Investor presentation: Santander Investment ... - Antofagasta plc

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Investor presentation: Santander Investment ... - Antofagasta plc

Investor PresentationSeptember 2007


Antofagasta plcImportant noticeStatements in this presentation include "forward-looking statements" that express expectations offuture events or results. All statements based on future expectations rather than on historical factsare forward-looking statements that involve a number of risks and uncertainties, and the companycannot give assurance that such statements will prove to be correct.2


Contents1. Company overview2. Operations and finance3. Projects and exploration4. Market outlook3


CompanyOverview4


Brief history• 1888 Antofagasta Railway incorporated and listed in London• 1979 Luksic Group acquires controlling interest and beginsinvesting in mining, financial and industrial sectors in Chile• 1996 Financial and industrial interests exchanged for 33.6% interestin Quiñenco• 1997 Development of large-scale mining projects commences• 2000 Start of low-cost copper production with Los Pelambres• 2003 Demerger of 33.6% interest in QuiñencoAcquisition of Aguas de Antofagasta• 2006 Acquisition of exploration interests in PakistanAcquisition of Equatorial Mining to consolidate 100%ownership of El Tesoro mine5


Overview• Listed on the London Stock Exchange– FTSE 100 since March 2004– Market capitalisation of US$15.7 billion (21 September 2007)– Free float of 35%• Copper producer with operations in Chile– Approximately 450,000 tonnes of copper in concentrate and cathodes (2007E)– Approximately 11,000 tonnes of molybdenum in concentrate (2007E)– Rail and water operations in Chile’s s II Region– Exploration and development projects in Chile / Rest of WorldNote: FY07 estimates as of August 20076


Operations and projects in ChileEl Tesoro• 100% owned• 92,000 tonnes of coppercathodesMichillaOperations• 74.2% owned• 45,600 tonnes of coppercathodesTransport and water businesses• 100% owned• Rail - 5.5 million tons carried• Water – 39.1 million cubic metresNorthern ChileEsperanza• 535 Mt@0.55% copper+gold 0.23 g/tonne(reserves)• Project approvedProjectsSierra Gorda district• 431 Mt@ 0.52% copper(resources)Antucoya + Buey Muerto• 460 Mt@ 0.41% copper(resources)Los Pelambres• 60% owned• 312,000 tonnes of copper inconcentrate• 11,000 tonnes of moly in concentrateLos Pelambres• Expansion studies completed andexploration programme in progressNote: All production and transport volumes are on a 100% basis, not an attributable basis, and refer to 2007 estimates (as of August 2007)7


Geographical locations – Operations and explorationChile: Operations (*)• Los Pelambres (324 ktonscopper and 9.8 ktons moly)• El Tesoro (94 ktons copper)• Michilla (47 ktons copper)• Transport and Water divisionsChile: Projects and Exploration• Esperanza• Exploration in Sierra Gorda District• Pelambres expansion studies andexplorationUnited Kingdom:Registered Office,LondonEcuador: ExplorationPakistan:ExplorationJoint Venture withBarrick Gold inReko Diq* Figures relate to 2006 production8


Operations and Finance9


Production, cost and reservesReserves and Resources at 31 Dec 2006Payable copper - moly and cash cost(million of tonnes @ copper grade)472498467 466450Los PelambresTotal Reserves2,125 @ 0.64%Total Resources2,939 @0.61%El Tesoro117 @ 0.74%166 @ 0.72%36.424.340.221230.311.0MichillaTotal - operationsEsperanza16 @ 1.09%2,258 @ 0.64%535 @ 0.55%66 @ 1.35%3,170 @ 0.63%1,130 @ 0.45%8.77.913.98.79.84.9Reko DiqAntucoya – Buey Muerto2,400 @ 0.51%460 @ 0.41%2003 2004 2005 2006 2007 H1Copper production (000 tonnes) Moly production (000 tonnes)Cash costs (cents/pound)Sierra Gorda OxidesTotal – actual andpotential projects535 @ 0.55%431 @ 0.52%4,421 @ 0.48%Railway tonnages (million tons)4.4 4.54.13.9 3.94.34.55.5Water volumes sold ('000 m3)39,10037,79832,575 33,0742.02.52.83.12.619,8091996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007H1Note: FY07 estimates as of August 20072004 2005 2006 2007 H110


