Antofagasta Regulatory News (ANTO)

25 May 2006 10:00

Antofagasta PLC25 May 2006 Antofagasta plc Unaudited Results for the First Quarter ended 31 March 2006 London, 25 May 2006 Introduction Antofagasta plc announces Group turnover and EBITDA for the three-month periodended 31 March 2006. The Group released its production report for this period on3 May 2006. The Group turnover and EBITDA figures included in this release are presented ona basis consistent with the accounting policies used in the Group's 2005 AnnualReport and Financial Statements under International Financial ReportingStandards and Interpretations ("IFRS"). The Group's three mining companies, Los Pelambres, El Tesoro and Michilla, willtoday also file quarterly financial statements under Chilean GAAP for thethree-month period ended 31 March 2006 with the Chilean securities regulator,the Superintendencia de Valores y Seguros de Chile ("SVS"). These filings are inaccordance with mining tax legislation introduced in Chile last year whichrequires companies that have elected to enter a new tax stability regime topublish quarterly financial information from the 2006 financial year. Thisrelease includes a summary of the Chilean GAAP income statement, balance sheetand cash flow statement for each of the three mining companies to be filed withthe SVS. Highlights Q1 2006 Q1 2005 Change Full year 2005 US$'m US$'m % US$'m Group turnover 748.6 534.9 40.0% 2,445.3 ======== ======== ======== Group EBITDA 522.7 386.4 35.3% 1,674.1 ======== ======== ======== Turnover Group turnover in Q1 2006 increased by 40.0% to US$748.6 million, compared withUS$534.9 million in Q1 2005. Group turnover also exceeded the quarterly averagefor 2005 by 22.5%. The significant increase was mainly due to higher LME copper prices, whichaveraged 224.3 cents per pound compared with 148.3 cents per pound in Q1 2005.The Group also benefited from pricing adjustments on the mark-to-market andclose out of provisional sales due to the increase in the copper price duringthe quarter, resulting in an average realised copper price of 276.3 cents perpound (Q1 2005 - 159.5 cents per pound). Market molybdenum prices, which did notdiffer significantly from prices realised by Los Pelambres, averaged US$23.0 perpound in Q1 2006 (Q1 2005 - US$31.5 per pound). Higher metal prices offset lower mine production and sales volumes in thequarter. Copper sales in Q1 2006 were 108,100 tonnes (Q1 2005 - 111,600 tonnes),reflecting the decrease in production in the period as announced in the Group'sQ1 production report of 3 May 2006. This decrease was mainly due to lower orethroughput at Los Pelambres and lower ore grades and recoveries at El Tesoro.Molybdenum sales were 2,000 tonnes compared with 2,100 tonnes in Q1 2005. In thecase of both copper and molybdenum, sales volumes may vary from the productionvolumes reported on 3 May 2006 as a result of timing differences in shipping andloading schedules. The transport and water divisions continued to perform strongly with turnoverabove the quarterly average for 2005 in line with increased volumes as reportedon 3 May 2006. Further details of production and sales volumes and realised prices by miningoperation are given in Note 2, and an analysis of turnover by business segmentis given in Note 3. EBITDA Group EBITDA in Q1 2006 increased by 35.3% to US$522.7 million (Q1 2005 -US$386.4 million). Group EBITDA also exceeded the quarterly average for 2005 by24.9%. The improved EBITDA resulted from the higher realised copper prices asexplained in connection with turnover above. The benefit of higher copper priceswas partly offset by lower sales volume and molybdenum prices as set out above,as well as higher operating and hedging costs. As reported on 3 May 2006, weighted average cash costs for the Group's miningoperations, which are stated net of by-product credits, were 49.7 cents perpound in Q1 2006. This compared with negative 7.9 cents per