Is now the time to buy Antofagasta shares?

Antofagasta shares are well placed to benefit from the anticipated huge increase in the demand for copper for clean power generation and electric vehicles.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With its shares listed in London, Antofagasta (LSE: ANTO) — founded in 1888 — engages through subsidiaries in the exploration, evaluation, development and mining of copper deposits internationally, predominantly in Chile.

Copper production in 2021 was 721,000 metric tons (MT), about 3% of the world total. The forecast for 2022 is lower, 640-660,000 MT, due to a fractured concentrate pipeline at its Les Pelambres mine and a water shortage resulting from a drought in Chile.

The first half of 2022 was challenging for Antofagasta. Also, the copper price was volatile due to world macro developments.

Nevertheless, while the short-term outlook remains uncertain, because of global economics (inflation) and geopolitics, I believe the medium- to long-term outlook for copper, and therefore Antofagasta, is very promising. 

As countries make the transition to low-carbon economies, copper is a critical metal for renewable clean power generation and electric vehicles (EV)s. On 15 November 2021, President Biden signed a massive infrastructure bill of $226bn for projects requiring large amounts of copper.

The dominance of internal combustion engine vehicles on our roads is fading fast. In 2021 global electric vehicle sales totalled 6.6 million, 9% of the global market, double 2020’s volume. Great news regarding decarbonisation, but there is a looming copper shortage due to the ever-increasing EV demand and the concomitant green energy transition.

Future demand

The 2050 net zero climate objective will not be achieved without a major increase in copper production. An EV requires 2.5 times more copper than a conventional vehicle. However, insufficient new mines and mine expansions are being developed to meet this and the copper demand for new green energy power stations and their transmission lines.

A chronic gap between worldwide copper supply and demand is projected, beginning in 2025. It is forecast to be as much 1.5 million MT by 2035 even if annual copper production nearly doubles by then to 47 million MT, from 24.5 million MT in 2022. Recycling of scrapped EVs will be insufficient to fill the gap. Thus, copper could become a major national energy security concern.

Medium to long term the price of copper, while volatile, can only go one way in my opinion: up. Consequently, it makes sense for me to hold copper stocks, such as Antofagasta, in a balanced share portfolio.

At the time of writing, its share price was £11.35. Antofagasta had a market cap of £10.72bn and a price-to-earnings ratio of 14.6:1 (TTM). For 2021 gross revenue was US$7.47bn with an EBITA (earnings before interest, taxes, depreciation and amortization) of US$4.84bn. Profit before tax was US$3.48bn.

The price of copper peaked, at US5.01c/lb in March 2022, as did the Antofagasta share price at £17.99. By July they had fallen, to US3.19c/lb (-26.7%) and £9.71 (-36.9%) respectively. Since then, they have recovered to US3.67c/lb (+15.0%) and £11.35 (+16.9%).

I believe now is a good time for me to buy shares in Antofagasta.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Benfield owns shares in Antofagasta. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »