1st Quarter Results

13th May 2009 14:00



NEWS RELEASE 09-13 May 13, 2009 www.first-quantum.com

FIRST QUANTUM MINERALS REPORTS OPERATIONAL AND FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2009 

(All figures expressed in US dollars)

First Quantum Minerals Ltd. ("First Quantum" or the "Company", TSX Symbol "FM", LSE Symbol "FQM") today announced its results for the three months ended March 31, 2009. The complete financial statements and management discussion and analysis are available for review at www.first-quantum.com and should be read in conjunction with this news release.

 

Key features		Q1 2009	Q1 2008
Realized copper price	USD/lb	1.56	3.51
Production - copper	t Cu	89,440	75,616
Production - gold	Oz	50,425	16,495
Sales	t Cu	69,774	62,802
Net sales	USDM	268.2	511.5
Net profit	USDM	10.9	182.0
Earnings per share	USD	0.16	2.68
Average copper unit cash cost of production (C1)	USD	0.97	1.02
Cash flows from operating activities, before working capital changes	USDM	85.1	272.6
Cash (including restricted cash)	USDM	123.1	269.6
Total debt	USDM	424.7	390.3

Note: Unless otherwise indicated, all comparisons of performance throughout this report are to the comparative periods for 2008.

18% increase in overall copper production with higher output at all operations - Frontier 43%; Guelb Moghrein 22%; Kansanshi 16%

205% increase in gold production due to the commissioning of the gold plants at Guelb Moghrein and Kansanshi

23% reduction in the average cash unit cost of production (C1) compared to Q4 2008 due to cost saving initiatives, lower process input costs and higher gold credit

Net profit of $10.9 million despite significantly lower copper price and hedging losses of $32.5 million after tax 

Generated operating cash inflow before working capital movements of $85.1 million compared to a cash outflow of $147.8 million in Q4 2008

Equity financing closed in April 2009 raising gross proceeds of CAD$345 million and $250 million corporate revolving loan facility renewed in January 2009

  Current market overview

Current leading indicators indicate the rate of weakening of the global economy may be slowing. However, there is no consensus on the timing for a sustained improvement in economic conditions. 

The copper price on the London Metal Exchange ("LME") has recovered since December 31, 2008 with the price increasing to $2.10 per pound as at May 12, 2009; however, 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, in many cases, the development of new projects have been delayed due to the challenging global economic and credit environment. 

Near term outlook

Forecast production for 2009 remains unchanged at 380,000 tonnes of copper and 240,000 ounces of gold

Average C1 costs for 2009 remains targeted to be $0.80 per pound with significant cost reductions now flowing from cost saving initiatives and declining process input costs; however, this target remains subject to the availability of Zambian smelter capacity. There is a risk that if smelter capacity remains constrained, the Company would have to export more concentrate at higher costs 

Kolwezi project construction continues with commercial start-up date scheduled for Q3 2010

The Guelb Moghrein expansion project is on schedule for progressive commissioning in July 2009

Q1 2009 operating results

	Q1 2009	Q1 2008	Q1 2007
NET SALES (after provisional pricing and realization charges)	USD M	USD M	USD M
Kansanshi - copper	162.9	373.4	218.4
- gold	8.0	8.8	4.8
Frontier   - copper	55.2	32.6	-
Guelb Moghrein - copper	20.5	67.2	12.8
- gold	19.7	16.4	3.1
Bwana/Lonshi - copper	0.4	13.1	22.1
- acid	1.5	-	0.1
Net sales	268.2	511.5	261.3
Copper provisional pricing adjustment included above	39.4	44.5	(17.6)
OPERATING PROFIT (LOSS)	USD M	USD M	USD M
Kansanshi	54.0	288.0	145.0
Frontier	28.6	18.1	-
Guelb Moghrein	17.9	54.4	10.4
Bwana/Lonshi	(4.3)	(6.4)	(9.6)
Operating profit	96.2	354.1	145.8
COPPER SELLING PRICE	USD/lb	USD/lb	USD/lb
Current period sales	1.54	3.43	2.96
Prior period provisional pricing adjustment	0.26	0.32	(0.18)
Treatment charges/refining charges ("TC/RC") and freight parity charges	(0.24)	(0.24)	(0.19)
Realized copper price	1.56	3.51	2.59
UNIT COSTS	USD/lb	USD/lb	USD/lb
Cash costs (C1)	0.97	1.02	1.06
Total costs (C3)	1.19	1.28	1.30

Group operating profit down on lower copper price

Group operating profit was lower as the realized copper price was 56% lower than Q1 2008. The effects of the global economic crisis and consequential significant reduction in the demand for copper resulted in the sharp fall in the copper price.

Copper sales volumes increased 11% to 69,774 tonnes. The combined group average cash unit cost of production (C1) decreased by 5% compared to Q1 2008. The cost saving initiatives that were implemented at the end of Q4 2008, the lower price inputs such as oil and sulphur, and the higher gold credit, resulted in the average cash unit cost of production (C1) decreasing by 23% from Q4 2008. The gold credit remained consistent with previous quarters but would have been higher as only 65% of the gold produced was sold during the quarter.

