Interim Results
Antofagasta PLC
29 August 2006
Antofagasta plc
Interim Results Announcement for the six months ended 30 June 2006
29 August 2006
HIGHLIGHTS
• Record financial results:
• Cash flows from operations up 36% to US$1.0 billion.
• Profit before tax up 79% to US$1.3 billion.
• Earnings per share up 77% to 66.2 cents*.
• Strong copper prices have benefited the Group, offsetting an 8.6%
decrease in copper production in line with budget to 207,900 tonnes and
higher operating costs:
• Average LME copper price up 82% to 275.3 cents per pound.
• The Group also benefited from significant adjustments on provisionally
priced sales.
• Average market molybdenum price decreased 29% to US$23.7 per pound, but
remains well above historical levels.
• Molybdenum production decreased 13% to 4,100 tonnes.
• Group weighted average cash costs** were 46.9 cents per pound compared
with negative 8.7 cents in the 2005 half year:
• This mainly reflected lower by-product credits and higher tolling
charges for concentrates at Los Pelambres.
• Tolling charges were in particular affected by price participation with
smelters due to high copper prices.
• On-site costs were higher than the 2005 half year but in line with the
Group's forecasts for this year.
• Total interim dividend of 5.2 cents per share. This comprises an interim
ordinary dividend of 3.2 cents together with a special dividend of 2.0 cents
(2005 interim dividend - 3.2 cents*).
• Full year production forecast of 455,000 tonnes of copper and 10,200
tonnes of molybdenum, based on higher expected processing levels and
improved molybdenum grades in the second half.
• Solid results from the railway and water businesses.
• Continued progress at the Mauro dam and plant expansion at Los
Pelambres, to be completed at a combined cost of US$0.7 billion. The plant
expansion is expected to be substantially completed ahead of schedule by the
end of this year.
• Feasibility work commenced at Esperanza, expected to be completed by
April 2007.
• Acquisition of Tethyan Copper Company finalised in the first half of
2006 at an eventual total cost of US$230 million (including the US$60
million cancellation of the BHP Billiton claw-back right). The proposed
joint venture with Barrick is expected to be completed in the second half of
this year.
• Announced takeover offer to acquire Equatorial Mining in August, at a
cost of approximately US$401 million. Acceptances of 97% have been received
and the takeover offer is now unconditional. The acquisition of Equatorial
will increase the Group's interest in El Tesoro to 100%.
SIX MONTHS TO 30 JUNE 2006 2005 % Change
-------------------------- -------- ------- ------- --------
Group turnover US$'m 1,846.9 1,123.6 64.4%
Cash flows from operations US$'m 1,045.4 767.1 36.3%
Profit before tax US$'m 1,325.3 739.5 79.2%
Earnings per share* cents 66.2 37.3 77.5%
Dividend per share* cents 5.2 3.2 62.5%
(2006 - interim 3.2 cents; special 2.0 cents)
LME copper price (per pound) cents 275.3 151.1 82.2%
Market molybdenum price (per pound) US$ 23.7 33.4 (29.0%)
Group copper production '000 tonnes 207.9 227.4 (8.6%)
Group molybdenum production '000 tonnes 4.1 4.7 (12.8%)
Marcelo Awad, Chief Executive Officer of Antofagasta Minerals S.A., commented,
'These are another set of excellent results for Antofagasta, with high metal
prices supporting a sound operating performance. Following an already strong
year in 2005, results in the 2006 first half increased by over 75% compared with
the same period last year. Antofagasta continues to enhance its overall growth
profile, both by developing its existing assets and by securing rights to
world-class mining assets, helped by the Group's strong financial position.'
Antofagasta is a Chilean-based mining group listed in the United Kingdom and is
a constituent of the FTSE-100 index. In addition to copper mining, its interests
include rail and road transport networks and a water distribution system.
* Earnings per share and dividends per share have been restated for the effects
of the 4-for-1 bonus issue on 16 June 2006.
Dividends are paid in either sterling or US dollars. The conversion rate for
dividends to be paid in sterling will be set on 26 September 2006.
** Cash cost is a method used by the mining industry to express the cost of
production in cents per pound of copper, and is further explained in Note 26(b)
(iii) to the Interim Results 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
Desmond O'Conor Email:arivera@aminerals.cl
Email: doconor@antofagasta.co.uk
Issued by
Hussein Barma Bankside Consultants
Email: hbarma@antofagasta.co.uk Tel: +44 20 7367 8873
Keith Irons
Email:keith@bankside.com
Oliver Winters
Email:oliver.winters@bankside.com
DIRECTORS' COMMENTS FOR THE HALF YEAR TO 30 JUNE 2006
The Group achieved record results for a six month period, benefiting from
continued strong market conditions. Profit before tax was up 79.2% to US$1,325.3
million (2005 half year - US$739.5 million) with earnings per share up 77.5% to
66.2 cents per share (2005 half year - 37.3 cents per share). LME copper prices
averaged 275.3 cents per pound (2005 - 151.1 cents per pound), while the Group
also benefited from significant pricing adjustments on provisionally invoiced
sales in respect of both the current and previous year, resulting in an averaged
realised price of 353.4 cents per pound (2005 half year - 159.1 cents per
pound). Molybdenum market prices, although still well above historical levels,
were lower than the previous period at US$23.7 per pound (2005 half year -
US$33.4 per pound).
As expected, Group copper production decreased by 8.6% to 207,900 tonnes (2005
half year - 227,400 tonnes) mainly as a result of lower processing levels at Los
Pelambres and lower ore grades at El Tesoro. Molybdenum production was 4,100
tonnes compared with 4,700 tonnes in the first half of 2005. Weighted average
cash costs were 46.9 cents per pound compared with negative 8.7 cents per pound
in the first six months of 2005. This was mainly due to lower by-product credits
as a result of lower molybdenum prices and production and higher tolling charges
for concentrates, due to increased price participation with smelters as a result
of the higher copper price. On-site costs at the Group's three mines increased
compared with the 2005 first half, but remained in line with its forecasts for
the full year. The Group's transport and water operations achieved good results
with continued strong volumes.
In the 2006 first half, the Group continued with its capital projects and growth
plans. Los Pelambres progressed the construction of the Mauro tailings dam and
the expansion of the concentrator plant to 140,000 tonnes per day of ore
throughput. The combined capital cost of these projects is expected to be
approximately US$715 million, of which US$290.4 million had been spent by 30
June 2006. The tailings dam is expected to be completed on time by the end of
2007 while the plant expansion is now expected to be substantially completed by
the end of 2006, ahead of the original schedule of the second quarter of 2007.
Pre-feasibility work has now been completed at Esperanza, with a feasibility
study expected to be completed by April 2007, after which an environmental
impact assessment for the project could be submitted.
In June 2006, the Group completed its acquisition of Tethyan Copper Company
Limited, an Australian company with copper-gold interests in Pakistan at a total
cost of US$230.4 million (including US$60 million payable to BHP Billiton for
the cancellation of its rights to claw-back an interest in Tethyan's deposits).
The Group has announced that it has agreed to establish a 50:50 joint venture
with Barrick Gold Corporation which is expected to be finalised in the second
half of this year. Barrick Gold will reimburse the Group for 50% of the
acquisition cost of Tethyan and the claw-back right. During the first half of
2006, the Group also acquired the Antucoya deposit from Soquimich. In July 2006,
it announced a Head of Terms agreement with AngloGold Ashanti Limited to
establish a joint venture to explore an area of interest in southern Colombia.
In August, the Group announced a takeover offer for Equatorial Mining Limited
('Equatorial'), a company listed on the Australian Stock Exchange and
majority-owned by AMP Life Limited ('AMP'). The offer has been successful; the
Group has acceptances of 97% and the offer is now unconditional. Total
consideration payable will be approximately $401million. Equatorial's principal
asset is a 39% interest in El Tesoro, in which the Group holds the remaining
61%.
Cash flows from operations in the 2006 half year were US$1,045.4 million (2005
half year - US$767.1 million). In the six months to 30 June 2006, other net cash
outflows amounted to US$1,123.5 million (2005 half year - US$581.1 million) and
accordingly cash and cash equivalents decreased by US$78.1 million (2005 half
year - increase of US$186.0 million). This included capital expenditure,
acquisition costs of Tethyan, dividends paid to Group and minority shareholders,
taxes paid and debt repayment. Net cash at 30 June 2006 was US$821.7 million (30
June 2005 - US$539.9 million) which compares with US$851.5 million at the
beginning of the year. These cash reserves will fund the Group's capital
expenditure programmes, including the Mauro dam and plant expansion projects at
Los Pelambres, the feasibility study at Esperanza, the acquisition of Equatorial
Mining Limited and other new opportunities which may arise.
The Board has declared an interim ordinary dividend of 3.2 cents per share (2005
half year - 3.2 cents per share). In view of the exceptional results this half
year, the Board has also decided to pay a special dividend of 2.0 cents per
share (2005 half year - nil).
Review of Operations
Los Pelambres
Los Pelambres had a record six month period with operating profit up 77.0% at
US$1,097.6 million, compared with US$620.1 million in the first six months of
2005. Realised copper prices were 376.8 cents per pound (2005 half year - 159.8
cents per pound), reflecting strong LME prices and significant pricing
adjustments on mark-to-market and close-out of provisional sales. Realised
molybdenum prices decreased to US$22.7 per pound (2005 - US$36.0 per pound),
reflecting lower market prices. Further details of pricing adjustments are given
in the financial commentary on page 13.
Los Pelambres produced 141,600 tonnes of payable copper in the first six months
of 2006, 8.6% below the first six months of last year when 154,900 tonnes were
produced. The decrease was mainly due to a build-up of unfiltered copper
concentrate at the concentrator plant in May when repairs were carried out to
the slurry pipeline, reducing the volume available for filtration at the port in
that month. This concentrate was partly processed at the port in June with the
remainder (approximately 11,000 tonnes) processed in July. The delay is not
expected to have any overall effect on production volumes for the full year. The
reduced production in the first half was also in part due to lower daily ore
throughput and lower recoveries at the concentrator plant. Ore throughput
averaged 120,200 tonnes per day (tpd) compared with 126,500 tpd in the 2005 half
year, as a result of a higher proportion of harder primary ore compared with
2005 as well as programmed downtime to enable the construction of the 140,000
tpd plant expansion. These factors were partly offset by the higher ore grade,
which averaged 0.82% (2005 half year - 0.78%).
Molybdenum production was 4,100 tonnes, in line with the year-to-date forecast
but 12.8% below the 4,700 tonnes produced in the first half of 2005. This
decrease was mainly due to changes in levels of partly-processed molybdenum
concentrate and, to a lesser extent, the lower ore throughput level and lower
recoveries (resulting from the characteristics of the ore processed in the
period). These factors were partly offset by the marginally higher ore grade.
Cash costs, which are stated net of by-product credits and include tolling
charges, averaged 24.4 cents per pound in the first six months of 2006 compared
with negative 48.1 cents in the first half of 2005; the increase was mainly due
to lower by-product credits (which decreased by 47.0 cents) and higher treatment
and refining charges (which increased by 13.8 cents). Lower by-product credits
resulted mainly from lower production and lower prices for molybdenum. Treatment
and refining charges increased mainly through price participation with smelters
as the average LME copper price rose significantly in the 2006 half year.
On-site and shipping costs for the first six months of the year remain in line
with forecast, but were 11.7 cents per pound above the 2005 half year, due to
lower production as well as higher costs for fuel, energy, explosives and
services.
Los Pelambres continued to reduce its borrowings with repayments totalling
US$40.7 million. Total borrowings were US$355.3 million at 30 June 2006.
Good progress was made with two major capital expenditure programmes, the Mauro
tailings dam project and expansion of the concentrator plant, both of which are
being financed out of Los Pelambres' cash resources.
The Mauro tailings dam will, together with the existing Quillayes tailings dam,
provide Los Pelambres with sufficient storage capacity for its 2 billion tonnes
of existing ore reserves, thereby supporting its mine plan to 2047. By the end
of June this year, the construction of the Mauro tailings dam was 41% complete
as to construction with costs to date (including initial basic engineering
costs) of US$218.3 million; of this amount, US$146.5 million was spent in the
first half of 2006. As announced earlier in the year, the total forecast cost
for this project is now US$534 million (before exchange rate effects), compared
with an original budget of US$457 million. This cost increase reflects higher
steel prices, as well as higher project costs including tunnelling and impact of
the delay of environmental permits mainly in 2005. Construction of the tailings
dam is on time and expected to be completed as planned by the end of 2007.
Expansion of the plant to 140,000 tpd was started in 2005, and will be achieved
by re-powering the grinding lines and installing a fifth ball mill at the
concentrator plant. By 30 June 2006, the expansion project was 53% complete with
cumulative expenditure to that date of US$72.1 million. Of these costs US$61.5
million was incurred in the first half of 2006. The project remains within the
original budget of US$181 million. The repowering of the SAG mills was completed
in the first half of 2006, and the additional flotation cells in August. The
start-up of the fifth ball mill is expected by the end of this year, ahead of
the original schedule of April 2007. Los Pelambres continues to review options
for possible further expansion. As part of this review, it has started an
exploration programme which is further described under 'Projects, exploration
and new opportunities' below.
