First Quantum Minerals Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 13 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the First Quantum Minerals Ltd. 4th Quarter 2023 Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Bonita Tho, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and thank you, everyone, for joining us today to discuss our 4th quarter results. During the call, we will be making forward looking statements. As such, I encourage you to read the cautionary notes that accompany this presentation, our MD and A and the related news release. As a reminder, the presentation is available on our website and that all dollar references are in U. S.

Speaker 1

Dollars unless otherwise noted. On today's call are Tristan Paschall, our Chief Executive Officer Ryan McWilliam, our Chief Financial Officer and Rudy Battinghorst, our Chief Operating Officer. And with that, I will turn the call over to Tristan for opening remarks.

Speaker 2

Thank you, Benita, and thank you everybody for joining our conference call today to discuss our 4th quarter results. Financial and operating results in the Q4 last year were significantly impacted by the situation in Panama. As such, the quarter was challenging, not just for First Quantum, but for our investors and our stakeholders in Panama, particularly our workforce, the local communities around us and our suppliers. However, we have a plan in place to address the challenges thrown up by circumstances in Panama, focused on delivering the future positive cash flows from the Kansanshi S3 expansion, which will provide us the necessary time and space for resolution Cobre Panama. We have made good progress on our balance sheet initiatives to deliver this plan, such as our announcement yesterday on a $500,000,000 copper prepay.

Speaker 2

We are also well advanced in discussions with our lenders and we will keep the market up to date on our progress. I will start today's call with an update on the current situation in Panama, followed by an operational update by Rudy. We will keep these updates brief as understandably the focus is on our balance sheet initiatives, which Ryan will review in detail. I will then close the call with our progress on the Kansanshi S3 expansion project before opening up the lines for Q and A. On our last conference call in October, our refreshed concession contract for the Cobre Panama mine had successfully even passed into law and published in the official gazette.

Speaker 2

Soon thereafter, however, civil unrest gained momentum in the country with road blockages and protests against the government and also the mining contract. The road blockages impacted people and businesses across the country and also at Cobre Panama, as illegal blockades at the port prevented deliveries of essential supplies for our power plant and eventually forced the mine to ramp down and stop production. The blockades also prevented the shipment of concentrates to which both Rudy and Ryan will speak to shortly. On Panama Independence Day, November 28, after 4 days of deliberation, the Supreme Court in Panama declared Law 406 unconstitutional. This was then followed by announcement on December 19 by the Minister of MECI that a temporary phase of environmental preservation and safe management would be established until June 2024, whilst planning audits and review activities are undertaken.

Speaker 2

This period will take us into the next administration in Panama with elections across the country to be held in May this year and a new President taking office in July. In addition, the Minister noted that it could take up to 2 years to plan and perhaps 10 years or more to implement measures required following the abrupt halt to operations at Cobre Panama. In early January, the company and me see had discussions related to a formalized preservation and safe management program and the associated costs. At the government's request, we submitted our initial plan to address these critical activities on January 16. As part of this plan, we've proposed the sale of the concentrate on-site to fund the initial phase of this critical environmental stability work, estimated at around $15,000,000 to $20,000,000 per month, and we currently await a response from MECI on this plan.

Speaker 2

There is currently no mining activity at Cobre Panama. However, blockades around the mine have dissipated, allowing for the delivery of critical supplies for the environmental stewardship of the asset. We have also commenced international arbitration processes, including notification under the free trade agreement between Canada and Panama, and with the International Chamber of Commerce's International Court of Arbitration relating to the 2023 concession contract. That being said, arbitration is not our preferred outcome and we continue to engage in constructive communication with the government as we remain committed to Panama and being a part of a long term solution that delivers the best outcome for the country and Panamanians. As we navigate through this period of preservation and safe management at Cobre Panama, I want to reaffirm that our commitment to the environment is at the forefront.

Speaker 2

Cobre Panama has always operated under best in class environmental management and remains committed to this responsibility on a transparent basis, particularly with regards to tailings and water management. At all our mine sites, we implement best practices and adhere to stringent international standards to minimize our ecological footprint and preserve and restore the natural surroundings. Similarly, our reforestation efforts at Cobre Panama are also world class and contribute to the livelihoods of many Panamanian farmers. We do acknowledge that we need to improve our broad based communications and we have made it a priority to address perceptions of mining by the public of Panama. This includes media campaigns to dispel the misinformation and fake news that gained traction at the close of last year, as well as direct engagement through tours to the mine site for government officials, civil society organizations and community members on an open and transparent basis to demonstrate our best in class environmental standards and the benefits of the mine to the country.

