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This document comprises a prospectus relating to First Quantum Minerals Ltd. ("First Quantum" or the "Company")
prepared in accordance with the Prospectus Rules of the Financial Conduct Authority made under section 73A of the Financial
Services and Markets Act 2000. This prospectus will be made available to the public in accordance with the Prospectus Rules.
If you are in any doubt about the contents of this document you should consult your stockbroker, bank manager, solicitor,
accountant or other financial adviser. It should be remembered that the price of securities and the income from them can go down as well as up.
The Company and its Directors (whose names appear on pages 51 to 53 of this document) accept responsibility for the
information contained in this document. To the best of the knowledge of the Company and the Directors (who have taken all
reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts
and contains no omission likely to affect its import.
Application will be made to the Financial Conduct Authority for all of the New Common Shares (as defined herein) to be
admitted to listing on the Official List and to the London Stock Exchange for such New Common Shares to be admitted to
trading on the London Stock Exchange's main market for listed securities (together "Admission"). It is expected that
Admission will become effective at 8.00 a.m. on 1 April 2014.
Prospective investors should read this entire document. For a discussion of certain risk and other factors that should be considered in connection with an investment in the New Common Shares, see "Risk Factors" set out on
pages 12-29 of this document.
FIRST QUANTUM MINERALS LTD.
(Continued into the province of British Columbia, Canada under the Business Corporation Act (British Columbia) with incorporation no. C0726351))
Admission of 114,526,277 New Common Shares to listing on the Official List and to trading on the London Stock Exchange
_______________
Expected share capital immediately following Admission
Issued Common Shares of no par value
Authorised Issued and Fully Paid
Unlimited 590,836,559
The New Common Shares rank pari passu in all respects with the existing Common Shares and rank in full for all dividends and
other distributions declared, made or paid on Common Shares.
This document does not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, any New Common
Shares to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.
The distribution of this document in certain jurisdictions may be restricted by law. Neither this document nor any
advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances
that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes
should inform themselves about and observe any such restrictions. Any failure to comply with any of those restrictions may constitute a violation of the securities laws of any such jurisdiction. The Common Shares and the New Common Shares are not
registered under the US Securities Act of 1933, as amended (the "Securities Act").
Investors should rely only on the information contained in this document and any supplementary prospectus
produced to supplement the information contained in this document. No person has been authorized to give any
information or to make any representations other than those contained in this document in connection with the
New Common Shares and, if given or made, such information or representations must not be relied upon as
having been authorized by or on behalf of the Company. Without prejudice to any obligation of the Company to
publish a supplementary prospectus pursuant to section 87G(1) of FSMA and Rule 3.4 of the Prospectus Rules,
neither the delivery of this document nor any subscription or sale made under this document shall, under any
circumstances, create any implication that there has been no change in the business or affairs of the Company or
of the Group taken as a whole since the date of this document or that the information contained herein is correct
as of any time subsequent to the date of this document.
The contents of this document are not to be construed as legal, business or tax advice. Investors should consult their own
lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to the acceptance of New Common Shares.
CONTENTS
PAGE
SUMMARY ........................................................................................................................... 1 RISK FACTORS .................................................................................................................. 12 FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION................................................ 30 PART I .............................................................................................................................. 32 BUSINESS OF FIRST QUANTUM ........................................................................................... 32 1. HISTORY OF THE BUSINESS .................................................................................... 32 2. BUSINESS OVERVIEW ............................................................................................ 32 3. SIGNIFICANT SUBSIDIARIES................................................................................... 33 4. EMPLOYEES ........................................................................................................... 35 PART II ............................................................................................................................. 36 PRO FORMA INCOME STATEMENT ........................................................................................ 36 Section B: Accountants' report on pro forma income statement ............................................... 39 PART III ............................................................................................................................ 41 ADDITIONAL INFORMATION ................................................................................................ 41 1. RESPONSIBILITY ................................................................................................... 41 2. WORKING CAPITAL ................................................................................................ 41 3. SHARE CAPITAL ..................................................................................................... 41 4. ARTICLES OF CONTINUANCE OF THE COMPANY ......................................................... 42 5. SIGNIFICANT CHANGE ........................................................................................... 50 6. EXECUTIVE OFFICERS AND DIRECTORS.................................................................... 50 7. MAJOR SHAREHOLDERS.......................................................................................... 54 8. AUDITORS ............................................................................................................ 54 9. MATERIAL CONTRACTS ........................................................................................... 55 10. DIVIDENDS AND WITHHOLDING TAX ....................................................................... 75 11. CAPITALISATION AND INDEBTEDNESS ..................................................................... 75 12. MISCELLANEOUS ................................................................................................... 76 13. DOCUMENTS AVAILABLE FOR INSPECTION ............................................................... 79 PART III ............................................................................................................................ 80 ACQUISITION OF INMET MINING CORPORATION ................................................................... 80 1. ÇAYELI ................................................................................................................. 80 2. LAS CRUCES ......................................................................................................... 82 3. PYHÄSALMI ........................................................................................................... 83 4. COBRE PANAMA ..................................................................................................... 85 5. SUMMARY OF MINERAL RESERVE AND RESOURCES ESTIMATES .................................. 88
SCHEDULE 1 ..................................................................................................................... 89 1. SUMMARIZED OPERATING AND FINANCIAL RESULTS1 ................................................ 89 2. PRODUCTION ........................................................................................................ 90 3. FOURTH QUARTER HIGHLIGHTS .............................................................................. 91 4. OPERATIONS ......................................................................................................... 96 5. DEVELOPMENT ACTIVITIES ................................................................................... 113 6. EXPLORATION ..................................................................................................... 115 7. SALES REVENUES ................................................................................................ 117 8. SUMMARY FINANCIAL RESULTS ............................................................................. 119 9. LIQUIDITY AND CAPITAL RESOURCES .................................................................... 122 10. REGULATORY DISCLOSURES ................................................................................. 127 SCHEDULE 2 ................................................................................................................... 129 1. DESCRIPTION OF THE BUSINESS ........................................................................... 129 2. OPERATIONS ....................................................................................................... 130 3. DEVELOPMENT PROJECTS ..................................................................................... 145 4. ADVANCED EXPLORATION PROJECT ....................................................................... 148 5. ENVIRONMENTAL ................................................................................................. 152 6. COPPER MARKET 2013 ......................................................................................... 157 7. NICKEL MARKET 2013 .......................................................................................... 161
8. ZINC MARKET 2013 .............................................................................................. 165 9. DIVIDEND POLICY................................................................................................ 166 10. SHAREHOLDING AND OPTIONS OF DIRECTORS ....................................................... 166 11. REMUNERATION AND BENEFITS OF DIRECTORS ...................................................... 167 12. AUDIT COMMITTEE .............................................................................................. 169 13. COMPENSATION COMMITTEE ................................................................................ 170 SCHEDULE 3 ................................................................................................................... 172 Summary of mineral resources at 31 December 2013 (all grades are in-situ) .......................... 173 Summary of mineral reserves at 31 December 2013 (all grades are diluted in-situ) ................. 174 SCHEDULE 4 ................................................................................................................... 175 SCHEDULE 5 ................................................................................................................... 215 CHECKLIST OF DOCUMENTATION INCORPORATED BY REFERENCE ......................................... 215 DEFINITIONS .................................................................................................................. 219
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LONDON\33747915.07
SUMMARY
Summaries are made up of disclosure requirements known as "Elements". The Elements
are numbered in Sections A—E (A.1—E.7).
This summary contains all the Elements required to be included in a summary for this
type of securities and Issuer (defined below). Because some Elements are not required
to be addressed, there may be gaps in the numbering sequence of the Elements.
Even though an Element may be required to be inserted in the summary because of the
type of securities and Issuer, it is possible that no relevant information can be given
regarding the Element. In this case a short description of the Element is included in the
summary with the mention of "not applicable".
Section A – Introduction and Warnings
A.1 Introduction This summary should be read as an introduction to this document. Any
decision to invest in the securities should be based on consideration of
the prospectus as a whole by the investors. Where a claim relating to the
information contained in this document is brought before a court, the
plaintiff investor might, under the national legislation of the Member
State, have to bear the costs of translating the prospectus before the
legal proceedings are initiated. Civil liability attaches only to those
persons who have tabled the summary including any translation thereof,
but only if the summary is misleading, inaccurate or inconsistent when
read together with the other parts of the prospectus or it does not
provide, when read together with the other parts of the prospectus, key
information in order to aid investors when considering whether to invest
in such securities.
A.2 Subsequent
resale of
securities or
final placement
of securities
through
financial
intermediaries
Not applicable.
Section B – Issuer
B.1 Legal and
Commercial
Name
The legal and commercial name of the issuer is First Quantum Minerals
Ltd.
B.2 Domicile/
Legal Form/
Legislation/
Country of
Incorporation
The Company is incorporated in the province of British Columbia, Canada
under the Business Corporation Act (British Columbia) with incorporation
number C0726351. It is domiciled and tax resident in Canada.
2
LONDON\33747915.07
B.3 Key factors of
issuer's
current
operations and
principal
activities
First Quantum is an international mining company which has grown
through a combination of exploration, development, operation, and
acquisition of mining projects or companies with interests in mining
projects and the production of London Metal Exchange grade "A"
equivalent copper cathode, copper in concentrate, nickel, gold, and zinc.
First Quantum currently operates seven mines and is developing five
projects worldwide. The Company’s current operations are the Kansanshi
copper-gold mine, the Guelb Moghrein copper-gold mine, the Las Cruces
copper mine, the Kevitsa nickel-copper-PGE mine, the Pyhäsalmi copper-
zinc mine, the Ravensthorpe nickel-cobalt mine, and the Çayeli copper-
zinc mine. In addition, it is developing projects in Zambia, Panama and
Peru.
B.4 Significant
recent trends
affecting the
Company and
the industries
in which it
operates
On 22 March 2013, the Company had acquired 85.5% of the common
shares of Inmet. The remaining common shares were acquired in two
transactions, on 1 April 2013 and 9 April 2013 after which the Company
had completed its overall plan to acquire 100% of the common shares of
Inmet.
Under the terms of the acquisition, former Inmet shareholders received
per Inmet share either (i) C$72.00 in cash; (ii) 3.2967 common shares of
First Quantum; or (iii) C$36.00 and 1.6484 common shares of First
Quantum, subject to pro-ration based on take-up. The Company issued
114,526,277 common shares pursuant to the Acquisition.
The Company acquired Inmet in order to create a globally diversified
base metals company. Inmet owned the Çayeli copper-zinc mine in
Turkey, the Las Cruces copper mine in Spain, the Pyhäsalmi copper-zinc
mine in Finland, and an 80% interest in the Cobre Panama copper project
in Panama, which is currently under development.
Inmet’s principal subsidiaries were Çayeli Bakır Isletmeleri A.S. (Turkey),
Cobre Las Cruces S.A. (Spain), Pyhäsalmi Mine Oy (Finland), and Minera
Panama, S.A. (Panama) (each of which is now a member of the Group).
Cash consideration for the acquisition was financed through a US$2.5
billion acquisition facility provided by Standard Chartered Bank.
3
LONDON\33747915.07
B.5
Group structure
The Company is the holding company of the Group with headquarters in
British Columbia, Canada. The Company also has representative offices
located in Perth, Australia; London, England; Johannesburg, South
Africa; and Toronto, Canada. The significant subsidiaries of the Company
are:
Name of Subsidiaries:
Adastra Minerals Inc.
Congolese Zinc Investments Ltd.
Zincongo Limited
Afro American Finance
Sumtech (Private) Limited
First Quantum Minerals (Australia) Pty
Limited
First Quantum Minerals (UK) Ltd.
Metal Corp Trading (UK) Ltd.
FQM (Akubra) Inc.
Inmet Sweden Holdings AB
Inmet Cobre Espana SA
Çayeli Bakir Isletmeleri A.S.
Inmet Finland Oy
CLC Holdings Oy
CLC Copper I BV
CLC Copper II BV
Cobre Las Cruces SA
Pyhäsalmi Mine Oy
Inmet Panama I S.A.R.L.
Inmet Panama II S.A.R.L.
Minera Panama S.A.
Inmet Finance Company S.A.R.L.
FQM Australia Holdings (BVI) Ltd
FQM Aus Nickel (BVI) Ltd
FQM Australia Holdings Pty Ltd
FQM Australia Nickel Pty Ltd
Ravensthorpe Nickel Operation Pty Ltd.
FQM Finance Ltd.
Black Bark Investments Ltd.
Kabitaka Hills Development Corporation
Limited
Kansanshi Holdings Limited
Metal Corp Trading Logistics SA
(Proprietary) Limited
First Quantum Minerals SA (Pty) Ltd.
Kansanshi Projects Ltd
Kansanshi Mining Plc ("KMP")
FQM Holdings Ltd.
FQM (Peru) Ltd.
Minera Antares Peru S.A.C.
FQM LA Services Inc.
FQM Scandinavia Ltd.
FQM Projects Finance Ltd.
Kevitsa Mining Oy
FQM Kevitsa Sweden Holdings AB
FQM Kevitsa Holding No 1 Oy
FQM Kevitsa Holding No 2 Oy
Kevitsa Mining AB
FQM Kevitsa Mining Oy
FQM Finnex Oy
International Quantum Resources Limited
Metal Corp (Sweden) AB
Metal Corp Trading AG
Oryx Limited
Faloxia Pty Ltd.
Cover Investments Limited
First Quantum Mining and Operations
Limited
FQM Frontier Limited
Kiwara Resources Ltd.
Kiwara Resources Zambia Limited
Kalumbila Minerals Limited
Kalumbila Town Development Corp
Trident Projects Ltd.
Prop Holdings Ltd.
Kafue Transport Services Limited
Skyfall Holdings Ltd.
Mauritan Holdings Ltd.
Mauritanian Copper Mines S.A. ("MCM")
Mauritania Exploration SARL
First Quantum Burkina Faso SARL
Skyblue Enterprises Inc.
FQM Exploration Holdings Ltd.
4
LONDON\33747915.07
B.6 Notifiable
interests
As at 26 March 2014 (being the last practicable date prior to the
publication of this document), (i) BlackRock Investment Management
(UK) Limited holds, directly and indirectly, 12.03% of the voting rights in
the Company, and (ii) The Capital Group Companies, Inc. holds, directly
and indirectly, 15.02% of the voting rights in the Company. No other
beneficial holder of the Company's common shares has a shareholding
which is notifiable.
B.7 Historical
Financial
Information
The historical financial information set forth below in respect of the
Company for the years ended 31 December 2011, 2012 and 2013 has
been extracted without material adjustment from the audited financial
statements incorporated by reference into this document.
Consolidated Statement of Earnings (expressed in millions of U.S. dollars,
except where indicated and share per share amounts)
Consolidated Balance Sheet
As at 31
December
2013
As at 31
December
2012
As at 31
December
2011
Assets
Current Assets
2013
financial
year
2012
financial
year
2011
financial
year
Sales revenues 3,552.9 2,950.4 2,583.5
Cost of sales (2,419.1) (1,849.4) (1,275.5)
Gross profit 1,133.8 1,101.0 1,308.0
Exploration (51.6) (49.7) (73.0)
General and administrative (122.7) (76.0) (73.8)
Acquisition transaction
costs
(29.5) - -
Bond inducement costs - - (48.4)
Settlement of RDC claims
and sale of assets
- 1,217.9 -
Other expenses (35.2) (4.3) 7.3
Operating profit 894.8 2,188.9 1,120.1
Finance income 27.8 23.6 5.3
Finance costs (23.3) (15.3) (9.9)
Earnings before income
taxes
899.3 2,197.2 1,115.5
Income taxes (369.6) (327.8) (460.7)
Net earnings for the year 529.7 1,869.4 654.8
Net earnings for the year
attributable to:
Non-controlling interests 71.1 96.5 125.9
Shareholders of the
Company
458.6 1,772.9 528.9
Earnings per common
share (expressed in $ per
share)
Basic 0.82 3.74 1.18
Diluted 0.81 3.72 1.18
Weighted average shares
outstanding (000’s)
Basic 560,009 473,893 447,224
Diluted 563,389 476,310 449,457
Total shares issued and
outstanding (000’s)
590,836 476,310 476,310
5
LONDON\33747915.07
Cash and cash equivalents 694.5 309.0 452.1
Trade and other
receivables
548.1 390.2 238.1
Inventories 1,123.6 903.7 649.9
Promissory note receivable
– current portion
25.0 - -
Current portion of other
assets
151.8 230.1 34.0
Current assets 2,543.0 1,833.0 1,374.1
Restricted cash 84.0 - -
Investments 58.4 55.6 18.0
Promissory note receivable 465.1 481.8 -
Property, plant and
equipment
11,986.2 4,953.6 3824.4
Goodwill 236.7 - -
Other assets 97.8 212.4 81.5
Total assets 15,471.2 7,536.4 5298.0
Liabilities
Current Liabilities
Trade and other payables 667.8 355.5 273.4
Current taxes payable 55.3 32.5 289.4
Current debt 1,046.1 49.1 48.1
Current provisions and
other liabilities
35.7 6.5 11.0
1,804.9 443.6 621.9
Debt 3,027.3 347.7 14.8
Provisions and other
liabilities
619.5 299.2 286.4
Deferred income tax
liabilities
930.9 564.5 206.4
Total liabilities 6,382.6 1,655.0 1,129.5
Equity
Share capital 4,204.0 1,929.6 1,950.6
Retained earnings 3,765.2 3,405.7 1,723.8
Accumulated other
comprehensive loss
(0.9) (4.3) 1.2
Total equity attributable to
shareholders of the
Company
7,968.3 5,331.0 3,675.6
Non-controlling interests 1,120.3 550.4 492.9
Total equity 9,088.6 5,881.4 4,168.5
Total liabilities and equity 15,471.2 7,536.4 5,298.0
Consolidated Cash Flow Statement
2013
financial
year
2012
financial
year
2011
financial
year
Cash flows from operating
activities
868.8 342.5 412.3
Cash flows from (used by)
investing activities
(1,750.2) (677.8) (1,094.7)
Cash flows from (used by)
financing activities
1,266.9 192.2 (210.4)
Increase (decrease) in
cash and cash equivalents
385.5 (143.1) (892.8)
Cash and cash equivalents
– beginning of year
309.0 452.1 1,344.9
Cash and cash equivalents
– end of year
694.5 309.0 452.1
Certain significant changes to the Group’s financial condition and results
of operations occurred during the 2011, 2012 and 2013 financial years.
These changes are as set out below.
The Group has expanded from 2 to 7 operations through the
completion of the Ravensthorpe and Kevitsa projects and the
addition of 3 operations as part of the Inmet acquisition in 2013.
6
LONDON\33747915.07
The Group’s balance sheet has grown significantly as a result of
continued development of development projects and the
acquisition of Inmet. The total assets have increased from $5.3
billion to $15.5 billion from 31 December 2011 to 31 December
2013. The asset growth has been partly funded by debt, which
has grown from $62 million to $4.0 billion.
Gross profit has decreased from $1.1 billion in 2011 to $0.9 billion
in 2013 as a decrease in metal prices has outweighed the
increase in the number of operating entities over the period.
Net earnings attributable to shareholders of the Company have
decreased from $528 million in 2011 to $426 million in 2013 as a
result of lower metal prices in 2013. This outweighed the
incremental contribution of the new operations over the period.
Subsequent to 31 December 2013, the group has continued to develop
its capital projects, which are funded primarily by long-term debt. On 24
January 2014, the Company entered into a mandate letter for a $2,500.0
million five-year term loan and revolving facility. On 27 March 2014,
Kansanshi Mining Plc, as borrower, and the Company, as guarantor,
entered into a $350 million five year unsecured term facility agreement
with Standard Chartered Bank as initial mandated lead arranger,
bookrunner, and underwriter. There have been no other significant
changes to the financial condition or the operating results of the Group
since 31 December 2013, the end of the period covered by the selected
historical key financial information set out in the tables above.
B.8
Pro forma Financial
Information
The unaudited pro forma statement of earnings of First Quantum
Minerals Limited set out below has been prepared to illustrate the effect
of the acquisition of Inmet on the consolidated statement of earnings of
First Quantum Minerals Limited for the financial year ended 31 December
2013 as if the acquisition of Inmet had taken place on 1 January 2013.
The unaudited pro forma statement of earnings has been prepared for
illustrative purposes only and, because of its nature, addresses a
hypothetical situation and therefore does not represent the actual results
of First Quantum Minerals Limited.
The unaudited pro forma statement of earnings is based on the
consolidated statement of earnings of First Quantum Minerals Limited for
the financial year ended 31 December 2013 and has been prepared in
accordance with Annex II to the Prospectus Directive Regulation, using
the accounting policies adopted by First Quantum Minerals Limited in
preparing its consolidated financial statements for the period ended 31
December 2013 and on the basis of the notes set out below.
Unaudited Pro Forma Statement of Earnings (expressed in millions of U.S.
dollars, except per share amounts)
First
Quantum
Financial
year
ended 31
December
2013
(Note 1)
Inmet
Three
months
ended
31
March
2013
(Note
2)
Consolidated Pro Forma
Adjustments
(Notes 3, 4)
Pro forma
consolidated
7
LONDON\33747915.07
Sales
revenues
3,552.9 251.3 3,804.2 3,804.2
Cost of sales (2,419.1) (110.9) (2,530.0) (28.7) (2,558.7)
Gross profit 1,133.8 140.4 1,274.2 (28.7) 1,245.5
Exploration (51.6) (9.2) (60.8) (60.8)
General and
administrative
(122.70) (13.1) (135.8) (135.8)
Acquisition
transaction
costs
(29.5) (65.1) (94.6) (94.6)
Other income
(expense)
(35.2) 17.2 (18.0) (18.0)
Operating
profit
894.8 70.2 965.0 (28.7) 936.3
Finance
income
27.8 3.5 31.3 31.3
Financing
costs
(23.3) (2.9) (26.2) (26.2)
Earnings
before income
taxes
899.3 70.8 970.1 (28.7) 941.4
Income taxes (369.6) (44.8) (414.4) 9.5 (404.9)
Net earnings 529.7 26.0 555.7 (19.3) 536.4
Net earnings
for the year
attributable
to:
Non-
controlling
interests
74.5 (0.8) 73.7 - 73.7
Shareholders
of the
Company
455.2 26.8 482.0 (19.3) 462.7
8
LONDON\33747915.07
Notes:
(1) The consolidated statement of earnings for the financial year ended
31 December 2013 has been extracted without material
adjustment from the consolidated financial statements of First
Quantum Minerals Limited for the year ended 31 December 2013,
as incorporated by reference in Schedule 4 of the Prospectus.
(2) The pre-acquisition consolidated financial information of Inmet for
the three-month period ended 31 March 2013 has been obtained
from the Inmet Mining Quarterly Report for the three months
ended 31 March 2013.
(3) Other adjustments comprise:
a. the estimated incremental depreciation of $28.7m on the
fair value adjustments recorded to depreciable assets on
the Inmet acquisition for the pre-acquisition period; and
b. the tax effect of this adjustment at the estimated
effective rate of Inmet Mining Corporation for the quarter
ended 31 March 2013 of 33%.
The incremental depreciation charge and associated tax impact
will continue to impact the Group in subsequent periods until the
fair value adjustments recorded to depreciable assets have been
fully depreciated.
(4) On 22 March 2013, First Quantum had acquired 85.5% of the
common shares of Inmet thus obtaining control. The results of
Inmet are consolidated within the results of First Quantum from
22 March 2013. No adjustment had been made to the financial
information to eliminate the financial results for the period from
the date of acquisition of Inmet by the Group which is
incorporated within both the consolidated Group financial
information and in the financial results for Inmet Mining
Corporation for the quarter ended 31 March 2013.
(5) No account has been taken of the trading activities of the Group or
Inmet since 31 December 2013. In addition, no adjustments
have been made to reflect any of the matters not directly
attributable to the Acquisition.
(6) The pro forma financial information does not constitute financial
statements within the meaning of section 434 of the Companies
Act.
B.9 Profit
forecast/
Estimates
Not applicable. There are no profit forecasts or estimates contained in
this document.
B.10 Qualifications
in the audit
report
Not applicable. There are no qualifications to the audit reports
incorporated by reference into this document.
B.11 Insufficient
Working
Capital
Not applicable; the Company is of the opinion that the working capital is
sufficient for the Group's present requirements, that is for at least 12
months following the date of this document.
9
LONDON\33747915.07
Section C – Securities
C.1 Type and class
of securities
being offered
The securities to be admitted comprise Common Shares which, on
Admission, will be allocated ISIN Number CA3359341052.
C.2 Currency No par value.
C.3 Issued Share
Capital
590,836,559 issued Common Shares.
C.4 Rights
attaching to the
Common Shares
The Common Shares rank pari passu in all respects with each other,
including for voting purposes and in full for all dividends and
distributions on Common Shares declared, made or paid after their issue
and for any distributions made on a winding up of the Company.
Except in relation to dividends which have been declared and rights on a
liquidation of the Company, the Shareholders have no rights to share in
the profits of the Company.
C.5 Restrictions on
transfer
The Common Shares are freely transferable and there are no restrictions
on transfer in the UK.
C.6 Admission to
trading
Application will be made.to the FCA for the New Common Shares to be
admitted to the standard listing segment of the Official List and to the
London Stock Exchange for such New Common Shares to be admitted to
trading on the London Stock Exchange's main market for listed
securities.
C.7 Dividend policy The Company implemented its dividend policy in 2005. Under this policy,
the Company expects to pay two dividends per year, the first an
"interim" dividend declared after the release of second quarter results;
the second, a "final" dividend based on year end results. Interim
dividends are set at one-third of the total dividends (interim and final)
declared on a per common share basis applicable in respect of the
previous financial year. Final dividends are determined based on the
financial performance of the Company during the previous applicable
financial year.
Section D – Risks
D.1 Key
information
on the key
risks that are
specific to the
Issuer or its
industry
For the twelve months ended 31 December 2013, the Company derived 52
per cent of its pro forma revenue from Kansanshi. Kansanshi is located in
Zambia, which has a history of political instability, significant and
unpredictable changes in government policies and laws, illegal mining
activities, lack of law enforcement and labor unrest.
The Company holds an 80 per cent interest in the Kansanshi mine; the
remaining 20 per cent is held by ZCCM, controlled by the GRZ. The
Company’s relationship with ZCCM is governed by a shareholders’
agreement pursuant to which the GRZ is entitled to certain privileges, such
as the right to appoint a "government director".
The Company currently has operations in Zambia and Mauritania, with 52
per cent of its pro forma revenue being generated from Zambia and 9 per
cent from Mauritania in the twelve months ended 31 December 2013.
These countries have a history of political instability, significant and
10
LONDON\33747915.07
unpredictable changes in government policies and laws, illegal mining
activities, lack of law enforcement and labor unrest.
The Company’s ability to maintain or increase its annual production of
copper, nickel and gold will be dependent, in significant part, on its ability
to bring new mines into production and to expand existing mines.
The Company’s mining operations and exploration activities are subject to
extensive laws and regulations, which include laws and regulations
governing, among other things: exploration; development; production;
exports; taxes; labour standards; mining royalties; price controls; waste
disposal; protection and remediation of the environment; reclamation;
historic and cultural resource preservation; mine safety and occupational
health; handling; storage and transportation of hazardous substances; and
other matters.
The Company’s business operations are subject to risks and hazards
inherent in the mining industry that may result in damage to its property,
delays in its business and possible legal liability.
The Company’s reported mineral reserves and resources are only
estimates. No assurance can be given that the estimated mineral reserves
and resources will be recovered or that they will be recovered at the rates
estimated.
Title to the Company’s properties may be challenged or impugned, and title
insurance is generally not available.
In the countries in which the Company operates, there are a limited
number of smelters within range of its operations, which means that it may
be unable to manage the increased costs of freight and export duties
associated with transporting or exporting ore to smelters.
The profitability of the Company’s current operations is directly related and
sensitive to the market price of copper and, to a lesser extent, that of
nickel, gold and zinc. Copper, nickel, gold and zinc prices fluctuate widely
and are affected by numerous factors beyond the Company’s control,
including global supply and demand, expectations with respect to the rate
of inflation, the exchange rates of the U.S. dollar to other currencies and
interest rates.
D.3 Key
information
on the key
risks that are
specific to the
Common
Shares
The market price of the Common Shares may fluctuate significantly in
response to a number of factors, many of which are beyond the Group's
control, including but not limited to variations in operating results in the
Group's reporting period, changes in market conditions, changes in
financial estimates by securities analysts and speculation about the Group
in the press or investment community.
The ability of the Company to pay any dividends in respect of Common
Shares will depend on the level of the earnings, reserves and any ongoing
regulatory capital requirements of the Company as well as its cash position
and the judgement of the directors.
The Common Shares will be quoted in Canadian dollars. An investment in
the Common Shares by an investor in a jurisdiction whose principal
currency is not Canadian dollars exposes the investor to foreign currency
rate risk.
11
LONDON\33747915.07
Securities of mining companies, including the Company’s common shares,
have experienced substantial volatility, often based on factors unrelated to
the financial performance or prospects of the companies involved. These
factors include macroeconomic developments in the countries where the
Company carries on business and globally, and market perceptions of the
attractiveness of particular industries.
Section E – Offer
E.1 Total net
proceeds of
the issue and
estimated
expenses
Not applicable. The New Common Shares were issued as consideration to
shareholders of Inmet upon acquisition of Inmet's share capital. The total
consideration was determined using an issue price of each Common Share
of C$20.60. No expenses will be charged to Shareholders in connection
with Admission.
E.2a Reasons for
the offer and
use of
proceeds
Not applicable. The New Common Shares were issued as consideration to
shareholders of Inmet upon acquisition of Inmet's share capital. The total
consideration was determined using an issue price of each Common Share
of C$20.60. No expenses will be charged to Shareholders in connection
with Admission.
E.3 Terms and
conditions of
the offer
Not applicable.
E.4 Material
interests
Not applicable.
E.5 Selling
Shareholders/
Lock-up
Arrangements
Not applicable.
E.6 Dilution The amount and percentage of immediate dilution as a result of the issue
of the New Common Shares was (immediately following the issue of all
such New Common Shares) 24 per cent.
E.7 Estimated
expenses
charged to
investors
Not applicable. No expenses will be charged to Shareholders in connection
with Admission.
12
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RISK FACTORS
Any investment in the Company is subject to a number of risks. Accordingly, prospective investors should
carefully consider the risks and uncertainties associated with any investment in the Common Shares, the
Group's business and the industry in which it operates, described below, together with all other information
contained in this document, prior to making an investment decision.
Prospective investors should note that the risks relating to the Group, its industry and the Common Shares
summarised in the section of this document headed "Summary" are the risks that the Directors believe to be the
most essential to an assessment by a prospective investor of whether to consider an investment in the Common
Shares. However, as the risks which the Group faces relate to events and depend on circumstances that may or
may not occur in the future, prospective investors should consider not only the information on the key risks
summarised in the section of this document headed "Summary" but also, among other things, the risks and
uncertainties described below.
The risks and uncertainties described below represent those the Directors consider to be material as at the date
of this document. However, these risks and uncertainties are not the only ones facing the Group. Additional
risks and uncertainties not presently known to the Directors, or that the Directors currently consider to be
immaterial, may individually or cumulatively also materially and adversely affect the business, results of
operations, financial condition and/or prospects of the Group. If any or a combination of these risks actually
occurs, the business, results of operations, financial condition and/or prospects of the Group could be
materially and adversely affected. In such case, the market price of the Common Shares could decline and
investors may lose all or part of their investment. Investors should consider carefully whether an investment in
the Common Shares is suitable for them in the light of the information in this document and their personal
circumstances.
RISKS RELATING TO THE GROUP'S BUSINESS AND INDUSTRY
The Company derives a significant portion of its revenue from one asset
For the twelve months ended 31 December 2013, the Company derived 52 per cent of its pro
forma revenue from Kansanshi. Kansanshi is located in Zambia, which has a history of political
instability, significant and unpredictable changes in government policies and laws, illegal mining
activities, lack of law enforcement and labor unrest. The Company’s operations at Kansanshi are
vulnerable to disruption due to government intervention, political, social and labor unrest, and
other hazards more generally associated with the mining industry and open pit mining. In addition,
its ownership interest at Kansanshi is subject to third party risk arising from the Zambian
authorities and the Company’s partner on the project, ZCCM. It therefore faces risks related to its
ability to extract profits from Kansanshi. The Company’s results of operations have depended, and
are expected to continue to depend significantly, on production at Kansanshi. Any suspension of
operations or production for any reason, or third party intervention in the Company’s corporate
actions at Kansanshi, could have a material adverse effect on its business, prospects, financial
condition and results of operations.
The Company holds its principal asset in Zambia jointly with the GRZ, whose interests
may conflict with those of the Company
The Company holds an 80 per cent interest in the Kansanshi mine; the remaining 20 per cent is
held by ZCCM, controlled by the GRZ. The Company’s relationship with ZCCM is governed by a
shareholders’ agreement pursuant to which the GRZ is entitled to certain privileges, such as the
right to appoint a "government director" to the board of the operating company, which carries out
its operations at the site, as well as weighted voting rights in respect of certain corporate actions.
In particular, ZCCM has a veto right in respect of changes to the Company’s dividend policy, which
could affect the ability to pay dividends from the operating company to the Company. The
shareholders’ agreement also imposes certain restrictions on the Company’s ability to transfer its
shares in the operating company or a controlling interest in its assets at Kansanshi unless the
13
LONDON\33747915.07
party to whom the Company’s assets are transferred assumes certain undertakings pursuant to
the shareholders’ agreement. In the event that the Company becomes unable to pay its debts or
commence liquidation or administration proceedings, ZCCM is entitled to a right of first refusal in
relation to the Company’s 80 per cent interest in the Kansanshi mine. The shareholders’
agreement also contains "free-carried" interest provisions which entitle ZCCM to maintain a 5 per
cent equity interest and "repayable carried" interest provisions for the benefit of ZCCM set at the
15 per cent level. These provisions would entitle ZCCM to maintain the same percentage of equity
interest in the event of capital increases. Restrictions such as those in the shareholders’ agreement
may interfere with the ability of the Company’s subsidiaries to make distributions to it, which could
adversely affect the company's ability to use its cash to fund further development and exploration
projects and/or make payments in respect of its indebtedness.
The majority of the Company’s operations are in African nations, which have
underdeveloped physical, financial, political and institutional infrastructure
The Company currently has operations in Zambia and Mauritania, with 52 per cent of its pro forma
revenue being generated from Zambia and 9 per cent from Mauritania in the twelve months ended
31 December 2013. These countries have a history of political instability, significant and
unpredictable changes in government policies and laws, illegal mining activities, lack of law
enforcement and labor unrest. Due to the fact that these countries are developing nations, with
poor physical and institutional infrastructure, the Company’s Zambian and Mauritanian operations
are subject to various increased economic, political and other risks, including war, civil unrest,
nationalization, expropriation, changing fiscal regimes and uncertain regulatory environments,
changing tax and royalty regimes, and challenges to or reviews of the Company’s legal and
contractual rights, including under the Kansanshi Development Agreement and MCM Mining
Convention. These risks were reflected in the Company’s experiences in the Democratic Republic of
Congo ("DRC"), when the Government of the DRC arbitrarily terminated the Kolwezi tailings
exploitation license and withdrew the Frontier and Lonshi mining licenses. These events resulted in
the cessation of the Company’s activities in the DRC. While the Company has recourse to
international arbitration under the Kansanshi Development Agreement and MCM Mining
Convention, there are risks associated with litigation and the enforceability of these contracts, the
Company’s mining titles, and any damages awards obtained through international arbitration.
The Company faces risks associated with its development projects
The Company’s ability to maintain or increase its annual production of copper, nickel and gold will
be dependent, in significant part, on its ability to bring new mines into production and to expand
existing mines. Although the Company utilizes the operating history of its existing mines to derive
estimates of future operating costs and capital requirements, such estimates may differ materially
from actual operating results at new mines or at expansions of existing mines. The economic
feasibility analysis with respect to any individual project is based upon, among other things: the
interpretation of geological data obtained from drill holes and other sampling techniques;
feasibility studies (which derive estimates of cash operating costs based upon anticipated tonnage
and grades of ore to be mined and processed); precious and base metals price assumptions; the
configuration of the ore body; expected recovery rates of metals from the ore; comparable facility
and equipment costs; anticipated climatic conditions; and estimates of labour, productivity,
royalty, tax rates, or other ownership burdens and other factors.
The Company’s development projects including Cobre Panama are also subject to the successful
completion of final feasibility studies, the issuance of necessary permits and the receipt of
adequate financing and the actual operating results of the Company’s development projects may
differ materially from those anticipated.
Uncertainties relating to operations are even greater in the case of development projects. Any of
the following events, among others, could affect the profitability or economic feasibility of a
project:
14
LONDON\33747915.07
• the availability of funds to finance construction and development activities;
• the ability of key contractors to perform services in the manner contracted for;
• unanticipated changes in grade and tonnage of ore to be mined and processed;
• unanticipated adverse geotechnical conditions;
• incorrect data on which engineering assumptions are made;
• costs of constructing and operating a mine in a specific environment;
• availability and costs of processing and refining facilities;
• availability of economic sources of power on an uninterrupted basis;
• adequacy of water supply on an uninterrupted basis;
• adequate access to the site, including competing land uses (such as agriculture and
illegal mining);
• unanticipated transportation costs or disruption;
• government regulations (including regulations to prices, royalties, duties, taxes,
permitting, restrictions on production, quotas on exportation of minerals, as well as the
costs of protection of the environment and agricultural lands);
• fluctuations in commodity prices and exchange rates; and
• accidents, labour actions and force majeure events.
It is not unusual in new mining operations to experience unexpected problems during the start-up
phase, and delays can often occur at the start of production. In the past, the Company has
adjusted estimates based on changes to assumptions and actual results. These and other factors
may have the effect of increasing the expected capital expenditures for the Company’s
development projects.
The actual cost to develop Cobre Panama may differ materially in the longer-term from
the Company’s current estimates and involve unexpected problems or delays
The current estimate of the amount of capital expenditures that will be required to be incurred to
complete Cobre Panama, is based on certain assumptions and analyses made by the Company’s
management in light of their experience and perception of historical trends, current conditions and
expected future developments, as well as other factors management believes are appropriate in
the circumstances. These estimates, however, and the assumptions upon which they are based,
are subject to a variety of risks and uncertainties and other factors that could cause actual
expenditures to differ materially in the longer-term from those estimated. If these estimates prove
incorrect, the total capital expenditures required in the longer-term to complete Cobre Panama
may increase. The Company's ability in the longer-term to access sufficient financing or to
generate sufficient cash flows to fund any increase in required capital spending for the construction
and development of Cobre Panama as currently planned will depend on the Company's future
results of operations, which will be affected by a range of economic, financial, regulatory,
competitive and business factors, many of which are outside of the Company's control.
Cobre Panama is subject to the many risks associated with projects that have other
minority shareholders
15
LONDON\33747915.07
KPMC holds an indirect 20 percent equity interest in Cobre Panama. There are a variety of risks
associated with KPMC’s ownership interest in Cobre Panama, including:
disagreement with KPMC about how to develop, operate or finance the project;
that KPMC may at any time have economic or business interests or goals that are, or
become, inconsistent with the Company's business interests or goals;
that KPMC may not comply with the agreements governing the Company's relationship
with them;
disagreement with KPMC over the exercise of KPMC’s rights under the agreements
governing its relationship;
the possibility that KPMC may become insolvent and unable or unwilling to fund its share
of development costs; and
possible litigation with KPMC over matters related to Cobre Panama.
These risks could result in legal liability or affect the Company's ability to develop or operate Cobre
Panama, either of which could have a material adverse effect on its business, results of operations,
financial condition and cash flows.
Mining operations are subject to extensive regulations, including environmental, health
and safety and other regulations, as well as the need to manage relationships with local
communities
The Company’s mining operations and exploration activities are subject to extensive laws and
regulations, which include laws and regulations governing, among other things: exploration;
development; production; exports; taxes; labour standards; mining royalties; price controls;
waste disposal; protection and remediation of the environment; reclamation; historic and cultural
resource preservation; mine safety and occupational health; handling; storage and transportation
of hazardous substances; and other matters. The costs of discovering, evaluating, planning,
designing, developing, constructing, operating and closing the Company’s mines and other
facilities in compliance with such laws and regulations are significant. It is possible that the costs
and delays associated with compliance with such laws and regulations could become such that the
Company would not proceed with the development of, or continue to operate, a mine.
As part of its normal course of operating and development activities, the Company has expended
significant resources, both financial and managerial, to comply with governmental and
environmental regulations and permitting requirements, and will continue to do so in the future.
Moreover, it is possible that future regulatory developments, such as increasingly strict
environmental protection laws, regulations and enforcement policies thereunder, and claims for
damages to property and persons resulting from the Company’s operations, could result in
additional substantial costs and liabilities, restrictions on or suspension of the Company’s activities
and delays in the exploration of and development of its properties.The Company is required to
obtain governmental permits to develop its reserves and for expansion or advanced exploration
activities at its operating and exploration properties, except in Zambia where this will generally be
contemplated within the mining right originally granted. Obtaining the necessary governmental
permits is a complex and time-consuming process involving numerous agencies and other
interested parties. There can be no certainty that these approvals will be granted to us in a timely
manner, or at all. The duration and success of each permitting effort are contingent upon many
variables not within the Company’s control. Governmental approvals, licenses and permits are
subject to the discretion of the applicable governments or governmental officials and potentially
consideration of other parties’ interests or rights. In the context of environmental protection
permitting, including the approval of reclamation plans, the Company must comply with known
standards, existing laws and regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted and the interpretation of the laws and
regulations implemented by the permitting authority. No assurance can be given that the Company
will be successful in obtaining or maintaining any or all of the various approvals, licenses and
permits required to operate its businesses in full force and effect or without modification or
16
LONDON\33747915.07
revocation. The failure to obtain or renew certain permits, or the imposition of extensive conditions
upon certain permits, could have a material adverse effect on the Company’s business, operations
and financial condition.
Failure to comply with applicable environmental, health and safety laws can result in injunctions, damages, suspension or revocation of permits and the imposition of penalties. There can be no assurance that the Company has been or will be at all times in complete compliance with such laws or permits, that compliance will not be challenged or that the costs of complying with current and future environmental, health and safety laws and permits will not materially or adversely affect the Company’s future cash flow, results of operations and financial condition.
As a consequence of public concern about the perceived ill effects of mining and land development,
particularly in developing countries, mining companies such as the Company face increasing public
scrutiny of their activities. The international standards on social responsibility, community relations
and sustainability against which the Company benchmarks its operations are becoming
increasingly stringent and extensive over time, and adherence to them is increasingly scrutinised
by regulatory authorities, citizens groups and environmental groups, as well as by investors and
financial institutions. In addition, the Company operates in several countries where ownership of
rights in respect of land and resources is uncertain and where disputes in relation to ownership or
other community matters may arise. These disputes are not always predictable and may cause
disruption to its operations or development plans. The Company’s operations can also have an
impact on local communities, including the need, from time to time, to relocate or resettle
communities or infrastructure networks such as railways and utility services. Failure to manage
relationships with local communities, governments and non-government organizations may harm
the Company’s reputation as well as its ability to bring development projects into production. For
example, in Peru the Company may be required to finance the relocation of a local community,
and to the extent the Company is unable to negotiate an amicable solution to such relocation, it
may face delays or other liabilities in relation to its development of Haquira in Peru. At Cobre
Panama, while negotiations and resettlement planning are substantially completed with the
indigenous people and campesinos who will be physically or economically displaced by its
development. While the Company is in the process of clearing land and finalising housing designs
with them has been completed, there remains the possibility that the development progress could
be adversely impacted during the completion of the resettlement process. In addition, the costs
and management time required to comply with standards of social responsibility, community
relations and sustainability, including costs related to resettlement of communities or
infrastructure, have increased substantially recently and are expected to further increase over
time.
The Company’s operations sometimes result in the release of hazardous materials into the
environment and these releases, whether or not planned, could cause contamination. In addition,
many of its mining sites have an extended history of industrial activity. The Company may be
required to investigate and remediate contamination, including at properties it formerly operated,
regardless of whether it caused the contamination or whether the activity causing the
contamination was legal at the time it occurred. The Company also could be subject to claims by
government authorities, individuals, employees or third parties seeking damages for alleged
illness, personal injury or property damage resulting from hazardous material contamination or
exposure caused by its operations or sites. The Company could be required to establish or
substantially increase financial provisions for such obligations or liabilities and, if it fails to
accurately predict the amount or timing of such costs, the related impact on its business, financial
condition or results of operations could be material.
Certain non-governmental organizations (NGOs), some of which oppose globalization and resource
development, are often vocal critics of the mining industry and its practices, including the use of
hazardous substances in processing activities. Adverse publicity generated by such NGOs or others
related to extractive industries generally, or the Company's operations specifically, could have an
adverse effect on the Company's reputation and financial condition and may impact the
relationship with the communities in which the Company operates. They may install road
17
LONDON\33747915.07
blockades, apply for injunctions for work stoppage and file lawsuits for damages. These actions
can relate not only to current activities but also historic mining activities by prior owners and could
have a material, adverse effect on the Company's operations. They may also file complaints with
regulators in respect of the Company's, and the directors’ and insiders’, regulatory filings, either in
respect of the Company or other companies. Such complaints, regardless of whether they have
any substance or basis in fact or law, may have the effect of undermining the confidence of the
public or a regulator in the Company or such directors or insiders and may adversely affect the
price of the Company’s securities or the Company's prospects of obtaining the regulatory
approvals necessary for advancement of some or all of the exploration and development plans or
operations.
Mining is inherently dangerous and subject to conditions or events beyond the
Company’s control, which could have a material adverse effect on its business
The Company’s business operations are subject to risks and hazards inherent in the mining
industry that may result in damage to its property, delays in its business and possible legal
liability. These risks and hazards include but are not limited to:
• environmental hazard and weather conditions;
• discharge of pollutants or hazardous chemicals;
• industrial accidents;
• failure of processing and mechanical equipment and other performance problems;
• labor force disruptions;
• the unavailability of materials and equipment;
• unanticipated transportation costs or disruption;
• changes in the regulatory environment;
• unanticipated variations in grade and other geological problems, water conditions,
surface or underground conditions;
• unanticipated changes in metallurgical and other processing problems;
• encountering unanticipated ground or water conditions and unexpected or unusual
rock formations;
• cave-ins, pit wall failures, flooding, rock bursts and fire;
• periodic interruptions due to inclement or hazardous weather conditions; and
• force majeure factors, other acts of God or unfavorable operating conditions and
bullion losses.
Any of these can materially and adversely affect, among other things, the development of
properties, production quantities and rates, costs and expenditures, and production
commencement dates. Such risks could also result in damage to, or destruction of, mineral
properties or processing facilities, personal injury or death, loss of key employees, environmental
damage, delays in mining, monetary losses and possible legal liability. Satisfying such liabilities
may be very costly and could have a material adverse effect on future cash flows, results of
operations and financial condition.
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The Company’s processing facilities are dependent on continuous mine feed to remain in
operation. Insofar as its mines may not maintain material stockpiles of ore or material in process,
any significant disruption in either mine feed or processing throughput, whether due to equipment
failures, adverse weather conditions, supply interruptions, export or import restrictions, labor force
disruptions or other causes, may have an immediate adverse effect on the results from its
operations. A significant reduction in mine feed or processing throughput at a particular mine could
cause the unit cost of production to increase to a point where the Company could determine that
some or all of its reserves are or could be uneconomic to exploit. For example, Kansanshi
experienced two illegal labor disruptions in 2012, which resulted in the cessation of production at
the mine for a total of six days. The Company also experienced illegal labour disruptions in
December 2011 and July 2012 at Guelb, which resulted in the cessation of production at the mine
for a total of 10 days and 12 days respectively.
The Company periodically reviews mining schedules, production levels and asset lives in its
life-of-mine planning for all of its operating and development properties. Significant changes in the
life-of-mine plans can occur as a result of mining experience, new ore discoveries, changes in
mining methods and rates, process changes, investment in new equipment and technology,
precious metals price assumptions, and other factors. Based on this analysis, the Company
reviews its accounting estimates and, in the event of impairment, may be required to write-down
the carrying value of one or more mines. This complex process continues for the life of every mine.
As a result of the foregoing risks and, in particular, where a project is in a development stage,
expenditures on any and all projects, actual production quantities and rates, and cash costs may
be materially and adversely affected and may differ materially from anticipated expenditures,
production quantities and rates, and costs. In addition, estimated production dates may be
delayed materially, in each case especially to the extent development projects are involved. Any
such events can materially and adversely affect the Company’s business, financial condition,
results of operations and cash flows.
The Company’s ability to expand or replace depleted reserves and the possible
recalculation or reduction of its reserves and resources could materially affect its results
of operations and long-term viability
The Company’s reported mineral reserves and resources are only estimates. No assurance can be
given that the estimated mineral reserves and resources will be recovered or that they will be
recovered at the rates estimated. Mineral Reserve and resource estimates are based on limited
sampling and, consequently, are uncertain because the samples may not be representative.
mineral reserve and resource estimates may require revision (either up or down) based on actual
production experience. Market fluctuations in the price of metals, as well as increased production
costs or reduced recovery rates, changes in the mine plan or pit design, or increasing capital costs
may render certain mineral reserves and resources uneconomic and may ultimately result in a
restatement of reserves and/or resources. Moreover, short-term operating factors relating to the
Mineral Reserves and resources, such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may adversely affect the Company’s profitability in
any particular accounting period.
As a Canadian company the Company uses CIM Standards (the Canadian Institute of Mining,
Metallurgy and Petroleum on Mineral Resources and Reserve Definitions and Guidelines).
There are uncertainties inherent in estimating proven and probable mineral reserves and
measured, indicated and inferred mineral resources, including many factors beyond the Company's
control. Estimating mineral reserves and resources is a subjective process. Accuracy depends on
the quantity and quality of available data and assumptions and judgments used in engineering and
geological interpretation, which may be unreliable. It is inherently impossible to have full
knowledge of particular geological structures, faults, voids, intrusions, natural variations in and
within rock types and other occurrences. Failure to identify and account for such occurrences in
the Company's assessment of mineral reserves and resources may make mining more expensive
19
LONDON\33747915.07
and cost ineffective, which will have a material and adverse effect on the Company's future cash
flow, results of operations and financial condition.
There is no assurance that the estimates are accurate, that mineral reserve and resource figures
are accurate, or that the mineral reserves or resources can be mined or processed profitably.
Mineral resources that are not classified as mineral reserves do not have demonstrated economic
viability. You should not assume that all or any part of the measured mineral resources, indicated
mineral resources, or an inferred mineral resource will ever be upgraded to a higher category or
that any or all of an inferred mineral resource exists or is economically or legally feasible to mine.
Any material reductions in estimates of mineral reserves and/or resources, or the Company’s
ability to extract those resources, could have a material adverse effect on the Company’s results
or financial condition.
Title claims may affect the Company’s existing operations as well as its development
projects and future acquisitions
Title to the Company’s properties may be challenged or impugned, and title insurance is generally
not available. The Company’s mineral properties may be subject to prior unregistered agreements,
transfers or claims, and title may be affected by, among other things, undetected defects. In
addition, the Company may be unable to operate its properties as permitted or to enforce its rights
with respect to its properties. This may affect the Company’s ability to acquire within a reasonable
time frame effective mineral titles in the jurisdictions in which it operates and may affect the
timetable and costs of development of mineral properties in these jurisdictions. The risk of
unforeseen title claims could also affect existing operations as well as development projects and
future acquisitions. These legal requirements may affect the Company’s ability to expand or
transfer existing operations or to develop new projects.
The Company relies on a limited number of smelters and off-takers to produce and
distribute the product of its operations
In the countries in which the Company operates, there are a limited number of smelters within
range of its operations, which means that it may be unable to manage the increased costs of
freight and export duties associated with transporting or exporting ore to smelters. In addition to
the high cost to export copper concentrate, it has become obvious that the availability of
in-country, third-party smelting capacity is declining to the extent that even with the completion of
the Company’s current smelter project in Zambia, there will be insufficient capacity to process all
of the concentrate production from Sentinel and Kansanshi. As a result, it has been decided to
design and build an expansion to the 1.2 million tonnes-per-annum copper smelter. If the
Company is unable to complete the commissioning of this project successfully, the amount of
concentrate production from Sentinel and Kansanshi that it is able to process may be reduced. Due
to a lack of capacity at Zambian smelters, the Company also sells copper cathode to other third
parties from time to time.
In addition, there are a limited number of off-takers. The inability of one or more of the smelters
or off-takers with whom the Company has relationships to meet their obligations to it, or their
insolvency or liquidation, may adversely affect its financial results. Traditionally, all of the
Company’s accounts receivable result from sales to third parties in the mining industry. This
concentration of customers may impact its overall credit risk in that these entities may be similarly
affected by various economic and other conditions, including the recent global economic and
financial downturn.
The estimation of asset carrying values for individual mines may affect the Company’s
results of operations
The Company annually undertakes a detailed review of the life-of-mine plans for its operating
properties and an evaluation of the Company’s portfolio of development projects, exploration
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LONDON\33747915.07
projects and other assets. The recoverability of the Company’s carrying values of its operating and
development properties are assessed by comparing carrying values to estimated future net cash
flows from each property.
Factors which may affect carrying values include, but are not limited to: copper, gold, and nickel
and sulphuric acid prices; capital cost estimates; mining, processing and other operating costs;
grade and metallurgical characteristics of ore; and mine design and timing of production. In the
event of a prolonged period of depressed copper, gold and nickel prices, the Company may be
required to take additional material write-downs of its operating and development properties.
The Company’s costs of reclamation are uncertain and higher than expected costs would
negatively affect the Company’s business, results of operations, financial condition and
cash flows
The costs of reclamation of closed mine sites are uncertain and planned expenditures may differ
from the actual expenditures required. As a result of the Acquisition, the Company acquired a
number of additional closed properties. It is not possible to determine the exact amount that will
be required to complete reclamation activities, and the amount that the Company is required to
spend could be materially different than current estimates. Reclamation bonds or other forms of
financial assurance represent only a portion of the total amount of money that will be spent on
reclamation over the life of a mine’s operation. Although the Company includes estimated
reclamation costs in its mining plans, it may be necessary to revise the planned expenditures and
the operating plans for its operations in order to fund required reclamation activities. Any
additional amounts required to be spent on reclamation would adversely affect the Company’s
business, results of operations, financial condition and cash flows.
Mineral exploration is speculative and uncertain and the development from mines may
be unsuccessful
Since mines have limited lives based on proven and probable mineral reserves, the Company
continually seeks to replace and expand its reserves. Mineral exploration, at both newly acquired
properties and existing mining operations, is highly speculative in nature, involves many risks and
frequently does not result in the discovery of mineable reserves. There can be no assurance that
the Company’s exploration efforts will result in the discovery of significant mineralization or that
any mineralization discovered will result in an increase of the Company’s proven or probable
reserves. If proven or probable reserves are developed, it may take a number of years and
substantial expenditures from the initial phases of drilling until production is possible, during which
time the economic feasibility of production may change. No assurance can be given that the
Company’s exploration programs will result in the replacement of current production with new
reserves or that the Company’s development program will be able to extend the life of the
Company’s existing mines. In the event that new reserves are not developed, the Company will
not be able to sustain any mine’s current level of reserves beyond the life of its existing reserve
estimates. The combination of these factors may cause the Company to expend significant
resources (financial and otherwise) on a property without receiving a return on investment.
The Company’s insurance does not cover all potential losses, liabilities and damage
related to its business and certain risks are uninsured or uninsurable
As noted above, the business of mining and mineral exploration is generally subject to a number of
risks and hazards including: adverse environmental conditions; industrial accidents;
contaminations; labour disputes; unusual or unexpected geological conditions; ground or slope
failures; cave-ins; changes in the regulatory environment; and natural phenomena such as
inclement weather conditions, floods and earthquakes. Such occurrences could result in damage
to, or destruction of, mineral properties or production facilities, personal injury or death,
environmental damage to the Company’s properties or the properties of others, delays in mining,
monetary losses and possible legal liability. The Company maintains insurance against certain risks
that are typical in the mining industry and in amounts that the Company believes to be
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reasonable, but which may not provide adequate coverage in certain circumstances. However,
insurance against certain risks (including certain liabilities for environmental pollution or other
hazards as a result of exploration and production) is not generally available to the Company or to
other companies in the industry on acceptable terms. The Company does not currently have
political risk insurance. Losses resulting from such failure to obtain insurance may result in cost
increases and decreased profitability.
HIV, malaria and other illnesses in Zambia may affect the Company’s workforce and lead
to a loss of workers and production in the Company’s operations
HIV, malaria and other diseases are perceived as a serious threat to maintaining a skilled
workforce in the Zambian Copperbelt. The per capita incidence of the HIV virus in Zambia is
amongst the highest in the world. As such, HIV remains a major healthcare challenge faced by the
Group’s Zambian operations. There can be no assurance that the Group will not lose members of
its workforce or lose workforce man-hours, which may have a material adverse effect on the
Company’s operations.
The Company depends on key management personnel and may not be able to attract and
retain qualified personnel in the future
The Company’s ability to manage its operations, exploration and development activities, and
hence, its success, depends in large part on its ability to retain current key management personnel
and to attract and retain new personnel, including management, technical and unskilled workforce.
The loss of the services of one or more key employees could have a material adverse effect on its
ability to manage and expand its business. The Company currently does not have key person
insurance on these individuals.
Cobre Panama will be the first large scale mining project in Panama and the ability to construct,
develop, and operate Cobre Panama will depend to a significant degree upon the Company’s ability
to attract highly skilled personnel to Panama, train local Panamanians and retain each of them.
From time to time the mining industry experiences a shortage of skilled or experienced personnel,
especially trades people, on a global, regional or local basis. Competition for such personnel in the
mining industry is intense, and the Company may not be able to retain current personnel and
attract and retain new personnel. An inability to do so would have a material adverse effect on the
Company’s business, results of operations, financial condition and cash flows.
Some of the Company’s employees are unionised and work stoppages by unionized
employees could materially and adversely affect its business, prospects, financial
condition and results of operations
Current union agreements at the Company’s operations in Zambia are typically one year in
duration and are subject to expiration at various times in the future. If the Company is unable to
renew union agreements as they become subject to renegotiations from time to time, this could
result in work stoppages and other labor disturbances that could have a material adverse effect on
the Company’s business, financial condition, liquidity and results of operations.
Certain of the Company’s employees are employed under collective bargaining agreements. If
unionised employees were to engage in a concerted strike or other work stoppage, or if other
employees were to become unionised, the Company could experience a disruption of operations,
higher labour costs or both. A lengthy strike or other labor disruption could have a material
adverse effect on its business, financial condition, liquidity and results of operations.
At Kansanshi, the Company has experienced two illegal labor disruptions in 2012, which resulted in
the cessation of production at the mine for a total of six days. It also experienced an illegal labor
disruption in late 2011 at Guelb, which resulted in the cessation of production at the mine for a
total of 10 days. Operations at Guelb were temporarily suspended and 12 production days were
lost following an illegal strike action by some unionised employees in July 2012. The majority of
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the workforce returned to work following the strike when operations resumed. This has now all
been settled and agreement is in place for no further salary or monetary benefits discussions until
the end of 2015.
The Company is subject to litigation, the outcome of which may affect the Company’s
business, results of operations, financial condition and cash flows
The Company is subject from time to time to litigation and may be involved in disputes with other
parties in the future, which may result in litigation. The Company cannot predict the outcome of
any litigation. Defense and settlement costs may be substantial, even with respect to claims that
have no merit. If the Company cannot resolve these disputes favorably, its business, financial
condition, results of operations and future prospects may be materially adversely affected.
The Company may not consummate or integrate acquisitions successfully, which could
adversely affect its financial condition and future performance
The Company is always actively pursuing the acquisition of advanced exploration, development
and production assets consistent with its acquisition and growth strategy. From time to time, it
may also acquire securities of, or other interests in, companies with respect to which it may enter
into acquisitions or other transactions. Acquisition transactions involve inherent risks, including:
• accurately assessing the value, strengths, weaknesses, contingent and other liabilities
and potential profitability of acquisition candidates;
• ability to achieve identified and anticipated operating and financial synergies;
• unanticipated costs;
• diversion of management attention from existing business;
• potential loss of its key employees or the key employees of any business that the
Company acquires;
• unanticipated changes in business, industry or general economic conditions that affect
the assumptions underlying the acquisition; and
• decline in the value of acquired properties, companies or securities.
Any one or more of these factors or other risks could cause the Company not to realise the
benefits anticipated to result from the acquisition of properties or companies, and could have a
material adverse effect on its ability to grow and on its financial condition.
Acquisitions by the Company, such as the acquisitions of Inmet, SML, Kiwara, Ravensthorpe and
Antares, involve the integration of companies that previously operated independently. An
important factor in the success of an acquisition is the ability of the acquirer’s management in
managing the company’s business and that of the acquired company and, if appropriate,
integrating all or part of that company’s business with that of the acquirer. The integration of two
businesses can result in unanticipated operational problems and interruptions, expenses and
liabilities, the diversion of management attention and the loss of key employees and their
knowledge.
There can be no assurance that a business integration, including that of Inmet, will be entirely
successful or that it will not adversely affect the business, results of operations, financial condition
or operating results of the acquirer and, as a result, the price of the Company’s publicly traded
securities. In addition, the acquirer may incur charges related to the acquisition of the acquired
company and related to integrating the two companies. There can be no assurance that the
Company, in the case of its recent acquisitions, will not incur additional material charges in the
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future to reflect additional costs associated with the acquisition or that all of the benefits expected
from the acquisitions will be realised.