Copper production at Los Pelambres for the full year is expected to be
approximately 320,000 tonnes, ahead of the original forecast of 308,000 tonnes.
Average throughput for 2006 is expected to be 128,000 tpd as the plant benefits
from the initial stages of the plant expansion in the second half of this year.
On-site and shipping costs are expected to be in line with forecast at
approximately 56.4 cents per pound, while changes in the level of tolling
charges (which were 39.8 cents per pound in the first half of 2006) are expected
to relate mainly to the effect of changes in the copper price on price
participation with smelters. Molybdenum production for the full year is expected
to be 10,200 tonnes, marginally below the original forecast of 10,800 tonnes.
El Tesoro
Operating profit at El Tesoro rose by 53.3% from US$97.6 million in the 2005
half year to US$149.6 million. Realised copper prices were 301.2 cents per pound
compared with 157.9 cents in the 2005 half year, reflecting higher LME prices,
strong cathode premiums due to the continuing tight cathode market and pricing
adjustments on close-out of cathode sales.
Production at El Tesoro was 42,500 tonnes (2005 half year - 49,900 tonnes). The
lower production was in line with forecast as higher processing levels
(following the completion of the 10.5 million tonnes per year throughput
expansion at the beginning of the year) were offset by expected lower ore grades
and recoveries.
Cash costs rose to 79.7 cents per pound compared with 58.9 cents per pound in
the 2005 half year, but remained in line with budget for this year. The higher
cash costs were due to the lower production level and higher waste-to-ore ratio,
increased consumption of sulphuric acid due to a higher presence of carbonates
in the ore and higher input costs including fuel prices. El Tesoro's results
were also affected by the effect of commodity hedging (including mark-to-market
adjustments), which reduced operating profit in the 2006 first half by US$43.5
million (2005 half year - US$0.7 million).
El Tesoro's borrowings were reduced by regular repayments of US$7.0 million, and
amounted to US$49.1 million at 30 June 2006. Debt balances were further reduced
by US$14 million with a voluntary prepayment in July 2006.
El Tesoro expects to meet its production forecast of 91,600 tonnes for the full
year, as grades and recoveries are expected to improve in the second half. Cash
costs are expected to be 79.5 cents per pound, marginally above the 78 cents
forecast at the start of the year.
Michilla
Operating profit increased to US$44.3 million (2005 half year - US$9.6 million)
as Michilla benefited from the strong commodity market. Realised copper prices
were 306.6 cents per pound (2005 half year - 157.1 cents per pound), reflecting
strong cathode premiums and positive pricing adjustments in addition to strong
LME prices. Michilla produced 23,800 tonnes of copper cathodes in the first six
months of 2006 (2005 half year - 22,600 tonnes). The increase of 1,200 tonnes
was due mainly to higher grades, together with higher processing levels and
better recoveries.
Cash costs remained within forecast at 122.0 cents per pound, compared with
112.2 cents per pound in the first six months of 2005, reflecting higher costs
at the Florida and Estefania underground mines, higher prices for fuel and
explosives and the stronger Chilean peso. Hedging losses (including
mark-to-market adjustments) in the first half were US$46.2 million (2005 half
year - US$3.7 million). Nevetheless, the higher costs and hedging losses were
outweighed by improved prices and higher production.
Cathode production is expected to be approximately 43,000 tonnes, marginally
above the original estimate for the year at a similar cash cost estimate of 128
cents per pound.
Michilla is completing a technical review of its resources, with a revised mine
plan to determine its future level of production now expected to be completed in
the last quarter of 2006.
Railway and other transport services
Rail and road transport volumes in the first half of 2006 were 2.1 million tons
(2005 half year - 2.2 million tons) and 0.8 million tons (2005 half year - 0.7
million tons) respectively. A slight reduction in rail tonnages was mainly
because of marginal decreases from Codelco. Operating profit (excluding income
from associates) was similar at US$14.1 million (2005 half year - US$14.7
million).
The FCAB's medium to longer term prospects continue to be positive. New mining
projects for which the FCAB expects to transport cargo include Apex Silver
Mines' San Cristobal polymetallic project in south-western Bolivia, BHP
Billiton's Spence copper project in Chile's Region II and Escondida's sulphide
leach project. While no significant increase in tonnages is expected in 2006,
these new mining projects should provide a significant uplift to existing
transport volumes through 2007 and 2008. Further opportunities may arise as
mining activity continues to respond to the strength and duration of the current
commodity cycle.
Aguas de Antofagasta
Aguas de Antofagasta had a good 2006 half year. Combined industrial and domestic
water sales increased from 16.6 million cu. m. in the 2005 first half to 18.5
million cu. m. this period, with operating profit of US$16.4 million (2005 half
year - US$11.9 million), as Aguas benefited from increased volumes as well as
from the stronger Chilean peso, the currency in which revenues from domestic
customers are received. Aguas de Antofagasta has started to supply water to BHP
Billiton's Spence project during its construction phase and is continuing with
studies to supply water for a possible future expansion of the Collahuasi mine
owned by Falconbridge and Anglo American.
Projects, exploration and new opportunities
The Group spent US$8.1 million on exploration activities in the first six months
of 2006 (2005 half year - US$8.0 million).
Esperanza
The Group's principal new project is Esperanza, approximately 5 kilometres from
El Tesoro, where US$4.4 million was spent in the first half of 2006.
Pre-feasibility work has now been completed within the original budget of
US$15.3 million, including completion of a 2.3 kilometre exploration decline. As
announced in March following analysis of drill results, the drill-inferred
sulphide resource at Esperanza was increased to 786 million tonnes of ore with
an average copper grade of 0.53%, an average gold grade of 0.20 g/t, and an
average molybdenum grade of 0.0123%, compared with a previous estimate of 469
million tonnes of ore with an average copper grade of 0.63% and 0.27 g/t of
gold. Both the current and previous resource estimates are based on a cut off
grade of 0.3% copper.
Feasibility work has now begun and Esperanza expects to complete a feasibility
study by April 2007 with a budget of US$16.9 million, which will enable it to
submit an Environmental Impact Assessment to the appropriate authorities. Board
and Environmental approvals could be obtained by the end of 2007. Esperanza was
initially expected to be developed as a 50,000 tpd project producing 120,000
tonnes of copper in concentrates and 170,000 ounces of gold annually in the
first five years of its mine life. However, the size of the potential operation
could be increased following the feasibility study based on the larger resource
base recently established.
Los Pelambres
As part of its review of options for possible expansion, Los Pelambres has
started a two-year programme to identify additional deposits beyond the existing
3.1 billion tonne resource. A first stage was completed by 30 June 2006 at a
cost of US$1.3 million, which included an 8,500 metres drilling programme. A
second stage including an additional 7,500 metres drilling programme is expected
to be completed by the end of this year.
Reko Diq (Tethyan Copper Company Limited)
In February 2006, the Group announced a recommended cash offer for Tethyan
Copper Company Limited ('Tethyan'), a company then listed on the Australian
Stock Exchange with copper-gold interests in Pakistan. The Group also entered
into an agreement with BHP Billiton whereby BHP Billiton's rights to claw-back a
material interest in certain of Tethyan's mineral interests would be
extinguished for a consideration of US$60 million. An agreement was also entered
into with Barrick Gold Corporation ('Barrick Gold') to support the takeover
offer and to establish a 50:50 joint venture whereby Barrick Gold will reimburse
the Group for 50% of the acquisition cost of Tethyan and the claw-back right.
The offer was declared unconditional on 20 April, when the Group's interest
including acceptances exceeded 50%; Tethyan was delisted from the Australian
Stock Exchange in May and all of the remaining shares were acquired by the end
of June. The total cost of the acquisition was US$170.4 million, with a further
US$60 million expected to be paid to BHP Billiton in the second half of 2006 to
extinguish the claw-back right. The Group is currently in discussions with
Barrick Gold on the terms of the proposed joint venture, which is also expected
to be finalised in the second half of 2006 when the reimbursement of
approximately US$115 million should be received.
Tethyan's principal assets are a 75% interest in the exploration licence
encompassing the Reko Diq prospect in the Chagai Hills region of South-West
Pakistan, which includes the Tanjeel Mineral Resource and the Western
Porphyries, and a 100% interest in certain other licences in the region. Tethyan
has reported total indicated and inferred mineral resource estimates at these
properties of 2.4 billion tonnes with a copper grade of 0.51% and a gold grade
of 0.27g/t. A budget of US$27.3 million has been set to cover an 18-month
period, to include exploration and drilling and, in the later stages, initial
pre-feasibility work on the prospects identified. Costs incurred to 30 June 2006
following acquisition of control in April amounted to US$1.1 million.
Antucoya
During the first half of 2006, the Group acquired the Antucoya property from
Soquimich for US$8.0 million plus a future net smelter return. Antucoya is
estimated to contain 322 million tonnes of oxide ore with an average copper
grade of 0.4%, and is adjacent to Buey Muerto, a deposit in which the Group has
a controlling interest and which is estimated to contain 138 million tonnes of
oxide ore with a grade of 0.43%. The Group intends to conduct further
exploration and technical studies to examine the viability of on-site leaching
of the deposits to provide enriched solution to utilise any excess capacity at
Michilla's SX-EW plant.
Joint venture with AngloGold Ashanti in Colombia
In July 2006, the Group signed a Head of Terms agreement with AngloGold Ashanti
Limited ('AngloGold'), one of the world's largest gold producers. This agreement
sets out the terms of a proposed joint venture, the Southern Colombia Joint
Venture ('the JV'), to explore, discover, and develop copper and gold mining
projects in an area of interest in southern Colombia extending approximately
30,000 square kilometres. Under the agreement, AngloGold will contribute its
mineral interests in the area covered by the JV and Antofagasta will commit to
funding US$1.3 million in exploration costs over a period of one year.
Antofagasta may decide to fund an additional US$6.7 million in exploration costs
within four years (representing a total contribution of US$8.0 million), in
order to earn a 50% interest in the JV.
Acquisition of Equatorial Mining Limited
On 15 August 2006, the Group announced that it had entered into an agreement to
acquire a 19.99% shareholding in Equatorial Mining Limited ('Equatorial') at
A$8.00 per share and had made a cash takeover offer of A$11.20 per share for all
of the issued shares of Equatorial. On 24 August 2006 the Group announced it had
secured an interest in 97% of Equatorial's issued shares and that its takeover
offer was unconditional. The Group also announced its intention to compulsorily
acquire any remaining Equatorial shares in due course to reach 100% ownership.
The total consideration payable by the Group to acquire all of Equatorial's
shares is expected to be approximately US$401 million. Equatorial reported cash
balances of approximately US$97 million as at 30 June 2006. Equatorial is
company listed on the Australian Stock Exchange whose principal asset is a 39%
ownership interest in El Tesoro. The acquisition of Equatorial will increase the
Group's interest in the El Tesoro mine to 100%.
Sierra Gorda district
The Group will continue examining its prospects in the Sierra Gorda district,
where the acquisition of Equatorial will consolidate the Group's land position
through the addition of mining properties located between the Telegrafo and
Centinela deposits which are controlled by the Group.
Dividends
The Board has declared an interim ordinary dividend of 3.2 cents per share (2005
half year - 3.2 cents per share). In view of the exceptional results this half
year, the Board has also decided to pay a special dividend of 2.0 cents per
share (2005 half year - nil). Accordingly, a total interim dividend of 5.2 cents
per share will be paid on 12 October 2006 to ordinary shareholders on the
register at the close of business on 22 September 2006. Dividends are payable in
either US dollars or sterling, and the exchange rate to be applied to dividends
to be paid in sterling will be set on 26 September 2006.
Current Trading Prospects
Copper prices on the LME have remained very strong through 2006, increasing from
just over 200 cents per pound at the beginning of the year to around 340 cents
at the end of June, and peaking at just under 400 cents in mid-May. Since 30
June, prices have remained strong, averaging just over 350 cents. Demand remains
firm, supported by increased demand for commodities as an investment alternative
by institutional and mainstream investors, and visible inventories have remained
very low at around 170,000 tonnes, representing less than two weeks of world
consumption. The combination of strong demand and supply disruptions and
constraints has resulted in a deficit market since 2002. Most commentators now
expect this deficit to persist into 2006 and possibly into 2007. Consequently
while commodity markets continue to be volatile, prices could remain well above
historical levels with current consensus price estimates of over 280 cents per
pound in 2006 and 250 cents per pound in 2007.
