EM CEEMEA CREDIT: First Quantum: Q2 earnings benefit from supportive momentum

(FMCN; NR/Bneg/Bneg)

• Supportive signal from new gold hedges adding to existing copper hedging strategy, but higher prod’n costs impair profitability at the margin. Guidance is broadly confirmed, but the support from the positive momentum has been the driver of performance. Zambia’s core activities remain key. Export of copper concentrate from Panama’s Cobre is supportive but future developments remain critical for long term strategy with no contribution expected in ’25.
• In summary, 2Q25 rev’s at USD1.23bn beat estimate USD1.09bn on gold px dynamics supportive of meaningfully higher contribution (+82% YoY).
• COPPER prod’n missed at 91.07kt (est. at 95.18kt) on lower grades at core Zambian op’s but FY25 guidance at 160-190kt is confirmed (overall guidance at 380-440kt range also confirmed). Sequentially, copper prod’n remains on downward trajectory, 8.7% lower vs Q1 at 99.7kt.
• As previously indicated, Co. reiterates that first prod’n from S3 Expansion at Kansanshi will be in 2H25. No surprise here, so far all steps taken point in the right direction. Hedging strategy looks supportive. We note an increase from 50% to 60% of planned copper prod’n for FY25 and confirmed 40% for 1H26, with indicated range of USD4.14/lb floor to USD4.71/lb.
• Costs up on Zambia’s lower grade prod’n and higher sust’n capex. Copper C1 missed at USD2.00/lb (est at $1.94/oz), 5 cents higher sequentially (and trending up: was $1.95/lb in 1Q25,  $1.67/lb in 4Q24) but within FY25 guidance range reiterated at USD1.85-2.10/lb, with YE25 expected at $1.98/lb.
• GOLD prod’n at 37koz beat estimate (33.67koz), strong add on contribution from px dynamics with rev’s at $148mn (+82% YoY vs 2Q24 at $82mn). Hedging strategy introduced to support B/S, with 40% of planned gold prod’n up to YE26 hedged at $2,941oz to $4,168oz range. FY25 gold prod’n guidance is confirmed at 135-155koz (of which 100-110koz at Zambia’s Kansanshi, 35-45koz at Mauritania’s Guelb Moghrein).
• NICKEL prod’n at Trident – Enterprise decreased 14% QoQ to 4kt, with Nickel C1 at $5.83/lb, $1.05/lb higher than Q1, reported on lower volumes and higher contractor costs. FY25 prod’n guidance confirmed at 15-25koz.
• Overall, EBITDA +19% YoY beats at USD400mn (est. at USD320mn), sequentially +6% USD377mn (seasonal). EBITDA waterfall shows non-recurring strong positive contribution of USD33mn from realized metal px dynamics with cash costs eroding USD39mn. Cost of debt shows quarterly Interest expense at USD143mn (vs USD146mn in 2Q24), FY25 was last exp. At USD600-625mn (vs USD501mn FY24).
• Cashflow from operations +96% YoY, beat at USD780mn (est. USD588mn), and sequentially up +445% (USD143mn in 1Q25). Capex for the quarter sits at USD310mn, showing YoY savings across regions but mostly at Kansanshi. Resulting in FCF generation of approx. USD470mn, a swing from USD100mn consumption in previous quarter. Liquidity looks adequate with CCE marginally lower at USD737mn (Q1 at USD751mn) and UF sequentially higher at USD930mn (Q1 at USD880mn). Trading facilities up sequentially from USD411mn to USD512mn.
• Capex FY25 guidance reiterated at USD1.3bn-1.45bn range, in line with latest est. at USD1.31bn. FY24 at stood at USD1.3bn.
• Net debt decreased by USD334mn to USD5.453bn, supported by one-off USD500mn copper prepayment, with QoQ swing in AR showing WC inflow of USD68mn. Total debt sequentially lower at USD6.19bn (Q1 was USD6.53bn). We see non-adj rolling leverage at 3.11x, sequentially lower from 3.42x. For reference, Co. had already changed the leverage covenants on their bank debt to increase liquidity, Net Debt/EBITDA from 3.50x to 5.75x until Jun25, then reducing to 5x between Jul25 and Dec25; 4.25x between Jan26 and Jun26; and 3.75x thereafter.   
• For reference, First Quantum’s operations have global scale. Zambia’s Kansanshi copper-gold mine near Solwezi, North Western Province, is the flagship site in the country for the Co. through 80% stake in JV of Kansanshi Mining PLC, owner and operator. Kansanshi has two conventional open pits and is active in both copper and gold extraction. Sentinel in Zambia is also a key contributor to the Co. Panama’s Cobre production has been halted since Nov ’23 and is P&SM; this would be the other key pillar to the Co.’s business. Export of concentrate has been resumed in quarter, supportive of cost structure.
• Smaller contributors to the bottom line include copper-gold operations at Guelb Moghrein deposit, near Akjoujt, Mauritania as well as open-pit copper mine (and plant) under transformation at Cobre Las Cruces (for sale) in Andalucia, Spain. Furthermore, activities are present in Finland, Turkiye, Peru, Argentina, and Australia (Ravensthorpe under C&M since May ’24).
• Investors’ Call Thursday, July 24th, 2025, at 9 a.m. Toronto time, 1-833-752-3413