First Quantum expands on Inmet’s vision at Cobre Panama

In an era when investors are demanding leaner budgets and more efficient projects, First Quantum Minerals (TSX: FM, LSE: FQM) is going old school. The company says the economics of the recently acquired Cobre Panama copper project in Panama simply work better if it adds a bit to the capex and a lot to the production capacity of a future mine.

First Quantum says it will build a mine that will cost US$200 million more than the one Inmet Mining — the company it acquired late in 2012 to get the project — had planned, as capex is now estimated at US$6.4 billion for the large-scale polymetallic mine.

That extra capital will go towards the construction of a mine that has 17% more capacity to process 70 million tonnes of ore per year for the first 10 years, compared to the 58-million-tonne-per-year plant considered by Inmet.

First Quantum is considering expanding the plant’s annual capacity in its tenth year of operation to 100 million tonnes, again trumping Inmet’s vision of 87 million tonnes per year at that point in time.

The larger capacity would support a mine with average life-of-mine production per year of 320,000 tonnes copper, 100,000 oz. gold, 1.8 million oz. silver and 3,500 tonnes molybdenum over its 34-year mine life. Those numbers beat Inmet’s estimates by 20%.

But added costs and more capacity mean more time to completion. The company now expects first concentrate production to come in the fourth quarter of 2017 compared to its previous estimate of 2016.

The updated numbers come out of a review by First Quantum that got underway after it acquired the project and promised to unlock more value for investors, thanks to its team’s expertise. The new plan attempts to follow through on that promise by nixing Inmet’s outsourcing approach in favour of a more in-house plan, but First Quantum couldn’t deliver on the US$1 billion in savings it said it would achieve at the time of the hostile takeover.

To help raise the added capital needed for the re-envisioned mine, First Quantum has announced a series of refinancings. It extended a credit facility, signed a new term loan and renegotiated its existing US$350 million in debt to give it more financial flexibility.

First Quantum holds an 80% stake in the project, with the remainder owned by Korea Panama Mining Corporation. Franco-Nevada (TSX: FNV; NYSE: FNV) is also at the table, as it signed a streaming deal back in 2012 to fund up to US$1 billion in capex after an initial US$1 billion had been spent by the project’s owners. As of November, US$1.5 billion had already been spent on the project’s development.