Antofagasta warns on market outlook

Some strain on the distribution was predictable, given that Antofagasta has committed itself to $1bn of capital spending in 2018. The market was also aware of production and cost figures, so too a slightly disappointing aggregate realised sales price of $3 per pound, 14¢ shy of the average London Metal Exchange spot. In the same period in 2017, Antofagasta achieved a 4 per cent premium on the market rate.

A negative price adjustment of $87.5m – reflecting the drop in the red metal between December and June – was also previously flagged, while a $34.6m increase in the first-half depreciation and amortisation charge was small beer. With that in mind, why did investors respond to Mr Arriagada’s operational confidence (and reiteration of full-year guidance) with a 6 per cent markdown in the share price?

For an answer, we turn to the group’s market outlook. Although favourable in the “mid to longer term”, Antofagasta pointed to “considerable market uncertainty with the outcome of current international trade negotiations unclear”. So, while trade war rhetoric is yet to dent demand, positional financial trading and a strong dollar are weighing on prices for now.

At least labour negotiations have proved successful. The same cannot be said for Chile’s (and the world’s) largest copper mine, the BHP Billiton-operated Escondida, where a dispute over pay has raised the prospect of a second strike in as many years. Should government mediation fail here, this may provide Antofagasta (and copper miners everywhere) with some short-term price relief.

On average, analysts expect full-year pre-tax profits of $1.9bn, and adjusted EPS of 80.4¢, rising to $2.2bn and 94.6¢ in 2019.