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Morningstar | First Quantum Reports Solid 3Q Results; We Maintain Our CAD 6.90 FVE With Outlook Intact. See Updated Analyst Note from 30 Oct 2018

First Quantum reported decent third-quarter earnings, as comparative EBITDA grew over 40% year on year to $427 million. In its earnings release, management increased its 2018 copper production guidance by 5,000 metric tons to 395,000 metric tons. However, this was partially offset by a decrease in gold production guidance by 20,000 ounces to 180,000 ounces. Having updated our model to reflect these changes, we maintain our CAD 6.90 fair value estimate. Our no-moat rating is also intact.

In its earnings release, management noted that the Cobre Panama mine remains on track to begin production in 2019. However, the Panama Supreme Court is still weighing the implications of a September ruling that the law used to approve First Quantum's mining concession contract for the Cobre Panama mine is unconstitutional. This dispute could take some time to resolve. Until further details emerge, our base case continues to assume First Quantum retains its 90% stake in the Cobre Panama project with no additional mining taxes.

During the third quarter, copper prices fell from an average of $3.16 per pound in June to $2.75 in September, a 13% decline. As of Oct. 24, copper prices remain around $2.75 per pound. The price decline is in line with our outlook that copper prices would fall after averaging $3.14 per pound during the first half of 2018. We continue to point to slowing demand growth in China causing global demand to grow slower than supply as mine restarts and new production comes on line. As such, we maintain our 2019 and 2020 copper price forecasts of $2.70 and $2.40 per pound, respectively, in nominal terms.