Final Results
Antofagasta PLC
09 March 2004
ANTOFAGASTA PLC
Preliminary Results Announcement
for the year ended 31 December 2003
9 March 2004
• Turnover of US$1,076.2 million (2002 - US$863.1 million); up 25%.
• Operating cash flow of US$510.2 million (2002 - US$350.3 million); up
46%.
• Profit before tax of US$357.2 million (2002 - US$176.8 million); up
102%.
• Earnings per share of 91.5 cents (2002 - 49.0 cents); up 87%.
• Demerger of Quinenco by dividend in specie in October 2003, with a
redemption value of US$1.11 per ordinary share.
• Acquisition of water concession in Chile's main copper mining
district in December for US$193.8 million.
• Final dividend of 24 cents* per share (2002 -18 cents per share); up
33%.
• Total dividend for year (excluding the demerger dividend) of 35 cents
per share (2002 -28 cents per share); up 25%.
The Group's copper production increased by 2.4% from 460,700 tonnes in 2002 to
471,800 tonnes in 2003. Group weighted average cash costs** were 6.4 % lower at
36.4 cents per pound (2002 - 38.9 cents per pound). LME copper prices
strengthened during the year, averaging 80.7 cents per pound (2002 - 70.7 cents
per pound). These factors, together with exceptionally strong molybdenum
revenues at Los Pelambres, enabled Group profit before tax to increase by 102%
from US$176.8 million in 2002 to US$357.2 million in 2003. During the year, the
Group completed the demerger of its investment in Quinenco. It also acquired an
extensive water concession in Northern Chile, one of the most important copper
regions in the world.
Mr Jean-Paul Luksic, CEO of Antofagasta Minerals, the Group's mining division
commented, 'These are very satisfactory results for Antofagasta, which reflect
the improving copper price environment. With its cash costs among the lowest in
the industry, the Group is well placed to continue to benefit from the stronger
market.'
Antofagasta is a Chilean-based mining group listed in the United Kingdom. In
addition to copper mining, its interests include rail and road transport
operations and water distribution.
*Dividends are paid either in US dollars or sterling. A conversion rate of £1=
US$1.8691 will be applied to the final dividend of 24 cents, giving shareholders
who receive dividends in sterling a final dividend of 12.8404p.
**Cash costs are an industry measure of the cost of production, and are further
explained in Note 2(d) to the Preliminary Announcement.
Enquiries - London Enquiries - Santiago
Antofagasta plc Antofagasta Minerals S.A.
Tel: +44 20 7808 0988 Tel +562 377 5145
www.antofagasta.co.uk Alejandro Rivera
Chief Financial Officer
Philip Adeane Email: arivera@aminerals.cl
Managing Director
Email: nwakefield@antofagasta.co.uk
Issued by Bankside Consultants Ltd
Hussein Barma Keith Irons
Chief Financial Officer Email: keith@bankside.com
Email: hbarma@antofagasta.co.uk Tel: +44 20 7444 4155
DIRECTORS' COMMENTS for the year to 31 December 2003
The Group reported significantly improved results, with profit before tax up
102.0% to US$357.2 million (2002 - US$176.8 million) and earnings per share up
86.7% to 91.5 cents (2002 - 49.0 cents), driven by higher production, improved
copper prices and lower average cash costs. Copper production increased by 2.4%
to 471,800 tonnes compared with 460,700 tonnes in 2002. Weighted average cash
costs for the year were 6.4% lower at 36.4 cents per pound (2002 - 38.9 cents
per pound). LME copper prices averaged 80.7 cents per pound in the year,
compared with 70.7 cents in 2002. The Group also benefited from higher
molybdenum prices and increased molybdenum production at Los Pelambres.
Review of Operations
Los Pelambres
Annual copper production at Los Pelambres was 326,700 tonnes of payable copper,
marginally above the 324,600 tonnes produced in 2002. The increase was due
mainly to higher throughput at the concentrator plant which averaged 113,300
tonnes per day (tpd) of ore compared with 110,500 tpd in 2002, benefiting from
the plant upgrade programme which was completed during the year with the
installation of the pebble crusher in August. The improved throughput was
partly offset by slightly lower recoveries, while the average ore grade remained
unchanged at 0.91% compared with 2002.
Cash costs, which include by-product credits, were further reduced to 29.3 cents
per pound (2002 - 34.9 cents per pound) as a result of higher molybdenum prices
and production. Molybdenum prices averaged US$5.30 per pound in 2003 (2002 -
US$3.70 per pound), while production was 8,700 tonnes (2002 - 7,800 tonnes).
Consequently, by-product credits were 16.3 cents per pound compared with 12.9
cents in 2002. Los Pelambres also continued to benefit from low treatment and
refining charges which, at 13.5 cents per pound, were 1.9 cents lower than 2002.
The combination of improved copper prices, lower cash costs and marginally
higher production enabled Los Pelambres to increase operating profits by 89% to
US$313.3 million, compared with US$165.9 million in 2002. Los Pelambres also
continued to benefit from positive adjustments on final settlement of
concentrate sales, reflecting the continued improvement in the copper price
since the end of 2002. Further details are given in Note 4 to the Preliminary
Announcement.
Los Pelambres continued to reduce its project borrowings with two principal
repayments during the year totalling US$109.1 million. A total of US$351.1
million of the original US$946 million project borrowings have now been repaid
since operations began in 2000.
With the completion of the plant upgrade programme during the past year, daily
ore throughput should increase from 113,300 tpd in 2003 to over 120,000 tpd in
2004. The increased throughput will compensate for a slight decrease in the
expected ore grade to approximately 0.87% from 0.91% in 2003. As a result,
production of payable copper in 2004 is expected to increase to 338,000 tonnes.
Molybdenum production in 2004 is forecast to be around 7,000 tonnes compared
with 8,700 tonnes in 2003, mainly due to a decrease in the molybdenum grade
anticipated under the mine plan.
