Thank you for standing by. This is the conference operator. Welcome to the First Quantum Minerals Ltd. first quarter results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star, then zero. I would now like to turn the conference over to Bonita To, Director of Investor Relations. Please go ahead.
Thank you, operator, and thank you everybody for joining us today to discuss our first quarter results. Before we begin, I will draw your attention to the fact that over the course of this call, we will be making several forward-looking statements. As such, I encourage you to read the cautionary note that accompanies this presentation, our MD&A, and the related news release. As a reminder, the presentation which accompanies this conference call is available on our website, and that all dollar references are in U.S. dollars, unless otherwise noted. On today's call, Tristan Pascall, our Chief Operating Officer, will provide an overview of the operations and performance during the quarter, followed by Hannes Meyer, our Chief Financial Officer, who will review the financial results. Tristan will wrap things up, after which we will open up the lines to take questions.
With that, I'll turn the call over to Tristan.
Thank you, Bonita, and thank you everybody for joining us on our call today. Copper production in the first quarter of 2022 was softer than the previous quarter due to mill and power station maintenance at Cobre Panama, and as we saw the impact of an extended rainy season at our Zambian operations. At the same time, our operations faced inflationary pressures, particularly from the end of February onwards, as the conflict in the Ukraine and the associated sanctions imposed upon Russia has led to higher energy and input costs. Despite these challenges, the first quarter delivered another record in earnings and profits as a result of continued strong metal prices as our exposure to spot prices has greatly improved with minimal remaining hedges in place. This enabled us to continue to deliver on our ongoing priority of reducing debt, which Hannes will speak to more in his presentation.
Before going into the operational performance during the quarter, I will address the changes that we made to guidance yesterday evening. The decision to change our guidance so early in the year was not taken lightly. However, the world has changed since we provided our guidance in January, and we felt it important to be transparent on the impact it is having on the company. For the last two years, each of our mines worked and delivered under restrictive conditions presented by the global pandemic, particularly around labor and logistics. While these restrictions have eased, they do nonetheless continue to be present, and the Ukraine crisis has laid on a number of further disruptions to an already complex situation. It was paramount that we reset realistic expectations for the year ahead, given the challenges that we see.
For 2022, we have lowered our production guidance to a range of 790,000-855,000 tons of copper production. The lower guidance reflects the impact on actual progress of mining compared to plan during an extended rainy season at our Zambian operations and higher maintenance in Panama. At Sentinel, the wet ground conditions constrained the planned waste stripping and delayed access to high-grade ore in the east of the pit. At both Cobre Panama and Sentinel, grades of the ore fed to the plant were impacted as mine production was behind the budgeted schedule in Q1, largely due to a backlog of truck maintenance, which impacted machine availability. This was a direct impact of restrictions on labor and resources during the COVID-19 pandemic and is now subsiding. Although the catch-up on truck maintenance may take several months to resolve.
At both Sentinel and Cobre Panama, grades are expected to return to plan levels over the coming months. At Kansanshi, the feed grades to the plant were lower than planned, and we consider this pattern will likely continue for the remainder of the year. On to costs. When we released our cost guidance in mid-January, it was based on the inflationary pressures that we were seeing at that time. Since end of February, early March, as a result of the conflict in the Ukraine and the sanctions imposed upon Russia, most of our major input costs, such as fuel, explosives, sulfur, freight, reagents, and steel, have increased significantly globally. I would note that our coal collars at Cobre Panama, in part, have insulated us from the full impact of electricity price inflation.
While it is too early to determine if these global cost increases are structural or transitory in nature, the impact of these higher costs cannot be ignored, and we felt it more prudent to plan for the year under a conservative cost scenario that assumes these cost pressures remain for the balance of 2022. Moving on to discussions in our host countries. I spent time in the quarter in Zambia, meeting with the president and senior ministers in its administration to plot a path forward for our business in Zambia. I'm grateful for their efforts and the collaborative nature of these discussions, which we hope will ensure that the appropriate and enduring investment conditions exist for First Quantum to advance the Kansanshi S3 expansion and the Enterprise Nickel project. Discussions with the government include seeking an agreed mechanism for repayment of VAT owed to the company.
These discussions continue to be constructive, such that we are hopeful that we can reach resolution in the very near term and advance both projects this year as reflected in our guidance. In Panama, discussions with the government are ongoing. The parties continue to finalize the details behind the benefits of the $375 million per year contribution from Cobre Panama on a gross pre-profit-based royalty. These details include the necessary protections to the company's business for downside copper price and production scenarios, and to ensure that the new contract and legislation are both durable and sustainable. Once an agreement is concluded and the full contract is documented, it is expected that the newly drafted legislation would be put to the National Assembly.
