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 was listed on the London Stock Exchange in the year 1982 and is 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 Q3 FY 2019

In the third quarter of the financial year 2019, the company’s copper production was at 197,000 tonnes and declined by 0.8 per cent versus Q2 2019 data. The copper production for nine months FY2019 stood at 584,200 tonnes and surged by 15.6 per cent versus nine months FY2018 data. The company’s production was in line with the expectations and increased mainly because of high throughput and the expected higher grades.

The gold production for the YTD (year to date) stood at 226,600 ounces for the period. The production of gold surged by 88.7 per cent against the same period of the last year. In the third quarter of the financial year 2019, the company’s gold production was at 77,600 ounces and declined by 10.7 per cent versus Q2 2019 data due to a decline in the Centinela’s grades.

The production of Molybdenum for the Q3 FY2019 stood at 2,900 tonnes and declined by 100 tonnes versus Q2 2019 data. Due to lower grades, the production stood at 9,300 tonnes for nine months FY2019 and declined by 1,000 tonnes versus nine months FY2018 data.

The company’s cash costs (before by-product credits) in the Q3 FY2019 were at $1.60/lb and stood 1.2 per cent lower than Q2 FY2019 data. For the nine months FY2019, cash costs (before by-product credits) stood at $1.64/lb and was 11.4 per cent lower than the nine months FY2018 data. The unit cost improved due to costs savings, increased production and weaker Chilean Peso.

The net cash cost for the Q3 2019 was at $1.12/lb and stood at 1.8 per cent lower than Q2 FY2019 data. For the nine months FY2019, net cash coststood at$1.17/lb and was 17.6 per cent lower than the nine months FY2018 data.
The company expects copper production to be in between 750-790,000 tonnes in 2019, and costs are expected to be below $1.25/lb. The copper production in 2020 is expected to be around 725-755,000 tonnes.

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, Exploration and evaluation, Zaldívar, Antucoya, Centinela and Corporate and other items. In the first half of the financial year 2019, the company’s revenue from mining division has increased against last year data. The EBITDA and operating profit have increased for the first half of the financial year 2019. The PBT (profit before tax) and PAT (Profit after tax) from all the segments increased in the first half of the financial year 2019. The segment assets increased for the segments - Los Pelambres, Centinela and Antucoya in the H1 FY2019 versus H1 FY2018 data.

Financial Highlights – Half Yearly Results (30^th June 2019, USD, million)


(Source: Interim Report, Company Website)

In the first half of the financial year 2019, due to an increase in gold revenues and a 25.1 per cent increase in copper sales volumes, revenue was 19.1 per cent higher than in the same period of last year to $2,525.6 million. The rise in revenue was recorded despite a fall in the realised copper prices and lower realised molybdenum prices. The subsidiaries operating profit increased in H1 FY2019 by 52.1 per cent to $791.7 million versus $520.4 million in H1 FY2018. As revenue rose due to a higher production of cooper, EBITDA from the mining division increased by $402.3 million or 46.9 per cent to $1,260.8 million, leading to 44.4 per cent increase in group’s EBITDA to $1,305.9 million, which corresponded to an EBITDA margin of 51.7 per cent. Profit before tax increased by 63.9 per cent to $763.0 million in the first half of 2019 as against $465.6 million in H1 FY2018. The profit for the period stood at $490.4 million in H1 FY2019 and surged from $315.7 million in the first half of the financial year 2018. Profit attributable to the shareholders increased by $108.1 million from $194.3 million in H1 FY2018 to $302.4 million in the first half of the financial year 2019. The earnings per share (continuing and discontinued operations) were 30.7 cents per share in H1 FY2019 as against 19.8 cents in H1 FY2018.

Key Performance Indicators
 

Copper Production

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


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 on using 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 H1 FY2019 surged by 5.6 per cent to 43.50 per cent against 37.9 per cent reported last year for the same period. The reported EBITDA margin of 48.7 per cent for the H1 FY2019 stood higher than the industry median of 33.70 per cent. The reported operating margin in H1 FY2019 increased by 6.8 per cent to 32 per cent from 25.2 per cent reported last year for the same period. Net margin reported was 19.4 per cent for the first half of the financial year 2019, reflecting an increase of 4.6 per cent when comparedwith last year data for the same period. Return on equity for the first half of the Financial year 2019 stood at 4.1 per cent, which was lower than the industry median of 5.1 per cent. On the liquidity front, Antofagasta Plc’s current ratio was higher than the industry median of 1.67, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio stood at 0.37x, which was lower as compared to the industry median of 0.54x, reflecting that the company is less leveraged as compared to its peers.  
 
Share Price Performance


Daily Chart as at October-28-19, before the market close (Source: Thomson Reuters)

On 28th October 2019, Antofagasta Plc shares were trading at GBX 897.20 at the time of writing before the market close (at 11:24 AM GMT), up by 3.06 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,026.00/GBX 727.60.At the time of writing, the share was trading 12.55 per cent lower than the 52w High and 23.31 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 1,692,529.00; 30 days – 1,919,385.00 and 90 days – 2,145,586.12. The average traded volume for 5 days was down by 11.82 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.30, reflecting high volatility as compared to the benchmark index. The outstanding market capitalisation was around £8.60 billion, with a dividend yield of 4.25 per cent.

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


To compare Antofagasta Plc withits peers, Price/Earnings multiple has been used. The peers are Ferrexpo Plc(NTM Price/Earnings was 3.42), Petropavlovsk Plc(NTM Price/Earnings was 4.22), Petra Diamonds Ltd(NTM Price/Earnings was 4.90), Atalaya Mining Plc(NTM Price/Earnings was 5.17) and Central Asia Metals Plc(NTM Price/Earnings was 8.20). The average of Price/Earnings (NTM) of the company’s peers was 5.20x (approx.)

Method 2: Price to Cash Flow Approach (NTM) 



To compare Antofagasta Plc withits peers, Price/Cash Flow multiple has been used. The peers are Atalaya Mining Plc(NTM Price/Cash Flow was 8.88), BHP Group Ltd(NTM Price/Cash Flow was 7.29), Central Asia Metals Plc(NTM Price/Cash Flow was 5.79), Hochschild Mining Plc(NTM Price/Cash Flow was 5.00) and Petropavlovsk Plc(NTM Price/Cash Flow was 4.81). The Average of Price/Cash Flow (NTM) of the company’s peers was 6.35x (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 impact company/industry performance significantly.

Conclusion

The company’s financial performance has improved in the first half of the financial year 2019. Both the top-line and the bottom-line performance have improved for the current period. The company had good control over its input costs which resulted in an increase in the profitability of the company.

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 for the nine months FY2019 and expected to increase it further in the FY2020 period.

Over the course of 3 years (FY15 - FY18), the company’s revenue surged from USD 3,225.7 million in FY15 to USD 4,733.1 million in FY19. Compounded annual growth rate (CAGR) stood at 13.63 per cent.

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 870.60 (as on 25^th October 2019) with lower double-digit upside potential based on 5.20x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.) and 6.35x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).

*All forecasted figures and peers have been taken from Thomson Reuters (TR). Currency exchange rate taken for 1 USD = 0.77926 GBP.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 28^th October 2019).

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