Delivering
Growth
2018
Annual Report
About FQM
First Quantum Minerals is a leading
and fast growing copper company
founded more than 20 years ago with
a strong conviction in the long-term
fundamentals for copper.
Beginning with the 1996 purchase of a
mining licence in Zambia to reprocess
tailings from past mining activities,
our assets and operations now span
nine countries and five continents.
Today we are one of the world’s top
10 copper producers.
In 2018 we recorded our seventh
straight year of copper production
growth with 605,853 tonnes of
copper produced. In addition, we
produced 185,414 ounces of gold.
Our rapid growth is set to continue
with the ramp-up of Cobre Panama,
which is underway and expected to
continue over the next few years.
Table of Contents
Delivering Cobre Panama
Letter to Shareholders
Operations and Projects
Financial Report
Board of Directors
Corporate Information
2
4
8
11
106
108
Financial Highlights
Production (t)1
Sales (t)2
All-in sustaining costs (per lb)3
Average realized price (per lb)
2018
2017
2016
605,853 573,963 539,458
596,513 580,130 535,613
$
$
1.74 $
1.65 $
2.84 $
2.33 $
1.46
2.26
Sales revenues (millions)
$ 3,966 $ 3,310 $ 2,673
Net earnings (loss) attributable to
shareholders of the Company (millions)4
$
441 $
(316)
$
222
Basic and diluted earnings (loss) per share $
0.64 $
(0.46)
$
(0.07)5
Comparative EBITDA (millions)6
$ 1,737 $ 1,154 $
Comparative earnings (loss) (millions)6
Comparative earnings (loss) per share6
$
$
487 $
(111)
$
0.71 $
(0.16)
$
0.24
964
165
Cash flow from operating activities
(millions)7
Per share
$ 1,980 $
914 $
914
$
2.88 $
1.33 $
1.33
1 Production is presented on a copper contained basis and is presented prior to processing through the Kansanshi smelter.
2 Copper sales exclude the sale of copper anode produced from third-party concentrate purchased at Kansanshi.
3 All-in sustaining costs exclude third-party concentrate purchased and are not recognized under IFRS. See “Regulatory
disclosures” on pages 46–48.
4 Net earnings (loss) attributable to shareholders of the Company has been adjusted to exclude items which are not
reflective of underlying performance to arrive at comparative earnings (loss).
5 2016 figure excludes discontinued operations.
6 Comparative EBITDA and comparative earnings (loss) and comparative earnings (loss) per share are not measures
recognized under IFRS. See “Regulatory disclosures” on page 49 for the reconciliation.
7 Cash flow from operating activities per share is not recognized under IFRS. See “Regulatory disclosures” for
more information.
Sales Revenue
$ millions
Comparative
Earnings6
$ millions
Copper
Production2
(000 t)
Comparative
EBITDA6
$ millions
6
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4
7
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Studies show that demand for copper
is soon poised to outstrip supply. With
our portfolio of high-quality, low-cost
copper mines and robust copper
development projects, most notably
Cobre Panama, First Quantum is well
positioned to create lasting value and
opportunity by Delivering Growth.
First Quantum Minerals Ltd. 2018 Annual Report
1
Delivering
Cobre
Panama
2
First Quantum Minerals Ltd. 2018 Annual Report
By the end of 2018, Cobre Panama
construction was almost complete.
First Quantum’s mega project
is scheduled to ramp up starting
in 2019. Once operating at full
capacity, Cobre Panama is expected
to produce over 300,000 tonnes of
copper a year, making it one of the
world’s largest copper mines.
40-year
estimated life of mine
85 million
tonnes per year
processing capacity
by 2021
2019
Ramp-up commences
First Quantum Minerals Ltd. 2018 Annual Report
3
LETTER TO SHAREHOLDERS
2018 was an important year for First Quantum. The commodity markets improved
and we saw an average LME copper price of $2.96/lb compared with $2.79/lb in
2017. Concurrently, our operations set an aggregate record for copper production,
largely the result of improvements at Sentinel and reliable performance by our
other mines. Consequently, we have been able to focus attention on advancing
the huge Cobre Panama project towards practical completion. On February 18,
2019, the President of Panama, Juan Carlos Varela, presided at a ceremony to
mark the first ore through the mills.
First Quantum now operates eight mines in seven countries. We are determined
that each of our units should be a valued partner to the community within which
it operates. At each unit, we prioritize local community engagement as we strive
to minimize our impact on the environment, and to find practical ways to improve
the lives of the people we work amongst and alongside. Our environmental and
social programs are developed to meet the unique requirements at every site.
In 2018, over 90% of our revenues were generated from copper, making
First Quantum one of a handful of “pure play” copper companies. We were
founded on our belief in the fundamentals of copper, and remain steadfast in
our commitment to the red metal. Indeed, we expect demand for copper will
continue to grow, on average, as it has for the past 110 years. We are confident
that sustainable power initiatives and electrification of transport will combine with
middle-class growth in places like China to create long-term demand growth.
There are few new projects to meet that demand.
First Quantum’s Cobre Panama project is one of those few. It is already one of the
largest built as a single plant. During 2019, the ore throughput will be increased
first to the original design of 72 Mtpa, and then after the installation of the eighth
mill, to 85 Mtpa. We expect, by 2021, to be producing around 300,000 tonnes of
copper per year. However, most of the existing installation is designed to achieve
throughput of 100 Mtpa. The possible final step of a ninth mill and additional
mining fleet would enable production of 400,000 tonnes of copper per year.
We have often stated our objective to reduce our debt and strengthen our balance
sheet. Cobre Panama, whose capital cost has been the major cause of our debt,
will, by the end of 2019, augment our means to reduce it. Given our expected
growth, fuelled by the ramp-up of Cobre Panama, together with the strong
economic fundamentals underlying copper, I am very positive about our outlook
over the next few years.
Looking ahead, while we seek to consolidate and strengthen our Company, we
will stay focused on delivering growth. We will continue to provide a stable and
desirable work environment for all employees; and, importantly, take a leadership
role in contributing to health, safety and environmental sustainability in the
communities and countries in which we operate.
2018 Operational Highlights
We achieved record production in 2018 with close to 606,000 tonnes of copper
produced, marking a seventh consecutive year of growth in copper output.
This included a 17% increase in production at Sentinel, which we achieved by
improving throughput and recoveries. Kansanshi continues to operate steadily and
at a low cost. Throughout 2018, our overall unit costs remained at the low end of
the industry cost curve and we expect this to continue through 2019.
“ We were founded
on our belief in the
fundamentals of
copper, and remain
steadfast in our
commitment to
the red metal.”
4
First Quantum Minerals Ltd. 2018 Annual Report
LETTER TO SHAREHOLDERS
Production of gold and zinc was within expectations for the year but remains a
small part of our business. Our Ravensthorpe nickel/cobalt operation has been on
care and maintenance since late 2017 while we have investigated ways to improve
its economics. The restart of operations at Ravensthorpe during 2019 is being
considered as the economic environment and prices for nickel improve.
At our Las Cruces mine, in conjunction with routine production, we continued the
development of a proprietary technology for the recovery of copper, zinc, silver
and lead from primary chalcopyrite ore. The performance of this technology is now
well established, and the initial underground mining has confirmed continuation
of the resource. We are now working to finalize the practical and commercial
feasibility of a long-term underground mine.
In brief, 2018 was another year of efficient project development and the
application of innovative thinking to solve technical problems.
Delivering Growth
COBRE PANAMA
By the end of 2018 our Cobre Panama project was nearing completion. Since its
acquisition in 2013, this project has been a significant focus for the Company and
our stakeholders. We began phased commissioning in the first quarter of 2019. By
2021, when we anticipate full throughput, we expect Cobre Panama will produce
over 300,000 tonnes of copper per year from 85 million tonnes of ore.
As I noted above, much of the installation has excess capacity. We expect that we could
achieve annual throughput of 100 million tonnes with additional mining equipment,
an earlier move to the Colina pit and the possible addition of a ninth mill.
The location of Cobre Panama has posed some enormous challenges, not limited
to annual rainfall of up to 7 metres, very difficult ground conditions, extreme
topography and immense size. We have turned this challenging project into
a major asset for our shareholders, unlocking value and demonstrating our
uncommon expertise in complex projects.
Cobre Panama has delivered, and will continue to deliver, very real benefits to
the region. These include direct and auxiliary local employment, education and
training, regional infrastructure improvements, business opportunities, and a high
level of environmental stewardship.
PROJECT PIPELINE
We have an attractive pipeline of advanced exploration projects in South America.
The most advanced is Taca Taca located in the Puna region of the Salta province
in Argentina. Work on the Environmental Impact Assessment and other studies,
along with stakeholder engagement, continues to advance the project towards
a construction decision. Next is Haquira, located in Apurimac in southern Peru,
adjacent to the Las Bambas operation. Our current focus is resettlement of small
local communities, which is being undertaken in close consultation with a broad
range of local stakeholders and is critical to our pathway forward. We continue to
work towards obtaining agreements that will allow us to complete evaluation of
the deposit and advance towards a production decision.
These projects provide First Quantum with great long-term potential. As noted,
our priority in the short- to medium-term is to deleverage our balance sheet while
providing a reliable return to shareholders.
First Quantum Minerals Ltd. 2018 Annual Report
5
LETTER TO SHAREHOLDERS
“ 2019 will see our
copper production
grow and our
geographical
diversity enhanced.
With the reduction in
capital investment,
we will begin
reducing our debt.
2019 is going to be a
transformational
year.”
6
First Quantum Minerals Ltd. 2018 Annual Report
Our Focus on People
First Quantum strives to be a useful and valued partner to the people and
communities near our operations. Wherever we do business, our goal is to have an
impact that is beneficial over a longer term than the life of mine.
The health and safety of our workforce is always paramount. So, it is with great
sadness that I must report that two workers died at our operations in 2018:
William Mwanza, at the Sentinel mine in Zambia, and Nestor Perez Diaz, at the
Cobre Panama project in Panama. We have investigated these accidents fully and
undertake to continue doing all we can to avoid such accidents in the future.
In 2017, we launched the THINK! campaign, a part of our OHSAS 18001-based
Health and Safety Management System (HSMS). It is a four-tiered approach
intended to empower our workforce to take ownership of safety and create a
“safety-first” culture throughout the Company. In 2018, THINK! training was
rolled out across the Company. Overall, the group safety performance continued
to show improvement in 2018, with a 0.06 rolling 12-month Lost Time Injury
Frequency Rate per 200,000 man hours worked, down from 0.11 in 2017.
Everywhere we operate, we will continue to do all we can to ensure that every
employee gets home safely after every shift.
Managing the environmental impacts of our projects and operations, including
biodiversity protection, is of critical importance to First Quantum. In 2018 we
began, at each of our operations, deployment of a comprehensive Environmental
Management System based on the ISO14001:2015 standard to better identify,
reduce and mitigate environmental risks. Since 2015, we have recorded and
reported site-level environmental incidents according to a proprietary five-level
classification system. From 2015 to 2018, we have seen a steady and continuous
reduction in environmental incidents and improvement of overall environmental
compliance across the group. Alongside this, we arrange regular independent
audits of our tailings dams. We prioritize biodiversity protection through bespoke
biodiversity programs in each of the unique environments in which we operate.
We operate in diverse geographical regions, and we recognize that an equally
diverse approach is required to meet the needs of local stakeholders. Our
community enhancement, agricultural, medical, education, infrastructure and
other projects are all undertaken, in part, to give back to those communities, and
to help ensure they remain healthier, safer and more prosperous long after mining
operations have stopped.
Over the past several years we have recognized the growing need to publicize
information on our efforts in these areas. To meet this need, we have published several
reports on our programs in the community, on the environment and our safety track
record, which can all be found on our website. We are committed to enhancing
disclosure to better qualify and quantify our sustainability programs and their results.
Board and Management
In 2018, we introduced KEYs, a new long-term share-based plan for key
employees. Designed to reward and retain talent considered critical to our future,
grants under the plan provide much longer-term potential benefits as they vest,
subject to performance criteria, over an eight-year period. Employees selected to
participate in KEYs have a track record of success and are considered critical to our
LETTER TO SHAREHOLDERS
future. KEYs is intended to encourage a long-term strategic focus among these
key employees and support our management succession plans by encouraging
retention and loyalty. As KEYs is aimed at future leaders, the CEO and certain other
Named Executive Officers of the Company are not considered for awards under the
plan. Full details are set out in the Company’s Management Information Circular.
Our Board of Directors plays a significant role in driving good governance practices
and continually keeps under review the policies and practices throughout the
organization. The composition of the Board needs to be refreshed as long-standing
directors move on. In 2018, we welcomed Simon Scott as a new Board member
with a skill set and expertise important through the next phase of growth. At the
2019 AGM, we will seek approval to appoint Joanne Warner, who brings with her
many years of experience in the mining industry, our second female director.
Conclusion
With Cobre Panama’s operation, 2019 will see our copper production grow and
our geographical diversity enhanced. With the reduction in capital investment, we
will begin reducing our debt. 2019 is going to be a transformational year.
In finishing, I express my thanks to our highly committed workforce –
management and all employees – in many places around the world. At First
Quantum we encourage our people to apply their minds and to keep improving.
The benefit of this approach is exactly what I find whenever I visit one of our
operating sites or offices.
Our team has put in a year of hard work and achieved significant successes at
every site, overcome a range of challenges, and is responsible for launching one
of the world’s biggest copper projects. I value their continual efforts to go beyond
what is expected of them and I thank them, and all of our stakeholders, for their
continued support.
(signed)
Philip Pascall
Chairman and Chief Executive Officer
First Quantum Minerals Ltd. 2018 Annual Report
7
OPERATIONS AND PROJECTS
FINLAND
TURKEY
SPAIN
MAURITANIA
AUSTRALIA
ZAMBIA
Spain
Cobre Las
Cruces
Sevilla Province
Ownership: 100%
Primary: Copper
2018 Production:
Copper: 71 kt
Mauritania
Guelb
Moghrein
Akjoujt
Ownership: 100%
Primary: Copper
Secondary: Gold
2018 Production:
Copper: 28 kt
Gold: 46 koz
Turkey
Çayeli
Rize Province
Ownership: 100%
Primary: Copper
Secondary: Zinc
2018 Production:
Copper: 20 kt
Zinc: 4 kt
Finland
Pyhäsalmi
Pyhäjärvi
Ownership: 100%
Primary: Copper
Secondary: Pyrite,
Zinc
2018 Production:
Copper: 12 kt
Pyrite: 646 kt
Zinc: 23 kt
Australia
Ravensthorpe
Western Australia
Ownership: 100%
Primary: Nickel
Secondary: Cobalt
Care and
maintenance
Zambia
Sentinel
North-Western
Province
Ownership: 100%
Primary: Copper
2018 Production:
Copper: 224 kt
Kansanshi
North-Western
Province
Ownership: 80%
Primary: Copper
Secondary: Gold
2018 Production:
Copper: 252 kt
Gold: 130 koz
8
First Quantum Minerals Ltd. 2018 Annual Report
OpERATiOnS AnD pROjEcTS
By 2021, the
combined output
of our mines in
Europe, South
America and Africa
will be more than
800,000 tonnes
per year.
PANAMA
PERU
ARGENTINA
Panama
Cobre
Panama
Colón Province
Ownership: 90%
Primary: Copper
Secondary: Gold,
molybdenum, silver
Under
construction
Argentina
Taca Taca
Salta Province
Ownership: 100%
Primary: Copper
Secondary: Gold,
molybdenum
Peru
Haquira
Apurimac Region
Ownership: 100%
Primary: Copper
Secondary: Gold,
molybdenum, silver
Advanced
exploration
Advanced
exploration
First Quantum Minerals Ltd. 2018 Annual Report
9
Our priorities for 2019 will be the
ramp-up of Cobre Panama, and to
begin deleveraging our balance sheet.
Taca Taca and Haquira are both
high-potential projects that will move
toward development as our financial
position is strengthened and demand
for copper continues to grow.
10
First Quantum Minerals Ltd. 2018 Annual Report
Contents
Financial Report
11
Management’s Discussion and Analysis
12
Financial Report
Management’s Discussion and Analysis
Management’s Responsibility for
Financial Reporting
Independent Auditor’s Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
12
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Cautionary statement on forward-looking information
Certain statements and information herein, including all statements that are not historical facts, contain forward-looking
statements and forward-looking information within the meaning of applicable securities laws. The forward-looking statements
include estimates, forecasts and statements as to the Company’s expectations of production and sales volumes, and expected
timing of completion of project development at Cobre Panama and Enterprise, and are subject to: the impact of ore grades on
future production; the potential of production disruptions (including at Cobre Las Cruces as a result of the land slippage in
January 2019); capital expenditure and mine production costs; the outcome of mine permitting; other required permitting; the
outcome of legal proceedings which involve the Company; information with respect to the future price of copper, gold, nickel,
zinc, pyrite, cobalt, iron and sulphuric acid; estimated mineral reserves and mineral resources; First Quantum’s exploration and
development program; estimated future expenses, exploration and development capital requirements; the Company’s hedging
policy; and goals and strategies. Often, but not always, forward-looking statements or information can be identified by the use
of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”,
“intends”, “anticipates” or “does not anticipate” or “believes” or variations of such words and phrases or statements that
certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.
With respect to forward-looking statements and information contained herein, the Company has made numerous assumptions
including, among other things, assumptions about: continuing production at all operating facilities; the price of copper, gold,
nickel, zinc, pyrite, cobalt, iron and sulphuric acid; anticipated costs and expenditures and the ability to achieve the Company’s
goals. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown
risks, uncertainties and other factors which may cause the actual results, performance or achievements, or industry results, to be
materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements or information. These factors include, but are not limited to: future production volumes and costs; the temporary or
permanent closure of uneconomic operations; costs for inputs such as oil, power and sulphur; political stability in Zambia, Peru,
Mauritania, Finland, Spain, Turkey, Panama, Argentina and Australia; adverse weather conditions in Zambia, Finland, Spain,
Turkey, Mauritania and Panama; labour disruptions; potential social and environmental challenges; power supply; mechanical
failures; water supply; procurement and delivery of parts and supplies to the operations; and the production of off-spec material.
See the Company’s Annual Information Form for additional information on risks, uncertainties and other factors relating to the
forward-looking statements and information. Although the Company has attempted to identify factors that would cause actual
actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may
be other factors that cause actual results, performances, achievements or events not to be anticipated, estimated or intended.
Also, many of these factors are beyond First Quantum’s control. Accordingly, readers should not place undue reliance on
forward-looking statements or information. The Company undertakes no obligation to reissue or update forward-looking
statements or information as a result of new information or events after the date hereof except as may be required by law.
All forward-looking statements and information made herein are qualified by this cautionary statement.
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First Quantum Minerals Ltd. 2018 Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2018
in United States dollars, with tabular amounts in millions, except where noted
This Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the audited consolidated financial
statements of First Quantum Minerals Ltd. (“First Quantum” or “the Company”) for the year ended December 31, 2018. The
Company’s results have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”) and are presented in United States dollars, with tabular amounts in
millions, except where noted.
For further information on First Quantum, reference should be made to its public filings (including its most recently filed AIF) which
are available on SEDAR at www.sedar.com. Information is also available on the Company’s website at www.first-quantum.com.
This MD&A contains forward-looking information that is subject to risk factors; see “Cautionary statement on forward-looking
information” for further discussion. Information on risks associated with investing in the Company’s securities and technical and
scientific information under National Instrument 43-101 concerning the Company’s material properties, including information about
mineral resources and reserves, are contained in its most recently filed AIF. This MD&A has been prepared as of February 14, 2019.
Overview
The Company continued to deliver solid operational and financial results in 2018. The Company’s continued focus on
operational improvements resulted in strong production in the year, with a record 605,853 tonnes of copper produced in
2018. This was driven by Sentinel, which increased production by 17%, benefitting from improvements to the quality of the
concentrate and process optimization, resulting in increased throughput and recoveries.
The Company issued $1.85 billion in senior notes in March 2018, repaid and cancelled the $175 million Kansanshi senior term
loan in February 2018 and completed a $400 million term facility under the Kalumbila subsidiary, which owns the Sentinel
mine, in March 2018.
The Company made considerable progress with the Cobre Panama development project during the year, largely completing
construction, ahead of phased commissioning and expected first production in 2019. The Company’s hedge program, which
commenced in 2015 to support the capital-intensive phase of Cobre Panama’s development, continued at a reduced level in
2018 and into 2019.
In February 2019, the Company announced first introduction of ore to the processing plant at Cobre Panama. On February 7,
2019, ore was introduced through primary crushing and onto the stockpile, and on February 11, ore was introduced through
to the first milling circuit. Operation on ore continues and remains on an efficient ramp-up for Cobre Panama.
Reduced use of unmargined copper forward contracts and an increased use of zero cost collar unmargined sales contracts and
forward copper purchase options saw the Company’s realized copper price for 2018 increase to $2.84 per lb compared with
$2.33 per lb in 2017. The average London Metal Exchange (“LME”) copper price for the year was $2.96 per lb, 6% higher
than 2017.
Changes were announced to the Zambian mining tax regime in September 2018 and took effect January 1, 2019. The new
regime includes increased mineral royalties and removal of their tax deductibility and imposed export levies on precious metals.
Furthermore, value-added tax (“VAT”) is to be abolished and replaced with a non-refundable sales tax, which is expected to be
implemented from April 1, 2019. Together, these changes are expected to result in increases to the Company’s all-in sustaining
cost (“AISC”) and effective tax rate. The Company remains engaged with the Government of the Republic of Zambia (“GRZ”)
on the transition and implementation of the new regime.
12
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS Full Year Highlights
OPERATIONAL AND FINANCIAL
• The Company achieved record annual copper production of 605,853 tonnes, 6% higher than 2017 and ahead of guidance,
reflecting higher output from Sentinel. Sentinel copper production of 223,656 tonnes was 17% higher than the prior year,
driven by higher throughput and recoveries.
• The Kansanshi smelter achieved record annual production of 347,037 tonnes of copper anode and treated a record
1,381,637 dry metric tonnes (“DMT”) of concentrate in the year.
• Gold production of 185,414 ounces was 7% lower than 2017, mainly reflecting reduced gold feed grade at Kansanshi and
Guelb Moghrein.
• Gross profit of $978 million and comparative EBITDA of $1,737 million were 192% and 51% higher, respectively, than
2017, mainly reflecting higher sales revenues driven by higher copper sales volumes and realized copper prices achieved in
the Company’s corporate sales hedge program.
• Comparative earnings of $487 million ($0.71 per share), net earnings attributable to shareholders of the Company of
$441 million ($0.64 per share), and cash flows from operating activities of $1,980 million ($2.88 per share) were achieved in
2018. These results were significantly higher than those achieved in 2017 and include a $110 million loss realized by the
corporate sales hedge program.
• Copper all-in sustaining cost (“AISC”) was $1.74 per lb and cash cost of copper production (“C1”) was $1.28 per lb for the
year. In 2017, cash cost and AISC benefitted from the impact of a review of previously recognized operational provisions.
Excluding this impact, AISC in 2018 was $0.04 per lb higher than, and C1 cash cost was in line with, the prior year. The
increase in underlying AISC reflects higher Zambian royalties and sustaining capital expenditure, while C1 cash cost reflects
the impact of higher copper production and increased by-product credits.
• On February 6, 2019, the Company signed a new $2.7 billion term loan and revolving credit facility underwritten by three
core relationship banks. This new facility replaces the existing $1.5 billion revolving credit facility. The new $2.7 billion facility
(with an accordion feature to increase it up to $3.0 billion before the end of 2019) comprises a $1.5 billion term loan facility
and a $1.2 billion revolving credit facility (which can be upsized to $1.5 billion if the accordion feature is activated),
maturing on December 31, 2022. This financing includes revised financial covenants, extends the debt maturity profile of
the business, demonstrates the Company’s access to a diverse range of capital markets, and improves the financial flexibility
of the Company through the added liquidity. The facility will be used for the redemption of the $1,121 million senior notes
due February 2021 in full or in part and for general corporate purposes.
Cobre Panama Development
• At year-end, the focus for the Cobre Panama project was commissioning the 150MW set 2 of the power station, and
commissioning of the process plant to be ready for introduction of first ore to the mill in the first quarter of 2019, which
occurred on February 11, 2019. The process plant is in the water commissioning phase, and power station set 2 had
successfully completed steam blows. Set 2 of the power station was successfully synchronized to the Panamanian grid in
January 2019 and is now running.
First Quantum Minerals Ltd. 2018 Annual Report
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
2017
3,310
335
(316)
(0.46)
(111)
(0.16)
Consolidated Operating Information
Copper production (tonnes)1
158,304
151,241
154,319
605,853
573,963
Copper sales (tonnes)2
156,212
149,877
151,905
596,513
580,130
Q4 2018
Q3 2018
Q4 2017
2018
2017
Cash cost of copper production
(C1) (per lb)3, 4
Total cost of copper production
(C3) (per lb)3, 4
All-in sustaining cost (AISC) (per lb)3, 4
Realized copper price (per lb)
Gold production (ounces)
Gold sales (ounces)
Consolidated Financial Information
Sales revenues
Gross profit
Net earnings (loss) attributable to
shareholders of the Company
$
1.23 $
1.31 $
1.30 $
1.28 $
1.23
$
$
$
2.04 $
2.11 $
2.16 $
2.11 $
1.68 $
1.80 $
1.76 $
1.74 $
2.83 $
2.84 $
2.50 $
2.84 $
2.05
1.65
2.33
48,039
44,979
51,904
185,414
199,736
53,221
42,864
50,723
193,072
201,376
Q4 2018
Q3 2018
Q4 2017
2018
1,054
280
978
246
885
117
3,966
978
198
61
(115)
441
Basic and diluted earnings (loss) per share
$
0.29 $
0.09 $
(0.17)
$
0.64 $
Comparative EBITDA
Comparative earnings (loss)5
481
182
427
128
318
1,737
1,154
(36)
487
Comparative earnings (loss) per share5
$
0.26 $
0.19 $
(0.05)
$
0.71 $
1 Production is presented on a copper contained basis, and is presented prior to processing through the Kansanshi smelter.
2 Copper sales exclude the sale of copper anode produced from third-party concentrate purchased at Kansanshi. Sales of copper anode attributable to third-party concentrate
purchases were 5,884 tonnes and 7,349 tonnes for the three months and year ended December 31, 2018, respectively. Q3 2018 copper sales have been adjusted to
exclude copper anode sales of 1,465 tonnes attributable to third-party concentrate purchased.
3 C1 cash cost, C3 total cost and AISC exclude third-party concentrate purchased at Kansanshi. C1 cash cost, C3 total cost and AISC for Q3 2018 have been revised from
amounts previously disclosed to exclude the $0.03 per lb impact of third-party concentrate purchased.
4 C1 cash cost, C3 total cost and AISC are not recognized under IFRS. See “Regulatory disclosures” on page 46 for further information.
5 Net earnings (loss) attributable to shareholders of the Company has been adjusted to exclude items which are not reflective of underlying performance to arrive at
comparative earnings (loss). Comparative earnings (loss), comparative earnings (loss) per share, comparative EBITDA and cash flows per share are not measures recognized
under IFRS and do not have a standardized meaning prescribed by IFRS. The Company has disclosed these measures to assist with the understanding of results and to
provide further financial information about the results to investors. See “Regulatory disclosures” on page 49 for a reconciliation of comparative EBITDA and comparative
earnings. The use of comparative earnings and comparative EBITDA represents the Company’s adjusted earnings metrics.
Net earnings (loss) attributable to shareholders of the Company
Adjustments attributable to shareholders of the Company:
Loss on extinguishment of debt
Finance expense on discounting of non-current VAT
Total adjustments to comparative EBITDA excluding depreciation6
Tax and minority interest relating to foreign exchange revaluation and
comparative adjustments
Comparative earnings (loss)
2018
441
2017
(316)
–
5
64
(23)
84
20
77
24
487
(111)
6 Adjustments to comparative EBITDA relate principally to foreign exchange but also include gains and losses on disposal of assets and liabilities, other expenses, mine closure
costs and movements in restoration provision estimates at closed sites.
14
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Full Year Financial Summary
SALES REVENUES INCREASED DUE TO HIGHER COPPER SALES VOLUMES AND HIGHER REALIZED
METAL PRICES
• Sales revenues of $3,966 million in the year increased by $656 million compared to 2017, due to an increase in copper
revenues of $814 million reflecting higher realized copper prices and sales volumes, partially offset by the absence of nickel
sales revenues and lower gold sales revenues. The increase in copper sales volumes was mainly from Sentinel, which
contributed revenues of $1,454 million in the year. Lower gold sales revenues were driven by lower gold sales volumes, due
principally to lower gold grades, compared to 2017.
• The realized price for copper of $2.84 per lb in 2018 was $0.51 per lb higher than the prior year, however below the average
LME price of $2.96 per lb on account of the Company’s copper sales hedge program, which reduced revenues by $110 million
in the year and the net realized copper price by $0.08 per lb. In the prior year, revenues were reduced by a $570 million loss on
the copper sales hedge program, which lowered the 2017 net realized copper price by $0.45 per lb. The average LME price of
copper increased by 6% in the year compared to 2017 to $2.96 per lb.
COMPARATIVE EBITDA HIGHER THAN 2017
Comparative EBITDA was $1,737 million compared to $1,154 million in 2017. Comparative EBITDA excludes $64 million of
foreign exchange losses, which includes a $75 million unrealized loss relating to the revaluation of Zambian kwacha–
denominated VAT balances, a $6 million gain on disposal of assets and liabilities, $8 million relating to a retrenchment
provision recognized at Las Cruces and a $2 million gain for closed site restoration provisions.
GROSS PROFIT HIGHER THAN 2017 FROM HIGHER REALIZED COPPER PRICES AND SALES VOLUMES
Gross profit in 2017
Higher realized metal prices (net of hedges)
Higher sales volumes
Higher by-product contribution
Higher cash costs (excluding Zambian royalties)
Decrease in depreciation
Movement in previously recognized operational provisions in 20171
Increase in Zambian royalty rate and volume
Foreign exchange gain
Gross profit in 20182
335
665
16
21
(21)
30
(56)
(38)
26
978
1 The movement in previously recognized operational provisions in 2017 resulted in a reduction in C1 of $0.05 per lb.
2 Gross profit is reconciled to comparative EBITDA by including exploration costs of $26 million, general and administrative costs of $74 million, other expense of $69 million
and adding back depreciation of $864 million, and excluding a foreign exchange loss of $64 million, gain on disposal of assets and liabilities of $6 million, other expense of
$8 million and revisions in estimates of restoration provisions at closed sites of $2 million (a reconciliation of comparative EBITDA is included on page 49).
INCREASE IN COMPARATIVE EARNINGS TO $487 MILLION
• Comparative earnings for the year ended December 31, 2018 of $487 million compares to comparative loss of $111 million
in 2017. A reconciliation of comparative metrics is included on page 49.
• Net earnings attributable to shareholders of $441 million for the year compared to a net loss attributable to shareholders
of $316 million in 2017. The 2018 result includes $110 million in sales hedge losses, $64 million in foreign exchange losses,
a $6 million gain on disposal of assets and liabilities, $8 million relating to a retrenchment provision recognized at
Las Cruces, $5 million with respect to the discounting of non-current VAT balances, a $2 million gain for closed site
restoration provisions, and $23 million in tax credits and minority interest relating to foreign exchange revaluation and
comparative adjustments.
First Quantum Minerals Ltd. 2018 Annual Report
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fourth Quarter Financial Summary
Sales revenues of $1,054 million were 19% higher than the same period in 2017, reflecting higher copper and gold sales
volumes and higher realized metals prices, partially offset by the absence of nickel sales revenues at Ravensthorpe. Sentinel
contributed $344 million in revenues, a $63 million increase over the same period in 2017. Revenues were higher by $25 million
related to the corporate sales hedge program, which increased the net realized copper price by $0.07 per lb.
GROSS PROFIT HIGHER THAN 2017 FROM HIGHER REALIZED COPPER PRICES
Gross profit in Q4 2017
Higher realized metal prices (net of hedges)
Sales mix variance
Higher by-product contribution
Higher cash costs (excluding Zambian royalties)
Decrease in treatment/refining charges (“TC/RC”)
Decrease in depreciation
Decrease in Zambian royalty
Foreign exchange gain
Gross profit in Q4 20181
117
123
(6)
15
(7)
4
4
8
22
280
1 Gross profit is reconciled to comparative EBITDA by including exploration costs of $7 million, general and administrative costs of $19 million, other income of $6 million and
adding back depreciation of $224 million, and excluding a foreign exchange gain of $13 million, other expense of $8 million and loss on disposal of assets of $2 million (a
reconciliation of comparative EBITDA is included on page 49).
COMPARATIVE EARNINGS OF $182 MILLION
• Comparative EBITDA was $481 million compared to $318 million in the same period of 2017. Comparative earnings for the
quarter of $182 million compares to a comparative loss of $36 million in 2017. A reconciliation of comparative metrics is
included on page 49.
• Net earnings attributable to shareholders of $198 million compared with a net loss attributable to shareholders of $115 million
for the same period in 2017. The fourth quarter includes $25 million in sales hedge gains, a $13 million foreign exchange gain,
$2 million loss on disposal of assets, $8 million relating to a retrenchment provision recognized at Las Cruces, $5 million with
respect to the discounting of non-current VAT balances, and $18 million in tax credits and minority interest relating to foreign
exchange revaluation and comparative adjustments.
Financial Position and Operating Cash Flow
• On February 6, 2019, the Company signed a new $2.7 billion term loan and revolving credit facility underwritten by three
core relationship banks. This new facility replaces the existing $1.5 billion revolving credit facility. The new $2.7 billion facility
(with an accordion feature to increase it up to $3.0 billion before the end of 2019) comprises a $1.5 billion term loan facility
and a $1.2 billion revolving credit facility (which can be upsized to $1.5 billion if the accordion feature is activated),
maturing on December 31, 2022.
This financing includes revised financial covenants, extends the debt maturity profile of the business, demonstrates the
Company’s access to a diverse range of capital markets, and improves the financial flexibility of the Company through the
added liquidity. The net debt to EBITDA covenant ratio is 5.75x until December 2019. The ratio will then reduce to 5.25x
until June 2020, then to 4.75x until December 2020, then to 4.0x until June 2021, and then to 3.5x until final maturity.
The facility will be used for the redemption of the $1,121 million senior notes due February 2021 in full or in part and for general
corporate purposes. The Company intends to issue a call notice to redeem $821 million of the February 2021 notes at a price of
$101.75 plus accrued interest by the end of February. On February 12, 2019, the syndication was launched to a broad group of
relationship banks. BNP Paribas, ING Bank and Société Générale are acting as underwriters and bookrunners on the facility.
• The Company ended the quarter with $788 million of net unrestricted cash and cash equivalents in addition to $700 million
of committed undrawn facilities, and was in compliance with all financial covenants.
• At December 31, 2018, 30,000 tonnes of unmargined zero cost copper collar sales contracts at weighted average prices of
$3.10 to $3.48 per lb were outstanding with maturities to June 2019.
16
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
• Taking into account forecast operating cash inflows, capital expenditure outflows and available committed facilities, the
Company expects to have sufficient liquidity through the next 12 months to carry out its operating and capital expenditure
plans and remain in full compliance with financial covenants. The Company continues to take action to manage operational
and price risk and further strengthen the balance sheet.
Other Developments
LAND SLIPPAGE AT COBRE LAS CRUCES
On January 23, 2019, a land slippage occurred at the Cobre Las Cruces open pit mine. Prior to the incident, mine personnel
identified a risk and immediately implemented safety protocols. Following the incident, the pit was evacuated and no injuries
occurred. Production at the hydrometallurgical plant was suspended immediately following the incident and copper
production resumed on February 1, 2019, with the processing of lower-grade stockpiled ore. The stockpiled ore is expected to
provide feed for the next several months while the Company obtains the necessary regulatory approvals to begin mining of
Phase 6, an area unaffected by the incident.
CHANGES TO THE ZAMBIAN TAX REGIME
Changes to the Zambian mining tax regime, announced by the GRZ in September 2018, were implemented from January 1, 2019.
• The sliding scale mineral royalty rate on copper has been increased by 1.5% to between 5.5% and 7.5% dependent on the
LME monthly average price. New mineral royalty rates of 8.5% and 10% are applicable if the LME monthly average price
exceeds $7,500 and $9,000 per tonne, respectively. Mineral royalties are no longer deductible for corporation tax.
• An export levy on precious metals, including gold, of 15%.
• An import duty of 5% on copper and cobalt concentrates.
Further to the above measures, the Minister of Finance of Zambia also announced the abolition of VAT and the proposed
introduction of a non-refundable sales tax. A sales tax is expected to be effective April 1, 2019. The Minister reaffirmed that
the GRZ remains committed to settling outstanding VAT claims.
