3rd Quarter Results

11th Nov 2009 07:00



NEWS RELEASE 09-30 November 10, 2009 www.first-quantum.com

FIRST QUANTUM MINERALS REPORTS OPERATIONAL AND FINANCIAL RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September 30, 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.

SUMMARY OPERATING AND FINANCIAL DATA

	Three months ended September 30		Nine months ended September 30
(USD millions unless otherwise noted)	2009	2008	2009	2008
Realized copper price (per lb)	$2.26	$2.70	$1.93	$3.16
Production - copper (tonnes)	93,486	82,187	275,412	238,780
Production - gold (ounces)	43,357	25,811	130,609	76,533
Sales - copper (tonnes)	105,154	90,698	268,410	237,507
Net sales	$557.9	$563.9	$1,246.6	$1,728.0
Net profit	$123.8	$147.5	$236.2	$537.5
Earnings per share	$1.59	$2.16	$3.17	$7.89
Average copper unit cash cost of production (C1) (per lb)	$0.98	$1.28	$0.95	$1.16
Cash	$807.7	$286.6	$807.7	$286.6

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

THIRD QUARTER HIGHLIGHTS

14% increase in copper production resulting in a year to date increase of 15%, with year to date increases at Kansanshi of 19% and Frontier of 23%

68% increase in gold production resulting in a year to date increase of 71% due to the Q1 modifications of the gold plants at Guelb Moghrein and Kansanshi

Record quarterly copper sales volume achieved in Q3 of 105,154 tonnes 

23% reduction in the Q3 average copper unit cash cost of production (C1) due to cost saving initiatives, lower process input costs and higher gold credit; year to date reduction of 18%

Net profit of $123.8 million and EPS of $1.59 despite significantly lower copper price year-over-year and a hedging loss of $40.4 million; EPS before derivative adjustments was approximately $1.95

Suspension of the Kolwezi project in response to a government order to seal the facilities on September 15, 2009

NEAR TERM OUTLOOK

Estimated production of copper for 2009 remains unchanged at 380,000 tonnes; gold production revised downward to 205,000 ounces.

Expected average C1 costs for 2009 are now $0.92 per pound. Zambian smelter capacity improved during Q3, but remains below expectation for the year to date resulting in higher freight parity costs. Combined with delays in accessing the higher grade ore at Kansanshi and Frontier during the earlier part of the year this has resulted in the higher than forecast average C1 cost of production at Kansanshi and Frontier. Increased waste stripping and higher input costs are expected during the remainder of the year.

The Company continues to seek a negotiated solution to the results of RDC mining contract revisitation, however the Company has finalized its arbitration preparation and might have no choice but to file such proceedings in the event the RDC refuses further negotiations.

The Lonshi underground portal has been established and 413 metres of decline has been developed. Design and commercial evaluation will continue during Q4, including a request for Board approval for capital expenditure to continue this evaluation phase of the project. 

The Kevitsa mining concession was granted in September 2009 and all mining permits have now been received. A new mineral resource estimate has been completed and a decision on whether to proceed with project construction at Kevitsa is expected in Q4 2009.

The Company's exploration activities ramped up to a higher level with additional drilling programs initiated in Zambia, Finland and the RDC.

  REVENUES

NET SALES (after provisional pricing and realization charges)	Three months ended September 30		Nine months ended September 30
(USD millions unless otherwise noted)	2009	2008	2009	2008
Kansanshi - copper	391.3	358.8	798.0	1,099.2
- gold	18.7	12.2	45.3	34.0
Frontier - copper	107.5	137.1	273.4	361.7
Guelb Moghrein - copper	24.1	32.4	70.3	150.7
- gold	16.3	12.6	57.4	42.3
Bwana/Lonshi - copper	-	10.0	0.4	38.5
- acid	-	0.8	1.8	1.6
Net sales	557.9	563.9	1,246.6	1,728.0
Copper provisional pricing adjustment included above	12.9	(16.4)	40.1	44.5
COPPER SELLING PRICE	USD/lb	USD/lb	USD/lb	USD/lb
Current period sales	2.44	3.11	2.11	3.38
Prior period provisional pricing adjustment	0.06	(0.08)	0.07	0.09
Treatment charges/refining charges ("TC/RC") and freight parity charges	(0.24)	(0.33)	(0.25)	(0.31)
Realized copper price	2.26	2.70	1.93	3.16

The average realized copper price for the quarter was 16% lower than Q3 2008 but 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 the quarter increased 16% to 105,154 tonnes. The increase resulted from the reduction of the copper in concentrate stockpile at Kansanshi, and a 14% increase in copper production. The year to date sales volume was also up 13% due to a 15% increase in copper production over the same period.

Gold revenues increased by 41% for the quarter and 35% for the year to date. The increases resulted from higher gold production from copper in concentrate and tolled copper sales and from the operation of the new gold plants at Guelb Moghrein and Kansanshi, with changes introduced since Q1 2009.

The Q3 positive provisional pricing adjustment resulted from the finalization of contracts totalling 21,542 tonnes of copper at an average price of $2.59 per pound ($5,714 per tonne). These contracts were provisionally priced at $2.32 per pound ($5,113 per tonne) at June 30, 2009 and were finalized during the quarter.

