First Quantum is a leading global copper producer. The company also has significant interests in nickel and is engaged in gold, silver, zinc and acid production and related activities including exploration and development. It has mines in Zambia, Panama, Finland, Turkey, Spain, Australia, and Mauritania.
First Quantum generates almost 85% of its revenue from copper sales and 15% from gold, nickel, silver and others. The company is one of the world’s ten leading copper producers and exports millions of tons of concentrate from several countries to customers around the world.
The portfolio includes copper mines, in particular Kansanshi in Africa and Cobre Panama in Latin America, as well as copper and nickel projects in Africa and Australia.
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Sales growth and market presence
Over the past 25 years, First Quantum has developed skills and expertise in engineering, construction, construction and operations. The company operates long-lived mines in several countries and is known for operating complex mines and mineral processing facilities. The Haquira copper deposit in Peru is also being explored and the Taca Taca copper-gold-molybdenum deposit in Argentina is being further developed.
First Quantum’s largest development project to date, Cobre Panama’s Precious Metals Revenue, consists of proceeds from the sale of metals and proceeds from the amortization of the Precious Metals Power Agreement, which is indexed to copper from the mine. The company has a precious metals streaming agreement with Franco-Nevada through its subsidiary MPSA.
First Quantum’s portfolio of geographically diversified supplies includes high quality, low cost copper mines. The products are sold under price agreements where the final prices at some point are determined based on market prices and the company is responsible for identifying the contracts with customers and the transaction price therein.
The company’s sales have grown 15% + CAGR over the past three years. It is difficult to replicate First Quantum’s business assets, large geographic footprint, and economies of scale. Having a competitive research and development team focused on advancing technology also helps the company stay one step ahead of its competitors.
The company achieved record low cost annual production in 2020 with total copper production of 778,911 tons, an 11% increase over the previous year. Gold production also increased 3% year over year. The company has not seen any material disruptions in supply chains or product deliveries since the pandemic began. Cobre Panama returned to normal operations at the end of the fourth quarter and achieved record production and mill throughput.
First Quantum continues to focus on upgrading the melt to handle higher concentrate volumes from Sentinel and Kansansh. Cobre Panama is expected to have a mill throughput of 85 tons and an annual production of 300,000 to 330,000 tons of copper and between 120,000 and 130,000 ounces of gold in 2021.
First Quantum has a modest average annual return of 0.04% and a low payout ratio of 25%. Global business assets generate strong cash flow and earnings to support dividend growth. The policy was to only pay nominal dividends last year.
With the successful ramp-up of Cobre Panama and the overall higher production, First Quantum expects stronger future cash flow and plans higher dividend payments within the next two years. It also benefited from the resumption of operations at its Ravensthorpe nickel mine.
First Quantum continues to take operational and price risk management measures to further strengthen its bottom line. High quality, low cost copper mines, particularly Kansanshi in Africa and Cobre Panama in Latin America, as well as major copper and nickel projects in Africa and Australia are strong growth drivers for First Quantum.
Copper is an important component in power generation and transmission, construction, and electronics. Rising prices for precious and industrial metals as well as a recovering global economy should support mining activities. As one of Canada’s large diversified raw materials companies, First Quantum is able to leverage its operational and commercial expertise and contribute to a continuous supply of mined materials for global needs.
The company has an excellent opportunity to capitalize on the growing global demand for copper driven by middle class consumption in developing and developed countries.
First Quantum has eight mines in seven countries and two major development projects in its project pipeline. Other leading precious metals mining companies include Agnico Eagle Mines, Franco-Nevada, B2Gold, Osisko Gold Royalties, Wheaton Precious Metals, Barrick Gold, Newmont, Silvercrop Metals, etc. Goldcorp generates its operating cash flow from the sale of gold, silver and lead, zinc and Copper.
Agnico Eagle is a leading mining company in Canada. Teck Resources is another leading copper, zinc and coal manufacturing company. It is one of the world’s largest producers of mined zinc and a major copper producer.
Mining companies have done well this year despite the pressures caused by the COVID-19 pandemic. First Quantum is well positioned with its large mines and a pipeline of new potential. A total production of more than 800,000 tons of copper per year is expected by 2021.
Precious metals prices have been down since the start of the year, but a rally in industrial metals prices should support these mining stocks going forward. First Quantum expects strong demand from government infrastructure spending as economies recover.