Antofagasta (LON:ANTO) is not as copper-bottomed as it used to be, reckons UBS, which has downgraded the Chile-based miner to hold following its latest trading news.
The company remains a high quality, low-cost producer, but the broker said it is disappointed management has not been more aggressive with its cost cutting.
Gross cash costs are set to increase 13% year-on-year in 2013 to $1.85/lb and net cash costs by 32% due to lower by-product credits.
Costs are also expected to increase further in 2014, with cash flow to weaken materially with capex up and volumes flat.
UBS also sees a risk of a tax increases in Chile after the presidential elections on 13 Dec, with proposals to raise corporation tax likely to mean a reduction in EPS by a further 2-7% and NPV by 4%.
Adding to its change of stance, UBS is also more cautious on copper generally with the risk of 600-900kt surplus in 2014 set to push prices down 12% y/y in 2014 to $2.90/lb and to keep them depressed until 2017 with a risk demand could disappoint and more supply than expected.
UBS has cut its 2014 EPS forecast by 11% and 2015 by 8% on higher unit costs.
Production is forecast to be broadly flat y/y at 701kt, as grade declines are part offset by higher throughput.
The broker’s price target is reduced to £8.70/sh from £9.65 while UBS says a quality premium is justified by the strength of Antofagasta’s balance sheet, its low cost position, and growth optionality, the rating is now ‘neutral’ instead of ‘buy’.
Shares fell 2% to 790p.
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