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 September 30, 2009, 16,364 tonnes of copper provisionally priced at $2.79 per pound ($6,149 per tonne) remain subject to final pricing in October and November 2009. Refer to the 'Outlook' section for further discussion.

  SEGMENTED OPERATING RESULTS

Kansanshi Copper and Gold Operation	Three months ended September 30		Nine months ended September 30
	2009	2008	2009	2008
Production (tonnes)
Copper cathode	25,436	23,685	70,509	76,637
Copper in concentrate	9,516	16,423	49,903	42,139
Copper cathode tolled	26,344	13,266	62,114	34,524
Total copper production (tonnes)	61,296	53,374	182,526	153,300
Gold production (ounces)	25,350	10,388	67,460	30,619
Sulphide ore tonnes milled (000's)	4,053	2,824	11,239	6,263
Sulphide ore grade processed (%)	1.0	1.1	1.1	1.2
Sulphide copper recovery (%)	88	92	92	92
Oxide ore tonnes milled (000's)	1,540	1,562	4,183	4,558
Oxide ore grade processed (%)	1.6	1.6	1.6	1.6
Oxide copper recovery (%)	91	91	91	92
Copper sales (tonnes)	73,985	55,039	177,161	147,545
Cash costs (C1) (per lb)	$1.01	$1.40	$1.00	$1.17
Total costs (C3) (per lb)	$1.31	$2.11	$1.27	$1.73
Operating profit (USD M)	$208.5	$199.3	$379.2	$731.1

Copper production increased 15% in Q3 and 19% in the year to date compared to the prior year. Q3 production benefited from an increase of 21% in the combined copper in concentrate and tolled cathode production. This was due to a 44% increase in sulphide ore milled as the sulphide circuit expansion, which started commissioning in Q2 2008, continued to ramp up. The mixed float circuit continued to improve as metallurgical work on optimizing treatment rates and recoveries materialized during Q3. The mixed ore circuit contributed 12,200 tonnes and 17,800 tonnes of contained copper for Q3 and the year to date respectively. 

Tolled copper cathode production from the Mufulira smelter was 99% higher than Q3 2008 and 29% higher than Q2 2009 as capacity continued to improve since Q4 2008. Kansanshi increased average daily shipments to Mufulira during the quarter resulting in approximately 19,900 tonnes of copper in concentrate at the Mufulira smelter at September 30, 2009 that will be processed in Q4. 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 Q3.

Oxide ore availability improved during Q3 as access to higher grade ores was facilitated by improved conditions in the mine pit. Cathode production during Q3 was 7% higher than Q3 2008. Year to date cathode production is 8% lower than the same period in 2008 due to reduced throughput and grade experienced in the first half of 2009. 

Gold production improved as a result of an increase in copper in concentrate production. The gravity recovery units also contributed approximately 7,400 ounces of gold production. Upgrades to the gold plant and additional gravity concentrators are expected to increase recovery and gold bullion production in Q4. 

Kansanshi's Q3 average cash unit cost of production (C1) decreased 28% compared to Q3 2008. This reduction was due to the cost saving initiatives implemented initially in Q4 2008 and lower oil and sulphur prices. 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 the first quarter of 2009.

Frontier Copper Operation	Three months ended September 30		Nine months ended September 30
	2009	2008	2009	2008
Production - copper in concentrate (tonnes)	24,765	18,687	68,094	55,260
Sulphide ore tonnes milled (000's)	2,183	1,651	5,788	4,944
Sulphide ore grade processed (%)	1.2	1.2	1.3	1.3
Copper recovery (%)	92	96	92	88
Copper sales (tonnes)	24,211	25,660	65,143	58,489
Cash costs (C1) (USD per lb)	$1.02	$1.52	$1.06	$1.51
Total costs (C3) (USD per lb)	$1.19	$1.90	$1.21	$1.88
Operating profit (USD M)	$67.8	$80.1	$165.9	$224.0

Copper production increased 33% in Q3 and 23% in the year to date compared to the same periods in 2008 due to increased ore throughput. 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 4,300 tonnes that was processed through Kansanshi's HPL for the quarter and 8,600 tonnes for the year to date.

Frontier's Q3 average cash unit cost of production (C1) was 33% lower than Q3 2008 due to decreases in oil based consumable costs, waste stripping ratios, employment costs and freight parity charges. Following on the cost saving initiatives implemented in Q4 2008, production was higher than the comparative quarter and efficiencies gained on production levels further reduced the cash costs. Lower freight parity charges were due to changes in the export contract terms and to the processing of some Frontier 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 were largely consistent with production during Q3. Of the total copper in concentrate inventory of 3,100 tonnes, approximately 2,800 tonnes are stockpiled or in process at Kansanshi's HPL. 

  

Guelb Moghrein Copper and Gold Operation	Three months ended September 30		Nine months ended September 30
	2009	2008	2009	2008
Production - copper in concentrate (tonnes)	7,425	8,506	24,792	24,896
Gold production (ounces)	18,007	15,423	63,149	45,914
Sulphide ore tonnes milled (000's)	514	511	1,518	1,519
Sulphide ore grade processed (%)	1.7	2.0	1.9	1.9
Copper recovery (%)	84	84	88	86
Copper sales (tonnes)	6,958	8,287	26,106	25,997
Cash costs (C1) (USD per lb)	$0.67	$0.74	$0.35	$0.61
Total costs (C3) (USD per lb)	$1.19	$1.09	$0.61	$1.04
Operating profit (USD M)	$14.8	$20.3	$53.6	$119.8

Copper production decreased 13% for Q3 and was in line with the year to date compared to the same periods in 2008. Gold production was 17% higher in Q3 and 38% higher for the year to date compared to 2008.

