PWYP-’s Mini-Case Project Exploring Project Level ESTMA DATA

In 2015, The Government of Canada enacted the Extractive Sector Transparency Measures Act. This Act requires that , oil and gas companies registered in Canada or listed on a Canadian stock exchange disclose annually the payments they make to governments in Canada and around the world.

By June of 2017, over 400 companies had filed reports with NRCAN. With over 1200 publicly listed extractive companies operating in over 100 countries this game-changing disclosure has far reaching impacts.

This case study and the others in this series explore project-level information disclosed by extractive companies. They seek to contextualize and further explain the company and the payments made in relation to one mine. They are a tool to promote and encourage the use of ESTMA data by journalists and civil society advocates. To access First Quantum Mineral Ltd.’s ESTMA report click here.

About Publish What You Pay and Publish What You Pay Canada Publish What You Pay is the world’s leading coalition of civil society organizations united in the call for a more transparent and accountable extractive sector. With more than 800 members, a global secretariat and 40 national coalitions that span the globe, PWYP is committed to working together to ensure that citizens have a say over whether their resources are extracted, how they are extracted and how their revenues are spent. Publish What You Pay Canada is the Canadian coalition of the global PWYP network. Since its foundation in 2007, PWYP-Canada has been at the forefront of the national movement for transparency in the Canadian extractive sector, championing and driving forward the passage of legislation that requires that Canadian extractive companies disclose their payments to governments in Canada and across the globe. In addition, the coalition has worked to actively encourage and support the use of Canadian company information in global advocacy efforts. As part of its transparency promotion, PWYP Canada is calling for a publicly available centralized registry of the beneficial owners of all companies registered, listed, and operating in Canada, both provincially and federally.

Author: Puneet Singh

Copyright © 2018 IMPACT Transforming natural resource management (host organization of PWYP-Canada). All rights reserved. Reproduction in whole or in parts is permitted, provided that full credit is given to IMPACT and provided that any such reproduction, in whole or in parts, is not sold or incorporated in works that are sold. Written permission must be obtained from IMPACT if any such reproduction would adapt or modify the original content.

PWYP-Canada’s Mini-Case Project Exploring Project Level ESTMA Data

First Quantum 2016 Key Financial Highlights1,2 Minerals, Guelb Revenue $2,693,000,000 Net Income ($45,000,000) Moghrein Mine, Cash and Cash $365,000,000 Equivalents Company Background Debt $5,061,000,000 Headquartered in Vancouver, First Annual Dividend $0.01/share Quantum Minerals (TSX: FM) is one of the Copper Produced 539,458 tonnes top copper producers in the world.3 The firm also produces , nickel, and zinc. Average Realized $2.26 per pound First Quantum currently operates six Copper Price mines including the Guelb Moghrein Mine Copper AISC/Cash $1.46/$1.06 per in Mauritania. First Quantum’s other Cost pound mines are located in Zambia, , Turkey, and Spain.4

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Corporate Structure

FQM Finance Ltd. Mauritan Holidings First Quantum Mauritanian Copper (British Virgin Ltd. (British Virgin Minerals (Canada) Mines S.A. ("MCM") Islands) Islands)

Mauritanian Copper Mines S.A. is the subsidiary that owns First Quantum’s Guelb Moghrein mine in Mauritania.5 This subsidiary links back to First Quantum Minerals (FQM) in Canada through two other corporations set up in the British Virgin Islands, a country that ranked 16th in the Tax Justice Network’s 2018 Financial Secrecy Index6 and offers a low tax regime, including no taxes on corporate income7.

