Ladies and gentlemen, welcome to the First Quantum Minerals quarterly results conference call. I would now like to turn the meeting over to Ryan MacWilliam, Director of Business Development and Investor Relations. Please go ahead, Mr. MacWilliam.
Thank you, operator, and thank you everyone for joining us today to discuss our second quarter results. Before we begin, I'll draw your attention to the fact that over the course of the call, we'll be making several forward-looking statements. As such, I encourage you to read the cautionary note that accompanies our most recent MD&A and the related news release, as well as those risk factors particularly to our company, which are detailed in our most recent annual information form and available on our website and on SEDAR. A reminder that the presentation which accompanies this conference call is also available on our website. On today's call, Tristan Pascall, our Chief Operating Officer, will provide an overview of operations and performance during the quarter and share his perspective on the company's outlook moving forward.
He'll be followed by Hannes Meyer, our Chief Financial Officer, who will review the financial results. Tristan will then wrap things up with an eye to the next quarter and an overview of our key strategic priorities. After that, we'll open up the line to take questions. With that, I'll turn the call over to Tristan.
Thanks, Ryan. Hello, everyone, and welcome to the call. Q2 was another strong quarter for First Quantum. Debt reduction remained a key part of our focus. I'm proud to say that we're well on our way to achieving our target of more than $2 billion reduction in gross debt. This is a result of strong operational cash flows and robust commodity prices. The tapering off of the hedging program will further benefit financial results in the remainder of this year. The expected close of the sale of 30% stake in the Ravensthorpe operations to our new partners, POSCO, for $240 million in Q3 will also contribute to our debt reduction program. Copper production was just shy of 200,000 tons in the quarter, an increase of 18% from the same period in 2020.
This increase was due primarily to strong production at Cobre Panama, which was nearly 4 x the rate of the COVID-19 impacted second quarter of 2020. Cobre Panama continued with a ramp-up to the target throughput rate of 85 million tons per annum in 2021, with stronger throughput being somewhat offset by higher maintenance during the month of April and slightly lower grades compared to the previous quarter. However, production throughput in May and June was pleasing with a new production record of approximately 7.5 million tons processed in the month of June. This resulted in quarterly production of around 82,000 tons of copper containing concentrate. Early this month, the government of Panama announced the appointment of a high-level commission of senior government ministers and officials to deliberate on Law 9, which sets the fiscal regime for Cobre Panama.
The public acknowledgment of these ongoing discussions ensures transparency in the outcome of the process we've been speaking about. The Ministers of Commerce, Finance, Labor, and Environment were confirmed as representatives on the commission. The company welcomes the appointment of the commission and the opportunity for all stakeholders to resolve this matter in the medium term. In June, the Supreme Court ruled on the clarification motions presented by the company to the court in relation to its Law 9 decision announced in September 2018, which have not yet come into effect. The Supreme Court upheld its ruling, and the company understands the decision will be enacted once published in the Gazette of the Supreme Court in the near future. The company is reviewing these developments and expects the government-announced process to result in a mutually agreed new law to be presented to and approved by the National Assembly.
In Zambia, operations at Sentinel experienced weaker grades as we guided to in last quarter's report. Throughput was higher, assisted by softer ore and higher availabilities. This resulted in record milling rates during May. Installation of the fourth in-pit crusher continued as planned with installation in Q3 and commissioning in Q4. This will enable the plant to ramp up throughput to 62 million tons per annum in 2022. Kansanshi saw improved throughput following the end of the dry season at the end of April, which was offset with lower grades. The lower grades are anticipated to remain through the balance of this year, as reflected in the change made to Kansanshi guidance in this quarter. The scheduled smelter shutdown at Kansanshi occurred as planned in June, with the smelter coming back online in early July on schedule.
In respect of Zambia, we are no longer in discussions to sell down the stake in that business. The strong performance of the copper price and continued solid operational performance has meant that the prices offered by counterparties were at too much of a discount to the strong earnings that the business currently generates. Nickel production in the quarter was 4,543 tons at Ravensthorpe, while construction of Shoemaker-Levy continues to advance with all civil works now predominantly complete. Pre-strip at Shoemaker-Levy continues with the first mining area cleared. We look forward to moving on to better quality feed from Shoemaker-Levy and anticipate first ore delivery in this third quarter of 2021. Across First Quantum, all of our established COVID-19 protocols at each of our mines remain in place. The health and well-being of our workforce and the surrounding community continues to be our priority.
We continue to work closely and support the various levels of government and health authorities in all the regions we operate to reduce transmission of the virus and to deal with outbreaks and infections as they occur. In Panama, the company supports the work of the government with aerial transport, food, medical supplies, and other facility-based needs, including support to the Gorgas Institute laboratory testing facilities. In Zambia, the company has provided COVID-19 testing equipment and treatment and isolation facilities for the community and continues to implement COVID-19 protective measures across all our operations. Vaccination programs have commenced in most of the host countries for the company's operations, and First Quantum is supporting rollout of vaccination programs as appropriate to each country. In Panama, the rollout is reasonably strong, and by mid-July, 3,928 employees had received their first dose vaccination.
In Zambia, the rollout was slow to start, but has been increasing steadily, and by mid-July, 366 employees had received their first dose vaccination. On ESG, the company's always been committed to extracting resources as responsibly as it can. Sustainability is an intrinsic part of First Quantum's operations. We recognize that mining has a significant impact on the environment, and we work as hard as we can to mitigate these impacts and to deliver positive contributions from mining to the communities around us. In line with our commitment to transparency and the ongoing development of First Quantum's ESG reporting, we recently published our 2020 environment safety and social data reports and our tax transparency report, which are both now available on our website.
