EUR 850.00 For Business Accounts Only

Morningstar | We've Updated Our First Quantum Bear Case to Account for Revised Cobre Panama Mining Concession

On Sept. 24, local media in Panama reported that the Panama Supreme Court ruled that Law 9 of 1997 is unconstitutional. Law 9 was used to approve First Quantum's concession contract between its local subsidiary and the state for the Cobre Panama mine, which is scheduled to begin production next year. First Quantum management has stated it does not believe that its contract will be affected by the court's ruling. We note that this dispute will likely take some time to resolve and could result in a wide range of possibilities from no changes to the contract to the Panamanian government charging an additional mining tax or even renegotiating the entire contract to include a government ownership stake. As such, we are not changing our base-case fair value estimate of CAD 7 per share until more details emerge. Our no-moat rating is unchanged.

While our base case remains intact, we have updated our bear case to reflect a scenario where First Quantum must renegotiate the Cobre Panama concession contract with the Panamanian government. In this scenario, we assume an additional 5% mining tax is implemented on Cobre Panama operations, which is consistent with the mining tax in nearby countries. Our bear-case fair value estimate falls to CAD 0 per share from CAD 0.30 as there would be little value left for shareholders, given the heavy debt burden. Our extreme uncertainty rating is unchanged.