ii view: copper play Antofagasta fails to shine

Shares for this FTSE 100 copper miner are down by more than 10% year-to-date. Buy, sell, or hold?  

Third-quarter production update

• Copper production of 181,900 tonnes, up 40% on the previous quarter 

Guidance:

• Full-year 2022 production unchanged at the lower end of 640,000 and 660,000 tonnes
• Expects 2023 copper production to be between 670,000 and 710,000 tonnes
• Sustaining and mine development capital expenditure are expected to average approximately $1 billion per year for the coming years

Chief executive Iván Arriagada said:

“As we guided last quarter, production has significantly improved in the third quarter of the year due to greater water availability at Los Pelambres increasing throughput, the movement of the concentrates that were temporarily stockpiled in June, and the higher grades at Centinela Concentrates.”

ii round-up:

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

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It owns major stakes in and operates four copper mines.  Los Pelambres and Centinela are its two largest. Both are being further expanded. Antucoya and Zaldivar the smaller. 

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. 

For a round-up of this latest update, please click here. 

ii view:

Antofagasta employs over 6,000 people. With operations in Chile, it is listed on the UK stock market. In 2021, it detailed several environment goals including using only renewable energy sources to power its operations by the end of 2022. And 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. 

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For investors, a highly uncertain economic outlook including rising interest rates and a property slowdown in China are not to be forgotten. China accounted for nearly 17% of its 2021 sales. Delays to its new desalination plant now overshadow expected 2023 copper output while above City forecast expenditure of $1 billion per year on development projects now overhangs expected shareholder returns and group debt. 

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 while its balance sheet remains strong with a net debt to adjusted profit (EBITDA) ratio sat of 0.13 times as of its recent first half results. 

On balance, and whilst an estimated future dividend yield of under 3% contrasts with its historic yield of over 9%, demand for copper and its many continued uses should provide longer-term support. 

Positives: 

• Working on production expansion plans
• Cost saving programme

Negatives:

• Less diverse commodity portfolio than many rivals
• Interim dividend down 61% to 9.2 US cents per share 

The average rating of stock market analysts:

Hold