First Quantum Minerals Ltd. (FM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the First Quantum Minerals Annual Meeting 2020. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Mr. Philip Pascall, Chairman and CEO. Please go ahead, sir.

Thank you, operator. Welcome to the 2020 Annual and Special Meeting of First Quantum Minerals, which are now called to order. I'm Philip Pascall, and I'm the Chairman, Chief Executive Officer and the Director of the company, and I will act as Chairman of the meeting. Before I begin with the formalities of the meeting, I'd like to note that this year due to the restrictions on travel and public gatherings currently in place in Canada and around the world as a result of COVID-19, our annual meeting is being held virtually via the Lumi platform. I can confirm that we've received a court order from the British Columbia courts permitting us to conduct the Annual and Special Meeting of Shareholders in a fully virtual format. Joining me on the call today is Mr. Clive Newall, President and Director of the company; and Mr. Robert Harding, Lead Independent Director of the company. Our remaining Directors, Peter St. George; Simon Scott; Kathleen Hogenson; Andrew Adams; and Joanne Warner, are also present at the meeting. Paul Brunner is also a current Director but will not be standing for reelection at this year's meeting. And I'd like to take this opportunity to thank him for his considerable contribution to the Board during his long tenure. As the company's Chairman, I will chair the meeting. Later on, we shall briefly review the company's performance over the past year. Please be advised that we will answer any questions you may have asked through the chat function available on the site after the main business of the meeting has concluded. I will ask Ms. Sarah Robertson to act as Secretary of the meeting; and Ms. Evelyn Hsu of Computershare Trust Company of Canada to act as Scrutineer. I have before me a copy of the affidavit of mailing from the Computershare, confirming that the notice and access document; combined Notice of Meeting and management information circular dated March 11, 2020, where applicable; formal proxy and a financial statement request form were mailed to security holders on April 1, 2020. I have before me a preliminary scrutineers report indicating that there are 187 shareholders present in person or by proxy, holding 505,436,164 common shares, representing 73.32% of the issued and outstanding common shares of the company. As the article of the company require a presence of 2 shareholders in person or by proxy for a quorum to exist at a shareholders' meeting, I declare that a quorum is present and the meeting is regularly called and properly constituted for the transaction of business. For the purpose of the meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders, who have properly logged in with their control numbers or user name, will be able to vote after the presentation of each item of business to be put forth at today's meeting. When you are invited to vote, you will receive a message on the Lumi virtual interface, requesting you to register your vote. For each item of business, the polls will remain open for 2 minutes. The last annual meeting of the company was held on May 9, 2019. I have minutes of that shareholders' meeting before me, and I ask for a motion.

I move that the reading of the minutes of the 2019 Annual General Meeting held on May 9, 2019, be dispensed with and that the minutes of the said meeting be taken as read and approved.

Thank you, Clive. We move to the report and consolidated financial statements. I'd now like to present the consolidated financial statements of the company. Copies of the consolidated financial statements of the company for the year ended December 31, 2019, and the report of the auditor on those statements have been mailed to each shareholder of the company who has requested it. Electronic copies of the consolidated financial statements are also available for viewing on SEDAR at www.sedar.com. We will respond to any questions concerning the consolidated financial statements after the formal part of the meeting. May I have a motion?

I move that the consolidated financial results of the company for the year ended December 31, 2019, be received.

Thank you, Clive. The next item of business is to fix the number of Directors to be elected to the Board of Directors. The management information circular provided for the number of Directors to be fixed at 8. May I have a motion?

I move that the number of Directors to be elected be fixed as 8.

Thank you. The polls are now open. Please register your votes by selecting whichever is the appropriate button next to the resolution. The ballot will remain open for approximately 2 minutes or until all those entitled to vote have cast their votes, whichever is the sooner. Once the ballot closes, the voting page will disappear and your votes will automatically be submitted. [Voting]

I declare the poll closed. The next item of business is the election of the Directors of the company for the ensuing year. There are 8 Directors to be elected. The company's management has nominated the following persons for election as Directors: Philip Pascall, Clive Newall, Robert Harding, Peter St. George, Andrew Adams, Kathleen Hogenson, Simon Scott, Joanne Warner. May I have a motion?

