Antofagasta Warns on Copper and Gold

January 31, 2013 at 08:52

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Antofagasta has warned that copper and gold output will fall this year amid a big increase in production costs.

The Chile-based copper miner said that higher power charges and lower grade ores at its Esperanza and Los Pelambres mines would raise the cost per pound of copper produced to 185 US cents, up from 162.8 cents last year.

Production meanwhile was expected to decrease to 700,000 tonnes, down from 709,600 tonnes achieved in 2012, while gold production would fall to 260,000 ounces from 299,900 ounces.

Peter Mallin-Jones, an analyst at Canaccord Genuity, said it was unclear how much of the cost rise was permanent and how much management can mitigate over time.

“It’s a big lift . . . some of the increase is because production guidance is lower than I was expecting so you’ll have fewer units of copper [being produced] while the fixed costs are the same,” he said. “With labour and power costs rising, cost pressure is something the industry as a whole is struggling with.”

Antofagasta said that the lower grade ores being mined were primarily gold and molybdenum, both of which are by-products of copper mining and sold to offset overall production costs.

Last year’s copper production cost is itself a rise from 155.2 cents per pound reported in 2011.

The announcement is a setback for the London-listed miner, which reported a 10.8 per cent year-on-year rise in copper production during 2012 while gold production rose by 103,000 ounces.

In August Diego Hernandez, Antofagasta’s chief executive, said rampant cost inflation, which has dented the industry’s profitability, was beginning to abate as big miners held off their investments on big projects.

But in December Antofagasta, which is majority owned by Chile’s Luksic family, mothballed its Antucoya copper project in Chile citing concern about cost escalation. The company said Antucoya was still under review.

Antofagasta shares closed down by 89p, or 6.96 per cent, to £11.86 in London trading.