Speaker 2

Panamanians are curious about the mine, with almost half of the people recently polled expressing an interest in visiting to understand more about copper mining. And so yesterday, we launched the Cobre Panama visitors and citizen participation program. We look forward to welcoming some 3,000 people per month who want to learn more about this world class project that is a huge part of the lives and economy of thousands of citizens and which is also a much needed contributor to both the global renewable energy transition and to electrification in developing countries around the world. As we continue with our campaigns to inform the Panamanian people about the mine, we are seeing new space begin to open up in Panama, in which a recent debate about the role of mining in the economy and society is increasingly possible. I would now like to hand the call over to Rudy, who will provide an update on operations.

Speaker 3

Thank you, Tristan, and thank you, everybody, for joining our call today. Copper production in the 4th quarter totaled 160,000 tonnes, representing a 28% decrease from quarter 3. Sales volumes were also impacted, representing only 80% of the quarter's production and down over 40% from the preceding quarter due to the poor disruptions at Cobre Panama. Copper C1 cash cost of $1.82 per pound during the quarter was $0.40 higher than quarter 3, largely as a result of the lower production volumes. At Cobre Panama, the poor disruptions also prevented the delivery of critical supplies to operate the power plant and force the mine to ramp down production.

Speaker 3

As such, copper production for the Q4 was 63,000 tonnes, representing a decrease of 50,000 tonnes from the previous quarter. Copper C1 cash cost of $1.45 per pound was $0.26 higher than the previous quarter due to the lower production volumes and the lower byproduct credits. It is worth noting that prior to the disruptions at Cobre Panama, the CP100 expansion facilities were operating very well, which speaks to the strong capabilities of our projects team and the operation achieved a monthly production record in October and was on track to achieve the top end of its guidance range, which is now suspended. At Kansanshi, the operation produced approximately 32,000 tonnes of copper, down from the previous quarter by about 8,000 tonnes, due to mining constraints in May 17 in the main pit that impacted mining rates. The latter relates to a misfire that was experienced in one of the blasting blocks that restricted mining activity.

Speaker 3

This has been dealt with and is no longer a constraint. Production was also impacted by asset volume restrictions due to unplanned maintenance at the smelter during the quarter. Additional asset is being procured from the copper belt as we rebuild our asset stocks. Kansanshi's production for 2023 was 135,000 tonnes, well within the guidance range. Copper C1 cash cost of 2 point

Speaker 4

dollars a pound was 0

Speaker 3

point 8 dollars higher than quarter

Speaker 5

3, mainly due to lower production

Speaker 3

and a one time catch up charge on new electricity rates. Production guidance for 2024 is expected to be 130,000 to 150,000 tonnes and 65,000 to 70,000 tonnes of gold. At Sentinel, the operation continued to be impacted by hard ore in the lower levels of Stage 1 and 2 pits. And as such, copper production was down quarter over quarter to approximately 60,000 tonnes. Mining productivity, however, improved over the course of the quarter with improved blast fragmentation and reduced congestion with the commencement of Stage 3 Western Cutback Mining.

Speaker 3

Copper production for the year as a whole was 214,000 tonnes. Falling short of the guidance, copper C1 cash cost of $1.85 per pound was $0.20 higher than the preceding quarter, reflecting the lower production. Copper production is expected to be between 220,250,000 tonnes this year. With regards to the current rainy season, we have recorded more rain when compared to the 2019 to 20 22 season, but less than we experienced during the last wet season. At Sentinel, there has been significant work on wet weather preparations and stormwater management processes have been implemented to mitigate the risk of potential water accumulation that was experienced in the previous rainy seasons.

Speaker 3

That being said, there will be some seasonal impact on the Zambian operations in the Q1, which is reflected in our annual guidance. Thank you. And I would like now to hand over the call to Ryan to review the financials.

