying to strike the balance there on that dividend, and that will be cautious. You know, we'll enter that slowly. What we're signaling is the cash flow generation that we see coming from the business.
Okay. I appreciate that. Thanks very much.
Thank you. The next question is from Chris LaFemina with Jefferies. Please go ahead.
Hey, guys. Thanks for taking my question, and congratulations on another good quarter. It's good to see the deleveraging really starting to happen now, the cash flow kicking in. That should be good for your stock price. A question I have regards cost inflation. We hear a lot about mining cost inflation in places like Australia and Brazil, but not so much about what's going on in Panama and Zambia. If we look at your unit cost progression so far through 2021, your costs have been pretty flat.
I know third quarter costs were up pretty materially on a C1 basis year over year, but costs this year have been net cash costs have been flat despite the streaming deals you have on gold, so you're not getting the benefit of a high gold price. Despite, again, the fact that you have shipping issues and energy prices rising and all sorts of inflationary pressures. Just trying to understand how we should think about costs heading into 2022. Is there a reason to believe that some of the inflationary pressures that we're seeing in mining globally will begin to impact you in the near future? Or what is going on specifically, potentially in Panama or Zambia, or with you specifically in terms of how you're managing your operations to control cost inflation that others are struggling more with? Thank you.
Hi, Chris. Thanks for noticing. Yeah, there's been a lot of effort in talking to the guys in Zambia the last few weeks around the efforts that are going in on managing those costs. Yes, you saw Kansanshi. You know, that it is the most production in the quarter this year. You know, there's been a lot of work on the cost side to manage that. Really that's been the impact. The ability for us to protect that into 2022, I think that remains to be seen. You know, the cost inflation is definitely there, and we're seeing that on things like steel price. You mentioned shipping, but fuel costs, you mentioned labor, particularly in Australia, the labor rates.
In Zambia, there has been a movement of the kwacha, so we went down to exchange rate around 23, and it's come back to 16 or 17 now. That is having an impact there on labor rates. The work that we've been doing is really with our, you know, big suppliers in terms of managing that and the contracts that we have with them, and that's been the effort that's gone in. I think where we're most seeing it is on capital projects. Certainly Ravensthorpe as an early receiver has seen that on things like steel price and shipping. We look, I guess we would telegraph that we've seen that and we'll address our capital guidance, you know, early in the new year.
What we would telegraph is yeah, definitely it's a cost inflationary market at the moment, and it's on all of those main inputs around capital projects.
Thank you.
Thank you. The next question is from Ian Rossouw with Barclays. Please go ahead.
Thank you. I maybe just wanted to follow up on Greg's question on the power station at Cobre Panama. Tristan, you mentioned sort of noise around the Law 9 discussions, and I wonder if that's referred to the energy minister's commentary around ending coal imports in 2023. I'm just sort of curious, what's your view on that and how that sort of. Well, if that was actually part of the discussions with the other four cabinet ministers. And then maybe just to follow up on Ravensthorpe. You mentioned in the release sort of cost inflation pressures from higher sulfur prices. I just wanted to get an insight into your sort of contract structure there. How much spot exposure do you have?
I guess if there's a lag effect we'll see coming through from next year on higher sulfur prices. Thanks.
Thanks, Ian. The first question on coal imports. Yeah, certainly, look, we wouldn't comment on the government's planning around greenhouse gas emissions. Panama will go to COP26. The president of Panama will be there on Monday, and we'll talk about Panama being one of the three countries in the world that is negative in terms of greenhouse gas emissions. You know, that's where Panama stands today. Look, you know, our planning it certainly takes into cognizance the endeavors of the government of Panama, but it also needs to balance, you know, our impact on the community. I talked about, you know, possible impacts on pricing and so on, and also the stability of the national grid.
We're seeing that in Europe at the moment, that when, you know, that these things need to be managed well. Those are the considerations we take and as I said, we'll come out by the end of the year to comment on those. Yeah, there were those comments in the newspaper, and it certainly is part of discussion, and that's fine. We're happy to do it in that forum. You know, the planning there, and we'll look to align our planning with the government's own ambitions on greenhouse gas emissions. In terms of Ravensthorpe and the sulfur price, it, at the moment, as far as I'm aware, it's 100% exposure to the spot price.
