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Antofagasta PLC11 March 2008 Antofagasta plc Preliminary Results Announcement for the year ended 31 December 2007 11 March 2008 HIGHLIGHTS • Excellent financial results with net earnings (1) up 2.1% to US$1,382.1 million (2006 - US$1,354.3 million) and cash flows from operations maintained at US$2,817.7 million (2006 - US$2,810.1 million). The Group benefited from continued strength in commodity prices, which helped offset the effects of lower copper production and higher operating costs mainly due to industry pressures. • Total dividend for the year up 2.9% to 49.6 cents per share. The final dividend proposed for 2007 is 43.4 cents, comprising an ordinary dividend of 5.4 cents and a special dividend of 38.0 cents. • Continued progress with capital projects. Los Pelambres completed the repowering of its plant in the first half of the year. Construction of the Mauro tailings dam, where the resolution of litigation remains pending, was 98.5% complete by the end of 2007. The Esperanza project, which received board approval in mid-2007, remains on schedule with pre-stripping and early works having begun following provisional environmental authorisation received in December 2007. Production expected to commence as planned at the end of 2010. • Feasibility studies to enhance the Group's project pipeline. The Reko Diq project in Pakistan and the Antucoya project in Chile will have commenced feasibility studies in 2008. • Increased mineral resources through successful exploration. Increased resource estimates at Reko Diq and encouraging preliminary results at Los Pelambres and the Sierra Gorda district in Chile (where El Tesoro and Esperanza are located) underline the long-term prospects of the Group with the potential for the Sierra Gorda district to be developed as a single complex for oxide and sulphide ores. Marcelo Awad, Chief Executive Officer of Antofagasta Minerals S.A., commented: "We are very pleased with the strong performance of the Group in 2007.Fundamentals in both the copper and molybdenum markets remain solid and weexpect commodity prices to remain sound well into 2009, although the volatilitythat has recently characterised the markets is likely to continue. The Group'soperations have performed well, although industry-wide cost pressures includingfuel, energy and acid prices persist. We continue to make further progress inthe Group's strategy for sustainable growth through new projects and explorationin Chile and internationally." Antofagasta is a Chilean-based mining group listed in the United Kingdom. Inaddition to copper mining, its interests include rail and road transportoperations and water distribution. +--------------------------------------+---------+---------+---------+--------+|FULL YEAR TO 31 DECEMBER | | 2007 | 2006 |% Change|+--------------------------------------+---------+---------+---------+--------+|Group turnover | US$'m|3,826.7 |3,870.0 | (1.1)%|+--------------------------------------+---------+---------+---------+--------+|Cash flow from operations | US$'m|2,817.7 |2,810.1 | 0.3% |+--------------------------------------+---------+---------+---------+--------+|Profit before tax | US$'m|2,750.2 |2,859.0 | (3.8)%|+--------------------------------------+---------+---------+---------+--------+|Net earnings (1) | US$'m|1,382.1 |1,354.3 | 2.1% |+--------------------------------------+---------+---------+---------+--------+|Earnings per share | cents| 140.2 | 137.4 | 2.0% |+--------------------------------------+---------+---------+---------+--------+|Total dividends per share (2) | cents| 49.6 | 48.2 | 2.9% |+--------------------------------------+---------+---------+---------+--------+|LME copper price (per pound) | cents| 323.3 | 305.3 | 5.9% |+--------------------------------------+---------+---------+---------+--------+|Group copper production | '000| 428.1 | 465.5 | (8.0)%|| | tonnes| | | |+--------------------------------------+---------+---------+---------+--------+|Group weighted average cash costs (3) | cents| 31.6 | 40.2 | (21.4)%||(net of by-product credits) | | | | |+--------------------------------------+---------+---------+---------+--------+|Group weighted average cash costs (3) | cents| 110.7 | 95.6 | 15.8% ||excluding by-product credits | | | | |+--------------------------------------+---------+---------+---------+--------+|Market molybdenum price (per pound) | US$ | 30.2 | 24.8 | 21.8% |+--------------------------------------+---------+---------+---------+--------+|Group molybdenum production | '000| 10.2 | 9.8 | 4.1% || | tonnes| | | |+--------------------------------------+---------+---------+---------+--------+ (See footnotes 1 to 3 below.) 1 Net earnings refer to profit for the financial year attributable to equityholders of the Company. 2 Dividends are paid in either sterling or US dollars. The conversion rate fordividends to be paid in sterling will be set on 13 May 2008. 3 Cash cost is a method used by the mining industry to express the cost ofproduction in cents per pound of copper, and is further explained in Note 29(b)(iii). +---------------------------------------+---------------------------------------+|Enquiries - London : Antofagasta plc | Press enquiries : Bankside Consultants|+---------------------------------------+---------------------------------------+|Tel: +44 20 7808 0988 | Tel: +44 20 7367 8873|+---------------------------------------+---------------------------------------+|www.antofagasta.co.uk | Keith Irons|+---------------------------------------+---------------------------------------+|Desmond O'Conor | Email: keith@bankside.com|+---------------------------------------+---------------------------------------+|Email: doconor@antofagasta.co.uk | Tel: +44 20 7367 8874|+---------------------------------------+---------------------------------------+|Hussein Barma | Oliver Winters|+---------------------------------------+---------------------------------------+|Email: hbarma@antofagasta.co.uk | Email: oliver.winters@bankside.com|+---------------------------------------+---------------------------------------+|Enquiries - Santiago : Antofagasta | ||Minerals S.A. | |+---------------------------------------+---------------------------------------+|Tel +562 798 7145 | |+---------------------------------------+---------------------------------------+|Alejandro Rivera | |+---------------------------------------+---------------------------------------+|Email: arivera@aminerals.cl | |+---------------------------------------+---------------------------------------+ DIRECTORS' COMMENTS FOR THE YEAR TO 31 DECEMBER 2007 Overview The Group had another excellent year in 2007, with net earnings marginally up2.1% to US$1,382.1 million and cash flow from operations maintained at a similarlevel of US$2,817.7 million. These results were achieved against a background ofcontinued strength in metal prices and sound operational performances across theGroup. During 2007 metal prices remained well above historical levels. LME copperprices averaged 323.3 cents per pound (2006 - 305.3 cents per pound), rangingfrom a low of under 240 cents to a peak of nearly 380 cents, reflecting changesin market sentiment during the year. Despite some weakness towards the end ofthe year, prices have since recovered strongly and have reached over 400 centsper pound in early March. Molybdenum prices, which were much less volatile,averaged US$30.2 per pound (2006 - US$24.8 per pound), rising from under US$25per pound at the beginning of the year to nearly US$33 per pound by the end ofthe year. The Group expects fundamentals in both copper and molybdenum to remainsound, with strong demand in Asian and other emerging markets and steady growthin Europe to offset weakness in the United States. Nevertheless, with theuncertainty that has characterised financial markets particularly in the secondhalf of 2007 and the larger role played by investment funds in commoditymarkets, prices for exchange-traded commodities are likely to remain volatile.The copper concentrate market is expected to remain in continued deficit withrecent increases in smelting capacity, and this should keep tolling chargesfavourable to producers. Group copper production was 428,100 tonnes, a decrease of 8.0% compared with theprevious year. This was principally due to expected lower ore grades togetherwith the effect of the higher proportion of harder primary ore on throughput atLos Pelambres. This was only partly offset by the benefit from the plantexpansion which had been substantially completed at the end of 2006. However,attributable copper production remained virtually unchanged at 300,400 tonnes(2006 - 300,200 tonnes) following the acquisition of Equatorial Mining Limitedin the second half of 2006 which increased the Group's interest in El Tesoro to100%. Molybdenum production at Los Pelambres reached a record 10,200 tonnes,4.1% above 2006. The transport and water divisions both achieved furtherincreases in volumes benefiting from new contracts coming on stream in the pasttwo years. Weighted average cash costs at the mining operations were 31.6 cents per pound,compared with 40.2 cents per pound in the previous year, as a result of improvedmolybdenum by-product credits and lower tolling charges. Excluding these, costpressures remain significant and weighted average on-site and shipping costsincreased from 68.0 cents per pound in 2006 to 90.6 cents per pound in 2007, dueto higher input costs such as energy, fuel and sulphuric acid prices, one-offcosts of new labour agreements signed in the year and the impact of the lowerproduction at Los Pelambres. As explained below, industry-wide pressures areexpected to persist through 2008, particularly as a result of higher energycosts and sulphuric acid prices in Chile. The Group also made good progress with its development plans during 2007. LosPelambres completed its plant expansion in the first half of the year, althoughthe effect of the higher proportion of harder primary ore will mean thatthroughput will average approximately 130,000 tonnes per day over the next 10years. Construction of the Mauro tailings dam, which is necessary for continuedoperations when the Quillayes dam reaches capacity, was nearly complete by theend of the year. Los Pelambres is currently awaiting resolution of thelitigation concerning the dam in order to complete the remaining works andcommence its operation; the Group continues to believe that all necessarypermits and land titles have been properly applied for and granted. Furtherdetails of these cases are given later in these Directors' Comments. The Group's greenfield opportunities also remain attractive. The Esperanzaproject, which received board approval in mid-2007, has obtained provisionalenvironmental authorisation to commence pre-stripping and other initial works.Full environmental approvals are expected in mid-2008 and production is expectedto commence on schedule at the end of 2010. Tethyan Copper Company Limited("Tethyan"), the Group's joint venture with Barrick Gold Corporation, completedan 18-month exploration programme and scoping study at Reko Diq in south-westPakistan which has resulted in a significant increase in the mineral resourceestimate in the Western Porphyries to 4.1 billion tonnes (compared to theprevious mineral resource estimate of 1.6 billion tonnes). Tethyan has initiateda feasibility study for a 72,000 tpd operation in 2008 and will examine optionsfor future expansion. It has also commenced discussions with the federal andprovincial governments on a mineral agreement to establish a framework forfuture investment. During 2008, the Group will also conduct a feasibility studyat Antucoya for a run-of-mine project which could extend the life of theMichilla plant beyond its current operations. The Group maintained an active exploration programme within Chile over the year.The results of the two-year exploration programme at Los Pelambres are underreview, with encouraging initial results. Results in the Sierra Gorda districtsurrounding El Tesoro and Esperanza have also been encouraging and the Groupeither owns or has a controlling interest in a number of other depositsincluding the Telegrafo sulphide deposit, smaller satellite oxide depositssurrounding El Tesoro and Caracoles, a porphyry to the southeast of Esperanza.With estimated combined mineral resources (including El Tesoro and Esperanza) ofapproximately 3 billion tonnes, the Sierra Gorda district has eventual potentialfor development as a single complex for both oxide and sulphide ores. In the conduct of the Group's operational, development and explorationactivities as set out above, the Board places great importance on a range ofconsiderations including health and safety, environmental matters, communityrelations and proper management of human resources. Sustainable developmentconsiderations are an integral part of the Group's decision-making process andit adopts a long-term view in formulating strategy, company policy and everydaybusiness procedures. The Board has announced a final dividend for 2007 of 43.4 cents per ordinaryshare, comprising an ordinary dividend of 5.4 cents and a special dividend of38.0 cents. This gives a total dividend for the year of 49.6 cents, representinga distribution of 35% of 2007 net earnings and a 2.9% increase over 2006. TheBoard believes this combines its desire to continue to return cash toshareholders in a year of strong results with the ability to develop the Group'sexisting opportunities for growth. Review of Operations Los Pelambres Los Pelambres had another very good year with operating profit of US$2,098.6million, 5.6% below 2006, as higher molybdenum volumes and prices and lowertolling charges offset the effects of lower copper production, marginally lowercopper prices and higher on-site and shipping costs. Realised copper prices at Los Pelambres were 328.3 cents per pound (2006 - 335.0cents per pound) despite the higher average LME price during the year, becauseof lower provisional pricing credits compared with 2006 when the LME price hadincreased very significantly over the course of that year. Realised molybdenumprices increased to US$31.7 per pound (2006 - US$24.6 per pound) reflectinghigher market prices and tight market conditions. Realised molybdenum prices didnot differ significantly from market prices in either year. Further details ofpricing adjustments for both copper and molybdenum are given in the FinancialCommentary on page 13 and in Note 4(a) to the preliminary results announcement. Los Pelambres produced 289,900 tonnes of payable copper in 2007, 10.6% below the2006 production of 324,200 tonnes. The decrease was mainly due to an expectedreduction in the ore grade to 0.71% (2006 - 0.81%). In addition, processinglevels were affected by the higher proportion of harder primary ore; this offsetthe benefit of the plant expansion which had been substantially completed at theend of 2006. Ore throughput averaged 126,300 tpd (2006 - 127,400 tpd), comparedto initial estimates of 134,000 tpd. Molybdenum production reached a recordlevel of 10,200 tonnes, compared with 9,800 tonnes in 2006 as Los Pelambrescontinued to benefit from high molybdenum grades in the current phase of themine plan (0.030% in 2007 compared with 0.028% in 2006). Cash costs, which are stated net of by-product credits and include tollingcharges, were negative 10.8 cents compared to 16.4 cents per pound in 2006. Thedecrease of 27.2 cents was due to higher by-product credits (which increasedfrom 79.7 cents to 116.7 cents) and lower tolling charges (which decreased from39.7 cents to 29.6 cents), partly offset by an increase in on-site and shippingcosts from 56.4 cents in 2006 to 76.3 cents this year. Higher by-product creditsresulted mainly from the increase in molybdenum production and prices. Tollingcharges decreased principally due to the more favourable terms achieved in thenegotiations with smelters for the 2007 calendar year, including both lowertreatment and refining charges and nil price participation, although the impactof this was partly mitigated by the "brick system" under which terms agreed areoften averaged over two years. The increase in on-site costs was principally dueto the lower production as well as increased machinery hire, fuel, oil andlabour costs (which included on-off bonus payments on early conclusion of unionnegotiations as explained below). Labour relations remained good and Los Pelambres was able to reach new labouragreements with both its unions ahead of schedule. A 45 month agreement wasreached with the mine-port union in May 2007, in advance of the expiration ofthe previous agreement in the fourth quarter of 2007. Similarly, a 48 monthagreement was reached with the plant union in November, ahead of the scheduledtime of mid-2008. These included one-off signing bonuses for both negotiationsof US$6.8 million. During 2007 Los Pelambres continued to reduce its borrowings with repaymentstotalling US$81.4 million. Remaining borrowings at the end of the year (net ofdeferred financing costs) were US$233.7 million. Los Pelambres also progressed with its capital expenditure programmes, which arebeing financed out of its cash resources. Total capital expenditure in 2007 wasUS$323.4 million. Remaining expenditures on the expansion of the plant through a re-powering ofthe grinding lines, installation of a fifth ball mill and additional flotationcells, which commenced in mid-2005, was completed during 2007 at a remainingcost of US$47.6 million, mainly incurred in the first half of this year. Thetotal cost of the project was US$192 million, marginally in excess of theoriginal budget of US$182 million. Due to the impact of the harder primary orenow experienced by Los Pelambres, plant throughput is expected to averageapproximately 130,000 tpd over the next ten years and 120,000 tonnes per dayover the life of the existing mine plan which runs to 2047. Los Pelambres also progressed with the Mauro tailings dam, which was 98.5%complete by the end of 2007. Cumulative expenditure at the end of 2007 wasUS$526.5 million, of which US$203.5 million was incurred in the year. The Maurodam, together with the Quillayes tailings dam, will provide Los Pelambres withsufficient storage capacity to support the existing mine plan. As previouslyreported, there are a number of claims currently