First Quantum stock downgraded as Canaccord flags cost pressures and funding gap

On Thursday, Canaccord Genuity analysts adjusted their stance on First Quantum Minerals (OTC:FQVLF) stock, downgrading it from "Buy" to "Hold" and reducing the price target to Cdn$20.00 from the previous Cdn$24.00.

The revision comes after a review of the company's copper production guidance, which was reported to be below Canaccord's estimates for the upcoming three years. According to InvestingPro data, three analysts have recently revised their earnings downward, though the stock appears slightly undervalued based on Fair Value analysis.

The conservative projections for the ramp-up of the S3 project at Kansanshi and changes in mine sequencing at Sentinel were cited as reasons for the lower copper output. On the other hand, gold production at Kansanshi and Guelb Moghrein exceeded expectations.

Despite the positive impact of increased gold credits and a rise in the assumed gold price by $600 per ounce, the C1 cost guidance remained unchanged, suggesting potential underlying pressure on operating costs. The company's financial challenges are evident in its revenue decline of 32.6% and significant debt burden of $7.85 billion, as revealed by InvestingPro analysis.

Canaccord analysts pointed out that the overall capital expenditure (capex) guidance for the three-year period is 26% higher than their estimates. This increase in capex, coupled with the anticipated lower copper production and escalating costs, has led to concerns about a possible funding shortfall of approximately $500 million, which extends beyond the current scope of the company's credit facility.

The downgraded rating and lowered price target reflect the analysts' view that First Quantum Minerals faces financial and operational challenges ahead. The funding gap identified by Canaccord Genuity suggests that the company may need to seek additional financial resources to bridge the discrepancy between its spending and the credit available.

In other recent news, First Quantum Minerals Limited reported a robust operational performance for the third quarter of 2024, with a 13% increase in copper production from its Zambia operations. This has led to an upward revision of its annual copper production guidance. The company's financial performance was also strong, with a 4% rise in revenue and a substantial 55% increase in EBITDA, with net earnings attributable to shareholders reaching $108 million.

Despite challenges such as power restrictions in Zambia and awaiting government approvals in Panama, First Quantum (NASDAQ:QMCO) improved its C1 cash costs and maintained a solid liquidity position.

Recent developments include securing power contracts to cover 50% of its needs until April 2025 and exploring additional power sources for its S3 expansion at Kansanshi. The company's net debt increased by $154 million to $5.6 billion, primarily due to capital expenditures for the S3 project and increased working capital. First Quantum is actively discussing potential asset sales and strategic partnerships in Zambia and remains optimistic about restarting operations at Cobre Panama.

Looking ahead, First Quantum anticipates project completions by mid-year and aims to ramp up operations in the latter half of the year. The S3 expansion at Kansanshi is progressing, with first production expected in the second half of 2025. The company expects Q4 production to be between 80,000 to 100,000 tonnes, influenced by lower grades at Kansanshi and planned maintenance.

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