More on Antofagasta
Antofagasta: 2005 results
Antofagasta, a miner that is almost a pure play on the copper market reported that pre-tax profits rose 28% to $1.5bn in the year to December 2005.
The company’s activities are based mainly in Chile, where it operates three copper mines, Los Pelambres, El Tesoro and Michilla, with a total production of 467,300 tonnes in 2005. The company is also involved in exploration particularly in Chile and Peru.
The company also operates an extensive rail network servicing the important mining region of northern Chile, which is centred on the port of Antofagasta and it also has a water division that operates a concession for the distribution of water in this region.
The better results were largely due to price increases; copper production dipped 6% from the previous years level of 498,000 tonnes, partly due to lower ore grades at Los Pelambres and partly as a result of the decision to maximise molybdenum production to take advantage of high prices Copper prices rose 28.5% to an average 167.1 cents per pound while prices of molybdenum, a by product of copper mining, nearly doubled to average $32 per pound. Molybdenum is used in alloys, particularly steel, as a hardening agent.
The company expects copper production in 2006 to drop to just over 440,000 tonnes, and molybdenum production to increase by almost a quarter to 10,800 tonnes.
Despite the expected drop in copper output, the outlook for the company looks good. Copper prices have risen from the 140 cents per pound range at the start of the year to over 200 cents by December. Prices in the first two months of 2006 have averaged 220 cents. The company says that while total visible inventories have increased to around 200,000 tonnes, copper stocks still remain at critically low levels.
Molybdenum, prices have weakened somewhat and have averaged $23 per pound for the first two months of the year. Full year prices are expected to be within the $20-$25 range.
Growth could be boosted further by the possible acquisition of Australia’s Tethyan Copper Co. Ltd. Antofagasta raised its friendly offer to A$1.40. Tethyan’s board has apparently indicated it would accept Antofagasta’s offer in the absence of a better offer. Antofagasta currently owns 14.9% of Tethyan.
The share trades at 2058p, on a prospective PE (2006 earnings) of 14.7x, with a yield of 2%.
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