This year's report highlights for the first time the significant CO2 emissions savings realized by some of our industry-leading mining technology, including the use of trolley assist and in-pit crushing and conveying, which are part of First Quantum's approach to place innovation and operational excellence at the core of our business and in our response to climate change. Also in this year's report, we've expanded our CO2 emission intensity disclosures to reflect our downstream Scope 3 CO2 emissions and the emissions benefit of our largely hydropower on-site smelter in Zambia. At Cobre Panama, we are currently evaluating the opportunity to increase our use of renewable power as part of our efforts to reduce emissions intensity. We will continue to provide updates in respect of the energy strategy at Cobre Panama as these plans become more developed. The company continues to make progress on our 2021 commitments related to climate change.
We have commenced our efforts to report in alignment with the Task Force on Climate-related Financial Disclosures framework. A program to set tangible and realistic emissions level and carbon intensity targets with an identified pathway to achieve it remains on schedule, and we are making progress on establishing an internal carbon price and consequent commodity prices in the evaluation of our new projects. The company also continues to make substantial fiscal contributions to the countries in which we operate. During this quarter, we disclosed our 2020 EITI tax transparency report, which is also now on the website. In 2020, our direct tax and economic contributions to our host governments reached close to $1.1 billion. I'm proud of what the First Quantum team has achieved this quarter and the ongoing improvements we continue to make across our operations.
Much has been done and more work remains. I'm excited about what the future holds and look forward to reporting on our progress throughout the year. With that, I'll hand things over to Hannes, and I'll be back in a few minutes to wrap things up. Hannes?
Thanks, Tristan. Good day to everyone. I would like to direct you to the slide titled Financial Overview. Financial performance in the quarter was driven by strong sales and increased metal prices, resulting in significant increase in comparative EBITDA and net earnings, as well as a notable reduction in net debt. Gross profit of $625 million and a comparative EBITDA of $902 million for the quarter was significantly higher than the same period in 2020, attributable to a record contained copper in concentrate shipped at Cobre Panama, as well as a 37% increase in realized copper price. Net earnings attributable to shareholders of the company of $140 million and comparative earnings of $173 million also represent a significant improvement on Q2 2020.
Net debt decreased during the 6-month period by $658 million to $6.75 billion as at June 30th, 2021, including a $311 million reduction in just the second quarter. With the current strength in the copper price, a significant further reduction is expected in the second half of this year. C1 cash cost of $1.29 per pound was $0.09 per pound higher than Q2 2020, driven by lower production at both Zambian operations as well as at Las Cruces. Capital expenditure in the quarter was $264 million, which includes the costs associated with the Kansanshi smelter shutdown and the construction of the Shoemaker-Levy conveyor and crushing station. In May 2021, the company announced that it has entered into a binding agreement to sell a 30% equity interest in Ravensthorpe for cash consideration of $240 million to POSCO.
The company will retain a 70% interest in Ravensthorpe and continue to be the operator. Transaction is expected to complete in the third quarter of 2021. Turning to the next slide on quarterly copper unit cash cost. Total C1 cost for the quarter of $1.29 per pound was $0.09 higher than Q2 2020, driven by the impact of lower grades at the Zambia operations and cessation of the open pit mining at Las Cruces in August 2020. Cobre Panama C1 cash cost of $1.25 per pound was $0.47 per pound lower than Q2 last year and reflects the significant increase in production. Strong year-to-date copper production at Cobre Panama has resulted in an increase to copper production guidance for 2021 by 10 to 5,000 tons to between 310,000 and 335,000 tons.
All-in sustaining cost for the quarter of $1.91 per pound was $0.29 per pound higher than the comparative quarter. The increase in all-in sustaining cost reflects the higher royalty of 10% in Zambia following the higher copper price and higher sustaining CapEx, which includes the planned smelter maintenance shutdown at Kansanshi. As copper C1 costs for the second quarter and for the first six months of the year have been in the middle of the guidance range, all-in sustaining cost has been under pressure, particularly in the second quarter from higher Zambia royalty rates. Accordingly, all-in sustaining cost guidance has been increased by $0.10 to allow for higher royalty expense, which for the year to date has exceeded prior year levels by $0.11 and for the quarter by $0.12. Turning to the next slide, Q2 summary financial overview.
Comparative EBITDA of $902 million was 156% higher than Q2 2020, attributable to 37% increase in the realized copper price and increased sales volume at Cobre Panama, with near record quarterly production and record contained copper shipped. The comparative period sales were also significantly affected by COVID-19 related restrictions. Comparative earnings for the second quarter of $173 million is an increase of $257 million compared to Q2 2020. Basic earnings per share of $0.20 and comparative earnings per share of $0.25 of $0.43 and $0.37 higher than Q2 2020 respectively. There's a reduction in net debt, as previously mentioned, of $311 million in the quarter, which brings the total reduction over the last 12 months to over $900 million. Further reductions remains a key priority. Capital expenditure in the quarter was $264 million, which includes the smelter shutdown at Kansanshi.
Our full year guidance for capital expenditures unchanged at $950 million. The next slide is a significant increase in gross profit, and it just shows a bit more detail on the gross profit quarter-on-quarter movement with a $484 million increase in Q2 gross profit from improved metal prices and higher contribution from Cobre Panama. Turning to the next slide on debt and liquidity profile. Company's net debt of $6.75 billion at the end of the quarter has decreased over $900 million in the last 12 months. The company ended the quarter of $1.8 billion of net unrestricted cash and cash equivalents and was in full compliance with all of its financial covenants. Company signed a bilateral borrowing facility of $175 million in April 2021, available for 12 months from the date of signing.
Following the upgrades by S&P Global Ratings and Fitch Ratings in April to a B credit rating, the company outlook remains stable. Copper prices and demand continue to be robust. As Tristan has highlighted, the tapering off of the hedging program will further benefit financial results in the remainder of the year. Now turning to the copper hedging program outlook. Approximately one quarter of expected copper sales in the next 12 months are hedged at an average floor price and average ceiling price of $3.16 per pound and $3.70 per pound, respectively. This compares to approximately 35% at the end of the first quarter of 2021, with an average floor price and average ceiling price of $3.04 and $3.44 per pound, respectively.
