Antofagasta Regulatory News (ANTO)

Antofagasta plc

Half yearly financial report for the six months ended 30 June 2012

29 August 2012

(1) Cash refers to the total of cash, cash equivalents and liquid investments, as analysed in Note 23 to the half yearly financial report.

(2) Cash cost is a method used by the mining industry to express the cost of production in cents per pound of copper, and is further explained in Note 30(b(iii)) to the half yearly financial report.

·; Copper production up by 16.5% to 336,000 tonnes, predominantly due to increased production from Esperanza, which had commenced operation at the start of 2011, as well as increases at Los Pelambres and El Tesoro. Gold production almost doubled to 136,100 ounces, again due to the increase in Esperanza production.

·; Group forecast production for the full year remains at approximately 700,000 tonnes of copper, as well as 280,000 ounces of gold and 11,000 tonnes of molybdenum.

·; Revenue increased by 3.5% to US$3,160.8 million, with the increased production volumes able to offset the decrease in average market copper prices.

·; Group net cash costs down 6.3% to 98.9 cents per pound, mainly due to the increased level of low net cash cost production from Esperanza. Significant gold by-product credits resulted in net cash costs of 60.1 cents per pound in H1 2012 at Esperanza, making it the lowest cost operation of the Group. Group cash costs before by-product credits remained relatively stable at 160.8 cents per pound.

·; Interim ordinary dividend of 8.5 cents, representing a 6.3% increase on 2011. This reflects the Group's policy of paying ordinary dividends which can be maintained or progressively increased through the economic cycle. As in previous years, the appropriate overall payout level for the year, including any special dividends, will be determined at the year-end.

·; Continued progress in optimising the reliability and performance of Esperanza, with two main areas of focus - the tailings thickeners and the capacity of the grinding line. Esperanza now represents 20% of Group copper production and 27% of net income, compared with 10% and 7% respectively in the first half of 2011.

·; Antucoya project development continues, with all of the main EPC (Engineering, Procurement and Construction) contracts having now been executed and Marubeni Corporation now a 30% partner in the project following the closing of that transaction on 31 July 2012.

·; Centinela Mining District feasibility study progressing. The feasibility study now envisages a phasing of the development of the District, with an initial focus on the Esperanza Sur (formerly known as Telégrafo) sulphide and Encuentro (formerly known as Caracoles) oxide projects to be followed by the Encuentro sulphide project. This is supported by a significant exploration and drilling programme in this highly prospective mining district to further increase minerals resources and identify additional oxide and sulphide prospects.

·; Pre-feasibility studies for the Los Pelambres development project and the Twin Metals project continue to advance. With world class mineral resources underpinning both projects, the long-term growth potential from both remains excellent.

Diego Hernandez, Chief Executive Officer of Antofagasta Minerals S.A. commented:

"The Group's performance in the first half of 2012 has underlined the quality of the Group's asset base. We have continued to deliver strong volume growth, with copper production increasing by 16.5% to 336,000 tonnes, and gold production almost doubling to 136,100 ounces. These increases are primarily due to increased production from Esperanza, which had been ramping-up during the first half of 2011, along with continued strong performance from our other existing operations. This has allowed us to generate increased revenues of US$3,160.8 million, despite a decrease in average copper market prices. This increase in low-cost production from Esperanza has also allowed us to maintain a relatively stable cash cost position, within the context of an industry environment which remains tight. We have also continued to make good progress with our strong organic pipeline, predominantly within Chile, which has the potential to significantly increase the scale of the Group over the course of this decade.

I am delighted to have taken on the role of Chief Executive Officer of Antofagasta Minerals S.A. from 1 August 2012. I am looking forward to helping the Group to realise the great potential from its current operations and strong pipeline of growth projects."

DIRECTORS' COMMENTS FOR THE SIX MONTHS TO 30 JUNE 2012

OverviewThe Group achieved a 16.5% increase in copper production volumes in the first half of 2012, with production of 336,000 tonnes. This was predominantly due to increased production from Esperanza, which had commenced operation at the start of 2011. This significant increase in production volumes has allowed the Group to increase its revenues despite lower market copper prices, with revenues of US$3,160.8 million in this half year, a 3.5% increase on the US$3,054.3 million in the first six months of 2011. The Group's net cash costs decreased by 6.3% to 98.9 cents per pound, mainly due to the increased level of low net cash cost production from Esperanza. Earnings per share decreased slightly to 65.5 cents per share (H1 2011 - 70.6 cents), partly reflecting higher depreciation and exploration and evaluation expenditure.

Group copper production of 336,000 tonnes was 47,500 tonnes higher than the 288,500 tonnes produced in the first half of 2011. This increase was mainly due to Esperanza, which had been ramping-up during the first half of 2011. Esperanza produced 68,200 tonnes of copper in the first half of 2012, a 38,900 tonne increase compared with the 29,300 tonnes produced in H1 2011. Los Pelambres continued to perform well, with copper production of 197,200 tonnes, an increase compared with the first half of 2011 mainly due to higher plant throughput. El Tesoro also increased production, due to mining higher grade ore from the Mirador deposit. Gold production almost doubled to 136,100 ounces, compared with 70,700 ounces in the first six months of 2011, due to the increase in production levels at Esperanza. Molybdenum production at Los Pelambres increased by 35.4% to 6,500 tonnes, due to higher grades. In the Transport division total volumes transported in the first six months of 2012 were 3.9 million tonnes compared with 4.1 million tonnes in the first half of 2011. The Water division achieved a 7.0% increase in volumes, at 25.7 million cubic metres in the first half of the year.

The LME copper price averaged 367 cents per pound in the first half of 2012, compared with 426 cents in H1 2011. After starting the year at 343 cents, the price rose to above 380 cents for much of February and March. However, the price fell significantly during May, and was 345 cents at 30 June 2012. The Group's average realised copper price in the first half of 2012 was 373 cents, broadly in line with the average market price for the period, with a limited overall provisional pricing impact as the period-end price at 30 June 2012 was in line with the price at the start of the period. Gold averaged US$1,651 per ounce in H1 2012, a 14% increase on the average price during the first six months of 2011 of US$1,445 per ounce, and as at 30 June 2012 the price was US$1,587. Molybdenum averaged US$14.0 per pound during the first half of 2012 (2011 half year - US$17.0), although the price has declined from early May, reaching US$13.1 at 30 June 2012.

Net cash costs for the Group (after by-product credits) averaged 98.9 cents per pound, compared with 105.6 cents in the first half of 2011. This decrease mainly reflected the increased low-cost production from Esperanza, where the significant gold by-product credits resulted in net cash costs of 60.1 cents per pound in H1 2012. The Group's average cash costs before by-product credits remained relatively stable at 160.8 cents per pound, compared with 157.8 cents in the first six months of 2011.

During the first half of 2012 Esperanza has continued to optimise the reliability and performance of the operation. There are currently two main areas of focus - the tailings thickeners and the capacity of the grinding line. The thickened tailings have not achieved the desired percentage of solids, and therefore test work was carried out to evaluate extra thickening capacity and modified pumps. As a result of this work some minor modifications will be made to the existing tailings thickeners in the second half of the year, and two higher torque thickeners are planned to be installed during 2013, at an estimated total cost of approximately US$95 million, in order to reach design parameters for thickened tailing deposition. Esperanza is also reviewing the overall capacity of the current set-up of the grinding line. Esperanza is in the process of installing a temporary pre-crushing unit that will provide greater operational stability. Testing work on the ore body was completed during the first half of the year, and this has shown that the overall ore body has greater variability and on average is harder than was initially expected. It is therefore likely that additional crushing capacity will be required to reach the original design throughput of 97,000 tonnes per day. Esperanza is currently preparing the detailed engineering and work programme for the modifications to the current grinding set-up. The modifications are currently expected to be conducted through 2013 and into 2014, and the initial estimate is for additional capital expenditure in the range of US$100 - US$150 million.