2017 Outlook

FQM indicates that its main focus is the development of its Cobre Panama asset. With the firm’s recent asset sale of Kevitsa in Finland, credit agencies have upgraded their view on the company (for example, S&P upgraded the outlook for the firm from negative to stable).8 First Quantum is continuing to develop Cobre Panama and looks to have the mine start operating in 2018.9 Cobre Panama’s project financing should close within the year.10

Guelb Moghrein Description

Copper deposits close to the Akjoujt area of Mauritania, the site of the Guelb Morhrein Mine, were identified as early as 6000 BCE. The first company to mine at the site following Mauritania’s independence from France in the 1960’s was Anglo American, which had to close the mine in 1977 due to technical difficulties.11 Following mining law reform in Mauritania, a Mauritania chartered company (GEMAK) tried to develop the site in 1999 but failed to move beyond the completion of a feasibility study. 12 FQM bought 80 percent of the asset from GEMAK in 2004.13 Guelb Moghrein is located northeast of Mauritania’s capital city, Nouakchott.14 Commercial production commenced in April 200615. In 2016, the company estimated the remaining life of mine to be approximately six years, assuming a treatment rate of 4 million tonnes per annum (Mtpa) and considering all high and low grade stockpiles.16 The Government of Mauritania and FQM’s subsidiary in the country established a mining concession in 2006 and the concession was most recently renegotiated in 2009.17 The firm also was granted five other exploratory concessions in the area.18 In 2010 the firm purchased the remaining 20 percent of the asset to become its sole owner.19 The table below shows reserve estimates for the asset.

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Mineral Reserve Estimates as of December 31, 201520 Classification Volume Tonnes Copper Gold (Mbcm) (Mt) (%) (g/t) Pit Proven Reserve 3.40 12.70 0.81 0.63 Probable Reserve 2.30 8.60 0.89 0.80 Total 5.70 21.40 0.84 0.70 ROM Stockpile Proven Reserve 0.70 1.90 0.90 0.97 Probable Reserve - - - - Total 0.70 1.90 0.90 0.97 Reserve Without Proven Low Grade Reserve 4.10 14.70 0.82 0.68 Stockpiles Probable Reserve 2.30 8.60 0.89 0.80 Total 6.40 23.30 0.85 0.72 Low Grade Proven Stockpile Reserve 2.50 6.60 0.42 0.55 Probable Reserve - - - - Total 2.50 6.60 0.42 0.55 Reserve Including Proven High and Low Reserve 6.60 21.30 0.70 0.64 Grade Stockpiles Probable Reserve 2.30 8.60 0.89 0.80 Total 8.90 29.90 0.76 0.68

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Mining in Mauritania

The first mining code in Mauritania was established in 1977.21 Amendments to the code have been made over the years with the most recent being in 2008 and 2012.22 Amendments to the code in 2008 established that the state be allowed a 10 percent stake in any corporation holding an exploration permit at no cost.23 This 10 percent also cannot be diluted in the event of additional financing requirements.24 Under an amendment to the Mining Code in 2012, exploration permit areas must be reduced by 25 percent upon each renewal.25 The code also stipulates that capital gains tax be capped “at 10 percent for the transfer of any exploitation permit”.26

The firm’s concession agreement (2006) with the Government of Mauritania granted the company a tax holiday that ended on February 20, 2012.27 The company now operates under a corporate tax rate of 25 percent.28 The original concession agreement was renegotiated in 2009 and contained minor updates to the royalty regime to better align the agreement with updates to the mining code.

The mining concession covers 81 square kilometers in Mauritania and lasts until 2042.29 A mining agreement was originally signed by Mauritania, Gemak S.A., and First Quantum in 2004.30 Upon acquisition of 80 percent of the asset in 2004, First Quantum set up its subsidiary, Mauritanian Copper Mines Limited (MCM) inside the country to manage the mine.31 As a result, the terms of the mining agreement were transferred to MCM in December 2004.32 The ownership structure in 2004 was as follows: First Quantum– 80 percent, Wadi Al Rawda and Gemak S.A.– 15 percent, and others five percent.33 Today as mentioned, First Quantum owns 100 percent of the asset.