in the Chilean courts againsteither third parties (governmental authorities or former land owners in the ElMauro area) and in one case directly against Los Pelambres. These cases includethe case against the Chilean Water Authority which is under appeal to theSupreme Court and which is now being heard by that Court during March. In allcases, the Group believes that Los Pelambres has received all the necessarytechnical and legal permits and land ownership for the Mauro tailings dam andthese have been properly applied for and granted in accordance with applicableregulations and the law. Resolution of these cases will, however, be necessaryto enable some of the remaining works to be completed and for the tailings damto be put into operation. Current operations remain unaffected while theQuillayes dam, which is expected to have capacity until early 2009, remains inuse. In 2008 the ore processing level is expected to increase to approximately130,000 tpd compared with 126,300 tpd in 2007, partly due to improvements in thecrushing process at the end of 2007 and a lower proportion of primary ore in2008. The ore grade is also expected to improve under the current phase of themine plan to approximately 0.79%, with better grades in the second half of theyear, and reverting to lower grades in subsequent years. Consequently, copperproduction is expected to increase to approximately 330,000 tonnes. Molybdenumproduction is expected to be approximately 6,800 tonnes, as the molybdenum gradeis expected to decrease to approximately 0.019% in the area of the mine to beworked under the 2008 plan and this will only be partly compensated by thehigher throughput level. Tolling charges are expected to continue to fall in 2008 to less than 20 centsper pound, due to further reductions in the annual benchmark and as the fullbenefit of nil price participation is realised under the brick system. Withcontinued cost pressures, however, on-site and shipping costs are expected toincrease. This is principally due to higher energy costs resulting from therenegotiation of Los Pelambres' energy contract after the expiry of the previousagreement at the end of 2007, and to a lesser extent, other costs includingfuel, freight and explosives which will outweigh the benefit of increasedproduction. Cash costs before by-product credits (including on-site and shippingcosts as well as tolling charges) are expected to increase from 105.9 cents perpound in 2007 to approximately 113 cents in 2008. By-product credits areexpected to be lower in line with reduced molybdenum production, although LosPelambres should continue to benefit from the tight molybdenum market which isexpected to keep prices strong. El Tesoro Operating profit at El Tesoro was US$380.3 million compared with US$409.9million in 2006, as higher copper prices and reduced hedging costs were offsetby increased cash costs and a marginal reduction in production and salesvolumes. Realised copper prices were 327.6 cents per pound compared with 316.4 cents in2006, reflecting the higher average LME price and strong cathode premiums,partly offset by less favourable pricing adjustments on provisionally invoicedcathode sales compared with the previous year. Production at El Tesoro was 93,000 tonnes in 2007, marginally below the 94,000tonnes produced the previous year. Plant throughput averaged 26,800 tonnes perday compared with 28,700 tonnes per day in 2006, due to higher moisture levelsin the ore processed. The difficulties experienced with high moisture levelswere successfully resolved through modifications to the production process inthe final quarter of the year, when processing levels were comparable to 2006.Ore grades averaged 1.23%, compared with 1.16% in 2006. Cash costs increased from 78.6 cents per pound in 2006 to 109.8 cents per poundin 2007. The principal factor was higher energy costs as in line with severalother companies in northern Chile, El Tesoro renegotiated its energy contractduring the first half of the year to absorb the higher generation costs faced bysuppliers in the region. Other factors included a higher waste-to-ore ratio,increased acid consumption and prices and the greater costs of processing oreswith a high content of carbonates. Results during the year were also affected byan inventory provision of US$18.8 million during the first half, as reported inthe interim results. This related to high carbonate ore accumulated in theprevious year which was no longer expected to be processed following a review ofthe mine plan. There were no further provisions required in the second half. As explained in the interim results, El Tesoro entered into a commodity hedgingprogramme using min-max instruments in the first half of the year; these did nothave any material impact on its operating results in 2007. In contrast, the 2006results included a charge to operating profit of US$44.8 million. Furtherdetails of the effects of commodity hedging and the instruments in place at 31December 2007 are given in the financial commentary under "Derivative FinancialInstruments" and in Note 4(b) to the preliminary results announcement. Borrowings continued to be reduced by regular repayments of US$14.1 million; theremaining balance of US$14.1 million at the end of the year is expected to berepaid by the end of 2008. During 2007, El Tesoro revised its mine plan to incorporate Tesoro North-East, asatellite deposit which is located approximately one kilometre from the existingopen pit, with ore reserves of 28.5 million tonnes with an average grade of1.03%. Its inclusion in El Tesoro's mine plan will help to mitigate the declinein grades that would otherwise occur from mining exclusively from the open pit,and extends the mine life by three years to 2020. Pre-stripping began inDecember 2007 and is expected to be completed in mid-2009, at a cost (includingequipment) of approximately US$80 million. Tesoro North-East is owned throughAntomin Limited, in which the Group has approximately a 51% interest. In 2008, El Tesoro expects to produce approximately 90,000 tonnes, mainly due toa reduction in the ore grade to 1.13% which is partly offset by an increase inore throughput following the modification to the crushing process completed inthe final quarter of 2007. Cash costs are expected to increase to approximately142 cents per pound. This is mainly due to a significant increase in annualsulphuric acid contract prices, which have doubled compared with 2006 due to acombination of increased demand and supply constraints in the region. Otherfactors include higher energy costs, which remain under pressure and normalinflationary pressures, partly offset by lower mine costs due to an expecteddecrease in the stripping ratio. Michilla Operating profit in 2007 increased to US$154.0 million (2006 - US$145.5million), reflecting continued strong copper prices and the significantly lowerimpact of commodity hedging, partly offset by higher cash costs. Realised copper prices in the year were 313.8 cents per pound (2006 - 318.5cents per pound), reflecting strong LME prices, cathode premiums and to a lesserextent positive pricing adjustments in both years. As explained in Note 4(b) tothe Preliminary Results Announcement, realised copper prices in 2007 alsoinclude the effect of commodity hedging due to the application of the hedgeaccounting provisions of IAS 39; previously this was included in operating cost. Production in the year reached 45,100 tonnes, compared with 47,300 tonnes in2006. This was partly due to lower ore grades of 1.03% (2006 - 1.05%) as well aslower throughput which averaged 14,800 tonnes per day (2006 - 15,200 tonnes perday) as a result of some disruption in November as a result of the earthquake innorthern Chile. Cash costs for 2007 were 143.5 cents per pound, compared with 126.4 cents in2006. The increase was due to a range of factors including increased energycosts, lower production, higher costs of third party services and the impact ofthe bonus payment following the early conclusion of the labour agreement in Mayas previously reported. The impact of commodity hedging was significantly lower at US$14.2 millioncompared with US$39.7 million in 2006. Further details of the effects ofcommodity hedging and the instruments in place at 31 December 2007 are given inthe Financial Commentary under "Derivative Financial Instruments" and in Note 4(b) to the Preliminary Results Announcement. Michilla's current mine plan extends to the end of 2009 and the Group iscurrently examining options for a possible extension of mine life. This includesfurther exploration at Michilla, with 14,000 metres of drilling carried out in2007, evaluation of existing resources for inclusion as additional ore reservesand the possibility of eventually processing enriched copper solution fromAntucoya, which will undergo a feasibility study in 2008 as explained below. Anyeventual decision will, however, depend on the results of further developmentexpenditure and future copper prices. For 2008, production is expected to be 43,000 tonnes due to a marginal decreasein expected recoveries, although ore grades and throughput are expected to besimilar to 2007. Cash costs are expected to increase to nearly 190 cents, mainlydue to higher sulphuric acid prices in 2008 as with El Tesoro. Other factorsinclude higher energy costs (following a new contract agreed at the beginning of2008), costs of acquiring ore from third party workings and the effect of thedecrease in production as compared with 2007. Railway and other transport services The transport division had another strong year. Rail and road transport volumesin 2007 were 5.0 million tons (2006 - 4.5 million tons) and 1.3 million tons(2006 - 1.5 million tons) respectively, a combined increase of 6.4%. Theincrease was mainly due to the Spence mine and Escondida's sulphide leachproject, both of which started up in the second half of 2006. The Railway alsobegan to move cargo for the San Cristobal mine in Bolivia from August, althoughproduction problems and delays at the mine meant that tonnages were belowexpectations and these should increase in 2008. Turnover in the year (net ofsales to the mining division) was US$117.0 million (2006 - US$105.3 million),due to a combination of increased volumes and normal tariff adjustments undercontracts in line with costs. Operating profit (excluding income from associates) increased by 7.3% to US$35.0million (2006 - US$32.6 million), mainly as a result of increased volumes. 2006was also affected by a number of factors including costs from adverse weatherconditions and labour costs following a new union agreement in the early part ofthat year; 2007 did not have these exceptional factors. The Railway's transport volumes should continue to increase in 2008, as the SanCristobal mine reaches full production. It also has a transport contract forsulphuric acid and copper cathodes with Codelco's Gaby project, which isexpected to start production in the middle of the year. The rail network alsoremains well placed to benefit from any further increases in mining activity innorthern Chile. Aguas de Antofagasta Aguas de Antofagasta continued to perform well in 2007. Combined industrial anddomestic water sales were 39.9 million cubic metres compared with 37.8 millioncubic metres in 2006, an overall increase of 5.6%. This included a 1.9% increasein domestic volumes to 29.0 million cubic metres and a 16.3% increase inindustrial volumes (including water transported) to 10.9 million cubic metreswith the Spence mine starting operations in the second half of 2006. Aguas deAntofagasta expects that these volumes can be maintained in 2008. Turnover increased by 5.3% to US$67.1 million (2006 - US$63.7 million), in linewith volumes. Lower domestic tariffs following the completion of the five-yearlyreview in mid-2006 were largely offset by the stronger Chilean peso, thecurrency in which the majority of sales are invoiced. Operating profit wasUS$30.4 million, compared with US$31.5 million in 2006, as increased operatingcosts (including the costs of increasing production from the desalination plantat Antofagasta to meet increased demand) offset the growth in volumes. Projects, exploration and new opportunities Esperanza The Esperanza copper-gold project received board approval for its development atthe end of June following completion of the feasibility study initiated inAugust 2006. Esperanza is a sulphide deposit located in Chile's II Regionapproximately four kilometres south of the Group's El Tesoro mine. It willproduce copper concentrate containing gold and silver by-product credits througha conventional milling and flotation process, with ore throughput expected toaverage 97,000 tonnes per day. Esperanza has at present a 15 year mine life,although the Group's adjacent Telegrafo sulphide deposit is ultimately expectedto utilise the Esperanza plant and facilities well beyond this period. Thedeposit also includes an oxide ore resource of 119 million tonnes with anaverage copper grade of 0.35% which mainly forms part of the 170 million tonnesof overburden to be removed through pre-stripping. Esperanza is owned by theGroup with a small proportion of the deposit held through Antomin Limited. An environmental impact assessment was submitted in August 2007, and in Decemberprovisional authorisation was granted to begin pre-stripping and other initialworks which have now begun. Full environmental approvals are expected inmid-2008, with construction beginning in the third quarter. Esperanza has alsostarted to enter into contracts for the development of the project; theseinclude an engineering, procurement, construction and management contract withAker-Kvaerner for the plant, orders for plant equipment and machinery and amemorandum of understanding for the supply of electricity from 2011 with SuezEnergy International. During 2008, the Group expects to examine a number ofoptions for the financing the Esperanza project, including the possibility ofborrowings, forward sales of gold or the inclusion of a partner. Capital costs remain within a budget of US$1.5 billion (before taking intoaccount escalation, any financing costs or working capital requirements), andEsperanza remains on schedule to start production at the end of 2010. In itsfirst ten years of operation, Esperanza is expected to produce approximately700,000 tonnes of concentrate containing 195,000 tonnes of payable copper,229,000 ounces of payable gold and 1,556,000 ounce of silver, with molybdenumproduction expected to start in the fifth year of operation with approximately2,100 tonnes per year over the following five years. Reko Diq (Tethyan Copper Company Limited) The Group holds a 50% interest in Tethyan Copper Company Limited ("Tethyan"),its joint venture with Barrick Gold Corporation established in 2006. Tethyan'sprincipal assets are a 75% interest in the exploration licence encompassing theReko Diq prospects in the Chagai Hills region of South-West Pakistan (in whichthe Government of Balochistan holds the remaining 25%) including the WesternPorphyries, and a 100% interest in certain other licences in the region. During the year, Tethyan substantially completed its initial 18-month programmebegun in June 2006 at a cost of US$43.4 million to December 2007, which includedUS$28 million relating directly to exploration. This included 101,000 metres ofdrilling at the Western Porphyries and a scoping study (includingpre-feasibility work) which analysed different project scenarios. The drilling programme, which was completed in December, has proved successfulwith a revised resource estimate for this prospect of 4.1 billion tonnes with acopper grade of 0.50% and a gold grade of 0.29 g/t. This compares with theprevious estimate for the Western Porphyries of 1.6 billion tonnes with a coppergrade of 0.54% and a gold grade of 0.29 g/t, and represents a 136% increase incontained copper and a 157% increase in contained gold. In addition, theprevious resource estimates at other prospects in Reko Diq, which have not yetbeen updated, amount to a further 0.8 billion tonnes with a copper grade of0.45% and a gold grade of 0.21 g/t. Following the scoping study, Tethyan has decided to progress with a feasibilitystudy for an initial project of 72,000 tonnes per day ore throughput, and thisis expected to be completed in early 2009. It will also continue with initialstudies for potential further expansion. The Group continues to believe that thelong-term potential of this investment remains positive. Antucoya During 2007, the Group concluded a drilling programme at Antucoya together withinitial engineering and technical studies. Antucoya is an oxide deposit locatedapproximately 45 kilometres from Michilla, which incorporates Buey Muerto, aproperty held through Antomin Limited. Following the completion of the drillingprogramme, Antucoya has an estimated resource of 531 million tonnes of ore withan average copper grade of 0.39% (compared with a previous estimate of 460million tonnes with an average copper grade of 0.41%). The Group has begun a feasibility study to examine a run of mine operation toprovide enriched copper solution which could be processed at the SX-EW plant atMichilla, eventually producing between 30,000 to 55,000 tonnes of copper perannum and extending the life of the Michilla plant beyond its own availablereserves. The feasibility study has a budget of US$5.5 million and is expectedto be completed in the second half of 2008. As explained above, however, anyeventual decision will depend on the results of further development expenditureand future copper prices. Antomin Limited The Group holds approximately a 51% interest in Antomin Limited ("Antomin"),which owns a number of copper exploration properties in Chile's II and IVRegions. The Group acquired its interest in Antomin pursuant to an agreement in2001 for a nominal consideration from Mineralinvest Establishment, a companycontrolled by the Luksic family, which continues to hold the remainingapproximately 49% of Antomin. Under the terms of the acquisition agreement, theGroup committed to meet in full the exploration costs (including costs incurredduring the pre-feasibility stage) in respect of these properties. Antomin's properties include (but are not limited to) Buey Muerto (which formspart of Antucoya), Tesoro North-East and a small proportion of the Esperanzaproject. These