First Quantum Minerals Ltd
TSX:FM
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First Quantum Minerals Ltd
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Good morning, ladies and gentlemen, and welcome to the First Quantum Minerals Quarterly results conference call. I would now like to turn the meeting over to Lisa Doddridge, Director, Investor Relations. Please go ahead, Ms. Doddridge.
Thanks, operator, and thank you, everyone, for joining us today to discuss our fourth quarter and full year 2020 results. Before we begin, I will draw your attention to the fact that over the course of the call, we will be making several forward-looking statements. And as such, I encourage you to read the cautionary note that accompanies our most recent MD&A and the related results news release as well as the risk factors, particularly 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. On today's call, Tristan Pascall, our Chief Operations Officer, will provide some general comments and discuss operations; then Hannes Meyer, our Chief Financial Officer, will review the financial results. After that, we'll open up the lines to take questions. So with that, I'll turn the call over to Tristan.
Thanks, Lisa. Hi, everyone. Thanks for joining us. 2020 was an unprecedented year to which First Quantum's operations responded very well. And the company achieved its highest ever annual copper production. Early in the year, COVID-19 emerged and shortly thereafter was deemed a global pandemic by the World Health Organization. The year was full of challenges, lockdowns restrictions and some uncertainty. Cobre Panama was shut down for a period in the middle of the year as part of the COVID-19 mitigation efforts in Panama. We had to move quickly to make changes within our organization to protect our workforce and the communities within which we work. These protocols remain in place today as we continue to deal with the pandemic. Our operations in the wider population in Zambia have been fortunate to see less of an impact from the pandemic across 2020 that we maintain a high level of preparedness and vigilance at Sentinel and Kansanshi mines. During the fourth quarter, we continued to see the resurgence of the virus and in some jurisdiction, the level of restrictions tightened further. We've been fortunate the strict protocols we have in place at our operations have been effective in keeping our sites mostly unaffected in the quarter. We did see further cases emerge in our workforce across several sites, but these were identified and isolated in managed in conduction with local health authorities. Despite these challenges across the year, we did achieve record annual production with our C1 costs at their lowest level in 4 years. At Sentinel, we had another strong quarter in Q4 with continued higher throughput and grades. There was a higher proportion of softer ore from the Eastern cutback and higher grade reporting from the deeper mining areas, which contributed to these results. Cost improves for the previous year, 2020, benefiting from the depreciation of the kwacha and lower maintenance and fuel costs at Sentinel. Full year C1 unit costs were a record for the mine. For the full year 2020, Sentinel achieved throughput of 57 million tonnes, and we expect to continue at these rates in 2021. In the second half of this year, 2021, we expect to put the fourth in-pit crusher into commission, allowing for another step-up in throughput when it comes online and then into next year 2022. Kansanshi mine continues to be a consistent producer and continues to demonstrate flexibility and adaptability. Results in the fourth quarter reflect lower feed grades and recoveries as the oxides deplete, which is an expected part of the mine plan. Production rates at Kansanshi are expected to be similar across this year 2021. Work will begin this year on upgrading the smelter to improve our ability to treat higher volumes of our own concentrate from both Sentinel and Kansanshi, and $40 million has been provided in our CapEx guidance for this work in each of this year '21 and next year '22. The decision to move ahead with the brownfield S3 expansion at Kansanshi remains dependent on our balance sheet and reaching agreement with Zambia for greater stability in the country, and we continue the constructed discussions with government in this regard. We do expect the normal seasonality with our Zambian operations. And typically, Q1 is the weakest quarter as a result of rainy season. This year, 2021 has already seen heavier rains than last year, which have impacted operations in January and February to some degree. Cobre Panama was back to normal operations in the fourth quarter and performed as expected. There was a planned maintenance -- there was planned maintenance in October, which resulted in a 7-day shutdown. And despite this, the operations set new quarterly mill throughput and production records for the quarter. Mill throughput continues to ramp up to the 2021 target rate of 85 million tonnes for the full year. Monthly ore mill rates at Cobre Panama were an average of around 6.2 million tonnes across November and December 2020. And we're above 6.8 million tonnes for the month of January 2021.We continue to advance the brownfield project for expansion of Cobre Panama to the 100 million tonne throughput level, which we continue to expect will be achieved sometime in 2023 and is included in our current production and capital guidance. At Ravensthorpe, the ongoing ramp-up continued a satisfactory rate during Q4 last year, whilst we continue to take mine feed from the Hales and Hale Bopp ore bodies. The new conveyor to the Shoemaker Levy ore body will be completed in Q2 this year, and we have already completed first blast from that ore body. Shoemaker Levy is expected to improve grades and the material handling characteristics of the ore feed in the second half of the year. In Q1 of this year, we are conducting the regular maintenance shuts on the two H power units. This work is now already complete, and both units have restarted well and are back to full throughput. All of our other operations performed according to expectations during 2020. They all managed to continue their operations well despite various COVID constraints and a number of significant technical factors.A highlight amongst the smaller