Are First Quantum’s Growth Plans too Ambitious?


In the midst of a fall in global copper demand, First Quantum Minerals has come up with ambitious growth plans, worrying stakeholders that they are a bridge to far in current market conditions.

High Capital Expenditures

The company has seen the yields on its bonds skyrocket to 13.5 percent, a rise of 5.5 in just three months. This in turn triggered losses of 17.8 percent in the debt for investors during that same period according to Bank of America Merrill Lynch index data. First Quantum’s US dollar-denominated senior unsecured bonds of CAD 4.57 billion ($3.47 billion US) is now almost equal to its stock-market capitalization that has dropped to CAD 4.79 billion.

In its growth plan, the company outlines capital expenditures of $1.4 billion on projects in South America and Africa despite the fact that the drastic drop in the value of copper due to reduced demand from China. Adding to investor’s concerns is the pending cutback in production at its Zambia mines, where a severe drought is potentially creating a shortage of hydroelectric power.

Bucking the Trend

Trading in First Quantum’ bonds matches that in other Canadian mining companies, considering that all of them have been affected by copper falling by more than 16 percent so far this year and it now over 50 percent lower than it was four years ago. Copper’s price at the beginning of the week was $5,276 a ton.

Following last year’s investment of $2.6 billion, the company’s new plan includes an additional $600 million for the $6.4 billion Panama’s Cobre Panama copper site, a move that bucks the industry trend of scaling back investment.

Unlike First Quantum, other miners are cutting back on larger projects as well as reducing distributions to shareholders to preserve capital in this falling market. Despite the concerns, however, shareholders were still supportive of the company during the second quarter, when First Quantum successfully issued an additional $1.4 billion in shares.


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