First Quantum Minerals Ltd.

Transcription

1 First Quantum Minerals Ltd. Consolidated Financial Statements Second Quarter, 2009 (unaudited) (expressed in millions of U.S. dollars, except where indicated)

2 First Quantum Minerals Ltd. Consolidated Statements of Earnings and Comprehensive Income (unaudited) (expressed in millions of U.S. dollars, except where indicated) Sales revenues Three months ended Six months ended Note Copper ,111.8 Gold Acid ,164.1 Cost of sales (162.7) (199.7) (303.0) (325.5) Depletion and amortization (38.6) (25.6) (70.4) (45.9) Royalties, windfall taxes and export levies 15 (11.3) (86.6) (20.0) (97.9) Zambian taxes recovery Operating profit Other expenses/income Exploration (3.5) (4.2) (7.0) (10.0) General and administrative (5.6) (8.2) (11.3) (14.9) Interest (11.5) (7.9) (22.6) (16.5) Derivative instrument losses (52.7) (2.2) (99.1) (3.6) Other expenses/income (2.6) (62.9) (22.2) (129.1) (47.6) Earnings before income taxes and minority interests Income taxes (40.6) (134.9) (49.1) (232.9) Minority interests (6.2) (42.9) (16.8) (91.6) Net earnings for the period Other comprehensive income Unrealized gain (loss) on available-for-sale investments, net of tax Realized gain on available-for-sale investments, net of tax (36.1) (101.3) (1.2) (1.3) (36.1) (101.3) Comprehensive income Earnings per common share Basic $1.31 $3.06 $1.54 $5.74 Diluted $1.30 $3.02 $1.53 $5.67 Weighted average shares outstanding (000 s) Basic 77,242 68,046 72,861 67,941 Diluted 77,897 68,938 73,412 68,790 Total shares issued and outstanding (000 s) 78,224 68,696 78,224 68,696 The accompanying notes are an integral part of these consolidated financial statements. 2

3 First Quantum Minerals Ltd. Consolidated Balance Sheets (unaudited) (expressed in millions of U.S. dollars, except where indicated) Note, 2009 December 31, 2008 Assets Current assets Cash and cash equivalents Restricted cash Accounts receivable Inventory Current portion of other assets , Investments Property, plant and equipment 5 2, ,996.3 Other assets Total assets 3, ,004.5 Liabilities Current liabilities Accounts payable and accrued liabilities Current taxes payable Current portion of long-term debt Current portion of other liabilities Long-term debt Convertible bonds Other liabilities Future income tax liabilities Total liabilities 1, ,290.6 Minority interests Total liabilities and minority interests 1, ,603.9 Shareholders equity Capital stock Retained earnings 1, Accumulated other comprehensive income Total shareholders equity 1, ,400.6 Total shareholders equity, liabilities and minority interests 3, ,004.5 Commitments 14 Contingencies and measurement uncertainty 15 Approved by the Board of Directors Director Director The accompanying notes are an integral part of these consolidated financial statements. 3

4 First Quantum Minerals Ltd. Consolidated Statements of Changes in Shareholders Equity (unaudited) (expressed in millions of U.S. dollars, except where indicated) Capital stock Common shares Three months ended Six months ended Note Balance beginning of period Stock options exercised Stock issued on equity financing Acquisition of Scandinavian Minerals Limited Balance end of period Equity portion of convertible bonds Balance beginning of period Equity allocation of convertible bonds Balance end of period Treasury shares Balance beginning of period (38.8) (36.8) (38.8) (34.3) Shares purchased (2.8) (5.3) Restricted stock units vested Balance end of period (38.8) (39.5) (38.8) (39.5) Contributed surplus Balance beginning of period Compensation expense for the period Transfers upon exercise of stock options (0.1) (1.2) (0.7) (1.6) Restricted stock units vested (0.1) (0.1) Balance end of period Total capital stock Retained earnings Balance beginning of period , Net earnings for the period Dividends (36.1) Balance end of period 1, , , ,341.3 Accumulated other comprehensive income Balance beginning of period Other comprehensive income (loss) for the period (36.1) (101.3) Balance end of period Retained earnings and accumulated other comprehensive income 1, , , ,442.6 The accompanying notes are an integral part of these consolidated financial statements. 4

5 First Quantum Minerals Ltd. Consolidated Statements of Cash Flows (unaudited) (expressed in millions of U.S. dollars, except where indicated) Three months ended Six months ended Note Cash flows from operating activities Net earnings for the period Items not affecting cash Depletion and amortization Minority interests Adjustment to net realizable value of inventory (10.7) (10.7) Unrealized foreign exchange loss (gain) 3.4 (0.4) Future income tax expense (2.0) 24.1 (12.0) 39.4 Stock-based compensation expense Unrealized derivative instruments loss (gain) 13.4 (1.0) 55.5 (2.8) Other Change in non-cash operating working capital Increase in receivables and other (68.2) (121.7) (121.0) (222.0) Increase in inventory (9.1) (19.9) (24.5) (80.4) Increase (decrease) in accounts payable and accrued liabilities (32.2) 88.8 Increase in current taxes payable Long term incentive plan contributions (2.8) (5.3) Cash flows from financing activities Proceeds from long-term debt Repayments of long-term debt (150.0) (0.3) (251.5) (25.6) Proceeds from convertible bonds Proceeds on issuance of common shares Restricted cash (40.3) (40.4) (17.9) Dividends paid (36.1) (36.1) Cash flows from investing activities Payments for property, plant and equipment (94.4) (110.9) (173.2) (211.4) Acquisition of Scandinavian Minerals Limited (215.7) (215.7) Acquisition of available-for-sale investments, net (1.5) (36.3) 3.8 (58.2) (95.9) (362.9) (169.4) (485.3) Effect of exchange rate changes on cash Increase in cash and cash equivalents Cash and cash equivalents - beginning of period Cash and cash equivalents - end of period The accompanying notes are an integral part of these consolidated financial statements. 5

