Antofagasta Abandons Dividend as Metal Rout Erodes Profit

  • Dividend scrapped as interim payment exceeds 35% payout ratio
  • Company focused on cutting costs and freeing up cash flow

Antofagasta Plc, the copper miner controlled by Chile’s richest family, scrapped its dividend after the rout in metals wiped out almost all of its profit last year.

The miner decided not to pay a final dividend as the erosion of profits meant that its payout in the first half exceeded its policy of returning a minimum of 35 percent of earnings to investors for the year, the company said in a statement on Tuesday. Net income excluding some items fell 99 percent.

A decision on paying an interim dividend for 2016 will be made when it next reports results in August and will depend on the performance of the copper price, Chief Executive Officer Diego Hernandez said in an interview on Tuesday.

"In these difficult years, I think investors shouldn’t look too much to a dividend," he said. "Mining is a cyclical business and what is important is to go through these bad periods as healthy as possible to be there when the price starts to recover."

Antofagasta shares slumped 4.5 percent to 513.5 pence by the close in London. The company has a market value of about $7 billion.

Biggest Drop

Antofagasta was among the worst-performing stocks last year in the U.K.’s FTSE 100 Index, tumbling 38 percent as falling metal prices hit profits, forcing miners around the world to cut jobs, dividends and investments to save money. Copper slumped 25 percent in 2015, the biggest annual drop since 2008, as demand from top consumer China slowed.

Antofagasta’s profit was a “weak result” and has forced the company to “move to a very defensive stance in the current environment,” Investec Plc analysts wrote in a note. “The cancellation of a final dividend is also a significant event for this long time strong dividend payer.”

Hernandez expects copper prices to be stable this year before contracting supply will tighten the market from late 2017, spurring a rebound in prices. Demand for the metal is still growing unlike some other commodities, he said.

‘Cyclical Industry’

The net income excluding some items fell to $5.5 million from $422.4 million for the year ended Dec. 31 from a year earlier, the company said in a statement. Sales dropped 34 percent to $3.4 billion. The total dividend for 2015 was the 3.1 cents per share it agreed to pay in August. That’s an 86 percent decline from the 21.5 cents it paid out for 2014.

"We expect the dividend to be reinstated only in FY’19, when we forecast earnings to turn positive again," Liberum Capital Ltd. said in an e-mailed note.

Antofagasta affirmed its production forecast for this year of 710,000 to 740,000 metric tons of copper as output from its Antucoya mine increases and it incorporates production from the Zaldivar operation, in which it bought a 50 percent stake last year.

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