Chilean copper mining group Antofagasta plc has had a strong start to the year. Earnings before interest, taxation, depreciation and amortisation (EBITDA) were up 88% in the first six months compared with the same period in 2016, said CEO Iván Arriagada.

Performance benefited from a combination of increases in the copper price, higher sales volumes and tight cost management, he said. Cash flow from operations is up 48% to US$1.1bn.

This improvement means that Antofagasta's interim dividend is up 232.3% on last year’s in the same period to 10.3 cents per share. Antofagasta has a policy of paying out a minimum of 35% of underlying net earnings.

Strategy remains focussed

“Antofagasta’s strategy remains focussed on producing profitable tonnes through reducing costs, making improvements in productivity and efficiency and the application of innovative solutions,” says Arriagada.

“A disciplined approach to capital allocation underpins our decision-making process. Projects and future developments must compete internally for capital with any excess cash distributed to shareholders.”

A recovery in copper demand means Antofagasta is well positioned for future growth, he adds. The outlook is a positive one. The share price rose 25 pence to 979.50 pence having touched 1002 pence in early trading. 

Grounds for optimism, and a caveat

A note from Commerzbank on commodities would appear to provide grounds for that optimism. It says that metals prices only seem capable of moving in one direction just now: upwards. But that comment is accompanied by something of a caveat.

Net long positions in copper on the Comex (formerly the Commodity Exchange) in New York reached a new record high of 120,000 contracts in the week to 15 August. Net long positions expanded in five consecutive weeks recently, and the price gained by nearly 9%.

It has risen further in the meantime. At nearly $6,600 per ton, copper yesterday (21 August) achieved its highest price since November 2014. “In our opinion, this price level is not justified,” say the Commerzbank analysts.

“On Friday, the International Copper Study Group reported a seasonally adjusted supply surplus of 125,000 tons on the global copper market from January to May. With the exception of January, the figures show a surplus every month so far this year.”

Antofagasta half-year financial highlights

• Revenue 41.9% higher at $2.049bn
• Realised copper prices increased by 25.3%
• Sales volumes increased by 14.3%
• EBITDA increased 87.8% to $1.0798bn mainly due to higher revenues
• EBITDA margin strengthened to 52.7%
• Operating cost reductions of $44m achieved

• Operating profit up by 149.9%
• Net earnings per share up 231.5%
• Operating cash flow generation up 48.2% to $1.147bn
• Capital expenditure of $410m, 46% of full-year guidance
• Group net debt cut by $212.1m to $859.6m
• Interim dividend declared of 10.3 cents per share

Antofagasta half-year operational highlights

• Group copper production 7.1% higher
• Group cash costs before by-product credits fell by 2.5% to $1.56/lb, primarily due to higher production and cost savings
• Group net cash costs 1.6% lower at $1.24/lb; this reflects lower cash costs before by-product credits and higher by-product credits