First Quantum Minerals Ltd. (FM) Earnings Call Transcript

Good morning, and welcome, everyone, to the First Quantum Minerals Third Quarter 2026 Results Conference Call. As a reminder, today's conference call is being recorded. [Operator Instructions] I would now like to turn the call over to Bonita To, Director, Investor Relations and Capital Markets. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today to discuss our third quarter results. During the call, we will be making forward-looking statements, and as such, I encourage you to read the cautionary notes that accompany this presentation, our MD&A and the related news release. As a reminder, the presentation is available on our website and that all dollar references are in U.S. dollars, unless otherwise noted. On today's call are Tristan Pascall, our Chief Executive Officer; Ryan MacWilliam, our Chief Financial Officer; and Rudi Badenhorst, our Chief Operating Officer. And with that, I'll turn the call over to Tristan.

Thank you, Bonita. Good morning, everyone, and thank you for joining us today for our third quarter results. It's been an eventful 3 months since our last call, so I'm pleased to have this opportunity to provide you an update. In the third quarter, with the hedge book behind us, we benefited fully from stronger copper prices. This translated into a meaningful improvement in our financial performance and demonstrated the underlying earnings potential of our business which Ryan will speak to in more detail later in today's call. We also delivered higher production in the quarter, which Rudi will take us through in more detail later. I would like to start with the October 9 earthquake in Panama. First and foremost, all first quantum personnel in the country were reported safe. Our thoughts remain with the families and communities affected, particularly in the Penon area where some of the most significant impacts were reported. The earthquake was well within the design parameters of the mine with no material impacts to site infrastructure or environmental protection systems and the tailings and water management facilities also remain stable and secure. I want to recognize the Cobra Panama team for this strong and immediate response to the incident and their dedication in assisting local communities with the provision and delivery of essential supplies as part of the wider relief efforts in the country. During the third quarter, we made good progress with the stockpile processing program as part of the ongoing environmental stewardship of the mine. We have successfully recommissioned all 3 processing trains marking another important step in the program, and our focus has now shifted towards improving reliability and stability. In other developments in Panama on September 30, the Inter Ministerial Commission provided its recommendation regarding the future of Cobra Panama. The report acknowledges that maintaining the site indefinitely without a long-term framework is not a sustainable solution and recommends that the government negotiates with First Ganton to establish a new framework that can address the outstanding arbitration proceedings and provide for a restart to support an orderly self-financed long-term closure process all while complying with the ruling of the Supreme Court of Justice and prioritizing environmental, social and economic outcomes for Panama. The report highlighted the findings of the independent environmental audit which found a high level of compliance while identifying a limited number of areas for improvement, which we have already commenced addressing. The report also recognizes the significant economic consequences of the shutdown for Panama from employment and local business activity to export and government revenues and indicated that economic activity previously generated by the mine cannot be easily replaced by other sectors. Importantly, the commission highlights the severe impact on communities around the mine and recommends that these communities be priority beneficiaries in any future framework with greater local economic participation and tangible investment in community needs. I would also like to provide some context around the commission's comments on closure. The report recognizes that closure for the site of Cobra Panama scale is a complex engineering and environmental undertaking involving ongoing tailings and water management, rehabilitation, stabilization and long-term monitoring to ensure a high-quality outcome for environmental rehabilitation, biodiversity and local communities. The report does not describe closure as a single event, but is a long-term process that needs to be properly planned, funded and independently verified. As such, rather than an immediate closure that would place a high burden on the state of Panama, the commission recommends a progressive closure over several decades that will be funded by the mine's own economic activity. The commission also recommends that the mine's territorial footprint does not expand and be progressively reduced through closure and realization over the life of the operation. The ministers have explained that the ultimate territorial footprint needs to be smaller than that was agreed under last 406. As a reminder, the commission's report expressly states that are setting out general principles and that mechanisms and other specifics are to be developed through negotiations. We view the report as a positive step forward towards establishing a basis from which formal dialogue can begin. We remain ready to engage constructively with the government of Panama with the objective of a fair and durable solution for all parties while respecting Panama sovereignty, ownership of its reserves and resources, democratic institutions and legal processes. Thank you, and I will now pass the call to Rudi to discuss our operational results.

