First Quantum ups Cobre Panama output estimate but start delayed

Reuters

* Expected project cost rises from $6.2 to $6.4 billion * Production to start in late 2017 * Company announces refinancing deal, offers bondholders swap By Sakthi Prasad and Silvia Antonioli BANGALORE/LONDON Jan 28 (Reuters) - First Quantum Minerals Ltd's Cobre Panama project in Central America should produce about 20 percent more copper than previously planned, but initial production will be delayed and development costs will be higher, the company said on Tuesday.

Vancouver-based First Quantum, which bought the huge copper project in Panama via its C$5.1 billion ($4.8 billion) takeover of rival Inmet Mining last year, said after a lengthy review it now expects output of 320,000 tonnes a year, 20 percent more than Inmet had planned.

It also estimated a higher capital cost for the project at $6.4 billion, up $200,000 from the Inmet estimate and said production would start in late 2017, roughly a year later than Inmet had expected.

"The revised scope of the project is broadly in line with expectations, and higher annual production should be broadly offset by higher capital expenditure and a one-year delay to first production," said Jefferies analyst Christopher LaFemina, in a client note.

The miner had promised a revised estimate and project schedule before the end of 2013. But late last year, it delayed releasing the update, saying it had to "correct a number of acquired technical and logistical shortcomings." While the overall capital expenditure costs are now slightly higher than earlier estimates, analysts noted increased output would lower the project's capital intensity, as measured per tonne of installed capacity.

"We believe the enhancement of the project and reduced capital intensity further improves the project's economics and see these changes as a positive impact for the company," said Goldman Sachs analyst Fawzi Hanano, in a client note.

The Canadian miner also announced a refinancing package and a bond swap proposal to Inmet note holders.

"We see this debt refinancing as an important positive that should alleviate near-term balance sheet concerns," said LaFemina, noting it also better aligns debt maturities when the company's growth projects are scheduled to come online.

REFINANCING EFFORT The miner said it has signed a $2.5 billion five-year term loan and revolving facility with its banks, primarily to support its capital programme.

It has also made an exchange offer to holders of Inmet notes which are currently the subject of litigation.

Some debtholders alleged last year that First Quantum had violated indentures and defaulted on a parcel of debt taken on following its acquisition of Inmet.

First Quantum strongly disputed the claims which prompted credit rating agency Moody's to put the Canadian miner under review for a potential downgrade.

As part of the swap proposal, which needs approval from the majority of the bondholders, $2 billion in notes issued by Inmet will be exchanged for two groups of $1.14 billion new First Quantum bonds which will mature in 2020 and 2021.

"The announcement is a net positive for the stock," Citi analysts said. "While there is yet no resolution on the bondholder litigation it would appear that the group is close to the required sign up for the bond exchange, which would effectively remove past claims." First Quantum, which owns mines and projects across South America, Africa, Europe and Australia, is poised to become one of the world's largest copper producers over the next five years as a number of projects including Cobre Panama begin production.

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