While the Company continues to seek acquisition opportunities consistent with its acquisition and
growth strategy, it cannot be certain that it will be able to identify additional suitable acquisition
candidates available for sale at reasonable prices, to consummate any acquisition or to integrate
any acquired business into its operations successfully. Acquisitions may involve a number of
special risks, circumstances or legal liabilities. These and other risks related to acquiring and to
operating acquired properties and companies could have a material adverse effect on results of
operations and financial condition. In addition, to acquire properties and companies, the Company
may need to use available cash, incur debt, and issue common shares or other securities, or a
combination of any one or more of these. This could limit its flexibility to raise capital, to operate,
explore and develop its properties and to make additional acquisitions, and could further dilute and
decrease the trading price of the common shares. When evaluating an acquisition opportunity, the
Company cannot be certain that it will have correctly identified and managed the risks and costs
inherent in the business that it is acquiring.
While at the present time the Company has no binding agreements, it is always actively pursuing
potential acquisitions. The Company can provide no assurance that any potential transaction will
be successfully completed, and, if completed, that the business acquired will be successfully
integrated into its operations. The Company also cannot provide any assurance that if it issues
shares in connection with an acquisition, such share issuance will not be dilutive. If the Company
fails to manage its acquisition and growth strategy successfully, it could have a material adverse
effect on its business, results of operations and financial condition.
The Company may be unable to compete successfully with other mining companies
The mining industry is competitive in all of its phases. The Company faces strong competition from
other mining companies in connection with the acquisition of properties producing, or capable of
producing, metals. Many of these companies have greater financial resources and a longer
operating history than the Company. It may also encounter increasing competition from other
mining companies in its efforts to hire experienced mining professionals. In addition, competition
for exploration resources at all levels is very intense. Increased competition could adversely affect
the Company’s ability to attract necessary capital funding, to acquire it on acceptable terms, or to
acquire suitable producing properties or prospects for mineral exploration in the future. Increases
in copper, nickel and gold prices have in the past, and could in the future, encourage increases in
mining exploration, development and construction activities, which results in increased demand for
and cost of contract exploration, development and construction services and equipment. Increased
demand for and cost of services and equipment could cause project costs to increase materially,
resulting in delays if services or equipment cannot be obtained in a timely manner due to
inadequate availability, and increased potential for scheduling difficulties and cost increases due to
the need to coordinate the availability of services or equipment. Any of these outcomes could
materially increase project exploration, development or construction costs, result in project delays,
or both. As a result of this competition, the Company may be unable to maintain or acquire
attractive mining properties or attract better or more qualified employees.
The Company’s operations across several different countries subject it to various
political, economic, legal, regulatory and other risks and uncertainties that could
negatively impact its operations and financial condition
The Company conducts exploration, development and production activity in several countries,
including Zambia, Mauritania, Australia, Panama, Spain, Finland, Peru and Turkey. These
operations are subject to a number of political, economic, legal, regulatory and other risks. In
particular, many of the Company’s mineral rights and interests are subject to government
approvals, licenses and permits. Such approvals, licenses and permits are subject to the discretion
of applicable governments or governmental officials. No assurance can be given that the Company
will be successful in obtaining or maintaining any or all of the various approvals, licenses and
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permits required to operate its businesses in full force and effect or without modification or
revocation.
The Company’s business is subject to the risks normally associated with conducting business in
foreign countries. Some of these risks are more prevalent in countries that are less developed or
have emerging economies. In certain countries in which it has assets and operations, such assets
and operations are subject to various political, economic and other uncertainties and changes
arising therefrom, including, among other things: the risks of war and civil unrest or other risks
that may limit or disrupt a project, restrict the movement of funds or product, or result in the
deprivation of contract rights or the taking of property by nationalisation or appropriation without
fair compensation; expropriation; nationalization; renegotiation, nullification, termination or
rescission of existing concessions or of licenses, permits, approvals and contracts; taxation
policies; foreign exchange and repatriation restrictions; changing political conditions; changing
fiscal regimes and uncertain regulatory environments; international monetary and market
securities fluctuations; and currency controls and foreign governmental regulations that favor or
require the awarding of contracts to local contractors or require foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. For example, in 2008 the GRZ
introduced changes to its tax regime relating to mining companies. The tax regime was revised
again in 2009 and 2012. These changes remain the subject of a dispute with the GRZ. The
Zambian government has recently also put in place certain Statutory Instruments and
administrative rules regulating the use of local currency, reporting of cash inflows and outflows
from Zambia, and additional export reporting for the purposes of zero-rating VAT on exports,
which may add to the costs of doing business in Zambia. The Australian Federal Government
introduced the Minerals Resource Rent Tax on 1 July 2012 which levies a 30 per cent tax on profits
from the mining of iron ore and coal in Australia and has also recently amended certain
greenhouse gas regulations. As Cobre Panama is developed, an increasing portion of the
Company’s assets are expected to be located in Panama. The Company’s ability to develop Cobre
Panama into a producing open pit mine is highly dependent on prevailing political conditions in
Panama. Adverse changes in the Panamanian political environment could increase the Company’s
developmental costs, increase its exposure to legal and business risks and adversely affect its
business, results of operations and future growth. In Peru, the development of mineral properties
requires significant community consultation. A failure to obtain community support could have a
significant impact on the Company’s development and operations there.
The Company expects to generate cash flow and profits at its foreign subsidiaries, and may need
to repatriate funds from those subsidiaries to service the Company's indebtedness or fulfil the
Company's business plans, in particular in relation to ongoing expenditures at the Company's
development assets. The Company may not be able to repatriate funds, or the Company may incur
tax payments or other costs when doing so, as a result of a change in applicable law or tax
requirements at local subsidiary levels or at the First Quantum Minerals Ltd. level, which costs
could be material.
The Company may also face import and export regulations, including restrictions on the export of
metals, disadvantages of competing against companies from countries that are not subject to
Canadian, U.S. or European laws, including the Canadian Corruption of Foreign Public Officials Act
(1990), the UK Bribery Act 2010 and the U.S. Foreign Corrupt Practices Act (1977), restrictions on
the ability to pay dividends offshore, and risk of loss due to disease and other potential endemic
health issues.
In addition, in the event of a dispute arising from foreign operations, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign
persons to the jurisdiction of courts in the United States, Europe or Canada. It also may be
hindered or prevented from enforcing its rights with respect to a governmental instrumentality
because of the doctrine of sovereign immunity. It is not possible for the Company to accurately
predict such developments or changes in law or policy or to what extent any such developments or
changes may have a material adverse effect on its operations.
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The above risks are beyond the Company’s control and the occurrence of any of the foregoing
could have a material and adverse impact on the Company and its business, prospects, financial
position, financial condition and/or results of operations.
Changes in the price of copper, gold, zinc, nickel and other metals in the world market,
which are volatile and fluctuate widely, significantly affect the profitability of the
Company’s operations and its financial condition
The profitability of the Company’s current operations is directly related and sensitive to the market
price of copper and, to a lesser extent, that of gold, zinc and nickel. Copper, gold, zinc and nickel
prices fluctuate widely and are affected by numerous factors beyond the Company’s control,
including global supply and demand, expectations with respect to the rate of inflation, the
exchange rates of the U.S. dollar to other currencies, interest rates, forward selling by producers,
central bank sales and purchases, production and cost levels in major producing regions, global or
regional political, economic or financial situations and a number of other factors. For example, the
nickel products produced at Ravensthorpe (MHP) and Kevitsa (sulphide nickel concentrate) have
separate product markets with different characteristics.
A portion of the Company’s metal sales is sold on a provisional pricing basis whereby sales are
recognised at prevailing metal prices when title transfers to the customer and final pricing is not
determined until a subsequent date, typically two months later. The difference between final price
and provisional invoice price is recognised in net earnings. In order to mitigate the Company’s
exposure to these adjustments on net earnings, the Company enters into derivative contracts to
directly offset the pricing exposure on the provisionally priced contracts. The provisional pricing
gains or losses and offsetting derivative gains or losses are both recognised as a component of
cost of sales.
In addition to adversely affecting the reserve estimates and the financial condition of the
Company, declining metal prices can impact operations by requiring a reassessment of the
feasibility of a particular project. Such a reassessment may be the result of a management
decision or may be required under financing arrangements related to a particular project. Even if a
project is ultimately determined to be economically viable, the need to conduct such a
reassessment may cause substantial delays or may interrupt operations until the reassessment
can be completed.
The Company’s financial results and exploration, development and mining activities may, in the
future, be significantly and adversely affected by declines in the price of copper, gold, zinc, nickel
or other minerals. Future production from the Company’s mining properties is dependent upon the
prices of copper, gold, zinc, nickel and other minerals being adequate to make these properties
economic.
The Company may be adversely affected by the availability and cost of key inputs
The Company’s competitive position depends on its ability to control operating costs. The cost
structure of each operation is based on the location, grade and nature of the ore body, and the
management skills at each site as well as the costs of key inputs such as fuel, tires for mining
equipment, and other supplies. If such supplies become unavailable or their cost increases
significantly, the profitability of the Company’s mines would be impacted and operations at its
mines could be interrupted or halted resulting in a significant adverse impact on its financial
condition. The Company’s management prepares its cost and production guidance and other
forecasts based on its review of current and estimated future costs, and management assumes
that the materials and supplies required for operations will be available for purchase. Lack of
supply or increased costs for any of these inputs would decrease productivity, reduce the
profitability of the Company’s mines, and potentially result in suspending operations at its mines.
Many of the Company’s costs are driven by supply and market demand. For example, the cost of
local materials, like cement, explosives and electricity, will vary based on demand. Wages can be
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affected by inflation and currency exchange rates and by the shortage of experienced human
resources. The costs of fuel and steel are driven by global market supply and demand. The
Company does not enter into long-term contracts for any consumable products. The Company’s
main cost drivers include the cost of labour plus consumables such as electricity, fuel and steel. In
recent years, the mining industry has been impacted by increased worldwide demand for critical
resources such as input commodities, drilling equipment, tires and skilled labour, and these
shortages may cause unanticipated cost increases and delays in delivery times, thereby impacting
operating costs, capital expenditures and production schedules.
Concentrate treatment charges and transportation costs are also a significant component of
operating costs. Concentrate treatment and refining charges have been volatile in recent years.
The Company is dependent on third parties for rail, truck and maritime services to transport its
products, and contract disputes, demurrage charges, rail and port capacity issues, availability of
vessels, weather and climate and other factors can have a material adverse impact on its ability to
transport its products according to schedules and contractual commitments.
The Company’s operations, by their nature, use large amounts of electricity and energy. Energy
prices can be affected by numerous factors beyond the Company’s control, including global and
regional supply and demand, political and economic conditions, and applicable regulatory regimes.
The prices of various sources of energy may increase significantly from current levels. An increase
in electricity and energy prices could negatively affect the Company’s business, financial condition,
liquidity and results of operations. Increases in these costs would have an adverse impact on the
Company’s results of operations and would adversely affect the its business, results of operations,
financial condition and cash flows.
Fluctuations in foreign currency exchange rates could significantly affect the Company’s
operating results and liquidity
The Company’s revenue from operations is received in U.S. dollars while a significant portion of its
operating expenses are incurred in Zambian kwacha, Mauritanian Ouguiya, Australian dollars,
Euro, Lira and Peruvian Nuevo Sol. In certain circumstances, the Company engages in foreign
currency hedging activities for operational purposes. There can be no assurance that these
hedging activities will be successful in mitigating the impact of exchange rate fluctuations.
Accordingly, foreign currency fluctuations may adversely affect the Company’s operating results
and financial position.
The Company is subject to inflation risks, which might adversely affect its financial
condition and results of operations
A significant portion of the Company’s production is currently located in Zambia which has
historically experienced relatively high rates of inflation. Since it is unable to control the market
price at which it sells the minerals it produces (except to the extent that the Company enters into
forward sales contracts), it is possible that significantly higher inflation in the future in Zambia,
without a concurrent devaluation of the local currency against the U.S. dollar or an increase in the
price of such minerals, could have a material adverse effect upon its results of operations and
financial condition.
The Company is also subject to inflation in relation to production inputs. In particular the Company
requires sulphur for the production of acid to process oxide ore, which it currently acquires from
third parties, and the price of which is prone to volatility. Sulphur is a significant expense of the
Company and has a direct impact on the Company’s cost of production.
The Company is subject to taxation risk
The Company has operations and conducts business in a number of jurisdictions and is subject to
the taxation laws of these jurisdictions. These taxation laws are complex and subject to changes
and revisions in the ordinary course. The Government of the Republic of Zambia ("GRZ") has
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enacted a number of changes to the tax regime relating to mining companies which do not comply
with the tax stability guarantees set out in the Kansanshi Development Agreement with the GRZ,
which was unilaterally terminated in 2008 by the GRZ. The Company has complied with the tax
regime without prejudice to its rights under the Kansanshi Development Agreement and is paying
taxes at an effective tax rate of 43 per cent. Changes in taxation law or reviews and assessments
could result in higher taxes being payable by the Company which could adversely affect
profitability and cash flows.
An inability to obtain suitable financing might adversely affect the Company’s results of
operations
Mining companies need significant amounts of on-going capital to maintain and improve existing
operations, invest in large scale capital projects with long lead times, and manage uncertain
development and permitting timelines and the volatility associated with fluctuating metals and
input prices. The Company has been successful at financing its projects and operations over the
years. However, its ability to continue its exploration, assessment, development and operational
activities will depend on the resource industry generally, which is cyclical in nature, and which
may, in turn, affect its ability to attract financing, including joint venture financing, debt or bank
financing, equity financing or production financing arrangements. Failure to obtain, or difficulty or
delay in obtaining, requisite financing could result in delay of certain projects or postponement of
further exploration, assessment or development of certain properties or projects. Financing
through the issuance of equity will result in dilution of existing shareholders. Failure to obtain
affordable financing could have a material adverse effect on the Company’s business, result of
operations and financial condition.
The Company could be adversely affected by violations of applicable anti-corruption
laws
The Company and certain of its subsidiaries and affiliated entities conduct business in countries
where there is government corruption. The Company is committed to doing business in accordance
with all applicable laws and its codes of ethics, but there is a risk that it, its subsidiaries or
affiliated entities or their respective officers, directors, employees or agents may act in violation of
its codes and applicable laws, including the Canadian Corruption of Foreign Public Officials Act of
1999, the UK Bribery Act 2010, the U.S. Foreign Corrupt Practices Act (1977) and the OECD
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Any such violations could result in substantial civil and criminal penalties and might materially
adversely affect the Company’s business and results of operations or financial condition.
The Group’s level of indebtedness could, in certain circumstances, have a material
adverse effect on the Group's operations.
Certain of the Company’s existing credit facilities require, and its future credit facilities may
require, certain of its operating subsidiaries to satisfy specified financial tests and maintain
specified financial ratios and covenants regarding a minimum level of consolidated tangible net
worth, consolidated total debt to consolidated tangible net worth ratio, EBITDA to interest payout
ratio, leverage and cash available for debt service to debt service ratio, all as defined in such credit
facilities. The Group’s debt levels, debt service obligations and compliance with the related
covenants under its existing credit facilities, could have important consequences for the Group,
including the following:
the Group’s financial and operational flexibility in planning for, or responding to, changes in
its business and industry could be limited;
a substantial portion of the cash flow from the Group’s operations may be dedicated to the
payment of interest on existing indebtedness, thereby reducing the funds available for other
purposes (including the ability of the Group to make distributions to Shareholders);
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LONDON\33747915.07
the Group’s ability to obtain additional financing in the longer term, including its ability to
refinance its bank borrowings on comparable terms, or at all, could be limited;
in the event of a downturn in revenue, the Group’s leverage could have a disproportionately
negative effect on its profitability; and
a proportion of the Group’s indebtedness bears interest at variable rates and an increase in
interest rates will therefore have a negative effect on the Group’s profitability and cash flow,
each of which, alone or in combination, could have a material adverse effect on the Group’s
business, financial condition and results of operations.
The ability of such operating subsidiaries to comply with these ratios and to meet these tests may
be affected by events beyond their control.
In addition, as the Company is a holding company, and as such conducts all of its operations
through its subsidiaries, repayment of its indebtedness is dependent on the generation of cash
flows by the Company’s subsidiaries and their ability to make such cash available to the Company,
by dividend, debt repayment or otherwise. The Company’s subsidiaries may not be able to, or may
not be permitted to, make distributions to enable it to make payments in respect of its
indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and
contractual restrictions may limit the Company’s ability to obtain cash from its subsidiaries.
The terms of the Company’s credit facilities and the New Notes Indentures restrict its
current and future operations, particularly its ability to respond to changes or to take
certain actions
The Company’s credit facilities contain, and the New Notes Indentures contain, a number of
restrictive covenants that will impose significant operating and financial restrictions on the
Company and may limit its ability to make investments and place the Company at a competitive
disadvantage to its competitors who may be less restricted, including restrictions on its ability to:
• incur additional indebtedness;
• pay dividends or make other distributions or repurchase or redeem capital stock;
• prepay, redeem or repurchase certain debt;
• make loans and investments;
• sell assets;
• incur liens;
• enter into transactions with affiliates;
• alter its businesses;
• enter into agreements restricting its subsidiaries’ ability to pay dividends; and
• consolidate, amalgamate, merge or sell all or substantially all of its assets.
Any future indebtedness may include similar or other restrictive terms. These restrictions could
materially and adversely affect the Company’s ability to finance its future operations and capital
needs or its ability to pursue acquisitions or other business activities that may be in its interest.
RISKS RELATING TO THE COMMON SHARES
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The market price of the Common Shares may fluctuate significantly in response to a
number of factors, many of which will be out of the Group's control.
Publicly traded securities from time to time experience significant price and volume fluctuations that may be unrelated to the operating performance of the company that has issued them. The market price of the Common Shares may fluctuate significantly in response to a number of factors, many of which are beyond the Group's control, including but not limited to variations in operating results in the Group's reporting period, changes in market conditions, changes in financial estimates by securities analysts, speculation about the Group in the press or investment community, changes in market valuation of similar companies, announcements by the Group of corporate events such as significant acquisitions or capital commitments, loss of any customers, additions or departures of key personnel, any shortfall in turnover or net profit or any increase in losses from levels expected by securities analysts, future issues or sales of Common Shares, strategic acquisitions by competitors and regulatory changes. Any or all of these events could result in a material decline in the price of the Common Shares.
The level of any dividends payable to holders of Common Shares may fluctuate
The ability of the Company to pay any dividends in respect of Common Shares will depend on the level of the earnings, reserves and any ongoing regulatory capital requirements of the Company as well as its cash position and the judgement of the directors. Accordingly, the amount of any dividends paid to holders of the Common Shares may fluctuate. Any change in tax or accounting treatment of any dividends may also affect the level of dividends received by holders of the Common Shares.
Exchange rate fluctuations may impact the price of the Common Shares
The Common Shares will be quoted in Canadian dollars. An investment in the Common Shares by an investor in a jurisdiction whose principal currency is not Canadian dollars exposes the investor to foreign currency rate risk. Any depreciation of the Canadian dollar in relation to such foreign currency will reduce the value of the investment in the Common Shares in foreign currency terms.
Current global financial conditions
Current global financial conditions have been characterised by increased volatility and some
financial institutions have either gone into bankruptcy or have had to be rescued by governmental
authorities. Although there has been some recovery, there is no certainty that the disruptions and
their effects have ended and will not continue to affect the markets. These factors may impact the
ability of the Company to obtain equity or debt financing in the future on terms favourable to the
Company or at all. In addition, general economic indicators, including employment levels,
announced corporate earnings, economic growth and consumer confidence, deteriorated in the later
part of 2008 and into 2009. Although here has been some recovery, recent economic events in
Europe starting in mid-2011 have created further uncertainty in global financial and equity markets.
Any or all of these economic factors, as well as other related factors, may cause decreases in asset
values that are deemed to be other than temporary, which may result in impairment losses. If such
increased levels of volatility and market turmoil continue, the Company’s operations could be
adversely impacted and the trading price of the common shares may be adversely affected.
Securities of mining companies, including the Company’s common shares, have experienced
substantial volatility, often based on factors unrelated to the financial performance or prospects of
the companies involved. These factors include macroeconomic developments in the countries
where the Company carries on business and globally, and market perceptions of the attractiveness
of particular industries. The price of the securities of the Company is also likely to be significantly
affected by short-term movements in commodity prices, precious metal prices or other mineral
prices, currency exchange fluctuation and the political environment in the countries in which the
Company does business and globally.
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FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
Information regarding forward-looking statements
This document includes forward-looking statements. The words "believe", "anticipate", "expect",
"intend", "aim", "plan", "predict", "continue", "assume", "positioned", "may", "will", "should",
"shall", "risk" and other similar expressions that are predictions of or indicate future events and
future trends identify forward-looking statements. These forward-looking statements include all
matters that are not historical facts. You should not place undue reliance on forward-looking
statements because they involve known and unknown risks, uncertainties and other factors that
are in many cases beyond the Company's control. By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future. Forward-looking statements are not guarantees of future
performance and the Group's actual results of operations and financial condition, and the
development of the industry in which the Group operates may differ materially from those made in
or suggested by the forward-looking statements contained in this document. The cautionary
statements set out above should be considered in connection with any subsequent written or oral
forward-looking statements that the Company, or persons acting on its behalf, may issue. Factors
that may cause the Group's actual results to differ materially from those expressed or implied by
the forward-looking statements in this document include but are not limited to the risks described
under "Risk Factors."
These forward-looking statements reflect the Company's judgment at the date of this document
and are not intended to give any assurances as to future results. Save for those forward-looking
statements required by the Listing Rules, Disclosure Rules and Transparency Rules and or/the
Prospectus Rules, the Company undertakes no obligation to update these forward-looking
statements, and will not publicly release any revisions it may make to these forward-looking
statements that may result from events or circumstances arising after the date of this document.
The Company will comply with its obligations to publish updated information as required by law or
by any regulatory authority but assumes no further obligation to publish additional information.
Nothing in this paragraph constitutes a qualification of the working capital statement contained on
page 41 of this document.
Notice in connection with Member States of the European Economic Area
In relation to each member state of the European Economic Area which has implemented the
Prospectus Directive (each, a "relevant member state") (except for the United Kingdom), with
effect from and including the date on which the Prospectus Directive was implemented in that
relevant member state (the "relevant implementation date") no New Common Shares will be
offered to the public in that relevant member state prior to the publication of a prospectus in
relation to the New Common Shares which has been approved by the competent authority in that
relevant member state or, where appropriate, approved in another relevant member state and
notified to the competent authority in the relevant member state, all in accordance with the
Prospectus Directive, except that with effect from and including the relevant implementation date,
offers of New Common Shares may be made to the public in that relevant member state at any
time:
(a) to legal entities which are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate purpose is solely to
invest in securities;
(b) to any legal entity which has two or more of (i) an average of at least 250
employees during the last financial year; (ii) a total balance sheet of more than
€43 million; and (iii) an annual turnover of more than €50 million, as shown in its
last annual or consolidated accounts; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of New Common Shares shall result in a requirement
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LONDON\33747915.07
for the publication by the Company of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purpose of the expression an "offer of any New Share to the public" in relation to any New
Common Shares in any relevant member state means the communication in any form and by any
means of sufficient information on the New Common Shares so as to enable an investor to decide
to purchase any New Common Shares as the same may be varied in that relevant member state
by any measure implementing the Prospectus Directive in that relevant member state.
In the case of any New Common Shares being offered to a financial intermediary as that term is
used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to
have represented, acknowledged and agreed that the New Common Shares acquired by it have
not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a
view to their offer or resale to persons in circumstances which may give rise to an offer of any New
Common Shares to the public other than their offer or resale in a relevant member state to
qualified investors as so defined or in circumstances in which the prior consent of the Company to
each such proposed offer or resale. The Company and its affiliates, and others, will rely upon the
truth and accuracy of the foregoing representation, acknowledgement and agreement.
The contents of this document should not be construed as legal, business or tax advice. Each
prospective investor should consult his, her or its own legal adviser, financial adviser or tax adviser
for advice. None of the Company or its representatives is making any representation to any
investor in New Common Shares regarding the legality of an investment in the New Common
Shares by such investor under the laws applicable to such investor.
Any reproduction or distribution of this document in whole or in part, and any disclosure of its
contents or use of any information herein for any purpose other than in considering an investment
in the New Common Shares offered or otherwise made available hereby, is prohibited. Each
investor in the New Common Shares by accepting delivery of this document agrees to the
foregoing.
Information not contained in this document
No person has been authorized to give any information or make any representation other than
those contained in or incorporated by reference into this document and, if given or made, such
information or representation must not be relied upon as having been so authorized. The delivery
of this document shall not, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date of this document or that the information in or
incorporated by reference into this document is correct as of any time subsequent to the date
hereof.
No incorporation of website information
The contents of the Company's website or any website directly or indirectly linked to the
Company's website do not form part of this document and investors should not rely on it.
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PART I
Business of First Quantum
1. HISTORY OF THE BUSINESS
First Quantum Minerals Ltd. was incorporated under the Company Act (British Columbia) on 21
December 1983 under the name of Xenium Resources Ltd. The Company changed its name to
Xenium Resources Inc. on 25 January 1984, to Zeal Capital Ltd. on 29 November 1989 and to First
Quantum Ventures Ltd. on 16 June 1993. In 1996 the Company's current Chairman and CEO,
Philip Pascall and its current Executive Director, Martin Rowley, joined its current President, Clive
Newall who was already a Director of the Company. On 18 July 1996, the Company changed its
name to its current name, First Quantum Minerals Ltd., and continued its incorporation into the
Yukon, pursuant to the provisions of the Business Corporations Act (Yukon). On 7 June 2002, the
Company amalgamated with its wholly-owned subsidiary, First Quantum Minerals (Yukon) Ltd.
pursuant to the provisions of the Business Corporations Act (Yukon). On 11 August 2003 the
Company’s jurisdiction of incorporation was continued from the Yukon to the federal jurisdiction
under the Canada Business Corporations Act. The Company was continued to the Province of
British Columbia under the Business Corporations Act (British Columbia) on 3 June 2005 and
registered with incorporation number C0726351.
The address of the registered office of the Company is 8th Floor, 543 Granville Street, Vancouver,
British Columbia, V6C 1X8, Canada (telephone number +1 604 688 6577). The Company also has
representative offices located in Perth, Australia, London, England, Johannesburg, South Africa and
Toronto, Canada.
On 18 May 2007, the Company’s Common Shares were accepted for trading on the main market of
the London Stock Exchange. As a result, the Company cancelled its listing on AIM, a market of the
London Stock Exchange. The Company now trades on the TSX and the London Stock Exchange
("LSE"), respectively, with the TSX remaining as the Company’s primary market.
2. BUSINESS OVERVIEW
First Quantum is an international mining company which has grown through a combination of
exploration, development, operation, and acquisition of mining projects or companies with
interests in mining projects and the production of London Metal Exchange ("LME") grade "A"
equivalent copper cathode, copper in concentrate, nickel, gold and zinc.
First Quantum currently operates seven mines and is developing five projects worldwide. The
Company’s current operations are the Kansanshi copper-gold mine, the Guelb Moghrein copper-
gold mine, the Las Cruces copper mine, the Kevitsa nickel-copper-PGE mine, the Pyhäsalmi
copper-zinc mine, the Ravensthorpe nickel-cobalt mine, and the Çayeli copper-zinc mine. In
addition, it is developing projects in Zambia, Panama and Peru.
The Common Shares of the Company are listed and posted for trading on the Toronto Stock
Exchange (the "TSX") under the symbol "FM" and are also listed on the Official List of the Financial
Conduct Authority and are admitted to trading on the main market of London Stock Exchange
("LSE") operated by the LSE under the symbol "FQM". Equity options of the Company are listed for
trading and trade on the Montreal Exchange under the root symbol "FM". In July 2011, the
Company also listed depository receipts in Zambia on the Lusaka Stock Exchange under the
symbol "FQMZ".
This document is being published in connection with the issuance of 114,526,277 Common Shares
of common stock pursuant to the Acquisition. The consideration for the Acquisition was a mixture
of cash and the issue of the New Common Shares. First Quantum issued the New Common Shares
to the shareholders of Inmet in several tranches, the first tranche being issued on 27 March 2013.
Under LR 14.3.4 the Company must apply for admission of the New Common Shares to the Official
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LONDON\33747915.07
List as soon as possible following their allotment and in any event within one year. This document
has been prepared in connection with such application.
3. SIGNIFICANT SUBSIDIARIES
The following table illustrates the intercorporate relationships between the Company and its
material and certain other subsidiaries and sets out the respective jurisdictions of incorporation of
such subsidiaries and the percentage of their voting securities owned, controlled or directed,
directly or indirectly, by the Company.
As at 26 March 2014
Name of Subsidiary
Percentage of Voting
Securities Beneficially
Owned, Controlled or
Directed by the Company
Jurisdiction of
Incorporation/Continuance
Adastra Minerals Inc. 100% Yukon Territory
Congolese Zinc Investments
Ltd.
100% British Virgin Islands
Zincongo Limited
100% British Virgin Islands
Afro American Finance - 100% Barbados
Sumtech (Private) Limited 100% Zimbabwe
First Quantum Minerals
(Australia) Pty Limited
100% Australia
First Quantum Minerals (UK)
Ltd.
100% United Kingdom
Metal Corp Trading (UK) Ltd. 100% United Kingdom
FQM (Akubra) Inc. 100% Canada (Federal)
Inmet Sweden Holdings AB 100% Sweden
Inmet Cobre Espana SA 100% Spain
Çayeli Bakir Isletmeleri A.S. 100% Turkey
Inmet Finland Oy 100% Finland
CLC Holdings Oy 100% Finland
CLC Copper I BV 100% Netherlands
CLC Copper II BV 100% Netherlands
Cobre Las Cruces SA 100% Spain
Pyhäsalmi Mine Oy 100% Finland
Inmet Panama I S.A.R.L. 100% Luxembourg
Inmet Panama II S.A.R.L. 100% Luxembourg
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Name of Subsidiary
Percentage of Voting
Securities Beneficially
Owned, Controlled or
Directed by the Company
Jurisdiction of
Incorporation/Continuance
Minera Panama S.A. 80% Panama
Inmet Finance Company
S.A.R.L.
100% Luxembourg
FQM Australia Holdings (BVI)
Ltd
100% British Virgin Islands
FQM Aus Nickel (BVI) Ltd 100% British Virgin Islands
FQM Australia Holdings Pty Ltd 100% Australia
FQM Australia Nickel Pty Ltd 100% Australia
Ravensthorpe Nickel Operation
Pty Ltd.
100% Australia
FQM Finance Ltd. 100% British Virgin Islands
Black Bark Investments Ltd. 100% British Virgin Islands
Kabitaka Hills Development
Corporation Limited
100% Zambia
Kansanshi Holdings Limited 100% Ireland
Kansanshi Mining Plc ("KMP") 80% Zambia
Kansanshi Projects Ltd 100% Zambia
First Quantum Minerals SA
(Pty) Ltd.
100% South Africa
Metal Corp Trading Logistics
SA (Proprietary) Limited
100% South Africa
Mauritan Holdings Ltd. 100% British Virgin Islands
Mauritanian Copper Mines S.A.
("MCM")
100% Mauritania
Skyblue Enterprises Inc. 100% British Virgin Islands
FQM Exploration Holdings Ltd. 100% British Virgin Islands
First Quantum Burkina Faso
SARL
100% Burkina Faso
Mauritania Exploration SARL
100% Mauritani
FQM Holdings Ltd. 100% Canada (Federal)
FQM (Peru) Ltd. 100% Canada (Alberta)
Minera Antares Peru S.A.C. 100% Peru
FQM LA Services Inc. 100% Canada (Federal)
FQM Scandinavia Ltd. 100% Canada (Federal)
FQM Projects Finance Ltd. 100% Barbados
Kevitsa Mining Oy 100% Finland
FQM Kevitsa Sweden Holdings
AB
100% Sweden
FQM Kevitsa Holding No 1 Oy 100% Finland
FQM Kevitsa Holding No 2 Oy 100% Finland
Kevitsa Mining AB 100% Sweden
FQM Kevitsa Mining Oy 100% Finland
FQM Finnex Oy
100% Finland
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Name of Subsidiary
Percentage of Voting
Securities Beneficially
Owned, Controlled or
Directed by the Company
Jurisdiction of
Incorporation/Continuance
International Quantum
Resources Limited
100% British Virgin Islands
Metal Corp (Sweden) AB 100% Sweden
Metal Corp Trading AG 100% Switzerland
Oryx Limited 100% Barbados
Faloxia Pty Ltd. 100% Botswana
Cover Investments Limited 100% Ireland
First Quantum Mining and
Operations Limited
100% Zambia
FQM Frontier Limited 100% Zambia
Kiwara Resources Ltd. 100% British Virgin Islands
Kiwara Resources Zambia
Limited
100% Zambia
Kalumbila Minerals Limited 100% Zambia
Kalumbila Town Development
Corp
100% Zambia
Trident Projects Ltd.
100% Zambia
Prop Holdings Ltd. 100% British Virgin Islands
Kafue Transport Services
Limited
100% Zambia
Skyfall Holdings Ltd. 100% Canada (Federal)
4. EMPLOYEES
The approximate number of full-time employees employed by the Group as at 31 December 2011, 31 December 2012 and 31 December 2013 are set out below:
As at 31 December
2011
As at 31 December
2012
As at 31
December 2013
No. of
Employees
8,061 8,663 13,661
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PART II
Pro forma Income Statement
Unaudited pro forma statement of earnings
The unaudited pro forma statement of earnings of First Quantum Minerals Limited set out below
has been prepared to illustrate the effect of the acquisition of Inmet on the consolidated statement
of earnings of First Quantum Minerals Limited for the financial year ended 31 December 2013 as if
the acquisition of Inmet had taken place on 1 January 2013. The unaudited pro forma statement of
earnings has been prepared for illustrative purposes only and, because of its nature, addresses a
hypothetical situation and therefore does not represent the actual results of First Quantum
Minerals Limited.
The unaudited pro forma statement of earnings is based on the consolidated statement of earnings
of First Quantum Minerals Limited for the financial year ended 31 December 2013 and has been
prepared in accordance with Annex II to the Prospectus Directive Regulation, using the accounting
policies adopted by First Quantum Minerals Limited in preparing its consolidated financial
statements for the period ended 31 December 2013 and on the basis of the notes set out below.
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Section A: Unaudited Pro Forma Statement of Earnings
First Quantum
Financial year ended
31 December 2013
(Note 1)
Inmet Three
months ended 31
March 2013
(Note 2)
Consolidated Pro Forma
Adjustments
Pro forma
consolidated
Sales revenues 3,552.9 251.3 3,804.2 3,804.2
Cost of sales (2,419.1) (110.9) (2,530.0) (28.7) (2,558.7)
Gross profit 1,133.8 140.4 1,274.2 (28.7) 1,245.5
Exploration (51.6) (9.2) (60.8) (60.8)
General and
administrative
(122.70) (13.1) (135.8) (135.8)
Acquisition
transaction costs
(29.5) (65.1) (94.6) (94.6)
Other income
(expense)
(35.2) 17.2 (18.0) (18.0)
Operating profit 894.8 70.2 965.0 (28.7) 936.3
Finance income 27.8 3.5 31.3 31.3
Financing costs (23.3) (2.9) (26.2) (26.2)
Earnings before
income taxes
899.3 70.8 970.1 (28.7) 941.4
Income taxes (369.6) (44.8) (414.4) 9.5 (404.9)
Net earnings 529.7 26.0 555.7 (19.3) 536.4
Net earnings for the
year attributable
to:
Non-controlling
interests
74.5 (0.8) 73.7 - 73.7
Shareholders of the
Company
455.2 26.8 482.0 (19.3) 462.7
Notes:
(1) The consolidated statement of earnings for the financial year ended 31 December 2013 has
been extracted without material adjustment from the consolidated financial statements of
First Quantum Minerals Limited for the year ended 31 December 2013, as incorporated by
reference in Schedule 4 of the Prospectus.
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LONDON\33747915.07
(2) The pre-acquisition consolidated financial information of Inmet for the three-month period
ended 31 March 2013 has been obtained from the Inmet Mining Quarterly Report for the
three months ended 31 March 2013.
(3) Other adjustments comprise:
a. the estimated incremental depreciation of $28.7m on the fair value adjustments
recorded to depreciable assets on the Inmet acquisition for the pre-acquisition
period; and
b. the tax effect of this adjustment at the estimated effective rate of Inmet Mining
Corporation for the quarter ended 31 March 2013 of 33%.
The incremental depreciation charge and associated tax impact will continue to impact the
Group in subsequent periods until the fair value adjustments recorded to depreciable
assets have been fully depreciated.
(4) On 22 March 2013, First Quantum had acquired 85.5% of the common shares of Inmet thus
obtaining control. The results of Inmet are consolidated within the results of First
Quantum from 22 March 2013. No adjustment had been made to the financial information
to eliminate the financial results for the period from the date of acquisition of Inmet by the
Group which is incorporated within both the consolidated Group financial information and
in the financial results for Inmet Mining Corporation for the quarter ended 31 March 2013.
(5) No account has been taken of the trading activities of the Group or Inmet since 31
December 2013. In addition, no adjustments have been made to reflect any of the matters
not directly attributable to the Acquisition.
(6) The pro forma financial information does not constitute financial statements within the
meaning of section 434 of the Companies Act.
PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH T: +44 (0) 20 7583 5000, F: +44 (0) 20 7212 4652, www.pwc.co.uk PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
39
LONDON\33747915.07
Section B: Accountants' report on pro forma income statement
The Directors First Quantum Minerals Ltd 8th Floor, 543 Granville Street Vancouver, British Columbia, V6C 1X8 Canada 27 March 2014 Dear Sirs First Quantum Minerals Ltd (the “Company”) We report on the unaudited pro forma Income Statement (the “Pro forma Income Statement”) set out in Section A of Part II of the Company’s prospectus dated 27 March 2014 (the “Prospectus” which has been prepared on the basis described in the notes to the Pro forma financial information, for illustrative purposes only, to provide information about how the acquisition of Inmet might have affected the Pro forma income statement presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the period ending 31 December 2013. This report is required by item 20.2 of Annex I to the PD Regulation and is given for the purpose of complying with that PD Regulation and for no other purpose. Responsibilities It is the responsibility of the directors of the Company to prepare the Pro forma income statement in accordance with item 20.2 of Annex I to the PD Regulation. It is our responsibility to form an opinion, as required by item 7 of Annex II to the PD Regulation as to the proper compilation of the the Pro forma income statementand to report our opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the the Pro forma income statement, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Save for any responsibility which we may have to those persons to whom this report is expressly addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the Prospectus.
PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH T: +44 (0) 20 7583 5000, F: +44 (0) 20 7212 4652, www.pwc.co.uk PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
40
LONDON\33747915.07
Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the the Pro forma income statement with the directors of the Company. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Group. Opinion In our opinion:
a) the Pro forma financial information has been properly compiled on the basis stated; and b) such basis is consistent with the accounting policies of the Group.
Declaration For the purposes of Prospectus Rule 5.5.3 R(2)(f), we are responsible for this report as part of the Prospectus and we declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with Item 1.2 of Annex I to the PD Regulation. Yours faithfully PricewaterhouseCoopers LLP Chartered Accountants
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PART III
Additional Information
1. RESPONSIBILITY
The Company and the Directors, whose names and functions appear on pages 51 to 53 of
this document, accept responsibility for the information contained in this document. To
the best of the knowledge and belief of the Company and the Directors (who have taken
all reasonable care to ensure that such is the case), the information contained in this
document is in accordance with the facts and does not omit anything likely to affect the
import of such information.
2. WORKING CAPITAL
The Company is of the opinion that the working capital is sufficient for the Group's present
requirements, that is, for at least 12 months following the date of this document.
3. SHARE CAPITAL
(a) The Common Shares are fully paid up. The authorised capital of the Company is an
unlimited number of Common Shares with no par value. As at 31 December 2013
there were 590,836,559 Common Shares issued and outstanding.
(b) As at 31 December 2013, the Company did not hold any Common Shares as
treasury stock and no member of the Group holds any Common Shares on behalf
of the Company.
(c) As at 31 December 2013, the Company did not have any convertible securities.
Other than this, the Company has no convertible securities, exchangeable securities or
securities with warrants in issue.
(d) Save for stock options and restricted stock or restricted stock unit awards granted
to employees and officers of the Company periodically, no share capital of the
Company or any other member of the Group is under option or is, or will,
immediately following Admission, be agreed, conditionally or unconditionally, to be
put under option. Information on grants of stock options and restricted stock as at
31 December 2013 is set out on pages 26 and 27 of the First Quantum 2013
Financial Statements.
(e) Since 1 January 2011 there have been the following changes in the issued and fully
paid share capital of the Company (Common Shares in thousands):
Common Shares in issue at 31 December 2010 86,176
Common Shares in issue at 31 December 2011 476,310,282
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LONDON\33747915.07
Common Shares in issue at 31 December 2012 476,310,282
Common Shares issued on 27 March 2013 98,867,917
Common Shares issued on 5 April 2013 8,615,493
Common Shares issued on 9 April 2013 7,042,867
Common Shares in issue at 26 March 2014 (being the latest
practicable date prior to the date of this document)
590,836,559
4. ARTICLES OF CONTINUANCE OF THE COMPANY
The Articles contain provisions, inter alia, to the following effect:
(a) Votes of Shareholders
Shareholders shall have the right to receive notice of, to attend and to vote at all meetings of shareholders. Save as otherwise provided in the Articles, on a show of hands each
holder of shares present in person and entitled to vote shall have one vote and upon a poll each such holder who is present in person or by proxy and entitled to vote shall have one vote in respect of every share held by him.
If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift or otherwise dispose of the share, but, while such share is held by
the Company, it:
(i) is not entitled to vote the share at a meeting of its shareholders;
(ii) must not pay a dividend in respect of the share; and
(iii) must not make any other distribution in respect of the share.
(b) Restrictions on Shares and Variation of Class Rights
(i) The Company may by ordinary resolution create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares. Subject to the Business Corporations Act (British Columbia) (the "Act"), the Company may by ordinary resolution:
(A) create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or
(B) vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.
(ii) Except when and for so long as the Company is a public company or a pre-existing reporting company which has the statutory reporting company provisions provided for under the Act (the "Statutory Reporting Company Provisions") as part of its Articles or to which Statutory Reporting Company Provisions apply, no share or designated security may be sold, transferred or otherwise be disposed of without the consent of the directors of the Company (the "Directors") and the directors are not required to give any reason for refusing to consent to any such sale, transfer or
other disposition.
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LONDON\33747915.07
(iii) Except as provided for by the Act, no share may be issued until it is fully paid. A share is fully paid when:
(A) consideration is provided to the Company for the issue of the share by one or more of the following:
(1) past services performed for the Company;
(2) property;
(3) money; and
(B) the value of the consideration received by the Company equals or exceeds the issue price set for the share.
(c) Alteration of capital
Subject to and in addition to paragraph (b), the Company may by ordinary resolution:
(i) create one or more classes or series of shares or, if none of the shares of a class or
series of shares are allotted or issued, eliminate that class or series of shares;
(ii) increase, reduce or eliminate the maximum number of shares that the Company is authorised to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorised to issue out of any class or series of shares for which no maximum is established;
(iii) subdivide or consolidate all or any of its unissued, or fully paid issued, shares;
(iv) if the Company is authorised to issue shares of a class of shares with par value:
(A) decrease the par value of those shares; or
(B) if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;
(v) change all or any of its unissued, or fully paid issued, shares with par value into
shares without par value or any of its unissued shares without par value into shares with par value;
(vi) alter the identifying name of any of its shares; or
(vii) otherwise alter its shares or authorised share structure when required or permitted to do so by the Act.
(d) Transfer of Shares
(i) A transfer of a share of the Company must not be registered unless:
(A) a duly signed instrument of transfer in respect of the share has been received by the Company;
(B) if a share certificate has been issued by the Company in respect of the share
to be transferred, that share certificate has been surrendered to the Company; and
(C) if a non-transferable written acknowledgement of the shareholder's right to obtain a share certificate has been issued by the Company in respect of the
share to be transferred, that acknowledgement has been surrendered to the Company.
(ii) The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company's share certificates or in any other form that may be approved by the directors from time to time. Except to the extent
that the Act otherwise provides, the transferor of shares is deemed to remain the
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holder of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.
(iii) If a shareholder, or his or her duly authorised attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set out in
the written acknowledgements deposited with the instrument of transfer:
(A) in the name of the person named as transferee in that instrument of transfer; or
(B) if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered.
(iv) Neither the Company nor any director, officer or agent of the Company is bound to
inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgement of a right to obtain a share certificate for such shares.
(v) There must be paid to the Company, in relation to the registration of any transfer, the amount, if any, determined by the directors.
(e) Shareholder Meetings
(i) The Company must hold an annual general meeting at least once each calendar year and not more than 15 months after the last annual reference date at such time and place as the directors may determine.
(ii) If all the shareholders who are entitled to vote at an annual general meeting consent
by a unanimous resolution under the Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Article, select as the Company's annual
reference date a date that would be appropriate for the holding of the applicable annual general meeting.
(iii) The directors may, whenever they think fit, call a meeting of shareholders. The Company must send notice of the date, time and location of any meeting of
shareholders, in the manner provided in the Articles of Association, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless the Articles otherwise provide, at least the following number of days before the meeting:
(A) if and for so long as the Company is a public company, 21 days;
(B) otherwise, 10 days.
(iv) The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Act, by more than four months. The record date must not precede the date on which the meeting is held by fewer than:
(A) if and for so long as the Company is a public company, 21 days;
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(B) otherwise, 10 days.
If no record date is set, the record date is 5 p.m. on the day immediately preceding
the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.
(v) The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the people entitled to notice does not invalidate any proceedings at
that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.
(vi) If a meeting of shareholders is to consider special business, the notice of meeting must:
(A) state the general nature of the special business; and
(B) if the special business includes considering, approving, ratifying, adopting or authorising any document or the signing of, or giving effect to, any document,
have attached to it a copy of the document or state that a copy of the
document will be available for inspection by shareholders:
(1) at the Company's records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and
(2) during statutory business hours on any one or more specified days before the day set for the holding of the meeting.
(vii) At a meeting of shareholders, the following business is special business:
(A) at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;
(B) at an annual general meeting, all business is special business except for the following:
(1) business relating to the conduct of or voting at the meeting;
(2) consideration of any financial statements of the Company presented to the meeting;
(3) consideration of any reports of the directors or auditor;
(4) the setting or changing of the number of directors;
(5) the election or appointment of directors;
(6) the appointment of an auditor;
(7) the setting of the remuneration of an auditor;
(8) business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;
(9) any other business which, under the Articles or the Act, may be
transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.
(viii) A person who is not a shareholder may vote at a meeting of shareholders, whether
on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.
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(ix) If there are joint shareholders registered in respect of any share:
(A) any one of the joint shareholders may vote at any meeting, either personally
or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or
(B) if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that
share, then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.
(x) If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:
(A) for that purpose, the instrument appointing a representative must:
(1) be received at the registered office of the Company or at any other
place specified, in the notice calling the meeting, for the receipt of
proxies, at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before the day set for the holding of the meeting; or
(2) be provided, at the meeting, to the chair of the meeting or to person designated by the chair of the meeting;
(B) if a representative is appointed under this provision in the Articles:
(1) the representative is entitled to exercise at that meeting the same rights on behalf of the Company that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and
(2) the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.
Evidence of the appointment of any such representative may be sent to the
Company by written instrument, fax or any other method of transmitting legibly recorded messages.
(xi) The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.
(xii) Subject to the special rights and restrictions attached to the rights of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two shareholders entitled to vote at the meeting whether in person or by proxy.
(f) Dividends and Distributions on Liquidation to Shareholders
(i) Subject to the Act, the directors may from time to time declare and authorise payment of such dividends as they may deem advisable. The Directors need not give
notice to any shareholder of any such declaration.
(ii) The directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend. The record date must not precede the date on which the dividend is to be paid by more than two months. If no record date is set, the record date is 5.00 p.m. on the date on which the directors
pass the resolution declaring the dividend.
(iii) A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in any one or more of those ways.
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(iv) If any difficulty arises in regard to a distribution, the directors may settle the difficulty as they deem advisable, and, in particular, may:
(A) set the value for distribution of specific assets;
(B) determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any shareholders on the basis of the value so fixed in order to adjust the rights of
all parties; and
(C) vest any such specific assets in trustees for the people entitled to the dividend.
(v) Any dividend may be made payable on such date as is fixed by the directors.
(vi) All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.
(vii) If several persons are joint shareholders of any share, any one of them may given
an effective receipt for any dividend, bonus or other money payable in respect of the share.
(viii) No dividend bears interest against the Company.
(ix) If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the
dividend.
(x) Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or to
the person and to the address the shareholder or joint shareholders may direct in writing. The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the
amount of tax so deducted is not paid to the appropriate taxing authority.
(xi) Notwithstanding anything contained in these Articles, the directors may from time to time capitalise any surplus of the Company and may from time to time issue, as fully paid, shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.
(g) Non-United Kingdom Shareholders
There are no limitations in the Articles on the rights of non-United Kingdom shareholders
to hold, or to exercise voting rights attached to, the Common Shares.
(h) Directors
(i) The first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognised under the Act. The number of directors, excluding additional directors appointed under the Articles,
is set at:
(A) subject to paragraphs (B) and (C), the number of directors that is equal to the number of the Company's first directors;
(B) if the Company is a public company, the greater of three and the most recently set of:
(aa) the number of directors set by ordinary resolution (whether or not
previous notice of the resolution was given); and
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(bb) the number of directors set under Article 14.4;
(C) if the Company is not a public company, the most recently set of:
(aa) the number of directors set by ordinary resolution (whether or not
previous notice of the resolution was given); and
(bb) the number of directors set under Article 14.4.
Article 14.4 states that if, at any meeting of shareholders at which there
should be an election of directors, the places of any of the retiring
directors are not filled by that election, those retiring directors who are
not re-elected and who are asked by the newly elected directors to
continue in office will, if willing to do so, continue in office to complete the
number of directors for the time being set pursuant to these Articles until
further new directors are elected at a meeting of shareholders convened
for that purpose. If any such election or continuance of directors does not
result in the election or continuance of the number of directors for the
time being set pursuant to these Articles, the number of directors of the
Company is deemed to be set at the number of directors actually elected
or continued in office.
(ii) A director or senior officer who holds a disclosable interest (as that term is used in
the Act) in a contract or translation into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Act.
No director or intended director is disqualified by his or her office from contracting
with the Company either with regard to the holding of any office or place of profit
the director holds with the Company or as vendor, purchaser or otherwise, and no
contract or transaction entered into by or on behalf of the Company in which a
director is in any way interested is liable to be voided for that reason.
(iii) A director or officer may be or become a director, officer or employee of, or
otherwise interested in, any person in which the Company may be interested as a shareholder or otherwise, and, subject to the Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other person.
(iv) A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.
(v) A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.
(vi) A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual's duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the Act.
(vii) The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders. That
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remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.
(viii) If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company's business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be
entitled to receive.
(ix) The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.
(x) Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
(i) Borrowing Powers
(i) The Company, if authorised by the directors, may:
(A) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;
(B) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and
at such discounts or premiums and on such other terms as they consider appropriate;
(C) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
(D) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the
present and future assets and undertaking of the Company.
(ii) If several persons are joint shareholders of any share, any one of them may be given an effective receipt for any dividend, bonus or other money payable in respect of the share.
(iii) No dividend bears interest against the Company.
(iv) If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.
(v) Any dividend or other distribution payable in cash in respect of Common Shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or to the person and to the address the shareholder or joint shareholders may direct
in writing. The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.
(vi) Notwithstanding anything contained in these Articles, the directors may from time to time capitalise any surplus of the Company and may from time to time issue, as fully paid, Common Shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.
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5. SIGNIFICANT CHANGE
(a) Save as set out in paragraph 5(b), there has been no significant change in the
financial or trading position of the Group since 31 December 2013, being the end of
the last financial period for which financial information of the Company has been
published.
(b) Since 31 December 2013, the following significant post balance sheet events have
occurred. On 27 January 2014, the Company announced funding restructuring
arrangements, undertaken to optimize the Company’s capital structure and
financial flexibility, including the following:
(A) An offer to exchange any and all of the outstanding 8.75% Senior
notes due 2020 and 7.50% Senior notes due 2021 issued by Inmet,
for 6.75% senior notes due 2020 and 7.00% senior notes due 2021,
to be issued by the Company. This offer expired on 24 February
2014. On 27 February 2014, the Company announced that 97.9% of
the notes due 2020 and 99.8% of the notes due 2021 were
exchanged for the new notes.
(B) On 27 January 2014, the Company announced a solicitation of
consent relating to proposed amendments to the indentures of these
senior notes as part of the Funding Restructuring. On 12 February
2014, the consent was received and the indentures were amended.
On 27 February 2014, the Company announced that the solicitation of
consent had completed.
(C) A mandate letter is in place for a $2,500.0 million five-year term loan
and revolving facility. The facility comprises of a $1,000.0 million
term loan facility available to draw for a period of 24 months from the
date of signing of the facilities agreement with a margin of 2.75%
and a $1,500.0 million revolving credit facility available to draw for a
period of 59 months from the date of signing of the facilities
agreement with a margin of 2.75% per annum. All outstanding loans
must be repaid on the date five years from the date of signing of the
Facilities Agreement.
(D) On 23 January 2014, ENRC repaid $25.0 million of the $500.0 million
promissory note and on 28 February 2014, ENRC paid all interest
accrued at 3% on the promissory note. The remainder of the
promissory note was renegotiated with ENRC. As a result ENRC
repaid an additional $10 million of principal on 18 March 2014, $35
million of principal on 20 March 2014 and its subsidiary issued a $430
million promissory note repayable on 31 December 2015. Interest at
5% per annum from 28 February 2014 to 31 December 2015 was
paid and prepaid on 20 March 2014.
(E) On 27 March 2014, Kansanshi Mining Plc, as borrower, and the
Company, as guarantor, entered into a $350 million five year
unsecured term facility agreement with Standard Chartered Bank as
initial mandated lead arranger, bookrunner, and underwriter.
6. EXECUTIVE OFFICERS AND DIRECTORS
Set out below are the names, principal occupation and five year business history of the Executive
Officers and Directors of the Company.
(a) Executive Officers of the Company (and, where stated, Directors)
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Philip Pascall, Chairman and Chief Executive Officer, and Director
Mr. Pascall graduated from Sussex University in England with an honours degree in Control
Engineering, and later completed an MBA at the University of Cape Town. He worked in
general management positions in South Africa from 1973; and in the mining industry there
from 1977 with RTZ, and E.L. Bateman, and since 1981, in Australia. He was the Project
Manager of the Argyle Diamond Project and then, he was Executive Chairman and part
owner of Nedpac Engineering between 1982 and 1990. During this time, Mr. Pascall was
involved in a wide variety of mineral projects in Australia, New Zealand, South East Asia,
Chile, the United States, and Zimbabwe. After selling his share of Nedpac in 1990, he was a
consultant in the mining industry, including a period with Rio Tinto’s Hamersley Iron, and
with various projects in Zimbabwe and Zambia. He has been Chairman and Chief Executive
Officer of the Company since November 1996.
Mr. Pascall has had no other occupations in the five years preceding the date of this
document.
Clive Newall, President and Director
Mr. Newall graduated from the Royal School of Mines, University of London, England in 1971
with an honours degree in Mining and Geology, and was awarded an MBA from the Scottish
Business School at Strathclyde University. He has worked in mining and exploration
throughout his career, having held senior management positions with Amax Exploration Inc.
and the Robertson Group plc. Mr. Newall was one of the Company’s founders and has been
President and Director of First Quantum since its start up in 1996. He is also a non-
executive director of Gemfields Ltd and Baker Steel Resource Trust Limited.
He has had no other occupations in the five years preceding the date of this document.
Martin Rowley, Executive Director of Business Development and Director
Mr. Rowley graduated from the University of Western Australia with a Bachelor of Commerce
degree in 1975. After starting his career as an accountant working in both Australia and
England he worked as executive assistant to the board of directors of a large Australian
public company from 1980 to 1984. He then established his own resource consulting and
investment company and was involved as a shareholder, Director and Chairman of a number
of Australian public resource companies before co-founding First Quantum in 1996.
Mr. Rowley served as the Company’s CFO and as a Director until January 2007, when he
assumed the role of Executive Director, Business Development. He is also non-executive
Chairman and a director of Forsys Metals Corp, a Toronto Stock Exchange listed company in
the uranium sector, Lithium One Inc, an emerging Canadian listed lithium company, and
non-executive Chairman of Galaxy Resources Limited, an Australian Stock Exchange listed
company.
He has had no other occupations in the five years preceding the date of this document.
Hannes Meyer, Chief Financial Officer (not a Director)
Mr. Meyer is a Chartered Accountant with the South African Institute of Chartered
Accountants, a B Comm (Hons) graduate from the University of Pretoria, South Africa and
has 16 years of broad finance and management experience in the gold and base metals
industries. Most recently, he was Financial Director with Harmony Gold Mining Company Ltd.
Prior to Harmony Gold, Mr. Meyer was an Executive Director, Chief Financial Officer and
Acting Chief Executive Officer with TEAL Exploration and Mining Inc.
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Chris Lemon, General Counsel and Corporate Secretary (not a Director)
Mr. Lemon was called to the Bar in British Columbia in 1994 after graduating from the
University of Victoria Law School. He also holds a Bachelors degree with honours in
Economics from the University of British Columbia and a Masters degree in Economics from
the University of Toronto. Mr. Lemon practiced law with two major Vancouver law firms with
a focus on natural resource and environmental law, litigation and administrative law. He
represented First Nations in the development of Canada’s first two diamond mines in the
Northwest Territories. In 2000 he was appointed Associate Counsel and Assistant Secretary
at Weldwood of Canada Limited, a major Canadian forest products company. In early 2005
he joined International Forest Products Limited and was appointed General Counsel and
Corporate Secretary.
Mr. Lemon joined First Quantum in August 2007. He has been General Counsel and
Corporate Secretary of the Company since August 2007.
(b) Non Executive Directors of the Company
Peter St. George, Non-Executive Director
Mr. St. George worked in the investment banking industry for over 30 years holding senior
positions in the United Kingdom and Australia. He was Managing Director and Chief
Executive/Co-Chief Executive Officer of Salomon Smith Barney Australia and its predecessor,
Natwest Markets Australia, from January 1995 to mid-2001. Up to 1994 he was the
Managing Director Corporate Finance Natwest Markets, having previously been a Director of
Hill Samuel & Co. Limited, both London headquartered merchant and investment banks. He
was previously a non-executive director of Boart Longyear Group Limited, an international
drilling products and services business listed on the ASX, and is currently a non-executive
director of Dexus Property Group, a leading ASX listed Australian property group specializing
in office, industrial and retail properties. He has also served on a number of other public and
private company boards in Australia.
Mr. St. George qualified as a Chartered Accountant in South Africa and holds an MBA from
the University of Cape Town.
Andrew Adams, Non-Executive Director
Mr. Adams obtained his degree in Social Science from Southampton University and qualified
as a Chartered Accountant in the United Kingdom in 1981. He worked for the Anglo
American group of companies for 12 years up to 1999, his final position being Vice President
and Chief Financial Officer of AngloGold North America based in Denver, Colorado.
Mr. Adams worked for Aber Diamond Corporation as Vice President and Chief Financial
Officer from 1999 to 2003. Currently he serves as an independent non-executive director of
Uranium 1 Inc, Torex Gold Resources Inc. and TMAC Resources Inc.
Michael Martineau, Non-Executive Director
Mr. Martineau graduated from the University of Oxford in England with a MA and D.Phil in
Geology. He has worked worldwide in mineral exploration and mine development since 1970,
specializing in Africa since 1986. After seven years in North America with Kennecott Copper
Corporation, he moved to the United Kingdom becoming General Manager Global Exploration
for BP Minerals. After a period as Director Minerals for Seltrust Mining (Australia) and CEO of
Cluff Minerals Exploration in 1989, he founded and acted as CEO for then Toronto-listed
SAMAX Gold Inc, Carpathian Gold and latterly AXMIN Inc. Currently he serves as Chairman
of Eurasia Mining plc.
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Paul Brunner, Non-Executive Director
Mr. Brunner served as President and CEO of Boart Longyear Company (USA), a leading
provider of drilling services, tools and equipment for the natural resource industry, the
construction and quarrying industries and industrial markets worldwide, from 2004 to 2008.
During his 21-year career with Boart Longyear, Mr. Brunner held several senior positions
including Managing Director — Boart Longyear Limited (South Africa); Regional Director —
Boart Longyear Limitada (Chile/Peru); and, President — Boart Canada Ltd. Prior to Boart
Longyear he spent most of his career working at mining operations in Northern Canada.
Mr.Brunner holds a MBA from Harvard Graduate School of Business Administration and is a
mining engineering graduate from the Colorado School of Mines. He also attended the British
Columbia Institute of Technology with a focus on mining.
Michael Hanley, Non-Executive Director
Mr. Hanley holds a business degree from HEC Montréal and is a Chartered Accountant. He
has served as Senior Vice-President Operations and Strategic Initiatives and member of the
Office of the President at National Bank of Canada. From 1998 to 2008, Mr. Hanley held
various executive roles at Alcan, including President and CEO of its global Bauxite and
Alumina business group, and his final position of Executive Vice-President and CFO. He
currently serves as an Independent Director and Audit Committee chair for BRP, a
manufacturer, distributor, and marketer of motorized recreational vehicles and powersports
engines.
