First Quantum Minerals Ltd
TSX:FM
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
9.65
20.49
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
First Quantum Minerals Ltd
You don't have any saved screeners yet
Hello, and welcome to First Quantum's Third Quarter Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Thank you. I will now turn the call over to Clive Newall, President and Director at First Quantum.
Thanks, operator, and thank you, everyone, for joining us today. Joining me on the call today are Philip Pascall, Chairman and CEO; Hannes Meyer, CFO; Tristan Pascall, Director, Strategy; Juliet Wall, General Manager, Finance; and Simon MacLean, our Group Reporting Controller. 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 third 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 and on SEDAR.A reminder that the presentation, which accompanies this conference call, is available on our website. So as usual, I will get started with some opening remarks, and we'll have Tristan provide an update on Cobre Panama before Hannes' review of the financial results. We will then open the lines to take your questions. So during the third quarter, we, together with the rest of the world, have continued to deal with the impacts of the COVID-19 pandemic. Although in some jurisdictions, there's been some easing up of restrictions related to the virus, in others, new or tougher restrictions are being put in place as we now seem to be dealing with a second wave. However, despite these continuing restrictions, the third quarter was solid operationally and financially overall. Kansanshi performed well with higher throughput across all 3 circuits, but with production being impacted by lower grades and recovery on the oxide circuit. During the quarter, we filed an updated 43-101 technical report for Kansanshi that showed an impressive increase in mineral reserves and resources and the potential of an expansion that we maintain or enhance production levels and increase mine life. I think this report highlights the genuine quality of this great asset. Over the next few years, we will continue to refine the expansion before making a formal construction decision when balance sheet fiscal issues allow. Sentinel performance was exceptional, as we had alluded to in our release just prior to the end of the quarter. Higher throughput and grades led to record production, which drove record low cost, though a weaker quarter and lower fuel and maintenance costs did help. At Cobre Panama, early in July, we began the process to resume normal operations, a big part of which was bringing a large number of people back on the site without compromising COVID safety. The ramp back up was completed early -- in early August, ahead of schedule, and we are very pleased that Cobre Panama continues to be virus-free. Tristan is here to provide more detail on Cobre Panama ramp-up and the increase in our expectations there. We delivered another quarter of improved production costs and have revised our expectations accordingly. Hannes will provide more on our updated guidance for production and costs shortly. Late in the quarter, we took advantage of an opportunity to continue to manage our debt profile with a successful senior notes offering, the proceeds from which have been used to extend our debt profile. Through the quarter, we, of course, continued with the various protocols and measures that we have in place to protect our employees and communities. We will continue to practice the highest standards of health and safety protocols and to focus on measures to prevent and manage the transmission of COVID-19 amongst the workforce in those communities. Although the impact of the pandemic at our operations has been manageable so far and has had relatively modest impact operationally, I do need to acknowledge the impact of the pandemic continues to have on our workforce, many of whom are far away from their family and homes for extended periods as a result of quarantine requirements, rotation timings, travel restrictions, et cetera. So on behalf of the entire company, I'd like to thank all of those people who have made these personal sacrifices, and we recognize the significant contribution they continue to make to the ongoing success of the business. So without any further ado, I'll hand over to Tristan to talk about Cobre. Thanks. Tristan?
Thanks, Clive, and thank you to everyone joining the call. As Clive mentioned there, the performance at Cobre Panama was very strong in quarter 3 as the mine ramped back up to running on all 3 trains from the period of preservation and safe maintenance in July. So back to full production in August, slightly ahead of expectation.Copper production at Cobre Panama in the quarter was 62,055 tonnes in concentrates, significantly higher than in the same period in 2019. The cost of production at Cobre Panama in Q3 were also pleasing, especially given the ramp-up phase in July and August. As we stated in the MD&A for the Q3, the C1 for the quarter was $1.06 per pound and all-in sustaining costs were $1.31 per pound at Cobre Panama. The success of the ramp back up to operation on all 3 trains is testament to our people and the effort put into the preservation and safe maintenance regime. In Q2, the site was reduced to around 800 personnel due to the impact of the COVID-19 health protocols, but we were nonetheless able to keep the assets and our environmental and safety performance in good standing. And this paid off in Q3 in terms of our ability to reestablish quickly and smoothly. As Clive said, we would like to recognize the many employees who went above and beyond their duty in terms of the efforts to support the operations, including some staff who were on site for long periods, away from their families. In October, Cobre Panama reached a milestone of 10 million man-hours without a lost-time incident, representing a period of more than 8 months. Although we have achieved this milestone previously in the project phase, this is the first achievement in the commercial operations phase