Half-year results from Chilean copper mining giant Antofagasta (LSE: ANTO) make grim reading. Revenue during the first half of the year increased by 3.6% compared to the equivalent period in 2017 but most of the other figures are discouraging. Cash flow from operations declined just over 22%, earnings per share fell more than 33%, net debt shot up almost 70% to around $781m and the directors slashed the interim dividend by 34% — ouch!
A positive outlook
Chief executive Iván Arriagada explained in the report that the first half of the year is “softer” because of higher costs, lower sales and poorer quality grades of product coming out of the ground. However, he thinks tonnages and unit costs will improve “substantially” during the second half “and well into 2019.” Mined grades will improve as well, he said, “in line with our mine plan.”
Although the outlook is positive Antofagasta’s financial trading outcome is always subject to several external factors that the company can’t control. For example, commodity prices, inflation and foreign exchange rates all fluctuate and have an impact on the firm’s bottom line. That’s the reality for out-and-out cyclical enterprises such as miners.
So, can Antofagasta make you rich from where it is now? The share price is down today almost 6% as I write, but to set that in context it’s up more than 150% since its January 2016 lows. I would only buy the stock if I believed that commodity prices were heading higher, regardless of how attractive the valuation indicators might be. For now, I’m staying away.
Earnings storming back
Meanwhile, City analysts following oil major BP (LSE: BP) forecast storming earnings with an increase of more than 200% this year and an uplift of 10% in 2019. Since the oil spill disaster in the Gulf of Mexico in 2010, the company has done a good job of rebuilding its operations to become a financially lean operation with potential for growth. In July, chief executive Bob Dudley explained in the interim results report that the firm is making steady progress against its strategy and plans. “We brought two more major projects online, high-graded our portfolio through acquisitions such as BHP’s US onshore assets and invested in a low-carbon future with the creation of BP Chargemaster.”
To underline the progress, the directors increased the interim dividend by 2.5%, which was “the first time in almost four years.” At today’s share price close to 560p, the forward dividend yield for 2019 runs near an attractive-looking 5.6%. But shareholder returns are also being enhanced by a share buyback programme. 29m ordinary shares were bought back in the first half of the year, which cost the firm $200m. Although there is a big element of cyclicality in BP’s operations I’d rather take my chances with it than with Antofagasta. I don’t expect BP to make me rich on its own, but I think the stock is capable of delivering steady investor returns from here as long as the price of oil holds up and the firm avoids further oil well disasters.