Financial strengthGroup EBITDA and Margin70% 68%76%76%54%2,9571,3571,6741,471• EBITDA margin among the highest inthe mining industry5242003 2004 2005 2006 2007 H1EBITDA (US$m) EBITDA / Sales (%)Group total and net(debt)/cash• ROCE in 2007 (Annualized based on2007 H1) of 76%1,4471,536• Debt levels steadily declining852279• Group in net cash position2003 2004 2005 2006 2007 H1(359) (312)(465)(662) (603)(858)Total debt (US $m) Net (debt)/cash (US $m)Note: 2003 number is presented under UK GAAP,2004 - 2007 numbers are presented under IFRS11


Financial strengthEarnings per share (cents)137.458.873.673.914.06.39.818.32000* 2001* 2002 2003 2004 2005 2006 2007H1* Includes exceptional itemsNote: 2001 – 2003 numbers are presented under UK GAAP and 2004 –- 2007 numbers are presented under IFRSSpecialOrdinaryDividends (cents per share)40.022.28.014.03.62.03.9 4.45.67.0 7.8 8.0 8.22000 2001 2002 2003* 2004 2005 2006* Special dividend: demerger of Quiñenco12


Los Pelambres – 2007 H1 reviewEBITDA (US$m) and Margin (%)85%79% 81%83%2,29763%1,4211,0721,122• EBITDA of US$1,122m; margin of 83%• Copper production marginally up to 141,800tonnes (vs(141,600 tonnes in 2006 H1)– Expansion of plant capacity offset lower grades4032003 2004 2005 2006 2007 H132729.3EBITDA (US$m) Margin (%)Production and cash costs3517.9323-17.18.7 7.9 8.732416.49.8142-8.62003 2004 2005 2006 2007 H1Copper production ('000 tonnes) Moly production ('000 tonnes)Cash cost (c/lb)31211.04.9– Higher than expected proportion of primary oreaffected level of ore throughput• Moly production up 20% (vs(2006 H1) to 4,900(due to higher grades)• Costs decrease mainly explained by marketconditions (*)(Cents/pound)2007 H1 2006 H1 ChangeTolling charges 28.8 39.8 (11.0)By-products (110.8) (71.0) (39.8)On-site73.4 55.6 17.8(8.6) 24.4 (33.0)(*) A detailed cash cost reconciliation is provided on slide 32Copper grades were as follows: 2003 – 0.91%, 2004 – 0.88%, 2005 – 0.80%, 2006 – 0.81%, 2007 H1 0.71%Note: FY07 estimates as of August 200713


Los Pelambres – Outlook and targets• FY07 Payable copper: 312,000 tonnes– Higher plant throughput in the second half• FY07 Moly: Around 11,000 tonnesMoly US$29Moly US$25• FY07 Cash cost (cents/pound) (11.2) 16.8• Next labour negotiation due in July 2008 (mine-port union agreement reached ahead of schedulein May 2007)• Feasibility study for further repowering has beencarried out• Mauro tailings dam construction on schedule, with95% now completeNote: FY07 estimates as of August 200714


El Tesoro – 2007 H1 reviewEBITDA (US$m) and Margin (%)47%61%55%69%45664%• EBITDA increased 26.8% to US$213m; Margin of 64%180 203213792003 2004 2005 2006 2007 H1EBITDA (US$m) Margin (%)Production and cash costs92.497.8 98.194.092.096.966.178.646.842.452.4• Copper production increased by 10%– Optimisation of leaching process to treat highergrade ore with significant carbonate contents– Lower plant throughput due to moisture content inore• Cash costs higher than 2006 H1 but in line withbudget (*)– Increased energy costs due to natural gas shortfall– Higher waste to ore ratio1.46%1.35%1.23%1.16%1.23%• Next labour negotiation due in February 20092003 2004 2005 2006 2007 H1Copper production ('000 tonnes)Cash cost (c/lb)Copper grade %(*) A detailed cash cost reconciliation is provided on slide 32Note: FY07 estimates as of August 200715


