First Quantum Minerals Ltd
TSX:FM
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First Quantum Minerals Ltd
Earnings Call Analysis
Q3-2023 Analysis
First Quantum Minerals Ltd
The company's leadership addressed the call from Zambia, articulating strong improvements in their three principal operations leading to an enhanced Q3 EBITDA of $969 million, a noteworthy uplift relative to the prior quarter, even against the backdrop of persistent copper price softness. A key strategic milestone was the enactment of a concession contract for the Cobre Panama mine into law, ensuring the company's commitment to Panama's economic development, while also recognizing the need for stronger community engagement given recent protests.
Copper production across key operations saw substantial gains, with a resulting 28% drop in Q3 copper cash costs to $1.42 per pound. Aiding this achievement were higher production volumes, improved byproduct credits, and reduced input prices, although future costs may climb with potential upticks in crude oil prices. Labor cost predictability improved with a four-year collective bargaining contract at Cobre Panama. The financial leadership narrowed the full-year cash cost guidance to $1.75 to $1.85 per pound, reflecting the production trajectory and input cost expectations.
Financial stability is buttressed by a robust liquidity of $2.3 billion, enabling the imminent settlement of $565 million in taxes and royalties for Cobre Panama. A thorough 2023 tax and royalty payment plan has been outlined, amounting to approximately $770 million spread across 2022 and 2023, providing transparency for stakeholders.
The company revised down its 2023 production forecast mainly due to challenges at Sentinel, including encountering harder ores. Countermeasures like extra infrastructure investments and mining in different stages hope to soften the ore blend and prepare adequately for the rainy season. Gold production guidance was also scaled back due to sub-par grades experienced thus far.
With the Panama mine contract officially endorsed, management acknowledged the protests and stressed the importance of fostering better disclosure on environmental and community benefits. The upcoming presidential transition in Panama was considered, with strong confidence expressed in the legal standing of the contract, deeming the risk of any renegotiation low.
Despite sizeable outbound payments, including investments and working capital changes, the company experienced an improved 2x net debt to EBITDA ratio. This strengthens the narrative of careful balance sheet management and the capacity to weather significant financial obligations without compromising performance.
The royalty payments are structured on a quarterly basis with a follow-up in the subsequent year, aligning with the new legal framework in Panama. Management provided clarity about the future timing of tax and royalty payments and reassured that despite a strong quarter, the receivables have normalized, suggesting tempered expectations for working capital fluctuations.
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Thank you for standing by. This is the conference operator. Welcome to the First Quantum Minerals Ltd. Third Quarter 2023 Results Conference Call. [Operator Instructions].I would now like to turn the conference over to Bonita To. Please go ahead.
[Technical Difficulty] with opening remarks followed by Rudi Badenhorst, our Chief Operating Officer who will provide an overview of our operations.Ryan MacWilliam, our Chief Financial Officer will review our financial results, and Tristan will wrap things up after which we will open up the line to take questions.And with that, I will now turn the call over to Tristan.
And thank you everybody for joining us on the conference call today to discuss our third quarter results. I'm speaking to you today from Sentinel & Enterprise operations here in Zambia.I'm pleased that production at our 3 largest operations continue to improve in the third quarter, which Rudi will provide more detail in his review of operations.As well, we saw modest easing with some of our input costs. As a result of our focus on productivity and costs, our third quarter EBITDA of $969 million was a meaningful improvement from the second quarter despite the continued weakness in the copper price.Before continuing with details on our third quarter results, it is pleasing to share with you that the concession contract surrounding the Cobre Panama mine was enacted into law at the end of last week, which marked the final step in revising the legal framework for the mine. The new law received strong support at the National Assembly with 47 votes in favor of the new agreement out of a total of the 55 votes that were registered.I would like to thank the team in Panama for their hard work and collaboration with the Government of Panama to ensure the successful passage of the contract into law.With the law published in the Official Gazette, First Quantum will soon be making payments to cover taxes and royalties for 2022 and the year-to-date in 2023, which Ryan will provide more details on his financial overview.With the legal certainty of Cobre Panama now established, we look forward to continuing our contribution to the economic benefits of the country through employment, supplying from local businesses and all our other programs in country. Nevertheless, we have seen the protests from various groups across the country, which acts as a reminder that we, as a mining company, and the industry as a whole, need to do more hard work in communicating the many benefits that our mines can bring to the surrounding communities and our host countries.And with that, I would like to hand the call over to Rudi.