  Kansanshi production increases due to sulphide circuit expansion; results negatively impacted by lower copper price and continuing smelter capacity constraints

Copper production increased 16% to 60,838 tonnes, however, the decrease in the copper price and the continuing local smelter capacity constraints led to the decrease in operating profit. At the end of the quarter, 13,822 tonnes of copper in concentrates were stockpiled at site compared to 14,416 tonnes at December 31, 2008. In addition, further Kansanshi concentrates were stockpiled at the Mufulira smelter as explained below.

Copper production increased due to the sulphide circuit expansion which was commissioned during Q2 2008 and continued to ramp up to full production in 2008. This expansion resulted in a 72% increase in sulphide ore throughput and a 49% increase in copper in concentrate production. This was partially offset by a 13% decline in copper cathode production from the oxide circuit as lower grade ore was processed. During the quarter, ore grade mined and processed, in both the oxide and sulphide circuits, was approximately 10% lower compared to Q1 2008. 

Tolled copper cathode production from the Mufulira smelter was higher by 87% from Q1 2008 and by 45% from Q4 2008 as smelter capacity and availability improved during the current quarter. However, Kansanshi had approximately 16,200 tonnes of copper in concentrate stockpiled at the Mufulira smelter awaiting treatment at March 31, 2009. Kansanshi's high pressure leach system ("HPL") contributed approximately 2,600 tonnes of copper in concentrate to cathode production this quarter. This was a 53% increase over Q1 2008; however, it was a 39% decrease from the previous quarter. The HPL has not achieved its planned gold recovery rates. Since Frontier's concentrate does not contain any gold by product, the Company made a decision to process some of Frontier's concentrates through the HPL mid way through the quarter to eliminate any potential for gold loss of Kansanshi concentrates.

Kansanshi's average cash unit cost of production (C1) increased 21% over Q1 2008 to $0.99 per pound due to higher ore and TC/RC costs. Ore costs were 35% higher than Q1 2008 due to the processing of lower grade ore and higher waste stripping in the current quarter. However, the average cash unit cost of production decreased by 20% from the previous quarter due to the cost saving initiatives implemented towards the end of Q4 2008 combined with decreased oil and sulphur prices.

Kansanshi's average total unit cost of production (C3) was higher due to the new Zambian tax regime, specifically export levies and the increase in the royalty rate that were enacted in Q2 2008. The receivable recognized for the recovery of these taxes is not included in C costs.

Frontier operating profit increases on higher sales volume 

Despite lower costs in 2009 compared to Q1 2008 and a 238% increase in the tonnes of copper sold, operating profit increased by only 58%. During Q1 2008, operations were ramping up at Frontier and sales contracts were still being finalized, which led to the low volume of copper sales. This increase in the current quarter's sales volume was negatively impacted by the lower copper price.

Copper production was 43% higher due to improved recoveries and the processing of higher grade ore. Copper recovery improved by 26% over Q1 2008 as production was ramping up since beginning operations in Q4 2007. However, production was down from the previous quarter due to a planned decrease in the ore processed. As part of the plan to reduce the average cash cost of production (C1) at Frontier, mining and processing activities were reduced during the rainy season. Mining and ore processed volumes were lower by 39% and 28%, respectively, compared to the previous quarter. Production activities are planned to increase in Q2 following the end of the rainy season.

Frontier's average cash unit cost of production (C1) was 28% lower than Q1 2008 due to higher recoveries, lower oil based consumable costs, decreased waste stripping and lower employment costs. This combined with reduced processing activities during the rainy season also led to a 20% decrease from Q4 2008.

Frontier stockpiled approximately 5,300 tonnes copper in concentrate during the quarter. Frontier began processing concentrates through Kansanshi's HPL during the quarter, which resulted in the stockpiling of approximately 1,100 tonnes of copper in concentrate at Kansanshi at quarter end. Approximately 900 tonnes of HPL copper cathode was produced from Frontier's concentrates. In addition it was decided to delay further exports of some concentrates in anticipation of utilizing Zambian smelters at lower costs. 

Guelb Moghrein achieves its highest quarterly production, but profits down on lower copper price

Record copper and gold production was achieved at Guelb Moghrein with an increase of 22% and 75%, respectively, over Q1 2008. The increase in copper production was achieved by processing higher grade ore and an improvement in the recovery process. Gold production also benefited from the increased concentrate production and from the commissioning of the gold dore smelter, which resulted in approximately 3,700 ounces of gold bullion production.

Guelb Moghrein's operating profit was negatively impacted by the lower copper price and sales volume. Sales volumes were 10% higher in Q1 2008 due to a reduction of the copper in concentrate stockpile in Q1 2008. The average cash unit cost of production (C1) was slightly lower than the comparative quarter and it was 64% lower than Q4 2008. The decrease from Q4 2008 was due to decreased oil-based consumable costs, lower employee costs, new mining equipment requiring less maintenance and a higher gold credit.

Provisional pricing adjustment positive following increase in copper price during final settlement periods

Under the industry standard for the structure of copper sales agreements, virtually all of the Company's concentrate sales and some of its cathode sales are provisionally priced based on the prevailing LME cash price in the shipment month. The provisional prices are then finalized based on a contractually specified future month's average quoted LME official price. The sales that are subject to final pricing are often settled in a subsequent quarter.