of the mining, a testament to all the employees on site. Nonetheless, our effort on safety, you'll recall, is continued vigilance and reinforcement.As in quarter 2, the site continued in Q3 under the new normal health and sanitary protocol. No new cases of COVID-19 have been detected on site of Cobre Panama for more than 5 months since early May. By October, Cobre Panama had reached 3,400 personnel on site, which is the full capacity of the site under the new normal health and sanitary protocols. In this respect, we continue to receive strong Government of Panama support. On the 12th of October 2020, the Ministry of Health issued Resolution 3096, which underlines the current staffing capacity of the mine and that we continue with our current health and safety -- sanitary protocols with respect to the control of COVID-19. The cost of these measures are not hugely material to the cost structure of the business, and they will remain in place in order to underline the stability of the site. We'd like to thank our many local and international suppliers who've also subscribed to these health protocols on the site and have supported our efforts to manage our supply lines and reduce input costs across the period. We're also continuing to help in the communities around us at Cobre Panama. In October, the Cobre Panama Foundation signed its first contracts in the establishment and start-up of this foundation, and the operations phase of the mine honors our commitment to Panama under the ESIA for the life of operations. We have transferred and extended our previous arrangements for infant nutrition in our surrounding communities this month into the newly established foundation. We continue to provide medical and PPE support to the Government of Panama as a response to the pandemic and the wider community. Reflecting the strong operational performance since ramp-up from the preservation and safe maintenance regime, Cobre Panama has increased the copper production guidance for the full year 2020 to between 190,000 to 205,000 tonnes, an increase of 10,000 tonnes to the lower end of the range and 5,000 tonnes to the upper end of the range. This underlines our confidence in the operations for the remainder of the year. Gold production guidance for the full year 2020 has also been increased to between 75,000 to 85,000 ounces, an increase of 5,000 ounces. This month of October, we've undertaken a fairly major shutdown for the first change-out of the crushed ore stockpile shoot liners. This maintenance is part of a normal course of operations but is infrequent, being underneath the crushed ore stockpile and required 7 days of closure of both Train 1 and Train 2 at the milling area. The stockpile shoot liner work was completed on time, and we are now back up and running on 2 trains, with the third train expected to come online this Sunday. The shutdown will have an impact on our cost and production for this month of October, however, we expect November and December to be solid months in terms of continuing our ramp-up to consistent achievement of the 85 million tonne per annualized throughput rate at Cobre Panama. In addition, we continue to look at the expansion project from 85 million to 100 million tonnes per annum, and this is dependent on the decision to proceed with the capital expenditure across the period '21 to 2023. At this stage, we remain confident that the timetable, as set out in the NI43-101 technical report, to achieve 100 million tonnes per annum in 2023 is achievable. A decision on the capital expenditure program will be made later this year or early next year. And with that, I will now ask Hannes to take you through the finance presentation. Thanks. Hannes?
Thanks, Tristan, and good day to everyone. I'd like to direct you to the slide titled Overview. I think it's Slide 8 in the company presentation. As Clive has said, record copper production at 2 of the company's largest operations drove the strong operational performance in the quarter, which, coupled with the increased metal prices and favorable operating costs, meant that the company achieved a significant increase in EBITDA and a return to positive net earnings, inclusive of net finance expense, as well as started to reduce its net debt position.The resilient and robust operational and financial performance of the company's operation has resulted in increased total copper and gold production guidance and improved cost guidance. Total copper production was 10% higher than the same period in 2019 with record production at both Sentinel and Cobre Panama. Excluding last year's pre-commercial production, total copper was 36% higher than the comparative quarter.It was another exceptional quarter for Sentinel, producing 71,000 tonnes, achieving its highest-ever quarterly production and record-low cash cost. Cobre Panama performance was impressive as it ramped up from preservation and safe maintenance in July to full production levels in August. Cash cost of production was at its lowest level in 4 years, with almost all copper operations delivering a reduction, but notably lower C1 and all-in sustaining costs achieved at Sentinel and Guelb Moghrein. Comparative EBITDA of $641 million increased by 81% from the same period in 2019, with higher commercial production volumes and a 6% increase in the realized copper price as well as lower cost and favorable foreign exchange. During the quarter, the company's net debt reduced by $113 million to just over $7.5 billion. On September 18, the company issued a redemption notice for the $850 million senior notes due in 2020, with the company completing the offering of the $1.5 billion senior notes due in '27 on October 1. Turning to the next slide on production. Total copper production for the quarter of 211,000 tonnes was 10% higher than Q3 2019. Sentinel's performance, as mentioned earlier, was exceptional, achieving 71,000 tonnes, 25% higher than the same period in 2019 with higher throughput and higher grades, surpassing the previous quarterly record production set in Q2 2018 by 16%. Performance at