It was pleasing to see improvements continued from the second quarter with each of the 3 mine operations having production increases in the third quarter.Total copper production was nearly 222,000 tonnes during the period, up over 34,000 tonnes quarter-over-quarter as grades and throughput improved in each of Cobre Panama, Kansanshi and Sentinel.Copper C1 cash costs in the third quarter improved considerably at all 3 of the operations. Group-wide C1 costs averaged $1.42 per pound during the third quarter, a $0.56 per pound improvement over the second quarter, which was primarily driven by the higher production volumes, although there was an easing in some input costs, which Ryan will speak to in his remarks.At Cobre Panama, the operation delivered record copper production of 113,000 tonnes, 25% higher than the second quarter as grades improved and more throughput was higher with the continued successful ramp-up of the CP100 Expansion project. Throughput was over 24 million tonnes during the quarter and we remain on track to exit 2023 at a consistent and reliable annualized rate of 100 million tonnes through the plot.There is currently a drought in Panama, which is impacting water levels in the Panama Canal and has led to some vessel restrictions. At this time, the Cobre Panama operations are not impacted by the canal, with most of the mine supplies sourced from South America and delivered through our own port.With regards to the concentrate shipments, the early impact from Cobre Panama are slightly longer voyage times for concentrate shipments to customers based in Asia that have not chosen alternative shipping routes.Moving over to Zambia, at Kansanshi copper production of approximately 40,000 tonnes was nearly 5000 tonnes higher than in the second quarter. Production during the third quarter continue to focus on mining cutbacks at elevated benches with higher grades. And this is expected to continue into the fourth quarter.At Sentinel, grades continue to improve in the third quarter, allowing for copper production to improve by nearly 10,000 tonnes to 64,000 tonnes in Q3. The improved copper production was driven predominantly by higher grades while throughput was challenged by hard ore found in the lower levels of stage 1 and 2 pits. This harder ore impacting mining, crushing and milling rates during the quarter and is expected to continue into the fourth quarter.As such, along with the challenges experienced earlier in the year at Sentinel, 2023 production guidance has been lowered for the operation, which Tristan will address in his closing remarks.Thank you and I will now hand the call over to Ryan to review the financials.
Thank you, Rudi. The copper price was broadly flat quarter-on-quarter, averaging $3.79 per pound in Q3, 1% lower than in Q2. However, copper prices fell towards the end of the quarter to just over $360 per pound, as expectations of higher for longer interest rates with a knock-on impact on industrial activity and rising geopolitical tensions have led to risk-off market sentiment.Despite this, copper demand, particularly in China, remains robust on the back of continued electric grid and electric vehicle spending. A reminder that the lifeblood of energy transition will flow through copper veins.As Rudi described, production was very strong through the quarter and resulted in a 23% increase in copper sales to 219,000 tonnes, which is a record for First Quantum. This meant that despite the flat copper price, revenues increased by 23% to $2 billion.As Rudi also noted, there's a drought in Panama that has led to longer voyage time through the canal for some of our shipments. Based on the structure of these contracts, however, the company's revenue recognition and timing of cash received from each shipment is not impacted by these delays.The record quarterly copper production also benefited unit costs, helping drive copper C1 cash costs down 28% to $1.42 per pound. Cash costs also benefited from higher byproduct credits, as well as lower consumable costs as fuel, sulfur and explosive prices all reduced compared to the previous quarter.It is worth noting that Brent crude oil prices increased from $75 per barrel at the beginning of the quarter to $92 per barrel at the end, driven by OPEC cuts and tension in the Middle East. This has the potential to impact costs towards the end of the year once existing fuel inventories are worked through.For, labor costs, it was pleasing to see the Cobre Panama collective bargaining contract successfully signed in September. This agreement will be enforced for the next 4 years, providing more certainty in our labor spend.More broadly on costs, we have narrowed our C1 guidance for the year to $1.75 per pound to $1.85 per pound. This mostly reflects our weaker copper production at Sentinel in H1, offset by the strong production in Q3 across the other sites and the expected strong end to 2023.Slide 17 (sic) [ 16 ] highlights that third quarter EBITDA increased 71% to $969 million, the highest in the last year. The significant increase was as a result of the record quarterly sales and lower costs. Net earnings attributable to shareholders increased to $325 million and adjusted earnings per share increased to $0.52.The effective tax rate has averaged 17% year-to-date, with full year guidance between 40% and 45%. Effective tax rates in the final quarter will be higher as income tax expense for 2023 is adjusted under the Refreshed Concession Contract to Cobre Panama.As noted in our MD&A, it is intended that the charge relating to the tax and royalties up to the year in 2022 will be excluded from 2023 adjusted earnings. So the full year guidance rate of 40% to 45% reflect 2023 tax and royalty payments only. I would also note that the anticipated top-up under the new structure in Panama is treated as a royalty and not a tax in the calculation of effective tax rates.Moving on to our balance sheet, net debt reduced slightly by $13 million to $5.64 billion this quarter. Despite strong EBITDA growth, net debt was impacted by unfavorable changes in working capital. The successful completion of the La Granja acquisition and the resulting $105 million payment to Rio Tinto, and