The FTSE 100 has averaged roughly 8% a year over the long run. But with the right stock picks, investors can do significantly better.
Antofagasta (LSE:ANTO) is a compelling example of a market-beating stock. Since May 2016, the Chilean copper mining giant has delivered an average compounded total return of 29.2% a year.
That means a £1,000 investment made a decade ago is now worth an extraordinary £12,960, all without adding a single penny more. And at the current share price of 3,995p, that same £1,000 today buys 25 shares.
So is it still worth doing?
What’s driven a decade of exceptional returns?
Antofagasta operates four of the world’s largest open-pit copper mines in Chile, producing over 660,000 tonnes annually alongside meaningful volumes of gold and molybdenum as byproducts.
The secret behind those extraordinary returns lies in what copper’s become. Once considered a simple industrial metal, it’s now the backbone of the global energy transition. And it’s essential for electric vehicles (EVs), renewable energy infrastructure, power grids, and data centres.
However, over the past decade, demand has surged while new supply has remained stubbornly constrained.
Building a large copper mine takes 15-20 years from discovery to production, meaning the structural supply deficit’s unlikely to ease anytime soon. In fact, it’s expected to get a lot worse, putting Antofagasta, with its world-class low-cost mines, in a near-perfect position to thrive.
Is the opportunity still intact?
With AI data centres now emerging as a major new source of copper demand on top of EV and grid investment, the structural tailwinds are arguably stronger today than at any point in the last decade.
As such, copper prices are set to climb due to this powerful combination of restricted supply and surging demand. And subsequently, analysts have recently begun raising their earnings and share price expectations.
Just last month, the team of experts at Citi reiterated its Buy recommendation with a share price target of 4,300p, suggesting there could still be more room for growth.
Having said that, it’s important to recognise the risks. Antofagasta’s assets are concentrated entirely in Chile, a country that has been gradually increasing royalties and taxes on its mining sector. Any further regulatory tightening could apply unwanted pressure to the group’s current and future profitability.
Copper prices are also inherently cyclical. A global economic slowdown or a sharper-than-expected deceleration in Chinese industrial activity could weigh heavily on the group’s revenues.
So are these risks worth taking?
The bottom line
Few FTSE 100 stocks have compounded wealth as beautifully as Antofagasta over the last decade. And with the structural case for copper looking more promising than ever, I think the growth story’s far from over.
However, it’s also important to highlight that this growth opportunity hasn’t gone unnoticed. While the analysts at Citi believe more capital gains are on the horizon, other analysts are less bullish, with the average consensus sitting closer to 3,400p.
In other words, a large chunk of future growth’s already baked into the share price, opening the door to volatility if Antofagasta starts to fall short of expectations. With that in mind, this isn’t a FTSE 100 stock I’m rushing to buy today. But it’s definitely a business I’m keeping a close eye on.
