First Quantum said to be in talks with Jiangxi over Zambian mines

Canadian miner First Quantum Minerals (TSX: FM), which is reeling from the forced closure of its flagship copper mine in Panama, is said to be in talks to sell a stake in its Zambian operations to help shore up its finances.

A person familiar with the matter told Reuters on Friday that Chinese state-owned Jiangxi Copper has already approached First Quantum on the matter, but no agreement has been reached.

The Vancouver-based miner is the sole owner of the Sentinel copper mine and has a 80% stake in the Kansanshi mine, both in the southern African country.

Jiangxi, First Quantum’s top shareholder with an 18.5% stake, is said to be evaluating the acquisition of one of the two mines or a stake in one of them, according to the report.

First Quantum’s presence in Zambia, Africa’s second-largest copper producer, also includes the Fishtie copper project, near the border with the Democratic Republic of Congo.

The companies, which have been exploring the asset since 2012, recently announced it would speed up development with the goal of beginning production in 2026.

The news adds to speculation over First Quantum’s future, which includes alleged talks between major investors of the company and fellow Canadian miner Barrick Gold (TSX: ABX; NYSE: GOLD) about a potential takeover. Barrick has recently been expanding more into copper, with its plan to double production to 1 billion lb. by 2031, its $2 billion investment in the Lumwana super pit expansion in Zambia, and its stake in the Reko Diq mine in Pakistan.

BMO Capital Markets metals and mining analyst Jackie Przybylowski cautioned in a note to clients on Friday against giving credibility to speculation. 

She called the story about alleged talks between First Quantum shareholders and Barrick “provocative”, saying that Barrick shareholders would take on much geopolitical risk and potentially dilute its valuation multiple. 

“We expect First Quantum shareholders would wait for clarity on policies in Panama after the May election before a sale,” she said. “And with no spare capacity at the Kansanshi smelter, we see limited opportunities for operating synergies in Zambia.

BMO expects First Quantum to defer spending, including at Kansanshi and other projects due to the cash flow issues resulting from Cobre Panama’s closure. 

It’s expected the company will release details on how it can alleviate balance sheet problems on Jan. 15, along with 10-year guidance and its 2023 Q4 production results, she said. 

In a “possible” scenario, she noted that if the Cobre Panama closure continues beyond 2024, First Quantum will likely need to find other ways to raise cash. That could include selling a stake or stream in any of its Zambian operations or a sale of a non-core asset outside Zambia. 

“We expect that interested parties could include Jiangxi Copper (as was reported by Reuters), but also other miners. Franco-Nevada, Wheaton Precious Metals, and other large streamers could also be interested in an investment,” she said. 

First Quantum said it plans to provide an update on the company’s plan to meet its debt obligations by the end of January.