This Canadian Copper Giant is Missing Best of Metal’s Surge – by Danielle Bochove and Mark Burton (Bloomberg News – August 11, 2017)

As copper producers from Freeport-McMoRan Inc. to BHP Billiton Ltd. ponder what to do with the windfall from surging prices, First Quantum Minerals Ltd. has no such dilemma.

Unlike most of its peers, First Quantum’s copper sales are fully hedged — at an expected average price of $2.37 a pound for the second half of the year. That means it’s largely watching from the sidelines as the metal surges above $2.90 for the first time in more than two years.

The Vancouver-based company began hedging in 2015 to lock in the value of its output so as to avoid breaching debt covenants while developing a project in Panama. But as copper has risen more than 30 percent in the past year, the trade has proven to be a liability: the company posted a net loss of $35 million in the second quarter as its hedge book lost $97 million. It plans to continue hedging next year, although to a lesser extent.

“FQM is not a strategic long-term hedger of the copper price as we believe really in the positive fundamentals of copper,” Chief Executive Clive Newall told analysts on a July 28 earnings call. “However, this program protects cash flows and covenants as we develop the Cobre Panama project.”

For copper sales in the first half of 2018, First Quantum is only 30 percent hedged and plans to use mechanisms to secure a greater benefit if prices remain strong, Chief Financial Officer Hannes Otto Meyer said during the earnings call.

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