Antofagasta rubbishes merger rumour

Antofagasta had few fans in the City before Bloomberg stirred up merger speculation. Little has changed now that the rumour has been swiftly denied. It's unlikely that the Chile-focused mining giant is in play, either, reckon wise heads in the Square Mile.

According to the news agency, Antofagasta has held high-level talks with $8 billion Teck Resources, Canada's third-largest mining group, about an all-share deal which would create one of the world's biggest copper producers.

But just hours after the article appeared, the talks were denied: "Antofagasta plc notes the press speculation earlier today and can confirm that it is not in discussions with Teck Resources about a potential merger," read a brief RNS statement on Tuesday.

There was little appetite for the story in the City, either. "Our initial reaction to any potential deal is puzzlement, seeing no obvious benefits to Antofagasta," said the team at Citi. "Operating synergies would be relatively small. Strategically we see no benefits to Antofagasta's minority shareholders from diversification into coal and zinc (although this does hinge on long-term prices); plus risk of a major de-rating risk from losing the pureplay copper premium."

"Looked like an unlikely scenario in any case, in our view," said Numis Securities.

Clearly, the only good rationale would be if Antofagasta's Los Pelambres mine was at risk - it produced 391,300 tonnes of copper in 2014 - although if it was "Teck would walk". Citi also thinks it unlikely the miner is in play. "Investors may interpret that the Luksic family is willing to part with Antofagasta but this is highly speculative at this point, in our view."

Citi remains "cautious" on Antofagasta and still rates the shares as a 'sell' with a 690p target price. Numis says 'reduce' with a 600p target and Investec, which downgraded the stock to 'sell' this week with a 631p target, says: "We would be surprised if Anto's major shareholder (the Luksic family c. 65%) would have been supportive of diluting control of the company unless they were seeking an eventual exit that seems unlikely."

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