In historical terms, and notwithstanding some recent volatility, copper demand is high and so are prices. That’s the good news for miner Antofagasta and helps explain the company’s record first half earnings. The bad news is that one of the reasons for this strength is adverse environmental conditions in Chile – the world’s top producer of the metal and Antofagasta’s main base of operations.
“This is what lies behind Antofagasta’s production downgrade today and the fear for the market will be the situation could get worse given the unpredictability surrounding what will happen next amid 12 years of drought like conditions in Chile,” says AJ Bell’s Russ Mould.
“More encouragingly for the long term is that a robust appetite for copper is also a key reason for the metal’s strength.
“Because copper is central to the production of renewables and electric vehicle kit and infrastructure, the anticipated growth in these areas, as countries look to reduce their emissions, is underpinning optimistic demand forecasts over the coming decades.
“As well as being a key cog in the wheel of energy transition, Antofagasta is also extending plans to reduce its own carbon footprint.
“Notably Antofagasta has been able to reduce costs and is not facing significant inflationary pressures beyond those associated with higher commodity prices.
“With an extremely strong net cash position, Antofagasta has a good chance of being able to return plenty of cash to shareholders at the beginning of next year when it posts full year results.”