Cobre Panama was strong at 62,000 tonnes as it successfully ramped up to full production levels in August. Copper production in the quarter was 10% higher than the same period in 2019, and this includes the pre-commercial portion of the production. Production also benefited from Las Cruces operating at normal throughput levels compared to the impact of the land slippage in 2019 and a robust performance at Guelb Moghrein. Kansanshi delivered consistently throughout the quarter. Whilst throughput was higher, copper production was slightly lower from reduced grades and recoveries. Gold production of 72,000 ounces was 4% higher than the same period in 2019, reflecting the full production levels at Cobre Panama. Turning to the next slide on quarterly unit cash cost. Higher production, lower cost and favorable foreign exchange have driven unit cost to the lowest level in 4 years. Total all-in sustaining cost was $1.48 per pound and C1 cash cost was $1.07 per pound for the third quarter of 2020, a $0.29 per pound and a $0.38 per pound decrease, respectively, compared to the same period in 2019.Lower C1 cost reflects, in particular, a favorable cash cost at Cobre Panama, higher production at Sentinel and lower Zambia fuel and maintenance costs with favorable FX movement as well. Lower all-in sustaining cost reflects the lower C1 cost combined with lower sustaining CapEx at Sentinel and Kansanshi. Sentinel achieved a record-low C1 cost of $1.25 per pound and record low all-in sustaining cost of $1.77 per pound. Guelb Moghrein achieved its lowest C1 cost for over a decade of $0.24 per pound, with lower mining costs, fuel prices and higher realized gold prices, and its lowest-ever reported all-in sustaining cost. Cobre Panama's contribution to total C1 cost was $1.06 per pound. Turning to the next slide on 2020 guidance. Following a strong performance this quarter, guidance has been increased for copper production to a range of 750,000 tonnes to 785,000 tonnes, an increase of 25,000 tonnes to the lower end of the range and 15,000 tonnes to the upper end of the range. Cobre Panama's guidance has been increased to 190,000 to 205,000 tonnes, as Tristan stated earlier, while Sentinel's copper guidance has been increased to 240,000 tonnes to 250,000 tonnes of copper. There's also been an increase to Las Cruces and Guelb Moghrein's copper production guidance. Gold production guidance has been increased to 245,000 tonnes (sic) [ ounces ] and 260,000 ounces, an increase of 15,000 ounces to the lower range and 10,000 to the upper end. Increased production, higher gold prices and a lower operating cost environment with favorable foreign exchange has allowed improved copper cash cost guidance. All-in sustaining cost has been reduced to $1.60 per pound to $1.70 per pound; whilst cash cost guidance, including Cobre Panama, has been narrowed for C1 cash cost to $1.20 per pound to $1.30 per pound. Guidance at Ravensthorpe production has been reduced to 13,000 tonnes to 15,000 tonnes of nickel. Total CapEx guidance remains unchanged at $675 million. Guidance on the underlying effective tax rate, excluding Cobre Panama, interest has been revised to allow for nondeductibility of hedge movements. Turning to the next slide, financial overview. Comparative EBITDA of $641 million in the quarter was $287 million or 81% higher than the same period in 2019. EBITDA benefited from higher commercial copper and gold sales volumes from Cobre Panama, higher realized copper and gold prices, lower operating cost and favorable foreign exchange. Comparative earnings per share of $0.09 in the quarter included net finance expense of $179 million compared to $59 million expense in the same quarter in 2019 when an additional $146 million also capitalized to Cobre Panama during the pre-commercial production phase. Net debt reduced by $113 million in the quarter with higher comparative EBITDA and lower CapEx. The next slide show you comparative EBITDA. And the largest changes there reflects just the movement in the commodity price as well as the increased production levels and sales levels. Turning to the next slide, the net debt -- or debt and liquidity profile. The company ended the quarter with $915 million of unrestricted cash and cash equivalents and was in full compliance with all financial covenants. On September 17, the company announced the offering and pricing of $1.5 billion of 6.875% senior notes due in 2027. Settlements took place on October 1. On September 18, the company issued a notice of redemption of the outstanding senior notes due in 2022 to be redeemed at par. Proceeds of the new bond were used to partially repay the existing revolving credit facility and redeem in full the company's outstanding senior notes due in '22 on October 19, the next business day following the redemption date. Taking into account forecast, operating cash flows, capital expenditure outflows and available cash and committed facilities, the company expects to have sufficient liquidity through the next 12 months to carry out its operating and capital expenditure plans and remain in full compliance with financial covenants. We continue to take action to manage operational and price risk and further strengthen the balance sheet. Turning to the copper hedging program outlook. Approximately half of the expected copper sales in the next 12 months are hedged. The bar chart presented here shows you the split between swaps and collars. At 28th of October, the company had unmargined copper forward sales contracts for 204,000 tonnes at an average price of $2.82 per pound outstanding with periods of maturity to December '21.In addition, the company had unmargined 0 cost collar sales contracts for 207,000 tonnes at an average price of $2.76 per pound at the bottom end to $2.99 per pound on the upper end, outstanding with maturities to December '21. The company also has just over 4,800 tonnes of unmargined nickel forward sales contracts at an average price of $6.75 per pound with maturities due February '21. Thank you, and I will now hand back over to Clive.
