First Quantum Sees Declines In Q1 2023: 84% Earnings Drop, 24% Production Cut

First Quantum (TSX: FM) reported its Q1 2023 results on Tuesday after the closing bell, top-billed by a quarterly revenue of $1.56 billion. This is a decrease from both Q4 2022’s $1.83 billion and Q1 2022’s $2.16 billion.

Further down, adjusted earnings came down to $76 million, nearly 50% decline from last quarter’s $151 million and a whopping 84% decline from last year’s $480 million. The bottomline translates to $0.11 adjusted earnings per share.

The mining firm points the decline to the impacted production in its three largest operations. Owing to the rainy season, production at First Quantum’s Sentinel and Kansanshi mines decreased, while production at Cobre Panama was halted owing to a dispute between the Panama government and the company over tax and royalty payments.

“At Cobre Panamá, production was interrupted by a temporary suspension of exports but returned to full production rates once the suspension was lifted,” said CEO Tristan Pascall.

At the start of the year, First Quantum sat in a tight position with the Government of Panama as the two parties couldn’t agree on how to move forward with the mining firm’s Cobre Panamá mine. The dispute stems as the government used a recent court decision declaring the firm’s contract with the state as unconstitutional as a means to extract higher royalties from the mine, which is the largest private investment in the country and accounts for roughly 3.5% of national GDP.

When a demand to place the mine into care and maintenance was met with an appeal, the government elected to force the halt of operations via the revocation of loading permits at the mines port via the Panama Maritime Authority, by claiming that the weigh scales did not have the required certifications.

With export operations blocked, and no room left at the mine to store further concentrate, Minera Panamas was forced to demobilize its workforce and suspend processing operations. In outlining the local area impacts, the company cited that its local workforce of over 8,000 employees and contractors, as well as its weekly spend of $20 million across 2,000 Panamanian companies would feel the effects of the suspension.

First Quantum further claimed that the mine accounts for 5% of GDP and 75% of exports for Panama, while stating that directly and indirectly it supports upwards of 100,000 Panamanians – or roughly 2.2% of the population.

First Quantum was then able to negotiate with the Government of Panama a refreshed concession contract in March. The new agreement will have an initial 20-year term with a 20-year extension option and additional extensions for the life of the mine.

However, the new contract is yet to be presented before the National Assembly of Panamá in the legislative term that commences on July 1, 2023.

Once the agreement is signed and passed into law, payments to cover taxes and royalties up to the year-end 2022 of approximately $395 million are expected to be made within 30 days of the contract being enacted into law.

Total copper production for the first quarter was 138,753 tonnes, a 33% decrease from Q4 2022’s 206,007 tonnes and a 24% drop from Q1 2022’s 182,210 tonnes. Copper sales also fell in Q1 2023 down to 150,287 tonnes from last quarter’s 198,912 tonnes and last year’s 196,702 tonnes.

For 2023, the firm’s guidance for production remains unchanged, forecasting copper production to be 770,000 to 840,000 tonnes. The miner expects production “to recover for each of the next three quarters, particularly in the second half of the year.”

First Quantum last traded at $32.64 on the TSX.

Information for this briefing was found via Cedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.