Antofagasta slumps on Goldman Sachs downgrade

The GS commodities team forecasts full year 2016/17/18 copper prices of $4,340/4,000/4,200/t, from $4,725/4,500/4,500/t.

The bank said that on its forecasts, Antofagasta currently trades at a significant premium both to its historical levels and its peers.

“We believe Antofagasta’s latest FY16 production guidance reflects declining grades at its flagship mines, while its cost guidance reflects little by way of cost savings, apart from the benefit of a depreciating Chilean peso versus the US dollar.”

Goldman highlighted several catalysts it reckons will cause the stock to underperform.

These included declining grades at its flagship mines Los Pelambres and Centinela over the short term, leading to lower production and structurally higher costs, and potential operational issues during the Antucoya ramp-up and Encuentro Oxide start up.

In addition, it pointed to a lack of production growth post 2016 without significant capex, consensus earnings downgrades driven by declining copper prices, and lacklustre dividend yields.

The bank kept its ‘sell’ rating on Anglo American and Rio Tinto, saying it sees the commodity mix of both remaining challenged, putting further pressure on their balance sheets.

At 0933 GMT, Antofagasta shares were down 5.7% to 427.50p, Anglo American shares were down 3.7% to 362.30p and Rio Tinto was off 3.1% to 1,778.50p.