Investors in Antofagasta (LSE:ANTO) had a bumpy ride last year.
Shares in the Chilean-based copper miner reached a record high in March 2022, before plummeting and spending the summer in the doldrums.
This year, Antofagasta is going strong once again. Hopes of a Chinese rebound in manufacturing are keeping copper and other industrial metals buoyant. At the same time, the US dollar has weakened, which is a powerful tailwind for commodities and mining stocks generally.
In the red?
How would I have done if I’d bought £1,000 of Antofagasta shares at the start of 2022? As it turns out, investing in the red metal would have gone some way to putting my portfolio in the black.
In February 2022, Antofagasta shares were around £12 each, and they are now trading at £17.50. That means the stock is up 46%.
if I’d made a £1,000 investment a year ago, I’d have £1,460 today. With around £85 dividends dolloped on top, I’d walk away with capital gains of 55% after just one year of ownership.
Unfortunately, I didn’t buy this FTSE 100 company a year ago. Is it too late to add Antofagasta shares to my portfolio now?
In for a copper penny?
Antofagasta’s share price moves, in part, alongside operational developments at its four copper mines in Chile. However, from trough to peak in 2022 the stock price fell by over 40%, due to a collapse in the copper price.
The red metal has roared back to life since October, with the COMEX copper price showing a 60-day bull run from $3.6 to $4.2 per pound.
Civil unrest in Peru is blowing more hot air into the price. Las Bambas mine, which accounts for 2% of global copper supply worldwide, has halted production as chaos engulfs the South American nation. Peru’s ousted president, Pedro Castillo, has been sat in handcuffs accused of corruption since December 2022, while his supporters are up in arms over his deposition.
Meanwhile, Xi Jinping’s U-turn on the zero-Covid policy and a retreating dollar have given still more momentum to the copper price.
But I’m bearish in the short term. The red metal is known by analysts as ‘Dr Copper’ for the way it reflects the health of the global economy. During the 2007/08 financial crisis, copper went into freefall – from a high of $3.82 to a low of $1.42 per pound.
Red Dragon to the rescue?
At the same time, I’m not convinced that China is coming to save the day. There is evidence that speculation has led to metals prices getting disconnected from the situation on the ground.
Richard Adkerson, chief executive of Freeport-McMoRan, one of the world’s largest copper producers, told the Financial Times last week: “It has shifted between where we were that perceptions were bad and on-the-ground was good, to now perceptions are better but on-the-ground is uncertain.”
Another metals expert told the FT: “The issue is all demand indicators are very negative as global manufacturing purchasing managers’ indices have been nosediving. The demand picture is the opposite and disconnected from the price.”
I will be staying away from Antofagasta shares. However, if there’s a big correction in the copper price – as I expect there will be later this year – I could be tempted.
