Antofagasta Regulatory News (ANTO)

RNS Number : 2648I

Antofagasta PLC

09 March 2010

 

 

Antofagasta plc

Preliminary Results Announcement for the year ended 31 December 2009

 

9 March 2010

HIGHLIGHTS

FULL YEAR TO 31 DECEMBER		2009	2008	% Change
Group turnover	US$'m	2,962.6	3,372.6	(12.2%)
Cash flows from operations	US$'m	1,167.8	2,454.3	(52.4%)
Net earnings1	US$'m	667.7	1,706.5	(60.9%)
Net earnings1 excluding exceptional items2	US$'m	667.7	842.9	(20.8%)
Earnings per share	cents	67.7	173.1	(60.9%)
Earnings per share excluding exceptional items2	cents	67.7	85.5	(20.8%)
Net cash at year end	US$'m	1,595.7	2,919.1	(45.3%)
Total dividend per share for the year3 (Ordinary: 2009 - 9.4 cents; 2008 - 9.0 cents; up 4.4%) (Special: 2009 - 14.0 cents; 2008 - 51.0 cents)	cents	23.4	60.0	(61.0%)
Average LME copper price (per pound)	cents	234.2	315.3	(25.7%)
Group copper production	'000 tonnes	442.5	477.7	(7.4%)
Group weighted average cash costs4 (net of by-product credits)	cents	96.3	87.3	10.3%
Group weighted average cash costs4 (excluding by-product credits)	cents	120.3	129.3	(7.0%)
Market molybdenum price (per pound)	US$	11.1	28.9	(61.6%)
Group molybdenum production	'000 tonnes	7.8	7.8	-

See footnotes below.

·; Strong operating performance. Copper production was 442,500 tonnes, ahead of the original forecast for the year of 433,000 tonnes. The expected decrease compared with the 2008 production of 477,700 tonnes was mainly because of lower plant throughput at Los Pelambres due to a higher proportion of harder primary ore under the mine plan.

·; Reduced operating costs (excluding by-product credits). Weighted average cash costs excluding by-product credits reduced from 129.3 cents per pound in 2008 to 120.3 cents. The decrease partly reflected the cost reduction programme implemented from the start of 2009 as well as a general easing of market related input prices such as energy, sulphuric acid and exchange rates, although some cost pressures began to return in the second half of the year.

·; Solid financial performance with net earnings1 of US$667.7 million compared with US$842.9 million in 2008 (excluding exceptional items in 2008). The decrease mainly reflects the expected reduction in copper volumes and lower molybdenum market prices in 2009. As the copper price appreciated through the year, the Group benefited from significant positive pricing adjustments on concentrate sales which offset the effect of lower market prices for copper as compared with 2008.

·; Total dividends for the year including special dividends were 23.4 cents per share. This represents a payout ratio of 35% (2008 - 35%) and compares with 60.0 cents in 2008 (when profits included the exceptional gain on the Marubeni transaction). The total ordinary dividend for 2009 was increased by 4.4% to 9.4 cents. The final dividend proposed for 2009 is 20.0 cents, comprising an ordinary dividend of 6.0 cents and a special dividend of 14.0 cents.

·; Successful financings in challenging market conditions. The Group raised US$1.8 billion in two major financings. Esperanza signed a 12-year US$1.05 billion project financing facility in May 2009, and in December 2009 and January 2010 Los Pelambres entered into new corporate loan facilities for a total of US$750 million for periods of up to seven years.

·; Strong recovery in commodity prices through 2009. The LME copper price recovered from under 130 cents at the end of 2008 to 333 cents at the end of 2009. While prices could remain volatile, the medium term outlook remains positive and consensus views are for the market to move into deficit in 2011.

·; Continued strong financial position. The Group's net cash position of US$1.6 billion at the end of 2009 means it continues to be well placed to progress with its existing development and longer term growth plans and to take advantage of opportunities which may arise.

·; Recent earthquake expected to have limited impact on Group activities.  Despite its severity and the very serious impact on parts of the country, the recent major earthquake in Chile on 27 February 2010 is not expected to have a material effect on the Group's existing operations. However, the commissioning of the Los Pelambres plant expansion is now expected to be completed during the second quarter of this year and the commissioning of Esperanza is now expected to start later in the fourth quarter due to the impact on some facilities and logistics as set out below. Nevertheless, the Group's forecast production for 2010 remains unchanged.

·; Capital projects to deliver additional low cost growth. With the additional production from the plant expansion at Los Pelambres, Group copper production is expected to be approximately 543,000 tonnes in 2010 from existing operations (representing an increase of 23% from the 2009 level). This is expected to increase to over 700,000 tonnes in 2011 when Esperanza is in production (representing an increase of over 60% from the 2009 level).

·; Pipeline of opportunities for future potential growth through exploration, agreements and evaluation studies. In Chile, the Group's primary focus remains the Sierra Gorda district, where extensive exploration or categorisation work has been performed at the Caracoles, Mirador and Telégrafo deposits. During 2009 the Group entered into a number of earn-in agreements to develop further its portfolio of early-stage international exploration prospects. In January 2010 it also agreed to acquire an interest in the Nokomis deposit in the United States. The feasibility study at the Reko Diq project in the Baluchistan province of Pakistan is in its final stages. This project remains subject to agreements with the relevant authorities for an eventual development. Feasibility work is underway at the Antucoya deposit in Chile.

Marcelo Awad, Chief Executive Officer of Antofagasta Minerals S.A., commented:

"2009 was a successful year for the Group, in what were initially extremely challenging circumstances. We responded to the global economic crisis by reducing our costs and modifying our production plans as necessary. Our strong financial position enabled us to continue paying special dividends while furthering our growth strategy. We incurred a significant level of capital expenditure in 2009 as planned and increased exploration spend, and we should benefit from additional production in 2010 and also 2011. Market conditions have improved through the second half of last year, although this has also brought a return of some cost pressures. We remain well-placed to progress with our existing development plans, longer-term prospects and continued search for attractive opportunities.

"The recent earthquake near Concepcion is not expected to have any material effect on our operations. Los Pelambres suffered a brief stoppage to production as a result of interruption to power supply, and operations were restarted late the following day with normal operating capacity being reached 72 hours later. Repairs are required to facilities which provide the power requirements for the additional production at the plant expansion, and accordingly we now expect to reach the 175,000 tonnes per day level in the second quarter of this year. Los Pelambres currently expects to be able to make up production in the second half of the year and accordingly our forecast Group copper production of 543,000 tonnes remains unchanged. Fortunately, none of our employees or contractors have suffered injury at our sites as a result of the earthquake. However, some employees and many contractors at both the Los Pelambres and Esperanza projects have families in the affected areas of the south of Chile and during the past week we have assisted them in temporarily returning home. Supply of some key steel structures for Esperanza fabricated in the damaged zone may also be affected. These factors may delay some of the construction activities at Esperanza but we still expect to start commissioning the mine by the end of this year. The earthquake has clearly caused great loss to some of our stakeholders in the country and we are working with them to provide support where possible through this time."

 

1 Net earnings refer to profit for the financial year attributable to equity holders of the Company.

2 Exceptional items included in the consolidated income statement in respect of 2008 comprised: (i) an impairment charge of US$188.3 million before tax relating to property, plant and equipment at El Tesoro and Michilla; and (ii) a profit of US$1,024.9 million before tax relating to the sale of a 30% interest in the Esperanza project and the El Tesoro mine to Marubeni Corporation. Further details of these exceptional items are set out in Note 3 to the preliminary results announcement.

3 Dividends are paid in either sterling or US dollars. The conversion rate for dividends to be paid in sterling will be set on 12 May 2010.

4 Cash cost is a method used by the mining industry to express the cost of production in cents per pound of copper, and is further explained in Note 31(b)(iii) to the preliminary results announcement.

 

 

Enquiries
London   Investor relations - Antofagasta plc   Tel: +44 20 7808 0988 www.antofagasta.co.uk   Desmond O'Conor - doconor@antofagasta.co.uk Hussein Barma - hbarma@antofagasta.co.uk Philip Holden - pholden@antofagasta.co.uk   Media enquiries - Bankside Consultants Tel: +44 20 7367 8874   Oliver Winters - oliver.winters@bankside.com	Santiago   Antofagasta Minerals S.A.   Tel: +562 798 7000     Alejandro Rivera - arivera@aminerals.cl Eduardo Tagle - etagle@aminerals.cl Luis Eduardo Bravo - lbravo@aminerals.cl

DIRECTORS' COMMENTS FOR THE YEAR TO 31 DECEMBER 2009

OverviewThe Group achieved a strong operational performance during 2009. It has progressed with its growth strategy without interruption as a result of its strong asset base and sound financial position despite the economic and financial pressures during the year. Net earnings were US$667.7 million compared with US$842.9 million in 2008 (excluding exceptional items in 2008), with the reduction mainly due to the expected decrease in copper volumes and lower molybdenum market prices. Cash flows from operations were US$1,167.8 million, compared with US$2,454.3 million in 2008, mainly reflecting significant working capital movements including mark-to-market adjustments on provisionally priced concentrate sales. At the end of 2009 the Group had a net cash position of US$1,595.7 million.

Group copper production was 442,500 tonnes, ahead of the original forecast for the year of 433,000 tonnes. The expected decrease compared with the 2008 production of 477,700 tonnes was principally due to lower plant throughput at Los Pelambres, mainly reflecting the higher level of harder primary ore. Molybdenum production at Los Pelambres was 7,800 tonnes, in line with 2008. At the transport division, rail volumes increased by 12.2% to 6.3 million tons, due to increased volumes from the San Cristóbal mine in Bolivia, which achieved full tonnage volumes in the second half of 2008, as well as increases from other mining customers. Road tonnages increased 11.2% to 1.5 million tons. Volumes sold at the water division increased by 2.4% to 43.7 million cubic metres reflecting increases in both domestic and particularly industrial sales.

After three years of very strong prices, the copper price suffered a sharp fall in the second half of 2008 as a result of the global financial crisis and ensuing economic downturn. By the end of 2008 the copper price had fallen to less than 130 cents per pound, its lowest level for more than four years, prompting production cuts and project delays across the industry. However, the relative speed and extent of the recovery in the copper price during 2009 was stronger than many had envisaged at the start of the year. This was driven mainly by strong demand from China as a result of underlying growth, restocking and support from the government-led fiscal stimulus package, but also an increased level of financial investment in commodities particularly in the second half of the year. The copper price rose relatively steadily throughout most of 2009, and by 31 December 2009 had reached 333.2 cents per pound despite rising visible inventory levels particularly in the final quarter. Over the course of 2009 the LME copper price averaged 234.2 cents per pound, compared with an average of 315.3 cents per pound in 2008. However, the Group's average realised copper price actually increased by 1.5% to 270.6 cents per pound (2008 - 266.7 cents), despite the decrease in the average LME price. This was mainly due to the positive impact of adjustments to provisionally priced sales which offset the lower market prices and the impact of realised hedging losses. The general increase in the copper price during 2009 resulted in positive provisional pricing adjustments; conversely, the sharp fall in the copper price in the second half of 2008 had resulted in negative adjustments in that year.

Realised molybdenum prices in 2009 were US$11.3 per pound, which was broadly in line with the average market price of US$11.1 per pound but significantly lower than the average 2008 realised price of US$23.9 per pound and average 2008 market price of US$28.9 per pound. Poor demand in Europe and the United States for most of the year were mitigated, like copper, by a strong supply response through production cuts and project deferrals in late 2008 and a high level of imports into China, which had previously been a net exporter of this metal.

Weighted average cash costs per pound of copper produced were 96.3 cents per pound in 2009, compared with 87.3 cents per pound in 2008. This increase reflected lower by-product credits as a result of lower molybdenum market prices. Excluding by-products, weighted average cash costs decreased to 120.3 cents per pound in 2009 compared with 129.3 cents in 2008. The decrease partly reflected the thorough cost reduction programme implemented from the start of 2009 as well as a general easing of market costs, although some cost pressures began to return in the second half of the year.

The Group's already strong financial position was further improved through the raising of US$1.8 billion in two major sets of financings. In May 2009 Esperanza signed a 12-year US$1.05 billion project financing facility with a consortium of senior lenders including governmental agencies and commercial banks. Between December 2009 and January 2010 Los Pelambres entered into new corporate loan facilities for a total of US$750 million for periods of between five to seven years, with a group of commercial banks and export credit agencies. At 31 December 2009 the Group's cash balance was US$3,222.3 million (2008 - US$3,358.0 million), and its borrowings were US$1,626.6 million (2008 - US$438.9 million), resulting in a net cash position of US$1,595.7 million (2008 - US$2,919.1 million).

As set out last year, the strategy for the Group's mining business is based on three key pillars. Firstly, securing and strengthening the core business of the Group, namely its three operating mines and the Esperanza project; secondly, continuing to grow this core business by further developing the areas around its existing asset base - the Sierra Gorda district around El Tesoro and Esperanza, the area around Los Pelambres, and areas close to Michilla, including the Antucoya deposit; and finally, continuing to develop and search for additional opportunities including early stage growth in copper both in Chile and abroad. The Group recognises that achieving its strategic plan also depends on effective management of social and environmental considerations and during 2009 the Board approved a social and environmental strategy for the mining division which is integral to the Group's long-term business plan. The Board considers that the Group's strong financial position, the quality of its existing assets and the strength of its experienced management teams means it is well placed to progress with its strategic plan.

In addition to the sound performance of its existing operations, the Group made continued progress with its committed development plans during the year. The plant expansion at Los Pelambres was substantially complete at the end of 2009. The Esperanza project continues to progress and was overall 65% complete by the end of 2009.

The recent earthquake near Concepcion has not had any material effect on Group operations, and although Los Pelambres suffered a brief stoppage to production as a result of interruption to power supply, operations were successfully restarted the following day. Repairs are required to facilities which provide the power requirements for the additional production at the plant expansion, and accordingly Los Pelambres now expects to reach the 175,000 tonnes per day level in the second quarter of this year. However it currently expects to be able to make up production in the second half of the year with higher daily average throughput in that period. Some delay to commissioning activities at Los Pelambres and current construction activities at Esperanza will also result from the decision to assist employees and contractors with families in affected areas to temporarily return home. Supply of some key steel structures for Esperanza fabricated in the damaged zone may also be affected. Nevertheless, Esperanza expects to complete construction and start commissioning of the mine by the end of 2010.

Accordingly, in 2010 the Group expects production from its existing three operations to total 543,000 tonnes of copper and 9,500 tonnes of molybdenum as previously announced, at weighted average cash costs excluding by-product credits of approximately 125 cents per pound. In 2011, Group copper production is expected to be over 700,000 tonnes.

During the year the Group also progressed with its exploration programme in its key areas of focus around the existing asset base. The Group's primary focus remains the Sierra Gorda district, where extensive exploration work has been performed at the Caracoles, Mirador and Telégrafo deposits. With combined total mineral resources for Esperanza, El Tesoro and Mirador of 1.5 billion tonnes and a mineral inventory for other prospects in the range of 2.6 to 4.1 billion tonnes, the Sierra Gorda district provides a range of excellent opportunities for growth in the medium and longer term. The Group intends in the medium term to assess how best to utilise the large mineral resources base at Los Pelambres. Feasibility work has started at the Antucoya deposit, with the environmental permitting process currently underway.

The Group has also continued with its other early stage opportunities and prospects. At Reko Diq, the feasibility study and the environmental and social impact assessment study are in their final stages. Discussions with the relevant authorities are continuing, as agreements concerning a mining lease and mineral agreement have not yet been reached. During 2009 the Group has entered into a number of exploration agreements to develop further its portfolio of international exploration prospects, In January 2010 it also entered into an agreement to acquire an interest in the Nokomis deposit in the United States. The Group is also continuing with its exploration and development activities relating to geothermal and coal energy prospects in Chile.

The Board has recommended a final dividend for 2009 of 20.0 cents per ordinary share, which amounts to US$197.2 million and if approved at the Annual General Meeting, will be paid on 10 June 2010. This comprises an ordinary dividend of 6.0 cents and a special dividend of 14.0 cents. This gives total dividends for the year of 23.4 cents, amounting to US$230.7 million and representing a distribution of 35% of 2009 net earnings. This is the same payout ratio as in 2008, when the total dividends for that year of 60.0 cents reflected the exceptional profit on the Marubeni transaction. The Board believes this dividend payment combines the Group's desire to continue to return cash to shareholders with the ability to develop the Group's existing growth portfolio and to take advantage of opportunities that may arise.

 

Mining division

Operations and development projects

Los Pelambres (60 per cent owned)

Los Pelambres is a sulphide deposit located in Chile's Coquimbo Region, 240km northeast of Santiago. It produces copper concentrate (containing gold and silver) and molybdenum concentrate, through a milling and flotation process.

Revenue at Los Pelambres in 2009 was US$2,081.5 million, slightly below the US$2,172.0 million achieved in 2008. The reduction reflected a decrease in copper volumes and the lower molybdenum price, largely offset by an increase in the realised copper price.

Los Pelambres produced 311,600 tonnes of payable copper in 2009, a reduction compared to the 2008 full year production of 339,200 tonnes, although ahead of the original forecast for the year of 300,000 tonnes. The decrease in production compared to 2008 was mainly due to lower plant throughput due to the higher level of harder primary ore and a marginal decrease in ore grades. Ore throughput averaged 129,200 tonnes per day (2008 - 136,800 tonnes per day), while the ore grade in the area of the open pit mined during the year was 0.74% copper (2008 - 0.76%). Molybdenum production was unchanged from 2008 at 7,800 tonnes, with marginally higher ore grades and metallurgical recoveries offsetting the lower plant throughput.

Realised copper prices at Los Pelambres were 286.8 cents per pound, 16% higher than the 2008 realised price of 246.5 cents per pound. This was despite the average LME price for the year of 234.2 cents per pound actually being 26% lower than in the previous year (2008 - 315.3 cents per pound). The general increase in the copper price during 2009 resulted in positive pricing adjustments of US$380.3 million, reflecting both the settlement of open sales in the year and the impact of mark-to-market adjustments at the beginning and end of the year. Conversely, the sharp fall in the copper price in the second half of 2008 resulted in negative adjustments of US$541.9 million in 2008. Realised molybdenum prices were US$11.3 per pound (2008 - US$23.9 per pound) which was broadly in line with the average market price of US$11.1 per pound (2008 - US$28.9 per pound). Further details of pricing adjustments for both copper and molybdenum are given in the Financial Commentary on page 16 and in Note 5(a) to the preliminary results announcement.

Cash costs for 2009, which are stated net of by-product credits and include tolling charges, were 80.4 cents per pound compared with 57.3 cents per pound for 2008, an increase of 23.1 cents. This was mainly due to a 25.1 cents per pound decrease in by-products credits as a result of lower molybdenum market prices. There was a decrease of 4.2 cents in on-site and shipping costs compared with 2008, mainly due to lower shipping costs and energy prices offset by the effect of the lower production. Tolling charges were 2.2 cents per pound higher than in 2008. The individual components of Los Pelambres' cash costs are set in Note 31(b) to the preliminary results announcement.

Los Pelambres achieved an operating profit of US$1,280.7 million in 2009, 5.0% below 2008, reflecting the lower copper production and reduced molybdenum prices as well as increased depreciation charges, partly offset by higher realised copper prices and lower on-site and shipping costs.

Between December 2009 and January 2010 Los Pelambres entered into new corporate loan facilities for US$750 million, partly to fund costs associated with the plant expansion and also to refinance existing short-term facilities. This comprised a 5-year commercial bank facility for US$505 million in December 2009 and a 7-year facility with Japan Bank for International Cooperation ("JBIC") in January 2010, which is expected to be drawn down during the first quarter of 2010. Total borrowings (net of deferred financing costs) at the end of 2009 were US$821.9 million (2008 - US$376.6 million).

The Mauro tailings dam, which started up in November 2008, became fully operational in the first quarter of 2009. As previously disclosed, in late 2008 Los Pelambres became aware of legal proceedings which had been initiated in first instance courts in Santiago and in Los Vilos by certain members of the Caimanes community located near the Mauro valley. These claims, several of which have now been rejected by the relevant courts, seek to prevent the continued operation of the Mauro tailings dam. Los Pelambres continues to take necessary steps to protect its position and remains confident of its rights to continue the operation of the dam.

Total capital expenditure during 2009 was US$475 million. This expenditure predominantly related to the expansion of the plant's throughput capacity to 175,000 tonnes per day, through additional infrastructure including a third SAG mill and sixth ball mill. The construction work on the expansion was substantially complete by the end of 2009. The expansion remains on budget at approximately US$1 billion. Cumulative expenditure on this project at the end of 2009 was approximately U$920 million, of which US$400 million was incurred in 2009. The capitalised expenditure in respect of the plant expansion will start to be depreciated during 2010, resulting in increased depreciation at Los Pelambres. The additional throughput is expected to increase production of payable copper by an annual average of 90,000 tonnes over the next 15 years.

As explained below Los Pelambres is also continuing to review options for the long-term development of the mine. The total mineral resources base for Los Pelambres is 6.2 billion tonnes, compared with the 1.5 billion tonnes of ore reserves reported. This will present opportunities for longer-term planning either to extend the existing mine life or by enabling Los Pelambres to consider possibilities for long-term future growth.

