Antofagasta Regulatory News (ANTO)

NEWS RELEASE, 21 FEBRUARY 2023

FULL-YEAR RESULTS FOR THE

YEAR ENDED 31 DECEMBER 2022

Strong Finish to the Year

Antofagasta plc CEO Iván Arriagada said: "The year ended strongly for the Company. EBITDA was $2.9 billion this year, and I am pleased that our EBITDA margin remained solid at 50%. Copper production reflected the expected continuing drought in Chile and the effects of increased input prices, and the pipeline incident at Los Pelambres. Over the year, we exited the Reko Diq project in Pakistan recognising a $945 million exceptional gain and we expect to receive that cash before the end of 2023. 

"Operations reported a record safety performance with no serious incidents and our Cost and Competitiveness Programme generated benefits of $124 million which is significantly above our target of $50 million. We recognise climate change as one of the greatest challenges facing the world today and acknowledge our responsibility to be part of the solution. Since April 2022 all our electricity contracts are from renewable energy, significantly reducing our Scope 2 emissions and allowing us to reach our goal three years earlier than targeted. 

"Looking ahead, the Los Pelambres expansion is expected to be in production during Q2 including the new desalination plant which will significantly alleviate the water constraints that we have experienced over the past 18 months. Also, copper and by-product production is expected to increase over the course of 2023 and we expect cash costs before by-product credits to remain in line with 2022. All this is supported by copper's fundamentals which remain strong, with China showing signs of recovery and with the energy transition underpinning the long-term demand for copper. 

"In line with our dividend policy, the Board has recommended a final dividend of 50.5 cents per share, to be approved by shareholders at the AGM, which brings the total dividend for the year to 59.7 cents per share, equivalent to a pay-out ratio of 100%, reflecting our positive outlook for 2023."

HIGHLIGHTS

Financial performance

· Revenue for the full year was $5,862 million, 22% lower than in 2021 reflecting a 12% decrease in copper sales and a 12% decrease in realised copper prices

· EBITDA(1) was $2,930 million, 39% lower than the previous year on lower revenue and operating costs that increased by 10% mainly due to inflation and higher input prices

· EBITDA margin(2) decreased to 50.0% from 64.7% in 2021

· Cost and Competitiveness Programme (CCP) generated benefits of $124 million in 2022, above the original target of $50 million, through improved plant utilisation and more efficient use of inputs

· Profit before tax including exceptional items decreased by 26% to $2,559 million

· Cash flow from operations was $2,738 million, 39% lower than in 2021 due largely to lower EBITDA

· Continuing strong balance sheet with a net debt to EBITDA ratio at the end of the period of 0.3 times. Net debt was $886 million at the end of the period compared with net cash of $540 million 12 months previously. This movement largely reflects the $1,172 million payment of the 2021 final dividend

· Capital expenditure increased modestly to $1,879 million(3), $102 million higher than in 2021 partly reflecting higher prices for construction inputs with increased capital expenditure on sustaining projects at Centinela, and higher mine development expenditure at Los Pelambres and Centinela

· Underlying earnings per share from continuing operations and excluding exceptional items(1) of 59.7 cents, 82.8 cents lower than in 2021

· Exceptional gain of $945 million, following the completion of the definitive agreements for the Company to exit its indirect interest in the Reko Diq project

· Earnings per share from continuing operations including exceptional items were 155.5 cents, 19% higher than in 2021

· Final dividend of 50.5 cents per share recommended, to be approved by shareholders at the AGM, bringing the total dividend for the year to 59.7 cents per share, equal to 100% of underlying earnings per share

Operating performance (as previously announced)

· Safety remains our top priority. With no serious incidents in 2022, all safety indicators improved during the year. The Mining division's Lost Time Injury Frequency Rate fell by 32% and High Potential Incidents were down by 37%

· Group copper production finished the year strongly and for the full year was 646,200 tonnes, 10.4% lower than last year mainly due to the temporary reduction in throughput (-12.0%) at Los Pelambres as a result of the drought and the reduced concentrate pipeline availability in June, and expected lower grades (-18.3%) at Centinela Concentrates

· Gold production for the full year was 176,800 ounces, 29.9% lower than in the previous year as a result of the expected lower grades at Centinela

· Molybdenum production for the full year was 9,700 tonnes, 7.6% lower than in 2021 due to lower throughput and grades at Los Pelambres

· Cash costs before by-product credits(1) in 2022 were $2.19/lb, 22.3% higher than last year mainly due to the impact of the drought and higher input prices during the period, particularly for diesel and sulphuric acid, partly offset by the weaker Chilean peso and the savings coming from our Cost and Competitiveness Programme

· Net cash costs(1) for the full year were $1.61/lb, 34.2% higher than in 2021 due to higher cash costs before by-product credits

2023 Guidance (as previously announced)

· Group production in 2023 is expected to be 670-710,000 tonnes of copper, 220-240,000 ounces of gold and 10-11,500 tonnes of molybdenum. Copper guidance reflects that the Los Pelambres desalination and concentrator plants will be in production during the second quarter of the year partly offset by lower grades at Centinela Cathodes. Gold and molybdenum guidance reflects the higher grades and recoveries expected at Centinela Concentrates

· Copper and by-product production is expected to increase quarter on quarter through the year

· Group cash costs in 2023 before by-product credits are expected to be $2.20/lb, in line with 2022 reflecting higher production, CCP savings and decreased input costs, offset by inflation and a stronger Chilean peso

· Group net cash costs in 2023 are expected to be $1.65/lb as by-product credits are forecast to decrease reflecting the expected fall in gold and molybdenum prices

· Capital expenditure in 2023 is expected to be $1.9 billion(3), as sustaining and mine development expenditure increase to approximately $1.5 billion due to inflation, higher-than-average mine development at Centinela Concentrates, detailed engineering works on the Los Pelambres desalination expansion and concentrate pipeline projects and the expansion of the tailing storage facility at Centinela. Development expenditure is expected to reduce to $400 million and includes residual expenditure on the Los Pelambres Expansion project and on engineering and pre-investment commitment work on the Centinela Second Concentrator project

Other

· Total mineral resources increased by 921 million tonnes during the year, including a maiden inferred resource at Encierro of 522 million tonnes at 0.79% CuEq and an additional 100 million tonnes of inferred resources at Cachorro, both of which are in northern Chile

· Cuprochlor-T proprietary primary leach process advanced during the year and was incorporated into future mine plans

Note: The financial results are unaudited and prepared in accordance with UK-adopted International Accounting Standards, unless otherwise noted below.

(1) Alternative performance measures as detailed on page 63 of this Full-year results announcement

(2) Calculated as EBITDA/Revenue. If Associates and JVs revenue is included the EBITDA margin was 46.7% in 2022 and 61.1% in 2021.

(3) On a cash basis

A copy of the 2022 Full-Year Results presentation is available for download from the Company's website www.antofagasta.co.uk. 

There will be a presentation and Q&A at 10:30am GMT today hosted by Iván Arriagada - Chief Executive Officer, Mauricio Ortiz - Chief Financial Officer and René Aguilar, Vice President - Corporate Affairs and Sustainability. Attendance can be in-person or by video. Further details can be found here.

Register on our website to receive our email alerts http://www.antofagasta.co.uk/investors/email-alerts/

FINANCIAL AND OPERATING REVIEW

2022 FINANCIAL HIGHLIGHTS

Revenue in 2022 was $5,862 million, 22% lower than in 2021 reflecting copper sales volumes and prices, which both fell by 12%.

EBITDA was $2,930 million.

In December 2022 the Company exited its interest in the Reko Diq project in Pakistan resulting in an exceptional gain of $945 million.

Profit before tax including exceptional items was $2,559 million, 26% lower than in 2021 reflecting the lower EBITDA, partially offset by the Reko Diq exceptional gain.

Earnings per share from continuing operations excluding exceptional items for the year were 59.7 cents, a decrease of 82.8 cents or 58% compared with 2021 on lower EBITDA.

Earnings per share from continuing operations including exceptional items for the year were 155.5 cents, reflecting the impact of exceptional gains of 95.8 cents, and were 18.8% higher than in 2021.

Cash flow from continuing operations was $2,738 million, a $1,769 million decrease compared with 2021 due largely to lower EBITDA.

SUSTAINABILITY

Safety and health

Antofagasta prioritises the safety, health and wellbeing of its people. With no fatal or serious safety incidents in 2022, all safety indicators improved during the year.

In 2022 the Group continued to reduce the number of high potential incidents (HPIs), recording a 35% reduction year-on-year due to improvements at both our Mining and Transport divisions. HPIs are leading indicators of the effectiveness of safety controls and are a key measure of our success in strengthening them.

The Company seeks to keep its Lost Time Injury Frequency Rate (LTIFR) below a score of 1. In 2022, the Mining division achieved 0.76, 32% better than 2021, while the overall Group scored 0.84, a 37% improvement. This was due to strengthened control strategies for high-risk tasks.

