Copper production decreased by 3% from Q1 2012 due to slightly lower copper grades and recovery. The deferral of several high copper grade stopes to later in the year led to the reduced copper grades compared to the prior year. The negative impact was partially offset by higher mine production and throughput, with Cayeli having benefited from improved mine planning and logistical control during the quarter.
Zinc production decreased by 2% from Q1 2012 due to lower zinc grades partially offset by higher zinc recovery and higher throughput. The decrease in zinc grade resulted from lower grade stopes in the areas mined, while favourable blending and controlled throughput led to higher zinc recovery.
Cash costs in Q1 2013 increased by 22% from Q1 2012 due to lower copper production and a decreased by-product credit. The increase in cash costs in Q1 2013 was partially offset by a slight decrease in operating costs.
Sales revenues and gross profit decreased by 36% and 53%, respectively, in Q1 2013 compared to Q1 2012. The decreases in sales revenues and gross profit reflect lower copper and zinc sales volumes and lower realized metals prices this quarter. Gross loss in the 10-day post-acquisition period is impacted by the partial recognition in net earnings of fair value adjustments made to inventory on the date of acquisition. These adjustments impact the results as a portion of the inventory held on the balance sheet at acquisition date has been sold. It is expected that the fair value adjustment to finished goods inventory will be fully unwound during Q2 2013.
The three-year labour agreement at Cayeli expired in May 2012. The negotiation of a new labour agreement, initially delayed due to changes to government labour regulations, is proceeding and Cayeli plans to make a strong effort to manage labour cost escalations to retain the operation's cost competitiveness.
Outlook
Production is expected to be between 28,000 tonnes and 31,000 tonnes of copper and between 36,000 tonnes and 40,000 tonnes of zinc in 2013. Both copper and zinc recovery are expected to be lower in 2013, reflecting the increased proportions of metallurgically challenging ore types.
In 2013, throughput is expected to increase from 1.20 million tonnes to 1.25 million tonnes. The mine should benefit from the commissioning of two new ore passes by Q3 2013, the extension of a shotcrete slickline to the lower levels of the mine, improved lower mine infrastructure and the addition of stope production from a new mining block, all of which should ease pressure on existing production areas. Cayeli's ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. Continued progress in meeting the challenges of poor ground conditions and planned operational efficiencies is aimed at reducing the risks associated with achieving the production plan.
-------------- --------------------------------- Historical results--------------------------------------------------------------------------Pyhasalmi Copper and Zinc March 22-31 Full Quarter Operation(1) 2013 Q1 2013 Q4 2012 Q1 2012--------------------------------------------------------------------------Ore tonnes milled (000's) 39 346 351 342Copper ore grade processed (%) 1.3 1.3 1.0 1.0Copper recovery (%) 96 97 97 96Zinc ore grade processed (%) 1.4 2.0 3.0 1.5Zinc recovery (%) 90 92 93 90Copper production (tonnes) 473 4,362 3,273 3,381Copper sales (tonnes) 271 3,747 3,237 3,909Zinc production (tonnes) 483 6,184 9,660 4,620Zinc sales (tonnes) 144 6,738 8,984 4,154Pyrite production (tonnes) 21,187 189,955 222,534 211,275Pyrite sales (tonnes) 10,953 114,478 299,676 112,298Cash costs (C1) (per lb)(2) n/a ($0.55) ($1.62) $0.51Total costs (C3) (per lb)(2) n/a ($0.10) ($1.19) $0.84--------------------------------------------------------------------------Sales revenues 2.7 47.6 51.8 44.2Gross profit (loss)(3) (1.0) 30.5 32.4 26.1EBITDA(2) 0.4 34.2 33.5 27.5--------------------------------------------------------------------------(1) Results from the Pyhasalmi mine are only included in First Quantum'sfinancial results for the period subsequent to the date of acquisition onMarch 22, 2013. Prior period results are shown for comparative purposes onlyand do not include any financial adjustments that would be required had theacquisition taken place on January 1, 2012.(2) C1 and C3 costs and EBITDA are not recognized under IFRS. See"Regulatory Disclosures" for further information. C1 and C3 costs have beenrecalculated using First Quantum's methodology and may be different to thatpreviously disclosed by Inmet.(3) Gross profit (loss) is defined as sales revenues less cost of sales;disclosure regarding the Pyhasalmi mine in Inmet's financial reportingdefines sales revenues less cost of sales as operating earnings.