Robert Harding, Non-Executive Director
Mr. Harding graduated with a Bachelor of Mathematics from the University of Waterloo in
1980 and received his Chartered Accountant designation the following year. Mr. Harding
began his career at a major accounting firm before joining Hees International (now
Brookfield) where he served in progressively senior roles including Controller, Chief Financial
Officer, Chief Operating Officer, and ultimately, Chief Executive Officer in 1992. He currently
serves on the Boards of Brookfield Asset Management (Chairman from 1997–2010), and
Manulife, and is currently Chairman of the Boards of Norbord and Nexj.
(c) At the date of this document none of the Directors have:
(i) any convictions in relation to fraudulent offences for the previous five years;
(ii) been declared bankrupt or been subject to any individual voluntary
arrangement or been associated with any bankruptcy, receivership or
liquidation in his capacity as a director for the previous five years;
(iii) been an executive director or senior manager, within the previous five
years, of any Company which has been subject to a receivership or
liquidation;
(iv) been a partner or senior manager, within the previous five years, in any
partnership which has been subject to a liquidation; and/or
(v) been subject to any official public incrimination and/or sanctions by any
statutory or regulatory authority (including any recognized or designated
professional bodies) or been disqualified by a court from acting as a director
or member of the administrative, management or supervisory bodies of a
Corporation or from acting in the management or conduct of the affairs of
any Corporation for the previous five years.
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(d) Although there are no direct conflicts of interest, certain directors and officers of
the Company are directors of other companies, which could potentially compete
with the Company, as follows: Michael Martineau is a Director of Axmin Inc., which
is a gold exploration company in Africa, and a Director of Golden Star Resources
Limited, a company that explores for and produces gold in Ghana. While there is
potential for conflicts to arise, to the extent that such other companies may
participate in or be affected by ventures involving the Company, the Board has not
received notice from any director or officer of the Company indicating that any
material conflict currently exists. Conflicts of interest affecting the directors and
officers of the Company will be governed by the Business Corporations Act (British
Columbia) and other applicable laws. In the event that such a conflict of interest
arises at a meeting of the Board, a director who has such a conflict must disclose
the nature and extent of his interest and abstain from voting for or against matters
concerning the venture. At the date of this document, no other director or
executive officer, member of an administrative, management or supervisory body
or senior manager of the Company has a potential conflict of interest between any
duties to the Company and his private interests and/or other duties.
(e) Each of the Directors was elected by the shareholders at the annual meeting of the
Company held on 7 May 2013. The term of office of the Directors expires on the
date of the 2014 annual meeting of the Company when each Director will stand for
re-election.
(f) Details of the contractual provisions for the Directors and Executive Officers with
the Company providing for benefits upon termination of employment and change of
control or responsibility are set out in paragraph 11 of Scheule 2 of this document.
(g) Details of the Directors' remuneration on an individual basis (including any
contingent or deferred compensation) during the last completed financial year are
set out in paragraph 11 of Schedule 2 of this document.
(h) The Company has not set aside or accrued any amount to provide pension,
retirement or similar benefits for the Directors or the Executive Officers.
7. MAJOR SHAREHOLDERS
(a) As of 26 March 2014 (being the latest practicable date prior to the date of this
document), (i) BlackRock Investment Management (UK) Limited holds, directly and
indirectly, 12.03% of the voting rights in the Company, and (ii) The Capital Group
Companies, Inc. holds, directly and indirectly, 15.02% of the voting rights in the
Company. The Company is not aware of any other person who, directly or
indirectly, has an interest in Common Shares of the Company which is notifiable
under applicable Canadian laws.
(b) The Company is not aware of any persons, other than the Directors, who could
directly or indirectly, jointly or severally, exercise control over the Company.
(c) There are no differences in the voting rights enjoyed by the Company's
shareholders in respect of the Common Shares.
8. AUDITORS
The auditors of the Company for the period from 1 January 2011 to 5 September 2013
were PricewaterhouseCoopers LLP of PricewaterhouseCoopers Place, 250 Howe Street,
Suite 700, Vancouver, British Columbia, Canada VGC 357, whose partners are members
of the Institute of Chartered Accountants of British Columbia. From 5 September 2013 to
the date of this Prospectus, the auditors of the Company were PricewaterhouseCoopers
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LLP (UK) of 1 Embankment Place, London WC2N 6RH, a member of the Institute of
Chartered Accountants in England and Wales.
9. MATERIAL CONTRACTS
9.1 Save for the contracts described or referred to in paragraphs 9.2 to 9.10 below, no
member of the Group has:
(a) entered into any material contract (not being a contract entered into in the
ordinary course of business) within the two years immediately preceding the date
of this document; or
(b) entered into any other contract (not being a contract entered into in the ordinary
course of business) which contains any provision under which any member of the
Group has any obligation or entitlement which is or may be material to the Group
as at the date of this document.
9.2 New Kansanshi Facility
Kansanshi Mining Plc unsecured term facility
On 27 March 2014, Kansanshi Mining Plc, as borrower, and the Company, as guarantor,
entered into a $350 million five year unsecured term facility (the "New Kansanshi
Facility") agreement with Standard Chartered Bank ("SCB") as initial mandated lead
arranger, bookrunner, and underwriter.
The New Kansanshi Facility is available until 27 June 2014 with a margin of 2.75 per cent
per annum. Availability of the New Kansanshi facility is subject to satisfaction of the
conditions precedent set out in the facility agreement.
Purpose
The Company is permitted to draw the funds available under the New Kansanshi Facility to
repay amounts due under the Kansanshi Facility and for general corporate purposes.
Repayment
The New Kansanshi Facility must be repaid in 6 equal semi-annual instalments
commencing 30 months from the date of the facility agreement with all amounts
outstanding to be repaid no later than the date falling five years after signing (the “Final
Maturity Date”).
Prepayment
The commitments of the lender under the New Facility will immediately be cancelled, and
mandatory prepayment will be automatically triggered if it becomes unlawful for a Lender
(as defined therein) to perform its obligations under the Facility Agreement. Mandatory
prepayment will also be triggered by a Change of Control (as defined therein) of
Kansanshi Mining Plc or the Company.
Voluntary prepayments can only be made at the end of an Interest Period. The New
Kansanshi Facility can be prepaid in whole or in part (if in part in a minimum amount of
$5 million, or if less the balance of the term loan) without penalty, on giving 5 business
days' written notice.
Interest
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The interest rate payable on the loans under the New Kansanshi Facility is calculated for
each Interest Period on the basis of an annual floating rate equal to LIBOR plus the
relevant Margin (defined therein as 2.75 per cent per annum) and mandatory costs if
applicable.
Covenants
The New Kansanshi Facility includes customary positive and restrictive covenants and
undertakings given by Kansanshi Mining Plc, the Company, and, in certain cases, by or on
behalf of other members of the First Quantum Group (as defined therein):
Under the financial covenants, on each 30 June and 31 December, the Company must
ensure that the net debt to EBITDA is not more than 4.25 times from Financial Close (as
defined therein) until 30 June 2015 (subject to increases in the Margin if the ratio is above
3.25 times during this period). Otherwise the net debt to EBITDA Ratio must not be more
than 3.25 times. The debt service ratio (historic) must not be less than 1.25 times and the
debt to equity ratio must not be more than 100 per cent.
Kansanshi Mining Plc may only pay dividends or make other distributions if i) they do not
breach certain financial covenants and; ii) there is no event of default.
Under the financial covenants, on each of 30 June and 31 December, Kansanshi Mining Plc
must ensure that i) the debt to EBITDA ratio shall not exceed 2.5 times; ii) the debt
service ratio (historic) shall not be less than 1.25 times and; iii) the debt to equity ratio
must not be more than 100 per cent.
Events of Default
The New Kansanshi Facility sets out certain events of default which are subject in certain
cases to grace periods and other qualifications, including without limitation:
Failure by any Obligor to pay amounts due under a finance document;
Breach by any Obligors of other obligations under the finance documents;
Breach of the financial covenants
Inaccuracy of a representation or statement by any Obligor when made or deemed
to be made;
Cross defaults in respect of any member of the FQM Group above $25 million or
that has or is reasonably likely to have a Material Adverse Effect;
Insolvency and insolvency proceedings in relation to any Obligor or in relation to
any member of the FQM Group that is not an Obligor that has or is reasonably
likely to have a Material Adverse Effect;
Creditors' process in respect of any Obligor affecting assets having an aggregate
value of $25 million or in respect of any member of the FQM Group that is not an
Obligor that has or is reasonably likely to have a Material Adverse Effect;
Invalidity or unlawfulness of the finance documents;
Cessation of the business of Kansanshi Mining Plc;
Expropriation, nationalisation or abandonment of the Kansanshi mine or other
Government action that may have a Material Adverse Effect on the business of
Kansanshi;
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Repudiation or rescission by any Obligor of any finance document;
Litigation against any member of the FQM Group that has or is reasonably likely to
have a Material Adverse Effect;
Material Adverse Effect in the reasonable opinion of the Majority Lenders (as
defined therein) unless such event(s) are capable of remedy;
Revocation, suspension, termination or material breach of Kansanshi’s operating
licence, or other authorisations required to conduct its business.
9.3 New Facility Mandate Letter and Term Sheet
On 24 January 2014, the Company signed a mandate letter for a $2.5 billion term loan
and revolving credit facility (the "New Facility") with Standard Chartered Bank and BNP
Paribas as initial mandated lead arrangers, bookrunners and underwriters. The
underwriting is subject to, among other things, the negotiation, execution and exchange
of a facilities agreement and related documentation based on the terms and conditions of
the term sheet attached to the mandate letter as amended pursuant to the signed but
undated New Facility agreement (the "Term Sheet") within 90 days of the date of the
mandate letter. Availability of the New Facility is subject to satisfaction of the conditions
precedent set out in the Term Sheet.
The underwriting contained in the mandate letter is subject to a number of conditions
which include the absence, in the opinion of the initial mandated lead arrangers, of any
material adverse change in (i) the business, operations, assets or condition (financial or
otherwise) of the FQM group taken as a whole since the date as at which the latest
consolidated audited financial statements were prepared; (ii) the validity or enforceability
of the mandate letter, term sheet or document evidencing or related to the New Facility;
(iii) the international or any relevant domestic syndicated loan market(s); or (iv) the
political, financial or economic condition in countries where the FQM Operating Companies
(as defined therein) operate, including, without limitation, changes resulting directly or
indirectly from the outbreak of war or other armed conflicts, imposition of sanctions, state
of national emergency, civil unrest, disturbance or similar events, during the period from
the date of the mandate letter to the date of signing of the New Facility agreement. The
underwriting is subject also to the negotiation, execution and exchange of a facilities
agreement and related documentation based on the terms and conditions of the Term
Sheet within 90 days of the date of the mandate letter. Availability of the New Facility is
subject to satisfaction of the conditions precedent set out in the Term Sheet.
General
The Company, as borrower, and the Material Subsidiaries (as defined therein), as
guarantors, Standard Chartered Bank and BNP Paribas as initial mandated lead arrangers
and book runners and Standard Chartered Bank also acting as the security trustee have
signed but not dated a facility agreement (the “Facility Agreement”).
The New Facility will be secured by an assignment of any loans from a member of the
FQM Group (as defined therein) which guarantees the New Facility ("Obligors") to any
member of the FQM Group which does not guarantee the New Facility or Kansanshi Mining
Plc (the "Non-Obligors"), the subordination of loans from a member of the FQM Group
(as defined therein) to an Obligor, a negative pledge on assets and shareholdings, a
restriction on the cash holding of Non-Obligors and certain share pledges in favour of the
security trustee.
It is contemplated that upon the New Facility coming into effect that the Akubra Facility
(as summarized in paragraph 9.4 below) will be repaid in full and terminated.
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Commitment
Under the New Facility, the $1 billion term loan is available for 24 months from the date of
the Facility Agreement with a margin of 2.75% per annum. The $1.5 billion revolving
credit facility is available from the date of satisfaction of the conditions precedent set out
in the facilities agreement for the New Facility to 1 month prior to the Final Maturity Date
(as defined therein) with a margin of 2.75% per annum.
Purpose
The Company is permitted to draw the funds available under the New Facility i) to repay
amounts due under the Akrubra Facility; ii) for the refinancing of all outstanding amounts
under the Kansanshi Facility; iii) for the payment of all fees and expenses relating to the
arranging of the New Facility; iv) for capital expenditure and operating expenses; and v)
for general corporate purposes.
Repayment
The term loan facility must be repaid in 6 equal bi-annual installations of one sixth of the
outstanding aggregate advances, with the first repayment date commencing 30 months
from the date of the Facility Agreement with the last repayment being the Final Maturity
Date.
Each advance under the revolving credit facility will be repayable at the end of its Interest
Period (as defined therein), although the Company may request that an advance be rolled
over on the expiry of the Interest Period for that advance, subject to conditions.
Prepayment
The commitments of the lender under the New Facility will immediately be cancelled, and
mandatory prepayment will be automatically triggered if it becomes unlawful for a Lender
(as defined therein) to perform its obligations under the Facility Agreement. Mandatory
prepayment will also be triggered by a Change of Control (as defined therein) of the
Company.
Voluntary prepayments can only be made at the end of an Interest Period. The New
Facility can be prepaid in whole or in part (if in part in a minimum amount of $50 million,
or if less the balance of the term loan) without penalty, on giving 5 business days' written
notice.
Interest
The interest rate payable on the loans under the New Facility is calculated for each
Interest Period on the basis of an annual floating rate equal to LIBOR plus the relevant
Margin (defined therein as 2.75 per cent per annum) and, in the case of an advance under
the revolving credit facility, a utilisation fee as described below. Fees applicable to the
New Facility include: i) a flat 1.1 per cent per annum commitment fee on any unutilised
and un-cancelled portion of the term loan during the Tranche A Availability Period (as
defined therein); ii) a flat 1.15 per cent per annum commitment fee on any unutilised and
un-cancelled portion of the revolving credit facility during the Tranche B Availability Period
(as defined therein); and iii) a 0.15 per cent per annum utilisation fee on any drawn
amount of the revolving credit facility.
Covenants
The New Facility includes customary positive and restrictive covenants and undertakings
given by the Obligors and, in certain cases, by or on behalf of other members of the First
Quantum Group (as defined therein):
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The Company may only pay dividends or make other distributions if i) they do not breach
certain financial covenants; ii) there is no event of default; and iii) the distributions do not
exceed 50 per cent of the net income from the preceding year.
Under the financial covenants, on each 31 March, 30 June, 30 September and 31
December, the Company must ensure that the net debt to EBITDA is not more than 4.25
times from Financial Close (as defined therein) until 30 June 2015 (subject to increases in
the Margin if the ratio is above 3.25 times during this period). Otherwise the net debt to
EBITDA Ratio must not be more than 3.25 times. The debt service ratio (historic) must
not be less than 1.25 times and the debt to equity ratio must not be more than 100 per
cent.
Events of Default
The New Facility sets out certain events of default which are subject in certain cases to
grace periods and other qualifications, including without limitation:
Failure by any Obligor to pay amounts due under a finance document;
Breach by any Obligors of other obligations under the finance documents;
Inaccuracy of a representation or statement by any Obligor when made or deemed
to be made;
Cross defaults in respect of any member of the FQM Group above $25 million or
that has or is reasonably likely to have a Material Adverse Effect;
Insolvency and insolvency proceedings in relation to any Obligor or in relation to
any member of the FQM Group that is not an Obligor that has or is reasonably
likely to have a Material Adverse Effect;
Creditors' process in respect of any Obligor affecting assets having an aggregate
value of $25 million or in respect of any member of the FQM Group that is not an
Obligor that has or is reasonably likely to have a Material Adverse Effect;
Invalidity or unlawfulness of the finance documents;
Cessation of the business of a FQM Operating Company or Minera Panama SA
which has a Material Adverse Effect;
Seizure, expropriation, nationalisation, intervention, restriction or other
governmental action in relation to any FQM Operating Company or Minera Panama
SA or any of its assets that materially limits or wholly or substantially curtails the
authority or ability of any FQM Operating Company or Minera Panama SA to
conduct its business;
any FQM Operating Company or Minera Panama SA is prevented under any
government authority from exervising normal control over all or any material part
of its assets and revenues and such event has or is reasonably likely to have a
Material Adverse Effect;
Repudiation or rescission by any Obligor of any finance document;
Litigation against any member of the FQM Group that has or is reasonably likely to
have a Material Adverse Effect;
Material Adverse Effect in the reasonable opinion of the Majority Lenders (as
defined therein) unless such event(s) are capable of remedy;
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Revocation, suspension, termination or material breach by any FQM Operating
Company or Minera Panama SA of its operating licence, or other authorisations
required to conduct its business provided that in the case of Minera Antares Peru
S.A.C. or First Quantum Mining and Operations Limited such revocation,
suspension, termination or material breach has or is reasonably likely to have a
Material Adverse Effect; and
Any FQM Operating Company or Minera Panama SA abandons all or any significant
portion of its interest in any material asset or surrender, cancel or release, ir suffer
any termination or cancellation or any of its substantial rights, title or interest in
any material assets if such action has or is reasonably likely to have a Material
Adverse Effect.
9.4 Standard Chartered Akubra Facility
On 20 March 2013, FQM (Akubra) Inc., as borrower, and the Company and FQM Finance
Ltd, as guarantors, entered into a $2.5 billion senior revolving credit facility agreement
(as amended and restated on 29 May 2013, and 29 October 2013) with Standard
Chartered Bank as mandated lead arranger, facility agent and security agent (the
"Akubra Facility"). The Akubra Facility is secured by a share pledge over the shares of
the borrower and an account charge over an account of the Company entitled Mandatory
Prepayment Account held with Standard Chartered Bank.
Under the Akubra Facility, the $2.5 billion revolving facility is available until 30 May 2014
with a margin of 2.75 per cent per annum.
Commitments and additional commitments
The Akubra Facility provides for a revolving facility in the amount of $2.5 billion. As of the
date of this document, $1,571 million has been drawn under the Akubra Facility.
Purpose
The borrower is permitted to draw the funds available under the Akubra Facility for (i)
general corporate purposes other than acquisition or redemption of the Existing Notes (as
defined therein) in excess of $10 million and (ii) any other purpose with Lender (as
defined therein) consent.
Repayment
Each loan made under the Akubra Facility must be repaid in full on the last day of its
interest period. Any amounts repaid may be re-borrowed until 30 May 2014. All
outstanding loans must be repaid on 30 June 2014.
Prepayment
The commitments of a lender under the Akubra Facility will immediately be cancelled, and
all obligations in relation to that lender’s participation in each loan will be payable on the
last day of the interest period of that loan in the event of illegality or if a member of the
Group uses any loan proceeds which results in a Lender being in breach of Sanctions (as
defined therein) or becoming a Restricted Party (as defined therein). If there is any
reduction in the ownership of named subsidiaries of the Company including the borrower
or a change of control of the borrower or any entity acquires 20 per cent or more of the
Company or there is a sale of substantially all of the assets of the Group, the Akubra
Facility will be cancelled and all outstanding loans will be immediately due and payable.
Available commitments are to be reduced and cancelled and outstanding loans prepaid by
the application of the proceeds of claims, disposal of assets, equity issuance or financial
indebtedness subject to exclusions as detailed in the Akubra Facility agreement.
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Subject to the payment of break costs (if any), the borrower may voluntarily prepay
amounts outstanding under the Akubra Facility without penalty or premium on not less
than five business days’ notice to the facility agent and in a minimum amount of $100
million.
Interest
The rate of interest payable on the loans under the Akubra Facility is calculated on the
basis of a formula being the aggregate of the applicable margin, LIBOR and the
mandatory cost, if any. The applicable margin is 2.75 per cent per annum. LIBOR means
for the term of any loan or overdue amount denominated in U.S. dollars, the British
Bankers Association Interest Settlement Rate for U.S. dollars. Fees applicable to the
Akubra Facility include: (i) a commitment fee of 1.00 per cent per annum on the undrawn
amount of each lender’s available commitment; (ii) an arrangement fee and upfront fee
paid to Standard Chartered Bank in its capacity as arranger; and (iii) agency and security
agency fees.
Covenants
The Akubra Facility contains customary operating and financial covenants, subject to
certain agreed exceptions, including covenants restricting the ability of the borrower, each
guarantor and each Material Group Member (as defined therein) to, among other things:
• engage in any activity with any person which it knows is a Restricted Party (as defined
therein) or knows is in violation of any anti-corruption laws (as specified therein);
• merge or consolidate with other companies;
• make a substantial change to the general nature of its business;
• acquire another company or any shares or a business or enter into any joint venture;
• create or permit to subsist any security or quasi-security over any asset;
• dispose of assets;
• enter into non-arm’s length transactions;
• be a creditor in respect of any financial indebtedness;
• issue guarantees;
• pay dividends or redeem share capital (this applies to each member of the Group);
• incur more than $500 million in capital expenditure on Cobre Panama whilst loans
outstanding are $1.25 billion or more;
• redeem the Existing Notes;
• incur financial indebtedness; and
• enter into certain treasury transactions other than in the ordinary course of business
and not primarily for speculative purposes.
The Akubra Facility also requires the borrower and each guarantor (and in certain cases,
the Material Group Members and other members of the Group) to observe certain
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affirmative covenants, subject to certain exceptions and including, but not limited to,
covenants relating to:
• maintenance of relevant authorisations;
• compliance with laws, including environmental laws and regulations;
• payment of taxes;
• preservation of assets;
• ensuring that its obligations under the Akubra Facility rank at least pari passu with the
claims of other creditors;
• maintenance of insurance; and
• provision of financial and other information to the lenders.
The Company may not pay dividends or make other distributions in respect of the share
capital of the Company if they fail to meet certain financial covenants or there is an event
of default or an event of default would arise as a result of the payment under the Akubra
Facility.
Under the financial covenants, on 31 March, 30 June, 30 September and 31 December of
each year, the Company must ensure that the Consolidated Tangible Net Worth is not less
than $7.5 billion and the Debt to Equity Ratio does not exceed 75 per cent. Furthermore,
for any twelve month period ending on 31 March, 30 June, 30 September and 31
December of each year, the Interest Cover is not less than the ratio of 2.75:1; Leverage
does not exceed 350 per cent and Capital Expenditure does not exceed $3.75 billion in
respect of the First Quantum group and in respect of the First Quantum group (excluding
the borrower and its subsidiaries) does not exceed $2.2 billion at any time loans
outstanding under the Akubra Facility exceed $1.25 billion. Each of these terms is as
defined in the Akubra Facility agreement.
Events of Default
The Akubra Facility sets out certain Events of Default (as defined therein), the continuing
occurrence of which would allow the Majority Lenders (as defined therein) to accelerate all
outstanding loans and cancel the lenders’ commitments and/or declare that all or part of
any amounts outstanding are immediately due and payable and/or payable on demand.
The Events of Default include, among other events and subject in certain cases to grace
periods, thresholds and other qualifications:
• non-payment of amounts due under a finance document;
• breach of financial covenants;
• inaccuracy of a representation or statement when made or deemed to be made;
• cross defaults in relation to financial indebtedness of at least $15 million;
• insolvency and insolvency proceedings;
• creditors’ process affecting any asset or assets having an aggregate value of at least
$25 million;
• audit qualification;
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• suspension or cessation (or threatened suspension or cessation) of the business of any
Material Group Member;
• invalidity or unlawfulness of the finance documents or the transaction security;
• breach of any provision of, or material inaccuracy of a representation or warranty
given in, the intercreditor agreement by any party other than a finance party or an
obligor;
• commenced or threatened litigation or disputes in relation to the transaction
documents or against any member of the Group or their respective assets which has or
is reasonably likely to have a material adverse effect;
• material adverse change;
• ability of any Material Group Member to conduct its business is materially limited by
governmental action or control over its assets or revenues is prevented and such event
has or is reasonably likely to have a material adverse effect; and
• moratorium on external indebtedness of any Material Group Member where such event
has or is reasonably likely to have a material adverse effect.
Intercreditor Agreement
To establish the relative rights of their creditors in connection with their entry into the
Akubra Facility, FQM (Akubra) Inc., as borrower, the Company and the guarantors under
the Akubra Facility entered into an intercreditor agreement (the "Intercreditor Agreement")
with, among others, various senior creditors and intercompany creditors and Standard
Chartered Bank. The Intercreditor Agreement constitutes a senior finance document under
the Akubra Facility, and a breach of its terms by the borrower, the Company or the
guarantors under the Akubra Facility that are party to the Intercreditor Agreement will give
rise to a default under the Akubra Facility.
The Intercreditor Agreement establishes the relationships and relative priorities among:
(i) the lenders under the Akubra Facility (the "Lenders"); (ii) the Lenders or other persons
that accede to the Intercreditor Agreement as counterparties to hedging agreements (the
"Hedging Agreements", and the Lenders or their affiliates or other persons that accede to
the Intercreditor Agreement as counterparties to the Hedging Agreements are referred to
in such capacity as the "Hedge Counterparties"); (iii) the agent (the "Agent" acting on
behalf of the Lenders, the Hedge Counterparties and the Agent (collectively, the "Senior
Creditors"); and (iv) intragroup lenders ("Intercompany Lenders") and debtors
("Debtors").
Subordination
The Intercreditor Agreement provides that all liabilities ("Senior Debt") payable under the
finance documents specified by the Akubra Facility ("Senior Finance Documents") by any
member of the Group to the Senior Creditors will rank in priority to all liabilities payable or
owing by a Debtor to an Intercompany Lender ("Intercompany Debt"), and that such
Intercompany Debt will be postponed and subordinated in right and priority of payment to
any Senior Debt.
Permitted Payments
Prior to the date on which all the Senior Debt has been unconditionally and irrevocably
paid and discharged in full, to the satisfaction of the Agent, and the Senior Creditors are
under no further obligation to provide financial accommodation to any member of the
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group under any Senior Finance Document (the "Senior Debt Discharge Date") except as
otherwise provided under the Intercreditor Agreement, no member of the First Quantum
group may pay or discharge any amount due and payable in respect of any Intercompany
Debt, unless the following conditions are satisfied:
(i) the payment is due; and
(ii) no Event of Default (as defined in the Akubra Facility) is continuing or would occur as a
result of the making of the payment.
Notwithstanding the foregoing, a Debtor is entitled to make a payment in respect of
Intercompany Debt if the payment is being made to facilitate repayment or prepayment of
Senior Debt or if approved by the Majority Senior Creditors (as defined therein).
Restrictions on Enforcement
The Intercreditor Agreement provides that, until the Senior Debt Discharge Date, except as
expressly allowed under the terms of the Intercreditor Agreement, no Intercompany
Lender may:
(a) demand payment of any Intercompany Debt;
(b) accelerate any of the Intercompany Debt if otherwise entitled to do so or otherwise
declare any Intercompany Debt prematurely due and payable;
(c) enforce any Intercompany Debt by attachment, set-off, execution or otherwise;
(d) initiate or support or take any step with a view to:
(i) any insolvency, bankruptcy, liquidation, reorganization, administration,
receivership, administrative receivership, moratorium, judicial composition
or dissolution proceedings or any analogous proceedings in relation to any
member of the Group;
(ii) any voluntary arrangement or assignment for the benefit of creditors; or
(iii) any similar proceedings involving any member of the Group whether by
petition, convening a meeting, voting for a resolution or otherwise; or
(e) bring or support any legal proceedings against any member of the Group.
Security
The Akubra Facility is secured by: (i) a pledge by the Company of all the shares in the
borrower; and (ii) a charge over a mandatory prepayment account of the Company.
9.5 Inmet 2020 Notes
Pursuant to the Acquisition, FQM (Akubra) Inc. assumed all obligations under the Inmet
2020 Notes.
Inmet issued $1,500,000,000 in 8.75 per cent unsecured senior notes due in June 2020
pursuant to an indenture dated 18 May 2012. The acquisition of Inmet by the Company
triggered the change of control clause in the Existing 2020 Notes Indenture which
required an offer to repurchase the Existing 2020 Notes. On 19 April 2013, a mandatory
offer was issued to purchase the Existing 2020 Notes in cash at a price equal to 101 per
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cent of the aggregate principal plus accrued and unpaid interest up to, but not including,
the date of purchase. The offer ended on 20 May 2013 and a portion of the Existing 2020
Notes were purchased totaling $10.6 million including $0.4 million of accrued interest.
FQM (Akubra) Inc. may redeem some or all of the Existing 2020 Notes at any time on or
after 1 June 2016 at redemption prices ranging from 104.375 per cent in the first year to
100 per cent after 1 June 2018, plus accrued interest. Prior to 1 June 2016, the Existing
2020 Notes may be redeemed at 100 per cent plus a make-whole premium, and accrued
interest. In addition, until 1 June 2016, FQM (Akubra) Inc. may redeem up to 35 per cent
of the principal amount of Existing 2020 Notes, in an amount not greater than the net
proceeds of certain equity offerings, at a redemption price of 108.75 per cent plus accrued
interest.
Under the terms of the Existing 2020 Notes, FQM (Akubra) Inc. and its subsidiaries were
subject to certain restrictions on asset sales, payments, and incurrence of indebtedness
and issuance of preferred stock.
Following an exchange offer and consent solicitation which was made by the Company in
relation to both the 2020 Notes and 2021 Notes pursuant to an exchange offer and
consent solicitation memorandum dated 27 January 2014 (as supplemented on 3 February
2014) (the "Exchange Offer and Solicitation"), all but approximately $31 million aggregate
principal amount of the 2020 Notes have been exchanged for the Exchange Notes. The
Exchange Offer and Solicitation completed on 27 February 2014. As part of the
consideration for the Exchange Offer and Solicitation Akubra obtained customary exit
consents to amend the terms of the Existing 2020 Notes to remove substantially all
restrictive covenants and eliminate certain events of default, as well as a waiver of past
defaults, if any, and claims against FQM (Akubra) Inc. or the Company.
9.6 Inmet 2021 Notes
Inmet issued $500,000,000 in 7.5 per cent unsecured senior notes due June 2021
pursuant to an indenture dated 18 December 2012. The acquisition of Inmet by the
Company triggered the change of control clauses in the Existing 2021 Notes Indenture
which required an offer to repurchase the Existing 2021 Notes to be made. On 19 April
2013, a mandatory offer was issued to purchase the Existing 2021 Notes in cash at a price
equal to 101 per cent of the aggregate principal plus accrued and unpaid interest up to,
but not including, the date of purchase. The offer ended on 20 May 2013 and none of the
Existing 2021 Notes were purchased.
FQM (Akubra) Inc. may redeem some or all of the Existing 2021 Notes at any time on or
after 1 December 2016 at redemption prices ranging from 103.75 per cent in the first
year to 100 per cent after 1 December 2018, plus accrued interest. Prior to 1 December
2016, the Existing 2021 Notes may be redeemed at 100 per cent plus a make-whole
premium, and accrued interest. In addition, until 1 December 2016, Inmet may redeem
up to 35 per cent of the principal amount of notes, in an amount not greater than the net
proceeds of certain equity offerings, at a redemption price of 107.5 per cent plus accrued
interest.
Under the terms of the Existing 2021 Notes Indenture, FQM (Akubra) Inc. and its
subsidiaries were subject to certain restrictions on asset sales, payments, and incurrence
of indebtedness and issuance of preferred stock and customary events of default.
In accordance with the Exchange Offer and Solicitation described in paragraph 9.3 above,
all but approximately $1 million aggregate principal amount of the 2021 Notes have been
exchanged for the Exchange Notes. The Exchange Offer and Solicitation completed on 27
February 2014. As part of the consideration for the Exchange Offer and Solicitation FQM
(Akubra) Inc. obtained customary exit consents to amend the terms of the Existing 2021
Notes to remove substantially all restrictive covenants and eliminate certain events of
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default, as well as a waiver of past defaults, if any, and claims against FQM (Akubra) Inc.
or the Company.
9.7 First Quantum 2019 Notes
The Company issued $350,000,000 7.25 per cent senior notes due in 2019, pursuant to
an indenture dated 10 October 2012. The Company may redeem some or all of the 2019
Notes at any time on or after 15 October 2015 at redemption prices ranging from 105.438
per cent in the first year to 100 per cent in the final year, plus accrued interest. Prior to
15 October 2015, the 2019 Notes may be redeemed at 100 per cent plus a make-whole
premium, and accrued interest. In addition, until 15 October 2015, the Company may
redeem up to 35 per cent of the principal amount of 2019 Notes, in an amount not greater
than the net proceeds of certain equity offerings, at a redemption price of 107.25 per cent
plus accrued interest.
Under the 2019 Notes Indenture, the Company is subject to certain restrictions on asset
sales, payments, and incurrence of indebtedness and issuance of preferred stock, among
other things. The 2019 Notes are guaranteed (the "2019 Notes Guarantees") by FQM
Kevitsa Mining Oy and FQM Australia Nickel Pty. Ltd. (the "2019 Notes Guarantors"). The
2019 Notes Guarantees are subordinated to the Kansanshi Facility, and in addition the
guarantee of the 2019 Notes by FQM Kevitsa Mining Oy is subordinated to the Kevitsa
Facility and the guarantee of the 2019 Notes by FQM Australia Nickel Pty. Ltd. is
subordinated to the Ravensthorpe Facility. The Company intends to cancel the Kevitsa
Facility, and terminate the subordination deeds pursuant to which the 2019 Notes
Guarantees are subordinated, on or before the Early Settlement Date (as defined therein).
On 27 January 2014, the Company announced a consent solicitation (the "Solicitation")
with respect to certain proposed amendments to the indenture dated 10 October 2012
(the "Indenture") governing the Company's 2019 Notes. In soliciting the consents, the
Company primarily sought to more closely align the covenants included in the Indenture
and the covenants included in the indentures that will govern the Exchange Notes.
Certain of the changes to the Indenture are intended to improve the Company's financial
flexibility given the larger size and scale of the Company subsequent to the Acquisition.
On 10 February 2014, the Company announced that it had received validly delivered
consents in the Solicitation from holders of at least a majority in aggregate principal
amount of 2019 Notes outstanding, and the proposed amendments to the indenture
governing the 2019 Notes were therefore approved. The Solicitation was completed on 12
February 2014.
9.8 Amended and Restated Minera Panama Shareholders Agreement
On 20 August 2012 Inmet entered into an amended and restated MPSA shareholders
agreement with, inter alios, KPMC, LS-Nikko Copper Inc. and Minera Panama, S.A. (the
"Amended SHA"). Under the Amended SHA Inmet has the right to determine how many
directors comprise the MPSA board, and each party to the Amended SHA has the right to
nominate such number of directors to the MPSA board as reflects the proportion of such
party's shareholding in MPSA, provided that Inmet maintains the right nominate a
majority of the directors to the MPSA board. Decisions of the board are decided on a
simple majority basis with each director entitled to cast one vote (in the event of a tied
vote, the chairman does not have a casting vote).
Matters to be decided at shareholder meetings shall be decided on a simple majority basis
reflecting an affirmative vote of shareholders holding MPSA shares aggregating not less
than 50 per cent of the issued share capital of MPSA; provided, however, that certain
matter including, but not limited to, an amendment to MPSA's articles, further issuance of
shares in MPSA, declaration of dividends and any winding-up of MPSA shall require Special
Authority (as defined in the Amended SHA).
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All funding of MPSA required to enable it to implement any required work plans and
budgets approved in accordance with the Amended SHA shall be contributed by way of
shareholder loans, as determined by the MPSA Board, save where the required funding is
provided through a financing arrangement that has been approved in accordance with the
provisions of the Amended SHA. Subject to certain provisions of the Amended SHA, each
holder of MPSA Common Shares (as defined in the Amended SHA) shall contribute to
MPSA that percentage of all funding required from it equal to the percentage of all issued
MPSA Common Shares held by it. If a shareholder suffers a dilution of its shareholding in
MPSA, its funding obligation will be diluted accordingly with effect from the date of such
equity dilution.
The Amended SHA contains customary pre-emption rights and drag-along and tag-along
rights which are common for agreements of this nature.
MPSA may make distributions to shareholders out of its distributable reserves in
accordance with the Approved Distribution Policy (as set out in the Amended SHA).
The Amended SHA is governed by and construed in accordance with the laws of the
Province of Ontario and the federal LAWS OF Canada applicable therein.
9.9 Precious Metals Stream Agreement
On 20 August 2012, MPSA and certain of Inmet’s wholly-owned subsidiaries entered into a
precious metals stream agreement with a subsidiary of Franco-Nevada, whereby a
subsidiary of Franco-Nevada agreed to provide $1.0 billion of funding to MPSA, secured
by a pledge of Inmet’s (now Akubra’s) interests in MPSA. The precious metals stream
agreement does not provide any recourse to any assets of Inmet or restricted subsidiaries
other than interests in MPSA. The funding is to be used to fund a portion of the
Company’s share of the Cobre Panama project capital costs. Certain funding conditions
must be met prior to the advance of the deposit, including the Company having provided
$1.0 billion in additional funding for Cobre Panama following the issuance of the full notice
to proceed on 18 May 2012, and the deposit is to be advanced pro-rata on a 1:3 ratio to
subsequent funding contributions made by the Company.
The amount of precious metals deliverable under the stream is indexed to the copper
concentrate produced from the entire project and approximates 86 per cent of the
estimated payable precious metals attributable to the Company’s 80 per cent ownership
stake based on the current 31-year mine plan. Beyond the currently contemplated mine
life, the precious metals deliverable under the stream will be based on a fixed percentage
of the precious metals in concentrate. Until the deposit has been reduced to zero, the
Franco-Nevada subsidiary will pay to MPSA an amount for each ounce of precious metals
delivered equal to the prevailing market price payable in cash up to $400 per ounce for
gold and $6 per ounce for silver (subject to an annual adjustment for inflation) for the
first 1,341,000 ounces of gold and 21,510,000 ounces of silver (approximately the first
20 years of expected deliveries) and thereafter the greater of $400 per ounce for gold and
$6 per ounce for silver (subject to an adjustment for inflation) or one-half of the
then-prevailing market price (the "Fixed Price"). If the prevailing market price is greater
than the Fixed Price, the excess amount will be payable by crediting an amount equal to
the difference between the prevailing market price and the Fixed Price against the deposit
until the outstanding balance of the deposit has been reduced to zero. Thereafter, the
purchase price will be the lesser of the Fixed Price and the prevailing market price. In all
cases the amount paid is not to exceed the prevailing market price per ounce of gold and
silver.
Pursuant to the precious metals stream agreement, MPSA is required to maintain a
coverage ratio at all times. To satisfy this coverage ratio prior to Cobre Panama
commencing production, the value of the Company’s interests in MPSA, subject to certain
adjustments, must exceed twice the uncredited balance of deposit advanced by the
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subsidiary of FrancoNevada, subject to certain adjustments. Once Cobre Panama is in
production, the value of the Company’s interests in MPSA, subject to certain adjustments,
must exceed, subject to certain adjustments, twice the greater of (a) the uncredited
balance of deposit advanced by the subsidiary of Franco-Nevada and (b) the net present
value of the precious metals stream, as determined in accordance with the precious
metals stream agreement. MPSA is required to repay to the subsidiary of Franco-Nevada
the cash value (including interest) of any uncredited balance of the deposit in certain
circumstances following the termination of the precious metals stream agreement.
9.10 Kansanshi Mining plc senior term and revolving facilities
This paragraph 9.10 contains a summary of the Kansanshi Facility (as defined below).
Please note that on March 27, 2014 the Company gave 5 working days notice to the
Lender that it intends to terminate the Kansanshi Facility. Currently $420 million is drawn
on the Kansanshi Facility, of which $70 million will be repaid on 28 March 2014, with the
remaining $350 million to be repaid on formal cancellation using the proceeds of the New
Kansanshi Facility (as summarised in paragraph 9.2 above).
On 25 January 2012, the Company signed a $1 billion senior term and revolving facilities
agreement by Kansanshi Mining plc, holder of First Quantum's 80 per cent owned
Kansanshi copper-gold project in Zambia. The five year facility featuring flexible drawing
provisions will enable execution of planned capital works at the Kansanshi project.
On 25 January 2012, Kansanshi Mining, as borrower, and the Company, FQM Finance Ltd.,
Black Bark Investments Limited and Kansanshi Holdings Limited, as guarantors, entered
into a $1.0 billion senior term and revolving facilities agreement with African
Export-Import Bank, BNP Paribas, Citibank, N.A., London Branch, Standard Chartered
Bank and The Standard Bank of South Africa Limited as mandated lead arrangers, BNP
Paribas as insurance bank, Standard Chartered Bank as account bank, facility agent and
security agent, and The Standard Bank of South Africa Limited as technical bank (the
"Kansanshi Facility"). The Kansanshi Facility is secured on the assets and off-take
agreements of Kansanshi in Zambia.
Under the Kansanshi Facility, there is a term loan facility of $270 million available until 25
January 2014 with a margin of 3 per cent per annum and a $730 million revolving facility
(comprising revolving facility A and revolving facility B) available until 25 October 2016
with a margin of 3 per cent per annum (revolving facility A) and a margin of 2.5 per cent
per annum (revolving facility B).
Commitments and additional commitments
The Kansanshi Facility provides for a term loan facility in an aggregate amount of
$270 million and a revolving facility in an aggregate amount of $730 million. As of the
date of this document, $420 million has been drawn on the Kansanshi Facility.
Purpose
The borrower is permitted to draw the funds available under the Kansanshi Facility for the
purposes of: (i) payment of all fees, costs and expenses incurred in connection with the
facilities; (ii) refinancing the EIB Facility and payment of all refinancing costs associated
therewith; (iii) capital expenditure incurred in connection with the expansion of the oxide
and sulphide circuits at the Kansanshi mine; (iv) capital expenditure incurred in
connection with the development, construction and financing of a smelter project in the
Republic of Zambia and the mobile fleet at the Kansanshi mine; and (v) general corporate
purposes.
Reduction and repayment
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Term loans made under the Kansanshi Facility must be repaid in installments on each
repayment date in an amount which reduces the amount of the outstanding aggregate
term loans by an amount equal to the relevant percentage of all term loans borrowed as
of 25 January 2014, as set out in the Kansanshi Facility agreement. The borrower may not
re-borrow any part of the term loan facility which is repaid.
Each revolving facility loan made under the Kansanshi Facility must be repaid in full on its
maturity and any amounts so repaid may be re-borrowed. The total revolving facility A
commitments will be automatically reduced by $100 million on each of 25 January 2015
and 25 January 2016, and the borrower must prepay on those dates the principal amount
outstanding which exceeds the reduced revolving facility A commitments. The borrower
may not request an increase in the total revolving facility A commitments to the extent
that the aggregate amount of all outstanding revolving facility A loans would otherwise
exceed the reduced total revolving facility A commitments.
Prepayment
The commitments of a lender under the Kansanshi Facility will immediately be cancelled,
and all obligations in relation to that lender’s participation in each loan will be payable on
the last day of the current term of that loan in the event of illegality. Under the Kansanshi
Facility, if there is a change of control of an obligor or of Metal Corp Trading AG (an
indirect subsidiary of the Company), the Majority Lenders (as defined in the Kansanshi
Facility agreement) may cancel the lenders’ commitments and declare all outstanding
loans immediately due and payable.
Subject to the payment of break costs (if any), the borrower may voluntarily prepay
amounts outstanding under the Kansanshi Facility without penalty or premium, as follows:
(a) in relation to a term loan, on the last day of its current term in whole or part, subject
to a minimum repayment of $50 million (or, if less, the outstanding balance of the term
loan facility), on not less than five business days’ notice to the facility agent; and (b) in
relation to a revolving facility loan: (i) for the period up to 25 January 2013, only if all the
revolving facility loans are prepaid in full at the same time or if in part, the revolving
facility A loan must be prepaid in a minimum amount of $50 million (or, if less, the
outstanding balance of revolving facility A) on the last day of its term or if there are bad
outstanding revolving facility A loans and revolving facility B loans that must be reduced
pro rata, and (ii) for the period from 26 January 2013 to 25 January 2017, a revolving
facility. A loan may be prepaid on the last day of its term in whole or part, subject to a
minimum repayment of $50 million (or, if less, the outstanding balance of revolving
facility A), on not less than five business days’ notice to the facility agent.
Any voluntary prepayment of a revolving facility loan may be re-borrowed but no other
prepayment may be re-borrowed.
Interest
The rate of interest payable on the loans under the Kansanshi Facility is calculated on the
basis of a formula which incorporates the aggregate of the applicable margin, LIBOR and
the mandatory cost, if any. The applicable margin in relation to any term loan or any
revolving facility A loan is 3 per cent per annum. The applicable margin in relation to a
revolving facility B loan is 2.5 per cent per annum. LIBOR means for a term of any Loan or
overdue amount denominated in U.S. dollars, the British Bankers Association Interest
Settlement Rate for U.S. dollars. Fees applicable to the Kansanshi Facility include: (i) a
term loan commitment fee and revolving loan facilities commitment fee of 1.05 per cent
per annum on the undrawn uncancelled amount of each lender’s term loan commitment,
revolving facility A commitment and revolving facility B commitment and (ii) a utilization
fee in relation to revolving facility A loans of 0.25 per cent per annum on the aggregate
amount of the revolving facility A loans for each day such amount is up to but not
exceeding 50 per cent of the available revolving facility A. In addition, if the aggregate
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amount of the revolving facility A loans exceed 50 per cent of the available revolving
facility A, then the borrower must pay a further utilization fee of 0.50 per cent per annum
on the excess amount for each day the aggregate amount exceeds 50 per cent of the
available revolving facility A.
Covenants
The Kansanshi Facility contains customary operating and financial covenants, subject to
certain agreed exceptions, including covenants restricting the ability of the borrower and
each guarantor (and where expressly provided, the subsidiaries of the borrower and such
guarantors) to, among other things:
• engage in any activity with any person which it knows is a Sanctioned Person (as
defined therein) or in violation of any Sanctions Laws or Regulations (as defined
therein);
• merge or consolidate with other companies;
• engage in any business other than exploration and development of mines and activities
incidental thereto (this only applies to the borrower) and carry on its business as an
intermediate trading company (Metal Corp Trading AG);
• acquire another company or any shares or a business (this does not apply to the
Company or FQM Finance Ltd.);
• trade, carry on any business, own any assets or incur any liabilities other than as a
holding company (this does not apply to the borrower or the Company);
• create or permit to subsist any security or quasi-security over any asset (this does not
apply to the Company or FQM Finance Ltd) other than the transaction security;
• create or permit to subsist any security over the Kansanshi production license other
than the transaction security;
• dispose of assets (this does not apply to the Company or FQM Finance Ltd. other than
in relation to shares in Black Bark Investments Limited);
• enter into non-arm’s length transactions (this does not apply to the Company or FQM
Finance Ltd);
• be a creditor in respect of any financial indebtedness (this does not apply to the
Company or FQM Finance Ltd);
• issue guarantees (this does not apply to the Company or FQM Finance Ltd);
• pay dividends or redeem share capital (this only applies to the borrower and the
Company);
• incur financial indebtedness (this does not apply to the Company or FQM Finance Ltd
provided that any such financial indebtedness incurred to a member of the Company’s
group of companies is fully subordinated to the Kansanshi Facility in accordance with
the Kansanshi Intercreditor Agreement); and
• enter into certain treasury transactions (this does not apply to the Company or FQM
Finance Ltd).
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The Kansanshi Facility also requires the borrower and each guarantor (and in certain
cases, the subsidiaries of the borrower or such guarantors) to observe certain
affirmative covenants, subject to certain exceptions and including, but not limited to,
covenants relating to:
• maintenance of relevant authorisations;
• compliance with laws, including environmental laws and regulations;
• payment of taxes;
• preservation of assets;
• ensuring that its obligations under the Kansanshi Facility rank at least pari passu with
the claims of other creditors;
• maintenance of the collection account;
• maintenance of off-take agreements (including between the borrower and Metal Corp
Trading AG);
• selection of acceptable off-takers and certain actions in respect of the off-take
agreements;
• maintenance of insurance; and
• provision of financial and other information to the lenders (including revised base case
models and a detailed repayment plan).
The Company and the borrower may not pay dividends or make other distributions in
respect of the share capital of the Company or the borrower if they fail to meet certain
financial covenants or there is an event of default under the Kansanshi Facility agreement
or would cease as a result of the payment.
Under the financial covenants, on 30 June and 31 December of each year, the Company
must ensure that the Consolidated Tangible Net Worth is not less than $2 billion and the
Consolidated Total Debt to Consolidated Tangible Net Worth Ratio does not exceed 175 per
cent, subject to certain exceptions. Furthermore, for any twelve month period ending on 3-
30 June and 31 December of each year, the borrower must ensure that the EBITDA to
Interest Payable Ratio does not exceed 300 per cent, that Leverage does not exceed 300
per cent and Cash Available for Debt Service to Debt Service Ratio is not less than 115 per
cent. Each of these terms are as defined in the Kansanshi Facility agreement.
Events of Default
The Kansanshi Facility sets out certain events of default, the continuing occurrence of
which would allow the Majority Lenders (as defined in the Kansanshi Facility agreement) to
accelerate all outstanding loans and cancel the lenders’ commitments and/or declare that
all or part of any utilisations and other amounts outstanding are immediately due and
payable and/or payable on demand. The events of default include, among other events
and subject in certain cases to grace periods, thresholds and other qualifications:
• non-payment of amounts due under a finance document;
• breach of financial covenants;
• inaccuracy of a representation or statement when made or deemed to be made;
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• cross defaults in relation to financial indebtedness of at least $25 million;
• insolvency and insolvency proceedings;
• creditors’ process affecting any asset or assets having an aggregate value of at least
$25 million;
• material audit qualification;
• suspension or cessation (or threatened suspension or cessation) of its business;
• invalidity or unlawfulness of the transaction documents;
• breach of any provision of, or material inaccuracy of a representation or warranty
given in, the intercreditor agreement by any party other than a finance party or an
obligor;
• commenced or threatened litigation or disputes in relation to the transaction
documents or against the borrower or Metal Corp Trading AG or their respective assets
which has or is reasonably likely to have a material adverse effect;
• material adverse change;
• governmental action that has or is reasonably likely to have a material adverse effect
on the authority or ability of the borrower to conduct its business;
• revocation, suspension or termination, or material breach by the borrower of the
terms, of the Kansanshi production license or any other authorization required by the
borrower to conduct its business; and
• conviction of a member of the group or any of its officers, directors, employees or
affiliates for an actual breach of any offence under any anti-corruption law.
The Intercreditor Agreement ("Intercreditor Agreement) establishes the relationships and
relative priorities among: (i) the lenders under the Kansanshi Facility (the "Lenders");
(ii) the Lenders or other persons that accede to the Intercreditor Agreement as
counterparties to hedging agreements (the "Hedging Agreements", and the Lenders or
their affiliates or other persons that accede to the Intercreditor Agreement as
counterparties to the Hedging Agreements are referred to in such capacity as the "Hedge
Counterparties"); (iii) the facility agent (the "Facility Agent" acting on behalf of the
Lenders, the Hedge Counterparties and the Facility Agent (collectively, the "Senior
Creditors") and (iv) intragroup creditors ("Intercompany Creditors") and debtors
("Intercompany Debtors").
Subordination
The Intercreditor Agreement provides that all liabilities ("Senior Debt") payable under the
finance documents specified in the Kansanshi Facility agreement ("Senior Finance
Documents") by any member of the Group to the Senior Creditors will rank in priority to all
liabilities payable or owing by an Intercompany Debtor to an Intercompany Creditor
("Intercompany Debt"), and that such Intercompany Debt will be postponed and
subordinated in right and priority of payment to any Senior Debt.
Permitted Payments
Prior to the date on which all the Senior Debt has been unconditionally and irrevocably
paid and discharged in full, to the satisfaction of the Facility Agent, and the Senior
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Creditors are under no further obligation to provide financial accommodation to any
member of the FQM group under any Senior Finance Document (the "Senior Debt
Discharge Date") except as otherwise provided under the Intercreditor Agreement, no
obligor may, directly or indirectly, pay or discharge, and no Intercompany Creditor may
receive and retain payment of, any amount due and payable to that Intercompany Creditor
under any document evidencing or providing for any Intercompany Debt (an
"Intercompany Loan Document"), unless the following conditions are satisfied:
(a) the payment is made in accordance with the terms of the relevant Intercompany Loan
Document;
(b) no Senior Debt is then due and unpaid; and
(c) no Event of Default (as defined in the Kansanshi Facility) is continuing or would occur
as a result of the making of the payment.
In addition, if the obligor is the borrower or the Company, the following additional
conditions must be satisfied:
(a) there is no breach of a financial covenant in the Kansanshi Facility and no breach of a
financial covenant in the Kansanshi Facility would occur as a result of the making of the
payment; and
(b) in the case of the Company only, the amount of such payment, when aggregated with
the amount of any other dividend, distribution or other payment paid or declared by the
Company, in any financial year, does not exceed 25 per cent of the consolidated net
income of the Company for the immediately preceding financial year.
Notwithstanding any other term above, an Intercompany Debtor is entitled to repay or
prepay, and the relevant Intercompany Creditor to receive and retain, any outstanding
amount of Intercompany Debt owed to that Intercompany Creditor if the payment is being
made to facilitate repayment or prepayment of Senior Debt or if approved by the Majority
Senior Creditors.
Restrictions on Enforcement
The Intercreditor Agreement provides that, until the Senior Debt Discharge Date, except as
expressly permitted by the Intercreditor Agreement or as approved by the Majority Senior
Creditors (meaning the Majority Lenders as defined under the Kansanshi Facility, as
adjusted under the Intercreditor Agreement to take into account the interests of the Hedge
Counterparties as described therein), no Intercompany Creditor may:
(a) demand payment of any Intercompany Debt;
(b) accelerate any of the Intercompany Debt if otherwise entitled to do so or otherwise
declare any Intercompany Debt prematurely due and payable;
(c) enforce any Intercompany Debt by attachment, set-off, execution or otherwise;
(d) initiate or support or take any step with a view to:
(iv) any insolvency, bankruptcy, liquidation, reorganisation, administration,
receivership, administrative receivership, moratorium, judicial composition
or dissolution proceedings or any analogous proceedings in relation to any
member of the Group (as defined therein) in any jurisdiction;
(v) any voluntary arrangement or assignment for the benefit of creditors; or
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(vi) any similar proceedings involving any member of the Group whether by
petition, convening a meeting, voting for a resolution or otherwise;
(e) bring or support any legal proceedings against any obligor (or any of such obligor’s
subsidiaries); or
(f) otherwise exercise any remedy for the recovery of any Intercompany Debt.
Undertaking Relating to Intercompany Debt
At any time after any action has been taken by the Facility Agent under the Kansanshi
Facility (i) to cancel commitments under the Kansanshi Facility, (ii) to accelerate any
amounts under the Senior Finance Documents, (iii) to exercise or direct the security agent
on behalf of the Senior Creditors (the "Security Agent") to exercise its rights under the
Senior Finance Documents, or the security created in favor of the Security Agent becomes
enforceable, each Intercompany Creditor and Intercompany Debtor must, if requested by
the Security Agent (acting on the instructions of the Majority Senior Creditors), release
and discharge any Intercompany Debt specified by the Security Agent.
Security
The Kansanshi Facility is secured by: (i) a fixed and floating charge over all the assets of
the borrower; (ii) a pledge by Kansanshi Holdings Limited of 80 per cent of the shares in
the borrower; (iii) a pledge by Black Bark Investments Limited of all the shares in
Kansanshi Holdings Limited; (iv) a pledge by FQM Finance Ltd of all the shares in Black
Bark Investments Limited; (v) an assignment of the off-take contracts relating to
Kansanshi (including between the borrower and Metal Corp Trading AG); (vi) an
assignment of receivables payable by or to (as the case may be) each of the borrower,
Kansanshi Holdings Limited and Black Bark Investments Limited to or by (as the case may
be) each member of the FQM group; (vii) a charge over each of the collection account and
the insurance account of the borrower; and (viii) an assignment of hedging agreements
9.11 ENRC Settlement Agreement
On 5 January 2012, the Company reached an agreement with Eurasian Natural Resources
Corporation plc ("ENRC") to dispose of its residual claims and assets in respect of the
Kolwezi Tailings project, and the Frontier and Lonshi mines and all their related
exploration interests, all located in the Katanga Province of the DRC, and to settle all
current legal matters relating to those interests for a total consideration of $1.25 billion,
comprised of $750 million in cash paid on 2 March 2012, and deferred consideration of
$500 million in the form of a three year promissory note with an interest coupon of 3 per
cent payable annually in arrears. The transaction was completed on 2 March 2012. In
connection with the transaction, the Company has also settled all disputes relating to the
companies being sold and their assets and operations in the DRC and each of the
Company, ENRC, the Government of the DRC, International Finance Corporation and
Industrial Development Corporation have released one another in respect of all claims and
judgments relating to the foregoing or to any other matter arising in the DRC on or before
the date of closing.
In the fourth quarter of 2013 ENRC delisted from the London Stock Exchange, triggering a
mandatory repayment of the $500 million promissory note receivable held by the
Company. The Company waived the right to demand immediate repayment of the
promissory note whilst it renegotiated the terms with ENRC. On 23 January 2014, ENRC
repaid $25.0 million of the $500.0 million promissory note and on 28 February 2014,
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ENRC paid all interest accrued at 3% on the promissory note. The remainder of the
promissory note was renegotiated with ENRC. As a result ENRC repaid an additional $10
million of principal on 18 March 2014, $35 million of principal on 20 March 2014 and its
subsidiary issued a $430 million promissory note repayable on 31 December 2015.
Interest at 5% per annum from 28 February 2014 to 31 December 2015 was paid and
prepaid on 20 March 2014.
10. DIVIDENDS AND WITHHOLDING TAX
Dividends paid or credited or deemed to be paid or credited on the Common Shares to a
Non-Resident Shareholder will be subject to a Canadian non-resident withholding tax at a
rate of 25 per cent. Such non-resident withholding tax may be reduced by virtue of the
provisions of an income tax treaty or convention between Canada and the country of
which the Non-Resident Shareholder is a resident. Under such a convention, the rate of
withholding tax in respect of dividends or deemed dividends beneficially owned by a
resident of the United Kingdom is generally reduced to 15 per cent.
Any dividends on the New Common Shares are not subject to any withholding tax in the
United Kingdom.
11. CAPITALISATION AND INDEBTEDNESS
The Company's total borrowings at 26 March 2014 (being the latest practicable date prior
to the date of this document), were $4.8 billion.
The following table sets out the indebtedness of the Group as at 31 December 2013:
Current Debt
(US$ millions)
Secured 1,046.1
Total current debt 1,046.1
Non-current Debt
Secured 420.0
Unsecured 2,607.3
Total non-current debt 3,027.3
Total indebtedness as at 31 December 2013 4,073.4
Please refer to paragraph 5 of this Part III which sets outs significant changes to the
Group that have taken place since 31 December 2013.
The following table, which has been derived from the Company's latest published financial
information, sets out the capitalisation of the Group as at 31 December 2013:
Shareholders' equity
(US$ millions)
Share capital 4,204
Non-controlling interests 1,120
Total shareholders' equity as at 31 December 2013 5,323
The following table sets out the net financial indebtedness of the Group as at 31
December 2013:
Net financial indebtedness
(US$ millions)
Liquidity
Cash and cash equivalents 694.5
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Total liquidity 694.5
Total current debt 1,046.1
Net current financial indebtedness 351.6
Non-current financial indebtedness 3,027.3
Net financial indebtedness 3,378.9
Indirect and Contingent Indebtedness
The Company had no off-balance sheet arrangements as at 26 March 2014.
12. MISCELLANEOUS
(a) Litigation
Except as provided below, there are no governmental, legal or arbitration proceedings
(including any such proceedings which are pending or threatened of which the Company is
aware) which may have, or have had during the 12 months prior to the date of this
document, a significant effect on the Company and/or the financial position or profitability
of the Group.
(i) Through the Company’s Zambian subsidiary Kansanshi Mining PLC, it is
party to a development agreement covering its Kansanshi operations (the
"Kansanshi Development Agreement") with the Government of the
Republic of Zambia ("GRZ"). This agreement provides an express right to
full and fair compensation for any loss, damages or costs (including interest)
incurred by the Company by reason of the GRZ’s failure to comply with the
tax stability guarantees set out in the Kansanshi Development Agreement,
which also provides rights of international arbitration in the event of any
dispute. The GRZ announced in January 2008 a number of proposed
changes to the tax regime in the country in relation to mining companies.
The GRZ also passed legislation unilaterally cancelling the Kansanshi
Development Agreement. The Company complied with the GRZ’s demand
and completed the payment of all back taxes, totaling $224 million, on 27
June 2011, in addition to $80 million paid in 2010, without prejudice to the
Company’s rights under the Kansanshi Development Agreement. Following
the change of the GRZ in 2011, the first budget of the new GRZ government
introduced a further increase in the mineral royalty tax from 3% to 6%,
effective April 2012, in breach of the Kansanshi Development Agreement. In
2013 the GRZ also decreased the rate of Capital Allowances from 100% per
annum to 25% per annum. The Company has continued to assert it has
rights arising from the Kansanshi Development Agreement, which rights
remain unresolved and are the subject of on-going discussions with the
GRZ. In December 2013 the Company agreed with the GRZ to defer
commencing arbitration without prejudice to its rights under the
Development Agreement. As at the date of this document, and until
resolved differently with the GRZ, the Company is recognizing and paying
taxes in excess of the Development Agreement, resulting in an effective tax
rate of approximately 43%.