mines was the contribution from Guelb Moghrein. This operation was particularly impacted by the varying travel restrictions on its rotational staff. I'm pleased to say that our local workforce and resolute ex patch staff showed remarkable tenacity to deliver record low-cost for the year 2020 at Guelb. Looking ahead, total production is expected to grow in each of the next 3 years across the period for which we've provided guidance. Our cost structure is expected to remain consistent with 2020. And although we do see lower costs at Cobre Panama across these years, these will be offset as we see some of our lower cost of operations come to the end of their lives and in anticipation of some cost inflation. Another highlight included in our Q4 in 2020 results was the formalization and publication of the First Quantum approach to climate change, which is now on our website. This is an important step forward for our company and part of our broader commitment to improve our ESG reporting and communications across this year and into the future. We understand that mining has a significant impact on the environment, including through emission of greenhouse gases, and we recognize our obligation to identify and report on our actions to address climate change. The metals we mine are essential components driving the transition to a low-carbon economy, and we are committed to find ways to use less energy, improve efficiency, reduce waste and greenhouse gas emissions by continually challenging the status quo, leveraging our innovative culture and new technologies as they become commercial. It's our intent to deliver a meaningful change in our business based on the implementation of step-change improvement projects. The First Quantum approach to climate change in keeping with our results driven culture is to set tangible targets and focus on the identification and execution of projects, which produce real outcomes. Over 2021 and subsequent periods will be setting clear progressive and realistic targets, which have an identified pathway to achievements. A full statement, including our commitments, is now available on our website. Before I hand things on to Hannes, I want to, on behalf of the entire company, thank our people. Many of our personnel, particularly on the more isolated sites have been working across the last 10 to 12 months with restricted travel and, in some cases, extended periods away from their family and friends. And we certainly appreciate their adaptability, commitment and resilience. And without these significant contributions, First Quantum would just not be the same company it is.And with that, I'll turn things to Hannes for a continued review of our results.
Thanks, Tristan, and good day to everyone. I'd like to direct you to a slide titled overview it's Slide 7. So despite the challenges faced in the year, the company achieved its highest ever annual copper production, with record-breaking production at Sentinel and a strong contribution from Cobre Panama. Total copper production of 779,000 tonnes was 11% higher than 2019, and within the upper quartile of the guidance range. Sentinel had an outstanding year and achieved record copper production of over 251,000 tonnes, which exceeded guidance. Cobre Panama performance was strong at 206,000 tonnes despite being placed on preservation and safe maintenance and operating at reduced levels of activity in the second quarter of the year. Total gold production of 265,000 ounces was 3% higher than 200 -- than 2019 and 5,000 ounces ahead of the guidance range for the year. Nickel production for the year was 13,000 tonnes. The plant continued to stabilize both start-up with nickel recoveries increasing to 78% in the fourth quarter. Comparative EBITDA of a $2.15 billion for 2020 reflects strong operational performance and was 34% higher than 2019 with record sales volumes, higher metal prices and lower cost. Total copper cash costs for the year were at the lowest level in 4 years, with almost all operations delivering a reduction. Record low annual C1 cash costs and all-in sustaining costs, we achieved at both Sentinel and Guelb Moghrein. Net debt decreased by $266 billion to $7.4 billion at the end of the year. Capital expenditure in the year of $610 million was $65 million below our revised guidance. Turning to the next slide, Q4 production. Total copper production for the quarter of 203,000 tonnes was in line with Q4 2019. Sentinel achieved quarterly copper production of 63,000 tonnes, a 24% increase compared to quarter 4 last year. Cobre Panama set new quarterly records for both mill throughput and copper production, copper production was 9% higher than the same period in 2019. Gold production of 69,000 ounces was 12% lower than Q4 2019, principally due to lower grade at Cobre Panama and a reduction in gravity recoverable gold produced at Kansanshi. Turning to the next slide on quarterly unit cash costs. Full year copper C1 cash cost of $1.21 per pound was at its lowest level in 4 years and $0.10 per pound lower than 2019. Full year C1 and all-in sustaining costs were comparable -- were comfortably at the lower end of our guidance ranges. C1 cost for the quarter of $1.28 per pound was $0.04 higher than quarter 4 of 2019. Cobre Panama C1 cost for the quarter was $0.06 higher than the same period in the prior year, reflecting additional costs relating to health and safety protocols in response to COVID 19. Sentinel and Kansanshi saw decreases to C1 in the quarter compared to the same quarter last year, reflecting favorable impacts of foreign exchange and lower fuel prices. Guelb Moghrein achieved its lowest quarterly C1 in a decade through cost reduction initiatives and higher realized gold prices. All-in sustaining cost for the quarter was $0.04 higher than quarter 4 2019, reflecting higher C1 as well as higher Zambian royalties on the back of higher copper prices. These were mitigated by lower sustaining CapEx and deferred stripping. Turning to the next slide on quarter 4 financial overview. Comparative EBITDA of $725 million in the quarter was $214 million or 42% higher than quarter 4 2019. EBITDA benefit from increased sales volumes at Sentinel and Cobre Panama, 13% higher realized copper prices, lower operating costs and favorable foreign exchange movements. Comparative earnings for the quarter of $53 million is