It's something that we're actively managing with our suppliers, and looking to, yeah, given where sulfur price has gone to, certainly well above, you know, what we'd expected. I think that's, you know, Ian, in this, you're seeing some of the secondary impacts of the change to renewables is that, you know, fertilizer, food production, all of those things. There's gonna be a lot of ripple effects through the economy, and I'm not sure that all of those are taken into account in the way economists are looking at the situation. Yeah, certainly for us, an area to work closely on, and we're certainly doing that directly with our suppliers.
Okay, great. Thanks for that.
Thank you. The next question is from Ioannis Masvoulas with Morgan Stanley. Please go ahead.
Yes, hello, and thanks for taking my questions. Most have been answered, but I'd like to ask on Zambia and that very ambitious target by the new government to hit that 2 million tons of copper production by 2026. Given that you have operated in the country for a number of years and you've been in touch with the government, could you share your views on how realistic that target is and also whether First Quantum could play a role here beyond the S3 expansion and beyond enterprise? Thank you.
Sure, Ioannis. I think they, the Zambian government had put on record they'd like to see copper rise to 2 million tons per year, if not 3 million tons per year. Those are certainly ambitious targets. As I said, the new government came in on a platform of really jobs and youth empowerment, and that's important. They have a challenge on their hands. As you look at the debt situation in Zambia, they're certainly going to be challenged to cover all that ground. I think, you know, this budget will be an indication as to where they're going, but not an easy task in managing a default situation with the IMF and then coming out and spurring that growth.
Their program seems to be very constructive in terms of, you know, the economy and delivering through the economy to their electorate. Let's see. In terms of our contribution, I mean, we would say that we're very willing to support Zambia and we believe, you know, we're one of the strongest spokespeople out there for Zambia, and it's as a destination for investment and a destination for mining. Certainly, you know, we're part of that future, and we think S3 is an important part of that future.
Beyond that, you know, if you're intimating at Mopani or the situation at Vedanta, that's not something we're entertaining at the moment at all. More broadly in the country, we'll continue to remain a strong supporter of Zambia and its ambitions.
Okay, that's clear. The second question around your funding mix. You recently refinanced your bank debt, and just wanted to figure out what's the next sort of prerequisite or milestone before you look to refinance some of the bond maturities. Ultimately, are you happy with the current mix between bond and term debt and bank loans? Or is there potential to shift that as leverage continues to come down?
Hannes, do you want to comment?
Sure. You would have seen, I mean, we've talked about the $1.4 billion net debt reduction over the last 15 months. With the new facility, we'll definitely use some of that proceeds soon to start chipping away at the bonds. The first bond maturity is only in April 2023, so there's quite a bit of time before that. We generate quite a bit of cash at the moment, and we've got the benefit of the new facility as well. We'll start managing those maturities coming up now.
Thank you very much.
Thank you. The next question is from Emily Chang with Goldman Sachs. Please go ahead.
Good morning, Tristan and Hannes. My first question is just around the disruption in shipping that you noted during the third quarter. Maybe do you expect those volumes that have been produced but not shipped to drive a catch-up in sales volumes in the fourth quarter? Or do you expect still a little bit of a mismatch given some of the port congestion challenges you're seeing there?
Thanks, Emily. Hi. Yeah, I think we said that we'll continue to see those challenges through the fourth quarter. Look, we're directly managing it and that, you know, we have our own trading desk that manages that logistics chain and then all the way through to the customer. We've been working, you know, not just on exclusive basis, also with the others in the region that are similarly challenged. It is a, you know, the country, the region and then the world is challenged by this at the moment. Our customers, you know, it's part of something that they need to resolve as well in terms of getting the shipments in through the front door. It is, it's covering the whole supply chain.
At this stage, yeah, it's Q4 looks as hard as Q3. The indications are when you speak around the market that that's expected to continue on into 2022. I guess we're telegraphing it will continue to be at these levels through the end of the year, and maybe into the next year. It's certainly something that we're directly managing. Because of that management in our business, it's not as high as it might otherwise have been, without the sort of, you know, the day-to-day in the trenches, fighting to get our containers onto ships.
Got it. That's really clear. Maybe shifting gears a little bit, how should we think about the partnership between First Quantum and POSCO? I think when 30% of the Ravensthorpe asset was sold down, there was mention that an MOU was signed around a path to producing battery cathode materials. How should we think about that program? Thank you.
