ii view: Antofagasta profits shine

Copper miner Antofagasta benefits from increased production, but forecasts a fall in 2020.

Half-year results  

• Revenue up 19.1% to $2.53 billion
• Adjusted profit (EBITDA) up 44% to $1.3 billion
• Net debt down $78.9 million to $517.4 million
• Interim dividend up 57.4% to 10.7 cents per share
• Copper production up 22% to 387,300 tonnes

Chief executive Iván Arriagada said:

"In line with our plan for the year, copper production during the half year period increased by 22% and we expect this rate of production to continue into the second half of 2019, which we expect to be another year of record copper production. With Antofagasta's strategy focused on producing profitable tonnes, the successful Cost and Competitiveness Programme continues to deliver benefits. 

While the outlook for the copper market remains uncertain with the protracted negotiations between the USA and China impacting global trade, Antofagasta continues to be in a strong position generating solid cash flows and improving returns."

ii round-up:

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

It operates the four copper mines of Antucoya, Zaldivar, Centinela and Los Pelambres, the latter two of which are currently undergoing expansion. 

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. 

The company reported half-year results in line with analyst forecasts, although accompanying outlook comments marginally disappointed. 

Increased copper and gold production helped drive revenues up, hindered by a 6% fall in the copper price, while a push to reduce costs contributed to increased profitability. 

But an expected decline in 2020 copper production to levels achieved in 2018 removed some of the shine, with the share price retreating over 1.5% in early UK stock market trading. 

ii view:

The mining industry is tough and often difficult for managements to navigate. 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, combined with a forward price earnings ratio below the three-year average offers attraction, although this needs to be set against copper’s high industrial usage and concerns for the global economic outlook.  

Positives: 

• Cost and competitiveness programme
• Expansion projects being undertaken

Negatives:

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

The average rating of stock market analysts:

Strong hold

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