(ii) In 2012, Çayeli became the subject of an audit of its 2008 to 2011 taxation
years. On 4 February 2013, Çayeli received an assessment from the Turkish
tax authorities adjusting the amount of withholding taxes to be remitted on
dividends paid by Çayeli to its direct shareholder. The shares of Çayeli are
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owned by an indirect wholly-owned Spanish subsidiary of the Company. The
Turkish tax authorities have taken the position that the Company and not
the Spanish subsidiary is the beneficial owner of the dividends. The Turkish
tax authorities are therefore taking the position that the withholding tax on
the dividends should be the 15% domestic rate and not the reduced rate of
5% under the Turkey-Spain tax treaty. The dividends paid during the period
assessed total TL 628 million. The assessed tax liability is TL 63 million
($35 million) plus interest and penalties. The Company’s view is that the
relevant facts and circumstances support the position that Çayeli fulfilled its
tax remittance obligations and Çayeli intends to vigorously dispute the
assessment.
(iii) A local non-governmental organization has initiated several legal
proceedings against regulatory authorities asserting that several approvals
relating to the lifting of the suspension on mining, approval of the Global
Plan, and a municipal approval from the Town of La Algaba for a license for
pipelines and a town planning agreement were not properly authorized. The
Company believes these proceedings are without merit. CLC has joined in
the proceedings and is active in vigorously defending against them. While
subject to customary legal uncertainties, the Company believes that all of
these proceedings will be resolved without a material impact on CLC.
Further, CLC was involved in a previous alleged planning violation relating to
certain building work and installations located on the CLC property. The
penalty proposed by the local authority was €206.966.66, and such fine was
agreed between CLC and Gerena Town Council and paid prior to the
aforementioned judicial procedure commencing. At this stage CLC is seeking
to recover the sum already paid as a fine.
Certain employees of CLC are the subject of a criminal investigation arising
from a complaint made by a local non-governmental organization to the
local public prosecutor. The complaint concerns the placement of certain
wells in the open pit immediately prior to the suspension of the DRS permit
that were intended to facilitate water management. The complaint alleges
that the operation of the wells in question resulted in environmental
damage, which is unequivocally being denied. CLC and its employees
cooperated fully with the investigating judge, however, the outcome of the
investigation was the proposal by the investigator of a judicial summary
procedure hearing to be held and led by the local public prosecutor, this
proposal was then ratified by the Superior Court. At the date of this
document CLC is awaiting notice of the dates of the summary procedure
hearing. CLC is currently preparing its defence.
(iv) Two proceedings have been brought in the Supreme Court of Panama
against governmental authorities claiming that Law 9 violates the
Constitution of Panama. In one of the proceedings, the claimant alleges
that Law 9 did not fulfill mandatory legal requirements at the time of its
enactment in 1997 and would also cause harm to the environment and the
health of citizens of Panama. In 2011, the Attorney General of Panama
(Procuradora General de la Nación), issued her formal opinion that Law 9
was constitutional. The Panamanian Supreme Court heard the case in 2013
and has now withdrawn to consider its verdict, however, as at the date of
this document, the Supreme Court has not set a date by which it will deliver
its verdict. In the other proceeding, the claimant alleges that Law 9 is
unconstitutional because it violates the economic national interest and would
cause harm to the environment. MPSA has intervened in both proceedings
and it is believed that the claims are without merit.
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(v) Cobre Panama is in dispute with a third party which has made a "without
prejudice" demand of approximately $80.0 million for amounts claimed to be
owing following termination of their contract in the second half of 2013. The
parties are in discussions regarding potential resolution of the dispute and
have agreed to mediate later in 2014 (date to be determined). If the case
does not resolve at mediation, and a claim is commenced, the contract
requires arbitration in accordance with the International Arbitration Rules of
the International Chamber of Commerce in Toronto, Canada.
(b) The Company's worldwide paying agent for the Common Shares is Computershare
Investor Services Inc. and its address is 3rd Floor, 510 Burrard Street, Vancouver,
BC Canada, VEC 339.
(c) The Company is in compliance with the applicable corporate governance
requirements of British Columbia and Canada and complied with such standards
during the financial year ended 31 December 2013.
(d) The ISIN for the Common Shares is CA3359341052.
(e) No specific arrangements apply to the transfer of the New Common Shares which
are, therefore, freely transferable. The entity in charge of keeping the records is
Computershare Investor Services and its address is 3rd Floor, 510 Burrard Street,
Vancouver, BC Canada, VEC 339.
(f) The New Common Shares were issued in accordance with the Business
Corporations Act (British Columbia).
(g) The Common Shares are in registered form.
(h) None of the persons involved in the issue of the New Common Shares has any
interest (including any conflicting interest) which is material to such issue.
(i) The New Common Shares were issued as consideration to shareholders of Inmet
upon acquisition of Inmet's share capital, as such no expenses will be charged to
Shareholders in connection with Admission..
(j) The amount and percentage of immediate dilution as a result of the issue of the
New Common Shares was (immediately following the issue of all such New
Common Shares) 24 per cent.
(k) The Directors are not aware of any arrangement, the operation of which may at a
subsequent date result in a change of control of the Company.
(l) The Company's subsidiary MPSA, as part of its obligations under the MPSA
Shareholders' Agreement, entered into loan agreements with KPMC who own a 20
per cent interest in MPSA and is therefore a related party. The balance of this debt
as at 31 December 2013 was $95,100,000. Interest is due semi-annually at a rate
of 9 per cent.
Other than described above, there have been no related party transactions
between the Company and members of the Group that were entered into during
the financial years ended 31 December 2011, 2012 or 2013 or during the period 1
January 2014 and the date of this prospectus.
(m) PricewaterhouseCoopers LLP has given and has not withdrawn its written consent
to the inclusion in this document of its report on the pro forma financial information
of the Company (as reproduced in Part II (Unaudited Pro Forma Income
Statement) of this document) in the form and context in which it is included and
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has authorised the contents of that part of this document which comprises its
report solely for the purposes of section 5.5.3R(2)(f) of the Prospectus Rules.
(n) Certain information has been obtained from external publications and/or third
parties and is sourced in this document where the information is included. The
Company confirms that this information has been accurately reproduced and, so far
as the Company is aware and is able to ascertain from information published by
third parties, no facts have been omitted that would render the reproduced
information inaccurate or misleading. Unless otherwise stated, such information
has not been audited.
13. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection during normal business
hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period of
14 days from the date of publication of this document at the offices of Ashurst LLP at
Broadwalk House, 5 Appold Street, London EC2A 2HA, United Kingdom:
(a) the Articles;
(b) the First Quantum 2011 Annual Report;
(c) the First Quantum 2012 Annual Report;
(d) the First Quantum 2013 Financial Statements; and
(e) this document.
Dated: 27 March 2014
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PART III
Information on Inmet
Corporate Overview
Inmet was continued under the CBCA on 1 June 1987, as Metall Mining Corporation. On 1 January
1988, Inmet amalgamated with two wholly-owned subsidiaries, followed by a second
amalgamation with a wholly-owned subsidiary on 31 December 1990. On 4 May, 1995, Inmet
changed its name to Inmet Mining Corporation. Inmet amalgamated again with one of its wholly-
owned subsidiaries on 1 January 1999, and 14 February 2011, respectively. Following the
Acquisition, Inmet became a wholly-owned subsidiary of the Company and was amalgamated in to
FQM (Akubra) Inc.
Information on Inmet's mining properties/assets
1. ÇAYELI
Property and ownership interest
The Çayeli mine is operated by Çayeli Bakir Isletmeleri A.S., an indirectly wholly owned
subsidiary of the Company that is incorporated under the laws of the Republic of Turkey.
The Company acquired it interest in Çayeli in 2013 as part of its acquisition of Inmet.
Eti Holding A.S. ("Eti"), which is wholly-owned by the Government of Turkey, holds the
operating license for the property and has leased it to Çayeli. The lease expires on 29 July
2044. Eti is entitled to a royalty based on 7 per cent of Çayeli’s net income.
The Çayeli surface footprint is small, consisting of mine infrastructure, processing
facilities, administrative offices, warehouse facilities and yards within the floodplain of the
Buyuk River. There are three small rock storage facilities that store waste rock from the
underground mine.
Location, access and infrastructure
The Çayeli mine is located in the province of Rize near the Black Sea coast in northeastern
Turkey. The plant site is about 100 meters above sea level, on the western flood plain of
the Büyükdere River, and it sits directly across from the town of Madenli, about seven
kilometers from the Black Sea coast. The town of Çayeli is located where the Büyükdere
River enters the Black Sea, about 18 kilometers east of the city of Rize. The surface
projection of the ore body covers an area of approximately 203 hectares. The mine
accesses electrical power from the national grid and draws water for processing from a
series of ground water wells and the adjacent Büayük Menderes River. Copper and zinc
concentrates are transported from the site in covered trucks to the Black Sea port at Rize.
Mining and Processing
Çayeli’s mine design is based on underground bulk mining methods with the use of
delayed backfill to extract ore in a sequential manner. The primary mining methods are
retreat transverse and longitudinal long hole stoping with pastefill and loose or
consolidated waste rock backfill. The stopes are mined in primary, secondary and tertiary
sequencing.
Ore processing includes three stages of crushing, primary and secondary ball mill
grinding, conventional flotation, using either standard cells or column cells and water
removal by thickening and pressure filtering to produce copper and zinc concentrates. The
copper and zinc concentrates are transported 18 kilometers from the site in covered
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trucks to the Black Sea port at Rize and are then shipped to smelters and traders around
the world. An evaluation of all remaining resources at Çayeli is being carried out, which
the Company believes may extend the estimated mine life by up to two years.
Permits
Çayeli holds all necessary permits required to carry out its operations and operated in
material compliance in 2012 and 2013 and there has been no material change in relation
to those permits since 31 December 2013.
Mine life
As of 31 December 2013, Çayeli had an expected mine life of five years. An evaluation of
all remaining resources at Çayeli is being carried out, which the Company expects will
extend the estimated mine life by up to two years.
Taxes and Royalties
Çayeli pays tax on income at a rate of 24 per cent. Eti is entitled to a royalty based on 7
per cent of Çayeli’s net income.
Environmental
There is no tailings management facility at Çayeli. Process plant tailings are disposed at a
depth of 275 meters in the Black Sea (Deep Sea Tailings Placement, or "DSTP") in
compliance with accepted practice. At this depth in the Black Sea, the water is naturally
rich in hydrogen sulphide and low in dissolved oxygen, which is an environment that does
not support marine life. The terrain and climate of the area does not support construction
of a tailings storage facility, and as a result, DSTP is the preferred tailings disposal
method. Turkey is currently developing Mine Waste Regulations to align with European
Union standards, and we are working with the regulators toward the continued acceptance
of DSTP within these regulations. We do not anticipate any challenge to DSTP given the
long standing acceptance of this practice, our strong long term environmental
performance, the evidence indicating no change in water quality, and Çayeli’s robust
monitoring program.
Çayeli pumps ground water from a local aquifer. The aquifer has historically shown signs
of drawdown caused by a number of local and regional factors, and this has periodically
affected the ability to pump sufficient water to satisfy operational needs. Çayeli has
secured other surface water rights to help offset future ground water limitations.
When the mine is closed, Çayeli’s infrastructure will be dismantled and any remaining
waste rock will be placed underground in the mine when the facility is decommissioned in
2019. If such material is left on surface post closure there is a risk that it could generate
acid drainage, which could increase closure and post closure costs.
Any contaminated materials will be disposed of in accordance with Turkish law, and the
site will be re vegetated. The underground mine workings will be allowed to flood once the
facility is decommissioned in 2019. There is a risk that ground water traveling through the
Çayeli underground workings could become contaminated with metals and other
constituents over time, which could necessitate treatment of ground water, increasing
closure and post closure costs.
Çayeli operates under Turkish environmental laws and regulations, many of which have
been modified over the past several years to incorporate aspects of European Union
directives. The provision of financial assurance for closure obligations is not required
under Turkish law.
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2. LAS CRUCES
Property Ownership and Interest
On 22 August 2005, Inmet acquired a 70 per cent indirect interest in CLC, the owner and
operator of Las Cruces, from MK Resources Company ("MK Resources"). Leucadia,
through MK Resources, retained the other 30 per cent interest in CLC until 15 December
2010, when it was purchased by Inmet to bring its ownership to a 100 per cent indirect
interest. Las Cruces is owned and operated by CLC, which has been granted mining rights
for subsurface minerals through Mining Concession No. 7532 (the "Mining Concession").
The Mining Concession was granted by the Regional Ministry for Employment and
Technological Development of the Province of Andalucía in August 2003, after a positive
Declaration of Environmental Impact was issued by the Andalucian Regional Ministry of
the Environment in May 2002. The Company acquired Las Cruces in 2013 as part of its
acquisition of Inmet.
Location, Access and Infrastructure
Las Cruces is located in southern Spain, approximately 20 kilometers northwest of the city
of Seville in the autonomous region known as Andalucía. The regional climate is
characterized as Mediterranean, and the topography is one of gently rolling hills.
The location of the property provides access to all necessary infrastructure including well
maintained, paved roads, rail service in Seville, Seville’s international airport, with
connections throughout Europe and port facilities in Huelva, approximately 80 kilometers
to the southwest.
Power for Las Cruces is provided by the Spanish national grid. Water for plant operations
comes from both contact water extracted from the pit and from the San Jeronimo
municipal water treatment facility.
Mining and Processing
Las Cruces uses conventional open pit mining methods, based upon hydraulic shovels and
trucks, with drilling and blasting in the lower marls and ore zones. The project has a
relatively high stripping ratio supported by the high grade ore. Las Cruces uses contract
miners for all mine production.
Ore at Las Cruces is mined from an open pit excavated into marl. Overall pit slopes are
shallow (28 degrees), but there is a risk that pit slope instability could develop, which
could have a material impact on Las Cruces’ ability to access the bottom of the pit to mine
ore.
The metallurgical plant relies on an atmospheric leaching process to recover copper from
the rich Las Cruces chalcocite ore. A unique feature of the plant is the use of eight
agitated reactors to dissolve the copper under conditions of high temperature and high
acidity. Oxygen is also added into the reactors to complete the reaction. The feed to the
leaching reactors is mine ore that has passed through three stages of crushing and a
single stage of grinding.
Once leached, the liquid is separated from the ground solids to become the feed for the
solvent extraction area. In the solvent extraction area, the copper is passed to an organic
solution and then to the electrolyte that feeds the electrowinning cells. The electrowinning
cells produce LME grade copper cathodes weighing approximately 50 kilograms each. An
automated crane and stripping machine then harvests and packages the cathodes for
shipment.
Permits
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Las Cruces holds all necessary permits required to carry out its operations and operated in
material compliance in 2012 and 2013 and there has been no material change in relation
to those permits since 31 December 2013.
Las Cruces’ license, however, contains constituents for which the purification system was
not designed and which are present in background levels contained in ground water in the
area. Moreover, certain of these constituents are either not included in the Spanish human
health based drinking water quality regulations or are more stringent than the drinking
water quality limits. As a result, Las Cruces does not currently comply with all aspects of
its license and has been subject to a number of administrative proceedings relating to
exceeding the discharge limit values for boron, chlorine and fluorine. Las Cruces is
working with the regulatory agencies to modify its license so that it addresses the
constituents for which the purification system was designed to address. The non-
compliance is strictly administrative in nature, and, since the overall quality of the ground
water is being improved, there is no adverse environmental impact. Las Cruces has taken
and will continue to take all necessary actions to comply with applicable requirements. It
is likely that water management will remain an operational challenge at Las Cruces for the
foreseeable future.
Mine Life
As of 31 December 2013, Las Cruces had an estimated mine life of nine years.
Taxes and royalties
Tax is paid on income at a rate of 30 per cent. The project is subject to a royalty of 1.5
per cent of sales if the copper price is greater than or equal to $0.80/lb.
Environmental
At Las Cruces, the main environmental focus is compliance with the commitments
contained in its various licenses, in particular water management and water purification.
The Las Cruces ore body lies below the regional Niebla-Posadas aquifer. The Company
ensures that all the water that comes into contact with mine materials meets stringent
emission limit values prior to discharge; much of this water is recycled for dust
suppression around the mine area or reused in the hydrometallurgical process. The
ground water contains low concentrations of naturally-occurring metals and other
constituents. The Company has committed to removing these constituents, as necessary,
so that the extracted ground water meets Spanish human health-based drinking water
quality standards.
The region of southern Spain where Las Cruces is located is subject to intense, short
rainfall events that can result in pit flooding and accidental release of water from surface
storage facilities. There is a risk that such events could lead to a temporary cessation of
operations that could impact Las Cruces’ ability to meet its copper production targets.
The tailings storage facility ("TSF") and waste rock storage facility are engineered
structures constructed from compacted marl (a fine-grained marine sediment containing
abundant calcium carbonate) and a high density polyethylene liner. These facilities receive
dewatered leach residue from the operation for permanent storage. In July 2008, an
unanticipated ground movement impacted the TSF. After a thorough investigation, Inmet
changed the design of all structures on the property that have been constructed from marl
to mitigate the potential for the occurrence of a similar event.
3. PYHÄSALMI
Property and Ownership Interest
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The Company acquired Pyhäsalmi in 2013 as part of its acquisition of Inmet. Pyhäsalmi
Mine Oy is an indirect wholly owned subsidiary of the Company incorporated under the
laws of Finland. Its main asset is the Pyhäsalmi copper and zinc mine.
Pyhäsalmi’s mining concession consists of two leases; a mining lease of 59.2 hectares,
covering all the surface expression of the ore body and the mine itself and an auxiliary
lease of 352.4 hectares, covering all other areas used for mining purposes.
Location, Access and Infrastructure
The Pyhäsalmi mine is located in central Finland, four kilometers southeast of the town of
Pyhäjärvi, on Lake Pyhäjärvi. It is within a two hour drive from the cities of Oulu,
Jyväskylä and Kuopio, and their airports. A rail spur joins the mine to the national
network. The rail spur also joins the mine to the port of Kokkola, 170 kilometers to the
west on the Gulf of Bothnia. The mine accesses electrical power through two 110 kV
national grid lines and draws its fresh water requirements from Lake Pyhäjärvi.
Mining and Processing
Pyhäsalmi uses non entry, bulk open stope mining methods in a primary secondary
sequence. On average, stope size varies from 50,000 tonnes for narrow primary stopes to
over 100,000 tonnes for wider secondary stopes.
Milling includes crushing, 3 stage grinding, conventional flotation using three separate
circuits, and water removal to produce copper, zinc and pyrite concentrates.
When the mine is decommissioned, the main activity will be rehabilitating the surface
area. This includes dismantling infrastructure no longer required, covering and
re-vegetating the tailings impoundments. Acid drainage has developed in a
decommissioned portion of the tailings management facility and this is managed
effectively during operations. The need for long-term water treatment will be evaluated as
the mine approaches closure.
Environmental
Pyhäsalmi has an strong environmental operating record, and internal standards have
evolved to adhere to increasingly stringent regulatory requirements in Finland, and
globally. Much of the environmental focus at the mine revolves around the quality of
water discharge and the quantity of fresh water used in processing. Pyhäsalmi continued
to focus on water conservation efforts by completing a water management study to
identify ways to further reduce fresh water requirements and to increase water recycling.
Pyhäsalmi discharges treated water into Lake Pyhäjärvi. The water contains elevated
concentrations of dissolved solids, which creates some stratification in the lake. At certain
times of the year, thermal instability within the lake results in mixing of the layers, and
there have been rare impacts to fish populations during such events. The southern part of
Lake Pyhäjärvi is protected by the Natura 2000 European Union conservation network.
Although Pyhäsalmi’s discharge enters the lake well north of the protected area and the
lake does not contain any endangered species, the Pyhäsalmi is supporting the town and
the local fishing association by working with them to protect and improve fish habitat in
the lake. Pyhäsalmi actively monitors metal concentrations in its effluent and in the lake.
Pyhäsalmi received its environmental permit in the fourth quarter of 2007. This permit
reflects the European Union Integrated Pollution Prevention and Control environmental
regulatory framework that has been incorporated into Finnish environmental legislation.
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4. COBRE PANAMA
Property and Ownership Interest
The Company currently has an indirect 80 per cent equity interest in MPSA, the
Panamanian corporation that holds the concession for Cobre Panama, with KPMC holding
the remaining 20 per cent equity interest. MPSA was incorporated in June 1995 under the
laws of the Republic of Panama. The Company acquired its interest in Cobre Panama in
March 2013 as part of its acquisition of Inmet.
Location, Access and Infrastructure
The Cobre Panama concession is 120 kilometers west of Panama City and 20 kilometers
from the Caribbean Sea coast, in the District of Donoso, Colon Province. It includes four
zones and 13,600 hectares. There is no industrial development in the area of the
concession and the region is sparsely populated. The primary occupation of the local
residents is subsistence farming. The nearest community, the village of Coclecito
(population 900), is 12 kilometers southeast of the proposed plant site. The city of
Penonomé, which has a population of 25,000, is 49 kilometers southeast of Coclecito.
Access to the south end of the concession area is via the Pan American Highway system
that runs parallel to the Pacific coast from Panama City to Penonomé, surfaced all weather
roads to La Pintada, and gravel roads via the town of Coclecito into the concession. From
that point, the rest of the Cobre Panama property is currently accessible only by
helicopter.
The topography in the concession area is rugged with considerable local relief covered by
dense forest. The area to the north is a lowland with minimal relief extending to the
Caribbean coast.
The project has two main development areas: a mine and plant site within the concession
boundaries, and a port and power station site at Punta Rincon, about 25 kilometers north
of the plant site on the Caribbean coast.
Mining, Processing and Capital Cost
Cobre Panama will be developed as a conventional truck and shovel open pit mine with a
concentrator that uses proven technology (e.g. crushing, grinding, flotation) to produce
copper gold and molybdenum concentrate, a 300 megawatt coal fired power plant and
ship loading port facilities.
The copper concentrates will be pumped as slurry through a pipeline to a new port site on
the Caribbean coast for filtration, storage and loading onto ocean going vessels for
shipment to market destinations. Molybdenum concentrates will be dewatered at the mine
site and bagged for truck delivery to the port site. Tailings from the flotation process will
be stored under water in a storage facility to be constructed.
Both the mine and plant site and port site operations will be supported by equipment
maintenance shops, warehouses, container storage areas, administration and security
facilities, potable water supply, sewage treatment plants and concrete batch plants for use
during both construction and operations. A new access road will be constructed between
the mine and plant site and the port. Three pipelines will be buried next to the road, one
for pumping the copper concentrate to the port site, one for diesel fuel delivery to the
mine and the third for returning filtrate water from the dewatered concentrate back to the
tailings management facility at the mine/plant site. New access roads and improvements
to the existing access roads from Penonome through La Pintada and Coclecito to the site
will be constructed to permit safe access to the mine and plant site from the Pan American
Highway via the existing road from Penomone. A permanent camp will be established at
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the mine and plant site for personnel working in both operating areas. All facilities would
operate continuously 24 hours per day, 365 days a year.
On 28 December 2011, ANAM approved the ESIA, including the mining operations and
related infrastructure, a port facility and a coal fired power plant. With basic engineering
complete, all required permits and land usage rights for construction at the mine and port
site in place Inmet’s board of directors approved a financing plan and full notice to
proceed with Cobre Panama in May 2012.
Since the acquisition in March 2013, prime focus of Cobre Panama has been to critically
review and stabilize all activities and focus on the key elements of the project
development, the construction and contracting plan, and implementation of practical site
infrastructure. Since that time, the project has transformed from an out sourced approach
to a complete in house, self-perform arrangement where third party engineers and
contractors are now utilized only for identified specific tasks, and work within the
Company’s preferred project execution model. The earthworks have been the subject of
critical review, as has the methodology of subsequent excavation and construction.
Significant quantities of on-site equipment have been purchased by the Company from
contractors whose contracts have been either cancelled or modified. This enables the
Company to fully control all site development activities which provides for greater
flexibility and significantly reduced risk. Site accommodation, road access,
communications and management are now all fully functional, allowing the major
activities to advance efficiently. The locations of key site infrastructure including the
processing facilities have been reviewed and an alternate, more practical plant site has
been selected which should be more cost effective to construct and allow for better access
to the proposed in pit crushing and conveyor systems for life of mine pits, and to the main
access road.
Permits
MPSA was granted the mineral concession to explore and exploit the property under Law
9. Law 9 has an initial twenty year term ending in 2017 and provisions for two
consecutive twenty year extensions. Being a contract law, Law 9 requires the consent of
both parties to effect any changes. Renewals are standard.
Under Law 9, MPSA has the rights to explore for, extract, exploit, beneficiate, process,
refine, transport, sell and market the gold, copper and other mining deposits on the
concession Law 9 also grants to MPSA rights of way on state owned lands and easements
to use surface lands on concessions adjacent to the Law 9 concession, and the right to
build, maintain and use on such lands and easements for use to build, install, maintain
and use facilities and installations that MPSA deems convenient for the development of
Cobre Panama.
Law 11 of 2012 established a ban on mining activities within the Ngäbe Buglé indigenous
zone. In addition Law 13 of 2012 reintroduced certain provisions of the Mining Code of
2012 and amended others.
Cobre Panama holds all necessary permits required to carry out its operations and there
has been no material change in relation to those permits since September 30, 2013.
Mine Life
As of 31 December 2013, Cobre Panama had an estimated mine life of 37 years.
Taxes and Royalties
Law 9 provided for 2 per cent royalty on all mineral classes, except for class III which
pays a 4 per cent royalty to the Government of Panama.
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Environmental
Cobre Panama is located in a dense tropical rainforest, part of the Mesoamerican
Biological Corridor ("MBC"), a linear zone of high biodiversity value that extends from
southern Mexico to Colombia. The MBC is a sustainable development model for
Mesoamerica that unites the goals of conservation with sustainable development
initiatives of local peoples throughout the region from southern Mexico to Colombia.
Unsustainable slash and burn agricultural practices have damaged and are currently
impacting the MBC ecosystem. It is estimated that between 10,000 and 40,000 hectares
of primary forest are impacted annually in Panama by these practices.
The Panamanian government established the nearby Donoso Multiple Use Area ("DMUA")
in 2009 as a mixed use protected area that explicitly recognizes the presence of the Cobre
Panama mining concession. MPSA and other affected parties were not consulted prior to
creation of the DMUA, and MPSA contested its establishment on the basis that required
consultative administrative procedures were not followed by the relevant authority. The
establishment of the DMUA is suspended pending resolution of this case. MPSA contested
the DMUA to protect its constitutional right to due process and not because it objects to
the objectives behind the establishment of the DMUA. On 27 December 2011, the
Panamanian Supreme Court of Justice issued a decision which maintained the DMUA but
established that the DMUA does not affect the existing mining rights of MPSA. MPSA
submitted a Request of Clarification on 6 January 2012, to contest the legitimacy of the
DMUA. The DMUA remains suspended until the Panamanian Supreme Court responds to
the Request of Clarification. However, MPSA is creating its own biodiversity action plan,
and the creation of a multiple-use protected area in the project area is a fundamental
component of its plan. MPSA is also working with the ANAM and other stakeholders to
create a management plan for the area as part of its offsets and landscape-scale
biodiversity strategy in the context of Cobre Panama.
The Company has committed to meeting or exceeding the requirements of the
International Finance Corporation Performance Standards on Social and Environmental
Sustainability, and it has incorporated these into the Environmental and Social Impact
Assessment for the project. Inmet submitted the ESIA to ANAM in September 2010, which
ANAM approved on 28 December 2011. The ESIA describes the environmental and social
context of the project, the expected impact from project development and the steps
Inmet will take to mitigate them and deliver a net benefit collectively to the local
communities, to the environment and to Panama as a whole.
There are 22 communities in the region of the project that the Company considers to be
"project affected". All of these are relatively small villages and many are situated along
the access road leading north from La Pintada. There are several small communities of
indigenous Ngöobe Bugle people who have migrated into the project area over the past
decade from the semi-autonomous indigenous Comarcas. The project will directly impact
approximately 65 local families of latino and indigenous people. The indigenous people are
predominantly located in two small settlements. The Company is applying international
best practice in the resettlement of these people.
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5. SUMMARY OF MINERAL RESERVE AND RESOURCES ESTIMATES
Summary of mineral resources at 31 December 2013 (all grades are in-situ)
Mine/Project Classification Resource
Cut-off
Tonnes
Mt
Cu
Grade
%
Au
Grade
g/tonne
Ni
Grade
%
Contained metal
in-situ
Cu Nt
Au
Moz
Ni
Mt
Çayeli Measured/Indicated $59.0/t
(NSR) 5.1 2.94 0.56 - 0.15 0.09 -
Inferred $59.0/t
(NSR) - - - - - - -
Cobre
Panama
Measured/Indicated 0.11%
TCu 3271.0 0.36 0.06 - 11.78 6.31 -
Inferred 0.11%
TCu 3194.0 0.24 0.04 - 7.67 4.11 -
Las Cruces Measured/Indicated 1.0% TCu 1.8 1.29 2.53 - 0.02 0.15 -
Inferred 1.0% TCu 39.9 1.05 2.61 - 0.42 3.35 -
Pyhäsalmi Measured/Indicated E31.8/t
(NSR) 7.2 0.60 0.40 - 0.04 0.09 -
Inferred E31.8/t
(NSR)
Summary of mineral reserves at 31 December 2013 (all grades are diluted in-
situ)
Mine/Project Classification Reserve
Metal Price
Tonnes
Mt
Cu
Grande
%
Au
grande
g/tonne
Ni
grande
%
Contained metal
in-situ
Cu
Nt
Au
Moz
Ni
Mt
Çayeli Proved/Probable $2.75/lb
Cu 7.4 2.72 0.33 - 0.20 0.08 -
Cobre Panama Proved/Probable $2.00/lb
Cu 2142.6 0.41 0.07 - 8.78 4.82 -
Las Cruces Proved/Probable $2.75/lb
Cu 13.1 5.28 - - 0.69 - -
Pyhäsalmi Proved/Probable $3.15/lb
Cu 7.4 1.05 0.40 - 0.08 0.10 -
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SCHEDULE 1
The following information and disclosures are drawn from the Company's Management
Discussion and Analysis for the year ended 31 December 2013. This schedule 1 should be
read in conjunction with the First Quantum 2013 Financial Statements (which are
incorporated by reference into this document).
OPERATING AND FINANCIAL REVIEW
1. SUMMARIZED OPERATING AND FINANCIAL RESULTS1
(USD millions unless otherwise noted)
Q4 2013 Q3 2013 Q4 2012 2013 2012
Copper production (tonnes) 114,791 114,488 84,918 412,281 307,115
Copper sales (tonnes) 95,598 105,859 77,570 386,057 295,466
Cash cost of copper production (C1)2 (per lb)
$1.23 $1.16 $1.42 $1.30 $1.49
Realized copper price (per lb) $3.26 $3.10 $3.46 $3.22 $3.51
Nickel production (contained tonnes) 12,634 12,485 10,096 47,066 36,759
Nickel sales (contained tonnes) 13,795 12,335 8,081 49,105 30,379
Cash cost of nickel production (C1)2 (per lb)
$4.51 $4.90 $6.12 $5.02 $5.92
Realized nickel price (per payable lb) $6.37 $6.45 $7.74 $6.82 $7.96
Gold production (ounces) 63,199 65,368 64,383 248,078 201,942
Gold sales (ounces) 50,399 60,391 61,350 228,962 202,303
Sales revenues 897.0 885.4 774.6 3,552.9 2,950.4
Gross profit before Inmet acquisition
accounting adjustments3
350.3 335.5 295.0 1,272.3 1,101.0
Gross profit 319.4 303.1 295.0 1,133.8 1,101.0
EBITDA2 364.2 393.1 309.7 1,351.9 2,361.2
Net earnings attributable to shareholders of the Company4
131.3 143.0 186.7 458.6 1,772.9
Earnings per share $0.22 $0.24 $0.39 $0.82 $3.74
Diluted earnings per share $0.22 $0.24 $0.39 $0.81 $3.72
Comparative earnings4 133.8 143.6 186.7 539.4 555.0
Comparative earnings per share4 $0.23 $0.24 $0.39 $0.96 $1.17
1 Results of operations and financial results for the year ended December 31, 2013 in this section include the results of the Çayeli mine (100%), the Las Cruces mine (100%), and the Pyhäsalmi mine (100%) from March 22, 2013, the date of acquisition. The operational review section following also includes historical results for the full twelve months for the acquired operations
without adjustment for acquisition accounting.
2 Cash costs (C1) and earnings before interest, tax, depreciation and amortization (“EBITDA”) are not recognized under IFRS. See “Regulatory Disclosures” for further information.
3 Gross profit before Inmet acquisition accounting adjustments is not recognized under IFRS. A reconciliation to gross profit is provided on page 3 of the MD&A.
4 Earnings attributable to shareholders of the Company have been adjusted to remove the effect of unusual items to arrive at comparative earnings. Comparative earnings and comparative earnings per share are not measures recognized under IFRS and do not have a standardized meaning
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prescribed by IFRS. The Company has disclosed these measures to assist with the understanding of results and to provide further financial information about the results to investors. See
“Regulatory Disclosures” for a reconciliation of comparative earnings.
1.1 Full year highlights
Net earnings and earnings per share reconciliation
(USD millions unless otherwise noted)
Year ended December 31, 2013
Pre- acquisition operations1
Acquired operations2
Acquisition accounting
(recurring)3
Acquisition accounting
(non-recurring)4
Total group
Net earnings attributable to shareholders of the Company
359.4 201.4 (69.0) (33.2) 458.6
Comparative earnings 379.9 228.5 (69.0) 0.0 539.4
Earnings per share 0.64 0.36 (0.12) (0.06) 0.82
Comparative earnings per share 0.68 0.41 (0.13) 0.00 0.96 1 Pre-acquisition operations include Kansanshi, Guelb Moghrein, Ravensthorpe and Kevitsa. 2 Acquired operations include Las Cruces, Çayeli and Pyhäsalmi. 3 The recurring acquisition accounting adjustment is the unwinding to earnings of the uplift to fair value from book values, as at the date of acquisition, of acquired mineral property, plant and equipment. This adjustment will continue on a systematic basis over the remaining lives of the mines. The adjustment of $69.0 million is net of tax of $24.7 million. The adjustment before tax is $93.7 million. 4 The non-recurring acquisition accounting adjustment is the sale of inventory fair valued on the balance sheet of the acquired operations at date of acquisition. This adjustment is non-recurring
with substantially all the inventory being sold in 2013. The adjustment of $33.2 million is net of tax of $11.6 million. The adjustment before tax is $44.8 million. 2. PRODUCTION
2.1 Copper production 34% higher reflecting record production at Kansanshi and the
contribution from the acquired operations
Copper production of 412,281 tonnes in 2013 increased by 105,166 tonnes over 2012,
reflecting a contribution of 88,811 tonnes from Las Cruces, Çayeli and Pyhäsalmi, the
three operating mines acquired (together the “acquired operations”) through First
Quantum’s acquisition of Inmet Mining Corporation (“Inmet”) in March 2013, record
production at Kansanshi and Guelb Moghrein and a full year contribution from Kevitsa.
2.2 Nickel production increased 28% after record production from Ravensthorpe
Nickel production of 47,066 tonnes in 2013 increased by 10,307 tonnes over 2012,
attributable to record production at Ravensthorpe, reflecting higher grades and
throughput than 2012, and a first full year of production at Kevitsa.
2.3 Gold production increased 23% from higher production at Kansanshi and Kevitsa
Gold production increased to 248,078 ounces in the year from a 23% higher gold
production at Kansanshi due to gold circuit enhancements and reprocessing of gold in
tailings and a full year of production at Kevitsa, offset by lower production at Guelb
Moghrein.
2.4 Significantly higher sales volumes in all major commodities
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Overall increase of 31% to 386,057 tonnes of copper, although constrained smelting
capacity in Zambia impacted Kansanshi’s sales volumes of copper concentrate and gold in
concentrate.
2.5 Sales revenues rose 20% despite lower metal prices
Sales revenues rose to $3,552.9 million and included $690.8 million contributed by the
acquired operations and $197.6 million from the first full year of commercial operations at
Kevitsa, which outweighed the impact of lower year-on-year average LME cash prices for
copper and nickel of 8% and 14%, respectively.
2.6 Copper production cash costs lowered by 13%
Average copper production cash cost of $1.30 per lb was lower than $1.49 per lb in 2012.
This reflected the addition of the acquired operations in 2013, lower mining and
processing costs and an increased gold credit at Kansanshi, partially offset by a higher
unit cash cost at Guelb Moghrein.
2.7 Gross profit before acquisition accounting adjustments 16% higher than 2012
Reconciliation of gross profit in 2012 to gross profit in 2013:
(USD millions unless otherwise noted)
Gross profit in 2012 $1,101
Lower realized metal prices (313)
Higher sales volumes 143
Increase in depreciation at pre-acquisition operations (65)
Decrease in costs excluding depreciation at pre-acquisition operations 92
Gross profit contribution from acquired operations 314
Gross profit before Inmet acquisition accounting adjustments 1,272
Acquisition accounting adjustments:
Recurring: depreciation of acquired property, plant and equipment1
Non-recurring: sale of inventory at acquired operations2
(93)
(45)
Gross profit in 2013 $1,134 1 The recurring acquisition accounting adjustment is the unwinding to earnings of the uplift to fair value from book values, as at the date of acquisition, of acquired mineral property, plant and
equipment. This adjustment will continue on a systematic basis over the remaining lives of the mines. The adjustment before tax is $93.7 million. The adjustment net of tax is $69.0 million. 2 The non-recurring acquisition accounting adjustment is the sale of inventory fair valued on the balance sheet of the acquired operations at date of acquisition. The adjustment before tax is $44.8 million. The adjustment net of tax is $33.2 million.
Gross profit is reconciled to EBITDA by including: exploration costs of $51.6 million,
general, administrative and other costs of $187.4 million, and adding back depreciation of
$457.1 million.
3. FOURTH QUARTER HIGHLIGHTS
3.1 Production
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Copper production 35% higher after record production at Kansanshi and the
contribution from the acquired operations
Copper production of 114,791 increased by 29,873 tonnes over 2012, reflecting a
contribution of 29,306 tonnes from the acquired operations and record quarter production
of 72,602 at Kansanshi.
Nickel production increased 25% after record production from Ravensthorpe
Nickel production of 12,634 tonnes increased by 2,538 tonnes over Q4 2012, attributable
to record production of 10,244 tonnes at Ravensthorpe and a contribution of 2,390 tonnes
from Kevitsa.
Gold production decreased 2% from lower production at Kansanshi and Guelb
Moghrein
Gold production of 63,199 ounces in the quarter was impacted by lower gold production at
Kansanshi and Guelb Moghrein, offset in part by increased production at Kevitsa.
Significantly higher sales volumes
Overall increase of 23% to 95,598 tonnes of copper over Q4 2012, although constrained
smelting capacity in Zambia did continue to impact Kansanshi’s sales volumes of copper
concentrate and gold in concentrate with reductions of 16% and 3%, respectively,
compared to Q4 2012.
Sales revenues rose 16% despite lower metal prices
Sales revenues rose to $897.0 million and included $234.2 million contributed by the
acquired operations, which outweighed the impact of lower year-on-year average LME
cash prices for copper and nickel of 10% and 19%, respectively, and lower copper sales
from Kansanshi.
Copper production cash costs lowered by 13%
Average copper production cash cost of $1.23 per lb was lower than the $1.42 per lb of
Q4 2012. This reflected the addition of the acquired operations in 2013, lower mining and
processing costs at Kansanshi, partially offset by higher unit cash cost at Guelb Moghrein.
Gross profit before acquisition accounting adjustments 19% higher than Q4
2012
Reconciliation of gross profit in Q4 2012 to gross profit in Q4 2013:
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(USD millions unless otherwise noted)
Gross profit in Q4 2012 $295
Lower realized metal prices (76)
Lower sales volumes (23)
Decrease in depreciation at pre-acquisition operations 1
Decrease in costs excluding depreciation at pre-acquisition operations 52
Gross profit contribution from acquired operations 101
Gross profit before Inmet acquisition accounting adjustments 350
Acquisition accounting adjustments:
Recurring: depreciation of acquired property, plant and equipment1
Non-recurring: sale of inventory at acquired operations2
(31)
-
Gross profit in Q4 2013 $319 1 The recurring acquisition accounting adjustment is the unwinding to earnings of the uplift to fair value from book values, as at the date of acquisition, of acquired mineral property, plant and equipment. This adjustment will continue on a systematic basis over the remaining lives of the mines. The adjustment before tax is $30.8 million. The adjustment net of tax is $22.6 million. 2 The non-recurring acquisition accounting adjustment is the sale of inventory fair valued on the balance sheet of the acquired operations at date of acquisition. This adjustment is non-recurring
with substantially all of the inventory being sold in 2013. The adjustment before tax is $0.1 million. The adjustment net of tax is $0.0 million.
Gross profit is reconciled to EBITDA by including: exploration costs of $16.8 million;
general, administrative and other costs of $57.9 million; and adding back depreciation of
$119.6 million.
3.2 Strong liquidity and cash flow
The Company ended the year with $694.5 million of unrestricted cash and cash
equivalents in addition to $2,290.0 million of undrawn facilities. Operating cash flows
before changes in working capital and taxes paid of $1,439.9 million compared to
$1,165.2 million in 2012. As part of the Company’s plan to optimize its capital structure
and financial flexibility following the acquisition of Inmet, the Company concluded a
number of initiatives in the first quarter of 2014 that included:
on January 24, 2014 the signing of a mandate letter for a $2.5 billion Five-Year
Term Loan and Revolving Facility (the “Facilities”). The Facilities comprise of a $1.0
billion Term Loan Facility and a $1.5 billion Revolving Credit Facility. The Facilities
will be used to support the Company’s extensive capital program and for general
corporate purposes.
on January 27, 2014 an exchange offer and consent solicitation was launched with
respect to the 8.75% Senior Notes due 2020 and 7.50% Senior Notes due 2021
(together the "Existing Notes") issued by Inmet Mining Corporation (now FQM
(Akubra) Inc.) ("FQM Akubra").
97.3% of the 8.75% Senior Notes due 2020 and 99.8% of the 7.50% Senior Notes
due 2021 accepted before the early acceptance deadline which expired on February
7, 2014 and on February 12, 2014 the Company issued $1.1 billion aggregate
principal amount of new 6.75% Senior Notes due 2020 and $1.1 billion aggregate
principal amount of new 7.00% Senior Notes due 2021 to eligible holders who
tendered their Existing Notes. This offer expired on 24 February 2014. On 27
February 2014, the Company announced that 97.9% of the notes due 2020 and
99.8% of the notes due 2021 were exchanged for the new notes.
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the completion of a consent solicitation with respect to its 7.25% Senior Notes due
2019 and execution of a supplemental indenture which, among other things,
increased in certain circumstances the amount of investments that the Company
can make, and the amount of secured and unsecured debt that the Company can
incur.
3.3 Development projects remain on track
On January 27, 2014, the Company announced the results of the Cobra Panama project
review, which commenced following the acquisition of Inmet. Due to a number of
technical and logistical improvements, the revised project will have installed capacity of
about 70 million tonnes per annum (“Mtpa”) for the first 10 years; approximately 17%
higher than the Inmet plan. Provision has been made for up to 100 Mtpa beyond Year 10.
The project is expected to produce an average of approximately 320,000 tonnes of copper
annually on a life of mine basis; approximately 20% higher than the Inmet plan. The
revised capital estimate is $6.4 billion and the re-engineered and larger project is
scheduled for construction completion and commissioning in the second half of 2017.
The first phase of the Kansanshi smelter project remains on schedule for construction
completion in the second half of 2014 followed by commissioning and ramp-up. Detailed
design work, manufacture of major equipment and earthworks have been completed.
Concrete works are 85% complete and all other construction activities are proceeding
well.
The major elements of the Kansanshi oxide circuit expansions have been completed.
Construction has commenced on the sulphide circuit expansions with environmental
approvals having been granted; completion will be coordinated with the Company’s
availability of the necessary expanded smelting capacity in 2017.
Sentinel project costs are unchanged and estimated at $1.9 billion. The target completion
also remains unchanged with staged commissioning to commence in Q3 2014.
Construction activities at Sentinel reached a peak in Q4 2013 with 75% overall completion
achieved by year-end. Power transmission line works continue with partners ZESCO
Limited and the Company’s construction contractors. The powerline connecting to the
Lumwana mine is the most progressed with completion expected by the end of Q2 2014.
The Kalumbila to Lusaka West powerline is expected to be completed and operational by
the end of 2014.
The majority of equipment and all long-lead items for the Enterprise process plant (co-
located with the Sentinel process plant) have been ordered. Engineering design
progresses well, with concrete and structural drawings issued for construction.
Environmental approval for the Enterprise mine remains under application. Commissioning
of the Enterprise concentrator circuit will commence with the Sentinel copper ore. Target
completion for the Enterprise project is Q1 2015.
Operational outlook for 2014
Copper (000’s
tonnes)
Nickel (000’s
contained tonnes)
Gold (000’s
ounces)
Zinc (000’s
tonnes)
Group 418-444 42-47 221-246 59-65
Kansanshi 255-270 - 145-160 -
Guelb Moghrein 36-39 - 55-60 -
Kevitsa 17-19 9-10 12-13 -
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Ravensthorpe - 33-37 - -
Çayeli 27-29 - 3-5 38-42
Las Cruces 69-72 - - -
Pyhäsalmi 14-15 - 6-8 21-23
Guidance
Production:
Production is set out in the above table. Palladium and platinum production is expected to be between 22,000 and 24,000 ounces each.
Cash operating cost:
Expected average cash cost of approximately $1.32 to $1.48 per pound of copper.
Expected average cash cost of approximately $4.40 to $4.90 per pound of nickel.
Capital expenditures:
Expected total 2014 capital expenditure is approximately $2.1 billion, with approximately $600.0 million at each of Cobre Panama and Sentinel. Sentinel capital expenditure excludes capitalization of any pre-commercial production costs.
3.4 Other corporate developments
The Company has declared a final dividend of C$0.0930 per share in respect of the
financial year ended December 31, 2013. The final dividend of C$0.0930, together with
the interim dividend of C$0.0583, is a total of C$0.1513 for the 2013 financial year. This
total dividend paid for the 2013 financial year is 14.3% of comparative net earnings which
is in line with the 15% of comparative net earnings used as guidance in 2013.
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4. OPERATIONS
4.1 Kansanshi Copper and Gold Operation
Q4 2013 Q3 2013 Q4 2012 2013 2012
Sulphide ore tonnes milled (000’s) 2,790
TBD
TB
2,857 2,679 11,089
TBD
TB
9,254
Sulphide ore grade processed (%) 0.9 0.9 1.0 0.8 1.0
Sulphide copper recovery (%) 92 93 92 92 93
Mixed ore tonnes milled (000’s) 1,997 1,886 1,951 7,677 8,561
Mixed ore grade processed (%) 1.2 1.2 1.1 1.2 1.1
Mixed copper recovery (%) 71 68 74 71 69
Oxide ore tonnes milled (000’s) 1,660 1,669 1,738 6,662 6,210
Oxide ore grade processed (%) 2.4 2.2 2.0 2.2 2.2
Oxide copper recovery (%) 87 88 90 86 86
Copper production (tonnes) 72,602 71,037 70,431 270,724 261,351
Copper sales (tonnes) 57,691 61,366 61,758 248,745 249,884
Gold production (ounces) 43,508 43,904 45,410 167,395 136,056
Gold sales (ounces) 36,844 39,279 38,179 152,632 131,159
Cash costs (C1) (per lb)1 $1.28
$1.25 $1.45
$1.38
$1.49
Total costs (C3) (per lb)1 $1.70 $1.68 $1.90 $1.83 $1.88
Sales revenues 437.5 411.3 494.3 1,832.3 1,979.9
Gross profit 207.9 178.7 238.0 799.5 929.4
EBITDA1 227.5 209.3 251.1 899.0 995.9
1 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for
further information.
Full year operating results
Overall copper production at Kansanshi increased by 4% compared to 2012. Higher
throughput realized on the recent plant expansions and higher mixed ore grade processed
was partly offset by lower sulphide ore grade. Ongoing mine pit development work
continues to improve access to various ore types, specifically oxide, to coincide with the
current plant expansions.
Sulphide ore production decreased by 2% in 2013 compared to 2012, primarily as a result
of lower feed grade, partly offset by higher throughput. Throughput was higher in 2013 as
a result of circuit reconfiguration in 2012 which temporarily decreased the sulphide circuit
capacity. Kansanshi continues to process sulphide from the main pit which is a lower
grade area.
Mixed ore production was in line with 2012 as lower throughput was offset by higher ore
grade and recoveries. Throughput exceeded the 6.5 Mtpa design capacity but was lower
compared to 2012, when a temporary circuit reconfiguration increased the capacity of the
mixed circuit.
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Copper production from the oxide circuit was 9% higher than 2012. Throughput increased
reflecting ore characteristics with incremental increases facilitated by the incorporation of
components of the 14.5 Mtpa expansion. Grade and recoveries were in line with 2012.
Gold production was 23% higher than 2012 as a result of gold circuit enhancements and
the re-processing of stockpiled gold plant tailings.
Cash costs were $0.11 per lb lower compared to 2012 as a result of lower mining and
processing costs. These reductions were mainly attributable to increased gold credit, lower
acid costs, savings in solvent extraction and electrowinning combined with record copper
production.
Sales revenues decreased by 7% from 2012 reflecting lower realized copper and gold
prices, and a build-up of concentrate inventory. This decrease flowed into gross profit
which was also negatively impacted by higher depreciation charges relating to plant and
mine pit expansions, partially offset by a reduction in cash costs during the year.
Q4 operating results
Overall copper production at Kansanshi was 3% higher compared to Q4 2012, due
primarily to higher oxide and mixed ore grade processed.
Sulphide ore production decreased by 8% in Q4 2013 compared to Q4 2012, primarily as
a result of lower feed grade, partly offset by higher throughput.
Mixed ore production increased by 8% compared to Q4 2012 due to higher ore grade,
offset partly by lower recoveries.
Copper production from the oxide circuit was 9% higher than Q4 2012 due to higher ore
grade, partly offset by lower throughput, reflecting ore characteristics.
Gold production was 4% lower than Q4 2012 as a result of significantly lower recoveries,
offset partly by enhancements in the gold circuit and the re-processing of stockpiled gold
plant tailings.
Unit cash costs were $0.17 per lb lower compared to Q4 2012 as a result of lower mining
and processing costs. These reductions were mainly attributable to lower acid costs and
an increase in copper production.
Sales revenues decreased by 11% from Q4 2012 reflecting lower realized copper and gold
prices, 13% lower sales of copper concentrate and a significant build-up of concentrate
inventory due to particularly low local Zambian smelter off-take during the quarter. This
decrease flowed into gross profit which was also negatively impacted by higher
depreciation charges relating to plant and mine pit expansions, partially offset by a
reduction in cash costs for the quarter.
Outlook
Production in 2014 is expected to be between 255,000 and 270,000 tonnes of copper, and
145,000 and 160,000 ounces of gold.
A strong start to the year is expected, despite the unfavourably wet weather, due to
significant gains in mining flexibility and stockpiles of ore made during 2013.
Acid Plant 5 has attained nameplate production rates after upgrades to the process water
treatment system. Trials of technological enhancements to the water treatment system
using non-chemical means will be carried out, with a view to reducing operating cost and
to increase overall effectiveness of water treatment.
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The recent commissioning of the leach, solvent extraction and CCD thickener systems of
the oxide circuit 14.5 Mtpa expansion project allows for increased treatment of oxide ore,
providing an avenue to flex treatment plans in response to continuing concentrate
smelting constraints locally. Mining plans and schedules are being adapted and the
process plant treatment regime is likely to be changed to allow for increased oxide
treatment. The goal of the revision is to facilitate a reduction in concentrate stockpiled on
site and increase production of copper in cathode. Acid constraints remain, however and,
as such, full projected oxide treatment rate is not expected until 2015 when sufficient acid
becomes available from the new smelter.
Efforts to reduce concentrate stockpile levels this year will focus on grade improvements,
mainly through additional flotation cleaning capacity, maximized treatment of concentrate
through our high pressure leach facility, and changes to the plant feed composition to
favour the production of cathode.
Work on improvements in process control on the oxide treatment route is being
expanded, with the goal of improving recovery and containing costs.
Power supply stability is expected to remain a challenge throughout the year, though
some long-awaited ZESCO infrastructure projects, which will assist in this regard, are
expected to come on line during the first half of the year.
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4.2 Guelb Moghrein Copper and Gold Operation
Q4 2013 Q3 2013 Q4 2012 2013 2012
Sulphide ore tonnes milled (000’s) 714 694 825 2,847 3,062
Sulphide ore grade processed (%) 1.3 1.4 1.4 1.4 1.3
Sulphide copper recovery (%) 93 92 93 94 91
Copper production (tonnes) 8,866 8,670 11,038 37,970 37,670
Copper sales (tonnes) 6,327 8,564 13,007 36,585 40,174
Gold production (ounces) 13,336 13,093 16,802 58,191 60,519
Gold sales (ounces) 8,281 12,585 20,864 56,040 67,089
Cash costs (C1) (per lb)1 $1.86 $1.83 $1.13 $1.58 $1.48
Total costs (C3) (per lb)1 $2.11 $2.45 $1.69 $2.11 $2.04
Sales revenues 50.9 68.3 127.3 314.8 394.4
Gross profit 20.5 12.9 47.5 96.4 117.7
EBITDA1 23.3 20.4 54.2 124.1 142.4
1 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for further information.
Full year operating results
Copper production in 2013 was in line with 2012. Lower throughput, due to harder ore
characteristics, was offset by higher grade and recovery.
Gold production in 2013 was 4% lower than in 2012 as a result of 7% lower throughput,
partly offset by a higher processed head grade. The CIL circuit was also suspended from
operation for the duration of the year.
Cash costs in 2013 were $0.10 cents per lb higher than 2012, primarily as a result of a
lower gold credit being offset by capitalization of development work to expose additional
ore reserves in the pit. Mining costs were 23% lower than last year with significant
development work to expose future ore reserves capitalized throughout the year.
Processing costs were $0.02 cents per lb higher than 2012 with a reduction in crushing
and milling costs in line with lower throughput, partially offset by an increase in flotation
costs and the cost to elevate the tailings dam. The gold credit per lb was 29% below last
year, impacted by both a reduction in gold in concentrate sales volumes and lower
average net realized prices, combined with no sales of gold dore in the year while the CIL
circuit was suspended. A slight increase in concentrate treatment charges was offset by a
reduction in the year’s freight parity charge.
Sales revenues decreased in 2013 by 20% compared to 2012 due in part to unfavourable
timing of shipments later in the year and the suspension of the CIL circuit resulting in gold
dore not being sold for the duration of 2013. Lower copper and gold sales volumes were
also compounded by a decrease in average realized prices for both copper and gold. Gross
profit and EBITDA both decreased compared to 2012, reflecting the lower sales revenues
partially offset by a reduction in load and haul mining costs, and a lower depreciation
charge in line with the year’s lower sales volumes.
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Q4 operating results
Copper production in Q4 2013 was 20% below Q4 2012 due to lower throughput and
grade. Gold production was 21% below Q4 2012 as a result of lower throughput and lower
grade.
Cash costs in Q4 2013 were $0.73 cents per lb higher than Q4 2012 primarily as a result
of higher processing costs and a lower gold credit. Total mining costs were $0.18 cents
per lb below Q4 2012 with increases in explosives, ground engaging and fuel costs offset
by capitalization of costs used to expose additional ore reserves in two cutbacks of the pit.
Processing costs were $0.29 cents per lb higher, primarily a result of lower quarterly
copper production in conjunction with some fixed cost labour components and the planned
maintenance program. The gold credit per lb was 43% lower in the quarter reflecting both
the lower gold sales volumes and a decline in the average realized gold price. The
reduction included an increase in freight parity charges in the quarter.
Sales revenues decreased in Q4 2013 by 60% compared to Q4 2012. Lower copper and
gold sales volumes, the former caused by a build-up of inventory as sales terms were
negotiated with customers in China, were compounded by a decrease in average realized
prices for both copper and gold. Gross profit and EBITDA both decreased compared to Q4
2012, reflecting the lower sales revenues partly offset by lower costs associated with
lower copper sales volumes.
Outlook
Copper production in 2014 is expected to be between 36,000 and 39,000 tonnes. Gold in
copper concentrate production is expected to be between 55,000 and 60,000 ounces.
Production of magnetite concentrate is scheduled to commence in Q3 2014 and will bring
diversification in the products stream.
Cutback 1 will be mined out in Q1 2014. As waste stripping expands into Cutback 3 in
2014, mine operations will continue to focus on exposing ore in Cutback 2 to meet
increasing demand throughout the year. The two major capital projects, to reconfigure the
grinding circuit to a conventional Semi-Autonomous Grinding (“SAG”) mill and the
magnetite recovery project, remain on schedule. Materials for mechanical and structural
installation for the SAG mill have been delivered on site. Earth and civil works for the
magnetite project are in progress.
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Ravensthorpe Nickel Operation
Q4 2013 Q3 2013 Q4 2012 2013 2012
Beneficiated ore tonnes processed (000’s)
845 830 687 3,119 2,811
Beneficiated ore grade processed (%) 1.6 1.6 1.5 1.6 1.5
Nickel recovery (%) 77 77 78 76 77
Nickel production (contained tonnes) 10,244 9,917 8,227 38,103 32,884
Nickel sales (contained tonnes) 10,142 10,535 7,288 40,612 28,738
Nickel production (payable tonnes) 7,808 7,560 6,338 29,137 25,347
Nickel sales (payable tonnes) 8,021 7,842 5,425 30.972 21,857
Cash costs (C1) (per lb)1 $4.23 $4.85 $6.05 $4.99 $5.97
Total costs (C3) (per lb)1 $5.39 $5.94 $7.33 $6.18 $7.25
Sales revenues 113.7 112.3 94.3 474.4 387.7
Gross profit 10.0 7.5 2.8 29.0 42.5
EBITDA 25.1 20.1 14.6 84.8 82.3
1 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for further information.
Full year operating results
Strong operations continued in 2013 with record production increasing 16% compared to
2012, primarily as a result of increased throughput and higher grade. The increased
throughput has been achieved as plant operations mature, providing opportunities to
identify and implement improvements.
Cash costs in 2013 were $0.98 per lb lower in comparison to 2012 due primarily to lower
processing costs, site administration expense and freight charges. Processing efficiencies
were achieved mainly from overall maintenance and operational improvements, while
lower cost sulphur positively impacted overall costs. Site administration expenses were
lower, having benefited from the depreciation of the Australian dollar against the U.S.
dollar, combined with higher production, particularly in the second half of the year.
Sales revenues for 2013 increased by 22% to $474.4 million compared to $387.7 million
in 2012, reflecting higher sales volumes offset partially by a 19% lower average net
realized nickel price.
Gross profit was 32% lower than 2012, as the lower average net realized price impacted
the gross margin despite higher sales volumes and lower unit cash costs.
Q4 operating results
Strong operations continued in the quarter with production increasing 25% compared to
Q4 2012, primarily as a result of increased throughput and higher grade.
Cash costs in Q4 2013 were $1.82 lower in comparison to Q4 2012 primarily due to lower
processing costs, site administration expense and freight charges. Processing efficiencies
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were achieved mainly from overall maintenance and operational improvements, and the
use of lower cost sulphur in the production process. Site administration expenses
decreased year-on-year due to the benefit of higher production combined with
depreciation of the Australian dollar against the U.S. dollar.
Sales revenues for Q4 2013 increased by 21% to $113.7 million compared to $94.3
million in Q4 2012, reflecting increased sales volumes offset partially by a 19% lower
average net realized nickel price. This increase in revenues, along with processing cost
savings, resulted in a higher gross profit for the quarter.
Outlook
Production for 2014 is expected to be between 33,000 and 37,000 tonnes of nickel.
Crushing and beneficiation plants have operated well during Q4 2013. Beneficiation and
atmospheric leach circuit developments and enhancements remain a major focus and
have resulted in higher throughputs and utilization as screening, cyclone efficiencies and
reduced flocculent consumptions continue to be optimized. High pressure acid leach
circuits have operated within design specifications with ongoing trials on increased
tonnage throughputs. Statutory compliance checks on the desalination units and
compressor pressure safety valves were successfully completed.
Cost saving opportunities are currently being implemented site-wide and will remain a
critical focus for Ravensthorpe in 2014. The cost of operations remains highly dependent
on the price of sulphur. Construction work on the new tailings facility was completed in Q4
2013 and was successfully commissioned.
