Bernstein downgrades Freeport, upgrades Antofagasta on copper outlook
Investing.com -- Analysts from Bernstein have downgraded Freeport McMoRan to “market-perform” and upgraded Antofagasta (LON:ANTO ) to “outperform”, in a note dated Tuesday.
The analysts cited a number of key reasons for the change in their recommendations, focusing on the evolving risks and opportunities surrounding each company.
One of the primary concerns regarding Freeport McMoRan is its ongoing challenge in securing an extension for its copper concentrate export license in Indonesia. The license, which expired in December 2024, has not yet been renewed, and the analysts believe this risk is not fully reflected in the market consensus.
Freeport’s Indonesian operations are critical to its overall production, and any delay in securing an extension could result in significant cuts to its copper output, particularly in the first quarter of 2025.
Bernstein’s base case scenario assumes a 25% reduction in Freeport’s normal production for that period, which would translate into an inventory buildup of around 89 million pounds.
While the analysts note that there is a possibility of a resolution in the coming months—potentially assisted by the US government, which has previously helped mediate between Freeport and Jakarta—the risks remain significant.
Bernstein also lowered its price target for Freeport to $46 from $51, citing adjustments to their earnings and the uncertain outcome regarding the export license extension.
On the other hand, Antofagasta has been upgraded to “outperform”.
The analysts believe that the current copper price presents a favorable risk-reward profile for the company, especially given its solid growth prospects and higher profitability compared to its peers.
Despite some potential risks, such as the ongoing approval process for the extension of its Los Pelambres mine life and possible regulatory hurdles at its Zaldivar mine, Antofagasta offers an attractive valuation.
Bernstein’s analysts point to the company's ability to deliver modest growth in copper production at a competitive cost base, making it a more favorable investment at this time.
As a result, they have maintained their price target for Antofagasta at GBP 19.50, lowering their EV/EBITDA multiple slightly to 7.00x, reflecting a more cautious market outlook for the sector.
The analysts noted that Freeport’s stock had performed in line with copper pure-play peers, such as Antofagasta, in the fourth quarter of 2024, indicating that the risks surrounding its Indonesian operations had not yet been fully priced in.
They suggested that while gold prices, which make up a big portion of Freeport’s revenues, could provide some support to the stock, the company’s ability to navigate its licensing challenges in Indonesia will be crucial for its near-term performance.
Source: Investing.com