The concentrates market has also continued to improve in favour of producers as
smelting capacity increases and risks of mine supply disruption continue. A
deficit market in copper concentrates has developed, which is expected to
continue through 2007 and into 2008. The year-end negotiations of annual
contracts between producers and smelters could therefore show improvements in
favour of producers. It is also possible that changes in the price participation
structure could occur; this has already become the main focus of discussions
during the current mid-year negotiations.
Molybdenum prices have retreated from their peak of almost US$40 per pound in
2005, but have remained relatively stable at the US$20-US$25 range in the first
half of 2006, averaging US$25 since the beginning of July. Demand remains
strong, both in the steel sector and non-metallurgical applications, while no
significant further increases in supply are expected in the next 12 months.
While the direction of molybdenum prices remains difficult to predict, these
factors suggest that prices could remain at present levels into 2007.
Group copper production for 2006 is expected to be around 455,000 tonnes,
compared with the original forecast of 440,000 tonnes with molybdenum production
at about 10,600 tonnes. On-site and shipping costs for the Group's three mines
remain in line with forecasts for the year, and any changes in the level of
smelting costs should depend mainly on the level of copper prices. Given the
duration of existing agreements, no labour negotiations are due at the Group's
mining operations until September 2007. In the second half of 2006, the Group
will continue to advance its capital projects including the plant expansion and
tailings dam projects at Los Pelambres, the feasibility study at Esperanza and
its exploration activities including the newly acquired Reko Diq copper-gold
prospect in Pakistan. The acquisition of Equatorial will also increase
attributable cathode production.
The Group has substantial operations in Chile and its financial position remains
strong. It will continue to enhance its growth profile by developing its
existing assets and properties and by seeking opportunities globally to secure
world-class mining assets.
FINANCIAL COMMENTARY FOR THE HALF YEAR TO 30 JUNE 2006
Results
Turnover
Group turnover increased by 64.4% to US$1,846.9 million, compared with
US$1,123.6 million in the first six months of 2005. The increase was mainly due
to very strong LME copper prices, which increased to an average of 275.3 cents
per pound, 82.2% above the 2005 half year.
Turnover from copper concentrate sales and copper cathode sales from the Group's
three mines increased by 114.8% to US$1,537.4 million compared with US$715.7
million in the 2005 half year. The Group's average realised copper price was
353.4 cents per pound (2005 half year - 159.1 cents per pound), reflecting
mainly the higher LME price but also pricing adjustments to initially invoiced
sales in the period. Realised copper prices are determined by comparing turnover
(gross of tolling charges) with sales volumes in the period. Realised copper
prices exceeded market prices mainly because, in line with industry practice,
concentrate and cathode sales agreements generally provide for provisional
pricing at the time of shipment with final pricing based on the average market
price for future periods (normally about 30 days after delivery to the customer
in the case of cathode sales and up to 180 days after delivery to the customer
in the case of concentrate sales). In the case of Los Pelambres, pricing
adjustments added US$348.8 million to initially invoiced sales (before adjusting
for tolling charges), comprising US$124.0 million in respect of sales invoiced
in 2005 (net of mark-to-market adjustments at the end of 2005) which were
finally priced in 2006 and US$224.8 million in respect of sales invoiced in 2006
(including mark-to-market adjustments for open sales at the end of the period of
US$103.9 million). Pricing adjustments for the first half of 2006 (which relate
almost entirely to sales invoiced in 2006) added US$20.7 million and US$12.7
million at El Tesoro and Michilla respectively. El Tesoro and Michilla also
continued to benefit from strong cathode premiums reflecting tight market
conditions.
The benefit of high copper prices and significant pricing adjustments were
partly offset by the decline in copper sales which decreased by 4.9% from
224,300 tonnes in the 2005 half year to 213,200 tonnes this half year, primarily
as a result of lower processing levels at Los Pelambres and lower ore grades at
El Tesoro. Tolling charges for copper concentrates at Los Pelambres increased
from US$71.0 million in the 2005 half year to US$123.6 million, mainly as a
result of the effect of the higher copper price on price participation by
smelters. Tolling charges are deducted from concentrate sales in reporting
turnover and hence also partly offset the effect of higher copper prices.
Turnover from by-products at Los Pelambres decreased by 32.3% to US$228.5
million in the 2006 half year compared with US$337.4 million in the 2005 half
year, mainly due to lower molybdenum market prices. The realised molybdenum
price averaged US$22.7 per pound (2005 half year - US$36.0 per pound).
Molybdenum sales are also subject to provisional pricing and as prices weakened
in the early part of this year, realised prices were marginally lower than the
average market price of US$23.7 per pound (2005 half year - US$33.4 per pound),
in contrast to strengthening prices in the first half of 2005. Sales of 4,400
tonnes were slightly higher than sales of 4,300 tonnes in the first half of
2005.
Turnover from the transport division (FCAB) increased by US$4.1 million or 9.2%
to US$48.8 million on similar volumes to the previous comparative period, mainly
because rail tariffs are indexed to cost factors including inflation, the
peso-dollar exchange rate and fuel costs which increased compared with the first
half of 2005. Turnover at Aguas de Antofagasta, which operates the Group's water
business, increased by US$6.4 million or 24.8% to US$32.2 million, due to a
combination of increased volumes and the stronger Chilean peso.
Operating profit from subsidiaries and EBITDA
Operating profit from subsidiaries increased by 76.6% from US$739.0 million in
the 2005 half year to US$1,304.9 million in the 2006 half year.
Operating profit at the mining division increased by 78.9% from US$712.4 million
to US$1,274.4 million, mainly as the result of strong copper prices. This was
partly offset by lower copper sales volume and lower molybdenum prices as
described above and also increased operating costs. Excluding by-product credits
(which are reported as part of turnover) and tolling charges for concentrates
(which are deducted from turnover), weighted average cash costs for the Group
(comprising on site and shipping costs in the case of Los Pelambres and cash
costs in the case of the other two operations) increased from 54.0 cents per
pound in the 2005 half year to 68.1 cents in the 2006 half year, reflecting the
impact of higher input costs as well as lower production. Operating profits were
also affected by losses on commodity derivatives (including net mark-to-market
adjustments) of US$89.7 million at Michilla and El Tesoro (2005 half year -
US$4.4 million).
Operating profits (excluding income from associates) at the transport division
were similar at US$14.1 million (2005 half year - US$14.7 million) as volumes
remained similar in both periods. Aguas de Antofagasta (whose revenues and costs
are mainly denominated in Chilean pesos) contributed US$16.4 million compared
with US$11.9 million, benefiting from higher sales and the stronger exchange
rate.
EBITDA (earnings before interest, tax, depreciation and amortisation) in the
2006 half year was US$1,374.7 million, compared with US$806.4 million, up 70.5%.
This is calculated by adding back to operating profit from subsidiaries the
items of depreciation and amortisation of US$65.3 million (2005 half year -
US$63.6 million) and loss on disposals of property, plant and equipment of
US$4.5 million (2005 half year - US$3.8 million).
The Group's share of net profit from its 30% investment in Antofagasta Terminal
Internacional S.A. ('ATI') was unchanged at US$0.5 million.
Net finance income
Net finance income in the 2006 half year was US$19.9 million, compared with nil
in the 2005 half year.
Interest receivable increased from US$15.4 million to US$34.5 million, due to
the higher level of cash and deposit balances and higher market interest rates
compared with the 2005 half year. Interest expense (excluding the mark-to-market
effect of interest rate derivatives) remained similar at US$13.2 million (2005
half year - US$13.1 million), as regular loan repayments which decreased the
level of borrowings were offset by the effect of higher interest rates.
Other finance items (mark-to-market effect of interest rate derivatives and
foreign exchange losses included in finance items) amounted to a charge of
US$1.4 million (2005 half year - US$2.3 million).
Profit before tax
The resulting profit before tax for the period was US$1,325.3 million compared
with US$739.5 million in the first half of 2005, reflecting the improved
operating results and increased finance income.
Income tax expense
The rate of first category (i.e. corporation) tax in Chile is 17% for both 2006
and 2005. During 2005, new tax legislation on Chilean mining companies was
passed into law with effect from 1 January 2006. The legislation sets an
additional tax of up to 5% of tax-adjusted operating profit, with the option for
mining companies to elect for a lower rate of 4% by entering into a tax
stability regime for a period of 12 years, after which the rate of 5% will
apply. For 2006 and 2007, 50% of the new mining tax can be offset against first
category tax and the remaining 50% is tax deductible (i.e. an allowable expense
in determining liability to first category tax). From 2008, when the ability to
offset will no longer be available, 100% of the new mining tax will be tax
deductible. Los Pelambres, El Tesoro and Michilla have opted to enter into this
new tax stability agreement, and hence the effect of the legislation is to
increase the effective tax rate of these three operations (before taking into
account deductibility against corporation tax) by approximately 2% in 2006 and
2007 and 4% thereafter. In addition to first category tax and the new mining
tax, the Group incurs withholding taxes on the remittance of profits from Chile.
Tax (including deferred tax) amounted to US$255.0 million (2005 half year -
US$132.0 million), mainly reflecting the increased profit for the period.
Including both current and deferred taxes, this comprises corporate tax of
US$221.6 million (2005 half year - US$131.2 million), the new Chilean mining tax
of US$24.4 million (2005 half year - nil) and provision for withholding taxes of
US$9.6 million (2005 half year - US$8.7 million). This was partly offset by
exchange gains on corporate tax balances of US$0.6 million (2005 half year -
US$7.9 million).
As a result of these factors, the effective tax rate for the Group for the six
months ended 30 June 2006 was 19.2% (2005 half year - 17.9%), compared with the
Chilean statutory tax rate of 17%.
Earnings per share
Basic earnings per share were 66.2 cents compared with 37.3 cents for the 2005
half year reflecting the higher profit after tax and minority interests.
Earnings per share have been restated to reflect the impact of the 4-for-1 bonus
issue on 16 June 2006.
Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange, interest rate and commodity price movements. The Group does not use
such derivative instruments for speculative trading purposes, but as it did not
yet apply the hedge accounting provisions of IAS 39 'Financial Instruments:
Recognition and Measurement' in the first half of 2006, derivatives were
measured at fair value in the balance sheet with changes in value recognised in
the income statement. The impact of such instruments on the Group's results for
the period is set out above in the sections on operating profit from
subsidiaries and net finance income and in Notes 4(b) and 5 to the interim
financial statements.
At 30 June 2006, the Group had min/max instruments for 12,900 tonnes of copper
production, with a weighted average floor of 113.1 cents per pound and a
weighted average cap of 140.9 cents per pound. These instruments had an average
duration of three and a half months and a total duration of six months. The
Group's exposure to the copper price up to this level of production will be
limited for the remainder of 2006 to the extent that market prices exceed the
cap or fall below the floor at each relevant exercise date.
Cash flows, cash and debt
Cash flows from operations were US$1,045.4 million in the first six months of
2006 compared with US$767.1 million in the same period last year, reflecting the
improved operating results adjusted for depreciation, amortisation and normal
working capital movements. A dividend of US$0.3 million (2005 half year - US$1.0
million) was received from the Group's investment in ATI.
Cash tax payments comprising monthly payments on account were also made in
respect of current year profits (including payments in respect of the new mining
tax), settlement of the outstanding balance for the previous year and
withholding tax payments. Payments in the period were US$265.4 million, compared
with US$191.5 million in the first six months of 2005. The increased payments
reflect higher profits in each successive year from 2004 (thereby increasing
both monthly payments on account for the current year as well as settlement of
the outstanding balance for the previous year), higher withholding tax payments
and, to a lesser extent, monthly payments on account in 2006 for the new mining
tax. In the 2006 first half, corporation tax payments for both the current and
previous year amounted to US$208.9 million (2005 half year - US$190.1 million),
withholding taxes amounted to US$52.6 million (2005 half year - US$1.4 million)
and payments on account relating to the new mining tax amounted to US$3.9
million (2005 half year - nil).
During the first half of 2006, the Group acquired a 100% interest in the Tethyan
Copper Company Limited. The net cash outflow arising on acquisition was US$166.3
million, being total consideration (including directly attributable costs) of
US$170.4 million, less cash and cash equivalents acquired of US$1.1 million and
costs provided but not yet paid of US$3.0 million.
Capital expenditure was US$279.6 million in the period (2005 half year - US$79.2
million). Expenditure in the first six months of 2006 included US$146.5 million
relating to the Mauro tailings dam project and US$61.5 million relating to the
plant expansion, both at Los Pelambres.
Dividends paid to ordinary shareholders of the Company in the first six months
of this year were US$185.3 million (2005 half year - US$124.3 million), which
related to the final dividend (including the special dividend) declared in
respect of each respective previous year. Dividends paid by subsidiaries to
minority shareholders were US$204.2 million (2005 half year - US$114.3 million),
principally due to increased distributions by Los Pelambres.