an increase in CapEx spend of $49 million, increase in CapEx reflects a steady progress in the S3 Expansion Project at Kansanshi, which Tristan will describe later.Lastly on capital allocation. Current copper prices are well below the level needed to incentivize Greenfield developments, particularly when one considers the high CapEx and OpEx inflation in recent years.For context, in real terms, this week's opening copper price of $3.54 per pound is equivalent to a price of around $2.90 per pound in 2018. Our capital allocation focus therefore remains on strengthening the balance sheet and less capital-intensive Brownfield projects like S3 rather than allocating any material capital to our portfolio of Greenfield projects.Additionally, with CP100 commissioned in Q1, an Enterprise now producing nickel concentrate, the Brownfield expenditure on 2 of our 3 key projects is behind us, with the production growth to come as Cobre Panama and Enterprise ramp up.Current liquidity remained strong at $2.3 billion, supported by the issuance of the $1.3 billion 8-year bonds in the previous quarter. This positions us well to cover the Cobre Panama taxes and royalties which are payable soon as a result of finalizing the legal framework in Panama.Total payments for the year will be comprised of tax and royalties for up to the year-end 2022 of $395 million, of which $45 million is already paid, and approximately another $215 million will be payable soon to cover the first 3 quarters of 2023 resulting in a near-term payment of $565 million.For 2023 as a whole, based on current copper prices, we expect a total payment of $375 million for the year that includes a top-up payment. This will result in a total tax and royalties payable for 2022 and 2023 in Panama of $770 million.And that brings the finance section to an end. I'll now hand the call back to Tristan.
Thanks for that, Ryan. As Rudi noted, the first quarter saw production improvements. However, regrettably, we are lowering our copper production forecasts for 2023 to 745,000 pounds to 775,000 pounds, mainly due to Sentinel.At Cobre Panama, the CP100 Expansion project continues to ramp up very well. The operation continues to achieve periods of design capacity and remains on track to exit the year at a consistent rate of 100 million tonnes per annum. As such, we have tightened our copper production guidance for Cobre Panama to between 365,000 tonnes to 375,000 tonnes of copper.Construction of the Mali plant continues to progress well and commercially production of that unit is expected in 2024. At Kansanshi, mining will continue to focus on the upper benches of [ Domain ] 15 and Domain 17 and we expect a strong growth to continue in the fourth quarter. Kansanshi continues to perform within our expectations, albeit at the bottom end of the range. As such, our copper production guidance range has been tightened to between 130,000 tonnes to 140,000 tonnes.Gold production has been lowered to between 65,000 ounces to 70,000 ounces to reflect gold grades encountered to-date. Current levels of copper and gold production will remain at or near these levels until the S3 Expansion project comes online.The S3 Expansion continues to progress well. We have started receiving long-lead items during this past quarter including the first ultra-class trucks and initial components of the mills and primary crusher.Earth and construction works continue and are expected to accelerate into next year. We remain on schedule for first production from the S3 Expansion in the second half of 2025.At Sentinel, given the challenges early in the year and the harder than expected ores counted in the third quarter, we have lowered copper production guidance to between 220,000 tonnes to 230,000 tonnes. However, work is being done to bring in softer ore with mining starting in Stage 3, which should start to meaningfully contribute to ore feed in the second quarter of next year.As well, over the last several months a lot of work is being conducted to better prepare the mine for the upcoming rainy season, including mining down the shallow zone between Stage 1 and 2 and adding additional pumping capacity.We continue to review the impact of harder ore on the coming year mine plan, but at this stage we expect to be able to blend more effectively with the wet season infrastructure being installed. We will address guidance in January, but at this stage we are holding to our previous outlook for 2024 and 2025.At Enterprise, another important milestone was achieved during the quarter with first sale of nickel concentrate. The focus remains on stripping of waste and the final ramp-up of the process plant to full production capacity, which is expected next year. We encountered challenging metallurgical characteristics of a shallow ore due to weathering, leading to reduction in our 2023 guidance to between 3,000 tonnes to 5,000 tonnes of contained nickel.However, a good understanding of the processed impact of this material has been developed and we expect prompt recovery and concentrate quality to continuously improve as we gain greater exposure to less weathered ore deeper in the mine.Lastly, it was with great sadness that we announce the passing of our chairman, Philip Pascall, during the quarter. I'm in Zambia right now with Philip who was posthumously honored for his work and contributions to the country with Eagle of Zambia Award by President Hichilema yesterday. Philip was a great mentor and inspirational leader and this loss has been felt deeply across the company and the communities that First Quantum operates within.The outreach from the investment and mining community has been tremendous and humbling. I would like to sincerely thank everybody for their condolences in the sharing of memories of Philip.Built on the legacy of the founders of the company, we remain committed to the trajectory of First Quantum and we believe we have both projects and the capability in people to deliver that into the future in an environmentally and socially responsible manner and in a financially disciplined approach cognizant of needing to continue to improve our balance sheet.With that, I will be happy to take questions now. Thank you.