Thanks, Emily. Yeah, we did sign that MOU, and we're very excited by the opportunities in that, you know, battery metals and battery chain. We think that Ravensthorpe is very well positioned in terms of being an ESG-friendly and delivering a product that's well-liked by the market and well-recognized. It's at a very early stage. The discussions with POSCO around that are really picking up from, you know, completion of the deal and so on. It's something that is an active piece of work for us.
That's very clear. Thank you.
Thank you. The next question is from Ralph Profiti with Eight Capital. Please go ahead.
Good morning, everyone, and thanks, Tristan. Two questions. My first one is on Sentinel. In addition to the 62 million tons a year, we're also seeing some work being done on flotation. Just wondering, you know, is that really just positioning the back end of the plant for the higher throughput? Or could we see some recovery improvements? You know, when I look at the 62 million tons a year, it doesn't take much to get you to the upper end of that guidance range at Sentinel. Just wondering what we could see on recoveries as well.
Sure, Ralph. The work there on the flotation circuit is really on the column cells and the Jameson. That was around improving our concentrate grades. It was done during the last year or so. That was really in order to optimize the transport of feed to the Kansanshi smelter and also to make sure that we're in the right mix of the copper in that feeds into that smelter. That's been done very well. That program we're now rolling over to Kansanshi. Kansanshi is similarly upgrading its cleaner circuit and also columns and Jamesons around that cleaner circuit for the same purpose. That just allows us to optimize feed into the smelter and get the optimal 'cause it's limited by feed rather than copper production.
That allows us to do that. Sentinel, in terms of upside on recovery, I think the guys would be cautious to talk too much beyond where they are. They've done extremely well over the last few years to manage what they call Ore Type A and Ore Type B, which is the sort of two major feeds that we see around the different weathering in the pit. You know, they've done a terrific job over the last two years in getting to the levels of recovery. Beyond where they are now, I think they'd be cautious to add much around.
Got it. My second question, Tristan, is on flexibility for S3 expansion CapEx, depending on what we hear tomorrow from Zambia. I'm just wondering, you know, there's a little bit of smelter CapEx in 2021, 2022 and 2023, a bigger chunk of CapEx in 2023. Could we see some bringing forward of capital or pushing some back depending on what we hear tomorrow?
Yeah. Ralph, look, as I said, the discussion around S3 is broader than the budget. You know, from our perspective, it will be very interesting, and we think there'll be some key markers in the budget around that. It is a broader discussion around, you know, predictability and stability. Yes, we can change the timing of S3. The reality is the capital expenditure won't accelerate too much in terms of payments going out the door just because of, you know, the timing that's already there and our ability to, you know, to change that dramatically, even if we were able to bring it forward. We could, you know, push harder on it.
At the moment though, you know, all of our thinking will come together in the guidance that we put out early in the new year, and that's where I think we'll give you the clearest indication of what we think is the, you know, best approach at the moment.
Yep, quite understood. Thanks, Tristan.
Thank you. The next question is from Jatinder Goel with BNP Paribas. Please go ahead.
Thank you, operator. Good afternoon. Good morning. A couple of questions. The first one on capital allocation. Las Cruces is a brownfield project. After Cobre expansion, Enterprise and S3, is Las Cruces going to be the next likely project ahead of the greenfield Taca Taca and Haquira? And if that's the case, would you have project building capacity and capital outlay ceiling on how much you want to do annually? I'm just trying to understand how would you prefer sequencing, and if there will be an annual ceiling on your CapEx outlay. You've done more than $2.5 billion annual CapEx, I think in the past. Is the company willing to go there if projects are ready, and do you have the capacity to execute more than one big project simultaneously? Thank you.
Thanks, Jatinder. Look, you touch on really the core issue there, which is around people and the ability of the teams to cover all this ground. We're seeing that across the industry. Particularly as we look at engineering, you know, in the major centers of Western Australia or out of South Africa, that's been the experience on Ravensthorpe that the engineering firms are very heavily weighed with this. Our engineering, our projects teams, as much as, you know, they've come off big projects like Cobre Panama, are pretty fully occupied at the moment with these potential projects. That will be the challenge, how to work through all of that.
