Antofagasta Holdings Ordinary 5p (ANTO)

Company overview

The Group's key activities are the operation of 4 major copper mines, (Los Pelambres, Esperanza, El Tesoro and Michilla) the transportation of copper cathodes down from the mines and sulphuric acid back up to the mines by rail and road freight and a concession allowing the distribution of water within the Antofagasta region in Chile. The Group has operations in the United Kingdom, Chile, Peru and Bolivia. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (2 November 2011)

The group's third quarter update (02Nov2011) saw the company announcing increased copper production. Copper production during the quarter rose by 4% to 165,000 tonnes compared to the second quarter. The increase was mainly due to higher production at its Esperanza mine as a ramp-up process continued, along with Los Pelambres, where higher ore grades were enjoyed. In addition, gold production during the third quarter rose to 54,300 ounces, compared with 48,600 ounces in the previous quarter, with a ramp-up also seen at the Esperanza operation. Management also noted that the group remained on track to hit its 2011 output target.

Negative Points:

• The group has exposure to volatile copper prices. With approximately 80% of group sales related to copper, any change in copper prices has a significant impact on the performance of the miner.
• Molybdenum production at Los Pelambres in the period was 2,400 tonnes. The 7.7% fall in production from the previous quarter was mainly due to lower ore grades.
• At the half year results, demand from Europe was below management expectations due to Eurozone sovereign debt concerns.
• The company's share price could suffer if global demand for commodities slows.
• Chile lies along a major earthquake fault line.

Positive Points:

• Copper production was 453,500 tonnes in the first nine months of 2011 compared with 393,600 tonnes in the first nine months of 2010, reflecting the production from Esperanza.
• Between 2012 to 2015 Antofagasta’s average annual copper production is seen at around 720,000 tonnes, reflecting the full-year impact of the Esperanza mine from 2012, but excluding any potential at the Antucoya project.
• Group cash costs (net of by-product credits) in the third quarter came in at 100.5 cents per pound compared to 103.8 cents per pound in the previous quarter.
• Antofagasta is thought to benefit from a strong balance sheet. As of the half year results, it had cash including liquid investments of $3.1 billion and net cash of $700 million as of the end of June.
• The company has previously reported that the Antucoya project was nearing completion. The project will produce 80,000 tons of copper cathode annually over a mine life of more than 20 years, beginning 2014.
• Antofagasta is one of the most important conglomerates in Chile with equity participation in Antofagasta Minerals, the railroad from Antofagasta to Bolivia, and other investments worldwide.
• The board declared a half year dividend which had doubled to 8.0 cents per share versus 4.0 cents a share in the same period a year ago.

Consensus:

On balance, market consensus indicates a hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.