Repayment of borrowings and finance leasing obligations in the first six months
of 2006, mainly at Los Pelambres and El Tesoro, were US$48.7 million, mainly
reflecting regular repayments of corporate facilities at Los Pelambres and El
Tesoro. In the 2005 half year, repayments amounted to US$79.8 million and
included voluntary prepayments of US$28.2 million at El Tesoro.
Details of other cash inflows and outflows in the period are contained in the
Consolidated Cash Flow Statement.
At 30 June 2006, the Group had cash and cash equivalents of US$1,238.8 million
(2005 half year - US$1,064.6 million), which included cash balances held by Los
Pelambres to finance the remainder of the Mauro tailings dam and the plant
expansion projects. Excluding the minority share in each partly-owned operation,
the Group's share of this balance was US$1,009.3 million (2005 half year -
US$793.6 million).
Total Group borrowings at 30 June 2006 were US$417.1 million (2005 half year -
US$524.7 million); of this, US$254.6 million (2005 half year - US$319.4 million)
is proportionally attributable to the Group after excluding the minority
shareholdings in partly-owned operations. The decrease in debt is mainly due to
further principal repayments at Los Pelambres and El Tesoro as explained above.
Balance Sheet
Net equity (i.e. equity attributable to ordinary shareholders of the Company)
increased from US$2,041.7 million at the beginning of the year to US$2,502.8
million, relating mainly to profit after tax and minority interests for the
period less the ordinary dividend for 2005 which was approved and paid in the
first half of 2006.
During the first half of 2006, a 4-for-1 bonus issue of ordinary shares was
implemented through the capitalisation of US$73.2 million of the balance on the
share premium account. This did not have any effect on net equity. Further
details are given in Note 18 to the interim financial statements.
Minority interests increased from US$721.3 million at the beginning of the year
to US$934.9 million, principally reflecting the minority's share of profit after
tax less the minority's share of the dividends approved or paid by subsidiaries
in the period.
Consolidated Income Statement
Six months Six months Year ended
ended ended
30.06.06 30.06.05 31.12.05
Notes US$'m US$'m US$'m
Group turnover 2,3 1,846.9 1,123.6 2,445.3
Total operating costs 2,3 (542.0) (384.6) (938.9)
-------- ------- --------
Operating profit from subsidiaries 3 1,304.9 739.0 1,506.4
Share of income from associate 12 0.5 0.5 0.9
-------- ------- --------
Total profit from operations and associates 1,305.4 739.5 1,507.3
-------- ------- --------
Investment income 34.5 15.4 39.7
Interest expense (13.2) (13.1) (26.0)
Other finance items (1.4) (2.3) 15.3
-------- ------- --------
Net finance income 5 19.9 - 29.0
-------- ------- --------
Profit before tax 1,325.3 739.5 1,536.3
Income tax expense 6 (255.0) (132.0) (308.1)
-------- ------- --------
Profit for the financial period 1,070.3 607.5 1,228.2
======== ======= ========
Attributable to:
-------- ------- --------
Minority interests 417.7 240.0 502.4
Equity holders of the Company (net earnings) 652.6 367.5 725.8
-------- ------- --------
US cents Restated Restated
US cents US cents
Basic earnings per share 7 66.2 37.3 73.6
======== ======= ========
Dividends per share to ordinary shareholders of
the Company
Dividends per share proposed in relation to
the period 8
- Ordinary dividend (interim) 3.2 3.2 3.2
- Ordinary dividend (final) - - 4.8
- Special dividend (interim) 2.0 - -
- Special dividend (final) - - 14.0
-------- ------- --------
5.2 3.2 22.0
======== ======= ========
Dividends per share paid in the period and
deducted from net equity
- Ordinary dividend (interim) - - 3.2
- Ordinary dividend (final) 4.8 4.8 4.8
- Special dividend (final) 14.0 8.0 8.0
-------- ------- --------
18.8 12.8 16.0
======== ======= ========
Dividends in aggregate to ordinary shareholders
of the Company US$'m US$'m US$'m
Dividends proposed in relation to the period 8 51.3 31.5 216.9
======== ======= ========
Dividends paid in the period and deducted from
net equity 185.3 126.2 157.7
======== ======= ========
Turnover and operating profit are derived from continuing operations.
Earnings per share and dividends per share have been restated for the effect of
the 4-for-1 bonus issue on 16 June 2006. There was no potential dilution of
earnings per share in any period set out above.
Consolidated Balance Sheet
At 30.06.06 At 30.06.05 At 31.12.05
Notes US$'m US$'m US$'m
Non-current assets
Intangible assets 9 321.2 88.1 97.7
Property, plant and equipment 10 2,025.4 1,807.1 1,820.0
Investment property 11 3.2 3.1 3.4
Investment in associate 12 3.0 2.4 2.8
Available for sale investments 13 0.2 0.2 0.1
Deferred tax assets 17 6.8 2.5 6.6
-------- -------- --------
2,359.8 1,903.4 1,930.6
-------- -------- --------
Current assets
Inventories 116.1 87.3 98.8
Trade and other receivables 756.4 340.1 428.1
Current tax assets 4.6 1.6 5.3
Derivative financial instruments 4 - 0.9 -
Cash and cash equivalents 20 1,238.8 1,064.6 1,316.8
-------- -------- --------
2,115.9 1,494.5 1,849.0
-------- -------- --------
Total assets 4,475.7 3,397.9 3,779.6
======== ======== ========
Current liabilities
Short-term borrowings 14,20 (97.0) (103.3) (97.2)
Derivative financial instruments 4 (43.8) (6.2) (40.3)
Trade and other payables (220.6) (113.5) (142.9)
Current tax liabilities (121.1) (87.8) (108.7)
-------- -------- --------
(482.5) (310.8) (389.1)
-------- -------- --------
Non-current liabilities
Medium and long term borrowings 14,20 (320.1) (421.4) (368.1)
Trade and other payables (3.2) (3.1) (3.5)
Post-employment benefit obligations 15 (20.6) (16.8) (20.6)
Long-term provisions 16 (10.0) (10.2) (9.8)
Deferred tax liabilities 17 (201.6) (210.7) (225.5)
-------- -------- --------
(555.5) (662.2) (627.5)
-------- -------- --------
Total liabilities (1,038.0) (973.0) (1,016.6)
======== ======== ========
Net assets 3,437.7 2,424.9 2,763.0
======== ======== ========
Equity
Share capital 18 89.8 16.6 16.6
Share premium 18 199.2 272.4 272.4
Translation reserves 10.4 4.4 16.6
Retained earnings 2,203.4 1,409.3 1,736.1
-------- -------- --------
Net equity attributable
to equity holders of the Company 2,502.8 1,702.7 2,041.7
Minority interests 934.9 722.2 721.3
-------- -------- --------
Total equity 3,437.7 2,424.9 2,763.0
======== ======== ========
The interim financial information was approved by the Board of Directors on 25
August 2006.
Consolidated Cash Flow Statement
Six months Six months Year ended
ended 30.06.06 ended 30.06.05 31.12.05
Note US$'m US$'m US$'m
Cash flows from
operations 19 1,045.4 767.1 1,647.5
Dividends from associate 12 0.3 1.0 1.0
Income tax paid (265.4) (191.5) (343.8)
------- ------- -------
Net cash flow from operating activities 780.3 576.6 1,304.7
------- ------- -------
Investing activities
Acquisition of subsidiary 21 (166.3) - -
Recovery of Chilean VAT
paid on purchase of water concession 5.4 3.8 7.7
Purchases of property, plant
and equipment (279.6) (79.2) (223.0)
Proceeds from sale of property,
plant and equipment - 0.4 4.1
------- ------- -------
Net cash used in investing activities (440.5) (75.0) (211.2)
------- ------- -------
Financing activities
Dividends paid to equity holders
of the Company (185.3) (124.3) (155.4)
Dividends paid to preference
shareholders of the Company (0.1) (0.1) (0.2)
Dividends paid to minority interests (204.2) (114.3) (385.6)
Interest paid, including payments under
interest derivatives (14.1) (11.8) (23.3)
Interest received 34.5 14.7 37.9
Net proceeds from issue of new borrowings - - 0.2
Repayments of borrowings (48.0) (67.1) (126.2)
Repayments of obligations under finance leases (0.7) (12.7) (13.4)
------- ------- -------
Net cash used in financing activities 417.9) (315.6) (666.0)
------- ------- -------
Net (decrease)/increase in cash
and cash equivalents (78.1) 186.0 427.5
======= ======= =======
Cash and cash equivalents at
beginning of period 1,316.8 881.4 881.4
Net (decrease)/increase in cash
and cash equivalents (78.1) 186.0 427.5
Effect of foreign
exchange rate changes 0.1 (2.8) 7.9
------- ------- -------
Cash and cash equivalents at
end of period 20 1,238.8 1,064.6 1,316.8
======= ======= =======
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2005
Share Share Translation Retained Net Minority Total
capital premium reserves earnings equity interests
US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Balance at 1 January 2005 16.6 272.4 8.5 1,168.0 1,465.5 604.5 2,070.0
Profit for the financial period - - - 367.5 367.5 240.0 607.5
Currency translation adjustment - - (4.1) - (4.1) (0.2) (4.3)
Dividends - - - (126.2) (126.2) (122.1) (248.3)
------ ------ ------ ------ ------ ------ ------
Balance at 30 June 2005 16.6 272.4 4.4 1,409.3 1,702.7 722.2 2,424.9
====== ====== ====== ====== ====== ====== ======
For the year ended 31 December 2005
Share Share Translation Retained Net Minority Total
capital premium reserves earnings equity interests
US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Balance at 1 January 2005 16.6 272.4 8.5 1,168.0 1,465.5 604.5 2,070.0
Profit for the financial year - - - 725.8 725.8 502.4 1,228.2
Currency translation adjustment - - 8.1 - 8.1 - 8.1
Dividends - - - (157.7) (157.7) (385.6) (543.3)
------ ------ ------ ------ ------ ------ ------
Balance at 31 December 2005 16.6 272.4 16.6 1,736.1 2,041.7 721.3 2,763.0
====== ====== ====== ====== ====== ====== ======
For the six months ended 30 June 2006
Share Share Translation Retained Net Minority Total
capital premium reserves earnings equity interests
US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Balance at 1 January 2006 16.6 272.4 16.6 1,736.1 2,041.7 721.3 2,763.0
Profit for the financial period - - - 652.6 652.6 417.7 1,070.3
Currency translation adjustment - - (6.2) - (6.2) 0.1 (6.1)
Capitalisation of share premium on bonus
issue of ordinary shares (see Note 18) 73.2 (73.2) - - - - -
Dividends - - - (185.3) (185.3) (204.2) (389.5)
------ ------ ------ ------ ------ ------ ------
Balance at 30 June 2006 89.8 199.2 10.4 2,203.4 2,502.8 934.9 3,437.7
====== ====== ====== ====== ====== ====== ======
There were no items of recognised income and expense in any period other than
the profit for the financial period and the currency translation adjustment.
Notes
1. General information and accounting policies
a) General information
These June 2006 interim consolidated financial statements ('the interim
financial statements') are for the six months ended 30 June 2006. The interim
financial statements are unaudited.
The information for the year ended 31 December 2005 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on these accounts was unqualified and did not
contain a statement under section 237(2) (regarding adequacy of accounting
records and returns) or section 237(3) (regarding provision of necessary
information and explanations) of the Companies Act 1985.
b) Accounting policies
The interim financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRSs') including IAS 34 'Interim
Financial Reporting'. For these purposes, IFRSs comprise the Standards issued by
the International Accounting Standards Board ('IASB') and Interpretations issued
by the International Financial Reporting Interpretations Committee ('IFRIC')
that have been endorsed by the European Union.
The interim financial information has also been prepared on the basis of
accounting policies consistent with those applied in the financial statements
for the year ended 31 December 2005.
Any Standards or Interpretations which apply or are expected to apply for the
first time for the year ended 31 December 2006 are not considered to have any
material impact on the Group.
c) Restatement of comparative amounts for bonus issue
Comparatives for earnings per share and dividend per share amounts have been
restated for the effect of the 4-for-1 bonus issue of ordinary shares on 16 June
2006 (see Note 18).
2. Total profit from operations and associates
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Turnover 1,846.9 1,123.6 2,445.3
Cost of sales (367.3) (311.7) (685.6)
------ ------ -------
Gross profit 1,479.6 811.9 1,759.7
Administrative expenses (70.6) (59.3) (132.0)
Closure provision (0.2) 3.9 3.4
Severance charges (4.6) (2.5) (3.9)
Exploration costs (8.1) (8.0) (22.4)
Other operating income 0.8 2.1 5.4
Other operating expenses (92.0) (9.1) (103.8)
------ ------ -------
Group operating profit 1,304.9 739.0 1,506.4
Share of income from associate 0.5 0.5 0.9
------ ------ -------
Total profit from operations and
associates 1,305.4 739.5 1,507.3
====== ====== =======
3. Segmental analysis
Based on risks and returns, the Directors consider the primary reporting format
is by business segment and the secondary reporting format is by geographical
segment. The Group considers its business segments to be Los Pelambres, El
Tesoro, Michilla, Exploration, Railway and other transport services and the
Water Concession. Corporate and other items principally relate to the costs
incurred by the Company and Antofagasta Minerals S.A., the Group's mining
corporate centre, which are not allocated to any individual business segment.