6 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 1 Basis of presentation These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ) disclosure requirements for interim financial statements and do not contain all the information that is required of annual financial statements. Accordingly, they should be read in conjunction with the December 2008 audited financial statements. 2 Changes in accounting policies Pre-production costs Section 3064, Goodwill and intangible assets establish revised standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets. Concurrent with this standard, the CICA withdrew EIC 27, Revenues and Expenses during the preoperating period. As a result of the withdrawal of EIC 27, the Company is no longer able to defer costs and revenues incurred subsequent to the completion of plant commissioning and prior to the commercial levels of production at new mine operations. The Company adopted the new standard retrospectively effective January 1, 2009 and there was no significant impact on the financial statements. Mining exploration costs In March 2009, the CICA issued EIC 174 Mining Exploration Costs. This EIC provides guidance on accounting for and impairment of exploration costs. The Company adopted this EIC effective January 1, As the Company s policy is to expense early stage exploration expenditures, application of this EIC does not have an impact on the financial statements. Credit Risk and the Fair Value of Financial Assets and Financial Liabilities In January 2009, the CICA issued EIC 173 Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This EIC provides guidance on the impact of equity and counterparty credit risk when determining the fair value of financial assets and liabilities including derivative instruments. The Company adopted this EIC effective January 1, The adoption of the EIC did not have a significant impact on the Company s financial statements. 3 Inventory, 2009 December 31, 2008 Ore in stockpiles (a) Work-in-progress Finished product Total product inventory Less: Non-current portion of ore in stockpiles (b) (note 6) (68.4) (61.1) Consumable stores a) During the period, the Company recorded an adjustment of $10.7 million to reverse the write down incurred on the Kansanshi ore stockpiles at December 31, 2008 as the circumstances causing the write down no longer exist. The reversal of the write down was recorded in cost of sales. b) The non-current portion represents ore in stockpiles that the Company does not anticipate processing in the next 12 months. 6

7 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 4 Investments, December 31, Carlisa Investment Corp. at cost Marketable securities Asset-backed commercial paper The following table summarizes the movements in the fair value of available-for-sale financial investments: , 2009 December 31, 2008 Balance beginning of period Additions Disposals (9.3) (1.8) Gain (loss) in fair market value (493.6) Balance - end of period Property, plant and equipment, 2009 December 31, 2008 Accumulated Accumulated Cost amortization Net Cost amortization Net Plant and equipment 1,235.5 (362.6) ,170.7 (299.2) Capital work-in-progress Mineral properties and mine development costs (38.6) (35.7) ,490.8 (401.2) 2, ,331.2 (334.9) 1,

8 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 6 Other assets, December 31, Recoverable taxes (note 15b) Future recoverable variable profit tax (a) Ore in stockpiles (note 3) Derivative instruments (note 13) Future income tax asset Prepaid expenses and other Total other assets Less: current portion (162.6) (150.8) Current portion consists of: Recoverable taxes Derivative instruments Prepaid expenses and other a) Included in future income tax liabilities is an amount relating to variable profit tax ( VPT ) introduced in Zambia in 2008, which has resulted in an increase in the future effective tax rate from the 30% base income tax rate for mining companies to 41%. The Company recorded a future recovery on this VPT under its Development Agreements and offset this against the income tax charge in net earnings as it maintains that these taxes are in excess of those permitted under its Development Agreement. 7 Debt facilities Drawn debt facilities, 2009 December 31, 2008 Corporate revolving credit and term loan facility (a) Corporate revolving loan and short-term facility (b) 50.0 Kansanshi subordinated debt facility (c) Kansanshi project completion facility (d) 11.1 Other Total debt facilities Less: Current portion debt facilities and short term debt (84.2) (139.5) Undrawn debt facilities Corporate revolving loan and short-term facility (b)