Cash costs in 2004 should be around 35 cents per pound mainly due to lower
expected molybdenum production. However, cash costs remain highly sensitive to
molybdenum prices, and Los Pelambres will continue to benefit if these remain at
current high levels. Treatment and refining charges are expected to remain at
similar or slightly higher levels to 2003, as the lower benchmark settlement for
2004 is offset by the effect of higher copper prices on price participation in
determining overall charges.
In May 2003, Los Pelambres submitted an Environmental Impact Study ('EIA') to
mine additional reserves and enable a potential future expansion of its
concentrator. Various steps, including the community participation phase, were
completed during 2003 and the review of the EIA by the Chilean environmental
authorities is expected to be completed in the first half of 2004. The EIA
seeks to allow Los Pelambres to mine up to 2.1 billion tonnes of ore and
increase processing levels up to 175,000 tpd.
El Tesoro
Higher throughput levels and improved recoveries due to a better mix of ores to
achieve optimum grades for heap-leaching helped El Tesoro to produce 92,400
tonnes of cathodes during 2003 compared to 84,300 tonnes in 2002. Cash costs
were 42.4 cents per pound, compared with 40.8 cents per pound in 2002, due
mainly to higher haulage costs incurred in mixing of ores and the addition of
dry waste material to reduce humidity in the tailings dumps.
Higher production together with improved copper prices offset the higher cash
costs and enabled El Tesoro to contribute US$58.5 million to operating profit
compared with US$36.4 million in 2002. El Tesoro continued to repay its project
borrowings with principal repayments totalling US$28.1 million in February and
August 2003. The balance now outstanding after these instalments is US$156.6
million.
El Tesoro obtained certification from the London Metal Exchange ('LME') in July
2003 to have its cathodes listed as Grade A quality under the MET brand,
enabling them to be traded as a standard commodity on the LME. This enables El
Tesoro to benefit from a wider customer base and achieve higher premiums in the
sales of its cathodes.
In 2004, El Tesoro expects to produce around 93,000 tonnes. Cash costs are
expected to increase to around 48 cents per pound, a level similar to the last
quarter of 2003. This reflects the impact of higher operating costs, including
a higher waste to ore ratio, higher sulphuric acid prices and the effect of the
stronger Chilean peso.
Michilla
Michilla produced 52,700 tonnes of cathodes in 2003 compared with 51,800 tonnes
the previous year, as the additional crushing capacity installed at the start of
the year compensated for the lower ore grade. Cash costs rose from 61.4 cents
per pound in 2002 to 69.8 cents per pound this year. The higher costs resulted
partly from the disruption to production at the start of the year when the
additional capacity was installed, but also due to the lower ore grade and
higher waste to ore ratio under the current phase of the mine plan.
Higher cash costs and hedging losses offset the benefit of improved copper
prices, and Michilla's operating loss of US$3.6 million was similar to the
previous year (2002 - US$3.4 million). Nevertheless, Michilla remains cash
positive, and EBITDA (earnings before interest, tax, depreciation and
amortisation) was US$14.0 million (2002 - US$13.6 million).
Cathode production in 2004 is expected to be similar to last year. Cash costs
are expected to be around 75 cents, due to higher sulphuric acid prices and the
stronger Chilean peso. During 2004, Michilla expects to complete its
development plan, which will enable it to operate at the 50,000 tonnes per year
level to 2011.
Exploration
The Group spent US$3.5 million in 2003 mainly on exploration around El Tesoro in
the Sierra Gorda district. A total of 46,925 metres were drilled to identify
further oxide and sulphide deposits to complement the Esperanza project. The
Telegrafo Sur deposit, located south of El Tesoro, is now estimated to have
inferred resources of 898 million tonnes of sulphide ores, with an average
copper grade of 0.45%, an average molybdenum grade of 0.013% and 0.17 g/tonne of
gold. This compares with a previous estimate of 356 million tonnes with an
average copper grade of 0.46%, an average molybdenum grade of 0.014% and 0.19 g/
tonne of gold. In addition, Conchi, near the El Abra Mine, has previously been
estimated to have a drill inferred resource of 326 million tonnes of 0.72%
copper and will be further explored during 2004.
Drilling is also continuing at a number of sites in Southern Peru near Cuzco,
where Antofagasta has a joint-venture exploration programme with CVRD. A total
of seven targets were drilled during 2003, and a number of further targets have
been identified for exploration in 2004. In February 2004, the Group sold its
51% interest in the Magistral project to Inca Pacific S.A. for US$2.1 million.
Railway and other transportation services
Rail tonnages increased 6% to 4.4 million tons (2002 - 4.1 million tons) and
turnover increased from US$70.4 million to US$75.8 million, as both the Chilean
and Bolivian operations benefited from higher volumes. In October, the Railway
started shipping cathodes from Chuquicamata to the new port at Mejillones, under
a renewed freight contract with Codelco. Freight from existing customers and
marginal expansions in the region should enable rail tonnages to be maintained.
The Railway has also recently signed a Letter of Intent with Apex Silver Mine
relating to future transport for the San Cristobal polymetallic project in
Bolivia.
Water concession (Aguas de Antofagasta)
In November 2003, the Group successfully bid for a 30 year Concession to operate
the water rights and facilities in the Antofagasta Region previously controlled
by the state-owned ESSAN. The award followed a competitive tender managed by
SEP (Sistema de Empresas Publicas), a Chilean government entity, as part of the
current privatisation programme.
The Concession consists of two businesses, an unregulated business supplying
mines and other industrial users and a regulated business supplying domestic
customers. The Group considers the acquisition to be a strategic investment
which will benefit from the future development of mining operations in the
region and the expected increased demand in domestic consumption. The
Concession will complement the Group's existing transport and mining activities
in the region, including the water distribution business already operated by the
Railway.
The Concession contract was signed and control of the assets and operation was
assumed on 29 December 2003 by Aguas de Antofagasta S.A., a newly-created wholly
owned subsidiary of the Group. The cost of the Concession was Ch$116.6 billion
(US$193.8 million) and was satisfied in cash on the same date. The cost
includes IVA (Chilean sales tax) of 19% which is estimated to be recoverable
over 8 years. In the three day period from 29 December 2003, Aguas de
Antofagasta contributed US$0.4 million to Group turnover and US$0.2 million to
Group operating profit.
