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Executives

Clive Newall - President

Hannes Meyer - CFO

Philip Pascall - CEO

Juliet Wall - General Manager, Finance

Analysts

Tom Meyer - CIBC World Markets

Michael Flitton - Citigroup

Alex Terentiew - Raymond James

David Charles - Dundee Capital Markets

Alain Gabriel - Morgan Stanley

Matt Murphy - UBS Securities

Oscar Cabrera - Merrill Lynch

Fawzi Hanano - Goldman Sachs

Ian Rossouw - Barclays Capital

Jean Devevey - Exane BNP Paribas

Roger Bell - JP Morgan

First Quantum Minerals (OTCPK:FQVLF) Q2 2013 Earnings Conference Call August 1, 2013 9:00 AM ET

Operator

Good morning ladies and gentlemen. Welcome to the First Quantum Mineral second quarter result conference call. I would now like to turn the meeting over to Mr. Clive Newall, President. Please go ahead Mr. Newall.

Clive Newall

Thank you very much operator and thanks everybody for joining us today. Available on the call with me from our finance department, Meyer, CFO, Juliet Wall, General Manager, Finance; and Emma Cowdrey, Senior Manager, Financial Reporting, Philip Pascall, CEO; and Sharon Loung, Director of IR are also here on the call with me.

Following my opening comments, Hannes will give a review of the financial results for the quarter, which were published yesterday after the close of the Toronto market. For those joining on the phone line please note that are slides of the company at this presentation. They are available on our website www.first-quantum.com and can be accessed on the events section or on the Q2 conference call button under the news section. Following the review of the financials we will open the lines to take your questions.

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

Now to begin the review as you know this is our first full quarter with a consolidation of the acquired assets. Comparative earnings for the quarter totaled a $106.1 million or $0.18 on the share basis. These results include approximately 28 million or $0.05 per share of earnings contribution from the acquired operations but also a 19.5 million or $0.04 per share of unfavorable acquisition related adjustments, it's important to note these adjustments will continue to be included in the earnings of the company’s as long as we operate Pyhasalmi, Las Cruces, and Cayeli mines. I will also make sure that there was only 2.5 million in negative adjustments related to provisionally pricing sales in this quarter, a significantly low metal prices. These adjustments were all in the contract of the acquired operations. Going forward there should be no provisional price adjustments as post quarter end the acquired mines adopted the First Quantum policy of managing quotational pricing risk through the use of derivatives.

The company ended the quarter with $778 million in cash and cash equivalents. This is net of 281.6 million of cash flow generated from the operations, the full integration of the Inmet balance sheet, and the repayment of the 2.5 billion bridge facility used to finance the acquisition.

These solid results reflect good performance at all of the operations in particular there was higher year-over-year and quarter-over-quarter copper production at both Kansanshi and Guelb Moghrein. Another quarter a very good performance at Ravensthorpe, where production came in just shy of the quarterly records second Q1 of this year despite the 2 week maintenance shutdown. Steady operations of the acquired mines, a good recovery at Las Cruces following a 15 day shutdown after a leach tank disruption. Also lower year-over-year unit cost of production for both copper and nickel reflecting the impact of the acquired operations as well as good cost control at the preacquisition operations

In a very good achievement in any market but especially so in the one we’re currently of low metal prices a near term economic uncertainty. At First Quantum our priority is simple, we maintain safe and cost effective operations and we structure a strong balance sheet that is efficient and enables us to meet our funding requirements and we intend to deliver our smelter and use Sentinel project and Kansanshi projects on time and within budget. To this end we continue our programs focused on the safety and risk awareness training at all of our operations and project. The large part of this program is reinforcing the importance proactive actions in avoiding serious accidents.

To put this into perspective we just went over 7 million man hours without a loss time injury at the very large Trident construction projects. This is a real credit to our employees in Zambia. The results of these consistent efforts is evidence in our safety performance. We’re all well aware that there is always room for improvement and I can assure that they know locked up in this aspects of our business regardless of market conditions. Over the past few months there has also been press speculation about Ravensthorpe in the light of the performance of the nickel price.

As you can see from these results EBITDA of 15 million for the quarter and 39.6 million of the six months this year the mine is more than holding its own even in this very low nickel price environment. Importantly it's staff and contractors are committed to delivering the mines best results in a safe workplace and are planning for a long sustainable future. I’ve spoken before in previous conference calls about our continuous efforts to increase the residential portion of our workforce there but I’m pleased to say that we have in good success in this regard.

As you know having a healthy portion of the residential employees in any workforce provides a stable workplace and regular support for the local community which is something we value very much. This also illustrate our group policy to operate residential mines as far as possible.