As of July 27th, 2021, the company had just over 44,000 tons of unmargined copper forward sale contracts at an average price of $2.96 per pound, with periods of maturity out to December 2021. In addition, the company had a little bit more than 150,000 tons of unmargined zero-cost copper collar sales contracts with maturities to March 2022 at average prices of $3.21 per pound to $3.92 per pound. Company also had unmargined nickel forward sales contract of a bit more than 1,000 tons at an average price of $7.74 per pound, outstanding, with maturities out to December 2021. In addition, the company has zero cost nickel collar unmargined sale contract for nearly 1,300 tons at an average price of $7.68 per pound to $8.58 per pound, with maturities out to May 2022. Thank you. With that, I'll hand back over to Tristan.
Thanks, Hannes. Let me just take a few moments to discuss the path forward for First Quantum as we continue to execute our vision into the future. We do have a number of key strategic priorities that are underway at the current time, and which we believe will help build sustained long-term value for shareholders. In the longer term, we have optionality within our portfolio that we also believe has the potential to deliver significant shareholder value. For now, the current focus of our capital allocation approach within the context of a very strong commodity market remains firstly on debt reduction, which is a commitment and strategic focus. Secondly, on execution of brownfield projects to add incremental value. Thirdly, on cautiously improving our dividend policy to reward shareholders. Spend on greenfield projects will remain limited while we deliver on these core focus areas, particularly debt reduction.
I'll take a moment to discuss each of these key strategic thrusts in a little more detail. First and foremost, debt reduction will continue to be the major focus in the near term as we work towards reaching our goal of reducing our debt by more than $2 billion. Thanks to strong operational and solid commodity prices, when we achieve this goal, our gross debt will be below $6 billion and our net debt through the cycle EBITDA ratio will be below 2. Next is brownfield expansion. We are fortunate to have a robust internal pipeline of near mine growth projects at our disposal. To that end, progress on delivery of the 85 million tons per annum target throughput rate at Cobre Panama continues, and we remain on track to grow to 100 million tons or more than 100 million tons per annum by the end of 2023.
In the mine, during Q2, we broke ground at the in-pit crusher box cut location for the new Colina pit location, and the overall Colina mine planning effort remains on track. At the process plant, a primary screening facility is expected to be delivered in Q4 2022, and upgrades to process water supply and ball mill six are expected to be delivered by Q1 2023. At the Enterprise project in Zambia, the design for development of the pit has been revised and optimized to support an accelerated mine plan, targeting early pre-stripping in the second half of 2021. Following potential board approval, which could potentially come later this year, the majority of the pre-strip would be done following the start of the dry season in April 2022. This project has the potential to add around 30,000 tons per annum of nickel production.
The decision on the S3 expansion at Kansanshi remains pending as we continue to work with the Zambian government to formulate a framework to move this expansion forward. There has been limited progress on this through the last quarter, given the election processes in Zambia, and we do expect further noise and distraction in this regard in the near term. However, once given the green light, S3 would increase materially Kansanshi's annual throughput to well over 50 million tons per annum and ensure production levels remain strong for more than 20 years. Last month, we received our mining license for Cobre Las Cruces underground. We expect the water concession license may be granted by late 2021 as we continue to make solid progress towards being fully permitted. Study work continues with the drill program currently underway.
As part of this work, the company expects to release a National Instrument 43-101 report with an associated resource in the second half of the year. We still have a way to go before deciding on where this project may fit into our pipeline, but it's pleasing to see the recent progress. We expect to have an update on guidance around our dividend policy by the start of next year, which will include an increase to our current nominal dividend. We will start cautiously once confident our debt reduction targets are being met, and this policy will not be at the expense of brownfield growth. At this point, as we focus on debt reduction and the brownfield opportunities I just discussed, we can take a more measured and cautious approach to greenfield opportunities within our portfolio, most notably Taca Taca in Argentina and Haquira in Peru.
We are certainly excited by the prospects of these projects and the longer-term potential they offer. At Taca Taca, for example, we recently completed an NI 43-101 declaring a maiden mineral reserve of more than 7.7 million tons of contained copper. However, before proceeding with an investment and construction decision, we would like to further understand the fiscal environment in Argentina. Similarly, at Haquira, we see strong potential in a project situated in a prolific copper belt in southern Peru. However, at Haquira, our current primary goal is to continue to work with the local communities who reside in the area where the project is located. Finally, on behalf of the entire company, I want to thank our people once again. Our workforce continues to demonstrate adaptability, commitment, and resilience and make significant contributions to the success of the business.
I'm proud of how our workforce has continued to focus on executing in a safe and sustainable manner in the face of ongoing logistical and operational challenges resulting from the COVID-19 pandemic. Operator, we would now be happy to take questions. Thank you.
Certainly. Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Orest Wowkodaw with Scotiabank. Please go ahead.
Hi, good morning. In your release, you disclosed that you plan to increase the throughput at Cobre Panama to 100 million tons a year, by the first quarter of 2023. That was certainly earlier than I was thinking. And I'm just curious if you plan to complete the rest of the work needed for the expansion at the same time, from a tailings and mining perspective, or is that going to come later?
Hi, Orest. I'll take the question. That was really in regards to ball mill 6 delivery of that installation in Q1 2024. We'll be commissioning and ramping up throughout the year. The previous guidance we put there remains in place in 2023. That is, we expect to be at the 100 million ton per annum rate, throughput rate by the end of the year, not necessarily from the end of Q1. Does that help?
Okay. You basically plan to be fully operational at that 100 million ton throughput rate exiting 2023? That's the way to think about it?
Yes, that is a good way to put it. Yep.
Okay. Just also on Cobre Panama. It sounds like you're getting close to sitting down to negotiate a replacement for Law 9 with the government. There's been some media reports about government officials asking for higher royalties over the 5% current copper royalty. Should we anticipate that there could be some give and take in terms of the current terms in order to get a replacement for Law 9? Any color would be appreciated.
