Antofagasta PLC

Antofagasta PLC (LON: ANTO) is a FTSE 100 listed, International Mining Company. It is primarily engaged in the exploration, evaluation, and mining of copper, gold, and molybdenum.

Investment Rationale for Valuation – SELL at GBX 1,493.00

• Profit Booking: ANTO’s stock price has surged over 13% in the past month; investors can book profit on this stock as per their risk-return profile.
• Company Warning: In the latest production update, Antofagasta has given a heads-up regarding higher unit costs due to the decrease in production.
• Technical Indicators: From a technical standpoint, ANTO has breached the upper Bollinger band, indicating a bearish price pattern. Furthermore, the 14-days RSI of ~63.61 reiterates the overbought position.
• Overvalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Cash Flow, Price/Book, and Price/Earnings valuation multiples are overvalued against the median of the Basic Materials sector.

Key Risks

• Inflationary and Supply Chain Issues: The ongoing drought situation in Chile has raised concerns related to the higher input costs and supply chain challenges.
• Omicron Worries: The Covid-19 pandemic continued to impact the production and witnessed the lowest production quarter. Moreover, copper prices can drop significantly as sluggish economic growth keeps a lid on demand.

Q4 FY21 Production Report (for the quarter ended 31 December 2021, as on 19 January 2022)

 (Source: Company Website)

• Lower Production: During FY21, production for copper and molybdenum fell against FY20, reflecting the impact of lower grades at Los Pelambres, and Centinela.
• Cash Costs: During FY21, cash costs before by-product credits were 14,7% higher than FY20.
• Guidance: It expects the copper production of 660-690,000 tonnes in FY22, at a net cash cost of US$1.55 per pound.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

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

Conclusion

ANTO’s stock price has given a decent run since our last coverage and giving a reasonable profit booking opportunity for the clients. Moreover, the Company has highlighted the higher unit costs due to production impact in FY22, which can eventually affect the Company’s financials. The stock made a 52-week High and Low of GBX 1,972.00 and GBX 1,279.20, respectively.

Based on the production impact, higher costs, decent notional gains, and unfavorable valuation as done using the above method, we have given a “SELL” recommendation on Antofagasta at the current price of GBX 1,493.00 (as of 20 January 2022, at 9:44 AM GMT).  

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.

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