First Quantum Minerals Ltd
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First Quantum Minerals Ltd
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Thanks, operator, and thanks, everyone, for joining us today. Joining me in London are Hannes Meyer, CFO; Juliet Wall, General Manager Finance; and Simon MacLean, Group Reporting Controller.As usual, before we proceed, I'll draw your attention to the fact that, over the course of the conference call, we'll be making several forward-looking statements. And as such, I encourage you to read the cautionary note that accompanies our first quarter MD&A and the related results news release as well as the risk factors particular to our company, which are detailed in our most recent annual information form and available on our Website at first-quantum.com and on cedar.com.A reminder that the presentation which accompanies this conference call is available on our Website and can be accessed either in the Events section or through the Q1 2019 Results Conference Call button under the News section of the homepage.So I'll get us started with some opening remarks before Hannes's review of the financial results. Then we'll open the lines to take your questions.2019 is a transformational year for the company, as we expect robust copper production growth while diversifying our geographies as a result of the ramp up of Cobre Panama. The first quarter delivered, as expected, solid results, both operationally and financially, despite Q1 being traditionally our weakest quarter due to the rainy season in Zambia.In the event, we delivered comparative earnings per share of $0.14 for the quarter, in line with consensus estimates. Copper production in the quarter was slightly lower than Q1 last year as a result of lower production at Las Cruces and planned lower production at Kansanshi, which was slightly offset by another strong quarter at Sentinel.Continuing to benefit from the optimization programs of previous years, Sentinel had a great quarter, achieving a first quarter production record, which is a 15% increase over Q1 last year.Kansanshi had lower planned production, which called for the processing of lower-grade oxide ore and lower throughput on all circuits. The smelter, however, delivered a strong quarter.Las Cruces production declined significantly from Q1 last year because of the land slippage earlier this year. We're currently processing a blend of low- and high-grade stockpiles with an expected average grade of approximately 3.3% as we seek to access to the pit to resume normal mining.Our other smaller operations operated more or less in line with expectation.Copper sales were slightly lower than Q1 last year, driven by lower production at Las Cruces, timing of Sentinel anode sales offset somewhat by concentrate sales and the lack of sales at Cayeli in Q1 last year due to the timing of shipments.Our average all-in sustaining costs were $1.77 per pound of copper net of byproduct credits in the quarter, an increase from last quarter and the prior year despite more than 10% improvement in costs at -- of costs at Sentinel. However, they remain within our guidance range for the year. But do keep in mind that we're under a new tax and royalty regime in Zambia that became effective on January the 1st, which also impacts on our costs.We do expect some additional changes in Zambia. You may recall that the government of Zambia introduced a number of changes to royalties and taxes taking effect on January the 1st. In the same budget, they also proposed to replace the current VAT with a sales tax to take effect on April the 1st.However, the government announced earlier in April that it was delaying the implementation of the sales tax until July the 1st and replacing a single sales tax with a goods and service tax of 9% applied to domestic goods and 16% on imported goods. We estimate that this will increase our group C1 costs and all-in sustaining costs by approximately $0.10 this year and 15% to 18% per year thereafter, excluding Cobre Panama. As we get more information, we may further refine these estimates.At Cobre Panama, 2 milestones were achieved in Q1, first ore through the mills early in the quarter with first concentrate right at the end. As you can see in the photos in the accompanying presentation, concentrate production has grown substantially since then. The production of first concentrate at the operation was a significant achievement and is a point of tremendous pride amongst our team there. We do expect that more than 80% of this year's production at Cobre Panama is to come in the second half and that commercial production is expected sometime early in the fourth quarter.We also achieved some other significant milestones at Cobre Panama during the quarter, as we continue to ramp up to full production rates. These include ore commissioning of the first train of the process plant, which consists of 2 primary crushers, multiple conveyors, 1 SAG mill, 2 ball mills, rougher and cleaner flotation cells, thickeners, tailings, pumps and pipeline, concentrate