properties are either under development or likely to be developedas part of the Group's portfolio of projects. Other exploration activities and opportunities During 2007, the Group spent US$38.1 million in exploration activities (2006 -US$21.5 million). This included US$17.7 million relating to Reko Diq (includingboth its share of costs incurred by Tethyan as well as costs incurred on theGroup's own account; 2006 - US$5.3 million); US$1.2 million relating toEsperanza (2006 - US$6.9 million which related mainly to the costs of thepre-feasibility study which was completed in the middle of that year) and US$2.4million relating to Antucoya. Other expenditure related mainly to the Group'sexploration and evaluation programmes in Chile and the rest of the world. Abudget of US$24 million has been established for 2008. Sierra Gorda district In Chile, the Group's primary focus was the Sierra Gorda district, where ElTesoro and Esperanza are located. The Group's acquisition of Equatorial MiningLimited ("Equatorial") in 2006 provided it with additional mining propertieslocated between the Telegrafo and Centinela deposits. These are held through ajoint venture in which Equatorial holds 81.5% and Compania Minera Milpo S.A.A.of Peru holds the remaining 18.5% through Minera Rayrock Limitada. A 6,000 metredrilling programme was carried out during 2007, and has resulted in thediscovery of Caracoles, a porphyry copper-gold system approximately 10kilometres southeast of Esperanza. Additional drilling is required to define theextent of the mineralisation and a budget of US$12 million has been allocatedfor 2008. Further drilling was carried out at the Telegrafo deposit, which is adjacent toEsperanza and which as explained above could extend the life of the Esperanzaplant and facilities beyond the current Esperanza mine plan. Preliminaryestimated resources are 404 million tonnes of 0.41% copper, 0.1 g/t of gold and0.013% of molybdenum at Telegrafo Norte and 898 million tonnes of 0.45% copper,0.17 g/t of gold and 0.013% of molybdenum at Telegrafo Sur, both based on a 0.3%cut-off grade for copper. In addition, as previously reported, the Group owns a number of other prospectsin the Sierra Gorda district which include smaller oxide deposits mainly heldthrough Antomin. Like Tesoro North-East, these could eventually provideadditional ores for the El Tesoro plant when ore grades under the current mineplan decline in the future. With estimated combined mineral resources (including El Tesoro and Esperanza) ofapproximately 3 billion tonnes, the Sierra Gorda district has eventual potentialfor development as a single complex for both oxide and sulphide ores. Los Pelambres Los Pelambres concluded the second stage of a two-year exploration programmewhich commenced in 2006 in order to identify additional resources beyond thepresent 2.9 billion tonnes. The results of this programme in the area to thesouth-east of the open pit have been encouraging and additional drilling will berequired to define the resource and to evaluate its economics to the long-termmine plan of Los Pelambres. Colombia, Ecuador and Peru As reported in the Group's interim results, the Group decided in July not tocontinue with the exploration agreements with Ascendant Copper Corporation inrespect of the Chaucha deposit in Ecuador and with AngloGold Ashanti in the areaof interest in southern Colombia, following a review of drill results achievedto date. In June, the Group also completed the disposal of its 50% interest inCordillera de Las Minas S.A., through which its joint-venture interests in Peruwith Compania Vale do Rio Doce ("Vale") were held, to Panoro Minerals Limited("Panoro"). These regions nevertheless remain within the focus of the Group,with an on-going programme in Ecuador, which remains committed to its search foropportunities both in Latin America and world-wide. Opportunities in geo-thermal and coal exploration and generation As countries in the southern cone, particularly Chile, are facing severeproblems relating to shortages of energy supplies and significantly increasingcosts, the Group has decided to enter the energy exploration business and hasformed management and exploration teams to search for geo-thermal prospects. Ithas been granted title to the 62,000-hectare Tinguiririca geo-thermalconcessions in south-central Chile and also secured approximately 116,000hectares of a largely unexplored coal basin in southern Chile, with explorationplanned during 2008. Dividends Dividends per share proposed in relation to the year are as follows:+--------------+-----------------------------------+-----------------------------+| | US dollars | Percentage change |+--------------+--------+--------+--------+--------+---------+---------+---------+| | 2007| 2006| 2005(1)| 2004(1)| 07 v 06| 06 v 05| 05 v 04|| | cents| cents| cents| cents| change| change| change|+--------------+--------+--------+--------+--------+---------+---------+---------+|Ordinary | 3.2 | 3.2 | 3.2 | 3.0 | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Interim | 5.4 | 5.0 | 4.8 | 4.8 | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Final | | | | | | | || | -------| -------|--------| -------| | | || | 8.6 | 8.2 | 8.0 | 7.8 | 4.9% | 2.5% | 2.6% || | -------| -------|--------| -------| | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Special | 3.0 | 2.0 | - | - | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Interim | 38.0 | 38.0 | 14.0 | 8.0 | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Final | | | | | | | || | -------| -------|--------| -------| | | || | 41.0 | 40.0 | 14.0 | 8.0 | | | || | -------| -------|--------| -------| | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Total | 49.6 | 48.2 | 22.0 | 15.8 | 2.9% | 119.1% | 39.2% ||dividends to | =======| =======|========| =======| | | ||ordinary | | | | | | | ||shareholders | | | | | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+| | Percentage | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+|Dividends as a| 35% | 35% | 30% | 27% | | | ||percentage of | =======| =======|========| =======| | | ||profit | | | | | | | ||attributable | | | | | | | ||to equity | | | | | | | ||shareholders | | | | | | | |+--------------+--------+--------+--------+--------+---------+---------+---------+ 1 Dividends per share have been restated for the effects of the 4-for-1 bonusissue on 19 June 2006. 2 Further details relating to dividends are given in Note 8 to this PreliminaryResults Announcement. The Board recommends a final dividend of 43.4 cents per ordinary share payableon 12 June 2008 to shareholders on the Register at the close of business on 9May 2008. The final dividend comprises an ordinary dividend of 5.4 cents and aspecial dividend of 38.0 cents. Including the interim dividend, this representsa distribution of approximately 35% of net earnings (profit attributable toequity holders of the Company) after taking into account withholding taxesincurred by the Group in funding the dividend. The Board's policy is to establish an ordinary dividend which can be maintainedor progressively increased at conservative long-term copper prices and throughthe economic cycle. The Board recommends special dividends when it considersthese appropriate after taking into account the level of profits earned in theperiod under review, the existing cash position of the Group and significantknown or expected funding commitments. As can be seen from the above table, theBoard has increased its recommended dividends in line with profits by means ofspecial dividends in these years of high copper prices. The cost of the final dividend, including related withholding taxes, isapproximately US$546 million. In determining this, the Board has taken intoaccount its existing capital commitments and working capital requirements andconsiders this to be an appropriate level of distribution of profits earned inthe year. The Board has also considered the potential future capitalrequirements of the Group which could amount to approximately US$3 billion overa number of years, should it proceed with its existing portfolio of projects andopportunities, and it believes these remain attractive for the long-termdevelopment of the Group even in an environment of lower copper prices. TheBoard also considers that this provides the Group with sufficient flexibility totake advantage of new opportunities which may arise in the future. Current Trading Prospects Although the copper market remained volatile in 2007, driven by uncertainty infinancial markets and economic concerns particularly in the United States, LMEprices averaged 323.3 cents - an increase of 5.9% over the previous year. Morerecently, despite some weakness towards the end of 2007, prices have recoveredstrongly and have averaged 338.6 cents in the first two months of 2008 whilespot prices in early March have reached over 400 cents. Market fundamentals for copper remain sound and continued strength in China andother regions such as South Asia and the Middle East is expected to help offsetthe effects of a slowdown in the United States. Supply continues to be affectedby disruptions, including labour disputes, energy supply constraints, equipmentavailability and longer lead times to develop new projects and expansions due toprevious underinvestment in the sector as well as stricter environmentalpermitting in some countries. With some additional mine production coming onstream, for example Codelco's Gaby project, most commentators expect a smallmarket surplus could develop in the second half of 2008 although this willcontinue to be subject to supply-side risks. Low inventory levels shouldcontinue to support high prices with recent consensus estimates having increasedto approximately 340 cents for 2008 and falling only slightly below that for2009. Cost pressures continue to affect the industry and increased productioncosts should help to keep prices above previously long-term historical levelsfurther into the future. Nevertheless, the increased role of investment funds incommodity markets has made base metals more sensitive to changes in marketsentiment and given current financial and economic concerns, prices are expectedto remain volatile. The concentrate market also remains in favour of producers, with theconcentrates deficit which developed in 2006 continuing to intensify as furthersmelting capacity has continued to come on stream through 2007 which hasexceeded any increases in mine production. This has resulted in improved termsfor producers with settlements for the annual negotiations for 2008 at the levelof US$45 per dry metric tonne of concentrate for smelting and 4.5 cents perpound of copper for refining, compared with US$60 and 6.0 cents respectivelyagreed in respect of 2007. Price participation has also been agreed at nil forthe second successive year (compared with 10% over 90 cents per pound in 2006and earlier years), which will continue to benefit producers under the "bricksystem" whereby the benchmark is often averaged over two years. Mostcommentators expect the concentrate deficit to remain at least until 2010, withthe market continuing to balance through reduced utilisation rates by smelters. The molybdenum market has also remained strong, remaining in deficit again in2007. Prices improved from over US$25 per pound at the start of 2007 to averageover US$30 per pound, with current spot prices of over US$33 per pound. Demandis expected to remain strong, driven by the continued demand from both the steeland catalyst sectors. Supply growth in 2008 is expected to be limited, as anumber of producers (including Los Pelambres) will experience lower grades orwill face fewer opportunities for further flex-grading or otherwise increasingproduction following the high prices of recent years. A number of primarymolybdenum mines are under construction, and if successfully developed thesecould redress the market balance from 2009. Market consensus is for prices toexceed US$30 per pound in 2008, possibly weakening in 2009 to around US$25 perpound, but this will depend on how successfully new primary mines come on streamto provide additional supply. For 2008, Group copper production is expected to increase by approximately 8% to463,000 tonnes, mainly due to improved ore grades and higher throughput at LosPelambres compared with 2007. Molybdenum production is expected to beapproximately 6,800 tonnes compared with the 10,200 tonnes achieved for 2007 dueto lower expected molybdenum ore grades at Los Pelambres. Cash costs willincrease mainly due to the strengthening of the Chilean peso and industry costpressures particularly energy costs and, in the case of the Group's heap-leachoperations, significantly higher sulphuric acid prices. These are, however,partly mitigated by lower tolling charges at Los Pelambres. Excludingby-products, weighted average cash costs are expected to increase byapproximately 13% to around 125 cents per pound. With the continued progress made in 2007 on the Group's development plans, themedium to longer term prospects for the Group also remain good. In addition tothe Esperanza project which is now in the development phase with start-upscheduled for the end of 2010, the Reko Diq and Antucoya projects couldeventually also contribute additional production in future years. While thecases in relation to the Mauro tailings dam require resolution, the Group isconfident that longer-term potential for Los Pelambres also remains good. TheGroup's exploration programme has also shown encouraging results, with potentialfor its prospects in the Sierra Gorda district to enhance El Tesoro andEsperanza in the future. The Group believes it has a number of prospects thatcould substantially enhance its current production profile in the medium tolonger term, and it intends to use its sound financial position to advance itsexisting assets and properties while continuing to seek opportunities globallyto secure further world-class mining assets. FINANCIAL COMMENTARY FOR THE YEAR TO 31 DECEMBER 2007 Results Turnover Group turnover in 2007 was US$3,826.7 million, 1.1% below the US$3,870.0 millionachieved in 2006. The slight decrease mainly reflected the impact of lower salesvolumes and realised prices for copper, partly offset by the effect of highermolybdenum prices and volumes, reduced tolling charges for copper concentrateand increased sales at the transport and water divisions. Turnover from copper concentrate and copper cathodes Turnover from copper concentrate and copper cathode sales from the Group's threemines decreased by 7.3% to US$2,915.9 million, compared with US$3,144.7 millionin 2006. The Group's average realised copper price decreased by 0.9% to 326.6cents per pound (2006 - 329.5 cents), despite a 5.9% increase in the average LMEcopper price to 323.3 cents per pound (2006 - 305.3 cents). Realised copperprices are determined by comparing turnover (gross of tolling charges forconcentrate sales) with sales volumes in the period. Realised copper pricesdiffer from market prices mainly because, in line with industry practice,concentrate and cathode sales agreements generally provide for provisionalpricing at the time of shipment with final pricing based on the average marketprice for future periods (normally about 30 days after delivery to the customerin the case of cathode sales and up to 180 days after delivery to the customerin the case of concentrate sales). In 2007 the pricing adjustments onprovisionally invoiced sales, while remaining positive, were lower than in 2006,as the level of increase in the LME copper price in the current year was lessthan in 2006. In the case of Los Pelambres, pricing adjustments added US$52.8 million in 2007to initially invoiced sales (before adjusting for tolling charges) compared withUS$223.5 million in 2006. The adjustments in 2007 comprised US$22.0 million inrespect of sales invoiced in 2006 (net of the reversal of mark-to-marketadjustments made at the end of 2006) which were finally priced in 2007 andUS$30.8 million in respect of sales invoiced in 2007 (net of a mark-to-marketprovision for open sales at the end of the year of US$72.8 million). Pricingadjustments in 2007 at El Tesoro and Michilla reduced revenues by US$5.1 million(2006 - increased revenues by US$11.7 million) and US$1.2 million (2006 -increased revenues by US$8.9 million) respectively. El Tesoro and Michillacontinued to benefit from strong cathode premiums reflecting tight marketconditions in the year. Further details of provisional pricing adjustments aregiven in Note 4(a) to the preliminary results announcement. In 2007 turnover also included a loss of US$14.0 million on commodityderivatives at El Tesoro and Michilla which matured during the year, recognisedunder the hedge accounting provisions of IAS 39 "Financial Instruments:Recognition and Measurement" which were applied with effect from 1 January 2007.As explained below, during 2006 losses on the commodity derivatives wererecognised within other operating expenses. Copper sales volumes decreased by 8.4% from 467,800 tonnes in 2006 to 428,500tonnes this year. The decrease was mainly due to the expected lower ore gradestogether with the effect of harder primary ore on throughout at Los Pelambres.Sales volumes differed slightly from production each year mainly due todifferences in shipping and loading schedules. Tolling charges for copper concentrate at Los Pelambres decreased from US$254.0million in 2006 to US$169.4 million in 2007, mainly due to reduced priceparticipation as a result of the 2007 calendar year negotiations. Tollingcharges are deducted from concentrate sales in reporting turnover and hence thedecrease in these charges has had a positive impact on turnover compared with2006. Turnover from by-products Turnover from by-products at Los Pelambres increased by 30.6% to US$726.7million in 2007 compared with US$556.3 million in 2006, mainly due to highermolybdenum market prices. Molybdenum revenues (net of roasting charges) were US$676.4 million (2006 -US$513.8 million). The realised molybdenum price increased by 28.9% to US$31.7per pound in 2007 (2006 - US$24.6 per pound), mainly due to the increase in themarket price which averaged US$30.2 per pound compared with US$24.8 per pound in2006. Molybdenum sales are also subject to provisional pricing and as pricesstrengthened during 2007, realised prices were slightly