9 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) a) Corporate revolving credit and term loan facility The Company entered into a $400.0 million corporate revolving credit and term loan facility in October The facility has three tranches, up to $225.0 million, $125.0 million, and $100.0 million. The total aggregate outstanding under the facility is not to exceed $400.0 million. Tranche A is repayable in ten equal semi-annual instalments commencing on March 31, 2007; tranche B is repayable in seven semi-annual instalments commencing on September 30, 2008; and tranche C is to be repaid on September 30, Interest on tranches A and B is calculated at LIBOR plus 2.5%. Interest on tranche C is calculated at LIBOR plus 2.75%. The corporate revolving credit and term loan facility has a principal amount outstanding of $251.8 million. The carrying amount shown above of $248.8 million is net of paid issue and transaction costs of $3.0 million, which are deferred and amortized over the term of the facility. The collateral includes an assignment of proceeds under various sales contracts from the sale of copper, copper concentrate and gold at Kansanshi, Bwana, Guelb Moghrein, and Frontier. Cash is restricted to meet required instalments and $40.3 million was recorded as restricted cash at, b) Corporate revolving loan and short-term facility The Company originally entered into the $250.0 million loan facility in January 2008 for general corporate purposes and to provide financing in relation to corporate investments. This facility was drawn as to $227.5 million in June 2008, and $177.5 million was repaid in August The outstanding balance of this facility was repaid in January 2009 with funds from the replacement facility. The Company renewed the $250.0 million facility in January 2009 for general corporate purposes, replacing the previous revolving loan facility. Any principal amount drawn under the new facility is due in January Interest is calculated at LIBOR plus 4.5%. The loan is collateralized by a first ranking mortgage over the marketable security investments and the shares of Scandinavian Minerals Limited and Carlisa owned by the Company. The corporate revolving loan and short-term facility was undrawn at, The Company paid issue and transaction costs of $11.0 million, which have been recorded as a prepaid expense and amortized over the term of the facility. c) Kansanshi subordinated debt facility Kansanshi entered into a 34.0 million Euro subordinated debt facility in December 2003 to finance the Kansanshi project. This facility is repayable in nine equal annual payments commencing October 31, Interest is calculated annually, within a range of 3.2% to 13.2%, based on the average LME cash copper price for the preceding calendar year. The interest rate is at its lower limit at a realized copper price of less than $1,300 per tonne and increases incrementally until the copper price reaches its $2,200 per tonne upper limit. As this facility is in Euros, the Company has entered into cross-currency principal swaps to mitigate the effects of movements in the Euro during 2009 (note 13). The Kansanshi subordinated debt facility has a principal amount outstanding of 26.4 million Euros ( million Euros). The carrying amount is net of issue and transaction costs of 0.5 million Euros. The interest rate on the facility is indexed to the price of copper resulting in the existence of an embedded derivative. This embedded derivative is recorded at fair value at each period with changes in fair value recorded as a component of net earnings. d) Kansanshi project completion facility Kansanshi entered into the $25.0 million project completion facility in March 2004, which was amended and restated in This facility was drawn down in 2005 and was repayable in 9 semi-annual instalments which commenced December 31, Kansanshi repaid the outstanding balance of this facility in January

10 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 8 Convertible bonds In June 2009, the Company issued $500.0 million in 6% convertible bonds (the Bonds ) due June 19, 2014 (the Final Maturity Date ) for net proceeds of $488.0 million after payment of commissions and expenses related to the offering. The bonds bear interest at 6% per annum, payable semi-annually in equal instalments. The Bonds may be converted into the Company s common shares, at the option of the holder thereof, at any time from October 19, 2009 to the close of business falling seven business days prior to the Final Maturity Date. The initial conversion price (the Conversion Price ) is USD $56.39 (CAD $63.11) per common share for a maximum total of 8,866,820 common shares issuable upon conversion. In addition, if certain fundamental changes occur to the Company, holders of the Bonds may be entitled to an adjustment to the Conversion Price. The Company has the option to call the Bonds after July 3, 2012 until the Final Maturity Date, in the event that the trading price of the common shares exceeds 140% of the Conversion Price over a certain period. In addition, the Company has the right to redeem the Bonds if at any time the aggregate principal amount of the Bonds outstanding is equal to or less than 15% of the aggregate principal amount of the Bonds initially issued. Allocation of gross proceeds, 2009 Gross proceeds Fair value of debt component (441.7) Fair value of equity component 58.3 Convertible bonds Opening balance Issuance costs (10.6) Accretion expense 0.4 Equity Opening balance 58.3 Issuance costs (1.4) The fair value of the debt portion of the Bonds at initial recognition was estimated using the discounted cash flow model method. The fair value of the equity component was estimated using the residual value method. The debt component of the Bonds is accreted over the expected life of 5 years using the effective interest rate method. Total finance fees associated with the transaction was $12.0 million which was allocated on a proportionate basis between the debt and equity components of the gross proceeds. 10

11 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 9 Other liabilities, December 31, Derivative liabilities (note 13) Asset retirement obligations Other Total other liabilities Less: current portion (81.5) (27.0) Current portion consists of: Derivative liabilities (note 13) Other Common shares Authorized Unlimited common shares without par value Issued Number of Shares (000 s) Balance as at December 31, ,751 Stock options exercised 129 Share issuance (a) 9,344 Balance as at, ,224 a) On April 6, 2009, the Company issued 9,343,750 common shares at a share price of CAD $37.00 through a public offering for net proceeds of USD$269.5 million after foreign exchange and payments of commissions and expenses related to the issue. 11 Other expenses/income Three months ended Six months ended Foreign exchange gain (loss) 9.2 (1.0) 9.3 (5.6) Interest and sundry income Gain on sale of investments Segmented information (2.6) The Company s reportable operating segments are individual mine development projects or operations, being Kansanshi, Guelb Moghrein, Frontier, Bwana/Lonshi, Kolwezi, Kevitsa and Corporate. Each mine and development project is managed and reports information separately to the chief operating decision maker. The corporate segment is responsible for the evaluation and acquisition of new mineral properties, regulatory reporting, treasury and finance and corporate administration. 11

