Mixed reaction to miners after Antofagasta and BHP updates

It’s been a rough year for the mining sector, and latest news from industry heavyweights confirms it, but some now rate a buy, say experts.

A mining sector where valuations are down by around a fifth this year continues to underwhelm after FTSE 100-listed Antofagasta (LSE:ANTO) posted its production figures today.

The Chile-based group reported a 40% jump in copper output for the third quarter as its flagship Los Pelambres mine benefited from an improvement in water availability after a 12-year drought affecting the Coquimbo region.

It remains on track to achieve the lower end of its full-year production guidance of 640-660,000 tonnes, but City firm Peel Hunt said the 181,900 tonnes recorded for the three months to 30 September was almost 10,000 tonnes short of its forecast.

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The broker also noted guidance from the company that it intends to sustain capital expenditure and mine development costs of $1 billion a year from now on.

That’s well over the $650-700 million range it had assumed over the next five years, meaning that net debt is likely to build faster than present estimates.

Peel Hunt said: “We believe this will reduce expectations for dividend payments as management focuses resources on the next wave of investments.”

Antofagasta handed $1.4 billion to shareholders from trading last year as higher copper and molybdenum prices resulted in record annual profits. But the interim dividend was cut in August from 17p to 7.9p.

The industry cycle marked by bumper dividend payouts has since turned as China’s Covid lockdowns and the impact of rising interest rates have left commodity prices significantly off 2021 highs.

Copper futures are around 30% below the record level seen in March, and Rio Tinto (LSE:RIO) yesterday reported a drop for iron ore in the third quarter from $120 a tonne to $96 amid a slowdown in Chinese construction activity.

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Rio added yesterday that shipments from its iron ore operations in Pilbara, Western Australia, were set to be towards the lower end of full-year guidance after a 1% drop in the quarter.

The mining giant’s shares fell by around 1.5%, having come into yesterday’s announcement down by more than a fifth over the last six months. The stock, which trades on a forward dividend yield of 10%, continues to have the support of analysts at Goldman Sachs after they retained their “buy” recommendation alongside a 6,200p target price today.

Shares of rival BHP Group (ASX:BHP), which is no longer listed in the FTSE 100, are down by a similar amount this year. Earlier today, boss Mike Henry left BHP’s production and cost guidance unchanged after the Australian company’s performance in the first quarter of its financial year showed a 9% rise in copper output and 3% for iron ore.

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Henry added: “We expect global macroeconomic uncertainty in the short term to continue to affect supply chains, energy costs, labour markets and equipment and materials availability.

“BHP remains well positioned, with a portfolio and balance sheet to withstand external challenges and a strategy positioned to benefit from the global mega-trends of decarbonisation and electrification.”

Antofagasta shares were 40p lower at 1,068.5p by this afternoon, with Peel Hunt also noting that 2023 guidance for copper production of between 670,000 and 710,000 tonnes was below its expectations following delays opening the Los Pelambres desalination plant.

The scheme, which had been scheduled for completion in the second half of this year, has also been hit by sharply higher costs.