Thank you for standing by. This is the conference operator. Welcome to the First Quantum Minerals Ltd. second quarter results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will 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 and 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 everyone for joining us today to discuss our second quarter results. Before we begin, I will draw your attention to the fact that over the course of the call, we will be making 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 is available on our website and that all dollar references are in US dollars unless otherwise noted. Tristan Pascall, our CEO, is dialing in from Zambia and will provide an overview of 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 the lines up for questions. With that, I will now turn it over to Tristan.
Thank you, Bonita, and thank you everybody for joining us today on our conference call. The second quarter of 2022 was characterized by increased macro uncertainty and an emerging global economic slowdown. This was most notable in China, where the continued zero COVID policy resulted in economic growth of only 0.4% through the quarter. The copper price, as a result, has declined substantially. It's currently down more than 30% from its highs in March. While I'm pleased to say that our debt position decreased by a further $476 million during the quarter, and that our debt reduction target of $2 billion was also achieved, I'm very cognizant of the headwinds that may face the company with a looming economic slowdown.
The debt reduction efforts over the last several years have placed our balance sheet in a better position to weather this slowdown. The company is in a considerably stronger position when compared to slowdowns of the past. In order to build further resilience through these uncertain times, we will continue to target a further $1 billion reduction in debt in the medium term, which Hannes will speak more to in his presentation. We will also remain tightly focused on driving consistent operational performance, successful execution of our brownfield projects, and by taking a cautious and disciplined approach with our capital investments. This may include deferring unsanctioned projects if we deem it necessary. The brownfield nature of our current growth projects, combined with our in-house experience, will also serve us well, we believe, to navigate through these volatile times.
After a slow start to the year, I'm pleased to say that we saw an improvement in production in the second quarter. We are making progress on catching up on the backlog of truck maintenance and mine development that was present in the first quarter as a direct result of COVID-19 towards the end of last year. This catch-up, however, will still take a few more months to completely resolve. However, we have made headway. In the second quarter, we produced 192,668 tons of copper. The second quarter increase in production was entirely attributable to Cobre Panamá, which produced 90,800 tons of copper and achieved quarterly records in mining volumes, throughput, and also in copper production, which was very heartening in highlighting the excellent operating performance of the asset.
Increased plant stability and continuous improvement projects allowed for this record performance, and we remain comfortable with our annual guidance range of 330,000-360,000 tons of copper. Second quarter copper C1 cash costs averaged $1.54 per pound, $0.11 lower than the previous quarter as higher production volumes offset the impact of inflationary pressure for key consumables. It is also important to note that our exposure to spot thermal coal prices remains limited until the end of 2023 due to the coal collars in place. In Zambia, an extended rainy season into April and the lingering impacts of COVID-19 restrictions, while largely subsiding, did continue to impact both Sentinel and Kansanshi during the second quarter.
Here at the Sentinel mine, copper production of 52,447 tons in Q2 was essentially flat compared to the previous quarter. Sentinel's mine production was behind the planned schedule due to the extended rainy season and challenging ground conditions early in the quarter, which delayed stripping in the S tage 2 north wall, and as a consequence, prevented some access to higher-grade ore. The second quarter was also impacted by low truck availability and a backlog of truck maintenance. However, the second half of the year is setting up to improve. Sentinel hit a record in daily mill throughput in July, and progress has been made on preparing the pit for an improved second half of the year through exposure of good volumes of higher-grade ore.
We have maintained our annual guidance for Sentinel at 250,000-265,000 tons of copper. Although production is expected to come in at the lower end of the range. C1 cash costs of $1.88 per pound in the second quarter was $0.27 higher than the preceding quarter. Reflecting the higher input prices since the Ukraine crisis began. At Kansanshi, copper production totaled 39,719 tons in the second quarter. Over 2,000 tons lower than the first quarter. The extended rainy season did restrict mining deployments and required supplementing plant feed with low-grade stockpiles.
We are currently installing additional pumping capacity and water from the M12 oxide area is expected to be removed by the end of the third quarter of the year, which will provide access to the scheduled oxide and mixed ore beneath the water there. Additionally, we mined through a higher portion of veined material in the quarter, some of which comprise narrower and less mineralized veins, resulting in high dilution and lower overall grades to the mill. A new geological approach to these narrower and lower mineralized veins is expected to improve optimization of the mine plan in the near term. Kansanshi is tracking towards the lower end of guidance, of the guidance range of 175,000-195,000 tons for the year. Like Sentinel, copper C1 cash costs at Kansanshi were impacted by price increases in key consumables.
