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Antofagasta PLC14 March 2006 Antofagasta PLC Preliminary Results Announcement for the year ended 31 December 2005 14 March 2006 HIGHLIGHTS • Record financial results: • cash flow from operations was up 31% to US$1.6 billion; • profit before tax was up 28% to US$1.5 billion; • earnings per share were up 25% to 368.1 cents. • Total dividend for the year up 39% to 110 cents per share. The final dividend of 94 cents* comprises: • an ordinary dividend of 24 cents; • a special dividend of 70 cents. • Strong metal prices have benefited the Group, offsetting an expecte 6.2% decrease in copper production and higher operating costs mainly from industry-wide pressures: • Average LME copper price up 29% to 167.1 cents per pound; • Average market molybdenum price doubled to US$32 per pound; • Group weighted average cash costs down 43% to 13.9 cents per pound to strong by-product credits. • Molybdenum production increased by 10% to 8,700 tonnes, partly as a result of maximising production to benefit from high prices. • Two major capital expenditure programmes with a combined cost of US$0.6 billion, the Mauro dam and plant expansion, are underway at Los Pelambres. These will allow the 2 billion tonne ore reserves to be utilised and will increase production from 2007 as planned. • Throughput expansion at El Tesoro to 10.5 million tonnes per annum completed. • Esperanza now expected to complete the feasibility stage by the end of 2006. The estimated drilled inferred ore resource has increased to 786 million tonnes with a 42% increase in contained copper, and with gold and molybdenum credits. • Solid results from the railway and water businesses. Both have signed contracts with new mine developments, and are well-placed to benefit from the increase in mining activity in northern Chile. • The Group continues to look at opportunities to secure world-class mining assets to enhance its overall growth profile. The offer announced on 14 February 2006 to acquire Tethyan Copper Company in order to develop its assets jointly with Barrick Gold Corporation is an example of this. FULL YEAR TO 31 DECEMBER 2005 2004 % Change-------------------------- -------- ------- ------- --------Group turnover US$'m 2,445.3 1,942.1 25.9%Cash flow from operations US$'m 1,647.5 1,253.5 31.4%Profit before tax US$'m 1,536.3 1,198.5 28.2%Earnings per share cents 368.1 293.9 25.2% Interim dividend (paid in October) cents 16 15 6.7%Recommended final ordinary dividend* cents 24 24 -%Recommended special dividend* cents 70 40 75% ------- -------Total dividends cents 110 79 39.2% ======= ======= LME copper price (per pound) cents 167.1 130.0 28.5%Group copper production '000 tonnes 467.3 498.4 (6.2)%Group weighted average cash costs**(net of by-products) cents 13.9 24.3 (42.8)%Market molybdenum price US$ 32.0 16.2 97.5%Group molybdenum production '000 tonnes 8.7 7.9 10.1% Marcelo Awad, Chief Executive Officer of Antofagasta Minerals S.A., commented, "These are excellent results for Antofagasta, with high metal prices supportinga sound operating performance. Following an already strong year in 2004, resultsin 2005 increased by over 25%. Antofagasta is also seeking to enhance itsoverall growth profile, both by developing its existing assets and by seeking tosecure rights to world-class mining assets. The Group's strong financialposition has enabled it to increase total dividends for the year by 39% whilecontinuing to invest in profitable growth." 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. * Dividends are paid in either sterling or US dollars. The conversion rate fordividends to be paid in sterling will be set on 16 May 2006. ** 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 2(b)(iii) to the Preliminary Results Announcement. Enquiries - London Enquiries - SantiagoAntofagasta plc Antofagasta Minerals S.A.Tel: +44 20 7808 0988 Tel +562 377 5145www.antofagasta.co.uk Alejandro RiveraDesmond O'Conor Email:arivera@aminerals.clEmail: doconor@antofagasta.co.uk Issued byHussein Barma BanksideConsultantsEmail: hbarma@antofagasta.co.uk Tel: +44 20 7367 8873 Keith Irons Email: keith@bankside.com DIRECTORS' COMMENTS FOR THE YEAR TO 31 DECEMBER 2005 The Group achieved strong results, capitalising on a background of favourablemarket conditions. Profit before tax was up 28.2% to US$1,536.3 million (2004 -US$1,198.5 million) with earnings per share up 25.2% to 368.1 cents (2004 -293.9 cents). LME copper prices averaged 167.1 cents per pound (2004 - 130.0cents per pound), an increase of 28.5%, while molybdenum market prices nearlydoubled to average US$32.0 per pound (2004 - US$16.2 per pound). The Group alsobenefited from higher molybdenum production of 8,700 tonnes (2004 - 7,900tonnes), but as expected Group copper production decreased by 6.2% at 467,300tonnes (2004 - 498,400 tonnes). This was mainly due to lower ore grades at LosPelambres, partly as a result of the decision to maximise molybdenum productionto take advantage of high prices. Weighted average cash costs, which includeby-product credits, were 42.8% lower at 13.9 cents per pound as the strongprices and increased molybdenum production offset increased operating costs. TheGroup's transport and water operations also had a satisfactory year with strongvolumes. During 2005, the Group progressed with a number of important steps regarding itsfuture development. At Los Pelambres, work continued with the Mauro tailingsdam, which will enable the existing 2 billion tonne ore reserves to be utilisedwith a mine life extending to 2047. A plant expansion to increase ore throughputto 140,000 tonnes per day was also begun to increase future copper production.Both these programmes should be completed in 2007. El Tesoro completed itsexpansion of throughput to 10.5 million tonnes per annum, which will help offsetthe effect of lower ore grades. Michilla initiated a technical review of itsreserves with a view to developing a new mine plan in 2006 to determine futureproduction levels. The Group also progressed with a number of explorationprojects, notably the Esperanza copper project, where the drill-inferredresource has increased to 786 million tonnes of ore (representing a 42% increasein contained copper), with gold and now also molybdenum credits. This project isnow expected to complete the feasibility stage by the end of 2006. The Groupalso examined a number of new opportunities in the course of the year. On 14February 2006 it announced an offer to acquire the Tethyan Copper CompanyLimited, which if successful, would provide it with an opportunity to developcopper-gold assets in North-West Pakistan in partnership with Barrick GoldCorporation, the largest gold producer in the world. The railway and waterbusinesses have also signed contracts with new mine developments, and arewell-placed to benefit from any increase in mining activity in Northern Chile. Cash flow from operations in 2005 was US$1,647.5 million (2004 - US$1,253.5million) and the net increase in cash and cash equivalents (after taxes paid,debt repayment, capital expenditure and dividends) was US$427.5 million (2004 -US$714.2 million). Net cash at the year-end was US$851.5 million (2004 -US$278.6 million). These cash reserves will fund the Group's capital expenditureprogrammes, including the Mauro dam and plant expansion projects at LosPelambres, tax payments relating to 2005 profits and new opportunities which mayarise. The Board recommends a final dividend of 24 cents and a special dividendof 70 cents, bringing the total dividend for the year, including the interimdividend paid in October 2005, to 110 cents (2004 - 79 cents). Review of Operations Los Pelambres Los Pelambres had a record year with operating profit up 36.6% to US$1,350.4million, compared with US$988.7 million in 2004. Realised copper prices were189.2 cents per pound (2004 - 141.5 cents per pound), reflecting strong LMEprices and pricing adjustments on close-out of provisional sales, while realisedmolybdenum prices were US$31.4 per pound (2004 - US$21.5 per pound). Los Pelambres produced 322,800 tonnes of payable copper compared with 350,600tonnes in 2004. Lower ore grades averaged 0.80% (2004 - 0.88%) due to normalgrade decline anticipated under the mine plan and also as a result of maximisingmolybdenum production. The decrease was partly offset by higher ore throughputas average processing levels increased to 128,100 tonnes per day (tpd) of orecompared with 125,900 tpd in 2004. Molybdenum production increased to 8,700 tonnes (2004 - 7,900 tonnes) asselective mining resulted in higher grades and improved recoveries. Cash costs,which are stated net of by-product credits, reached negative 17.1 cents perpound, as molybdenum revenues outweighed Los Pelambres' operating costs.Excluding by-product credits, copper and molybdenum production cash costs in theperiod increased to 74.7 cents per pound of copper produced (2004 - 53.7 centsper pound). This was partly due to higher treatment and refining charges forcopper and higher roasting charges for molybdenum which together increased by11.1 cents per pound to 27.6 cents per pound in 2005. Input prices such assteel, energy and oil have also risen in the current strong economicenvironment. Costs were to a lesser extent also affected by the lower ore grade. During 2005, Los Pelambres further reduced its borrowings with repaymentstotalling US$81.5 million, following the replacement of its project financeloans with unsecured corporate loan facilities at the end of 2004. Totalborrowings were US$395.8 million at 31 December 2005. Los Pelambres is currently undertaking two major capital expenditure programmes,the Mauro tailings dam project and the expansion of the plant to 140,000 tpd.These have a combined budget of US$639 million and are being financed by thecash resources of Los Pelambres. Work began on the Mauro tailings dam at the end of 2004, following approval ofthe Environmental Impact Study earlier that year. The dam provides Los Pelambreswith sufficient storage capacity for its 2 billion tonnes of existing orereserves, with a mine plan now extending to 2047. During 2005, all necessarypermits for the completion of the Mauro tailings dam were obtained. Physicalprogress of 20% was achieved, and the project is expected to be completed asplanned by the end of 2007. The Mauro project has