Antofagasta Regulatory News (ANTO)

14 Jun 2006 11:46

Antofagasta PLC14 June 2006 Antofagasta plc COMMENTS MADE BY MR. JEAN-PAUL LUKSIC, CHAIRMAN, AT THE 2006 ANNUAL GENERAL MEETING London, 14 June 2006 I would like to give you a brief update on where we are as a Group today. Copper and molybdenum prices were very strong in 2005 and this trend hascontinued into 2006 with a LME copper record cash price on 18th May of US$3.98per lb. On the same date last year it was US$1.49 per lb. Copper prices haverecently fallen back as the market responded to the fears of rising interestrates and the impact this might have on the world economy. In addition there hasbeen some profit taking. We foresee a strong market based on the fundamentals oflow and declining stocks in parallel with continuing demand in the mainconsuming countries, altogether in a limited supply growth environment.Molybdenum prices, which peaked in 2005 at nearly US$40 per lb., correcteddownwards towards the end of 2005 but seem to have found good support at aroundUS$25, still well above historical levels. The effect of all this has been thatwe have seen very strong cash generation and profitability and this has resultedin record results. Accordingly, as announced in March 2006, the Board is pleased to recommend anordinary final dividend for the year 2005 of US$0.24 per share making a totalordinary dividend for the year of US$0.40 (which level we regard as sustainablefor the future) and up 2.56% from the US$0.39 of the previous year. We are alsorecommending a special dividend of US$0.70 cents reflecting the exceptionallevel of commodity prices, making a total for the year of US$1.10 compared withUS$0.79 in the previous year. This final dividend will be formally proposedlater in the meeting along with other recommendations of a good housekeepingnature including updating the Articles of Association and a reorganisation ofthe capital structure of the Company through a 4 for 1 bonus issue, the effectof which will be to bring our share price more into line with other companiestrading on the London Stock Exchange. It is very difficult to anticipate the direction of copper and molybdenum pricesfor the rest of the year and we are now facing extreme volatility as the markettries to find equilibrium. It does seem, however, that we must accept thatcommodity prices have moved to higher sustainable levels than in the past notleast because the cost drivers in our business - sulphuric acid, energy, fueloil, steel, etc., have increased enormously since last year together with aconsiderable strengthening of the Chilean peso. As reflected in other mining companies' announcements, mine grades inevitablydeteriorate over time. This has also, of course, been true for us and productionhas fallen slightly and cash costs have risen. In the four months to 30th Aprilthis year overall copper production was at 141,300 tonnes against 155,300 tonnesin the same period in 2005, a fall of 9.0% largely resulting from this gradedecline. Cash costs before by-product credits in the same period rose from US67.7 cents to US 92.0 cents per lb., very much in line with the first quarternumbers we reported in March and reflecting broad industry pressures includingsmelting and refining charges, adverse exchange rate movements and higher inputcosts such as fuel. After adjusting for by-product credits, cash costs haveincreased from a negative US 7.9 cents to US 47.9 cents per lb., reflecting thesame cost pressures and lower molybdenum prices. We continue to work hard on improving the Environmental and Corporate SocialResponsibility, Corporate Governance and Safety fronts which now make up a largepart of the Annual Report. The Board of Antofagasta recognise that these aspectsare of great importance to the Company and we take all these areas veryseriously indeed. Topical matters which I will now comment on are varied. Before the end of June we will be completing the take-over at a finalacquisition cost of approximately US$220 million of the Tethyan Copper CompanyLimited, the Australian company which owns the Reko Dik ore-body explorationlicences in the Baluchistan region of Pakistan. Reko-Diq has a reported andinferred mineral resource of 2.4 billion tonnes with a copper grade of 0.51 percent and a gold grade of 0.27 g/t. As part of the transaction we will beterminating the clawback rights over these licences which are currently held byBHP Billiton. We are pleased here, as reported in the Annual Report, thatBarrick Gold Corporation of Canada will join us as equal partners in thisventure and has agreed to bear 50% of the associated