higher than the averagemarket price. In contrast, during 2006 weakening prices caused the realisedprice to be lower than the market price. Molybdenum sales volumes were similarat 10,000 tonnes (2006 - 9,900 tonnes), and small differences with production ineach year reflected shipping and loading schedules. Credits received from gold and silver contained in copper concentrate soldincreased to US$50.3 million (2006 - US$42.5 million). Turnover from the transport and water divisions Turnover from the transport division (FCAB) increased by US$11.7 million or11.1% to US$117.0 million, mainly due to increased rail volumes and normaltariff adjustments under contracts in line with costs. Volumes increased fromvarious mines, with the most significant being BHP Billiton's Spence, whichstarted its operations during the second half of 2006. Turnover at Aguas de Antofagasta, which operates the Group's water business,increased by US$3.4 million or 5.3% to US$67.1 million in 2007, mainly due toincreased volumes to industrial customers, mainly due to the impact of theSpence mine, partly offset by the full year impact of the tariff review inrespect of domestic customers in mid-2006. Operating profit from subsidiaries and joint ventures and EBITDA Operating profit from subsidiaries and joint ventures decreased by 5.4% fromUS$2,804.1 million in 2006 to US$2,653.4 million in 2007. Operating profit at the mining division decreased by 5.5% from US$2,740.0million to US$2,588.0 million, due to the reduction in turnover as explainedabove (resulting mainly from reduced copper sales volume, partly offset by theeffect of higher molybdenum prices and reduced tolling charges for copperconcentrate) and increased operating costs. Excluding by-product credits (whichare reported as part of turnover) and tolling charges for concentrates (whichare deducted from turnover), weighted average cash costs for the Group(comprising on-site and shipping costs in the case of Los Pelambres and cashcosts in the case of the other two operations) increased from 68.0 cents perpound in 2006 to 90.6 cents per pound. This reflected the impact of higher inputcosts and specific factors at each mine as discussed in the review of operationsabove. During 2006 a loss of US$84.5 million was recognised within other operatingexpense in respect of commodity derivatives, relating both to amounts realisedon instruments maturing during the period and net mark-to-market adjustmentsprior to the adoption of the hedge accounting provisions of IAS 39. As notedabove, during 2007 a loss of US$14.0 million relating to commodity derivativeswhich matured in the period has been recorded within turnover, along with a gainof US$0.7 million recognised within other finance items as explained below and amark-to-market loss of US$0.2 million deferred in equity. Exploration costs increased from US$21.5 million in 2006 to US$38.1 million,reflecting the increased level of exploration activity across the Groupparticularly in Chile and Pakistan. Net costs in respect of corporate and otheritems were lower at US$6.8 million (2006 - US$17.6 million) due to one-off gainsincluded in other operating income of US$21.8 million; further details are givenin Note 2(ii) to the preliminary results announcement. Operating profit (excluding income from associate) at the transport divisionincreased by US$2.4 million to US$35.0 million, mainly reflecting the increasedrail volumes as higher tariffs were offset by higher operating costs. Aguas deAntofagasta contributed US$30.4 million compared to US$31.5 million last year,with the increased revenues offset by higher operating costs as explained in thereview of operations above. EBITDA (earnings before interest, depreciation, tax and amortisation) in 2007was US$2,824.0 million, compared with US$2,957.3 million in 2006, a decrease of4.5%. This is calculated by adding back to operating profit from subsidiariesand joint ventures, depreciation and amortisation of US$162.2 million (2006 -US$145.0 million) and losses on disposals of property, plant and equipment ofUS$8.4 million (2006 - US$8.2 million). The increased depreciation relatedmainly to higher charges at Los Pelambres (following the completion of therepowering project which is now in operation) and El Tesoro (due to the fullyear effect of fair value amortisation following the acquisition of EquatorialMining Limited in August 2006). The Group's share of net profit from its 30% investment in Antofagasta TerminalInternacional S.A. ("ATI") was US$1.4 million (2006 - US$1.1 million). Net finance income Net finance income in 2007 was US$95.4 million, compared with US$53.8 million in2006. Interest receivable increased from US$78.3 million in 2006 to US$113.4 millionin 2007, due to the higher level of cash and deposit balances. Interest expensedecreased from US$25.2 million in 2006 to US$20.4 million, reflecting thedecrease in the level of borrowings through loan repayments during the year. Other finance items increased from a gain of US$0.7 million in 2006 (restatedfor the inclusion of the discount charge relating to provisions from interestexpense) to US$2.4 million. Following the application of the hedge accountingprovisions of IAS 39 "Financial Instruments: Recognition and Measurement" witheffect from 1 January 2007, a gain of US$0.7 million has been recognised in theyear in respect of the time value element of changes in the fair value ofcommodity derivative options, which is excluded from the designated hedgingrelationship, and is therefore recognised directly in the income statement. Nointerest derivatives were held during the current period and so nomark-to-market gains or losses arose, compared to a mark-to-market gain ofUS$0.3 million in 2006. Foreign exchange gains included in finance items wereUS$2.9 million in 2007, compared with US$1.6 million in the previous year. Profit before tax The resulting profit before tax for the period was US$2,750.2 million comparedto US$2,859.0 million in 2006, reflecting the reduction in turnover andincreased operating costs, partly offset by higher investment income. Income tax expense The rate of first category (i.e. corporation) tax in Chile was 17% for both 2007and 2006. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax(royalty) which imposes an additional tax of 4% of tax-adjusted operatingprofit. For 2006 and 2007, 50% of the mining tax could be offset against firstcategory tax and the remaining 50% was tax deductible (i.e. an allowable expensein determining liability to first category tax). From 2008, when the ability tooffset will no longer be available, 100% of the mining tax will be taxdeductible. The effect is to increase the effective tax rate of these threeoperations (before taking into account deductibility against corporation tax) byapproximately 2% in 2006 and 2007 and 4% thereafter. In addition to firstcategory tax and the mining tax, the Group incurs withholding taxes on theremittance of profits from Chile. Withholding tax is levied on remittances ofprofits from Chile at 35% less first category tax already paid. Accordingly, theeffective tax rate of withholding tax for the purpose of paying dividends toGroup shareholders is approximately 18% of the amount remitted or expected to beremitted. Tax (including deferred tax) amounted to US$638.4 million (2006 - US$664.9million), reflecting the decrease in profit before tax for the year. Includingboth current and deferred taxes, this comprised corporate tax of US$449.4million (2006 - US$476.6 million), the Chilean mining tax of US$51.4 million(2006 - US$56.6 million) and withholding tax charges of US$166.1 million (2006 -US$134.1 million). This was partly offset by exchange gains on corporate taxbalances of US$28.5 million (2006 - US$2.4 million) since tax prepayments madein the course of the year, which are designated in Chilean pesos, benefited fromthe strengthening of that currency against the US dollar. As a result of these factors, the effective tax rate for the Group in 2007 was23.2% (2006 - 23.3%), compared with the Chilean statutory tax rate of 17%. Minority interests Profit for the financial year attributable to minority shareholders was US$729.7million, compared with US$839.8 million in 2006. The decrease was largely due tothe acquisition of Equatorial Mining Limited in the second half of 2006 whichhad the effect of eliminating the 39% minority interest at El Tesoro, as well asthe reduction in the Group's profit before tax in 2007 compared with 2006. Earnings per share As a result of the factors set out above, profit for the 2007 financial yearattributable to equity shareholders of the Company was US$1,382.1 millioncompared with US$1,354.3 million in 2006. Accordingly, basic earnings per sharewere 140.2 cents in 2007 compared with 137.4 cents for 2006, an increase of2.0%. Derivative financial instruments The Group periodically uses derivative financial instruments to reduce exposureto commodity price movements. The Group does not use such derivative instrumentsfor speculative trading purposes. The Group has applied the hedge accounting provisions of IAS 39 "FinancialInstruments: Recognition and Measurement" with effect from 1 January 2007. Fromthat date, changes in the fair value of derivative financial instruments thatare designated and effective as hedges of future cash flows have been recogniseddirectly in equity, with such amounts subsequently recognised in the incomestatement in the period when the hedged item affects profit or loss. Anyineffective portion is recognised immediately in the income statement. Realisedgains and losses on commodity derivatives recognised in the income statementhave been recorded within turnover. The time value element of changes in thefair value of derivative options is excluded from the designated hedgingrelationship, and is therefore recognised directly in the income statementwithin other finance items. Prior to 1 January 2007 derivatives were measured atfair value through the income statement, with both realised and unrealised gainsor losses on commodity derivatives being recorded within other operating incomeor expense. The impact of derivative instruments on the Group's results for the period isset out above in the sections on turnover, operating profit from subsidiariesand net finance income, and in Note 4(b) to this preliminary resultsannouncement. At 31 December 2007, the Group had min/max instruments for 70,200 tonnes ofcopper production (of which 60,000 tonnes relate to El Tesoro and 10,200 tonnesrelate to Michilla), covering a total period up to 31 December 2009. Theweighted average remaining period covered by these hedges calculated with effectfrom 1 January 2008 is 11 months. The instruments have a weighted average floorof 248.9 cents per pound and a weighted average cap of 389.2 cents per pound.The Group also had futures for 6,500 tonnes, to both buy and sell copperproduction at El Tesoro, with the effect of swapping COMEX prices for LME priceswithout eliminating underlying market price exposure, covering a period to 31January 2009. The remaining weighted average period covered by these instrumentswas 7 months. Between 31 December 2007 and the date of this report, Michilla entered intofurther min/max instruments for 15,000 tonnes of copper production, covering atotal period up to 31 December 2008. The weighted average remaining periodcovered by these hedges calculated with effect from 1 January 2008 is 7 months.The instruments have a weighted average floor of 292.1 cents per pound and aweighted average cap of 342.1 cents per pound. These instruments represent approximately 60% of Michilla's forecast productionfor 2008 and 33% of El Tesoro's forecast production to the end of 2009, and theGroup's exposure to the copper price will be limited to the extent of theseinstruments. Details of the mark-to-mark position of these instruments at 31December 2007, together with details of any interest and exchange derivativesheld by the Group, are given in Note 4(b) to this preliminary resultsannouncement. Commodity price sensitivities Based on 2007 production volumes and without taking into account the effects ofprovisional pricing and any hedging activity, a one-cent change in the averagecopper price would affect turnover and profit before tax by US$9.4 million andearnings per share by 0.5 cents. Similarly, a one-dollar change in the averagemolybdenum price would affect turnover and profit before tax by US$22.5 millionand earnings per share by 1.1 cents. Cash flows, cash and debt Cash flows from operations were US$2,817.7 million in 2007 compared withUS$2,810.1 million last year, reflecting the operating results adjusted fordepreciation, amortisation and disposals gains and losses of US$150.5 million(2006 - US$153.2 million) and a net working capital decrease of US$13.8 million(2007 - increase of US$147.2 million). The movement in working capital wasparticularly significant in 2006 due to the effect of the significant increasein the copper price on the level of trade debtors during that year. A dividend of US$2.4 million (2006 - US$0.4 million) was received from theGroup's investment in ATI. Cash tax payments in the year were US$806.0 million (2006 - US$498.2 million),comprising corporation tax of US$537.7 million (2006 - US$426.5 million), miningtax of US133.0 million (2006 - US$9.9 million) and withholding tax of US$135.3million (2006 - US$61.8 million). These amounts differ from the current taxcharge in the consolidated income statement of US$598.7 million (2006 - US$592.2million) because cash tax payments partly comprise monthly payments on accountin respect of current year profits and partly comprise the settlement of theoutstanding balance for the previous year. The increased payments reflect higherprofits in 2006 compared with 2005 (thereby increasing both monthly payments onaccount for 2007 as well as settlement of the outstanding balance for theprevious year) and higher withholding tax payments due to higher dividends paidin 2007. No acquisitions were made in 2007; in 2006 the cash outflow from acquisitions(net of cash balances acquired) amounted to US$487.5 million, which comprisedUS$199.4 million in respect of Tethyan and US$288.1 million in respect ofEquatorial. Cash proceeds from disposals of interests in subsidiaries, joint ventures andavailable for sale investments amounted to US$27.5 million in 2007. Thiscomprised US$4.9 million received at the beginning of the period from the saleof Equatorial North America Inc. in December 2006; US$6.0 million for the cashelement of the sale of the Group's interest in Cordillera de Las Minas S.A. toPanoro Minerals Limited and US$16.6 million for the sale of shares in MercatorMinerals Limited. In 2006, cash proceeds from disposals amounted to US$84.3million, mainly relating to the disposal of 50% of Tethyan to Barrick Gold. Capital expenditure in 2007 was US$481.7 million compared with US$506.6 millionin 2006. This included expenditure of US$203.5 million relating to the Maurotailings dam project (2006 - US$256.9 million), US$47.6 million relating to thecompletion of the plant expansion at Los Pelambres (2006 - US$134.0 million),US$49.3 (2006 - US$ nil) on early works for the next repowering and US$43.7million relating to the Esperanza project (2006 - US$6.6 million). Dividends (including special dividends) paid to ordinary shareholders of theCompany this year were US$485.0 million (2006 - US$236.6 million), which relatedto the final dividend declared in respect of the previous year and the interimdividend in respect of the current year, and reflected the increased dividendper share paid in 2007 compared with 2006. Dividends paid by subsidiaries tominority shareholders were US$681.2 million (2006 - US$630.6 million),principally due to increased distributions by Los Pelambres. Repayments of borrowings and finance leasing obligations in the year, mainly atLos Pelambres and El Tesoro, were US$100.2 million (2006 - US$ 111.4 million).New borrowings in the year amounted to US$7.0 million (2006 - US$3.8 million). Details of other cash inflows and outflows in the year are contained in theConsolidated Cash Flow Statement. At 31 December 2007, the Group had cash and cash equivalents of US$2,212.5million (2006 - US$1,805.5 million). Excluding the minority share in eachpartly-owned operation, the Group's attributable share of total cash and cashequivalents was US$2,135.4 million (2006 - US$1,592.7 million). Total Group borrowings at 31 December 2007 were US$266.0 million (2006 -US$358.7 million). Of this, US$169.5 million (2006 - US$230.0 million) isproportionally attributable to the Group after excluding the minorityshareholdings in partly-owned operations. The decrease in debt is mainly due tofurther principal repayments at Los Pelambres and El Tesoro as explained above. Balance Sheet Net equity (i.e. equity attributable to ordinary shareholders of the Company)increased from US$3,155.1 million at 1 January 2007 to US$4,065.0 million at 31December 2007, relating mainly to profit after tax and minority interests forthe period less ordinary dividends declared and paid in the year. Other changesrelate mainly to movements in the fair value of hedges and available for saleinvestments and the currency translation adjustment; these are set out in theConsolidated Statement of Changes in Equity. Minority interests increased from US$793.0 million at 1 January 2007 to US$841.5million at 31 December 2007, principally reflecting the minority's share ofprofit after tax, less the minority's share of the dividends paid bysubsidiaries in the year. Other movements affecting minority interest are alsoset out in the Consolidated Statement of Changes in Equity. Consolidated Income Statement Year ended Year ended 31.12.07 31.12.06 Notes US$'m US$'m Group turnover 2,3 3,826.7 3,870.0 Total operating costs (1,173.3) (1,065.9) -------- --------Operating profit from subsidiaries and 2,3 2,653.4 2,804.1joint ventures Share of income from associate 2,12 1.4 1.1 -------- --------Total profit from operations and 2 2,654.8 2,805.2associates -------- --------Investment income 113.4 78.3Interest expense (20.4) (25.2)Other finance items 2.4 0.7 -------- -------- Net finance income 5 95.4 53.8 -------- --------Profit before tax 2,750.2 2,859.0 Income tax expense 6 (638.4) (664.9) -------- --------Profit for the financial year 