Muzhu Mining Ltd. (CSE: MUZU)
Creating lasting wealth by developing gold and silver properties with near-term mining potential
First Quantum Minerals (TSX: FM) has a market capitalization of $10.34 billion and is engaged in the exploration, development, and production of mineral resources. The company explores for bulk commodities such as copper, nickel, pyrite, gold, silver, and zinc ores. First Quantum is highly diversified, with mines located in Zambia, Panama, Finland, Turkey, Spain, and Australia. Currently, the stock price of First Quantum is 61% lower than its historical peak. Let’s take a look at whether the trading price of this TSX mining stock is attractive in November 2024.
One key driver of the company’s stock price is earnings growth. Over the past ten years, First Quantum’s adjusted earnings per share have grown at a compound annual growth rate (CAGR) of 8.8%, which is encouraging for a company in the cyclical mining sector. However, First Quantum has faced significant challenges in its mining operations due to lower-than-expected output, rising costs, and power outages, all of which have impacted investor confidence.
Like other mining stocks, First Quantum’s performance is closely linked to the prices of the commodities it extracts. A significant portion of First Quantum’s revenue comes from copper mining, which has experienced considerable fluctuations over the past decade.
In June 2023, First Quantum paid an annual dividend of $0.29 per share to its shareholders, yielding 1.7%. However, the dividend was reduced to $0.21 per share in November 2021 and was completely suspended in 2024.
For a company that pays dividends, it is essential to generate sufficient cash flow to provide regular dividends to shareholders and strengthen its balance sheet. Over the past 12 months, First Quantum reported a free cash flow outflow of $462 million, compared to nearly $2 billion in free cash flow in 2021.
Another reason for investor pessimism is First Quantum’s high debt balance. As of the third quarter of 2024, the company had long-term debt of $7 billion.
In the third quarter, First Quantum reported copper production of 116,000 tons, an increase of 13% compared to the second quarter. This rise in production led to a consecutive decline in cash costs. The strong performance in the third quarter enabled First Quantum to raise its copper production target for 2024 to between 400,000 and 420,000 tons. Despite declining copper prices, First Quantum’s revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) for the third quarter increased year-over-year by 4% and 55%, respectively. With $1.5 billion in liquidity, First Quantum needs to consolidate its profitability to regain investor confidence.