Turning to our operations, the company produced approximately 182,000 tons of copper during the first quarter, down around 10% quarter-over-quarter for the reasons I noted earlier. We saw some improvement in the shipping environment in January and February, and sales for the quarter totaled 197,000 tons. The shipping environment since March has become more challenging due to the Ukraine conflict, China's COVID lockdown, which has impacted its ports, and the recent flooding in Durban in South Africa. This has created congestion and some delays in shipping our products during Q1, mostly in smaller volumes, which are shipped from Zambia and Ravensthorpe in containers. We expected challenging shipping environment to persist for the remainder of this year. With respect to the Port of Durban, damage has been extensive from the heavy rains. Some port operations have already resumed.
However, priority is being given to shipments of seasonal produce, and it may still take a few months until operations at the port return to normal. In the meantime, the company's rerouting shipments of as much Zambian production as possible via other South African ports, which may themselves experience some capacity constraints. Cobre Panama's performance of 78,000 tons for the quarter was impacted by SAG mill relines performed early in the quarter, as well as the backlog of truck maintenance, which I spoke of earlier. The mills have since ramped up well, and Cobre Panama achieves a record monthly mill throughput of 7.6 million tons in March, and we have the benefit of six new trucks, which have already arrived on site at the end of Q1 for the Colina pit.
We remain confident that mill throughput will ramp up over the course of 2022 to achieve between 85 and 90 million tons for the year. Along with the cost inflation resulting from the Ukraine crisis, Cobre Panama's cash costs of $1.65 per pound were also impacted by exposure to spot prices during the planned maintenance to Unit 1 at the power station that was completed at the end of January. However, with the maintenance complete, costs have moved back in line with the collar and coal prices for the mine. This collar prevents further exposure to increases in the coal price until December 2023.
At Kansanshi, copper production of approximately 42,000 tons in the quarter was in part impacted by the rainy season, but production also reflected the nature of the ore body in the reduction in oxide ores and the ongoing challenge of the selective high-grade methodology in sulfide ores. Sentinel's copper production of 52,000 tons for the quarter was particularly impacted by the rainy season, where higher than normal rainfall impacted ground conditions and delayed access to high-grade ore in the east of the pit. As noted earlier, also contributing to the restriction of ore movement was limited truck availability and a backlog of truck maintenance due to restrictions on labor and resources during the COVID-19 pandemic. Our revised copper production guidance assumes great improvement in the second half of this year.
The fourth in-pit crusher was successfully commissioned during the quarter, which is expected to stabilize mine ore feed at an annualized rate of 62 million tons per annum. Turning to some of our ESG highlights from the quarter, I'd like to start by congratulating our teams at Kansanshi and Sentinel, who were honored with six awards from the Zambian Responsible Business Awards across various categories, including the 2021 Company of the Year Corporate Social Responsibility Award. These awards recognize organizations who take action while building coalitions across communities. It's great to see our programs in public health support, education, and environmental stewardships being recognized. In Mauritania, 132 women recently completed our annual female empowerment program. This targets improving literacy, numeracy, and livelihoods in the poorest neighborhoods of Akjoujt, close to our Guelb Moghrein mine to improve standards of living.
Moving to Panama, where we continue to support the development of our host communities with a range of programs. In February, we were happy to sponsor the World Neighborhood Basketball Tournament, which took place in Colón. Over 1,100 children took part in the five-day festival of sport and culture, which highlighted the importance of sports in the development and well-being of our communities, as well as our ongoing commitment to supporting them. With that, I'll turn over things to Hannes, and I'll be back in a few minutes to wrap up.
Thanks, Tristan, and good day to everyone. I would like to direct you to the slides titled Financial Overview. That's slide 11. Strong financial performance in the quarter was driven by higher realized metal prices. Benefiting from a reduced hedge profile and resulted in a significant increase in EBITDA and net earnings. With a quarterly record in both gross profit of $908 million and adjusted earnings per share of $0.70, and a further notable reduction in net debt. This was despite the inflationary pressures on cost. Gross profit and EBITDA of $908 million and $1.2 billion respectively, were significantly higher than the comparable quarter in 2021.
As a result, there was significant improvement reflected in net earnings attributable to shares of the company of $385 million and adjusted earnings of $480 million. Net earnings include a $40 million non-recurring cost in connection with previously sold assets. Net debt decreased by $238 million this quarter, bringing the net debt level down to $5.8 billion as at March 31st, 2022, with a debt reduction program on track. Cash flow from operating activities were $666 million for the quarter, $77 million lower than the same quarter in 2021 due to high receivable working capital balances at the end of the quarter, principally due to higher realized metal prices.