Communities

Antofagasta aims to create shared social value in the regions where we operate through education and training initiatives, job creation and social investment that addresses the needs of local communities. A commitment to respect human rights underlines our interactions. The Company uses a multi-stakeholder, open dialogue engagement approach to ensure that local communities participate in the selection of our social investment projects through our Somos Choapa (We are Choapa) and Diálogos para el Desarrollo (Dialogues for Development) engagement mechanisms in the Choapa Province and the Antofagasta Region respectively. Projects and programmes are usually implemented in collaboration with third parties, such as civil society organisations and state institutions. In 2022 $57 million were invested in community programmes.

Some of the community programmes implemented in 2022 were:

· The Company expanded our En Red digital community programme, which has more than 20 initiatives that address the deficit of digital infrastructure and skills in rural and underprivileged communities near our operations.

· In the Antofagasta Region, the Company is an active participant in the Antofagasta Mining Cluster, a public-private alliance that seeks to foster the Region's economic development. The efforts are focused on developing human capital and innovative local suppliers.

· The Company's scholarship programme supported 951 young people from the Choapa Province and the Antofagasta Region in their secondary and tertiary education.

· Los Pelambres stepped up efforts to ensure continuous water availability for agriculture and other industrial uses rather than mining, and irrigation in the drought stricken Choapa Province, through our Aproxima and Confluye programmes. Two such initiatives were to fund the construction of two ponds to capture the heavier than usual snowmelt in the Spring and to reline 55 km of irrigation canals to further reduce water losses.

Diversity and inclusion

The Group's Diversity and Inclusion Strategy, launched in 2018, has transitioned from an awareness-raising phase about unconscious bias and discrimination to introducing inclusive practices as an integral part of how we work.

The Company is deepening its inclusive organisational culture that supports the retention of all people including women and those with disabilities or different cultural origins. In a key initiative, we ran a campaign on respectful behaviours and held workshops on respectful environments.

In 2022, we increased the proportion of our female employees to 20.4%, compared with 17.2% in 2021, meeting our goal for the year. This is a steady improvement since 2018, when we set out to double female participation by the end of 2022, compared with a baseline of 8.6% in 2017. We met that target a year early, in 2021, and have set a new aspirational gender diversity goal for women to represent 30% of employees by 2025.

Climate Change and emission targets

As a Group, we recognise climate change as one of the world's greatest challenges and acknowledge that we are part of the solution. As a copper producer, we supply an input that is critical for low-carbon technologies and, at the same time, we are working to decarbonise our operations, putting climate change at the heart of how we manage our business.

In 2021, the Group set targets to reduce direct and indirect emissions (Scopes 1 and 2) by 30% by 2025 compared with the 2020 baseline, equivalent to a reduction of 730,000 tCO2e, and to achieve carbon neutrality by 2050 or earlier, technology permitting. Now, and since April 2022, all our electricity consumption is from renewable energy sources, reducing our Scope 2 emissions to almost zero and allowing us to achieve our 30% reduction commitment three years earlier than anticipated.

In 2022, we began working on a preliminary decarbonisation plan for all our operations, defining the baselines, the truck replacement plan, energy input projections and the assumptions for current and future technologies. During 2023, we will establish a new medium-term emission reduction goal for 2030 and we will set out the steps needed to achieve carbon neutrality by 2050.

Water

Water consumption and efficiency have long been at the forefront of our Mining division's concerns. Three of our four mining operations are located in the Atacama Desert and the fourth, Los Pelambres, is in an area that has been suffering a severe drought for the past 13 years, which, according to various climate scenarios, is expected to continue. Consistent with our Climate Change Strategy our operations are reducing their dependence on continental water sources through improved water use efficiency and the increased use of sea water as an overall proportion of our water consumption.

Centinela stopped extracting any continental water at the end of December and, on completion of the planned expansion of the desalination plant at Los Pelambres, which is expected in 2025, sea and recirculated water will account for over 90% of the Mining division's operational water use.

Due to the continuing drought in the Choapa Valley, the DGA (Chile's water administration department) recently reviewed the water distribution arrangements in the valley. Under the current water rights, Los Pelambres has a net positive impact on water availability in the Choapa Valley and following this review by the DGA, along with other stakeholders in the Choapa Valley, Los Pelambres will continue to engage in discussions with the relevant authorities regarding any adjustments to the existing distribution arrangements which have been in place for many years, including exercising any administrative and legal procedures as may be required.

Zaldívar submitted an Environmental Impact Assessment (EIA) in 2018 which included an application to extend its water extraction and mining permits to 2029 (with decreasing activity levels in 2030-2031). Currently, Zaldívar is permitted to extract water and mine into 2025 and 2024, respectively. The 2018 application is still pending approval.

To ensure the continuity of the operation, Zaldívar plans to submit a DIA (Declaration of Environmental Impact), a limited scope and less detailed procedure than an EIA, requesting that the mining permit be extended from 2024 to 2025 so as to expire at the same date as the current water permit.

Zaldívar is also evaluating alternatives to the 2018 EIA application and continues to work diligently with the authorities and consult with the local indigenous community. These include the transition from the current continental water source after completion of an extension to the current water permit, to either procuring water from a third party or using raw seawater. Alternatives could be contingent on the potential life of mine extension arising from the development of the large primary sulphide resource at the mine which is beyond the scope of the 2018 EIA application.

During the period, the company (as well as other named defendants) submitted a response contradicting the allegations made by the Consejo de Defensa del Estado (CDE), an independent governmental agency that represents the interests of the Chilean state, who previously filed a claim against Minera Escondida, Albemarle and Zaldívar, alleging that their extraction of water from the Monturaqui-Negrillar-Tilopozo aquifer over the years has impacted the underground water level. The litigation remains outstanding.

PRODUCTION AND CASH COSTS

During the year, copper production was 646,200 tonnes, 10.4% lower than in 2021, mainly due to the temporary reduction in throughput (-12.0%) at Los Pelambres as a result of the drought and the reduced concentrate pipeline availability in June, and expected lower grades (-18.3%) at Centinela Concentrates.

Gold production was 176,800 ounces, 29.9% lower than in the previous year as a result of the expected lower grades at Centinela.

Molybdenum production was 9,700 tonnes, 7.6% lower than in 2021 due to lower throughput and grades at Los Pelambres.

The Transport division transported a record 7.1 million tonnes during 2022, 6.1% higher than in 2021.

Cash costs before by-product credits in 2022 were $2.19/lb, 22.3% higher than last year mainly due to the impact of the drought and higher input prices during the period, particularly for diesel and sulphuric acid, partly offset by the weaker Chilean peso and the savings coming from our Cost and Competitiveness Programme (CCP). Net cash costs for the full year were $1.61/lb, 34.2% higher than in 2021 due to higher cash costs before by-product credits.

COST AND COMPETITIVENESS PROGRAMME

The Group's Cost and Competitiveness Programme achieved more than double its target, yielding benefits of $124 million. This total comprised $88 million from cost savings and $36 million from productivity improvements.

The benefits were mainly achieved through higher utilisation of our processing facilities, such as at Centinela where the concentrator operated at 4% above design capacity and at Antucoya, which achieved record throughput for the year. Also, the consumption rates for some key inputs were improved through enhanced operational practices and the use of data analytics. These initiatives were especially beneficial this year, partially offsetting the impact of lower production and increased industry-wide input prices.

EXPLORATION AND EVALUATION COSTS

Exploration and evaluation costs increased by $10 million to $113 million, mainly as a result of a higher level of activity particularly exploration in Chile at Cachorro and Encierro.

NET FINANCE EXPENSE

Net finance expense for the year was $68 million compared with net finance income of $16 million in 2021. This change was mainly due to the impact of the translation of Chilean peso denominated monetary assets and liabilities recognised in other finance items into US dollars.

TAXATION

The effective tax rate for the period was 37.4% before exceptional items and 23.6% after exceptional items, which compares with 36.5% and 35.7% respectively in 2021.

The income tax expense for the year excluding exceptional items was $604 million, a decrease of 55% as a result of lower profits before tax. Income tax paid during the year was $787 million compared with $777 million in 2021.

EXCEPTIONAL ITEMS

In December 2022 the Company exited its interest in the Reko Diq project in Pakistan resulting in an exceptional gain of $945 million.

See the Reko Diq Project section below and Note 14 to the Full-year results announcement for more information.

CAPITAL EXPENDITURE AND DEPRECIATION & AMORTISATION

Capital expenditure in 2022 was $1,879 million, including $561 million of sustaining capital expenditure, $582 million mine development and $676 million growth expenditure. This was an increase of $102 million on 2021 with increased expenditure on sustaining projects at Centinela, and higher mine development expenditure at Los Pelambres and Centinela. Further information is included in the Review of Operations below.

Depreciation, amortisation and loss on disposals increased by $55 million to $1.14 billion.

NET DEBT

Net debt at the end of the period was $886 million, largely reflecting the $1,172 million payment of the 2021 final dividend. The Net Debt to EBITDA ratio at the end of the period was 0.3 times. Cash flow from operations reduced to $2,738 million compared with $4,508 million in 2021.