El Tesoro – Outlook and targets• FY07 Payable copper: 92,000 tonnes– 1,300 tonnes above original budget• FY07 Cash costs: 100.5 cents per pound– Higher energy costs in the second half– Impact of lower production on unit costsSIERRA GORDAPROJECTSIERRA GORDASPENCEQda. De Los ArrierosTELEGRAFOOxides Esperanza119 Mton@ 0.35% CuEl Tesoro166 Mton@ 0.72% CuTesoro Northeast *71 Mton@ 0.79% CuLlano- Paleocanal *112 Mton@ 0.46% Cu• Continuing work in Sierra Gorda District• Development of Tesoro Northeast (*) couldextend the life of El Tesoro plant by 3 years– Additional 28.4 Mtons @ 1.03%10 kmPolo Sur *116 Mton@ 0.49% CuCentinela *13 Mton@ 0.58% Cu– Initial capex of US$80m– Environmental approval expected byOctober 2007(*) Properties 51% owned by Antofagasta plcOther than El Tesoro, the above oxide resources do not form part of the Group’s s statement of reserves and resourcesNote: FY07 estimates as of August 200716


Michilla – 2007 H1 reviewEBITDA (US$m) and Margin (% )47.3%58.0%35.2%14.6%9.2% 158.497.153.614.016.32003 2004 2005 2006 2007 H1EBITDA (US$m)Margin• EBITDA up 89% to US$97m; Margin of 58%• Copper production target exceeded by 6%– Better than expected recoveries due tocuprochlor process– Higher than budgeted ore treated52.769.8Production and cash costs50.046.4 47.3118.8126.485.645.6132.323.4• Cash cost of 132.3 cents per pound, belowbudget– 8.4% increase (vs(2006 H1) mainly due to one-off labour negotiation cost (bonus) and higherinput costs (*)1.25%1.11% 1.10% 1.05% 1.04%2003 2004 2005 2006 2007 H1• Labour negotiation with mine union completedin May 2007 (originally due in November 2007)Copper production ('000 tonnes)Cash cost (c/lb) Copper grade %(*) A detailed cash cost reconciliation is provided on slide 32Note: FY07 estimates as of August 200717


Michilla – Outlook and targets• FY07 Payable copper: 45,600 tonnes• FY07 Cash costs: 136 cents per pound• Possible extension of mine life until 2012– Average production level between 28,000 tonnesand 45,000 tonnes from 2010, depending ongeological results– Studies to be completed by the first quarter 2008MichillaAntucoyaBuey Muerto• Exploration and engineering studies ofAntucoya – Buey Muerto (*) deposit in order toextend the life of Michilla plant– Drilling programme completed; updated resourceestimate by September 2007 (**)– Engineering studies and metallurgical tests in progress10 km(*) Buey Muerto property 51% owned by Antofagasta plc(**) Current estimate: 460 Mton @ 0.41% copperNote: FY07 estimates as of August 200718


Railway and other transportNorthern ChileMejillonesAntofagastaChile’s s second regionEl AbraChuquicamataConchiEl SalvadorMichillaCalamaSierraGordaInteracidEl TesoroTerminalGabyLomas Bayas• Located in world’s s largest copper mining region2007 H1 review• Combined rail and road volumes up 12% to 3.2million tonnes (rail volumes of 2.6 milliontonnes and road volumes of 0.7 million tonnes)• Total revenues up 12% to US$54.7 million (*)• EBITDA up 26% to US$24.4 millionAltoNorteAugustaVictoriaZaldivarEscondidaOutlook• San Cristóbalbal: : 165,000 tonnes in the secondhalf increasing to 500,000 from 2008• Gaby: 15-year contract starting with 600,000tonnes in 2008 increasing to 1.2 million tonnesby 2012Rail NetworkRail stationMineCity / port(*) Represents third party revenues, stated after eliminating sales to Antofagasta’smining division of US$5.0m (2006H1 – US$4.5m)19