Copper production was restricted by increased mill downtime due to maintenance shutdowns during Q3 resulting in lower ore throughput. Gold production has increased due to higher grades contained in copper in concentrate and from the gold dore smelter, which was commissioned at the beginning of the year. The gold dore smelter produced approximately 3,600 ounces of gold bullion in Q3 and 10,800 ounces of gold bullion year to date. 

Guelb Moghrein's average cash unit cost of production (C1) was 9% lower in Q3 compared to the same period in 2008. This reduction was due to an increase in the gold credit which was partially offset by the impact of lower copper production on mining and processing costs per pound. 

Guelb Moghrein's operating profit was down against the comparative periods due to the lower realized copper price and lower sales volumes for the quarter and year to date. 

Bwana/Lonshi Copper Operation	Three months ended September 30		Nine months ended September 30
	2009	2008	2009	2008
Production - copper cathode (tonnes)	-	1,620	-	5,324
Copper sales (tonnes)	-	1,712	-	5,476
Operating loss (USD M)	$(7.8)	$(22.2)	$(18.6)	$(35.3)

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 processing facility will be re-opened. The operating loss at Bwana/Lonshi includes Lonshi underground evaluation project operating costs of $1.6 million for Q3 and $5.7 million for the year to date.

  COSTS AND EXPENSES

	Three months ended September 30		Nine months ended September 30
(USD millions unless otherwise noted)	2009	2008	2009	2008
Operating profit	283.3	277.5	580.1	1,039.6
Corporate costs and other expenses/income	1.3	(2.0)	0.9	(19.5)
Derivative adjustments, net	(40.4)	(2.4)	(139.5)	(6.0)
Exploration	(2.9)	(9.4)	(9.9)	(19.4)
Interest	(19.5)	(5.7)	(42.1)	(22.2)
Tax expense	(73.2)	(75.5)	(111.7)	(308.4)
Minority interests	(24.8)	(35.0)	(41.6)	(126.6)
Net profit	123.8	147.5	236.2	537.5
Earnings per share
- basic (USD per share)	$1.59	$2.16	$3.17	$7.89
- diluted (USD per share)	$1.50	$2.13	$3.11	$7.80
Weighted average shares outstanding
- basic (number of shares - millions)	78.1	68.4	74.6	68.1
- diluted (number of shares - millions)	87.7	69.1	78.6	68.9

Corporate costs included a gain on sale of investments of $7.7 million during the quarter.

The Company implemented a hedging program during Q1 2009 due to the uncertain economic outlook and the steep fall in the copper price during Q4 2008. These copper hedges were entered into to protect the Company against possible further declines in the copper price. Subsequent to entering the hedges, the copper price has increased to $2.78 per pound ($6,134 per tonne) on September 30, 2009, 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, $30.0 million remains unrealized and non-cash related.

Exploration expenses include $2.2 million and $7.6 million at the Lonshi underground evaluation project for Q3 and the year to date, respectively. 

Interest expense was higher than the comparative periods as the average debt level increased on the issue of the 6%, $500.0 million convertible bonds during Q2 2009. In addition, due to the significant changes in the credit conditions, the $250.0 million corporate revolving loan was renewed at higher costs in Q1. 

Minority expense is lower due to the decreased profits at all operations.

  FINANCIAL POSITION AND LIQUIDITY

	Three months ended September 30		Nine months ended September 30
(USD millions unless otherwise noted)	2009	2008	2009	2008
Cash inflows from operating activities
- before working capital	163.9	209.5	407.3	785.1
- after working capital	196.7	262.4	292.5	722.0
Cash inflows (outflows) from financing activities	(52.2)	(195.6)	594.5	23.5
Cash outflows from investing activities	(86.1)	(173.6)	(255.5)	(658.9)
Net cash inflows (outflows)	58.4	(106.8)	631.5	86.6
Cash Balance	807.7	286.6	807.7	286.6
Available credit facilities
- Corporate revolving loan and short-term facility	250.0	-	250.0	-
- Corporate revolving credit and term loan facility	50.0	-	50.0	-
Cash inflows per share
- before working capital (USD per share)	$2.10	$3.06	$5.46	$11.53
- after working capital (USD per share)	$2.52	$3.84	$3.92	$10.60

In April 2009, the Company completed an equity financing by issuing 9,343,750 common shares of the Company at a price of CDN$37.00 per share for gross proceeds of CDN$345.7 million. The net proceeds, after fees and expenses, were $269.5 million. In June 2009, the Company completed an issue of $500.0 million of 6%, five year unsecured convertible bonds for net proceeds of $488.0 million after the payment of commissions and fees and expenses related to the offering.

Long-term debt payments during the quarter included the payment of $90.3 million on the $400.0 million corporate revolving credit and term loan facility, of which $40.3 million was scheduled and $50.0 million was the early redemption of the tranche C balance. 