a budget of US$457 million,although the stronger Chilean peso and higher steel costs may increase theeventual total costs. Cumulative expenditure to 31 December 2005 since theproject began has been US$71.9 million, of which US$50.3 million was incurredduring the year. In the first half of 2005, the Los Pelambres board approved an expansion of theconcentrator plant to increase average ore throughput to 140,000 tpd. This willbe achieved by re-powering the grinding lines and installing an additional fifthball mill at the concentrator plant. Work on this project, costing approximatelyUS$182 million, has begun and is expected to be completed on time and withinbudget by mid-2007, when Los Pelambres should start to benefit from theresulting higher production. Costs of US$10.7 million had been incurred by theend of 2005. In 2006, the ore processing level is expected to average 126,300 tpd while theore grade is expected to average 0.77%. As a result, production of payablecopper in 2006 is expected to be around 308,000 tonnes compared with the 322,800tonnes produced in 2005. Copper production should increase from mid-2007 as theplant expansion comes on stream. Molybdenum production in 2006 is forecast toincrease to around 10,800 tonnes with better grades processed averaging 0.030%(2004 - 0.022%) to maximise production. Cash costs before by-product credits in 2006 are expected to increase by around13 cents per pound from the 2005 level mainly as a result of industry pressures.These include higher treatment and refining charges (which partly depend on thecopper price), roasting charges for molybdenum, the continued strength of theChilean peso and inflation, combined to a lesser degree with the impact ofslightly lower copper grades. Nevertheless, molybdenum prices remain well abovehistorical averages and, together with increased molybdenum production, shouldcontinue to benefit Los Pelambres. Capital expenditure for 2006 is estimated atUS$460 million, which includes US$257 million on the Mauro dam and US$136million on the plant expansion. Los Pelambres is reviewing options for possible further expansion and, as partof this review, will begin the first stage of a two-year exploration programmeto identify additional deposits beyond the existing 3.1 billion tonne resource. El Tesoro Operating profit at El Tesoro rose by 14.2% from US$151.4 million in 2004 toUS$172.9 million this year. Realised copper prices were 175.7 cents per pound,compared with 136.9 cents per pound last year, reflecting the improved LMEprices as well as strong premiums due to the tight cathode market. Production atEl Tesoro increased to 98,100 tonnes (2004 - 97,800 tonnes) as the higher orethroughput level compensated for the expected reduction in ore grade from 1.35%to 1.23%. Cash costs rose to 66.1 cents per pound compared with 52.4 cents in 2004. Thisincrease was partly due to mine-specific factors including a higher waste-to-oreratio and lower ore grades, but also to cost pressures common to other Chileanmines, including the stronger Chilean peso and higher fuel, energy and sulphuricacid costs which have risen in the current economic environment. El Tesoro'sresults were also affected by the effect of commodity hedging, which reducedoperating profit in 2005 by US$24.8 million, including mark-to-marketadjustments of US$17.0 million for hedges due to mature in 2006. In December 2004, El Tesoro replaced its project finance loans with unsecuredcorporate facilities. During 2005, repayments of US$56.2 million were made. Thisincluded scheduled repayments of US$20 million and additional prepayments ofUS$24 million on the corporate facilities, and early repayment of finance leaseobligations of US$12.2 million. El Tesoro's borrowings at 31 December 2005 wereUS$56.1 million. During January 2006, El Tesoro obtained formal approval from the relevantenvironmental authorities regarding the plant optimisation carried out during2005. This increases the current annual ore throughput to 10.5 milliontonnes, compared with the previous level of 9.7 million tonnes, and will partlycompensate for lower ore grades in the following years. In 2006, El Tesoroexpects to produce 91,600 tonnes of cathodes mainly reflecting reduction in theore grade under the mine plan to 1.14%. Cash costs are expected to beapproximately 78 cents per pound, reflecting the impact of lower production andthe higher waste-to-ore ratio, as well as other cost factors including exchangerates and local inflation. Michilla Michilla faced a challenging year despite the strong commodity priceenvironment. Cathode production for 2005 was 46,400 tonnes (2004 - 50,000tonnes), a decrease of 7.2% due to lower throughput and slightly lower oregrades. The lower throughput resulted from operational difficulties at theunderground mine in the first half of the year, which have since been resolved,and modifications required to the secondary crushing line, together with lowerore grades at the Lince open pit. Cash costs reached 118.8 cents per pound in 2005, 33.2 cents higher than theprevious year, due to these operational issues as well as similar industry-widecost pressures to El Tesoro. Michilla's results were also affected by the effectof commodity hedging, which reduced operating profit by US$43.8 million,including mark-to-market adjustments of US$27.5 million for hedges due to maturein 2006. Following a review of carrying values, a US$30.0 million impairmentcharge was also recognised. Consequently, Michilla recorded an operating loss ofUS$31.1 million in 2005 compared with an operating profit of US$31.6 million in2004. Excluding the mark-to-market hedging losses relating to 2006 and theimpairment provision, EBITDA (earnings before interest, taxes, depreciation andamortisation, further explained in Note 4(a)(vi)) and operating profit atMichilla for 2005 would have been US$43.8 million and US$26.4 millionrespectively. Cathode production for 2006 is expected to be 41,900 tonnes mainly due to theeffect of ore grades, with cash costs around 127 cents per pound. In the secondhalf of 2005, Michilla initiated a detailed technical review of its resources,which will result in a revised mine plan. This should be completed in the firsthalf of 2006 and will determine Michilla's future production level. Projects, exploration and new opportunities The Group spent US$22.4 million on exploration activities in 2005, compared withUS$10.3 million in 2004. This included US$9.8 million at Esperanza (2004 -US$2.1 million), US$9.0 million at Michilla (2004 - US$3.0 million) and US$3.6million on other targets mainly in Chile (2004 - US$5.2 million). The principal focus remains the Esperanza project, located approximately 5kilometres from El Tesoro, which will now advance to the feasibility stage.During 2005, 1.4 kilometres of the 2.25 kilometre exploration decline werecompleted, together with the 40,000 metre drilling campaign. The drill-inferredsulphide resource at Esperanza has been increased following analysis of thedrill results to 786 million tonnes of ore with an average copper grade of0.53%, an average gold grade of 0.20 g/t, and an average molybdenum grade of0.0123%, with an unchanged cut-off grade for copper of 0.30%. This compares withthe previous estimate of 469 million tonnes of ore with an average copper gradeof 0.63% and 0.27 g/t of gold and represents a 42% increased in copper containedin the ore resource and the identification of molybdenum as an additionalby-product. The feasibility stage is expected to be completed by the end of2006. During 2004 and 2005, Michilla carried out an exploration programme to identifyfurther ore reserves, mainly in targets such as the Estefania Este and LinceEste which are adjacent to current orebodies. The results were disappointing andno significant increases in reserves were discovered. The Group is seeking toobtain further reserves and is acquiring the Antucoya deposit, located 45kilometres north-east of Michilla. During 2006, in addition to completion of the Esperanza pre-feasibility study,the exploration team will focus on examining new targets principally in Chileand Latin America (with a budget of US$6.4 million), and also on drilling andexploratory work around the Group's existing operations (with a budget of US$4.5million, including US$3.1 million for Los Pelambres). The Group also continues to look at opportunities to secure rights toworld-class mining assets. On 14 February 2006, the Group announced itsintention to make a cash takeover offer for Tethyan Copper Company Limited("Tethyan"). Tethyan is a company listed on the Australian Stock Exchange, withcopper-gold interests in North-West Pakistan. The Group currently holds aninterest in 14.85% of Tethyan's issued share capital. If successful, theacquisition of Tethyan would provide the Group with an opportunity to developcopper-gold assets in a very prospective mining region, in partnershipwith Barrick Gold Corporation, the world's largest gold-producer. Railway and other transport services Rail and road transport volumes in 2005 were 4.3 million tons (2004 - 4.5million tons) and 1.5 million tons (2004 - 1.4 million tons) respectively. Thecombined volumes were marginally below 2004 due to minor differences in tonnagesmoved by some customers. Operating profit (excluding income from associates) wasUS$27.4 million (2004 - US$30.9 million). The FCAB's medium to longer term prospects remain positive. During the firsthalf of 2005, the FCAB signed two new contracts; firstly with Apex Silver Mines'San Cristobal polymetallic project in south-western Bolivia and secondly withBHP Billiton's Spence copper project in Chile's Region II. The FCAB also expectsto increase tonnages from Escondida's sulphide leach project. While someincrease in tonnages is expected in 2006, these new mining projects shouldprovide a significant uplift to existing transport volumes through 2007 and2008. Other new developments, such as Coldeco's Gaby project and expansions toexisting mines, could further increase tonnages as mining activity responds tothe strength and duration of the current commodity cycle. Aguas de Antofagasta Aguas de Antofagasta had a successful second year of operations. Combinedindustrial and domestic water sales increased from 32.2 million cu. m. in 2004to 33.1 million cu. m. this year, with operating profit of US$25.1 million (2004- US$21.8 