Barrick, Jiangxi said to be circling First Quantum Minerals

First Quantum's Kansanshi mine in Zambia

BARRICK Gold sounded out shareholders in First Quantum Minerals about a possible takeover of the copper producer after it ran into balance sheet difficulties last year amid a dispute with Panama.

Barrick Gold CEO Mark Bristow had asked First Quantum’s backers whether they would support his firm’s bid, said Bloomberg News citing people familiar with the situation. It was unclear if an offer would be forthcoming from the Canadian gold producer, said Bloomberg.

Bristow is thought to have expressed an interest in a deal with First Quantum last year in an effort to build his company’s copper production. On this occasion, however First Quantum is keen to shore up its balance sheet.

The Panamanian government ordered the closure of Cobré Panama last year after a court found its mining licence contravened 25 articles of its constitution. First Quantum had put $10bn into developing the 350,000 ton a year mine.

First Quantum’s biggest shareholder is the Capital Group with 22%. China’s Jiangxi Copper owns 18%, and is among those that have been approached by Barrick, Bloomberg reported. Jiangxi Copper is also discussing the possible purchase of a stake in First Quantum’s Zambian mines, according to a report by Reuters.

Details are yet to be finalised and it was not clear whether the latest talks would lead to a transaction, the person familiar with the proposed transaction told Reuters.

In Zambia, First Quantum wholly owns the Sentinel mine and 80% of the Kansanshi mine, with the rest owned by the Zambian government. Jiangxi, First Quantum’s top shareholder, could end up buying one of the two mines or a stake in one of them, Reuters said.

“The Chinese want the Zambian mines … so the company (First Quantum) could sell one of the Zambian mines,” the source said.

A First Quantum spokesperson declined to comment on the talks and said the company will provide an update later this month on the company’s plan to meet its debt obligations. First Quantum has debt of $1.05bn which comes up for maturity in early 2025.

The two Zambian mines together generated $943m in revenue in the quarter ending September 2023 and $210m in operating profit. Based on the earnings, the Zambian assets could be valued around $6bn, analysts estimate.

First Quantum and Jiangxi held similar talks over the Zambian mines in 2019. Those discussions ended up with Jiangxi picking up a significant minority stake in the company instead of stakes in the mines, said Reuters.

The two parties have a standstill agreement which prevents the Chinese company from raising its stake beyond 20%.

In December, Fitch warned that if the Cobré Panama mine were permanently shut, First Quantum’s net debt leverage ratio in 2024 would increase to more than five times earnings before interest, tax, depreciation and amortization, which could result in a covenant breach, said Reuters.

Net debt leverage ratio is a measure used to assess a company’s borrowing capacity. “If unresolved, the covenant breach may trigger an event of default across all its debt instruments,” the rating firm said.