You probably remember: It was ultimately the worst news imaginable that rocked the raw materials sector last year. The focus is on the mining company First Quantum Minerals and its gigantic copper mine Cobre Panama. Now, the consequences of the disaster are gradually being revealed.

First Quantum Minerals: The Panama Disaster But let’s start at the beginning: The mining complex in the Central American country has been under criticism for years. Initially, the resistance was mainly focused on environmental concerns. But after the Panamanian government negotiated a new contract with First Quantum, the protests intensified massively last fall.

According to critics, this deal greatly favors the mining company at the expense of Panamanian society. As a result, protesters blocked, among other things, an important port facility from which coal was transported to the mine. In the end, in November, the Supreme Court of Panama ruled in favor of the protesters and declared the mine unconstitutional, causing First Quantum to completely halt operations at the already struggling site.

In the chart of First Quantum, you can see the different stages of the Panama disaster very well (as of January 16, 2024, 10:00 am, Stuttgart Stock Exchange):

Source: www.aktienscreener.com

First Quantum on a Low Flame But now let’s get to the new information that First Quantum released a few days ago. In short: Given the significant impact of the now discontinued copper site, the mining giant must now hit the brakes across the entire corporation.

First Quantum plans to save capital, sell assets, suspend dividends, and cut jobs to secure its financial position after production was halted in Panama. The management is currently considering selling smaller mines and divesting stakes in larger mining projects.

Without Cobre Panama: Copper production drops Meanwhile, First Quantum had to admit to a significant decline in production at the group level: Copper production plummeted by 22% to 160,000 tons in the fourth quarter of 2023.

As a result, the management also lowered the forecast for 2024: The raw materials giant expects a copper production between 370,000 and 420,000 tons for the current year without the Panama mine. In 2023, the output was still at 708,000 tons (-9% compared to 2022). Cobre Panama had previously produced 331,000 tons of copper annually before the operation was halted.

Hope for Kansanshi – risk due to debt ratio At least: In the following years, the overall output is expected to gradually increase again – but at a significantly lower level. For 2025 and 2026, First Quantum expects a production of 400,000 to 460,000 tons across the corporation. The management is currently relying mainly on the expansion of its Kansanshi project in Africa. Through the now accelerated cost savings, First Quantum wants to secure liquid assets to be able to implement this upgrade. After it goes into operation next year, the cash flow from the expansion project will benefit the mining giant.

Nevertheless, First Quantum is far from out of the woods. The ratings agency Fitch recently warned that the company’s net debt ratio would increase to more than five times its earnings before interest, taxes, depreciation, and amortization (EBIDTA) in 2024 if the Panama mine remains closed permanently. According to Fitch, this could lead to a covenant breach (violation of financing conditions).

My conclusion for you The disaster surrounding Cobre Panama caught First Quantum shareholders off guard in the fall of 2023. While it had been known for years that there was opposition to the mine, few investors were prepared for the site to be declared unconstitutional.

Clearly, without the mega-mine, the mining company has now shrunk significantly. The management must now use the red pen wherever it makes sense to keep the company financially afloat. In my opinion, the measures package announced is a step in the right direction, even though there is not yet any concrete information about it.

However, we should not completely write off the company and its stock. First Quantum is still an influential raw materials company and an important player in the copper market. It is also possible that the company, due to its significantly reduced market value, is now a potential acquisition target. This could boost the stock depending on the purchase price. For example, Barrick Gold recently made advances towards First Quantum.

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