A general view shows Chile's Esperanza copper mine near Calama town, about 1,650 km (1,025 miles) north of Santiago, March 30, 2011.IVAN ALVARADO/REUTERS
Chilean copper miner Antofagasta doubled its half-year dividend after a 54 per cent jump in earnings, confident that strong demand in China and a pickup in Japan and the United States would help underpin volatile copper prices.
Copper is down over 10 per cent this month, as investors grow uneasy about economic recovery prospects and China's outlook.
London-listed Antofagasta – which has been hit by production setbacks and, along with rivals, is suffering from higher costs and volatility – said on Tuesday that prices for the red metal were likely to remain "volatile with downside risks", but it was well-placed to weather the storm.
"While markets are likely to remain volatile, especially in the near-term, we remain confident that copper fundamentals will remain supportive of a strong pricing environment," said Marcelo Awad, chief executive officer.
Antofagasta said Chinese demand had remained strong over the period and saw it recovering demand in Japan and the United States. It also pointed to an underperforming supply side, hit by strikes and declines in ore grades, technical failures, the slow ramp-up of new projects and bad weather.
The group, which also produces gold and molybdenum, used in steel alloys, said fundamentals would continue to support these metals, with good demand, low stock levels and limited new supply fuelling a recovery for molybdenum in the second half.
Profit rose to $696.2-million (U.S.) over the period, within the range of analysts' forecasts, on revenues of $3.05-billion, up over 73 per cent. The group doubled its interim dividend to 8 cents per share, above expectations, but did not repeat its March special dividend sweetener.
"The positive was the big increase in the interim dividend and the fact none of that increase is a special dividend," said analyst Peter Mallin-Jones at Canaccord.
"Management seem to be feeling pretty confident about the outlook and that is the biggest signpost of that confidence."
Shares in Antofagasta, which have fallen less than those of its peers since the start of the recent equity rout, were up 3.7 per cent Tuesday morning, just ahead of the broader U.K. mining sector , up 3.2 per cent.
Core earnings, or earnings before interest, tax, depreciation and amortization (EBITDA), rose almost 84 per cent to $1.95-billion, at the higher end of forecasts.
The London-listed group was forced to cut its full-year production target in June due to slower-than-expected progress at expansion project Esperanza, but it again confirmed the outlook on Tuesday and said the ramp-up at Esperanza would complete by the end of this year.
It also said the feasibility study for its Antucoya project in northern Chile was "substantially complete".
Antofagasta, attractive to some investors because of its cash pile, said it has cash including liquid investments of $3.1-billion and net cash of $700-million at the end of June.
The miner said this left it "well-placed to progress with its medium and long-term growth plans and to continue to deliver good returns to shareholders, while preserving the financial flexibility to take advantage of opportunities which may arise."
In production data released earlier this month, Antofagasta posted a 17 per cent increase in second-quarter output but also reported an increase in cash costs, including labour costs.
Strikes, prompted by high metals prices, have dented production from many major projects this year. Antofagasta pointed to nearly nil growth in mine production during the first half because of disruptions, with production from both Chile and Peru down more than 2 per cent year-on-year.