Sure, Orest. Yeah, look, I think that's right. We do expect that there'll be noise around this process, given that it's a public process. That's a good thing. Given that it's a public process, it means that we expect a transparent outcome, and we expect it will lead to a robust and defendable outcome for both the government and ourselves. We wouldn't comment on the minister's comments other to say that a significant investment was made on the basis of the original Law 9 fiscal assumptions. It's also pleasing to see comments from the minister earlier this year that Panama wants to see mining at the forefront of its recovery from COVID-19, coming out from the current situation. Also we did see comments from the President of Panama, Laurentino Cortizo, yesterday in the national media, that he considered that there can be a win-win outcome in the process.
We're certainly aligned with that. There will be give and take, but it can be a win-win for the company and the government in terms of realizing benefits and increasing certainty for both the country and the company.
Thank you, Tristan. Just finally, can you give us a sense of timeline for this Law 9 replacement type negotiation? Would the expectation be that there's something completed by the end of the year? Could this take a lot longer?
Yeah, Orest, I realize that it's been a challenge through the COVID-19 period in that, prior to this, we were engaged, and then that's been held back by just the inability to meet face-to-face. That is improving. As I said on previous calls, we are having those face-to-face discussions. I think what you should read from this is that there is momentum building. What the government has learned, and I can give a bit of background to some of the comments recently, is they did have a process on the Panama Port concession, and that was around making sure that there was public engagement. So we do see that now, the public engagement, these public announcements, and that builds momentum around timing. It is a government process. It goes through the negotiation with the administration and then into the National Assembly. Those are the steps.
They remain the same. It's challenging to give a timeline around that. I understand that it would be good to give you a clear picture, but it's got to go through those steps.
Thank you.
Thank you. The next question is from Matthew Murphy with Barclays. Please go ahead.
Hi. Another one on Cobre Panama, just on a recent story on this pipeline spill. Should we read anything into that? Is there a likelihood of anything meaningful in terms of fines or sanctions coming from that?
Thanks, Matthew. Yes, the media in Panama has picked up on what was really a minor spill of a small volume of water and slurry rock from the pipeline two weeks ago. Our response teams and the spill protections worked very well. We're confident the adjacent stream was not impacted beyond an hour or so of some high suspended solids, and those were diluted by heavy rains. Nonetheless, the incident, it's regrettable for us, and we're working to continue to improve the equipment and the systems involved, and also with the ministry environment in regards to their recommendations for corrective actions. As I said, it's a low-level incident. I think it's really around the noise and the processes that are ongoing that we've seen those media reports.
Okay, thanks. If I could just ask another one on the risk front. Just looking ahead to Zambian elections. It's interesting to me that the mining sector hasn't seemed to become really a lightning rod in the election process. I'm wondering on how we should think about news. Well, I guess there's a new budget presented 60 days after elections. Do you think mining doesn't really come to the fore through all this?
Yeah, Matthew. Thanks. Look, I guess the challenge during the election is that's a competition and there's noise, and we've seen national elements come up in those discussions, or at least in terms of the electioneering. It's been hard to make progress. The ministers are in recess, and that means there's only really the president and a number of key public office holders that are in position at the moment, and that means we can't engage to any great extent in terms of outcome there. Yes, the election is on the 12th of August, and we will see a budget 60 days thereafter. We expect that whoever comes back in, whether it's an incumbent or otherwise, we'll need to engage, in particular, on the IMF process, and in consolidating the fiscal position in Zambia.
In terms of how that relates to the mining industry, the government is now a core operator through ZCCM of two of the major mines in the country, subject to ongoing court cases in South Africa in regards to the one mine. They have a very good picture now of what it's like to run and operate the mines, and they're part and parcel of the industry going forward. We don't see any significant risk there, given where tax rates are at the moment in Zambia. There is a need for ongoing engagement, and particularly as we look to the S3 investment, there needs to be the right kind of framework around that investment. I hope that covers your question, Matthew.
That's perfect. Thank you.
Thank you. The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.
Thanks very much. I think I'm just going to follow up on Matt's question, but in a maybe slightly different way. I guess, maybe, Tristan, if you could clarify. In the slide deck presentation, I think it says the board is looking to make a decision on Enterprise by end of 2022. I think you mentioned earlier, maybe I misheard you, but I think you said the end of this year. Maybe if you could just talk a little bit about what the timing is. I know you guys are working on some pre-stripping second half of this year. How much activity do you plan to do at Enterprise before you make a board decision? Maybe if you can just clarify when you think you'd need to make a board decision and what you need to see for that decision to be a positive one. Thank you.
Sure. Thanks, Jackie. Enterprise, we are able to do some preliminary works, and as you said, that's just some ongoing pre-stripping work out there. Actually, I was on the ground there the week before last, and very good to see some preliminary works ongoing after the rainy season. In terms of the decision later this year, it will be linked to the broader fiscal environment in Zambia. It's just that we're outlining that a decision can come and then actually, fairly quickly, we can be in production because this is a brownfield project. It's by no means a new greenfield project, given that a lot of the plant is already standing. The total capital for the investment is around $90 million, and that number will be reviewed as part of the board approval process.
Yes, we would hope to be able to put that in front of the board later this year, notwithstanding the preliminary works ongoing for the full approval. It's subject to the situation in Zambia.
I guess we'll see that feasibility study that you're planning to update as part of that board approval process as well, right? That'll come out later this year as well?
Yeah. Look, once we're engaged in the project, we'll make sure that there's an understanding of the production profile and everything around the project, whether it's a full feasibility study, given that it's a greenfield project. We'll make sure that you've got all the parameters around it, that's for sure.
Fantastic. Maybe if I could just ask on the hedge program. You mentioned, or Hannes mentioned, that you are sort of tapering that off a little bit, and it now represents less of your copper sales going forward. Can you give us some updated guidance in terms of what you may do with that hedge program? Are you still planning to add hedges? Is there some level of hedging that you're planning to maintain? As we kind of roll the quarters forward over the next year or so, should we expect that to sort of wind down entirely? Can you just maybe give us an update on what your thinking is with that?
Hannes, would you like to take that question?
