Broker snap: Cash costs critical for Antofagasta now

28th Jan 2014 16:43

Chile-focused copper miner Antofagasta has good quality assets (second quartile of cost curve and long life), but as it enters a multi-year period of investments the company's cost guidance is of particular importance. That is because said investments will ensure capital expenditures remain elevated through at least 2014/2015, thus capping growth in volumes and earnings until 2016, and hence the available free cash flows.Nonetheless, Credit Suisse believes the company holds the potential to positively surprise on its cost reduction targets. As a result of currency movements (down 8%) and 3-4% real cost reductions the broker expects the outfit to guide towards a 5% fall in gross cash costs this year, or 178 cents, versus the 185 cents seen last year. A seven cent reduction in costs equates to a 5% impact on operating profits at the EBITDA level. Lastly, the broker pointed out that lower grades and higher tax rates present a medium term risk to earnings.AB