Antofagasta Regulatory News (ANTO)

Preliminary Results Announcement for the year ended 31 December 2011

13 March 2012

 (See footnotes on page 3)

·; Record production, with copper production up 22.9% to 640,500 tonnes and gold production up more than fivefold to 196,800 ounces compared with 2010. This predominantly reflected the impact of the start-up of Esperanza. Molybdenum production at Los Pelambres also increased by 12.5% to reach 9,900 tonnes.

·; Record revenues and profitabilitywith turnover of US$6.1 billion (up 32.7% over 2010) and EBITDA of US$3.7 billion (up 32.1% over 2010). Net finance expense remained largely unchanged at US$21.2 million (2010 - US$18.7 million), with Esperanza's interest costs, which started to be expensed following the start-up of that operation, largely offset by gains relating to derivative mark-to-market adjustments and foreign exchange.

Earnings per share (excluding exceptional items) were 139.7 cents in 2011, compared with 100.6 cents in 2010.

·; Total dividend for the year of 44 cents per share, comprising a special dividend of 24 cents per share and ordinary dividend of 20 cents per share (final - 12 cents, interim - 8 cents). The combined interim and final dividend equates to a total distribution to shareholders of US$433.8 million, and represents an overall payout ratio for the year of 35% of net earnings.

·; Challenges in the ramp-up at Esperanza largely addressed in 2011, with remaining remedial measures relating to performance and reliability of the plant under review. 2012 production forecast of between 160,000 to 175,000 tonnes of copper, and between 240,000 to 260,000 ounces of gold, based on plant throughput of between 80,000 to 86,000 tonnes per day. This compares with 2011 production of 90,100 tonnes of copper and 157,100 ounces of gold during the first year of operation.

·; Further production growth forecast for 2012, with expected production of approximately 700,000 tonnes of copper, 280,000 ounces of gold and 11,000 tonnes of molybdenum. The increase in the copper and gold production reflects the first full-year of operation at Esperanza following the completion of the main ramp-up activities.

·; Stable net cost position, with forecast 2012 weighted average cash costs (net of by-product credits) of approximately 105 cents per pound (2011 - 101.9 cents, 2010 - 104.0 cents). The relatively stable net cash costs, despite on-going industry cost pressures, reflect the increased production from Esperanza, with its low net cost position given its significant gold credits. Net cash costs nevertheless remain sensitive to market prices for by-products.

·; Antucoya project approved in December 2011, and Memorandum of Understanding signed with Marubeni Corporation whereby they will become 30% partner in the project. Construction is expected to commence in 2012 with first production in the second half of 2014. When in full production, Antucoya is expected to produce approximately 80,000 tonnes of copper cathode per year.

·; Major growth potential from the Group's core areas of the Centinela Mining District (formerly known as the Sierra Gorda district) and Los Pelambres, where feasibility and pre-feasibility studies respectively were initiated during 2011 which could potentially result in significant additional production through the second half of this decade. The feasibility study at the Centinela Mining District, for which expenditure of approximately US$109 million was approved, is examining the construction of new facilities to process ores from the Telegrafo and Caracoles deposits, each of which could support a plant similar in size to Esperanza. The pre-feasibility study at Los Pelambres is examining a large scale expansion which could eventually more than double the existing processing capacity.

·; Twin Metals project potential further extended, with the acquisition of Franconia assets significantly increasing the existing land and mineral position. A pre-feasibility study for an eventual underground operation of this copper-nickel-PGM project was initiated during 2011 following the completion of a conceptual study.

·; Continued focus on exploration and evaluation activities, with expenditure (including expenditure on the prefeasibility studies discussed above) of US$215.4 million incurred in 2011, and approximately US$300 million approved for 2012. This includes exploration to identify further potential in the highly prospective Centinela Mining District, exploration both in Chile and internationally, as well as the Los Pelambres and Twin Metals pre-feasibility studies.

·; Continued strong performance from the transport and water divisions, with total transport volumes increasing to 8.3 million tonnes (2010 - 8.1 million tonnes), and total volumes in the water division increasing to 48.3 million cubic metres (2010 - 46.3 million cubic metres).

·; Strong financial position. The Group had cash (including liquid investments) of US$3.3 billion and net cash of US$1.1 billion at 31 December 2011. This leaves the Group well placed to progress with its medium and long-term growth plans and to continue to deliver good returns to shareholders, while preserving the financial flexibility to take advantage of opportunities which may arise.

Jean-Paul Luksic, Chairman of Antofagasta plc, commented:

"2011 was a solid year for the Group, in terms of both production and profitability, mainly reflecting the impact of the start-up of Esperanza. Copper production of 640,500 tonnes increased by 22.9% and gold production of 196,800 tonnes more than fivefold compared with 2010, and EBITDA was 32.1% higher than the previous year at US$3,660.5 million. The ramp-up of Esperanza was the key milestone for the Group in 2011, contributing 90,100 tonnes in its first year of production. Nevertheless, as we have reported, production was lower than originally anticipated as a result of which Group production was below the original forecast of 715,000 tonnes of copper and 324,000 ounces of gold. We have made significant progress during 2011 in addressing the challenges we have faced at Esperanza during the ramp-up, with remaining remedial measures relating to the performance and reliability of the plant under review.

We are forecasting further production growth for 2012, with expected production of approximately 700,000 tonnes of copper, 280,000 ounces of gold and 11,000 tonnes of molybdenum. The increase in the copper and gold production reflects the first full-year of operation at Esperanza following the completion of the main ramp-up activities.

We have continued with our consistent and significant capital returns to our shareholders, with total dividends in respect of 2011 amounting to US$433.8 million, which represents an overall payout ratio of 35% of net earnings.

We have also made excellent progress with our growth projects during 2011 - with the approval of the Antucoya project, and significant advances in respect of our core areas of the Centinela Mining District and Los Pelambres in Chile, and the Twin Metals project in the United States.

As previously announced, Marcelo Awad stepped down as chief executive officer of Antofagasta Minerals S.A. on 7 March 2012. Until a successor is appointed, the Board has requested that I assume his responsibilities on an interim basis. Marcelo had been Chief Executive Officer of Antofagasta Minerals since 2004, and during that time he oversaw the significant growth of the Group's mining operations and development of its projects. I would like to thank him for his leadership of Antofagasta Minerals - his commitment and contribution to the Group over the years has been widely appreciated and we wish him every success in the future. Our strategy remains unchanged and we will continue to pursue profitable growth, supported by our strong financial position and low-cost and profitable operations.

Despite the improvement in the copper price since the year-end, macro-economic uncertainty means that prices in the short-term are likely to remain volatile. Nevertheless, long-term market fundamentals remain positive for copper, with inventories remaining at low levels by historic standards. Our continued production growth from our portfolio of low-cost assets, and our strong financial position, mean that we are well placed to make the most of these conditions."

(1) Earnings in 2011 include a provision against the carrying value of assets relating to the Group's joint venture Tethyan Copper Company Pty. Ltd, resulting in a charge to operating profit of US$140.5 million and a charge to earnings per share of 14.3 cents. Earnings in 2010 included a reversal of an impairment charge relating to property, plant and equipment at El Tesoro, resulting in a credit to operating profit of US$109.4 million and a credit to earnings per share of 6.1 cents. Further details of these exceptional items are set out in Note 3 to the preliminary results announcement.

(2) Cash refers to the total of cash, cash equivalents and liquid investments, as analysed in Note 23 to the preliminary results announcement.

(3) 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 preliminary results announcement.

DIRECTORS' COMMENTS FOR THE YEAR TO 31 DECEMBER 2011

OverviewThe Group achieved record production and profits in 2011, with copper production of 640,500 tonnes reflecting a 22.9% increase on 2010, and EBITDA of US$3,660.5 million, a 32.1% increase on 2010 levels. The key driver in this was the ramp-up of Esperanza during the year. Cash flows from operations were US$3,552.5 million, a 46.0% increase compared with 2010, mainly reflecting the increased profits. At the end of 2011 the Group had a net cash position of US$1,139.7 million and total gross cash, cash equivalents and liquid investments of US$3,280.0 million.

The total dividend for the year is 44 cents per share, comprising a special dividend of 24 cents per share and ordinary dividend of 20 cents per share (final - 12 cents, interim - 8 cents). The combined interim and final dividend equates to a total distribution to shareholders of US$433.8 million, and represents an overall payout ratio for the year of 35% of net earnings.

Group copper production was 640,500 tonnes, compared with 521,100 tonnes in 2010. This increase mainly reflected the 90,100 tonnes produced by Esperanza in its first year of operation, as well as an increase in Los Pelambres' production to 411,800 tonnes (2010 - 384,600 tonnes), reflecting the full-year impact of its plant expansion which had been completed during 2010. The start-up of Esperanza is also having a transformational change in the Group's gold production with a total of 196,800 ounces produced in 2011, a more than fivefold increase compared with the 35,100 ounces produced in the prior year. Molybdenum production at Los Pelambres increased by 12.5% to reach 9,900 tonnes. The transport and water divisions also performed well, with total transport volumes increasing to 8.3 million tonnes (2010 - 8.1 million tonnes), and total volumes in the water division increasing to 48.3 million cubic metres (2010 - 46.3 million cubic metres).

The ramp-up of Esperanza was the key milestone for the Group in 2011. We have made significant progress during 2011 in addressing the challenges we have faced during the ramp-up, with remaining remedial measures relating to the performance and reliability of the plant under review. The main focus during 2011 was on improving the efficiency of the milling process and building up the overall reliability of the plant. This was reflected in the increase in average plant throughput over the course of the year, from 27,100 tonnes per day in Q1 to 76,500 tonnes per day in Q4, averaging 55,700 tonnes per day over the full year. It is expected that an average throughput level of between 80,000 to 86,000 tonnes per day will be achieved in 2012. There is an on-going process to further optimise the reliability and performance of the operation, as well as looking at the potential to move beyond current processing levels over the next one to two years, with the aim of reaching the original design capacity of 97,000 tonnes per day. During the first half of 2012 there will be two main areas of focus - firstly, completion of testing of the characteristics of the top layer of the ore body that will be mined and processed in the next two to three years, and secondly the performance of the tailings thickeners. The anticipated plant throughput of between 80,000 to 86,000 tonnes per day during 2012 is forecast to result in production of between 160,000 to 175,000 tonnes of copper, and between 240,000 to 260,000 ounces of gold.

The LME copper price averaged 400 cents per pound over 2011, which was an all-time high (2010 - 342 cents). The price fell sharply in mid-September, but soon found good support above the 325 cent level. The spot price ended the year at 343 cents per pound and as explained in the Outlook section below has since improved significantly. The Group's average realised copper price in 2011 was 373 cents, reflecting negative provisional pricing adjustments due to the declining price in the second half of the year (2010 - 359 cents). Gold performed strongly in 2011, averaging US$1,572 per ounce over the course of the year (2010 - US$1,226), and trading at around US$1,900 in late August and early September, before closing the year at US$1,563. Molybdenum averaged US$15.5 per pound during 2011 (2010 - US$15.7), although the price generally declined during the course of 2011, ending the year at US$13.4.

