Canaccord cuts production forecasts, target price on Antofagasta

The outlook for Antofagasta continues to be positive but additional short-term weakness in the share price is likely, Canaccord Genuity told clients.

Nevertheless, the miner's most recent production report made for disappointing reading in terms of the company's levels of output for different metals and associated costs, analysts Tim Huff and Nick Hatch said in a research report sent to clients.

In its first quarter production report, the miner revealed copper, gold and molybdenum output levels that came in beneath the broker's forecasts alongside "disappointing" cash costs.

That led the analysts to revise their cost and production profiles for the outfit.

As a result, Canaccord now expected full-year copper production to come in at 712,600 tonnes, down from 723,200t, that of gold at 247,800 ounces instead of 256,500oz. and molybdenum production of 8,000t instead of 8,500t.

Estimates for gross and net cash costs were bumped up by three cents a pound to 169c/lb and 141c/lb, respectively.

Although the broker also revised its gold price assumptions higher, all told the changes made to its model meant the bottom line took a hit.

Full-year 2016 underlying earnings were now seen at $237m, instead of $268m and on the basis of a 35% pay-out ratio the expected dividend per share from 9.5c to 8.4c.

"In the last month, commodity prices, including copper, have pulled back, taking mining shares with them. Since its peak, Antofagasta has fallen c.30% to 426p. In the near-term, we anticipate additional short-term weakness, but copper remains one of our preferred commodities and Antofagasta has good longer-term growth potential."

Valuation-wise, the analysts' target price dropped from 590p to 550p, but they maintained their 'buy' recommendation on the stock given the near-30% upside potential to their target price.