Copper miner digs into its pockets
Antofagasta raises its dividend by a better-than-expected 21%, pleasing investors all round
The group, which operates mainly in Chile, reported net profit excluding exceptionals fell by 39% year-on-year to US$842.9 million in 2008, but including an extraordinary gain (on the sale of a 30% stake in El Tesoro and Esperanza to Marubeni of Japan) and impairment provisions net profit rose 23.5% to US$1.71 billion against analyst forecasts for a figure closer to US$1.0 billion.
The group’s net cash stood at US$2.9 billion at the end of 2008, which it said “means it is well placed to progress with its existing development and longer term growth plans in the current challenging economic environment, and to take advantage of opportunities which may arise."
Antofagasta raised its full-year dividend by 21% on 2007 to US$0.60 this time round in a move that will no doubt win it brownie points with investors.
“Dividend hikes are always good news,” a London-based trader remarked following the results release, “but Antofagasta’s is a touch better than we’d thought so the shares should get an extra boost from this.”
On the downside, however, the miner said copper production in 2009 is set to fall to 433,000 tonnes from 477,700 in the previous year—a decline of almost 10%. This should come as little surprise to the market as the current economic climate and the slump in metals prices since mid-2008 have hit mining groups globally.
Charles Cooper, analyst at Evolution Securities, said he does not expect the group to repeat 2008’s impressive dividend in 2009 as he forecasts copper prices to average US$1.25 per pound—a decline of 60% year-on-year on the back of “miserable demand and high levels of inventories.”
At last check, the copper price, which is seen as the main determinant of Antofagasta’s share price, was US$0.02 higher at US$1.67 on NYMEX. US copper futures had slipped lower in Monday deals but repaired some of the damage in late trade as Wall Street rebounded. The relative strength of the dollar curtails copper’s price rise as investors are currently seeing the greenback as a better bet than metals, including gold, as a safe haven play.
Cooper concluded that “while these were encouraging results, we retain our Sell recommendation taking into account lower long-term copper prices now that the bubble-environment of the past few years has evaporated.”
The analyst’s target price stands at 203p—a long way down from the current price, which at 9.00am was 523p, up 4.2% on the previous session. Other miners followed suit, with Eurasian Natural Resources 5.1% higher at 386.5p, Kazakhmys 3.6% ahead at 272.5p, and Anglo American firming 2.4% at 1,020p. The sector’s strength helped take the FTSE 100 index 0.7% higher to 3,565.6 points.
