First Quantum Minerals Ltd
TSX:FM
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First Quantum Minerals Ltd
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Good morning. My name is Shelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quantum Minerals Second Quarter Earnings Results Conference Call. [Operator Instructions] Thank you. Mr. Clive Newall, President and Director of First Quantum Minerals, you may begin your conference.
Thank you, operator, and thanks, everyone, for joining us today. On -- joining me on the call today is Zenon Wozniak, Head of Projects; Hannes Meyer, CFO; Tristan Pascall, General Manager, Cobre Panama; Juliet Wall, General Manager Finance; and Simon MacLean, Group Reporting Controller. Philip Pascall, Chairman and CEO, may join us at some point on the call. As usual, before we proceed, I will draw your attention to the fact that over the course of this conference call, we'll be making several forward-looking statements. And as such, I encourage you to read the cautionary note that accompanies our second 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 SEDAR. 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 Q2 2019 results conference call button under the News section of the homepage. So let us get started with some opening remarks before Hannes reviews the -- of the financial results, and we will open the lines to take your questions. 2019 continues to be a transformational year for the company as Cobre Panama production ramps up, providing significant growth while adding a new jurisdiction, providing broader geographic diversification of our asset and production base. The second quarter delivered solid results, both operationally and financially, resulting in comparative earnings of $87 million and $0.13 a share. Copper production grew 12% from Q2 last year to 100 -- just over 168,000 tonnes in the quarter, which includes close to 31,000 tonnes of precommercial production from Cobre Panama. Excluding these noncommercial tonnes, our production was down by about $0.09, principally due to lower production at Las Cruces, where production was 45% lower than the same period last year as a result of the land slippage in January as well as lower production at Kansanshi. At Kansanshi, despite increased throughput and higher ore grades on the sulfide mixed circuits, Kansanshi copper production was 6% lower than the comparable period in 2018 due to lower recoveries on the mixed circuit as well as reduced ore grades on the oxide circuit. High gang acid consumption content impacted the leach efficiencies and recoveries on the oxide circuit. Sentinel production was comparable with that of Q2 last year, while combined production at our other sites improved slightly, driven by a significant growth at Guelb Moghrein. There were 100 -- just over 149,000 tonnes of copper sold in the quarter, including 6,500 tonnes of preproduction -- precommercial production from Cobre Panama. Our average all-in sustaining costs were $1.77 a pound of copper net of product-by-product credits in the quarter. And our teams on the ground have done a great job in maintaining our already low all-in cost structure quarter-over-quarter. There are a number of other highlights from the quarter or shortly after the quarter end. On July 11, regular mining activities resumed at Las Cruces, after received the required regulatory approvals to do so after the land slippage that occur -- that interrupted mining activities in January. We expect the commencement of mining of Phase 6 to begin in -- sometime in August. On July 24, an agreement with the Zambia Revenue Authority was reached with respect to the assessment claim on duties at Kalumbila. The settlement amount agreed was in line with the company's previously disclosed expectations, and no further provision is required. Since our last update, the Zambian government did announce another delay in the implementation of the sales tax until September 1. You may recall, the government of Zambia used a number of changes to royalties and taxes taking effect on January 1, 2019, the same budget they proposed to replace the current VAT with a sales tax to take effect on April 1. However, the government announced in early April it is delaying the implementation of the sale of tax until July 1 and replacing a single rate sales tax with the goods and services tax with 9% applied to domestic goods and 16% on imported goods. We estimate that this new implementation, that's the further delay to September this year. The delay of the implementation date of the sales tax will result in an increase to group C1 and all-in sustaining costs by approximately $0.07 this year and $0.15 to $0.18 per year going forward. Now at Cobre Panama, this really was a great quarter as the ramp-up accelerated according to plan. The first shipment of concentrate occurred in June. And at the end of July after several additional shipments, a total of more than 42,000 tonnes of copper and concentrate has been shipped. 6 mills are now operating and the seventh, the third sag mill, due for commissioning in Q3. Both 150-megawatt power station generating sets are operating at or above nameplate capacity. And excess power generated is being sold into the Panamanian National Grid. The starter walls of the tailings management facility have reached final elevation and deposition has commenced in both the North and South sectors. The project focus is now on completion of remaining process facilities, with the majority expected to be commissioned in the third quarter. So as a result of this good progress, our production guidance for Cobre Panama for 2019 remains at 140,000 to 175,000 tonnes of copper. Now before commissioning commenced, the decision was taken to do everything possible to ensure a smooth and timely commissioning and ramp up. This included additional and up skilled labor, acceleration of the TMF construction and additional mining fleet. This, of course, has resulted in an increase in our capital forecast from $6.3 billion to $6.7 billion. Now on that note, I'll hand over to Hannes to go through his review.