Speaker 6

Thank you, Rudy. As Rudy noted, Cobre Panama was in a state of preservation and safe management for much of the 4th quarter. The blockades around the mine impacted our ability to ship approximately 121,000 tons of copper concentrate, which was produced prior to the Supreme Court ruling. Sales therefore fell by more than production. As a result, revenue declined 40% in the quarter to $1,200,000,000 EBITDA decreased 72 percent to $273,000,000 Our net loss attributable to shareholders was $1,447,000,000 This was due to a higher income tax expense from Cobre Panama and a $854,000,000 impairment at Ravensthorpe.

Speaker 6

The nickel market is under pressure due to the continued ramp up in supply from Indonesia. This has resulted in both lower nickel prices and lower payabilities for Ravensthorpe. With the muted nickel outlook, we have taken the decision to fully impair Ravensthorpe. Across Western Australia, multiple nickel miners have idled production and it has been pleasing to see the government respond by designating nickel as a strategic mineral and providing royalty relief to support the industry. Moving on to costs.

Speaker 6

Copper C1 costs were 28% quarter on quarter were up 28% quarter on quarter to $1.82 per pound. Impacted by lower production, higher fuel costs and the impact of once off adjustments due to the signing of the new power contract in Zambia. Remaining input costs were stable during the quarter. In December, Brent oil prices declined to around $76 per barrel, which should benefit costs in the coming quarter. Onto the balance sheet.

Speaker 6

Net debt increased by $783,000,000 during the quarter to $6,400,000,000 Liquidity was $1,200,000,000 at the end of the year. This comprised of $959,000,000 in cash $250,000,000 of undrawn revolver after we drew on the revolver through the quarter. There were 2 main drivers for the change to our debt and liquidity. Firstly, as mentioned in our Q3 results, during the Q4, we made a one time tax payment of $567,000,000 to the government of Panama. This payment was made prior to the Supreme Court ruling.

Speaker 6

It was important to make this payment and meet the obligations of Law 406, which preserved the strong arbitration rights that we have under this contract with the government of Panama. This was the largest ever tax payment in Panama's history and as a reminder of the contribution that the mine has made to the country. Secondly, net debt increased due to the disruptions to shipping at Cobre Panama and the subsequent preservation and safe management of the mine. As I noted earlier, the disruption at the port prevented us from shipping copper concentrate. The sale of this concentrate will provide important funding of approximately $225,000,000 at current market prices.

Speaker 6

This is required for the implementation of essential environmental stability measures under the preservation and safe management plan at the mine. With Cobre Panama not in operation, our focus is on ensuring that we have a balance sheet that confidently supports the completion of the Kansanshi S3 expansion project, independent of the timing of resolution in Panama. As a result, we already have initiatives underway to strengthen our financial position. These include the suspension of the dividend, the reduction in capital spending and operating cost and working capital optimization. Liquidity has been further bolstered by yesterday's announcement of a $500,000,000 copper prepayment with our long standing customer, Jiangxi Copper, at a competitive cost of funds in line with that of our bank debt.

Speaker 6

This 3 year prepayment agreement for 50,000 tons of copper per year includes a 1 year grace period before periodic repayment commences. The price at which copper is sold under the agreement will reflect the Alamy copper price subject to typical market terms. This prepayment agreement is a reminder of the strategic nature of copper in today's market and the value of stable supply given the potential disruption to copper production across the sector. In addition to the prepay, the process to sell our Las Cruces mine in Spain is well advanced and has attracted interest from a range of parties from various parts of the world, reflecting the strategic location and processing capabilities of this project within the Iberian Pyrite Belt. As we alluded to in our January guidance release, we've also received expressions of interest regarding our Zambian assets and as a result have commenced the process to evaluate the possibility of a minority investment by a strategic investor into this business.

Speaker 6

This interest is a reflection of the positive business and fiscal reforms that the Zambian government has delivered on in recent years. However, any such proposals received will be considered relative to other options available to the company and will only be pursued if we believe that they will deliver enhanced value and are in the best interest of our shareholders. The options that I have outlined are a subset of those available to the company. As we've mentioned for a couple of months now, we've been considering and pursuing a variety of balance sheet management initiatives across a wide range of finance providers from short term trade to capital markets. The prepay is an attractive first step in this respect and we will continue to deliver initiatives which position our balance sheet to support our businesses potential to create significant value over the coming period.