Demerger of investment in Quinenco S.A.
In order to focus on its core mining and mining-related activities, the Group
announced in September 2003 a proposal to demerge its investment in Quinenco
S.A. via a special dividend of shares in Andsberg Limited, an unlisted
Jersey-registered subsidiary whose principal asset was the Group's 33.6%
interest in Quinenco. Shareholder approval was obtained for the demerger on 1
October and following the resolution, ordinary shareholders in Antofagasta plc
received one share in Andsberg for each share held in Antofagasta on 1 October
2003.
The Andsberg shares carried a redemption right until 30 October 2003 at a fixed
price US$1.11 of per share. Valid redemption forms were received in respect of
58,691,813 shares and payment was made on 6 November 2003. Shareholders who
requested payment of redemption proceeds in sterling received 65.4134 pence per
share, based on an exchange rate of US$1.6969 per share. The redemption was
funded by entities connected with the Luksic family which subscribed for
additional Andsberg shares.
Quinenco did not pay a dividend during 2003. In 2002, the Group received a
dividend of US$3.2 million.
Dividends
The Board is recommending a final dividend of 24 cents per ordinary share
payable on 10 June 2004 to shareholders on the Register at the close of business
on 14 May 2004. Dividends are payable in either US dollars or sterling, and
shareholders who receive dividends in sterling will be paid a final dividend of
12.8404p, based on an exchange rate of £1=US$1.8691.
Dividends for the year are as follows:
US Dollars Sterling
2003 2002 2003 2002
cents cents pence pence
Ordinary
Interim 11 10 6.90 6.53
Final 24 18 12.84 11.39
35 28 19.74 17.92
Sterling amounts shown in the table above have been rounded to two decimal
places for presentation.
As explained above, a dividend in specie was also declared of shares in Andsberg
Limited, under which ordinary shareholders received one share in Andsberg
Limited for each share held in Antofagasta plc on 1 October 2003. The Andsberg
shares carried a redemption right until 30 October 2003 of US$1.11 per share.
Further details are given in Notes 9 and 18 to the Preliminary Announcement.
Current Trading Prospects
Copper prices began to rally strongly in the second half of 2003, moving from
the 70-cent level to over 100 cents by the end of the year. Prices have
continued to strengthen in the early part of 2004, and are now trading at over
130 cents per pound. While this increase is due in part to the weakness in the
US dollar, supply disruptions and strengthening demand have clearly resulted in
much tighter conditions in the commodity markets. This is reflected in the
steady decline in inventory levels, with LME stocks falling by more than
two-thirds from 856,000 tonnes at the beginning of 2003 to 282,000 tonnes by the
end of February 2004. Demand in China and other Asian countries, where growth
is particularly capital intensive, remains very strong, and there are continuing
signs of improvement in the United States.
The Group expects to increase copper production in 2004 to over 480,000 tonnes.
Cash costs are expected to rise marginally to the 40 cent level, reflecting
increases in some input costs and the recent strengthening of the Chilean peso.
Nevertheless, as one of the lowest cost producers in the industry, the Group is
well placed to benefit from the sharp upswing in the copper market.
9 March 2004
FINANCIAL COMMENTARY for the year to 31 December 2003
Results
Group turnover increased from US$863.1 million in 2002 to US$1,076.2 million in
2003. The increase was due mainly to better realised copper prices at all three
mines, following the improvement of LME copper prices compared with 2003.
Significant positive pricing adjustments at Los Pelambres relating to
provisionally invoiced concentrate sales and cathode premiums at Michilla and El
Tesoro more than offset hedging losses of US$11.1 million (2002 - hedging gains
of US$1.0 million). Copper volumes sold in the period also increased 5.3% to
477,400 tonnes mainly as a result of increased production. As a result, overall
turnover from copper sales reached US$1,000.0 million, compared with US$792.7
million in 2002. By-product revenues at Los Pelambres increased to US$116.7
million (2002 - US$77.4 million) as a result of higher production of molybdenum
and higher prices. Turnover at the transport division was also up by 7.7% to
US$75.8 million, mainly due to increased transport volumes. The water
concession, acquired at the end of December 2003, did not have a significant
effect on turnover or profits in the year.
Operating profits were US$387.3 million (2002 - US$213.9 million). This
reflected the combined effect of higher production and improved copper prices,
together with lower cash costs at Los Pelambres compared with 2002.
Consequently, operating profit increased by US$147.4 million at Los Pelambres
and US$22.1 million at El Tesoro. Michilla's operating loss, however, increased
marginally as the benefits of a higher copper price were outweighed by hedging
losses which amounted to US$3.9 million and higher cash costs. Operating profit
at the transport division included other operating income of US$6.5 million for
the cancellation of a contract for additional tonnages in the first half of the
year. Excluding this, operating profits increased in line with higher transport
volumes. Operating profit is stated after depreciation and loss on disposal of
fixed assets of US$137.0 million (2002 - US$135.8 million), giving EBITDA
(earnings before interest, tax, depreciation and amortisation) of US$524.3
million (2002 - US$349.7 million).
The Group did not receive a dividend from Quinenco this year prior to the
demerger, and income from fixed asset investments amounted to US$0.1 million.
During 2002, dividend income was US$3.2 million, which related almost entirely
to Quinenco. The Group disposed of nearly all its other investments following
the demerger of Quinenco S.A., including substantially all of its shares held in
Banco de Chile S.A. This resulted in a profit of US$1.1 million.
Interest costs relate mainly to the project loans which financed the Los
Pelambres and El Tesoro mines. Net interest expense was U$31.3 million,
compared with net interest expense of US$40.3 million in 2002, as the Group
benefited from lower market interest rates and regular principal repayments.
The resulting profit before tax was US$357.2 million compared with US$176.8
million in 2002.
Tax (including deferred tax) amounted to US$64.4 million (2002 - US$29.9
million), reflecting the increased profit for the year. This represents an
effective tax rate of 18.0% (2002 - 16.9%), compared with the Chilean statutory
tax rate of 16.5% (2002 - 16%). The effective tax rate is higher than the
statutory rate partly because tax charge for 2003 includes the payment of
certain withholding taxes. In addition, deferred tax is measured at the rates
expected to apply in the period in which timing differences are expected to
reverse. Legislative changes at the end of 2001 increased the tax rate
progressively to reach 17% in 2004.