pound in Q1 2005when Los Pelambres benefited from exceptionally strong molybdenum prices. Weighted average cash costs excluding by-product credits were 90.9 cents perpound (Q1 2005 - 66.5 cents per pound and Full Year 2005 - 77.3 cents perpound). These costs include tolling charges and production costs for both copperand molybdenum. Reasons for the increases in costs were given in the Group's Q12006 production report, and include industry pressures, principally highertreatment and refining charges at Los Pelambres (mainly due to priceparticipation by smelters as the LME copper price was higher), the strongerChilean peso and other input costs such as fuel prices. Cash costs per poundalso increased due to the lower production level at Los Pelambres and El Tesororeflecting lower processing levels and ore grades respectively. Total charges for the Group's commodity hedging programme amounted to US$37.8million in Q1 2006. This relates to commodity instruments in place at the end of2005 and which mature during 2006. No new hedges were entered during Q1 2006. Further details of cash costs by mining operation are given in Note 2, and ananalysis of EBITDA by business segment is given in Note 3. Details of commodityinstruments are given in Note 5. Enquiries - London Enquiries -SantiagoAntofagasta plc Antofagasta Minerals S.A.Tel: +44 20 7808 0988 Tel +562 377 5145www.antofagasta.co.uk Alejandro RiveraDesmond O'Conor Email: arivera@aminerals.clEmail: doconor@antofagasta.co.uk Issued byHussein Barma Bankside ConsultantsEmail: hbarma@antofagasta.co.uk Tel: +44 207367 8873 Keith Irons Email: keith@bankside.com Notes 1. General information and accounting policies These unaudited first quarter results are for the three-month period ending 31March 2006. The Group turnover and EBITDA information, including allcomparatives, have been prepared on the basis of the accounting policies set outin the Group's statutory accounts for the year to 31 December 2005 and inaccordance with applicable International Financial Reporting Standards andInterpretations (IFRS) which have been endorsed by the European Union. While the turnover and EBITDA information contained in this first quarterresults announcement has been computed in accordance with IFRS, thisannouncement does not itself contain sufficient information to comply with IFRS.The information included in this announcement for the three month periods ending31 March 2005 and 31 March 2006 is unaudited. The information contained in this announcement for the year ended 31 December2005 does not constitute statutory accounts. The statutory accounts for thatyear have been approved by the Board and reported on by the auditors, and willbe delivered to the Registrar of Companies following the Company's AnnualGeneral Meeting which will be held on 14 June 2006. The auditors' report onthose accounts was unqualified and did not contain statements under section 237(2) of the Companies Act 1985 (regarding adequacy of accounting records andreturns) or under section 237(3) (regarding provision of necessary informationand explanations). The comparative information contained in Note 2 of thisannouncement is not derived from the statutory accounts for the year ended 31December 2005 and is accordingly not covered by the auditors' report. 2. Production and Sales Statistics (See notes following Note 2(b).) (a) Production and sales volumes for copper and molybdenum Production Sales ------------ ------- Q1 2006 Q1 2005 Full year 2005 Q1 2006 Q1 2005 Full year 2005 000 tonnes 000 tonnes 000 tonnes 000 tonnes 000 tonnes 000 tonnes CopperLos Pelambres 74.1 80.6 322.8 75.0 74.9 319.1El Tesoro 20.8 26.3 98.1 21.9 25.7 96.1Michilla 12.1 12.0 46.4 11.2 11.0 45.3 -------- -------- -------- -------- -------- --------Group total 107.0 118.9 467.3 108.1 111.6 460.5 ======== ======== ======== ======== ======== ======== MolybdenumLos Pelambres 2.0 2.2 8.7 2.0 2.1 8.5 ======== ======== ======== ======== ======== ======== (b) Cash costs per pound of copper produced and realised prices per pound ofcopper and molybdenum sold Cash cost Realised prices ----------- ----------------- Q1 2006 Q1 2005 Full year 2005 Q1 2006 Q1 2005 Full year 2005 US cents US cents US cents US cents US cents US cents CopperLos Pelambres 29.8 (45.9) (17.1) 291.1 162.8 189.2El Tesoro 79.6 57.8 66.1 242.1 152.1 175.7Michilla 120.2 102.4 118.8 244.6 154.6 177.1 -------- -------- -------- -------- -------- --------Groupweightedaverage (netof 49.7 (7.9) 13.9 276.3 159.5 185.2by-products) ======== ======== ======== ======== ======== ======== Groupweightedaverage(beforededucting 90.9 66.5 77.3by-products) ======== ======== ======== Cash costsat LosPelambrescomprise:On-site andshipping cost 54.5 41.8 47.1 Tollingcharges forconcentrates 34.8 22.2 27.6 -------- -------- --------Cash costsbeforedeductingby-productcredits 89.3 64.0 74.7 By-productcredits(principallymolybdenum) (59.5) (109.9) (91.8) -------- -------- --------Cash costs(net ofby-productcredits) 29.8 (45.9) (17.1) ======== ======== ======== LME average 224.3 148.3 167.1 ======== ======== ======== US$ US$ US$MolybdenumLos Pelambres 22.5 30.2 31.4 ======== ======== ======== Market average price 23.0 31.5 32.0 ======== ======== ======== Notes to the production and sales statistics (i) The production and sales figures represent the actualamounts produced and sold, not the Group's share of each mine. The Group owns60% of Los Pelambres, 61% of El Tesoro and 74.2% of Michilla. (ii) Los Pelambres produces copper and molybdenum concentrates,and the figures for Los Pelambres are expressed in terms of payable metalcontained in concentrate. Los Pelambres is also credited for the gold and silvercontained in the copper concentrate sold. El Tesoro and Michilla producecathodes with no by-products. (iii) Cash costs are a measure of the cost of operationalproduction expressed in terms of cents per pound of payable copper produced.Cash costs are stated net of by-product credits and include tolling charges forconcentrates at Los Pelambres. Cash costs exclude depreciation, financial incomeand expenses, hedging gains and losses, exchange gains and losses andcorporation tax for all three operations. By-product calculations do not takeinto account mark-to-market gains for molybdenum at the beginning or end of eachperiod. (iv) Realised copper prices are determined by comparing turnoverfrom copper sales (grossing up for tolling charges for concentrates) with salesvolumes for each mine in the period. Realised molybdenum prices at Los Pelambresare calculated on a similar basis. Realised prices do not take into accountgains and losses (including those arising from fair value adjustments) oncommodity derivatives which are included in other operating income or expense asthe Group has not yet adopted the hedge accounting provisions of IAS 39"Financial Instruments: Recognition and Measurement". (v) The totals in the tables above may include some smallapparent differences as the specific individual figures have not been rounded. (vi) The production information in Note 2(a) and the cash costinformation in Note 2(b) is derived from the Group's production report for thefirst quarter of 2006 published on 3 May 2006. 3. Turnover and EBITDA analysed by business segment Turnover EBITDA ----------- -------- Q1 2006 Q1 2005 Full year 2005 Q1 2006 Q1 2005 Full year 2005 US$'m US$'m US$'m US$'m US$'m US$'m Los Pelambres 531.1 375.6 1,749.8 439.0 306.4 1,420.5El Tesoro 116.9 86.2 372.2 61.6 53.0 203.2Michilla 60.4 37.5 177.1 8.6 10.5 16.3Exploration - - - (2.4) (1.1) (22.4)Corporateand other items - - - (3.9) (3.1) (15.6) -------- -------- -------- -------- -------- --------Mining 708.4 499.3 2,299.1 502.9 365.7 1,602.0Railway andother transportservices 23.5 22.3 92.5 8.5 11.2 38.2Water concession 16.7 13.3 53.7 11.3 9.5 33.9 -------- -------- -------- -------- -------- --------Groupturnover 