Sorry. Thank you very much, Hannes and Tristan. And so operator, could you now open the line for questions?
[Operator Instructions] Your first question comes from Greg Barnes with TD Securities.
Hannes, you just ran through the copper hedge book, and I understand why you've had that in place. But is it time to let that start to wind down, given where the copper price looks like and Cobre is back up at capacity?
Greg, look, it's -- the copper market is in a much more positive environment at the moment. However, there's still uncertainties around in the world, just given the current state in COVID and the likes. So we've -- as stated previously, we've got a high leverage at the moment. And we want to secure sort of -- predict the downside risk in the company. And therefore, we sort of typically go in about half and half in terms of collars and swaps. And as it rolled off during the quarter, we just replaced it with sort of newer and higher prices at the current prices. So we're likely to continue for a bit longer. Philip, I don't know if you've got something else to add there.
Yes. Greg, thanks for that question. We had a policy historically of not hedging. And there was -- the exception for that was when we needed to borrow money to ensure that we could undertake our capital works in much the way -- the same way as a bank would require it if they were lending us money. And of course, in a rising market, you're always slightly behind it and that it looks disappointing. But the key to it is retain that until you've been passed some peak along the way, and you can't predict that until you've gotten past it. And for as long as our debt and our leverage is as it is, and that's the way that Hannes was commenting on it, the policy will be that we will hedge. But we could imagine that in the next few years, that leverage requirement, I mean, the debt requirement and the servicing costs would have tempered somewhat, and then we could move away from the same level of hedging. Maybe we'd have a small level of hedging just to protect what was outstanding. And then eventually, with very little debt and the like, I think it would be nice to go back to a policy where we didn't hedge at all and live with the market as it goes up and down.
Okay. Okay, fair enough. While I have you, Philip, just on Kansanshi S3, on the expansion, whatever you want to call it now, what do you need to see from the government, I suppose, in Zambia to make a go decision on that project?
Certainly, stability. And we expect that during the course of this next year, we'll have the opportunity to liaise with government and resolve a position that would give us some security going forward. Capital expenditures of that sort can be easily made victim later on of changes to fiscal policy and the like, which would then damage the assumptions made at the beginning, and that's what we want to try and get past. Our dealings and our position with government at the moment are very benign. And certainly, they've been very cooperative and helpful through the period of COVID and a number of other times, and our power supply has been in good shape. So it's a relationship that we'll build on. And it was as difficult times for them to give us nothing more than certainty as to how we go forward over the next decade or 2, and that's what you need for that investment. And that's the large part of it because I think with that kind of confidence, our shareholders will feel happier about that increased exposure, which just replaces some of the debt replacement that would be going on.
Your next question comes from Orest Wowkodaw of Scotiabank.
Really impressive cash costs at Cobre Panama there in the third quarter, especially if you're ramping up of $1.06 per pound C1. I'm just curious if we should anticipate those to start normalizing back up, starting in Q4 and beyond, as grades come down and whether we should still be thinking about kind of that $1.20 a pound to $1.30 a pound range as kind of a more sustainable cash cost number. Has something actually changed here?
Thanks, Orest. Yes, look, there wasn't anything particular in Q3 to really pull down cash costs at all. I think what -- and it was particularly pleasing given the ramp-up. So we didn't have the sort of first half of August of production to assist with those cash costs. Look, we -- I think we'd like to see a little bit more and a little bit further, particularly into some areas as we get into Botija and then into Colina as part of the 100 million before we move away from the guidance that we provided. I think what you're seeing, though, is the potential for Cobre Panama to perform. And so it's exciting for us. But at the moment, we would stick with the guidance that we provided.
Okay. It sounds like you're actually, though, indicating there could be some upside to the guidance in the future, which is great. And then just changing gears with respect to more corporate policy. Can you give us an update on where things stand or whether the discussions have resumed and whether it's a priority with respect to a minority interest sale in either Zambia or Cobre Panama?
Sure. Clive, I can take that one again.
Yes.
Look, as Clive and Hannes have pointed out, the Zambian assets continued to perform very well in Q3. And combined with the ongoing rebound in copper, gold, nickel prices and, indeed, the uplift in resources in the Kansanshi 43-101 technical report, we really believe the Zambian assets do make a compelling value proposition. Orest, minority stake sale process continues, but there's no further update from Q2 from what we said last time.
Is it still a strategic priority, though, in terms of accelerating the deleveraging through that kind of transaction?
Orest, we continue with it on that basis, but we are watching the copper prices, in particular, very closely. I think if the outlook continues to brighten for copper, then we'll continue to look harder at that, yes.
Your next question comes from the line of Jackie Przybylowski, BMO Capital Markets.