Also of interest over the past months especially following our acquisition of Inmet to our balance sheet quite understandably so. While the various pieces have not yet finalized what I can tell you is that we’re well advanced in establishing longer term more efficient debt instruments that will help us maintain our financial flexibility and meet our funding requirements. We expect what some of these instruments in place over the next few months and we will keep the market up-to-date of our progress.

Sending to our project, good progress is made in the quarter on all fronts. The smelter design construction advanced as planned towards completion in mid-2014. We talked in the past about the estimated annual savings of between 340 and $10 million on the smelters in operation. It's additional benefits that clear when considering the build-up in concentrate inventory at Kansanshi over the past quarter few quarters which most of you’ve noticed.

Regrettably there is no significant changes in smelter capacity expected in Zambia in the immediate future that will enable or reduction in inventory levels this year. Trident is in good shape, the all construction discipline are fully engaged on site, detail design engineering is over 90% complete over 85% of the project total concrete is poured on three of the four mils already erected. In addition our brief dispute with Zesco regarding the tender selection for a contractor to build the transmission line with result amicably. This means that the schedule supply of power remains unchanged.

During the quarter a protection order was placed on the construction of the Chisola dam by environmental management agency since then we have had several discussions with relevance of authorities towards finding a resolution these discussions have been productive and we expect work to be resumed on the dam shortly.

At Cobre Panama we made very good progress compared to say that our project development team is confident by applying our steady and more practical approach, the project will deliver the kind of outcomes we had envisioned. During the quarter we made a number of personnel changes there, we injected much more capability and established much needed and clear direction lines. Another result the cash flow had slowed considerably, the cash outflow that had slowed considerably. At the same time we continued our corporate responsibility program some of the areas we focused on our biodiversity management, the support of education programs and school infrastructure, investment in communities in Donoso and (inaudible) Districts.

Occasional training for members of the local communities in our reforestation among many others. As well as the retail review of projects initiated sooner after the acquisition has progressed considerably. We expect to share our plans more fully with you later in the year in this regard. In terms of the integration other aspects of the acquisition I believe it has gone extremely well, we’ve been able to add some great, good talented people to our organization. I believe we’re much stronger for it.

So I’ll end there and ask Hannes Meyer take you through the financials. So please refer to the slides which I told you where you can access them earlier.

Hannes Meyer

Thanks Clive and good day everyone. Turning to the first slide, Q2, 2013 highlight (inaudible) group revenue for the quarter of $869 million was at 147 million or 20% from last year from $46 million contribution from Kevitsa and $184 million contribution from the newly acquired operations and that will more than offset the effects of the level of commodity prices which decreased from average LME price of copper of 357 last year to $324 per pound and nickel of 778 per pounds to 678 per pounds this year. Copper production increased with a total of 103.7 thousand produced this quarter and that’s up 44.4% from the same time last year. Quarters resulted included add 25.4 thousand tonnes of copper from the acquired operations and 3600 from Kevitsa. Nickel production for this quarter increased by 2700 tonnes or 33% to 32,000 tonnes from Kevitsa.

Gold produced also increased 44% against the same time last year from announced in the (inaudible) and including production from Kevitsa of 2700 ounces. And some from the acquired operations of 2200 ounces. Increase in competitive EBITDA of 322 million is 20% of that last year. Gross profit before fair value adjustments for Q2 2013 is 264 million 4% lower than it was last year. Production has been primarily driven by falling commodity prices as well as lower copper sales that almost fully offset by gross profit contributions for this quarter by the acquired operations $71 million and that’s before the fair value adjustment and it also includes a full quarter contribution from Kevitsa.

Turning to the next slide, slide four in the production shown in the graphs to the side the Group delivered production growth against last year for each of copper, nickel and gold. We’re all copper production that she was higher than the second quarter last year been expecting from expansion work. Well copper production increased in the quarter higher grade and recoveries. New operations also been effective the quarter’s copper production with Kevitsa contributing 3600 tonnes and acquired operations entirely Cayeli, Las Cruces and Pyhasalmi contributing a total 25,400 tonnes. Nickel production of 10,900 was achieved in this quarter with high production of (inaudible) as a result of higher benefited rate despite lower nickel recoveries.

The contribution from Kevitsa was 2000 tonnes. Both operations had planned maintenance shutdowns for just under two weeks in April. The gold production increased against Q2 last year, with Kansanshi productions 53% higher than last year and (inaudible).

Kevitsa production was also increased compared to last year due to grade improvements. Quindon (ph) operations also contributed some of gold ounces. Turning to the next slide, slide five on cost, overall group C1 cost for copper was $1.54 per pound and that’s 19%, the $0.19 or $12 lower than last year all preacquisition operations experienced reductions of C1 cost from those last year, C1 cost was inclusion of the acquired operation. Cayeli C1 cost is lower than last year the byproduct credits from improved zinc production. Las Cruces C1 cost is higher as a result of the impact of the (inaudible) in April with lower production; the Pyhasalmi movement is a result of timing of byproduct sales.

