Antofagasta is a Chilean minning group listed in the LSE and part of the FTSE 100. While involved in some other aspects of the business such as transport 90% of their revenues and EBITDA come from mining. The company’s mining operations produce copper with by-products of gold, molybdenum and silver. Being copper the main output and source of revenue I’m going to focus on this commodity in order to analyze the prospects of the business.


  • Status of the commodity

As we can observe on the next graph Commodity Metals are currently on historical lows.


And so is Copper, although still holding above its 2008 levels


Metals as any other basic material are highly cyclical, that is, they are extremely correlated with the economic cycle. The slowing down of the global economy along with worse growth perspectives and China’s slippery slope behavior have pushed down the price of the commodity.

China is the top global consumer of Copper accounting for 50% of the global demand



  • Prospects

Commodity price forecasts in constant U.S. dollars (2010=100)


As we can see the price of the commodity is expected to gradually recover from 2016 onwards however it’s not expected to reach previous levels from the 2000-2012 super cycle.


China accounts for 1/3 of copper used in building construction which equals to 10% of world total usage.

The principal end markets for refined copper are construction and consumer products, which account for approximately 58% of global copper demand. These are followed by electrical and electronic products, transport and industrial machinery. The price of copper is typically determined by the major metals exchanges – the London Metal Exchange (“LME”), the Commodity Exchange, Inc. (“COMEX”) and the Shanghai Futures Exchange (“SHFE”). The price of copper is affected by supply-demand fundamentals as well as by financial investors.

  • Conclusions

So how does this benefit Antofagasta if it does at all?

Well, clearly the whole sector is suffering and could suffer further, the short term demand is not expected to grow, there’s an excess of capacity – and thereby of supply – on the whole sector which is pressuring the prices down even more.

ANTO has been punished by low commodity prices/futures


But here is where Antofagasta’s potential comes into play, as one of lowest cost producers they can survive this tough times better than other actors. Their recent mine acquisitions (1, 2) along with a reduction on operational costs and the company’s debt ratios being acceptable show, in my opinion, a good corporate governance. I believe the company is ready to position itself as one of the solid producers on the long run.

There are good news for copper on the long term!



As we can see the Copper world consumption is expected to keep growing pushed by the new emerging countries such as India. Whether the commodity prices get back to its previous highs or not is not as relevant as Antofagasta’s capacity to survive the current environment in order to profit from this long term trend.

I’m currently invested in ANTO and would consider increasing my position if the stock reaches new lows.

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