Antofagasta slashes dividend as earnings tumble

Following up a golden year is never easy. Copper miner Antofagasta (ANTO) has a near $1bn (£830mn) exceptional gain to add to its reported profits for the 2022 financial year, but underlying numbers have seen a significant slide on 2021, when copper prices were high and costs low. 

For the year ending 31 December, the company saw its underlying cash profit fall almost 40 per cent to $2.9bn (£2.4bn) as copper prices came down from 2021 highs and production of copper, gold and molybdenum fell. Net costs also climbed a third on the year before, to $1.61 per pound of copper. Guidance for this year is slightly higher again, at $1.65 per pound, although chief executive Iván Arriagada said input prices were already coming down. 

Antofagasta has cut its dividend by half, sticking to its policy of handing back 100 per cent of underlying profits per share. The final payout of 50.5¢ compares with 118.9¢ a year ago. 

Overall production was down 10 per cent to 646,000 tonnes, contributing to almost $1bn of the $1.9bn cash profit fall. The lower prices were responsible for a $644mn reduction in earnings, and mining costs covered the rest of the decline. 

Production will not immediately spring back to its 2021 level – guidance for this year is 670,000-710,000 tonnes, compared with 721,000 tonnes in 2021. Antofagasta’s significant capital spending in recent years will start to bear fruit, however. “We see growth coming in the short term and the longer term,” Arriagada said. RBC Capital Markets forecasts a return to previous levels next year.  

The $945mn one-off gain is for its stake in a Pakistan copper mine that has spent years in development hell. An arbitration panel awarded Antofagasta and its joint venture partner Barrick Gold (US:ABX) $5.8bn in 2019 because Pakistan’s government denied them a mining lease in 2011, but Barrick has held on to its stake (in return for giving up the potential payment), and will develop the mine in partnership with a state body. 

Arriagada said the board would consider what to do with the cash once it arrives. 

The company is now at the end of a major capex programme, in which it built a desalination plant for the Los Pelambres mine, as well as added processing capacity. But spending is expected to remain around this elevated level for some time. The company forecast $1.9bn in capex for this year, while consensus forecasts put 2024 capital spending at $2.2bn. 

The signs are pointing to a stronger copper market this year than initially forecast, given the supply disruptions in Chile and elsewhere. Antofagasta is well placed to capitalise on this, even if the recent share price run means it is one of the most expensive miners at a valuation of 29 times forward earnings. Buy. 

Last IC View: Buy, 1,394p, 17 Nov 2022