12 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) For the three month period ended, 2009, segmented information is presented as follows: Guelb Bwana/ Kansanshi Frontier Moghrein Lonshi Kolwezi Kevitsa Corporate Total Segmented revenues Less inter-segment revenues (23.0) (6.4) (29.4) Revenues Cost of sales (108.3) (36.0) (21.0) (5.4) (170.7) Depletion and amortization (26.8) (5.3) (5.2) (1.3) (38.6) Operating profit (loss) (6.4) Interest on long-term debt (1.5) (0.1) (9.9) (11.5) Other (54.4) (0.9) (0.8) (3.0) 7.7 (51.4) Segmented profit (loss) before undernoted items (9.5) (2.2) Income taxes (26.6) (20.2) 6.2 (40.6) Minority interests (0.2) (2.3) (3.7) (6.2) Segmented profit (loss) (9.5) Property, plant and equipment ,089.6 Total assets 1, , ,959.5 Capital expenditures For the three month period ended, 2008, segmented information is presented as follows: Guelb Bwana/ Kansanshi Frontier Moghrein Lonshi Kolwezi Kevitsa Corporate Total Segmented revenues Less inter-segment revenues (28.3) (6.2) (34.5) Revenues Cost of sales (122.2) (60.5) (14.9) (21.4) (219.0) Depletion and amortization (14.0) (5.7) (4.4) (1.5) (25.6) Operating profit (loss) (6.7) Interest on long-term debt (1.8) (4.3) (0.1) (1.7) (7.9) Other (3.0) (0.3) (2.2) (1.7) (7.1) (14.3) Segmented profit (loss) before undernoted items (8.4) (8.8) Income taxes (86.4) (38.5) (11.9) 1.9 (134.9) Minority interests (30.9) (3.7) (8.3) (42.9) Segmented profit (loss) (20.3) (6.9) Property, plant and equipment ,786.6 Total assets 1, ,629.2 Capital expenditures

13 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) For the six month period ended, 2009, segmented information is presented as follows: Guelb Bwana/ Kansanshi Frontier Moghrein Lonshi Kolwezi Kevitsa Corporate Total Segmented revenues Less inter-segment revenues (31.9) (11.9) (43.8) Revenues Cost of sales (203.0) (57.9) (38.7) (11.3) (310.9) Depletion and amortization (49.0) (9.9) (9.8) (1.7) (70.4) Operating profit (loss) (10.8) Interest on long-term debt (2.8) (1.8) (0.1) (17.9) (22.6) Other (101.8) (0.5) (1.2) (5.7) 2.7 (106.5) Segmented profit (loss) before undernoted items (16.6) (15.2) Income taxes (28.6) (28.7) 8.2 (49.1) Minority interests (6.6) (3.2) (7.0) (16.8) Segmented profit (loss) (16.6) (7.0) Property, plant and equipment ,089.6 Total assets 1, , ,959.5 Capital expenditures (0.8) For the six month period ended, 2008, segmented information is presented as follows: Guelb Bwana/ Kansanshi Frontier Moghrein Lonshi Kolwezi Kevitsa Corporate Total Segmented revenues ,218.4 Less inter-segment revenues (41.7) (12.6) (54.3) Revenues ,164.1 Cost of sales (202.0) (73.9) (41.3) (38.9) (356.1) Depletion and amortization (28.4) (6.8) (7.2) (3.5) (45.9) Operating profit (loss) (13.1) Interest on long-term debt (3.8) (8.7) (0.7) (3.3) (16.5) Other (9.6) (4.8) (3.2) (13.5) (31.1) Segmented profit (loss) before undernoted items (16.3) (16.8) Income taxes (173.0) (50.3) (13.0) 3.4 (232.9) Minority interests (69.6) (3.8) (18.2) (91.6) Segmented profit (loss) (29.3) (13.4) Property, plant and equipment ,786.6 Total assets 1, ,629.2 Capital expenditures