The Antucoya project has continued to progress during the first six months of 2012, with all of the main EPC (Engineering, Procurement and Construction) contracts having now been executed. Construction of the project is expected to be completed by the second half of 2014, followed by a ramp-up period of approximately nine months. The transaction with Marubeni Corporation, whereby they become a 30% partner in the project and will fund their 30% share of the development costs of the project, closed on 31 July 2012.

The Group's primary focus for exploration in Chile remains the Centinela Mining District (formerly known as the Sierra Gorda District). At the end of 2011 the Group commenced a feasibility study for this District to study the options for processing sulphide and oxide ores from the Esperanza Sur (formerly known as Telégrafo) and Encuentro (formerly known as Caracoles) deposits. These deposits provide the opportunity to improve the useful life and utilisation of the existing Esperanza and El Tesoro plants, as well as supporting incremental production growth. During the first half of 2012 the scope of the feasibility study has been reviewed and is now focused on the Esperanza Sur sulphide project and the Encuentro oxide project, with the Encuentro sulphide project no longer forming part of the current feasibility study. The current form of the feasibility study envisages a phasing of the development of the district, with an initial focus on the Esperanza Sur sulphide and Encuentro oxide projects, to be followed by the Encuentro sulphide project. This change reflects firstly the opportunity and strategic potential of the Encuentro oxide deposit, which will be treated at the existing El Tesoro SX-EW processing facility, allowing it to be developed as a stand-alone project prior to developing the sulphide deposit which lies beneath it. In addition, this phasing is intended to allow for the most efficient and reliable development of the District, in terms of both project execution and capital cost, particularly given the scale of mining project and pipeline development in Chile and neighbouring countries in the coming years.

In addition to the above properties a further US$14.0 million of exploration work was performed in other areas of the highly prospective Centinela Mining District during H1 2012 in relation to a number of other properties which the Group owns or controls in the area, in particular at the Penacho Blanco (formerly known as Centinela) and Polo Sur deposits as well as in the area between Esperanza Sur and Encuentro. Based on the results of the intensive drilling campaign currently being performed it is anticipated that a scoping study could commence during the second half of 2012 in respect of Polo Sur.

The Group is continuing to work on a pre-feasibility study examining the options for a significant expansion of the Los Pelambres mine. One of the key areas of focus of the study is the drilling campaign to recategorise mineral resources, in order to analyse in detail the growth opportunities. The pre-feasibility study is expected to be completed during 2013, potentially then to be followed by a feasibility study.

Twin Metals in Minnesota is continuing to work on the pre-feasibility study with a particular focus on the most appropriate metallurgical process for this large, poly-metallic deposit. The US$130 million of initial funding has now been completed and the Group will be responsible for 65% of the development costs towards the ongoing pre-feasibility study whilst maintaining a 40% interest.

The Group is continuing with its generative exploration activities in Chile focusing on Regions I-IV in addition to starting drilling work in the Conchi-Brujulinas deposits in which the Group has a controlling interest. The Group has also continued to expand its portfolio of early-stage international exploration interests through a number of earn-in agreements. During the first half of 2012 the Group entered into new agreements in Finland, Zambia, Australia and Ireland, and a further agreement in Canada in July 2012.

Board composition and management changes

On 24 July 2012 Diego Hernandez was appointed as Chief Executive Officer of Antofagasta Minerals S.A. the mining division of the Group, with effect from 1 August 2012. Mr. Hernandez is a mining engineer and has held various senior executive positions in the mining sector in South America in operational, strategic and corporate roles. He has been CEO at Codelco for the last two years and his previous positions include President, Base Metals for BHP Billiton, Chairman of Minera Escondida Ltda, President and CEO of Compañía Minera Doña Inés de Collahuasi, and Executive Director, Non Ferrous at Vale S.A. There have also been a number of management appointments at the individual operations since the start of the year, which have further strengthened the Group's management team, with all appointments at the mine level now in place.

Also on 24 July 2012, Nelson Pizarro was appointed as an Independent Non-Executive Director. He is a mining engineer and has held various senior executive positions in the mining sector in Chile, both in project and operational roles. Currently he is in charge of the construction of Caserones Project as CEO of Minera Lumina Copper Chile S.A. Previous roles include CEO of División Andina and Chuquicamata both for Codelco, and CEO for the construction and start-up of Minera Los Pelambres and then Mining Vice-President of Antofagasta Minerals S.A.

Outlook

Copper and gold have remained relatively stable since the period end, with copper continuing to trade around the 340 cents per pound level, and gold at just over US$1,600 per ounce. The molybdenum price continued to decline in July and August, decreasing from US$13 per pound at 30 June 2012 to just under US$11 per pound in mid-August. While the copper price has declined by more than 10% since the end of April, it has found good support at around the 330 - 340 cents per pound level, indicating relatively robust demand to provide support for the price at levels well above the current industry marginal cost of production. The industry fundamentals remain strong over the medium term, with the supply-side remaining relatively constrained.

The Group's forecast for 2012 full year production remains as approximately 700,000 tonnes of copper, 280,000 ounces of gold and 11,000 tonnes of molybdenum. Esperanza production is expected to be at the lower end of the original forecast range, but this is expected to be offset by production at Los Pelambres and El Tesoro being marginally higher than originally forecast.

The forecast for 2012 full year weighted average pre-credit cash costs also remains unchanged at 165 cents per pound. Average net cash costs are now expected to be approximately 110 cents per pound compared with the original forecast of 105 cents, mainly due to lower gold market prices.

Dividends

The Board has declared an ordinary interim dividend of 8.5 cents per share for the 2012 half-year (2011 half year - 8.0 cents). This reflects the Group's policy of paying ordinary dividends which can be maintained or progressively increased at conservative long-term copper prices and through the economic cycle. As in previous years, the Board intends to determine an appropriate level of the total final dividend when the full year results are announced in March 2013. In previous years the Board has recommended special dividends when it considered these appropriate after taking into account the level of profits earned in the period under review, the existing cash position of the Group and significant known or expected funding commitments.

The interim dividend of 8.5 cents will be paid on 4 October 2012 to ordinary shareholders who are on the register at the close of business on 14 September 2012. Shareholders can elect (on or before 17 September 2012) to receive this interim dividend in US Dollars, Pounds Sterling or Euro, and the exchange rate to be applied to interim dividends to be paid in Pounds Sterling or Euro will be set as soon as reasonably practicable after that date (which is currently anticipated to be on 20 September 2012). Details of the currency in which the interim dividend will be paid (including the default currency if a shareholder does not make an election before 17 September 2012) are set out in Note 9 to the half yearly financial report.

Review of operations

Mining division

Securing and strengthening the core business

The first aspect of the Group's strategy is to optimise and enhance the existing core business - the Los Pelambres, Esperanza, El Tesoro and Michilla mines.

Los Pelambres

Operating profit at Los Pelambres was US$1,168.6 million in the 2012 half year, compared with US$1,390.9 million in the first six months of 2011, mainly reflecting the reduction in the realised copper price from 423.7 cents per pound in H1 2011 to 373.4 cents per pound in H1 2012 and to a lesser extent the impact of higher on-site costs and lower sales volumes.

Los Pelambres produced 197,200 tonnes in the first half of 2012 compared with 192,500 tonnes in H1 2011 mainly due to an increase in plant throughput and recoveries. Shipments of payable copper in the first half of 2012 were 191,000 tonnes, 6,200 tonnes lower than production as a result of inventory movements (H1 2011 - sales volumes of 196,200 tonnes). Molybdenum production increased by 35.4% to 6,500 tonnes in H1 2012 compared with the first half of 2011, mainly reflecting the increase in grades from 0.018% to 0.023%. Shipments of payable molybdenum in the first half of 2012 were 6,800 tonnes, 300 tonnes higher than production as a result of inventory movements. Gold sales volume were 26,300 ounces in the first half of 2012 compared with 18,100 ounces in the first half of 2011.

