First Quantum Minerals Ltd FM
Q4 2012 Earnings Call Transcript
Transcript Call Date 03/06/2013

Operator: Good morning, ladies and gentlemen. Welcome to the First Quantum Minerals Fourth Quarter and Yearend Results Conference Call.

I would now like to turn the meeting over to Mr. Clive Newall, President. Please go ahead, Mr. Newall.

Clive Newall - President and Director: Thanks very much, operator, and thanks to everybody who are joining us today. On the call with me from our finance department, Hannes Meyer, CFO; Juliet Wall, General Manager of Finance; (Emma Cowdrey), Senior Manager of Financial Reporting; and Sharon Loung, Director of Investor Relations.

Following my opening comments, Hannes will give a brief review of the financial results for the quarter, which were published yesterday. Please note there are some slides that accompany this review. They are available on the home page of our website at www.first-quantum.com and can be accessed either on the events section or on the Q4 conference call button under the news section. Following the review of the financials, we'll open the lines to take your questions.

As usual, before we begin I must note that over the course of this conference call, we'll be making several forward-looking statements, and as such, I encourage you to note the risk factors particularly to our company which are detailed in our annual information form, and available on our website at www.first-quantum.com and on www.sedar.com.

Now to begin the review; we reported comparative net earnings of $186.7 million, or $0.39 on a per share basis, for the quarter and $555 million, or $1.17 per share, for the year. These strong results were underpinned by record production at Kansanshi, solid operations at Guelb Moghrein, and new commercial operations at Ravensthorpe and Kevitsa.

As you may recall, we did a lot of work at Kansanshi during most of 2012 to expand the available mining areas in the pits, both near-term operations as well as preparing it for the capacity expansion to 400,000 tonnes of copper production a year. That work combined with the first phase expansion of the oxide circuit were the main contributors to the mine's record performance.

With construction already started on the recently approved sulphide expansion and the completion of the copper smelter slated for commissioning in the second half of 2014, together with the completion of the Phase 2 oxide expansion in Q3, 2013 looks that it will have good results ongoing at Kansanshi.

At Guelb Moghrein, the optimization works done there have yielded very good results. It is particularly pleasing, given there's such a difficult operating environment in desert conditions. Looking forward, Guelb's output should continue to benefit from efforts to expose more ore and consistent steady state operations.

Ravensthorpe's first full year of commercial operations was, of course, resounding success for us. In a nutshell, production in line with plan, unit cost of production below expectations, and even in this low nickel price environment, the mine generated over $82 million of operating cash flow. I think it's fair to say that our first experience of operating in an Arctic winter also turned out well, as the almost 45 visitors that we took up there to the site visit in mid-December can attest.

Throughput was above expectations. However, we had to work through some very weathered material, which has affected recoveries, and therefore output. This should be resolved by the second half of this year as we work through this weathered material. In the meantime, our mining activities are ramping up and our application to increase the improved throughput rate is under review by the relevant authorities.

On the project side, construction of both Sentinel and the copper smelter is progressing well and on schedule to meet their completion targets. The Enterprise project, nickel, got Board approval in December of last year. This project's being designed with a capacity to treat ore at a rate of 4 million tonnes per annum at a processing facility that will be constructed as an integral part of the Sentinel operation, located just 12 kilometers away.

This will allow significant operational synergies and the sharing of infrastructure. So far, the longest lead equipment items, being the SAG mill and ball mills, have been ordered and engineering design is underway. So as you can see, both our operations and projects have all been going according to or exceeding plan. But I can safely say that the topic that has garnered the most interest over the past few months has been our offer to the Inmet shareholders to create a new leader in global copper.

We believe we have made Inmet shareholders a compelling offer that has considerable upside. The offer stands at $72 per Inmet share with each shareholder having the option to elect to receive cash, First Quantum shares, or a combination of the two. As it stands right now, we have to extend the tender date to March 11 as we await receipt of Investment Canada approval. We are hopeful this will be within the next few days.

It's fair to say that we've received strong support from both our and Inmet shareholders who see the value in our vision, which will launch the combined company as the go-to copper producer. However, as we disclosed earlier, we've been granted access to the Cobre Panama site and data room. Both companies are at the moment bound by a Non-Disclosure Agreement, and therefore we will not be making any further comment in regards to this offer during this conference call.

