The EBITDA of First Quantum Minerals (FQM) in 1H2014 increased by 25% compared to the same period last year despite a lower market price. Could you name the main drivers of this success?
Notwithstanding FQM's acquisition of Inmet in 2013 and the increasing price of nickel, both of which will have increased our EBITDA; the key characteristic of FQM is that we are low-cost miners. Of course, our copper sales increased over the period you speak about, but we are also extremely good at seeking out efficiencies, reflected in a reduced C1 cost. Currently, Kansanshi operates in the lower 40-50 cost percentile. This means that, if the price of copper drops, most of the copper operations worldwide would start feeling pressure before Kansanshi does. In the 1990s, the government owned the mines in Zambia and in many other countries, so when the price of copper fell the government persevered with copper production, because the mining industry was the major source of foreign exchange. Now that mines have been privatized, if the price of copper dropped, investors would discontinue high cost operations rather than losing money. As a result, the demand-supply curve would change hopefully pushing the price of copper back up. In 2015, once the smelter at Kansanshi is running and producing sulfuric acid, one of our biggest cost items, will be significantly reduced and FQM will move down to the 25-30 cost percentile. Mines that do run at lower costs than Kansanshi do so, generally, by having by-products as a credit to their costs, and not necessarily by operating more efficiency. Operationally, Kansanshi is one of the most efficient mines in the world, and like Sentinel also includes various cost saving methods, such as trolley assist haulage and in-pit crushing to minimize the use of diesel and reduce costs further.
What percentage of the total revenue of FQM is reflected by Zambia?
Around 51.8% of the revenues are sourced from the country. Zambia remains hugely important for First Quantum despite our continued diversification; our roots run very deeply in Zambia and will continue to do so. Zambia has been the mainstay of FQM's global mining investments, and I do not see that changing in the near future. Notwithstanding that, in the past two years there has been a lot of diversification of FQM operations around the world. Now we have operations in Turkey, Spain, Finland, Australia, and Mauritania, and projects in Panama, Peru, and Argentina. We are diversifying to other minerals like gold and nickel, but First Quantum remains predominantly a copper mining company.
How many metric tons of copper were extracted from the Kansanshi copper mine in 2013?
Last year we mined 270,724 tons of copper from Kansanshi. We will expect to see that number increase to 400,000 tons with the S-3 expansion, although this expansion is currently on hold as it is to be approved by the board in the medium to long term. In addition to that, the Sentinel mine will be producing 280,000 to 300,000 tons of copper per annum once fully operational. Our target is set on producing up to 700,000 tons of copper per year from Zambia. Later in this decade, we expect to be among the top-five producers of copper in the world.
The Trident Project is one of the major projects for First Quantum in Zambia. Could you explain the relevance of this project to your company and the mining industry in Zambia?
Initially, the Trident Project consisted of three resources: Intrepid, Enterprise, and Sentinel—but only Enterprise and Sentinel have been exploited. Sentinel is a pure copper play, and it is exciting for a number of reasons. It is all about scale; the days of high-grade copper discoveries in Zambia are all but gone. The average copper grade at Sentinel is 0.51%, meaning to produce 300,000 tons of copper a year, we will have to move a massive amount of ore. We expect to process up to 55 million tons of rock per annum to obtain those 300,000 tons of copper. Consequently, at Sentinel we will operate one of the largest milling trains in the world. The only equivalent size is in South America.
The economy of Zambia has experienced strong growth in recent years. What role is the copper mining industry playing in this growth?
While the Zambian copper industry was collapsing prior to privatization in 2000, the Zambian economy was in a poor state. This was clearly visible in looking at the state of the roads, buildings, and other infrastructure, as well as the condition and sparse number of vehicles on the roads. Since privatization and the resulting growth of the mining industry through massive capital injections, conditions in Zambia as a whole have improved dramatically. There can be no doubt that the investment in the copper mines have been the major catalyst for the improvements seen in Zambia. A further direct contribution from the mining industry, and specifically from FQM, is both indirect and direct. Just in terms of jobs, we directly employ nearly 13,000 people in the Kansanshi mine, and 2,000 people will work at Sentinel when it becomes operational. However, at the same time, we are providing many indirect jobs. At the Sentinel mine, we estimate that we will be creating over 10,000 indirect jobs. We understand the desire of the Zambian government to diversify away from pure mining activities, and it is in that context that we are introducing multi-function economic zones, both in our new town developments in Solwezi and in Sentinel.
What challenges do you see for the mining industry and how are you coping with them?
The most important thing for a global company when they consider what jurisdiction to invest in is stability and consistency, especially in the tax regime. Currently in Zambia, we are seeing changes in the tax structures. Having a jurisdiction in which tax levels are high is one thing. But unpredictable tax structures will inevitably make a country less attractive to global investors. If the government of the Republic of Zambia kept a consistent and stable tax regime, then that would be the strongest signal they could send to international investors that Zambia will remain an interesting and attractive destination for FDI. For the avoidance of any doubt, it is new investment that creates jobs. There is no other viable mechanism or way of creating jobs. Governments don't by themselves create jobs; they can only create an environment that is conducive and attractive for investment, and it is this that then creates jobs—and wealth.