The Company’s Zambian operations have continued to accrue VAT receivable amounts during the quarter with minimal cash
refunds received or offsets to other tax liabilities approved. The total amount of VAT accrued by the Company’s Zambian
operations at December 31, 2018 was $443 million, of which $282 million related to Kansanshi. Management of the Company
continues to engage in regular discussions with the relevant government authorities and considers that the outstanding VAT
claims are fully recoverable. See “Liquidity and capital resources” on page 37 for additional disclosure.
ASSESSMENT BY ZAMBIA REVENUE AUTHORITY
On March 19, 2018, Kalumbila Minerals Ltd. (“KML”) (a subsidiary of the Company) received a letter of preliminary findings
following an audit by the Zambia Revenue Authority (“ZRA”) for ZMW 76.5 billion (approximately $7.6 billion at the date of
receipt of the letter, comprising $5.5 billion in interest and $2.0 billion in penalties on the $150 million assessment claim on
duties). The preliminary findings letter covers circa 22,700 import transactions relating to the import of capital items,
consumables and spare parts for use at Sentinel from January 2013 to December 2017.
A process for provision of relevant documentation was agreed between KML and the ZRA. KML, together with an external
international accounting firm and a shipping agent, completed a review of the documentation relating to the audited areas
over the relevant period. KML’s internal findings and relevant supporting documentation, which were voluminous, have been
provided to the ZRA with discussions progressing on the documentation provided. KML continues to refute the preliminary
assessment, and the Company’s view on the final value of the claim remains unchanged from that disclosed in the first
quarter. KML remains engaged with the ZRA and committed to ensuring transparency in all discussions between the parties to
bring the matter to a just and prompt resolution.
DIVIDENDS
First Quantum has declared a final dividend of CDN$0.005 per share, in respect of the financial year ended December 31, 2018.
The final dividend, together with the interim dividend of CDN$0.005 per share, is a total of CDN$0.01 per share for the 2018
financial year.
For the year ended December 31, 2018, 7,000 common shares (10,000 common shares for the year ended December 31,
2017) were issued through the Company’s Dividend Reinvestment Plan.
First Quantum Minerals Ltd. 2018 Annual Report
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
Legal Proceedings
PANAMA CONSTITUTIONAL PROCEEDINGS
In February 1996, the Republic of Panama and Minera Panama SA (“MPSA”), a Panamanian subsidiary of the Company,
entered into a mining concession contract in respect of the Cobre Panama project.
On February 26, 1997, Contract-Law No. 9 (“Law 9”) was passed by the Panamanian National Assembly. Law 9 granted the
status of national law to the mining concession contract, establishing a statutory legal and fiscal regime for the development
of the Cobre Panama project. On December 30, 2016, the Government of Panama signed and issued Resolution No. 128
by which it extended the mining concession contract held by Minera Panama SA for a second 20-year term commencing
March 1, 2017 up to February 28, 2037. The Company remains eligible for consideration of a third 20-year term of the
MPSA mining concession contract commencing March 1, 2037.
In September 2018, the Company became aware of a ruling of the Supreme Court of Panama (“Supreme Court”) in relation
to the constitutionality of Law 9. The Company understands that the ruling of the Supreme Court with respect to the
constitutionality of Law 9 relates to the enactment of Law 9 and does not affect the legality of the MPSA mining concession
contract itself, which remains in effect, and allows continuation of the development and operation of the Cobre Panama
project by MPSA.
In respect of the Supreme Court ruling on Law 9, which remains subject to various procedural processes, the Company notes
the following:
• The ruling is not yet in effect.
• The Supreme Court decision was in respect of ongoing legal filings made since 2009 in regard to specific environmental
petitions.
• In reviewing the process of approval of Law 9 of 1997, the Supreme Court found that the National Assembly had failed to
consider whether Law 9 complied with applicable legislation at the time, namely Cabinet Decree 267 of 1969.
• The applicable Cabinet Decree of 1969, which was repealed in 1997 by Law 9, required the Ministry of Commerce and
Industry (“MICI”) to issue a request for proposals before awarding the Law 9 mining concession.
• The Attorney General of Panama has provided two formal opinions favourable to the constitutionality of Law 9 as required
in this type of proceedings by Panamanian law.
• The Supreme Court ruling did not make a declaration as to the annulment of the MPSA mining concession contract.
Subsequently, MPSA has submitted filings to the Supreme Court for ruling, which it has accepted, prior to the ruling in relation to
the constitutionality of Law 9 taking effect. On September 26, 2018, the Government of Panama issued a news release affirming
support for the Cobre Panama project. The release confirmed that MICI considers that the MPSA mining concession contract, and
its extension, remains in effect in all its parts. Construction and commissioning are continuing while the Company seeks to clarify
the legal position. (The MICI release is available at www.mici.gob.pa/detalle.php?cid=16&sid=53&id=5347).
Based on support from the Government of Panama, the Chamber of Commerce and Industries of Panama, the Panamanian
Mining Chamber, other Panamanian business and industry chambers and its legal advice, the Company is confident of
resolving the Law 9 clarification in the near-medium term.
ZAMBIAN POWER
In June 2018, without any warning, the state-owned power company (“ZESCO”) reduced power supply to the Kansanshi
projects. The reduction was due to Kansanshi and Sentinel’s rejection of ZESCO’s demand for payment of higher tariffs,
contrary to the existing contractual agreements between the parties.
On June 26, 2018, Kansanshi sought an injunction against ZESCO before the English courts, as the contracts on tariff are
governed by English law. On June 28, 2018, ZESCO resisted the application and requested an extension to respond. On July 6,
2018, the Court awarded Kansanshi’s request by way of a sanctioned consent order (“Order”) which requires ZESCO to
restore the full capacity as demanded by Kansanshi. In turn, Kansanshi is required to deposit the difference between the
contractual tariff and the disputed higher tariff into a segregated account until an arbitration between Kansanshi and ZESCO
on these facts is concluded. The Order continues to apply as ZESCO is restrained from making any reductions without
incurring further sanction from the Court.
18
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS On August 22, 2018, Kansanshi served on ZESCO a Notice of Arbitration in respect of these facts. A procedural timetable of
the arbitration has been agreed, with the merits hearing set for summer 2020.
Despite this dispute, our operations generally maintain a constructive relationship with ZESCO, particularly with regards to the
management of technical and supply issues. Operational and technical dialogue between the parties is expected to continue in
the normal course.
KANSANSHI MINORITY PARTNER
In October 2016, the Company, through its subsidiary Kansanshi Holdings Limited, received a Notice of Arbitration from
ZCCM International Holdings PLC (“ZCCM”) under the Kansanshi Mining PLC (“KMP”) Shareholders Agreement. ZCCM is a
20% shareholder in KMP and filed the Notice of Arbitration against Kansanshi Holdings Limited, the 80% shareholder, and
against KMP. The Company also received a Statement of Claim filed in the Lusaka High Court naming additional defendants,
including FQM Finance Ltd. (“FQM Finance”), and certain directors and an executive of the named corporate defendants.
Aside from the parties, the allegations made in the Notice of Arbitration and the High Court for Zambia were the same. The
Company is firmly of the view that the allegations are in their nature inflammatory, vexatious and untrue.
The dispute was stated as a request for a derivative action, requiring ZCCM to obtain permission to proceed in each forum of
the arbitration and the Lusaka High Court. The dispute arose from facts originating in 2007, and concerned the rate of interest
paid on select deposits by KMP with the Company’s treasury entity FQM Finance. The deposits were primarily retained for
planned investment by KMP in Zambia. In particular, KMP deposits were used to fund a major investment program at
Kansanshi, including the successful construction and commissioning of the Kansanshi smelter and expansion of the processing
plant and mining operations. The entirety of the deposit sums has been paid down from FQM Finance to KMP, with interest.
The interest was based on an assessment of an arm’s length fair market rate, which is supported by independent third-party
analysis. ZCCM disputed that interest rate paid to KMP on the deposits was sufficient.
Several preliminary procedural applications to dismiss the High Court action were lodged on behalf of the Company, and other
defendants, in the Lusaka High Court. By a decision dated January 25, 2018, the Lusaka High Court used its discretion to rectify
ZCCM’s procedural errors. The Court granted leave to the Company, FQM Finance and the individual defendants to appeal
against this decision and the litigants have agreed to a stay pending the appeal. The appeal hearing took place on November 21,
2018, with submissions made by all parties. The Court of Appeal delivered judgment on January 11, 2019, dismissing the appeal,
and an appeal to the Supreme Court of Zambia has been requested.
The arbitration required ZCCM to petition the Arbitral Tribunal for permission to maintain the derivative action. A three-day
hearing on the arbitration on whether permission is granted or denied took place in January 2018. On February 22, 2018, the
Arbitral Tribunal issued a ruling denying ZCCM permission to continue the proceedings. On March 21, 2018, ZCCM served an
application seeking to challenge the Arbitral Tribunal’s ruling through the English court. On June 1, 2018, despite being
severely out of time, ZCCM sought to amend its application for additional grounds on which to challenge the Arbitral
Tribunal’s ruling, to which KMP objected. KMP’s objection was heard in a hearing in July 2018 and deferred to a fuller hearing
to take place in March 2019.
Cooperative discussions between the parties, including representatives of the Zambian government, took place in May 2017
and are expected to be repeated.
Development Activities
COBRE PANAMA PROJECT, PANAMA
The Cobre Panama project’s focus remains on construction completion, commissioning of the process plant and commissioning
and ramp-up of the power station. The first 150MW power station set underwent a reliability and ramp-up program, which was
completed in January 2019. The second 150MW set has successfully completed steam blows and steam purity and has been run
on coal, and full commissioning is well underway with synchronization to the grid having taken place in January 2019. The
process plant is in the water commissioning phase, with the first ore circuits currently being tested on water.
Engineering and procurement were both essentially complete by year-end, with the only outstanding items being remaining
spares and construction consumables. The focus is on delivering these final items to site.
Additional key milestones achieved through 2018 include: construction completion of the first in-pit primary crusher; mill
commissioning commenced with rotation of semi-autogenous grinding (“SAG”) mill 1 and ball mill 1 and the respective mill lining
completed; water commissioning is underway in the areas of milling, rougher flotation, cleaner flotation, water services and tailings;
air circuits are active; and demobilization of site labour commenced after achieving a peak of over 13,000 personnel in 2018.
First Quantum Minerals Ltd. 2018 Annual Report
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key status of the construction of the project includes the project pre-strip which is 100% complete, and the tailings
management facility earthworks which are 87% complete. Construction of both of the 150MW power station sets was 100%
complete, and sets 1 and 2 were 100% and 94% commissioned, respectively, at year-end. Extensive process plant
commissioning and testing is underway. There are 2,133 designated operations personnel currently engaged, including all key
management staff. The operations readiness plan includes establishment of operating systems, procedures, tooling and spares,
and training of Panamanian employees. By December 2018, the mine, port and set 1 of the power station were running under
operational employee control. The project remains scheduled for ramp-up over 2019 and 2020.
In February 2019, the Company announced first introduction of ore to the processing plant at Cobre Panama. On February 7,
2019, ore was introduced through primary crushing and onto the stockpile with initial feed rates between 4,000 and 5,000
tonnes per hour, and on February 11, ore was introduced through to the first milling circuit. Operation on ore continues and
will move into all other sections of the processing plant, including the production of copper concentrate. Focus is now on an
efficient ramp-up for Cobre Panama.
The total project capital expenditure in 2018 was $1,332 million (First Quantum’s share $907 million). Project spending to date
amounts to $6.1 billion, including $2.1 billion contributed by third parties. The Company’s share of project capital expenditure
increased following the acquisition from LS-Nikko of its 50% share in KPMC.
Further to the above capital expenditure, $653 million was capitalized to the Cobre Panama project with respect to interest
costs incurred by the Company during 2018 (2017: $485 million).
ENTERPRISE PROJECT, ZAMBIA
The Enterprise nickel project is designed to produce approximately 38,000 tonnes of nickel in concentrate per annum with
scope to increase to 60,000 tonnes per annum when market conditions are considered suitable. Given the operational and
infrastructure synergies with the Sentinel copper mine, located 12 kilometres away, Enterprise is expected to be a low-cost
mine. Environmental approval has been granted and preparatory works around the project have been undertaken to allow
pre-stripping to commence when market conditions improve. Construction of the process plant was completed in 2016, and
some sections of the plant were incorporated into the Sentinel process circuit to provide additional processing flexibility in the
short-term should conditions permit. These areas are flotation, concentrate thickening and filtration and reagent composition.
Enterprise continues to be on hold with pre-strip mining activities deferred.
Exploration
The Company’s exploration strategy includes work at advanced stage exploration projects at Haquira in Peru and Taca Taca in
Argentina, near-mine resource expansion around Las Cruces, Pyhäsalmi and Kansanshi, as well as an early stage exploration
program concentrated on the search of high-quality porphyry deposits in the Andean and Tethyan Cordilleras and sediment-
hosted copper deposits in the basins of Central Africa and Australia.
At the Haquira project in Peru, the focus continues on the community and environmental aspects. The Environmental Impact
Assessment (“EIA”) studies continued during the period. Various access agreements with communities to maintain activities
have now been successfully renegotiated.
At Taca Taca, a detailed environmental and social baseline study is at an advanced stage of preparation, and communication
with communities and relevant authorities is ongoing. Water supply studies are progressing well, including a field program
which commenced in September 2018 to develop boreholes for pump testing sustainable groundwater resources in the area.
It is anticipated that formal environmental and social impact assessments will be filed with the authorities in 2019 for potential
development of a mine, processing plant and associated infrastructure for the Taca Taca project.
During 2018, near-mine exploration programs were active at Las Cruces in Spain and on satellite targets near Kansanshi in
Zambia. In the fourth quarter, first stage drilling was completed on a small oxide target near Kansanshi with resource
definition work proposed for 2019. At Las Cruces, further drilling is planned to test near-mine geophysical targets delineated
from seismic and electromagnetic surveys.
A modest global exploration program continued through 2018 focused on identifying high-quality porphyry and sediment-
hosted copper deposits around the world. In recent times this program has expanded to include reconnaissance exploration on
properties throughout the Andean belt in Argentina, Chile, Peru, Ecuador and Colombia but has also included evaluation of
high-priority targets in several other jurisdictions. In the fourth quarter of 2018, drill programs were active on targets in Chile,
Peru and Zambia.
20
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS Health & Safety
The health and safety of all of our employees and contractors is our top priority and the Company is focused on the continual
strengthening and improvement of the safety culture at all of our operations. Tragically, despite this, there have been two fatal
incidents at the Company’s operations in 2018, at Cobre Panama in August and at Sentinel in October. All fatalities are subject
to internal and external investigation, as well as Board review. These unfortunate incidents are being thoroughly analyzed and
the Company is committed to learning from the findings and taking appropriate actions. The Lost Time Injury Frequency Rate
(“LTIFR”) is an area of continued focus and a key performance metric for the Company. Our rolling 12-month LTIFR is 0.06 per
200,000 hours worked on average over the 12-month period to December 31, 2018, a 45% improvement from 2017.
Market Guidance
Guidance is based on a number of assumptions and estimates as of December 31, 2018, including, among other things,
assumptions about metal prices and anticipated costs and expenditures. Market guidance involves known and unknown risks,
uncertainties and other factors which may cause the actual results to be materially different.
COBRE PANAMA MILESTONES AND CONTINUED RAMP-UP EXPECTATIONS
The following milestones are expected in 2019:
• Successful completion of the inching and lining of both ball mills 1 and 2 in January 2019;
• First ore to SAG mills 1 and 2, startup of rougher trains 1 and 2 and first concentrate production to be completed within the
first quarter of 2019. Train 3, the gold plant and completion of outstanding infrastructure will occur within the second and
third quarters of 2019. Completion of the molybdenum plant is expected in the fourth quarter of 2019;
• Total 2019 copper production will vary according to the impact of known upsides, mitigated by as yet unknown ramp-up
factors and final project completion. A range of 140,000 to 175,000 tonnes of copper production is considered achievable.
Note that limited copper production is expected in the first half of 2019 whilst the process plant continues in commissioning
and startup. The second half of 2019 is expected to provide approximately 80% of the total copper production for the full
2019 year;
• Commercial production will be declared in arrears at a date yet to be determined and according to a number of factors,
including performance of key assets, achievement of steady state production at a material proportion of nameplate plant
capacity, and factors which indicate the mine is operating as intended by management. At this stage, while difficult to
predict exactly, it is assumed that commercial production will be declared in the final quarter of the year.
By the end of 2019 the Cobre Panama mine is expected to be running at an annualized throughput rate of 72 mpta and will
reach the 85 mtpa throughput rate by 2020. Contained copper production is estimated at between 140,000 tonnes and 175,000
tonnes in 2019, between 270,000 tonnes and 300,000 tonnes in 2020, and approximately 300,000 tonnes in 2021 increasing to
approximately 350,000 tonnes in 2022. In 2022, the C1 unit cost of production is estimated at $1.20 per lb and $1.50 per lb
all-in sustaining. Both estimates are net of an assumed by-product credit (principally gold as well as some molybdenum and silver)
of approximately $0.25 per lb. Gold production in 2020 and 2021 is estimated at approximately 100,000 ounces.
PRODUCTION GUIDANCE
000s
Total copper (tonnes)
Copper (tonnes) – Cobre Panama
Copper (tonnes) – excluding Cobre Panama
Gold (ounces) – excluding Cobre Panama
Zinc (tonnes)
2019
2020
700–735
140–175
840–870
270–300
560
185
12
570
180
2
2021
820
300
520
170
–
Production guidance for Las Cruces reflects the land slippage in January 2019, with lost production currently estimated at
25,000 tonnes in 2019. Production at Las Cruces for 2020 has also been reduced by a further 25,000 tonnes from amounts
previously disclosed as certain high-grade ore is no longer expected to be mined as part of the open pit operation. The open
pit mining operations are expected to be completed in the fourth quarter of 2020. (See page 30 for further detail included in
the Las Cruces outlook.)
First Quantum Minerals Ltd. 2018 Annual Report
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
There has been some small reduction to Sentinel, Guelb Moghrein and Çayeli production guidance, largely reflecting lower grade.
In terms of quarterly phasing of annual production, it is expected production at Zambian operations will be at its lowest in the
first quarter. The first and second quarters will also be impacted by lower production at Las Cruces following the land slippage.
SEASONALITY
The wet season in Zambia generally starts in November and continues through April, with the heaviest rainfall normally
experienced in the months of December, January, February and March. As a result of the wet season, pit access and the ability
to mine ore is lower in the first quarter of the year than other quarters and the cost of mining is higher.
PRODUCTION GUIDANCE BY OPERATION (EXCLUDING COBRE PANAMA)
COPPER
000s tonnes
Kansanshi
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
GOLD
000s tonnes
Kansanshi
Guelb Moghrein
Pyhäsalmi
ZINC
000s tonnes
Çayeli
Pyhäsalmi
2019
2020
235
230
47
28
17
5
235
250
45
25
15
–
2019
2020
135
47
3
135
45
–
2021
235
250
–
20
15
–
2021
135
45
–
2019
2020
2021
2
10
2
–
–
–
CASH COST AND ALL-IN SUSTAINING COST
Cash costs and AISC guidance in the tables below does not include any costs in respect of Cobre Panama.
COPPER
C1 (per lb) – excluding Zambian sales tax
AISC (per lb) – excluding Zambian sales tax
2019
2020
2021
$1.20–$1.40
$1.20–$1.40
$1.20–$1.40
$1.70–$1.85
$1.70–$1.85
$1.70–$1.85
Increase in AISC guidance reflects higher Zambian royalty and gold sales levy rates effective January 1, 2019. This has
increased AISC by $0.05 per lb in all three years.
It is expected that a Zambian sales tax will be introduced from April 1, 2019, and that this will result in increased C1 and AISC
unit costs. However, guidance given excludes the impact of sales tax as the rate to be introduced has not yet been confirmed
by the GRZ.
22
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
CAPITAL EXPENDITURE1
Total Cobre Panama project2
Third-party contribution3
First Quantum’s share of Cobre Panama project4
Capitalized stripping
Sustaining capital and other projects
Total net capital expenditure
1 Excludes capitalization of any net pre-commercial production costs, revenue and interest.
2 Reflects total capital expenditure estimate of $6.3 billion.
3 Third-party contributions are from KORES’ 10% indirect interest in the project.
4 Based on the current 90% ownership.
Guidance on total Cobre Panama project capital expenditure is $6.3 billion.
2019
2020
2021
230
(35)
195
200
650
1,045
–
–
–
250
600
850
–
–
–
250
600
850
Guidance for the Company’s sustaining capital and other projects includes expenditure relating to Cobre Panama and also
includes expenditure relating to other development projects. Underlying sustaining capital expenditure is expected to average
approximately $250 million per annum from 2020.
INTEREST
Due to the current level of project capital expenditure, interest has largely been capitalized in 2018 and previous years. This is
expected to continue until declaration of commercial production at Cobre Panama and, in the absence of any major project
capital expenditure, interest would then be expensed.
TAX
Excluding the impact of the changes to the Zambian mining tax regime, which were effective January 1, 2019, the effective
tax rate for 2019, excluding the sales hedge program, is expected to be in line with 2018, at approximately 31%. Including
the impact of the changes to the Zambian mining tax regime, the expected effective rate, excluding the sales hedge program,
is approximately 45%.
Operating Review
Production Summary1
Q4 2018
Q3 2018
Q4 2017
2018
2017
Copper production (tonnes)2
Kansanshi
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
61,780
63,687
64,800
251,522
250,801
60,840
56,426
57,190
223,656
190,683
18,470
15,181
18,700
70,738
73,664
8,319
7,902
7,155
28,137
28,791
5,931
5,056
3,284
19,896
16,523
2,964
2,989
3,190
11,904
13,501
Total copper production (tonnes)
158,304
151,241
154,319
605,853
573,963
Total gold production (ounces)
48,039
44,979
51,904
185,414
199,736
Total zinc production (tonnes)
7,687
7,348
3,556
26,807
20,723
Total nickel production (contained
tonnes)
–
–
–
–
17,837
1 Operating performance measures for 2017 include Ravensthorpe. On October 1, 2017, Ravensthorpe was placed on care and maintenance.
2 Production is presented on a copper contained basis, and is presented prior to processing through the Kansanshi smelter.
First Quantum Minerals Ltd. 2018 Annual Report
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
FULL YEAR
The Company achieved record annual copper production of 605,853 tonnes in 2018, representing a 6% increase compared to
2017 and exceeding market guidance. This increase reflected higher production at Sentinel, which achieved record production of
223,656 tonnes of copper anode in 2018, an increase of 17% compared to 2017, and Çayeli where production was 20% higher
than the prior year due to higher throughput and grades mined. This increase was partially offset by lower copper production at
Las Cruces, where planned and unplanned shutdowns reduced equipment availability by 18 days in 2018, and Pyhäsalmi which
was impacted by lower grades, throughput and recovery.
The Kansanshi smelter continued to perform well, having achieved record throughput of 1.38 million DMT of concentrate
processed, reflecting a 15% increase over design capacity, and produced 1,255,000 tonnes of sulphuric acid in 2018. The
smelter produced a record 347,037 tonnes of copper anode in the year, including 7,349 tonnes produced from copper
concentrate purchased from third parties.
Gold production of 185,414 ounces was 7% lower than the prior year mainly due to reduced gold feed grade at Kansanshi
and Guelb Moghrein.
Ravensthorpe remained on care and maintenance throughout 2018 following the suspension of operations at the mine in
October 2017 due to the low nickel price.
FOURTH QUARTER
Copper production in the fourth quarter was 3% higher than the comparable period of 2017, reflecting higher production at
Sentinel, Çayeli and Guelb Moghrein, attributable to increased throughput, higher grade at Çayeli and Guelb Moghrein and
improved recoveries at Sentinel. The increase was partially offset by lower copper production at Kansanshi due to reduced
throughput and grade on the oxide circuit, as well as lower recoveries on the sulphide and mixed ore circuits.
The Kansanshi smelter produced 89,894 tonnes of copper anode in the fourth quarter, including 5,884 tonnes of copper
anode produced from copper concentrate purchased from third parties. The smelter processed 349,424 DMT of copper
concentrate with a copper recovery of 97%. Sulphuric acid production for the quarter was 320,000 tonnes.
Gold production of 48,039 ounces was 7% lower than the same period of 2017, reflecting lower gold production at
Kansanshi and Guelb Moghrein due to lower gold feed grade.
Sales Summary1
Copper sales (tonnes)
Kansanshi2
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
Q4 2018
Q3 2018
Q4 2017
2018
2017
56,330
64,818
74,974
229,832
267,700
60,257
59,069
44,767
238,211
177,360
18,345
15,138
17,903
71,523
74,664
9,099
5,108
6,811
27,366
28,999
9,153
2,753
4,266
17,397
17,716
3,028
2,991
3,184
12,184
13,691
Total copper sales (tonnes)2
156,212
149,877
151,905
596,513
580,130
Total gold sales (ounces)
Total zinc sales (tonnes)
53,221
42,864
50,723
193,072
201,376
8,268
6,178
3,282
26,112
21,851
Total nickel sales (contained tonnes)
–
–
865
–
18,683
1 Operating performance measures for 2017 include Ravensthorpe. On October 1, 2017, Ravensthorpe was placed on care and maintenance.
2 Copper sales exclude the sale of copper anode produced from third-party concentrate purchased at Kansanshi. Sales of copper anode attributable to third-party concentrate
purchases were 5,884 tonnes and 7,349 tonnes for the three months and year ended December 31, 2018, respectively. Q3 2018 copper sales have been adjusted to
exclude copper anode sales of 1,465 tonnes attributable to third-party concentrate purchased.
FULL YEAR
The Company achieved record copper sales for the year ended December 31, 2018, 3% higher than 2017, mainly reflecting
higher sales volumes at Sentinel. Sentinel copper sales were 60,851 tonnes higher than 2017, offset by lower copper sales
volumes at Kansanshi resulting from the timing of sales of copper anode. Sales of copper anode were 11% higher in the year,
partially offset by 8% and 5% decreases to the volumes of copper cathode and copper concentrate sold, respectively.
24
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOURTH QUARTER
Copper sales volumes for the quarter of 156,212 tonnes were 3% higher than the comparable quarter of 2017. Increased
sales volumes at Sentinel, Çayeli and Guelb Moghrein were offset by reduced sales volumes at Kansanshi in the period
compared with 2017.
UNIT COST
Unit Cost Summary
Copper C1 cash cost ($ per lb)
Kansanshi1
Sentinel
Las Cruces
Other sites2
Total copper C1 cash cost ($ per lb)1
Copper AISC ($ per lb)
Kansanshi1
Sentinel
Las Cruces
Other sites2
Total copper AISC ($ per lb)1
Q4 2018
Q3 2018
Q4 2017
2018
2017
$
$
$
$
$
$
$
$
$
$
1.04 $
1.06 $
1.16 $
1.03 $
1.55 $
1.72 $
1.67 $
1.70 $
0.94 $
1.02 $
0.93 $
0.90 $
1.23 $
0.83 $
0.82 $
0.96 $
1.23 $
1.31 $
1.30 $
1.28 $
1.61 $
1.59 $
1.55 $
1.55 $
2.02 $
2.25 $
2.36 $
2.22 $
1.16 $
1.41 $
1.12 $
1.16 $
1.40 $
1.09 $
1.28 $
1.26 $
1.68 $
1.80 $
1.76 $
1.74 $
1.05
1.70
0.86
0.85
1.23
1.54
2.19
1.06
1.18
1.65
1 Copper C1 cash cost and AISC for Kansanshi and total Group exclude purchases of copper concentrate from third parties treated through the Kansanshi smelter. Kansanshi
and total copper C1 cash cost and AISC for Q3 2018 have been revised from amounts previously disclosed to exclude the following impacts of third-party concentrate
purchased: $0.06 per lb for Kansanshi C1 cash cost, $0.05 per lb for Kansanshi AISC and $0.03 per lb for total Group C1 cash cost and AISC.
2 Other sites include Guelb Moghrein, Çayeli and Pyhäsalmi.
FULL YEAR
Copper C1 cash cost for 2017 benefitted from the impact of a review of operational provisions at Kansanshi and Sentinel,
which reduced site administration costs by $0.05 per lb. Excluding this impact, underlying C1 cash cost for 2018 was in line
with 2017. Underlying C1 cash costs for Kansanshi and Sentinel were $0.10 per lb and $0.04 per lb lower, respectively, in the
year compared with 2017. Higher by-product credits at Kansanshi from the sale of sulphuric acid as well as maintenance costs
related to the smelter shutdown in 2017 that did not recur in 2018 contributed to the decrease in C1 cash cost. At Sentinel,
C1 cash cost benefitted from the impact of higher copper production and lower consumable costs. These were partially offset
by higher fuel costs at both Zambian operations along with the larger weighting of Sentinel’s C1 cost, which resulted in a
$0.05 per lb increase in the Group C1 cash cost.
Excluding the impact of the review of operational provisions at the Zambian operations, AISC for the year was $0.04 per lb
higher than 2017 reflecting higher royalties in Zambia due to the increased LME average copper in the year as well as
increased sustaining capital expenditure at Kansanshi and Sentinel.
FOURTH QUARTER
Copper C1 cash cost decreased by $0.07 per lb in the quarter compared with the same period of 2017. This was driven by the
impact of higher copper production volumes and increased by-product credits at Kansanshi from the sale of sulphuric acid as
well as zinc sales at Çayeli and Pyhäsalmi.
Copper AISC reflected the lower C1 cash cost and reduced royalties in Zambia, due to a lower average LME copper price in
the quarter compared with the same period of 2017, partially offset by higher sustaining capital expenditure.
First Quantum Minerals Ltd. 2018 Annual Report
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operations
Kansanshi
Q4 2018
Q3 2018
Q4 2017
2018
2017
Sulphide ore tonnes milled (000s)
3,301
3,390
3,298
12,978
12,970
Sulphide ore grade processed (%)
0.81
0.72
0.76
0.78
Sulphide copper recovery (%)
Mixed ore tonnes milled (000s)
Mixed ore grade processed (%)
Mixed copper recovery (%)
Oxide ore tonnes milled (000s)
Oxide ore grade processed (%)
Oxide copper recovery (%)
Copper production (tonnes)1
Copper smelter
0.75
91
88
95
94
91
2,165
2,082
2,012
8,186
7,997
1.08
1.04
0.99
1.06
76
86
88
82
1.05
85
1,668
1,749
1,811
6,916
6,916
1.33
1.31
1.51
1.44
92
95
89
89
1.51
87
61,780
63,687
64,800
251,522
250,801
Concentrate processed (DMT)2
349,424
355,435
348,283 1,381,637 1,211,740
Copper anodes produced (tonnes)2
89,894
90,269
83,281
347,037
297,553
Smelter copper recovery (%)
Acid tonnes produced (000s)
Copper sales (tonnes)3, 4
Gold production (ounces)
Gold sales (ounces)
All-in sustaining cost (AISC) (per lb)5, 6
Cash costs (C1) (per lb)5, 6
Total costs (C3) (per lb)5, 6
Sales revenues
Gross profit
Comparative EBITDA5
97
320
97
319
97
97
96
325
1,255
1,128
56,330
64,818
74,974
229,832
267,700
33,465
30,938
36,363
130,019
140,595
35,616
32,706
35,910
134,890
139,735
$
$
$
1.61 $
1.59 $
1.55 $
1.55 $
1.04 $
1.06 $
1.16 $
1.03 $
1.71 $
1.73 $
1.86 $
1.74 $
1.54
1.05
1.71
417
140
198
434
146
210
525
218
294
1,672
1,740
623
859
636
915
1 Production presented on a copper concentrate basis, i.e. mine production only. Production does not include output from the smelter.
2 Concentrate processed in smelter and copper anodes produced are disclosed on a 100% basis, inclusive of Sentinel and third-party concentrate processed. Concentrate
processed is measured in dry metric tonnes (“DMT”). 11,682 DMT of third-party purchased copper concentrate was treated for the year ended December 31, 2018 and
9,402 DMT was treated for the fourth quarter.
3 Sales of copper anode attributable to anode produced from third-party purchased concentrate are excluded. For the year and quarter ended December 31, 2018, sales of
copper anode produced from purchased concentrate were 7,349 tonnes and 5,884 tonnes, respectively. Q3 2018 copper sales have been adjusted to exclude copper anode
sales of 1,465 tonnes attributable to third-party concentrate purchased.
4 Sales include third-party sales of concentrate, cathode and anode attributable to Kansanshi (excluding copper anode sales attributable to Sentinel).
5 AISC, C1 cash cost, and C3 total cost and comparative EBITDA are not recognized under IFRS. See “Regulatory disclosures” for further information.
6 Excluding purchases of copper concentrate from third parties treated through the Kansanshi smelter, C1 cash cost, C3 total cost and AISC for Q3 2018 have been revised
from amounts previously disclosed to exclude the following impacts of third-party concentrate purchased: $0.06 per lb for C1 and C3 total cost and $0.05 per lb for AISC.
KANSANSHI MINING OPERATIONS
Full year
Copper production for the year was in line with the prior year, driven by higher throughput and grade on the sulphide and mixed
ore circuits, as well as higher recoveries on the oxide circuit due to higher acid availability from the smelter compared to 2017, in
which there was a smelter maintenance shutdown. This was partially offset by lower recoveries on the mixed ore circuit primarily
due to the processing of tarnished sulphide material. No concentrate was processed through the high-pressure leach (“HPL”)
plant from the second quarter of 2018 due to sufficient internal and external smelting capacity. Major autoclave maintenance
was performed during 2018 in preparation for future concentrate treatment.
Gold production of 130,019 ounces was 8% lower than the prior year resulting primarily from lower gold feed grades. Gold
plant improvements, including new sorting tables, commenced during the fourth quarter and will continue during the first
quarter of 2019.
26
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Excluding the impact of a review of operational provisions which reduced C1 cash cost by $0.08 per lb in 2017, C1 cash cost
excluding third-party concentrate purchases was $0.10 per lb lower than 2017. Cash costs were reduced due to acid sales and
there being no major smelter shutdown in 2018, partially offset by higher fuel costs. On the same basis, AISC of $1.55 per lb
was $0.07 per lb lower than the prior year, reflecting lower C1 cash cost and deferred stripping, partially offset by higher
sustaining capital expenditures and royalty costs.
Sales revenues of $1,672 million were 4% lower than 2017, reflecting lower copper sales volumes partially offset by higher
realized metal prices, excluding the impact of the corporate sales hedge program. Gross profit of $623 million was lower than
the prior year, reflecting lower sales revenues.
Fourth quarter
Copper production in the fourth quarter was 5% lower than the comparable period in 2017 due primarily to lower
throughput and grade on the oxide circuit, as well as lower recoveries on the sulphide and mixed ore circuits due to the
processing of tarnished sulphide material. Partially offsetting this impact were higher sulphide and mixed ore grades, higher
throughput on the mixed ore circuit and higher oxide circuit recoveries. No ore was processed through the HPL plant in the
fourth quarter due to there being sufficient internal and external smelting capacity.
Gold production was 8% lower than the same period of 2017 resulting primarily from lower gold feed grades.
AISC of $1.61 per lb was $0.06 per lb higher than the same period in 2017, due to the impact of lower copper production
volume and higher sustaining capital expenditures, partially offset by lower C1 cash cost, primarily reflecting higher by-product
credits from the sale of sulphuric acid.
Sales revenues of $417 million were 21% lower compared to the same period in 2017, reflecting lower copper sales volumes
and realized metal prices, excluding the impact of the corporate sales hedge program. Sales of copper anode attributable to
anode produced from third-party purchased concentrate contributed revenues of $36 million. Gross profit of $140 million was
36% lower than the same period in 2017, reflecting the decrease in sales revenues.
KANSANSHI COPPER SMELTER
Full year
In 2018, the smelter achieved an annual record of 1,381,637 DMT of concentrate treated and produced 347,037 tonnes of
copper in anode and 1,255,000 tonnes of sulphuric acid. Smelter throughput was 14% higher than the prior year, exceeding
design capacity of 1.2 million DMT by 15%. Smelter throughput in 2017 was lower due to a major maintenance shutdown,
which occurs every two to three years. During the year, the smelter processed 11,682 DMT of concentrate purchased from
third parties to ensure the smelter maintains maximum feed rate and acid production levels during the wet season. The
smelter achieved an overall copper recovery rate of 97%.
Fourth quarter
In the fourth quarter of 2018, the smelter treated 349,424 DMT of concentrate, including 9,402 DMT purchased externally,
and produced 89,894 tonnes of copper in anode and 320,000 tonnes of sulphuric acid.
OUTLOOK
Production in 2019 is expected to be approximately 235,000 tonnes of copper and approximately 135,000 ounces of gold.
A two-week smelter shutdown is planned for the third quarter of 2019 to perform work on the acid plant catalyst screening.