2,111.8 2,194.1 ======== ======== Attributable to: -------- --------Minority interests 729.7 839.8 Equity holders of the Company (net 1,382.1 1,354.3earnings) -------- -------- US cents US cents Basic earnings per share 7 140.2 137.4 ======== ======== Dividends to ordinary shareholders ofthe Company Per share US cents US centsDividends per share proposed in 8relation to the year - ordinary dividend (interim) 3.2 3.2 - ordinary dividend (final) 5.4 5.0 - special dividend (interim) 3.0 2.0 - special dividend (final) 38.0 38.0 -------- -------- 49.6 48.2 ======== ========Dividends per share paid in the yearand deducted from net equity - ordinary dividend (interim) 3.2 3.2 - ordinary dividend (final) 5.0 4.8 - special dividend (interim) 3.0 2.0 - special dividend (final) 38.0 14.0 -------- -------- 49.2 24.0 ======== ========In aggregate US$'m US$'m Dividends proposed in relation to the 8 489.0 475.2year ======== ======== Dividends paid in the year and 485.0 236.6deducted from net equity ======== ======== Turnover and operating profit are derived from continuing operations. Consolidated Balance Sheet At At 31.12.07 31.12.06 Notes US$'m US$'mNon-current assetsIntangible assets 9 207.7 205.3Property, plant and equipment 10 2,679.8 2,373.7Investment property 11 3.5 3.2Investment in associate 12 2.5 3.5Trade and other receivables 32.0 39.3Derivative financial instruments 4 1.4 -Available for sale investments 14 3.3 6.2Deferred tax assets 19 14.7 3.1 -------- -------- 2,944.9 2,634.3 -------- --------Current assetsInventories 15 130.3 120.3Trade and other receivables 540.4 510.1Current tax assets 26.9 7.5Derivative financial instruments 4 0.5 7.3Cash and cash equivalents 22 2,212.5 1,805.5 -------- -------- 2,910.6 2,450.7 -------- -------- Total assets 5,855.5 5,085.0 ======== ======== Current liabilitiesShort-term borrowings 16,22 (101.8) (97.6)Derivative financial instruments 4 (1.4) -Trade and other payables (246.5) (211.5)Current tax liabilities (16.9) (204.8) -------- -------- (366.6) (513.9) -------- --------Non-current liabilitiesMedium and long term borrowings 16,22 (164.2) (261.1)Trade and other payables (2.6) (4.8)Post-employment benefit obligations 17 (29.1) (24.1)Long-term provisions 18 (10.9) (9.8)Deferred tax liabilities 19 (375.6) (323.2) -------- -------- (582.4) (623.0) -------- -------- Total liabilities (949.0) (1,136.9) ======== ======== Net assets 4,906.5 3,948.1 ======== ======== EquityShare capital 20 89.8 89.8Share premium 20 199.2 199.2Hedging, translation and fair value 25.1 12.3reservesRetained earnings 3,750.9 2,853.8 -------- --------Equity attributable to equity holders 4,065.0 3,155.1of the Company Minority interests 841.5 793.0 -------- --------Total equity 4,906.5 3,948.1 ======== ======== The preliminary information was approved by the Board of Directors on 10 March2008. Consolidated Cash Flow Statement Year Year ended ended 31.12.07 31.12.06 Notes US$'m US$'m Cash flows from operations 21 2,817.7 2,810.1Interest paid (20.2) (24.6)Dividends from associate 12 2.4 0.4Income tax paid (806.0) (498.2) -------- --------Net cash from operating activities 1,993.9 2,287.7 -------- -------- Investing activitiesAcquisition of subsidiaries 23 - (487.5)Disposal and part-disposal of 23 4.9 84.3subsidiariesDisposal of joint venture interest 13 6.0 -Disposal of available for sale 14 16.6 -investmentsRecovery of Chilean VAT paid on 8.8 8.7purchase of water concessionPurchases of property, plant and (481.7) (506.6)equipmentInterest received 111.3 77.6 -------- --------Net cash used in investing activities (334.1) (823.5) -------- -------- Financing activitiesDividends paid to equity holders of (485.0) (236.6)the CompanyDividends paid to preference (0.2) (0.2)shareholders of the CompanyDividends paid to minority interests (681.2) (630.6)Net proceeds from issue of new 22 7.0 3.8borrowingsRepayments of borrowings 22 (99.3) (109.6)Repayments of obligations under 22 (0.9) (1.8)finance leases -------- --------Net cash used in financing activities (1,259.6) (975.0) -------- -------- Net increase in cash and cash 400.2 489.2equivalents ======== ======== Cash and cash equivalents at beginning 1,805.5 1,316.8of the yearNet increase in cash and cash 400.2 489.2equivalentsEffect of foreign exchange rate 6.8 (0.5)changes -------- --------Cash and cash equivalents at end of 22 2,212.5 1,805.5the year ======== ======== Consolidated Statement of Changes in Equity For the years ended 31 December 2006 and 2007 Share Share Hedging Fair Translation Retained Net Minority Total capital premium reserve value reserve earnings equity interests reserve US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m Balance at 1 16.6 272.4 - - 16.6 1,736.1 2,041.7 721.3 2,763.0January 2006 Profit for the - - - - - 1,354.3 1,354.3 839.8 2,194.1financial year Currency - - - - (4.3) - (4.3) - (4.3)translationadjustment Acquisition of - - - - - - - (137.5) (137.5)minorityinterest Capitalisation 73.2 (73.2) - - - - - - -of share premiumon bonus issueof ordinaryshares Dividends - - - - - (236.6) (236.6) (630.6) (867.2) ------- ------ ------ ------ ------- ------ ------ ------ ------Balance at 31 89.8 199.2 - - 12.3 2,853.8 3,155.1 793.0 3,948.1December 2006and 1 January2007 Profit for the - - - - - 1,382.1 1,382.1 729.7 2,111.8financial year Currency - - - - 13.5 - 13.5 - 13.5translationadjustment Losses in fairvalue of cashflow hedges - - (6.9) - - - (6.9) - (6.9)deferred inreserves Losses in fairvalue of cashflow hedgestransferred totheincome - - 6.7 - - - 6.7 - 6.7statement Gains in fairvalue ofavailable for - - - 10.0 - - 10.0 - 10.0saleinvestments Gains in fairvalue ofof availablefor saleinvestmentstransferred tothe income - - - (10.5) - - (10.5) - (10.5)statement Deferred taxeffectsarising fromhedge - - - - - - - - -accounting Dividends - - - - - (485.0) (485.0) (681.2) (1,166.2) ------- ------ ------ ------ ------- ------ ------ ------ ------Balance at 31 89.8 199.2 (0.2) (0.5) 25.8 3,750.9 4,065.0 841.5 4,906.5December 2007 ======= ====== ====== ====== ======= ====== ====== ====== ====== Notes 1. General information and accounting policies a) General information This preliminary results announcement is for the year ended 31 December 2007.While the financial information contained in this preliminary resultsannouncement has been computed in accordance with International FinancialReporting Standards ("IFRS"), this announcement does not itself containsufficient information to comply with IFRS. For these purposes, IFRS comprisethe Standards issued by the International Accounting Standards Board ("IASB")and Interpretations issued by the International Financial ReportingInterpretations Committee ("IFRIC") that have been endorsed by the EuropeanUnion. The Group will send its full financial statements that comply with IFRSto shareholders in April 2008. This preliminary results announcement does not constitute the Group's statutoryaccounts as defined in section 240 of the Companies Act 1985 but is derived fromthose accounts. The statutory accounts for the year ended 31 December 2007 havebeen approved by the Board and will be delivered to the Registrar of Companiesfollowing the Company's Annual General Meeting which will be held on 11 June2008. The auditors have reported on those accounts and their report wasunqualified and did not contain statements under section 237(2) of the CompaniesAct 1985 (regarding adequacy of accounting records and returns) or under section237(3) (regarding provision of necessary information and explanations). The information contained in this announcement for the year ended 31 December2006 also does not constitute statutory accounts. A copy of the statutoryaccounts for that year has been delivered to the Registrar of Companies. Theauditors' report on those accounts was unqualified and did not containstatements under sections 237(2) or (3) of the Companies Act 1985. The information contained in Notes 29 to 31 of this preliminary resultsannouncement is not derived from the statutory accounts for the years ended 31December 2006 and 2007 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 forthe year ended 31 December 2007, which have been prepared on the basis ofaccounting policies consistent with those applied in the financial statementsfor the year ended 31 December 2006 except as follows: (i) The Group has applied the hedge accounting provisions of IAS 39"Financial Instruments: Recognition and Measurement" with effect from 1 January2007 as set out in Note 4(b). This change does not have any effect on prior yearcomparatives. (ii) The Group has adopted IFRS 7 "Financial Instruments: Disclosures" and therelated amendment to IAS 1 "Presentation of Financial Statements". The impact ofthe adoption of IFRS 7 and the changes to IAS 1 has been to expand thedisclosures provided in these financial statements regarding the Group'sfinancial instruments and management of capital, and has not resulted in anychanges to the consolidated income statement, consolidated balance sheet orconsolidated cash flow statement. 2. Total profit from operations and associates Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Turnover 3,826.7 3,870.0Cost of sales (966.5) (805.1) -------- --------Gross profit 2,860.2 3,064.9Administrative expenses (183.1) (152.6)Closure provision (0.5) (0.6)Severance charges (5.3) (7.7)Exploration costs (38.1) (21.5)Other operating income 31.2 10.3Other operating expenses (11.0) (88.7) -------- --------Operating profit from subsidiaries and 2,653.4 2,804.1joint venturesShare of income from associate 1.4 1.1 -------- --------Total profit from operations and 2,654.8 2,805.2associates ======== ======== (i) In 2007, cost of sales includes an inventory write-off of US$18.8million relating to high carbonate ore inventories at El Tesoro (see Note 15). (ii) In 2007, other operating income includes a gain of US$10.5 millionrelating to the disposal of shares held in Mercator Minerals Ltd (see Note 14),a gain of US$9.7 million relating to the disposal of the Cordillera de las Minasjoint venture to Panoro Minerals Ltd (see Note 13), and a gain of US$1.6 millionfrom a settlement in respect of the remaining consideration receivable for thedisposal of Minera Tamaya S.A. in 2002. These items totalled US$21.8 million. (iii) In 2006, other operating expenses included losses on commodityderivatives prior to the application of the hedge accounting provisions of IAS39 "Financial Instruments: Recognition and Measurement" with effect from 1January 2007 (see Note 3(a)(viii) and Note 4(b)). 3. Segmental analysis Based on risks and returns, the Directors consider the primary reporting formatis by business segment and the secondary reporting format is by geographicalsegment. The Group considers its business segments to be Los Pelambres, ElTesoro, Michilla, Esperanza, exploration, railway and other transport servicesand the water concession. Corporate and other items principally relate to thecosts incurred by the Company and Antofagasta Minerals S.A. (the Group's miningcorporate centre), which are not allocated to any individual business segment.The classification reflects the Group's management structure. The amountspresented for each business segment exclude any amounts relating to theinvestment in Antofagasta Terminal Internacional S.A., an associate which isheld through the railway and other transport services segment. a) Turnover, EBITDA and operating profit /(loss) from subsidiaries and joint ventures analysed by business segment Operating profit / (loss) from subsidiaries Turnover EBITDA and joint ventures ---------- -------- -------------------- Year Year Year Year Year ended Year ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Los Pelambres 2,651.9 2,701.3 2,178.0 2,297.0 2,098.6 2,223.7El Tesoro 673.9 664.8 430.9 456.0 380.3 409.9Michilla 316.8 334.9 169.2 158.4 154.0 145.5Exploration - - (38.1) (21.5) (38.1) (21.5)Corporate and other - - (5.6) (16.9) (6.8) (17.6)items ------- ------- ------- ------- ------- -------Mining 3,642.6 3,701.0 2,734.4 2,873.0 2,588.0 2,740.0Railway and other 117.0 105.3 48.9 42.9 35.0 32.6transport servicesWater concession 67.1 63.7 40.7 41.4 30.4 31.5 ======= ======= ======= ======= ======= =======Group turnover 3,826.7 3,870.0 2,824.0 2,957.3 2,653.4 2,804.1(segment revenue), ======= ======= ======= ======= ======= =======EBITDA and operatingprofit fromsubsidiaries and joint ventures(segment result) Notes to turnover by business segment (segment revenue) (i) Turnover by business segment equates to segment revenue as defined byIAS 14. Turnover from the railway and other transport services and the waterconcession is stated after eliminating inter-segmental sales to the miningdivision of US$10.5 million (2006 - US$9.6 million) and US$0.4 million (2006 -nil) respectively. (ii) Turnover includes the effect of both final pricing and mark-to-marketadjustments to provisionally priced sales of copper and molybdenum concentratesand copper cathodes. Further details of such adjustments are given in Note 4(a). (iii) Turnover in 2007 includes realised gains on commodity derivatives at ElTesoro of US$0.2 million and realised losses at Michilla of US$14.2 million. Theclassification of these amounts within turnover is due to the application of thehedge accounting provisions of IAS 39 "Financial Instruments: Recognition andMeasurement" with effect from 1 January 2007. Prior to this point gains andlosses on commodity derivatives (including both gains and losses realised in aperiod and period-end mark-to-market adjustments) were included in otheroperating income or expense. Further details of such gains or losses are givenin Note 3(a)(viii) and Note 4(b). (iv) Los Pelambres produces and sells copper and molybdenum concentrates. Itis also credited for the gold and silver content in the copper concentrate itsells. Turnover by type of metal is analysed below to show separately theamounts prior to deduction of tolling charges, the tolling charges involved andthe net amounts included in turnover. El Tesoro and Michilla do not generate by-products from their copper cathode operations. (v) On a Group basis, total copper revenues amounted to US$2,915.9 million(2006 - US$3,144.7 million) comprising copper concentrate sales at Los Pelambresof US$1,925.2 million (2006 - US$2,145.0 million) and copper cathode sales at ElTesoro and Michilla of US$990.7 million (2006 - US$999.7 million). Notes to EBITDA and operating profit from subsidiaries by business segment(segment result) (vi) Operating profit for the separate businesses equates to segment resultas defined by IAS 14. This excludes the share of income from associate of US$1.4million (2006 - US$1.1 million). (vii) EBITDA is calculated by adding back depreciation, amortisation anddisposals of property, plant and equipment and impairment charges (see Note3(b)) to operating profit from subsidiaries and joint ventures. (viii) As explained in Note 3(a)(iii) above, in the current year EBITDA andoperating profit include realised gains on commodity derivatives at El Tesoro ofUS$0.2 million and realised losses at Michilla of US$14.2 million (recordedwithin turnover). In 2006 EBITDA and operating profit included losses oncommodity derivatives (including both losses realised in the year and year-endmark-to-market adjustments) at El Tesoro of US$44.8 million, and losses atMichilla of US$39.7 million (recorded within other operating expense). (ix) Exploration costs relating to Tethyan Copper Company Limited ("Tethyan")(see Note 13) have been included within the Exploration category. All otherincome and expenditure relating to Tethyan has been included within corporateand other items. (x) As explained in Note 2(i) and Note 15, in 2007 EBITDA and operatingprofit at El Tesoro include an inventory write-off of US$18.8 million. (xi) As explained in Note 2(ii), EBITDA and operating profit in the corporateand other items category includes gains of US$21.8 million relating to variousitems. Turnover at Los Pelambres by mineral Before deducting Tolling charges Net of tolling charges tolling charges --------------------------------------------------------- Year Year Year Year Year ended Year ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Copper 2,094.6 2,399.0 (169.4) (254.0) 1,925.2 2,145.0Molybdenum 699.8 536.4 (23.4) (22.6) 676.4 513.8Gold and silver 51.0 43.1 (0.7) (0.6) 50.3 42.5 ------- ------- ------- ------- ------- -------Los Pelambres 2,845.4 2,978.5 (193.5) (277.2) 2,651.9 2,701.3 ======= ======= ======= ======= ======= ======= b) Depreciation and amortisation, loss on disposal of property, plant and equipment and capital expenditure by business segment Depreciation and Loss on disposals Capital expenditure amortisation ----------------------- --------------------- ----------------------- Year ended Year ended Year ended Year ended Year ended Year ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Los Pelambres (79.3) (72.8) (0.1) (0.5) 323.4 463.5El Tesoro (49.3) (43.4) (1.3) (2.7) 28.0 16.3Michilla (11.2) (10.4) (4.0) (2.5) 11.4 7.7Esperanza - - - - 43.7 6.6Corporate and (0.9) (0.3) (0.3) (0.4) 15.2 13.9other items ------- ------- ------- ------- ------- -------Mining (140.7) (126.9) (5.7) (6.1) 421.7 508.0Railway and other (11.3) (8.4) (2.6) (1.9) 38.9 25.2transportservicesWater concession (10.2) (9.7) (0.1) (0.2) 5.4 5.8 ------- ------- ------- ------- ------- ------- (162.2) (145.0) (8.4) (8.2) 466.0 539.0 ======= ======= ======= ======= ======= ======= Capital expenditure represents purchases of property, plant and equipment statedon an accruals basis (see Note 10) and may therefore differ from the amountincluded in the cash flow statement. Other non-cash expenses relate to severance and closure costs and are disclosedfor the Group in Note 2. c) Assets and liabilities by business segment Segment assets Segment liabilities Segment net assets ---------------- --------------------- -------------------- Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'mLos Pelambres 2,338.4 2,103.4 (137.9) (125.5) 2,200.5 1,977.9El Tesoro 563.5 591.8 (61.1) (53.3) 502.4 538.5Michilla 77.2 74.5 (28.8) (24.8) 48.4 49.7Esperanza 92.8 - (2.2) - 90.6 -Corporate and other 155.1 145.8 (21.4) (12.3) 133.7 133.5items ------- ------- ------- ------- ------- ------Mining 3,227.0 2,915.5 (251.4) (215.9) 2,975.6 2,699.6Railway and other 184.0 158.8 (27.7) (25.2) 156.3 