This FTSE 100 mining stock doubled in 2020. Is it still worth buying today?

Copper prices are at their highest point in a decade. Zaven Boyrazian analyses a FTSE 100 mining stock that is perfectly positioned to thrive in 2021.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Antofagasta (LSE:ANTO) is a FTSE 100 listed mining stock that operates in Chile. Despite Covid-19 causing significant disruptions to the mining industry, its share price has exploded by nearly 120% over the past 12 months. What’s going on? And should I consider adding it to my portfolio? Let’s take a look.

China is causing copper prices to climb

In 2020, copper inventory levels in the London Metal Exchange (LME) fell to their lowest point in the last 15 years. The supply was drastically cut due to mine closures as global lockdowns came into effect.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

But recently, China has issued an enormous stimulus package to reboot its economy on a scale not seen since the 2008 financial crisis. As most of China’s economy is driven by industrial manufacturing, the demand for copper has surged, while the supply remains limited. So it’s not surprising that copper prices have risen to over $8,800/tonne – the highest it’s been in nearly 10 years.

But what does this have to do with Antofagasta? Well, if you haven’t guessed already, the FTSE 100 company is a leading supplier of copper. It has four mines in its portfolio that predominantly extract copper from the ground, as well as some other by-products such as gold, molybdenum (used to make steel alloys), and a small amount of silver.

Overall, the business looks like it’s in a powerful position to benefit from the rising copper prices. At least that’s what I think.

The risks of investing in mining stocks

Mining is a hazardous process. It requires highly skilled engineers as well as a considerable level of health and safety precautions. But despite all the protections put in place, accidents do happen, and they can be fatal. While no catastrophic events have occurred since 2012 on Antofagasta’s watch, it remains an ever-present threat to the business.

Accidents trigger significant reputational damage to the firm. But more importantly, if employees feel that their lives are in danger due to improper safety procedures, it’s unlikely they won’t complain. The mining sector is no stranger to worker strikes or even mass walkouts. Both of which disrupt operational performance.

Another risk for this business is its international operations. As the mines are in Chile, all operational costs are paid in Chilean pesos. What’s more, Antofagasta reports its sales and earnings in US dollars. Combined, this exposes the firm to fluctuating exchange rates across multiple currencies that can negatively impact the business’s performance.

The risks of investing in a FTSE 100 mining stock

Antofagasta: a FTSE 100 mining stock worth buying?

Covid-19 has undoubtedly had a significant impact on Antofagasta. For the first three quarters of 2020, metal production fell compared to quarters the previous year. However, in the last three months of 2020, its mines began exceeding normal production levels. Both copper and gold production saw double-digit growth compared to the end of 2019.

By the end of the year, overall copper production decreased by a marginal 4.7%. Not bad, considering the number of disruptions the company faced.

With copper prices on the rise, I believe Antofagasta is on track to continue thriving in 2021. And so, its definitely a stock I’ll be considering for my portfolio.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

4 no-brainer stocks to buy for chunky dividends in July

Jon Smith outlines some of the stocks he's looking to buy for the upcoming month that pay out above average…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

2 beaten-down UK shares I just bought in a heartbeat

UK shares have outperformed other global stocks in recent months. However, here are two that have been beaten down recently…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

This FTSE stock has defensive traits! Should I buy shares?

Due to the current economic volatility, this Fool is looking for FTSE stocks with defensive capabilities to boost his holdings.

Read more »

Electric cars charging in station
Investing Articles

Lithium stocks could be set to soar! Here’s 1 I like

Lithium stocks are rising in prominence. This Fool delves deeper into this penny stock to see if it could be…

Read more »

Preparing a budget during a pandemic
Investing Articles

With the Jupiter dividend over 11%, should I keep buying?

With the Jupiter dividend yield now north of 11%, should our writer load up on the fund manager's shares?

Read more »

Lady wearing a head scarf looks over pages on company financials
Investing Articles

Am I missing something about Royal Mail shares?

Jon Smith scratches his head at the continued fall in Royal Mail shares and tries to find out what's going…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

This Warren Buffett gamble could return over 20% in the next year

Warren Buffett has loaded up on Activision Blizzard stock, aiming to make a handsome profit in the next 12 months.

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

IAG shares fall again! Is this stock now too cheap to miss?

IAG shares have not been kind to shareholders this year. And losses were compounded on Thursday amid more bad news.

Read more »