First Quantum Minerals Ltd. (TSX:FM), one of world’s largest producers of copper and other metals, announced first-quarter earnings results after the market closed on April 30 and its stock responded by rising over 5% in the trading session that followed. Let’s take a thorough look through the report to determine if we should consider buying in to the rally, or if we should wait for a better entry point in the trading sessions ahead.
The results that ignited a rally
Here’s a summary of First Quantum’s first-quarter earnings results compared with its results in the same period a year ago. All figures are in U.S. dollars.
| Metric | Q1 2015 | Q1 2014 |
| Comparable Earnings Per Share | ($0.02) | $0.22 |
| Revenue | $650 million | $821 million |
Source: First Quantum Minerals Ltd.
In the first quarter of fiscal 2015, First Quantum reported an adjusted net loss of $12 million, or $0.02 per share, compared with an adjusted net profit of $130 million, or $0.22 per share, in the same quarter a year ago, as its revenue decreased 20.8% to $650 million.
These weak results can be attributed to two primary factors. First, metal prices have fallen since the year-ago period, including the average realized price of copper decreasing 17.4% to $2.56 per pound and the average realized price of nickel decreasing 0.2% to $6.56 per pound. Second, First Quantum’s sales volume fell in all three of its major metal categories compared with the year-ago period, including sales of copper decreasing 7.4% to 95,185 tonnes, sales of nickel decreasing 59.5% to 5,706 tonnes, and sales of gold decreasing 12.3% to 52,782 ounces.
Here’s a breakdown of 12 other notable statistics from the report compared with the year-ago period:
- Copper production decreased 14.9% to 96,318 tonnes
- Cash cost per pound of copper produced increased 0.7% to $1.39
- Sales of copper decreased 22.2% to $501 million
- Nickel production decreased 47.1% to 6,268 tonnes
- Cash cost per pound of nickel produced increased 0.7% to $4.40
- Sales of nickel decreased 57.5% to $62 million
- Gold production decreased 12.3% to 52,782 ounces
- Sales of gold decreased 7.1% to $52 million
- Comparable earnings before interest, taxes, depreciation, and amortization decreased 67.8% to $120 million
- Cash flows from operating activities decreased 64.6% to $131 million
- Weighted average number of diluted shares outstanding increased 1.6% to 600.51 million
- Ended the quarter with $302 million in cash and cash equivalents, a decrease of 15.4% from the beginning of the quarter
Should you invest in First Quantum today?
Even though I do not think the post-earnings rally in First Quantum’s stock was warranted, I do think it represents an appealing long-term investment opportunity today. I think this because it trades at low forward valuations, including a mere 13.4 times fiscal 2016’s estimated earnings per share of $1.46, which is very inexpensive compared with its five-year average price-to-earnings multiple of 16.
I think First Quantum’s stock could consistently command a fair multiple of at least 16, which would place its shares upwards of $23 by the conclusion of fiscal 2016, representing upside of more than 17% from today’s levels.
With all of this information in mind, I think First Quantum Minerals represents one of the best long-term investment opportunities in the metals and mining industry today. Foolish investors should take a closer look and consider beginning to scale in to long-term positions.