pumps and concentration filtration systems.Construction on the lining of the second SAG mill and ball mill 3 was completed and the construction of ball mills 4 and 2 was completed. We also received our first diesel shipment with offload at the port. And the 2 power station sets are now 100% complete and operational.Since the end of Q1, we've been able to ore commission the second milling train and now have 5 mills in operation. The final ball mill in train 2 will be operational within the next few weeks. We've also been able to bring into operation other process facilities that contribute to the production ramp up, including regrind milling, pebble crushing, Jameson cells and flotation columns. Some current photos of the progress are included in the presentation and can also be found on the Website.The construction work force demobilization continued in the quarter with a planned accelerated reduction in the second and third quarters of the year. There are now over 2,350 designated operations personnel currently engaged, including all the key management staff. The mine, port, power station and milling trains 1 and 2 at the processing plant are running under operational employee control, while the commissioning team focuses on bringing online any remaining process facilities. To date, this was a few -- a week ago I guess now, we've produced over 20,000 tons of concentrate at a grade of approximately 20% and are seeing good initial process recoveries of around 80%. The first concentrate shipment is expected sometime before the end of Q2.With the continued ramping up of the daily production, we're on track to deliver the 140,000 to 175,000 tons of copper over the year at the operation, as we previously guided to.So with that, I'll ask Hannes to take you through his review.
Thanks, Clive, and good day to everyone. Turning to slide headed Quarterly Production, Clive said we had record first quarter production at Sentinel. It was a 15% increase over the same period in 2018.Copper production in Q1 of 137,000 tons was 6% lower than Q1 2018, reflecting the impact of the land slippage at Las Cruces in January and the lower-grade production at Kansanshi, which was impacted on plant processing of that lower grade and oxide ore. As Clive said, Cobre Panama achieved first copper production at the end of the quarter, and it's 25 tons of contained copper was produced. Mining volumes continue to increase.Turning to the next slide Financial Overview, comparative earnings were $0.14 per share for the quarter, double that of the same period in 2018. Comparative EBITDA of $368 million was $5 million higher than Q1 2018, despite around $62 million impact of the land slippage at Las Cruces.Excluding Las Cruces, gross profit was 37% higher, with increased net realized metal prices, lower costs and the positive impact of foreign exchange. Net earnings attributable for -- to shareholders for the quarter were 13% higher than 2018, inclusive of a $25 million loss on partial redemption of senior notes that was excluded from comparative earnings, which in turn were 94% higher than those achieved in 2018. The increase in net debt reflects the planned Panama capital expenditure program.Turning to the next slide on Quarterly Unit Cash Costs, copper C1 costs of $1.34 per pound were $0.07 higher. And all-in sustaining costs of $1.77 per pound was 5% higher than Q1 2018. These increases reflect the impact of the lower copper production at Las Cruces following the land slippage. The increase in all-in sustaining cost was partially offset by lower deferred stripping costs.Copper C1 and all-in sustaining costs in Q1 2019 were within full year guidance. The Zambia sales tax is expected to be effective from 1st of July. We estimate this will have an impact of approximately $0.10 per annum in 2019 on the full year C1 and all-in sustaining costs.In calculating this, I assume around $100 million goods and services subject to sales tax per month across both sides, with a split of about half subject to the 16% import sales tax and the other half subject to a 9% domestic sales tax, giving a blended rate of 12.5%, or $12.5 million per month impact.On an annualized basis, that would be around $150 million. And with the expected increase in Sentinel production and associated costs next year, that would result in an increase of total taxes to around $180 million per annum. This is a high-level analysis. And detail will differ slightly. The bill is subject to final approval in June. And that might be different from the current bill.Turning to the next slide, the debt and liquidity profile at the quarter end, the company ended the quarter with $850 million or net unrestricted cash and cash equivalents in addition to $520 million of committed and drawn facilities, and we are in compliance with all financial covenants.During the quarter, the company signed a new $2.7 billion term loan and revolving credit facility. The new facilities replace the previous $1.5 billion revolving credit facility and comprises a $1.5 billion term loan facility