DIVIDENDS

The Board has recommended a final dividend for 2022 of 50.5 cents per share, to be approved by shareholders at the AGM, which together with the interim dividend of 9.2 cents per share amounts to a total dividend of 59.7 cents per share. This is equal to a 100% pay-out ratio of underlying net earnings and is consistent with the Company's dividend policy.

PROPOSED MINING ROYALTY

The Government presented a revised draft mining royalty bill to Congress in October which was approved by the Senate Mining and Energy Committee in January and passed to the Senate Treasury Committee for discussion. The bill will then be debated in the Senate before being passed to the lower house for its consideration.

CONSTITUTIONAL CONVENTION

After the proposed new Chilean constitution was rejected in a national referendum in September 2022, Congress has adopted a new plan for drafting the constitution. The plan includes specific boundaries for the scope of the drafting process. The new constitution will be put to a vote in a national referendum in December 2023.

MINERAL RESOURCES

The Group's total mineral resources increased by 921 million tonnes during the year to 20,699 million tonnes containing approximately 14.1 million tonnes on an attributable basis.

Cachorro, in northern Chile, reported its maiden inferred resources in 2021 and these were increased by over 70% during 2022 to 242.4 Mt at 1.21% copper (cut-off grade of 0.5% copper), making the project one of the most important manto-type deposits in the northern coastal belt in Chile. It lies between Antucoya and Centinela and may benefit from the use of their facilities.

The Encierro project in the Chilean High Andes, 100 km east of the city of Vallenar and 600km north of Santiago declared its maiden resources in 2022. The deposit is a complex Cu-Au-Mo Miocene porphyry copper with inferred resources of 522 Mt at 0.65% copper, 0.22 g/t gold and 74 ppm molybdenum (cut-off grade of 0.5% copper).

CUPROCHLOR-T®

During 2022, we completed the validation of our in-house patented primary sulphides leaching technology (Cuprochlor-T®) and made the technology available to our operations to incorporate in their long-term planning. This new technology may potentially unlock value from previously uneconomic mineral resources which would not otherwise be processed. It could also bring forward the profitable processing of ore otherwise scheduled to be mined in many years' time, or that was previously considered to be uneconomic, at operations with spare capacity in their cathode production facilities.

REKO DIQ PROJECT

In 2019 the World Bank Group's International Centre for Settlement of Investment Disputes ("ICSID") awarded $5.84 billion in damages (compensation and accumulated interest as at the date of the award) to Tethyan Copper Company Pty Limited ("Tethyan"), the joint venture held equally by the Company and Barrick Gold Corporation ("Barrick"), in relation to an arbitration claim filed against the Islamic Republic of Pakistan ("Pakistan") following the unlawful denial of a mining lease for the Reko Diq project in Pakistan in 2011.

In March 2022 the Company reached an agreement in principle with Barrick and the Governments of Pakistan and Balochistan on a framework that provided for the reconstitution of the Reko Diq project, and a pathway for the Company to exit the Reko Diq project.

In December 2022 the parties entered into definitive agreements under which the project was reconstituted under Tethyan and a consortium of Pakistani state-owned enterprises acquired shares in the Tethyan subsidiary which holds the project, and the ICSID award was resolved.

The proceeds from the acquisition of the shares of Tethyan's subsidiary will be held by Tethyan until they are distributed to the Company before the end of 2023. An exceptional gain of $945 million has been recognised in the 2022 financial statements.

FUTURE GROWTH

The Group has a pipeline of growth projects to develop our significant mineral resource base which we are currently advancing through a disciplined process of project evaluation.

The Zaldívar Chloride Leach project was commissioned in 2022 and pre-stripping of the Esperanza Sur pit project was completed in July. The Los Pelambres Expansion project was 93% complete as at the end of 2022 with the desalination plant and the concentrator plant expansion due to be in production during the second quarter of this year.

Progress continues on the engineering and pre-investment studies for the Centinela Second Concentrator project. In line with our disciplined approach to capital allocation, the project will be sent to the Board for final investment approval during 2023 following completion of the Los Pelambres Expansion project and once there is sufficient clarity on the outcomes of the ongoing discussions on the mining royalty and tax reform bills, and the rewriting of the Chilean constitution.

COPPER MARKET

The copper price started the year strongly reaching an historic high in March of $4.86/lb before falling to a low of $3.18/lb in July and recovering to finally close the year at $3.81/lb.

Copper's price fluctuations reflected the broader volatility in the global economy. Though the details differed in important ways for each major economy, their growth was similarly dampened in 2022. Driving the slowdown were headwinds that dominated headlines for much of the year: Russia's invasion of Ukraine and the economic shockwaves and energy crisis it sparked; rising inflation and interest rates; the lingering effects of COVID-19; China's reduced economic activity; and ongoing supply shortages and strained global supply chains.

Over the year the LME copper price averaged $4.00/lb, 5% lower than in 2021.

The copper market started 2023 strongly but has fallen back recently on increased economic and geopolitical uncertainty. However, if the nascent recovery of the Chinese market continues and any lasting disruptions to global trade are avoided. Overall, the outlook is positive.

2023 GUIDANCE (as previously announced)

Copper production in 2023 is expected to be 670-710,000 tonnes with the Los Pelambres desalination and concentrator expansion expected to be in production during Q2 2023, and lower production at Centinela Cathodes. Copper production is expected to increase quarter on quarter through the year.

Gold production for 2023 is expected to be 220-240,000 ounces, as grades and recoveries increase at Centinela Concentrates. Molybdenum production is expected to be 10-11,500 tonnes, as a result of higher throughput at Los Pelambres and higher recoveries at Centinela.

Group cash costs in 2023 before and after by-product credits are expected to be $2.20/lb and $1.65/lb respectively, reflecting higher production and decreased input costs, offset by inflation and a stronger Chilean peso. By-product credits are expected to decrease as gold and molybdenum prices fall.

Capital expenditure in 2023 is expected to be $1.9 billion, as sustaining and mine development expenditure increase for the year to approximately $1.5 billion, and development expenditure reduces to $400 million. Development capital expenditure reflects construction inputs inflation and includes residual expenditure on the Los Pelambres Expansion project. Sustaining and mine development expenditure include higher-than-average mine development at Centinela Concentrates, detailed engineering works on the Los Pelambres desalination expansion and concentrate pipeline projects, the expansion of the tailings storage facility at Centinela, and engineering and pre-investment work on the Centinela Second Concentrator project.

REVIEW OF OPERATIONS

LOS PELAMBRES

2022 Performance

Operating Performance

As expected, the prolonged drought at Los Pelambres impacted copper production, which was also affected by the concentrate pipeline incident.

EBITDA was $1,473 million, compared with $2,526 million in 2021, reflecting lower copper realised prices, lower sales volumes and higher operating costs.

Production

Copper production for the year decreased by 15.3% to 275,000 tonnes, mainly due to the lower throughput due the expected restrictions on water availability during 2022 as a result of the accumulated impact of the long-running drought conditions in the Los Pelambres area, and the pipeline incident. Molybdenum production in 2022 was 7,200 tonnes, 21.7% lower than in 2021 due to a decline in throughput and grades. Gold production was 43,100 ounces, 19.0% lower than the previous year.

Costs

Cash costs before by-product credits were $1.84/lb, 15.7% higher than in 2021. This was due to the lower production, higher input prices (mainly diesel, explosives and energy) and general inflation, partially offset by the weaker Chilean peso.

By-product credits increased from $0.70/lb in 2021 to $0.74/lb in 2022 due to higher realised by-product prices despite lower production.

Net cash costs were $1.10/lb, 21c/lb higher than in 2021, reflecting the increase in cash costs before by-product credits, partially offset by higher by-product credits.

Capital expenditure

Capital expenditure during 2022 was $890 million, including $251 million on sustaining capital expenditure and $496 million on growth projects.

As at the end of 2022 the Los Pelambres Desalination Plant and Concentrator Expansion projects, including design, procurement and construction, were 93% complete, and both are due to be in production during the second quarter of 2023.

Outlook for 2023

The forecast production for 2023 is 320-335,000 tonnes of copper, 7.5-8,500 tonnes of molybdenum and 45-55,000 ounces of gold. Higher production is due to higher throughput, as the desalination and concentrator expansion are expected to be in production by the end of Q2 2023.

Cash costs before by-product credits are forecast to be approximately $1.85/lb and net cash costs $1.25/lb, reflecting higher production and decreased input costs, offset by inflation and a stronger Chilean peso.

CENTINELA

2022 Performance

Operating Performance

Centinela Concentrates' grades declined in 2022. However, operational reliability continued to improve and throughput averaged above design capacity for the year as a whole.

EBITDA at Centinela was $1,157 million, compared with $1,919 million in 2021, on lower copper and gold sales volumes, lower copper realised prices and higher unit costs.

Production

Copper production was 247,500 tonnes, 9.7% lower than last year due to expected lower ore grades at Centinela Concentrates, partially offset by higher throughput.