Minority interests were US$112.1 million (2002 - US$50.1 million), reflecting
their share of increased profits, principally at Los Pelambres and El Tesoro.
Earnings per share were 91.5 cents in 2003 compared with 49.0 cents the previous
year, reflecting the higher profit after tax and minority interests.
Commodity price sensitivities
Based on production volumes in 2003, and without taking into account the effects
of provisional pricing and hedging activity, a one cent change in the average
copper price for the year would affect turnover and profit before tax by US$10.4
million, and earnings per share by 2.6 cents. Similarly, a 10 cent change in
the average molybdenum price in the year would affect turnover and profit before
tax by US$1.9 million, and earnings per share by 0.5 cents.
Demerger
As explained in the Directors' Comments above, the Group obtained shareholder
approval during the year for the demerger of Andsberg Limited, a Jersey
registered company whose principal asset was the Group's 33.6% investment in
Quinenco S.A. The demerger was carried out by the distribution of shares ('the
demerger dividend') in Andsberg Limited to ordinary shareholders of Antofagasta
plc.
The demerger dividend is recorded at the consolidated book value of Andsberg
Limited and its subsidiaries of US$181.5 million, representing the book value of
the investment in Quinenco S.A. (US$180.1 million) and bank balances (US$1.4
million). Further details are given in Notes 9 and 18 to the Preliminary
Announcement.
Cash Flows
Net cash inflow from operating activities was US$510.2 million compared with
US$350.3 million in 2002, reflecting the improved operating results adjusted for
depreciation, the non-exceptional loss on disposal of fixed assets and normal
working capital movements.
Net capital and investment expenditures were US$78.2 million. Of this amount,
US$62.4 million related to Los Pelambres, which included expenditure relating to
the optimisation programme to increase ore throughput to 120,000 tonnes per day
as well as initial costs of the tailings dam project. Net expenditure in 2002
was US$67.3 million.
The cost of the acquisition of the water concession from ESSAN S.A. was US$193.8
million, which was paid in cash at the end of the year.
Cash and Debt
At 31 December 2003, the Group held cash and deposits of US$195.7 million (2002
- US$252.4 million). After taking into account the minority share of non-wholly
owned operations, the Group's share of the total balance was US$173.4 million
(2002 - US$235.1 million).
Total Group debt at 31 December 2003 was US$857.5 million (2002 - US$965.3
million). Of this amount, US$518.0 million (2002 - US$568.7 million) is
proportionately attributable to the Group after taking the minority share of
partly-owned operations into account. The total Group borrowings included
US$594.9 million (2002 - US$704.0 million) under the Los Pelambres non-recourse
project financing arrangements, of which 40 per cent is attributable to minority
shareholders, and US$153.6 million (2002 - US$181.3 million) under the
non-recourse El Tesoro project financing arrangements, of which 39 per cent is
attributable to minority shareholders.
Balance Sheet
Shareholders' funds decreased from US$960.4 million at the beginning of the year
to US$905.9 million, principally reflecting profit attributable to shareholders
less exchange movements and dividends for the year, including the demerger
dividend. Further details are given in Note 15 to the Preliminary Announcement.
Minority interests increased from US$314.3 million at the beginning of the year
to US$343.1 million, principally reflecting the minority's share of profit after
tax less the minority share of distributions from the partly owned operations.
9 March 2004
Group Profit and Loss Account
Notes Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Turnover 3 1,076.2 863.1
Operating profit 3,5 387.3 213.9
Income from fixed asset investments 0.1 3.2
Profit on disposal of fixed asset investments 12 1.1 -
Net interest payable 6 (31.3) (40.3)
Profit on ordinary activities before tax 357.2 176.8
Tax on profit on ordinary activities 7 (64.4) (29.9)
Profit on ordinary activities after tax 292.8 146.9
Minority interests - equity (112.1) (50.1)
Profit for the financial year 180.7 96.8
Dividends
Preference - non equity (0.2) (0.2)
Ordinary (excluding demerger dividend) - equity (69.0) (55.2)
Demerger dividend - equity (181.5) -
Transferred (from)/ to reserves (70.0) 41.4
Earnings per share 8 91.5c 49.0c
Dividend per ordinary share (excluding demerger dividend) 9 35.0c 28.0c
Demerger dividend
The demerger dividend relates to the dividend in specie of shares in Andsberg
Limited which took place on 1 October 2003. This dividend is recorded at the
consolidated book value of the assets demerged. One Andsberg share was
distributed for each ordinary share held in Antofagasta plc, and carried a
redemption right until 30 October 2003 of US$1.11 per share (equivalent to
65.4134 pence). Further details relating to the demerger are given in Notes 9
and 18.
Continuing operations and acquisition
Turnover and operating profit are derived from continuing operations. Turnover
in 2003 includes US$0.4 million and operating profit includes US$0.2 million
relating to the water concession acquired on 29 December 2003 (see Note 19).
There were no other acquisitions or discontinued operations in either year.
Other recognised gains and losses
Other recognised gains and losses in the period (exchange differences) amounted
to a gain of US$15.5 million (2002 - a loss of US$10.3 million) and are shown in
Note 15 together with other movements in shareholders' funds.
