ii view: Antofagasta details five-year production goal

Trumpeting its green credentials and an estimated dividend yield of close to 5%. Buy, sell, or hold?

Investor update

• Production to potentially reach around 900,000 tonnes of copper by 2026
• 90% of water used in operations is expected to be from seawater or recirculated water by 2025
• All energy to power operations to be from renewable sources by the end of 2022

ii round-up:

Chilean copper miner Antofagasta (LSE:ANTO) today highlighted that its five-year plan could see it potentially hit 900,000 tonnes of copper by 2026 if a second concentrator project at Centinela is approved by the end of 2022. The current full-year forecast is for between 710,000 and 740,000 tonnes.

Antofagasta owns major stakes in and operates four copper mines. Los Pelambres and Centinela are its two largest and Antucoya and Zaldivar the smaller. 

Shares were little changed in UK trading, having gained over 120% since pandemic induced lows in March 2020. Shares for sector giant BHP Group (LSE:BHP) have about doubled in that time, while Rio Tinto (LSE:RIO) is up around 55%. 

Antofagasta, which traces its history back to the Bolivia Railway company in 1888, also detailed a series of environmental targets. These includes 90% of water used across its operations coming from seawater or recirculated water by 2025, and using only energy from renewable sources by the end of 2022. 

Antofagasta, which produces gold and molybdenum as by-products of copper mining, also hopes to use autonomous trucks and remote operating centres going forward. Despite this, many green, or ethical investors will still find it hard to contemplate investing in the mining industry.

ii view:

The mining industry is tough and often difficult for managements to navigate. Operational issues outside of management’s control, such as the weather, can hinder performance. For Antofagasta, a lack of past and expected rainfall previously forced management to cut its copper production estimate by 20,000 tonnes for this year. A further 50,000 tonnes could be at risk during 2022 if the dry weather persists. Clean water is a key ingredient in the production of copper. 

For investors, a recovery in the copper price from the lows of the pandemic helped first-half adjusted earnings to more than double year-over-year. A plan to comfortably increase copper production by 2026 is reassuring, while the shares currently sit on an estimated future dividend yield of close to 5%, not bad in the current ultra-low interest rate environment.  

But production for now remains reliant on rainfall. Currency risks, given commodities priced in US dollars, operations in Chile, and shares priced in pounds sterling are a constant, while dividend payments at rivals such as BHP and Rio are currently more generous. In all, and with the shares sat close to the consensus analyst estimate fair value of £14.89, the shares look to be up with events.  

Positives: 

• Cost and competitiveness programme
• Attractive estimated future dividend yield

Negatives:

• Less diverse commodity portfolio than many rivals
• Factors outside of management’s control can impact performance

The average rating of stock market analysts:

Hold