an increase of 51% compared to comparative earnings of $35 million in quarter 4 2019. The net debt reduced by $266 million in the year and by $136 million in 1 quarter to $7.4 billion. This could have been better, but we had 2 late shipments from Panama that left on -- around Christmas and the 30th of December, and we received $130 million in flow early January. Then turning to the next slide. Comparative -- changes to the comparative EBITDA. It just illustrates the detail in competitive EBITDA movements. And the main items to highlight is the change in price, offset by some of the hedge losses. Turning to the next slide on debt and liquidity profile. The company ended the year with $940 million of net unrestricted cash and cash equivalents and was in full compliance with all financial covenants. On October 1, 2020, the company completed the offering of $1.5 billion of senior notes due in 2027. The proceeds of the offering were used towards a partial repayment of the company's existing revolving credit facility and the redemption in full of the company's outstanding senior notes due in 2022.Taking into account forecast, operating cash inflows, capital expenditure, outflows and available cash and committed facilities, company expects to have sufficient liquidity through the next 12 months to carry out its operation -- operating and capital expenditure plans and remain in full compliance with financial covenants. We continue to take action to manage operational risk, and price risk and further strengthen the balance sheet. Turning to the copper hedging program outlook on Slide 13. Hedging was undertaken when Cobre Panama was being built to ensure consistent and sufficient cash flow. As we look forward to certainty of cash flow and confidence in copper prices, we will continue to review the level of hedging and act opportunistically. Over time, the level of sales hedged is expected to decline. We would look to increase the collar component of these hedges to participate more on the upside. And most recently, we've done hedges where we've had upside up to $4.11 a pound of copper. Approximately 40% of expected copper sales in the next 12 months are hedged. At February 16, the company had unmargined copper forward sales contracts for 128,000 tonnes at an average price of $2.86 per pound. In addition, the company had 0 cost collars unmargined sales contracts for 198,000 tonnes at weighted average prices of $2.93 at the floor price and $3.25 at the ceiling.Furthermore, subsequent to December 31, company realized in January '21 unmargined margin forward copper sale contracts of 23,500 tonnes and 0 cost copper collar and margin sale contracts for nearly 16,000 tonnes at an average price of $2.91 per pound.The company also had unmargined nickel forward sales contracts, which are detailed on that page. More detail of the hedges in a quarterly format is all confined on Page 31 of our MD&A.Thank you, and I will now hand back over to Lisa.
Thank you very much, Hannes. Operator, I think we can open it up for questions.
[Operator Instructions] Our first question is from Orest Wowkodaw from Scotiabank.
A question about Cobre Panama and the 3-year guidance that was recently issued. I'm just trying to understand how to reconcile the guidance for 2022, and especially '23 to the previous technical report. And when I look at the technical report, it shows 2022 and '23 copper production north of 400,000 tons, including 460,000 in 2023. And I'm just wondering how we should think about the difference with that relative to your guidance of 310,000 to 340,000 in '22 and 330,000 to 360,000, I'm just curious what's changed, obviously, the I assume the COVID shutdown during 2020 might have pushed that back a bit, but what are the big drivers here?
Yes. Orest, I can answer that question. Yes, the 43-101 did paint a picture of the reserve resource in terms of our ability to abstract really at those rates by 2023.I think what we see now is we will meet that timetable in terms of delivering the $100 million. We're confident in delivering that in 2023, but the levels around 460,000 in the technical report are more indicative. We -- the guidance is a conservative picture around where we're happy to stake and happy to be judged by those volumes. In terms of change, there isn't really much. We are a little bit behind the face positions that we're in the 43-101 in terms of where we wanted to be in Botija. It doesn't change the overall perspective on grade. It's just the sort of volumes and so on that come out over that next period. So it is on track. It's on course. And all of that copper is in front of us that you see there. It actually, at the moment, in the 5-year plan, we do see some high years after 2023. And part of our work between now and then is sort of balancing that out and bringing it forward a little bit. Otherwise, we do see some very high levels of copper after 2023. And we just -- we will keep working on balancing that. But at the moment, that conservative position that we put into the guidance is the view.
Okay. And just so I'm clear, so it sounds like you're saying -- you're assuming a more conservative throughput level, and we shouldn't assume any changes to the greater recovery profile. Is that fair?
Yes. The -- well, the 43-101 was on the basis of $100 million as well. It was really on that grade profile. And at the moment, the grade that you see there in the 460,000 is reporting into the mine plan in a couple -- in later years, and we're working on bringing that forward as much as we can. Does that answer the question?
Following question is from Jackie Przybylowski from BMO Capital Markets.
I have one question about the Kansanshi expansion. You've given the guidance that you're planning to spend $40 million this year, $40 million next year. And I know you talked a little bit on the earlier part of the call about that. Can you tell us how that relates to the technical report? I guess, this is similar to Orest's question, but on Kansanshi, the temp report that you published in September, I think you've got -- for First Quantum portion of about USD 870 million for the expansion. Is this $80 million that we see in 2021, 2022, a part of that? Or is this in addition to that? And does it change sort of the time line or the scope of the expansion once it is fully sanctioned by the Board?