Speaker 6

Lastly, I'd like to address the going concern references in our MD and A and financial statements. Current forecast in 2024 before taking into account future balance sheet initiatives indicate that the company may exceed net debt to EBITDA our net debt to EBITDA covenant ratio threshold in the coming 12 months, resulting in a material uncertainty ongoing concern. This is similar to language that has been in our MD and A previously when we have worked through other challenging moments in our history. The nature of this analysis means that it does not factor in potential changes in the company's covenants, despite the fact that we are in advanced discussions with our banks in this respect. There is alignment with our banking group regarding amendments to the facilities to extend our debt amortization and provide more headroom in respect of our covenants.

Speaker 6

We expect to conclude these changes in the very near term. This should remove the technical risk around a bank covenants when reviewed at the end of Q1. And that brings the finance section to an end. I'll now hand the call back to Tristan.

Speaker 2

Thank you, Ryan. The Kansanshi S3 expansion project remains on budget and on schedule to ramp up in the second half of twenty twenty five and will return the company to a position of strong free cash flow generation. The $1,250,000,000 project is a key part of our ongoing commitment to Zambia, which is supported by the continuing stable investment climate in the country under the current Zambian government administration. Engineering work at the end of the Q4 was 80% complete with minor mechanical design left and the balance on instrumentation and control engineering. Deliveries of major long lead items such as the mills, the primary crusher and process thickeners remain on schedule.

Speaker 2

Construction on the site continues across all disciplines and excavation of the primary crusher position commenced during the Q4. Similarly, the advancement of the smelter expansion to 1,600,000 tonnes per annum feed capacity and ramp up of the Enterprise Nickel mine also remain on track. 2023 closed with the company facing one of its biggest challenges in its recent history. However, I remain confident in the resilience of First Quantum and the determination of the team to work through the current challenges. As Ryan discussed in his section, we are taking a proactive approach to manage our balance sheet and address our liquidity in a fulsome and disciplined manner.

Speaker 2

An important component to this fulsome solution is an amendment and extension of our loan facilities. We have a long relationship with our lending banks and there is a high degree of alignment among parties and we expect to provide an update to the market in short order. Whilst we address our liquidity, we remain focused on running our operations, executing our Kansanshi S3 expansion and the safe and responsible stewardship of Cobre Panama. Thank you. Operator, I would like to open the line for questions now please.

Operator

Thank you. We will now begin the analyst question and answer session. Our first question comes from Greg Barnes of TD Securities. Please go ahead.

Speaker 7

Yes. Thank you, operator. Tristan, can you talk a little bit about the damages of value you're seeking under the arbitration process? I know you have the $10,000,000,000 number in the slide deck, but I'm wondering if that's the number you're seeking or is it something more than that?

Speaker 2

Yes. Thanks, Greg. I mean, first off, we should highlight that although arbitration isn't our preferred outcome, we do have a strong case in arbitration, but we would really rather come to a resolution with the State of Panama that results in the best outcome for the people and for the company. That being said, as part of the free trade arbitration that is between Canada and Panama in the free trade agreement and as required under the process, we have provided a minimum value sought in those proceedings of $20,000,000,000 reflecting an estimated fair market value of the initial investment. But in reality, with damages and interest, the award could be very much higher.

Speaker 2

There's been some figures quoted in the Panamanian media, which is several times higher. Alongside that, we do have the ICC arbitration process as well. That's under the auspices of the concession contract from 2023.

Speaker 7

And is it the same value under the ICC premises Tristan?

Speaker 2

That's under a fair market value consideration. That is the termination clause in the ICC contract. And just

Speaker 7

as a follow-up, I'll just direct this to Ryan. On the copper prepay, how does the mechanics of the repayment of the say $500,000,000 actually work?

Speaker 6

Sure, Greg. The prepay is a sale agreement for 50,000 tonnes of copper over 3 years and we sell copper to Chunksy just as we've sold it to them in the past as a regular customer at market related terms. But also as part of the agreement, we receive an advanced payment of $500,000,000 with the interest rate on that payment, a floating interest rate broadly in line with our bank debt costs. We then sell them the copper as per normal, no discount on the LME price on market terms. There's a 1 year grace period and then in years 23, we pay them back on that loan plus interest and that payment is offset against what they would have paid us for the copper in years 23.