Net cash costs for the first half of 2012 were 77.3 cents per pound, compared with 75.2 cents per pound in the first half of 2011 as a result of an increase in on-site and shipping costs partly offset by a decrease in tolling charges and an increase in molybdenum and gold by-product credits. Pre-credit cash costs were 137.2 cents per pound, compared with 130.8 cents in H1 2011. The increase in on-site and shipping costs reflects a range of minor cost increases including maintenance and general inflation.

Capital expenditure in the first half of 2012 was US$66.7 million compared with US$100.4 million in the first half of 2011 reflecting a particularly high level of investment in mine equipment in 2011.

During April 2012 the regional environmental authority approved the Environmental Impact Declaration to lift the previous annual average processing capacity limit of 175,000 tonnes per day. While this is not expected to result in any material change to forecasted production levels in the near-term, it should allow greater flexibility in the operation of the plant.

Los Pelambres' main energy supply contract expires at the end of 2012. Most of the operation's energy demand during 2011 and 2012 has been supplied at a fixed price, which is currently significantly below the current spot prices in the Chilean central energy grid. Los Pelambres is in the process of negotiating and agreeing new energy supply contracts for 2013 onwards.

The full year production forecast for 2012 announced at the start of the year was for approximately 390,000 tonnes of payable copper, approximately 11,000 tonnes of molybdenum and approximately 28,000 ounces of gold. Full year copper production is currently expected to be marginally above this initial forecast, molybdenum production is expected to remain at a similar level and gold production is expected to be approximately 40,000 ounces.

The 2012 full year forecast for cash costs before by-product credits is still expected to be approximately 140 cents per pound. By-product credits for the 2012 full year are also still expected to be approximately 50 cents per pound reflecting the higher gold production which is offset by lower gold market prices. Accordingly, the current forecast for 2012 full year net cash costs, after by-product credits is still expected to remain at approximately 90 cents per pound.

As explained in detail below, the Group is currently working on a pre-feasibility study to analyse the potential for long-term, large-scale expansion of the Los Pelambres operation.

Esperanza

Operating profit at Esperanza was US$332.0 million in the 2012 half year, compared with US$122.8 million in the first six months of 2011, mainly reflecting the higher production volumes as a result of increased throughput levels following the start of operations in 2011 as well as the impact of lower on-site costs partly offset by the lower realised copper price. The realised copper price decreased from 423.2 cents per pound in H1 2011 to 372.5 cents per pound in H1 2012 and the realised gold price increased from US$1,495 per ounce in H1 2011 to US$1,653 per ounce in H1 2012.

Esperanza produced 68,200 tonnes of payable copper in the first half of 2012, 38,900 tonnes higher than in the first half of 2011 reflecting the higher throughput explained above. Shipments of payable copper in the first half of 2012 were 59,800 tonnes, 8,400 tonnes lower than production as a result of inventory movements due to the timing of shipments.

Gold production in the first half of 2012 was 109,800 ounces compared with 52,700 ounces in the first half of 2011 as a result of the higher plant throughput and to a lesser extent, the higher recoveries. Shipments of payable gold in the first half of 2012 were 101,200 ounces, 8,600 ounces lower than production as a result of the same inventory movements due to the timing of shipments.

Net cash costs for the first half of 2012 were 60.1 cents per pound, compared with 121.9 cents per pound in the first half of 2011 mainly due to a decrease in on-site and shipping costs reflecting the high level of costs in the first half of 2011 associated with the ramp-up process, and the impact on unit costs of the plant operating at significantly below capacity during that period.

During the first half of 2012 Esperanza has continued to optimise the reliability and performance of the operation. Plant throughput averaged 70,400 tonnes per day in the first quarter of the year, increasing to 79,700 tonnes per day in the second quarter in the year, resulting in an average throughput of 75,100 tonnes per day for the first half of the 2012. The lower average throughput in the first quarter reflected damage which occurred to the primary crusher feed conveyor during February and March resulting in stoppages while the belt was repaired.

There are currently two main areas of focus - the tailing thickeners and the capacity of the grinding line. The thickened tailings have not achieved the desired percentage of solids, and therefore test work was carried out to evaluate extra thickening capacity and modified pumps. As a result of this work some minor modifications will be made to the existing tailings thickeners in the second half of the year, and two high torque thickeners are planned to be installed during 2013, at an estimated total cost of approximately US$95 million in order to reach design parameters for thickened tailing deposition.

Esperanza is also reviewing the overall capacity of the current set-up of the grinding line. Esperanza is in the process of installing a temporary pre-crushing unit that will provide greater operational stability. Testing work on the ore body was completed during the first half of the year, and this has shown that the overall ore body has greater variability and on average is harder than was initially expected. It is therefore likely that additional crushing capacity will be required to reach the original design throughput of 97,000 tonnes per day. Esperanza is currently preparing the detailed engineering and work programme for the modifications to the current grinding set-up. The modifications are currently expected to be conducted through 2013 and into 2014, and the initial estimate is for additional capital expenditure in the range of US$100 - US$150 million.

Capital expenditure in the first half of 2012 was US$46.2 million reflecting US$20.0 million relating to Esperanza's share of the Centinela Mining District feasibility Study as well as investments across a range of smaller operational projects. As outlined above additional capital expenditure of approximately US$200-250 million is expected over 2013 and 2014 in relation to the tailings thickeners and the grinding line.

The current forecasts are for 2012 full year copper and gold production to be approximately 160,000 tonnes and 240,000 ounces respectively, which as indicated in May 2012 is at the lower end of the forecast range announced in February 2012.

Cash costs before by-product credits for 2012 are expected to be approximately 200 cents per pound, within the range announced in February. By-product credits for the 2012 full year are now expected to be approximately 125 cents compared with the original forecast of 135 cents per pound reflecting the lower gold market prices. Accordingly, the current forecast for 2012 full year net cash costs, after by-product credits, is for approximately 75 cents per pound.

Esperanza is currently evaluating the potential for construction of a separate molybdenum plant for approximately 2,000 tonnes per year of molybdenum production over the remaining life of the mine with first potential production from 2015. During June 2012 the Environmental Impact Declaration for this project was approved by the authorities.

El Tesoro

Operating profit at El Tesoro increased to US$227.8 million from US$182.9 million in the first half of 2011, reflecting the higher sales volumes, lower cash costs and lower depreciation partly offset by the reduction in realised prices from 427.4 cents per pound in H1 2011 to 370.4 cents per pound in H1 2012.

Copper cathode production at El Tesoro was 52,700 tonnes in the first half of 2012 compared with production of 45,100 tonnes in H1 2011 due to the processing of higher grade ore from the Mirador pit, which entered into production during Q3 of 2011.

Cash costs in the first half of 2012 were 156.9 cents per pound compared with 183.0 cents per pound in the first half of 2011, reflecting the increased copper production as a result of the processing of the higher grade Mirador pit as well as lower acid and energy costs.

Capital expenditure in the first half of 2012 was US$48.3 million compared with US$55.9 million in the first half of 2011, mainly reflecting the high level of expenditure on pre-stripping of the Mirador deposit in the first half of 2011. The capital expenditure in the first half of 2012 includes US$6.5 million in relation to the solar thermal plant which will commence operation in the second half of 2012.

The full year production forecast for 2012 announced in February was for approximately 100,000 tonnes of copper cathodes. Full year production is currently expected to be marginally above this initial forecast. Cash costs are still expected to be approximately 160 cents per pound.

Michilla

Operating profit at Michilla was US$17.1 million compared with US$96.4 million in the first half of 2011, mainly reflecting the increases cash costs as well as a reduction in the realised copper price from 403.4 cents per pound in H1 2011 to 377.2 cents per pound in H1 2012 and lower production volumes.

Michilla produced 18,000 tonnes of copper cathode during the first half of the year compared with 21,700 tonnes in the first half of 2011. This decrease was mainly due to the lower plant throughput reflecting a reduction in ore feed from third party operators as well as the underground Estefanía mine, partly offset by the increased contribution from the secondary leaching.