Sure. I can answer that. Jackie. So yes, I mean, the reference is on Page 3 of the technical report. The smelter is included in that capital. The $40 million that we're spending now is on those expansions. It's around the oxygen plant and then bringing the already existing either vert process, which takes us to the high levels of the 1.6 million tonnes per annum throughput at the smelter. The additional capital is all around S3, and that decision has not been made, but we can talk about our growth perspective. And I'll ask John Gregory to comment on that in a minute. But that capital is included. There's no capital being spent on S3 in our guidance prior to 2023. And in that year, there's around $270 million that we expect. So that we've included in the guidance. But obviously, that's contingent on balance sheet. And as you say, the fiscal standing in Zambia. And in that regard, we're working pretty constructively with government at the moment. But in terms of the growth prospects for Kansanshi, John, maybe if you just want to add a comment there.
Yes, sure, Tristan. The guidance is in line with the technical report that we issued last year. And the capital, as shown, the $270 million in '23 aligns with the technical report. And the completion of the project is shown at the end of 2024 coming online in 2025, as you'll see from the technical report. Now as has been said on a couple of occasions, that's to do the timing of that in the technical report is to do with the government and balance sheet aspects. We don't need from here on till '25 to actually finalize the design and construct S3. Should things change, there are possibilities that we could change the timing of the S3 expansion.
If I could just ask a follow-up question. Tristan, at the beginning of the call, you mentioned 2 kind of conditions for approving the project were, I guess, including your balance sheet being ready for it and an agreement with Zambia. Can you give us a little more color on what you mean with the stability in Zambia? I think it's the first I've heard you talking about that. Are you looking for a formal agreement? Are you looking for some sort of outcome of the upcoming elections in Zambia? Or what exactly would give First Quantum confidence in the country's stability?
Sure. The answer is yes. As we've said before, and was in the release when we put out the Kansanshi 43-101, we -- yes, we're looking for political stability, and we envisage that, that would be an agreement. And we've spoken about that before. I think what it really boils down to is the deductibility of royalties, and that's the central question in that stability. But what we're really looking for is a period of confidence in and around that. And in that regards, in terms of progress, we've been having those conversations. Yes, there's an election coming, we expect around August this year. And so it will need to move forward quite quickly with in terms of those discussions because the election will mean that the politicians are otherwise engaged. But the -- those are the clear provisos that we have in place. And what we do see in Zambia is a lot more discipline, a lot more stability in any event, engagement with the IMF we've seeing clearly, and that takes us back to the previous situation that they've had in the country when there has been a default that there came a period of good financial standing and discipline in the aftermath of that as part of the workout with bondholders and the IMF.
And yes, I do know you have talked about the deductibility of royalties in the past. So I apologize, I just hadn't connected the dots, but thanks very much for that.
Following question is from Matthew Fields from Bank of America.
Just thinking -- looking at your stock, that sort of run-up so much so quickly, kind of 7-year high or I guess, as high as it's been in 7 years and pretty close to its all-time high. What are the thoughts about issuing a little bit of equity to kind of speed up this deleveraging, maybe brings you an ability to kind of bring forward some of these expansion projects like S3 or Taca Taca or at least take the balance sheet part of the equation, kind of off the table with a little more surety of capital?
Thanks, Matthew. Hannes, do you want to answer that question?
Sure. Matt, yes, once we always got that option available. With current high prices, we see deleveraging happening pretty rapidly in any event. I think the company is probably in the best position it's been, I would guess, in the last 7, 8 years in terms of -- we've got a lot of the capital projects behind us. Copper prices are good. So cash flow generation is good. So we are focusing on debt reduction. So that's absolutely key we mentioned processes in the past that we are running in terms of trying to get minority stake sales in Zambia or in -- and Ravensthorpe. So that's continuing. So there's a sort of part of the alternatives we're evaluating and just accelerating that deleveraging. But yes, I mean, that option is available, but it's -- yes. I mean, we're in a pretty good spot at the moment.
Okay. Fair enough. And then on the flip side, you've got a couple of near-term maturities that are callable at pretty cheap call premiums at this point in a very, very favorable high-yield market. What's the thought on sort of clearing out maybe those '23s and '24s and sort of bringing you're -- pushing out maturities even further in this very favorable credit market?
Yes. We've got the '23s are stepping down on the 1st of April. So -- and I mean, if you look at where our the most recent issues trading at sub-5% on a yield to worst basis. So it would indicate that it would be accretive to sort of refinance the '23, but we'll probably also have a look and see where we get -- in terms of these other processes that we're running. So if we've got some cash flow coming in from that, that might be well used to call some of those bonds. And -- but it -- yes, it is something on the radar and something we're looking at as well just to proactively manage. Like we have done in the past.
A following question is from Ioannis Masvoulas from Morgan Stanley.
And Tristan, congratulation on the new role. I had 3 questions, and I'll take them one at a time, if that's okay. The first on CapEx, if we take into account the $500 million of combined stripping and sustaining CapEx in 2022 and '23. There is still a remaining growth CapEx element of $450 million in '22 and $550 million in 2023. And then if I take into account the larger items around Cobre Panama to 100 million tonnes, this smelter expansion and the first phase of the S3 spending. There's still a residual CapEx that I cannot explain in the range of $200 million to $250 million per annum. Could you perhaps elaborate on some of the other projects?
Sure.
Should I take that one?
Yes. Thanks, Julia.