Thank you, Clive, and good day to everyone. On Slide 14, in the accompanying deck, we've got the quarterly production. Clive has already given all the reasons for the various changes. I think it's probably just noteworthy that Panama ramp up there on a monthly basis, depicted on that slide. I go to Slide 15 and financial overview. The comparative EBITDA of $376 million was 19% lower than Q2 2018 due to a 6% lower net realized copper price and the impact from mining interruption at Las Cruces. Realized copper prices benefited from a $19 million hedge gain in the quarter on the corporate -- copper sales hedge program. Competitive earnings [Audio Gap] 6% -- $0.06 lower than Q2 2018, driven by the reduction in EBITDA, as just explained, as well as higher effective tax rates following the non-deductibility of the Zambian royalties, effective 1st of January this year. Cobre Panama's pre-commercial contribution is currently capitalized. Once commercial production is announced, its results will flow through the income statement. At that time, interest, which is currently capitalized, will also start to be charged to the income statement. The increase in net debt reflects the Panama Capital expenditure program. Turning to the next slide on quarterly unit cost. Copper C1 cost of $1.32 pounds was $0.04 higher than Q2 2018 and $0.02 lower than Q1 of this year. The higher C1 compared to Q2 '18 is driven by lower production of Las Cruces, which increased the group C1 cost by $0.08, and the impact of lower production at Kansanshi, which increased group C1 by $0.04. These increases have been partially offset by 11% reduction in C1 at Sentinel, reducing group C1 by $0.08 in the quarter. All-in sustaining cost is broadly in line with both Q2 2018 and Q1 of this year. All-in sustaining cost has benefited from lower deferred stripping costs at Guelb Moghrein and Kansanshi as well as lower sustaining CapEx at Sentinel. Copper C1 and all-in sustaining costs in Q2 were within full year guidance. Turning to the next slide, Debt and Liquidity Profile. At June 30, the company ended the quarter with $802 million of unrestricted cash and cash equivalents in addition to the $290 million of committed and drawn facilities and is compliant with all financial covenants. I thought it's important to highlight our relationship with ratings agencies, following some discussions with banks and bondholders. Our relationship with Moody's was terminated in Q1 of last year. Moody's chose to continue rating us on an unsolicited basis. Our last in-person meeting was 18 months ago, and they do not have any inside knowledge. Fitch and Standard & Poor's provides solicited ratings to the company. Turning to the next slide, Slide 18 on Copper Hedging Program and Outlook. The company continues with its hedge program to ensure stability of cash flows as the development of Cobre Panama project continues the commissioning phase ahead of commercial production, while maintaining compliance with financial covenants. As of today, the company has 47,500 tonnes of zero cost collars with maturities due February 2020, at prices ranging from a low side of $2.79 per pound to a high side of $2.99 per pound and 22,500 tonnes of unmargined copper forward sales contracts at an average price of $2.94 per pound. And this is outstanding with maturities due December 2019. Approximately 20% of expected copper sales in 2019 are hedged to unmargined forward and zero cost collars contracts at an average floor price of $2.84 per pound. The company has also unmargined nickel forward sales contracts of just over 7,000 tonnes at an average price of $6.53 per pound outstanding with maturities due February 2021. Turning to the next slide on capital expenditure. Expenditure on Cobre Panama in the quarter was $238 million or $203 million on a net basis. Guidance on total Cobre Panama project capital has increased to $6.7 billion with forecast expenditure in 2019 increased from $230 million to $630 million. The increase [ lays ] to higher labor rates and costs associated with the processing plant, higher construction cost for the tailings management facility, additional commissioning specialist to achieve an accelerated commissioning period in 2019, additional labor cost associated with port ramp-up and some strategic additions to the mining fleet. Guidance for the company's sustaining and other projects includes expenditure rating to Cobre Panama, which includes expenditure to enable commencement of the expansion to 100 million tonnes per annum capacity, including initial development and engineering works, allowing mining to proceed to the Colina pit. Other projects in 2019 include the fourth input crusher and trolley assist expansion at Sentinel, remediation work at Las Cruces following the January land slippage and cost to allow restart at Ravensthorpe. In the appendix, we have provided some additional guidance in regards to the treatment of depreciation and interests following declaration of commercial production at Cobre Panama. We have guided to 2019 depreciation charge, excluding Cobre Panama, this is expected to be approximately $800 million to $825 million. Cobre Panama depreciation will commence once commercial production is declared, and an indicative amount for the fourth quarter is $110 million to $140 million. We have also provided guidance on interest, ceasing to being capitalized following the declaration of commercial production at Cobre Panama in the absence of any major project capital expenditures. In the appendix, we've also provided an overview of key terms, the income statement and cash flow impact of the Franco-Nevada agreement. Thank you, and I will now hand back over to Clive.
Thanks, Hannes. So operator, could you open the lines now for questions.
[Operator Instructions]. Your first question comes from the line of Jackie Przybylowski from BMO Capital Markets.
The first question I wanted to ask on Cobre Panama. If you could just maybe give a little bit more color on the reason for the higher CapEx. What exactly have you been doing to accelerate commissioning or the ramp-up of the project? And maybe just a little bit more on where the spending is going?