So with that if I could hand over to Hannes to go through the financial.

Hannes O. Meyer - CFO: Thanks, Clive, and good day to everyone. Turning to the first slide labeled Q4 2012 highlights, it's on Page 3 of the presentation. Group revenue for the quarter of $775 million was up $207 million, or 37%, compared to Q4 2011. It is

Benefitting from the commissioning of the regrind project at Kansanshi. Overall gross profit benefitted from the higher copper prices and sales volumes together with cost savings at Guelb as a result of the work to optimize the plant's operation.

Turning to the next slide, Slide 4 labeled full year 2012 highlights. Group revenue was up 14% compared to full year 2011 and included $388 million from Ravensthorpe, and Kevitsa contributed $72 million.

Underlying revenue was down 4% against full year 2011, driven by lower realized copper prices that were partially offset by higher copper sales volumes. The strong year of production, we produced 307,000 tonnes of copper, up 16% against 2011, driven by higher grade in the sulphide circuit at Kansanshi, as well as a change in the production between mix and sulphide ore.

Nickel production of 36,800 tonnes was a result of steady state production at Ravensthorpe supported by 3,900 tonnes at Kevitsa, reaching commercial production in August. Full year gross profit was lower than 2011, primarily due to lower realized copper prices and increased Zambia royalty rates.

Moving to the next slide on production and sales, Slide 5. As detailed in the graphs at the bottom of the slide, the Group delivered another solid quarter of copper production predominantly due to near record production at Kansanshi, higher milling volumes at Guelb, and the addition of Kevitsa production.

Gold production was 48% higher than Q4 of 2011, benefitting from Kansanshi commissioning, the regrind project in the quarter and Guelb achieving higher throughput rates. Kevitsa also contributed 2,000 ounces of gold to the Group results.

Quarterly production at Kevitsa was 2,000 tonnes of nickel and 3,000 tonnes of copper, contributing 4,000 tonnes of nickel and 8,000 tonnes of copper for the full year Group result.

Throughput rates at Kevitsa continue to exceed expectations; however, it is important to note that recoveries are temporarily below life of mine targets due to the weathered nature of the ore currently available in the mine pit. Recoveries are expected to increase as mining progresses deeper into the ore body this year.

Turning to the next slide; financial overview on Slide 6. When compared to Q3 of 2012, gross profit benefited marginally from higher copper prices and gold prices. Higher gold sales volumes were in line with the higher gold production and lower operating costs. This was partially offset by lower copper sales volume at Kansanshi with a buildup of concentrate stockpile due to lack of Zambia's smelter capacity in the quarter. A higher depreciation charge also incurred at Kevitsa due to a full quarter of operation.

Full year comparative earnings were only 4% below full year 2011. Lower copper prices and an increase in Zambia royalty rates were partially offset by higher copper and gold sales volumes and the benefit from Ravensthorpe and Kevitsa.

Effective tax rate for Q4 2012 was low due to recognizing non-recurring items relating to previous tax losses. For a more detailed discussion on operating profit, please refer the next slide, under the Slide 7.

The waterfall chart details the Group’s operating profit performance in the quarter compared to Q4 2011. Of note are the benefits received from higher copper prices, higher copper and gold sale volumes, and favorable cash costs.

Ravensthorpe and Kevitsa operations contributed $9 million in gross profit in the quarter. With respect of sales and volume margin, Q4 2012 benefited from higher copper sales of 9,000 tonnes compared to the corresponding quarter in 2011, and this excludes Kevitsa. This generated incremental margin of $28 million.

Zambian royalty rates increased with effect from April 1, 2012. Copper royalty rates rose from 3% to 6% of gross copper revenue and gold royalty rates from 5% to 6%. This added additional royalty cost of $15 million compared to Q4 2011. Full year impact of this increase was $46 million. Exploration costs are $6 million lower. Depreciation was $6 million lower.

Then if I turn to the next slide, Slide 8 on C1 costs; Group C1 cost for the quarter is $1.42 per pound, it’s $0.11 lower than Q4 2011 and $0.02 lower than the previous quarter. Kansanshi copper C1 cost was $0.01 lower than last quarter. Guelb Moghrein C1 cost was $0.50 lower than Q4 2011, due mainly to an increase in plant's maintenance in Q4 2011 combined with lower treatment and refining charges in this quarter.