Operator

Our next question comes from Orest Wowkodaw of Scotiabank. Please go

Speaker 8

ahead. Hi, good morning. Ryan, do you have a target of debt reduction corporately in terms of what you're trying to get to with respect to the various transactions you're looking at?

Speaker 6

Thanks, Orest. The focus is really on having the balance sheet that confidently delivers S3, because it's S3 that delivers Zambia back to being a strong cash flow producer and then we'll naturally deleverage from there. So we have a clear plan in place. It's a holistic plan. It's well advanced.

Speaker 6

We announced 2 important step forwards in that plan today, which is the copper prepay and alignment on the bank covenants and we'll keep the market updated in short order on further progress.

Speaker 7

Does the prepay qualify or is

Speaker 8

it considered debt under the covenants or is that considered not debt?

Speaker 6

Yes. So from an accounting perspective, it will be deferred revenue. But from a debt perspective, it will from a covenant perspective, it will likely be included in the debt the covenant calculation.

Speaker 8

I see. So it's still it helps you with liquidity, but not with your debt covenants?

Speaker 6

Correct. The debt the focus on the debt covenants has really been that discussion with the banks. And I'd just like to note, appreciation for the supportive and constructive approach that our banks have taken in the discussions with us to reach alignment on new covenants. Okay. And can you give us

Speaker 8

an idea how much of a minority interest are you considering in Zambia in terms of potential sale to a strategic?

Speaker 6

Doris, I wouldn't get too much into the specifics at this stage other than to say we've received interest from a number of parties in respect to Zambia and stakes within our business. I that's a function of it being a high quality copper business in Zambia and also the real improvement we've seen in Zambia, which has attracted a variety of parties also to make other investments in Zambia. And we'll explore those discussions in a disciplined manner. And if there's a transaction that makes sense for shareholders, we'll progress with that transaction. If not, we're comfortable with existing ownership structure in Zambia.

Operator

Our next question comes from Jackie Przybylski of BMO Capital Markets. Please go ahead. Thanks very much for taking my question. I just wanted to ask you about the unsold copper concentrate that you have in Panama 121,000 times. If you could tell us I know it hasn't been sold yet.

Operator

If you could tell us maybe if you expect it will be sold in the Q1 or if we should assume that's a Q2 transaction? And as a follow-up, I guess, it'd be helpful just given the Law 406 has been overturned, if you could talk a little bit about what like taxes and royalty rates and things that you're expecting you would owe on that sale if and when it happens? Thank you.

Speaker 2

Sure, Jackie. Yes, so there's 121,000 tonnes sitting in the shed and it's clear from our perspective that was mined and processed prior to the Supreme Court decision and that provides the pathway to ship it out. We'd like to press for that. So certainly, we submitted the preservation and safe management plan on the 16th January and in conversations with the ministry, a key component of that plan and how to address the environmental stewardship of the site, which is needed, is to how those costs are met. So, the concentrate is an important part of that.

Speaker 2

In addition, we don't want to see any gassing or anything coming off that concentrate. So, there's a strong argument to move it. We would like to press to that as soon as possible. And in regard to the royalties and so on, that's yet to be resolved with the government. But looking at the way the current mining code works, we would expect that the mining code royalties would apply to that.

Speaker 2

We don't see that the minimum tax, the previous arrangement under the Law 4 or 6 we do and we'd be looking at royalties under the current mining code.

Operator

Okay, great. Thanks very much Tristan. Our next question comes from Dalton Baretto of Canaccord Genuity. Please go ahead.

Speaker 9

Thanks, operator. Good morning, Tristan and team. Tristan, I'm wondering if I can ask you about the situation around the election in Panama right now. I understand Martinelli has been disqualified from running. So I'm wondering what the Board looks like to you right now and how you're thinking about both the election as well as your actions post the election?

Speaker 9

Thank you.

Speaker 2

Yes, sure. So, I think there's 2 parts. The first is that, as I was saying there, we it's important that some activities commence on the site and that's really to address the environmental stewardship requirements right now. And we're seeing positive signs in terms of framework around the preservation and safe management plan that is in discussion with the current administration. The election is in May.