Weighted average Group cash costs (net of by-product credits) were 101.9 cents per pound in 2011, compared with 104.0 cents per pound for 2010. The slight decrease mainly reflected the impact of Esperanza where net costs were below the Group's weighted average due to its significant gold by-product credits. Weighted average Group cash costs before by-product credits were 155.2 cents per pound (2010 - 137.3 cents). The increase was mainly due to high pre-credit costs at Esperanza which averaged 234.9 cents per pound during its ramp-up year. Excluding Esperanza, weighted average pre-credit cash costs of the Group's other three mines were 142.2 cents per pound.

The Group made significant advances with its growth projects during 2011. The Group's investment in its future growth is reflected in its increasing exploration and evaluation expenditure (which includes both early-stage exploration expenditure and the costs of conceptual and pre-feasibility studies which are expensed). This expenditure increased from US$99.0 million in 2010 to US$215.4 million in 2011, mainly reflecting work in respect of the Centinela Mining District (formerly known as the Sierra Gorda district) and Los Pelambres in Chile and the Twin Metals project in the United States. Exploration and evaluation expenditure (which will be expensed) is budgeted to increase further in 2012, to approximately US$300 million.

In December 2011 the Antucoya project was approved. Construction is expected to take approximately two and a half years, with first production expected during the second half of 2014. When in full production, Antucoya is expected to produce an average of 80,000 tonnes of copper cathode a year, over a mine life of just over 20 years. The capital cost estimated under the feasibility study is US$1.3 billion. The finalisation of the key construction contracts which is underway will allow a final estimate of the likely development costs. In December the Group entered into a Memorandum of Understanding with Marubeni Corporation, whereby they will become a 30% partner in the project for an initial consideration of US$350 million and a commitment to fund their pro-rata share of the project development costs. Definitive agreements in respect of this agreement are expected to be signed in the first quarter of 2012 and completion is expected in the second half of 2012.

In terms of the Group's slightly longer-term, but significantly larger scale opportunities, the key focus is on the Group's two existing core areas in Chile - the Centinela Mining District and Los Pelambres.

In the Centinela Mining District (formerly referred to as the Sierra Gorda District), a pre-feasibility study was completed during 2011, and a feasibility study in respect of the Telégrafo and Caracoles projects was initiated at the end of the third quarter, which is expected to cost US$109 million and to conclude during 2013. Current estimates are that each of these projects could support a plant of a similar scale to the existing Esperanza operation, which could result in annual production of somewhere in excess of 150,000 tonnes of copper for each project, along with gold by-products. Preliminary indications of the potential capital costs of these projects are that each could be in the region of US$3.5 billion at today's prices. Depending on the successful conclusion of the feasibility study and permitting, construction at Telégrafo could potentially take place between 2014 and 2016, with first production from 2017. First production from the sulphide deposit at Caracoles is likely to be somewhat later, reflecting the process for mining the oxide deposit, the higher levels of pre-stripping, and also the desirability of phasing key engineering and construction stages of the two projects, in order to ensure the most efficient process and to minimise the duplication of resources between the projects.

The Group is also undertaking significant amounts of earlier stage exploration elsewhere in the Centinela Mining District, in particular at Centinela and Polo Sur to the south of the district, and in the area between Telégrafo and Caracoles, and also looking at potential sulphide resource below the existing oxide pit at Mirador. It also has an active exploration programme throughout Chile to identify further growth prospects, including a number of earn-in agreements.

At Los Pelambres, a conceptual study was completed early in the year, and a pre-feasibility study was initiated in May 2011. The very large resource base (6.0 billion tonnes at 0.51% copper plus 0.011% molybdenum and 0.03 g/tonne gold) could support a large scale expansion of the operation, potentially more than doubling the current plant capacity. Key considerations are likely to include water supply, tailings disposal, community engagement and environmental impact. Current plans are assessing a possible staggered development, with the first incremental production potentially coming through at some point from 2019 onwards.

In Pakistan, Tethyan - the Group's joint venture with Barrick Gold Corporation - is seeking to develop the Reko Diq deposit. In November 2011 the Government of Balochistan rejected Tethyan's application for a mining lease. In November 2011 Tethyan initiated an administrative appeal with the Government of Balochistan in respect of the mining lease application process. On 3 March 2012 Tethyan was notified that this administrative appeal had been rejected. Tethyan has also commenced two international arbitrations in order to protect its legal rights. 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. However, given the uncertainty caused by the Government of Balochistan's rejection of Tethyan's mining lease application, the Group has recognised a provision against the US$140.5 million carrying value of intangible assets and property, plant and equipment relating to the project.

The Group is also progressing with its other international growth opportunities. At the Twin Metals project in Minnesota, the acquisition of the assets of Franconia Minerals Corporation was completed during 2011, which has effectively doubled Twin Metal's mineral and land assets. Following completion of a conceptual study, a pre-feasibility study for an eventual underground operation of this copper-nickel-PGM project was initiated in September 2011 The Group also entered into nine new earn-in agreements for exploration during 2011 with junior companies in different parts of the world, and currently has active agreements in place in North America, Latin America, Europe, Africa and Australia.

Dividends

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

The Board's policy is to establish an ordinary dividend which can be maintained or progressively increased at conservative long-term copper prices and through the economic cycle. In addition, the Board recommends special dividends when it considers these appropriate after taking into account the level of profits earned in the period under review, the existing cash position of the Group and significant known or expected funding commitments.

The Board has recommended a final dividend for 2011 of 36 cents per ordinary share, which amounts to US$354.9 million and if approved at the Annual General Meeting, will be paid on 14 June 2012 to shareholders on the Register at the close of business on 11 May 2012. This final dividend comprises an ordinary dividend of 12 cents and a special dividend of 24 cents. This gives total dividends for the year of 44 cents, including the interim dividend of 8 cents which was paid in October, amounting to US$433.8 million and representing a distribution of 35% of 2011 net earnings.

In 2010 total dividends were 116 cents, representing a pay-out ratio of 109%. As previously stated, the special dividend of 100 cents in that year reflected the successful completion of the two key growth projects - the Los Pelambres expansion and the Esperanza mine development - in that year.

Board composition and management changes

During 2011, three new Directors, Hugo Dryland, Tim Baker and Ollie Oliveira, all of whom bring considerable experience of the international mining sector, joined the Board. During the year, two Directors, Daniel Yarur and Charles Bailey, retired after several years of valuable service to the Group. Following these changes, the Board comprises an Executive Chairman and eight non-executive Directors, of whom five are considered by the Board to be independent.

On 7 March 2012 Marcelo Awad, the Chief Executive Officer of Antofagasta Minerals S.A. ("Antofagasta Minerals"), advised the Board of his resignation with immediate effect. Until a successor is appointed, the Board has requested that Jean-Paul Luksic assume these responsibilities on an interim basis, while also continuing in his role as Chairman of Antofagasta plc. The Board would like to take this opportunity to thank Marcelo for his leadership of Antofagasta Minerals - his commitment and contribution to the Group over the years has been widely appreciated and to wish him every success in the future.

Outlook

Copper has performed well in the first two months of 2012, increasing from 343 cents per pound at the start of the year to around 390 cents by the end of February. The market fundamentals remain positive for copper, with inventories remaining at low levels by historic standards, and this is reflected in the current market consensus forecasts which average approximately 380 cents for 2012. In terms of copper concentrate treatment and refining charges, annual negotiations are continuing with respect to 2012 charges, with no definitive benchmark having been achieved. Settlements have been reported by market analysts in the range of US$60.0 per dry metric tonne of concentrate for smelting and 6.00 cents per pound of copper for refining to US$63.5 and 6.35 cents, compared with the 2011 benchmark terms of US$56.0 and 5.60 cents.

Gold and molybdenum have also performed well, with gold increasing from $1,563 per ounce at the start of the year to over $1,700 per ounce through February, and molybdenum increasing from $13.4 per pound to $14.8 per pound by the end of February.

As previously announced, the Group's 2012 production is forecast to be approximately 700,000 tonnes of copper, 280,000 ounces of gold and 11,000 tonnes of molybdenum. The increase in the copper and gold production compared with 2011 principally reflects the first full-year of operation at Esperanza following the completion of the main ramp-up activities, partly offset by lower production at Los Pelambres due to lower expected ore grades in the year. Also as previously announced, the forecast for 2012 weighted average cash costs (net of by-product credits) is for approximately 105 cents per pound, only marginally above the 2011 net costs of 101.9 cents. The relatively stable net cash costs, despite on-going industry cost pressures, again reflect the increased production from Esperanza, with its low net cost position given its significant gold by-product credits. Net cash costs nevertheless remain sensitive to market prices for by-products.

Excluding by-product credits, weighted average gross cash costs are expected to be approximately 165 cents in 2012, compared with 155.2 cents in 2011. Approximately half of this increase is due to the greater proportion of the Group's production that is expected from Esperanza in 2012 when compared with 2011. On a net cash cost basis, Esperanza is expected to be the lowest cost of the Group's four mines in 2012; however on a pre-credit basis its costs are expected to be higher than the weighted average of the remainder of the Group and hence its higher production volumes increase overall weighted average pre-credit costs. The remainder of the increase is mainly due to the impact of lower grades in 2012 at Los Pelambres and general inflationary pressures.

During 2012, the Group expects to advance with its growth projects. These include the feasibility study in the Centinela Mining District and pre-feasibility studies at Los Pelambres and Twin Metals, which are expected to be completed during 2013. The Group also expects to advance with its substantial exploration programme, both in the prospective Centinela Mining District as well as across Chile and internationally.

The Group's strong financial position, with cash (including liquid investments) of US$3.3 billion and net cash of US$1.1 billion at 31 December 2011, leaves it well placed to progress with its medium and long-term growth plans, take advantage of opportunities as they arise and to continue to deliver good returns to shareholders.

BUSINESS REVIEW

Review of operations

Mining division

The existing 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 (60% owned)

A record year of production, reflecting the first full year of operation at the expanded 175,000 tonnes per day plant capacity. The 2011 production of 411,800 tonnes of copper was the first time that Los Pelambres has exceeded the 400,000 tonne level for annual production.

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

2011 Performance

Operating profit at Los Pelambres was US$2,457.4 million compared with US$2,215.9 million in 2010, mainly reflecting the higher volumes partly offset by the marginal increase in on-site and shipping costs. The realised price was nearly unchanged at 371.1 cents per pound in 2011 (2010 - 371.7 cents per pound).

In 2011 Los Pelambres produced 411,800 tonnes of payable copper, 7.1% above 2010 production of 384,600 tonnes, mainly due to the 10.8% higher plant throughput as a result of the full year effect of the plant expansion which was completed during 2010, partly offset by lower ore grades. Ore throughput averaged 176,600 tonnes per day during the year (2010 - 159,400 tonnes per day). The plant throughput is currently limited by environmental permits to an average of 175,000 tonnes per day, averaged over a 12 month period running from May to April.

Molybdenum production was 9,900 tonnes in 2011, 12.5% above 2010. The increase mainly reflected the higher plant throughput as a result of the 2010 plant expansion, and to a lesser extent, higher recoveries. Gold production was 39,800 ounces (2010 - 35,100 ounces).