Production of copper in concentrate was 149,300 tonnes, 19.5% lower than in 2021, reflecting expected lower ore grades (18.3%), partially offset by throughput above the design capacity of 105,000 tonnes of ore per day. Copper cathode production was 98,200 tonnes, 10.6% higher than in 2021 mainly due to expected higher grades and recoveries, despite lower throughput.

Gold production was 133,700 ounces, 32.8% lower than in 2021, as grades, which are correlated to copper grades, and recoveries decreased. Molybdenum production was 2,400 tonnes on increased grades.

Costs

Cash costs before by-product credits in 2022 were $2.44/lb, 30.5% higher than in 2021 due to the impact of lower copper production and higher input costs.

By-product credits were $0.69/lb, 5c/lb lower than in 2021 due to lower gold production partially offset by higher molybdenum production and price.

Net cash costs were $1.75/lb, 62c/lb higher than 2021.

Capital expenditure

Capital expenditure was $857 million, including $431 million on mine development, $252 million of sustaining capital expenditure and $174 million on development capital expenditure.

Outlook for 2023

Production is forecast at 235-250,000 tonnes of copper, 175-185,000 ounces of gold and 2.5-3,000 tonnes of molybdenum. Copper production will decrease compared with 2022 as grades fall at Centinela Cathodes.

Cash costs before by-product credits are forecast to be approximately $2.55/lb and net cash costs $1.70/lb.

ANTUCOYA

2022 Performance

Operating Performance

Antucoya continued to improve its operational reliability and consistency during the year with throughput increasing by 4.6% compared with 2021.

EBITDA was $261 million compared with $337 million in 2021, reflecting higher operating costs and the lower realised copper price.

Production

Antucoya produced 79,200 tonnes, 0.8% higher than last year due to higher throughput, which averaged 89,400 tonnes per day for the year, the plant's design capacity.

Costs

Cash costs for 2022 were $2.50/lb, 22.5% higher than in 2021 due to increased input costs, particularly for sulphuric acid, diesel and explosives.

Capital expenditure

Capital expenditure was $67 million, including $58 million on sustaining capital expenditure.

Outlook for 2023

Production is forecast to be 70-75,000 tonnes of copper and cash costs are expected to be approximately $2.45/lb.

ZALDÍVAR

2022 Performance

Operating Performance

During 2022, Zaldívar ramped up its Chloride leach project following the successful completion of its construction.

Attributable EBITDA was $147 million compared with $173 million in 2021.

Production

Attributable copper production was 44,500 tonnes, 1.1% higher than in 2021 mainly due to higher grades, partially offset by lower throughput.

Costs

Cash costs were $2.39/lb, unchanged from the previous year. The long leach cycle of approximately 210 days generates a time lag in costs, so the full effect of higher input prices is not yet fully reflected.

Capital expenditure

Attributable capital expenditure in 2022 was $55 million, of which $44 million was sustaining capital expenditure.

Outlook for 2023

Attributable copper production is forecast to be 45-50,000 tonnes at a cash cost of approximately $2.70/lb.

TRANSPORT DIVISION

2022 Performance

Operating performance

Tonnage transported in 2022 increased by 6.1% to an all-time record 7.1 million tonnes as new transport contracts have ramped up during the year.

EBITDA was $80 million, 17% higher than in 2021, reflecting the higher revenue from increased volumes and better contracted sales prices.

Costs

The division has implemented several operational efficiency improvements this year with positive results that led to increased volumes and cost optimisation which will ensure its long-term competitiveness. In addition, it continued its Cost and Competitiveness Programme to improve its cost structure, revenue stream and operating standards, achieving benefits of some $9 million during the year.

Outlook for 2023

The division has won or renewed nine contracts in 2022 and will continue with the same focus in 2023. Over the coming years, the division has a portfolio of projects that will allow it to increase its bulk materials transport volumes, mainly for the copper and lithium industries.

The division continues to advance its plans to convert its land in the centre of the city of Antofagasta from industrial to urban use. This has involved extensive consultation with communities, neighbours and other stakeholders. Remediation work will start in 2023.

GROWTH PROJECTS AND OPPORTUNITIES

Los Pelambres Expansion

This expansion project is divided into two phases. Phase 1 is expected to be in production in the second quarter of 2023 and Phase 2 by the end of 2025.

Phase 1

This phase is designed to optimise throughput within the limits of the existing operating, environmental and water extraction permits.

As mining progresses at Los Pelambres, ore hardness will increase. The expansion is designed to compensate for this, increasing plant throughput from its current capacity of 175,000 tonnes of ore per day to an average of 190,000 tonnes of ore per day. The expansion is divided into two sub-projects, the construction of a desalination plant and water pipeline from the coast to the El Mauro tailings storage facility, and the expansion of the concentrator plant, which includes the installation of an additional SAG mill and ball mill, and six additional flotation cells.

Annual copper production will be increased by an average of 60,000 tonnes per year over 15 years, starting at approximately 40,000 tonnes per year for the first four to five years and rising to 70,000 tonnes per year for the rest of the period as the hardness of the ore increases and the benefit of the higher milling capacity is fully realised.

In 2020 the decision was made to change the scope of the project and double the planned capacity of the desalination plant from 400 l/s to 800 l/s. However, the additional work on this expansion that can be carried out during Phase 1 is limited by what is allowed under the permits that have already been issued so the remaining work will be treated as a separate project subject to the receipt of the necessary permits. The cost of the additional work is included in the Phase 1 capital cost.

By the end of 2022, the desalination plant and the water pipeline were 95.7% complete and commissioning was under way, with production expected in the second quarter of 2023. At the concentrator plant expansion site, progress was 91.0% with production expected in the second quarter of 2023.

A detailed review of the project schedule and costs in early 2022 resulted in the capital cost estimate for Phase 1 being increased to $2.2 billion (from $1.7 billion). Of this increase, approximately $220 million was related to the impact of COVID-19 on costs and the construction schedule, and $170 million was related to general inflation, including increased input prices, wages, labour incentives and logistics costs, with the balance reflecting other adjustments to implementation plans and an updated contingency provision. 

Phase 2 - Future expansion

Following the decision in 2020 to increase the size of the desalination plant, Phase 2 of the expansion now requires two separate Environmental Impact Assessment (EIA) applications; one for the expansion of the desalination plant and one for the extension of the mine life of Los Pelambres through an increase in the size of the El Mauro tailings storage facility. The latter EIA will also provide the option to further increase the throughput capacity of the concentrator plant.

Desalination plant expansion

This project will protect Los Pelambres from the future impact of climate change and the deteriorating availability of water in the region. The project cost will be reported as part of the Group's sustaining capital expenditure.

The project includes the expansion of the desalination plant and the construction of a new water pipeline from the El Mauro tailings storage facility to the concentrator plant. In 2021 Los Pelambres submitted the EIA required for this project, which includes the desalination plant expansion and two other sustaining capital infrastructure projects, the replacement of the concentrate pipeline and the construction of certain planned enclosures at the El Mauro tailings storage facility. EIA approval is expected in time for the project to be completed in 2025/2026, by which time over 95% of Los Pelambres's water needs will be fulfilled by desalinated or recirculated water.

Mine life extension

The current mine life of Los Pelambres is 12 years and is limited by the capacity of the El Mauro tailings storage facility. The scope of the second EIA will include increasing the capacity of the tailings storage facility and the mine waste storage. This will extend the mine's life by a minimum of 15 years, accessing a larger portion of Los Pelambres's six billion tonnes of mineral resources. The EIA will also provide for the option to increase throughput to 205,000 tonnes of ore per day, increasing copper production by 35,000 tonnes per year.

The capital expenditure to extend the mine life was estimated at approximately $500 million in a 2014 pre-feasibility study, with most of the expenditure on mining equipment and increasing the capacity of the concentrator and the El Mauro tailings facility. Key studies on tailings and waste storage capacity have advanced and community consultation is under way. The environmental and social studies are being prepared and should be submitted to the authorities during 2023/2024 as part of the EIA application. 

Centinela Second Concentrator

We are currently evaluating the construction of a second concentrator and tailings deposit some 7 km from the existing concentrator, to take place in two phases. The EIA for both phases was approved in 2016.

Detailed engineering plans and costings have recently been updated for Phase 1 of the project and key contracts finalised, subject to Board approval of the project. The capacity of the new concentrator will be 95,000 tonnes of ore per day, producing on average approximately 170,000 tonnes of copper equivalent (copper, gold and molybdenum) a year over the first 10 years of operation. This will move Centinela into the first cost quartile of global producers.

The Phase 1 capital cost is estimated at $3.7 billion, including the cost of the new water supply system. The increase on the previously quoted 2015 pre-feasibility estimate of $2.7 billion reflects inflation, design improvements, heightened environmental and other regulatory requirements, and the results of advanced engineering and a more detailed execution plan. The estimate includes a concentrator plant, capitalised stripping, mining equipment, a new tailings storage facility, a water pipeline and other infrastructure, pre-commercial production operating costs, and owner's and other costs.

The decision by the Board on whether to proceed with the project is expected in 2023, with timing dependent on the outcome of ongoing discussions on the tax reform and mining royalty bills and the rewriting of Chile's constitution. Work on Phase 2 would only start once construction of Phase 1 is completed and it is operating successfully.

