First Quantum Minerals (Toronto: FM) (OTC: FQVLF) is one of the largest copper producers in the world, explains Gavin Graham, contributing editor to Internet Wealth Builders.
In addition to its 90% ownership of Cobre Panama, it owns the 80% of the Kansanshi and 100% of the Sentinel copper mines in Zambia and the Ravensthorpe nickel mine in Australia. It also owns smaller mines in Finland, Spain, and Mauretania.
Kansanshi, started in 2005, produced approximately 220-235,000 tonnes of copper and 120,000 oz. of gold in 2020 and employs 13,000 workers.
Sentinel, started in 2012, cost $2.1 billion, the largest infrastructure investment in Zambia since the Kariba Dam was completed in 1959. It employs 6,000 workers.
Sentinel produced 235,000 tonnes of copper in 2020. Zambia, unlike its northern neighbor in the central African copper belt, the Democratic Republic of the Congo (DRC), has a reputation for stable and investment friendly policies, especially when they represent such a major part of its economy.
Ravensthorpe, which has opened and closed several times in the last decade due to low nickel prices, reopened in early 2020 and produced approximately 13,000 tonnes of nickel last year. Nickel is a major metal used in battery production and another beneficiary of the growth in production of electric vehicles.
First Quantum has been on a tear in the last year since it became apparent that the global economy would be able to survive COVID-19 and that Asian economies, particularly China, were back to pre-pandemic performance in the second half of 2020.
First Quantum is up 189% in the last year from its pandemic lows, but only 30% over the last three years, despite bringing Cobre Panama on stream, which effectively increased its production by 50%.
The company has entered a period when it will generate substantial free cash flow, and management has indicated they will use this to reduce debt and increase dividends to shareholders now that Cobre Panama is in operation.
For the fourth quarter ended Dec. 31, First Quantum reported revenue up 11% to $1.6 billion and comparative EBITDA of $725 million. That was up $214 million (41%) on a 13% increase in the realized copper price. Comparative EBITDA for fiscal 2020 was $2.15 billion, up 34%.
Net earnings were $9 million ($0.01 per share) and comparative earnings, which adjust for non-cash non-operating items such as foreign exchange movements on debt, were $53 million ($0.08 per share).
That compared to $35 million ($0.05 per share) in the same quarter in 2019. First Quantum has hedged 40% of its expected 2021 production at a minimum of $2.90 per lb. with upside to $3.50 per lb.
In its guidance for 2021-23, First Quantum has forecast copper production increasing from 285,000 tonnes to 305,000 tonnes and gold production of between 280-300,000 oz. per year. Capital expenditure will be $950 million in both 2021 and 2022 and $1.05 billion in 2023 on a new expansion for Kansanshi.
First Quantum is one of the largest global producers of copper. It has increased its output by 50% by bringing Cobre Panama on stream, and has another major project in Taca Taca in Argentina, which could be as large as Cobre Panama or Kansanshi and Sentinel.
If copper merely remains at present levels, which given its importance in the green electrification of automobiles and power seems reasonable, then its increased production will enable FM to generate substantial growth in revenue and earnings.
Action now: Buy now for operational growth and the possibility of higher copper prices for the foreseeable future.