However, the lower quarter-over-quarter production resulted in a steeper increase in cash costs of $0.37 to $1.83 per pound. Speaking on costs, as noted in the last quarter call, the broader inflationary environment has been exacerbated by the Ukraine conflict. Resulting supply disruptions have led to an increase in most of our major input costs, and we have seen fuel, explosives, sulfur, freight, reagents, and steel prices increase significantly. Although they appear to have stabilized to varying degrees, albeit at elevated levels. Group-wide copper C1 cash costs averaged $1.74 per pound in the second quarter. For the first half of the year, C1 cash costs averaged $1.67 per pound, which is above the annual guidance range of $1.45-$1.60 per pound. Costs in the second quarter averaged above levels assumed in current guidance.
In recent weeks, we have seen some of these cost pressures ease, such as fuel and sulfur prices, while electricity and explosive costs are tracking below our forecasts. Stronger production in the second half of 2022 should benefit on a per pound basis, and as such, we are maintaining our guidance from April. However, it should be noted that achieving costs within this range over the next six months will be dependent on the market rates for fuel and other key important supplies and the market price of gold and our other by-products. Moving on to discussions in our host countries. It was very pleasing to announce that during the quarter, a VAT repayment agreement was reached with the government of Zambia.
First Quantum and the government successfully resolved all points of contention that had been stumbling blocks to progress the S3 Expansion and the Enterprise Nickel Mine. This included reaching agreement in respect to the outstanding value-added tax receivable sum and an approach for repayment based on offsets against future mining taxes and royalties. With this agreement in place, the board approved the sanctioning of the S3 Expansion project and the smelter expansion at Kansanshi and the Enterprise Nickel Mine near Sentinel, which I will discuss in more detail later in my presentation. In Panama, there has been civil unrest in the country over increased cost of living and unemployment, which has led to protests and temporary highway blockades around the country over the last few weeks. Production at the Cobre Panamá Mine remained unaffected.
We have been able to navigate regular supplies through roadblocks as they lift, while those to our site are unaffected. We also receive supplies, including fuel, through our wholly owned international port, which has not been interrupted. With regards to our workforce, which has not taken part in the protests, we are monitoring labor relations closely, and we have transportation plans in place to move our workers safely to and from site. We are also employing effective work from home arrangements for all support departments. We will continue to monitor the evolving situation closely. While discussions regarding Law 9 are still ongoing, the finalization of the agreement has been delayed to an extent as the government replaced the responsible minister of commerce, and more recently, has been naturally focused on resolving the civil disturbances.
First Quantum and the government of Panama remain committed to a swift conclusion of the Law 9 discussions on the basis of the agreed principles and on ensuring that the new contract and legislation are both durable and sustainable with downside copper price and production scenarios. With the publication of our 2021 ESG report this quarter, we continue to deliver on our commitments on the development of the reporting on our ESG performance to our stakeholders. This is our fifth annual report on ESG and highlights the performance of the company across a range of environmental, health and safety, social, and governance areas of our business. We also published our 2021 tax transparency report during the quarter.
This report underlines the importance that we place on transparency initiatives, which provide stakeholders with clear information on the contributions that First Quantum makes to our host governments. I would also like to highlight the positive impacts that we've had on our community initiatives, particularly the EDGE program, which was launched by our Trident colleagues in June. Parts of Africa have the highest rates of gender-based violence, and the goal of this program is to enhance each girl's access to education and training opportunities by helping them to stay in school.
At the launch of this program, we donated thousands of essential feminine hygiene products at Jiundu, and we will continue to do this and see that it is expanded to other schools in the surrounding communities. Working with our local communities continues to be a core value at First Quantum, and I'm proud of the Trident team for this initiative. With that, I'll turn things over to Hannes.
Thanks, Tristan, and good day to everyone. I would like to direct you to the slide titled Financial Overview, which is Slide 11 on the website. The company reported significant increases in both net earnings attributable to shareholders and adjusted earnings, together with a notable reduction in net debt. Gross profit and EBITDA remained robust and were comparable with same quarter in 2021. Net earnings attributable to shareholders of the company of $419 million, or 61 basic earnings per share, and adjusted earnings of $337 million or $0.49 adjusted earnings per share, showed significant improvement over the comparable quarter in 2021 and benefited from higher net realized metal prices following the reduced hedge profile, as well as a lower effective tax rate together with lower finance costs.
Gross profit and EBITDA of $629 million and $906 million respectively were in line with the comparable period attributable to higher net realized metal prices, offsetting lower sales volumes and inflationary impacts on costs. Copper C1 cash cost of $1.74 per pound was $0.45 per pound higher than the comparable quarter, impacted mainly by inflationary pressures seen over the past year, as well as lower production. Net debt has decreased by $476 million this quarter, bringing the net debt level down to $5.3 billion as at June 30th, 2022, a reduction of $2.3 billion since June 30, 2020.
Cash flow from operating activities was $904 million for the quarter, $225 million higher than the same quarter in 2021 due to favorable movement in receivables working capital at the end of the quarter. On July 26th, the company declared an interim dividend of CAD 0.16 per share in respect of the financial year ending December 31st, 2022. Turning to the next slide, financial overview. As I mentioned previously, earnings have increased significantly over the same quarter in 2021, with a lower effective tax rate for the quarter in line with the guidance, as well as lower finance costs.