and a $1.2 billion revolving credit facility, maturing on December 31st, 2022.This financing includes revised financial covenants, extends the debt maturity profile of the business and demonstrates the company's access to a diverse range of capital markets. It also improves the financial flexibility of the company through the added liquidity.On 27th of March, $821 million of the senior notes due in February '21 were redeemed at a price of $101.75 plus the accrued interest.Turning to the hedge program outlook, the company continues with its hedge program to ensure stability of cash flow as development of the Cobre Panama project continues in its commissioning phase ahead of commercial production, while maintaining compliance with financial [ covenants ].As of today, the company has 92,500 tons of zero cost collars, maturities to February 2020, at prices ranging from a low side of $2.83 per pound to a high side of $3.06 per pound and 45,000 tons of unmargined copper forward sales contracts at an average price of $2.91 per pound with periods of maturity to December 2019.Approximately 30% of expected copper sales in 2019 are hedged to unmargined forward and zero cost collar sales contracts at an average floor price of $2.86 per pound. We will continue to increase our hedge cover as price targets are met, and we will use zero cost collars alongside forward contracts and purchased options as appropriate.Moving to the next slide on capital expenditure, expenditure on Cobre Panama project in the quarter was $133 million or $98 million on a net basis. Guidance on Cobre Panama project capital remains unchanged at $6.3 billion. Guidance for the company sustaining other projects includes expenditure rate into Cobre Panama, which includes expenditure to enable commencement of the expansion to 100 million tons per annum capacity, which includes the initial development and engineering work, allowing mining to proceed to the Colina pit.Other projects in 2019 include the fourth input crusher and trolley assist expansion at Sentinel, a dewatering shaft at Kansanshi, remediation work at Las Cruces following the January land slippage and costs to allow restart at Ravensthorpe.In the appendix, we have provided some additional guidance in regards to the treatment of depreciation and interest following declaration of commercial production at Cobre Panama. We have guided on the 2019 depreciation charge. Excluding Cobre Panama, this is expected to be approximately $800 million to $825 million. However, this will increase once Panama moves into commercial production.We've also provided guidance on interest [ needing ] to be capitalized following the declaration of commercial production at Cobre Panama. In the absence of any other major capital projects, this will be expense.Thank you. And I'll now hand back over to Clive.
Thanks, Hannes. So, operator, could you please open the lines for taking questions?
Hannes, I was wondering if we could have some more clarification on the Zambian sales tax impact. I'm a little confused by the guidance that you've given here on a per pound basis. When we look at your -- your guidance states next year a $0.15 to $0.18 impact on group C1 costs ex-Cobre. Looking at your guidance for next year of 570,000 tons or 1.26 billion pounds ex-Cobre and using just the midpoint there, that would imply something around a $200 million per annum impact. That seems high to me. Can you please clarify that? And also, I was wondering if there's an impact on sustaining capital as well from the sales tax that is -- whether that's captured here somehow.
Yes, Orest, look, it is an estimate, and we also estimate the split between the domestic and the imported tariffs because I think that mix will change once we get final details on that. As I said in the earlier presentation, it's probably -- with the ramp up in Sentinel, we're probably looking at a total impact of about $180 million. It could be close to the $200 million. So it's probably in that sort of range, the impact for next year. So --
Is that just C1?
That is the C1 and cash impact on the business, yes.
Okay. So but that include the sales tax? Okay.
So how you should think about is that -- so you should think about it as a $100 million cash cost subject to these taxes per month. So at a -- and just use the midpoint between the 9% and the 16%, giving you about a 12.5%. So that's an impact of $12.5 million per month or $150 million per annum. As we ramp up at Sentinel, increase further our expenditure, that impact will obviously increase from the $150 million that we sort of currently estimate for this year. And that was on annualized basis, although it's not in for this year for the full year.
Does that include the impact to sustaining capital?
No, that excludes sustaining capital. So sustaining capital -- that's still unclear there as well. There are provisions within the draft bill that there are said to -- you can apply for certain exemptions through the Minister. But so the impact of these sales taxes are not included in the sustaining CapEx.
