Growth Potential but Strap on for a Wild Ride

First Quantum is a leading global copper producer. The company also holds significant interests in nickel and engages in the production of gold, silver, zinc and acid, and related activities including exploration and development. It has operating mines located in Zambia, Panama, Finland, Turkey, Spain, Australia, and Mauritania.

The company is one of the world’s top 10 copper producers, exporting millions of tonnes of concentrate from multiple countries to customers worldwide. Its portfolio includes copper mines, particularly Kansanshi in Africa and Cobre Panama in Latin America, and copper and nickel projects in Africa and Australia.

Investment Data
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Revenue Growth & Market Exposure

Over the last 25 years, First Quantum has developed skills and expertise in technical, engineering, construction, and operational fields. The company operates long-life mines in several countries and is known for running complex mines and minerals processing plants. It is also exploring the Haquira copper deposit in Peru and the Taca Taca copper-gold-molybdenum deposit in Argentina. First Quantum’s largest development project to date, Cobre Panama’s precious metals revenues consist of revenues from the sale of metals as well as revenue recognized from the amortization of the precious metals stream arrangement which is indexed to copper sold from the mine. The company, through its subsidiary, MPSA, has a precious metal streaming arrangement with Franco-Nevada.

First Quantum’s portfolio of geographically diversified operating assets comprises high-quality, low-cost copper mines. Its products are sold under pricing arrangements where final prices are set at a specified date based on market prices and the company is responsible for identifying contracts with customers and the transaction price within it. The company’s revenues have grown at a rate of 14% CAGR in the last three years. It is difficult to replicate First Quantum’s operating assets, large geographical presence, and economies of scale. A competitive R&D team focusing on advancing technologies also helps the company to stay ahead of its peers.

First Quantum is expecting the combined output of its mines to be more than 800,000 tonnes of copper per year, by 2021. Its global pipeline consists of a few new projects of scale to meet future demand. The company has updated its copper production guideline to 190,000-205,000 tonnes and for 75,000-80,000 ounces for gold for FY 2020.

Dividends

First Quantum sports a modest annual average yield of 0.06% and has a high payout ratio. The company paid $3 million in dividends last year. Its global operating assets generate strong cash flow and earnings to support dividend growth.

First Quantum should gain from the full production ramp-up at its Cobre Panama mine and low unit costs at Sentinel. The start of commercial operations at Cobre Panama has pushed several of First Quantum’s strategic objectives. The company anticipated one-third of its copper production to come from Panama in the next two years reflecting a large scale. It also benefitted from the restart of operations at its Ravensthorpe nickel mine. First Quantum continues to take action to manage operational and price risk to further strengthen the balance sheet.

Copper is a vital component in power generation and transmission, construction, and electronics. Rising prices of precious as well as industrial metals and a recovering global economy have supported mining activities in the second half of the year. As one of Canada’s large diversified resource company, First Quantum is favorably placed to leverage its operating and commercial expertise and contribute towards a continued supply of mined materials for global needs. The company stands an excellent chance to gain from the growing global demand for copper driven by middle-class consumption in developing nations as well as developed economies. Copper use will continue to increase, as urbanization in developing countries continues to gather pace.

Chart by StockRover.

Competition

First Quantum has eight operating mines in seven countries and two significant development projects in its project pipeline. Other leading precious metals mining companies are Agnico Eagle Mines, Franco-Nevada, B2Gold, Osisko Gold Royalties, Wheaton Precious Metals, Barrick Gold, Newmont, Silvercrop Metals, etc. Goldcorp generates its operating cash flows from the sale of gold, silver, lead, zinc, and copper. Agnico Eagle is a leading mining company in Canada. Teck Resources is another leading copper, zinc, and coal production company. It is one of the biggest global producers of mined zinc and an important producer of copper.

Bottom Line

Mining companies have performed well this year despite pressures caused by the COVID-19 pandemic. First Quantum is well-positioned with its large operating mines and a pipeline of new potential. Precious metals are already gaining this year and a rally in industrial metals prices should support this mining stock in the future. The world’s growing demand for infrastructure should help First Quantum increase its bottom line.

Dividend Adjusted Chart by StockRover.
Chart by StockRover.

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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