First Quantum Minerals Ltd. 2018 Annual Report
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
Sentinel
Q4 2018
Q3 2018
Q4 2017
2018
2017
Copper ore processed (000s tonnes)
12,434
12,602
11,834
48,750
42,087
Copper ore grade processed (%)
0.53
0.49
0.54
0.50
Copper recovery (%)
92
91
90
91
0.52
87
Copper production (tonnes)
60,840
56,426
57,190
223,656
190,683
Copper sales (tonnes)
60,257
59,069
44,767
238,211
177,360
All-in sustaining cost (AISC) (per lb)1
Cash cost (C1) (per lb)1
Total cost (C3) (per lb)1
Sales revenues
Gross profit
Comparative EBITDA1
$
$
$
2.02 $
2.25 $
2.36 $
2.22 $
1.55 $
1.72 $
1.67 $
1.70 $
2.26 $
2.39 $
2.49 $
2.42 $
2.19
1.70
2.45
344
72
141
333
55
116
281
1,454
1,026
51
110
288
553
166
385
1 AISC, C1 cash cost, C3 total cost and comparative EBITDA are not recognized under IFRS. See “Regulatory disclosures” for further information.
Full year
Sentinel achieved record throughput, recoveries and production in 2018. Copper production was 17% higher than 2017,
reflecting further improvement in ore supply with higher mill throughput and recoveries, attributable to mining of fresher ore
as well as continued optimization of the milling and flotation circuit, including grind size, reagent dosing and circuit control.
Copper grades were slightly lower than 2017.
Excluding the impact of a review of operational provisions which reduced C1 cash cost by $0.04 per lb in 2017, C1 cash cost
was $0.04 per lb lower than the same period in 2017 reflecting lower consumables and the impact of higher copper
production volume, partially offset by higher fuel and contractor costs. On the same basis, AISC of $2.22 per lb was $0.01 per
lb lower than the prior year, reflecting the decrease in C1 cash cost, partially offset by higher royalties and sustaining capital
expenditures.
Sales revenues of $1,454 million were 42% higher than 2017 due to both higher sales volumes and realized copper prices,
excluding the impact of the corporate sales hedge program. Sales revenues comprised sales of both concentrate and anode,
with a higher proportion of revenue realized from copper anode. The increase in sales revenues flowed through to gross profit,
which was 73% higher than 2017.
Fourth quarter
Sentinel achieved record quarterly copper production of 60,840 tonnes in the fourth quarter, reflecting continued
improvement in ore supply contributing to higher mill throughput and record copper recoveries with continued optimization of
the milling and flotation circuits. Copper production was 6% higher than the comparable period in 2017. The increases in
throughput and recoveries were partially offset by lower copper grades.
AISC of $2.02 per lb was $0.34 per lb lower than the same period in 2017, reflecting the impact of higher copper production,
as well as lower C1 cash cost, royalties and sustaining capital expenditures, partially offset by higher deferred stripping costs.
The decrease in C1 cash cost was mainly due to lower mining, consumables and contractor costs. Royalties were lower as a
result of the timing of sales by the mine in the quarter.
Sales revenues of $344 million were 22% higher than the comparable period in 2017 due to higher copper sales volumes,
partially offset by lower realized copper prices excluding the impact of the corporate sales hedge program. A higher proportion
of revenues were realized from copper anode in the quarter. Gross profit of $72 million was 41% higher than the comparable
period in 2017, reflecting the increase in sales revenues.
OUTLOOK
Production in 2019 is expected to be approximately 230,000 tonnes of copper. In terms of quarterly phasing of annual
production, it is expected that production will be at its lowest in the first quarter.
Copper production is expected to continue to benefit from consistent ore supply, higher feed grades and recoveries with
continued optimization of the milling and flotation circuits. Mining is expected to continue to focus on optimization of drilling
and blasting as well as loading and hauling practices, improved ore feed grades as well as the expansion of the trolley-assist
program. Waste stripping in the east cutback is planned to continue throughout 2019.
28
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Forthcoming projects at Sentinel in 2019 are expected to include additions to the secondary crusher and pebble conveying circuits
to enhance operational flexibility and efficiency, as well as the start of construction of a fourth in-pit crusher.
Las Cruces
Q4 2018
Q3 2018
Q4 2017
2018
2017
Ore tonnes processed (000s)
Copper ore grade processed (%)
Copper recovery (%)
400
5.00
93
338
4.84
93
420
1,544
1,619
4.99
4.95
89
93
5.07
90
Copper cathode production (tonnes)
18,470
15,181
18,700
70,738
73,664
Copper cathode sales (tonnes)
18,345
15,138
17,903
71,523
74,664
All-in sustaining cost (AISC) (per lb)1
Cash cost (C1) (per lb)1
Total cost (C3) (per lb)1
Sales revenues
Gross profit
Comparative EBITDA1
$
$
$
1.16 $
1.41 $
1.12 $
1.16 $
0.94 $
1.02 $
0.93 $
0.90 $
2.28 $
2.50 $
2.40 $
2.25 $
113
19
76
93
11
60
122
26
91
470
116
326
1.06
0.86
2.15
461
106
316
1 AISC, C1 cash cost, C3 total cost and comparative EBITDA are not recognized under IFRS. See “Regulatory disclosures” for further information.
Full year
Copper production for 2018 decreased by 4% compared to the prior year. The decrease was due to lower throughput caused
by a major planned maintenance shutdown and unplanned shutdowns in the grinding thickener during the second half of the
year, resulting in reduced equipment availability by 18 days, and lower ore grade of the mined mineral in the year. The
decrease was partially offset by higher recoveries, which benefitted from lower levels of lead and zinc in the ore processed and
improved performance of the pressure filters.
AISC of $1.16 per lb was higher compared to the prior year due to the impact of lower copper production, higher C1 cash
cost, the depreciation of the U.S. dollar against the euro, and higher deferred stripping costs. Increased C1 cash cost was
driven by higher processing costs relating to higher utility and reagent prices, labour costs and costs arising from higher water
volumes treated, partially offset by lower mining costs.
Sales revenues of $470 million increased by 2% compared to the prior year due to higher realized copper prices, excluding the
impact of the corporate sales hedge program, partially offset by lower copper sales volumes. The increase in revenues flowed
through to gross profit, resulting in a 9% increase over the prior year.
Fourth quarter
Copper production in the fourth quarter decreased slightly compared to the same period in 2017, as a result of lower
throughput due to an unplanned shutdown in November 2018 in the grinding thickener, which reduced equipment availability
by four days. The impact of lower throughput was partially offset by higher ore grade processed and recoveries benefitting
from lower primary ore dilution and favourable pressure filter performance.
AISC of $1.16 per lb was higher compared to the same period in 2017 due to higher C1 cash cost driven by the impact of
lower copper production as well as higher utilities and reagents prices, partially offset by lower mining costs. Higher deferred
stripping costs further increased AISC in the quarter.
Sales revenues of $113 million for the three months ended December 31, 2018 decreased by 7% compared with the same
period in 2017 due to lower realized copper prices, excluding the impact of the corporate sales hedge program, partially offset
by higher copper sales volumes. The decrease in revenues flowed through to gross profit, resulting in a 27% decrease
compared with the same period in 2017.
OUTLOOK
On January 23, 2019, operations were temporarily suspended following a land slippage on the slope of the northern zone of
the open pit mine. There were no injuries or impact on third-party facilities or land resulting from the land slippage. The
suspension of operations is currently estimated to result in approximately 25,000 tonnes of lost copper production in 2019.
Planned production for 2020 has also been reduced by a further 25,000 tonnes from amounts previously disclosed as certain
high-grade ore is no longer expected to be mined as part of the open pit operation.
First Quantum Minerals Ltd. 2018 Annual Report
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
Copper production for 2019 is expected to be 45,000 tonnes. The hydrometallurgical plant resumed copper production on
February 1, 2019, processing lower-grade ore stockpiles. This is expected to provide feed for the next several months while the
Company obtains the necessary regulatory approvals for the commencement of mining of Phase 6, which was unaffected by
the land slippage.
The open pit mining operations are expected to be completed in the second half of 2020.
Research on the technical and economic feasibility of the polymetallic refinery project is also expected to continue.
Guelb Moghrein
Q4 2018
Q3 2018
Q4 2017
2018
2017
Sulphide ore tonnes milled (000s)
Sulphide ore grade processed (%)
Sulphide copper recovery (%)
Copper production (tonnes)
Copper sales (tonnes)
Gold production (ounces)
Gold sales (ounces)
983
0.93
91
902
0.94
94
874
3,684
3,389
0.90
0.85
91
90
0.93
92
8,319
7,902
7,155
28,137
28,791
9,099
5,108
6,811
27,366
28,999
12,236
11,644
13,270
45,974
49,213
14,224
8,100
12,384
48,195
50,453
Magnetite concentrate production (WMT)1
97,052
111,765
Magnetite concentrate sales (WMT)1
85,914
61,315
–
–
425,389
376,956
All-in sustaining cost (AISC) (per lb)2
Cash costs (C1) (per lb)2
Total costs (C3) (per lb)2
Sales revenues
Gross profit
Comparative EBITDA2
$
$
$
1.95 $
1.93 $
1.60 $
1.93 $
1.73 $
1.57 $
1.34 $
1.50 $
2.79 $
2.42 $
2.25 $
2.46 $
70
1
13
41
1
7
59
12
22
235
30
66
–
–
1.65
1.28
2.13
217
41
83
1 Magnetite concentrate production and sales volumes are measured in wet metric tonnes (“WMT”).
2 AISC, C1 cash cost, C3 total cost and comparative EBITDA are not recognized under IFRS. See “Regulatory disclosures” for further information.
Full year
Copper production in 2018 decreased slightly compared to the prior year due to lower feed grade and copper recovery,
partially offset by a 9% increase in mill throughput. The lower feed grade was due to processing low-grade ore from stockpiles
during the first half of 2018 while waste mining progressed. Feed grade and recoveries improved in the second half of 2018
with the processing of softer ore, which had a positive impact on copper production.
Gold in concentrate production for the year ended December 31, 2018 decreased by 7% compared to the same period in
2017, due to lower feed grade and lower gold circuit recovery.
The magnetite plant produced 425,389 WMT of magnetite concentrate in 2018.
AISC of $1.93 per lb was $0.28 per lb higher than the prior year, reflecting an increase in C1 cash cost of $0.22 per lb as well
as higher royalties and deferred stripping costs, partially offset by lower sustaining capital expenditure. The increase in C1 cash
cost reflected the impact of lower copper production, increased fuel prices and consumption levels as well as higher mining
costs driven by contractor and drilling services, partially offset by higher by-product credits.
Sales revenues of $235 million were 8% higher than the prior year due to higher realized metals prices, excluding the impact
of the corporate sales hedge program, and magnetite revenue of $23 million, partially offset by lower copper and gold sales
volumes. Gross profit of $30 million was lower than the same period in 2017, with the increase in sales revenues more than
offset by higher operating costs.
30
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fourth quarter
Copper production was 16% higher than the same period in 2017, mainly due to a 12% increase in throughput and higher
feed grade due to the processing of softer ore.
Gold in concentrate production was 8% lower than the same period in 2017, due to lower recovery resulting from lower
performance of concentrators and lower gold feed grade.
The magnetite plant produced 97,052 WMT of magnetite concentrate this quarter.
AISC of $1.95 per lb was $0.35 per lb higher than the same period in 2017, reflecting a $0.39 per lb increase in C1 cash cost
partially offset by lower royalty costs and sustaining capital expenditures. The increase in C1 cash cost reflected higher mining
costs driven by contractor and outsourced drilling services, as well as increased fuel prices and consumption levels,
maintenance and consumables costs, partially offset by higher by-product credits.
Sales revenues of $70 million were 19% higher than the same period of 2017 due to higher copper and gold sales volumes
and magnetite revenue of $5 million, partially offset by lower realized metals prices excluding the impact of the corporate
sales hedge program. Gross profit of $1 million was lower than the same period in 2017, with the increase in sales revenues
more than offset by higher operating costs and depreciation.
OUTLOOK
Production in 2019 is expected to be approximately 28,000 tonnes of copper, 47,000 ounces of gold and 570,000 WMT of
concentrate of magnetite. Magnetite concentrate sales of 320,000 WMT are expected in 2019.
The focus for 2019 will be on improving gold concentrator recoveries, cost reduction through the review of contractors and
equipment contracts and increasing mining productivity.
A total of 16 days of shutdown time is planned throughout 2019 for the maintenance of crusher and SAG mill circuits.
Çayeli
Q4 2018
Q3 2018
Q4 2017
2018
Ore tonnes milled (000s)
Copper ore grade processed (%)
Copper recovery (%)
252
2.64
89
243
2.39
87
212
1,007
1.72
2.26
90
88
Zinc ore grade processed (%)
1.50
1.69
0.78
1.40
Zinc recovery (%)
27
32
23
29
2017
943
1.96
89
1.05
34
Copper production (tonnes)
5,931
5,056
3,284
19,896
16,523
Copper sales (tonnes)
Zinc production (tonnes)
Zinc sales (tonnes)
All-in sustaining cost (AISC) (per lb)1
Cash cost (C1) (per lb)1
Total cost (C3) (per lb)1
Sales revenues
Gross profit (loss)
Comparative EBITDA1
9,153
2,753
4,266
17,397
17,716
1,034
1,305
379
4,091
2,154
–
–
4,313
$
$
$
1.28 $
1.45 $
2.48 $
1.48 $
1.09 $
1.18 $
2.05 $
1.21 $
1.75 $
2.05 $
2.06 $
2.03 $
52
19
30
13
–
5
23
11
10
100
23
51
3,326
4,435
1.75
1.50
2.37
98
16
43
1 AISC, C1 cash cost, C3 total cost and comparative EBITDA are not recognized under IFRS. See “Regulatory disclosures” for further information.
Full year and fourth quarter
Copper production for the year and quarter ended December 31, 2018 were 20% and 81% higher, respectively, than the same
periods in 2017 due to higher throughput and copper grade, partially offset by lower recovery due to the mining sequence in
which the processing of off-spec ore resulted in less separation of copper and zinc. Copper grade has been positively impacted by
the opening of new work areas, which has increased mining flexibility in 2018, as well as ground stability in the areas mined.
Zinc production for the year and quarter ended December 31, 2018 was 23% and 173% higher, respectively, than the
comparable periods in 2017, reflecting higher zinc grades and, for the quarter, higher zinc recovery. New higher-grade work
areas were opened compared to the low-grade stockwork ore processed in the prior year. The processing of a higher volume
of off-spec ore contributed to the decrease in zinc recoveries for the year compared to 2017.
First Quantum Minerals Ltd. 2018 Annual Report
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
AISC for the year and quarter ended December 31, 2018 decreased by $0.27 per lb and $1.20 per lb, respectively, compared
to the same periods in 2017, mainly driven by the impact of higher copper production, decreases in C1 cash cost and, for the
quarter, lower deferred development costs. C1 cash cost was lower by $0.29 per lb and $0.96 per lb, respectively, for the year
and quarter ended December 31, 2018, compared to the same periods in 2017 mainly due to lower operating expenditures
attributable to the appreciation of the U.S. dollar against the Turkish lira. The decrease in C1 cash cost was partially offset by
higher royalties in the year and quarter ended December 31, 2018, as well as higher deferred development costs and
sustaining capital expenditures for the year ended December 31, 2018, compared to the same periods in 2017.
Sales revenues of $100 million for the year ended December 31, 2018 and $52 million in the fourth quarter were 2% and
126% higher, respectively, than the comparable periods in 2017. For the year 2018, higher realized copper prices, excluding
the impact of the corporate sales hedge program, were partially offset by slightly lower sales volumes and lower realized zinc
prices. For the quarter, the impact of significantly higher copper and zinc sales volumes compared to the same period in 2017,
reflecting eight of the year’s 15 shipments including those that were delayed from the third quarter of 2018, was partially
offset by lower realized metals prices, excluding the impact of the corporate sales hedge program. The higher sales revenues
contributed to an increase in gross profit for the year and three months ended December 31, 2018.
OUTLOOK
Production for 2019 is expected to be 17,000 tonnes of copper and 2,000 tonnes of zinc, reflecting a declining number of
work areas as the mine approaches reserve depletion in 2021.
Production is expected to be challenging due to poor ground conditions in the areas forecast to be mined; therefore, ground
stabilization will be critical to achieving the expected production levels.
Pyhäsalmi
Q4 2018
Q3 2018
Q4 2017
2018
2017
Ore tonnes milled (000s)
Copper ore grade processed (%)
Copper recovery (%)
312
0.98
97
320
0.98
95
306
1,248
1,260
1.07
0.99
97
96
Zinc ore grade processed (%)
2.35
2.07
1.17
2.01
Zinc recovery (%)
91
91
89
91
1.11
97
1.55
89
Copper production (tonnes)
2,964
2,989
3,190
11,904
13,501
Copper sales (tonnes)
Zinc production (tonnes)
Zinc sales (tonnes)
Pyrite production (tonnes)
Pyrite sales (tonnes)
All-in sustaining cost (AISC) (per lb)1
Cash cost (C1) (per lb)1
Total cost (C3) (per lb)1
Sales revenues
Gross profit
Comparative EBITDA1
3,028
2,991
3,184
12,184
13,691
6,653
6,043
3,177
22,716
17,397
6,114
6,178
3,282
21,799
17,416
168,881
171,355
154,855
645,885
692,124
124,109
100,894
114,712
445,181
418,743
$
$
$
(0.59)
$
(0.48)
$
(0.09)
$
(0.46)
$
(0.59)
$
(0.48)
$
(0.10)
$
(0.46)
$
1.57 $
1.67 $
2.35 $
1.70 $
34
9
23
34
9
22
38
6
22
144
40
94
(0.26)
(0.26)
2.06
143
24
89
1 AISC, C1 cash cost, C3 total cost and comparative EBITDA are not recognized under IFRS. See “Regulatory disclosures” for further information.
32
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Full year and fourth quarter
2018 was the final full year of copper production at Pyhäsalmi. Copper production decreased by 12% and 7% in the year and
quarter ended December 31, 2018, respectively, compared to the same periods in 2017, mainly due to lower copper grade.
Lower throughput and copper recovery also contributed to the decrease for the full year in 2018. Zinc production was 31% and
109% higher in the year and quarter ended December 31, 2018, respectively, compared to the same periods in 2017 due to
higher zinc grade and recovery. The lower throughput in 2018 and fluctuation in grades reflect the nearly depleted economic ore
reserve and the constraint on available work areas at this stage of the mine life.
AISC of ($0.46) per lb and ($0.59) per lb for the year and quarter ended December 31, 2018, respectively, were lower than the
comparable periods in 2017 mainly due to higher by-product credits, partially offset by the impact of lower copper production.
Sales revenues of $144 million and $34 million were slightly higher and 11% lower, respectively, than the same periods of
2017. For the year ended December 31, 2018, higher zinc sales volumes and realized copper prices, excluding the impact of
the corporate sales hedge program, were offset by lower copper sales volumes and realized zinc prices. In the fourth quarter,
higher zinc sales volumes were more than offset by lower copper sales volumes and realized metals prices, excluding the
impact of the corporate copper sales hedge program. Gross profit of $40 million for the year 2018 and $9 million in the fourth
quarter were 67% and 50% higher, respectively, than the same periods in 2017, mainly reflecting the flow-through of sales
revenues and lower depreciation.
OUTLOOK
2019 is expected to be the operation’s final year of production. Production is forecast at 5,000 tonnes of copper, 3,000 ounces
of gold, 10,000 tonnes of zinc and 250,000 tonnes of pyrite.
Throughput is expected to be 800,000 tonnes in 2019 in line with the anticipated depletion of economic ore.
A total of 34 days of shutdown time is planned for 2019, including 11 days in the first quarter, 12 days in the second quarter
and 11 days in the third quarter.
RAVENSTHORPE
Ravensthorpe remained on care and maintenance activities during the year, with the mine at a level ready for a resumption of
operations should market conditions improve. Care and maintenance costs in the fourth quarter and full year were $3 million
and $11 million, respectively. For the year, energy, contracting and maintenance costs were higher than expected due to
increased activity on descaling tanks, evaporation of high salinity water and repair activities within the process plant. These
activities, along with improvements to site drainage and roadways, are progressing well utilizing care and maintenance
personnel.
Refurbishment of the leaching circuit’s atmospheric reactors is well advanced with one reactor completed and the second due
to be completed in the first quarter of 2019, with the anticipated capital cost remaining at $5 million.
OUTLOOK
A logical process of work including resource drilling of the Shoemaker Levy deposit and a capital works program for permitting,
design and subsequent construction of the infrastructure requirements to bring Shoemaker Levy online is underway in
anticipation of a higher sustained commodity pricing level. A sustained rise in the nickel price would initiate plans that have been
developed for employee recruitment, contract mining arrangements, camp reinstatement as well as enhancements to identified
process circuit opportunities. Restart costs, should favourable conditions prevail, are estimated at $10 million.
First Quantum Minerals Ltd. 2018 Annual Report
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
Sales Revenues
Kansanshi
– copper
371
392
488
1,491
1,574
Q4 2018
Q3 2018
Q4 2017
2018
2017
160
21
166
–
1,454
1,026
– gold
– acid
– copper
– copper
Sentinel
Las Cruces
Guelb Moghrein
– copper
Çayeli
Pyhäsalmi
Ravensthorpe
Corporate1
Sales revenues
– gold
– magnetite
– copper
– zinc, gold and silver
– copper
– zinc
– pyrite, gold and silver
– nickel
– cobalt
Copper
Gold
Zinc
Other
Nickel
41
5
344
113
48
17
5
44
8
17
11
6
–
–
24
1,054
963
61
15
15
–
36
6
333
93
27
9
5
13
–
16
10
8
–
–
30
978
904
47
10
17
–
37
–
281
122
39
13
7
23
–
20
8
10
8
1
470
154
58
23
87
13
70
45
29
–
–
(172)
(109)
885
785
53
8
31
8
3,966
3,616
228
53
69
–
1 Corporate sales include sales hedges (see “Hedging programs” for further discussion).
1,054
978
885
3,966
461
150
60
7
87
11
74
37
32
146
17
(538)
3,310
2,802
236
46
78
148
3,310
FULL YEAR
Sales revenues increased by $656 million in the year to $3,966 million reflecting an increase to copper revenues of
$814 million, offset by the absence of nickel sales revenues contributed by Ravensthorpe following the operation moving
to care and maintenance in October 2017.
The increase in copper revenues was driven by a higher realized copper price for the year as well as increased revenues
generated by Sentinel as a result of 34% higher sales volumes, partially offset by a 14% reduction to Kansanshi sales volumes.
Sales of copper anode attributable to anode produced from third-party purchased concentrate contributed revenues of
$45 million. The impact of the copper sales hedge program was a reduction in revenues of $110 million compared with
reduced revenues of $570 million in 2017.
FOURTH QUARTER
Sales revenues of $1,054 million in the fourth quarter increased by $169 million compared to 2017, due to an increase in
copper revenues of $178 million reflecting higher realized copper prices and sales volumes at Sentinel, Guelb Moghrein and
Çayeli. Sales of copper anode attributable to anode produced from third-party purchased concentrate contributed revenues of
$36 million. The impact of the sales hedge program was an increase to revenues of $25 million, compared with a reduction to
revenues of $188 million in the comparable quarter of 2017. There were no nickel revenues in the quarter and reduced other
revenues were offset by increased gold revenues at Kansanshi and increased zinc revenues generated by Pyhäsalmi and Çayeli.
34
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Realized Prices
Copper selling price (per lb)
Q4 2018
Q3 2018
Q4 2017
2018
Average LME cash price
Realized copper price
TC/RCs and freight charges
Net realized copper price
$
$
$
$
2.80 $
2.77 $
3.09 $
2.96 $
2.83 $
2.84 $
2.50 $
2.84 $
(0.14)
$
(0.13)
$
(0.16)
$
(0.13)
$
2.69 $
2.71 $
2.34 $
2.71 $
2017
2.79
2.33
(0.14)
2.19
Given the volatility in copper prices, significant variances can arise between average LME and net realized prices due to the
timing of sales during the period.
The sales hedge program decreased sales revenues by $110 million and increased sales revenues by $25 million for the year
ended and quarter ended December 31, 2018, respectively. The impact on the net realized copper price was an increase of
$0.07 per lb for the quarter and a reduction of $0.08 per lb for the year, respectively.
Details of the Company’s hedging program at December 31, 2018 are included on page 39.
Summary Financial Results
Q4 2018
Q3 2018
Q4 2017
2018
2017
Gross profit (loss)
Kansanshi
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
Ravensthorpe
Corporate1
Total gross profit
Exploration
General and administrative
Impairment and related charges
Other income (expense)
Net finance expense
Loss on extinguishment of senior notes
Income tax expense
Net earnings (loss)
Net earnings (loss) attributable to:
Non-controlling interests
Shareholders of the Company
Comparative earnings (loss)
Earnings (loss) per share – continuing
operations:
Basic
Diluted
Comparative
117
978
140
146
218
72
19
1
19
9
(4)
24
280
(7)
(19)
–
6
(6)
–
(41)
55
11
1
–
9
(5)
29
246
(6)
(20)
–
(79)
(5)
–
(66)
213
70
51
26
12
11
6
(5)
(202)
(8)
(19)
(26)
(15)
(24)
–
(118)
(93)
15
198
182
9
61
128
22
(115)
(36)
623
288
116
30
23
40
(16)
(126)
(26)
(74)
–
(69)
(18)
–
(283)
508
67
441
487
636
166
106
41
16
24
(57)
(597)
335
(18)
(74)
(26)
(34)
(39)
(84)
(299)
(239)
77
(316)
(111)
$
$
$
0.29 $
0.09 $
(0.17)
$
0.64 $
0.29 $
0.09 $
(0.17)
$
0.64 $
0.26 $
0.19 $
(0.05)
$
0.71 $
(0.46)
(0.46)
(0.16)
Basic weighted average number of shares
(in 000s)
687,074
687,108
686,402
686,747
685,936
1 Corporate gross profit (loss) relates primarily to sales hedge loss.
First Quantum Minerals Ltd. 2018 Annual Report
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
FULL YEAR
Gross profit was $643 million higher than the same period in 2017 due to higher realized prices achieved during the year from
the sales hedge program together with increased Sentinel contribution of $288 million compared with $166 million in 2017,
reflecting higher sales volumes. Furthermore, the gross loss attributable to Ravensthorpe was lower in the year compared to
2017 as a result of operations moving to care and maintenance in October 2017. A gross loss of $45 million was recognized in
2017 on the Ravensthorpe operations excluding care and maintenance costs.
Exploration expense was $8 million higher in 2018 compared with 2017, and included $2 million costs associated with work
performed in relation to the Pebble agreement that was terminated in the year. Included within other expenses is a foreign
exchange loss of $64 million, due principally to the devaluation of the Zambian kwacha and the impact on the VAT balances
due to the Company’s Zambian operations. Also included within other expense is a gain of $8 million realized on disposal of
the asset retirement obligation associated with the Troilus closed property in April 2018.
An impairment charge of $26 million was recognized in 2017 relating to specific assets at Ravensthorpe, which was placed on
care and maintenance in October 2017, and housing assets in Zambia.
Net earnings for 2017 included a loss on extinguishment of senior notes of $84 million as well as a $20 million charge
included within net finance expense with respect to the discounting of non-current VAT due to Kansanshi. Included within the
net finance expense for 2018 is a $5 million charge relating to the discounting of non-current VAT due to Kansanshi.
2018 net earnings of $508 million included a tax expense of $283 million reflecting applicable statutory tax rates, which range
from 20% to 35% for the Company’s operations. Tax credits with respect to losses realized under the Company’s sales hedge
program have not been applied. The effective tax rate for the year, excluding the sales hedge program, was 31%.
FOURTH QUARTER
Gross profit was $163 million higher than the comparable period of 2017, due to higher sales revenues as a result of improved
realized prices achieved under the Company’s corporate copper sales hedge program coupled with increased sales volumes.
Other income of $6 million includes a foreign exchange gain of $13 million recognized in the quarter following a
strengthening of the Zambian kwacha, and an $8 million restructuring provision at Las Cruces. Other expense of $15 million in
2017 included a $10 million foreign exchange loss.
Net earnings for the quarter of $213 million included a tax expense of $41 million reflecting applicable statutory tax rates. The
statutory tax rates for the Company’s operations range from 20% to 35%. No tax charge has been recognized with respect to
the $25 million gain realized on the Company’s copper sales hedge program.
36
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS Liquidity and Capital Resources
Cash flows from operating activities
338
439
203
1,980
Q4 2018
Q3 2018
Q4 2017
2018
2017
914
Cash flows from (used by) investing activities
Purchase and deposits for property, plant
and equipment
Investment in Pebble project early option
price instalment
Capitalized borrowing costs paid in cash
Acquisition of KPMC
Other investing activities
Cash flows from (used by) financing activities
Net movement in debt and trading
(606)
–
(49)
(80)
(523)
–
(198)
–
(498)
(2,143)
(1,652)
(38)
(50)
(179)
–
(441)
(185)
(38)
(365)
(179)
21
6
6
8
17
facilities
413
318
733
948
1,269
Early redemption costs on senior notes
–
–
–
Other financing activities
19
31
42
Exchange gains (losses) on cash and
–
(68)
(22)
86
788
(54)
186
35
137
702
(6)
35
788
(2)
71
753
5
226
702
23,537
22,864
21,623
23,537
21,623
1,644
1,487
2,068
1,644
11,171
10,850
9,427
11,171
6,497
6,116
5,575
6,497
2,068
9,427
5,575
cash equivalents
Net cash inflow (outflow)
Cash balance
Total assets
Total current liabilities
Total non-current liabilities
Net debt1
Cash flows from operating activities
per share1
$
0.49 $
0.64 $
0.30 $
2.88 $
1.33
1 Cash flows per share and net debt are not recognized under IFRS. See “Regulatory disclosures” for further information.
Cash flows from continuing operating activities were $1,066 million higher than 2017. Higher cash generated from operations,
increased stream contributions and favourable working capital movements were partially offset by an increase in taxes paid.
The total VAT receivable accrued by the Company’s Zambian operations at December 31, 2018 was $443 million, of which
$282 million relates to Kansanshi. In February 2015, the Government of Zambia implemented a change in the Statutory
Instrument regarding VAT. Claims totalling Zambian kwacha 1,585 million (currently equivalent to $134 million) made by
Kansanshi prior to this date remain outstanding. A further $5 million charge was recognized in the year, in addition to the
$20 million recognized in the year ended December 31, 2017, to reflect the impact of discounting the balance over the
expected timeframe to repayment. Cash totalling $99 million has been received to date for claims subsequent to February
2015. The accrual for historical VAT receivables stems from the application of discretionary rules established and applied by the
Commissioner General relating to exports from Zambia. The Company is in regular discussions with the relevant government
authorities and continues to consider that the outstanding claims are fully recoverable.
First Quantum Minerals Ltd. 2018 Annual Report
37
MANAGEMENT’S DISCUSSION AND ANALYSIS
Zambian VAT
Receivable at date of claim
Impact of depreciation of Zambian kwacha against US$
Impact of discounting non-current portion
Total receivable
Comprising:
Current portion, included within trade and other receivables
Non-current VAT receivable
December 31,
2018
December 31,
2017
645
(177)
468
(25)
443
334
109
435
(102)
333
(20)
313
173
140
Cash flows used by continuing investing activities in 2018 included capital expenditure of $2,143 million compared to
$1,652 million for the same period in 2017 and is comprised primarily of $1,332 million of Cobre Panama project capital
expenditure. Interest capitalized to property, plant and equipment paid in the year amounted to $441 million compared with
$365 million in 2017. Two further instalments totalling $185 million were paid for the acquisition of LS-Nikko’s 50% interest
in KPMC.
Cash flows from continuing financing activities of $880 million included proceeds from trading and other debt facilities of
$948 million, partially offset by net payments to KPMC of $26 million and dividends paid of $25 million.
LIQUIDITY OUTLOOK
At December 31, 2018, the Company had $700 million of committed undrawn facilities, $788 million in net unrestricted cash
and working capital of $1,039 million. These, together with expected future cash flows, support the Company’s belief in its
ability to meet current obligations as they become due. The Company was also in full compliance with all its financial
covenants at December 31, 2018 and expects to remain in compliance throughout the next 12 months.
At December 31, 2018, the Company had total commitments of $392 million, of which approximately $358 million related to
the 12 months following the period-end.
Contractual and other obligations as at December 31, 2018 are as follows:
Carrying value
Contractual
cash flows
< 1 year
1–3 years
3–5 years
Thereafter
Debt – principal
repayments
7,179
7,245
69
2,276
1,950
Debt – finance charges
–
2,299
Trading facilities
Trade and other payables
Derivative instruments
106
631
3
106
631
3
516
106
631
3
Liability to joint venture1
946
1,446
–
Joint venture consideration
Current taxes payable
Deferred payments
Finance leases
Operating leases
Commitments
264
125
42
17
–
–
300
125
42
23
32
100
125
–
3
25
392
358
Restoration provisions
585
1,048
5
897
563
–
–
–
–
–
–
–
1,446
200
–
–
–
18
14
7
6
29
68
7
1
5
80
895
2,950
323
–
–
–
–
–
–
10
6
–
–
1 Refers to distributions to KPMC, a joint venture that holds a 20% non-controlling interest in MPSA of which the Company has joint control, and not scheduled repayments.
38
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
HEDGING PROGRAMS
The Company has hedging programs in respect of future copper sales and provisionally priced sales contracts. Below is a
summary of the fair values of unsettled derivative financial instruments for commodity contracts recorded on the consolidated
balance sheet.
Commodity contracts:
Asset position
Liability position
December 31,
2018
December 31,
2017
43
(3)
13
(288)
The Company has entered into derivative contracts to ensure that the exposure to the price of copper on future sales is
managed to ensure stability of cash flows in the current higher capital expenditure phase of the development of the Cobre
Panama project while maintaining compliance with financial covenants.
At February 14, 2019, 7,500 tonnes of unmargined copper forward sales contracts at an average price of $2.81 per lb are
outstanding with periods of maturity to June 2019. The Company has zero cost collar unmargined sales contracts for
52,500 tonnes at prices ranging from low side (or put) prices of $2.70 per lb to high side (or call) prices of $3.50 per lb with
maturities to July 2019.
Approximately 20% of remaining expected copper sales in the first half of 2019 are hedged to unmargined forward and
zero cost collar sales contracts, at an average floor price of $2.90 per lb.
During the year ended December 31, 2018, a loss for settled hedges of $110 million was realized through sales revenues.
Fair value gains on outstanding contracts of $27 million have been recognized as a derivative asset at December 31, 2018.
Provisional pricing and derivative contracts
A portion of the Company’s metal sales is sold on a provisional pricing basis whereby sales are recognized at prevailing metal
prices when title transfers to the customer and final pricing is not determined until a subsequent date, typically two months later.
The difference between final price and provisional invoice price is recognized in net earnings. In order to mitigate the impact of
these adjustments on net earnings, the Company enters into derivative contracts to directly offset the pricing exposure on the
provisionally priced contracts. The provisional pricing gains or losses and offsetting derivative gains or losses are both recognized
as a component of cost of sales. Derivative assets are presented in other assets and derivative liabilities are presented in other
liabilities with the exception of copper and gold embedded derivatives, which are included within accounts receivable.
As at December 31, 2018, the following derivative positions in provisionally priced sales and commodity contracts not
designated as hedged instruments were outstanding:
Open positions
(tonnes/ounces)
Average
Closing
contract price
market price
Maturities
through
Embedded derivatives in provisionally
priced sales contracts:
Copper
Gold
Zinc
Commodity contracts:
Copper
Gold
Zinc
90,633
16,069
2,175
90,425
16,069
2,175
$2.78/lb
$2.71/lb
April 2019
$1,235/oz
$1,282/oz
April 2019
$1.18/lb
$1.14/lb
January 2019
$2.78/lb
$2.71/lb
April 2019
$1,235/oz
$1,282/oz
April 2019
$1.18/lb
$1.14/lb
January 2019
As at December 31, 2018, substantially all of the Company’s metal sales contracts subject to pricing adjustments were hedged
by offsetting derivative contracts.
First Quantum Minerals Ltd. 2018 Annual Report
39
MANAGEMENT’S DISCUSSION AND ANALYSIS
Equity
At the date of this report, the Company had 689,390,565 shares outstanding.
Joint Venture
On November 8, 2017, the Company completed the purchase of a 50% interest in KPMC from LS-Nikko Copper Inc. KPMC is
jointly owned and controlled with Korea Resources Corporation and holds a 20% interest in Cobre Panama. The purchase
consideration was $664 million, of which the remaining $300 million has been discounted and is repayable in three
instalments to November 2021.
The Company has recognized a $600 million investment in the joint venture, representing the discounted consideration value
against which the Company’s proportionate share of the profit or loss in KPMC is recognized. The assets and liabilities of
KPMC are an investment in MPSA, a subsidiary of the Company, a loan receivable from MPSA, and loans due to shareholders.
Interest income and expense earned on these loans is on the same terms.
Framework Agreement Relating to the Pebble Project
In May 2018, the Company and Northern Dynasty Minerals elected to terminate their framework agreement, announced on
December 15, 2017, in accordance with its terms after being unable to reach agreement on the contemplated option and
partnership transaction on the Pebble project. The $38 million early option price instalment was recognized as a fair value loss
in other comprehensive income (“OCI”) in the year. The Company has no further obligation in regard to this agreement.
