Base metals continue to remain firm despite doubts among analysts earlier this year. In late December 2017, copper hit its highest price in four years after a protracted multi-year slump that hit miners hard. The growing optimism surrounding copper can be attributed to a more upbeat global economic outlook combined with stronger than expected demand from China and economic growth in India. Given the increased optimism, investors should look to boost their exposure to copper by investing in miner First Quantum Minerals Ltd. (TSX:FM).
First, Quantum’s financial results have steadily improved over the last year because of rising copper prices and growing production. For the nine months ended September 30, 2017, copper production grew by a healthy 6% year over year, but the company’s bottom line took a hit after reporting a loss of US$201 million compared to a US$210 million net profit a year earlier. This can be attributed to First Quantum realizing a US$380 million loss on copper price hedges that it held along with US$84 million in costs associated with the early redemption of senior notes earlier in 2017.
Nonetheless, First Quantum’s potential to report a solid lift in its bottom line over 2018 was evident from comparative EBITDA for the period, growing by an impressive 12% compared to the same period in 2016.
If, as expected, copper rises during 2018, First Quantum will benefit significantly because of its ongoing investment in its operations and development of its mining assets.
During the third quarter 2017, First Quantum boosted its ownership of the Cobre Panama Concession to 90% and reported solid progress on the mine’s development, with 63% complete at the end of the quarter. On commissioning one of the very few new copper mines destined to come on line before the end of the decade, production is expected to reach 32,000 tonnes annually by 2019. First Quantum will then become one of the world’s top six copper miners.
Meanwhile, the resolution of electricity outages to the Kansanshi complex and the Sentinel mines in Zambia as well as the restarting of the Kansanshi smelter after a planned shutdown will translate into higher copper production for the remainder of 2017 and into 2018. This should give First Quantum’s bottom line a solid lift.
The good news doesn’t stop at the red metal.
First Quantum will also benefit from the recent surge in gold as well as sturdier nickel prices, which are both responsible for generating around 7% of the miner’s revenue.
Gold was among the standout performers for commodities during 2017, rising 13% in value over the year. As geopolitical tensions continue to ferment on the Korean Peninsula and the Middle East, prices will remain firm for some time to come.
Demand for nickel, which is an important ingredient in the fabrication of stainless steel, remains strong and is forecast to remain so over 2018 primarily because of India’s rapid industrialization and Beijing’s rationalization of China’s steel industry.
First Quantum is an attractive means of benefiting from improving global economic growth and an uptick in demand for metals from China and India. The company’s ability to expand copper production means that it will benefit significantly as prices rise, which should translate into a higher stock price over the course of 2018.