Cash costs for 2011, which are stated net of by-product credits and include tolling charges, were 78.3 cents per pound, marginally below the 79.3 cents for 2010. This reflected an increase in on-site and shipping costs, offset by marginal increases in molybdenum, silver and gold by-product credits. On-site and shipping costs increased from 106.8 cents per pound in 2010 to 110.0 cents, reflecting cost inflation across a range of input costs as well as the impact of the stronger Chilean peso, partly offset by lower energy costs. There was a marginal increase in tolling charges to 18.0 cents per pound (2010 - 17.6 cents), resulting in total cash costs before by-product credits of 128.0 cents per pound (2010 - 124.4 cents).

Total capital expenditure in 2011 was US$174.3 million, and is expected to remain at a similar level in 2012.

Labour negotiations were satisfactorily concluded at Los Pelambres in May 2011 with the plant union, which covers approximately 20% of employees, for a new 44 month labour agreement running until January 2015. This was concluded in advance of the expiry of the existing agreement, which ran until November 2011. During 2010 Los Pelambres had concluded negotiations with the main union which covers more than 70% of employees, mainly at the mine and port, for a new 46 month labour agreement running until September 2014.

Outlook

As previously announced, the initial forecast for 2012 production is for approximately 390,000 tonnes of payable copper, compared with production of 411,800 tonnes in 2011. This is due to an expected decrease in the average ore grade to 0.71% under the current phase of the mine plan compared with 0.74% in 2011. This production forecast is based on an average plant throughput of 175,000 tonnes per day. The plant will on average run at a lower throughput level during the first quarter of 2012 and will include a major maintenance of the plant during March. The initial forecast for 2012 molybdenum production is for approximately 11,000 tonnes, an increase of 1,100 tonnes on 2011 volumes, due to an increase in the molybdenum grade to approximately 0.021%. The initial gold production forecast is approximately 28,000 ounces.

On-site and shipping costs for 2012 are forecast to be approximately 122 cents per pound, compared to the 110.0 cents achieved in 2011. This increase is due to unit cost increases resulting from lower production levels and general inflationary effects. The current forecast is for tolling charges to remain at a similar level in 2012 as in 2011 at approximately 18 cents. Cash costs before by-product credits are expected, therefore, to increase to approximately 140 cents per pound compared with 128.0 cents per pound in 2011. Based on a molybdenum price of approximately US$13 per pound and a gold price of approximately US$1,850 per ounce, by-product credits are expected to be around 50 cents per pound, compared with 49.7 cents in 2011, which results in net forecast cash costs of approximately 90 cents in 2012, compared with 78.3 cents in 2011.

The main energy contract at Los Pelambres was fixed for a two-year period, with 2012 being the final year of the contract under its existing energy supply agreement. The energy price currently being paid by Los Pelambres is significantly below the current spot prices in the central grid. Los Pelambres is currently negotiating a new energy supply contract for 2013 onwards.

As previously disclosed, in November 2011 Los Pelambres signed a 20 year agreement with Pattern Energy Group LP ("Pattern") for the supply of up to 40MW of power. Pattern will develop and operate the El Arrayan wind power plant which is expected to begin construction in early 2012 and achieve commercial operation in the second half of 2013. In December 2011 the Group exercised an option to acquire a 30% interest in the El Arrayan project, for a consideration of US$4.5 million, and will be responsible for its share of development costs.

Los Pelambres is continuing to review opportunities for further expansion. In November 2011 an Environmental Impact Declaration was submitted to the authorities to increase the current annual average processing capacity limit of 175,000 tonnes per day allowed under existing environmental permits to allow more flexibility in the operation of the plant. A response to the submission is expected during the first half of 2012.

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

Esperanza (70% owned)

The ramp-up of Esperanza was the key milestone for the Group in 2011. The mine significantly increases the scale of the Group's production, with Esperanza expected to produce between 160,000 and 175,000 tonnes of copper in 2012, reflecting the first full-year of operation following the completion of the main ramp-up activities.

Esperanza is a sulphide deposit located in Chile's Antofagasta Region, 1,350 km north of Santiago. It produces copper concentrate (containing gold and silver) through a milling and flotation process.

Following the completion of a three year construction period at a total capital cost of US$2.7 billion the commissioning of Esperanza commenced in November 2010. The ramp-up continued throughout 2011 and Esperanza contributed US$384.1 million towards the Group operating profit in 2011.

2011 Performance

Esperanza produced 90,100 tonnes of payable copper and 157,100 ounces of payable gold in 2011. Plant throughput averaged 55,700 tonnes per day in the year, copper ore grades averaged 0.56% and gold ore grades averaged 0.36g/tonne.

Net cash costs, which are stated net of by-product credits and include tolling charges, were 83.2 cents per pound, with cash costs before by-product credits averaging 234.9 cents per pound in 2011. There was a decrease in the cash costs as the ramp-up progressed during the year, with cash costs before by-product credits reaching 201.0 cents per pound in the final quarter of 2011. The high level of on-site and shipping costs during the year reflected the expenses associated with the ramp-up process, and the impact on unit costs of the plant operating at significantly below capacity during this process.

The challenges in the ramp-up at Esperanza have been largely addressed, with remaining remedial measures relating to the performance and reliability of the plant under review. The main focus of the ramp-up activities during 2011 was on improving the efficiency of the milling process and building up the overall reliability of the plant. Work on optimising the milling process included fine tuning of the control system, fitting new lifters with a modified configuration to the SAG mill, increasing the grate ports which filter the flow of material between the SAG mill and the pebble crusher and ball mills, in order to balance the grinding effort between the mills and crusher, adjusting the blasting pattern at the mine site to optimise the size distribution of the ore fed into the milling process, and increasing the power supply to the SAG mill. There was also a focus on removing bottlenecks downstream of the plant, in particular with the tailings thickeners. One of the areas of focus in improving the reliability was in relation to the pumps within the sea-water pumping system which suffered mechanical issues during the first half of the year, thus causing temporary down-time and limitations to plant capacity as the necessary repair work was undertaken. The results of this work was reflected in the increase in average plant throughput over the course of the year, from 27,100 tonnes per day in Q1 to 76,500 tonnes per day in Q4, averaging 55,700 tonnes per day over the full year.

Labour negotiations were satisfactorily concluded in May 2011 with the main union, for a new 42 month labour agreement running to November 2014.

Outlook

It is expected that an average throughput level of between 80,000 to 86,000 tonnes per day will be achieved in 2012. There is an on-going process to further optimise the reliability and performance of the operation, including the installation of temporary pre-crushing facilities during 2012, to consolidate the reliability of the milling process. Esperanza is also evaluating the potential to move beyond current processing levels over the next one to two years, with the aim of reaching the original design capacity of 97,000 tonnes per day. During the first half of 2012 there will be two main areas of focus. Firstly, to complete testing on the top layer of the ore body that will be mined and processed in the next two to three years. This will allow a more precise assessment of how the various processes within the plant will deal with the particular ore characteristics, including the hardness of the ore, and whether some permanent additional pre-crushing capacity is required. The other area of focus is the performance of the tailings thickeners, and in particular, an evaluation of whether additional capacity is required to move beyond current processing levels.

Production of payable copper in 2012 is expected to be in the range of 160,000 to 175,000 tonnes based on the average throughput of between 80,000 and 86,000 tonnes per day and an expected average ore grade of 0.66% compared with an average ore grade of 0.56% in 2011. Gold production is expected to be in the range of 240,000 ounces to 260,000 ounces based on an expected average ore grade of 0.35g/tonne compared to an average ore grade of 0.36g/tonne in 2011.

On-site and shipping costs for 2012 are expected to be in the range of 174 to 184 cents per pound, a similar level to the 185.4 cents achieved in Q4 2011. The marginal reduction in costs from the level achieved in the final quarter of 2011 is due to the impact of increased production on unit costs partially offset by inflationary pressures. The current forecast is for tolling charges to remain at a similar level in 2012 as in 2011 at approximately 16 cents. Cash costs before by-product credits are expected, therefore, to be in the range of 190 to 200 cents per pound. Based on a gold price of approximately US$1,850 per ounce, by-product credits are expected to be around 135 cents per pound, compared with 151.7 cents in 2011, which results in forecast net cash costs in the range of 55 to 65 cents in 2012, compared with 83.2 cents in 2011.

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 November 2011 the Environmental Impact Declaration for this project was submitted to the authorities.

El Tesoro (70% owned)

Production commenced from the Mirador deposit during the second half of 2011, contributing 28,600 tonnes to El Tesoro's total production of 97,100 tonnes. Mirador is expected to result in reduced costs at El Tesoro while the deposit is mined during the three-year period to 2014, as well as extending El Tesoro's mine life to 2022.

El Tesoro is a deposit located in Chile's Antofagasta Region, 1,350 km north of Santiago, which produces copper cathodes using a solvent-extraction electro-winning process. It currently comprises three open pits - Tesoro Central, Mirador and Tesoro North-East - which, along with oxide ore from Esperanza, feed a heap-leach operation and a Run-of-Mine ("ROM") leaching operation.

2011 Performance

Operating profit at El Tesoro was US$379.4 million, compared to the 2010 operating profit of $386.6 million. The 2010 result included a credit of US$109.4 million from the reversal of the impairment originally recognised at El Tesoro in 2008, following a review undertaken in light of the current commodity environment. The 2011 operating profit of US$379.4 million represents a 36.9% increase on the underlying 2010 operating profit of US$277.2 million excluding this one-off credit. This mainly reflects the increase in the realised copper price from 351.9 cents per pound in 2010 to 391.2 cents per pound in 2011.

Copper cathode production was 97,100 tonnes in 2011 compared with the 95,300 tonnes produced in 2010. This increase mainly reflects the commencement of operations in August 2011 from the higher grade Mirador deposit which contributed 28,600 tonnes towards the 2011 production. During 2011 the ROM operation contributed 21,100 tonnes of cathode production and the remainder of the production came from the Tesoro Central and Tesoro North-East pits as well as oxide ore from Esperanza which fed the heap leach operation.

The Mirador deposit, which is located approximately two and a half kilometres east of Tesoro North-East, contains reserves of 21.8 million tonnes of oxide ore at an average grade of 1.1%, and was included in the mine plan during 2010 when El Tesoro, which is 70% owned by the Group, paid US$350 million to the wholly-owned Antofagasta Minerals S.A., for the right to extract the oxide ores from the Mirador deposit.

The average ore grade increased to 1.26% in 2011, compared with 1.10% in 2010. The average ore grade increased to 1.51% in the second half of 2011 compared with 1.04% in the first half of the year, with the increase mainly due to ore being fed to the plant from the higher grade Mirador pit. This increase in ore grade has resulted in lower plant throughput as the current operation is limited by the processing capacity of the SX-EW plant. The plant throughput relating to the heap-leach operation averaged 23,800 tonnes per day during 2011, compared with the 2010 throughput of 26,400 tonnes per day. El Tesoro has completed work to de-bottleneck the SX-EW plant, which has increased the maximum capacity of the plant from just under 100,000 tonnes of cathode production per year, to an annual capacity of approximately 105,000 tonnes. Actual annual production levels will continue to also depend upon a number of factors which could limit capacity elsewhere in the operation including ore grade and hardness.

Cash costs were 171.6 cents per pound in 2011, compared with 169.2 cents in 2010. During 2011 costs increased as a result of higher sulphuric acid prices and the strengthening of the Chilean peso which was partially offset by the commencement of operations from Mirador. Cash costs decreased to 161.7 cents per pound in the second half of 2011 from an average of 183.0 cents per pound in the first half mainly due to the impact of ore from the higher grade Mirador pit.