As a significant portion of the Company's concentrate and cathode sales at any quarter end may remain subject to final pricing, the quarter end forward price can be a major determinant of recorded revenues and the average realized copper price for that period.

At December 31, 2008, 79,293 tonnes of copper were provisionally priced at $1.33 per pound ($2,932 per tonne). These tonnes were priced out and finalized at an average price of $1.56 per pound ($3,429 per tonne) resulting in a positive provisional pricing adjustment of $39.4 million in the quarter.

At March 31, 2009, 10,829 tonnes of copper were provisionally priced at $1.83 per pound ($4,033 per tonne) but remains subject to final pricing in April and May 2009. Refer to the 'Outlook' section for further discussion.

  Q1 2009 net profit

	Q1 2009	Q1 2008	Q1 2007
	USD M	USD M	USD M
Operating profit	96.2	354.1	145.8
Corporate costs and other expenses/income	(5.2)	(11.3)	(6.2)
Derivative losses, net	(46.4)	(1.4)	(1.1)
Exploration	(3.5)	(5.8)	(2.6)
Interest, net	(11.1)	(6.9)	(4.5)
Tax expense	(8.5)	(98.0)	(31.7)
Minority interests	(10.6)	(48.7)	(21.4)
Net profit	10.9	182.0	78.3
Earnings per share
- basic (USD per share)	0.16	2.68	1.16
- diluted (USD per share)	0.16	2.65	1.14
Weighted average shares outstanding
- basic (number of shares - millions)	68.8	67.8	67.3
- diluted (number of shares - millions)	69.2	68.7	68.6

Increase in copper price triggers non-cash hedging loss

The Company implemented a hedging program during Q1 due to the uncertain economic outlook and the recent sharp fall in the copper price. These copper hedges were entered into throughout the quarter to protect the Company against possible further declines in the copper price. In fact, the copper price increased sharply to $1.83 per pound ($4,034 per tonne) on March 31 resulting in the mark to market valuations on the outstanding hedges at March 31, 2009. Of the $46.4 million recorded as a hedging loss in the quarter, approximately $42.1 million was unrealized and non-cash related.

Interest costs rise on higher outstanding debt

Outstanding debt was higher resulting in an increase in interest expense. Due to the change in lending market conditions, the corporate revolving loan was renewed at higher margins and fees in 2009. 

Income tax charges and minority interests expense were lower 

The income tax and minority expense were lower due to the decreased operating profits at all operations.

During the quarter, Kansanshi was subject to the Zambian variable tax as the taxable income to sales ratio exceeded the minimum 8%. This resulted in an additional $3.9 million of income tax which the Company maintains is in excess of what is permitted under its Development Agreements. Accordingly, this amount has been added to the existing receivable against the Government of the Republic of Zambia that was disclosed in the December 31, 2008 Financial Statements and MD&A. 

  Q1 2009 cash flows

	Q1 2009	Q1 2008	Q1 2007
	USD M	USD M	USD M
Cash (outflows) inflows from operating activities
- before working capital	85.1	272.6	118.9
- after working capital	(59.1)	143.5	74.6
Cash inflows (outflows) from financing activities	79.5	26.0	(25.8)
Cash (outflows) from investing activities	(73.5)	(99.9)	(102.0)
Net cash (outflows) inflows	(53.1)	69.6	(53.2)
Cash (outflows) inflows per share
- before working capital (USD per share)	1.24	4.02	1.77
- after working capital (USD per share)	(0.86)	2.12	1.11

Cash flows from operating activities down due to lower profits and working capital movements

Operating cash inflows before working capital movements were higher than net income due, mainly, to $42.1 million of non-cash hedging losses and $31.8 million of depreciation. This cash inflow from operations was reduced by increases in accounts receivable of $52.8 million, inventory of $15.4 million and a reduction of accounts payable of $76.7 million. 

Operating cash flows after working capital movements were lower than Q1 2008 due to the lower net income in the current quarter and the reduction of the accounts payables that had built up at December 31, 2008.

Cash inflows from financing activities due to debt facility drawdown

Financing activities included a debt drawdown of $139.0 million, net of finance fees, on the renewed corporate revolving loan of $250 million, which was used to repay the outstanding balance on the previous corporate revolving loan of $50.0 million. In addition, a scheduled payment of $40.1 million was made on the corporate revolving credit and term loan facility and the Kansanshi project completion facility was fully repaid during the quarter. The increase over Q1 2008 was due to higher net debt draw downs.

Cash outflows from investing activities used mainly to advance committed capital projects 

Capital expenditure continued on the Kolwezi development project and the expansion activities at Guelb Moghrein. The decrease from Q1 2008 was due to a planned reduction in capital expenditures. There were no investment purchases in the current quarter.