acquisition costs. We feelthat this investment represents a great opportunity for us in a country withtremendous mining potential and a climate encouraging foreign investment. We continue to study other possible new acquisitions around the world - althoughthere is, logically, an emphasis on Latin America. The Tethyan acquisition hasshown that we do not rule out looking further a field but we especially look forprojects that allow us to utilise our best skills and in-built knowledge andthereby add real value. We decided last month that the particular project wewere working on with CVRD in Peru at Cordillera de las Minas was interesting butnot of a sufficient size to justify further investment. At the risk of repeatingmyself, we are actively looking for opportunities to expand and grow thebusiness and I do not expect this attitude to change. Within Chile we continue to study the options for the further expansion of theLos Pelambres mine beyond the 3.1 billion tonne resource. We are, as alreadyannounced, expanding production from 125,000 tonnes to 140,000 tonnes per dayore throughput and this project is well under way and, if all goes smoothly,should be finished two months early in mid 2007 at a cost of US$180 million. TheMauro tailings dam construction also continues apace and we are now welladvanced on this project expecting work to be completed on this project in early2008. As indicated in March, however, costs for this project are expected to beapproximately 15% higher than the original estimate of US$457 million and arenow expected to be around US$534 million reflecting higher steel prices,engineering and energy costs etc., and accounting for the appreciation of theChilean peso. At Tesoro we are concentrating on increasing the throughput capacity of theplant to 10.5 million tonnes of ore per year from 9.0 million. We are alsoexploring the immediate area around Tesoro which belongs to Antofagasta in orderto increase the mine resource. In passing I might also mention the very realefforts being made by El Tesoro to optimise water consumption so as to addressthe new restrictions now being imposed on water usage in the Atacama desert. As mentioned in the Annual Report, production levels at Michilla, which is ahigh cost mine with limited reserves, may be reduced from the current 42,000tonnes per year level. The Board expects to take a decision on this by the thirdquarter of this year. We are also looking at the possibility of combining theore bodies at Buey Muerto and Antucoya, the latter recently acquired fromSoquimich for US$8 million which might provide additional ore for processing atthe Michilla mine plant. The Esperanza new mine project is now progressing through its feasibility stageand we hope this work will result in our being able to take a decision on thisby early 2007. The exploration decline will be completed by the end of thismonth and the first conformation results are encouraging. The total drillinferred resources increased to 786 million tonnes with a 0.53% copper grade,0.20 grams/tonne gold grade and 0.012% molybdenum grade. Finally I would like to mention the rail and roadtransport and waterdistribution businesses of the railway company, FCAB, and the water distributionbusiness of Aguas de Antofagasta. You will be aware that new mining activity inthe region served by the FCAB has been on the rise, particularly with thedevelopments at Spence, Escondida and the San Cristobal Mine in Bolivia. Theseare all destined to become new mines or expansions of existing mines and theresult of all this should mean a steady growth in business for our distributioncompanies in the next few years. To conclude, therefore, I believe you will agree that 2005 was an excellent yearfor Antofagasta and if copper and molybdenum prices continue at more or less theaverage level of the first half, 2006 should also be a good year. We continuewith a very positive view of the industry and of ourselves, be it furtherdevelopment of existing assets, exploration or, more widely, the potential fornew investments and acquisitions that we feel are sensibly priced. For this wehave a strong cash flow and a solid cash position. coupled with a veryexperienced and capable team. ---------------------------- ------------------------Enquiries Issued by Antofagasta plc Bankside ConsultantsTel: +44 20 7808 0988 Tel: +44 20 7367 8873www.antofagasta.co.uk Keith IronsDesmond O'Conor Email: keith@bankside.comEmail: doconor@antofagasta.co.ukHussein BarmaEmail: hbarma@antofagasta.co.uk This information is provided by RNS The company news service from the London Stock Exchange