First Quantum hit by power, tax concerns in Zambia

First Quantum’s Cobre Panama plant at night, Panama. Source: First Quantum Minerals Ltd.

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First Quantum Minerals Ltd. [FM-TSX] shares have fallen sharply this week (May 20-24) as investors reacted to power supply concerns and political tensions in Zambia, where the company has key mining and development projects.

They include the Kansanshi mine, which ranks as the largest copper mine in Africa.

After falling to a low of $9.88 on Thursday, the share price is down 13% so far this week from $11.30 on May 21, 2019. The shares are currently trading in a 52-week range of $9.45 and $23.05.

According to a report by Bloomberg News Service, Zambia is planning to imminently reinstate power rationing in the country following drought-like conditions, which have negatively impacted the country’s hydro-electric generating capacity. However, First Quantum officials have told analysts that there is no anticipated impact to bulk power users such as First Quantum as this would likely undermine the government’s economic goals.

Meanwhile, Zambia’s 2019 copper output could be as much as 100,000 tonnes lower than last year as changes to the mining tax drive miners to cut production, the Chamber of Mines said on May 22, 2019 according to a report by Reuters.

“Present forecasts are that copper production, both concentrate and finished copper, will now be drastically lower than last year, and could be as much as 100,000 tonnes lower, the Chamber of Mines said in a statement.

Tax changes are expected to stymie investment as miners are forced to reduce production, the Reuters report said.

First Quantum currently ranks as one of the world’s top ten copper producers.

When the company announced its first quarter 2019 financial results on April 29, 2019, it said that further to the changes in the mining tax regime that was enacted on January 1, 2019, the Minister of Finance of Zambia has announced the abolition of value-added tax and the proposed introduction of a non-refundable sales tax at rates of 9% and 16% for local goods and services, and imported goods and services, respectively.

First Quantum recently said 2019 will be another pivotal year for the company as it continues with the ramp-up of its huge Cobre Panama project. It ranks as the world’s largest new copper mine.

The first concentrate is expected to be produced by the end of March and commercial production is anticipated by the fourth quarter of 2019.

Cobre Panama is located in the Panama jungle, about 120 km west of Panama City. The concession consists of four zones, covering 13,600 acres. First Quantum recently increased its stake in the open pit project to 90%.

The operation is expected to produce up to 175,000 tonnes of copper this year, rising to between 270,000 and 300,000 tonnes in 2020.

In the first quarter of 2019, First Quantum produced 136,969 tonnes of copper, including 25 tonnes of pre-commercial production at Cobre Panama.


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