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Antofagasta profits soar, but costs remain a headwind

Surging copper prices helped Americas-focused miner Antofagasta deliver record profits for 2021.
Antofagasta profits soar, but costs remain a headwind Antofagasta profits soar, but costs remain a headwind Antofagasta profits soar, but costs remain a headwind Antofagasta profits soar, but costs remain a headwind Antofagasta profits soar, but costs remain a headwind

Antofagasta reported earnings before interest, tax, depreciation and amortisation (EBITDA) at a record US$4.8 billion in 2021, up by 77% year on year.

Antofagasta maintained 2022 copper production guidance at 660 000-690 000 tonnes at a net cash cost of US$2 per pound.

Antofagasta chief executive Ivan Arriagada said the results showed the group had "the operational and financial strength and balance sheet to deliver on our promises".

The high profits allowed Antofagasta to deliver a record shareholder pay out of $1.4 billion for the year.

"Strong metals prices will likely be driving strong operating cash flows (above present estimates), which looks supportive of further elevated dividend returns through 2022," investment bank Peel Hunt said in a note.

But rising costs took some of the sheen of the results. Antofagasta reported capital expenditure up 36% to US$1.77 billion in 2021, due to the expansion of its flagship mines Los Pelambres and Centinela.

Captial expendire is expected to increase by another US$1.7 billion-1.9 billion in 2022 due to further expansion costs and continued water shortages.

Investment bank Jefferies maintained a buy rating on Antofagasta, despite the rising cost pressures, due to a bullish outlook on copper prices. "We expect Anto to have significant earnings growth despite these headwinds as the copper price will likely increase to levels well above consensus expectations," Jefferies said.

Antofagasta also announced a US$177.6 the value of its Twin Metals copper and nickel project in Minnesota, after the cancellation of leases on the project.

The US government on January 26 cancelled two leases withing Twin Metal's project plan, removing a significant proportion of the project's mineral resources.

The leases were originally cancelled in 2016 over environmental concerns, with the decision subsequently reversed, and now reversed again.

 Antofagasta maintains that it has a legal right to the leases, and a strong case to defend the project, but has recognised the impairment due to uncertainty posed by the dispute.

Antofagasta shares were up 2.4%, at 1,430.00p, at 11.03 London time.