We will now begin the analyst question and answer session. [Operator Instructions] The first question comes from Jackie Przybylowski with BMO Capital Markets.
Just to echo what you said at the end of your remarks, Tristan. I pass on my condolences to you and the team on the passing of Philip. It's a huge loss to First Quantum, of course, and the whole industry.My question is on your guidance revisions, both on the volumes and the cost, it seems like Q3 was a strong quarter across your operations. And my understanding based on prior comments from yourself with that Q4 is expected to be fairly strong as well. So I'm wondering if that's changed, if your expectations for Q4 has changed or if you're just reflecting some more of a cautious outlook, just given what we know from the first half of the year?
Yes. Thanks, Jackie. And I'll ask Ryan to provide some more detail. But yes, we have tightened the guidance. And as you say, that's still tough, particularly Cobre Panama, very strong performance in the quarter, and we're very pleased with the progress in the CP100 Expansion in terms of the impact that it's having. What we do see is the grades were higher at CP100 during the quarter, and they will come off a little bit in the fourth quarter just in the normal course of the mine plan for the year.And so it's not really conservatism there, but just focus on the existing mine plan. At Sentinel, look, we're in a good position to face the wet season. And perhaps, I can just ask Rudi to comment a little bit more on that. Rudi, would you just cover that in terms of outlook for the remaining quarter of Sentinel and perhaps also Kansanshi? And then, Ryan, if you could just comment on the cash cost outlook? Thank you.
Yes. Thanks, Tristan. Hi, Jackie, thanks for that question. Sentinel experienced a difficult first half of 2023 as a result of the impact of the rainy season, as we discussed, on the last call. But we've made a lot of infrastructure investment on dewatering capability and capacity at Sentinel, effectively tripling its impact of dewatering capacity to over 10,000 cubic meters per hour.We've finalized the final environmental treatment fund construction activity during this latter part of Q3. We've also finalized pumping water back to the plant and using it primarily in the plant rather than utilizing and discharging to the environment under the regulatory limits. So effectively, meaning that we do not have to hold back and wait for water to be neutralized at Sentinel before we can discharge because all of that is now going into the plant.Secondly, at Sentinel as well, the settle between Stage 1 and Stage 2, in the previous wet season resulted in damming of water that's been completely mined up. And as far as the hard ore is concerned, yes, certainly, we experienced some very hard ore in the bottom of Stage 1 and Stage 2 pits during the quarter. We're mining in an area of the ore block called [ Domain 4 ], which has hard kainite.And although, that will remain with us during the course of the fourth quarter in both of Stage 1 and 2, we are already noticing drilling and blasting punching through that domain into the one below, which hosting slightly softer ore. So we are -- and where we are currently situated in Stage 1. But in the hard stuff it won't migrate out of that towards Q1, Q2 of next year, but certainly will be with us for the remainder of this year.
And then, Jackie, maybe if I just jump in on costs. So we still expect to finish within our initial cost guidance. What we've done is we've moved up our bottom end from $1.65 to $1.75, and that's largely a function of what really described the weak production from Sentinel for most of this year, which is somewhat offset by slightly better cost inputs, most notably diesel and explosives than what we assumed at the beginning of this year. So we now have a new cost guidance, $1.75 to $1.85 per pound of copper.