Cash costs in the first half of 2012 were 313.9 cents per pound compared with 192.5 cents per pound in 2011 reflecting the impact of lower production on unit costs, the purchase of higher volumes of ore from ENAMI, and costs associated with the ramp-up of the project for secondary leaching of spent ore. Given that Michilla represented approximately 5% of total Group copper production in the first half of 2012, this increase in cash costs had a limited impact on the Group's overall weighted average cash costs.

Capital expenditure in the period was US$33.4 million compared with US$10.5 million in the first half of 2011 reflecting the investments in the first half of 2012 relating to the open pit mine fleet as well as the completion of infrastructure relating to the spent ore secondary leaching operation.

The 2012 full year production forecast, as originally announced in February, is for approximately 40,000 tonnes of copper cathodes. Cash costs for the full year are currently forecast to be approximately 310 cents per pound, compared with the initial guidance of 285 cents per pound, mainly reflecting the higher actual level of costs incurred in the first half.

Growth projects and opportunities

The Group is focused on developing its projects and growth opportunities, both around its existing mining districts in Chile (the second pillar of its strategy), and also beyond those areas, in Chile and internationally (the third pillar of its strategy). The Group's primary focus is in all of these cases is on opportunities with the potential for large-scale development.

The Group has a portfolio of growth projects, which could prove significant over the coming years. Given the early-tage nature of these projects, their potential and timing is inherently uncertain, and so the following is only intended to provide a high-level indication of potential opportunities. The Group's exploration and evaluation expenditure in the first half of 2012 was US$124.3 million compared with US$83.0 million in the first half of 2011. This rise was principally due to increased spend in respect of the pre-feasibility study into an expansion of Los Pelambres and a higher level of spending at the Twin Metals project. In addition to US$17.8 million of exploration and evaluation expenditure incurred in relation to the Centinela District, a further US$39.1 million in total in relation to the feasibility study was capitalised.

The Group is also conducting a wide range of early-stage exploration activities, both through its in-house exploration team and also through partnerships with third-parties, to build a portfolio of longer-term growth opportunities, across an increasingly diversified geographical area.

The Group intends to continue to invest strongly in its growth opportunities. As previously announced the 2012 Full Year total forecast expenditure in relation to exploration and evaluation activities is approximately US$300 million.

Organic and sustainable growth of the Core Business

The second aspect of the strategy is to achieve sustainable, organic growth from further developing the areas around our existing asset base in Chile.

Centinela Mining District

The Group's primary focus for exploration in Chile remains the Centinela Mining District (formerly known as the Sierra Gorda District). At the end of 2011 the Group commenced a feasibility study for this District to study the options for processing sulphide and oxide ores from the Esperanza Sur (formerly known as Telégrafo) and Encuentro (formerly known as Caracoles) deposits. These deposits provide the opportunity to improve the useful life and utilisation of the existing Esperanza and El Tesoro plants, as well as supporting incremental production growth. During the first half of 2012 the scope of the feasibility study has been reviewed and is now focused on the Esperanza Sur sulphide project and the Encuentro oxide project, with the Encuentro sulphide project no longer forming part of the current feasibility study. The current form of the feasibility study envisages a phasing of the development of the District, with an initial focus on the Esperanza Sur sulphide and Encuentro oxide projects, to be followed by the Encuentro sulphide project. This change reflects firstly the opportunity and strategic potential of the Encuentro oxide deposit, which will be treated at the existing El Tesoro SX-EW processing facility, allowing it to be developed as a stand-alone project prior to developing the sulphide deposit which lies beneath it. In addition, this phasing is intended to allow for the most efficient and reliable development of the District, in terms of both project execution and capital cost, particularly given the scale of mining project and pipeline development in Chile and neighbouring countries in the coming years.

The current plan in respect of the Esperanza Sur sulphide project is for a plant which could result in an average annual production of somewhere in the region of approximately 140,000 tonnes of copper and 160,000 ounces of gold over the first 10 years of operation. It is also expected that the Esperanza Sur deposit will provide additional feed for the Esperanza plant after the end of current Esperanza mine life. Depending on the successful conclusion of the feasibility study and permitting, construction at Esperanza Sur could potentially take place between 2014 and 2016, with first production from the second half of 2017 with a mine life in excess of 30 years.

It is currently envisaged that, in order to process the oxide resource at Encuentro a new crushing unit and heap leach facilities would be located at the mine site, with a pipeline to take the leach solution to the existing El Tesoro SX-EW plant for processing. Construction could potentially commence in 2014, for a two year period, followed by first production in 2016. The project could produce approximately 50,000 tonnes of copper cathode per year over an eight year period utilising the existing capacity at the SX-EW plant.

As noted above, the current plan is for development of the Encuentro sulphide project to follow after the development of the oxide resource. Accordingly, a separate feasibility study will be undertaken in due course in respect of the sulphide project. Based on the results of the pre-feasibility current estimates are that the deposit could support a plant with a production of approximately 140,000-160,000 tonnes of copper and 160,000-180,000 ounces of gold.

Metallurgical testing has shown that untreated sea water can be used to process both the sulphide and oxide ores. The Environmental Impact Assessment in respect of the Esperanza Sur and Encuentro oxide and sulphide projects is expected to be submitted to the authorities in the second half of the year. Preliminary indications of the potential capital costs of the Esperanza Sur and Encuentro oxide projects are that they could be in the region of US$3.5 billion and US$600 million respectively at today's prices. In the first half of 2012 US$39.1 million has been capitalised in relation to the feasibility study. The feasibility study is estimated to cost approximately US$100 million in total and detailed work on the feasibility study is expected to continue through into 2013 with possible approval of the project expected in 2014.

In addition to the above properties a further US$14.0 million of exploration work was performed in other areas of the highly prospective Centinela Mining District during H1 2012 in relation to a number of other properties which the Group owns or controls in the area, in particular at the Penacho Blanco (formerly known as Centinela) and Polo Sur deposits as well as in the area between Esperanza Sur and Encuentro. Based on the results of the intensive drilling campaign currently being performed it is anticipated that a scoping study could commence during the second half of 2012 in respect of Polo Sur.

Los Pelambres 

The Group is continuing to work on a pre-feasibility study examining the options for a significant expansion of the Los Pelambres mine. One of the key areas of focus of the study is the drilling campaign to re-categorise mineral resources, in order to analyse in detail the growth opportunities. Expenditure of US$24.9 million has been incurred up to 30 June 2012 in relation to the pre-feasibility study, out of a total expected cost of approximately US$100 million. The pre-feasibility study is expected to be completed during the first half of 2013, potentially then to be followed by a feasibility study.

Given the size of the resource base, which at 6.0 billion tonnes is more than three times the existing mine plan, it is possible that a more than doubling of existing plant capacity could be the optimal choice for the final plant design. It is possible that any project could be a phased process, potentially with the first incremental production coming through at some point from 2019 onwards.

Growth beyond the Core Business

The third aspect of the Group's strategy is to look for growth beyond the areas of its existing operations - both in Chile and internationally. The primary focus is on early-stage opportunities with the potential for large-scale development.

Antucoya 

The development of the Antucoya project has continued to progress during the first six months of 2012.

The project is expected to produce an average of 80,000 tonnes of copper cathodes per annum through a standard heap-leach process, and is expected to have a mine life of approximately 20 years. The development cost is currently estimated to be US$1.7 billion. The cash costs are estimated to be approximately 145 cents over the first five years of operation and 155 cents over the mine life. These cash cost figures remain sensitive to input prices especially the price of acid. The approved mine plan includes proved and probable Ore Reserves of 642 million tonnes of 0.35% copper (using a cut-off grade of 0.21%) during the 20 year mine life.

On 14 December 2011 the Group announced that it had entered into a memorandum of understanding with Marubeni Corporation ("Marubeni") under which Marubeni would become a 30% partner in the Antucoya project and fund its 30% share of costs over the period of development of the project. The transaction closed on 31 July 2012.