133.6transport servicesWater concession 181.1 181.7 (11.4) (9.1) 169.7 172.6 ------- ------- ------- ------- ------- ------ 3,592.1 3,256.0 (290.5) (250.2) 3,301.6 3,005.8 ======= ======= ======= ======= ======= ====== Assets and liabilities of Tethyan Copper Company Limited (see Note 13) have beenincluded within corporate and other items. Segment assets and liabilities are reconciled to entity assets and liabilitiesthrough unallocated items as follows: Segment assets Segment liabilities Segment net assets ---------------- --------------------- -------------------- Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'mSegment assets/ 3,592.1 3,256.0 (290.5) (250.2) 3,301.6 3,005.8(liabilities)Investment property 3.5 3.2 - - 3.5 3.2Investment in 2.5 3.5 - - 2.5 3.5associateAvailable for sale 3.3 6.2 - - 3.3 6.2investmentsDeferred tax assets/ 14.7 3.1 (375.6) (323.2) (360.9) (320.1)(liabilities)Current tax assets/ 26.9 7.5 (16.9) (204.8) 10.0 (197.3)(liabilities)Cash and cash 2,212.5 1,805.5 (266.0) (358.7) 1,946.5 1,446.8equivalents/ ------- ------- ------- ------- ------- ------(borrowings)Entity assets/ 5,855.5 5,085.0 (949.0) (1,136.9) 4,906.5 3,948.1(liabilities) ======= ======= ======= ======= ======= ====== d) Geographical analysis of turnover by location of customer (geographical segment) Sales ------- Year Year ended ended 31.12.07 31.12.06 US$'m US$'mEurope - United Kingdom 0.1 8.1 - Switzerland 321.9 396.5 - Rest of Europe 742.1 877.1Latin America - Chile 377.8 407.5 - Rest of Latin America 190.3 165.2 North America 511.4 472.7 Asia - Japan 1,000.6 1,008.2 - China 416.8 317.5 - Rest of Asia 265.7 213.5 Australia - 3.7 -------- -------- 3,826.7 3,870.0 ======== ======== 4. Derivatives and embedded derivatives a) Embedded derivatives - provisionally priced sales Copper and molybdenum concentrate sale agreements and copper cathode saleagreements generally provide for provisional pricing of sales at the time ofshipment, with final pricing being based on the monthly average London MetalExchange copper price or monthly average molybdenum price for specified futureperiods. This normally ranges from 30 to 180 days after delivery to thecustomer. Under IFRS, both gains and losses from the marking-to-market of open sales arerecognised through adjustments to turnover in the income statement and to tradedebtors in the balance sheet. The Group determines mark-to-market prices usingforward prices at each period end for copper concentrate and cathode sales, andperiod-end month average prices for molybdenum concentrate sales due to theabsence of a futures market for that commodity. The mark-to-market adjustmentsto the balance sheet at the end of each period are as follows: Balance sheet net mark to market effect on debtors ------------ At 31.12.07 At 31.12.06 US$'m US$'m Los Pelambres - copper concentrate (72.8) (110.1)Los Pelambres - tolling charges (5.1) 7.6for copper concentratesLos Pelambres - molybdenum 0.1 (2.4)concentrateEl Tesoro - copper cathodes (1.0) 1.3Michilla - copper cathodes 0.1 (0.6) -------- -------- (78.7) (104.2) ======== ======== (i) Copper sales Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.07 31.12.07 31.12.06 31.12.06 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Los El Michilla Los El Michilla Pelambres Tesoro Pelambres Tesoro Copper Copper Copper Copper Copper Copper concentrate cathodes cathodes concentrate cathodes cathodes Provisionally invoiced gross 2,041.8 678.8 332.2 2,175.5 653.1 326.0sales Effects of pricing adjustmentsto previous year invoicesReversal of mark-to-market 110.1 (1.3) 0.6 (33.2) (0.2) 0.1adjustments at the end of theprevious yearSettlement of copper sales (88.1) (6.5) (3.3) 169.2 2.0 0.6invoiced in the previous year Total effect of adjustments to 22.0 (7.8) (2.7) 136.0 1.8 0.7previous year invoices in thecurrent year Effects of pricing adjustmentsto current year invoicesSettlement of copper sales 103.6 3.7 1.4 197.6 8.6 8.8invoiced in the current yearMark-to-market adjustments at (72.8) (1.0) 0.1 (110.1) 1.3 (0.6)the end of the current year Total effect of adjustments to 30.8 2.7 1.5 87.5 9.9 8.2current year invoices Realised gains/(losses) on - 0.2 (14.2) - - -commodity derivatives Turnover before deducting 2,094.6 673.9 316.8 2,399.0 664.8 334.9tolling charges Tolling charges (169.4) - - (254.0) - - Turnover net of tolling charges 1,925.2 673.9 316.8 2,145.0 664.8 334.9 Copper concentrate Copper concentrate sales at Los Pelambres have an average settlement period ofapproximately four months from shipment date. At 31 December 2007, salestotalling 99,400 tonnes remained open as to price, with an averagemark-to-market price of 302.4 cents per pound compared with an averageprovisional invoice price of 335.7 cents per pound. At 31 December 2006, salestotalling 127,100 tonnes remained open as to price, with an averagemark-to-market price of 287.0 cents per pound compared with an averageprovisional invoice price of 326.3 cents per pound. Tolling charges include a mark-to-market loss for copper concentrate sales openas to price at 31 December 2007 of US$5.1 million (31 December 2006 -mark-to-market gain of US$7.6 million). Copper cathodes Copper cathode sales at El Tesoro and Michilla have an average settlement periodof approximately one month from shipment date. At 31 December 2007, salestotalling 11,000 tonnes remained open as to price, with an averagemark-to-market price of 301.7 cents per pound compared with an averageprovisional invoice price of 305.4 cents per pound. At 31 December 2006, salestotalling 11,600 tonnes remained open as to price, with an averagemark-to-market price of 286.6 cents per pound compared with an averageprovisional invoice price of 294.0 cents per pound. (ii) Molybdenum sales Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Los Los Pelambres Pelambres Molybdenum Molybdenum concentrate concentrate Provisionally invoiced gross sales 670.9 547.8 Effects of pricing adjustments to previous yearinvoicesReversal of mark-to-market adjustments at the 2.4 12.6end of the previous yearSettlement of molybdenum sales invoiced in the (1.0) (27.5)previous yearTotal effect of adjustments to previous year 1.4 (14.9)invoices in the current year Effects of pricning adjustments to current yearinvoicesSettlement of molybdenum sales invoiced in the 27.4 5.9current yearMark-to-market adjustments at the end of the 0.1 (2.4)current yearTotal effect of adjustments to current year 27.5 3.5invoices Turnover before deducting tolling charges 699.8 536.4 Tolling charges (23.4) (22.6) Turnover net of tolling charges 676.4 513.8 Molybdenum sales at Los Pelambres have an average settlement period ofapproximately three months after shipment date. At 31 December 2007, salestotalling 2,100 tonnes remained open as to price, with an average mark-to-marketprice of US$32.5 per pound compared with an average provisional invoice price ofUS$32.4 per pound. At 31 December 2006, sales totalling 2,100 tonnes remainedopen as to price, with an average mark-to-market price of US$25.0 per poundcompared with an average provisional invoice price of US$25.5 per pound. b) Derivative financial instruments The Group uses derivative financial instruments to reduce exposure to foreignexchange, interest rate and commodity price movements. The Group does not usesuch derivative instruments for speculative trading purposes. The Group has applied the hedge accounting provisions of IAS 39 "FinancialInstruments: Recognition and Measurement" with effect from 1 January 2007. Fromthat date, changes in the fair value of derivative financial instruments thatare designated and effective as hedges of future cash flows have been recogniseddirectly in equity, with such amounts subsequently recognised in the incomestatement in the period when the hedged item affects profit or loss. Anyineffective portion is recognised immediately in the income statement. Realisedgains and losses on commodity derivatives recognised in the income statementhave been recorded within turnover. The time value element of changes in thefair value of derivative options is excluded from the designated hedgingrelationship, and is therefore recognised directly in the income statementwithin other finance items. Prior to 1 January 2007 derivatives were measured at fair value through theincome statement, with gains or losses on commodity derivatives being recordedwithin other operating income or expense. (i) Commodity derivatives The Group periodically uses commodity derivatives to reduce its exposure to thecopper price. The balance sheet mark-to-market adjustments in respect of commodity derivativesand the total effect on the income statement for each period (before taking intoaccount deferred tax in each case) are as follows: Balance sheet Income statement Net financial asset Total effect --------------------- -------------- At At Year Year 31.12.07 31.12.06 ended ended 31.12.07 31.12.06 US$'m US$'m US$'m US$'m El Tesoro - - 0.4 (44.8)Michilla 0.5 7.3 (13.7) (39.7) -------- -------- -------- -------- 0.5 7.3 (13.3) (84.5) ======== ======== ======== ========Analysed between:Non-current assets 1.4 -Current assets 0.5 7.3Current liabilities (1.4) - -------- -------- 0.5 7.3 ======== ======== During the year ended 31 December 2007 a net loss of US$14.0 million wasrecognised within turnover, comprising a gain of US$0.2 million at El Tesoro anda loss of US$14.2 million at Michilla, in respect of derivative instrumentswhich matured during the year. A gain of US$0.7 million was recognised withinother finance items, comprising a gain of US$0.2 million at El Tesoro and a gainof US$0.5 million at Michilla, in respect of the time value element of themark-to-market adjustments, which is excluded from the designated hedgingrelationship. A loss of US$0.2 million was recognised within reserves, relatingto El Tesoro, in respect of the intrinsic value element of the mark-to-marketadjustments, which forms part of the designated effective hedging relationship. During the year ended 31 December 2006 a loss of US$84.5 million was recognisedwithin other operating expenses, comprising US$44.8 million at El Tesoro andUS$39.7 million at Michilla. This comprised losses on derivatives which maturedin the year of US$136.3 million partly offset by mark-to-market gains of US$7.3million at 31 December 2006 in respect of derivatives maturing after the yearend, and the reversal of opening mark to market losses of US$44.5 million. At 31 December 2007, the Group had min/max instruments for 70,200 tonnes ofcopper production (of which 60,000 tonnes relate to El Tesoro and 10,200 tonnesrelate to Michilla), covering a total period up to 31 December 2009. Theweighted average remaining period covered by these hedges calculated with effectfrom 1 January 2008 is 11 months. The instruments have a weighted average floorof 248.9 cents per pound and a weighted average cap of 389.2 cents per pound. At 31 December 2007, the Group also had futures for 6,500 tonnes, to both buyand sell copper production at El Tesoro, with the effect of swapping COMEXprices for LME prices without eliminating underlying market price exposure,covering a period to 31 January 2009. The remaining weighted average periodcovered by these instruments was 7 months. Between 31 December 2007 and the date of this report, Michilla entered intofurther min/max instruments for 15,000 tonnes of copper production, covering atotal period up to 31 December 2008. The weighted average remaining periodcovered by these hedges calculated with effect from 1 January 2008 is 7 months.The instruments have a weighted average floor of 292.1 cents per pound and aweighted average cap of 342.1 cents per pound. (ii) Interest and exchange derivatives There were no outstanding interest derivative instruments at 31 December 2007 or2006. During the year ended 31 December 2006 a gain of US$0.3 million wasrecognised within other finance items in respect of interest rate collars whichmatured during the year. There were no outstanding exchange derivative instruments at 31 December 2007 or2006. 5. Net finance income Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Investment incomeInterest receivable 113.4 78.3 -------- -------- Interest expenseInterest payable (19.8) (24.6)Amortisation of deferred finance costs (0.4) (0.4)Preference dividends (0.2) (0.2) -------- -------- (20.4) (25.2) -------- -------- Other finance itemsMark-to-market effect of derivatives - 0.3Time value effect of derivatives 0.7 -Discount charge relating to provisions (1.2) (1.2)Foreign exchange 2.9 1.6 -------- -------- 2.4 0.7 -------- -------- -------- --------Net finance income 95.4 53.8 ======== ======== The discount charge relating to provisions has been reclassified from interestexpense to other finance items, and the prior year comparatives have beenrestated accordingly. The reclassification has no effect on net finance incomein either year. There was no interest capitalised in either year. 6. Taxation The tax charge for the year comprised the following: Year ended Year ended 31.12.07 31.12.06 US$'m US$'m Current tax chargeCorporate tax (principally first (441.3) (474.2)category tax in Chile)Mining tax (Royalty) (50.6) (58.5)Withholding tax provision (135.3) (61.9)Exchange gains on corporate tax 28.5 2.4balances -------- -------- (598.7) (592.2) -------- -------- Deferred tax chargeCorporate tax (principally first (8.1) (2.4)category tax in Chile)Mining tax (Royalty) (0.8) 1.9Withholding tax provision (30.8) (72.2) -------- -------- (39.7) (72.7) -------- -------- Total tax charge (Income tax expense) (638.4) (664.9) ======== ======== Current tax is based on taxable profit for the year. Deferred tax is the taxexpected to be payable or recoverable on temporary differences (i.e. differencesbetween the carrying amount of assets and liabilities in the financialstatements and the corresponding tax basis used in the computation of taxableprofit). Deferred tax is accounted for using the balance sheet liability methodand is provided on all temporary differences with certain limited exceptions.The Group incurs withholding taxes on the remittance of profits from Chile andthe other countries in which it operates and deferred tax is provided onundistributed earnings to the extent that remittance is probable in theforeseeable future. The rate of first category (i.e. corporation) tax in Chile was 17% for both 2007and 2006. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax(royalty) which imposes an additional tax of 4% of tax-adjusted operatingprofit. For 2006 and 2007, 50% of the mining tax could be offset against firstcategory tax and the remaining 50% was tax deductible (i.e. an allowable expensein determining liability to first category tax). From 2008, when the ability tooffset will no longer be available, 100% of the mining tax will be taxdeductible. The effect is to increase the effective tax rate of these threeoperations (before taking into account deductibility against corporation tax) byapproximately 2% in 2006 and 2007 and 4% thereafter. The effective tax rate for 2007 was 23.2%, compared with the Chilean statutorytax rate of 17.0%. This was principally due to the provision of withholding taxof US$166.1 million, and the effect of the mining tax, which resulted in acharge of US$51.4 million, partly offset by exchanges gains of US$28.5 millionon Chilean-peso denominated tax prepayments due to the weakening of the USdollar during the year. In 2006, the effective tax rate was 23.3%, principallydue to the provision of withholding tax of US$134.1 million, and the mining taxcharge of US$56.6 million. In 2006, exchange gains did not have any significanteffect on the effective tax rate. 7. Basic earnings per share Basic earnings per share is calculated on profit after tax and minority interestgiving net earnings of US$1,382.1 million (2006 - US$1,354.3 million) and basedon 985,856,695 ordinary shares. There was no potential dilution of ordinaryshares in any period. 8. Dividends The Board will recommend a final dividend of 43.4 cents per ordinary share,which comprises an ordinary dividend of 5.4 cents per share and a specialdividend of 38.0 cents per share. The interim dividend of 6.2 cents per share,which comprised an ordinary dividend of 3.2 cents per share and a specialdividend of 3.0 cents per share, was paid on 11 October 2007. Together, thisgives total dividends proposed in relation to 2007 of 49.6 cents per share. The final dividend proposed in relation to 2006 was 43.0 cents, which comprisedan ordinary dividend of 5.0 cents per share and a special dividend of 38.0 centsper share. Together with the interim dividend that year of 5.2 cents per share,which comprised an ordinary dividend of 3.2 cents per share and a specialdividend of 2.0 cents per share, this gave total dividends proposed in relationto 2006 of 48.2 cents per share. Dividends per share actually paid in the year and recognised as a deduction fromnet equity under IFRS were 49.2 cents (2006 - 24.0 cents) being the interimdividend for the year and the final dividend proposed in respect of the previousyear. The final dividend will be paid on 12 June 2008 to shareholders on the registerat the close of business on 9 May 2008. Dividends are declared and paid gross.The conversion rate for the final dividend of 43.4 cents to be paid in sterlingwill be set on 13 May 2008. Dividends are declared in US dollars but may be paid in either dollars orsterling. Shareholders on the register of members with an address in the UnitedKingdom receive dividend payments in sterling, unless they elect to be paid indollars. All other shareholders are paid by cheque in dollars, unless they havepreviously instructed the Company's registrar to pay dividends by bank transferto a sterling bank account, or they elect for payment by cheque in sterling. TheCompany's registrar must receive any such election before the record date of 9May 2008. 