Antofagasta smashed by output worries

It's been an incredible year for the mining sector. The FTSE 350 mining index is up 90% to its highest in almost 17 months amid a sharp uptick in commodity prices. But it's been easier for some than others, and copper giant Antofagasta has underperformed heavyweight peers Rio Tinto and BHP Billiton by some margin. Now, a weak production forecast alongside third-quarter results has sent the shares crashing by over 7%.

Chief executive Iván Arriagada had been in a good mood. In charge for just six months after replacing Diego Hernández in April, he reported copper production up 8.7% on the previous three months, as the Antucoya mine in Chile hit full production in August. Output of 180,600 was a little light on forecasts for 185,000 tonnes at broker Peel Hunt, however.

And, despite an anticipated improvement during the fourth quarter, full-year production will still only be "close to the lower end of the original guidance range of 710,000 to 740,000 tonnes".

Arriagada, who used to run the company's Minerals division, said Anto would continue to drive down costs, having already lowered net cash costs by 5.6% on the previous quarter to $1.18 per pound (/lb). Year-to-date they're down 18% at $1.23/lb, and are expected to be $1.25/lb for the full-year, five cents less than previous guidance.

Overhauling mine plans and decision making will focus Anto on "profitable tonnes" and production in 2017 is now expected to be in the range of 685,000 to720,000 tonnes. That's "disappointing", says Barclays, which had pencilled in 743,000 tonnes. Planned capex of below $900 million is also higher than the broker's target of $816 million.

An enterprise value/cash profit multiple of 7.1 times 2017 estimates is "not particularly attractive compared to the diversifieds," it says.

Renewed optimism around the Chinese economy and demand for raw materials has underpinned commodity prices. The spot price for gold and molybdenum in September had risen to $1,316/oz and $6.71/lb from $1,115oz and $5.30/lb a year ago. However, copper, Anto's biggest money spinner, was unchanged from June, but down from $2.35/lb this time last year.

Ahead of these results, Peel Hunt analyst Peter Mallin-Jones had pencilled in 2016 sales little changed at $3.4 billion (£2.8 billion), driving adjusted pre-tax profit of $758 million, up from $269 million in 2015.

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