748.6 534.9 2,445.3 522.7 386.4 1,674.1and EBITDA ======== ======== ======== ======== ======== ======== Turnover at Los Pelambres by mineral: Before deducting tolling charges Tolling charges Net of tolling charges --------------------------- ----------------- ------------------------ Q1 2006 Q1 2005 Full year 2005 Q1 2006 Q1 2005 Full year 2005 Q1 2006 Q1 2005 Full year 2005 US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m Copper 481.3 268.8 1,331.0 (51.8) (33.6) (166.9) 429.5 235.2 1,164.1Molybdenum 99.3 139.6 588.4 (6.1) (2.7) (25.6) 93.2 136.9 562.8Gold and silver 8.5 3.6 23.4 (0.1) (0.1) (0.5) 8.4 3.5 22.9 ------ ------ ------ ------ ------ ------ ------ ------ -------Los Pelambres 589.1 412.0 1,942.8 (58.0) (36.4) (193.0) 531.1 375.6 1,749.8 ====== ====== ====== ====== ====== ====== ====== ====== ======= Notes to turnover and EBITDA by business segment (i) Turnover from Railway and other transport services isstated after eliminating inter-segmental sales to the mining division of US$2.1million (Q1 2005 - US$2.0 million; full year 2005 - US$8.8 million). (ii) Turnover includes the effect of both final pricing andmark-to-market adjustments to provisionally priced sales of copper andmolybdenum concentrates and copper cathodes. Further details of such adjustmentsare given in Note 4. (iii) Turnover does not include the effect of gains and losses oncommodity derivatives, which are included as part of operating profit in otheroperating income or expense. Further details of such gains or losses are givenin Note 5. (iv) Los Pelambres produces and sells copper and molybdenumconcentrates. It is also credited for the gold and silver content in the copperconcentrate it sells. Turnover by type of metal is analysed below to showseparately the amounts prior to deduction of tolling charges, the tollingcharges involved and the net amounts included in turnover. El Tesoro andMichilla do not generate by-products from their copper cathode operations. (v) EBITDA is calculated by adding back depreciation,amortisation and disposals of plant, property and equipment and any impairmentcharges to operating profit from subsidiaries. (vi) EBITDA is stated after deducting losses on commodityderivatives (including both losses realised in each period and period-endmark-to-market adjustments) at El Tesoro of US$17.3 million (Q1 2005 - US$0.6million; full year 2005 - US$24.8 million); and Michilla of US$20.5 million (Q12005 - US$2.4 million; full year 2005 - US$43.8 million). Further details aregiven in Note 5. 4. Embedded derivatives - provisionally priced sales Copper and molybdenum concentrate sale agreements and copper cathode saleagreements generally provide for provisional pricing of sales at the time ofshipment, with final pricing being based on the monthly average London MetalExchange copper price or monthly average molybdenum price for specified futureperiods. This normally ranges from 30 to 180 days after delivery to thecustomer. Under IFRS, both gains and losses from the marking-to-market of open sales arerecognised through adjustments to turnover in the income statement and to tradedebtors in the balance sheet. The Group determines mark-to-market prices usingforward prices at each period end for copper concentrate and cathode sales, andperiod-end month average prices for molybdenum concentrate sales due to theabsence of a futures market for that commodity. The mark-to-market adjustments at the end of each period and the effect onturnover in the income statement for each period are as follows: Balance sheet - Income statement - ----------------- -------------------- net mark to market effect on debtors net mark to market effect on turnover -------------------------------------- -------------------------------------- At 31.03.06 At 31.03.05 At 31.12.05 Q1 2006 Q1 2005 Full year 2005 US$'m US$'m US$'m US$'m US$'m US$'mLos Pelambres- copper concentrate 74.3 22.0 33.2 41.1 4.4 15.6Los