Okay. I see. And then just shifting directions on Cobre Panama, can you give us an update maybe on how much copper Cobre Panama produced here in April?
Yes, we'll have to get the numbers in for today to get you the full April number. Sorry, I don't have the exact number yet.
It's just under 4,000 tons.
Yes, it's about --
4,000.
Just under 4,000 tons.
Your next question comes from Lawson Winder with BofA Merrill Lynch.
If I might just follow up on that last question on the Zambian assumptions and how you arrived at the $0.15 to $0.18 impact, was just curious, what are you assuming there in terms of, first of all, the cost split basically between labor and goods and services? And then what are you assuming in terms of the goods and services portion, the percent that is local versus imported?
All right. So labor would not be subject to a sales tax because that's just normal employment, and you pay the payroll taxes.
Yes, exactly.
And then what we've done is used what we spend currently on material that's subject to VAT, and that will transform into a sales tax. So we've used that and estimated about half of that as import and half of that as domestic. The current split is different, but it's an estimate, and it's there to give you some indication of the potential impact. It's not envisaged to be exact science because we are working on a draft legislation still.
No, that's very helpful. I was just trying to understand your underlying assumptions. And then just sort of stepping back and sort of a larger question on Zambia, when you look at the 2 assets there, do you still consider Kansanshi to be a core asset?
Absolutely. Kansanshi's a very important asset with still a long life. And as you know, we have a number of different scenarios as to what its future might look like, depending on whether we do any of the expansions, which is not in the plan at the moment, but it will remain as a core asset for the foreseeable future.
Okay. That's very helpful. And then just one final one for me. In Panama, there's an election on May 5th. I guess, if the polls are correct, it looks like Cortizo may win. Do you guys have any sense of what you might expect from the new administration, whether positive or potentially negative?
I think, generally, from all I've read and know about him, it's more of the same. He's center left, but center left is fairly closer to the center than most political systems in Panama. I think, generally, the local pundits feel there's unlikely to be any significant changes from a business point of view.
Your next question comes from Greg Barnes with TD Securities.
Clive, can you give us a sense? I know you said 80% of production at Cobre will happen in the second half of the year. But get to that range of 140,000 to 175,000 tons of copper, you're going to have to hit, by my guess, 72 million tons a year throughput well before the end of the year.
Yes, that is the plan. And we're pretty confident we can achieve that. So it is very much the second half of the year thing, most of that production, but the startup's been pretty good. The recoveries are -- for first concentrate are pretty good, and the grade of the first concentrate's also good. So we're pretty confident.
And you bring on lines 2 and 3 I think in Q2?
Yes, well, certainly the line 2 is coming on very shortly and line 3 about a few weeks later, but yes, it should be in Q2 anyway.
Okay. So when do you think you hit that 72 million ton per year throughput? Well, I guess what is the target exit rate for 2019?
The exit rate for 2019 is close to sort of 300,000 tons of production on an annualized basis. So I think we'll achieve what we've guided at. It's confident by now.
Your next question comes from Ralph Profiti with Eight Capital.
Clive, I wanted to come back to the Zambia strategy. And do critical decisions have to be made in the next few years or at some point particularly to maintain sort of the mine-smelter balances, or can some of the expansion projects that you've talked about being held off basically be held off indefinitely for strategic purposes now that you have sort of this new visibility on taxes and the very careful way that you're looking at redeployment of capital in Zambia?
Yes, I think we're -- Kansanshi is under continuous scrutiny, and there are a whole range of possibilities for that operation going forward. But the decision isn't just about Zambian politics and taxes. It's also availability of smelting capacity. And as you know, there are -- there seems to be some pressure in the Congo to build smelters there. And we hear there is one under construction, though all of those things would have an impact. If Congolese concentrate doesn't come to Zambia, it leaves a lot more space in Zambian smelters. So there are lots of factors weighing on the -- our plans going forward. So right now, we have a few more years left before we need to really get on with it, with something, or the operation just slowly declines. It's not the end of the world that, by the way. It's not a bad -- it's still a good operation, a good project. But this -- there's a lot of things that may happen in between now and then which would affect that decision. So we can't be very specific at this point really.