14 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 13 Financial instruments The following provides a comparison of carrying and fair values of each classification of financial instrument as at, 2009: Loans and receivables Availablefor-sale Held for trading Other financial liabilities Total carrying amount Total fair value Financial assets Cash and cash equivalents Restricted cash Accounts receivable (a) Recoverable taxes (note 15) Derivative instruments Investments At cost (b) At fair value Financial liabilities Accounts payable and accrued liabilities Derivative instruments Convertible bonds Debt facilities The following provides a comparison of carrying and fair values of each classification of financial instrument as at December 31, 2008: Financial assets Loans and receivables Availablefor-sale Held for trading Other financial liabilities Total carrying amount Total fair value Cash and cash equivalents Restricted cash Accounts receivable (a) Recoverable taxes (note 15) Derivative instruments Investments At cost (b) At fair value Financial liabilities Accounts payable and accrued liabilities Derivative instruments Convertible bonds Debt facilities a) Copper products are sold under pricing arrangements where final prices are set at a specified future date based on market copper prices. Changes between the prices recorded upon recognition of revenue and the final price due to fluctuations in copper market prices give rise to an embedded derivative in the accounts receivable. This derivative is classified as held for trading and recorded at fair value, with changes in fair value recognized as a component of revenue. b) The Company s investment in Carlisa, a privately held entity, is measured at cost as the fair value is not readily determinable. 14

15 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) Derivative financial instruments As at, 2009, the following derivative positions were outstanding: Copper Maturity 2009 Maturity 2010 Total, 2009 December 31, 2008 Asset Liability Asset Liability Bought put options (tonnes) 45,500 45, Average strike price ($/tonne) $3,512 $3.512 Sold call options (tonnes) 51,500 51,500 (67.1) Average strike price ($/tonne) $4,105 $4,105 Gold Forward sales contracts (ounces) 19,014 19,014 (11.8) (19.1) Average forward price ($/oz) $400 $400 Bought put options (ounces) 19,014 19, Average strike price ($/oz) $350 $350 Sold call options (ounces) (2.1) Average strike price ($/oz) Foreign exchange Foreign exchange bought put options USD equivalent Foreign exchange sold call options USD equivalent Cross-currency swap principal (note 7c) (0.9) (4.6) Interest rate Floating to fixed interest rate swap principal (0.2) (0.2) Average fixed interest rate 1.87% 1.82% 1.85% Other Embedded derivative (note 7c) (8.1) (8.0) Copper embedded derivative (tonnes) 21,542 21,542 Average price ($/tonne) $5,113 $5,113 Gold embedded derivative (ounces) 2,936 2,936 Average price ($/oz) $927 $ Commitments 7.2 (88.1) 9.0 (34.0) In conjunction with the development of Kolwezi and Kevitsa, upgrades at Guelb Moghrein and other projects, the Company has committed to approximately $136.5 million in capital expenditures. 15

16 First Quantum Minerals Ltd. Notes to Consolidated Financial Statements (unaudited) (expressed in millions of U.S. dollars, except where indicated) 15 Contingencies a) Kolwezi Revisitation Process The Government of the RDC ( GRDC ) announced during 2007 a review of over 60 mining agreements entered into over the last decade with foreign companies. The Kolwezi mining convention was included in this review and in February 2008 formal notification of the outcome of the review was received by the Company. The notification listed a number of conditions to be met by the Company. The Company has legal advice that the convention is valid and binding and that Kingamyambo Musonoi Tailings SARL ( KMT ) (65% owned by the Company) has complied with all its terms. The convention provides a dispute resolution mechanism through international arbitration. Over the past months, the Company and its contributing partners attended several meetings with La Générale Des Carrières et Des Mines ( Gécamines ) (the state-owned mining agency of the RDC) and Government representatives on the review of the Contrat D Association mining convention. No agreement has been reached to date. Public announcements by the GRDC and other companies involved in the review process indicate that outcomes on conventions may range from their full cancellation to changes in contract terms involving one or more of increased up-front payments; increased royalties or management fees; transfer of part ownership to government agencies; conduct of social programs; and increased management involvement by government bodies or representatives. The carrying value of the Kolwezi development project is $717.7 million (December 31, $637.8 million) and is comprised of the initial acquisition cost of $387.6 million (December 31, $387.6 million) and capital expenditures of $330.1 million (December 31, $250.2 million). The outcome of the review process in respect of the Contrat D Association remains uncertain and may have a material impact on the Company s interest in the project. b) Zambian Tax Update The Government of the Republic of Zambia ( GRZ ) announced in January 2008 a number of proposed changes to the tax regime in the country in relation to mining companies. These changes included a new windfall tax on copper sales revenue; a new variable profit tax; a concentrate export levy of 15%; an increase in the royalty rate to 3%; an increase in the income tax rate to 30%; and other changes including changes in the timing of deductibility of capital allowances and streaming of hedging losses and gains. These changes were passed by parliament in March 2008 and the majority of changes took effect from April 1, In light of the recent economic situation, the GRZ reviewed these tax changes and proposed that the new windfall tax be removed, the deductibility of capital allowances be increased back to 100% in the period of expenditure and to allow hedging income to be part of mining income for tax purposes. These changes were passed by parliament in March 2009 and the majority of changes took effect from April 1, These enacted changes are not retroactive to April 1, On May 18 th, 2009 the GRZ issued a temporary exemption of the concentrate export levy of 15% until December 31, 2009 in order to allow the Company to export the copper in concentrate that cannot be treated in Zambia due to the lack of smelter capacity within Zambia. The Company, through its Zambian subsidiaries, is party to Development Agreements with GRZ for its existing operations which provide an express right to full and fair compensation for any loss, damages or costs (including interest) incurred by the Company by reason of the government's failure to comply with the tax stability guarantees set out in the Development Agreements, and rights of international arbitration in the event of any dispute. Following consultation with external legal counsel, the Company assessed there to be a high probability of recovery from the GRZ of certain payments made in respect of these taxes. Accordingly, the Company has recognized a receivable from the GRZ for an amount in respect of the expected ultimate repayment of taxes in excess of the taxes permitted under the Development Agreements. As required by the financial instruments accounting standards, this receivable has been classified as loans and receivables and initially recorded at fair value based on management s best estimate of the timing of receipt and amounts due. The receivable will be assessed for impairment in future periods based on changes in facts and circumstances; any impairment amounts required in future may be material. As at, 2009 this receivable amounted to $140.0 million (December 31, $127.5 million). Currently, the Company is seeking to hold discussions with the GRZ to find an alternative solution to arbitration or litigation to fully resolve all outstanding matters in relation to the tax changes introduced in conflict with the Development Agreements. The timing and outcome of these discussions is uncertain. 16

