December 9, 2021

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Copper miner Antofagasta posts bumper profits

Antofagasta PLC updates

Antofagasta’s first-half profits more than doubled on the back of rising copper prices but a water shortage in Chile has prompted the miner to cut production forecasts.

The Chilean group said on Thursday it would increase its interim dividend nearly fourfold from the same period last year, after copper prices rose 19 per cent in the first six months of the year.

Earnings before interest, taxes, depreciation and amortisation, the measure tracked by analysts, rose 133 per cent to $2.4bn on revenues of $3.6bn, a rise of 68 per cent, as higher copper prices offset lower production.

Antofagasta is the latest miner to report bumper profits thanks to rising commodity prices as countries ease Covid-19 restrictions. The big miners are benefiting from a surge in demand after years spent repairing balance sheets and cutting debt.

There has been increased demand for certain commodities at the same time, as countries look to reduce their carbon emissions in order to combat climate change. Copper is used in almost all clean energy technologies, from wind turbines to electric cars, because of its electrical conductivity.

Australian miner South32 reported a 153 per cent increase in annual underlying profit on Thursday on higher prices for aluminium, metallurgical coal and manganese. The company, which was spun out of BHP in 2015, also declared a special dividend of 2 cents a share.

Russian aluminium producer EN+ also reported that ebitda rose 150 per cent in the first half of the year to $1.89bn, driven by a 41 per cent increase in the price of aluminium during the period.

Iván Arriagada, Antofagasta’s chief executive, said the market was starting to appreciate the need for copper for clean energy technologies.

“Generally, we are in a trend of growth from an economic point of view, which is positive for commodities,” he said. “Especially copper, which is so key for climate change and emissions reduction. It opens up the prospect of a much improved outlook for copper.”

The mining industry was due a “re-rating” given the “prevalence of copper in the green economy and the urgency of climate change,” he added.

However, the company cut its production guidance for the year after the “driest [year] of a 12-year drought in Chile” reduced the amount of water available for its Los Pelambres mine.

“This is further evidence of under-appreciated supply risks in copper, in our view,” analysts at Jefferies said.

Shares in Antofagasta fell 4.5 per cent in London trading on Thursday amid a broad market sell-off.

Antofagasta now forecasts annual production of between 710,000 and 740,000 tonnes of copper, from an earlier estimate of between 730,000 and 760,000 tonnes. If there is no rain until the next rainy season, about 50,000 tonnes of copper production could be lost next year, Antofagasta said.

“We have now had 12 years of drought and the precipitation in 2021 has so far been less than in 2019, which itself was one of the driest years on record,” Arriagada said.

The company is building a desalination plant at Los Pelambres, which will become operational next year, to help with the water shortages.

“Once it’s built . . . we have got the water requirements addressed from the potential shortages we might have,” Arriagada said.

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