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4.3 Kevitsa Nickel-Copper-PGE1 Operation
Q4 2013 Q3 2013 Q4 2012 2013 2012
Ore tonnes milled (000’s) 1,670 1,676 1,413 6,314 3,138
Nickel ore grade processed (%) 0.2 0.2 0.2 0.2 0.2
Nickel recovery (%) 64 65 59 63 56
Nickel production (tonnes) 2,390 2,568 1,870 8,963 3,875
Nickel sales (tonnes) 3,652 1,801 792 8,493 1,640
Copper ore grade processed (%) 0.3 0.3 0.3 0.3 0.3
Copper recovery (%) 84 84 84 83 83
Copper production (tonnes) 4,015 4,020 3,448 14,775 8,094
Copper sales (tonnes) 2,938 4,075 2,805 12,652 6,448
Gold production (ounces) 3,008 3,382 2,172 11,723 5,367
Platinum production (ounces) 7,993 9,416 6,123 30,403 13,808
Palladium production (ounces) 6,600 7,404 5,419 24,639 12,183
Nickel cash costs (C1) (per lb)2 $5.15 $5.51 $6.37 $5.24 $5.47
Nickel total costs (C3) (per lb)2 $5.35 $7.03 $7.19 $6.41 $6.54
Copper cash costs (C1) (per lb)2 $1.49 $1.56 $1.75 $1.68 $1.28
Copper total costs (C3) (per lb)2 $1.78 $2.70 $3.06 $2.44 $2.61
Sales revenues 60.4 51.3 36.5 197.6 72.1
Gross profit (loss) (4.2) 5.4 6.4 21.3 23.9
EBITDA 5.4 16.3 11.2 56.1 34.8
1 Platinum-group elements (“PGE”)
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for
further information
Full year operating results
The significant increase in both nickel and copper production in 2013 reflected the first full
year of commercial operations and an increase in ore availability, with production
benefiting from the higher throughput.
Efforts to improve nickel recoveries continued with a focus on grind and pulp chemistry
optimization. This resulted in an improved recovery rate in 2013 compared to 2012. Nickel
ore grade in 2013 was in line with 2012. Copper recovery rates and grade in 2013 were
comparable to 2012.
Nickel cash costs decreased by $0.23 per lb compared to 2012 due to higher cobalt,
platinum and palladium by-product credits offset partly by higher mining costs.
Copper cash costs increased by $0.40 per lb compared to 2012 due primarily to increased
mining costs and lower by-product credits.
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The impact of a full year of commercial operations on sales revenue was partly offset by
lower average net copper and nickel realized sales prices, which were 8% and 19% lower
than 2012, respectively. The higher sales revenues flowed through to gross profit and
were partially offset by a higher depreciation charge on mineral properties in line with an
increase in both copper and nickel production in 2013 compared to 2012.
Q4 operating results
Nickel production increased by 28% in Q4 2013 compared to Q4 2012 with production
benefiting from the higher throughput, due to an increase in ore availability and an
improved recovery rate. Ore grade in Q4 2013 was in line with Q4 2012.
Copper production increased by 16% compared to Q4 2012 as a result of higher
throughput.
Nickel cash costs decreased by $1.22 per lb compared to Q4 2012 due primarily to higher
cobalt, platinum and palladium by-product credits arising from higher sales volumes and
lower processing costs.
Copper cash costs decreased by $0.26 per lb compared to Q4 2012 due to an increase in
by-product credits and lower processing costs, offset partly by increased mining costs.
Sales revenue increased 65% compared to Q4 2012, due to a higher nickel sales volume,
offset partly by a 23% lower average net realized nickel sales price compared to Q4 2012.
The higher sales revenues flowed through to gross profit but were more than offset by a
higher depreciation charge on mineral properties in line with an increase in both copper
and nickel production in Q4 2013 compared to Q4 2012.
Outlook
Production is expected to be between 17,000 and 19,000 tonnes of copper, 9,000 and
10,000 tonnes of nickel, 12,000 and 13,000 ounces of gold, and between 22,000 and
24,000 ounces each of platinum and palladium.
The plant operated at full capacity in 2013, processing approximately 6.3 million tonnes
(“Mt”) of ore and is expected to reach 120% of nameplate capacity in 2014 with further
investments in mill grinding. Flotation debottlenecking, which commenced in Q4 2013,
should be finalized in stages throughout the year and is expected to result in incremental
improvements in recoveries, particularly around the nickel circuit.
The only Komatsu PC8000 face shovel in Europe was commissioned in Q4 2013, and will
assist in the removal of approximately 28 Mt of ore and waste during 2014.
Approval of the environmental expansion permit up to 10 Mtpa is expected during Q1
2014, with all outstanding documentation, statements and responses to authorities’
queries submitted.
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The following sections review the results of the Las Cruces mine (100%), the Çayeli mine (100%) and the Pyhäsalmi mine (100%). The tables include the post-acquisition results of the mines from March 22, 2013 to December 31, 2013, and historical results for the full year without adjustment
as well as the results for 2012 as previously reported by Inmet.
4.4 Las Cruces Copper Operation
Q4 2013
Q3 2013
Q4 20121
March 22 –
December 31 2013
20131 20121
Ore tonnes processed (000’s) 334 359 276 977 1,253 1,082
Copper ore grade processed (%) 6.0 6.1 6.9 6.1 6.2 7.1
Copper recovery (%) 91 88 90 89 89 88
19
Copper cathode production (tonnes)
18,346 19,119 17,302 53,300 69,304 67,662
Copper cathode sales (tonnes) 16,883 18,691 17,394 52,298 66,806 68,838
Cash costs (C1) (per lb)2 $1.24
$0.69
$1.14
$1.11
$1.14
$1.10
Total costs (C3) (per lb)2,3 $2.15 $2.07 $1.76 $2.21 $2.13 $1.79
Sales revenues 120.9 133.6 136.0 373.8 490.2 536.6
Gross profit before fair value adjustments4
50.2 61.1 73.4 152.8 220.9 279.3
Gross profit4 36.5 49.9 73.4 106.1 174.1 279.3
EBITDA2 66.1 97.8 93.5 212.6 337.4 371.3
1 Results from the Las Cruces mine are only included in First Quantum’s financial results for the
period subsequent to the date of acquisition on March 22, 2013. Prior period results are shown for comparative purposes only and do not include any financial adjustments that would be required had the acquisition taken place on January 1, 2012.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for further information. C1 and C3 costs have been recalculated using First Quantum’s methodology and may be different to that previously disclosed by Inmet.
3 C3 costs from the date of acquisition include the acquisition accounting adjustments relating to the uplift to fair value from book value of acquired mineral property, plant and equipment and inventory.
4 Gross profit is defined as sales revenues less cost of sales; disclosure regarding the Las Cruces mine in Inmet’s historical financial reporting defined sales revenues less cost of sales as “operating earnings”.
Full year operating results
Copper production increased by 2% compared to 2012. A 16% increase in throughput was
achieved due to a number of projects developed during the year, despite a fire in early
April in one of the plant’s leach reactors which reduced copper output for the month to
1,000 tonnes.
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Copper recovery increased slightly due to commissioning of the second leach pre-reactor
and a pregnant leach solution recycling system later in the year, in addition to improved
belt filter performance. Cash costs in 2013 were in line with 2012.
Sales revenues and gross profit both decreased in comparison to 2012 by 9% and 38%,
respectively. The decrease in sales revenues was driven by lower realized copper prices as
well as 3% lower copper cathode sales volumes.
Gross profit in 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $34.1 million for the year. Additional fair value
adjustments made to inventory held on the date of acquisition reduced gross profit by a
further $12.6 million during the year. Fair value adjustments were recognized on
property, plant and equipment (including the value of mineral property) and on inventory
on hand at the date of acquisition. These fair value adjustments at date of acquisition are
recognized in earnings as the inventory is sold and on a systematic basis as the property,
plant and equipment is utilized.
Gross profit excluding fair value adjustments was 21% lower than 2012, primarily due to
lower metal prices and sales volumes.
Q4 operating results
Copper production increased by 6% compared to Q4 2012. This was due to a 21%
increase in throughput, due to a number of projects developed during the year, partially
offset by lower copper grade. Copper recovery was relatively consistent with Q4 2012.
Cash costs in Q4 2013 were $0.10 per lb higher than Q4 2012 due primarily to higher
mining costs.
Sales revenues and gross profit both decreased in comparison to Q4 2012 by 11% and
50%, respectively. The decrease in sales revenues was driven by lower realized copper
prices as well as a 3% decrease in copper cathode sales volumes. Operating costs were
lower compared to Q4 2012, benefiting from improvements in plant processing.
Gross profit in Q4 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $12.7 million for the quarter. Additional fair
value adjustments made to inventory held on the date of acquisition reduced gross profit
by a further $1.0 million during the quarter.
Gross profit excluding fair value adjustments was 32% lower than 2012, primarily due to
lower metal prices, increased cash costs and lower sales volumes.
Outlook
Guidance on production of copper in 2014 is between 69,000 and 72,000 tonnes. Efforts
have been underway, and will continue for some time, to test and debottleneck the plant
for higher throughput rates as a result of lower grades, which are expected in late 2014.
Two completed projects in particular, replacement of the classification cyclones and PLS
recycling, have increased ball mill capacity and increased flows through the reactors,
respectively.
A permitting process for a new surface waste dump, underway for more than four years,
was finally approved in late 2013. This will allow efficient stripping of the successive
phases of the mine, commencing in 2014.
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The installation of the first leach pre-reactor in 2012, with oxygen injection, has already
improved leach and overall recovery by several percentage points. A second unit was
commissioned in mid-2013 and is expected to further increase residence time, improve
iron leaching and further improve recovery going forward.
To improve tailings filtering initially, two extra vacuum pumps have been sourced from
the Company’s Zambian operations. In addition, a project to install three new pressure
filters is underway. These initiatives, planned to be completed by the end of 2014, are
expected to improve copper recovery by at least 3%.
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4.5 Çayeli Copper and Zinc Operation
Q4 2013
Q3 2013
Q4 20121
March 22 –
December
31 2013
20131 20121
Ore tonnes processed (000’s) 342
335 319 1,047
1,333
1,218
Copper ore grade processed (%) 2.8 3.1 3.0 3.1 3.1 3.3
Copper recovery (%) 78 77 74 77 77 78
Zinc ore grade processed (%) 4.5 5.1 5.0 4.9 4.9 5.0
Zinc recovery (%) 63 66 69 66 66 66
Copper production (tonnes) 7,538 8,010 7,024 24,546 31,510 31,396
Copper sales (tonnes) 7,940 8,484 5,088 24,031 31,370 33,215
Zinc production (tonnes) 9,837 11,346 11,062 33,955 43,097 40,692
Zinc sales (tonnes) 12,179 9,897 10,019 36,180 43,354 39,955
Cash costs (C1) (per lb)2 $0.87
$0.98
$0.57
$0.72
$0.76
$0.65
Total costs (C3) (per lb)2,3 $1.89 $1.76 $1.08 $1.67 $1.64 $1.14
Sales revenues 62.3 64.4 45.9 188.0 248.3 291.6
Gross profit before fair value
adjustments4 27.3 39.2 16.5 94.2 127.2 162.9
Gross profit4 22.1 32.0 16.5 46.4 79.4 162.9
EBITDA2 38.0 41.4 21.2 95.5 131.6 185.7
1 Results from the Çayeli mine are only included in First Quantum’s financial results for the period
subsequent to the date of acquisition on March 22, 2013. Prior period results are shown for comparative purposes only and do not include any financial adjustments that would be required had the acquisition taken place on January 1, 2012.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for
further information. C1 and C3 costs have been recalculated using First Quantum’s methodology and may be different to that previously disclosed by Inmet.
3 C3 costs from the date of acquisition include the acquisition accounting adjustments relating to the uplift to fair value from book value of acquired mineral property, plant and equipment and inventory.
4 Gross profit is defined as sales revenues less cost of sales; disclosure regarding the Çayeli mine in Inmet’s historical financial reporting defined sales revenues less cost of sales as “operating earnings”.
Full year operating results
Despite lower grades, copper production remained in line with 2012 due to significantly
higher throughput. Zinc production increased by 6% over 2012 due to significantly higher
throughput, partially offset by lower grades. Recoveries were similar to the previous year
and in line with expectations. Driving the higher throughput was improved mine planning
and operational efficiencies, captured through a formal performance improvement
initiative.
Cash costs in 2013 increased by $0.11 per lb from 2012 due to a decrease in the by-
product credit, resulting from the lower realized metal prices.
Sales revenues were 15% below 2012 due to lower copper sales volumes as a result of
timing and lower realized metal prices.
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Gross profit in 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $21.4 million for the year. Additional fair value
adjustments made to inventory held on the date of acquisition reduced gross profit by a
further $26.4 million during the year. Fair value adjustments were recognized on
property, plant and equipment (including the value of mineral property) and on inventory
on hand at the date of acquisition. These fair value adjustments at date of acquisition are
recognized in earnings as the inventory is sold and on a systematic basis as the property,
plant and equipment is utilized.
Gross profit excluding fair value adjustments was 22% below 2012, primarily due to lower
metal prices and lower sales volumes.
In early July 2013, Çayeli finalized a new three-year labour agreement effective June 1,
2012. The previous three-year agreement expired in May 2012 and negotiation of a new
agreement commenced in early 2013 after initial delays due to changes to government
labour regulations.
Q4 operating results
Copper production increased by 7% from Q4 2012 due to higher throughput and recovery.
Sustained improvements in mine planning and operational efficiencies accounted for the
higher throughput. Zinc production decreased by 12% over Q4 2012 due to lower grades
and recovery. Higher throughput helped mitigate the decrease in grades.
Cash costs in Q4 2013 increased by $0.30 per lb from Q4 2012 due primarily to a
decrease in by-product credit due to lower prices.
Sales revenues were 36% above Q4 2012 due to higher copper sales volumes as a result
of timing, partly offset by lower realized metal prices this quarter.
Gross profit in Q4 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment and inventory which
increased depreciation and reduced gross profit by $5.2 million for the quarter. Gross
profit excluding fair value adjustments was 65% higher than 2012, primarily due to
increased sales volumes.
Outlook
Production in 2014 is expected to be between 27,000 and 29,000 tonnes of copper and
between 38,000 and 42,000 tonnes of zinc. Throughput is expected to remain at 2013
levels but grades are expected to decline slightly as more low-grade ore from the footwall
areas is mined.
The mine should benefit from the commissioning of a second new ore pass by mid-2014,
the first having been commissioned in mid-2013. The extension of a shotcrete slickline to
the lower levels of the mine, commissioned in mid-2013, will facilitate the development of
lower mine infrastructure and stoping blocks. Çayeli’s ground conditions require constant
monitoring and reinforcement, including the need to minimize any underground void
areas. Continued progress in meeting the challenges of poor ground conditions and
planned operational efficiencies is aimed at reducing any risks associated with achieving
the production plan.
Progress was made in 2013 in upgrading some of the substantial, footwall, stockwork
mineral resources into additional mineral reserves. Additional infill drilling and mine design
work is expected to be completed in 2014 in an effort to continue advancing this work.
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A study was started in mid-2012 to assess the potential to upgrade the substantial,
primarily footwall, stockwork mineral resources into additional mineral reserves. The
robustness of the geological block model was validated early in Q4 2013 and options for
mine designs are well underway in order to move some of those resources into reserve in
2014.
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4.6 Pyhäsalmi Copper and Zinc Operation
Q4 2013
Q3 2013
Q4 20121
March 22 –
December
31 2013
20131 20121
Ore tonnes processed (000’s) 348 348 351 1,075 1,382 1.384
Copper ore grade processed (%)
1.0 1.1 1.0 1.1 1.1 1.0
Copper recovery (%) 98 96 97 97 97 96
Zinc ore grade processed (%) 1.7 2.0 3.0 1.6 1.7 2.0
Zinc recovery (%) 92 92 93 92 92 92
Copper production (tonnes) 3,422 3,632 3,273 10,965 14,854 12,610
Copper sales (tonnes) 3,819 4,678 3,237 11,745 15,221 13,407
Zinc production (tonnes) 5,556 5,895 9,660 15,978 21,679 25,637
Zinc sales (tonnes) 5,687 5,979 8,984 15,745 22,339 25,101
Pyrite production (tonnes) 202,688 221,734 222,534 657,053 825,821 891,728
Pyrite sales (tonnes) 454,665 89,999 299,676 666,394 769,919 852,463
Cash costs (C1) (per lb)2 $0.03
$0.65
$(1.62)
$0.36
$0.14
$(0.53)
Total costs (C3) (per lb)2,3 $2.51 $2.48 $(1.19) $2.51 $1.82 $(0.14)
Sales revenues 51.0 44.9 51.8 129.0 173.9 181.8
Gross profit before fair value
adjustments4 24.9 25.0 32.4 67.5 98.9 111.4
Gross profit4 12.9 11.1 32.4 23.5 54.9 111.4
EBITDA2 26.4 15.9 85.2 60.1 94.3 115.5
1 Results from the Pyhäsalmi mine are only included in First Quantum’s financial results for the period subsequent to the date of acquisition on March 22, 2013. Prior period results are shown for comparative purposes only and do not include any financial adjustments that would be required had the acquisition taken place on January 1, 2012.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for further information. C1 and C3 costs have been recalculated using First Quantum’s methodology and may be different to that previously disclosed by Inmet.
3 C3 costs from the date of acquisition include the acquisition accounting adjustments relating to the uplift to fair value from book value of acquired mineral property, plant and equipment and
inventory.
4 Gross profit is defined as sales revenues less cost of sales; disclosure regarding the Pyhäsalmi
mine in Inmet’s historical financial reporting defined sales revenues less cost of sales as “operating earnings”.
Full year operating results
Copper production increased by 18% in 2013 compared to 2012 due to higher copper
grades and recoveries, with throughput in line with the prior year. Zinc production was
15% lower than 2012 due to an absence of higher grade zinc stopes in the production
plan. Pyrite production was 7% lower compared to 2012 with no pyrite reclaimed from B
pond in 2013 due to the uncertainty in the pyrite markets.
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Cash costs in 2013 increased by $0.67 per lb compared to 2012 primarily due to lower by-
product credits caused by unfavourable realized prices.
Sales revenues were 4% lower in 2013 compared to 2012, with higher copper volumes
being partially offset by lower zinc and pyrite sales and lower realized prices.
Gross profit in 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $38.2 million for the year. In addition, fair value
adjustments to the value of inventory held on the balance sheet at acquisition reduced
gross profit by a further $5.8 million during the year. Fair value adjustments were
recognized on property, plant and equipment (including the value of mineral property)
and on inventory on hand at the date of acquisition. These fair value adjustments at date
of acquisition are recognized in earnings as the inventory is sold and on a systematic basis
as the property, plant and equipment is utilized.
Gross profit excluding fair value adjustments was 11% below 2012, primarily due to lower
metal prices, offset partly by higher volumes.
Q4 operating results
Copper production for Q4 2013 increased slightly compared to Q4 2012 due to higher
copper grades, with throughput in line with the prior year quarter.
Zinc production was 42% below Q4 2012 due to lower grade stopes being mined in the
quarter, resulting in lower zinc grade and recovery.
Cash costs in Q4 2013 increased by $1.65 per lb compared to Q4 2012 primarily due to
lower by-product credits and higher production costs in the milling area.
Sales revenues for the quarter were in line with Q4 2012, with higher copper and pyrite
sales volumes being partially offset by lower zinc sales volumes and lower realized prices.
Higher pyrite sales were achieved via additional shipments made in advance of the icy
season.
Gross profit in Q4 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $11.7 million for the quarter. In addition, fair
value adjustments to the value of inventory held on the balance sheet at acquisition
reduced gross profit by a further $0.3 million during the quarter.
Gross profit excluding fair value adjustments was 23% below Q4 2012, primarily due to
lower metal prices, offset partly by higher sales volumes.
Outlook
Production in 2014 is expected to be between 14,000 and 15,000 tonnes of copper and
21,000 and 23,000 tonnes of zinc. Pyrite production is expected to be approximately
860,000 tonnes, in line with the previous year.
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5. DEVELOPMENT ACTIVITIES
5.1 Kansanshi expansions, Zambia
The multi-stage Kansanshi plant upgrade to an annual production capacity of 400,000
tonnes of copper continued in 2013. The Stage 1 oxide circuit expansion to 7.2 Mtpa was
completed in Q2 2012 and optimized during Q3 2012 with the benefits being seen in the
oxide throughput rates. The major elements of the Stage 2 oxide capacity expansion to
14.5 Mtpa were commissioned during Q4 2013 and are operational. The Stage 2
expansion encompasses additional crushing, flotation, leach tanks, CCD thickeners,
solvent extraction, electrowinning and associated ancillary systems and equipment. Acid
supply and economics will dictate the rate of oxide treatment until the smelter is
commissioned later in 2014.
The second phase of the 400,000 tonne annual production capacity expansion project is a
new sulphide treatment plant capable of treating up to 25 Mtpa of sulphide ore.
Essentially, this expansion is half the size of the plant being built at Sentinel. Some work
has commenced on this project, and completion will be matched to the construction of a
second smelting furnace and other expanded smelting facilities.
5.2 Copper smelter project, Zambia
The new copper smelter is currently designed to process 1.2 Mtpa of concentrate to
produce over 300,000 tonnes of copper metal annually. The smelter is also expected to
produce 1.0 Mtpa of sulphuric acid as a by-product at a low cost which will benefit
Kansanshi by allowing the treatment of high acid-consuming oxide ores and the leaching
of some mixed ores. The additional acid is also expected to optimize the expansion of the
oxide leach facilities and allow improved recoveries of leachable minerals in material now
classified and treated as mixed ore.
Detailed design work on the smelter is complete, manufacture of the major equipment has
been completed, and on site construction is well underway and reaching peak activity
levels. The Isasmelt tower is erected and the Isasmelt furnace has been installed, along
with other major equipment including the waste heat boiler. Earthworks are complete,
concrete is approximately 85% complete and the other construction disciplines of
structural erection, mechanical installation, piping and electrical works are well-
progressed. The targeted commencement of commissioning remains the second half of
2014.
During 2013, a detailed examination of Zambian smelting capacity identified technical,
operational and economic benefits of expanding the Company's smelting facilities and
approval in principle was given to the addition of a second Isasmelt furnace, and
expanding the Company’s smelting capacity to about 2 Mtpa of concentrate. While
planning of the smelter expansion is at early stages, it is proposed, other than the
installation of an Isaconvert convertor, that this follow-on project will not start in earnest
until the first smelter is commissioned. Its completion is being targeted for late 2017, with
commissioning and ramp-up continuing through 2018.
5.3 Sentinel project, Zambia
A mineral resource and reserve estimate for the Sentinel copper project was released in
March 2012. An estimated measured and indicated resource of 1,027 Mt at 0.51% copper
grade, containing 5.2 Mt of copper has been delineated, inclusive of an estimated
recoverable proven and probable mineral reserve of 774 Mt at 0.50% copper grade,
containing 3.9 Mt of copper. The life of mine strip ratio is anticipated to be 2.2:1 and the
estimated mine life is in excess of 15 years. An infill drilling program has been completed
and a mineral resource update will commence shortly.
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This will identify further detail of the geological resources that will be encountered during
the initial years of operation and over the life of the Sentinel mine. The project is
expected to produce between 270,000 and 300,000 tonnes of copper metal in concentrate
annually.
The project remains on schedule and on budget. During Q4 2013, construction activities
reached peak pace and at the end of December 2013 the project passed 13 million man
hours worked and achieved 75% overall completion. Project milestones to the end of 2013
include detailed design engineering complete, 96,000 cubic metres of concrete poured on
site (including over 90% of process plant concrete), 85% of project steel on site, with
65% of the site steel erected; all four mills are erected along with motors installed and
drive transformers assembled, all site gantry cranes being used for construction are
operational. The Chisola raw water coffer dam and inlet water pipelines have been
completed and the raw water line to the plant site is currently 80% complete.
Construction of the tailings dam has progressed well. All construction disciplines are fully
engaged on site, including civil, piping, mechanical and electrical disciplines. Housing and
infrastructure works are well on track according to schedule, with significant infrastructure
completed. Mining fleet assembly is progressing well, with numerous items of fleet
completed and commissioning scheduled to support operations.
Power transmission line works continue with partners ZESCO Limited and the Company’s
construction contractors. Completion of powerlines remains on schedule for the staged
commissioning of the project. The powerline to the Lumwana mine is the most progressed
with completion expected by Q2 2014, which will allow continuous operation of the first
milling train. Construction works are in progress on the longer powerline to Lusaka West
and Mumbwa for the supply of the full electrical demand at Sentinel, with completion
expected before the end of Q4 2014.
Project capital costs are unchanged and estimated at $1.9 billion. The target completion
date for Sentinel remains unchanged with staged commissioning scheduled to commence
in Q3 2014 and completion expected during the second half of 2014.
5.4 Enterprise project, Zambia
The maiden mineral resource estimate for the Enterprise nickel deposit has been identified
at 40.1 Mt at 1.07% nickel. This supports proven and probable mineral reserves of 32.7
Mt at 1.10% nickel. Based on a 4 Mtpa operation, the mine life would be approximately
eight years and production between 38,000 and 40,000 tonnes of nickel per annum. There
is further potential to increase both the mineral resource and reserve as drilling continues
in the adjacent Enterprise South West Zone. The Enterprise deposit is located
approximately 12 kilometres north-west of the Sentinel project. Environmental approval
for the Enterprise mine remains under application.
The majority of equipment and all long-lead items for the Enterprise process plant (co-
located with the Sentinel process plant) have been ordered. Engineering design
progresses well, with concrete and structural drawings issued for construction. Target
completion for the Enterprise project is Q1 2015. Commissioning of the Enterprise
concentrator circuit will commence with Sentinel copper ore.
5.5 Cobre Panama, Panama
Since the Company’s acquisition of Inmet in March 2013, the prime focus has been to
critically review and stabilize all activities and focus on the key elements of the Cobre
Panama project development, construction and contracting plan, and implementation of
practical site infrastructure.
Since that time, the project has transformed from an out-sourced approach to a complete
in-house, self-perform arrangement where third-party engineers and contractors are now
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utilized only for identified specific tasks, and work within the Company’s preferred project
execution model.
The earthworks have been the subject of critical review, as has the methodology of
subsequent excavation and construction. Significant quantities of on site equipment have
been purchased by the Company from contractors whose contracts have been either
cancelled or modified. This enables First Quantum to fully control all site development
activities which provides for greater flexibility and significantly reduced risk. Site
accommodation, road access, communications and management are now all fully
functional and allowing the major activities to advance efficiently.
The locations of key site infrastructure including the processing facilities have been
reviewed and an alternate, more practical plant site has been selected which should be
more cost effective to construct and allow for better access to the proposed in-pit crushing
and conveyor systems for life of mine pits, and to the main access road.
The Company announced the results of a project review on January 27, 2014, which used
the Measured and Indicated Resources estimate of 3,271 Mt, inclusive of Reserves and on
a 100% basis as reported and filed in May, 2010 by Inmet. The revised project will have
installed capacity of about 70 Mtpa for the first 10 years; approximately 17% higher than
the Inmet plan. Provision has been made for further expansion up to 100 Mtpa beyond
Year 10. On the basis of the current Resource estimate and the planned installed capacity
of about 70 Mtpa, the project would produce an average of approximately 320,000 tonnes
of copper annually on a life of mine basis; approximately 20% higher than the Inmet plan.
The average annual life of mine by-product production will be 100,000 ounces gold,
1,800,000 ounces silver and 3,500 tonnes molybdenum. The average copper grade is
0.5% total copper for first 10 years and 0.37% for remaining mine life, with an average
life of mine strip ratio of 0.7:1 and a mine life of 34 years.
The revised capital estimate is $6.4 billion, inclusive of $913.0 million incurred prior to
acquisition. The Capital per installed tonne of capacity is approximately $17,125.
The re-engineered and larger project is scheduled for construction completion and
commissioning in the second half of 2017.
6. EXPLORATION
After several years of successful resource development programs, the emphasis of the
company’s exploration activities has migrated to earlier stage projects taking advantage
of the downturn in global exploration to build a portfolio of high-quality pipeline
developments for the future. the major focus is divided between the identification of high-
potential copper porphyry prospects and grassroots exploration for sediment-hosted
copper.
6.1 Africa
Exploration drill programs continued at Trident and Kansanshi in Zambia. At Kansanshi,
following the completion of resource definition drilling at Rocky Hill, new programs have
commenced targeting extensions of mineralization to the south and west of main pit and
the eastern end of the South East Dome resource. In-pit resource drilling is focused on
defining the depth extent of the North East pit mineralization. Acquisition of a large
extension of tenure immediately to the east of Kansanshi has been finalized and a
program of geochemical sampling is now underway on this area.
At Trident, resource definition drilling on Enterprise and Enterprise South West was
concluded last quarter and a resource update is now in progress. Drilling during the period
was focused on three regional targets and two of these targets have now encountered
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Enterprise style vaesite (NiS2) mineralization. A large scale AMT (Magneto Telluric) survey
has been completed over the entire Enterprise syncline which has highlighted several
anomalies with a similar response to Enterprise mineralization.
Exploration on a new Zambian regional target, just south of the Democratic Republic of
Congo border near Kipushi, commenced during Q4 2013.
In Botswana, a major grassroots program focused on sediment-hosted copper continued
on the Tsodilo Resources Ltd. joint venture area. Reverse circulation and diamond core
drilling are in progress to derive geochemical data and regional architecture, respectively.
Extensive airborne geophysical surveys commenced during the quarter. Integration of
these datasets will provide the targeting platform for more detailed prospect testing in
2014.
On the Dablo Nickel-Copper project in Burkina Faso airborne and ground geophysical
surveys are in progress and diamond drilling is planned.
6.2 Eurasia
Near mine exploration activities continued around Kevitsa and Pyhäsalmi in Finland and
Çayeli in Turkey. Near mine drilling on geophysical targets to the west of Kevitsa has
returned encouraging intercepts of disseminated and locally semi-massive sulphides near
the basal contact of the Kevitsa intrusion. Surface drilling on an electro-magnetic anomaly
approximately 5 kilometres south east of Pyhäsalmi has encountered a new sulphide body
with a narrow intercept of moderate-grade zinc. Further drilling is required. At Çayeli, a
systematic program of geochemical sampling and mapping is progressing well and a
ground geophysical program has commenced over near mine targets.
Regional exploration in Fenoscandia continues to be focused on high-grade nickel targets
around Kevitsa and some greenfields regional copper targets in Finland and Sweden.
Several high priority targets in the Kevitsa district have been granted as exploration
claims (after up to 2 years) allowing exploration to commence.
The porphyry copper target generation program in the Tethyan belt continues with early
stage testing of targets in Serbia and Turkey as part of an exploration alliance with
Columbus Copper Corporation.
6.3 The Americas
In Peru, activities have been restricted to reconnaissance exploration on regional joint
ventures with Zincore Metals Inc. and Verde Resources Inc (“Verde”). During the quarter,
Verde completed drill testing and induced polarization geophysical survey over several
targets on the Antabamba project. Analytical results from the drilling are pending.
In Chile, the Mirasol Resources Ltd. option/joint venture commenced ground activities
over the Rubi Property. The Company has committed to a $1.5 million program of
airborne magnetics, geochemistry and 3,000 metres of drilling to assess a cluster of
apparent porphyry targets largely under gravel cover. Several other prospective ground
packages are currently being evaluated in Chile.
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7. SALES REVENUES
Q4 2013 Q3 2013 Q4 2012 2013 2012
Kansanshi - copper 395.6 367.4 437.9 1,646.7 1,797.3
- gold 41.9 43.9 56.4 185.6 182.6
Guelb Moghrein - copper 40.5 52.9 92.5 238.5 286.7
- gold 10.4 15.4 34.8 76.3 107.7
Kevitsa - nickel 26.8 13.5 6.9 66.2 15.7
- copper 16.6 25.1 20.6 78.2 39.3
- gold, PGE and cobalt 17.0 12.7 9.0 53.2 17.1
Ravensthorpe - nickel 111.5 109.7 93.0 465.2 380.8
- cobalt 2.2 2.6 1.3 9.2 6.9
Las Cruces - copper 120.9 133.6 - 373.8 -
Çayeli - copper 45.8 53.6 - 137.8 -
- zinc, gold and silver 16.5 10.8 - 50.2 -
Pyhäsalmi - copper 24.7 31.6 - 76.0 -
- zinc 7.0 5.7 - 18.0 -
- pyrite, gold and
silver 19.3 7.6 - 35.0 -
Corporate and other 0.3
(0.7) 22.2 43.0 116.3
897.0 885.4 774.6 3,552.9 2,950.4
Full year 2013 sales revenues were 20% higher than 2012. Revenue in 2013 included
revenue from the acquired operations, contributing $690.8 million and the first full year of
production at Kevitsa, contributing $197.6 million. Excluding the acquired operations,
sales revenues decreased by 3% year-on-year. Slightly higher copper sales volumes and
higher gold and nickel sales volumes, were offset by lower net realized prices. Net realized
copper price fell by 8% and net realized nickel price fell by 19%. Gold revenues, excluding
the acquired operations, decreased by 9% to $270.2 million in 2013. 7% higher gold sales
volumes were offset by lower realized prices.
Q4 2013 total sales revenues were 16% higher than the prior year quarter with the
contribution of the acquired operations increasing revenues by $234.2 million. Excluding
the acquired operations, sales revenues decreased by $111.8 million from Q4 2012. The
higher contribution from Kevitsa of $23.9 million was offset by a combination of lower
realized copper and gold prices and lower sales volumes of copper and gold.
The Company’s revenues are recognized at provisional prices when title passes to the
customer. Subsequent adjustments for final pricing are materially offset by derivative
adjustments and shown on a net basis in cost of sales (see “Hedging Program” for further
discussion).
Copper selling price (per lb) Q4 2013 Q3 2013 Q4 2012 2013 2012
Average LME cash price 3.24 3.21 3.59 3.32 3.61
Realized copper price 3.26 3.10 3.46 3.22 3.51
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Treatment/refining charges
(“TC/RC”) and freight charges (0.20) (0.22) (0.23) (0.23) (0.25)
Net realized copper price 3.06 2.88 3.23 2.99 3.26
Nickel selling price (per lb) Q4 2013 Q3 2013 Q4 2012 2013 2012
Average LME cash price 6.26 6.32 7.70 6.80 7.95
Realized nickel price per payable pound
6.37 6.45 7.74 6.82 7.96
TC/RC charges (0.67) (0.56) (0.35) (0.54) (0.25)
Net realized nickel price per payable pound
5.70 5.89 7.39 6.28 7.71
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8. SUMMARY FINANCIAL RESULTS
Q4 2013 Q3 2013 Q4 2012 20131 2012
Gross profit (loss)
Kansanshi 207.9 178.7 238.0 799.5 929.4
Guelb Moghrein 20.5 12.9 47.5 96.4 117.7
Kevitsa (4.2) 5.4 6.4 21.3 23.9
Ravensthorpe 10.0 7.5 2.8 29.0 42.5
Las Cruces 36.5 49.9 - 106.1 -
Çayeli 22.1 32.0 - 46.4 -
Pyhäsalmi 12.9 11.1 - 23.5 -
Other 13.7 5.6 0.3 11.6 (12.5)
Total gross profit 319.4 303.1 295.0 1,133.8 1,101.0
Exploration (16.8) (10.0) (13.4) (51.6) (49.7)
General and administrative (33.7) (39.5) (20.4) (122.7) (76.0)
Acquisition transaction costs - - - (29.5) -
Other expenses (24.2) (0.7) (5.0) (35.2) (4.3)
Net finance income (costs) 9.0 (1.5) 1.0 4.5 8.3
Settlement of RDC claims and sale of assets
- - - - 1,217.9
Income taxes (107.2) (93.3) (50.5) (369.6) (327.8)
Net earnings for the period 146.5 158.1 206.7 529.7 1,869.4
Net earnings for the period
attributable to:
Non-controlling interests 15.2 15.1 20.0 71.1 96.5
Shareholders of the Company
131.3 143.0 186.7 458.6 1,772.9
Comparative earnings 133.8 143.6 186.7 539.4 555.0
Earnings per share
Basic $0.22 $0.24 $0.39 $0.82 $3.74
Diluted $0.22 $0.24 $0.39 $0.81 $3.72
Comparative $0.23 $0.24 $0.39 $0.96 $1.17
Basic weighted average number of shares (in ‘000s)
587,456 587,625 473,718 560,009 473,893
1 Results included for Las Cruces, Çayeli and Pyhäsalmi for the period subsequent to the date of
acquisition on March 22, 2013.
Gross profit from Las Cruces, Çayeli and Pyhäsalmi has been impacted by fair value
adjustments recognized at the date of acquisition that subsequently are recorded through
net earnings. Fair value adjustments were recognized on property, plant and equipment
(including the value of mineral property) and on inventory on hand at the date of
acquisition. In Q4 2013 these fair value adjustments recognized in earnings relate mainly
to an increased depreciation charge.
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The effect of the fair value adjustments for the three months ended December 31, 2013
was as follows:
2013 2012
Group gross profit before fair value
adjustments
350.3 295.0
Fair value adjustments Depreciation Inventory
Las Cruces 12.7 1.0 13.7 -
Çayeli 6.4 (1.2) 5.2 -
Pyhäsalmi 11.7 0.3 12.0 -
Group gross profit after fair value
adjustments
30.8 0.1 319.4 295.0
The effect of the fair value adjustments for the year ended December 31, 2013 was as
follows:
2013 2012
Group gross profit before fair value
adjustments
1,272.3 1,101.0
Fair value adjustments Depreciation Inventory
Las Cruces 34.1 12.6 46.7
Çayeli 21.4 26.4 47.8
Pyhäsalmi 38.2 5.8 44.0
Group gross profit after fair value
adjustments
93.7 44.8 1,133.8 1,101.0
Substantially all of the fair value adjustment related to finished goods inventory was
unwound during Q2 2013, the first quarter after the acquisition of Inmet, with only $0.1
million being recognized in net earnings in Q4 2013 and $0.8 million recognized in Q3
2013. The adjustment in Q4 2013 to Las Cruces was related to the ore stockpile held on
acquisition which was valued lower than book value. As a non-recurring event, the impact
of the fair value adjustments on inventory has been excluded from comparative earnings
for the quarter ($0.0 million after tax) and the full year ($33.2 million after tax). A
reconciliation of comparative earnings is included in the “Regulatory Disclosures” section
below.
Full year exploration costs include expenses from the Company’s exploration program and
investments in option agreements. Exploration costs are higher than in 2012 as the
current year includes exploration expenses in the expanded exploration portfolio as
described in the Exploration section above. The amount includes payments of
approximately $9.0 million made on projects, largely acquired as part of the Acquisition,
that have now been discontinued as part of the rationalization of the expanded
exploration project pipeline. Full year exploration expenses comprise primarily;
$4.0 million in Peru
$5.4 million at Trident
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$6.8 million at Kansanshi
$10.2 million in Finland and Sweden
$1.8 million at Guelb Moghrein
General and administrative costs were higher than in 2012 reflecting the additional costs
of the corporate offices acquired in the acquisition of Inmet and an increased complement
of permanent and temporary personnel and associated costs for the Company’s expanded
asset base.
In Q1 2012, the Company reached an agreement with Eurasian Natural Resources
Corporation PLC (“ENRC”) to dispose of its residual claims and assets in respect of the
Kolwezi Tailings project and the Frontier and Lonshi mines and related exploration
interests, all located in the Katanga Province of the Republique Democratique du Congo
(“RDC”) and to settle all current legal matters relating to these interests for a total
consideration of $1.25 billion. The $1,217.9 million gain recognized on the disposal
includes the fair value of proceeds received, net of transaction costs and the underlying
net liabilities of subsidiaries disposed of. The $1,217.9 million gain recognized on the
disposal includes the fair value of proceeds received, net of transaction costs and the
underlying net liabilities of subsidiaries disposed of.
Income taxes for the full year of $369.6 million amount to an effective income tax rate of
approximately 41% of earnings compared to 33% (based on comparative earnings) in the
prior year. The tax rate was lower in 2012 due to a number of non-recurring factors that
include the recognition of previously unrecognized tax losses. The effective tax rate in
2013 of 41% is due to increased earnings in lower tax jurisdictions and the impact of
foreign exchange on deferred income taxes offset by the provision for settlement of a tax
appeal in one tax jurisdiction and Canadian losses not currently recognized. In future, the
effective tax rate is expected to be between 40% and 43%.
Shares issued for the acquisition of Inmet accounts for the increase in the basic weighted
average number of shares in Q4 2013 compared to Q4 2012, and for the year. The
Company issued 114,526,277 shares related to the Inmet acquisition, bringing the
number of outstanding shares at December 31, 2013 to 590,836,559.
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9. LIQUIDITY AND CAPITAL RESOURCES
Q4 2013 Q4 20121 2013 2012 2011
Cash flows from operating activities
- before changes in working capital and tax paid
423.3 319.1 1,439.9 1,165.2 1,299.3
- after changes in working capital and tax paid
197.7 70.2 868.8 342.5 412.3
Cash flows from investing activities
Payments for property, plant and equipment
(787.9) (420.0) (2,601.0) (1,373.3) (1,108.7)
Capitalized borrowing costs (89.2) (161.6) - -
Acquisition of Inmet, net of
cash acquired - - (963.8) - -
Proceeds from settlement of RDC claims and sale of
assets
- - - 736.5 -
Other investing activities 105.2 (27.3) 2,060.2 (41.0) 14.0
Cash flows from financing activities
653.0 311.2 1,266.9 192.2 (210.4)
Net cash flows 78.8 (65.9) 469.5 (143.1) (892.8)
Cash balance1 778.5 309.0 778.5 309.0 452.1
Total assets 15,471.2 7,536.4 15,471.2 7,536.4 5,298.0
Total current liabilities 1,804.9 443.6 1,804.9 443.6 621.9
Total long-term liabilities2 4,577.7 1,211.4 4,577.7 1,211.4 507.6
Cash flows from operating activities per share3
before working capital (per share)
$0.72 $0.67 $2.57 $2.46 $2.91
after working capital (per share)
$0.34 $0.15 $1.55 $0.72 $0.92
1 Cash balance includes $84.0 million of restricted cash at December 31, 2013. There was no restricted cash at December 31, 2012 or December 31, 2011.
2 These long-term liabilities in 2013 include FQM Akubra (formerly Inmet) 8.75% Senior Notes Due
2020 and FQM Akubra (formerly Inmet) 7.5% Senior Notes Due 2021 (together the “Inmet notes”).
3 Cash flows per share is not recognized under IFRS. See “Regulatory Disclosures” for further information.
2013 operating cash flows before changes in working capital and taxes paid are higher
than 2012 due to higher non-cash expenses in 2013. Depreciation expense, including the
depreciation on fair value adjustments at the three new operating sites, was higher in
2013 compared to 2012 as well as higher income taxes. Changes in working capital during
2013 resulted in a reduction of cash of $571.1 million which includes $212.6 million in
taxes that the Company paid during the year. Constraints in smelter capacity at Kansanshi
have led to higher concentrate inventory which was slightly offset by lower inventory held
at other sites leading to an outflow of $84.5 million related to inventory during 2013. The
Company is still experiencing irregular VAT refunds in Zambia.
Capital expenditure, excluding capitalized interest, on the Company’s key development
projects totalled $2,601.0 million for the year. Capital expenditure comprised primarily;
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$989.5 million at Kansanshi for the oxide circuit expansions, smelter project and
mine pit development costs
$796.6 million at Sentinel, including deposits, for site development and long-lead
plant and mine equipment
$578.3 million at Cobre Panama, since acquisition on March 22, 2013, for project
development
Proceeds from settlement of RDC claims and sale of assets represents the net cash
proceeds received during Q1 2012. The remainder of the proceeds is in the form of a
$500.0 million promissory note payable by ENRC on March 2, 2015. ENRC delisted from
the London Stock Exchange in Q4 2013 which triggered the mandatory prepayment of the
promissory note. The Company is currently in discussions with ENRC to revise the terms
of the promissory note and waived this mandatory prepayment until February 28, 2014.
$25.0 million of this principal was repaid early in Q1 2014, while these discussions
continue. In January 2014, ENRC repaid $25.0 million of the $500.0 million promissory
note receivable. The remainder of the promissory note is under re-negotiation with ENRC.
Cash flows from financing activities for the year included dividend payments made to
shareholders of the Company of $99.1 million as well as dividends paid to non-controlling
interest of $28.0 million. Cash flows from financing activities in 2012 include dividend
payments of $91.0 million and $39.0 million made to shareholders of the Company and
non-controlling interest respectively.
Cash flows from financing activities in the year and in Q4 2013 comprise draw downs of
the FQM Akubra and Kansanshi facilities.
As at December 31, 2013, the Company had the following contractual obligations
outstanding:
Carrying Value Contractual
Cashflows < 1 year 1 – 3 years 3 – 5 years Thereafter
Debt 4,073.4 5,455.7 1,294.0 462.7 825.7 2,873.3
Trade and other
payables 667.8 667.8 667.8 - - -
Current taxes
payable 55.3 55.3 55.3 - - -
Deferred payments 30.2 30.2 3.0 3.0 3.0 21.2
Finance leases 39.7 57.0 5.9 11.6 11.1 28.4
Commitments - 2,308.5 1,292.4 988.1 9.7 18.3
Restoration
provisions
484.2 565.2 10.3 7.7 9.0 538.2
Total 5,350.6 9,139.7 3,328.7 1,473.1 858.5 3,479.4
The significant capital expansion and development program is expected to be funded
using available unrestricted cash of $694.5 million at December 31, 2013, future cash
flows from operations and debt facilities. As at December 31, 2013 the Company had total
commitments of $2,308.5 million, of which approximately $1,292.4 million relates to the
next 12 months, comprising primarily capital expenditure for property, plant and
equipment related to the development of Cobre Panama, Sentinel, Enterprise, upgrades at
Kansanshi and the Kansanshi smelter construction. In addition, the Board of the Company
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has approved, but has not yet committed to, further capital expenditure which is being
carefully managed in line with available cash resources and debt facilities.
At December 31, 2013, the undrawn facilities that were available were $1,495.0 million of
the FQM Akubra revolving debt facility, $580.0 million of the Kansanshi senior term and
revolving facility and the $215.0 million Kevitsa debt facility. However, subsequent to
year-end a number of proposed changes to the debt and financing structure have been
announced.
On January 27, 2014 the Company announced the signing of a mandate letter for a $2.5
billion Five-Year Term Loan and Revolving Facility (the “Facilities”). The Facilities comprise
of a $1.0 billion Term Loan Facility with a margin of 2.75% available to draw for a period
of 24 months from the date of signing of the Facilities Agreement and a $1.5 billion
Revolving Credit Facility with a margin of 2.75% available to draw for a period of 59
months from the date of signing of the Facilities Agreement. This replaces the current
FQM Akubra facility which was due for repayment in June 2014. The Kevitsa debt facility
was cancelled on February 7, 2014 and the existing Kansanshi $1.0 billion facility is being
replaced with a $350.0 million unsecured facility at the Kansanshi level.
On January 27, 2014 the Company also announced the commencement of an exchange
offer and consent solicitation (the “Exchange Offer”) to exchange any and all 8.75%
Senior Notes due 2020 and 7.50% Senior Notes due 2021 (together the “Existing Notes”)
issued by Inmet (now FQM Akubra) for 6.75% Senior Notes due 2020 and 7.00% Senior
Notes due 2021, to be issued by First Quantum. The Exchange Offer was made in
furtherance of the Company’s objective to achieve pari passu ranking and credit support
among all classes of its capital markets indebtedness, and as part of the Company’s plan
to streamline its capital and financing structure following the acquisition of Inmet. As part
of the consideration for the exchange, FQM Akubra sought customary exit terms from the
holders of the Existing Notes to remove substantially all negative covenants from the
existing notes.
An early tender expired on February 7, 2014 by which time holders of approximately
97.3% of the 8.75% Senior Notes due 2020 and 99.8% of 7.00% Senior Notes due 2021
had validly tendered their Existing Notes in the Exchange Offer. On February 12, 2014 the
Company issued approximately $1.1 billion of new 6.75% Senior Notes due 2020 and
$1.1 billion of new 7.00% Senior Notes due 2021 to eligible holders of Existing Notes who
validly tendered their Existing Notes by February 7, 2014.
In addition, following receipt of consents from holders of at least a majority in aggregate
principal amount outstanding of the Existing Notes, FQM Akubra executed supplemental
indentures to give effect to the proposed amendments (the “Proposed Amendments”) to
the indentures governing the Existing Notes (the “Indentures”). The Proposed
Amendments are customary exit consents to amend the terms of the Indentures to,
among other things, remove substantially all of the negative covenants and certain events
of default. The Exchange Offer remains open until 11:59 p.m. New York City time on
February 24, 2014, unless extended or terminated.
On January 27, 2014 the Company also announced the commencement of a consent
solicitation with respect to certain proposed amendments to the indenture governing the
Company’s outstanding 7.25% Senior Notes due 2019, in order to improve the Company’s
financial flexibility given the larger size and scale of the Company subsequent to the
Inmet acquisition. In return, the Company offered additional guarantees from its
subsidiaries and a cash payment of $10.00 per $1,000 in principal amount of Notes to
each holder that validly delivered a duly executed consent. The consent solicitation
expired on February 7, 2014. The Company received validly delivered consents in the
solicitation from 84% of holders and the proposed amendments to the indenture
governing the Notes were therefore approved. On February 12, 2014 the Company
executed a supplemental indenture to give effect to the proposed amendments. The
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proposed amendments, among other things, increased in certain circumstances the
amount of investments that the Company can make, and the amount of secured and
unsecured debt that the Company can incur under the indenture.
9.1 Hedging program
- As at December 31, 2013, the following derivative positions were outstanding:
- Average price
- -
Open Positions
(tonnes/ounces) - Contract - Market
- Maturities
Through
Embedded
derivatives in
provisional sales
contracts:
Copper 43,786 $3.26/lb $3.27/lb April 2014
Nickel 3,972 6.40/lb 6.31/lb March 2014
Gold 11,358 1,245/oz 1,223/oz April 2014
Zinc 2,900 0.88/lb 0.90/lb February 2014
Platinum 14,024 1,361/oz 1,358/oz January 2014
Palladium 11,087 715/oz 718/oz January 2014
Commodity
contracts:
Copper 43,997 $3.26/lb $3.27/lb April 2014
Nickel 3,379 6.40/lb 6.31/lb March 2014
Gold 13,846 1,245/oz 1,223/oz April 2014
Zinc 3,125 0.88/lb 0.90/lb February 2014
Platinum 15,284 1,361/oz 1,358/oz January 2014
Palladium 11,742 715/oz 718/oz January 2014
- A summary of the fair values of unsettled derivative financial instruments for commodity
contracts recorded on the consolidated balance sheet:
December 31, 2013 December 31, 2012
Commodity contracts:
Asset position $2.5 $5.0
Liability position (10.5) (2.4)
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9.2 Provisional pricing and derivative contracts
A portion of the Company’s metal sales is sold on a provisional pricing basis whereby sales
are recognized at prevailing metal prices when title transfers to the customer and final
pricing is not determined until a subsequent date, typically two months later. The
difference between final price and provisional invoice price is recognized in net earnings.
In order to mitigate the impact of these adjustments on net earnings, the Company enters
into derivative contracts to directly offset the pricing exposure on the provisionally priced
contracts. The provisional pricing gains or losses and offsetting derivative gains or losses
are both recognized as a component of cost of sales. Derivative assets are presented in
other assets and derivative liabilities are presented in other liabilities with the exception of
copper, gold and nickel embedded derivatives which are included within accounts
receivable.
As at December 31, 2013, substantially all of the Company’s metal sales contracts subject
to pricing adjustments were hedged by offsetting derivative contracts.
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10. REGULATORY DISCLOSURES
Seasonality
The Company’s results as discussed in this MD&A are subject to seasonal aspects, in
particular the rain season in Zambia. The rain season in Zambia generally starts in
November and continues through April, with the heaviest rainfall normally experienced in
the months of January, February and March. As a result of the rain season, pit access and
the ability to mine ore is lower in the first quarter of the year than other quarters and the
cost of mining is higher.
Off-balance sheet arrangements
The Company had no off-balance sheet arrangements as of the date of this report.
Non-GAAP financial measures
This document refers to cash costs (C1) and total costs (C3) per unit of payable
production, operating cash flow per share, EBITDA and comparative earnings, which are
not measures recognized under IFRS and do not have a standardized meaning prescribed
by IFRS.
The calculation of these measures is described below, and may differ from those used by
other issuers. The Company discloses these measures in order to provide assistance in
understanding the results of our operations and to provide additional information to
investors.
10.1 Calculation of cash costs and total costs
The consolidated cash costs (C1) and total costs (C3) presented by the Company are
measures that are prepared on a basis consistent with the industry standard definitions
but are not measures recognized under IFRS. In calculating the cash and total costs for
each segment, the costs are prepared on the same basis as the segmented financial
information that is contained in the financial statements.
Cash costs include all mining and processing costs less any profits from by-products such
as gold, cobalt or platinum group elements. TC/RC and freight deductions on metal sales,
which are typically recognized as a component of sales revenues, are added to cash costs
to arrive at an approximate cost of finished metal. Total costs are cash costs plus
depreciation, exploration, interest, royalties.
10.2 Calculation of operating cash flow per share, EBITDA and comparative earnings
In calculating the operating cash flow per share, before and after working capital
movements, the operating cash flow calculated for IFRS purposes is divided by the basic
weighted average common shares outstanding for the respective period. EBITDA is
calculated as operating profit before depreciation. Comparative earnings and comparative
earnings per share have been adjusted to remove the effect of acquisition and other costs
including acquisition accounting adjustments relating to the acquisition of Inmet, the
recycling of impairment of an investment and the settlement of claims and sale of RDC
assets in 2012. These measures may differ from those used by other issuers.
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Q4 2013 Q3 2013 Q4 2012 2013 2012
Net earnings attributable to shareholders of the Company 131.3 143.0 186.7 458.6 1,772.9
Add:
Acquisition and other costs relating to Inmet (net of tax) - - - 27.0 -
Non-recurring acquisition accounting inventory adjustments (net of tax)
0.0 0.6 - 33.2 -
Reclassification of impairment of an investment
to net earnings
2.5 - - 20.6 -
Deduct:
Settlement of RDC claims and sale of assets - - - - (1,217.9)
Comparative earnings 133.8 143.6 186.7 539.4 555.0
Earnings per share as reported $0.22 $0.24 $0.39 $0.82 $3.74
Comparative earnings per share $0.23 $0.24 $0.39 $0.96 $1.17
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SCHEDULE 2
Information on the Company
1. DESCRIPTION OF THE BUSINESS
Overview
Copper
The Company’s primary product is copper. In 2013, the Company produced 412,281
tonnes of copper. Copper has a wide range of applications because of its many useful
properties. It is malleable, durable, strong and resistant to heat. Copper is also one of
the most efficient conductors of electricity and heat.
Copper is used to manufacture copper wire, copper products and copper alloy products.
Wire and cable copper is used for or formed into general industrial cable, utility power
cable, telecommunications cable, insulated wire and winding wire for electrical motors.
Wire and copper cable is also used in heating and air conditioning systems, plumbing,
roofing, and brass fittings. For electrical and electronic devices in common usage such as
televisions, radios, lighting, computers and mobile phones, copper wiring is used for
electrical leads, adapters, transformers and motors. Copper compounds and chemicals
are used to protect plants and crops and to preserve wood.
Copper tubing for plumbing, heating systems, air conditioners and refrigerators accounts
for a significant use of copper. Copper may also be used in alloy products which include
copper sheet and strips and brass fixtures used for building fixtures and fittings.
The price of copper is primarily determined by changes in supply and demand, which are
in turn affected and determined by global economic conditions. Copper consumption by
Asian countries has increased demand for the metal and, in the last few years, has led to
higher prices.
Gold
The Company also produces gold at both Kansanshi and Guelb Moghrein. In 2013, the
Company produced 248,078 ounces of gold.
In addition to its common use in jewellery, gold has may other important uses. Gold plays
an important role in modern health applications and research. It is used in medicines,
lasers, thermometers and genetic research. Gold is the most ductile metal and is a good
conductor of heat and electricity. It is used in computers, telecommunication, digital
technology, and has important applications for space exploration.
Nickel
First Quantum effectively became a nickel producer in December 2011 when
Ravensthorpe achieved commercial production. In mid-2012, construction was completed
at Kevitsa and the mine achieved commercial production in August. In 2013, the Company
produced a total of 47,066 tonnes of nickel.
Nickel is pre-eminently an alloy metal, and its chief use is in the nickel steels and nickel
cast irons, of which there are many varieties. Nickel is used in many industrial and
consumer products, including stainless steel, magnets, coinage, rechargeable batteries,
electric guitar strings and special alloys. It is also used for plating and as a green tint in
glass.
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2. OPERATIONS
2.1 Kansanshi
History
Kansanshi is the site of one of the oldest copper mines in Zambia and dates back to the
fourth century A.D. It has been mined intermittently since that time by various parties
including Zambian Consolidated Copper Mines (“ZCCM”) which, in 1969, approved the
development of an open pit mine to treat high grade oxide ore. Due to economic
conditions at the time, the processing project was halted and only mining was conducted
at the site until April of 1986, when mining operations ceased due to economic conditions.
In 1988, after a resumption of mining operations, ZCCM constructed a small sulphide
flotation concentrator to treat ore which was transported offsite for smelting. In 1998,
ZCCM formally ceased operations at Kansanshi and initiated closure and reclamation
activities.
Subsequently, Cyprus Amax Minerals Corporation (“Cyprus Amax”) acquired a majority of
the ownership of surface leases and selected assets associated with Kansanshi from ZCCM
and the Government of the Republic of Zambia (“GRZ”). After completion of metallurgical
test work and a feasibility study to determine the potential for a 124,000 tonne per
annum copper production site, Cyprus Amax was acquired by Phelps Dodge Corporation in
1999.
The Company purchased its 80% interest in Kansanshi from Cyprus Amax in August of
2001. Payment by the Company consisted of an initial payment of $2.5 million in cash,
together with the issuance of 1.4 million common shares in the Company. The market
value of the 1.4 million common shares was determined 30 days after the commencement
of commercial production at Kansanshi and the difference between the value established
and $25 million was paid as an additional cash payment to Cyprus Amax. A further
amount of $2 million was paid to a subsidiary of ZCCM, which continues to hold a 20%
interest in Kansanshi. The Company also agreed to pay a further $4 million to ZCCM
when a decision was reached to proceed with the project. Commercial production at
Kansanshi was achieved in April of 2005.
Property and Ownership Interest
The Company has an 80% interest in Kansanshi which it holds through a subsidiary,
Kansanshi Mining PLC. The remaining 20% is owned by a subsidiary of ZCCM. All surface
rights necessary to develop and operate the project have been obtained and include four
leases governing in excess of 7,000 hectares, which secure access to active mining areas.
The right to mine is governed by a large scale mining license granted in March 1997,
which has a term of 25 years. It allows for the exploration and mining of copper and
various other minerals and applies to an area of approximately 21,593 hectares.
Location, Access and Infrastructure
Kansanshi is located approximately 10 kilometres north of the town of Solwezi, the capital
of the Northwestern Province in Zambia, and 18 kilometres south of the border with the
DRC. The Solwezi district of Zambia has an estimated population of 200,000, the majority
of whom live in rural areas surrounding Solwezi. Chingola, a town located in the Zambian
portion of the Copperbelt, is approximately 180 kilometres to the southeast of Kansanshi.
Prior to commencing construction at Kansanshi, the infrastructure in the Solwezi area was
poor. Power supplies were limited and inadequate for the development of the mine.
Roads, airport, hospitals and schools were in need of significant upgrades. As a result,
the Company undertook a number of measures to improve infrastructure including the
signing of a connection agreement with ZESCO Limited (the Zambian power utility) for the
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construction and supply of a new power line to service Kansanshi and the upgrading of the
main road from Solwezi to Kansanshi. Both projects were completed in 2004. The main
road from Chingola to Solwezi, a paved highway, was repaired in 2002 and is adequate
for construction and on-going operational requirements. An existing airstrip near Solwezi
is equipped with a full-time tower and radio control. The airport has been rehabilitated to
accommodate increased usage by small charter aircraft. The climate at Kansanshi is
temperate humid, with average annual precipitation of approximately 1,400 millimetres.
Kansanshi is situated at an elevation of 1,460 metres above sea level. Vegetation
includes a mixture of open savannah grassland, tropical dry forest, savannah and marsh.
As a result of the efforts of the Company and others, Kansanshi has access to
infrastructure (such as power, water and waste disposal areas) for its operations.
Geological Setting and Mineralization
The deposit at Kansanshi occurs within a broad, northwest trending, north-west closing
antiform, which can be traced for approximately 12 kilometres. Kansanshi is a vein
deposit developed within a tectonised rock sequence and, as such, constitutes a major
mineralization control. The main veins and vein swarms dip sub-vertically, perpendicular
to the fold axes, in the plane of maximum extension.
A major north-south trending and well mineralized zone of complicated faulting, abundant
vein injection, breccia development and down-dropped rock units lie within the area
delineated by Kansanshi’s mining license. Copper mineralization at Kansanshi occurs as
vein-specific mineralization within and immediately adjacent to mesoscopic veins; as
stratiform or concordant mineralization in thin bands and veinlets parallel to
bedding/foliation; and as disseminated mineralization associated with albite-carbonate
alteration. Brecciated zones may also be mineralized, but usually only within oxidized and
supergene enrichment horizons, which display a complicated spatial distribution of
secondary copper minerals.
Primary copper sulphide mineralization is dominated by chalcopyrite, with very minor
bornite, accompanied by relatively minor pyrite and pyrrhotite. Oxide mineralization is
dominated by chrysocolla with malachite, limonite and cupriferous goethite. The mixed
zone includes both oxide and primary mineralization but also carries significant chalcocite,
minor native copper and tenorite. Some copper appears to be carried in clay and mica
minerals, where it is essentially refractory.
Labour
At 31 December 2013, Kansanshi employed 1,937 persons. The local labour force is
unionized.
Mining and Processing
Mining is carried out in two open pits, Main and Northwest (“NW”), using conventional
open pit methods and employing hydraulic excavators and a fleet of haul trucks. Ore
treatment is flexible to allow for variation in ore type either through an oxide circuit, a
sulphide circuit and a transitional ore “mixed float” circuit with facilities to beneficiate
flotation concentrate to final cathode via the HPL circuit.