I move that each of Philip Pascall, Clive Newall, Robert Harding, Peter St. George, Andrew Adams, Kathleen Hogenson, Simon Scott and Joanne Warner, be elected as a Director to hold office until the next Annual General Meeting of the company.

Thank you. The poll is now open for approximately 2 minutes, and I ask that you cast your votes. Please note that in accordance with the company's majority voting policy, this resolution requires you to vote for each individual Director and not a slate of Directors. [Voting]

I declare the poll closed. The next item of business is to appoint auditors for the ensuing year. As provided in the management information circular, it's proposed that PricewaterhouseCoopers LLP Canada chartered accountants be reappointed to serve as auditors of the company for the ensuing year and that the Directors of the company be authorized to fix the auditors' remuneration. May I have a motion?

I move that PricewaterhouseCoopers LLP Canada chartered accountants be appointed as auditors of the company to hold office until the close of the next Annual General Meeting of the company and that the Directors be hereby authorized to fix the remuneration to be paid to the auditors.

The poll is now open for approximately 2 minutes, and I ask that you cast your votes. [Voting]

I declare the poll closed. The next item of business is to accept the company's approach to executive compensation as described in the management information circular. It should be noted that this is an advisory vote and that the results will not be binding on the company. However, the Board will take the results of the vote into account as appropriate when considering any future compensation policies, procedures and decisions. May I have a motion?

Be it resolved on an advisory basis and not to diminish the roles and responsibilities of the Board of Directors of the company, shareholders accept the approach to executive compensation as disclosed in the company's management information circular delivered in advance of this Annual and Special Meeting of Shareholders.

The poll is now open for approximately 2 minutes, and I ask that you cast your votes. [Voting]

I declare the poll closed. The next item of business is to ratify and approve the shareholder rights plan adopted by the company on January 6, 2020. Specific details of the shareholders' rights plan are set out in the management information circular. The plan is adopted to ensure, to the extent possible, that our shareholders are treated fairly in an event of a takeover bid for the company. May I have a motion?

I move that, one, the shareholder rights plan of the company as set forth in the shareholder rights plan agreement between the company and Computershare Investor Services Inc. dated as of January 6, 2020, as set out in schedule A of the company's management information circular dated March 11, 2020, is hereby ratified and approved and that the company is authorized to issue rights pursuant there, too. And two, anyone or more of the Directors and Officers of the company are hereby authorized and directed to execute and deliver all such documents and to do or cause to be done, all such other acts and things as they may deem necessary or desirable to give effect to or carry out the intent of this resolution, including, but not limited to making such filings as may be required by the rules and policies of the TSX.

The poll is now open for approximately 2 minutes, and I ask that you cast your votes. [Voting]

I declare the poll closed. The next item of business is to approve the adoption of amendments to the articles of the company to induct -- to include the advanced notice provisions as described in the management information circular. Advanced notice provisions are being adopted to ensure that all shareholders receive sufficient notice of Director nominations, so that they can make an informed decision regarding the persons to be elected as Directors of the company. This resolution will be proposed as a special resolution. May I have a motion?

I move that, one, the articles of the company be amended to include the advanced notice provisions as set out in schedule B of the management information circular; and two, any one Director or officer of the company be and is hereby authorized and directed to all such acts and things and to execute and deliver under the corporate seal or otherwise, all such deeds, documents, instruments and assurances as in his or her opinion may be necessary or desirable to give effect to the foregoing resolution.

Thank you, Clive. The poll is now open for approximately 2 minutes, and I ask that you cast your votes. [Voting]

I declare the poll closed. Item 15, approval of the ancillary amendments to the articles. The next item of business is to approve the adoption of certain other amendments to the company's articles to bring them in line with the current corporate governance best practices prevalent amongst reporting issuers in Canada as described in the management information circular. This resolution will be proposed as a special resolution. May I have a motion?

