Interactive Investor

ii view: copper miner Antofagasta ups the dividend

An energy transition play outperforming mining rivals and pushing a cost and efficiency programme. Buy, sell, or hold?

10th August 2023 16:09

by Keith Bowman from interactive investor

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First-half results to 30 June

  • Revenue up 14% to $2.89 billion
  • Adjusted profit (EBITDA) up 8% to $1.33 billion
  • Interim dividend up 27% to 11.7 US cents
  • Net debt up 67% to $821 million

Chief executuve Iván Arriagada said:Copper is the metal of electrification and therefore an integral part of the energy transition. We believe the long-term fundamentals for copper are very strong as demand is forecast to continue to grow over the coming years, and as incremental supply remains challenged. Our focus remains on growing production through our pipeline of projects safely and competitively, which will generate value for all our stakeholders.

ii round-up:

Chilean copper miner Antofagasta (LSE:ANTO) today reported increased first-half sales and profits broadly matching City forecasts given higher copper demand and increased prices for related by-products.

Revenues for the six months to the end of June climbed 14% to $2.89 billion, helping to drive adjusted profit up 8% to $1.33 billion and underlying a 27% increase in the interim dividend payment to 11.7 US cents. 

Shares for the FTSE 100 miner rose 1% in early UK trading having come into this latest news up around 4% year-to-date. Shares for rival copper producer and major miner of iron ore Rio Tinto (LSE:RIO) are down by 17% during 2023. Shares for Mexican silver miner Fresnillo (LSE:FRES) have fallen by 40%, while the 100 index itself is up by close to 2% during 2023.

Commodity prices generally year-to-date have been caught between growing hopes for a soft landing for the US, the world’s biggest economy, and deteriorating concerns for China, the second biggest. 

A ramping up of Antofagasta’s cost and competitiveness programme’ helped generate savings and productivity enhancements worth $60 million during the period.

Copper, gold and molybdenum sales all rose over the half with copper production increasing 10% year-over-year to 295,500 tonnes. 

The group’s average realised copper price retreated 3.4% year-over-year, although management highlighted likely expected future demand for copper given the global shift towards clean electricity and copper’s wide use in renewable energy systems. The metal’s consumption is forecast to rise by 2.4% per annum up to 2050. 

Full-year copper production at Anto’s is forecast to come in at between 640-670,000 tonnes, potentially up from 2022’s output of 646,200 tonnes.

A third-quarter production update is scheduled for 18 October. 

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. Both are being further expanded. Antucoya and Zaldivar are smaller. Both gold and molybdenum are produced as by-products of copper. In 2021, Antofagasta 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. 

For investors, the tough economic backdrop including heightened interest rates should not be overlooked. China accounts for nearly one-fifth of its sales with both its economy now raising growth concerns and Western relations more strained given its working relationship with Russia. Worries regarding the environmental impact of mining more generally persist, while currency risks given commodities priced in US dollars, Chilean operations, and a pound sterling share price are a constant. 

On the upside, an expansion of its existing operations is currently being undertaken. Desalination operations will aid operational challenges and its need for clean water, the balance sheet remains strong with a net debt to adjusted profit (EBITDA) ratio sat at 0.27 times, while a historic dividend yield in the region of 3% is not unattractive. 

For now, and while some caution remains sensible, a global requirement to push towards renewable energy systems reliant on copper should see existing shareholders at least staying put. 

Positives: 

  • Working on production expansion plans
  • Focus on costs

Negatives:

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

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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