Gross profit and EBITDA remained at comparable levels over the same quarter in 2021, with the benefit of higher net realized prices following the cessation of the hedge program, offset by a higher cost environment as well as lower sales volumes. Turning to the next slide in gross profit against the same quarter in 2021, set out in more detail the positive impact of higher net realized prices. This also shows the impact of increased unit costs over the quarter, and I will talk about this in a bit more detail. Turning to the next slide on the copper unit cost. Copper C1 cash cost of $1.67 per pound and all-in sustaining costs of $2.32 per pound for the first six months are currently slightly above the top end of our full year guidance.
Total copper C1 cash costs for the quarter was $0.45 per pound higher than Q2 2021, as prices continued to increase during the quarter for key consumables, including fuel, explosives and steel prices, along with higher freight and electricity charges, as well as the impact of lower copper production levels. All-in sustaining costs for the quarter was $0.46 per pound higher than Q2 last year, reflecting the higher C1 cash costs. Turning to the next slide on debt evolution.
With the reduction in the net debt, the company's leverage ratio also reduced and stands at 1.3 times net debt to EBITDA at quarter end. Turning to the next slide on the debt maturity profile. During the quarter, the company redeemed at par the remaining $1 billion of senior unsecured notes due in 2023. $500 million was redeemed on April 5, and a further $500 million redeemed on June 7. Thank you. With that, I want to hand back over to Tristan.
Thank you, Hannes. Despite the macroeconomic headwinds and inflationary challenges, First Quantum's balance sheet is in a stronger position today, and the group will endeavor to continue to improve in this regard. This will be through operational discipline and, as Hannes commented, continued debt reduction. I will now speak to our brownfield growth projects. Due to the low capital intensity of our brownfield projects, they continue to have compelling economics despite the global inflationary environment and current pricing environment. At Cobre Panamá, as you can see from the pictures in the presentation, good progress has been made over the quarter with regards to the CP100 expansion. The project is overall 70% complete. Procurement is 100% complete, with supply ex works almost fully complete, and delivery to site will be over 90% complete during August.
In terms of the key individual project components, the additional decant water line is well progressed and is expected to be completed and commissioned this year, with Ball Mill 6 and the screening facilities following in the first half of next year. Ball Mill 6 is making good progress with the mill shells having been installed already. For screening, the vast majority of the modular steel and equipment has arrived on site, and the non-modular nature of fabrication will minimize site construction time, we believe. We remain on target for commissioning early next year to ramp up over the course of the year and exit 2023 at a throughput rate of 100 million tons per annum. At the S3 Expansion, engineering contractors have been engaged and procurement of long lead items commenced.
The longer lead items, including the ball mill motors, and elements of the overland conveyor, were ordered in June. While we saw some price movement, I'm pleased to say that pricing of these components are in line with our CapEx budgets. Similarly, orders for mining fleet have commenced and are also in line with our CapEx budgets. Our current planning estimate assumes a two-year delivery time on these major components nine to 12 months on installation, and first production in 2025. Alongside the S3 project, we will embark on the expansion of the Kansanshi smelter to 1.6 million tons per annum of feed. This project was approved by the board in July and will provide capacity for the additional copper concentrate from S3 with the planned upgrades to HPL. This expansion is included in the company's 3-year capital expenditure guidance provided earlier this year.
At the Enterprise project, mining contractors were mobilized upon board approval and pre-stripping of the pit commenced in June. The project has the potential to add 30,000 tons per annum of nickel production, and our current guidance assumes first production in 2023. I was pleased to host His Excellency, the President of Zambia, and the diplomatic representatives of Canada, the U.K., and the U.S.A. at the groundbreaking ceremony held at Enterprise yesterday. Before we go into Q&A, it is worth taking a moment to discuss the challenges that face the mining industry today and the challenges of bringing on new copper supply. A global slowdown, combined with a number of new projects coming into production over the next 12 months, has made us cautious on the copper price in the near term, despite continuing tightness in physical inventories.
However, in the medium and longer term, we do consider that the outlook for the copper price remains positive as there is a lack of new discoveries and shovel-ready projects in our view. This, combined with stringent permitting obstacles, inflationary pressures, and the escalating cost of capital, we believe, will contribute to an even tighter copper market in the medium to longer term. The current macro weakness and the higher cost of capital will likely further defer pro-approval of new projects that will be needed to supply into longer-term growing demand. Our near-term priority is therefore to drive operational performance and work hard to mitigate the cost impact of inflation. We will also take a cautious and disciplined approach to any new as-yet-uncommitted capital. A sanction decision on the Las Cruces underground project is not expected until next year, and Taca Taca in 2024 at the earliest.
