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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
PARTICIPANTS
. Desmond O'Conor, Antofagasta plc, CEO, UK . Marcelo Awad, Antofagasta plc, CEO, Antofagasta Minerals . Jason Fairclough, Merril Lynch, Analyst . Gonzalo Sanchez, Antofagasta plc, VP, Sales & Marketing
. Sylvain Brunet, Exane BNP Paribas, Analyst . Hussein Barma, Antofagasta plc, CFO . Alejandro Rivera, Antofagasta plc, VP, Development & Corporate
Finance . Tom Meyer, Raymond James, Analyst . Oscar Cabrera, Goldman Sachs, Analyst . Paul Galloway, UBS, Analyst . Francisco Veloso, Antofagasta plc, VP, Legal & Corporate Affairs . Eilie Ong, Credit Suisse, Analyst . Luc Pez, Oddo Securities, Analyst . Tobias Woerner, Man Securities, Analyst . Sam Catalano, Macquarie Securities, Analyst
OVERVIEW
For 1H08, ANFGF reported earnings of $793m and EPS of $0.804.
FINANCIAL DATA
A. Key Data From Call 1. 1H08 earnings = $793m. 2. 1H08 EPS = $0.804.
PRESENTATION SUMMARY
S1. 1H08 Review (M.A.) 1. Highlights: 1. Earnings, up 9% to $793m vs. 1H07. 2. Cash flow from operations, $1.5b. 3. Interim dividend, $0.064. 1. Ordinary up 6% to $0.034 and further [increase of] $0.03. 4. Results driven by strong operational performances from all businesses and continued strong pricing environment. 2. Strong Operating Performance: 1. Copper production, 10% ahead of 2007 at 234,000 tons. 2. Moly production, lower. 1. In line with guidance at start of year at 3,800 tons. 3. High Metal Prices:
1. Markets remain strong, copper averaged nearly $3.70. 2. Moly over $33 per pound. 1. Both up over 2007. 4. Sierra Gorda Partnership: 1. Earlier this week, completed the agreement with Marubeni. 2. Marubeni has entered as a partner in Sierra Gorda district. 3. Marubeni is now 30% partner in Esperanza and El Tesoro.
1. Will participate pro rata in development of Esperanza. 4. Co. has had a long and successful relationship with Marubeni
as one of the partners in Los Pelambres. 5. Brownfield Projects:
1. In July, approved a further plant upgrade at Los Pelambres,
which will increase throughput from early 2010 to around an
avg. of 175,000 tons per day. 1. Nearing completion of Mauro dam. 2. Development of El Tesoro Northeast satellite deposit,
progressing as planned. 3. Now completing studies for possible extension of Michilla mine life beyond 2009. 6. Greenfield Projects: 1. Received environmental approval at Esperanza, less than one year after submitting environmental impact assessment.
1. Project construction has now begun. 7. Exploration: 1. Progress with exploration in Chile and abroad. 1. In recent to existing targets, signed a number of agreements for early stage opportunities. 8. Market Outlook: 1. Copper Concentrate:
1. Concentrate market, important for Los Pelambres. 2. Significant increase in smelting capacities particularly in China and India has not been much by increases in mine production. 3. Market has remained [invested] since 2006. 1. Expects this to continue until at least 2010 although delays in plant production could prolong the deficit. 2. Clearly reflected in recent mid year settlement, fallen a further 5% vs. 2008 calendar year to $42 for treatment charge and $0.042 per pound for refining charge with nil price participation.
4. Although smelters are benefiting from high acid prices on
sulfuric acid, a by-product of smelting process. 5. Tight market is seen in low spot tons even with some reduction in smelter capacity through maintenance in 2Q08. 6. Expects market to remain in favor of producers well into 2009 and possible 2010. 2. Refined Copper:
1. 1H08, strong period. 1. Starting at just over $3 and ending at just under $4 at June-end. 2. Since then, market has softened with prices in ores averaging under $3.50. 2. 3Q08 is traditionally weaker in Europe and US, while in China, summer Olympics have curtailed a great deal of industrial activity around Beijing. 3. Sees recent price weakening as temporary, inventories remain low, and supply is constrained and continues to be vulnerable to disruption.
