Anglo American and Antofagasta, two of the world’s leading mining companies, were the worst performers in the FTSE 100 index yesterday as they cast a shadow over the prospects for mineral production and prices this year. Anglo shares fell 356½p, or 8.8 per cent, to £36.79 and Antofagasta’s were down 116p, or 67.1 per cent, at £15.20, partly a result of the shares going ex-dividend.
While weather and Covid affected production in both cases, there is also a worrying outlook for prices amid murky economic forecasts. That is bad for miners, providers of the world’s building blocks.
The copper price has stood still for several months as many builders and manufacturers put plans on hold. While yesterday’s announcements were only production reports, they were considerably weaker than expected and point the way to lower profits in the sector.
The downgrades were on top of lower projections in December, which indicates the impact of higher energy costs and the still-unpredictable long-term effects of the Ukraine war. Significantly, the updates from Anglo and Antofagasta were in line with a downbeat bulletin overnight from BHP in Australia.
Anglo’s production in the first three months of this year was weak, except for diamonds, owing to Covid-driven labour disruptions, wet weather, safety-related stoppages and operational challenges. Rough diamond production increased by 25 per cent, thanks to lower rainfall; conversely, high rainfall was blamed for metal from platinum extraction falling by 6 per cent. Full-year platinum guidance has been cut to 3.9 million to 4.3 million ounces, compared with 4.1 million to 4.5 million ounces previously. Copper production fell 13 per cent, primarily because of planned lower grades. Iron ore output was 19 per cent lower — wet weather again. Consequently, the company is expecting total costs to be 9 per cent higher. Nearly half of that will be the effect of stronger producer currencies and a third will come from inflationary pressures.
Antofagasta reported first-quarter production of 139,000 tonnes, when on average analysts had been predicting 153,000 tonnes, and net cash costs were also higher than expected at $1.75 a pound versus an expected $1.63. Although Iván Arriagada, the chief executive, is maintaining his guidance for the year, gold production was 35 per cent down on the first quarter of 2021 and molybdenum (a mineral used by steelmakers) production halved, in both cases because of lower grades.
While Anglo’s African operations, with the exception of diamonds, have benefited from more rain, in northern Chile Antofagasta has suffered from drought. While that is likely to affect output for several months, it should be only temporary as a desalination plant is due to come on stream later in the year.
The Consejo de Defensa del Estado de Chile, an independent government agency, has filed a claim against the company, alleging that its water extraction activity has affected the water table in the Atacama salt flats in northern Chile. And the Chilean Senate’s finance committee is reviewing a draft mining royalty bill that may affect Antofagasta.
Tyler Broda, of Royal Bank of Canada, said: “The latest result, with weaker production, higher costs and higher capital expenditure, reaffirms our view that Antofagasta is at risk from a valuation perspective.”
He sees earnings before interest, taxes and other charges falling for the next three years. Although the shares yield 6 per cent now, analysts fear that, like Anglo, the payout will fall significantly over the next 36 months. The shares are trading on 2.34 times estimated net asset value, which looks a little rich.
Tim Clark, at SBG Securities, puts an enterprise value of £61 billion on Anglo, compared with its £54 billion stock market cap. The price-earnings will remain below ten and, while the dividend is likely to fall, the yield should drop from 10.7 per cent to no lower than 5 per cent over two years.
ADVICE Buy Anglo, hold Antofagasta
WHY Anglo’s broader mineral spread and high yield gives it better defensive strength
Ibstock
When this column looked at Ibstock last August, inflation was a tiny cloud on the horizon, energy was plentiful, post-pandemic supply bottlenecks had hardly begun and Ukraine a far-off land familiar mainly to trekkers.
For Britain’s biggest brickmaker, the news since then could not have been much worse. The shares have fallen from 223p to as low as 167p. After rising following the publication of 2021’s results on March 9, the price wilted again before a bullish statement yesterday, with the sweetener of a £30 million buyback, generated a 14½p, 8.8 per cent, rise to 181p.
Joe Hudson, Ibstock’s chief executive, told yesterday’s annual meeting that the company had “made a strong start to 2022 . . . Mindful of the broader macroeconomic uncertainties, we expect to deliver performance for the full year modestly ahead of our previous expectations.”
Energy is a big factor in making bricks, so Ibstock has bought forward at fixed prices 75 per cent of what it will need for this year’s second half and more than 30 per cent of the likely 2023 requirement.
It has done well out of surprisingly strong demand for new houses and stands to benefit from the removal of unsafe cladding from blocks of flats. Ibstock Futures has bought glass-reinforced concrete panel technology, particularly suited to recladding. Its repairs, maintenance and improvement business has been generally strong.
Last year, it said it would do better than forecasts of £93 million for adjusted earnings before tax, interest and other costs. The actual number was £103 million, encouraging for Hudson’s numbers for 2022. Ibstock looks capable of earnings per share this year of 15p or more, which would mean a price-earnings ratio of below 12. It may want to hold on to cash in light of uncertainty, but even an unchanged 7.5p dividend would leave a useful 4.25 per cent yield.
ADVICE Buy
WHY Well placed to overcome multiple headwinds
