February 20, 2015 / 12:32 PM / 3 years ago

UPDATE 3-First Quantum focuses on cost cuts, cash as metal prices weigh

(Adds dividend payment and DRIP plan, 2015 cost outlook, CEO comment on talks with government in Zambia)

By Susan Taylor

Feb 20 (Reuters) - First Quantum Minerals Ltd said on Friday it is renegotiating the terms of some debt agreements and focusing on cutting costs and preserving cash, as sinking metal prices and high royalties in Zambia put certain debt covenants at risk.

The Canadian base metal miner, which reported lower fourth-quarter adjusted earnings and revenue, said it is at risk of tripping a covenant tied to a key debt ratio governing a $3 billion senior debt facility, along with a $350 million facility for its Kansanshi operation in Zambia, and a $100 million equipment finance facility with Caterpillar Financial Services Corp.

Lead bankers for the $3 billion facility have agreed to change the covenant to reflect current circumstances and will recommend the broader lending group do the same, First Quantum said. It did not identify the covenants on its net debt to EBITDA (earnings before income, taxes, depreciation and amortization) ratio.

Other covenants are "robust", it said.

To help preserve cash, the Vancouver-based company said it reduced its year-end dividend to 10 percent of comparative earnings, from 15 percent previously, and plans to establish a dividend reinvestment plan.

Last month, First Quantum forecast 2015 capital expenditure of $1.2 billion to $1.4 billion, down from $2.6 billion in 2014.

The company said fourth-quarter adjusted earnings, which exclude one-time items, fell to $76.9 million, or 13 cents per share, from $133.8 million, or 23 cents, a year earlier.

Net income more than tripled to $453.2 million, reflecting a $382.2 million gain related to the revaluation of Zambian deferred taxes. (bit.ly/1AXKOHn)

Zambia recently scrapped a corporate income tax, but hiked mining royalties. First Quantum Chief Executive Clive Newell said he is encouraged by talks with government officials to resolve royalty and tax issues.

Barrick Gold Corp has already announced it will shut down its costly Lumwana mine in Zambia.

First Quantum said realized copper prices fell 11 percent to $2.91 per pound in the quarter, while copper cash costs rose nearly 10 percent, to $1.35 per pound.

It forecast 2015 cash costs of $1.30 to $1.55 per pound of copper, and $4.80 to $5.30 per pound of nickel.

Three-month copper was trading at a more than five-and-a-half-year low of $5,716.50 per tonne on the London Metal Exchange on Friday.

First Quantum, which primarily mines copper but also produces nickel and gold, said copper production fell 8.4 percent to 105,176 tonnes in the fourth quarter. (With additional reporting by Shubhankar Chakravorty; Editing by Joyjeet Das, Simon Jennings, Paul Simao and Meredith Mazzilli)

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