Sulphide ore is treated via crushing, milling and flotation to produce copper in
concentrate. The expansion of the sulphide milling circuit (S2) was commissioned in Q4,
2008, to maintain finished copper production as oxide ore is depleted and sulphide ore
grades begin to fall as the mining horizon deepens. The successful achievement of
production goals with the sulphide expansion circuit and successful completion of test
work aimed at achieving economic recoveries from transitional mixed ores allowed a
switch to mixed ore treatment through the original sulphide circuit (S1), with dedicated
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treatment of sulphide ore in the expansion circuit only. This positioned Kansanshi to
economically process all significant in situ ore types and significantly reduced mining costs
as transitional ores are no longer moved to stockpile and value is realized immediately.
Additional flotation cleaning capacity, in conjunction with added capacity provided by in-
circuit crushing for the new mill circuit, was added in Q1 2010, which further increased
capacity, flexibility and efficiency.
Oxide ore is treated via crushing, milling, flotation, leaching and the SX/EW process to
produce a sulphidic and gold bearing flotation concentrate as well as electro-won cathode
copper. The construction of a fourth electro winning facility commenced in 2007 and was
commissioned early Q3 2008, and, alongside a third SX train, provides extra capacity to
handle the additional copper input from the HPL circuit. The HPL is used to treat a portion
of the increased copper concentrate by processing the concentrate in the autoclaves by
oxidation and leaching.
In 2009, HPL switched from treating Kansanshi concentrate to Frontier concentrate on a
toll treatment basis. The change in processing concentrate from Kansanshi avoided the
loss of payable gold in the concentrate treated. After the closure of Frontier operations,
test work indicated that gravity gold recovery was possible on HPL residues and an acid
resistant gravity concentrator was installed.
Gold recovery by gravity was expanded by the addition of four new gravity concentrators
in April 2010, thus providing two concentrators per milling train, and increasing gold
recovery from all ore types. Gemini tables were installed to treat the gravity concentrates
and produce a high grade concentrate for direct smelting to gold bullion. Gold dore
production from direct smelting increased in 2013 to 58% of the total gold production.
At the Kansanshi operation, a number of projects are planned to expand annual copper
production capacity from 270,724 tonnes achieved in 2013 to 400,000 tonnes of copper
per annum. The expansion has been planned to be implemented in three phases.
Phase 1 comprises expansion of the treatment capacity of the oxide circuit by 20% to 7.2
million tonnes throughput per annum utilising equipment from the redundant Bwana
Mkubwa copper SX/EW plant. This expansion was successfully implemented in Q2 2012.
Phase 2 is planned to increase the oxide treatment capacity to 14.5 million tonnes per
annum. The commissioning during Q4 2013 of the leach, solvent extraction and CCD
thickener systems of the oxide circuit 14.5 Mtpa expansion project allows for increased
treatment of oxide ore, providing an avenue to flex treatment plans in response to
continuing concentrate smelting constraints locally.
2014 mining plans and schedules are being adapted and the process plant treatment
regime is likely to be changed to allow for increased oxide treatment. The goal of the
revision is to facilitate a reduction in concentrate stockpiled on site and increase
production of copper in cathode. Acid constraints remain, however and, as such, full
projected oxide treatment rate is not expected until 2015 when sufficient acid becomes
available from the new smelter.
Efforts to reduce concentrate stockpile levels during 2014 will focus on grade
improvements, mainly through additional flotation cleaning capacity, maximized treatment
of concentrate through our high pressure leach facility, and changes to the plant feed
composition to favour the production of cathode.
Phase 3 of the expansion is planned to comprise construction of a new sulphide
concentrator with an annual throughput capacity of 25 million tonnes. Some work has
commenced on this project, and completion will be matched to the construction of a
second smelting furnace and other expanded smelting facilities.
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At the conclusion of Phase 3, Kansanshi will have the capability of treating up to 14.5
million tonnes per annum of oxide ore (depending on availability of acid), approximately
12 million tonnes per annum of mixed ores, and 25 million tonnes per annum of sulphide
material.
The new copper smelter is currently designed to process 1.2 Mtpa of concentrate to
produce over 300,000 tonnes of copper metal annually. The smelter is also expected to
produce 1.0 Mtpa of sulphuric acid as a by-product at a low cost which will benefit
Kansanshi by allowing the treatment of high acid-consuming oxide ores and the leaching
of some mixed ores. The additional acid is also expected to allow improved recoveries of
leachable minerals in material now classified and treated as mixed ore.
Detailed design work on the smelter is complete, manufacture of the major equipment has
been completed, and on site construction is well underway and reaching peak activity
levels. The Isasmelt tower is erected and the Isasmelt furnace has been installed, along
with other major equipment including the waste heat boiler. Earthworks are complete,
concrete is approximately 85% complete and the other construction disciplines of
structural erection, mechanical installation, piping and electrical works are well-
progressed. The targeted commencement of commissioning remains the second half of
2014.
During 2013, a detailed examination of Zambian smelting capacity identified technical,
operational and economic benefits of expanding the Company's smelting facilities and
approval in principle was given to the addition of a second Isasmelt furnace, and
expanding the Company’s smelting capacity to about 2 Mtpa of concentrate. While
planning of the smelter expansion is at early stages, it is proposed, other than the
installation of an Isaconvert convertor, that this follow-on project will not start in earnest
until the first smelter is commissioned. Its completion is being targeted for late 2017, with
commissioning and ramp-up continuing through 2018.
The expansion plans for Kansanshi are based on the extensive delineation and near mine
geological drilling programs that have been undertaken between 2010 and 2012. Some
500 diamond drill holes measuring 170,000 metres of drilling was completed by the end of
2012. A geological resource was published at the end of 2012.
Additional mining fleet has been procured and deliveries commenced in 2012, which will
allow the rate of mining to ultimately increase to 60 BMCM per annum. Additional cut
back works commenced in 2012, which are necessary to open up the working areas of
each mine and provide flexibility of feed for each ore type. The trolley assist program
commenced in 2012 and phase one of the program was commissioned in 2013. The final
trolley assist truck fleet, including the conversion of some of the existing units, is
expected to be completed during 2014.
Mining Review
Certain mining statistics for the years ended 31 December 2010 to 31 December 2013 are
set out in the following table:
Unit 2013 2012 2011 2010
Waste Mined ‘000
Tonnes
84,199 81,138 51,768 23,847
Ore Mined ‘000 Tonnes
35,993 30,447 24,506 23,045
Ore Grade Mined %Cu 1.11 1.33 1.34 1.3
Strip Ratio 2.33 2.66 2.24 01:01
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Production Review
Production statistics for the years ended 31 December 2010 to 31 December 2013 are set
out in the following table:
Unit 2013 2012 2011 2010
Sulphide Ore Processed ‘000
Tonnes
11,089 9,254 8,855 10,382
Mixed Ore Processed ‘000 Tonnes
7,677 8,561 8,377 5,462
Oxide Ore Processed ‘000 Tonnes
6,662 6,210 6,072 5,674
Sulphide Copper Grade %Cu 0.8 1 0.8 0.9
Mixed Copper Grade %Cu 1.2 1.1 1 1.3
Oxide Copper Grade %Cu 2.2 2.2 2.3 2.2
Copper in Concentrate Produced
Tonnes 170,890 164,604 133,803 144,442
Copper Cathode Production Tonnes 99,834 96,747 96,492 90,466
Cash Cost Copper(1) $/lb 1.38 1.49 1.41 1.1
Total Cost Copper $/lb 1.83 1.88 1.7 1.31
(1) Cash cost copper amounts have been arrived at net of gold credits.
Permits
Kansanshi holds all necessary Zambian permits required to carry out its operations and
operated in material compliance in 2013.
Sales
During 2013 sales from Kansanshi arise from the sale of copper cathode produced on site
and from the toll treatment of copper concentrate production at a Zambian smelter, and
from the sale of copper concentrates to two Zambian smelters. Total copper cathode
production is sold under off-take agreements with two parties, one governing the sale of
approximately 80% of production and the other governing the sale of approximately 20%
of production. Copper concentrate is also treated through the pressure leach facility. .
Effective January 1, 2014 Kansanshi ceased to toll treat its concentrate, and copper
concentrate is now sold to three Zambian smelters. Copper concentrate inventory
increased from 48,000 tons at the close of 2012 to more than 161,000 tonnes at the close
of 2013 due to the low off take by the local Zambian smelters during the 4th quarter of
2013.
A summary of the revenues for the past three years attributable to the Kansanshi division
are as follows:
Year Revenue ($ million)
2013 1,832
2012 1,980
2011 2,048
Mineral Resource and Reserves
The Kansanshi open pit operations located at Solwezi in the north west province of
Zambia mine both oxide and sulphide copper bearing ore. The sulphide processing plant
was commissioned in late 2004 and both oxide and sulphide treatment started in 2005,
and has continuously expanded operations through to the current 24 Mtpa operation. An
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additional third sulphide treatment plant will be commissioned in 2017 which will increase
the total throughput at Kansanshi to 49 Mtpa.
This Mineral Resource and Reserve reflect the estimates reported at 31st December 2012
depleted by actual mining production undertaken during 2013.
There has been additional drilling conducted during 2013 and a re-modelling phase is
currently underway and expected to be finalised during 2014. The work is being
conducted in conjunction between FQM geologists and independent consultants, CSA
(Global) UK office.
Delineation and near mine exploration drilling has continued during 2013 and will continue
during 2014 and will target the Inferred Resources.
Mine Life
As at 31 December 2013, Kansanshi had an estimated mine life of 17 years, assuming
Mineral Reserves and current stockpiles are treated at an annual rate of 49 million tonnes
of ore. The upgrading of the Inferred Resources by planned on-going delineation drilling
will likely increase the mine life to over 22 years.
Taxes and Royalties
The Company had a Development Agreement with the Zambian government that provides
for a corporate tax rate of 25% and a royalty of 0.6%. The Zambian government
purported to unilaterally terminate the Development Agreement in 2008. As a result the
current rate of corporate income tax paid by the Company under Zambian legislation is
approximately 30% of Kansanshi earnings plus a variable profits tax (8-14%) and a
mineral royalty of 6.0% of gross sales is paid by Kansanshi on a monthly basis to the
government of Zambia under the Mining Act. The rate for the mineral royalty for copper
increased from 3% to 6% of gross sales from April 2012 onwards. In the Company’s view
the Company’s legal position and rights under the Development Agreement to
compensation for taxes and royalties paid in excess of those provided for under the
Development Agreement has not changed but remains to be resolved.
2.2 Guelb Moghrein
History
Copper-made tools and arrowheads dating from approximately 4000 to 6000 BC have
been found in the Akjoujt area of Mauritania where Guelb Moghrein is located. Although
exploitable quantities of copper were recognized in the 1930s it was not until the 1950s
when serious development plans were undertaken. After the nation’s independence from
France in 1960 companies such as Anglo American Corporation attempted development of
the Guelb Moghrein deposit. In the early 1970s an open pit was developed and a TORCO
(a high temperature oxide roast operation) commenced but had to close in 1977 due to
technical difficulties and high fuel prices. The national mining corporation, SNIM, through
its subsidiary MORAK attempted to recover gold. In 1999 after mining law reform a
Mauritanian chartered company (GEMAK) attempted to develop Guelb Moghrein, but did
not proceed beyond the production of a feasibility study in 1997.
In November 2004, the Company signed an asset sale agreement the terms of which
included a series of payments totalling $10 million. Site establishment and construction
commenced in March 2005. Guelb Moghrein achieved commercial production in October
2006.
Property Ownership and Interest
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The Company currently holds a 100% interest in Guelb Moghrein through its subsidiary,
MCM SA. The Company held an 80% majority interest which it acquired in 2004 until the
remaining 20% was acquired in February 2010 from GEMAK SA and General Gold Ltd.
The right to mine is mandated by a large scale mining license covering the CM2
concession of 81 km2 valid until December 2042. Additionally, the mining operations are
regulated by a Convention d’Establishment (the “Convention”) with the Government of
Mauritania. This Convention was established in 2006 and renegotiated in 2009 receiving
approval from parliament in November 2009.
In addition to the Guelb Moghrein mining concession, the Company holds five exploration
concessions in the area totalling 5,581 square kilometres either directly through MCM SA
or since 2011 through Mauritania Exploration SARL (“Maurex”), an entity wholly owned by
the Company. Until 2013 the Company held exploration claims in southern Mauritania
covering a 3,321 square kilometres.
Location, Access and Infrastructure
Guelb Moghrein is located 250 kilometres northeast of the nation’s capital, Nouakchott,
near the town of Akjoujt, and is accessible by paved highway. Akjoujt has a population of
approximately 11,000 people.
Guelb Moghrein consists of an open pit copper and gold deposit located 141 metres above
sea level. The climate is classed as desert with an average annual precipitation of 106
millimetres.
The mine provides its own electric power with diesel power generation. It has developed
reliable sources of fresh and saline water from a well field 120 km. distant from the open
pit. The operation has constructed two tailings management facilities and is in the
process of constructing a third.
Exploration, Geological Setting and Mineralization
The Occidental deposit at Guelb Moghrein is considered to be an example of the Iron
Oxide Copper Gold (IOCG) type deposit that, in terms of its structure and mineralogy, has
common features with other IOCG deposits elsewhere in the world. The mineralization is
predominantly hosted by Ferromagnesian Carbonates (FMC). The copper-gold
mineralization is hosted primarily within chalcopyrite and pyrrhotite. Magnetite becomes
abundant outside the sulphide rich zones of the FMC. The deposit extends approximately
600 metres along strike and dips to the southeast at 30º to 40º. The eastern and western
flanks of the Occidental deposit are fault bounded and the deposit is open at depth.
The exploration of Oriental adjacent to the mine has failed to add additional sulphide
resources.
Mining and Processing
Mining started in April 2006. Commissioning of the copper flotation plant commenced in
July 2006 and commercial production began in October 2006. In October 2009 the mining
rate was increased to 3.8 million tonnes of ore per annum at a strip ratio of 3:1. On
average, sufficient ore is stockpiled for two to three months feed to the plant.
Mining at Guelb Moghrein is carried out in a single open pit using hydraulic excavators and
mechanical drive haul trucks. Sulphide ore is treated in the processing plant producing a
copper-gold concentrate. The accompanying CIL circuit was shut down in July 2012
The plant currently produces approximately 15,000 tonnes of concentrate per month at a
grade of 22.5% copper with credits received for gold in the concentrate.
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The main focus going forward is to achieve consistent production rates. A combination of
increased production and enhanced recoveries will allow annual copper metal production
to rise to approximately 41,000 tonnes. To better achieve the targets a major capital
project has been approved to reconfigure the grind circuit in the process plant to a
conventional SAG-ball mill circuit. The modifications are scheduled for completion in 2014
with start-up planned in Q2.
After a successful feasibility study, construction of a magnetite recovery plant is also
underway. Its completion date is forecast to be in Q2 of 2014. Once operational the
plant should be capable of producing 1.0 million tonnes of magnetite concentrate per year
Mineral Resource
The sulphide processing plant was commissioned during the third quarter of 2006. At this
time the Mineral Resource required additional geological data to confirm continuity of the
database derived from pre 1990 drilling. This process was finalised and an updated
Mineral Resource was reported in March 2009. Subsequently additional delineation drilling
was conducted during 2010 and an update of the Mineral Resource was prepared. This
geological model was initially developed by independent geological consultants Snowden
Mining Industry Consultants Ltd; however this work was subsequently taken over by
London based consultants CSA Global Pty Ltd in 2011.
During 2013 CSA Global Pty Ltd and the MCM geological team have further developed the
geological model. No material changes have been identified. This update has included
data associated with the adjacent Oriental deposit the majority of which is classified as
oxidised mineralisation. This has increased the oxide Resources however metallurgical
evaluations need to continue to identify the most practical process route for any potential
oxide ore.
The Mineral Resource at 31st December 2013 was prepared by CSA Global Pty Ltd utilising
the 2013 updated geological model.
Mine Life
The remaining mine life at a treatment rate of 4.0 Mtpa is therefore shown to be
approximately 8 years when all high grade and low grade stockpiles are considered.
Labour
At 31 December 2013, Guelb Moghrein employed 1,170 persons.
Sales
A summary of the revenues for the past three years attributable to the Guelb Moghrein
division is as follows:
Year Revenue ($ million)
2013 315
2012 394
2011 346
Taxes and Royalties
The five year tax holiday for MCM ended on February 20, 2012. The Company has since
paid tax on income at a rate of 25%. A mineral royalty of 3% copper and 4% gold on net
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sales is payable quarterly, subject to allowable capital allowances. Since November 2012
an additional royalty of $0.75/tonne milled is payable on life of mine tonnes milled
between 15 and 26 million tonnes.
2.3 Ravensthorpe
History
Mining in the town of Ravensthorpe predates the current nickel mine, with gold
discoveries dating back to 1898. The town experienced a downturn after the First World
War but mining for copper continued up until the 1970s. A railway line connected
Ravensthorpe with the port of Hopetoun from 1901 to 1925, when the line was closed.
BHP Billiton commenced a feasibility study for Ravensthorpe Nickel Operation in 2002 for
opening a nickel and cobalt mine and processing plant. The project was approved in 2004
and construction commenced shortly afterward. The plant known as the Ravensthorpe
Nickel Operation was commissioned in late 2007 with first production occurring in October
and the first 5,000 tonnes being produced by December 2007. The plant was officially
opened in 2008. Production was expected to total 50,000 tonnes of nickel per annum.
In January 2009, BHP Billiton announced that it was suspending production at the
Ravensthorpe Nickel Operation mine indefinitely, due the reduction in world nickel prices
caused by the global economic crisis when the LME nickel price dropped to as low as
$8,810.00 per tonne in late 2008.
On December 8, 2009, the Company announced it had entered into a binding agreement
with BHP Billiton to acquire the Ravensthorpe Nickel Operation in Western Australia for
$340 million, conditional on receiving certain government approvals. The Company
received the requisite approvals for the acquisition and the transaction was closed on
February 10, 2010.
Property and Ownership Interest
The Ravensthorpe Nickel Operation mineral rights are primarily held by the Company’s
wholly owned subsidiary, FQM Australia Nickel Pty Ltd. The Ravensthorpe Nickel
Operation’s assets, including most of the mineral rights, were previously owned by BHP
Billiton, which was acquired through First Quantum’s acquisition in 2010. The
Ravensthorpe mining licenses held by the Company cover an area of 338 square
kilometres.
Location, Access and Infrastructure
The Ravensthorpe Nickel Operation is located within the shire of Ravensthorpe, Western
Australia, approximately 550 kilometres south-east of Perth. The facility is 35 kilometres
east of the town of Ravensthorpe along the South Coast Highway and readily accessible
by an all-weather road. The region features a flat to undulating sandplain, falling gradually
to the coast 35 kilometres to the south. In the immediate facility of Ravensthorpe is
Bandalup Hill, which forms a prominent rise above the surrounding sandplain. The
Ravensthorpe operation falls within the native vegetation conservation corridor known as
the Bandalup corridor and the Fitzgerald River National Park is located approximately 25
kilometres to the south west.
Land use in the area is primarily wheat, sheep and cattle farming. The nearest residence
is a house located 4.4 kilometres away from the Ravensthorpe processing facility.
Operations involve the open pit mining and beneficiation of nickel laterite ore, pressure
acid leaching (“PAL”), atmospheric leaching (“AL”), counter current decantation (“CCD”),
precipitation and filtration to produce a Mixed Hydroxide Precipitate (“MHP”) product,
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containing approximately 40% nickel and 1.4% cobalt on a dry basis. Sulphuric acid for
the leaching process is produced on site in a 4,400 tonnes per day sulphur burning,
double absorption, acid plant, with waste heat being recovered to produce steam via three
18MW steam turbines, for the generation of power and to provide heat for the leaching
process. An additional 12MW of diesel generating capacity is installed. Final tailings from
the CCD circuit is neutralized and pumped to the Tailings Storage Facility (“TSF”), which
eventually will consist of three cells of approximately 190 hectares in plan area. Nickel in
MHP is transported in sea containers from site, via the South Coast Highway, to the Port
of Esperance (approximately 140 kilometres to the east) from where it is exported to
world markets.
Ravensthorpe accommodates its Fly in Fly out (“FIFO”) shift workers in an onsite camp
and village, which has a capacity of 750 rooms, dry and wet mess with recreation
facilities. Residential staff are housed in 165 company-owned houses and units in the
towns of Hopetoun and Ravensthorpe.
Geological Setting and Mineralization
Ravensthorpe currently consists of Mineral Resources defined at the Halleys, Hale-Bopp
and Shoemaker-Levy nickel laterite deposits. The deposits are developed over Archaean
Ultramafic rocks on the eastern margin of the Ravensthorpe Greenstone Belt and extend
over a strike distance of 17 kilometres. Nickel laterites have formed through prolonged
deep weathering of the Bandalup Ultramafics, which comprise a north-northwest striking,
serpentinised komatiite complex. Nickel and cobalt, present in the serpentinised
komatiite, have been concentrated by weathering processes in the lateritic regolith.
Residual and supergene accumulations of nickel, cobalt, silica, manganese and iron have
developed within sub-horizontal tabular zones in association with the extensive leaching of
mobile elements (principally magnesium and silica). The deposits display strong
similarities in regolith geology and geochemistry, including textural and mineralogical
attributes, a consequence of the fundamental link provided by the ultramafic sequence on
which they are developed.
Recognized zones within the ultramafic derived profile include Saprolite, clay,
goethite/Limonite, leached siliceous pedolith, lateritic residuum and surficial cover.
Barren units, collectively referred to as ‘caprock’, overlie nickel-enriched zones and
include the surficial cover, lateritic residuum and leached siliceous pedolith zones. The
nickel-enriched zone forms a gently undulating blanket beneath the barren units, whilst
cobalt mineralization occurs mainly in a narrow zone generally towards the top of the
nickel-enrichment zone in association with manganese accumulation. The majority of
nickel mineralization in the deposits is hosted in the goethite/Limonite zone, whilst the
upper levels of the Saprolite zone is also commonly well mineralized. Well-developed
smectite clay zones are rare and tend to be associated with sheared and strongly
serpentinised protolith units flanking the ore body.
Labour
At December 31, 2013, Ravensthorpe employed 428 persons, plus contractors.
Sales
A summary of the revenues for the past three years attributable to the Ravensthorpe
division is shown below. As discussed above, Ravensthorpe achieved commercial
production on December 28, 2011.
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Year Revenue ($ million)
2013 474
2012 388
2011 -
Mining and Processing
Ravensthorpe is an open cut mine and hydrometallurgical processing plant that uses
proven technology to recover nickel and cobalt to produce a mixed nickel cobalt hydroxide
intermediate product. The Company expects the project’s average annual production of
nickel metal to be approximately 36,000 tonnes for the next five years of operations with
an average annual production of 28,000 tonnes of nickel metal over the expected life of
mine of 28 years.
Permits
Ravensthorpe holds 27 mining permits (133 square kilometres), two granted exploration
permits (31 square kilometres) and two exploration permit applications (174 square
kilometres) covering a total area of 338 square kilometres. As well as the 100% owned
tenements, Ravensthorpe has agreements in place with other companies for access to
laterite nickel rights on a further 14 tenements totalling 423 square kilometres.
Mineral Resources and Reserves
The Mineral Resources and Reserves associated with the Ravensthorpe Nickel Mine, when
acquired by FQM in February 2010, reflected the most recent values as prepared by the
previous owner BHP Billiton at the time of the mine closure in January 2009.
The Mineral Resources have subsequently been verified on behalf of FQM by FJ Hughes &
Associates and the Mineral Reserves have been verified by Anthony Cameron of Cameron
Mining Consulting. These findings have been reported in a September 2013 Technical
Report effective December 31st 2012, and in accordance with NI 43 101. Both consultants
are independent qualified persons as defined by NI 43 101.
Ravensthorpe Nickel Operation continues to undertake delineation and grade control
drilling to assist with the identification of the ore feed characteristics – both
geomechanical and geochemical. This data will also be utilised to update the Mineral
Resources and Reserves in due course and when actual operational parameters have been
derived from the current mining and processing activities.
For the purposes of reporting the status of the Mineral Resources and Reserves at the
31st December 2013, previous estimates have subsequently been depleted to reflect
actual mining activities that occurred during 2013.
Mineral Resource – Ravensthorpe
This Mineral Resource has been depleted during 2013 to reflect the actual mining activities
that have taken place during the year. This summary contains all measured, indicated and
inferred material at the current mine Halleys and future mining areas, Hale Bopp and
Shoemaker Levy. The Inferred Mineral Resource at the exploration targets of Shoemaker
Levy North and Nindilbillup have also been included in the table below.
Commissioning and start-up activities utilised ore feed from the stockpiles created by the
previous owners. Some stockpiles of both Saprolite and Limonite ore still remain on
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surface and these are included in both the Mineral Resources and Mineral Reserve
estimates.
Mining Review
Mining statistics for the year ended December 31, 2013 are set out in the following table:
Production Review
Production statistics for the year ended December 31, 2013 are set out in the following
table:
Unit 2013 2012 2011
Saprolite Ore Processed (Bene Feed)
‘000 Tonnes 2,917 2,862 1,069
Limonite Ore Processed (Bene Feed)
‘000 Tonnes 4,571 4,961 1,585
Saprolite Ni Grade %Ni 0.88 0.95 0.84
Limonite Ni Grade %Ni 0.84 0.85 0.72
MHP Produced Tonnes 158,805 136,510 24,861
Ni in MHP Production Tonnes 38,103 32,884 5,666
Permits
Ravensthorpe holds all necessary Australian permits required to carry out its operations
and operated in material compliance in 2013.
Mine Life
The mine’s annual production of nickel is expected to average 36,000 tonnes for the next
five years of operations with an average annual production of 28,000 tonnes of nickel over
the expected life of mine of 30 years.
Taxes and Royalties
The current rate of corporate income tax under Australian legislation is 30% of earnings.
A mineral royalty of 2.5% of sales less certain allowable deductions is paid on a monthly
basis to the State Government of Western Australia.
2.4 Kevitsa
History
The Kevitsa mineral property is a large nickel-copper-PGE (platinum group elements)
deposit situated in northern Finland. The deposit was discovered by the Geological Survey
of Finland (“GTK”) in 1987. GTK completed diamond drilling consisting of 563 holes for a
total length of 48,474 metres. Of these, 278 holes totalling 32,845 metres outlined the
deposit.
Unit 2013 2012 2011
Waste Mined ‘000 Tonnes 4,113 2,489 0
Saprolite Ore Mined ‘000 Tonnes 4,149 3,023 1,142
Limonite Ore Mined ‘000 Tonnes 5,295 5,075 1,629
Total Ore Mined ‘000 Tonnes 9,444 8,098 2,771
Strip Ratio 0.73 0.3 n/a
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The Finnish government auctioned the deposit in 1995, and the project was taken over by
Outokumpu Mining Oy (“Outokumpu”). Outokumpu drilled 15 holes for a total length of
2,220 metres, partly for collection of material for metallurgical testing. Following
comprehensive metallurgical testing, Outokumpu failed to produce nickel and copper at
recoveries which warranted development of the project and returned the project to the
Finnish Ministry of Trade and Industry in 1998.In July 2000, Scandinavian Minerals
Limited (“SML”) (then called Scandinavian Gold Limited) engaged SRK Consulting (“SRK”)
to compile all data and evaluate the potential for a large-scale open pit mining operation
on the Kevitsa property with hydrometallurgical treatment of a bulk concentrate using the
PlatSolTM process. The technical report prepared by SRK was originally published in April
2001, updated in September 2003 and amended in December 2003. SRK identified
Mineral Resources to a depth of 500 metres and Mineral Reserves for an open pit mining
scenario to a depth of 450 metres.
SML concentrated on developing the project using conventional flotation technology to
produce separate nickel and copper concentrates for sale to smelters. In March 2004,
SML commenced a program of metallurgical development work designed to produce such
concentrates. Extensive bench-scale testing has been followed by mini-pilot and pilot
plant tests which demonstrated that separate, smelter-grade copper and nickel
concentrates could be produced at reasonable levels of recovery.
Following this metallurgical success, in October 2005, SML engaged St. Barbara to
undertake a new study (Kevitsa Pre-Feasibility Study) based on open pit mining with
production of smelter-grade concentrates for sale to Finnish or overseas smelters. The
study was completed in July 2006 and showed positive economics for an open pit
operation mining 4.5 million tonnes of ore per annum.
Further pilot plant tests were followed by the Geological Survey of Finland in the
laboratory in Outokumpu in 2006-2008. A break-through in producing a bulk concentrate
with good recoveries was followed by successful selective processing of copper and nickel
concentrates.
Following the acquisition of SML by the Company, during 2008-2010, an intensive
program of resource definition and resource extension drilling was executed at Kevitsa.
Drilling focused using a new geological model that has assisted in the definition of a
substantial new body of mineralization immediately south of the prior resource. An
updated resource estimation completed in late 2010 defined an enhanced resource of 240
million tonnes at 0.30% nickel and 0.41% copper in measured and indicated category plus
an additional 35 million tonnes at 0.29% nickel and 0.36% copper in inferred category.
This has boosted the overall resource by some 96% compared to the resource at time of
acquisition in 2008.
The Mineral Reserves have also been reassessed and have been developed using current
and predicted economic and physical conditions that are likely to prevail over the life of
mine.
Property and Ownership Interest
The mineral rights are held by the Company’s wholly owned subsidiary, FQM Kevitsa
Mining OY (“FQM Kevitsa OY”). The rights were previously held by Kevitsa Mining AB,
which was acquired through FQM’s acquisition of SML in 2008.
Minerals rights in Finland are owned by the state and regulated by an office under the
Ministry of Employment and the Economy. The Chief Inspector of Mines grants exploration
permits according to the legislation. Applications are open for all legal entities within the
European Union. Initially, a reservation is granted which is valid for one year which
provides limited rights to do exploration, with the permission of the landowner, but does
not grant access to land.
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A claim is considerably more expensive, but confers the right to conduct activities on the
land. Claims are initially granted for a period of five years and, provided activities can be
demonstrated, can be extended for an additional three years and, under certain
conditions, even further. During the claim period, a mining concession can be applied for
provided a potential deposit has been located. The application for the environmental
permit for mining was filed in July 2007.
The Company’s interest in the Kevitsa property consisted of 24 exploration licenses
(“claims”) totalling approximately 24 square kilometres, nine of which were issued in
November 2000, the balance being issued in March 2006. In December 2006, the
Company applied for the mining concession which, under Finnish law, replaced the claims.
Kevitsa was granted the environmental permit in July 2009 and the mining concession in
September 2009.
Location, Access and Infrastructure
The Kevitsa property is located at approximately 142 kilometres north-northeast of
Rovaniemi, the capital of Finnish Lapland. Access is by road from Rovaniemi, along the
main highway E75 to the village of Petkula. Kevitsa is situated 8 kilometres east of
Petkula by forest road. Power is available from a 21 MW hydroelectric power station
located next to Petkula village and which is connected to the Finnish national grid.
Kevitsa Mining Oy bought the land covering the mining concession in spring 2008. The
principal landowner in the region surrounding the Kevitsa property is the Finnish State
Forestry Commission.
The terrain at Kevitsa is generally flat, with an altitude of between 220 metres and 240
metres above sea level. The Kevitsa hill, rising to approximately 350 metres, is situated
in the southeastern part of the claim block. The land consists of bog land alternating with
slightly raised terrain with pine forest. The original forest at Kevitsa was cut down several
decades ago. Bedrock outcrops on the hills but is generally covered by a one to five
metre thin layer of moraine. In boggy land, a one to five metre thick peat layer is
developed on top of the moraine.
The climate of the Kevitsa property is subarctic. Based on long-term climatic data from
Sodankylä Municipality (1971 to 2000), the average temperature was -0.8ºc and average
precipitation was 507 millimetres. October to April has negative average temperatures
with January being the coldest with an average of -14.1ºc. Half of the precipitation falls
during this period as snow. The summer months warm up fast with July being the
warmest with an average of 14.3ºc. There is no permafrost in the area. Year-round
operation is possible in Finland.
Geological Setting and Mineralization
The mineral deposit on the Kevitsa property is hosted by the mineral intrusion known as
the Kevitsa Intrusion. The Kevitsa Intrusion is situated within the Fennoscandian (or
Baltic) Shield which comprises Archaean basement gneisses and late Achaean to early
Proterozoic greenstone belts. Intrusive activity towards the end of the Archaean
generated an abundance of layered intrusions, including the Kevitsa Intrusion.The Kevitsa
Intrusion measures approximately 3.5 kilometres north-south by 5 kilometres east-west
and outcrops to the south of the Koitelainen Layered Intrusion. The Koitelainen Layered
Intrusion measures some 20 kilometres north-south by 25 kilometres east-west. The
area is partially covered by a thin discontinuous layer of glacial moraine which can reach
up to 5 metres in thickness and comprises a poorly sorted mix of rounded boulders and
cobbles in a matrix of silty sand.
The Kevitsa Intrusion has a roughly circular outcrop/subcrop and comprises basic olivine
pyroxenites and metaperidotites in the northeast, gabbro’s in the west and central areas
and granophyres primarily in the south. At the centre of the outcrop is a large serpentinite
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xenoliths measuring 500 metres north-south by 1,500 metres east-west. The northern
(basal) contact of the intrusion dips at between 40° and 50° to the south and is
discordant to the bedding in the metasediments. The intrusion is characterized by
internal layering defined by changes in petrological composition. This roughly parallels the
basal contact but the dip reduces to 20° in the upper layers.
The Kevitsa nickel-copper-cobalt-PGE mineralization (herein referred to as the Kevitsa
deposit) is contained within the olivine-pyroxenite of the Ultramafic Zone of the Kevitsa
Intrusion. The Ultramafic Zone contains up to 5% sulphide, the majority of which occurs
as granular masses interstitial to the cumulate silicate mineral grains. Only in one
particular area do the sulphides become nickel, copper and PGE rich, and it is this area
that constitutes the Kevitsa deposit.
Potentially economic grades are concentrated in a high-grade core of the deposit, which
outcrops at surface in an irregular, roughly circular; shape 300 to 400 metres in diameter
and dips at approximately 50° to the southwest. The metal grades decrease gradually
away from this core in all directions. Particularly high nickel and PGE grades have been
identified in relatively narrow vertical shoots near the surface in the centre of the deposit.
The mineralogy is reasonably consistent throughout the Ultramafic Zone, comprising
largely olivine and orthopyroxene grains. The sulphides are finely disseminated, generally
100-500 microns in size. Most (>95%) of the sulphides consist of pentlandite (a nickel
sulphide), chalcopyrite (a copper sulphide) and the iron sulphides pyrrhotite, troilite and
pyrite. Other sulphides include cubanite, (a copper-iron sulphides), mackinawite (an iron
rich pentlandite), and millerite and heazlewoodite (both nickel sulphides).
Labour
As at December 31, 2013, Kevitsa directly employed 337 persons.
Sales
A summary of the revenues for the past two years attributable to the Kevitsa division is
shown below. As discussed above, Kevitsa achieved commercial production on August 18,
2012.
Year Revenue
($US
million)
2013 198
2012 72
Mining and Processing
Mining is by open pit methods. The amount of mineable ore was updated in December
2010. At 160.1 million tonnes, the new Mineral Reserves are considerably larger than the
previously reported estimate of 107.5 million tonnes, and the planned stripping ratio will
be in the order of 3:1, over the life of the mine.
Given the increase in Mineral Reserves, expansion capability has been designed and built
into the treatment plant facilities. An Environmental Impact Assessment was completed in
2011 for the expansion and an application for the Environmental Permit was submitted in
December 2011 from the current 5.0 million tonnes per annum up to a maximum of 10
million tonnes per annum. Liaison with the relevant authorities is in progress with the
expectation that a result should be forth coming in H1 2014. Once granted a decision will
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be taken to determine the next step change nameplate rate at which Kevitsa will operate
whilst maintaining life of mine integrity.
Processing is traditional. Mined ore is crushed in a primary crusher. The primary crusher
product is screened to send the Autogenous Grinding (“AG”) mill media to stockpile, the
mid product to secondary crushing and pebble storage for the pebble mill media. The
crushed ore is then ground in a combination of AG mills and a pebble mill.
Copper and nickel ore is recovered in separate flotation circuits with each product being
thickened and filtered to produce concentrates stored separately for transport.
Two different concentrates are produced; the first being a Nickel-Copper-PGE-Gold
concentrate grading close to 12% nickel. The nickel content in the concentrate is expected
to produce approximately 10,000 tonnes of nickel metal per annum. The second is a
copper-PGE-gold concentrate grading close to 28% copper. The copper content in both
concentrates is expected to produce approximately 17,000 tonnes of copper metal per
annum.
The annual production of PGEs is expected to be approximately 34,000 ounces; gold
5,000 ounces and minor amounts of cobalt. Off-take arrangements for the separate
treatment of both concentrates will target international as well as local smelters.
Permits
Kevitsa holds all necessary Finnish permits required to carry out its operations and
operated in material compliance in 2013. Kevitsa was granted the environmental permit in
July 2009 and the mining concession in September 2009.
Mineral Resource and Reserves
Mining activities have commenced during 2012 and continued during 2013 hence the
Mineral Resource has subsequently been depleted and the position at the 31st December
2013 is shown below.
Mine Life
The expected mine life for Kevitsa is 29 years at an approximate average treatment rate
of 5.5 million tonnes per annum.
Taxes and Royalties
The current rate of corporate income tax under Finnish legislation is 20% of taxable
earnings.
3. DEVELOPMENT PROJECTS
3.1 Trident (Sentinel Copper Project and Enterprise Nickel Project)
History
The Trident project area was originally investigated by Roan Selection Trust (“RST”) in
1959-1961, Anglo American and Equinox in the 1980’s-1990’s and Kalumbila Minerals
Limited (“KML”) in 2007-2009. Emphasis has varied from copper (RST) to nickel (Anglo
American) and back to copper with KML over that period. RST completed 31 wide spaced
core holes over the Sentinel area and encountered widespread but relatively low grade
copper mineralization. Anglo American focussed on detailed drilling for nickel-copper
mineralization around the Kalumbila Fault and generated a limited resource. Between
2007 and 2009, KML (then owned by Kiwara Resources Limited and LM Engineering)
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completed the first systematic drilling of the extensive copper mineralization over 8
kilometres of strike extent.
Property and Ownership Interest
On January 29, 2010, the Company acquired 100% of Kiwara PLC (“Kiwara”). Kiwara’s
main asset was a controlling interest in the Trident Prospecting License Area, which
included the Kalumbila project copper deposit. The entire project was renamed the Trident
project in 2010. The License Area includes the Sentinel Copper Project ("Sentinel"), the
Enterprise Nickel Project ("Enterprise") and several other exploration targets. Following
the acquisition, the Company focused most of its exploration and planning efforts first on
Sentinel, then on Enterprise. The drilling program at Sentinel completed 514 boreholes for
172,692 metres and a NI43-101 Resources estimate was published on March 26, 2012. A
maiden NI43-101 resource estimate was released for Enterprise in December 2012 after
359 boreholes for 116,000 metres were completed.
Location, Access and Infrastructure
The Trident Project is situated approximately 150 kilometres northwest of the town of
Solwezi in northern Zambia. Access to the area from the main bitumen road linking
Solwezi with Mwinilunga has been upgraded with an all-weather road, and the airstrip has
been extended for small commuter plane traffic. The Trident licenses area consists of
relatively flat forest covered plains with some rolling hills and some permanent
watercourses. Minor areas of habitation and subsistence farming exist to the north of
Sentinel. Sentinel lies approximately 25 kilometres from the bitumen road and about 60
kilometres from current powerlines which terminate at the Lumwana Mine.
Geological Setting and Mineralization
The Trident Project area lies on the western end of the Lufilian fold belt, a Pan-African
structural belt that extends in a broad arc from the Zambian Copperbelt in the east to the
DRC in the north and into northeast Angola in the west. The collection of deposits that
make up the Trident Project lie on the margins of the Mesoproterozoic Kabompo Dome,
one of several basement inliers in northwest Zambia that are surrounded by a thick
succession of Neoproterozoic sedimentary rocks belonging to the Katanga Supergroup.
The Katangan metasedimentary rocks surrounding the Kabompo Dome have historically
been broadly correlated with the Lower Roan stratigraphy of the Zambian Copperbelt.
The Trident Copper project in Zambia comprises three significant exploration areas:
Sentinel, Enterprise and Intrepid. The majority of geological evaluation has focussed on
Sentinel and Enterprise, further regional targets are currently subject to exploration
drilling.
Sentinel Copper Project
The Sentinel deposit is a stratabound, sedimentary hosted Cu-Ni-Co sulphide deposit with
a known strike extent of 11 kilometres. Base metal mineralization is hosted in northwest
trending carbonaceous phyllite (or meta-shale), and overlain by dolomitic quartz-mica
schists. In the central portion of the phyllite, copper mineralization occurs as a lensoidal
body, with cobalt and minor nickel association. The mineralization occurs in veins and
lenses, or as sparse disseminations in the carbonaceous phyllite. Finely laminated pyrite
mineralization occurs in the upper 200 metres (m) of phyllite, with some thin nickel-cobalt
enriched horizons associated with pyrrhotite rich layers. Mineralised lenses are roughly
conformable to bedding planes, and dip from 35 to 40 degrees to the northwest. The
mineralised units terminate against a north-westerly trending fault zone (Kalumbila Fault)
to the northeast. A lithostructural control on the loci of mineralization is evident. Copper
sulphides are focussed in a relatively carbon-rich horizon in the centre of the phyllite. The
carbon-rich unit occupies the hinge of a decametre-scale isoclinal synform that closes to
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the north. The hinge zone is a low-strain structural site. Mineralization at Sentinel is
almost all sulphide in nature, with oxide derivatives generally limited to 10-20 metres
surface in the weathering profile. Copper mineralization is exclusively chalcopyrite, with
extensive zones of pyrite, particularly in the hanging wall, and pyrrhotite occurring
throughout.
Mineral Resource and Reserves
The Trident Copper project in Zambia comprises three significant exploration areas:
Sentinel, Enterprise and Intrepid. The majority of geological evaluation has focused on
Sentinel and Enterprise, plus drilling has also commenced at the other sites.
At Sentinel a series of internal Mineral Resource estimates have been undertaken as part
of the planning/development process and also to assist with prioritisation/refinement of
the drilling programme. The most recent formal Resource estimate was prepared and
reported in May 2012 and is available on SEDAR at www.sedar.com under the company's
profile.
Additional delineation drilling commenced in late 2012 and was completed by mid-2013.
During the latter part of 2013 the Mineral Resource was re-evaluated utilising the
additional drill hole data and further geological interpretive findings. As at 31st December
the Mineral resource update had not been finalised and it is expected to be completed
during 2014. As such the Mineral resources and Reserves for Sentinel remain the same as
previously reported.
The Resource delineation was undertaken by independent geological consultants CSA
Global Pty Ltd. To assist with the development planning for Sentinel the Resource has
been developed within an envelope defined by at 0.15% Cu so that all mineralisation can
be incorporated into the geological data set. The Resource has subsequently been
evaluated and reported at a cut-off 0.2% Cu.
Enterprise Nickel Project
Mineral Resource and Reserves
Enterprise is part of the Trident project which includes Sentinel that is currently under
development. The project is located approximately 150 kilometres from Solwezi in north-
west Zambia. In April 2011, large-scale mining licenses for the development of the Trident
project were received from the Government of the Republic of Zambia.
An intensive resource definition drill programme has been completed over the Enterprise
prospect during 2012. Recent drilling has been focused on a nearby satellite zone known
as Enterprise Southwest. This additional data has been utilized to update the Mineral
Resource and Mineral Reserve. These findings will be completed during 2014. Hence the
Mineral Resources and Reserves as at the 31st December 2013 remain the same as
previously reported.
Resource modeling and estimation has recently been completed by CSA Global (UK). The
Mineral Resource estimate for Enterprise Main Zone and Southwest Zone includes a total
of 40.1Mt @ 1.07% Ni in Measured and Indicated classification plus an additional 7.0 Mt
@ 0.7% Ni in Inferred classification.
Mining and Processing
Ores from Enterprise will be transported to the Sentinel processing facility, where they will
be treated in a SAG – ball milling circuit followed by flotation with a treatment rate of up
to 4 million tonnes per annum, Enterprise is being designed to produce an average of
38,000 tonnes of nickel in concentrate per annum with scope to increase to 60,000 tonnes
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when nickel market conditions allow. The Enterprise circuit will also be able to process
additional copper ore as part of Sentinel in the time periods when it is not being used to
process nickel.
A dedicated primary crusher, crushed ore stockpile and conveying system will be provided
for the Enterprise ores; crushed ore will be milled in a SAG and ball milling circuit, and
the ground product floated in a circuit comprising talc pre-float, nickel rougher flotation,
and two stages of cleaning. The talc pre-float will be operated without reagent addition to
produce a talc concentrate containing very little nickel, which will be discarded to final
tailings. Final concentrate at a grade of between 24 and 30% nickel, will be thickened
and filtered in a dedicated concentrate handling facility.
The Enterprise processing facility will share all the Sentinel infrastructure, and tailings will
be discharged to the Sentinel tailings thickeners and tailings storage facility.
Permits
During April 2011, five Large-scale Mining License applications were granted covering 950
kilometres, which include Sentinel, Enterprise and several other exploration targets. The
granting of the Large-scale Mining Licenses was conditional upon approval by the
Environmental Council of Zambia (ECZ) of the Environmental Impact Assessment which
was submitted to the ECZ in early February and approved in July 2011. Various updates to
the Sentinel EIA were submitted to ZEMA on July 26, 2012 principally for amendments to
the tailing storage facility and process water facilities.
Construction Timeframe and Key Financial Findings
Following capital project approval by the Company’s Board of Directors in May 2012, the
construction phase for Sentinel commenced during 2012 with commissioning being
targeted by the end of 2014. Coordination with power supply and smelting capacity in
Zambia targets the running of one milling train during 2014, with the second milling train
being brought on line at the end of 2014/early 2015 Altogether, the total approved capital
estimate to develop the Sentinel and Enterprise projects total $2.0 billion.
4. ADVANCED EXPLORATION PROJECT
4.1 Haquira Project
History
The acquisition of Antares and its principal asset, the Haquira copper deposit, was
finalized in late 2010. The Company’s current priorities are to commence the
environmental impact assessment on the project approach and obtain free access to the
project footprint by negotiation with surface rights holders and other significant
stakeholders. During 2011 an exploration program commenced including systematic
detailed airborne magnetic and electromagnetic surveys covering the whole property as
well as detailed soil geochemistry and mapping programs. A new 3D geological model of
the porphyry system, alteration halo and regional architecture was completed in 2011 has
now generated several high priority exploration targets.
Environmental permits were obtained in late 2012 but were subject to an authorisation to
start works procedure. Eventually this authorisation was waived due to the fact that the
works at Haquira are an ongoing exploration project. Thus permits are in place to
continue exploration. In December 2013, titles over 7 concessions (6,400 ha) adjacent to
Haquira were purchased that comprised the "Cristo de los Andes" project. These
concessions were formerly held and explored by FQM through a mining assignement with
the previous owner Hochschild Mining. These concessions will now form part of the
Haquira project, and in addition to potential copper resources, these additional areas
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consolidate our position and will potentially accommodate infrastructure for Haquira.
Antares entered into a recalibration of the project with local communities where the
change from an exploration project to a development project was explained. The latter
involves potential relocation of certain key communities. In the latter half of 2013,
commissions were formed between the communities and Antares to create the framework
for negotiations on resettlement in the most transparent manner possible. These
commissions will continue into 2014 when negotiations for resettlement are planned to
begin. Exploration at Cristo de los Andes is likely to be undertaken in 2014, and at
Haquira when the parameters for the project, particularly resettlement, have been
established.
Property and Ownership Interest
First Quantum owns 100% of the Haquira project located in southern Peru adjacent to
Xstrata Copper's Las Bambas copper-gold project.
Location, Access and Infrastructure
The Haquira property is in the Andes at elevations of 3,500 to 4,400 metres, and consists
of treeless, gently rolling hills with grassy vegetation and some rocky ridges. Rainfall is
abundant between December and March (summer).
The property is located in the Apurimac Department of southern Peru, approximately 270
kilometres northwest of Arequipa or approximately 80 kilometres southwest of Cuzco.
Access from Arequipa is by paved and unpaved roads, with a driving time of between 12
to 14 hours. Access from Cuzco is by recently improved paved and unpaved roads, with a
driving time of approximately 6 hours. Xstrata Copper is in the process of developing the
Las Bambas project. Haquira should benefit from the infrastructure improvements,
primarily access roads and power lines.
Geological Setting and Mineralization
The Haquira project is located in the southeast part of the Andean cordillera in Peru,
where parallel belts of Paleozoic and younger rocks are intruded by Tertiary (Oligocene)
diorites and monzonites, including the Haquira porphyry. On the Haquira property, the
Jurassic-Cretaceous sedimentary sequence consists of several formations containing
arenites (quartzose sandstones), siltstones, and shales. The overlying Ferrobamba
Limestone does not crop out in the immediate area of known mineralization, but has been
identified elsewhere nearby on the property. The sedimentary rocks are folded into a
series of major folds with wavelengths of 1 to 3 kilometres, with some thrusting.
Oligocene intrusives occur as stocks and sinuous dikes, the latter spatially related to faults
and/or fractures that strike north-northwest. Most of the intrusions are medium-grained
to porphyritic diorites, quartz diorites, monzonites, and monzodiorites. The Oligocene
intrusions silicified the arenites and converted some of the finer grained siltstones and
shales into diopside, biotite, and epidote-bearing hornfels. The most important intrusive
phase found to date is the Haquira monzonite porphyry, which is currently thought to be
the main mineralizing intrusive body. It contains abundant disseminated chalcopyrite,
pyrite, and molybdenite. The better primary (hypogene) copper grades tend to be
associated with the Haquira porphyry. Pliocene and younger (post-mineral) tuffs and
alluvium overlie the Oligocene and older rocks.
Mineralization at Haquira is related to porphyry-copper systems generated by the
Oligocene intrusives, including the Haquira Porphyry. Mineralization occurs not only as
copper oxide and secondary (supergene) chalcocite in the form of sub-parallel enriched
secondary or supergene copper blanket, but also in the form of copper sulfide-bearing
stockworks and sheeted-vein systems of interesting grades in underlying primary
(hypogene) porphyry-copper style. In addition, there is some potential for skarns
developed in carbonate rocks adjacent to the porphyry intrusives.
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Labour
At December 31 2013, Haquira employed 176 persons.
Mining and Processing
The Haquira project is one of the world’s major undeveloped copper deposits with
excellent potential for the development of a large-scale copper mine with production from
both near-surface secondary copper mineralization amenable to SX-EW leaching and from
a larger, underlying body of higher grade primary porphyry copper-molybdenum gold-
silver mineralization to be processed by a conventional mill/concentrator operation.
Permits
Through its wholly-owned subsidiary Antares, the Company currently has rights to over 23
contiguous exploration concessions covering 185 square kilometres around Haquira. This
includes six new concessions applied for since the Haquira acquisition in 2010. In addition,
the Company has purchased the adjacent property to the south, Cristo de Los Andes,
which includes seven concessions for 64 square kilometres. The Company also has rights
to over 13 concessions for 123 square kilometres at Caraybamba and six concessions for
52 square kilometres at Quinota.
Agrarian reform in Peru has resulted in the surface rights at Haquira being held by four
Andean communities, and 12 more in the area of influence. Development of Haquira will
require the purchase of certain surface rights.
During 2012, the necessary environmental permits for drilling at Haquira and Cristo de
Los Andes have been obtained. Also during 2012, the Government of Peru has legislated
an additional procedure requiring a formal authorization to start exploration activities.
This procedure initiated delays due to the fact that the government was considering
whether prior consent regulations apply. This situation was resolved in 2013.
Mineral Resource and Reserves
The Haquira project currently has reported Measured and Indicated Resources of 3.7
million tonnes of contained copper equivalent and inferred resources of 2.4 million tonnes
of contained copper equivalent.
The previously published Mineral Resource at Haquira includes 570 million tonnes at
0.64% copper equivalent in measured and indicated categories and 406 million tonnes at
0.58% copper equivalent in inferred categories. Once community access agreements and
relocation programs are finalized, the primary objectives for the project will include infill
resource drilling particularly on the secondary (supergene) mineralization between the
Haquira East and Haquira West as well as condemnation drilling and reconnaissance
drilling of satellite targets.
Further deeper holes will be targeted at extensions of sulphide mineralization particularly
at Haquira West. The Company considers that there is excellent potential to expand the
current resources through incremental additions at Haquira as well as potential for a
buried cluster of porphyry targets within the property.
Outlook
Significant additional work is required to progress the Haquira Prospect towards a
development decision. This decision would require further resource and engeneeing
drilling, mine planning, metallurgical testing, plant, tailings pond and waste rock dump
design, infrastructure planning, closure plans, environmental and social impact studies.
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The Company's current priorities are to complete community access and relocation
agreements, complete the environmental impact assessment and then initiate
condemnation infill and expansion drilling. The Company aims to continue an Engineering
Study during 2014. The EIA contract was awarded and work started during Q2 2013.
Due to a reform of the EIA regulations and limited access dring community negotiations,
the EIA will be retendered in 2014. The EIA is expected to be submitted in late 2015,
with an approval and granting of key construction permits by mid 2016. Construction is
expected to take 36 months.
Peru Regional Exploration
The Company is using the Haquira project as a platform towards building a regional
exploration portfolio in Latin America and is currently evaluating a number of early stage
porphyry copper opportunities, particularly in southern Peru and northern Chile.
First Quantum has entered into a joint-venture agreement with Zincore Metals Inc. over
the Dolores property, which includes 11 concessions for 94 square kilometres in which the
Company can earn an 80% equity interest. It also has a 23.7% equity interest in Zincore
Metals Inc. and certain rights to form additional joint-ventures over copper targets within
Zincore's regional claim package of 65 claims for 500 square kilometres.
4.2 Other Exploration
The Company has historically expanded its reserve base through a combination of
carefully targeted acquisitions and district scale exploration. Following several years of
successful resource development programmes that have provided our major operations
with long mine lives, the emphasis of the company’s exploration is migrating towards
earlier stage projects. The Company wishes to take advantage of the downturn in global
competition to build a portfolio of high quality pipeline developments for the future. The
major focus is divided between the identification of robust porphyry copper prospects and
grassroots exploration for sediment hosted copper. Lesser programmes are considering
multi-commodity Nickel-Copper-PGM prospects and evaluating other commodities that
may provide suitable businesses for future diversification.
In 2013 the Company incurred $51 million of expensed exploration, split fairly evenly
between near mine exploration, primarily in Africa, Finland and Peru ($22 million), and
early stage exploration projects and joint ventures in a variety of prospective provinces
around the globe ($24 million). In addition some $5 million was committed to ‘Generative’
activities – that is generating grassroots districts and targeting for future exploration.
In 2013 the Company’s most intensive near mine exploration programmes were focussed
around Kansanshi, Trident and Kevitsa. More modest programmes were in place at Çayeli
and Pyhäsalmi. The programme at Kansanshi in particular continues to deliver incremental
ore sources, much of which is complementary to the expanding mine plan. In Peru the
emphasis has been on building a portfolio of early stage projects in the Andahuaylas
porphyry belt surrounding Haquira.
In recent years the Company has deliberatively diversified from its strong African reserve
base to establish a ground position and expertise in many of the other premier copper
provinces around the globe. This commenced in 2010 through the purchase of Haquira in
Peru and in 2013 expanded to include Panama, Chile, Mexico and the US through the
acquisition of Inmet’s project portfolio. A detailed review of Inmet and First Quantum’s
various projects and joint ventures was conducted following the corporate merger. A
significant rationalization was completed resulting in the withdrawal or relinquishment of
many projects that did not meet the significant scale criteria required by the combined
entity. However, in several cases it has been possible to replace or substitute higher
quality projects into the portfolio given junior companies readiness to joint venture in the
current downturn.
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The Company’s strategy on porphyry copper projects is carefully guided by pro-active
selection of joint venture prospects in preferred segments of porphyry belts followed by
swift but systematic evaluation of known porphyry occurrences during a limited ‘option’
period. In this way it is proving possible to rapidly turn over opportunities without major
on-going commitments and to accelerate the discovery of our preferred large scale
targets. In contrast, exploration for sediment hosted copper deposits capitalizes on the
Company’s considerable experience in the African Copperbelt where detailed targeting
models have been developed using innovative geochemistry and geophysical mapping
techniques. Unlike porphyry copper very few global mining groups have expertise in
sediment hosted copper exploration, resulting in less competition for those targets. The
Company’s experienced exploration team is now actively engaged in applying our
proprietary models and techniques into less well explored sediment hosted copper basins
around the world. In 2013 this included grassroots programmes in Botswana, Australia
and Canada.
5. ENVIRONMENTAL
General
The Company operates in material compliance with all applicable environmental laws. This
includes the preparation and filing of environmental and social impact assessment reports
for each of its operations. In addition, the Company has environmental and social
management plans and policies which apply to each of its operations. The Company’s
goals with respect to the environment are similar to those under ISO 14001 management
guidelines and the Company subscribes to the Equator Principles.
In 2013, the Company continued implementation of approved environmental management
plans at each of its operations designed to protect the environment and minimize its
potential environmental liability, including pollution prevention, legal compliance and
continued environmental improvement. With the acquisition of Inmet Mining in April
2013, the Company’s operations now include Kansanshi (Zambia), Guelb Moghrein
(Mauritania), Ravensthorpe (Australia), Kevitsa and Pyhäsalmi (Finland), Cobre Las
Cruces (Spain) and Çayeli Bakir (Turkey). Copper projects currently under development
are Trident (Zambia) and Cobre Panama (Panama). The Company also has 6 Closed
Properties in North America at various stages of rehabilitation.
In December 2013 the Company reviewed and updated its Environmental Policy.
In 2013 Kansanshi continued construction of its copper smelter scheduled for
commissioning in second half of 2014. Construction of the oxide plant expansion was
completed towards the end of the year. The environmental permit for the sulphide S3
expansion project was issued by the Authorities in July 2013 and resettlement of farmers
affected by deposition in Stage II of No.2 sulphide tailings storage facility (TSF) was
successfully completed in accordance with international standards. At Guelb Moghrein, the
carbon in leach (CIL) gold plant remains on care and maintenance. Rehabilitation of the
old Morak CIL ponds commenced in late 2013. An EIA was prepared for a new project to
recover magnetite from mine tailings. The Authorities will begin reviewing the EIA in
January 2014. At Ravensthorpe, the DMP and DEC approved the Stage 3 TSF expansion in
March and the DMP approved the Mining Proposal for Hale Bopp pit in October. At Kevitsa,
the 10Mtpa mine expansion permit application was publicly disclosed from June to August
and public hearings and site visits took place in September. The environmental authority
PSAVI has indicated that the permit will be issued in early 2014. In July, the
environmental authorities approved an interim increase in production for year 2013 from
5Mtpa to 6.7Mtpa. At Bwana, implementation of the 5 year mine closure plan continued
with the focus on rehabilitation of the outer walls of the tailings storage facilities. Bwana’s
two acid plants remain closed. At Trident, a number of key environmental permits were
issued by the environmental authority in 2014. These included: the Sentinel
Environmental Impact Statement (EIS) Addendum; EIS for the 330 kV Power Line project,
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Trident Resettlement Action Plan (RAP) and EIS for Kalumbila Town. At Çayeli, the site
completed the construction of water holding ponds and a new sewage treatment facility. At
Cobre Las Cruces, site water management and compliance continues to be the main focus
due to the considerable number of commitments and conditions in the various licenses. As
a result, the neutralisation plant is being upgraded to improve effluent quality control. The
EIA for the South Marl Dump extension was approved by the authorities in December. At
Pyhäsalmi the neutralization process in the tailings ponds was also upgraded to better
control the metal loadings and pH of discharge water. In November, a permit application
for a higher waste water pH limit was approved by PSAVI. Elsewhere, EIA planning
continued for the Company’s new Haquira Copper Project in Peru. Environmental baseline
studies are now scheduled to start in April 2014 with planned EIA submission in late 2015.
Following the Inmet acquisition a review of the environmental aspects of the Cobre
Panama project was undertaken as part of the larger project review. A number of changes
were made while maintaining compliance with all commitments and conditions of the
Environmental and Social Impact Assessment.
The Company is pleased to announce that no material environmental incident was
reported at any of its operations in 2013 and the Company had no known environmental
liabilities and no penalties imposed arising as a result of water pollution or contamination
of land beyond the boundaries of its respective operations. In addition, to the Company’s
knowledge, none of these operations were considered by any applicable environmental
regulatory authority to be imminent threats to the environment. However, on 19th
December 2013, the Regional Spanish Authority issued a Notice of Violation announcing
the opening of a disciplinary procedure against Cobre Las Cruces for non-compliant
release of effluent to the Guadalquivir River and possible fine of between €24,051 and
€240,400. CLC has appealed the opening of the disciplinary procedure.
Statutory and independent environmental audits are carried out periodically, as and when
required by local environmental regulatory authorities, at the Company’s operating
facilities. No significant environmental issues were identified in 2013.The Company will
start an internal environmental compliance programme from January 2014.
Permits
As at December 31, 2013, the Company had all necessary environmental permits and
licenses in place required to carry out its operations.
