RE:TD alertFrom Canaccord
Estimates Revised 3Q19 recap Summary: FM reported a good Q3, highlighted by the ongoing stellar ramp-up at Cobre Panama. In particular, we highlight the asset's $1.34/lb C1 cash cost in just its first month of commercial production. Management indicated that costs are expected to further improve as the project continues to ramp up, implying further upside to the $1.40/lb cash cost guidance for 2020. In addition, the company expects the questions around Panamanian Law 9 (which governs the concession) to be resolved in the near/ medium term, which would address an overhang on the project. Finally, changes to the Zambian VAT are expected to be far less onerous than the previously proposed sales tax, which was expected to increase costs by $150-200 million.
Management did not provide incremental context on the potential for a Chinese partner, at either the asset or corporate level. However, FM did re-commit to reducing overall debt levels by ~$2 billion, and reducing the Net Debt to EBITDA ratio to below 2.0x; we believe proceeds from a partner could be a significant component of the de-leveraging exercise.
Story de-risking - reiterate BUY rating and C$15.00/sh target price: With construction and the initial ramp-up at Cobre Panama now complete and the legal and regulatory situation in Zambia now clearing up, we believe FM has significantly de-risked relative to the start of the year. We have updated our estimates for the Q3 disclosure, and we reiterate our BUY rating and our C$15.00/sh target price on the company. Our target price remains based on an equal weighting of 8.0x ntm EBITDA and 1.0x NAV, both measured as at Oct 1, 2020.