Sure. Jackie, we had that hedge program while we were building Panama and highly leveraged. You would have seen the leverage come down quite dramatically over the last year. As we said, we would sort of reduce that level of activity. You would have seen probably the hedge book dropping off by 10% of the next 12 months' sales in each of the last three, four quarters. Our last hedges that we have placed was just before the previous quarter's conference call, so at the early start of this quarter. We haven't had any new hedges. I think that's probably a good indication of where we're heading.
Great. Thanks very much. That's all my questions. Thank you. Congratulations.
Thank you. The next question is from Matthew Fields with Bank of America. Please go ahead.
Hey, everyone. Congrats on the strong execution. Appreciate the sort of more specific commentary on debt reduction, capital allocation that you've sort of put in writing and sort of codified a little bit more than in the past. Just on the balance sheet side, you've had a few quarters now of very strong cash flow. You've had the $175 million bilateral facility come in. You've got $240 million of cash coming in from Ravensthorpe in the third quarter. My question is, why is the revolver fully drawn at quarter end?
Thanks, Matthew. Hannes, do you want to take that question?
Sure. Hi, Matt. Look, we had a few things sort of in the quarter, so
We had a smelter shut in Zambia and inventory buildup that we just had to fund as well, so we went through that. As part of that process and just planning, we had a draw under that. I think what you would see is now sort of managing I mean, the next question you will ask is when will we take up bonds? What we would look at is now sort of saying, "All right." The smelter is now shut. It's behind us. Its smelter started up early this month again. That inventory is then flowing through and all the cash flows flowing through. What we would see is cash, POSCO, cash coming in. We're also working on a corporate refinancing that should be done by end of this year.
I think within the next year, we'll start addressing some of those bond maturities then. You would see some movement. I mean, it was particular to a certain situation in this quarter. Thereafter, you should see improvement overall and absolute debt reduction as well.
All right. Well, I appreciate that. Believe it or not, I want to ask about refinancing bonds. You sort of read my mind. Obviously, your seven and a quarters are callable now. The six and a halves are callable now, too. Your cost of new debt would be well below that. The six and a halves premium, the call premium steps down on September 1st. You only have to really wait a few days now for a 30-day redemption notice to get that lower call price. Does the sort of high amount of cash on the balance sheet from revolver draw kind of coincide with that, 2023s and 2024s being kind of prime targets for a refi, in the coming weeks here?
Look, Matt, we tend to be opportunistic in this regard, so I don't want to speculate on exact timing as to when we will do it. I think within the next year is probably a good enough response for now.
Okay, great. Well, thanks very much and good luck with the rest of the debt reduction in the coming year.
Thank you. The next question is from Greg Barnes with TD Securities. Please go ahead.
Thank you. Tristan, you kind of slipped in that the Zambian operations are no longer under discussion to sell down the interest in the business. You're looking at investing in S3. You're looking at enterprise. It seems to me you've kind of reassessed your view towards Zambia again. There was a time there where you didn't want to invest. Now it sounds like you do. You're feeling much more comfortable about Zambia going forward.
Thanks, Greg. Hi. We've got to get through an election, Greg, I just want to make the point that we will see noise. These periods are always vocal, we do expect some distraction in that. Notwithstanding that, those are great assets that we have at Sentinel and Kansanshi, between them producing nearly 500,000 tons of copper. Certainly will be at that level after investment in S3. In the longer term, yes, we're great supporters of Zambia. We think it's a good destination for investment over the longer term. Certainly, we do need to get through some short-term interactions with government. As I said, at the current time, we can't really do that given that ministers are in recess. We do see that after the election, an appetite to engage on that because these investments are good for Zambia.
Have you had any further discussions with Jiangxi Copper about their ownership at First Quantum now those discussions about selling an interest are no longer happening? Do you have a sense of where they stand or what they want?
Yeah, Greg, that's fallen into just a regular conversation that we have each quarter, really off the back of each quarterly result. It's an ongoing engagement and ordinary course now. No, I don't have an inside understanding as to their intentions. What we understand is that they're happy with the investment, and they're happy with the delivery against the strategy, and where the share price is at the moment and so on, given where they came in. We're in an ongoing engagement phase with them at the moment.
Okay, great. Good. Thank you, Tristan.
Thanks, Greg.
Thank you. The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Hello. Good morning. Thank you for taking my call. Tristan, I wanted to just ask you a little bit more on the whole tailings spill at Panama, and just some comments that were made by the ministry. One of the comments was that they were looking for maximum sanctions. Maybe it would help if you could just quantify what that could possibly be in terms of numbers.
Thanks, Lawson. Look, we can understand that there's a lot of public visibility on mining at the moment given the government's comments around looking to expand mining. It's our intent to be responsible miners and to mine as well as we can and be a good citizen in that regard. Certainly, we hold ourselves to the highest environmental standards. We continue to improve the capability of the business. This incident was pretty minor. The incident itself was less than 12 minutes. Our guys responded within five minutes. The actual volume of material was very insignificant. In our estimation, it doesn't reach level 3. It was captured by event ponds. There was some escape. It did create some suspended solids, but it's fairly inert material. We would contend that it's a fairly minor event and not material, not significant.
The minister, there is greater public visibility on mining, and we need to behave as responsive as we can. We will certainly take all the preventative actions to ensure that something like this doesn't happen again. That's been improving.
I'm sorry, I believe we have lost connection with the speaker.
Operator, if we can maybe move on to the next question then.
I apologize. It was your speaker, Mr. Pascall, I believe, that has disconnected.
Yeah, I think let's wait for him maybe to dial in again, and then we can maybe move on to the next question. Tristan, are you still on the line?
No, he has disconnected.
All right. Let's see if we've got another question that we on the line.
Certainly. The next question will be from Karl Blunden with Goldman Sachs. Please go ahead.
