Copper miner Anotfagasta faces tough new taxes in Chile
Copper mining company shares
seems poised to deflate due to a political shift to the left in Chile, raising the possibility of increased taxes on resource companies. Recent declines in the price of copper are not helping either.
As a result, investors might want to reduce their positions in the stock (ticker: ANTO: UK).
The main problem for the British company Antofagasta is Chile, where the company’s mines are based. In May, Chile’s lower house approved a bill that would impose a new royalty on producers operating in the leading copper-producing country.
“The left is on the rise in Chile, and that doesn’t bode well for an end to taxes,” said Tyler Broda, head of European mining research at Canadian finance firm RBC Capital Markets in London. “We think it will be difficult for stocks to hold onto where they are.”
Broda sees the shares dropping significantly and values the Underperform share with a target price of 10.50 pounds ($ 14.60), 28% below the recent price of £ 14.49. In addition to avoiding holding the stocks, risk-tolerant investors might consider selling the stock short. In other words, they could sell borrowed stocks in the hope of buying them back at a lower price for a profit.
A recent report from RBC said the proposed tax would “reach 75% of revenues above $ 4 / pound of copper.” Copper recently hit $ 4.16 a pound.
While the proposed law can be changed, it is unlikely to go away. “The political context is not promising for the government to stop this bill as it has said it wants,” according to a recent report by
“Our base scenario is that the bill gets passed in one form or another in the Senate – whether watered down or not remains to be seen.” In other words, it is likely that royalties on copper miners will end up being higher than they are now.
This is particularly bad for Antofagasta because 100% of the company’s net asset value is in Chile, according to RBC and Barclays. No other comparable copper miner is as exposed as Antofagasta. The company, which has a market value of £ 14 billion ($ 19 billion), declined to comment.
Antofagasta shares have seen a spectacular rally over the past 12 months, returning 63.3% including dividends, compared to a 17.4% increase for the FTSE 100 index, as copper prices have soared.
Stocks took a 7% hit over the past month, along with a drop in copper prices. The metal recently hit $ 4.16 a pound, down 13% from the record high of $ 4.76 on May 11, according to Macrotrends.net.
Two events partly triggered this weakness in the copper market. First, the Chinese government decided to release the metal from the country’s strategic reserve to help stabilize material prices. Second, the Federal Reserve has indicated that it will likely raise interest rates sooner than investors expect, making owning the metal less attractive.
Further weakness in the copper market would hurt Antofagasta’s revenue, but that downside appears to be limited, according to Carlos Sanchez, director of commodity management at the commodity consulting firm.
He sees the price staying above $ 3.63 a pound in the long run.
Antofagasta produced 734,000 tonnes of copper in 2020 and smaller volumes of other metals such as gold and molybdenum. It posted earnings of 55 cents per share in adjusted earnings last year, with RBC forecasting $ 1.44 per share for the current year, reflecting the rise in copper prices over the past 12 months. However, RBC sees earnings drop to $ 1.08 and 79 cents per share in 2022 and 2023, respectively.