Zenon, is that for you?
Yes, for sure. Thanks, Jackie. Look, there are a number of things. In terms of the acceleration that was referred to, we had planned quite a significant demobilization. What we actually did, we kept a lot of people on, and we commenced a night shift and extended hours as well. So we basically doubled down on work crunch. And the point was really just to try and finish everything as quickly as possible because if you've been there, and a number of people have, it's a very large project. There's the danger of a long and protracted commissioning and ramp up as numerous pieces of equipment come on, and we didn't want that to happen. The rates working through the night had more punitive certainly than during the day and extended hours. So it definitely cost us money. We brought in some more commissioning specialists to cope with any problems that were coming up so that we could solve them very quickly. So that was the main area is an acceleration in the plant, which was working around the clock with larger crews and not demobilizing and bringing extra specialists in. We also did quite a bit of work at the TMF. So it was mentioned that the TMF was accelerated and finished, and that's the starter walls, and we are depositing into the TMF now. But we did some extra work that wasn't well understood, I think, until recently, and a lot of that work was external to the TMF, it was drainage, external to the starter walls. So there was quite a bit of drainage work took place. We filled in a number of bellies with rock, which provides a base for the future operations as they're due to sand pad work and raise the tailings dam wall. And so there was quite a bit of work going on outside of the TMF footprint itself and outside of the starter walls external to, all related to drainage and being prepared for the future operation. So they were probably the main 2 points we really focused and put a lot of effort in during quarter 2.
Zenon, that's really helpful. And maybe just another question on Panama. You mentioned in your MD&A that you're expecting a resolution on Law 9 in Panama in the near to medium term. Can you maybe give us a bit of a sense of what your definition of near to medium is, first of all? And maybe just talk a little bit about your relationship with the new President in the country? And how things have progressed in terms of the Law 9 negotiations so far?
Tristan, do you want to take that?
Yes. Thanks, Jackie. We met with the new government on Monday, the 22nd of July. So that was last Monday. And that was very constructive, and we met with the Vice President, in fact, the CEO of the company met with the Vice President. The new government has expressed the desire to resolve the Law 9 matter with some urgency. But really, it's an ongoing discussion, so I'm not sure that I can give you a definition of what near to medium means, but certainly, we are optimistic that, that will be resolved. And the government is speaking about resolving that question with urgency. I'd just also add to that, with a new government that certainly articulated its support for the growth of the mining industry in Panama, I think we'd then [ probably cover Panama ].
Your next question comes from the line of Orest Wowkodaw from Scotiabank.
Just following up on Jackie's questions around Cobre Panama. Of the $400 million CapEx increase, can you quantify that in terms of how much can be attributed to the tailings work versus the other stuff?
Probably about 50-50. That would be about right. So there's quite a lot of work around the tailings dam, and we are obviously very careful in that area for obvious reasons. So we wanted to make sure that it was extremely well-constructed and then well maintained going forward.
And has something -- did something change with respect to your view of the risk of tailings management that prompted you to put in the extra capital? Or do you think this was just sort of underestimated earlier in the project?
I think it wasn't particularly well understood in terms of outside of the tailings dam. Everybody had been focusing on the starter dam walls and inside the TMF, the deposition, the piping, et cetera. And I think a better understanding arose of what we should be doing outside of the TMF as well. Also, in just preparing for the future building of the TMF. So if you look at the detailed plans that have now been worked up for the next 10 years of how you raise the wall and quiet the topography and how you build the sand pads, you actually need to have a rock base in many areas. And that volume of rock was underestimated. So there's definitely additional rock and volume of work that has gone into the basis for future sand pad work for the next 10 years.
And in terms of the capital, in that $650 million this year and $600 million in the next few years in sustaining and other, can you quantify how much of that relates to the Cobre expansion to the 100 million tonne case?
Juliet, I think you've probably got those figures?
Yes, it's about $100 million. I think it's in the technical report, but it's $100 million next year and about $120 million the following year.
What about this year?
It's -- again, that's in the technical report, it's about $240 million, of which about $90 million is attributed to upgrades, et cetera, for the 100 Mtpa.
And we noticed as well that you're planning to bring Ravensthorpe back, how much CapEx is associated with that? And is that included in your 3-year guidance?
It is reflected in our 3-year guidance. Yes. I mean, the principal element would be Shoemaker of -- which is about $16 million that is reflected in the guidance we've given.
Your next question comes from the line of Greg Barnes from TD Securities.
I just want to switch to Kansanshi, you mentioned in the MD&A that you're hitting lower grades and lower recoveries in the oxide because, obviously, the mine is aging. How does that evolve over the next few years in terms of tonnes and grades, sulfide versus oxide, what have you?
