Copper price rise drives bumper payday for Antofagasta shareholders

Antofagasta, one of the world’s biggest copper miners, has announced a bumper payout to shareholders on the back of rising prices and cost-cutting as its flagged higher costs for a key expansion project.

The London-listed company, which is controlled by the billionaire Luksic family, declared a final dividend of 40.6 cents a share, bringing its total payout for 2017 to 50.9 cents — higher than analysts had expected.

This helped offset news higher-than-expected development costs for the expansion of its Los Pelambres mine. The first phase of the project will now cost $1.3bn, up from $1bn previously, with a final investment decision to be taken in the second half of the year.

“For us, this just goes to highlight once more the rising incremental capital intensity of copper production growth across the industry,” said Paul Gait, analyst at Bernstein Research

Big dividend payments have been a key feature of the annual reporting season for the mining sector as higher commodity prices and lower debts have allowed to companies to ramp up shareholder returns.

Antofagasta’s total dividend of 50.9 cents was an increase of 177 per cent on 2016 and represented 67 per cent of underlying earnings, well above its minimum payout ratio of 35 per cent.

The FTSE 100 company said earnings before interest, tax, depreciation and amortisation — a figure closely tracked by analysts — jumped 60 per cent per cent to $2.6bn in the year to December. Pre-tax profits were $1.86bn, against $284.6m in 2016.

The company, which operates entirely in Chile, reported a 31 per cent increase in revenue to $4.75bn.

Production was 704,300 tonnes of copper, in line with guidance but down 0.7 per cent year on year.

It forecast output of 705,000 to 740,000 tonnes for 2018 and said $100m cost-savings programme would be put in place for 2018.

“We have continued to invest through the cycle while maintaining our focus on cost discipline and operating performance. As a result, as copper prices rose in 2017 Antofagasta had another successful year,” said the company’s chief executive Iván Arriagada.

Aided by strong global growth and weak suppliers, copper has risen almost 20 per cent last year to more than $7,000 a tonne. It is currently trading at $6,900 a tonne. The metal is used in everything from household electrical wiring to electric motors in cars.

On the outlook for copper prices, the company said it expected the market to tighten in the second half of the year and to be in balance or in a slight deficit for the full year.

It also flagged the potential for disruption from the “unusually large number of labour negotiations taking place in Chile and Peru during 2018”.

“With the backdrop of stronger copper prices, employee expectations may be raised which could result in some supply disruptions in the region,” it said.

Workers at Los Pelambres, Antofagasta’s biggest mine, have just voted to strike, after rejecting the company’s latest pay offer. The two sides are currently in mediation, which is expected to last one to two weeks.

There are raft of labour negotiations in the copper industry this year — mainly in Chile and Peru — with an estimated 7m tonnes of production at risk from industrial action, according to Barclays. To put that figure in perspective, around 23m tonnes of copper was produced globally last year.

Shares in Antofagasta rose 2.6 per cent to 910p, giving the company at market value of almost £9bn. They have underperformed the FTSE 350 Mining index by 14 per cent over the past six months.