Annual Report 2007 - Antofagasta plc

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Corporate GovernanceCORPORATE GOVERNANCEIntroductionAntofagasta plc (“Antofagasta”) has an uncommonownership structure for a company listed on theLondon Stock Exchange. The E. Abaroa Foundation,an entity in which members of the Luksic family areinterested, controls 60.65% of the ordinary sharecapital and 94.12% of the preference share capitalof the Company through two investment vehicles,Metalinvest Establishment and KupferbergEstablishment. Aureberg Establishment, which iscontrolled by Antofagasta’s Chairman, Mr. J-P Luksic,holds 4.26% of the ordinary share capital of theCompany. While incorporated in the United Kingdomand listed on the London Stock Exchange, the Group’sbusinesses, which comprise mining, transport andwater distribution, are principally located in Chile,the largest copper-producing country in the world.Antofagasta’s Board is committed to managing theoperations of the Group with a view to maximisingvalue for all shareholders. The Board currently hasnine members, comprising an Executive Chairmanand eight Non-Executive Directors. Two of the nineDirectors (including the Chairman) are members ofthe Luksic family. Seven of the Directors, includingthe Chairman, are based in Chile, where the Group’soperations are principally located; one Director isbased in the United Kingdom, where the Company isincorporated and listed on the London Stock Exchange;and one Director is based in the United States.The day-to-day operations of the Group are carriedon through the boards of each division of the Group,Antofagasta Minerals S.A. (mining), AntofagastaRailway Company plc (FCAB – railway and othertransport services) and Aguas de Antofagasta S.A.(water distribution). Each division is headed by a chiefexecutive officer who reports to his divisional boardand the Chairman of the Group. The AntofagastaBoard oversees these divisional boards and providesstrategic direction.In its consideration of Corporate Governance matters,the Board is mindful of the principles set out in theCombined Code on Corporate Governance issued bythe Financial Reporting Council in June 2006 (“theCombined Code”). However, given the ownershipstructure and asset base of the Group, the Boardbelieves that full adherence to the Combined Codeis not practicable. Nevertheless, the Board considersthat its structure and balance (as set out in moredetail below under the heading “Directors”) providean appropriate basis for ensuring its effectivenessand the protection of the interests of all shareholdersin the Company.The Board describes below how it applied the corporategovernance principles contained in the Combined Codeduring 2007. Two areas where the Company did notcomply with the detailed Combined Code provisionsare set out at the end of this report under the heading“Statement of Compliance with the DetailedProvisions of the Combined Code”.DirectorsThe BoardThe Directors collectively have responsibility for theconduct of the Group’s business. The Board, whichmet seven times during 2007, comprises an ExecutiveChairman and eight Non-Executive Directors, six ofwhom are considered by the Board to be independent.There is a schedule of matters specifically reserved forthe Board. The Board is responsible for:• providing leadership;• setting the Group’s strategic objectives and keypolicies;• ensuring that appropriate resources are in placeto enable the Group to meet its objectives;• reviewing the Group’s performance; and• overseeing the Group’s internal control systems.The Chairman will always attempt to persuade theBoard to act as a single team by obtaining consensusat Board meetings but, in exceptional circumstances,decisions will be taken by majority. The agenda forBoard meetings are set by the Chairman inconsultation with the other Directors.Responsibility for developing and implementing theGroup’s strategic and financial objectives is delegatedto the senior management of the Group. Accordingly,the boards of Antofagasta Minerals S.A. (mining), the64Antofagasta plc Annual Report and Financial Statements 2007
Antofagasta Railway Company plc (railway and othertransport services) and Aguas de Antofagasta S.A.(water distribution) meet monthly to consider strategic,operational and risk management issues in more detail.There is substantial overlap between membership ofthe Board of Antofagasta plc and these three divisionalboards. The chief executive officer of each divisionreports to his divisional board and the Chairman of theGroup, and the Board oversees these divisional boardsand provides strategic direction. The Board is alsoresponsible for reviewing the performance ofmanagement. The Non-Executive Directors scrutinisethe performance of management in meeting goals andobjectives and also monitor the reporting of performance,through the activities of the Remuneration Committeeand the Audit Committee.Directors who served during 2007 are set out onpage 153. There were no changes to the membershipof the Board during 