During the recent earthquake near Concepcion on 27 February 2010, Los Pelambres suffered a brief stoppage to production as a result of interruption to power supply, but operations were successfully restarted the following day. Repairs are required to facilities which provide the power requirements for the additional production at the plant expansion. Some workers and contractors involved in the commissioning process who have families in affected areas have also been given assistance in temporarily returning home. Accordingly the 175,000 tonnes per day level is expected to be reached in the second quarter of this year rather than at the end of the first quarter as was originally anticipated. Nevertheless, the plant is expected to be able to run in excess of this level in the second half of the year, and hence the ore processing level is expected to average 175,000 tonnes per day for the year as a whole, which represents the annual limit under existing environmental permits. The ore grade for the year is expected to average 0.72%. Accordingly, forecast production of payable copper for 2010 is expected to remain at approximately 407,000 tonnes, a 30% increase on 2009.

Molybdenum production is also expected to be significantly higher than 2009 at 9,500 tonnes, due to the higher plant throughput, although the increased throughput is expected to be partly offset by slightly lower molybdenum grades of approximately 0.019%.

On-site and shipping costs are expected to remain broadly stable in 2010 at approximately 95 cents per pound compared with 95.3 cents in 2009, with economies of scale from the plant expansion expected to offset general cost inflation. Tolling charges are also expected to remain largely flat at approximately 19 cents against 19.2 cents in 2009, with the lower benchmark terms for 2010 offset by the averaging effect of the brick system, although tolling charges in a small portion of contracts will be impacted by changes in the copper price. Cash costs before by-product credits are, therefore, expected to remain largely unchanged at approximately 114 cents per pound compared with the 114.5 cents per pound in 2009. Based on a molybdenum price of approximately US$13 per pound, by-product credits are expected to be around 33 cents per pound, compared with 34.1 cents in 2009, which would give net cash costs of approximately 81 cents in 2010, compared with 80.4 cents in 2009.

El Tesoro (70 per cent owned; 100 per cent until 25 August 2008)

El Tesoro is a deposit located in Chile's Antofagasta Region, 1,350 km north of Santiago. It now comprises two open-pit mines feeding a heap-leach operation and a run-of-mine ("ROM") leaching operation, which produces copper cathodes using a solvent-extraction electro-winning process.

Revenue at El Tesoro was US$487.6 million in 2009, compared with US$632.4 million in 2008, as a result of a lower realised copper price.

Copper cathode production for 2009 was 90,200 tonnes compared with 90,800 tonnes in 2008. During the year production commenced from both the Tesoro North-East deposit and the ROM processing of the Esperanza oxide cap. These projects mitigate the decline in grades that would otherwise occur from mining exclusively from the original open pit and extend the life of the operation to 2019.

The heap-leach operation processed 9.8 million tonnes of ore during 2009. Of this, 8.3 million tonnes was feed from the Tesoro and Tesoro North-East open pits and 1.5 million tonnes was feed of sufficiently high grade oxide ore from the pre-stripping of the Esperanza open pit. The ore grade of this combined heap-leach feed averaged 1.25% copper, an increase on the 1.16% grade in 2008. This higher average grade was a result of the blend of ore from the three sources, with better grades at Tesoro and Tesoro North-East offsetting the comparatively lower grades of the feed from the Esperanza open pit. Plant throughput of ore averaged 26,200 tonnes per day, compared with 28,500 tonnes per day in 2008. Metallurgical recoveries at the SX-EW plant were also slightly below 2008.

Construction work for ROM processing of the Esperanza oxide cap was substantially completed during 2009, with the only work remaining being the replacement of pump impellers required to reach design pumping capacity, which is expected to be achieved in the first quarter of 2010. Production from the ROM commenced in the second half of 2009, and by December had reached over 1,000 tonnes of copper in cathode per month.

Realised copper prices at El Tesoro were 246.3 cents per pound compared with 315.6 cents per pound in 2008. This decrease was mainly due to the reduction in the average LME copper price, which in 2009 averaged 234.2 cents per pound, compared with 315.3 cents in 2008. The increasing price environment during 2009 also resulted in positive provisional pricing adjustments of US$31.1 million in 2009, although these were partly offset by realised losses on hedging instruments which matured in the year of US$20.0 million. Further details of the effects of commodity hedging instruments in place are given in the Financial Commentary under "Treasury Management and Hedging" and in Note 5(b) to the preliminary results announcement.

Cash costs for 2009 were 123.4 cents per pound compared with 144.7 cents per pound in 2008. This was mainly due to lower sulphuric acid and electricity prices, as well as the impact of the cost reduction programme implemented from the start of 2009. Given the sharp down-turn in the copper market in the latter part of 2008 El Tesoro implemented measures to minimise costs during 2009. This included the deferral of non-essential material movement waste removal not required for current production to minimise the volume of material moved at the open pit. There will be a resultant increase in material movement, and related costs, during 2010 as this deferred activity is implemented.

Operating profit at El Tesoro was US$177.9 million, compared with US$124.9 million in 2008. The prior year results included a one-off impairment charge of US$160 million, and the 2008 results excluding this charge were a profit of US$284.9 million. The reduction in the underlying profit, excluding the effects of the prior year impairment, was mainly the result of the lower realised copper price as well as increased depreciation (reflecting increased depreciation of the costs of the Tesoro North-East and ROM projects, including related 2008 acquisition costs), partly offset by the reduced cash costs.

Capital expenditure in the year was US$65.2 million. This included US$43.1 million related to the ROM operation (resulting in total cumulative spend of US$65.4 million) and US$11.5 million related to the final pre-stripping at the Tesoro North-East deposit (resulting in total cumulative spend for that project of US$80.8 million). The full year effect of depreciation in respect of the capitalised costs relating to Tesoro North-East and the ROM will result in increased depreciation at El Tesoro from 2010. Capital expenditure in 2010 is estimated at approximately US$45 million.

For 2010, cathode production is expected to be approximately 96,000 tonnes due to the full year impact of production from the Tesoro North-East deposit and the ROM processing. Production from the ROM is expected to reach nearly 2,000 tonnes per month by the last quarter of 2010, and to contribute almost 20% of El Tesoro's total production of cathodes in 2010. The Tesoro North-East deposit is forecast to be responsible for approximately 60% of El Tesoro's total production in 2010, with the balance from the original Tesoro pit. Average ore grades from the original open pit and the Tesoro North-East deposit (but excluding the ROM operation) are expected to remain relatively stable at approximately 1.24% copper.

Cash costs at El Tesoro for 2010 are expected to average approximately 156 cents per pound, largely as a result of higher levels of material movement, partly reflecting the work deferred from 2009 as part of the cost reduction programme, partially offset by a significantly lower contracted sulphuric acid price.

Under its updated mine plan which was approved in 2009 El Tesoro should be able to maintain annual production at approximately the 90,000 tonnes level until at least 2013, when lower ore grades under the existing mine plan cause output to decrease. As explained in the Sierra Gorda section below, the Group has an on-going exploration programme in the Sierra Gorda district to identify further oxide deposits that could in future years provide additional ore to the El Tesoro plant. In particular, feasibility work is being performed in respect of the Mirador oxide deposit, as a potential source of higher grade ore. Such deposits could be used to both offset reductions in production levels due to declining grades, as well as to potentially extend the life of the operation beyond the current mine plan which runs until 2019.

Michilla (74.2 per cent owned)

Michilla is a sulphide and oxide deposit located in Chile's Antofagasta Region, 1,500 km north of Santiago. It produces copper cathodes using a heap-leach and solvent-extraction electro-winning process.

Revenue at Michilla for 2009 was US$170.5 million, against US$332.7 million in 2008, as a result of a lower realised copper price and reduced production volumes.

Total annual production in 2009 was 40,600 tonnes of copper cathodes, ahead of the original forecast for the year of 38,000 tonnes, although lower than the 2008 production of 47,700 tonnes. The reduction compared with the prior year was mainly due to the decision at the start of 2009 to suspend operations at the higher cost Lince open pit mine and certain third party workings, given the weak copper price environment at that point. Accordingly, ore throughput averaged 15,100 tonnes per day compared to 15,500 tonnes in 2008. Ore grades were 0.96% compared with 1.06% in 2008, partly due to the decision to process lower-grade ore stockpiles which became economic as the copper price strengthened during the year.

Realised copper prices in the period were 195.7 cents per pound, a significant reduction compared with the 317.7 cents per pound realised in 2008. This was predominantly due to the lower average LME copper price over the course of the year, which in 2009 averaged 234.2 cents per pound, compared with 315.3 cents in 2008. In addition, realised losses of US$45.8 million in respect of copper derivatives which had been put in place in late 2008 and early 2009, and which matured during the course of the year, also decreased the realised price. These effects were partly offset by positive provisional pricing adjustments of US$11.8 million. Further details of the effects of commodity hedging instruments in place are given in the Financial Commentary under "Treasury Management and Hedging" and in Note 5(b) to the preliminary results announcement.

Cash costs averaged 157.6 cents per pound during 2009, compared with 191.1 cents in 2008. This was mainly due to cost savings from the suspension of the Lince open pit, lower electricity prices and the weakening of the Chilean peso. Costs increased during the course of the year, partly as a result of the improving copper price. Michilla purchases a portion of the ore which it processes through its plant from third parties in its vicinity and the price paid for such materials is based partly on the market value of the contained copper. High copper prices in the year accordingly resulted in higher materials cost. The decision to process lower-grade ore stockpiles given the increasing copper price also resulted in higher operating costs.

Operating profit at Michilla was US$21.7 million, compared with US$71.3 million in 2008. The prior year results included a one-off impairment charge of US$28.3 million, and the 2008 results excluding this charge were a profit of US$99.6 million. The lower profit reflected the reduction in the realised copper price and the lower production volumes, partly offset by the lower cash costs.

Cathode production in 2010 is expected to be approximately 40,000 tonnes. 80% of this expected 2010 production was hedged during the first half of 2009 through futures and min-max instruments. Further details are given in Note 5(b) to the preliminary results announcement. During the year Michilla approved an extension of its mine plan through to 2012, which includes the remnant reserves from the final stage of the Lince pit. Michilla is currently carrying out studies to examine the potential to extend the life of the operation to 2018.

In 2010 cash costs are expected to be approximately 162 cents per pound, a slight increase compared with the 157.6 cents per pound in 2009. Increased costs due to the reopening of the Lince open pit and other operational and market factors are expected to be largely offset by a significant reduction in the contracted price for sulphuric acid.

Esperanza (70 per cent owned; 100 per cent until 25 August 2008)

Esperanza is a copper-gold sulphide deposit located in Chile's Antofagasta Region approximately five kilometres south of the Group's El Tesoro mine. It will produce copper concentrate containing gold and silver by-product credits through a conventional milling and flotation process, with ore throughput expected to average approximately 98,000 tonnes per day. The Esperanza deposit includes an oxide resource that is part of the overburden removed through pre-stripping and which, as explained in the El Tesoro section above, has started being processed by the El Tesoro plant during 2009 through ROM leaching. In August 2009 Esperanza was awarded the Avonni prize in Chile for the most innovative mining operation, reflecting in particular Esperanza's efficiency in water usage, through its use of sea water and its thickened tailings system.

The mine life given current reserves is 16 years. In its first ten years of operation Esperanza is projected to produce on average per year approximately 714,000 tonnes of concentrate containing 191,000 tonnes of payable copper; although with lower grades in its initial year production in 2011 will be below this average level. In addition, the concentrate is expected to contain an annual average of 215,000 ounces of payable gold, as well as silver which is treated as a by-product credit. Cash costs before by-product credits are currently estimated to be approximately 136 cents per pound over the same period. The gold by-product is expected to reduce cash costs on average during this period by approximately five cents per pound per US$100 in the gold price. There is potential for molybdenum production from 2015 at a rate of 2,000 tonnes per year over the following ten years. The adjacent Telégrafo Sur and Telégrafo Norte deposits could utilise the Esperanza plant and facilities well beyond Esperanza's mine life.

All key contracts relating to the construction are in progress. As at 31 December 2009 overall construction was approximately 65% complete, with construction of the plant more than 40% complete. Pre-stripping has progressed as planned, with a total of 108 million tonnes of material moved by the end of 2009.

Capital expenditure during 2009 was US$716 million, with cumulative expenditure up to the end of 2009 US$1,218 million. Total development costs, including working capital and financing but before exchange impacts, remain estimated at US$2.3 billion.

Esperanza reached a two-year collective agreement with its labour union in May 2009, with the next labour negotiation not expected to be due until the mine is fully operational.

In May 2009, Esperanza signed definitive agreements for a 12-year US$1.05 billion project financing facility with a consortium of senior lenders including governmental agencies and commercial banks. Up to 31 December 2009 US$716.1 million had been drawn down under this facility. The Group is responsible for its 70% share of the development costs not covered by this facility and its partner Marubeni is responsible for the remaining 30%.

While the recent earthquake has not had any direct impact on Esperanza's facilities or its employees which were on site, some employees and many contractors have families in the affected areas of the south of Chile and the company has assisted them in temporarily returning home. Supply of some key steel structures for Esperanza fabricated in the damaged zone may also be affected. This may delay some of the construction activities from the original schedule but Esperanza expects to start commissioning the mine by the end of this year. Group forecasts for 2010 do not take into account any production from Esperanza.

 

Opportunities around existing asset bases

Sierra Gorda district

In Chile, the Group's primary focus remains the Sierra Gorda district, where El Tesoro and Esperanza are located. The Group owns or controls a number of other properties in this area and during 2009 a total of US$20.4 million of exploration expenditure was incurred in respect of this district, predominantly in respect of the Caracoles deposit.

Caracoles is situated approximately 10 kilometres south-east of Esperanza, and was identified by the Group's exploration team in 2007. In February 2009, the Group consolidated its interest in Caracoles to 100% by acquiring the remaining 18.5% interest from Compañía Minera Milpo of Peru S.A.A. for a cash consideration of US$25 million. During 2009 total exploration spend amounted to US$14.3 million during the year. The total mineral inventory at the deposit is estimated at between 0.7 - 1.1 billion tonnes, with a corresponding copper grade of between 0.60% and 0.49%. It is anticipated that a pre-feasibility study in respect of the deposit could commence later in 2010, following the incorporation of the results of the 2009 drilling programme into a block model and potentially into a mineral resources estimate by the first half of this year. Depending on the results of this work, it will be possible to evaluate whether the deposit could provide additional feed for the Esperanza plant, or support a stand-alone project.

 

The Mirador oxide deposit, located approximately five kilometres east of Tesoro North-East and 100% owned by the Group, was identified by the Group's exploration team in 2008. Following completion of in-fill drilling work in April 2009, the decision was taken to proceed with a feasibility study, evaluating the potential for processing the oxides from this deposit at the El Tesoro plant. It is expected that this feasibility study could be completed during the first half of 2010. The deposit has total mineral resources of 32 million tonnes, with an average copper grade of 1.04% at a cut-off grade of 0.20%. There is a relatively limited amount of overburden above the deposit, and so only a comparatively low level of pre-stripping is likely to be required to exploit the deposit. Mirador could provide additional higher grade feed for the El Tesoro plant, to supplement the existing ore reserves at the original El Tesoro pit and the Tesoro North-East satellite deposit, which have an average grade of 0.77% copper. Work is also continuing to explore for sulphide potential at Mirador.

The mineral inventory at Telégrafo Sur is estimated at between 1,100 - 1,600 million tonnes, with a corresponding copper grade of between 0.45% and 0.38%, and at Telégrafo Norte is estimated at between 330 - 660 million tonnes, with a corresponding copper grade of between 0.44% and 0.34%, along with gold and molybdenum credits. The Telégrafo Sur and Telégrafo Norte deposits are adjacent to Esperanza and, as explained above, could extend the life of Esperanza beyond its current mine plan. These deposits are owned through Minera Esperanza and hence the Group's interest is 70%. A drilling programme totalling 24,100 metres was carried out during 2009, which will allow the completion of the geological model and the calculation of a mineral resource estimate which is expected in the first half of 2010. Additional drilling work will continue throughout 2010 with a view to further recategorisation of any mineral resources which could potentially lead to the initiation of pre-feasibility work during the course of 2011.

Exploration work is also continuing at other targets and potential deposits in the district. With combined total mineral resources for Esperanza, El Tesoro and Mirador of over 1.5 billion tonnes and a mineral inventory for other prospects in the range of 2.6 to 4.1 billion tonnes, the Sierra Gorda district provides a range of good opportunities for growth in the medium and longer term.

Los Pelambres district (60% owned)

Los Pelambres has total mineral resources of 6.2 billion tonnes with an average copper grade of 0.52%. This includes mineral resources at the existing open pit, and neighbouring deposits including the Frontera deposit, which were identified following an exploration programme between 2006 and 2008. The increase in mineral resources from the amounts reported in 2008 (4.9 billion tonnes with an average copper grade of 0.56%) is principally due to a reduction in the cut-off grade from 0.40% to 0.35%, as well as the incorporation of low grade stockpiles (42 million tonnes) and updates to the block model. These mineral resources are significantly greater than the 1.5 billion tonnes of ore reserves currently incorporated in Los Pelambres' mine plan.

While the scale of the mineral resource has no immediate impact on the existing mine plan for Los Pelambres, it presents opportunities for longer-term planning either by providing additional material in future years to extend the existing mine life, or by enabling Los Pelambres in the longer-term to consider possibilities for future growth.

Antucoya (100 per cent owned)

Antucoya is an oxide deposit located approximately 45 kilometres east of Michilla. The deposit has a mineral resource of 1.5 billion tonnes, with an average copper grade of 0.27% at a cut-off grade of 0.10%.

Studies initially intended to bring the Antucoya project to feasibility stage were started in 2008, which to date have examined a number of options which included a ROM operation to produce enriched copper solution which could be processed at Michilla's SX-EW plant as well as a stand-alone SX-EW project to produce copper cathodes. In August 2009 a budget of US$19.8 million was approved to progress with a full feasibility study for a stand-alone project, based on a combination of heap leaching on dynamic pads and ROM leaching on permanent pads.

The environmental permitting process for the feasibility study is currently in progress. It is expected that during 2010 a test pit will be constructed at the deposit, to allow the extraction of ore for metallurgical testwork. The feasibility study is expected to be completed by mid-2011.

Michilla district

As mentioned above, Michilla is currently carrying out studies to examine the potential to utilise its existing mineral resources to further extend the life of the operation from 2012 through to 2018. The Group has also conducted exploration at Michilla in previous years which has identified some prospects which could eventually supplement the existing mineral resources at Michilla. The mineral inventory at these deposits is currently estimated at between 20 to 33 million tonnes, with a corresponding average copper grade of between 1.25% and 1.02%.

 

Other exploration and evaluation activities

Exploration in Chile

During 2009 the Group's internal exploration team spent US$2.4 million on exploration activities in Chile, in areas beyond the existing core locations of the Sierra Gorda, Los Pelambres and Michilla / Antucoya districts.

As well as this internal exploration work in Chile, the Group also has a 30% interest in Rio Figueroa, an exploration project located in Chile's Atacama Region. The remaining 70% is held by Minera Metallica Resources Chile Limitada, a subsidiary of New Gold Inc. The Group has the right to increase its interest up to 70% by incurring exploration expenditures and subsequently completing a feasibility study. Drilling work is expected to commence in 2010 at Rio Figueroa, following receipt of environmental approvals.

International exploration and evaluation activities

The Group is also undertaking exploration and evaluation work in a number of other countries. Normally when the Group wishes to engage in early-stage exploration work in areas outside of its traditional areas of deepest experience, namely Chile and in previous years Peru, it typically does so through partnerships with other companies already established in those locations or otherwise with significant international experience.

Reko Diq (37.5 per cent owned)

The Group holds a 50% interest in Tethyan Copper Company Limited ("Tethyan"), its joint venture with Barrick Gold Corporation ("Barrick") established in 2006. Tethyan's principal assets are a 75% interest in the exploration licence encompassing the Reko Diq prospects in the Chagai Hills region of South-West Pakistan (in which the Government of Balochistan holds the remaining 25%) including the Western Porphyries, and a 100% interest in certain other licences in the region.

The mineral resource at Reko Diq is estimated at 5.9 billion tonnes with an average copper grade of 0.41% and an average gold grade of 0.22 g/tonne at a cut-off grade of 0.20% copper equivalent (2008 - 4.1 billion tonnes with an average copper grade of 0.50% and an average gold grade of 0.298 g/tonne), and the Group's attributable share of this joint venture interest amounts to 2.2 billion tonnes (2008 - 1.5 billion tonnes). The increase compared with 2008 is primarily due to the inclusion of three neighbouring deposits - H13, Tanjeel (also referred to as H4) and H8 - into the resource estimate, along with the existing H14 and H15 deposits.

The Group's 50% share of expenditure relating to Tethyan during 2009 amounted to US$36.6 million. This includes US$32.5 million relating to exploration and pre-feasibility costs which have been expensed and US$4.1 million relating to the costs of the feasibility study which have been capitalised.

Work on the feasibility study and the related environmental and social impact assessment study is in its final stages. Discussions for agreements with the relevant authorities in Pakistan are continuing, as agreement has not yet been reached concerning a mineral agreement and the conversion of the exploration licence encompassing Reko Diq (which currently expires in February 2011) into a mining lease.

 

United States - Nokomis deposit / Duluth Metals Limited

Subsequent to the year end, on 14 January 2010 the Group signed a legally binding Heads of Agreement ("HoA") with Duluth Metals Limited ("Duluth Metals"), a company listed on the Toronto Stock Exchange ("TSX") to acquire an interest in Duluth Metals' Nokomis copper-nickel-platinum group metal ("PGM") deposit ("Nokomis").

