First Quantum 2012 Ar
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FIRST QUANTUM MINERALS LTD. 2012 Annual Report DRIVINGDRIVING VALUE. VALUE. We delivered strong Our vision to create a premier We became a significant Our exploration program had operating and financial base metals company, with nickel producer in 2012 with a busy and productive year results in 2012. From the a leading growth profile a full year of commercial which included major drilling production and sale of in copper. production at Ravensthorpe campaigns at Kansanshi and copper, nickel, gold and Letter to Shareholders, and the start-up of Kevitsa. Trident and entering into platinum group metals, we Page 3 Operations and Projects, new joint-ventures focused generated $2,950 million Pages 8, 11, 12 on early-stage copper in sales revenues. opportunities. Letter to Shareholders, Exploration, Page 16 Page 2 BOLDER,BOLDER, SMARTER,SMARTER, DRIVEN.DRIVEN. FIRST QUANTUM MINERALS LTD. is a well-established and rapidly growing mining and metals company engaged in mineral exploration, development and mining. The Company currently produces LME grade equivalent copper cathode, copper in concentrate, nickel, gold and platinum group metals. Its operations and projects are located in Zambia, Mauritania, Australia, Finland and Peru. In 2012, First Quantum produced 307,115 tonnes of copper, 36,759 tonnes of nickel, 201,942 ounces of gold, 13,808 ounces of platinum and 12,183 ounces of palladium. In 2013, the Company acquired Inmet Mining, a Canadian-based company with global operations producing copper and zinc. Unless otherwise noted, all amounts in this report are expressed in United States dollars. Kansanshi Guelb Moghrein Ravensthorpe Kevitsa Our shareholders benefit from our share price appreciation. Since we first listed on the TSX, First Quantum’s shares have returned a compounded annual gain of over 30%. Our employees and communities benefit as the Company grows. In 2012, we expanded our production base and began construction on three more projects. We are creating a new global leader in copper. Our acquisition of Inmet in 2013 creates a premier base metals company with unparalleled growth in copper production and cash flow generation. Sentinel Copper Smelter Haquira Enterprise 1 LETTER TO SHAREHOLDERS 2012 WAS AN OUTSTANDING YEAR FOR Ravensthorpe’s first full year of commercial operations FIRST QUANTUM WITH SIGNIFICANT ACHIEVEMENTS was a resounding success. In a nutshell, its production MADE IN ALL ASPECTS OF THE COMPANY. was in line with plan; unit cost of production was below expectations; and even in the prevailing low Our production base provides the necessary resources nickel price environment, the mine generated over for management to grow and diversify the Company. $82 million in operating cash flow. In 2012 we expanded with the addition of Ravensthorpe and Kevitsa, which both operated commercially Kevitsa’s start-up in the midst of the Arctic winter during the year. For Ravensthorpe, it was a full year of proved the depth of our employees’ expertise. commercial operations. While Kevitsa completed Throughput exceeded expectations and operations construction and entered commercial production mid- progressed towards steady state levels. year, as planned at the beginning of the project. Altogether, our copper production rose 16% year-over- All of the operations turned in strong performances. year to 307,115 tonnes. We entered the nickel market Our flagship Kansanshi mine established a new with an impressive 36,759 tonnes of nickel and our production record. This is particularly notable given unit cost to produce copper was well contained, the volume of work being done at the mine amidst the despite inflationary pressures, at $1.49 per pound. multi-stage production capacity expansion and Over $2.9 billion was generated in sales revenues and the continuing constraints of third-party supply net earnings attributable to shareholders totalled of sulphuric acid for use in the oxide circuit. approximately $1.8 billion. At Guelb Moghrein, the on-going process optimization After considering these results, the Company’s sound efforts resulted in a strong year-over-year performance financial position and its growth prospects, our Board of which included a new quarterly record for throughput. Directors elected to pay a total dividend of C$0.1750 per share to shareholders of the Company in regards to the 2012 financial year. This dividend is 15% of net A FLEXIBLE, EFFICIENT andTRANSFERABLE APPROACH to PROjECTS THE COMBINATION OF THE FIRST QUANTUM AND INMET ASSETS CREATES A NEW LEADER IN COPPER WITH A LONG STANDING COMMITMENT TO SOCIAL AND ENVIRONMENTAL EXCELLENCE earnings attributable to shareholders of the Company On the strength of our current operations and these (adjusted for unusual items) which is in line with projects alone, First Quantum would rank among the previous guidance. world’s top ten producers of both copper and nickel when they are in operation. ONTIME, ONBUDGET