The classification reflects the Group's management structure. The amounts
presented for each business segment exclude any amounts relating to the
investment in Antofagasta Terminal Internacional S.A., an associate which is
held through the Railway and other transport services segment.
a) Turnover, EBITDA and operating profit /(loss) from subsidiaries analysed
by business segment
Operating profit/(loss)
Turnover EBITDA from subsidiaries
Six months Year Six months Year Six months Year
ended ended ended ended ended ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres 1,312.8 797.0 1,749.8 1,130.5 655.4 1,420.5 1,097.6 620.1 1,350.4
El Tesoro 287.5 176.1 372.2 168.2 110.8 203.2 149.6 97.6 172.9
Michilla 165.6 80.0 177.1 51.5 18.0 16.3 44.3 9.6 (31.1)
Exploration - - - (8.1) (8.0) (22.4) (8.1) (8.0) (22.4)
Corporate and other items - - - (8.4) (6.7) (15.6) (9.0) (6.9) (15.9)
------ ------ ------ ------ ------ ------ ------ ------ -------
Mining 1,765.9 1,053.1 2,299.1 1,333.7 769.5 1,602.0 1,274.4 712.4 1,453.9
Railway and other
transport services 48.8 44.7 92.5 19.3 19.8 38.2 14.1 14.7 27.4
Water concession 32.2 25.8 53.7 21.7 17.1 33.9 16.4 11.9 25.1
------ ------ ------ ------ ------ ------ ------ ------ -------
Group turnover
(segment revenue),
EBITDA and operating
profit from
subsidiaries
(segment result) 1,846.9 1,123.6 2,445.3 1,374.7 806.4 1,674.1 1,304.9 739.0 1,506.4
====== ====== ====== ====== ====== ====== ====== ====== =======
Notes to turnover by business segment (segment revenue)
(i) Turnover by business segment equates to segment revenue as
defined by IAS 14. Turnover from Railway and other transport services is stated
after eliminating inter-segmental sales to the mining division of US$4.5 million
(2005 half year - US$4.1 million).
(ii) Turnover includes the effect of both final pricing and
mark-to-market adjustments to provisionally priced sales of copper and
molybdenum concentrates and copper cathodes. Further details of such adjustments
are given in Note 4(a).
(iii) Turnover does not include the effect of gains and losses on
commodity derivatives, which are included as part of operating profit in other
operating income or expense. Further details of such gains or losses are given
in Note 4(b).
(iv) 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 to show
separately, the amounts prior to deduction of tolling charges, the tolling
charges involved and the net amounts included in turnover. El Tesoro and
Michilla do not generate by-products from their copper cathode operations.
Notes to EBITDA and operating profit from subsidiaries by business segment
(segment result)
(v) Operating profit for the separate businesses equates to
segment result as defined by IAS 14. This excludes the share of income from
associate of US$0.5 million (2005 half year - US$0.5 million).
(vi) EBITDA is calculated by adding back depreciation,
amortisation and disposals of property, plant and equipment and impairment
charges (see Note 3(b)) to operating profit from subsidiaries.
(vii) EBITDA and operating profit are stated after deducting losses
on commodity derivatives (including both losses realised in each period and
period-end mark-to-market adjustments) at El Tesoro of US$43.5 million (2005
half year - US$0.7 million) and Michilla of US$46.2 million (2005 half year -
US$4.4 million). Further details are given in Note 4(b).
(viii) Operating profit for the year ended 31 December 2005 was
stated after deducting an impairment charge against the carrying value of
property, plant and equipment at Michilla of US$30 million (see Note 3(b)).
There was no comparable impairment charge in the six months ended 30 June 2005
or six months ended 30 June 2006.
Turnover at Los Pelambres by mineral:
Before deducting tolling charges Tolling charges Net of tolling charges
--------------------------- ----------------- ------------------------
Six months ended Year ended Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Copper 1,207.9 530.6 1,331.0 (123.6) (71.0) (166.9) 1,084.3 459.6 1,164.1
Molybdenum 220.4 341.7 588.4 (10.4) (13.6) (25.6) 210.0 328.1 562.8
Gold and silver 18.8 9.5 23.4 (0.3) (0.2) (0.5) 18.5 9.3 22.9
------ ------ ------- ------ ------ ------- ------ ------ -------
Los Pelambres 1,447.1 881.8 1,942.8 (134.3) (84.8) (193.0) 1,312.8 797.0 1,749.8
====== ====== ======= ====== ====== ======= ====== ====== =======
b) Depreciation and amortisation, loss on disposal of property, plant and
equipment and impairment charges by operation
Depreciation and amortisation Loss on disposals Impairment charge
--------------------------- ------------------- -------------------
Six months ended Year ended Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres 32.5 34.8 66.6 0.4 0.9 3.5 - - -
El Tesoro 17.8 13.1 29.1 0.8 0.1 1.2 - - -
Michilla 4.9 6.9 13.8 2.3 1.5 3.6 - - 30.0
Corporate and
other items 0.2 0.2 0.3 0.4 - - - - -
------ ------ ------- ------ ------ ------- ------ ------ ------
Mining 55.4 55.0 109.8 3.9 2.5 8.3 - - 30.0
Railway and
other
transport services 4.7 4.5 9.5 0.5 0.2 1.3 - - -
Water concession 5.2 4.1 8.7 0.1 1.1 0.1 - - -
------ ------ ------- ------ ------ ------- ------ ------ ------
65.3 63.6 128.0 4.5 3.8 9.7 - - 30.0
====== ====== ======= ====== ====== ======= ====== ====== ======
Other non-cash expenses relate to severance and closure costs and are disclosed
for the Group in Note 2.
c) Capital expenditure, assets and liabilities by business segment
Capital expenditure
---------------------
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Los Pelambres 243.2 35.4 101.4
El Tesoro 4.7 28.7 39.6
Michilla 6.5 7.1 18.7
Corporate and other items 8.9 1.2 1.6
------- ------- -------
Mining 263.3 72.4 161.3
Railway and other transport services 11.6 7.0 23.2
Water concession 2.0 1.6 1.8
------- ------- -------
276.9 81.0 186.3
======= ======= =======
Capital expenditure represents purchases of property, plant and equipment stated
on an accruals basis (see Note 10) and may therefore differ from the amount
included in the cash flow statement.
Segment assets Segment liabilities Segment net assets
---------------- --------------------- --------------------
Six months ended Year ended Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres 2,149.2 1,538.2 1,648.2 (79.2) (54.9) (72.5) 2,070.0 1,483.3 1,575.7
El Tesoro 416.3 390.7 392.6 (73.9) (41.7) (56.5) 342.4 349.0 336.1
Michilla 76.9 87.7 61.6 (48.3) (26.9) (47.5) 28.6 60.8 14.1
Corporate and
other items 251.0 5.7 8.5 (72.3) (4.6) (11.4) 178.7 1.1 (2.9)
------ ------ ------- ------ ------ ------- ------ ------ -------
Mining 2,893.4 2,022.3 2,110.9 (273.7) (128.1) (187.9) 2,619.7 1,894.2 1,923.0
Railway and
other
transport services 142.7 117.5 133.8 (17.0) (15.8) (21.7) 125.7 101.7 112.1
Water concession 183.0 182.8 199.9 (7.5) (5.9) (7.5) 175.5 176.9 192.4
------ ------ ------- ------ ------ ------- ------ ------ -------
3,219.1 2,322.6 2,444.6 (298.2) (149.8) (217.1) 2,920.9 2,172.8 2,227.5
====== ====== ======= ====== ====== ======= ====== ====== =======
Assets and liabilities of Tethyan Copper Company Limited (See Note 21) have been
included within Corporate and other items.
Segment assets and liabilities are reconciled to entity assets and liabilities
through unallocated items as follows:
Segment assets Segment liabilities Segment net assets
---------------- --------------------- --------------------
Six months ended Year ended Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Segment
assets/
(liabilities) 3,219.1 2,322.6 2,444.6 (298.2) (149.8) (217.1) 2,920.9 2,172.8 2,227.5
Investment
property 3.2 3.1 3.4 - - - 3.2 3.1 3.4
Investment
in associate 3.0 2.4 2.8 - - - 3.0 2.4 2.8
Available for
sale investments 0.2 0.2 0.1 - - - 0.2 0.2 0.1
Derivative
financial
instruments - 0.9 - - - - - 0.9 -
Deferred
tax assets/
(liabilities) 6.8 2.5 6.6 (201.6) (210.7) (225.5) (194.8) (208.2) (218.9)
Current tax
assets/
(liabilities) 4.6 1.6 5.3 (121.1) (87.8) (108.7) (116.5) (86.2) (103.4)
Cash and cash
equivalents
/(borrowings) 1,238.8 1,064.6 1,316.8 (417.1) (524.7) (465.3) 821.7 539.9 851.5
------ ------ ------- ------ ------ ------- ------ ------ -------
Entity
assets/
(liabilities) 4,475.7 3,397.9 3,779.6 (1,038.0) (973.0) (1,016.6) 3,437.7 2,424.9 2,763.0
====== ====== ======= ====== ====== ======= ====== ====== =======
d) Geographical analysis of turnover by location of customer
(geographical segment)
Sales
-------
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Europe
- United Kingdom - 20.0 34.2
- Rest of Europe 580.4 273.7 675.6
Latin America
- Chile 161.4 183.7 326.6
- Rest of Latin America 80.0 33.3 87.8
North America 246.9 232.9 471.3
Asia (mainly Japan) 778.2 380.0 849.8
------- ------- -------
1,846.9 1,123.6 2,445.3
======= ======= =======
4. Derivatives and embedded derivatives
a) Embedded derivatives - provisionally priced sales
Copper and molybdenum concentrate sale agreements and copper cathode sale
agreements generally provide for provisional pricing of sales at the time of
shipment, with final pricing being based on the monthly average London Metal
Exchange copper price or monthly average molybdenum price for specified future
periods. This normally ranges from 30 to 180 days after delivery to the
customer.
Under IFRS, both gains and losses from the marking-to-market of open sales are
recognised through adjustments to turnover in the income statement and to trade
debtors in the balance sheet. The Group determines mark-to-market prices using
forward prices at each period end for copper concentrate and cathode sales, and
period-end month average prices for molybdenum concentrate sales due to the
absence of a futures market for that commodity.
The mark-to-market adjustments at the end of each period and the effect on
turnover in the income statement for each period are as follows:
Balance sheet net mark to Income statement net mark to
market effect on debtors market effect on turnover
Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres
- copper
concentrate 97.8 2.1 33.2 64.6 (15.5) 15.6
Los Pelambres
- molybdenum
concentrate 4.4 14.9 (12.6) 17.0 (18.0) (45.5)
El Tesoro -
copper cathodes 1.0 (0.4) 0.2 0.8 (1.2) (0.6)
Michilla -
copper cathodes 0.7 (0.4) (0.1) 0.8 (0.8) (0.5)
------- ------- -------- -------- ------- --------
103.9 16.2 20.7 83.2 (35.5) (31.0)
======= ======= ======== ======== ======= ========
Copper concentrate sales at Los Pelambres
Revenues in the period to 30 June 2006 included total positive pricing
adjustments of US$348.8 million, representing the difference between reported
revenues and initially invoiced amounts. This comprised actual pricing
adjustments compared with initial provisionally invoiced prices of US$278.1
million (of which US$157.2 million related to sales of concentrate open at 31
December 2005 and US$120.9 million related to sales of concentrate during 2006)
together with net mark-to-market adjustments of US$70.7 million (of which
US$64.6 million is disclosed above and US$6.1 million is included in tolling
charges). At 30 June 2006, copper concentrate sales at Los Pelambres totalling
104,400 tonnes remained open as to price, with an average mark-to-market price
of 333.3 cents per pound.
Revenues in the period to 30 June 2005 included total positive pricing
adjustments of US$29.7 million, representing the difference between reported
revenues and initially invoiced amounts. This comprised actual pricing
adjustments compared with initial provisionally invoiced prices of US$46.1
million (of which US$41.4 million related to sales of concentrate open at 31
December 2004 and US$4.7 million related to sales of concentrate during 2005)
together with net negative mark-to-market adjustments of US$16.4 million (of
which US$15.5 million is disclosed above and US$0.9 million is included in
tolling charges). At 30 June 2005, copper concentrate sales at Los Pelambres
totalling 112,900 tonnes remained open as to price, with an average
mark-to-market price of 152.9 cents per pound.
