Overview
Antofagasta Plc (ANTO) is primarily engaged in activities related to exploration, evaluation and mining of copper in Chile. The company was incorporated in the year 1888 and is headquartered in London, the United Kingdom. The company’s business is divided into two divisions, being mining and transportation. The mining segment is further divided into different segments based on the exploration activities and mines of the company. The company is a part of FTSE 100 Index.
The current Chairman is Jean-Paul Luksic and was appointed in 2004 as Chairman. Iván Arriagada holds the responsibilities of the Chief Executive Officer and joined the group in 2015. Alfredo Atucha holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders

 

Production Update Q1 FY 2019
In the first quarter of the financial year 2019, the company’s copper production was at 188,600 tonnes and surged by 22.6 per cent versus Q1 2018 data. The company production was in line with the expectations and increased mainly because of high throughput and the expected higher grades, mainly at Centinela mine. The production declined by 14.3 per cent in the Q1 FY2019 as compared to Q4 FY2018 data, due to low grades and ongoing maintenance activities going at Centinela and Los Pelambres mines. The company’s underlying performance for the period remained strong. The gold production for the period stood at 62,200 ounces in the first quarter of the financial year 2019. The production of gold surged by 92.6 per cent against the Q1 2018 data. The production of Molybdenum for the Q1 FY2019 increased by 12.9 per cent versus the Q1 FY2018 data, reflecting high throughput, recoveries at Los Pelambres mine and first-time production at Centinela for the Q1 2019.

The company’s cash costs (before by-product credits) in the Q1 FY2019 was at $1.70/lb versus $2.00/lb in the Q1 FY2018. The decline in cash costs was resulted due to increased production and weaker Chilean Peso in the international market. The costs of the company surged by 25.3 per cent as against Q1 2018 data due to lower grades and throughput. The net cost for the Q1 2019 was at $1.24/lb versus $1.54/lb in Q1 FY2018. The net cost for Q4 FY2018 was at $0.99/lb.

The company expects copper production to be in between 750-790,000 tonnes, due to high grade Concentrates production at Centinela mine in Q2 and Q3. The cash cost guidance remained the same at $1.70/lb for before by-product credits and $1.30/lb for after by-product credits.

The company’s Los Pelambres completed a debt financing of $1.3 billion for the expansion project. The expansion project remained as scheduled with 14 per cent completion, which includes design, engineering, procurement and construction in the Q1 2019 and mobilised 500 people on site.

Segments

The company’s operations are divided into two reportable segments being Mining and Transport for management purpose. The company’s mining segment is further split based on exploration activities and mines. The mining segment is further divided into Los Pelambres, Centinela, Antucoya, Zaldívar, Exploration and evaluation and Corporate and other items. In the financial year 2018, the company’s revenue from Los Pelambres and Transport division had increased as against last year data.

Financial Highlights – Financial Year 2018 (USD, million)


(Source: Annual Report, Company Website)
 
In the financial year ending 31^st December 2018, the company’s revenue stood at $4,733.1 million as against $4,749.4 million in the Financial Year 2017. There was a decrease of 0.3 per cent due to a decline of 6.3 per cent of the copper price and partially offset higher copper sales volume & higher molybdenum revenue. 

EBITDA for FY18 stood at $2,228.3 million and declined by 13.9 per cent against $2,586.6 million in FY17, due to grade declines and higher input costs

The company’s Operating profit from subsidiaries stood at $1,345 million in FY2018 versus $1,841.1 million in FY2017.The company’s total profit from operations, associates and joint ventures stood at $1,367.2 million in FY2018 versus $1,900.8 million in FY2017.

The PBT (profit before tax) was reported at $1,252.7 million in FY2018 as against $1,830.8 million in the FY2017. Net Profits for the period stood at $880.3 million in the FY2018 versus $1,197.7 million in the FY2017.

For FY18, Earnings per share (continued and discontinued operations) stood at 55.1 cents as compared with 76.2 cents in the previous financial year and declined by 27.7 per cent, due to lower EBITDA. 

In line with the company's policy, a final dividend of 37 cents was announced, bringing the total dividend for the year to 43.8 cents.

Key Performance Indicators
  

Copper Production

The company’s main product is copper, and its production is an important operational measure. In the FY2018 the company achieved good production volume of 725,300 tonnes giving an increase of 3 per cent against 2017 production.