Thank you, Tristan. Quarter 3 roles another quarter of production growth, supported by continued strong performance from S3 at Kansanshi and the continued processing of stockpiled ore at Cobra Panama. Approximately 109,000 tons of copper were produced in the third quarter, an increase in total copper production compared to the second quarter. Copper sales totaled 110,000 tons which was approximately 1,000 tons above production, assisted by Cobra Panama volumes that were carried over from the second quarter. At Kansanshi, copper production in the quarter was approximately 46,000 tons up 2,000 tons from the previous quarter due to improved throughput. S3 was sustained above design capacity owing to higher operating time and strong utilization and milling rates. Also at Kansanshi, we actively managed leaching by prioritizing lower asset consuming material when asset consumption rates were high. This generated 70,000 tons of surplus sulfuric acid sales during the third quarter, allowing us to realize additional value from a strong pricing environment, which Ryan will discuss. Copper production guidance for 2026, has been narrowed to between 175,000 and 185,000 tons and gold production guidance has been lowered to between 95,000 and 105,000 ounces, both reflecting performance to date. While S3 is expected to continue to operate above design capacity, stripping at Southeast home is taking longer than originally planned, which will result in lower grades continuing into the next year. Additionally, the asset sales initiative is expected to continue into 2027, which will also impact copper production. At Sentinel, copper production was approximately 49,000 tons, a decrease of about 1,000 tons from the previous quarter with lower grades more than offsetting improved throughput. The lower grades reflected the areas mined during the quarter with access to higher grade mining areas delayed due to the lower mining volumes as a result of the mid-life overall of rope shovel grades and throughput are expected to improve in the fourth quarter of 2026 as mining progresses with Stage 2, with the reintroduction of Shaver 1, deployment of a new larger hydraulic say shovel in October and the introduction of the relocated input crusher for that was out of operation for the entire quarter 3. Production guidance at Sentinel for 2026 has been updated to between 190,000 and 200,000 tons of copper to reflect performance to date. We remain effective in managing the maintenance of bold fatigue issues and continue to plan for a major upgrade regarding the flange bold fatigue and Valmet in 2027. And which will involve replacing a section of the discharge end with a new original equipment manufacturer design, which will provide a permanent engineered solution. As Justin noted, good progress has been made on the processing program at Cobre Panama, which is now transitioning from recommissioning to stable operations. During the quarter, copper production was over 13,000 tons and gold production was over 6,000 ounces. Additionally, we resumed cost trade shipments in the third quarter. 33,000 metric tons of copper concentrate was loaded and shipped in August, demonstrating the restoration of the sites processing and export capabilities a second vessel with approximately 39,000 wet metric tons was loaded and shipped in September. Processing of stockpiled ore is progressing smoothly. We had 38 million tons of stockpiled ore at the beginning of the program with sufficient stockpiles to support processing until mid-2027. We remain on track for guidance for 2026, with copper production from the stockpile is expected to be 30,000 to 40,000 tons and gold production expected to be 10,000 to 15,000 ounces. Enterprise produced just under 10,000 tonnes of nickel, a 13% decrease from the previous quarter due to lower gains stronger grades in the first half of the year ore grades. So I expect it to be lower in the fourth quarter in line with the mine plan. However, mining volumes are expected to increase in the fourth quarter with the arrival of additional contractor equipment and production guidance for 2026 has increased to between 40,000 and 45,000 tons of contained nickel following strong performance to date. Following expansion of the ore footprint, our operational priority with our focus on the rainy season preparation. This includes installation of the input dewatering stage tank and final development of the main pit sum, which is due to be completed before the start of the upcoming rate season. Similarly, with the capacity on ARPA nearing capacity or fee to the nickel concentrator is well set up for the rainy season. Now lastly, looking at Grade Marine Copper production was 1,000 tonnes and gold production was 16,000 ounces, which includes output from reprocessed tailings to the CIL plant and ore stockpiles treated by the flotation circuit. Copper production guidance for 2026 is approximately 7,000 tons of copper. However, gold production guidance has increased to 45,000 to 50,000 ounces following the successful transition to a gold-focused operation. Thank you. And with that, I will turn the call over to Ryan for the financial review.

