First Quantum Minerals Limited: The Only Mining Company You Should Think of Buying

If you want to invest in mining, First Quantum Minerals Limited (TSX:FM) is worth a close look.

| More on:
The Motley Fool

If you’re a serious long-term investor, you can go an entire lifetime without buying a single mining company. After all, Warren Buffett does not venture into this sector, and he’s doing just fine.

It’s easy to see why. Mining companies generally have zero pricing power versus their competitors, capital costs are high, and geopolitical risks can be overwhelming. Worse yet, mining is extremely cyclical, and capital routinely gets wasted in the sector. Finally, mining’s rise has largely been on the back of China, whose rapid growth is arguably on shaky ground.

So if you decide never to buy a mining company, you’re not missing much. However, there is one company you may want to consider: First Quantum Minerals Limited (TSX: FM). Below we take a look at why.

A strong track record

First Quantum has built a fantastic reputation of buying assets cheaply and keeping development costs under control. In fact, the company has developed over $2.4 billion worth of projects within 6% of budget, something very rarely found in mining. This is a big reason why First Quantum has outperformed so dramatically — since the company’s shares became public over 15 years ago, they have compounded by over 30% annually.

The key to the company’s success is its internal development team. While other miners outsource most of the work, First Quantum develops projects mainly in-house. This gives the company more control and flexibility over its projects. Competitors have shown that this is not an easy thing to replicate.

Continued growth

First Quantum has demonstrated that it knows how to grow, and that is what the company is still doing. There’s no better case in point than the Inmet acquisition.

Just to establish some context, Inmet was a large Toronto-based copper miner with a massive project in Panama. In fact, the project may have been too big for Inmet to take on — development costs were larger than the market value of the entire company! As a result, Inmet’s shares traded at a big discount to net asset value.

In 2012, some of Inmet’s top shareholders approached the First Quantum leadership team, saying that they would prefer First Quantum develop the project in Panama. The following year, First Quantum completed its acquisition of Inmet, again for less than net asset value. Fast forward to today, and the Inmet mines are set to contribute a major portion of First Quantum’s growth, all of which were acquired for a bargain price.

A future for copper

Nearly three quarters of First Quantum’s revenues come from copper, an industry that currently seems unattractive. Supply is higher than demand, prices are under pressure, China could falter, and costs continue to rise.

However, underneath the surface, the future looks brighter. For one thing, exploration companies are having trouble getting financed, as are new projects. The ones that do start are rarely finished on time or on budget. Meanwhile, copper demand continues to increase as China and other developing markets grow their economies. So when looking more than five years into the future, the supply situation starts to look very tight, which should give a nice boost to prices.

The verdict

There is a strong case to be made for First Quantum, but it is still a mining company, so if you want to stay away, no one can question you. However, if you want to add some mining exposure to your portfolio, this is without doubt the first place to look.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Bank sign on traditional europe building facade
Bank Stocks

Are Canadian Bank Stocks Still Undervalued?

Bank stock are moving higher. Is it time to buy or wait?

Read more »

You Should Know This
Stocks for Beginners

5 Things to Know About Cargojet Stock in November 2022

Cargojet (TSX:CJT) stock should continue to see massive growth in the near and long term, thanks to long-term agreements and…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Better Buy: BCE Stock or Enbridge?

BCE and Enbridge pay growing dividends with high yields. Is one more attractive today?

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Investing

TFSA: 3 TSX Stocks to Buy With the New $6,500 Room Limit

Canadians who are eager to utilize the new $6,500 room limit in 2023 should look to TSX stocks like Aritzia…

Read more »

Financial technology concept.
Investing

The Smartest Stocks to Buy With $20 Right Now and Hold Forever

Given the favourable market conditions and their growth initiatives, these three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

2 Unstoppable Dividend Stocks to Load Up in Your TFSA

These two dividend stocks provide long-term passive income that comes out every month, thanks to lease agreements lasting over a…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Tech Stocks

3 Healthcare Stocks to Buy for Long-Term Passive Income

Healthcare stocks provide exposure to an essential service sector. They are also the best for passive income in the short…

Read more »

potted green plant grows up in arrow shape
Investing

4 TSX Growth Stocks to Buy and Hold Forever

Here's why TSX growth stocks, and these four stocks specifically, are some of the best investments you can buy in…

Read more »