million), as Aguas benefited from increased sales to mining andindustrial customers as well as from the stronger Chilean peso, the currency inwhich revenues from domestic customers are received. Aguas has improved servicesand productivity levels and is progressively reducing water losses. A contract to supply water to BHP Billiton's Spence project during theconstruction period and subsequently for its operations was signed in 2005, anddetailed engineering studies are underway to supply water for a possible futureexpansion of the Collahuasi mine owned by Noranda and Anglo American. Dividends The Board's policy is to maintain a progressive dividend policy which can besustained through the economic cycle, with a dividend level that could beexpected to be maintained at conservative long-term copper prices. The Boardrecommends special dividends when it considers these appropriate after takinginto account the level of profits earned in the period under review, theexisting cash position of the Group and significant known or expected fundingcommitments. The Board recommends a final dividend of 94 cents per ordinary share payable on15 June 2006 to shareholders on the Register at the close of business on 12 May2006. The final dividend comprises an ordinary dividend of 24 cents and aspecial dividend of 70 cents. Including the interim dividend, this represents adistribution of just below 30% of net earnings (profit attributable to equityholders of the Company). In determining this, the Board has considered theremaining capital expenditures on the Mauro tailings dam and plant expansionprojects, the balance of corporation and withholding taxes accrued for profitsearned in 2005 to be paid in 2006, and the expected costs of the potentialacquisition of Tethyan. The Board considers that this also provides the Groupwith sufficient flexibility to take advantage of new opportunities which mayarise in the future. Dividends per share proposed in relation to the year are as follows: US dollars 2005 2004 % increase cents cents ---------- ---------Ordinary Interim 16 15Final 24 24 ---------- --------- 40 39 2.6% ---------- ---------Special Final 70 40 75.0% ---------- --------- Total 110 79 39.2% ========== ========= Dividends per share actually paid in the year and recognised as a deduction fromnet equity under IFRS were 80 cents (2004 - 39 cents) being the interim dividendfor the year and the final dividend proposed in respect of the previous year. Further details are given in Note 9 to this Preliminary Results Announcement. Current Trading Prospects Copper prices increased steadily through 2005, increasing from the 140 cents perpound range at the start of the year to over 200 cents by December, and haveaveraged 220 cents in the first two months of 2006. While total visibleinventories have increased to around 200,000 tonnes, copper stocks still remainat critically low levels. Most commentators believe now that the market remainedin deficit during 2005, with further destocking having taken place. This hasbeen supported by supply disruptions and continued smelter bottlenecks. Metalprices were also buoyed by increased demand for commodities as an investmentalternative by institutional and mainstream investors in addition to index fundsand commodity traders which are attracted to these markets. Copper prices remain very volatile, against a background of strong globaleconomic growth, smelting constraints, supply disruption and increased commodityfund activity. Nevertheless, demand remains healthy, supported by continuedgrowth in China, India and Russia and prices should remain well above historicallevels through 2006. Molybdenum prices have retreated from the peak of US$39 per pound reached inJune 2005, as increases from primary producers and from copper mines producingmolybdenum as a by-product have resulted in additional supplies reaching themarket. Prices have averaged US$23 per pound in the first two months of 2006,stabilising at a range of US$20-US$25 per pound. Demand remains strong, both inthe steel sector and non-metallurgical applications. Prices should continue toremain above historical averages, although some softening from current levelsmay occur as supply increases and last year's disruptions in China areeventually resolved. Group copper production this year is expected to be just over 440,000 tonnes,and molybdenum production up to 10,800 tonnes. Although underlying cash costswill increase as a result of continued industry pressures, the Group shouldcontinue to benefit from strong demand and high metal prices. During 2006, theGroup will advance with its capital projects including the plant expansion andtailings dam at Los Pelambres and its exploration programmes, which includetaking Esperanza to the feasibility stage. Whilst the Group's primary region of focus continues to be Latin America, andChile in particular, its financial position remains strong and it will continueto seek to enhance its growth profile by developing its existing assets andproperties, and through seeking opportunities globally to secure world-classmining assets. FINANCIAL COMMENTARY FOR THE YEAR TO 31 DECEMBER 2005 Results Turnover Group turnover increased by 25.9% to US$2,445.3 million, compared withUS$1,942.1 million in 2004. The increase was mainly due to higher copper andmolybdenum prices and higher molybdenum volumes. Turnover from the mining division increased by 26.9% or US$487.6 million toUS$2,299.1 million, mainly reflecting significantly improved market prices forcopper and molybdenum. The Group's average realised copper price was 185.2 centsper pound (2004 - 140.2 cents), while the realised molybdenum price averagedUS$31.4 per pound (2004 - US$21.5 per pound). Realised copper and molybdenumprices are determined by comparing turnover (gross of tolling charges forconcentrates) with sales volumes in the period. Realised copper prices exceededmarket prices mainly because, in line with industry practice, concentrate salesagreements at Los Pelambres generally provide for provisional pricing at thetime of shipment with final pricing based on the average market price for futureperiods (normally 30 to 180 days after delivery to the customer). Theseadjustments were positive as the price of copper generally increased during theyear. Sales of LME-registered cathodes by El Tesoro and Michilla also benefitedfrom strong cathode premiums, reflecting tight market conditions. Molybdenumprices, which started the year over US$30 per pound weakened slightly toward theend of 2005 to US$25.0 per pound. Molybdenum also has provisional pricing and,as a result, the realised price of US$31.4 per pound was below the marketaverage for 2005 of US$32.0 per pound. The benefit of higher metal prices was partly offset by the decline in coppersales which decreased 8.0% from 500,700 tonnes in 2004 to 460,500 tonnes thisyear, mainly as a result of lower ore grades at Los Pelambres and lowerthroughput at Michilla. Molybdenum sales volumes increased by 7.6% to 8,500tonnes following the decision to maximise molybdenum output to benefit from highprices. Turnover from the transport division (FCAB) increased by US$6.8 million toUS$92.5 million, despite similar volumes, mainly because rail tariffs areindexed to cost factors including inflation, the peso-dollar exchange rate andfuel costs which increased in the year. Turnover at Aguas de Antofagasta, whichoperates the Group's water business, increased by US$8.8 million to US$53.7million, mainly reflecting the stronger Chilean peso and increased volumes. Operating profit from subsidiaries and EBITDA Operating profit from subsidiaries increased by 25.2% from US$1,203.4 million toUS$1,506.4 million. Operating profit at the mining division increased by 26.3% from US$1,150.7million to US$1,453.9 million, mainly as a result of the strong metal prices andhigher molybdenum volumes. This was partly offset by lower copper volumes asdescribed above and also increased operating costs. Excluding by-product credits(which are reported as part of turnover), weighted average cash costs for theGroup as a whole increased from 56.6 cents per pound in 2004 to 77.3 cents perpound, reflecting the impact of higher treatment and refining charges and inputcosts, as well as lower grades and higher waste-to-ore ratios. Operating profitswere also affected by losses on commodity derivatives of US$68.6 million atMichilla and El Tesoro (which includes US$44.5 million of mark-to-market losses,recognised as a result of IFRS, relating to derivatives which mature in 2006),the impairment charge of US$30 million at Michilla and higher explorationexpenditure which increased by US$12.1 million to US$22.4 million in 2005. Operating profits (excluding income from associates) at the transport divisiondecreased by US$3.5 million compared to 2004 despite similar volumes. This wasmainly due to higher maintenance costs, increased overheads in anticipation ofnew contracts and costs associated with concluding a four-year labour agreementwith its unions in December. Aguas de Antofagasta contributed US$25.1 millioncompared to US$21.8 million last year, reflecting similar operating margins asboth its costs and revenues are peso-denominated allowing it to benefit from thestronger exchange rate and increased volumes. EBITDA (earnings before interest, depreciation, tax and amortisation) in 2005was US$1,674.1 million, compared with US$1,356.7 million in 2004, up 23.4%. Thisis calculated by adding back to operating profit from subsidiaries the items ofdepreciation and amortisation of US$128.0 million (2004 - US$134.2 million),disposals of property, plant and equipment of US$9.7 million (2004 - US$19.1million) and the impairment provision of US$30 million (2004 - US$ nil). The Group's share of net profit from its 30% investment in Antofagasta TerminalInternacional S.A. ("ATI"), acquired at the end of 2004, was US$0.9 million.This compares with an acquisition cost of US$2.9 million in 2004. Net finance income/(cost) Net finance income in 2005 was US$29.0 million, compared with net finance costsof US$4.9 million in 2004. Interest receivable increased from US$19.2 million in 2004 to US$39.7 million,due to the higher level of cash and deposit balances and higher market interestrates compared with 2004. Interest expense (excluding the mark-to-market effectof interest rate