Nokomis is a potentially world class base and precious metal deposit located in the highly prospective Duluth Complex in north-eastern Minnesota. Duluth Metals published a NI 43-101 compliant resource estimate for Nokomis in October 2009 which consisted of 550 million tonnes of indicated resources with average grades of 0.639% for copper, 0.200% for nickel and 0.660 grams per tonne for platinum, palladium and gold, plus an additional 274 million tonnes of inferred resources with average grades of 0.632% for copper, 0.207% for nickel and 0.685 grams per tonne for platinum, palladium and gold.

The Group will initially become a 40% partner in Nokomis by committing to fund a total of US$130 million of further exploration and feasibility study expenditure over a 3 year period. The Group will have the option to acquire an additional 25% interest of Nokomis (to own in aggregate 65%) at the then net present value of the project based on operating parameters outlined in the bankable feasibility study, which will become exercisable and payable upon receipt of the required permits to develop the project. The Group has also subscribed for approximately 6.55 million new ordinary shares in Duluth Metals by way of a private placement and a subsequent anti-dilution pre-emptive subscription at Cdn$2.00 per share in cash, to become an approximately 7% shareholder in Duluth Metals.

The Group and Duluth Metals expect to establish the project company and conclude a definitive Participation and Shareholder Agreement in the second quarter of 2010.

Other international exploration agreements

The Group has made significant progress during 2009 in expanding its portfolio of early-stage international exploration interests through a number of exploration agreements.

In November 2009 the Group entered into an agreement with International Base Metals Limited ("IBML") of Australia in respect of its Kopermyn mining property in northern Namibia. The Group can earn up to a 60% interest in the property over a two year period by funding up to US$1.8 million of exploration activities, with a minimum commitment of US$0.5 million. The Group entered into an agreement with Ormonde Mining plc ("Ormonde") in respect of its La Zarza deposit in southern Spain during October 2009. The Group has the right to earn a 51% interest in the deposit over a three year period by funding US$7 million of exploration and subsequent evaluation activities, with a minimum commitment of US$1 million in the first year. Antofagasta will have the right to increase further its interest in the La Zarza project to 75% by funding a feasibility study for the project.

In September 2009 the Group entered into an agreement with Sunridge Gold Corp ("Sunridge"). The Group can earn an initial 60% interest in Sunridge's Asmara project in Eritrea by funding US$10 million of exploration work over a five year period, and a further 15% interest (for an aggregate 75% interest in the project) by delivering a feasibility study on the project. In October 2009 the Group acquired approximately 18% of the issued share capital of Sunridge under a private placement for a consideration of US$5.0 million.

During March 2009 the Group entered into an agreement with Almaden Minerals Ltd ("Almaden") in respect of the Tuligtic copper-gold project in Mexico. Following the review of initial drilling results, the Group has decided not to proceed further with this project.

 

In 2008 the Group entered into an agreement with TEAL Exploration & Mining Incorporated ("TEAL") to acquire an initial interest in two of TEAL's exploration licences on the Zambian Copperbelt, and the Group is continuing to review the potential of these deposits.

 

Opportunities in geothermal and coal exploration and generation

The Group is also continuing with its exploration and development activities relating to geothermal and coal energy prospects.

Energía Andina S.A, the joint venture between the Group and the Chilean state-owned Empresa Nacional del Petróleo ("ENAP"), is continuing with its activities for the exploration and development of geothermal energy prospects in Chile. Following initial exploration work Energía Andina opted to apply for further concessions, and during 2009 was granted the Puchuldiza Sur 1 concession, increasing its total number of concessions to eight. The company is currently engaged in the application process for additional concessions, which could further enhance its exploration portfolio. During 2010 the company intends to continue its exploration activities, both to evaluate its existing concessions, with a view to commencing drilling work, and also to identify further potential concessions.

Work is continuing on the potential underground coal gasification project at the Mulpun coalfield, situated near Valdivia in southern Chile. The Group acquired an option over this deposit in 2008. During 2009 the Group completed its initial hydrology studies for the project, which included the drilling of six wells. In December 2009 the Group entered into an agreement with Carbon Energy Limited ("Carbon Energy") of Australia in respect of the project. Carbon Energy can earn a 30% stake in the deposit through contributing its underground coal gasification technology to the project. It will fund 30% of the development costs of a trial project. During 2010 the Group is planning to undertake engineering studies in relation to the trial project, and commence environmental permitting.

 

Railway and other transport services (100 per cent owned)

In Chile, the Antofagasta Railway Company's ("FCAB") main business continues to be the transport of copper cathodes from and sulphuric acid to mines in the Antofagasta Region, one of the main copper mining districts in the world. It has benefited in recent years from the new mines and expansions of existing mines. FCAB's trucking service, Train Ltda., is a key part of FCAB's bi-modal transport service. Train Ltda.'s main business continues to be the transport of sulphuric acid from transfer terminals operated by FCAB, as well as other supplies such as the transport of quicklime from Inacesa's cement plant to various mines. In Bolivia, FCAB has a 50% controlling interest in the Ferrocarril Andino, with the remainder held by Bolivian pension funds. The Ferrocarril Andino connects to the Chilean network at Ollague.

The rail businesses in Chile and Bolivia had a solid operational performance during 2009 with rail volumes increasing by 12.2% to 6.3 million tons. This was due to the full-year effect of increased volumes from the San Cristóbal mine in Bolivia, which achieved full tonnage volumes in the second half of 2008, as well as increases from other mining customers. Train Ltda., FCAB's trucking subsidiary, increased volumes by 11.2% during 2009 to 1.5 million tons.

Combined turnover at the transport division in 2009 was US$139.4 million, compared to US$151.0 million in the prior year. This decrease mainly reflected tariff adjustments, partly due to rates indexed to inflation and fuel costs. As a result, operating profit also decreased to US$41.3 million (2008 - US$50.4 million).

In July 2009 the FCAB exercised an option to acquire a 40% interest in Inversiones Hornitos S.A. ("Inversiones Hornitos") from GDF SUEZ, which continues to hold the remaining 60% interest. Inversiones Hornitos is the owner of the 150 MW Hornitos thermoelectric power plant which is being constructed in Mejillones, in Chile's Antofagasta Region. The Hornitos plant, which is expected to begin commercial operation in 2011, will provide energy to Minera Esperanza under a long-term supply agreement. The FCAB is responsible for its 40% share of the estimated total US$0.4 billion development costs of the Hornitos plant, and during 2009 has contributed a total of US$109.5 million.

The Antofagasta port, which is managed by the Group's 30% associate investment Antofagasta Terminal Internacional S.A. ("ATI") contributed US$1.5 million to Group results (2008 - US$2.3 million). ATI is a strategic investment for FCAB and complements its principal business as the main transporter of cargo within Chile's Antofagasta Region.

FCAB also owns Forestal S.A., which manages the Group's forestry assets. Forestal's two properties, Releco-Punir and Huilo-Huilo, comprise 26,295 hectares of native forest near the Panguipulli and Neltume lakes, in Chile's Region de Los Lagos. During 2009, Forestal continued with its on-going forestation, fertilisation and thinning programme to maintain these assets.

 

Aguas de Antofagasta S.A. (100 per cent owned)

Aguas de Antofagasta ("ADASA") operates a 30-year concession for the distribution of water in Chile's Antofagasta Region which it acquired from the state-owned Empresa de Servicios Sanitarios de Antofagasta S.A. ("ESSAN") in 2003. ADASA's operation consists of two businesses, a regulated water business supplying approximately 144,000 domestic customers and an unregulated business serving mines and other industrial users. It also provides sewage and treatment services in a number of cities in the Region.

Combined domestic and industrial water sales in 2009 amounted to 43.7 million cubic metres, a 2.3% increase on the 42.7 million cubic metres in 2008. Domestic sales remained relatively stable, increasing by 1.3% to 30.5 million cubic metres. Industrial sales increased 5.3% to 13.2 million cubic metres.

Turnover decreased by 1.1% to US$83.6 million, with a slight reduction in average tariffs and the weaker Chilean peso, offsetting the improvement in volumes. Reduced operating costs, however, saw operating profit increase by 7.1% to US$45.3 million in 2009, from US$42.3 million in the previous year.

In March 2009 ADASA acquired the desalination plant located in the city of Antofagasta from the current owner, Desalant S.A. ("Desalant"), for a purchase price of US$52.5 million. As part of this agreement, on-going arbitration proceedings between ADASA and Desalant were also terminated. As ADASA is presently the sole customer of the plant the acquisition will have no direct impact on water volumes or sales. Nevertheless, the acquisition has consolidated ADASA's position by placing it in full control of the plant, which provided it with 21.2% of its water for its distribution business in 2009. The desalination plant is held under the terms of the concession acquired from ESSAN for a 30-year period from 2003.

ADASA is forecasting a slight increase in volumes in 2010. The company's revenues and profits are mainly earned in Chilean pesos, and will be impacted by the relative strength or weakness of that currency against the US dollar, the currency in which the Group reports its results.

 

Dividends

 

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

 

	US dollars				Percentage change
	2009 cents	2008 cents	2007 cents	2006 cents	09 v 08 change	08 v 07 change	07 v 06 change
Ordinary Interim Final	3.4 6.0	3.4 5.6	3.2 5.4	3.2 5.0
	9.4	9.0	8.6	8.2	4.4%	4.7%	4.9%
Special Interim Final	- 14.0	3.0 48.0	3.0 38.0	2.0 38.0
	14.0	51.0	41.0	40.0
Total dividends to ordinary shareholders	23.4	60.0	49.6	48.2	(61.0%)	21.0%	2.9%
	Percentage
Dividends as a percentage of profit attributable to equity shareholders	35%	35%	35%	35%

1Further details relating to dividends are given in Note 9 to this preliminary results announcement.

The Board recommends a final dividend of 20.0 cents per ordinary share payable on 10 June 2010 to shareholders on the Register at the close of business on 7 May 2010. The final dividend comprises an ordinary dividend of 6.0 cents and a special dividend of 14.0 cents. Including the interim dividend, this represents a distribution of approximately 35% of net earnings (profit attributable to equity holders of the Company) for 2009.

The Board's policy is to establish an ordinary dividend which can be maintained or progressively increased at conservative long-term copper prices and through the economic cycle. The Board recommends special dividends when it considers these appropriate after taking into account the level of profits earned in the period under review, the existing cash position of the Group and significant known or expected funding commitments. As can be seen from the above table, the Board has continued to increase its ordinary dividend and has adjusted its total recommended dividends in line with profits by means of special dividends in the years of high copper prices.

The cost of the final dividend is $197.2 million and the cost of total dividends for the year is US$230.7 million. The board considers that this level of distribution retains adequate working capital and provides sufficient flexibility for the group to progress with capital projects and its portfolio of early-stage prospects as well as to take advantage of opportunities which may arise in the current economic environment.

Current trading prospects

Following the recovery in commodity markets through 2009, in the first two months of 2010 LME copper prices have averaged 323 cents per pound, just slightly below the position at 31 December 2009. Trade figures from China remain encouraging and several commentators expect Chinese demand to remain robust in 2010, while there are tentative signs of a recovery of demand in Europe and the United States. Current consensus estimates are for the copper price to average over 300 cents per pound in 2010, with the market expected to be in balance or possibly a small surplus. Nevertheless, concerns remain about the extent and sustainability of a recovery in the OECD, possible monetary tightening in China and the impact of eventual withdrawal of fiscal stimulus measures taken last year. With increased levels of financial investment in commodity markets, prices could remain sentiment-driven and therefore volatile through the year.

Over the medium term the outlook for copper is positive. Copper faces supply side pressures over the forthcoming years, which have been increased by the project delays and cancellations seen in the second half of 2008 and early 2009. Limited major new production coming on stream, combined with declining ore grades at existing mature mines, could result in a tight copper market, particularly if a sustained recovery in demand in the OECD were to occur. Consensus views are for the copper market to move into deficit in 2011 by which time the Group is aiming to be producing over 700,000 tonnes of copper annually.

The concentrate market has continued to be in deficit, with available smelting capacity significantly in excess of mine supply, resulting in low treatment and refining charges (TC/RCs) which favour mine producers. Current consensus estimates are for a deficit of approximately 1.5 million tonnes of contained copper in 2010, with a deficit expected to continue for a number of years. This has been reflected in improved terms for miners with settlements for the annual negotiations for 2010 at the level of US$46.5 per dry metric tonne of concentrate for smelting and 4.65 cents per pound of copper for refining, compared with US$75 and 7.5 cents respectively agreed in 2009. However, the impact of these improvement in annual terms is staggered by the "brick system" in many contracts whereby the benchmark is often averaged over two years.

The first two months of 2010 have seen a further recovery in the molybdenum price, reaching over US$17.0 per pound at the end of February 2010. Europe and the United States have shown an improvement in the level of spot activity following a poor year for demand in 2009, with little current sign of the return of excess supplies for export from China. Consensus estimates suggest prices close to the current level could be sustainable during 2010. Neverthelss, prices remain well below the peak levels of 2007 and early 2008. While several molybdenum projects were put on hold during 2008 and have not been re-initiated, some idled production capacity could come available should prices strengthen. The LME has recently started trading 3-month molybdenum futures in February 2010. This new market still remains at an early stage, but could provide greater depth and transparency to molybdenum prices in the longer term as it develops.

For 2010, Group copper production from the existing three operations is expected to increase by approximately 23% to 543,000 tonnes, mainly as a result of the completion of the plant expansion at Los Pelambres. Molybdenum production at Los Pelambres is expected to be 9,500 tonnes compared with 7,800 tonnes in 2009, again due to the increased plant throughput as a result of the expansion. Weighted average cash costs excluding by-product credits are forecast to be approximately 125 cents per pound in 2010, compared with 120.3 cents in 2009, with increasing market cost pressures and the impact of costs deferred from 2009 as part of that year's cost reduction programme offsetting cost savings from the increased production.

With the commissioning of Esperanza expected to commence by the end of 2010, Group copper production in 2011 is expected to be over 700,000 tonnes. The Group's exploration results also continue to show encouraging results, with significant resources and long-term prospects in both the Sierra Gorda and Pelambres districts. The Antucoya project could eventually contribute additional production in future years. The Group is also assembling a portfolio of early-stage interests in copper prospects globally which could provide further opportunities for long-term growth. The Group intends to use its strong financial position to continue to advance its existing assets and properties while continuing to seek opportunities globally to secure further world-class mining assets.

 

 

FINANCIAL COMMENTARY FOR THE YEAR ENDED 31 DECEMBER 2009

 

Results

 

A detailed segmental analysis of the components of the income statement is contained in Note 4 to the Preliminary Results Announcement.

 

Turnover

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Turnover		2,962.6	3,372.6

 

Group turnover in 2009 was US$2,962.6 million, 12.2% below the US$3,372.6 million achieved in 2008. This mainly reflected decreased sales at the mining division in respect of both copper and molybdenum, and to a lesser extent also at the transport and water divisions.

Turnover from the mining division

 

Turnover from copper concentrate and copper cathodes

 

Turnover from copper concentrate and copper cathode sales from the Group's three mines decreased by 6.9% to US$2,516.1 million, compared with US$2,702.9 million in 2008. The decrease mainly reflected the impact of lower copper volumes and to a lesser extent increased tolling charges, partly offset by the effect of increased realised prices.

 

(i) Realised copper prices

 

The Group's average realised copper price increased by 1.5% to 270.6 cents per pound (2008 - 266.7 cents), despite the fact that the average LME copper price decreased to 234.2 cents per pound (2008 - 315.3 cents). This was mainly due to the positive impact of adjustments to provisionally priced sales which offset lower market prices and the impact of realised hedging losses.

 

Realised copper prices are determined by comparing turnover (gross of tolling charges for concentrate sales) with sales volumes in the year. 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 for future periods (normally about 30 days after delivery to the customer in the case of cathode sales and up to 180 days after delivery to the customer in the case of concentrate sales). Realised copper prices also reflect the impact of realised losses or gains of commodity derivative instruments hedge accounted in accordance with IAS 39 "Financial Instruments: Recognition and Measurements".

 

In 2009 there were significant positive close-out and mark-to-market adjustments to provisionally invoiced sales as a result of the significant increase in the LME copper price during the year. In the case of Los Pelambres, pricing adjustments increased initially invoiced sales (before adjusting for tolling charges) by US$380.3 million in 2009, compared with a US$541.9 million reduction of sales in 2008. The adjustments in 2009 comprised an uplift of US$78.0 million in respect of sales invoiced in 2008 (net of the reversal of mark-to-market adjustments made at the end of 2008) which were finally priced in 2009, and an uplift of US$302.3 million in respect of sales invoiced in 2009 (including a positive mark-to-market provision for open sales at the end of the year of US$62.1 million). Pricing adjustments in 2009 at El Tesoro and Michilla increased revenues by US$31.1 million (2008 - reduced revenues by US$27.9 million) and US$11.8 million (2008 - reduced revenues by US$12.2 million) respectively. Further details of provisional pricing adjustments are given in Note 5(a) to the preliminary results announcement.

 

In 2009 turnover also included a loss of US$65.8 million (2008 - gain of US$30.0 million) on commodity derivatives at El Tesoro and Michilla which matured during the year. Further details of hedging activity in the year are given in Note 5(b) to the preliminary results announcement.

 

Realised prices are analysed by mine in the Directors' Comments on pages 5 to 9. The movement in the LME copper price during the year is described in the Directors' Comments on page 4.

 

(ii) Copper volumes

 

Copper sales volumes decreased by 7.5% from 479,000 tonnes in 2008 to 442,900 tonnes this year. Sales volumes differed slightly from production each year mainly due to differences in shipping and loading schedules.

 

Production volumes are analysed by mine in the Directors' Comments on pages 5 to 9. The lower production volumes in the year were mainly due to lower production at Los Pelambres due to reduced throughput as expected due to harder ore quality and to a lesser extent lower production at Michilla due to the decision to suspend production at the Lince open pit mine due to low commodity prices at the start of the year.

 

 

(iii) Tolling charges

 

Tolling charges for copper concentrate at Los Pelambres increased from US$113.1 million in 2008 to US$125.1 million in 2009, reflecting the increased level of annual treatment and refining charges (partly mitigated by the "brick system" under which terms are often averaged over two years) and the impact of increased realised copper prices on certain contracts. Tolling charges are deducted from concentrate sales in reporting turnover and hence the increase in these charges has had a negative impact on turnover compared with 2008.

 

 

Turnover from molybdenum and other by-products

 

Turnover from by-products at Los Pelambres, which relate mainly to molybdenum, decreased by 48.5% to US$223.5 million in 2009 compared with US$434.2 million in 2008, mainly due to lower molybdenum realised and market prices. Molybdenum revenues (net of roasting charges) were US$180.1 million (2008 - US$394.8 million).

 

(i) Realised molybdenum prices

 

The realised molybdenum price decreased by 52.7% to US$11.3 per pound in 2008 (2008 - US$23.9 per pound), compared to a 61.6% decrease in the average market price to US$11.1 per pound (2008 - US$28.9 per pound). Molybdenum concentrate sales are also subject to provisional pricing with an average open period of up to approximately 90 days. As prices have increased slightly during 2009, realised prices were marginally higher than the average market price. In contrast, during 2008 prices weakened sharply during the fourth quarter, resulting in a realised price that was significantly lower than the average market price.

 

(ii) Molybdenum volumes

 

Molybdenum sales volumes were 7,700 tonnes in both 2008 and 2009. Small differences with production in each year reflected shipping and loading schedules.

 

Production volumes for Los Pelambres are analysed in the Directors' Comments on pages 5 and 6.

 

(iii) Gold and silver credits in copper concentrate sales

 

Credits received from gold and silver contained in copper concentrate sold increased to US$43.4 million (2008 - US$39.4 million). This was mainly due to the increase in gold content from 19,700 ounces in 2008 to 23,500 ounces in 2009, and the increase in average gold prices in this period, partly offset by lower silver volumes.

 

 

Turnover from the transport and water divisions

 

Turnover from the transport division (FCAB) decreased by US$11.6 million or 7.7% to US$139.4 million, mainly due to normal tariff adjustments under contracts in line with reduced costs. This was partly offset by an increase in transport volumes which reflected the full year effect of San Cristóbal and Gaby contracts which came fully on stream in the second half of 2008, as well as increases in volumes from other customers.

 

Turnover at Aguas de Antofagasta, which operates the Group's water business, decreased by US$0.9 million or 1.1 % to US$83.6 million in 2009, despite a 2.4% increase in volumes. This mainly reflected the impact of the weaker Chilean peso on the company's peso denominated revenues and a slight decrease in average tariffs. 2008 also benefitted from sundry income from installation and construction services which were not repeated in 2009.

 

 

 

 

 

 

 

 

 

 

EBITDA and operating profit from subsidiaries and joint ventures

 

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
EBITDA		1,680.7	1,899.8
Depreciation and amortisation		(217.5)	(180.2)
Loss on disposals		(4.2)	(5.3)
Operating profit from subsidiaries and joint ventures excluding exceptional items		1,459.0	1,714.3
Impairments		-	(188.3)
Operating profit from subsidiaries and joint ventures including exceptional items		1,459.0	1,526.0

 

 

EBITDA

 

EBITDA (earnings before interest, tax, depreciation, and amortisation) from subsidiaries and joint ventures decreased by 11.5% to US$1,680.7 million (2008 - US$1,899.8 million).

 

EBITDA at the mining division decreased by 12.2% from US$1,781.8 million to US$1,563.9 million, due to the reduction in turnover as explained in greater detail above, partly offset by lower operating costs as a result of both lower copper volumes and the cost reduction programme. At Los Pelambres, EBITDA decreased from US$1,429.7 million in 2008 to US$1,408.9 million this year. EBITDA at El Tesoro decreased by US$111.1 million to US$231.7 million. At Michilla, EBITDA decreased by US$90.5 million to US$27.9 million.

