Barclays-First Quantum Best of both worlds：an equity-like gold stream-20250805

We see the $1bn gold stream as a positive deal; we value it atan IRR of 1.4% @ a LT gold price of $2,500/oz or 4.8% @ spotgold vs. a WACC of ~7.5%. Importantly, the stream will beconsidered non-debt capital, reducing FM's ND/EBITDA ratioby ~0.6x to 3x and also reduces covenant risks into '26.

Overall a positive announcement for FM, with a $1bn upfront cash payment in exchange for~28% of Kansanshi's gold production (based on our LoM estimates) @ 20% of spot gold pricesinitially (35% from 2028, on our estimates). Importantly, the gold stream is unsecured and non-debt capital (deferred revenue won't be considered as debt by lenders), implying that the pro-forma ND/EBITDA leverage ratio at June 2025 will reduce by ~0.6x to 3.0x (including Jiangxi pre-payment balance) - this is not typical for a gold streaming deal. We estimate a deal IRR of 1.4%on our gold price forecast (LT $2,500/oz) or 4.8% using spot. With only ~28% of Kansanshi's goldproduction effectively hedged (@20-35% of spot gold prices), we do not think it is a risk tolonger-term profitability of Kansanshi. Moreover, the company also retains full upsideproduction exposure to the recently identified near-surface gold zone. The deal also reduces riskof a leverage covenant test breach in 2026 unless the spot copper price falls below $4.10/lb vs$4.40/lb excluding the gold stream.