Capital expenditure in the year was US$119.5 million, including US$34.3 million relating to stripping costs at the Mirador deposit, US$33.1 million relating to the purchase of new mine equipment and US$6.7 million relating to the construction of the solar thermal plant which will provide heat for the SX-EW plant. Capital expenditure is expected to increase to approximately US$150 million in 2012 mainly due to extensive work to update the SX-EW plant.

Construction of the US$14 million solar thermal plant is progressing well, with the plant expected to come into operation in the second half of 2012. The operation of the thermal solar plant will reduce diesel requirements in the plant's electro-winning boilers by 55% and cut the carbon emissions of the operation.

As previously announced, labour negotiations were satisfactory concluded at El Tesoro in August 2011 with both its unions for a new 44 month labour agreement running until April 2015. These were concluded in advance of the expiry of the existing agreement, which was due to expire in early 2012.

Outlook

For 2012, the forecast for cathode production is approximately 100,000 tonnes. This marginal increase on the 2011 production level reflects a full year of production from the Mirador deposit. Production from the heap-leach operation is expected to be approximately 85,000 tonnes which will be mostly from the Mirador pit with approximately 6,000 tonnes from Tesoro Central. There will also be approximately 15,000 tonnes of production from the ROM operation. Ore grades for the heap-leach operation are expected to increase to an average grade of 1.57% in 2012 (2011 - 1.26%) reflecting the higher grade Mirador ore.

During the three year period from 2012 to 2014 El Tesoro's production is expected to come primarily from the Mirador pit with the balance of the production coming from the Tesoro North-East and Tesoro Central pits. Once the ore from the Mirador deposit has been utilised by the end of 2014, production is currently forecast to reduce as lower grade material is processed once again from the Tesoro Central and North-East pits. As detailed in the Centinela District section below, further exploration and evaluation work is being conducted to identify additional oxide resources. The combination of the processing of the oxides from both the Telégrafo and Caracoles deposits could provide additional resource for the El Tesoro plant over the rest of this decade.

The forecast for cash costs at El Tesoro for 2012 is approximately 160 cents per pound, compared with the annual average of 171.6 cents per pound during 2011 reflecting the impact of a full year of production from Mirador.

Michilla (74.2% owned)

Michilla's board approved an extension to its mine life from 2012 to 2015 and studies are continuing in respect of a further possible extension to 2018.

Michilla is a leachable sulphide and oxide deposit located in Chile's Antofagasta Region, 1,500 km north of Santiago. It produces copper cathodes using a heap-leach and solvent-extraction electro-winning process. The ore which is processed by the Michilla plant comes from a variety of sources - from underground and open pit mines which are operated by Michilla itself, from other underground operations which are owned by Michilla and leased to third-party operators, and also material which is purchased from ENAMI, the Chilean state organisation which represents small and medium-sized mining companies. The price paid for material purchased from ENAMI is in some cases linked to the market copper price.

2011 Performance

Operating profit at Michilla was US$147.4 million, compared to the 2010 operating profit of $50.4 million. This mainly reflects the increase in the realised copper price partly offset by the increase in cash costs. Michilla's revenue was net of US$15.6 million of realised losses on commodity hedging instruments. As a high cost operation Michilla has over recent years often hedged a significant proportion of its production, in order to ensure a reasonable level of return even if market prices were to weaken considerably. Further details of the effects of commodity hedging instruments in place are given in the Financial Review.

Total annual production in 2011 was 41,600 tonnes of copper cathodes, a marginal increase on the prior year production of 41,200 tonnes due to the higher average ore grades of 1.18% (2010 - 1.03%), which offset a reduction in the plant throughput. Average plant throughput decreased slightly to 12,500 tonnes per day, compared with 14,100 tonnes per day in the prior year. Of the total production of 41,600 tonnes approximately 16,000 tonnes came from the Lince open pit, approximately 13,000 tonnes came from the underground Estefanía mine and approximately 6,000 tonnes of production from ore provided by third parties. The remainder of the production came from ore purchased from ENAMI and from the Aurora deposit. Pre-stripping of the Aurora deposit commenced during the first quarter of 2011, with production from the Aurora pit ramping-up during the year. There is also a substantial amount of low-grade spent ore at Michilla. This is material removed from the dynamic heap-leach pads after the primary leach cycle is complete. Testing of this material has shown that this material is capable of being re-leached on the dynamic leach pads. This contributed approximately 1,000 tonnes of copper production in 2011, and will become an increasingly important source of material for processing through the Michilla plant.

Cash costs averaged 213.3 cents per pound during 2011, compared with 183.8 cents per pound in 2010. The increase reflected the impact of mining of the Aurora pit, higher acid costs and the stronger Chilean peso.

Capital expenditure in the year was US$52.7 million in 2011 compared to US$21.5 million in the previous year. The significant increase was due to a US$25.9 million investment in the open pit mine fleet. Capital expenditure in 2012 is expected to be approximately US$65 million and mainly relates to the finalisation of investments in the open pit mine fleet, completing the infrastructure for the spent-ore secondary leaching and underground mine development, among other normal sustaining capital items.

In April 2011 Michilla's board approved an extension to its mine life from 2012 to 2015, following a combination of in-fill drilling studies to upgrade inferred resources as measured or indicated resources, engineering studies and mine planning to demonstrate viability. Studies are continuing in respect of a further possible extension to 2018.

Outlook

The initial forecast for cathode production in 2012 is approximately 40,000 tonnes. The majority of this production is expected to continue to come from Estefanía as well as third parties and Aurora. Pre-stripping of the Núcleo X deposit commenced during the final quarter of 2011 and production from the Núcleo X pit is expected to be approximately 1,400 tonnes of copper in 2012. The processing of the low grade spent ore is also expected to contribute approximately 7,300 tonnes of copper production in 2012.

The initial forecast for cash costs in 2012 is approximately 285 cents per pound, in line with the cash costs of 268.5 cents per pound in the final quarter of 2011. The increase compared with the 2011 costs of 213.3 cents per pound reflects increased costs relating to the ramp-up of production at the Nucleo X pit and the opening up of a new section of the Lince open pit as well as costs associated with processing ore from the spent ore piles. The forecast does not include potential purchases of ore from ENAMI, the cost of which is often linked to the market price of copper. If such material continues to be purchased this could, particularly in a strong copper price environment, further increase 2012 cash costs through processing higher cost, but profitable, materials. Approximately 60% of the Michilla's operating costs are denominated in Chilean pesos and approximately 70% of those Chilean peso denominated costs in 2012 have been hedged with cross currency swaps to swap US dollars for Chilean pesos to reduce its exposure to fluctuations in the Chilean peso/US dollar exchange rate. The average rate of these instruments is Ch$508/US$.

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 on opportunities with the potential for large-scale development.

Current evaluation studies 

The Group has a portfolio of growth projects, which could provide significant potential for future growth over the forthcoming years. Given the early-stage nature of these projects, their potential and timing is inherently uncertain, and so the following information is only intended to provide a high-level indication of potential opportunities. The Group's exploration and evaluation expenditure in 2011 on growth projects was US$215.4 million. In December 2011 the Antucoya project was approved by the board and a Memorandum of Understanding was signed with Marubeni Corporation where they will become a 30% partner in the project for a consideration of US$350 million. Construction is expected to take place through 2012 and 2013, with first production expected in 2014.

The Group's primary focus in terms of its medium-term, large-scale growth potential is focused on its existing core districts of the Centinela Mining District (formerly known as the Sierra Gorda District) and the Los Pelambres District. Following the completion of the pre-feasibility study in the Centinela Mining District at the end of September 2011, the Group approved the initiation of a feasibility study in respect of the Telégrafo and Caracoles deposits. Following the completion of the scoping study at Los Pelambres during the first half of 2011, a pre-feasibility commenced to analyse in detail the growth opportunities. A pre-feasibility study is underway at the Twin Metals' copper-nickel-platinum deposit located in north-eastern Minnesota. During the year Twin Metals acquired 100% of the assets of Franconia Minerals Corporation of Canada which holds copper-nickel-platinum deposits that are contiguous to the Twin Metals' deposits.

The Group intends to continue to invest strongly in its growth opportunities. During 2012 the total forecast expenditure in relation to exploration and evaluation activities is approximately US$300.0 million.

Reserves and resources

The Group's commitment to organic exploration has been rewarded over recent years through the major increase in the resource base. The total resource tonnage of the Group's subsidiaries has increased more than four-fold over the past five years, from 3.2 billion tonnes in 2006 to 13.7 billion tonnes in 2011.

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

Introduction

The Group's primary focus for exploration in Chile remains the Centinela Mining District (formerly known as the Sierra Gorda District) which is located in the Atacama desert in northern Chile, and which stretches over a length of approximately 30 kilometres. The Group owns or controls a number of properties in the district, containing both sulphide and oxide resources. The district encompasses the Group's Esperanza and El Tesoro operations, as well as the Telégrafo and Caracoles projects, stretching through to Centinela and Polo Sur where the Group have been undertaking extensive drilling work. A total of US$91.9 million of exploration and evaluation expenditure was incurred during 2011 (2010 - US$41.3 million) relating to the pre-feasibility study at the Telégrafo and Caracoles deposits as well as other work across the districts. The total mineral resources in respect of these two deposits is 4.3 billion tonnes with an average copper grade of 0.36% (along with additional gold and molybdenum credits). These deposits represent approximately 30% of the total mineral resources of the Group's subsidiaries.

Evaluation studies

Following the completion of the pre-feasibility study in the district during 2011 the Group is conducting a feasibility study for the district to study the options for processing sulphide ores from the Telégrafo and Caracoles deposits, as well as the potential to process oxide ores from those deposits in the existing El Tesoro plant. Based on the results of the pre-feasibility study the current estimates are that each of these projects could support a plant of a similar scale to the existing Esperanza operation, which could result in annual production of somewhere in excess of 150,000 tonnes of copper for each project, along with gold by-products. The current plan is for separate processing lines for the Telégrafo and Caracoles deposits, with some shared infrastructure including a single tailings processing system. The resources include a significant molybdenum content and therefore the current plan envisages the inclusion of a molybdenum plant. The metallurgical testing has shown that untreated sea water can be used to process the sulphide ores. The untreated sea water will be piped from the coast to the plant, as at Esperanza. Preliminary indications of the potential capital costs of these projects are that each could be in the region of US$3.5 billion at today's prices.

Telégrafo is likely to be the earlier of the two projects. Depending on the successful conclusion of the feasibility study and permitting, construction at Telégrafo could potentially take place between 2014 and 2016, with first production from 2017.

Telégrafo

The Telégrafo deposit is part of Esperanza's existing property, and is owned through Minera Esperanza and hence the Group's interest in the deposit is 70%. The mineral resource at the Telégrafo deposit is 2,965 million tonnes at an average copper grade of 0.34%, of which the sulphide deposit represents 2,901 million tonnes at 0.34% copper (plus 0.010% molybdenum and 0.11 g/tonne gold) and the oxide deposit represents 64.1 million tonnes at 0.21% copper. As a result of new information from the in-fill drilling as well as adjustments to the geological and estimation models, mineral resources have increase by 238 million tonnes. The deposit has approximately 150 million tonnes of pre-stripping which includes approximately 50 million tonnes of oxide resource which could potentially be processed at the El Tesoro SX-EW plant from 2015. Current expectations are that initial works for the Telégrafo project could start in 2014 with first production potentially from 2017, with a mine life of up to 34 years.

