First Quantum inks US$500M offtake amid Panama turmoil

First Quantum Minerals (TSX: FM) says it’s landed a US$500-million offtake agreement with its largest shareholder, China’s Jiangxi Copper, to help shore up finances shredded by its Cobre Panama mine shutdown. 

The three-year prepay arrangement 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 on Wednesday. 

“This arrangement is a reminder of the strategic nature of copper as supply challenges abound across the sector,” Vancouver-based First Quantum said in a news release. “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 has seen its financial situation deteriorate since December when authorities forced it to shut down Cobre Panama, its main copper mine. First Quantum’s exposure to nickel has added extra pressure as prices have fallen to two-year lows. The company’s Ravensthorpe nickel mine contributed US$854 million of a US$900-million fourth-quarter impairment charge and annual results on Wednesday showed a net loss of US$954 million.

Maturing debt

First Quantum has billions of dollars of debt maturing in the coming years and concerns about the future of Cobre Panama has put it at risk of a covenant breach this year. There is “material uncertainty” that may cast doubt on the company’s ability to continue, the miner said.

The company said it’s in talks with lenders to amend and extend its loan facilities and expects a conclusion “in the near term.” 

Panama has scheduled presidential elections for May which could bring a change to the government that halted Cobre Panama, one of the world’s largest new copper mines to open in the past decade. 

First Quantum is said to be considering a minority investment from investors such as Jiangxi in its Zambian business, and is selling its small Las Cruces mine in Spain, CEO Tristan Pascall said on a Wednesday conference call about fourth-quarter results.

In Zambia, Africa’s second-largest copper producer, the company owns the Sentinel copper mine and has 80% of the Kansanshi mine. It also has the Fishtie copper project near the border with the Democratic Republic of Congo and two licence options through a deal with African Pioneer (LSE: AFP).