Well, the oxide volumes will continue to slowly fall over time. Although, as we've stated a few times in the previous quarter and again, this time, there's a lot of high gang acid consuming oxide ore, which we set aside basically because acid is currently expensive. Whereas in the not-too-distant future, acid will be freely available, and the new smeltery is completed in the DRC and acid prices will fall. So there will be more availability, and that would be the time to process those high gang acid consuming ore. So there'll be periods during that when acid prices are low, and we are more focused on oxide. So it's not a sort of simple straight line answer. But as you know, the overall trend is the oxide volumes will diminish.
Are you thinking about putting a new technical report out in Kansanshi so we get a better sense of where the mine is going?
Yes. We've just -- we were talking about that at the board meeting down in Panama, and that's in hand. I forget when it was due -- did we come to a conclusion on that, Zenon? I don't remember.
In timing?
Yes, timing. Yes.
No, I'd have to check and get back to you.
I mean, it's -- but it's going to be updated during the, sort of, the next year.
I just want to switch to Hannes. The capitalized interest for the first 6 months of this year is $400 million, which seems very high. I just wanted to understand how that's trending going forward.
$400 million seems a bit high. I think there are various other elements as well within that capitalized interest. I'm just getting there. That's $400 million. So when you look at it, there's a whole breakdown of various things in here. So not all of it relates to the debt elements as some is attributable to Franco-Nevada, some to LS-Nikko. Yes. I think if you look at it, we're looking at sort of similar amounts going forward.
So our interest expense next year?
It's not a cash interest so it's not all the cash interest. So some of it's in book interest expenses that will -- in unwinding some of the Franco stream, some of the LS-Nikko transactions.
So I guess, what I'm struggling with, what is the interest expense going to look like in 2020 when this isn't commercial, coverage and commercial production? And obviously, you move that into the income statement. What number should we be putting in for next year?
It's probably about that number unless we review some of the debt numbers, of course.
So next year, we're looking at $800 million of capitalized interest going into the income statement? Just from Cobre.
We'll have to just get back to you because some of that might unwind a bit quicker. So let's get back to you in a more definitive number on that.
Okay. And just finally, from the guidance, should we be thinking about DD&A for Cobre looking around $500 million a year based on what you said for Q4?
Yes. It's a -- it's just probably slightly below that level in the $400 million, no, probably $450 million to $500 million.
Your next question comes from the line of Oscar Cabrera from CIBC.
If I may, just getting back to Cobre Panama, you provided the -- what I believe was a sustaining capital for the project. But based on the comments from Zenon, what sort of level should we be looking at, if you're going to need additional volume of rock at the tailings dam?
I think the additional rock at the tailings dam was part of the project that Zenon included in the statement.
Correct. That's correct. So basically it was carried out by -- as part of that project and part of that CapEx increase, which set up the future years.
So the future years until when?
Oscar, I'll just answer that. In fact, the best person to answer is Tristan. That work has been done so far -- this is Philip -- by Zenon and his team, is very much, as a large portion of the base that's required from which the sand wall stands. So that's not an annual figure. And in fact, there is some ongoing rock that has to be transported. You've got a figure for that, Tristan? I think in total it's 4 million BCMs over the next -- for the life of that wall, but I'm not sure the period over the next few [indiscernible]
That is correct. It's about 4 million BCMs that we need over the next 4 or 5 years to place underneath the sand walls. And Oscar, from then on the sand walls are cycling sand construction to be produced by the operating plants and deposited downstream and in the center line lift on top of those rock pads. So that is an ongoing cost that's included in that all-in sustaining capital cost per pound of copper.
So for the next 5 years, we should not expect any more capital increases from that standpoint, correct?
Yes. In terms of project CapEx, we'll be out of the way. In terms of the accounting treatment of how we build a tailing stand, we may be capitalizing some of that because, obviously, the life of the tailing stand is for '19 years.
Then the other thing too is, just -- I find it interesting that you're talking about restarting Ravensthorpe when nickel prices are so volatile. And as Cobre Panama ramps up, you need to deleverage your balance sheet. So are you -- when are you thinking of restarting Ravensthorpe? Could this be delayed if you need to delever the balance sheet if copper prices stay where they are?
Yes, it's an interesting question. The nature of our operating costs of Ravensthorpe are certainly profitable at these levels. And we are mindful of the fact that, that can change quite a bit. But we've had increasing interest that's come from users of nickel and a particularly cohort that's not [ Congolese of source ] who would like a strategic source for that. So what we envisage is that we need it to be in production to be able to take advantage of that, but it's profitable. The cost to bring it back into production is very modest because of the work we've done sustaining it, and that it was strategically sensible to do that now and then have demonstrated access to that Shoemaker Levy deposit.
So $5.90 a pound in nickel prices, Ravensthorpe is profitable. That's what you're saying.
Yes. A question asked, obviously, what happened, it disappears down at the level below $5, then we can -- it can wash its face but is not great. But we do see that, that strategic opportunity is one that we need to do to ensure that the value of Ravensthorpe in terms of what it can contribute is actually exploited.
Your next question comes from the line of Ralph Profiti from Eight Capital.