Turning to the next slide in slide six, nickel C1 cost was 25 inflow with the last year, we even saw C1 cost was $0.05 lower than the same quarter and Kevitsa cost of 471 per pound is $0.58 with that lower than Q1, 2013. With lowering processing cost this were (inaudible) maintenance shutdown.

Turning to the next slide, the next slide seven, the financial overview comparative EBITDA increased 20% of the last year despite lower commodity prices. Gross profit including fair value adjustments of 264 million was 11 million or 4% lower mainly driven by the decline in commodity prices. Comparative effective tax rate is 41% and that’s inline with our guidance.

Closing net debt of 1.9 million includes the final payment for the acquisition of Inmet. Basic financial results were impacted by fair value acquisition adjustments which include 27.6 million and depreciation for the uplift to fair value which include 27.6 million and depreciation for the uplift to fair value at the acquisition date of acquired number of property plant and equipment and there was also a 35.6 million in inventory adjustment, the majority of inventory out of balance sheet data at the acquisition was sold in this quarter. Further analysis is included in the appendix.

Turning to slide eight are the gross profit, (inaudible) of the Group's gross profit movement as compared to the same period last year. As mentioned previously it's declining prices reduced gross profit and preacquisition operations of $46 million. If I go to the acquired operations contributed full quarter this year of $71 million before fair value adjustments. Contribution from new operations of Las Cruces was $29.9 million, Cayeli up $25 million, Pyhasalmi up nearly $16 million. Impact of the fire pit (ph), Las Cruces was across $18 million in the quarter and the impact of reduced commodity prices was 17 million of acquired operations excluding these two items gross profit on acquired operations was brought inline with Q2, 2012. As noticed the fair value of acquisition adjustments impact profit by $63 million resulting in a reduced net contribution from acquired operations of $8 million. Inventory fair value adjustments reduced gross profit in the quarter by $35.6 million adjustment is non-recurring as the majority of the inventory, also the balance sheet at acquisition date has been solved in this quarter, very small further adjustment is expected in this quarter.

In addition fair value adjustment to the value of property, plant and equipment increased depreciation and reduced gross profit by $27.6 million for this quarter and this will be a recurring charge over the remaining lives of these mines. Turning to the next slide and that’s slide nine and yields at our balance sheet. Group’s net balance at the beginning of the quarter was $794 million including acquisition of their remaining 14.5% of Inmet the group ended the quarter in net debt position of $1.8 billion, tax paid for the quarter was $84 million, net interest payment of 106 million includes capitalized interest of $60 million, $740 million was spent on capital expenditure in the quarter which included 256 million at Cobre Panama, 181 at Sentinel and 199 million at Kansanshi for expansions, a smelter project and mine that’s development cost.

Additional $343 million was paid in the quarter to acquire the remaining 14.5% of Inmet which was outstanding at the end of Q1 bringing the total cash paid to acquire Inmet to $2.5 billion. Turning to slide 10 and marketing guidance to summarize the production guidance and that remains unchanged from what we had presented last quarter and turning to slide 11, that’s the same as on the previous one unchanged from what we have given in the previous quarter. CapEx on the preacquisition side of the First Quantum remained at about estimate of $2 billion for the year. Cobre Panama remains under review with the revised capital cost and project time expected in the latter half of the year. Full year capital guidance from the acquired operations has been maintained between 70 million and 85 million.

Thank you and I’ll turn it back over to Clive.

Clive Newall

Okay operator we can now hand the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). The first question is from Tom Meyer from CIBC World Markets. Please go ahead.

Tom Meyer - CIBC World Markets

On the topic of Kansanshi, and from where we stand today, have you, or will you or can you, adjust the operating strategy at Kansanshi such that you're going to, you can maximize capital production due to the concentrate smelting capacity constraints on the car belt? Or should we expect a continued buildup in this copper concentrate inventory into 2014 ahead of the smelter startup?

Philip Pascall

The answer to both those questions is yes. There are some steps that we can take to clean the concentrate that we’re producing particularly the mixed circuit which contains some acid soluble copper that will assist the smelter anyway and will mean that it would be converted before it's became concentrate into solution that would be kept there (ph). At the same time the production and capacity of Kansanshi in terms of what it can produce of sulphide concentrate is running very strongly and that’s just running a balance there between what is reasonable in terms of build-up with the limitations on capacity of the smelters.

Tom Meyer - CIBC World Markets

Okay, that covers that. And now, just more of the blue-sky at Kansanshi and around, can anyone expand on Rocky Hill, the prospect? I understand it's near Kansanshi. Is this near-surface? Is this a Kansanshi ore body lookalike, or is it something different? Is it something that could be just notionally at this point sequenced in the distant future, or is it still too early?