 

Excluding by-product credits (which are reported as part of turnover) and tolling charges for concentrates (which are deducted from turnover), weighted average cash costs for the Group (comprising on-site and shipping costs in the case of Los Pelambres and cash costs in the case of the other two operations) decreased from 117.2 cents per pound in 2008 to 106.7 cents per pound. This decrease partly reflected the thorough cost reduction programme implemented from the start of 2009 as well as a general easing of market costs, although cost pressures began to return in the second half of the year. Cash costs are analysed by mine in the Directors' Comments on pages 5 to 9.

 

Exploration costs increased from US$54.9 million in 2008 to US$67.1 million, reflecting the increased level of exploration activity across the Group. Net costs in respect of corporate and other items were lower at US$37.5 million (2008 - US$54.2 million) mainly as a result of the cost reduction programme implemented from the start of 2009.

 

EBITDA at the transport division decreased by US$7.6 million to US$56.6 million, with the decreased revenue as explained above partly offset by lower operating costs. Aguas de Antofagasta contributed US$60.2 million compared to US$53.8 million last year, mainly reflecting the increased volumes and decrease in costs which were partly offset by the decreased revenues discussed above.

 

 

Depreciation, amortisation and impairments

 

Depreciation and amortisation increased by US$37.3 million to US$217.5 million in 2009, mainly due to higher charges at Los Pelambres (as a result of commencement of depreciation of amounts capitalised at the Mauro tailings dam and some elements of the expansion) and El Tesoro (as a result of amortisation of the mining licences and pre-stripping costs at Tesoro North-East and release of the impairment provision made during 2008) partly offset by a reduction at Michilla due to its reduced carrying value. The loss on disposal of property, plant and equipment in 2009 was US$4.2 million, compared with US$5.3 million in the prior year.

 

During 2008 an impairment charge of US$188.3 million relating to property, plant and equipment at El Tesoro (US$160.0 million) and Michilla (US$28.3 million) was recorded within operating profit, following an impairment review undertaken in light of the commodity market environments during the last quarter of 2008. There have been no impairments during 2009.

 

 

 

 

 

 

Operating profit from subsidiaries and joint ventures

 

As a result of the above factors, operating profit from subsidiaries and joint ventures (excluding 2008 exceptional items) decreased by 14.9% to US$1,459.0 million. Including 2008 exceptional items, operating profit from subsidiaries and joint ventures decreased by 42.8%.

 

 

Share of income from associates

 

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Share of income from associate			4.5	2.3

 

 

The Group's share of net profit from its associates was US$4.5 million (2008 - US$2.3 million), comprised of a net profit of US$3.2 million (2008 - nil) from its 40% interest in Invesiones Hornitos S.A. ("Inversiones Hornitos"), a net profit of US$1.5 million (2008 - US$2.3 million) from its 30% interest in Antofagasta Terminal Internacional S.A. ("ATI") and a net loss of US$0.2 million (2008 - nil) from its 17.8% interest in Sunridge Gold Corp ("Sunridge").

 

Profit on part-disposal of subsidiaries

 

During 2008 the Group's disposal of its 30% interest in both Esperanza and El Tesoro to Marubeni Corporation for a consideration of US$1,401.2 million resulted in a profit before tax of US$1,024.9 million. Further details of this exceptional profit are set out in Note 3 to the preliminary results announcement.

 

There were no comparable exceptional items in 2009.

 

 

Net finance income

 

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Investment income		13.2	78.9
Interest expense		(24.0)	(13.7)
Other finance items		(15.1)	(8.9)
Net finance income		(25.9)	56.3

 

 

Net finance expense in 2009 was US$25.9 million, compared with an income of US$56.3 million in 2008.

 

Interest receivable decreased from US$78.9 million in 2008 to US$13.2 million in 2009, reflecting the lower market interest rates and lower yields on securities held.

 

Interest expense increased from US$13.7 million in 2008 to US$24.0 million, mainly due to additional short-term loans taken out at Los Pelambres.

 

Other finance items comprised a loss of US$15.1 million (2008 - loss of US$8.9 million). A loss of US$1.1 million (2008 - loss of US$1.6 million) has been recognised in respect of the time value element of changes in the fair value of commodity derivative options, which is excluded from the designated hedging relationship, and is therefore recognised directly in the income statement. Foreign exchange gains included in finance items were US$1.2 million in 2009, compared with a loss of US$3.9 million in the previous year. A loss on foreign exchange derivatives of US$12.4 million (2008 - loss of US$1.4 million) is also included in other finance items and partly offsets exchange gains on cash balances included within the overall foreign exchange gains of US$1.2 million. An expense of US$2.8 million (2008 - US$2.0 million) has been recognised in relation to the unwinding of the discount on provisions.

 

 

Profit before tax

 

The resulting profit before tax for the period was US$1,437.6 million compared to US$2,609.5 million in 2008, reflecting the reduction in turnover and the net finance expense compared with net finance income in 2008. This was partly offset by the decrease in operating costs.

 

 

Income tax expense

 

		Year ended	Year ended
		31.12.09	31.12.08
		US$'m	US$'m
Total tax charge (Income tax expense)		(317.7)	(519.7)

 

 

The rate of first category (i.e. corporation) tax in Chile was 17% for both 2009 and 2008. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax (royalty) which imposes an additional tax of 4% of tax-adjusted operating profit. Production from the Tesoro North East deposit and the run-of-mine processing at El Tesoro is subject to the mining tax at a rate of 5% of tax-adjusted operating profit.

 

In addition to first category tax and the mining tax, the Group incurs withholding taxes on the remittance of profits from Chile. Withholding tax is levied on remittances of profits from Chile at 35% less first category tax already paid. Accordingly, the effective tax rate of withholding tax for the purpose of paying dividends to Group shareholders is approximately 18% of the amount remitted or expected to be remitted.

 

The tax charge for the year was US$317.7 million and the effective tax rate was 22.1%. This rate varies from the standard rate principally due to the provision of withholding tax of US$28.1 million, the effect of mining tax which resulted in a charge of US$55.1 million, exchange gains of US$18.3 million on Chilean peso denominated tax prepayments due to the strengthening of the Chilean peso during the year, and the effect of items which are not subject to or deductible from first category tax. In 2008 the total tax charge was US$519.7 million and the effective tax rate was 19.9%. This was principally due to the provision of withholding tax of US$72.1 million, and the effect of the mining tax, which resulted in a charge of US$66.2 million, exchange losses of US$66.3 million on Chilean-peso denominated tax prepayments due to the weakening of the US dollar during the year and the effect of items which are not subject to or deductible from first category tax.

 

 

Minority interests

 

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Minority interests		452.2	383.3

 

 

Profit for the financial year attributable to minority shareholders was US$452.2 million, compared with US$383.3 million in 2008. The increase is mainly due to the effect of the disposal of the 30% interest El Tesoro to Marubeni Corporation in August 2008. Weak commodity prices and the impairment provision resulted in a loss for El Tesoro in the final four months of 2008 (although it remained profitable for the 2008 year as a whole), significantly reducing the overall minority share of Group profit for that year. By contrast, all operations with minorities remained profitable in 2009 and there were no changes in the share of minority interests in each operation during this year.

 

 

Earnings per share

 

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Earnings per share including exceptional items		67.7	173.1
Earnings per share excluding exceptional items		67.7	85.5

 

 

Earnings per share calculations are based on 985,856,695 ordinary shares. As a result of the factors set out above, profit for the 2009 financial year attributable to equity shareholders of the Company was US$667.7 million compared with US$1,706.5 million in 2008. Accordingly, basic earnings per share were 67.7 cents in 2009 compared with 173.1 cents for 2008. Basic earnings per share excluding exceptional items (detailed in Note 3 of the preliminary results announcement) were 85.5 cents for 2008. During 2009 there were no exceptional items.

 

 

Dividends

 

Details of dividends proposed in relation to 2009, and the Board's policy regarding dividends, are set out in the Directors' comments on page 14.

 

 

Capital Expenditure

 

Details of capital expenditure during the year are set out in the cash flow summary below on pages 22 and 23.

 

 

Treasury Management and Hedging

 

The Group periodically uses derivative financial instruments to reduce exposure to commodity price movements. The Group does not use such derivative instruments for speculative trading purposes. The impact of derivative instruments on the Group's results for the period is set out above in the sections on turnover, operating profit from subsidiaries and net finance income, and in Note 5(b) to this preliminary results announcement.

 

The Group has applied the hedge accounting provisions of IAS 39 "Financial Instruments: Recognition and Measurement" to its commodity derivatives. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows have been recognised directly in equity, with such amounts subsequently recognised in the income statement in the period when the hedged item affects profit or loss. Any ineffective portion is recognised immediately in the income statement. Realised gains and losses on commodity derivatives recognised in the income statement have been recorded within turnover. The time value element of changes in the fair value of derivative options is excluded from the designated hedging relationship, and is therefore recognised directly in the income statement within other finance items.

 

At 31 December 2009 the Group had min/max instruments for 22,200 tonnes of copper production and futures for 9,800 tonnes at Michilla covering a total period up to 31 December 2010. The weighted average remaining period covered by the min/max hedges calculated with effect from 1 January 2010 is 6.5 months. The instruments have a weighted average floor of 186.8 cents per pound and a weighted average cap of 237.8 cents per pound. The weighted average remaining period covered by the futures hedges calculated with effect from 1 January 2010 is 6.4 months. The instruments have a weighted average price of 199.9 cents per pound. The total hedged amount of 32,000 tonnes represents approximately 80% of Michilla's forecast production for 2010, and the Group's exposure to the copper price will be limited to the extent of these instruments.

 

At 31 December 2009 the Group also had futures for 6,500 tonnes at El Tesoro to both buy and sell copper production, with the effect of swapping COMEX prices for LME prices without eliminating underlying market price exposure, covering a period up to 31 January 2011. The remaining weighted average period covered by these instruments calculated with effect from 1 January 2010 is 7.0 months. Between 31 December 2009 and 28 February 2010 the Group entered into further futures instruments of this type for 100 tonnes of copper production at El Tesoro covering a total period up to 31 March 2010 with a remaining weighted average period covered by these instruments calculated with effect from 1 January 2010 of 2 months.

 

Details of the mark-to-market position of these instruments at 31 December 2009, together with details of any interest and exchange derivatives held by the Group, are given in Note 5(b) to the preliminary results announcement.

 

The Group periodically uses foreign exchange derivatives to reduce its exposure to fluctuations in the fair value of non US dollar denominated assets or liabilities. At 31 December 2009 the Group had cross currency swaps with a principal value of US$102.8 million (of which US$68.8 million relates to the Railway and other transport services, US$24.7 million relates to Corporate and other items and US$9.3 million relates to the Water concession) to swap Chilean pesos for US dollars, at an average rate of Ch$510.3/ US$1, covering a total period up to 1 April 2010. The weighted average remaining period covered by these hedges calculated with effect from 1 January 2010 is 1.3 months. Between 31 December 2009 and 28 February 2010 the Group entered into further cross currency swaps with a principal value of US$134.8 million (of which US$56.8 million relates to the Railway and other transport services, US$10.0 million relates to Corporate and other items and US$68.0 million relates to Corporate and other items) to swap Chilean pesos for US dollars, at an average rate of Ch$532.7/ US$1, covering a total period up to 2 June 2010.

 

The Group also periodically uses interest rate swaps to swap the floating rate interest for fixed rate interest. At 31 December 2009 the Group had entered into contracts in relation to the Esperanza financing for a maximum notional amount of US$787.8 million at a weighted average fixed rate of 1.353% maturing in February 2011 and a maximum notional amount of notional amount of US$840.0 million at a weighted average fixed rate of 3.372% maturing in February 2018.

 

 

Commodity Price Sensitivities

Based on 2009 production volumes and without taking into account the effects of provisional pricing and any hedging activity, a ten cent change in the average copper price would affect turnover and profit before tax by US$49 million and earnings per share by five cents. Similarly, a one-dollar change in the average molybdenum price would affect turnover and profit before tax by US$8.2 million and earnings per share by 0.8 cents.

 

Cash Flows

 

The Group cash flow statement is presented on page 28. The key features are summarised in the following

table.

 

 

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Cash flows from operations		1,167.8	2,454.3
Income tax paid		(135.2)	(561.4)
Net interest received		(11.2)	66.3
Acquisition of minority interest in subsidiary		(25.0)	(243.1)
Acquisition of associates and subsequent capital contributions		(114.5)	-
Part-disposal of subsidiaries		-	1,401.2
Purchases of property, plant and equipment		(1,323.6)	(1,135.0)
Purchases of intangible assets		(52.5)	(10.7)
Dividends paid to equity holders of the Company		(561.9)	(491.0)
Dividends paid to minority interests		(310.0)	(495.6)
Capital increase from minority interest		-	57.7
Other items		0.5	6.9
Changes in net cash relating to cash flows		(1,365.6)	1,049.6
Exchange and other non-cash movements		42.2	(77.0)
Movement in net cash in the year		(1,323.4)	972.6
Net cash at the beginning of the year		2,919.1	1,946.5
Net cash at the end of the year (analysed on page 23)		1,595.7	2,919.1

 

Cash flows from operations were US$1,167.8 million in 2009 compared with US$2,454.3 million last year, reflecting the operating results adjusted for depreciation, amortisation, impairments and disposals gains and losses of US$221.7 million (2008 - US$373.8 million) and a net working capital increase of US$513.0 million (2008 - decrease of US$554.5 million). The significant working capital movements relate mainly to changes in the levels of trade debtors as a result of copper prices and provisional pricing mark-to-market adjustments at the end of each period, and to a lesser extent increased inventory levels with the start-up of Tesoro North-East and the ROM project.

 

A dividend of US$0.7 million (2008 - US$1.8 million) was received from the Group's investment in ATI.

 

Cash tax payments in the year were US$135.2 million (2008 - US$561.4 million), comprising corporation tax of US$95.0 million (2008 - US$399.5 million), mining tax of US$40.1 million (2008 - US$41.7 million) and withholding tax of US$0.1 million (2007 - US$120.2 million). These amounts differ from the current tax charge in the consolidated income statement of US$185.1 million (2007 - US$541.7 million) because cash tax payments partly comprise lower monthly payments on account in respect of current year profits as compared with the previous year and partly comprise refunds of amounts due to the Group on the settlement of the outstanding balance for the previous year.

 

The cash outflow for the acquisition of the minority interest in Minera Caracoles amounted to US$25.0 million. In 2008 the cash outflow for the acquisition of the minority interest in Antomin Limited amounted to US$243.1 million. The cash outflow for the acquisition of the interests in Inversiones Hornitos S.A. and Sunridge Gold Corp amounted to US$85.9 million and subsequent capital contributions to Inversiones Hornitos S.A. amounted to US$28.6 million. In 2008, cash proceeds from the part disposal of subsidiaries, relating to the disposal of a 30% interest in Esperanza and El Tesoro to Marubeni Corporation, amounted to US$1,401.2 million.

 

Cash disbursements relating to capital expenditure in 2009 was US$1,323.6 million compared with US$1,135.0 million in 2008. This included expenditure of US$716.4 million relating to the Esperanza project (2008 - US$460.6 million), US$399.4 million (2008 - US$272.7 million) relating to the plant expansion at Los Pelambres, US$11.5 million (2008 - US$69.3 million) relating to the Tesoro North-East deposit and US$43.1 million (2008 - US$19.8 million) at El Tesoro relating to the project for the Run-of-Mine (ROM) leaching of low-grade oxides from Esperanza.

 

Purchase of intangibles in 2009 was US$52.5 million relating to acquisition of the desalination plant by ADASA. In 2008, purchase of intangibles of US$10.7 million related to exploration licences and related rights in Pakistan and Zambia.

 

Dividends (including special dividends) paid to ordinary shareholders of the Company this year were US$561.9 million (2008 - US$491.0 million), which related to the final dividend declared in respect of the previous year and the interim dividend in respect of the current year, and reflected the increased dividend per share paid out during 2009 compared with 2008. Dividends paid by subsidiaries to minority shareholders were US$310.0 million (2008 - US$495.6 million), principally due to decreased distributions by Los Pelambres.

 

New borrowings in the year amounted to US$2,051.6 million (2008 - US$229.5 million), mainly due to drawdowns from the Esperanza Project finance facility and the short term loans and new corporate facilities taken out by Los Pelambres. Repayments of borrowings and finance leasing obligations in the year, were US$874.5 million relating mainly to repayment of the Los Pelambres short-term borrowings taken out during the year and to a lesser extent regular repayments on existing loans (2008 - US$109.5 million mainly relating to regular repayments on existing loans).

 

Details of other cash inflows and outflows in the year are contained in the Consolidated Cash Flow Statement.

 

 

Financial Position

 

			At 31.12.09	At 31.12.08
			US$'m	US$'m
Cash and cash equivalents			3,222.3	3,358.0
Total borrowings			(1,626.6)	(438.9)
Net cash at the end of the year			1,595.7	2,919.1

 

 

At 31 December 2009 the Group had cash and cash equivalents of US$3,222.3 million (2008 - US$3,358.0 million). Excluding the minority share in each partly owned operation, the Group's attributable share of total cash and cash equivalents was US$2,934.3 million (2008 - US$3,085.7 million).

 

Total Group borrowings at 31 December 2009 were US$1,626.6 million (2008 - US$438.9 million). Of this, US$1,067.6 million (2008 - US$282.3 million) is proportionally attributable to the Group after excluding the minority shareholdings in partly-owned operations. The increase in debt is mainly due to draw downs on the Esperanza and Los Pelambres facilities entered into during the year and new short term borrowing at Los Pelambres, offsetting further principal repayments on existing borrowings principally at Los Pelambres.

 

 

Balance Sheet

 

Net equity (i.e. equity attributable to ordinary shareholders of the Company) increased from US$5,266.8 million at 1 January 2009 to US$5,338.6 million at 31 December 2009, relating mainly to profit after tax and minority interests for the period less ordinary dividends declared and paid in the year. Other changes relate mainly to movements in the fair value of hedges and available for sale investments and the currency translation adjustment; these are set out in the Consolidated Statement of Changes in Equity.

 

Minority interests increased from US$1,165.8 million at 1 January 2009 to US$1,278.8 million at 31 December 2009. This principally reflected the minority's share of profit after tax less the minority's share of the dividends paid by subsidiaries in the year. Other movements affecting minority interest are also set out in the Consolidated Statement of Changes in Equity.

 

Long-term provisions increased from US$18.0 million at 31 December 2008 to US$127.9 million at 31 December 2009. New assessments of the closure provisions for all mining operations were performed by external consultants, resulting in a US$105.1 million increase to the capitalised decommissioning and restoration provision. The increase in the provision balance is mainly due to the significant amount of construction work at Esperanza since the previous assessments.

 

 

 

 

Foreign Currency Exchange Differences

 

The principal subsidiaries with a functional currency other than the US dollar are Chilean peso denominated, of which the most significant is Aguas de Antofagasta S.A. Exchange rates used to translate the results of such subsidiaries are given in Note 29 to the preliminary results announcement.

 

In 2009 the currency translation adjustment gain to net equity of US$46.1 million resulted mainly from the strengthening in the Chilean peso during the year from Ch$636 = US$1 at the start of 2009 to Ch$507 = US$1 at the end of 2009. In 2008 the currency translation adjustment charge to net equity of US$41.8 million resulted mainly from the weakening in the Chilean peso during the year from Ch$497 = US$1 at the start of 2008 to Ch$636 = US$1 at the end of 2008.

 

 

Going Concern

 

The Group's business activities, together with those factors likely to affect its future performance, are set out in the Directors' Comments. Details of the cash flows of the Group during the year, along with its financial position at the year-end are set out in this Financial Commentary. The preliminary results announcement includes details of the Group's cash and cash equivalent balances in Note 23, and details of borrowings are set out in Note 17.

 

In assessing the Group's going concern status the Directors have taken into account the above factors, including the financial position of the Group and in particular its significant net-cash position, the current copper price and market expectations in the medium-term, and the Group's capital expenditure and financing plans.

 

After making appropriate enquiries, the Directors consider that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the preliminary results announcement.

 

 

Cautionary Statement about forward looking statements

 

The preliminary results announcement contains certain forward looking statements with respect to the financial position, results of operations and business of the Group. Examples of forward looking statements include those regarding ore reserve and mineral resource estimates, anticipated production or construction commencement dates, costs, outputs, demand, trends in commodity prices, growth opportunities and productive lives of assets or similar factors. The words "intend", "aim", "project", "anticipate", "estimate", "plan", "believe", "expect", "may", "should", "will", "continue", or similar expressions, commonly identify such forward looking statements.

Forward looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group's control. For example, future ore reserves will be based in part on long term price assumptions that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for products, the effect of foreign currency exchange rates on market prices and operating costs, activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

Given these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward looking statements which speak only as at the date of this report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward looking statements will not differ materially from actual results.

