Antofagasta (LON:ANTO), the world’s largest copper miner, suggested the metal will remain in the doldrums for the time being as it revealed a near 50% slide in earnings.
The Chilean digger reckons the market is largely in balance, with a small surplus expected in the second part of 2015. Demand is improving, it told investors, but the big imponderable remains China.
“Credit tightness over the last year or so has impacted demand and the focus is now on government policies incentivising industrial activity and consumption,” it said in its analysis of the People’s Republic.
“This government economic stimulation, especially through investment programmes, significantly impacts both supply and demand and this is further impacted by global macroeconomic issues.
“In the medium to longer term the group remains confident that steady demand growth from emerging markets - notably China, where we anticipate considerable additional spend on its power infrastructure in coming years - combined with the current slowdown in investment in new mine expansions will lead to a shortfall in supply and support a recovery in the copper prices.”
Copper prices hit a six-year low on Monday after the sharp downward lurch in China’s stock exchange, which has been hit by fears the economic miracle may be about to give way to the new reality of sluggish growth.
The fall in the value of the metal sent Antofagasta's’s underlying earnings (EBITDA) tumbling 48.6% to US$561.6mln as the cash price achieved in the six months to June fell 17.5% to US$2.54 per pound.
In order to protect profitability, the company is on a cost-cutting drive that should result in US$160mln of savings by the year-end.
The dividend was cut from 11.7 cents a share this time last year to 3.1 cents. That adds up to a near US$20mln pay-out for the Luksic family, which owns around 65% of Antofagasta.
The stock, down 24% in the year to date, was changing hands for 570p in afternoon trade – up 7%.
“Antofagasta interim result was broadly in line with expectations at the earnings level,” said City broker Investec.
“However, we remain concerned that costs are moving in the wrong direction and are being adversely affected by falling by-production credits.”