During the year, the Company repaid the balance of $150.0 million on the corporate revolving credit facility, which remains fully available for redraw until January 2010. The Company also repaid the balance of $11.0 million outstanding on the Kansanshi project completion facility.

Capital expenditure on the Kolwezi development project continued during Q3 until the project was suspended on September 16, 2009. There was an overall decrease in capital expenditures from the comparative periods due to a planned reduction in 2009. During Q3 2009, capital projects included further expansions of the Sulphide circuits at both Kansanshi and Guelb Moghrein. The prior year's investing activities included significant marketable security investment purchases and the acquisition of Scandinavian Minerals Ltd. 

Operating cash inflows continued to be generated from the positive operating results, but were partially offset by the cash realization of derivative adjustments during Q3. 

Additional sources of funding available include the $250.0 million corporate revolving loan that is due to expire in January 2010 and $50.0 million available on the corporate revolving credit and term loan facility. The Company's working capital balance (not including cash and debt) at September 30, 2009 increased by $133.1 million from December 31, 2008. Included in the working capital balance is approximately 25,700 tonnes of contained copper. 

As at September 30, 2009, the Company had the following contractual obligations outstanding:

(USD millions unless otherwise noted)	Total	Less than 1 year	1 - 2 years	2 - 3 years	3 - 4 years	4 - 5 years	Thereafter
Term debt	197.3	84.4	85.8	5.4	5.4	5.4	10.9
Convertible bonds	500.0	-	-	-	-	500.0	-
Accounts payables	323.8	323.8	-	-	-	-	-
Deferred payments	6.6	5.4	0.4	0.4	0.4	-	-
Commitments	130.4	130.4	-	-	-	-	-
Asset retirement obligations	19.4	-	-	-	-	-	19.4

INVENTORY

Finished Product	Copper (tonnes)	Gold (ounces)
Kansanshi	22,021	-
Frontier	3,128	-
Guelb Moghrein	555	590
Total	25,704	590

Copper in concentrate was reduced by 10,800 tonnes in Q3 to approximately 25,500 tonnes at September 30, 2009 with an average cost of approximately $1.09 per pound ($2,399 per tonne). The exemption from the 15% Zambian export levy on May 18, 2009 resulted in the significant increase in concentrate sales at the end of Q2 which continued through Q3. In addition, local smelting capacity increased during Q3 as improvements to Mufulira's converters resulted in increased tolling of Kansanshi's copper in concentrate. Kansanshi has transported more of its concentrate to Mufulira as a result, and at September 30, 2009, there was approximately 19,900 tonnes of Kansanshi copper in concentrate that is currently being treated or stockpiled for treatment at the smelter. 

CONVERTIBLE BONDS

The Company issued $500.0 million of convertible bonds (the 'Bonds') in June 2009 for net proceeds of $488.0 million after the payment of commissions and expenses related to the offering. The Bonds bear interest at 6% per annum, payable semi-annually in equal instalments and are due June 19, 2014 (the 'Final Maturity Date'). These 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 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.

As the bonds are convertible into common shares of the Company, the Company is required to account for the Bonds as both debt and equity. The Company elected to use the fair value approach to value the debt portion and the residual value approach to allocate the remaining value to equity. The result of this accounting approach was an allocation of $431.1 million as debt and $56.9 million as equity, which is equal to the net proceeds of $488.0 million. The debt portion of the Bond will be increased over the term of the Bonds to the face value of $500.0 million.

  COMPREHENSIVE INCOME

The equities market continued to recover during Q3 resulting in the Company recognizing an increase in the fair value of marketable security investments of $96.4 million for the quarter and $235.6 million for the year to date.

SHAREHOLDERS' EQUITY

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

The Company's equity financing resulted in the issuance of 9,343,750 common shares for net proceeds of $269.5 million and the convertible bond issuance resulted in an increase to shareholders' equity of $56.9 million.

As at the date of this report the Company has 78,529,523 shares outstanding.

DEVELOPMENT ACTIVITIES

Kolwezi copper/cobalt project, RDC

Project construction was suspended on September 16, 2009 in response to an order by the General Prosecutor of Katanga to seal the KMT facilities. As at September 30, 2009 approximately $440.0 million of the project budget has been committed. The overall project was approximately 74% complete as at the end of September 2009. If construction is restarted, the estimated capital cost is expected to be under the original budget of $553.0 million at approximately $515.0 million.

Upon completion, the plant will initially produce 35,000 tonnes of copper cathode and 7,000 tonnes of cobalt hydroxide per year and is designed to double capacity during the first year for a budgeted capital cost of approximately $40.0 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. 

Kansanshi copper/gold operation, Zambia 

The mixed ore treatment circuit continued successful processing of in situ ore types during the quarter. Extensive stockpiles of mixed ore are available and will provide low cash cost mining as the stockpiles are processed. Recoveries in the first full month of production were in line with expectations. Optimization of this treatment route is ongoing to boost throughput and recovery.

Sulphide circuit equipment upgrades and circuit modifications are in progress to fully utilize all available milling capacity. These aim to facilitate consistent running at 12 million tonnes per annum rates allowing flexibility to maintain copper outputs while head grades vary as the pit develops. Completion of all sulphide throughput related projects is planned for Q2 2010. Cathode circuit leach solution clarifier project aimed at improving solvent extraction efficiency was completed.