Yes. So you're absolutely right. So there's about $540 million in stripping and sustaining in 2021 because we do note that sustaining CapEx is expected to be a bit higher in 2021 because of the smelter maintenance during that year. And then with the remaining $410 million on projects, that, as you say, includes the smelter expansion at Kansanshi. It also includes the fourth crusher at Sentinel of about $50 million. And then it also includes some projects at Cobre Panama of about $150 million, which would include the TMF construction. And some initial spend on Colina and the 6 bore mill and other associated projects. There is an allowance in there for some spend, if necessary, in South America of up to $35 million to $40 million. And then there's obviously the Shoemaker Levy project at Ravensthorpe. So with sort of project spend of about $40 million at Ravensthorpe. And then just moving into the outer years. Yes, again, we have $40 million of Kansanshi on the smelter. We have some expansionary mining equipment at Sentinel of about $50 million and further projects expansionary at Panama, including mining equipment and some further construction work on the TMF. And again, we do allow for some discretionary spend in South America as well. And a big step-up. And the big step-up in the third year is obviously, as you said, S3 was, again, some projects at Panama and allowing some discretionary spend in South America.
Understood. That's clear. The second question, just on S3. I'm just trying to figure out the milestone you're trying to achieve in terms of the negotiations with the government. Are you looking for some sort of fiscal stability when it comes to that project specifically? Or do we need a wholesale change in the tax deductibility of royalties for you to have the confidence to proceed with the project?
Yes, Ioannis, I can answer that question. The -- I don't know about a wholesale structural change in Zambia. I think what we're looking for is a reasonable perspective around that project and Kansanshi going forward. It's that we would envisage that, that would extend to the industry as a whole. But really, the key, as I said, is the deductibility of royalties. That came in as an SI, a statutory instrument some time ago, 1.5 years ago or so. And that's the key element. Beyond that, yes, there would be a broader sort of wish list of items, but I think that's the key in terms of the discussions that we have, and we would want to ensure that, that continued in time. And I think that's a very reasonable position that's pretty standard in most mining jurisdictions that royalties, which are taxation are deductible from your costs for the purposes of corporation tax. So that's the discussion.And yes, we'll obviously have to navigate the election coming this year, but we envisage that it's constructive for Zambia in the context now that Zambia is a major mining entity as well at Mopani, they'll be interested in that themselves.
Okay. And the last question is around hedging. You talked about the reduction in the hedging proportion to 40% of expected corporate sales for the next 12 months. And I guess it's even lower for nickel. Is that reduced hedging proportion a reflection of your more bullish price outlook or more a reflection of your view that the balance sheet is in a better shape and can withstand more volatility? And within that, should we expect to see us further step down later in the year? Or is it sort of a 2022 story in terms of meaningful reduction beyond the 40%?
Yes, Ioannis, I'll ask Hannes to answer. I mean the key for us is we're not natural hedgers in the long-term in any event. And the reason for the hedge book to be in place was around protecting the balance sheet, and that continues to be the core elements and determine of the hedging strategy. But yes, in terms of where we are at the moment, we have the existing strategy, but we do -- as I said, in the long term, we're not natural hedgers. But we do need to make sure that we're protected. As Hannes said, we have -- we're putting more and more of the collars in place, which gives us exposure to the upside, up to above $4, as Hannes said, but does continue to limit the downside for us. And as we see debt repayment accelerating, that's what's changing the dynamic for us. Hannes, would you add anything to that?
Yes. Yes, I mean, probably not much more to add. I mean, a while ago when we did the hedges, it was sort of protecting covenants. I think it's progressed now from there where the focus now is on debt reduction. So in time, the percentages overall hedge will decrease, but the focus is on sort of reducing debt, but using wider collars and participating on the upside. I think it's probable enough on that for me.
So following question is from Ian Rossouw from Barclays.
Just one question on capital allocation. With balance sheet degearing happening probably a bit faster than what you previously anticipated in your budgets. What is the flexibility in your capital spending in bringing projects forward? I mean, it seems like you've been able to do that already with some of the spending in Kansanshi on the smelter. So just getting a sense of if markets remain strong, do you have the ability to bring forward more projects? Or are you constrained by other sort of timing stage gates?
Yes. Thanks, Ian. Look, Cobre Panama, there's not too much in the way and flexibility in terms of that. The timetable of the 100 million is pretty much set by the ore body and by the tailings dam. We want to put a good 2 years into the existing tailing dam before we can cope with a level of inundation of 100 million tonnes. And that really sets the pace there. We would otherwise just be spending money to accelerate without having the capacity to store those tailings. At S3, however, on a theoretical basis that we could do it earlier, John, you might comment there, but there's possibly potential there on a theoretical basis.
Yes, certainly, Tristan. We've identified the preliminary activities that we need to undertake to accommodate S3, which is why we're focused on the smelter upgrades, which in turns of capital are relatively modest and various other infrastructure enhancements so that we have the ability to move our engineering and bring the time frame forward for S3 the parameters of that we've already identified, should they become more favorable.So there is a degree of flexibility at Kansanshi. And that, coupled with the expansions of the fourth crusher at Sentinel is on track, and that will come online for next year. And at Cobre Panama, as Tristan has identified, we are on a course on a track and we are committing to the infrastructure that will support the 100 million tonne per annum case, and we're looking at bringing that online in our current planning in 2004, 2005 era. So basically coming online of 2004 -- '24. So that in turn will give us the upside production and the upside production profile of those projects for the 2024 and in 2025, we can see then our forward estimates in our planning that we can start to look at the 1 million tonnes of copper production profile from our 43-101 technical reports, that's basically fixed in 2025. Could we bring that forward? Potentially, we could. But that is predicated primarily on S3 timing.
