Canadian Mining Journal


First Quantum in debt danger due to ailing metals market

VANCOUVER — It’s a sign of the times that analysts tend to pay more attention to balance sheet health than production metrics during quarterly report season, and First Quantum Minerals (TSX: FM; LON: FQM) did little to alleviate concerns surrounding its debt position during a conference call on Feb. 19.

The depth of the issue was highlighted when the company’s auditors – PricewaterhouseCoopers (PWC) – expressed concern “with ‘material uncertainty … in respect to the group’s ability to comply with its debt covenants’.” First Quantum is sitting on net debt of just over US$5 billion, and BMO Capital Markets recently questioned “the ability of [the company’s] legacy operations to service debt and fund development at Cobre Panama, with a spot copper price of US$2.08 per lb.”

During First Quantum’s quarterly conference call, president Clive Newall acknowledged the risk of a breach of covenant ratio in terms of debt financing agreements. The company is currently in negotiations with lenders to avoid the issue, which would be the second renegotiation in the past ten months.

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