Antofagasta (Price: 802p | Target: 691p | Rec: Sell) The substantial weakening of commodity prices leads us to downgrade our forecasts, reduce our TP price from 892p to 691p/share and move to a Sell recommendation.

Our TP is based on a 50:50 mix of NPV and 2013 P/E multiples and is now only marginally below our NPV of 709p.

Previously, our valuation assumed a copper price of 360c/lb this year, rising to 380c/lb next before falling back to a long term 280c/lb.

We now assume copper prices of 321c/lb this year, rising to 330c/lb by 2015 before falling back to 280c/lb by 2018. * Lower commodity prices have a material impact on the P/E component of our valuation as we now see FY13E earnings at 86c/share, versus our previous forecast of 131c/share, a 34% decrease.

We continue to apply a 12x multiple against this year’s earnings to derive a TP contribution of 518c/share (337p/share). * The NPV component of our TP has also been impacted, but to a lesser extent, falling from US$11.6bn to US$10.8bn (a 50% contribution of 355p/share), a reduction of 7%.

The much smaller impact is a consequence of the long life nature of most of the asset base and that our longer term commodity price assumptions of 280c/lb remains unchanged. * Cash costs including by-product credits are also impacted by the reduction in commodity prices, rising from a previous estimate of 132c/lb to 152c/lb for FY13E.

This is largely a result of the weaker gold price that we currently assume to average US$1,413/oz this year, from US$1,675/oz previously. * Antofagasta still has the strong balance sheet to support on-going development, although our forecast year-end net cash position has reduced to US$2.1bn from US$2.9bn previously.

With lower forecast earnings, our dividend forecast decreases from 46cps to 30cps this year.
To access the full note please click here Analyst: Marc Elliott
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