Pelambres- molybdenum concentrate (5.8) 13.8 (12.6) 6.8 (19.1) (45.5) El Tesoro -copper cathodes 3.1 (1.8) 0.2 2.9 (2.6) (0.6)Michilla -copper cathodes 1.0 - (0.1) 1.1 (0.4) (0.5) -------- -------- -------- -------- -------- -------- 72.6 34.0 20.7 51.9 (17.7) (31.0) ======== ======== ======== ======== ======== ======== (a) Copper concentrate sales at Los Pelambres Revenues in the three months to 31 March 2006 included total positive pricingadjustments of US$114.7 million, representing the difference between reportedrevenues and initially invoiced amounts. This comprised actual pricingadjustments compared with initial provisionally invoiced prices of US$73.6million (relating wholly to sales of concentrate open at 31 December 2005)together with net mark-to-market adjustments of US$41.1 million as disclosedabove. At 31 March 2006, copper concentrate sales at Los Pelambres totalling113,500 tonnes remained open as to price, with an average mark-to-market priceof 245.3 cents per pound. (b) Molybdenum concentrate sales at Los Pelambres Revenues in the three months to 31 March 2006 included total negative pricingadjustments of US$18.5 million, representing the difference between reportedrevenues and initially invoiced amounts. This comprised negative actual pricingadjustments compared with initial provisionally invoiced prices of US$25.3million (of which US$22.8 million related to sales of concentrate open at 31December 2005 and US$2.5 million related to sales of concentrate during 2006)together with net positive mark-to-market adjustments of US$6.8 million asdisclosed above. At 31 March 2006, molybdenum concentrate sales at Los Pelambrestotalling 1,500 tonnes remained open as to price, with an average mark-to-marketprice of US$22.9 per pound. 5. Commodity derivatives The Group periodically uses derivative financial instruments to reduce exposureto commodity price movements. The Group does not use such derivative instrumentsfor speculative trading purposes. The Group has not yet adopted the hedgeaccounting provisions of IAS 39 "Financial Instruments: Recognition andMeasurement". Accordingly, under IFRS, derivatives are measured at each balancesheet date at fair value. Gains and losses arising from changes in fair valueare included in the income statement for the year, within operating profit andEBITDA. The mark-to-market adjustments at the end of each period and the effect onoperating profit and net finance costs in the income statement for each periodare as follows: Balance sheet - Income statement ------------------ ------------------ net mark to market effect on creditors net mark to market effect on EBITDA -------------------------------------- ------------------------------------- At 31.03.06 At 31.03.05 At 31.12.05 Q1 2006 Q1 2005 Full year 2005 US$'m US$'m US$'m US$'m US$'m US$'mEl Tesoro (27.5) (0.6) (17.0) (10.5) (0.6) (17.0)Michilla (30.8) (2.6) (27.5) (3.3) (2.4) (27.7) -------- -------- -------- -------- -------- -------- (58.3) (3.2) (44.5) (13.8) (3.0) (44.7) ======== ======== ======== ======== ======== ======== The balance sheet mark-to-market effect is stated before taking into account anypayments on account of margin calls. During Q1 2006, the amount charged to operating profit on commodity derivativeswas US$37.8 million, comprising US$17.3 million at El Tesoro and US$20.5 millionat Michilla. This comprised losses on derivatives which matured in Q1 2006 ofUS$24.0 million and net mark-to-market losses in Q1 2006 of US$13.8 million. The Group had min/max instruments at 31 March 2006 for 27,450 tonnes of copperproduction, with a weighted average floor of 115.1 cents per pound and aweighted average cap of 145.4 cents per pound. These instruments had a weightedaverage duration of 4.1 months and covered a period of nine months. 