Mixed views on giant First Quantum financing

A January 2012 handout photo of First Quantum Minerals' Kansanshi copper mine, in Zambia.

First Quantum Minerals Ltd. unveiled a blockbuster $1.25-billion stock offering Wednesday night, easily the largest equity offer the Canadian mining space this year. The Vancouver-based company didn\’t need to raise that much money, therefore the deal raises a clear question: Is it worth diluting shareholders so much?

The offering, which is priced at $16.25 a share, will raise the share count by almost 13 per cent. First Quantum wants to pay down debt and accelerate the introduction of its pipeline of copper projects while the market is slow.

Those are generally reasonable goals, but BMO Capital Markets analyst Sasha Bukacheva said the offer raises questions regarding the health of the company’s key Zambian projects: the Sentinel mine and Kansanshi smelter.

“Sourcing external funding suggests there could be more risks within the smelter and Sentinel ramp-up or current operations at Kansanshi than previously envisaged by the company,” she said in a note.

Dundee Capital Markets analyst David Charles would be a little more optimistic. He said he is going for a “leap of faith” the Zambian operations will deliver in the second half of 2015. He is also pleased the equity offering will enhance the balance sheet, which has been deteriorating because the company plows capital into the Cobre Panama project and faces higher taxes in Zambia.

Charles also said the offering gives First Quantum a greater bargaining position with Franco-Nevada Corp., that has the right to buy precious metals output from Cobre Panama, reducing First Quantum’s future returns in the project.

First Quantum could raise as much as $1.44 billion from the equity offering when the underwriters exercise the entire over-allotment option.