Antofagasta shares are supported by long-term structural economic expansion and the demand for copper from the clean energy transition.
After touching highs above $10,000 per tonne earlier this year, copper prices have gently eased amid concerns about Chinese growth. However, the Federal Reserve’s decision to start cutting interest rates has sparked a rally in the copper, which touched two-month highs last week.
Copper’s high correlation with the underlying growth environment has earned the metal the title ‘Dr Copper’, as a rise in the price of metal is usually caused by improving sentiment or economic expansion.
It remains to be seen whether the recent rally in copper is just a result of improving sentiment after the Fed cuts interest rates or is a predictor of future economic buoyancy. Indeed, the shift in copper’s narrative to US interest rates away from Chinese growth will likely be short-lived.
That said, if we see any signs of positivity from China in the coming months, copper prices have plenty of space to rally.
In addition to immediate macroeconomic considerations for the price of copper, the metal is set to benefit from long-term structural demand from the green energy transition. For all the furore around lithium, cobalt, and uranium, copper is the essential metal at the heart of most green energy technologies, including electric vehicles and power generation.
Investors seeking exposure to further recovery in the price of copper or would like to position for the green transition without buying futures or trading another form of derivative should look no further than Antofagasta.
FTSE 100-listed Antofagasta is the ultimate play on copper prices for UK-focused equity investors. The company’s resource base is around 21 billion tonnes, making it one of the world’s leading copper miners in terms of resources.
Focused on Chilean copper assets, Antofagasta’s strength lie in extensive production operations and the supportive environment for copper prices.
Antofagasta invested in mining operations at a time when capital costs were much lower. This provides investors with the attractive advantage of an upside in copper prices without the CAPEX required to bring mines online.
It has become hugely expensive to construct new mines, leading to a dearth of new mines coming on line. It’s one thing for early-stage companies to identify economically viable resources; securing the funds to extract them is something entirely different, especially at the scale at which Antofagasta is operating.
Antofagasta produced 284,000 tonnes of copper in the six months to the end of June 2024. Although this was slightly lower than in the same period last year, group revenues rose 2% due to a higher comparative copper price.
The company expects to spend $2.7bn in capital expenditure for the full year. A large proportion of this will be allocated to improving facilities to increase copper production.
Antofagasta has plentiful resources in place, and its growth strategy is to increase the pace at which it is monetised. Very few miners have the mineral or capital resources to achieve the levels of production Anto is targeting, giving it a huge competitive advantage.
Investors should also note the company’s willingness to return cash to shareholders. Antofagasta pays out 35% of underlying earnings per share. This policy means payouts can be volatile, but it leaves plenty of opportunity for substantial payouts on periods of good performance.
In conclusion, the stock offers robust chances of both capital growth and income, and with shares below 2,000p, it should be on the watch list of any natural resources fan.