Great. Thanks, guys. Congrats on the strong results again. A couple questions for Hannes. On the debt reduction target, I just want to make sure I understand that you talk about $2 billion of debt reduction to get below $6 billion total. You're currently at $8.5 billion, and some of that has to do with the revolver draw. Is it right to assume then that you're looking to reduce debt versus the quarter end by $2.5 billion? If there's any breakdown of bank facilities versus bonds, that'd be very helpful.
Sure, Karl. Look, when we talk about the debt reduction, we look at the net debt number. You would have seen, we've made significant progress over the last, certainly year in terms of that. We're well on the way in terms of that and we'll get some proceeds in from the minority stake sale in Ravensthorpe as well, plus continued stronger cash flows in the second half of the year, where we've got much more exposure to the upside and the copper price. That will drive a long way. I think we'll probably go beyond that, but I don't want to give you exact numbers here. We've got a certain amount of brownfields projects that we'll spend some money on, but it's not that significant in the cash flow generation. What we'll do is, there will be some reduction in the bonds.
In the next year, we'll start reducing that. We'll refinance the bank facility. The bank facility was at $2.7 billion, probably about three years ago or so. We'll look before end of the year to replace that, probably by a similar amount or slightly smaller. It doesn't make much of a difference if it's a bit smaller as well. Of course, we'll use that then to reduce the bond side. The banks have been very supportive in the bond and through tough times as well. We've got a very supportive banking group there. It's key for us to retain that sort of credit appetite from the banks and that support. We'll look at replacing that again and then reduce some of the banks, but as the bond debt.
It is important for us in the long run to have still a significant presence in the bond market. There will be some reduction, so that will flow through in the next year.
Okay. That makes a lot of sense. Just in terms of, we haven't really spoken much about the Delta variant of COVID, and you've done really well since the initial mandated slowdowns to keep the operations running smoothly. When you think about what that variant could mean in some of the areas with lower vaccination rates, how confident are you around the ongoing operations in Africa and then in Panama?
Hi, Hannes.
Let me just check if you've got Great. Good stuff. No, I answered the bell, didn't she? I saved the health questions for you, Tristan.
Thanks. Apologies for that. Look, thanks for the question. I was in Zambia the week before last, and look, certainly the Delta variant is there. It's in South Africa, and it's in Southern Africa more broadly and in Zambia. The third wave that it was causing has come off in the last fortnight. What we're seeing is an ongoing reduction of cases and certainly an ongoing reduction in deaths. That includes the testing, because some of the testing is not capable to continue to roll out at the same high levels. What we are seeing in deaths is also a reduction. On the site, I think what the third wave has done is increase understanding. It has brought it home to Zambia. And we are seeing a greater uptake of vaccination.
The challenge is around delivery of vaccines, and we're certainly assisting the government in that regard, although it is only government that can talk to the primary producers of the vaccine. We do see increased shipments of vaccine to the country and more broadly in Southern Africa, which is good news. We do see that it will be a slow progress, but increasing in terms of vaccination. The numbers have come off in the interim, in the last few weeks, which is a good sign. I hope that covers the question.
Yeah, I think it does. Maybe I'll extend that to Panama as well. It sounds like things are all broadly under control, any color there would be very helpful.
Yeah. As I said in my comments, the vaccination's gone extremely well. The number of people that have decided not to take the vaccine so far is only 3.3%. Really that's down to our employees being very progressive and engaged, part of the solution. The uptake's been very strong. The protocol in Panama is that over 30s are eligible for AstraZeneca, and so nearly 4,000 of those doses have already been delivered to employees. We're supporting a broader vaccination rollout in both Colon and Coclé provinces, with funding of around $ one and a half million for drive-through vaccination centers that have been very successful in rolling out the program across the regional areas as well as the capital city. The under 30s in Panama are on the Pfizer protocol, and shipments of that vaccine are coming into the country this month, have been delivered.
We do see a pickup in the under 30s as well, which is good news. That's against the backdrop of a reducing third wave across the country, which I think is good news. The plan in Panama, the government's plan is to fully vaccinate by October.
Thanks very much for the color on the health and then also on the balance sheet side, Hannes. Thank you.
Thank you. The next question is from Abhinandan Agarwal with Deutsche Bank. Please go ahead.
Yeah. Morning, Tristan and Hannes. Thanks a lot for the call. I have a couple of questions. The first one is around CapEx. There's been a shift around in CapEx. I think capitalized shipping has gone down by around $40 million, yet total CapEx is unchanged. Has that been allocated to the enterprise project? That's my first question.
Thanks, Abhi. Look, the reality is given the labor shortages at Cobre Panama, it's really been in Panama that we've seen that reduction in capitalized stripping. It came down about $40 million. Now, strip ratio in Panama is currently sitting at about 0.4. The plan for the year is 0.66, so we'd like to build that up in the second half of the year. The shortfall's been on really maintenance operators, truck operators, to be able to continue to deliver all the capital equipment to do that. Nonetheless, the other challenge, I should say, is we've been finding too much copper, which is a nice problem to have, but particularly on the hanging wall in the north, everywhere that we thought was waste has been more mineralized than originally expected.
That's a good problem to have, but it does mean that the strip ratio is not as high as planned. That will shift as we get into Colina, and as I said, we've broken ground on the box cut position for the new Colina pit. That is definitely waste. We're able to mine that as waste, and that stays waste, which is good news from a waste perspective. That's why we would like to get back to the overall target strip ratio for the year. In the meantime, it will be a challenge to catch up with that's why the total capitalized stripping number has come down for the year.
That $40 million, the sustaining CapEx has increased. That $40 million, sustaining CapEx and other projects, has that been allocated to enterprise?
No, enterprise is not taking a significant portion of that. It will be in some of the overruns at Ravensthorpe, and also on the other operations. No, it's not allocated to enterprises.
My last question is on Cobre unit cash costs. I think in the release you mentioned there is still a component of COVID costs incorporated. Could you tell us what that component is?
Yeah. It was running at around $10 million a quarter, if I recall correctly, and that relates to the hotel isolation cost. That is that we rent hotels for a period of a week for every employee prior to coming onto the site. Obviously, the vaccination program, once we get through that and to the right level, we'll be able to stop that. It's also in just overtime and labor costs because we're able to have less people on site. We are paying above standard rates for labor that is on site.