Okay. And then just maybe just a follow-on. What about the South American projects? Is there ability much in the time lines there to fix that?
Ian, the South American projects, we released the 43-101 at Taca Taca. And as -- was -- it's a very good project, life of 30-odd years, 32 years and very good in the first 27 years. Taca Taca really -- so the assets in goods, we think is a good asset. The decision is all around the investment case into Argentina. And in that regard, we have more work to do there. So again, our priority remains the balance sheet and clearing the balance sheet down to the levels we've been speaking about. And I think the investment case around Argentina will take longer. That's the reason for the focus on the brownfields at Cobre Panama and at S3. Beyond that, Haquira, we think at the moment, it sits behind Taca Taca just because of the community issues ongoing there. And we do have exploration projects in the region and further a field that are very interesting, but by the nature, those are a longer lead. It is the challenge of mining now and in most jurisdictions, is to bring these projects online. First Quantum has got a good reputation in that regard. Certainly, the last project we've done at Cobre Panama and in delivering that in a timely fashion. But those new greenfield projects are challenging. John, would you add anything more to that?
I think in terms of Taca Taca, we have the -- we have a very clear indication of the actual time frame from once we take the business case decision to proceed in terms of initial pre-strip requirements for the mine, construction of major infrastructure and construction of the fixed plant. So that is identified clearly in the technical report. And as we said in the technical report or when we announced the technical report, the business decision we're looking at sometime 2023, 2024.
A following question is from Lawson Winder from Bank of America Securities.
Just a question on the dividend for me. What -- when you think about the dividend -- so 2 questions here really on the dividend. In the past, you've indicated debt repayment of approximately $2 billion would be the right Quantum before you think about a higher dividend, I just wanted to see if that's still where your thinking is at? And then secondly, on the dividend with the hedges, do you think about hedging as a tool to help enable you to pay a dividend? Or would you expect that the need for hedging will be gone by the time you start considering a higher dividend?
Thanks, Lawson. Hannes, could you take that question?
Sure. Look, maybe let me get to the second one first. So the hedges as part of the strategy now in sort of deleveraging the balance sheet, repaying some of the debt. And that also enables them the first aspect of it is the dividend question. So I mean we've previously stated the sort of $2 billion debt reduction. That was a target that we wanted to achieve. So we've paid down some of the debt in the last year. So we're on track for that. And then in this year, we'll generate pretty decent cash. So I don't think we precluded from increasing dividends prior to repaying $2 billion. So I think what we are stating is that in the past, we used to have a dividend policy and prior to the nominal dividend that we paid, we paid about 15% of net earnings as a dividend. So I think what we've now said is that we look at returning a bit more cash to shareholders once we see debt reduction. So I think that will come through in this year. And later in the -- and we said in the next 2 years, we'll certainly look at increasing that dividend.
And then in terms of the hedge book?
Yes, Tristan, that one is first, yes. So that's...
Now in your prepared remarks, you mentioned that lower cost going forward, cash cost going forward at Cobre Panama would effectively be offsetting some of the smaller, low-cost mines coming up, but also offsetting some inflation. I just -- I think it would be really helpful to get your thoughts on where you're expecting that inflation to come? I mean, is it labor? Are you looking more at input costs? Or just what's your thinking on that comment?
Yes, Lawson, the -- certainly, labor, and we are seeing higher shipping costs at the moment. Certainly, we've seen that for bulk freight and particularly coming out of Asia. So some of the project elements that's certainly been apparent and is starting to come through. I think it's some of the reason for the uplift in commodity prices is that inflationary outlook, certainly, we're starting to see some of that. And I would point also to Kansanshi, where the ongoing lower grades, it does mean that the cost per unit is -- will rise because you have the overhead there with labor and the cost of the business. But S3 changes that as we get into a higher volume operation, and we're able to continue to produce at the current levels. And you see in the guidance each year, coming off a little bit at Kansanshi will be -- that trend reverses, and we're able to keep running at these levels. And as soon as you're at those units of production, then your unit cost looks a lot better out of Kansanshi. But yes, the main element on inflation is around labor and freight at the moment.
Excellent. And maybe just one more from me on Haquira, which you touched on briefly in prior questions. You commented that the focus still remains on resettlement and community engagement. And I'd be curious to know whether or not any resettlement has actually started? Or is it still at the discussion phase?
No, there's been no resettlement as yet in terms of actual movement of people dealing with the various community groups in different areas and in the different locations. Obviously, being next to Las Bambas, it's broader than that and into the infrastructure routes and the transit corridors as well and just how to navigate those in the future. So that's the situation at Haquira.
A following question is from Emily Chieng from Goldman Sachs.
My first question is just around the capital allocation. It was exciting to hear that there might be a little bit of movement on the dividend there. But when you think about your deleveraging targets, certainly in a high copper price environment certainly looks favorable. Can you remind us about the balance between accelerating some of the growth projects that you talked about S3 and then balancing that with potential for higher capital returns?