Any decision will take into consideration prevailing economic conditions. Over the medium to longer term, the outlook remains bright, and we remain well-positioned with our portfolio of long-lived assets and organic growth opportunities. Thank you. 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're 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. We'll pause for a moment as callers join the queue. The first question is from Greg Barnes from TD Securities. Please go ahead.
Yes, thank you. Tristan, notwithstanding the situation in Panama right now, can you give us an idea if any more discussions or meetings are scheduled on the Law 9 situation with the government, and what the process is from here forward?
Sure, Greg. Yeah. We have been having discussions with government all through this period, and there are scheduled meetings ahead of us. Naturally they are focused on the civil disturbance in the country at the moment. We have met with the new Minister of Commerce, and he's part of those discussions. We expect them to continue, but in the background, and obviously our support is to the government in terms of the challenges that they have in the community. The process from here again is that we're in the detailed drafting phase, and really it's agreeing those along the lines of the agreed principles with a focus on ensuring that the new contract and legislation will be durable and sustainable.
You know, particularly during times when we see copper turn off, and prices come down or production. And that drafting of the contract and legislation will then be finalized and I assume made public and then be going into the National Assembly. The process remains the same and the stages remain the same. It's really just around the delays we've seen with the new minister, and then more recently, the challenges the government faces, with some civil disturbances.
Okay. I just wanted to switch to the VAT rebate agreement with the Zambian government. Is it fair to say, Tristan, obviously based on copper price, that this could evolve over, like, a 10-year time frame and you'd get a rebate or a tax offset of $70 millionish a year? Is that the way we should be thinking about this?
Yeah, Greg. The setup is that historic VAT and future VAT can be offset against future taxes and royalties. There isn't a set repayment period, and it's in proportion to revenues. At high copper prices, the VAT receivable will be repaid quicker and at lower copper prices, it will take longer. But certainly the time frame you mentioned, you know, is part of the assumptions and it's a mechanical formula. It will come through, and we're assured of the repayment. But at these sort of prices, the time frame that you mentioned seems appropriate.
The next question is from Emily Chieng from Goldman Sachs. Please go ahead.
Good morning, Tristan and Hannes. My first question is around CapEx, and it looks like that hasn't been changed for the year. You've made some progress on the procurement process there for some long lead time items. What factors are there within that budget could you see potentially drive upside risk? Is labor inflation a key issue for you?
Thanks, Emily. Yeah. As I said, and consistent with what we said in the quarterly, the procurement at Cobre Panamá, the CP100 expansion, is complete, and we largely delivered, so it would really only be on, you know, remaining freight. But we're confident of our levels around freight, and we have seen freight come off from, you know, the really challenging time, which is probably a year ago now, and freight rates start to improve or just the first hint of improvement. It would really just be on installation, where there's an overrun or labor. In terms of labor itself, we have, we follow a different model to many other projects in that we largely self-perform. You know, that skilled labor really comes from our own existing team.
For example, on mill installations, you know, the team has done the Sentinel installs, the Panama installs, and will in fact go on to the S3 installs in time. We don't have quite the same exposure to, you know, skilled contractors or the use of contractors that may be moving up and down at higher rates. We see less of that as a risk. At S3, we're in an early stage, but so far in looking to place orders and the first orders that have been placed, we've been on track with budget.
We do see, depending on how sticky these prices are and how long they last, that potentially we will see further improvement in freight and so on, depending on fuel prices, that we might be able to benefit from, given the timetables for delivery over the next two years or so. I don't see, you know, any huge risk at Cobre Panamá at all. And S3, although there's some exposure, you know, potentially we'll see some unwinding of these higher price levels depending on fuel price and so on.
Understood. That's really clear, Tristan. Maybe a quick follow-up is just around the economic environment that is driving some of these decisions, whether to proceed or not with these brownfield or greenfield projects. What do you need to see change? Is it a certain copper price level? Is it balance sheet metrics? What changes the decision-making process from here?
Sure, Emily. We will be taking a cautious and disciplined approach to new projects. You know, CLC, Taca Taca, again, we like those projects. We like the way they stack up. CLC is more capital intensive, but it's a low-cost producer in a good stable environment. Taca Taca, you know, we need to manage and understand Argentina, but the project itself, you know, stacks up very well in terms of production of copper and the financials around CapEx and the timing of that outlay. Really the decisions from here are around making sure that we maintain the disciplined reduction in debt, and obviously that will be determined by copper price to an extent in terms of the pace of that reduction.
Until that reduction does come down, we will certainly be taking a more cautious approach, and tempered by copper price certainly as an input to that. Cognizant that, you know, in the longer term, we do see supply shortfalls, projects that, you know, challenging to get off the ground. You know, that there'll be much more coming into the copper market over sort of medium to longer term, and that does provide a good basis for those projects once we get the debt levels to a good position.
The next question is from Orest Wowkodaw from Scotiabank. Please go ahead.