I guess I'd just maybe circle back on the question about the expansion of Cobre Panama to 100 million tonnes a year run rate. Can you give us a sense -- because I think the last few times the company has commented on this, you said you're pretty optimistic that there might be some debottlenecking you could do, which might bring down the ultimate cost of that expansion.Can you give us a sense -- like I know it's been early and you guys have kind of just restarted, but how are you seeing the progress to that 100 million tonne a year run rate? And do you have any sense that you might be able to have some cost savings in your plan to achieve that rate? Or is there any maybe equipment that you had baked into the estimates that you maybe don't need at this point?
Tristan, do you want to do that?
Sure. Thanks, Jackie. No, I think it would be too early for us to go out on a limb there in terms of a reduction to that capital cost. What we said in the 43-101 was in the order of $300 million to $400 million for that expansion, and we'd stick with that. The principal components of that are the stripping at Colina is included in that; some upgrades in the process plant, which is essentially the conveyor -- conveying system and the ninth mill, a ball mill, the sixth ball mill; and then mining fleet.And those 3 elements remain in place in terms of what would be required to go to 100 million. And we would really need to go through sort of detailed engineering to get any further refinement on those numbers. And that will be -- that's the sequence we will go through in terms of the 100 million expansion, but we're not there yet in terms of detailed engineering.
Is there a chance that you could complete some detailed engineering over the next sort of few months or however, over the next period where you're maybe maximizing the throughput of the existing mill configuration and -- at that point, but still a possibility that, that might be an opportunity for you? Is that still possible?
Yes. I think our key focus in the milling circuit is to understand the combination on the primary ore as we're deeper now on Botija. So we've got a good view of what the Botija ore looks like and its analogies across Colina. So that will give us a lot of information towards that point.
Got it. Okay. And maybe if I could just switch gears and ask about Ravensthorpe. I mean the results in the quarter was probably the, I guess, the most negative spot in your whole earnings update. And I know you guys are still working on Shoemaker Levy there. Is there -- can you give us an update on Ravensthorpe? Is it all kind of going according to plan? And maybe also, if you could just talk a little bit about strategic investors and strategic options that you're seeing there. Is it still too early to comment on that? Do you need to see Shoemaker Levy in production before you would entertain a strategic partnership at Ravensthorpe? But like what's the current thinking on that?
Philip, do you want to do that one?
Yes, okay, Clive. Look, to be -- when we started up again at Ravensthorpe, we were also starting in a new ore body or an ore body that we've only taken a certain amount out of the core, which is how that -- it's proved to be more varied than we'd anticipated. And I think one of the factors of care and maintenance is that there are elements of the plant that, after you start to run, demonstrate a need to be changed or modified, and that's what you're seeing in those results. So that's steadying up and happening anyway. But as far as the strategic view goes, certainly, Shoemaker Levy, which is a much more consistent and much larger, long-term ore body, is one that we think would be useful to be showing us some production before we move forward with. But our conversations with them are not waiting for it. And I think that there's nothing in what we've been doing which is different from the expectations that we've made public to that, that we were talking about.
Your next question comes from the line of Matthew Murphy with Barclays.
Just had one on Zambia. It seems like the country is headed for a default. And just wondering if there's any implications for yourselves on the ground, any impact. It looks like you've had some ForEx benefits. But are you seeing inflation? And are you anticipating any government measures in response to that?
Hannes, do you want to do that?
Sure. Look, it's fair to say that since the new Minister of Finance, the Honorable Bwalya Ng'andu, came in 16, 17 months ago, we've had a fairly stable tax regime. So therefore, taxes have not increased, and we've also been able to offset VAT. So that's been all good. He's taken the tough decision to actually now embark on this program where they, I and them, speak to all stakeholders in addressing the government's debt, which I think is something that you have to do and you have to applaud them for taking those steps. We're certainly seeing a little bit high inflation in Zambia. So that is filtering through. But at the moment, we're not seeing any negative impact on our operations. So on the fiscal side, we operate fine. And then power-wise, we get all the power. So operating environment is actually pretty positive and pretty good. So it's been a good and constructive environment. Obviously, you'll have to go through the detail and see what eventually happens, but I would not like to speculate on what measures will be introduced, so if and when.
Sure. And then maybe just as a slightly longer-term view on that. I'm just interested in Philip's comments that maybe in the next year, you get some more clarity around the long-term fiscal picture. And just wondering what, if there's any, sort of events that are planned or discussions planned that give you the confidence you might get that clarity on that kind of time frame.