Consolidated Income Statement

			Year ended 31.12.09	Year ended 31.12.08
	Notes		US$'m	US$'m
Group turnover	2,4		2,962.6	3,372.6
Total operating costs (including 2008 exceptional items *)			(1,503.6)	(1,846.6)
Operating profit from subsidiaries and joint ventures	2,4		1,459.0	1,526.0
Profit on part-disposal of subsidiaries (2008 exceptional item *)	3		-	1,024.9
Share of income from associates	2,13		4.5	2.3
Total profit from operations and associates	2		1,463.5	2,553.2
Investment income			13.2	78.9
Interest expense			(24.0)	(13.7)
Other finance items			(15.1)	(8.9)
Net finance (expense)/income	6		(25.9)	56.3
Profit before tax			1,437.6	2,609.5
Income tax expense	7		(317.7)	(519.7)
Profit for the financial year			1,119.9	2,089.8
Attributable to:
Minority interests			452.2	383.3
Equity holders of the Company (net earnings)			667.7	1,706.5
			US cents	US cents
Basic earnings per share	8		67.7	173.1
Dividends to ordinary shareholders of the Company
Per share			US cents	US cents
Dividends per share proposed in relation to the year	9
- ordinary dividend (interim)			3.4	3.4
- ordinary dividend (final)			6.0	5.6
- special dividend (interim)			-	3.0
- special dividend (final)			14.0	48.0
			23.4	60.0
Dividends per share paid in the year and deducted from net equity
- ordinary dividend (interim)			3.4	3.4
- ordinary dividend (final)			5.6	5.4
- special dividend (interim)			-	3.0
- special dividend (final)			48.0	38.0
			57.0	49.8
In aggregate			US$'m	US$'m
Dividends proposed in relation to the year	9		230.7	591.5
Dividends paid in the year and deducted from net equity			561.9	491.0

 

Turnover and operating profit are derived from continuing operations.

 * There were no exceptional items in the year ended 31 December 2009. Exceptional items included in the consolidated income statement in respect of the year ended 31 December 2008 comprised: (i) an impairment charge of US$188.3 million relating to property, plant and equipment at El Tesoro and Michilla, which was recorded within "Total operating costs"; and (ii) a profit of US$1,024.9 million relating to the sale of a 30% interest in Esperanza and El Tesoro to Marubeni Corporation, which was recorded within "Profit on part-disposal of subsidiaries". Excluding these items, operating profit from subsidiaries and joint ventures was US$1,714.3 million and profit before tax was US$1,772.9 million. Further details of these exceptional items are set out in Note 3. 

 

 

Consolidated Statement of Comprehensive Income 

 

			Year ended 31.12.09	Year ended 31.12.08
		Notes	US$'m	US$'m
Profit for the financial year			1,119.9	2,089.8
(Losses)/gains in fair value of cash flow hedges deferred in reserves			(177.9)	82.6
Gains/(losses) in fair value of available for sale investments		15	0.5	(2.6)
Currency translation adjustment			46.2	(41.8)
Deferred tax effects arising on cash flow hedges deferred in reserves			34.0	(14.1)
Total (expense)/ income recognised in equity			(97.2)	24.1
Losses/(gains) in fair value of cash flow hedges transferred to the income statement			65.8	(30.0)
Gains in fair value of cash flow hedges transferred to the balance sheet			(22.0)	-
Deferred tax effects arising on cash flow hedges transferred to the income statement			(11.2)	5.1
Total transferred to the income statement or balance sheet			32.6	(24.9)
Total comprehensive income for the year			1,055.3	2,089.0
Attributable to:
Minority interests			421.6	396.2
Equity holders of the Company			633.7	1,692.8

 

Consolidated Statement of Changes in Equity

 

 

For the year ended 31 December 2009
	Share capital	Share premium	Hedging reserves	Fair value reserves	Translation reserves	Retained earnings	Net equity	Minority interests	Total
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Balance at 1 January 2009	89.8	199.2	30.5	(3.1)	(16.0)	4,966.4	5,266.8	1,165.8	6,432.6
Total comprehensive income for the year	-	-	(80.6)	0.5	46.1	667.7	633.7	421.6	1,055.3
Acquisition of minority interest	-	-	-	-	-	-	-	1.4	1.4
Dividends	-	-	-	-	-	(561.9)	(561.9)	(310.0)	(871.9)
Balance at 31 December 2009	89.8	199.2	(50.1)	(2.6)	30.1	5,072.2	5,338.6	1,278.8	6,617.4
For the year ended 31 December 2008
	Share capital	Share premium	Hedging reserves	Fair value reserves	Translation reserves	Retained earnings	Net equity	Minority interests	Total
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Balance at 1 January 2008	89.8	199.2	(0.2)	(0.5)	25.8	3,750.9	4,065.0	841.5	4,906.5
Total comprehensive income for the year	-	-	30.7	(2.6)	(41.8)	1,706.5	1,692.8	396.2	2,089.0
Capital increase from minority interest	-	-	-	-	-	-	-	57.7	57.7
Part-disposal of subsidiaries	-	-	-	-	-	-	-	366.0	366.0
Dividends	-	-	-	-	-	(491.0)	(491.0)	(495.6)	(986.6)
Balance at 31 December 2008	89.8	199.2	30.5	(3.1)	(16.0)	4,966.4	5,266.8	1,165.8	6,432.6

 

Consolidated Balance Sheet

			At 31.12.09	At 31.12.08
Non-current assets	Notes		US$'m	US$'m
Intangible assets	10		311.2	233.6
Property, plant and equipment	11		4,873.2	3,679.7
Investment property	12		3.4	2.7
Investment in associates	13		121.3	3.0
Trade and other receivables			36.6	34.1
Available for sale investments	15		1.2	0.7
Deferred tax assets	20		31.1	12.7
			5,378.0	3,966.5
Current assets
Inventories	16		240.1	155.9
Trade and other receivables			608.6	313.8
Current tax assets			59.8	109.0
Derivative financial instruments	5		1.7	51.7
Cash and cash equivalents	23		3,222.3	3,358.0
			4,132.5	3,988.4
Total assets			9,510.5	7,954.9
Current liabilities
Short-term borrowings	17		(431.8)	(319.0)
Derivative financial instruments	5		(81.2)	(1.4)
Trade and other payables			(437.6)	(594.4)
Current tax liabilities			(45.0)	(59.9)
			(995.6)	(974.7)
Non-current liabilities
Medium and long term borrowings	17		(1,194.8)	(119.9)
Derivative financial instruments	5		(4.5)	-
Trade and other payables			(12.3)	(12.6)
Post-employment benefit obligations	18		(48.2)	(29.0)
Long-term provisions	19		(127.9)	(18.0)
Deferred tax liabilities	20		(509.8)	(368.1)
			(1,897.5)	(547.6)
Total liabilities			(2,893.1)	(1,522.3)
Net assets			6,617.4	6,432.6
Equity
Share capital	21		89.8	89.8
Share premium	21		199.2	199.2
Hedging, translation and fair value reserves			(22.6)	11.4
Retained earnings			5,072.2	4,966.4
Equity attributable to equity holders of the Company			5,338.6	5,266.8
Minority interests			1,278.8	1,165.8
Total equity			6,617.4	6,432.6

 

 

The preliminary information was approved by the Board of Directors on 8 March 2010.

Consolidated Cash Flow Statement

			Year ended 31.12.09	Year ended 31.12.08
	Notes		US$'m	US$'m
Cash flows from operations	22		1,167.8	2,454.3
Interest paid			(27.0)	(12.5)
Dividends from associates	13		0.7	1.8
Income tax paid			(135.2)	(561.4)
Net cash from operating activities			1,006.3	1,882.2
Investing activities
Acquisition and capital contributions to associates	24		(114.5)	-
Part-disposal of subsidiaries			-	1,401.2
Acquisition of minority interest in subsidiary	24		(25.0)	(243.1)
Recovery of Chilean VAT paid on purchase of water concession			-	5.3
Purchases of property, plant and equipment			(1,323.6)	(1,135.0)
Purchases of intangible assets	25		(52.5)	(10.7)
Interest received			15.8	78.8
Net cash (used in)/generated from investing activities			(1,499.8)	96.5
Financing activities
Dividends paid to equity holders of the Company			(561.9)	(491.0)
Dividends paid to preference shareholders of the Company			(0.2)	(0.2)
Dividends paid to minority interests			(310.0)	(495.6)
Capital increase from minority interest			-	57.7
Net proceeds from issue of new borrowings	23		2,051.6	229.5
Repayments of borrowings	23		(863.6)	(99.7)
Repayments of obligations under finance leases			(10.9)	(9.8)
Net cash generated from/(used in) financing activities			305.0	(809.1)
Net (decrease)/increase in cash and cash equivalents			(188.5)	1,169.6
Cash and cash equivalents at beginning of the year			3,358.0	2,212.5
Net (decrease)/increase in cash and cash equivalents	23		(188.5)	1,169.6
Effect of foreign exchange rate changes	23		52.8	(24.1)
Cash and cash equivalents at end of the year	23		3,222.3	3,358.0

 

 

 

 

Notes

1. General information and accounting policies

a) General information

This preliminary results announcement is for the year ended 31 December 2009. While the financial information contained in this preliminary results announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. For these purposes, IFRS comprise the Standards issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") that have been endorsed by the European Union. The Group will send its full financial statements that comply with IFRS to shareholders in April 2010.

The financial information contained in this preliminary 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 on page 24 of the Financial Commentary.

This preliminary results announcement does not constitute the Group's statutory accounts as defined in section 434 of the Companies Act 2006 (the "Act") but is derived from those accounts. The statutory accounts for the year ended 31 December 2009 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 9 June 2010. The auditors have reported on those accounts and their report was unqualified, with no matters by way of emphasis, and did not contain statements under section 498(2) of the Act (regarding adequacy of accounting records and returns) or under section 498(3) (regarding provision of necessary information and explanations).

The information contained in this announcement for the year ended 31 December 2008 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 237(2) or (3) of the Companies Act 1985.

The information contained in Notes 31 to 33 of this preliminary results announcement is not derived from the statutory accounts for the years ended 31 December 2008 and 2009 and is accordingly not covered by the auditors' reports.

b) Accounting policies and adoption of new accounting standards

This preliminary results announcement is derived from the statutory accounts for the year ended 31 December 2009, which have been prepared on the basis of accounting policies consistent with those applied in the financial statements for the year ended 31 December 2008, except as set out below.

In the current financial year the Group has adopted the following standards that have affected the presentation and disclosure in the financial statements:

IFRS 8 Operating Segments. In the current year the Group has adopted IFRS 8. The standard requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Antofagasta plc Board to allocate resources to the segments and to assess their performance. The adoption of IFRS 8 has not resulted in any changes to segments previously disclosed, but has resulted in further disclosures on each of these segments and these are set out in Note 4.

IAS 1 (Revised) Presentation of Financial Statements. In the current year the Group has adopted IAS 1 (Revised), which separates owner and non-owner changes in equity. The statement of changes in equity details transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the Standard introduces a statement of comprehensive income, which presents all items of income and expense which are not recognised in the income statement. This has resulted in the company presenting these statements separately for 2009 and restating the 2008 Statement of Changes in Equity.

 

2. Total profit from operations and associates

 

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Turnover			2,962.6	3,372.6
Cost of sales (including 2008 exceptional items)			(1,166.8)	(1,496.8)
Gross profit			1,795.8	1,875.8
Administrative and distribution expenses			(244.2)	(274.1)
Closure provision			(2.2)	(5.0)
Severance charges			(13.3)	(10.6)
Exploration and evaluation costs			(67.1)	(54.9)
Other operating income			10.0	9.8
Other operating expenses			(20.0)	(15.0)
Operating profit from subsidiaries and joint ventures			1,459.0	1,526.0
Profit on part-disposal of subsidiaries (2008 exceptional item)			-	1,024.9
Share of income from associates			4.5	2.3
Total profit from operations and associates			1,463.5	2,553.2

 

(i) In the year ended 31 December 2008, cost of sales included an impairment charge of US$188.3 million relating to property, plant and equipment at El Tesoro and Michilla (see Note 3).

(ii) In the year ended 31 December 2008, profit on part-disposal of subsidiaries comprised a profit of US$1,024.9 million relating to the sale of a 30% interest in Esperanza and El Tesoro to Marubeni Corporation (see Note 3).

 

3. Exceptional items

There were no exceptional items in the year ended 31 December 2009. Exceptional items in the year ended 31 December 2008 and their impact on the results are set out below.

	Operating Profit		Profit before tax		Earnings per share
	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	US$'m	US$'m	US$'m	US$'m	US cents	US cents
Before exceptional items	1,459.0	1,714.3	1,437.6	1,772.9	67.7	85.5
Impairments	-	(188.3)	-	(188.3)	-	(11.1)
Marubeni transaction	-	-	-	1,024.9	-	98.7
After exceptional items	1,459.0	1,526.0	1,437.6	2,609.5	67.7	173.1

 

a) Total Operating costs - Impairments

In the year ended 31 December 2008 an impairment charge of US$188.3 million relating to property, plant and equipment at El Tesoro (US$160.0 million) and Michilla (US$28.3 million) was recorded within total operating costs, following an impairment review undertaken in light of the commodity market environment. The recoverable amounts in the impairment review were determined by a value in use calculation prepared using management's forecasts as to future commodity prices, operating costs and production volumes. The present value of the forecast future cash flows was calculated using a discount rate of 9.9%.

b) Profit on part-disposal of subsidiaries - Marubeni transaction

In August 2008 the Group disposed of a 30% interest in both Esperanza and El Tesoro to Marubeni Corporation for a consideration of US$1,401.2 million, resulting in a profit before tax of US$1,024.9 million.

 

4. Segmental analysis

The Group's reportable segments are as follows:

·; Los Pelambres

·; El Tesoro

·; Michilla

·; Esperanza

·; Exploration and evaluation

·; Railway and other transport services

·; Water concession

·; Corporate and other items

 

For management purposes, the Group is organised into three business divisions based on their products - Mining, Railway and other transport services and the Water concession. The mining division is split further for management reporting purposes to show results by mine and exploration and evaluation activity. Los Pelambres, El Tesoro and Michilla are all operating mines and Esperanza is a mine currently under construction. Los Pelambres produces primarily copper concentrate and molybdenum as a by-product. El Tesoro and Michilla both produce copper cathodes. The transport division provides rail cargo (based in Chile and Bolivia) and road cargo (based in Chile) together with a number of ancillary services (based in Chile). The water division produces and distributes potable water to domestic customers and untreated water to industrial customers in Chile's Antofagasta Region. The Exploration and evaluation segment incurs exploration and evaluation expenses. Exploration costs relating to Tethyan Copper Company Limited ("Tethyan") are included within the Exploration and evaluation segment, and all other Tethyan related costs are included within Corporate and other items. Corporate and other items also comprise costs incurred by the Company and Antofagasta Minerals S.A., the Group's mining corporate centre, that are not allocated to any individual business segment. Consistent with its internal management reporting, the Group's corporate and other items are included within the mining division.

 

Management monitors the operating results of business segments separately for the purpose of making decisions about resources to be allocated and of assessing performance. Segment performance is evaluated based on the operating profit of each of the segments.

 

a) Segment revenues and results

 

For the year ended 31 December 2009

 

	Los Pelambres	El Tesoro	Michilla	Esperanza	Exploration and evaluation	Corporate and other items	Mining	Railway and other transport services	Water concession	Total
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Revenue	2,081.5	487.6	170.5	-	-	-	2,739.6	139.4	83.6	2,962.6
EBITDA	1,408.9	231.7	27.9	-	(67.1)	(37.5)	1,563.9	56.6	60.2	1,680.7
Depreciation and Amortisation	(128.1)	(52.3)	(5.5)	-	-	(2.2)	(188.1)	(14.8)	(14.6)	(217.5)
Loss on disposals	(0.1)	(1.5)	(0.7)	-	-	(1.1)	(3.4)	(0.5)	(0.3)	(4.2)
Operating profit	1,280.7	177.9	21.7	-	(67.1)	(40.8)	1,372.4	41.3	45.3	1,459.0
Share of income from associates	-	-	-	-	-	(0.2)	(0.2)	4.7	-	4.5
Investment income	1.9	2.7	0.2	-	-	6.6	11.4	1.6	0.2	13.2
Interest expense	(19.1)	(0.2)	-	-	-	(4.1)	(23.4)	(0.6)	-	(24.0)
Other finance items	(15.6)	11.1	(4.1)	-	-	(2.6)	(11.2)	(5.0)	1.1	(15.1)
Profit before tax	1,247.9	191.5	17.8	-	(67.1)	(41.1)	1,349.0	42.0	46.6	1,437.6
Tax	(249.3)	(40.8)	6.1	-	-	(16.8)	(300.8)	(9.8)	(7.1)	(317.7)
Minority interests	(399.5)	(46.5)	(6.0)	-	-	-	(452.0)	(0.2)	-	(452.2)
Net earnings	599.1	104.2	17.9	-	(67.1)	(57.9)	596.2	32.0	39.5	667.7
Additions to non-current assets
Capital expenditure	475.4	65.2	12.2	716.4	-	38.9	1,308.1	21.1	6.1	1,335.3
Additions to intangibles	-	-	-	-	-	-	-	-	52.5	52.5
Segment assets and liabilities
Segment assets	3,494.9	759.5	130.0	1,815.8	-	2,364.6	8,564.8	703.4	242.3	9,510.5
Segment liabilities	(1,350.5)	(109.4)	(130.2)	(966.2)	-	(247.4)	(2,803.7)	(41.7)	(47.7)	(2,893.1)

 

 

 

 

 

 

 

For the year ended 31 December 2008

 

	Los Pelambres	El Tesoro	Michilla	Esperanza	Exploration and evaluation	Corporate and other items	Mining	Railway and other transport services	Water concession	Total
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Revenue	2,172.0	632.4	332.7	-	-	-	3,137.1	151.0	84.5	3,372.6
EBITDA	1,429.7	342.8	118.4	-	(54.9)	(54.2)	1,781.8	64.2	53.8	1,899.8
Depreciation and Amortisation	(81.5)	(55.5)	(17.6)	-	-	(1.5)	(156.1)	(12.6)	(11.5)	(180.2)
Loss on disposals	(0.5)	(2.4)	(1.2)	-	-	-	(4.1)	(1.2)	-	(5.3)
Impairments	-	(160.0)	(28.3)	-	-	-	(188.3)	-	-	(188.3)
Operating profit	1,347.7	124.9	71.3	-	(54.9)	(55.7)	1,433.3	50.4	42.3	1,526.0
Profit on part-disposal of subsidiaries	-	-	-	-	-	1,024.9	1,024.9	-	-	1,024.9
Share of income from associate	-	-	-	-	-	-	-	2.3	-	2.3
Investment income	10.8	15.4	1.9	-	-	41.9	70.0	8.2	0.7	78.9
Interest expense	(11.1)	(0.6)	-	-	-	(1.3)	(13.0)	(0.7)	-	(13.7)
Other finance items	(1.3)	(9.7)	(0.8)	-	-	(0.1)	(11.9)	3.6	(0.6)	(8.9)
Profit before tax	1,346.1	130.0	72.4	-	(54.9)	1,009.7	2,503.3	63.8	42.4	2,609.5
Tax	(326.0)	(27.9)	(22.2)	-	-	(124.4)	(500.5)	(11.4)	(7.8)	(519.7)
Minority interests	(408.4)	37.5	(11.7)	-	-	1.4	(381.2)	(2.1)	-	(383.3)
Net earnings	611.7	139.6	38.5	-	(54.9)	886.7	1,621.6	50.3	34.6	1,706.5
Additions to non-current assets
Capital expenditure	463.9	125.7	21.0	460.6	-	65.4	1,136.6	38.5	14.5	1,189.6
Additions to intangibles	-	-	-	-	-	10.7	10.7	-	-	10.7
Segment assets and liabilities
Segment assets	2,830.1	788.0	88.8	1,055.6	-	2,722.5	7,485.0	322.0	147.9	7,954.9
Segment liabilities	(983.1)	(92.8)	(46.2)	(68.7)	-	(255.0)	(1,445.8)	(44.4)	(32.1)	(1,522.3)

 

Notes to segment revenues and results

 

(i) The accounting policies of the reportable segments are the same as the Group's accounting policies. Operating profit excludes the share of income from associates of US$4.5 million (year ended 31 December 2008 - US$2.3 million). Operating profit is shown before and after exceptional items (see Note 3).

 

(ii) Inter-segment revenues are eliminated on consolidation. Turnover from the Railway and other transport services is stated after eliminating inter-segmental sales to the mining division of US$10.3 million (year ended 31 December 2008 - US$13.2 million). Turnover from the Water concession is stated after eliminating inter-segmental sales to the mining division of US$8.6 million (year ended 31 December 2008 - US$2.7 million) and after eliminating sales to the Railway and other transport services of US$0.2 million (year ended 31 December 2008 - US$0.2 million).

 

(iii) Turnover includes the effect of both final pricing and mark-to-market adjustments to provisionally priced sales of copper and molybdenum concentrates and copper cathodes. Further details of such adjustments are given in Note 5(a).

 

(iv) Turnover includes a realised loss on commodity derivatives at El Tesoro of US$20.0 million (year ended 31 December 2008 - gain of US$16.1 million) and a realised loss at Michilla of US$45.8 million (year ended 31 December 2008 - gain of US$13.9 million). Further details of such gains or losses are given in Note 5(b).

 

(v) The copper and molybdenum concentrate sales are stated net of deductions for tolling charges. Tolling charges for copper and molybdenum concentrates are detailed in Note 5(a).

 

(vi) Exceptional items affecting operating profit in 2008 relate to impairments at El Tesoro and Michilla (see Note 3).

 

(vii) Capital expenditure represents purchases of property, plant and equipment stated on an accruals basis (see Note 11) and may therefore differ from the amount included in the cash flow statement.

