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Antofagasta's bullish, cautious tone

The Chilean copper miner has entered 2017 in confident spirits, even if net cash costs are expected to rise
March 14, 2017

As is its wont, Antofagasta (ANTO) was at pains to point out its "cautious approach" and "continued commitment to capital discipline" in full year results for 2016. The clearest markers of that trend were the 24 per cent drop in capital expenditure to $795m (£654m) - aided by the completion of the Antucoya project and expansion at Centinela - and a steely focus on mine site spend, which brought operating costs down by 11¢ per pound of copper.

IC TIP: Buy at 788p

Although it is important for any natural resources company to display restraint in word and deed, other actions suggest the Chilean miner is getting bullish about the copper market. First off, the total dividend for the year is equivalent to 53 per cent of underlying net earnings per share and well in excess of the company's commitment to pay out a minimum of 35 per cent. Second, management comments point to optimism that 2016's cash profit margin of 44.9 per cent can be maintained or increased, given expectations of "a steady shift from a market in balance to a slight deficit".

Currently, the biggest support to prices is coming from industrial action, demonstrated by the latest breakdown in talks between BHP Billiton (BLT) and workers at its Escondida plant. That's located in the same state as Antofagasta's Zaldívar project, where wage negotiations are due later this year, so it was positive to hear chief executive Iván Arriagada assure the market of the company's recent track record of working with unions to increase productivity.

Efficiency will be the watchword over the next few years, particularly as a lot of the $140m cost savings expected this year will be eroded by lower grades. Net cash costs - which thanks to higher by-product credits dropped by a fifth to $1.20 per pound of copper last year - are likely to edge up in 2017. That's likely due to an anticipated drop in gold output this year, while group copper production is expected to remain broadly flat.

Based on consensus estimates, market analysts expect pre-tax profit of $1.1bn and adjusted EPS of 44.6¢ this year, rising to $1.19bn and 50.5¢ in 2018.

ANTOFAGASTA (ANTO)

ORD PRICE:788pMARKET VALUE:£7.76bn
TOUCH:787-788p12-MONTH HIGH:905pLOW: 395p
DIVIDEND YIELD:1.9%PE RATIO:79
NET ASSET VALUE:691¢NET DEBT:13%

Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
2012 (restated)6.702.8010521*
20135.972.0866.995.0
20145.151.5242.821.5
20153.230.24-0.53.10
20163.620.2812.118.4
% change+12+17-+494

Ex-div: 27 Apr

Payment: 26 May

£1=$1.21