17 Management s Discussion and Analysis Second Quarter Ended, 2009 (expressed in United States dollars, unless otherwise noted) August 10, 2009 SUMMARY OPERATING AND FINANCIAL DATA Three months ended Six months ended (USD millions unless otherwise noted) Realized copper price (per lb) $1.85 $3.38 $1.72 $3.44 Production copper (tonnes) 92,486 80, , ,593 Production gold (ounces) 36,827 34,227 87,252 50,722 Sales copper (tonnes) 93,481 84, , ,810 Net sales $420.5 $652.6 $688.7 $1,164.1 Net profit $101.5 $208.0 $112.4 $390.0 Earnings per share $1.31 $3.06 $1.54 $5.74 Average copper unit cash cost of production (C1) (per lb) $0.90 $1.18 $0.94 $1.09 Cash $789.6 $457.3 $789.6 $457.3 Unless otherwise indicated, all comparisons of performance throughout this report are to the comparative periods for 2008 SECOND QUARTER HIGHLIGHTS 14% increase in copper production resulting in a year to date increase of 16%, with increases at Kansanshi of 21%, Frontier of 18% and Guelb Moghrein of 6% 18% increase in gold production resulting in a year to date increase of 72% due to modifications of the gold plants at Guelb Moghrein and Kansanshi in Q1 24% reduction in the Q2 average cash unit cost of production (C1) due to cost saving initiatives, lower process input costs and higher gold credit; year to date reduction of 14% Net profit of $101.5 million and EPS of $1.31 despite significantly lower copper price year-over-year and a negative hedging adjustment of $52.7 million; EPS before derivatives was approximately $1.80 Equity financing closed in Q2 raising gross proceeds of CAD$345 million 6%, 5 year convertible bonds issued in Q2 for gross proceeds of USD$500 million For further information on First Quantum Minerals Ltd. (the Company ), reference should be made to its public filings (including its most recently filed AIF) which are available on SEDAR at Information is also available on the Company s website at. Information on risks associated with investing in the Company s securities and technical and scientific information under National Instrument concerning the Company s material properties, including information about mineral resources and reserves, are contained in the Company s most recently filed AIF. This interim information is prepared in accordance with Canadian GAAP. Q MD&A

18 CURRENT MARKET OVERVIEW The London Metal Exchange ( LME ) cash copper price continued to increase since the end of Q1 reaching $2.78 per pound on August 5, Although short term price movements have been positive, some uncertainty remains in the near term. The Company believes the longer term fundamentals for copper remain sound as supply from older mines continues to be affected by declining grades and technical issues and, in many cases, the development of new projects have been delayed due to the challenging global economic and credit environment. NEAR TERM OUTLOOK Estimated production of copper for 2009 remains unchanged at 380,000 tonnes; gold production revised downward to 220,000 ounces Expected average C1 costs for 2009 are now $0.88 per pound. C costs have been impacted by the continued overall shortfall in local smelting capacity. After the wet season, Kansanshi was required to process the stockpiled mixed ore inventory which was higher cost and higher gangue acid consuming until new feed became available during June. This was a result of mining operations not being able to access some oxide areas of the pit until May. In addition, higher input costs are expected during the remained of the year as a result of higher commodity prices Development of the Kolwezi project is on schedule for commissioning by the end of Q The Guelb Moghrein expansion project remains on schedule with the objective of achieving commercial production by the end of Q The Company expects to issue by the end of Q3 2009, a revised resource estimate at Kevitsa, following completion of the recent expansion drilling program, which located significant wide intercepts of nickel and copper at or above grades in the main resource area 2

