Antofagasta earnings fall as revenue remains stable

The FTSE 250 mining giant said its EBITDA was $2,228 million, 13.9% lower than the previous year on flat revenue and as unit costs increased due to grade declines and higher input costs.

Its EBITDA margin was 47.1%, while its capital expenditure decreased to $873m, which was $26.2m lower than in 2017.

Earnings per share from continuing operations totalled 51.5 US cents per share - 32.3% lower than in 2017 because of the lower EBITDA and a 31% rise in depreciation and amortisation.

The board declared a final dividend of 37.0 cents per share, bringing the total dividend for the year to 43.8 cents per share, amounting to $432m and equal to a 65% payout ratio plus around $100m of net cash proceeds from the sale of non-core assets during the year.

Antofagasta said that was similar to last year's payout ratio of 67%, and was in excess of its minimum payout policy of 35% of underlying earnings per share.

Looking at its operations, Antofagasta noted the fatal accident at Los Pelambres involving a contractor employee in October, reiterating that a full investigation was completed and all actions had now been fully implemented.

Group copper production for the full year was 725,300 tonnes, which was 3% higher than 2017 and at the top end of its revised guidance, setting a record year for the company due to higher production at Los Pelambres and Centinela.

Group cash costs before by-product credits for the full year were $1.72 per pound, which was 12c per pound higher than the prior year due to the expected decline in grades at Centinela, and also increased costs at Los Pelambres, Antucoya and Zaldivar, as a result of higher input prices.

Antofagasta’s group net cash costs for 2018 were $1.29 per pound, which were 3.7% higher than in 2017, but below the firm’s guidance, reflecting higher-than-expected by-product revenues.

Looking ahead, group production in 2019 was expected to be between 750,000 and 790,000 tonnes of copper, 240,000 and 260,000 ounces of gold and 11,500 and 12,500 tonnes of molybdenum, as the board had previously announced.

Copper production was expected to grow as grades improved at all operations, but particularly Centinela Concentrates.

Group cash costs in 2019 before and after by-product credits were expected to be $1.70 per pound, and $1.30 per pound, respectively, also as previously announced by Antofagasta.

Cost savings of $100m targeted under the firm’s cost and competitiveness programme, which had been included in the unit cost guidance figures.

Capital expenditure for 2019 was estimated at $1.2bn, including expenditure carried over from 2018 and the Los Pelambres expansion project.

The board noted that the first phase of the Los Pelambres incremental expansion had received approval at the end of 2018, with construction starting at the beginning of 2019.

It said the phase would increase annual copper production by 40,000 tonnes in the first full year of the expansion, reaching 70,000 tonnes towards the end of the first 15 years.

The capital cost of the project would be $1.3bn, which included $500m for a 400-litre per second desalination plant and water pipeline which had the capacity to supply the water requirements of this expansion, a potential future expansion and to serve as backup for water supply to the existing plant in case of extended drought.

At Centinela, following a “detailed evaluation” of two expansion alternatives, the company said it would progress the studies on a second concentrator, as that alternative offered the best potential combination of financial returns and risk profile.

The feasibility study of the second concentrator was expected to be completed during 2020.

“2018 was a record year of production, with the group hitting 725,300 tonnes of copper reflecting an improving level of operating stability and a full year's contribution from Encuentro Oxides,” said Antofagasta chief executive officer Iván Arriagada.

“This momentum will continue into 2019 which we expect to be another record-setting year as we benefit from a further improvement in grades and continued strong throughput.”

Arriagada noted that In 2018, the company achieved savings of $184m under its cost and competitiveness programme, which he said helped contain the increase in net cash costs to 3%.

“These savings were in excess of the $100m originally targeted, and now for 2019 we are targeting a further $100m of savings.

“Our financial results reflect the strong operating performance of the year.

“Despite lower realised copper prices EBITDA was in line with expectations at $2.2bn, with [a] healthy operating cash flow of $1.9bn.”

Arriagada also pointed out that the board had recommended a final dividend of 37 cents per share which, combined with the interim dividend, amounted to $432m.

“This includes some $100m of net proceeds from the sale of non-core assets during the year and reflects the company's positive outlook and strong financial resources.

“As US-China trade negotiations have progressed during the first few months of this year the copper price has traded favourably.

“We expect price volatility to persist in the short term but consider the fundamentals of the copper market will remain positive and that the supply deficit will increase during the year.”