First Quantum – Half Year Results

The mining company has had a phenomenal run over the last 3 months leading up to June 2016. According to their CEO and Chairman Philip Pascall, two of the company’s strategic bets are paying off. The first is its improvements in cost and efficiency notably at Kansashi in Zambia. What is fascinating about this mine is that the company has been able to reduce its cost of acid which forms a key ingredient in the smelting treatment as it generates acid organically helping cut costs. Furthermore, this mine had the highest quarterly production since Q3 2014. The second bet is its successful completion of the sale of Kevista mine and refinancing of senior debt facility by putting in place a new $1.815 billion debt facility  that have helped strengthen its balance sheet. Due to this improved position, they are keen on continued development of the Cobre Panama project amidst the current global volatility in commodity prices.

On a macro level, changes to the Zambian mining tax regime, effective June 2016, that saw a reduction in the royalty rate for open pit mines from 9% to a sliding scale of between 4% to 6% (based on the copper LME price) which also helped with the good run.

Overall, the company had an 18.9% increase in revenue compared to the same half year period in 2015. EBITDA rose by 107% with earnings increasing by 1.6%. The operating cash also saw a leap of over 165.7% increase signal improved liquidity management at the mine. This is further observed in its over 140% increase in cash on balance sheet. Cost of sales marginally increased by 8.2% whilst prudent financial management lead to a 24.4% reduction in administrative costs.

Going forward, the mining company will continue on a financially prudent strategy that will ensure the successful completion of Cobre Panama. Despite focus being on this project, shareholders will be please with some cash back from interim dividend of CDN $0.005 per share in respect of the financial year ended December 31, 2016 that was announced. The dividend will be paid on September 19, 2016 to shareholders of record on August 26, 2016. The ex-dividend date is August 24, 2016 (We shall cover what these dates mean in an upcoming blog).