Caracoles

The Caracoles deposit is situated approximately 10 kilometres south-east of Esperanza, and is 100% owned by the Group. The mineral resource at Caracoles is 1,302 million tonnes at an average copper grade of 0.41%, of which the sulphide deposit represents 1,089 million tonnes at 0.41% copper (plus 0.014% molybdenum and 0.15 g/tonne gold) and the oxide deposit represents 212 million tonnes at 0.40% copper. During 2011 an extensive program of in-fill drilling was performed which along with the change in the cut-off grade has resulted in an increase of 286 million tonnes of resources. The Caracoles deposit has approximately 600 million tonnes of pre-stripping which could potentially take up to four years to complete and includes approximately 150 million tonnes of oxide which could potentially be processed at the El Tesoro plant, again from 2015. First production from the sulphide deposit at Caracoles is likely to be somewhat later than Telégrafo, reflecting the process for mining the oxide deposit, the higher levels of pre-stripping, and also the desirability of phasing key engineering and construction phases of the two projects, in order to ensure the most efficient process and to minimise the duplication of resources between the projects. Current expectations are that construction in respect of the Caracoles project could start in 2015 with first production potentially from 2020 and a mine life of up to 22 years.

The combination of the processing of the oxides from both the Telégrafo and Caracoles deposits could provide additional resource for the El Tesoro plant over the rest of this decade.

Other exploration work in the district

In addition to the above properties a further US$50.6 million of exploration work was performed in other areas of the highly prospective Centinela Mining District during 2011 in relation to a number of other properties which the Group owns in the area, in particular the Llano-Palaeocanal, Centinela and Polo Sur deposits. These deposits contain both sulphide and oxide mineralisation, and exploration work suggests that these deposits have the potential to contain mineral inventory of between 450 to 690 million tonnes, with a corresponding average grade of between 0.54% and 0.44%.

As discussed above in the El Tesoro section, production commenced from the Mirador deposit at El Tesoro during 2011. Exploration work is also continuing on the Mirador sulphide deposit.

On-going areas of focus

A feasibility study on the Telégrafo and Caracoles deposits, for which a budget of US$109 million has been approved, is currently underway. The environmental impact assessment is expected to be submitted to the authorities in the first half of 2012. Detailed work on the feasibility study will continue through into 2013 with possible approval of the project expected in 2014. The Group is also undertaking significant drilling at Centinela and Polo Sur to the south of the district, as well as in the area between Telégrafo and Caracoles during 2012. Based on the results of the intensive drilling campaign currently being performed it is anticipated that a scoping study could commence during 2013 in respect of these additional areas within the district.

Los Pelambres 

Los Pelambres is continuing to review options for the longer-term development of the mine, especially given the size of the resource base, which at 6.0 billion tonnes at 0.51% copper (plus 0.011% molybdenum and 0.03 g/tonne gold) is more than four times the ore reserves of 1.45 billion tonnes. Given the size of the resource base it is possible that a more than doubling of existing plant capacity could be the optimal choice.

Following the completion of a scoping study looking at opportunities for the longer-term large-scale development at Los Pelambres in the first half of 2011, the Group approved just under US$100 million of expenditure on a pre-feasibility study, with a drilling campaign to recategorise mineral resources, in order to analyse in detail these growth opportunities. The pre-feasibility study commenced in July 2011 and is expected to be completed during 2013, potentially then to be followed by a feasibility study. It is possible that any project could be a staggered process, potentially with the first incremental production coming through at some point from 2019 onwards. Unlike the Group's operations and projects in northern Chile, Los Pelambres is situated in an agriculture area, with competing demands over land and water use, which need to be addressed in a sustainable manner.

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 

Antucoya is a copper oxide deposit located in Chile's Antofagasta region approximately 45 kilometres east of the Group's Michilla mine.

The Board approved the Antucoya project in December 2011. The Group also signed a Memorandum of Understanding with Marubeni Corporation in December 2011 whereby Marubeni will become a 30% partner in the project for a consideration of US$350 million and a commitment to fund its pro rata share of the development costs of the project. Definitive agreements are expected to be signed in March 2012 and the transaction is expected to close during the second half of 2012 upon satisfaction of certain conditions precedent.

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 capital cost estimated under the feasibility study is US$1.3 billion. The finalisation of the key construction contracts which is underway will allow a final estimate of the likely development costs. The cash costs are estimated to be approximately 145 cents over the first five years of operation and 155 cents over the mine life. 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.

Antucoya will be developed as a conventional open pit mine and the ore will be processed using a dynamic heap leaching facility and a 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 only take 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, and an Environmental Impact Declaration application has been submitted to the relevant authorities in respect of such a plant.

During the start of 2012 US$54 million of orders were placed for long lead time equipment such as shovels and front loaders. Construction of the project is expected to take approximately two and a half years, followed by a ramp up period of production which is expected to start during 2014. The forecast capital expenditure for 2012 is US$320 million. Full approval for the Environmental Impact Assessment for the project was received in July 2011.

United States - Twin Metals

The Group acquired a 40% controlling stake in Twin Metals Minnesota LLC ("Twin Metals") from Duluth Metals Limited ("Duluth") in 2010. The Twin Metals copper-nickel-PGM deposit is located in north-eastern Minnesota, USA. Under the terms of the agreement with Duluth, the Group is providing US$130 million of funding over a three year period to advance the project towards a bankable feasibility study. The Group also has the option to acquire an additional 25% of the project company following the completion of the feasibility study, based on the then net present value of the Twin Metals project as determined by that study.

Franconia Acquisition

During the year Twin Metals acquired 100% of Franconia Minerals Corporation of Canada's ("Franconia") assets. Franconia's principal assets were a 70% interest in the Birch Lake Joint Venture ("BLJV") which holds the Birch Lake, Maturi and Spruce Road copper-nickel-platinum and palladium deposits that are contiguous to the Twin Metals' deposits. Franconia's assets were acquired for US$76.6 million in a combination of cash and shares. The Franconia transaction effectively doubled Twin Metal's mineral and land assets, providing the opportunity for greater efficiency and maximum environmental protection for the project.

Evaluation Studies

During 2011 a total of US$40.0 million of exploration and evaluation expenditure was incurred by the Group in respect of the project (2010 - US$10.9 million). A pre-feasibility study has commenced, after the completion of the conceptual study in the first half of 2011. It is currently envisaged that the operation will comprise an underground mine and use a hydrometallurgical process to recover the base and precious metals from the bulk copper-nickel concentrate.

The conceptual study evaluated possible environmental, operational and economic issues, with the most viable options being taken forward to the next phase of project development. The pre-feasibility study commenced in September 2011, with the lead contractor being Bechtel Mining & Minerals. Further in-fill drilling will be conducted, focusing on better defining the scope, depth and breadth of the targeted ore deposits. Other activities currently underway include metallurgical testing of metal ore samples and the collection of environmental baseline data. The pre-feasibility study is expected to be completed in mid-2013, and if approved then to be followed by a feasibility study. This pre-feasibility study will be used to begin the process of applying for the necessary environmental and other permits required for the proposed mine.

Resources

Duluth has previously published an NI 43-101 compliant resource estimate for the Nokomis-Maturi deposit, consisting of 550 and 274 million tonnes of indicated and inferred resource, respectively, with a combined copper grade of approximately 0.6% and a combined copper equivalent grade of approximately 1.5% taking into account the nickel, platinum, palladium and gold content.

Franconia has previously published NI 43-101 compliant resource estimates for the Birch Lake, Maturi and Spruce Road deposits. In respect of the Birch Lake deposit these estimates consisted of 176.8 million tonnes of Indicated Resources grading 0.528% copper, 0.169% nickel, 0.101% cobalt, 0.239 g/t platinum, 0.515 g/t palladium, 0.117 g/t gold with a combined copper equivalent grade of 1.177%, plus an additional 39.9 million tonnes of Inferred Resources with a grade of 0.496% copper, 0.157% nickel, 0.009% cobalt, 0.210 g/t platinum, 0.431 g/t palladium, 0.103 g/t gold and a combined copper equivalent grade of 1.083%. For the Maturi deposit these estimates consisted of an inferred resource of 119.9 million tonnes with a grade of 0.67% copper, 0.25% nickel, 0.02% cobalt, 0.25 g/t palladium, 0.09 g/t Platinum and 0.04 g/t gold. And for the Spruce Road deposit these estimates consisted of an inferred resource of 124 million tonnes with a grade of 0.59% copper and 0.21% nickel.

The Nokomis-Maturi deposits and the nearby Birch Lake, Maturi and Spruce Road deposits are the subjects of the on-going pre-feasibility study being undertaken by Twin Metals. The engineering firm AMEC was contracted in 2011 to consolidate the drilling information to develop updated and consolidated geological models and a mineral resource estimate to support the pre-feasibility study. The geological models and resource estimates are currently in an advanced stage of development, but not yet finalised.

Reko Diq

The Group holds a 50% interest in Tethyan Copper Company Pty. Limited ("Tethyan Australia"), its joint venture with Barrick Gold Corporation ("Barrick"). Tethyan Australia is seeking, with and through its wholly-owned Pakistan subsidiary, Tethyan Copper Company Pakistan (Private) Limited ("Tethyan Pakistan" and, together with Tethyan Australia, "Tethyan") 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").

The mineral resource at Reko Diq is estimated at 5.9 billion tonnes with an average copper grade of 0.41% and an average gold grade of 0.22 g/tonne. The Group's 37.5% attributable share of this resource amounts to 2.2 billion tonnes.

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. Tethyan's exploration licence had been due to expire on 19 February 2011, but the submission of the mining lease application suspended the expiry of the exploration licence for the mining area covered in the application. On 15 November 2011, Tethyan was notified by the Government of Balochistan that the Government had rejected the application.

In November 2011 Tethyan initiated an administrative appeal with the Government of Balochistan in respect of the mining lease application process. On 3 March 2012 Tethyan was notified that this administrative appeal had been rejected. Tethyan has also commenced two international arbitrations in order to protect its legal rights. 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. However, given the uncertainty caused by the Government of Balochistan's rejection of Tethyan's mining lease application, the Group has recognised a provision against the US$140.5 million carrying value of intangible assets and property, plant and equipment relating to the project.

Other exploration and evaluation activities

The Group has continued with its extensive early-stage exploration activities beyond its existing core districts, both in Chile and internationally. In general, this is undertaken by the Group's internal exploration team in those areas where the Group has historically had its deepest experience, namely Chile and Peru. Typically when the Group wishes to engage in early-stage exploration work outside of those areas it does so through partnerships with other companies already established in those locations.

