Interactive Investor

ii view: Antofagasta receives $4.4 billion construction approval

Looking towards electrification and the energy transition to drive global copper demand. Buy, sell, or hold?

20th December 2023 16:13

Keith Bowman from interactive investor

Approved construction of equipment or plant at Centinela

Chief executive Iván Arriagada said: The Centinela Second Concentrator Project is a key element of our profitable growth strategy. We are leveraging more than 20 years of operational experience and understanding of Centinelas ores, utilising existing infrastructure and building on long-established relationships within our local communities.”

ii round-up:

Copper miner Antofagasta (LSE:ANTO) today confirmed approval for the construction of a $4.4 billion (£3.5 billion) second concentrating plant at its Centinela mining operation in Chile. 

The new plant is expected to produce an additional 170,000 copper equivalent tonnes a year, comprising of 144,000 tonnes of copper production, 130,000 ounces of gold and 3,500 tonnes of molybdenum, with a 36-year mine life.

Shares for the FTSE 100 miner rose marginally in UK trading having come into this latest news up by close to a tenth year-to-date. That’s similar to Canadian copper miner Hudbay Minerals Inc (TSE:HBM) and ahead of a near 1% fall for diversified miner Rio Tinto Registered Shares (LSE:RIO). The 100 index itself is up 3% year-to-date. 

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

Construction at Centinela will involve new high-pressure grinding rolls to reduce energy consumption, the expansion of the existing seawater pumping and transport systems, and a new storage facility. First production is expected in 2027. 

Aided by modern technologies, net cash costs at Centinela are expected to be in the first quartile of the industry’s cost tables following the plant expansion.

A fourth-quarter production update is scheduled for 17 January. 

ii view:

Tracing its history back to the Bolivia Railway company in 1888, Antofagasta today expects to produce between 640,000 to 670,000 tonnes of copper for its current full year. Production of by-products gold and molybdenum continues, with gold production rising 30% to 57.4 ounces during its last quarter from the prior quarter and molybdenum production gaining 33% to 3.2 tonnes from Q2. Japan accounts for its biggest slug of sales at over a quarter, followed by China at just under a fifth, and Switzerland – home to Glencore (LSE:GLEN) – at just over a tenth. 

For investors, the tough economic backdrop including heightened interest rates is not be to be forgotten. China’s economy sits balanced between government stimulus and ongoing property market challenges with geopolitical concerns also heightened given closer ties with Russia. Worries regarding the environmental impact of mining in general persist, while currency risks, given that commodities are priced in US dollars, Chilean operations and a pound sterling share price, are a constant. 

More favourably, an expansion of its existing operations continues. Desalination facilities are mitigating previous drought challenges and the production need for clean water. The balance sheet remains strong with a net debt to adjusted profit (EBITDA) ratio sat at 0.27 times as of the end of June, while an estimated future dividend yield of around 1.8% is also not to be ignored. 

On balance, and while some caution remains sensible, a global requirement to push towards renewable energy systems regularly using copper should keep existing shareholders at least sitting tight. 

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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