Fitch Downgrades First Quantum to 'B'; On Watch Negative <Origin Href="QuoteRef">FM.TO</Origin>

(The following statement was released by the rating agency)

LONDON, January 18 (Fitch) Fitch Ratings has downgraded Canada-based First
Quantum Minerals Ltd's (FQM) Issuer Default Rating (IDR) and senior unsecured
rating to 'B' from 'BB-'. The Recovery Rating for its senior unsecured issues is
'RR4'. Simultaneously all ratings have been placed on Rating Watch Negative
(RWN) pending further news regarding the company's USD1bn asset sales programme
and the outcome of current covenant negotiations with its banking group.

The downgrade reflects the material deterioration in FQM's credit metrics caused
by a weaker and more volatile commodity price environment at a time when the
company faces large cash outflows - and consequently negative free cash flow
(FCF) - in respect of its Cobre Panama project. Fitch believes that the
company's current overall credit profile better corresponds to a 'B' category
rating.

KEY RATING DRIVERS

Weakened Credit Metrics

Fitch now expects FQM's gross leverage (total debt/funds from operations (FFO))
to peak at around 10.0x in 2016 before declining to around 7.0x by 2017 due to
higher EBITDA derived from recently completed new projects (the Kansanshi
smelter and Sentinel mine). The sharp increase in leverage compared with our
previous expectations of around 6.0x for 2016 reflects a combination of factors,
including an assumed rebasing of copper prices to around USD4,800 in 2016, and
delays in the ramp-up of the Sentinel mine and Kansanshi smelter in Zambia.

Debt Reduction Needed

As of end-September 2015, the company's total drawn debt amounted to USD5.7bn,
mainly composed of a USD3bn term loan and revolving credit facility (RCF; of
which USD1.4bn was drawn) and USD3.4bn of senior unsecured notes. The covenant
schedule applicable to the RCF facility requires a gradual step-down in the net
debt/EBITDA ratio over the period to maturity in 2018. In May 2015 FQM obtained
a covenant amendment to 7.5x until December 2015, then step down to 5.5x for
1H16 and 4.5x for 2H16 and 1H17.

Under the company's revised production numbers and assuming a USD4,800/t copper
price, we expect FQM to comply with its covenant in 1H16, but to breach it in
2H16 if it fails to reduce debt and/or negotiate a further amendment to covenant
levels in the next few months. FQM announced a debt reduction programme of
USD1bn by 1Q16 through a combination of assets sales and other strategic
initiatives.

Liquidity Dependent on Refinancing

In the medium-term, we project that FQM will face aggregate negative FCF of
around USD4bn and debt service costs of USD1.1bn over 2016-2018. Potential
sources of funds include (i) cash (USD276m as of September 2015), (ii) USD1.7bn
of committed undrawn facilities (mature in 2019), (iii) USD662m drawdown under a
USD1bn precious metals streaming agreement with Franco-Nevada Corp, (iv)
approximately USD600m from Korea Panama Mining Corp for its share of development
costs for Cobre Panama and (v) planned asset disposals of around USD1bn.

The availability of existing undrawn facilities remains subject to compliance or
successful renegotiation of covenants. We additionally estimate that the
completion of the company's current project pipeline will require it to procure
USD2bn of additional funds by 2018.

Large Zambian Operational Exposure

Assets in Zambia contributed over 45% of group revenues and EBITDA in 2015 and
the share is expected 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 increasingly uncertain, particularly with
respect to dealings with the government and the enactment of new legislation for
the mining sector. The failed plan in 2015 to introduce a materially higher rate
of mining royalties highlights this risk.

In 2015, Fitch revised the Outlook on Zambia's Long-term foreign IDR of 'B' to
Stable from Positive. This reflected weak policy coherence and credibility from
the government as well as expectations of moderating growth (expected to have
slowed to 4.9% in 2015 from 6% in 2014) due to weaker copper prices and power
supply deficit.

Large Project Pipeline

FQM has been involved in a large project pipeline including the construction of
a new Kansanshi copper smelter and the Sentinel mine in Zambia, as well as the
Cobre Panama copper mine in Panama. Management has taken steps to reduce 2016
capex to around USD1.2bn, largely through the deferral of USD600m of capex at
Cobre Panama. However, we still expect capex to average USD1.7n in 2017 and
2018, resulting in negative FCF throughout the period. Absolute debt is likely
to peak at over USD7.5bn in 2017 (excluding USD1bn debt reduction in 2016),
materially above our previous expectations.

The new copper smelter was originally planned to start ramp-up in 2H14 but was
delayed to the summer 2015 by logistical issues. The delay resulted in the
stockpiling of copper concentrate at the Kansanshi smelter because of a lack of
alternate smelting capacity. The Sentinel mine was also impacted by the slower
smelter ramp-up, as well as by delays in the construction of power supply.
Construction at Cobre Panama is now around 70%-complete. We do not expect future
progress to be impacted by the capex reductions in 2016 (which result from the
purchase timing for large capital items), but we will continue to monitor this
aspect of the project.

KEY ASSUMPTIONS

- Fitch's copper price assumptions: USD4,800/t in 2016, USD5,200/t in 2017,
USD6,000/t in the long-term

- Volumes as per management guidance

- Capex of approximately USD1.4bn in 2015 and USD1.2bn in 2016, increasing to
USD1.6bn in 2017 and USD1.9bn in 2018

- Additional cash inflows from variously ENRC promissory note, Franco-Nevada
streaming facility and KPMC equity contribution received as currently planned

RATING SENSITIVITIES

Positive: Future developments that may individually or collectively lead to
positive rating action (removal of RWN) include:

-Successful completion of planned asset sales

-Successful renegotiation of existing covenant levels

Negative: Future developments that may individually or collectively lead to
negative rating action include:

-Failure to agree new covenant levels with its banking group and/or to agree new
financing arrangements

-FFO gross leverage not trending towards 5.0x by 2018

-Significant problems or delays at key development projects delaying the
expected improvement in EBITDA generation and improvement in credit metrics

-Measures taken by the Zambian government materially adversely affecting cash
flow generation or the operating environment

Contact:

Principal Analyst

Maria Yakushina

Associate Director

+44 20 3530 1315

Supervisory Analyst

Peter Archbold, CFA

Senior Director

+44 20 3530 1172

Fitch Ratings Limited

30 North Colonnade

London E14 5GN

Committee Chairperson

Alex Griffiths

Managing Director

+44 20 3530 1033

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
peter.fitzpatrick@fitchratings.com.

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=869362

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