Aguas de Antofagasta• Fourth year of strong operational performancesince acquisition in December 2003Chile’s s second regionNorthern Chile• Water volumes up 7% from 2006 H1 to 19.8million m 3– Higher untreated water sales (due to the start upof Spence in 2006 H2)– Higher domestic consumptionTocopillaMichillaMejillonesAntofagastaEl TesoroCalamaSan Pedrode Atacama• Revenues up 4% from 2006 H1 to US$33.4million; EBITDA down 4% to US$20.9 million– Impact of tariffs review in mid 2006 offsethigher volumesTaltal• 27-month contracts to December 2009 forecastto increase water sales by 2.5 million m 3 peryearOwned mineCity / port20


Projects and Exploration21


Esperanza Copper–Gold Project• Project approved in June 2007– Average plant throughput of 97,000 tpd– Capital cost of approximately US$1.5 billion– Production (first ten years annual average):• Concentrate:700,000 tonnes• Payable copper: 195,000 tonnes• Payable gold:• Payable silver:229,000 ounces1.6 million ounces• EIA presented in August 2007• Mine life of 15 years based on total reserves of 535Mtons at 0.55% copper and 0.23 g/tonne gold (*)– Pre-stripping programme (30-month) to be initiated bythe first quarter of 2008– First production expected by the end of 2010– Telégrafodeposit could extend the life of Esperanzaplant(*) Based on a cut-off grade of 0.2% equivalent copper. Current resource estimate (including(reserves): 1,130 million tonnes of sulphide ore with anaverage copper grade of 0.45%, an average gold grade of 0.16 g/tonne, and an average molybdenum grade of 0.011%, at a cut-off grade of 0.2%copper.22


Tethyan – Reko Diq• Acquired in 2006 – 50% JV with Barrick Gold• 18-month budget to December 2007 has beenincreased by 50% to US$46 million– Includes scoping study and initial pre-feasibilitycosts• Foreign investment agreement presented to federaland provincial authorities in July 2007 for discussion• Exploration programme well underway– New resources estimate expected to be completedin Q4 (*)• Scoping study to be completed in Q4– Different plant capacities analysed– Decision on one-year pre-feasibility stage could betaken by the end of the year(*) Current estimate: 2.4 billion tonnes at 0.51% Copper and 0.27 g/t Gold23


Market Outlook24


Refined copper market outlook• Inventories remain at historically low levels- Exchange stocks less than 5 days’ consumption• Demand growth remains strong- Solid growth in Europe and Asia expected tocontinue into 2008- Chinese demand has exceeded expectations, with1H07 refined copper imports exceeding FY06- Uncertainties remain over the United States• Supply response still facing constraints- Labour disputes this year have affected mine output in several countries c(Chile, Mexico, Peru, Canada)- Growth into next year continues to be affected by under-investment during the prolonged period of lowprices- Longer lead times needed to develop new projects (labour shortages, equipment availability andenvironmental approval processes)- Scrap remains available due to high prices, but future availability ity at this level is uncertain• Market is expected to be in deficit during 2007, and perhaps in balance at the end of 2008• Outlook for prices is positive into 200825


Copper concentrates market outlook• Concentrates market deficit shouldintensify during 2H07 as more smeltingcapacity comes on stream (mainly inChina), without major increases in mineproduction• Inventories are already at low levels withlittle room for further reductions in theproduction pipeline• The concentrate market should balancethrough a lower utilisation rate ofsmelting capacity (in line with recentannouncement of Chinese smelters)• Mine production is not expected to fill the smelting deficit until 2010• Treatment and refining charges expected to remain low and significantly icantly in favour ofminers in the coming years• With the Price Participation (PP) formula already eliminated from m negotiations and brickterms with PP mostly ending during 2007, the negotiations for 2008 08 (which affect 2008-2009 bricks) will be critical for smelters26