Molybdenum concentrate sales at Los Pelambres
Revenues in the period to 30 June 2006 included total negative pricing
adjustments of US$9.3 million, representing the difference between reported
revenues and initially invoiced amounts. This comprised negative actual pricing
adjustments compared with initial provisionally invoiced prices of US$26.3
million (of which negative US$27.5 million related to sales of concentrate open
at 31 December 2005 and positive US$1.2 million related to sales of concentrate
during 2006) together with net positive mark-to-market adjustments of US$17.0
million as disclosed above. At 30 June 2006, molybdenum concentrate sales at Los
Pelambres totalling 1,451 tonnes remained open as to price, with an average
mark-to-market price of US$25.2 per pound.
Revenues in the period to 30 June 2005 included total positive pricing
adjustments of US$30.7 million, representing the difference between reported
revenues and initially invoiced amounts. This comprised actual pricing
adjustments compared with initial provisionally invoiced prices of US$48.7
million (of which US$32.9 million related to sales of concentrate open at 31
December 2004 and US$15.8 million related to sales of concentrate during 2005)
together with net negative mark-to-market adjustments of US$18 million as
disclosed above. At 30 June 2005, molybdenum concentrate sales at Los Pelambres
totalling 1,700 tonnes remained open as to price, with an average mark-to-market
price of US$37.4 per pound.
b) Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange, interest rate and commodity price movements. The Group does not use
such derivative instruments for speculative trading purposes. The Group did not
adopt the hedge accounting provisions of IAS 39 'Financial Instruments:
Recognition and Measurement' in the six months ended 30 June 2006. Accordingly,
derivatives are measured at each balance sheet date at fair value and gains and
losses arising from changes in fair value are included in the income statement
for the year, within operating profit from subsidiaries for commodity
derivatives and within net finance costs for exchange and interest derivatives.
The mark-to-market adjustments at the end of each period and the effect on
operating profit and net finance costs in the income statement for each year are
as follows:
Balance sheet net mark to market Income statement net mark to market
---------------------------------- -------------------------------------
effect on debtors/(creditors) effect operating profit/finance cost
------------------------------- --------------------------------------
Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m
Commodity (43.8) (3.8) (40.0) (8.3) (4.0) (44.7)
Interest - (1.5) (0.3) 0.3 0.7 1.9
Exchange - - - - 0.1 0.1
-------- -------- -------- -------- -------- --------
(43.8) (5.3) (40.3) (8.0) (3.2) (42.7)
======== ======== ======== ======== ======== ========
Commodity derivatives
The Group periodically uses commodity derivatives to reduce its exposure to the
copper price. During the six months ended 30 June 2006, the amount charged to
operating profit on commodity derivatives was US$89.7 million, comprising
US$43.5 million at El Tesoro and US$46.2 million at Michilla (2005 half year -
US$4.4 million, comprising US$0.7 million at El Tesoro and US$3.7 million at
Michilla). This comprised losses on derivatives which matured in the first six
months of 2006 of US$81.3 million (2005 half year - US$0.6 million) and
mark-to-market losses at 30 June 2006 of US$52.9 million (2005 half year -
US$3.8 million) in respect of derivatives maturing after the period end, less
reversal of opening mark to market provisions of US$44.5 million (2005 half year
- nil). Net of margin calls of US$9.1 million in respect of these derivatives,
this results in a net balance sheet position at 30 June 2006 of US$43.8 million
(2005 half year - margin calls were nil).
The Group had min/max instruments at 30 June 2006 for 12,900 tonnes of copper
production (2005 half year - 78,150 tonnes), with a weighted average floor of
113.1 cents per pound and a weighted average cap of 140.9 cents per pound (2005
half year - weighted average floor 117.7 cents per pound; weighted average cap
151.7 cents per pound). These instruments had a weighted average duration of 3.5
months and covered a period of 6 months. It also had futures to buy and sell
2,000 tonnes of copper production with an average price of 185.1 cents, with a
weighted average duration of four months.
Interest derivatives
The Group had interest rate collars at 30 June 2006 with a notional principal
amount of US$ 7.1 million, with a weighted average floor of 4.83% and a weighted
average cap of 6.00%. These instruments had a remaining duration of six months.
The mark-to-market gain at 30 June 2006 was US$0.3 million, and the effect on
the income statement is included within other finance items - see Note 5.
Exchange derivatives
There were no outstanding exchange derivative instruments at 30 June 2006. At 30
June 2005, the net value of outstanding exchange swaps was US$ 3 million and
mark-to-market value was nil.
5. Net finance income/(expense)
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Investment income
Interest receivable 34.5 15.4 39.7
-------- -------- --------
Interest expense
Interest payable (12.4) (12.0) (23.8)
Amortisation of deferred finance costs (0.2) (0.2) (0.4)
Discount charge relating to provisions (0.5) (0.8) (1.6)
Preference dividends (0.1) (0.1) (0.2)
-------- -------- --------
(13.2) (13.1) (26.0)
-------- -------- --------
Other finance items
Mark-to-market effect of derivatives 0.3 0.8 2.0
Foreign exchange (1.7) (3.1) 13.3
-------- -------- --------
(1.4) (2.3) 15.3
-------- -------- --------
Net finance income 19.9 - 29.0
======== ======== ========
6. Taxation
The tax charge for the period comprised the following:
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Current tax charge
Corporate tax (principally first
category tax in Chile) (202.6) (126.2) (296.6)
Mining tax (Royalty) (23.8) - -
Withholding tax (52.7) - (8.6)
Exchange gains on corporate tax balances 0.6 7.9 20.2
------- ------ -------
(278.5) (118.3) (285.0)
------- ------ -------
Deferred tax charge
Corporate tax (principally first
category tax in Chile) (19.0) (5.0) 28.7
Mining tax (Royalty) (0.6) - (0.5)
Withholding tax provision 43.1 (8.7) (51.3)
------- ------ -------
23.5 (13.7) (23.1)
------- ------ -------
Total tax charge (Income tax expense) (255.0) (132.0) (308.1)
======= ====== =======
Current tax is based on taxable profit for the period. Deferred tax is the tax
expected to be payable or recoverable on temporary differences (i.e. differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax basis used in the computation of taxable
profit). Deferred tax is accounted for using the balance sheet liability method
and is provided on all temporary differences with certain limited exceptions.
The Group incurs withholding taxes on the remittance of profits from Chile and
deferred tax is provided on undistributed earnings to the extent that remittance
is probable in the foreseeable future.
The rate of first category (i.e. corporation) tax in Chile is 17% for both 2006
and 2005. During 2005, new tax legislation on Chilean mining companies was
passed into law with effect from 1 January 2006. The legislation sets an
additional tax of up to 5% of tax-adjusted operating profit, with the option for
mining companies to elect for a lower rate of 4% by entering into a tax
stability regime for a period of 12 years, after which the rate of 5% will
apply. For 2006 and 2007, 50% of the new mining tax can be offset against first
category tax and the remaining 50% is tax deductible (i.e. an allowable expense
in determining liability to first category tax). From 2008, when the ability to
offset will no longer be available, 100% of the new mining tax will be tax
deductible. Los Pelambres, El Tesoro and Michilla have opted to enter into this
new tax stability agreement, and hence the effect of the legislation is to
increase the effective tax rate of these three operations (before taking into
account deductibility against corporation tax) by approximately 2% in 2006 and
2007 and 4% thereafter.
The effective tax rate for the six months ended 30 June 2006 was 19.2%, compared
with the Chilean statutory tax rate of 17%. The increase in the effective tax
rate above the statutory tax rate was principally due to the effect of the new
mining tax, which resulted in a charge of US$24.4 million, and the provision of
additional withholding tax of US$9.6 million. The effective tax rate for the six
months ended 30 June 2005 was 17.9% principally due to the provision of US$8.7
million made in respect of withholding taxes during that period.
7. Basic earnings per share
Basic earnings per share is calculated on profit after tax and minority interest
giving net earnings of US$652.6 million (2005 half year - US$367.5 million) and
based on 985,856,695 ordinary shares, being the number of ordinary shares
following the 4-for-1 bonus issue on 16 June 2006 (see Note 18). Comparative
amounts for basic earnings per share have been restated for the effects of the
bonus issue.
There were no other changes in ordinary shares in issue, nor was there any
potential dilution of ordinary shares in any period.
8. Dividends
The Board has declared an interim dividend of 5.2 cents per ordinary share (2005
half year - 3.2 cents) for payment on 12 October 2006 to shareholders on the
register at the close of business on 22 September 2006. The 2006 interim
dividend comprises an ordinary dividend of 3.2 cents per share and a special
dividend of 2.0 cents per share (2005 half year - ordinary dividend of 3.2
cents). Dividends are declared and paid gross.
Dividends per share actually paid in the period and recognised as a deduction
from net equity under IFRS were 18.8 cents (2005 half year - 12.8 cents),
representing the final dividend (including the special dividend) declared in
respect of the previous year.
Comparative amounts for dividends per share have been adjusted for the effects
of the 4-for-1 bonus issue on 16 June 2006 (see Note 18).
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 22
September 2006. The exchange rate to be applied to dividends to be paid in
sterling will be set on 26 September 2006.
9. Intangible assets
Concession Exploration Six months ended Year ended
right licences 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m
Balance at the
beginning of
the period 97.7 - 97.7 93.2 93.2
Acquisition - 230.0 230.0 - -
Amortisation (1.9) - (1.9) (1.6) (3.5)
Foreign currency
exchange difference (4.6) - (4.6) (3.5) 8.0
-------- -------- -------- ------- -------
Balance at the
end of the period 91.2 230.0 321.2 88.1 97.7
======== ======== ======== ======= ======
The concession right relates to the 30 year concession to operate the water
rights and facilities in the Antofagasta Region of Chile which the Group's
wholly-owned subsidiary, Aguas de Antofagasta S.A., acquired in December 2003.
This intangible asset is being amortised on a straight-line basis over the life
of the concession.
The exploration licences relate to the value attributed to the rights acquired
on the purchase of Tethyan Copper Company Limited (see Note 21).
10. Property, plant and equipment
Railway and Water Six months ended Year ended
other
Mining transport Concession 30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m US$'m US$'m US$'m
Balance at the
beginning of
the period 1,638.3 110.4 71.3 1,820.0 1,796.1 1,796.1
Additions 263.3 11.6 2.0 276.9 81.0 186.3
Acquisition
(see Note 21) 0.4 - - 0.4 - -
Transfers and
reclassifications - - - - (0.8) (0.8)
Depreciation (55.4) (4.7) (3.3) (63.4) (62.0) (124.6)
Disposals (3.9) (0.5) (0.1) (4.5) (4.2) (13.8)
Impairment charge - - - - - (30.0)
Foreign currency
exchange difference - (0.5) (3.5) (4.0) (3.0) 6.8
------- -------- -------- -------- -------- --------
Balance at the
end of the period 1,842.7 116.3 66.4 2,025.4 1,807.1 1,820.0
======= ======== ======== ======== ======== ========
11. Investment property
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Balance at the beginning of the period 3.4 3.2 3.2
Foreign currency exchange difference (0.2) (0.1) 0.2
-------- -------- --------
Balance at the end of the period 3.2 3.1 3.4
======== ======== ========
Investment property represents the Group's forestry properties, which are held
for long-term potential and accordingly classified as investment property held
at cost.
12. Investment in associate
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Balance at the beginning of the period 2.8 2.9 2.9
Share of profit before tax 0.6 0.6 1.1
Share of tax (0.1) (0.1) (0.2)
Dividends received (0.3) (1.0) (1.0)
-------- -------- --------
Balance at the end of the period 3.0 2.4 2.8
======== ======== ========
The investment in associate refers to the Group's 30% interest in Antofagasta
Terminal Internacional S.A. ('ATI'), which operates a concession to manage
installations in the port of Antofagasta.
13. Available for sale investments
Available for sale investments represent those investments which are not
subsidiaries, associates or joint ventures and are not held for trading
purposes. The fair value of the available for sale investments held by the Group
did not differ materially from cost at any period end.
14. Borrowings
At 30.06.06 At 30.06.05 At 31.12.05
US$'m US$'m US$'m
Los Pelambres
Corporate loans (343.4) (419.8) (381.5)
Other loans (11.9) (16.7) (14.3)
El Tesoro
Corporate loans (48.9) (73.7) (55.8)
Finance leases (0.2) (0.3) (0.3)
Michilla
Finance leases (1.9) (3.2) (2.6)
Railway and other transport services
Loans (7.1) (7.4) (7.2)
Other
Preference shares (3.7) (3.6) (3.6)
-------- -------- --------
Total (see Note 20) (417.1) (524.7) (465.3)
======== ======== ========
Loans at 30 June 2006 are shown net of deferred financing costs of US$2.0
million (2005 half year - US$2.2 million). The amount in relation to Los
Pelambres was US$1.7 million (2005 half year - US$1.9 million). The amount in
relation to El Tesoro was US$0.3 million (2005 half year - US$0.3 million).