Ravensthorpe Q4 2012 Nickel C1 cost was $0.38 lower than the previous quarter, driven by lower sulphur costs and improvements in the processing circuit, partially offset by an increase in mine development activity.

Kevitsa Nickel C1 cost for the quarter was $6.37 per pound and the Copper C1 cost for the quarter was $1.75 per pound, and that’s higher than last quarter due to expected ramp up in the mine’s cost base and lower by-product credits in the current quarter.

Group C1 costs for 2013 are expected to be $1.50 to $1.60 per pound of copper and $5.50 to $6 per tonne of nickel.

Turning to the next slide, quarterly net cash flow movement, and that’s Slide 9. Group's net cash balance at the beginning of the quarter was $320 million, with the net cash flow of $408 million the Group ended the year in a net debt position of $88 million.

Working capital outflow, $164 million, was primarily the result of inventory increases of finished goods at both Kansanshi, Ravensthorpe and Kevitsa, and some offsite ore stockpiles at Kansanshi.

Tax paid for the quarter was $85 million, being the second 2012 installment for Kansanshi. During the quarter, $420 million was spent on capital expenditure, which included $107 million in respect of Sentinel, $68 million for Kansanshi copper smelter, and $48 million for the Phase 2 oxide expansion at Kansanshi. $23 million in dividends were paid to ZCCM in the quarter, the minority interest holder of Kansanshi.

Turning to next slide; market guidance, Slide 10. Table shows that Group has made its core cash cost production, capital expenditure guidance released at the same time last year due to the first year of operation at Ravensthorpe and the successful commissioning of the Kevitsa operation in August.

For 2013 we expect the Group Copper C1 cost to be, as stated before, between $1.50 to $1.60, and nickel between $5.50 to $6 per tonne. CapEx spend in 2013 will focus on progressing Kansanshi smelter and Sentinel projects. Guidance on expected production for 2013 is between 302,000 tonnes to 330,000 tonnes of copper, between 40,000 tonnes and 45,000 tonnes of nickel, and 190,000 ounces and 215,000 ounces of gold. Copper production in 2013 is expected to include throughput benefit from the oxide expansion at Kansanshi. Nickel production in 2013 will include a full year of operation at Kevitsa.

Thank you. I will hand back over to Clive.

Clive Newall - President and Director: Thanks very much, Hannes. So, Teresa, could you open the lines for questions, please?

Transcript Call Date 03/06/2013

Operator: Matt Murphy, UBS Securities.

Matt Murphy - UBS Securities: You talk about concentrate inventories at Kansanshi remaining at year-end level. How sure can you be that they won't grow over the course of the year?

Clive Newall - President and Director: The smelting capacity in Zambia, of course, is well understood, and we have a fairly good knowledge of the volumes that the individual smelters will take during the year, and of course, the sort of levels of production we have. So, it looks like we will be able to remain at these levels and our inventory shouldn't grow. That is, of course, always subject to the usual, unexpected failures at smelters, things go wrong from time to time and they're not entirely at all in our control. But we can't be absolutely certain as it seems, but for the moment it looks like they will remain at these levels or should be able to lower the inventory hopefully over the course of the year.

Matt Murphy - UBS Securities: And that's under the scenario where you continue to defer high acid-consuming oxide?

Clive Newall - President and Director: Well, that's going to be continuing for other reasons. That’s until our own smelter comes online, there is just a shortage of available acid at the right price in the region or at any price, in fact. But acid is expensive at the moment and it makes more sense economically to stockpile of high-grade high-acid consuming ores until we have essentially free acid available in 18 months' time or definitely 18 months’ time.

Matt Murphy - UBS Securities: So the current guidance, cost guidance and production guidance, does assume that that material is deferred?

Clive Newall - President and Director: Yes, but also there's an element of conservatism in our cost guidance because of the fact that we are dependent on third parties for acid and smelting capacity.

Matt Murphy - UBS Securities: Then just one on Kevista cost. Given it’s the first full quarter of commercial production, are these what you see as fairly steady-state costs, or are they higher? There was some mention of seasonal electricity tariff and contractor costs?

