First Quantum - Q4 2012
First Quantum Minerals is a Canadian mining company engaged in mineral exploration, development and mining. Copper accounts for the vast majority of the company's output, but it also produces gold as a by-product. First Quantum's operations are the Kansanshi and Bwana Mkubwa copper mines in Zambia, and the Guelb Moghrein copper-gold mine in Mauritania. First Quantum is also developing the Kevitsa nickel-copper project in Finland, the Ravensthorpe nickel mine in Australia and the Haquira copper mine in Peru.
- First Quantum has increased its geographic diversity and thus reduced its exposure to political risk in any single country.
- After a substantial fall in the its share price following events in the Democratic Republic of the Congo (DRC), First Quantum's share price has recovered somewhat, but has still underperformed the FTSE 350 Mining Index.
- While the company's profit margins in 2011 were 20%, below the average of 26% for Bloomberg industries Copper Index, we expect profit margins will increase substantially when the Kanshanshi and Haquira mines come online.
- First Quantum lost ownership of its Frontier mine in the DRC after the government revoked its licence. The company is currently undertaking legal action, which is likely to drag on for some time.
- Copper accounts for 85.0% of First Quantum's revenues and the vast majority of its profits. The company will therefore be affected by lower prices, as we forecast copper to average US$7,800/tonne in 2012 and US$7,200/tonne in 2013.
- We are not as bearish as the market regarding the election of Humala in Peru and Sata in Zambia. We expect both presidents to moderate their stance towards foreign mining companies.
- First Quantum's Kanshanshi copper deposit in Zambia is high-grade resource with low cash costs of US$2,200/tonne.
- Proposed tax increases in Peru and Australia are likely to increase the company's costs at some of its largest mines.
- Much of First Quantum's copper production is for export to China, and thus the company is exposed to our below-consensus view on Chinese economic growth.
- First Quantum is exposed to elevated oil prices as the company does not produce its own energy.
We are optimistic regarding First Quantum's prospects, due to the company's substantial expansion plans. First Quantum plans to starts production at 230ktpa ('000 tonnes per annum) from the Haquira copper mine in Peru in 2012 and increase production from 250ktpa to 400ktpa in 2015 at the Kanshanshi mine in Zambia. These projects are in countries with pro-business outlooks, and thus the company should avoid the fate of its Frontier mine in DRC in mid-2010, which weighed heavily on the company's share price. That said, First Quantum is potentially exposed to proposed mining taxes in Australia and Peru, which could increase the company's costs.
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- Tel: +1 604 688 6577
- Fax: +1 604 688 3818
|Table: First Quantum - Financial Data|
|- % chg y-o-y||146.2||40.6||13.1||7.1||28.4||8.0|
|- % chg y-o-y||179.0||23.3||-22.9||47.9||14.4||3.1|
|Net Income (US$mn)||399||520||46||463||306||529|
|- % chg y-o-y||161.0||30.3||-91.2||910||-34.0||73.0|
|Profit Margin (%)||36.5||33.8||2.6||24.9||12.8||20.5|
|Debt to EBITDA||0.4||0.4||0.5||0.6||0.8||0.0|
|Source: BMI, Bloomberg|