Maximizing the recovery of gravity recoverable gold to saleable gold products continues as an area of focus. Additional primary recovery capacity via four new Falcon concentrators is planned, with project completion scheduled for Q1 2010. Downstream processing via gravity upgrade and smelting of concentrate have yielded significant increases in gold bullion production. Facilities for the pyrometallurgical processing of the gold and copper bearing gravity residues are under construction. Successful completion of this processing route aims to increase recovery of gold from primary gravity concentrates to 99%.

Guelb Moghrein copper/gold operation, Mauritania

Commissioning of the plant expansion project to 3.8 million tonnes annual throughput was completed on schedule. New rougher flotation cells, increased process water supply, new tailings facility and new ball mill with associated process installations were commissioned and ramping up to design capacity. The first two engines producing 10 mega watts of commercial power were commissioned in the new powerhouse and the two other engines are expected to be commissioned by the end of Q1 2010. Works have commenced on the new HPGR comminution circuit also due for completion in Q1 2010. 

Kevitsa nickel/copper/PGE project, Finland

The expansion development drilling program, which located significant wide intercepts of nickel and copper at or above grades in the main resource area, was completed in March 2009. The mining concession was granted in September 2009 and all mining permits have now been received. A new mineral resource estimate has been completed and a decision on whether to proceed with project construction at Kevitsa is expected in Q4 2009. 

Lonshi underground evaluation project, RDC

Further work continues on the Lonshi underground evaluation project. The objective of this exercise is to establish the operational and commercial viability of producing upwards of 30,000 tonnes per annum of copper in concentrate. The current resource should support this level of operation for in excess of 13 years.

The underground portal has been established and approximately 413 metres of decline has been developed, down to level 1,153 metres. The ore body was intersected during August 2009 and two ends have subsequently been established. Design and commercial evaluation will continue during Q4, supported with a Board application for capital expenditure to continue the evaluation phase of the project.

Exploration

During Q3 the Company's exploration activities ramped up to a higher level with additional drilling programs initiated in Zambia, Finland and the RDC.

In Finland, a new resource estimation was completed on the Kevitsa project successfully incorporating the geological constraints developed during the geological modeling process in the previous period. Exploration targeting based on the new 3D geological model has been completed and drilling commenced in September 2009. Three core holes testing interpreted extensions of the deposit to the south, west and north of the current resource have all encountered significant intercepts of typical Kevitsa mineralization suggesting considerable potential to further expand the resource. Two additional drill rigs are due to arrive at Kevitsa shortly to accelerate the exploration and resource drilling program.

In Zambia a total of six core rigs are now operational at Kansanshi with four rigs focused on resource definition and two rigs on near mine exploration. Exploration drilling to the south of the Kansanshi 'Main Pit' has reported significant intercepts of 20-50 metres of moderate grade Cu mineralization in the target horizon up to 600 metres south of the existing resource. Infill drilling to define additional resources in this area is planned for 2010. Further exploration drilling is now focused on the 'South East' anomaly approximately two kilometres from the mine where initial holes have reported a consistent series of sulphide veins from relatively shallow levels.

Exploration drilling to the south of Frontier in the RDC was completed in Q3 and has defined an area of 'vein style' mineralization at relatively shallow levels which differs from the main deposit. This mineralization might reflect a leakage zone from the main mineralized zone at depth. Infill drilling and some deeper holes are required to establish the potential for future resource development in this area. Further south in the RDC, drilling is in progress on targets around the Lonshi mine where the target horizon has been intersected with Lonshi style mineralization up to eight kilometres north of the current underground resource.

The exploration group is actively involved in the identification and review of several advanced stage exploration projects for copper and other commodities on a global basis.

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 ("Contract of Association"), to which the Company's subsidiary Congo Mineral Developments Limited ("CMD") is a party, was included in this review. The Company and its contributing partners in the Kolwezi project, Industrial Development Corporation of South Africa ("IDC") and the International Finance Corporation ("IFC"), have obtained legal advice that the Kolwezi Contract of Association is valid and binding and that all terms have been complied with by CMD. The Kolwezi Contract of Association also provides a dispute resolution mechanism through international arbitration.

Despite CMD's voluntary participation in the revisitation and efforts to reach a negotiated resolution, CMD received a letter from the RDC Prime Minister dated August 21, 2009, which reported on the outcome of an August 4, 2009 meeting of the RDC Council of Ministers with respect to the Kolwezi Contract of Association. The letter notes the "impossibility to pursue the partnership" and directed that the exploitation permit held by KMT, the Company formed by the parties to pursue the project, be returned to Gecamines pursuant to the Contract of Association.

The reasons for the decision as quoted in the Prime Minister's letter are:

misdated KMT decree issue;

failure to commence commercial production within 44 months;

failure to respect the terms of the initial tender offer;

refusal to agree to pay increased royalties; and

refusal to agree to cancel the Management Fees provided for in the Contract of Association.