Copper C1 cash cost of $1.61 per pound was $37 cents per pound higher than the comparable quarter in 2021, impacted mainly by inflationary pressures seen over the past year and lower production. The conflict in Ukraine and the associated wide-reaching sanctions imposed upon Russia has led to sustained higher energy and commodity prices, which, as Tristan covered earlier, has further contributed to the global inflationary environment since the company provided three-year guidance in January 2022. Turning to the next slide, the financial overview continued. Within the quarterly summary table, all metrics except for cash flow from operating activities and net debt are quarterly records for the company, with high realized metal prices driving such strong financial results. Turning to the next slide on copper unit cash cost.
Copper C1 cash cost and all-in sustaining cost of $1.61 per pound and $2.27 per pound were recorded in the quarter. Total copper C1 cash cost was $37 cents higher than Q1 2021, including the additional inflationary impact with increased increases seen in fuel, explosives, freight, reagents, and steel, as well as sulfur, which impacts our Ravensthorpe nickel operation. During January, Cobre Panama also experienced higher power costs during the January power plant maintenance period. Q1 guidance has been increased to $1.45-1.60 per pound to take account of the increases to cost environment since guidance was issued, as well as changes to our production guidance. All-in sustaining costs for the quarter was $55 cents higher than Q1 last year due to higher C1 costs and further impacted by higher royalty costs due to higher copper prices.
All-in sustaining cost guidance has been increased to $2.15-2.30 per pound to take account of higher royalties as well as increased C1 costs. The next slide provides more detail on the significant increase in gross profit year-on-year. Gross profit increased by 68% compared to Q1 2021, primarily due to higher realized metal prices and a reduced hedge profile, which mitigated the impact of the higher operating cash costs and royalties, as well as the lower sales volumes. Turning to the next slide on net debt evolution. The company's net debt has reduced by $1.8 billion since Q2 2020 to an amount of $5.8 billion at quarter end. The company's leverage ratio was 1.4x at the quarter end.
The 2021 corporate facility has a single net debt to EBITDA covenant, not exceeding 3.5x , and is tested on a semi-annual basis after the June and December results. Turning to the next slide on debt maturity and hedge profile. On April 5th, the company redeemed at par $500 million of the remaining $1 billion senior unsecured notes due in 2023, which leaves $500 million remaining of this bond. No new hedges were placed in the quarter, with all hedges maturing during Q2. At quarter end, the company had 15,000 tons of unmargined zero cost copper collars sales contracts outstanding, with maturities to the end of June 2022 at a weighted average price of $3.75 per pound to $4.63 per pound. Thank you, and I will now hand back over to Tristan.
Thanks, Hannes. Despite the operational and inflationary challenges presented in the first quarter, we remain committed to improving our balance sheet. As Hannes commented, we continued to reduce our debt position during the quarter and also announced the early redemption of senior notes subsequent to the quarter. We also remain committed to our brownfield projects, which continue to be compelling economics despite the global inflationary environment. At Cobre Panama, the CP100 expansion is now well underway, with 55% of the overall project complete. Procurement is 100% complete, with supply ex works almost fully complete and delivered to site is at 80% complete. In the first quarter of 2022, we took delivery out of six out of eight additional ultra-class haul trucks, with the remaining two to be delivered during the second quarter of 2022.
These units will support an additional rope shovel, which is expected to become operational during the second half of 2022. Pre-strip work for the Colina pit and earthworks for the associated overland conveyor and in-pit crush, crushing facility have commenced and are expected to continue throughout 2022 and into 2023. In terms of the potential impact from the tight shipping market, construction completion continues to be targeted for 2023. Ball Mill 6 and its gearless drive motor are already on site. The major outstanding components that remain to be fully delivered are related to the decant order pipeline and the screening project, and deliveries are expected to be complete by mid this year. The S3 expansion, which is awaiting board approval, involves a 25 million ton per annum expansion of the sulfide ore processing facility, increasing annual throughput to 53 million tons per annum.
Our current guidance for S3 assumes construction in 2023 and 2024, and first production in 2025. The long lead items yet to be ordered are the SAG mill, ball mill, and in-pit crushing station, and our current planning assumes a two year delivery time and nine month installation. At the Enterprise, still awaiting board approval. The project has the potential to add 30,000 tons per annum of nickel, and our current guidance assumes first production in 2023. In the context of the current inflationary pressures and tight shipping environment with the plant largely built as part of the Sentinel Complex and the remaining $60 million spent relating to pre-stripping activities. The Las Cruces underground project is our longer-dated brownfields project that has the potential to add approximately 45,000 tons of copper equivalent annually to our production profile.
A reserve update is expected later this year, which should also provide more detailed CapEx and OpEx estimates. These four brownfield projects have us on track to produce around 1 million tons per annum of copper, while at the same time allowing us to continue our financial discipline in reducing debt and returning capital to our shareholders. Our portfolio of growth options include several major greenfield opportunities, notably Taca Taca and Haquira. In 2022, the work plans for these projects are focused in country and on the ground at each site, and we are excited about the long-term optionality that these, both these projects offer. Finally, I want to thank the team at First Quantum. The last two years during the pandemic brought many challenges, and current global events have introduced another layer of disruptions to meet and to overcome.
