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.

Recent Trend of Dividend payments

ANTO will pay a final dividend of 118.90 US cents per share on 13 May 2022, while the ex-dividend date was 21 April 2022. It will take the total dividend to 142.5 US cents per share, an increase of around 160.5% from the prior-year levels.

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

Growth Prospects

• Strong Demand for Copper: The Company expected a higher demand for copper, driven by continued decarbonisation of industrial activity and the growth of the clean energy sector. Moreover, ANTO anticipated an additional demand of around 600,000 to 700,000 tonnes of refined copper per year.
• Drilling Activities: ANTO identified a significant greenfield manto type deposit in the coastal belt of the Antofagasta Region. Furthermore, the Company aimed to proceed with drilling during 2022.
• Key Brownfield Developments: The construction of the desalination plant at Los Pelambres remained on track for completion in H2 FY22. Moreover, the Los Pelambres Expansion project was 68% completed at the end of FY21. Meanwhile, the construction of the Chloride Leach project at Zaldívar got completed at the end of January 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.

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.
• Climate Change: The drought in the central part of Chile and excess rainfall in the northern part of Chile can adversely impact the operations.
• Project Execution: Failure to effectively manage the development projects could result in delays and bring down the bottom-line profitability.

Key Fundamental Statistics & Shareholding Pattern of Antofagasta PLC.  

E. Abaroa Foundation is the most significant shareholder as it holds nearly 598.02 million shares as of 31 December 2021. 

FY21 Financial Highlights (for the 12 months ended 31 December 2021, as of 22 February 2022)

 (Source: Company result)

• Top-Line Business: The higher realised copper prices pushed revenue higher by around 45.6% to USD 7.47 billion during FY21.
• Profitability: The profit before tax had shown a significant increase of approximately 146.1% from USD 1.41 billion in FY20 to USD 3.48 billion during FY21.
• Resilient Financial Position: With regards to the balance sheet, the Company ended FY21 with net cash of USD 540.50 million as of 31 December 2021. In comparison, the Company was in a net debt position at the end of FY20.
  

Financial Ratios (FY21)

Share Price Performance Analysis

(Data Source: REFINITIV, Analysis by Kalkine Group)

On 23 February 2022, at 08:01 AM GMT, ANTO’s shares were trading at GBX 1,419.50, up by around 1.00% 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 stock price is hovering above the 20-days exponential moving average of GBX 1,368.80, supporting the upside potential in the stock price. Moreover, the MACD line has given the bullish crossover against the signal line, supporting a bullish price momentum.

On a YTD basis, ANTO’s stock price has delivered a positive return of ~8.56%; and it has outperformed the FTSE 100 index (benchmark index) with a return of 1.99% and FTSE All-Share Precious Metals & Mining index (benchmark sector) with a return of negative 8.19%.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

ANTO has achieved excellent FY21 results with a record EBITDA because of the higher copper price. Moreover, the Company has expected to achieve full-year FY22 copper production ranging from 660,000 tonnes to 690,000 tonnes, and the net cash cost is expected to remain around USD 1.55/lb. Meanwhile, the accelerated mine development at Centinela and sustaining capex at Los Pelambres raised expected FY22 capital expenditure ranging from USD 1.7 billion to USD 1.9 billion. With regards to the shareholders’ returns, the Company had displayed a 160.5% growth in the dividend payments boosted by the robust profitability achieved during FY21. In a nutshell, ANTO would continue to generate increased returns for the shareholders as a reliable and responsible copper producer with the operational and financial strength.

Considering the robust FY21 financial numbers, several brownfield development projects, robust demand for copper, solid 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 1,419.50 (as on 23 February 2022 at 08:01 AM GMT), with lower-double digit upside potential based on 23.62x Price/NTM Earnings per share (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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