TEXT-S&P rates First Quantum Minerals

Overview
-- Canada-listed First Quantum Minerals Ltd. (FQM) is a copper and nickel
producer with its main assets located in Zambia.
-- We assess FQM's business risk profile as weak and its financial risk
profile as significant.
-- We are assigning our 'B+' long-term corporate credit rating to FQM and
our 'B+ issue rating to its $350 million proposed senior unsecured notes.
-- The stable outlook reflects our view that FQM will maintain strong
credit metrics in 2012-2013, as well as robust funds from operations that will
partially cover its capital expenditure program.

Rating Action
On Sept. 28, 2012, Standard & Poor's Ratings Services assigned its 'B+'
long-term corporate credit rating to Canada-listed base metals producer First
Quantum Minerals Ltd. (FQM) and its 'B+' issue rating to the company's
proposed $350 million unsecured notes. The outlook is stable.

Rationale
The rating reflects our assessments of FQM's business risk profile as "weak,"
and its financial risk profile as "significant," as defined under our
criteria.

The weak business risk profile is constrained by FQM's limited geographic
diversity. The company is predominantly exposed to Zambia (Republic of Zambia,
B+/Stable/B), where it operates its biggest copper mine, which generated close
to 90% of total gross profits in 2011. The company's Zambian operations will
continue to contribute most of its cash flow, despite FQM's recently
commissioned Ravensthorpe nickel operation in Australia and its Kevitsa nickel
project in Finland, which is about to start commercial production.

The key risks of operating in Zambia, in our view, reside in the
jurisdiction's underdeveloped institutions. Other risks include the potential
for changes in the government's fiscal policy, which could influence FQM's
earnings and cash flow generation. As examples, the government raised
royalties to 6% in 2011, from 3% the previous year, after introducing a
windfall tax in 2008 and later amending it. Zambia depends heavily on the
copper industry and particularly on FQM as the largest base metal producer and
taxpayer in the country. We believe that FQM could experience constraints on
its ability to service its debt obligations, in a scenario of sovereign
stress, including possible corporate tax and royalties increases, and high
inflation of operating costs.

The rating is also constrained by the risk of foreign exchange controls, which
we factor into our transfer and convertibility (T&C) assessment of 'B+' on
Zambia. The T&C assessment reflects the risk that a sovereign will limit the
ability of a nonsovereign to exchange local currency for another currency or
gold, and to remit it to any resident or nonresident in order to meet the
nonsovereign's debt service obligations.

These country risks are only partly offset by the 10%-15% of cash flow that we
anticipate assets outside Zambia will generate in the next 3-5 years--namely
in the Commonwealth of Australia (unsolicited ratings; AAA/Stable/A-1+), the
Republic of Finland (AAA/Negative/A-1+), and Mauritania (not rated)--giving
the company greater financial flexibility in the event of a sovereign stress
scenario. Sovereign and country risks are also mitigated by the centralized
sales proceeds that FQM collects from Zambian exports, which are denominated
in U.S. dollars.

FQM's business risk profile is supported by the company's advantageous cost
position and profitability, which is better than for most of its peers'.
Although we anticipate that the company's profit margin might be negatively
affected by higher-cost operations outside Zambia, this should be balanced by
low-cost copper and nickel projects currently under development in Zambia,
including Sentinel and Enterprise.

Our assessment of FQM's financial risk profile factors in our forecast of
negative free operating cash flow (FOCF) in 2012 and 2013, due to the
company's large capital expenditure (capex) program of about $1.4 billion and
$1.7 billion respectively. This capex program will also gradually increase
FQM's leverage. Still, we think that the company has substantial financial
flexibility to support its expansion-driven capex owing to its currently low
leverage. It reported a net cash position as of June 30, 2012, has a moderate
financial policy track record, including equity-funded acquisitions; and we
qualify its liquidity as "adequate" under our criteria.

The rating factors in our forecast that FQM will generate about $1 billion of
annual EBITDA in 2012-2013, and funds from operations (FFO) of about $0.6
billion each year, based on our following price assumptions:
-- $3.25 per pound (/lb) for copper for the rest of 2012 and $3/lb in
2013;
-- $1,600 per ounce (/oz) for gold in 2012 and $1,200/oz in 2013; and
-- $7.5/lb for nickel for the rest of 2012 and $8/lb in 2013.