I thank the entire team for the efforts and dedication to our success. Operator, we would now be happy to take questions.
Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Analysts are requested to restrict themselves to two questions and are welcome to rejoin the queue if they have more. Our first question comes from Greg Barnes of TD Securities. Please go ahead.
Yes, thank you, operator. Tristan, related to the COVID restrictions and all the other issues that have happened over the past couple of years, are you seeing lagging impacts on your mine plans and mine sequences as a result that will feed through the balance of this year and into 2023?
Yeah. Hi, Greg. Thanks for the question. Yeah, look, COVID-19, we have worked for the past two years under, you know, fairly serious restrictions, but nonetheless delivered throughout that time, including the ramp-up of Cobre Panama. We were able to navigate most of the pandemic, you know, fairly well. Omicron certainly did impact the operation sort of December and January in this last quarter. Yes, we have seen as a result of that, so for example, at Cobre Panama, there was quite an impact on of the number of cases in the maintenance section, for example. That has had an impact on truck availabilities, causing a, you know, some backlog on truck maintenance, beyond what was, you know, normal maintenance on the mill relines and so on that was at Cobre Panama during the quarter.
That backlog will take several months, I think, to work through. As a result of that, yeah, I think we were behind in Q1 in terms of where we wanted to be in mine schedule. The copper is still on the ground in front of us. We were just not on the schedule of the face positions because of that truck availability. As I said in my comments, we now have another further six trucks on site as part of the uplift for the expansion. That does give us some flexibility, and we have a program in place to address that backlog of maintenance and catch up. Although I think that will take a few months.
Okay. You've talked a lot about OpEx inflation, but not a whole lot about CapEx cost inflation, and particularly S3. You know you still have a lot of things or a number of things to order on that with the ball mills and what have you. Are you seeing cost pressures or even scheduling pressures on the S3 project? Notwithstanding it hasn't even been approved yet.
Sure, Greg. Yeah, we would like to place orders, I think, for those big items I mentioned, the mills, and the input crushing facilities by the end of this year, all going well in Zambia. We have had a first look at it. The last time we went through that, the estimates was really the end of last year. Sort of, Q3 2021 was the last time we really went into detail on those costs. There's potential exposure on some of that. I guess the key question is how much of this impact, particularly on steel and logistics and freight, is transitory in nature and how much will stick.
By the time we come to do that, we'll certainly be looking at in terms of the order book. I will say that most of that CapEx will come through for S3 towards the end of 2023 and 2024. In fact, as we said in the 43-101, will extend into 2025. It is back weighted in our guidance. If we do see some of this current inflation environment around CapEx unwind, then you know, there's potential to get that back. As I said, at Panama, we're largely through procurement, 100% complete, and most of the kit already delivered on the site, and so there's very limited exposure there.
Our next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.
Hi, good morning. Most of your comments relating to the weaker Q1 and impacts to guidance seem fairly transitory in the sense of sort of just delayed accessing higher grade ore and things like that. Your comments around Kansanshi and the oxide seem different to that and perhaps would suggest there's something more pervasive here. Can you give us more color on what you're seeing there with the oxide and I guess the mixed, and whether this is something that you're seeing that's actually below the mine plan from a structural nature and potentially below the multi-year guidance?
Thanks, Orest. Hi. Yeah. Look, there's really two main areas at Kansanshi. The first was the rainy season, which did continue. We still had heavy rains, you know, mid-April and late April in Zambia, so it did push on this year. You know, quite a lot of those oxide materials are in locations and the conditions can get quite muddy in order for us to be able to to process that material. So that was one impact.
We are addressing that over the longer term, and you'll be aware we previously had a shaft that was dewatering under the pit, and we're now involved in sinking a decline that will resolve that into the longer term, and the decline will finish about the end of next year in terms of greater dewatering capacity. The other element at Kansanshi is really around dilution and grade. That is a longer-term element. We see it in the ore body that we become more of a sulfide operation. Really that's the underlying driver to move across to the S3 project. S3 will change Kansanshi from being a selective high-grade mine to a far higher volume medium-grade operation, and will continue as a world-class asset for another 20 years.
I think this is, you know, demonstrating that, you know, the challenges on grades are there until we get into S3. John Gregory, I don't know whether you would comment any further on the detail. I mean, the only other thing I would add is, you know, in terms of guidance for next year, 2023 and 2024, we're doing a lot of work on stripping. The strip ratio is currently at around 2.7 versus the budget of 1.9, and we're really pushing quite hard over the last nine months to be sure that we have good grade exposed for 2023 and 2024. John, would you comment any further there?
