Centinela Second Concentrator Will Increase Future Copper Output Amid Rising Global Demand

Key Takeaways

• Antofagasta is well-positioned for growth due to increased copper demand tied to electrification and AI, aiding revenue from potentially higher copper prices.
  
• Strategic infrastructure investments and efficient project developments like Centinela and Los Pelambres support long-term production capacity and robust financial performance.
  
• Antofagasta faces challenges from operational constraints, political risks in Chile, supply chain demands, and competitive pressures, potentially affecting growth and margins.

Catalysts

Operates as a mining company.

• The anticipated increase in copper demand, driven by electrification, energy security, AI advancements, and other technologies, positions Antofagasta to potentially benefit from higher copper prices due to constrained supply, which can drive revenue growth.
  
• The development of the Centinela Second Concentrator project is expected to increase throughput rates and margins due to improved technological efficiency, thereby enhancing earnings.
  
• Ongoing investments in infrastructure for water management, such as the Los Pelambres desalination plant, are essential for securing full capacity and higher-grade production in the future, which supports sustained revenue and robust EBITDA margins.
  
• Expansion and development options like the Los Pelambres life extension and exploration activities like those at Cachorro, where permits are sought to develop high-grade deposits, represent future production growth opportunities, positively impacting production capacity and revenue streams.
  
• The financing strategy of using long-term project-level funding helps to maintain a strong balance sheet, allowing for capital allocation to growth initiatives without compromising shareholder returns, thereby supporting earnings sustainability.

Antofagasta Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Antofagasta's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.5% today to 16.2% in 3 years time.
• Analysts expect earnings to reach $1.4 billion (and earnings per share of $1.4) by about April 2028, up from $829.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.7 billion in earnings, and the most bearish expecting $1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.8x on those 2028 earnings, down from 25.9x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 8.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Antofagasta Future Earnings Per Share Growth

Risks

• Antofagasta faces challenges with geological and technical constraints, rising capital intensities, and permitting delays in copper production, which could impact future revenue growth.
  
• The company's reliance on Chile as a copper jurisdiction brings political risk, especially with upcoming presidential elections, potentially affecting stability for revenue and operations.
  
• A shift towards more demanding supply chain dynamics, such as the expansion of water infrastructure, may increase operational costs and potentially impact net margins.
  
• There is risk involved with the long-term development projects and technologies like Cuprochlor-T, as successful implementation is necessary to sustain earnings, especially for extending the life of mines like Zaldívar.
  
• Excess capacity in the global copper smelting market, particularly from Chinese investments, could reduce Antofagasta's pricing power and impact margins if treatment and refining charges remain low.

Valuation

• The analysts have a consensus price target of £19.185 for Antofagasta based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £24.43, and the most bearish reporting a price target of just £12.57.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.8 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 21.8x, assuming you use a discount rate of 8.5%.
• Given the current share price of £16.82, the analyst price target of £19.18 is 12.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.