Antofagasta looks to second-half boost

Copper giant Antofagasta (ANTO) is relying on a strong finish to the year as significant projects contribute to output and boost productivity. The Chilean company is in a downswing from record profits in 2021, which were driven by the copper price climbing to over $10,000 (£7,384) a tonne. 

The copper price, while strong compared with a few years ago, has dipped because of China’s industrial weakness. Costs have also climbed for miners. 

Antofagasta reported cash profits for the first half 6 per cent below consensus, at $1.3bn (£1bn). This was 7.5 per cent ahead of last year but 45 per cent down on 2021. 

The surprise for the half was the net debt figure of $821mn – RBC had forecast a net cash position, consensus agreed on net debt of $521mn. The company revealed that this was down to the timing of the payment of the final 2022 dividend.  

Antofagasta will pay out a half-year dividend of 11.7¢, up from 9.2¢ last year. Peel Hunt forecasts a 40 per cent total dividend increase for the year, to 100¢ a share. The payout policy is 35 per cent underlying net earnings. 

There was some expectation of a special dividend as well alongside the half-year results, but this would have sat awkwardly with the production guidance cut and continued focus on managing costs. The Chilean government also continues to focus heavily on mining profit levels, and Antofagasta is in the midst of asking for new mining and water extraction permits for its Zaldívar operation. 

Earlier in the year management cut full-year production guidance from 670,000-710,000 tonnes to 640,000-670,000 tonnes, and has kept to this lower range. 

The drop came because of the continuing drought and delay to the full commissioning of a desalination plant that will feed in to the Los Pelambres mine. As the plant ramps up, it will contribute to higher production, the company said. The other major capital project is the expanded concentrator plant at the same mine, which will be commissioned in the second half. 

Forecasts are for earnings to strengthen again next year on the back of better production and strong copper prices, and the company is keen to point out the looming supply gap for the red metal which could lead to shortages later in the decade. 

Peel Hunt and RBC Capital Markets analysts say this potential is priced in, especially as, in the words of RBC’s Tyler Broda, the shares are in an “increasingly exposed position [to] growing economic concerns”. We would certainly not sell the company but now is not the time to buy more. Move to hold. 

Last IC View: Buy, 1,714p, 21 Feb 2023