First Quantum remains firmly of the view that none of these reasons have any legal basis. CMD responded to the Prime Minister's letter, rebutted each of the reasons cited by the Council of Ministers, and requested further meetings to resolve the matter. CMD declined to return KMT's exploitation permit, and in response, the RDC Mining Registry unilaterally cancelled KMT's exploitation permit and issued a new exploitation permit to Gecamines. Local proceedings were filed in the RDC by CMD and KMT to seek protective relief pending resolution by international arbitration.

Subsequently, on September 15, 2009 CMD received an order by the General Prosecutor of Katanga to seal KMT's facilities. The Company has been advised by its lawyers that such an order is illegal. On September 16, 2009 the Company had no choice but to announce that it had suspended construction at its KMT Project. Given the actions taken by the RDC government, the Company was also advised there was no longer any purpose in pursuing interim relief in the RDC courts.

Construction of the KMT Project plant is now at an advanced stage (approximately 74% complete) and was on schedule to start commissioning in May 2010. The forced suspension has resulted in the immediate loss of 700 jobs in the Kolwezi area, loss of tax revenues to the RDC government, and an indefinite delay in commissioning of the plant.

The Company believes there is no legal basis for the cancellation of KMT's exploitation permit or the sealing of the KMT facilities, and as previously noted, that CMD and the KMT Project's other contributing partners, the IFC and the IDC, continue to have a valid and binding contract with the RDC and Gecamines. While the Company will continue to seek a negotiated solution to the results of RDC mining contract revisitation, it will, if necessary, pursue all available legal remedies, including recourse to international arbitration. The Company has finalized its arbitration preparation and might have no choice but to file such proceedings in the event the RDC refuses further negotiations. 

The carrying value of the Kolwezi development project is $765.6 million and is comprised of the initial acquisition cost of $387.6 million and capital expenditures of $378.0 million. In response to the events during the period, the Company has assessed the carrying value of the Kolwezi development project for impairment and no adjustment has been recorded as at September 30, 2009. The final outcome of the revisitation process remains uncertain and may result in the impairment or loss of all or part of the Company's investment which could be material.

In the event of resolution of the Kolwezi dispute resulting from the conclusion of the RDC revisitation, 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 $450.0 million facility for the development of the project. Subject to a satisfactory solution and documentation, they are prepared to provide the financing subject to completion of documentation and satisfaction of conditions precedent. Management however does not anticipate raising more than $350.0 million of senior debt. The project debt, when drawn down, will be used to repay some shareholder funding provided by the Company to date.  

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. On May 18, 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 the future may be material. As at September 30, 2009 this receivable amounts to $157.7 million.

Currently, the Company is involved in 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 remains uncertain.  

OUTLOOK

Group production estimate for 2009 remains at 380,000 tonnes of copper; gold production revised to 205,000 ounces

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

	Forecast Cu tonnes	Forecast Au ounces	Forecast C1 cost USD/lb
Kansanshi	245,000	110,000	0.97
Guelb Moghrein	39,000	95,000	0.37
Frontier	96,000	-	1.03
Total	380,000	205,000	0.92

The group 2009 production estimate remains at 380,000 tonnes of copper. Kansanshi's year to date production was in line with the Company's expectation. At Guelb Moghrein, plant throughput is expected to improve in Q4. Mining conditions in the Frontier pit have improved and access to higher grade ore is forecasted to achieve the 2009 production target. 

The group gold production estimate has been lowered to 205,000 ounces for 2009. Guelb Moghrein's gold production has been reduced as the year to date gold production reflects lower concentrate copper output for the same period. At Kansanshi, the addition of gravity concentrators is expected to increase gold production in Q4. However, delays in equipment supply have impacted gold production at Kansanshi to date. The annual estimated production has been reduced to 110,000 ounces. 

The group expected average C1 cost for the 2009 year has been revised to $0.92 per pound. Zambian smelter capacity improved during Q3, but remains below expectation for the year to date resulting in higher freight parity costs. Combined with delays in accessing the higher grade ore during the earlier part of the year this has resulted in the higher than forecast average C1 cost of production at Kansanshi and Frontier. Guelb Moghrein's expected average C1 cost has been increased because of lower production during the first nine months of the year. 

Hedging program

Following the sharp decline in the copper price in the last quarter of 2008 which severely reduced profit, the Company decided in January 2009 to hedge up to 50% of targeted copper production for a rolling six-month period to protect against further downside risk of a further decline in the copper price in 2009. The Company used a zero premium, bought puts and sold calls 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.

The outstanding positions as at September 30, 2009 comprised 10,500 tonnes bought puts at an average strike price of $3,260 per tonne ($1.48 per pound) and 13,500 tonnes sold calls at an average call strike of $3,889 per tonne ($1.76 per pound). All contracts will mature before December 31 2009.

The hedging program is regularly reviewed in light of the prevailing market conditions and economic outlook. The Company has not added any hedging since June 30, 2009.

