Antofagasta. Mining 3 November 2011 HOLD HOLD. Q3 Production results: Esperanza getting there. Flash Note Price target: (ANTO LN) Event.

Transcription

1 Antofagasta (ANTO LN) HOLD HOLD Flash Note Price target: Price target: Mining 3 November 2011 Q3 Production results: Esperanza getting there Event Antofagasta has released its December quarter production figures. Total group payable production was 165.0kt of payable copper, 2.4kt of payable molybdenum and 54.3koz of payable gold. With the exception of molybdenum, these figures were significantly higher than the June quarter due to the ramping up of the Esperanza mine. The weighted average cash cost of producing a pound of copper was US155.1c/lb and after by-product credits this reduced to US100.5c/lb. These costs were marginally below the June quarter costs reflecting the lower costs at Esperanza as the tonnage builds up. Comment This quarter was very much in line with expectations. The key point was that the Esperanza mine ramp up is making good headway, and in the quarter under review was the lowest cost producer in the group. Secondly, the feasibility study on the Antucoya project is now substantially complete and is undergoing internal review. There was also positive news on the Telegrafo and Caracoles deposits, which have now progressed to the feasibility study stage. If approved, the oxide ore from these deposits has the potential to keep the El Tesoro plant at near full production until Recommendation We have upgraded our recommendation to HOLD from SELL. The target price has been increased to from 9.46, due to the probably prolonged life at El Tosoro, the improved performance at Esperanza and the positive news floe re future growth potential. Earnings Table FYE Dec E 2012E 2013E Revenue (US$M): EBITDA (US$M): NPAT (inc significant items): EPS (USc): Cash Flow/Share (USc): Copper Price (USc/lb): Stock Data Current Price wk Range: month target: Market Cap (M): 11,593 EV (M): 11, Week range 864p Price Chart GBp 1,600 1,500 1,400 1,300 1,200 1,100 1, Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Company Summary Antofagasta is a leading copper producer listed on the LSE. Its major asset is the Los Pelambres mine which has recently commissioned an expansion to 175ktpd. Its other current producing mines are El Tesoro and Michilla, both significantly smaller than Los Pelambres. Antofagasta is currently commissioning the Esperanza mine which will add 215kt of copper and 175k oz of gold to average annual production. Analysts This is a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Non-US research analysts who have prepared this report are not registered/qualified as research analysts with FINRA, may not be associated persons of the member organisation and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Peter Rose Tel: +44 (0) peter.rose@fox-davies.com

2 The Operations Los Pelambres The Los Pelambres mine processed an average of 174.6ktpd grading 0.76% copper and 0.017% molybdenum. This compared with the Fox-Davies forecast of 178ktpd grading 0.74% copper and 0.02% molybdenum. Payable copper production was 104.9kt. Actual cash costs after tolling charges of 19.4c/lb and by-product credits of 45.3c/lb were 82.5c/lb. This was an increase of 7.3c/lb, and was due to lower molybdenum sales and prices plus an increase in treatment costs. Los Pelamres has signed a 20 year agreement with pattern Energy for the supply of up to 40MW of power. Pattern will develop and operate the 115MW El Arrayan wind power plant which is expected to begin construction in the 2H of 2012 and achieve commercial operation in the 2H of The Group has an option to acquire a 30% interest in the El Arrayan project. El Tesoro The El Tesoro mine processed an average of 23.9ktpd grading 1.31% copper and produced 24.5kt of cathode copper, with a cash cost of 161.9c/lb. These figures were very close to the Fox-Davies forecast once the ROM production is included. The copper grade of 1.31% was higher than the previous quarter due to the impact of treating higher grade ore from the Mirador pit which commenced in July. As a result of these higher grades cash costs also dropped 11c/lb quarter on quarter. In August 2011, El Tesoro signed a new 44 month labour agreement with its union. This was concluded ahead of the expiry of the existing agreement which was due to expire in early Michilla The Michilla mine processed an average of 12.5ktpd grading 1.34% copper and produced 10.3kt of cathode copper at a cash cost of 205.6c/lb. Costs were up due to the start-up of operations at the Aurora pit and the increase in the amount or ore bought from ENAMI. Esperanza Commissioning of the Esperanza plant continued through the quarter with the daily average throughput averaging 65.3kt, up from 53.3k in the second quarter. However, over several weeks between August and September an average rate of over 80,000tpd was sustained and on the 24 August a daily rate of nearly 105,000t was achieved. The focus of the ramp-up process continues to be the on maximising the throughput that can be archived in a steady-state of operation. Shipments of payable copper were 17,700t, some 7,500t below production due to a delay in programmed shipments at the end of September which was mainly due to bad weather. Cash costs per pound of copper came in at USc72.4/lb for the quarter, the lowest in the group. This was mainly due to high by-product credits. Projects and Exploration The pre-feasibility study of the Group s Sierra Gorda district was completed in September and the Group approved the initiation of ta feasibility study for expanding copper production in the valley through utilising the Telegrafo and Caracoles deposits. Part of the feasibility study will be new facilities to process sulphide ores from each of the Telegrafo and Caracoles deposits. In total, this could potentially increase sulphide processing capacity in the Sierra Gorda district from 97,000 tonnes of ore per day when the Esperanza mine reaches design capacity to a total of approximately 300,000 tonnes of ore per day by mid to late Additionally, both Telégrafo and Caracoles have oxide ores which could be processed at the El Tesoro SX-EW plant maintaining cathode production at near plant capacity until approximately The feasibility study, for which a budget of US$109 million has been approved, is expected to be completed in early The feasibility study in respect of the Antucoya project is now substantially complete and is undergoing internal review, and early works in respect of this project have begun. At the Reko Diq project in Pakistan, Tethyan Copper Company Pty. Limited ( Tethyan ), the Group s joint venture with Barrick Gold Corporation, received a response from the Government of Balochistan ( GoB ) on 21 September 2011 in relation to its mining licence application, as reported by Tethyan last month. The response set out a number of queries and observations in respect of the application, and gave Tethyan 30 days to respond to the observations. Tethyan sought to meet with the GoB to better understand their observations and concerns and requested an extension of an additional 60 days in order to engage with the GoB, however no extension was granted. On 19 October 2011, under the Chagai Hills Exploration Joint Venture Agreement ( CHEJVA ) between Tethyan and the GoB, Tethyan submitted its response to the GoB. Tethyan also filed a Notice of Dispute under the terms of the CHEJVA, which allows for a 120 day period during which Tethyan and the GoB may seek to meet and resolve the dispute.