40
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS Summary of Results
The following unaudited tables set out a summary of quarterly and annual results for the Company:
Consolidated operations
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Sales revenues
Copper
Nickel
Gold
Zinc and other elements
Total sales revenues
Gross profit
Comparative EBITDA
Net earnings (loss) attributable to
shareholders of the Company
Comparative earnings (loss)
Basic earnings (loss) per share
Comparative earnings (loss) per share
Diluted earnings (loss) per share
Dividends declared per common share
$ 2,138 $
643 $
655 $
719 $
785 $ 2,802 $
798 $
951 $
904 $
963 $ 3,616
182
271
82
2,673
339
964
43
54
26
766
69
265
222
165
(114)
(29)
39
66
22
782
66
267
(35)
(18)
58
63
37
877
83
304
(52)
(28)
$
$
$
0.32 $
(0.17) $
((0.05)
0.24 $
(0.04) $
(0.03)
0.32 $
(0.17) $
(0.05)
$
$
$
(0.08)
(0.04)
(0.08)
$
$
$
8
53
39
148
236
124
–
61
26
–
59
39
–
47
27
–
61
30
–
228
122
885
3,310
885
1,049
978
1,054
3,966
117
335
318
1,154
(316)
(111)
(115)
(36)
(0.17)
(0.05)
(0.17)
$
$
$
181
363
47
49
271
466
135
128
246
427
61
128
280
978
481
1,737
198
182
441
487
(0.46) $
0.07 $
0.20 $
0.09 $
0.29 $
0.64
(0.16) $
0.07 $
0.19 $
0.19 $
0.26 $
0.71
(0.46) $
0.07 $
0.20 $
0.09 $
0.29 $
0.64
(CDN$ per share)
$ 0.015 $ 0.005
– $ 0.005
– $ 0.010 $ 0.005
– $ 0.005
– $ 0.010
Basic weighted average shares (000s)1
685,746
685,827
685,845
686,323
686,402
685,936
686,387
686,423
687,108
687,074
686,747
Cash flows per share from operating
activities
Copper statistics
$
1.33 $
0.35 $
0.30 $
0.39 $
0.30 $
1.33 $
1.16 $
0.59 $
0.64 $
0.49 $
2.88
Total copper production (tonnes)
539,458
132,356
141,912
145,376
154,319
573,963
145,358
150,950
151,241
158,304
605,853
Total copper sales (tonnes)
535,613
139,810
139,521
148,894
151,905
580,130
138,021
152,403
149,8772
156,2122
596,5132
Realized copper price (per lb)
$
2.26 $
2.20 $
2.24 $
2.37 $
2.50 $
2.33 $
2.74 $
2.95 $
2.84 $
2.83 $
2.84
TC/RC (per lb)
Freight charges (per lb)
Net realized copper price (per lb)
Cash cost – copper (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost – copper (C3) (per lb)
Nickel statistics
(0.12)
(0.08)
(0.01)
(0.04)
(0.09)
(0.03)
(0.12)
(0.06)
(0.08)
(0.08)
(0.09)
(0.05)
(0.07)
(0.05)
(0.08)
(0.04)
(0.09)
(0.04)
(0.09)
(0.05)
(0.08)
(0.05)
$
$
$
$
2.13 $
2.08 $
2.12 $
2.19 $
2.34 $
2.19 $
2.62 $
2.83 $
2.71 $
2.69 $
2.71
1.06 $
1.26 $
1.12 $
1.21 $
1.30 $
1.23 $
1.27 $
1.28 $
1.313
$
1.23 $
1.28
1.46 $
1.59 $
1.50 $
1.75 $
1.76 $
1.65 $
1.72 $
1.76 $
1.803
$
1.68 $
1.74
1.83 $
2.05 $
1.95 $
2.03 $
2.19 $
2.06 $
2.16 $
2.11 $
2.113
$
2.04 $
2.11
Nickel produced (contained tonnes)
23,624
5,592
5,920
6,325
–
17,837
Nickel sales (contained tonnes)
25,882
5,197
5,522
7,099
865
18,683
Nickel produced (payable tonnes)
17,630
4,291
4,537
4,866
–
13,694
Nickel sales (payable tonnes)
19,535
3,981
4,228
5,455
674
14,338
Realized nickel price (per payable lb)
$
4.25 $
4.93 $
4.17 $
4.77 $
5.37 $
4.67
TC/RC (per payable lb)
(0.03)
–
–
–
–
–
Net realized price (per payable lb)
Cash cost – nickel (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost – nickel (C3) (per lb)
Gold statistics
$
$
$
$
4.22 $
4.93 $
4.17 $
4.77 $
5.37 $
4.67
4.66 $
4.84 $
4.43 $
4.16 $
(0.61)
5.29 $
5.81 $
5.60 $
4.67 $
(0.51)
6.34 $
6.57 $
6.09 $
5.77 $
(0.51)
$
$
$
4.45
5.29
6.17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total gold production (ounces)
214,012
50,579
50,040
47,213
51,904
199,736
45,929
46,467
44,979
48,039
185,414
Total gold sales (ounces)
232,783
46,904
52,020
51,729
50,723
201,376
48,815
48,172
42,864
53,221
193,072
Net realized gold price (per ounce)
$ 1,165 $ 1,161 $ 1,268 $ 1,209 $ 1,055 $ 1,174 $ 1,249 $ 1,227 $ 1,086 $ 1,151 $ 1,181
Zinc statistics
Zinc production (tonnes)
28,862
6,253
6,538
4,376
3,556
20,723
5,227
6,545
7,348
7,687
26,807
Zinc sales (tonnes)
27,361
7,956
5,234
5,379
3,282
21,851
4,810
6,856
6,178
8,268
26,112
1 Fluctuations in average weighted shares between quarters reflects shares issued and changes in levels of treasury shares held for performance share units.
2 Sales of copper anode attributable to anode produced from third-party purchased concentrate are excluded.
3 C1 cash cost, C3 total cost and AISC for Q3 2018 have been revised from amounts previously disclosed to exclude the $0.03 per pound impact of third-party
concentrate purchased.
First Quantum Minerals Ltd. 2018 Annual Report
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
Kansanshi statistics
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Mining
Waste mined (000s tonnes)
74,935
13,656
17,028
15,864
8,707
55,255
10,941
14,692
13,175
9,911
48,719
Ore mined (000s tonnes)
31,679
7,008
10,078
9,039
10,478
36,603
9,846
10,082
9,631
8,922
38,481
Processing
Sulphide ore processed (000s tonnes)
11,988
3,291
3,202
3,179
3,298
12,970
3,182
3,105
3,390
3,301
12,978
Sulphide ore grade processed (%)
0.79
0.74
0.76
0.74
0.76
0.75
0.79
0.81
0.72
0.81
Sulphide ore recovery (%)
92
93
90
88
94
91
88
91
95
88
Sulphide concentrate grade (%)
21.4
22.8
22.4
21.7
21.8
22.2
22.5
23.2
23.3
22.1
0.78
91
22.8
Mixed ore processed (000s tonnes)
7,953
2,010
1,992
1,983
2,012
7,997
2,009
1,930
2,082
2,165
8,186
Mixed ore grade processed (%)
1.01
1.05
1.08
1.09
0.99
1.05
1.16
0.93
1.04
1.08
Mixed ore recovery (%)
84
87
86
81
88
85
81
87
86
76
Mixed concentrate grade (%)
25.2
31.1
33.4
29.9
27.7
30.4
30.3
25.7
31.2
29.9
1.06
82
29.3
Oxide ore processed (000s tonnes)
7,076
1,650
1,750
1,705
1,811
6,916
1,791
1,708
1,749
1,668
6,916
Oxide ore grade processed (%)
1.50
1.46
1.57
1.49
1.51
1.51
1.59
1.53
1.31
1.33
Oxide ore recovery (%)
94
93
87
80
89
87
80
92
95
92
Oxide concentrate grade (%)
28.6
32.6
32.8
30.0
29.8
31.3
32.2
28.9
27.8
28.5
1.44
89
29.4
Copper cathode produced (tonnes)
79,668
17,882
19,858
17,128
23,874
78,742
22,514
18,528
16,303
15,049
72,394
Copper in concentrate produced (tonnes)
173,604
45,316
44,239
41,578
40,926
172,059
41,071
43,942
47,384
46,731
179,128
Total copper production (tonnes)
253,272
63,198
64,097
58,706
64,800
250,801
63,585
62,470
63,687
61,780
251,522
Gold produced (ounces)
148,220
36,017
34,918
33,297
36,363
140,595
32,080
33,536
30,938
33,465
130,019
Smelting1
Concentrate processed (DMT)1
1,143,974
327,095
334,269
202,093
348,283 1,211,740
350,591
326,187
355,435
349,424 1,381,637
Copper anodes produced (tonnes)1
257,330
83,070
82,383
48,819
83,281
297,553
86,777
80,097
90,269
89,894
347,037
Smelter copper recovery (%)
Acid tonnes produced (000s)
Cash costs (per lb)
Mining
Processing
Site administration
TC/RC and freight charges
By-product credits
Total smelter costs
Cash cost (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost (C3) (per lb)
Revenues ($ millions)
Copper cathodes
Copper anode
Copper in concentrates
Gold
Acid
97
1,109
97
307
95
307
94
189
97
96
325
1,128
97
325
97
291
97
319
97
97
320
1,255
$
0.65 $
0.66 $
0.46 $
0.55 $
0.54 $
0.54 $
0.56 $
0.58 $
0.52 $
0.53 $
0.49
0.07
0.11
0.50
0.50
0.51
0.07
(0.10)2
(0.06)2
0.16
0.15
0.23
0.46
0.07
0.18
0.49
–
0.18
0.49
0.08
0.14
0.49
0.09
0.14
0.47
0.10
0.14
0.49
0.11
0.14
0.55
0.49
0.09
0.14
(0.30)
(0.25)
(0.34)
(0.32)
(0.21)
(0.27)
(0.36)
(0.38)
(0.27)
(0.33)
(0.34)
0.13
0.14
0.08
0.08
0.12
0.11
0.09
0.10
0.10
0.10
$
$
$
1.15 $
1.28 $
0.75 $
0.99 $
1.16 $
1.05 $
1.00 $
1.02 $
1.063
$
1.04 $
1.57 $
1.59 $
1.18 $
1.79 $
1.55 $
1.54 $
1.46 $
1.55 $
1.593
$
1.61 $
1.78 $
1.89 $
1.41 $
1.64 $
1.86 $
1.71 $
1.82 $
1.70 $
1.733
$
1.71 $
0.10
1.03
1.55
1.74
$
374 $
101 $
115 $
101 $
164 $
481 $
145 $
128 $
97 $
82 $
452
841
48
186
–
285
183
201
303
14
40
–
9
43
–
77
46
–
21
37
–
972
121
166
–
194
251
295
289
1,029
10
42
2
–
41
8
–
36
6
–
41
5
10
160
21
Total sales revenues
$ 1,449 $
440 $
350 $
425 $
525 $ 1,740 $
393 $
428 $
434 $
417 $ 1,672
Copper cathode sales (tonnes)
77,084
17,903
20,661
16,511
24,660
79,735
21,334
19,172
16,461
13,698
70,665
Copper anode sales (tonnes)
176,895
51,299
33,250
32,531
46,480
163,560
28,846
37,828
48,3574
42,6324
157,6634
Copper in concentrate sales (tonnes)
14,480
3,074
2,228
15,269
3,834
24,405
1,504
–
–
–
1,504
Gold sales (ounces)
156,840
33,732
33,039
37,054
35,910
139,735
33,666
32,902
32,706
35,616
134,890
1 Concentrate processed in smelter and copper anodes produced are disclosed on a 100% basis, inclusive of Sentinel and third-party concentrate processed.
2 Includes movements in previously recognized operational provisions in the second and third quarters that are not expected to continue in future periods.
3 C1 cash cost, C3 total cost and AISC for Q3 2018 have been revised from amounts previously disclosed to exclude the following impacts of third-party concentrate
purchased: $0.06 per lb for C1 and C3 total cost and $0.05 per lb for AISC.
4 Sales of copper anode attributable to anode produced from third-party purchased concentrate are excluded.
42
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Sentinel statistics
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Mining
Waste mined (000s tonnes)
82,098
16,006
24,382
26,254
21,853
88,495
21,611
23,744
25,931
24,321
95,607
Ore mined (000s tonnes)
37,960
9,272
10,641
12,692
12,039
44,644
10,172
11,996
11,334
12,016
45,518
Processing
Copper ore processed (000s tonnes)
36,369
8,800
10,019
11,434
11,834
42,087
11,735
11,979
12,602
12,434
48,750
Copper ore grade processed (%)
0.57
0.51
0.52
0.53
0.54
0.52
0.47
0.51
0.49
0.53
Recovery (%)
68
81
84
89
90
87
91
92
91
92
0.50
91
Copper concentrate produced (tonnes)
139,600
36,274
43,686
53,533
57,190
190,683
50,310
56,080
56,426
60,840
223,656
Concentrate grade (%)
Cash costs (per lb)
Mining
Processing
Site administration
TC/RC and freight charges
Total smelter costs
Cash cost (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost (C3) (per lb)
Revenues ($ millions)
Copper anode
Copper in concentrates
Total sales revenues
26.4
26.4
24.0
23.5
24.2
24.4
24.9
25.6
25.3
24.5
25.0
$
0.51 $
0.72 $
0.72 $
0.59 $
0.66 $
0.67 $
0.71 $
0.62 $
0.61 $
0.42 $
0.58
0.45
0.70
0.13
(0.09)1
0.25
0.13
0.20
0.14
0.66
0.12
0.19
0.17
0.60
0.09
0.22
0.12
0.57
0.03
0.27
0.14
0.62
0.05
0.22
0.14
0.68
0.10
0.21
0.13
0.66
0.10
0.23
0.13
0.65
0.10
0.25
0.11
0.68
0.10
0.24
0.11
0.67
0.10
0.23
0.12
1.47 $
1.67 $
1.86 $
1.62 $
1.67 $
1.70 $
1.83 $
1.74 $
1.72 $
1.55 $
1.70
2.13 $
2.07 $
2.29 $
2.05 $
2.36 $
2.19 $
2.36 $
2.29 $
2.25 $
2.02 $
2.22
2.16 $
2.45 $
2.61 $
2.30 $
2.49 $
2.45 $
2.60 $
2.46 $
2.39 $
2.26 $
2.42
110 $
170 $
239 $
229 $
213 $
851 $
328 $
321 $
254 $
266 $ 1,169
43 $
19 $
17 $
71 $
68 $
175 $
57 $
71 $
79 $
78 $
285
153 $
189 $
256 $
300 $
281 $ 1,026 $
385 $
392 $
333 $
344 $ 1,454
$
$
$
$
$
$
Copper anode sales (tonnes)
20,294
29,929
43,705
36,734
32,026
142,394
48,227
47,947
42,557
44,641
183,372
Copper concentrate sales (tonnes)
10,034
4,362
3,742
14,121
12,741
34,966
10,115
12,596
16,512
15,616
54,839
1 Includes movements in previously recognized operational provisions.
Las Cruces statistics
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Mining
Waste mined (000s tonnes)
13,644
1,870
4,383
5,067
3,269
14,589
1,631
4,835
6,268
2,202
14,936
Ore mined (000s tonnes)
1,330
371
381
802
868
2,422
648
368
410
256
1,682
Processing
Copper ore processed (000s tonnes)
1,538
398
409
392
420
1,619
390
416
338
400
1,544
Copper ore grade processed (%)
5.18
5.17
5.10
5.04
4.99
5.07
5.07
4.87
4.84
5.00
Recovery (%)
92
91
90
88
89
90
92
93
93
93
4.95
93
Copper cathode produced (tonnes)
73,643
18,793
18,683
17,488
18,700
73,664
18,238
18,849
15,181
18,470
70,738
Cash costs (per lb)
Cash cost (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost (C3) (per lb)
Revenues ($ millions)
Copper cathode
$
$
$
0.81 $
0.78 $
0.79 $
0.93 $
0.93 $
0.86 $
0.86 $
0.83 $
1.02 $
0.94 $
0.90
1.01 $
0.93 $
1.00 $
1.20 $
1.12 $
1.06 $
1.03 $
1.09 $
1.41 $
1.16 $
1.16
1.83 $
1.89 $
2.09 $
2.25 $
2.40 $
2.15 $
2.15 $
2.11 $
2.50 $
2.28 $
2.25
$
358 $
119 $
111 $
109 $
122 $
461 $
131 $
133 $
93 $
113 $
470
Copper cathode sales (tonnes)
73,539
20,228
19,484
17,049
17,903
74,664
18,771
19,269
15,138
18,345
71,523
First Quantum Minerals Ltd. 2018 Annual Report
43
MANAGEMENT’S DISCUSSION AND ANALYSIS
Guelb Moghrein statistics
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Mining
Waste mined (000s tonnes)
12,066
4,041
3,349
3,055
3,607
14,052
3,961
2,737
4,277
4,087
15,062
Ore mined (000s tonnes)
2,700
810
983
792
519
3,104
97
296
445
752
1,590
Processing
Sulphide ore processed (000s tonnes)
3,898
863
820
832
874
3,389
861
938
902
983
3,684
Sulphide ore grade processed (%)
0.92
0.95
0.97
0.88
0.90
0.93
0.79
0.73
0.94
0.93
Recovery (%)
91
92
92
92
91
92
90
85
94
91
0.85
90
Copper produced (tonnes)
32,818
7,533
7,347
6,756
7,155
28,791
6,135
5,781
7,902
8,319
28,137
Gold produced (ounces)
53,951
12,133
12,375
11,435
13,270
49,213
11,740
10,354
11,644
12,236
45,974
Magnetite concentrate produced (WMT)
–
–
–
–
–
–
93,472
123,100
111,765
97,052
425,389
Cash costs (per lb)
Mining
Processing
Site administration
TC/RC and freight charges
Gold and magnetite credit
Cash cost (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost (C3) (per lb)
Revenues ($ millions)
Copper in concentrates
Gold
Magnetite concentrate
Total sales revenues
Copper sales (tonnes)
Gold sales (ounces)
$
0.44 $
0.57 $
0.61 $
0.70 $
0.79 $
0.66 $
0.51 $
1.11 $
0.66 $
1.02 $
0.82
0.80
0.20
0.45
0.80
0.16
0.49
1.01
0.17
0.50
0.93
0.20
0.51
0.97
0.19
0.51
0.93
0.18
0.51
1.07
0.19
0.61
1.23
0.24
0.41
1.10
0.17
0.66
0.98
0.17
0.52
1.09
0.19
0.54
(0.96)
(0.88)
(1.05)
(0.91)
(1.12)
(1.00)
(1.39)
(1.24)
(1.02)
(0.96)
(1.14)
$
$
$
0.93 $
1.14 $
1.24 $
1.43 $
1.34 $
1.28 $
0.99 $
1.75 $
1.57 $
1.73 $
1.50
1.51 $
1.67 $
1.53 $
1.86 $
1.60 $
1.65 $
1.84 $
2.16 $
1.93 $
1.95 $
1.93
1.68 $
1.93 $
2.08 $
2.30 $
2.25 $
2.13 $
1.86 $
2.84 $
2.42 $
2.79 $
2.46
$
140 $
30 $
44 $
37 $
39 $
150 $
39 $
40 $
27 $
48 $
154
73
–
11
–
23
–
13
–
13
7
60
7
16
5
16
8
9
5
17
5
58
23
$
213 $
41 $
67 $
50 $
59 $
217 $
60 $
64 $
41 $
70 $
235
36,330
6,122
9,301
6,765
6,811
28,999
6,387
6,772
5,108
9,099
27,366
63,335
10,293
16,160
11,616
12,384
50,453
13,008
12,863
8,100
14,224
48,195
Magnetite concentrate sold (WMT)
–
–
–
–
–
–
79,560
150,167
61,315
85,914
376,956
Çayeli statistics
Mining
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Ore mined (000s tonnes)
1,267
207
253
279
202
941
259
250
242
249
1,000
Processing
Ore milled (000s tonnes)
1,285
204
253
274
212
Copper ore grade processed (%)
2.26
1.70
2.07
2.24
1.72
Copper ore recovery (%)
87
89
88
90
90
943
1.96
89
257
255
243
252
1,007
1.88
2.13
2.39
2.64
88
86
87
89
Zinc ore grade processed (%)
1.60
1.09
1.41
0.90
0.78
1.05
1.05
1.37
1.69
1.50
Zinc ore recovery (%)
39
39
40
27
23
34
26
30
32
27
2.26
88
1.40
29
Copper produced (tonnes)
25,330
3,115
4,632
5,492
3,284
16,523
4,225
4,684
5,056
5,931
19,896
Zinc produced (tonnes)
Cash costs (per lb)
Cash cost – copper (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost – copper (C3) (per lb)
Revenues ($ millions)
Copper
Zinc
Other
Total sales revenues
Copper sales (tonnes)
Zinc sales (tonnes)
8,062
867
1,427
653
379
3,326
701
1,051
1,305
1,034
4,091
$
$
$
$
1.20 $
1.52 $
1.44 $
1.21 $
2.05 $
1.50 $
1.31 $
1.29 $
1.18 $
1.09 $
1.21
1.37 $
1.64 $
1.73 $
1.41 $
2.48 $
1.75 $
1.56 $
1.59 $
1.45 $
1.28 $
1.48
1.86 $
2.53 $
2.34 $
2.50 $
2.06 $
2.37 $
2.14 $
2.15 $
2.05 $
1.75 $
2.03
97 $
15 $
16 $
33 $
23 $
87 $
(1)
$
31 $
13 $
44 $
87
8
5
4
1
–
–
5
1
–
–
9
2
–
–
4
1
–
–
4
4
8
5
$
110 $
20 $
16 $
39 $
23 $
98 $
(1)
$
36 $
13 $
52 $
100
26,795
3,392
3,596
6,462
4,266
17,716
6,825
2,491
–
1,944
–
4,435
–
–
5,491
2,753
9,153
17,397
2,159
–
2,154
4,313
44
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Pyhäsalmi statistics
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Mining
Ore mined (000s tonnes)
1,430
345
335
319
316
1,315
323
299
318
297
1,237
Processing
Ore milled (000s tonnes)
1,380
328
311
315
306
1,260
301
315
320
312
1,248
Copper ore grade processed (%)
1.11
1.08
1.15
1.13
1.07
1.11
0.98
1.02
0.98
0.98
Copper ore recovery (%)
97
97
97
96
97
97
97
96
95
97
Zinc ore grade processed (%)
1.67
1.82
1.83
1.34
1.17
1.55
1.66
1.94
2.07
2.35
Zinc ore recovery (%)
90
90
90
88
89
89
91
90
91
91
0.99
96
2.01
91
Copper produced (tonnes)
14,795
3,443
3,467
3,401
3,190
13,501
2,865
3,086
2,989
2,964
11,904
Zinc produced (tonnes)
Pyrite produced (tonnes)
Cash costs (per lb)
Cash cost – copper (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost – copper (C3) (per lb)
Revenues ($ millions)
Copper
Zinc
Pyrite
Other
Total sales revenues
Copper sales (tonnes)
Zinc sales (tonnes)
Pyrite sales (tonnes)
20,800
5,386
5,111
3,723
3,177
17,397
4,526
5,494
6,043
6,653
22,716
490,480
184,464
168,319
184,486
154,855
692,124
145,975
159,674
171,355
168,881
645,885
$
$
$
$
0.04 $
(0.59)
0.07 $
(0.59)
$
$
(0.39)
(0.39)
$
$
0.03 $
(0.10)
0.03 $
(0.09)
$
$
(0.26) $
(0.81)
(0.26) $
(0.81)
$
$
(0.02)
(0.02)
$
$
(0.48)
(0.48)
$
$
(0.59)
(0.59)
$
$
(0.46)
(0.46)
1.99 $
1.57 $
1.92 $
2.43 $
2.35 $
2.06 $
1.24 $
2.23 $
1.67 $
1.57 $
1.70
61 $
18 $
18 $
18 $
20 $
74 $
16 $
21 $
16 $
17 $
30
16
16
10
4
4
12
3
2
7
3
6
8
6
4
37
16
16
12
6
4
12
3
2
10
4
4
11
4
2
70
45
17
12
$
123 $
36 $
35 $
34 $
38 $
143 $
38 $
38 $
34 $
34 $
144
14,708
3,501
3,554
3,452
3,184
13,691
2,837
3,328
2,991
3,028
12,184
20,536
5,465
5,234
3,435
3,282
17,416
4,810
4,697
6,178
6,114
21,799
517,922
105,449
107,013
91,569
114,712
418,743
120,572
99,606
100,894
124,109
445,181
Ravensthorpe statistics
2016
Q1 17
Q2 17
Q3 17
Q4 17
2017
Q1 18
Q2 18
Q3 18
Q4 18
2018
Processing
Beneficiated ore (000s tonnes)
2,510
619
800
792
Beneficiated ore grade (%)
1.26
1.13
1.10
1.10
Nickel recovery – leach feed to nickel
produced (%)
81
82
79
76
–
–
–
2,211
1.11
79
Nickel produced (contained tonnes)
23,624
5,592
5,920
6,325
–
17,837
Nickel produced (payable tonnes)
17,630
4,291
4,537
4,866
–
13,694
Cash costs (per lb)
Mining
Processing
Site administration
TC/RC and freight charges
Cobalt credit
Cash cost (C1) (per lb)
All-in sustaining cost (AISC) (per lb)
Total cost (C3) (per lb)
Revenues ($ millions)
Nickel
Cobalt
$
0.99 $
1.17 $
1.19 $
1.01
– $
1.12
3.21
0.36
0.33
3.41
0.38
0.34
3.20
0.36
0.24
3.17
0.34
0.26
–
–
0.10
3.25
0.37
0.27
(0.23)
(0.46)
(0.56)
(0.62)
(0.71)
(0.56)
$
$
$
4.66 $
4.84 $
4.43 $
4.16 $
(0.61)
5.29 $
5.81 $
5.60 $
4.67 $
(0.51)
6.34 $
6.57 $
6.09 $
5.77 $
(0.51)
$
$
$
4.45
5.29
6.17
$
185 $
41 $
39 $
58 $
8 $
146
10
4
5
7
1
17
Total sales revenues
$
195 $
45 $
44 $
65 $
9 $
163
Nickel sales (contained tonnes)
25,882
5,197
5,522
7,099
865
18,683
Nickel sales (payable tonnes)
19,536
3,981
4,228
5,455
674
14,338
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
First Quantum Minerals Ltd. 2018 Annual Report
45
MANAGEMENT’S DISCUSSION AND ANALYSIS
Regulatory Disclosures
SEASONALITY
The Company’s results as discussed in this MD&A are subject to seasonal aspects, in particular the wet season in Zambia. The
wet season in Zambia generally starts in November and continues through April, with the heaviest rainfall normally
experienced in the months of December, January, February and March. As a result of the wet season, pit access and the ability
to mine ore is lower in the first quarter of the year than other quarters and the cost of mining is higher.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements as of the date of this report.
NON-GAAP FINANCIAL MEASURES
This document refers to cash cost (C1), all-in sustaining cost (AISC) and total cost (C3) per unit of payable production,
operating cash flow per share, comparative EBITDA, net debt and comparative earnings, which are not measures recognized
under IFRS, do not have a standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures
presented by other issuers. These measures are used internally by management and serve to provide additional information
and should not be considered in isolation to measures prepared under IFRS.
The calculation of these measures is described below and may differ from those used by other issuers. The Company discloses
these measures in order to provide assistance in understanding the results of the operations and to provide additional
information to investors.
CALCULATION OF CASH COST, ALL-IN SUSTAINING COST, TOTAL COST, SUSTAINING CAPITAL EXPENDITURE
AND DEFERRED STRIPPING COSTS CAPITALIZED
The consolidated cash cost (C1), all-in sustaining cost (AISC) and total cost (C3) presented by the Company are measures that
are prepared on a basis consistent with the industry-standard definitions but are not measures recognized under IFRS. In
calculating the C1 cash cost, AISC and C3 total cost for each segment, the costs are measured on the same basis as the
segmented financial information that is contained in the financial statements.
C1 cash cost includes all mining and processing costs less any profits from by-products such as gold, zinc, pyrite, cobalt,
sulphuric acid or iron magnetite and is used by management to evaluate operating performance. TC/RC and freight
deductions on metal sales, which are typically recognized as a component of sales revenues, are added to C1 cash cost to
arrive at an approximate cost of finished metal.
AISC is defined as cash cost (C1) plus general and administrative expenses, sustaining capital expenditure, deferred stripping
and royalties and is used by management to evaluate performance inclusive of sustaining expenditure required to maintain
current production levels.
C3 total cost is defined as AISC less sustaining capital expenditure, deferred stripping and general and administrative expenses
net of insurance, plus depreciation and exploration. This metric is used by management to evaluate the operating performance
inclusive of costs not classified as sustaining in nature such as exploration and depreciation.
Sustaining capital expenditure is defined as capital expenditure during the production phase, incurred to sustain and maintain
the existing assets to achieve constant planned levels of production, from which future economic benefits will be derived. This
includes expenditure for assets to retain their existing productive capacity, and to enhance assets to minimum reliability,
environmental and safety standards.
Deferred stripping costs capitalized are defined as waste material stripping costs in excess of the strip ratio, for the production
phase, and from which future economic benefits will be derived from future access to ore. Deferred stripping costs are
capitalized to the mineral property and will be depreciated on a units-of-production basis.
Purchase and deposits on property, plant and equipment
Sustaining capital expenditure and deferred stripping
Project capital expenditure – Panama development
Project capital expenditure – other
Pre-commercial costs
Total capital expenditure
46
First Quantum Minerals Ltd. 2018 Annual Report
2018
2,143
320
1,332
384
107
2017
1,652
302
1,256
94
–
2,143
1,652
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables provide a reconciliation of C1, C3 and AISC to the consolidated financial statements:
For the three months ended
December 31, 20181
Kansanshi
Sentinel
Las Cruces
Guelb
Moghrein
Çayeli
Pyhäsalmi
Copper
other Ravensthorpe
Total
Corporate &
(277)
(272)
(94)
(69)
(33)
(25)
(770)
Cost of sales
Adjustments:
Depreciation
By-product credits
Royalties
Treatment and refining charges
Freight costs
Finished goods
Other1
Cash cost (C1)
Adjustments:
Depreciation (excluding
depreciation in finished
goods)
Royalties
Other
Total cost (C3)
Cash cost (C1)
Adjustments:
60
46
23
(6)
6
(19)
29
69
–
22
(15)
(8)
3
1
53
–
4
–
(2)
1
–
16
22
1
(5)
–
4
1
11
8
–
(6)
(3)
7
1
(138)
(200)
(38)
(30)
(15)
(62)
(23)
(2)
(225)
(138)
(68)
(22)
(2)
(292)
(200)
General and administrative
expenses
Sustaining capital expenditure
and deferred stripping
Royalties
AISC
AISC (per lb)
Cash cost (C1) (per lb)
Total cost (C3) (per lb)
(7)
(9)
(43)
(23)
(211)
1.61
1.04
1.71
$
$
$
(31)
(22)
(262)
2.02
1.55
2.26
$
$
$
$
$
$
(52)
(4)
2
(92)
(38)
(1)
(5)
(4)
(48)
1.16
0.94
2.28
(17)
(1)
(1)
(49)
(30)
(1)
(2)
(1)
(34)
1.95
1.73
2.79
$
$
$
(8)
–
–
(23)
(15)
(1)
(2)
–
(18)
1.28
1.09
1.75
$
$
$
13
19
–
(2)
–
(2)
1
4
222
95
50
(34)
(7)
(6)
33
(417)
(13)
(220)
–
–
(9)
4
–
–
–
4
$
$
$
(0.59)
(0.59)
1.57
$
$
$
(50)
(3)
(690)
(417)
(19)
(83)
(50)
(569)
1.68
1.23
2.04
–
1
–
–
–
–
–
(1)
–
(1)
–
1
–
–
–
–
–
–
–
–
–
(4)
(774)
224
95
50
(34)
(7)
(6)
35
(417)
(222)
(50)
(2)
(691)
(417)
(19)
(83)
(50)
(569)
1
–
–
–
–
–
3
–
(1)
–
–
(1)
–
–
–
–
–
–
–
–
1 C1 cash cost, C3 total cost and AISC exclude third-party concentrate purchased at Kansanshi.
For the year ended
December 31, 20181
Cost of sales
Adjustments:
Depreciation
By-product credits
Royalties
Treatment and refining charges
Freight costs
Finished goods
Other1
Cash cost (C1)
Adjustments:
Depreciation (excluding
depreciation in finished
goods)
Royalties
Other
Total cost (C3)
Cash cost (C1)
Adjustments:
General and administrative
expenses
Sustaining capital expenditure
and deferred stripping
Royalties
AISC
AISC (per lb)
Cash cost (C1) (per lb)
Total cost (C3) (per lb)
Kansanshi
Sentinel
Las Cruces
Guelb
Moghrein
Çayeli
Pyhäsalmi
Copper
other Ravensthorpe
Total
Corporate &
(1,049)
(1,166)
(354)
(205)
(77)
(104)
(2,955)
(17)
(16)
(2,988)
250
181
105
(24)
(11)
(53)
40
276
203
–
88
(59)
(27)
61
4
–
9
–
(2)
1
2
45
81
6
(16)
–
(4)
2
30
13
2
(11)
(5)
(3)
1
54
76
–
(8)
(1)
(2)
(2)
858
351
210
(118)
(46)
–
47
(561)
(823)
(141)
(91)
(50)
13
(1,653)
(263)
(105)
(7)
(936)
(561)
(252)
(201)
(88)
(6)
(1,169)
(823)
(9)
1
(350)
(141)
(49)
(6)
(2)
(148)
(91)
(26)
(36)
(6)
(4)
(141)
(105)
(833)
1.55
1.03
1.74
$
$
$
(130)
(88)
(1,077)
$
$
$
2.22
1.70
2.42
$
$
$
(27)
(9)
(183)
1.16
0.90
2.25
(15)
(6)
(116)
1.93
1.50
2.46
$
$
$
$
$
$
(31)
(2)
–
(83)
(50)
(2)
(7)
(2)
(61)
1.48
1.21
2.03
(54)
–
–
(41)
13
–
–
–
(850)
(210)
(14)
(2,727)
(1,653)
(74)
(320)
(210)
13
(2,257)
$
$
$
(0.46)
(0.46)
1.70
$
$
$
1.74
1.28
2.11
1
–
–
–
–
–
16
–
(1)
–
1
–
–
–
–
–
–
–
–
–
864
351
210
(118)
(46)
–
74
(1,653)
(856)
(210)
(13)
(2,732)
(1,653)
(74)
(320)
(210)
(2,257)
5
–
–
–
–
–
11
–
(5)
–
–
(5)
–
–
–
–
–
–
–
–
1 C1 cash cost, C3 total cost and AISC exclude third-party concentrate purchased at Kansanshi.
First Quantum Minerals Ltd. 2018 Annual Report
47
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended
December 31, 2017
Kansanshi
Sentinel
Las Cruces
Guelb
Moghrein
Çayeli
Pyhäsalmi
Copper
continuing
Corporate &
other Ravensthorpe
Total
Cost of sales
Adjustments:
Depreciation
By-product credits
Royalties
Treatment and refining charges
Freight costs
Finished goods
Other
Cash cost (C1)
Adjustments:
Depreciation (excluding
depreciation in finished
goods)
Royalties
Other
Total cost (C3)
Cash cost (C1)
Adjustments:
General and administrative
expenses
Sustaining capital expenditure
and deferred stripping
Royalties
AISC
AISC (per lb)
Cash cost (C1) (per lb)
Total cost (C3) (per lb)
For the year ended
December 31, 2017
Cost of sales
Adjustments:
Depreciation
By-product credits
Royalties
Treatment and refining charges
Freight costs
Finished goods
Other
Cash cost (C1)
Adjustments:
Depreciation (excluding
depreciation in finished
goods)
Royalties
Other
Total cost (C3)
Cash cost (C1)
Adjustments:
General and administrative
expenses
Sustaining capital expenditure
and deferred stripping
Royalties
AISC
AISC (per lb)
Cash cost (C1) (per lb)
Total cost (C3) (per lb)
(307)
(230)
(96)
(47)
(12)
(32)
(724)
(30)
(14)
(768)
79
37
30
(7)
(15)
11
8
61
–
23
(15)
(7)
(28)
3
58
–
2
–
–
(1)
–
11
20
1
(5)
–
(1)
–
–
–
1
(2)
(1)
1
(1)
(164)
(193)
(37)
(21)
(14)
(69)
(30)
(2)
(265)
(164)
(68)
(23)
(2)
(286)
(193)
(8)
(8)
(21)
(30)
(223)
1.55
1.16
1.86
(46)
(23)
(270)
2.36
1.67
2.49
$
$
$
$
$
$
$
$
$
(60)
(2)
1
(98)
(37)
(1)
(5)
(2)
(45)
1.12
0.93
2.40
(12)
(1)
(1)
(35)
(21)
(1)
(1)
(1)
(24)
1.60
1.34
2.25
–
(1)
–
(15)
(14)
–
(2)
(1)
(17)
2.48
2.05
2.06
$
$
$
$
$
$
16
18
–
(2)
–
–
–
–
225
75
57
(31)
(23)
(18)
10
(429)
(16)
(225)
–
–
(16)
–
–
–
–
–
$
$
$
((0.09)
(0.10)
2.35
$
$
$
(57)
(4)
(715)
(429)
(18)
(75)
(57)
(579)
1.76
1.30
2.16
228
76
57
(31)
(23)
(13)
46
(428)
(226)
(57)
(4)
(715)
(428)
(18)
(75)
(57)
(578)
–
–
–
–
–
–
30
–
–
–
–
–
–
–
–
–
–
–
–
–
3
1
–
–
–
5
6
1
(1)
–
–
–
1
–
–
–
1
$
$
$
((0.51)
((0.61)
((0.51)
Kansanshi
Sentinel
Las Cruces
Guelb
Moghrein
Çayeli
Pyhäsalmi
Copper
continuing
Corporate &
other Ravensthorpe
Total
(1,104)
(860)
(355)
(176)
(82)
(119)
(2,696)
(59)
(220)
(2,975)
291
166
92
(39)
(39)
50
16
224
205
–
63
(47)
(17)
(43)
1
–
7
–
–
2
2
45
67
6
30
11
2
66
69
–
861
313
170
(19)
(11)
(10)
(126)
–
(1)
–
(4)
3
(1)
(1)
(1)
4
8
(61)
10
22
(1,507)
(567)
(679)
(139)
(78)
(52)
(261)
(231)
(205)
(45)
(29)
(66)
(92)
(7)
(927)
(567)
(63)
(5)
(978)
(679)
(7)
1
(350)
(139)
(6)
(1)
(130)
(78)
(26)
(30)
(6)
(4)
(149)
(103)
(92)
(63)
(20)
(7)
(13)
(6)
(2)
–
(83)
(52)
(2)
(5)
(2)
(834)
(875)
(172)
(101)
(61)
(837)
(170)
(12)
–
–
(58)
(2,526)
8
(1,507)
–
–
–
8
(68)
(290)
(170)
(2,035)
$
$
$
1.54
1.05
1.71
$
$
$
2.19
1.70
2.45
$
$
$
1.06
0.86
2.15
$
$
$
1.65
1.28
2.13
$
$
$
1.75
1.50
2.37
$
$
$
(0.26)
(0.26)
2.06
$
$
$
1.65
1.23
2.05
1
–
–
–
–
–
58
–
–
–
–
–
–
–
–
–
–
–
–
–
32
17
8
–
–
14
15
894
330
178
(126)
(61)
24
95
(134)
(1,641)
(41)
(8)
(3)
(878)
(178)
(15)
(186)
(2,712)
(134)
(1,641)
(6)
(74)
(12)
(8)
(302)
(178)
(160)
(2,195)
$
$
$
5.29
4.45
6.17
48
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
COMPARATIVE EBITDA AND COMPARATIVE EARNINGS
Comparative EBITDA and comparative earnings are the Company’s adjusted earnings metrics and are used by management to
evaluate operating performance. The Company believes that the comparative metrics presented are useful as the adjusted
items do not reflect the underlying operating performance of its current business and are not necessarily indicative of future
operating results.