Antucoya will be developed as a conventional open pit mine and the ore will be processed using a dynamic heap leaching facility and an SX-EW plant and will use untreated seawater throughout the operations. While the project will be one of the lowest copper-grade green-field projects to be developed in Chile, there are a number of compensating factors. The deposit is relatively shallow and therefore the pre-stripping process to remove the 35 million tonnes of overburden is expected to take only nine months. The operational stripping ratio is also low, with a waste to ore ratio of approximately 1:1. The deposit is located within a well-developed mining area, which allows easy access to pre-existing infrastructure including power, water and human resources.

A sulphur burning plant is expected to be constructed on site to supply sulphuric acid to the operation, reducing the overall cost of the acid supply. The Environmental Impact Declaration in respect of the plant was approved by the relevant authorities in June 2012. The Group is evaluating whether the construction of the plant will be undertaken by Antucoya or outsourced to a third party. Current estimates are that the capital cost of the plant will be approximately US$300 million.

Construction of the project is expected to be completed by the second half of 2014, followed by a ramp-up period of approximately nine months. The main Engineering, Procurement and Construction ("EPC") contracts have now been executed and a water off-take agreement has been signed with Esperanza, for utilisation of capacity in the Esperanza water pipeline. Antucoya expects to put in place project financing in respect of the project in the second half of 2012.

During the first half of 2012 US$95.6 million was capitalised in respect of the Antucoya project, and the forecast capital expenditure for 2012 full year is expected to be in the range of US$400-500 million.

United States - Twin Metals

The Group has a 40% controlling stake in Twin Metals Minnesota LLC ("Twin Metals"). The principal assets are the Maturi (including the deposit previously known as Nokomis), Birch Lake, and Spruce Road copper-nickel-PGM deposits which are located in north-eastern Minnesota, USA.

Twin Metals is continuing to work on the pre-feasibility study with a particular focus on the most appropriate metallurgical process for this large, poly-metallic deposit. As a result of the Franconia transaction completed in 2011, whereby Twin Metals acquired the assets of Franconia Minerals, Twin Metal's mineral and land assets have effectively doubled. These additional resources have led to an increase in the scope of the pre-feasibility study. The US$130 million of initial funding has now been completed and the Group will be responsible for 65% of the development costs towards the ongoing pre-feasibility study whilst maintaining a 40% interest. Upon completion of the pre-feasibility study and if approved, Twin Metals will commence a feasibility study.

During the first half of 2012 a total of US$41.8 million of expenditure was incurred by the Group in respect of the project.

Reko Diq

The Group holds a 50% interest in Tethyan Copper Company Pty. Limited ("Tethyan"), its joint venture with Barrick Gold Corporation ("Barrick"). Tethyan is seeking to develop the Reko Diq copper-gold deposit in the Chagai Hills District of the province of Balochistan in south-west Pakistan. Tethyan has held a 75% interest in an exploration licence encompassing the Reko Diq deposit, with the Government of Balochistan (the provincial authority) holding the remaining 25% interest, resulting in an effective interest for the Antofagasta group of 37.5%. The relationship between Tethyan and the Government of Balochistan in respect of their interests in the project is governed by the Chagai Hills Exploration Joint Venture Agreement ("CHEJVA").

Tethyan completed the feasibility study in respect of the project and submitted this to the Government of Balochistan in August 2010. On 15 February 2011, Tethyan submitted an application to the Government of Balochistan in accordance with the Balochistan Mineral Rules for a mining lease. On 15 November 2011, Tethyan was notified by the Government of Balochistan that the Government had rejected the application.

Tethyan is pursuing two international arbitrations in order to protect its legal rights: one against the Government of Pakistan with the International Centre for Settlement of Investment Disputes ("ICSID") asserting breaches of the Bilateral Investment Treaty between Australia (where Tethyan is incorporated) and Pakistan, and another against the Government of Balochistan with the International Chamber of Commerce ("ICC"), asserting breaches of the CHEJVA. Constitution of the ICC and ICSID arbitration panels is in process. Tethyan strongly believes that it has complied with the requirements of the Balochistan Mineral Rules and the CHEJVA and is entitled to the grant of the mining lease.

Other exploration and evaluation activities

Chile

The Group's internal exploration team continued to perform exploration work in Chile, in areas beyond the existing core locations of the Centinela Mining District and Los Pelambres. The Group is continuing generative activities in Chile focusing on Regions I-IV in addition to starting drilling work in the Conchi-Brujulina deposits in which the Group has a controlling interest, and the drilling of the Astillas Project and Primavera de Cuncumén, a porphyry target south of Los Pelambres. In addition, the deep drilling exploration of the primary ore (sulphides) potential mineralisation at Antucoya was carried out. The exploration programme in Sierra Jardín (JV with Codelco) is in progress.

The combined expenditure on these exploration and evaluation activities in Chile during the first half of 2012 was US$9.9 million.

International

The Group has also continued to expand its portfolio of early-stage international exploration interests through a number of strategic alliances and earn-in agreements. During the first half of 2012 the Group incurred US$14.4 million of exploration and evaluation expenditure in relation to its international early-stage exploration activities. During the first half of 2012 the Group entered into new agreements in Finland, Zambia, Australia and Ireland, and a further agreement in Canada in July 2012.

Energy Opportunities

The Group is also continuing with its exploration and development activities relating to geothermal and coal energy prospects as well as entering into further investments in power generation.

Energía Andina S.A

The Group holds a 60% interest in Energía Andina S.A, its joint venture with Origin Energy Limited. Energía Andina is currently managing 19 concessions grouped into 12 projects. It is engaged in an application process to acquire a number of further concessions to complement the development of the present projects. Energía Andina is progressing with a slim hole drilling programme at other locations with the possibility of starting a feasibility geothermal drilling phase during the second half of 2013. The Group incurred US$6.2 million of expenditure during the first half of 2012 relating to its share of this geothermal exploration work.

Mulpun

The Group had been working on a potential underground coal gasification ("UCG") project at the Mulpun coalfield, situated near Valdivia in southern Chile. Work on the project has been temporarily put on hold to allow a review to be undertaken into the project including the nature of the technology to be utilised. During the first half of the year total costs of US$33.4 million were incurred in respect of the project including costs relating to the pilot plant and the associated feasibility study.

El Arrayan

The Group owns a 30% interest in Parque Eólico El Arrayan SpA ("El Arrayan"), a company which is constructing a wind power plant with an installed capacity of 115MW, at an approximate cost of US$300 million part of which is expected to be funded by project debt. The plant will supply up to 40MW of power to Los Pelambres under a 20 year supply contract. Construction of the plant commenced in 2012 and it is expected to start operating in the second half of 2013. The Group made US$19.6 million of capital contributions to El Arrayan in the first half of 2012.

Inversiones Hornitos

The Antofagasta Railway Company ("FCAB") group owns a 40% interest in Inversiones Hornitos S.A. ("Inversiones Hornitos") which commenced operation in 2011 and which provides all of Esperanza's and part of El Tesoro's energy requirement. Inversiones Hornitos operates the 165MW Hornitos thermoelectric power plant in Mejillones in Chile's Antofagasta Region. Inversiones Hornitos contributed US$5.8 million to the Group results in the first half of 2012.

Transport Division

Total transport volumes in the first six months of 2012 were 3.9 million tonnes compared with 4.1 million tonnes in the first half of 2011, comprising 3.0 million tonnes of rail volumes (2011 half year - 3.2 million tonnes) and 0.8 million tonnes of road volumes (2011 half year - 0.9 million tonnes).

Turnover increased by 4.4% to US$90.9 million, largely reflecting a change in the mix of the sales volumes as well as tariff adjustments. This increase in revenues was also reflected in higher operating profits, which increased by 7.9% to US$32.8 million.

Water Division

The water business continued to perform well, with volumes for the first half of 2012 of 25.7 million cubic metres, a 7.0% increase on the comparative period in 2011, mainly as a result of increased demand from both regulated and unregulated clients.