PROJECT EXECUTION During 2012, we continued developing and delivering CREATING A NEW LEADER IN GLOBAL COPPER on projects that are part of the transformational It is with the same opportunistic approach we have growth the Company is undergoing. Construction was taken in building First Quantum from its inception that completed on the state-of-the-art Kevitsa facility and we saw an opportunity to create a new leader in global Kansanshi’s first stage oxide circuit expansion and copper by acquiring Inmet Mining. fifth acid plant. In addition, we began construction on the Sentinel copper project, the Kansanshi copper We are very pleased and grateful for the overwhelming smelter and the second stage of Kansanshi’s oxide support that both the First Quantum and Inmet circuit expansion. Design work was also started on the shareholders gave us to make our vision a reality. With Enterprise nickel project. In the first half of this year their support, we were able to: relatively quickly close we will begin construction on the expansion of the transaction; get to work on the integration; and Kansanshi’s sulphide circuit. start to apply our experience and unique skills to the development of Cobre Panama. Each of these projects would be a substantial addition to any company. By the end of 2014 when they are Our acquisition creates the largest pure copper player all scheduled to be complete: our annual copper in the sector, with approximately 80% of our revenues production capacity is expected to increase by derived from copper sales. Your Company now has a approximately 375,000 tonnes to over 680,000 tonnes; portfolio of world-class operating and development our annual nickel production capacity to be over assets in eight countries across four continents, and a 100,000 tonnes; and our cost to produce copper lower long-standing commitment to social and environmental by between $340 million to $510 million. Our project development philosophy The First Quantum Project Model Traditional Projects A finished project must perform to expectations By FQM By Others + Set ambitious targets for schedule, cost and performance + Adhere to time schedule + Adhere to capital cost budget By Others By Owner Share Price Performance 2012 ($/share) 26 25 24 23 22 21 20 19 18 17 16 3/1/2012 30/3/2012 29/6/2012 28/9/2012 1/12/2012 excellence. With its existing operations and projects, Cobre Panama fits perfectly with First Quantum’s core the Company has a clear path to copper production in competency – project development in a new frontier. excess of 1.3 million tonnes in 2018. On a pro forma We are confident that by applying our demanding basis, copper production for 2012 was over project development philosophy with the overarching 418,000 tonnes. criteria that a finished project must perform to expectation, we can add substantial value to the The immediate benefits are many. Our long-stated benefit of our stakeholders. objective of geographic diversification has been substantially advanced. The combined company OUR BELIEF IN THE LONGTERM has seven low-cost, stable operating assets, five of FUNDAMENTALS OF COPPER which are in the Organization for Economic Our acquisition of Inmet and our focused growth in Co-operation and Development (OECD) countries. copper are based on our strong belief in the long-term This should have a positive impact on the Company’s prospects for copper. This is a belief that we have held cost of capital, result in a higher trading multiple since the Company’s beginnings. While the short-term and an eventual upward debt re-rating. outlook is mixed, we believe that the long-term fundamentals will be supported by: increased capital Our project development pipeline is further enhanced intensity of copper consumption, particularly for with the addition of Cobre Panama, a large open-pit China, Brazil and India; the continuing depletion of copper development project in Panama. The project’s known copper resources; and the high barriers to entry current measured and indicated resources, including in bringing on new supply. the mineral reserves, contain 32.7 billion pounds of copper and 9 million ounces of gold. It has a Altogether, we expect these factors will continue to potential mine life of 40 years assuming annual support a healthy copper price environment in which a production of approximately 300,000 tonnes of well-positioned company, such as First Quantum, will copper per year. do very well. BOLDER, SMARTER, DRIVEN. OUR PRIORITIES Cobre Panama is an important project for all the 2012 was a year of delivering on objectives and seizing stakeholders of our combined company. We are highly opportunities. I believe 2013 will bring to the fore confident that our unique technical capabilities and First Quantum’s credo of “Bolder, Smarter, Driven.” that project development philosophy will contribute encapsulates the way we challenge ourselves and work. meaningfully and positively to the project’s We have several priorities. One of the most critical is to development.