A long road ahead before First Quantum can reopen Cobre Panama mine: analyst
first Quantum reported results today
it’s trading up despite a bigger loss
than expected in the first quarter and
in fact so far in 2024 it is the best
performing third best performing stock
so far this year that will face a major
test to these gains in just over a week
with Panama’s election on May 5th you’ll
recall back in November first Quantum
effectively halted operations at its
Cobra Panama mine amidst weeks of
protest and the government saying its
contract to mine was
unconstitutional it’s against this
chaotic backdrop that our next guest
upgraded the stock back in March and
that proved to be a pretty good trade
it’s up 22% since then he sees a little
bit more upside from here let’s bring in
Sam Kitt did he’s research analyst at
RBC covering these names so first
Quantum there are there’s so much going
on with this name right they’ve got all
these different assets you’ve got Rising
copper prices you’ve got this this um
their mines in Zambia so maybe just take
the results what what picture of Health
did it paint to you this snapshot uh
this quarterly snapshot of the business
Sam yeah so there was a couple things
that came out of the quarter F first and
foremost the Zambian operations which
obviously at the moment are the core
focus and core operations for this
company are performed well in the
quarter and this yeah can
you performed well in the quarter and I
think that was a key takeaway for me
that the existing operations had a had a
good quarter the financial results were
a little weaker as you mentioned but I
think that was as the company noted a
carryover from some of the closure costs
they had in in Panama uh from Q4 rolling
into q1 that impacted the financial
results but there’s a good sign that
that improves going forward and so that
that checked a lot of boxes there’s also
been a lot of headlines about some power
con restraints in in Zambia and that uh
the company has has taken some steps to
alleviate that they’re importing some
some power from other countries and so
that gave people Comfort on some of the
key issues that people were watching
going into the the q1 results did you
get any color on that potential minority
stake for those Zambian assets that
would bring in some
cash yeah it’s a good question so
they’ve acknowledged that they are
running a process to look at potential
buyers for the Zambian business we carry
those assets combined for 8 billion US
and so if they were to sell 20 or 30% of
that business obviously that could bring
in a substantial amount of money you
know anywhere between two and and five
billion two and 22.5 billion do and so
that could provide some more balance
sheet flexibility it could give them you
know some optionality and and and how
they proceed in Panama and so that’s
something they’re looking at at the same
time given the financings they did
earlier this year they raised over $3
billion in in debt and Equity that that
gives them some comfort they don’t need
to do anything in Zambia but if they get
a good price it’s certainly something
they could look to do that’s interesting
that they’re at a point that they don’t
need to do it and I and I imagine that
the rally in Copper is also extremely
helpful right like if we were talking
about a route in copper prices um this
might be a totally different story for
first Quantum a absolutely it’s helping
all these companies and and first
Quantum in particular can generate some
positive free cash flow at these prices
so it definely helps alleviate uh a lot
of the balance sheet issues it helps
them stay on side with their debt
covenants and everything else how do you
think about the election coming up in
May you know in reading the candidates I
don’t think that there’s a clear um you
know front runner for first Quantum
maybe there is um you tell me like is
this going to be a a needle mover for
the stock depending on on who
wins uh it it could be but I think if
you look at the the candidates that are
at the front of the polls right now most
of them are relatively business friendly
now leading up to the election most
candidates have been careful in what
they say and have been as dismissive as
possible about the mine it’s closed
right now and most are just saying you
know the people have spoken it’s going
to stay closed and so I I don’t think
necessarily the election itself is going
to matter you know but if if one or two
of the the top candidates that’s that’s
in the lead in the polls now wins that
could be a good outcome for for first
quantum
and hopefully over time they can work
with that new government to potentially
sway public opinion and work towards an
eventual restart but you know I think
the election itself is is the first step
in that direction and then there’s still
a lot of work to be done to improve
sentiment towards mining in that country
if you want uncomplicated exposure to
Copper you could go to a tech resources
a HUD Bay a Capstone all of which that
you have a buy on and I’m curious the
conversations you’re having with
investors about first Quantum um is it
you know maybe a riskier type of in
investor who’s willing to take that
exposure because you know maybe the
upside is so tremendous given how much
the stock has been cut over the last
year yeah it is more of a special
situation there’s no question about that
the Panama angle is is a complicating
factor for sure and so you’re right that
investors that want you know more
simpler store with exposure to Copper
some of those other names would be good
options this one though probably has the
most risk reward because if something
positive were to happen in Panama
there’s probably more upside in first
Quantum and so it’s one where you know
we see that as as was one of the reasons
for our upgrade that the potential to
recover value in in Panama it’s probably
pricing in about a third of the full
potential value so that that is the
opportunity but there’s still certainly
risks uh as as they work through the the
situation there how do you think about
the likelihood of of a takeover of of
first Quantum in general I know that’s
been rumored here and there um you know
although I guess it’s unclear that a new
owner fixes the issues in
Panama yeah it’s a good question I think
in the short term it’s unlikely I think
the company wants to work with whoever
the new government is and attempt to do
this on their own if that this drags on
you know later this year and into 2025
and there’s no resolution site they
could look to you know look at partners
for the asset potentially sell that
particular asset and keep Zambia or look
at a sale of the whole company but I
think in the here and now the company is
is just laser focused on seeing the
election through and then working with
the new government to try to get to some
some resolution to the situation
Sam Crittenden, research analyst at RBC Capital Markets, joins BNN Bloomberg to discuss First Quantum as it rises on earnings today.
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