CALCULATION OF OPERATING CASH FLOW PER SHARE, NET DEBT, COMPARATIVE EBITDA AND
COMPARATIVE EARNINGS
In calculating the operating cash flow per share, the operating cash flow calculated for IFRS purposes is divided by the basic
weighted average common shares outstanding for the respective period.
Net debt comprises unrestricted cash and cash equivalents, bank overdrafts and total debt.
Comparative EBITDA, comparative earnings and comparative earnings per share are non-GAAP measures which measure the
performance of the Company. Comparative EBITDA, comparative earnings and comparative earnings per share exclude certain
impacts which the Company believes are not reflective of the Company’s underlying performance for the reporting period.
These include impairment and related charges, foreign exchange gains and losses, gains and losses on disposal of assets and
liabilities, one-time costs related to acquisitions, dispositions, restructuring and other transactions, revisions in estimates of
restoration provisions at closed sites, debt extinguishment loss and discounting of non-current VAT.
Operating profit from continuing operations
260
141
49
809
Q4 18
Q3 18
Q4 17
2018
Depreciation
Other adjustments:
224
211
228
864
Impairment and related charges
–
–
26
–
Foreign exchange loss (gain) and changes in fair value
relating to option time value1
(13)
74
11
64
(Gain) loss on disposal of assets and liabilities
Other expense
Costs associated with moving Ravensthorpe into care and
maintenance
Revisions in estimates of restoration provisions at closed sites
Total adjustments excluding depreciation
Comparative EBITDA
2
8
–
–
(3)
–
–
–
1
4
(6)
–
–
–
8
–
(2)
75
41
64
77
481
427
318 1,737 1,154
2017
183
894
26
35
5
–
7
4
1 Following the adoption of IFRS 9 on January 1, 2018, the changes in fair value relating to option time value are recognized in OCI.
Net earnings (loss) attributable to shareholders of the Company
198
61
(115)
441
(316)
Q4 18
Q3 18
Q4 17
2018
2017
Adjustments attributable to shareholders of the Company:
Loss on extinguishment of senior notes
Finance expense on discounting non-current VAT
Total adjustments to comparative EBITDA excluding
–
5
–
–
–
–
20
5
depreciation
(3)
75
41
64
Tax and minority interest relating to foreign exchange
revaluation and comparative adjustments
(18)
(8)
18
(23)
84
20
77
24
Comparative earnings (loss)
Earnings (loss) per share as reported
Comparative earnings (loss) per share
182
128
(36)
487
(111)
$ 0.29 $ 0.09 $
(0.17)
$ 0.64 $
(0.46)
$ 0.26 $ 0.19 $
(0.05)
$ 0.71 $
(0.16)
First Quantum Minerals Ltd. 2018 Annual Report
49
MANAGEMENT’S DISCUSSION AND ANALYSIS
ADOPTION OF NEW STANDARDS
IFRS 9 Financial Instruments
The Company has adopted IFRS 9 Financial Instruments as of January 1, 2018. The requirements of IFRS 9 represent a
significant change from IAS 39 Financial Instruments: Recognition and Measurement. Additionally, the Company adopted
consequential amendments to IFRS 7 Financial Instruments: Disclosures.
The details and quantitative impact of the changes in accounting policies are disclosed below.
• IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through
other comprehensive income (“FVOCI”) and fair value through profit and loss (“FVTPL”). The standard eliminates the
previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, financial asset
derivatives are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Refer to the
table below for a summary of the classification changes upon transition to IFRS 9.
• Non-substantial modifications of financial liabilities are required to have a modification gain or loss recognized. This has
resulted in an increase in the carrying value of senior debt on transition of $44 million.
• The Company has elected to present all subsequent changes in the fair value of an investment in an equity instrument
within other comprehensive income (“OCI”). These investments were previously held at cost or FVTPL. A fair value
adjustment of $10 million was recognized within accumulated other comprehensive loss.
• IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” model. The new impairment model applies
to financial assets measured at amortized cost, contract assets and debt investments at FVOCI. Under IFRS 9, credit losses are
recognized earlier than under IAS 39. An assessment was performed to determine the expected credit loss of financial assets.
Given that the Company’s trading contracts are established long-term contracts with international trading companies, a portion
of which are backed by a letter of credit, we have determined the expected credit loss to be not material (December 31, 2017:
no impairment recognized). The Company has also adopted consequential amendments to IAS 1 Presentation of Financial
Statements which requires impairment of financial assets to be presented in a separate line item in the statement of profit or
loss and OCI. Previously, the Company’s approach was to include any impairment of trade receivables in other expenses.
• IFRS 9 marks a revised approach to hedge accounting; however, this has not significantly impacted the hedge accounting
applied by the Company. Under IAS 39, the change in fair value of the forward element of the forward exchange contracts
(“forward points”) was recognized immediately in profit and loss. However, under IFRS 9 the forward points are separately
accounted for as a cost of hedging and are recognized in OCI. On transition, $12 million has been reclassified between
retained earnings and accumulated other comprehensive loss.
The following table shows the original measurement categories under IAS 39 and the new measurement categories under
IFRS 9 for each class of the Group’s financial assets as at January 1, 2018.
Financial assets
Trade and other receivables
Loans and receivables
Amortized cost
Original classification under IAS 39
New classification under IFRS 9
Provisionally priced sales included in trade and other receivables FVTPL
Derivative instruments in designated hedge relationships
Other derivative instruments
Investments
At cost
At fair value
Financial liabilities
Trade and other payables
Derivative instruments in designated hedge relationships
Other derivative instruments
Finance leases
Liability to joint venture
Debt
50
First Quantum Minerals Ltd. 2018 Annual Report
FVTPL
FVTPL
Available-for-sale
Available-for-sale
FVTPL
FVTPL
FVTPL
FVOCI
FVOCI
Other financial liabilities
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
Other financial liabilities
Amortized cost
Other financial liabilities
Amortized cost
Other financial liabilities
Amortized cost
MANAGEMENT’S DISCUSSION AND ANALYSIS IFRS 15 Revenue from Contracts with Customers
The Company has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018. In accordance with the
transition provisions in IFRS 15, the Company has elected to apply the new rules retrospectively whereby the transitional
adjustment is recognized in retained earnings with no adjustment of comparatives. Therefore, the comparative information
continues to be reported under IAS 18. The changes have been applied only to contracts that remained in force at the
transition date.
The details and quantitative impact of the changes in accounting policies are disclosed below.
• The Company recognizes deferred revenue in the event it receives payments from customers before a sale meets criteria for
revenue recognition. Proceeds received from Franco-Nevada under the terms of the precious metal stream arrangements
were previously accounted for and classified as deferred revenue. As the timing of the transfer of goods does not match the
receipt of consideration, IFRS 15 requires the transaction price to be adjusted to reflect the significant financing component.
In accordance with the requirements of IFRS 15, deferred revenue has been adjusted for the financing component with an
increase recognized in the carrying value of deferred revenue of $74 million on transition.
• The Company sells a significant proportion of its products on terms whereby the Company is responsible for providing
shipping services after the date at which control of the goods passes to the customer. Under IAS 18, the Company
recognizes such shipping and other freight revenue and accrues the associated costs in full on loading. The impact of
treating freight, where applicable, as a separate performance obligation and therefore recognizing revenue over time would
not have materially impacted revenue, costs or earnings as at December 31, 2018 or at December 31, 2017.
• The Company’s sales are made under pricing arrangements where final prices are set at a specified date based on market
prices. Under IFRS 15, variable consideration should be estimated by method of expected value or most likely amount, and
included in the transaction price, to the extent that it is highly probable a significant reversal in the amount of cumulative
revenue recognized will not occur. The changes between the prices recorded upon recognition of revenue and the final price
due to fluctuations in metal market prices is recognized as an embedded derivative in the accounts receivable. This
embedded derivative is recorded at fair value, with changes in fair value classified as a component of cost of sales. The
adoption of IFRS 15 has not changed the assessment or treatment of the existence of embedded derivatives in these
financial statements.
The Company has elected to make use of the following practical expedients:
• Completed contracts under IAS 18 before the date of transition have not been reassessed.
• The Company applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about
remaining performance obligations that have original expected duration of one year or less.
The following table summarizes the impacts of adopting IFRS 9 and IFRS 15 on the Company’s consolidated financial
statements on January 1, 2018.
Balance sheet
Other assets
Debt
Deferred revenue
Retained earnings
Accumulated other comprehensive loss
As reported
December 31,
2017
Transition
adjustments
At January 1,
2018
353
(6,277)
(726)
(3,612)
227
(10)
(44)
(74)
106
22
343
(6,321)
(800)
(3,506)
249
First Quantum Minerals Ltd. 2018 Annual Report
51
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table summarizes the impacts of adopting IFRS 9 and IFRS 15 on the Company’s consolidated financial
statements for the year ended December 31, 2018, inclusive of the transition adjustments.
December 31,
2018
IFRS 9
application
IFRS 15
application
As reported
December 31,
2018
Balance sheet
Property, plant and equipment
Other assets
Debt
Deferred revenue
Retained earnings
Accumulated other comprehensive loss
Income statement
Cost of sales
Loss on extinguishment of term loan
19,053
316
(7,260)
(1,356)
(4,048)
17
2,976
4
(15)
(10)
(25)
–
32
10
12
(4)
60
19,098
–
–
(134)
74
–
–
–
306
(7,285)
(1,490)
(3,942)
27
2,988
–
0.64
Earnings (loss) per share
$
0.65 $
(0.01)
$
0.00 $
NEW STANDARDS NOT YET ADOPTED
IFRS 16 Leases
Effective for annual periods commencing on or after January 1, 2019, IFRS 16 will replace IAS 17 Leases. The new standard
eliminates the classification of leases as either operating or finance leases by the lessee. Classification of leases by the lessor
are either classified as operating or finance under IFRS 16, similar to the treatment under IAS 17 Leases. The treatment of
leases by the lessee will require capitalization of all leases resulting in accounting treatment similar to finance leases under
IAS 17 Leases. Exemptions for leases of very low value or short-term leases are applicable.
The Company has undertaken and completed a detailed review and evaluation exercise of existing contracts against the
IFRS 16 criteria as well as completing the calculation of lease liabilities for contracts that have been identified as containing
right-of-use assets. It is expected that the lease liability of $23 million will be recognized on transition on January 1, 2019. The
Company has elected to apply the modified transition approach whereby no restatement of comparative periods is required.
Right-of-use assets will be recognized at the amount of the liability on transition. Leases with terms that end within 12 months
of the mandatory transition date will be accounted for by the Company as short-term leases with payments made under the
lease recognized as expenses.
The transition to IFRS 16 will result in increases to assets and liabilities recognized in the balance sheet as well as increases to
depreciation and finance costs in the Statements of Earnings and reductions in operating costs.
SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS
Many of the amounts disclosed in the financial statements involve the use of judgments, estimates and assumptions. These
judgments and estimates are based on management’s knowledge of the relevant facts and circumstances at the time, having
regard to prior experience, and are continually evaluated.
(i) Significant judgments
• Determination of ore reserves and resources
Judgments about the amount of product that can be economically and legally extracted from the Company’s properties
are made by management using a range of geological, technical and economic factors, history of conversion of mineral
deposits to proven and probable reserves as well as data regarding quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. This process may
require complex and difficult geological judgments to interpret the data. The Company uses qualified persons (as
defined by the Canadian Securities Administrators’ National Instrument 43-101) to compile this data.
Changes in the judgments surrounding proven and probable reserves may impact the carrying value of property, plant
and equipment (note 6), restoration provisions (note 12), recognition of deferred income tax amounts (note 14) and
depreciation (note 6).
52
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
• Achievement of commercial production
Once a mine or smelter reaches the operating levels intended by management, depreciation of capitalized costs begins.
Significant judgment is required to determine when certain of the Company’s assets reach this level.
Management considers several factors, including, but not limited to the following:
• completion of a reasonable period of commissioning;
• consistent operating results achieved at a pre-determined level of design capacity and indications that this level will
continue;
• mineral recoveries at or near expected levels;
• and the transfer of operations from development personnel to operational personnel has been completed.
• Taxes
Judgment is required in determining the recognition and measurement of deferred income tax assets and liabilities on
the balance sheet. In the normal course of business, the Company is subject to assessment by taxation authorities in
various jurisdictions. These authorities may have different interpretations of tax legislation or tax agreements than those
applied by the Company in computing current and deferred income taxes. These different judgments may alter the
timing or amounts of taxable income or deductions. The final amount of taxes to be paid or recovered depends on a
number of factors including the outcome of audits, appeals and negotiation. Amounts to be recovered with respect to
indirect taxes, such as VAT, are subject to judgment which, in the instance of a change of circumstances, could result in
material adjustments.
The Company operates in a specialized industry and in a number of tax jurisdictions. As a result, its income is subject to
various rates of taxation. The breadth of its operations and the global complexity and interpretation of tax regulations
require assessment and judgment of uncertainties and of the taxes that the Company will ultimately pay. These are
dependent on many factors, including negotiations with tax authorities in various jurisdictions, outcomes of tax
litigation and resolution of disputes. The resolution of these uncertainties may result in adjustments to the Company’s
tax assets and liabilities.
Management assesses the likelihood and timing of taxable earnings in future periods in recognizing deferred income
tax assets on unutilized tax losses. Future taxable income is based on forecast cash flows from operations and the
application of existing tax laws in each jurisdiction. Forecast cash flows are based on life of mine projections.
To the extent that future cash flows and taxable income differ significantly from forecasts, the ability of the Company
to realize the net deferred income tax assets recorded at the balance sheet date could be impacted. In addition, future
changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods from deferred
income tax assets are disclosed in note 14.
• Precious metal stream arrangement
On October 5, 2015, the Company finalized an agreement with Franco-Nevada Corporation (“Franco-Nevada”) for
the delivery of precious metals from the Cobre Panama project. Franco-Nevada have provided a $1 billion deposit to
the Cobre Panama project against future deliveries of gold and silver produced by the mine. A further stream was
completed on March 26, 2018, with an additional $356 million received from Franco-Nevada.
Management has determined that, under the terms of the agreement, the Company meets the “own-use” exemption
criteria under IFRS 9 Financial Instruments. The Company also retains significant business risk relating to the completion
of the project and delivery of produced gold and silver and as such has accounted for the proceeds received as
deferred revenue.
Management has exercised judgment in determining the appropriate accounting treatment for the Franco-Nevada
streaming agreement. Management has determined, with reference to the agreed contractual terms in conjunction
with the Cobre Panama reserves and mine plan, that the Franco-Nevada contribution to capital expenditure constitutes
a prepayment of revenues deliverable from future Cobre Panama production.
First Quantum Minerals Ltd. 2018 Annual Report
53
MANAGEMENT’S DISCUSSION AND ANALYSIS
• Assessment of impairment indicators
Management applies significant judgment in assessing each cash-generating unit and asset for the existence of
indicators of impairment at the reporting date. Internal and external factors are considered in assessing whether
indicators of impairment are present that would necessitate impairment testing. Significant assumptions regarding
commodity prices, operating costs, capital expenditures and discount rates are used in determining whether there are
any indicators of impairment. These assumptions are reviewed regularly by senior management and compared, where
applicable, to relevant market consensus views.
The Company’s most significant CGUs are longer-term assets and therefore their value is assessed on the basis of
longer-term pricing assumptions. Shorter-term assets are more sensitive to short-term commodity pricing assumptions
that are used in the review of impairment indicators.
The carrying value of property, plant and equipment and goodwill at the balance sheet date is disclosed in note 6 and
note 7, respectively, and by mine location in note 24.
• Derecognition of financial liabilities
Judgment is required in determining if an exchange of issued listed tradeable bonds results in, amongst other factors, a
change to the existing lender and, if so, whether that constitutes an extinguishment of an existing financial liability and
recognition of a new financial liability. Judgment that an exchange of such instruments in 2017 was an extinguishment
of the existing financial liability resulted in material impacts on the carrying value of debt and finance costs in the year
ended December 31, 2017 (note 11).
(ii) Significant accounting estimates
Estimates are inherently uncertain and therefore actual results may differ from the amounts included in the financial
statements, potentially having a material future effect on the Company’s consolidated financial statements. The estimates
and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are addressed below:
• Determination of ore reserves and life of mine plan
Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s
properties. Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies or fields to
be determined by analyzing geological data such as drilling samples. Following this, the quantity of ore that can be
extracted in an economical manner is calculated using data regarding the life of mine plans and forecast sales prices
(based on current and long-term historical average price trends).
The majority of the Company’s property, plant and equipment are depreciated over the estimated lives of the assets on
a units-of-production basis. The calculation of the units-of-production rate, and therefore the annual depreciation
expense, could be materially affected by changes in the underlying estimates which are driven by the life of mine plans.
Changes in estimates can be the result of actual future production differing from current forecasts of future production,
expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining
and differences in the commodity prices used in the estimation of mineral reserves.
Management made significant estimates of the strip ratio for each production phase. Waste material stripping costs in
excess of this ratio, and from which future economic benefit will be derived from future access to ore, will be
capitalized to mineral property and depreciated on a units-of-production basis.
Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment
(note 6), restoration provisions (note 12), recognition of deferred income tax amounts (note 14) and depreciation (note 6).
• Review of asset carrying values and impairment charges
The Company reviews the carrying value of assets at each reporting period to determine whether there is any indication
of impairment using both internal and external sources of information. The Company has determined that each mining
operation and smelter is a cash-generating unit.
54
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS External sources of information regarding indications of impairment include considering the changes in the market,
economic and legal environment in which the Company operates that are not within its control and affect the
recoverable amount of, or the timing of, economic benefits from mining assets. Internal sources of information include
changes to the life of mine plans and economic performance of the assets.
Management’s determination of recoverable amounts includes estimates of mineral prices, recoverable reserves and
operating, capital and restoration costs, which are subject to certain risks and uncertainties that may affect the
recoverability of mineral property costs. The calculation of the recoverable amount can also include assumptions
regarding the appropriate discount rate and inflation and exchange rates. Although management has made its best
estimate of these factors, it is possible that changes could occur in the near term that could adversely affect
management’s estimate of the net cash flow to be generated from its projects.
The Ravensthorpe mine was placed in care and maintenance in October 2017 and an impairment test was performed
as at September 30, 2017. As disclosed in note 8, its value is sensitive to longer-term nickel price assumptions and the
movements in the discount rate.
• Estimation of the amount and timing of restoration and remediation costs
Accounting for restoration provisions requires management to make estimates of the future costs the Company will
incur to complete the restoration and remediation work required to comply with existing laws, regulations and
agreements in place at each mining operation and any environmental and social principles the Company is in
compliance with. The calculation of the present value of these costs also includes assumptions regarding the timing of
restoration and remediation work, applicable risk-free interest rate for discounting those future cash outflows, inflation
and foreign exchange rates, and assumptions relating to probabilities of alternative estimates of future cash outflows.
Actual costs incurred may differ from those amounts estimated. Also, future changes to environmental laws and
regulations could increase the extent of restoration work required to be performed by the Company. Increases in future
costs could materially impact the amounts charged to operations for restoration. A 10% increase in costs would result
in an increase to restoration provisions of $63 million at December 31, 2018.
The provision represents management’s best estimate of the present value of the future restoration and remediation
costs. The actual future expenditures may differ from the amounts currently provided; any increase in future costs could
materially impact the amounts included in the liability disclosed in the consolidated balance sheet. The carrying amount
of the Company’s restoration provision is disclosed in note 12c.
FINANCIAL INSTRUMENTS RISK EXPOSURE
The Company’s activities expose it to a variety of risks arising from financial instruments. These risks, and management’s
objectives, policies and procedures for managing these risks, are disclosed as follows:
Credit risk
The Company’s credit risk is primarily attributable to cash and bank balances, short-term deposits, derivative instruments, trade
and other receivables and promissory note receivable. The Company’s exposure to credit risk is represented by the carrying
amount of each class of financial assets, including commodity contracts, recorded in the consolidated balance sheet.
The Company limits its credit exposure on cash held in bank accounts by holding its key transactional bank accounts with
highly rated financial institutions. The Company manages its credit risk on short-term deposits by only investing with
counterparties that carry investment grade ratings as assessed by external rating agencies and spreading the investments
across these counterparties. Under the Company’s risk management policy, allowable counterparty exposure limits are
determined by the level of the rating unless exceptional circumstances apply. A rating of investment grade or equivalent is the
minimum allowable rating required as assessed by international credit rating agencies. Likewise, it is the Company’s policy to
deal with banking counterparties for derivatives who are rated investment grade or above by international credit rating
agencies and graduated counterparty limits are applied depending upon the rating.
Exceptions to the policy for dealing with relationship banks with ratings below investment grade are reported to, and
approved by, the Audit Committee. As at December 31, 2018, substantially all cash and short-term deposits are with
counterparties of investment grade.
First Quantum Minerals Ltd. 2018 Annual Report
55
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company’s credit risk associated with trade accounts receivable is managed through establishing long-term contractual
relationships with international trading companies using industry-standard contract terms. More than 70% of the Company’s
trade receivables are generated from five customers together representing greater than 25% of the total sales for the year. A
total balance of $36 million was past due from these customers at the balance sheet date and is classified as current
receivable. The Company continues to trade with these customers. Revenues earned from these customers are included within
the Kansanshi segment. Other accounts receivable consist of amounts owing from government authorities in relation to the
refund of value-added taxes applying to inputs for the production process and property, plant and equipment expenditures
and prepaid taxes.
Liquidity risk
The Company manages liquidity risk by maintaining cash and cash equivalent balances and available credit facilities to ensure
that it is able to meet its short-term and long-term obligations as and when they fall due. Company-wide cash projections are
managed centrally and regularly updated to reflect the dynamic nature of the business and fluctuations caused by commodity
price and exchange rate movements.
In addition, the Company was obligated under its corporate revolving credit and term loan facility to maintain liquidity and
satisfy various covenant ratio tests on an historical and prospective cash flow basis. These ratios were in compliance during the
year ended December 31, 2018 and December 31, 2017. If the Company breaches a covenant in its financing agreements,
this would be an event of default which, if unaddressed, would entitle the lenders to make the related borrowings
immediately due and payable and, if made immediately due and payable, all other borrowings would also be due and payable.
Market risks
Commodity price risk
The Company is subject to commodity price risk from fluctuations in the market prices of copper, gold, nickel, zinc and other
elements.
As part of the hedging program, the Company has elected to apply hedge accounting for a portion of copper and nickel sales.
For the year ended December 31, 2018, a fair value loss of $27 million has been recognized on derivatives designated as hedged
instruments through accumulated other comprehensive income and a fair value loss of $110 million has been recognized through
sales revenues. The Company also had zero cost collar unmargined sales contracts for 30,000 tonnes at prices ranging from low
side (or put) prices of $3.10 per lb to high side (or call) prices of $3.50 per lb with maturities to June 2019.
The Company is also exposed to commodity price risk on diesel fuel required for mining operations and sulphur required for
acid production. The Company’s risk management policy allows for the management of these exposures through the use of
derivative financial instruments. As at December 31, 2018 and December 31, 2017, the Company had not entered into any
diesel or sulphur derivatives.
The Company’s commodity price risk related to changes in fair value of embedded derivatives in accounts receivable reflecting
copper, nickel, gold and zinc sales provisionally priced based on the forward price curve at the end of each quarter.
Interest rate risk
The majority of the Company’s interest expense is fixed; however, it is also exposed to an interest rate risk arising from interest
paid on floating rate debt and the interest received on cash and short-term deposits. The Company currently capitalizes the
majority of interest charges, and therefore the risk exposure is primarily on cash and net earnings in relation to the
depreciation of capitalized interest charges.
Deposits are invested on a short-term basis to ensure adequate liquidity for payment of operational and capital expenditures.
To date, no interest rate management products, such as swaps, are used in relation to deposits.
The Company manages its interest rate risk on borrowings on a net basis. The Company has a policy allowing floating-to-fixed
interest rate swaps targeting 50% of exposure over a five-year period. As at December 31, 2018 and December 31, 2017, the
Company held no floating-to-fixed interest rate swaps.
Foreign exchange risk
The Company’s functional and reporting currency is USD. As virtually all of the Company’s revenues are derived in USD and the
majority of its business is conducted in USD, foreign exchange risk arises from transactions denominated in currencies other
than USD. Commodity sales are denominated in USD, the majority of borrowings are denominated in USD and the majority of
operating expenses are denominated in USD. The Company’s primary foreign exchange exposures are to the local currencies in
the countries where the Company’s operations are located, principally the Zambian kwacha (“ZMW”), Australian dollar
(“AUD”), Mauritanian ouguiya (“MRU”), the euro (“EUR”) and the Turkish lira (“TRY”), and to the local currencies of suppliers
who provide capital equipment for project development, principally the AUD, EUR and the South African rand (“ZAR”).
56
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS The Company’s risk management policy allows for the management of exposure to local currencies through the use of financial
instruments at a targeted amount of up to 100% for exposures within one year down to 50% for exposures in five years.
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that all relevant information
is communicated to senior management, to allow timely decisions regarding required disclosure.
An evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined under the rules of the
Canadian Securities Administration, was conducted as of December 31, 2018, under the supervision of the Company’s Audit
Committee and with the participation of management. Based on the results of the evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the
period covered by this report in providing reasonable assurance that the information required to be disclosed in the Company’s
annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed,
summarized and reported in accordance with the securities legislation.
Since the December 31, 2018 evaluation, there have been no adverse changes to the Company’s controls and procedures and
they continue to remain effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company’s
financial reporting and the preparation of financial statements in compliance with IFRS. The Company’s internal control over
financial reporting includes policies and procedures that:
• pertain to the maintenance of records that accurately and fairly reflect the transactions of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with IFRS;
• ensure the Company’s receipts and expenditures are made only in accordance with authorization of management and the
Company’s directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized transactions that could have a
material effect on the annual or interim financial statements.
An evaluation of the effectiveness of the Company’s internal control over financial reporting was conducted as of
December 31, 2018 by the Company’s management, including the Chief Executive Officer and Chief Financial Officer, based
on the Internal Control – Integrated Framework (2013) established by the Committee of Sponsoring Organizations (COSO) of
the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal controls over
financial reporting were effective.
There were no changes in the Company’s business activities during the period ended September 30, 2018 that have materially
affected, or are reasonably likely to materially affect, its internal controls over financial reporting.
LIMITATIONS OF CONTROLS AND PROCEDURES
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any disclosure
controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide
only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control
system reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the
realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by
unauthorized override of the control. The design of any systems of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and not be detected.
First Quantum Minerals Ltd. 2018 Annual Report
57
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of First Quantum Minerals Ltd. and the information contained in the annual report
have been prepared by and are the responsibility of the Company’s management. The consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board and, where appropriate, reflect management’s best estimates and judgments based on currently
available information.
Management has developed and is maintaining a system of internal controls to obtain reasonable assurance that the
Company’s assets are safeguarded, transactions are authorized and financial information is reliable.
The Company’s independent auditors, PricewaterhouseCoopers LLP, who are appointed by the shareholders, conduct an audit
in accordance with Canadian generally accepted auditing standards. Their report outlines the scope of their audit and gives
their opinion on the consolidated financial statements.
The Audit Committee of the Board of Directors meets periodically with management and the independent auditors to review
the scope and results of the annual audit, and to review the consolidated financial statements and related financial reporting
matters prior to approval of the consolidated financial statements.
(signed)
Philip K.R. Pascall
Chairman and Chief Executive Officer
February 14, 2019
(signed)
Hannes Meyer
Chief Financial Officer
58
First Quantum Minerals Ltd. 2018 Annual Report
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of First Quantum Minerals Ltd.
Report on the audit of the consolidated financial statements
OUR OPINION
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position
of First Quantum Minerals Ltd. and its subsidiaries, (together, the Company) as at December 31, 2018 and 2017, and its
financial performance and its cash flows for the years then ended in accordance with International Financial Reporting
Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
• the Consolidated Balance Sheets as at December 31, 2018 and 2017;
• the Consolidated Statements of Earnings (Loss) for the years then ended;
• the Consolidated Statements of Comprehensive Income (Loss) for the years then ended;
• the Consolidated Statements of Changes in Equity for the years then ended;
• the Consolidated Statements of Cash Flows for the years then ended; and
• the Notes to the Consolidated Financial Statements, which include a summary of significant accounting policies.
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these
requirements.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises the Management’s Discussion
and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
First Quantum Minerals Ltd. 2018 Annual Report
59
INDEPENDENT AUDITOR’S REPORT
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a
going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Company to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
T
N
E
D
N
E
P
E
D
N
I
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R
O
P
E
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S
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O
T
D
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A
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60
First Quantum Minerals Ltd. 2018 Annual Report
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Jason Burkitt.
(signed)
PricewaterhouseCoopers LLP
London, United Kingdom
February 14, 2019
First Quantum Minerals Ltd. 2018 Annual Report
61
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(expressed in millions of U.S. dollars, except where indicated and share and per share amounts)
Sales revenues
Cost of sales
Gross profit
Exploration
General and administrative
Impairments and related charges
Other expense
Operating profit
Finance income
Finance costs
Loss on extinguishment of senior notes
Earnings before income taxes
Income tax expense
Net earnings (loss)
Net earnings (loss) attributable to:
Non-controlling interests
Shareholders of the Company
Earnings (loss) per common share attributable to the shareholders of
the Company
Net earnings (loss) ($ per share)
Basic
Diluted
Weighted average shares outstanding (000’s)
Basic
Diluted
Total shares issued and outstanding (000’s)
The accompanying notes are an integral part of these consolidated financial statements.
Note
2018
2017
18
19
3,966
3,310
(2,988)
(2,975)
978
(26)
(74)
–
(69)
809
20
(38)
–
791
21
23
22
11
14
(283)
508
67
441
16
335
(18)
(74)
(26)
(34)
183
6
(45)
(84)
60
(299)
(239)
77
(316)
16
16
0.64
0.64
(0.46)
(0.46)
16
686,747
685,936
16
689,387
685,936
15a
689,391
689,384
62
First Quantum Minerals Ltd. 2018 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(expressed in millions of U.S. dollars)
Net earnings (loss) for the year
Other comprehensive income (loss)
Items that have been/may subsequently be reclassified to net earnings:
Cash flow hedges reclassified to net earnings
Gains (losses) on cash flow hedges arising during the year
Items that will not subsequently be reclassified to net earnings:
Loss on termination of Pebble framework agreement (note 9)
Unrealized gain (loss) on investments
Other
Total comprehensive income (loss) for the year
Total comprehensive income (loss) for the year attributable to:
Non-controlling interests
Shareholders of the Company
Total comprehensive income (loss) for the year
The accompanying notes are an integral part of these consolidated financial statements.
2018
508
2017
(239)
228
27
291
(228)
(38)
(7)
12
730
67
663
730
–
2
–
(174)
77
(251)
(174)
First Quantum Minerals Ltd. 2018 Annual Report
63
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in millions of U.S. dollars)
Cash flows from operating activities
Net earnings (loss) from operations
Adjustments for:
Depreciation
Income tax expense
Share-based compensation expense
Impairment and related charges
Net finance expense
Unrealized foreign exchange gain (loss)
Loss on extinguishment of senior notes
Other
Taxes paid
Note
2018
2017
19, 20
14
17
21
508
(239)
864
283
16
–
18
92
–
15
894
299
21
26
39
(20)
84
4
1,796
1,108
(285)
(184)
264
(274)
914
Franco-Nevada Corporation precious metal stream arrangement
13
630
Movements in non-cash operating working capital
Net cash from operating activities
Cash flows from (used by) investing activities
(161)
1,980
Purchase and deposits on property, plant and equipment
6, 24
(2,143)
(1,652)
Acquisition of KPMC
Investment in Pebble project early option price instalment
Interest paid and capitalized to property, plant and equipment
Other
Net cash used by investing activities
Cash flows from financing activities
Net movement in trading facility
Movement in restricted cash
Proceeds from debt
Repayments of debt
Early redemption costs on senior notes
Proceeds from joint venture (KPMC shareholder loan)
Repayments to joint venture (KPMC shareholder loan)
Proceeds from joint venture (KPMC)
Repayments to joint venture (KPMC)
Dividends paid to shareholders of the Company
Dividends paid to non-controlling interest
Other
Net cash from financing activities
Increase (decrease) in cash and cash equivalents and bank overdrafts
Cash and cash equivalents and bank overdrafts – beginning of year
Exchange gains (losses) on cash and cash equivalents
Cash and cash equivalents and bank overdrafts – end of year
Cash and cash equivalents and bank overdrafts comprising:
Cash and cash equivalents
Bank overdrafts
The accompanying notes are an integral part of these consolidated financial statements.
10
9
6
(185)
–
(441)
17
(179)
(38)
(365)
21
(2,752)
(2,213)
11
10, 12b
10, 12b
10, 12b
10, 12b
(74)
10
3,146
(2,124)
–
178
(152)
304
(356)
(5)
(20)
(27)
880
108
702
(22)
788
98
(15)
3,330
(2,159)
(54)
264
(45)
–
–
(5)
–
(13)
1,401
102
565
35
702
1,255
(467)
1,296
(594)
64
First Quantum Minerals Ltd. 2018 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(expressed in millions of U.S. dollars)
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current portion of other assets
Non-current assets
Cash and cash equivalents – restricted cash
Non-current VAT receivable
Property, plant and equipment
Goodwill
Investment in joint venture
Other assets
Total assets
Liabilities
Current liabilities
Bank overdraft
Trade and other payables
Current taxes payable
Current debt
Current portion of provisions and other liabilities
Non-current liabilities
Debt
Provisions and other liabilities
Deferred revenue
Deferred income tax liabilities
Total liabilities
Equity
Share capital
Retained earnings
Accumulated other comprehensive loss
Total equity attributable to shareholders of the Company
Non-controlling interests
Total equity
Total liabilities and equity
Commitments & contingencies
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors and authorized for issue on February 14, 2019.