As at September 30, 2009, the following derivative positions were outstanding:

	Maturity 2009	Maturity 2010	Total	September 30, 2009		December 31, 2008
				Asset	Liability	Asset	Liability
Copper
Bought put options (tonnes)	10,500	-	10,500	-	-	-	-
Average strike price ($/tonne)	$3,260	-	$3,260
Sold call options (tonnes)	13,500	-	13,500	-	(30.6)	-	-
Average strike price ($/tonne)	$3,889	-	$3,889
Gold
Forward sales contracts (ounces)	9,507	-	9,507	-	(5.8)	-	(19.1)
Average forward price ($/oz)	$400	-	$400
Bought put options (ounces)	9,507	-	9,507	-	-	2.2	-
Average strike price ($/oz)	$350	-	$350
Sold call options (ounces)	-	-	-	-	-	-	(2.1)
Average strike price ($/oz)	-	-	-
Foreign exchange
Foreign exchange contracts - USD equivalent	94.9	-	94.9	1.5	-	-	-
Foreign exchange bought put options - USD equivalent	11.9	-	11.9	-	-	2.2	-
Foreign exchange sold call options - USD equivalent	11.9	-	11.9	-	(0.1)	-	(4.6)
Cross-currency swap - principal	32.0	-	32.0	6.9	-	4.6	-
Interest rate
Floating to fixed interest rate swap - principal	18.5	48.1	66.6	-	(0.6)	-	(0.2)
Average fixed interest rate	1.86%	1.82%	1.83%
Other
Embedded derivative	-	-	-	-	(8.4)	-	(8.0)
				8.4	(45.5)	9.0	(34.0)
Copper embedded derivative (tonnes)	16,364	-	16,364
Average price ($/tonne)	$6,149	-	$6,149
Gold embedded derivative (ounces)	3,127	-	3,127
Average price ($/oz)	$1,007	-	$1,007

Provisionally priced copper sales subject to final settlement prices in Q4 

At September 30, 2009, 16,364 tonnes of copper were provisionally priced at an average of $2.79 per pound ($6,149 per tonne). Of this total, 8,174 tonnes and 8,190 tonnes were subject to final pricing in October and November 2009, respectively.

The average LME cash price for October was $2.85 per pound ($6,286 per tonne) resulting in a positive provisional adjustment of $1.1 million which will be recognized in Q4 with the final settlement of the November provisionally priced copper.

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: (647) 346-3934 Fax: (604) 688-3818 Toll Free: 1 (888) 688-6577 E-Mail: sharon.loung@fqml.com  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] OrSimon 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	September 30, 2009	December 31, 2008
Assets
Current assets
Cash and cash equivalents		807.7	176.2
Restricted cash	7a	-	40.3
Accounts receivable		288.7	93.2
Inventory	3	281.7	270.9
Current portion of other assets	6	182.5	150.8
		1,560.6
Investments	4	392.8	163.5
Property, plant and equipment	5	2,137.1	1,996.3
Other assets	6	106.0	113.3
Total assets		4,196.5	3,004.5
Liabilities
Current liabilities
Accounts payable and accrued liabilities		323.8	333.1
Current taxes payable		248.4	146.4
Current portion of long-term debt	7	84.4	139.5
Current portion of other liabilities	9	39.2	27.0
		695.8
Long-term debt	7	112.9	246.2
Convertible bonds	8	435.0	−
Other liabilities	9	33.9	34.8
Future income tax liabilities		360.5	363.6
Total liabilities		1,638.1	1,290.6
Minority interests		351.9	313.3
Total liabilities and minority interests		1,990.0	1,603.9
Shareholders' equity
Capital stock		760.2	420.3
Retained earnings		1,210.7	980.3
Accumulated other comprehensive income		235.6	−
Total shareholders' equity		2,206.5	1,400.6
Total shareholders' equity, liabilities and minority interests		4,196.5	3,004.5
Commitments	14
Contingencies and measurement uncertainty	15

Consolidated Statements of Earnings and Comprehensive Income

(unaudited)

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

		Three months ended September 30		Nine months ended September 30
	Note	2009	2008	2009	2008
Sales revenues
Copper		522.9	538.3	1,142.1	1,650.1
Gold		35.0	24.8	102.7	76.3
Acid		−	0.8	1.8	1.6
		557.9	563.9	1,246.6	1,728.0
Cost of sales		(214.5)	(233.8)	(517.5)	(559.3)
Depletion and amortization		(43.2)	(29.9)	(113.6)	(75.8)
Royalties, windfall taxes and export levies	15b	(16.9)	(74.7)	(36.9)	(172.6)
Zambian taxes recovery	15b	−	52.0	1.5	119.3
Operating profit		283.3	277.5	580.1	1,039.6
Other expenses/income
Exploration		(2.9)	(9.4)	(9.9)	(19.4)
General and administrative		(8.7)	(9.4)	(20.0)	(24.3)
Interest		(19.5)	(5.7)	(42.1)	(22.2)
Derivative instrument losses		(40.4)	(2.4)	(139.5)	(6.0)
Other expenses/income	11	10.0	7.4	20.9	4.8
		(61.5)	(19.5)	(190.6)	(67.1)
Earnings before income taxes and minority interests		221.8	258.0	389.5	972.5
Income taxes		(73.2)	(75.5)	(111.7)	(308.4)
Minority interests		(24.8)	(35.0)	(41.6)	(126.6)
Net earnings for the period		123.8	147.5	236.2	537.5
Other comprehensive income
Unrealized gain (loss) on available-for-sale investments, net of tax		104.1	(205.4)	244.6	(306.7)
Realized gain on available-for-sale investments, net of tax		(7.7)	−	(9.0)	−
		96.4	(205.4)	235.6	(306.7)
Comprehensive income		220.2	(57.9)	471.8	230.8
Earnings per common share
Basic	10b	$1.59	$2.16	$3.17	$7.89
Diluted	10b	$1.50	$2.13	$3.11	$7.80
Weighted average shares outstanding (000's)
Basic	10b	78,052	68,370	74,611	68,085
Diluted	10b	87,729	69,142	78,645	68,907
Total shares issued and outstanding (000's)	10a	78,536	68,751	78,536	68,751