Maturity of borrowings
At 30.06.06 At 30.06.05 At 31.12.05
US$'m US$'m US$'m
Short-term borrowings (97.0) (103.3) (97.2)
Medium and long-term borrowings (320.1) (421.4) (368.1)
-------- -------- --------
Total (see Note 20) (417.1) (524.7) (465.3)
======== ======== ========
Loans are predominantly floating rate. However the Group periodically enters
into interest rate derivative contracts to manage its exposure to interest
rates. Details of derivative instruments held by the Group are given in Note 4.
15. Post-employment benefit obligation
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Balance at the beginning of the period (20.6) (16.2) (16.2)
Charge to operating profit in the period (4.6) (2.5) (3.9)
Release of discount to interest expense in
the period (0.2) (0.4) (1.0)
Reclassification - 1.0 -
Utilised in period 2.9 0.4 1.8
Foreign currency exchange difference 1.9 0.9 (1.3)
-------- -------- --------
Balance at the end of the period (20.6) (16.8) (20.6)
======== ======== ========
The post employment benefit obligation relates to the provision for severance
indemnities which are payable when an employment contract comes to an end, in
accordance with normal employment practice in Chile and other countries in which
the Group operates. The severance indemnity obligation is treated as an unfunded
defined benefit plan, and the calculation is based on valuations performed by an
independent actuary.
16. Long-term provisions
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Balance at the beginning of the period (9.8) (13.2) (13.2)
(Charge)/credit to operating profit in
the period (0.2) 3.9 3.4
Release of discount to interest expense
in the period (0.3) (0.5) (0.6)
Amount capitalised - - 0.8
Utilised in period 0.5 (0.4) -
Foreign currency exchange difference (0.2) - (0.2)
-------- -------- --------
Balance at the end of the period (10.0) (10.2) (9.8)
======== ======== ========
Analysed as follows:
Decommissioning and restoration (9.4) (10.0) (9.5)
Termination of water concession (0.6) (0.2) (0.3)
-------- -------- --------
Balance at the end of the period (10.0) (10.2) (9.8)
======== ======== ========
Decommissioning and restoration costs relate to the Group's mining operations.
Costs are estimated on the basis of a formal closure plan and are subject to
regular formal review.
The provision for the termination of the water concession relates to the
provision for items of plant, property and equipment and working capital items
under Aguas de Antofagasta's ownership to be transferred to the previous
state-owned operator ESSAN at the end of the concession period, and is based on
the net present value of the estimated value of those assets and liabilities in
existence at the end of the concession.
17. Deferred tax assets and liabilities
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Net position at the beginning of the period (218.9) (194.5) (194.5)
Credit/(charge) to tax on profit in year 23.5 (13.7) (23.1)
Foreign currency exchange difference 0.6 - (1.3)
-------- -------- --------
Net position at the end of the period (194.8) (208.2) (218.9)
======== ======== ========
Analysed between:
Deferred tax assets 6.8 2.5 6.6
Deferred tax liabilities (201.6) (210.7) (225.5)
-------- -------- --------
Net position (194.8) (208.2) (218.9)
======== ======== ========
18. Share capital and share premium
At the Company's Annual General Meeting and the separate class meetings of the
ordinary and preference shareholders of the Company held on 14 June 2006,
resolutions were passed to:
• increase the authorised share capital from £12,727,000 to £67,000,000 by
the creation of 1,085,460,000 ordinary shares of 5p each;
• issue, by way of bonus issue, of four new ordinary shares of 5p each
(credited as fully paid) for every one ordinary share held by the
shareholders of the Company at the close of business on 16 June 2006, by
applying £39.4 million from the Company's share premium account in paying up
and allotting the new ordinary shares; and
• increase the voting rights of each preference share from 20 votes to 100
votes, to prevent dilution of the voting rights of each preference share as
a proportion of the total votes to be exercised at a general meeting.
The ordinary shares were issued on the close of business on 16 June 2006, and
the effect of the bonus issue of ordinary shares is disclosed in the
Consolidated Statement of Changes in Equity on page 22. The increase in ordinary
share capital of US$73.2 million and corresponding reduction in the share
premium account has been recorded at the sterling-US dollar closing exchange
rate on 16 June 2006.
19. Reconciliation of profit before tax to net cash inflow from operating
activities
Six months ended Year ended
30.06.06 30.06.05 31.12.05
US$'m US$'m US$'m
Profit before tax 1,325.3 739.5 1,536.3
Depreciation and amortisation 65.3 63.6 128.0
Loss on disposal of property, plant and
equipment (including impairment charge) 4.5 3.8 39.7
Net finance income (19.9) - (29.0)
Share of profit of associate (0.5) (0.5) (0.9)
Increase in inventories (17.4) (17.6) (28.9)
(Increase)/decrease in debtors (386.2) 4.0 (36.3)
Increase/(decrease) in creditors and
provisions 74.3 (25.7) 38.6
------- ------- -------
Cash flows from operations 1,045.4 767.1 1,647.5
======= ======= =======
20. Analysis of changes in net cash
At 01.01.06 Cash flows Other Exchange At 30.06.06
US$'m US$'m US$'m US$'m US$'m
Cash and cash
equivalents 1,316.8 (78.1) - 0.1 1,238.8
-------- -------- ------- ------- --------
Bank borrowings due
within one year (95.8) 48.0 (47.9) - (95.7)
Bank borrowings due
after one year (363.0) - 47.8 (0.3) (315.5)
Finance leases
due within one year (1.4) 0.6 (0.5) - (1.3)
Finance leases
due after one year (1.5) 0.1 0.4 0.1 (0.9)
Preference shares (3.6) - (0.1) - (3.7)
-------- -------- ------- ------- --------
Total borrowings (465.3) 48.7 (0.3) (0.2) (417.1)
-------- -------- ------- ------- --------
Movement in net cash 851.5 (29.4) (0.3) (0.1) 821.7
======== ======== ======= ======= ========
Net cash at the end of each period was as follows:
At 30.06.06 At 30.06.05 At 31.12.05
US$'m US$'m US$'m
Cash and cash equivalents 1,238.8 1,064.6 1,316.8
Total borrowings (417.1) (524.7) (465.3)
------- ------- --------
Net cash 821.7 539.9 851.5
======= ======= ========
21. Acquisition of Tethyan Copper Company Limited
On 14 February 2006, the Group announced that it had reached agreement with
Tethyan Copper Company Limited ('Tethyan'), a company listed on the Australian
Stock Exchange with copper-gold interests in Pakistan, on the terms for the
recommended cash offer of A$1.20 per share for the entire share capital of
Tethyan ('the offer'), which was increased to A$1.40 per share on 23 March 2006.
The Offer was declared unconditional on 20 April 2006 when the Group's interest
(including acceptances) in Tethyan's shares reached 51.77%, and closed on 28
April 2006, when its interest in Tethyan's shares exceeded 90%. The Group
compulsorily acquired all remaining shares in June 2006 when payment for the
acquisition was also completed and the Group's interest reached 100%. The cash
consideration for the acquisition amounted to US$170.4 million.
The transaction has been accounted for by the purchase method of accounting with
an acquisition date of 20 April 2006.
Book value Adjustments Fair value
US$'m US$'m US$'m
Net assets acquired
Intangible assets - exploration licences - 230.0 230.0
Property, plant and equipment 0.4 - 0.4
Exploration, evaluation and development 18.0 (18.0) -
Trade and other receivables 0.8 - 0.8
Cash and cash equivalents 1.1 - 1.1
Trade and other payables (1.8) (60.0) (61.8)
Long-term provisions (0.1) - (0.1)
-------- -------- --------
18.4 152.0 170.4
======== ======== ========
Net cash outflow arising on acquisition
Total consideration (including directly attributable costs) 170.4
Cash and cash equivalents acquired (1.1)
Directly attributable costs provided but not yet paid (3.0)
--------
166.3
========
(a) The intangible assets represent the full unencumbered value attributed
to the interests in the exploration licences held by Tethyan. These include a
75% interest in the Reko Diq prospect in the Chagai Hills region of South-West
Pakistan, which includes the Tanjeel Mineral resource and the Western
Porphyries, and a 100% interest in certain other licences in the region.
(b) Exploration costs capitalised by Tethyan have been written off on
acquisition in the consolidated financial statements in accordance with the
Group's accounting policies.
(c) On 14 February 2006, the Group separately entered into an agreement
with BHP Billiton whereby BHP Billiton's rights to claw-back a material interest
in certain of Tethyan's mineral interests ('Claw-Back Right') will be
extinguished for a consideration of US$60 million. Trade and other payables have
been adjusted to reflect this amount which results from the fair valuing of the
encumbrance over the acquired exploration licences relating to the Claw-Back
Right.
(d) Total consideration includes directly attributable costs of US$6.1
million.
Tethyan incurred exploration costs of US$1.1 million between the date of
acquisition and 30 June 2006, which have been included as a charge against the
Group's profit before tax.
Agreement with Barrick Gold Corporation to enter into a joint venture agreement
On 14 February 2006, the Group also entered into an agreement with Barrick Gold
Corporation ('Barrick Gold') to support Antofagasta's acquisition of Tethyan,
whereby upon acquisition of Tethyan, Antofagasta and Barrick Gold intend to
establish a 50:50 joint venture in relation to Tethyan's copper-gold mineral
interests in Pakistan, and Barrick Gold will reimburse Antofagasta for 50% of
the acquisition cost of Tethyan and the Claw-Back Right. The reimbursement is
expected to amount to approximately US$115 million. The Group is currently in
discussions with Barrick Gold on the terms of the proposed joint venture.
The agreement is presently expected to be finalised in the second half of 2006,
when this will be accounted for as a disposal of 50% of the Group's interest in
Tethyan, after which the remaining 50% interest is expected to be accounted for
in accordance with IAS 31 'Interests in Joint Ventures'.
22. Events after the balance sheet date
On 15 August 2006, the Group announced that it had entered into an agreement to
acquire a 19.99% shareholding in Equatorial Mining Limited ('Equatorial') at
A$8.00 per share and had made a cash takeover offer of A$11.20 per share for all
of the issued shares of Equatorial. On 24 August 2006 the Group announced it had
secured an interest in 97% of Equatorial's issued shares and that its takeover
offer was unconditional. The Group also announced its intention to compulsorily
acquire any remaining Equatorial shares in due course to reach 100% ownership.
The total consideration payable by the Group to acquire all of Equatorial's
shares is expected to be approximately US$401 million. Equatorial reported cash
balances of approximately US$97 million as at 30 June 2006. Equatorial is
company listed on the Australian Stock Exchange whose principal asset is its 39%
ownership interest in Minera El Tesoro, in which the Group owns the remaining
61%.
23. Other disclosures
Contingent assets and liabilities
There were no material contingent assets or liabilities in the period.
Capital commitments
Future capital commitments at 30 June 2006 were US$68.3 million.
Changes in estimates
Previously mining properties, including capitalised financing costs, were
depreciated in proportion to the volume of ore extracted in the year compared
with total proven, probable and possible reserves at the beginning of the year.
From 1 January 2006, such depreciation is based on comparison with proven and
probable reserves only at the beginning of the year. The effect of this change
is to increase the depreciation charge in the six months ended 30 June 2006 by
US$1.5 million.
Related Party Transactions
The ultimate parent company of the Group is Metalinvest Establishment, which is
controlled by the E. Abaroa Foundation, in which members of the Luksic family
are interested. The Company's subsidiaries, in the ordinary course of business,
enter into various sale and purchase transactions with companies also controlled
by members of the Luksic family, including Banco de Chile S.A., Madeco S.A. and
Compania Cervecerias Unidas S.A. which are subsidiaries of Quinenco S.A., a
Chilean industrial and financial conglomerate the shares of which are traded on
the Santiago and New York Stock Exchanges. These transactions are under normal
commercial terms that are at arm's length and no more favourable than those
arranged with third parties. These transactions, in total, are not considered to
be material.
The Group has a 30% interest in Antofagasta Terminal Internacional S.A. ('ATI'),
which is accounted for as an associate. The Group received dividends during the
period of US$0.3 million (2005 half year - US$1.0 million), as disclosed in the
Consolidated Cash Flow Statement on page 21.
24. Currency translation
Assets and liabilities denominated in foreign currencies are translated into
dollars and sterling at the period end rates of exchange. Results denominated in
foreign currencies have been translated into dollars at the average rate for
each period.
Period end rates Average rates
30.06.2006 US$1.8484 = £1; US$1 = Ch$539 US$1.7880 = £1; US$1 = Ch$527
30.06.2005 US$1.7905 = £1; US$1 = Ch$579 US$1.8737 = £1; US$1 = Ch$580
31.12.2005 US$1.7179 = £1; US$1 = Ch$513 US$1.8185 = £1; US$1 = Ch$560
25. Distribution
These results will be sent by first class post to all shareholders in September.
Copies of this report will be available for members of the public who are not
shareholders at the Company's registered office, 5 Princes Gate, London SW7 1QJ
(telephone: +44 20 7808 0988).