I move that, one, the articles of the company be amended in accordance with schedule C of the management information circular; and two, any one Director or officer of the company be and is hereby authorized and directed to all such acts and things and to execute and deliver under the corporate seal or otherwise, all such deeds, documents, instruments and assurances as in his or her opinion may be necessary or desirable to give effect to the foregoing resolutions.

Thank you. The poll is now open for approximately 2 minutes, and I ask that you cast your votes. [Voting]

I declare the poll closed. Given that it will take some time for the scrutineer to determine the results of each of the ballot and prepare their report, I would like to invite Clive Newall, our President, to make a short presentation on the company's performance over the past year.

Thank you, Philip, and good day, everyone. I will now give you a brief review of what has been an interesting but very challenging year. So stepping back to the beginning of 2019, we were looking forward to a very exciting year with the completion and start of our huge new Cobre Panama project. At the same time, it was a fairly solid consensus that the copper market would strengthen during 2019, as U.S.-China trade wars would begin to subside as U.S. elections loomed large. The timing of the Cobre Panama project looked perfect to take maximum advantage of what would be hopefully a rising market. In Zambia, our operations, Kansanshi, Kansanshi smelter and Sentinel, were running well. Our relationship with the Zambian government was significantly improving, while the fiscal environment took a turn for the worst at the start of the year with a number of stiff royalty and tax increases coming into effect. The balance sheet continued to be a focus as the major capital expenditure on Cobre Panama was reaching its peak. In February 2019, we signed a $2.7 billion term loan and a senior revolving credit facility, which was used to repay $821 million of senior notes and the remainder for general corporate purposes. We also continued our hedge program during the year to reduce commodity risk and ensure cash stability. In the event -- unfortunately, trade wars continued, and the high copper prices most miners were expecting did not materialize in the face of slowing world growth, particularly in China. In retrospect, of course, the copper price averaged $2.72 for the year, which sounds terrific today, but was actually 8% lower than that in 2018. Nonetheless, with Cobre Panama startup being very successful and the declaration of commercial production on September 1 resulting in record annual production for 2019 of over 700,000 tonnes of copper and almost 257,000 ounces of gold, we were still looking forward to beginning to fulfill our promise of deleveraging our balance sheet, with the objective of reducing our gross debt by approximately $2 billion over the next couple of years. That was until the coronavirus reared its ugly head. By early 2020, COVID-19 was affecting China badly, and major lockdowns were put into effect. As is the case for most copper producers, China is a very big market for us, particularly concentrate and anode. Despite these restrictions and a falling copper price, deliveries to all markets, including China, continued with only minor delays but with revenues falling with a weakening copper price. So at the very first opportunity in 2020, we embarked on more balance sheet management by refinancing the $300 million of 2021 notes and repay but not cancel the $450 million due under the senior revolving credit facility with a bond tap issue, creating a relatively clear 2-year runway with only minor short-term maturities. This proved to be very timely, as very rapidly, the COVID-19 epidemic spread around the world, resulting in lockdowns in most developed and developing countries. Zambia, however, is one of the exceptions to date, in that coronavirus has not taken hold to the same extent as most of the rest of the world. Although only around 106 cases and 3 deaths had been recorded at the end of April 2020, the government has put in place relatively strict lockdown conditions but we continue to operate near normally. Some supply lines have been impacted by the closure of national borders and ports in South Africa but there is sufficient capacity in Tanzania and Namibia to continue our exports of anode and cathode, more or less normally. Meanwhile, our Zambian operations continue to run well and Sentinel even achieved record throughput in Q1. Panama has been somewhat more severely affected, with more than 6,500 cases and 188 deaths as of May 1, and strict government controls are in force. As a result of these restrictions, Cobre Panama is now in preservation and safe maintenance status, although the port and power station continue to operate. Preservation and safe maintenance is a more rigorous form of care and maintenance required because of the year-round high levels of humidity, which would rapidly cause deterioration of nonoperating equipment. Our intention is to return to full production as quickly and responsibly as possible. Elsewhere, despite the coronavirus pandemic, we restarted Ravensthorpe nickel in April 2020 as planned. Las Cruces in Spain, after a short restriction on mining, is now back to feeding high-grade ore to the mill. And our other smaller operations, Çayeli, Guelb Moghrein and Pyhäsalmi, are running more or less on plan. So despite most of our operations continuing to operate relatively normally, the interruption of the planned ramp up of Cobre Panama has resulted in us reducing our overall guidance for 2020 by some 75,000 tonnes of copper and 30,000 ounces of gold. In light of the depressed copper price and reduced production expectations, we have completed a thorough review of all spending, both capital and operating. We have significantly reduced our planned capital spend for 2020 by cutting out most discretionary items and deferring others. Our operating costs have benefited from the decline in price of some of our inputs, together with reductions in G&A through headcount reductions and compensation cuts for most senior staff of up to 25%. Exploration spending were also declined, in part, due to travel restrictions. And in April, we announced the amendment of our financial covenants under the senior term loan and revolving credit facility in response to the continuing uncertainty relating to COVID-19. It is important to note that underlying all of these actions, First Quantum's top priority is the health and safety of its employees and communities. Throughout the organization, we have implemented new protocols and procedures to provide protection for our workforce and the community at large. These protocols have been developed and implemented according to the restrictions, guidelines and regulations set out by the government and health authorities in each of our operating jurisdictions. And so along with the ongoing liability management activities, last year's bond issue, the bond tap issue in January 2020 and the recent resetting of bank covenants, the actions we are taking in our operations with the support of our host governments and all of our employees will help us to withstand these unprecedented challenges and allow us to return our focus on growing profitable production and deleveraging as quickly as possible. Thank you for letting me give you that short delivery -- short description over the last year or 15 months, it is actually. Back to you, Philip.

