Antofagasta production to be at lower end of guidance amid pandemic

The FTSE 100 company said gold production was 65,100 ounces in the first three months of the year, which was 4.7% higher than in the first quarter of 2019, primarily due to higher grades at Centinela.

Molybdenum production, meanwhile, was 2,400 tonnes, which was a year-on-year decrease of 1,100 tonnes due to lower grades at Los Pelambres, but 100 tonnes higher than in the fourth quarter of 2019.

Looking at its cash costs, Antofagasta said before by-product credits they decreased 11.2% to $1.51 per pound, from $1.70 per pound at the same time last year and in the fourth quarter of 2019, primarily due to the weaker Chilean peso, higher production and tighter cost control.

Net cash costs were $1.10 per pound in the first quarter, compared to $1.24 a year earlier and $1.37 in the previous quarter, reflecting the changes in cash costs before by-product credits.

On the Covid-19 coronavirus pandemic, the company said multiple measures to prevent or slow the spread of infection had been implemented across the group.

Those actions were intended to protect the health of Antofagasta’s employees and contractors, and maintain a safe and healthy environment at its operations.

A $6m fund had been established to help the communities that lived near Antofagasta’s mining operations in the province of Choapa and in the Antofagasta region, the board said.

It said the fund, in addition to existing social investment plans, would be used to buy medical supplies and equipment for healthcare workers to fight Covid-19, create facilities for people to stay if they needed to be quarantined, and to sterilise public spaces and create safe areas for neighbouring communities.

As it announced on 6 April, the Los Pelambres Expansion project was currently suspended on a precautionary care and maintenance basis due to the pandemic.

The suspension was expected to be for a maximum of 120 days, and in most cases, would not lead to the early termination of contracts.

During the suspension, the monthly salaries of contractors would be maintained at a level of at least the minimum set by the group.

Antofagasta said it was also monitoring and assisting smaller and medium-sized suppliers.

Looking ahead, the board said copper production, costs and capital expenditure guidance for 2020 remained “highly dependent” on how the health emergency evolved over the coming months.

Assuming mining operations continued to run at or close to capacity, and no shutdowns were required, group copper production in 2020 was expected to be at the lower end of its original guidance range of between 725,000 and 755,000 tonnes, as the new health measures and lower manpower on-site had required mine movement and maintenance activities to be rescheduled, which would impact copper production during the rest of the year.

Group net cash costs for the full year were expected to be $1.20 per pound, which is 10 cents lower than originally guided, assuming revised production guidance is achieved and the Chilean peso averages 800 pesos to the dollar for the year.

Capital expenditure in 2020 was expected to be less than $1.3bn, down from the $1.5bn originally guided for 2020, with the temporary suspension of the Los Pelambres Expansion project, the deferral of sustaining and other development capital expenditure, lower mine development and a weaker Chilean peso.

During the suspension of the Pelambres Expansion project, some work was continuing on the desalination plant and the camp infrastructure.

Additional critical activities were expected to be resumed progressively during the suspension period as government health protocols are revised, with full resumption dependent on how the health emergency evolves.

Antofagasta said a revised project schedule and cost estimate was expected to be available once the suspension period concluded.

“Antofagasta´s top priority has always been the safety and health of our workforce and communities,” said chief executive officer Iván Arriagada.

“Since the outbreak of Covid-19 we have implemented multiple measures to prevent the spread of infection across our operations and launched a $6m fund to support the communities we work in.

“We are also working alongside government to deliver a coordinated response and we review the situation daily to ensure we are responding effectively to health, operational and financial concerns.”

Arriagada said the company was committed to operating safely, providing employment, supporting its suppliers and contributing to the economic and social recovery of Chile.

“Although we are currently operating with about two-thirds of our workforce on-site in line with our preventative health measures, this has so far had a limited impact on production.

“We expect that for the foreseeable future we will need to maintain and continue to evolve the precautionary health measures we have adopted, including social distancing, revised personal protective equipment, increased teleworking and other health related changes.

“Because of these and other actions we have taken we now expect copper production to be towards the lower end of the original 725,000-755,000 tonnes guidance range, assuming our mining operations are not required to shut down temporarily.”

Arriagada said the company had a “solid balance sheet” with $2.5bn of cash, which put it in a strong position to confront the “unprecedented situation of operational uncertainty” and lower copper price environment.

“We are expanding our cost and competitiveness programme and continue to review all expenditure to preserve our financial strength while operating safely and efficiently.”

At 0821 BST, shares in Antofagasta were up 0.85% at 737p.