Interactive Investor

ii view: Antofagasta production drops but stays confident

25th April 2022 11:36

Keith Bowman from interactive investor

A major move to reduce dependence on the weather and a forecast dividend yield of around 5%. We assess prospects. 

First-quarter production update

  • Copper production down 24.2% from first quarter 2021
  • Copper production down 22.4% from the previous quarter

Guidance:

  • Copper production for the full year is expected to be 660,000 and 690,000 tonnes, unchanged from its previous estimate

ii round-up:

Tracing its history back to the Bolivia Railway company in 1888, Antofagasta (LSE:ANTO) today is a major Chilean copper miner. 

It owns major stakes in and operates four copper mines. Los Pelambres and Centinela are its two largest. Both are being further expanded. Antucoya and Zaldivar are smaller. 

Significant volumes of gold and molybdenum are produced as by-products. 

The miner also operates a transport division providing rail and road cargo services in Northern Chile, mainly to mining customers and including its own operations. 

For a round-up of this latest update, please click here

ii view:

Miner Antofagasta employs over 6,000 people across its operations. In late 2021, management detailed a number of environment goals. These included using only renewable energy sources to power its operations by the end of 2022. It is also adjusting its operations so that 90% of all water used in production comes from either seawater or recirculated water by 2025. Clean water is a key ingredient in the production of copper, and a lack of rainfall continues to impact production levels. 

For investors, a recovery in the copper price from the lows of the pandemic has helped profits to recover. Pre-tax profit for the full-year 2021 more than doubled to $3.47 billion. A plan to increase copper production by 2026 via operational expansions was previously outlined, while the shares currently sit on an estimated future dividend yield of close to over 5%. Not bad in the current ultra-low interest rate environment.  

But production for now remains reliant on rainfall, while work to complete a seawater desalination plant remains ongoing and is expected to complete in the second half. Covid related construction delays and business costs more generally are forcing up costs, while forecast dividend payments at rivals such as Rio Tinto (LSE:RIO) and Anglo American (LSE:AAL) are currently more generous. In all, and while the dividend offers reason to stay patient, new investors may wish to wait for evidence of production recovery before committing. 

Positives: 

  • Working on five-year production expansion plans
  • Attractive dividend (not guaranteed)

Negatives:

  • Less diverse commodity portfolio than many rivals
  • Factors outside of management’s control can impact performance

The average rating of stock market analysts:

Hold

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