Yeah, sure, Tris. I think you've covered the main areas. I would say on the oxide and mixed, access has been the issue, as mentioned, due to the rainy season. It is in the upper, weathered zones. That copper is still there in oxide, and we will treat it going forward. We have modified the mine plans to ensure that we open up further working areas so that we will continue that during 2022 and ensure that 2023 and 2024 deliver the copper that we need, and we predict ahead of the S3 commissioning phase.
Sorry. Just to be clear, you don't see any issue with respect to the grades in the ground? This is more of an access issue?
Yes. The grades in the ground are reconciling well, from the grade control and ore control models back to the resource model.
We are very confident about grades as seen. It's access to areas of the mine that we are working and how the mineralization actually presents itself in those particular areas. We have been producing from areas that we hadn't anticipated in quarter one, primarily due to the wetter than expected conditions, providing wet underfoot access and restricting us to certain areas.
Our next question comes from Emily Chieng of Goldman Sachs. Please go ahead.
Good morning, Tristan and Hannes. Thanks for taking my question. My first one is around the cost inflationary guidance that was announced last night. Appreciate the update there. How should we think about where the upside or downside pressures could be and related to that to those numbers? Maybe specifically related to fuel costs, how should we think about what's being baked into forecasts at this point?
Hi, Emily. Thanks. Yeah, look, fuel in our mix has risen as one of the sort of strongest movers in terms of our cost breakdown. We've seen fuel rise from this time last year at perhaps 7% of our cost structure overall to around 10% of our cost structure overall. It's really moved on. We're seeing sort of 25%-30% increase in prices is what's in. What's baked in our costs at the moment is if these prices continue and we meet sort of reasonable production, that is the mid-level of our production, we'll come in at the sort of mid-level of our cost guidance assuming that these current levels of fuel price, for example, are prevalent for the rest of the year.
There's a little bit of upside in those costs if fuel does tick up. If we're at the bottom end of production, then we would be at the top end of the guidance for the year as an example.
Understood. That makes sense. Shifting back into the production side. Appreciate the comments on Kansanshi. If we take a look at what happened in Sentinel, it sounded like that was also an access issue that you know prevented access to the higher grades. As we see that grade improvement increasing across throughout the second half of the year, should that therefore bleed into 2023 and you know perhaps there's some upside to 2023 production guidance, or are we too early to tell at this point?
Yeah, Emily, we would leave guidance for 2023, 2024 to next year in January. Really, yes, it was a scheduling matter due to wet conditions in getting into the east of the pit. Particularly, there's some high grade there that we want to get into, and we haven't been able to get into it as early as we hoped in the budget plan. That copper is still in the ground. It sits in front of us. It's a matter of getting through a remaining sort of two to three benches to get into that material. We expect to be in that towards the end of Q2, you know, from the middle of the year, and then we would be in that grade.
I don't know that we would see upside for 2023, 2024, but we'll address that in our guidance next year. What we do see is the copper that we'd expected is still there, we've just got to get to it.
Our next question comes from Matthew Murphy of Barclays. Please go ahead.
Hi. Had another inflation question, more around labor in Zambia. I saw a headline, Zambian inflation is actually slowing, it appears. What are you seeing on the ground there? You know, I guess when we see conflict in Ukraine and concerns around food price growth, like what's happening to the real cost of living of, you know, your workers there? How does that affect your outlook on costs?
Yeah. Thanks, Matthew. Look, it's very important and something we do regularly with the workforce is look at their cost of living. In the past, during times when inflation has been running away in Zambia, we've adjusted levels half yearly. For example, that's very appropriate that we look at that at the moment in Turkey, where we're seeing very high, you know, the currency falling away very quickly at the moment. In Zambia at the moment, that's not the case. You know, the currency has improved under the new government, but they have removed a lot of the subsidies that were in place. For the average Zambian, certainly fuel price has risen, fertilizer prices have risen and that will impact food prices in the country.
The basket of goods that our workforce, you know, deals with day to day, we look closely at with them, and we will adjust if necessary, in terms of, you know, making sure that their cost of living is that they're able to meet reasonably. It's something we keep an eye on closely. At this stage, labor in Zambia is not, you know, because of the kwacha denomination, it's not the same cost that we're seeing, for example, in other economies in Latin America or in Australia, for example. When we look across our business, you know, labor is probably the one area which is not as connected to global inflation at this stage, but we're keeping a close eye on it.
Okay. Thank you.
Our next question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.
Thank you very much. I wanted to ask you about the progress to replace Law 9 in Panama. I know in the MD&A, you have some comments on how that's going. It sounds like it's still in the drafting phase if I'm reading it correctly, and then it would have to go to the broader parliament for ratification. Can you provide an update on sort of the timing and how long you think it's gonna take for that to be fully passed and enacted? Thanks.
