Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of First Quantum Minerals Ltd (TSX: FM ). (FQM) at 'B', while also removing the company's ratings from its Rating Watch Negative list. The outlook on the long-term IDR remains negative, according to the ratings agency's announcement on February 19, 2025.
Fitch has also assigned a preliminary 'B(EXP)' rating to FQM's new senior unsecured notes. The Recovery Ratings for both senior secured and senior unsecured notes stand at 'RR4'. The negative outlook is a result of FQM's high leverage and prolonged uncertainty surrounding the future of its Cobre Panama mine.
The rating also takes into account FQM's strong operations in Zambia and its active liquidity management. The company is considering the sale of a minority stake in its Zambian assets. The proceeds from this sale will be used to reduce debt and boost liquidity. If the sale is successful, Fitch predicts that EBITDA gross leverage will be slightly below its negative rating sensitivity of 5x.
The Cobre Panama mine has been under preservation and safe management with no production since November 2023. Last year's elections did not result in a decision about the mine's future, contrary to Fitch's expectations that operations would resume in 2025. Because of this uncertainty, Fitch's forecast for 2025-2028 is centered on operations in Zambia.
FQM is making efforts to revive the Cobre Panama mine operations by launching a public relations campaign to improve project perception and negotiating with the government. The company started setting terms for an environmental audit in January and is currently pursuing two separate international arbitration cases against Panama.
Without the volumes from Cobre Panama, Fitch predicts EBITDA to average $1.4 billion in 2025-2028, which is almost half of what it was when the mine was operational. The agency expects EBITDA gross leverage of around 5x over the next three years, which is higher than the 4.4x in 2024. This increase is due to the expectation of negative free cash flow in 2025-2026, due to substantial capital expenditures, including for the completion of the Kansanshi S3 project.
If FQM fails to complete the stake sale and the suspension of Cobre Panama continues, EBITDA leverage could rise to over 6x, which may lead to a downgrade. However, since the suspension of the Cobre Panama's operations, FQM has been actively managing liquidity risks and strengthening its balance sheet. In 2024, the company issued $1.6 billion secured notes for refinancing, placed $1.1 billion common shares for bond prepayment, and signed a $500 million copper prepayment facility.
The proposed notes issue will be used to refinance upcoming bond maturities and a portion of its bank facilities. This, along with the potential sale of minority stakes in Zambian mines, will enhance its liquidity.
Without volumes from Cobre Panama, FQM will derive over 95% of EBITDA from Zambia from 2025, leading Fitch to apply the 'B-' Country Ceiling of Zambia, instead of Panama. The company maintains significant liquidity headroom, with a high share of export proceeds, cash held abroad, and undrawn offshore committed credit lines totalling $3.3 billion in 2025 and $2.2 billion in 2026. This supports a hard-currency debt-service coverage ratio above 1.5x for 2025-2026 and allows Fitch to rate FQM one notch above Zambia's Country Ceiling.
The suspension of operations at Cobre Panama since November 2023 due to social protests and a Supreme Court ruling that the mine's concession law is unconstitutional has resulted in uncertainty over the mine's future and FQM's financial performance. This uncertainty led to the downgrade of the rating and maintenance of the Rating Watch Negative in February 2024. The IDR is now on Negative Outlook.