Group Balance Sheet
Unaudited Audited
31.12.03 31.12.02
Notes US$'m US$'m
Fixed assets
Intangible assets 10 90.6 -
Tangible assets 11 1,863.2 1,830.3
Investments 12 0.4 187.4
1,954.2 2,017.7
Current assets
Stocks 60.5 57.5
Debtors 195.7 130.7
Current asset investments (including time deposits) 188.1 249.0
Cash at bank and in hand 7.6 3.4
451.9 440.6
Creditors - amounts falling due within one year
Trade and other creditors (94.9) (87.5)
Loans 13 (166.7) (124.0)
Dividends 9 (47.3) (35.5)
(308.9) (247.0)
Net current assets 143.0 193.6
Total assets less current liabilities 2,097.2 2,211.3
Creditors - amounts falling due after more than
one year
Loans 13 (690.8) (841.3)
Provisions for liabilities and charges 14 (157.4) (95.3)
1,249.0 1,274.7
Capital and reserves 1(a)
Preference share capital called up - non-equity 3.5 3.2
Ordinary share capital called up - equity 17.5 15.8
Share premium - equity 300.4 271.7
Reserves - equity 584.5 669.7
Shareholders' funds - including non-equity 15 905.9 960.4
interests
Minority interests - equity 343.1 314.3
1,249.0 1,274.7
Approved by the Board of Directors and signed on their behalf by P J Adeane,
Director.
9 March, 2004
Group Cash Flow Statement
Notes Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Net cash inflow from operating activities 16 510.2 350.3
Dividends received from other fixed asset investments 0.1 3.2
Interest received 4.7 7.0
Interest paid (31.6) (46.0)
Dividends paid to minority interests (81.7) (40.7)
Preference dividends paid (0.2) (0.2)
Net cash outflow from returns on investment and servicing of finance (108.7) (76.7)
Tax paid (12.9) (5.5)
Purchase of tangible fixed assets (91.7) (66.8)
Purchase of fixed asset investments (1.3) (1.8)
Sale of tangible fixed assets 5.4 1.3
Sale of fixed asset investments 9.4 -
Net cash outflow from capital expenditure and financial investments (78.2) (67.3)
Purchase of water concession 19 (193.8) -
Cash balances included in demerged assets 18 (1.4) -
Net cash outflow from acquisitions and disposals (195.2) -
Equity dividends paid (58.2) (69.8)
Cash inflow before management of liquid resources and financing 57.0 131.0
Management of liquid resources - Net decrease/(increase) in 52.9 (3.1)
time deposits
New loans drawn down 41.4 210.0
Repayment of amounts borrowed (149.5) (304.8)
Repayment of principal element of finance leases (3.3) (2.0)
Repayment of other creditors and refinancing of supplier credit - (29.9)
Net cash outflow from financing (111.4) (126.7)
Net cash (outflow)/inflow in the year 17 (1.5) 1.2
Notes
1 Reporting currency and accounting policies
a) Reporting currency
The functional reporting currency of the Group is US dollars, the principal
currency in which the Group operates and in which assets and liabilities are
held. Share capital is denominated in sterling and, for the purposes of
reporting in US dollars, share capital and share premium are translated at the
period end rate of exchange. As explained in Note 9, dividends are paid in
either US dollars or sterling.
b) Accounting policies
The profit and loss account, balance sheet and cash flow statement for the year
to 31 December 2003 have been prepared on the basis of the accounting policies
set out in the Group's statutory accounts for the year to 31 December 2002. The
accounting treatment of the acquisition of the water concession is detailed in
Note 19.
2 Production and sales statistics (neither audited nor reviewed)
(See notes following table 2(d).)
a) Copper production volumes
Year to Year to
31.12.03 31.12.02
'000 tonnes '000 tonnes
Los Pelambres 326.7 324.6
El Tesoro 92.4 84.3
Michilla 52.7 51.8
Group total 471.8 460.7
b) Copper sales volumes
Year to Year to
31.12.03 31.12.02
'000 tonnes '000 tonnes
Los Pelambres 332.8 318.2
El Tesoro 92.0 83.4
Michilla 52.6 51.6
Group total 477.4 453.2
c) Cash costs per pound
Year to Year to
31.12.03 31.12.02
cents cents
Los Pelambres 29.3 34.9
El Tesoro 42.4 40.8
Michilla 69.8 61.4
Group weighted average 36.4 38.9
d) LME and realised copper price per pound
Year to Year to
31.12.03 31.12.02
cents cents
Los Pelambres 84.6 71.2
El Tesoro 82.5 72.0
Michilla 82.5 73.2
Group weighted average 83.9 71.6
LME average 80.7 70.7
Notes to the production and sales statistics
(i) The production and sales figures represent the actual
amounts produced and sold, not the Group's attributable share of each mine. The
Group owns 60% of Los Pelambres, 61% of El Tesoro and 74.2% of Michilla.
(ii) Los Pelambres produces copper concentrate, and the figures
for Los Pelambres are expressed in terms of payable copper contained in
concentrate. Los Pelambres also produces molybdenum concentrate, and production
in 2003 amounted to 8,700 tonnes (2002 - 7,800 tonnes). El Tesoro and Michilla
produce copper cathodes.
(iii) Cash costs are a measure of the cost of operational
production expressed in terms of cents per pound of payable copper produced.
Cash costs include by-product credits and exclude depreciation, financial income
and expenses, exchange gains and losses and corporation tax.
(iv) Realised copper prices are determined by comparing turnover
from copper sales with sales volumes for each mine in the period.
(v) The individual figures are sometimes more specific than the
rounded numbers shown; hence small differences may appear in the totals.
3 Segmental analysis
a) Turnover by geographical destination
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
UK 10.5 14.0
Rest of Europe 312.9 241.8
Chile 149.4 120.7
Rest of Latin America 53.9 61.2
North America 59.4 50.8
Asia Pacific / other 490.1 374.6
1,076.2 863.1
b) Turnover by operation
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Los Pelambres 737.2 576.7
El Tesoro 167.2 132.8
Michilla 95.6 83.2
Mining 1,000.0 792.7
Railway and other transport services 75.8 70.4
Water concession (acquisition) 0.4 -
1,076.2 863.1
Notes to turnover by operation
(i) Turnover from Railway and other transport services is stated
after eliminating inter-segmental sales to the mining division of US$ 5.2
million (2002 - US$4.9 million).
(ii) Los Pelambres produces and sells copper and molybdenum
concentrates. It is also credited for the gold and silver content in the copper
concentrate it sells. Turnover by type of metal is analysed below. El Tesoro
and Michilla do not have by-products from their copper cathode operations.
(iii) Turnover from the water concession represents three days of
operations from 29 December to 31 December 2003 (see Note 19).
