Broker snap: Antofagasta 'best pure copper play'

Shares in Chilean copper miner Antofagasta dipped after the earnings came in a tad below consensus and the dividend disappointed, but the company remains the 'best copper pure play stock' on the London Stock Exchange, according to Ambrian.

'The dividend being set at US-23.4 vs. consensus of US-29 might result in a few long-faces in the market, but guessing what the board/family would distribute was always going to be a lottery as the 'normal' dividend is set so low (US-9.4 this year, up from US-9 in previous few years), and the balance is declared in the form of a 'special' (FY08 special was US-51 and FY07 US-41),' notes Ambrian analyst Peter Davey.

'One can only assume management feels that it perhaps has better opportunities for shareholder money in this market; holding back until the Esperanza project is through its ramp-up and/or thinking of an acquisition that might be in need of Antofagasta's growing cash pile,' Davey postulated.

Davey thinks the company does have lots of opportunities it can take advantage of, especially with the net cash position tipped to climb to $2.6bn by the end of fiscal 2010. The company could return some of that money to shareholders or it could go on the acquisition trail, though 'a new investment might be a concern to some as Anto's has no prior experience of managing such a process,' Davey suggests.

'If copper equity exposure is sought with some degree of protection against a short-term pull back in the copper price, Anto's is our top pick,' the broker declared.

'Due to the strength of its balance sheet, its share price would likely suffer less and recover quicker in the event of the copper price correcting in the short term (not unlike BHP Billiton during the financial crisis),' Ambrian reckons.

The broker has a 'buy' recommendation on the stock and a 12-month price target of 1100p.