Mining results season ends on sour note

Our shares expert runs his eyes over another of the big miners as the market takes a sharp dip.

Mining's bumper results season ended on a sour note today despite an 80% surge in copper prices helping Antofagasta (LSE:ANTO) to record earnings and a near quadrupling of its dividend.

The FTSE 100 index stock fell 5% after the company cut production guidance due to drought conditions in its home country of Chile, where it also faces uncertainty over plans for a new mining royalties system to pay for Covid-19 related social programmes.

Its exposure to copper as the world decarbonises is offset by a portfolio lacking the diversity of blue-chip rivals and one needing investment at a time when others are deleveraging.

The fall for Antofagasta shares was compounded by steam coming out of the commodities sector, after a results season in which shareholder returns have soared on the back of multi-year highs for iron ore and key battery components such as cobalt and nickel.

Half-year distributions from Glencore (LSE:GLEN) amounted to $1.2 billion (£872 million), with this week's $2 a share from BHP Group (LSE:BHP) taking its total for the year to $15 billion (£10.9 billion) and highlighting the impact on FTSE 100 trackers if the Anglo-Australian miner goes ahead with its unification plan.

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Rio Tinto (LSE:RIO) is paying 75% of its $12.2 billion underlying earnings after unveiling an interim dividend of 561 cents a share, while De Beers owner Anglo American (LSE:AAL) last month announced a $4.1 billion dividend and buy-back plan alongside half-year results.

Its $2.1 billion interim dividend, equal to $1.71 per share and in line with a 40% payout policy, meant Anglo was comfortably today's biggest faller in the FTSE 100 index as its shares began trading without the right to this payment.

Shares fell as much as 11% in a session when sentiment was shaken by fears over the Delta variant and the potential tapering of US economic stimulus measures.

There was some support for Antofagasta from Peel Hunt analysts, however, after they stuck by their target price of 1,545p, compared with 1,403p after today's 67p fall.

The 280.6% hike in dividend to 23.6 cents a share, amounting to $233 million and in line with a commitment to pay 35% of net earnings, was broadly in line with the broker's expectations. It will be paid to shareholders on October 1.

Underlying earnings of $2.36 billion were a record and the first time since 2012 the company has posted a figure above $2 billion for a six-month period as it benefits from high prices for copper and gold at its Los Pelambres and Centinela mining sites. Revenues for the period were 68% higher at $3.59 billion.

The robust figures were offset by reduced production guidance for the rest of 2021 due to the continuing 12-year drought in Chile.

The traditional rainy season ends in September and it is looking likely the low levels of precipitation will last until next year, putting pressure on operations at Los Pelambres until a new desalination plants comes into service next year.

By 2025, Antofagasta expects that 95% of its usage will come from desalinated sea water or recycled water. In the meantime, it is forecasting copper production for this year of between 710,000 and 740,000 tonnes, compared with 730,000 and 760,000 previously forecast.

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Peel Hunt said Antofagasta shares still offered appealing exposure to copper and that the pull back for shares due to slower growth rates in China's economy offered an opportunity.

The broker said: “We would use further pull backs to add to positions, as we continue to expect copper prices to rally over the next two years.”

Counterparts at Deutsche Bank are less optimistic and recently placed a “sell” recommendation on Antofagasta, naming Glencore as their preferred pick for copper exposure due to self-help measures, an undemanding valuation and strong cash flows.