Interactive Investor

ii view: Antofagasta raises growth project spend

Shares in this Chilean copper miner have outperformed diversified rival Rio Tinto over the last year. We assess prospects.

20th February 2024 16:39

Keith Bowman from interactive investor

Full-year results to 31 December

  • Revenue up 8% to $6.3 billion
  • Adjusted profit (EBITDA) up 5% to $3.09 billion
  • Earnings per share including exceptional items down 46% to 85 US cents per share
  • Final dividend of 24.3 US cents per share
  • Total 2023 dividend down 40% to 36 cents per share
  • Net debt up 31% to $1.16 billion

Chief executive Iván Arriagada said:

"Antofagasta delivered strong performance in 2023. Our cost and competitiveness programme continues to deliver results, generating cost benefits of $135 million during the year. Copper prices in 2023 showed reduced volatility, with prices displaying a high degree of stability in the second half of the year.

“The outlook for the Company and its shareholders is positive - we have a solid pipeline of copper growth projects, a strong balance sheet, a focus on costs that will underpin the delivery of those projects and long-standing relationships with local communities.”

ii round-up:

Copper miner Antofagasta (LSE:ANTO) today detailed sales and profits broadly matching City forecasts, with full year 2024 copper production guidance kept unchanged at 670-710,000 tonnes.

Increased customer demand and a 2% rise in copper production to 660,600 tonnes helped full year 2023 revenues climb 8% to $6.3 billion, driving adjusted profit (EBITDA) up 5% to $3.09 billion. 

Anto also increased its forecast for investment expenditure on mining projects by $500 million, lifting its peak outlay to between $3.5 billion and $3.9 billion during 2025. That compares with City forecasts of $3.3 billion. 

Shares in the FTSE 100 company rose 2% in UK trading having been little changed over the last year. That’s similar to Canadian copper miner Hudbay Minerals Inc (TSE:HBM) and ahead of a 15% retreat for diversified miner Rio Tinto Registered Shares (LSE:RIO). The FTSE 100 index itself is down by almost 4% in that time. 

Antofagasta owns major stakes in and operates four copper mines in Chile, including both Centinela and Los Pelambres, its two biggest. 

Ongoing projects include a second concentrator at its Centinela mine which is expected to add around 170,000 tonnes of copper-equivalent to production, and the expansion of its Los Pelambres seawater desalination facility. Copper production requires fresh water. 

Annual adjusted earnings rose 21% to 72 cents per share, although when including an exceptional charge in relation to its 2022 sale of its Reko Diq project in Pakistan, fell 46% to 85 cents per share. 

A final dividend of 24.3 US cents per share takes the total 2023 dividend down 40% year-over-year to 36 cents per share.

A first-quarter production update is scheduled for 17 April. 

ii view:

Antofagasta traces its history back to the Bolivia Railway company in 1888. Today it is one of the world's largest pure-play copper producers, with both gold and molybdenum by-products of copper production. Japan accounts for its biggest slug of sales at almost a third, followed by China at just over a fifth, and the USA and Singapore each at around 7%.  

For investors, the tough economic backdrop including heightened interest rates is not be to be forgotten. Project growth and capital expenditure investment for the longer term now arguably trump its focus on shareholder returns. Worries regarding the environmental impact of mining in general persist, while commodities being priced in US dollars adds currency risk, as does a pound sterling share price. 

On the upside, expansion of its existing operations continues. Desalination facilities have and are replacing previous drought challenges and its production need for clean water. The balance sheet remains strong, with a net debt-to-adjusted profit (EBITDA) ratio at 0.38 times as of the end of December, while a forecast dividend yield of close to 2% is also not to be ignored. 

For now, and despite ongoing risks, a global requirement to push towards renewable energy systems regularly using copper should at least keep existing shareholders patient. 

Positives: 

  • Expanding operations
  • Focus on costs

Negatives:

  • Less diverse commodity portfolio than many rivals
  • Currency movements can hinder performance

The average rating of stock market analysts:

Hold

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