Yes, yes, no, I understand. I understand. Maybe the follow up, wanted to come back to Cobre Panama and thinking about the plant ramp up and the technical report because, previously, you had talked about the plant potentially exceeding design specifications, right, and the challenges perhaps for the mining to keep up with the advent of increased demands from the mill. Now it's early days, but can you see the plant versus the technical report going at 110%, 115% of capacity?
Well, it certainly -- by reading across from the performance at Sentinel, where that clearly is -- has way more capacity than we anticipated -- for example, we've never run the plant we built to be used for the -- for enterprise if the nickel price was right. That could become part of the circuit. But we've got so much spare capacity that we haven't needed to do that. And so all the indications are that Cobre Panama will have that same sort of level of excess of capacity. And as you've heard and seen on the ground, there's a lot of built-in redundancy in that operation. It's -- much more so than at Sentinel. So yes, it will have more capacity than we anticipate. And I'm sure mining will be the limitation ultimately.
Your next question comes from Matthew Murphy with Barclays.
I had another one on Kansanshi, just the commentary on the availability of acid in the quarter. Can you just talk about what you're seeing in Zambia? Is this something that we should assume going forward, where you're going to be preferentially processing reduced mix lower-grade oxide ore?
No, we're producing normal levels of acid. The -- but we're moving through a part of the ore body where the higher-grade oxide ore is just very high acid consumption. So it does limit our availability.
And so are there --
So we're mining -- we're deliberately mining lower-grade material to sort of optimize the usage of our sulfuric acid.
Okay. So it's not an issue of you're not being able to get acid from other smelters.
We do get acid from other smelters from time to time, but it's not 100% of the time. But there is availability. The -- right now, there's probably [indiscernible] being imported from DRC because of the import duty on concentrates into Zambia.
Okay. Okay. And then just the comment on the power interruption, and I'm wondering, is any of that related to some of the potential challenges around hydrocapacity this year? Do you think there's any chance of you being impacted by load shedding this year?
Well, firstly, the answer to your question with regard to the power interruptions at Kansanshi, they were all related to problems with the interconnector from DRC. And we had a number of outages during the period. There was a lot of lightning strikes, of course. It's the rainy season. So that doesn't help. But that's a kind of perennial problem. We have issues regularly with -- relating to the interconnector and its unreliability. It's not that it's providing us with lots of power. It's actually -- we import voltage variability and all sorts of things through that line. That's the problem. And it kind of destabilizes the Zambian grid in the copper belt. So that was the first part of the question. The second part is that, yes, the river flows into Kariba are still relatively low, although picking up. But they are being matched by the flow of water out of the dam. So the dam levels are going to be pretty stable going forward. So it is being quite controlled this year. It's also part and parcel of the repair work that's going on in that plunge pool. So they're having to be very careful about how much water goes through the dam so it doesn't interfere with that work as well. So ZESCO have assured everybody that there won't be any outages, any restrictions. And so yes, let's hope. If they continue to manage it the way they've been doing so far this rainy season, we should be okay. But it'll be towards the -- right at the end of the year if there is going to be a problem. That's when it might occur. So we don't know.
Your next question comes from Danielle Chigumira with Macquarie.
Just another question on the Zambian sales tax, if I may. The 2020 impact is not double the 2019 impact. And so I just wanted to understand, what are the drives of that? Are you assuming a different mix between domestic and imported, or what's the drivers behind that?
Yes, it does assume some optimization of the supply chain, which obviously takes some time to drive through, but it does assume that.
Okay. And just secondly on Cobre Panama, can you remind us what level of capitalized precommercial costs you expect to incur throughout the year?
Yes, for the first quarter this year, our precommercial production on a net basis was about $34 million. There is some revenue offsetting that. In terms of sort of pure costs in the second quarter, roundabout $100 million, but again, there will be some revenue coming through to look to set that off as well.