Got it. Thank you very much.
Thank you. The next question is from Emily Chieng with Goldman Sachs. Please go ahead.
Good morning, thanks for the update today. My first question is just around the capital allocation strategy. Once you have your $2 billion of gross debt reduction achieved, you mentioned a cautious approach to dividends, but is that perhaps a framework we can use to think about how First Quantum would balance shareholder returns versus growth? For example, should we expect a payout ratio or some kind of percentage of free cash flow being returned, or do you still perhaps have a preference for a progressive dividend policy instead?
Thanks, Emily. I'll make some comments and then maybe Hannes will jump in. Look, that's what we intend to come out with, and as we said, towards the end of the year or early next year to outline that more clearly. What we are outlining for shareholders, the intent to move from the nominal dividend. As we said, it will be a cautious approach and probably linked more to cash flow in the business, potentially, although previously, we've linked it to comparable earnings and paid out on that basis. Hannes, do you have any more comments on that?
Yeah, Tristan, I think it's fair enough. Look, I wouldn't describe definitely not as a progressive dividend policy. It will be linked to some sort of earnings or cash flow measure. That will allow the company still to continue with its brownfields expansion and growth ambitions going forward.
Great. I appreciate that. That's helpful. My second question is just around the Las Cruces underground option there. Can you remind us what the size of the prize here, any rough estimates of capital cost and anticipated sort of timeline on decisions? Sort of following on from that, it seems like in terms of sequencing growth, brownfield is certainly ahead of the greenfield options you have there. Would it be fair to say that the decision-making timeline around some of your greenfield opportunities are longer data than sort of the 2-3-year plan that you've outlined for the brownfield so far?
Sure, Emily. Thank you. Firstly, on CLC, as I said, our intent is to come back with a 43-101 that will give more clarity for the market on the decision. John Gregory, you might comment on that further, in terms of what that would look like. In that, we would include the capital and the cost estimates and so on, and the production profile. In the meantime, CLC does continue to operate, based off reprocessing of, initially stockpiles and then tailings. Really what we're doing here, the decision around closure and things have definitely been pushed out. What we see is that the study efforts on the underground and the opportunities there, we continue to work on, and as I said, expecting to receive full permitting, hopefully by the end of this year would be good.
More broadly on the greenfield decisions before John might comment further. The greenfield decisions, that's right. We pushed the decisions out on those towards sort of 2023, 2024, and are not included in. Everything on the brownfield side is included in our capital guidance, around $100 million at Cobre Panama, and there is some capital in 2023, around $250 million in our guidance for S3, and then the remainder of S3 comes through in the following year. Those timings for S3 won't change significantly. There's no capital and no decision we expect on things like Taca Taca and Haquira in that period. They would come after that period. John, did you have any more clarity on CLC and the 43-101?
Sure, Tristan. At the moment, we're just finalizing a delineation drilling program, and our intent is to provide an update on the underground resource, in a NI 43-101. We have ongoing works, technical, in terms of dewatering geotechnical, which means it will be a period before we can actually announce a reserve. Our intent is to get a NI 43-101 update produced by the end of this year.
Got it. I appreciate the color. Thank you.
Thank you. The next question is from Ioannis Masvoulas with Morgan Stanley. Please go ahead.
Yes, hello. Thanks for taking my questions. Two left from my side. The first one, again, on the net debt reduction, that $2 billion target, is this enough? Let's say it's $5 billion. Could it be the case that you may need to bring leverage further down, even below levels that you feel comfortable with just before you launch the next major greenfield project over the next few years? If we look at some of your peers, they are running net cash balancing positions, and I would say that many investors tend to favor that. I'd be interested to hear your thoughts on that point. Thank you.
Thanks, Ioannis. Hannes, do you want to take that one?
We stated the debt reduction at $2 billion. That was the target. I think what you will see is if you run the current numbers, you'll see that level actually being higher, the reduction that we'll achieve within the next year. I think if you look at our greenfields projects, they are still. It's not imminent. Our debt will reduce further from that. I think it's also important to look at growth rate will reduce, and it will reduce probably by more than that level. It's also important to look at the sort of leverage ratio and what we stated in the past, less than 2x net debt to EBITDA. We're already nearly there. I think what we'll look at there is the longer-term copper price. If you run longer-term copper price scenarios, not extend this above those sort of numbers.
That will be achievable when we get to the next decision on the next greenfields project.
Okay. That's clear. Thanks very much for that. One more question, if I may. You made an interesting comment around Cobre Panama and the fact that you're looking to at least partly switch the power mix to renewables. It's interesting because you just commissioned the coal-fired power plant a couple of years ago. How are you thinking about monetizing that asset? Could it be the case that you sell more to the power grid in the country, or are you thinking of some other arrangements?
Thanks, Ioannis. Look, we're very happy with the coal-fired power station in terms of the way it's running and the cost of generation. What we do see, though, however, is the coal-fired power station is responsible for perhaps 40% of the CO2 emissions within First Quantum. It's right that we look closely at it. It wasn't right that we look at that during construction and commissioning. What was important that we got the power source up, we inherited that coal-fired power station. It was a Meccano set sitting on the ground, it was the right thing to do to install and get the mine started. Now it's appropriate that we re-look at that. What we're saying is that initially for the growth of Cobre Panama to 100 million, we're looking at other sources of power, including renewable.
We do continue to look at the power station itself and what options might be available there. I think it's broadly important for Panama that they have stability in the grid. Hydroelectricity in the country goes up and down very significantly across the year because there's no storage. It's all run of river hydro in the west of the country. They are reliant on thermal energy, but at this time, particularly from diesel generators in the country. That's an important consideration. All of these things will weigh up in our deliberations. As we've said, we'll come back and explain those later in the year in terms of our strategy around the power station, and come back and report more as we have more information for you.
That's very clear. Thank you very much.
