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Morningstar | Weaker Chinese demand for base metals will limit returns on First Quantum's large growth potential.

First Quantum boasts massive growth potential with the Cobre Panama copper project in Panama, which came on board with the 2013 acquisition of Inmet. The company has now reached commercial production with its prior big growth project, Sentinel in Zambia. First Quantum's sterling project development record suggests reason for optimism for successful completion. But operational and financial success will depend just as much, if not more, on circumstances beyond the company's control: stability in Zambia and economic growth in China. In March, the Zambian government fined First Quantum ZMK 76.5 billion ($7.7 billion), alleging that the company improperly classified imported goods as mining machinery to avoid import taxes. First Quantum denies the claim, and we expect a lengthy negotiation before a settlement is reached.First Quantum's main operating asset is the Kansanshi copper mine in Zambia. First Quantum has invested in a new copper smelter that would save on transport, export, and acid costs. Other operating assets include copper mines in Mauritania, Turkey, Spain, and Finland. Due to persistently low nickel prices, the Ravensthorpe nickel mine in Australia suspended operations in September.First Quantum's reputation for project management will be tested by development of the Sentinel and Cobre Panama copper projects. Both have low expected capital costs, but Sentinel has faced electricity supply shortages in Zambia, and Cobre Panama has faced cost overruns versus initial expectations. However, the Sentinel expansion remains on track, and Cobre Panama should begin production in 2019.Beyond management's control, but more consequential for the company's fortunes, is the price of copper, which we expect to fall in the years to come. China plays the dominant role as the world's largest user and driver of all demand growth in the past decade. We expect Chinese copper demand growth to slow markedly during the next several years on lower GDP growth and a decidedly less investment-heavy growth mix. Meanwhile, we expect to see a healthy bump in global copper supply as additions plotted amid the heady prices of the past few years eventually come on line.