Antofagasta PLC (LON: ANTO)

Antofagasta PLC (LON: ANTO) is an FTSE 100 index listed Company engaged in copper mining. Moreover, ANTO operates through four copper mines in Chile. The Company is well known for creating sustainable value, high profitability, and operating efficiency. Furthermore, the transport division facilitates rail and road cargo services in northern Chile to mining customers. It also produces gold and molybdenum as by-products from two mines in Chile.

On 19 January 2022, the Company will release the Q4 FY21 production report, and on 22 February 2022, ANTO will come up with FY21 preliminary results.

Recent Trend of Dividend payments

ANTO had paid an H1 FY21 interim dividend of 23.60 US cents per share on 01 October 2021, while the ex-dividend date was 02 September 2021. In comparison, the Company paid an interim dividend of 6.20 US cents per share attributable for the prior year.

(Data Source: LSE Website, Research done by Kalkine Group

Growth Prospects

• New Construction: The construction of the desalination plant at Los Pelambres remained on track for completion in H2 FY22. Moreover, the Los Pelambres Expansion project was 59% completed at the end of Q3 FY21. Meanwhile, the construction of the Chloride Leach project at Zaldívar got 90% completed at the end of Q3 FY21, and the completion was expected by the first half of 2022.
• Carbon Emission Targets: ANTO aims to reduce Scope 1 and Scope 2 CO2 emissions by 730,000 tonnes or 30% by 2025 from the levels of 2020.
• Exploration Activities: The Company had shown accelerated progress towards the exploration activities as ANTO’s exploration & evaluation costs increased by USD 8.1 million to USD 52.3 million during H1 FY21.

Key Risks

• Weak FY22 Guidance: The grades decrease at Centinela Concentrates, and expectations of no precipitation until the next rainy season may cause a decline in copper production during 2022.
• UK GDP: The UK GDP grew by around 1.1% during Q3 FY21, less than the estimated figure of 1.3%.
• Climate Change: The drought in the central part of Chile and excess rainfall in the northern part of Chile had adversely impacted the operations.
• Omicron Variant: The increased number of Omicron cases worldwide could delay the drilling activities.
• Project Execution: Failure to effectively manage the development projects could result in delays and bring down the bottom-line profitability.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Antofagasta PLC.  

Q3 FY21 Production Highlights (as of 20 October 2021)

(Source: Company result)

• Copper Production: Copper production came out to be 1.5% higher at 181,100 tonnes during Q3 FY21 when compared with the previous quarter.
• Impressive Gold Production: The YTD gold production rose by around 25.4% to 187,300 ounces driven by higher grades at Centinela.
• Net Cash Cost: The net cash costs were USD 1.16/lb in Q3 FY21 and USD 1.15/lb for the year-to-date.

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 19 August 2021)

(Source: Company result)

• Top-Line Business: The higher realised copper prices pushed revenue higher by around 67.9% to USD 3.59 billion during H1 FY21.
• Profitability: The profit before tax had shown a significant increase of USD 1,396 million to USD 1,784 million during H1 FY21.
• Resilient Financial Position: With regards to the balance sheet, the Company ended H1 FY21 with net cash of USD 701 million as of 30 June 2021.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Data Source: REFINITIV, Analysis by Kalkine Group)

On 22 December 2021, at 08:37 AM GMT, ANTO’s shares were trading at GBX 1,296.00, down by around 0.15% from the previous day closing price. Stock 52-week High and Low were GBX 1,972.00 and GBX 1,279.20, respectively.

From a technical perspective, the 14-day RSI of ~38.92 is inching towards the oversold zone, supporting the upside potential in the stock price. Moreover, the stock price is hovering around the lower standard deviation of the Bollinger Bands.

Over the last one year, ANTO’s stock price has delivered a positive return of ~41.55%; and it has outperformed the FTSE 100 index (benchmark index) with a return of negative 4.53%.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook

ANTO had achieved excellent H1 FY21 results and robust Q3 FY21 production results. Moreover, the Company remained on track to achieve full-year copper production ranging from 710,000 tonnes to 740,000 tonnes during FY21, and the net cash cost is expected to remain lower than the USD 1.25/lb. Meanwhile, the accelerated mine development at Centinela and sustaining capex at Los Pelambres raised expected FY21 capital expenditure ranging from USD 1.6 billion to USD 1.8 billion. With regards to the shareholders’ returns, the Company had displayed a 280.6% growth in the interim dividend payments boosted by the robust profitability achieved during H1 FY21.

However, the stock price may undergo sizeable corrections because of a surprise increase in the interest rates by the Bank of England and a record Covid-19 cases in the UK. Thus, it depends on the risk appetite of the clients to take a reasonable position in this Company having robust fundamentals.

Considering the impressive FY21 production guidance, several development projects, robust top-line business, growth in the interim dividend, strong profitability, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Antofagasta at the current price of GBX 1,296.00 (as on 22 December 2021 at 08:37 AM GMT), with lower-double digit upside potential based on 14.15x Price/NTM Earnings per share (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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