First Quantum Minerals Ltd T.FM

RBC

[retiredcf]

Their upside scenario target is $48.00. GLTA

July 26, 2023

First Quantum Minerals Ltd. 
Set up for stronger operations in H2

Outperform

TSX: FM; CAD 36.83

Price Target CAD 42.00

Our view: First Quantum is poised for a strong second half, with organic growth through 2025. Our estimates saw minimal changes post Q2 and we reiterate our Outperform rating and $42 price target given our view that First Quantum provides good leverage to copper and can create value by executing the ramp up to 100Mtpa in Panama, Enterprise nickel, and the S3 expansion in Zambia.

Key points:

Stronger start to Q3: Some of the issues from Q1, namely excess water at Sentinel carried into Q2; however, First Quantum noted operations were significantly improved towards the end of Q2 and to start Q3 to set up a strong second half. Our production estimate for 2023 of 787kt is unchanged and in the bottom half of the guidance range of 770-840kt. Similarly, our C1 cash cost estimate of $1.82/lb (from $1.80/lb) is at the upper end of the guidance range of $1.65-1.85/lb. YTD costs of $2.09/lb were elevated due to lower production volumes and gold sales; however, FM noted this is not structural and there are some tailwinds going forward with oil and coal prices below prior 3-year guidance levels.

Panama tax approval expected before October 1st: First Quantum remains confident in receiving final approval by the National Assembly for the new tax regime agreed to in March in the current session which ends October 1st. It is a yes/no vote so changes can't be made; however, it is a democratic process in the assembly. While we see it as a low probability, any snags or a no vote could be a significant negative event with elections scheduled in May 2024.

Organic projects provide incremental growth through 2025, with longer dated options: We estimate consolidated copper production increasing to 920kt in 2026 from 776kt in 2022. The infrastructure for the CP100 was commissioned in Q1 with throughput on track to reach 100Mtpa by the end of the year and take copper production to nearly 400ktpa by 2024 from 350kt in 2022. The S3 expansion at Kansanshi could take production up to 250kt from 146kt in 2022. The Enterprise nickel circuit at Sentinel could ramp up to 30ktpa nickel over the next 2 years. Post 2024, First Quantum could consider a large scale greenfield project such as Taca Taca in Argentina or La Granja in Peru (55% FM/45% Rio Tinto) to take advantage of their unique mine building ability.

Valuation update: At spot prices, First Quantum is trading at 0.92x NAV and 8.2x 2023E EBITDA which compares to large cap copper producers trading at 1.02x NAV and 8.2x EBITDA.