Antofagasta falls short

Antofagasta still has much to do if its share price is to top 1,000p again, certainly if this second-quarter production report is anything to go by. The City had priced in an earnings beat, but higher costs have convinced many to downgrade expectations for the Chilean-based copper miner this year.

Although still on target to meet full-year production guidance of 700,000 tonnes of copper, 270,000 ounces of gold and 7,500 tonnes of molybdenum, first-half copper output was down this time due largely to lower grades at Los Pelambres. It was up 5.5% on the previous quarter at 178,000 tonnes, although the first three months of the year were affected by schedule maintenance both there and at Esperanza.

Gold enjoyed higher throughput, with production up 18% to 67,000 ounces, but molybdenum production fell on lower grades.

Disappointingly, cash costs before by-product credits were 4% higher than the previous quarter at $1.9/lb due to a one-off agreement with labour unions at Esperanza. Net cash costs of $1.45/lb were in line with the previous quarter, although costs for the six months were still up 16% on last year.

While Whitman Howard's Roger Bade found the update "encouraging," he admitted there were no surprises.

JPMorgan called the results "mixed". "Management reiterated production and cost guidance and we believe the risk of Antofagasta significantly beating full-year cost guidance is receding. Production looks set to remain broadly flat in the second half, while our forecasts already capture an anticipated improvement in grades at both Los Pelambres and Esperanza," it said, expecting pressure to be put on consensus forecasts. Investec has its forecasts and target price under review.

The update has caused JPMorgan to raise its earnings per share forecast by 3% and price target to 790p, still below the current 835p share price. But it keeps its 'neutral' recommendation as Antofagasta is trading at a premium to peers, with a forward price/earnings multiple of 19.

Numis Securities analysts reckon the stock "looks pricey here especially if copper price comes off".

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