DB-First Quantum $1bn gold stream to further bolster the balance sheet-20250805

$1bn gold streaming transaction

This morning, FM announced that it has entered into a gold streaming agreementwith Royal Gold. FM will receive an upfront cash payment of $1.0bn in exchange forgold deliveries from the Kansanshi Mine in Zambia. This deal provides a form oflong-term, unsecured financing that will not be classified as debt on the balancesheet. Proceeds will be used for the payment of capex, working capital and bankloan repayments and covers the company's debt maturities through 2025/26 (Fig3). At the end of Q125, net debt stood at $5.5bn. Following the closure of CobrePanama in 2023, FM has been focused on strengthening the balance sheet andimproving liquidity, and had been considering both streaming transactions and aminority stake sale in the Zambian assets. In our view, the company has chosen astreaming deal due to a more competitive cost of financing, capitalising on thestrong gold price. This transaction also enables the company to maintain its existingcopper production and to reduce the level of stream rate once certain leveragetargets are achieved. We are Buy rated on FM: while there is still significantuncertainty over if, when and how Cobre Panama restarts, we see attractive risk-reward at current levels.

Summary of Agreement Terms

Based on production guidance for 2026/27, ~84% of the company’s goldproduction will continue to have exposure to spot gold prices. ~25% of Kansanshi'sgold production will be streamed, lifting unit costs by 9-10c. FM will receive anupfront cash payment of $1.0bn on August 6 and will deliver to Royal Gold ouncesof gold commensurate with copper production at Kansanshi on the followingstepdown terms: 75 ounces of gold per million pounds of copper produced until 425koz of gold are delivered; 55 ounces of gold per million pounds of copper produceduntil an additional 225 koz ounces of gold are delivered; and 45 ounces of gold permillion pounds of copper produced thereafter. FM will receive ongoing productionpayments from Royal Gold equivalent to 20% of the prevailing spot gold price foreach ounce of gold delivered, increasing to 35% of the spot gold price when FMachieves the earlier of: (i) BB debt rating from Fitch or S&P; or (ii) Net leverage ratioof <2.25x over any 3 consecutive quarters commencing Q126. Once FM achieveseither of these debt targets, the company has the option to reduce the stream rateby up to 20% at a value of up to $200m and a further option to reduce the streamrate by up to a further 10% at a value of $100m once further improvements in thecompany's debt metrics are achieved.