derivatives) decreased from US$34.9 million in 2004 to US$26.0million. Regular loan repayments as well as pre-payments at El Tesoro havedecreased the level of borrowings, offsetting the effect of higher interestrates. Exchange gains included in finance items were US$13.3 million, compared withUS$3.3 million in the previous year. These resulted mainly from thestrengthening of the Chilean peso, which resulted in exchange gains topeso-denominated monetary items, principally peso-denominated inter-companyreceivables and cash balances held by Group companies with US dollar functionalcurrencies. As explained below, income tax expense includes credits for exchangeof US$20.2 million resulting in total exchange items included in the incomestatement of US$33.5 million. The mark-to-market effect of interest and exchange derivatives was lesssignificant at US$2.0 million compared with US$7.5 million in 2004, as marketinterest rates increased and the outstanding maturity of the interest rate swapsreduced over the year. Profit before tax, income tax expense and earnings per share The resulting profit before tax for the period was US$1,536.3 million comparedto US$1,198.5 million in 2004, reflecting the improved operating results andincreased finance income. Tax (including deferred tax) amounted to US$308.1 million (2004 - US$241.9million), reflecting the increased profit for the period. The tax chargecomprises current tax of US$285.0 million (2004 - US$183.1 million) and deferredtax of US$23.1 million (2004 - US$58.8 million). The tax charge in 2005 alsoincludes a provision of US$59.9 million (2004 - US$36.0 million) for withholdingtaxes. This was partly offset by exchange gains of US$20.2 million (2004 -US$0.2 million) on peso-denominated tax receivables through the year, arisingmainly as a result of monthly tax payments on account at Los Pelambres and ElTesoro. Primarily as a result of these factors, the effective tax rate of 20.1%(2004 - 20.2%) exceeded the Chilean statutory tax rate of 17%. The effect of thenew Chilean mining industry tax is set out further below. Basic earnings per share were 368.1 cents compared with 293.9 cents for 2004reflecting the higher profit after tax and minority interests. As explained above, results in 2005 were affected by positive exchange gains(US$33.5 million), mark-to-market losses, recognised as a result of IFRS, onderivatives which mature in 2006 (US$44.5 million) and the impairment charge inrespect of Michilla (US$30 million). Excluding these items, profit before taxwould have been US$1,577.3 million as opposed to the IFRS amount reported ofUS$1,536.3 million. 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, but as it has notyet applied the hedge accounting provisions of IAS 39 "Financial Instruments:Recognition and Measurement", derivatives are measured at fair value in thebalance sheet with changes in value recognised in the income statement. At 31 December 2005, the Group had min/max instruments for 42,000 tonnes ofcopper production, with a weighted average floor of 115.7 cents per pound and aweighted average cap of 146.7 cents per pound. These instruments had an averageduration of five months. The Group's exposure to the copper price up to thislevel of production will be limited to the extent that market prices exceed thecap or fall below the floor at each relevant exercise date. The Group also hadfutures for 2,650 tonnes of copper production with an average price of 183.1cents, and a weighted average duration of eight months. Details of the mark-to-market position of these instruments, together withdetails of interest and commodity derivatives held by the Group, are given inNote 5 to this Preliminary Announcement. Commodity price sensitivities Based on 2005 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$10.3 million andearnings per share by 2.7 cents. Similarly, a one-dollar change in the averagemolybdenum price would affect turnover and profit before tax by US$19.2 millionand earnings per share by 4.8 cents. Impact of the new tax legislation for the Chilean mining industry During 2005, the new tax legislation on Chilean mining companies was passed intolaw with effect from 1 January 2006. The legislation sets a rate of up to 5% oftax-adjusted operating profit, with the option for mining companies to elect fora lower rate of 4% by entering into a new tax stability regime for a period of12 years, after which the rate of 5% will apply. For 2006 and 2007, 50% of thenew mining tax can be offset against first category (i.e. corporation) tax andthe remaining 50% is tax deductible (i.e. an allowable expense in determiningliability to first category tax). From 2008, when the ability to offset will nolonger be available, 100% of the new mining tax will be tax deductible. The Group's three mining companies (Los Pelambres, El Tesoro and Michilla) haveopted to enter into the new tax stability agreement. Consequently, the effect ofthe legislation will be to increase the effective tax rate for these operationsby approximately 2% in 2006 and 2007 and 4% thereafter. Cash flows, cash and debt Cash flows from operations were US$1,647.5 million in 2005 compared withUS$1,253.5 million last year, reflecting the improved operating results adjustedfor depreciation, amortisation and normal working capital movements. A dividendof US$1.0 million was received from the Group's investment in ATI, acquired atthe end of 2004. Cash tax payments in the period were US$343.8 million, compared with US$14.3million in 2004. The significant increase in corporation tax payments was due tothe fact that at the beginning of 2004, Los Pelambres and El Tesoro absorbed thetax losses which derived from the start up of their operations in 1999 and 2001respectively. The current tax liability for these operations in respect of 2004was paid in the first half of 2005. During 2005, monthly payments on accountwere also made in respect of current year profits. The total payment in 2005also included withholding tax payments of US$44.9 million. Capital expenditure in 2005 was US$223.0 million compared with US$80.4 millionin 2004. This included expenditure of US$90.0 million (on a cash basis) relatingto the Mauro tailings dam project and US$10.7 million relating to the plantexpansion at Los Pelambres, as well as the investment in additional oreprocessing capacity at El Tesoro for US$5.9 million. Dividends paid to ordinary shareholders of the Company this year were US$155.4million (2004 - US$76.5 million), which related to the final dividend declaredin respect of 2004 including a special dividend of 40 cents per ordinary share.Dividends paid by subsidiaries to minority shareholders were US$385.6 million(2004 - US$120.8 million), principally due to increased distributions by LosPelambres and El Tesoro. Net repayment of borrowings and finance leasing obligations in 2005, mainly atLos Pelambres and El Tesoro, were US$139.4 million, which included voluntaryprepayments of US$36.2 million at El Tesoro. In 2004, net repayment ofborrowings amounted to US$263.3 million, which included voluntary prepayments ofUS$74.1 million as part of the debt refinancing carried out by both LosPelambres and El Tesoro at the end of that year. The repayments in 2004 alsoincluded the repayment of short-term facilities of US$41.0 million drawn downthe previous year. Regular repayments are now lower following these prepaymentsand refinancings. Details of other cash inflows and outflows in the period are contained in theConsolidated Cash Flow Statement. At 31 December 2005, the Group had cash and cash equivalents of US$1,316.8million (2004 - US$881.4 million), which includes cash balances of US$559.7million held by Los Pelambres to finance the remainder of the Mauro tailings damand the plant expansion projects. Excluding the minority share in eachpartly-owned operation, the Group's attributable share of total cash and cashequivalents was US$1,085.8 million (2004 - US$655.8 million). Total Group borrowings at 31 December 2005 were US$465.3 million (2004 -US$602.8 million). Of this, US$283.6 million (2004 - US$366.5 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$1,465.5 million at 1 January 2005 to US$2,041.7 million at 31December 2005, relating mainly to profit after tax and minority interests forthe period less ordinary dividends declared and paid in the year. Minority interests increased from US$604.5 million at 1 January 2005 to US$721.3million at 31 December 2005, principally reflecting the minority's share ofprofit after tax less the minority's share of the dividends paid by subsidiariesin the year. International Financial Reporting Standards The financial information contained in this Preliminary Results Announcement,including all comparatives, has been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") in place of United Kingdom GenerallyAccepted Accounting Principles ("UK GAAP"). Further details are given in Notes 1and 21 to this Preliminary Results Announcement. The Group also publishedfinancial information in accordance with IFRS for 2004 on 13 September 2005. Thenews release, together with the full statement "Adoption of InternationalFinancial Reporting Standards and Restatements for 2004", is available on theCompany's website and from the Company's registered office. The statementincludes explanations and quantifications of the significant UK GAAP to IFRSdifferences, a summary of which is contained in Note 21 to this PreliminaryResults Announcement. Consolidated Income Statement Year ended Year ended 31.12.05 31.12.04 Notes US$'m US$'m Group turnover 3,4 2,445.3 1,942.1 Total operating costs (938.9) (738.7) -------- --------Operating profit from subsidiaries 3,4 1,506.4 1,203.4 Share of income from associate 13 0.9 - -------- --------Total profit fromoperations and associates 3,4 1,507.3 1,203.4 -------- --------Investment income 39.7 19.2Interest expense (26.0) (34.9)Other finance items 15.3 10.8 -------- --------Net finance income/(cost) 6 29.0 (4.9) ------- --------Profit before tax 1,536.3 1,198.5 Income tax expense 7 (308.1) (241.9) -------- --------Profit for the financial year 1,228.2 956.6 ======== ========Attributable to: -------- --------Minority interests 502.4 377.1 Equity holders of theCompany (net earnings) 725.8 579.5 -------- -------- US cents US cents Basic earnings per share 8 368.1 293.9 Dividends