Thank you, Rudi. LME copper prices remained strong in the third quarter, reaching record highs of $6.74 per pound. Market volatility increased in September due to the uncertainty surrounding U.S. tariffs. However, underlying fundamentals remain supportive, with supply constraints compounded by weather disruptions and strikes in Chile. Our financial performance was strong this quarter. Revenue increased by 37% to $2.1 billion, driven by higher copper prices and increased sales. This revenue included 2 concentrate shipments from stockpile processing at Cobre Panama. . In Zambia, our integrated smelter production ensure security of asset supply for our STW operations and provide additional surface asset to sell. Zambian acid prices have increased from $180 per ton in the first quarter to $460 per ton in the third quarter. Due to the strong asset pricing environment, we sold 70,000 tons of asset in the quarter, which generated $33 million of revenue and provided a $0.14 byproduct credits to our copper C1 costs. EBITDA more than doubled quarter-over-quarter to $854 million. This was driven by elevated revenues and the benefit of full exposure to copper prices as we have no further hedges in place. Turning to costs. Excluding Cobre Panama stockpile processing, copper C1 cost of $2.40 per pound or $0.08 lower quarter-over-quarter. This was driven by lower fuel and maintenance costs and increased asset sales. This more than offset the impact of Gold McGrane transitioning to a gold operation with a corresponding accounting treatment results in the gold production no longer counting as a byproduct credit. Including Carbo-Panama, Copper C1 costs were $2.59 per pound, up $0.05 quarter-over-quarter. This reflects a $0.13 per ounce impact from a full quarter of stockpile processing at Corbre Panama. As expected, we continue to see elevated diesel prices during the quarter, averaging $1.40 per liter, so a modest decrease from Q2 average of $1.59 per liter. With a 2- to 3-month lag in fuel deliveries, elevated fuel prices will continue flowing through the cost base for the rest of the year. Turning to guidance. We've updated our Copper C1 guidance to $2.50 to $2.65 per pound, incorporating the previously provided sensitivity of $0.25 due to elevated fuel prices and a stronger Zambian quota. These inflationary pressures are expected to continue to impact the cost base into the new year. All-in sustaining cost guidance increased to $4.10 to $4.25 per pound primarily reflecting higher royalties associated with stronger copper prices and the impact of lower production volumes. Enterprise nickel cost guidance is revised down to $3 to $3.35 per pound due to the strong operational performance at that mine. Finally, total capital expenditure guidance has been narrowed to $1.15 billion to $1.25 billion, reflected the latest timing assumptions on CapEx. We've previously estimated that stockpile processing at Cobre Panama will cost $250 million. Our latest estimate is $200 million, of which $80 million has already been spent. On the balance sheet, net debt improved by $98 million to $5.3 billion, with strong EBITDA generation sufficient to cover our planned CapEx, tax and interest outflows. Our net leverage ratio improved to 2.6x, marking our lowest level since Q3 2023 before the suspension of production at Cobre Panama remain focused on deleveraging and expect strong copper prices and continued free cash flow generation to further strengthen the balance sheet. Overall, it was another solid quarter with strong operational performance and higher copper prices underpinning robust margins. I'll now hand the call back to Tristan.

