- Share price moving away from one-year lows as copper price recovers
- Metal’s gains suggest picture for global growth may be less gloomy than thought
- Antofagasta trims dividend payout again as capital spending jumps
“‘Doctor Copper’ gets its nickname because the industrial metal’s many uses mean it can be a good guide to global economic health, so it is encouraging to see both the commodity and the share price of major producer Antofagasta start 2025 on an upward trend after last year’s dip,” says AJ Bell investment director Russ Mould.
“The FTSE 100 index member continues to invest heavily to boost output, as it works to meet the demand it expects from ongoing economic progress, plus long-term growth areas such as energy security, power grid infrastructure and electrification.
“Copper is malleable, conductive and ductile, so it is used in everything from kettles to cars and plumbing and wiring to industrial machinery. As such it is a vital and widely used material, and one where Chile, Antofagasta’s home, produces nearly a quarter of the world’s needs.
“The copper price slid in summer 2024, amid worries about China in particular, as the world’s second-biggest economy grappled with a real estate bust and a slowdown in growth. But interest rate cuts worldwide, and the application of fiscal and monetary stimulus by Beijing to try and boost growth, are helping the industrial metal build some price momentum in 2025, a trend which Antofagasta will welcome.
“The copper price is now 10% higher than it was a year ago and Antofagasta sold its output for an average 7% more in 2024 than it did in 2023.
Source: LSEG Refinitiv data
“Add higher prices to a small increase in output costs and Antofagasta was able to overcome a modest increase in production costs in 2024 and generate higher profits, based upon management’s preferred metric of earnings before interest, taxes, depreciation and amortisation (EBITDA).
Source: Company accounts.*2025E based on mid-point of management guidance given in January and reaffirmed in February
“Output in 2025 is expected to come in between 660,000 and 700,000 tonnes of copper, compared to 664,000 in 2024, and net cash costs are expected to fall between $1.45 and $1.65 a pound, thanks to higher volume production and improved volumes of the by-products gold and molybdenum.
“Analysts believe the combination of higher output and lower production costs will lead to higher profits in 2025, although the copper price’s trajectory for the rest of the year will have a huge say in how accurate that forecast proves to be.
Source: Company accounts, Marketscreener, consensus analysts' forecasts
“Antofagasta is also laying the foundations for further output growth. Capital expenditure is budgeted to surge to $3.9 billion in 2025 from $2.4 billion in 2024, thanks to construction work at the Centinela and Los Pelambres mines in Chile.
“That spending figure is the highest in at least two decades, and capex as a percentage of sales has only ever come close to analysts’ forecasts of 52% for 2025 once in that time span.
Source: Company accounts, Marketscreener, consensus analysts' forecasts, management guidance for capex in 2025E
“That was in 2009, and copper prices peaked shortly after, in 2011. The risk is that this output increase means that growth in supply outpaces growth in demand and leads to another downturn in copper prices. However, for the moment, consensus forecasts see a big jump in earnings in 2025 and 2026 and also a return to dividend growth this year, after three consecutive decreases from 2021’s high.”
Source: Company accounts, Marketscreener, consensus analysts' forecasts.