Revenue increased by 14.9% to US$64.9 million, reflecting the increase in volumes as well as improved tariffs. While the increased revenues were partly offset by higher operating costs, the business still achieved a 19.6% increase in operating profits to US$32.4 million.

FINANCIAL COMMENTARY FOR THE SIX MONTHS ENDED 30 JUNE 2012

Results

Turnover

Group turnover in the first half of 2012 was US$3,160.8 million, 3.5% above the US$3,054.3 million achieved in the first half of 2011. The US$106.5 million increase mainly reflected the impact of increased copper and gold volumes, offset by decreased realised copper prices.

Turnover from the mining division

Turnover from copper concentrate and copper cathodes

Turnover from copper concentrate and copper cathode sales decreased by US$47.8 million, or 1.8%, to US$2,568.0 million, compared with US$2,615.8 million in the first half of 2011. The decrease mainly reflected lower realised copper prices, partly offset by the impact of higher copper volumes.

 (i) Realised copper prices

The Group's average realised copper price in the first half of 2012 decreased by 11.8% to 373.0 cents per pound (first half of 2011 - 422.7 cents), representing a decrease of US$317.6 million in turnover. This reflected the lower average LME copper price, which decreased by 13.8% to 367.3 cents per pound (first half of 2011 - 426.3 cents per pound), partly offset by positive adjustments to provisionally priced sales. Realised copper prices in the first half of 2012 were marginally higher than the average LME copper price for the period of 367.3 cents per pound, mainly due to positive adjustment relating to sales invoiced in 2011 which were finally priced in the first half of 2012, partly offset by negative pricing adjustments through the period due to the declining copper price.

In the first half of 2012 turnover also included a net loss of US$3.3 million (first half of 2011 - net loss of US$12.3 million). This related to commodity derivatives at Los Pelambres which were entered into in order that finally priced sales volumes were more evenly spread through the period, partly offset by gains at Michilla and to a lesser extent El Tesoro which matured during the period. The net loss of US$12.3 million in the comparative period related almost entirely to Michilla. Further details of hedging activity in the year are given in Note 5(b) to the half yearly financial report.

Realised prices are analysed by mine in the Review of Operations. The movement in the LME copper price during the period is described in the Overview.

(ii) Copper volumes

Copper sales volumes increased by 11.3% from 289,500 tonnes in the first half of 2011 to 322,200 tonnes in the first half of this year. The uplift in volumes accounted for US$268.9 million of the total increase in turnover from copper concentrate and cathode sales.

The increased sales volume resulted from higher production volumes, which are analysed by mine in the Review of Operations, adjusted by inventory movements to finished goods as a result of the timing of shipping and loading schedules. The increased production volumes in the year were mainly due to increased production at Esperanza compared with the first half of 2011 when the mine was starting its ramp-up. In addition, there was also increased production at Los Pelambres due to an increase in plant throughput and higher recoveries, as well as increased production at El Tesoro due to processing higher grade ore from the Mirador pit.

(iii) Tolling charges

Tolling charges for copper concentrate at Los Pelambres and Esperanza decreased marginally by US$0.9 million to US$80.5 million in the first half of 2012. Tolling charges are deducted from concentrate sales in reporting turnover and hence the slight decrease in these charges has had a positive impact on turnover.

Turnover from molybdenum, gold and other by-products

Turnover from by-products at Los Pelambres and Esperanza relate mainly to molybdenum and gold, and to a lesser extent silver. Turnover from by-products increased by US$142.1 million, or 48.2%, to US$437.0 million in the first half of 2012 compared with US$294.9 million in the first half of 2011.

Turnover from gold in concentrate (net of tolling charges) in the first half of 2012 was US$209.8 million (first half of 2011 - US$97.5 million), an increase of US$112.3 million. The significant increase was mainly due to an increase in gold sales volumes from 65,600 ounces in the first half of 2011 to 127,500 ounces in the first half of 2012. Gold revenues also benefited to a lesser extent from the increase in realised gold prices which were US$1,650.2 per ounce in the first half of 2012 compared with US$1,490.8 per ounce in the first half of 2011.

Turnover from molybdenum sales (net of roasting charges) in the first half of 2012 was US$183.0 million (first half of 2011 - US$157.4 million), an increase of US$25.6 million. The increase reflected higher molybdenum sales in the first half of 2012 of 6,800 tonnes (first half of 2011 - 4,400 tonnes) which were partly offset by the decline in realised prices to US$12.9 per pound (first half of 2011 - US$17.0 per pound).

Silver revenues increased by US$4.2 million to US$44.2 million in the first half of 2012 (first half of 2011 - US$40.0 million), due mainly to an increase in sales volumes from 1,093,800 ounces in the first half of 2011 to 1,458,000 ounces in the first half of 2012, partly offset by a decrease in realised prices from US$36.9 per ounce in the first half of 2011 to US$30.6 per ounce in the first half of 2012.

Production volumes are analysed by mine in the Review of Operations.

Turnover from the transport and water divisions

Turnover from the transport division (FCAB) increased by US$3.8 million or 4.4% to US$90.9 million in the first half of 2012 compared with the same period last year mainly due to an increase in the mix of customer sales and normal tariff adjustments in the period as well as improved sales of industrial water.

Turnover at Aguas de Antofagasta, which operates the Group's water business, increased by US$8.4 million or 14.9% to US$64.9 million in the first half of 2012. This reflected increased demand from both regulated and unregulated customers and normal tariff adjustments.

Operating costs (excluding depreciation and amortisation)

Operating costs (excluding depreciation and amortisation) in the first half of 2012 amounted to US$1,319.4 million (first half of 2011 - US$1,107.6 million), an increase of US$211.8 million.

Operating costs (excluding depreciation and amortisation) at the mining division

Operating costs at the mining division increased by US$201.1 million to US$1,240.5 million in the first half of 2012, an increase of 19.3%.

Of this increase, US$106.6 million is attributable to the higher mining production and sales volumes as explained in the Turnover section above, based on the higher copper output. As explained in more detail above, the additional turnover (including turnover from by-products) associated with these increased volumes was US$450.5 million.

US$30.5 million is attributable to unit costs, principally due to the increase in on-site and shipping costs during the year. Excluding by-product credits (which are reported as part of turnover) and tolling charges for concentrates (which are deducted from turnover), weighted average cash costs for the Group (comprising on-site and shipping costs in the case of Los Pelambres and Esperanza and cash costs in the case of the other two operations) increased from 143.7 cents per pound in the first half of 2011 to 147.9 cents per pound in the first half of 2012. This increase mainly reflected a range of minor cost increases in on-site and shipping costs at Los Pelambres. Cash costs are analysed by mine in the Review of Operations.

Exploration and evaluation costs increased by US$41.3 million to US$124.3 million in the first half of 2012 (first half of 2011 - US$83.0 million), reflecting increased spend in respect of the pre-feasibility study into the potential expansion at Los Pelambres and increased spending at the Twin Metals project.

Operating costs (excluding depreciation and amortisation) at the transport and water divisions

Operating costs at the transport division increased by US$7.1 million to US$55.0 million in the first half of 2012, mainly reflecting a change in the mix of sales volumes compared with the first half of 2011.

Operating costs at Aguas de Antofagasta increased by US$3.6 million to US$23.9 million in the first half of 2012, reflecting increased sales volumes compared with the first half of 2011.

EBITDA and operating profit from subsidiaries and joint ventures

EBITDA

EBITDA (earnings before interest, tax, depreciation, and amortisation) from subsidiaries and joint ventures decreased by US$105.3 million or 5.4% to US$1,841.4 million in the first half of 2012 (first half of 2011 - US$1,946.7 million).

EBITDA at the mining division decreased by 5.7% or US$106.8 million from US$1,871.3 million in the first half of 2011 to US$1,764.5 million in the first half of 2012. As explained above, this was due to the increase in operating costs at the mining division.