I've been advised that the scrutineer has completed the tabulation for each of the items of business. Based on the scrutineer's tabulation, each of the items of business at the meeting were approved, namely: the determination of the number of Directors to be elected to the Board; the election of Philip Pascall, Clive Newall, Robert Harding, Peter St. George, Andrew Adams, Kathleen Hogenson, Simon Scott and Joanne Warner as Directors of the company, to hold office until the next Annual Meeting; the appointment of the auditors and the fixing of their remuneration; the acceptance of the company's approach to executive compensation; the ratification and approval of the shareholder rights plan; the approval of the adoption of amendments to the articles of the company to include advanced notice provisions; and the approval of the adoption of certain other amendments to the company's articles. As soon as possible following the meeting, a report of voting results will be posted at www.sedar.com under the company's profile. There being no further business, I will ask for a motion to conclude this meeting. May I have a motion?

I move that the meeting be concluded.

Thank you. In finishing, I will just make a few brief remarks. Going forward, and certainly for the rest of this year, there will be continued uncertainty in our industry and the world at large. As a result, as Clive said, we are operating under an austerity program to contain our costs. And this is part of our determination to continue our policy of deleverage of our balance sheet. We'll take a variety of steps to achieve this. Nevertheless, we retain our confidence in our mines and products, especially the continued value of copper. In particular, I'd like to thank our shareholders for their support and patience. And finally, our company would not be able to achieve what it does without the services and loyalty and efforts and conscientiousness of all our staff and employees, very notable during this period. And it's worth, particularly, our thanks to those who are on the sites at the moment, in many cases, able not to leave them nor to leave them nor to actually get the site to take up a change in their roster. We appreciate all their efforts. Thank you very much. That's it.

Ladies and gentlemen...

I hereby declare the formal business concluded and the meeting terminated. I will respond to any questions you may have. As there are no questions, on behalf of the Board, I would like to thank you for attending today. Thank you, operator. That will close the meeting.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.