Antofagasta Erases Gains as Capex Plan May Hurt Dividends

Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, erased gains in London trading on speculation a jump in planned investments will prevent a repeat of 2013’s higher-than-expected dividend.

Antofagasta fell 2.2 percent to close at 828.5 pence, after earlier rising 6.2 percent. It announced a final dividend of 86.1 cents a share, exceeding the 23.5-cent projection of analysts at Bloomberg Dividend Forecasting.

At a meeting in London today, Head of Development Alejandro Rivera said Antofagasta expects to raise capital expenditure by about 30 percent this year. The planned increase would fly in the face of investor pleas to mining companies to curb spending and focus on shareholder returns amid weaker commodity markets.

“The chance of seeing another dividend like we had this morning must be remote given the capex spend,” Paul Gait, an analyst at Sanford C. Bernstein Ltd., said by phone. The planned payout may be a “one-off and not part of a longer strategy that can be relied on, at least for the next few years.”

Capital expenditure totaled $1.46 billion in 2013 and will rise to about $1.9 billion this year, before falling to $1.2 billion in 2015, Rivera said. Antofagasta has no plans to move to a net-debt position to support dividend payments, Chief Executive Officer Diego Hernandez said at the same meeting.

“We will return cash according to market conditions, according to our portfolio of projects, according to our commitments and also we’ll continue to look out for opportunities,” Hernandez said.

Prices Drop

Copper prices retreated last year as economic growth slowed in China, the biggest user of the metal used in pipes and wires. They’ve dropped further in 2014, piling pressure on Antofagasta as it develops new mines and expands others in Chile.

Costs for the Antucoya project will account for about $1 billion of this year’s planned investment, while about $500 million constitutes “sustaining capex,” Rivera said. Work to increase capacity at the Esperanza mine will be about $250 million of the total, he said.

Copper production rose 1.6 percent to 721,200 metric tons last year, London-based Antofagasta said today in a statement. The company is targeting output of 700,000 tons in 2014, before new mines and expansions add volumes in 2015. It seeks to produce about 900,000 tons by 2018.

Antucoya, Pelambres

Most of the extra output will come from Antucoya, estimated to produce 85,000 tons a year, Hernandez said. An extension of Antofagasta’s biggest mine, Los Pelambres, will add 90,000 tons, Esperanza will expand by 10,000 tons to 12,000 tons a year and El Tesoro will maintain annual production of about 100,000 tons.

Net income declined to $659.6 million in 2013 from $1.03 billion a year earlier, the company said in the statement. It reported full-year sales of $5.97 billion, beating the $5.88 billion average estimate of 22 analysts surveyed by Bloomberg.

Copper for three-month delivery on the London Metal Exchange averaged $7,352 a ton last year, 7.6 percent lower than a year earlier. Antofagasta’s net cash costs rose 32 percent to $1.36 a pound, while the effective tax rate increased to 40.5 percent from 37 percent.

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