Earnings have fallen, debt increased and the dividend is cut.
Antofagasta shares slip after disappointing first half results
- FTSE 100 mining company reported a 32% drop in H1 profits
- But analyst says that the group still has the potential to deliver good results if demand for copper and price hike continues
- We continue to recommend Antofagasta as a ‘hold’ for higher risk investors
Mining group Antofagasta reported a 32% drop in first half pre-tax profits today due to lower sales and higher costs. Net debt increased by $320.7m to $781.2m and copper production fell 8.5% to 317,000 tonnes, but the company said it expected both sales and costs to improve in the second half and reiterated its previous production guidance of 705-740,000 tonnes for the full year.
With profit margins under pressure it was good to see both main cost saving programmes bearing fruit and that is expected to continue in the second half. The company did announce an interim dividend but it has fallen in line with earnings to 6.8 cents.
The fall in earnings was greater than expected and the market reaction is not surprising with the shares down 5% in early trading. The company warned of considerable market uncertainty in the short term due to ongoing international trade negotiations it still believes that prospects for the second half are better.
Antofagasta still has the potential to deliver good results if demand for copper and prices continue on an upward path especially as the group has been increasing its productive capacity and is reducing costs. Declining grades of ore at some of the key mines could hold back production but we continue with our ‘hold’ recommendation for investors who follow copper and are willing to accept a higher level of risk.
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