Good Morning,
First Quantum Mining (FQM) give their Q2 Results, you won't like them, so here's some sugar to help the medicine go down (read as dividend). Not
only is the later unaffordable its putting further strain on an already
distressed balance sheet, albeit only $18M (ish).
What level of cash generation was assumed for expansion of
Cobre Panama, One notes the project is progressing with no change in
"capex" at $6.4 billion. With total capex for this year at $1.4B and $600M
to be spent on Cobre Panana. There is some good news, in 2016, FQM focus
will be on optimizing the phasing of capital expenditure at Cobre Panama, while
keeping the project on track. Obviously no need this year then?
FQM state, "During the quarter, we
launched and completed an equity issue. The decision to do so was based on our
belief of a stronger copper market following this period of weakness. Proceeds
from this initiative provide the Company with the financial flexibility to
continue to build its production base. We are thankful to several long-time and
new shareholders whose support made the issue a success, noted Philip
Pascall," First Quantum's Chairman and CEO."
So the decision to equity raise was based on "a
stronger copper market following a period of weakness"? Phew, one
had a suspicion it was as a result of reduced cashflow woes, covenants
being suspended (waved goodbye) and a compulsory commitment to significant
levels of CAPEX on Cobre Panama. It must be entirely coincidental
that of the $1,121B capital
raise, $1B was needed to repay debt at a senior level and the remainder
equating to the $117M hit being taken on the ENRC $430 million Promissory
Note.
EMC estimates of NET debt position as of today are around
$4,956.9B allowing for the recent falls in the price of copper, gold and
nickel. In the absence of an improvement in the copper price that is sustained
and above $2.55/lb, debt levels are likely to be higher than those reported in
the financial accounts for 2014.
It’s sensible to consider whether there is a full
availability of the undrawn facilities in the absence of covenants? Circa $7B
all in. Especially in light of FQM's capex being towards to the higher end of
the revised figures for 2015 in the 2014 accounts, significantly reduced
cashflow and limited room for cost improvements. We'll ignore the $400M in
inventories at year end, perhaps a little hair cut by $100M would be wise, or
FQM could alternatively have their fingers crossed, and raise "a further
$800M in anticipation of an improving copper market?"
There's further issues with the closure of Sentinel
process plant, pending an evaluation in light of the load shedding on the grid.
Sensibly, FQM has seen common-sense to redirect the majority of Sentinel's
power allocation to enable Kansanshi to operate close to full capacity. This
obviously has implications for Sentinel, likewise the timeframe is unknown and
one suspects while delaying the ramp-up at Sentinel. Putting near 150K/t of
copper back into next year’s earnings (Cashflow assumptions?)
Having bought into Gem Diamonds (GEMD) recovery (EMC: May) today they update the market H1 trading update that replicates what De Beers
experiences (EMC: Anglo 24th July). Having sold and taken a loss on
small long, there will be no rush to return.
We note the market for small stones has softened considerably
and is likely to continue to do so with the woes in Asia / China. Ghaghoo sales
are down near 20% compared between the first and second sale, admittedly
commissioning sales and more so for cashflow. Although they do acknowledge that
the next sale will include a higher proportion of diamonds from the main
body of the VKSE phase of the kimberlite ore (better quality).
Ghaghoo is however turning into a row of disappointments,
admittedly not far off the main body of ore it’s perhaps one for those with a
longer-term perspective and a rosier outlook. With tougher going ground
conditions impacting on slot development in the first five production
tunnels and constrained production ramp-up, its not great news. More so the
need for specialist expertise has been employed to ensure there is no
further major ingress of water as the access decline and rim tunnel on Level 1
both begin advancing through the water fissure area in order to gain access to
the second production section. Will main Ghaghoo production improves
things?
Wolf Minerals (WLFE) update the market on the progress on the
development of Drakelands. All appeared to be going well save for the price of
Tungsten and Tin. It would appear that Wolf Minerals have only just noticed the
price of Tungsten dropping significantly since commencing mine development.
Investors will be wise to work through a model of around
$200/MTU and tin and $12k/t. rather than what was inferred previously. Although
there are significant synergies and production improvements from a 24/7
operation model rather than the 5.5 model that was worked on. Costs per MTU
should reduce further than those implied originally, circa $174/MTU. It may be
worth WLFE not processing the tin?
Although the preregistration for the dial in, like that of
AO World is not welcomed. With the availability of the web, one could register
via a web page or even not be permitted to speak without registration. Whomever
is advising of these practices would be wise to reconsider.
Not time to discuss the vanadium woes nor copper.
