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Summary
- The Institute for Fiscal Studies highlighted that the UK deficit could touch £350 billion after a recent package announced by the British finance minister, Rishi Sunak.
- The UK government announced a financial package of £30 billion to boost employment.
- Antofagasta revised final dividend for FY19 to 7.1 US cents per share from previously announced 23.4 US cents per share.
- Antofagasta’s Centinela division signed a 100% renewable energy contract with ENGIE Energy.
- Fresnillo’s Juanicipio project is expected to start production by the end of Q3 FY20.
Given the above market conditions, we will review two stocks - Antofagasta PLC (LON:ANTO) and Fresnillo PLC (LON:FRES). Both ANTO and FRES were up by 3.36 percent and 2.51 percent, respectively (as on 9 July 2020, before the market close at 2.00 PM GMT+1). It is noteworthy that both stocks touched their 52-week high on 9 July 2020. Let’s review financial and operational updates to understand the stocks better.
Antofagasta PLC (LON:ANTO) – Cuts final dividend for FY19 to 7.1 US cents per share.
Antofagasta is a Chilean copper mining group engaged in the development and exploration of mining assets. The Group operates four mining divisions in Chile, namely Los Pelambres, Centinela, Antucoya and Zaldivar. The Group also owns Transport division that provides rail and truck services to the mining companies in Antofagasta region in Chile. Antofagasta PLC is listed on the FTSE-100.
Q1 FY2020 Production Report (ended 31 March 2020) as reported on 22 April 2020
In Q1 20, the Group operated two-third of the workforce due to restriction in movements; however, it had a limited impact on the production. The copper production increased by 2.9 percent year on year to 194,000 tonnes. The gold production was up by 4 percent to 65,100 ounces. Meanwhile, molybdenum production decreased by 1,000 tonnes to 2,400 tonnes due to lower grades at Los Pelambres.
The cash cost before by-product credits was 1.51 USD per pound, which declined by 11.2 percent whereas the net cash cost was down by 27 cent per pound to 1.10 USD per pound mainly due to cost control measures and weaker Chilean pesos to US dollar. The Group has temporarily halted operation at Los Pelambres expansion project that is expected to last not more than 120 days; the project was suspended on 6 April 2020. The Group has extended aid of USD6 million to communities around Antofagasta region.
Recent Developments
- As on 19 May 2020, the Group slashed the final dividend payment for FY19 to 7.1 US cents from previously announced 23.4 US cents. The new final dividend would reflect a total dividend payment of 16.3 US cents in FY19, which costs USD175.5 million. The final dividend payment was revised to preserve cash.
- As on 1 April, 2020, Centinela division signed a new power contract agreement with ENGIE energy. The mines would be powered by renewable energy starting from 2022 till 2033, which would bring down the power costs. Following this agreement, the Group would cancel two power purchase agreement due to expire in 2026 and 2027. As a part of the deal, the Group would sell the 40 percent indirect stake to ENGIE in Hornitos thermal power station. The Group would incur a post-tax write-down USD43 million in the first-half result of FY20 with regards to the cancellation of PPA and sale of the stake to ENGIE.
Group production and Cash Costs in Q1 FY2020
(Source: Company Website)
Share Price Performance
Antofagasta PLC’s shares were up by 3.36 percent and trading at GBX 1,003.00 per share (as on 9 July 2020, before the market close at 2.00 PM GMT+1). Stock 52-week High and Low were GBX 1,010.50 and GBX 575.00, respectively. The Group had a market capitalization of £9.51 billion.
Business Outlook
The Group expects the capital expenditure to be less than USD1.3 billion as it has halted the Los Pelambres Expansion project; the original expenditure guidance was in the range of USD1.5 billion. The Group would also lower expense on mine development. The copper production in 2020 is expected to lower than the original guidance of 725-755,000 tonnes provided earlier, whereas the net cash cost is expected to be near 1.20 USD per pound. The activities that have been halted are scheduled to resume in phases, and the full operation depends on the future health and safety requirements.
Fresnillo PLC (LON:FRES) - Announced a final dividend of 11.9 US cents per share for FY19
Fresnillo PLC is engaged in the development and exploration of silver and gold mine. The Group has seven mines, three development projects and six advanced exploration projects with operation in Mexico, Peru and Chile. The Group owns seven mines in Mexico, which include Fresnillo, Herradura, Saucito, Cienega, Soledad-Dipolos1, Noche Buena and San Julian. Fresnillo is listed on the London and Mexican stock exchanges.
Q1 FY2020 Production Report (ended 31 March 2020) as reported on 29 April 2020
The Group produced 13.2 million ounces (moz) of silver including Silverstream in Q1 FY20; the silver production improved slightly by 0.7 percent year on year due to higher volume of ore processed at Fresnillo. However, the silver production was down by 4.0 percent compared to the previous quarter due to the lesser quantity of ore processed at Saucito and lower ore grade at San Julian. The gold production declined by 6.7 percent year on year to 197 kilo ounces(koz); the gold production was down mainly due to the lower amount of ore processed and increased stripping at Herradura. The output of by-product lead and zinc increased by 14.7 percent and 4.2 percent year on year, respectively. The production volume increased due to higher volume grades at both Fresnillo and Cienega.
The Group progressed with Phase II construction of Pyrites Plant. Juanicipio project advanced in line with expectation in the first quarter as the flotation plant was constructed. The surface exploration and development has been temporarily halted due to health measures. In Q1 FY20 the Group completed 130,000 metres of drilling at the operating mines. The drilling would help to convert resources into reserves. On 28 April 2020, the Group fixed the conversion rate for announced final dividend of 11.9 US cents per share for FY19 at 1.24USD/£.
Group production in Q1 FY2020
(Source: Company Website)
Share Price Performance
Fresnillo PLC’s shares were up by 2.51 percent and trading at GBX 931.40 per share (as on 9 July 2020, before the market close at 2.00 PM GMT+1). Stock 52-week High and Low were GBX 937.60 and GBX 456.51, respectively. The Group had a market capitalization of £6.70 billion.
Business Outlook
Fresnillo’s Juanicipio project is expected to start the first production by the end of Q3 FY20. The project is expected to add an average of 11.7 million ounces(moz) silver and 43.5 kilo ounces(koz) gold in annual production and is likely to have an initial life of twelve years. Post completion of Pyrites Plant the recovery of both silver and gold is expected to improve. The Pyrites Plant would process the tailings from the Fresnillo and Saucito mines.