Clive Newall - President and Director: No, we're also still in oxidized ore, and until we've been operating using fresh ore for a period of time, only then will we know exactly what the ongoing costs will be.

Operator: (Andy), Goldman Sachs

Andy - Goldman Sachs: I just had one question. Clive, when you look at all the assets that majors are putting up for sale, be it IOC or bunch of nickel assets, I mean, are you wholly focused on the Inmet situation or do you also see an interesting opportunity there? Thanks.

Clive Newall - President and Director: There is no doubt, there is likely to be some interesting assets on the market certainly if you believe the words of the CEOs of most of the major mining companies who spoke at the BMO Conference last week. So there will be opportunities, it would appear. So we do have alternatives, but we are very confident that the Inmet deal will go through, but if it doesn’t there are plenty of things we can do otherwise.

Operator: Alex Terentiew, Raymond James.

Alex Terentiew - Raymond James: If my math is correct, it looks like you may be building bit of a nickel inventory at Ravensthorpe. Have there been any issues with selling the products in terms of a quality issue or is this just a matter of timing?

Hannes O. Meyer - CFO: We don’t have issues in terms of selling the product due to quality. I think last year if we look at the contracts we put in place, it was our first year, so we probably are a bit conservative on our contracts, and coming towards the end of the year I think we closed most of our contracts. Currently we have good OpEx and we probably expect this to be clear by around May to June this year, we should sell most of that inventory.

Alex Terentiew - Raymond James: Second question, can you give us bit of an update on this timing of bringing the first and second power lines to Sentinel projects?

Clive Newall - President and Director: I mean, some of this is subject to confidential negotiations between ZESCO and the tenderers to the power line project. But essentially they are all in and being reviewed. Well, I can't talk about detail, the bids are in line with our thinking. The timetable is still the same, where the first line comes in the first half of 2014 and the second line in the second half. So there's nothing changed in our time schedule at all as a result of the power line. So, it's on track.

Operator: John Hughes, Desjardins Securities.

John Hughes - Desjardins Securities: Just a couple of quick ones. At Guelb, the SAG mill project, can you give us an idea on the initial capital estimate that's being looked out there?

Hannes O. Meyer - CFO: I think it's about $30 million, let me just try and dig that out quickly.

Clive Newall - President and Director: Sorry, we can confirm that in a minute, John. We can confirm that in a moment if you like, John.

John Hughes - Desjardins Securities: Yeah, sure. I am just wondering, I am trying to get a hand on where your debt is going to be at the end of the year given your $2 billion capital program?

Clive Newall - President and Director: Can you say that again, John?

John Hughes - Desjardins Securities: Sure. I am just trying to get a handle from a balance sheet perspective where your debt is going to be at the end of the year, and I am wondering with your $2 billion in capital program for this year, how much is going to be debt financed?

Hannes O. Meyer - CFO: Let me just get back to the first one, the Guelb, it is $20 million the mill upgrade. Then it all depends on -- in terms of debt, it depends on your assumptions on copper prices and the like. (35 ounce) and sort of maybe in a different way, at the end of December, we had $1 billion of undrawn facility, so we saved about $2 billion of capital expenditure for the next year. So at Kansanshi, we had $1 billion facility undrawn, we had $250 million at Kevitsa available, plus some cash in the Company as well, and we are generating operating cash flow from our existing operations. So it will be a combination of those. I’m probably going to avoid the exact number, because it always depends on whatever assumptions you use on the copper price. So we do expect to fund our projects with facilities in place and our production as we detailed.

John Hughes - Desjardins Securities: But if nothing changed in economics going forward from the fourth quarter, would we be drawing the full $1 billion on that facility or sort of $500 million, $750 million, something along those lines?

Hannes O. Meyer - CFO: Our expectation for peak funding is in about December 2014. So, you will see an increase in debt from now over the next 24 months. You will see an increase in this Company in the net debt levels, so that will continue. So you should expect some drawdown in the near future on those facilities.

John Hughes - Desjardins Securities: Is there a maximum sort of debt to total cap that you are willing to – in terms of balance sheet pressure, would you be – is it sort of 30% or 40% or is there any sort of corporate guide that way?

Hannes O. Meyer - CFO: We don't have a specific corporate guide, but I think if you look at our peer groups, sort of the 30%, 35% is what they are normally comfortable with.

