Antofagasta H1 profits fall on lower sales tonnage, grades

Lower sales tonnages and copper grades combined with higher costs hit interim profits at Antofagasta as it cut its dividend, although the miner said it expected a better second half.

Pre-tax profits fell by 32.4% to $465.6m, while underlying profits fell 16.2% to $904.2m on revenue up 3.6% to $2.12bn as higher realised prices offset lower copper sales volumes. The dividend was cut to 6.8 cents a share from 10.3 cents in the same period last year on the back of lower earnings per share of 19.6 cents.

Group copper production and net cash cost guidance for the full year was unchanged at 705-740,000 tonnes at $1.35/lb as grades continue to improve over the rest of the year, the company said.

Copper production for the half fell 8.5% lower to 317,000 tonnes, due primarily to lower grades at the Centinela mine and a pipeline blockage at the Los Pelambres operation.

Cash costs before by-product credits for the half year were $1.92/lb, up from $1.56/lb in the same period last year due to lower production, higher input prices and a stronger Chilean Peso.

Chief executive Iván Arriagada said he was expecting tonnages and unit costs to" improve substantially during the second half and well into 2019 as mined grades increase in line with our mine plan".

"Our confidence in achieving this is underpinned by the reiteration of our previously stated copper production guidance and net cash cost guidance for the full year," he said.

"With Antofagasta's strategy focused on producing profitable tonnes, the successful cost and competitiveness programme has yielded a 7c/lb cost saving in the first half and together with the 'operating excellence' programme these programmes are delivering immediate benefits. We expect this performance to continue as we focus on innovative ways of improving costs and safety."

"Regardless of external factors such as prices, inflation and foreign exchange movements, Antofagasta is well positioned for growth, generating strong cash flow and improving returns. The outlook is positive - we have the assets, capabilities and the capital allocation strategy as well as the discipline to continue to deliver long-term value for all our stakeholders."

Analysts at RBC Capital Markets said underlying profits had miss their forecast by 9% "in part owing to what appears to be a burgeoning trend through this reporting period of central costs coming in higher than we were looking for ($35m of the $86m miss)".

"The earnings before interest, tax, depreciation and amortisation at Centinela was $229m far below our $300m – this will require more investigation as it's a striking amount of variance considering the cash costs by mine were pre-reported," RBC said, adding that it felt the shares "remain relatively fully priced" and reiterated a 'sector perform' rating.