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Monday, June 1, 2020

Moody’s downgrades First Quantum Minerals’ credit rating,may have difficulties repaying its $6 billion debt

Headlines Moody's downgrades First Quantum Minerals’ credit rating,may have difficulties repaying its $6...


Moody’s Investors Service has downgraded by one notch the corporate family rating and the probability of default rating of First Quantum Minerals Ltd to B1 and B1-PD, respectively.

Moody’s has also rated the company’s outlook to negative.

The downgrade reflects the company’s weakened financial profile, characterized by deteriorating credit metrics towards levels no longer commensurate with the previous Ba3 rating, and a liquidity profile that remains adequate only assuming full support from lenders.

Moody’s however expects lenders to be supportive of the company’s request to amend its financial leverage covenant before a potential breach at the next testing date.

The downgrade assumes that the company’s financial debt, after peaking at approximately $6 billion in 2014, will likely remain at least at a similar level or even increase over the next 18 to 24 months.

It however notes that the company remains committed to execute an important multi-year expansion plan, requiring a large amount of capital expenditure.

The further deterioration of key credit metrics in 2015, from the already weak levels of 2014, is driven by the combined effect of a number of negative developments including material negative development in the application in Zambia from January 2015 of a new royalty-based tax regime, which will directly affect operations costs as higher royalties are classified among cost of sales.

Moody’s expects that management will not sufficiently mitigate such adverse developments, despite actions being taken to reduce costs and moderate capital expenditure.

It says the large new Sentinel copper mine and the new smelter in
Zambia will add scale, support operating profitability and provide additional operating cash flows to fund the still high capital expenditure planned for 2016 and 2017 potentially up to $2 billion per annum in order to complete the large Cobre Panama project, which will keep free cash flows negative until project completion.

The negative outlook reflects the risk that FQM’s credit metrics may deteriorate more sharply than anticipated in the next 12 months, towards levels not commensurate with the current rating, or that deleveraging may occur much later than currently anticipated by the rating agency.

The negative outlook also takes into account a range of potential risks, such as serious liquidity issues in the unlikely event that FQM’s lenders do not support the company in its covenant amendment process and a worsening of operating conditions for the mining industry, in general or more specifically in Zambia.

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  1. President Lungu must voluntarily resign on national interest.

    The sick drunkard has failed to run the country. Our kwacha is falling everyday.

    What a failure of a man he is!

    • The truth and the only reality is that in Zambia, we dont have a president. Edgar Lungu is an impotent President.

    • This Kaponya of a president is bringing all of us down. Zambian organizations and individuals we need to impeach this incompetent president. We cannot continue to live in such economic conditions. We did it before when all worked together to get FTJ from seeking a third term, we can do it again. As for the army and police, you are also suffering the way we are some of you even worse, I would urge you not to stop anyone. We need a better Zambia. Enough is enough.

    • ECL is just ok.

      ontrol your frustration and enjoy your long weekend u silly bloggers…


  2. I call upon all Zambians across the country and abroad to match peacefully and demand the immediate resignation of the Failure and Impotent Teachers.

    The Kwacha is losing value every day, while Lungu keeps trotting around the world.


  3. When we voted for Edgar, we knew that we were not voting for a magician but a political leader. If we wanted a magician to perform magic in his first two months in office we would have voted for HH, Milupi or similar magicians. But we knew that magicians entertain the public by performing unreal things on stage, they do not run countries.

  4. Bunch of dull literates dull of pain and hate for the president. They can’t even understand the meaning of the article but rush to post their bitter hearts all because of a mason who lost the elections.

  5. They borrow to invest in our country like you use your credit card and the docile natives think they are very rich investors in turn they squeeze us so they can pay as little as possible in Zambia and maximize profits of copper sales on the market via transfer pricing schemes and keep the banks and shareholders happy…meanwhile they tell us copper mining is very unprofitable. If only our so called rich Zambians knew how to play this game and build wealth.

    • Rich Zambians like who?
      GBM and the like?
      or better still, Coton and the like,’ who claim to be zambians’?
      or rich politicians like HH?
      NO MY MAN…
      The onus is on you and me who are ‘poor’ but can arrest this idiocy… ( for lack of words)

    • Really laughable… when I see our so called rich Zambians pausing in front of their newly purchased trucks when foreigners are making a million times in profit in their own backyard from money that isn’t theirs but borrowed by making the money work for them. In fact the hire the selfsame truckers to transport the copper to port.

    • YUou know what? FQM can take itself, it’s Lenders and bog off out of Zambia. If Moody’s was serious, they could just tell us why adjusting their expectations in ‘no taxes’ will improve the Mining prospects!

      We are not 15th century Africans, we will not welcome ‘Bible in one hand, and a Gun in the other,’ from colonialists.