Los Pelambres turnover by type of metal
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Copper 620.5 499.3
Molybdenum 105.4 65.3
Gold and silver 11.3 12.1
737.2 576.7
c) Earnings before tax, interest, depreciation and amortisation (EBITDA)
by operation
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Los Pelambres 402.9 256.2
El Tesoro 78.8 58.9
Michilla 14.0 13.6
Exploration (3.5) (2.8)
Corporate and other items (11.0) (8.2)
Mining 481.2 317.7
Railway and other transport services 42.9 32.0
Water concession (acquisition) 0.2 -
524.3 349.7
EBITDA is calculated by adding back depreciation, amortisation and the
non-exceptional loss on disposal of fixed assets
(see Note 3(d) to operating profit (see Note 3 (e)).
As explained in Note 3(e), the Railway and other transport services division
includes other operating income of US$6.5 million.
d) Depreciation and amortisation by operation
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Los Pelambres 89.6 84.9
El Tesoro 20.2 19.8
Michilla 17.5 16.8
Corporate and other items 0.6 1.0
Mining 127.9 122.5
Railway and other transport services 8.9 6.2
Water concession (acquisition) - -
Total depreciation and amortisation 136.8 128.7
Loss on disposal of fixed assets included in operating profit 0.2 7.1
137.0 135.8
e) Operating profit/(loss) by operation
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Los Pelambres 313.3 165.9
El Tesoro 58.5 36.4
Michilla (3.6) (3.4)
Exploration (3.5) (2.8)
Corporate and other items (11.6) (8.0)
Mining 353.1 188.1
Railway and other transport services 34.0 25.8
Water concession (acquisition) 0.2 -
387.3 213.9
In 2003 the operating profit at the Railway and other transport services
division included other operating income of US$6.5million for the cancellation
of a contract for additional tonnages by a customer.
f) Capital expenditure by operation
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Los Pelambres 62.4 43.8
El Tesoro 9.6 7.5
Michilla 10.8 6.9
Corporate and other items 0.2 0.1
Mining 83.0 58.3
Railway and other transport services 9.9 6.1
92.9 64.4
Capital expenditure represents purchase of tangible fixed assets stated on an
accruals basis (see Note 11) and may therefore differ from the amount included
in the cash flow statement.
g) Net assets by operation
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Los Pelambres 1,240.1 1,297.3
El Tesoro 337.1 354.6
Michilla 75.1 84.1
Corporate and other 2.1 7.2
Mining 1,654.4 1,743.2
Railway and other transport services 107.8 92.5
Water concession (acquisition) 195.5 -
Operating net assets 1,957.7 1,835.7
Fixed asset investments 0.4 187.4
Net debt (661.8) (712.9)
Unallocated liabilities - Group dividend (47.3) (35.5)
Net assets 1,249.0 1,274.7
Net assets are stated before deducting minority interests.
4 Provisional pricing and commodity hedging
a) Provisional pricing
Copper concentrate agreements generally provide for provisional pricing at the
time of shipment with final pricing settlement based on the average LME copper
price for specified future periods, typically four months after shipment (known
as 'M+4'). Copper revenues on provisionally priced tonnages are adjusted
monthly until final settlement. Sales volumes are also adjusted on the final
metallurgical content of the concentrate.
Revenues in the year to 31 December 2003 included positive adjustments to sales
of concentrates open at 31 December 2002 totalling US$8.8 million. Revenues in
the year to 31 December 2002 included positive adjustments on sales of
concentrates open at 31 December 2001 totalling US$10.5 million.
At 31 December 2003, copper sales totalling 80,900 tonnes remained to be finally
priced, and were recorded at that date at an average price of 91.6 cents. At 31
December 2002, copper sales totalling 87,800 tonnes remained to be finally
priced, and were recorded at that date at an average price of 70.5 cents.
b) Commodity hedging
The Group periodically enters into commodity hedging contracts to manage its
exposure to the copper price. Turnover for the mining division for the year
ended 31 December 2003 included losses of US$11.1 million relating to commodity
hedging activities. Turnover for the year ended 31 December 2002 included gains
of US$1.0 million relating to commodity hedging.
At 31 December 2003, the Group had hedged 3,000 tonnes of copper production
using futures with a price of 80.1 cents per pound and an average outstanding
duration of 1.5 months. The Group had also hedged 7,500 tonnes of production
using min/max options with a weighted average floor and ceiling of 80 cents and
85.1 cents respectively, and an average duration of 1.5 months. The unrealised
mark-to-market gain on these instruments at that date was US$3.8 million, when
the LME cash price was 105.3 cents. No further hedges were entered into after
the year end.
5 Operating profit
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Turnover 1,076.2 863.1
Cost of sales (588.4) (558.2)
Gross profit 487.8 304.9
Administrative expenses (88.6) (82.2)
Closure provision (Note 14) (1.1) (1.2)
Severance charges (Note 14) (2.7) (1.9)
Exploration costs (3.5) (2.8)
Other net operating expenses (4.6) (2.9)
Operating profit 387.3 213.9
Turnover and operating profit in 2003 include US$0.4 million and US$0.2 million
respectively relating to the acquisition of the water concession. Further
details are given in Note 19.
Depreciation charges in 2003 amounted to US$ 136.8 million (2002 - US$128.7
million). Of this amount, US$ 133.4 million (2002 - US$125.7 million) is
included in cost of sales and US$ 3.4 million (2002 - US$3.0 million) is
included in administrative expenses.
6 Net interest payable
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Interest receivable and similar income 4.6 6.4
Interest payable and similar charges (32.7) (46.7)
Foreign exchange (2.1) (0.1)
Discount charge relating to provisions (Note 14) (1.1) 0.1
(31.3) (40.3)
7 Tax
The tax charge of US$ 64.4 million (2002 - US$ 29.9 million) represents an
effective rate (including deferred tax) of 18.0% (2002 - 16.9%) on profit before
tax, as compared with the current Chilean statutory tax rate of 16.5% (2002 -
16%).