Emily, look, the priority of the business remains deleveraging. And that's where -- as Hannes says, with the rising copper price, we are generating cash. And at the upfront, that will go into reducing debt. Beyond that, I think growth profile is becoming more interesting, but we have a disciplined focus in that regard that we will reduce debt. And so the guidance that we've provided is on -- is pretty much in line with what we said last year, certainly, for 2020, '21 and '22, we're on the same track, as we said last year in terms of capital outlay for the business. And in that, we added because we deferred some capital from last year. We've also added the smelter at Kansanshi into that capital guidance without changing the overall number for these 2 years. So that's a disciplined focus beyond that. And as we get the benefit of deleveraging and the benefit of higher copper prices, then yes, we would look at balancing capital outlay for things like S3 and indeed to Taca Taca, as John said, in the future, but also with the dividend coming out as well.
Can I just talk to Emily's question because it's a very personal one. It's a balancing act. So what's happening is we pay significant amounts in interest to lenders, which we'd far rather be able to disperse those dividends to our shareholders. But if we do -- if we don't reduce those debts, then obviously, the quantum that we have or disbursing as dividends would be reduced. And there's always the other demand, which is for capital expenditure. So it's a very practical arrangement to focus on debt reduction and then get to dividend payment once those debt levels are modest. And that really is a strong guidance. And obviously, with the higher commodity prices, we can achieve that much more quickly, and we be very pleased to do so because then we can return something to our shareholders rather than paying so much interest.
That makes a ton of sense. And one follow-up is just on the divestment process. I know you mentioned in your prepared remarks that you might be accelerating some work there. But is there any time line that you're looking at? Or is it simply a search for value here? And then when we're seeing what's happening in Zambia with some of the other mines, is there any rate across there for the Sentinel and Kansanshi for own projects?
Sorry, Emily, I just missed the last part of your question there. What was that?
Just in that, it seems like Zambia -- the government is looking at some other mines or taking ownership of some of the other mines there. Is there any rate across that we should be thinking about?
Okay. Yes. So yes, those asset sale processes are continuing. It's obviously the challenge last year with COVID was really around getting people to sites. And some of that's easing a little bit now. So -- but certainly, the Ravensthorpe process and the Zambia process is continuing. And as you said, the challenge for us there is on value. What we see is at the near-term and midterm copper price outlook looks pretty reasonable when we compare that with consensus or which has been lagging is catching up now, I think, in terms of consensus price forecast, and that gives an indication as to where people's minds at in terms of long-term copper price. And we really see the offtake in terms of short and medium-term cash flow from those businesses is very significant. And that's what we have to trade-off in looking at the minority stakes are in Zambia and at Ravensthorpe as well. In terms of the processes in Zambia, the government has been very clear that the not a nationalization process, I realized that, that word has been bandied around a little bit, but it goes back to the decisions that we made last year in a low-cost, low price environment, which was at Mopani Glencore made a decision to put Mopani on care and maintenance, which at that time, is a high cost operation, it's a reasonable decision to look at. Obviously, that had implications in terms of employment for the government. And so the government's position there is understandable. They've had very constructive discussions, and I think, come to agreement there, which makes it clear. That the mine will continue operating. And the government through ZCCM has decided to take that on. But the construct around that was reasonable and so on. So no, we don't see any contagion or any element or risk in that more broadly in Zambia. In fact, our relationship in Zambia is it's been fairly strong over the last 18 months, 2 years around as the government's been in the debt crisis that they're in and the debt default situation, a greater level of discipline and focus on stability. And we've been there a long time and have worked with government through that time, and that continues in a constructive manner.
A following question is from Karl Blunden from Goldman Sachs.
Just had a follow-up on the balance sheet. And I think Hannes has spoken to this sometimes in prior quarters. But when you take a look at the trade-off between the cost of the debt in the bond market, which is a little bit higher than banks, but it gives you more flexibility and importantly, is prepayable, a lot of it is prepayable. How does that influence your view on how -- what the balance of bank versus higher bond debt that should be going forward as you get cash flow in now, as you potentially look at a refi, potentially use JV proceeds?
Yes. Karl, I mean, both markets are important to me. I mean, obviously, with bond market. It's only incurrence test, and you don't have maintenance covenants. So that makes it comfortable to lift throughout the life of the bond. But you do have quite a bit of period where, it's in a noncore period, and you do carry that higher interest burden with the banks, yes, we do have covenants of that, but as we delever, you'll see those ratios becoming less of a concern. And we're well within any covenant at the moment and forecasting to be anyway. But what you would have seen over the last 7, 8 years through sort of 2 downturns in the cycle, is the banks actually support us and they've come to the party. So when we request the amendments, we obtained that from the banks. So with great support from them and refinancing those facilities. So it is a check in the process. So you do have those maintenance covenants, but we've got a very supportive banking group. So -- and it comes at a lower cost, and it's also prepayable. So I probably want to be in both markets. And we've had a long-standing and supportive banking group. So probably continue with that.
That's helpful. If I could just squeeze 1 more in. It's related to the JV sale process and you've given some good information on that on this call. It's kind of a bigger picture question. Have you felt like private market valuations have kept pace with the public market recently? In other words, is it still attractive to pursue those options? And I understand here that there are other considerations too, other than price as well. But just some kind of comment on that would be helpful.
