Through the Cobre Panama development project, which achieved commercial production in September 2019, the company showed it can successfully tackle large development projects in remote areas.
The company learnt some key lessons during the super cycle, when it engaged in M&A activity at the top of the price cycle, and arguably paid dearly to obtain the Taca Taca project in Argentina and Haquira in Peru. These purchases, together with the development of Cobre Panama, saw First Quantum become mired in debt, which stands at US$6 billion today. A pressing priority, therefore, is getting its balance sheet in better shape to be able to support the future investments it has on the horizon.
The company has now navigated the thorny issue of succession, with chair, CEO and co-founder Philip Pascall stepping aside to be replaced by COO Tristan Pascall from May 2022. Tristan has been groomed for the position, not in the comfort of the boardroom, but in the oft-testing conditions of mine construction sites in developing nations.
A company man since 2007, he spent four years in Panama leading the Cobre Panama development, which followed eight years in Zambia helping to build Sentinel. Mine building will continue to be a large part of First Quantum's future but with ever-greater challenges as the focus on ESG and decarbonisation intensifies.
Mining Journal first met with Tristan during a Cobre Panama site visit in August 2017 during the early stages of its construction. In many ways it was a development ahead of its time due to the use of a trolley assist haul truck system before decarbonisation was an industry theme and before most people had heard the term scope 1 emissions. Mining Journal caught up with Tristan to look ahead at the challenges and opportunities he faces.
Mining Journal: Hello Tristan and congratulations on taking the reins next year. A lot has changed in the past four years since we last met.
Tristan Pascall: Thanks, Paul. It's a very exciting time to be at First Quantum and it's really about continuty. My focus is on the future having been through a pretty thorough, process, towards continuing to grow the company, and continuing in it where the DNA and the platform we have in the business is really around an excellent group of people with a unique set of capabilities. First Quantum is known for project execution and operations, excellence, and we're going to continue that.
MJ: With the passing of the leadership baton to you, how would you like to establish yourself and put your personality on the company to take it forward?
TP: Firstly, around people. There's a great platform and certainly over the last 25 years, the company has been built up as an entrepreneurial platform. A lot of that will continue on our people capabilities, project execution and operations excellence. As an industry we need to concentrate on ESG and our impact with communities. That will certainly be a focus and it's something that has always been at the heart of the way we've done business in Africa, in Panama, and so on. You have to build a mine from the ground up and that's with the communities around you. They have to be long-term relationships with mutual trust, but it's really around listening, and learning from the people around you, and is really towards becoming a partner of choice. There's a lot more in innovation and technology that First Quantum will continue to do and the big bang changes will come, but it's also a matter of incremental improvements and we certainly have a good platform in that regard.
MJ: First Quantum is known first and foremost as a copper company but one of the first things you'll deal with the development of more nickel with the Enterprise project in Zambia to add to your production at Ravensthorpe in Australia]. Why is it important for the company to have that diversification into nickel?
TP: The company will continue to have a copper focus as copper is an extremely important metal. First Quantum is the right partner for energy and performance metals into the 21st century and copper is a huge part of that. The pandemic was the first time in perhaps 20 years when there was an uptick in global poverty. 97 million people went back into poverty globally. Copper is the conduit by which we continue to develop and provide electricity into developing communities around our mines but as the world transitions to the new economy it has a huge part to play in that. Copper will continue to be at the core of our business but we expect to become one of the top six nickel producers in the world. Enterprise is a primary sulphide hardrock ore body and fairly unique in its mineralogy in terms of the minerals which can be very high grade. Because of the carbon footprint in Zambia, with 80% hydro already and the potential to add solar and wind, Enterprise can become a champion in the battery market. Copper might be further away in terms of traceability and the decommoditisation of the products as car manufacturers need to know where those metals come from. With battery metals precursors, we've embarked on a great partnership with Posco at Ravensthorpe and there's been a huge step forward in terms of our understanding of that supply chain and we look to continue to build on that.
MJ: Do you see the possibility of being able to get premium pricing for a low carbon nickel or copper products?
TP: There's some indications that it's starting to happen. We have seen a couple of producers in the copper market talk about that. If it's going to happen, it will happen first in nickel because of the importance of the batteries to [automotive] brand names. There is potential and we have seen the possibilities for nickel and it's in the battery precursors improving in the last 12 months or so. Regarding a premium, ESG-friendly nickel is not there yet but we're certainly positioning so that if that comes to bear the Enterprise and Ravensthorpe assets are very well positioned in terms of their energy and ESG footprints.
MJ: Cobre Panama has been a huge success for the company. What's is the plan for it going forward?
TP: Cobra Panama has done very well ramping-up. Like the rest of the industry, we certainly faced the challenges of the COVID-19 pandemic and it was really rewarding to see the effort from the guys, at times with one arm tied behind their back, to get through the pandemic. We've now achieved around 97-99% vaccination of all employees across the site which means we've been able to take down some of the really heavy health protocols. We were quarantining everybody before they arrived on site and that's a huge imposition on them. From the platform they've delivered we were on track to meet guidance this year, which was over 300,000 tonnes of copper production and to be at or about the 85 million tonnes per annum throughput rate, which is the nameplate, and from here the journey is to 100Mtpy. We're investing in that and we're on track to deliver that and exit 2023 at that run rate. That project is well underway in the process plant and involves investment in a new mill, a sixth ball mill, a screening plant to help with comminution and segregation of materials. Entering 2023, we will be commissioning that ball mill and that is the critical path.