to ordinary shareholders of the Company Per share US cents US centsDividends per share proposed in relation to the year 9 - ordinary dividends (interim and final) 40.0 39.0 - special dividend (final) 70.0 40.0 -------- -------- 110.0 79.0 ======== ======== Dividends per share paid in the year and deducted from net equity 80.0 39.0 ======== ======== In aggregate US$'m US$'m Dividends proposed in relation to the year 9 216.9 155.8 ======== ======== Dividends paid in the year and deducted from net equity 157.7 76.9 ======== ======== There was no potential dilution of earnings per share in either year set outabove. Turnover and operating profit are derived from continuing operations. Consolidated Balance Sheet At 31.12.05 At 31.12.04 Notes US$'m US$'mNon-current assetsIntangible asset 10 97.7 93.2Property, plant and equipment 11 1,820.0 1,796.1Investment property 12 3.4 3.2Investment in associate 13 2.8 2.9Available for sale investments 14 0.1 0.1Deferred tax assets 18 6.6 1.6 -------- -------- 1,930.6 1,897.1 -------- -------- Current assetsInventories 98.8 69.9Trade and other receivables 428.1 349.8Current tax assets 5.3 1.0Derivative financial instruments 5 - 0.2Cash and cash equivalents 20 1,316.8 881.4 -------- -------- 1,849.0 1,302.3 -------- --------Total assets 3,779.6 3,199.4 ======== ======== Current liabilitiesShort-term borrowings 15 (97.2) (104.7)Derivative financial instruments 5 (40.3) (2.3)Trade and other payables (142.9) (135.3)Current tax liabilities (108.7) (162.2) -------- -------- (389.1) (404.5) -------- -------- Non-current liabilitiesMedium and long term borrowings 15 (368.1) (498.1)Trade and other payables (3.5) (1.3)Post-employment benefit obligations 16 (20.6) (16.2)Long-term provisions 17 (9.8) (13.2)Deferred tax liabilities 18 (225.5) (196.1) -------- -------- (627.5) (724.9) -------- --------Total liabilities (1,016.6) (1,129.4) ======== ========Net assets 2,763.0 2,070.0 ======== ======== EquityShare capital 16.6 16.6Share premium 272.4 272.4Translation reserves 16.6 8.5Retained earnings 1,736.1 1,168.0 -------- --------Net equity attributable to equityholders of the Company 2,041.7 1,465.5 Minority interests 721.3 604.5 -------- --------Total equity 2,763.0 2,070.0 ======== ======== The preliminary information was approved by the Board of Directors on 13 March2006. Consolidated Cash Flow Statement Year ended Year ended 31.12.05 31.12.04 Notes US$'m US$'m Cash flows from operations 19 1,647.5 1,253.5Dividends from associate 1.0 -Income tax paid (343.8) (14.3) -------- --------Net cash fromoperating activities 1,304.7 1,239.2 -------- -------- Investing activitiesAcquisition of subsidiary - (0.1)Recovery of IVA (Chilean VAT) paid onpurchase of water concession 7.7 5.8Acquisition of investment in associate - (2.9)Purchases of property, plant and equipment (223.0) (80.4)Proceeds from sale of property, plant andequipment 4.1 0.2Proceeds from disposal of available for saleinvestments - 0.1 -------- --------Net cash used in investing activities (211.2) (77.3) -------- -------- Financing activitiesDividends paid to equity holders of the Company (155.4) (76.5)Dividends paid to preferenceshareholders of the Company (0.2) (0.2)Dividends paid to minority interests (385.6) (120.8)Interest paid, including paymentsunder interest derivatives (23.3) (32.5)Interest received 37.9 11.1Realised gains from currency swaps - 7.5Net proceeds from issue of new borrowings 0.2 558.0Repayments of borrowings (126.2) (818.4)Repayments of obligations under finance leases (13.4) (2.9)Movement on medium term deposits - 27.0 -------- --------Net cash used in financing activities (666.0) (447.7) -------- -------- Net increase in cash and cash equivalents 427.5 714.2 ======== ======== Cash and cash equivalents at beginning of the year 881.4 168.7Net increase in cash and cash equivalents 427.5 714.2Effect of foreign currency exchange rate changes 7.9 (1.5) -------- --------Cash and cash equivalents at end of the year 20 1,316.8 881.4 ======== ======== Consolidated Statement of Changes in Equity For the years ended 31 December 2004 and 2005 Share Share Translation Retained Net Minority Total capital premium reserves earnings equity interests US$'m US$'m US$'m US$'m US$'m US$'m US$'m Balance at 1 January 2004 16.6 272.4 - 665.4 954.4 347.3 1,301.7 Profit for the financial year - - - 579.5 579.5 377.1 956.6Currency translation adjustment - - 8.5 - 8.5 (0.4) 8.1Dividends paid or approvedfor payment - - - (76.9) (76.9) (119.5) (196.4) ------- ------ -------- -------- -------- -------- --------Balance at 31 December 2004and 1 January 2005 16.6 272.4 8.5 1,168.0 1,465.5 604.5 2,070.0 Profit for the financial year - - - 725.8 725.8 502.4 1,228.2Currency translation adjustment - - 8.1 - 8.1 - 8.1Dividends paid - - - (157.7) (157.7) (385.6) (543.3) ------- ------ -------- -------- -------- -------- --------Balance at 31 December 2005 16.6 272.4 16.6 1,736.1 2,041.7 721.3 2,763.0 ======= ====== ======== ======== ======== ======== ======== There were no items of recognised income and expense in either year other thanthe profit for the financial year. Notes 1. General information and accounting policies For accounting periods beginning on or after 1 January 2005, the Group isrequired to prepare consolidated financial statements in accordance withInternational Financial Reporting Standards ("IFRSs") in place of United KingdomGenerally Accepted Accounting Principles ("UK GAAP"). For these purposes, IFRSscomprise the Standards and Interpretations issued by the InternationalAccounting Standards Board ("IASB") and Interpretations issued by theInternational Financial Reporting Interpretations Committee ("IFRIC") that havebeen endorsed by the European Union by 31 December 2005. This preliminary results announcement is for the year ended 31 December 2005.The announcement, including all comparatives, has been prepared using theaccounting policies consistent with all IFRS Standards and Interpretationspublished by 31 December 2004 which are mandatory for accounting periodsbeginning on or after 1 January 2005. The Group has chosen to adopt IFRS 6"Exploration for and Evaluation of Mineral Resources" early. The accounting policies and methods of computation followed in this announcementare those set out in the news release "Adoption of International FinancialReporting Standards and Restatements for 2004" published by the Company on 13September 2005. The news release, including full disclosure of these accountingpolicies, is available on the Company's website www.antofagasta.co.uk or fromthe Company's Registered Office. These policies have been consistently appliedto both years presented in this preliminary results announcement. While the financial information contained in this preliminary resultsannouncement has been computed in accordance with IFRS, this announcement doesnot itself contain sufficient information to comply with IFRSs. Thisannouncement does not constitute the Group's statutory accounts for the yearended 31 December 2005, which will subsequently be prepared to comply with IFRSsand will be approved by the Board and, with the exception of Note 2, reported onby the auditors and filed with the Registrar of Companies. Accordingly, thefinancial information included in this preliminary results announcement for 2005is unaudited. The information contained in this announcement for the year ended 31 December2004 does not constitute statutory accounts. A copy of the statutory accountsfor that year, which were prepared under UK GAAP, has been delivered to theRegistrar of Companies. The auditors' report on those accounts was unqualifiedand did not contain statements under section 237(2) of the Companies Act 1985(regarding adequacy of accounting records and returns) or under section 237(3)(regarding provision of necessary information and explanations). The informationcontained in Note 2 of the Preliminary Results Announcement is not derived fromthe statutory accounts for the year ended 31 December 2004 and is accordinglynot covered by the auditors' report. 2. Production and Sales Statistics (not subject to audit) (See notes following Note 2(b).) a) Production and sales volumes for copper and molybdenum Production Sales ------------ ------- Year ended Year ended Year ended Year ended 31.12.05 31.12.04 31.12.05 31.12.04 000 tonnes 000 tonnes 000 tonnes 000 tonnes CopperLos Pelambres 322.8 350.6 319.1 352.2El Tesoro 98.1 97.8 96.1 98.3Michilla 46.4 50.0 45.3 50.2 -------- -------- -------- --------Group total 467.3 498.4 460.5 500.7 ======== ======== ======== ======== MolybdenumLos Pelambres 8.7 7.9 8.5 7.9 ======== ======== ======== ======== b) Cash costs per pound of copper produced and realised prices per pound of copper and molybdenum sold Cash cost Realised prices ----------- ----------------- Year ended Year ended Year ended Year ended 31.12.05 31.12.04 31.12.05 31.12.04 cents cents cents cents CopperLos Pelambres (17.1) 7.9 189.2 141.5El Tesoro 66.1 52.4 175.7 136.9Michilla 118.8 85.6 177.1 137.4 -------- -------- -------- --------Group weighted average (net of by-products) 13.9 24.3 185.2 140.2 ======== ======== ======== ======== Group weighted average (before deducting by-products) 77.3 56.6 ======== ======== Cash costs at Los Pelambres comprise:On-site shipping cost 47.1 37.2Tolling charges for concentrates 27.6 16.5 -------- --------Cash costs beforededucting by-product credits 74.7 53.7By-product credits (principally molybdenum) (91.8) (45.8) -------- --------Cash costs (net of by-product credits) (17.1) 7.9 ======== ======== LME average 167.1 130.0 ======== ======== US$ US$MolybdenumLos Pelambres 31.4 21.5 ======== ========Market average price 32.0 16.2 ======== ======== Notes to the production and sales statistics (i) The production and sales figures represent the actual amounts produced and sold, not the Group's share of each mine. The Group owns 60% of Los Pelambres, 61% of El Tesoro and 74.2% of Michilla. (ii) Los Pelambres produces copper and molybdenum concentrates, and the figures for Los Pelambres are expressed in terms of payable metal contained in concentrate. Los Pelambres is also credited for the gold and silver contained in the copper concentrate sold. El Tesoro and Michilla produce cathodes with no by-products. (iii) Cash costs are a measure of the cost of operational production expressed in terms of cents per pound of payable copper produced. Cash costs are stated net of by-product credits and include tolling charges for concentrates at Los Pelambres. Cash costs exclude depreciation, financial income and expenses, exchange gains and losses and corporation tax for all three operations. By-product calculations do not take into account mark-to-market gains for molybdenum at the beginning or end of each period. (iv) Realised copper prices are determined by comparing turnover from copper sales (grossing up for tolling charges for concentrates) with sales volumes for each mine in the period. Realised molybdenum prices at Los Pelambres are calculated on a similar basis. (v) The totals in the tables above may include some small apparent differences as the specific individual figures have not been rounded. 