I want to come back to the Zambia sales tax if I can, Clive. Could you talk a little bit about if any conversations you've had with the new Zambia Finance Minister and the delay to September, is that sales tax going to be part of a broader budget review or is the delay more technical around implementation?
Do you want to take that one, Philip?
Yes. The new Minister of Finance is new in the job, and he has expressed willingness to meet with our guys, but obviously, was under some pressure. And one of those pressures is that he needs to get himself prepared for the new budget. Our understanding is that it was delayed until the 1st of September, in part because it is a very difficult animal to implement. And we expect that it will get revisited in the course of considering the new budget, and that will both be in terms of time and how it's implemented. So at the moment, we don't actually have a clearer picture on that. And we don't have anything from the new Minister of Finance that we could comment on
Yes, that's fair. I'm just looking at the Cobre Panama copper grade for Q2, 0.43%. Just wondering if that's sustainable for the remainder of 2019. It's looking slightly positive, about sort of 5% to 10% above the 2019 technical report. How is that shaping up against your expectations?
Tristan's got that reply.
Yes. Look the answer there is, you're seeing a good reconciliation on grade and tonnes in the resource. And so we have no issues there. The mine itself -- there is a large amount of ore already exposed and available to feed the process plant. And all of that, we're confident on the grade in terms of the guidance that we've given. I would add to that, that so far, in terms of variability near the surface, we've seen limited effect in the process plant from the surface ore. So grade and through to the process plant and recovering the process time has been very, very pleasing so far. And no, we don't see any issues there in terms of the guidance we've provided.
Your next question comes from the line of Matthew Murphy from Barclays.
Thanks for the monthly production profile on Cobre Panama there. I'm wondering if you have a July number you're willing to share?
Tristan.
Tristan, would you take that?
You want me to give the number [ it was ]?
In terms of tonnes, where we're up. Yes. Where we think we're going to be tomorrow.
So maybe I can answer it like this that in terms of the daily report, we've seen a significant advancement in the copper production from Cobre Panama. So we've had days -- significant number of days over 800 tonnes of copper per day, and our record so far is 895 tonnes of copper and concentrate produced, but that was just in the last 7 days. So in terms of the monthly to date, I'll just bring up the report for you, but it's looking very positive.
Okay. Just trying to assess this trajectory, if it -- you jumped to 6,000 tonnes in May and 4,000 in June, and I'm trying to assess if it's -- if it continues to be kind of linear or it steadies off at all?
Yesterday, in the order of 15,000 tonnes of copper filled through the back into [indiscernible].
Okay. Okay. And then just secondly, a quick one on the ZRA settlement, it was in line with previously disclosed expectations. Can you remind me what those previous disclosed expectations were?
I'll maybe let Clive answer -- sorry, Clive, you wanted to comment on the production numbers, still, I think.
Yes. Just one more thing on the production numbers. We -- in our own budget, we are significantly ahead of it in terms of copper production at this point. If that helps you think about our trajectory towards our guidance. We're ahead of the game at the moment.
I think in terms of the ZRA settlement. I mean, we didn't disclose some bigger number that we're going to provide for. We've already accounted for the effect of the settlement within these set of results. So you would notice, I mean, if you do notice something give me a shout.
Your next question comes from the line of Alex Hacking from Citi.
I just have a couple of follow-up questions on Ravensthorpe. You mentioned strategic interest in the output there from nickel buys. Is there any chance that you could get some kind of commitment from those buyers ahead of a restart? And then secondly, what would you expect the production -- potential production profile to look like in 2020 and 2021? And then I was going to ask what nickel price you get a positive cash contribution. You mentioned $5 a pound earlier as kind of a breakeven. Is that fair?
Several questions in there. So the answer to the first one is no, they do -- they would want to see it operating. The production levels, we're thinking of the annual rate of something over 20,000 tonnes for next year. But the actual start date at the moment is going to move up or down a month or 2. And then for the following year, close to the original production level we talked of, which is, say, 25,000, a good year it'll be over 30. And in terms of production costs, and I think the only one added is sulfur price, which is low at the moment and then we can get breakeven contribution down to and below $5. But if it's higher, it goes up above that. And you have seen that in the past, it migrated down to mainly to those nearly $4 and back up to just over $5.
Your next question comes from Lawson Winder from Bank of America Merrill Lynch.
Just on your leverage profile, kind of looking forward, how do you think about paying back the debt versus an eventual go ahead decision on either Taca Taca or Haquira or perhaps a Kansanshi S3 expansion? Do you have a target level in mind in terms of the level you want to get to before making one of those decisions?
Precisely, no. It will be more oriented towards sort of debt-to-EBITDA ratio. But if I would just make -- emphasize that we -- on any commitments to capital expansion -- expenditure, as I've said in previously, lesser than I like, will be either very modest, I mean, minor other than a sustaining capital over the next few years, unless we can do a strategic arrangement with someone who contributed part of it. So we will not be spending any significant capital on new projects.