Philip Pascall

No it's not too early, it's still a subject an ongoing drill program but it's already it will be forming out of the revised resource this year and it will be built into the ongoing mine, I’m not quite sure where it's going to schedule at this point because there is more drilling required before we get to that point.

Tom Meyer - CIBC World Markets

Is this near surface, or is it?

Philip Pascall

Yes it is. Yeah it's okay.

Operator

Thank you. The next question is from Michael Flitton from Citigroup. Please go ahead.

Michael Flitton - Citigroup

Just a couple of questions. So firstly on leverage, obviously leverage is set to rise fairly sharply from here. I just wanted to know whether you guys have a comfort threshold on that aspect, and whether on the back of that you're looking, or there are options on the table to push back construction at Cobre Panama, or maybe sell assets, whether that's even on the table at this point, and also where there's any internal deadline you need to meet for the RTF negotiations in terms of drawing down cash. Thanks.

Clive Newall

I will be able to give the first and last aspect and I’ll leave Phil maybe to deal to cover the Panama question. In terms of leverage in our planning we do anticipate peak funding demand in sort of the next year, December, 2014. So we’re all planning for that we do for significant leverage at that time. We’re in discussions and negotiations with the banks at the moment to plan for those scenarios. We hope to update the market in the near future as we have stated in our press release so those discussions are advance and we will replace the revolving credit facility with longer term date and that would have a nature of some terms, some revolving credit and we plan to do that definitely before year end we will have that in place. I think in the longer run we aspire to investment grade (ph) and the ratings agency sort of advises that sort of hitting threshold of 35% leverage ratio. That in the longer run that we do know in the next two to three years we will exceed that.

Philip Pascall

In regard to slowing projects down, the smelter in Sentinel and the Kansanshi project on the S3 expansion they are all interconnected and all the intention of them all is of course or the outcome of those projects will be to reduce our cash costs substantially. So the type operations we like covering. So it's unlikely we want to slow those down. In terms of Cobre Panama just the things that we have put in place there as I said in the my introductory comments, has reduced or slowed the outflow of cash quite substantially and there is some flexibility there. So there is flexibility, we have slowed cash outflows but it's more about building projects efficiently.

Operator

Thank you. The next question is from Alex Terentiew from Raymond James. Please go ahead.

Alex Terentiew - Raymond James

Just a couple questions here, first, one on Cobre Panama. Election in Panama in 2014, is there any pressures being placed on you by the government to keep developing a project at a particular place, or have they been so far understanding and accommodating of your plans?

Philip Pascall

Alex as a mining company we operate in all sorts of countries and the governments there live with their own electoral pressures and that’s certainly true in Panama. Right at this moment there is a Panamanian Parliament delegation visiting us in Zambia very much to ensure that there is a reasonably clear understanding of what these projects involve and how we execute them and what is needed and preferable for Cobre Panama. Again certainly had the expectation developed of a rate of expenditure on the Cobre Panama project which is clearly not one that we will follow, not at least because it's performance in terms of progress wasn’t really suitable. So, what is actually happening at the moment is that our progress in that project has certainly picked up in fact even though as Clive pointing out the outflow has declined and it will take us a little while, well it has taken us a little while for the government to appreciate what need there was for that and what effect it had. And they are certainly supported.

They would like it to come on street as soon as possible and that certainly is the approach we’re adopting. The nature of what we inherited at Cobre Panama has required some redesign. So the power station was on a fast track but we had to multiple substantially the foundation those works and their aspects of that project. The effect of which if anything will be that it will happen more quickly that it might otherwise have done but we’re considerably less cost associated with the foundations and the same kind of approach is needed of the plant which has to be redesigned and infact relocated. So much of what we’re doing is aimed at improving the offerability and the practicalities of the construction program rather than because we were slowing it in fact the opposite is true it's actually going quicker.

Alex Terentiew - Raymond James

Just two more quick questions, if I may. Ravensthorpe, you mentioned recoveries will improve once mining other areas begin. Is that something we should expect this quarter, or is that maybe a 2014 timeframe? I mean, recoveries in the quarter were 72%. In the past few quarters, they were around 78%. So, I'm just trying to gauge when we should see an improvement again.

Philip Pascall

Let me just explain what, there are two components if you recall that are treated at Ravensthorpe, limonite and saprolite. The limonite goes through the pressure leach and its recoveries are in excess of 90% and the saprolite goes through an atmospheric leach, it's recoveries are in the low to mid-60s. There is a considerable quantity of saprolite material and what you’re seeing there is the effect of pushing the saprolite recovery, saprolite production as hard as possible because that’s the saprolite is needed to be processed or treated in order to reveal the limonite that’s within the ore. So just as that ratio changes you see the recoveries come off rather than any detriment in the performance of the plant.

