Shares in the Chilean miner Antofagasta have dipped in the last two days from 1001 pence per share on Wednesday to 978 pence Friday.

There are two key reasons for the pullback; a drop in the copper price, the company’s main product, and the fact that the shares are currently trading close to the top of most analysts’ forecasts.

As a major copper miner Antofagasta lives and breathes the copper price and this week the dip in the company’s share price reflected a $137/t decline in copper prices to 6,800/t. The share price is now within reach of the high end of most analysts’ predictions. Barclays has pegged its target price at 965 pence a share and Citigroup at 1,100 pence, while Deutsche Bank is far more conservative at 700 pence.

In the short term the Antofagasta share price could remain slightly volatile – it is not unheard of for this stock to move 50-60 point move within two to three days.

Antofagasta shares outlook: higher production to boost income in 2018

But in the medium term it would take a braver person than me to bet against Antofagasta. Copper prices are directly correlated to the global economy and tend to grow in sync with it. The world economy is expected to grow by 3.5% this year and another 3.6% in 2018. Granted, the price of copper has already risen 26% since the beginning of the year but a part of that was in reaction to extremely low prices over the last few years.

Robin Bhar, analyst at Societe Generale, expects copper prices to fluctuate between $6,000/t and $8,000/t over the next six to 12 months and says that at this stage any dip in the copper price is a buying opportunity. He expects the copper market to remain in a slight deficit over the next few years.

Antofagasta is well positioned to benefit from slightly stronger copper prices. It has several projects on the go which will increase its production including the Encuentro Oxides project in the same district as its Centinela mine which is expected to start producing another 43,000t of copper over the next eight years. The company is also increasing the production of both gold and molybdenum, a minor metal used to produce specialty steels.

The grade of copper at some of the company’s deposits is declining and will result in higher cost of production and lesser income for some of its output but that is likely to be compensated by higher output across the group. In total the company expects to produce between 685,000t and 720,000t of copper this year and to increase that to 705,000t to 740,000t.

Unlike some of its Chilean peers, the company fended off strikes earlier this year and settled wage negotiations at two of its mines for the next three years. One more set of wage negotiations is due at its Los Pelambras mine early next year but so far Antofagasta has always managed to avoid strike actions from the local labour unions and find an agreement with the workers.

In all, the dips in Antofagasta’s share prices are likely to only be temporary.

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Commodities and Shares Editor
10th November 2017
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