3 Research Disclosures Peter Rose Peter Rose has 25 years experience in equities as a resources analyst, most recently having spent 11 years with Deutsche Bank in Australia. Prior to this he spent 3 years with Prudential Bache and 5 years with James Capel. Peter's industry experience includes 16 years as a metallurgist, 3 years with De Beers in South Africa and 8 years in the uranium industry, 5 of which were spent at the Ranger Uranium mine. Peter holds a BSc degree in Applied Mineral Science from Leeds University UK and a Bachelor of Commerce from the University of South Africa. Peter is also a member of the Institute of Mining & Metallurgy and a chartered engineer. +44 (0) Peter.Rose@fox-davies.com Investment analyst certification All research is issued under the regulatory oversight of Fox-Davies Capital Limited. Each Investment Analyst of Fox-Davies Capital Limited whose name appears as the Author of this Investment Research hereby certifies that the recommendations and opinions expressed in the Investment Research accurately reflect the Investment Analyst s personal, independent and objective views about any and all of the Designated Investments or Relevant Issuers discussed herein that are within such Investment Analyst s coverage universe. Fox-Davies Capital Limited provides professional independent research services and all Analysts are free to determine which assignments they accept, and they are free to decline to publish any research notes if their views change.

4 Research Disclaimers Research disclosure as of 03 November 2011 Company Name Disclosure Antofagasta (ANTO) 7 Investment Research Disclosure Legend: 1. In the past 12 months, Fox-Davies Capital Limited or its affiliates have had corporate finance mandates or managed or comanaged a public offering of the Relevant Issuer s securities or received compensation for Corporate Finance services from the Relevant Issuer. 2. Fox-Davies Capital Limited expects to receive or intends to seek compensation for Corporate Finance services from this company in the next six months. 3. The Investment Analyst or a member of the Investment Analyst s household has a long position in the shares or derivatives of the Relevant Issuer. 4. The Investment Analyst or a member of the Investment Analyst s household has a short position in the shares or derivatives of the Relevant Issuer. 5. As of the month end immediately proceeding the date of publication of this report, or the prior month end if publication is within 10 days following a month end, Fox-Davies Capital Limited and / or its affiliates beneficially owned 1% or more of any class of common equity securities of the Relevant Issuer. 6. A senior executive or director of Fox-Davies Capital Limited or a member of his or her household is an officer, director or advisor, board member of the Relevant Issuer and / or one of his subsidiaries. 7. Fox-Davies Capital Limited makes a market in the securities of the Relevant Issuer. 8. Fox-Davies Capital Limited acts as corporate broker for the Relevant Issuer. The Investment Analyst who is responsible for the preparation of this Investment Research is employed by Fox-Davies Capital Limited, a securities broker-dealer. The Investment Analyst who is responsible for the preparation of this Investment Research has received (or will receive) compensation linked to the general profits of Fox-Davies Capital Limited. Research recommendations Fox-Davies Capital uses a five-tier recommendation system for stocks under coverage: Buy Recommendation implies that expected total return of at least 15% is expected over 12 months between current and analysts target price. Trading Buy Recommendation implies that the analysts expected total return over the short term compared against the target price is positive. Hold Recommendation implies that expected total return of between 15% and zero is expected over 12 months between current and analysts target price. Trading Sell Recommendation implies that the analysts expected total return over the short term compared against the target price is negative. Sell Recommendation implies that expected total return expected over 12 months between current and analysts target price is negative.