Alex Terentiew - Raymond James

Okay. But, I guess that saprolite mining maybe one or two quarters and then slowly climb back up, is that kind of what we should expect then?

Philip Pascall

I think what you will see is that we will continue to be pushing saprolite at about the same rate but we’re finding that we can take as much as 10% of it into the autoclaves before we upset their performance and then it's recovery a lot greater. So it's just a means of manipulating the throughput of the plant to accommodate the ore body best, and obviously keep our operating cost down.

Alex Terentiew - Raymond James

One last question. You note that a new labor agreement was reached at Cayeli effective June 1, 2012. Should we expect some sort of retroactive wage payment to be made? And if so, can you give us an idea of what sort of charge we could expect in Q3?

Philip Pascall

It was three year agreement, it's dated May I think backdated to May I think the terms were inflation plus 1% and inflation is running around 6% - 6.5% currently.

Operator

The next question is from David Charles from Dundee Capital Markets. Please go ahead.

David Charles - Dundee Capital Markets

Maybe I could just ask two questions. I was just wondering what the risk was of some oxidation occurring in the inventory stockpile that you're building up at Kansanshi, and if there's anything you can do about that in the meantime before you get the treated probably next year.

Philip Pascall

There is nothing there of any concern David.

David Charles - Dundee Capital Markets

Okay. The other question I have is, is that it looks like, in order to make your fair value adjustment, from what I understand today, you're running at about $27 million a quarter for the foreseeable future until those mines essentially shut down. That looks to me like an overall value of about maybe a little over $1 billion. I'm just wondering why you've chosen to run it through the income statements on a quarterly basis rather than maybe just biting the bullet and taking a onetime right now.

Clive Newall

When we went through the acquisition price we allocated these prices based on cash flows over the mine life. So you do a fair value of these operations at the end of each year and you have seen other companies taking right downs at that time. We have still got capability within those values and we amortize that as we expect production from those mines that’s why, because it's so within – the value of the operation will depreciate that overtime before it's allocated some value to Cobre Panama and that’s obviously not depreciating through the balance sheet of time as Cobre Panama is not in production yet.

Operator

Thank you. The next question is from Alain Gabriel from Morgan Stanley. Please go ahead.

Alain Gabriel - Morgan Stanley

Just a quick question on Cobre Panama, if you can share with us anything new that you have learned during the second quarter, anything that you can share with us on that would be appreciated. And what kind of CapEx are you budgeting for the second half of the year for Cobre Panama, I can see that you’re running it at roughly $250 million per quarter? Is it fair to assume that you'll maintain this rate for the remainder of the year until you finalize your review? Thank you.

Philip Pascall

Let me answer the second question first I didn’t quite follow the first one. A large component of the cash flow that you saw in the second quarter which and certainly will run into the third quarter plus diminishing was actually the settlement of a number of outstanding invoices that hadn’t been paid. It's yet to be paid in terms we had to be settled because of termination of contracts and that has been running out through the second quarter and through July and is diminished to a mere handful from then. So in fact you will see that cash outflow will decline further through the rest of this year but we will start to pick up again by the end of the year.

Alain Gabriel - Morgan Stanley

And on the first part, my question is if you have learned anything new at Cobre Panama that you can share with us ahead of the full-blown review that you plan to release in the fourth quarter of this year.

Philip Pascall

Well certainly there has been probably a lot that we have learned but I’m not sure it isn't just of sort of general nature. The ore bodies that we inherited are all of we expected of them and more so we’re very happy about that. We will make a number of scope changes both in the design of the plant and in the design of the power station but first because they have opportunity to do so and improve the through-put just we talked about before. The second on the power station because it's quite evident that Panama at times has a need for extra power and part of the original contract was a link of that power station to it's grid and if we have excess capacity out of that power station it is a valuable extra source of earning, effectively we just reduced the operating cost which is important. But at this stage other than that I don’t think we could comment strongly, we did as one of our very first exercises (inaudible) survey of the site to understand exactly where the ground levels were and particularly how much depth of hard rock there was below that to avoid the very large earth works contracts that have already been put out and in fact were the ones that we terminated and the effect of that has been pretty significant that the power station on a substantial reduction and the earth works is going to be needed. We expect the same of the plant but we do have to relocate it and we have yet to finalize that but certainly the aim of that is to make it a little simpler to construct. That’s about it I guess. We have been very impressed with the government, the operating part.

Working with Panamanian’s and the Panamanian government is very refreshing. Supportive, helpful, understanding, it is a country that hasn’t got a history of mining and so we’re very mindful that we have to work carefully with the communities and have them keep up with it and appreciate what we’re doing and all signs are that providing we keep working on that and work with the communities that our relationship will be a very good one and for us that’s a, for mining companies generally that’s hugely important because it's a relationship with the governments and communities that really provide us our long term tenure.