Your next question comes from Matthew Fields with BofA Merrill Lynch.
I just want to maybe follow up on that last one about capitalized Cobre expenses. The CapEx for the first quarter was pretty high, I think about 40% of your total full year guidance. So is that essentially just you seeing Cobre expenses being capitalized, or is it really frontend loaded, so your $1 billion-plus CapEx for the year?
For this quarter, Cobre Panama, the capital expenditure was just under $370 million, about $366 million. And so you'll see that about $133 million of that is on the pure project. In addition to that, there's about $157 million which is made up of other sustaining and project expenditure. And as per the sort of technical report, a lot of that is to allow the expansion to 100 mtpa capacity and also the initial development and engineering work for the Colina pit. And also, within that amount, there's an amount for stripping, just over $40 million and also that -- those precommercial costs that we just mentioned of, on a net basis, $34 million. So yes, of that total amount, other expenditure that was talked about in the technical report, there is a bit of a front loading, yes, starting this quarter.
And I think you will see maybe quite a lot of spend in second quarter as well. But by the third quarter, as we start getting -- receiving revenues from the concentrate, that offsets some of the negative outflow in terms of the operational cost as well. So there will be a netting off on the revenue versus the operating expenses that will be capitalized. So it's probably less spend during Q3 and Q4 then or until we get to commercial production.
At Q3, you would hope that precommercial would move into credit obviously, with revenue exceeding costs. Q2, you'll probably still find that costs are slight -- are still exceeding revenue a bit there.
So I think you should think about it that most of it will probably be done by Q2. And thereafter, there's a credit or a [ chip movement ] to just about a breakeven position on that.
Okay. Great. So if you're -- do you anticipate being free cash flow positive for the second half of the year? And if so, do you still think you need to draw that $300 million on the accordion to reduce the remainder of the 21s?
Look, we will have to see on the accordion. We exercise that and we upsize that. There's no real need to take out the remainder of the $300 million bonds. It just cleans it up, but it's not a necessity for us. It's not an urgent need to do that.
And do you anticipate being free cash flow positive in the second half?
Yes, it all depends on how quickly the ramp up occurs at Panama. We should be getting there at some stage in the second half.
Your next question comes from Oscar Cabrera with CIBC.
Just wondering if you can help us think through the impact on sustaining CapEx in Zambia. I can understand this is not well defined now. But would, for example, your VAT credit -- would you be able to apply that against debt? And what type of depreciation would the offset with the government allow you to take up? Have they talked about that?
Oscar, it's a very good question and one I'd like to answer or to have the answer for. But I could just cite some remarks made by the Minister and quoted in the press that she intends to repay and settle these VATs. So there's been statements made that it is owing and we need to find some mechanism of offsetting or repaying that. So I think that is something that we will discuss and continue to discuss in future. And you could -- we could get to a position where we get to certain offset of these VAT against various other taxes. But it's unclear at the moment.
Okay, Hannes. Well, we'll keep waiting with [indiscernible] once you have an answer on that. If I may, the second question, on your production in Kansanshi and Sentinel, beyond 2021, if I remember correctly, we needed the S3 project to maintain Kansanshi's production at about the level where it's at right now. Could you just remind me what that grade profile looks like or production profile beyond 2021?
Well, it depends if we build S3 or S2.5. There's a -- as I say, there's a few variables there. And of course, it all comes down to the smelter -- smelting capacity at the end of the day. But it should be -- if we go ahead with S3, we maintain the sort of current production levels for quite a few years. I can't -- haven't got the schedule in front of me, but it's quite a few years, probably 7 or 8 years I think.
Yes, it will initially increase actually --
Yes, it does.
-- above the current levels. And then yes, it will remain at the current levels for quite a long time. I think, if we don't do an expansion, in '21, it will decrease and --
'21, it's -- yes, '21, it's still fairly level. The drop off is 2022.
Yes, so by '22, I think it drops to 220,000 or something like that.
Yes, 215,000, yes.
Yes.
Sorry, can you just repeat that? I couldn't hear. It was 215?