John Hughes - Desjardins Securities: That's great. I appreciate that direction. Sort of last question, just it might be a little granular, but at Kansanshi for this year is there – I haven't seen it anywhere in any of the fourth quarter publications, but is there a tonnes milled number for sulphide mix and oxide in terms of that matches your copper production expectations?

Clive Newall - President and Director: The (whole for) '13 or just for the quarter or…

John Hughes - Desjardins Securities: No, sorry, for 2013 the tonnes you expect to mill at Kansanshi?

Hannes O. Meyer - CFO: I think at Kansanshi it's pretty much at the same sort of rate as this year, so the sulphide only comes in, in bit more than a year's time so you shouldn’t see much increase…

Clive Newall - President and Director: The middling rates -- the only expansion it will contribute it's all this year, 2013 is the Phase 2 expansion in the SX/EW plant, but you are only going to get maybe two-thirds of a quarter, because it's going to be commissioning in the third quarter. But as we have said several times, we are likely to become strained by acid availability once that comes on. So if you assume it's only going to come in at two-thirds of one quarter, it's not a hell of a big change.

Operator: Kerry Smith, Haywood Securities.

Kerry Smith - Haywood Securities, Inc.: Could you tell me the $2 billion CapEx how that breaks out roughly between, just the bigger chunks of it, between the different projects?

Hannes O. Meyer - CFO: It's about $100 million on the oxide expansion at Kansanshi. That's $400 million at the smelter, little bit more than $800 million, $823 million at Sentinel, and $215 million at the sulphide expansion at Kansanshi, so that's about one and a half of it.

Kerry Smith - Haywood Securities, Inc.: The last one is 215, not 250.

Hannes O. Meyer - CFO: 215.

Kerry Smith - Haywood Securities, Inc.: Okay.

Hannes O. Meyer - CFO: Then there are various other smaller projects then as well.

Kerry Smith - Haywood Securities, Inc.: Then when you get into 2014, how much CapEx then would be left to spend at Sentinel and on the smelter, would it all – would the smelter all be done next year, or this year, I mean?

Clive Newall - President and Director: Yeah, the smelters complete in mid-2014.

Kerry Smith - Haywood Securities, Inc.: In mid-2014?

Hannes O. Meyer - CFO: Yes, mid-2014.

Kerry Smith - Haywood Securities, Inc.: So how much CapEx would roll into 2014 on those two projects roughly?

Clive Newall - President and Director: We have – do you want to go through the numbers?

Hannes O. Meyer - CFO: Let's just pick that up quickly.

Clive Newall - President and Director: The balance in 2014 is $81 million.

Kerry Smith - Haywood Securities, Inc.: For the smelter, Clive?

Clive Newall - President and Director: For the smelter, yes. The balance on Sentinel is $630 million.

Kerry Smith - Haywood Securities, Inc.: Then just for the main projects, like for Sentinel and the expansion at Kansanshi and the smelters, you said they are all on schedule. Are they all still on budget as well?

Clive Newall - President and Director: Yeah, absolutely, we brought forward the smelter, as you may be aware, that’s been inching its way forward. The sooner we can get it on line, the better, so it's – every day counts on that one.

Kerry Smith - Haywood Securities, Inc.: What is the current spend like in percent at the smelter? You must have spent at least half the capital probably or...

Hannes O. Meyer - CFO: Just have a look at last quarter.

Clive Newall - President and Director: I am sure it's committed, we probably committed at least half, but we probably haven't spent that.

Hannes O. Meyer - CFO: So on the spend side, we have spent $183 million at the smelter. So there's another $220 million committed.

Kerry Smith - Haywood Securities, Inc.: That's as if you (have right to that).

Hannes O. Meyer - CFO: Yeah.

Operator: Oscar Cabrera, Bank of America Merrill Lynch.

Oscar Cabrera - Bank of America Merrill Lynch: I would just go over the figures that Kerry was asking about on Sentinel. Confirm that 2013 the CapEx is $823 million, and then you said $630 million in 2014?

Clive Newall - President and Director: Yeah.

Oscar Cabrera - Bank of America Merrill Lynch: Is there any balance left thereafter or is that the end of the project?