Operator

Thank you. The next question is from Matt Murphy from UBS. Please go ahead.

Matt Murphy - UBS Securities

Just wondering on Kevitsa what you think the timeline is to get some improvement in nickel recoveries?

Philip Pascall

Good question. We undertook a test work program that started late last year because I’ve the general view was that we were in transition material and the recoveries were improved and of course there is a danger and that you finally get out of transition material you’re going to find that and what that test work reveled, I’m not sure it conducted here in (inaudible) laboratories in Ontario, is that it would be better if we put steel in the mills in other words we use steel for grinding instead of the autogenous grinding that's used with the pebbles.

There is a cost to that because we have a substantial saving by not using steel and we’re moving to do that, it will take till the end of this year to do so and it is apparently very common there are many examples in the industry of suggestion where by putting steel you get improvements and the simple reason for it is generate less ultra-fines, and those are what we have identified give some difficult with the recovery. So we’re hopeful that once we have done that work which will take at least till the end of December just for the delivery of magnets and the like, that we'll see that recovery. There are some other steps we can take in the meantime and we’re seeing some improvements already in this last month or so.

Question: Matt Murphy - UBS Securities - Analyst : Okay, thanks. And then, just a question on hedging. I guess you're rolling out the provisional price control on Inmet assets. Is there any consideration being given to longer-term hedges, given your CapEx needs and the fact that you're making decent margin on your copper assets right now?

Matt Murphy - UBS Securities

And then just a question on hedging I guess you’re rolling out the positional price control on Inmet assets, is there any consideration being given to longer term hedges given your CapEx needs and the fact that you’re making decent margin on your top assets right now?

Clive Newall

I mean we did doing the quotational periods on the Inmet assets but there is no other consideration.

Philip Pascall

It's not a policy of ours to hedge and when commodity prices are down and never looks a good idea and when they are up you never manage to get the timing right and our general perception of our investments is like that they don’t like us they hedge anyway and we don’t want to have that on our balance sheet.

Operator

Thank you. The next question is from Oscar Cabrera from Merrill Lynch. Please go ahead.

Oscar Cabrera - Merrill Lynch

Just let me start with a very brief comment. Most of your peers and different market cap sizes have decided to implement cost saving programs in order for capital expenditures. And so, perhaps Cobre Panama will do both, but was interested in finding out, with the changes to the concentrator plant and the power plant, have any of the existing permits for these do you need to do changes or something that would require you to spend more time with the government in getting to a solution?

Philip Pascall

There are lots of detail permitting steps that are acquired in Panama and they are generally are if I use the word routine in a sense that we’re doing it all the time and certainly all of these go to that process as well but there is nothing that we envisage or cause us any difficulty with that.

Oscar Cabrera - Merrill Lynch

And then if I may, just going back to Kansanshi, the expected production for 2013 between 250,000, 270,000 tonnes, when do you believe we can expect the additional 100,000 from the concentrator or from the concentrate production, being in place?

Yes, let me rephrase that. So, the expectation for that project is to reach a run rate production of continued copper of 400,000 tonnes. Based on questions you've received before, it appears that the smelter its key to achieve these levels. So, just trying to gauge, if you can provide numbers for 2014 and '15 production, that'd be great if not, just context between the additional production, please.

Philip Pascall

We expect that smelter will be ready to start ramping up from the middle of 2014. It's a very big plant and that ramp up program that we have is certainly tighter than one would normally expect but even so it will take some time. I don’t envision that it will get beyond about 75% to 80% capacity by the end of 2014 and it will still be ramping up to it's full throughput by the middle of the following year. But the impact of that would be felt fairly quickly not least because it will generate lot of asset and the asset will be used in treating oxidized material but that’s just a simplistic definition. The mixed material that we have isn't hard and fast, a great deal of that mixed material will become oxide in terms of the way it's treated as soon as the asset availability is there and the recovery from that material will immediately be apparent.

And so starting from about the third quarter next year you start to see some steady uplift. The plant to be able to handle that what was has always been referred to as a 12 million upgrade is well in hand and therefore the facility is developed to treat material as oxide and use cathode once that acid availability is there is well in hand. So you will see it start to rise just steadily from about the third quarter and I guess next year. Does that give you some response.

Oscar Cabrera - Merrill Lynch

Yes, absolutely, that is very helpful, Philip. And then, just lastly, can you remind me what the expected savings from this? I believe it was between $300 million and $350 million.

Philip Pascall

350 million to 500 million.

Oscar Cabrera - Merrill Lynch

To 500 million?

Philip Pascall

Yeah.

Oscar Cabrera - Merrill Lynch

Great. Thank you very much.

Operator

Thank you. The next question is from Fawzi Hanano from Goldman Sachs. Please go ahead.