I think my only view on that, that I would express is that in the discussions that we've had, the Ministry of Finance particularly, there is a recognition that that's what mining companies need. And that's positive. And therefore, it's going to end up being the detail and the nature of how one puts that in place. In other words, we're not -- we're pushing against a door that is reasonably, I mean, that's open, and then we can go and talk about to entrench it. And as Hannes says, there's nothing we've seen in the current activities that's changing them from a policy of keeping that stability. The purpose of what we want to do there, of course, is to ensure that, that perpetuates through various governments because of the time line that we need for an investment of that sort. And that will be the conversation that we're going to have to have in the new year. This year hasn't been an easy time for anyone because, obviously, there were so many restrictions. But we'd expect that towards the second quarter of next year, we'll have an opportunity to start some of those conversations.
Your next question comes from the line of Matthew Fields with Bank of America.
Just wanted a couple of balance sheet questions for me. So I noticed you paid down another $100 million of debt in the quarter. So we're down kind of from that $8.8 billion total debt, high-water mark in 1Q '20. You've often talked about reducing total debt by $2 billion. So is that $8.8 billion kind of the high-water mark that we should think of, so $6.8 billion is or around there is kind of the target for where total debt is supposed to go?
Hannes, would you like...
Matthew, I mean the debt levels we saw earlier in the year, that's certainly the high-water mark in terms of that. And I mean what you should see from now going forward is just the deleveraging effort and a reduction of the absolute debt numbers as well. Obviously, the current higher copper price and strong operational performance should accelerate that. And that's in the absence of any potential strategic deal that we talked about earlier on minority stake sales.
And is there a target sort of where you ultimately want to see that number go?
Look, we sort of -- a net debt-to-EBITDA number of sort of around 2 or below, that would be the target. I think if you then -- if you're also going to look at the absolute amount of debt in that or the net debt number in total, but so certainly reducing it by $2 billion would be -- that should be a priority, and that's what we are working on and focusing on.
Okay. And then on that minority stake sale potential, is the use of proceeds in your eyes most importantly going to deleveraging? Or is there some kind of capital return to shareholders in this copper price environment or even some M&A as the buyer of some development projects out there? Can you just talk about sort of capital allocation in any potential minority stake sale proceeds?
Tristan, do you want to do that -- take that one? Or Philip?
Yes. Look, there were several different questions in that. Certainly, our priority is the reduction of debt, and that will be largely where the funding of any of that [ report ] would be to reduce our debt. We do know and we recognize that in -- within the next year or 2, we would need to review our dividend policy and start to return something to our shareholders.As far as capital work is concerned, certainly, there is no intention for us to go and make an acquisition of any project. We don't need to. We have a number of projects that are quite interesting that have been the subject and are ongoing subject of studies and evaluation. And that's the kind of work that we will do so that in a few years' time or in a couple of years' time at least, we would be in a position if we want to expand or change and add other operations, we would be in a position to do so. And addressing that, we are mindful of both of the debt that currently exists, but also that in a couple of years' time, we have a number of the smaller operations that will get to the end of their operating life.
Your next question comes from the line of Ian Rossouw with Barclays.
I just had a question on the external liability that sits or that Cobre Panama owes KPMC. It looks like you're still accruing interest on the balance sheet for that. The Cobre Panama now likely to be in a strong cash flow generation position going forward. When will you start paying that liability? And can we assume -- or can you give some details around that payment? I mean can we assume all free cash flow goes to pay down the intercompany and that liability first before Cobre starts paying dividend?
Ian, yes, I mean there is a -- so remember, we own 50% of that KPMC debt as well or a little bit more than 50%, but let's call it 50%. So that debt and that interest, half of it accrues to ourself as well in that regard. And in Panama, I mean we've got various shareholder loans in. And so yes, I mean we will repay shareholder loans. But then, yes, so it's just a fact through time, we'll reduce those shareholder loans.
Do you -- when you pay KPMC, can we assume half comes immediately back, so it doesn't sit on the KPMC balance sheet?
Correct. You can expect that, yes.
Okay. And then just a couple of follow-ups on Zambia. Just on the expansion, and Clive mentioning you at Kansanshi that you're looking to refine the expansion before making a decision. Could we expect then a decision no earlier than 2022, '23? And then maybe just to add on, how does this arbitration with the government sort of play into that? Is that a prerequisite for that to be resolved before making that decision?
Do you want to take that, Philip?
Could you just repeat the first part of it?
I just wanted to get an idea of the time line for the decision for the Kansanshi expansion.
Okay. In our 43-101, we addressed 2 options: one was that it would be running at the end of 2024; and the other was that it'd be running at the end of 2023 -- or rather, during 2024. And the second scenario there was in the event that we had brought in a partner for a proportion of the asset and that together, we were happy then to fund it a bit sooner. But otherwise, our program is to meet completion at the end of 2024. And the rationale for that simply is that Kansanshi's production begins to be quite difficult around that then as it moves into more and more sulfide ore and less of the higher-grade primary oxides and the like. And that was the first part. And I think the second part has to do with arbitration, and we don't make any comment about that arbitration at all.
But do you -- can you approve that project sort of irrespective of the time lines of arbitration?
The arbitration is not relevant to that subject.