Thanks, Jackie. Yeah, Law nine, we continue to make progress, and as you say, it's in the detailed drafting phase at the moment. The one change in April, we have seen the newspaper reports and we're yet to have official confirmation, but it does seem the minister of commerce, according to those newspaper reports, that the minister of commerce will be potentially taking assignment in Washington as the ambassador to Washington. That may be an element of, you know, in terms of getting to fruition right now in April, you know, potentially will have an impact if there's a change in personnel from the Panamanian government side. Again, that's not been confirmed, but there was a newspaper report on the eleventh of April to that effect. That's the one area.
Otherwise, in terms of the process, there's a lot of work going on in the detailed drafting, and that continues to progress. We would hope to get to resolution, as we've said before, very imminently. Yes, it will go into the National Assembly for ratification. You know, the current session of Parliament ends at the end of this month, but there has been an indication the ministers have mentioned that there's a possibility of having an extraordinary session in order to deal with the legislation.
Maybe as a follow-up question, I could ask something similar in Zambia. It sounds like you continue to have a good and maybe even strengthening relationship with the government in Zambia, which is great. Can you give us any kind of color on how that might impact the board full approval of the S3 and the enterprise projects and when maybe we could expect to see an announcement on this?
Thanks, Jackie. Look, I would hope it's in the near future. I was there last month, and we're in country at the moment, working that through. Really around, you know, as I mentioned, you know, the topics of that, but also, you know, looking forward, Zambia's made it clear and this administration has made it clear the level of investment they want to encourage into the country, that is to triple copper production. At that level, you know, it's potentially $30 billion that would need to flow into investment in the country to deliver that over the next 10 years, you know, beyond exploration and the front end in order to establish those projects.
Certainly First Quantum, you know, very keen to be at the front end of that and the business environment, you know, that would encourage that level of investment. Those are the discussions we're having with the government in order to get that, a period of stability in front of us. I would hope in the near future we have an answer on that.
I apologize because I know we're only supposed to ask two questions, but if I could maybe just follow up on what you just mentioned, Tristan. Would that suggest if you're keen to be on the front end of a larger push to grow copper production in country, would that suggest that you might look at future greenfield sites or something sort of outside of the assets you already own?
Look, Jackie, Zambia is very prospective. I think we're very much focused on Kansanshi and Sentinel at this time. The commitment, you know, building towards a decision to commit $1 billion at Kansanshi would certainly be our focus. I think, you know, we haven't been actively exploring in Zambia for some time. Certainly exploration, you know, we would consider in terms of a broader remit. At this stage, as we said, you know, we wouldn't be looking to go into other operations at this time, at Mopani or KCM or some of the other assets there. I think, you know, we're very much focused on our own portfolio. Beyond that, in terms of, you know, prospectivity and frontier, that's potentially an area we could look at in exploration.
Our next question comes from Ioannis Masvoulas of Morgan Stanley. Please go ahead.
Yes, hello. Thanks for the presentation. The first question is on the cash costs at Cobre Panama. The collar structure for coal purchases keeps the costs contained to some extent. What would be the impact to your C1 cash costs in Q1 if the collar was not in place?
Thanks, Ioannis. Yeah, so electricity at from Panama is about 7% of our cost structure at the current time. Exposure to you know the full coal price would move that pretty significantly. We seem to you know the coal price collar's kicked in at around $88-89 and we would have exposure beyond that you know to where you see the current price.
I see. Okay. That's very helpful. Thank you. The second question, going back to the fiscal talks in Panama. You mentioned a potential or a chance that the Minister of Commerce could move on from his current role. Do you foresee any risks around the principal items that you have already agreed, i.e., the $375 million if he gets replaced by someone else? Or do you think that from today's point of view, that's completely de-risked?
Yeah, Ioannis. No, I don't think there's you know, it's been pretty consistent of the group overall, the Panamanian administration in terms of their approach on these discussions. No, I think it's more just the mechanics and the logistics of getting through the process more than the fundamentals or the principles that are agreed.
Our next question comes from Dalton Baretto of Canaccord. Please go ahead.
Oh, thanks. Most of my questions have been answered, but Tristan, maybe I can ask you some of the finer details, I guess, on Panama. You mentioned that you guys are into detailed drafting now, and that most of the primary items have been covered. Does that mean that you have an agreement in principle around downside protection and the sustainability of the agreement, and you're just working through mechanics? Or is that still yet to be determined?
Yeah, Dalton, I wouldn't get too dragged into specifics of what we're working on day to day. Yeah, those principles were agreed and the protections and so on are part of the effort now in terms of the drafting to get that in place. That will cover things, you know, the broad level that Law 9 addressed, including those protections, including tax holidays, including all those details. That's the drafting effort that's going on. Yeah, I wouldn't get too much into, you know, which elements are drafted so far and which elements are not. Broadly, all of that is a piece of work that's ongoing.