5 Fox-Davies Capital Coverage Fox-Davies corporate client & coverage universe as of 03 November 2011: Company Ticker Recommendation Date Target Price Last Price Mining African Barrick Gold ABG LN Equity HOLD Alexander Nubia AAN CN Equity BUY C$0.35 C$0.065 Angel Mining ANGM LN Equity BUY Antofagasta ANTO LN Equity HOLD Atlantic Coal ATC LN Equity BUY Centamin Egypt CEY LN Equity BUY Copper Development Corporation CDC LN Equity BUY Discovery Metals DME LN Equity BUY EMED Mining EMED LN Equity BUY Exco Resources EXS AU Equity BUY A$0.88 A$0.69 Hambledon Mining HMB LN Equity BUY Highland Gold HGM LN Equity BUY Hochschild Mining HOC LN Equity BUY KEFI Minerals KEFI LN Equity HOLD NA 0.03 Kryso Resources KYS LN Equity BUY Lydian International LYD CN Equity BUY C$4.10 C$2.55 Minera IRL MIRL LN Equity BUY Mindoro Resources MIO CN Equity BUY C$0.39 C$0.15 Paragon Diamonds PRG LN Equity BUY Randgold Resources RRS LN Equity BUY Serabi Mining Plc SRB LN Equity BUY Stratex International STI LN Equity BUY

6 Disclaimer - Important Information This document is not independent and should not be relied on as an impartial or objective assessment of its subject matter. Given the foregoing this document is deemed to be a marketing communication and as such has not been prepared in accordance with legal requirements designed to promote the independence of investment research and Fox-Davies Capital Limited is not subject to any prohibition on dealing ahead of dissemination of this document as it would be if it were independent investment research. This document has been issued by Fox-Davies Capital Limited for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectives, financial situation or needs of any specific entity. Fox-Davies Capital Limited and/or connected persons may, from time to time, have positions in, make a market in and/or effect transactions in any investment or related investment mentioned herein and may provide financial services to the issuers of such investments. The information contained herein is based on materials and sources that we believe to be reliable, however, Fox-Davies Capital Limited makes no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Opinions expressed are our current opinions as of the date appearing on this material only. Any opinions expressed are subject to change without notice and Fox-Davies Capital Limited is under no obligation to update the information contained herein. None of Fox-Davies Capital Limited, its affiliates or employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from any use of this document. This report has been approved in the UK by Fox-Davies Capital Limited solely for the purposes of section 21 of the Financial Services and Markets Act In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article 49(2) (a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or (ii) are professional clients or eligible counterparties of Fox-Davies Capital Limited (all such persons together being referred to as relevant persons ). This report must not be acted on or relied up on by persons in the UK who are not relevant persons. Neither this report nor any copy of part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes should inform themselves about, and observe any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of UK or US securities law, or the law of any such other jurisdictions. Investments in general involve some degree of risk, including the risk of capital loss. The services, securities and investments discussed in this document may not be available to nor suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment advisor. Past performance is not necessarily a guide to future performance and an investor may not get back the amount originally invested. Where investment is made in currencies other than the investor s base currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Levels and bases for taxation may change. When we comment on AIM or OFEX shares you should be aware that because the rules for those markets are less demanding that the Official List of London Stock Exchange plc the risks are higher. Furthermore, the marketability of these shares is often restricted. Fox-Davies Capital Limited and/or its associated companies may from time-to-time provide investment advice or other services to, or solicit such business from, any of the companies referred to in this document. Accordingly, information may be available to Fox-Davies Limited that is not reflected in this material and Fox-Davies Capital Limited may have acted upon or used the information prior to or immediately following its publication. In addition, Fox-Davies Capital Limited, the directors and employees thereof and/or any connected persons may have an interest in the securities, warrants, futures, options, derivatives or other financial instrument of any of the companies referred to in this document and may from time-to-time add or dispose of such interests. Neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Fox-Davies Capital Limited. Fox-Davies Capital Limited is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. Fox-Davies Capital Limited may distribute research in reliance on rule 15a-6(a)(2) of the Securities and Exchange Act 1934 to persons that are major US Institutional investors, however, transactions in any securities must be effected through a US registered broker-dealer. Any failure to comply with this restriction may constitute a violation of the relevant country s laws for which Fox-Davies Capital Limited does not accept any responsibility. By accepting this document you agree that you have read the above disclaimer and to be bound by the foregoing limitations/restrictions. Please note that unless otherwise stated, the share price used in this publication is taken at the close of business for the previous day.