Clive Newall - President and Director: It will be very small, because it's mechanically complete and the final stage is commissioning by the end of '14, So there will be a little bit of run over into – yeah, but nothing significant.

Oscar Cabrera - Bank of America Merrill Lynch: Can you please remind me, the life of mine cash costs for that deposit, now that you have the nickel circuit in it, are you going to be reporting this on a byproduct basis or on a co-product?

Clive Newall - President and Director: Not the nickel, we haven't – that decision hasn’t been taken, but it's likely to be without a byproduct, right?

Hannes O. Meyer - CFO: Yeah.

Clive Newall - President and Director: Just copper – separate copper and separate nickel operation. We're giving quite a broad range on cost at Sentinel for the moment, because we're still doing a lot of work on the benefits of the fully electric operation there. So it's sort of a $1.20 to $1.40.

Oscar Cabrera - Bank of America Merrill Lynch: That would be just on the copper side, right?

Clive Newall - President and Director: Yeah, just copper alone.

Oscar Cabrera - Bank of America Merrill Lynch: Then on the nickel side just, I don't know if you had any further conversation with the Government of Zambia with regards to the concentrate nickel exports in the project. Are these going to be taxed at a higher rate like we had in copper? Or are they going to…

Clive Newall - President and Director: The export duty is essentially only additional tax. Are you talking about the variable tax on top of corporate tax?

Oscar Cabrera - Bank of America Merrill Lynch: There was a surcharge on copper concentrate, that’s been exported out of the country.

Clive Newall - President and Director: The export duty, yeah. I mean, we assume that, that will apply as a general principle, but we are continuing to discuss the issues with the Government of Zambia, because there is no smelting capacity available in Zambia. Nickel smelting capacity that is.

Oscar Cabrera - Bank of America Merrill Lynch: I'm interested in your comments about the other avenues, regardless of what happens to the Inmet offer, your strategy has focused on basically acquiring assets that are low price, and then enhancing value with your expertise. What type of assets would you be looking for assuming that the – just assuming that the Inmet acquisition doesn’t go ahead? What type of assets would you be interested in?

Clive Newall - President and Director: Well, I’ll reiterate that we are very confident that we'll close the Inmet transaction. But with regard to other assets, I mean, it's exactly the same model, Oscar, where we want to leverage off our unique capability of developing projects more efficiently and lower costs than everybody else. So we are looking for development projects.

Oscar Cabrera - Bank of America Merrill Lynch: Would there be any preference in as far as diversifying or lowering your sovereign risk or perceived sovereign risk?

Clive Newall - President and Director: I think geographic diversification has always been a major part of our strategy. It's just that the quality of assets in the copper belt are very good. So it's quite hard to compete with them sometimes, but no, geographic diversification is important. We are very concentrated.

Operator: Cliff Hale-Sanders, Cormark Securities.

Cliff Hale-Sanders - Cormark Securities: I just have a couple of questions. First on Kansanshi, I just wanted to follow-up on the comments before about the high acid-consuming material. In the write-up, you seem to imply that there is kind of a risk to the oxide expansion not being fully utilized. Is that a risk to your production guidance, or is that more of a 2014 sort of opportunity here if the asset acid price continues to be high?

Clive Newall - President and Director: No, I'd say it's built into all of our assumptions. But the acid shortage and acid rationing will continue until our own smelter comes on line. So that's all built into the numbers that we've been talking about.

Cliff Hale-Sanders - Cormark Securities: Just the way it's written it says, you are still considering it, so that sounds like you've already made that choice.

Clive Newall - President and Director: Cliff, as I say, we are dependent or it depends on just how much third-party acid is available. When the time – when we get the second Phase 2 into production, if there's lot of acid available we may have a different approach, but the likelihood is it will be more or less the same. We'll have limited amount of acid available on top of our own produced acid.

Cliff Hale-Sanders - Cormark Securities: Just following up on Kansanshi, what exactly is the smelter bottleneck, just more concentrate available? Because what I am guiding to is, obviously if there continues to be a bit of a bottleneck, will you be forced to start selling concentrate and obviously getting hit by the export duties?

Clive Newall - President and Director: No, we try to avoid that at all cost. It's not – anybody didn't trust for us to April from a Zambian perspective. They lose the tax because we are spending all that money on freights and all those things outside by exporting the concentrate. So we would all, it might be in the government as well, rather we process in-country, so it's always our first choice.