 

(viii) The assets of the Railway and transport services segment includes US$112.7 million relating to the Group's 40% interest in Inversiones Hornitos S.A. ("Inversiones Hornitos"), which owns the 150MW Hornitos thermoelectric power plant in Mejillones, under construction in Chile's Antofagasta Region and US$3.8 million relating to the Group's 30% interest in Antofagasta Terminal International S.S.("ATI"), which operates a concession to manage installations in the port of Antofagasta and. The assets of the corporate and other items segment includes US$4.8 million relating to the Group's approximately 18% interest in Sunridge Gold Corp ("Sunridge"), which has a base and precious metals project in Eritrea.

 

b) Entity wide disclosures

 

Revenue by product

 

		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Copper
- Los Pelambres		1,858.0	1,737.8
- El Tesoro		487.6	632.4
- Michilla		170.5	332.7
Molybdenum
- Los Pelambres		180.1	394.8
Silver
- Los Pelambres		19.8	21.8
Gold
- Los Pelambres		23.6	17.6
Total Mining		2,739.6	3,137.1
Railway and transport services		139.4	151.0
Water concession		83.6	84.5
		2,962.6	3,372.6

 

Revenue by location of customer

		Revenue
		Year ended 31.12.09	Year ended 31.12.08
		US$'m	US$'m
Europe
- United Kingdom		148.1	3.7
- Switzerland		348.1	373.9
- Rest of Europe		377.5	603.0
Latin America
- Chile		278.2	419.6
- Rest of Latin America		166.1	250.6
North America
- United States		151.8	382.3
- Rest of North America		11.7	16.5
Asia Pacific
- Japan		784.9	707.5
- China		392.8	353.5
- Rest of Asia		303.4	262.0
		2,962.6	3,372.6

 

Non-current assets by location of asset

 

		Non-Current Assets
		Year ended 31 December 2009	Year ended 31 December 2008
		US$'m	US$'m
- Chile		5,159.7	3,774.2
- Bolivia		33.7	34.9
- Pakistan		141.3	137.8
- Other		11.0	6.2
		5,345.7	3,953.1

 

Notes to geographical information

 

(i) Non-current assets balance disclosed by location of asset excludes financial instruments and deferred tax assets.

 

 

Information about major customers

 

Included in revenues arising from Los Pelambres for the year ended 31 December 2009 are revenues of approximately US$720.5 million (year ended 31 December 2008 - US$ 663.4 million) which arose from sales to two of the Group's largest customers, which are the only customers that individually account for more than 10% of the Group's revenues.

 

5. Derivatives and embedded derivatives

a) Embedded derivatives - provisionally priced sales

 

Copper and molybdenum concentrate sale agreements and copper cathode sale agreements generally provide for provisional pricing of sales at the time or month of shipment, with final pricing being based on the monthly average London Metal Exchange copper price or monthly average molybdenum price for specified future periods. This normally ranges from 30 to 180 days after delivery to the customer.

 

Under IFRS, both gains and losses from the marking-to-market of open sales are recognised through adjustments to turnover in the income statement and to trade debtors in the balance sheet. The Group determines mark-to-market prices using forward prices at each period end for copper concentrate and cathode sales, and period-end month average prices for molybdenum concentrate sales due to the absence of a futures market for that commodity. The mark-to-market adjustments to the balance sheet at the end of each period are as follows:

			Balance sheet
			net mark to market effect
			on debtors
			At 31.12.09	At 31.12.08
			US$'m	US$'m
Los Pelambres - copper concentrate			62.1	(257.6)
Los Pelambres - tolling charges for copper concentrates			(0.6)	4.5
Los Pelambres - molybdenum concentrate			(1.1)	(13.3)
El Tesoro - copper cathodes			2.0	(0.8)
Michilla - copper cathodes			0.4	0.2
			62.8	(267.0)

 

 

(i) Copper sales

	Year ended 31.12.09	Year ended 31.12.09	Year ended 31.12.09		Year ended 31.12.08	Year ended 31.12.08	Year ended 31.12.08
	US$'m	US$'m	US$'m		US$'m	US$'m	US$'m
	Los Pelambres	El Tesoro	Michilla		Los Pelambres	El Tesoro	Michilla
	Copper concentrate	Copper cathodes	Copper cathodes		Copper concentrate	Copper cathodes	Copper cathodes
Provisionally invoiced gross sales	1,602.8	476.5	204.5		2,392.8	644.2	331.0
Effects of pricing adjustments to previous year invoices
Reversal of mark-to-market adjustments at the end of the previous year	257.6	0.8	(0.2)		72.8	1.0	(0.1)
Settlement of copper sales invoiced in the previous year	(179.6)	0.6	1.3		58.3	1.9	1.0
Total effect of adjustments to previous year invoices in the current year	78.0	1.4	1.1		131.1	2.9	0.9
Effects of pricing adjustments to current year invoices
Settlement of copper sales invoiced in the current year	240.2	27.7	10.3		(415.4)	(30.0)	(13.3)
Mark-to-market adjustments at the end of the current year	62.1	2.0	0.4		(257.6)	(0.8)	0.2
Total effect of adjustments to current year invoices	302.3	29.7	10.7		(673.0)	(30.8)	(13.1)
Total pricing adjustments	380.3	31.1	11.8		(541.9)	(27.9)	(12.2)
Realised gains/(losses) on commodity derivatives	-	(20.0)	(45.8)		-	16.1	13.9
Turnover before deducting tolling charges	1,983.1	487.6	170.5		1,850.9	632.4	332.7
Tolling charges	(125.1)	-	-		(113.1)	-	-
Turnover net of tolling charges	1,858.0	487.6	170.5		1,737.8	632.4	332.7

 

Copper concentrate

 

At 31 December 2009, copper concentrate sales at Los Pelambres had an average settlement period of approximately three months after shipment date. Sales totalling 73,700 tonnes remained open as to price, with an average mark-to-market price of 334.0 cents per pound compared with an average provisional invoice price of 295.8 cents per pound.

 

At 31 December 2008 copper concentrate sales at Los Pelambres had an average settlement period of approximately four months after shipment date. Sales totalling 123,800 tonnes remained open as to price, with an average mark-to-market price of 138.9 cents per pound compared with an average provisional invoice price of 233.3 cents per pound.

 

Tolling charges include a mark-to-market loss for copper concentrate sales open as to price at 31 December 2009 of US$5.1 million (31 December 2008 - mark-to-market gain of US$1.9 million).

 

Copper cathodes

 

At 31 December 2009 and 31 December 2008 copper cathode sales at El Tesoro and Michilla had an average settlement period of approximately one month after shipment date. At 31 December 2009, sales totalling 10,400 tonnes remained open as to price, with an average mark-to-market price of  333.5 cents per pound compared with an average provisional invoice price of 322.9 cents per pound. At 31 December 2008, sales totalling 13,200 tonnes remained open as to price, with an average mark-to-market price of 138.3 cents per pound compared with an average provisional invoice price of 140.3 cents per pound.

 

(ii) Molybdenum sales

 

		Year ended 31.12.09		Year ended 31.12.08
		US$'m		US$'m
		Los Pelambres		Los Pelambres
		Molybdenum concentrate		Molybdenum concentrate
Provisionally invoiced gross sales		189.2		508.2
Effects of pricing adjustments to previous year invoices
Reversal of mark-to-market adjustments at the end of the previous year		13.3		(0.1)
Settlement of molybdenum sales invoiced in the previous year		(15.5)		2.7
Total effect of adjustments to previous year invoices in the current year		(2.2)		2.6
Effects of pricing adjustments to current year invoices
Settlement of molybdenum sales invoiced in the current year		6.4		(90.5)
Mark-to-market adjustments at the end of the current year		(1.1)		(13.3)
Total effect of adjustments to current year invoices		5.3		(103.8)
Total pricing adjustments		3.1		(101.2)
Turnover before deducting tolling charges		192.3		407.0
Tolling charges		(12.2)		(12.2)
Turnover net of tolling charges		180.1		394.8

 

At 31 December 2009, molybdenum concentrate sales at Los Pelambres had an average settlement period of approximately two months after shipment date. Sales totalling 1,400 tonnes remained open as to price, with an average mark-to-market price of US$11.3 per pound compared with an average provisional invoice price of US$11.6 per pound.

 

At 31 December 2008, molybdenum concentrate sales at Los Pelambres had an average settlement period of approximately three months after shipment date. Sales totalling 2,000 tonnes remained open as to price, with an average mark-to-market price of US$9.5 per pound compared with an average provisional invoice price of US$12.5 per pound.

 

b) 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.

The Group has applied the hedge accounting provisions of IAS 39 "Financial Instruments: Recognition and Measurement". Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows have been recognised directly in equity, with such amounts subsequently recognised in the income statement in the period when the hedged item affects profit or loss. Any ineffective portion is recognised immediately in the income statement. Realised gains and losses on commodity derivatives recognised in the income statement have been recorded within turnover. The time value element of changes in the fair value of derivative options is excluded from the designated hedging relationship, and is therefore recognised directly in the income statement within other finance items. Realised gains and losses and changes in the fair value of exchange and interest derivatives are recognised within other finance items.

 

 

(i) Mark-to-market adjustments and income statement impact

 

The balance sheet mark-to-market adjustments in respect of derivatives at the end of each period, and the total effect on the income statement for each year, are as follows:

 

For the year ended 31 December 2009

	Income statement impact for the year ended 31.12.09				Impact on reserves at 31.12.09		Total balance sheet impact of mark-to-market adjustments at 31.12.09
	Realised losses	Gains/(losses) resulting from mark-to-market adjustments on hedging instruments	Total net loss		Losses resulting from mark-to-market adjustments on hedging instruments		Net financial asset/(liability)
	US$'m	US$'m	US$'m		US$'m		US$'m
Commodity Derivatives
El Tesoro	(20.0)	0.9	(19.1)		(52.5)		0.1
Michilla	(45.8)	(2.0)	(47.8)		(75.9)		(77.9)
Exchange Derivatives
Corporate and other items	0.8	(0.2)	(1.0)		-		(0.2)
Railway and other transport services	(8.4)	1.6	(6.8)		-		1.6
Water concession	(2.7)	(1.9)	(4.6)		-		(1.9)
Interest Derivatives
Esperanza	-	-	-		(5.7)		(5.7)
	(77.7)	(1.6)	(79.3)		(134.1)		(84.0)

 

For the year ended 31 December 2008

 

	Income statement impact for year ended 31.12.08				Impact on reserves at 31.12.08		Total balance sheet impact of mark-to-market adjustments at 31.12.08
	Realised gains	Losses resulting from mark-to-market adjustments on hedging instruments	Total net gain/(loss)		Gains resulting from mark-to-market adjustments on hedging instruments		Net financial asset/(liability)
	US$'m	US$'m	US$'m		US$'m		US$'m
Commodity Derivatives
El Tesoro	16.1	(1.1)	15.0		52.6		51.7
Michilla	13.9	(0.5)	13.4		-		-
Exchange Derivatives
Railway and other transport services	-	(1.4)	(1.4)		-		(1.4)
	30.0	(3.0)	27.0		52.6		50.3

 

The gains/(losses) recognised in reserves are disclosed before minority interest and tax. 

 

The net financial asset/(liability) resulting from the balance sheet mark-to-market adjustments are analysed as follows:

 

			At 31.12.09		At 31.12.08
			US$'m		US$'m
Analysed between:
Current assets			1.7		51.7
Current liabilities			(81.2)		(1.4)
Non-current liabilities			(4.5)		-
			(84.0)		50.3

 

(ii) Outstanding derivative financial instruments

Commodity derivatives

- Min/max instruments

	000 tonnes of copper production hedged					For instruments held at 31.12.09
	At 31.12.09	Entered into post year end	Matured post year  end	At 28.02.10		Weighted average remaining period from 1 January 2010	Covering a period up to:	Weighted average floor	Weighted average cap
	000 tonnes	000 tonnes	000 tonnes	000 tonnes		Months		US cents	US cents
Michilla	22,200	-	(1,850)	20,350		6.5	31/12/10	186.8	237.8

 

In 2009, 61,400 tonnes of 2009 Group copper production was hedged either during or before the start of 2009, all of which matured in the year.

Up to 28 February 2010, 22,200 tonnes of 2010 Group copper production has been hedged with min-max options of which 1,850 tonnes matured by 28 February 2010 and 20,350 tonnes remain outstanding and will mature by the end of the year.

 

- Futures - copper production

	000 tonnes of copper production hedged					For instruments held at 31.12.09
	At 31.12.09	Entered into post year end	Matured post year  end	At 28.02.10		Weighted average remaining period from 1 January 2010	Covering a period up to:	Weighted average price
	000 tonnes	000 tonnes	000 tonnes	000 tonnes		Months		US cents
Michilla	9,800	-	(1,000)	8,800		6.4	31/12/10	199.9

 

In 2009, 17,850 tonnes of 2009 Group copper production was hedged either during or before the start of 2009, all of which matured in the year.

Up to 28 February 2010, 9,800 tonnes of 2010 Group copper production has been hedged with futures of which 1,000 tonnes matured by 28 February 2010 and 8,800 tonnes remain outstanding and will mature by the end of the year.

 

- Combined min-max instruments and futures-copper production

In total, in 2009, 79,250 tonnes of 2009 Group copper production was hedged either during or before the start of 2009, all of which matured in the year.

In total, up to 28 February 2010, 32,000 tonnes of 2010 Group copper production has been hedged with either min-max options or futures of which 2,850 tonnes matured by 28 February 2010 and 29,150 tonnes remain outstanding and will mature by the end of the year.

 

- Futures - arbitrage

The Group also has futures for copper production, to buy and sell copper production with the effect of swapping COMEX prices for LME prices without eliminating underlying market price exposure.

	000 tonnes of copper production hedged					For instruments held at 31.12.09
	At 31.12.09	Entered into post year end	Matured post year  end	At 28.02.10		Weighted average remaining period from 1 January 2010	Covering a period up to:
	000 tonnes	000 tonnes	000 tonnes	000 tonnes		Months
El Tesoro	6,500	100	(500)	6,100		7.0	31/01/11

 

The post year end balances relate to futures entered into and matured between 31 December 2009 and 28 February 2010.

 

(iii) Exchange derivatives

The Group periodically uses foreign exchange derivatives to reduce its exposure to fluctuations in the fair value of non-US dollar denominated assets or liabilities.

- Cross currency swaps

The Group has used cross currency swaps to swap Chilean pesos for US dollars.

	Principal value of cross currency swaps held					For instruments held at 31.12.09
	At 31.12.09	Entered into post year end	Matured post year  end	At 28.02.10		Weighted average remaining period from 1 January 2010	Covering a period up to:	Weighted average rate
	US$'m	US$'m	US$'m	US$'m		Months		Ch$/US$
Esperanza	-	68.0	-	68.0
Corporate and other items	24.7	10.0	(30.2)	4.5		2.0	01/04/10	511.0
Railway and other transport services	68.8	56.8	(68.8)	56.8		1.0	17/02/10	496.8
Water concession	9.3	-	(6.2)	3.1		2.0	05/03/10	608.5
	102.8	134.8	(105.2)	132.4		1.3		510.3

 

The post year end balances relate to cross currency swaps entered into and matured between 31 December 2009 and 28 February 2010.

 

(iv) Interest derivatives

The Group periodically uses interest derivatives to reduce its exposure to interest rate movements.

 

- Interest rate swaps

The Group has used interest rate swaps to swap the floating rate interest relating to the Esperanza financing for fixed rate interest. At 31 December 2009 the Group had entered into the contracts outlined below.

 

	Phase	Start date	Maturity date	Maximum notional amount	Weighted Average Fixed Rate
				US$'m	%
Esperanza	1	15/02/2010	15/02/2011	787.8	1.353
	2	15/02/2011	15/02/2018	840.0	3.372

 

No further interest rate swaps were entered into between 31 December 2009 and 28 February 2010.

 

6. Net finance (expense)/income

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Investment income
Interest receivable - from cash and cash equivalents			13.2	78.9
Interest expense
Interest payable			(23.4)	(13.1)
Amortisation of deferred finance costs			(0.4)	(0.4)
Preference dividends			(0.2)	(0.2)
			(24.0)	(13.7)
Other finance items
Time value effect of derivatives			(1.1)	(1.6)
Foreign exchange derivatives			(12.4)	(1.4)
Unwinding of discount on provisions			(2.8)	(2.0)
Foreign exchange			1.2	(3.9)
			(15.1)	(8.9)
Net finance (expense)/income			(25.9)	56.3

 

An income of US$8.7 million (2008 - expense of US$6.2 million) relating to net interest expense and other finance items at Esperanza was capitalised within the development expenditure of that project during the year, and is consequently not included within the above table.

 

7. Taxation

The tax charge for the year comprised the following:

 

			Year ended	Year ended
			31.12.09	31.12.08
			US$'m	US$'m
Current tax charge
Corporate tax (principally first category tax in Chile)			(161.6)	(284.8)
Mining tax (Royalty)			(41.4)	(70.3)
Withholding tax provision			(0.4)	(120.3)
Exchange gains/(losses) on corporate tax balances			18.3	(66.3)
			(185.1)	(541.7)
Deferred tax (charge)/credit
Corporate tax (principally first category tax in Chile)			(91.2)	(30.3)
Mining tax (Royalty)			(13.7)	4.1
Withholding tax provision			(27.7)	48.2
			(132.6)	22.0
Total tax charge (Income tax expense)			(317.7)	(519.7)

 

The Group incurs withholding taxes on the remittance of profits from Chile and the other countries in which it operates and deferred tax is provided on undistributed earnings to the extent that remittance is probable in the foreseeable future.

 

The rate of first category (i.e. corporation) tax in Chile was 17% for both 2009 and 2008. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax (royalty) which imposes an additional tax of 4% of tax-adjusted operating profit. Production from the Tesoro North East deposit and the run-of-mine processing at El Tesoro is subject to the mining tax at a rate of 5% of tax-adjusted operating profit. The mining tax is tax deductible (i.e. an allowable expense in determining liability to first category tax).

 

In addition to first category tax and the mining tax, the Group incurs withholding taxes on the remittance of profits from Chile. Withholding tax is levied on remittances of profits from Chile at 35% less first category tax already paid. Accordingly, the effective tax rate of withholding tax is approximately 18% of the amount remitted or expected to be remitted.

 

The tax charge for the year was US$317.7 million and the effective tax rate was 22.1%. This rate varies from the standard rate principally due to the provision of withholding tax of US$28.1 million, the effect of mining tax which resulted in a charge of US$55.1 million, exchange gains of US$18.3 million on Chilean peso denominated tax prepayments due to the strengthening of the Chilean peso during the year, and the effect of items which are not subject to or deductible from first category tax. In 2008 the total tax charge was US$519.7 million and the effective tax rate was 19.9%. This was principally due to the provision of withholding tax of US$72.1 million, and the effect of the mining tax, which resulted in a charge of US$66.2 million, exchange losses of US$66.3 million on Chilean-peso denominated tax prepayments due to the weakening of the US dollar during the year and the effect of items which are not subject to or deductible from first category tax.

 

8. Basic earnings per share

Basic earnings per share is calculated on profit after tax and minority interest giving net earnings of US$667.7 million (2008 - US$1,706.5 million) and based on 985,856,695 ordinary shares. There was no potential dilution of ordinary shares in either year.

 

In 2008 basic earnings per share excluding exceptional items is calculated on profit after tax and minority interest giving net earnings excluding exceptional items of US$842.9 million.

 

9. Dividends

The Board will recommend a final dividend of 20.0 cents per ordinary share, which comprises an ordinary dividendof 6.0 cents per share and a special dividend of 14.0 cents per share. The interim dividend of 3.4 cents per share was an ordinary dividend and was paid on 8 October 2009. Together, this gives total dividends proposed in relation to 2009 of 23.4 cents per share.

 

The final dividend proposed in relation to 2008 was 53.6 cents, which comprised an ordinary dividend of 5.6 cents per share and a special dividend of 48.0 cents per share. Together with the interim dividend that year of 6.4 cents per share, which comprised an ordinary dividend of 3.4 cents per share and a special dividend of 3.0 cents per share, this gave total dividends proposed in relation to 2008 of 60.0 cents per share.

 

Dividends per share actually paid in the year and recognised as a deduction from net equity under IFRS were 57.0 cents (2008 - 49.8 cents) being the interim dividend for the year and the final dividend proposed in respect of the previous year.

The final dividend will be paid on 10 June 2010 to shareholders on the register at the close of business on 7 May 2010. Dividends are declared and paid gross. The conversion rate for the final dividend of 23.4 cents to be paid in sterling will be set on 12 May 2010.

Dividends are declared in US dollars but may be paid in either dollars or sterling. Shareholders on the register of members with an address in the United Kingdom receive dividend payments in sterling, unless they elect to be paid in dollars. All other shareholders are paid by cheque in dollars, unless they have previously instructed the Company's registrar to pay dividends by bank transfer to a sterling bank account, or they elect for payment by cheque in sterling. The Company's registrar must receive any such election before the close of business on the record date of 7May 2010.

 

10. Intangible assets

	Concession	Exploration	Year ended	Year ended
	right	licenses	31.12.09	31.12.08
	US$'m	US$'m	US$'m	US$'m
Balance at the beginning of the year	107.9	125.7	233.6	263.6
Additions	52.5	-	52.5	10.7
Amortisation	(12.4)	-	(12.4)	(10.0)
Foreign currency exchange difference	37.5	-	37.5	(30.7)
Balance at the end of the year	185.5	125.7	311.2	233.6

 

The concession right relates to the 30 year concession to operate the water rights and facilities in the Antofagasta Region of Chile which the Group's wholly-owned subsidiary, Aguas de Antofagasta S.A., acquired in December 2003. This intangible asset is being amortised on a straight-line basis over the life of the concession, or the useful life of any component part if less.

