The Antofagasta (LSE: ANTO) share price has had good few years, up more than 80% in the past five years.
The price of copper, the miner’s key product, is up close to 40% in the same time. So that’s been partly behind the rise, but the shares are clearly ahead.
Is copper likely to stay this high, and will world demand rise further? I think the answers to both of those might be yes.
Rising production
Antofagasta gave us its Q4 production figures on 17 January, and CEO Iván Arriagada was very upbeat about them.
Well, yes, he would be. But he spoke of “a year of robust operational performance in 2023, with production increasing by 2% and net cash costs in line year on year.”
Keeping costs down in 2023 is a major achivement, I think, as supply-side inflation has hit so many industries.
And even a modest rise on production seems good when so many folk are worrying about slower Chinese demand.
2024 outlook
Arriagada went on to say: “Production in 2024 is expected to increase to 670-710,000 tonnes of copper, as previously announced, with guidance for net cash costs set at $1.60/lb.“
With copper currently at $3.77 a pound, that looks like a pretty nice margin to me. But will the price stay there?
Rio Tinto has just given us a production report too. And that firm sees stimulus policies in China helping with demand.
And if global inflation keeps slowing, I reckon we could see a bit of growth coming back, coupled with strong raw materials demand.
By-products
On top of the firm’s main production of copper, there’s also a bit of gold. And that’s a nice help, with the stuff above $2,000 per ounce now.
For 2024, guidance suggests 195-215,000 ounces of gold, which is a handy bonus to have.
Molybdenum is another valuable by-product. And we should see 11.0-12.5 tonnes of that unearthed in the coming 12 months.
Share price
Antofagasta shares dipped 3% on the back of the results. So what didn’t the City like?
It can be hard to get our heads round the stock market reaction to company news. But on the face of it, the Antofagasta valuation doesn’t look that cheap.
The stock is on a price-to-earnings (P/E) of 29 for 2023. It would drop to about 20 based on 2025 forecasts, which might still seem a bit high.
But valuations of cyclical stocks can be tricky, and P/E ratios can seem the wrong away round. Near the top of a business cycle, they can be low. But around the bottom, they’re often at their highest.
Long term
For me though, the valuation might be the main risk now. The P/E is a fair bit higher than Rio Tinto, for example. And the volatility of the past two years could continue.
But when I think what the demand for copper could be like in the next 10 years, I’m still tempted to buy.