MJ: It's a great time for a copper producer to bring new production on stream with the copper price over $4 a pound. First Quantum has a pipeline of greenfield projects with Taca Taca (measured and indicated resources of 2.2 billion tonnes grading 0.43% copper, 0.09 grams per tonne gold and 0.012% molybdenum for contained metal of 20.9 billion pounds of copper, 283.2Mlb of molybdenum and 6.1 million ounces of gold) and Haquira (measured and indicated resources of 569Mt grading 0.56% copper). How urgent is it for the company to push these through to be able to take advantage of these prices?
TP: Our focus at the moment is on debt repayment. We took on a lot of debt to get Cobre Panama up and going and have set a target to reduce net debt by $2 billion by the end of next year. With these elevated commodity prices, we're seeing that accelerate and will achieve that mid next year. That is a huge step forward and we will continue to improve the balance sheet and reduce that further. We are also focused on investing in the business and for that we'll start on the brownfield side. The 100Mtpy upgrade at Cobre Panama is one of those projects, we're also looking at projects to continue the life of Kansanshi for another 20 years. The investment decision hasn't been made yet and it depends on the situation in Zambia, which is very much improving under the new administration. Also, at Los Cruces in Spain, we are looking at the potential to go underground. Brownfield projects have the benefit of being lower capital intensity and very modest capital investments for very good incremental copper production. If we do all those projects, we're talking about being close to a million tonnes of copper production a year from our current level above 800,000 tonnes.
Beyond that, we're looking at greenfield, but on a longer timeframe. With Taca Taca, we won't make a decision before 2022 or 2023. We really like the project but it's about the investment case into Argentina. It stacks up very well in terms of the resource with 32 years of production at 200,000tpy copper production and up to 270,00tpy, but it is about are we able to get dividends out and realise investment in Argentina? We'll be in country over the next year, pushing very hard on things like permitting, but also the relationship with the federal and regional governments. Longer term, our intent is certainly to add a third long term leg to continue the geographic diversification: Zambia, Panama and a nw geography to address volatility in earnings as we pull down debt as well. It will be a disciplined focus and we're not going to chase growth for growth's sake, it needs to come with a good return.
MJ: In terms of ESG and decarbonization. First Quantum has yet to put its position out there and what its targets and goals are going to be and in what timeframe. You've got the challenge of decarbonizing Cobre Panama and reducing its reliance on coal power. What are your plans?
TP: It's very important for the industry as it is for us and we've seen that markets are demanding this. We will come out with our targets at the end of this year and early next year will explain those more thoroughly. We focus very much on practical, tangible projects to address this so we're not making a zero carbon statement, because what we want to focus on real projects that make a difference in the here and now. Most of our minds are closed by 2050,. Closing mines is the easiest way to address carbon footprint so really, it's about how do we continue to grow in a way that that makes sense. The biggest impact is clearly the coal-fired power station at Cobra Panama. We will first deal with the increment that's required for the 100Mtpy, which is around 60 to 80 megawatts. That will not be coal and we're in the market at the moment so all I can say is it will be lower carbon or 100% renewable potentially and at a price that compares well with where we are, if we fully depreciate the power plant and look at where the coal price is going.
We inherited the coal-fired plant when we went to Cobra Panama as it was already designed, procured and sitting on the ground. It was the right thing to do to put it in place and have the power for the project. Now it is appropriate to look at that and it will be a combination of solutions. Panama does have hydro, wind and solar but they're not very reliable, so it will be a combination of lower carbon and renewable solutions. But it's likely the power plant will also have a part in supporting the national grid even if it's not supplying us. As we've seen in Europe when you turn the coal-fired power stations off, it can very suddenly and very significantly move energy prices and that's not the right thing to do.
Elsewhere in the business, we are very much focused on new technology. We were probably the leading proponent of trolley assist, and also in pit crushing and conveying. We believe those technologies and the electrification of our mining slip fleet saves around 100,000 tonnes of carbon dioxide a year. We've rolled it out in Panama, it operates at Kansanchi and we think technology is can be a precursor to a lot of the future of other energy sources for trucking. Electrification of the of the fleet lends itself to batteries and trolley provides an opportunity to recharge. That won't be us, but working with our suppliers on those truck technologies.
MJ: When the company bought Taca Taca and Haquira 10 years ago, decarbonisation wasn't really a thing, but as you move forward to develop them, they obviously now have to take such things into account. To what extent do you have to revisit the original plans and recast them to embrace this new reality?
TP: When we released a resource update on Taca Taca at the end of last year it included a carbon price. We've committed to a carbon price in the evaluation of our new projects. Taca Taca is well-positioned in terms of its location as there are very few communities around it, a good wind blows and there is a lot of solar potential there and we think it could lend itself very strongly to renewable power. A power line is part of the permitting process we have underway, but certainly investment in solar and wind will make sense there.