Wednesday, April 17, 2024

First Quantum Finalized a $500 Million Copper Deal with Jiangxi

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First Quantum Minerals (TSX: FM) announced on Wednesday that it has secured a $500 million injection from Jiangxi Copper, its largest shareholder, aimed at bolstering its finances.

Under the three-year prepayment arrangement with Jiangxi, First Quantum will deliver 50,000 tonnes of copper anode annually to the Chinese miner. The copper will be sourced from the Kansanshi mine in Zambia and will be payable at market prices, as per the company’s statement.

“This arrangement underscores the strategic importance of copper, particularly in light of supply challenges across the sector,” First Quantum stated. “Constructive discussions with our lenders for an amendment and extension of our loan facilities, which are crucial components of our comprehensive solution, are progressing well, with strong alignment among all parties.”

Following the closure of its flagship copper mine in Panama in December, First Quantum has experienced a rapid deterioration in its financial position. Additionally, its exposure to nickel, which has seen prices decline to two-year lows, has intensified its financial challenges.

In addition to reporting a net loss for the fourth quarter, First Quantum disclosed an impairment charge of $900 million, of which $854 million is attributed to its Ravensthorpe nickel mine. This impairment reflects significant margin pressure driven by weak prices and high operating costs in the battery metal sector.

First Quantum faces substantial debt maturing in the near future, and concerns regarding the future viability of its primary revenue source, Cobre Panama, have raised the risk of breaching covenants in the coming year. The company has acknowledged a “material uncertainty” regarding its ability to sustain operations.

To address these challenges, the Vancouver-based firm is engaged in discussions with lenders to amend and extend its loan facilities, with expectations of reaching a resolution “in the near term.”

First Quantum remains optimistic that the upcoming May Presidential elections in Panama could lead to a positive turn of events for its stalled operation, which stands as one of the largest new copper mines to commence operations in the last decade.

In addition, the company is contemplating a minority investment from strategic investors for its Zambian operations and is actively pursuing a sales process for its smaller Las Cruces mine in Spain, according to Chief Executive Tristan Pascall during a conference call on Wednesday discussing the fourth quarter results.

First Quantum is the exclusive owner of the Sentinel copper mine and holds an 80% stake in the Kansanshi mine. Its presence in Zambia, Africa’s second-largest copper producer, encompasses the Fishtie copper project near the Democratic Republic of Congo border. Additionally, the company holds two license options through an agreement with African Pioneer.

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