6. Summary of mining companies' Chilean GAAP financial statements (See notes following Note 6(c)). The balance sheets, income statements and cash flow statements prepared underChilean GAAP and to be filed with the SVS are summarised below. (a) Balance sheets Los Pelambres El Tesoro Michilla At 31.03.2006 At 31.03.2006 At 31.03.2006 US$'m US$'m US$'m Cash and cash equivalents 780.7 40.9 7.8Trade and other receivables 248.1 47.1 16.4Inventories 46.2 35.6 20.9Current and deferred tax assets 14.8 22.7 5.2 ---------- ---------- ---------- Current assets 1,089.8 146.3 50.3 Fixed assets 1,242.2 264.9 64.4 Other non-current assets 149.4 61.4 1.1 ---------- ---------- ---------- TOTAL ASSETS 2,481.4 472.6 115.8 ========== ========== ========== Short term borrowings (87.2) (14.9) -Trade and other payables (65.9) (34.3) (18.3)Current and deferred taxliabilities (97.8) (35.2) (0.6) ---------- ---------- ---------- Current liabilities (250.9) (84.4) (18.9) ---------- ---------- ---------- Medium and long term borrowings (313.8) (42.0) -Trade and other payables (11.7) (5.9) (7.6)Deferred tax liabilities (132.4) (27.8) - ---------- ---------- ---------- Non-current liabilities (457.9) (75.7) (7.6) ---------- ---------- ---------- Total liabilities (708.8) (160.1) (26.5) ---------- ---------- ---------- Share capital (373.8) (91.0) (78.4)Reserves (1,398.8) (221.5) (10.9) ---------- ---------- ----------Total shareholders' equity (1,772.6) (312.5) (89.3) ---------- ---------- ---------- ========== ========== ==========TOTAL LIABILITIES AND (2,481.4) (472.6) (115.8)SHAREHOLDERS' EQUITY ========== ========== ========== (b) Income statements Los Pelambres El Tesoro Michilla Q1 2006 Q1 2006 Q1 2006 US$'m US$'m US$'m Turnover 490.0 107.2 42.1 Operating costs (90.4) (40.5) (31.2) ---------- ---------- ---------- Operating margin 399.6 66.7 10.9 Administrative and distributionexpenses (17.8) (6.0) (3.5) ---------- ---------- ---------- Operating profit 381.8 60.7 7.4 ---------- ---------- ---------- Other income 0.1 0.3 0.2Financial income 7.1 - 0.1Financial expenses (5.4) (0.9) (0.1)Other expenses (0.2) (0.3) (0.3)Exchange difference 2.6 0.6 0.5 ---------- ---------- ---------- Net non-operating income/(expenses) 4.2 (0.3) 0.4 ---------- ---------- ---------- Profit before tax 386.0 60.4 7.8 Income tax expense (68.9) (11.3) (1.5) ---------- ---------- ---------- Profit for the financial period 317.1 49.1 6.3 ========== ========== ========== (c) Cash flow statements Los Pelambres El Tesoro Michilla Q1 2006 Q1 2006 Q1 2006 US$'m US$'m US$'m Net cash flow from operatingactivities 367.9 40.2 (3.3) ---------- ---------- ---------- Investing activitiesAdditions to fixed assets (146.1) (2.8) (3.7)Disposals of fixed assets 0.6 - -Other items - - (0.4) ---------- ---------- ---------- Net cash used in investingactivities (145.5) (2.8) (4.1) ---------- ---------- ---------- Financing activitiesLoans repaid (2.4) - - ---------- ---------- ---------- Net cash used in financingactivities (2.4) - - ---------- ---------- ---------- Net increase in cash and cashequivalents 220.0 37.4 (7.4) Cash and cash equivalents at thebeginning of the period 560.7 3.5 15.2 ---------- ---------- ---------- Cash and cash equivalents at theend of the period 780.7 40.9 7.8 ========== ========== ========== Notes to Chilean GAAP financial statements (i) The above balance sheets, income statements and cash flowstatements have been derived from the quarterly financial statements of LosPelambres, El Tesoro and Michilla to be filed with the SVS in Chile. Certaindetailed lines in the individual statements have been combined for convenience. (ii) The balance sheets, income statements and cash flowstatements above have been prepared under Chilean GAAP and therefore do notnecessarily equate to the amounts that would be included in the Group'sconsolidated financial statements for a corresponding period either as tomeasurement or classification. (iii) The amounts disclosed above represent the full amount foreach company and not the Group's attributable share. The Group owns 60% of