First Quantum Minerals Ltd.
(FM-T) C$36.39
Stronger Production for H2/23 Event
We have updated our forecasts following the release of Q2/23 results and management conference call.
Impact: NEUTRAL
Q2/23 results are slightly disappointing, in our view. Although management is forecasting copper production at the lower end of the 2023 guidance range (770,000-840,000 tonnes), we see a risk that production comes in slightly below the low end of the range — we are forecasting copper production at ~761,000 tonnes. That being said, we expect stronger production in H2/23 as Cobre Panama continues to ramp to 100Mtpa throughput rates and the dry season in Zambia drives better performance at Sentinel and Kansanshi. C1 copper cash costs are projected to be at the high end of the guidance range ($1.65-$1.85/lb) - we are forecasting $1.83/lb.
Sentinel faced difficult conditions through mid-May due to impacts from the past rainy season. H2/23 copper production would have to be ~170,000 tonnes (almost double the H1/23 production) to meet the low end of the range. Management is projecting higher grades during H2/23 (Q4 weighted) and higher mill throughput. Drilling contractors have added in the open operations to increase the inventory of broken ore which will aid in mine-to-mill optimization.
Cobre Panama Agreement Update: On April 24, the 30-day public consultation was completed. The agreement currently lies with the National Comptroller for countersignature, which is the last step before presenting the Refreshed Concession Contract to the National Assembly, which is expected during the current legislative term that commenced on July 1, 2023 and runs to October 31, 2023. While the ruling party has a minority and governs via a coalition, FM management and the government expect the new concession agreement to be passed by the National Assembly.
TD Investment Conclusion
We are maintaining our BUY recommendation. Our target price has increased to C$44.00 (from C$41.00). We forecast building FCF over the next several years as Cobre Panama reaches 100Mtpa throughput rates and the Kansanshi S3 expansion is completed in H2/25. We expect that management will continue to reduce and term- out debt over the next two years, thereby de-risking the balance sheet. By 2025, we are projecting a ND/EBITDA ratio below 1.0x (from 2.4x currently).