Antofagasta's profits pared by mark-to-market adjustments

published 24 November 2011

Higher copper prices and increased output was a winning combination for Chilean copper miner Antofagasta in the first nine months of 2011.

Group revenue in the period totalled $4,173m, up 31.7% from the $3,169m seen in the corresponding period of 2010. As well as benefiting from higher copper prices and volumes, the firm also saw a higher volume of gold sales.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) surged 28.0% to $2,505.5m from $1,957.3m the year before.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

London Metal Exchange copper prices averaged 419.8 cents per pound during the period compared with 325.2 cents per pound in the nine months ended 30 September 2010. However, the copper price weakened in the third quarter of 2011, resulting in negative mark-to-market adjustments of provisional sales at the period end. The net impact of settlement and mark-to-market adjustments relating to the provisional pricing of copper sales in the nine months ended 30 September 2011 was a negative adjustment of $390.3m.

Revenue also included a net loss of $15.3m on commodity derivatives, principally at Michilla, which matured during the period. As a result the average realised copper price for the nine months ended 30 September 2011 was 378.0 cents per pound (nine months ended 30 September 2010 - 329.9 cents per pound).

Market gold prices averaged $1,534.4 per ounce in the nine month period, an increase from the average price of $1,178.1 per ounce the year before. The realised gold price of $1,602.5 for the nine month period was marginally above the market price for the period, the company said.

The company released production details for the third quarter back on November 2nd.

Increased revenues in the period were partly offset by increased operating costs.

Weighted average cash costs for the group increased from 117.5 cents per pound in the nine months ended 30 September 2010 to 142.5 cents per pound in the first nine months of 2011. This increase reflected the impact on average cash costs of the ramp-up process at Antofagasta's Esperanza asset, the impact of temporary lower grades at the Los Pelambres and El Tesoro projects during the early part of 2011, and general cost pressures across the operations, including the impact of the stronger Chilean peso and increased sulphuric acid costs at El Tesoro and Michilla.

These factors were partly offset by lower energy costs at Los Pelambres.

At 30 September 2011 the group had cash, cash equivalents and liquid investments of $3.20bn, down from $3.54bn at the end of 2010.

Total group borrowings at 30 September 2011 were $2.35bn, up from $2.20bn at the end of 2010. The increase in borrowings is mainly due to $200.0m of new short-term borrowings at Esperanza partly offset by regular repayments on existing borrowings.

The share price of Antofagasta was up 14p at 1,042p shortly after the release of the results. That represented a 1.36% rise, versus a 2.54% increase for the whole of the mining sector at that time.