The second concentrator and its potential further expansion to 150,000 tonnes of ore per day will source ore initially from the recently opened Esperanza Sur pit and later from the Encuentro pit. The sulphide ore in the Encuentro pit lies under the Encuentro Oxides reserves, which are expected to be depleted by 2026. These expansions will further progress maximising the potential of Centinela's large mineral resource base.

During 2022 the Company continued the tender process inviting third parties to provide water for Centinela's current and future operations by acquiring the existing water supply system and building the new water pipeline. This process is expected to be completed in 2023. The outsourcing of the water supply will only proceed if it improves the net present value of the project.

Esperanza Sur pit

The Esperanza Sur pit is 4 km south of the Esperanza pit, close to Centinela's concentrator plant. The deposit contains 1.4 billion tonnes of reserves with a grade of 0.4% copper, 0.13g/t of gold and 0.012% of molybdenum.

Pre-stripping by a contractor was completed in July and Centinela has taken over the operation of the pit using a fleet of 11 autonomous trucks, the first to be used by the Group. Ore from the pit is now being processed at the Centinela concentrator.

The opening of the Esperanza Sur pit improves Centinela's flexibility in supplying its concentrator and, over the initial years, the higher-grade material from the pit will increase production by some 10-15,000 tonnes of copper per year, compared with production levels if material was supplied solely from the Esperanza pit. This greater flexibility will allow Centinela to smooth and optimise its year-on-year production profile, which has in the past been variable.

Zaldívar Chloride Leach

This project is expected to increase copper recoveries by approximately 10 percentage points, with further upside in recoveries possible depending on the type of ore being processed. This will increase copper production at Zaldívar by approximately 10-15,000 tonnes per annum over the remaining life of the mine.

The project was completed in early 2022 at a total capital cost of $190 million. The project included an upgrade of the Solvent Extraction (SX) plant, new reagents facilities and the construction of additional washing ponds for controlling the chlorine levels. Ramp-up is currently underway to achieve the full improvement in recoveries and will extend into 2023.

As the Group equity accounts for its interest in Zaldívar, capital expenditure at the operation is not included in Group total capital expenditure amounts.

Twin Metals Minnesota

Twin Metals Minnesota (Twin Metals) is a wholly owned copper, nickel and platinum group metals (PGM) underground mining project, which holds copper, nickel/cobalt and PGM deposits in north-eastern Minnesota, US. The planned project is over a portion of the total resource and envisages mining and processing 18,000 tonnes of ore per day for 25 years and producing three separate concentrates - copper, nickel/cobalt and PGM.

In 2019, Twin Metals submitted its Mine Plan of Operations (MPO) and Scoping Environmental Assessment Worksheet Data Submittal, to the US Bureau of Land Management (BLM, a bureau in the Department of Interior) and the Minnesota Department of Natural Resources (DNR), respectively. However, over the past two years, while the Twin Metals project was advancing its environmental review, several actions were taken by the federal government that have changed the potential outcomes for the project.

In 2021, the BLM rejected advancing Twin Metals' preference right lease applications (PRLAs) and prospecting permit applications (PPAs).

In early 2022, the Department of Interior (DOI) took an additional action through a legal opinion issued by the Office of the Solicitor (M-Opinion). This action arbitrarily cancelled Twin Metals' federal mining leases 1352 and 1353, citing concerns with the reinstatement and renewal process.

Also in early 2022, the BLM stopped its evaluation of Twin Metals' MPO and an administrative court dismissed Twin Metals' appeal of that decision. 

In August 2022 Twin Metals filed a claim in federal court challenging the administrative actions resulting in the rejection of the PRLAs, the cancellation of its federal leases 1352 and 1353, the rejection of its MPO and the dismissal of the administrative appeal of the MPO rejection. Twin Metals considers the actions of the Government to be arbitrary and capricious, contrary to the law and in violation of its rights. This action is pending.

In January 2023, the DOI issued an order effectively banning mining in approximately 225,000 acres of the Superior National Forest for 20 years, subject to valid existing rights. This action alone does not prevent Twin Metals from proceeding with the project since it does not affect its pre-existing rights.

FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2022

The profit for the financial year attributable to the owners of the parent (including exceptional items) increased from $1,290.2 million in 2021 to $1,533.0 million in the current year. Excluding exceptional items, the profit attributable to the owners of the parent decreased by $816.1 million to $588.3 million.

Revenue

The $1,608.1 million decrease in revenue from $7,470.1 million in 2021 to $5,862.0 million in the current year reflected the following factors:

Revenue from the Mining division

Revenue from the Mining division decreased by $1,631.5 million, or 22%, to $5,668.6 million, compared with $7,300.1 million in 2021. The decrease reflected a $1,507.7 million reduction in copper sales and a $123.8 million decrease in by-product revenue.

Revenue from copper sales

Revenue from copper concentrate and copper cathode sales decreased by $1,507.7 million, or 24%, to $4,905.5 million, compared with $6,413.2 million in 2021. The decrease reflected the impact of $799.4 million from lower sales volumes, $704.5 million from lower realised prices and $3.8 million from higher treatment and refining charges.

(i) Copper volumes

Copper sales volumes reflected within revenue decreased by 12.2% from 681,000 tonnes in 2021 to 598,100 tonnes in 2022, decreasing revenue by $799.4 million. This decrease was due to lower copper sales volumes at Los Pelambres (53,300 tonnes decrease) as a result of its decreased production due to the concentrate pipeline issue and water shortage, and lower sales volumes at Centinela (30,000 tonnes decrease) due to decreased production volumes reflecting expected lower ore grades.

(ii) Realised copper price

The average realised copper price decreased by 12% to $3.84/lb in 2022 (2021 - $4.37/lb), resulting in a $704.5 million decrease in revenue. The decrease in the realised price reflected the lower LME average market price, which fell by 5% to $4.00/lb in 2022 (2021 - $4.23/lb), and a negative provisional pricing adjustment of $169.7 million. The provisional pricing adjustment mainly reflected the decrease in the year-end mark-to-market copper price to $3.80/lb at 31 December 2022, compared with $4.42/lb at 31 December 2021. In addition, during 2022 there was no impact in respect of commodity hedging instruments as no hedges were in place during the year, whereas the prior year revenue included a $126.8 million negative impact in respect of hedging instruments which matured during 2021.

Realised copper prices are determined by comparing revenue (after adding back treatment and refining charges for concentrate sales) with sales volumes in the period. Realised copper prices differ from market prices mainly because, in line with industry practice, concentrate and cathode sales agreements generally provide for provisional pricing at the time of shipment with final pricing based on the average market price in future periods (normally around one month after delivery to the customer in the case of cathode sales and four months after delivery to the customer in the case of concentrate sales).

Further details of provisional pricing adjustments are given in Note 6 to the Full-year results announcement.

(iii) Treatment and refining charges

Treatment and refining charges (TC/RCs) for copper concentrate increased by $3.8 million to $155.8 million in 2022, compared with $152.0 million in 2021 reflecting higher average TC/RC rates, offset by the decrease in concentrate sales volumes at Los Pelambres and Centinela.

With sales of concentrates at Los Pelambres and Centinela, which are sold to smelters and roasting plants for further processing into fully refined metal, the price of the concentrate invoiced to the customer reflects the market value of the fully refined metal less a "treatment and refining charge" (TC/RC) deduction, to reflect the lower value of this partially processed material compared with the fully refined metal. For accounting purposes, the revenue amount is the invoiced amount, which is the market value of fully refined metal less the treatment and refining charges. Under the standard industry definition of cash costs, treatment and refining charges are regarded as an expense and part of the total cash cost figure.

Accordingly, the increase in these charges has had a negative impact on revenue in the year.

Revenue from molybdenum, gold and other by-product sales

Revenue from by-product sales at Los Pelambres and Centinela relate mainly to molybdenum and gold and, to a lesser extent, silver. Revenue from by-products decreased by $123.8 million or 14.0% to $763.1 million in 2022, compared with $886.9 million in 2021.

Revenue from gold sales (net of treatment and refining charges) was $313.9 million (2021 - $436.4 million), a decrease of $122.5 million which reflected a decrease in volumes slightly offset by a higher realised price. Gold sales volumes decreased by 28.6% from 244,700 ounces in 2021 to 174,700 ounces in 2022 as the gold grades, which are often correlated to copper grades, decreased, as did recoveries at Centinela. The realised gold price was $1,801/oz in 2022 compared with $1,788/oz in 2021, reflecting the average market price for 2022 of $1,800/oz (2021 - $1,799/oz) and a positive provisional pricing adjustment of $3.5 million.

Revenue from molybdenum sales (net of roasting charges) was $392.3 million (2021 - $366.4 million), an increase of $25.9 million. The increase was due to the higher realised price of $20.8/lb (2021 - $17.4/lb), partially offset by decreased sales volumes of 9,200 tonnes (2021 - 10,400 tonnes).