Hi, good morning. Just given the challenges that the Zambian operations have faced in the first half of the year, I'm just wondering, you seem pretty confident on seeing an improvement in H2, but how should we think about 2023 and 2024? Like, should we be thinking about similar downside risks to those previous guidance numbers?
Hi, Orest. Thanks. Well, let me speak about both operations, Sentinel, where I am currently, and Kansanshi. At Sentinel, we've been focused in the first half of the year on getting through a period with lower truck availabilities, but also some weather areas, particularly in Dam 6. Where we are set up now is that we've been pushing volumes through the plant in order to make sure that we give exposure for the second half of the year and not getting trapped into sort of diving in on grade. For the second half of the year, what we see is we have broad areas of good grade that are exposed. In the north, that will.
There's about two benches of sequence material that needs to come off from the bottom of the pit, but we're in good shape there. Near the Dam 6 area, we're now on hard rock and directly above some good volumes of high-grade material that are in close proximity to the new crusher 4 station, and some good efficiencies that we're able to provide there. We have every confidence in our ability in the second half to deliver at Sentinel. Then looking forward to 2023 and 2024, the mine is set up well, now that it's through that period of getting through Dam 6 and on the north wall, providing that exposure. Sentinel, Orest, we believe is well shaped. At Kansanshi, really the challenge has been around grade and dilution.
The copper is there. We're very comfortable. We've been through a current iteration of the reserves and resource, and that's demonstrated to us an increase in tons and an increase in grade. S3 remains well positioned. Really, the challenge at Kansanshi is that we've been holding off on that battery project and the proportion of oxide and mixed material has been reducing. We're more and more reliant on the sulfides. The current areas that we're working on in sulfide have been characterized by narrow veins. That's about 20% of the sulfide ore body. The reality is those narrow veins, we have been seeing a high dilution. The broader sulfide ore body, which is the strata material, is far more disseminated, but that's not the focus of the current work areas.
We have improved our understanding of that model through the course of 2022. A lot of hard work's gone into that, and I believe that will allow us, our near-term mine plans to better optimize our production from those areas. Looking forward into 2023 and 2024, we've done a lot of work on stripping to provide access to other areas that can provide good sources of feed. In addition, make sure that we get the water out from M12, which is a good source of oxide, around 2 million tons of reasonable grade, in the very near future.
Okay. Thank you. Just as a follow-up, you mentioned earlier that if the copper price were to weaken or perhaps weaken further, you'd have some flexibility in terms of reducing CapEx plans, and I think you said of projects that have not been sanctioned. I guess in the next few years, that specifically would be around Las Cruces. Can you give us an indication just roughly? Like, if you decide to just wait on Las Cruces, how much CapEx would that potentially save you in 2023 or 2024?
Yeah. Orest, we haven't put Las Cruces into the guidance, so there would be no change from the current guidance. What we do see is we will need to be doing some work there on dewatering, and that's just in preparation for the underground mine. That continuing work would also defer some of the shutdown and mine closure costs that come through. That's what we would be doing, is pushing out mine closure in anticipation of a decision. That would have some outlay, but we haven't included any outlay for the underground project in our guidance.
The next question is from Jackie Przybylowski from BMO Capital Markets. Please go ahead.
Thanks very much. I just wanted to follow up, I guess, on the comments you made earlier and a bit on Emily's question. When you're talking about procurement and the long lead time items that you're ordering, you said that they're in line with your budget already which is excellent news, but maybe a little bit surprising given all of the cost pressures we've been hearing. I was wondering, Tristan, if you wouldn't mind giving us a bit of color on the market or the process that you're seeing right now for long lead items. Is it difficult for you guys to stay within budget? Maybe it's related to the fact that there's fewer projects being built now. Like, how competitive is it right now for CapEx projects?
Thanks, Jackie. That's a good question. Look, we've placed the order for the mill and, you know, we were sort of in our budget was in the region of $30 million-$32 million something. Looking at the wraparound drives and so on, they've been around the numbers that we thought they would be in terms of our expectations as we set guidance sort of Q3 last year. On in-pit crushing equipment and so on, slightly over, but not that we, you know, dramatically different from where we were sitting in Q3 last year. I think that probably is around the delivery times as well, and we're flexible in that. We've in terms of the delivery for S3.
In terms of John, you might comment on mine fleet, but we have seen that some deliveries on mine fleets are definitely uncompetitive and going out a long way. You know, in and amongst our capabilities and look and speaking to different OEMs, we have been able to find, we believe, competitive terms for mining equipment, trucks and loading equipment. John, do you want to comment further there?