EBITDA at the transport division decreased by US$3.3 million to US$35.9 million in the first half of 2012 reflecting higher operating costs offset by the smaller increase in turnover in the first half of 2012. Aguas de Antofagasta contributed US$41.0 million in the first half of months of 2012 compared to US$36.2 million in the first half of 2011, reflecting the increased turnover mentioned above partly offset by increased operating costs.

Depreciation and amortisation

Depreciation and amortisation increased by US$32.7 million to US$241.8 million in the first half of 2012, mainly due to higher depreciation at Esperanza as a result of the higher level of production in the first half of 2012 and US$29.6 million relating to depreciation of the pilot plant at Mulpun, partly offset by decreased depreciation at El Tesoro due to mining the lower cost Mirador pit in 2012. The profit on disposal of property, plant and equipment in the first half of 2012 was US$5.1 million, compared with a loss of US$1.9 million in the first half of 2011 due to the sale of land in the transport division.

Operating profit from subsidiaries and joint ventures

As a result of the above factors, operating profit from subsidiaries and joint ventures decreased by 7.5% to US$1,604.7 million in the first half of 2012 (first half of 2011 - US$1,735.7 million).

Share of profit from associates

The Group's share of net profit from its associates in the first half of 2012 was US$6.2 million (first half of 2011- US$2.9 million), an increase of US$3.3 million. This was comprised of a net profit of US$5.8 million (first half of 2011 - US$1.6 million) from its 40% interest in Inversiones Hornitos, a net profit of US$0.5 million (first half of 2011 - US$1.3 million) from its 30% interest in ATI. The first half of 2012 also included a net loss of US$0.1 million from its 30% share in the El Arrayan project ("El Arrayan"). The Group acquired its interest in El Arrayan in December 2011.

Net finance expense

Net finance expense in the first half of 2012 was US$47.6 million, compared with a net finance expense of US$46.7 million in the first half of 2011.

Interest receivable increased from US$11.5 million in the first half of 2011 to US$14.9 million in the first half of 2012, reflecting a higher weighted average interest rate in 2012 versus the comparative period in 2011.

Interest expense decreased slightly from US$44.7 million in the first half of 2011 to US$44.2 million in the first half of 2012.

Other finance items comprised a loss of US$18.3 million (first half of 2011 - US$13.5 million). A loss of US$5.1 million (first half of 2011 - US$17.9 million) has been recognised in respect of the time value element of changes in the fair value of commodity derivative options, which is excluded from the designated hedging relationship, and is therefore recognised directly in profit or loss. Foreign exchange losses included in finance items were US$8.4 million in the first half of 2012, compared with a gain of US$12.0 million in the first half of 2011. No gain or loss on foreign exchange derivatives has been included in other finance items in the first half of 2012 (first half of 2011 - loss of US$3.3 million). An expense of US$4.8 million (first half of 2011 - US$4.3 million) has been recognised in relation to the unwinding of the discount on provisions.

Profit before tax

As a result of the factors set out above, profit before tax decreased by US$128.6 million or 7.6% to US$1,563.3 million in the first half of 2012 compared with US$1,691.9 million in the first half of 2011.

Income tax expense

The tax charge for the first half of 2012 was US$487.4 million (first half of 2011 - US$519.6 million) and the effective tax rate was 31.2% (first half of 2011 - 30.7%). The decrease in the tax charge mainly represented the lower profit before tax in the period compared with the first half of 2011.

First category tax

The official rate of first category tax in Chile decreased to 18.5% in the first half of 2012 from 20.0% in 2011 according to the amendments to the Chilean tax regime introduced by the Chilean Government in 2010. During 2012 the Chilean Congress has studied a bill that increases the rate of first category tax in 2013 from the previously expected 17% to 20%. This still requires final parliamentary and presidential approval. If passed the change is expected to be applied retrospectively with effect from 1 January 2012. At the date of issue of this half yearly financial report the parliamentary discussion on the bill is still ongoing and the current rate of 18.5% has been applied to account for the tax expense and deferred tax for the first half of 2012.

The effective rate of corporate tax differs from the official rate in each period due to minor permanent differences in taxable and accounting profits.

Mining tax

Los Pelambres, El Tesoro, Michilla and Esperanza are subject to a mining tax (royalty) which is tax deductible (i.e. an allowable expense in determining liability to first category tax). In 2011 the Group voluntarily elected to accept amendments to the mining tax as permitted pursuant to a law enacted in Chile in October 2010. Between 2010 to 2012 production from Los Pelambres, Esperanza, the Tesoro Central and Mirador pits at El Tesoro and Michilla is subject to a mining tax at a rate of between 4-9% of tax-adjusted operating profit, based on a sliding scale with the minimum rate of 4% applying to operations with a tax-adjusted operating profit margin of below 40% and a maximum rate of 9% applying to operations with a tax-adjusted operating profit margin of above 75%. Production from the Tesoro North East pit and the run-of-mine processing at El Tesoro is subject to a mining tax at a rate of between 5-14% of tax-adjusted operating profit, based on a sliding scale with the minimum rate of 5% applying to operations with a tax-adjusted operating profit margin of below 35% and a maximum rate of 14% applying to operations with a tax-adjusted operating profit margin of above 85%.

The lower effective rate of the mining tax in the first half of 2012 compared with the first half of 2011 reflects the impact of lower operating profit margins at the mining operations on the applicable rate under the scales set out above. The lower operating profit margin mainly reflected lower commodity prices and to a lesser extent higher unit costs.

Withholding taxes

In addition to first category tax and the mining tax, the Group incurs withholding taxes on the remittance of profits from Chilean operations and deferred tax is provided on undistributed earnings to the extent that remittance is probable in the foreseeable future. Withholding tax is levied on remittances of profits from Chile at 35% less first category tax already paid in respect of those profits. Accordingly, the effective rate of withholding tax will be between 15% and 18%, depending on the rate of first category tax which applied to the relevant profits.

During the first half of 2012 gross funds of US$400 million were remitted from FCAB, the Chilean branch of the Antofagasta Railway Company plc, to the UK company. While this intra-group flow of funds eliminates in the Group's consolidated results, it generated Chilean withholding tax of US$107.4 million. This is expected to result in the withholding tax charge being weighted towards the first half of the year as compared with 2011 when the withholding tax was more evenly spread between each half of that year.

Non-controlling interests

Profit for the first half of the year attributable to non-controlling interests was US$429.8 million, compared with US$476.1 million in the first half of 2011. The decrease is mainly due to the effect of the decreased Group profit in the first half of 2012 in comparison to the first half of 2011.

Earnings per share

Earnings per share calculations are based on 985,856,695 ordinary shares. As a result of the factors set out above, profit for the first half of 2012 attributable to equity shareholders of the Company was US$646.1 million compared with US$696.2 million in the first half of 2011. Accordingly, basic and diluted earnings per share were 65.5 cents in the first half of 2012 compared with 70.6 cents in the first half of 2011, a decrease of 7.2%.

Dividends

Details of dividends proposed in relation to the first half of 2012, and the Board's policy regarding dividends, are set out on page 5.

Capital Expenditure

Details of capital expenditure during the period are set out in the cash flow summary below.

Treasury Management and Hedging

The Group periodically uses commodity derivatives to manage its exposure to commodity price fluctuations, as well as for short-term commodity exchange and timing adjustments.

At 30 June 2012 the Group had min/max instruments for 67,650 tonnes of copper production at Michilla covering a total period up to 31 December 2014. The weighted average remaining period covered by the min/max hedges calculated with effect from 1 July 2012 is 18.1 months. The instruments have a weighted average floor of 348.1 cents per pound and a weighted average cap of 459.8 cents per pound.

At 30 June 2012 the Group also had futures for 15,300 tonnes at El Tesoro to both buy and sell copper production, with the effect of swapping COMEX prices for LME prices without eliminating underlying market price exposure, covering a period up to 31 January 2014. The remaining weighted average period covered by these instruments calculated with effect from 1 July 2012 is 10.7 months.

Details of the mark-to-market position of these instruments at 30 June 2012, together with details of any interest and exchange derivatives held by the Group, are given in Note 5(b) to the half yearly financial report.

