Antofagasta crushed by copper move

Antofagasta is coming under increasing pressure as copper drops to a five-year low.

A miner
Source: Bloomberg

The Chilean copper miner has dropped over 14% in the past 12 months, and sharpest daily decline came during the week when the price of copper sunk to multi-year low. The share price of Antofagasta was already in decline for a number of years, and the slowdown in China played a large part in this.

The recent move by the World Bank – to cut global growth forecasts – sent shockwaves through the commodities markets, and Antofagasta was caught in the line of fire. We have entered a new phase in the dwindling demand for copper, as it has now become a worldwide issue and not just as Chinese one.

The company reported a 3.5% rise in first-half revenue, but profits slipped 7.6% as higher costs in its Esperanza mine ate into the group’s bottom line. The firm outlined plans to spend up to $250 million on equipment and machinery to modernise the mine, but in light of the move in commodity prices it may have moved too soon. Rising extraction costs and falling metal prices is a dangerous combination for Antofagasta.

The Chilean company announced plans to close its Michilla mine after three decades of operation because it is no longer economically viable. The quality of the grades have been in decline and sliding copper prices brought about the decision to wind down the mine. In these testing times in the mining industry companies look to trim costs and strip assets, and Antofagasta will need to do both in order to stay ahead of the curve.

Antofagasta will announce its full-year profits in March, and traders are expecting revenue of $5.37 billion and adjusted net income of $695 million. These expectations equate to a 10% decline in revenue and a 5.5% increase in adjusted net profit. The company will also report its second-half figures in March, and the consensus is for revenue of $2.82 billion and adjusted net profit of $485 million. The first-half figures missed dealers’ estimates, with revenue coming in at $2.66 billion and adjusted net income at $337 million. The consensus was for $2.7 billion and $397 million respectively.

Equity analysts are bullish on Antofagasta, and out of the 30 recommendations, seven are buys, 19 are holds, and four are sells. The average target price is £7.84 which is 17.3% higher than the current price.

Investment banks are even more bullish on its competitor Vedanta Resources. Out of the 17 ratings, five are buys, eight are holds, and four are holds. The average target price is £7.79, which is more than double the current price.

The downside bias remains in place, and immediate support is at £6.60, which if held would put the 50-day moving average of £7.22 in sight. However, a move below £6.60 will convert current support into resistance with downside support at £6. 

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