First Quantum tries to strike balance with Chinese shareholder, Ottawa

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Ottawa has been taking steps to prevent Chinese companies from investing in key Canadian sectors, but a prominent Toronto-based miner announced an agreement on Tuesday that it hopes will provide more clarity on its relationship with a Chinese shareholder and strike a “balance” between the companies, shareholders and the government.

China’s Jiangxi Copper Co. Ltd. currently owns about 18.5 per cent of First Quantum Minerals Ltd. As per the announced three-year deal, Jiangxi will need First Quantum’s consent if it wants to acquire more shares or sell a block of more than five per cent. The Chinese company has also agreed to support any “major strategic decisions” of the company.

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“I think we have struck the balance between something that works for our shareholders, something for Jiangxi copper, and something that works for the Canadian and other governments,” Ryan MacWilliam, First Quantum’s chief financial officer, said. “It’s consistent with what the (Canadian) government is trying to achieve.”

He said the agreement provides “clarity and structure” considering the “heightened geopolitical” complexity.

“With this agreement, we can say to the Canadian government, ‘Look, they can’t sell shares to other companies in large blocks without us having visibility on that,’” MacWilliam said.

Jiangxi first made a notable investment in First Quantum in 2019, when restrictions against Chinese investments weren’t as strict. But the situation has since changed as Western countries look to reduce their reliance on China for key raw materials and focus more on trading with friendlier nations.

Earlier this month, the federal government said transactions involving foreign companies looking to buy large Canadian companies that produce critical minerals such as lithium, copper or nickel, which are considered important since they are used to produce batteries for electric vehicles, would only be approved “in the most exceptional” of circumstances.

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In October 2022, the federal government said investments from foreign state-owned companies in Canadian critical minerals could also be considered injurious to national security. A few days later, it ordered three Chinese companies to exit three Canadian lithium firms.

Canada’s mining sector has said the government needs to provide miners with alternate access to investments since it has banned funding from certain sources.

Dean McPherson, head of global mining at TMX Group Ltd., which runs the Toronto Stock Exchange, described the government’s announcement in July as “troubling.”

“If we were concerned before with the first statement a couple of years ago, we are 10 times more concerned now,” he said. “It’s extremely troubling to see this continue.”

McPherson said that issues linked to capital are “at the heart of all this,” so the government needs to come up with programs to replace the money that miners are no longer able to access.

First Quantum received ample support from its Chinese shareholder after it was forced to stop production at a key copper mine in Panama late last year following protests from environmentalists and a Supreme Court order that annulled a mining contract the miner had signed with the country.

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Jiangxi agreed to make a US$500-million prepayment to First Quantum in February in return for the Canadian miner supplying it with 50,000 tonnes of copper annually for three years from its Kansanshi mine in Zambia. First Quantum will also have to pay interest on the prepayment, the company said.

First Quantum swung to a loss of US$46 million in the second quarter, compared to a profit of US$96 million during the same period a year ago, when its biggest mine in Panama was still operating. It reported a net loss of six cents U.S. per share compared to a profit of 13 cents U.S. per share last year.

The company also announced a copper hedging program that chief executive Tristan Pascall said on an earnings call would help maintain its “balance sheet strength during this time of elevated debt” and while the company hunts for a resolution in Panama.

He said First Quantum has had initial discussions with Panama’s new president, and he expects further dialogues regarding the future of the mine.

Panama plans to conduct a “strict environmental audit” of the mine with the help of international experts, said Pascall, a move that First Quantum welcomes.

• Email: nkarim@postmedia.com

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