19 REVENUES NET SALES (after provisional pricing and realization charges) Three months ended Six months ended (USD millions unless otherwise noted) Kansanshi - copper gold Frontier - copper Guelb Moghrein - copper gold Bwana/Lonshi - copper acid Net sales ,164.1 Copper provisional pricing adjustment included above COPPER SELLING PRICE USD/lb USD/lb USD/lb USD/lb Current period sales Prior period provisional pricing adjustment Treatment charges/refining charges ( TC/RC ) and freight parity charges (0.25) (0.35) (0.25) (0.30) Realized copper price Although the average realized copper price for the quarter was 45% lower than Q it has been rising since the beginning of 2009 resulting in positive provisional pricing adjustments in the current quarter and year to date results. Copper sales volumes for Q2 increased 11% to 93,481 tonnes. The increase was driven by a 14% increase in copper production and a reduction in the copper in concentrate stockpile of approximately 1,400 tonnes. The year to date sales volume was also up 11% due to a 16% increase in copper production over the same period. Gold revenues increased by 52% for Q2 and 31% for the year to date. The increases resulted from higher gold by-product from the copper in concentrate and tolled copper sales and from the operation of the gold plants at Guelb Moghrein and Kansanshi, which were commissioned during Q1. The positive provisional pricing adjustment in Q2 resulted from the finalization of contracts totalling 10,829 tonnes of copper at an average price of $1.98 per pound ($4,364 per tonne). These contracts were provisionally priced at March 31, 2009 at $1.83 per pound ($4,033 per tonne). The year to date positive provisional pricing adjustment resulted from the finalization of contracts totalling 79,293 tonnes of copper at an average price of $1.56 per pound ($3,438 per tonne). These contracts were provisionally priced at $1.33 per pound ($2,932 per tonne) at December 31, 2008 and were finalized during the year. At, 2009, 21,542 tonnes of copper provisionally priced at $2.32 per pound ($5,113 per tonne) remain subject to final pricing in July and August Refer to the Outlook section for further discussion. 3

20 SEGMENTED OPERATING RESULTS Kansanshi Copper and Gold Operation Three months ended Six months ended Production (tonnes) Copper cathode 21,237 25,430 45,073 52,952 Copper in concentrate 18,787 9,154 40,387 25,716 Copper cathode tolled 20,368 13,039 35,770 21,258 Total copper production (tonnes) 60,392 47, ,230 99,926 Gold production (ounces) 20,117 17,927 42,110 20,228 Sulphide ore tonnes milled (000 s) 3,926 1,548 7,186 3,439 Sulphide ore grade processed (%) Sulphide copper recovery (%) Oxide ore tonnes milled (000 s) 1,300 1,541 2,643 2,996 Oxide ore grade processed (%) Oxide copper recovery (%) Copper sales (tonnes) 56,484 45, ,175 92,506 Cash costs (C1) (per lb) $0.99 $1.15 $0.99 $0.98 Total costs (C3) (per lb) $1.27 $2.00 $1.25 $1.45 Operating profit (USD M) $127.3 $243.8 $181.3 $531.8 Copper production increased 27% in Q2 and 21% in the year to date compared to Q2 production benefited from an increase of 76% in copper in concentrate and tolled cathode production. This increase was due to a 154% increase in sulphide ore milled as the sulphide circuit expansion, which started commissioning in Q2 2008, continued to ramp up. Partially offsetting the higher copper in concentrate and tolled cathode production was a 16% lower copper cathode production. Mining activities were negatively impacted by the effects of the rainy season during Q1, which carried into early Q2 resulting in lower average oxide ore grades processed and higher gangue acid consumption. Tolled copper cathode production from the Mufulira smelter was 56% higher than Q and 32% higher than the previous quarter as capacity continued to improve since Q Kansanshi increased average daily shipments to Mufulira during Q2 resulting in approximately 18,200 tonnes of copper in concentrate at the Mufulira smelter at that will be processed in Q3. Kansanshi s high pressure leach system ( HPL ) continued to process Frontier s concentrates so there was no processing of Kansanshi concentrates through the HPL in Q2. The processing of lower grade oxide ore which led to lower copper cathode production was due to the excess ground water during Q2. This delayed access to the higher oxide ore grade reserve in the mine pit and resulted in the processing of stockpiled oxide and mixed ores that were lower in grade and high in acid consumption. With the effects of the rainy season and excess ground water subsiding towards the end of Q2, access to higher ore grades in the mine pit improved for both sulphide and oxide ores so that higher grade ore was available for processing in June and into Q3. Gold production improved primarily due to the increase in copper in concentrate production. The gravity recovery unit also contributed approximately 3,500 ounces of gold production. 4