That's super helpful. Thanks Ryan, and Rudi and Tristan. And if I could ask a follow-up, maybe to Ryan. You've got a number of cash outflows coming up with the tax settlement as part of this some agreement with the Government of Panama and the La Granja acquisition completion and the work you're doing on -- through another projects. Can you talk a little bit about your balance sheet and where you see your balance sheet sort of going over the next couple of quarters with those cash outflows? And so how you expect to fund those if it's through just cash on hand or any other way of funding them?
Go ahead, Ryan.
So we saw leverage metrics improve through the quarter. We were at 2.2x net debt to EBITDA at the end of Q2. Because of the strong EBITDA performance, we're now at just above 2x net debt to EBITDA. So pleasing to see that progress off the stronger -- off the back of stronger EBITDA. And that was also in a quarter where we made the $105 million payment to Rio Tinto for La Granja. So that payment is now behind us.In terms of what is ahead, as you note, we've got the payment associated with the settlement and agreement and new legal framework in Panama that will be paid shortly. And we're in a fortunate position where we have $2.3 billion of liquidity -- strong liquidity on the balance sheet to address that.I think, going into next year, it will be as before, continue to remain discipline of our capital, certainly not looking at spending material capital and Greenfield projects and being disciplined around the capital that goes into our Brownfield projects, which are being advanced.
The next question comes from Orest Wowkodaw at Scotiabank.
My condolences as well. No doubt, Philip, legend of the mining industry. Just following up on Jackie's questions, if I'm hearing you correctly, I think you said that you expect a harder ore at Sentinel to spill over into the first half of '24. Has that already been factored into the existing guidance for Sentinel for next year of 245,000 tonnes to 265,000 tonnes? Or is the -- are you finding the ores harder than what's assumed in the current mine plan in that guidance?
Sure, Orest. So I'm here at Sentinel now and just looking at what that harder material was. And look, it's chemically altered rather than anything you can see delineated or otherwise. So it's an area that we really saw as we approached it in terms of drilling performance, the grade control drilling and then the production drilling. So it really did affect us in Q3.We are starting to get through very much a horizontal band that runs through. And as I said, it's sort of chemical alteration. So very hard to pick up other than in a physical parameter. But we believe that it is present in the pit in that horizontal band. We threw some of it in areas in the bottom of Stage 1, but we do see it continue. And as Rudi said, we will see that continue to Q4.It was part of the mine plan before. But we did see that during the course of the year, we were going to be across different areas of the pit that would have provided flexibility, whether in Q1 hampered that flexibility, and we were very much more sequential as the year turned out, that is we mined Stage 2 and we went to Stage 1.And I think next year with the additional water infrastructure in place, you'll see much more of a blended mixed mine plan across the year. And that's why we say we are where we're at in terms of guidance for next year. We will address that and we're going through the budgets right now at the moment to address it in January. But at this stage, no reason to preempt that.
And just as a follow-up question for Ryan. I didn't quite catch some of the numbers that you disclosed with respect to the upcoming payments here in Q4. Can you just give us that total again for the total payments, I think, in Panama relating to both 2022 and I guess, would that be the first 3 quarters of '23?
Sure, Orest. So we'll be paying $395 million, which is for all payments up until the end of 2022. In addition to that, we'll be paying a large portion of our 2023 taxes and royalties, effectively a catch-up for this year. And that combined number is at $565 million. We do expect across '22 and '23 to pay total tax and royalties of $770 million, but obviously, some of those payments will occur in 2024.
So that $770 million includes a Q4 number in it?
Correct.
The next question comes from Greg Barnes with TD Securities.
Tristan, with Law 406 now in place, there are a number of Supreme Court rulings and government actions that relates to Law 9, one of them being that Law 9 was unconstitutional. Do all those fall away now and they become really nonissues for you?
Yes. Hi, Greg, thanks. Look, so certainly, we're very pleased to have the contract passed into law. The process has alleviated a lot of the concern around that. It was -- we received really good support through the National Assembly, 47 votes out of the 55 that were cast. And I guess that level of support speaks to the authority of the passing of the contract.The unconstitutionality motion, Panama is a litigious environment and so there is ongoing unconstitutionality proceedings. We're not a party to those proceedings. So we don't have the detailed specific nature, but it is common practice, as I said, in Panama and the other mining jurisdictions with the challenges like this to be filed.Because of the passing and the status, the involvement and the deliberation that was involved in establishing now the new legal framework to go forward, it went through public process, it went through the National Assembly. We followed -- our understanding is the due legal process has been adhered to, and the government of Panama certainly assured us of the same.Once the details emerge from those proceedings, we will be able to take part in the proceedings. But we do see this as just a normal course of action in litigious environment, but we have confidence in the standing of this process, that's taken this long to get to this point. And again, we're pleased to have it passed into law.
