Morningstar | Antofagasta Production and Costs Remain on Track in 2018; Raising Our FVE to GBX 560 on Weaker Pound. See Updated Analyst Note from 25 Jul 2018
Antofagasta reported its 2018 second-quarter production results and maintained its full-year guidance for both copper production and net cash costs. Both figures are roughly in line with our expectations. We're increasing our fair value estimate to GBX 560 per share from GBX 500 because of a strengthening of the U.S. dollar versus the pound and the time value of money effects since our last update. Our no-moat rating is unchanged.Our copper price forecast is remains intact. We continue to forecast 2018 copper prices to average $3.00 per pound. Although prices averaged $3.14 during the first half of the year, they have fallen over 10% in July and now sit around $2.80 per pound as of July 25. As new supply ramps up and demand growth in China continues to slow, we expect prices to fall further in 2019, to an average of $2.70 per pound for the year. Our long-term 2022 copper price forecast is also unchanged at $2.34 per pound (in nominal terms).
We continue to view Antofagasta as overvalued, with the stock trading at 1.75 times our fair value estimate. At the current stock price at GBX 980 per share on July 25, we think the market is assuming higher long-term copper prices and higher free cash flow generation. Given our long-term forecast for lower copper prices, we forecast the company to generate lower future free cash flows.
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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