Speaker 2

There's some 8 candidates running for that. I think Dalton, what we'd say is, whoever comes in, you know, the solutions that are provided by the mine, in terms of contribution to the economy, contributions to employment, social security, social infrastructure are extremely important and can't be ignored in the context of the challenges that Panama is experiencing in terms of lower growth rates and also the situation with low water and so on. So, we're seeing very high power prices in the country. Getting the power plant running would provide an active contribution to support high power prices for people in their homes in Panama. These are the issues that the incoming administration will need to deal with whichever the successful outcome of the democratic elections is.

Speaker 9

Okay. Thank you for that. And then I think you said earlier in your comments that you're seeing new space for responsible debate on the role of mining. What does that look like in Panama right now? And what's the plan to post the election address sort of the social license?

Speaker 2

Sure, Dalton. So, I think the decision by the Supreme Court last year was understandable in terms of a release valve and a lot of emotion in the country. What was a surprise was that they stopped operations and that needs to be dealt with because stopping things in such a hard stop can be very detrimental to the environment. And so that's the reason why the preservation and safe management framework is important that those activities can get underway. I think there's an understanding that mines can't stop dead and there needs to be a fulsome workout of that solution.

Speaker 2

So, we've seen MECI talk about developing a plan over 2 years and it may perhaps take up to 10 years to resolve that. In terms of openings for further space, we acknowledge there was a lot of emotion we need to do more in terms of broad based communication in speaking to people. I think Panaman is interested to learn about the mine. If you ask them what should happen from this point, that's challenging for people to answer. And I think that is a space, but a lot needs to be done in terms of this time in front of the election and then into the run up to the new administration coming in.

Operator

Our next question comes from Ralph Profiti of 8 Capital. Please go ahead.

Speaker 10

Good morning, Tristan. Thanks for taking my question. I just have one. Did the MECI delivery of this preliminary draft on January 16 include proposals for cost sharing of the $15,000,000 to $20,000,000 a month after successful monetization of those inventories. Just wondering how we should think about sort of who foots the bill in that medium term?

Speaker 2

Sure, Ralph. So, what happened is, Meci had asked for us to submit a plan that is they said this needs to be addressed, how will you address the safe environmental management of the site. So, they called for a plan and so it was our submission, a preservation and safe management plan that dealt with the topics of the environmental stewardship that is required. It dealt with the topics of the welfare of employees and how they would be looked after given the circumstances, security of the asset, safe maintenance that is keeping the assets in good standing, and then also the costs. And certainly, there's an understanding in terms of that framework that the cost of that environmental stewardship do need to be met.

Speaker 2

So, we've the concentrate is available for that. It also eliminates potential environmental degradation on the concentrate itself, and that would address that $15,000,000 to $20,000,000 per month. That's the necessary level in order to ensure environmental stewardship. That's at a level of about 1400 people per site, which is about the right level. Beyond that, the ability to operate some of the machinery there would give us greater ability to ensure that pH in the tailings dam is held within compliance and that is there is no degradation in terms of downstream environmental impacts and we've seen that all the way through Panama.

Speaker 2

It really has been operating as a gold standard environmentally, particularly in regard to discharge of water from the tailings dam. All our independent audits to return those very high standard results. And for that to continue, those costs do need to be addressed. That was part of the plan that we put forward.

Speaker 10

Understood. Thanks, Tristan.

Operator

Our next question comes from Bryce Adams of CIBC Capital Markets. Please go ahead.

Speaker 11

Thank you, operator. Hi, all. Firstly, just noting the Ravensthorpe impairment, it might be difficult with so many unknowns, but what are the triggers for an impairment test on Cobre Panama? Is that test is that something that's being considered or with arbitration initiated, it's not required? Just wondering what the trigger might be for the testing there?

Speaker 6

Yes, sure, Bryce. So we do look at impairment triggers across our assets that included Ravensthorpe, included Cobre Panama and you then consider a variety of scenarios going forward at Cobre Panama as you work through that impairment analysis. And I think it's important to note that you also consider potential arbitration outcomes when you conduct that analysis. And on the basis of that, we were comfortable with the book value we have for Cobre Panama.

