May 13, 2009 / 1:41 PM / 8 years ago

UPDATE 2-First Quantum profit drops on copper price decline

* EPS drops to 16 cents/shr from $2.68/shr

* Revenue drops on weak copper prices

* Shares fall 9 pct (Adds comments from analysts and company, in U.S. dollars, unless noted)

By Cameron French

TORONTO, May 13 (Reuters) - First Quantum Minerals (FM.TO) said on Wednesday its first-quarter profit plunged a 94 percent, missing analysts’ estimates, as higher copper and gold production was more than offset by a sharp drop in copper prices and a hedging loss.

The company, which is based in Canada but operates in Africa, also warned that tight smelter capacity in Zambia could push copper production costs higher if the company is forced to ship its copper concentrate to smelters further afield.

First Quantum’s shares fell a sharp 9 percent in Toronto trading, hurt by both the weaker profit and a slide in copper prices to a two-week low around $2.01 a pound.

The company earned $10.9 million, or 16 cents a share, in the quarter that ended March 31. That was down from a profit of $182 million, or $2.68 a share, in the year-ago period.

The results were hit by a $32.5 million after-tax loss on copper hedges entered early in the quarter to protect the company against a further drop in the metal. Rather than continuing to fall, copper rallied 30 percent during the first quarter, resulting in the largely non-cash charge.

Stripping out the impact of the hedge, the company earned 63 cents a share, said John Hughes, an analyst at Desjardins Securities in Toronto.

That fell short of the profit of 81 cents a share expected by analysts polled by Reuters Estimates.

Hughes said he was concerned what impact the copper hedges would have on second-quarter results, given that copper prices have risen about 12 percent since the end of the quarter.

REVENUE DROPS ON PRICES.

Quarterly revenue dropped 48 percent to $268.2 million, as realized copper prices fell to $1.56 a pound from $3.51 year-on-year.

Copper production rose 18 percent to 89,440 tonnes, while gold output tripled to 50,425 ounces. Cash costs eased to 97 cents per copper pound from $1.02 a pound a year before.

Costs are expected to average 80 cents a pound during 2009, but First Quantum said the costs could rise due to tight Zambian smelter capacity, which could force it to export its copper concentrate at higher costs.

Speaking on a conference call with analysts, company president Clive Newall said costs could rise by as much as 20 cents a pound on copper it’s forced to ship to other smelters.

Shares of First Quantum, which reiterated its full-year output expectation of 380,000 tonnes of copper and 240,000 ounces of gold, were down C$4.60 at C$44.90.

The company is developing the Kolwezi tailings project in the Democratic Republic of Congo but has been waiting for the country to complete a contract review it started in 2007. The project, which would mine used tailings for copper and cobalt, is expected to start production in the third quarter of 2010.

Newall said the revised contract has been approved by the country’s finance department and is now awaiting ministerial approval.

”(It) appears to be nearing a conclusion... but we are still unclear as to when this process will be complete,’ he said.

First Quantum also mines from Kansanshi in Zambia, from the Guelb Moghrein mine in Mauritania, and the Frontier mine in DRC. It has a minority stake in the Mopani smelter in Zambia.

Reporting by Cameron French; Editing by Frank McGurty

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