Antofagasta PLC

Antofagasta PLC (LON: ANTO) is a FTSE 100 listed, International Copper Mining Company. It is primarily engaged in the activities related to exploration, evaluation, and mining of Copper in Chile.

On 1 October 2021, the interim dividend will be paid to shareholders on the register at the close of business on 3 September 2021.

Investment Rationale – BUY at GBX 1,347.50

• Antofagasta generated a revenue of US$3.6 billion in H1 FY21, which boosted EBITDA by 133% year-on-year to a record US$2.4 billion.
• The operating discipline and cost control kept operating costs below guidance, reflected resilience and agility of the business model.
• In FY21, Antofagasta is also targeting to achieve savings of US$100 million. In terms of guidance for FY21, production guidance has been revised to 710-740,000 tonnes, while the net cash cost guidance was maintained at US$1.25/lb (pound).
• Antofagasta has strong profitability multiples as gross margin, operating margin and net margin were 60.5%, 50.7%, and 31.2% in H1 FY21, respectively. All three margins were better than the industry median.
• From a technical standpoint, 14-day RSI (~39.90) is inching towards the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bolling Bands.
• ANTO’s dividend yield is higher than the Basic Material’s sector.

Risk Assessments

• The US Dollar is surging on signals regarding asset tapering the US Federal Reserve, copper prices can soften.
• The copper prices can drop significantly as sluggish economic growth keeps a lid on demand.
• The factory activities are also growing at lower pace due to the resurgence in Covid-19 cases globally.

Recent News

Copper Mark: On 9 August 2021, Antofagasta obtained its first Copper Mark at Centinela mines, reflecting that the Company is following the international sustainable production standards. 

Financial Highlights (for the six months ending 30 June 2021, as on 19 August 2021)

 (Source: Company Website)

• Higher realised copper prices offset the decreased sales volume in H1 FY21. Subsequently, the Company ended the H1 FY21 with net cash of US$701 million on 30 June 2021.
• The earnings per share in H1 FY21 of 67.5 US cents, was 53.8 US cents higher than the H1 FY20.
• The Company declared an interim dividend of 23.6 US cents per share, representing a pay-out ratio of 35% of net earnings.
• During the H1 FY21, ANTO incurred capital expenditure of US$782 million, representing 49% of FY21 guidance.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

In H1 FY21, the Group revenue surged 67.9% year-on-year due to increased copper prices. However, copper prices can get hit by a drop in Chinese imports recently. Notwithstanding, the Copper industry is fundamentally strong for the long run with the advancement of green transportation and renewable energies. Moreover, the global economy is expected to recover quickly with a reduction in new Covid-19 cases and increased vaccination level, which will eventually support the copper market further. The stock made a 52-week high and low of GBX 1,972.00 and GBX 978.40, respectively.

Based on the robust financial performance, strong balance sheet, reiterated cost guidance, long-term copper demand fundamentals, supported by the valuation conducted above, we have given a “BUY” recommendation on Antofagasta PLC at the current market price of GBX 1,347.50 (as on 1 October 2021 at 8:50 AM GMT+1), with lower double-digit upside potential based on 16.52x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Griffin Mining Ltd

Griffin Mining Ltd (LON: GFM) is a FTSE AIM All-Share listed mining and investment entity. It is engaged in the operation of the Caijiaying mine to produce gold, silver, zinc, and lead.

Investment Rationale – SPECULATIVE BUY at GBX 85.00

• GFM reported excellent top-line and bottom-line growth in H1 FY21, following the substantial growth in concentrate production of zinc, silver, and gold.
• In H1 FY21, the average price received for zinc metal was up by 69.4% year-on-year.
• China Evergrande Group’s debt default concern has impacted the investors’ risk appetite, supporting the gold prices as haven.
• From a technical standpoint, 14-day RSI (~45.06) is inching towards the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bolling Bands.
• On a forward 12-month basis – EV/EBITDA, EV/Sales Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite undervalued against the industry median of Basic Materials sector.

Risk Assessments

• Rising US Treasury Bond Yield can dampen the price of precious metals. Moreover, the slowdown in industrial production in China can also impact the demand for precious metals.
• The Global Covid-19 pandemic could result in the suspension of operations and increase labour absenteeism.
  

Recent News

Board Appointment: Mr Clive Whiley was appointed as Senior Independent Director of the Company.

Financial Highlights (for the six months ended 30th June 2021, as on 9 August 2021)

 (Source: Company Website)

• During H1 FY21, GFM reported 154% and 512% year-on-year increased in revenue and gross profit, respectively.
• The profit before tax stood at US$15.5 million from the loss before tax of US$3.0 million in H1 FY20.
• The basic earnings per share stood at US 5.88 cents from the basic loss per share of US 2.22 cents in H1 FY20.

One Year Share Price Chart

 (Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

The higher production was supplemented by higher realised metal prices to deliver solid financial growth in H1 FY21. As per the Chairman Mladen Ninkov, GFM expects to report outstanding results in FY21 if the zinc and gold prices hold firm or rise further. However, the uncertainties pertinent to Covid-19, ongoing diplomatic tensions, and inflationary pressure can impact the Company’s growth strategy. Notwithstanding, the awarding of Zone II mining license, robust production base, and solid financial results in H1 FY21, shows the business resilience to deliver significant value for its shareholders. The stock made a 52 week High and Low of GBX 168.80 and GBX 56.95, respectively.

Based on the excellent financial results, solid production base, robust cash generation, supported by valuation conduced above, we have given a “SPECULATIVE BUY” recommendation on Griffin Mining Ltd at the current market price of GBX 85.00 (as on 1 October 2021 at 8:49 AM GMT+1) with lower double-digit upside potential based on 7.94x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.