Yes, Karl. Look, there are other considerations. Diversification was one of the key elements of what we looked at in the asset sale processes that we embarked on, and that remains relevant. But I think the challenge, as I said, is the near-term earnings that we otherwise earn from Kansanshi and Sentinel are very significant. And private market valuations as to how they differ from public market. Yes, I think the copper prices run in public market valuations. And we have to take that into account and the rise in the share price, we have to take that into account. And so yes, that's the challenge for copper producers looking to embark in M&A is to look at those levels of valuations. And certainly, I think the perspective we had in sort of March, April last year has moved on to where we are now. The assets themselves are very compelling. They're a very strong proposition. And at these price levels, as you said, it does come down to price. And with the copper prices on, where there are, and the assets are producing very well. Sentinel, in particular, at the moment, producing record production. That's a compelling story, and we know that best of all as the owner.
A following question is from Abi from Deutsche Bank.
Just a quick one on Cobre Panama costs. So how much of the $1.34 cost we saw this quarter were related to COVID and maintenance costs, which you will be seeing forward?
Yes, Abi. I think we did have in line in the statement that talked about the COVID-19 costs at Cobre Panama, they were in about -- in the order of around $10 million across the quarter. The costs at Cobre Panama were in line with our expectations. The C1s were at $1.34. And that was well within the guidance that we put around Cobre Panama for the year. It is true to say that Q3 was lower costs. And really, that was off the back of the ramp-up and really our focus in Q2, we can't forget that we got down to 800 people on site. And so we were running trucks in a very -- in order to keep things ticking over. There was some -- we were focusing on grade to keep that operation running. And we see that the lower volumes and higher grade that comes through in Q3 of the results from Cobre Panama. So I think Q4 is a rebalancing those cost levels now in Q4, the big impact that we have on those going forward is on units of production. We do see inflation in the market, but Cobre Panama as it gets to the 85 million tonnes per annum, and it's producing -- our guidance, 300,000 to 330,000 tonnes of copper per year. Those units on the denominator have really pulled down the cost quite significantly. And we see that, and we see its ability to really hit to a lower cost position. And then as we go to the $100 million, that it will head towards $1 on a C1 basis. And so those are the dynamics of that Cobre Panama.
A following question is from Jatinder Goel from Exane BNP Paribas.
I've got 2 questions. First question has got 3 parts related to Zambia. Just to understand, is the minority stake sale and S3 decision, do they have any interdependence? Or are they fully independent decisions? And secondly, when do you need to get the stability agreement in place not to impact Kansanshi production profile or to keep the volume profile that you currently envisage, what's the latest time line for that? And the third element is the stability agreement would apply to the whole of Kansanshi, but not to Sentinel what you're currently looking at? Just to be clear.
Sure. It's Tristan. Yes, the first part of the question, the minority stake sale is independent from S3. There's no reason that we would link them together. The only -- what we've previously spoken there is if we had -- if the minority stake sales did go through, and that cash became available in terms of deleveraging the balance sheet. We would obviously be in a better position in terms of debt and total debt in order to go ahead with S3 with a partner. So that would be the dynamic. But otherwise, it's an independent decision. The -- in terms of the stability agreement and the timing around that, we -- as we said in the 43-101, there's no need immediately to go on with S3. We do see good levels of production continue at Kansanshi, as we put into the guidance for the next 3 years. And as we said in the 43-101 was really around 2024, 2025, that we needed to see the S3 expansion come down or -- because that's when we see the grades drop off at Kansanshi or decline. And it's really on the oxide side more than anything else. And then the third element of the question was whether the stability agreement would just apply to Kansanshi or to Sentinel as well. And that is in discussion with the government. I think a particular concern is around S3 and that project, which is -- it's Kansanshi. But obviously, we're looking at the broader geopolitical situation in Zambia as well. But certainly, the focus is on Kansanshi. Does that help?
Sure. So when you say S3, will it just be for the incremental volumes at the very early stage or for whole of Kansanshi because you can still split volumes theoretically based on, I think, 43-101?
No, no, we'd be looking at the asset in total, Kansanshi in total.
Yes, that's clear. Sure. And just a question on hedging. You've obviously done copper and nickel, but why not do gold hedging, which is more common and more of a secondary product? Understandably, you've got to your streaming agreement, but you still have significant exposure of your own. Is there any intention or has they been thought to hedge gold previously? Or is there any intention to do it on a forward basis?
Jatinder, I mean, we had proposals in the past. I mean, the answer is that although we produce quite a bit of gold. The gold is not that material in terms of our total revenue profile, and that does also then consume credit lines. So you've got to choose where you use those credit lines and by not hedging the gold, we've actually benefited also on the upside. So -- but yes, so you've got limited credit lines, and we rather choose to use it on the credit -- on the copper side then the gold.
That's all the time we have for questions. I would now like to turn the meeting back over to Ms. Doddridge.
Thank you very much. I'd like to just thank everybody for joining us on the call today. I apologize that we've run out of some time. If you do have any follow-up questions, you need anything else, please don't hesitate to contact me. And with that, thank you very much, and I think you can disconnect your lines. Thanks, guys.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.