The US$52.5 million addition to the concession right represents the desalination plant which was acquired by Aguas de Antofagasta S.A. Further details are set out in Note 25.

At 31 December 2009, US$125.7 million of the exploration licences relate to the value attributed of US$ 120.7 million rights acquired in the Reko Diq area of south-west Pakistan. The remaining US$5.0 million relate to the acquisition of an initial interest in prospecting licences in Zambia from TEAL Exploration & Mining Limited. This intangible asset will be amortised in accordance with the Group's policy for mining properties when the related mining properties enter into production.

 

11. Property, plant and equipment

	Mining	Railway and other transport	Water Concession	Year ended 31.12.09	Year ended 31.12.08
	US$'m	US$'m	US$'m	US$'m	US$'m
Balance at the beginning of the year	3,479.8	176.4	23.5	3,679.7	2,623.9
Additions	1,308.1	21.1	6.1	1,335.3	1,188.8
Acquisition	-	-	-	-	243.1
Provisions capitalised	105.1	-	-	105.1	0.8
Depreciation	(188.1)	(14.8)	(2.2)	(205.1)	(170.2)
Depreciation capitalised	(48.3)	-	-	(48.3)	(6.9)
Asset disposals	(3.4)	(0.5)	(0.3)	(4.2)	(5.3)
Impairments	-	-	-	-	(188.3)
Foreign currency exchange difference	-	4.1	6.6	10.7	(6.2)
Balance at the end of the year	4,653.2	186.3	33.7	4,873.2	3,679.7

 

US$24.2 million of depreciation in respect of assets relating to the Esperanza project has been capitalised within the development expenditure of that project and US$24.1 million of depreciation in respect of assets relating to the ROM and Tesoro North East projects has been capitalised within inventories, and accordingly is excluded from the depreciation charge recorded in the income statement as shown in Note 4(a).

As explained in Note 3, the impairment loss in 2008 of US$188.3 million arose as a result of a write-off of property, plant and equipment at El Tesoro (US$160.0 million) and Michilla (US$28.3 million) during that year.

The acquisition during the year ended 2008 relates to mining property assets acquired via the acquisition of the minority interest in Antomin Limited.

 

Future capital commitments at 31 December 2009 were US$495.1 million (2008 - US$447.0 million).

 

 

12. Investment property

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Balance at the beginning of the year			2.7	3.5
Foreign currency exchange difference			0.7	(0.8)
Balance at the end of the year			3.4	2.7

 

Investment property represents the Group's forestry properties, which are held for long-term potential and accordingly classified as investment property held at cost.

 

13. Investment in associates

	Inversiones Hornitos	ATI	Sunridge	Year ended 31.12.09	Year ended 31.12.08
	US$'m	US$'m	US$'m	US$'m	US$'m
Balance at the beginning of the year	-	3.0	-	3.0	2.5
				-
Acquisitions	80.9	-	5.0	85.9	-
Capital contributions	28.6	-	-	28.6	-
Share of profit before tax	3.9	1.8	(0.2)	5.5	2.7
Share of tax	(0.7)	(0.3)	-	(1.0)	(0.4)
Share of income from associate	3.2	1.5	(0.2)	4.5	2.3
Dividends received	-	(0.7)	-	(0.7)	(1.8)
Balance at the end of the year	112.7	3.8	4.8	121.3	3.0

 

The investments which are included in the US$121.3 million balance at 31 December 2009 are set out below:

 

(i) The Group's 40% interest in Inversiones Hornitos S.A. ("Inversiones Hornitos"), which owns the 150 MW Hornitos thermoelectric power plant in Mejillones, in Chile's Antofagasta Region.

(ii) The Group's 30% interest in Antofagasta Terminal Internacional S.A. ("ATI"), which operates a concession to manage installations in the port of Antofagasta.

(iii) The Group's 17.8% interest in Sunridge Gold Corp ("Sunridge"), which has a base and precious metals project in Eritrea. Although the Group holds less than a 20% interest in Sunridge, the Group's representation on the board of directors of Sunridge gives it significant influence over the entity and it is therefore accounted for as an associate. The fair value of the Group's interest in Sunridge at 31 December 2009 was US$6.0 million.

 

14. Joint venture agreements

Tethyan Copper Company Limited

In September 2006 the Group entered into a joint venture agreement with Barrick Gold Corporation ("Barrick Gold"), to establish a 50:50 joint venture in relation to Tethyan Copper Company Limited's ("Tethyan") mineral interests in Pakistan. The Group's 50% share of the assets and liabilities and results of the jointly controlled entity are included in the consolidated balance sheet and in the consolidated income statement of the Group under the proportionate consolidation method.

 

Energía Andina S.A.

 

In October 2008 Energía Andina S.A. was formed as a vehicle for the exploration and exploitation of potential sources of geothermal energy. The company is 60% owned by the Group and 40% owned by Empresa Nacional del Petróleo ("ENAP") of Chile. Control over the key operational and financial decisions in respect of the company are jointly exercised by the Group and ENAP, and accordingly the company is accounted for as a jointly controlled entity, with results included in the consolidated balance sheet and in the consolidated income statement of the Group under the proportionate consolidation method.

 

15. Available for sale investments

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Balance at the beginning of the year			0.7	3.3
Movements in fair value			0.5	(2.6)
Balance at the end of the year			1.2	0.7

 

Available for sale investments represent those investments which are not subsidiaries, associates or joint ventures and are not held for trading purposes.

At 31 December 2009, the balance of US$1.2 million comprises mainly the market value of shares in Panoro Minerals Limited which were acquired as part consideration for the disposal of the Group's share of the joint venture entity Cordillera de las Minas S.A. The fair value of these shares increased by US$0.5 million during the year (2008 - a decrease of US$2.6 million).

The fair value of the remaining available for sale investments of less than US$0.1 million held by the Group at 31 December 2009 are mainly Chilean-peso denominated and did not differ materially from cost at the year end.

 

 

16. Inventories

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Raw materials and consumables			57.5	49.6
Work in progress			166.0	87.1
Finished goods			16.6	19.2
			240.1	155.9

Work in progress includes the following balances which are expected to be processed more than twelve months after the balance sheet date:

(i) US$30.0 million (2008 - US$30.1 million) relating to long term inventories at Los Pelambres

(ii) US$5.2 million (2008 - US$6.6 million) relating to high carbonate ore inventories at El Tesoro.

 

Work in progress includes US$33.8 million (2008 - nil) relating to Tesoro North East and US$50.9 million (2008 - nil) relating to the ROM project at El Tesoro.

 

During 2008 a write-off of US$0.9 million was recorded at Michilla in order to reduce inventories to their expected net realisable value.

17. Borrowings

	Notes		At 31.12.09	At 31.12.08
			US$'m	US$'m
Los Pelambres
Corporate loans	(i)		(576.9)	(152.6)
Other short term loans	(ii)		(245.0)	(224.0)
El Tesoro
Finance leases	(iii)		(0.3)	(0.4)
Michilla
Finance leases	(iv)		(1.5)	-
Esperanza
Corporate loans	(v)		(677.6)	-
Subordinated debt	(vi)		(66.1)	-
Finance leases	(vii)		(11.8)	(19.5)
Corporate and other items
Finance leases	(viii)		(37.6)	(32.4)
Railway and other transport services
Loans	(ix)		(6.6)	(7.1)
Other
Preference shares	(x)		(3.2)	(2.9)
Total (see Note 23)			(1,626.6)	(438.9)

(i) Corporate loans at Los Pelambres are unsecured and US dollar denominated. The balance of US$576.9 million comprises:

a) US$76.3 million in respect of syndicated loans of US$76.7 million less deferred financing costs of US$0.4 million. These loans are repayable in semi-annual instalments with 1 year remaining and carry interest at approximately LIBOR six-month rate plus 0.24%.

b) US$500.6 million in respect of syndicated loans of US$505.0 million less deferred financing costs of US$4.4 million. This loan is for a term of 5 years and has an interest rate of LIBOR plus 1.6%.

During January 2010 Los Pelambres entered into an additional loan of US$245.0 million with Japan Bank for International Cooperation ("JBIC"), which is expected to be drawn down during the first quarter of 2010. This loan is for a term of approximately 7 years and has an interest rate of approximately LIBOR plus 0.9%.

 

(ii) Short term loans at Los Pelambres have an average duration of 1.5 months and a weighted average interest rate average of 0.8%, comprising LIBOR plus spread. These loans are expected to be repaid when the JBIC loan is drawn down.

 

(iii) Finance leases at El Tesoro are US dollar denominated, and are fixed rate with an average interest rate of 1.09%.

 

(iv) Finance leases at Michilla are US dollar denominated, and are fixed rate with an average interest rate of 6.25%.

 

(v) On 15 May 2009 the Group signed an agreement for US$1,050 million of project financing for Esperanza. The project financing facility is being provided by a consortium of senior lenders including Japan Bank for International Cooperation (US$400 million), Export Development Canada (US$200 million), KfW IPEX-Bank (US$50 million) and a commercial bank syndicate (US$400 million). The financing is for a term of approximately 12 years and over the life of the loan the borrowing interest is payable at an interest rate of LIBOR six-month rate plus margins of between 1.375% - 3.000%. Financial closing and satisfaction of conditions to borrowing for this facility were achieved on 29 June 2009, and the first drawdown made on 9 July 2009. The balance of US$677.6 million represents the US$716.1 million drawn down net of deferred financing costs of US$38.5 million.

The Group has used interest rate swaps to swap the floating rate interest for fixed rate interest. At 31 December 2009 the Group had entered into contracts for a maximum notional amount of US$787.8 million at a weighted average fixed rate of 1.353% maturing in February 2011 and a maximum notional amount of notional amount of US$840.0 million at a weighted average fixed rate of 3.372% maturing in February 2018.

 

(vi) This balance includes long term subordinated debt provided to Esperanza by Marubeni Corporation with a duration of 8 years and weighted average interest rate of 4.3%, comprising LIBOR plus spread. Long term subordinated debt provided by Group companies to Esperanza has been eliminated on consolidation.

 

(vii) Finance leases at Esperanza are denominated in US dollars, Chilean Pesos and Unidades de Fomento (i.e. inflation-linked Chilean pesos) with a maximum duration of 5 years and fixed rate with an average interest rate at approximately LIBOR three-month rate plus 2.8%.

 

(viii) Finance leases at Corporate and other items are denominated in Unidades de Fomento (i.e. inflation-linked Chilean pesos) and have a duration of 20 years and a fixed rate of 5.29%.

 

(ix) Railway and other transport services includes a balance of US$6.4 million denominated in US dollars, which is partly floating rate and partly fixed rate. The weighted average floating interest rate (Bolivian Reference Interest Rate Index) at 31 December 2009 was 7.7% and the loan is repayable over 1.4 years. The balance at 31 December 2009 also includes US dollar customer advances of US$0.2 million.

 

(x) The preference shares are sterling-denominated and issued by the Company. There were 2,000,000 shares of £1 each authorised, issued and fully paid at 31 December 2009. The preference shares are non-redeemable and are entitled to a fixed cumulative dividend of 5% per annum. On winding up they are entitled to repayment and any arrears of dividend in priority to ordinary shareholders, but are not entitled to participate further in any surplus. Each preference share carries 100 votes in any general meeting of the Company.

 

Maturity of borrowings

			At 31.12.09	At 31.12.08
			US$'m	US$'m
Short-term borrowings			(431.8)	(319.0)
Medium and long-term borrowings			(1,194.8)	(119.9)
Total (see Note 23)			(1,626.6)	(438.9)

 

 

At 31 December 2009 US$54.4 million (2008 - US$55.2 million) of the borrowings has fixed rate interest and US$1,572.2 million (2008 - US$383.7 million) has floating rate interest. The Group periodically enters into interest rate derivative contracts to manage its exposure to interest rates. Details of any derivative instruments held by the Group are given in Note 5 and Note 17(v) above.

 

18. Post-employment benefit obligation

 

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Balance at the beginning of the year			(29.0)	(29.1)
Charge to operating profit in the year			(13.3)	(10.6)
Release of discount to net interest in year			(1.3)	(1.2)
Reclassification			(0.4)	-
Charge capitalised			(0.4)	(0.5)
Utilised in the year			4.6	3.0
Foreign currency exchange difference			(8.4)	9.4
Balance at the end of the year			(48.2)	(29.0)

 

The post employment benefit obligation relates to the provision for severance indemnities which are payable when an employment contract comes to an end, in accordance with normal employment practice in Chile and other countries in which the Group operates. The severance indemnity obligation is treated as an unfunded defined benefit plan, and the calculation is based on valuations performed by an independent actuary.

 

19. Long-term provisions

 

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Balance at the beginning of the year			(18.0)	(10.9)
Charge to operating profit in the year			(2.2)	(5.0)
Release of discount to net interest in the year			(1.5)	(0.8)
Charge capitalised			(1.3)	(0.7)
Capitalised adjustment to provision			(105.1)	-
Reclassification			0.4	(0.7)
Foreign currency exchange difference			(0.2)	0.1
Balance at the end of the year			(127.9)	(18.0)
Analysed as follows:
Decommissioning and restoration			(127.1)	(17.5)
Termination of water concession			(0.8)	(0.5)
Balance at the end of the year			(127.9)	(18.0)

 

Decommissioning and restoration costs relate to the Group's mining operations. Costs are estimated on the basis of a formal closure plan and are subject to regular independent formal review. It is estimated that the provision will be utilised over a period of up to 27 years based on current mine plans.

 

New assessments of the closure provisions for all mining operations have been performed by external consultants, resulting in a US$105.1 million increase to the capitalised decommissioning and restoration provision. The capitalised provision balances are depreciated over the life of the corresponding asset or mine life if shorter. The increase in the provision balance is mainly due to the significant amount of construction work at Esperanza since the previous assessments.

 

The provision for the termination of the water concession relates to the provision for items of plant, property and equipment and working capital items under Aguas de Antofagasta's ownership to be transferred to the previous state-owned operator ESSAN at the end of the concession period, and is based on the net present value of the estimated value of those assets and liabilities in existence at the end of the concession.

 

20. Deferred tax assets and liabilities

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Net position at the beginning of the year			(355.4)	(360.9)
Charge to tax on profit in year			(132.6)	22.0
Deferred tax recognised directly in reserves and minority interest			22.8	(9.0)
Deferred tax capitalised			(8.4)	(12.2)
Foreign currency exchange difference			(5.1)	4.7
Net position at the end of the year			(478.7)	(355.4)
Analysed between:
Deferred tax assets			31.1	12.7
Deferred tax liabilities			(509.8)	(368.1)
Net position			(478.7)	(355.4)

 

21. Share capital and share premium

There was no change in share capital or share premium in the year ended 31 December 2009 or 2008.

 

22. Reconciliation of profit before tax to net cash inflow from operating activities

			Year ended 31.12.09	Year ended 31.12.08
			US$'m	US$'m
Profit before tax			1,437.6	2,609.5
Depreciation and amortisation			217.5	180.2
Loss on disposal of property, plant and equipment			4.2	5.3
Asset impairment			-	188.3
Profit on part-disposal of subsidiaries			-	(1,024.9)
Net finance expense/(income)			25.9	(56.3)
Share of profit of associates			(4.5)	(2.3)
Increase in inventories			(59.8)	(26.0)
(Increase)/decrease in debtors			(266.2)	133.0
(Decrease)/increase in creditors and provisions			(186.9)	447.5
Cash flows from operations			1,167.8	2,454.3

 

 

23. Analysis of changes in net cash

 

	At 1.1.09	Cash flows	Other	Exchange	At 31.12.09
	US$'m	US$'m	US$'m	US$'m	US$'m
Cash and cash equivalents	3,358.0	(188.5)	-	52.8	3,222.3
Bank borrowings due within one year	(306.0)	(43.3)	(77.1)	(0.1)	(426.5)
Bank borrowings due after one year	(77.6)	(1,144.7)	76.6	-	(1,145.7)
Finance leases due within one year	(13.0)	10.9	(3.5)	0.3	(5.3)
Finance leases due after one year	(39.4)	-	0.1	(6.6)	(45.9)
Preference shares	(2.9)	-	-	(0.3)	(3.2)
Total borrowings	(438.9)	(1,177.1)	(3.9)	(6.7)	(1,626.6)
Net cash	2,919.1	(1,365.6)	(3.9)	46.1	1,595.7

 

 

Net cash

 

Net cash at the end of each year was as follows:

 

				At 31.12.09	At 31.12.08
				US$'m	US$'m
Cash and cash equivalents				3,222.3	3,358.0
Total borrowings				(1,626.6)	(438.9)
				1,595.7	2,919.1

 

24. Acquisitions

There have been no business combinations that would require disclosures under IFRS 3 Business Combinations during the year ended 31 December 2009. This note sets out a summary of other transactions that occurred during the year ended 31 December 2009 which resulted in the acquisition of an interest in various assets.

 

Acquisition of minority interest in Compañía Contractual Minera Caracoles

 

In February 2009 the Group acquired the 18.5% minority interest in its subsidiary Compañía Contractual Minera Caracoles from Compañía Minera Milpo of Perú, for a consideration of US$25.0 million.

 

Acquisition of interest in Inversiones Hornitos S.A.

 

On 3 July 2009 the Group, through its wholly-owned subsidiary Antofagasta Railway Company plc, exercised an option to acquire a 40% interest in Inversiones Hornitos S.A. ("Inversiones Hornitos") from GDF SUEZ, which continues to hold the remaining 60% interest. Inversiones Hornitos is the owner of the 150 MW Hornitos thermoelectric power plant which is being constructed in Mejillones, in Chile's Antofagasta Region. The Hornitos thermoelectric power plant, which is expected to begin commercial operation in 2011, will provide energy to Minera Esperanza to meet its energy requirements, under a long-term supply agreement signed at the end of 2007 between GDF SUEZ and Antofagasta Minerals S.A. ("Antofagasta Minerals"). The acquisition of the 40% interest in Inversiones Hornitos took place under an option granted to Antofagasta Minerals when the long-term supply agreement was signed. Under the acquisition, the Group is responsible for its 40% share of the estimated total US$0.4 billion development costs of the Hornitos thermoelectric power plant. This included an initial payment on 15 July 2009 of US$80.9 million to GDF Suez, representing the Group share of costs already incurred plus interest to the date of acquisition. Between the date of acquisition and 31 December 2009, further capital contributions of US$28.6 million were made.

 

Acquisition of interest in Sunridge Gold Corp

 

In September 2009 the Group entered into an exploration agreement with Sunridge Gold Corp ("Sunridge"). Under this agreement the Group can earn an initial 60% interest in Sunridge's Asmara project in Eritrea by funding US$10 million of exploration work over a 5-year period, and a further 15% interest (for an aggregate 75% interest in the project) by delivering a feasibility study on the project. In October 2009 the Group acquired approximately 18% of the issued share capital of Sunridge under a private placement for a consideration of US$5.0 million.

 

25. Other transactions

 

In March 2009 ADASA acquired the desalination plant located in the city of Antofagasta from the current owner, Desalant S.A. ("Desalant") for a purchase price of US$52.5 million. As part of this agreement, on-going arbitration proceedings between ADASA and Desalant were also terminated. The desalination plant will be held under the terms of the 30-year concession from the previous state-owned operator Empresa de Servicios Sanitarios de Antofagasta S.A. ("ESSAN").

In March 2009 the Group entered into an agreement with Almaden Minerals Ltd ("Almaden") to acquire an interest in the Tuligtic copper-gold project in Mexico. Following the review of initial drilling results, the Group has decided not to proceed further with this project.

In October 2009 the Group entered into an agreement with Ormonde Mining plc ("Ormonde") in respect of its La Zarza deposit in southern Spain. The Group has the right to earn a 51% interest in the deposit over a three year period by funding US$7 million of exploration and subsequent evaluation activities, with a minimum commitment of US$1 million in the first year. Antofagasta will have the right to further increase its interest in the La Zarza project to 75% by funding a feasibility study for the project.

In November 2009 the Group entered into an agreement with International Base Metals Limited ("IBML") of Australia in respect of its Kopermyn mining property in northern Namibia. The Group has the right to earn up to a 60% interest in the property over a two year period by funding up to US$1.8 million of exploration activities, with a minimum commitment of US$0.5 million.

 

In December 2009 the Group entered into an agreement with Carbon Energy Limited ("Carbon Energy"), whereby Carbon Energy can earn a 30% stake in the Mulpun deposit, through applying its underground coal gasification technology to the project and through funding 30% of the development costs of a trial project. 

 

 

26. Contingent assets and liabilities

There are a number of claims currently outstanding to which Antofagasta plc or its subsidiaries ("the Group") is a party, for which no provision has been made in the financial statements and are currently not expected to result in any material loss to the Group. Details of the principal claims in existence either during or at the end of the year and their current status are set out below:

a) Los Pelambres - Mauro tailings dam

As previously announced, during 2008 Los Pelambres entered into binding settlements in respect of litigation relating to the Mauro tailings dam. In December 2008, Los Pelambres became aware of further legal proceedings of which had been initiated in first instance courts in Santiago and Los Vilos by certain members of the Caimanes community located near the Mauro valley. These claims, some of which have already been rejected by the relevant courts, sought to prevent the operation of the Mauro tailings dam. Los Pelambres is continuing to take necessary steps to protect its position and remains confident of its rights to continue operation of the dam.

b) Tethyan Copper Company Limited - Chagai Hills Exploration Joint Venture

On 26 June 2007 the High Court of Balochistan at Quetta dismissed a petition which had sought to declare that the Chagai Hills Exploration Joint Venture of 1993 and the exploration licences granted to Tethyan were null and void and overturned an injunction passed earlier by the Court. The petition had been filed in November 2006 and was directed at several parties including the Group, the Government of Pakistan and the Government of Balochistan.