We certainly think that these four projects can be done in a sequence that will make sense in terms of that capacity for people and resourcing, and also in terms of CapEx. As brownfield projects, they're very much less capital intensive than a big greenfield, and we see that in terms of the returns that come back from them. They also, as I said, have you know the other elements there, existing operating teams, the social license to operate or the license to operate is in very good standing at each of those. Because it's near the mine, all the shared infrastructure that's already on the ground.
Cobre Las Cruces, you know, if you were to do a greenfield project in the Pyrite Belt, you know, there's a billion-dollar process plant that would be needed, which is already built at Cobre Las Cruces. Notwithstanding that CLC, you know, we really don't think about it in terms of sequence and how does it stack up with the others, although that's one of the considerations, but really on its own merits that goes ahead. That's the evaluation work that we're doing at the moment. As I said, we're working on the technical report, the NI 43-101, and that will come out early in the year as a resource statement, and that will give more guidance around the shape of CLC.
The reality is we'll be working across that, I think, next year in firming that project up.
Understood. That's very clear. Just a quick one on coal exposure. When you say you're not exposed to coal price further increase in coal price rise, what's your reference point for further increase? Is it from today or is it from the second quarter, which seemed to be the peak or the ceiling of your collar structure?
Yeah. Jatinder, from the end of Q2. The prices that we're seeing there, we're basically at the top of the collar now and it won't go, in terms of impact, no further impact. Does that help?
Okay. Yes, thank you.
Okay.
Thank you. The next question is from Bryce Adams with CIBC Capital Markets. Please go ahead.
Yeah. Hi there. Thanks for the call. I wanted to follow up from an earlier question around Cobre Panama expected grades through to the year end. Q3 was a positive surprise and you're confident in your guidance. That said, is it possible to talk to the head grades that you've seen in October so far, just so that we can get a sense of how Q4 is tracking?
Yeah, sure, Bryce. Look, we've got to bear in mind Cobre Panama is a. The volume is significant. I think the difference in grade was, you know, 0.47 this quarter compared to 0.43 earlier in the year. 0.4 of a percent of copper has that kind of impact on our business. That's really the challenge for us because, you know, you're starting to get into the resource estimation side of things. That's very good for us. The reconciliation continues to be slightly positive and slightly so, you know, we don't have any problems with the grade control model or the original ore body model in terms of reconciliation.
What we are seeing, however, is as we get into areas of waste, that we're finding some more copper tons. In the northern box cut, for example, it's spotty, but we're a little bit ore bound at the moment. There's more ore there than was in the original, you know, planning around that, the waste delivery. That continues on. We've done some drilling between the Medio and Colina pits and starting to link those together and clearly so not any higher in grade, but just very apparent that these pits are now linking together a lot more as we do the delineation drilling. You know, I expect we're probably due for an update on the NI 43-101 at some stage.
Certainly as we look at Colina pit, that's part of our thinking and part of the planning there. In terms of grades in October, I mean, no, we've been tracking along as expected. What we will see is the grade that we took and brought forward in the mine plan won't be there for us in December. So that's why the grade does come off. We'll be pushing through a little bit more volume, but overall very happy with the guidance that we've provided. I hope that gives you a flavor.
Yeah, that's very useful. I guess just following up from that then, the step down in grade, if it's only in December, Q4 will probably be a modest step down versus Q3 and the first half.
It will be October, November and December. Let me be clear there.
All right.
Yeah.
Thanks a lot.
Bryce, we're confident in our guidance, and the grade will be a bit less.
Thank you.
Thank you. The next question is from Matthew Fields with Bank of America. Please go ahead.
Hey, everyone. I hate to keep asking about this, but hopefully it's the last one or two calls where I get to. Just a lot of fixed income investors are a little bit confused about your strategy on those front-end bonds. You know, the credit markets are so accommodative to you at this point that you could, you know, the 7 1/4s could be refinanced, you know, 200 basis points less than that. You've got so much cash on the balance sheet. I think more than you've ever had at $1.9 billion. I think, you know, what do you say to fixed income investors who kind of are wondering sort of what you're waiting for to take care of that front-end maturity?
Hannes, do you wanna take that one?
