Antofagasta (Price: 961p | Target: 934p | Rec: Sell) We have updated our valuation for Antofagasta (ANTO LN) following the company’s year-end results and the decision to re-commence work on Antucoya.

Our target price has reduced from 958p to 934p largely due to reducing the multiple that we apply for 2013 earnings in light of weaker market conditions for miners, high copper inventories that are weighing on prices and updating our NPV calculations with more detail following the decision to recommence the development of Antucoya. * We see falling profits as costs continue to rise and production declines until Antucoya starts up in 2015 (see assumed production profile in note) to offset the decline in output resulting from falling grades at the operating mines.

Antucoya will be a relatively high cost asset (US$1.9bn capex and c.

165+c/lb cash cost) with no by-product credits and consequently is not NPV accretive using our long term copper price of 280c/lb.

Despite the high cost, over a 20 year mine life their will likely be periods where it becomes a more significant contributor to earnings and valuation. * ANTO’s recent results announced a particularly high special dividend of 77.5c/share in addition to the final dividend of 12.5c/share and the interim of 8.5c/share taking the full 2012 dividend to 98.5c/share.

The final and special dividend goes ex-div on 8 May and will see close to US$900m or 60p/share paid to shareholders soon after this date.

ANTO’s share price is likely to be supported in the coming weeks as a consequence. * We value ANTO on a 50:50 combination of NPV of the asset base and 2013E P/Es for which we have reduced our multiple from 14X to 12X.

Weaker sterling has offset some of the decline to our TP since ANTO’s earnings are in US$.

We feel the lower multiple is appropriate as the company looks likely to see falling output and profits in the medium term.
To access the full note please click here Analyst: Marc Elliott
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