The Group periodically uses foreign exchange derivatives to reduce its exposure to fluctuations in the exchange rates influencing operating costs and the fair value of non-US dollar denominated assets or liabilities. At 30 June 2012 the Group had cross currency swaps with a principal value of US$117.0 million relating to Michilla to swap Chilean pesos for US dollars, at an average rate of Ch$519.6/US$1, covering a total period up to 16 September 2013. The weighted average remaining period covered by these hedges calculated with effect from 1 July 2012 is 7.1 months.

The Group also periodically uses interest rate swaps to swap the floating rate interest for fixed rate interest. At 30 June 2012 the current notional amount hedged of the senior debt at Esperanza was US$495.2 million.

Cash Flows

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

Cash flows from operations were US$1,768.2 million in the first half of 2012 compared with US$1,715.2 million in the first half of 2011, an increase of 3.1%, reflecting the operating results adjusted for depreciation, amortisation and disposal gains and losses of US$236.7 million (first half of 2011 - US$211.0 million) less a net working capital increase of US$73.2 million (first half of 2011 - US$231.5 million). The net working capital increase relates mainly to an increase of inventories relating to work in progress at Esperanza and El Tesoro.

Cash tax payments in the first half of 2012 were US$540.0 million (first half of 2011 - US$467.8 million), comprising corporation tax of US$290.4 million (first half of 2011 - US$340.0 million), mining tax of US$137.3 million (first half of 2011 - US$127.8 million) and withholding tax of US$112.3 million (first half of 2011 - nil). These amounts differ from the current tax charge in the consolidated income statement of US$487.4 million (first half of 2011 - US$519.6 million) mainly because cash tax payments for corporation tax and the mining tax partly comprise monthly payments on account in respect of current year profits and partly comprise the settlement of the outstanding balance for the previous year.

In the first half of 2012 US$19.6 million was contributed to the Group's associate, El Arrayan, to fund its share of the development of the wind-farm project.

The purchase of available-for-sale investments of US$1.5 million relates to the purchase of shares in Full Metals. In 2011 the purchase of available-for-sale investments of US$25.0 million related to the purchase of shares in Duluth Metals for a value of US$19.9 million and shares in Eurasian Minerals for a value of US$5.1 million.

Cash disbursements relating to capital expenditure in the first half of 2012 were US$337.7 million compared with US$307.1 million in the first half of 2011. This included expenditure of US$95.6 million relating to Antucoya (first half of 2011 - nil), US$61.9 million (first half of 2011 - US$70.7 million) relating to Los Pelambres, US$52.1 million relating to Esperanza (first half of 2011 - US$147.7 million), US$51.5 million (first half of 2011 - US$55.9 million) relating to El Tesoro and US$41.8 million (first half of 2011 - US$10.5 million) relating to Michilla.

Dividends (including special dividends) paid to ordinary shareholders of the Company in the first half of 2012 were US$354.9 million (first half of 2011 - US$1,104.2 million), which related to the payment of the 2011 final dividend.

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

Financial Position

At 30 June 2012 the Group had combined cash, cash equivalents and liquid investments of US$3,352.5 million (31 December 2011 - US$3,280.0 million). Excluding the non-controlling interest share in each partly owned operation, the Group's attributable share of cash, cash equivalents and liquid investments was US$2,992.9 million (31 December 2011 - US$3,041.1 million).

Total Group borrowings at 30 June 2012 were US$2,007.7 million (31 December 2011 - US$2,140.3 million). Of this, US$1,370.6 million (2011 - US$1,456.3 million) is proportionally attributable to the Group after excluding the non-controlling interest shareholdings in partly-owned operations.

At 30 June 2012 the net cash balance of the Group was US$1,344.8 million (31 December 2011 - US$1,139.7 million). Excluding the non-controlling interest share in each partly owned operation, the Group's attributable share of net cash was US$1,622.4 million (31 December 2011 - US$1,584.8 million).

Foreign Currency Exchange Differences

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

In the first half of 2012 the currency translation gain recognised in net equity was US$5.6 million (first half of 2011 - loss of US$1.4 million).

Going Concern

The Group's business activities, together with those factors likely to affect its future performance, are set out in the Review of Operations. Details of the cash flows of the Group during the period, along with its financial position at the period-end are set out in this Financial Commentary. The half yearly financial report includes details of the Group's cash, cash equivalent and liquid investment balances in Note 23, and details of borrowings are set out in Note 17.

In assessing the Group's going concern status the Directors have taken into account the above factors, including the financial position of the Group and in particular its significant balance of cash, cash equivalents and liquid investments, the borrowing facilities in place and their terms, the current copper price and market expectations in the medium-term, the Group's expected operating cost profile and the its capital expenditure and financing plans.

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

Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2011. A detailed explanation of the risks summarised below can be found in the Risk Management section of that annual report which is available at www.antofagasta.co.uk. Key headline risks relate to the following:

• Operational risks

• Political, legal and regulatory risks

• Strategic resources

• Commodity prices

• Development projects

• Growth opportunities

• Identification of new mineral resources

• Ore reserves and mineral resources estimates

• Talent

• Commitment to health and safety

• Efficient environmental management

• Community relations

Cautionary Statement about forward looking statements

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

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

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

Condensed Consolidated Income Statement

Revenue and operating profit are derived from continuing operations.

* The exceptional item included within "Total operating costs" in respect of the year ended 31 December 2011 is a US$140.5 million provision against the carrying value of intangible assets and property, plant and equipment relating to the Group's joint venture Tethyan Copper Company Pty. Ltd. Excluding this exceptional item, operating profit from subsidiaries and joint ventures was US$3,213.9 million and profit before tax was US$3,216.7 million. There were no exceptional items in the six months ended 30 June 2012 and six months ended 30 June 2011.Further details of this exceptional item are set out in Note 3. 

Condensed Consolidated Statement of Comprehensive Income 

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Balance Sheet

The interim financial information was approved by the Board of Directors on 28 August 2012.

Condensed Consolidated Cash Flow Statement

Notes

a) General information

These June 2012 interim condensed consolidated financial statements ("the condensed financial statements") are for the six months ended 30 June 2012. The condensed financial statements are unaudited.

The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) (regarding adequacy of accounting records and returns) or section 498(3) (regarding provision of necessary information and explanations) of the Companies Act 2006.

b) Accounting policies

Basis of preparation

The annual financial statements of Antofagasta plc for the year ended 31 December 2011 were prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting and the requirements of the UK Disclosure and Transparency Rules (DTR) of the Financial Services Authority (FSA) in the United Kingdom as applicable to interim financial reporting.

The condensed financial statements represent a "condensed set of financial statements" as referred to in the DTR issued by the FSA. Accordingly, they do not include all of the information required for a full annual financial report and are to be read in conjunction with the Group's financial statements for the year ended 31 December 2011.

The interim financial information has been prepared on the basis of accounting policies consistent with those applied in the financial statements for the year ended 31 December 2011.

Going concern

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of no less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements. Detail of the factors which have been taken into account in assessing the Group's going concern status are set out in the Going Concern section of the Financial Commentary above.

2. Total profit from operations and associates

*Detail of exceptional items are given in Note 3.

There were no exceptional items in the six months ended 30 June 2012 or in the six months ended 30 June 2011.

3. Exceptional item

2011 - provision against the carrying value of assets

In the year ended 31 December 2011 a provision of US$140.5 million consisting of US$120.7 million of intangible assets and US$19.8 million of property, plant and equipment was made relating to the Group's joint venture Tethyan Copper Company Pty. Ltd. Further details are set out in Note 27.

4. Segmental analysis

The Group's reportable segments are as follows:

·; Los Pelambres

·; Esperanza

·; El Tesoro

·; Michilla

·; Antucoya

·; Exploration and evaluation

·; Railway and other transport services

·; Water concession

·; Corporate and other items

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

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

a) Segment revenues and results

For the six months ended 30 June 2012

For the six months ended 30 June 2011