Goldman downgrades Antofagasta on valuation grounds

GS said that while the fourth quarter is tracking higher than expectations, the recent rally was overdone.

Data released by the Chile copper association earlier this month showed that November production ticked up at both Los Pelambres and Centinela, which should place the company within its FY18 guidance of 705-725Kt given at the 3Q18 results, it said. If December shows another sequential improvement on the month, Antofagasta could track towards the higher end of its guidance range.

However, having risen 7% year-to-date versus flat copper prices, the shares' valuation is looking stretch, with Anto now trading at 6.1x 2019E EV/EBITDA versus peers at 5.0x and Goldman's target multiple of 5x.

"While Anto has historically traded at a circa 10% premium to peers (given it is the only 100% copper-exposed name included in FTSE 100), we believe that the current premium is unwarranted and expect it to come down," it said, hence the downgrade.

Key risks to Goldman's view include higher-than-expected copper prices, a weaker Chilean peso and stronger operational performance than forecast. Another upside risk is a material stimulus in China and/or a material improvement in the growth outlook, which would be a positive for copper and therefore Anto.

At 1355 GMT, the shares were up 2.5% at 844.20p.