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London-listed mining stocks fell sharply after Antofagasta and BHP Group revealed significant profit drops due to higher costs and lower commodity prices.
Chilean miner Antofagasta saw its full-year profits fall 39 percent to $2.9bn (£2.4bn), as production was hit by high input costs, reduced copper output volumes and a drought in the South American country.
Meanwhile, BHP, the world’s largest miner, reported a stronger-than-expected 32 percent drop in first-half earnings, driven by a drop in iron ore prices.
BHP Group shares fell 2.7 percent percent, while Antofagasta Shares fell 2.6 percent in early trading, dragging peers and the FTSE 350 mining index 2.2 percent lower.
Copper and other commodities experienced a double-digit price decline in the past financial year
It is reversing gains made by FTSE 350 miners on Monday as investors saw a recovery in Chinese demand for metals such as copper and aluminum.
Both BHP and Antofagasta repeated this optimism in their results on Tuesday, but it was not enough to revive investor optimism after disappointing earnings.
Adam Vettese, analyst at eToro, said: “Looking forward, China’s decision to relax its stance on Covid is a boon to miners, who depend on its insatiable appetite for metals.
“The fact that many economists are now predicting that the US and Europe will experience a less deep recession – or even avoid it altogether – should also help metal prices.”
BHP posted underlying profit attributable to continuing operations of $6.6 billion (£5.5 billion) for the first half, down from $9.72 billion a year earlier, missing estimates of $6. 82 billion.
The group saw sales fall $4.8 billion to $25.7 billion during the period, largely due to lower iron ore and copper prices, it says.
Capital and exploration spending also rose 5 percent to about $3 billion, while BHP paid $7.5 billion in taxes and royalty payments.
BHP chief executive Mike Henry stressed that “significant wet weather in our coal assets,” as well as “challenges in securing sufficient labor” and “stock movements,” contributed to cost increases over half.
However, he noted that “BHP remains the largest lowest-cost iron ore producer in the world,” and said the group continued to make “strong progress in executing our strategy, including the development of growth opportunities.”
Net debt rose 13 percent to $6.9 billion, but BHP said it was “at the low end of our target range of between $5 and $15 billion.”
BHP will pay an interim dividend of $0.90 per share, or $4.6 billion in aggregate, representing a payout ratio of 69 percent.
Looking ahead, Henry said BHP is “positive on the demand outlook” in the second half of 2023 and into 2024, “with stronger activity in China based on recent policy decisions as the main driver.”
He added: “We expect domestic demand in China and India to provide a stabilizing counterbalance to the ongoing slowdown in global trade and the economies of the US, Japan and Europe.
“The long-term outlook for our raw materials remains strong given population growth, rising living standards and the metal intensity of the energy transition, including for raw materials for steel production.”
Despite Tuesday’s drop, shares of the company are still up 8.3 percent year-to-date through 2023. It is up more than 160 percent since the low of the Covid sell-off in March 2020, reflecting rising commodity prices during that period.
However, commodity prices started to stabilize and in some cases started to fall.
Antofagasta was forced to more than halve its annual dividend after a record payout of $1,425 per share in 2021 following a fall in copper prices during the fiscal year.
Sales in 2022 were $5.8 billion, down 22 percent from 2021, due to the decline in copper sales volumes and prices, both of which fell 12 percent.
The company’s copper production also fell 10.4 percent during that period due to drought and “reduced availability of concentrate pipelines,” it said, while production of gold and essential trace metal molybdenum fell 29.9 and 7.6 percent, respectively.
But Antofagasta reiterated it expects copper production to increase through 2023, aided by China’s easing of Covid-19 restrictions and a growing shift to green energy.
Net cash costs increased 34.2 percent “due to higher cash costs before by-product credits,” the group added.
Chief executive Iván Arriagada said: “Copper and by-product production is expected to increase through 2023 and we expect cash costs before by-product credits to remain in line through 2022.
“All this is supported by copper fundamentals that remain strong, with China showing signs of recovery and with the energy transition supporting long-term demand for copper.
In line with our dividend policy, the Board of Directors has recommended a final dividend of 50.5 cents per share, subject to shareholder approval at the AGM, bringing the total dividend for the year to 59.7 cents per share. corresponds to a payout ratio of 100 percent, reflecting our positive outlook for 2023.”
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