  Q1 2009 balance sheet

	Q1 2009	YE 2008	YE 2007
	USD M	USD M	USD M
Cash (including restricted cash)	123.1	216.5	222.5
Property, plant and equipment	2,064.6	1,996.3	1,308.4
Total assets	3,093.9	3,004.5	2,682.7
Debt	424.7	385.7	361.2
Total liabilities	1,640.9	1,603.9	1,096.7
Shareholders' equity	1,453.0	1,400.6	1,586.0
Net working capital (including non-current inventory but excluding cash and debt)	152.2	69.5	308.5
Net debt to net debt plus equity (%)	17%	11%	8%

Total assets rise on continued capital investment 

Net working capital increased due to cash inflows from operations and debt draw downs which allowed for the build up of inventory and the reduction of current liabilities. The increased copper price during the quarter also resulted in an increase in accounts receivable.

Overall, inventory increased by $15.4 million from December 31, 2008, which was related to the increase in the copper in concentrate stockpiles. The Company stockpiled 21,400 tonnes of copper in concentrate since December 31, 2008 resulting in approximately 37,700 tonnes of contained copper in concentrate at quarter end. It was decided to wait until local smelting capacity comes available rather than export and incur the high Zambian export levy and freight charges. The Company intends to send the majority of the existing stockpiles to Zambian smelters over the next two quarters after which it is expected that stockpiles will be reduced to normal levels. At March 31, there was approximately 16,200 tonnes of Kansanshi copper in copper in concentrate stockpiled at the Mufulira smelter awaiting further treatment as its capacity constraints improve.

The equities market began to recover during the quarter resulting in the Company recognizing an increase in the fair value of the marketable security investments of $38.1 million which was recorded as other comprehensive income.

Property, plant and equipment balances increased by $68.3 million, net of depreciation, due to continued investment in the Kolwezi development project and expansions at Guelb Moghrein. 

Total liabilities increase on net debt draw downs

Debt increased to $424.7 million from $385.7 million at December 31, 2008. The change reflects a net drawdown on the corporate revolving loan of $100.0 million; the semi-annual repayment of $40.1 million on the corporate revolving credit and term loan facility; and an $11 million repayment to retire the Kansanshi project completion facility. The increase in the fair value of derivative liabilities, related to the copper hedges, also contributed to the increase in liabilities.

Shareholders' equity increases on comprehensive income

Shareholders' equity increased due to the positive operating results and the increase in the fair value of the Company's marketable security investments.

On April 6, 2009, the Company announced the closing of a public offering of 9,343,750 common shares for gross proceeds of CAD $345.7 million.

As at the date of this report the Company has 78,219,827 shares outstanding.

Financial position and liquidity

The Company's cash position was approximately $181.1 million at April 30, 2009.

In April, the Company raised gross proceeds of CAD $345.7 million through a public offering of the Company's common shares on the TSX. The Company intends to use the net proceeds of this offering to continue with its committed capital projects, to further strengthen its capital position and for general corporate purposes.

The Company generated positive cash flows from operations before working capital movements in Q1 and expects to continue to generate sufficient cash flow from operations to cover any liquidity requirements over the remainder of the year. The LME copper price averaged $1.70 per pound between January 1, 2009 and the date of this report, which is above the consensus analysts' forecasts average copper price for 2009 of $1.60 per pound. As a defensive strategy against any further decline in the copper price, the Company implemented a hedging program in Q1. At the date of this report, the Company has hedged 79,500 tonnes of copper. With the range of possible prices limited by the hedging program combined with the Company's targets remaining unchanged at an average C1 cost of production of $0.80 per pound and production of 380,000 tonnes of copper and 240,000 ounces of gold, the Company expects to continue to generate positive operating cash flows sufficient to cover all commitments, financing obligations and capital expenditures over the next 12 months.

Additional sources of funding include the $250 million corporate revolving loan that was renewed in January 2009. Subsequent to quarter end, part of the equity proceeds was used to repay the outstanding balance of this facility resulting in the entire $250 million facility now being available for draw down.

Upon resolution of the revisitation process, the Company intends to finalize long-term project financing for the development of the Kolwezi project in accordance with the provisions of the amended Contrat D'Association. A syndicate of commercial and development banks were mandated in early 2008 to provide a $450 million facility for the development of the project. These banks have recently reaffirmed that, subject to a satisfactory outcome to the revisitation process being conducted in the RDC, they are prepared to provide the financing subject to completion of documentation and standard conditions precedent for a facility of this nature. The project debt, when available, will be used to repay the funding provided by the Company to date. The balance of funding will be provided by way of subordinated shareholder loans.

In addition, the Company is entitled to a pro-rata reimbursement of capital costs incurred to date from the other contributing partners in the Kolwezi project upon declaration of financial close as defined in the Contrat D'Association or those contributing partners will be required to dilute their ownership interests.

The Company does not expect to face liquidity constraints and believes that it is well positioned to meet all of its near-term obligations as they become due.

