Annual Report 2007 - Antofagasta plc

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Financial Review continuedFINANCIAL REVIEWGoing ConcernAfter making appropriate enquiries, the Directorsconsider that the Company and the Group haveadequate resources to continue in operationalexistence for the foreseeable future and that it isappropriate to adopt the going concern basis inpreparing the financial statements. In forming thisopinion, the Directors have taken into account thefinancial position of the Group including cash balances,borrowing facilities in place, the current copper priceand market expectations in the medium-term.Additional Information Relating to theFinancial ReviewKey performance indicators – definitions andcross-references to reviews and explanationsTurnoverTurnover represents the value of goods and servicessupplied to third parties during the year. This principallycomprises sales of copper concentrate, coppercathodes and by-products (principally molybdenumconcentrate) from the mining division, transport ofcargo by road and rail by the transport division, andsupply of water to domestic and industrial users bythe water division.Turnover at the mining division includes the effectof final pricing and mark-to-market adjustments toprovisionally priced concentrate and cathode sales.Following the application of the hedge accountingprovisions of IAS 39 “Financial Instruments:Recognition and Measurement” with effect from1 January 2007, realised gains and losses oncommodity derivatives recognised in the incomestatement have been recorded within turnover.Prior to 1 January 2007, gain and losses on commodityderivatives were recognised within other operatingincome or expense. Turnover is stated net of tollingcharges for concentrate sales.An explanation of turnover is contained on pages25 and 26 of the Financial Review and analysesof turnover by business segment and geographicalsegment are contained in Notes 5(a)(i) and 5(b)(i)respectively to the financial statements. Detailsof pricing adjustments and gains and losses oncommodity derivatives are given in Notes 24(d)and 24(e) to the financial statements.EBITDAEBITDA refers to Earnings Before Interest, Tax,Depreciation and Amortisation. EBITDA is calculatedby adding back depreciation, amortisation and profitor loss on disposals of property, plant and equipmentand impairment charges to operating profit fromsubsidiaries and joint ventures.An explanation of EBITDA, including a reconciliationto operating profit from subsidiaries and joint ventures,is contained on page 26 of the Financial Review. Ananalysis of EBITDA by business segment is containedin Note 5(a)(i) to the financial statements.Earnings per share (EPS)Earnings per share is calculated as the net profitattributable to equity holders of the Company, dividedby the number of ordinary shares in issue.Details of earnings per share are given on page 28of the Financial Review and in Note 10 to the financialstatements.Capital expenditureCapital expenditure refers to amounts capitalisedin respect of the purchase of property, plant andequipment, including the asset purchase price, directlyattributable costs and related interest. The capitalexpenditure figures are stated on an accruals ratherthan a cash basis.An explanation of capital expenditure is given on page29 of the Financial Review and analyses of capitalexpenditure by business segment and type of assetare given in Notes 5(a)(ii) and 13 respectively to thefinancial statements.Net cashNet cash represents cash and cash equivalents lessborrowings. Cash and cash equivalents comprise cashon hand, deposits held on call with banks and highlyliquid investments that are readily convertible intoknown amount of cash and which are subject toinsignificant risk of changes in value, net of bankoverdrafts which are repayable on demand.Borrowings include loans, finance leases andpreference shares.An explanation of the net cash position is given onpage 30 of the Financial Review and analyses of cash32Antofagasta plc Annual Report and Financial Statements 2007
and cash equivalents and borrowings are given inNotes 21, 22 and 33(b) to the financial statements.Copper and molybdenum productionCopper and molybdenum production comprisesthe concentrate and cathode output of the Group’sthree operating mines, Los Pelambres, El Tesoroand Michilla. Los Pelambres produces copper andmolybdenum concentrates, and the figures for LosPelambres are expressed in terms of payable metalcontained in concentrate. The copper concentrate alsocontains gold and silver, for which Los Pelambres iscredited when the concentrate is sold. El Tesoro andMichilla produce copper cathodes with no by-products.An explanation of Group production is given on pages22 and 23 of the Financial Review and further detailsof throughput, grades and recoveries at each mine