Annual Report 2007 - Antofagasta plc

CHAIRMAN’S REVIEWChairman’s Review continuedMolybdenum marketMolybdenum prices increased steadily during2007, rising from US$25.0 per pound in Januaryto US$33.1 per pound in June. During the secondhalf, prices ranged between US$31 and US$33 perpound averaging US$30.2 per pound for the year– an improvement of 21.8 per cent over the averageprice in 2006 of US$24.8 per pound. The strengthand steadiness of the molybdenum price throughoutthe year reflected the solid fundamentals supportingthe market.The supply and demand balance for 2007 was in adeficit of around 5 million pounds as a result of severalfactors including the strong demand from the stainlesssteel and catalyst sectors, continued robust demandfrom China, the large number of pipeline projects andincreased activity in the oil and gas sector.As molybdenum is primarily a by-product of copperproduction, its supply cannot easily respond todemand despite the incentive of the recent extendedperiod of high prices.The consensus of analysts therefore is that the marketwill continue in deficit until at least 2009 and althoughsome additional production will become available, theoutlook for molybdenum prices remains very positive.Most analysts concur that there is potential for pricesto match or possibly exceed their 2007 levels during2008.US$per pound35.030.025.020.015.010.05.00Molybdenum market price3.42.72.6 2.416.23.7 5.332.024.830.233.1MiningAntofagasta Minerals S.A. – AMSA(100 per cent owned)AMSA is the corporate centre for the Group’smining division with responsibility for evaluating anddeveloping business opportunities across the Group.It is also entrusted with developing the Group’smining assets, seeking synergies and introducingbest practice into its mining operations. AMSA alsoprovides legal and financial services to the Group’smining, transportation and water operations. AMSAmanages the marketing, sales and any hedging ofthe Group’s copper concentrates, cathodes andmolybdenum.Los Pelambres (60 per cent owned)Los Pelambres produced excellent results in 2007which were only marginally below the record resultsof 2006. The main factors were historically strongcopper and molybdenum prices combined withgood production figures, together with appropriatemeasures taken to contain cost pressures.Operating profits were US$2,098.6 million comparedto US$2,223.7 million in 2006 as higher copper andmolybdenum prices and higher molybdenum volumeswere offset by lower copper production, lowerprovisional pricing adjustments and higher on-sitecosts. EBITDA reached US$2,178.0 million comparedto US$2,297.0 million in 2006 and Los Pelambres,after considering its capital expenditure requirementfor 2008, paid dividends to its shareholders ofUS$1,606.4 million compared to US$1,450.0 millionin 2006, an increase of 10.8 per cent.Production of payable copper decreased in 2007 to289,900 tonnes compared to 324,200 tonnes in 2006.This was in line with the long term mine plan withore grades dropping from 0.81 per cent in 2006 to0.71 per cent. Throughput at the crusher was lowerdue to the higher proportion of harder primary oretreated in 2007, and this contributed to the declinein copper production.‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08**Represents first two months of 2008 only8Antofagasta plc Annual Report and Financial Statements 2007