Contractual Obligations at March 31, 2009

	Total	Less than 1 year	1 - 2 years	2 - 3 years	3 - 4 years	4 - 5 years	Thereafter
	USD M	USD M	USD M	USD M	USD M	USD M	USD M
Term debt	424.7	225.7	84.5	94.6	5.3	4.9	9.7
Accounts payables	223.6	223.6	-	-	-	-	-
Deferred payments	6.7	5.2	0.4	0.4	0.4	0.3	-
Commitments	187.5	187.5	-	-	-	-	-
Asset retirement obligations	19.0	-	-	-	-	-	19.0

  Development activities

Kolwezi copper/cobalt project in RDC

The Board of Kingamyambo Musonoi Tailings SARL ("KMT") (owned by the Company: 65%; La Générale Des Carrières et Des Mines ("Gécamines"): 12.5%; Industrial Development Corporation of South Africa ("IDC"): 10%; the International Finance Corporation ("IFC"): 7.5%; and the Government of the RDC: 5%) committed in November 2007 to proceed with the development of the Kolwezi tailings project ("Kolwezi"). First Quantum with support from the contributing equity partners of KMT (IDC and IFC) will finance or procure third party debt project financing totalling up to $593 million, representing the budgeted development costs of $553 million plus the incremental expansion costs of $40 million. This satisfied the obligations of First Quantum, IDC and IFC under the Contrat D'Association to complete feasibility studies, carry out an environmental impact assessment, and prepare an environmental management plan and to obtain commitments with respect to the financing of the project.

Approximately $365 million of the project budget has been committed and approximately $228 million has been spent up to the end of Q1 2009. The overall project was approximately 56% complete at March 31, 2009 

Due to the current economic conditions and decline in the copper price, KMT reduced its monthly cash outflow on the Kolwezi project and consequently increased the expected length of the construction period. Project commissioning is expected to commence in Q2 2010.

The forecast capital cost is still expected to be under the original budget of $553 million at approximately $545 million.

The plant is expected to commence operations in 2010. It will initially produce 35,000 tonnes of copper cathode per year and 7,000 tonnes of cobalt hydroxide per year with potential to double capacity for an incremental capital cost of approximately $40 million. The mine life is expected to be 22 years at the expanded annual production rate of 70,000 tonnes of copper cathode per year. 

A conceptual design for development of a cobalt metal production facility to augment the plant was completed at the end of Q1 2009, and is currently being reviewed.

Kansanshi copper/gold operation in Zambia 

The expanded sulphide circuit continued to perform very well, with an annualized milling rate of 13 million tonnes achieved for Q1 through the combined original and upgraded circuits. Daily milling rates in March were in excess of budgeted rates.

Additional flotation cleaner capacity was successfully commissioned and is assisting in ensuring recovery targets are met at the high production rates being achieved. Construction of the new in-circuit crushing facility, aimed at further enhancing sulphide milling capacity, was complete towards the end of the quarter. Initial commissioning activities were completed and final handover to production is expected in early Q2.

Trials of mixed flotation sulphide ores were completed and metallurgical performance exceeded budgeted targets. Extended treatment runs will commence in Q2 and are expected to provide a significant revenue stream as well as lowering overall mining costs.

HPL operations continue to improve in consistency and output, with solutions to reliability challenges well understood and projects in place to address the remaining issues impacting on process up-time.

Treatment of oxide ores focussed significantly on reduction of lower grade stockpiles while available pit resources are increased. Treated ores required more acid consumption than those treated in 2008, though acid was cheaper, resulting in cathode unit costs reducing significantly.

Cathode production capacity is now at maximum following completion of the fourth electro-winning tank-house and installation of the transformer required to bring the section to nameplate capacity. Installed capacity in excess of 140,000 tonnes per annum of copper cathode is now available. A strong focus on efficiency improvements in solvent extraction and electro-winning is yielding cost and performance benefits which are expected to be further enhanced in Q2.

Realization of value from the gold resource received significant attention during the quarter with direct smelting of gravity concentrate gold being initiated. A significant focus was made on improvement of gold recovery from both flotation and gravity concentrate.

Frontier copper operation in RDC

Frontier's average C1 cost is expected to continue to decline to approximately $0.90 per pound for the 2009 year.

Effective cost saving initiatives and the adoption of a revised mine plan, which has already resulted in a 21% decrease in the average C1 cost since Q4 2008, is expected to be fully implemented during the remainder of the year. Further cost saving initiatives should result from the re-negotiation of contracts with off-takers at better returns to Frontier with an emphasis on utilizing Zambian smelting capacity wherever possible.

Guelb Moghrein copper/gold operation in Mauritania

Further optimization of the gold recovery circuit will be realized with the commissioning of the two vertimills in May 2009. The final earthworks are being prepared on the third carbon-in-leach tailings pond for the liner installation in early Q2 2009.

The plant expansion project to 3.8 million tonnes per year is on schedule for commissioning the new rougher flotation cells in June 2009 and the third mill in July 2009. The new tailings dam earthworks are complete and the decant towers and causeway are under construction. The plant ramp up to the higher throughput will commence at the end of July 2009 with the aim of achieving design by the end Q3 2009.

Increased power generation is progressing with the Mirrlees No. 5 operational and Mirrlees No. 6 due on line in June 2009. Erection of the new power station building is in progress and the first two engines are expected to arrive on site in May for commercial power to be available in August 2009. Provided the fuel price remains at current levels, the lower maintenance, better fuel efficiency and greater use of HFO ("heavy fuel oil") is expected to bring down the unit cost of generated power on site. 

The saline borefield was partially commissioned for the opening by the Head of State in March and the second pipeline from Bennichab will be completed in June 2009.