Our EBITDA estimate for 2013 reflects increasing volumes of nickel and copper,
while also taking into account lower price assumptions compared with those in
2012 and cost inflation. Although not fully factored into the rating at this
stage, material growth in volumes of copper produced in 2014-2016 is likely in
our view, on the back of FQM's planned capex program, and should fuel profit
growth.

We anticipate that FQM's credit metrics will remain strong in 2012-2013, with
FFO to debt remaining well above the 30% that we see as commensurate with the
current rating.

Liquidity
We consider FQM's liquidity to be "adequate" under our criteria. We forecast
that the company's sources of liquidity will exceed uses of liquidity by more
than 1.2x over the 12 months from the second quarter of 2012.

The main liquidity sources over the 12-month period include:
-- $0.6 billion of surplus cash, after deducting $300 million from the
reported cash balance that we view as tied to operations.
-- $1.3 billion available under the company's existing facilities, mainly
at the operating entities level. This is made up of the $1 billion term and
revolving facilities that mature in five years and the $250 million project
loan that FQM must repay in installments starting from March 2013; and
-- FFO of approximately $0.6 billion.

The $350 million proposed notes could be an additional source of liquidity.

The main liquidity uses over the same period include:
-- $1.4 billion-$1.7 billion of anticipated capex in 2012-2013, which we
believe will result in negative FOCF;
-- Moderate dividend payments representing 10%-15% of total net income;
and
-- A potential working capital-related outflow.

FQM has no major debt maturities in 2012-2013.

In our view, the company has ample headroom under the maintenance covenants
contained in the documentation of the $1 billion senior term and revolving
facilities at its Zambian entity Kansanshi Mining, which are guaranteed by FQM
and some of its subsidiaries.

Recovery analysis
The rating on the proposed $350 million senior unsecured notes to be issued by
the holding company First Quantum Minerals Ltd., with subordinated guarantees
from FQM Australia Nickel Pty Ltd. and FQM Kevitsa Mining Oy is 'B+', in line
with the corporate credit rating on FQM. The rating is supported by the
substantial asset value of the company compared with the modest level of debt
currently outstanding and expected to be drawn under the proposed notes and
existing credit lines. This is despite the weak position of the proposed notes
in the capital structure, given that most of FQM's other debt is contractually
or structurally senior. The recovery under the notes, in the event of default,
will largely rely on the value of the Raventhorpe and Kevitsa after satisfying
the claims of the senior creditors at these entities, and residual equity
claims on the other assets of the company, notably its main 80%-owned Zambian
Kansanshi Mining copper subsidiary.

We believe, however, that the recovery prospects of the proposed notes are
sensitive to the amount of proposed bonds and of future senior and equally
ranking debt. If these were to increase substantially beyond the proposed
bonds and the amount available under already committed credit lines, we would
consider introducing a one-notch difference between the rating on the notes
and the corporate credit rating.

We believe that the following debt instruments will rank senior to the
proposed notes:
-- The $1.0 billion senior secured term and revolving facilities of
Kansanshi Mining;
-- The $250 million project loan and letter of credit secured facilities
of FQM Scandinavia Ltd., the provider of a subordinated guarantee for the
proposed notes;
-- Two facilities totaling $110.0 million at the metal marketing division
Metal Corp Trading (UK) Ltd.;
-- Asset retirement obligations of $177 million;
-- The $15 million Kansanshi Mining facility;
-- The $20 million performance bond facility; and
-- $0.3 billion-$0.4 billion of trade payables and other liabilities,
which we estimate to be at the level of various operating subsidiaries that do
not guarantee the proposed notes.

Outlook
The stable outlook reflects our view that FQM will maintain strong credit
metrics in 2012-2013, as well as robust FFO that partially covers its capex
program. We consider the company's adjusted FFO-to-debt ratio of 30% as
commensurate with the current rating.

We could lower the rating if country risks in Zambia increase. Lower copper
and nickel prices than we currently anticipate, causing the company's
performance to substantially deviate from our current forecasts, could also
trigger rating downside.

Upside potential for the rating may stem from an improvement in our assessment
of the country risks in Zambia, including our T&C assessment for the country.

Related Criteria And Research
-- Key Credit Factors: Methodology And Assumptions On Risks In The Metals
Industry, June 23, 2009
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
Sept. 18, 2012
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008

Ratings List
New Rating

First Quantum Minerals Ltd
Corporate Credit Rating B+/Stable/--
Senior Unsecured B+