First Quantum Minerals Ltd (TSX: FM) is a Canada-based company engaged in the production of copper, nickel, gold, zinc, silver and acid, and other related activities including exploration and development of mining properties. 

Key Highlights

• Strong Financials: In Q1 2022, the company reported a record gross profit of USD 908 million and EBITDA of USD 1,180 million, up 16% and 9%, respectively, from Q4 2021. These increased figures were due to higher metal prices and a lower hedging profile, with a realized copper price of USD 4.45 per pound obtained during the quarter.

• Declining Cash flows from operations: In the report period of Q1 2022, the company’s cash flows from operations fell by USD 94 million to USD 666 million, compared to Q4 2021, with a relatively high receivables working capital balance at the end of the quarter on the back of higher metal prices.

• Lower Production guidance: For FY 2022, the company lowered its copper production guidance, which would be in a range of 790,000 and 855,000 tonnes, compared to of 810,000 and 880,000 tonnes guided previously.

• Stretched valuations: FM’s shares are available at an NTM EV/Sales multiple of 2.5x compared to the industry (Metals & Mining) median of 1.6x, while on NTM Price/ Cash Flow multiple, it is trading at 5.3x compared to the industry median of 4.3x. This implies that the shares are overvalued against the industry.

Stock recommendation

Despite operational and inflationary challenges in the first quarter, First Quantum was able to deliver another quarter of strong earnings and demonstrated continuous financial improvement. However, it reported a decrease in cash from operations and an increase in AISC (per pound) at USD 2.27 versus USD 1.72 in pcp. Furthermore, management has reduced its copper production projection for FY 2022 and anticipates its AISC to be in the higher range, raising worries.

Further, the firm has a higher Cash Cycle (Days), implying that it takes more days to convert its inventory to cash, also the stock is trading at stretched values across various parameters. Hence, we recommend a "Watch" rating on the stock of FM at the last closing price of CAD 33.83 on April 26, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 26, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Disclaimer

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