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.
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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 Joseph Solitro has no position in any stocks mentioned.