Annual Report 2007 - Antofagasta plc

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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
CHAIRMAN’S REVIEWProduction of molybdenum, which is a by-product,increased to 10,200 tonnes compared to 9,800 tonnesin 2006, due to higher molybdenum ore grades whichrose from 0.028 per cent to 0.030 per cent. Revenuefrom molybdenum sales is treated as a credit againstcash costs and contributed to the negative cash costof US 10.8 cents per pound in 2007 compared tothe positive cash cost of US 16.4 cents per poundin 2006.Selected data for Los Pelambres326.729.3•8.7350.67.9•322.8 324.2(17.1)•7.9 8.716.4•289.9(10.8)•9.8 10.2Global economic pressures which affected energy,fuel and oil costs and, indirectly, equipment leasingand maintenance costs, were partially offset bylower TC/RC’s enabling Los Pelambres to holdcost increases to a minimum.‘03 ‘04 ‘05 ‘06 Ô07Copper production (‘000 tonnes)Molybdenum production (‘000 tonnes)• Cash costs (US cents per pound)The plant expansion project started in mid-2005was completed at the beginning of 2007 at a cost ofUS$192 million and the plant has been operating sincethen at the newly installed capacity of around 130,000tonnes per day.Copper production in 2008 is expected to beapproximately 330,000 tonnes with a grade of0.79 per cent copper – up on 2007 because of theimproved grade and the smaller percentage of primaryore while molybdenum production is expected todecrease to 6,800 tonnes in accordance with themine plan.125.9 128.1 127.4126.3113.3• •0.910.88• ••0.80 0.810.71‘03 ‘04 ‘05 ‘06 ‘07Plant throughput (000’ tonnes per day of ore)• Copper grade (per cent)The second stage of a two year explorationprogramme to identify additional resources beyondthe present 2.9 billion tonnes has been substantiallycompleted. The results of this programme in thearea to the south-east of the open pit have beenencouraging and additional drilling will be required todefine the resource and to evaluate its economics inrelation to the long-term mine plan of Los Pelambres.Negotiations with the mine and plant unionsrepresenting the whole labour force were dueto take place in September 2007 and July 2008respectively but in fact, contracts were agreedahead of time with both unions for up to four yearsreflecting the excellent relations between LosPelambres and its work force.Antofagasta plc Annual Report and Financial Statements 2007 9
Page 1: ANTOFAGASTAAnnual Report and Financ
Page 4 and 5: Highlights• Net earnings up 2.1%
Page 6 and 7: Highlights continued471.8 498.4 467
Page 8 and 9: CHAIRMAN’S REVIEWChairman’s Rev
Page 12 and 13: A R G E N T I N ACHAIRMAN’S REVIE
Page 24 and 25: Financial ReviewFINANCIAL REVIEWBas
Page 26 and 27: Financial Review continuedFINANCIAL
Page 38 and 39: Corporate Social ResponsibilityCSR
Page 41 and 42: TransportationThe Antofagasta Railw
Page 43 and 44: Other international and national st
Page 45 and 46: Organisations of which Group compan
Page 47 and 48: Compensation, recruitment and reten
Page 49 and 50: CSR REPORTEl Tesoro promotes a cult
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Page 53 and 54: Native vegetation at the Choapa Val
Page 55 and 56: existing naturally in the Andean re
Page 57 and 58: saponaria), Espino (Acacia caven),
Page 59 and 60: • The “Together We Can Grow Mor
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Awards and RecognitionDuring the ye
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special dividend. The total cost of
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EnvironmentThe Group seeks to ensur
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Antofagasta Railway Company plc (ra
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Information and professional develo
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Company, for safeguarding the asset
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Statement of Compliance withthe Det
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Non-Executive Directors’ feesThe
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Audited InformationDirectors’ rem
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Basis of audit opinionWe conducted
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Consolidated Balance SheetAt 31 Dec
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Consolidated Statement of Changes i
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2 Principal Accounting Policiesa) A
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2 Principal Accounting Policies con
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4 Revenue and Total Profit from Ope
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5 Segment Information continueda) P
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5 Segment Information continueda) P
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6 Profit for the YearProfit for the
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8 Net Finance IncomeNet finance inc
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11 DividendsAmounts recognised as d
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13 Property, Plant and EquipmentLan
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16 Investment in Associate2007 2006
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19 Inventories2007 2006US$m US$mRaw
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22 Borrowings continued(ii)Other lo
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22 Borrowings continuedd) Maturity
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24 Financial Instruments and Financ
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26 Deferred Tax continuedAt 31 Dece
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29 Minority InterestsThe minority i
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33 Notes to the Consolidated Cash F
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37 Related Party Transactions conti
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38 Contingent Assets and Contingent
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40A Basis of Preparation of the Bal
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40D Subsidiaries continueda) Invest
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40G Independent Auditors’ Report
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Dividends to Ordinary ShareholdersD
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Mining Production and Sales, Transp
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A ‘Measured Mineral Resource’ i
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Notes to Ore Reserve and Mineral Re
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GDPGross Domestic Product.Governmen
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TC/RCTreatment and refining charges
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Directors and AdvisorsDirectorsJ-P
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