Last updated: January 31, 2013 9:21 pm

Antofagasta premium rating at risk

Antofagasta hit a four-month low on fears that rising costs would erode its premium rating.

The Chilean copper miner has dropped 10 per cent since warning on Wednesday that 2013 costs would be higher than expected. It blamed higher power tariffs and poorer metal grades.


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Rising costs last month forced Antofagasta to suspend work temporarily at its Antucoya copper project, leaving it without a major growth project in development, analysts said.

With signs that inflation in Chile is structural, other expansion plans look marginal and investors should reconsider the stock’s valuation of about 14 times earnings against a mining sector priced at around 9 times, they argued. The stock closed down 2.3 per cent to £11.42.

“Antofagasta has been a go-to stock for the past three years due to the company’s strong growth delivery, consistent strategy and strong balance sheet,” said Credit Suisse. “We now see the company’s premium rating at risk.”

The wider market showed its sharpest drop in 10 weeks, with the FTSE 100 down 0.7 per cent or 46.23 points at 6,276.88. That still left the index up 6.4 per cent in the month for its best January since 1989.

Royal Dutch Shell took nearly 17 points off yesterday’s FTSE closing level after its fourth-quarter net income missed market forecasts due to upstream costs and exploration write-offs. Shell B shares slid 2.9 per cent to £22.94.

BP , which reports full-year results on Tuesday, lost 1.9 per cent to 466.8p. BP shares have outperformed peers this year on hopes it would settle legal liabilities related to the Gulf of Mexico disaster.

AstraZeneca dropped 3.2 per cent to £30.53 after the drugmaker held its dividend for the first time in a decade and issued 2013 guidance that cut earnings per share expectations by about 15 per cent.

Leading the blue-chip gainers, Vedanta Resources rose 3.4 per cent to £12.04. A strong performance for the Indian group’s oil and gas business offset higher copper mining costs in Zambia.

Better than expected quarterly production lifted Lonmin 14.3 per cent to 360p, with the platinum miner repeating full-year guidance many investors thought was too optimistic.

Petrofac , the oil services group, rallied 1.4 per cent to £16.38, having dropped on Wednesday after a profit warning from sector peer Saipem. Morgan Stanley advised clients to use Petrofac’s weakness as an opportunity to buy.

SABMiller rose 1.3 per cent to £31.50 after the US Department of Justice moved to block the $20bn acquisition of Grupo Modelo, the Mexican brewer, by Anheuser-Busch InBev. The potential failure of the Modelo deal was likely to revive longstanding speculation that InBev could bid for SABMiller, dealers said.

Enterprise Inns , last year’s best-performing large-cap stock, slipped 8.3 per cent to 90.5p after reporting a sharp fall in net income, reflecting snowfall and the closure of its drinks distribution business. Sector peer Mitchells & Butlers rallied 12.7 per cent to 333.7p after a trading update reported 2 per cent sales growth.

Drug developer BTG rose 3.6 per cent to 332p after saying sales for its financial year ending March would be at the top end of its guidance.

AG Barr rose 3.3 per cent to 543.5p after a 1.4 per cent stake changed hands. The trade triggered speculation that one of the drink maker’s founding family may be selling ahead of its merger with Britvic , which rose 1.9 per cent to 448.8p.

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