Broker snap: Investec downgrades Antofagasta on weaker commodity prices

27th Jun 2013 12:43

Investec has reduced its recommendation for Chile-based copper miner Antofagasta from 'reduce' to 'sell' and cut its target price for the stock from 829p to 691p to reflect a substantial weakening of commodity prices.The broker explained that its target price is based on a 50:50 mix of net present value (NPV) and 2013 price-to-earnings (P/E) multiples.As for the P/E component of the valuation, lower commodity prices now mean that Investec expects Antofagasta to earn 86 cents per share this year, 34% lower than its previous 131c/share forecast. Meanwhile, the NPV estimate has fallen by 7.0% from $11.6bn to $10.8bn (a 50% contribution of 355p a share). The smaller reduction reflects the long-life nature of the group's asset base and the broker's unchanged long-term commodity-price assumption (despite downwards revisions to near-term forecasts).Cash costs including by-product credits have also been affected by falling prices and Investec's estimate for this year has risen from 132c/lb to 152c/lb.The broker added: "Antofagasta still has the strong balance sheet to support on-going development, although our forecast year-end net cash position has reduced to $2.1bn from $2.9bn previously. With lower forecast earnings, our dividend forecast decreases from 46c per share to 30c per share this year."