First Quantum trims its losses

A reduction of its interest in a money-losing subsidiary enabled First Quantum Minerals (FM-T) to trim its losses in 2002.

For the 13 months ended Dec. 31, the copper miner recorded a loss of US$3.8 million (or US9 per share) on revenue of US$51 million, compared with US$21 million (US58 per share) on US$138 million in the fiscal year ended Nov. 30, 2001. (First Quantum now follows a regular calendar year for its financial reporting.)

The company would have earned US$800,000 in the 2002 period had it not consolidated the results of Mopani Copper Mines. Monpani, in which the company now owns an 18.8% interest, has a 90% stake in the Nkana and Mufulira copper-cobalt mines in Zambia’s Central Copper belt. Prior to May 2002, First Quantum owned 49%.

First Quantum pumped US$4.1 million into its operations last year, compared with an outflow of US$6.5 million in fiscal 2001. If the Mopani results are excluded, cash flow was a positive US$5.7 million in the 2002 period.

Weak quarter

For the four months ended Dec. 31, First Quantum recorded a loss of U$1 million (US2 per share) on revenue of US$11.9 million, compared with a loss of US$15.4 million (US42 per share) on US$33.1 million in the final three months ended Nov. 30, 2001.

Cash flow for the periods amounted to US$500,000 and US$3 million, respectively.

The Bwana Mkubwa solvent extraction-electrowinning plant, also in Zambia and now First Quantum’s only producer, cranked out 5,594 tonnes copper cathode and 27,669 tonnes of surplus sulphuric acid. That’s up significantly from the fourth quarter of 2001 and reflects the inclusion of newfound feed from the Lonshi mine in the Democratic Republic of Zaire.

Combined cash costs rang in at US35 per lb., or US56 when accounting charges, royalties, administration and financing costs are included. First Quantum sold its copper for US65 per lb.

First Quantum acquired an 85% stake in Lonshi in mid-2000 and advanced it to production 16 months later. Mined material is being trucked across the border to Bwana Mkuwba, which was expanded to accommodate the extra feed. A few hiccups have curtailed production, but the plant should begin churning out the targeted 2,500 tonnes of copper cathode per month by the end of March.

Measured and indicated resources at Lonshi stand at 7.3 million tonnes grading 4.91% copper — that’s 21% more than a year ago, when it held 295,000 tonnes of the red metal in 5.1 million tonnes for an average grade of 5.75% copper.

The increase reflects an additional 300 metres of strike and 65 metres of depth outlined in 2002. Prior to that, mineralization had been traced for 800 metres along strike and for 65 metres below surface.

Feasibility study

First Quantum recently tabled a positive feasibility study of the Kansanshi deposit, northwest of Bwana Mkubwa. Financing negotiations for the US$163.4-million price tag are well-advanced.

The study, prepared by GRDMinproc of Australia, concluded that Kansanshi hosts some 46.9 million tonnes of leachable reserves grading 1.75% copper and 0.29 gram gold per tonne. Another 95.6 million tonnes at 1.03% copper and 0.19 gram gold can be floated and concentrated for shipment to nearby smelters.

The reserve, which is divided between two deposits, can support 16 years of production to churn out 1.6 million tonnes copper and 395,479 oz. gold in all. About 44% of the copper output will be in the form of cathode, and some of the gold will be captured in a gravity circuit.

Life-of-mine operating costs are projected at US$838 per tonne copper (US38 per lb.), net of gold credits, or US$945 per tonne if contract miners are employed.

Standard Bank Group and WestLB AG have agreed to cover US$120 million of the projected capital costs, half in the form of commercial debt and the rest as export credits. The remaining amount will be raised shortly.

At Dec. 31, 2002, First Quantum had US$5.4 million in working capital and US$21.1 million in long-term debt. This represents a significant improvement from a year earlier, when it had just US$1.4 million in working capital and US$28.9 million in long-term debt.

In 2003, the company expects to produce 28,700 tonnes copper cathode at a cash cost of US35 per lb.