And then -- okay. And then, I guess, your answer to my debt level question was, no, you don't have a target that just -- is that...
Yes, [indiscernible].
I guess, Lawson, I would aim for not more than a twice net debt-to-EBITDA in the long run.
Okay. And it's consistent with what you said before. Okay. And then just on Taca Taca, are you still targeting some sort of study on that project to be released to the market? And if so, what are you guys thinking around timing?
Yes. Roughly in the first quarter of next year we'd have it ready. When it's released would be either around then or just a little bit later.
Okay, that's great. And then if I read it correctly. Just -- sorry, I'll go back to Cobre Panama. Did you mention there were some weather issues that also impacted the tailings management facility?
Only in terms of productivity. The productivity varies. And obviously, we've been working there for years. So it's always just a factor and just contributes sometimes to our productivity not being as high as we would have liked. That's all.
There was during last year early on, some extraordinarily high rainfall. And in the original design of that starter wall, it required that a large portion of it was built for what's called Saprolite, which is very sticky. And of course, all the borrow pits for that were sticky and wet and the wall itself was damaged. And it did require a redesign of that just in terms of some of the detail of the material used. In the meantime, I think we have been as much as 5 or 6 months lost and then obviously, the recoupment cost to get over that. I don't have that in the total of an estimate of what the capital costs, but I know Zenon and I looking at it would have understood that then you needed to accelerate to get the completion because it had got behind.
Okay. Okay, that makes sense. And then, I mean, just kind of reading the way the explanation of the $400 million higher CapEx at Cobre Panama was written, you mentioned higher labor costs twice in that -- among those points. I'm just curious, are those higher labor costs something that we can expect to maybe continue going forward? Or is this just something you expect to then come back down once you get caught up?
No, it came back down. Basically, we had been working construction for the majority of the project, typically on a 10-hour day. And then in the higher cost that it refers to, when you work a 24-hour day, the people on night shift get paid a higher rate. And if you extend beyond the 10-hour day, the rates become logarithmically higher quite quickly. So we were paying a penalty by working some extended hours and by working night shifts, and that was specific for construction. So that now falls away because we've broken the back of it and literally pretty well just about built everything. So that now falls away and goes back to normal, how it was before.
The answer to that question is that in the nature of [ pay ] the multiplier for hours worked. As Zenon said, there is a modest change from 8 hours to 9 hours and a slightly larger onto 10, and it rapidly gets a lot more expensive. And hence, there was a pattern where we would limit the number working hours per day. But when it needed to be accelerated, and it did need to be accelerated, but with limited capacity, apart from anything else, of accommodation and not easy to find all those extra people, we just get them to work longer hours and pay the price.
Okay. All right. That's well understood. And if I might, just one question on the Ravensthorpe and the nickel hedging program. So you started a fairly extensive one that extends out to 2021, although at 7,000 tonnes of total hedge production over 3 years, that's a pretty small proportion of what you're targeting in terms of annual production. Can we expect to see you add additional nickel hedges? And then what are you sort of targeting there in terms of what you'll hedge going forward?
We just did something that we call opportunity for the first 12 months production.
Your next question comes from the line of Jatinder Goel from Exane BNP Paribas.
A couple of questions, please. First one on CapEx at Cobre Panama. Is the entire $400 million escalation your share or would you be getting 10% from the project partner, but because it will be self-funded that's why it doesn't reflect in your disclosure? That's the first one. Secondly, on Zambia, how long do you think the government or the utilities will be willing to wait till they actually do some load shedding on the industrial side as well, given the water levels are already low? And do you envisage alternative options for electricity, either in country or outside in the event you're short of electricity?
Do you want to take this? Want the first question?
[indiscernible] money on Cobre Panama and whether other shareholders have...
As far as I know, there's still the other shareholders' contribution that come in from Cobre. That's just a capital cost for the project, the figure you've got there. So they will contribute their 10%. And in fact, I think it's showing up in the figures.
Yes. So, Philip, we contribute a lot of it now because it's above it, but we do recover that amount first as well, the additional 10% that we contribute now.
Okay. So the third-party contribution still says 35, which is unchanged from the previous number, that should be 75 then, effectively.
35 was received earlier this year.
And the additional $400 million?
No, we pay for that digit of $400 million but we do it to recover that first as well. We do recover that positive proceeds.
Sure. And that will be true for the expansion as well?
It depends on timing. The expansion project, of course, is envisaged in the original outlook for the project as occurring once it's in production, and obviously, there's net cash flow. So that's where it's recovered from. As for the power case, there obviously are some unknowns. In the rough terms, about 60% of Zambia's power comes from sources other than Kariba, which is the level you're looking at. And as far as we can see, there's no reason why those sources of power won't continue. And it's from there that a lot of the power is being provided where it is. We understand that the other mines or amongst other mines is a lower demand for power. And that there is a particular requirement for the continued provision of power to Kansanshi just because of the nature of its agreement, which pretty well assures Kansanshi. For Sentinel, your question becomes more pertinent. What we see of it is that it's -- the mining industry is obviously recognized as having some importance within the economy and the earnings and for paying the bills that ZESCO has. So they will continue to get a preference, but the question of how long that would go on for is one we don't know. Everything at the moment that we see points to them continuing to provide power to the mines.
