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Alberto Abaterusso
Alberto Abaterusso
Articles (1432) 

First Quantum Minerals Will Rise

The company is a strong player in the mining industry and is trading cheaply

January 25, 2019 | About:

First Quantum Minerals Ltd. (FQVLF) (TSX:FM) is trading cheaply on both the U.S. and Canadian exchanges, but the share price spiked after the miner canceled its plans to fire 2,500 workers in Zambia.

The job cuts were in response to an increase in mining taxes the government of Zambia implemented to reduce the deficit of the country, Mining.com reported on Thursday.

The miner also promised to continue working with the Zambian government on the issue. A positive resolution to the problem will be value accretive for shareholders of the Canadian miner as First Quantum Minerals stems approximately 84% of its total revenue from operations in Zambia.

First Quantum Minerals is a respectable player in the mining industry with interests in six mineral-producing assets in Australia, Africa, Turkey, Europe and is developing mineral projects in Central and South America as well as Zambia.

The portfolio of operations is well diversified both geographically and from a business segment standpoint since First Quantum produces gold as well as zinc, nickel, magnetite, acid, pyrite and silver.

The company's operations have proven to be highly profitable in terms of a higher enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio compared to most of its peers over the last 12 months through the third quarter of 2018.

For the same period, copper futures contracts declined 4.53% to an average price of $3.02 per pound. First Quantum has delivered an EV-to-EBITDA ratio of nearly 40% versus an industry median of nearly 23%. This demonstrates that the miner's assets are a strong generator of operating profit and cash flow.

Further, the chart below shows the mining company is increasing its operating cash flow despite the high volatility in the commodities market.


For full fiscal 2018,  the miner is targeting copper production of 595,000 tonnes, zinc production of 25,000 tonnes and gold production of 180,000 ounces.

The production of the red metal is forecasted to stay stable until 2019 and to increase to 610,000 ounces in 2020. The production of gold should increase 11.1% to 200,000 ounces in 2019 and decrease 2.5% to 195,000 ounces in 2020. Zinc output is projected to be 17,000 tons in 2019 and 5,000 tons in 2020.

The Canadian operator is also involved with the Cobre Panama development project, where it is targeting the realization of an open-pit mining asset for the exploitation of total mineral reserves of 3,182 tonnes at 0.38% copper average ore feed. 

As I have said previously, the stock appears to be cheap.

The share price declined 39% to $9.3 on the over-the-counter exchange for the 52 weeks through Jan. 23 and is now below the 200- and 100-day simple moving average lines but still slightly above the 50-day line. The market capitalization is $6.4 billion. The 52-week range is $7.10 to $17.74.

The share price declined 32% to 12.52 Canadian dollars ($9.37) on the Toronto Stock Exchange for the 52 weeks through Jan. 23. According to Yahoo Finance, the stock is now trading below the 200- and 100-day simple moving average lines but still slightly above the 50-day line. The market capitalization is CA$8.56 billion. The stock has a 52-week range of CA$9.45 to CA$23.05.

The stock has a buy recommendation rating and an average target price of $19.09 per share.

Disclosure: I have no positions in any securities mentioned in this article.

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About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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