At Cobre Las Cruces the Company is working closely with the regulators to update the
site’s two major permits; The Integrated Pollution Prevention and Control permit (IPPC),
and the “Global Plan” issued by the Agencia Andaluza del Agua, which regulates the
extraction, re-injection and treatment of ground water surrounding the Las Cruces open
pit. These updates are important so that the permits align with our best practices currently
used at the site.
Asset Retirement Obligations
Closure plans have been prepared for each of the Company’s mines and operational sites
and are regularly updated. Asset retirement obligations (“AROs”), which include the cost
of dismantling and disposal of plant and equipment and the rehabilitation of areas
disturbed by mining activity, are reviewed and calculated annually for each such site. The
AROs are amended annually for potential or actual liabilities, such as plant expansions,
additional land disturbances, pollution (if any) and fluctuations in currency exchange
rates. In addition, progressive site rehabilitation is carried out to minimize work to be
done at closure.
ARO liability as at December 31, 2013 is shown in the following table:
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ARO as at December 31, 2013
Site
$000's
Kansanshi
68,900
Bwana Mkubwa
6,600
Guelb Moghrein
18,100
Ravensthorpe
120,000
Kevitsa
18,100
Trident
8,100
Cobre Las Cruces
96,600
Çayeli Bakir
11,500
Pyhäsalmi
35,900
Cobre Panama
27,000
Closed Properties
71,600
Total AROs
$482,400
Financial guarantees or bonds are in place in Zambia, Finland, Australia, Mauritania,
Spain, Turkey, Canada and Panama.
The closure plan for Cobre Las Cruces was updated and additional studies on the water
geochemistry and feasibility of long term land uses were completed in 2013.
Environmental Expenditure
In 2013, the Company’s aggregate estimated expenditure relating to pollution control and
environment was $33.2 million. The breakdown of spend by operation is shown in the
following Table.
Kansanshi $2,617,414
Bwana $425,063
Guelb Moghrein $1,479,731
Kevitsa $1,923,829
Ravensthorpe $2,295,067
Trident $572,046
Haquira $624,779
Closed Properties $6,927,891
Cobre Panama $7,020,131
Cobre Las Cruces $6,150,920
Pyhäsalmi $2,440,958
Cayeli Bakir $786,720
Total $33,264,549
2013 Environment Spend
Historical Liabilities
Historical environmental liabilities existing at Bwana and Kansanshi, upon acquisition by
the Company of its interests therein are provided for under the Bwana and Kansanshi
closure plans, respectively.
The Company, which filed an environmental impact assessment with the government of
Mauritania through a subsidiary, is not responsible for historical environmental liabilities
existing at the Guelb Moghrein site on the date of acquisition by the Company of that
asset.
Kevitsa, Trident and Cobre Panama are essentially green field mine sites and with the
exception of minor disturbance from exploration activities, no historical environmental
liabilities were therefore present when the Company acquired its interests in these
projects.
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The Company is responsible for environmental liabilities at the Ravensthorpe Nickel
Project, except in relation to any existing or pending actions arising from unlawful acts or
omissions by the previous owners, of which none are currently known by the Company.
The Company is responsible for all environmental liabilities at Cobre Las Cruces,
Pyhäsalmi and Çayeli Bakir.
As part of the Inmet acquisition, the Company acquired 6 closed properties (five in Canada
and one in the USA). These properties are currently progressing through the closure
process. Activities range from the final stages of restoration, to long-term water treatment,
to tailings pond closure.
Tailings Storage Facilities
Bwana has three licensed tailings storage facilities (TSFs). These are known at Bwana as
tailings dams TD4, TD5A and TD5B. The dams are contiguous, cover a surface area of
1.75 km2 and are side-hill paddock type tailings storage facilities. TD4 originally
contained six million tonnes of oxide tailings from operations prior to those of the
Company which were hydro-mined and processed in the first five years of Company
operations at Bwana. TD4 was used to store process water and site drainage which was
recycled in the plant through a decant system and pump station. Vegetation is well-
established on the outer walls of TD4. Reprocessed Bwana tailings are stored in TD5A.
Tailings from processed Lonshi ore are stored in TD5A and in TD5B. The copper plant was
closed in September 2010. TD5A and TD5B contain a total of 11.8 million tonnes of
tailings. Progressive re-vegetation of the downstream slopes of these dams began in 2004
and is continuing. Bwana began implementing its 5 Year Mine Closure Plan in January
2011. Rehabilitation work in 2013 focussed on the TSFs. The west, southwest and east
walls of TD5A and north wall and east walls of TD5B have been re-profiled, soil cover
applied and re-vegetated. Storm water management structures have been installed at the
tailings dams. The remaining supernatant is being treated through the mine neutralisation
plant. No effluent is released from the dams to surface water. Groundwater quality around
the TSFs is monitored in a number of boreholes. The tailings dams at Bwana are regularly
inspected and subject to a bi-annual statutory inspection and reporting by independent
engineers.
Kansanshi currently has three licensed tailings storage facilities. The primary TSF is a
cross-valley type dam sited at the head of a small tributary stream inside the mining
license. This tailings dam was originally designed to provide sufficient tailings storage
capacity for the first 16 years of mine life at a production rate of between 6 and 8 million
tonnes per annum and eventually cover an area of approximately 6.5 km2. The tailings
dam wall is raised upstream using cyclone tailings and indigenous grasses are being
established on the tailings and waste rock clad walls. The tailings dam supernatant is
recycled in the process plant via a pump out decant and pipeline. No effluent is released
from the TSF to surface water. In 2011, Kansanshi commissioned two paddock type oxide
tailings storage cells A and B within the footprint of the sulphide TSF in order to maximize
copper recovery. These oxide cells are equipped with a plastic liner to protect
groundwater. Due to a number of plant expansions, mine production has increased
beyond the 6 to 8 million tonnes per annum envisaged in the original project feasibility
study to 25.4 million tonnes per annum in 2013. A second cross valley sulphide was
commissioned in 2012. At the end of 2013, approximately 132.2 million tonnes of tailings
had been deposited in the main Kansanshi TSF, 6.04 million tonnes of tailings in the two
oxide cells and 16.7 million tonnes of tailings in the new sulphide TSF. Tailings production
in 2013 was approximately 2.02 million tonnes per month. Groundwater quality around
the tailings storage facilities is monitored in twenty boreholes. Several lines of
piezometers have been installed in the main dam walls for on-going stability assessment.
The TSF’s at Kansanshi are regularly inspected and subject to bi-annual statutory
inspections and reporting by independent engineers.
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Guelb Moghrein has three active tailings storage facilities. The circular concentrator TSF 2
of 1.2 km diameter was commissioned in September 2009 and is raised by upstream
deposition using spigot tailings. The dam supernatant is recycled in the process plant by
means of a pump out decant. Construction of the first raise commenced during November
2012, however construction discontinued due to the limited storage capacity required
prior to the deposition of magnetite free tailings into a new TSF 3 following commissioning
of the magnetite processing plant scheduled in Q4 of 2014. Construction of the new TSF 3
commenced in January 2014. The groundwater quality is monitored from a number of
boreholes located close to the dam. Prior to commissioning of the new tailings dam,
sulphide tailings were stored in a circular side-hill paddock type dam covering 1.2 km2
(TSF 1). The tailings in the old storage facility will be reclaimed and processed at the end
of mine life to recover the contained gold, copper and magnetite. Tailings production in
2013 was approximately 2.68 million tonnes. As at end of 2013, approximately 12.6
million tonnes of tailings had been deposited in the old dam and 9.27 million tonnes of
tailings in the new dam. Planned tailings production in 2014 is 2.98 million tonnes.
The old gold plant tailings storage facility at Guelb Moghrein was closed in 2007. A new
three cell lined storage facility was commissioned in 2009 and an adjacent second three
cell facility commissioned in 2011. A further cell commenced construction during 2012,
but was put on hold since CIL decommissioning in July 2012. Total storage capacity is
903,214 tonnes (excluding the partially completed cell G). In 2013, approximately 2,000
tonnes of Morak tailings were deposited, and a further 38,000 tonnes will be
treated/deposited during 2014 as part of the rehabilitation of the old gold plant (Morak)
tailings storage facility. Contaminated liner and sub-soil will also be deposited into the
new CIL TSF, but tonnage will only be quantified once the extent of contamination is
established. The rehabilitation will be supervised by URS consultants. Total CIL tailings
deposited at end of 2013 is 522,301 tonnes. There is no discharge from this plastic lined
facility. The supernatant evaporates in the hot arid climate. Groundwater quality is
monitored in boreholes located around the facility. The tailings storage facilities at Guelb
Moghrein are regularly inspected, including an annual third party review by URS and
subject to statutory reporting.
Ravensthorpe Nickel Operations has two tailings storage facilities (TSFs) covering 377
hectares and comprising three adjacent cells which contain in total approximately 7.0
million tonnes of tailings. The tailings slurry is deposited using spigots with supernatant
water recycled to the plant or decanted into evaporation ponds. During 2013, 2.99 million
tonnes of tailings were deposited in the TSF. No effluent is released from the tailings
storage facility to surface waters. Groundwater quality is monitored in boreholes located
around the facility. The TSF at Ravensthorpe is regularly inspected and subject to annual
statutory reporting. No rejects have been sent to the approved Sands Rejects Storage
Facility (SRSF) and the area has been used to catch and harvest rainwater for use in the
processing plant. An extension of the TSF was completed in 2013 and increased the total
operations area of the facility to 377 hectares.
Kevitsa has one cross valley tailings storage facility (TSF) in a flat valley close to the
process plant. The facility covers 318 hectares and is split into two, a larger area of 300
hectares for low sulphide tailings storage and a separate smaller area of 18 hectares for
high sulphide tailings storage. The high sulphide TSF is lined with a Bitumen Geo-
membrane (with textile and moraine underlay) to prevent seepage and protect
groundwater. The peat and moraine lying below the low sulphide TSF has natural low
permeability. Groundwater quality is monitored in several boreholes drilled in the vicinity
of the TSF. Depending on the quality, water from the high sulphide TSF is decanted into
the low sulphide TSF pond and the combined water is pumped to the raw water reservoir
at the process plant and recycled. A water treatment facility has been installed adjacent to
the raw water reservoir to treat effluent if necessary before discharge to the environment.
The TSF’s provide tailings storage capacity for the life of mine. In 2013, 6.06 million
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tonnes and 98,616 tonnes of tailings were deposited in the high and low sulphide TSF’s
respectively. Total tailings deposition to end 2013 is 9.15 million tonnes.
At Cobre Las Cruces the TSF and waste rock storage facility are engineered structures
constructed from compacted marl and synthetic liner. These facilities receive dewatered
leach residue from the operation for permanent storage. In 2013, additional areas of the
TSF were segregated and lined to better manage contact water. Tailings deposition
commenced in 2009. Tailings production in 2013 was 1.18 million tonnes and 3.52 million
tonnes had been deposited in the TSF at the end of 2013. Planned tailings production in
2014 is 1.89 million tonnes. The TSF is subject to regular external audits.
At Pyhäsalmi the TSF pond area is divided into four parts: A, B, C and D ponds. ‘A’ pond
(42 hectares) was decommissioned in 2001-2002. Currently tailings are pumped into the
B or D pond. The ‘B’ pond (31 hectares) is the storage pond for pyrite that has not been
concentrated. ‘D’ pond (31 hectares) receives tailings for which pyrite has been largely
removed. The C pond (47 hectares) operates as the mine’s water store. The ‘B’ pond dam
wall was raised in 2013 to allow for further capacity. The supernatant is conditioned prior
to release to the environment. Tailings production in 2013 was 466,880 tonnes of which
295,544 tonnes was deposited in the TSF and 171,336 tonnes was used for underground
backfill. 18.7 million tonnes of tailings had been deposited in the TSF at end of 2013. The
ponds meet all current regulations for design, construction and operation. The TSF is
subject to regular external audits.
There is no tailings management facility at Çayeli. Process plant tailings are disposed at a
depth of 275 metres in the Black Sea (referred to as Deep Sea Tailings Placement, or
DSTP) in compliance with accepted practice. At this depth in the Black Sea, the water is
naturally rich in hydrogen sulphide and low in dissolved oxygen, which is an environment
that does not support marine life. The terrain and climate if the area does not support
construction of a tailings storage facility as a result, DSTP is the preferred tailings disposal
method. Turkey is currently developing Mines Waste Regulations to align with European
Union standards, and we are working with the regulators toward the continued acceptance
of DSTP within these regulations. We do not anticipate any challenge to DSTP given the
long-standing acceptance of this practice, our strong long-term environmental performance,
the evidence indicating no change in water quality, and Çayeli’s robust monitoring program.
Tailings production in 2013 was 1.08 million tonnes, of which 599,980 tonnes was DSTP
and 484,975 tonnes was used for underground backfill. 9.09 million tonnes had been
deposited as DSTP at the end of 2013.
6. COPPER MARKET 2013
The London Metals Exchange (“LME”) cash settlement price decreased from an average of
$8,049 / tonne in January 2013 to an average of $7,203 / tonne in December 2013, whilst
the year-end cash settlement price on December 31, 2012 was $7,395 / tonne. Overall,
the average cash settlement price for copper in 2013 was 8% lower than in 2012.
The following table compares the average cash settlement prices for copper during each
quarter of 2011, 2012 and 2013:
Average Cash Settlement Prices for Copper (US$/mt)
2011 2012 2013
Q1 9,651 8,308 7,928
Q2 9,152 7,867 7,146
Q3 8,992 7,717 7,079
Q4 7,489 7,909 7,153
Average 8,821 7,950 7,326
Source: Data from www.londonmetalexchange.com
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LME Cash Copper Prices (US$/mt) in 2012 and 2013
6,000
6,500
7,000
7,500
8,000
8,500
9,000
Jan Mar May Jul Aug Oct Dec
LME
Cas
h C
op
pe
r P
rice
(U
S$/m
t)
Date
2012
2013
Source: Data from www.londonmetalexchange.com
Copper first use by application (for 2012)(1)
The majority of refined copper enters the market as wire rod.
Source: Wood Mackenzie LTO, Dec 2013 (1)2013 data not available
Copper use by market sector (for 2012) (1)
The vast majority of copper produced is used in industrial applications, from electrical and
electronic products, to construction, and industrial machinery.
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Source: Wood Mackenzie LTO, Dec 2013 (1)2013 data not available
In 2013, the global demand for refined copper increased by 5.6%. Demand growth
remains strongest in emerging economies, especially in China and other Asian countries
(particularly Thailand and Vietnam). Wood Mackenzie estimates an average global refined
copper consumption growth of 5% in 2014, during which global consumption of refined
copper is expected to rise to 21.8 million metric tonnes.
Regional Copper Refined Consumption
Over the next 12 years world copper demand is expected to be driven primarily by China
where demand for refined copper is forecast to increase from 44% of global demand in
2013 to 51% in 2025.
'000 tonnes 2013 2014 2015 2025 CAGR
China 9,165 9,767 10,320 15,053 4.2%
Japan 986 1,011 1,024 914 -0.6%
Other Asia 2,521 2,693 2,860 4,131 4.2%
Europe 3,390 3,531 3,685 3,711 0.8%
Latin America 648 682 714 943 3.2%
Middle East 619 638 666 926 3.4%
North America 2,320 2,396 2,455 2,446 0.4%
Others 1,053 1,036 1,054 1,417 2.5%
Global Total 20,702 21,755 22,778 29,541
Change y-o-y 5.6% 5.1% 4.7% 2.2%
Source: Wood Mackenzie LTO, Dec 2013
Major Producers of Copper – by mined output
The graphs below illustrate the contribution of global mined copper produced by the 10
largest copper mining companies for 2013 and forecast for 2023 (compared on mined
copper output). On a comparative basis, First Quantum Minerals’ proportion of global
mined copper production is estimated to increase from 2% in 2013 to around 5% in 2023.
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Estimated major copper miners in 2013 Estimated major copper miners
in 2023
Source: Wood Mackenzie LTO, Dec 2013
Major Producers of Refined Copper
Production-by-company figures suggest that the supply of refined copper between 2013
and 2023 will be driven, on a relative basis, by companies not currently ranking in the top
10 copper refining companies in 2013 (the largest 10 companies accounted for
approximately 44% of refined copper output; in 2023 this is projected to fall to 38%).
However, merger and acquisition activity, and the construction of new refining capacity
could, over time, change this picture.
Estimated major producers in 2013 Estimated major producers in 2023
Source: Wood Mackenzie LTO, Dec 2013
World Refined Copper Demand
The charts below illustrate the estimated change in relative demand between 2013 and
2023. Aside from China, India and Turkey are the only other major copper consuming
country where relative demand is expected to increase over this period.
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Estimated demand for 2013 Demand forecast for 2023 Source: Wood Mackenzie LTO, Dec 2013
World Refined Copper Supply and Demand balance
Due to weaker global copper demand marginally outstripping lower supply, in 2013 global
stocks of refined copper grew by approximately 181,000 tonnes; resulting in a lower
average price for 2013 of $7,326 per tonne.
In 2014 refined copper production is projected to again exceed consumption (by
approximately 348,000 tonnes). This surplus is expected to be larger in 2014, and as a
consequence prices are projected to decrease further (this trend is forecast to continue to
2017). Estimated global copper stocks at the end of 2013 equate to 71 days' worth of
supply.
Global (’000 tonnes) 2012 2013 2014 2015
Refined copper
production 20,136 20,883 22,103 23,432
Consumption 19,605 20,702 21,755 22,778
Balance 531 181 348 654
Prices (actual and projected*)
LME cash price ($/tonne) (in 2013$)
8,084 7,326 6,794* 6,392*
Source: Wood Mackenzie LTO, Dec 2013
7. NICKEL MARKET 2013
The LME nickel cash price decreased from an average of $17,465/tonne in January 2013
to an average of $13,914/tonne in December 2013, whilst the year-end cash settlement
price on December 31, 2013 was $13,970/tonne. Overall, the average cash price for
nickel in 2013 was 14% lower than in 2012.
The following table compares the average cash settlement prices for nickel during each
quarter of 2011, 2012 and 2013:
Average Cash Prices for Nickel (US$/mt)
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2011 2012 2013
Q1 26,903 19,665 17,309
Q2 24,298 17,152 14,952
Q3 22,069 16,344 13,922
Q4 17,992 16,983 13,904
Average 22,815 17,536 15,018
Source: Data from www.londonmetalexchange.com
LME Nickel Cash Prices (US$/mt) in 2012 and 2013
12,000
14,000
16,000
18,000
20,000
22,000
24,000
Jan Mar May Jul Aug Oct Dec
LME
Nic
kel
Cas
h P
rice
(U
S$/m
t)
Date
2012
2013
Source: Data from www.londonmetalexchange.com
Nickel supply by deposit type (estimated for 2013)
The supply of nickel in the medium and longer term will be increasingly dependent on
lateritic deposits as traditional sulphide deposits become depleted without being replaced
by new discoveries. Wood Mackenzie estimates that in 2013, 64% of mined nickel was
produced from lateritic deposits.
Source: Wood Mackenzie LTO, Dec 2013
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Nickel use by market sector (estimated for 2013)
The vast majority of nickel produced is consumed in the stainless steel industry, as
austenitic steel products.
Source: Wood Mackenzie LTO, Dec 2013
Global demand for nickel continued to grow in 2013 at a healthy rate of 7.5% almost
double that seen in 2012. Demand growth remains strongest in emerging economies,
especially China. Average forecast annualised global growth over the period 2013 to 2025
is expected to be around 3.4%.
Over the next decade world nickel demand is likely to be driven primarily by China’s still
expanding appetite for nickel for stainless steel production. Chinese demand for refined
nickel is forecast to increase from 889,000 tonnes in 2013 to around 1,501,000 tonnes in
2025.
Regional Nickel Consumption
'000 tonnes 2013 2014 2015 2025 CAGR
China 889 1000 900 1501 5.4%
Japan 177 179 183 176 0.0%
South Korea 77 70 81 75
-
0.0%
Europe 326 343 347 382 0.6%
USA 142 149 158 172 1.7%
Others 229 248 256 333 3.4%
Global Total 1840 1989 1925 2639 3.4%
Change y-o-y 7.5% 8.1% 3.2% 3.2%
Source: Wood Mackenzie STO, Feb 2014
World Primary Nickel Demand in 2013 and 2023
China’s relative demand for nickel is expected to grow over the next ten years, from 48%
of total world nickel demand in 2013 to 56% in 2023. India is the only other major nickel
consuming country likely to show a similar rate of demand increase over the same period.
According to Wood Mackenzie, austenitic stainless steel output increased by 8.5% in
2013, corresponding to an increase of primary nickel units in this market of 12%, while
the nickel demand increase for non-stainless applications was weaker at around 4.0%.
Over time, the split between demand of primary nickel for stainless steel applications
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(currently around 68%) and that for non-stainless products is expected to remain
relatively constant.
Estimated 2013 primary nickel demand Forecast 2023 primary nickel demand Source: Wood Mackenzie STO, Feb 2014
World Refined Nickel Supply and Demand balance
Despite the placing of a few nickel operations on care and maintenance during 2013, the
nickel market remained in surplus and the nickel price continued to fall, ending the year
at 13,970 US$/tonne.
In 2014, refined nickel production will match global nickel consumption. The decision by
the Indonesian government to restrict the export of nickel containing ores is likely to have
a meaningful impact on the intermediate feed market during 2014, and will culminate in a
dramatic reduction of refined metal during 2015. As a result of this, Wood Mackenzie
suggests that production of refined nickel will fall marginally in 2014 (by under 1%) and
more significantly in 2015 by over 7%; consequently prices are forecast to increase in
2014 to 15,108 US$/tonne and in 2015 to around 17, 316 US$/tonne.
Global (’000 tonnes) 2012 2013 2014 2015
Refined nickel
production 1,766 2,006 1,991 1,850
Consumption 1,711 1,840 1,989 1,925
Balance 55 166 2 -75
Prices (actual and projected*)
LME cash price ($/tonne) (in 2014$)
18,121 15,303 15,108 17,316
Source: Wood Mackenzie STO Feb 2014
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8. ZINC MARKET 2013
The London Metals Exchange (“LME”) cash settlement price decreased from an average of
$2,033 / tonne in January 2013 to an average of $1,910 / tonne in December 2013, whilst
the year-end cash settlement price on December 31, 2013 was $2,086 / tonne. Overall,
the average cash settlement price for zinc in 2013 was 2% lower than in 2012.
The following table compares the average cash settlement prices for copper during each
quarter of 2011, 2012 and 2013:
Average Cash Settlement Prices for Zinc (US$/mt)
2011 2012 2013
Q1 2,395 2,024 2,033
Q2 2,254 1,928 1,840
Q3 2,229 1,889 1,860
Q4 1,906 1,951 1,909
Average 2,196 1,948 1,910
Source: Data from www.londonmetalexchange.com
LME Cash Zinc Prices (US$/mt) in 2012 and 2013
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
Jan Mar May Jul Aug Oct Dec
LME
Zin
c C
ash
Pri
ce (
US$
/mt)
Date
2012
2013
Source: Data from www.londonmetalexchange.com
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9. DIVIDEND POLICY
The Company implemented its dividend policy in 2005. Under this policy, the Company
expects to pay two dividends per year, the first an “interim” dividend declared after the
release of second quarter results; the second, a “final” dividend based on year end
results. Interim dividends are set at one-third of the total dividends (interim and final)
declared on a per common share basis applicable in respect of the previous financial year.
Final dividends are determined based on the financial performance of the Company during
the previous applicable financial year.
Due to the economic downfall in 2008, the Company did not issue a final dividend for the
2008 fiscal period. On August 10, 2009, the Company announced that it would pay an
interim dividend of Cdn$0.08 per common share to shareholders of record as of August
28, 2009. The dividend was paid to shareholders on September 21, 2009.
On March 16, 2010, the Company announced that it would pay a final dividend of
Cdn$0.512 per common share to shareholders of record on April 15, 2010. The dividend
was paid to shareholders on May 6, 2010. On August 10, 2010, the Company announced
that it would pay an interim dividend of Cdn$0.197 per common share to shareholders of
record on August 27, 2010. The dividend was paid to shareholders on September 20,
2010.
On March 15, 2011, the Company announced that it would pay a final dividend of
Cdn$0.603 per common share to shareholders of record as of April 14, 2011. The
dividend was paid to shareholders on May 5, 2011. On August 8, 2011, following a 5 for 1
split of the Company’s common shares, the Company announced that it would pay an
interim dividend of Cdn$0.0533 per common share to shareholders of record on August
29, 2011. The dividend was paid to shareholders on September 20, 2011.
On March 6, 2012, the Company announced that it would pay a final dividend of
Cdn$0.1277 per common share to shareholders of record as of April 17, 2012. The
dividend was paid to shareholders on May 8, 2012. On August 1, 2012, the Company
announced that it would pay an interim dividend of Cdn$0.0603 per common share to
shareholders of record on August 29, 2012. The dividend was paid to shareholders on
September 20, 2012.
On March 5, 2013, the Company announced that it would pay a final dividend of
Cdn$0.1147 per common share to shareholders of record as of April 16, 2013. The
dividend was paid to shareholders on May 7, 2013. On July 31, 2013, the Company
announced that it would pay an interim dividend of Cdn$0.0583 per common share to
shareholders of record on August 28, 2013. The dividend was paid to shareholders on
September 19, 2013.
On February 20, 2014, the Company announced that it would pay a final dividend of Cdn
$0.0930 per common share to the shareholders of record as of April 14, 2014.
10. SHAREHOLDING AND OPTIONS OF DIRECTORS
As at 26 March 2014 (being the latest practicable date prior to the date of this document),
and to the best of the knowledge of the Company, the current directors and executive
officers of the Company, as a group, beneficially owned, directly or indirectly, or exercised
control or direction over 9,996,482 common shares constituting 1.69% of the issued and
outstanding common shares of the Company. None of the directors or executive officers
of the Company held shares of the Company’s subsidiaries except shares required for
qualification as a director of a subsidiary or where otherwise required under local law.
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11. REMUNERATION AND BENEFITS OF DIRECTORS
The following table sets out details relating to the compensation of the executive officers
of First Quantum for the Company’s financial period ending 31 December 2013. All
amounts referenced are in US dollars.
Name and
Principal
Position
Salary
($)
Share
Awards
($)(1)(3)
Annual
Incentive
Plans
($)
All Other
Compensation
($)(2)(4)
Total
Compensation
($)
PHILIP K. R.
PASCALL
1,125,000 1,065,642 1,225,000 30,679 3,446,321
MARTIN R.
ROWLEY
757,000 646,999 800,275 32,673 2,236,947
G CLIVE
NEWALL
593,500 452,138 425,250 12,674 1,483,562
HANNES MEYER
542,500 332,743 297,500 263,924 1,436,667
CHRISTOPHER
LEMON
401,200 226,402 193,200 218,470 1,039,272
(1) For disclosure purposes, all share awards paid in Canadian dollars have been converted as follows (the exchange rate on the first business day following the grant): CAD$1.00 = USD$0.9500 (as at 1 July 2013).
(2) For disclosure purposes, any compensation or other compensation paid in Canadian dollars have been
converted as follows: CAD$1.00 = USD$0.9711 (year average); and any other compensation paid in Great British Pounds have been converted as follows: GBP£1.00 = USD$1.6111 (year average).
(3) Messrs. Pascall, Rowley, Newall and Meyer all received share awards in the form of PSUs. Mr Lemon received a combination of PSUs and RSUs. Both the PSUs and RSUs were valued on the Grant Date (1 July 2013) at Fair Market Value (assuming a share price of CAD$15.60 – previous business day closing price), and using the Monte Carlo Simulation for PSUs (46.2% probability of vesting).
(4) The All Other Compensation consists of dividends equivalents paid on unvested Share Awards and tax adjusted allowances. The Company pays dividend equivalents on all unvested Share Awards in accordance with the Company’s Dividend Policy pursuant to which, in recent years, the Company has used as guidance and paid 10% of net after tax profits. 2013 dividend equivalency payments were made on unvested RSUs / PSUs on 7 May 2013 for $0.1147 per unit and 19 September 2013 for $0.0583 per unit. Mr. Lemon was relocated to London, UK, in 2010 and received tax adjusted cost of living allowances for schooling and housing. Mr. Meyer was relocated to London, UK, in 2012 and received tax adjusted cost of living allowances for schooling and housing. These amounts also include pension savings payments contributed by the Company in 2013 for Mr Lemon.
The following table sets out details relating to the fees (and other compensation) of the
independent officers (the "Non-executive Directors") of First Quantum for the
Company’s financial period ending 31 December 2013. All amounts referenced are in US
dollars.
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Name
Fees Earned
($)
Share Awards
All Other
Compensation
Total
($)
Michael Martineau 165,000 Nil Nil 165,000
Peter St. George 225,000 Nil Nil 225,000
Andrew Adams 185,000 Nil Nil 185,000
Paul Brunner 170,000 Nil Nil 170,000
Steven McTiernan 75,000 Nil Nil 75,000
Michael Hanley 162,500 Nil 1,730(1) 164,230
Robert Harding(2) 117,500 156,000(2) 583(1) 274,083
(1) Other compensation included dividend equivalency payments issued on all unvested RSUs. (2) Mr Harding was appointed as a director on 7 May 2013.
Mr Harding received a share award of 10,000 RSUs on 1 July 2013. The RSUs were valued at Fair Market Value of CAD$15.60 (previous day closing price).
All annual Non-executive Directors’ Fees are pro-rated and paid quarterly. Non-executive
Directors are also reimbursed for their out-of-pocket expenses incurred in attending
director and committee meetings.
All Non-executive Directors are eligible to be granted stock options under the Company’s
2004 Stock Option Plan and RSUs under the LTIP adopted by the Company in 2006. Mr
Harding received 10,000 RSUs upon appointment to the board. No options or LTIP awards
were granted to any of the other independent directors of the Company during 2013.
Termination and Change Of Control Benefits
The following table shows amounts payable executive officers of First Quantam in the event
of a termination of employment without cause and for a change of control which results in a
termination of employment, or material change in terms of employment, as described
below. All amounts referenced are in US dollars.
Name
Estimated Cash Payout on
Termination
($)
Estimated Value
Vested Share
Awards on
Termination
without Cause (1)
($) Without Cause Change of
Control and
Termination
Philip K.R. Pascall 1,817,054 8,615,802 5,470,250
Martin Rowley 1,175,481 5,592,368 5,371,813
G. Clive Newall 781,619 3,708,905 2,281,947
Hannes Meyer 373,826 2,155,001 2,272,147
Christopher Lemon 503,438 1,558,908 1,153,491
(1) Amounts shown are in CAD$ based on a share price of CAD$19.14 as at 31 December 2013 and assuming all PSUs and RSUs vested. Actual amounts will be determined based on the share price on the date of vesting.
The Company has management services or employment agreements with each of the
executive officers or their holding companies (as the case may be, and for the purposes of
this paragraph 11, each executive officer or his holding company, is referred to as an
"Executive Officer") in respect of their positions with the Company. Each Executive
Officer is engaged for an indefinite term and remains bound by confidentiality obligations.
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The CEO and CFO are required to provide their services exclusively to the Company
(except with the prior written consent of the Company).
The following is a general summary of the termination and change of control or
responsibility provisions applicable to each of the Executive Officers, under existing
agreements:
The Company may terminate the Executive Officer’s engagement for cause following five (5)
days’ written notice, and all compensation and benefits will cease accruing on the Executive
Officer’s termination date. In this instance "cause" includes: any breach of the agreement,
or inadequate performance of the Executive Officer’s duties that is not cured within five (5)
days following written notice by the Company; unauthorized possession of the Company’s
property, theft or dishonesty, being under the influence of alcohol or illegal drugs on the
Company’s operational premises, assault or fighting where the Executive Officer is an active
participant, being charged with a civil or serious criminal offence, unethical practices,
intentional disloyalty, a serious breach of the Company’s policies and procedures, or
behaviour that brings the Company into disrepute.
The Company may terminate the Executive Officer’s engagement at any time without cause
following six (6) months written notice, or payment of six months salary and benefits in lieu of
such notice for the CEO, President, Executive Director Business Development, and General
Counsel and Corporate Secretary, and in the case of the CFO following three (3) months
written notice or payment of salary and benefits in lieu. The Executive Officer is not obligated
to mitigate any damages that may be suffered by reason of the termination without cause by
the Company.
If the Executive Officer is terminated by the Company, or if there is a material change in the
Executive Officer’s conditions of employment, at any time within the period commencing on
the date of a change of control and ending twenty four (24) months thereafter, the Company
is required to pay the CEO, President, and Executive Director Business Development an
amount equivalent to thirty (30) months, and the CFO and General Counsel and Corporate
Secretary eighteen (18) months, of the Executive Officer’s compensation package (which
includes salary, bonus, and other compensation) for or paid in relation to the previous calendar
year and any stock options or incentive awards held by or granted to the Executive Officer
immediately vest.
Each Executive Officer may terminate his engagement without cause only upon one hundred
twenty (120) days advance written notice to the Company in the case of the CEO, President,
and Executive Director Business Development; 180 days in the case of the General Counsel &
Corporate Secretary; and three months in the case of the CFO. All compensation will cease
accruing upon the Executive Officer’s termination date for any termination by the Executive
Officer without cause.
For each of the Executive Officers, upon disability, the Company may terminate his services
or make such other arrangements as the Company, in its sole discretion, deems necessary to
accommodate the Executive Officer. The term “disability” is defined as any health condition
or other cause beyond the reasonable control of the Executive Officer that reasonably
prevents the Executive Officer from performing his duties for a period of 120 days within any
twelve (12) month period.
12. AUDIT COMMITTEE
The Audit Committee operates under the guidelines of the Audit Committee Charter. The
Audit Committee, among other things, reviews the annual financial statements of the
Company for recommendation to the Board, reviews and approves the quarterly financial
statements, oversees the annual audit process, the Company’s internal accounting
controls and the resolution of issues identified by the Company’s auditors, and
recommends to the Board the firm of independent auditors to be nominated for
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LONDON\33747915.07
appointment by the shareholders at the next annual general meeting. In addition, the
Audit Committee meets annually with the Company’s auditors both with and without the
presence of any other members of the Company’s management.
Composition of the Audit Committee
The Audit Committee is comprised of the following four independent directors who are
financially literate as defined by National Instrument 52-110 – Audit Committee: Messrs.
Adams, St. George, Hanley and Harding. The Chairman of the Audit Committee is
Mr. Adams.
Relevant Education and Experience of the Audit Committee
Mr. Adams obtained his B.Sc (Accounting and Statistics) from Southampton University and
then qualified as a chartered accountant in the United Kingdom in 1981. He has over 20
years of financial experience in the mining industry, and served as Chief Financial Officer of
Aber Diamond Corporation from 1999 to 2003 and Chief Financial Officer of Anglo Gold
North America from 1995 to 1999. He is also currently Chairman of the Audit Committee of
Uranium One Inc., Torex Gold Resources Inc and TMAC Resources Inc.
Mr. St. George qualified as a chartered accountant in South Africa in 1970 and has more
than thirty years of experience in the finance industry in mergers and acquisitions and
corporate advice. He was Chief Executive Officer of Salomon Smith Barney Australia and
Natwest Markets Australia for a combined period of more than six years. Mr. St. George
was Chairman of Walter Turnbull, an accountancy and financial services firm, until October
2008 and is a former director of the Sydney Futures Exchange. Mr. St. George obtained a
Masters of Business Administration from the University of Cape Town in 1972. He is also
currently a member of the Audit Committee of Dexus Property Group.
Mr. Hanley holds a business degree from HEC Montréal and is a Chartered Accountant. He
has served as Senior Vice-President Operations and Strategic Initiatives and member of the
Office of the President at National Bank of Canada. From 1998 to 2008, Mr. Hanley held
various executive roles at Alcan, including President and CEO of its global Bauxite and
Alumina business group, and his final position of Executive Vice-President and CFO. He
currently serves as an Independent Director and Audit Committee chair for BRP, a
manufacturer, distributor, and marketer of motorized recreational vehicles and powersports
engines.
Mr. Harding graduated with a Bachelor of Mathematics from the University of Waterloo in
1980 and received his Chartered Accountant designation the following year. Mr. Harding
began his career at a major accounting firm before joining Hees International (now
Brookfield) where he served in progressively senior roles including Controller, Chief Financial
Officer, Chief Operating Officer, and ultimately, Chief Executive Officer in 1992. He currently
serves on the Boards of Brookfield Asset Management (Chairman from 1997 – 2010),
Manulife, Norbord and Nexj.
13. COMPENSATION COMMITTEE
The Compensation Committee is composed of four independent directors: Messrs.
Brunner, Martineau, St.George and Adams. The Chairman of the Compensation
Committee is Mr. Brunner.
The Compensation Committee is responsible for reviewing and approving corporate goals
and objectives relevant to Chief Executive Officer’s compensation and making
recommendations to the Board with respect to the compensation of the Company’s
executive officers. The Board, exclusive of any executive Board member to whom the
recommendation applies, reviews such recommendations and is responsible for
determining executive compensation. The Compensation Committee discusses executive
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LONDON\33747915.07
compensation throughout the year and makes any necessary determinations (usually prior
to the annual general meeting of the Company) relating to executive compensation.
The Compensation Committee is responsible for obtaining information on executive
compensation from a variety of sources, including independent consultants, compensation
surveys and information from companies similar in size and function to that of the
Company and then takes recommendations to the Board on compensation and all of its
various elements. The Compensation Committee also reviews, identifies and mitigates
risks that may be associated with the Company’s compensation policies.
Each of the Committee members has held senior management positions in public
companies and has considerable experience in developing compensation programs,
particularly in the context of executive compensation.
Director Number of
Shares Held Number of
Performance Share
Units Held
Number of Restricted Share
Units Held % of existing share capital
held immediately after
admission
Phillip K.R. Pascall 5,772,725 258,372 0.97
G. Clive Newall 2,785,990 96,323 0.47
Martin R. Rowley 689,075 193,011 0.11
Peter St. George 515,930 0.08
Andrew B. Adams 75,000 0.01
Michael Martineau 10,130 0.001
Paul Brunner 60,000 0.01
Michael Hanley 16,000 10,000 0.001
Robert Harding 0.0
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LONDON\33747915.07
SCHEDULE 3
The tables set out below summarise the Mineral Resources and Reserves as identified at
the nominated mine sites, projects and key exploration targets operated/held by the
Company at end of year 31 December 2013. The tables include all assets that were taken
over by the Company during the Acquisition.
The Mineral Resources and Reserves as shown in the tables are based on the respective
geological models that have been developed and reported, as required; and have
subsequently been utilised for the purposes of mine and group development, production
planning and reconciliation. The respective Mineral Resources and Reserves are valid at
the 31 December 2013 for each of the mines/projects set out.
The geological databases at each operating mine and development project continue to be
updated and enhanced by on-going operations, delineation drilling and brown-fields
exploration, as part of the continuation and expansion strategies employed by the
Company. There has been significant development drilling during 2013 at Kansanshi,
Sentinel, Enterprise and Guelb Moghrein (Oriental). This data is currently being evaluated
and updated Mineral Resources are in the process of being completed. As such, with
exception of Guelb Moghrein, these Mineral Resource updates have not been completed as
at 31 December 2013, but will be finalised during 2014. Therefore the reported Mineral
Resources and Reserves for these assets have been estimated using depletion
methodologies – hence reflect the 2012 values depleted by actual 2013 production. The
exploration targets of Haquira and Kashime have not been re-evaluated during 2013
hence the values shown are the same as previously reported.
Each of the reported Mineral Resources and Reserves has been developed by the identified
Qualified Person. The Mineral Resources and corresponding Reserves are assessed at the
year end and are estimated using recognised methods of geological modelling and/or or
depletion, using accepted industry practices and processes.
The following tables summarise the Mineral Resources and Reserves of the Company
including recoverable Resources for all operating mines, projects under development and
key exploration targets.
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Summary of mineral resources at 31 December 2013 (all grades are in-situ)
Mine/Project Classification Resource
Cut-off
Tonnes
Mt
Cu
Grade
%
Au
Grade
g/tonne
Ni
Grade
%
Contained metal in-
situ
Cu Nt
Au
Moz Ni Mt
Kansanshi Measured/Indicated 0.3%
TCu 682.0 0.84 0.14 - 5.73 3.07
Inferred 0.3%
TCu 365.0 0.71 0.12 - 2.59 1.41
All Stockpiles 44.3 0.70 0.13 0.31 0.19
Guelb
Moghrein
Measured/Indicated 0.3%
TCu 27.1 1.09 0.65 - 0.30 0.57 -
Inferred 0.3%
TCu 2.5 1.15 0.78 - 0.03 0.06 -
All Stockpiles 3.4 1.03 1.02 0.04 0.11
Kevitsa Measured/Indicated 0.1 % Ni 231.7 0.41 0.12 0.28- 0.95 0.89 0.65-
Inferred 0.1% Ni 34.4 0.37 0.09 0.27 0.13 0.10 0.09-
Ravensthorpe Measured/Indicated 0.3% Ni 251.5 0.62 1.56
Inferred 0.3% Ni 115.8 0.52 0.60
Sentinel Measured/Indicated 0.2%
TCu 1027.0 0.51 5.24
Inferred 0.2%
TCu 166.0 0.42 0.70
Enterprise Measured/Indicated 0.15% Ni 40.1 1.07 0.43
Inferred 0.15% Ni 7.1 0.70 0.05
Haquira Measured/Indicated 0.26%
Cu 569.9 0.57 0.03 3.25 0.55
Inferred 0.26%
CU 405.9 0.52 0.02 2.11 0.26
174
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Summary of mineral reserves at 31 December 2013 (all grades are diluted in-situ)
Mine/Project Classification Resource
Cut-off
Tonnes
Mt
Cu
Grade
%
Au
Grade
g/tonne
Ni
Grade
%
Contained metal in-
situ
Cu Nt
Au
Moz Ni Mt
Kansanshi Proved and
Probable
$3.00/lb
Cu 710.9 0.74 0.13 - 5.26 2.97
$1200/oz
Au -
All Stockpiles 44.3 0.70 0.13 0.31 0.19
Guelb
Moghrein
Proved and
Probable
$3.00/lb
Cu 22.9 1.00 0.67 0.23 0.49 -
$1200/oz
Au - -
All Stockpiles 8.3 0.72 0.78 0.06 0.21
Kevitsa Proved and
Probable
$7.50/lb
Ni 151.3 0.41 0.12 0.27 0.62 0.58 0.41-
$2.25/lb
Cu -
Ravensthorpe Proved and
Probable
$6.0/lb
Ni 221.1 0.62 1.37
(tbc)
Sentinel Proved and
Probable
$3.00/lb
Cu 774.0 0.50 3.87
Enterprise Proved and
Probable
$7.50/lb
Ni 32.7 1.10 0.36
Cobre
Panama (May
2010)
Proved and
Probable
$2.00/lb
Cu 2142.6 0.41 0.07 8.78 4.82
Haquira
(Recoverable
Resources)
M, I & I $2.25/lb
Cu 910.5 0.47 0.03 4.28 0.88
175
SCHEDULE 4
The information set out in this schedule 4 has been obtained from external publications
and/or third parties. The Company confirms that this information has been accurately
reproduced and, so far as the Company is aware and is able to ascertain from information
published by third parties, no facts have been omitted that would render the reproduced
information inaccurate or misleading. This information has not been audited.
1. Inmet Financial Statements for Quarter end 31 March 2013
Quarterly Report Three Months Ended March 31, 2013
All amounts in US dollars unless indicated otherwise
Management’s Interim Discussion and Analysis
The following is management’s interim discussion and analysis of operations and consolidated financial condition and should be read in conjunction with the 2012 annual consolidated audited financial statements and management’s discussion and analysis.
Highlights
Strong earnings from operations Earnings from operations were $140 million compared to $146 million in the first quarter of 2012. The impact of higher copper sales volumes at Las Cruces resulting from higher production volumes was offset by lower realized metals prices. Additionally, operating earnings in the first quarter of 2012 benefited from the timing of shipments at Çayeli, where copper sales volumes exceeded its production volumes by 3,000 tonnes.
First Quantum successfully acquires Inmet
On March 21, 2013 FQM (Akubra) Inc., a wholly owned subsidiary of First Quantum Minerals Ltd (First Quantum) acquired 86.6 percent of the issued and outstanding common shares of Inmet, and on April 1, 2013, it acquired a further 7.3 percent. On April 9, 2013, FQM (Akubra) Inc. acquired the remaining common shares of Inmet it did not already own through a compulsory acquisition, and Inmet Mining ceased to be a publicly traded company.
Costs associated with First Quantum’s takeover reduced net income Inmet incurred $65 million (or $0.94 per share) in connection with First Quantum’s acquisition of Inmet, including $35 million related to the accelerated settlement of stock-based compensation plans, as well as costs for financial and legal advisors and termination benefits. Adjusting for these costs, comparable net income this quarter was $1.32 per share, in-line with comparable net income per share of $1.34 in the first quarter of 2012.
176
Key financial data three months ended March 31
(thousands, except per share amounts) 2013 2012 change
FINANCIAL HIGHLIGHTS
Sales
Gross sales $276,250 $285,526 -3% Net income Net income $26,047 $93,080 -72% Net income attributable to Inmet shareholders
$26,810 $93,080
-71%
Net income per share $0.39 $1.35 -71% Comparable net income attributable to Inmet shareholders(3) $91,917 $93,081 -1% Comparable net income per share(3) $1.32 1.34 -1% Cash flow Cash flow provided by operating activities(3) $85,360 $114,514 -25% Cash flow provided by operating activities(3) per share
(1)
$1.23
$1.65
-25%
EBITDA(6) $107,499 $151,756 -29%
Capital spending (2) $263,070 $82,608 +218%
OPERATING HIGHLIGHTS
Production
Copper (tonnes) 30,200 24,800 +22% Zinc (tonnes) 16,400 15,100 +9% Pyrite (tonnes) 190,000 211,300 -10%
Copper cash cost (US $ per pound) (3) $0.78 $1.00 -22%
as at March 31 as at December 31 FINANCIAL CONDITION 2013 2012
(US $millions, except ratio) Current ratio
(7) 1.4 to 1 8.4 to 1
Net working capital balance(7)
$637 $2,358 Cash balance (including bonds and other securities) $3,489 $3,618 Gross debt
(4) $1,961 $1,960
Net debt (net cash)(5)
($1,528) ($1,658) Shareholders’ equity attributable to Inmet shareholders $3,694 $3,719
(1) Cash flow provided by operating activities divided by average shares outstanding for the period.
(2) The three months ended March 31, 2013 includes capital spending of $250 million at Cobre Panama. The three months ended March 31, 2012 includes capital spending of $71 million at Cobre Panama.
(3) This is a non-GAAP financial measure – see Supplementary financial information on pages 24 to 25.
(4) Gross debt includes long-term debt and the current portion of long-term debt
(5) Net debt (net cash) is a non-GAAP measure defined as long-term debt less cash and short-term investments, including
bonds and other securities (6)
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure defined as net income before finance costs, income tax expense and depreciation
(7) The decrease in the current ratio and net working capital balance this quarter reflects the reclassification of the senior unsecured notes from long-term debt to current – see note 13 on page 41.
177
First quarter report We prepared this report as of May 15, 2013. In this report, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended March 31, 2013.
Caution with respect to forward-looking statements and information Securities regulators encourage companies to disclose forward-looking information to help investors understand a company’s future prospects. This report contains statements about our business, results of operation and future financial condition.
These statements are “forward-looking” because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words like may, expect, anticipate, believe or other similar words. Our objectives and outlook have been prepared based on our existing operations, expectations and circumstances. Actual events and results could be substantially different, however, because of the risks and uncertainties associated with our business or events that happen after the date of this interim report.
You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except if there is an offering document or where securities legislation requires us to do so.
Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of Inmet. Accordingly, readers should not place undue reliance on forward-looking statements or information. Inmet undertakes no obligation to update forward-looking statements or information as a result of new information after the date of this interim report except as required by law. All forward-looking statements and information herein are qualified by this cautionary statement.
178
Our financial results
three months ended March 31
(thousands, except per share amounts) 2013 2012 change
EARNINGS FROM OPERATIONS (1)
Çayeli $31,320 $66,000 -53% Las Cruces 73,885 51,619 +43% Pyhäsalmi 30,535 26,130 +17% Other 4,658 2,747 +70%
140,398 146,496 -4%
DEVELOPMENT AND EXPLORATION Corporate development and exploration (9,223) (8,801) +5%
CORPORATE COSTS General and administration (13,083) (9,745) +34% Costs related to takeover by First Quantum (65,107) - +100% Investment and other income 20,694 (6,263) +430% Finance costs (2,872) (2,596) +11% Income taxes (44,760) (26,011) +72%
(105,128) (44,615) +136%
Net income 26,047 93,080 -68% Non-controlling interest 763 - +100%
Net income attributable to Inmet shareholders $26,810 $93,080 -72%
Basic net income per common share $0.39 $1.35 -71%
Weighted average shares outstanding 69,375 69,349 -
(1) Gross sales less smelter processing charges and freight, cost of sales including depreciation and provisions for mine reclamation at closed properties.
Key changes in 2013
(millions)
three months ended March 31
see page
EARNINGS FROM OPERATIONS Market factors
Lower copper prices ($9) 8
Lower other metal prices (3) 8
Operational factors
Higher copper sales volumes at Las Cruces 31 17
Lower copper sales volumes at Çayeli (18) 15
Higher operating costs (3) 10
Higher depreciation (4) 11
Decrease in operating earnings, compared to 2012 (6)
Higher taxes (19) 13
Costs related to takeover by First Quantum (65) 12
Higher general and administrative costs (3)
Foreign exchange changes 29 13
Other (3)
Lower net income compared to 2012 (67)
Non-controlling interest 1 Lower net income attributable to Inmet shareholders compared to 2012 ($66)
179
Understanding our performance Metal prices The table below shows the average metal prices we realized this quarter and year to date. The prices we realize include finalization adjustments – see Gross sales on page 8.
three months ended March 31
2013 2012 change
Copper (per pound) $3.59 $3.87 -7%
Zinc (per pound) $0.89 $0.93 -4%
Copper Copper prices on the London Metals Exchange (LME) averaged $3.60 per pound this quarter, a decrease of 5 percent from the first quarter of 2012 and consistent with the fourth quarter of 2012. Zinc
LME zinc prices averaged $0.92 per pound this quarter, consistent with the first quarter of 2012 and a 3 percent increase from the fourth quarter of 2012. Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2012.
three months ended March 31
2013 2012 change
Exchange rates
1 C$ to US$ $0.99 $1.00 -1%
1 euro to US$ $1.32 $1.31 +1%
1 US$ to Turkish lira TL 1.79 TL 1.79 -
Compared to the same quarter last year, the value of the US dollar appreciated 1 percent relative to the Canadian dollar, and depreciated 1 percent relative to the euro. The value of the US dollar was flat relative to the Turkish lira compared to the first quarter of 2012. Our earnings are affected by changes in foreign currency exchange rates when we:
translate the operating expenses of our euro-based operations from their functional currency to US dollars
revalue US dollars that we hold in cash at our operations whose functional currency is the euro
translate Çayeli’s Turkish lira denominated costs into its functional currency (US dollars). Prior to the change in accounting to adopt the US dollar as Inmet’s functional currency effective June 1, 2012, our earnings were affected by changes in foreign currency exchange rates when we revalued our US dollar denominated cash, bonds and other securities and senior unsecured notes held corporately at Inmet.
180
Treatment charges for zinc were lower Treatment charges are one component of smelter processing charges. We also pay smelters for content losses and price participation. The table below shows the average charges we realized this quarter. Zinc contracts for 2013 and 2012 were not finalized in the first quarter of the respective years and therefore the average charges represent the contract prices from the relevant prior year. Adjustments to contracts will be reflected in the second quarter.
three months ended March 31
(US$) 2013 2012 change
Treatment charges
Copper (per dry metric tonne of concentrate) $57 $58 -2%
Zinc (per dry metric tonne of concentrate) $187 $207 -10%
Price participation
Copper (per pound) $0.00 $0.00 -%
Zinc (per pound)
$0.00 ($0.01) -100%
Freight charges
Copper (per dry metric tonne of concentrate) $47 $61 -23%
Zinc (per dry metric tonne of concentrate) $22 $30 -27%
Statutory tax rates The table below shows the statutory tax rates for each of our taxable operating mines.
2013 2012 change
Statutory tax rates Çayeli 24% 24% - Las Cruces 30% 30% - Pyhäsalmi 24.5% 24.5% -
181
Earnings from operations
three months ended March 31
(thousands) 2013 2012 change
Gross sales $276,250 $285,526 -3%
Smelter processing charges and freight (24,868) (29,338) -15%
Cost of sales:
Direct production costs (81,434) (78,172) +4%
Inventory changes 2,602 (5,255) -150%
Other non-cash expenses 1,668 3,802 -56%
Depreciation (33,820) (30,067) +12%
Earnings from operations 140,398 $146,496 -4%
Gross sales were lower
three months ended March 31
(thousands) 2013 2012 change
Gross sales by operation
Çayeli $79,313 $123,370 -36%
Las Cruces 139,284 110,382 +26%
Pyhäsalmi 57,653 51,774 +11%
$276,250 $285,526 -3%
Gross sales by metal
Copper $230,786 $236,226 -2%
Zinc 27,619 28,642 -4%
Other 17,845 20,658 -14%
$276,250 $285,526 -3%
Key components of the change in gross sales: lower realized metals prices, higher sales volumes at Las Cruces, timing of shipments at Çayeli (millions)
three months ended March 31
Lower copper prices ($9)
Lower other metal prices (3)
Higher copper sales volumes at Las Cruces 31
Lower copper sales volumes at our other mines (27)
Lower zinc sales volumes (1)
Lower gross sales, compared to 2012 ($9)
We record sales that settle during the reporting period using the metal price on the day they settle. For sales that have not settled, we use an estimate based on the month we expect the sale to settle and the forward price of the metal at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).
This quarter, we recorded $1 million in positive finalization adjustments from fourth quarter shipments.
At the end of this quarter, the following sales had not been settled:
17 million pounds of copper provisionally priced at US $3.41 per pound
3 million pounds of zinc provisionally priced at US $0.85 per pound.
The finalization adjustment we record for these sales will depend on the actual price we receive when they settle, which can be up to five months from the time we initially record the sales. We expect these sales to settle in the following months:
182
Higher copper sales volumes, lower zinc sales volumes this quarter
Our sales volumes are directly affected by the amount of production from our mines and our ability to ship to our customers.
Copper sales volumes were slightly higher this quarter compared to the same quarter last year, while copper production volumes were significantly higher reflecting higher production volumes at Las Cruces. In the first quarter of 2013, the timing of shipments resulted in copper sales volumes lagging production volumes by a combined 1,000 tonnes. Conversely, in the first quarter of 2012 sales volumes exceeded production volumes by 3,800 tonnes, mainly due to the timing of shipments at Çayeli.
Zinc production volumes were higher this quarter than the first quarter of 2012 due to higher zinc grades at Pyhäsalmi. Zinc sales volumes lagged production volumes by 2,500 tonnes this quarter, mainly due to the timing of shipments at Çayeli.
Sales volumes
three months ended March 31
2013 2012 change
Copper contained in concentrate 11,800 15,000 -21%
Copper cathode (tonnes) 17,400 13,600 +28%
Total copper (tonnes) 29,200 28,600 +2%
Zinc (tonnes) 13,900 14,500 -4%
Pyrite (tonnes) 114,500 112,300 +2%
Production
three months ended March 31
2013 2012 change objective 2013
Copper (tonnes)
Çayeli
7,900 8,100 -2% 27,800 - 30,900
Las Cruces 17,900 13,300 +35% 68,500 - 72,000
Pyhäsalmi 4,400 3,400 +29% 12,000 - 13,400
30,200 24,800 +22% 108,300 - 116,300
Zinc (tonnes)
Çayeli 10,200 10,500 -3% 35,900 - 39,900
Pyhäsalmi 6,200 4,600 +35% 20,300 - 22,500
16,400 15,100 +9% 56,200 - 62,400
Pyrite (tonnes)
Pyhäsalmi 190,000 211,300 -10% 820,000
(millions of pounds) copper zinc
April 2013 13 3
June 2013 4 -
Unsettled sales at March 31, 2013 17 3
183
Lower copper and zinc smelter processing charges
three months ended March 31
(thousands) 2013 2012 change
Smelter processing charges and freight by operation
Çayeli $14,026 $21,469 -35%
Las Cruces 751 295 +155%
Pyhäsalmi 10,091 7,574 +33%
$24,868 $29,338 -15% Smelter processing charges and freight by metal
Copper
$12,180 $16,441 -26%
Zinc 10,175 10,967 -7%
Other 2,513 1,930 +30%
$24,868 $29,338 -15% Smelter processing charges by type, and freight
Copper treatment and refining charges
$4,513 $5,696 -21%
Zinc treatment charges 5,102 5,758 -11%
Zinc price participation 35 (251) +114%
Content losses 8,664 10,555 -18%
Freight 6,378 7,175 -11%
Other 176 405 -57%
$24,868 $29,338 -15%
Our copper treatment and refining charges were lower this quarter due to lower copper sales volumes at Çayeli. Zinc treatment charges this quarter were lower. Our zinc smelter and processing charges reflect last year’s contract terms, which were favourable compared to the year prior, as contract terms for the current year will be finalized in the second quarter. Direct production costs were higher
three months ended March 31
(thousands) 2013 2012 change
Direct production costs by operation
Çayeli $24,632 $23,288 +6%
Las Cruces 40,655 39,907 +2%
Pyhäsalmi 16,147 14,977 +8%
Total direct production costs 81,434 78,172 +4%
Inventory changes (2,602) 5,255 -150% Charges for mine rehabilitation and other non-cash
charges (1,668) (3,802) -56%
Total cost of sales (excluding depreciation) $77,164 $79,625 -3%
Direct production costs Direct production costs were $3 million higher than in the first quarter of 2012, mainly reflecting higher production at Las Cruces. Inventory changes Zinc inventories at Çayeli increased at the end of this quarter, while copper inventories decreased at Çayeli at the end of the first quarter of 2012, because of the timing of shipments.
184
Higher depreciation
three months ended March 31
(thousands) 2013 2012 change
Depreciation by operation
Çayeli $6,348 $7,262 -13%
Las Cruces 24,621 20,468 +20%
Pyhäsalmi 2,851 2,337 +22%
$33,820 $30,067 +12%
Depreciation was higher this quarter than in the first quarter of 2012 mainly because of higher copper sales volumes at Las Cruces.
185
Corporate costs Corporate costs include corporate development and exploration, general and administration costs, taxes, interest and other income.
Costs related to takeover by First Quantum
This quarter, we incurred $65 million in connection with First Quantum’s acquisition of Inmet Mining, including $35 million related to the accelerated settlement of stock-based compensation plans, as well as costs for financial and legal advisors and termination benefits. 1. Investment and other income
three months ended March 31
(thousands) 2013 2012
Interest income $3,545 $4,252
Foreign exchange gain (loss) 17,204 (12,070)
Dividend and royalty income - 484
Other (55) 1,071
$20,694 ($6,263)
Foreign exchange gains and losses We have foreign exchange gains or losses when we revalue certain foreign denominated assets and liabilities. Our foreign exchange gains and losses were from:
three months ended March 31
(thousands) 2013 2012
Translation of US dollar cash held in euro-based entities $21,914 ($4,392)
Translation of Cdn dollar cash held by Corporate (608) - Translation of Cdn dollar bonds and other securities held by
Corporate (4,499) -
Translation of other monetary assets and liabilities 397 (2,627) Translation of US dollar amounts in Corporate prior to the change
in functional currency to the US dollar - (5,051)
$17,204 ($12,070)
Effective June 1, 2012, Inmet’s functional currency changed from the Canadian dollar to the US dollar. As of this date, Inmet’s US dollar-denominated monetary assets and liabilities were no longer revalued. Instead we began recognizing foreign exchange impacts on the revaluation of Inmet’s Canadian dollar denominated monetary assets and liabilities. We recognized $5 million in foreign exchange losses this quarter on the revaluation of Inmet’s Canadian dollar denominated cash, bonds and other securities due to a strengthening of the US dollar relative to the Canadian dollar. In the first quarter of 2012, which preceded the date of Inmet’s functional currency change, we recognized foreign exchange losses of $5 million from the revaluation of US dollar denominated cash, bonds and other securities due to a strengthening of the Canadian dollar relative to the US dollar. We also recognized $22 million in foreign exchange gains this quarter on the revaluation of US denominated cash balances held in our euro functional currency companies due to an appreciation in the US dollar relative to the euro, compared to a $4 million loss in the first quarter of 2012.
186
Income tax expense
three months ended March 31
(thousands) 2013 2012 change
Çayeli $13,975 $9,479
Las Cruces 22,274 11,213
Pyhäsalmi 7,197 5,183
Corporate and other 1,314 136
$44,760 $26,011
Consolidated effective tax rate 63% 22% +41%
Our tax expense changes as our earnings change. The consolidated effective tax rate was higher this quarter compared to the same quarter of 2012 mainly because:
There was no tax recovery in Inmet Mining relating to the costs associated with First Quantum’s takeover
Çayeli’s taxes were higher this quarter as it recognized a foreign exchange gain from its US dollar denominated cash (Çayeli’s income taxes are denominated in Turkish lira), compared to a significant foreign exchange loss on its US dollar cash in the comparable quarter of 2012.