Okay. And then maybe just lastly, on Sentinel, you're exporting some of your concentrates for this quarter. Is this just a one-off? Could you maybe just comment about this third-party smelting constraints?
That's a very interesting question in that there are 2 components to the answer. First of all, Sentinel's production has been extraordinary, and the result of that is that we generate a lot of concentrate. And the second part is that the smelting capacity within the country has been slightly limited as a result of various actions being taken by Mopani and the like. And the solution to it is one that we've been working on, which we'll see the benefit of within the next year or so, and that is we're beginning to produce higher-grade concentrates, first of all, at Sentinel and in due course at Kansanshi.And as we make those changes, that impact is quite dramatic. So that the capacity of our own smelter and other facilities that we have there, like the pressure leach, will increase substantially the amount of material that -- the amount of copper output, let me put it that way, because the grade of the concentrate will be that much higher.
Okay. So that's -- you would say this is more a one-off exporting?
As far as we can see now. I mean we're still producing a lot of concentrate, but the grades are pretty good. And we envisage by next year that we'll be able to get those concentrate grades higher.
[Operator Instructions] Your next question comes from the line of Lawson Winder, BofA Securities.
A question on Kansanshi on the sulfide grade. Just vis-à-vis the technical report you published in September, would it be fair to say that the grades are performing slightly below expectation? And if so, what would be driving that? And that's copper I'm referring to.
John, have you got a view? Okay, John, you go ahead.
Yes, Clive, at the current operations, we are mining from certain sulfide areas that are more vein-controlled, and we are working on means of optimizing dilution. As we look forward to the larger disseminated zones, the impact of vein-scale mining will be minimized. And we will deliver on the grades that we have projected in the 43-101. There certainly is a lot of activity at present to enhance mining efficiency, minimize dilution through enhanced blasting techniques and ore grade control systems, which we are improving at present.
Okay. Great. And then...
Is that okay, Lawson?
Yes. No, that's perfect. Just moving to Cobre then and looking just to Q4. I think other than rainy season, is there anything you would highlight, such as maintenance shutdowns, that could impact throughput there?
Tristan, would you do that?
Thanks, Clive. Thanks, Lawson. No, the main one was just the shutdown on the crushed ore stockpile shoot. So as you can appreciate, that lies underneath the main feed stockpile to the SAG mills. So it's quite a big job to empty the stockpile all the way out. You sort of have to run it down over the course of 2 or 3 days and then do the work itself. So that one has been and gone. It's finished sort of at the end of last week, early this week.But that's the main impact. So that will have impacted October's production, but it has no -- looking forward, there was some catch-up work to be done on maintenance. It's largely being scheduled in, and it's not sort of frontline key to operations. So no, we don't see any risks on the operational side due to maintenance. But by and large, during the preservation and safe maintenance, the guys did a good job of -- with very limited personnel on keeping on top of that. And then any backlog since then have already been completed, for example, on the trucks or scheduled to be completed as normal course of operations.
Okay. Great. And if I might just ask one final question on cost, just to get a little more granular on your prior comments. The -- just on the mining cost per tonne, I mean, obviously, it's come down since Q2, but it's still running above the very low levels you achieved in Q1. Are those Q1 levels, in terms of mining cost per tonne of total materials, still something you see achievable going forward? And what's sort of the time line on that? And that would be it for me.
And Lawson, that's specific to Cobre Panama, right?
Yes, exactly.
Yes. So look, the impact there was -- while we were still coming under COVID and then after COVID, there was some catch-up on mine planning in terms of the volumes we were able to move. And yes, as we get into a much steadier regime, particularly on the waste side, our total movement will be much larger. And therefore, the denominator of that equation will be larger, and we'll see a lower unit cost in the mine. So yes, I think we've hit head down to those numbers and below as we move more material, particularly on the waste side.
Your next question comes from the line of Jatinder Goel of Exane BNP Paribas.
A couple of questions, please. Just broadly on Zambia, it sounds like you are prepared to invest in Kansanshi expansion even if there is no minority partner introduced to that operation. But thinking about country risk, should we look at what's happened to or is in process with KCM or Mopani or even Anglo American being dragged into an old case? Are those just individual instances happening -- just happening in one country? Or does anything make you worried about developments on ground? And related to that, just a quick question on Mopani, you own just under 17% of the asset. Do you have any first right of refusal? And do you have any thoughts on how you would want to deal with it if Glencore puts it up for sale, which apparently [ media ] gets their offer?
Philip, was that one for you? No, those 2 are for you.