9. Intangible assets Concession Exploration Year ended Year ended right licenses 31.12.07 31.12.06 US$'m US$'m US$'m US$'m Balance at the beginning of the 90.3 115.0 205.3 97.7periodAcquisition - - - 230.0Disposal - - - (115.0)Amortisation (3.8) - (3.8) (4.0)Foreign currency exchange difference 6.2 - 6.2 (3.4) -------- -------- -------- --------Balance at the end of the period 92.7 115.0 207.7 205.3 ======== ======== ======== ======== The concession right relates to the 30-year concession to operate the waterrights and facilities in the Antofagasta Region of Chile which the Group'swholly-owned subsidiary, Aguas de Antofagasta S.A., acquired in December 2003.The intangible asset is being amortised on a straight-line basis over the lifeof the concession. The exploration licences relate to the Group's proportionate share of the fullunencumbered value attributed to the interest in exploration licences in theReko Diq prospect in the Chagai Hills region of south-west Pakistan acquired byTethyan Copper Company Limited in 2006 (see Note 23). This intangible asset willbe amortised in accordance with the Group's policy for mining properties whenthe related mining properties enter into production. 10. Property, plant and equipment Mining Railway Water Year Year and other Concession ended ended transport 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m Balance at the beginning of 2,180.2 124.9 68.6 2,373.7 1,820.0the yearAdditions 421.7 38.9 5.4 466.0 539.0Acquisition - - - - 171.6Depreciation (140.7) (11.3) (6.4) (158.4) (141.0)Asset disposals (5.7) (2.6) (0.1) (8.4) (8.2)Disposals - - - - (4.7)Foreign currency exchange - 2.1 4.8 6.9 (3.0)difference -------- -------- -------- -------- --------Balance at the end of the 2,455.5 152.0 72.3 2,679.8 2,373.7year ======== ======== ======== ======== ======== 11. Investment property Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Balance at the beginning of the year 3.2 3.4Foreign currency exchange difference 0.3 (0.2) -------- --------Balance at the end of the year 3.5 3.2 ======== ======== Investment property represents the Group's forestry properties, which are heldfor long-term potential and accordingly classified as investment property heldat cost. 12. Investment in associate Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Balance at the beginning of the year 3.5 2.8 -------- --------Share of profit before tax 1.7 1.3Share of tax (0.3) (0.2) -------- --------Share of income from associate 1.4 1.1 Dividends received (2.4) (0.4) -------- --------Balance at the end of the year 2.5 3.5 ======== ======== The investment in associate refers to the Group's 30% interest in AntofagastaTerminal Internacional S.A. ("ATI"), which operates a concession to manageinstallations in the port of Antofagasta. 13. Joint venture agreements Cordillera de las Minas S.A. The Group had a joint venture agreement, entered into during 2002, withCompanhia Vale do Rio Doce ("Vale") of Brazil, with the objective of developingmineral exploration activities in a defined area of interest in southern Peru.In March 2007 the Group agreed to sell its 50% interest in the joint venturevehicle Cordillera de Las Minas S.A. ("CMSA") to Panoro Minerals Limited("Panoro"), a company listed on the TSX Venture Exchange. The agreement was subject to a number of conditions including financing byPanoro and regulatory approvals. These conditions were fulfilled in June 2007and the disposal was completed at that point. The fair value of theconsideration received, being US$6.0 million in cash plus six million commonshares in Panoro, was US$9.7 million. The joint venture had a nil carrying valuein the Group's balance sheet, and accordingly the disposal has resulted in again of US$9.7 million being recognised during the period, recorded within otheroperating income. Tethyan Copper Company Limited As explained in Note 23, in April 2006 the Group acquired 100% of the issuedshare capital of Tethyan Copper Company Limited ("Tethyan"). In September 2006the Group entered into a joint venture agreement with Barrick Gold Corporation("Barrick Gold"), to establish a 50:50 joint venture in relation to Tethyan'smineral interests in Pakistan. The Group's 50% share of the assets andliabilities and results of the jointly controlled entity are included in theconsolidated balance sheet and in the consolidated income statement of the Groupunder the proportionate consolidation method. 14. Available for sale investments Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Balance at the beginning of the year 6.2 0.1Additions 3.7 -Acquisition - 5.6Movements in fair value 10.0 0.5Disposal (16.6) - -------- --------Balance at the end of the year 3.3 6.2 ======== ======== Available for sale investments represent those investments which are notsubsidiaries, associates or joint ventures and are not held for tradingpurposes. The balance at 31 December 2006 included US$6.1 million related to theinvestment in Mercator Minerals Ltd shares, acquired at a fair value of US$5.6million through the acquisition of Equatorial Mining Limited in August 2006 (seeNote 23). These shares were disposed of during the current year, resulting in again of US$10.5 million recognised in the income statement. The addition during the year represents the shares in Panoro Minerals Limitedacquired as part consideration for the disposal of the Group's share of thejoint venture entity Cordillera de las Minas S.A. (see Note 13). The fair valueof these shares decreased by US$0.5 million during the year, and the fair valueof the shares at 31 December 2007 was US$3.2 million. The fair value of the remaining available for sale investments of less thanUS$0.1 million held by the Group at 31 December 2007 are mainly Chilean-pesodenominated and did not differ materially from cost at the year end. 15. Inventories Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Raw materials and consumables 41.1 36.6Work in progress 71.1 68.6Finished goods 18.1 15.1 -------- -------- 130.3 120.3 ======== ======== Work in progress includes US$9.6 million (2006 - US$25.3 million) related tohigh carbonate ore inventories at El Tesoro of which US$5.3 million are expectedto be processed more than twelve months after the balance sheet date. During theyear a write-off of US$ 18.8 million was recorded in respect of theseinventories. 16. Borrowings At At 31.12.07 31.12.06 US$'m US$'m Los PelambresCorporate loans (229.0) (305.3)Other loans (4.7) (9.5)El TesoroCorporate loans (14.0) (27.9)Finance leases (0.1) (0.2)MichillaFinance leases (0.1) (0.9)Railway and other transport servicesLoans (14.1) (10.8)OtherPreference shares (4.0) (4.1) -------- --------Total (see Note 22) (266.0) (358.7) ======== ======== Loans at 31 December 2007 are shown net of deferred financing costs of US$1.0million (2006 - US$1.5 million). The amount in relation to Los Pelambres wasUS$1.0 million (2006 - US$1.4 million). The amount in relation to El Tesoro wasless than US$0.1 million (2006 - US$0.1 million). Maturity of borrowings At At 31.12.07 31.12.06 US$'m US$'mShort-term borrowings (101.8) (97.6)Medium and long-term borrowings (164.2) (261.1) -------- --------Total (see Note 22) (266.0) (358.7) ======== ======== Loans are predominantly floating rate. However the Group periodically entersinto interest rate derivative contracts to manage its exposure to interestrates. As explained in Note 4(b) there were no such derivative contractsoutstanding at 31 December 2007 or 2006. 17. Post-employment benefit obligation Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Balance at the beginning of the year (24.1) (20.6)Charge to operating profit in the year (5.3) (7.7)Release of discount to net interest in (0.7) (0.8)yearUtilised in the year 3.1 4.2Foreign currency exchange difference (2.1) 0.8 -------- --------Balance at the end of the year (29.1) (24.1) ======== ======== The post employment benefit obligation relates to the provision for severanceindemnities which are payable when an employment contract comes to an end, inaccordance with normal employment practice in Chile and other countries in whichthe Group operates. The severance indemnity obligation is treated as an unfundeddefined benefit plan, and the calculation is based on valuations performed by anindependent actuary. 18. Long-term provisions Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Balance at the beginning of the year (9.8) (9.8)Charge to operating profit in the year (0.5) (0.6)Release of discount to net interest in (0.5) (0.4)the yearAcquisition - (0.8)Disposal - 0.8Utilised in the year - 0.8Foreign currency exchange difference (0.1) 0.2 -------- --------Balance at the end of the year (10.9) (9.8) ======== ======== Analysed as follows:Decommissioning and restoration (10.4) (9.4)Termination of water concession (0.5) (0.4) -------- --------Balance at the end of the year (10.9) (9.8) ======== ======== Decommissioning and restoration costs relate to the Group's mining operations.Costs are estimated on the basis of a formal closure plan and are subject toregular independent formal review. It is estimated that the provision will beutilised over a period of up to 40 years based on current mine plans. The provision for the termination of the water concession relates to theprovision for items of plant, property and equipment and working capital itemsunder Aguas de Antofagasta's ownership to be transferred to the previousstate-owned operator ESSAN at the end of the concession period, and is based onthe net present value of the estimated value of those assets and liabilities inexistence at the end of the concession. 19. Deferred tax assets and liabilities Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Net position at the beginning of the (320.1) (218.9)yearCharge to tax on profit in year (39.7) (72.7)Acquisition - (29.0)Foreign currency exchange difference (1.1) 0.5 -------- --------Net position at the end of the year (360.9) (320.1) ======== ======== Analysed between:Deferred tax assets 14.7 3.1Deferred tax liabilities (375.6) (323.2) -------- --------Net position (360.9) (320.1) ======== ======== 20. Share capital and share premium There was no change in share capital or share premium in the year ended 31December 2007. During 2006 there was a 4-for-1 bonus issue of ordinary shares,on 19 June 2006, which resulted in an increase in ordinary share capital ofUS$73.2 million and a corresponding reduction in the share premium account. 21. Reconciliation of profit before tax to net cash inflow from operating activities Year Year ended ended 31.12.07 31.12.06 US$'m US$'m Profit before tax 2,750.2 2,859.0Depreciation and amortisation 162.2 145.0Loss on disposal of property, plant 8.4 8.2and equipmentProfit on disposal of joint venture (9.6) -interestProfit on disposal of available for (10.5) -sale investmentsNet finance income (95.4) (53.8)Share of profit of associate (1.4) (1.1)Increase in inventories (9.9) (21.5)Increase in debtors (11.7) (135.5)Increase in creditors and provisions 35.4 9.8 -------- --------Cash flows from operations 2,817.7 2,810.1 ======== ======== 22. Analysis of changes in net cash At 1.1.07 Cash flows Other Exchange At 31.12.07 US$'m US$'m US$'m US$'m US$'m Cash and cash equivalents 1,805.5 400.2 - 6.8 2,212.5 -------- -------- -------- -------- -------- Bank borrowings due within (96.7) 92.3 (97.0) (0.2) (101.6)one yearBank borrowings due after (256.8) - 96.6 - (160.2)one yearFinance leases due within (0.9) 0.9 (0.2) - (0.2)one yearFinance leases due after one (0.2) - 0.2 - -yearPreference shares (4.1) - - 0.1 (4.0) -------- -------- -------- -------- --------Total borrowings (358.7) 93.2 (0.4) (0.1) (266.0) -------- -------- -------- -------- --------Net cash 1,446.8 493.4 (0.4) 6.7 1,946.5 ======== ======== ======== ======== ======== Net cash Net cash at the end of each year was as follows: At At 31.12.07 31.12.06 US$'m US$'m Cash and cash equivalents 2,212.5 1,805.5Total borrowings (266.0) (358.7) -------- -------- 1,946.5 1,446.8 ======== ======== 23. Acquisitions and disposals Year ended 31 December 2007 No acquisitions, disposals or part-disposals of subsidiaries or associates havebeen made during the 2007. Details of acquisitions and related transactionsundertaken during 2006 are set out below. Year ended 31 December 2006 On 20 April 2006 the Group acquired 100% of the issued share capital of TethyanCopper Company Limited ("Tethyan") for cash consideration (including transactioncosts) of US$170.4 million. On 22 September 2006, the Group entered into a 50:50joint venture agreement with Barrick Gold Corporation ("Barrick Gold") inrelation to Tethyan's mineral interests in Pakistan. The Group disposed of 50%of the issued share capital of Atacama Copper Pty Limited ("Atacama"), theimmediate parent company of Tethyan, to Barrick Gold for US$86.8 million. On 24 August 2006 the Group acquired 100% of the issued share capital ofEquatorial Mining Limited ("Equatorial") for a cash consideration (includingtransaction costs) of US$406.1 million. Equatorial's principal asset was a 39%interest in Minera El Tesoro, in which the Group held the remaining 61% andwhich it had accounted for as a subsidiary. The acquisition resulted in theelimination of the minority interest of US$137.5 million recognised in theGroup's balance sheet immediately prior to acquisition. On 11 December 2006, the Group entered into an agreement to dispose ofEquatorial Mining North America Inc. (EMNA), a wholly-owned subsidiary ofEquatorial Mining Limited, to Idaho General Mines Inc ("IGM"). EMNA and itssubsidiaries formerly owned and operated the Tonopah copper mine in Nevada, overwhich they retained royalties. The consideration of US$4.9 million was receivedin January 2007. No amount has been recognised in respect of the furthercontingent consideration of US$6.0 million which is payable should production atthe Tonopah mine commence. 24. Other transactions During 2007, the Group decided not to continue with the exploration agreementswith Ascendent Copper Corporation in respect of the Chaucha deposit in Ecuadorand with AngloGold Ashanti in the area of interest in southern Colombia,following a review of drilling results achieved to date. This decision does nothave any material impact on any of the amounts included within thisannouncement. 25. Contingent assets and liabilities There are a number of claims currently outstanding to which Antofagasta plc orits subsidiaries ("the Group") is a party, for which no provision has been madein the financial statements and are currently not expected to result in anymaterial loss to the Group. Details of the principal claims are set out below: a) Los Pelambres - Mauro tailings dam In November 2006, the Court of Appeals of Santiago upheld a challenge byclaimants in the Pupio Valley against the Chilean Water Authority (DireccionGeneral de Aguas) in relation to the award of one of the sectoral permits issuedduring 2005 for the construction of the Mauro tailings dam by Los Pelambres. TheCourt of Appeals has rejected four requests by the claimants that work on thedam should be suspended. This has enabled Los Pelambres to continue constructionpending a final resolution by the Chilean Supreme Court, where Los Pelambres hassought to reverse the November decision as an affected party together with theDireccion General de Aguas. The Group believes that Los Pelambres has receivedall the necessary technical and legal permits and that these have been properlyapplied for and granted entirely in accordance with the applicable regulations.It is confident that this view will be upheld by the Chilean Supreme Court. On 19 April 2007 a first instance court in Santiago upheld a claim relating to apurchase agreement entered into in 1992 between two former owners of land in thearea of the Mauro tailings dam, in which the validity of that purchase agreementwas challenged by the plaintiff seller. Los Pelambres, which acquired the landin 2001, participated in this trial to protect its interest and has appealedagainst this decision to the Court of Appeals of Santiago. The appeal has theeffect of suspending the effect of the first instance resolution. The Group isconfident that Los Pelambres' legal title to the land in question will be upheldon appeal. On 18 May 2007 the Court rejected a second petition by the plaintiffin that case that works on the Mauro tailings dam should cease immediately,confirming Los Pelambres' right to complete its construction. The courtnevertheless has held that operation of the dam by depositing tailings cannotfor the moment commence. On 24 August 2007, a first instance court in Los Vilos notified Los Pelambres ofa new claim made by the same individuals involved in other litigation againstthe Mauro tailings dam. The claim was filed earlier the same week and LosPelambres was neither notified of nor represented in the hearing. The court alsonotified Los Pelambres of an order to suspend those works which directly affectthe Pupio stream. Los Pelambres believes that it has obtained all the necessaryapprovals and permits for the construction of the Mauro tailings, which was98.5% complete at the end of 2007. There are other claims at first instance currently in the Chilean courts againstgovernmental authorities. These claims are not against Los Pelambres, but insome cases the company has intervened in case an eventual judgement affects theproject. Current operations are unaffected as the Quillayes dam which is expected to havecapacity until early 2009 remains in use. b) Tethyan Copper Company Limited - Chagai Hills Exploration Joint Venture On 26 June 2007 the High Court of Balochistan at Quetta dismissed a petitionwhich had sought to declare that the Chagai Hills Exploration Joint Venture of1993 and the exploration licences granted to Tethyan were null and void andoverturned an injunction passed earlier by the Court. The petition had beenfiled 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") againstthe judgment and this will be heard by the Supreme Court to decide whether theappeal should be heard on its merits. c) Equatorial Mining Limited - Errigal In July 2006, Equatorial Mining Limited ("Equatorial") received notice of aclaim by Errigal Limited in the New South Wales Supreme Court. Errigal claimsthat it is a former minority shareholder in one of Equatorial's subsidiarieswhose interest was acquired by Equatorial in 1993. The claim is for amountspayable under the 1993 acquisition agreement. The Group does not agree with theinterpretation of the 1993 agreement advanced by Errigal and the action willcontinue to be defended vigorously. 