Hannes O. Meyer - CFO: I think maybe just to add, Clive, is that in December two of the smelters had scheduled shutdowns. So that took away a week or 10 days of production capacity of those smelters, and we had good production from our Kansanshi operation. Looking at this year we've got increased allocations at some of these smelters, so we will look at depleting that stockpile in the near future.

Cliff Hale-Sanders - Cormark Securities: So it was more of a unique event in Q4 with those two smelters?

Clive Newall - President and Director: It was a combination of things. I mean, you can see that Kansanshi's been putting out a lot of concentrate, producing a lot of concentrate at a time when the smelting capacity was a little bit constrained for a variety of reasons.

Cliff Hale-Sanders - Cormark Securities: Just one more question and I'll let it go on to the next caller. Just playing a bit of devil's advocate here, what exactly is the, I guess, all-in cash cost at Ravensthorpe, given where nickel prices are? Is there a point where you would maybe that was kind of set at the same producer if nickel prices were to soften if the market continues to be soft? So kind of looking at what sort of capital spend or sustaining that's required at Ravensthorpe.

Hannes O. Meyer - CFO: Our sustaining capital spend is relatively low at Ravensthorpe. I mean, so we see one cost regarding to, I think, just around $6 a pound. Trying to dig that number out again, but it is generating cash. I mean, as Clive mentioned earlier, it is generating cash. We don’t have any other plans at the moment with it. It’s operating as planned and designed.

Clive Newall - President and Director: We have a slightly longer term project that may include a refinery at some point, which would have a significant impact on the payability of the project and direct impact on costs, of course.

Cliff Hale-Sanders - Cormark Securities: So at this point even with nickel at $7.50 you are not concerned about all-in, (free cash).

Clive Newall - President and Director: No, no, I mean, it’s making cash.

Operator: George Topping, Stifel.

George Topping - Stifel: Hannes, the tax in Q4 was a bit less than what we were expecting. We see that was – looks like rebates on a book basis from Guelb and Ravensthorpe. Could you tell us if there is tax rolling over into Q1?

Hannes O. Meyer - CFO: There shouldn’t be tax rolling over into Q1. It was more sort of a feature of yearend review of the things as we got operations into Kevitsa, as we got that into operation. Looking at the historical exploration expenditure, we recognized that that deferred tax asset and the corresponding gain in the income statement; similar with the Sentinel we've done the same. Ravensthorpe, we had a look at the previous filings and there, there was bit of a deferred tax adjustment as well a benefit, but it's mainly yearend and one-off event, so you shouldn’t see anything else in this quarter.

George Topping - Stifel: And then, Clive, media reports had you negotiating with the government to export some concentrate to alleviate the smelter. Can you tell us if that’s – supposedly if that's true, and secondly how did those negotiations go?

Clive Newall - President and Director: Well, as it transpired, we don't need to export any concentrate. We are not increasing stock levels of concentrate now, and in fact drawing them down slightly. But there was discussions, yeah, with the government with regard to the export duty, when the smelters were down, the crisis time when both smelters were down. I mean, bear in mind, those two smelters between them, on an annualized basis, they treat about 600,000 tonnes, 700,000 tonnes of concentrate between the two of them. So when both of them were down, it has a knock-on effect.

George Topping - Stifel: I was more interested in how they interacted, whether they were supportive, good partners or whether it was stonewalling?

Clive Newall - President and Director: Well, I can't reveal the contents of negotiations with the government, but it got overtaken by events, I think it's fair to say.

George Topping - Stifel: Then just lastly, did you put out anywhere the byproduct prices you are using for the 2013 guidance on your byproduct copper costs?

Hannes O. Meyer - CFO: I don't think we’ve put the gold out. The gold probably is in the 16.50 in that.

Clive Newall - President and Director: Hang on. We are just getting the numbers we used, George.

Hannes O. Meyer - CFO: Yeah, the gold was 15.80 sales and (580) on the gold side.

Juliet Wall - General Manager, Finance: Platinum about 14.10, palladium about 5.80.

Operator: Ian Rossouw, Barclays.