No, I think the circumstances of KCM and Mopani are different, and they're best able to answer them. So clearly, KCM was the first situation and was a situation with the political approach taken by the government and in respect of actions and debts or whatever as KCM was a result that certainly would not apply to our operations. And in the case of Mopani, which is very different, but if you recall, Glencore had said they wanted to put it on care and maintenance and stop it. And the nature of mining, the mining licenses and mining law in Zambia is you do have to go through some justification to be able to do that with government and then explain why the economics don't work. And clearly, that, again, is not really relevant to our operations at both Kansanshi and Sentinel.And so we're not -- there is no reason to expect that any of that would arise at all. So that's the answer to the first part of the question. The parallels are there. All the mining operations in Zambia vary. I mean the miner is different again. And the second part of your question?
Your thoughts on Mopani ownership?
Look, we own a share of the parent that holds it through if Glencore holds it for [ appraisal ]. And it's a minority share of something, and therefore, it really has no say in it. But our general view, quite simply, is that we reserve our funding to do projects that we currently have in various places, including what we have in Zambia, but elsewhere, and that the funding requirements for Mopani or the purchases and so on are not something we've expressed any interest in. And we wouldn't be having any discussion at all on that.
Your next question comes from the line of Ioannis Masvoulas, Morgan Stanley.
Just 2 left from my side. The first, just shorter term, looking at the copper production guidance for Q4, it would seem to be quite conservative. I guess, on Cobre, you suggested that November, December, you shouldn't see much of an impact, and maintenance was already completed in October. I guess, here, can you give us a bit of an indication on the September run rate? I think for August, you said you produced 25,000 tonnes. I think having that September number would give us some visibility on the exit rate.And then related to that, on Sentinel, how should we think about Q4 relative to Q3? And what are the -- just the moving parts on production because you have already made some comments on sales, so just on the production side?
Tristan, would you like to take that?
Yes, sure. The first part of the question, the run rate in September at Cobre Panama, we produced 25,100 tonnes of copper in Sentinel -- sorry, at Cobre Panama for September, so a little bit more than August. And that's about the level we need to run at. We expect sort of that consistent level through November and December. It's just October that was impacted. We probably have slightly lower grades to the end of the year, but not that will impact on anything against that. So the guidance is about right in terms of where we'll be by the end of the year. And sorry, the second part of the question was relating to Sentinel. Could you just repeat that?
Yes. Just in terms of Q4 versus Q3. I mean Q3 has been very strong. Any reason to expect Q4 to be -- would be weaker sequentially?
No, nothing that we see at the moment or that we've been at the past. Really, the job at Sentinel, really, next year, we're looking forward to putting the fourth crusher in, and that project remains on track for that timetable. And that makes a big difference to feed to the process plant. But Q4 should be in line with the previous quarters of the year, which has been very strong.
Yes, we did just sort of highlight, obviously, the maintenance shutdown in the outlook. So we have sort of noted that for Sentinel as well.
Yes, for sure. Yes. That's clear. And maybe just -- and maybe sort of a separate question on Zambia. You talked about the operating environment being pretty good right now. I was trying to figure out in terms of cost development, how much of the positive effects of the weaker currency you've seen relative to the rising cost inflation in the country. I mean are we going to see a catch-up where the inflation rates start filling through in the coming quarters? Or do you expect that to be largely offset by a weaker currency?
Hannes, have you got a view on that?
Yes, I think -- I mean you will see some other cost. The inflation coming through, obviously, in terms of labor is quite a large component of our low kwacha-denominated cost. And that's sort of subject to annual agreements. And they might -- I don't want to comment on where we might end on that. But -- so eventually, that will catch up to sort of inflation rates or closer to that.Some of your other local costs would in time also catch up to inflation rates, but I mean we're not seeing much at this stage coming through. I mean, obviously, some of it's coming through, but there's also been a big driver in terms of efficiencies. And higher throughput also, obviously, helps the underlying cost. But yes, it's fair to say that there's a high inflation environment and that eventually in time, you should assume that local costs will increase somewhat.
If I just comment on that, really could give you some, is that, obviously, labor has to catch up with inflation regularly because that would be a policy that we have to try and ensure that the people that we -- our employees are okay. But a lot of our costs in Zambia are designated in U.S. dollars, including charges from government entities. I mean Zesco's price is in U.S. dollars. So much of that then doesn't have a great impact. We did, a few months ago, take a hedge on the oil price. It's actually the heating oil -- New York heating oil index, which is used as an index in a number of our areas, both in Panama and elsewhere. And that was to try and lock in for a 12-month period the sort of benefits that were around in the oil price and, obviously, quite significant for us. And -- but of course, those costs, as time goes by, will move again with the oil price. So you could probably answer the question better by looking to what might be changing in the world at large and impact the U.S. dollar cost of many of the components for us.
Sure. And I guess it's fair to assume that about 30% of OpEx is local currency-denominated?
No, it's a smaller number. It's about 1/6 of the costs, so about 15%, 16% of the cost is local currency-denominated. So as Philip said, a large portion of it is actually dollar-denominated.
There are no questions at this time. I will now turn the call back over to Clive Newall for closing remarks. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.