Thank you, Ryan. As I attended the London Metal Exchange week 2 weeks ago, 1 theme came through very consistently, the world faces a growing scarcity of new despite the near-term macroeconomic and geopolitical volatility out there, in the medium and long term, the world will need [Technical Difficulty] meet growing demand. However, bringing on meaningful new production and will be challenging with few large-scale, high-quality greenfield copper projects in the pipeline due to decades under investment. This constrained supply outlook underscores the optionality and value of First Quantum's greenfield pipeline and the decades of experience we have in delivering growth. . Based on measured and indicated resources, our portfolio includes 2 of the world's largest undeveloped greenfield copper projects in Tata Taco and McGrath. At Tata Taco, we continue to work constructively with provincial authorities with the MINESIA approval expected this year following public consultation, which has been scheduled for November. We expect water use concession approvals to follow, and we are preparing a reapplication for submission shortly. At La Granja the engineering study is well advanced alongside environmental baseline work, community engagement and resettlement planning. We continue to advance engineering definition and permitting work while preserving flexibility around the ultimate development approach. A technical report on reserves is expected to be filed in 2027. We will approach both projects with the same core team that built Sentinel, Cobre Panama and most recently, the S3 expansion at Kansanshi. Over the last 20 years, this core team has completed $13 billion in capital projects, including 2 of the world's largest greenfield copper project by initial throughput capacity. There have been valuable technical and financial lessons learned that will not only guide us in how we design and build these projects, but also how to fund these projects in a disciplined manner. This experience positions us well in the long term to deliver the next generation of large-scale projects at bright time. In the meantime, we have made meaningful progress on our priorities. Thus far this year and our near-term focus remains firmly on execution of them. Firstly, a fair and durable resolution for Cobre Panama; secondly, safe, reliable, lean and productive performance at our operations, Thirdly, continued proactive management of our balance sheet to ensure flexibility to invest in the future. And fourthly, derisking our growth pipeline with the discipline needed to deliver long-term value. The improvement we saw in our third quarter results demonstrates the underlying potential of First Quantum's business. We still have work ahead of us, but I remain confident in the business and our ability to execute on our priorities that will progressively unlock optionality and further value. With that, operator, I'm happy to open the line for questions.

[Operator Instructions] Our first question comes from the line of Orest Wowkodaw with Scotiabank.

A question about Kansanshi. Your disclosure talks about delays in stripping the Southeast one, which I guess has impacted the grade profile for this year and your release alludes to a knock-on impact into '27. I'm wondering if you can give us more color there. I mean how long is it behind? Is it 3 or 6 months behind? And what can that do -- can you give us a sense of the rate impact on the sulfide circuit for '27?

Orest, thanks for the question. Yes, so -- that's right where we would want to be. We're not quite there. And so we're just headline in that. In terms of this year, we don't see much impact, and we -- you see that in our guidance. But we are saying that we see that challenge into next year. We'll come back to that, and there's a lot of focus on how that can be achieved, and we'll come back to that in our guidance in January, February.

But is it -- can you give us an indication? Is it 3 months behind, 6 months behind, like if we don't have any sense here.

Yes. Thanks, Orest. We'll work on that and come back to you. This year, there won't be much impact and we'll come back to it in our guidance next year. .

Our next question comes from the line of Richard Garchitorena with Barclays.

Great. And congrats on a good quarter. My question is on following the recommendation from the intermaterial Commission. Can you walk us through what the next milestones are in terms of the government process. Obviously, President has to make a decision. But what are the, I guess, commercial legal and environmental issues still need to be resolved? And then also, if you once if you do get so go ahead, what's the current time line for you to ramp up once you get the approvals?

Yes. Thanks for the question. And I think first thing to note is that the recommendations were absolutely in line with moving forward and dealing with the situation that mine over the long term, and that requires reactivation. So we would look forward to engaging on that in a formal manner. But I think right now, the focus in Panama is in relief efforts around the earthquake and I think certainly for our team, but more broadly in the country, that's really the importance, and that's going to take, we believe, some weeks to ensure that everybody that's been affected by the earthquake is in good position. I think at the right time, the matter of the mine will come back to focus with government. And in that regard, the next step we see clearly is an announcement following the recommendations, which were to the President to negotiate, and we expect that to be, okay, well, thank you for the recommendations and the instruction is to proceed as per the recommendations and we would look forward to engaging at that time in a formal manner around negotiation. In terms of what that will pry, yes, certainly, there's 3 key elements. The legal structure, and I think it's been made clear that we expect to have a different pathway under the constitution. And certainly, we will be constructive around that. The important side of that is there's transparency about what that will be and what it will look like and people understand it well. Secondly, on the environmental side, following up from the environmental audits and the Supreme Court saying that there needed to be an ESIA update that, that's addressed and that there's a consultation around that process in order to have transparency. And then thirdly, on the commercial terms. And in that side, and you ask around that, it's just too early to say. We will look forward to discussion around that, but we see that there's a need for balance between Obviously, people in Panama saying there needs to be more tangible benefits locally and the benefits of the mine to come through. But equally, that this is the largest investment in Panama's history, and there needs to be a recognition of that in preserving the country's reputation as a destination for investment. So that's broadly across it. And again, we look forward to the announcement at the right time that there will be formal conversation formal negotiation. And we certainly, from our side of First Quantum, we will engage constructively to find the best result for the stakeholders.

