Soaring demand for copper will help drive mergers, BHP CEO says
Demand for copper, a key element in the energy transition, is set to rise by 70% to 100% by 2050, Mike Henry said
First Quantum Minerals (TSX: FM) said on Wednesday it would get a $500 million injection from Jiangxi Copper, the Canadian miner’s largest shareholder, that will help it to shore up finances.
The three year prepay arrangement with Jiangxi will see First Quantum deliver 50,000 tonnes of copper anode per year to the Chinese miner. The material will be extracted at the Kansanshi mine in Zambia and is payable at market prices, the company said.
“This arrangement is a reminder of the strategic nature of copper as supply challenges abound across the sector, First Quantum said in a statement. “Constructive discussions with our lenders for an amendment and extension of our loan facilities, which are an important component to our fulsome solution, are well-advanced and there is a high degree of alignment among all parties.”
The company, which was forced to shut down in December its flagship copper mine in Panama, has quickly seen its financial situation deteriorate. Since the order to close the operation, First Quantum has lost over half its market value and its exposure to nickel, of which prices have dropped to two-year lows, has added extra pressure.
Together with reporting a net loss for the fourth quarter, First Quantum recorded an impairment charge of $900 million, which includes $854 million at its Ravensthorpe nickel mine, due to significant margin pressure triggered by the battery metal’s weak prices and high operating costs.
First Quantum has billions of dollars of debt maturing in the coming years and concerns about the future of Cobre Panama, its main source of income, has put it at risk of a covenant breach in the coming year. This has resulted in “material uncertainty” that may cast doubt on the company’s “ability to continue,” the miner said.
The Vancouver-based company is in talks with lenders to amend and extend its loan facilities, and expects a conclusion “in the near term.” This include extending its $2.2 billion corporate bank loan and extending its maturity to April 2027.
The miner also announced a $1 billion common share offering to underwriters led by RBC Capital Markets, BMO Capital Markets and Goldman Sachs, and launched a private offering of senior notes worth $1.6 billion due in 2029.
BMO analyst Jackie Przybylowski considered First Quantum’s update as positive. “It included material improvement to balance sheet liquidity and ongoing work to continue to manage debt and other obligations in the event of a prolonged Cobre Panama closure,” she wrote.
The expert said the bank will be watching closely how the Cobre Panama issue unfolds. “On the positive side, blockades around the mine have dissipated, allowing deliveries by road and at port to receive supplies necessary for the preservation and safe maintenance. Sale of the concentrate in inventory will help to fund this program”, Przybylowski said in a note to investors.
First Quantum holds out hope the May Presidential elections in Panama may bring a change in fortune for its halted operation, one of the world’s largest new copper mines to open in the past decade.
First Quantum is also considering a minority investment from strategic investors in its Zambian business, and is running a sales process for its small Las Cruces mine in Spain, chief executive Tristan Pascall said in a Wednesday call conference to discuss fourth quarter results.
The company is the sole owner of the Sentinel copper mine and has a 80% stake in the Kansanshi mine. Its presence in Zambia, Africa’s second-largest copper producer, includes the Fishtie copper project, near the border with the Democratic Republic of Congo. It also comprises two licence options through a deal with African Pioneer (LON: AFP).