During 2011 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, with a new focus on generative activities. These include the progress of the northern porphyries programme, as well as geological work in other prospective belts. Several new exploration targets have been identified and their geological evaluation and drilling started in late 2011. The deep sulphide potential at Antucoya was evaluated during 2011 and further follow up drilling is under way. Similar deep sulphide potential studies were designed for the Conchi deposit and will be developed in early 2012. In 2011 the Group also signed an agreement with Codelco in relation to exploration in Chile. The Group continued to fund the work in Rio Figueroa, the exploration project located in the Atacama Region in which the Group holds a 30% stake. The combined expenditure on these exploration and evaluation activities in Chile during 2011 was US$19.6 million.

The Group has continued to expand its portfolio of early-stage international exploration interests through a number of earn-in agreements. During 2011 the Group incurred US$15.4 million of exploration and evaluation expenditure in relation to its international early-stage exploration activities. During the year the Group entered into new agreements in Sweden, Turkey, Portugal and Canada. Subsequent to the year end the Group entered into further agreements in Canada and Finland. After evaluation of the results of the exploration activities to date, the Group decided during 2011 not to proceed further with its earn-in agreement in Eritrea.

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.

Energia Andina

Energía Andina S.A, is continuing with its activities for the exploration and development of geothermal energy prospects in Chile. In May 2011 Origin Energy Limited acquired Empresa Nacional del Petróleo‟s ("ENAP") 40% stake in Energia Andina S.A., to become the Group's joint venture partner in this entity. Energía Andina is currently managing 15 concessions, and during 2012 will include four new concessions granted in the last bidding process to Energía Andina and Origin, resulting in a total of 19 concessions grouped into 12 projects. It is engaged in direct application process to acquire a number of further concessions that will complement the development of the present projects. During 2011 exploration slim hole drilling was completed at the Tinguiririca project, situated close to Santiago, which demonstrated the existence of an active geothermal system. In November 2011 slim hole drilling at the Pampa Lirima project in northern Chile commenced. During 2012 it is expected that a slim hole drilling programme will be held at other locations with the possibility of starting a feasibility geothermal drilling phase during the second half of 2013. The Group incurred US$7.4 million of expenditure during 2011 relating to its share of this geothermal exploration work.

Mulpun

Work is continuing on the potential underground coal gasification ("UCG") project at the Mulpun coalfield, situated near Valdivia in southern Chile, along with the Group's partner in the project Carbon Energy Limited ("Carbon Energy") of Australia.

During 2011 work continued on the feasibility study for the pilot plant as well as on the construction of main infrastructure such as roads, drilling platforms and electricity supplies. The pilot plant will allow the gathering of detailed data about the way in which the proposed coal gasification process works with this particular deposit. Total expenditure of US$17.6 million relating to the pilot plant was capitalised in 2011.

El Arrayan

In December 2011 the Group exercised an option to acquire a 30% interest in Parque Eolico el Arrayan SPA ("El Arrayan"), a company which is constructing the wind power plant. The plant will supply up to 40 MW of power to Los Pelambres under a 20 year supply contract. The consideration was US$4.5 million. This investment is being accounted for as an associate undertaking in the financial statements.

El Arrayan started construction of the 115MW plant in early 2012 and has an estimated total cost of approximately US$280 million of which it is expected that a significant proportion will be debt financed and the plant is expected to start operating in the second half of 2013. The Group will be responsible for its share of the development costs.

Inversiones Hornitos

The Antofagasta Railway Company ("FCAB") group owns a 40% interest in Inversiones Hornitos S.A. ("Inversiones Hornitos"). Inversiones Hornitos has constructed and is now operating the 165 MW Hornitos thermoelectric power plant in Mejillones in Chile's Antofagasta Region. The Group was responsible for its 40% share of the approximately US$385 million total development costs of the power plant. During 2011 US$6.4 million of funding was provided to Inversiones Hornitos to give a total loan of US$107.5 million of which US$26.2 million was repaid in the year. Inversiones Hornitos contributed US$21.7 million to the Group results in 2011 which included a US$18.8 million relating to compensation for lost profits from the main contractor as a result of delays to the construction.

Transport Division

In Chile, the Antofagasta Railway Company's ("FCAB") main business continues to be the transport of copper cathodes from and sulphuric acid to mines in the Antofagasta Region. FCAB's trucking service, Train Ltda., is a key part of FCAB's bi-modal transport service. In Bolivia, FCAB has a 50% controlling interest in the Ferrocarril Andino, which connects to the Chilean network at Ollague. These services are typically provided to customers under long-term contracts, often with agreed pricing levels which are subject to adjustments for inflation and movements in fuel prices.

The transport division had a solid operational performance during 2011 with total volumes increasing to 8.3 million tons compared with 8.1 million tonnes in 2010. Rail volumes increased to 6.4 million tonnes and road volumes remained at 1.9 million tons.

Combined turnover at the transport division was US$178.8 million, a 15.6% increase compared to the US$154.7 million achieved in 2010. This increase largely reflected a change in the mix of the sales volumes as well as tariff adjustments in line with cost including fuel, inflation and exchange. Capital expenditure in 2011 was US$20.5 million compared to US$18.5 million in the prior year.

The Antofagasta port, which is managed by the Group's 30% associate investment Antofagasta Terminal Internacional S.A. ("ATI") contributed US$2.3 million to Group results (2010 - US$1.9 million). ATI is a strategic investment for FCAB and complements its principal business as the main transporter of cargo within Chile's Antofagasta Region.

FCAB also owns Forestal S.A., which manages the Group's forestry assets. Forestal's two properties, Releco-Puñir and Huilo-Huilo, comprise 26,295 hectares of native forest near the Panguipulli and Neltume lakes, in Chile's Region de Los Lagos. During 2011, Forestal continued with its ongoing forestation, fertilisation and thinning programme to maintain these assets.

Water Division

Aguas de Antofagasta ("ADASA") operates a 30-year concession for the distribution of water in Chile's Antofagasta Region which it acquired from the state-owned Empresa Concesionaria de Servicios Sanitarios S.A. ("ECONSSA") in 2003. ADASA's operation consists of two main businesses, a regulated water business supplying domestic customers and an unregulated business serving mines and other industrial users. Sales to domestic customers are priced in accordance with regulated tariff structures, while sales to industrial customers are generally priced in accordance with contractually agreed levels.

Combined domestic and industrial water sales in 2011 amounted to 48.3 million cubic metres compared with the 2010 volumes of 46.3 million cubic metres. This was as a result of increased demand from both regulated and unregulated clients. Water volumes are sourced from surface rights and the desalination plant in the city of Antofagasta.

Turnover in 2011 was US$114.9 million, a 24.4% increase compared with 2010. This improvement reflecting improved tariffs, the increase in volumes and also the impact of the stronger Chilean peso (being the currency in which the majority of sales are billed). While the increased revenues were partially offset by higher operating costs, the business still achieved a 11.1% increase in operating profits to US$56.1 million.

In early 2011, an environmental application was submitted for the construction of a second desalination plant in the city of Antofagasta under the terms of the existing concession, to provide additional capacity for future growth in domestic and industrial demand. A decision to proceed with this project, if environmental permits are approved, could be taken later in 2012. The plant, which would have an estimated capacity of 1,000 litres per second, has an estimated cost of US$120 million and would come into operation by 2014.

ADASA is forecasting similar volumes to those sold in 2011 for 2012. The Company's revenues and profits are predominantly in Chilean pesos, and will be impacted by the relative strength or weakness of that currency against the US dollar, the currency in which the Group reports its results. There was a review of the tariffs during 2011 which resulted in no changes to the tariffs for the next five years.

FINANCIAL COMMENTARY FOR THE YEAR ENDED 31 DECEMBER 2011

Results

A detailed segmental analysis of the components of the income statement is contained in Note 4 to the preliminary results announcement.

The following table reconciles between the 2010 and 2011 profit before tax:

Turnover

Group turnover in 2011 was US$6,076.0 million, 32.7% above the US$4,577.1 million achieved in 2010. The increase of US$1,498.9 million mainly reflected increased copper and gold sales volumes.

Turnover from the mining division

Turnover from copper concentrate and copper cathodes

Turnover from copper concentrate and copper cathode sales increased by US$1,131.3 million, or 28.6%, to US$5,085.1 million, compared with US$3,953.8 million in 2010. The increase mainly reflected the impact of higher copper volumes and, to a lesser extent, higher realised prices.

(i) Copper volumes

Copper sales volumes increased by 24.0% from 516,000 tonnes in 2010 to 640,000 tonnes this year. The uplift in volumes accounted for US$1,018.6 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 Business Review on pages 8 to 13. The increased production volumes in the year were mainly due to the start-up of Esperanza and to a lesser extent increased production at Los Pelambres, reflecting a full year of higher throughput as a result of the plant expansion completed at that mine during 2010.

(ii) Realised copper prices

The Group's average realised copper price increased by 3.7% to 372.6 cents per pound (2010 - 359.3 cents), reflecting the higher average LME copper price, which increased by 16.9% to 399.7 cents per pound (2010 - 342.0 cents), largely offset by provisional pricing adjustments. The increase in average realised prices accounted for US$150.9 million of the total increase in turnover from copper concentrate and cathode sales.

Realised copper prices are determined by comparing turnover (gross of tolling charges for concentrate sales) with sales volumes in the year. Realised copper prices differ from market prices mainly because, in line with industry practice, concentrate and cathode sales agreements generally provide for provisional pricing at the time of shipment with final pricing based on the average market price for future periods (normally about 30 days after delivery to the customer in the case of cathode sales and up to 150 days after delivery to the customer in the case of concentrate sales). Realised copper prices also reflect the impact of realised losses or gains of commodity derivative instruments hedge accounted for in accordance with IAS 39 "Financial Instruments: Recognition and Measurements".

In 2011 there were significant negative mark-to-market adjustments to provisionally invoiced sales as a result of the significant decrease in the LME copper price during the second half of the year. Pricing adjustments decreased initially invoiced sales (before adjusting for tolling charges) by US$286.2 million in 2011, compared with a US$303.5 million increase of sales in 2010. Further details of provisional pricing adjustments are given in Note 5(a) to the preliminary results announcement.

Realised prices, in particular at Esperanza, were also affected by the timing and distribution of sales during the year. A higher proportion of the Group's sales of 640,000 tonnes were achieved in the second half of the year in line with production, mainly due to the continued ramp-up at Esperanza and also higher ore grades at Los Pelambres. LME copper prices in the second half were 374.1 cents per pound compared with 426.3 cents per pound, and hence realised copper prices were affected by the greater weighing of sales to the second half.

In 2011 turnover also included a net loss of US$15.1 million (2010 - loss of US$81.4 million) on commodity derivatives at El Tesoro and Michilla which matured during the year. Further details of hedging activity in the year are given in Note 5(b) to the preliminary results announcement.

The movement in the LME copper price during the year is described in the Directors' Comments on page 4.

(iii) Tolling charges

Tolling charges for copper concentrate at Los Pelambres and Esperanza increased by US$38.2 million to US$172.2 million in 2011. This resulted mainly from the increased production volumes as the level of tolling charges, measured in cents per pound of copper produced, did not change significantly year-on-year. Tolling charges are deducted from concentrate sales in reporting turnover and hence the increase in these charges has had a negative 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 a lesser extent silver. Turnover from by-products increased by U$S$321.0 million or 85.3% to US$697.2 million in 2011, compared with US$376.2 million in 2010.