Great. And then just maybe on the copper costs, obviously, increased from $250 and $240 million to $250 million to $265 million. I was wondering if you could bridge how much of that was related to the higher cash of the fuel -- the higher fuel and the cobra Panama volumes increased in sort of maybe break it down for us, if you could.

Thanks, Ryan. Can you take that question, please?

Sure. So you saw about a $0.13 impact this quarter with Core Panama coming online, but we have noted our previous guidance already assume Coba Panama included in it. We added that so the $0.25 we've added to the guidance is purely due to cost impacts. As you know, that's diesel and Kwacha. The Quatare presents about 20% of our cost bases in Quasha and we've seen that obviously strengthen significantly from just under 30% to just under 20% over the last year. And then similarly on diesel, a big step up in costs. We're procuring around $0.80 in Q1. We've now been procuring as high as $1.60 in Q3. And as a result, we've baked that $0.25 in, it's broadly 50-50 impact split between Quasha and diesel. .

Our next question comes from the line of Alain Gabriel with Morgan Stanley. One.

First question is back to Cobre Panama. How realistic is it for the discussions to address the 3 buckets that you've laid out, Tristan, within the next 7 or 8 months time frame that you have laid out until you fully exhaust the stockpile? And how would you practically run the operations if the time lines.

Thanks, Alain. Certainly, those 3 areas are the key focus, and we've done a lot of preparation work in regard to that in terms of each of the elements and have a good understanding of the path forward there. We do need to engage and have a clear picture from government as to where their priorities are. But I think coming through the recommendations, we start to see a clear picture. And -- but that will take time to get through. As you say, yes, we can we feel good about the concrete milestones that have been made, and we continue to act in good faith on both sides. So the arbitration was put aside and certainly, First Quantum has been committing in terms of keeping the asset in good standing in terms of its environmental condition. We were investing in sort of $13 million to $15 million a month. And now that we're in the processing phase of the stockpiles, we're able to cover that cost, which was important. But ensure that we continue to rehabilitate the site. On the government side, we've seen clear milestones around the enactment of the preservation safe management plan, the export of concentrate into restart of the power plant and then the start and completion of the environmental audit and now the ministerial recommendations and with the stockpiles in process. And yes, we have a timing table around that. But we feel that it's the right thing to do to ensure that people have a good training program ahead of them. So we continue to look at whether it's the right thing to do to bring on the second train in order that people have a good understanding around the mine, the employees and people are ready, the community is ready but we'll need to go through that negotiation process. Certainly, from our style, it will be constructive in seeking a resolution as soon as possible.

And the second question is back to Takataka as well. You continue to advance the ESIA and the water permits and plan to submit the application on the rig, as you mentioned, can you remind us of the time lines and how rigid are your balance sheet metrics or guardrails that you set in enabling you to sanction the project and your preferences in terms of capitalizing the project when you compare minority stake sales to partnerships, the Kunia style or simply outside that financing.

Sure, Alain. Well, let me handle the first part, and then I'll ask Ryan to take the second part of the question on the financing. So in the milestones, they're very clear. There's 4 main milestones for us. So firstly, the ESIA and there will be a public consultation in November. And at this stage, we continue to see the progress of that in due order and we would expect resolution shortly within several months in this year. And then the second will be the rig application. So we've been drifting that to make sure that, that's a high-quality application. We're conscious of the due date by eighth of July next year, and so we'll be submitting that shortly. And then thirdly, the financing, which you referenced, and Ryan can speak more on. And then fourthly, when do we get to a decision. And as you point out, we will be fiscally disciplined, economically disciplined around that. We said publicly, we'd like to see our net EBITDA ratio fall towards 1. And at this stage, it continues to decrease. And the strong third quarter is in a very good position right now. But we we'll continue to focus on that, and that's important in terms of making sure that the balance sheet is in a good position alongside the fining pathway that we've been developing. Ryan?