INDEPENDENT REVIEW REPORT TO ANTOFAGASTA PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprise the consolidated income
statement, the consolidated balance sheet, the consolidated statement of changes
in equity, the consolidated cash flow statement and related Notes 1 to 25. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority and the requirements of IAS 34 which
require that the accounting policies and presentation applied to the interim
figures are consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
Deloitte & Touche LLP
Chartered Accountants
London
25 August 2006
26. Production and Sales Statistics (not subject to audit or review)
a) Production and sales volumes for copper and molybdenum
Production Sales
------------ -------
Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
000 tonnes 000 tonnes 000 tonnes 000 tonnes 000 tonnes 000 tonnes
Copper
Los Pelambres 141.6 154.9 322.8 145.4 150.6 319.1
El Tesoro 42.5 49.9 98.1 43.3 50.6 96.1
Michilla 23.8 22.6 46.4 24.5 23.1 45.3
------- -------- ------- ----- ------- ------ -------
Group total 207.9 227.4 467.3 213.2 224.3 460.5
======= ======== ======= ===== ======= ====== =======
Molybdenum
Los Pelambres 4.1 4.7 8.7 4.4 4.3 8.5
======= ======== ======= ===== ======= ====== =======
b) Cash costs per pound of copper produced and realised prices
per pound of copper and molybdenum sold
Cash cost Realised prices
----------- -----------------
Six months ended Year ended Six months ended Year ended
30.06.06 30.06.05 31.12.05 30.06.06 30.06.05 31.12.05
USc USc USc USc USc USc
Copper
Los Pelambres 24.4 (48.1) (17.1) 376.8 159.8 189.2
El Tesoro 79.7 58.9 66.1 301.2 157.9 175.7
Michilla 122.0 112.2 118.8 306.6 157.1 177.1
------- ------- ------- ------- ------- -------
Group weighted
average (including by-products) 46.9 (8.7) 13.9 353.4 159.1 185.2
======= ======= ======= ======= ======= =======
Group weighted
average (before deducting by-products) 95.2 71.7 77.3
======= ======= =======
Cash costs at Los Pelambres comprise:
On-site and shipping costs 55.6 43.9 47.1
Tolling charges for concentrates 39.8 26.0 27.6
------- ------- -------
Cash costs before deducting
by-product credits 95.4 69.9 74.7
By-product credits
(principally molybdenum) (71.0) (118.0) (91.8)
------- ------- -------
Cash costs (net of by-product credits) 24.4 (48.1) (17.1)
======= ======= =======
LME average 275.3 151.1 167.1
======= ======= =======
US$ US$ US$
Molybdenum
Los Pelambres 22.7 36.0 31.4
======= ======= =======
Market average price 23.7 33.4 32.0
======= ======= =======
Notes to the production and sales statistics
(i) The production and sales figures represent the actual
amounts produced and sold, not the Group's share of each mine. During each
relevant period, the Group owned 60% of Los Pelambres, 61% of El Tesoro and
74.2% of Michilla.
(ii) Los Pelambres produces copper and molybdenum concentrates,
and the figures for Los Pelambres are expressed in terms of payable metal
contained in concentrate. Los Pelambres is also credited for the gold and silver
contained in the copper concentrate sold. El Tesoro and Michilla produce
cathodes with no by-products.
(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 are stated net of by-product credits and include tolling charges for
concentrates at Los Pelambres. Cash costs exclude depreciation, financial income
and expenses, hedging gains and losses, exchange gains and losses and
corporation tax for all three operations. By-product calculations do not take
into account mark-to-market gains for molybdenum at the beginning or end of each
period.
(iv) Realised copper prices are determined by comparing turnover
from copper sales (grossing up for tolling charges for concentrates) with sales
volumes for each mine in the period. Realised molybdenum prices at Los Pelambres
are calculated on a similar basis. Realised prices do not take into account
gains and losses (including those arising from fair value adjustments) on
commodity derivatives which are included in other operating income or expense as
the Group has not yet adopted the hedge accounting provisions of IAS 39
'Financial Instruments: Recognition and Measurement'.
(v) The totals in the tables above may include some small
apparent differences as the specific individual figures have not been rounded.
(vi) The production information in Note 26(a) and the cash cost
information in Note 26(b) is derived from the Group's production report for the
second quarter of 2006 published on 1 August 2006.
27. Summary of mining companies' Chilean GAAP financial statements (not subject
to audit or review)
The Group's three mining companies, Los Pelambres, El Tesoro and Michilla, will
today file financial statements under Chilean GAAP for the six-month period
ended 30 June 2006 with the Chilean securities regulator, the Superintendencia
de Valores y Seguros de Chile ('SVS'). These filings are in accordance with
mining tax legislation introduced in Chile last year which requires companies
that have elected to enter a new tax stability regime to publish financial
information on a quarterly basis from the 2006 financial year.
The balance sheets, income statements and cash flow statements prepared under
Chilean GAAP and to be filed with the SVS are summarised below.
(a) Balance sheets
Los Pelambres El Tesoro Michilla
At 30.06.2006 At 30.06.2006 At 30.06.2006
US$'m US$'m US$'m
Cash and cash equivalents 473.4 74.5 42.9
Trade and other receivables 496.0 53.5 23.4
Inventories 51.8 46.3 16.6
Current and deferred tax assets 8.7 3.2 2.5
---------- ---------- ----------
Current assets 1,029.9 177.5 85.4
Fixed assets 1,320.1 260.9 61.4
Other non-current assets 150.5 58.2 1.0
---------- ---------- ----------
TOTAL ASSETS 2,500.5 496.6 147.8
========== ========== ==========
Short-term borrowings (82.6) (28.2) -
Trade and other payables (112.9) (92.4) (28.7)
Current and deferred tax
liabilities (54.3) (14.4) (3.2)
---------- ---------- ----------
Current liabilities (249.8) (135.0) (31.9)
---------- ---------- ----------
Medium and long term
borrowings (275.5) (21.1) -
Trade and other payables (13.2) (6.0) (7.6)
Deferred tax liabilities (133.8) (28.6) -
---------- ---------- ----------
Non-current liabilities (422.5) (55.7) (7.6)
---------- ---------- ----------
Total liabilities (672.3) (190.7) (39.5)
---------- ---------- ----------
Share capital (373.8) (91.0) (78.4)
Reserves (1,454.4) (214.9) (29.9)
---------- ---------- ----------
Total shareholders' equity (1,828.2) (305.9) (108.3)
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (2,500.5) (496.6) (147.8)
========== ========== ==========
(b) Income statements
Los Pelambres El Tesoro Michilla
Six months Six months Six months
ended 30.06.06 ended 30.06.06 ended 30.06.06
US$'m US$'m US$'m
Turnover 1,243.8 262.6 107.7
Operating costs (180.9) (81.4) (70.2)
---------- ---------- ----------
Operating margin 1,062.9 181.2 37.5
Administrative and
distribution expenses (34.5) (13.0) (6.9)
---------- ---------- ----------
Operating profit 1,028.4 168.2 30.6
---------- ---------- ----------
Other income 0.1 - 0.2
Financial income 17.5 1.0 0.5
Financial expenses (10.8) (1.7) (0.2)
Other expenses (0.8) (0.9) (0.3)
Exchange differences (0.7) 2.0 0.7
---------- ---------- ----------
Net
non-operating
income 5.3 0.4 0.9
---------- ---------- ----------
Profit before
tax 1,033.7 168.6 31.5
Income tax
expense (191.0) (31.2) (6.2)
---------- ---------- ----------
Profit for the
financial
period 842.7 137.4 25.3
========== ========== ==========
(c) Cash flow statements
Los Pelambres El Tesoro Michilla
Six months Six months Six months
ended 30.06.06 ended 30.06.06 ended 30.06.06
US$'m US$'m US$'m
Net cash flow from operating
activities 663.4 122.3 34.2
---------- ---------- ----------
Investing activities
Additions to fixed assets (240.7) (4.3) (6.5)
Disposals of fixed assets 0.7 - -
---------- ---------- ----------
Net cash used
in investing activities (240.0) (4.3) (6.5)
---------- ---------- ----------
Financing activities
Dividends paid (470.0) (40.0) -
Loans repaid (40.7) (7.0) -
---------- ---------- ----------
Net cash used
in financing activities (510.7) (47.0) -
---------- ---------- ----------
Net (decrease)/inc rease
in cash and cash equivalents (87.3) 71.0 27.7
Cash and cash equivalents at
the beginning of the period 560.7 3.5 15.2
---------- ---------- ----------
Cash and cash
equivalents at
the end of the period 473.4 74.5 42.9
========== ========== ==========
Notes to Chilean GAAP financial statements
a. The above balance sheets, income statements and cash flow
statements have been derived from the financial statements of Los Pelambres, El
Tesoro and Michilla for the six months ended 30 June 2006 to be filed with the
SVS in Chile. Certain detailed lines in the individual statements have been
combined for convenience.
b. The balance sheets, income statements and cash flow
statements above have been prepared under Chilean GAAP and therefore do not
necessarily equate to the amounts that would be included in the Group's
consolidated financial statements for a corresponding period either as to
measurement or classification.
c. The amounts disclosed above represent the full amount for
each company and not the Group's attributable share. During each relevant
period, the Group owns 60% of Los Pelambres, 61% of El Tesoro and 74.2% of
Michilla.
d. A translation into English of the full quarterly financial
statements for each company shown in summary form above will be available on the
Group's website www.antofagasta.co.uk.
28. Reconciliation of Chilean GAAP results to Turnover and EBITDA under IFRS
for individual business segments
(a) Turnover
Los Pelambres El Tesoro Michilla
Six months Six months Six months
ended 30.06.06 ended 30.06.06 ended 30.06.06
Notes US$'m US$'m US$'m
Chilean GAAP -
Turnover 1,243.8 262.6 107.7
Recognition of
mark-to-market
gain on
provisionally
priced sales (i) 69.0 0.8 0.7
Reclassificati
on of realised
losses on commodity
derivatives to
other operating
expense (ii) - 24.1 57.2
---------- ---------- ----------
IFRS - Turnover 1,312.8 287.5 165.6
========== ========== ==========
(b) EBITDA
Los Pelambres El Tesoro Michilla
Six months Six months Six months
ended 30.06.06 ended 30.06.06 ended 30.06.06
Notes US$'m US$'m US$'m
Chilean GAAP -
Operating profit 1,028.4 168.2 30.6
Depreciation &
amortisation 33.0 17.2 7.4
---------- ---------- ----------
Chilean GAAP -
EBITDA 1,061.4 185.4 38.0
Recognition of
mark-to-market
gain on
provisionally
priced sales (i) 69.0 0.8 0.7
Mark-to-market
of financial
derivatives (ii) - (19.3) 11.0
Other IFRS and
consolidation
adjustments (iii) 0.1 1.3 1.8
---------- ---------- ----------
IFRS - EBITDA 1,130.5 168.2 51.5
========== ========== ==========
Notes to reconciliation of turnover and EBITDA
(i) Copper and molybdenum concentrate sale agreements and copper cathode sale
agreements generally provide for provisional pricing of sales at the time of
shipment, with final pricing being based on the monthly average London Metal
Exchange copper price or monthly average molybdenum price for specified future
periods. This normally ranges from 30 to 180 days after delivery to the
customer.
Under Chilean GAAP, the Group's accounting treatment is to value sales, which
remain open as to final pricing at the period end, in aggregate at the lower of
provisional invoice prices and mark-to-market prices at the balance sheet date.
The Group determines mark-to-market prices using forward prices at each period
end for copper concentrate and cathode sales, and period-end month average
prices for molybdenum concentrate sales due to the absence of a futures market
for that commodity.
Under IFRS, both gains and losses from the marking-to-market of open sales are
recognised through adjustments to turnover in the income statement and to trade
debtors in the balance sheet. Under IFRS, the Group determines mark-to-market
prices in the same way as under Chilean GAAP.
(ii) The Group uses derivative financial instruments to reduce exposure to
commodity price movements. The Group does not use such derivative instruments
for trading purposes.
Under Chilean GAAP, such derivatives are held off the balance sheet. Gains or
losses on derivative instruments are matched in the income statement against the
item intended to be hedged. Such gains or losses are reflected by way of
adjustment to turnover.
The Group did not adopt the hedge accounting provisions of IAS 39 'Financial
Instruments: Recognition and Measurement' in the six months ended 30 June 2006.
Accordingly, under IFRS, derivatives have been initially measured at cost
including transaction costs (which may be nil), and measured at subsequent
reporting dates at fair value. Gains and losses arising from changes in fair
value, or from derivatives which mature or are liquidated in the period, are
included in the income statement for the period as part of other operating
income or expense. Any amounts included in turnover under Chilean GAAP are
reclassified accordingly.
(iii) Other IFRS and consolidation adjustments are not material either
individually or in aggregate.
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