Gold revenues (net of tolling charges) were US$315.2 million (2010 - US$43.4 million), an increase of US$271.8 million. The significant increase was mainly due to an increase in gold sales volumes from 35,100 ounces in 2010 to 193,200 ounces in 2011, mainly due to the start-up of Esperanza which sold 153,400 ounces. Gold revenues also benefited to a lesser extent from the increase in realised gold prices which were US$1,637 per ounce in 2011 compared with US$1,236 per ounce in 2010. Realised gold prices mainly reflected higher market prices, but Esperanza also benefited from having a greater proportion of its production and sales in the second half of the year when gold prices were higher.

Molybdenum revenues (net of roasting charges) were US$293.8 million (2010 - US$303.5 million), a decrease of US$9.7 million. Higher molybdenum sales of 9,400 tonnes (2010 - 8,900 tonnes) were offset by the decline in realised prices to US$15.1 per pound (2010 - US$16.2 per pound).

Silver revenues increased by US$58.9 million to US$88.2 million in 2011 (2010 - US$29.3 million). US$36.4 million was due to a significant increase in volumes to 2,499,000 ounces in 2011 compared with 1,471,000 ounces in 2010. Esperanza produced and sold 724,000 ounces in its first year of production and at Los Pelambres sales increased by 304,000 ounces. The realised silver also increased significantly to US$35.7 per ounce compared with US$20.4 per ounce, mainly reflecting high market prices, accounting for US$22.5 million of the increase.

Production volumes are analysed by mine in the Business Review on pages 8 to 13.

Turnover from the transport and water divisions

Turnover from the transport division (FCAB) increased by US$24.1 million or 15.6% to US$178.8 million. This partly reflected higher rail tonnages, which increased 3.8%, as well as normal tariff adjustments. However the transport division also benefited from an improved composition of sales in the period with a higher proportion of freight moved on behalf of customers with longer distances and higher pricing. The transport business also benefited from increased revenues from sales of water in the year.

Turnover at Aguas de Antofagasta, which operates the Group's water business, increased by US$22.5 million or 24.4% to US$114.9 million in 2011. The increase was due to a number of factors including increased demand from both regulated and unregulated customers and tariff adjustments. Turnover at Aguas de Antofagasta is principally denominated in Chilean pesos, and so benefited from the strengthening of that currency against the US dollar compared with 2010. Aguas de Antofagasta also benefitted from smaller increases in revenues from construction and engineering services.

Operating costs (excluding depreciation and amortisation)

Operating costs (excluding depreciation and amortisation) amounted to US$2,415.5 million (2010 - US$1,805.2 million), an increase of US$610.3 million. This was due to the increase in volumes mainly at Esperanza and to a lesser extent Los Pelambres.

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

Operating costs at the mining division increased by US$587.0 million to US$2,271.9 million in 2011, an increase of 34.8%.

Of this increase, US$386.8 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 by-product revenues) associated with these increased volumes was US$1,330.0 million.

US$128.9 million is attributable to unit costs, principally due to the increase in onsite 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 124.3 cents per pound in 2010 to 141.5 cents per pound. This increase reflected the impact on average cash cost of the ramp-up process at Esperanza and different cost pressures across the operations. Cash costs are analysed by mine in the Business Review on pages 8 to 13.

Charges to the income statement for mine closure rehabilitation costs were US$15.5 million compared with US$69.5 million in 2010, a year-on-year reduction of US$54.0 million. In 2010, operating costs at Los Pelambres included a one off US$65.2 million charge relating to the increase in the closure provision following an updated assessment during 2010 by external consultants, with the provision increasing due to factors including an increase in the scale of the operation, updated cost assumptions, and an acceleration of the timing of certain closure activities relating to the Quillayes tailings dam.

Exploration and evaluation costs increased by US$116.4 million to US$215.4 million in 2011 (2010 - US$99.0 million). This reflected the increased level of exploration evaluation activity across the Group. The higher level of expenditure was due to a number of factors, including significant spending on the pre-feasibility study in the Centinela district (which began in 2010 and was completed at the end of the third quarter of 2011) and higher expenditures at both Los Pelambres and Twin Metals where scoping studies were completed and pre-feasibility studies initiated during the year. In addition, exploration activity both in the Group's core districts and generally in Chile and internationally increased compared with 2010.

Net costs in respect of corporate and other items were higher at US$55.3 million (2010 - US$46.4 million) mainly as a result of the increased level of costs associated with supporting the Group's longer term growth plans at the corporate centre.

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

Operating costs at the transport division increased by US$7.9 million to US$102.8 million. This was mainly due to increased operating costs associated with increased rail volumes and longer distances under the mix of contracts compared with the previous year, and to a lesser extent cost pressures. These were partly offset by a slight decrease in the severance provision following a review in the year.

Operating costs at Aguas de Antofagasta increased by US$15.4 million to US$40.8 million. The increase mainly related to the increased costs associated with the higher volume of water sold. The higher proportional increase in costs relative to revenues was mainly due to the fact that increased demand was met by bringing into operation the final module of the desalination plant at the city of Antofagasta, which is higher cost to operate compared with water available supplied from surface sources.

EBITDA and operating profit from subsidiaries and joint ventures

EBITDA

EBITDA (earnings before interest, tax, depreciation, and amortisation) from subsidiaries and joint ventures increased by US$888.6 million or 32.1% to US$3,660.5 million in 2011 (2010 - US$2,771.9 million).

EBITDA at the mining division increased by 32.7% or from US$2,645.1 million in 2010 to US$3,510.4 million in 2011. As explained above, this was mainly due to the profit earned on increased volumes of metal sold, and to a lesser extent improved metal prices. This was partly offset by higher unit costs and increased exploration and evaluation spend.

EBITDA at the transport division increased by US$16.2 million to US$76.0 million in 2011, with the increased revenue as explained above partly offset by associated increased operating costs. Aguas de Antofagasta contributed US$74.1 million in 2011 compared to US$67.0 million last year, mainly reflecting the increased volumes and revenue as explained above which were partly offset by increased operating costs.

Depreciation, amortisation and provision against carrying values of intangibles and property, plant and equipment

Depreciation and amortisation increased by US$154.7 million to US$431.7 million in 2011, mainly due to the start-up of Esperanza, where depreciation amounted to US$134.8 million. The loss on disposal of property, plant and equipment in 2011 was US$14.9 million, compared with US$9.8 million in the prior year.

In 2011 a US$140.5 million provision against the carrying value of intangible assets and property, plant and equipment has been recorded within total operating costs relating to the Group's joint venture Tethyan Copper Company Pty. Ltd. During 2010 the reversal of the remaining US$109.4 million impairment originally recognised at El Tesoro in the year ended 31 December 2008 was recorded as an exceptional credit within total operating costs. Further details of these items are given in Note 26 to the preliminary results announcement.

Operating profit from subsidiaries and joint ventures

As a result of the above factors, operating profit from subsidiaries and joint ventures (excluding exceptional items) increased by 29.3% to US$3,213.9 million. Including exceptional items, operating profit from subsidiaries and joint ventures increased by 18.5% to US$3,073.4 million.

Share of income/(net loss) from associates

The Group's share of net profit from its associates was US$24.0 million (2010 - net loss of US$2.6 million), an increase of US$26.6 million. This was comprised of a net profit of US$21.7 million (2010 - net loss of US$2.0 million) from its 40% interest in Inversiones Hornitos, and a net profit of US$2.3 million (2010 - net profit of US$1.9 million) from its 30% interest in ATI. The increase in the share of income related to the Group's 40% interest in Inversiones Hornitos largely reflects the Group's US$18.8 million share of compensation received by the associate for lost profits from the main contractor as a result of delays to the construction. In 2010 the Group's share of net loss from its associates included a net loss of US$2.5 million from its 17.8% interest in Sunridge which was sold at the end of 2010.

Net finance expense

Net finance expense in 2011 was US$21.2 million, compared with a net finance expense of US$18.7million in 2010.

Interest receivable increased from US$16.5 million in 2010 to US$23.3 million in 2011, reflecting slight higher average cash balances and rates achieved, and the inclusion of interest income from Esperanza which was previously capitalised while the project remained under construction.

Interest expense increased from US$18.3 million in 2010 to US$93.2 million in 2011, mainly due to the start-up of Esperanza (where interest expense in 2011 was US$68.7 million) as the borrowing costs relating to that operation had been capitalised while it was under development. Interest costs also reflect the full year impact of other borrowings, principally those taken out by El Tesoro in the second half of 2010 to finance the acquisition of Mirador from Antofagasta Minerals S.A.

Other finance items comprised a gain of US$48.7 million (2010 - loss of US$16.9 million). A gain of US$49.1 million (2010 - loss of US$16.1 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 gains included in finance items were US$14.2 million in 2011, compared with a gain of US$9.6 million in the previous year. A loss on foreign exchange derivatives of US$3.3 million (2010 - loss of US$6.1 million) is also included in other finance items. An expense of US$11.3 million (2010 - 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 increased by US$503.0 million or 19.5% to US$3,076.2 million in 2011 compared with US$2,573.2 million in 2010.

Income tax expense

The rate of first category (i.e. corporation) tax in Chile increased to 20% in 2011 from 17% in 2010 due to amendments to Chilean mining tax introduced by the Chilean Government following the severe earthquake which affected Chile in 2010.

Los Pelambres, El Tesoro, Michilla and Esperanza are also subject to a mining tax (royalty) which is tax deductible (i.e. an allowable expense in determining liability to first category tax). On 12 January 2011 the Group voluntarily elected to accept amendments to the mining tax as permitted pursuant to a law enacted in Chile on 21 October 2010. Between 2010 to 2012 production from Los Pelambres, Esperanza, El Tesoro and Michilla mines 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 deposit 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%.

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. During the year ended 31 December 2011 the effective tax rate of withholding tax was approximately 18% of the amount remitted or expected to be remitted.

The tax charge for the year was US$946.2 million and the effective tax rate was 30.8%. This rate varies from the standard rate principally due to the effect of the mining tax which resulted in a charge of US$199.8 million (representing an effective tax rate of 6.5%) and the provision of withholding tax of US$127.0 million (representing an effective tax rate of 4.1%).

In 2010 the total tax charge was US$752.5 million and the effective tax rate was 29.2%. This rate varied from the standard rate of 17% for that year principally due to the effect of the mining tax which resulted in a charge of US$157.7 million (representing an effective tax rate of 6.1%) and the provision of withholding tax of US$160.9 million which represented an effective tax rate of 6.3%). The higher rate of withholding tax provision was mainly due to the higher level of dividends declared in respect of that year.

Non-controlling interests

Profit for the financial year attributable to non-controlling interests was US$893.4 million, compared with US$768.9 million in 2010. The increase is mainly due to the effect of the increased Group profit in 2011 in comparison to 2010.

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 2011 financial year attributable to equity shareholders of the Company was US$1,236.6 million compared with US$1,051.8 million in 2010. Accordingly, basic and diluted earnings per share were 125.4 cents in 2011 compared with 106.7 cents in 2010, an increase of 17.6%.

Profit for the 2011 financial year attributable to equity holders of the Company excluding exceptional items was US$1,377.1 compared with US$991.3 million in 2010. Basic and diluted earnings per share excluding exceptional items (detailed in Note 3 to the preliminary results announcement) were 139.7 cents in 2011 compared with 100.6 cents in 2010, an increase of 38.9%.