About 220,000 tons or so by '22 if we don't do the expansion.
And then you expect that to continue to drop steadily I assume?
Yes, yes, it will sort of gradually decline, yes.
Okay. Great. And then just lastly, on Ravensthorpe, you continue to talk about restarting the operation. Just wondering what sort of like level or sustainable level of nickel prices you would need to give the go-ahead on that operation?
Yes, it's related not just to the nickel price but the cobalt price as well. I think the decision would be dependent on primarily the nickel price going forward. But we have been looking also at separating the nickel and cobalt into 2 different concentrates, which would give us higher payability, which is the equivalent of a higher price. Right now, at current prices, we'd probably be breaking even. Is that true if -- maybe even in small profit at the current price. But it's the move to the next pit that is, of course, the deterrent if you're -- if the thing is only marginal, marginally profitable. So -- because that's got a significant capital cost associated with it. And why would you eat up reserves and resources for no real gain? So yes, we do need a significantly higher nickel price, but also a higher cobalt price helps. And there's a lot of interest in Ravensthrope from battery producers. There's a lot of possibilities for Ravensthorpe going forward.
Your next question comes from [Ian Rossouw] with Barclays.
Maybe just to follow up on Oscar's question on the credits, is -- does the government dispute the balance you quote on your balance sheet? I remember a few years ago there was some changes to that legislation where the government required sort of proof of final destination. And I would imagine, if you're selling to traders, you can't provide those documents. So maybe just a comment on that. And then just on the concentrate balances within Zambia, is there any risk given you've seen -- obviously seen some lower smelter outputs from some of your competitors or peers within Zambia, if there's any risk to your Sentinel sort of ramp up in production for next year.
Right. I think, on -- as I said earlier, the Minister's been clear in Parliament and in the media that those amounts -- she owes that amount, and it needs to be refunded and resettled, offset. Of course, you do face challenges on a continuous basis in terms of various claims or assessments and the like. So by and large, the amount is not disputed. But you will have some challenges in terms of certain of the claims. And then in terms of the concentrate balances, I don't think the additional bits of Sentinel would be an issue because I think there's quite a bit of additional capacity in Zambia available at the moment. So between the -- especially [indiscernible] smelter and [ CCS ], I think both can --
And we're increasing the capacity a bit at our own smelter as well.
Yes.
So no, we should be able to --
Okay. So no, because I -- there's been some news flow around some of them obviously reducing output because of issues with import taxes obviously getting some material from the DRC. Okay. So you don't anticipate that to be an issue.
No.
No, it's only about 100,000, 120,000 tons of concentrate additional. So it's not massive amount.
Your next question comes from Sean Wondrack with Deutsche Bank.
Just one for me. When you think about sort of your CapEx program for 2019 and you think about your liquidity and your cash in the revolver, would you suspect that your liquidity's going to be the tightest in Q2 and basically improving thereafter?
Yes, I think it would be a fair assumption. Earlier in the call, I did say, in terms of Cobre Panama, we do sell outflows in Q2. And soon as we start receiving the revenue from the concentrate sales that we should have a shipment in Q2. And then Q3, we should have more shipments. So from that time, you'll get to a sort of breakeven position [ in a turn ]. So yes, it would be a fair assumption to say, by midyear, that would be the low point of liquidity and the tightest.
Got you. And as you progress through the year, assuming Cobre comes online successfully, is there additional working capital or cash that's trapped sort of in preparing that asset for commercial production that we could see kind of flow back onto the balance sheet?
I think, as you ramp up, you will have the receivables sort of building up. So that will be increasing the working capital. Inventories will build up. But that's [indiscernible] forward in the current expenditure and operational expenditure as we build up. So as we ramp up, I think it will get to a steady state probably late or end of the year some -- yes, probably by end of the year.
Okay. And do you expect the biggest source of cash to come in 4Q?
Sorry, the biggest source of cash?
Source of cash in terms of the four quarters this year to be in 4Q or --
Yes, in terms of net positive cash flow from Panama.
Yes.
Yes, yes, it would be quarter 4.