The firm is subject to a three percent royalty on copper sales and four percent on gold sales every quarter.34 Additionally, FQM must pay $0.75/tonne milled for all tonnes milled that exceed 11 million.35

In Mauritania almost all extractive industry revenues flow to the Treasury with little to no transfer of revenue money to the extractive areas or the communities affected.36

Labour Challenges

First Quantum has dealt with two major strikes by workers at the Guelb Moghrein mine site in 201237 and 2014.38 Both strikes led to the suspension of operations at the site. Protests at the site in 2014 turned violent as a clash between security and demonstrators left one person dead.39 The strikes were carried out, according to workers at the mine, due to unfair pay and working conditions.40

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Payments as per ESTMA Report

According to the Extractive Sector Transparency Measures Act report, FQM made $12,160,000 in total payments last year related to their Mauritanian asset.41 Payments in the form of taxes and royalties were made to various governmental institutions in Mauritania. Below is a breakdown of payments by type.

Royalty Payments

The firm declared $8,840,000 in royalties was paid out to the Mauritanian Ministry of Mines, Energy, and in 2016. As mentioned above, the firm is subject to a three percent royalty on copper sales and four percent on gold sales every quarter. Additionally, a $0.75/tonne milled will be due in royalties after 11 million tonnes have been milled. Without taking into account the additional milled tonnes, the estimated royalty is $1.5 million under the actual payment made by First Quantum according to the royalty verification calculated below. The discrepancy could be due to how the company pays its royalties to the government (that is, it may be paying the royalty amount in arrears).

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Verifying 2016 Royalty Paymentsi Q1 Q2 Q3 Q4 Total Copper Copper 11,062 8,522 7,156 6,078 32,818 Produced (tonnes) Net $2.26 $2.08 $2.12 $2.04 Realized Price (per pound)

Gross $55,115,765 $39,078,565 $33,445,673 $27,335,348 $154,975,350

Revenue Estimated $1,653,473 $1,172,357 $1,003,370 $820,060 $4,649,261 Royalty Payment (3%) Gold Gold 17,240 13,363 12,208 11,140 53,951 Produced (ounces) Net $1,097 $1,180 $1,282 $1,097 Realized Price (per ounce) Gross $18,912,280 $15,768,340 $15,650,656 $12,220,580 $62,551,856 Revenue Estimated $756,491 $630,734 $626,026 $488,823 $2,502,074 Royalty (4%) Totals Estimated $7,151,335 Royalty Payment ESTMA $8,840,000 Payment Discrepancy ($1,688,665) Estimate vs. ESTMA i. PWYP Canada estimated the expected royalty payments in each quarter by applying the appropriate royalty rate to estimated sales revenues (metal sold in the quarter X average sale price as indicated by the company).

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Further Insights into Payments Outlined in ESTMA Report

Payee: Direction Generale des Impot / Ministry of Finance Taxes: $3,320,000 ESTMA Notes: None Expanded Explanation: As mentioned the firm’s five year tax holiday ended on February 20, 2012. The firm is subject to a 25 percent corporate tax rate in Mauritania. The income tax expense reported in its audited financials for year-end 2016 was 12 million and in year-end 2015 it was 9 million for the Guelb Moghrein asset.42

Payee: Ministry of Mines, Energy, and Petroleum – Mauritania Taxes: $8,840,000 ESTMA Notes: None Expanded Explanation: See above.