LosPelambres, 61% of El Tesoro and 74.2% of Michilla. (iv) Los Pelambres and El Tesoro repay their corporate facilitiesin June and December each year and therefore debt balances have not changedsignificantly at either operation between 1 January 2006 and 31 March 2006. (v) A translation into English of the full quarterly financialstatements for each company shown in summary form above will be available on theGroup's website www.antofagasta.co.uk. 7. Reconciliation of Chilean GAAP results to Turnover and EBITDA under IFRSfor individual business segments (a) Turnover Los Pelambres El Tesoro Michilla Q1 2006 Q1 2006 Q1 2006 Notes US$'m US$'m US$'m Chilean GAAP - Turnover 490.0 107.2 42.1 Mark-to-market ofprovisionally priced sales 7(i) 41.1 2.9 1.1Reclassification of realisedlosses on commodityderivatives to other operatingexpense 7(ii) - 6.8 17.2 ---------- ---------- ---------- IFRS - Turnover 531.1 116.9 60.4 ========== ========== ========== (b) EBITDA Los Pelambres El Tesoro Michilla Q1 2006 Q1 2006 Q1 2006 Notes US$'m US$'m US$'m Chilean GAAP - Operating profit 381.8 60.7 7.4 Depreciation & amortisation 16.5 8.8 3.5 ---------- ---------- ---------- Chilean GAAP - EBITDA 398.3 69.5 10.9 Mark-to-market ofprovisionally priced sales 7(i) 41.1 2.9 1.1 Mark-to-market of financialderivatives 7(ii) - (10.5) (3.3) Other IFRS and consolidationadjustments 7(iii) (0.4) (0.3) (0.1) ---------- ---------- ---------- IFRS - EBITDA 439.0 61.6 8.6 ========== ========== ========== Notes to reconciliation of turnover and EBITDA (i) Copper and molybdenum concentrate sale agreements and copper cathode saleagreements generally provide for provisional pricing of sales at the time ofshipment, with final pricing being based on the monthly average London MetalExchange copper price or monthly average molybdenum price for specified futureperiods. This normally ranges from 30 to 180 days after delivery to thecustomer. Under Chilean GAAP, the Group's accounting treatment is to value sales, whichremain open as to final pricing at the period end, in aggregate at the lower ofprovisional invoice prices and mark-to-market prices at the balance sheet date.The Group determines mark-to-market prices using forward prices at each periodend for copper concentrate and cathode sales, and period-end month averageprices for molybdenum concentrate sales due to the absence of a futures marketfor that commodity. Under IFRS, both gains and losses from the marking-to-market of open sales arerecognised through adjustments to turnover in the income statement and to tradedebtors in the balance sheet. Under IFRS, the Group determines mark-to-marketprices in the same way as under Chilean GAAP. (ii) The Group uses derivative financial instruments to reduce exposure tocommodity price movements. The Group does not use such derivative instrumentsfor trading purposes. Under Chilean GAAP, such derivatives are held off the balance sheet. Gains orlosses on derivative instruments are matched in the income statement against theitem intended to be hedged. Such gains or losses are reflected by way ofadjustment to turnover. To date, the Group has not yet adopted the hedge accounting provisions of IAS 39"Financial Instruments: Recognition and Measurement", although this decisionwill be kept under review. Accordingly, under IFRS, derivatives are initiallymeasured at cost including transaction costs (which may be nil), and measured atsubsequent reporting dates at fair value. Gains and losses arising from changesin fair value, or from derivatives which mature or are liquidated in the period,are included in the income statement for the period as part of other operatingincome or expense. Any amounts included in turnover under Chilean GAAP arereclassified accordingly. (iii) Other IFRS and consolidation adjustments are not material eitherindividually or in aggregate. This information is provided by RNS The company news service from the London Stock Exchange