Dividends

Details of dividends proposed in relation to 2011, and the Board's policy regarding dividends, are set out in the Directors' comments on page 6.

Capital Expenditure

Capital expenditure decreased by US$612.9 million from US$1,385.8 million in 2010 to US$772.9 million in 2011. This was mainly due to significantly lower capital expenditures at Esperanza of US$259.0 million 2010 - (US$1,058.6 million) reflecting the completion of the majority of the construction of the mine by early 2011.

Details of capital expenditure by mine are provided in the Business Review. The capital expenditure of US$772.9 million differs to purchases of property, plant and equipment in the cash flow statement of US$666.6 million, mainly due to the US$46.1 non-cash portion of the acquisition of the assets of Franconia detailed in Note 24 to the preliminary results announcement and the acquisition of leased assets of US$40.0 million.

Derivative Financial Instruments

The Group periodically uses derivative financial instruments to reduce exposure to commodity price movements.

At 31 December 2011 the Group had min/max instruments for 84,300 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 January 2012 was 24.2 months. The instruments had a weighted average floor of 344.9 cents per pound and a weighted average cap of 448.0 cents per pound. This represents approximately 80% of Michilla's forecast production for 2012, and approximately 5% of Group copper production for that year. The Group's exposure to the copper price will be limited by the extent of these instruments.

At 31 December 2011 the Group had futures contracts for 11,000 tonnes of copper production at El Tesoro covering a total period up to 31 January 2013. The weighted average remaining period covered by the arbitrage hedges calculated with effect from 1 January 2012 was 7.6 months. The instruments had a weighted average price of 361.0 US cents per pound.

Details of the mark-to-market position of these instruments at 31 December 2011, together with details of any interest and exchange derivatives held by the Group, are given in Note 5(b) to the preliminary results announcement.

The Group periodically uses foreign exchange derivatives to cover expected operational cash flow needs. At 31 December 2011 the Group had cross currency swaps with a principal value of US$166.2 million relating to Michilla to swap Chilean pesos for US dollars, at an average rate of Ch$508.2/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 January 2012 is 9.9 months. Between 31 December 2011 and 31 January 2012 US$7.4 million of cross currency swaps matured.

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

Commodity Price Sensitivities

Based on 2011 production volumes and without taking into account the effects of provisional pricing and any hedging activity, a change in commodity prices would affect turnover and profit before tax and earnings per share as follows:

Cash Flows

The Group cash flow statement is presented on page 34. The key features are summarised in the following

table.

Cash flows from operations were US$3,552.5 million in 2011 compared with US$2,433.9 million last year, an increase of 46.0%. This reflected EBITDA for the year of US$3,660.5 million (2010 - US$2,771.9 million) adjusted for a net working capital increase of US$108.0 million (2010 - increase of US$338.0 million). The working capital movements relate mainly to an increase in inventory levels with the start-up of Esperanza and Run-of-Mine production at El Tesoro partly offset by an increase in closure provisions.

Cash tax payments in the year were US$1,018.1 million (2010 - US$427.9 million), comprising corporation tax of US$586.5 million (2010 - US$306.0 million), mining tax of US$213.1 million (2010 - US$74.7 million) and withholding tax of US$218.5 million (2010 - US$47.2 million). These amounts differ from the current tax charge in the consolidated income statement of US$965.3 million (2010 - US$631.5 million) mainly because cash tax payments for corporation tax and the mining tax partly comprise lower monthly payments on account in respect of current year profits and partly comprise the settlement of the outstanding balance for the previous year.

The purchase of available for sale investments of US$27.3 million relates to the purchase of shares in Duluth Metals Limited, Eurasian Minerals Incorporated, Stratex International plc and Sipa Resources Limited. More details of the acquisitions are included in Note 15 to the preliminary results announcement.

Cash disbursements relating to capital expenditure in 2011 were US$666.6 million compared with US$1,301.8 million in 2010. This included expenditure of US$243.0 million relating to Esperanza (2010 - US$1,058.6 million), US$151.3 million (2010 - US$134.3 million) relating to Los Pelambres and US$115.1 million (2010 - US$27.7 million) relating to El Tesoro.

Dividends (including special dividends) paid to ordinary shareholders of the Company this year were US$1,183.0 million (2010 - US$236.6 million), which related to the final dividend declared in respect of the previous year and the interim dividend in respect of the current year, and reflected the increased dividend per share paid out during 2011 compared with 2010.

Dividends paid by subsidiaries to non-controlling shareholders were US$741.0 million (2010 - US$702.7 million), principally due to increased distributions by Los Pelambres and El Tesoro.

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

Financial Position

At 31 December 2011 the Group had combined cash, cash equivalents and liquid investments of US$3,280.0 million (2010 - US$3,541.6 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$3,041.1 million (2010 - US$3,393.8 million).

New borrowings in the year amounted to US$241.3 million (2010 - US$1,022.0 million), mainly due to new short-term borrowings at Esperanza of US$200.0 million and new finance leases at Los Pelambres of US$36.1 million. Repayments of borrowings and finance leasing obligations in the year were US$314.5 million, relating mainly to repayment of the Esperanza short-term borrowings of US$170.0 million and to a lesser extent regular repayments on existing loans at Los Pelambres of US$134.1 million (2010 - US$459.8 million relating mainly to repayment of Los Pelambres short-term borrowings and to a lesser extent regular payments on existing loans).

Total Group borrowings at 31 December 2011 were US$2,140.3 million (2010 - US$2,196.5 million). Of this, US$1,456.3 million (2010 - US$1,486.8 million) is proportionally attributable to the Group after excluding the non-controlling interest shareholdings in partly-owned operations.

Balance Sheet

Long-term provisions increased from US$244.4 million at 31 December 2010 to US$321.1 million at 31 December 2011. During the year ended 31 December 2011 there has been a charge of US$15.5 million to operating profit in relation to increases to the rehabilitation provision, and US$56.7 million capitalised, principally in relation to the decommissioning provision at Los Pelambres following an updated review.

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 28 to the preliminary results announcement.

In 2011 the currency translation loss recognised in net equity of US$25.1 million resulted mainly from the weakening in the Chilean peso during the year from Ch$468.01 = US$1 at the start of 2011 to Ch$519.2 = US$1 at the end of 2011. In 2010 the currency translation gain recognised in net equity of US$27.1 million resulted mainly from the strengthening in the Chilean peso during the year from Ch$507 = US$1 at the start of 2010 to Ch$468 = US$1 at the end of 2010.

Going Concern

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

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 preliminary results announcement.

Cautionary Statement about forward looking statements

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

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

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

Consolidated Income Statement

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.

The exceptional item included within "Total operating costs" in respect of the year ended 31 December 2010 was the US$109.4 million reversal of an impairment charge relating to property, plant and equipment at El Tesoro. Excluding this exceptional item, operating profit from subsidiaries and joint ventures in 2010 was US$2,485.1 million and profit before tax was US$2,463.8 million. Further details of these exceptional items are set out in Note 3. 

Consolidated Statement of Comprehensive Income 

Consolidated Statement of Changes in Equity

Consolidated Balance Sheet

The preliminary information was approved by the Board of Directors on 12 March 2012.

Consolidated Cash Flow Statement

Notes

a) General information

This preliminary results announcement is for the year ended 31 December 2011. While the financial information contained in this preliminary results announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. For these purposes, IFRS comprise the Standards issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") that have been endorsed by the European Union. The Group will send its full financial statements that comply with IFRS to shareholders in April 2012.

The financial information contained in this preliminary results announcement has been prepared on the going concern basis. Details of the factors which have been taken into account in assessing the Group's going concern status are set out on page 28 of the Financial Review.

This preliminary results announcement does not constitute the Group's statutory accounts as defined in section 434 of the Companies Act 2006 (the "Act") but is derived from those accounts. The statutory accounts for the year ended 31 December 2011 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 8 June 2011. The auditors have reported on those accounts and their report was unqualified, with no matters by way of emphasis, and did not contain statements under section 498(2) of the Act (regarding adequacy of accounting records and returns) or under section 498(3) (regarding provision of necessary information and explanations).

The information contained in this announcement for the year ended 31 December 2010 also does not constitute statutory accounts. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, with no matters by way of emphasis, and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

The information contained in Note 31 of this preliminary results announcement is not derived from the statutory accounts for the years ended 31 December 2010 and 2011 and is accordingly not covered by the auditor's reports.

b) Accounting policies and adoption of new accounting standards

This preliminary results announcement is derived from the statutory accounts for the year ended 31 December 2011, which have been prepared on the basis of accounting policies consistent with those applied in the financial statements for the year ended 31 December 2010, except as set out below.

In the current financial year the Group has adopted the following new standards:

IFRS 3 Business Combinations (2008). As part of Improvements to IFRSs issued in 2010, IFRS 3 was amended to clarify that the measurement choice regarding non-controlling interests at the date of acquisition is only available in respect of non-controlling interests that are present ownership interests and that entitle their holders to a proportionate share of the entity's net assets in the event of liquidation. All other types of non-controlling interests are measured at their acquisition-date fair value, unless another measurement basis is required by other Standards. In addition, IFRS 3 was amended to provide more guidance regarding the accounting for share-based payment awards held by the acquiree's employees. Specifically, the amendments specify that share-based payment transactions of the acquiree that are not replaced should be measured in accordance with IFRS 2 Share-based Payment at the acquisition date ('market-based measure'). The amendments are effective for annual periods beginning on or after 1 July 2010. The Group is of the opinion that the amendment does not affect any business combinations which have occurred since the amendments became effective.

There are no other Standards or Interpretations which apply or are expected to apply for the first time for the year ended 31 December 2011 which are expected to have any material impact on the Group.

2. Total profit from operations and associates

Detail of exceptional items are given in Note 3. Included in share of income from associates is US$18.8 million for the Group's share of proceeds received in Inversiones Hornitos S.A. relating to compensation for lost profits from the main contractor as a result of delays to the construction.

3. Exceptional items

Exceptional items are those material items of income and expense which are non-regular and non-operational. The exceptional items in the year ended 31 December 2011 and 31 December 2010 and its impact on the results are set out below.

2011 - provision against the carrying value of assets

The US$140.5 million provision against the carrying value of assets relates to US$120.7 million of intangible assets and US$19.8 million of property, plant and equipment relating to the Group's joint venture Tethyan Copper Company Pty. Ltd. Further details are set out in Note 26.

2010 - reversal of impairment

In the year ended 31 December 2010 the reversal of the remaining US$109.4 million impairment originally recognised at El Tesoro in the year ended 31 December 2008 has been recorded as a credit within total operating costs, following a review undertaken in light of the prevailing commodity environment. The recoverable amounts in the review were determined by a value in use calculation prepared using management's forecasts as to future commodity prices, operating costs and production volumes. The present value of the forecast future cash flows was calculated using a discount rate of 7.6% (initial impairment review - 9.9%).

4. Segmental analysis

The Group's reportable segments are as follows:

·; Los Pelambres

·; Esperanza

·; El Tesoro

·; Michilla

·; 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. Los Pelambres produces primarily copper concentrate and molybdenum as a by-product. Esperanza produces primarily copper concentrate and 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 year ended 31 December 2011