KEY DEVELOPMENTS AND INITIATIVES:
Terms of a replacement Cobre Panama precious metals stream agreement finalized; capital costs estimate lowered
A revised precious metal stream agreement has been agreed with Franco-Nevada Corporation ("Franco-Nevada"). Under the revised agreement, it is expected that Franco-Nevada's initial contribution of between $330 million to $340 million will be paid to First Quantum during October. Additional details are contained in a separate joint news release.
The estimated capital cost of the Company's flagship project, Cobre Panama, has been reviewed in detail and reappraised. It is now estimated the total project cost will be $5.95 billion, approximately 7% below previous estimates with potential for further improvements.
Capital costs have been reduced due to better construction efficiency, continued optimization of detailed design and lower costs for equipment and bulk materials such as rebar and structural steel.
Overall the project is approximately 35% complete and experience to date allows greater confidence in forecasting total project costs. The project remains on track for process commissioning and first concentrate production in late 2017.
The port is now a fully operational and has received direct international shipments.
Early priority is being given to the completion of the power station taking advantage of virtually all required materials being available on-site. Mechanical installation works are progressing well.
Project costs incurred to date amount to $2.621 billion of which First Quantum's partner in the project, KPMC, has contributed $524 million. The remaining estimated costs to completion will be met by an additional contribution from KPMC of $666 million, $1 billion payable by Franco-Nevada under the precious metal streaming agreement and$1.663 billion by First Quantum.
Zambian power stabilizing; Sentinel anticipates commercial-level production by end of 2015
The Zambian power situation is stabilizing. Full power of 153MW is currently being provided to the Kansanshi mine and smelter and 55MW to the one power line currently connected to the Sentinel mine.
Sentinel's ramp-up to date has been affected by the limited power supply. Despite this, good progress has been made. Construction of the second power line connecting Sentinel to Lusaka West is complete and scheduled to be energized shortly. Once the second power line is connected and energized, Sentinel will be entitled to its full power requirement of 160MW. This will allow for the mine to ramp-up towards commercial-level production expected by the end of 2015.
ZESCO, the state-run power company, has requested the mining industry to use supplementary power for 30% of their requirements. Discussions are currently underway regarding the related tariffs for this supplementary power. The Company expects full production at both Kansanshi and Sentinel through the purchase and sharing of this power.
It is expected that the country's generating capacity will improve following the rainy season starting in November. In addition, approximately 400MW of new power generation capacity is expected online in Zambia in 2016 from projects nearing completion (300MW thermal and 100MW hydro).
Production and cost guidance for 2015 revised
Copper production for 2015 is now expected to be between 385,000 and 410,000 tonnes excluding Sentinel pre-commercial commissioning production of between 30,000 and 50,000 tonnes.
The C1 cost estimate is lowered to between $1.20 and $1.35 per pound.
Management is employing a number of measures to enhance the Company's capital position and maintain financial stability
With borrowings at elevated levels during a period of development project expenditure, the maintenance of available project funding, the strengthening of the Company's balance sheet and further cost reductions remain key priorities.
Initiatives to strengthen and protect cash flow include:
in addition to the reduction in capital for Cobre Panama, other planned capital programs across the Company have been reduced or re-phased by approximately $700 million,
hedged approximately170,000 tonnes of copper production at an average price of $2.411 per pound ($5,316per tonne) over the balance of 2015 and well into 2016,
reduced the work force by 644 and lowered salaries by up to 20% which, when combined with a detailed review of all other operating costs, has led to annual savings of approximately $420 million, and
realized $215 million from the settlement of the ENRC Promissory Note with a further $85 million to be received in October.
A commitment to reduce net debt by over $1 billion through a combination of asset sales and other strategic initiatives by the end of Q1 2016.http://www.first-quantum.com/Media-Centre/Press-Releases/Press-Release-Details/2015/First-Quantum-Minerals-Updates-on-Key-Developments-and-Actions/default.aspx?utm_source=Doctor+Copper&utm_medium=twitter&utm_campaign=Copper+Mining