4. Several analysts see a possible recovery towards 2008-end,
which could extend well into 2009. 1. Reflected in consensus estimate.
3. Molybdenum: 1. Remains favorable with 2008 expected to be a fourth year of deficits. 2. Pattern is similar to copper. 1. Some signs of softer demand which are partly seasonal with similar constrain and risk to supply. 3. Moly demand is mainly driven by industrial activity, but unlike copper, the absence of terminal market means it is less affected by financial investment and sentiments. 4. Moly prices have been stable throughout 2008, and this trend supports Co.'s view that fundamentals for metal demand
remain strong. 5. Expects prices to remain at or above $30 this year and possible also well into 2009. 6. Additional supply from new primary mines could bring the market back into surplus from 2010. 7. Risk of delay remains as this depends on projects coming on time. 9. Market Cost pressures: 1. Pressure remains on cost in the background of high commodity prices. 2. Impact on cost comes mainly from industry factors, either global or Chilean, which affect all producers. 3. In a Chilean contract, two most significant factors to highlight, energy and acid. 1. Energy prices have increased significantly due to increased generation costs particularly in north, which depends on diesel and coal. 1. These costs are passed on to consumers such as mines. 2. Oil prices have eased somewhat since they peaked at nearly $150 per barrel and this could cause this cost to stabilize or reduce over 2H08.
3. Sulfuric acid prices have gone up sharply with strong demand
from fertilizer industry and significant transport costs. 4. Most of the acid is sourced by contract of one year or more, and if [pot borylation] limits its effect on this year's cost. 1. Annual prices for next year may increase. 5. The issue is one of cost rather than availability. 1. Low risk of disruption at this point.
S2. 1H08 Financial Analysis (M.A.) 1. Highlights: 1. EPS, $0.804.
1. 8.8% increase over 1H07. 2. Main drivers: 1. Higher copper volumes, up 10% over 1H07. 2. Higher LME copper prices and a strong provisional pricing credits. 1. Realized price, [$4.09], exceeded LME prices. 3. Higher molybdenum prices, over $30.
4. Lower tolling charges with lower 2008 benchmark and full benefit of nil price participation. 1. Partly offset by lower molybdenum volumes due to lower grades, higher on-site and shipping costs due to industry pressures and higher effective tax rate, in line with planned increase in royalty rate to around 4%. 2. Cash Flow:
1. Operating cash flow, over $1.5b. 2. Used to fund: 1. Tax payment, $0.2b. 2. Capex, $0.4b including Esperanza and initial works on next Pelambres plant upgrade. 3. Final dividend including special pay in June, the minority share of dividend paid by subsidiaries mainly Los Pelambres. 4. Debt repayment. 1. Tesoro is now debt free with remaining debt of $0.2b mainly at Los Pelambres. 3. Final cash position, $2.3b. 1. Approx. $150m above the start of the year. 4. After the completion of Marubeni transaction, financial position is strong. 5. Will review at year-end the appropriate dividend level taken into account profits, the cash position and funding needs.
S3. 1H08 Operations (M.A.) 1. Comments: 1. In terms of production and costs, 1H08, very much in line with expectations. 2. Maintaining production guidance for full-year. 1. Copper production up about 8% over 2007 full-year. 2. Higher grades at Los Pelambres should offset lower throughput with harder ore in 2H08. 3. Moly production should be around 6,800 tons following two years of high grade, when production was around 10,000 tons of moly in a year.
3. Costs, in line for full-year. 4. Strong commodity prices kept EBITDA margins over 70%. 5. Positive on pricing outlook.
1. Provisional pricing benefits of 1H08 are unlikely to be...
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