Is now the time to buy Antofagasta shares?

With its shares listed in London, Antofagasta (LSE: ANTO) — founded in 1888 — engages through subsidiaries in the exploration, evaluation, development and mining of copper deposits internationally, predominantly in Chile.

Copper production in 2021 was 721,000 metric tons (MT), about 3% of the world total. The forecast for 2022 is lower, 640-660,000 MT, due to a fractured concentrate pipeline at its Les Pelambres mine and a water shortage resulting from a drought in Chile.

The first half of 2022 was challenging for Antofagasta. Also, the copper price was volatile due to world macro developments.

Nevertheless, while the short-term outlook remains uncertain, because of global economics (inflation) and geopolitics, I believe the medium- to long-term outlook for copper, and therefore Antofagasta, is very promising. 

As countries make the transition to low-carbon economies, copper is a critical metal for renewable clean power generation and electric vehicles (EV)s. On 15 November 2021, President Biden signed a massive infrastructure bill of $226bn for projects requiring large amounts of copper.

The dominance of internal combustion engine vehicles on our roads is fading fast. In 2021 global electric vehicle sales totalled 6.6 million, 9% of the global market, double 2020’s volume. Great news regarding decarbonisation, but there is a looming copper shortage due to the ever-increasing EV demand and the concomitant green energy transition.

Future demand

The 2050 net zero climate objective will not be achieved without a major increase in copper production. An EV requires 2.5 times more copper than a conventional vehicle. However, insufficient new mines and mine expansions are being developed to meet this and the copper demand for new green energy power stations and their transmission lines.

A chronic gap between worldwide copper supply and demand is projected, beginning in 2025. It is forecast to be as much 1.5 million MT by 2035 even if annual copper production nearly doubles by then to 47 million MT, from 24.5 million MT in 2022. Recycling of scrapped EVs will be insufficient to fill the gap. Thus, copper could become a major national energy security concern.

Medium to long term the price of copper, while volatile, can only go one way in my opinion: up. Consequently, it makes sense for me to hold copper stocks, such as Antofagasta, in a balanced share portfolio.

At the time of writing, its share price was £11.35. Antofagasta had a market cap of £10.72bn and a price-to-earnings ratio of 14.6:1 (TTM). For 2021 gross revenue was US$7.47bn with an EBITA (earnings before interest, taxes, depreciation and amortization) of US$4.84bn. Profit before tax was US$3.48bn.

The price of copper peaked, at US5.01c/lb in March 2022, as did the Antofagasta share price at £17.99. By July they had fallen, to US3.19c/lb (-26.7%) and £9.71 (-36.9%) respectively. Since then, they have recovered to US3.67c/lb (+15.0%) and £11.35 (+16.9%).

I believe now is a good time for me to buy shares in Antofagasta.