Annual Report 2007 - Antofagasta plc

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