aregiven in the Mining Production and Sales, Transportand Water Statistics on page 143.Realised pricesRealised copper prices are determined by comparingrevenues from copper sales (grossed up for tollingcharges for concentrates) with sales volumes foreach mine in the year, and reflect the effective pricesachieved by each mine. Realised molybdenum pricesare determined on a similar basis. Following theapplication of the hedge accounting provisions ofIAS 39 “Financial Instruments: Recognition andMeasurement” with effect from 1 January 2007,realised prices reflect the effect of realised gains andlosses on commodity derivatives, which are recordedwithin turnover. Prior to 1 January 2007 realisedprices did not reflect the effects of gain and losses oncommodity derivatives, which were recognised withinother operating income or expense.An explanation of realised prices is given on pages 23and 24 of the Financial Review.Cash costsCash costs are a measure of the cost of operationalproduction expressed in terms of US cents per poundof payable copper produced. Cash costs are stated netof by-product credits and include tolling charges forconcentrates at Los Pelambres. Cash costs excludedepreciation, financial income and expenses, hedginggains and losses, exchange gains and losses andcorporation tax for all three mines. By-productcalculations do not take into account unrealisedmark-to-market gains for molybdenum at thebeginning or end of each year.An explanation of cash costs is given on pages 24and 25 of the Financial Review.Risk factorsIntroductionThe Group is exposed to a range of risks anduncertainties which may affect it. These risks includestrategic, commercial, operational, regulatory andfinancial risks. A summary of the key risks facing theGroup is set out below. There may be additional risksunknown to the Group and other risks, currentlybelieved to be insignificant, could turn out to besignificant. These risks, whether they materialiseindividually or simultaneously, could significantly affectthe Group’s business and financial results. They shouldalso be considered in connection with any forwardlooking statements in this document and thecautionary statement on page 35.Financial risksThe principal financial risks to which the Groupis exposed include risks relating to interest rates,commodity prices, credit, cash flow and liquidity.Details of these risks are contained in the TreasuryManagement and Hedging section on page 31 andin Note 24(c) to the financial statements.Economic environmentCommodity prices, and demand for the Group’sproducts, are influenced strongly by world economicgrowth. Commodity prices can fluctuate widely andcould have a material and adverse impact on theGroup’s revenues, earnings, cash flows and financialposition.ExplorationThe Group seeks to identify new mineral resourcesthrough exploration. There is no guarantee, however,that exploration activities will identify viable mineralresources. A failure to discover new resources orenhance existing resources could negatively affectthe Group’s results and prospects.FINANCIAL REVIEWAntofagasta plc Annual Report and Financial Statements 2007 33
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
Page 51 and 52: • health and safety issues are mo
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
Page 61 and 62: Awards and RecognitionDuring the ye
Page 63 and 64: special dividend. The total cost of
Page 65 and 66: EnvironmentThe Group seeks to ensur
Page 67 and 68: Antofagasta Railway Company plc (ra
Page 69 and 70: Information and professional develo
Page 71 and 72: Company, for safeguarding the asset
Page 73 and 74: Statement of Compliance withthe Det
Page 75 and 76: Non-Executive Directors’ feesThe
Page 77 and 78: Audited InformationDirectors’ rem
Page 79 and 80: Basis of audit opinionWe conducted
Page 81 and 82: Consolidated Balance SheetAt 31 Dec
Page 83 and 84: Consolidated Statement of Changes i
Page 85 and 86:
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
Page 111 and 112:
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
Page 133 and 134:
37 Related Party Transactions conti
Page 135 and 136:
38 Contingent Assets and Contingent
Page 137 and 138:
40A Basis of Preparation of the Bal
Page 139 and 140:
40D Subsidiaries continueda) Invest
Page 141 and 142:
40G Independent Auditors’ Report
Page 143 and 144:
Dividends to Ordinary ShareholdersD
Page 145 and 146:
Mining Production and Sales, Transp
Page 147 and 148:
A ‘Measured Mineral Resource’ i
Page 149 and 150:
Notes to Ore Reserve and Mineral Re
Page 151 and 152:
GDPGross Domestic Product.Governmen
Page 153 and 154:
TC/RCTreatment and refining charges
Page 155 and 156:
Directors and AdvisorsDirectorsJ-P
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Annual Report 2007 - Antofagasta plc

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