The petitioners have filed a Civil Petition for Leave to Appeal ("CPLA") against the judgment and this will be heard by the Supreme Court to decide whether the appeal should be heard on its merits.

 

27. Post balance sheet events

a) Duluth Metals Limited

On 14 January 2010, the Group signed a legally binding Heads of Agreement ("HoA") with Duluth Metals Limited ("Duluth Metals"), a company listed on the Toronto Stock Exchange ("TSX"), pursuant to which Antofagasta will initially become a 40% partner in Duluth Metals' Nokomis copper-nickel-platinum group metal ("PGM") deposit ("Nokomis"), located in the highly prospective Duluth Complex in northeastern Minnesota, USA by committing to fund a total of US$130.0 million of further exploration and feasibility study expenditure over a 3 year period. The Group will also have the option to acquire an additional 25% interest in Nokomis under certain conditions. Antofagasta also subscribed for 6 million new ordinary shares in Duluth Metals by way of a private placement and a subsequent anti-dilution pre-emptive subscription of 550,939 shares at Cdn$2.00 per share in cash, to become an approximately 7% shareholder in Duluth Metals.

 

b) Los Pelambres Financing

During January 2010 Los Pelambres entered into an additional loan of US$245.0 million with Japan Bank for International Cooperation ("JBIC"), which is expected to be drawn down during the first quarter of 2010. This loan is for a term of approximately 7 years and has an interest rate of approximately LIBOR plus 0.9%.

 

 

 

 

 

28. Related party transactions

The ultimate parent company of the Group is Metalinvest Establishment, which is controlled by the E. Abaroa Foundation, in which members of the Luksic family are interested. The Company's subsidiaries, in the ordinary course of business, enter into various sale and purchase transactions with companies also controlled by members of the Luksic family, including Banco de Chile S.A., Madeco S.A. and Compañía Cervecerías Unidas S.A., which are subsidiaries of Quiñenco S.A., a Chilean industrial and financial conglomerate the shares of which are traded on the Santiago Stock Exchange. These transactions, all of which were on normal commercial terms, are in total not considered to be material.

During 2008 the Group acquired Mineralinvest Establishment's ("Mineralinvest") interest in certain mining properties held through Antomin Limited ("Antomin"). Mineralinvest is an entity ultimately controlled by the Luksic family. The remaining properties owned by Antomin which were not 100% acquired by the Group under the terms of this agreement were separated into newly created indirect subsidiaries of Antofagasta (Antomin 2 Limited ("Antomin 2") and Antomin Investors Limited ("Antomin Investors")), which continue to be owned approximately 51% by Antofagasta and approximately 49% by Mineralinvest. With respect to Antomin 2 and Antomin Investors, Antofagasta has the exclusive right to acquire at fair value under certain conditions, the shareholding of Mineralinvest in those entities, or the underlying properties, for a period of five years from August 2008. The Group has also committed to meet in full any exploration costs relating to the properties held by these entities. No exploration expenditure was incurred in respect of these properties during the year ended 31 December 2009 (31 December 2008 - nil).

Cerro Centinela S.A. ("Centinela"), an entity ultimately controlled by the Luksic family, has an interest of 7.973% in Minera Michilla S.A. ("Michilla"), a shareholding it has held since Michilla was created through the merger of two predecessor companies on 31 December 1993. During the year ended 31 December 2009 Centinela's share of dividends received from Michilla were nil (31 December 2008 (US$7.0 million).

In September 2006 the Group entered into a joint venture agreement with Barrick Gold Corporation ("Barrick Gold") to establish a 50:50 joint venture over Tethyan's mineral interests in Pakistan. During the year ended 31 December 2009 the Group contributed US$31.1 million (31 December 2008 - US$46.1 million)to Tethyan to provide funds for Tethyan's on-going exploration programme. The balance due from Tethyan to Group companies at the end of the period was US$0.5 million. (31 December 2008 - US$1.4 million).

In October 2008 Energía Andina S.A. was formed as a vehicle for the exploration and exploitation of potential sources of geothermal energy. The company is 60% owned by the Group and 40% owned by Empresa Nacional del Petróleo ("ENAP") of Chile. During the year ended 31 December 2009 the Group contributed US$nil (31 December 2008 - US$9.0 million) to Energía Andina S.A. to provide funds for its operations. The balance due from Energía Andina S.A. to the Group at 31 December 2009 was US$0.2 million (31 December 2008 - US$0.2 million).

The Group has a 30% interest in Antofagasta Terminal Internacional S.A. ("ATI"), which is accounted for as an associate. The Group received dividends during the period of US$0.7 million (2008 - US$1.8 million), as disclosed in the Consolidated Cash Flow Statement.

 

In July 2009, the Group acquired a 40% interest in Inversiones Hornitos from GDF SUEZ. This interest is accounted for as an associate. The Group made an initial payment on 15 July 2009 of US$80.9 million to GDF SUEZ, representing the Group's share of costs already incurred plus interest to date of acquisition. During the year ended 31 December 2009 the Group made further capital contributions of US$28.6 million to Inversiones Hornitos. The balance due from Inversiones Hornitosto the Group at 31 December 2009 was US$22.5 million (31 December 2008 - nil). This balance included a short term loan of US$22.5 million is expected to be repaid during 2010.

 

In October 2009 the Group acquired 17.8% of the issued share capital of Sunridge under a private placement. This interest is accounted for as an associate. The Group paid US$5 million for investment and during the year ended 31 December 2009.

29. Currency translation

The principal exchange rates expressed in US dollars used in the preparation of the 2009 financial statements are as follows:

 

	2009	2008
Year end rate	US$1.6062=£1; US$1 = Ch$507	US$1.4428=£1; US$1 = Ch$636
Average rates	US$1.5591=£1; US$1 = Ch$559	US$1.8386=£1; US$1 = Ch$522

 

30. Distribution

The Annual Report and Financial Statements for the year ended 31 December 2009, together with the Notice of the 2010 Annual General Meeting, will be posted to all shareholders in April 2010. The Annual General Meeting will be held at Church House Conference Centre, Dean's Yard, Westminster, London SW1P 3NZ at 10.30 a.m. on Wednesday, 9 June 2010.

 

 

31. Production and Sales Statistics (not subject to audit or review)

(See notes following Note 31(b).)

a) Production and sales volumes for copper and molybdenum

	Production		Sales
	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	000 tonnes	000 tonnes	000 tonnes	000 tonnes
Copper
Los Pelambres	311.6	339.2	313.6	340.6
El Tesoro	90.2	90.8	89.8	90.9
Michilla	40.6	47.7	39.5	47.5
Group total	442.5	477.7	442.9	479.0
Molybdenum
Los Pelambres	7.8	7.8	7.7	7.7

 

b) Cash costs per pound of copper produced and realised prices per pound of copper and molybdenum sold

 

	Cash costs		Realised prices
	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	US cents	US cents	US cents	US cents
Copper
Los Pelambres	80.4	57.3	286.8	246.5
El Tesoro	123.4	144.7	246.3	315.6
Michilla	157.6	191.1	195.7	317.7
Group weighted average (net of by-products)	96.3	87.3	270.6	266.7
Group weighted average (before deducting by-products)	120.3	129.3
Cash costs at Los Pelambres comprise:
On-site and shipping costs	95.3	99.5
Tolling charges for concentrates	19.2	17.0
Cash costs before deducting by-product credits	114.5	116.5
By-product credits (principally molybdenum)	(34.1)	(59.2)
Cash costs (net of by-product credits)	80.4	57.3
LME average			234.2	315.3
			US$	US$
Molybdenum
Los Pelambres			11.3	23.9
Market average price			11.1	28.9

 

Notes to the production and sales statistics

 

(i) The production and sales figures represent the actual amounts produced and sold, not the Group's share of each mine. The Group owns 60% of Los Pelambres, 70% of El Tesoro (100% prior to 25 August 2008) and 74.2% of Michilla.

 

(ii) Los Pelambres produces copper and molybdenum concentrates, and the figures for Los Pelambres are expressed in terms of payable metal contained in concentrate. Los Pelambres is also credited for the gold and silver contained in the copper concentrate sold. El Tesoro and Michilla produce cathodes with no by-products.

 

(iii) Cash costs are a measure of the cost of operational production expressed in terms of cents per pound of payable copper produced. Cash costs are stated net of by-product credits and include tolling charges for concentrates at Los Pelambres. Cash costs exclude depreciation, financial income and expenses, hedging gains and losses, exchange gains and losses and corporation tax for all three operations. By-product calculations do not take into account mark-to-market gains for molybdenum at the beginning or end of each year.

 

(iv) Excluding by-product credits (which are reported as part of turnover) and tolling charges for concentrates (which are deducted from turnover), weighted average cash costs for the Group (comprising on-site and shipping costs in the case of Los Pelambres and cash costs in the case of the other two operations) decreased from 117.2 cents per pound in 2008 to 106.7 cents per pound in 2009.

 

(v) Realised copper prices are determined by comparing turnover from copper sales (grossing up for tolling charges for concentrates) with sales volumes for each mine in the period. Realised molybdenum prices at Los Pelambres are calculated on a similar basis. In the current year realised prices reflect gains and losses on commodity derivatives, which are included within turnover.

 

(vi) The totals in the tables above may include some small apparent differences as the specific individual figures have not been rounded.

 

(vii) The production information in Note 31(a) and the cash cost information in Note 31(b) is derived from the Group's production report for the fourth quarter of 2009, published on 3 February 2010.

 

 

32. Summary of mining companies' Chilean GAAP financial statements (not subject to audit or review)

The Group's four mining companies, Los Pelambres, El Tesoro, Michilla and Esperanza, will file financial statements under Chilean GAAP for the year ended 31 December 2009 with the Chilean securities regulator, the Superintendencia de Valores y Seguros de Chile ("SVS") on 25 March 2010.

 

The balance sheets, income statements and cash flow statements prepared under Chilean GAAP and to be filed with the SVS are summarised below.

 (a) Balance sheets

 

	Los Pelambres	Los Pelambres	El Tesoro	El Tesoro	Michilla	Michilla	Esperanza	Esperanza
	At 31.12.09	At 31.12.08	At 31.12.09	At 31.12.08	At 31.12.09	At 31.12.08	At 31.12.09	At 31.12.08
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Cash and cash equivalents	385.8	325.9	96.7	171.6	40.2	36.7	323.7	272.8
Trade and other receivables	254.7	19.8	112.5	47.3	22.8	25.0	54.8	54.2
Inventories	54.1	55.3	129.7	44.1	26.2	16.6	3.0	8.5
Current and deferred tax assets	18.1	152.3	9.0	22.6	6.7	10.3	53.6	81.2
Current assets	712.7	553.3	347.9	285.6	95.9	88.6	435.1	416.7
Fixed assets	2,534.2	2,147.3	413.2	553.2	17.2	-	1,341.7	640.3
Other non-current assets	171.8	165.4	263.0	124.0	7.9	3.1	241.0	138.8
TOTAL ASSETS	3,418.7	2,866.0	1,024.1	962.8	121.0	91.7	2,017.8	1,195.8
Short term borrowings	(423.4)	(301.8)	(0.2)	(0.1)	-	-	(8.0)	-
Trade and other payables	(175.5)	(406.2)	(56.8)	(51.0)	(33.9)	(40.7)	(169.1)	(390.7)
Current and deferred tax liabilities	(8.4)	-	(6.4)	(0.4)	-	-	-	-
Current liabilities	(607.3)	(708.0)	(63.4)	(51.5)	(33.9)	(40.7)	(177.1)	(390.7)
Medium and long term borrowings	(404.0)	(76.7)	(0.1)	(0.3)	-	-	(1,039.7)	-
Trade and other payables	(59.7)	(16.0)	(17.7)	(8.6)	(21.7)	(8.2)	(90.3)	(101.0)
Deferred tax liabilities	(265.4)	(239.2)	(52.3)	(52.4)	-	-	(16.2)	(9.6)
Non-current liabilities	(729.1)	(331.9)	(70.1)	(61.3)	(21.7)	(8.2)	(1,146.2)	(110.6)
Total liabilities	(1,336.4)	(1,039.9)	(133.5)	(112.8)	(55.6)	(48.9)	(1,323.3)	(501.3)
Share capital	(373.8)	(373.8)	(91.0)	(91.0)	(42.6)	(78.4)	(694.5)	(718.7)
Reserves	(1,708.5)	(1,452.3)	(799.6)	(759.0)	(22.8)	35.6	-	24.2
Total shareholders' equity	(2,082.3)	(1,826.1)	(890.6)	(850.0)	(65.4)	(42.8)	(694.5)	(694.5)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	(3,418.7)	(2,866.0)	(1,024.1)	(962.8)	(121.0)	(91.7)	(2,017.8)	(1,195.8)

(b) Income statements

	Los Pelambres	Los Pelambres	El Tesoro	El Tesoro	Michilla	Michilla	Esperanza	Esperanza
	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Turnover	2,024.5	2,170.3	485.6	632.4	170.3	332.5	-	-
Operating costs	(670.4)	(676.2)	(292.0)	(292.5)	(137.9)	(223.0)	-	-
Operating margin	1,354.1	1,494.1	193.6	339.9	32.4	109.5	-	-
Administrative and distribution expenses	(118.5)	(148.2)	(31.5)	(35.7)	(16.5)	(19.1)	-	-
Operating profit	1,235.6	1,345.9	162.1	304.2	15.9	90.4	-	-
Other income	2.6	6.7	1.1	2.0	6.5	1.2	-	-
Financial income	1.9	10.8	4.9	15.4	0.3	1.9	-	-
Financial expenses	(20.2)	(11.7)	(0.6)	(0.8)	(0.1)	(0.1)	-	-
Other expenses	(12.1)	(5.5)	(2.1)	(2.1)	(1.9)	(37.6)	-	-
Exchange difference	0.2	(58.0)	10.8	(5.4)	(0.7)	(4.9)	-	-
Net non-operating income	(27.6)	(57.7)	14.1	9.1	4.1	(39.5)	-	-
Profit before tax	1,208.0	1,288.2	176.2	313.3	20.0	50.9	-	-
Income tax expense	(251.7)	(267.3)	(35.5)	(65.7)	2.5	(16.9)	-	-
Profit for the financial year	956.3	1,020.9	140.7	247.6	22.5	34.0	-	-

 (c) Cash flow statements

	Los Pelambres	Los Pelambres	El Tesoro	El Tesoro	Michilla	Michilla	Esperanza	Esperanza
	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Net cash flow from operating activities	775.6	1,644.6	169.5	204.4	14.4	100.6	50.3	(45.2)
Investing activities
Additions to fixed assets	(465.0)	(445.5)	(44.4)	(324.1)	(12.2)	(19.4)	(652.5)	(463.6)
Disposals of fixed assets	-	-	-	-	1.3	0.2	-	-
Other loans to related companies	-	-	(100.0)	-	-	-	-	-
Net cash used in investing activities	(465.0)	(445.5)	(144.4)	(324.1)	(10.9)	(19.2)	(652.5)	(463.6)
Financing activities
Issue of share capital	-	-	-	-	-	-	-	350.3
Intercompany loans	-	-	-	-	-	-	-	340.9
New Loans	1,308.0	224.0	-	-	-	-	999.3	-
Dividends paid	(700.0)	(1,180.0)	(100.0)	(229.0)	-	(87.8)	-	-
Loans repaid	(858.7)	(81.4)	-	(14.0)	-	-	(346.2)	-
Net cash used in financing activities	(250.7)	(1,037.4)	(100.0)	(243.0)	-	(87.8)	653.1	691.2
Net increase/(decrease) in cash and cash equivalents	59.9	161.7	(74.9)	(362.7)	3.5	(6.4)	50.9	272.8
Cash and cash equivalents at the beginning of the year	325.9	164.2	171.6	534.3	36.7	43.1	272.8	-
Cash and cash equivalents at the end of the year	385.8	325.9	96.7	171.6	40.2	36.7	323.7	272.8

 

Notes to Chilean GAAP financial statements

(i) The above balance sheets, income statements and cash flow statements have been derived from the financial statements of Los Pelambres, El Tesoro, Michilla and Esperanza for the year ended 31 December 2009 to be filed with the SVS in Chile on 25 March 2010. Certain detailed lines in the individual statements have been combined.

 

(ii) The balance sheets, income statements and cash flow statements above have been prepared under Chilean GAAP and therefore do not necessarily equate to the amounts that would be included in the Group's consolidated financial statements for a corresponding period either as to measurement or classification.

 

(iii) The amounts disclosed above represent the full amount for each company and not the Group's attributable share. The Group owns 60% of Los Pelambres, 70% of El Tesoro (100% prior to 25 August 2008), 74.2% of Michilla and 70% of Esperanza.

 

(iv) All income and expenditure incurred in the development of Esperanza is capitalised as part of the mining property asset, and accordingly there are no income statement gains or losses in respect of Esperanza.

 

(v) A translation into English of the full financial statements as filed with the SVS for each company shown in summary form above will be available on the Group's website www.antofagasta.co.uk after these have been filed.

33. Reconciliation of Chilean GAAP results to Turnover and EBITDA under IFRS for individual business segments

(a) Turnover

		Los Pelambres	Los Pelambres	El Tesoro	El Tesoro	Michilla	Michilla	Esperanza	Esperanza
		Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	Notes	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Chilean GAAP - Turnover		2,024.5	2,170.3	485.6	632.4	170.3	332.5	-	-
Mark-to-market of provisionally priced sales	33(i)	57.0	1.7	2.0	-	0.2	0.2	-	-
Reclassification of realised (gains)/losses on commodity derivatives to other operating expense/reserves	33(ii)	-	-	-	-	-	-	-	-
IFRS - Turnover		2,081.5	2,172.0	487.6	632.4	170.5	332.7	-	-

(b) EBITDA

		Los Pelambres	Los Pelambres	El Tesoro	El Tesoro	Michilla	Michilla	Esperanza	Esperanza
		Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08	Year ended 31.12.09	Year ended 31.12.08
	Notes	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m	US$'m
Chilean GAAP - Operating profit		1,235.6	1,345.9	162.1	304.2	15.9	90.4	-	-
Depreciation & amortisation		127.1	81.0	80.5	42.3	7.3	27.1	-	-
Chilean GAAP - EBITDA		1,362.7	1,426.9	242.6	346.5	23.2	117.5	-	-
Mark-to-market of provisionally priced sales	33(i)	57.0	1.7	2.0	-	0.2	0.2	-	-
Mark-to-market of financial derivatives	33(ii)	-	-	-	-	-	-	-	-
Other IFRS and consolidation adjustments	33(iii)	(10.8)	1.1	(12.9)	(3.7)	4.5	0.7	-	-
IFRS - EBITDA		1,408.9	1,429.7	231.7	342.8	27.9	118.4	-	-

 

Notes to reconciliation of turnover and EBITDA

(i) Copper and molybdenum concentrate sale agreements and copper cathode sale agreements generally provide for provisional pricing of sales at the time of shipment, with final pricing being based on the monthly average London Metal Exchange copper price or monthly average molybdenum price for specified future periods. This normally ranges from 30 to 180 days after delivery to the customer.

 

Under Chilean GAAP, the Group's accounting treatment is to value sales, which remain open as to final pricing at the period end, in aggregate at the lower of provisional invoice prices and mark-to-market prices at the balance sheet date. Mark-to-market adjustments in respect of tolling charges (whether positive or negative) are not taken into account. The Group determines mark-to-market prices using forward prices at each period end for copper concentrate and cathode sales, and period-end month average prices for molybdenum concentrate sales due to the absence of a futures market for that commodity.

 

Under IFRS, both gains and losses from the marking-to-market of open sales are recognised through adjustments to turnover in the income statement and to trade debtors in the balance sheet. Under IFRS, the Group determines mark-to-market prices in the same way as under Chilean GAAP.

 

This results in a GAAP adjustment in cases where the mark-to-market prices are higher than the provisional invoice prices. For Los Pelambres this results in a credit of US$57.0 million in respect of copper concentrate sales. The adjustment in respect of molybdenum concentrate sales at Los Pelambres is nil. Michilla this results in a credit of US$0.2 million and for El Tesoro a credit of US$2.0 million.

 

(ii) The Group uses derivative financial instruments to reduce exposure to commodity price movements. The Group does not use such derivative instruments for trading purposes.

 

Under Chilean GAAP, such derivatives are held off the balance sheet. Gains or losses on derivative instruments are matched in the income statement against the item intended to be hedged. Such gains or losses are reflected by way of adjustment to turnover.

 

Under IFRS, the Group has applied the hedge accounting provisions of IAS 39 "Financial Instruments: Recognition and Measurement". Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows have been recognised directly in equity, with such amounts subsequently recognised in the income statement in the period when the hedged item affects profit or loss. Any ineffective portion is recognised immediately in the income statement. Realised gains and losses on commodity derivatives recognised in the income statement have been recorded within turnover. The time value element of changes in the fair value of derivative options is excluded from the designated hedging relationship, and is therefore recognised directly in the income statement within other finance items.

 

(iii) Other IFRS and consolidation adjustments relate mainly to amortisation of consolidation fair value adjustments and are not material either individually or in aggregate.