Antofagasta unveils special dividend

Shares in Antofagasta were topping the FTSE 100 (UKX) leaderboard on Tuesday, rising 6% after the company announced a special "one-off" dividend of 77.5 US cents (52p) per share.

An ordinary dividend of 21 cents per share was also declared, resulting in a "significant" final dividend for the year of 98.5 cents per share, more than double the 2011 level, and reflecting a payout ratio of 70% of net earnings.

The mining company said it was considering future distributions on a year-by-year basis, but anticipated a return to a 35% payout level from 2013 onwards.

The special dividend was accompanied by better-than-expected 2012 full-year results.

The group's "strong" balance sheet position was led by a "record" year of production, with copper volumes of 709,600 tonnes, a 10.8% increase since 2011. This increase was due to higher production at Esperanza in Chile, which produced 163,200 tonnes of copper, an 81.1% increase compared with 2011. Work was continuing to achieve the original design capacity of 97,000 tonnes per day.

Gold production was 299,900 ounces in 2012 compared with 196,800 ounces in the 2011 full year, reflecting the higher throughput at Esperanza.

Molybdenum production at Los Pelambres, 240 kilometres north-east of Santiago, was 12,200 tonnes in the 2012 full year compared with 9,900 tonnes in 2011, reflecting particularly high molybdenum grades in the year.

A slight increase in production at Esperanza, due to higher average plant throughput levels, was offset by a slight decrease in grades at Los Pelambres. The increase in copper, gold and molybdenum production resulted in a 10.9% increase in revenue to $6.74 billion, despite lower commodity prices.

EBITDA was $3.8 billion, up 4.6% from that generated in 2011 and 11.7% above consensus. Net cash more than doubled to $2.4 billion.

However, profits came in at $1.02 billion, $300 million light of consensus.

Plans for growth

Antofagasta declared a $350 million share write-down of Antucoya based on its 70% interest as it continued with its review of the project, which was once one of its key growth assets.

In the longer term, the company pointed out very large-scale growth opportunities could include potential for stand-alone plants at the Esperanza Sur and Encuentro sulphides deposits, and a major expansion of Los Pelambres.

In 2013, copper production was expected to be approximately 700,000 tonnes, broadly in line with the level of 2012, while gold production was forecast to be 260,000 ounces and molybdenum production was expected at 8,000 tonnes, reflecting an expected decrease in average gold and molybdenum grades.

"2012 was an important year for the group, in which we consolidated the performance of our existing operations, and strengthened our organisation for the future opportunities we face," commented chief executive officer Diego Hernandez.

Analyst view

Analysts at broker FoxDavies stated "These were a good set of results for Antofagasta ahead of guidance and our own estimates."

However, Marc Elliott, analyst at Investec Securities, maintained a 'sell' recommendation on the stock, while its target price of 958p per share was under review.

He welcomed the "surprisingly high cash" and positive dividend surprise," but added: "Unfortunately, this may come at the expense of growth, although we would suggest that the Antucoya write-down was already priced in.

"The company retains a strong balance sheet and does not face financial distress," Elliott explained, "However, we need to see a clearer path to growth to justify a higher valuation and target price.

"While Antofagasta remains a highly leveraged play on copper prices, its current asset base and organic prospects do not warrant a positive investment stance at the current share price, in our view," he concluded.

Mike van Dulken, head of research at Accendo Markets, shared Elliott's view, saying that despite a "top-line beat of expectations", it was "not all rosy though, with high and rising costs pressuring margins and write-downs on troubled projects denting profits".

He concluded the bounce in the share price had reinforced the shares' long-term trend of rising lows below 1,050p, and had opened up the possibility of a return to the levels of "1,200p and above".