First Quantum Up More Than 3% as Credit Suisse Reviews Q4 Result
Credit Suisse has an Outperform rating and $155 target price on First Quantum Minerals Ltd. (FM.TO), but revised its estimates on a weak Q4 result.
Event: "Excluding a gain-on-sale and impairment of Zambian tax receivables, we estimate FM reported 4Q10 adjusted FD EPS of $1.80, which compares to our estimate of $2.26 and consensus of $2.64. Revenue of $700Mln was above our estimate ($632Mln) on higher copper sales (76.3Kt vs. our 71.5), but offset by higher operating costs at Kansanshi (cash costs $1.07/lb of copper vs. our $0.81) as higher than expected waste stripping and processing costs (consumables and maintenance) were incurred."
View: Q4 weaker; focus on the growth ahead. "FM is undertaking an ambitious growth initiative of expansion (Kansanshi, Guelb Moghrein) and new project development (Sentinel, Haquira, Ravensthorpe, Kevitsa) that we believe will highlight management's expertise as a mine builder and operator. We see FM as maintaining its strong strategic position within the global copper group with its strong balance sheet, expanding copper and nickel production, high leverage to copper prices, and portfolio of good quality assets."
Catalyst: A number of significant milestones in 2011 should reinforce our view of the FM expansion case, including Ravensthorpe plant testing (2Q11); an NI 43-101 resource estimate at Sentinel (mid-2011); copper smelter evaluation study (2H11); and start of the Kansanshi oxide expansion (4Q11). We are adjusting our FY11/12 EPS to $10.04/11.22 (from $11.33/10.75) to reflect shares outstanding adjustments, higher operating costs at Guelb Moghrein in 2011, and slightly higher nickel production in 2012.
Valuation: "Our TP of C$155 is based on a 60/40 weighting of 1x our NAVPS of C$150.54 and 6x FY11/12 EV/EBITDA. FM's position as an attractively-valued copper producer with a strong growth profile can provide strategic fits for mining consolidators looking for near-term copper cash flows, low gearing, optionality on nickel markets, and development projects in proven mining jurisdictions."
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