3. Total profit from operations and associates Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Turnover 2,445.3 1,942.1Cost of sales (685.6) (593.4) -------- --------Gross profit 1,759.7 1,348.7Administrative expenses (132.0) (118.1)Closure provision 3.4 (1.2)Severance charges (3.9) (3.2)Exploration costs (22.4) (10.3)Other operating income 5.4 4.7Other operating expenses (103.8) (17.2) -------- --------Operating profit from subsidiaries 1,506.4 1,203.4Share of income from associate 0.9 - -------- --------Total profit from operations and associates 1,507.3 1,203.4 ======== ======== 4. Segmental analysis a)Turnover, EBITDA and operating profit /(loss) from subsidiaries analysed by business segment Turnover EBITDA Operating profit from subsidiaries ----------- -------- ------------------------- Year ended Year ended Year ended Year ended Year ended Year ended 31.12.05 31.12.04 31.12.05 31.12.04 31.12.05 31.12.04 US$'m US$'m US$'m US$'m US$'m US$'m Los Pelambres 1,749.8 1,362.8 1,420.5 1,072.0 1,350.4 988.7El Tesoro 372.2 296.6 203.2 179.6 172.9 151.4Michilla 177.1 152.1 16.3 53.6 (31.1) 31.6Exploration - - (22.4) (10.3) (22.4) (10.3)Corporate and other items - - (15.6) (10.2) (15.9) (10.7) -------- -------- -------- -------- -------- --------Mining 2,299.1 1,811.5 1,602.0 1,284.7 1,453.9 1,150.7Railway and othertransport services 92.5 85.7 38.2 41.8 27.4 30.9Water concession 53.7 44.9 33.9 30.2 25.1 21.8 -------- -------- -------- -------- -------- --------Turnover, EBITDA andoperating profit fromsubsidiaries 2,445.3 1,942.1 1,674.1 1,356.7 1,506.4 1,203.4 ======== ======== ======== ======== ======== ======== Notes to turnover by business segment (i) Turnover from Railway and other transport services is stated after eliminating inter-segmental sales to the mining division of US$8.8 million (2004 - US$6.9 million). (ii) Turnover includes the effect of both final pricing and mark-to-market adjustments to provisionally priced sales of copper and molybdenum concentrates and copper cathodes. Further details of such adjustments are given in Note 5(a). (iii) Turnover does not include the effect of gains and losses on commodity derivatives, which are included as part of operating profit in other operating income or expense. Further details of such gains or losses are given in Note 5(b). (iv) Los Pelambres produces and sells copper and molybdenum concentrates. It is also credited for the gold and silver content in the copper concentrate it sells. Turnover by type of metal is analysed below to show separately, the amounts prior to deduction of tolling charges, the tolling charges involved and the net amounts included in turnover. El Tesoro and Michilla do not generate by-products from their copper cathode operations. Notes to EBITDA and operating profit from subsidiaries by business segment (v) Operating profit for the separate businesses equates to segment result as defined by IAS 14. The Group considers its business segments to be Los Pelambres, El Tesoro, Michilla, exploration, railway and other transport services and the water concession. This excludes the share of income from associate of US$0.9 million (2004 - US$ nil). (vi) EBITDA is calculated by adding back depreciation, amortisation and disposals of plant, property and equipment and impairment charges (see Note 4(b)) to operating profit from subsidiaries. (vii) EBITDA and operating profit are stated after deducting losses on commodity derivatives (including both losses realised in each period and period-end mark-to-market adjustments) at El Tesoro of US$24.8 million; (2004 - US$ nil) and Michilla of US$43.8 million; (2004 - US$5.5 million). Further details are given in Note 5(b). (viii)Operating profit is also stated after deducting an impairment charge against the carrying value of,property, plant and equipment at Michilla of US$30.0 million (2004 - US$ nil). Turnover at Los Pelambres by mineral: Before deducting tolling charges Tolling charges Net of tolling charges ----------------------- ----------------- ------------------------ Year ended Year ended Year ended Year ended Year ended Year ended 31.12.05 31.12.04 31.12.05 31.12.04 31.12.05 31.12.04 US$'m US$'m US$'m US$'m US$'m US$'m Copper 1,331.0 1,098.4 (166.9) (111.4) 1,164.1 987.0Molybdenum 588.4 374.9 (25.6) (15.4) 562.8 359.5Gold and silver 23.4 16.8 (0.5) (0.5) 22.9 16.3 ------- -------- ------- -------- -------- --------Los Pelambres 1,942.8 1,490.1 (193.0) (127.3) 1,749.8 1,362.8 ======= ======== ======= ======== ======== ======== b) Depreciation and amortisation, loss on disposal of property, plant and equipment and impairment charges by operation Depreciation and amortisation Loss on disposals Impairment charge ---------------------- -------------------- --------------------- Year ended Year ended Year ended Year ended Year ended Year ended 31.12.05 31.12.04 31.12.05 31.12.04 31.12.05 31.12.04 US$'m US$'m US$'m US$'m US$'m US$'m Los Pelambres (66.6) (80.2) (3.5) (3.1) - -El Tesoro (29.1) (22.3) (1.2) (5.9) - -Michilla (13.8) (13.9) (3.6) (8.1) (30.0) -Corporate and other items (0.3) (0.4) - (0.1) - - ------- ------- -------- -------- -------- --------Mining (109.8) (116.8) (8.3) (17.2) (30.0) -Railway and othertransport services (9.5) (9.1) (1.3) (1.8) - -Water concession (8.7) (8.3) (0.1) (0.1) - - ------- ------- -------- -------- -------- -------- (128.0) (134.2) (9.7) (19.1) (30.0) - ======= ======= ======== ======== ======== ======== c) Capital expenditure by operation Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Los Pelambres 101.4 47.7El Tesoro 39.6 10.0Michilla 18.7 14.8Corporate and other items 1.6 0.2 -------- --------Mining 161.3 72.7Railway and other transport services 23.2 7.1Water concession 1.8 1.4 -------- -------- 186.3 81.2 ======== ======== Capital expenditure represents purchase of property, plant and equipment statedon an accruals basis (see Note 11) and may therefore differ from the amountincluded in the cash flow statement. 5. 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 adjustments at the end of each period and the effect onturnover in the income statement for each period are as follows: Balance sheet Income statement net mark to market effect net mark to market effect on debtors on turnover ------------ ------------- At 31.12.05 At 31.12.04 Year ended Year ended 31.12.05 31.12.04 US$'m US$'m US$'m US$'m Los Pelambres- copper concentrate 33.2 17.6 15.6 (4.1)Los Pelambres- molybdenum concentrate (12.6) 32.9 (45.5) 28.4El Tesoro -copper cathodes 0.2 0.8 (0.6) (0.1)Michilla -copper cathodes (0.1) 0.4 (0.5) (0.1) -------- -------- -------- -------- 20.7 51.7 (31.0) 24.1 ======== ======== ======== ======== Copper concentrate sales at Los Pelambres Revenues in the year to 31 December 2005 included total positive pricingadjustments of US$154.5 million, representing the difference between reportedrevenues and initially invoiced amounts. This comprised actual pricingadjustments compared with initial provisionally invoiced prices of US$139.9million (of which US$41.4 million related to sales of concentrate open at 31December 2004 and US$98.5 million related to sales of concentrate during 2005)together with net mark-to-market adjustments of US$15.6 million as disclosedabove. At 31 December 2005, copper concentrate sales at Los Pelambres totalling114,500 tonnes remained open as to price, with an average mark-to-market priceof 201.4 cents per pound. Revenues in the year to 31 December 2004 included total positive pricingadjustments of US$89.3 million, representing the difference between reportedrevenues and initially invoiced amounts. This comprised actual pricingadjustments compared with initial provisionally invoiced prices of US$94.5million (of which US$62.5 million related to sales of concentrate open at 31December 2003 and US$32.0 million related to sales of concentrate during 2004)together with net negative mark-to-market adjustments of US$5.2 million asdisclosed above. At 31 December 2004, copper concentrate sales at Los Pelambrestotalling 134,600 tonnes remained open as to price, with an averagemark-to-market price of 143.2 cents per pound. Molybdenum concentrate sales at Los Pelambres Revenues in the year to 31 December 2005 included total negative pricingadjustments of US$22.7 million, representing the difference between reportedrevenues and initially invoiced amounts. This comprised positive actual pricingadjustments compared with initial provisionally invoiced prices of US$22.8million (of which positive US$32.9 million related to sales of concentrate openat 31 December 2004 and negative US$10.1 million related to sales of concentrateduring 2005) together with net negative mark-to-market adjustments of US$45.5million as disclosed above. At 31 December 2005, molybdenum concentrate sales atLos Pelambres totalling 1,400 tonnes remained open as to price, with an averagemark-to-market price of US$27.4 per pound. Revenues in the year to 31 December 2004 included total positive pricingadjustments of US$106.9 million, representing the difference between reportedrevenues and initially invoiced amounts. This comprised actual pricingadjustments compared with initial provisionally invoiced prices of US$78.5million (of which US$8.2 million related to sales of concentrate open at 31December 2003 and US$70.3 million related to sales of concentrate during 2004)together with net positive mark-to-market adjustments of US$28.4 million asdisclosed above. At 31 December 2004, molybdenum concentrate sales at LosPelambres totalling 1,700 tonnes remained open as to