Matt, look, I've said it earlier as well, so we'll start addressing those front-end maturities now. In terms of refinancing, you know, we're generating a lot of cash, so there's no real liquidity need at this stage. I think what you will see in future is a overall reduction in the size of our bond portfolio. In time, we'll add new bonds, probably smaller size, but you know, just to keep the sort of yield curve current. You know, there's no need to rush out there and add longer dated non-callable debt at this stage while we're generating good cash flow. You should see reduction of those near-term bonds in the near future.
We should think, you know, the $1.6 billion of 7.25s gets refinanced with, you know, call it $800 million of some longer-dated bond at a lower coupon?
No, that's not. Look, I can use cash and facilities that I've got available, so I'm not committing to any of that at this stage.
Okay. On that new facility, I see the amortization schedule on the slide deck. That's very helpful. Is it sort of $455 million a year semiannually? Two twenty-
That's correct.
18, six months?
Yeah. It's semiannual. That's correct.
On the rate on that, I know you know the rate is not disclosed, but can you give us kind of a ballpark, you know, estimate or guidance of how the rate on this current facility compares to the rate on the older facility?
It is a significant improvement compared to the old facility.
Okay. Thank you very much, and good luck on the rest of the year.
Thank you.
Operator, we'll take one last question.
Certainly. Thank you. The last question will be from Orest Wowkodaw with Scotiabank. Please go ahead.
Go ahead.
Oh, thanks for taking the follow-up. Just thinking sort of big picture long term now with First Quantum, I mean, you've gotten the balance sheet well on its way to deleveraging. You've got obviously some brownfield opportunities ahead. I'm just thinking, you know, more longer term, when you start thinking about next challenges on the greenfield side, do you, are you starting to look externally at all for potential deposits that as an alternative to either Taca Taca or Haquira? Just given both those, it's not clear to me that either one of those projects makes sense to develop even in the medium term for various reasons.
Sure, Orest. Thanks. Look, I mean, we're excited about Taca Taca. We put out the NI 43-101 at the end of last year, and we like the project. It stacks up well, but certainly we need to have regard to the business case for investment into Argentina, and that's where the work's going at the moment. We, you know, there is progress. We've put in the environmental permit, the infrastructure permit. We need to submit the water permit and so on around that. But there's good work happening there. In conjunction, they're speaking with the federal government, and also the regional government in Salta around the fiscal conditions for investment into Argentina. Haquira is an interesting project for us and certainly reliance on community relations there. That's been harder with COVID-19.
I think, you know, it's something that we're interested to get more on the ground and deliver on. More broadly, yes, we look at opportunities that come across our desk regularly. What we look for, Orest, is projects that we can apply our capabilities and make a difference in terms of value. You know, there's obviously been, you know, quite a bit of activity recently, and I guess where we would be distinguishing ourselves is around the ability to add value in terms of execution on the project side or operations excellence or on the ESG side in terms of, you know, changing the environmental picture there or otherwise. That's what's important.
In terms of that, yeah, the longer-term picture for First Quantum is continue to build on that growth, and really that's around adding a third leg in time beyond Zambia and Panama, and giving us that broader diversification, a geopolitical diversification.
Tristan, let me
Thanks, Tristan.
Tristan?
Sure.
Orest, I'd comment that, and Tristan answered it very well. We know that First Quantum is recognized as for its growth and for having the capability to address projects. We needed, particularly through the end of 2022, to consolidate all kinds of reasons, not least that we've always said we would deleverage, but also we had some brownfields work that we wanted to put out of the way. What I can assure you of is that we are looking at opportunities for growth because that's important both to maintaining that capability and exploiting it, and also because I think it's what our shareholders would want. We have projects that, as Tristan says, Taca Taca is a really good project. Things in Argentina just do need some improvement or appreciation of what it's gonna take to attract mining investment. I'm sure that that's happening.
I think that to some extent, Haquira is a development that we've kept working on and see possibilities with. We need to, and we do look beyond that, both in our exploration activities, which are quite fruitful, and also to ensure that we have things we can work on. Their timeframe, as you know, is, especially if they're big, the one that's quite lengthy. We have to start working on those things from quite early on, even though the capital expenditure and the like might come later. We understand that and are mindful of it. In time, you will see the impact of it.
Thanks for the color, Philip. Much appreciated.
Okay. Thanks, operator. Just to say thanks to everyone for joining today's call. Please enjoy the rest of your day, and we look forward to speaking to you again at our Investor Day in January. Thanks, everyone.
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