By JAMES KUNDA –
GLOBAL ratings agency Moody’s Investor Service has downgraded its outlook on First Quantum Minerals (FQM) to B1 negative as the mining firm faces challenges of falling copper prices and restricted power supply.
Moody’s analyst Douglas Rowlings in a statement in Lusaka yesterday said that copper prices fell to US$2.36 per pound on Friday last week driven by decreasing demand from top consumer China.
Moody’s said power supplier Zesco had reduced supply to the mining giant to 42 Mega Watts (MW) forcing FQM to shut down its processing plant at Sentinel Mine in Solwezi.
Mr Rowlings said falling copper prices had left a negative impact on the mines’ operations as the occurrence had led to lower revenues at a time of mounting financial pressure.
He said Zambia was enduring one of its worst droughts on record and although the country was steadily increasing power generation capacity early next year, the current shortage would reduce production rates at FQM’s Kansanshi and Sentinel plants.
“The path for FQM to restore credit metrics back to rating guidance levels looks less clear. Lower copper prices, the $600 million that the company will spend this year on its $6.4 billion Cobre Panama copper project and production reductions at the Zambian mines will weaken credit metrics.
The two mines together generate nearly half of FQM’s total cash flow, which will be negatively affected by lower production available for sale,” he said.
Mr Rowlings said the path for FQM to restore credit metrics back to rating guidance levels looks less clear on anticipation of continued negative free cash flow and rising debt levels.
He, however, said FQM’s liquidity remained strong following a recent renegotiation of bank loan covenants offering sufficient headroom against the lower copper price.
Further supporting FQM’s liquidity is a $1.1 billion equity capital raise in May that the company used to reduce its draw-down on its bank facilities.
“However, any uplift to credit metrics from these factors is temporary and any availability on the bank facilities. We see little relief in sight for copper prices and forecast refined copper production will exceed usage next year, keeping prices low,” Mr Rowlings added.