Antofagasta smashes dividend expectations

The global thirst for copper has sent Antofagasta’s (ANTO) profits soaring, with investors set for a hefty payout. Uncertainty over supply, low stockpiles and growing demand thanks to the energy transition sent copper prices to new highs last year. The price has stayed elevated in recent months as other industrial commodities such as iron ore have fallen off because of the shakiness in the Chinese real estate sector. 

The Chilean miner reported a 2021 cash profit of $4.8bn (£3.53bn), a 77 per cent increase on the year before. Its bottom line took a hit from exceptional items – including the US cancelling mining leases last month – but was still more than double the year before at $3.8bn. 

Chief executive Iván Arriagada said the operational performance had also contributed to the strong financial result. “Our mines and plants performed as planned and we can be proud of our achievements, regardless of the challenges of the year including Covid-19 and continued drought conditions in central Chile,” he said. Copper production was down 1.7 per cent on the year before as water restrictions cut down processing volumes at the Los Pelambres mine. 

Antofagasta will pay a final dividend of 118.9¢ a share for a total payout of 142.5¢, well ahead of the RBC Capital Markets' forecast of 91¢. The difference came from the board deciding to pay out 100 per cent of underlying earnings per share, compared to the 60 per cent in the dividend policy. 

Part of the copper price strength comes from the fact Chile has brought in new taxes and elected a young left-wing president in Gabriel Boric, and had also committed to replacing the Pinochet-era constitution. 

“The investment climate in Chile remains uncertain and with both higher taxes and potential for more onerous impacts from the constitutional reform progress still key risk,” said RBC analyst Tyler Broda. 

Arriagada said the company would focus on “key brownfield developments and incremental growth within [the] asset portfolio”, as opposed to buying new mines. The completion of a desalination plant at Los Pelambres later in the year should remove the water issues that constrained production last year. 

There is some expansion uncertainty: Antofagasta has pulled cost guidance for the Los Pelambres expansion – previously $1.7bn – but is expected to have another forecast for the nearly-complete project alongside its first-quarter production numbers in April. The higher cost will likely still be within the 2022 capex forecast of $1.7bn-$1.9bn, according to RBC. 

Looking to the rest of 2022, Antofagasta said the copper price would likely come down later in the year as new supply comes online. Liberum analysts see an average copper price for the year of $7,800 a tonne, compared with the current spot price of just under $10,000 a tonne. 

Due to this softer price to come, Peel Hunt forecasts a drop in cash profit for 2022 of 17 per cent, to $4bn, although it noted that a repeat of 2021 would be easily achievable if copper and gold prices stick at current levels. Even if copper prices drop, Antofagasta has the cost base and assets to keep producing cash. Buy.

Last IC View: Buy, 1,396p, 19 Aug 2021