The effective tax rate is higher than the statutory rate partly because the tax
charge for 2003 includes the payment of certain withholding taxes. In addition,
deferred tax is measured at the rates expected to apply in the period in which
timing differences are expected to reverse. Legislative changes at the end of
2001 increased the tax rate progressively to reach 17% in 2004.
8 Earnings per share
Earnings per share is calculated on profit after tax, minority interest and
preference dividends giving earnings of US$ 180.5 million (2002 - US$96.6
million) and is based on 197,171,339 ordinary shares in issue throughout both
years.
9 Dividends
Dividends are declared in US dollars but may be paid in either dollars or
sterling. Shareholders on the register of members with an address in the United
Kingdom receive dividend payments in sterling, unless they elect to be paid in
dollars. All other shareholders are paid by cheque in dollars, unless they have
previously instructed the Company's registrar to pay dividends by bank transfer
to a sterling bank account, or they elect for payment by cheque in sterling.
The Company's registrar must receive any such election before the record date of
14 May 2004.
The Board will recommend a final dividend of 24 cents per ordinary share (2002 -
18 cents) for payment on 10 June 2004 to shareholders on the Register at the
close of business on 14 May 2004. Dividends are declared and paid gross. The
exchange rate to be applied for the conversion of dividends will be £1 =
US$1.8691, giving a final dividend to those shareholders paid in sterling of
12.8404 pence per ordinary share (2002 - 11.3852 pence).
An interim dividend of 11 cents per ordinary share (2002 - 10 cents) was paid in
October 2003, giving a total cash dividend for the year of 35 cents per ordinary
share (2002 - 28 cents per ordinary share). A special dividend in specie of
shares in Andsberg Limited ('the demerger dividend') was also made on 1 October
2003. The demerger dividend carried a redemption right until 30 October 2003 of
US$1.11 per share. Further details relating to the demerger and the funding of
the redemption right are given in Note 18.
Dividends in relation to 2003 in respect of ordinary shares are summarised
below:
Per share Total
Unaudited Audited Unaudited Audited
year to year to year to year to
31.12.03 31.12.02 31.12.03 31.12.02
cents cents US$'m US$'m
Interim 11 10 21.7 19.7
Final 24 18 47.3 35.5
35 28 69.0 55.2
Demerger (consolidated book value of assets demerged; see Note 18) 181.5 -
250.5 55.2
10 Intangible fixed asset
Concessionright
US$'m
1 January 2003 (audited) -
8
Acquisition (Note 19) 87.9
Exchange 2.7
31 December 2003 (unaudited) 90.6
11 Tangible fixed assets
Railway
and other Water
Mining transport concession Total
US$'m US$'m US$'m US$'m
Net book value
1 January 2003 (audited) 1,737.3 93.0 - 1,830.3
Acquisition - - 68.3 68.3
Additions 83.0 9.9 - 92.9
Disposals (3.7) (1.5) - (5.2)
Depreciation (127.9) (8.9) - (136.8)
Provision for closure
Exchange - 13.7 - 13.7
31 December 2003 (unaudited) 1,688.7 106.2 68.3 1,863.2
12 Investments
US$'m
1 January 2003 (audited) 187.4
8
Demerger (Note 18) (180.1)
Additions 1.3
Disposals (8.3)
Exchange 0.1
31 December 2003 (unaudited) 0.4
The above investments include quoted investments with a book value of US$ 0.4
million (2002 - US$187.2 million). The market value of these investments at 31
December 2003 was US$ 0.5 million (2002 - US$178.9 million). Proceeds on
investments sold during the year amounted to US$9.4 million resulting in a
profit on disposal of US$1.1 million.
13 Loans
Unaudited Audited
31.12.03 31.12.02
US$'m US$'m
Los Pelambres
- Project loans (594.9) (704.0)
- Other loans (37.9) (28.7)
El Tesoro
- Project loans (153.8) (181.3)
- Subordinated debt (18.7) (24.3)
- Finance leases (14.2) (16.4)
Michilla
- Finance leases (2.2) (2.0)
Railway and other transport services
- Loans (9.0) (8.6)
Corporate
- Loans (26.8) -
(857.5) (965.3)
Loans are shown net of deferred financing costs of US$3.0 million (2002 - US$3.4
million), of which US$2.8 million (2002 - US$3.4 million) relates to the project
loans at El Tesoro. The gross amount due in relation to the El Tesoro project
loans is US$156.6 million (2002 - US$184.7 million).
Maturity of loans:
Unaudited Audited
31.12.03 31.12.02
US$'m US$'m
Due within one year (166.7) (124.0)
Due after more than one year (690.8) (841.3)
(857.5) (965.3)
US$24.7 million of project loans have been fixed at a rate of 5.56% for a
remaining period of 1.1 years, and finance leases are also mainly fixed rate.
The remainder of the loans are predominantly floating rate. However, the Group
periodically enters into interest rate hedging contracts to manage its exposure
to interest rates. At 31 December 2003, the Group had hedged US$166.0 million of
its borrowings using collars for a remaining weighted period of 2.2 years. These
limit the variability of the interest rate to a weighted average minimum (a
floor) of 5.01 % and a weighted average maximum (a cap) of 5.99%.
