ii view: Antofagasta profit slumps but outlook more positive

Shares for this copper miner are down year-to-date. We assess prospects. 

First-half results to 30 June 

• Revenue down 29.6 % to $2.53 billion 
• Adjusted profit (EBITDA) down 47.5% to $1.24 billion
• Interim dividend down 61% to 9.2 US cents per share 
• Net debt of $491 million, down from net cash of $701 million

Chief executive Iván Arriagada said:

“Although we have experienced significant challenges over the half year - a volatile copper price as a result of macro developments, the continued drought in Chile, and an incident with our concentrate pipeline at Los Pelambres - the actions we have taken, coupled with the quality of our assets and balance sheet, have meant that we were able to weather the storm.”

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ii round-up:

Chilean copper miner Antofagasta (LSE:ANTO) today detailed a tough first half with profits slumping due to both operational challenges and a retreating copper price.

Adjusted profit (EBITDA) almost halved to $1.24 billion with the dividend payment, as with rivals, cut although staying in-line with its payout policy of 35% of underlying earnings. Accompanying management outlook comments, however, pointed to expected second half improvements. 

Antofagasta shares were little changed in UK trading having fallen by around 10% year-to-date. Shares for silver miner Fresnillo (LSE:FRES) are down by a similar amount during 2022, while shares for both miner and commodity trader Glencore (LSE:GLEN) have risen by more than 25% year-to-date.

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Antofagasta owns major stakes in and operates four copper mines, with Los Pelambres and Centinela its two largest. Significant volumes of gold and molybdenum are also produced as by-products of copper production. 

Management highlighted that the shipping and sale of copper previously impacted by an operating issue had now commenced with a desalination plant at Los Pelambres also due to start during the second half, aiding water availability.

The Chilean miner’s estimate for full-year copper production was left unchanged at between 640,000 and 660,000 tonnes. It remains on track to achieve its cost-savings target of at least $50 million by year end. 

ii view:

Antofagasta is a major Chilean copper miner. Significant volumes of gold and molybdenum are produced as by-products. In 2021, it detailed several environment goals including using only renewable energy sources to power its operations by the end of 2022. And 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. 

For investors, an uncertain economic outlook and concerns for a potential recession continue to cast a shadow over prospects for the price of copper. The expected cost of its Centinela Second Concentrator Plant expansion has been revised to $3.7 billion from a 2015 estimate of $2.7 billion, while potential changes in government taxes could impede going forwards. 

More favourably, an expansion of its existing operations is currently being undertaken. The completion of its desalination water plant is close, aiding operational issues, while its balance sheet remains strong with a net debt to adjusted profit (EBITDA) ratio sat at 0.13 times. For now, and while some caution remains sensible, continued demand for copper and its many uses should offer longer-term support. 

Positives: 

• Working on production expansion plans
• Cost-saving programme

Negatives:

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

The average rating of stock market analysts:

Hold