The life of mine plan has been remodelled to minimize material movements whilst maintaining an acceptable arsenic grade of 950 ppm to the plant. The new mine fleet has been fully commissioned which has allowed some of the older equipment to be put on standby. The greater fuel efficiency of the new fleet, the reduction in material movements and the lower explosives consumption will make an important additional contribution to the cost savings already realized in Q1. 

Kevitsa nickel/copper/PGE project in Finland

In Finland, an expansion to the development drilling program at Kevitsa has been investigating near-mine extensions to the known mineralization. This program was completed in March and has located significant wide intercepts of nickel and copper at or above grades in the main resource area. An updated resource estimate utilizing this data is currently in process. A new geological model of Kevitsa is being generated using integrated geophysical datasets and revaluation of historical core. Exploration drilling targeting near mine geophysical targets will commence in May.

Bwana/Lonshi copper operation in Zambia/RDC

Bwana Mkubwa site is on care and maintenance and the process to retrench personnel was started with notification to relevant Government offices. Alternative copper oxide feed sources for Bwana Mkubwa continues to be investigated. If sufficient economically suitable feed can be arranged, the process facility would be re-opened.

Acid production is restricted to one plant at Kansanshi and the process to retrench at this site is running in parallel with Bwana. The other Kansanshi acid plant will be retained on a stand-by basis because Zambian smelters are currently producing excess acid but this supply is unreliable in terms of continuity.

Further work continues on the Lonshi underground evaluation project. A $5 million expenditure program was approved to cover the development of a portal, decline and trial stoping of sulphide ore. The objective of this exercise is to establish the operational and commercial viability of producing upwards of 35,000 tonnes per annum of copper in concentrate. The current measured and indicated resource should support this level of operation in excess of 13 years.

The underground portal has been established and approximately 65 metres of decline has been developed. This leaves a further 35 metres to be developed before the ore horizon is reached, which is expected in August 2009 with initial trial stoping in the following month.

Exploration

Following the rationalization of greenfields exploration activities, the Company's efforts have been re-focused on near term targets, principally around operational mine or development sites. Emphasis has been placed on better understanding of the geology and potential of current ore systems being mined with a view to improved mining practice and exploration targeting. In the last few months this has included detailed mapping of the open pits at Kansanshi, Frontier and Guelb Moghrein and integration with re-logging of historical drilling. This process has defined near mine drill targets at both Frontier and Guelb Moghrein and drilling will commence on these targets in the next quarter. At Kansanshi, a more extensive drilling program of near pit and satellite targets will commence immediately to fully define the potential of the ore system which remains open in various directions.

Other Items

Kolwezi revisitation update

During 2007, the Government of the RDC announced 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. The Company and its contributing partners in the Kolwezi project, IDC and IFC have obtained legal advice that the Kolwezi mining convention is valid and binding and that all terms have been complied with. The Kolwezi mining convention provides a dispute resolution mechanism through international arbitration.

Over the past months, the Company and its contributing partners attended several meetings with Gécamines (the state-owned mining agency of the RDC) and Government representatives on the review of the Kolwezi mining convention. The position has yet to be formally affirmed by the RDC Government, but the Company is encouraged that the final steps in the process appear to be nearing conclusion.

Zambian taxation 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, 2008.

Under the new President, 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 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, 2009. These enacted changes are not retroactive to April 1, 2008.

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 March 31, 2009 this receivable amounts to $136.7 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.

Outlook 

Group production estimate for 2009 remains at 380,000 tonnes of copper and 240,000 ounces of gold

The Company estimates copper production and average C1 costs for 2009 as follows: 

	Target production Cu tonnes	Target production Au ounces	Expected average C1 cost USD/lb
Kansanshi	244,000	140,000	0.80
Guelb Moghrein	38,000	100,000	0.50
Frontier	98,000	-	0.90
Total	380,000	240,000	0.80

The Q1 production was in line with the Company's expectation and its full year estimate for 2009. With the rainy season ending in late Q1, Frontier is expected to increase mining activities and ore throughput resulting in an increase in copper production to meet the 2009 full year estimate.

Guelb Moghrein's gold production for Q1 was on target with 2009 full year estimate. Kansanshi commissioned the gold plant during Q1 and operations will continue to ramp up in Q2. The operation of the Kansanshi gold plant is expected to result in the processing of stockpiled gold concentrates and increase production to levels consistent with achieving the 2009 full year estimate.

The expected average C1 cost for the 2009 year remains unchanged. The cost saving initiatives that were put in place over the past few months have resulted in declining C1 costs at all operations. Guelb Moghrein's C1 cost achieved in Q1 was below target, while Kansanshi and Frontier's C1 cost remained above target, but were reduced by 20% since Q4 2008. The average C1 cost is expected to continue to decline with the rainy season ending and the intention to utilize all local smelters in Zambia as a priority, which is expected to significantly reduce the freight parity costs. The greatest risk to this would come from Zambian smelter capacity and operational constraints. If disruption continues as it has during Q1, then more concentrate will need to be exported resulting in an increase to the C1 cost due the higher costs incurred for the export component.