(signed)
Andrew Adams, Director
(signed)
Robert Harding, Director
December 31,
2018
December 31,
2017
Note
4
5
9
1,255
658
1,196
155
3,264
78
109
1,296
652
1,082
159
3,189
90
140
6
7
10
9
19,098
17,173
237
600
151
237
600
194
23,537
21,623
467
731
125
174
147
594
713
139
316
306
1,644
2,068
7,111
1,818
1,452
790
5,961
1,911
726
829
12,815
11,495
5,592
3,942
(27)
9,507
1,215
10,722
23,537
5,575
3,612
(227)
8,960
1,168
10,128
21,623
11
12
11
12
13
15
26
First Quantum Minerals Ltd. 2018 Annual Report
65
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(expressed in millions of U.S. dollars)
Accumulated
other
comprehensive
loss
Total equity
attributable to
shareholders of
the Company
Retained
earnings
Share capital
Non-controlling
interests
Total equity
Balance at December 31, 2017
5,575
3,612
(227)
8,960
1,168
10,128
IFRS 9 and IFRS 15 transition
adjustments (note 2)
–
(106)
Balance at January 1, 2018
5,575
3,506
Net earnings
Other comprehensive income
Total comprehensive income
Share-based compensation
expense1
Dividends
–
–
–
17
–
441
–
441
–
(5)
(22)
(249)
–
222
222
–
–
(128)
–
(128)
8,832
1,168
10,000
441
222
663
17
(5)
67
–
67
–
(20)
508
222
730
17
(25)
Balance at December 31, 2018
5,592
3,942
(27)
9,507
1,215
10,722
Share capital
Retained
earnings
Accumulated
other
comprehensive
loss
Total equity
attributable to
shareholders of
the Company
Non-controlling
interests
Total equity
Balance at December 31, 2016
5,553
3,933
(292)
9,194
1,091
10,285
Net earnings (loss)
Other comprehensive income
Total comprehensive income (loss)
Share-based compensation
expense1
Dividends
–
–
–
22
–
(316)
–
(316)
–
(5)
–
65
65
(316)
77
65
–
(251)
77
–
–
22
(5)
–
–
(239)
65
(174)
22
(5)
Balance at December 31, 2017
5,575
3,612
(227)
8,960
1,168
10,128
1 Inclusive of capitalized amounts.
66
First Quantum Minerals Ltd. 2018 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in millions of U.S. dollars, except where indicated and share and per share amounts)
1 Nature of Operations
First Quantum Minerals Ltd. (“First Quantum” or “the Company”) is engaged in the production of copper, nickel, gold, zinc
and acid, and related activities including exploration and development. The Company has operating mines located in Zambia,
Finland, Turkey, Spain and Mauritania. The Company’s Ravensthorpe mine was placed under care and maintenance in
October 2017. The Company is developing the Cobre Panama copper project in Panama, exploring the Haquira copper deposit
in Peru and the Taca Taca copper-gold-molybdenum deposit in Argentina.
The Company’s shares are publicly listed for trading on the Toronto Stock Exchange and has depository receipts listed on the
Lusaka Stock Exchange.
The Company is registered and domiciled in Canada, and its registered office is the 14th Floor – 543 Granville Street,
Vancouver, BC, Canada, V6C 1X8.
2 Significant Accounting Policies
The significant accounting policies used in the preparation of these consolidated financial statements are described below.
A) BASIS OF PRESENTATION
These consolidated financial statements have been prepared in compliance with International Financial Reporting Standards
(“IFRS”). For these purposes, IFRS comprise the standards issued by the International Accounting Standards Board (“IASB”)
and interpretations issued by the IFRS Interpretations Committee (“IFRIC”).
These consolidated financial statements have been prepared under the historical cost convention, with the exception of
derivative assets and liabilities and investments, which are measured at fair value.
These consolidated financial statements have been prepared on a going concern basis. In making the assessment that the
Company is a going concern, management has taken into account all available information about the future, which is at least,
but is not limited to, 12 months from December 31, 2018.
At December 31, 2018, the Company had $700 million of committed undrawn facilities and $788 million of net unrestricted
cash (inclusive of overdrafts), as well as future cash flows in order to meet all current obligations as they become due. The
Company was in compliance with all existing facility covenants as at December 31, 2018.
B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its “subsidiaries”). Control is achieved where the Company has the right to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee. The results of subsidiaries
acquired or disposed of during the year are included in the Consolidated Statements of Earnings from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
The principal operating subsidiaries are Kansanshi Mining PLC (“Kansanshi”), Kalumbila Minerals Limited (“Sentinel”), First
Quantum Mining and Operations Limited (“FQMO”), Mauritanian Copper Mines SARL (“Guelb Moghrein”), Ravensthorpe
Nickel Operations Pty Ltd. (“Ravensthorpe”), Cobre Las Cruces S.A. (“Las Cruces”), Çayeli Bakir IŞletmeleri A.Ş. (“Çayeli”),
Pyhäsalmi Mine Oy (“Pyhäsalmi”) and Metal Corp Trading AG (“Metal Corp”). The exploration and development subsidiaries
include Minera Panama S.A. (“MPSA” or “Cobre Panama”), Minera Antares Peru S.A.C. (“Haquira”) and Corriente Argentina
S.A. (“Taca Taca”). All the above operating subsidiaries are 100% owned, with the exception of Kansanshi (80%) and Cobre
Panama, in which the Company holds a 90% interest and 10% is held indirectly through the joint venture Korea Panama
Mining Corp (“KPMC”), a jointly controlled Canadian entity acquired in November 2017.
Non-controlling interests
At December 31, 2018, ZCCM Investments Holdings Plc (“ZCCM”, a Zambian government controlled entity) owned 20% of
Kansanshi and KPMC owned 20% of Cobre Panama. A non-controlling interest is held by African Energy Resources Ltd, a
publicly listed entity, in the Company’s consolidated subsidiary, African Energy Holdings SRL.
First Quantum Minerals Ltd. 2018 Annual Report
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Through the operations in Zambia, there are a number of transactions with the Zambian government in the ordinary course of
business, including taxes, royalties, utilities and power. The Company is limited in its ability to use the assets of Kansanshi and
Cobre Panama as a result of the agreement with the other owners of these subsidiaries.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s equity
therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and
the non-controlling interest’s share of changes in equity since the date of the combination.
C) ACCOUNTING POLICIES
Foreign currency translation
The presentation currency and the functional currency of the Company and all of the Company’s operations is the USD. The
Company’s foreign currency transactions are translated into USD at the rate of exchange in effect at the date of the
transaction. Monetary assets and liabilities are translated using period-end exchange rates with any gains and losses included
in the determination of net earnings. Non-monetary assets and liabilities are translated using historical rates.
Inventories
Product inventories comprise ore in stockpiles, work-in-progress and finished goods. Product inventories are recorded at the
lower of average cost and net realizable value. Cost includes materials, direct labour, other direct costs and production
overheads and depreciation of plant, equipment and mineral properties directly involved in the mining and production
processes. Costs are determined primarily on the basis of average costs for ore in stockpiles and on a first-in first-out basis for
work-in-progress and finished goods.
Waste material stripping costs related to production at, or below, the life-of-phase strip ratio are inventoried as incurred, with
the excess capitalized to mineral property and depreciated in future periods.
When inventories have been written down to net realizable value, a new assessment of net realizable value is made at each
subsequent reporting date that the inventory is still held.
Consumable stores are valued at the lower of purchase cost and net realizable value and recorded as a current asset.
Property, plant and equipment
(i) Mineral properties and mine development costs
Exploration and evaluation costs are expensed in the period incurred. Property acquisition costs and amounts paid under
development option agreements are capitalized. Development costs relating to specific properties are capitalized once
management determines a property will be developed. A development decision is made based upon consideration of project
economics, including future metal prices, reserves and resources, and estimated operating and capital costs. Capitalization of
costs incurred and proceeds received during the development phase ceases when the property is capable of operating at levels
intended by management.
Property acquisition and mine development costs, including costs incurred during the production phase to increase future
output by providing access to additional reserves (deferred stripping costs), are deferred and depreciated on a units-of-
production basis over the component of the reserves to which they relate.
(ii) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Costs recorded for assets under construction
include all expenditures incurred in connection with the development and construction of the assets. No depreciation is recorded
until the assets are substantially complete and ready for productive use. Where relevant, the Company has estimated residual
values on certain plant and equipment.
Property, plant and equipment are depreciated using either the straight-line or units-of-production basis over the shorter of the
estimated useful life of the asset or the life of mine. Depreciation calculated on a straight-line basis is as follows for major
asset categories:
Office equipment
Furniture and fittings
33%
15%
Infrastructure and buildings
2%–5%
Motor vehicles
20%–25%
Depreciation on equipment utilized in the development of assets, including open pit and underground mine development, is
depreciated and recapitalized as development costs attributable to the related asset.
68
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (iii) Borrowing costs
Borrowing costs attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the
cost of the asset until such time as the asset is substantially complete and ready for its intended use or sale. Where funds have
been borrowed specifically to finance an asset, the amount capitalized is the actual borrowing costs incurred. Where the funds
are used to finance an asset form part of general borrowings, the amount capitalized is calculated using a weighted average
of rates applicable to relevant general borrowings of the Company during the period.
Business combinations and goodwill
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets
transferred by the Company. The results of businesses acquired during the year are included in the consolidated financial
statements from the effective date of acquisition. The identifiable assets, liabilities and contingent liabilities of the business
which can be measured reliably are recorded at provisional fair values at the date of acquisition. Provisional fair values are
finalized within 12 months of the acquisition date. Acquisition-related costs are expensed as incurred.
Goodwill arising in a business combination is measured as the excess of the sum of the consideration transferred and the
amount of any non-controlling interest over the net identifiable assets acquired and liabilities assumed.
Asset impairment
(i) Property, plant and equipment
The Company performs impairment tests on property, plant and equipment, mineral properties and mine development costs
when events or changes in circumstances occur that indicate the assets may not be recoverable. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is
not possible to estimate the recoverable amount of an individual asset (for example, due to no distinctive cash flows), the
Company estimates the recoverable amount of the cash-generating unit to which the assets belong. Cash-generating units are
individual operating mines, smelters or exploration and development projects.
Recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value less costs of disposal is
determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between
knowledgeable and willing parties. For mining assets this would generally be determined based on the present value of the
estimated future cash flows arising from the continued development, use or eventual disposal of the asset. In assessing these
cash flows and discounting them to present value, assumptions used are those that an independent market participant would
consider appropriate. Value in use is the estimated future cash flows expected to arise from the continuing use of the assets in
their present form and from their disposal discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying
amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized
immediately in net earnings.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the
revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A
reversal of an impairment loss is recognized in net earnings immediately.
(ii) Goodwill
Goodwill arising on business combinations is allocated to each of the Company’s cash-generating units (or groups of cash-
generating units) that is expected to benefit from the synergies of the combination. Goodwill is allocated to the lowest level at
which the goodwill is monitored by the Company’s Board of Directors for internal management purposes. The recoverable
amount of the cash-generating unit to which goodwill has been allocated is tested for impairment at the same time every year.
Any impairment loss is recognized in net earnings immediately. Impairment of goodwill is not subsequently reversed.
First Quantum Minerals Ltd. 2018 Annual Report
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restoration provisions
The Company recognizes liabilities for constructive or legal obligations, including those associated with the reclamation of
mineral properties and property, plant and equipment, when those obligations result from the acquisition, construction,
development or normal operation of assets. Provisions are measured at the present value of the expected expenditures
required to settle the obligation using a pre-tax discount rate reflecting the time value of money and risks specific to the
liability. The liability is increased for accretion expense, representing the unwinding of the discount applied to the provision,
and adjusted for changes to the current market-based risk-free discount rate, and the amount or timing of the underlying cash
flows needed to settle the obligation. The associated restoration costs are capitalized as part of the carrying amount of the
related long-lived asset and depreciated over the expected useful life of the asset or expensed in the period for closed sites.
Revenue recognition
The Company produces copper, nickel, gold and zinc products which are sold under pricing arrangements where final prices
are set at a specified date based on market prices.
The Company identifies contracts with customers, the performance obligations within them, the transaction prices and their
allocation to the performance obligations.
Revenues are recognized when control of the product passes to the customer and are measured based on expected
consideration. Control typically passes on transfer of key shipping documents which typically occurs around the shipment date.
Shipping services provided are a separate performance obligation and the revenue for these services is recognized over time.
For provisionally priced sales, changes between the prices recorded upon recognition of revenue and the final price due to
fluctuations in metal market prices result in the existence of an embedded derivative in the accounts receivable. This is
recorded at fair value, with changes in fair value classified as a component of cost of sales.
The Company recognizes deferred revenue in the event it receives payments from customers before a sale meets criteria for
revenue recognition. The transaction price is adjusted to reflect any significant financing component at the rate that reflects
the credit characteristics of the entity receiving the financing.
Current and deferred income taxes
Tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent
that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in
other comprehensive income or directly in equity, respectively.
Current tax expense is calculated using income tax rates that have been enacted or substantively enacted at the balance sheet
date. Periodically, the positions taken by the Company with respect to situations in which applicable tax regulation is subject to
interpretation are evaluated to establish provisions, where appropriate, on the basis of amounts expected to be paid to the
tax authorities.
Deferred income tax is recognized on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability
method. Deferred income tax liabilities are generally recognized for all taxable temporary differences, and deferred income tax
assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will
be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized
if the temporary difference arises from goodwill or from the initial recognition of assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit. Deferred income tax assets and liabilities are not recognized in
respect of taxable temporary differences associated with investments in subsidiaries and associates where the timing of the
reversal of the temporary differences can be controlled by the Company and it is probable that temporary differences will not
reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realized, based on income tax rates and income tax laws that have been enacted or
substantively enacted by the balance sheet date. The measurement of deferred income tax liabilities and assets reflects the
tax consequences that would follow from the manner in which the Company expects to recover or settle the carrying amount
of its assets and liabilities.
70
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities, and when they relate to income taxes levied by the same taxation authority and the Company intends to
settle its current tax assets and liabilities on a net basis.
Share-based compensation
The grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as
an expense, with a corresponding increase in equity, over the vesting period of the options. The amount recognized as an
expense is adjusted to reflect the number of options for which the related service and non-market performance conditions are
expected to be met, such that the amount ultimately recognized is based on the number of options that meet the related
service and non-market performance conditions at the vesting date.
For share-based payment options with non-vesting conditions, the grant-date fair value of the share-based payment is
measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
The Company grants stock options under its stock option plan and performance stock units (“PSUs”), restricted stock units
(“RSUs”) and key restricted stock units (“KRSUs”) under its long-term incentive plan to directors and employees. The Company
expenses the fair value of stock options, PSUs and RSUs granted over the vesting period.
The fair value of stock options is determined using an option pricing model that takes into account, as of the grant date, the
exercise price, the expected life of the option, the current price of the underlying stock and its expected volatility, expected
dividends on the stock, and the risk-free interest rate over the expected life of the option. Cash consideration received from
employees when they exercise the options is credited to capital stock.
PSUs typically vest at the end of a three-year period if certain performance and vesting criteria, based on the Company’s share
price performance relative to a representative group of other mining companies, have been met. The fair value of PSUs is
determined using a valuation model that takes into account, as of the grant date, the expected life of the PSU, expected volatility,
expected dividend yield, and the risk-free interest rate over the life of the PSU to generate potential outcomes for share prices,
which are used to estimate the probability of the PSUs vesting at the end of the performance measurement period.
RSUs typically vest at the end of a three-year period and the fair value of RSUs is determined by reference to the share price of
the Company at the date of grant.
KRSUs vest in tranches over a four- to eight-year period and the fair value of RSUs is determined by reference to the share
price of the Company at the date of grant.
Earnings per share
Earnings per share are calculated using the weighted average number of shares outstanding during the period. Shares
acquired under the long-term incentive plan are treated as treasury shares and are deducted from the number of shares
outstanding for the calculation of basic earnings per share. Diluted earnings per share are calculated using the treasury share
method whereby all “in the money” share-based arrangements are assumed to have been exercised at the beginning of the
period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market
price during the period.
Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, bank overdrafts, restricted cash, trade receivables,
investments, promissory note receivable, trade payables, debt and derivative instruments.
Financial assets are classified as measured at amortized cost, fair value through other comprehensive income (“FVOCI”) and
fair value through profit and loss (“FVTPL”). Financial liabilities are measured at amortized cost or FVTPL.
(i) Cash and cash equivalents, bank overdrafts and restricted cash
Cash and cash equivalents and bank overdrafts comprise cash at banks and on hand and other short-term investments with
initial maturities of less than three months. Restricted cash comprises cash deposits used to guarantee letters of credit issued
by the Company or held for escrow purposes.
Cash and cash equivalents and restricted cash are measured at amortized cost. Cash pooling arrangements are presented on a
gross basis unless physical cash settlement of balances has been made at the balance sheet date.
(ii) Trade receivables
Trade receivables are classified as amortized cost financial assets and are recorded at the transaction price, net of transaction
costs incurred and expected credit losses.
First Quantum Minerals Ltd. 2018 Annual Report
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iii) Investments
Investments are designated as FVOCI. Fair value is determined in the manner described in note 25. Unrealized gains and losses
are recognized in other comprehensive income. Dividends on equity investments are recognized in the income statement
when the right to receive payment is established.
(iv) Derivatives and hedging
A portion of the Company’s metal sales are sold on a provisional basis whereby sales are recognized at prevailing metal prices
when title transfers to the customer and final pricing is not determined until a subsequent date, typically two months later.
The Company enters into derivative contracts to directly offset the exposure to final pricing adjustments on the provisionally
priced sales contracts. The Company also periodically enters into derivative instruments to mitigate cash flow exposure to
commodity prices, foreign exchange rates and interest rates. Derivative financial instruments, including embedded derivatives
related to the provisionally priced sales contracts, are classified as fair value through profit or loss and measured at fair value as
determined by active market prices and valuation models, as appropriate. Valuation models require the use of assumptions
concerning the amount and timing of estimated future cash flows and discount rates. In determining these assumptions, the
Company uses readily observable market inputs where available or, where not available, inputs generated by the Company.
Changes in the fair value of derivative instruments are recorded in net earnings.
At the inception of a designated hedging relationship, the Company documents the relationship between hedging instruments
and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The
Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether derivatives that are
used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized
in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the Statements of
Earnings within “Other income (expense)”. No ineffective hedges were recognized in the year ended December 31, 2018
(December 31, 2017: nil).
Amounts accumulated in equity are reclassified to the Statements of Earnings in the periods when the hedged item affects
net earnings.
(v) Trade and other payables, debt and amounts due to joint ventures
Trade payables, debt and amounts due to joint ventures are classified as amortized cost financial liabilities and are recognized
initially at fair value, net of transaction costs incurred, and are subsequently stated at amortized cost. For debt, any difference
between the amounts originally received, net of transaction costs, and the redemption value is recognized in net earnings over
the period to maturity using the effective interest rate method.
Exchanges of instruments and modifications to debt are assessed using quantitative and qualitative factors to consider
whether the exchange or modification constitutes an extinguishment of the original financial liability and establishment of a
new financial liability. In the case of extinguishment, any fees or costs incurred are recognized in the Statements of Earnings.
Where the terms in an exchange or modification are not assessed to be substantially different, a modification gain or loss is
recognized at an amount equal to the difference between the modified cash flows discounted at the original effective interest
rate and the carrying value of the debt. The carrying value of the debt is adjusted for this modification gain or loss, directly
attributable transaction costs, and any cash paid to or received from the debt holder.
(vi) Impairment of financial assets
Expected credit losses (“ECL”) are recognized for financial assets held at amortized cost. This is based on credit losses that
result from default events that are possible within a 12-month period, except for trade receivables, whose ECLs are on a
simplified lifetime basis, and any financial assets for which there has been a significant increase in credit risk since initial
recognition, for which ECLs over the lifetime are recognized.
Investments in joint ventures
Joint arrangements whereby joint control exists are accounted for using the equity method and presented separately in the
balance sheet. The investment is initially recognized at cost and adjusted thereafter for the post-acquisition share of profit or loss.
D) ADOPTION OF NEW STANDARDS
IFRS 9 Financial Instruments
The Company has adopted IFRS 9 Financial Instruments as of January 1, 2018. The requirements of IFRS 9 represent a
significant change from IAS 39 Financial Instruments: Recognition and Measurement. Additionally, the Company adopted
consequential amendments to IFRS 7 Financial Instruments: Disclosures.
72
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The details and quantitative impact of the changes in accounting policies are disclosed below.
• IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, FVOCI and fair value
through profit and loss (“FVTPL”). The standard eliminates the previous IAS 39 categories of held to maturity, loans and
receivables and available for sale. Under IFRS 9, financial asset derivatives are never bifurcated. Instead, the hybrid financial
instrument as a whole is assessed for classification. Refer to the table below for a summary of the classification changes
upon transition to IFRS 9.
• Non-substantial modifications of financial liabilities are required to have a modification gain or loss recognized. This has
resulted in an increase in the carrying value of senior debt on transition of $44 million.
• The Company has elected to present all subsequent changes in the fair value of an investment in an equity instrument
within other comprehensive income (“OCI”). These investments were previously held at cost or FVTPL. A fair value
adjustment of $10 million was recognized within accumulated other comprehensive loss.
• IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” model. The new impairment model
applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI. Under IFRS 9, credit
losses are recognized earlier than under IAS 39. An assessment was performed to determine the expected credit loss of
financial assets. Given that the Company’s trading contracts are established long-term contracts with international trading
companies, a portion of which are backed by a letter of credit, we have determined the expected credit loss to be not
material (December 31, 2017: no impairment recognized). The Company has also adopted consequential amendments to
IAS 1 Presentation of Financial Statements which requires impairment of financial assets to be presented in a separate line
item in the statement of profit or loss and OCI. Previously, the Company’s approach was to include any impairment of trade
receivables in other expenses.
• IFRS 9 marks a revised approach to hedge accounting; however, this has not significantly impacted the hedge accounting
applied by the Company. Under IAS 39, the change in fair value of the forward element of the forward exchange contracts
(“forward points”) was recognized immediately in profit and loss. However, under IFRS 9 the forward points are separately
accounted for as a cost of hedging and are recognized in OCI. On transition, $12 million has been reclassified between
retained earnings and accumulated other comprehensive loss.
The following table shows the original measurement categories under IAS 39 and the new measurement categories under
IFRS 9 for each class of the Group’s financial assets as at January 1, 2018.
Financial assets
Trade and other receivables
Loans and receivables
Amortized cost
Original classification under IAS 39
New classification under IFRS 9
Provisionally priced sales included in trade and other receivables FVTPL
Derivative instruments in designated hedge relationships
Other derivative instruments
Investments
At cost
At fair value
Financial liabilities
Trade and other payables
Derivative instruments in designated hedge relationships
Other derivative instruments
Finance leases
Liability to joint venture
Debt
FVTPL
FVTPL
Available-for-sale
Available-for-sale
FVTPL
FVTPL
FVTPL
FVOCI
FVOCI
Other financial liabilities
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
Other financial liabilities
Amortized cost
Other financial liabilities
Amortized cost
Other financial liabilities
Amortized cost
First Quantum Minerals Ltd. 2018 Annual Report
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IFRS 15 Revenue from Contracts with Customers
The Company has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018. In accordance with the transition
provisions in IFRS 15, the Company has elected to apply the new rules retrospectively whereby the transitional adjustment is
recognized in retained earnings with no adjustment of comparatives. Therefore, the comparative information continues to be
reported under IAS 18. The changes have only been applied to contracts that remained in force at the transition date.
The details and quantitative impact of the changes in accounting policies are disclosed below.
• The Company recognizes deferred revenue in the event it receives payments from customers before a sale meets criteria for
revenue recognition. Proceeds received from Franco-Nevada under the terms of the precious metal stream arrangements
were previously accounted for and classified as deferred revenue. As the timing of the transfer of goods does not match the
receipt of consideration, IFRS 15 requires the transaction price to be adjusted to reflect the significant financing component.
In accordance with the requirements of IFRS 15, deferred revenue has been adjusted for the financing component with an
increase recognized in the carrying value of deferred revenue of $74 million on transition.
• The Company sells a significant proportion of its products on terms whereby the Company is responsible for providing
shipping services after the date at which control of the goods passes to the customer. Under IAS 18, the Company
recognizes such shipping and other freight revenue and accrues the associated costs in full on loading. The impact of
treating freight, where applicable, as a separate performance obligation and therefore recognizing revenue over time would
not have materially impacted revenue, costs or earnings as at December 31, 2018 or at December 31, 2017.
• The Company’s sales are made under pricing arrangements where final prices are set at a specified date based on market
prices. Under IFRS 15, variable consideration should be estimated by method of expected value or most likely amount, and
included in the transaction price, to the extent that it is highly probable a significant reversal in the amount of cumulative
revenue recognized will not occur. The changes between the prices recorded upon recognition of revenue and the final price
due to fluctuations in metal market prices is recognized as an embedded derivative in the accounts receivable. This
embedded derivative is recorded at fair value, with changes in fair value classified as a component of cost of sales. The
adoption of IFRS 15 has not changed the assessment or treatment of the existence of embedded derivatives in these
financial statements.
The Company has elected to make use of the following practical expedients:
• Completed contracts under IAS 18 before the date of transition have not been reassessed.
• The Company applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about
remaining performance obligations that have original expected duration of one year or less.
The following table summarizes the impacts of adopting IFRS 9 and IFRS 15 on the Company’s consolidated financial
statements on January 1, 2018.
Balance sheet
Other assets
Debt
Deferred revenue
Retained earnings
Accumulated other comprehensive loss
As reported
December 31,
2017
Transition
adjustments
At
January 1,
2018
353
(6,277)
(726)
(3,612)
(10)
(44)
(74)
343
(6,321)
(800)
106
(3,506)
227
22
249
74
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the impacts of adopting IFRS 9 and IFRS 15 on the Company’s consolidated financial
statements for the year ended December 31, 2018, inclusive of the transition adjustments.
Balance sheet
Property, plant and equipment
Other assets
Debt
Deferred revenue
Retained earnings
Accumulated other comprehensive loss
Income statement
Cost of sales
Loss on extinguishment of term loan
Earnings (loss) per share
December 31,
2018
IFRS 9
application
IFRS 15
application
As reported
December 31,
2018
19,053
316
(7,260)
(1,356)
(4,048)
17
(15)
(10)
(25)
–
32
10
2,976
12
4
(4)
60
19,098
–
–
(134)
74
–
–
–
306
(7,285)
(1,490)
(3,942)
27
2,988
–
$
0.65 $
(0.01)
$
0.00 $
0.64
E) NEW STANDARDS NOT YET ADOPTED
IFRS 16 Leases
Effective for annual periods commencing on or after January 1, 2019, IFRS 16 will replace IAS 17 Leases. The new standard
eliminates the classification of leases as either operating or finance leases by the lessee. Classification of leases by the lessor
are either classified as operating or finance under IFRS 16, similar to the treatment under IAS 17 Leases. The treatment of
leases by the lessee will require capitalization of all leases resulting in accounting treatment similar to finance leases under
IAS 17 Leases. Exemptions for leases of very low value or short-term leases are applicable.
The Company has undertaken and completed a detailed review and evaluation exercise of existing contracts against the
IFRS 16 criteria as well as completing the calculation of lease liabilities for contracts that have been identified as containing
right-of-use assets. It is expected that the lease liability of $23 million will be recognized on transition on January 1, 2019. The
Company has elected to apply the modified transition approach whereby no restatement of comparative periods is required.
Right-of-use assets will be recognized at the amount of the liability on transition. Leases with terms that end within 12 months
of the mandatory transition date will be accounted for by the Company as short-term leases with payments made under the
lease recognized as expenses.
The transition to IFRS 16 will result in increases to assets and liabilities recognized in the balance sheet as well as increases to
depreciation and finance costs in the Statements of Earnings and reductions in operating costs.
3 Significant Judgments, Estimates and Assumptions
Many of the amounts disclosed in the financial statements involve the use of judgments, estimates and assumptions. These
judgments and estimates are based on management’s knowledge of the relevant facts and circumstances at the time, having
regard to prior experience, and are continually evaluated.
(i) SIGNIFICANT JUDGMENTS
• Determination of ore reserves and resources
Judgments about the amount of product that can be economically and legally extracted from the Company’s properties are
made by management using a range of geological, technical and economic factors, history of conversion of mineral deposits
to proven and probable reserves as well as data regarding quantities, grades, production techniques, recovery rates,
production costs, transport costs, commodity demand, commodity prices and exchange rates. This process may require
complex and difficult geological judgments to interpret the data. The Company uses qualified persons (as defined by the
Canadian Securities Administrators’ National Instrument 43-101) to compile this data.
Changes in the judgments surrounding proven and probable reserves may impact the carrying value of property, plant
and equipment (note 6), restoration provisions (note 12), recognition of deferred income tax amounts (note 14) and
depreciation (note 6).
First Quantum Minerals Ltd. 2018 Annual Report
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Achievement of commercial production
Once a mine or smelter reaches the operating levels intended by management, depreciation of capitalized costs begins.
Significant judgment is required to determine when certain of the Company’s assets reach this level.
Management considers several factors, including, but not limited to the following:
• completion of a reasonable period of commissioning;
• consistent operating results achieved at a pre-determined level of design capacity and indications that this level will
continue;
• mineral recoveries at or near expected levels;
• and the transfer of operations from development personnel to operational personnel has been completed.
• Taxes
Judgment is required in determining the recognition and measurement of deferred income tax assets and liabilities on the
balance sheet. In the normal course of business, the Company is subject to assessment by taxation authorities in various
jurisdictions. These authorities may have different interpretations of tax legislation or tax agreements than those applied by
the Company in computing current and deferred income taxes. These different judgments may alter the timing or amounts
of taxable income or deductions. The final amount of taxes to be paid or recovered depends on a number of factors
including the outcome of audits, appeals and negotiation. Amounts to be recovered with respect to indirect taxes, such as
VAT, are subject to judgment which, in the instance of a change of circumstances, could result in material adjustments.
The Company operates in a specialized industry and in a number of tax jurisdictions. As a result, its income is subject to various
rates of taxation. The breadth of its operations and the global complexity and interpretation of tax regulations require
assessment and judgment of uncertainties and of the taxes that the Company will ultimately pay. These are dependent on
many factors, including negotiations with tax authorities in various jurisdictions, outcomes of tax litigation and resolution of
disputes. The resolution of these uncertainties may result in adjustments to the Company’s tax assets and liabilities.
Management assesses the likelihood and timing of taxable earnings in future periods in recognizing deferred income tax
assets on unutilized tax losses. Future taxable income is based on forecast cash flows from operations and the application of
existing tax laws in each jurisdiction. Forecast cash flows are based on life of mine projections.
To the extent that future cash flows and taxable income differ significantly from forecasts, the ability of the Company to
realize the net deferred income tax assets recorded at the balance sheet date could be impacted. In addition, future changes
in tax laws that could limit the ability of the Company to obtain tax deductions in future periods from deferred income tax
assets are disclosed in note 14.
• Precious metal stream arrangement
On October 5, 2015, the Company finalized an agreement with Franco-Nevada Corporation (“Franco-Nevada”) for the
delivery of precious metals from the Cobre Panama project. Franco-Nevada have provided a $1 billion deposit to the Cobre
Panama project against future deliveries of gold and silver produced by the mine. A further stream was completed on
March 26, 2018, with an additional $356 million received from Franco-Nevada.
Management has determined that, under the terms of the agreement, the Company meets the “own-use” exemption criteria
under IFRS 9: Financial Instruments. The Company also retains significant business risk relating to the completion of the project
and delivery of produced gold and silver and as such has accounted for the proceeds received as deferred revenue.
Management has exercised judgment in determining the appropriate accounting treatment for the Franco-Nevada
streaming agreement. Management has determined, with reference to the agreed contractual terms in conjunction with the
Cobre Panama reserves and mine plan, that the Franco-Nevada contribution to capital expenditure constitutes a prepayment
of revenues deliverable from future Cobre Panama production.
76
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Assessment of impairment indicators
Management applies significant judgment in assessing each cash-generating unit and asset for the existence of indicators
of impairment at the reporting date. Internal and external factors are considered in assessing whether indicators of
impairment are present that would necessitate impairment testing. Significant assumptions regarding commodity prices,
operating costs, capital expenditures and discount rates are used in determining whether there are any indicators of
impairment. These assumptions are reviewed regularly by senior management and compared, where applicable, to relevant
market consensus views.
The Company’s most significant CGUs are longer-term assets and therefore their value is assessed on the basis of longer-
term pricing assumptions. Shorter-term assets are more sensitive to short-term commodity pricing assumptions that are used
in the review of impairment indicators.
The carrying value of property, plant and equipment and goodwill at the balance sheet date is disclosed in note 6 and
note 7, respectively, and by mine location in note 24.
• Derecognition of financial liabilities
Judgment is required in determining if an exchange of issued listed tradeable bonds results in, amongst other factors, a
change to the existing lender and, if so, whether that constitutes an extinguishment of an existing financial liability and
recognition of a new financial liability. Judgment that an exchange of such instruments in 2017 was an extinguishment of
the existing financial liability resulted in material impacts on the carrying value of debt and finance costs in the year ended
December 31, 2017 (note 11).
(ii) SIGNIFICANT ACCOUNTING ESTIMATES
Estimates are inherently uncertain and therefore actual results may differ from the amounts included in the financial
statements, potentially having a material future effect on the Company’s consolidated financial statements. The estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are addressed below:
• Determination of ore reserves and life of mine plan
Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s
properties. Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies or fields to be
determined by analyzing geological data such as drilling samples. Following this, the quantity of ore that can be extracted in
an economical manner is calculated using data regarding the life of mine plans and forecast sales prices (based on current
and long-term historical average price trends).
The majority of the Company’s property, plant and equipment are depreciated over the estimated lives of the assets on a
units-of-production basis. The calculation of the units-of-production rate, and therefore the annual depreciation expense,
could be materially affected by changes in the underlying estimates which are driven by the life of mine plans. Changes in
estimates can be the result of actual future production differing from current forecasts of future production, expansion of
mineral reserves through exploration activities, differences between estimated and actual costs of mining and differences in
the commodity prices used in the estimation of mineral reserves.
Management made significant estimates of the strip ratio for each production phase. Waste material stripping costs in
excess of this ratio, and from which future economic benefit will be derived from future access to ore, will be capitalized to
mineral property and depreciated on a units-of-production basis.
Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment
(note 6), restoration provisions (note 12), recognition of deferred income tax amounts (note 14) and depreciation (note 6).
First Quantum Minerals Ltd. 2018 Annual Report
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Review of asset carrying values and impairment charges
The Company reviews the carrying value of assets at each reporting period to determine whether there is any indication of
impairment using both internal and external sources of information. The Company has determined that each mining
operation and smelter is a cash-generating unit.
External sources of information regarding indications of impairment include considering the changes in the market,
economic and legal environment in which the Company operates that are not within its control and affect the recoverable
amount of, or the timing of, economic benefits from mining assets. Internal sources of information include changes to the
life of mine plans and economic performance of the assets.
Management’s determination of recoverable amounts includes estimates of mineral prices, recoverable reserves and
operating, capital and restoration costs, which are subject to certain risks and uncertainties that may affect the recoverability
of mineral property costs. The calculation of the recoverable amount can also include assumptions regarding the appropriate
discount rate and inflation and exchange rates. Although management has made its best estimate of these factors, it is
possible that changes could occur in the near term that could adversely affect management’s estimate of the net cash flow
to be generated from its projects.
The Ravensthorpe mine was placed in care and maintenance in October 2017 and an impairment test was performed as at
September 30, 2017. As disclosed in note 8, its value is sensitive to longer-term nickel price assumptions and the
movements in the discount rate.
• Estimation of the amount and timing of restoration and remediation costs
Accounting for restoration provisions requires management to make estimates of the future costs the Company will incur to
complete the restoration and remediation work required to comply with existing laws, regulations and agreements in place
at each mining operation and any environmental and social principles the Company is in compliance with. The calculation of
the present value of these costs also includes assumptions regarding the timing of restoration and remediation work,
applicable risk-free interest rate for discounting those future cash outflows, inflation and foreign exchange rates and
assumptions relating to probabilities of alternative estimates of future cash outflows. Actual costs incurred may differ from
those amounts estimated. Also, future changes to environmental laws and regulations could increase the extent of
restoration work required to be performed by the Company. Increases in future costs could materially impact the amounts
charged to operations for restoration. A 10% increase in costs would result in an increase to restoration provisions of
$63 million at December 31, 2018.
The provision represents management’s best estimate of the present value of the future restoration and remediation costs.
The actual future expenditures may differ from the amounts currently provided; any increase in future costs could materially
impact the amounts included in the liability disclosed in the consolidated balance sheet. The carrying amount of the
Company’s restoration provision is disclosed in note 12c.