Fawzi Hanano - Goldman Sachs

I've got a couple of questions. Firstly on Kansanshi, looking at your gold production guidance for the year, even looking at the top end of the guidance, this implies quite a big fall in the second half, which isn't really the case when looking at the copper guidance, if you could just give some main reasons for this. And secondly, with regards to Guelb and the magnetite project, if you could just add a little bit more details around project stats, operating cost estimates, grade, timing and anything you have, that would be appreciated.

Philip Pascall

I think on the first bit we’re just being a bit maybe a little bit conservative on the gold forecast.

Clive Newall

Yeah there is nothing of any consequence that looks likely to attract from what we get. The difficult with the gold (inaudible) is very hard to measure what we actually have as a grade. They have been very clever in the way they have worked with new plant and like to improve on it and you’re seeing that in the effects for example in this first half. There is no reason why that won't continue but it is a very unpredictable grade that we see in the ore.

Fawzi Hanano - Goldman Sachs

Thanks. And on Guelb?

Philip Pascall

Can you repeat the question on Guelb?

Fawzi Hanano - Goldman Sachs

Yes, it's more general, about the magnetite project that you have going on at Guelb. I see you're going to mobilize and start spending later this year. If you have any details about, let's say the grade of the magnetite you expect to sell, timing as to when you'd expect to start commissioning the project?

Clive Newall

We’re putting our project guides under some pressure you get that a little bit earlier than I think the early of this program. And so we’re hopeful sometimes in the middle of next year to see it coming to fruition and the grades of the magnetite we can only really relate to the test work that we’ve done. It is pretty good grade, it's about 65% most run about 68 to 69, whether we will see that impact us for the variable most of the feed that we see is yet to be seen in operation.

Operator

Thank you. The next question is from Ian Rossouw from Barclays. Please go ahead.

Ian Rossouw - Barclays Capital

Just a few questions. Firstly, just to follow up on Matt's question on Kevitsa, I mean, obviously I assume the recoveries for the full-in recovery at Kevitsa in nickel was due to the shut-down. And could you perhaps just give a sense that, with these new sort of implementations of foreseeable (ph) and more do you actually expect to get to the 79% or 80% budget numbers by the end of the year, or is that probably a 2014 target?

Please proceed with your question.

Ian that went end of the year. I think it will not be the sole means to improve the recovery. Sometimes we’re doing at the moment are improving the recoveries towards the 70% anyway. And I think it will be one of those work in progress things that continues through into next year.

Ian Rossouw - Barclays Capital

And then, just on your interest line, I notice, with the majority of your interest you capitalized during the period, I see most, can you just confirm that most of that was due to the debt being allocated to the recovery project? And then just going forward assuming you draw down more debt, can we assume that most of that would be capitalized?

Clive Newall

Yeah Ian most of that coming from the Inmet bonds and it is been capitalized against our Cobre Panama project and as we draw down I mean that would probably be spend most of that against Cobre Panama as well. So I think it's a fair assumption.

Ian Rossouw - Barclays Capital

Do you have a sort of baseline where you can expense, as in just guidelines, going forward?

Clive Newall

Probably the current run-rates is probably a fair assumption, Juliet I don’t know if you have got a number on there?

Juliet Wall

Yeah I think if you take the quarterly charge that would be a reasonable assumption than could the amount has been capitalized for this quarter.

Ian Rossouw - Barclays Capital

And then just lastly, I mean obviously there's been quite a big reduction or fall in the gold supplies globally, and I just wanted to see if you're actually seeing that coming through in your operations at Ravensthorpe as well as your Zambian operations.

Philip Pascall

The answer is yes, I think probably we will see more of it in this coming quarter than we have seen historically just because of the timing and it's one of the reasons why our views on Ravensthorpe on it's continued profitability are very positive because it's a big part of their cost.

Ian Rossouw - Barclays Capital

I mean, that $5.50 to $6 guidance, could you give us an indication of what you're seeing as the focal prices in that guidance?

Hannes Meyer

We just spoke to our metal trading guys and the current sulfur is there are lots being sold at the moment are between $55 and $75 FOB that compares to a peak 18 months over and 285 but a number of our, most of our contracts as I understand it are not price.

Philip Pascall

But the answer to your question is what we’ve priced in that guidance and I think it's really based on a historic trend than and a detailed expectation is some of the reduction. So we would see that as reasonably conservative.

Juliet Wall

We would have used something like about 180 to obviously when it was at a much higher rate.

Ian Rossouw - Barclays Capital

So, that could be quite a material reduction then in guidance in ore.

Philip Pascall

Well and there are two reasons for that Ravensthorpe it's getting those sorts of improvements and the through-puts, the outputs of Ravensthorpe have been picking up steadily towards the end of last quarter and now, so in terms of C1 cost that has an additional benefit.

Operator

Thank you. The next question is from Jean Devevey from Exane. Please go ahead.