1 First Quantum Minerals Ltd. (2017). Management’s Discussion and Analysis For the year ended December 31, 2016. 2 Morningstar. (2017). First Quantum Minerals Ltd. Retrieved from http://quote.morningstar.ca/Quicktakes/Financials/is.aspx?t=FM®ion=CAN&culture=en-CA&ops=clear. 3 MINING.com. (2017, April 7). Top 10 copper mining companies in 2016. Retrieved from http://www.mining.com/top-10-copper-mining- companies-2016/. 4 First Quantum Minerals Ltd. (2017) History. Retrieved from http://www.first-quantum.com/Our-Company/history/default.aspx. 5 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 6 Tax Justice Network Financial Secrecy Index - 2018 Results https://www.financialsecrecyindex.com/introduction/fsi-2018-results 7 Deloitte. International Tax: British Virgin Islands Highlights 2017 https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-britishvirginislandshighlights-2017.pdf 8 First Quantum Minerals Ltd. (2017, November 1). Corporate Presentation. Retrieved from http://s1.q4cdn.com/857957299/files/doc_presentations/2016/nov/Presentation-November-FINAL.pdf. 9 First Quantum Minerals Ltd. (2017, November 1). Corporate Presentation. Retrieved from http://s1.q4cdn.com/857957299/files/doc_presentations/2016/nov/Presentation-November-FINAL.pdf. 10 First Quantum Minerals Ltd. (2017, November 1). Corporate Presentation. Retrieved from http://s1.q4cdn.com/857957299/files/doc_presentations/2016/nov/Presentation-November-FINAL.pdf. 11 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 12 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 13 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 14 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 15 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 16 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 17 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 18 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 19 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 20 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 21 Herbert Smith Freehills LLP .(2014, October 23). Latest developments in the Mauritanian legal mining framework. Lexology. Retrieved from https://www.lexology.com/library/detail.aspx?g=580024d3-8119-4059-8f4c-9c9b12cbeb9a 22 Herbert Smith Freehills LLP. (2014, October 23). Latest developments in the Mauritanian legal mining framework. LexologyRetrieved from https://www.lexology.com/library/detail.aspx?g=580024d3-8119-4059-8f4c- 23 Herbert Smith Freehills LLP .(2014, October 23). Latest developments in the Mauritanian legal mining framework. Lexology. Retrieved from https://www.lexology.com/library/detail.aspx?g=580024d3-8119-4059-8f4c-. 24 Herbert Smith Freehills LLP .(2014, October 23). Latest developments in the Mauritanian legal mining framework. Lexology. Retrieved from https://www.lexology.com/library/detail.aspx?g=580024d3-8119-4059-8f4c-. 25Herbert Smith Freehills LLP .(2014, October 23). Latest developments in the Mauritanian legal mining framework. Lexology. Retrieved from https://www.lexology.com/library/detail.aspx?g=580024d3-8119-4059-8f4c-. 26 Herbert Smith Freehills LLP .(2014, October 23). Latest developments in the Mauritanian legal mining framework. Lexology. Retrieved from https://www.lexology.com/library/detail.aspx?g=580024d3-8119-4059-8f4c-

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27 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 28 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 29 Snowden Mining Industry Consultants Inc. (2008, March). Mauritania Copper Mines: Guelb Moghrein resource estimation. NI 43-101 Technical Report. 30Snowden Mining Industry Consultants Inc. (2008, March). Mauritania Copper Mines: Guelb Moghrein resource estimation. NI 43-101 Technical Report. 31Snowden Mining Industry Consultants Inc. (2008, March). Mauritania Copper Mines: Guelb Moghrein resource estimation. NI 43-101 Technical Report. 32Snowden Mining Industry Consultants Inc. (2008, March). Mauritania Copper Mines: Guelb Moghrein resource estimation. NI 43-101 Technical Report. 33Snowden Mining Industry Consultants Inc. (2008, March). Mauritania Copper Mines: Guelb Moghrein resource estimation. NI 43-101 Technical Report. 34 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 35 First Quantum Minerals Ltd. (2017). Annual Information Form for the year ended December 31, 2016. 36 EITI Mauritania, https://eiti.org/mauritania#revenue-allocation 37 The Globe and Mail. (2012, July 17). First Quantum suspends work at Mauritania copper, gold mine. Retrieved from https://www.theglobeandmail.com/report-on-business/international-business/african-and-mideast-business/first-quantum-suspends- work-at-mauritania-copper-gold-mine/article4422325/. 38 MINING.com. (2014, September 18). First Quantum suspends Mauritania operations. Retrieved from http://www.mining.com/first- quantum-suspends-mauritania-operations-72321/. 39 MINING.com. (2014, September 18). First Quantum suspends Mauritania operations. Retrieved from http://www.mining.com/first- quantum-suspends-mauritania-operations-72321/. 40 MINING.com. (2014, September 18). First Quantum suspends Mauritania operations. Retrieved from http://www.mining.com/first- quantum-suspends-mauritania-operations-72321/. 41 First Quantum Minerals Ltd. (2017, May 29). 2016 Extractive Sector Transparency Measures Act (ESTMA) Report. 42 First Quantum Minerals Ltd. (2017). Management’s Discussion and Analysis For the year ended December 31, 2016.

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