Chile-based, UK listed copper miner Antofagasta has become the latest huge commodity firm to announce a massive hit to its profits thanks to the crashing price of raw materials across the globe.
Announcing its preliminary results for 2015 on Tuesday, the miner said that profits fell by a massive 83% last year, reflecting the fall of the price of copper, the firm’s key raw material. As well as seeing profits crash, Antofagasta also took hits in virtually every single key financial area. Here are some of the highlights (or lowlights if you’re an investor):
- Profits down from $1.5 billion to $259.4 million; an 83% fall.
- Revenues dropped 34% to $3.4 billion, driven by a fall of 24% in the price of copper.
- Earnings before tax on continuing operations fell 58.4% to $891 million.
- Cash flow from operations decreased from $2.5 billion to $858 million; a 65.8% fall.
- Antofagasta has also cancelled its final dividend for the year.
Like all commodities, demand for copper, and therefore its price, is driven heavily by China, and in particular, the country’s construction industry. As a crucial component of electrical wiring, copper is heavily used when building new homes, and since demand for new homes has slowed, so the price of copper has fallen, hitting multi-year lows towards the end of 2015.
That has forced Antofagasta into cutting costs substantially, something that the company says puts it in a good place to weather the commodity storm. Here’s what Antofagasta’s CEO Diego Hernandez had to say (emphasis ours):
Each of our mines continued to generate cash flow at the operating level despite the exceptionally challenging operating environment. The year was one of change and the Group has emerged stronger, more focussed on its core business and operating at significantly lower costs.
During the year we started production at the Antucoya mine, sold the water division and purchased 50% of the Zaldívar copper mine while closing our oldest operation, Michilla. Now, in 2016 we expect our net cash costs to return to levels we have not seen since 2012. Combined with our healthy balance sheet we will be in a better position to weather the current market conditions.
We know that copper is a cyclical industry and as a result of the actions that we have taken over the past year we will be positioned to benefit from the recovery when it comes. In the meantime, our focus is on optimising our operations and projects under construction to cut costs and free-up cash flow whilst retaining the flexibility to accelerate investment for future growth if circumstances are appropriate.
Antofagasta becomes the latest in a long line of commodity based companies to take a huge hit in their annual results this year. So far in 2016, Glencore has reported a profit drop of 69%, Anglo American has slashed tens of thousands of jobs, and BHP Billiton has taken a massive write-down on its US assets.
While Antofagasta has taken a huge hit on everything from top line revenues, to dividends, to bottom line profits, the company is trying to stay positive, saying that it expects copper’s price to stabilise this year, and that it is ready to “benefit” from any recovery in the price of the metal.
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