ii view: Antofagasta to cut spending in corona crisis

Corona has not yet hit operations for this Chilean copper miner, but shares are falling.

Full-year results to 31 December 2019

• Revenue up 4.9% to $4.96 billion
• Adjusted profit (EBITDA) up 9.5% to $2.44 billion
• Net debt down 5.5% to $563 million
• Total 2019 dividend down 22% to 34.1 cents per share
• Copper production up 6.2% to a record of 770,000 tonnes

Guidance:

• 2020 copper production in the range of 725-755,000 tonnes at a net cash cost of $1.30/lb
• Looking to reduce expected total capital expenditure

Chief executive Iván Arriagada said:

"While Antofagasta emerges from 2019 with a record copper production and safety performance, a strong balance sheet and low cash costs resulting in EBITDA increasing by 9.5% to $2.4 billion, 2020 has begun with an unprecedented global challenge in the form of Covid-19.  

"Looking ahead to the rest of 2020, while we can't predict the shape of the recovery from Covid-19, Antofagasta is in good shape.  

ii round-up:

Chilean copper miner, Antofagasta (LSE:ANTO), outlined plans to cut spending in the face of the coronavirus in these latest results. 

Capital expenditure will now be reined back to within a range of $1.3 to $1.5 billion over 2020, down from a previous estimate of $1.5 billion.

The shares rose by more than 5% in UK afternoon trading following Tuesday's results, countering a 20%-plus fall year-to-date. 

Rivals and more China-demand dependent miners BHP Group (LSE:BHP) and Anglo American (LSE:AAL) have both suffered falls of more than 40% year-to-date. 

Initiatives to buy more equipment locally and defer expenditure on certain projects should aid the cost cutting push.

An expected cut to the dividend also fell below analyst expectations, potentially signalling stronger ongoing long-term management confidence. 

Anto, which operates four mines in Chile, reported higher revenues driven by increased demand for copper and by-product gold, with profit benefiting from both higher sales and lower unit costs. 

Group production had not yet been hit by the coronavirus.

ii view:

The mining industry is tough and often difficult for management to navigate at the best of times. Exploration success, operational issues, staff difficulties, the weather, not to mention trying to second guess the direction of the commodity being extracted, can all impact financial performance. 

For Antofagasta specifically, a highly-focused portfolio of mined commodities adds to the risks when compared with more diverse rivals. Currency movements between commodities priced in US dollars, costs priced in Chilean Pesos and the share price listed on the UK stock market in sterling add further to investor risks and forecasting. 

A prospective dividend yield of around 3%, not guaranteed, and the production of safe haven asset gold - 282,300 ounces produced in 2019 - provide some attraction. However, this needs to be set against copper’s high industrial usage, the current coronavirus hit to demand and potential for the virus to spread in South America, hitting production. 

Positives: 

• Cost and competitiveness programme
• Mining operations not yet hit by the coronavirus

Negatives:

• Reduced copper grades at Centinela mine underlies a lower 2020 production estimate
• Factors outside of management’s control can impact performance

The average rating of stock market analysts:

Hold