Okay. And if I could just squeeze a final one. On Panama, the President was also quoted in the media saying is for reviewing the whole Cobre Panama contract, what's your sense after meeting? Is that just about Law 9? Or is there a broader review of the whole contract?
It's probably better for you, Zenon.
Sure. Thanks, Philip. The Law 9 matter relates to the development agreements around Cobre Panama, the concession itself has good standing and continues in good standing. The Law 9 matter relates always to the development terms, the economic terms around the project. And as I said previously, we met with the Vice President on Monday last week, and they have expressed the desire to resolve the matter with some urgency. And they continued to articulate their support for the mining stream Panama -- Cobre Panama and beyond.
Your next question comes from the line Ian Rossouw from Barclays.
I wanted to get a sense of what you've seen so far with the metallurgy, I mean, obviously, it's commissioning days, so it's probably still early, but I see the concentrate grades, 21.5%. And if you already have a sense of just throughput rates and thinking about the 8th [ mol ], and whether that will be required? That's the first question.
Tristan, do you want to take that?
Yes, sure. Look, the metallurgy profile is looking very, very positive. As I said previously, we had expected to see in [ canthus ] and variability in the surface ores. And there was a long geotechnical explanation that my guys were talking to me about, long and complicated. But the net outcome of that is in the process plant, we've seen very good recoveries despite any variability in the mine. And I would put that down to the age of the ore body. We're not seeing any significant variations in terms of recovery compared to the variability of the ore protein at the front end. So the metallurgy, we -- the geotechnical guides that the geochemists have been looking at closely to see what we can build out of that in terms of more on our understanding of things like moly in the future. But our moly at the moment is very low. So 10,000 to -- sorry, up to 2,300 parts per million. And so we have no issues with moly. And in terms of the concentrate product, very, very clean feedback from the customer so far in terms of the specifications that we've been providing, is very positive. You referred to the concentrate grade. And at the moment, we've seen concentrate grades in the range of 20% to 21% to 22% and in the last month, around 24% to 26% and above. At the moment, obviously, there is a continual trade-off here on concentrate grade versus recovery, and that's the line that we're walking at the moment as we get -- settle our reagents down and settle our lime addition down and so on. So in simple terms, the metallurgy of the ore that we're feeding the process plant is not affecting recovery or the performance of the process plant at all. And as we come through Q3 and add more equipment to the process plant, our ability to tune concentrate grade and dial up recovery increases.
Okay. And then just on the CapEx side, I mean, excluding the precommercial revenues, it looks like you've spent just over $100 million on precommercial costs there. How much do you expect to spend, excluding the revenue in Q3.
Well, look, in Q3, I mean, total costs would be just probably over about $200 million. And against that, probably revenue would exceed those costs that would actually be a contribution in Q3, a positive contribution.
Okay. I guess, total cost in Q3 will be $200 million you said?
Yes, including production costs, something around about that level, maybe a bit more, but revenue would exceed that.
Okay. And then just coming back to Zambia, it looks like you've been increasing your concentrate sales. Just curious, your view on the sort of additional smelting capacity available in Zambia, given obviously, Glencore is now shut down in the Mopani Smelter. I think there were some plans for you to restart the HPAL and whether you're actually now self-sufficient concentrate?
So I would ask David to answer that.
Yes. The concentrate sales are in line with plan. The shutdown of the Mopani Smelter did lead to some excess cons, it was just shifted to another third-party smelter. But there was always an increase in cons as we go through the Zambian dry season and get higher general production anyway.
Okay. So you are still continuing to plan to continue that, and there's no issue with availability of smelting capacity?
Yes, there is no issue.
[Operator Instructions] Your next question comes from the line of Sean Wondrack from Deutsche Bank.
Congratulations on getting through some of these liabilities that you had in the balance sheet. The first question is just with regard to the Cobre Panama CapEx increase. How confident are you that this is the final adjustment to the development cost? It sounds like you're pretty confident, but I just wanted to get your take.
From a project point of view, literally, everything is being built now. There's a few outstanding things, which is the last bore mill, which is the expansion mill, which comes on in quarter 4, but that's well progressed. We're demobilizing at a rapid rate. So definitely a high level of confidence from my side. The risk level is dropping extremely quickly because we're going down very quickly to a low level of construction and remaining commissioning. So from my side, a high confidence level.
Let me add to that, that the effort that's gone into that completion and the extra work, a lot of attention on the finishing works, gives us a good quality process plant that is available now to ramp up. And so what we see is this is beyond completion and into finishing, so that as we turn over a pump to the operation side on my side, it's already running already and already in a good state of play.