Just a second question, and maybe a bit out of a left field. But with respect to Ravensthorpe, continues to lose money. The nickel price is weak and the outlook isn't great. And I just noted in the MD&A that it appears that there was a cash call and POSCO didn't participate. Is there any thought about the future operational viability of Ravensthorpe from here?
Yes. Thanks, Greg. The Q3 at Ravensthorpe, we were impacted by ongoing maintenance. It's a feature of the saltwater that we take there and -- but also adaption of the plants to the material characteristics of Shoemaker Levy. So for example, magnesium content and so on and the density around what comes in from Shoemaker Levy. So that adaption is ongoing. I think it will continue to impact us in Q4. We have a major shot on the acid plant coming up. We need to renew the catalyst there. And that shot will improve significantly the electrical side and the asset plant performance and efficiency.Really, the ongoing focus for us at Ravensthorpe is to get to the 30,000 tonne plant design capacity, and that really does start to deliver a lot in terms of maintenance improvement. We're putting in place those adaptions to the front-end, beneficiation, the deal with density and deal with beneficiation from Shoemaker Levy. And also on the back end on rejects handling and so on.But Ryan, you might comment on POSCO'S decision around the cash input.
I would note, firstly, on the market side, the nickel price has struggled through Q3. And on top of that, payabilities for products like MHP remain low, a function of just a sheer amount of volume of nickel that is coming out of Indonesia. So I think for us and everyone in the nickel -- that exposure to the nickel sector at the moment, we are spending a lot of time on what we can do to enhance operating margins and that's some of the activity that Tristan talked about. So it's certainly a person in question, Greg.In terms of POSCO specifically, they have certainly invested in Ravensthorpe to procure MHP for nickel sulfate plant, which they were looking to build. At this stage, they've delayed that plant, given the volumes that are coming out of Indonesia. So there's less incentive for them to fund Ravensthorpe going forward, given what the strategic rationale for their initial investment was.
The next question comes from Ralph Profiti with Eight Capital.
Tristan, at Sentinel, when you look into Q4 and into 2024, you've addressed sort of the water issues and the tail events on potential water inflows. So I thank you for that. Can you maybe expand on that and talk a little bit about energy and grid availability as it pertains to some of the changes you're making in the combination circuit with that finer grind? And also, how is the mine shaping up for things like maintenance, given the increased wear with this harder ore?
Thanks, Ralph. Rudi, do you want to answer that question? I'll come in at the end if needed.
Thanks, Tristan. Hi, Ralph, look, this every wet season when it approaches in Zambia, the question of electricity comes up. Certainly, we have -- as per our previous experience, there's no desire whatsoever to limit security of supply to our operations. And certainly, we have had a good rainy season last, last year.We've also just in the process of finalizing our long-term power supply agreements with the electricity provider, and that effectively has been agreed for both Sentinel and Kansanshi and just again drafting final documents there.So as far as electricity supply is concerned, I think we -- there's no concern on our part. And certainly, as a company, we are also looking at with joint ventures with others like Total, for example, looking at the installation of renewable energies in Zambia. So I think that long term, we're fine there.The harder ore, as Tristan explained, and I said that earlier as well, these mainly situated in Domain 4 with hard kainite. That's a band that runs through the pit. It's been giving us trouble with throughput on the crushers and the molds during the last quarter, and it looks like we're punching through that in the main pit now, although it will linger in Stage 2.But also the availability of the third cut back Stage 3 and towards the west that we are now actively in mining and we will deliver ore through the end of Q1 into Q2 next year makes the blending characteristics so much better. So we've had a bit more abrasion in our crushers during this last quarter, but we don't expect to see that prolonging. And at the moment, this minute, we are also busy with a mine to mold study utilizing the expertise of a vendor to help us with some of those material selections.
Ryan, when do the 2024 tax installments come due, right? Just thinking a little bit forward. Are those front-end loaded towards the year? And going forward, how will tax installment payments be made? Just thinking about timing.
Yes. In general, we make the royalty payments on a quarterly basis and then the top-up generally comes in the first part of the next year. So you're now going to see us make a fairly normal approach in terms of timing of taxes and royalties, Ralph.
The next question comes from Bryce Adams with CIBC Capital Markets.
