Shares in copper miner Antofagasta (LSE: ANTO) dipped as much as 5% on Wednesday after it disappointed investors with its production guidance for next year.
Lower than expected
The FTSE 100 miner expects copper production to total between 705,000-740,000 tonnes in 2018, up from its 2017 guidance of 685,000-720,000 tonnes. At the mid-point of those forecasts, that would represent production growth of less than 3% in 2018, which was lower than many analysts had expected.
On a brighter note, Antofagasta also signalled improved output with tonnages in its latest quarterly report and a cut in its cash cost expectation for the full year. Despite rising cost pressures affecting many in the industry, Antofagasta’s internal cost-saving initiatives appeared to have paid off with net cash costs for the full year expected to fall below its original guidance of $1.30/lb.
High quality assets
So despite the weaker than expected production forecast for 2018, I remain bullish on the miner’s longer-term outlook. Antofagasta continues to have quality assets with improving cost competitiveness, and a strong balance sheet to exploit the opportunities that lie ahead.
What’s more, the long-term copper story remains very compelling as many analysts see the copper market returning to deficit in a few years because of supply constraints. Global mine output could fall below market requirements as soon as 2019 as there are few new mines to replace those that are being depleted. And to make matters worse, there’s an expectation that the growing market for electric vehicles will significantly impact demand for the metal.
Shares in Antofagasta are already up 46% since the start of the year, but further gains seem likely if the rally in copper prices continue. On the downside, its shares don’t come cheap, with the company trading at 21.5 times expected earnings this year.
Gold and silver miner Fresnillo (LSE: FRES) also has an exciting growth story to tell with its share price up 76% in the last three years.
Fresnillo, which mines silver and gold from six mines in Mexico, is seeing production unaffected by the major earthquake that struck the country’s capital in September. As such, the FTSE 100 miner reported silver production in the three months to 30 September up 21.1% to 14.6m ounces, while gold production rose 6.1% to 233,000 ounces. The company also reaffirmed its 2017 production guidance for gold of between 870,000 and 900,000 ounces and silver production of between 58m and 61m ounces.
Despite the impressive production growth, investors didn’t seem enthused, with the stock down 2% at time of writing. Although this was partly due to the fact that the latest figures failed to beat earlier expectations, the fall in its share price was mostly due to the fall in gold prices overnight amid speculation over the next US Federal Reserve chief.
Looking ahead, City analysts are confident that the company will deliver growing production over the next few years, with Fresnillo forecast to record a rise in profitability of 46% in 2017 and 15% for 2018. Although Fresnillo shares still seem pricey — trading at 29.1 times expected earnings next year, this could be partly attributed to its strong balance sheet and its net cash position of $88.4m as at 30 June 2017.
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Jack Tang has no position in any shares mentioned. 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.