Hedging program

As a result of the sharp copper price falls in the last quarter of 2008 that severely impacted the Company's profit, a defensive hedging strategy was initiated, during the quarter, of hedging up to 50% of targeted copper production for a rolling six-month period to protect against possible downside risk of a further deterioration in the copper price. The Company used a zero premium, put and call strategy to achieve a guaranteed, minimum price (put strike) over the hedged quantity while still participating in favourable price movements up to a capped, ceiling price (call strike). If the copper price closes between the put and call strikes during a hedged period, the Company will receive the spot price for the amount it has hedged.

During the quarter, the Company hedged 90,000 tonnes forward to July 2009 at an average put price of $1.48 per pound ($3,270 per tonne) and an average call strike of $1.67 per pound ($3,688 per tonne). A further 18,000 tonnes were hedged between July and December 2009 through contingent put and call structures at average strikes of $1.48 and $1.70 per pound ($3,260 and $3,756 per tonne). The contingent hedge positions will close out on June 30 and July 31, 2009. Exercise by the hedge counterparties will depend on prevailing copper spot and forward prices at the time. Contracts totalling 28,500 tonnes expired during the quarter and the outstanding hedged position at March 31 was a total of 79,500 tonnes.

The hedging program is regularly reviewed in light of the prevailing market conditions and economic outlook. Since March 31, a further 14,000 tonnes of August and September production were hedged at an average put strike of $4,100 per tonne ($1.86 per pound) and call strike of $4,881 per tonne ($2.22 per pound). 

Provisionally priced copper sales subject to final settlement prices in Q2 

At March 31, 2009, 10,829 tonnes of copper were provisionally priced at an average of $1.83 per pound ($4,033 per tonne). Of this total, 6,177 tonnes and 4,653 tonnes were subject to final pricing in April and May 2009, respectively.

The average LME cash price for April was $2.00 per pound ($4,405 per tonne) resulting in a positive provisional adjustment of $2.3 million which will be recognized in Q2.

 

Webcast

The Company will host an Investor Conference Call and Webcast to discuss its first quarter results on Wednesday, May 13, 2009 at 8:00 am (PST); 11:00 am (EST); 4:00 pm (GMT). The live audio webcast will be available at the Company's website at www.first-quantum.com. 

On Behalf of the Board of Directors 12g3-2b-82-4461

of First Quantum Minerals Ltd. Listed in Standard and Poor's

G. Clive Newall

President

For further information visit our web site at www.first-quantum.com

North American contact: Sharon Loung 8th Floor, 543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8 Tel: (604) 688-6577 Fax: (604) 688-3818 Toll Free: 1 (888) 688-6577 E-Mail: [email protected]  United Kingdom contact: Clive Newall, President 1st Floor, Mill House, Mill Bay Lane, Horsham West Sussex RH12 1TQ United Kingdom Tel: +44 140 327 3484 Fax: +44 140 327 3494 E-Mail: [email protected]. or Simon Hockridge Hogarth Partnership Ltd. Tel: +44 (0) 20 7357 9477

 

Certain statements and information herein, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable U.S. and Canadian securities laws. Such forward-looking statements or information include but are not limited to statements or information with respect to future price of copper or gold, estimation of mineral reserves and mineral resources, our exploration and development program, estimated future expenses, exploration and development capital requirements, and our goals and strategies. Often, but not always, forward-looking statements or information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate" or "believes" or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.

With respect to forward-looking statements and information contained herein, we have made numerous assumptions including among other things, assumptions about the price of copper and gold, anticipated costs and expenditures and our ability to achieve our goals. Although our management believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that a forward-looking statement or information herein will prove to be accurate. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information.

See our annual information form and our quarterly and annual management's discussion and analysis for additional information on risks, uncertainties and other factors relating to the forward-looking statements and information. Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actual results, performances, achievements or events not to be anticipated, estimated or intended. Also, many of the factors are beyond our control. Accordingly, readers should not place undue reliance on forward-looking statements or information. We undertake no obligation to reissue or update forward-looking statements or information as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements and information made herein, are qualified by this cautionary statement.   Consolidated Balance Sheets

 (unaudited)

 (expressed in millions of U.S. dollars, except where indicated)

	Note	March 31, 2009	December 31, 2008
Assets
Current assets
Cash and cash equivalents		123.1	176.2
Restricted cash		-	40.3
Accounts receivable		141.9	93.2
Inventory	3	284.8	270.9
Current portion of other assets	6	155.5	150.8
		705.3	731.4
Investments	4	196.3	163.5
Property, plant and equipment	5	2,064.6	1,996.3
Other assets	6	127.7	113.3
Total assets		3,093.9	3,004.5
Liabilities
Current liabilities
Accounts payable and accrued liabilities		278.3	333.1
Current taxes payable		147.1	146.4
Current portion of debt facilities	7	225.7	139.5
Current portion of other liabilities	8	67.2	27.0
		718.3	646.0
Long-term debt facilities	7	199.0	246.2
Other liabilities	8	34.2	34.8
Future income tax liabilities		365.5	363.6
Total liabilities		1,317.0	1,290.6
Minority interests		323.9	313.3
Total liabilities and minority interests		1,640.9	1,603.9
Shareholders' equity
Capital stock		423.7	420.3
Retained earnings		991.2	980.3
Accumulated other comprehensive income		38.1	-
Total shareholders' equity		1,453.0	1,400.6
Total shareholders' equity, liabilities and minority interests		3,093.9	3,004.5
Commitments and contingencies	12,13
Subsequent events	14