Okay, great. Once this agreement has been ratified by Parliament, what is the effective date? Will it be backdated to January first or will it be on a go-forward basis?
Yeah, Dalton, I expect it to be on a go-forward basis. We have paid the Q4 royalty. Royalties are due, if I recall correctly, 60 days after the period end on a quarterly basis. Our quarterly royalty for the end of 31 st December has just gone through and been paid. The next one that would be due would be 31st March, but it's only due at the end of May. That would be the next date to consider. At that time, we would submit on the basis of what's currently in place, and we would have to deal with that if there's any change in the meantime. No, our clear indication is there wouldn't be any retroactivity, there wouldn't be any look backwards.
You know, every quarter that goes through is resolved and there wouldn't be any look back to that.
Our next question comes from Farooq Hamed of Raymond James. Please go ahead.
Thanks, operator. Tristan, earlier in the call you know, you made a comment that the world has changed and that, you know, you're looking at your cost structure and, you know, trying to figure out if it's transitory or structural. As you're having your negotiations with various governments and drafting fiscal agreements, what positions, you know, can you kind of say that the governments are taking in terms of the cost pressures you're seeing and the margin pressures you're seeing? Are governments, you know, sympathetic to the cost pressures? Do they see it more as transitory, you know, or are they factoring it into the negotiations in terms of expected outcomes, in terms of revenue sharing or profit sharing?
Yeah, Farooq. That's a very good question. I think what we're seeing so far is that it's dawning still on governments as to the pressure. Certainly, some of that's come through already, you know, directly to consumers. So fuel impacts people directly. I don't think you've seen the full impact from food prices in some countries as yet. You know, because it takes time for those crops to come through to be grown, and then obviously, there's a lot of storage and logistics in the interim. So I don't think there's a full impact of that yet, and that's reflected in the conversations. That some of it's starting to awaken, but not a sort of full exposure of you know, some of the broader impacts.
You know, I guess uncertainty about what those, you know, where those impacts could go. For example, if there's, you know, further sanctions on oil or other areas, you know, coming out of Russia, beyond what's currently in place. In terms of our conversations, we're very much focused to make sure that as we go up and down through the cycle, that there's protections in place. We're a cyclical industry, and so we need to be thinking of, you know, ups as well as downs.
It's part of our conversation to make sure that those levels of protections are in place and that there's, you know, a viable business, sustainable over a long period of time, in order to, you know, invest $1 billion in Zambia or to continue forward in Panama for another 40 years or so.
Okay. Maybe we see some change in their stances related to that. My follow-up question is just related to the intensifying cost pressures we've seen in the last month or two months, you know, post the Russia-Ukraine conflict. Can you talk to what options you have available to you in the very current environment in terms of locking in costs? Are suppliers willing to enter, you know, short-term supply agreements at locked-in costs? Or are you really at this point, or, you know, are you kind of at the whim of the market in terms of supply, demand, and availability of input supplies?
We have been able, prior to the Ukraine crisis, to put some out. We were starting to see inflation, for example, on sulfur, and we were able to put some elements in place for protection. I think then things have changed since the end of February, beginning of March, and we're in a state of flux at the moment. At the moment, I think, you know, that's a harder discussion. You know, I don't think the same would be achievable right now on coal or on sulfur, for example. You know, where I think, you know, a lot of that flux comes through is not just on pricing, it's also on lead times.
The kind of congestion that you see in the Chinese ports means that it's not just the cost, it's also when will that item come through. That's what we need to be aware of as well. That comes to affect the market, I think, on things like spares or, you know, components that need to flow through. We're doing a lot of work to critically analyze, you know, which spares, which elements, you know, will there be a challenge on, to make sure that we have that area covered. It's in odd areas.
For example, at the moment, we hear from our suppliers that filter material, which is a high moving item, but the components that go into making air cleaners, air filters are harder to come by, because all the automotive industry, including, you know, our end on the truck side of things, is competing for the same filter cloth. And the orders weren't in before during COVID, and now actually they've got quite extensive. Plus there's the logistics, the shipping is going out in terms of duration. It's a combination of factors, and I think, you know, it needs cool heads and working through the criticality, to make sure that we don't get stock outs on those key items.
Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.
Hello. Thank you for the presentation, and I hope you're all well. I guess just two questions from me. I'd like to follow up on the Kansanshi, Constancia question. You know, hopefully not to overdo this point, but you made one comment, actually, John Gregory, I think it was you that made that you said it's more of an issue of how the mineralization presents itself in certain areas. I just wanted to follow up on that in the context of sort of how the grades at Constancia performed in 2021, where they were quite materially below the technical report. Also in 2022, they're now, you know, where you're guiding is now quite a bit below the technical report.