price, with an averagemark-to-market price of US$31.0 per pound. b) Derivative financial instruments The Group uses derivative financial instruments to reduce exposure to foreignexchange, interest rate and commodity price movements. The Group does not usesuch derivative instruments for speculative trading purposes. The Group has notadopted the hedge accounting provisions of IAS 39 "Financial Instruments:Recognition and Measurement". Accordingly, derivatives are measured at eachbalance sheet date at fair value. Gains and losses arising from changes in fairvalue are included in the income statement for the year, within operating profitfrom subsidiaries for commodity derivatives and within net finance costs forexchange and interest derivatives. The mark-to-market adjustments at the end of each year and the effect onoperating profit and net finance costs in the income statement for each year areas follows: At 31.12.05 At 31.12.04Balance sheet US$'m US$'m Current assets - derivative financial instruments - 0.2Current liabilities - derivativefinancial instruments (40.3) (2.3) -------- ------- (40.3) (2.1) ======== ======= Balance sheet Income statement net mark to market effect net mark to market effect on on debtors/(creditors) operating profit/finance cost At 31.12.05 At 31.12.04 Year ended Year ended 31.12.05 31.12.04 US$'m US$'m US$'m US$'m Commodity (40.0) 0.2 (44.7) 4.0Interest (0.3) (2.2) 1.9 7.2Exchange - (0.1) 0.1 0.3 -------- -------- -------- ------- (40.3) (2.1) (42.7) 11.5 ======== ======== ======== ======= Commodity derivatives The Group periodically uses commodity derivatives to reduce its exposure to thecopper price. During 2005, the amount charged to operating profit on commodityderivatives was US$68.6 million, comprising US$24.8 million at El Tesoro andUS$43.8 million at Michilla. This comprised losses on derivatives which maturedin 2005 of US$24.1 million and mark-to-market losses at 31 December 2005 ofUS$44.5 million in respect of derivatives maturing in 2006 (which, net of margincalls of US$4.5 million in respect of these derivatives, results in a netbalance sheet position of US$40.0 million). The Group had min/max instruments at 31 December 2005 for 42,000 tonnes ofcopper production, with a weighted average floor of 115.7 cents per pound and aweighted average cap of 146.7 cents per pound. These instruments had a weightedaverage duration of 5 months and covered a period of 1 year. It also had futuresfor 2,650 tonnes of copper production with an average price of 183.1 cents, witha weighted average duration of 8 months. During 2004, the amount charged to operating profit from subsidiaries oncommodity derivatives was US$5.5 million relating to Michilla. This comprisedlosses on derivatives which matured in 2004 of US$9.3 million partly offset bymark-to-market provisions in respect of those hedges of US$3.8 million at 31December 2003. Interest derivatives The Group had interest rate collars at 31 December 2005 with a notionalprincipal amount of US$ 108.7 million, with a weighted average floor of 5.02%and a weighted average cap of 6.00%. These instruments had a weighted averageduration of 7 months. The mark-to-market loss at 31 December 2005 was US$0.3million (2004 - US$2.2 million), and the effect in the income statement isincluded within other finance items. Exchange derivatives During 2005, the Group entered into exchange swap derivatives to buy or sellChilean pesos using US dollars with a net notional value of US$33 million. Theaverage duration of these derivatives was one month and the net loss was US$0.3million (2004 - net gain of US$7.5 million). There were no outstandinginstruments at 31 December 2005 (2004 - period end mark-to-market loss of US$0.1million), and the effect in the finance statement is included within otherfinance items. 6. Net finance income/(cost) Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Investment incomeInterest receivable 39.7 19.2 ======== ======== Interest expenseInterest payable (23.8) (30.8)Amortisation of deferred finance costs (0.4) (3.2)Discount charge relating to provisions (1.6) (0.7)Preference dividends (0.2) (0.2) -------- -------- (26.0) (34.9) ======== ======== Other finance itemsMark-to-market effect of derivatives 2.0 7.5Foreign exchange 13.3 3.3 -------- -------- 15.3 10.8 ======== ======== Net finance income/(cost) 29.0 (4.9) ======== ======== In 2004, interest receivable and similar income included realised gains ofUS$7.5 million relating to gains under currency swaps. 7. Taxation The tax charge for the year comprised the following: Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Current tax charge (285.0) (183.1)Deferred tax charge (23.1) (58.8) -------- -------- (308.1) (241.9) ======== ======== Current tax is based on taxable profit for the period. Deferred tax is the taxexpected to be payable or recoverable on temporary differences (i.e. differencesbetween the carrying amount of assets and liabilities in the financialstatements and the corresponding tax basis used in the computation of taxableprofit). Deferred tax is accounted for using the balance sheet liability methodand is provided on all temporary differences with certain limited exceptions.The Group incurs withholding taxes on the remittance of profits from Chile andthe other countries in which it operates and deferred tax is provided onundistributed earnings to the extent that remittance is probable in theforeseeable future. Taxes (current and deferred) may be analysed by type as follows: Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Corporate tax (principally firstcategory tax in Chile) (267.9) (206.1)Exchange gains on corporate tax balances 20.2 0.2Royalty (intial deferred tax provision) (0.5) -Withholding tax provision (59.9) (36.0) -------- -------- (308.1) (241.9) ======== ======== The effective tax rate for 2005 was 20.1%, compared with the Chilean statutorytax rate of 17%. This was principally due to the provision of additionalwithholding tax of US$59.9 million, partly offset by exchange gains of US$20.2million on Chilean peso-denominated tax receivable balances during the year. In2004, the effective tax rate was 20.2% principally due to the provision ofwithholding taxes of US$36 million that year. 8. Basic earnings per share Basic earnings per share is calculated on profit after tax and minority interestgiving net earnings of US$725.8 million (2004 - US$579.5 million) and based on197,171,339 ordinary shares in issue throughout both periods. There was no potential dilution of ordinary shares in either 2004 or 2005. 9. Dividends 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 12May 2006. The exchange rate to be applied to dividends to be paid in sterlingwill be set on 16 May 2006. The Board will recommend a final dividend of 94 cents per ordinary share, whichcomprises an ordinary dividend of 24 cents per share and a special dividend of70 cents per share. Together with the interim dividend of 16 cents per sharewhich was paid on 13 October 2005, this gives total dividends proposed inrelation to 2005 of 110 cents per share. The final dividend will be paid on 15 June 2006 to shareholders on the registerat the close of business on 12 May 2006. Dividends are declared and paid gross.The conversion rate for the final dividend of 94 cents to be paid in sterlingwill be set on 16 May 2006. The final dividend proposed in relation to 2004 was 64 cents, which comprised anordinary dividend of 24 cents per share and a special dividend of 40 cents pershare. Together with the interim dividend that year of 15 cents per share, thisgave total dividends proposed in relation to 2004 of 79 cents per share. Dividends per share actually paid in the year and recognised as a deduction fromnet equity under IFRS were 80 cents (2004 - 39 cents) being the interim dividendfor the year and the final dividend proposed in respect of the previous year. 10. Intangible asset - concession right Concession right Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Balance at the beginning of the year 93.2 90.6Amortisation (3.4) (3.3)Foreign currency exchange difference 7.9 5.9 -------- --------Balance at the end of the year 97.7 93.2 ======== ======== The intangible asset relates to the 30-year concession to operate the waterrights and facilities in the Antofagasta Region of Chile which the Group'swholly-owned subsidiary, Aguas de Antofagasta S.A., acquired in December 2003.The intangible asset is being amortised on a straight-line basis over the lifeof the concession. 11. Property, plant and equipment Mining Railway and Water Year ended Year ended other transport Concession 31.12.05 31.12.04 US$'m US$'m US$'m US$'m US$'m Balance at thebeginning of the year 1,627.2 99.7 69.2 1,796.1 1,860.0Additions 161.3 23.2 1.8 186.3 81.2Acquisition - - - - 0.2Transfers and reclassifications (0.8) - - (0.8) 0.3Depreciation (109.8) (9.5) (5.3) (124.6) (130.9)Disposals (9.9) (3.8) (0.1) (13.8) (19.1)Impairment charge (30.0) - - (30.0) -Foreign currency exchange difference 0.1 1.0 5.7 6.8 4.4 -------- -------- -------- -------- --------Balance at theend of the year 1,638.1 110.6 71.3 1,820.0 1,796.1 ======== ======== ======== ======== ======== 12. Investment property Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Balance at the beginning of the year 3.2 3.0Foreign currency exchange difference 0.2 0.2 -------- --------Balance at the end of the year 3.4 3.2 ======== ======== Investment property represents the Group's forestry properties, which are heldfor long-term potential and accordingly classified as investment property heldat cost. 13. Investment in associate Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Balance at the beginning of the year 2.9 -Acquisition - 2.9Share of profit before tax 1.1 -Share of tax (0.2) -Dividends received (1.0) - -------- --------Balance at the end of the year 2.8 2.9 ======== ======== 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. The investment was acquired on 16December 2004 and did not have any material effect on the Group's earnings oroperating cash flows in that year. 14. Available for sale investments Available for sale investments represent those investments which are notsubsidiaries, associates or joint ventures and are not held for tradingpurposes. The fair value of the available for sale investments held by the Groupdid not differ materially from cost at either year end. 15. Borrowings At 31.12.05 At 31.12.04 US$'m US$'m Los Pelambres Corporate loans (381.5) (457.9) Other loans (14.3) (19.1)El Tesoro Corporate loans (55.8) (99.7) Finance leases (0.3) (12.2)Michilla Finance leases (2.6) (2.1) Railway and other transport services Loans (7.2) (7.9)Other Preference shares (3.6) (3.9) -------- --------Total (see Note 20) (465.3) (602.8) ======== ======== Loans at 31 December 2005 are shown net of deferred financing costs of US$2.0million (2004 - US$2.4 million). The amount in relation to Los Pelambres wasUS$1.7 million (2004 - US$2.1 million). The amount in relation to El Tesoro wasUS$0.3 million (2004 - US$0.3 million). Maturity of borrowings At 31.12.05 At 31.12.04 US$'m US$'mShort-term borrowings (97.2) (104.7)Medium and long-term borrowings (368.1) (498.1) -------- --------Total (see Note 20) (465.3) (602.8) ======== ======== Loans are predominantly floating rate. However the Group periodically entersinto interest rate derivative contracts to manage its exposure to interestrates. Details of derivative instruments held by the Group are given in Note 5. 