Ian Rossouw - Barclays: I just had a couple of questions. Firstly on Kansanshi, just looking at your Q4 numbers, your – I guess, on the sulphide and mix side your grades are sort of trending upwards, and on sort of average it looks like your grades are around 1.3. If you compare that to the technical study you guys released in January, that seems to suggest that the grade should actually come down quite sharply over the next sort of two to three years. I mean, should we take that study as the sort of new mine plan, or is there some scope for you guys to change the plans going forward?

Clive Newall - President and Director: Ian, no, you shouldn't take that as the new mine plan for, well, there’s a number of reasons. But the biggest one is, of course, because it’s 43-101 compliant, it doesn't include any inferred ore. It, in fact, includes all inferred ore as waste. So, there's a whole bunch of grade and cost implications of that. We know over time the proportionate of inferred ore that converts to measured and indicated.

Ian Rossouw - Barclays: In terms of the near-term grade profile then, do you expect to stay at this current level you’re mining, around…?

Clive Newall - President and Director: Yeah, I mean, it moves around a little, but generally because the pit is now much more developed, we've done hell of a lot of work as I said earlier on, it also allows us to mine the ore bodies much more optimally. So we'll hopefully get a much more steady grade and these grades will persist. So that studies, you need to take it for what it is, it is 43-101 compliant. So there are number of aspects of it, which don’t actually reflect the reality of mining at Kansanshi.

Ian Rossouw - Barclays: Just on the guidance, I mean, the range you gave seems to suggest that there's a possibility that copper production and gold production could actually decrease in 2013. I mean, what's the reason for that specifically, is it just grade related or…

Hannes O. Meyer - CFO: We are talking specifically now at Kansanshi, and that’s mainly looking at our ore smelting capacity. If we have a hold up in inventory, we have to look at what we do in future around these things. So I think there is a bit of conservatism both into those and assumptions.

Ian Rossouw - Barclays: Lastly, there are some comments in news report that ZCCM CEOs said that they will make a decision this year whether they'll exchange their stake in Kansanshi into First Quantum shares. I just wanted to check with you guys if you’ve had any discussions with them in this regard and if you…

Clive Newall - President and Director: These are newspaper reports that we are not quite sure where they originated from, but it does seem to have kicked off a fairly substantial debate. From our perspective, certainly my belief is that it will be great. It very much more closely aligns the government with our shareholders' aspiration. So we think it will be a good idea, but we can't verify what’s been going on and where that story came from.

Operator: Cailey Barker, Numis.

Cailey Barker - Numis: Just a couple of follow-up questions on Kansanshi. I noticed the oxide circuit, the grade seems to come down over the last quarter and the recovery up. Is that what you expect to be maintained through this year and next with the expansion?

Clive Newall - President and Director: The grade coming down, Cailey, is a function of the fact that we are not processing the highest grade material.

Cailey Barker - Numis: So can we assume it's going to come back up? The recovery has also jumped up sort of over 90% -- it’s 90% I think you pulled in for this quarter.

Hannes O. Meyer - CFO: There's also bit of a high acid consumption material which comes at higher grade, but probably not as good a recovery.

Clive Newall - President and Director: Yeah, I am not sure we can answer that precisely. We'd have to dig into that one, Cailey, to give you the exact answer. But it’s a trade-off between acid consumption, recovery and grade, and it's a balancing act all the time on the oxide and mixed circuits.

Cailey Barker - Numis: When you go ahead with the – when these expansions come in, do you expect the grade in recoveries to remain stable, or will there be a change?

Clive Newall - President and Director: When the new – the Phase 1 expansion comes in or just the oxide expansion?

Cailey Barker - Numis: Both. I mean, obviously, tonnage is going to go up, but do you expect any change in grades or recovery?

Clive Newall - President and Director: Yeah, the recovery numbers shouldn't vary. We are still mining the same ore, and it's going through the same process. Maybe at slightly different ratios, different proportions, but overall, the recoveries in the mixed oxide and sulphide circuit should remain more or less in line with where they are.

Operator: This concludes question-and-answer session. I would now like to turn the meeting back to Mr. Newall.

Clive Newall - President and Director: Well, thanks, operator, and thanks everybody for being on the call today. If there's any follow-up questions, please give myself or Sharon Loung a call and we'll try and help you. Thanks very much and it’s good bye for now until next time.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.