First Quantum raises billions in new financing after flagging ‘going concern’ risk with pressure mounting from Cobre Panama shutdown

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First Quantum Minerals Ltd. FM-T has unveiled a multibillion-dollar financing package aimed at strengthening its balance sheet, which had weakened considerably after the shutdown of its Cobre Panama mine.

Late Wednesday, the Vancouver-based mining company said it had refinanced US$2.2-billion of its corporate bank loans with longer maturity dates, raised US$1-billion in a common share offering and was poised to raise an additional US$1.6-billion in a debt note sale.

The comprehensive financing comes after First Quantum had flagged itself as “going concern” risk because of the financial pressure that had built up on it in recent months.

First Quantum said in a regulatory filing on Tuesday that it was in danger of breaching its net debt to EBITDA ratio covenant over the next 12 months. (Net debt is total debt minus cash; earnings before interest, taxes, depreciation and amortization is a non-GAAP measure of profitability.)

“Failure to address this would result in the existence of a material uncertainty that may cast a significant doubt about the company’s ability to continue as a going concern,” First Quantum said in a news release alongside its fourth quarter and 2023 year-end earnings.

The fresh financing announced on Wednesday should go a long way toward countering the going concern risk.

The company said earlier on Wednesday that it was in talks with lenders to refinance and extend the amortization period on its debt.

First Quantum is also trying to bring in more cash over the short term, including signing an agreement with China’s Jiangxi Copper Co. Ltd. for a prepayment of US$500-million in return for selling it 50,000 tons of copper over three years. In addition, First Quantum is looking at selling its Cobre Las Cruces copper mine in Spain, and a stake in its Zambian copper operations.

The company also hopes to ship about US$220-million in copper that was mined and processed at Cobre Panama, but has not yet been sold because of blockades at First Quantum’s port that have since lifted.

Last month, the company eliminated its dividend, and vowed to reduce its capital spending by US$650-million over two years.

Christopher LaFemina, analyst with Jefferies said in a note to clients on Wednesday that the various measures undertaken by First Quantum to shore up its balance sheet are extreme but necessary.

Mr. LaFemina also correctly predicted that First Quantum might issue equity to bring in more cash. The equity issue comes at a time when the stock has been beaten up badly.

The company’s shares closed at $11.91 on the Toronto Stock Exchange on Wednesday, or about 70 per cent below the most recent peak last summer.

The bought deal price for the share offering is $11.10, a 6.8 per cent discount to the most recent closing price. RBC Dominion Securities Inc., BMO Nesbitt Burns Inc. and Goldman Sachs are acting as joint bookrunners on the share offering.

Late last year, after Panama’s Supreme Court declared the company’s mining contract was unconstitutional, First Quantum was forced to shut down Cobre Panama. At one point, the mine accounted for about half of First Quantum’s revenue. The company took on billions in debt to build Cobre Panama, and cash flow from the mine was supposed to pay off creditors. At the end of 2023, First Quantum held US$6.4-billion in net debt.

After Panama’s President ordered Cobre Panama to close, First Quantum launched arbitration proceedings against the country, a process that usually takes years to play out.

First Quantum chief executive officer Tristan Pascall said on the conference call on Wednesday that the company is seeking a minimum of US$20-billion in damages from arbitration, based on the fair market value of its initial investment.

As it navigates an incredibly difficult situation in Panama, First Quantum continues to move forward on a US$1.2-billion expansion project in Zambia that it hopes will generate strong cash flow to further alleviate its balance sheet troubles. The S2 project at its Kansanshi copper mine is 80 per cent complete, but isn’t expected to come online until the second half of next year.