14 Provisions for liabilities and charges
Decommi-ssioning
Termination and site
of water rehabilitation Severance Deferred
concession US$'m indemnities tax Total
US$'m US$'m US$'m US$'m
1 January 2003 (audited) - (7.5) (10.6) (77.2) (95.3)
Acquisition (0.1) - (1.7) - (1.8)
Charge to operating profit in year (Note 5) - (1.1) (2.7) - (3.8)
Release of discount to net interest in - (0.3) (0.8) - (1.1)
year (Note 6)
Charge to tax on profit in year - - - (54.8) (54.8)
Utilised in year - - 1.2 - 1.2
Exchange - - (1.1) (0.7) (1.8)
31 December 2003 (unaudited) (0.1) (8.9) (15.7) (132.7) (157.4)
15 Reconciliation of movements in shareholders' funds
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Profit for the financial year 180.7 96.8
Other recognised gains and losses relating to the year
- Exchange 15.5 (10.3)
Total recognised gains and losses 196.2 86.5
Dividends (including demerger dividend of US$181.5 million in 2003, see Note 18) (250.7) (55.4)
(54.5) 31.1
Opening shareholders' funds 960.4 929.3
Closing shareholders' funds 905.9 960.4
16 Reconciliation of operating profit to net cash inflow from operating
activities
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Operating profit 387.3 213.9
Depreciation 136.8 128.7
Loss on disposal of tangible fixed assets 0.2 7.1
Increase in stocks (1.6) (8.0)
Increase in debtors (23.7) (10.2)
Increase in creditors and provisions 11.2 18.8
Net cash inflow from operating activities 510.2 350.3
17 Reconciliation of net cash flow to movement in net debt
Unaudited Audited
year to year to
31.12.03 31.12.02
US$'m US$'m
Net cash (outflow)/inflow in the year (1.5) 1.2
Cash outflow from decrease in debt 111.4 96.8
Cash (inflow)/outflow from (decrease)/increase in liquid resources (52.9) 3.1
Change in net debt resulting from cash flows 57.0 101.1
Interest accrued on long-term loan balances and amortisation of deferred (1.5) (2.3)
financing costs
New leases (1.3) (2.0)
Exchange (3.1) (1.0)
Movement in net debt in the year 51.1 95.8
Net debt at the beginning of the year (712.9) (808.7)
Net debt at the end of the year (661.8) (712.9)
Composition of net debt
Unaudited Audited
31.12.03 31.12.02
US$'m US$'m
Cash in hand and demand deposits 7.6 3.4
Current asset investments 188.1 249.0
Long and short term loans including finance leases (Note 13) (857.5) (965.3)
Net debt at the end of the year (661.8) (712.9)
18 Demerger of Andsberg Limited
On 1 October 2003, shareholder approval was obtained for the demerger of
Andsberg Limited ('Andsberg'), an unlisted Jersey-registered company whose
principal asset was the Group's 33.6% interest in Quinenco S.A. Following the
resolution, ordinary shareholders in Antofagasta plc ('Antofagasta') received
one share in Andsberg for each share held in Antofagasta on 1 October 2003.
The Andsberg shares carried a redemption right until 30 October 2003 at a fixed
price of US$1.11 per share. Valid redemption forms were received in respect of
58,691,813 shares and payment was made on 6 November 2003. Shareholders who
requested payment of redemption proceeds in sterling received 65.4134 pence per
share, based on an exchange rate of US$1.6969 per share. The redemption was
funded by entities connected with the Luksic family which subscribed for
additional shares in Andsberg.
The demerger dividend is recorded in the Group's financial statements at the
consolidated book value of Andsberg and its subsidiaries. The consolidated book
values of the assets demerged were as follows:
US$'m
Investment - 33.6% interest in Quinenco S.A. 180.1
Cash at bank and in hand 1.4
181.5
The costs of the demerger amounted to US$1.2 million and have been included in
the profit and loss account as a charge to operating profit.
19 Acquisition of water concession
In November 2003, the Group was awarded a 30 year concession to operate the
water rights and facilities in the Antofagasta Region of Chile previously
controlled by Empresa de Servicios Sanitarios de Antofagasta S.A. (ESSAN). The
award followed a competitive tender managed by Sistema de Empresas Publicas
(SIP), a Chilean Government entity.
The concession contract was signed and control of the assets and operation was
assumed on 29 December 2003 by Aguas de Antofagasta S.A., a newly-created
wholly-owned subsidiary of the Group. The cost of the concession was Ch$116.6
billion (US$193.8 million) and was satisfied in cash on the same date. The cost
includes IVA (Chilean sales tax) of 19% which is estimated to be recoverable
over 8 years.
Under the concession contract, certain assets and liabilities (mainly specific
tangible fixed assets and working capital items) were transferred to Aguas de
Antofagasta by way of sale. Other assets (mainly water rights and
infrastructure) were transferred by way of concession and will devolve to ESSAN
at the end of the 30 year period.
The concession has been accounted for as an acquisition at 29 December 2003.
Assets and liabilities transferred by way of sale and those assets transferred
by way of concession whose useful economic lives are substantially consumed
within the period of the concession have been consolidated based on fair values
at the date of acquisition. An intangible fixed asset (a 'concession right')
has been recognised in respect of the right to use those assets whose useful
lives extend substantially beyond the period of the concession. This right will
be amortised over the life of the concession.
The fair values of the assets and liabilities at the date of the acquisition
were as follows:
Net assets acquired: US$'m
Intangible fixed asset - concession right 87.9
Tangible fixed assets 68.3
Stocks 1.3
Debtors (including IVA, i.e. recoverable sales tax) 39.9
Creditors (1.8)
Provisions for liabilities and charges (1.8)
193.8
The consideration was wholly satisfied by the payment of cash.
In the period from 29 December to 31 December 2003, Aguas de Antofagasta
contributed US$0.4 million to Group turnover, US$0.2 million to operating profit
and US$1.1 million to operating cash flow.
20 Financial information
The financial information set out in this announcement does not constitute the
Group's statutory accounts for the years ended 31 December 2003 or 2002. The
financial information for the year ended 31 December 2002 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was unqualified
and did not contain a statement under s237(2) or (3) Companies Act 1985. The
statutory accounts for the year ended 31 December 2003 will be finalised on the
basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
21 Currency translation
Assets and liabilities denominated in foreign currencies are translated into
dollars and sterling at the year end rates of exchange. Results denominated in
foreign currencies have been translated into dollars and sterling at the average
rate for each year.
Year end rates Average rates
31.12.03 US$1.77 = £1; US$1 = Ch$ 594 US$1.63 = £1; US$1 = Ch$ 692
31.12.02 US$1.60 = £1; US$1 = Ch$ 719 US$1.50 = £1; US$1 = Ch$ 689
22 Distribution
The Annual Report and Financial Statements, including the Notice of the Annual
General Meeting and Chairman's Statement for the year ended 31 December 2003,
will be posted to all shareholders in May 2004. The Annual General Meeting will
be held in the Armourers Hall, 81 Coleman Street, London EC2 at 10.30 a.m. on 9
June 2004.
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