JPM-First Quantum Minerals Ltd $1bn gold stream with Royal Gold reduces...-20250805

Our Take - equates to ~35-40% of Kansanshi’s gold production: This morning,First Quantum (Neutral) announced (link) that it has entered into a gold streamingagreement with Royal Gold (Not Covered). FQM will receive $1.0bn upfront cashin exchange for gold deliveries ratioed to copper production from its KansanshiMine in Zambia. We estimate FQM has streamed ~25% of Kanshanshi’s goldproduction in 2026/27 and ~37% in 2028/29 and the agreement continues for theduration of Kansanshi’s production. We see this as a positive action for FQM’sshare price; 84% of Group gold production retains full exposure to the spot goldprice and we estimate the stream reduces ND/EBITDA to ~2.5x (~$4.5bn net debt),thus materially enhancing FQM’s credit and equity risk premia. We are Neutralrated.

•Gold streaming agreement: FQM will receive $1.0bn cash in return for:delivery of 75oz of gold per 1 million pounds of copper (454 tonnes) until425koz gold delivered. Thereafter, this steps down to 55oz of gold per 1 millionpounds of copper until 225koz of gold are delivered. Thereafter, 45oz of goldper million pounds of copper dor the duration of Kansanshi’s production. Weestimate this equates to 32koz of gold delivered to Royal Gold in 2026, 37kozin each of 2027-29, under our production forecasts at Kansanshi. We estimatethat the 75oz ratio will apply until ~2038, when we forecast Kansanshi’s totalgold production deliveries will exceed 425koz.

•Noteworth Areas: 1) in addition, FQM will receive payments equivalent to20% of the spot gold price, increasing to 35% of the spot gold price when FQMachieves a BB unsecured debt rating or ND/EBITDA <2.25x for 3 consecutivequarters, starting from Mar’26; 2) FQM will maintain full exposure to copperproduction at Kansanshi. 84% of FQM’s Group gold production will retain fullexposure to the spot gold price. 3) The upfront cash payment will be utilizedfor capital expenditure, general working capital, and bank loan repayment. Weexpect the transaction will significantly reduce the company's ND/EBITDAratio to ~2.5x.