Revenue from silver sales decreased by $27.2 million to $56.9 million (2021 - $84.1 million). The decrease was due to lower sales volumes of 2.7 million ounces (2021 - 3.4 million ounces) and the lower realised silver price of $21.2/oz (2021 - $24.9/oz).

Revenue from the Transport division

Revenue from the Transport division (FCAB) increased by $23.4 million or 13.8% to $193.4 million (2021 - $170.0 million), mainly due to increased volumes and better pricing in some contracts.

Total operating costs (excluding exceptional items)

The $336.6 million increase in total operating costs (excluding exceptional items) from $3,891.1 million in 2021 to $4,227.7 million in the current year reflected the following factors:

Operating costs (excluding depreciation, amortisation, loss on disposals and impairments) at the Mining division

Operating costs (excluding depreciation, amortisation, loss on disposals and impairments) at the Mining division increased by $268.5 million to $2,965.4 million in 2022, an increase of 10.0%. Of this increase, $252.8 million was attributable to higher mine-site operating costs. This increase in mine-site costs reflected higher key input prices and general inflation, partly offset by the impact of the decreased sales volumes, the weaker Chilean peso and cost savings from the Group's Cost and Competitiveness Programme.

On a unit cost basis, weighted average cash costs excluding by-product credits (which for accounting purposes are part of revenue) and treatment and refining charges for concentrates (which are also part of revenue for accounting purposes), increased from $1.68/lb in 2021 to $2.05/lb in 2022.

The Cost and Competitiveness Programme was implemented to reduce the Group's cost base and improve its competitiveness within the industry. During 2022 the programme achieved benefits of $124.0 million in the Mining division, of which $88.0 million reflected cost savings and $36.0 million reflected the value of productivity improvements. Of the $88.0 million of cost savings, $55.9 million related to Los Pelambres, Centinela and Antucoya, and therefore impacted the Group's operating costs, and $32.1 million related to Zaldívar (on a 100% basis) and therefore impacted the share of results from associates and joint ventures.

Closure provisions and other mining expenses increased by $6.4 million. Exploration and evaluation costs increased by $9.8 million to $113.0 million (2021 - $103.2 million), reflecting increased exploration expenditure principally in respect of the Cachorro and Encierro projects, and also increased expenditure on geotechnical drilling at Los Pelambres, partly offset by lower costs at Twin Metals.

Corporate costs decreased by $0.5 million.

Operating costs (excluding depreciation, amortisation and loss on disposals) at the Transport division

Operating costs (excluding depreciation, amortisation and loss on disposals) at the Transport division increased by $12.8 million to $119.1 million (2021 - $106.3 million), mainly due to an increase in the price of diesel used for locomotives and trucks as well as the impact of the higher inflation rate on labour, material and contractor costs.

Depreciation, amortisation and disposals (excluding impairments)

The expense for depreciation, amortisation and loss on disposals increased by $55.3 million from $1,087.9 million in 2021 to $1,143.2 million. This increase is mainly due to higher amortisation of IFRIC 20 stripping costs at Centinela, offset by the impact of depreciation deferred in inventory, also largely at Centinela.

Operating profit from subsidiaries

As a result of the above factors, operating profit from subsidiaries decreased by $1,935.7 million or 54.1% in 2022 to $1,634.3 million (2021 - $3,579.0 million).

Share of results from associates and joint ventures

The Group's share of results from associates and joint ventures was a profit of $48.1 million in 2022, compared with $59.7 million in 2021. Of this decrease, $21.3 million was due to lower profits at Zaldívar.

EBITDA

EBITDA (earnings before interest, tax, depreciation and amortisation, and impairments) decreased by $1,906.5 million or 39.4% to $2,929.7 million (2021 - $4,836.2 million). EBITDA includes the Group's proportional share of EBITDA from associates and joint ventures.

EBITDA from the Mining division decreased by 40.2% from $4,768.0 million in 2021 to $2,849.7 million this year.

This reflected the lower revenue and higher mine-site costs explained above, and to a lesser extent a lower EBITDA from associates and joint ventures.

EBITDA at the Transport division increased by $11.8 million to $80.0 million in 2022 ($68.2 million - 2021), reflecting the higher revenue and slightly increased EBITDA from associates and joint ventures, offset by higher operating costs, mainly due to inflation and the increased price of diesel.

Commodity price and exchange rate sensitivities

The following sensitivities show the estimated approximate impact on EBITDA for 2022 of a 10% movement in the average copper, molybdenum and gold prices and a 10% movement in the average US dollar / Chilean peso exchange rate.

The impact of the movement in the average commodity prices reflects the estimated impact on the relevant revenues during 2022, and the impact of the movement in the average exchange rate reflects the estimated impact on Chilean peso denominated operating costs during the year. These estimates do not reflect any impact in respect of provisional pricing or hedging instruments, any potential inter-relationship between commodity price and exchange rate movements, or any impact from the retranslation or changes in valuations of assets or liabilities held on the balance sheet at the year-end.

Net finance (expense)/income

Net finance expense of $68.2 million reflected a variance of $84.2 million compared with the $16.0 million gain in 2021.

Interest income increased from $5.0 million in 2021 to $40.2 million in 2022, mainly due to an increase in average interest rates.

Interest expense increased from $63.4 million in 2021 to $78.6 million in 2022, again mainly reflecting an increase in average interest rates, partially offset by the decrease in the average relevant borrowing balances (after taking account of borrowings where the interest is capitalised).

Other finance items were a net loss of $29.8 million, compared with a net gain of $74.4 million in 2021, a variance of $104.2 million. This was largely due to the foreign exchange impact of the retranslation of Chilean peso denominated assets and liabilities, which resulted in a $12.8 million loss in 2022 compared with a $49.7 million gain in 2021. In addition, there was a negative year-on-year variance of $41.7 million related to the discounting of long-term provisions, largely driven by the increase in discount rates in 2021 resulting in a decrease in the provision balances and a corresponding credit recognised in other finance items in the prior year.

Profit before tax

As a result of the factors set out above, profit before tax decreased by 26.4% to $2,558.9 million (2021 - $3,477.1 million).

Income tax expense

The tax charge for 2022 excluding exceptional items decreased by $729.3 million to $603.6 million (2021 - $1,332.9 million) and the effective tax rate for the year was 37.4% (2021 - 36.5%). Including exceptional items, the tax charge for 2022 was $603.6 million and the effective tax rate was 23.6%.

The following table provides a numerical reconciliation between the accounting profit before tax multiplied by the applicable statutory tax rate and the total tax expense (including both current and deferred tax).

The effective tax rate excluding exceptional items of 37.4% varied from the statutory rate principally due to the mining tax (royalty) (net impact of $71.4 million / 4.4% including the deduction of the mining tax (royalty) as an allowable expense in the determination of first category tax), the withholding tax relating to the remittance of profits from Chile (impact of $73.0 million / 4.6%), items not deductible for Chilean corporate tax purposes, principally the funding of expenses outside of Chile (impact of $33.9 million / 2.1%) and adjustments in respect of prior years (impact of $2.6 million / 0.1%), partly offset by the impact of the recognition of the Group's share of profit from associates and joint ventures, which are included in the Group's profit before tax net of their respective tax charges (impact of $13.0 million / 0.8%).

The impact of the exceptional items on the effective tax rate including exceptional items was $255.1 million / 10.0%. Further details of the exceptional gain on the disposal of the Group's investment in the Tethyan joint venture, including relevant tax aspects, are set out in Note 14 to the Full-year results announcement.

Exceptional items

Exceptional items are material items of income and expense which are non-regular or non-operating and typically non-cash, including impairments and profits or losses on disposals. The tax effect of items presented as exceptional is also classified as exceptional, as are material deferred tax adjustments that relate to more than one reporting period. The classification of these types of items as exceptional is considered to be useful as it provides an indication of the underlying earnings generated by the on-going businesses of the Group.

Disposal of investment in Tethyan joint venture

On 15 December 2022 Antofagasta entered into definitive agreements to exit its interest in the Tethyan joint venture. As a result, Antofagasta has recognised a gain on disposal of its investment in the joint venture as at 15 December 2022 of $944.7 million. Full details of the agreements and gain on disposal are set out in Note 14 to the Full-year results announcement.

2021 - Impairment of Twin Metals' assets

In 2021 an impairment was recognised in respect of the $177.6 million of intangible assets and property, plant and equipment relating to the Twin Metals project.

2021 - Recognition of previously unrecognised deferred tax assets

At 31 December 2021, the Group recognised $90.6 million of previously unrecognised deferred tax assets relating to tax losses available for offset against future profits, reflecting the improved actual and forecast profitability of the relevant Group entity (Antucoya).

Non-controlling interests

Profit for 2022 attributable to non-controlling interests (excluding exceptional items) was $422.3 million, compared with $917.4 million in 2021, a decrease of $495.1 million. This reflected the decrease in earnings analysed above.

Earnings per share

Earnings per share calculations are based on 985,856,695 ordinary shares. 

