Antofagasta sees 2018 costs to reach $1bn on Pelambres expansion, equipment

Shares in Chilean miner Antofagasta Plc. (LON:ANTO) plummeted Wednesday after the company reported marked drops in gold and copper output during the last quarter of 2017, which weighted on full-year production.

Gold production fell to 212,400 ounces in 2017, a dramatic 21.6% decreased when compared to the previous year. In the fourth quarter alone, output of the precious metal reached 40,500 ounces, a 32.0% decrease when compared to the previous three months.

Los Pelambres expansion project will add 55,000 tonnes of copper output a year once in full operation.

The miner said the numbers reflected lower grades and recoveries at its Centinela mine, in northern Chile.

Copper production in the fourth quarter of 2017 fell 1.3% to 177,800 tonnes compared to the previous quarter. But the company said that higher production at Los Pelambres and the ramp-up of the Encuentro Oxides project offset lower production at Centinela Concentrates.

In the year, the firm produced 10,500 tonnes of molybdenum, which is used in steel alloys to increase strength, 47.9% higher than the previous year due to higher grades.

Antofagasta shares dropped almost 2% to 948 p in early trading and were still lower than Tuesday close, near the end of the day (-1.16% to 953.60p).

The miner said it expected its 2018 costs to be higher, around $1 billion, including expenditure on the Los Pelambres expansion project, which will add 55,000 tonnes of copper a year once in full operation. It also expects costs to rise on concentration of mine equipment replacement and tailings dam expenditure.

For BMO metals and mining analyst, Edward Sterck, Antofagasta’s overall results were “a solid finish for the year.”

“As a large-scale copper producer, the company remains well placed to leverage the current copper prices with a minimum 35% dividend payout,” Sterck said in a note to investors.

“Given Antofagasta's history of special dividends, the market may be hoping for an improved payout given the strong copper price,” he added. The company’s dividend will be announced in March.

Chief executive, Iván Arriagada, was optimistic about the outlook for the year. He said new additions to the miner’s portfolio at Zaldívar, Antucoya and Encuentro Oxides now account for 25% of group production, which will continue to help offset declines at Antofagasta’s mature assets, providing it with a platform for growth as copper prices recover.

In the year ahead, production of the red metal is expected to be in the range of 705,000 to 740,000 tonnes, while gold output is seen between 190,000 and 210,000 ounces and molybdenum production is expected to be between 11,500 and 12,500 tonnes.