Fitch Affirms First Quantum at 'B'; off Rating Watch; Outlook Stable <Origin Href="QuoteRef">FM.TO</Origin>

(The following statement was released by the rating agency)LONDON, July 14 (Fitch) Fitch Ratings has affirmed Canada-based First Quantum Minerals Ltd's (FQM) Long-Term Issuer Default Rating (IDR) and senior unsecured ratings at 'B'. Simultaneously all ratings have been removed from Rating Watch Negative (RWN) and a Stable Outlook has been assigned to the Long-Term IDR. The Recovery Rating applicable to FQM's senior unsecured issues is 'RR4'.The removal of RWN follows the completed sale of FQM's Kevitsa mine for USD712m in cash and the agreement of a new USD1.8bn core banking facility. The ratings were originally placed on RWN in January 2016 pending further information regarding the company's targeted USD1bn asset sales programme and the outcome of covenant negotiations with FQM's bank. The new bank facility includes an extended amortisation schedule and less restrictive covenant levels. KEY RATING DRIVERSCredit Metrics Remain ElevatedFitch expects FQM's FFO adjusted gross leverage to peak at around 7.0x in 2016. This is high for the current ratings and reflects a combination of factors, including the cyclical downturn in copper prices, past delays in the ramp-up of the new Sentinel mine and Kansanshi smelter in Zambia, and ongoing spending on the development of the Cobre Panama mine. However, after 2016 we see a trend of declining leverage metrics, to 5.5x for end-2017 and 4.0x for end-2018. This trend primarily reflects higher absolute EBITDA from the ramp-up of projects completed in the past year (the Kansanshi smelter and Sentinel mine), together with modest copper prices increases.Liquidity Now AdequateOver the three years to end-2018 we project that FQM will have aggregate negative free cash flow (FCF) of around USD1.5bn and scheduled debt repayments of USD886m, which primarily reflect the ongoing development of Cobre Panama (scheduled to commence production by end-2018). Following the recent refinancing we now view the company's liquidity as adequate, reflecting a combination of: (i) reported cash (USD894m as of end-June 2016), (ii) USD592m of committed undrawn facilities (maturing in 2019), (iii) USD628m available to drawn down under the USD1bn precious metals streaming agreement with Franco Nevada Corp, and (iv) approximately USD485m from Korea Panama Mining Corp for its share of development costs for Cobre Panama. Additionally FQM is negotiating a project finance facility of up to USD2.5bn in respect of Cobre Panama, which the company expects to finalise towards end-1H17 (we have not, however, included this facility in our base rating case).Large Project PipelineIn recent years FQM has been working through a large project pipeline, including the construction of the new Kansanshi copper smelter and Sentinel mine in Zambia, as well as the Cobre Panama mine in Panama. FQM management has taken steps to reduce 2016 capex to around USD1bn, largely through the reduction/deferral of USD940m of capex at Cobre Panama. However, we still expect capex to average USD1.2bn per year in 2017 and 2018, resulting in negative FCF over this period. We expect absolute debt levels to peak at around USD6.5bn in 2016 and remain above USD6bn over the period to 2018.Large Zambian Operational ExposureAssets in Zambia contributed over 45% of group revenues and 38% of EBITDA in 2015 and this share is expected by Fitch to increase in the short-term as the Kansanshi smelter and Sentinel mine reach full output. In our opinion, the business environment for miners operating in Zambia has become more uncertain over the past two years. This includes with respect to dealings with the government (enactment of new legislation for the mining sector) as well as some operational considerations (eg. power shortages). Recently, however, FQM has reported that the availability of power supply from Zesco has stabilised. In February 2016 the Outlook on Zambia's Long-Term Foreign Currency IDR of 'B' was revised to Negative from Stable. This action reflected a combination of falling copper revenue and slowing growth which has led to persistent and large fiscal deficits and a doubling of gross general government debt since 2012. Fitch expects GDP growth to slow to around 3.7% in 2016, compared with the 2010-2014 average of 7%, due to weaker copper prices and production and a power supply deficit.KEY ASSUMPTIONSFitch's key assumptions within the rating case for FQM include: -Fitch's copper price assumptions: USD4,800/t in 2016, USD5,200/t in 2017, USD6,000/t in 2018 and USD6,500/t thereafter-Volumes as per management guidance-Total capex (including third party contribution to the Cobre Panama) of approximately USD1bn in 2016 and USD1.2bn in 2017, decreasing to USD1.1bn in 2018 and USD0.8bn in 2019-Additional cash inflows from the ENRC promissory notes, the Franco-Nevada streaming facility and the KPMC contribution as currently plannedRATING SENSITIVITIESPositive: Future developments that may, individually or collectively, lead to positive rating action include:- FFO gross leverage below 4.0x- Return to positive FCF generationNegative: Future developments that may individually or collectively lead to negative rating action include:- FFO gross leverage failing to fall towards 5.0x by 2018-Significant problems or delays at key development projects, delaying the expected improvement in EBITDA generation and credit metrics-Measures taken by the Zambian government materially adversely affecting cash flow generation or the operating environmentContact: Principal AnalystMaria YakushinaAssociate Director+44 20 3530 1315Supervisory AnalystPeter Archbold, CFASenior Director+44 20 3530 1172Fitch Ratings Limited30 North ColonnadeLondon E14 5GNCommittee ChairpersonAlex GriffithsManaging Director+44 20 3530 1033Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.Summary of Financial Statement Adjustments-USD338m prepayment from Franco-Nevada was classified as debt and added to the total debt amount;-USD390m interest bearing shareholder loan from KPMC was reclassified as debt from other non-current liability and added to the total debt amount;-USD120m cash was restricted to maintain the minimum level of operations;-USD93m cash restricted as of end-December 2015 (USD77m as of end-March 2016) to secure the letters of credit issued by the company, reclassified from the long-term assets to the 'restricted cash' balance sheet line.Additional information is available on www.fitchratings.com.For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary.Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1008900Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008900Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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