Molybdenum market outlook• Molybdenum prices have consolidated athistorically high levels (above US$25/lb andtrending up again)• Inventories remain at low levels and the deficitmarket is expected to continue during 2008• The market is expected to remain strong– Limited supply growth (estimated at 2%)• By-product producers with limited possibilities offurther flex-grading• Primary producers facing difficulties in increasing production (equipment,(lower grades)• New Chinese regulations are limiting exports and possibilities of mine reopening (fixing export quotasand limiting export licenses, elimination or reduction of tax rebates, export tax).– Continuing strong demand (estimated at 3% or more)• Sustained demand growth in the steel sector which accounts for nearly n80% of the total consumption(stainless steel, steel alloys, tool steels)– Low level of inventories leave the market vulnerable to production/supply on/supply problems• General market view is that prices should remain at the US$30/lb level for theremainder of 2007 and could increase in 200827


Conclusion• Medium size producer of copper and molybdenum with long mine life• Significant resource base to support expansions and new projects• Medium and long-term growth opportunities in Chile and abroad enhanced throughacquisitions and joint venture agreements• Market conditions remain favourable28


Backup29


Financial summary2007 H1 2006 H1 % change 2006 FYktonsktonsktonsCopper production 212.1 207.9 2.0% 465.5Moly production 4.9 4.1 19.5% 9.8US$mUS$mUS$mRevenues (*) 1,942 1,847 5.2% 3,870EBITDA 1,471 1,375 7.0% 2,957Profit before tax 1,437 1,325 8.4% 2,859Earnings per share (cents) 73.9 66.2 11.6% 137.4Dividends per share (cents) – including special 6.2 5.2 19.2% 48.2Realised copper price (**) (cents/pound) 338.9 353.4 4.1% 329.5Realised moly price (**) (US$/pound) 30.9 22.7 36.1% 24.6(*) Presented net of tolling charges for concentrates of US$102.2m 2m in 2007 H1, US$134.3m in 2006 H1 and US$277.2m in FY2006(**) Determined by comparing revenues with sales volume (without deducting tolling charges for concentrates)30


Mining dataLos PelambresCopper sales (‘000 tonnes) 143.2 145.4 1.5% % 324.8Realised price (cents/pound) 348.6 376.8 7.5% % 335.0Moly sales (‘000 tonnes) 4.9 4.4 11.4% 9.9Realised price (US$/pound) 30.9 22.7 36.1% 24.6Cash cost (cents/pound) (8.6) 24.4 135.2% 16.4(including by-product credits)2007 H1 2006 H1 % change 2006 FYEl TesoroCopper sales (‘000 tonnes) 46.8 43.3 8.1% 95.3Realised price (cents/pound) 321.8 301.2 6.8% 316.4Cash cost (cents/pound) 96.9 79.7 21.6% 78.6MichillaCopper sales (‘000 tonnes)Realised price (cents/pound)Cash cost (cents/pound)000 tonnes) 24.1(cents/pound) 315.3(cents/pound) 132.324.1 24.5 1.6% 47.7315.3 306.6 2.8% 318.5132.3 122.0 8.4% 126.431


Cash cost analysis 2006 H1 – 2007 H1 – 2007 BudgetLos Pelambres2006 H1 24.4Decrease in tolling charges (11.0)Increase in freight costs 1.1Exchange rate and local inflation 1.0Machinery hire, fuel and others input costs 7.9Lower ore grade 3.9Other cost increases 4.0Higher by-product credits (39.8)2007 H1 (8.6)2007 H1 Budget 4.4Decrease in tolling charges (10.4)Exchange rate and local inflation (1.9)Machinery hire, fuel and others input costs 4.0Lower stripping ratio (2.6)Other cost increases 1.1Higher by-product credits (3.2)2007 H1 (8.6)El Tesoro2006 H1 79.7Exchange rate and local inflation 0.5Energy costs 8.2Fuel, acid and others input costs 6.7Higher acid consumption 1.5Higher production (impact on unit costs) (6.8)Higher stripping ratio 9.2Other cost decreases (2.1)2007 H1 96.92007 H1 Budget 97.7Exchange rate and local inflation (1.4)Energy costs 6.4Fuel, acid and others input costs 1.0Lower acid consumption (1.6)Higher production (impact on unit costs) (1.7)Other cost decreases (3.6)2007 H1 96.9Michilla2006 H1 122.0Exchange rate (1.2)Fuel, energy and others input costs 4.5Labour negotiation costs 4.7Other cost increases 2.32007 H1 132.32007 H1 Budget 136.0Exchange rate and inflation (2.7)Fuel, energy, freight and others input costs 2.1Lower acid consumption (3.2)Labour negotiation costs 4.7Higher production (impact on unit costs) (7.3)Other cost decreases 2.72007 H1 132.332


