Morningstar | Antofagasta Issues Higher Production Guidance for 2019; Slightly Increasing our FVE to GBX 570
Antofagasta provided its third-quarter mine production with 2018 production guidance and cash costs in line with our forecast. Management expects to produce between 705,000 and 720,000 metric tons of copper in 2018, in line with our 713,000 metric ton estimate at a cash cost of $1.35, which we had also previously forecast.However, the company confirmed it has moved into a higher-grade area at both its Centinela and Zaldivar operations and expects to increase copper production to a range of 750,000 to 790,000 metric tons in 2019. This is above our previous forecast of 723,000 metric tons. Having updated our model to reflect the higher production, we've slightly increased our fair value estimate GBX 570 per share from GBX 560 for no-moat Antofagasta. The increase was partially offset by a strengthening of the British pound versus the U.S. dollar since our last update.
During the third quarter, copper prices fell from an average of $3.16 per pound in June to $2.75 in September, a 13% decline. As of Oct. 24, copper prices remain around $2.75 per pound. The price decline is in line with our outlook that copper prices would fall after averaging $3.14 per pound during the first half of 2018. We continue to point to slowing demand growth in China causing global demand to grow more slowly than supply as mine restarts and new production comes online. As such, we maintain our 2019 and 2020 copper price forecasts of $2.70 and $2.40 per pound, respectively, in nominal terms.
Antofagasta is a Chilean copper mining group engaged in the discovery, development and operation of copper mining assets. Co. operates four copper mines in Chile, two of which also produce significant volumes of by-products. In addition to mining, Co. has a transport division that provides rail and road cargo services in northern Chile primarily to mining customers, including to some of Co.'s own operations. Co. is organized into two business divisions based on their products: Mining and Railway and other transport services. The mining division is split by mine and exploration activity. The transport division provides rail cargo and road cargo together with a number of ancillary services.
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