187
Results of our operations
Çayeli three months ended March 31
2013 2012 change
Tonnes of ore milled (000’s) 323 299 +8%
Tonnes of ore milled per day 3,600 3,300 +8%
Grades (percent) copper 3.2 3.4 -6%
zinc 4.6 5.4 -15%
Mill recoveries (percent) copper 77 79 -3%
zinc 68 65 +5%
Production (tonnes) copper 7,900 8,100 -2%
zinc 10,200 10,500 -3%
Cost per tonne of ore milled $76 $78 -3%
Higher throughput offset impact of lower copper and zinc grades Çayeli produced at an annualized rate of 1.29 million tonnes this quarter, an 8 percent increase over the first quarter of 2012, resulting from improved mine planning and logistical control. Despite higher throughput, copper production this quarter decreased by two percent compared to the first quarter of 2012 due to slightly lower copper grades and recoveries. The deferral of several higher copper grade stopes to later in the year led to the reduced copper grades. Zinc production decreased by three percent compared to the first quarter of 2012 due to lower zinc grades somewhat offset by higher zinc recoveries and higher throughput. The decrease in zinc grades resulted from lower grade stopes in the areas mined, while optimized blending and controlled throughput increased zinc recoveries. Due to the timing of shipments, Çayeli’s zinc sales volumes lagged production volumes by approximately 3,000 tonnes this quarter. In the first quarter of 2012, Çayeli’s earnings benefited from copper sales volumes exceeding production volumes by approximately 3,000 tonnes. The three-year labour agreement at Çayeli expired in May 2012. The negotiation of a new labour agreement, initially delayed due to changes to government labour regulations, is proceeding and Çayeli will make a strong effort to manage labour cost escalations to retain the operation’s cost competitiveness. Cost per tonne of ore milled this quarter was slightly lower than the same quarter last year because we processed more ore through the mill. 2013 outlook for production
In 2013, the production level should increase from 1.2 million tonnes to 1.25 million tonnes. The mine should benefit from the commissioning of the two new ore passes by the third quarter of 2013, the extension of a shotcrete slickline to the lower levels of the mine, improved lower mine infrastructure and the addition of stope production from a new mining block, all of which should ease pressure on existing production areas. Çayeli’s ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. Continued progress in meeting the challenges of poor ground conditions and planned operational efficiencies is aimed at reducing the risks associated with achieving our production plan.
Copper recoveries should be lower in 2013, reflecting the increased proportions of metallurgically challenging ore types.
We expect to produce between 27,800 tonnes and 30,900 tonnes of copper and between 35,900 tonnes and 39,900 tonnes of zinc in 2013.
188
We expect operating costs in 2013 to be slightly higher than 2012 levels primarily due to increased manpower levels, increased electricity costs and increased mine department consumables.
Financial review
Lower earnings due to lower sales volumes and lower realized metals prices this quarter
(millions unless three months ended March 31
otherwise stated) 2013 2012
Sales analysis
Copper sales (tonnes) 8,100 11,100
Zinc sales (tonnes) 7,200 10,300
Gross copper sales $61 $94
Gross zinc sales 14 20
Other metal sales 4 9
Gross sales 79 123
Smelter processing charges and freight (14) (21)
Net sales $65 $102
Cost analysis
Tonnes of ore milled (thousands) 323 299
Direct production costs ($ per tonne) $76 $78
Direct production costs $25 $23
Change in inventory - 5
Depreciation and other non-cash costs 9 8
Operating costs $34 $36
Operating earnings $31 $66
Operating cash flow $20 $30
The table below shows what contributed to the change in operating earnings and operating cash flow between 2013 and 2012.
(millions)
three months ended March 31
Lower copper prices ($7) Lower other metal prices (5) Lower copper sales volumes (18) Lower zinc sales volumes (3) Higher operating costs (2) Lower operating earnings, compared to 2012 (35)
Change in cash taxes (2) Changes in working capital (see note 11 on page 39) 27 Lower operating cash flow, compared to 2012 ($10)
2. 3. Capital spending 4.
2013 outlook for capital spending We expect to spend $18 million on capital in 2013, including $6 million on mine development and $7 million to complete the upgrade of our ore pass system to address deterioration that has accumulated over time from normal abrasion.
three months ended March 31 objective
(thousands) 2013 2012 change 2013 Capital spending $3,300 $2,300 +43% $18,000
189
Las Cruces
three months ended March 31
2013 2012 change
Tonnes of ore processed (000’s) 305 246 +24%
Copper grades (percent) 6.7 6.7 -
Plant recoveries (percent) 88 85 +4%
Cathode copper production (tonnes) 17,900 13,300 +35%
Cost per pound of cathode produced $1.03 $1.36 -24%
Higher copper production
Las Cruces production was 35 percent higher this quarter than the first quarter of 2012 due to increased throughput and plant recoveries. Production in the first quarter of 2012 was negatively impacted by a nine-day planned maintenance shutdown, a one-day national strike, and the time required for overall process stabilization following each of these stoppages. Improved plant recoveries this quarter reflects the full implementation of the leach feed surge tank with oxygen addition completed during mid-2012.
Cost per pound of copper produced this quarter was significantly lower than the first quarter of 2012 due to higher production volumes. 2013 outlook for production In early April, a fire occurred in one of the plant’s eight leach reactors. All eight reactors were shut down following the fire to allow for a thorough assessment of damages and to investigate the cause of the fire. As of April 23, seven of the eight reactors were re-commissioned and the final reactor is expected to be online by mid-May. The fire and related re-commissioning period could result in up to 3,300 tonnes of lost copper cathode production in the second quarter of 2013; however plans are being assessed to recover some or all of the lost production during the second half of the year. We therefore continue to expect to produce between 68,500 tonnes and 72,000 tonnes copper cathode in 2013. The plant will be tested at higher ore throughput and lower grade to assess the effects on plant performance before we enter into lower copper grade areas of the mine that we expect in 2014. In 2013, we will concentrate on reducing recovery losses downstream of the leaching reactors that have increased with the increase in copper cathode production and due to operating with process solutions that contain more copper.
190
Financial review
Higher sales volumes due to higher production
(millions unless
three months ended March 31
otherwise stated) 2013 2012
Sales analysis
Copper sales (tonnes) 17,400 13,600
Gross copper sales $139 $110
Smelter processing charges and freight (1) -
Net sales $138 $110
Cost analysis
Pounds of copper produced (millions) 40 29
Direct production costs ($ per pound) $1.03 $1.36
Direct production costs $41 $40
Change in inventory (1) -
Depreciation and other non-cash costs 24 18
Operating costs $64 $58
Operating earnings $74 $52
Operating cash flow $119 $77
The table below shows what contributed to the change in operating earnings and operating cash flow between 2013 and 2012.
(millions)
three months ended March 31
Lower copper prices ($2) Higher copper sales volumes 31 Higher operating costs (1) Higher depreciation (4) Other (2) Higher operating earnings, compared to 2012 22
Changes in working capital (see note 11 on page 39) 8 Change in depreciation 4 Foreign exchange gain on US dollar cash 7 Other 1 Higher operating cash flow, compared to 2012 $42
5. Capital spending
(thousands) three months ended March 31 Objective
2013 2012 change 2013
Capital spending $4,500 $6,000 -25% $49,000
2013 outlook for capital spending We expect to spend $49 million on capital projects in 2013. The largest expenditures should be for mine development ($22 million), tailings facility expansion ($5 million), debottlenecking ($8 million) and other plant improvement projects.
191
Pyhäsalmi
6. Higher grades increased copper and zinc production Pyhäsalmi maintained its strong performance in the first quarter of 2013, processing at an annualized rate in line with its annual objective and achieving copper recoveries of 97 percent and zinc recoveries of 92 percent. Copper production increased by 29 percent in the first quarter of 2013 compared to the same quarter last year due to higher copper grades and recoveries. Zinc production was 35 percent higher than the first quarter of 2012 due to significantly higher zinc grades and the resulting higher recoveries. The copper and zinc grades achieved this quarter were higher than our plan for the year due to areas mined outside of the mine plan. Copper and zinc grades are expected to return to planned levels throughout the remainder of 2013. Operating costs were slightly higher this quarter mainly due to higher contractor costs. 2013 outlook for production Pyhäsalmi expects to mine 1.4 million tonnes in 2013, and produce between 12,000 tonnes and 13,400 tonnes of copper and 20,300 tonnes and 22,500 tonnes of zinc. Zinc production should be lower than it was in 2012 as we expect a decrease in zinc grades in 2013. Pyhäsalmi expects to produce and sell 820,000 tonnes of pyrite in 2013.
three months ended
March 31
2013 2012 change_
Tonnes of ore milled (000’s) 346 342 +1%
Tonnes of ore milled per day 3,800 3,800 -
Grades (percent) copper 1.3 1.0 +30%
zinc 2.0 1.5 +33%
sulphur 42 43 -2%
Mill recoveries (percent) copper 97 96 +1%
zinc 92 90 +2%
Production (tonnes) copper 4,400 3,400 +29%
zinc 6,200 4,600 +35%
pyrite 190,000 211,300 -10%
Cost per tonne of ore milled $47 $44 +7%
192
Financial review
Higher zinc sales volumes due to higher production
(millions unless three months ended March 31
otherwise stated) 2013 2012
Sales analysis
Copper sales (tonnes) 3,700 3,900
Zinc sales (tonnes) 6,700 4,200
Pyrite sales (tonnes) 114,500 112,300
Gross copper sales $30 $32
Gross zinc sales 14 8
Other metal sales 14 12
Gross sales $58 52
Smelter processing charges and freight (10) (8)
Net sales $48 $44
Cost analysis
Tonnes of ore milled (thousands) 346 342
Direct production costs ($ per tonne) $47 $44
Direct production costs $16 $15
Change in inventory (2) 1
Depreciation and other non-cash costs 3 2
Operating costs $17 $18
Operating earnings $31 $26
Operating cash flow $29 $26
7. The table below shows what contributed to the change in operating earnings and operating cash flow between 2013 and 2012.
(millions)
three months ended March 31
Higher zinc sales volumes $3
Higher other metal sales 2
Higher operating costs (1)
Other 1
Higher operating earnings, compared to 2012 5
Change in tax expense (2)
Changes in working capital (see note 11 on page 39) (2)
Other 2
Higher operating cash flow, compared to 2012 $3
8. Capital spending
three months ended March 31 objective
(thousands) 2013 2012 change 2013
Capital spending $1,900 $2,400 -21% $8,000
2013 outlook for capital spending Capital spending of $8 million in 2013 will primarily be to replace underground mobile equipment, upgrade the pyrite flotation cleaner cells and flotation air blower system, and improve the reclaim water system.
193
Status of our development project
Cobre Panama Capital expenditures were $250 million for the first quarter of 2013. Project spending for Cobre Panama this quarter was mainly to advance the coastal access road, Llano Grande road extension, preparation of the plant site, development work at the port site and camp construction at the plant and port sites. Advancements were also made to the process plant, including the concentrator and the tailings management facility. Following its successful acquisition of Inmet, First Quantum has commenced a detailed review of the Cobre Panama project. The objective is to re-establish the project on a more ‘self-perform’ basis to maximize the benefit of First Quantum’s core project development skills. To this end a number of key contracts, including the main engineering, procurement and construction management contract, have been modified or cancelled and a rationalization of the work force is currently under way. This review is expected to take between two and four months before a revised capital cost estimate and project timetable will be available.
194
Managing our liquidity We develop our financing strategy by looking at our long-term capital requirements and deciding on the optimal mix of cash, future operating cash flow, credit facilities and project financing. Our capital structure includes a liquidity cushion that gives us the flexibility to deal with operational disruptions or general market downturns. three months ended March 31
(millions) 2013 2012
CASH FROM OPERATING ACTIVITIES
Çayeli $20 $30
Las Cruces 119 77
Pyhäsalmi 29 26
Costs related to takeover by First Quantum (71) - Corporate development and exploration not incurred by operations (5) (6)
General and administration (13) (10)
Other 6 (2)
85 115
CASH FROM INVESTING AND FINANCING
Purchase of property, plant and equipment (263) (83)
Purchase and maturity of bonds and other securities, net 33 46
Funding from non-controlling shareholder 80 -
Foreign exchange on cash held in foreign currency (23) 1
Other (4) (4)
(177) (40)
Increase (decrease) in cash (92) 75
Cash and short-term investments
Beginning of period 1,541 1,048
End of period $1,449 $1,123
Our available liquidity also includes $2,040 million of bonds and other securities ($2,077 million at December 31, 2012), providing a total of $3,489 million in available capital. OPERATING ACTIVITIES
9. Key components of the change in operating cash flows (millions)
three months ended March 31
Lower earnings from operations (see page 5) ($6) Add back higher depreciation included in earnings from operations
4
Higher income tax expense (5)
Costs related to takeover by First Quantum (71)
Foreign exchange gain on cash 26
Changes in working capital (see note 11 on page 39) 32
Other (10) Lower operating cash flow, compared to 2012 ($30)
Operating cash flow this quarter was lower than the first quarter of 2012 primarily due to costs related to First Quantum’s take-over of Inmet Mining. This was partly offset by realized foreign exchange gains on US denominated cash held in our euro-based entities and a decrease in net working capital at Çayeli due to the timing of shipments to and collections from customers.
195
INVESTING AND FINANCING Capital spending three months ended March 31
(millions) 2013 2012
Çayeli $3 $2
Las Cruces 5 6
Pyhäsalmi 2 2
Cobre Panama 250 72
Corporate and other 3 1
$263 $83
Please see Results of our operations and Status of our development project for a discussion of actual results. Capital spending this quarter was mainly for Cobre Panama.
Purchase and maturing of investments
This quarter $805 million of our bonds and other securities matured, $33 million of which was converted into cash. The remaining $772 million was reinvested in US dollar-denominated bonds and other securities comprising US Treasury bonds, Canadian government and corporate bonds and Supranational bonds with credit ratings of A to AAA. The securities mature between 2013 and 2018 and have a weighted average annual yield to maturity of 0.47 percent. In the first quarter of 2012, $46 million of our bond portfolio matured and was converted into cash.
196
Financial condition
Our strategy is to make sure we have sufficient liquidity (including cash and committed credit facilities) to finance our operating requirements as well as our growth projects. At March 31, 2013, we had $3,489 million in total funds, including $1,449 million of cash and short-term investments and $2,040 million invested in bonds and other securities. Cash At March 31, 2013 our cash and short-term investments of $1,449 million included cash and money market instruments that mature in 90 days or less. Our policy is to invest excess cash in highly liquid investments of high credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors. At March 31, 2013 we held cash and short-term investments in the following:
A to AAA rated treasury funds and money market funds managed by leading international fund managers, who are investing in money market and short-term debt securities and fixed income securities issued by leading international financial institutions and their sponsored securitization vehicles.
Cash, term and overnight deposits with leading Canadian and international financial institutions. See note 4 on page 36 in the consolidated financial statements for more details about where our cash is invested. Bonds and other securities We hold a portfolio of bonds and other securities to provide better yields while minimizing our investment risk. As at March 31, 2013, our portfolio was $2,040 million. The portfolio includes: 28 percent US Treasury bonds 18 percent Canadian and provincial government bonds 50 percent corporate bonds 4 percent Supranational bonds. The securities mature between 2013 and 2018. Restricted cash Our restricted cash balance of $80 million as at March 31, 2013 included:
$19 million in cash collateralized letters of credit for Inmet
$59 million at Las Cruces related to a reclamation bond, issuing letters of credit to suppliers and the local water authority and for its labour bond to the government
$2 million for future reclamation at Pyhäsalmi.
Accounting changes We adopted the following new and amended standards, none of which had a material impact on our consolidated interim financial statements:
IFRS 10
IFRS 11
IFRS 12
IFRS 13
amendments to IAS 19
IFRIC 20.
197
Supplementary financial information Page 24 and 25 includes supplementary financial information about comparable net income and cash costs. These measures do not fall into the category of measures acceptable under International Financial Reporting Standards. Comparable net income has been adjusted to remove the effects of costs related to First Quantum’s takeover of Inmet. We use unit cash cost information as a key performance indicator, both on a segmented and consolidated basis. We have included cash costs as supplementary information because we believe our key stakeholders use these measures as a financial indicator of our profitability and cash flows before the effects of capital investment and financing costs, such as interest. Since cash costs are not recognized financial measures under International Financial Reporting Standards, they should not be considered in isolation of earnings or cash flows. There is also no standard way to calculate cash costs, so they are not a reliable way to compare us to other companies.
Reconciliation of net income to comparable net income
For the three months ended March 31
(thousands of US dollars, except where otherwise noted) 2013 2012
Net income attributable to Inmet shareholders per financial statements $26,810 $93,081
Deduct costs related to takeover by First Quanum 65,107 -
Comparable net income $91,917 $93,081
Weighted average shares outstanding 69,375 69,349
Comparable net income per share $1.32 $1.34
Reconciliation to cash costs reported by First Quantum
2013 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Cash cost - Inmet $0.83 $1.05 ($0.34) $0.78
Remove royalties (0.13) (0.05) - (0.06)
Difference in conversion approach(1)
0.23 - (0.21) 1.19
Cash cost - First Quanum $0.93 $1.00 ($0.55) $1.91
2012 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Cash cost - Inmet $0.79 $1.42 ($0.19) $1.00
Remove royalties (0.12) (0.07) - (0.08)
Difference in conversion approach(1)
0.09 - 0.70 0.45
Other - 0.03 - (0.94)
Cash cost $0.76 $1.38 $0.51 $0.43 (1) Inmet adjusts by product metal credits, smelter processing charges and freight from income statement basis to
production basis using respective volumes for each metal, w hereas First Quantum divides by product metal credits,
smelter processing charges and freight by copper sales volumes
198
INMET MINING CORPORATION
Supplementary financial information continued
Cash costs
2013 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $1.29 $0.98 $1.66 $1.16
Royalties 0.13 0.05 - 0.06
Smelter processing charges and freight 0.93 0.02 0.76 0.36
Metal credits (1.52) - (2.76) (0.80)
Cash cost $0.83 $1.05 ($0.34) $0.78
2012 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $1.23 $1.34 $2.11 $1.41
Royalties 0.12 0.07 - 0.08
Smelter processing charges and freight 1.03 0.01 0.79 0.45
Metal credits (1.59) - (3.09) (0.94)
Cash cost $0.79 $1.42 ($0.19) $1.00
Reconciliation of cash costs to statements of earnings
2013 For the three months ended March 31
per pound of copper
(millions of US dollars, except w here
otherw ise noted) ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
GAAP reference page 15 page 17 page 19
Direct production costs $25 $41 $16 $82
Smelter processing charges and freight 14 1 10 25
By product sales (18) - (28) (46)
Adjust smelter processing and freight,
and sales to production basis (7) - (1) (8)
Operating costs net of metal credits $14 $42 ($3) $53
Inmet's share of production (000's) 17,400 39,500 9,600 66,500
Cash cost (US dollars) $0.83 $1.05 ($0.34) $0.78
2012 For the three months ended March 31
per pound of copper
(millions of US dollars, except w here
otherw ise noted) ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
GAAP reference page 15 page 17 page 19
Direct production costs $23 $40 $15 $78
Smelter processing charges and freight 21 - 8 29
By product sales (29) - (20) (49)
Adjust smelter processing and freight,
and sales to production basis (1) - (4) (5)
Operating costs net of metal credits $14 $40 ($1) $53
Inmet's share of production (000's) 17,800 29,400 7,500 54,700
Cash cost (US dollars) $0.79 $1.42 ($0.19) $1.00
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INMET MINING CORPORATION
Quarterly review(unaudited)
Latest Four Quarters
2013 2012(1)
2012 2012
First Fourth Third Second
(thousands of US dollars, except per share amounts) quarter quarter quarter quarter
STATEMENTS OF EARNINGS
Gross sales 276,250$ 259,868$ 327,187$ 251,395$
Smelter processing charges and freight (24,868) (26,155) (30,023) (28,480)
Cost of sales (excluding depreciation) (77,164) (91,381) (91,096) (84,634)
Depreciation (33,820) (30,079) (37,633) (29,193)
140,398 112,253 168,435 109,088
Corporate development and exploration (9,223) (8,620) (7,905) (10,290)
Costs related to takeover by First Quantum Minerals Ltd (65,107) - - -
General and administration (13,083) (14,972) (12,982) (15,899)
Investment and other income 20,694 (16,279) 1,645 45,103
Finance costs (2,872) (2,561) (2,463) (2,379)
Income tax expense (44,760) (31,706) (42,135) (31,444)
Net income 26,047$ 38,115$ 104,595$ 94,179$
Net income attributable to:
Inmet equity holders 26,810$ 38,669$ 104,897$ 94,458$
Non-controlling interest (763) (554) (302) (279)
26,047$ 38,115$ 104,595$ 94,179$
Net Income per share
Basic 0.39$ 0.56$ 1.51$ 1.36$
Diluted 0.38$ 0.56$ 1.50$ 1.35$
Previous Four Quarters
2012(2)
2011(2)
2011(2)
2011(2)
First Fourth Third Second
(thousands of US dollars, except per share amounts) quarter quarter quarter quarter
STATEMENTS OF EARNINGS
Gross sales 285,527$ 233,394$ 253,432$ 214,894$
Smelter processing charges and freight (29,338) (27,330) (35,865) (32,793)
Cost of sales (excluding depreciation) (79,624) (90,177) (78,563) (71,302)
Depreciation (30,067) (26,835) (26,452) (25,802)
146,498 89,052 112,552 84,997
Corporate development and exploration (8,801) (6,333) (4,539) (4,417)
General and administration (9,745) (7,487) (9,669) (7,995)
Investment and other income (6,263) (3,883) 34,640 4,581
Finance costs (2,596) (2,314) (2,301) (2,310)
Income tax expense (26,012) (22,491) (32,696) (20,588)
Net income 93,081 46,544 97,987 54,268
Net income attributable to:
Inmet equity holders 93,081$ 46,544$ 97,987$ 54,268$
Non-controlling interest - - - -
93,081$ 46,544$ 97,987$ 54,268$
Net Income per share
Basic 1.35$ 0.67$ 1.41$ 0.83$
Diluted 1.34$ 0.67$ 1.41$ 0.83$
(1) Information from 2012 restated in accordance w ith IAS 19R.
(2) Information restated from previously reported Canadian dollar amounts to US dollar amounts at May 31, 2012
exchange rate of US $0.97 per Canadian dollar.
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INMET MINING CORPORATION
Consolidated statements of financial position(Unaudited)
As at balance sheet date(thousands of US dollars) Note reference
March 31,
2013
December 31,
2012
January 1,
2012
(note 3) (note 3)
Assets
Current assets:
Cash and short term investments 4 $ 1,448,662 $ 1,541,219 $1,048,457
Restricted cash 765 1,291 784
Accounts receivable 144,547 160,387 101,867
Inventories 87,136 92,399 87,654
Current portion of bonds and other securities 5 1,686,392 883,599 175,921
3,367,502 2,678,895 1,414,683
Restricted cash 79,481 77,050 69,538
- - Property, plant and equipment 2,955,030 2,632,297 1,772,766
- - Bonds and other securities 5 354,037 1,193,088 430,787
Deferred income tax assets - 661 141
Other assets 500 240 410
Total assets $ 6,756,550 $ 6,582,231 $ 3,688,325
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 373,980 $ 282,676 $ 138,596
Provisions 21,444 20,041 13,087
Current portion of long term debt 13 1,961,176 17,870 -
2,356,600 320,587 151,683
Long-term debt 13 - 1,941,989 16,581
= Provisions 231,863 225,974 169,144
Other liabilities 17,431 18,243 17,156
Deferred income tax liabilities 125,104 104,099 28,351
Total liabilities 2,730,998 2,610,892 382,915
Commitments and contingencies
Equity
Share capital 1,545,635 1,541,773 1,541,324
Contributed surplus 64,825 64,825 64,629
Share based compensation 6 11,555 21,896 8,256
Retained earnings 2,202,850 2,176,040 1,850,959
Accumulated other comprehensive loss 7 (131,076) (85,721) (159,758)
Total equity attributable to Inmet equity holders 3,693,789 3,718,813 3,305,410
Non-controlling interest 331,763 252,526 -
Total equity 4,025,552 3,971,339 3,305,410
Total liabilities and equity $ 6,756,550 $ 6,582,231 $ 3,688,325
(See accompanying notes)
201
INMET MINING CORPORATION
Segmented statements of financial position(unaudited)
2013 As at March 31
CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Assets
Cash and short-term investments $ 755,335 $ 166,231 $ 251,671 $ 45,007 $ 230,418 $ 1,448,662
Other current assets 1,700,830 39,037 114,751 48,436 15,786 1,918,840
Restricted cash 19,456 - 58,455 1,570 - 79,481
Property, plant and equipment 4,225 131,094 814,933 67,272 1,937,506 2,955,030
Bonds and other securities 252,716 101,321 - - - 354,037
Other non-current assets 56 165 - - 279 500
$ 2,732,618 $ 437,848 $ 1,239,810 $ 162,285 $ 2,183,989 $ 6,756,550
Liabilities
Current liabilities $ 2,042,879 $ 44,948 $ 46,491 $ 18,782 $ 203,500 $ 2,356,600
Long-term debt - - - - - -
Provisions 73,743 21,511 69,267 34,890 32,452 231,863
Other liabilities 664 - 16,767 - - 17,431
Deferred income tax liabilities 1,577 2,448 109,910 11,169 - 125,104
$ 2,118,863 $ 68,907 $ 242,435 $ 64,841 $ 235,952 $ 2,730,998
2012 As at December 31 CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Assets
Cash and short-term investments $ 1,128,087 $ 148,678 $ 157,903 $ 22,071 $ 84,480 $ 1,541,219
Other current assets 894,911 41,529 148,250 51,823 1,163 1,137,676
Restricted cash 19,804 - 55,629 1,617 - 77,050
Property, plant and equipment 3,764 134,389 852,955 70,166 1,571,023 2,632,297
Bonds and other securities 1,092,056 101,032 - - - 1,193,088
Other non-current assets 63 838 - - - 901
$ 3,138,685 $ 426,466 $ 1,214,737 $ 145,677 $ 1,656,666 $ 6,582,231
Liabilities
Current liabilities $ 61,204 $ 54,111 $ 59,288 $ 19,472 $ 126,512 $ 320,587
Long-term debt 1,941,989 - - - - 1,941,989
Provisions 79,809 20,600 69,189 35,800 20,576 225,974
Other liabilities 681 - 17,562 - - 18,243
Deferred income tax liabilities 889 - 91,594 11,616 - 104,099
$ 2,084,572 $ 74,711 $ 237,633 $ 66,888 $ 147,088 $ 2,610,892
2012 As at January 1 CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Assets
Cash and short-term investments $ 711,427 $ 133,215 $ 131,799 $ 46,109 $ 25,907 1,048,457
Other current assets 183,715 44,728 83,926 51,893 1,964 366,226
Restricted cash 16,306 - 51,667 1,565 - 69,538
Property, plant and equipment 1,196 137,736 869,308 66,103 698,423 1,772,766
Bonds and other securities 351,082 79,705 - - - 430,787
Other non-current assets 292 259 - - - 551
$ 1,264,018 $ 395,643 $ 1,136,700 $ 165,670 $ 726,294 $ 3,688,325
Liabilities
Current liabilities $ 21,305 $ 41,460 $ 53,152 $ 16,418 $ 19,348 $ 151,683
Long-term debt 16,581 - - - - 16,581
Provisions 68,823 16,569 53,857 29,895 - 169,144
Other liabilities 655 - 16,501 - - 17,156
Deferred income tax liabilities - - 17,095 11,256 - 28,351
$ 107,364 $ 58,029 $ 140,605 $ 57,569 $ 19,348 $ 382,915
202
INMET MINING CORPORATION
Consolidated statements of changes in equity(unaudited)
Accumulated other
comprehensive
income (loss)
(thousands of US dollars)Note
reference(note 11)
Balance as at January 1, 2012 1,541,324$ 1,850,959$ 64,629$ 8,256$ (159,758)$ 3,305,410$ -$ 3,305,410$
Comprehensive income - 93,081 - - (6,605) 86,476 - 86,476
Equity settled share-based compensation plans 449 - 48 1,456 - 1,953 - 1,953
Balance as at March 31, 2012 1,541,773$ 1,944,040$ 64,677$ 9,712$ (166,363)$ 3,393,839$ -$ 3,393,839$
Comprehensive income - 238,024 - - 74,869 312,893 4,867 317,760
Equity settled share-based compensation plans - - 148 12,184 - 12,332 - 12,332
Dividends - (13,616) - - - (13,616) - (13,616)
Equity funding from non-controlling shareholder - - - - - - 100,000 100,000
Sale of 20 percent interest in Cobre Panama - 7,592 - - 5,773 13,365 147,659 161,024
Balance as at December 31, 2012 1,541,773$ 2,176,040$ 64,825$ 21,896$ (85,721)$ 3,718,813$ 252,526$ 3,971,339$
Comprehensive income (loss) - 26,810 - - (45,355) (18,545) (763) (19,308)
Equity funding from non-controlling shareholder - - - - - - 80,000 80,000
Equity settled share-based compensation plans 3,862 - - (10,341) - (6,479) - (6,479)
Balance as at March 31, 2013 1,545,635$ 2,202,850$ 64,825$ 11,555$ (131,076)$ 3,693,789$ 331,763$ 4,025,552$
Contributed
surplus
Share based
compensation
Attributable to Inmet equity holders
Total
Total
equity
Non-
controlling
interestShare Capital
Retained
earnings
203
INMET MINING CORPORATION
Consolidated statements of earnings
(unaudited)
(thousands of US dollars except per share amounts)
Note
reference 2013 2012
Gross sales 276,250$ 285,527$ \
Smelter processing charges and freight (24,868) (29,338)
Cost of sales (excluding depreciation) (77,164) (79,624)
Depreciation (33,820) (30,067)
Earnings from operations 140,398 146,498
Corporate development and exploration (9,223) (8,801)
Costs related to takeover by First Quantum Minerals
Ltd
6(65,107) -
General and administration (13,083) (9,745)
Investment and other income 8 20,694 (6,263)
Finance costs (2,872) (2,596)
Income before taxation 70,807 119,093
Income tax expense 9 (44,760) (26,012)
Net income 26,047$ 93,081$
Net income (loss) attributable to:
Inmet equity holders 26,810$ 93,081$
Non-controlling interests (763) -
26,047$ 93,081$
Earnings per common share 10
Net income
Basic $0.39 $1.35
Diluted $0.38 $1.34
(See accompanying notes)
Three Months Ended March 31
204
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2013 For the three months ended March 31
CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Gross sales $ - $79,313 $139,284 $57,653 $ - $276,250
Smelter processing charges and freight - (14,026) (751) (10,091) - (24,868)
Cost of sales (excluding depreciation) 4,658 (27,619) (40,027) (14,176) - (77,164)
Depreciation - (6,348) (24,621) (2,851) - (33,820)
Earnings from operations 4,658 31,320 73,885 30,535 - 140,398
Corporate development and exploration (4,786) (454) (467) (845) (2,671) (9,223)
Costs related to takeover by First Quantum Minerals Ltd (65,107) - - - - (65,107)
General and administration (13,083) - - - - (13,083)
Investment and other income 10,332 995 7,652 1,614 101 20,694
Finance costs (881) (239) (1,397) (118) (237) (2,872)
Income tax expense (1,305) (13,975) (22,274) (7,197) (9) (44,760)
Net income $ (70,172) $ 17,647 $ 57,399 $ 23,989 $ (2,816) $ 26,047
2012 For the three months ended March 31
CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Gross sales $ - 123,371$ 110,382$ 51,774$ $ - $ 285,527
Smelter processing charges and freight - (21,469) (295) (7,574) - (29,338)
Cost of sales (excluding depreciation) 2,747 (28,638) (38,000) (15,733) - (79,624)
Depreciation - (7,262) (20,468) (2,337) - (30,067)
Earnings from operations 2,747 66,002 51,619 26,130 - 146,498
Corporate development and exploration (5,521) (381) (918) (775) (1,206) (8,801)
General and administration (9,745) - - - - (9,745)
Investment and other income (4,139) (1,853) (108) (163) - (6,263)
Finance costs (814) (337) (1,263) (182) - (2,596)
Income tax expense (136) (9,480) (11,213) (5,183) - (26,012)
Net income $ (17,608) $ 53,951 $ 38,117 $ 19,827 $ (1,206) $ 93,081
205
INMET MINING CORPORATION
Consolidated statements of comprehensive income
(unaudited)
(thousands of US dollars)
Note
reference 2013 2012
Net income 26,047$ $93,081
Other comprehensive income (loss) for the period:
Continuing operations
Changes in fair value of bonds and other securities 1,385 100 -
Currency translation adjustments (46,008) (6,707) - #REF!
Post retirement employee benefits (732) - 0
Income tax recovery related to bonds and other securities - 2
(45,355) (6,605)
Comprehensive income (loss) (19,308)$ 86,476$
Three Months Ended March 31
206
INMET MINING CORPORATION
Consolidated statements of cash flows
(unaudited)
(thousands of US dollars)
Note
reference 2013 2012
Net income from continuing operations $ 26,047 $ 93,081
Add (deduct) items not affecting cash:
Depreciation 33,820 30,067
Deferred income taxes 25,533 11,953
Accretion expense on provisions
and capital leases 2,404 2,163
Change in asset retirement obligations at
closed sites (4,658) (2,747)
Foreign exchange loss (gain) 3,141 7,400
Stock based compensation 6 (10,166) 1,933
Other 6,242 (22)
Settlement of asset retirement obligations (1,046) (882)
Net change in non-cash working capital 11 4,043 (28,434)
85,360 114,512
Cash provided by (used in) investing activities
Purchase of property, plant and equipment (263,070) (82,608)
Acquisition of bonds and other securities (771,839) (1,124)
Maturity of bonds and other securities 804,706 47,376
Sale (purchase) of short-term investments, net 507,636 258,459
277,433 222,103
Cash provided by (used in) financing activities
Financial assurance payments (3,759) (4,909)
Funding by non-controlling shareholder 80,000 -
Other (688) (477)
75,553 (5,386)
Foreign exchange on cash held
in foreign currencies (23,267) 1,289
Increase in cash: 415,079 332,518
Cash:
Beginning of period 1,033,583 789,998
End of period $ 1,448,662 $ 1,122,516
Short term investments - -
Cash and short-term investments $ 1,448,662 $ 1,122,516
(See accompanying notes)
(1) Supplementary cash flow information:
Cash interest paid $ 549 $ 532
Cash taxes paid $ 13,034 $ 13,327
Cash provided by (used in) operating activities(1)
Three Months Ended March 31
207
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2013 For the three months ended March 31
CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Cash provided by (used in) operating activities
Before net change in non-cash working capital $ (76,399) $ 28,178 $ 105,068 $ 27,043 $ (2,573) $ 81,317
Net change in non-cash working capital (3,852) (7,758) 13,839 1,814 - 4,043
(80,251) 20,420 118,907 28,857 (2,573) 85,360
Cash provided by (used in) investing activities
Purchase of property, plant and equipment (3,111) (3,312) (4,535) (1,946) (250,166) (263,070)
Acquisition of bonds and other securities (771,838) (1) - - - (771,839)
Maturity of bonds and other securities 804,706 - - - - 804,706
Sale (purchase) of short-term investments, net 507,636 - - - - 507,636
537,393 (3,313) (4,535) (1,946) (250,166) 277,433
Cash provided by (used in) financing activities
Funding by non-controlling shareholder - - - - 80,000 80,000
Other 282 - (4,729) - - (4,447)
282 - (4,729) - 80,000 75,553
Foreign exchange on cash held in foreign currencies (13,450) (58) (8,240) (1,519) - (23,267)
Intergroup funding (distributions) (309,090) 504 (7,635) (2,456) 318,677 -
Increase (decrease) in cash 134,884 17,553 93,768 22,936 145,938 415,079
Cash:
Beginning of year 620,451 148,678 157,903 22,071 84,480 1,033,583
End of period 755,335 166,231 251,671 45,007 230,418 1,448,662
Short term investments - - - - - -
Cash and short-term investments $ 755,335 $ 166,231 $ 251,671 $ 45,007 $ 230,418 $ 1,448,662
2012 For the three months ended March 31
CORPORATE &
OTHER ÇAYELI LAS CRUCES PYHÄSALMI
COBRE
PANAMA TOTAL
(thousands of US dollars) (Turkey) (Spain) (Finland) (Panama)
Cash provided by (used in) operating activities
Before net change in non-cash working capital (13,392)$ 65,060$ 71,306$ 22,428$ (2,456)$ $ 142,946
Net change in non-cash working capital (3,058) (35,216) 6,183 3,657 - (28,434)
(16,450) 29,844 77,489 26,085 (2,456) 114,512
Cash provided by (used in) investing activities
Purchase of property, plant and equipment (569) (2,250) (5,985) (2,384) (71,420) (82,608)
Acquisition of bonds and other securities (680) (444) - - - (1,124)
Maturity of bonds and other securities 47,376 - - - - 47,376
Sale (purchase) of short-term investments, net 258,459 - - - - 258,459
304,586 (2,694) (5,985) (2,384) (71,420) 222,103
Cash provided by (used in) financing activities (2,664) - (2,722) - - (5,386)
Foreign exchange on cash held in foreign currencies 2,169 (2,379) 670 702 127 1,289
Intergroup funding (distributions) (3,292) 113 (101,920) (3,962) 109,061 -
Increase (decrease) in cash 284,349 24,884 (32,468) 20,441 35,312 332,518
Cash:
Beginning of year 452,968 133,215 131,799 46,109 25,907 789,998
End of period 737,317 158,099 99,331 66,550 61,219 1,122,516
Short term investments - - - - - -
Cash and short-term investments $ 737,317 $ 158,099 $ 99,331 $ 66,550 $ 61,219 $ 1,122,516
208
Notes to the consolidated financial statements 1. Corporate information Prior to April 9, 2013, Inmet Mining Corporation was a publicly traded corporation listed on the Toronto stock exchange with a registered and head office at 330 Bay Street, Suite 1000, Toronto Canada. On March 21, 2013 FQM (Akubra) Inc., 2013, a wholly owned subsidiary of First Quantum Minerals Ltd (First Quantum) acquired 86.6 percent of the issued and outstanding common shares of Inmet Mining, and on April 1, 2013, it acquired a further 7.3 percent. On April 9, 2013, FQM (Akubra) Inc. acquired the remaining common shares of Inmet Mining it did not already own through a compulsory acquisition, and Inmet Mining ceased to be a publicly traded company. Our principal activities are the exploration, development and mining of base metals. 2. Basis of presentation and statement of compliance We prepared these interim consolidated financial statements using the same accounting policies and methods as those described in our consolidated financial statements for the year ended December 31, 2012, except as described in note 3. These interim financial statements are in compliance with International Accounting Standard (IAS) 34, Interim Financial Reporting (IAS 34). Accordingly, certain information and disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards have been omitted or condensed. The preparation of financial statements in accordance with IAS 34 requires us to use certain critical accounting estimates and requires us to exercise judgement in applying our accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, have been set out in note 5 to our consolidated financial statements for the year ended December 31, 2012. These interim financial statements should be read in conjunction with our annual consolidated financial statements for the year ended December 31, 2012. 3. Changes in accounting policies
Adoption of new and amended standards We adopted IFRS 10, IFRS 11, IFRS 12, IFRS 13, IFRIC 20 and amendments to IAS 19, which resulted in the following changes to our 2012 financial statements:
lowered other assets by $1.4 million
lowered deferred income tax assets by $0.2 million
lowered provisions by $1.2 million
lowered comprehensive income by $0.1 million
increased opening 2012 accumulated other comprehensive loss by $0.2 million
lowered opening 2012 retained earnings by $0.1 million. Change in functional and presentation currency Prior to June 1, 2012, Inmet Mining’s functional currency and our presentation currency were the Canadian dollar. The decision to proceed with full scale development of Cobre Panama has significantly increased Inmet Mining's exposure to the US dollar considering:
Inmet Mining's share of the development costs for the project, the vast majority of which are denominated in US dollars; and
our issuance of US $1.5 billion of senior unsecured notes Consequently, effective June 1, 2012, the US dollar was adopted as Inmet Mining’s functional currency. Our operating entities continue to measure the items in their financial statements using their functional currencies; Çayeli and Cobre Panama use the US dollar, and Pyhäsalmi and Las Cruces use the euro. IFRS requires a change in functional currency to be accounted for prospectively. We therefore translated Inmet Mining’s May 31, 2012 financial statement items from Canadian dollars to US dollars using the May 31, 2012 exchange rate US $0.97 per Canadian dollar (Transition Rate). The resulting translated amounts for non-monetary items are treated as their historical cost.
209
Following the change in Inmet Mining’s functional currency, we elected to change our presentation currency from Canadian dollars to US dollars as we believe that changing the presentation currency to US dollars will provide shareholders with a more accurate reflection of our underlying financial performance and position. The change in presentation currency represents a voluntary change in accounting policy. We have restated all comparative financial statements from previously reported Canadian dollar amounts to US dollars using the Transition Rate.
4. Cash and short-term investments
March 31, 2013
December 31, 2012
January 1, 2012
Cash and cash equivalents: Liquidity funds $889,251 $806,269 $375,523 Term deposits 41,633 51,243 6,548 Overnight deposits 68,268 31,387 70,389 Bankers’ acceptances 10,474 - 891 Money market funds 1,951 14,410 126,336 Corporate - - 11,593 Bank deposits 257,014 130,274 31,722 Federal 10,300 - - Provincial short-term notes 50,000 - 166,996 Asset backed securities(i) 119,771 - -
1,448,662 1,033,583 789,998
Short-term investments: Corporate - - 48,588 Term deposits - 211,536 - Provincial - 15,079 187,191 Bankers’ acceptances - 21,494 22,680 Asset backed securities(i) - 259,527 -
- 507,636 258,459
Total cash and short-term instruments $1,448,662 $1,541,219 $1,048,457 (i) Bank sponsored securitized programs with highest credit quality rating and supported by global liquidity lines.
.
5. Bonds and other securities The table below provides a breakdown of our bonds and other securities as at the balance sheet date by financial instrument classification.
March
31, 2013
December
31, 2012
January 1,
2012
Current available for sale securities $807,996 $736,387 $ -
Current held to maturity securities 142,161 147,212 175,921
950,157 883,599 175,921
Available for sale securities 736,235 824,092 -
Held to maturity securities 351,869 366,513 427,727
1,088,104 1,190,605 427,727
Other 2,168 2,483 3,060
$2,040,429 $2,076,687 $606,708
6. Stock-based compensation On February 1, 2013, the Board granted 75,102 performance share units (PSUs) to senior executives with a 3 year vesting period from January 1, 2013 to December 31, 2015.
210
As a result of First Quantum’s acquisition of Inmet Mining on March 21, 2013, all unvested stock options, long-term incentive plan (LTIP) units, PSUs, deferred share units (DSUs) and share award plan shares outstanding at that time immediately vested in accordance with change-in-control provisions under each plan. Accordingly, Cdn $2.8 million was paid to settle the 463,084 stock options, Cdn $21.6 million was paid to settle the 312,000 LTIP units, Cdn $20.8 million was paid to settle the 141,170 PSUs and 113,121 Inmet common shares were issued from treasury to settle the 113,121 DSUs such that all stock based compensation awards have been settled. We recognized the following stock-based compensation expense relating to all awards, including the impact of accelerated vesting:
three months ended March 31 2013 2012
Stock option plan $ 4,350 $1,689 Performance share unit plan 17,112 245 Long-term incentive plan 13,247 - Deferred share unit plan - 217 Share award plan - 47
$34,709 $2,198
An amount of $10.4 million remains in stock based compensation for settled stock options representing the amount by which their grant date fair value exceeded their cash settlement value.
7. Accumulated other comprehensive loss Accumulated other comprehensive loss includes:
March
31, 2013 December
31, 2012 January 1,
2012
Unrealized gains (losses) on bonds and other securities
(net of tax of nil) (December 31, 2012 - $91, December 31, 2011 - $91) $ 1,806 $ 421 $ (534)
Actuarial gains (losses) – post retirement employee benefits (net of tax of $51) (December 31, 2012 - $234, December 31 2011 - $176) (1,040) (308) (214)
Currency translation adjustment (131,842) (85,834) (159,010)
Accumulated other comprehensive loss ($131,076) ($85,721) ($159,758)
10. Currency translation adjustments
The table below is breakdown of our currency translation adjustments.
March 31, 2013
December 31, 2012
January 1, 2012
Pyhäsalmi (euro functional currency) ($25,721) ($18,981) ($27,378)
Las Cruces (euro functional currency) (102,591) (63,557) (103,071)
Çayeli (US dollar functional currency) (12,237) (12,003) (15,068)
Cobre Panama (US dollar functional currency) 8,707 8,707 (13,493)
($131,842) ($85,834) ($159,010)
8. Investment and other income
three months ended March 31 2013 2012
Interest income $ 3,545 $ 4,252 Foreign exchange gain (loss) 17,204 (12,070)
211
Dividend and royalty income - 484 Other (55) 1,071
$20,694 ($6,263)
Foreign exchange gain (loss) is a result of:
three months ended March
31 2013 2012
Translation of US dollar cash held in euro based entities $21,914 ($4,392) Translation of Cdn dollar cash held by Corporate (608) - Translation of Cdn dollar bonds and other securities held by Corporate (4,499) -
Translation of other monetary assets and liabilities 397 (2,627) Translation of US dollar amounts in Corporate prior to the change in functional currency to the US dollar - (5,051)
$17,204 ($12,070)
9. Income tax
For the three months ended March 31, 2013:
Corporate and other
Çayeli (Turkey)
Las Cruces (Spain)
Pyhäsalmi (Finland) Total
Current income taxes $456 $10,686 $599 $7,316 $19,057
Deferred income taxes 858 3,289 21,675 (119) 25,703
Income tax expense $1,314 $13,975 $22,274 $7,197 $44,760
For the three months ended March 31, 2012:
Corporate and other
Çayeli (Turkey)
Las Cruces (Spain)
Pyhäsalmi (Finland) Total
Current income taxes $142 $8,649 $ - $5,268 $14,059
Deferred income taxes (6) 831 11,213 (85) 11,953
Income tax expense $136 $9,480 $11,213 $5,183 $26,012
212
10. Net income per share
three months ended March 31 (thousands) 2013 2012
Net income available to common shareholders $26,810 $93,081
three months ended March 31 (thousands) 2013 2012
Weighted average common shares outstanding 69,375
69,349
Plus incremental shares from assumed conversions:
DSUs 100 92 Stock options 29 - LTIP units 277 -
Diluted weighted average common shares outstanding
69,781
69,441
The table below shows our earnings per common share for the three months ended March 31.
three months ended March 31
(US dollars per share) 2013 2012
Basic Diluted Basic Diluted
Net income per share $0.39 $0.38 $1.35 $1.34
11. Statements of cash flows For the three months ended March 31, 2013:
Corporate and other
Çayeli (Turkey)
Las Cruces (Spain)
Pyhäsalmi (Finland) Total
Accounts receivable ($3,599) $1,877 $24,363 $3,706 $26,347 Inventories - (71) 608 (1,793) ($1,256) Accounts payable and accrued liabilities
(421) (15,848) (11,696) (50) (28,015)
Taxes payable 168 5,476 564 (45) 6,163 Other - 808 - (4) 804
($3,852) ($7,758) $13,839 $1,814 $4,043
For the three months ended March 31, 2012:
Corporate and other
Çayeli (Turkey)
Las Cruces (Spain)
Pyhäsalmi (Finland) Total
Accounts receivable $1,103 ($34,540) $5,760 $3,502 ($24,175) Inventories - 4,322 (1,943) 1,224 3,603 Accounts payable and accrued liabilities
(4,540) (6,704) 2,366 (353) (9,231)
Taxes payable 664 1,708 - (716) 1,656 Other (285) (2) - - (287)
($3,058) ($35,216) $6,183 $3,657 ($28,434)
213
12. Fair value of financial instruments
The table below shows the carrying values and fair values of our financial instruments at the balance sheet date:
March 31, 2013 December 31, 2012 January 1, 2012
Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value
Financial assets Cash and short-term
investments $1,44
8,662 $1,44
8,662 $1,54
1,219 $1,54
1,219 $1,04
8,457 $1,04
8,457 Restricted cash 80,24
6 80,24
6 78,34
1 78,34
1 70,32
2 70,32
2 Accounts receivable
from metal sales 64,84
4 64,84
4 87,10
6 87,10
6 62,01
2 62,01
2 Held to maturity
bonds and other securities
494,030
489,241
513,725
521,495
603,648
618,180
Available for sale bonds and other securities
1,544,231
1,544,231
1,560,479
1,560,479
- -
Investments in equity securities
2,168 2,168 2,483 2,483 3,060 3,060
$3,634,181 $3,629,392 $3,783,353 $3,791,123 $1,787,499 $1,802,031 Financial liabilities Accounts payable
and accrued liabilities
$347,806
$347,806
$261,812
$261,812
$118,462
$118,462
Long-term debt(i)
1,961,176 2,227,272 1,959,859 2,175,097 16,581 18,424
$2,308,982 $2,575,078 $2,221,671 $2,436,909 $135,043 $136,886 (i)
We calculate the fair value of the senior unsecured notes using period end market yields.
We classify fair value measurements based on a three-level hierarchy that prioritizes the inputs to valuation techniques as follows:
Level 1 – quoted prices in active markets for the same instrument;
Level 2 – quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs are based on observable market data; and
Level 3 – valuation techniques for which any significant input is not based on observable market data.
The table below discloses the classification level for financial instruments we measured at fair value in the balance sheet.
March
31, 2013
December 31,
2012 January 1,
2012
Financial assets
Cash and short-term investments Level 1 Level 1 Level 1
Restricted cash Level 1 Level 1 Level 1
Accounts receivable from metal sales Level 2 Level 2 Level 2
Available for sale bonds and other securities Level 2 Level 2 n/a
Investments in equity securities Level 1 Level 1 Level 1
214
13. Events after the reporting period Senior unsecured notes The acquisition of Inmet by FQM (Akubra) Inc. triggered the change of control clause in the senior unsecured notes’ indentures which requires an offer be made to repurchase the notes. Subsequent to the end of the first quarter of 2013, a mandatory offer has been issued to purchase these notes in cash at a price equal to 101 percent of the aggregate principal plus accrued and unpaid interest up to, but not including, the date of purchase. As a result of the requirement to make this repurchase offer these notes have been classified as a current liability. The notes that remain outstanding after the expiry of the mandatory repurchase offer will be reclassified as a non-current liability at that time. Amalgamation of Inmet Mining and FQM (Akubra) Inc. On April 9, 2013, FQM (Akubra) Inc. acquired the remaining common shares of Inmet Mining it did not already own through a compulsory acquisition whereby FQM (Akubra) Inc. and Inmet Mining were amalgamated, continuing as FQM (Akubra) Inc. FQM (Akubra) Inc. entered into a $2,500 million debt arrangement in order to finance its acquisition of Inmet. The minimum facility repayment is the greater of 50 percent of the outstanding debt or $1,000 million on December 31, 2013, with the remainder being due on March 26, 2014. Interest is payable monthly in arrears and calculated at a rate equal to LIBOR plus 2.75 percent. Outstanding debt under facility at March 31, 2013 was $2,116.3 million, net of issue and transaction costs of $22.1 million.
215
SCHEDULE 5
Checklist of Documentation Incorporated by Reference
Sections of the following documents, which can be accessed on the SEDAR website
(www.sedar.com), are incorporated by reference into this document. The non-incorporated parts
of these documents are not relevant for the purposes of this document. Where these documents
make reference to other documents, such other documents are not incorporated into and do not
form part of this prospectus. For the avoidance of doubt, no information incorporated by reference
into the documents set out below shall be incorporated into, nor shall such incorporated
information form any part of, this document.
First Quantum's consolidated financial statements for the year ended 31 December 2013 (the
"First Quantum 2013 Financial Statements")
First Quantum's Annual Report for the year ended 31 December 2012 (the "First Quantum 2012
Annual Report")
First Quantum's Annual Report for the year ended 31 December 2011 (the "First Quantum 2011
Annual Report")
Information Incorporated
by Reference
Document Reference Prospectus Rule
Operating and Financial
Review
"Management's Discussion and
Analysis" on pages 23-50 of the First
Quantum 2012 Annual Report
Annex I, Item 9
"Management's Discussion and
Analysis" on pages 21-48 of the First
Quantum 2011 Annual Report
Principal investments in
progress and principal future
investments
"Investments" on page 18 and
"Property, Plant and Equipment" on
page 19 of First Quantum 2013
Financial Statements
Annex I, Items 5.2.2
and 5.2.3
Revenues by activity and
geographic market
"Segmented Information" on pages 30
to 33 to First Quantum 2013 Financial
Statements
Annex I, Item 6.2
Annex I, Item 6.3
"Sales Revenue by Nature" on pages 75
of the First Quantum 2012 Financial
Statements
"Segmented Revenues" on pages 77 of
the First Quantum 2012 Financial
Statements
Property, plant and
equipment
"Property, Plant and Equipment" on
page 19 of the First Quantum 2013
Financial Statements
Annex I, Item 8.1
"Property, Plant and Equipment" on
pages 61-62 and 67 of the First
Quantum 2012 Annual Report
216
Capital resources "Capital Management" at page 85 of the
First Quantum 2012 Annual Report
"Consolidated Statements of Cash
Flows" at page 55 of the First Quantum
2012 Annual Report
"Consolidated Statements of Cash
Flows" on page 55 of the First Quantum
2012 Annual Report
"Derivative Financial Instruments" at
page 39 of the First Quantum 2012
Annual Report
"Financial Instruments" on pages 64-65
of the First Quantum 2012 Annual
Report
"Financial Risk Management" on pages
81-85 of the First Quantum 2012
Annual Report
"Hedging Program" at page 38 of the
First Quantum 2012 Annual Report
"Treasury Shares" at pages 57 and 73
of the First Quantum 2012 Annual
Report
Annex I, Item 9
Annex I, Item 10, ESMA
33, ESMA 34, ESMA 35,
ESMA 36
Trend information "Management's Discussion and
Analysis" on pages 23–50 of the First
Quantum 2012 Annual Report
Annex I, Item 12
Arrangements for employee
involvement in capital
See "Share-Based Compensation" on
pages 63 and 74-75 of the First
Quantum 2012 Annual Report
Annex I, Items 17.3
and 21.1.6
Audited historical financial
information and audit report
"Consolidated Balance Sheets" as at 31
December 2013 and 31 December 2012
on page 6 of the First Quantum 2013
Financial Statements
"Consolidated Balance Sheets" as at 31
December 2012 and 31 December 2011
on page 56 of the First Quantum 2012
Annual Report
"Consolidated Balance Sheets" as at 31
December 2011 and 31 December 2010
on page 54 of the First Quantum 2011
Annual Report
"Consolidated Statements of Earnings"
for the years ended 31 December 2013
and 31 December 2012 on page 3 of
the First Quantum 2013 Financial
Annex I, Item 20.1
Annex I, Item 20
217
Statements
"Consolidated Statements of Earnings"
for the years ended 31 December 2012
and 31 December 2011 on page 53 of
the First Quantum 2012 Annual Report
"Consolidated Statements of Earnings "
for the years ended 31 December 2011
and 31 December 2010 on page 51 of
the First Quantum 2011 Annual Report
"Consolidated Statements of Changes in
Shareholders' Equity" for the years
ended 31 December 2013 and 31
December 2012 on page 7 of the First
Quantum 2013 Financial Statements
"Consolidated Statements of Changes in
Shareholders' Equity" for the years
ended 31 December 2012 and 31
December 2011 on page 57 of the First
Quantum 2012 Annual Report
"Consolidated Statements of Changes in
Shareholders' Equity" for the years
ended 31 December 2011 and 31
December 2010 on page 55 of the First
Quantum 2011 Annual Report
"Consolidated Statements of Cash
Flows" for the years ended 31
December 2013 and 31 December 2012
on page 5 of the First Quantum 2013
Financial Statements
"Consolidated Statements of Cash
Flows" for the years ended 31
December 2012 and 31 December 2011
on page 55 of the First Quantum 2012
Annual Report
"Consolidated Statements of Cash
Flows" for the years ended 31
December 2011 and 31 December 2010
on page 53 of the First Quantum 2011
Annual Report
"Notes to the Consolidated Financial
Statements" for the years ended 31
December 2013 and 31 December 2012
on page 5 of the First Quantum 2013
Financial Statements
"Notes to the Consolidated Financial
Statements" for the years ended 31
December 2012 and 31 December 2011
on pages 58-86 of the First Quantum
218
2012 Annual Report
"Notes to Consolidated Financial
Statements" for the years ended 31
December 2011 and 31 December 2010
on pages 56-87 of the First Quantum
2011 Annual Report
"Auditors' Report" for the year ended
31 December 2013 on page 2 of the
First Quantum 2013 Financial
Statements
"Auditors' Report" for the year ended
31 December 2012 on page 52 of the
First Quantum 2012 Annual Report
"Auditors' Report" for the year ended
31 December 2011 on page 50 of the
First Quantum 2011 Annual Report
Comparable Dividend Per
Share
"Dividends Declared per Common
Share" on page 40 of the First Quantum
2012 Annual Report
Annex I, Item 20.7.1
"Dividends" on page 73 of the First
Quantum 2012 Annual Report
"Dividends Delcared per Common
Share" on page 35 of the First Quantum
2011 Annual Report
"Dividends" on page 74 of the First
Quantum 2011 Annual Report
Capital under option See "Share Based Compensation" at
page 63 of the 2012 Annual Report
Annex I, Items 17.3
and 21.1.6
219
Definitions
2020 Notes 8.75% Senior Notes of FQM Akubra
2021 Notes 7.50% Senior Notes of FQM Akubra
Acquisition the acquisition by the Company of all the
common shares of Inmet
Admission the admission of the New Common Shares to
the Official List together with admission to
trading on the London Stock Exchange's
market for listed securities
Board the board of Directors of the Company
Bond Offering Document the Offering Circular in respect of
U.S.$350,000,000 7.25 per cent. Senior Notes
due 2019 issued by the Company on 11
October 2012
Cdn.$ the lawful currency of Canada
CIM Standards the Canadian Institute of Mining, Metallurgy
and Petroleum Standards on Mineral Resources
and Mineral Reserves
Common Shares Common Shares of common stock of First
Quantum
Company or First Quantum First Quantum Minerals Ltd.
CREST the system of paperless settlement of trades in
securities and the holding of uncertificated
securities operated by Euroclear UK & Ireland
Limited in accordance with the Uncertificated
Securities Regulations 2001 (SI 2001/3755)
CSA Canadian Standards Association
Directors the directors of the Company as set out on
pages 51 to 53 of this document
Disclosure Rules and Transparency Rules
the disclosure rules and transparency rules
made by the Financial Conduct Authority for
the purposes of Part VI of FSMA, as amended
ESMA European Securities and Markets Authority
Exchange Notes the notes offered in exchange for, and
redemption of, the 2020 Notes and the 2021
Notes
FCA the UK Financial Conduct Authority
FQM Akubra FQM (Akubra) Inc, a wholly owned subsidiary
of the Company (and being the entity which
Inmet Mining Corporation amalgamated with
220
following the Acquisition)
First Quantum 2011 Annual Report First Quantum's Annual Report for the year
ended 31 December 2011
First Quantum 2012 Annual Report First Quantum's Annual Report for the year
ended 31 December 2012
First Quantum 2013 Financial Statements First Quantum's Financial Statements for the
year ended 31 December 2013
FSMA the Financial Services and Markets Act 2000
(as amended)
Group First Quantum and its subsidiaries
GRZ the Government of Zambia
Inmet Inmet Mining Corporation (which has
amalgamated in to FQM (Akubra) Inc)
Inmet Board the board of Directors of Inmet
Kansanshi Development Agreement the agreement to develop the Kansanshi mine
KPMC Korea Panama Mining Corporation
Listing Rules the listing rules made by the FCA for the
purposes of Part VI of FSMA, as amended
LSE The London Stock Exchange
MCM Mining Convention a Convention d’Establishment with the
Government of Mauritania
New Common Shares the 114,526,277 Common Shares in the
Company issued on 27 March 2013, 5 April
2013 and 9 April 2013 pursuant to the
Acquisition
New Notes Indentures the Exchange Notes
Non-Resident Shareholder a holder of Common Shares who, for the
purposes of the Income Tax Act (Canada) the
("Tax Act") deals at arms-length with the
Company, is not affiliated with the Company
and holds Common Shares as capital property
and who, for the purposes of the Tax Act and
any applicable income tax treaty or
convention, is neither resident nor deemed to
be resident in Canada, does not and is not
deemed to use or hold the Common Shares in
carrying on a business in Canada, and does
not hold Common Shares as part of the
business property of a permanent
establishment in Canada or in connection with
a fixed base in Canada
221
NYSE New York Stock Exchange
Official List the official list maintained by the UK Listing
Authority for the purposes of Part VI of FSMA
Prospectus Directive Directive 2003/71/EC
Prospectus Rules the prospectus rules made by the FCA for the
purposes of Part VI of FSMA, as amended
Q1 first quarter of the year
Q2 second quarter of the year
Q3 third quarter of the year
Q4 fourth quarter of the year
SEC the US Securities and Exchange Commission
SEDAR the System for Electronic Document Analysis
and Retrieval, used for electronically filing
securities related information with the
Canadian securities regulatory authorities
Shareholders holders of Common Shares
TSX Toronto Stock Exchange
UK or United Kingdom the United Kingdom of Great Britain and
Northern Ireland
US or United States the United States of America, its territories,
possessions, any State of the United States of
America and the District of Columbia
US$ the lawful currency of the United States of
America
ZCCM Zambia Consolidated Copper Mines Ltd
