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Jiangxi-backed Pangaea Investment ups First Quantum stake to 10.8% for C$59.3M

Jiangxi Copper Co. Ltd.-backed Pangaea Investment Ltd. said it acquired 6 million shares of First Quantum Minerals Ltd. for C$59.3 million to bring its stake in the company to 10.8%, or 68,638,998 shares, as well as an option to buy a further 5.8% interest in the growing copper miner.

The move comes after First Quantum confirmed in September that it was in talks with Jiangxi, a Chinese copper producer, over the possible sale of a minority stake in First Quantum's Zambian assets. At the time, Reuters reported Jiangxi had acquired a near 10% stake in the First Quantum.

Pangaea's increased share position also comes as First Quantum ramps up its US$6.7 billion Cobre Panama mine, which analysts view as a leading M&A target.

The mine in Panama stands as one of the larger copper developments of recent years, with First Quantum expecting 2020 production of between 270,000 and 300,000 tonnes of copper. Output is forecast to rise to 350,000 tonnes in 2022, with all-in sustaining costs of US$1.50/lb of copper that year.

Paradigm Capital analyst David Davidson said it was hard to gauge whether Pangaea's move was a precursor to a full-scale bid for First Quantum, which started producing copper at Cobre Panama this year.

"With the potential to go to almost 17% the move is clearly hostile," Davidson said in an email. "Now the pressure is on First Quantum."

Pangaea's share acquisition may push First Quantum to consider doing a deal with Jiangxi over the Zambian assets, while restricting Pangaea's shareholding, Davidson continued.

Analyst John Tumazos, of eponymous Very Independent Research and also a First Quantum shareholder, said he doubted First Quantum management and directors would be keen to sell soon, or close to current share prices, given it is on the cusp of reaping cash flows from Cobre Panama.

"The copper market is so depressed at the moment, cyclical stocks are so depressed at the moment, and the cash flow from Cobre Panama should be so large, that a hostile bidder would have to pay two times the stock price," Tumazos said.

In light of the Jiangxi talks and Cobre Panama's ramp-up, it is not clear how First Quantum will respond to Pangaea's push to snap up a substantial shareholding. A spokesperson could not immediately be reached for comment.

As of press time, First Quantum's share price had jumped about 11.3% to C$11.10.