First Quantum weighs asset sales as Cobre Panama shutdown takes toll

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First Quantum Minerals Ltd. FM-T is considering a range of merger and acquisition options as it attempts to stem the financial damage caused by the closing of its giant Panama copper mine.

First Quantum earlier this week said it is considering the sale of some of its smaller mines, as well as potentially selling stakes in its larger operations.

First Quantum has already been approached by at least one major mining company interested in pouncing as its stock flounders. First Quantum’s share price has fallen by more than two-thirds since last summer.

Barrick Gold Corp. ABX-T contacted First Quantum with an expression of interest in acquiring the company last year, Bloomberg and The Globe and Mail reported.

Toronto-based Barrick has made no secret of its desire to expand its copper production. The world’s second-biggest gold company is already planning on building a major new copper mine in Pakistan. A range of gold miners, including Agnico Eagle Mines Ltd., are broadening their exposure beyond precious metals, as the world increasingly turns to critical minerals, such as copper, for low-carbon energy sources.

Barrick chief executive Mark Bristow also has considerable experience in stickhandling resource disputes with host countries, in part because his company has had several of them.

Cobre Panama is one of the biggest copper mines in the world, accounting for about 1.5 per cent of global output.

First Quantum was forced to close Cobre Panama late last year after Panama’s Supreme Court declared the Canadian company’s latest mining contract was unconstitutional.

In the first three-quarters of 2023, Cobre Panama generated 46 per cent of First Quantum’s revenue, and 80 per cent of its operating profit.

First Quantum ‘deeply concerned’ about planned mine protest, urges Panama’s government to act

The company took on billions in debt to build the mine, which was completed in 2019.

As of Sept. 30, First Quantum owed lenders US$6.8-billion, and much of that was supposed to be paid off from cash flows from Cobre Panama.

To address the shortfall in its revenue, First Quantum announced Monday that it is eliminating its dividend and reducing or delaying capital expenditures by US$650-million over the next two years. In addition, the miner is in talks with lenders about refinancing its debt.

Apart from Cobre Panama, First Quantum’s operations include two copper mines in Zambia, and a nickel mine in Australia called Ravensthorpe. On Monday, First Quantum also said it was suspending mining at Ravensthorpe in large part because of low nickel prices. The price of the input for steelmaking and electric-vehicle (EV) batteries has fallen sharply over the past year. That’s because of a slowdown in steel demand from China and far softer than expected global EV sales.

For First Quantum, the prospect of asset sales is coming at a low point in a commodity cycle that has seen nickel and copper fall sharply from their peaks. A little more than two years ago, copper was trading close to US$5 a pound. On Tuesday, the metal changed hands for US$3.76 a pound, a drop of almost 25 per cent.

Last month, First Quantum launched arbitration proceedings against Panama to recoup financial losses stemming from the mine closing. Arbitration between the private sector and governments typically takes years to play out, and even in the event of a victory for the company there is no guarantee of ever receiving a payout.

Several analysts have expressed optimism that if Barrick buys First Quantum, Mr. Bristow may be able to negotiate a truce between the company and Panama.

Mr. Bristow played a pivotal role in fixing past geopolitical spats Barrick had with Tanzania, Pakistan and Papua New Guinea.

Last month, the company said its PNG gold mine was restarting production after a suspension that had lasted close to four years. Barrick eventually agreed to grant PNG stakeholders a much bigger share of the profits in return for a mine restart.

The government of Panama had originally signed a new 20-year Cobre Panama contract with First Quantum into law late last year. But as the contract was making its way through the Panamanian legislature, it was denounced by environmentalists, Indigenous groups, labour activists and religious groups, because of its financial terms and because of the damaging environmental impact of the mine.