VANCOUVER — First Quantum Minerals (TSX: FM; LON: FQM) met expectations during the second quarter by most production metrics, but it finds itself in an interesting position due to a copper hedging program it instituted over the past two years.
The company reported a comparative net loss of US$97 million on its hedge book during the quarter, which contributed to a US$35 million, or US5¢ per share, net loss for shareholders.
The scenario is underpinned by an improved metal environment that has seen copper jump nearly 16%, or 47¢, since early January en route to a US$2.89 per lb. close at the time of writing.
First Quantum reported an average realized copper price of US$2.24 per lb. over the second quarter, which was roughly US$33¢ per lb. below the average London Metals Exchange (LME) price over the same period. The company said it had 359,000 tonnes copper in outstanding hedges at the end of July at a price of US$2.43 per lb.
“The healthy copper price increase that started [last year], and the losses incurred under our [hedge program], can obviously be distracting,” President Clive Newall said during a late July conference call. “But keep in mind that we manage this company for the long term, and the program was put in place for a very specific reason: to protect cash flows in a low metal price environment ahead of the completion of Cobre Panama. To that end, it has been effective.”
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