As a result of the factors set out above, the underlying profit attributable to equity shareholders of the Company (excluding exceptional items) was $588.3 million compared with $1,404.4 million in 2021, giving underlying earnings per share of 59.7 cents per share (2021 - 142.5 cents per share). The profit attributable to equity shareholders (including exceptional items) was $1,533.0 million, resulting in earnings per share of 155.5 cents per share (2021 - 130.9 cents per share). 

Dividends

Dividends per share proposed in relation to the period are as follows:

The Board determines the appropriate dividend each year based on consideration of the Group's cash balance, the level of free cash flow and underlying earnings generated during the year and significant known or expected funding commitments. It is expected that the total annual dividend for each year would represent a payout ratio based on underlying net earnings for that year of at least 35%.

The Board has recommended a final dividend for 2022 of 50.5 cents per ordinary share, which amounts to $497.6 million and will be paid on 12 May 2023 to shareholders on the share register at the close of business on 21 April 2023.

The Board declared an interim dividend for the first half of 2022 of 9.2 cents per ordinary share, which amounted to $90.7 million.

This gives total dividends proposed in relation to 2022 (including the interim dividend) of 59.7 cents per share or $588.3 million in total (2021 - 142.5 cents per ordinary share or $1,404.8 million in total) equivalent to a payout ratio of 100% of underlying earnings.

Capital expenditure

Capital expenditure increased by $101.7 million from $1,777.5 million in 2021 to $1,879.2 million in the current year, mainly due to increased sustaining capex at Centinela, Los Pelambres and Antucoya, increased mine development at Los Pelambres and Centinela, offset by lower expenditure on the Esperanza Sur pit at Centinela and the Los Pelambres Expansion project.

NB: capital expenditure figures quoted in this report are on a cash flow basis, unless stated otherwise.

Derivative financial instruments

The Group periodically uses derivative financial instruments to reduce its exposure to commodity price, foreign exchange and interest rate movements. The Group does not use such derivative instruments for speculative trading purposes. At 31 December 2022 there were no derivative financial instruments in place (2021 - nil).

Cash flows

The key features of the cash flow statement are summarised in the following table.

Cash flows from continuing operations were $2,738.3 million in 2022 compared with $4,507.7 million in 2021. This reflected EBITDA from subsidiaries for the year of $2,777.5 million (2021 - $4,666.9 million) adjusted for the negative impact of a net working capital increase of $12.7 million (2021 - working capital increase of $140.2 million) and a non-cash decrease in provisions of $26.5 million (2021 - decrease of $19.0 million).

The working capital increase in 2022 was mainly due to the increase of work in progress inventories in the Mining division and an increase in finished goods inventories at Centinela, partially offset by a decrease in receivables, reflecting the lower average mark-to-market price at 31 December 2022 of $3.80/lb (31 December 2021 - $4.42/lb) and lower sales volumes towards the end of the current period compared with the end of 2021, and an increase in creditors.

The net cash outflow in respect of tax in 2022 was $787.1 million (2021 - $776.9 million). This amount differs from the current tax charge in the consolidated income statement (including exceptional items) of $448.8 million (2021 - $1,035.5 million) mainly because cash tax payments for corporate tax and the mining tax include the settlement of outstanding balances in respect of the previous year's tax charge of $332.2 million (2021 - $30.9 million), withholding tax payments of $24.5 million, payments on account for the current year based on the prior year's profit levels of $435.6 million, as well as the recovery of $5.1 million relating to prior years.

Contributions and loans to associates and joint ventures were nil (2021 - $33.5 million, relating to Hornitos and Tethyan).

Capital expenditure in 2022 was $1,879.2 million compared with $1,777.5 million in 2021. This included expenditure of $889.7 million at Los Pelambres (2021 - $880.4 million), $857.0 million at Centinela (2021 - $791.8 million), $66.9 million at Antucoya (2021 - $49.6 million), $10.8 million at the corporate centre (2021 - $24.4 million) and $54.8 million at the Transport division (2021 - $31.3 million). The increase in sustaining capex at Centinela and Los Pelambres, and increased mine development at Los Pelambres and Centinela, was partially offset by less expenditure on the Esperanza Sur pit at Centinela.

Dividends paid to equity holders of the Company were $1,262.9 million (2021 - $710.8 million) of which $1,172.1 million related to the payment of the previous year's final dividend and $90.7 million to the interim dividend declared in respect of the current year.

Dividends paid by subsidiaries to non-controlling shareholders were $80.0 million (2021 - $604.5 million).

Dividends received from associates and joint ventures was $50.0 million for 2022 (2021 - $142.5 million).

Financial position

At 31 December 2022 the Group had combined cash, cash equivalents and liquid investments of $2,391.2 million (31 December 2021 - $3,713.1 million). Excluding the non-controlling interest share in each partly-owned operation, the Group's attributable share of cash, cash equivalents and liquid investments was $1,990.9 million (31 December 2021 - $3,299.9 million).

Total Group borrowings at 31 December 2022 were $3,277.0 million, an increase of $104.4 million on the prior year (31 December 2021 - $3,172.6 million). The increase was mainly due to the $488.5 million from the issue of the new corporate bond, $327.4 million of additional draw-down for the Los Pelambres Expansion project, a $50.0 million refinancing of the senior loan at Antucoya and $51.3 million of new finance leases, partly offset by a $686.1 million repayment of the senior loans at Corporate ($500.0 million), Centinela ($111.1 million), Los Pelambres ($50.0 million) and Antucoya ($25.0 million), $35.0 million repayment of Antucoya's short term loan and $19.6 million of subordinated debt repayment by Antucoya.

Excluding the non-controlling interest share in each partly-owned operation, the Group's attributable share of the borrowings was $2,449.7 million (31 December 2021 - $2,409.6 million).

These movements resulted in net debt at 31 December 2022 of $885.8 million (31 December 2021 - net cash $540.5 million). Excluding the non-controlling interest share in each partly-owned operation, the Group had an attributable net debt position of $458.7 million (31 December 2021 - net cash $890.3 million).

Going concern

The consolidated financial information contained in this unaudited Full-year results announcement has been prepared on the going concern basis. Details of the factors which have been taken into account in assessing the Group's going concern status are set out in Note 1 to the financial report.

Cautionary statement about forward-looking statements

This Full-year results announcement contains certain forward-looking statements. All statements other than historical facts are forward-looking statements. Examples of forward-looking statements include those regarding the Group's strategy, plans, objectives or future operating or financial performance, reserve and resource estimates, commodity demand and trends in commodity prices, growth opportunities, and any assumptions underlying or relating to any of the foregoing. Words such as "intend", "aim", "project", "anticipate", "estimate", "plan", "believe", "expect", "may", "should", "will", "continue" and similar expressions identify forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group's control. Given these risks, uncertainties and assumptions, actual results could differ materially from any future results expressed or implied by these forward-looking statements, which apply only as at the date of this report. Important factors that could cause actual results to differ from those in the forward-looking statements include: global economic conditions, demand, supply and prices for copper and other long-term commodity price assumptions (as they materially affect the timing and feasibility of future projects and developments), trends in the copper mining industry and conditions of the international copper markets, the effect of currency exchange rates on commodity prices and operating costs, the availability and costs associated with mining inputs and labour, operating or technical difficulties in connection with mining or development activities, employee relations, litigation, and actions and activities of governmental authorities, including changes in laws, regulations or taxation. Except as required by applicable law, rule or regulation, the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Past performance cannot be relied on as a guide to future performance.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

For the year ended 31 December 2021 (Audited)

Consolidated Balance Sheet

The consolidated financial information was approved by the Board of Directors on 20 February 2023.

Consolidated Cash Flow Statement

Notes

a) General information

The consolidated financial information for the year ended 31 December 2022 was approved for issue by the Board of Directors of the Company on 20 February 2023. The consolidated financial information is unaudited but is derived from the Group's full financial accounts, which are in the final stages of being prepared.

This consolidated financial information has been prepared under the accounting policies as set out in the statutory accounts for the year ended 31 December 2021.

The consolidated financial statements of the Antofagasta plc Group for the year ended 31 December 2022 are being prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The consolidated financial information does not include all of the notes of the type normally included in annual financial statements. Accordingly, the consolidated financial information is not in full accordance with UK-adopted International Accounting standards. The consolidated financial information has been prepared on the going concern basis.

The information contained in this announcement for the year ended 31 December 2021 also does not constitute statutory accounts. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, with no matters by way of emphasis, and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

The information contained in the Alternative performance measures and Production and Sales Statistics section of this consolidated financial information is not derived from the statutory accounts for the years ended 31 December 2022 and 2021 and is accordingly not covered/will not be covered by the auditor's reports.

Going concern

The Directors have assessed the going concern status of the Group, considering the period to 31 December 2024.

The Group's business activities, together with those factors likely to affect its future performance, are set out in the Directors' Comments, and in particular within the Review of Operations. Details of the cash flows of the Group during the period, along with its financial position at the period-end, are set out in the Financial Review. The condensed consolidated financial statements include details of the Group's cash, cash equivalents and liquid investment balances in Note 25, and details of borrowings are set out in Note 18.