4 Trade Receivables
A) TRADE AND OTHER RECEIVABLES
Trade receivables
VAT receivable (current)
Funding advances from joint venture partner
Other receivables
78
First Quantum Minerals Ltd. 2018 Annual Report
December 31,
2018
December 31,
2017
241
353
–
64
658
328
191
44
89
652
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B) VAT RECEIVABLE
Kansanshi Mining PLC
Kalumbila Minerals Limited
First Quantum Mining and Operations (Zambia)
VAT receivable from the Company’s Zambian operations
Cobre Las Cruces S.A.
Çayeli Bakır IŞletmeleri A.Ş.
Other
Total VAT receivable
Less: current portion, included within trade and other receivables
Non-current VAT receivable
C) VAT RECEIVABLE BY THE COMPANY’S ZAMBIAN OPERATIONS
Receivable at date of claim
Impact of depreciation of Zambian kwacha against U.S. dollar1
Impact of discounting non-current portion
Total receivable
Consisting of:
Current portion, included within trade and other receivables
Non-current VAT receivable
December 31,
2018
December 31,
2017
282
137
24
443
11
5
3
462
(353)
109
240
54
19
313
10
6
2
331
(191)
140
December 31,
2018
December 31,
2017
645
(177)
468
(25)
443
334
109
435
(102)
333
(20)
313
173
140
1 The impact of depreciation of the Zambian kwacha against the U.S. dollar in the year ended December 31, 2018 on the Company’s Zambian operations VAT receivable of
$75 million is included within other expense in the Statements of Earnings.
5 Inventories
Ore in stockpiles
Work-in-progress
Finished product
Total product inventory
Consumable stores
December 31,
2018
December 31,
2017
250
26
259
535
661
256
25
270
551
531
1,196
1,082
First Quantum Minerals Ltd. 2018 Annual Report
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 Property, Plant and Equipment
Mineral properties and
mine development costs
Plant and
equipment
Capital work-
in-progress
Operating
mines
Development
projects
Total
Net book value, as at January 1, 2018
4,686
7,881
2,374
2,232
17,173
Additions
Disposals
Transfers between categories
Restoration provision
Capitalized interest
Depreciation charge
–
(9)
538
–
–
(581)
2,166
–
(575)
–
653
–
–
–
42
(50)
–
(269)
–
–
(5)
15
–
–
2,166
(9)
–
(35)
653
(850)
Net book value, as at December 31, 2018
4,634
10,125
2,097
2,242
19,098
Cost
8,638
10,125
3,672
2,242
24,677
Accumulated depreciation
(4,004)
–
(1,575)
–
(5,579)
Mineral properties and
mine development costs
Plant and
equipment
Capital work-
in-progress
Operating
mines
Development
projects
Total
Net book value, as at January 1, 2017
4,996
6,361
2,254
2,200
15,811
Additions
Disposals
Impairments
Transfers between categories
Restoration provision
Capitalized interest
Depreciation charge
–
(17)
(18)
365
–
–
(640)
1,745
(1)
(6)
(703)
–
485
–
–
–
–
319
59
–
(258)
–
–
–
19
13
–
–
1,745
(18)
(24)
–
72
485
(898)
Net book value, as at December 31, 2017
4,686
7,881
2,374
2,232
17,173
Cost
8,058
7,881
3,662
2,232
21,833
Accumulated depreciation
(3,372)
–
(1,288)
–
(4,660)
During the year ended December 31, 2018, $653 million of interest (December 31, 2017: $485 million) was capitalized
relating to the development of Cobre Panama. The amount capitalized to December 31, 2018 was determined by applying the
weighted average cost of borrowings of 7.2% (December 31, 2017: 8.2%) to the accumulated qualifying expenditures.
Included within capital work-in-progress and mineral properties – operating mines at December 31, 2018 is an amount of
$632 million related to capitalized deferred stripping costs (December 31, 2017: $638 million).
7 Goodwill
Goodwill of $237 million arose through the acquisition of Inmet Mining Corporation (“Inmet”) in 2013 after the application of
IAS 12 Income Taxes, due to the requirement to recognize a deferred tax liability calculated as the tax effect of the difference
between the fair value of the assets acquired and their respective tax bases. Goodwill is not deductible for tax purposes. The
goodwill was assigned to the Cobre Panama cash-generating unit.
The carrying value of Cobre Panama at December 31, 2018 was $9,327 million, inclusive of deferred revenue (December 31,
2017: $7,782 million).
80
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The annual impairment test has been performed at December 31, 2018. For the purposes of the goodwill impairment test, the
recoverable amount of Cobre Panama has been determined using a fair value less costs of disposal calculation based on a
discounted cash flow model over a period of 36 years, which uses a post-tax discount rate, taking account of assumptions that
would be made by market participants. The future cash flows used in this model are inherently uncertain and could materially
change over time as a result of changes to ore reserves and resources estimates, commodity prices, discount rates, future
production costs and future capital expenditure to complete the construction of Cobre Panama. Reserves and resources are
estimated based on the National Instrument 43-101 compliant report produced by qualified persons. The production profile
used in the cash flow model is consistent with the reserves and resource volumes approved as part of the Company’s process
for the estimation of proven and probable reserves. Such production volumes are dependent on a number of variables,
including the recovery of metal from the ore, production costs, duration of mining rights and the selling price of extracted
minerals. Commodity prices are management’s estimates of the views of market participants, including a long-term copper
price of $3.00 per pound. The estimates are derived from the median of consensus forecasts. A nominal discount rate of 11%
(December 31, 2017: 12%) has been applied to future cash flows, derived from Cobre Panama’s weighted average cost of
capital (in nominal terms), incorporating the risks specific to the cash-generating unit. Future production costs and future
capital expenditure are based on the latest available engineering reports.
The calculated recoverable amount of the cash-generating unit exceeds the carrying value of Cobre Panama at December 31,
2018, and therefore no impairment charge has been recognized.
8 Ravensthorpe
In September 2017 the Company announced its intention to suspend operations at its Ravensthorpe nickel operation and place it
on care and maintenance due to the prevailing market conditions. The Company considered this decision to be an indicator of
impairment and an impairment test was performed at September 30, 2017. The recoverable value of the operation was
measured based on fair value less costs of disposal. Economically recoverable reserves and resources, operating costs and future
capital expenditure were used to determine the fair value and represent management’s assessment at the time of completing the
impairment testing. Based on the results of the discounted cash flow analysis, no impairment was recognized.
An updated assessment was performed at the reporting date and no impairment was noted.
As at December 31, 2018, based on an updated model, using a long-term nickel price of $7.50 per pound and a nominal
post-tax rate of 10.5% (real post-tax rate of 8%), a sensitivity analysis was performed on the cash flow model used to
determine the recoverable value of Ravensthorpe. A 10% decrease in the long-term nickel price would result in an impairment
of approximately $55 million. Nickel prices used in the cash flow projections were within the range of current market
consensus observed at December 31, 2018.
There will be regular review of market conditions to consider the potential restart of operations.
An impairment of $14 million was recognized in relation to specific assets as operations entered care and maintenance during
the year ended December 31, 2017.
9 Other Assets
Prepaid expenses
Other investments
Deferred income tax assets
Derivative instruments (note 25)
Total other assets
Less: current portion of other assets
December 31,
2018
December 31,
2017
171
218
18
74
43
306
(155)
151
68
54
13
353
(159)
194
Included within prepaid expenses is $28 million (December 31, 2017: $48 million) in relation to Sentinel which will be recovered
through deductions on electricity invoices from ZESCO under the terms of the agreement to transfer powerline ownership.
First Quantum Minerals Ltd. 2018 Annual Report
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2018, the Company and Northern Dynasty Minerals elected to terminate their framework agreement, announced on
December 15, 2017, in accordance with its terms after being unable to reach agreement on the contemplated option and
partnership transaction on the Pebble project. A $38 million fair value loss on the investment has been recognized in other
comprehensive income.
10 Joint Venture
On November 8, 2017 the Company completed the purchase of a 50% interest in KPMC from LS-Nikko Copper Inc. KPMC is
jointly owned and controlled with Korea Resources Corporation and holds a 20% interest in Cobre Panama. The purchase
consideration of $664 million comprised the acquisition consideration of $635 million and the reimbursement of cash
advances of $29 million. Consideration of $185 million has been made in the year ended December 31, 2018. The remaining
consideration is payable in three instalments to November 2021. $100 million is included within other current liabilities and
$164 million within other non-current liabilities.
A $600 million investment in joint venture representing the discounted consideration value has been recognized against which
the Company’s proportionate share of the profit or loss in KPMC is recognized. The principal assets and liabilities of KPMC are
an investment in MPSA, a subsidiary of the Company, and shareholder loans. The notional purchase price allocation was
finalized in the year ended December 31, 2018.
11 Debt
Drawn debt
Senior notes:
First Quantum Minerals Ltd. 7.00% due February 2021
First Quantum Minerals Ltd. 7.25% due May 2022
First Quantum Minerals Ltd. 7.25% due April 2023
First Quantum Minerals Ltd. 6.50% due February 2024
First Quantum Minerals Ltd. 7.50% due April 2025
First Quantum Minerals Ltd. 6.875% due February 2026
Kansanshi senior term loan
First Quantum Minerals Ltd. senior debt facility
Kalumbila term loan
Trading facilities
Equipment financing
Total debt
Less: current maturities and short-term debt
Undrawn debt
First Quantum Minerals Ltd. senior debt facility
Trading facilities
December 31,
2018
December 31,
2017
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
1,105
844
1,090
842
1,095
843
1,088
–
1,089
1,087
990
–
800
397
106
22
–
174
1,767
–
180
43
7,285
6,277
(174)
(316)
7,111
5,961
(h)
(j)
700
229
390
140
The movement in total debt of $1,008 million is inclusive of non-cash transition adjustments (note 2) and deferred charges that are consequently not reflected in financing
activities in the Consolidated Statement of Cash Flows.
82
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) FIRST QUANTUM MINERALS LTD. 7.00% DUE FEBRUARY 2021
The notes are part of the senior obligations of the Company and are guaranteed by certain of the Company’s subsidiaries.
Interest is payable semi-annually.
The Company may redeem some or all of the notes at any time on or after February 15, 2018, at redemption prices ranging
from 103.5% in the first year to 100% in the final year, plus accrued interest. Although part of this redemption feature
indicates the existence of an embedded derivative, the value of this derivative is not significant. Prior to February 15, 2018, the
notes may be redeemed at 100% plus a make-whole premium, and accrued interest.
The Company is subject to certain restrictions on asset sales, payments, incurrence of indebtedness and issuance of preferred stock.
B) FIRST QUANTUM MINERALS LTD. 7.25% DUE MAY 2022
The notes are part of the senior obligations of the Company and are guaranteed by certain of the Company’s subsidiaries.
Interest is payable semi-annually.
The Company may redeem some or all of the notes at any time on or after May 15, 2017 at redemption prices ranging from
105.438% in the first year to 100% from 2020, plus accrued interest. Although part of this redemption feature indicates the
existence of an embedded derivative, the value of this derivative is not significant.
The Company is subject to certain restrictions on asset sales, payments, incurrence of indebtedness and issuance of preferred stock.
C) FIRST QUANTUM MINERALS LTD. 7.25% DUE APRIL 2023
The notes are part of the senior obligations of the Company and are guaranteed by certain of the Company’s subsidiaries.
Interest is payable semi-annually.
The Company may redeem some or all of the notes at any time on or after October 1, 2019, at redemption prices ranging from
105.438% in the first six months to 100% in the final year, plus accrued interest. Although part of this redemption feature
indicates the existence of an embedded derivative, the value of this derivative is not significant. Prior to October 1, 2019, the
notes may be redeemed at 100% plus a make-whole premium, and accrued interest. In addition, until October 1, 2019, the
Company may redeem up to 35% of the principal amount of notes, in an amount not greater than the net proceeds of certain
equity offerings, at a redemption price of 107.25% plus accrued interest.
The Company and its subsidiaries are subject to certain restrictions on asset sales, payments, incurrence of indebtedness and
issuance of preferred stock.
D) FIRST QUANTUM MINERALS LTD. 6.50% DUE FEBRUARY 2024
In February 2018, the Company issued $850 million in senior notes due in 2024, bearing interest at an annual rate of 6.50%.
These senior notes have certain restrictions on the Company and its subsidiaries. The Company and its subsidiaries are subject
to certain restrictions on asset sales, payments, incurrence of indebtedness and issuance of preferred stock.
The notes are part of the senior obligations of the Company and are guaranteed by certain subsidiaries of the Company.
Interest is payable semi-annually.
The Company may redeem some or all of the notes at any time on or after September 1, 2020, at redemption prices ranging
from 103.25% in the first year to 100% from 2022, plus accrued interest. In addition, until September 1, 2020, the Company
may redeem up to 35% of the principal amount of notes, in an amount not greater than the net proceeds of certain equity
offerings, at a redemption price of 106.50% plus accrued interest. Although part of this redemption feature indicates the
existence of an embedded derivative, the value of this derivative is not significant.
E) FIRST QUANTUM MINERALS LTD. 7.50% DUE APRIL 2025
The notes are part of the senior obligations of the Company and are guaranteed by certain of the Company’s subsidiaries.
Interest is payable semi-annually.
The Company may redeem some or all of the notes at any time on or after April 1, 2020, at redemption prices ranging from
105.625% in the first year to 100% from 2023, plus accrued interest. Although part of this redemption feature indicates the
existence of an embedded derivative, the value of this derivative is not significant. Prior to April 1, 2020, the notes may be
redeemed at 100% plus a make-whole premium, and accrued interest. In addition, until April 1, 2020, the Company may
redeem up to 35% of the principal amount of notes, in an amount not greater than the net proceeds of certain equity
offerings, at a redemption price of 107.50% plus accrued interest.
The Company and its subsidiaries are subject to certain restrictions on asset sales, payments, incurrence of indebtedness and
issuance of preferred stock.
First Quantum Minerals Ltd. 2018 Annual Report
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F) FIRST QUANTUM MINERALS LTD. 6.875% DUE FEBRUARY 2026
In February 2018, the Company issued $1 billion in senior notes due in 2026, bearing interest at an annual rate of 6.875%.
These senior notes have certain restrictions on the Company and its subsidiaries. The Company and its subsidiaries are subject
to certain restrictions on asset sales, payments, incurrence of indebtedness and issuance of preferred stock.
The notes are part of the senior obligations of the Company and are guaranteed by certain subsidiaries of the Company.
Interest is payable semi-annually.
The Company may redeem some or all of the notes at any time on or after March 1, 2021, at redemption prices ranging from
105.156% in the first year to 100% from 2024, plus accrued interest. In addition, until March 1, 2021, the Company may
redeem up to 35% of the principal amount of notes, in an amount not greater than the net proceeds of certain equity
offerings, at a redemption price of 106.875% plus accrued interest. Although part of this redemption feature indicates the
existence of an embedded derivative, the value of this derivative is not significant.
G) KANSANSHI SENIOR TERM LOAN
In February 2018, the term loan was repaid and the facility cancelled.
H) FIRST QUANTUM MINERALS LTD. SENIOR DEBT FACILITY
In October 2017, the Company signed a term loan and revolving credit facility (“RCF”) replacing the previous $1.875 billion
term loan and RCF with its core relationship banks. The facility of $2.2 billion comprised of a $0.7 billion term loan facility and
a $1.5 billion RCF maturing in December 2020, with repayment beginning in December 2019. Final maturity can be extended
to December 2022 when certain criteria have been satisfied and at the option of the Company. Interest is charged at LIBOR
plus a margin. This margin can change relative to certain financial ratios of the Company.
On February 27, 2018, the Company repaid and extinguished the $0.7 billion term loan and repaid the outstanding balance
on the RCF. At December 31, 2018, $800 million has been drawn, leaving $700 million available for the Company to draw.
On February 6, 2019, the Company signed an agreement for the refinancing of the senior debt facility with a new $2.7 billion
facility (see note 27).
I) KALUMBILA TERM LOAN
On February 5, 2018, Kalumbila Minerals Limited, the owner of the Sentinel copper mine, signed a $230 million unsecured
term loan facility (the “Kalumbila Facility”) with an initial termination date of December 31, 2020 (with the right of
Kalumbila Minerals Limited to request an extension of one or two years subject to lender consent). The facility was upsized
to $400 million in March 2018 in accordance with the accordion feature of the facility agreement and is fully drawn.
Repayments on the facility commence in December 2019.
J) TRADING FACILITIES
The Company’s metal marketing division has four uncommitted borrowing facilities totalling $335 million. The facilities are
used to finance purchases and the term hedging of copper, gold and other metals, undertaken by the metal marketing
division. Interest on the facilities is calculated at the bank’s benchmark rate plus a margin. The loans are collateralized by
physical inventories.
K) EQUIPMENT FINANCING
In April 2014, Sentinel entered into an agreement with Caterpillar Financial Services Corporation (“Caterpillar”) to finance
equipment purchases up to $102 million. The agreement is secured by equipment that was purchased from Caterpillar, incurs
interest at LIBOR plus a margin and amounts are repayable over a period to 2020. Of the amount outstanding at
December 31, 2018, $11 million (December 31, 2017: $20 million) is due within 12 months of the balance sheet date.
84
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12 Provisions and Other Liabilities
A) PROVISIONS AND OTHER LIABILITIES
Restoration provisions
Amount owed to joint venture
Derivative instruments (note 25)
Non-current consideration for acquisition of joint venture1
Other
Total other liabilities
Less: current portion
December 31,
2018
December 31,
2017
585
946
3
164
267
618
925
288
244
142
1,965
2,217
(147)
(306)
1,818
1,911
1 The current portion of the consideration for acquisition of joint venture of $100 million (December 31, 2017: $176 million) has been included in trade and other payables.
B) AMOUNT OWED TO JOINT VENTURE
Balance at the beginning of the year
Repayment of shareholder loans
Cash calls paid to MPSA for the development of Cobre Panama
Interest accrued
Balance at end of year due to KPMC
December 31,
2018
December 31,
2017
925
(356)
304
73
946
596
–
264
65
925
In September 2013, the Company and KPMC entered into a shareholder loan agreement with Minera Panama S.A. (“MPSA”) for
development of the Cobre Panama project, in which KPMC is a 20% shareholder. Interest is calculated semi-annually at an
annual rate of 9%. In November 2017, the Company acquired a 50% interest in KPMC from LS-Nikko Copper Inc. inclusive of
the above shareholder loans. The assets and liabilities of KPMC are an investment in MPSA, a subsidiary of the Company, a loan
receivable from MPSA, and loans due to shareholders. Interest income and expense earned on these loans are on the same terms.
Following completion of the additional precious metal streaming agreement with Franco-Nevada, the receipt of $356 million
proceeds by MPSA was used entirely to repay shareholder loans by MPSA to KPMC. Of this $356 million shareholder loan
repayment, $178 million was received by the Company.
As at December 31, 2018, the accrual for interest payable is $224 million (December 31, 2017: $151 million) and is included
in the carrying value of the amount owed to joint venture, as this has been deferred under the loan agreement. Amounts due
to KPMC are specifically excluded from the calculation of net debt as defined under the Company’s banking covenant ratios.
C) RESTORATION PROVISIONS
The Company has restoration and remediation obligations associated with its operating mines, processing facilities, closed sites
and development projects. The following table summarizes the movements in the restoration provisions:
As at January 1
Changes in estimate – operating sites
Changes – closed sites (note 23)
Other adjustments
Accretion expense (note 22)
As at December 31
Less: current portion
2018
618
(27)
(10)
(10)
14
585
(5)
580
2017
530
71
4
–
13
618
(8)
610
First Quantum Minerals Ltd. 2018 Annual Report
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has issued letters of credit which are guaranteed by cash deposits, classified as restricted cash on the balance
sheet at December 31, 2018, totalling $71 million (December 31, 2017: $90 million).
The restoration provisions have been recorded initially as a liability based on management’s best estimate of cash flows, using
a risk-free discount rate between 2.4% and 3.1% and an inflation factor between 1.5% and 7.5%. Reclamation activity is
expected to occur over the life of each of the operating mines, a period of up to 36 years, with the majority payable in the
years following the cessation of mining operations.
13 Deferred Revenue
Balance at the beginning of the year
Change in accounting policy – IFRS 15 (note 2)
Balance at the beginning of the year, as adjusted
Cash deposits received from Franco-Nevada – Tranche 1
Cash deposits received from Franco-Nevada – Tranche 2
Accretion of finance costs
Balance at the end of the year
Less: current portion
Non-current deferred revenue
December 31,
2018
December 31,
2017
726
74
800
274
356
60
1,490
(38)
1,452
462
–
462
264
–
–
726
–
726
On March 16, 2018, the Company completed an additional precious metal streaming agreement with a subsidiary of Franco-
Nevada Corporation. $356 million was received on completion. Proceeds received from Franco-Nevada under the terms of the
precious metals streaming agreement are accounted for as deferred revenue. An accretion of finance costs is recognized as the
deferred revenue balance representing the significant timing component of the agreement.
FRANCO-NEVADA PRECIOUS METAL STREAM ARRANGEMENT
The Company, through its subsidiary, MPSA, has a precious metal streaming arrangement with Franco-Nevada Corporation
(“Franco-Nevada”). The arrangement comprises two tranches, the first of which (“Tranche 1”) was finalized on October 5,
2015. Under the terms of Tranche 1, Franco-Nevada, through a wholly owned subsidiary, agreed to provide a $1 billion
deposit to be funded on a pro-rata basis of 1:3 with the Company’s 80% share of the capital costs of Cobre Panama in excess
of $1 billion. At December 31, 2018, the full Tranche 1 deposit amount had been fully funded to MPSA. The second
(“Tranche 2”) was finalized on March 16, 2018, and $356 million was received on completion. Proceeds received from
Franco-Nevada under the terms of the precious metals streaming agreement are accounted for as deferred revenue.
The amount of precious metals deliverable under both tranches is indexed to total copper-in-concentrate sold by Cobre
Panama. Under the terms of Tranche 1, the ongoing payment of the fixed payment stream is fixed per ounce payments of
$418.27 per oz gold and $6.27 per oz silver subject to an annual inflation adjustment for the first 1,341,000 ounces of gold
and 21,510,000 ounces of silver (approximately the first 20 years of expected deliveries). Thereafter, the price per ounce
becomes the greater of $418.27 per oz for gold and $6.27 per oz for silver, subject to an adjustment for inflation, and one
half of the then prevailing market price. Under Tranche 2, the ongoing price per ounce for deliveries is 20% of the spot price
for the first 604,000 ounces of gold and 9,618,000 ounces of silver (approximately the first 25 years of production), and
thereafter the price per ounce rises to 50% of the spot price of gold and silver.
Although the market price feature represents an embedded derivative, the value of this derivative is not material. In all cases,
the amount paid is not to exceed the prevailing market price per ounce of gold and silver.
As at the year ended December 31, 2018, a total amount of $1,356 million (December 31, 2017: $726 million) had been
received from Franco-Nevada with respect to capital expenditure in Cobre Panama and recognized as deferred revenue. This
deferred revenue will be recognized as revenue over the life of the mine, which is expected to be 36 years.
86
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14 Income Taxes
The significant components of the Company’s income tax expense are as follows:
Current income tax expense
Deferred income tax (credit) expense
2018
315
(32)
283
2017
244
55
299
The income taxes shown in the Consolidated Statements of Earnings differ from the amounts obtained by applying statutory
rates to the earnings before income taxes due to the following:
Earnings before income taxes
Income tax (credit) expense at Canadian statutory rates
Difference in foreign tax rates
Non-deductible expenses
Losses not recognized
Impact of foreign exchange and other
Income tax (credit) expense
Amount $
791
214
7
4
43
15
2018
%
Amount $
27
1
1
5
2
60
15
11
40
184
49
299
2017
%
26
19
66
306
82
499
283
36
Losses not recognized consists largely of hedge losses and financing costs incurred in Canada, where such losses cannot be
used to offset operating income in other countries.
The deferred income tax assets and liabilities included on the balance sheet are as follows:
Deferred income tax assets
Deferred income tax liabilities
The significant components of the Company’s deferred income taxes are as follows:
December 31,
2018
December 31,
2017
74
(790)
(716)
54
(829)
(775)
2018
2017
Temporary differences relating to property, plant and equipment and finance leases
(1,402)
(1,377)
Unused operating losses
Temporary differences relating to non-current liabilities (including restoration provisions)
Temporary differences relating to inventory
Other
Net deferred income tax liabilities
518
97
6
65
464
104
10
24
(716)
(775)
The Company believes that it is probable that the results of future operations will generate sufficient taxable income to realize
the above noted deferred income tax assets.
The Company has unrecognized deductible temporary differences relating to operating loss carryforwards that may be available
for tax purposes in Canada totalling $3,463 million (December 31, 2017: $2,765 million) expiring between 2025 and 2038, and
in the United States of America totalling $37 million (December 31, 2017: $38 million) expiring between 2019 and 2037.
The Company also has unrecognized deductible temporary differences relating to restoration provisions of $47 million in
Canada (December 31, 2017: $57 million) and $29 million in Finland (December 31, 2017: $35 million).
First Quantum Minerals Ltd. 2018 Annual Report
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has non-Canadian resident subsidiaries that have undistributed earnings of $3,676 million (December 31, 2017:
$3,728 million). These undistributed earnings are not expected to be repatriated in the foreseeable future and the Company
has control over the timing of such; therefore, taxes that may apply on repatriation have not been provided for.
15 Share Capital
A) COMMON SHARES
Authorized
Unlimited common shares without par value
Issued
Balance as at December 31, 2017
Shares issued through Dividend Reinvestment Plan
Balance as at December 31, 2018
Number of shares (000’s)
689,384
7
689,391
The balance of share capital at December 31, 2018 was $5,642 million (December 31, 2017: $5,642 million).
B) TREASURY SHARES
The Company established an independent trust to purchase, on the open market, the common shares pursuant to the long-term
incentive plan (note 17a). The Company consolidates the trust as it is subject to control by the Company. Consequently, shares
purchased by the trust to satisfy obligations under the long-term incentive plan are recorded as treasury shares in shareholders’
equity. Generally, dividends received on shares held in the trust will be paid to plan participants in cash as received.
Balance as at January 1, 2017
Shares purchased
Shares vested
Balance as at December 31, 2017
Shares purchased
Shares vested
Balance as at December 31, 2018
Number of shares (000’s)
6,350
–
(984)
5,366
–
(1,213)
4,153
The balance of shares held in the trust as at December 31, 2018 was $125 million (December 31, 2017: $140 million).
C) DIVIDENDS
On July 30, 2018, the Company declared an interim dividend of CDN$0.005 per share, or $2 million, in respect of the financial
year ended December 31, 2018 (July 27, 2017: CDN$0.005 per share or $3 million) to be paid on September 19, 2018 to
shareholders of record on August 28, 2018.
On February 14, 2019, the Company declared a final dividend of CDN$0.005 per share, or $3 million, in respect of the
financial year ended December 31, 2018 (February 12, 2018: CDN$0.005 per share or $3 million) to be paid on May 7, 2019
to shareholders of record on April 15, 2019.
88
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16 Earnings (Loss) Per Share
Basic and diluted (loss) earnings attributable to shareholders of the Company
Basic weighted average number of shares outstanding (000’s of shares)
Potential dilutive securities
Diluted weighted average number of shares outstanding (000’s of shares)
Earnings (loss) per common share – basic (expressed in $ per share)
Earnings (loss) per common share – diluted (expressed in $ per share)
2018
441
2017
(316)
686,747
685,936
2,640
–
689,387
685,936
0.64
0.64
(0.46)
(0.46)
17 Share-based Compensation and Related Party Transactions
A) LONG-TERM INCENTIVE PLAN
The Company has a long-term incentive plan (the “Plan”), which provides for the issuance of performance stock units (“PSUs”)
and restricted stock units (“RSUs”) in such amounts as approved by the Company’s Compensation Committee. Included in general
and administrative expense is share-based compensation expense of $12 million (December 31, 2017: $17 million) related to this
Plan in addition to which $1 million (December 31, 2017: $1 million) has been capitalized to capital work-in-progress.
Under the Plan, each PSU entitles participants, which includes directors, officers and employees, to receive up to one-and-a-
half common shares of the Company at the end of a three-year period if certain performance and vesting criteria, which are
based on the Company’s performance relative to a representative group of other mining companies, have been met. The fair
value of each PSU is recorded as compensation expense over the vesting period. The fair value of each PSU is estimated using
a Monte Carlo Simulation approach. A Monte Carlo Simulation is a technique used to approximate the probability of certain
outcomes, called simulations, based on normally distributed random variables and highly subjective assumptions. This model
generates potential outcomes for stock prices and allows for the simulation of multiple stocks in tandem resulting in an
estimated probability of vesting.
Under the Plan, each RSU entitles the participant to receive one common share of the Company subject to vesting criteria. RSU
grants typically vest fully at the end of the three-year period. The fair value of each RSU is recorded as compensation expense
over the vesting period. The fair value of each RSU is estimated based on the market value of the Company’s shares at the
grant date and an estimated forfeiture rate of 11.5% (December 31, 2017: 11.5%).
The Company has introduced a new long-term compensation scheme for the next generation of operational business leaders
(current directors will not participate in the scheme), KRSUs. The scheme allows for full vesting over eight years with partial
vesting commencing in the fourth year. The objectives of the scheme are to promote a long-term strategic focus amongst
participants and to facilitate the Company’s management succession plans as the roles of the founding directors transition
during the scheme period.
The Company will meet its obligations under the scheme through market purchases. Full details of the scheme will be
contained in the 2019 Management Information Circular.
First Quantum Minerals Ltd. 2018 Annual Report
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance stock units
Outstanding – beginning of year
Granted
Vested
Forfeited
Outstanding – end of year
Restricted stock units
Outstanding – beginning of year
Granted
Vested
Forfeited
Outstanding – end of year
Key restricted stock units
Granted
Outstanding – end of year
2018
Number of
units (000’s)
2017
Number of
units (000’s)
3,677
745
(460)
(883)
3,986
1,280
(251)
(1,338)
3,079
3,677
3,231
690
(837)
(216)
2,976
1,250
(773)
(222)
2,868
3,231
4,400
4,400
–
–
The following assumptions were used in the Monte Carlo Simulation model to calculate compensation expense in respect of
the PSUs granted in the following years:
Risk-free interest rate
Vesting period
Expected volatility
Expected forfeiture per annum
Weighted average probability of vesting
2018
2.63%
3 years
81.6%
4%
33.4%
2017
1.55%
3 years
83.1%
4%
33.7%
B) SHARE OPTION PLAN
Share options for common shares in the Company are granted to certain key management. Options are exercisable at a price
equal to the closing quoted price of the Company’s shares on the date of grant. The vesting period varies from one to three
years. Options are forfeited if the employee leaves the Company before the options vest. If the options remain unexercised
after a period of five years from the grant date, the options expire.
Each share option converts into one common share on exercise. An amount equal to the share price at the date of grant is
payable by the recipient on the exercise of each option. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of their expiry.
Share options
Outstanding – beginning of year
Granted
Exercised
Forfeited
Outstanding – end of year
Exercisable – end of year
90
First Quantum Minerals Ltd. 2018 Annual Report
2018
Number of
units (000’s)
2017
Number of
units (000’s)
2,190
600
1,113
1,086
(72)
(42)
–
(9)
2,676
1,156
2,190
630
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share options grants have been measured using the binomial pricing model. The weighted average inputs of options granted
in the year are as follows:
Fair value of option
Exercise price (Canadian dollars)
Expected volatility
Expected life
Risk-free rate
Expected dividend yields
2018
9.96
21.95
67.0%
5 years
2.25%
0.1%
2017
5.44
12.18
67.5%
5 years
1.12%
0.1%
Volatility was calculated with reference to the Company’s historical share price volatility up to the grant date to reflect a term
approximate to the expected life of the option.
The Company recognized total expenses of $4 million (December 31, 2017: $4 million) related to equity-settled share-based
payments on share options issued under the above plan for the year ended December 31, 2018.
C) KEY MANAGEMENT COMPENSATION
Key management personnel include the members of the senior management team and directors.
Salaries, fees and other benefits
Bonus payments
Share-based compensation
Total compensation paid to key management
2018
2017
4
2
8
14
5
2
5
12
D) OTHER RELATED PARTY TRANSACTIONS
Amounts paid to related parties were incurred in the normal course of business and on an arm’s length basis. During the year,
$8 million (December 31, 2017: $6 million) was paid to parties related to key management for chartering aircraft,
accommodation, machinery and services. As at December 31, 2018, nil (December 31, 2017: nil) was included in trade and
other payables concerning related party amounts payable.
18 Sales Revenues by Nature
Copper
Nickel
Gold
Zinc
Other
19 Cost of Sales
Costs of production
Depreciation
Movement in inventory
Movement in depreciation in inventory
2018
2017
3,616
2,802
–
228
53
69
148
236
46
78
3,966
3,310
2018
(2,127)
(850)
3
(14)
2017
(2,071)
(898)
(10)
4
(2,988)
(2,975)
First Quantum Minerals Ltd. 2018 Annual Report
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20 Expenses by Nature
Depreciation
Employment costs, benefits and contractor
Raw materials and consumables
Repairs and maintenance
Utilities
Royalties
Fuel
Freight
Copper concentrate purchases
Travel
Change in inventories
Other
2018
(864)
(625)
(453)
(235)
(211)
(210)
(202)
(114)
(40)
(15)
3
(122)
2017
(894)
(676)
(579)
(232)
(171)
(178)
(176)
(77)
–
(14)
(10)
(60)
(3,088)
(3,067)
Expenses presented above include cost of sales, general and administrative expenses, and exploration expenses.
21 Impairments
As at December 31, 2018, a detailed review of impairment indicators was performed by management across all operations,
development projects and investments. This review did not result in the identification of impairment indicators as at
December 31, 2018. Management continues to monitor commodity prices, discount rates, operating costs and capital
expenditure, in addition to any other key factors that may result in an indicator of impairment.
It should be noted that, particularly given the current volatility in commodity markets, the Company’s longer-life assets and
operations are more likely to be impacted by changes in long-term commodity prices.
A summary of impairment for the years ended December 31:
Impairment of Ravensthorpe assets
Impairment of housing assets
2018
2017
–
–
–
14
12
26
IMPAIRMENT OF RAVENSTHORPE ASSETS
An impairment of $14 million was recognized in December 31, 2017 in relation to specific assets at Ravensthorpe that have
been identified for impairment following the mine being placed into care and maintenance in October 2017. There have been
no further impairments in the year ended December 31, 2018 (see note 8).
IMPAIRMENT OF HOUSING ASSETS
An impairment of nil (December 31, 2017: $12 million) has been recognized in relation to specific housing assets constructed
at the Kansanshi mine for its employees.
92
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22 Finance Costs
Interest expense on financial liabilities measured at amortized cost
Accretion on restoration provision
Total finance costs
Less: interest capitalized (note 6)
2018
(677)
(14)
(691)
653
(38)
2017
(517)
(13)
(530)
485
(45)
Included within net finance expense for the year ended December 31, 2018 is $5 million (December 31, 2017: $20 million)
relating to the discounting of non-current VAT held by Kansanshi over the expected repayment timeframe. Discussions with
the relevant government authorities are ongoing and management continues to consider that the outstanding VAT claims are
fully recoverable.
$653 million was capitalized to the Cobre Panama development project for the year ended December 31, 2018 (December 31,
2017: $485 million).
23 Other Income (Expenses)
Foreign exchange gains (losses) – Zambian VAT receivable
Other foreign exchange gains (losses)
Change in restoration provision for closed properties (note 12c)
Other income (expenses)
2018
(75)
11
(10)
5
(69)
2017
1
(24)
(4)
(7)
(34)
24 Segmented Information
The Company’s reportable operating segments are individual mine development projects or mine operations. Each of the
mines and development projects report information separately to the CEO, the chief operating decision maker.
The Corporate & other segment is responsible for the evaluation and acquisition of new mineral properties, regulatory
reporting, treasury and finance, and corporate administration. Included in the Corporate & other segment is the Company’s
metal marketing division, which purchases and sells third-party material, and the exploration projects.
The Company’s operations are subject to seasonal aspects, in particular the rain season in Zambia. The rain season in Zambia
generally starts in November and continues through April, with the heaviest rainfall normally experienced in the months of
January, February and March. As a result of the rain season, mine pit access and the ability to mine ore is lower in the first
quarter of the year than other quarters and the cost of mining is higher.
First Quantum Minerals Ltd. 2018 Annual Report
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS BY SEGMENT
For the year ended December 31, 2018, segmented information for the Statements of Earnings (Loss) is presented as follows:
Kansanshi2
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
Ravensthorpe
Corporate & other3, 4
Total
Cost of sales
(excluding
depreciation)
Revenue
Depreciation
Other
Operating
profit (loss)1
Income tax
(expense)
credit
1,672
1,454
470
235
100
144
–
(109)
(799)
(890)
(151)
(160)
(47)
(50)
(11)
(16)
(250)
(276)
(203)
(45)
(30)
(54)
(5)
(1)
3,966
(2,124)
(864)
(68)
(28)
4
(9)
1
7
1
(77)
(169)
555
260
120
21
24
47
(15)
(203)
809
(145)
(63)
(18)
(5)
(31)
(5)
7
(23)
(283)
1 Operating profit (loss) less net finance costs and taxes equals net earnings (loss) for the year on the Consolidated Statements of Earnings.
