ii view: Antofagasta's 2024 output forecast disappoints

Third-quarter production update to 30 September

• Copper production up 16% to 173,600 tonnes from the prior second quarter 
• Gold production up 30.5% to 57.4 ounnes from Q2
• Molybdenum production up 33% to 3.2 tonnes from Q2

Guidance:

• Continues to expect full-year copper production of between 640,000 and 670,000 tonnes
• Expects 2024 full-year copper production of between 670,000 and 710,000 tonnes

Chief executive Iván Arriagada said:

"Antofagasta represents a pure-play copper producer that understands the world's requirement for responsibly sourced copper to facilitate the energy transition. We are well-positioned to make our contribution, delivering our growth projects for the global decarbonisation journey that lies ahead. 

“Sustainability is at the core of what we do and through prioritising safe production, emissions reduction, efficient water use, biodiversity conservation and community engagement we will continue to generate value for all our stakeholders."

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ii round-up:

Chilean copper miner Antofagasta (LSE:ANTO) today detailed third-quarter 2023 production broadly matching City forecasts but offered 2024 copper output estimates marginally shy of analyst expectations. 

Aided by increased water availability following the construction of a desalination plant at its Los Pelambres operations, copper production improved 16% from the prior second quarter to 173,600 tonnes, with full-year output on course to come in at between 640,000 and 670,000 tonnes.

Underwritten by operational expansion, full-year 2024 copper output is now estimated at between 670,000 and 710,000 tonnes. That’s around 5% below City forecasts, with analysts potentially shaving profit estimates by a similar amount. 

Shares in the FTSE 100 miner fell around 2% in UK trading having come into this update down around a tenth year-to-date. Diversified miner Rio Tinto Registered Shares (LSE:RIO) is down by a similar amount, while Mexican silver miner Fresnillo (LSE:FRES) has fallen close to two-fifths. The FTSE 100 index itself is up 1% so far in 2023.

Commodity prices generally year-to-date have been caught between hopes for a soft landing for the world’s biggest economy, the USA, and concerns about the second biggest China given challenges in its property market. 

Group capital expenditure, or investment, over 2023 is now expected to reach $2 billion, up from management’s previous estimate of $1.9 billion. 

Production of by-products gold and molybdenum also rose during the period to the end of September, climbing 30.5% and 33% respectively. 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 owns major stakes in and operates four copper Chilean mines. Los Pelambres and Centinela are its two largest operations and are each being expanded, Antucoya and Zaldivar both smaller.  

The miner previously detailed several environment goals, including 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. Japan accounts for its biggest slug of sales at over a quarter, followed by China at just under a fifth. 

For investors, the uncertain economic outlook, with inflation still not down at central bank 2% targets, is not to be ignored. 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 persist given it's a Chilean operation, commodities are priced in US dollars, and the share price is in sterling.  

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To the upside, an expansion of its existing operations is ongoing. Desalination facilities are replacing previous drought challenges and its production need for clean water. Antofagasta's 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 a forecast dividend yield of around 2.5% is not to be ignored. 

On balance, and while some caution looks sensible given the outlook in China, a global requirement to push towards renewable energy systems regularly using copper should remain attractive over the long term. 

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