16. Post-employment benefit obligation Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Balance at the beginning of the year (16.2) (13.0)Charge to operating profit in the year (3.9) (3.2)Release of discount to net interest in year (1.0) (0.1)Utilised in year 1.8 0.7Foreign currency exchange difference (1.3) (0.6) -------- --------Balance at the end of the year (20.6) (16.2) ======== ======== The post employment benefit obligation relates to the provision for severanceindemnities which are payable when an employment contract comes to an end, inaccordance with normal employment practice in Chile and other countries in whichthe Group operates. The severance indemnity obligation is treated as an unfundeddefined benefit plan, and the calculation is based on valuations performed by anindependent actuary. 17. Long-term provisions Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Balance at the beginning of the year (13.2) (11.6)Credit/(charge) to operatingprofit in the year 3.4 (1.2)Release of discount to net interest in year (0.6) (0.6)Amount capitalised (see Note 11) 0.8 -Utilised in year - 0.2Foreign currency exchange difference (0.2) - -------- --------Balance at the end of the year (9.8) (13.2) ======== ======== Analysed as follows:Decommissioning andrestoration (9.5) (13.0)Termination of waterconcesion (0.3) (0.2) -------- --------Balance at the end of theyear (9.8) (13.2) ======== ======== 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 formal review. During the year ended 31 December 2005, the Group conducted a formal review ofits mine closure plans and accordingly reassessed the decommissioning andrestoration provisions for each mine. As a result of the review, the provision at Los Pelambres was reduced by US$5.0million, principally as a result of the extension of the mine life following theapproval of the Environmental Impact Assessment in 2004 which increased themine's reserves. Of this amount, US$0.8 million related to decommissioning costsand this amount has been credited against property, plant and equipment. Thebalance of US$4.2 million related to restoration costs and has been creditedagainst operating profit. There were no material changes to the provisions at ElTesoro or Michilla. 18. Deferred tax assets and liabilities Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Net position at the beginning of the year (194.5) (135.7)Charge to tax on profit in year (23.1) (58.8)Foreign currency exchange difference (1.3) - -------- --------Net position at the end of the year (218.9) (194.5) ======== ======== Analysed between:Deferred tax assets 6.6 1.6Deferred tax liabilities (225.5) (196.1) -------- --------Net position (218.9) (194.5) ======== ======== 19. Reconciliation of profit before tax to net cash inflow from operatingactivities Year ended Year ended 31.12.05 31.12.04 US$'m US$'m Profit before tax 1,536.3 1,198.5Depreciation and amortisation 128.0 134.2Loss on disposal of property, plant andequipment (including impairment charge) 39.7 19.1Net finance (income)/costs (29.0) 4.9Share of profit of associate (0.9) -Increase in inventories (28.9) (9.5)Increase in debtors (36.3) (140.7)Decrease in creditors and provisions 38.6 47.0 -------- --------Cash flows from operations 1,647.5 1,253.5 ======== ======== 20. Analysis of changes in net cash At 1.1.05 Cash flows Other Exchange At 31.12.05 US$'m US$'m US$'m US$'m US$'m Cash and cash equivalents 881.4 427.5 - 7.9 1,316.8 -------- -------- -------- -------- -------- Bank borrowings due within one year (102.0) 102.0 (96.0) 0.2 (95.8)Bank borrowings due after one year (482.6) 24.0 95.6 - (363.0)Finance leases due within one year (2.6) 2.9 (1.8) 0.1 (1.4)Finance leases due after one year (11.7) 10.5 (0.3) - (1.5)Preference shares (3.9) - - 0.3 (3.6) -------- -------- -------- -------- --------Total borrowings (602.8) 139.4 (2.5) 0.6 (465.3) -------- -------- -------- -------- -------- Movement in net cash 278.6 566.9 (2.5) 8.5 851.5 ======== ======== ======== ======== ======== Net cash Net cash at the end of each year was as follows: At 31.12.05 At 31.12.04 US$'m US$'mCash and cash equivalents 1,316.8 881.4Total borrowings (465.3) (602.8) -------- --------Net cash 851.5 278.6 ======== ======== 21. Reconciliation between UK GAAP and IFRS The Group published financial information in accordance with IFRS for 2004, asrequired by IFRS 1, on 13 September 2005. The news release, together with thefull statement "Adoption of International Financial Reporting Standards andRestatements for 2004" is available on the Company's website and from theCompany's registered office, 5 Princes Gate, London SW7 1QJ (telephone: +44 207808 0988). The statement includes explanations of the significant UK GAAP toIFRS differences and reconciliations for: a. net earnings (profit after tax and minority interests) for the year ended 31 December 2005 and the year ended 31 December 2004; and b. net equity (excluding minority interests) at 1 January 2004 (the date of transition), 31 December 2005 and 31 December 2004. The statement also includes detailed IFRS accounting policies adopted by theCompany in preparing its consolidated financial statements. A summary of thedetailed information is provided in the statements set out below. Reconciliation of net earnings under UK GAAP to net earnings under IFRS Full year 31.12.04 US$'m UK GAAP - Net earnings 558.3 ------Mark-to-market of provisionally priced sales 12.0Mark-to-market of financial derivatives 6.2Reclassification of preference dividends to finance costs (0.2)Change in functional currency of subsidiary 1.1Exchange differences on intra-group items 0.5Recognition of deferred tax on temporary differences 1.6 ------ Total adjustments 21.2 ------IFRS - Net earnings 579.5 ====== Net earnings are stated after tax and minority interests. Reconciliation of shareholders' funds under UK GAAP to net equity under IFRS 01.01.04 31.12.04 US$'m US$'m UK GAAP - shareholders' funds 905.9 1,322.7 ------ ------Mark-to-market of provisionally priced sales 13.7 25.7Mark-to-market of financial derivatives (7.4) (1.2)Reversal of proposed ordinary dividends 47.3 126.2Reclassification of preference shares to borrowings (3.5) (3.9)Post-employment benefits - measurement of severanceindemnities (1.5) (1.5)Change in functional currency of subsidiary - (4.0)Currency treatment of non US dollar fair value adjustments (0.4) (0.4)Recognition of deferred tax on temporary differences 0.3 1.9 ------ ------ Total adjustments 48.5 142.8 ------ ------IFRS - net equity 954.4 1,465.5 ====== ====== Net equity is stated excluding minority interests. 22. Post balance sheet event On 14 February 2006, the Company announced that it had reached agreement withTethyan Copper Company Limited ("Tethyan") on the terms for a recommended cashoffer of A$1.20 per share for the entire issued share capital of Tethyan ("theOffer"), valuing Tethyan's fully diluted share capital at approximately A$190million (US$140 million at the date of the announcement). Antofagasta separatelyentered into an exclusive binding agreement with BHP Billiton whereby BHPBilliton's rights to claw-back a material interest in certain of Tethyan'smineral interests ("Claw-Back Right") may be extinguished or acquired byAntofagasta for a consideration of US$60 million. Antofagasta also entered intoan agreement with Barrick Gold Corporation ("Barrick Gold") to supportAntofagasta's takeover offer for Tethyan, whereby upon acquisition of 100% ofTethyan, Antofagasta and Barrick Gold intend to establish a 50:50 joint venturein relation to Tethyan's copper-gold mineral interests in Pakistan, includingthe Reko Diq project; and Barrick Gold will reimburse Antofagasta for 50 percent of the acquisition cost of Tethyan and the Claw-Back Right. A bidder'sstatement was posted to shareholders of Tethyan on 10 March 2006. Tethyan iscurrently subject to a competing takeover offer from Skafell Pty Ltd, asubsidiary of Crosby Capital Partners Inc. and IB Daiwa Corporation. Between 20 February 2006 and the date of this report, the Group acquired 20.3million shares in Tethyan for a cost of A$24.4 million (approximately US$18.1million at the dates of purchase), representing 14.85% of the issued sharecapital and voting rights of Tethyan. 23. Currency translation Assets and liabilities denominated in foreign currencies are translated intodollars and sterling at the period end rates of exchange. Results denominated inforeign currencies have been translated into dollars at the average rate foreach period. Period end rates Average rates 31.12.05 US$1.7179 = £1; US$1 = Ch$513 US$1.8185 = £1; US$1 = Ch$560 31.12.04 US$1.9257 = £1; US$1 = Ch$557 US$1.8457 = £1; US$1 = Ch$607 24. Distribution The Annual Report and Financial Statements, including the Notice of the AnnualGeneral Meeting and Chairman's Statement for the year ended 31 December 2005,will be posted to all shareholders in May 2006. The Annual General Meeting willbe held at Canning House, 2 Belgrave Square, London SW1 at 10.30 a.m. onWednesday, 14 June 2006. This information is provided by RNS The company news service from the London Stock Exchange
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Share Price:
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