2017 will be remember by Philip K.R. Pascall (Chairman & CEO) as the year FQM advanced its primary objectives. Philip and his team set out to achieve a record copper production, stronger operating performance, a better-structured balance sheet, and a massive copper project within months of commissioning.
According to FQM’s 2017 Annual Report, the company benefitted from rising demand for commodities during the year under review, driven by synchronized growth in the world’s developed economies. For copper, this meant an increase of 30% in its market price and a growing conviction that the global supply of copper was becoming increasingly constrained.
An improving global macro environment for the copper industry bode well for their Cobre Panama project, which is the only significant new supply expected to come on stream in the short- to mid-term. FQM are known for seeking out quality assets and this one in particular has impressed Philip and his team.
On the operations side, Copper production of 573,963 tonnes for 2017 was the highest in the company’s history and marked a sixth consecutive year-on-year increase. Their Sentinel outfit in Zambia’s North Western province was the main contributor performance albeit with strong performances coming out of Kansanshi mine and smelter and the Las Cruces mine.
However, Philip does caution investors by indicating that they have recognized that new economic copper resources are difficult to find and complete to develop. He projects that over the next five years, some of FQM’s operations will close as they are at the end of their economic lives. Therefore, his team is positioning itself as a copper focused company that will continually seek prospects to add to their project portfolio in order to replace depleted reserves whilst preserving their growing production needs.
Philip makes no secret of the fact him and his management team are “shareholder returns focused”. He indicates in the annual report that with new mines on the scale of Cobre Panama being funded from operating cash flow, debt and proceeds from previous metals stream agreements in low copper price scenarios, there focus is to ensure maximum shareholder returns. That is why since 2016, his CFO has completed a number of initiatives to improve the debt maturity profile and liquidity of our balance sheet and are now much better positioned to meet our financial and operating requirements over the next few years.
On Operational and Financial performance, the Company achieved record copper production of 573,963 tonnes in 2017, exceeding guidance and 6% higher than 2016. Sentinel contributed 190,683 tonnes of copper, with a particularly strong performance in the second half of the year, and record production of 73,664 tonnes was achieved at Las Cruces.
Of note was the Kansanshi smelter which achieved record production and throughput in 2017, having treated 1,211,740 dry metric tonnes (“DMT”) of concentrate and produced 297,553 tonnes of copper anode and 1,128,000 tonnes of sulphuric acid in the year. On the Gold front, production of 199,736 ounces was in line with guidance and 7% lower than the prior year mainly due to lower concentrate production at Kansanshi and lower throughput at Guelb Moghrein.
Furthermore, sales revenues increased due to higher copper sales volumes and higher realized metal prices. Sales revenues of $3,310 million in 2017 increased by $637 million compared to 2016, including a $663 million increase in copper revenues partially offset by lower nickel and gold revenues. The increase in copper revenues was due mainly to sales from Sentinel, which contributed revenues of $1,026 million in the year, as well as a higher net realized copper price.
The average realized price for copper of $2.33 per lb for the year was $0.07 per lb higher than 2016, however below the average LME price on account of the Company’s copper sales hedge program, which reduced revenues by $570 million for the year and lowered the net realized copper price by $0.45 per lb.
Comparative EBITDA was $190 million higher than 2016. The Comparative EBITDA of $1,154 million includes $385 million from Sentinel. Comparative EBITDA excludes impairment charges, the impact of foreign exchange gains and losses, fair value adjustments for the time value of collar options, costs associated with moving Ravensthorpe into care and maintenance, loss on disposal of assets and revisions in estimates of closed site restoration provisions.