More on Antofagasta
Antofagasta : Q1 production
Antofagasta’s FY05 first quarter production at 118,000 tonnes was 9% higher that the corresponding quarter but 4.7% below the quarterly average of 2004 and 10.1% below the last quarter of 2004. Group cash cost was low, reaching a negative 8.0 cents per pound as a result of higher molybdenum prices (up 94%).
Antofagasta produces copper and its activities are mainly concentrated in Chile where it owns and operates three copper mines, Los Pelambres (60% ownership), El Tesoro (61% ownership ) and Michilla (74.2% ownership). Antofagasta also operates a rail network servicing and distributes water in northern Chile. In 2004, Copper sales in concentrate at the Los Pelambres mine generated 82% of the operating profit, cathode copper production at the El Tesoro mine generated 13% of operating profit.
The larger Los Pelambres mine produced 68% of the total copper production in the first quarter; cash costs were negative 45.9 cents per pound at Los Pelabres in the first quarter compared with 33.3 cents per pound in the corresponding period. This was the result of high molybdenum prices, excluding which cash costs increased by 8.3%. Though production was up on the comparative period, production was below the quarterly average production of 2004 due to lower head grades partially offset by higher recoveries and higher processing of ore as seen in the latter part of 2004. Higher treatment and refining charges increased costs.
El Tesoro (22% of copper production) production was good. Michilla (10% of copper production) production was below the quarterly average due to lower head grades. The head grade fell by 3.5% due to “changes in the sequence followed in the mine plan due to operational factors”: which the company hopes to resolve by the second half of 2005. Higher sulphuric acid costs, higher power and petroleum costs increased cash costs in both mines.
Antofagasta’s share trades at a prospective PE× of 9.2 (at 1,156p). The 3.2% yield is in line with the sector. Copper prices are expected to fall (though not drastically) in the medium term as producers increase production to make use of the current higher prices. The growth of the Chinese and other Asian economies will sustain long term demand for copper. Antofagasta’s copper production is expected to be 5.7% lower in 2005 which will curtail profit growth.
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