      Oh, …..thEY Can take IMF with them

  6. Getting back to the story we were vilified when we warned that the new mining taxes would have far reaching consequences on the country and the mining companies affected. People who don’t understand that large businesses are financed long term by lenders were most vocal. I hope this is now clear to Chief Mphande, Pamela Chisanga, Father Luonde etc under cover of Mmembe that revenues are not the same profits, for these guys think in terms of running a salon or a bar. Mmembe showed his ineptitude at running big business by his trial and failure at Zambian Airways resulting in DBZ K14million rebased. And yet educated economists snd NGOs still agree to be misled by the Past news as long as their names appear on the front page of the useless paper.
    Edgar is now correcting this huge error.

  7. And no sooner has Edgar started correcting this and other errors of his predecedsors than the likes of Milupi (yes Milupi the educated Engineet) start singing Mmembe’s tune so that Edgar fails. And all this for the benefit of one man’s ego to control Predidents, without regard for the people of Zambia.
    I must also mention the shameless un-electable red lips of the Rainbow, who is today standing on an ant hill denouncing the very policies that he helped formulate in PF. Surely ba Kabimba kuti mwakwatako insoni, temu PF mwafumine nombaline apa? Your policies are now working baba, negatively and big time and you are pointing fingers at others atase. And you are dreaming of ruling Zambia, a Kabimba sure, ahede!!

  8. @dull commentator

    If only you knew how the military and police are well looked after you wouldn’t have attempted to involve them in you stupd comment. Your bitterness will lead you to depression and eventually death. Its too early to condemn Lungu who is only lead than 3 months in office and trying hard to control the wrongs kabimba and cartail left. Lungu will champion all these soon and that will mark the begging of the end of Upnd and sympathizers.

    • @sponge, your uneducated comments are always misplaced. The budget deficit Zambia is enjoying today is largely due to stup!d and unaffordable salaries. How can any one with brains increase govt salaries by 200%? It is madness. This economy cannot afford that. Even lungu will develop diarrhea over this. Anyway ifintu Ni lungu as u say. Ifintu cud mean anything

  9. so they will take $2 billion out of Zambia to fund a project in panama? I’d rather the Change in royalty taxes had not been reversed. Zambia would have benefited more. These guys will probably rip zambia apart and move on to Panama. We should diversify and make changes to mineral royalties without fear of the economy falling into an abyss. Chikwanda was right but we never stood on solid ground unfortunately

  10. They’re all same crooks trying to blind Zambians that they’re making losses. Zambians are alert and what belong to them shall benefit Zambians.

  11. The truth to the matter is that “the social corprate responsibility of any business is to make PROFITS” that said, FQM will need to make profits to pay down its debt, now in business, you make profits by :
    1. Lowering your taxes
    2. Lowering your labour costs
    3. Increasing productivity
    4. Of course become more profitable.

    a company like FQM and indeed all mining companies can only control #2 and #3(to some extent #4). #1 is determined primarily by GRZ, and #4 is determined by commodity traders who will set the market price of your mined commodity. in this case Copper.

    Therefore to stand here and insult people is both illogical and foolish. i implore every zambia to watch the price of copper daily, read all mine related articles, because believe it or not 80% of our ecomomy…

  12. Look At The Rating Analytics In Moody’s In A Positive Way Both The Qualitative And Unqualitative Ones
    It’s Not Like It’s The End Of The world for FQM Look at the forward looking statements in the Moody’s report and the real options in First Quantum Mining both for the existing investors and any potential investor with sufficient capital to recapitalise and buy off the debt structure in First Quantum if it can come to that Look At The Forward Looking Comments In The Down Grade Report And See

    If you look at the “’ Premier Private Firm Probability of Default Model “’ Moody’s has used here you will observe that there is light at the end of the tunnel for the mine and any…

  13. investor who would be willing to venture and restructure the capital structure of First Quantum Mining
    Pay particular attention to the parties to whom the down grade is addressed and see the life in the mine after those decisions
    The Moody’s rating is good but the ministry of mines must now get involved to ensure the capital structure of these firms is most efficiently procured to ensure effective investments in the mining without tying resources to “’the cost of capital”’

    The Moody’s rating is welcome and good to read and follow but not the end in itself There are options in the mining sector in Capital and management

  14. @sponge bob

    U talk as if the Military and police are untouchables. These institutions are the worst in Zambia.The recruitments are the most corrupt and are infeasted with the worst caliber of personnel , illitrates, grade sevens, grade twelve faliures etc. Your are just a misallocation of public resources, which is disclocating society and the economy .