Yeah, sure, Tristan. Jackie, what we have found is that by going to the market, we found out there's considerable range, both in terms of delivery and actual capital for the fleet. We have spent a lot of time looking at the most practical mix and extension of the current fleet that we have at Kansanshi. That is making use of existing partners wherever possible so that we can utilize their infrastructure as well as our own. We have been at this near completion stage. We are very pleased that we've been able to keep well within the capital total that we had set ourselves, certainly last year or the year before. We believe that the mining fleet will be delivered in a reasonable timeline and within capital budgets.
The next question is from Abhinandan Agarwal from Deutsche Bank. Please go ahead.
Thank you. Morning, team, and thanks a lot for the presentation. I have a couple of questions, please. Tristan, first question is on Zambia. I didn't hear you mention the great guidance for Sentinel. Are you still happy with the overall guidance for FY 2022 to be, you know, in line with slightly higher than FY 2021?
Yeah, Abhi, at the moment, we're trending towards the bottom end of that guidance, but we're happy with the guidance that we provided, which was 250,000-265,000 tons of copper from Sentinel this year, 2022.
Got it. Okay. My second question is regarding the run rate of C1 cash costs you saw in June and July. Just in the call you mentioned, you know, you have seen a rollover in raw material prices led by sulfur and fuel. Could you tell us what the run rate of the C1 cash cost was in June and what you've been seeing over the last couple of weeks to help us better understand, you know, how the costs have developed?
Sure, Abhi. What I can say is it's volatile. You mentioned sulfur price, and we've seen it fall from what were extreme highs, and really in the last couple of weeks, come down a significant runoff down towards $100 a ton, which is a long way from where we were, you know, even a few weeks ago. Certainly volatile in terms of pricing. Fuel, you mentioned, is high and continuing to drift a little bit higher, but we have seen it come down in recent weeks, just off the back of, you know, energy security relaxation. It’s still an area of uncertainty looking forward for the next six months or so.
In terms of our other major cost drivers, you know, as an example, we've seen fuel, which was perhaps 9% of our business, of our cost structure this time last year, has increased already to around 13% of the cost structure this year. You know, in terms of other movements, labor, which was lagging, I think in Q1, has picked up now. We are seeing that inflation on the labor side, which was expected. Maintenance, which goes alongside with that labor and spare parts provision, at high levels. You know, things like steel, ball mills are definitely have stabilized and within our guidance numbers. Electricity has actually come off a bit from where we were posting our guidance numbers.
Ammonium nitrate is much lower than where it was, when we were posting our guidance numbers. I think the overall picture is one of volatility, a movement up in prices, but in more recent weeks, stabilization and even some reductions from the extreme high levels.
Got it. Very clear. If I could squeeze in one more question, please. Regarding the ongoing Law 9 negotiation. You did mention, you know, the focus has shifted to, obviously, the social unrest. I mean, I'm trying to understand, could the scope of the conversation also change. Trying to understand, you know, the government walk back on the deal which was agreed to in Jan and, you know, are trying to impose a higher taxation.
Pardon me. Sorry. I'm
No, Abhi.
Go ahead.
I can take the question. It's fine, operator. No, Abhi. You know, the principles that are in front of us remain the same, and it's really getting, you know, ironing out the final items and getting into the drafting, the detailed elements of that that's the focus of discussions. Of the clear natural priority for the civil disturbances at the moment, and certainly we support the government in terms of that resolution.
Next question is from Jackie Przybylowski. You can ask your second question. Sorry about that.
No problem. Thank you. My second question was gonna be on capital allocation. Congrats on bringing the debt down to your net debt target level. That's great to see. I see you've got another targeted debt reduction level. Especially, I guess, if you are pushing out some of your longer-term growth projects, and let's say we assume that the copper price cooperates, can you give us a little bit more color on where your capital allocation priorities would be? If you know, if you had the capital, would you accelerate the debt pay down, or would you raise the dividend up further from the CAD 0.16 that you declared last night? Like, can you just give us some thoughts about how you'd lay that out? Thanks.
Sure, Jackie. Thank you. Yeah, the focus would be on debt reduction. I think, you know, that would be the prudent course, and certainly that's been the focus per our commitments to make sure that we reduce that as quickly as we can. As you mentioned, we have targeted a further $1 million reduction in net debt in the medium term. If copper prices do come back up, we would focus on accelerating that. In terms of the dividend, it is a cautious start to dividends at 15% of free cash flow and provides us the opportunity. The dividend we announced at $ 0.16 looks back to our performance during 2021 and provides the opportunity for shareholders to share in that performance.
The calculation is done after we've posted CapEx that's needed for the business and for the guidance that we provide in terms of the brownfield projects. You know, if copper prices did increase from this level and if we had repaid debt, you know, then I'm sure the board would be looking at that as a means to adjust things, but also looking at, you know, the opportunities on greenfield projects in the future. Really the priority is debt and keeping and making sure that we do provide, you know, sharing of performance, you know, with shareholders in the dividend stream.
Thank you.
The next question is from Ioannis Masvoulas from Morgan Stanley. Please go ahead.