Speaker 11

Okay. Thanks. And for a follow-up, I'm going to go back to the copper concentrate at Cobre Panama. If you're successful in shipping out that corn, do you expect that all of the net revenue is available for care and maintenance costs? And in that scenario, is there a potential for a write down to the amount of

Speaker 6

the cost of the inventory? Yes. So, Bryce, the way it would work is we would sell that copper concentrate that would generate around $220,000,000 of cash, around $160,000,000 of EBITDA. So that normally would have been EBITDA that would have flowed in Q4, that would then flow in Q1. And that cash amount would we expect broadly fund the preservation and environmental work at sites for the most of this year.

Operator

Our next question comes from Ioannis Moschopoulos of Morgan Stanley. Please go ahead.

Speaker 12

Yes, hello, Tristan and team. Thank you very much for the presentation. First question from me, going back to the prepayment agreement, could this deal in any way restrict the pool of possible bidders for a minority stake, given that you will have to sell 50,000 tonnes per annum to Jiangxi for the next 3 years? And then within that, do you have capacity to do more of these deals, for example, at the Sentinel? Thank you.

Speaker 6

Sure, Johannes. So to your first question, no, the contracting entity is our marketing subsidiary, and it's a small percentage of the overall copper production from our Zambian business. In terms of your second question, yes, there is potential for future agreements like this one. We'll assess them on a case by case basis, just as we do all our financing options and where we feel they are at competitive terms that make sense for us, we'll enter into them.

Operator

Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Speaker 4

Great. Thank you, operator. Good morning, everyone. Thank you for the presentation today. I just wanted to get a little bit of clarity on the prepay.

Speaker 4

I wasn't 100% clear that there are no caps or floors?

Speaker 6

Correct, Lawson. It's at LME prices. So there's no implicit hedging agreement locked into the prepay. It's just about purely selling physical copper at market related prices. And as part of that, there's also a loan agreement to First Quantum.

Speaker 4

Okay, perfect. Also wanted to ask about potential asset monetization or minority sales. So I mean through your consistent communication with the market and with us, Taka Taka has never been mentioned as a possible asset that could be monetized to help with liquidity and strengthening the balance sheet. Is that something you guys talk about internally?

Speaker 2

Sure, Lawson. We certainly looked at that. Taka Taka is a great project. We think it hangs together really well. The question the current stage of the asset is we need to address 2 questions.

Speaker 2

1, the environmental social impact assessment approval and secondly, the investment climate in Argentina. And at this stage, we think both of those, particularly the investment climate, although we're seeing with the new administration there certainly intent, but it's really yet we're yet to see implementation that would we think impacted the way in which a process would go forward. Certainly, as we look at that asset, the potential for partnership or so on in the future, we've been open to say we would look at that. I think it really needs to get to a shovel ready position, Lawson, before we could look further into that.

Operator

Our next question comes from Ian Russo of Barclays. Please go ahead.

Speaker 5

Hi, thank you. Just one question on this preservation and safe management program. Does any of your proposals include producing new copper to help fund the ongoing program going forward? And maybe just as part of that, you mentioned that now that the blockades have cleared, have you been able to restart the power plant and selling into the grid?

Speaker 2

Sure, Ian. At this time, no, the power plant is still idle. We'd like to see that happen. The producing that power would certainly have a very positive impact for Panamanians in terms of reducing power price in the grid. It's currently at a historical high because of low water in the hydro dams in the country.

Speaker 2

And this time of year is always a low because of rainfall normally and because of low wind and solar. So, currently Panama is running a lot of diesel power, which is very expensive and certainly the power station can contribute to the national grid. In terms of running operations and generating new copper, that alternative is available in that turning the mill and producing on one train as we were during the care and maintenance stage during the COVID period, we're certainly able to hold the environmental stewardship, particularly around the tailings dam in a very strong position. And ultimately, it's the buffering from the lime addition, the buffering from the processing in the milling trains and certainly you could see that in by some level of operation. It really holds things steady and holds things constant.

Speaker 2

It would also provide the sand that's necessary for the ongoing cyclone sand construction on the tailings dam. Without that, you're challenged around erosion, you're challenged around long term on those issues on the tailings dam, because all of the long term planning was there, but in the interim, there is ongoing construction that is required on the dam and to manage pH in the tailings in the facility itself.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Tristan Pascal for any closing remarks.

Speaker 2

Thank you very much, operator, and thank you everyone for joining our call today. We certainly appreciate the support and we look forward to talking to you again soon.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Earnings Conference Call
First Quantum Minerals Q4 2023
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