First Quantum sees major spike in annual, quarterly earnings (April 05, 2010)

VANCOUVER — After riding out a rough start to 2009, First Quantum (FM-T, FQM-L) has seen a strong recovery in quarterly and annual earnings thanks to a resurgent copper price.

The company reported net earnings of US$227.2 million for the last quarter of 2009 compared with a loss of US$491.6 million for the same quarter of 2008. First Quantum had an average copper price of US$2.79 per lb. realized in the fourth quarter of 2009, compared to negative US4¢ per lb. for the same quarter in 2008.

Annual earnings for 2009 were US$463.4 million, or US$6.14 per share, compared with US$45.9 million, or US67¢ per share, for 2008. Year-over-year, the realized copper price was actually higher in 2008 at US$2.22 compared with US$2.16 for 2009, while the average cost of producing a pound of copper was down from US$1.23 in 2008 to US96¢ in 2009.

First Quantum produced 373,940 tonnes of copper and 193,288 oz. gold in 2009, compared with 334,415 tonnes of copper and 116,177 oz. gold in 2008. For 2010, the company expects to produce 385,000 tonnes of copper and 240,000 oz. gold.

The company significantly increased its gold production by – expanding the capacity of the gold circuits at its Kansanshi and Guelb Moghrein mines. The company has further upgrades planned for the Kansanshi mine in 2010 that should increase total capacity by 10%.

First Quantum made two significant acquisitions in the last quarter and a smaller one earlier this year. It also lost a major project in the Democratic Republic of Congo (DRC) last August.

In November the company agreed to take over Kiwara PLC and its 85% interest in mineral prospecting licenses on the edge of the Kabombo Dome in Zambia. The US$260.2-million deal was finalized in January.

First Quantum has since increased its interest in the licenses to 95%.

In December, First Quantum agreed to buy the Ravensthorpe nickel operation in Western Australia for US$340 million from BHP Billiton (BHP-N, BBL-L). The deal, completed in February, gives First Quantum a nickel and cobalt open-pit mine that was shut down in early 2009 because of low nickel prices.

First Quantum is now planning to add two crushing plants to the project over the next 12 months for US$150 million and then spend six months ramping it back up to production. Once back online, the mine is expected to yield 39,000 tonnes of nickel per year for the first five years and 28,000 tonnes annually over the mine’s 32-year life.

In February 2010 the company completed the acquisition of 20% of Mauritanian Copper Mines, which owns the Guelb Moghrein copper-gold operation, for US$63 million.

Meanwhile, the company has started international arbitration against the DRC government and the state-owned mining company Gécamines regarding the cancellation of the company’s Kolwezi copper and cobalt project.

International arbitration is the latest stage in what has been an unfortunate turn of events in the DRC for First Quantum.

In August First Quantum and its partners, the Industrial Development Corp. of South Africa and the International Finance Corp., working together under the company name KMT, were informed that they must return the mining permit for the Kolwezi project to Gécamines.

A month later, the general prosecutor of the province of Katanga ordered KMT to seal its facilities and, following that, a local court ruled that KMT itself did not exist in law.

Then in February, First Quantum and KMT were given less than a day’s notice that a local court appeal would take place. Gécamines also made an unsupported request for up to US$12 billion in damages.

First Quantum spent US$387.6 million acquiring the Kolwezi project and a further US$399.2 million bringing it 75% towards production before wrangling with the DRC government began.

The company’s share price was $89.15 at presstime, trading within a 52-week range of $32.50-$100.32. The company has 80.4 million shares outstanding.