First Quantum Minerals Inc. says its Cobre Panama project will produce more copper, but the Canadian miner has failed to live up to promises to cut costs at the giant open-pit mine in Central America and has delayed the start of production.
The Vancouver-based company acquired Cobre Panama last year in a hostile takeover of Inmet Mining Corp., touting its track record in developing projects and vowing at one point to slash expenses by as much as $1-billion (U.S.).
But after analyzing the project and bringing the bulk of the work in-house, First Quantum said it now expects to spend $6.4-billion instead of the $6.2-billion that Inmet had estimated and has delayed production nearly two years to the end of 2017.
“I never thought they could save the $1-billion they expected,” said Kerry Smith, analyst with Haywood Securities Inc.
Last year, the company suspended contracts with SNC-Lavalin Group Inc. and other outsiders in order to control the development of Cobre Panama and reduce expenses. Now it will only outsource work for specific tasks.
First Quantum is the latest mining company to announce higher costs and project delays amid a downturn in commodity prices.
But analysts were generally positive with the update. TD Securities said the higher production should be viewed positively by investors. RBC Dominion Securities said the slight increase in capital expenditures was “more than offset” by the increase in copper production and throughput, or the amount of rock that is processed.
Under First Quantum’s plans, Cobre Panama will produce 320,000 tonnes of copper a year. That is about 20 per cent more than Inmet’s estimates and will help vault First Quantum into the big leagues.
The miner, which also produces zinc, nickel and platinum group metals, has operations in Australia, Africa, Europe and the Americas. It produced 307,000 tonnes of copper in 2012 and 412,000 tonnes in 2013. The company eventually plans to have the capacity to produce 1.3 million tonnes of copper annually.
Cobre Panama is one of the big copper projects that will come on stream over the next few years. The massive Las Bambas project in Peru, which Glencore Xstrata is selling, is also due to start producing.
First Quantum refinanced a $2.5-billion loan and credit facility, partly to pay for the development of Cobre Panama.
The company also took steps to resolve a dispute with debt holders that has threatened its credit rating. Certain Inmet bondholders had accused First Quantum of defaulting on payments when the company bought Inmet.
Although First Quantum disagrees with the allegations, the company is now proposing to replace $2 billion in Inmet notes with two tranches of First Quantum notes. The transaction requires approval from the majority of bondholders.
First Quantum said the dissident debt holders were on board and indicated that it would eventually win approval.
Moody’s Investors Service, which has First Quantum under review for a potential downgrade because of the dispute, said it is monitoring the situation.