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 September 30		Nine months ended September 30
	Note	2009	2008	2009	2008
Capital stock
Common shares
Balance - beginning of period		713.7	440.9	441.8	415.2
Stock options exercised		8.8	0.9	11.2	6.8
Shares issued on equity financing	10a	−	−	269.5	−
Acquisition of Scandinavian Minerals Limited		−	−	−	19.8
Balance - end of period		722.5	1.8	722.5	1.8
Equity portion of convertible bonds
Balance - beginning of period		56.9	−	−	−
Equity allocation of convertible bonds	8	−	−	56.9	−
Balance - end of period		56.9	−	56.9	−
Treasury shares
Balance - beginning of period		(38.8)	(39.5)	(38.8)	(34.3)
Shares purchased		−	(4.0)	−	(9.3)
Restricted and performance stock units vested		5.0	7.3	5.0	7.4
Balance - end of period		(33.8)	(36.2)	(33.8)	(36.2)
Contributed surplus
Balance - beginning of period		20.1	18.2	17.3	15.1
Stock-based compensation expense for the period		1.7	2.1	5.2	6.9
Transfers upon exercise of stock options		(2.2)	(0.2)	(2.9)	(1.8)
Restricted and performance stock units vested		(5.0)	(7.3)	(5.0)	(7.4)
Balance - end of period		14.6	12.8	14.6	2.8
Total capital stock		760.2	418.4	760.2	418.4
Retained earnings
Balance - beginning of period		1,092.7	1,341.3	980.3	987.4
Net earnings for the period		123.8	147.5	236.2	537.5
Dividends		(5.8)	(16.9)	(5.8)	(53.0)
Balance - end of period		1,210.7	1,471.9	1,210.7	1,471.9
Accumulated other comprehensive income
Balance - beginning of period		139.2	101.3	−	202.6
Other comprehensive income (loss) for the period		96.4	(205.4)	235.6	(306.7)
Balance - end of period		235.6	(104.1)	235.6	(104.1)
Retained earnings and accumulated other comprehensive income		1,446.3	1,367.8	1,446.3	1,367.8

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 September 30		Nine months ended September 30
	Note	2009	2008	2009	2008
Cash flows from operating activities
Net earnings for the period			123.8	147.5	236.2	537.5
Items not affecting cash
Depletion and amortization			43.2	29.9	113.6	75.8
Minority interests			24.8	35.0	41.6	126.6
Adjustment to net realizable value of inventory			-	−	(10.7)	−
Unrealized foreign exchange loss (gain)			3.2	(5.1)	3.8	(1.3)
Future income tax expense			11.3	1.0	(0.7)	40.4
Stockߛbased compensation expense			1.7	2.1	5.2	6.9
Derivative instruments			(43.7)	(0.6)	11.8	(3.4)
Non-cash interest expense			7.1	0.5	14.1	1.5
Gain on disposal of investments			(7.7)	−	(9.0)	−
Other			0.2	(0.8)	1.4	1.1
			163.9	209.5	407.3	785.1
Change in nonߛcash operating working capital
Decrease (increase) in receivables and other			(101.8)	25.2	(222.8)	(196.8)
Decrease (increase) in inventory			23.4	(28.1)	(1.1)	(108.5)
Increase in accounts payable and accrued liabilities			38.3	53.2	6.1	142.0
Increase in current taxes payable			72.2	7.1	102.1	109.8
Long-term incentive plan contributions			−	(4.0)	−	(9.3)
			196.0	262.9	291.6	722.3
Cash flows from financing activities
Proceeds from long-term debt			−	−	139.0	294.4
Repayments of long-term debt			(90.3)	(243.3)	(341.8)	(268.9)
Proceeds from convertible bonds			−	−	488.0	−
Proceeds on issuance of common shares			6.6	0.7	277.8	5.0
Restricted cash			40.3	63.9	40.3	46.0
Dividends paid			(5.8)	(16.9)	(5.8)	(53.0)
Dividends paid to minority shareholders			(3.0)	−	(3.0)	−
			(52.2)	(195.6)	594.5	23.5
Cash flows from investing activities
Payments for property, plant and equipment			(97.6)	(138.8)	(270.8)	(351.6)
Acquisition of Scandinavian Minerals Limited			−	-	−	(214.3)
Available-for-sale investments, net			11.5	(34.8)	15.3	(93.0)
			(86.1)	(173.6)	(255.5)	(658.9)
Effect of exchange rate changes on cash			0.7	(0.5)	0.9	(0.3)
Increase (decrease) in cash and cash equivalents			58.4	(106.8)	631.5	86.6
Cash and cash equivalents - beginning of period			749.3	393.4	176.2	200.0
Cash and cash equivalents - end of period			807.7	286.6	807.7	286.6

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

ENDQRTEAAFEFENNFAE

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