Tristan and team, thanks for the call and well done on the operational results. I have another question on Panama and the new mine contract. It signed a law, but it sounds like there's still quite a lot of protesting and opposition in the country. Do you think it's a risk that a presidential candidate picks up on this and uses it as part of their campaign election and that a new government in May next year might want to revisit that contract? Quite a few risks in there. But in terms of risk management, is that a scenario that you've thought through and planned for?
Yes. Hi, Bryce, thanks for the question. Look, again, we're pleased to have the contract passed into law, and that was the outcome in terms of the vote in the National Assembly, after due democratic process, which included that -- it was returned to the committee. And then between the company and government, we addressed the queries that came back from the committee and back from the democratic process, which were related to sovereignty. And then that went forward into the National Assembly. And again, it was very strongly supported, 47 votes in the final reading of the 55 that were submitted.So it's been thoroughly reviewed by the National Assembly. It's been through the public process -- the public participation. Look, the protest we acknowledge and it certainly highlights the need for us to, and the industry as a whole, to continue to improve disclosure, improve our communication, improve our engagement and discussions of benefits of mining around economy, employment, our community impact, the positive social contribution and our environmental standing.We note the President's comments, his message to the nation yesterday on the topic, and we certainly support his comments on the impact around the new framework and the new, renewed and strengthened benefits that flow to Panama and the environmental and social standing of the contracts.In terms of the election, yes, that will be in May next year and the new president will come in place since July. We -- given the process to date, we believe things are in a strong legal standing. And the risk is low, but we have confidence in the legal process today that given the exhaustive process that has been put in place.
The next question comes from Ioannis Masvoulas with Morgan Stanley.
Thanks very much for the presentation and my condolences as well. My first question is around the gold production outlook at both Kansanshi, which is on a better footing now and Cobre, with a CP100 progressing well. Do you have better line of sight on the midterm gold production guidance? Is there any potential upside or downside versus the published technical reports on either asset?
Rudi, would you like to take the question on gold guidance, please?
Thanks, Tristan. Thank you. We're currently going through our budgetary and planning process. And obviously, we'll update on guidance in January. Gold grades, especially at Kansanshi is really related or the related challenges to the gold grades in Kansanshi seems the overall decline in copper grades. There's been historically quite a good correlation between a declining copper grade and the gold grade following suit. So copper and gold production going forward should be pretty similar to 2023 levels until we see the S3 Expansion in Kansanshi kick in.
And then second question on the balance sheet. Despite a very strong cost performance in the quarter, you still haven't managed to bring down the net debt. Part of it, of course, is the La Granja deal and daily outflow, but bigger part is also the working capital investment in the quarter. Could you provide a bit of color, what happened there? And would we -- should we expect a release in Q4 that would tamper the tax payments at Cobre?
Ryan, do you want to take that?
Sure, Tristan. Ioannis, what you saw at the end of Q2 was receivables were unusually low for us, and they've now moved to more normalized levels. So I wouldn't expect future working capital releases. I'd now treat it as -- we're at normalized working cap levels. And generally, that's just driven by the timing of shipments of copper concentrates whether they fall before or after the end of the quarter.
The next question comes from Alex Terentiew with Stifel.
Most of my questions have been asked, but I wanted to just ask one more here on Cobre Panama. It had a very strong quarter in Q3. It kind of looked like it was firing on all cylinders here. I know you're ramping up to 100 million tonnes a year, but the quarter already had 98 million on an annualized basis. Is there -- what's the bottleneck here in this mine? Is there opportunities to get it above 100 million tonnes? Are you going to be going into some harder ore that's going to slow things down? I'm just trying to see what the opportunities are for your largest kind of lowest cost mine to deliver to the upside in future years.
Yes. Thanks, Alex. Look, again, we're in the process of updating our budgets, and we'll come back in January on guidance for the coming years. But in a general comment on the CP100, yes, we're very pleased with the progress. It's certainly delivering. And again, we have a lot of confidence in being able to achieve a consistent run rate of 100 million by the end of the year.Look, I think we will see higher maintenance as the higher throughput continues on. We -- as I said, we also -- we had higher grades this quarter and next quarter is in the normal course of the mine plan, we do expect slightly lower grades, still within the original setting. And so we did tighten guidance for the year.But look, the overall bottleneck at Cobre Panama, once we resolve the comminution circuits, the front end, screening, the pebble crushing and secondary crushing. And then also as we put in place the improved process water supply, the bottleneck comes to the SAG mills and the SAG mill is the biggest capital item of the process plant. If you decide to put in a new SAG mill, you need everything downstream on that. And so what you're talking about is a new process plant.We're not at that stage yet where we're considering a second processing plant at Cobre Panama. We want to see this run continue and deliver the 100 million expansion. That decision is not in front of us at the moment. There's optionality around that in the future in terms of copper price and balance sheet position and so on. But really, Alex, that's where you get to the bottleneck next is at the big SAG mills and those are the big capital cost item, if you want to grow beyond that.