Jean Devevey - Exane BNP Paribas

You talked a bit about sulfur prices that were down. What about availability and probably at Kansanshi given that the sharp price in Kansanshi and inventories? I believe availability is still not satisfactory. What are you seeing for H2, given that you're I mean, if you look at H1 where you are at the very low end of your volume guidance for this year?

Philip Pascall

You used some letters that but I wasn’t quite sure what you said.

Clive Newall

Asset availability that you’re talking about?

Jean Devevey - Exane BNP Paribas

Yes, availability of sulfur.

Philip Pascall

With the declining sulfur price we can if we like increase the amount of we produce ourselves and of course it's costly and goes up. But it puts some pressure on the setting price of the off take producers of acids which is helpful. We’re caught in an interesting riddle all the time and that is that we can always process more material with high (inaudible) consuming properties. To a large extent we’re running a capital balance between that and holding it for the future we know acid prices are up. They juggle a whole host of parameters of Kansanshi and one of those that’s been fairly important than the last few months has been that of power, Zesco has a number of new sources of generation coming on stream starting from December they have a new set of a 180 megawatts coming on at Kalimba (ph) and the second one of those later in 2014. And towards the end of 2014 and in time for the rest of our expansion we envision at the moment the power station is coming on stream.

So with that extra-generating capacity the availability of power and the source and the quality of the power will improve, however for the latter has been a need for some compensation infrastructure which is in hand by Zesco and also by Kansanshi itself which improves the voltages and the voltage stability. And when they are juggling with those kinds of things as well as acid you will find that what they actually turn on-of off the oxide and cathode production varies according to what they see as optimal. So there is a number of other parameters about just what the sulfur price would be, or asset availability.

Jean Devevey - Exane BNP Paribas

Okay. And I think you previously said that your full year copper production guidance, I mean, you agreed - conservative. Is it still the case, in our view?

Clive Newall

Well I think we said on the gold production at Kansanshi, it's probably a bit conservative. I think on the copper production I mean that’s a previous guidance given and when we feel comfortable with that guidance given the trend that we have seen over the last quarter and looking forward.

Operator

Thank you. The next question is from Roger Bell from JP Morgan. Please go ahead.

Roger Bell - JP Morgan

Just a couple of questions on Sentinel. The CapEx budget looks like it's actually decreased slightly from the last guidance, so it's gone from 2 to 1.9 in today's announcement. Could you just sort of give a bit of detail on why that would be? Is it a scope change, or is it just a rounding error, or does it have something to do with the negotiations with Zesco?

Philip Pascall

It's probably a mixture of all those things. I don’t think there is anything material in the figure that you’re seeing there as a change. That project is running pretty well. It would be too early for us to stop predicting or say anything else but it is a very solid project. And we’re very happy with it's progress and how it's been performing.

Hannes Meyer

The only thing could possibly be enterprise. I mean overall project is probably around 2 billion and enterprise was something around was it at 100?

Philip Pascall

Yeah. If you talk Trident or Sentinel actually there is a slight distinction which is Hannes is pointing out. Trident incorporates enterprise and there is some capital expenditure today that’s separate from Sentinel but not a lot and sometimes it's referred to as just as Sentinel and that might account for that distinction.

Roger Bell - JP Morgan

Okay. All right. So, it should I assume it's $1.9 billion for just Sentinel and $2 billion for the whole of Trident?

Philip Pascall

Yes.

Operator

Thank you. The next question is from (inaudible). Please go ahead.

Unidentified Analyst

Just a couple of questions. Firstly, with regards to the terming out of your acquisition debt, are you going to be looking at just bank debt markets or are you also looking at the bond capital markets? And secondly, can I just get some clarification on the cash flow statement, what the sort of $1.95 billion proceeds from sale of investments was and sort of how that goes through the balance sheet? Thank you.

Hannes Meyer

I think on the acquisition data I mean we’re considering all that instruments. So we’re talking to the banks in terms of, as I said, the full term and revolving credit, but we will look at the bond market as well see what is optional mix for the company going forward. I think it's too early to answer that but we will probably be in the next few months come back to you guys and give you an update on that. In terms of the cash flow statement, a lot of that was in the previous classification I think Inmet had the a lot of the cash held in instruments in the cash resulted within funds within Canada and we liquidated those instruments, so that was just classification from investments and then converted to cash, as many bonds and as in liquid instrument.

Operator

Thank you. The question and answer session is now over. I will now turn the meeting back to Mr. Newall.

Clive Newall

Thanks operator and thanks everybody for your participation in the call today. If there is any follow-up questions please contact either Sharon Loung or myself, we will do our best to give answers. Thanks again. Talk to you next quarter.

Operator

Thank you. The conference is now ended. Please disconnect your lines at this time. And we thank you for your participation.

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