Antofagasta: Balance Sheet Remains Strong

Q3 financials largely a non-event
There are no surprises in Antofagasta's Q313 financial report, with revenues and EBITDA for the nine months to 30 September and attributable net cash at 30 September all in line with our forecasts. Sales volumes, cash costs, realised prices and provisional pricing adjustments were already reported, making the Q313 financial report largely a non-event. Based on the nine-month production and cost figures, we expect Antofagasta, (ANTO) to achieve FY13 guidance of 700kt copper production and US$1.40/lb cash costs. Our valuation of Antofagasta is 661p/share at a 10% discount rate and 721p/share at a 9% discount rate.

9M13 EBITDA down 27.9% y-o-y
Antofagasta reported group revenues down 9.2% to US$4,404m in 9M13 due to lower realised prices partly offset by increased copper and gold sales. Sales volumes of 532kt copper were 7.4% higher y-o-y, but slightly lower than production mainly due to shipping and loading schedules. The US$3.26/lb average realised copper price was 12.8% lower than the comparative period. Reported group EBITDA fell 27.9% y-o-y to US$2,053m reflecting the lower revenue, as well as higher operating costs. 9M13 average gross cash costs rose 11.9% y-o-y to US%1.79/lb and average net cash costs increased 34.3% y-o-y to US$1.33/lb, affected by weaker gold and molybdenum prices and lower molybdenum production volumes.

Balance sheet remains strong
Antofagasta reported US$1,641m group attributable net cash at 30 September 2013, down 22.5% from US$2,565m at 31 December 2012, mainly as a result of the US$887m dividend payments made during H113 following the 77.5c special dividend declared for FY12, bringing the payout ratio for the year to an exceptional 70%. We consider that Antofagasta’s US$1.5bn consolidated net cash position reflects management’s conservative approach and provides reassurance over Antofagasta’s ability to fund its development projects, while maintaining a 35% dividend payout ratio.

Valuation: 721p per share at a 9% discount rate
We are not making any revisions to our forecasts and our commodity price assumptions are unchanged, so there is no change to our valuation of 661p per share at a 10% discount rate and 721p per share at a 9% discount rate. A lower discount rate than 10% could be justified by Antofagasta’s lower risk profile compared to peers.

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