Copper Market DataWorld Copper Consumption 2000 2001 2002 2003 2004 2005 2006(' 000 tonnes)North America 3,604 2,951 3,049 2,896 3,073 2,937 2,808-18% 3% -5% 6% -4% -4%of which US 2,856 2,296 2,420 2,250 2,392 2,248 2,149-20% 5% -7% 6% -6% -4%South & Central America 527 536 410 495 546 557 5992% -23% 21% 10% 2% 7%Europe 4,337 4,217 3,999 3,906 4,110 4,017 4,448-3% -5% -2% 5% -2% 11%of which West. Europe 4,002 3,838 3,672 3,579 3,738 3,619 4,026-4% -4% -3% 4% -3% 11%CIS 243 351 437 501 654 738 78945% 25% 15% 31% 13% 7%Asia 6,011 6,045 6,633 7,203 7,990 8,303 8,6241% 10% 9% 11% 4% 4%of which China 1,900 2,256 2,558 3,022 3,456 3,794 3,94819% 13% 18% 14% 10% 4%of which Japan 1,349 1,145 1,164 1,202 1,282 1,260 1,318-15% 2% 3% 7% -2% 5%Australasia 173 171 190 164 169 133 142-1% 11% -14% 3% -21% 7%Africa 132 170 200 203 209 209 21729% 18% 1% 3% 0% 4%World Total 15,026 14,440 14,919 15,367 16,750 16,894 17,628-3.9% 3.3% 3.0% 9.0% 0.9% 4.3%Source: CRU International Ltd, Jan 200733


Copper Market DataCopper mine production 2000 2001 2002 2003 2004 2005 2006(' 000 tonnes)South & central America 5,394 5,751 5,677 5,993 6,771 6,665 6,736Chile 4,662 4,795 4,600 4,942 5,470 5,354 5,376Peru 551 729 841 824 1,020 995 1,029North America 2,417 2,323 2,004 1,960 2,058 2,121 2,169USA 1,467 1,360 1,124 1,102 1,154 1,187 1,288Canada 619 637 589 545 566 584 604Asia 2,025 2,057 2,140 2,011 2,030 2,335 2,217China 593 587 568 604 742 762 820Indonesia 1,006 1,047 1,163 1,003 842 1,064 804CIS 1,170 1,230 1,212 1,233 1,266 1,215 1,294Russia 571 634 581 582 617 622 661Australasia 1,064 1,075 1,108 1,041 1,044 1,154 1,123Australia 861 871 897 845 871 961 929Central and east. Europe 569 588 619 615 644 630 602Africa 521 552 544 585 637 695 955Western Europe 247 238 205 216 232 244 239World Total 13,407 13,814 13,508 13,654 14,683 15,059 15,335Source: CRU International Ltd, Jan 200734


Antofagasta ContactsLondon(Antofagasta plc)Desmond O’Conor Chief Executive Officer (UK)Hussein Barma Chief Financial Officer (UK)Santiago de Chile(Antofagasta Minerals S.A.)Alejandro Rivera Vice-President ofDevelopment andCorp FinanceSebastian GilBusinessDevelopment ManagerTel: +44 20 7808 0988Fax: +44 20 7808 0986E-mail: doconor@antofagasta.co.ukhbarma@antofagasta.co.ukTel: +562 377 5145Fax: +562 377 5345E-mail: arivera@aminerals.clsgil@aminerals.clwww.antofagasta.co.uk35

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