Consolidated Statements of Earnings and Comprehensive Income

(unaudited)

(expressed in millions of U.S. dollars, except where indicated)

			Three months ended
		Note	March 31, 2009	March 31, 2008
Sales revenues
	Copper		239.0	486.3
	Gold		27.7	25.2
	Acid		1.5	-
			268.2	511.5
Cost of sales			(140.3)	(132.2)
Depletion and amortization			(31.8)	(20.3)
Royalties, windfall taxes and export levies			(8.7)	(4.9)
Zambian taxes recovery			8.8	-
Operating profit			96.2	354.1
Other expenses/income
	Exploration		(3.5)	(5.8)
	General and administrative		(5.7)	(6.7)
	Interest		(11.1)	(8.6)
	Other expenses/income	9	(45.9)	(4.3)
			(66.2)	(25.4)
Earnings before income taxes and minority interests			30.0	328.7
Income taxes			(8.5)	(98.0)
Minority interests			(10.6)	(48.7)
Net earnings			10.9	182.0
Other comprehensive income
Unrealized gain (loss) on available-for-sale investments, net of tax			38.2	(65.2)
Realized gain on available-for-sale investments, net of tax			(0.1)	-
			38.1	(65.2)
Comprehensive income			49.0	116.8
Earnings per common share
	Basic		$0.16	$2.68
	Diluted		$0.16	$2.65
Weighted average shares outstanding (000's)
	Basic		68,794	67,837
	Diluted		69,194	68,728
Total shares issued and outstanding (000's)			68,876	68,180

The accompanying notes are an integral part of these consolidated financial statements.

For a copy of the notes visit the Company's website at www.first-quantum.com.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)

(expressed in millions of U.S. dollars, except where indicated)

			Three months ended
		Note	March 31, 2009	March 31, 2008
Capital stock
Common shares
Balance - beginning of period			441.8	415.2
	Stock options exercised		2.3	1.7
Balance - end of period			444.1	416.9
Treasury shares
Balance - beginning of period			(38.8)	(34.3)
	Shares purchased		-	(2.5)
	Restricted stock units vested		-	-
Balance - end of period			(38.8)	(36.8)
Contributed surplus
Balance - beginning of period			17.3	15.1
	Compensation expense for the period		1.7	2.4
	Transfers upon exercise of stock options		(0.6)	(0.4)
Balance - end of period			18.4	17.1
Total capital stock			423.7	397.2
Retained earnings
Balance - beginning of period			980.3	987.4
Net earnings for the period			10.9	182.0
Dividends			-	(36.1)
Balance - end of period			991.2	1,133.3
Accumulated other comprehensive income
Balance - beginning of period			-	202.6
	Other comprehensive income (loss) for the period		38.1	(65.2)
Balance - end of period			38.1	137.4
Retained earnings and accumulated other comprehensive income			1,029.3	1,270.7

The accompanying notes are an integral part of these consolidated financial statements.

For a copy of the notes visit the Company's website at www.first-quantum.com.

Consolidated Statements of Cash Flows

(unaudited)

(expressed in millions of U.S. dollars, except where indicated)

		Three months ended
	Note	March 31, 2009	March 31, 2008
Cash flows from operating activities
Net earnings for the period		10.9	182.0
Items not affecting cash
Depletion and amortization		31.8	20.3
Minority interests		10.6	48.7
Unrealized foreign exchange (gain) loss		(2.8)	4.2
Future income tax expense		(10.0)	15.3
Stockߛbased compensation expense		1.7	2.4
Unrealized derivative instruments loss (gain)		42.1	(1.8)
Other		0.8	1.5
		85.1	272.6
Change in nonߛcash operating working capital
Increase in accounts receivable and other		(52.8)	(100.3)
Increase in inventory		(15.4)	(60.5)
Decrease in accounts payable and accrued liabilities		(76.7)	(15.2)
Increase in current taxes payable		0.7	49.4
Long term incentive plan contributions		-	(2.5)
		(59.1)	143.5
Cash flows from financing activities
Proceeds from debt facilities		139.0	50.0
Repayments of debt facilities		(101.5)	(25.3)
Proceeds on issuance of common shares		1.7	1.3
Restricted cash		40.3	22.5
		79.5	26.0
Cash flows from investing activities
Payments for property, plant and equipment		(78.8)	(100.5)
Proceeds from disposal of available-for-sale investments		5.3	-
Acquisition of available-for-sale investments		-	(21.9)
		(73.5)	(99.9)
Effect of exchange rate changes on cash		-	-
(Decrease) increase in cash and cash equivalents		(53.1)	69.6
Cash and cash equivalents - beginning of period		176.2	200.0
Cash and cash equivalents - end of period		123.1	269.6

The accompanying notes are an integral part of these consolidated financial statements.

For a copy of the notes visit the Company's website at www.first-quantum.com.

ENDQRFEALSDFLKNEEE

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FQM.L