I'm just curious, when you make that statement, do you mean that where you expect to get oxide material, you're actually getting either mixed or sulfide?
John, do you wanna take that?
Hi. Yeah, sure. What the comment relates to, we're mining in different areas than the actual plan anticipated. With the plan, but presently we work in certain cutback zones due to weather and other access issues. You can't work in that area, so you have to resort to another area of the mine, and that has a different style of mineralization. So, the ratio of oxide mixed sulfide that we have anticipated in the current budget was not necessarily fulfilled during quarter one. In terms of the technical report, we are working again in zones that have not necessarily aligned to the cutback sequence that was contained in the technical report. We're in the process of reassessing the mine plan as we have this, as I mentioned previously.
We are looking at increasing our waste stripping so that we can ensure that we deliver on the plans for later on in this year and 2023 and 2024.
Okay. Thank you. I know it was a subtle difference, but that does help. Finally, maybe could I just get your thoughts on M&A in the copper space? I know you guys are always looking. How would you describe the current opportunity set?
Sure, Lawson. I think, yeah, the succinct answer is we're focused on our portfolio. We think that, you know, the brownfields opportunity within the business is meaningful. You know, this, you know, with the surge in inflation and so on, that's the right focus. You know, more broadly, yeah, as you say, we, you know, opportunities do come across the desk. Certainly, I think at the moment, copper continues to outperform in terms of price, you know, all as we see it on costs, you know, all boats are rising on our import costs. But copper is outstripping them. I think you saw that in the Q1 results that, you know, despite the level of cost rise, we did reach, you know, record profits for the quarter.
Yeah, in terms of, you know, opportunities then, it does make it a challenging environment in order to, you know, to put a peg on, you know, margin and how each assets line up. But I don't think you'll see First Quantum out there front of line bidding in direct competition, you know, on big assets. Where we try to look at things is where we can apply our capabilities to add value, you know, for shareholders to add value that others, you know, have found challenging or that we can work through or bring a different approach, bring a different way of doing things.
As I said, our real focus at the moment is on the existing portfolio and the important work that we're doing in Argentina on Taca Taca, for example, and also in Haquira on the ground in order to bring those projects to a level where we could make a decision in the next couple of years as to whether to proceed.
Operator, we're coming on up to the hour, so this will be our last question, please. Thank you.
Certainly. Our next question comes from Edward Brucker of Barclays. Please go ahead.
Hi. Thanks for taking a question at the end here. Just two quick ones, I think. Just wanna get your thought process around continuing to reduce debt at this point versus something like, you know, more share buybacks or more dividends, especially in the context of net leverage levels, you know, well below that 2x target currently.
Yeah. Yeah, Hannes, do you wanna take that one?
Sure. Look, we came out on the capital markets day the third week of January. I mean, the maximum level, the limit would be two times net debt to EBITDA, but that is a through-the-cycle price. When current prices, you know, if we look at our longer term price, this is in excess of that, so we still got some work to do in terms of that. I mean, for us, that's the key is the debt reduction. We've laid out the new dividend policy at this stage. Tristan, I don't know if you wanna carry on.
No, I think that's clear, Hannes. What we have been cautious on the dividend policy, and so, yeah, we're focused on that as a means to capital returns in the near term. The buybacks and so on, you know, the board would have that, the discretion in the future, but at this stage, as Hannes says, the focus is to continue the debt reduction, and to cautiously commence on dividend returns.
Great. Thanks. Then just the cadence of the debt reduction in, you know, in this year and then into early next. It looks like you did close to $200 million taken out this quarter, which I think will leave about $800 million left for, to get to kinda your additional $1 billion, reduction. That coincidentally is the same amount as the term debt left outstanding in 2022, and then the rest of the $500 million in the 2023 maturities. Just wanted to get your sense on, where you'd look to take, you know, reduce that debt.
Look, our bonds, the 2023s are callable at par, and the 2024s step down in September to a callable at par level as well. I mean, the bonds carry a coupon of 7% or around 7%, some of them just below that. That's our most expensive debt and, you know, that would be key to reduce that. The term debt, there is an amortization schedule attached to that. I mean, we'll pay that down in accordance with the amortization as and when it becomes due. I think the first focus would be on reducing the bonds, which in our portfolio is the most expensive debt.
This concludes the question and answer session. I would like to turn the conference back over to Tristan Pascall for any closing remarks.
Thank you to everyone, for your continued support and for joining today's call. First Quantum will be hosting our first in-person event in Toronto next week, and we certainly hope to see many of you there. As well, we look forward to hosting our Cobre Panama tour later this year in September. Enjoy the rest of your day, and we look forward to speaking to you again at our next quarterly update. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.