Mineral Resources

This measure provides details about strong organic growth in the pipeline. Zaldívar mine’s mineral resources in the financial year 2018 resulted in an increase in the company’s mineral resources base to 18.8 billion tonnes.

Water Consumption

Water is a valuable resource, and the company is focused to use it efficiently. In the FY2018, the company’s water consumption increased by 0.7 per cent due to an increase in the production and material processed. 

CO2 Emissions Intensity

This measure helps the company to mitigate and measure greenhouse gas (GHG) emissions. In the FY2018, the company’s Carbon emission intensity declined by 14 per cent versus 2017 data. The company has two electricity grids in Chile, which helped in an overall cleaner energy mix.

Financial Ratios
 
 
The reported gross margin in FY2018 declined by 10.1 per cent to 40.3 per cent against 50.4 per cent reported last year for the same period, though was higher than the industry median. The reported EBITDA margin of 56.6 per cent for the FY2018 stood higher than the industry median of 16.5 per cent. The reported operating margin in FY2018 declined by 11.1 per cent to 28.9 per cent from 40 per cent reported last year for the same period. Net margin reported was 17.5 per cent for the financial year 2018, reflecting a decrease of 7.7 per cent when comparedwith last year data for the same period. Return on equity for the Financial year 2018 stood at 6.7 per cent, which was lower than the industry median of 9 per cent. On the liquidity front, Antofagasta Plc’s current ratio was higher than the industry median of 1.87, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the ANTO Plc’s was 0.34x, which was lower as compared to the industry median of 0.38x, reflecting that the company is less leveraged as compared to its peers.  
 
Share Price Performance


Daily Chart as at July-10-19, before the market close (Source: Thomson Reuters)

On July 10, 2019, at the time of writing (before the market close, at 12:45 PM GMT), Antofagasta Plc shares were trading at GBX 850.80, up by 0.33 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,026.00/GBX 713.20. At the time of writing, the share was trading 17.08 per cent lower than the 52w High and 19.29 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 1,950,517.00; 30 days – 2,458,717.63 and 90 days – 2,322,332.49. The average traded volume for 5 days was down by 20.67 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.27, reflecting high volatility as compared to the benchmark index. The outstanding market capitalisation was around £8.35 billion, with a dividend yield of 3.96 per cent.

Valuation Methodology
Method 1: Price to Earnings Approach (NTM)
 

To compare Antofagasta Plc with its peers, Price/Earnings multiple has been used. The peers are Outokumpu Oyj (NTM Price/Earnings was 21.51), Atalaya Mining Plc (NTM Price/Earnings was 7.89), First Quantum Minerals Ltd (NTM Price/Earnings was 13.75), Fresnillo Plc (NTM Price/Earnings was 29.97) and Centamin Plc (NTM Price/Earnings was 19.17). The average of Price/Earnings (NTM) of the company’s peers was 18.50x (approx.)

Method 2: Price to Cash Flow Approach (NTM)

To compare Antofagasta Plc with its peers, Price/Cash Flow multiple has been used. The peers are CRH Plc (NTM Price/Cash Flow was 7.87), Vale SA (NTM Price/Cash Flow was 5.58), Freeport-McMoRan Inc (NTM Price/Cash Flow was 6.23), Lundin Mining Corp (NTM Price/Cash Flow was 4.73) and Granges AB (NTM Price/Cash Flow was 2.95). The Average of Price/Cash Flow (NTM) of the company’s peers was 5.50x (approx.)

Growth and Risk Assessments

The company had many growth projects under the pipeline in Chile. The company’s owned Centinela and Los Pelambres mines have shown good production capacity with high grade concentrates. The company pointed out to investors the potential risks inherent in the mining sector, including the volatile nature of commodity prices and currencies. Furthermore, the sector is exposed to political, financial and operational risks, each of which has the potential to significantly impact company/industry performance.

Conclusion

Although the company’s financial performance had declined in the financial year 2018. The company is well positioned for growth, generating strong cash flows and improving returns. Cost Efficiency, strong reserves & resources and business performance of Los Pelambres strengthened its operations, even as declining production is a cause for concern. 

Demand for copper and new capital investment plans may provide new growth opportunities to the company. The company hadstrong production volumes in the Q1 FY2019 and expected to increase further in the second and third quarter.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 848.00 (as on 9th July 2019) with high single-digit upside potential based on 18.50x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.) and 5.50x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).

*All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.80104 GBP.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 10^th July 2019).

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