Well, thanks for the presentation. A couple of questions left from my side. The first one on one of your cautious view on the copper price in the near term. Are you considering or thinking about potential hedging activity, or is that out of the question?
Hi, Ioannis. Yeah. I think the caution on copper price comes from just the additional production we see coming in from the new projects such as Kamoa, QB2, Cobre, and so on. Also then that uncertainty in terms of off-take demand in the very near term from China and so on. Although we have seen some easing on the logistics side, and the lockdowns, you know, the access for shipping and so on into China very recently, certainly inventories remain very tight.
Yeah, to your question, we do think that the copper price has some volatility to it in the near term, but over the longer term, we see improvements and a lack of supply, you know, continuing to mean that demand will outstrip that. We remain very confident in it.
Okay. There's no urge to hedge at this point, I guess, based on your comments.
Yeah, Ioannis, we wouldn't be hedging at the moment. We're not a natural hedger, and you know, we see that in the longer term, the copper price, you know, it's marked by uncertainty in the near term, certainly. In the longer term, we have every confidence in it.
Yeah. Tristan, I might just add that, Ioannis, we don't generally hedge. We hedge when we've got big capital exposure, big capital commitments, and when we had certain requirements to meet governance and cash flow from a balance sheet point of view. Those big projects in terms of Panama is now behind us. Plus, we've got the additional cash flow coming actually from Panama. The company is in a much stronger position, even at lower prices. There's not really that need now for us to go into that.
The next question is from Karl Blunden from Goldman Sachs. Please go ahead.
Hi. Good morning. Thanks for the time. Just a couple on the balance sheet. Nice to see the reiterated debt reduction target. When you think about the ideal mix there of what debt you'd want to reduce, is it a mix of bank and bonds, or at this point in time, should we think about it as more focused on the bonds, similar to your recent actions?
Thanks, Karl. Hannes, do you want to take that one?
Sure. Karl, in the presentation, we've outlined the debt maturity profile.
Mm-hmm.
You will see that this year we've got $228 million of term loan due in December, so we'll pay that. Then there's $455 million in 2023 and 2024 of term loan. That will naturally be paid down. The bonds are, of course, callable, most of them, except the 2027s. It will be a mix between the two term loans paid as and when due. You know, utilizing excess cash to pay down bonds as well.
That's helpful. Maybe getting just a little further ahead. When you think about reaching that debt reduction goal, $1 billion less, should we think about that as, like, the steady state that you'd want, even if you go after larger growth projects? At that point in time, could you think about adding more debt to the business if conditions are supportive in the capital markets?
Look, Karl, I'd like to, you know, keep our debt or our bonds profile current, you know. The only bond not callable is the 2027 bond. At some stage, it's probably worthwhile to add another one, probably not at the current sort of yields. At some stage, we'll come back to the market just to keep that profile current. It's not that we need the liquidity at the moment, it's more. It's a good part of the funding mix. I think in the longer run, you probably could think about a sort of $3 billion total bond portfolio. You know, currently, we've got about, I think it's $4.7 billion outstanding. You would see the bond portfolio still reducing further in the longer run, you know, I do see it as part of the long-term capital structure.
The next question is from Edward Brucker from Barclays. Please go ahead.
Hey, thanks for taking that question. In relation to those questions and same with the balance sheet, it sounds like you're looking to potentially hoard cash, I'd say, you know, ahead of a difficult environment. But to, you know, potentially reduce the total debt level, do you think you'd be able to, or maybe think about taking advantage in a difficult environment with the bonds trading at a discount, potentially taking those bonds out in the open market?
That's always an option available to us, but not one that I would like to comment on.
Got it. Thanks. My second question, just relations with the Panama communities, given the upheaval that's going on in the country. Can you dive in a bit more on what you're doing to help those communities and community relations, there, and then the confidence that there won't be disruptions at Cobre Panamá?
Sure, Ed. Yeah, there's been a lot going into working with the communities alongside the mine itself. As I said, we're somewhat removed from, you know, the main area of civil disturbance, which has been focused on really the capital cities, Colón and Panama City itself, particularly, you know, inside the city. Being somewhat removed, it's much more about moving our people backwards and forwards, and we have people that come from all over the country, from the west and so on, regional areas as well as the capital cities, and making sure that we can get those people through the site.
As I said, where necessary, particularly in the support departments such as commercial or finance or, you know, HR and so on, that we've learned a lot from the COVID period and working from home. It's been straightforward to implement that again. That's, you know, so we haven't seen disruption in that regard. Towards your question, working with the communities outside. The ongoing livelihood support programs that we had in place during the pandemic, given the curtailments in economic activity, continue to be valid. We're focused on supporting those communities in terms of outreach, directly into their livelihoods, emergency funding where necessary, but then making sure that, you know, they have access to education, healthcare and so on.