Yes, it's pleasing, as Tristan knows, to see the progress on the balance sheet at 2.6x net debt to EBITDA in Q3. But to be clear, we still have a way to go. And we're going to be disciplined around targeting that region of 1x net debt-to-EBITDA before project sanction. In parallel, we'll work on financing options. We've noted that strategically, we're open to partnerships across our asset base as we work more with others, and that includes we'll explore those options Tatataka - it would be a minority stake if we go that route, so we can put our project execution capabilities into the asset. But there are also a variety of other options available to us that we'll explore. The asset has very strong byproduct credit. So streaming is 1 avenue project finance is certainly another avenue we're working on. We announced the consultation agreement with IFC earlier this year, which supports project financing. And it's really about giving ourselves a variety of options and then assessing which option is the most attractive from a cost of capital perspective and also a strategic perspective, and that's some of the work ahead of us over the next period in advance of a budget sanction.

Our next question comes from the line of Cody Hayden with Deutsche Bank. .

Just going back to Kansanshi very quickly. you're currently processing lower asset consumer material to maximize asset sales. I was wondering if you could give us a bit of color on the strategy and the potential or asset production volumes in Q4? And then how this strategy could potentially impact copper production into 2027?

Ryan. Can you take that question from Cody?

Yes. Cody, as you note, we've seen a very strong asset market as a result of the situation in the Middle East, prices averaging over $400 in Q3. And as a result, we proceed slightly less of the low-margin copper around 1,000 incremental 1,000 tons of copper production that we sacrificed, which resulted in us generating 70,000 tons of asset which we sold and which, in turn, realized $33 million or $0.15 byproduct credit on our C1 costs. We expect to continue to sell assets into the Q4 and next year we've taken a slightly more conservative assumption in our Q4 guidance. We assume sales of around 45,000 tons through the balance but certainly, at any asset price above $200, we'll continue to look to sell excess Asli and so if we see those prices continue into next year, that will mean slightly lower copper production. We've seen it have about a 1,000 ton impact per quarter as we noted Q3 how much of that we end up realizing or pushing forward on will really be dependent on how the asset mark evolves over the next 12 months.

Our next question comes from the line of Izak Rossouw with Barclays.

Just another question on Cobre Panama. You previously mentioned just around the expectations of, I guess, when you have the decision to restart the operation fully ramp up to, I think you said 80% within the next 6 to 9 months. Just I guess, now that you've commissioned all the trains whether you can update us on that? And I think longer term, you said it's always I guess, it will be dependent on whether you can get the full employee sort of complement and I wanted to just get an update how that's going?

Ian, that remains right. So we -- what we've seen, I think, as you saw in the decrease in costs we're saying around the rehabilitation from $250 million down to $200 million. The assets in good condition has been well looked after during the period of shut and most of the work was in really man hours and painting and welding and reconditioning, and we continue to work our way through the back end of the plant, particularly in columns and the concentrate areas. But at the front end, yes, the 3 train position. During the quarter, we largely completed the SAG mill segment change out on train 3 and so all of that work does come to bear in terms of performance. And from here, we do think we continue to hold to that time line for ramp-up at levels that you described, 80% or so in 6 to 9 months. And really, that comes down to the mining side of things. So we have no drumblast. We we're operating around 7 trucks in a circuit, although we put 18 trucks of the total into service at this stage but we need to go through all the trucks and then have all the operators and train them all up for a full mining operation, and we think that's where the time will be in getting up that 6 to 9 months. And then beyond that, it will take a lot as it always has done in getting to full name collect capacity in terms of optimization of Cobra Panama having screen plant running, all of those elements on the journey towards 100 million tons per year.

And then maybe just to follow up on that. I think previously, you said $350 million to $500 million sort of including the $250 million, which you've now reduced to $200 million for a full restart. Is that still a relevant number? And how should we think about the spending of that? Is some of that front loaded as you ramp up the material movement?

Sure. Ryan, do you want to comment .