UPDATE 2-First Quantum ups Cobre Panama output estimate but start delayed

Tue Jan 28, 2014 8:29am EST

* Expected project cost rises from $6.2 to $6.4 billion
    * Production to start in late 2017
    * Company announces refinancing deal, offers bondholders
swap


    By Sakthi Prasad and Silvia Antonioli
    BANGALORE/LONDON Jan 28 (Reuters) - First Quantum Minerals
Ltd's  Cobre Panama project in Central America
should produce about 20 percent more copper than previously
planned, but initial production will be delayed and development
costs will be higher, the company said on Tuesday. 
    Vancouver-based First Quantum, which bought the huge copper
project in Panama via its C$5.1 billion ($4.8 billion) takeover
of rival Inmet Mining last year, said after a lengthy
review it now expects output of 320,000 tonnes a year, 20
percent more than Inmet had planned.
    It also estimated a higher capital cost for the project at
$6.4 billion, up $200,000 from the Inmet estimate and said
production would start in late 2017, roughly a year later than
Inmet had expected. 
    "The revised scope of the project is broadly in line with
expectations, and higher annual production should be broadly
offset by higher capital expenditure and a one-year delay to
first production," said Jefferies analyst Christopher LaFemina,
in a client note. 
    The miner had promised a revised estimate and project
schedule before the end of 2013. But late last year, it delayed
releasing the update, saying it had to "correct a number of
acquired technical and logistical shortcomings."
    While the overall capital expenditure costs are now slightly
higher than earlier estimates, analysts noted increased output
would lower the project's capital intensity, as measured per
tonne of installed capacity.
    "We believe the enhancement of the project and reduced
capital intensity further improves the project's economics and
see these changes as a positive impact for the company," said
Goldman Sachs analyst Fawzi Hanano, in a client note. 
    The Canadian miner also announced a refinancing package and
a bond swap proposal to Inmet note holders.
    "We see this debt refinancing as an important positive that
should alleviate near-term balance sheet concerns," said
LaFemina, noting it also better aligns debt maturities when the
company's growth projects are scheduled to come online.
    
    REFINANCING EFFORT
    The miner said it has signed a $2.5 billion five-year term
loan and revolving facility with its banks, primarily to support
its capital programme.
    It has also made an exchange offer to holders of Inmet notes
which are currently the subject of litigation.
    Some debtholders alleged last year that First Quantum had
violated indentures and defaulted on a parcel of debt taken on
following its acquisition of Inmet. 
    First Quantum strongly disputed the claims which prompted
credit rating agency Moody's to put the Canadian miner under
review for a potential downgrade. 
    As part of the swap proposal, which needs approval from the
majority of the bondholders, $2 billion in notes issued by Inmet
will be exchanged for two groups of $1.14 billion new First
Quantum bonds which will mature in 2020 and 2021.
    "The announcement is a net positive for the stock," Citi
analysts said. "While there is yet no resolution on the
bondholder litigation it would appear that the group is close to
the required sign up for the bond exchange, which would
effectively remove past claims." 
    First Quantum, which owns mines and projects across South
America, Africa, Europe and Australia, is poised to become one
of the world's largest copper producers over the next five years
as a number of projects including Cobre Panama begin production.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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