First Quantum lowers 2020 guidance

With its Cobre Panama mine on care and maintenance since April 7, First Quantum Minerals (TSX: FM) has reduced its copper guidance for the year by 75,000 tonnes to 755,000-805,000 tonnes, with expected gold production falling by 30,000 oz. to 250-270,000 ounces. The forecast depends on officials allowing Cobre Panama to reopen by the end of May, with normal production levels being achieved in late June or early July.

The mine, located 120 km west of Panama City, was temporarily suspended after the death of a worker from COVID-19. The first case of the virus at the site was detected on March 24. While mining and processing are suspended, the port and power plant have continued to operate to supply power to the country’s power grid. The US$6.3-billion operation began commercial production last fall.

On a conference call, Tristan Pascall, First Quantum’s director of strategy, said a restart will depend on the company’s ability to demonstrate the site is clean and safe – a requirement the company is confident it will meet. It will also depend on the big picture in Panama and the virus’s trajectory in the country.

“We would hope that Cobre Panama as an isolated site is a good candidate because it’s segregated from the rest of the country with a reasonable ability to hold a border and then manage personnel onsite to operate within the very strict protocols that the Ministry of Health has put forward,” Pascall said.

There are still 1,100 people on site, even though the operation is on care and maintenance – or “preservation and safe maintenance,” as the company is referring to it.

“The reason we talk about preservation and safe maintenance is that we are able to turn the mills – that’s important because in the Cobre Panama climate we wouldn’t want condensation and so on,” Pascall said. “There is rock going into the mill, there is some production happening – but it’s really around ensuring that when we’re ready to start, we can.”

The pandemic has seen copper prices decline to a low of US$2.08 per lb. in late March. About 50% of First Quantum’s remaining copper production for the year is hedged, with an average floor price of US$2.62 per lb. – higher than the current price of US$2.34 per lb. In the first quarter, the company reported all-in sustaining costs (AISCs) of US$1.64 per pound. For 2020, under its revised guidance, it’s forecasting AISCs of US$1.65-US$1.80.

Milling facilities at First Quantum Minerals’ Cobre Panama copper mine under construction in Panama. Credit: First Quantum Minerals.

Quarterly results

First Quantum recorded a 43% increase in copper production to 195,285 tonnes in the first quarter, with 56,240 tonnes of that coming from its 90%-owned Cobre Panama (Korea Resources owns a 10% stake). Revenue for the quarter was US$1.2 billion, an increase of 38% from the previous year.

The company reported a loss of US$79 million, owing to a net finance expense of US$184 million, compared to earnings of US$95 million in the same quarter of 2019. EDITDA for the quarter was US$434 million, up 18%.

In a research note, Jackie Przybylowski, a mining analyst with BMO Capital Markets, said the company is well-positioned to benefit from a post-COVID-19 economic recovery.

“First Quantum’s reported first-quarter earnings were below our expectations and the company has cut its 2020 guidance. However, we view the revised guidance as promising, as it shows the company has confidence in a near-term Cobre Panama restart,” Przybylowski said. “The company continues to grow, even in this challenging time, and the company expects it will remain in full compliance with all financial covenants through 2020, aided by its hedges on copper and nickel sales and diesel purchases.”

Przybylowski noted that First Quantum is the first miner covered by BMO that has provided detailed guidance for 2020.

The company has reduced its operating costs and capital spending to deal with the current environment, with capital spending for 2020 reduced by US$175 million to US$675 million. In addition to the hedging it has in place to mitigate the uncertainty of the copper price, the company has improved its liquidity and flexibility. It had nearly US$1.2 billion in cash and equivalents at the end of March.

Senior staff have also seen compensation cuts of 25%.

Aside from Cobre Panama, operations at First Quantum’s Las Cruces mine in Spain were suspended for two weeks due to the pandemic; restrictions have also been lifted.

Commercial production began at the company’s Ravensthorpe nickel operation in Australia in April.

— This article first appeared in our sister publication, the Canadian Mining Journal.