When assessing the going concern status of the Group, the Directors have considered in particular its financial position, including its significant balance of cash, cash equivalents and liquid investments and the terms and remaining durations of the borrowing facilities in place. The Group had a strong financial position as at 31 December 2022, with combined cash, cash equivalents and liquid investments of $2,391.2 million. Total borrowings were $3,277.0 million, resulting in a net debt position of $885.8 million. Of the total borrowings, only 14% is repayable within one year, and 18% repayable between one and two years.

When assessing the prospects of the Group, the Directors have considered the Group's copper price forecasts, the Group's expected production levels, operating cost profile and capital expenditure. These forecasts are based on the Group's budgets and life-of-mine models, which are also used when assessing relevant accounting estimates, including depreciation, deferred stripping and closure provisions. This analysis has focused on the existing asset base of the Group, without factoring in potential development projects, which is considered appropriate for an assessment of the Group's ability to manage the impact of a depressed economic environment. The analysis has only included the drawdown of existing committed borrowing facilities, and has not assumed that any new borrowing facilities will be put in place. The Directors have assessed the key risks which could impact the prospects of the Group over the going concern period and consider the most relevant to be risks to the copper price outlook, as this is the factor most likely to result in significant volatility in earnings and cash generation. Robust downside sensitivity analyses have been performed, assessing the standalone impact of each of:

· A significant deterioration in the future copper price forecasts by 20% throughout the going concern period.

· An even more pronounced short-term reduction of 50 c/lb in the copper price for a period of 3 months, in addition to the above deterioration of 20% in the copper price throughout the review period.

· The potential impact of the Group's most significant individual operational risks.

· A shutdown of any one of the Group's operations for a period of three months.

· Potential changes to the Chilean mining royalty, taking into account the Group's existing tax stability agreements.

The stability of tailings storage facilities represents a potentially significant operational risk for mining operations globally. The Group's tailings storage facilities are designed to international standards, constructed using downstream methods, subject to rigorous monitoring and reporting, and reviewed regularly by an international panel of independent experts. Given these standards of design, development, operations and review, the impact of a potential tailings dam failure has not been included in the sensitivity analysis.

The above downside sensitivity analyses indicated results which could be managed in the normal course of business, including the aggregate impact of a number of the above sensitivities occurring at the same time. The analysis indicated that the Group is expected to remain in compliance with all of the covenant requirements of its borrowings throughout the review period and retain sufficient liquidity. Based on their assessment of the Group's prospects and viability, the Directors have formed a judgement, at the time of approving the financial statements, that there are no material uncertainties that the Directors are aware of that cast doubt on the Group's going concern status and that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the period to 31 December 2024. The Directors therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

b) Adoption of new accounting standards

Other accounting standards

The following accounting standards, amendments and interpretations became effective in the current reporting period but the application of these standards and interpretations had no material impact on the amounts reported in these condensed consolidated financial statements:

The following accounting standards, amendments and interpretations became effective in the current reporting period:

· Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)

· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41)

· Reference to the Conceptual Framework (Amendments to IFRS 3)

The amendment to IAS 16 Property, Plant and Equipment - Proceeds before intended use may have significant impacts for the Group in future periods. Previously, the Group has deducted amounts received from the sale of products during the initial ramp-up of new projects, before commercial production is achieved, from the capital cost of the project. Under the amendment to IAS 16, such amounts will now instead be recognised as revenue in the income statement along with a corresponding allocation of related operating expenses, which is likely to result in increased revenue and operating expenses and a higher initial capitalised amount. There were no relevant projects impacted by the amendment during 2022. The amendment would have applied retrospectively only to relevant projects in progress at 1 January 2021 which were generating proceeds, and there were no such projects at 1 January 2021.

The application of these standards and interpretations effective for the first time in the current year has had no significant impact on the amounts reported in these financial statements.

c) Accounting standards issued but not yet effective

 At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective. It is expected that where applicable, these standards and amendments will be adopted on each respective effective date. None of these standards are expected to have a significant impact on the Group.

1 These amendments are still subject to UK endorsement.

d) Critical accounting judgements and key sources of estimation uncertainty

The critical accounting judgements and keys estimate applied in this consolidated financial information are:

Judgements

· Non-financial assets impairment- see Note 4 for relevant details

· Capitalisation of project costs within property, plant and equipment

Estimates

· Deferred taxation - see Note 21 for relevant details

· Disposal of investment in the Tethyan joint venture - see Note 14 for relevant details

2. Operating profit from subsidiaries, and total profit from associates and joint ventures

1Other operating expenses comprise $113.0 million of exploration and evaluation expenditure (2021 - $103.2 million), $19.1 million in respect of the employee severance provision (2021 - $19.8 million), $16.9 million in respect of the closure provision (2021 - $11.3 million), nil in respect of the provision against the carrying value of assets relating to the Twin Metals project (2021 - $177.6 million) and $125.0 million of other expenses (2021 - $118.0 million).

3. Exceptional items

Exceptional items are material items of income and expense which are non-regular or non-operating and typically non-cash, including impairments and profits or losses on disposals. The tax effect of items presented as exceptional is also classified as exceptional, as are material deferred tax adjustments that relate to more than one reporting period. The classification of these types of items as exceptional is considered to be useful as it provides an indication of the underlying earnings generated by the on-going businesses of the Group.

2022 - Disposal of investment in Tethyan joint venture

On 15 December 2022, Antofagasta entered into definitive agreements to exit its interest in the Tethyan joint venture. As a result, Antofagasta has recognised a gain on disposal of its investment in the joint venture as at 15 December 2022 of $944.7 million. Full details of the agreements and gain on disposal are set out in Note 14.

2021 - Impairment of Twin Metals' assets

Twin Metals Minnesota ("Twin Metals") is a wholly owned copper, nickel and platinum group metals (PGM) underground mining project, which holds copper, nickel, cobalt-PGM deposits in north-eastern Minnesota, US. In recent years, Twin Metals has been progressing its Mine Plan of Operations (MPO) and Scoping Environmental Assessment Worksheet Data Submittal, submitted in December 2019 to the US Bureau of Land Management (BLM) and Minnesota Department of Natural Resources (DNR), respectively. However, while the Twin Metals project was advancing through environmental review, several actions were taken by the federal government that have changed the potential scenarios for the project.

In September 2021, the United States Forest Service (USFS) submitted an application to withdraw approximately 225,000 acres of land in the Superior National Forest from the scope of federal mineral leasing laws, subject to valid existing rights. In October 2021, the United States Bureau of Land Management (BLM) rejected Twin Metals' Preference Right Lease Applications (PRLAs) and Prospecting Permit Applications (PPAs). In January 2022, the United States Department of the Interior cancelled Twin Metals' MNES-1352 and MNES-1353 federal mineral leases. The PRLAs and federal mineral leases form a significant proportion of the mineral resources contained within Twin Metals' current project plan and, accordingly, it was determined that these events collectively represented an impairment trigger as at the 2021 balance sheet date.

Prior to the resulting impairment assessment being performed, as at 31 December 2021, the Group had recognised an intangible asset of $150.1 million and property, plant and equipment of $27.5 million relating to the Twin Metals project. The intangible asset arose upon the acquisition in 2015 of Duluth Metals, which owned a 60% stake in the Twin Metals project, with the carrying value of the intangible asset reflecting the consideration paid for that acquisition. The property, plant and equipment balances reflected the historical cost of acquiring those assets. These carrying values prior to the impairment did not, therefore, reflect an estimate of the commercial potential of the project as at 31 December 2021.

The Group believes that Twin Metals has a valid legal right to the mining leases and a strong case to defend its legal rights. Although the Group intends to pursue validation of those rights, considering the time and uncertainty related to any legal action to challenge the government decisions, an impairment was recognised as at 31 December 2021 in respect of the $177.6 million of intangible assets and property, plant and equipment relating to the Twin Metals project.

2021 - Recognition of previously unrecognised deferred tax assets

At 31 December 2021, the Group recognised $90.6 million of previously unrecognised deferred tax assets relating to tax losses available for offset against future profits, reflecting the improved actual and forecast profitability of the relevant Group entity (Antucoya).

4. Asset sensitivities

There were no indicators of potential impairment, or reversal of previous impairments, for the Group's non-current assets associated with its mining operations at the 2022 year-end, and accordingly no impairment tests have been performed. The impairment indicator assessment included consideration of the potential indicators set out in IAS 36, 'Impairment of Assets', which included quantitative analysis based on the operations' life-of-mine models ("the models"). These models provide indicative valuations and do not represent, or comply with, a formal impairment assessment prepared in accordance with IAS 36. Sensitivity analyses have been performed on the models to quantify the impact of changes in assumptions to which the models are most sensitive and to support the overall impairment indicator assessment.

As noted above, no qualitative indicators of potential impairment or potential reversal of impairment were identified. Similarly, no quantitative indicators of impairment were identified, with the models used within the impairment indicator assessment continuing to indicate positive headroom for all of the Group's mining operations, including the Zaldívar joint venture, with the indicated value of the assets in excess of their carrying value.

Relevant aspects of this process are detailed below: