FTSE 100 copper miner Antofagasta (ANTO) faces a potential nightmare after a Chilean court ruled that it should demolish part or all of a tailings dam to ensure the natural flow of a local stream to a region often hit by drought. The shares fall 2.7% to 732.5p.

Such a move could create significant environmental risks as the dam contains potentially-toxic mine waste. Amendments to the dam could also see mine operations disrupted until a new facility is built.

Antofagasta flagged legal claims by members of the local community in its October 2014 production update. It submitted a plan in November 2014 to ensure the tailings operations didn't affect the water of the Pupio stream, but this has been rejected in court.

ANTO - Comparison Line Chart (Actual Values)

The matter affects the Los Pelambres copper mine, which is Antofagasta's flagship operation. The £7.4 billion cap yesterday (9 Mar) revealed local community protests against the mine would reduce copper production by 5,000 tonnes this year.

Antofagasta will continue to operate the dam (and therefore mine) while it appeals the court's decision. Any new disruption to the mine is almost certain to trigger a new wave of earnings downgrades for the company, given that it is already battling a decline in copper prices.

As the chart below shows, the base metal has endured a significant sell-off over the past few months due to over-supply and concerns about demand. We explained in more detail the pains facing copper miners in this recent article.

LME-Copper Grade A 3 Months U$MT - Comparison Line Chart (Actual Values)


Issue Date: 10 Mar 2015