First Quantum Minerals (TSX: FM) is reportedly engaged in discussions to sell a stake in its Zambian copper mines to Chinese state-owned Jiangxi Copper Corp, aiming to strengthen its financial position, according to an inside source familiar with the matter.
Details of the potential transaction are still being negotiated, and it remains uncertain whether the talks will lead to a finalized agreement, the source stated. The discussions were initiated last month following a setback in Panama, where First Quantum was mandated to shut down one of the world’s largest copper mines.
Fitch, a debt rating agency, has cautioned that this development could impact the company’s borrowing capacity.
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The news comes after Barrick Gold (TSX: ABX) was reported to be in talks with major investors to gauge support for a potential takeover. Barrick’s Chief Executive Officer, Mark Bristow, initiated discussions with some of First Quantum’s largest investors late last year, as per confidential sources. While it remains uncertain whether Barrick will proceed with a formal offer, such a move could mark a significant shift for Barrick Gold, positioning it as one of the world’s largest copper producers.
In Zambia, First Quantum wholly owns the Sentinel mine and holds an 80% stake in the Kansanshi mine, with the remaining ownership belonging to the Zambian government. Jiangxi, as the top shareholder in First Quantum, may consider acquiring one of the Zambian mines or obtaining a stake in either of them, the source added.
“The Chinese want the Zambian mines… so the company (First Quantum) could sell one of the Zambian mines,” the source revealed, requesting anonymity due to a lack of authorization to speak to the media.
A spokesperson from First Quantum declined to comment on the ongoing talks and mentioned that the company plans to provide an update on its strategy to meet debt obligations later this month. Approximately $1.05 billion of First Quantum’s debt is set to mature in early 2025.
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In the quarter ending September 2023, the two Zambian mines jointly generated $943 million in revenue and $210 million in operating profit, as per company filings. Analysts estimate that, based on these earnings, the Zambian assets could be valued around $6 billion.
This is not the first time that First Quantum and Jiangxi have engaged in discussions over the Zambian mines. In 2019, similar talks resulted in Jiangxi acquiring a significant minority stake in First Quantum instead of stakes in the mines. Currently, Jiangxi holds an 18.2% stake in First Quantum, with a standstill agreement in place, preventing the Chinese company from increasing its stake beyond 20%.
First Quantum has faced considerable challenges recently, losing over half of its market value, approximately $10.3 billion, since protests erupted in late October against its Cobre Panama mine. The mine, responsible for about 40% of the company’s revenues, has raised concerns.
In December, Fitch warned that if the Cobre Panama mine were permanently closed, First Quantum’s net debt leverage ratio in 2024 could exceed 5 times earnings before interest, tax, depreciation, and amortization, potentially leading to a covenant breach.
The net debt leverage ratio is a key measure used to evaluate a company’s borrowing capacity. Fitch noted, “If unresolved, the covenant breach may trigger an event of default across all its debt instruments.”
Information for this story was found via Reuters and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