[Operator Instructions] Your next question comes from Paul Gait with Bernstein.
It's really just a follow up to that last question. So steady state working capital by the end of the year, should we expect then to see sort of the $7 billion of net debt as the peak level of gearing, or from what I'm hearing around the sort of commercialization of production, are we expecting to see that net debt figure increase again in the second quarter? I suppose, what I'm trying to get at is, when is the point of inflection on the balance sheet? And then the sort of second question is, in the cash flow statement, the $156 million on that working capital change, again, do we expect that number to sort of be coming in over the subsequent quarters? And just really what that $156 million corresponds to would be very helpful. Thanks very much.
All right. Net debt is not at the peak level yet because we still expect to spend money in Q2 whilst we -- building Panama. So I would expect Q2 to be at a higher level, whereafter, depending on the concentrate shipments and the production, that should reverse and get to a breakeven or positive cash flow point in the second half of the year. In terms of the working capital, we've had increases in inventories in this past quarter, notably consumables of about $50 million. That's largely attributable to Panama. So you wouldn't expect that to reverse because that will be part of the capital required to operate the mine. In terms of receivables, we've had certain receivables that increased by $123 million in the last quarter. $51 million of that relates to VAT in Zambia. So that's ongoing discussions. And then trade receivables, you'll obviously expect that -- to receive that back in the course of the next quarter or 2. That should unwind as well. Think that's probably that. And finished goods is probably increased a little bit now, and that should decrease in Q2. But then with -- that's an offset then with Panama should increase in Q2 and Q3, and you would probably expect Panama finished goods to increase to a maximum by end of the year or early in Q1 next year as that ramps up and get to full capacity.
Your next question comes from Jatinder Goel with Exane BNP Paribas.
Hi, just a quick one on Zambian part. That is, there were some media articles suggesting ZESCO looking for significant power tariff increase maybe later this year. Have you seen anything on ground developing, or was that just rumors? Thank you.
I've read some articles that they were looking at significant increases, but on the domestic uses. We've not seen any of that in the industrial uses yet. I think there's been quite a bit of pressure on -- over the last few years in terms of power and taxes that quite a few of the mines are probably at a -- close to a breakeven position at this stage. So I haven't seen any of that yet, and I think it -- I don't expect it anytime soon. But you can never tell..
Your next question comes form Daniel McConvey with Rossport Investments.
My questions on the VAT credits have been answered.
Your next question comes from Alexandra Symeonidi with NN Investment Partners.
You mentioned C1 cash costs increase with your land slippage in Las Cruces. However, I see that it is the case across all your mines. Can you please [ inform me ] with regards to that?
Sorry. The line was very faint, and you were very unclear. Can you just repeat? I heard something about C1 cash costs and Las Cruces.
Yes, yes. So C1 cash costs you mentioned --
And across all the mines, but I couldn't hear you.
Yes, yes. Yes, so basically that was my question. I see C1 cash costs increase across all of your mines. However, you mentioned that this is because of the land slippage in Las Cruces. So yes, if you can provide me a reason why we see C1 cash costs increase in the rest of your mines. Thank you.
All right. In terms of -- the comment about C1 cash costs and Las Cruces was that, overall, on group level, that has increased because Las Cruces is quite a low-cost producer so that, on an average basis, that -- magnify that even more the increase. In the likes of Zambia, we've had additional --
Production.
-- cost, and production was a bit lower at Kansanshi. So that's contributed towards that as well. Want to comment on the other detail or --
No, at Kansanshi, it would be largely the impact of production.
There are no further questions at this time. I will now turn the call back over to Clive for closing remarks.
Thank you very much, operator. Before everybody goes, I just want to remind everyone that our Annual General Meeting will be taking place on May the 9th at 10:00 at the TSX Gallery in Toronto. And any -- everybody is invited to attend. We look forward to seeing some of you there. And finally, if there are any follow-up questions, please contact myself or Lisa, and we will do our best to get back to you. Thanks for your participation.
This concludes today's conference call. You may now disconnect.