21 Kansanshi s Q2 average cash unit cost of production (C1) decreased 14% compared to Q This reduction was due to the cost saving initiatives implemented initially in Q and lower oil and sulphur prices. Further expected reductions in the overall realization costs did not materialize as local smelter capacity constraints continued, resulting in higher concentrate tonnages than expected being exported. Kansanshi s average total unit cost of production (C3) was lower due to the elimination of the windfall tax, which was introduced in 2008, and repealed after Q Operating profit was down for the quarter and six months against the comparative periods due to the lower realized copper price. In addition, export concentrate shipments were temporarily halted during Q2 while waiting for a government exemption on the 15% concentrate export levy. The exemption was received on May 18 th and export shipments recommenced immediately. Frontier Copper Operation Three months ended Six months ended Production copper in concentrate (tonnes) 24,058 23,136 43,329 36,573 Sulphide ore tonnes milled (000 s) 2,035 1,794 3,605 3,293 Sulphide ore grade processed (%) Copper recovery (%) Copper sales 26,706 28,615 40,933 32,829 Cash costs (C1) (USD per lb) $0.98 $1.40 $1.09 $1.51 Total costs (C3) (USD per lb) $1.12 $1.70 $1.23 $1.88 Operating profit (USD M) $69.4 $125.8 $98.1 $143.9 Copper production increased 4% in Q2 and 18% in the year to date compared to the same periods in 2008 due to increased ore throughput and improved recoveries. The increase in ore throughput was the result of Frontier s efforts to improve mill rates. Included in Frontier s total copper in concentrate production were approximately 3,400 tonnes that was processed through Kansanshi s HPL for Q2 and 4,300 tonnes for the six months. Frontier s Q2 average cash unit cost of production (C1) was 30% lower than Q due to decreases in oil based consumable costs, waste stripping, employment costs and freight parity charges. Following on the costs saving initiatives implemented in Q4 2008, production was increased during the quarter which reduced the average cash unit cost by a further 20%, to $0.98, from the Q average. Lower freight parity charges were due to changes in the export contract terms and to the processing of some concentrates through Kansanshi s HPL facility. Despite the significant improvement in the average cash unit cost production (C1), operating profit was down for the quarter and year to date against the comparative periods due to the lower realized copper price. Sales volumes for the quarter exceeded production as there was no local smelter capacity available for the treatment of Frontier concentrates, so all production other than that treated at Kansanshi s HPL facility was exported. This resulted in a reduction of the copper in concentrate stockpile to approximately 2,400 tonnes of copper in concentrate as at th. 5

22 Guelb Moghrein Copper and Gold Operation Three months ended Six months ended Production copper in concentrate (tonnes) 8,036 8,722 17,367 16,390 Gold production (ounces) 20,371 16,300 45,142 30,491 Sulphide ore tonnes milled (000 s) ,004 1,008 Sulphide ore grade processed (%) Copper recovery (%) Copper sales (tonnes) 10,291 7,953 19,148 17,710 Cash costs (C1) (USD per lb) $0.06 $0.71 $0.21 $0.55 Total costs (C3) (USD per lb) $0.46 $1.14 $0.56 $1.02 Operating profit (USD M) $20.9 $45.1 $38.8 $99.5 Copper production for the quarter was down 8% compared to Q2 2008; however for the year to date copper production was 6% higher. Gold production was 25% higher in Q2 and 48% higher for the year to date compared to Copper production was negatively impacted in Q2 by maintenance shutdowns resulting in the lower ore throughput. Gold production benefited from the reduction in the copper in concentrate stockpiles and from the gold dore smelter, which was commissioned at the beginning of the year. The gold dore smelter produced approximately 3,500 ounces and 7,200 ounces of gold bullion production in Q2 and the year to date, respectively. Guelb Moghrein s average cash unit cost of production (C1) was 92% lower in Q2 compared to Q This reduction was due to a significant increase in the gold credit and lower freight parity charges on concentrate exports. Despite the increase in copper sales volumes and lower average cash unit cost of production (C1), Guelb Moghrein s operating profit was down against the comparative periods due to the lower realized copper price. Bwana/Lonshi Copper Operation Three months ended Six months ended Production copper cathode (tonnes) - 1,496-3,704 Operating profit (USD M) $(6.4) $(6.7) $(10.8) $(13.1) The Bwana Mkubwa site remains on care and maintenance, while alternative copper oxide feed sources for Bwana Mkubwa continue to be investigated. If sufficient economically suitable feed can be arranged, the process facility will be re-opened. 6

23 COSTS AND EXPENSES Three months ended Six months ended (USD millions unless otherwise noted) Operating profit Corporate costs and other expenses/income 4.8 (7.9) (0.4) (17.5) Derivative adjustments, net (52.7) (2.2) (99.1) (3.6) Exploration (3.5) (4.2) (7.0) (10.0) Interest, net (11.5) (7.9) (22.6) (16.5) Tax expense (40.6) (134.9) (49.1) (232.9) Minority interests (6.2) (42.9) (16.8) (91.6) Net profit Earnings per share - basic (USD per share) 1.31 $ $ diluted (USD per share) 1.30 $ $5.67 Weighted average shares outstanding - basic (number of shares millions) diluted (number of shares - millions) Corporate costs included a foreign exchange gain of $9.3 million during the quarter. The Company implemented a hedging program during Q due to the uncertain economic outlook and the steep fall in the copper price during Q These copper hedges were entered into throughout Q1 to protect the Company against possible further declines in the copper price. In fact, the copper price has increased sharply since entering into these hedges to $2.32 per pound ($5,107 per tonne) on, resulting in the hedging adjustments for the quarter and year to date of the current year. Of the total hedging adjustment recorded for the current year, $55.5 million remains unrealized and non-cash related. Interest expense was higher than the comparative periods as the average outstanding debt level was higher during the majority of the current year. Due to the significant changes in the credit conditions, the $250 million corporate revolving loan was renewed at higher margins and costs in Q1. These costs have been amortised over the term of the loan. Interest was accrued on the 6%, $500 million convertible bond from the middle of June. The income tax and minority expense were lower due to the decreased operating profits at all operations. 7