First Quantum Minerals Ltd

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

• Higher production guidance: The management has shared the production guidance for the different metals for 2021 to 2023, where it expects the copper production in a range of 820-880 (000 tonnes) and gold production to be in a range of 290-310 (000 ounces).

Source: Company

• Record annual copper production: The company achieved record annual copper production, with highest ever production at Sentinel and a strong contribution from Cobre Panama, despite the additional challenges faced in the year. The gold production also marked a 3% higher level at 265k ounces, which was above the guidance range and 2019 level.

Source: Company

• Healthy Growth in EBITDA: The company witnessed a significant increase in comparative EBITDA to USD 725 million in Q4 2020, against USD 511 million in the previous corresponding period. The rise reflected the strong operational performance with increased sales volumes, higher metal prices and lower costs.

Source: Company

• Repaid debts: On the back of healthy Cash flows from operating activities in FY2020, which stood at USD 724 million, reflecting higher comparative EBITDA and lower working capital outflows. The company reduced its net debt by USD 266 million during the year, and by USD 136 million in Q4 2020, to USD 7,409 million. 

Financial overview of FY2020 (In millions of USD)

Source: Company

• The company reported revenues of USD 5,199 million in FY2020, increased by 28% against USD 4,067 million in FY2019. Commercial copper and gold sales volumes from Cobre Panama and increased sales volumes at Sentinel drove the increase, as well as higher realized copper and gold prices.
• Comparative EBITDA for FY2020 increased to USD 2,152 million, compared to USD 1,609 million for 2019. Results benefited from higher revenue and lower cash costs.
• The company posted net loss attributable to shareholders of USD 180 million in FY2020, compared to a net loss attributable to shareholders of USD 57 million in 2019. The rise in net loss was primarily due to higher finance cost and higher income tax expense.

Risks associated with investment

The Company is prone to commodity price risk from fluctuations in the market prices of copper, gold, nickel, zinc and other elements, interest rate risk, and foreign exchange risk. The demand for the metals is other factors that may cause the actual results, performance or achievements.

Valuation Methodology (Illustrative): EV/EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company achieved record annual copper production, with highest ever production at Sentinel and a strong contribution from Cobre Panama, despite the additional challenges faced in the year. The gold production also marked a 3% higher level at 265k ounces, which was above the guidance range and 2019 level. Furthermore, the company also issued its guidance to increase the production of all commodities is something remarkable. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 28.09 on March 3, 2021. We have considered Teck Resources Ltd, Kinross Gold Corp, Lundin Mining Corp etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Lundin Mining Corp

Lundin Mining Corp (TSX: LUN), is a diversified Canada-based metals mining company with operations in Chile, the United States, Portugal, and Sweden. The company primarily produces copper, nickel, and zinc, and to a lesser extent, gold, lead, and silver.

Key highlights 

• Diversified revenue mix: The Company is deriving its revenues from well-diversified commodities based in different regions. This diversification provides resilience in the nature of the business. In FY 2020, the company reported total revenue of USD 2,042 million.  

Source: Company 

• Increasing production profile: FY 2020 has been a transformational year for the Company. All metals' annual production met or exceeded the Company's annual production guidance despite the operational challenges. Furthermore, the Company expects to maintain this rising trend in upcoming years as well. In FY 2021, the group expects revenue from the copper segment to increase by almost 33%.

Source: Company 

• Increase in dividend distribution: Based on the Company's stable net cash position, robust operating results and the current higher gold price environment, the group declared a 50% increase in the dividend to CAD 0.06 per share, payable on April 14, 2021, to shareholders with a record date of March 26, 2021.  

• New members on board: Recently, the Company announced the appointment of Ms. Karen Poniachik and Mr. Jack Lundin to its Board of Directors.  

Financial overview of FY2020

Source: Company 

• In FY 2020, the Company reported revenue of USD 2,041.5 million, against USD 1,892.7 million in FY2019. The revenue increased mainly due to the addition of Chapada mine acquired in July 2019, and higher net realized metal prices.
• The annual gross profit stood at USD 498.1 million, an increase of USD 57.7 million against the previous corresponding period.

• The company reported net earning of USD 189.1 million, which was in-line with the prior year as higher gross profit and lower general exploration costs were offset by higher deferred tax expense. 

Risks associated with investment

The Company’s performance is highly exposed to volatility in the underlying commodity prices, especially copper and gold, as they significantly contribute to the group’s top-line and bottom-line. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

All metals' annual production met or exceeded the Company's annual production guidance despite the operational challenges. The group effectively managed costs, and all operations reported cash costs, which came in better than the annual guidance. We expect that the copper prices would remain stable in the upcoming period as most of the governments worldwide eased the lockdown restrictions, which is likely to result in industrial activities' resumption. Even the management expects a rise of 33% in revenue from the copper segment in FY2021. Moreover, the group increased the dividend distribution by 50% to CAD 0.06 per share, which reflects the Company is focused on distributing its earnings with shareholders. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 14.35 on March 3, 2021. We have considered Copper Mountain Mining Corp, Agnico Eagle Mines Ltd, First Quantum Minerals Ltd, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Disclaimer

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