14th Aug 2018 10:57
LONDON (Alliance News) - Antofagasta PLC on Tuesday said higher costs have hit its interim earnings, with performance at its Centinela mine in Chile particularly weaker year-on-year.
Earnings before interest, tax, depreciation, and amortisation fell 16% to USD904.2 million due to higher costs - the Ebitda margin fell to 43% from 53%. Antofagasta's pretax profit for the period was USD465.6 million, down 32% from USD688.6 million a year ago.
Antofagasta was down 5.8% Tuesday in London at 897.20 pence, the worst faller in the FTSE 100 index.
The company's operations are all in the Antofagasta region in northern Chile, save for the flagship Los Pelambres in the central Coquimbo region, which makes up around half of company revenue.
At Centinela, Ebitda was down significantly year-on-year, falling to USD229.2 million from USD420.0 million a year prior.
This was due to lower copper and gold sales as well as higher costs, which were only partly offset by higher commodity prices.
Centinela's output fell 11% year-on-year, while net cash costs were 62% higher.
Antofagasta said it is considering two potential plans for expanding Centinela: the first is to upscale the existing plant while the other is to build another one.
The miner hopes to have a feasibility study for a second concentrator by the end of 2018, at which point it will choose which path to go down. Whichever decision is taken, increased production would begin from 2023.
Performance was more positive from Los Pelambres. Ebitda increased to USD594.0 million from USD521.7 million, though production did likewise fall, but only by 3.1%.
The decrease was due to a previously announced pipeline blockage, leading to 9,200 tonnes of copper in concentrate being stockpiled which cannot be recorded as production until it is shipped to port at Los Vilos.
The blockage was reported in early May. At the time, the firm said there was no damage to the pipeline nor any leak.
Until the blockage, production had been 2.5% higher year-on-year due to higher throughput.
Net cash costs at Los Pelambres were 4.6% lower year-on-year.
There are also upgrade plans for Los Pelambres, with Antofagasta saying in May it hopes to boost production from the mine by 55,000 tonnes a year over the next few years.
Antofagasta's Antucoya mine, which makes up about a fifth of group revenue, Ebitda dipped to USD66.0 million from USD79.9 million due to lower copper sales.
Production of copper from Antucoya was 32,900 tonnes, 17% down year-on-year, which Antofagasta attributed to lower grades and recoveries.
Cash costs are the mine were 27% higher.
Lastly, at the Zaldivar mine, copper production fell 18% to 21,300 tonnes with Ebitda falling to USD49.6 million from USD56.8 million.
Despite the fall in copper production during the first six months, Antofagasta is maintaining its full-year guidance at between 705,000 tonnes to 740,000 tonnes, with grades set to improve going ahead.
Looking at the worldwide copper market, Antofagasta said the outlook is "favourable" in the mid to longer term as demand is expected to grow while supply growth is constrained.
However, it did caution on the shorter term, saying there is "considerable" market uncertainty due to ongoing international trade disputes.
So far, Antofagasta continued, there has been no significant impact on copper demand that can be clearly blamed on this uncertainty.
One other potential headwind is the strength of the dollar on copper prices, but the company said this also has a positive impact on its local costs.
As of Tuesday, copper per tonne was quoted at USD6,091.87, having been well above the USD7,000 mark per tonne for much of the past 12 months.
At a group level, Antofagasta's revenue increased 3.6% year-on-year to USD2.12 billion, driven by a 10% rise in copper prices despite group copper output falling 8.5% to 317,000 tonnes.
Group cash costs were USD1.92 per pound, 36 cents higher year-on-year, due to a stronger Chilean peso, lower production, and higher input costs.
Antofagasta's gold production fell 36% to 72,000 ounces due to lower grades from Centinela.
The company is paying a 6.8 cents interim dividend, compared to 10.3 cents a year ago, in line with its 35% net earnings payout ratio.
Chief Executive Ivan Arriagada said: "As we have guided, this year is a tale of two halves. The first half, on which we are reporting, is expectedly softer due to lower sales tonnes and grades and higher costs, but we are expecting tonnages and unit costs to improve substantially during the second half and well into 2019 as mined grades increase in line with our mine plan.
"Regardless of external factors such as prices, inflation and foreign exchange movements, Antofagasta is well positioned for growth, generating strong cash flow and improving returns. The outlook is positive."
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