SMM1 9 / 9 /: First Quantum Minerals Ltd. A large copper mine is about to be launched in Panama thousands of miles from its beleaguered Zambian mine. Canadian copper is ramping up production at its Panama plant in Cobre this year, although an increase in mining taxes has forced the company to cut jobs and production at its plants in Zambia.
First Quantum has important business implications for bondholders, who pay close attention to the risks associated with lending to companies operating in the country. Panama has an investment grade, while Zambia has an even lower rating. For First Quantum lenders, if bond prices subsequently pick up, it will be a respite. In recent months, these institutions have suffered significant losses on their bonds. Copper prices have plummeted amid trade tensions and concerns about slowing global economic growth, putting pressure on the company and similar producers. "Panama is an investment grade, Zambia is not, so these bonds are bound to improve as Cobre's Panama operations grow," Newall said in an interview in December. "
National risk
Data collected by Bloomberg show that the total return on, First Quantum's $1 billion bond, which will be issued in March 2026, has fallen 15 per cent since it went on sale in February 2018. By contrast, holders of Canadian corporate bonds as a whole received a return of 2.5 per cent, according to the data. The first quantum bonds are currently quoted at about 80 per cent of face value. Nicholas Leach (Nicholas Leach), fund manager at Imperial Commercial Bank of Canada asset management company (CIBC Asset Management) in Toronto, said: "in our view, these bonds will be regarded as riskier Panamanian bonds in the near future. This will prompt the market to reprice. " The move could also significantly increase the market for these bills.
S & P Global Ratings) rated Panama BBB, two notches higher than investment grade, while Zambia rated Panama six notches lower. The Zambian government passed a bill in December to increase copper royalties, a move the industry said could lead to more than 21000 job losses and $500m in capital spending cuts over the next three years. In December, First Quantum planned to cut at least 2500 jobs at the Sentinel mine and Kansai (Kansanshi) plants in the first quarter of 2019. In March, the company was also hit by the Zambian government's $7.9 billion tax bill, an assessment it denies.
The goal of debt
First Quantum said in October that it had raised its copper production forecast for 2018 to 595000 tons. The company's financial report shows that most of the copper and gold production that year is expected to come from Africa.
In Panama, the Cobre project is expected to produce 150000 tons of copper this year, 270000 to 300000 tons in 2020 and 330000 to 350000 tons in 2021, the first time the project has increased production for the whole year.
Newall also said that with the establishment and operation of Cobre Panama, the region would become more prominent, while Zambia would become "relatively small" in terms of cash receipts. "over the next two or three years, as Cobre gradually goes into full production, or even longer, things will change." Cobre Panama contributed to First Quantum's net debt increase of $251 million to $6.1 billion in the third quarter.
Newall said debt reduction would take precedence over any significant capital expenditure, new projects or "meaningful dividends". Cobre Panama is a large open-pit copper project located 120km (74.6mi) west of Panama City and 20km off the coast of the Caribbean Sea. The concession consists of four areas, with a total area of 13600 hectares, covered by dense tropical rain forests.
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