Okay. And then on Slide 19, you sort of show where you progressed on the spend to date? And it says, I believe there's $260 million remaining out at First Quantum. Is that the correct way to interpret that?
Yes, that's correct. [indiscernible]
$260 million on the remainder of the project. Okay, great. And then just with regard going back to the Ravensthorpe comments. Ravensthorpe is currently in care and maintenance. You're spending $1 million to $2 million a month. Is that correct?
Yes. Approximately.
From a broader point, though, do you bring it back online, this is going to be a cash flow accretive asset, right? And EBITDA and cash flow accretive because you're spending the money to reap no EBITDA right now. So bringing it back online, assuming a certain price, it should be cash flow accretive. Is that correct or no?
Correct.
Okay. And then just one more clarification on something that was said earlier. Clive, did you say that First Quantum is ahead of budget at Cobre or the total budget or both in terms of pricing?
We're talking about Cobre Panama at that time and the ramp-up of production to -- as the basis for our forecast for the year of 140,000 tonnes to 175,000 tonnes. And the point I was making that we are ahead of budget at this point so, so far, so good.
That's great to hear. And then I'll just ask one final one. Hannes, I think you said earlier, you're still targeting a debt target. I thought you said 2 turns, I'm not sure exactly what you said. But is the goal still from this point on to deleverage and potentially permanently repay some debt?
Sean, yes, that is, you heard correctly, 2x net debt to EBITDA. And we've consistently said that over a number of quarters. That is the objective is to return -- or to reduce debt, absolute amount of debt and we'll deliver anyway with Cobre Panama coming online. Maybe just another comment is that we said, congratulations on getting through the balance sheet liabilities. It's a perceived liability, it wasn't actually a liability on the balance sheet, it's a small amount accounted for. So it's -- it wasn't, of course, massive liability on the balance sheet.
Right. Perceived or not, I think people were sort of factoring that into their valuation of the company so I think it's great that you move past that.
And your final question comes from the line of Danielle Chigumira from Macquarie.
Just a couple more on Cobre Panama for me. And can you remind us when you would expect to get payability on the moly at Cobre Panama. Is it next year, 2021? And just finally, in some of the comments around the CapEx increase at Cobre Panama, you spoke about accelerating the commission there, but clearly the production guidance is unchanged. So should we interpret that as being some upside risk to the 2019 production guidance from Cobre?
Moly. Tristan, can you answer or Zenon on moly?
Yes, Zenon. Maybe in terms of the construction of the moly part?
Yes. Okay. And then chip in along the way, Tristan, feel free. So in terms of the moly plant, originally, it was -- there was a concern that excess moly in the concentrate would cause a penalty for us, but that's not turning out to be the case. So the importance of bringing the moly plant on has diminished at the moment. So it's actually being pushed to the tail end of construction. So it's still to be built, but it's a relatively small plant. And then in terms of the payability, Tristan can comment on that. And then your comment on acceleration and the commissioning, et cetera, and whether there might be some upside. I think a positive that we have seen in the effort that's gone in over the quarter, which Tristan touched on earlier as well, is there was a lot of effort go into finishing what was outstanding and a lot of effort go into testing and proving and finishing it off well to a high-quality and standard. So we found that the startup has gone very smoothly. Things have started up quickly and have run. We haven't been plagued with as many commissioning problems as one might expect. And so from that point of view, it's been very smooth. And I think that's contributed to some of the positives that Clive also commented on.
Yes. If I'd just elaborate on that. It's a very large plant, and it's complex because it has so many components. What we determined to do and in part of that from both the power station and previously on the smelter project, is that if we wade in with a lot of particular effort on quality assurance and what's been core finishing that would occur.
I will now turn the call back over to Mr. Newall.
Yes. Okay. I think Philip was just in the middle of that answer. Oh, we lost him. Okay.
Zenon mentioned the liability on the moly. And at the moment, we're not seeing the moly in the areas in the particular pit at the moment. So it's not an issue for us at the moment. What we do, what we acknowledge that there will be times when we go through higher moly. And that's the reason for the moly plant. At that stage, and we bring the moly plant on to cope with some those zones as they come in. We -- the moly plant will be earnings accretive, but it's not significant so. So we are adding -- we're producing about 400 tonnes of moly concentrate per month as a bagged product in the plan. But it won't add significantly to overall revenue or earnings, but the important thing is that we can cope with some of the higher zones of moly as they come through. But we haven't seen any of those zones in the particular pit so far. And as a result, we haven't -- our concentrate rate hasn't been a problem for any of our customers at this stage.
Okay. So operator, are there any more questions?
There are no further questions at this time. I'll turn the call over to Mr. Newall for closing statements.
Okay. Well thanks, everybody, for joining us on the call. Sorry we lost Philip there at the last minute, but if you've got any follow-up questions, please contact myself or Lisa, and we'll do the best to get back to you. Thanks for your participation as usual, and we will talk to you again in 3 months' time. Thanks.
This concludes today's conference call, and you may now disconnect.