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Antofagasta on track for rapid growth

March 9, 2011

“Chile’s Luksic family is due to receive more than $700m (£433m) this year after surging copper prices pushed Antofagasta, the mining company controlled by the family, to declare a special dividend of 100 cents.

A fivefold rise in the pay-out for 2010 offered proof of the copper market’s financial impact on the mining industry. Freeport-McMoRan, the US copper miner, also declared a 100 cents special dividend for 2010 to clear excess cash. London-listed Antofagasta ended last year in a net cash position of $1.3bn after profits nearly doubled.

The completion of a new mine and mine-expansion project allowed it to increase its production volumes at the time that sales prices for the industrial metal were ascending to this year’s highs of about $10,000 a tonne.”

Source: Financial Times, March 9 2011

Observations:

  • The strong results published by the Antofagasta are the result of a 46% price increase and an 18% production volume increase. Production for 2011 is expected to be over 30% higher. Cash unit costs increased 8%, in line with increasing costs shown by other companies.
  • LME Cash Seller Copper Price (March 2010 - March 2011)

  • In relation to the other big copper mining event of the moment: Lundin and Inmet have delayed their special shareholders meeting to vote on the proposed merger to form Symterra to March 28th to give Lundin time to study the takeover offer announced by Equinox. Equinox has not yet submitted a detailed offer.

Implications:

  • No problems have surfaced around negotiations with unions on new salary arrangements. Apparently the high copper price has helped the company to satisfy the unions demands, reducing the risk of strikes.
  • Antofagasta is increasingly looking beyond Chile’s borders for expansion: USA, Sweden, Pakistan, and Australia are mentioned in the exploration pipeline. Although all current production is in chile and the Sierra Gorda, Antocuya and Los Pelambres areas in Chile still hold potential, the company will not be able to sustain growth rates it requires to keep up with Codelco, Freeport, and the diversified miners without expanding abroad. This expansion will require significant managerial and organizational change.

©2011 | Wilfred Visser | thebusinessofmining.com

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