26. Related party transactions The ultimate parent company of the Group is Metalinvest Establishment, which iscontrolled by the E. Abaroa Foundation, in which members of the Luksic familyare interested. The Company's subsidiaries, in the ordinary course of business,enter into various sale and purchase transactions with companies also controlledby members of the Luksic family, including Banco de Chile S.A., Madeco S.A. andCompania Cervecerias Unidas S.A., which are subsidiaries of Quinenco S.A., aChilean industrial and financial conglomerate the shares of which are traded onthe Santiago Stock Exchange. These transactions, all of which were on normalcommercial terms, are in total not considered to be material. The Group holds a 51% interest in Antomin Limited, which owns a number of copperexploration properties in Chile's II and IV Regions. These include (but are notlimited to) Buey Muerto, some properties in the Sierra Gorda district (includingTesoro North-East) and a small proportion of the Esperanza project. The Groupacquired its interest in Antomin Limited pursuant to an agreement in 2001 for anominal consideration from Mineralinvest Establishment, a company controlled bythe Luksic family, which continues to hold the remaining 49% of Antomin Limited.Under the terms of the acquisition agreement, the Group committed to meet infull the exploration and pre-feasibility costs relating to these properties.During the year the Group incurred US$3.1 million (2006 - US$1.5 million) ofexploration and pre-feasibility costs in respect of these properties. Thecumulative amount incurred to 31 December 2007 was US$11.8 million (2006 -US$8.7 million). In September 2006 the Group entered into a joint venture agreement with BarrickGold Corporation ("Barrick Gold") to establish a 50:50 joint venture overTethyan's mineral interests in Pakistan. During the year the Group contributedUS$15.1 million to Tethyan to provide funds for Tethyan's on-going explorationprogramme. The balance due from Tethyan to Group companies at the end of theyear was US$2.2 million (2006 - nil). 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 theperiod of US$2.4 million (2006 - US$0.4 million), as disclosed in theConsolidated Cash Flow Statement. 27. Currency translation Assets and liabilities denominated in foreign currencies are translated intodollars and sterling at the year end rates of exchange. Results denominated inforeign currencies have been translated into dollars at the average rate foreach year. Year end rates Average rates 31.12.07 US$1.9912 = £1; US$1 = Ch$497 US$2.0004 = £1; US$1 = Ch$523 31.12.06 US$1.9569 = £1; US$1 = Ch$532 US$1.8386 = £1; US$1 = Ch$530 28. Distribution The Annual Report and Financial Statements for the year ended 31 December 2007,together with the Notice of the 2008 Annual General Meeting, will be posted toall shareholders in April 2008. The Annual General Meeting will be held atChurch House Conference Centre, Dean's Yard, Westminster, London SW1P 3NZ at10.30 a.m. on Wednesday, 11 June 2008. 29. Production and Sales Statistics (not subject to audit or review) (See notes following Note 29(b).) a) Production and sales volumes for copper and molybdenum Production Sales ------------ ------- Year Year Year Year ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 000 000 000 000 tonnes tonnes tonnes tonnes CopperLos Pelambres 289.9 324.2 289.4 324.8El Tesoro 93.0 94.0 93.3 95.3Michilla 45.1 47.3 45.8 47.7 -------- -------- -------- --------Group total 428.1 465.5 428.5 467.8 ======== ======== ======== ======== MolybdenumLos Pelambres 10.2 9.8 10.0 9.9 ======== ======== ======== ======== b) Cash costs per pound of copper produced and realised prices per pound of copper and molybdenum sold Cash costs Realised prices ------------ ----------------- Year Year Year Year ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 US cents US cents US cents US cents CopperLos Pelambres (10.8) 16.4 328.3 335.0El Tesoro 109.8 78.6 327.6 316.4Michilla 143.5 126.4 313.8 318.5 -------- -------- -------- --------Group weighted average (net of 31.6 40.2 326.6 329.5by-products) ======== ======== ======== ======== Group weighted average (before 110.7 95.6deducting by-products) ======== ======== Cash costs at Los Pelambres comprise:On-site and shipping costs 76.3 56.4Tolling charges for concentrates 29.6 39.7 -------- --------Cash costs before deducting 105.9 96.1by-product creditsBy-product credits (principally (116.7) (79.7)molybdenum) -------- --------Cash costs (net of by-product (10.8) 16.4credits) ======== ======== LME average 323.3 305.3 ======== ======== US$ US$MolybdenumLos Pelambres 31.7 24.6 ======== ========Market average price 30.2 24.8 ======== ======== Notes to the production and sales statistics (i) The production and sales figures represent the actualamounts produced and sold, not the Group's share of each mine. The Group owns60% of Los Pelambres, 100% of El Tesoro (61% prior to 24 August 2006) and 74.2%of Michilla. (ii) Los Pelambres produces copper and molybdenum concentrates,and the figures for Los Pelambres are expressed in terms of payable metalcontained in concentrate. Los Pelambres is also credited for the gold and silvercontained in the copper concentrate sold. El Tesoro and Michilla producecathodes with no by-products. (iii) Cash costs are a measure of the cost of operationalproduction expressed in terms of cents per pound of payable copper produced.Cash costs are stated net of by-product credits and include tolling charges forconcentrates at Los Pelambres. Cash costs exclude depreciation, financial incomeand expenses, hedging gains and losses, exchange gains and losses andcorporation tax for all three operations. By-product calculations do not takeinto account mark-to-market gains for molybdenum at the beginning or end of eachyear. (iv) Excluding by-product credits (which are reported as part of turnover) andtolling charges for concentrates (which are deducted from turnover), weightedaverage cash costs for the Group (comprising on-site and shipping costs in thecase of Los Pelambres and cash costs in the case of the other two operations)increased from 68.0 cents per pound in 2006 to 90.6 cents per pound in 2007. (v) Realised copper prices are determined by comparing turnover from coppersales (grossing up for tolling charges for concentrates) with sales volumes foreach mine in the period. Realised molybdenum prices at Los Pelambres arecalculated on a similar basis. In the current year realised prices reflect gainsand losses on commodity derivatives, which are included within turnover. Theclassification of these amounts within turnover is due to the application of thehedge accounting provisions of IAS 39 "Financial Instruments: Recognition andMeasurement" with effect from 1 January 2007. Prior to this point, gains andlosses on commodity derivatives were included in other operating income orexpense, and so are not reflected within the realised price figures for 2006. (vi) The totals in the tables above may include some small apparentdifferences as the specific individual figures have not been rounded. (vii) The production information in Note 29(a) and the cash cost information inNote 29(b) is derived from the Group's production report for the fourth quarterof 2007, published on 31 January 2008. 30. Summary of mining companies' Chilean GAAP financial statements (not subjectto audit or review) The Group's three mining companies, Los Pelambres, El Tesoro and Michilla, willfile financial statements under Chilean GAAP for the year ended 31 December 2007with the Chilean securities regulator, the Superintendencia de Valores y Segurosde Chile ("SVS") on 28 March 2008. These filings are in accordance with theChilean mining tax legislation which requires companies that have elected toenter a tax stability regime to publish financial information on a quarterlybasis from the 2006 financial year. The balance sheets, income statements and cash flow statements prepared underChilean GAAP and to be filed with the SVS are summarised below. (a) Balance sheets Los Los El El Michilla Michilla Pelambres Pelambres Tesoro Tesoro At At At At At At 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Cash and cash equivalents 164.2 485.3 534.3 219.0 43.1 69.5Trade and other 323.0 365.1 67.0 53.0 32.1 17.0receivablesInventories 74.6 46.6 37.0 53.8 16.3 18.1Current and deferred tax 93.1 29.9 4.9 2.5 3.5 2.6assets ------- ------- ------- ------- ------- ------- Current assets 654.9 926.9 643.2 328.3 95.0 107.2 Fixed assets 1,753.7 1,504.8 261.7 258.1 43.1 54.6 Other non-current assets 148.4 152.2 38.7 51.4 1.7 0.7 ------- ------- ------- ------- ------- ------- TOTAL ASSETS 2,557.0 2,583.9 943.6 637.8 139.8 162.5 ======= ======= ======= ======= ======= ======= Short term borrowings (82.0) (82.5) (14.1) (14.2) - -Trade and other payables (167.1) (154.6) (51.9) (43.4) (25.7) (20.5)Current and deferred tax - (110.7) (4.0) (36.0) (9.0) (15.5)liabilities ------- ------- ------- ------- ------- ------- Current liabilities (249.1) (347.8) (70.0) (93.6) (34.7) (36.0) ------- ------- ------- ------- ------- ------- Medium and long term (153.3) (234.8) - (14.0) - -borrowingsTrade and other payables (15.9) (12.2) (8.0) (6.5) (8.7) (7.5)Deferred tax liabilities (153.5) (138.8) (34.0) (31.6) - - ------- ------- ------- ------- ------- ------- Non-current liabilities (322.7) (385.8) (42.0) (52.1) (8.7) (7.5) ------- ------- ------- ------- ------- ------- Total liabilities (571.8) (733.6) (112.0) (145.7) (43.4) (43.5) ------- ------- ------- ------- ------- ------- Share capital (373.8) (373.8) (91.0) (91.0) (78.4) (78.4)Reserves (1,611.4) (1,476.5) (740.6) (401.1) (18.0) (40.6) ------- ------- ------- ------- ------- ------- Total shareholders' equity (1,985.2) (1,850.3) (831.6) (492.1) (96.4) (119.0) ------- ------- ------- ------- ------- ------- ======= ======= ======= ======= ======= =======TOTAL LIABILITIES AND (2,557.0) (2,583.9) (943.6) (637.8) (139.8) (162.5)SHAREHOLDERS' EQUITY ======= ======= ======= ======= ======= ======= (b) Income statements Los Los El El Michilla Michilla Pelambres Pelambres Tesoro Tesoro Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Turnover 2,656.9 2,726.9 673.9 603.2 323.9 260.5 Operating costs (470.9) (403.7) (244.1) (178.6) (157.7) (142.3) ------- ------- ------- ------- ------- ------- Operating margin 2,186.0 2,323.2 429.8 424.6 166.2 118.2 Administrative and (92.9) (77.1) (31.3) (27.2) (15.4) (13.2)distribution expenses ------- ------- ------- ------- ------- ------- Operating profit 2,093.1 2,246.1 398.5 397.4 150.8 105.0 ------- ------- ------- ------- ------- ------- Other income 7.8 0.8 2.3 0.3 10.3 0.8Financial income 29.9 36.1 22.4 4.8 3.6 1.9Financial expenses (18.1) (21.9) (2.0) (3.0) (0.2) (0.3)Other expenses (2.3) (2.0) (5.2) (2.1) (9.3) (0.6)Exchange difference 30.4 4.7 1.2 1.5 0.8 0.7 ------- ------- ------- ------- ------- ------- Net non-operating income 47.7 17.7 18.7 1.5 5.2 2.5 ------- ------- ------- ------- ------- ------- Profit before tax 2,140.8 2,263.8 417.2 398.9 156.0 107.5 Income tax expense (399.4) (419.1) (77.7) (75.2) (29.3) (21.5) ------- ------- ------- ------- ------- ------- Profit for the financial 1,741.4 1,844.7 339.5 323.7 126.7 86.0year ======= ======= ======= ======= ======= ======= (c) Cash flow statements Los Los El El Michilla Michilla Pelambres Pelambres Tesoro Tesoro Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 US$'m US$'m US$'m US$'m US$'m US$'m Net cash flow from 1,662.8 1,896.8 359.5 352.2 135.0 112.0operating activities ------- ------- ------- ------- ------- ------- Investing activitiesAdditions to fixed assets (303.4) (442.2) (30.2) (13.7) (11.4) (7.8)Disposals of fixed assets 7.3 1.4 - - 0.3 0.1Other loans to related - - - - (0.9) -companies ------- ------- ------- ------- ------- ------- Net cash used in investing (296.1) (440.8) (30.2) (13.7) (12.0) (7.7)activities ------- ------- ------- ------- ------- ------- Financing activitiesDividends paid (1,606.4) (1,450.0) - (95.0) (149.4) (50.0) Loans repaid (81.4) (81.4) (14.0) (28.0) - - ------- ------- ------- ------- ------- ------- Net cash used in financing (1,687.8) (1,531.4) (14.0) (123.0) (149.4) (50.0)activities ------- ------- ------- ------- ------- ------- Net (decrease)/increase in (321.1) (75.4) 315.3 215.5 (26.4) 54.3cash and cash equivalents Cash and cash equivalents 485.3 560.7 219.0 3.5 69.5 15.2at the beginning of the ------- ------- ------- ------- ------- -------year Cash and cash equivalents 164.2 485.3 534.3 219.0 43.1 69.5at the end of the year ======= ======= ======= ======= ======= ======= Notes to Chilean GAAP financial statements (i) The above balance sheets, income statements and cash flow statements havebeen derived from the financial statements of Los Pelambres, El Tesoro andMichilla for the year ended 31 December 2007 to be filed with the SVS in Chileon 28 March 2008. Certain detailed lines in the individual statements have beencombined. (ii) The balance sheets, income statements and cash flow statements above havebeen prepared under Chilean GAAP and therefore do not necessarily equate to theamounts that would be included in the Group's consolidated financial statementsfor a corresponding period either as to measurement or classification. (iii) The amounts disclosed above represent the full amount for each companyand not the Group's attributable share. The Group owns 60% of Los Pelambres,100% of El Tesoro (61% prior to 24 August 2006) and 74.2% of Michilla. (iv) A translation into English of the full financial statements as filed withthe SVS for each company shown in summary form above will be available on theGroup's website www.antofagasta.co.uk after these have been filed. 31. Reconciliation of Chilean GAAP results to Turnover and EBITDA under IFRSfor individual business segments (a) Turnover Los Los El El Michilla Michilla Pelambres Pelambres Tesoro Tesoro Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 Notes US$'m US$'m US$'m US$'m US$'m US$'m Chilean GAAP - 2,656.9 2,726.9 673.9 603.2 323.9 260.5Turnover Mark-to-market of 29(i) (5.0) (25.6) - (0.2) - -provisionally pricedsalesReclassification of 29 - - - 61.8 (7.1) 74.4realised (gains)/ (ii) ------- ------- ------- ------- ------- -------losses on commodityderivatives to otheroperating expense/reserves IFRS - Turnover 2,651.9 2,701.3 673.9 664.8 316.8 334.9 ======= ======= ======= ======= ======= ======= (b) EBITDA Los Los El El Michilla Michilla Pelambres Pelambres Tesoro Tesoro Year Year Year Year Year Year ended ended ended ended ended ended 31.12.07 31.12.06 31.12.07 31.12.06 31.12.07 31.12.06 Notes US$'m US$'m US$'m US$'m US$'m US$'m Chilean GAAP - Operating 2,093.1 2,246.1 398.5 397.4 150.8 105.0profit Depreciation & 78.5 72.2 41.3 35.3 23.0 15.2amortisation ------- ------- ------- ------- ------- ------- Chilean GAAP - EBITDA 2,171.6 2,318.3 439.8 432.7 173.8 120.2 Mark-to-market of 29(i) (5.0) (25.6) - (0.2) - -provisionally pricedsales Mark-to-market of 29 - 0.3 - 17.0 (7.1) 34.8financial derivatives (ii) Other IFRS and 29 11.4 4.0 (8.9) 6.5 2.5 3.4consolidation (iii) ------- ------- ------- ------- ------- -------adjustments IFRS - EBITDA 2,178.0 2,297.0 430.9 456.0 169.2 158.4 ======= ======= ======= ======= ======= ======= Notes to reconciliation of turnover and EBITDA (i) Copper and molybdenum concentrate sale agreements and copper cathode saleagreements generally provide for provisional pricing of sales at the time ofshipment, with final pricing being based on the monthly average London MetalExchange copper price or monthly average molybdenum price for specified futureperiods. This normally ranges from 30 to 180 days after delivery to thecustomer. Under Chilean GAAP, the Group's accounting treatment is to value sales, whichremain open as to final pricing at the period end, in aggregate at the lower ofprovisional invoice prices and mark-to-market prices at the balance sheet date.Mark-to-market adjustments in respect of tolling charges (whether positive ornegative) are not taken into account. The Group determines mark-to-market pricesusing forward prices at each period end for copper concentrate and cathodesales, and period-end month average prices for molybdenum concentrate sales dueto the absence of a futures market for that commodity. Under IFRS, both gains and losses from the marking-to-market of open sales arerecognised through adjustments to turnover in the income statement and to tradedebtors in the balance sheet. Under IFRS, the Group determines mark-to-marketprices in the same way as under Chilean GAAP for gross sales and mark-to-marketadjustments are also recognised in respect of tolling charges. This results in a GAAP adjustment in cases where the mark-to-market prices arehigher than the provisional invoice prices. For Los Pelambres this results in aloss of US$5.1 million in respect of copper concentrate sales (principally inrespect of tolling charges), and a credit of US$0.1 million in respect ofmolybdenum concentrate sales. The adjustment in respect of El Tesoro andMichilla is nil. (ii) The Group uses derivative financial instruments to reduce exposure tocommodity price movements. The Group does not use such derivative instrumentsfor trading purposes. Under Chilean GAAP, such derivatives are held off the balance sheet. Gains orlosses on derivative instruments are matched in the income statement against theitem intended to be hedged. Such gains or losses are reflected by way ofadjustment to turnover. The Group has applied the hedge accounting provisions of IAS 39 "FinancialInstruments: Recognition and Measurement" with effect from 1 January 2007. Fromthat date, changes in the fair value of derivative financial instruments thatare designated and effective as hedges of future cash flows have been recogniseddirectly in equity, with any ineffective portion recognised immediately in theincome statement. Realised gains and losses on commodity derivatives recognisedin the income statement have been recorded within turnover. Prior to 1 January2007 derivatives were measured at fair value through the income statement, withgains or losses on commodity derivatives being recorded within other operatingincome or expense. For the comparative periods, any amounts included in turnoverunder Chilean GAAP were reclassified accordingly. (iii) Other IFRS and consolidation adjustments relate mainly to amortisationof consolidation fair value adjustments and are not material either individuallyor in aggregate. This information is provided by RNS The company news service from the London Stock Exchange
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