Thank you. Once again, please press star one at this time if you have a question. The next question is from Jatinder Goel with BNP Paribas. Please go ahead.
Thank you. Good morning and good afternoon. Just a couple of questions. First one on carbon price integration. Is there any timeline by when you'll be able to conclude, and would that then apply to all the projects that are unapproved in your portfolio, including S3 expansion and so on? Second, just a quick one. Is there any cash tax guidance you can offer for this year, please? Thank you.
Thanks, Jatinder. The first question first. Carbon pricing, yes, we will come back by the end of the year in terms of how we will approach that within the group. What we do see, initially, we're looking at new projects, so in particular, things like Taca Taca and Haquira, but we are evaluating it against the other projects in the business, which include S3, and we'll just give more color on that as we go forward. What we do have is a number of initiatives within the business to save on CO2, and really that's around continuing to push our productivity and to reduce our emissions intensity against every unit of copper production. That's important.
Sentinel already sits very low down on the curve, but it's the higher intensity operations of which really Cobre Panama is the highest that's most important in addressing that moves the needle the most for us. Kansanshi is in the middle, but it's really not on carbon pricing. It's much more around the processing stream, which is in particular the carbonates that come through on the leaching side. As we go forward, we'll be continuing to reduce the proportion of oxide leaching in the process plant, and so it does fall away itself. That's just a bit of color there. Your second question, Jitender, sorry, could you repeat that one?
It's on the taxes, Tristan. Julia, do you have a one on the cash taxes? I don't think we've changed it much since early the year.
Thanks, Hannes.
Julia, are you still on the line?
I apologize. She has been disconnected.
Jitender, I don't think it's changed much from earlier the year when we gave guidance. I would expect some of that. As we, you can appreciate in Panama, we spent call it better part of $7 billion building the mine. It will take a while before we start paying cash taxes or significant cash taxes in Panama. In Zambia, with the higher prices and the non-deductibility of the royalty, what you would see is that sort of effective tax rate increase because there's a 10% royalty now, but that's not deductible for tax purposes. In Zambia, you'll see a slightly higher increase in the overall tax.
Effective tax rate.
Yeah, that's very clear. Thank you.
Thank you. The next question is from John Tumazos with John Tumazos Very Independent Research. Please go ahead.
Thank you very much. Should we be worried from the minor tailings discharge or the slippage in the strip ratio or the labor shortages at Cobre Panama, that operations need more attention, and maybe it's premature to be focusing and thinking ahead to the four brownfield and two greenfield capital projects?
Thanks, John. No, I don't think that's the case. I think that the management on-site is doing an excellent job under the pressures of COVID-19 and all of the challenge of continuing the ramp up. What we have seen is, it measures against production in the mine have been progressing extremely well. That is in terms of the capabilities of the capital equipment to deliver the trucks. For example, we look at full and empty ratios. We look at the KPIs compared to benchmarks on our other operating mines, in particular Sentinel, as to how it's performing against those benchmarks. In some areas, Cobre Panama is exceeding. In other areas, we have continued work to do, for example, on tire maintenance and road conditions.
In other areas, we're already doing better than other mines, and we compare ourselves to the other benchmarks in the region, including the dry mines down in Peru and down in Chile, and our suppliers are there regularly, and we compare ourselves to those. In the process plants, recovery is performing extremely well. We now have the gold plants performing much better after investment in maintenance on that side. The process through tailings is working extremely well, and we're well on track in terms of the phase two lift around the tailings dam, which is all to get that ready and cope with the current inundation rate, but also to have it ready for the 100 million ton inundation rate. We have regular external audit from independent auditors to come through and check how operations are performing and whether they're at the required standard.
We're very happy with the outcome of that. In terms of safety management on the site, there's continued improvement from where we were 18 months and 24 months ago. We see the leading indicators continue to improve, and the safety adherence and so on from the workforce, from the Panamanians, has been exceptionally good for a new workforce, where the country has no history of mining but has developed very quickly and shown a great deal of capability. The incident on the pipeline is an aberration and regretted, but it's very small and minor. It does need focus, and we're confident that it's getting the focus that it requires. We were seeing three or four of these events last year. Certainly the frequency has improved. It boiled down to a failure on a weld. That weld, difficult to analyze.
It does require a higher technical capability of NDT testing in order to examine that weld, to make sure that everything else in the line has been performing exceptionally well after the improvements last year of the earlier problems we had. This is a one-off related to a failure on a weld. Again, we will put in place the corrective actions because it needs to be done. I hope, John, that gives you an idea that the application of management, the application of the operational excellence at the site is already reaching the standards of our other operations, although we continue to lift the standards of those to global benchmarks, and we're very happy with the progress in that regard.
Thank you, Tristan. If I could ask you one more. I'm thinking of a history in 1986 when Magma Copper hedged at $0.70, which was at or below their breakeven, or 2004, 2006, when Phelps Dodge lost a couple billion dollars because of zero cost collars as the price rebounded. I'm a little bit tongue in cheek, but I'm wondering if you're almost trying to trigger a hostile takeover with your hedge practice or your failure to renounce hedging. I just want to call your attention to companies that had similar hedge problems in the past, disappeared quickly.
Hi, Hannes, did you want to take that call on the hedge book? I think we made it fairly clear.
Yeah, we made it clear. We haven't added hedges this quarter, so we've stopped early this quarter. If you look at the history in the last three, four quarters, it has reduced by 10% in each quarter. That program was in place while we were spending quite a bit of capital at Cobre Panama and highly leveraged. As Panama's ramped up, that hedge program has rolled off, and there's much less hedged now. It's less than 25% of the next 12 months sales are hedged. You would see from, I think August, we'll participate significantly more on the copper price.
Thank you. I'm a shareholder and wish you the best.
Thank you.
Thank you. This will conclude the question and answer session. I would now like to turn the meeting back over to Ryan MacWilliam.
Thank you very much to everyone for joining today's call. Enjoy the rest of your day, and we look forward to speaking to you again with our Q3 results.