The next question comes from Edward Goldsmith with Deutsche Bank.
2 questions from my side. Firstly, on Kansanshi, how should we think about the grade profile next year given the current focus on the higher-grade cutbacks?And secondly, on La Granja, can you outline the milestones and time line to completing the feasibility study?
Thanks, Edward. Rudi, do you want to take the first question on Kansanshi guidance and grades?
Thank you. Look, the quarter 4's throughput certainly will improve Kansanshi, as we mine back Domain 15, 16 and 17 cutbacks to the south and removal of waste dump around Domain 18 cutback, as higher upper benches do mine easier going to mix in oxide before we get into competent sulfide. So they do mine a little bit easier, and we're expecting to see higher grades there as a result of this stratiform mineralization.However, the continuous -- the benefit of that through 2023 will be seen in quarter 4. The primary message, I guess, still is migrating from a higher grade, low volume operation through to a larger volume, lower grade operations similar to Sentinel and Cobre Panama, and that's the reason for S3 Expansion. So until such time as we see S3 kick in, we'll be looking at similar sort of production levels.
And Edward, in terms of your question on La Granja, look, we were very pleased to finalize that transaction with Rio Tinto during the quarter. Rio is a well-capitalized industry leader, and we're very excited about the opportunity posed by La Granja, the opportunity to be a major partner in a large world-class ore body in a country that's been very reasonable to build to mines and operate over the last 20 years is very exciting for us. Obviously, coming from when we were in a financially sound position that we do that in a disciplined manner.But look, in terms of your question on development time line, the initial 2 to 3 years is really focused on 2 key areas with community engagement, number one, and that relates to Rio had an excellent program there. And in terms of world-class community engagement, and we will continue that on in terms of the project.And the second area is on the feasibility and really, that's around mostly delineating the ore body, not so much in terms of expanding. It's already one of the world's largest undeveloped assets, but more around delineation and the phasing of development of the project.So we're currently mobilizing the first drill rigs to do the infill drilling, to do the metallurgical test work, to look at the geotechnical side, to upgrade the resource and be able to develop at a high-level project layout on La Granja. That will be conducted in-house. The timetable for that over the next 2 years will then give us -- put us in a position to be able to put all of the engineering studies and so on in place thereafter and develop the asset we expect over a period of around 4 years. So something in the order of 6 years is appropriate for La Granja.So in terms of timetable, we still see Taca Taca is more advanced at this stage. Obviously, that is the -- there's no sanction to proceed with them at the current time. We're certainly awaiting the output of the ESIA permitting process and also the final decision and the election of Argentina and what the incoming government will do in terms of improving the -- potentially improving the Argentina as a destination for investment. So La Granja sits out there, we're very excited by the project, but it will take that time possibly 2 years initially and then 6 years in total to develop.
The next question comes from Ian Rossouw with Barclays.
Just one question for me for Ryan. Just on the outstanding VAT balances within the Zambian operations, could you see there were some negative adjustments for phasing and expected just for the, I guess, future noncurrent balances. Is that related to, I guess, changes on the cost base? Or is it pricing assumptions? Maybe if you can just provide some details on that, please?
Yes, there would be a combination of a couple of things. So there's quite a lot in there. But the balances as it comes out that that's slight adjustment.
I mean, presumably, that talks to the future expectations of profitability of Kansanshi being slightly lower?
Yes, exactly. So the way the VAT agreement works is we now can deduct off a set percentage of taxes and royalties each quarter. And obviously, as copper prices move up or down, so that number grows or reduces depending on what our taxes and royalties are. So that's generally what affects the phasing of that. So the lower the copper prices, the less we're able to offset and therefore, the longer that faster comes to you.
And what copper price sort of -- do you use consensus prices or what do you use within that analysis?
It's broadly consensus, Ian.
This concludes the question-and-answer session. I would now like to turn the conference back over to Tristan Pascall for any closing remarks.
Thanks, operator, and thank you, everybody, for joining us today. I certainly look forward to our next update with you early in the New Year. Thanks, everyone.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.