Antofagasta reports production improvement, lowers full-year guidance

Chile-focussed copper miner Antofagasta reported an increase in copper and gold production in its second quarter on Wednesday, but lowered its full-year guidance as a result of certain project delays.

The FTSE 100 company said copper production in the period reached 149,600 tonnes, representing a 2.5% increase over the prior quarter, which it put down to improved plant throughput at Los Pelambres.

In the first half, copper production amounted to 295,500 tonnes, marking a significant 10% year-on-year increase, driven by a 23.9% rise in throughput rates at Los Pelambres.

Gold production also saw positive growth, with second quarter production rising 4.3% quarter-on-quarter to 44,000 ounces as a result of higher grades and recoveries at Centinela.

For the first half, gold production totalled 86,200 ounces, marking a substantial 16.8% increase compared to the first six months of 2022, in which 73,800 ounces were produced.

However, molybdenum production experienced a slight decline in the second quarter, falling 4% to 2,400 tonnes due to lower contributing production from both Los Pelambres and Centinela.

Nonetheless, molybdenum production for the year-to-date stood at 4,900 tonnes, showing a promising 22.5% increase compared to the same period last year, driven mainly by higher throughput at Los Pelambres.

Antofagasta reported that cash costs before by-product credits in the second quarter were $2.47 per pound, making for a 0.8% decrease compared to the prior quarter thanks to higher production and lower costs at Los Pelambres.

However, cash costs in the first half increased 4.6% year-on-year, reaching $2.48 per pound, primarily due to higher input costs and the appreciation of the Chilean peso.

By-products credits in the second quarter amounted to 51 cents per pound, compared to 95 cents per pound in the first quarter, reflecting lower realised prices, particularly for molybdenum.

However, by-product credits for the year-to-date period reached 73 cents per pound, marking an increase of 18 cents per pound compared to the same period a year ago, mainly due to higher realized prices for both gold and molybdenum.

The company reported that net cash costs in the second quarter were $1.96 per pound, up 27.3% on the quarter thanks to reduced by-product credits resulting from a significant quarter-on-quarter reduction in molybdenum prices impacting provisionally-priced molybdenum sales from prior periods.

Antofagasta also updated the market on its growth projects, with the desalination plant for Los Pelambres now near the end of its commission phase.

The plant achieved an average production ramp-up of 160 litres per second of desalinated water in June, and was expected to reach its design capacity of 400 litres per second in the second half.

Additionally, pre-operational testing work for the concentrator expansion project at Los Pelambres started in the second quarter, with the commissioning phase expected to be completed in the second half.

An updated study for the development of the Centinela Second Concentrator project was also expected to be submitted to the board for consideration by the end of the year.

Antofagasta revised its production guidance for 2023, noting that the delay in completing the desalination plant and concentrator expansion, along with reduced water availability in the first half, had impacted expected copper production for the full year.

The guidance was now updated to between 640,000 and 670,000 tonnes, down from the previous estimate of 670,000 to 710,000 tonnes, with an anticipated increase in output in the second half.

On the cost front, the impact of the updated production guidance was partially offset by strong cost control across the company's operations.

Full-year cash costs before by-product credits were now expected to be $2.30 per pound, higher than the previous estimate of $2.20 per pound.

However, guidance for cash costs after by-products remained unchanged at $1.65 per pound, assuming no significant changes in current by-product prices and the Chilean peso exchange rate.

Antofagasta's capital expenditure guidance remained unchanged at $1.9bn, assuming no further appreciation of the peso.

The company said it would continue evaluating opportunities to expedite the execution of selected development projects.

“Copper production in the second quarter increased to 149,600 tonnes, as throughput rates at Los Pelambres improved,” said chief executive officer Iván Arriagada.

“Net cash costs of $1.75 per pound for the first half of 2023 were lower than the prior year, reflecting the effectiveness of our cost control efforts during this time of heightened inflationary pressures.

“The desalination plant at Los Pelambres is now producing desalinated water, with commissioning work ongoing.”

Arriagada said certain critical construction activities were rescheduled during the quarter, primarily as a result of sea swells that extended the execution of the final phase of marine works, adding that those were now substantially complete.

“At the Los Pelambres concentrator expansion, construction work has required additional time and full commissioning is expected to commence early in the third quarter.

“With both projects now moving into commissioning, completion for this phase of growth is expected to be achieved in the second half of 2023.”

However, the additional time, in combination with the lack of rainfall at Los Pelambres, had impacted production according to Iván Arriagada, leading to guidance for the full year being updated to between 640,000 and 670,000 tonnes.

“Looking ahead, we see resilience in the demand for copper as the global decarbonisation journey continues, with copper essential for the transition, and this underpins our ambition to grow our business to 900,000 tonnes of annual copper production.”

At 0802 BST, shares in Antofagasta were down 1.73% at 1,481p.

Reporting by Josh White for Sharecast.com.