  15. The forward looking probability of default in financials and equity to debt helps you to see the risks in lumwana-Credit Risk, the focus which one needs to work at and ensure that its overcome making a difference between nonsystematic and systematic risks in those capital structure decisions
    The royalty decision is only one of the normal business decisions that should have gone in the planning scenario for the mines
    All in all its a good report by Moody’s and remember “’debt is an after tax cost of capital “’, so know where to benefit for debt investing firms as they invest in mining resources before scalping ‘’

  16. The failing economic activities by PF is checking Zambians to vote for a more serious team to manage the country. PF’s employment of RB will not improve the situation. Total change is needed to inject new ideas of complexity, innovative and creative smart governance of the nation. Complex management concept is impossible without change with the current leadership of Zambia. The perceived inability to change in complex management is recipe to die off (failure). Zambia at the moment is slowly dying. PF government hasn’t got any strategic economic plan on paper as well as on the ground.

  17. This demonstrates that mining is expensive business. We failed to run ZCCM. Don’t listen to pipo like Dr mphande who know nothing about real mining. This is business for big boys. More the reason why royalty tax is misplaced. Chikwanda simply wanted an easy way out of his inefficient mgt of the economy

  18. ….I can’t wait to hear what the govt spokesperson Kambwili has to say about this……

    …ofcourse Moody’s and FQM drink coffee together at some backyard….all this is a ploy to arm twist the govt to back down on the new tax measures…..

  19. Where on the ranking level is FQM on the hierarchy of income contributors to our already bankrupt government? I am willing to bet that thier is a correlation between FQM rating and that of our government. So any time manje manje now Zambias rating will be revisited. Lol

  20. E.l the best president ever will put an end to all your misery.we hav a genius 4 a president so dont worry

  21. Forgive my fellow bantustans. Cow fart inhalation with cow dung smoking do not make us understand issues easily. We have no capacity to read and analyze any post. Anything negative posted is caused by government. I feel sorry for my my people.

  22. If FQM borrowed US$6 billion and invested part of that money in Zambia to build the smelters and other mine related activities, what it means for Zambia is that FQM must make more than US dollars 6 billion from our natural resources to pay back the foreign debt plus have surplus cash maybe more than Usd 6 billion to take out of this country as profits and dividends. The question for Zambians especially our current president Lungu Edgar is how much will government get in form of mining tax revenue from FQM over this period of the debt?

    An investor does not come to develop the country but to make positive returns on their borrowings. ECL should understand why these guys are trying to avoid paying any taxes. Zambia stands to lose out as FX will be going out while servicing those debts.

  23. You need to define the capital structure in these mines and ensure ZCCMIH or the ministry set minimum adequacy
    There has to be refining of laws and regulation that in capital structure giving these mines balancing equity and contracting debt efficiently without tying the operational effectiveness of our mines and with little revenues over that repayment.There must be an approval of those indentures by mining authorities toe ensure the debt is in proportion to the operational effectiveness of the mines Investing a larger proportion of the equity by developer is a sign of a true well meaning investor here for long-term Its like borrowing with copper fields as an underlying-“…

  24. Please do your research before you make judgments. This company has taken advantage of nations especially in developing countries. I can do a full article on them. They have been reporting low gains since they went into business in these countries but instead were making billions and killing it. It’s now that their stock has been going down because of oil and gold prices is when they are in trouble. Stakeholders are not happy because they are not making what they were making and the reason for this strategy. They are greedy and think nothing for people in developing nations except their pockets. Do your research you will find their stocks have dropped. They are duping Zambians because Edgar Lungu obviously hired professionals right? We never learn do we its like Cecil Rhodes altogether.

  25. Do not chase anyone but rather

    Promoting an ethical investments climate is important in mining decisions

    No one should be chased, only advise Zambian mining sectors to have some robust hedging strategy ,some sensitivity in sales and costs

    When you invest in the mines expansion projects with a thought that prices of those commodities will remain or rise above your average when production of your copper or gold starts, the downward side could also be true making the project loss making or less profitable

    why not hedge those risks by selling copper or gold forward and being paid the “‘scenario forecast prices “‘ taking sensitivity in mining tax and royalty decisons

  26. Its for lenders of that quality also to ensure that they also anticipate and insure There are Credit Default Swaps in markets the lenders trade in

    They can easily trade in the likelihood in the default USING CREDIT DEFAULTY SWAPS especially that its not for the entire 6 Billion Dollars but some portion that will fall
    I am sure moody might have also seen the potential in the risk strategies available in Forwards on prices of copper and Credit default swaps on actual defaulting
    A creditor of such an exposure will not overlook some fore back of some sought in the FQM and invest in Credit Default Swaps to ensure business continues without closing which is in the interest for…

  27. This rubbish its worst…who does moody think Zambians are? Even a grade 1 can tell that this Moody has connived with First Quartum so that the GRZ remove the Royalty Tax…. please spare us from this stuppiddity guys. We have come to know you guys that you are one and the same. On one hand you are moody and on the other First quartum. Shame on you.

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