We've been, for example, providing radio education to school children and so on, and those programs continue on. You know, I think really the strength has been that the communities around us, because of the economic activity of the mine, have seen the benefit to that and remain strong supporters, notwithstanding the situation in the larger centers such as Colón and Panama City.
The next question is from Jatinder Goel from Exane BNP Paribas. Please go ahead.
Thank you, operator. Good morning and good afternoon. I've got two questions. First one on distribution to shareholders. You've got 15% of cash flow distribution policy with a minimum $0.10. Is there any flexibility within that to go for buybacks as well, especially given how the share has traded more recently? Or would you not do a buyback until you can commit to a much larger sum which can be much more effective in terms of buyback? That's the first one. Second one, on Las Cruces underground, given European power and gas prices and the visibility that we might have, is early 2023 still realistic to make an investment decision there? Thank you.
Yeah. Thanks, Jatinder. Firstly, in terms of a buyback, we do understand and we see that, you know, that's another option, another string in the bow in terms of shareholder returns. But as I've been saying, the focus is on, and our prioritization is on repayment of debt, and we want to see that come down. We're targeting that $1 billion mark, you know, moving on from what we have achieved at the end of the second quarter, which was a $2 billion reduction. That's the focus and the commitment. I think once we get to lower debt levels, then we would look at that in line with and depending on the copper price. But at the moment, you know, it's been a cautious start to dividends, which is appropriate.
We believe that capital return policy will remain in place, particularly as we look and weigh up opportunities around capital projects. You mentioned Cobre Las Cruces underground in terms of the timing. We're not adjusting the timing at the moment. Certainly, you know, given current market conditions, we will be cautious and disciplined around that decision, and it may be appropriate to defer that depending on copper prices. But at this stage, we're not moving the timetable for that decision. We will weigh that up, and the circumstances in the macroeconomic environment when we get to that point in time.
Operator, we're coming up to the hour, so this will be our last question or the last analyst we'll take questions from. Thank you.
Thank you. The final question is from Dalton Barretto from Canaccord. Please go ahead.
Great. Thanks for squeezing me in, guys. Tristan, just one question from me. You've talked a lot about consumable pricing and how that's impacted your cost, but I wanted to ask about wages and labor costs, just given what's going on with cost of living in some of your host countries. I'm just wondering, A, are you under any pressure to hike wages? B, is any of that baked into your estimates? And C, how much will that impact your cost going forward? Thank you.
Thanks, Dalton. Yeah. Look, wages certainly were lagging. Labor costs were lagging through Q1, and we are starting to see that catch up now. It's different at different sites. You know, in Zambia, we have certainly seen because of the movement of the exchange rate from the low of around $0.22, $0.23 up to its current levels, that has had an impact on the US dollar cost of our labor in Zambia. We did go through the CBA negotiation earlier this year at Sentinel, and it's now brought in line with Kansanshi around timing. We'll go through the CBA negotiation for both mines, are due in 2023, and we'll start that discussion towards the end of the year.
I would expect that there'll be some inflation in that given, you know, where input costs for families and for our employees are, you know, fuel prices, their food prices, and fertilizer prices and so on, which really are the large component of the basket of goods in Zambia. In Panama, we're not due for wage negotiations. We have two unions there, and the wage negotiations will be in 2023 and 2024. I think that, you know, again, we will see some inflation. It's US dollar denominated, so we don't see the exchange rate movement. Certainly inflation in Panama has a little, you know, around the levels of the U.S., if not a little bit higher. We'll manage that through the course of those negotiations.
The other element there in terms of labor negotiations is really around overtime, and certainly in Panama that's been higher because of the restrictions on numbers on site, but it's starting to ease now. You know, I think we'll be able to offset, you know, some of that cost in terms of reducing overtime. In terms of the overall impact in our business, this quarter labor was around 17% of the cost of the business. Also a major component of our contractor cost, which is perhaps around 11% of the overall cost structure of the business as an indication of where it stands. I'll just add that, in certain markets it's very different.
In Turkey, inflation is currently around 75%-80% year-over-year. That's an area where we've intervened directly in order to make sure that our employees' standard of living is maintained. If we need to intervene there again, you know, perhaps in the next six months if things continue at those rates, then we'll certainly look to do so. We've seen that in Argentina as well, you know, in terms of the project and some of the people working there. You know, inflation has been pretty dramatic, and if we need to intervene, we will do so.
That's great. Thank you for that color. Just to clarify, though, in Zambia and in Panama, you don't intend to address wage rates until the negotiations are due?
We cover that each year in any event. In terms of the ongoing CBA, those are programmed in, and they're running at about just below the level of inflation at the moment in Zambia and in Panama and will be addressed in the course of next year.
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, operator. I would like to thank everyone who joined the call today. The markets have certainly been very volatile recently, and I'd like to thank our shareholders for their continued support through these uncertain times. Please enjoy the rest of your day and the summer, 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.