Lower copper grades take toll on Antofagasta first quarter output

Worker at Centinela mine in Chile. (Image courtesy of Antofagasta plc)

Shares in Chilean miner Antofagasta Plc. (LON:ANTO) dove Wednesday after the company reported marked drops copper and gold production during the first quarter of the year, due mostly to lower quality ore.

Miner said it had expected to begin the year with poorer grades, but would move to higher quality ores as the year went on.

The miner said copper output fell by 10.5% to 153,800 tonnes compared with the same quarter a year ago. But it said the situation was expected and since it knew it would move to higher quality ores later in the year, it kept full-year output guidance unchanged at between 705,000 and 740,000 tonnes.

While the company is confident that it can catch up with planned production over the next months, shortfalls in throughput at operations other than Pelambres and Centinela, may be more difficult to overcome, BMO analyst Edward Sterck, said in a note to investors Wednesday.

Gold production fell 39.4% to 32,300 ounces in the first quarter of the year due to lower grades at its Centinela mine.

Copper miners in mature markets, particularly in Chile, which is the world’s top producer of the red metal, have seen production costs rise as they need to dig deeper and process larger amounts of rock to obtain the same amount of copper they used to a decade ago.

Lower copper grades take toll on Antofagasta first quarter output

The decrease in ore grade in Chile has been higher than the world average. (Courtesy of Chilean copper commission Cochilco.)

According to Martin Valdes, partner and managing director at Resource Capital Funds, a mining-focused private equity firm, copper grades have declined about 25% in Chile in the last ten years.

Speaking at the World Copper Conference early this month, Valdes said grades slump in Chile’s aging mines highlighted the urgent need for grassroots exploration to arrest the negative trend.

The company stock fell more than 3.8% on the news and was trading at 940.20 p by 1:26 p.m. London time. So far this year, Antofagasta’s shares have lost 3% of their value.