2 Kansanshi Mining PLC, the most significant contributor to the Kansanshi segment, is 20% owned by ZCCM, a Zambian government owned entity.
3 No segmented information for Cobre Panama is disclosed for the Statements of Earnings, as the project is under development. The development costs for this project
are capitalized.
4 Relates to hedge losses recognized on forward copper sales and zero cost collar options.
For the year ended December 31, 2017, segmented information for the Statements of Earnings is presented as follows:
Kansanshi2
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
Ravensthorpe
Corporate & other3, 4
Total
Cost of sales
(excluding
depreciation)
Revenue
Depreciation
Other
Operating
profit (loss)1
Income tax
(expense) credit
1,740
1,026
461
217
98
143
163
(538)
(813)
(636)
(150)
(131)
(52)
(53)
(188)
(58)
(291)
(224)
(205)
(45)
(30)
(66)
(32)
(1)
3,310
(2,081)
(894)
(34)
(7)
(4)
(2)
1
(10)
(13)
(83)
(152)
602
159
102
39
17
14
(70)
(680)
(190)
(26)
(34)
(20)
(31)
(5)
21
(14)
183
(299)
1 Operating profit (loss) less net finance costs and taxes equals net earnings (loss) for the year on the Consolidated Statements of Earnings.
2 Kansanshi Mining PLC, the most significant contributor to the Kansanshi segment, is 20% owned by ZCCM, a Zambian government owned entity.
3 No segmented information for Cobre Panama is disclosed for the Statements of Earnings, as the project is under development. The development costs for this project
are capitalized.
4 Relates to hedge losses recognized on forward copper sales and zero cost collar options.
94
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET BY SEGMENT
Segmented information on balance sheet items is presented as follows:
December 31, 2018
December 31, 2017
Non-current
assets1
Total assets
Total liabilities
Non-current
assets1
Total assets
Total liabilities
Kansanshi2
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
Ravensthorpe
Cobre Panama3
2,789
4,326
1,075
2,706
4,490
3,150
3,673
499
126
104
28
689
1,077
228
150
92
776
944
711
308
36
43
56
142
3,162
3,627
668
160
129
90
718
1,186
297
386
208
798
10,640
10,992
2,745
8,322
8,619
226
369
75
68
70
168
1,881
7,563
Corporate & other4
1,212
2,059
7,830
1,193
2,176
Total
19,154
23,537
12,815
17,231
21,623
11,495
1 Non-current assets include $19,098 million of property, plant and equipment (December 31, 2017: $17,209 million) and exclude financial instruments, deferred tax assets,
VAT receivable and goodwill.
2 Kansanshi Mining PLC, the most significant contributor to the Kansanshi segment, is 20% owned by ZCCM, a Zambian government owned entity. This segment includes
the Kansanshi smelter.
3 Cobre Panama is 20% owned by KPMC, a joint venture.
4 Included within the corporate segment are assets relating to the Haquira project of $683 million (December 31, 2017: $678 million) and to the Taca Taca project of
$434 million (December 31, 2017: $430 million).
CAPITAL EXPENDITURE BY SEGMENT
Additions to non-current assets other than financial instruments, deferred tax assets and goodwill represent additions to
property, plant and equipment, for which capital expenditure is presented as follows:
Kansanshi
Sentinel
Las Cruces
Guelb Moghrein
Çayeli
Pyhäsalmi
Ravensthorpe
Cobre Panama
Corporate & other1
Total
1 Excludes $38 million paid with respect to the Pebble project in the year ended December 31, 2017.
2018
194
236
34
15
6
–
4
2017
183
140
22
13
5
–
13
1,640
1,256
14
20
2,143
1,652
First Quantum Minerals Ltd. 2018 Annual Report
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GEOGRAPHICAL INFORMATION
Revenue by destination1
China
Singapore
South Africa
Spain
Zambia
Germany
India
Finland
Egypt
Taiwan
Sweden
Bulgaria
DR Congo
Mexico
Italy
Australia
South Korea
United Arab Emirates
Other
Hedge gains (losses)2
2018
2017
1,476
1,076
539
504
472
368
268
147
144
36
36
16
16
15
14
4
–
–
–
21
641
509
442
307
243
279
138
33
30
24
30
–
–
22
56
24
3
21
(110)
(568)
3,966
3,310
1 Presented based on the ultimate destination of the product, if known. If the eventual destination of the product sold through traders is not known, then revenue is
allocated to the location of the product at the time when control passes.
2 Relates to hedge gains (losses) recognized on forward sales and zero cost collar options.
Non-current assets by location
Zambia
Panama
Spain
Finland
Australia
Peru
Argentina
Mauritania
Turkey
Other
Investments, deferred income tax assets, goodwill, restricted cash, other deposits and
VAT receivable
96
First Quantum Minerals Ltd. 2018 Annual Report
December 31,
2018
December 31,
2017
5,844
10,640
5,690
8,322
463
28
694
680
432
126
104
143
632
90
722
673
429
160
129
384
19,154
17,231
1,119
1,203
20,273
18,434
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25 Financial Instruments
The Company classifies its financial assets as amortized cost, FVOCI or FVTPL. Financial liabilities are measured at amortized
cost or FVTPL.
The following provides a comparison of carrying and fair values of each classification of financial instrument at December 31, 2018:
Financial assets
Trade and other receivables1
Derivative instruments in designated hedge relationships
Other derivative instruments2
Investments3
Financial liabilities
Trade and other payables
Other derivative instruments2
Finance leases
Liability to joint venture
Debt
Amortized
cost
Fair value
through profit
or loss
Fair value
through OCI
64
241
–
–
–
731
–
17
946
7,285
27
16
–
–
(3)
–
–
–
–
–
–
18
–
–
–
–
–
Total
305
27
16
18
731
(3)
17
946
7,285
1 Commodity products are sold under pricing arrangements where final prices are set at a specified future date based on market commodity prices. Changes between the
prices recorded upon recognition of revenue and the final price due to fluctuations in commodity market prices give rise to an embedded derivative in the accounts
receivable related to the provisionally priced sales contracts.
2 Other derivative instruments related to provisionally priced sales contracts are classified as fair value through profit or loss and recorded at fair value, with changes in fair
value recognized as a component of cost of sales.
3 Investments held by the Company are held at fair value through other comprehensive income.
The following provides a comparison of carrying and fair values of each classification of financial instruments at December 31,
2017 on the same classification basis as above (original measurement categories under IAS 39 are presented in note 2):
Financial assets
Trade and other receivables1
Other derivative instruments2
Investments3
Financial liabilities
Trade and other payables
Derivative instruments in designated hedge relationships
Other derivative instruments2
Finance leases
Liability to joint venture
Debt
Amortized
cost
Fair value
through profit
or loss
Fair value
through OCI
461
–
–
–
713
–
–
22
925
6,277
13
–
–
228
60
–
–
–
–
–
68
–
–
–
–
–
–
Total
461
13
68
713
228
60
22
925
6,277
1 Commodity products are sold under pricing arrangements where final prices are set at a specified future date based on market commodity prices. Changes between the
prices recorded upon recognition of revenue and the final price due to fluctuations in commodity market prices give rise to an embedded derivative in the accounts
receivable related to the provisionally priced sales contracts.
2 Other derivative instruments related to provisionally priced sales contracts are classified as fair value through profit or loss and recorded at fair value, with changes in fair
value recognized as a component of cost of sales.
3 The Company holds investments in privately held entities which were measured at cost prior to the adoption of IFRS 9 (note 2).
First Quantum Minerals Ltd. 2018 Annual Report
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUES
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly.
Level 3
Inputs for the asset or liability that are not based on observable market data.
The following table sets forth the Company’s assets and liabilities measured at fair value on the balance sheet at
December 31, 2018:
Financial assets
Derivative instruments – LME contracts1
Derivative instruments – OTC contracts2
Investments3
Financial liabilities
Derivative instruments – LME contracts1
Derivative instruments – OTC contracts2
Level 1
Level 2
Level 3
Total fair
value
14
–
–
18
2
–
29
–
–
1
–
–
–
–
–
14
29
18
2
1
1 Futures for copper, gold and zinc were purchased on the London Metal Exchange (“LME”) and London Bullion Market and have direct quoted prices; therefore, these
contracts are classified within Level 1 of the fair value hierarchy.
2 The Company’s derivative instruments are valued by the Company’s brokers using pricing models based on active market prices. All forward swap contracts held by the
Company are OTC and therefore the valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates
using inputs which can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
Derivative assets are included within other assets on the balance sheet and derivative liabilities are included within provisions and other liabilities on the balance sheet.
3 The Company’s investments in marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value
hierarchy. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable security multiplied by the quantity of shares held by
the Company.
The following table sets forth the Company’s assets and liabilities measured at fair value on the balance sheet at December 31,
2017, in the fair value hierarchy:
Financial assets
Derivative instruments – LME contracts1
Derivative instruments – OTC contracts2
Investments3
Financial liabilities
Derivative instruments – LME contracts1
Derivative instruments – OTC contracts2
Level 1
Level 2
Level 3
Total
fair value
13
–
9
45
–
–
–
–
–
243
–
–
–
–
–
13
–
9
45
243
1 Futures for copper, nickel, gold and zinc were purchased on the London Metal Exchange (“LME”) and London Bullion Market and have direct quoted prices; therefore,
these contracts are classified within Level 1 of the fair value hierarchy.
2 The Company’s derivative instruments are valued by the Company’s brokers using pricing models based on active market prices. All forward swap contracts held by the
Company are OTC and therefore the valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates
using inputs which can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
Derivative assets are included within other assets on the balance sheet and derivative liabilities are included within provisions and other liabilities on the balance sheet.
3 The Company’s investments in marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value
hierarchy. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable security multiplied by the quantity of shares held by
the Company.
98
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL RISK MANAGEMENT
Credit risk
The Company’s credit risk is primarily attributable to cash and bank balances, short-term deposits, derivative instruments, trade
and other receivables and promissory note receivable. The Company’s exposure to credit risk is represented by the carrying
amount of each class of financial assets, including commodity contracts, recorded in the consolidated balance sheet.
The Company limits its credit exposure on cash held in bank accounts by holding its key transactional bank accounts with
highly rated financial institutions. The Company manages its credit risk on short-term deposits by only investing with
counterparties that carry investment grade ratings as assessed by external rating agencies and spreading the investments
across these counterparties. Under the Company’s risk management policy, allowable counterparty exposure limits are
determined by the level of the rating unless exceptional circumstances apply. A rating of investment grade or equivalent is the
minimum allowable rating required as assessed by international credit rating agencies. Likewise, it is the Company’s policy to
deal with banking counterparties for derivatives who are rated investment grade or above by international credit rating
agencies and graduated counterparty limits are applied depending upon the rating.
Exceptions to the policy for dealing with relationship banks with ratings below investment grade are reported to, and
approved by, the Audit Committee. As at December 31, 2018, substantially all cash and short-term deposits are with
counterparties of investment grade.
The Company’s credit risk associated with trade accounts receivable is managed through establishing long-term contractual
relationships with international trading companies using industry-standard contract terms. More than 70% of the Company’s
trade receivables are generated from five customers together representing greater than 25% of the total sales for the year.
A total balance of $36 million was past due from these customers at the balance sheet date and is classified as current
receivable. The Company continues to trade with these customers. Revenues earned from these customers are included within
the Kansanshi segment. Other accounts receivable consist of amounts owing from government authorities in relation to the
refund of value-added taxes applying to inputs for the production process and property, plant and equipment expenditures
and prepaid taxes.
Significant credit risk exposures to any single counterparty or group of counterparties having similar characteristics are as follows:
Commodity traders and smelters (trade receivables and other receivables)
Government authorities (VAT receivable)
December 31,
2018
December 31,
2017
305
462
767
461
331
792
The VAT receivable due from government authorities includes $109 million at December 31, 2018, which is past due
(December 31, 2017: $140 million). See note 4c.
The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the
Company’s maximum exposure to credit risk. Expected credit losses on trade and other receivables at December 31, 2018
amount to nil.
Liquidity risk
The Company manages liquidity risk by maintaining cash and cash equivalent balances and available credit facilities to ensure
that it is able to meet its short-term and long-term obligations as and when they fall due. Company-wide cash projections are
managed centrally and regularly updated to reflect the dynamic nature of the business and fluctuations caused by commodity
price and exchange rate movements.
In addition, the Company was obligated under its corporate revolving credit and term loan facility to maintain liquidity and
satisfy various covenant ratio tests on an historical and prospective cash flow basis. These ratios were in compliance during the
year ended December 31, 2018 and December 31, 2017. If the Company breaches a covenant in its Financing Agreements,
this would be an event of default which, if unaddressed, would entitle the lenders to make the related borrowings
immediately due and payable and, if made immediately due and payable, all other borrowings would also be due and payable.
First Quantum Minerals Ltd. 2018 Annual Report
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had the following balances and facilities available at the balance sheet dates:
Cash and cash equivalents and bank overdrafts – unrestricted cash
Working capital balance
Undrawn debt facilities (note 11)
Contractual and other obligations as at December 31, 2018 are as follows:
December 31,
2018
December 31,
2017
788
1,039
929
702
1,025
530
Carrying
value
Contractual
cash flows
< 1 year
1–3 years
3–5 years
Thereafter
Debt – principal repayments
7,179
Debt – finance charges
Trading facilities
Trade and other payables
Derivative instruments
Liability to joint venture1
Joint venture consideration
Current taxes payable
Deferred payments
Finance leases
Operating leases
Commitments
Restoration provisions
–
106
631
3
946
264
125
17
–
–
585
7,245
2,299
106
631
3
1,446
300
125
23
69
516
106
631
3
–
100
125
–
3
42
42
32
25
392
1,048
358
5
2,276
897
–
–
–
–
200
–
1,950
563
–
–
–
1,446
–
–
2,950
323
–
–
–
–
–
–
18
14
10
7
6
29
68
7
1
5
80
6
–
–
895
1 Refers to distributions to KPMC, a joint venture that holds a 20% non-controlling interest in MPSA of which the Company has joint control, and not scheduled repayments.
Contractual and other obligations as at December 31, 2017 are as follows:
Carrying
value
Contractual
cash flows
< 1 year
1–3 years
3–5 years
Thereafter
Debt – principal repayments
6,097
6,198
Debt – finance charges
–
1,970
Trading facilities
Trade and other payables
Derivative instruments
Liability to joint venture1
Joint venture consideration
Current taxes payable
Deferred payments
Finance leases
Commitments
137
430
180
533
288
180
533
288
1,679
–
485
139
51
29
185
139
5
5
180
533
288
925
424
139
51
22
1,891
1,970
838
456
2,200
246
–
–
–
388
200
–
10
9
34
39
–
–
–
182
100
–
10
7
5
–
–
–
1,109
–
–
26
8
3
86
882
Restoration provisions
618
1,015
8
–
628
586
1 Refers to distributions to KPMC, a joint venture that holds a 20% non-controlling interest in MPSA of which the Company has joint control, and not scheduled repayments.
100
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKET RISKS
a) Commodity price risk
The Company is subject to commodity price risk from fluctuations in the market prices of copper, gold, nickel, zinc and
other elements.
As part of the hedging program, the Company has elected to apply hedge accounting for a portion of copper and nickel sales.
For the year ended December 31, 2018, a fair value loss of $27 million has been recognized on derivatives designated as hedged
instruments through accumulated other comprehensive income, and a fair value loss of $110 million has been recognized
through sales revenues. The Company also had zero cost collar unmargined sales contracts for 30,000 tonnes at prices ranging
from low side (or put) prices of $3.10 per lb to high side (or call) prices of $3.50 per lb with maturities to June 2019.
The Company is also exposed to commodity price risk on diesel fuel required for mining operations and sulphur required for
acid production. The Company’s risk management policy allows for the management of these exposures through the use of
derivative financial instruments. As at December 31, 2018 and December 31, 2017, the Company had not entered into any
diesel or sulphur derivatives.
The Company’s commodity price risk related to changes in fair value of embedded derivatives in accounts receivable reflecting
copper, nickel, gold and zinc sales provisionally priced based on the forward price curve at the end of each quarter.
Derivatives designated as hedged instruments
The Company has elected to apply hedge accounting with the following contracts, which is expected to be highly effective in
offsetting changes in the cash flows of designated future sales. Commodity contracts outstanding as at December 31, 2018
were 30,000 copper zero cost collars at an average price between $3.10 per lb to $3.48 per lb with maturities through to
June 2019. The closing copper market value as at December 31, 2018 was $2.71 per lb.
Other derivatives
As at December 31, 2018 and December 31, 2017, the Company had entered into the following derivative contracts for
copper, gold and zinc in order to reduce the effects of fluctuations in metal prices between the time of the shipment of metal
from the mine site (when the sale is provisionally priced) and the date agreed for pricing the final settlement.
Excluding the copper contracts noted above, as at December 31, 2018, the following derivative positions were outstanding:
Embedded derivatives in provisionally priced
sales contracts:
Copper
Gold
Zinc
Commodity contracts:
Copper
Gold
Zinc
Open
positions
(tonnes/
ounces)
Average
contract price
Closing
market price
Maturities
through
90,633 $
2.78/lb $
2.71/lb
April 2019
16,069 $ 1,235/oz
$ 1,282/oz
April 2019
2,175 $
1.18/lb $
1.14/lb January 2019
90,425 $
2.78/lb $
2.71/lb
April 2019
16,069 $ 1,235/oz
$ 1,282/oz
April 2019
2,175 $
1.18/lb $
1.14/lb January 2019
First Quantum Minerals Ltd. 2018 Annual Report
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2017, the following derivative positions were outstanding:
Embedded derivatives in provisionally priced
sales contracts:
Copper
Gold
Zinc
Commodity contracts:
Copper
Gold
Zinc
Open positions
(tonnes/ounces)
Average
contract price
Closing market
price
Maturities
through
81,785 $
3.06/lb $
3.25/lb
April 2018
20,226 $ 1,274/oz
$ 1,294/oz
April 2018
1,275 $
1.45/lb $
1.50/lb
February 2018
82,703 $
3.06/lb $
3.25/lb
April 2018
20,226 $ 1,274/oz
$ 1,294/oz
April 2018
1,275 $
1.45/lb $
1.50/lb
February 2018
The following is a summary of the fair values of unsettled derivative financial instruments for commodity contracts recorded
on the consolidated balance sheet.
Commodity contracts:
Asset position
Liability position
December 31,
2018
December 31,
2017
43
(3)
13
(288)
The following table shows the impact on net earnings from changes in the fair values of financial instruments of a 10%
change in the copper, gold and zinc commodity prices, based on prices at December 31, 2018. There is no impact of these
changes on other comprehensive income except indirectly through the impact on the fair value of the available-for-sale
investments. The impact of a 10% movement in commodity prices is as follows:
Copper
Gold
Zinc
Average contract price
Impact of price change
on December 31
on net earnings
2018
2017
2018
2017
$
2.78/lb $
3.06/lb
1
$ 1,235/oz
$ 1,274/oz
$
1.18/lb $
1.45/lb
–
–
7
–
–
b) Interest rate risk
The majority of the Company’s interest expense is fixed; however, it is also exposed to an interest rate risk arising from interest
paid on floating rate debt and the interest received on cash and short-term deposits. The Company currently capitalizes the
majority of interest charges, and therefore the risk exposure is primarily on cash and net earnings in relation to the
depreciation of capitalized interest charges.
Deposits are invested on a short-term basis to ensure adequate liquidity for payment of operational and capital expenditures.
To date, no interest rate management products, such as swaps, are used in relation to deposits.
The Company manages its interest rate risk on borrowings on a net basis. The Company has a policy allowing floating-to-fixed
interest rate swaps targeting 50% of exposure over a five-year period. As at December 31, 2018 and December 31 2017, the
Company held no floating-to-fixed interest rate swaps.
102
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2018, the impact on cash interest payable of a 100 basis point change in interest rate would be as follows:
Interest-bearing deposits, cash at bank and bank overdrafts
Floating rate borrowings drawn
Impact of interest rate
change on net earnings
December 31,
2018
100 basis point
increase
100 basis point
decrease
788
8
1,223
(12)
(8)
12
At December 31, 2017, the impact on cash interest payable of a 100 basis point change in interest rate would be as follows:
Interest-bearing deposits and cash at bank
Floating rate borrowings drawn
Impact of interest rate
change on net earnings
December 31,
2017
100 basis point
increase
100 basis point
decrease
702
7
2,208
(22)
(7)
22
c) Foreign exchange risk
The Company’s functional and reporting currency is USD. As virtually all of the Company’s revenues are derived in USD and the
majority of its business is conducted in USD, foreign exchange risk arises from transactions denominated in currencies other
than USD. Commodity sales are denominated in USD, the majority of borrowings are denominated in USD and the majority of
operating expenses are denominated in USD. The Company’s primary foreign exchange exposures are to the local currencies in
the countries where the Company’s operations are located, principally the Zambian kwacha (“ZMW”), Australian dollar
(“AUD”), Mauritanian ouguiya (“MRU”), the euro (“EUR”) and the Turkish lira (“TRY”), and to the local currencies of suppliers
who provide capital equipment for project development, principally the AUD, EUR and the South African rand (“ZAR”).
The Company’s risk management policy allows for the management of exposure to local currencies through the use of financial
instruments at a targeted amount of up to 100% for exposures within one year down to 50% for exposures in five years.
As at December 31, 2018, the Company is exposed to currency risk through the following assets and liabilities denominated in
currencies other than USD:
CAD
AUD
ZMW
EUR
TRY
ZAR
MRU
Other
Total
Cash and cash
equivalents
Trade and other
receivables
Investments
Financial
liabilities
13
12
23
25
–
4
–
4
–
–
1
51
–
–
1
–
81
53
4
1
–
–
–
–
–
–
5
–
22
25
52
9
22
16
–
146
Based on the above net exposures as at December 31, 2018, a 10% change in all of the above currencies against the USD
would result in a $1 million increase or decrease in the Company’s net earnings and would result in a $1 million increase or
decrease in the Company’s other comprehensive income.
First Quantum Minerals Ltd. 2018 Annual Report
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2017, the Company is exposed to currency risk through the following assets and liabilities denominated in
currencies other than USD:
CAD
AUD
ZMW
EUR
TRY
ZAR
MRU
Other
Total
Cash and cash
equivalents
Trade and other
receivables
Investments
Financial
liabilities
14
6
9
54
–
7
–
2
92
1
–
21
–
–
–
–
–
7
3
–
–
–
–
–
–
22
10
1
2
5
42
18
–
5
–
73
Based on the above net exposures as at December 31, 2017, a 10% change in all of the above currencies against the USD
would result in a $6 million increase or decrease in the Company’s net earnings and would result in a $1 million increase or
decrease in the Company’s other comprehensive income.
Capital management
The Company’s objectives when managing capital are to continue to provide returns for shareholders, and comply with
lending requirements while safeguarding the Company’s ability to continue as a going concern. The Company considers the
items included in equity to be capital.
The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk
characteristics of the Company’s assets. In order to maintain or adjust the capital structure, the Company may adjust the
amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt.
The Company uses a combination of short-term and long-term debt to finance its operations and development projects.
Typically, floating rates of interest are attached to short-term debt, and fixed rates on senior notes.
26 Commitments and Contingencies
CAPITAL COMMITMENTS
In conjunction with the development of Cobre Panama, the Company has committed to $392 million (December 31, 2017:
$628 million) in capital expenditures.
OTHER COMMITMENTS AND CONTINGENCIES
Due to the size, complexity and nature of the Company’s operations, various legal and tax matters are outstanding from time
to time. The Company is routinely subject to audit by tax authorities in the countries in which it operates and has received a
number of tax assessments in various locations, including Zambia, which are currently at various stages of progress with the
relevant authorities. The outcome of these audits and assessments are uncertain; however, the Company is confident of its
position on the various matters under review.
In December 2018, Cobre Panama reached a full and final settlement for an outstanding claim from a third party which
included closure of the counterclaim made by the Company.
In October 2016, the Company, through its subsidiary Kansanshi Holdings Limited, received a Notice of Arbitration from
ZCCM International Holdings PLC (“ZCCM”) under the Kansanshi Mining PLC (“KMP”) Shareholders Agreement. ZCCM is a
20% shareholder in KMP and filed the Notice of Arbitration against Kansanshi Holdings Limited, the 80% shareholder, and
against KMP. The Company also received a Statement of Claim filed in the Lusaka High Court naming additional defendants,
including FQM Finance Ltd. (“FQM Finance”), and certain directors and an executive of the named corporate defendants.
Aside from the parties, the allegations made in the Notice of Arbitration and the High Court for Zambia were the same. The
Company is firmly of the view that the allegations are in their nature inflammatory, vexatious and untrue.
104
First Quantum Minerals Ltd. 2018 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The dispute was stated as a request for a derivative action, requiring ZCCM to obtain permission to proceed in each forum of
the arbitration and the Lusaka High Court. The dispute arose from facts originating in 2007 and concerned the rate of interest
paid on select deposits by KMP with the Company’s treasury entity FQM Finance. The deposits were primarily retained for
planned investment by KMP in Zambia. In particular, KMP deposits were used to fund a major investment program at
Kansanshi, including the successful construction and commissioning of the Kansanshi smelter and expansion of the processing
plant and mining operations. The entirety of the deposit sums has been paid down from FQM Finance to KMP, with interest.
The interest was based on an assessment of an arm’s length fair market rate, which is supported by independent third-party
analysis. ZCCM disputed that interest rate paid to KMP on the deposits was sufficient.
Several preliminary procedural applications to dismiss the High Court action were lodged on behalf of the Company, and other
defendants, in the Lusaka High Court. By a decision dated January 25, 2018, the Lusaka High Court used its discretion to
rectify ZCCM’s procedural errors. The Court granted leave to the Company, FQM Finance and the individual defendants to
appeal against this decision, and the litigants have agreed to a stay pending the appeal. The appeal hearing took place on
November 21, 2018, with submissions made by all parties. The Court of Appeal delivered judgment on January 11, 2019,
dismissing the appeal, and an appeal to the Supreme Court of Zambia has been requested.
The arbitration required ZCCM to petition the Arbitral Tribunal for permission to maintain the derivative action. A three-day
hearing on the arbitration on whether permission is granted or denied took place in January 2018. On February 22, 2018, the
Arbitral Tribunal issued a ruling denying ZCCM permission to continue the proceedings. On March 21, 2018, ZCCM served an
application seeking to challenge the Arbitral Tribunal’s ruling through the English court. On June 1, 2018, despite being
severely out of time, ZCCM sought to amend its application for additional grounds on which to challenge the Arbitral
Tribunal’s ruling, to which KMP objected. KMP’s objection was heard in a hearing in July 2018 and deferred to a fuller hearing
to take place in March 2019.
Cooperative discussions between the parties, including representatives of the Zambian government, took place in May 2017
and are expected to be repeated.
27 Post-Balance Sheet Events
DIVIDEND DECLARED
The Company has declared a final dividend of CAD$0.005 per share, in respect of the financial year ended December 31,
2018. The final dividend, together with the interim dividend of CAD$0.005 per share, is a total of CAD$0.01 per share for the
2018 financial year.
LAND SLIPPAGE AT LAS CRUCES
On January 23, 2019, a land slippage occurred at the Las Cruces open pit mine. Prior to the incident, mine personnel
identified a risk and immediately implemented safety protocols. Following the incident, the pit was evacuated and no injuries
occurred. Production at the hydrometallurgical plant was suspended immediately following the incident but copper production
resumed on February 1, 2019, with the processing of lower-grade stockpiled ore. The stockpiled ore is expected to provide
feed for the next several months while the Company obtains the necessary regulatory approvals to begin mining of Phase 6,
an area unaffected by the incident.
REFINANCING
On February 6, 2019, the Company signed a new $2.7 billion term loan and revolving credit facility underwritten by three core
relationship banks. This new facility replaces the existing $1.5 billion revolving credit facility. The new $2.7 billion facility (with
an accordion feature to increase it up to $3.0 billion before the end of 2019) comprises a $1.5 billion term loan facility and a
$1.2 billion revolving credit facility (which can be upsized to $1.5 billion if the accordion feature is activated), maturing on
December 31, 2022.
This financing includes revised financial covenants, extends the debt maturity profile of the business, demonstrates the
Company’s access to a diverse range of capital markets, and improves the financial flexibility of the Company through the
added liquidity. The facility will be used for the redemption of the $1,121 million senior notes due February 2021 in full or in
part and for general corporate purposes.
First Quantum Minerals Ltd. 2018 Annual Report
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS
Philip K.R. Pascall
Chairman of the Board and Chief Executive Officer
Mr. Pascall graduated from Sussex University in England with an honours degree in
Control Engineering, and later completed an MBA at the University of Cape Town.
He worked in general management positions in South Africa from 1973, and in
the mining industry there from 1977 with RTZ, and E.L. Bateman, and from 1981,
in Australia. He was the Project Manager of the Argyle Diamond project and then
Executive Chairman and part owner of Nedpac Engineering between 1982 and
1990. During this time, Mr. Pascall was involved in a wide variety of mineral
projects in Australia, New Zealand, S.E. Asia, Chile, the United States and
Zimbabwe. After selling his share of Nedpac in 1990, Mr. Pascall was a consultant
in the mining industry, including a period with Rio Tinto’s Hamersley Iron, and with
various projects in Zimbabwe and Zambia. He is a co-founder and has been
Chairman and Chief Executive Officer of the Company since 1996.
Clive Newall
President and Director
Mr. Newall graduated from the Royal School of Mines, Imperial College, England
in 1971 with an honours degree in Mining Geology, and was awarded an MBA
from the Scottish Business School at Strathclyde University. He has worked in
mining and exploration throughout his career, having held senior management
positions with Amax Exploration Inc. and the Robertson Group PLC. Mr. Newall is
a co-founder and has been President and Director of the Company since its startup
in 1996. He is also a non-executive Director of Baker Steel Resource Trust Limited.
Robert Harding
Lead Independent Director 1, 3
Mr. Harding is a Director of Brookfield Asset Management (Chairman from
1997–2010). He began his career at a major accounting firm before joining
Hees International (now Brookfield) where he served in progressively senior
roles including Controller, Chief Financial Officer, Chief Operating Officer, and
ultimately, Chief Executive Officer in 1992. He graduated with a Bachelor of
Mathematics from the University of Waterloo in 1980 and received his Chartered
Accountant designation the following year. Mr. Harding previously served on the
boards of Manulife Financial Corporation, Norbord Inc. and NexJ Systems Inc.
Andrew Adams
Independent Director 1,3
Mr. Adams obtained his degree in Social Science from Southampton University and
qualified as a Chartered Accountant in the United Kingdom in 1981. He worked for
the Anglo American group of companies for 12 years up to 1999, his final position
being Vice President and Chief Financial Officer of AngloGold North America based
in Denver, Colorado. Mr. Adams worked for Aber Diamond Corporation as Vice
President and Chief Financial Officer from 1999 to 2003. Currently he serves as a
non-executive Director of Torex Gold Resources and TMAC Resources Inc.
1 Audit Committee
2 Compensation Committee
3 Nominating and Governance Committee
4 Environmental, Health and Safety Committee
106
First Quantum Minerals Ltd. 2018 Annual Report
DIRECTORS
Paul Brunner
Independent Director 2,3,4
Mr. Brunner served as President and CEO of Boart Longyear Company (USA), a
provider of drilling services, tools and equipment for the natural resource industry,
the construction and quarrying industries and industrial markets worldwide, from
2004 to 2008. During his 21-year career with Boart Longyear, Mr. Brunner held
several senior positions including Managing Director – Boart Longyear Limited
(South Africa); Regional Director – Boart Longyear Limitada (Chile/Peru); and,
President – Boart Canada Ltd. Prior to Boart Longyear, he spent most of his career
working at mining operations in Northern Canada. Mr. Brunner holds an MBA
from Harvard Graduate School of Business Administration and is a mining
engineering graduate from the Colorado School of Mines. He also attended the
British Columbia Institute of Technology with a focus on mining.
Kathleen Hogenson
Independent Director 2,4
Ms. Hogenson is the Chief Executive Officer of Zone Oil and Gas, a company she
founded in 2008. She is also an independent director at Verisk Analytics, a New
Jersey based publicly traded data analytics and risk assessment firm and previously
served on the board of Parallel Petroleum LLC and in an advisory role at Samsung
Oil & Gas, LLC and Samsung C&T from 2008 to 2015. She also serves on the
Advisory Board of The Women’s Global Leadership Conference and was a speaker
at the Harvard Business School Women’s Conference. Ms. Hogenson earned a
Bachelor of Science in Chemical Engineering from Ohio State University.
Simon Scott
Independent Director 1,4
Mr. Scott has some 20 years of experience in the mining industry. Between 2010 and
2016, he was Chief Financial Officer of Lonmin PLC, a London Stock Exchange listed
platinum mining company, and was acting CEO between 2012 and 2013. Prior to
that, Mr. Scott was Chief Financial Officer of Aveng Limited, a Johannesburg Stock
Exchange listed construction company providing products and services to the mining
industry globally. Mr. Scott also held a variety of senior management positions in
Anglo American Platinum Limited including as acting CFO. His early career was spent
in various financial positions, including as CFO Southern Africa for JP Morgan Chase.
Mr. Scott is a Chartered Accountant and holds degrees in both accounting and
commerce from the University of the Witwatersrand in South Africa.
Peter St. George
Independent Director 1,2
Mr. St. George worked in the investment banking industry for over 30 years,
holding senior positions in the United Kingdom and Australia. He was Managing
Director and Chief Executive/Co-Chief Executive Officer of Salomon Smith Barney
Australia and its predecessor, Natwest Markets Australia, from January 1995 to
mid-2001. Up to 1994, he was the Managing Director Corporate Finance Natwest
Markets, having previously been a Director of Hill Samuel & Co. Limited, both
London headquartered merchant and investment banks. He is currently a non-
executive Director of Dexus Property Group, an ASx-listed Australian property
group specializing in office, industrial and retail properties. He has also served on a
number of other public and private company Boards in Australia. Mr. St. George
qualified as a Chartered Accountant in South Africa and holds an MBA from the
University of Cape Town.
First Quantum Minerals Ltd. 2018 Annual Report
107
SHAREHOLDER INFORMATION
MANAGEMENT AND OFFICERS
OF THE COMPANY
Philip K.R. Pascall
Chairman of the Board,
Chief Executive Officer
AUDITORS
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
United Kingdom
EXCHANGE LISTINGS
Common Shares
Toronto Stock Exchange
Symbol: FM
Depository Receipts
Lusaka Stock Exchange
Symbol: FQMZ
ANNUAL MEETING OF
SHAREHOLDERS
Thursday May 9, 2019
At 10:00am EDT
TMX Broadcast Centre
130 King Street West
Toronto, Ontario
M5X 1J2
Clive Newall
President
Wyatt Buck
Director, Operations
Hannes Meyer
Chief Financial Officer
Sarah Robertson
Corporate Secretary
Juliet Wall
General Manager, Finance
Zenon Wozniak
Director, Projects
TRANSFER AGENT & REGISTRAR
Computershare Investor Services Inc.
510 Burrard Street, 3rd Floor
Vancouver, British Columbia
V6C 3B9 Canada
Email: service@computershare.com
Toll-free in North America:
+1 800 564 6253
Outside of North America:
+1 514 982 7555
108
First Quantum Minerals Ltd. 2018 Annual Report
CORPORATE DIRECTORY
CONTACT US
www.first-quantum.com
info@fqml.com
Registered Office
14th Floor – 543 Granville Street
Vancouver, BC
V6C 1X8 Canada
Tel: +1 604 688 6577
Toll-free: +1 888 688 6577
Fax: +1 604 688 3818
Head Office
Canada
330 Bay Street
Suite 1101
Toronto, ON
M5H 2S8 Canada
Tel: +1 416 361 6400
Toll-free: +1 877 961 6400
Fax: +1 416 368 4692
Corporate Offices
United Kingdom
4th Floor
The Charlotte Building
17 Gresse Street
London W1T 1QL
Tel: +44 207 291 6630
Fax: +44 207 291 6655
Australia
L1 24 Outram Street
West Perth, Western Australia 6005
Australia
Tel: +61 (0)8 9346 0100
Fax: +61 (0)8 9226 2522
South Africa
2nd floor
Building 3
16 Desmond Street
Kramerville
Johannesburg 2090
South Africa
Tel: +27 11 409 4900
Fax: +27 11 452 5323
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Contents
DELIVERING
C
GROWTH
C
DELIVERING
COBRE PANAMA
2
LETTER TO SHAREHOLDERS
OPERATIONS AND PROJECTS
4
8
www.first-quantum.com