2007.The recognised senior independent Non-ExecutiveDirector is Mr. C H Bailey, who is also Chairman of theAudit Committee. Mr. G S Menendez is Chairman ofthe Remuneration and Nomination Committees. TheBoard does not have a Director formally designated asChief Executive.Chairman and Chief ExecutiveMr. J-P Luksic is Chairman of the Board. His role is thatof a full-time Executive Chairman, and he has no othersignificant commitments that prevent him from devotingsufficient time to this role. As explained above, the Groupdoes not have a Board member who is designated asChief Executive. Mr. Marcelo Awad is chief executiveofficer of Antofagasta Minerals S.A.; Mr. MiguelSepulveda is chief executive officer of the AntofagastaRailway Company plc; and Mr. Marco Kutulas is thechief executive officer of Aguas de Antofagasta S.A.The Board believes that the Company is not at riskfrom a concentration of power by Mr. J-P Luksichaving executive responsibilities as Chairman. Inreaching this conclusion, it has taken into considerationthe strong presence of Non-Executive Directors on theBoard, the structure of the Audit, Remuneration andNomination Committees designed to devolve awayfrom the Chairman responsibility and control of certainkey areas of Board responsibility, and the delegationof management responsibility to the chief executiveofficer of each division.Board balance and independenceThe Board considers six of its eight Non-ExecutiveDirectors to be independent – Mr. C H Bailey,Mr. G S Menendez, Mr. D E Yarur, Mr. J W Ambrus,Mr. J G Claro and Mr. W M Hayes. The Board issatisfied that this balance limits the scope for anindividual or small group of individuals to dominate theBoard’s decision-making. The Directors’ Report setsout biographical details of each Director and identifiesthose Directors standing for re-election on page 61.Mr. Yarur, Mr. Claro, Mr. Ambrus and Mr. Hayes meetthe independence criteria set out in Combined Codeprovision A.3.1 and the Board is satisfied as to theirindependence.The Board is satisfied that Mr. Bailey remainsindependent in character and judgement, notwithstandingthat he has served on the Board for more than nineyears, since he does not receive any remunerationfrom the Company other than Non-Executive Directors’fees, nor does he have any other relationships with theCompany or its majority shareholder. The Board is alsosatisfied that Mr. Menendez remains independent incharacter and judgement, notwithstanding that he hasalso served on the Board for more than nine years andnotwithstanding that he is a non-executive director ofQuiñenco S.A. (a Chilean-listed company also controlledby the Luksic family) and Banco de Chile, part of theQuiñenco Group. This is because he does not receiveany remuneration from the Group other than in aNon-Executive capacity. His position in the Quiñencogroup is also solely as a non-executive director. TheBoard considers that Mr. Bailey’s and Mr. Menendez’slength of service is of considerable benefit to the Boardgiven their wealth of knowledge and experience of theGroup and of Latin America and the mining industry,and therefore proposes both for re-election.Mr. Ambrus was appointed a Non-Executive Directorof Antofagasta plc in 2005, and consequently hasserved as a Director of the Company for two years.CORPORATE GOVERNANCEAntofagasta plc Annual Report and Financial Statements 2007 65
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
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Page 12 and 13:
A R G E N T I N ACHAIRMAN’S REVIE
Page 14 and 15:
Page 16 and 17: CHAIRMAN’S REVIEWChairman’s Rev
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: EnvironmentThe Group seeks to ensur
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
Page 87 and 88: 2 Principal Accounting Policies con
Page 95 and 96: 4 Revenue and Total Profit from Ope
Page 97 and 98: 5 Segment Information continueda) P
Page 99 and 100: 5 Segment Information continueda) P
Page 101 and 102: 6 Profit for the YearProfit for the
Page 103 and 104: 8 Net Finance IncomeNet finance inc
Page 105 and 106: 11 DividendsAmounts recognised as d
Page 107 and 108: 13 Property, Plant and EquipmentLan
Page 109 and 110: 16 Investment in Associate2007 2006
Page 111 and 112: 19 Inventories2007 2006US$m US$mRaw
Page 113 and 114: 22 Borrowings continued(ii)Other lo
Page 115 and 116: 22 Borrowings continuedd) Maturity
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24 Financial Instruments and Financ
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Page 123 and 124:
Page 125 and 126:
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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
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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
Page 143 and 144:
Dividends to Ordinary ShareholdersD
Page 145 and 146:
Mining Production and Sales, Transp
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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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